UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________

Form 10-Q

(Mark One)



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: ~~June 30, 2014~~March 31, 2015



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-32938

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

(Exact Name of Registrant as Specified in Its Charter)



Switzerland	98-0681223
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

~~Lindenstrasse 8~~

~~6340 Baar~~

Gubelstrasse 24, Park Tower, 15th Floor, 6300 Zug, Switzerland

(Address of Principal Executive Offices and Zip Code)

41-41-768-1080

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer þ	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

As of ~~July 14, 2014, 96,823,713~~April 13, 2015, 95,444,669 common shares were outstanding.

Table of Contents

TABLE OF CONTENTS



PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3129

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6755

Item 4.	Controls and Procedures	7058

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	7159

Item 1A.	Risk Factors	7159

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7260

Item 3.	Defaults Upon Senior Securities	7261

Item 4.	Mine Safety Disclosures	7261

Item 5.	Other Information	7261

Item 6.	Exhibits	7362

SIGNATURES		7463

EXHIBIT INDEX

-i-

Table of Contents

PART I

FINANCIAL INFORMATION



Item 1.	Financial Statements.

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

as of ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013~~2014

(Expressed in thousands, except share and per share amounts)


	As of			As of			As of			As of
	June 30, 2014			December 31, 2013			March 31, 2015			December 31, 2014
ASSETS:
Fixed maturity investments trading, at fair value (amortized cost: 2014: $6,062,758; 2013: $6,065,350)	$	6,157,084		$	6,100,798
Equity securities trading, at fair value (cost: 2014: $885,861; 2013: $647,301)	938,117			699,846
Fixed maturity investments trading, at fair value (amortized cost: 2015: $6,229,608; 2014: $6,035,240)							$	6,288,897		$	6,069,010
Equity securities trading, at fair value (cost: 2015: $798,275; 2014: $791,206)							856,652			844,163
Other invested assets	932,639			911,392			926,407			955,509
Total investments	8,027,840			7,712,036			8,071,956			7,868,682
Cash and cash equivalents	635,138			531,936			515,070			589,339
Restricted cash	127,755			149,393			49,931			80,971
Insurance balances receivable	976,441			664,731			773,394			664,815
Funds held	414,445			632,430			479,909			724,021
Prepaid reinsurance	390,414			340,992			318,838			360,732
Reinsurance recoverable	1,301,742			1,234,504			1,350,311			1,340,256
Reinsurance recoverable on paid losses							107,071			86,075
Accrued investment income	30,968			32,236			28,267			28,456
Net deferred acquisition costs	163,259			126,661			187,246			151,546
Goodwill	277,761			268,376			280,725			278,258
Intangible assets	47,564			48,831			49,274			46,298
Balances receivable on sale of investments	164,713			76,544			46,822			47,149
Net deferred tax assets	35,867			37,469			29,922			33,615
Other assets	75,740			89,691			329,050			121,350
Total assets	$	12,669,647		$	11,945,830		$	12,617,786		$	12,421,563
LIABILITIES:
Reserve for losses and loss expenses	$	5,935,678		$	5,766,529		$	5,905,110		$	5,881,165
Unearned premiums	1,703,684			1,396,256			1,717,399			1,555,313
Reinsurance balances payable	224,182			173,023			184,322			180,060
Balances due on purchases of investments	180,378			104,740			34,396			5,428
Senior notes	798,648			798,499			798,881			798,802
Other long-term debt							19,730			19,213
Dividends payable	21,870			16,732			21,528			21,669
Accounts payable and accrued liabilities	122,445			170,225			107,353			181,622
Total liabilities	$	8,986,885		$	8,426,004		$	8,788,719		$	8,643,272
Commitments and contingencies
SHAREHOLDERS’ EQUITY:
Common shares: 2014: par value CHF 4.10 per share and 2013: par value CHF 4.10 per share (2014: 99,515,760; 2013: 103,477,452 shares issued and 2014: 96,929,091; 2013: 100,253,646 shares outstanding)	402,907			418,988
Treasury shares, at cost (2014: 2,586,669; 2013: 3,223,806)	(65,258		)	(79,992		)
Common shares: 2015 and 2014: par value CHF 4.10 per share (2015: 100,299,454; 2014: 100,775,256 shares issued and 2015: 95,444,669; 2014: 96,195,482 shares outstanding)							406,088			408,020
Treasury shares, at cost (2015: 4,854,785; 2014: 4,579,774)							(162,356		)	(143,075		)
Retained earnings	3,345,113			3,180,830			3,585,335			3,513,346
Total shareholders’ equity	3,682,762			3,519,826			3,829,067			3,778,291
Total liabilities and shareholders’ equity	$	12,669,647		$	11,945,830		$	12,617,786		$	12,421,563

See accompanying notes to the consolidated financial statements.

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

for the three ~~and six~~ months ended ~~June 30,~~March 31, 2015 and 2014 ~~and 2013~~

(Expressed in thousands, except share and per share amounts)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2014			2013			2014			2013			2015			2014
REVENUES:
Gross premiums written	$	760,405		$	765,200		$	1,661,798		$	1,602,281		$	880,614		$	901,393
Premiums ceded	(206,481		)	(183,978		)	(336,260		)	(326,007		)	(108,086		)	(129,779		)
Net premiums written	553,924			581,222			1,325,538			1,276,274			772,528			771,614
Change in unearned premiums	(16,677		)	(73,951		)	(258,006		)	(305,775		)	(203,980		)	(241,329		)
Net premiums earned	537,247			507,271			1,067,532			970,499			568,548			530,285
Net investment income	36,793			37,635			84,412			71,023			44,551			47,619
Net realized investment gains (losses)	85,217			(115,198		)	139,422			(35,561		)
	659,257			429,708			1,291,366			1,005,961
Net realized investment gains													45,025			54,205
Other income													854			—
Total revenue													658,978			632,109
EXPENSES:
Net losses and loss expenses	314,855			275,128			590,141			530,306			325,176			275,286
Acquisition costs	74,279			64,617			142,001			121,302			78,699			67,722
General and administrative expenses	96,188			80,585			176,528			163,265			97,138			80,340
Other expense													1,823			—
Amortization of intangible assets	634			634			1,267			1,267			633			633
Interest expense	14,592			14,188			29,126			28,322			14,337			14,534
Foreign exchange loss	651			490			700			3,008			9,897			49
	501,199			435,642			939,763			847,470
Income (loss) before income taxes	158,058			(5,934		)	351,603			158,491
Income tax expense (benefit)	6,195			(4,072		)	22,768			1,361
NET INCOME (LOSS)	151,863			(1,862		)	328,835			157,130
Total expenses													527,703			438,564
Income before income taxes													131,275			193,545
Income tax expense													6,919			16,573
NET INCOME													124,356			176,972

Other comprehensive income	—			—			—			—			—			—
COMPREHENSIVE INCOME (LOSS)	$	151,863		$	(1,862	)	$	328,835		$	157,130
COMPREHENSIVE INCOME													$	124,356		$	176,972
PER SHARE DATA
Basic earnings (loss) per share	$	1.55		$	(0.02	)	$	3.33		$	1.52
Diluted earnings (loss) per share	$	1.52		$	(0.02	)	$	3.27		$	1.48
Basic earnings per share													$	1.30		$	1.78
Diluted earnings per share													$	1.27		$	1.74
Weighted average common shares outstanding	97,809,639			103,267,659			98,672,618			103,552,656			95,935,551			99,545,187
Weighted average common shares and common share equivalents outstanding	99,724,802			103,267,659			100,691,568			105,949,785			97,577,029			101,584,662
Dividends paid per share	$	0.167		$	—		$	0.333		$	0.125		$	0.225		$	0.167

See accompanying notes to the consolidated financial statements.

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

for the ~~six~~three months ended ~~June 30,~~March 31, 2015 and 2014 ~~and 2013~~

(Expressed in thousands)


													Share Capital			Treasury Shares			Retained Earnings			Total
December 31, 2014													$	408,020		$	(143,075	)	$	3,513,346		$	3,778,291
Net income													—			—			124,356			124,356
Dividends													—			—			(21,522		)	(21,522		)
Stock compensation													—			12,288			(13,397		)	(1,109		)
Share repurchases													—			(50,949		)	—			(50,949		)
Shares canceled													(1,932		)	19,380			(17,448		)	—
March 31, 2015													$	406,088		$	(162,356	)	$	3,585,335		$	3,829,067
	Share Capital			Treasury Shares			Retained Earnings			Total
December 31, 2013	$	418,988		$	(79,992	)	$	3,180,830		$	3,519,826		$	418,988		$	(79,992	)	$	3,180,830		$	3,519,826
Net income	—			—			328,835			328,835			—			—			176,972			176,972
Dividends	—			—			(38,345		)	(38,345		)	—			—			(16,489		)	(16,489		)
Stock compensation	—			14,734			(2,756		)	11,978			—			11,236			(6,208		)	5,028
Share repurchases	—			(139,532		)	—			(139,532		)	—			(68,659		)	—			(68,659		)
Shares cancelled	(16,081		)	139,532			(123,451		)	—
June 30, 2014	$	402,907		$	(65,258	)	$	3,345,113		$	3,682,762

December 31, 2012	$	454,980		$	(113,818	)	$	2,985,173		$	3,326,335
Net income	—			—			157,130			157,130
Dividends — par value reduction	(12,981		)	—			—			(12,981		)
Dividends	—			—			(17,127		)	(17,127		)
Stock compensation	—			22,157			(19,714		)	2,443
Share repurchases	—			(82,571		)	—			(82,571		)
Shares cancelled	(11,602		)	82,571			(70,969		)	—
June 30, 2013	$	430,397		$	(91,661	)	$	3,034,493		$	3,373,229
Shares canceled													(8,168		)	68,659			(60,491		)	—
March 31, 2014													$	410,820		$	(68,756	)	$	3,274,614		$	3,616,678

See accompanying notes to the consolidated financial statements.

