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Press release from PR Newswire

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

Tuesday, July 31, 2012

Allied World Reports 3.2% Quarterly Growth in Diluted Book Value Per Share with Strong Second Quarter 2012 Results16:30 EDT Tuesday, July 31, 2012ZUG, 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 ResultsGross 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:Three Months EndedThree Months EndedJune 30, 2012June 30, 2011 (Expressed in millions of U.S. Dollars)  Net investment income $                           42.5$                           52.4 Net realized investment gains 8.658.9 Change in unrealized gains (1.4)(11.4) Net investment income, realized gains and unrealized gains 49.799.9Average invested assets$                      8,276.1$                      7,922.5Financial statement portfolio return0.6%1.3% Note: investment income, net realized gains / losses and change in unrealized gains / losses are disclosed on a pre-tax basis. Shareholders' EquityAs 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 ProgramDuring 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 SupplementAllied 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 CallAllied 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 MeasuresIn 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 CompanyAllied 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 StatementsAny 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, AGUNAUDITED 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 30,2012201120122011Revenues:Gross premiums written$646,870$519,598$1,327,799$1,080,286Premiums ceded(152,160)(123,795)(244,136)(203,612)Net premiums written494,710395,8031,083,663876,674Change in unearned premiums(64,963)(40,496)(252,026)(186,491)Net premiums earned429,747355,307831,637690,183Net investment income42,45152,36889,660102,576Net realized investment gains8,66358,878142,244109,254Total revenue480,861466,5531,063,541902,013Expenses:Net losses and loss expenses240,380235,813465,582540,265Acquisition costs51,58842,97198,72681,053General and administrative expenses73,97967,201144,345135,157Amortization of intangible assets6347661,2671,533Interest expense14,00113,74527,75727,487Foreign exchange (gain) loss(1,019)1,184(1,100)742Total expenses379,563361,680736,577786,237Income before income taxes101,298104,873326,964115,776Income tax expense4,94711,07312,45713,356NET INCOME$96,351$93,800$314,507$102,420PER SHARE DATA:Basic earnings per share$2.66$2.45$8.56$2.69Diluted earnings per share$2.59$2.36$8.41$2.57Weighted average common shares outstanding36,288,59638,346,48936,746,88138,061,724Weighted average common shares and common share equivalents outstanding37,189,72239,800,75337,395,55939,873,418Dividends paid per share$0.375$-$0.750$- ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AGUNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS(Expressed in thousands of United States dollars, except share and per share amounts)As ofAs ofJune 30,December 31,ASSETS:20122011Fixed maturity investments available for sale, at fair value$30,214$244,016Fixed maturity investments trading, at fair value6,796,1096,254,686Equity securities trading, at fair value454,205367,483Other invested assets trading, at fair value520,890540,409Total investments7,801,4187,406,594Cash and cash equivalents1,103,826716,604Insurance balances receivable845,663652,158Prepaid reinsurance259,289226,721Reinsurance recoverable1,073,6121,002,919Accrued investment income30,11738,263Net deferred acquisition costs129,818100,334Goodwill 268,376268,376Intangible assets52,63153,898Balances receivable on sale of investments635,727580,443Net deferred tax assets28,47722,646Other assets48,69753,202Total assets$12,277,651$11,122,158LIABILITIES:Reserve for losses and loss expenses$5,377,518$5,225,143Unearned premiums1,363,0061,078,412Reinsurance balances payable128,306124,539Balances due on purchases