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•	Raising approximately $1.0 billion of initial equity capital in December 2005 and underwriting $217.4 million in gross premiums written for the January 2006 renewal season;

•	At the time of the Company’s formation an executive management team was assembled with an average of 20 years of industry experience and senior expertise spanning multiple aspects of the global insurance and reinsurance business;

•	Building a risk analytics staff comprised of over 40 experts, many of whom have PhDs and Masters degrees in related fields;

•	Developing Validus Capital Allocation and Pricing System (“VCAPS”), a proprietary computer-based system for modeling, pricing, allocating capital and analyzing catastrophe-exposed risks;

•	Acquiring all of the outstanding shares of Talbot Holdings Ltd. on July 2, 2007;

•	Completing an initial public offering (“IPO”) on July 30, 2007;

•	Acquiring all of the outstanding shares of IPC Holdings Ltd. (“IPC”) on September 4, 2009;

•	Raising $185.0 million of initial capital for AlphaCat Re 2011, Ltd. (“AlphaCat Re 2011”) on May 25, 2011 and a further $71.0 million of additional capital on December 23, 2011;

•	Raising $500.0 million of capital for PaCRe, Ltd. ("PaCRe") a new Class 4 Bermuda reinsurer formed for the purpose of writing high excess property catastrophe reinsurance, on April 2, 2012;

•	Raising $70.0 million of capital for AlphaCat Re 2012, Ltd. (“AlphaCat Re 2012”) on May 29, 2012;

•	Acquiring all of the outstanding shares of Flagstone Reinsurance Holdings, S.A. ("Flagstone") on November 30, 2012;

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•	Raising $230.0 million of capital for Alpha Cat 2013, Ltd. ("AlphaCat 2013") on December 17, 2012 and receiving $219.4 million of third party subscriptions for AlphaCat Insurance Linked Securities ("ILS") Funds;

•	Increasing the annual dividend by 20% from $1.00 to $1.20 per common share and per common share equivalent and announcing a $2.00 special dividend per common share and per common share equivalent on February 6, 2013; and

•	Repurchasing approximately 43.7 million common shares for an aggregate purchase price of $1,227.1 million and paying and aggregate amount of $467.6 million in dividends from inception of the Company to February 13, 2013.

(a)	AlphaCat Re 2012  and AlphaCat 2013 are non-consolidated operating affiliates.

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Ceding companies may often report insufficient data and many reinsurers may not be sufficiently critical in their analysis of this data. The Company generally scrutinizes data for anomalies that may indicate insufficient data quality. These circumstances are addressed by either declining the program or, if the variances are manageable, by modifying the model output and pricing to reflect insufficient data quality;

•	Prior to making overall adjustments for changes in climate variables, other variables are carefully examined (for example, demand surge, storm surge, and secondary uncertainty); and

•	Pricing individual contracts frequently requires further adjustments to the three vendor models. Examples include bias in damage curves for commercial structures and occupancies and frequency of specific perils.

•

VCAPS takes into account annual limits, event/franchise/annual aggregate deductibles, and reinstatement premiums. This allows for more accurate evaluation of treaties with a broad range of features, including both common (reinstatement premium and annual limits) and complex features (second or third event coverage, aggregate excess of loss, attritional loss components, covers with varying attachment across different geographical zones or lines of businesses and covers with complicated structures); and

•	VCAPS use of 100,000-year simulations enables robust pricing of catastrophe-exposed business. This is possible in real-time operation because the Company has designed a computing hardware platform and software environment to accommodate the significant computing needs.

•	lines of business that a particular underwriter is authorized to write;

•	exposure limits by line of business;

•	contractual exposures and limits requiring mandatory referrals to the Chief Executive Officer at Validus Re and the Chief Executive Officer at Talbot; and

•	level of analysis to be performed by lines of business.

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•	seek high quality clients who have demonstrated superior performance over an extended period;

•	evaluate our clients’ exposures and make adjustments where their exposure is not adequately reflected;

•	apply the comprehensive knowledge and experience of our entire underwriting team to make progressive and cohesive decisions about the business they underwrite;

•	employ our well-founded and carefully maintained market contacts within the group to enhance our robust distribution capabilities; and

•	refer submissions to the Chief Underwriting Officer at Validus Re, the Chief Executive Officer at Talbot, Chief Executive Officer at Validus Re and the Risk Committee of our Board of Directors according to our underwriting guidelines.

•	Validating that underwriting decisions are in accordance with risk appetite, authorities, agreed business plans and standards for type, quality and profitability of risk;

•	Providing an experienced and suitably qualified second review of individual risks;

•	Ensuring that risks identified as significant undergo the highest level of technical underwriting review;

•	Elevating technical underwriting queries and/or need for remedial actions on a timely basis; and

•	Improving data accuracy and coding for subsequent management reporting.