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

for the ~~six~~three months ended ~~June 30,~~March 31, 2015 and 2014 ~~and 2013~~

(Expressed in thousands)


	Six Months Ended June 30,						Three Months Ended March 31,
	2014			2013			2015			2014
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income	$	328,835		$	157,130		$	124,356		$	176,972
Adjustments to reconcile net income to cash provided by operating activities:
Net realized gains on sales of investments	(99,781		)	(62,921		)	(32,536		)	(49,756		)
Mark to market adjustments	(59,113		)	95,698			(22,694		)	(13,956		)
Stock compensation expense	7,631			6,566			4,002			4,240
Undistributed loss (income) of equity method investments	13,744			(2,316		)
Undistributed income of equity method investments							9,767			(2,292		)
Changes in:
Reserve for losses and loss expenses, net of reinsurance recoverables	101,911			12,901			13,890			44,248
Unearned premiums, net of prepaid reinsurance	258,006			305,776			203,980			241,329
Insurance balances receivable	(310,885		)	(304,088		)	(108,579		)	(175,739		)
Reinsurance recoverable on paid losses							(20,996		)	840
Funds held	217,985			(51,231		)	244,112			184,629
Reinsurance balances payable	51,159			69,620			4,262			(12,982		)
Net deferred acquisition costs	(36,598		)	(45,802		)	(35,700		)	(40,443		)
Net deferred tax assets	1,934			(14,970		)	3,693			521
Accounts payable and accrued liabilities	(53,397		)	(45,601		)	(75,008		)	(83,745		)
Other items, net	27,507			12,880			5,027			29,230
Net cash provided by operating activities	448,938			133,642			317,576			303,096
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of trading securities	(3,905,650		)	(3,186,162		)	(1,723,443		)	(1,568,993		)
Purchases of other invested assets	(181,419		)	(141,805		)	(233,252		)	(779,934		)
Sales of trading securities	3,705,229			3,171,977			1,561,890			1,494,648
Sales of other invested assets	184,166			126,491			56,535			663,237
Purchases of fixed assets	(5,601		)	(3,363		)	(8,374		)	(2,336		)
Net cash paid on acquisition							(3,543		)	—
Change in restricted cash	21,638			(10,561		)	31,040			4,823
Net cash paid for acquisitions	(2,565		)	—
Net cash used in investing activities	(184,202		)	(43,423		)	(319,147		)	(188,555		)
CASH FLOWS USED IN FINANCING ACTIVITIES:
Dividends paid - partial par value reduction	—			(12,981		)
Dividends paid	(33,207		)	—			(21,669		)	(16,732		)
Proceeds from the exercise of stock options	6,313			5,293			4,223			3,030
Share repurchases	(137,810		)	(82,571		)	(50,273		)	(68,659		)
Net cash used in financing activities	(164,704		)	(90,259		)	(67,719		)	(82,361		)
Effect of exchange rate changes on foreign currency cash	3,170			(7,736		)	(4,979		)	1,686
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	103,202			(7,776		)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS							(74,269		)	33,866
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	531,936			681,879			589,339			531,936
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	635,138		$	674,103		$	515,070		$	565,802
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	18,061		$	12,671		$	717		$	529
Cash paid for interest expense	$	27,000		$	27,000		$	18,750		$	18,750

See accompanying notes to the consolidated financial statements.

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

1. GENERAL

Allied World Assurance Company Holdings, AG, a Swiss holding company (“Allied World Switzerland”), through its wholly-owned subsidiaries (collectively, the “Company”), ~~provides~~is a global provider of a diversified portfolio of property and casualty insurance and reinsurance ~~on a worldwide basis.~~products with operations in Australia, Bermuda, Canada, Europe Hong Kong, Singapore and the United States as well as Lloyd's Syndicate 2232. References to $ are to the lawful currency of the United States and to CHF are to the lawful currency of Switzerland.

In January 2015, the Company acquired Latin American Underwriters Holdings Ltd. ("LAU") for $5,105. LAU had previously underwritten trade credit insurance and political risk coverages solely for the Company since 2010. As part of the acquisition, the Company recorded goodwill of $2,467 and customer relationship intangibles of $3,610, which have a five-year amortization period. The Company also recorded $1,000 of contingent consideration related to certain earn-out payments.

During the fourth quarter of 2014, the Company reorganized how it manages its business, and as a result it realigned its executive management team and changed its reportable segments to correspond to the reorganization. The Company's Bermuda insurance operations, except for the trade credit line of business, which had previously been included in the international insurance segment, was combined with the U.S. insurance segment, with the new segment renamed the "North American Insurance" segment. The remaining direct insurance operations of the international insurance segment was renamed the "Global Markets Insurance" segment. The Reinsurance segment remained unchanged. The newly created segments are included in Note 12 and prior periods have been recast to conform to the new presentation.

On May 1, 2014, the shareholders approved a 3-for-1 stock split of the Company's common shares. All historical share and per share amounts reflect the effect of the stock split.

2. BASIS OF PREPARATION AND CONSOLIDATION

These unaudited condensed consolidated financial statements include the accounts of the Company and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with Article 10 of Regulation S-X as promulgated by the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments that are normal and recurring in nature and necessary for a fair presentation of financial position and results of operations as of the end of and for the periods presented. The results of operations for any interim period are not necessarily indicative of the results for a full year.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates reflected in the Company’s financial statements, ~~including,~~include, but are not limited to:

The premium estimates for certain reinsurance agreements,

Recoverability of deferred acquisition costs,

The reserve for outstanding losses and loss expenses,

Valuation of ceded reinsurance recoverables,

Determination of impairment of goodwill and other intangible assets, and

Valuation of financial instruments.

Intercompany accounts and transactions have been eliminated on consolidation and all entities meeting consolidation requirements have been included in the unaudited condensed consolidated financial statements.

~~On May 1, 2014, the shareholders approved a 3-for-1 stock split of the Company's common shares. All historical share and per share amounts reflect the effect of the stock split.~~

These unaudited condensed consolidated financial statements, including these notes, should be read in conjunction with the Company’s audited consolidated financial statements, and related notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2013.~~

~~3. NEW ACCOUNTING PRONOUNCEMENTS~~

In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity" ("ASU 2014-08"). ASU 2014-08 changes the requirements for reporting discontinued operations, such that a disposal of a component of the Company's operations is required to be reported as discontinued operations if the disposal represents a strategic shift that has, or will have, a major effect on the Company's operations and financial results. Examples of strategic shifts that could have a major effect on the Company's operations could include a disposal of a major geographical area, a major line of business, a major equity method investment, or other major parts of the Company. ASU 2014-08 is effective for all disposals that occur after January 1, 2015. The Company is currently assessing the impact the adoption of ASU 2014-08 will have on future financial statements.

2014.

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

3. NEW ACCOUNTING PRONOUNCEMENTS

In May 2014, the ~~FASB~~Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"). ASU 2014-09 provides a framework, through a five-step process, for recognizing revenue from customers, improves comparability and consistency of recognizing revenue across entities, industries, jurisdictions and capital markets, and requires enhanced disclosures. Certain contracts with customers are specifically excluded from the scope of ASU 2014-09, including, ~~amongst~~among others, insurance contracts accounted for under Accounting Standard Codification 944, Financial Services - Insurance. ASU 2014-09 is effective on January 1, 2017 with retrospective adoption required for the comparative periods. In recent re-deliberations, the FASB has decided to propose a one-year deferral of the effective date of ASU 2014-09, such that it will become effective on January 1, 2018. The Company is currently assessing the impact the adoption of ASU 2014-09 will have on future financial ~~statements.~~statements and related disclosures.

In August 2014, the FASB issued Accounting Standards Update 2014-15, "Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern" ("ASU 2014-15"). Currently, there is no guidance under U.S. GAAP regarding management's responsibility to assess whether there is substantial doubt about an entity's ability to continue as a going concern. Under ASU 2014-15, the Company will be required to assess its ability to continue as a going concern each interim and annual reporting period and provide certain disclosures if there is substantial doubt about the entity's ability to continue as a going concern, including management's plan to alleviate the substantial doubt. ASU 2014-15 is effective for the year ended December 31, 2016 and early adoption is permitted. The Company early adopted ASU 2014-15 on January 1, 2015.

In February 2015, the FASB issued Accounting Standards Update 2015-02, "Amendments to the Consolidation Analysis" ("ASU 2015-02"). ASU 2015-02 amends certain aspects of the consolidation guidance in U.S. GAAP. In particular, it will modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities and also eliminates the presumption that a general partner should consolidate a limited partnership. The new guidance will also affect the consolidation analysis of the Company's interests in VIEs, particularly those that have fee arrangements and related party relationships. ASU 2015-02 is effective on January 1, 2016 and retrospectively adoption is required either through a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the year of adoption or retrospectively for all comparative periods. Early adoption is permitted. The Company is currently assessing the impact the adoption of ASU 2015-02 will have on future financial statements and related disclosures.

