Allied World Reports Growth Across Insurance Platform for the Second Quarter 2015

ZUG, Switzerland--(BUSINESS WIRE)--Allied World Assurance Company Holdings, AG (NYSE:AWH) today reported net income of $9.5 million, or $0.10 per diluted share, for the second quarter of 2015 compared to net income of $151.9 million, or $1.52 per diluted share, for the second quarter of 2014.

The company reported operating income of $25.8 million, or $0.27 per diluted share, for the second quarter of 2015, compared to operating income of $76.1 million, or $0.76 per diluted share, for the second quarter of 2014.

“While we are excited to report our first quarter inclusive of the results of the recently acquired Asian operations, unfortunately this quarter’s results were impacted by catastrophe and current year events,” commented President and Chief Executive Officer Scott Carmilani. “We continue to take steps to grow attractive insurance businesses, and look to manage our growth while mitigating exposure to less attractive risks.”

Second Quarter Operating Results

• Gross premiums written were $826.0 million, an 8.6% increase compared to $760.4 million in the second quarter of 2014.
  • The North American Insurance segment grew 9.6% led by growth in the Defense Base Act, Excess Casualty and Environmental lines, offset by a continued decrease in the Healthcare line. Healthcare gross premiums written have decreased 16.8% compared to the prior year quarter and 30.1% compared to the same quarter two years ago.
  • The Global Markets Insurance segment grew 83.5% driven by the inclusion of the acquired Asian operations for the first time and 7.7% excluding the impact of the acquired Asian operations results. On a constant dollar basis, the segment grew 99.0% and 16.6% excluding the impact of the acquired Asian operations.
  • Offsetting the growth in the two insurance segments was a 19.1% decrease in the Reinsurance segment driven by the non-renewal of several casualty and property treaties.
• Net premiums written were $603.7 million, a 9.0% increase compared to $553.9 million in the second quarter of 2014.
• Net premiums earned were $646.4 million, a 20.3% increase compared to $537.2 million in the second quarter of 2014.
• Underwriting income was $5.9 million, compared to underwriting income of $51.9 million in the second quarter of 2014.
• The combined ratio was 99.2% compared to 90.3% in the second quarter of 2014.
• The loss and loss expense ratio was 66.8% in the second quarter of 2015 compared to 58.6% in the prior year quarter. During the second quarter of 2015, the company recorded net favorable reserve development on prior loss years of $21.8 million, a benefit of 3.4 percentage points to the loss and loss expense ratio, compared to $45.1 million a year ago, a benefit of 8.4 percentage points. The decrease in net favorable reserve development was mostly driven by reserve strengthening related to selected claims within large account North American professional lines and Healthcare.
• The company experienced $25.0 million of catastrophe losses in the second quarter of 2015 related to the New South Wales storms, which impacted the Reinsurance and Global Markets Insurance segments. The company did not have any reportable catastrophe losses in the prior year quarter.
• The company's expense ratio was 32.4% for the second quarter of 2015 compared to 31.7% for the second quarter of 2014. The increase was driven mostly by acquisition costs associated with the business of the acquired Asian operations.
• Net income for the first half of 2015 was $133.8 million, a 59.3% decrease compared to $328.8 million for the first half of last year. The decrease was driven by elevated catastrophe and non-catastrophe weather and fire-related losses, a decrease in net favorable reserve development, and increased mark-to-market losses on investments.

Investment Results

• The total financial statement return on the company's investment portfolio for the three months ended June 30, 2015 was 0.3% compared to 1.4% for the three months ended June 30, 2014.
• The decrease in total return was driven by an increase in unrealized losses within the fixed income portfolio due to rising bond yields.
• Net investment income increased 16.2% compared to the prior year quarter as a result of contributions from the fixed income portfolio as well as higher returns from our hedge fund and private equity portfolios.
• See the table below for the components of our investment returns:

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

Shareholders' Equity

• As of June 30, 2015, the company’s total shareholders' equity decreased to $3,624.8 million, compared to $3,778.3 million as of December 31, 2014.
• As of June 30, 2015, diluted book value per share was $38.75, a decrease of 0.6% compared to $38.99 as of March 31, 2015, and an increase of 1.3% compared to $38.27 as of December 31, 2014.

Capital Management

• During the second quarter of 2015, the company repurchased 4,776,224 of its common shares at an average price of $40.69 per share and an aggregate cost of $194.4 million. This included $164.4 million directly repurchased from Exor S.A. at a price of $40.55 per share, a 3.0% discount to the most recent closing price prior to execution.
• As of June 30, 2015, the company had $173.0 million remaining on its outstanding share repurchase authorization.
• In May 2015, the company’s shareholders approved four quarterly dividends equal to $0.26 per share. The first dividend was paid on July 2, 2015.

Supplementary Information

Allied World will be providing both a Financial Supplement and an Investment Supplement as of June 30, 2015. 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 Thursday, July 23, 2015 at 9:00 a.m. (Eastern Time) to discuss the results for the second quarter ended June 30, 2015. 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. callers) or (412) 317-6061 (international callers) and entering the passcode 8655462 approximately ten minutes prior to the call.

Following the conclusion of the presentation, a replay of the call will be available through Friday, August 7, 2015 by dialing (877) 344-7529 (U.S. callers) or (412) 317-0088 (international callers) and entering the passcode 10067643. In addition, the webcast will remain available online through Friday, August 7, 2015 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 foreign exchange gain or loss, and other non-recurring items. The company excludes net realized investment gains or losses, 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 AA- by Fitch.

Please visit the following sites for further information about 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 risks that the acquisitions of the Hong Kong and Singapore operations of Royal & Sun Alliance Insurance plc disrupt the company's current plans and operations; the ability to retain key personnel; the ability to recognize the benefits of the acquisitions; the amounts of costs, fees, expenses, and charges related to the acquisitions; pricing and policy term trends; increased competition; the adequacy of our loss reserves; negative rating agency actions; greater frequency or severity of unpredictable catastrophic events; the impact of acts of terrorism and acts of war; 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.