Allied World Reports 36% Growth in Underwriting Income for the Second Quarter 2013

Allied World Reports 36% Growth in Underwriting Income for the Second Quarter 2013

Diluted book value per share of $96.18, an increase of 3.9% from year end 2012

ZUG, Switzerland--(BUSINESS WIRE)-- Allied World Assurance Company Holdings, AG (NYS: AWH) today reported a net loss of $1.9 million, or $0.05 per diluted share, for the second quarter of 2013 compared to net income of $96.4 million, or $2.59 per diluted share, for the second quarter of 2012. The quarterly net loss was due to $115 million of net realized investment losses driven by the mark to market adjustments on the portfolio. Net income for the six months ended June 30, 2013 was $157.1 million, or $4.45 per diluted share, compared to net income of $314.5 million, or $8.41 per diluted share, for the first six months of 2012.


The company reported operating income of $103.5 million, or $2.95 per diluted share, for the second quarter of 2013, compared to operating income of $87.3 million, or $2.35 per diluted share, for the second quarter of 2012. Operating income for the six months ended June 30, 2013 was $187.7 million, or $5.31 per diluted share, compared to operating income of $178.8 million, or $4.78 per diluted share, for the first six months of 2012.

President and Chief Executive Officer Scott Carmilani commented, "Allied World produced excellent underwriting results. We benefitted from growth across all three segments, in part from newer product initiatives, and delivered a combined ratio of 82.8% for the second quarter of 2013."

"Despite the challenging investment environment, we continue to be well positioned to grow book value, and have done so at a rate of almost 4% during the first half of 2013."

Underwriting Results

Gross premiums written were $765.2 million in the second quarter of 2013, an 18.3% increase compared to $646.9 million in the second quarter of 2012. For the six months ended June 30, 2013, gross premiums written totaled $1,602.3 million, a 20.7% increase compared to $1,327.8 million in the first six months of 2012. Net premiums written were $581.2 million in the second quarter of 2013, a 17.5% increase compared to $494.7 million in the second quarter of 2012. For the six months ended June 30, 2013, net premiums written totaled $1,276.3 million, a 17.8% increase compared to $1,083.7 million in the first six months of 2012.

Net premiums earned in the second quarter of 2013 were $507.3 million, an 18.0% increase compared to $429.7 million in the second quarter of 2012. For the six months ended June 30, 2013, net premiums earned totaled $970.5 million, a 16.7% increase compared to $831.6 million in the first six months of 2012.

The combined ratio was 82.8% in the second quarter of 2013 compared to 85.1% in the second quarter of 2012. The loss and loss expense ratio was 54.2% in the second quarter of 2013 compared to 55.9% in the second quarter of 2012. During the second quarter of 2013, the company recorded net favorable reserve development on prior loss years of $48.4 million. This favorable reserve development resulted in a benefit of 9.5 percentage points to the company's loss and loss expense ratio for the quarter. This compares to the second quarter of 2012, when the company recorded net favorable reserve development on prior loss years of $41.9 million, a benefit of 9.8 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 2013 was 63.7% compared to 65.7% for the second quarter of 2012. The company experienced no significant catastrophe losses for the current accident year or quarter ended June 30, 2013.

For the six months ended June 30, 2013, the combined ratio was 83.9% compared to 85.2% for the first six months of 2012. The loss and loss expense ratio was 54.6% in the first half of 2013 compared to 56.0% in the first half of 2012. For the six months ended June 30, 2013, the company recorded net favorable reserve development on prior loss years of $92.5 million, a benefit of 9.5 percentage points to the company's loss and loss expense ratio. 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. Absent prior year reserve adjustments, the loss and loss expense ratio for the six months ended June 30, 2013 was 64.1% compared to 65.8% for 2012.

The company's expense ratio was 28.6% for the second quarter of 2013 compared to 29.2% for the second quarter of 2012. The expense ratio was 29.3% the first six months of June 30, 2013 compared to 29.2% for the first six months of 2012.

Investment Results

The total return on the company's investment portfolio for the three months ended June 30, 2013 was a loss of 90 basis points compared to a gain of 60 basis points for the three months ended June 30, 2012. This was largely driven by losses in the U.S. bond market, which, as measured by the Barclays Aggregate Bond Index, posted its third largest loss since 1981. For the six months ended June 30, 2013, the total return on the company's investment portfolio was 40 basis points compared to 260 basis points for the six months ended June 30, 2012. See the table below for the components of our investment returns:

(Expressed in millions of U.S. Dollars)  Quarter Ended  Six Months Ended
June 30, 2013 June 30, 2012June 30, 2013 June 30, 2012
 
Net investment income$37.6$42.5$71.0$89.7
Net realized investment (losses) gains(115.2)8.6(35.5)142.2
Change in unrealized gains 

-  

   (1.4) 

-  

   (15.4)
Net investment income, realized gains and unrealized gains$(77.6) $49.7 $35.5  $216.5 
 
Average invested assets$8,459.5$8,276.1$8,446.1$8,203.8
 
Financial statement portfolio return(0.9%)0.6%0.4%2.6%
 
Note: investment income, net realized gains / losses and change in unrealized gains / losses are disclosed on a pre-tax basis.
 