4. INVESTMENTS

a) Trading Securities

Securities accounted for at fair value with changes in fair value recognized in the unaudited condensed consolidated statements of operations and comprehensive income (“consolidated income statements”) by category are as follows:


	June 30, 2014				December 31, 2013				March 31, 2015				December 31, 2014
	Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost
U.S. Government and Government agencies	$	1,274,331	$	1,273,469	$	1,676,788	$	1,684,832
Non-U.S. Government and Government agencies	185,071		186,142		191,776		197,082
U.S. government and government agencies									$	1,577,775	$	1,569,317	$	1,610,502	$	1,610,880
Non-U.S. government and government agencies									189,448		204,867		188,199		196,332
States, municipalities and political subdivisions	261,267		256,698		231,555		234,406		178,551		172,339		170,567		165,615
Corporate debt:
Financial institutions	1,168,937		1,149,005		958,794		943,518		1,107,108		1,094,338		1,024,667		1,018,777
Industrials	1,167,470		1,152,858		1,174,047		1,165,448		1,107,548		1,105,744		1,029,729		1,037,820
Utilities	98,878		97,457		69,426		69,658		113,383		113,280		110,997		111,599
Mortgage-backed	1,323,763		1,272,824		1,292,502		1,267,863		1,286,210		1,238,165		1,263,517		1,219,712
Asset-backed	677,367		674,305		505,910		502,543		728,874		731,558		670,832		674,505
Total fixed maturity investments	$	6,157,084	$	6,062,758	$	6,100,798	$	6,065,350	$	6,288,897	$	6,229,608	$	6,069,010	$	6,035,240

June 30, 2014 December 31, 2013
Fair Value Original Cost Fair Value Original Cost
Equity securities $ 938,117
$ 885,861
$ 699,846
$ 647,301
Other invested assets 804,505
693,370
764,081
658,683
$ 1,742,622
$ 1,579,231
$ 1,463,927
$ 1,305,984

Other invested assets, included in the table above, include investments in private equity funds, hedge funds and a high yield loan fund that are accounted for at fair value, but excludes other private securities described below in Note 4(b) that are accounted for using the equity method of accounting.



	March 31, 2015				December 31, 2014
	Fair Value		Original Cost		Fair Value		Original Cost
Equity securities	$	856,652	$	798,275	$	844,163	$	791,206
Other invested assets	792,569		701,637		812,543		725,069
	$	1,649,221	$	1,499,912	$	1,656,706	$	1,516,275

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

Other invested assets, included in the table above, include investments in private equity funds, hedge funds and a high yield loan fund that are accounted for at fair value, but exclude other private securities described below in Note 4(b) that are accounted for using the equity method of accounting.

b) Other Invested Assets

Details regarding the carrying value, redemption characteristics and unfunded investment commitments of the other invested assets portfolio as of ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013~~2014 were as follows:



Investment Type	Carrying Value as of March 31, 2015		Investments with Redemption Restrictions		Estimated Remaining Restriction Period	Investments without Redemption Restrictions		Redemption Frequency(1)	Redemption Notice Period(1)	Unfunded Commitments
Private equity	$	196,090	$	196,090	2 - 8 Years	$	—			$	191,382
Mezzanine debt	163,357		163,357		5 - 9 Years	—				200,804
Distressed	5,545		5,545		3 Years	—				5,347
Real estate	—		—		9 Years	—				150,000
Total private equity	364,992		364,992			—				547,533
Distressed	173,122		173,122			—		Based on net asset value	60 Days	—
Equity long/short	87,644		—		1 Year	87,644		Quarterly	30 -60 Days	—
Multi-strategy	15,996		—			15,996		Quarterly	45 -90 Days	—
Relative value credit	120,460		—			120,460		Quarterly	60 Days	—
Total hedge funds	397,222		173,122			224,100				—
High yield loan fund	30,355		—			30,355		Monthly	30 days	—
Total other invested assets at fair value	792,569		538,114			254,455				547,533
Other private securities	133,838		—			133,838				—
Total other invested assets	$	926,407	$	538,114		$	388,293			$	547,533

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

Investment Type Carrying Value as of June 30, 2014 Investments
with
Redemption
Restrictions Estimated
Remaining
Restriction
Period Investments
without
Redemption
Restrictions Redemption
Frequency(1) Redemption
Notice
Period(1) Unfunded
Commitments
Private equity $ 161,667
$ 161,667
2 - 9 Years $ —
$ 239,697
Mezzanine debt 95,162
95,162
5 - 9 Years —
206,856
Distressed 10,008
10,008
4 Years —
4,941
Total private equity 266,837
266,837
—
451,494
Distressed 165,253
165,253
1 Year —
—
Equity long/short 134,036
58,568
1 Year 75,468
Quarterly 30 -60 Days —
Multi-strategy 100,263
—
100,263
Quarterly 45 -90 Days —
Relative value credit 105,624
—
105,624
Quarterly 60 Days —
Total hedge funds 505,176
223,821
281,355
—
High yield loan fund 32,492
—
32,492
Monthly 30 days —
Total other invested assets at fair value 804,505
490,658
313,847
451,494
Other private securities 128,134
—
128,134
—
Total other invested assets $ 932,639
$ 490,658
$ 441,981
$ 451,494


Investment Type	Carrying Value as of December 31, 2013		Investments with Redemption Restrictions		Estimated Remaining Restriction Period	Investments without Redemption Restrictions		Redemption Frequency(1)	Redemption Notice Period(1)	Unfunded Commitments		Carrying Value as of December 31, 2014		Investments with Redemption Restrictions		Estimated Remaining Restriction Period	Investments without Redemption Restrictions		Redemption Frequency(1)	Redemption Notice Period(1)	Unfunded Commitments
Private equity	$	144,422	$	144,422	2 - 9 Years	$	—			$	263,519	$	184,576	$	184,576	2 - 8 Years	$	—			$	223,802
Mezzanine debt	64,627		64,627		8 - 9 Years	—				198,756		166,905		166,905		5 - 9 Years	—				204,232
Distressed	7,776		7,776		4 Years	—				5,249		5,869		5,869		3 Years	—				5,180
Real estate												—		—		9 Years	—				50,000
Total private equity	216,825		216,825			—				467,524		357,350		357,350			—				483,214
Distressed	151,227		151,227		1 - 2 Years	—				—		170,169		170,169			—		Based on net asset value	60 Days	—
Equity long/short	99,365		—			99,365		Quarterly	30 -60 Days	—		84,198		—			84,198		Quarterly	30 -60 Days	—
Multi-strategy	136,958		—			136,958		Quarterly	45 -90 Days	—		51,507		—			51,507		Quarterly	45 -90 Days	—
Event driven	14,018		—			14,018		Annual	60 Days	—
Relative value credit	113,730		—			113,730		Quarterly	60 Days	—		119,156		—			119,156		Quarterly	60 Days	—
Total hedge funds	515,298		151,227			364,071				—		425,030		170,169			254,861				—
High yield loan fund	31,958		—			31,958		Monthly	30 days	—		30,163		—			30,163		Monthly	30 days	—
Total other invested assets at fair value	764,081		368,052			396,029				467,524		812,543		527,519			285,024				483,214
Other private securities	147,311		—			147,311				—		142,966		—			142,966				—
Total other invested assets	$	911,392	$	368,052		$	543,340			$	467,524	$	955,509	$	527,519		$	427,990			$	483,214

_______________________


(1)	The redemption frequency and notice periods only apply to the investments without redemption restrictions. Some or all of these investments may be subject to a gate as described below.

In general, the Company has invested in hedge funds that require at least 30 days’ notice of redemption and may be redeemed on a monthly, quarterly, semi-annual, annual or longer basis, depending on the fund. Certain hedge funds have ~~lock-~~

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~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Expressed in thousands, except share, per share, percentage and ratio information)~~

uplock-up periods ranging from one to three years from initial investment. A lock-up period refers to the initial amount of time an investor is contractually required to invest before having the ability to redeem. Funds that provide for periodic redemptions may, depending on the funds’ governing documents, have the ability to deny or delay a redemption request, called a “gate.” The fund may implement this restriction because the aggregate amount of redemption requests as of a particular date exceeds a specified level, generally ranging from 15% to 25% of the fund’s net assets. The gate is a method for executing an orderly redemption process to reduce the possibility of adversely affecting investors in the fund. Typically, the imposition of a gate delays a portion of the requested redemption, with the remaining portion settled in cash sometime after the redemption date. Certain funds may impose a redemption fee on early redemptions. Interests in private equity funds cannot be redeemed because the investments include restrictions that do not allow for redemption until termination of the fund.

The following describes each investment type:

Private equity funds: Primary funds may invest in companies and general partnership interests. Secondary funds buy limited partnership interests from existing limited partners of primary private equity funds. As owners of private equity funds seek liquidity, they can sell their existing investments, plus any remaining commitment, to secondary market participants. These funds cannot be redeemed because the investments include restrictions that do not allow for redemption until termination of the fund.

