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Allied World Reports Net Income for 1st Quarter 2011 Despite Major Global Catastrophe Activity


News provided by

Allied World Assurance Company Holdings, AG

04 May, 2011, 20:30 GMT

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ZUG, Switzerland, May 4, 2011 /PRNewswire/ -- Allied World Assurance Company Holdings, AG (NYSE: AWH) today reported net income of $8.6 million, or $0.21 per diluted share, for the first quarter of 2011 compared to net income of $133.7 million, or $2.52 per diluted share for the first quarter of 2010. The company reported an operating loss of $41.3 million, or $1.02 per diluted share for the first quarter of 2011, compared to operating income of $61.3 million, or $1.16 per diluted share, for the first quarter of 2010.

President and Chief Executive Officer Scott Carmilani commented, "We are pleased and fortunate to have generated net income in the quarter, despite the multiple major catastrophe events that included floods in Australia, an earthquake in New Zealand and a major earthquake and related tsunami that devastated Japan. Allied World's prudent risk appetite and stable investment approach during these challenging times has again helped us effectively manage our business and control our relative exposures to severity losses during one of the costliest first quarters the industry has faced."

Underwriting Results

Gross premiums written were $560.7 million in the first quarter of 2011, an 11.2% increase compared to $504.2 million in the first quarter of 2010. Net premiums written were $480.9 million in the first quarter of 2011, an 11.0% increase compared to $433.3 million in the first quarter of 2010. These increases were primarily due to the expansion of our reinsurance and U.S. insurance business segments offset by our selectively paring back risks in our international insurance segment that did not meet our underwriting requirements.

Net premiums earned in the first quarter of 2011 were $334.9 million, a 1.0% decrease compared to $338.3 million in the first quarter of 2010.

The combined ratio was 122.6% in the first quarter of 2011 compared to 99.5% in the first quarter of 2010. The loss and loss expense ratio was 90.9% in the first quarter of 2011 compared to 68.6% in the first quarter of 2010. During the first quarter of 2011, the company recorded net favorable reserve development on prior loss years of $44.3 million, a benefit of 13.2 percentage points to the company's loss and loss expense ratio for the quarter. This compares to the first quarter of 2010, where the company recorded net favorable reserve development on prior loss years of $73.9 million, a benefit of 21.8 percentage points to the company's loss and loss expense ratio for that quarter. Absent prior year reserve adjustments, the loss and loss expense ratio related to the first quarter of 2011 was 104.1% compared to 90.4% for the first quarter of 2010. The first quarter 2011 ratio was impacted by $132.2 million of net losses, or 39.5 percentage points, from global catastrophe events occurring during the quarter. These catastrophe losses were comprised of $43.2 million from our international insurance segment and $89.0 million from our reinsurance segment. The first quarter 2010 ratio was impacted by losses of $86.5 million from the earthquake in Chile as well as other major loss events in that quarter which contributed 25.6 points to the 2010 loss year's loss and loss expense ratio.

The company's expense ratio was 31.7% for the first quarter of 2011 compared to 30.9% for the first quarter of 2010. The increase in our general and administrative expense ratio was primarily due to an increase in our global staff count and the build out of our offices as well as professional fees incurred related to the operations of our Lloyd's Syndicate 2232 which was established in June 2010.

Investment Results

The total return on the company's investment portfolio for the three months ended March 31, 2011 was 1.0% compared to 1.8% for the three months ended March 31, 2010. See table below for the components of our investment returns:

    
                                      
    (Expressed in thousands of         THREE MONTHS ENDED  THREE MONTHS ENDED
     United States Dollars)               MARCH 31, 2011      MARCH 31, 2010
    
     Net investment income                       $50,208             $68,902
     Net realized investment gains                50,376              77,487
     Change in unrealized gains                  (25,136)             (7,347)
                                                 -------              ------
     Net investment income,
      realized gains and unrealized
      gains                                      $75,448            $139,042
                                                 =======            ========
    
     Average invested assets                  $7,752,641          $7,609,405
    
     Financial statement portfolio
      return                                         1.0%                1.8%
    
    
    Note: net investment income, net realized gains/losses and change in
    unrealized gains/losses are disclosed on a pre-tax basis.

Shareholders' Equity

As of March 31, 2011, shareholders' equity was $3.0 billion, a decrease of 4.1% compared to $3.1 billion reported as of December 31, 2010. The decrease was primarily the result of our share repurchases and a warrant repurchase during the quarter.

Share Repurchases

As of March 31, 2011, diluted book value per share was $74.23, a decrease of 0.1% compared to $74.29 at December 31, 2010. During the first quarter 2011, the company repurchased 969,163 of its common shares under its share repurchase program at an average repurchase price of $61.91 per share for an aggregate cost of $60.0 million.