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•	The TUL Executive Committee oversees the management of key risks with regard to strategy and reserves;

•	The Insurance Management Committee oversees the management of insurance risks;

•	The Operational Risk Committee oversees the management of risks related to people, processes, systems and external events; and

•	The Financial Risk Committee oversees the management of credit risks associated with reinsurers, brokers, coverholders and investments, market risk and liquidity risk.

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(a)	Represents risks in two or more geographic zones.

(b)	Represents risk in one geographic zone.

(c)	Not classified by geographic area as marine and aerospace risks can span multiple geographic areas and are not fixed locations in some instances.

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•	budgeted underwriting for the coming year;

•	loss experience from prior years;

•	loss information from the coming year’s individual capital assessment calculations;

•	changes to risk limits and aggregation limits expected and any other changes to Talbot’s risk tolerance;

•	scenario planning;

•	changes to capital requirements; and

•	Realistic Disaster Scenarios (“RDSs”) prescribed by Lloyd’s.

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(a)	See Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion.

(b)	The reserves for losses and loss expenses or Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	See Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion.

(b)	The reserves for losses and loss expenses or Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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Arch Capital Group Limited, Argo Group International Holdings, Ltd., Aspen Insurance Holdings Limited, Alterra Capital Holdings, Ltd., Allied World Assurance Company Holdings Limited, Alleghany Corporation, Axis Capital Holdings Limited, Endurance Specialty Holdings Limited, Everest Re Group Limited, Montpelier Re Holdings Ltd, PartnerRe Ltd., Platinum Underwriters Holdings Ltd., and Renaissance Reinsurance Holdings Ltd.;

•	Amlin plc, Catlin Group Limited, Hiscox and others in the Lloyd’s market;

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•	Treaty and direct insurers, in not only the global but also the London Market, that compete with Lloyd’s on a worldwide basis;

•	Various capital markets participants who access insurance and reinsurance business in securitized form, through special purpose entities or derivative transactions; and

•	Government-sponsored insurers and reinsurers.

•	Premiums charged and other terms and conditions offered;

•	Services provided;

•	Financial ratings assigned by independent rating agencies;

•	Speed of claims payment;

•	Reputation;

•	Perceived financial strength; and

•	The experience of the underwriter in the line of insurance or reinsurance written.

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•	Proportionality principle;

•	Corporate Governance;

•	Risk Management;

•	Governance Mechanism;

•	Outsourcing; and

•	Market Discipline and Disclosure.

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•	A new Prudential Regulation Authority (“PRA”) will be responsible for the day-to-day supervision of financial institutions that are subject to significant prudential regulation. It will adopt a more judgment-focused approach to regulation so that business models can be challenged, risks identified and action taken to preserve financial stability.

•	A new Financial Conduct Authority (“FCA”) will have a strong mandate for promoting confidence and transparency in financial services and to give greater protection for consumers of financial services.

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•	integrating financial and operational reporting systems;

•	integration into new geographical regions;

•	establishing satisfactory budgetary and other financial controls;

•	funding increased capital needs and overhead expenses;

•	obtaining management personnel required for expanded operations;

•	obtaining necessary regulatory permissions;

•	funding cash flow shortages that may occur if anticipated sales and revenues are not realized or are delayed, whether by general economic or market conditions or unforeseen internal difficulties;

•	the value of assets related to acquisitions or new ventures may be lower than expected or may diminish due to credit defaults or changes in interest rates and liabilities assumed may be greater than expected;

•	the assets and liabilities related to acquisitions or new ventures may be subject to foreign currency exchange rate fluctuation; and

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•	financial exposures in the event that the sellers of the entities we acquire are unable or unwilling to meet their indemnification, reinsurance and other obligations to us.

•	A new Prudential Regulation Authority (“PRA”) will be responsible for the day-to-day supervision of financial institutions that are subject to significant prudential regulation. It will adopt a more judgment-focused approach to regulation so that business models can be challenged, risks identified and action taken to preserve financial stability.

•	A new Financial Conduct Authority (“FCA”) will have a strong mandate for promoting confidence and transparency in financial services and to give greater protection for consumers of financial services.

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(a)	Share transactions are on a trade date basis through February 13, 2013 and are inclusive of commissions. Average share price is rounded to two decimal places.

(b)	As the average price per share repurchased during the periods 2010, 2011 and 2012 was lower than the book value per common share, the repurchase of shares increased the ending book value per share.

(c)

The estimated impact on diluted earnings per share was calculated by comparing reported results versus i) net income per share plus an estimate of lost net investment income on the cumulative share repurchases divided by ii) weighted average diluted shares outstanding excluding the weighted average impact of cumulative share repurchases. The impact of cumulative share repurchases was accretive to diluted earnings per share.