Mezzanine debt funds: Mezzanine debt funds primarily focus on providing capital to upper middle market and middle market companies and private equity sponsors, in connection with leveraged buyouts, mergers and acquisitions, recapitalizations, growth financings and other corporate transactions. The most common position in the capital structure will be between the senior secured debt holder and the equity; however, the funds will utilize a flexible approach when structuring investments, which may include secured debt, subordinated debt, preferred stock and/or private equity. These funds cannot be redeemed because the investments include restrictions that do not allow for redemption until termination of the fund.

Distressed funds: In distressed debt investing, managers take positions in the debt of companies experiencing significant financial difficulties, including bankruptcy, or in certain positions of the capital structure of structured

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(Expressed in thousands, except share, per share, percentage and ratio information)

securities. The manager relies on the fundamental analysis of these securities, including the claims on the assets and the likely return to bondholders. Certain funds cannot be redeemed because the investments include restrictions that do not allow for redemption until termination of the fund.

Real estate funds: Private real estate funds invest directly in commercial real estate (multifamily units, industrial buildings, office spaces and retail stores) and some residential property. Real estate managers have diversified portfolios that generally follow core, core-plus, value-added or opportunistic strategies. These funds cannot be redeemed because the investments include restrictions that do not allow for redemption until termination of the fund.

Equity long/short funds: In equity long/short funds, managers take long positions in companies they deem to be undervalued and short positions in companies they deem to be overvalued. Long/short managers may invest in countries, regions or sectors and vary by their use of leverage and by their targeted net long position.

Multi-strategy funds: These funds may utilize many strategies employed by specialized funds including distressed investing, equity long/short, merger arbitrage, convertible arbitrage, fixed income arbitrage and macro trading.

~~Event driven funds:~~ Event driven strategies seek to deploy capital into specific securities whose returns are affected by a specific event that affects the value of one or more securities of a company. Returns for such securities are linked primarily to the specific outcome of the events and not by the overall direction of the bond or stock markets. Examples could include mergers and acquisitions (arbitrage), corporate restructurings and spin-offs, and capital structure arbitrage.

Relative value credit funds: These funds seek to take exposure to credit-sensitive securities, long and/or short, based upon credit analysis of issuers and securities and credit market views.

High yield loan fund: A long-only private mutual fund that invests in high yield fixed income securities.

Other private securities: These securities mostly include strategic non-controlling minority investments in private asset management companies and other insurance related investments that are accounted for using the equity method of accounting.

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~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Expressed in thousands, except share, per share, percentage and ratio information)~~

c) Net Investment Income

Three Months Ended
June 30, Six Months Ended
June 30,
2014 2013 2014 2013
Fixed maturity investments $ 35,936
$ 32,662
$ 72,235
$ 65,187
Equity securities 5,912
4,409
9,165
7,608
Other invested assets (890 ) 3,843
10,518
5,307
Cash and cash equivalents 571
529
1,010
1,017
Expenses (4,736 ) (3,808 ) (8,516 ) (8,096 )
Net investment income $ 36,793
$ 37,635
$ 84,412
$ 71,023

Net investment income from other invested assets included the distributed and undistributed net income from investments accounted for using the equity method of accounting. The loss reported for other invested assets for the three months ended June 30, 2014 was due to a loss of $9,348 recorded for an equity method investment due to impairment charges that it recorded.



	Three Months Ended March 31,
	2015			2014
Fixed maturity investments	$	36,258		$	36,299
Equity securities	3,563			3,253
Other invested assets: hedge funds and private equity	8,380			3,992
Other invested assets: other private securities	866			7,416
Cash and cash equivalents	462			439
Expenses	(4,978		)	(3,780		)
Net investment income	$	44,551		$	47,619

d) Components of Realized Gains and Losses


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2014			2013			2014			2013			2015			2014
Gross realized gains on sale of invested assets	$	55,714		$	58,223		$	118,006		$	102,472		$	45,289		$	62,292
Gross realized losses on sale of invested assets	(4,025		)	(35,077		)	(16,273		)	(42,042		)	(13,004		)	(12,247		)
Net realized and unrealized (losses) gains on derivatives	(13,720		)	8,538			(26,640		)	7,561
Net realized and unrealized losses on derivatives													(11,632		)	(12,920		)
Mark-to-market gains (losses):
Fixed maturity investments, trading	36,426			(115,113		)	58,882			(131,588		)	25,517			22,455
Equity securities, trading	21,316			(34,330		)	(289		)	(1,357		)	5,420			(21,605		)
Other invested assets, trading	(10,494		)	2,561			5,736			29,393			(6,565		)	16,230
Net realized investment gains (losses)	$	85,217		$	(115,198	)	$	139,422		$	(35,561	)
Net realized investment gains													$	45,025		$	54,205

e) Pledged Assets

As of ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013, $2,745,352~~2014, $3,114,066 and ~~$2,894,401,~~$3,585,792, respectively, of cash and cash equivalents and investments were deposited, pledged or held in trust accounts in favor of ceding companies and other counterparties or government authorities to comply with reinsurance contract provisions, insurance laws and other contract provisions.

In addition, as of June 30, 2014 and December 31, 2013, a further $886,220 and $1,053,632, respectively, of cash and cash equivalents and investments were pledged as collateral for the Company’s letter of credit facilities. See Note 10(d) to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 for details on the Company’s credit facilities.

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(Expressed in thousands, except share, per share, percentage and ratio information)

In addition, as of March 31, 2015 and December 31, 2014, a further $599,724 and $571,750, respectively, of cash and cash equivalents and investments were pledged as collateral for the Company’s letter of credit facilities. See Note 10(f) to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 for details on the Company’s credit facilities.

5. DERIVATIVE INSTRUMENTS

As of ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013,~~2014, none of the Company’s derivatives were designated as hedges for accounting purposes. The following table summarizes information on the location and amounts of derivative fair values on the unaudited condensed consolidated balance sheets (“consolidated balance sheets”):


	June 30, 2014								December 31, 2013								March 31, 2015								December 31, 2014
	Asset Derivative Notional Amount		Asset Derivative Fair Value		Liability Derivative Notional Amount		Liability Derivative Fair Value		Asset Derivative Notional Amount		Asset Derivative Fair Value		Liability Derivative Notional Amount		Liability Derivative Fair Value		Asset Derivative Notional Amount		Asset Derivative Fair Value		Liability Derivative Notional Amount		Liability Derivative Fair Value		Asset Derivative Notional Amount		Asset Derivative Fair Value		Liability Derivative Notional Amount		Liability Derivative Fair Value
Foreign exchange contracts	$	57,761	$	430	$	158,762	$	1,996	$	294,788	$	6,254	$	122,439	$	1,176	$	32,833	$	123	$	24,857	$	203	$	33,875	$	1,274	$	167,376	$	991
Interest rate swaps	105,000		87		664,500		1,126		491,400		6,829		40,000		4,214		—		—		662,200		1,119		—		—		571,500		683
Total derivatives	$	162,761	$	517	$	823,262	$	3,122	$	786,188	$	13,083	$	162,439	$	5,390	$	32,833	$	123	$	687,057	$	1,322	$	33,875	$	1,274	$	738,876	$	1,674

Derivative assets and derivative liabilities are classified within “other assets” or “accounts payable and accrued liabilities” on the consolidated balance sheets.

The following table provides the net realized and unrealized gains (losses) on derivatives not designated as hedges recorded on the consolidated income statements:

Three Months Ended
June 30, Six Months Ended
June 30,
2014 2013 2014 2013
Foreign exchange contracts $ (1,598 ) $ 1,989
$ (2,466 ) $ 1,245
Total included in foreign exchange loss (1,598 ) 1,989
(2,466 ) 1,245
Put options —
(90 ) —
(3,822 )
Foreign exchange contracts (286 ) 4,274
(844 ) 6,089
Interest rate futures and swaps (13,434 ) 4,354
(25,796 ) 5,294
Total included in net realized investment gains (losses) (13,720 ) 8,538
(26,640 ) 7,561
Total realized and unrealized (losses) gains on derivatives $ (15,318 ) $ 10,527
$ (29,106 ) $ 8,806

The losses related to interest rate future and swap contracts for the three and six months ended June 30, 2014 were the result of selling interest rate future and swap contracts to reduce the duration of the investment portfolio. Given the decrease in interest rates during the year, the Company recorded a loss related to these interest rate future and swap contracts.



	Three Months Ended March 31,
	2015			2014
Foreign exchange contracts	$	(7,352	)	$	(868	)
Total included in foreign exchange loss	(7,352		)	(868		)
Foreign exchange contracts	1,050			(558		)
Interest rate futures	(12,682		)	(12,362		)
Total included in net realized investment gains	(11,632		)	(12,920		)
Total realized and unrealized losses on derivatives	$	(18,984	)	$	(13,788	)

Derivative Instruments Not Designated as Hedging Instruments

The Company is exposed to foreign currency risk in its investment portfolio. Accordingly, the fair values of the Company’s investment portfolio are partially influenced by the change in foreign exchange rates. These foreign currency hedging activities have not been designated as specific hedges for financial reporting purposes.

The Company’s insurance and reinsurance subsidiaries and branches operate in various foreign countries and consequently the Company’s underwriting portfolio is exposed to foreign currency risk. The Company manages foreign currency risk by seeking to match liabilities under the insurance policies and reinsurance contracts that it writes and that are payable in foreign currencies with cash and investments that are denominated in such currencies. When necessary, the Company may also use derivatives to economically hedge un-matched foreign currency exposures, specifically forward contracts and currency options. For example, the Company purchased a forward contract to hedge a portion of its foreign currency exposure related to the consideration that was paid for the Hong Kong and Singapore operations of RSA.

