The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Globe Investor

News Sources

Take control of your investments with the latest investing news and analysis

Press release from PR Newswire

Allied World Reports 6.3% Quarterly Growth in Diluted Book Value Per Share With Strong Third Quarter 2012 Results

Wednesday, October 31, 2012

Allied World Reports 6.3% Quarterly Growth in Diluted Book Value Per Share With Strong Third Quarter 2012 Results16:30 EDT Wednesday, October 31, 2012Gross Premiums Written up 20% through September 2012ZUG, 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 ResultsGross 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 ENDEDTHREE MONTHS ENDEDNINE MONTHS ENDEDNINE MONTHS ENDEDSeptember 30, 2012September 30, 2011September 30, 2012September 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)405.486.5Average invested assets$                 8,449.4$                  8,048.1$               8,332.5$               7,878.3Financial statement portfolio return2.2%(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' EquityAs 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 ProgramDuring 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 InformationAllied 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 CallScott 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 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.  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 September 30,Nine Months Ended September 30,2012 2011 2012 2011 Revenues:Gross premiums written$504,420$442,698$1,832,219$1,522,984Premiums ceded(112,883)(92,438)(357,019)(296,050)Net premiums written391,537350,2601,475,2001,226,934Change in unearned premiums49,48021,080(202,546)(165,411)Net premiums earned441,017371,3401,272,6541,061,523Net investment income39,12147,883128,781150,459Net realized investment gains (losses)149,813(130,809)292,057(21,555)Other income - termination fee?35,000?35,000Total revenue629,951323,4141,693,4921,225,427Expenses:Net losses and loss expenses258,948205,546724,530745,811Acquisition costs51,08639,680149,812120,733General and administrative expenses78,57266,007222,917201,164Amortization of intangible assets6337671,9002,300Interest expense13,82213,74841,57941,235Foreign exchange loss (gain)1,0232,966(77)3,708Total expenses404,084328,7141,140,6611,114,951Income (loss) before income taxes225,867(5,300)552,831110,476Income tax expense6,2205,67218,67719,028NET INCOME (LOSS)$219,647$(10,972)$534,154$91,448PER SHARE DATA:Basic earnings (loss) per share$6.16$(0.29)$14.68$2.40Diluted earnings (loss) per share$6.00$(0.29)$14.28$2.30Weighted average common shares outstanding35,652,76838,110,36836,379,51438,078,116Weighted average common shares and common share equivalents outstanding36,616,73438,110,36837,393,09339,759,780Dividends paid per share$0.750$0.375$1.500$0.375ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AGUNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS(Expressed in thousands of United States dollars, except share and per share amounts)As ofAs ofSeptember 30,December 31,ASSETS:2012 2011 Fixed maturity investments available for sale, at fair value$29,085$244,016Fixed maturity investments trading, at fair value7,125,8606,254,686Equity securities trading, at fair value490,418367,483Other invested assets trading, at fair value564,702540,409Total investments8,210,0657,406,594Cash and cash equivalents686,440716,604Insurance balances receivable754,978652,158Prepaid reinsurance262,163226,721Reinsurance recoverable1,077,5221,002,919Accrued investment income32,34838,263Net deferred acquisition costs127,527100,334Goodwill 268,376268,376Intangible assets51,99853,898Balances receivable on sale of investments756,570580,443Net deferred tax assets23,18522,646Other assets60,81753,202Total assets$12,311,989$11,122,158LIABILITIES:Reserve for losses and loss expenses$5,450,787$5,225,143Unearned premiums1,316,3991,078,412Reinsurance balances payable120,432124,539Balances due on purchases of investments1,075,069616,728Senior notes798,147797,949Dividends