of investments1,220,246616,728Senior notes798,080797,949Dividends payable-14,302Accounts payable and accrued liabilities106,594116,063Total liabilities8,993,7507,973,136SHAREHOLDERS' EQUITY:Common shares, 2012: par value CHF 13.69 per share and 2011: par value CHF 14.03 per share (2012 and 2011: 40,003,642 shares issued and 2012: 35,942,964; 2011: 37,742,131 shares outstanding)543,452557,153Additional paid-in capital52,81578,225Treasury shares, at cost (2012: 4,060,678; 2011: 2,261,511)(264,037)(136,590)Retained earnings2,950,2572,635,750Accumulated other comprehensive income1,41414,484Total shareholders' equity3,283,9013,149,022Total liabilities and shareholders' equity$12,277,651$11,122,158 ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AGUNAUDITED CONSOLIDATED SEGMENT DATA(Expressed in thousands of United States dollars, except for ratio information)U.S.InternationalQuarter Ended June 30, 2012InsuranceInsuranceReinsuranceTotalGross premiums written$ 265,974$ 183,593$ 197,303 $ 646,870Net premiums written196,661111,342186,707494,710Net premiums earned162,78582,605184,357429,747Net losses and loss expenses(103,074)(22,233)(115,073)(240,380)Acquisition costs(21,250)582(30,920)(51,588)General and administrative expenses(34,730)(21,648)(17,601)(73,979)Underwriting income3,73139,30620,76363,800Net investment income42,451Net realized investment gains8,663Amortization of intangible assets(634)Interest expense(14,001)Foreign exchange gain1,019Income before income taxes$101,298GAAP Ratios:Loss and loss expense ratio63.3%26.9%62.4%55.9%Acquisition cost ratio13.1%(0.7%)16.8%12.0%General and administrative expense ratio21.3%26.2%9.5%17.2%Combined ratio97.7%52.4%88.7%85.1%U.S.InternationalQuarter Ended June 30, 2011InsuranceInsuranceReinsuranceTotalGross premiums written$226,738$178,593$114,267$519,598Net premiums written172,887108,985113,931395,803Net premiums earned145,85779,956129,494355,307Net losses and loss expenses(92,595)(72,082)(71,136)(235,813)Acquisition costs(18,876)747(24,842)(42,971)General and administrative expenses(31,253)(20,653)(15,295)(67,201)Underwriting income (loss)3,133(12,032)18,2219,322Net investment income52,368Net realized investment gains58,878Amortization of intangible assets(766)Interest expense(13,745)Foreign exchange loss(1,184)Income before income taxes$104,873GAAP Ratios:Loss and loss expense ratio63.5%90.2%54.9%66.4%Acquisition cost ratio12.9%(0.9%)19.2%12.1%General and administrative expense ratio21.4%25.8%11.8%18.9%Combined ratio97.8%115.1%85.9%97.4% ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AGUNAUDITED CONSOLIDATED SEGMENT DATA(Expressed in thousands of United States dollars, except for ratio information)U.S.InternationalSix Months Ended June 30, 2012InsuranceInsuranceReinsuranceTotalGross premiums written$470,185$297,183$560,431$1,327,799Net premiums written350,507183,951549,2051,083,663Net premiums earned316,143162,476353,018831,637Net losses and loss expenses(200,778)(60,333)(204,471)(465,582)Acquisition costs(41,222)1,110(58,614)(98,726)General and administrative expenses(65,774)(44,049)(34,522)(144,345)Underwriting income8,36959,20455,411122,984Net investment income89,660Net realized investment gains142,244Amortization of intangible assets(1,267)Interest expense(27,757)Foreign exchange gain1,100Income before income taxes$326,964GAAP Ratios:Loss and loss expense ratio63.5%37.1%57.9%56.0%Acquisition cost ratio13.0%(0.7%)16.6%11.9%General and administrative expense ratio20.8%27.1%9.8%17.3%Combined ratio97.3%63.5%84.3%85.2%U.S.InternationalSix Months Ended June 30, 2011InsuranceInsuranceReinsuranceTotalGross premiums written$410,040$289,918$380,328$1,080,286Net premiums written312,789183,895379,990876,674Net premiums earned281,338156,246252,599690,183Net losses and loss expenses(208,426)(143,266)(188,573)(540,265)Acquisition costs(36,978)2,603(46,678)(81,053)General and administrative expenses(62,052)(41,381)(31,724)(135,157)Underwriting