The Company also purchases and sells interest rate future and interest rate swap contracts to actively manage the duration and yield curve positioning of its fixed income portfolio. Interest rate futures and interest rate swaps can efficiently increase or

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

decrease the overall duration of the portfolio. Additionally, interest rate future and interest rate swap contracts can be utilized to obtain the desired position along the yield curve in order to protect against certain future yield curve shapes.

The Company also purchases options to actively manage its equity portfolio.

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~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Expressed in thousands, except share, per share, percentage and ratio information)~~

6. FAIR VALUE OF FINANCIAL INSTRUMENTS

In accordance with U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon whether the inputs to the valuation of an asset or liability are observable or unobservable in the market at the measurement date, with quoted market prices being the highest level (Level 1) and unobservable inputs being the lowest level (Level 3). A fair value measurement will fall within the level of the hierarchy based on the input that is significant to determining such measurement. The three levels are defined as follows:

Level 1: Observable inputs to the valuation methodology that are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2: Observable inputs to the valuation methodology other than quoted market prices (unadjusted) for identical assets or liabilities in active markets. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets in markets that are not active and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Inputs to the valuation methodology that are unobservable for the asset or liability.

The following table shows the fair value of the Company’s financial instruments and where in the fair value hierarchy the fair value measurements are included as of the dates indicated below:


June 30, 2014	Carrying Amount		Total Fair Value		Level 1		Level 2		Level 3
March 31, 2015											Carrying Amount		Total Fair Value		Level 1		Level 2		Level 3
Fixed maturity investments:
U.S. Government and Government agencies	$	1,274,331	$	1,274,331	$	1,058,607	$	215,724	$	—
Non-U.S. Government and Government agencies	185,071		185,071				185,071		—
U.S. government and government agencies											$	1,577,775	$	1,577,775	$	1,467,357	$	110,418	$	—
Non-U.S. government and government agencies											189,448		189,448		—		189,448		—
States, municipalities and political subdivisions	261,267		261,267		—		261,267		—		178,551		178,551		—		178,551		—
Corporate debt	2,435,285		2,435,285		—		2,435,285		—		2,328,039		2,328,039		—		2,328,039		—
Mortgage-backed	1,323,763		1,323,763		—		1,176,962		146,801		1,286,210		1,286,210		—		1,153,512		132,698
Asset-backed	677,367		677,367		—		606,135		71,232		728,874		728,874		—		635,942		92,932
Total fixed maturity investments	6,157,084		6,157,084		1,058,607		4,880,444		218,033		6,288,897		6,288,897		1,467,357		4,595,910		225,630
Equity securities	938,117		938,117		903,254		—		34,863		856,652		856,652		807,885		—		48,767
Other invested assets	804,505		804,505		—		—		804,505		792,569		792,569		—		—		792,569
Total investments	$	7,899,706	$	7,899,706	$	1,961,861	$	4,880,444	$	1,057,401	$	7,938,118	$	7,938,118	$	2,275,242	$	4,595,910	$	1,066,966
Derivative assets:
Foreign exchange contracts	$	430	$	430	$	—	$	430	$	—	$	123	$	123	$	—	$	123	$	—
Interest rate swaps	87		87		—		87		—
Derivative liabilities:
Foreign exchange contracts	$	1,996	$	1,996	$	—	$	1,996	$	—	$	203	$	203	$	—	$	203	$	—
Interest rate swaps	1,126		1,126		—		1,126		—		1,119		1,119		—		1,119		—
Senior notes	$	798,648	$	907,005	$	—	$	907,005	$	—	$	798,881	$	877,027	$	—	$	877,027	$	—
Other long-term debt											$	19,730	$	27,175	$	—	$	27,175	$	—

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)


December 31, 2013	Carrying Amount		Total Fair Value		Level 1		Level 2		Level 3
December 31, 2014											Carrying Amount		Total Fair Value		Level 1		Level 2		Level 3
Fixed maturity investments:
U.S. Government and Government agencies	$	1,676,788	$	1,676,788	$	1,370,088	$	306,700	$	—	$	1,610,502	$	1,610,502	$	1,499,347	$	111,155	$	—
Non-U.S. Government and Government agencies	191,776		191,776		—		191,776		—		188,199		188,199		—		188,199		—
States, municipalities and political subdivisions	231,555		231,555		—		231,555		—		170,567		170,567		—		170,567		—
Corporate debt	2,202,267		2,202,267		—		2,202,267		—		2,165,393		2,165,393		—		2,165,393		—
Mortgage-backed	1,292,502		1,292,502		—		1,145,164		147,338		1,263,517		1,263,517		—		1,081,734		181,783
Asset-backed	505,910		505,910		—		412,497		93,413		670,832		670,832		—		615,419		55,413
Total fixed maturity investments	6,100,798		6,100,798		1,370,088		4,489,959		240,751		6,069,010		6,069,010		1,499,347		4,332,467		237,196
Equity securities	699,846		699,846		625,942		—		73,904		844,163		844,163		800,833		—		43,330
Other invested assets	764,081		764,081		—		—		764,081		812,543		812,543		—		—		812,543
Total investments	$	7,564,725	$	7,564,725	$	1,996,030	$	4,489,959	$	1,078,736	$	7,725,716	$	7,725,716	$	2,300,180	$	4,332,467	$	1,093,069
Derivative assets:
Foreign exchange contracts	$	6,254	$	6,254	$	—	$	6,254	$	—	$	1,274	$	1,274	$	—	$	1,274	$	—
Interest rate swaps	6,829		6,829		—		6,829		—
Derivative liabilities:
Foreign exchange contracts	$	1,176	$	1,176	$	—	$	1,176	$	—	$	991	$	991	$	—	$	991	$	—
Interest rate swaps	$	4,214	$	4,214	$	—	$	4,214	$	—	$	683	$	683	$	—	$	683	$	—
Senior notes	$	798,499	$	897,601	$	—	$	897,601	$	—	$	798,802	$	879,317	$	—	$	879,317	$	—
Other long-term debt											$	19,213	$	22,583	$	—	$	22,583	$	—

“Other invested assets” ~~excluded~~exclude other private securities that the Company did not measure at fair value, but are accounted for using the equity method of accounting. Derivative assets and derivative liabilities relating to foreign exchange contracts and interest rate swaps are classified within “other assets” or “accounts payable and accrued liabilities” on the consolidated balance sheets.

The following describes the valuation techniques used by the Company to determine the fair value of financial instruments held as of the balance sheet date.

Recurring Fair Value of Financial Instruments

U.S. ~~Government~~government and ~~Government~~government agencies: Comprised primarily of bonds issued by the U.S. Treasury, the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association. The fair values of the Company’s U.S. government securities are based on quoted market prices in active markets and are included in the Level 1 fair value hierarchy. The Company believes the market for U.S. Treasury securities is an actively traded market given the high level of daily trading volume. The fair values of U.S. government agency securities are priced using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads for these securities are observable market inputs, the fair values of U.S. government agency securities are included in the Level 2 fair value hierarchy.

Non-U.S. ~~Government~~government and ~~Government~~government agencies: Comprised of fixed income obligations of non-U.S. governmental entities. The fair values of these securities are based on prices obtained from international indices and are included in the Level 2 fair value hierarchy.

States, municipalities and political subdivisions: Comprised of fixed income obligations of U.S.-domiciled state and municipality entities. The fair values of these securities are based on prices obtained from the new issue market, and are included in the Level 2 fair value hierarchy.

Corporate debt: Comprised of bonds issued by or loan obligations of corporations that are diversified across a wide range of issuers and industries. The fair values of corporate debt that are short-term are priced using the spread above the LIBOR yield curve, and the fair values of corporate debt that are long-term are priced using the spread above the risk-free yield curve. ~~The~~

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

The spreads are sourced from broker-dealers, trade prices and the new issue market. As the significant inputs used to price corporate bonds are observable market inputs, the fair values of corporate debt are included in the Level 2 fair value hierarchy.

Mortgage-backed: Primarily comprised of residential and commercial mortgages originated by both U.S. government agencies (such as the Federal National Mortgage Association) and non-U.S. government agencies. The fair values of mortgage-backed securities originated by U.S. government agencies and non-U.S. government agencies are based on a pricing model that incorporates prepayment speeds and spreads to determine the appropriate average life of mortgage-backed securities. The spreads are sourced from broker-dealers, trade prices and the new issue market. As the significant inputs used to price the mortgage-backed securities are observable market inputs, the fair values of these securities are included in the Level 2 fair value hierarchy, unless the significant inputs used to price the mortgage-backed securities are broker-dealer quotes and the Company is not able to determine if those quotes are based on observable market inputs, in which case the fair value is included in the Level 3 hierarchy.

Asset-backed: Principally comprised of bonds backed by pools of automobile loan receivables, home equity loans, credit card receivables and collateralized loan obligations originated by a variety of financial institutions. The fair values of asset-backed securities are priced using prepayment speed and spread inputs that are sourced from the new issue market or broker-dealer quotes. As the significant inputs used to price the asset-backed securities are observable market inputs, the fair values of these securities are included in the Level 2 fair value hierarchy, unless the significant inputs used to price the asset-backed securities are broker-dealer quotes and the Company is not able to determine if those quotes are based on observable market inputs, in which case the fair value is included in the Level 3 hierarchy.