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(a)	The gain on bargain purchase, net of expenses, arises from the acquisition of Flagstone on November 30, 2012 and IPC on September 4, 2009 and is net of transaction related expenses.

(b)	The transaction expenses relate to cost incurred in connection with the Company’s proposed acquisition of Transatlantic Holdings, Inc. Transaction expenses are primarily comprised of legal, financial advisory and audit related services.

(c)	The loss and loss expense ratio is calculated by dividing losses and loss expenses by net premiums earned.

(d)	The policy acquisition cost ratio is calculated by dividing policy acquisition costs by net premiums earned.

(e)	The general and administrative expense ratio is calculated by dividing the sum of general and administrative expenses and share compensation expenses by net premiums earned.

(f)	The expense ratio is calculated by combining the policy acquisition cost ratio and the general and administrative expense ratio.

(g)	The combined ratio is calculated by combining the loss ratio, the policy acquisition cost ratio and the general and administrative expense ratio.

(h)

Return on average equity is calculated by dividing the net income available to Validus for the period by the average shareholders’ equity available to Validus during the period. Quarterly average shareholders’ equity is the average of the beginning and ending shareholders’ equity balances. Annual average shareholders’ equity is the average of the beginning, ending and intervening quarter end shareholders’ equity balances.

(i)	Book value per common share is defined as total shareholders’ equity available to Validus divided by the number of common shares outstanding as at the end of the period, giving no effect to dilutive securities.

(j)	Diluted book value per common share is calculated based on total shareholders’ equity available to Validus plus the assumed proceeds from the exercise of outstanding options and warrants, divided by the sum of common shares, unvested restricted shares, options and warrants outstanding (assuming their exercise).

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(b)

Non-GAAP Financial Measures. In presenting the Company’s results, management has included and discussed underwriting income and operating income that are not calculated under standards or rules that comprise U.S. GAAP. Such measures are referred to as non-GAAP. Non-GAAP measures may be defined or calculated differently by other companies. These measures should not be viewed as a substitute for those determined in accordance with U.S. GAAP. Reconciliations of these measures to the most comparable U.S. GAAP financial measure, are presented in the section below entitled “Underwriting Income.”

(c)	The gain on bargain purchase, net of expenses, arises from the acquisition of Flagstone on November 30, 2012 and is net of transaction related expenses.

(d)	The transaction expenses relate to costs incurred in connection with the Company’s proposed acquisition of Transatlantic. Transaction expenses are primarily comprised of legal, financial advisory and audit related services.

(e)	The general and administrative expense ratio includes share compensation expenses.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(b)

Non-GAAP Financial Measures. In presenting the Company’s results, management has included and discussed underwriting income that is not calculated under standards or rules that comprise U.S. GAAP. Such measures are referred to as non-GAAP. Non-GAAP measures may be defined or calculated differently by other companies. These measures should not be viewed as a substitute for those determined in accordance with U.S. GAAP. A reconciliation of this measure to net income, the most comparable U.S. GAAP financial measure, is presented in the section below entitled “Underwriting Income.”

•	Decrease in underwriting income of $125.8 million primarily due to:

•	A $123.5 million increase in loss and loss expenses;

•	A $12.8 million increase in general and administrative expenses; and

•	Offset by a $10.9 million increase in net premiums earned.

•	Unfavorable movements in net realized and unrealized losses on investments of $9.9 million and $38.0 million, respectively.

•	Gain on bargain purchase, net of expenses and transaction expenses of $21.5 million; and

•	Net loss attributable to noncontrolling interest which resulted in an increase to net income attributable to Validus of $34.9 million.

(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(b)	The Corporate and Eliminations column includes legal entity adjustments.

(c)	Notable losses for the three months ended December 31, 2012 include: Hurricane Sandy. Notable losses for the three months ended December 31, 2011 include: the Thai floods and excludes the reserve for potential development on 2011 notable loss events. The AlphaCat segment's non-consolidated

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(d)

Non-GAAP Financial Measures. In presenting the Company’s results, management has included and discussed underwriting income (loss) that is not calculated under standards or rules that comprise U.S. GAAP. Such measures are referred to as non-GAAP. Non-GAAP measures may be defined or calculated differently by other companies. These measures should not be viewed as a substitute for those determined in accordance with U.S. GAAP. A reconciliation of this measure to net income, the most comparable U.S. GAAP financial measure, is presented in the section below entitled “Underwriting Income.”

(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)

These notable loss event amounts exclude the reserve for potential development on 2011 notable loss events and are based on management’s estimates following a review of the Company’s potential exposure and discussions with certain clients and brokers. Given the magnitude and recent occurrence of these events in relation to the corresponding period end date, and other uncertainties inherent in loss estimation, meaningful uncertainty exists at the relevant reporting date regarding losses from these events and the Company’s actual ultimate net losses from these events can vary materially from these estimates.