On February 3, 2011, the company repurchased a warrant owned by American International Group, Inc. ("AIG"), a founding shareholder, which entitled AIG to purchase a total of 2,000,000 common shares. The aggregate repurchase price was $53.6 million. The transaction was funded using available cash on hand and was executed separately from the company's share repurchase program.

Investment Supplement

Allied World will be providing additional information on its investment portfolio as of March 31, 2011. This information will be available at the "Investor Relations" section of the company's website at http://www.awac.com.

Financial Supplement

A financial supplement relating to the first quarter of 2011 will be available at the "Investor Relations" section of the company's website at http://www.awac.com.

Conference Call

Allied World will host a conference call on Thursday, May 5, 2011 at 9:00 a.m. (Eastern Time) to discuss the results for the first quarter of 2011. The public may access a live webcast of the conference call at the "Investor Relations" section of the company's website at http://www.awac.com. In addition, the conference call can be accessed by dialing (877) 317-6701 (U.S. and Canada callers) or +1-412-317-6701 (international callers) and entering the passcode 4757432 approximately ten minutes prior to the call.

Following the conclusion of the presentation, a replay of the call will be available through Thursday, May 19, 2011 by dialing (877) 344-7529 (U.S. and Canada callers) or +1-412-317-0088 (international callers) and entering the passcode 449870. In addition, the webcast will remain available online through Thursday, May 19, 2011 at http://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, impairment of intangible assets and foreign exchange gain or loss. The company excludes net realized investment gains or losses, net impairment charges recognized in earnings and net foreign exchange gain or loss from the calculation of operating income because the amount of these gains or losses is heavily influenced by and fluctuates 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 branches and affiliates. Our insurance and reinsurance subsidiaries are rated A (Excellent) by A.M. Best Company, and our Lloyd's Syndicate 2232 is rated A+ (Strong) by Standard & Poor's and Fitch. Please visit our website at http://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.

    
    ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
    UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
    (Expressed in thousands of United States dollars, except share and
    per share amounts)
    
    
                                                  Quarter Ended March 31,
                                                    2011          2010
                                                    ----          ----
    
    Revenues:
      Gross premiums written                    $560,688      $504,163
      Premiums ceded                             (79,817)      (70,871)
                                                 -------       -------
    
      Net premiums written                       480,871       433,292
      Change in unearned premiums               (145,995)      (94,968)
                                                --------       -------
      Net premiums earned                        334,876       338,324
    
      Net investment income                       50,208        68,902
      Net realized investment gains               50,376        77,487
      Net impairment charges recognized in
       earnings                                        -          (168)
      Other income                                     -           297
                                                     ---           ---
                                 Total revenue   435,460       484,842
                                                 -------       -------
    Expenses:
      Net losses and loss expenses               304,452       232,154
      Acquisition costs                           38,082        40,784
      General and administrative expenses         67,956        63,463
      Amortization and impairment of
       intangible assets                             767           892
      Interest expense                            13,742         9,528
      Foreign exchange (gain) loss                  (442)        1,076
                                                    ----         -----
                                Total expenses   424,557       347,897
                                                 -------       -------
    Income before income taxes                    10,903       136,945
    Income tax expense                             2,283         3,205
                                                   -----         -----
    NET INCOME                                    $8,620      $133,740
                                                  ======      ========
    
    PER SHARE DATA:
      Basic earnings per share                     $0.23         $2.67
      Diluted earnings per share                   $0.21         $2.52
    
      Weighted average common shares
       outstanding                            38,199,867    50,023,816
      Weighted average common shares and
       common share equivalents outstanding   40,383,523    53,115,756
    
      Dividends declared per share                    $-         $0.20
    
    
    
    
    ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
    UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
    (Expressed in thousands of United States dollars, except share and
    per share amounts)
    
    
                                                         As of         As of
                                                      March 31,  December 31,
    ASSETS:                                                2011          2010
                                                           ----          ----
    Fixed maturity investments available for sale,
     at fair value (amortized cost: 2011: $505,638;
     2010: $828,544)                                   $543,808     $891,849
    Fixed maturity investments trading, at fair
     value                                            5,960,830    5,769,097
    Equity securities trading, at fair value            271,057      174,976
    Other invested assets trading, at fair value        469,999      347,632
                                                        -------      -------
    