Equity securities: Comprised of common and preferred stocks and mutual funds. Equities are generally included in the Level 1 fair value hierarchy as prices are obtained from market exchanges in active markets. Non-U.S. mutual funds where the net asset value ("NAV") is not provided on a daily basis are included in the Level 3 fair value hierarchy.

Other invested assets: Comprised of funds invested in a range of diversified strategies. In accordance with U.S. GAAP, the fair values of the funds are based on the ~~net asset value~~NAV of the funds as reported by the fund ~~manager that~~manager. The fair value of these investments are included in Level 3 fair value hierarchy as the Company believes NAV is an unobservable input and ~~as such, the fair values of those funds~~these securities are ~~included~~not redeemable in the ~~Level 3~~near term. The Company does not measure its investments that are accounted for using the equity method of accounting at fair ~~value hierarchy.~~value.

Derivative instruments: The fair value of foreign exchange contracts, interest rate futures and interest rate swaps are priced from quoted market prices for similar exchange-traded derivatives and pricing valuation models that utilize independent market data inputs. The fair value of derivatives are included in the Level 2 fair value hierarchy.

Senior notes: The fair value of the senior notes is based on reported trades. The fair value of the senior notes is included in the Level 2 fair value hierarchy.

Other long-term debt: Comprised of the mortgage and credit facility associated with the purchase of office space in Switzerland. The fair value of the other long-term debt is based on the value of the debt using current interest rates. The fair value of the long-term debt is included in the Level 2 fair value hierarchy.

Non-recurring Fair Value of Financial Instruments

The Company measures the fair value of certain assets on a non-recurring basis, generally quarterly, annually or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. These assets include investments accounted for using the equity method, goodwill and intangible assets. The Company uses a variety of techniques to measure the fair value of these assets when appropriate, as described below:

Investments accounted for using the equity method: When the Company determines that the carrying value of these assets may not be recoverable, the Company records the assets at fair value with the loss recognized in income. In such cases, the Company measures the fair value of these assets using discounted cash flow models.

Goodwill and intangible assets: The Company tests goodwill and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, but at least annually for goodwill and indefinite-lived intangibles. If the Company determines that goodwill and intangible assets may be impaired, the Company uses techniques, including discounted expected future cash flows and market multiple models, to measure fair value.

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

indefinite-lived intangibles. If the Company determines that goodwill and intangible assets may be impaired, the Company uses techniques, including discounted expected future cash flows and market multiple models, to measure fair value.

Rollforward of Level 3 Financial Instruments

The following is a reconciliation of the beginning and ending balance of financial instruments using significant unobservable inputs (Level 3):

Three Months Ended June 30, 2014
Other invested
assets
Mortgage-backed Asset-backed Equities
Opening balance $ 839,986
$ 134,061
$ 81,234
$ 34,786
Realized and unrealized gains (losses) included in net income 22,498
2,721
450
77
Purchases 99,722
20,928
9,409
—
Sales (157,701 ) (26,734 ) (3,743 ) —
Transfers into Level 3 from Level 2 —
17,437
—
—
Transfers out of Level 3 into Level 2 (1) —
(1,612 ) (16,118 ) —
Ending balance $ 804,505
$ 146,801
$ 71,232
$ 34,863
Three Months Ended June 30, 2013
Opening balance $ 710,140
$ 155,420
$ 40,903
$ 57,787
Realized and unrealized gains (losses) included in net income 11,709
(6,188 ) (289 ) (4,288 )
Purchases 96,742
72,261
23,527
—
Sales (104,200 ) (27,887 ) (1,727 ) —
Transfers into Level 3 from Level 2 —
11,197
—
—
Transfers out of Level 3 into Level 2 (1) —
(6,800 ) (1,129 ) —
Ending balance $ 714,391
$ 198,003
$ 61,285
$ 53,499


Six Months Ended June 30, 2014	Other invested assets			Mortgage-backed			Asset-backed			Equities
Three Months Ended March 31, 2015													Other invested assets			Mortgage-backed			Asset-backed			Equities
Opening balance													$	812,543		$	181,783		$	55,413		$	43,330
Realized and unrealized gains included in net income													14,101			1,337			352			5,437
Purchases													39,364			20,170			25,341			—
Sales													(73,439		)	(70,592		)	(2,669		)	—
Transfers into Level 3 from Level 2													—			—			43,610			—
Transfers out of Level 3 into Level 2 (1)													—			—			(29,115		)	—
Ending balance													$	792,569		$	132,698		$	92,932		$	48,767
Three Months Ended March 31, 2014
Opening balance	$	764,081		$	147,338		$	93,413		$	73,904		$	764,081		$	147,338		$	93,413		$	73,904
Realized and unrealized gains (losses) included in net income	45,124			4,479			(355		)	(9,744		)	22,626			1,368			(864		)	(9,821		)
Purchases	188,920			50,840			16,938			—			89,199			14,110			7,493			—
Sales	(193,620		)	(54,419		)	(8,225		)	(29,297		)	(35,919		)	(17,956		)	(3,176		)	(29,297		)
Transfers into Level 3 from Level 2	—			103			—			—			—			—			606			—
Transfers out of Level 3 into Level 2 (1)	—			(1,540		)	(30,539		)	—			—			(10,799		)	(16,238		)	—
Ending balance	$	804,505		$	146,801		$	71,232		$	34,863		$	839,987		$	134,061		$	81,234		$	34,786
Six Months Ended June 30, 2013
Opening balance	$	655,888		$	167,825		$	62,246		$	54,680
Realized and unrealized gains (losses) included in net income	43,962			(7,613		)	(382		)	(1,181		)
Purchases	169,952			71,752			24,782			—
Sales	(155,411		)	(29,864		)	(18,478		)	—
Transfers into Level 3 from Level 2	—			7,109			—			—
Transfers out of Level 3 into Level 2 (1)	—			(11,206		)	(6,883		)	—
Ending balance	$	714,391		$	198,003		$	61,285		$	53,499

_______________________


(1)	Transfers out of Level 3 are primarily attributable to the availability of market observable information.

The Company attempts to verify the significant inputs used by broker-dealers in determining the fair value of the securities priced by them. If the Company could not obtain sufficient information to determine if the broker-dealers were using significant observable inputs, then such securities have been transferred to the Level 3 fair value hierarchy. The Company believes the prices obtained from the broker-dealers are the best estimate of fair value of the securities being priced as the broker-dealers are typically involved in the initial pricing of the security, and the Company has compared the price per the broker-dealer to other pricing sources and noted no material differences. The Company recognizes transfers between levels at the end of the reporting period. There were no transfers between Level 1 and Level 2 during the period.

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~~ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Expressed in thousands, except share, per share, percentage and ratio information)~~

The Company’s external investment accounting service provider receives prices from internationally recognized independent pricing services to measure the fair values of its fixed maturity investments. Pricing sources are evaluated and selected in a manner to ensure that the most reliable sources are used. The Company uses a pricing service ranking to consistently select the most appropriate pricing service in instances where it receives multiple quotes on the same security. The Company obtains multiple quotes for the majority of its securities. The independent pricing sources obtain market quotations and actual transaction prices for securities that have quoted prices in active markets. Each pricing service has its own proprietary method for determining the fair value of securities that are not actively traded. In general, these methods involve the use of “matrix pricing” in which the independent pricing service uses observable market inputs, including, but not limited to, reported trades, benchmark yields, broker-dealer quotes, interest rates, prepayment speeds, default rates and such other inputs as are available from market sources to determine a reasonable fair value.

All of the Company’s securities classified as Level 3, other than investments in other invested assets, are valued based on unadjusted broker-dealer quotes. This includes less liquid securities such as lower quality asset-backed securities, commercial mortgage-backed securities and residential mortgage-backed securities. The primary valuation inputs include monthly payment information, the probability of default, loss severity rates and estimated prepayment rates. Significant changes in these inputs in isolation would result in a significantly lower or higher fair value measurement. In general, a change in the assumption of the

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

probability of default is accompanied by a directionally similar change in the assumption used for the loss severity in an event of default and prepayment rates.

The Company records the unadjusted price provided and validates this price through a process that includes, but is not limited to, monthly and/or quarterly: (i) comparison of prices between two independent sources, with significant differences requiring additional price sources; (ii) quantitative analysis (e.g., comparing the quarterly return for each managed portfolio to their target benchmark, with significant differences identified and investigated); (iii) evaluation of methodologies used by external parties to calculate fair value, including a review of the inputs used for pricing; (iv) comparing the price to the Company’s knowledge of the current investment market; and (v) back-testing, which includes randomly selecting purchased or sold securities and comparing the executed prices to the fair value estimates from the pricing service. In addition to internal controls, management relies on the effectiveness of the valuation controls in place at the Company’s external investment accounting service provider (supported by a Statement on Standards for Attestation Engagements No. 16 report) in conjunction with regular discussion and analysis of the investment portfolio’s structure and performance.

7. RESERVE FOR LOSSES AND LOSS EXPENSES

The reserve for losses and loss expenses consists of the following:


	June 30, 2014		December 31, 2013		March 31, 2015		December 31, 2014
Outstanding loss reserves	$	1,543,506	$	1,520,867	$	1,414,512	$	1,514,051
Reserves for losses incurred but not reported	4,392,172		4,245,662		4,490,598		4,367,114
Reserve for losses and loss expenses	$	5,935,678	$	5,766,529	$	5,905,110	$	5,881,165

The table below is a reconciliation of the beginning and ending liability for unpaid losses and loss expenses. Losses incurred and paid are reflected net of reinsurance recoverables.