loss(26,118)(25,798)(14,376)(66,292)Net investment income102,576Net realized investment gains109,254Amortization of intangible assets(1,533)Interest expense(27,487)Foreign exchange loss(742)Income before income taxes$115,776GAAP Ratios:Loss and loss expense ratio74.1%91.7%74.7%78.3%Acquisition cost ratio13.1%(1.7%)18.5%11.7%General and administrative expense ratio22.1%26.5%12.6%19.6%Combined ratio109.3%116.5%105.8%109.6% ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AGUNAUDITED OPERATING INCOME RECONCILIATION(Expressed in thousands of United States dollars, except share and per share amounts)Quarter Ended June 30,Six Months Ended June 30,2012201120122011Net income$96,351$93,800$314,507$102,420Add after tax effect of:Net realized investment gains(8,014)(50,795)(134,584)(100,320)Foreign exchange (gain) loss(1,019)1,184(1,100)742Operating income$87,318$44,189$178,823$2,842Weighted average common shares outstanding:Basic36,288,59638,346,48936,746,88138,061,724Diluted37,189,72239,800,75337,395,55939,873,418Basic per share data:Net income$2.66$2.45$8.56$2.69Add after tax effect of:Net realized investment gains(0.22)(1.32)(3.66)(2.64)Foreign exchange (gain) loss(0.03)0.02(0.03)0.03Operating income$2.41$1.15$4.87$0.08Diluted per share data:Net income$2.59$2.36$8.41$2.57Add after tax effect of:Net realized investment gains(0.22)(1.28)(3.60)(2.52)Foreign exchange (gain) loss(0.02)0.03(0.03)0.02Operating income$2.35$1.11$4.78$0.07 ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AGUNAUDITED  DILUTED BOOK VALUE PER SHARE RECONCILIATION(Expressed in thousands of United States dollars, except share and per share amounts)As ofAs ofAs ofJune 30,December 31,June 30,201220112011Price per share at period end$79.47$62.93$57.58Total shareholders' equity$3,283,901$3,149,022$3,044,417Basic common shares outstanding35,942,96437,742,13137,945,043Add: unvested restricted share units185,809249,251473,967Add: performance based equity awards510,530889,939920,164Add: employee share purchase plan?11,053?Add: dilutive options/warrants outstanding1,365,2451,525,8531,124,438  Weighted average exercise price per share$46.04$45.72$38.83Deduct: options bought back via treasury method(790,888)(1,108,615)(758,342)Common shares and common shareequivalents outstanding37,213,66039,309,61239,705,270Basic book value per common share$91.36$83.44$80.23Diluted book value per common share$88.24$80.11$76.68 ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AGUNAUDITED ANNUALIZED RETURN ON SHAREHOLDERS' EQUITY RECONCILIATION(Expressed in thousands of United States dollars, except for percentage information)Quarter Ended June 30,Six Months Ended June 30,2012201120122011Opening shareholders' equity$3,245,821$2,950,953$3,149,022$3,075,820Deduct: accumulated other comprehensive income(2,325)(32,963)(14,484)(57,135)Adjusted opening shareholders' equity3,243,4962,917,9903,134,5383,018,685Closing shareholders' equity$3,283,901$3,044,417$3,283,901$3,044,417Deduct: accumulated other comprehensive income(1,414)(23,095)(1,414)(23,095)Adjusted closing shareholders' equity3,282,4873,021,3223,282,4873,021,322Average shareholders' equity$3,262,992$2,969,656$3,208,513$3,020,004Net income available to shareholders$96,351$93,800$314,507$102,420Annualized net income available to shareholders385,404375,200629,014204,840Annualized return on average shareholders' equity - net income available to shareholders11.8%12.6%19.6%6.8%Operating income available to shareholders$87,318$44,190$178,823$2,842Annualized operating income available to shareholders349,272176,760357,6465,684Annualized return on average shareholders' equity - operating income available to shareholders10.7%6.0%11.1%0.2%  SOURCE Allied World Assurance Company Holdings, AGFor further information: Media: Faye Cook, Vice President, Marketing & Communications, +1-441-278-5406, faye.cook@awac.com; Investors: Keith J. Lennox, Investor Relations Officer, +1-646-794-0750, keith.lennox@awac.com, Website: www.awac.com