(c)	Net of reinsurance but not of reinstatement premiums. Total reinstatement premiums were $36.4 million and $(1.3) million for the three months ended December 31, 2012 and December 31, 2011, respectively.

(d)	The AlphaCat segment's non-consolidated affiliates incurred loss and loss expenses of $8.4 million related to Hurricane Sandy for the three months ended December 31, 2012. These losses are not included in the table above as the entities are accounted for as investments in operating affiliates.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(b)	Corporate and Eliminations includes legal entity adjustments

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(b)	Corporate and Eliminations includes legal entity adjustments.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(b)	Corporate and Eliminations include legal entity adjustments.

(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(b)

Non-GAAP Financial Measures. In presenting the Company’s results, management has included and discussed underwriting income and operating income that are not calculated under standards or rules that comprise U.S. GAAP. Such measures are referred to as non-GAAP. Non-GAAP measures may be defined or calculated differently by other companies. These measures should not be viewed as a substitute for those determined in accordance with U.S. GAAP. Reconciliations of these measures to the most comparable U.S. GAAP financial measure, are presented in the section below entitled “Underwriting Income”

(c)	The gain on bargain purchase, net of expenses, arises from the acquisition of Flagstone Reinsurance Holdings S.A. on November 30, 2012 and is net of transaction related expenses.

(d)	The transaction expenses relate to costs incurred in connection with the Company’s proposed acquisition of Transatlantic. Transaction expenses are primarily comprised of legal, financial advisory and audit related services.

(e)	The general and administrative expense ratio includes share compensation expenses.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(b)

Non-GAAP Financial Measures. In presenting the Company’s results, management has included and discussed underwriting income that is not calculated under standards or rules that comprise U.S. GAAP. Such measures are referred to as non-GAAP. Non-GAAP measures may be defined or calculated differently by other companies. These measures should not be viewed as a substitute for those determined in accordance with U.S. GAAP. A reconciliation of this measure to net income, the most comparable U.S. GAAP financial measure, is presented in the section below entitled “Underwriting Income.”

•	Increase in underwriting income of $236.9 million due primarily to:

•	A $245.0 million decrease in loss and loss expenses and a $71.1 million increase in net premiums earned;

•	Offset by the following factors:

◦	A $20.5 million increase in policy acquisition costs; and

◦	A $66.2 million increase in general and administrative expenses, partially offset by a $7.6 million decrease in share compensation expenses;

•	Increases in other income of $16.7 million and income from operating affiliates of $12.6 million;

•	Increase in net unrealized gains on investments and foreign exchange of $37.6 million and $26.9 million, respectively;

•	Decrease in transaction expenses of $17.4 million ($nil in the current year) and a $17.7 million gain on bargain purchase, net of expenses; and

•	Net loss attributable to controlling interest which resulted in an increase to net income attributable to Validus of $37.6 million.

•	Unfavorable movement in net investment income and net realized gains on investments of $4.4 million and $10.3 million, respectively.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(b)	The Corporate and Eliminations column includes legal entity adjustments.

(c)

Notable losses for the year ended December 31, 2012 include: Costa Concordia, Cat 67, U.S. drought, Hurricane Isaac and Hurricane Sandy. Notable losses for the year ended December 31, 2011 include: Tohoku earthquake, Gryphon Alpha mooring failure, Christchurch earthquake, Brisbane floods, CNRL Horizon, Cat 46, Cat 48, Jupiter 1, Danish floods, Hurricane Irene and the Thai floods. Excludes the reserve for potential development on 2011 notable loss events.

(d)

Non-GAAP Financial Measures. In presenting the Company’s results, management has included and discussed underwriting income (loss) that is not calculated under standards or rules that comprise U.S. GAAP. Such measures are referred to as non-GAAP. Non-GAAP measures may be defined or calculated differently by other companies. These measures should not be viewed as a substitute for those determined in accordance with U.S. GAAP. A reconciliation of this measure to net income, the most comparable U.S. GAAP financial measure, is presented in the section below entitled “Underwriting Income”.

(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(b)	The financial institution loss occurred in a prior period but developed over the notable loss threshold in the three months ended December 31, 2010. In 2010, this loss was included in the change in prior year development and excluded as a notable loss as presented above.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(b)	The prior year ratios have been represented to exclude the impact of the AlphaCat segment premiums.

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(a)	The financial institution loss occurred in a prior period but developed over the notable loss threshold in the three months ended December 31, 2010. In 2010, this loss was included in the change in prior year development and excluded as a notable loss as presented above.

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(a)	Includes paid losses, case reserves and IBNR reserves.

(b)	Development other than allocation of RDE.

(c)	Excludes impact of movements in foreign exchange rates.