	Three Months Ended March 31,
	2015			2014
Gross liability at beginning of period	$	5,881,165		$	5,766,529
Reinsurance recoverable at beginning of period	(1,340,256		)	(1,234,504		)
Net liability at beginning of period	4,540,909			4,532,025
Net losses incurred related to:
Current year	388,817			324,147
Prior years	(63,641		)	(48,861		)
Total incurred	325,176			275,286
Net paid losses related to:
Current year	6,557			3,743
Prior years	293,098			228,594
Total paid	299,655			232,337
Foreign exchange revaluation	(11,631		)	1,299
Net liability at end of period	4,554,799			4,576,273
Reinsurance recoverable at end of period	1,350,311			1,280,525
Gross liability at end of period	$	5,905,110		$	5,856,798

For the three months ended March 31, 2015, the Company recorded net favorable prior year reserve development in each of its operating segments due to actual loss emergence being lower than initially expected. The net favorable prior year reserve development in the North American Insurance segment was primarily related to the professional liability and general casualty lines of business, partially offset by net unfavorable prior year reserve development in the healthcare line of business. The Global Markets Insurance segment had favorable prior year reserve development across most major lines of business. The net

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

~~The table below is a reconciliation~~favorable prior year reserve development in the Reinsurance segment was primarily related to the property reinsurance and casualty reinsurance lines of business partially offset by unfavorable reserve development in the ~~beginning and ending liability for unpaid losses and loss expenses. Losses incurred and paid are reflected net~~specialty line of ~~reinsurance recoverables.~~

Three Months Ended
June 30, Six Months Ended
June 30,
2014 2013 2014 2013
Gross liability at beginning of period $ 5,856,798
$ 5,673,220
$ 5,766,529
$ 5,645,549
Reinsurance recoverable at beginning of period (1,280,525 ) (1,163,503 ) (1,234,504 ) (1,141,110 )
Net liability at beginning of period 4,576,273
4,509,717
4,532,025
4,504,439
Net losses incurred related to:
Current year 359,994
323,556
684,141
622,804
Prior years (45,139 ) (48,428 ) (94,000 ) (92,498 )
Total incurred 314,855
275,128
590,141
530,306
Net paid losses related to:
Current year 23,065
21,003
26,808
24,584
Prior years 235,335
241,764
463,929
482,885
Total paid 258,400
262,767
490,737
507,469
Foreign exchange revaluation 1,208
(4,738 ) 2,507
(9,936 )
Net liability at end of period 4,633,936
4,517,340
4,633,936
4,517,340
Reinsurance recoverable at end of period 1,301,742
1,179,525
1,301,742
1,179,525
Gross liability at end of period $ 5,935,678
$ 5,696,865
$ 5,935,678
$ 5,696,865
business.

For the three months ended ~~June 30,~~March 31, 2014, the Company ~~had net~~ ~~unfavorable prior year reserve development in the U.S. insurance segment and~~ recorded net favorable prior year reserve development in the international insurance and reinsurance segments. The net unfavorable prior year reserve development in the U.S. insurance segment related primarily to the healthcare line of business, as well as adverse development on reported claims in the lawyers errors and omissions ("E&O") and primary casualty classes of business. The net favorable prior year reserve development in the international insurance and reinsurance segments was ~~due to actual loss emergence being lower than initially expected~~.

~~For the six months ended June 30, 2014, the Company had net~~ ~~unfavorable prior year reserve development in the U.S. insurance segment and recorded net favorable prior year reserve development in the international insurance and reinsurance segments. The net unfavorable prior year reserve development in the U.S. insurance segment related to the~~ healthcare line of business due to higher than expected loss frequency and severity in the medical malpractice class of business. The U.S. insurance segment also experienced adverse development on reported claims in the lawyers E&O class of business and the primary casualty class of business in the 2013 loss year.~~The net favorable prior year reserve development in the international insurance and reinsurance segments was~~ ~~due to actual loss emergence being lower than initially expected~~.

~~For the three months ended June 30, 2013, the Company had net favorable reserve development in~~ each of its operating segments due to actual loss emergence being lower than initially expected. The ~~majority of the~~ net favorable prior year reserve development ~~was recognized~~ in the ~~2007 through 2010 loss years across most~~North American Insurance segment primarily related to the professional liability, general casualty and general property lines of ~~business. In addition, the reinsurance segment recognized net favorable reserve development for the 2012 loss year due to the low level of reported property losses. This was~~business, partially offset by ~~adverse~~net unfavorable prior year reserve development in the ~~U.S. insurance~~healthcare line of business. The Global Markets Insurance segment ~~in the 2011 and 2012 loss years.~~

had favorable prior year reserve development across all major lines of business~~For the six months ended June 30, 2013,the Company had~~. The net favorable prior year reserve development in ~~its international and reinsurance segments~~the Reinsurance segment was primarily due to ~~actual~~benign property loss emergence being lower than initially expected, primarily for loss years 2004 to 2008. The reinsurance segment recognized net favorable reserve development for the 2012 loss year due to the low level of reported property losses. This was partially offset by adverse development in the U.S. insurance segment in the 2011 and 2012 loss years for certain E&O and director’s and officers’ classes of business.activity.

While the Company ~~at times~~ has experienced favorable reserve development in its insurance and reinsurance lines, there is no assurance that conditions and trends that have affected the development of liabilities in the past will continue. It is not

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~~ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Expressed in thousands, except share, per share, percentage and ratio information)~~

appropriate to extrapolate future redundancies based on prior years’ development. The methodology of estimating loss reserves is periodically reviewed to ensure that the key assumptions used in the actuarial models continue to be appropriate.

8. INCOME TAXES

Under Swiss law, a resident company is subject to income tax at the federal, cantonal and communal levels that is levied on net income. Income attributable to permanent establishments or real estate located abroad is excluded from the Swiss tax base. Allied World Switzerland is a holding company and, therefore, is exempt from cantonal and communal income tax. As a result, Allied World Switzerland is subject to Swiss income tax only at the federal level. Allied World Switzerland is a resident of the Canton of Zug and, as such, is subject to an annual cantonal and communal capital tax on the taxable equity of Allied World Switzerland. Allied World Switzerland has a Swiss operating company resident in the Canton of Zug. The operating company is subject to federal, cantonal and communal income tax and to annual cantonal and communal capital tax.

Under current Bermuda law, Allied World Assurance Company Holdings, Ltd (“Allied World Bermuda”) and its Bermuda subsidiaries are not required to pay taxes in Bermuda on either income or capital gains. Allied World Bermuda and Allied World Assurance Company, Ltd have received an assurance from the Bermuda Minister of Finance under the Exempted Undertakings Tax Protection Act 1966 of Bermuda, that in the event of any such taxes being imposed, Allied World Bermuda and Allied World Assurance Company, Ltd will be exempted until March 2035.

Certain subsidiaries of Allied World Switzerland file U.S. federal income tax returns and various U.S. state income tax returns, as well as income tax returns in Canada, Hong Kong, Ireland, ~~Labuan,~~Singapore, Switzerland and the United ~~Kingdom, Singapore and Switzerland.~~Kingdom. The U.S. Internal Revenue Service is currently conducting an audit of the 2012 tax return of the Company's U.S. subsidiaries. To the best of the Company’s knowledge, there are no ~~income tax~~other examinations pending by any other tax authority.

Management has deemed all material tax positions to have a greater than 50% likelihood of being sustained based on technical merits if challenged. The Company does not expect any material unrecognized tax benefits within 12 months of ~~June 30, 2014.~~March 31, 2015.

9. SHAREHOLDERS’ EQUITY

a) Authorized shares

The issued share capital consists of the following:

June 30,
2014 December 31,
2013
Common shares issued and fully paid, 2014: CHF 4.10 per share; 2013: CHF 4.10 per share 99,515,760
103,477,452
Share capital at end of period $ 402,907
$ 418,988



	~~Six Months Ended June 30, 2014~~
~~Shares issued at beginning of period~~	~~103,477,452~~
~~Shares cancelled~~	~~(3,961,692~~	)
~~Total shares issued at end of period~~	~~99,515,760~~
~~Treasury shares issued at beginning of period~~	~~3,223,806~~
~~Shares repurchased~~	~~3,961,692~~
~~Shares issued out of treasury~~	~~(637,137~~	)
~~Shares cancelled~~	~~(3,961,692~~	)
~~Total treasury shares at end of period~~	~~2,586,669~~
~~Total shares outstanding at end of period~~	~~96,929,091~~

~~During the six months ended June 30, 2014, 3,961,692 shares repurchased and designated for cancellation were constructively retired and cancelled.~~



	March 31, 2015		December 31, 2014
Common shares issued and fully paid, 2015 and 2014: CHF 4.10 per share	100,299,454		100,775,256
Share capital at end of period	$	406,088	$	408,020

1716

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)



	Three Months Ended March 31, 2015
Shares issued at beginning of period	100,775,256
Shares canceled	(475,802	)
Total shares issued at end of period	100,299,454
Treasury shares issued at beginning of period	4,579,774
Shares repurchased	1,271,213
Shares issued out of treasury	(520,400	)
Shares canceled	(475,802	)
Total treasury shares at end of period	4,854,785
Total shares outstanding at end of period	95,444,669

During the three months ended March 31, 2015, 475,802 shares repurchased and designated for cancellation were constructively retired and canceled.

b) Dividends

The Company paid the following dividends during the ~~six~~three months ended ~~June 30, 2014:~~March 31, 2015:

Dividend Paid
Dividend
Per
Share

Total
Amount
Paid
January 2, 2014 $ 0.167
$ 16,732
April 3, 2014 $ 0.167
$ 16,495

On May 2, 2013, the shareholders approved the Company’s proposal to pay cash dividends in the form of a distribution out of general legal reserve from capital contributions. The distribution amounts were paid to shareholders in quarterly dividends of $0.167 per share in July 2013, October 2013, January 2014 and April 2014.