payable?14,302Accounts payable and accrued liabilities115,369116,063Total liabilities8,876,2037,973,136SHAREHOLDERS' EQUITY:Common shares, 2012: par value CHF 12.98 per share and 2011: par value CHF 14.03 per share (2012: 37,083,742; 2011: 40,003,642 shares issued and 2012: 35,402,558; 2011: 37,742,131 shares outstanding)477,246557,153Additional paid-in capital?78,225Treasury shares, at cost (2012: 1,681,184; 2011: 2,261,511)(120,944)(136,590)Retained earnings3,078,0992,635,750Accumulated other comprehensive income1,38514,484Total shareholders' equity3,435,7863,149,022Total liabilities and shareholders' equity$12,311,989$11,122,158ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AGUNAUDITED CONSOLIDATED SEGMENT DATA(Expressed in thousands of United States dollars, except for ratio information)U.S.InternationalQuarter Ended September 30, 2012InsuranceInsuranceReinsuranceTotalGross premiums written$263,129$121,315$119,976$504,420Net premiums written200,77971,199119,559391,537Net premiums earned173,94885,329181,740441,017Net losses and loss expenses(109,111)(15,099)(134,738)(258,948)Acquisition costs(22,696)266(28,656)(51,086)General and administrative expenses(37,388)(22,920)(18,264)(78,572)Underwriting income4,75347,5768252,411Net investment income39,121Net realized investment gains149,813Amortization of intangible assets(633)Interest expense(13,822)Foreign exchange loss(1,023)Income before income taxes$225,867GAAP Ratios:Loss and loss expense ratio62.7%17.7%74.1%58.7%Acquisition cost ratio13.0%(0.3%)15.8%11.6%General and administrative expense ratio21.5%26.9%10.0%17.8%Combined ratio97.2%44.3%99.9%88.1%U.S.InternationalQuarter Ended September 30, 2011InsuranceInsuranceReinsuranceTotalGross premiums written$201,522$109,612$131,564$442,698Net premiums written157,31061,386131,564350,260Net premiums earned150,47480,175140,691371,340Net losses and loss expenses(85,720)(43,666)(76,160)(205,546)Acquisition costs(19,549)343(20,474)(39,680)General and administrative expenses(28,945)(21,558)(15,504)(66,007)Underwriting income16,26015,29428,55360,107Net investment income47,883Net realized investment losses(130,809)Other income - termination fee35,000Amortization of intangible assets(767)Interest expense(13,748)Foreign exchange loss(2,966)Loss before income taxes$(5,300)GAAP Ratios:Loss and loss expense ratio57.0%54.5%54.1%55.4%Acquisition cost ratio13.0%(0.4%)14.6%10.7%General and administrative expense ratio19.2%26.9%11.0%17.8%Combined ratio89.2%81.0%79.7%83.9%ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AGUNAUDITED CONSOLIDATED SEGMENT DATA(Expressed in thousands of United States dollars, except for ratio information)U.S.InternationalNine Months Ended September 30, 2012InsuranceInsuranceReinsuranceTotalGross premiums written$733,314$418,498$680,407$1,832,219Net premiums written551,286255,150668,7641,475,200Net premiums earned490,091247,805534,7581,272,654Net losses and loss expenses(309,889)(75,432)(339,209)(724,530)Acquisition costs(63,918)1,376(87,270)(149,812)General and administrative expenses(103,162)(66,969)(52,786)(222,917)Underwriting income13,122106,78055,493175,395Net investment income128,781Net realized investment gains292,057Amortization of intangible assets(1,900)Interest expense(41,579)Foreign exchange gain77Income before income taxes$552,831GAAP Ratios:Loss and loss expense ratio63.2%30.4%63.4%56.9%Acquisition cost ratio13.0%(0.6%)16.3%11.8%General and administrative expense ratio21.0%27.0%9.9%17.5%Combined ratio97.2%56.8%89.6%86.2%U.S.InternationalNine Months Ended September 30, 2011InsuranceInsuranceReinsuranceTotalGross premiums written$611,562$399,530$511,892$1,522,984Net premiums written470,099245,281511,5541,226,934Net premiums earned431,812236,421393,2901,061,523Net losses and loss expenses(294,146)(186,932)(264,733)(745,811)Acquisition costs(56,527)2,946(67,152)(120,733)General and administrative expenses(90,997)(62,939)(47,228)(201,164)Underwriting (loss) income(9,858)(10,504)14,177(6,185)Net investment income150,459Net realized investment losses(21,555)Other