Allied World Reports 3.2% Quarterly Growth in Diluted Book Value Per Share with Strong Second Quarter 2012 Results

ZUG, Switzerland, July 31, 2012 /PRNewswire/ -- Allied World Assurance Company Holdings, AG (NYSE: AWH) today reported net income of $96.4 million, or $2.59 per diluted share, for the second quarter of 2012 compared to net income of $93.8 million, or $2.36 per diluted share, for the second quarter of 2011. Net income for the six months ended June 30, 2012 was $314.5 million, or $8.41 per diluted share, compared to net income of $102.4 million, or $2.57 per diluted share, for the first six months of 2011.

The company reported operating income of $87.3 million, or $2.35 per diluted share, for the second quarter of 2012, compared to operating income of $44.2 million, or $1.11 per diluted share, for the second quarter of 2011. Operating income for the six months ended June 30, 2012 was $178.8 million, or $4.78 per diluted share, compared to operating income of $2.8 million, or $0.07 per diluted share, for the first six months of 2011.

President and Chief Executive Officer Scott Carmilani commented, "Allied World continues to build across our operating platforms, and the momentum in our premium growth is a direct result of our expansion efforts and new business initiatives over the last few years. Gross premiums written were up by almost 25% for the quarter, surpassing the $1.3 billion mark for the first half of 2012."

"The company had strong underwriting performance and solid investment returns resulting in $96.4 million of net income for the quarter. These results combined with the accretive benefits from our share repurchase program resulted in our diluted book value per share growing by 3.2% for the quarter, to $88.24. For the first half of 2012, our diluted book value per share grew by a robust 10%."

Underwriting Results

Gross premiums written were $646.9 million in the second quarter of 2012, a 24.5% increase compared to $519.6 million in the second quarter of 2011. For the six months ended June 30, 2012, gross premiums written totaled $1,327.8 million, a 22.9% increase compared to $1,080.3 million in the first six months of 2011. Net premiums written were $494.7 million in the second quarter of 2012, a 25.0% increase compared to $395.8 million in the second quarter of 2011. For the six months ended June 30, 2012, net premiums written totaled $1,083.7 million, a 23.6% increase compared to $876.7 million in the first six months of 2011.

Net premiums earned in the second quarter of 2012 were $429.7 million, a 21.0% increase compared to $355.3 million in the second quarter of 2011. For the six months ended June 30, 2012, net premiums earned totaled $831.6 million, a 20.5% increase compared to $690.2 million in the first six months of 2011.

The combined ratio was 85.1% in the second quarter of 2012 compared to 97.4% in the second quarter of 2011. The loss and loss expense ratio was 55.9% in the second quarter of 2012 compared to 66.4% in the second quarter of 2011. During the second quarter of 2012, the company recorded net favorable reserve development on prior loss years of $41.9 million. This favorable reserve development resulted in a benefit of 9.8 percentage points to the company's loss and loss expense ratio for the quarter. This compares to the second quarter of 2011, when the company recorded net favorable reserve development on prior loss years of $55.2 million, a benefit of 16.1 percentage points to the company's loss and loss expense ratio for that quarter. Absent these adjustments, the loss and loss expense ratio for the second quarter of 2012 was 65.7% compared to 82.5% for the second quarter of 2011. The company experienced no significant catastrophe losses for the current accident year. The second quarter 2011 loss and loss expense ratio was impacted by $67.5 million of net losses, or 19.7 percentage points, from global catastrophe events during the quarter.

For the six months ended June 30, 2012, the combined ratio was 85.2% compared to 109.6% for the first six months of 2011. For the six months ended June 30, 2012, the company recorded net favorable reserve development on prior loss years of $81.4 million, a benefit of 9.8 percentage points to the company's loss and loss expense ratio. For the six months ended June 30, 2011, the company recorded net favorable reserve development on prior loss years of $99.6 million, a benefit of 14.7 percentage points to the company's loss and loss expense ratio. Absent prior year reserve adjustments, the loss and loss expense ratio for the six months ended June 30, 2012 was 65.8% compared to 93.0% for 2011. The company experienced no significant catastrophe losses for the current accident year. The loss and loss expense ratio for the first half of 2011 was impacted by $199.7 million of net losses, or 29.5 percentage points, from global catastrophes occurring during the first half of 2011.

The company's expense ratio was 29.2% for the second quarter of 2012 compared to 31.0% for the second quarter of 2011. The expense ratio was 29.2% for the six months ended June 30, 2012 compared to 31.3% for the first six months of 2011.

Investment Results

The total return on the company's investment portfolio for the three months ended June 30, 2012 was 0.6% compared to 1.3% for the three months ended June 30, 2011. See the table below for the components of our investment returns:

Shareholders' Equity

As of June 30, 2012, our total shareholders' equity was $3,283.9 million, compared to $3,149.0 million as of December 31, 2011.

As of June 30, 2012, diluted book value per share was $88.24, an increase of 10.1% compared to $80.11 as of December 31, 2011.

Share Repurchase Program

During the second quarter of 2012, the company repurchased 905,383 of its common shares through its share repurchase program in the open market at an average price of $73.38 per share for an aggregate cost of $66.4 million.