    Total investments                                 7,245,694    7,183,554
    Cash and cash equivalents                           746,002      853,368
    Insurance balances receivable                       569,836      529,927
    Prepaid reinsurance                                 175,348      187,287
    Reinsurance recoverable                             975,523      927,588
    Accrued investment income                            41,328       40,520
    Net deferred acquisition costs                      113,097       96,803
    Goodwill                                            268,376      268,376
    Intangible assets                                    56,109       56,876
    Net deferred tax assets                              20,618       19,740
    Other assets                                         93,697       75,184
                                       Total assets $10,305,628  $10,239,223
                                                    -----------  -----------
    
    LIABILITIES:
    Reserve for losses and loss expenses             $5,100,643   $4,879,188
    Unearned premiums                                 1,096,260      962,203
    Reinsurance balances payable                         91,852       99,732
    Net balances payable on purchases and sales of
     investments                                        204,767      318,570
    Senior notes                                        797,761      797,700
    Accounts payable and accrued liabilities             63,392      106,010
                                  Total liabilities  $7,354,675   $7,163,403
                                                     ----------   ----------
    
    SHAREHOLDERS' EQUITY:
    Common shares: par value CHF 15.00 per share
     (2011: 40,003,642; 2010: 40,003,642 shares
     issued and 2011: 37,899,699; 2010: 38,089,226
     shares outstanding)                                600,055      600,055
    Additional paid-in capital                           75,166      170,239
    Treasury shares, at cost (2011: 2,103,943;
     2010: 1,914,416)                                  (127,053)    (112,811)
    Retained earnings                                 2,369,822    2,361,202
    Accumulated other comprehensive income,
     net of tax                                          32,963       57,135
                                                         ------       ------
                         Total shareholders' equity   2,950,953    3,075,820
                                                      ---------    ---------
    
         Total liabilities and shareholders' equity $10,305,628  $10,239,223
                                                    ===========  ===========
    
    ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
    UNAUDITED CONSOLIDATED SEGMENT DATA
    (Expressed in thousands of United States dollars, except for ratio
    information)
    
    
                           
    Quarter Ended          U.S.    International
     March 31, 2011     Insurance    Insurance    Reinsurance    Total
    ------------------- ---------    ---------    -----------    -----
    
    Gross premiums
     written             $183,302       $111,325     $266,061   $560,688
    Net premiums
     written              139,902         74,910      266,059    480,871
    Net premiums earned   135,481         76,290      123,105    334,876
    Net losses and loss
     expenses            (115,831)       (71,184)    (117,437)  (304,452)
    Acquisition costs     (18,102)         1,856      (21,836)   (38,082)
    General and
     administrative
     expenses             (30,799)       (20,728)     (16,429)   (67,956)
                          -------        -------      -------    -------
    Underwriting loss     (29,251)       (13,766)     (32,597)   (75,614)
    Net investment
     income                                                       50,208
    Net realized
     investment gains                                             50,376
    Net impairment
     charges recognized
     in earnings                                                       -
    Amortization and
     impairment of
     intangible assets                                              (767)
    Interest expense                                             (13,742)
    Foreign exchange
     gain                                                            442
                                                                     ---
    Income before
     income taxes                                                $10,903
                                                                 =======
    
    GAAP Ratios:
    Loss and loss
     expense ratio           85.5%          93.3%        95.4%      90.9%
    Acquisition cost
     ratio                   13.4%         (2.4%)        17.7%      11.4%
    General and
     administrative
     expense ratio           22.7%          27.2%        13.3%      20.3%
    Combined ratio          121.6%         118.1%       126.4%     122.6%
                            =====          =====        =====      =====
    
                           
    Quarter Ended         U.S.      International
     March 31, 2010      Insurance    Insurance    Reinsurance    Total
    -------------------  ---------    ---------    -----------    -----
    
    Gross premiums
     written             $162,085       $121,422     $220,656   $504,163
    Net premiums
     written              131,555         81,081      220,656    433,292
    Net premiums earned   129,205         87,043      122,076    338,324
    Other income              297              -            -        297
    Net losses and loss
     expenses             (98,425)       (57,449)     (76,280)  (232,154)
    Acquisition costs     (16,960)           (66)     (23,758)   (40,784)
    General and
     administrative
     expenses             (27,114)       (21,845)     (14,504)   (63,463)
                          -------        -------      -------    -------
    Underwriting (loss)
     income               (12,997)         7,683        7,534      2,220
    Net investment
     income                                                       68,902
    Net realized
     investment gains                                             77,487
    Net impairment
     charges recognized
     in earnings                                                    (168)
    Amortization and
     impairment of
     intangible assets                                              (892)
    Interest expense                                              (9,528)
    Foreign exchange
     loss                                                         (1,076)
                                                                  ------
    Income before
     income taxes                                               $136,945
                                                                ========
    
