For underwriters of event-driven risks, the odd rough quarter is an occupational hazard.

But, as Bermuda-based Validus Holdings Ltd believes, underwriting a more volatile mix of business than many peers should lead to industry-beating returns.

That has certainly been the case so far for the Class of 2005 $1 billion start-up that has blossomed into a major player in the short-tail risk business. The company ended the third quarter of this year with total shareholders’ equity of $4.2 billion (including half a billion dollars of non-controlling interest).

“The event-driven insurance business tends to be more lumpy by definition,” Jeff Sangster, Validus’ chief financial officer, told The Royal Gazette.

“Volatile business tends to attract a good return. We believe that our returns over the course of a cycle will tend to outperform our peers, who have less volatile books.”

Validus just had one of those rough quarters that come with its type of business. The company made net income of nearly $40 million in the third quarter, a steep drop from the $183 million it made it the same period last year.

“This year we had a lower return on equity in the quarter of about four percent,” Mr Sangster said. “But when you look at the year to date, our ROE is 12.8 percent and we’ve made $355 million.”

The Validus earnings statement said a combination of war, aviation and energy losses had added up to more than $61 million in the quarter. Mr Sangster explained more.

“The biggest event for us was the civil war in Libya,” Mr Sangster said. “At the airport many planes on the ground were damaged, there were some total losses. It’s an ongoing situation, as we have little ability to get claims adjusters or to get credible reports.”

Based on the reports the company has received, Mr Sangster said it was likely the losses would reach the total limits of their cedants’ policies. Validus estimates losses of $28.1 million from this event.

Additionally, the company was hit by a $13.1 million loss related to the shooting down of Malaysia Airlines flight 17 over Ukraine, as well as two significant oil refinery fires. One, in Texas, cost Validus $7.1 million, while the other, in Russia, cost $13 million.

The losses were split evenly between the Validus Re reinsurance company and the Talbot operation in the Lloyd’s of London market, he added.

As Validus gets larger, it is seeking more diversification. Its latest acquisition — Western World Insurance Company, a US commercial lines insurer headquartered in Franklin Lanes, New Jersey — has a more conservative underwriting book than much of the rest of the Validus Group.

The $690 million deal closed on October 2. Integrating an acquired company into a larger group can be challenging, Mr Sangster said, but in the case of Western World the process was going remarkably well.

“We kicked off the integration long before the closing of the acquisition — in fact, right on the heels of the June 23 announcement, we started working with Western World,” the CFO said. “To date, I would say it’s gone better than expected.”

As the US insurer was fully supportive of the Validus takeover and there were no job cuts as a result of it, integration was less challenging than it would be in a hostile takeover scenario — like that involving Validus’ 2009 acquisition of IPC Holdings, for example.

Mr Sangster said Validus staff had been visiting Western World’s offices virtually every week as they worked on the integration.

“Across the board, we’re very impressed with the quality of our colleagues at Western World,” he said. “Everybody’s keeping their job and they’re all excited about being part of a bigger group.”

The new acquisition’s payroll of 220 has increased Validus’ global headcount to 820 staff. The company maintains a staff of 125 in Bermuda.