(d)	Closing Reserve for the period equals Closing Estimate for the period less cumulative Paid Losses.

(e)	Net movement in 2011 impacted by recognition of recoveries under retrocessional contracts.

(f)	As at December 31, 2012, the Company has allocated all of the 2010 RDE.

(g)	As at December 31, 2012, the Company has concluded that CNRL Horizon and Jupiter 1 no longer remains eligible for potential allocations from the 2011 RDE.

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(a)	During the year ended December 31, 2010, $19,242 was allocated to the Chilean earthquake and $16,614 was allocated to the New Zealand earthquake from the 2010 reserve for development on notable loss events.

(b)	Notable losses for the year ended December 31, 2010 included Chilean earthquake, Melbourne hailstorm, Windstorm Xynthia, Deepwater Horizon, Aban Pearl, Bangkok riots, Perth hailstorm, New Zealand earthquake, Oklahoma windstorm, Political risk loss, Hurricane Karl, Queensland floods, Political violence loss, Satelite failure and Financial institution loss.

(c)

The 2011 notable loss events, principally the Tohoku earthquake, the Christchurch earthquake and the Thailand floods continued to experience adverse development as shown in the notable loss roll forward table. Contract complexity, the nature and number of perils arising from these events, limits and sub limits exposed, the quality, flow and timing of information received by the Company, information regarding retrocessional covers, assumptions, both explicit and implicit, regarding future paid and reported loss development patterns, frequency and severity trends, claims settlement practices and potential changes in the legal environment continue to lead to complexity and volatility in the ultimate loss estimates for these events. Given the potential that one or some of the 2011 notable loss events eligible for potential allocation from the 2011 RDE may experience adverse development, rather than all deteriorating proportionately, an addition to the 2011 RDE of $27.9 million was made.

(d)	The RDE is included as part of the Company's overall reserve requirement as defined and disclosed in the Critical Accounting Policies and Estimates section above.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(b)	Corporate and Eliminations includes legal entity adjustments.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(b)	Corporate and Eliminations includes legal entity adjustments.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(b)	Includes general and administrative expenses and share compensation expenses.

(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

(b)	Includes preferred share dividends and finance expenses attributable to AlphaCat Re 2011.

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•	Decrease in underwriting income of $230.7 million due primarily to a $256.8 million increase in loss and loss expenses from increased severity of catastrophe events. This was partially offset by a $41.0 million increase in net premiums earned;

•	Decrease in net investment income of $21.8 million;

•	Unfavorable movement in net unrealized gains on investments of $65.9 million; and

•	Unfavorable movement in foreign exchange of $23.5 million.

(a)

Notable losses for the year ended December 31, 2011 include: the Tohoku earthquake, Gryphon Alpha mooring failure, Christchurch earthquake, Brisbane floods, CNRL Horizon, Cat 46, Cat 48, Jupiter 1, Danish floods, Hurricane Irene and the Thailand floods. Excludes reserve for potential development on 2011 notable loss events. Notable losses for the year ended December 31, 2010 include: the Chilean earthquake, Melbourne hailstorm, windstorm Xynthia, Deepwater Horizon, Aban Pearl, Bangkok riots, Perth hailstorm, New Zealand earthquake, Oklahoma windstorm, two Political risk losses, Hurricane Karl, Queensland floods, a Political violence loss, a Satellite failure and a Financial institutions loss.

(b)

Non-GAAP Financial Measures. In presenting the Company’s results, management has included and discussed underwriting income (loss) that is not calculated under standards or rules that comprise U.S. GAAP. Such measures are referred to as non-GAAP. Non-GAAP measures may be defined or calculated differently by other companies. These measures should not be viewed as a substitute for those determined in accordance with U.S. GAAP. A reconciliation of this measure to net income, the most comparable U.S. GAAP financial measure, is presented in the section below entitled “Underwriting Income”.

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(a)	The results of operations for Flagstone are consolidated only from the November 30, 2012 date of acquisition.

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(a)

The reserve for losses and loss expenses represents an estimate, including actuarial and statistical projections at a given point in time of an insurer’s or reinsurer’s expectations of the ultimate settlement and administration costs of claims incurred. As a result, it is likely that the ultimate liability will differ from such estimates, perhaps significantly. Such estimates are not precise in that, among other things, they are based on predictions of future developments and estimates of future trends in loss severity and frequency and other variable factors such as inflation, litigation and tort reform. This uncertainty is heightened by the short time in which the Company has operated, thereby providing limited claims loss emergence patterns specifically for the Company. The lack of historical information for the Company has necessitated the use of industry loss emergence patterns in deriving IBNR. Further, expected losses and loss ratios are typically developed using vendor and proprietary computer models and these expected loss ratios are a material component in the calculation deriving IBNR. Actual loss ratios will deviate from expected loss ratios and ultimate loss ratios will be greater or less than expected loss ratios. During the loss settlement period, it often becomes necessary to refine and adjust the estimates of liability on a claim either upward or downward. Even after such adjustments, ultimate liability will exceed or be less than the revised estimates. The actual payment of the reserve for losses and loss expenses will differ from estimated payouts.

