Allied World Reports 6.3% Quarterly Growth in Diluted Book Value Per Share With Strong Third Quarter 2012 Results Gross Premiums Written up 20% through September 2012

ZUG, Switzerland, Oct. 31, 2012 /PRNewswire/ -- Allied World Assurance Company Holdings, AG (NYSE: AWH) today reported net income of $219.6 million, or $6.00 per diluted share, for the third quarter of 2012 compared to a net loss of $11.0 million, or $0.29 per diluted share, for the third quarter of 2011.  Net income for the nine months ended September 30, 2012 was $534.2 million, or $14.28 per diluted share, compared to net income of $91.4 million, or $2.30 per diluted share, for the first nine months of 2011.

The company reported operating income of $79.2 million, or $2.16 per diluted share, for the third quarter of 2012, compared to operating income of $86.2 million, or $2.19 per diluted share, for the third quarter of 2011.  Operating income for the nine months ended September 30, 2012 was $258.0 million, or $6.90 per diluted share, compared to operating income of $89.0 million, or $2.24 per diluted share, for the first nine months of 2011.

President and Chief Executive Officer Scott Carmilani commented, "The aftermath of Hurricane Sandy is in our minds, both personally and professionally, as we issue our third quarter results.  While it's too early to estimate the losses to Allied World, it is not too early to understand the significant impact this storm has had on the families and communities throughout the Atlantic states.  Our hearts and minds go out to everyone affected.

With regard to our third quarter results, we believe we have demonstrated how Allied World's size and diversity allows it to withstand a major industry loss event while still producing strong returns and significant book value growth for our shareholders.  Despite having recorded $40 million of crop-related losses, the company is reporting net income of $220 million, or $6 per diluted share, for the quarter driven by gains in our investment portfolio and by strong overall underwriting results.  Diluted book value per share grew by 6.3% for the quarter, to $93.82 at September 30th, and is up 17% for the first nine months of the year."

Underwriting Results

Gross premiums written were $504.4 million in the third quarter of 2012, a 13.9% increase compared to $442.7 million in the third quarter of 2011.  For the nine months ended September 30, 2012, gross premiums written totaled $1,832.2 million, a 20.3% increase compared to $1,523.0 million in the first nine months of 2011.  Net premiums written were $391.5 million in the third quarter of 2012, an 11.8% increase compared to $350.3 million in the third quarter of 2011.  For the nine months ended September 30, 2012, net premiums written totaled $1,475.2 million, a 20.2% increase compared to $1,226.9 million in the first nine months of 2011.  

Net premiums earned in the third quarter of 2012 were $441.0 million, an 18.8% increase compared to $371.3 million in the third quarter of 2011.  For the nine months ended September 30, 2012, net premiums earned totaled $1,272.7 million, a 19.9% increase compared to $1,061.5 million in the first nine months of 2011.  

The combined ratio was 88.1% in the third quarter of 2012 compared to 83.9% in the third quarter of 2011.  The loss and loss expense ratio was 58.7% in the third quarter of 2012 compared to 55.4% in the third quarter of 2011.  During the third quarter of 2012, the company recorded net favorable reserve development on prior loss years of $56.2 million.  This favorable reserve development resulted in a benefit of 12.7 percentage points to the company's loss and loss expense ratio for the quarter.  This compares to the third quarter of 2011, when the company recorded net favorable reserve development on prior loss years of $61.5 million, a benefit of 16.6 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 third quarter of 2012 was 71.4% compared to 72.0% for the third quarter of 2011.  The third quarter 2012 loss and loss expense ratio was impacted by $45.0 million, or 10.2 percentage points, from $40.0 million of crop reinsurance losses and $5.0 million of losses related to Hurricane Isaac.  This compares to the third quarter of 2011 loss and loss expense ratio, which was impacted by $33.5 million of net losses, or 9.0 percentage points, from global catastrophes.