Investment Supplement

Allied World will be providing additional information on its investment portfolio as of June 30, 2012. This information will be available at the "Investor Relations" section of the company's website at www.awac.com.

Financial Supplement

A financial supplement relating to the second quarter of 2012 will be available at the "Investor Relations" section of the company's website at www.awac.com.

Conference Call

Allied World will host a conference call on Wednesday, August 1, 2012 at 9:00 a.m. (Eastern Time) to discuss the results for the second quarter ended June 30, 2012. The public may access a live webcast of the conference call at the "Investor Relations" section of the company's website at www.awac.com. In addition, the conference call can be accessed by dialing (866) 843-0890 (U.S. and Canada callers) or (412) 317-9250 (international callers) and entering the passcode 1080909 approximately ten minutes prior to the call.

Following the conclusion of the presentation, a replay of the call will be available through Wednesday, August 15, 2012 by dialing (877) 344-7529 (U.S. and Canada callers) or (412) 317-0088 (international callers) and entering the passcode 10015330. In addition, the webcast will remain available online through Wednesday, August 15, 2012 at www.awac.com.

Non-GAAP Financial Measures

In presenting the company's results, management has included and discussed in this press release certain non-generally accepted accounting principles ("non-GAAP") financial measures within the meaning of Regulation G as promulgated by the U.S. Securities and Exchange Commission. Management believes that these non-GAAP measures, which may be defined differently by other companies, better explain the company's results of operations in a manner that allows for a more complete understanding of the underlying trends in the company's business. However, these measures should not be viewed as a substitute for those determined in accordance with generally accepted accounting principles ("U.S. GAAP").

"Operating income" is an internal performance measure used in the management of the company's operations and represents after-tax operational results excluding, as applicable, net realized investment gains or losses, net impairment charges recognized in earnings, net foreign exchange gain or loss and impairment of intangible assets, and other non-recurring items. The company excludes net realized investment gains or losses, net impairment charges recognized in earnings, net foreign exchange gain or loss, and other non-recurring items from the calculation of operating income because these amounts are heavily influenced by and fluctuate in part according to the availability of market opportunities and other factors. The company excludes impairment of intangible assets as these are non-recurring charges. In addition to presenting net income determined in accordance with U.S. GAAP, the company believes that showing operating income enables investors, analysts, rating agencies and other users of the company's financial information to more easily analyze our results of operations and underlying business performance. Operating income should not be viewed as a substitute for U.S. GAAP net income.

The company has included "diluted book value per share" because it takes into account the effect of dilutive securities; therefore, the company believes it is an important measure of calculating shareholder returns.

"Annualized net income return on average shareholders' equity" ("ROAE") is calculated using average shareholders' equity, excluding the average after tax unrealized gains (or losses) on investments. Unrealized gains (losses) on investments are primarily the result of interest rate and credit spread movements and the resultant impact on fixed income securities. Such gains (losses) are not related to management actions or operational performance, nor are they likely to be realized. Therefore, the company believes that excluding these unrealized gains (losses) provides a more consistent and useful measurement of operating performance, which supplements U.S. GAAP information. In calculating ROAE, the net income (loss) available to shareholders for the period is multiplied by the number of such periods in a calendar year in order to arrive at annualized net income (loss) available to shareholders. The company presents ROAE as a measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information.

"Annualized operating return on average shareholders' equity" is calculated using operating income (as defined above and annualized in the manner described for net income (loss) available to shareholders under ROAE above) and average shareholders' equity, excluding the average after tax unrealized gains (losses) on investments. Unrealized gains (losses) are excluded from equity for the reasons outlined in the annualized net income return on average shareholders' equity explanation above.

Reconciliations of these financial measures to their most directly comparable U.S. GAAP measures are included in the attached tables.

About Allied World Assurance Company
Allied World Assurance Company Holdings, AG, through its subsidiaries, is a global provider of innovative property, casualty and specialty insurance and reinsurance solutions, offering superior client service through a global network of offices and branches. All of Allied World's rated insurance and reinsurance subsidiaries are rated A by A.M. Best Company, A by Standard & Poor's, and A2 by Moody's, and our Lloyd's Syndicate 2232 is rated A+ by Standard & Poor's and Fitch. Please visit www.awac.com for further information on Allied World.

Cautionary Statement Regarding Forward-Looking Statements
Any forward-looking statements made in this press release reflect our current views with respect to future events and financial performance and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties, which may cause actual results to differ materially from those set forth in these statements. For example, our forward-looking statements could be affected by pricing and policy term trends; increased competition; the impact of acts of terrorism and acts of war; greater frequency or severity of unpredictable catastrophic events; negative rating agency actions; the adequacy of our loss reserves; the company or its subsidiaries becoming subject to significant income taxes in the United States or elsewhere; changes in regulations or tax laws; changes in the availability, cost or quality of reinsurance or retrocessional coverage; adverse general economic conditions; and judicial, legislative, political and other governmental developments, as well as management's response to these factors, and other factors identified in our filings with the U.S. Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We are under no obligation (and expressly disclaim any such obligation) to update or revise any forward-looking statement that may be made from time to time, whether as a result of new information, future developments or otherwise.