(b)

The 2010 Senior Notes mature on January 26, 2040, and are redeemable at the Company’s option in whole or any time or in part from time to time at a make-whole redemption price. The Company may redeem the notes in whole, but not in part, at any time upon the occurrence of certain tax events as described in the notes prospectus supplement. The 2010 Senior Notes bear interest at the rate of 8.875% per annum from January 26, 2010 to maturity or early redemption.

(c)

The 2006 Junior Subordinated Deferrable Debentures (the "2006 JSDs") mature on mature on June 15, 2036, are redeemable at the Company’s option at par beginning June 15, 2011, and require quarterly interest payments by the Company to the holders of the 2006 Junior Subordinated Deferrable Debentures. Interest was payable at 9.069% per annum through June 15, 2011, and thereafter at a floating rate of three-month LIBOR plus 355 basis points, reset

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(d)

The 2007 Junior Subordinated Deferrable Debentures (the "2007 JSDs") mature on mature on June 15, 2037, are redeemable at the Company’s option at par beginning June 15, 2012, and require quarterly interest payments by the Company to the holders of the 2007 Junior Subordinated Deferrable Debentures. Interest was payable at 8.480% per annum through June 15, 2012, and thereafter at a floating rate of three-month LIBOR plus 295 basis points, reset quarterly. We have estimated the interest due in 2013 and future years using the December 31, 2012 LIBOR rate. During the third quarter of 2012, the Company entered into an interest rate swap which fixed the rate of interest on the 2007 JSDs at 5.18%. The term of the swap is matched to the maturity date of the 2007 JSDs.

(e)

The Flagstone 2006 Junior Subordinated Deferrable Interest Notes mature on September 15, 2036, are redeemable at the Company's option at par beginning September 15, 2011, and require quarterly interest payments by the Company to the holders of the Flagstone 2006 Junior Subordinated Deferrable Interest Notes. Interest is payable at a floating rate of three-month LIBOR plus 354 basis points, reset quarterly. We have estimated the interest due in 2013 and future years using the December 31, 2012 LIBOR rate.

(f)

$88,750 of the Flagstone 2007 Junior Subordinated Deferrable Interest Notes mature on July 30, 2037, are redeemable at the Company's option at par beginning July 30, 2012, and require quarterly interest payments by the Company to the holders of the Flagstone 2007 Junior Subordinated Deferrable Interest Notes. Interest is payable at a floating rate of three-month LIBOR plus 300 basis points, reset quarterly. $25,000 of the Flagstone 2007 Junior Subordinated Deferrable Interest Notes mature on September 15, 2037, are redeemable at the Company's option at par beginning September 15, 2012, and require quarterly interest payments by the Company to the holders of the Flagstone 2007 Junior Subordinated Deferrable Interest Notes. Interest is payable at a floating rate of three-month LIBOR plus 310 basis points, reset quarterly. We have estimated the interest due in 2013 and future years using the December 31, 2012 LIBOR rate.

(g)	Please refer to Note 20 (f) to the Consolidated Financial Statements (Part II, Item 8) for further details describing the Aquiline commitment. While the commitment expires on July 2, 2015, it does not have a defined contractual commitment date and therefore it is included in the less than one year category.

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(a)	The A.M. Best ratings were most recently affirmed on February 7, 2013

(b)	The S&P ratings were most recently affirmed on August 30, 2012

(c)	All Moody’s ratings were most recently affirmed on August 31, 2012

(d)	All Fitch ratings were most recently affirmed on May 8, 2012

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(a)	Indicates utilization of commitment amount, not drawn borrowings.

(b)

Talbot operates in Lloyd’s through a corporate member, Talbot 2002 Underwriting Capital Ltd (“T02”), which is the sole participant in Syndicate 1183. Lloyd’s sets T02’s required capital annually based on syndicate 1183’s business plan, rating environment, reserving environment together with input arising from Lloyd’s discussions with, inter alia, regulatory and rating agencies. Such capital, called Funds at Lloyd’s (“FAL”), comprises: cash, investments and undrawn letters of credit provided by various banks.

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•	A new Prudential Regulation Authority (“PRA”) will be responsible for the day-to-day supervision of financial institutions that are subject to significant prudential regulation. It will adopt a more judgment-focused approach to regulation so that business models can be challenged, risks identified and action taken to preserve financial stability.

•	A new Financial Conduct Authority (“FCA”) will have a strong mandate for promoting confidence and transparency in financial services and to give greater protection for consumers of financial services.