For the nine months ended September 30, 2012, the combined ratio was 86.2% compared to 100.7% for the first nine months of 2011.  For the nine months ended September 30, 2012, the company recorded net favorable reserve development on prior loss years of $137.6 million, a benefit of 10.8 percentage points to the company's loss and loss expense ratio.  For the nine months ended September 30, 2011, the company recorded net favorable reserve development on prior loss years of $161.1 million, a benefit of 15.4 percentage points to the company's loss and loss expense ratio.  Absent prior year reserve adjustments, the loss and loss expense ratio for the nine months ended September 30, 2012 was 67.7% compared to 85.7% for 2011.  The loss and loss expense ratio for the first nine months of 2012 was impacted by $45.0 million, or 3.5 percentage points, from $40.0 million of crop reinsurance losses and $5.0 million of losses related to Hurricane Isaac.  The loss and loss expense ratio for the first nine months of 2011 was impacted by $233.1 million of net losses, or 22.2 percentage points, from global catastrophes.  

The company's expense ratio was 29.4% for the third quarter of 2012 compared to 28.5% for the third quarter of 2011.   The expense ratio was 29.3% for the nine months ended September 30, 2012 compared to 30.4% for the first nine months of 2011.  

Investment Results

The total return on the company's investment portfolio for the three months ended September 30, 2012 was 2.2% compared to negative 1.1% for the three months ended September 30, 2011.  The total return on the company's investment portfolio for the nine months ended September 30, 2012 was 4.9% compared to 1.1% for the nine months ended September 30, 2011.  See the table below for the components of our investment returns:


THREE MONTHS ENDED


THREE MONTHS ENDED



NINE MONTHS ENDED


NINE MONTHS ENDED


September 30, 2012


September 30, 2011



September 30, 2012


September 30, 2011


(Expressed in millions of U.S. Dollars)



(Expressed in millions of U.S. Dollars)

Net investment income

$                      39.1


$                       47.9



$                  128.8


$                  150.5

Net realized investment gains

149.8


(130.8)



292.1


(21.6)

Change in unrealized gains

-


(5.9)



(15.5)


(42.4)

Net investment income, realized gains and unrealized gains

188.9


(88.9)



405.4


86.5










Average invested assets

$                 8,449.4


$                  8,048.1



$               8,332.5


$               7,878.3










Financial statement portfolio return

2.2%


(1.1%)



4.9%


1.1%










Note: investment income, net realized gains / losses and change in unrealized gains / losses are disclosed on a pre-tax basis.



Shareholders' Equity

As of September 30, 2012, our total shareholders' equity was $3,435.8 million, compared to $3,149.0 million as of December 31, 2011.

As of September 30, 2012, diluted book value per share was $93.82, an increase of 17.1% compared to $80.11 as of December 31, 2011.  

Share Repurchase Program

During the third quarter of 2012, the company repurchased 605,898 of its common shares through its share repurchase program in the open market at an average price of $78.54 per share for an aggregate cost of $47.6 million.  

Allied World Financial Services, Inc.

During the quarter we launched Allied World Financial Services, Inc.  Our goal is to expand our asset management expertise, invest in strategic business opportunities and diversify our earnings stream with business relationships that complement our core property and casualty business.

Supplementary Information

Allied World will be providing a Financial Supplement relating to third quarter 2012 and an Investment Supplement as of September 30, 2012.  This information will be available at the "Investor Relations" section of the company's website at www.awac.com.

Conference Call

Scott Carmilani, President and Chief Executive Officer, and other members of the company's management will host a conference call on Thursday, November 1, 2012 at 9:00 am (Eastern Time) to discuss Allied World's third quarter 2012 financial results.   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 4579664 approximately ten minutes prior to the call.

Following the conclusion of the presentation, a replay of the call will be available through Thursday, November 15, 2012 by dialing (877) 344-7529 (U.S. and Canada callers) or (412) 317-0088 (international callers) and entering the passcode 10018518. In addition, the webcast will remain available online through Thursday, November 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.  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.