    GAAP Ratios:
    Loss and loss
     expense ratio           76.2%          66.0%        62.5%      68.6%
    Acquisition cost
     ratio                   13.1%           0.1%        19.5%      12.1%
    General and
     administrative
     expense ratio           21.0%          25.1%        11.9%      18.8%
                             ----           ----         ----       ----
    Combined ratio          110.3%          91.2%        93.9%      99.5%
                            =====           ====         ====       ====
    
    
    
    
    
    
    ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
    UNAUDITED OPERATING INCOME RECONCILIATION
    (Expressed in thousands of United States dollars, except share and
    per share amounts)
    
    
    
                                            Quarter Ended March 31,
                                               2011            2010
                                               ----            ----
    
    Net income                               $8,620        $133,740
    Add after tax affect of:
      Net realized investment gains         (49,526)        (73,602)
      Net impairment charges recognized
       in earnings                                -             109
      Foreign exchange (gain) loss             (442)          1,076
                                               ----           -----
    Operating (loss) income                $(41,348)        $61,323
                                           ========         =======
    
    Weighted average common shares outstanding:
    Basic                                38,199,867      50,023,816
    Diluted                              40,383,523      53,115,756
    
    Basic per share data:
    Net income                                $0.23           $2.67
    Add after tax affect of:
      Net realized investment gains           (1.30)          (1.47)
      Net impairment charges recognized
       in earnings                                -               -
      Foreign exchange (gain) loss            (0.01)           0.03
                                              -----            ----
    Operating (loss) income                  $(1.08)          $1.23
                                             ======           =====
    
    Diluted per share data
    Net income                                $0.21           $2.52
    Add after tax affect of:
      Net realized investment gains           (1.22)          (1.38)
      Net impairment charges recognized
       in earnings                                -               -
      Foreign exchange (gain) loss            (0.01)           0.02
                                              -----            ----
    Operating (loss) income                  $(1.02)          $1.16
                                             ======           =====
    
     
    ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
    UNAUDITED  DILUTED BOOK VALUE PER SHARE RECONCILIATION
    (Expressed in thousands of United States dollars, except share and
    per share amounts)
    
    
                                               As of        As of      As of
                                            March 31, December 31,  March 31,
                                                2011         2010       2010
                                                ----         ----       ----
    Price per share at period end              $62.69      $59.44     $44.85
    
    Total shareholders' equity             $2,950,953  $3,075,820 $3,338,807
    
    Basic common shares outstanding        37,899,699  38,089,226 50,459,000
    
    Add: unvested restricted share
     units                                    475,679     571,178    801,540
    
    Add:  Performance based equity
     awards                                   920,164   1,440,017  1,409,984
    
    Add:  employee purchase plan                    -      10,576          -
    
    Add:  dilutive options/warrants
     outstanding                            1,674,993   3,272,739  6,702,546
      Weighted average exercise price per
       share                                   $45.47      $35.98     $34.53
    Deduct: options bought back via
     treasury method                      (1,215,020) (1,980,884) (5,159,746)
                                           ----------  ---------- ----------
    
    Common shares and common share
    equivalents outstanding                39,755,515  41,402,852 54,213,324
    
    Basic book value per common share          $77.86      $80.75     $66.17
    Diluted book value per common share        $74.23      $74.29     $61.59




    ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
    UNAUDITED ANNUALIZED RETURN ON SHAREHOLDERS' EQUITY RECONCILIATION
    (Expressed in thousands of United States dollars, except for
    percentage information)
    
    
                                                     Quarter Ended March 31,
                                                       2011           2010
                                                       ----           ----
    
    Opening shareholders' equity                 $3,075,820     $3,213,295
    Deduct: accumulated other comprehensive
     income                                         (57,135)      (149,849)
                                                    -------       --------
    Adjusted opening shareholders' equity         3,018,685      3,063,446
                                                          -              -
    Closing shareholders' equity                 $2,950,953     $3,338,807
    Deduct: accumulated other comprehensive
     income                                         (32,963)      (142,284)
                                                    -------       --------
    Adjusted closing shareholders' equity         2,917,990      3,196,523
    
    Average shareholders' equity                 $2,968,338     $3,129,985
                                                 ==========     ==========
    
    Net  income available to shareholders            $8,620       $133,740
    Annualized net income available to
     shareholders                                    34,480        534,960
    
    Annualized return on average shareholders'
     equity -net income available to
     shareholders                                       1.2%          17.1%
                                                        ===           ====
    
    Operating (loss) income available to
     shareholders                                  $(41,348)       $61,323
    Annualized operating (loss) income
     available to shareholders                     (165,392)       245,292
    
    Annualized return on average shareholders'
     equity -operating (loss) income available
     to shareholders                                  (5.6%)           7.8%
                                                     ======            ===

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