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•	unpredictability and severity of catastrophic events;

•	our ability to obtain and maintain ratings, which may affect by our ability to raise additional equity or debt financings, as well as other factors described herein;

•	adequacy of the Company’s risk management and loss limitation methods;

•	cyclicality of demand and pricing in the insurance and reinsurance markets;

•	the Company’s ability to implement its business strategy during “soft” as well as “hard” markets;

•	adequacy of the Company’s loss reserves;

•	continued availability of capital and financing;

•	the Company’s ability to identify, hire and retain, on a timely and unimpeded basis and on anticipated economic and other terms, experienced and capable senior management, as well as underwriters, claims professionals and support staff;

•	acceptance of our business strategy, security and financial condition by rating agencies and regulators, as well as by brokers and (re)insureds;

•	competition, including increased competition, on the basis of pricing, capacity, coverage terms or other factors;

•	potential loss of business from one or more major insurance or reinsurance brokers;

•	the Company’s ability to implement, successfully and on a timely basis, complex infrastructure, distribution capabilities, systems, procedures and internal controls, and to develop accurate actuarial data to support the business and regulatory and reporting requirements;

•	general economic and market conditions (including inflation, volatility in the credit and capital markets, interest rates and foreign currency exchange rates) and conditions specific to the insurance and reinsurance markets in which we operate;

•	the integration of businesses we may acquire or new business ventures, including overseas offices, we may start and the risk associated with implementing our business strategies and initiatives with respect to the new business ventures;

•

accuracy of those estimates and judgments used in the preparation of our financial statements, including those related to revenue recognition, insurance and other reserves, reinsurance recoverables, investment valuations, intangible assets, bad debts, taxes, contingencies, litigation and any determination to use the deposit method of accounting, which, for a relatively new insurance and reinsurance company like our company, are even more difficult to make than those made in a mature company because of limited historical information;

•	the effect on the Company’s investment portfolio of changing financial market conditions including inflation, interest rates, liquidity and other factors;

•	acts of terrorism, political unrest, outbreak of war and other hostilities or other non-forecasted and unpredictable events;

•	availability and cost of reinsurance and retrocession coverage;

•	the failure of reinsurers, retrocessionaires, producers or others to meet their obligations to us;

•	the timing of loss payments being faster or the receipt of reinsurance recoverables being slower than anticipated by us;

•	changes in domestic or foreign laws or regulations, or their interpretations;

•	changes in accounting principles or the application of such principles by regulators;

•	statutory or regulatory or rating agency developments, including as to tax policy and reinsurance and other regulatory matters such as the adoption of proposed legislation that would affect Bermuda-headquartered companies and/or Bermuda-based insurers or reinsurers; and

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•

the other factors set forth herein under Part I Item 1A “Risk Factors” and under Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the other sections of this Annual Report on Form 10-K for the year ended December 31, 2012, as well as the risk and other factors set forth in the Company’s other filings with the SEC, as well as management’s response to any of the aforementioned factors.

•	interest rate risk;

•	foreign currency risk;

•	credit risk;

•	liquidity risk; and

•	inflation risk.

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(a)	Financial Statements and Financial Statement Schedules are included as pages F-1 to F-69.

(b)	The exhibits numbers followed by an asterisk (*) indicate exhibits physically filed with this Annual Report on Form 10-K. All other exhibit numbers indicate exhibits filed by incorporation by reference.

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(a)	Premiums

(b)	Policy acquisition costs

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(c)	Reserve for losses and loss expenses

(d)	Reinsurance

(e)	Investments

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(f)	Other investments

(g)	Derivative instruments

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(h)	Cash and cash equivalents

(i)	Foreign exchange

(j)	Stock plans

(k)	Warrants

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(l)	Earnings per share

(m)	Income taxes and uncertain tax provisions

(n)	Business combinations

(o)	Goodwill and other intangible assets

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(p)	Investments in affiliates

(q)	Variable interest entities ("VIE")

(r)	Noncontrolling interest

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(a)	Premiums receivable of $171,620 are net of an allowance for doubtful accounts of $2,216 and are expected to be fully recoverable.

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(a)	Classification within the fair value hierarchy

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(a)	The Company has an equity interest of 10% in PaCRe, the remaining 90% interest is held by third party investors.

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(a)	Includes $70,657 assumed from the Flagstone Acquisition.

(b)	The Company has an equity interest of 10% in PaCRe, the remaining 90% interest is held by third party investors.

(c)	Net investment income

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(c)	Fixed maturity, short-term and other investments

(a)	The Company has an equity interest of 10% in PaCRe, the remaining 90% interest is held by third party investors.

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(a)	The Company has an equity interest of 10% in PaCRe, the remaining 90% interest is held by third party investors.

