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ITEM I.	FINANCIAL STATEMENTS

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1.	Basis of preparation and consolidation

2.	Recent accounting pronouncements

3.	Investments

(a)	Classification within the fair value hierarchy

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(c)	Fixed maturity and short-term investments

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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.

4.	Investments in affiliates

5.	Noncontrolling interest

6.	Derivative instruments used in hedging activities

(a)	Classification within the fair value hierarchy

(b)	Derivative instruments designated as a fair value hedge

7.	Reserve for losses and loss expenses

8.	Reinsurance

(a)	Credit risk

9.	Share capital

(a)	Authorized and issued

(b)	Warrants

(c)	Deferred share units

(d)	Dividends

10.	Stock plans

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

(a)	The Company has not granted any stock options awards since September 4, 2009.

(b)	Employee seller shares

11.	Debt and financing arrangements

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

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

(c)	Junior subordinated deferrable debentures

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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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12.	Commitments and contingencies

(a)	Concentrations of credit risk

(b)	Funds at Lloyd's

(c)	Lloyd's Central Fund

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13.	Related party transactions

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14.	Earnings per share

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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)	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)	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)	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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•	Premiums;

•	Reinsurance premiums ceded and reinsurance recoverable;

•	Investment valuation; and

•	Reserve for losses and loss expenses.

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•	Increase in underwriting income of $77.7 million primarily due to:

•	A decrease in underwriting deductions of $55.8 million which includes the effect of a $90.3 million decrease in notable loss events; and

•	An increase in net premiums written of $35.0 million due to an increase in gross premiums written and a decrease in reinsurance premiums ceded.

•	An unfavorable movement of $72.1 million in net unrealized (losses) gains on investments, of which $44.9 million is attributable to noncontrolling interest.

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

(b)	There were no notable losses for the three months ended June 30, 2012. Notable losses for the three months ended June 30, 2011 included: Tohoku earthquake, Gryphon Alpha, Christchurch earthquake, Brisbane floods and CNRL Horizon. Excludes the reserve for potential development on 2011 notable loss events.

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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 of these events, and other uncertainties inherent in loss estimation, meaningful uncertainty remains regarding losses from these events and the Company's actual ultimate net losses from these events may vary materially from these estimates.

(b)	Net of reinsurance but not net of reinstatement premiums. Total reinstatement premiums were $6.9 million million for the three months ended June 30, 2011.

(c)	The 2011 loss ratios for the Validus Re segment have been represented to exclude the impact of the AlphaCat segment.

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(a)	Corporate and Eliminations includes legal entity adjustments.

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(a)	Corporate and Eliminations includes legal entity adjustments.

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a)	Includes general and administrative expenses and share compensation expenses.

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(a)

Non-GAAP Financial Measures: In presenting the Company’s results, management has included and discussed underwriting income and net 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. A reconciliation of underwriting income to net income, the most comparable U.S. GAAP financial measure, is presented in the section below entitled “Underwriting Income (Loss).”

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

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(a)

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 (Loss).”

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•	Increase in underwriting income of $331.5 million primarily due to:

•	A decrease in underwriting deductions of $287.8 million which includes the effect of a $323.6 million decrease in notable loss events; and

•	An increase in net premiums written of $25.2 million due to an increase in gross premiums written and a decrease in reinsurance premiums ceded.

•	An unfavorable movement of $38.6 million in net unrealized (losses) gains on investments, of which $44.9 million is attributable to noncontrolling interest.

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

(b)	Notable losses for the six months ended June 30, 2012 included: Costa Concordia and Cat 67. Notable losses for the six months ended June 30, 2011 included: Tohoku earthquake, Gryphon Alpha, Christchurch earthquake, Brisbane floods, CNRL Horizon, Cat 46, Cat 48 and Jupiter 1. Excludes the reserve for potential development on 2011 notable loss events.

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(c)

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 (Loss)."

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a)	Corporate and Eliminations includes legal entity adjustments.

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

(a)	Corporate and Eliminations includes legal entity adjustments.

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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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•	unpredictability and severity of catastrophic events;

•	our ability to obtain and maintain ratings, which may affect 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

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•	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;

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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 the possible downgrade of U.S. securities by credit rating agencies and the resulting effect on the value of securities in the Company’s investment portfolio, as well as 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 the Company's Annual Report on Form 10-K for the year ended December 31, 2011, 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.

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•	interest rate risk;

•	foreign currency risk;

•	credit risk;

•	liquidity risk; and

•	effects of inflation.

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