income - termination fee35,000Amortization of intangible assets(2,300)Interest expense(41,235)Foreign exchange loss(3,708)Income before income taxes$110,476GAAP Ratios:Loss and loss expense ratio68.1%79.1%67.3%70.3%Acquisition cost ratio13.1%(1.2%)17.1%11.4%General and administrative expense ratio21.1%26.6%12.0%19.0%Combined ratio102.3%104.5%96.4%100.7%ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AGUNAUDITED OPERATING INCOME RECONCILIATION(Expressed in thousands of United States dollars, except share and per share amounts)Quarter Ended September 30,Nine Months Ended September 30,2012 2011 2012 2011 Net income (loss)$219,647$(10,972)$534,154$91,448Add after tax effect of:Net realized investment (gains) losses(141,451)126,440(276,035)26,119Other Income - termination fee?(32,270)?(32,270)Foreign exchange loss (gain)1,0232,966(77)3,708Operating income$79,219$86,164$258,042$89,005Weighted average common shares outstanding:Basic35,652,76838,110,36836,379,51438,078,116Diluted36,616,73439,340,710*37,393,09339,759,780Basic per share data:Net income (loss)$6.16$(0.29)$14.68$2.40Add after tax effect of:Net realized investment (gains) losses(3.97)3.32(7.59)0.69Other Income - termination fee?(0.85)?(0.85)Foreign exchange loss (gain)0.030.08?0.10Operating income$2.22$2.26$7.09$2.34Diluted per share data:Net income (loss)$6.00$(0.29)*$14.28$2.30Add after tax effect of:Net realized investment (gains) losses(3.86)3.21(7.38)0.66Other Income - termination fee?(0.82)?(0.81)Foreign exchange loss (gain)0.020.09?0.09Operating income$2.16$2.19$6.90$2.24*Diluted weighted average common shares outstanding were only used in the calculation of diluted operating income per share. There were no common share equivalents included in calculating diluted earnings per share as there was a net loss and any additional shares would prove to be anti-dilutive.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 ofSeptember 30,December 31,September 30,2012 2011 2011 Price per share at period end$77.25$62.93$53.71Total shareholders' equity$3,435,786$3,149,022$3,003,074Basic common shares outstanding35,402,55837,742,13138,145,557Add: unvested restricted share units179,986249,251256,672Add: performance based equity awards508,130889,939898,014Add: employee share purchase plan5,92511,0531,215Add: dilutive options/warrants outstanding1,306,8371,525,8531,107,305  Weighted average exercise price per share$46.14$45.72$38.80Deduct: options bought back via treasury method(780,502)(1,108,615)(799,914)Common shares and common shareequivalents outstanding36,622,93439,309,61239,608,849Basic book value per common share$97.05$83.44$78.73Diluted book value per common share$93.82$80.11$75.82ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AGUNAUDITED ANNUALIZED RETURN ON SHAREHOLDERS' EQUITY RECONCILIATION(Expressed in thousands of United States dollars, except for percentage information)Quarter Ended September 30,Nine Months Ended September 30,2012 2011 2012 2011 Opening shareholders' equity$3,283,901$3,044,417$3,149,022$3,075,820Deduct: accumulated other comprehensive income(1,414)(23,095)(14,484)(57,135)Adjusted opening shareholders' equity3,282,4873,021,3223,134,5383,018,685Closing shareholders' equity$3,435,786$3,003,074$3,435,786$3,003,074Deduct: accumulated other comprehensive income(1,385)(17,796)(1,385)(17,796)Adjusted closing shareholders' equity3,434,4012,985,2783,434,4012,985,278Average shareholders' equity$3,358,444$3,003,300$3,284,470$3,001,982Net income (loss) available to shareholders$219,647$(10,972)$534,154$91,448Annualized net income (loss) available to shareholders878,588(43,888)712,205121,931Annualized return on average shareholders' equity - net income (loss) available to shareholders26.2%(1.5%)21.7%4.1%Operating income available to shareholders$79,219$86,163$258,042$89,005Annualized operating income available to shareholders316,876344,652344,056118,673Annualized return on average shareholders' equity - operating income available to shareholders9.4%11.5%10.5%4.0%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