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(d)	Securities lending

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(a)	This amount relates to certain short-term investments with short original maturities which are generally not rated.

(a)	Operating affiliates

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(b)	Investment in Insurance Linked Securities ("ILS")

(c)	Investment affiliate

(a)	As at December 31, 2011, this investment was included in “Other investments” as a Level 3 investment in the fair value hierarchy, hence the change in fair value was included in net unrealized (losses) gains on investments.

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(a)	Classification within the fair value hierarchy

(b)	Derivative instruments designated as a fair value hedge

(a)	There were no designated hedge derivatives as part of the Flagstone Acquisition as at December 31, 2012, however some were held during the one-month period from November 30, 2012 to December 31, 2012.

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(a)	Effects of reinsurance on premiums written and earned

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(b)	Credit risk

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(a)	Authorized and issued

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(b)	Warrants

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(c)	Deferred share units

(d)	Dividends

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(a)	Long Term Incentive Plan and Short Term Incentive Plan

i.	Options

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ii.	Restricted share awards

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iii.	Restricted share units

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iv.	Performance share awards

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(b)	Employee seller shares

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(c)	Total share compensation expenses

(a)	Financing structure and finance expenses

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(a)	Indicates utilization of commitment amount, not drawn borrowings.

(b)

Talbot operates in Lloyd’s through a corporate member, Talbot 2002 Underwriting Capital Ltd (“T02”), which is the sole participant in Syndicate 1183. Lloyd’s sets T02’s required capital annually based on Syndicate 1183’s business plan, rating environment, reserving environment together with input arising from Lloyd’s discussions with, inter alia, regulatory and rating agencies. Such capital, called Funds at Lloyd’s (“FAL”), comprises: cash, investments and undrawn letters of credit provided by various banks.

(a)	Included preferred share dividends and finance expenses attributable to AlphaCat Re 2011.

(b)	Includes finance expenses incurred by AlphaCat Managers, Ltd. in relation to the AlphaCat ILS funds and fund-raising for AlphaCat 2013.

(b)	$250,000 2010 Senior Notes due 2040

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(c)	Junior subordinated deferrable interest debentures and Junior subordinated deferrable interest notes

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(d)	Credit facilities

(i)	$400,000 syndicated unsecured letter of credit facility and $525,000 syndicated secured letter of credit facility

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(ii)	Talbot FAL Facility

(iii)	IPC Syndicated Facility and IPC Bi-Lateral Facility

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(iv)	$500,000 secured bi-lateral letter of credit facility

(v)	$10,000 PaCRe Senior secured letter of credit facility

(vi)	$550,000 Flagstone Bi-Lateral Facility

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(a)	Concentrations of credit risk

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(b)	Employment agreements

(c)	Operating leases

(d)	Funds at Lloyd’s

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(e)	Lloyd’s Central Fund

(f)	Aquiline Commitment

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(a)	The gain on bargain purchase, net of expenses, arose from the acquisition of Flagstone Reinsurance Holdings S.A. on November 30, 2012 and is net of transaction related expenses which included legal, financial advisory, audit related services and termination expenses.

(b)	Ratios are based on net premiums earned. The general and administrative expense ratio includes share compensation expenses.

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(a)	The transaction expenses relate to costs incurred in connection with the Company's proposed acquisition of Transatlantic Holdings, Inc. Transaction expenses are primarily comprised of legal, financial advisory and audit related services.

(b)	Ratios are based on net premiums earned. The general and administrative expense ratio includes share compensation expenses.

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(a)	Ratios are based on net premiums earned. The general and administrative expense ratio includes share compensation expenses.

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(a)	Represents risks in two or more geographic zones.

(b)	Represents risks in one geographic zone.

(c)	Not classified as geographic area as marine and aerospace risks can span multiple geographic areas and are not fixed locations in some instances.

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(a)

Unrestricted net assets are calculated using the criteria stated in The Act, however, TIBL is also subject to additional Lloyd's FAL requirements which restrict the amount of dividends to be paid to Validus Holdings, Ltd.  The Company would need to apply to Lloyd's to obtain an unrestricted amount of net assets which is subject to passing a Lloyd's release test.  This application occurs in the second quarter of the following year.

(b)	The Company assumed Flagstone Reassurance Suisse SA (Bermuda Branch) and Mont Fort Re, Ltd. as part of the Flagstone Acquisition, therefore, comparative information has been excluded.

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(a)	The gain on bargain purchase, net of expenses, arose from the acquisition of Flagstone Reinsurance Holdings S.A. on November 30, 2012 and is net of transaction related expenses which included legal, financial advisory, audit related services and termination expenses.

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(a)	The transaction expenses relate to costs incurred in connection with the Company’s proposed acquisition of Transatlantic Holdings, Inc. Transaction expenses are primarily comprised of legal, financial advisory and audit related services.

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