Shareholders' Equity

As of June 30, 2013, the company's total shareholders' equity was $3,373.2 million, compared to $3,326.3 million as of December 31, 2012.

As of June 30, 2013, diluted book value per share was $96.18, an increase of 3.9% compared to $92.59 as of December 31, 2012.

Capital Management

During the second quarter of 2013, the company repurchased 508,328 of its common shares through its share repurchase program in the open market at an average price of $91.13 per share and at an aggregate cost of $46.3 million. This compares to the open market repurchase of 432,117 common shares at an average price of $83.88 per share and at an aggregate cost of $36.2 million during the first quarter of 2013.

In May 2013 the company's shareholders approved a quarterly dividend equal to $0.50 per share. The first installment of that dividend was paid on July 3, 2013 to shareholders of record on June 25, 2013. The three remaining installments are anticipated to be paid in October 2013, January 2014 and April 2014.

Supplementary Information

Allied World will be providing a Financial Supplement relating to second quarter 2013 and an Investment Supplement as of June 30, 2013. This information will be available in the "Investor Relations" section of the company's website at www.awac.com.

Conference Call

Allied World will host a conference call on Friday, July 26, 2013 at 9:00 a.m. (Eastern Time) to discuss the results for the second quarter ended June 30, 2013. 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 (888) 317-6003 (U.S. and Canada callers) or (412) 317-6061 (international callers) and entering the passcode 5166966 approximately ten minutes prior to the call.

Following the conclusion of the presentation, a replay of the call will be available through Friday, August 9, 2013 by dialing (877) 344-7529 (U.S. and Canada callers) or (412) 317-0088 (international callers) and entering the passcode 10030260. In addition, the webcast will remain available online through Friday, August 9, 2013 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 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 and brand known as Allied World, is a global provider of innovative property, casualty and specialty insurance and reinsurance solutions. Allied World offers 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 the following for further information on Allied World: Web: www.awac.com | Facebook: www.facebook.com/alliedworld | LinkedIn: http://www.linkedin.com/company/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 June 30,Six Months Ended June 30,
2013  20122013  2012
 
Revenues:
Gross premiums written$765,200$646,870$1,602,281$1,327,799
Premiums ceded (183,978)   (152,160) (326,007)   (244,136)
 
Net premiums written581,222494,7101,276,2741,083,663
Change in unearned premiums (73,951)   (64,963) (305,775)   (252,026)
Net premiums earned507,271429,747970,499831,637
 
Net investment income37,63542,45171,02389,660
Net realized investment (losses) gains (115,198)   8,663 (35,561)   142,244
Total revenues 429,708   480,861 1,005,961   1,063,541
Expenses:
Net losses and loss expenses275,128240,380530,306465,582
Acquisition costs64,61751,588121,30298,726
General and administrative expenses80,58573,979163,265144,345
Amortization of intangible assets6346341,2671,267
Interest expense14,18814,00128,32227,757
Foreign exchange loss (gain) 490   (1,019) 3,008   (1,100)
Total expenses 435,642   379,563 847,470   736,577
Loss (income) before income taxes(5,934)101,298158,491326,964
Income tax (benefit) expense (4,072)   4,947 1,361   12,457
 
NET (LOSS) INCOME$(1,862)  $96,351$157,130  $314,507
 
PER SHARE DATA:
 
Basic (loss) earnings per share$(0.05)$2.66$4.55$8.56
 
Diluted (loss) earnings per share$(0.05)$2.59$4.45$8.41
 
Weighted average common shares outstanding34,422,55336,288,59634,517,55236,746,881
 
Weighted average common shares and common share equivalents outstanding34,422,55337,189,72235,316,59537,395,559
 
Dividends paid per share$

*$0.375$0.375$0.750
 
* Dividend of $0.50 per share was paid on July 3, 2013 to shareholders of record on June 25, 2013.
 
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 ofAs of

   June 30,   

December 31,
ASSETS:20132012
 
Fixed maturity investments trading, at fair value$6,285,778$6,626,454
Equity securities trading, at fair value640,925523,949
Other invested assets 849,100 783,534
 
Total investments7,775,8037,933,937
Cash and cash equivalents868,149865,364
Insurance balances receivable814,620510,532
Funds held387,599336,368
Prepaid reinsurance339,936277,406
Reinsurance recoverable1,179,5251,141,110
Accrued investment income24,11229,135
Net deferred acquisition costs153,812108,010
Goodwill268,376268,376
Intangible assets50,09851,365
Balances receivable on sale of investments277,025418,879
Net deferred tax assets40,55025,580
Other assets 85,272 
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