Dividend Paid	Dividend Per Share		Total Amount Paid
January 2, 2015	$	0.225	$	21,669

On May 1, 2014, the shareholders approved the Company’s proposal to pay cash dividends in the form of a distribution out of general legal reserve from capital contributions. The distribution amount ~~will be~~was paid to shareholders in quarterly ~~installments~~dividends of $0.225 per share. The first ~~installment of the~~ dividend was on July 2, ~~2014. The Company expects to distribute~~2014, the ~~remaining installments of~~second dividend was on October 2, 2014, the third dividend ~~in October 2014,~~was on January 2, 2015 and the last quarterly dividend on April 2, 2015.

c) Share Repurchases

On May 1, 2014, the shareholders approved a ~~new~~ share repurchase program in order for the Company to repurchase up to $500,000 of ~~its~~Allied World Switzerland's common shares. ~~This new share repurchase program supersedes the 2012 share repurchase program and no further repurchases will be made under the 2012 share repurchase program.~~ Repurchases may be effected from time to time through open market purchases, privately negotiated transactions, tender offers or otherwise. The timing, form and amount of the share repurchases under the program will depend on a variety of factors, including market conditions, the Company’s capital position, legal requirements and other factors. Under the terms of ~~this~~the share repurchase program, the first three million of common shares repurchased will remain in treasury and will be used by ~~the Company~~Allied World Switzerland to satisfy share delivery obligations under its equity-based compensation plans. Any additional common shares repurchased will be designated for cancellation at acquisition and will be canceled upon shareholder approval. Shares repurchased and designated for cancellation are constructively retired and recorded as a share cancellation.

The Company’s share repurchases were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2014		2013		2014		2013		2015		2014
Common shares repurchased	1,949,496		1,524,984		3,961,692		2,821,335		1,271,213		2,012,196
Total cost of shares repurchased	$	70,874	$	46,326	$	139,532	$	82,571	$	50,949	$	68,659
Average price per share	$	36.36	$	30.38	$	35.22	$	29.27	$	40.08	$	34.12

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

10. EMPLOYEE BENEFIT PLANS

a) Restricted stock units and performance-based equity awards

Restricted stock units ("RSUs") vest pro-rata over four years from the date of grant. The compensation expense for the RSUs is based on the fair market value of Allied World Switzerland’s common shares at the date of grant. The Company estimates the expected forfeitures of RSUs at the date of grant and recognizes compensation expense only for those awards that the Company expects to vest. The forfeiture assumption is ultimately adjusted to the actual forfeiture rate.

Performance-based equity awards represent the right to receive a number of common shares in the future, based upon the achievement of established performance criteria during an applicable performance period. For the performance-based equity awards granted in 2015, 2014 ~~2013~~ and ~~2012,~~2013, the Company anticipates that the performance goals are likely to be achieved. Based on the performance goals, the performance-based equity awards granted in 2015, 2014 ~~2013~~ and ~~2012~~2013 are expensed at 100%, 100%

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~~ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Expressed in thousands, except share, per share, percentage~~ and ~~ratio information)~~

~~and 135%~~110%, respectively, of the fair value of Allied World Switzerland's common shares on the date of grant. The expense is recognized over the performance period.

The activity related to the Company’s RSUs awards is as follows:


	Six Months Ended June 30, 2014					Three Months Ended March 31, 2015
	Number of Awards		Weighted Average Grant Date Fair Value			Number of Awards		Weighted Average Grant Date Fair Value
Outstanding at beginning of period	143,697		$	21.69		502,506		$	32.10
RSUs granted	454,176		33.56			502,543		40.24
RSUs forfeited	(5,097	)	(30.64		)	(1,458	)	(24.02		)
RSUs fully vested	(76,230	)	(21.75		)	(159,984	)	(30.59		)
Outstanding at end of period	516,546		$	32.03		843,607		$	37.25

The activity related to the Company’s performance-based equity awards is as follows:


	Six Months Ended June 30, 2014					Three Months Ended March 31, 2015
	Number of Awards		Weighted Average Grant Date Fair Value			Number of Awards		Weighted Average Grant Date Fair Value
Outstanding at beginning of period	804,519		$	23.21		616,641		$	27.52
Performance-based equity awards granted	166,302		33.56			234,361		40.24
Additional awards granted due to achievement of performance criteria	104,895		(20.50		)	91,737		22.29
Performance-based equity awards forfeited	(1,848	)	(25.28		)
Performance-based equity awards fully vested	(454,440	)	(20.50		)	(346,515	)	(22.29		)
Outstanding at end of period	619,428		$	27.51		596,224		$	34.76

b) Cash-equivalent stock awards

As part of the Company’s annual year-end compensation awards, the Company granted both awards classified as equity and cash-equivalent stock awards. The cash-equivalent awards were granted to employees who received RSUs and performance-based equity awards in tandem with stock-based awards. The cash-equivalent RSU awards vest pro-rata over four years from the date of grant. The cash-equivalent performance-based equity awards vest after a three-year performance period. The amount payable per unit awarded will be equal to the price per share of Allied World Switzerland’s common shares, and as such the Company measures the value of the award each reporting period based on the period-ending share price. The effects of changes in the share price at each period-end during the service period are recognized as changes in compensation expense ratably over the service period. The liability is included in “accounts payable and accrued liabilities” in the consolidated balance sheets and changes in the liability are recorded in “general and administrative expenses” in the consolidated income statements.

1918

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

The activity related to the Company's cash-equivalent RSUs and performance-based awards is as follows:


	RSU's					Performance-based Awards					RSU's					Performance-based Awards
Six Months Ended June 30, 2014	Number of Awards		Weighted Average Grant Date Fair Value			Number of Awards		Weighted Average Grant Date Fair Value
Three Months Ended March 31, 2015											Number of Awards		Weighted Average Grant Date Fair Value			Number of Awards		Weighted Average Grant Date Fair Value
Outstanding at beginning of period	2,049,084		$	24.69		1,031,961		23.67			1,654,064		$	27.99		924,906		27.52
Granted	438,162		33.56			249,438		33.56			325,805		40.24			156,238		40.24
Additional awards granted due to achievement of performance criteria	—		—			104,895		20.50			—		—			137,585		22.29
Forfeited	(38,886	)	(26.36		)	(2,769	)	(25.28		)	(9,525	)	(26.90		)	(1,404	)	(22.29		)
Fully vested	(751,920	)	(22.47		)	(454,440	)	(20.50		)	(649,102	)	(26.17		)	(519,725	)	(22.29		)
Outstanding at end of period	1,696,440		$	27.93		929,085		$	27.51		1,321,242		$	31.92		697,600		$	33.25

c) Total Stock Related Compensation Expense

The following table shows the total stock-related compensation expense relating to the stock options, RSUs and cash equivalent awards.


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2014		2013		2014		2013		2015		2014
Stock options	$	413	$	679	$	1,140	$	2,014	$	277	$	727
RSUs and performance-based equity awards	2,977		1,891		6,490		4,551		3,725		3,513
Cash-equivalent stock awards	12,868		8,212		17,497		20,968		12,523		4,629
Total	$	16,258	$	10,782	$	25,127	$	27,533	$	16,525	$	8,869

11. EARNINGS PER SHARE

The following table sets forth the comparison of basic and diluted earnings per share:

Three Months Ended
June 30, Six Months Ended
June 30,
2014 2013 2014 2013
Basic earnings (loss) per share:
Net income (loss) $ 151,863
$ (1,862 ) $ 328,835
$ 157,130
Weighted average common shares outstanding 97,809,639
103,267,659
98,672,618
103,552,656
Basic earnings (loss) per share $ 1.55
$ (0.02 ) $ 3.33
$ 1.52



	Three Months Ended March 31,
	2015		2014
Basic earnings per share:
Net income	$	124,356	$	176,972
Weighted average common shares outstanding	95,935,551		99,545,187
Basic earnings per share	$	1.30	$	1.78


	Three Months Ended June 30,					Six Months Ended June 30,				Three Months Ended March 31,
	2014		2013			2014		2013		2015		2014
Diluted earnings (loss) per share:
Net income (loss)	$	151,863	$	(1,862	)	$	328,835	$	157,130
Diluted earnings per share:
Net income										$	124,356	$	176,972
Weighted average common shares outstanding	97,809,639		103,267,659			98,672,618		103,552,656		95,935,551		99,545,187
Share equivalents:
Stock options	1,448,071		—			1,456,439		1,479,675		1,116,871		1,463,958
RSUs and performance-based equity awards	455,744		—			550,224		913,587		509,971		565,611
Employee share purchase plan	11,348		—			12,287		3,867		14,636		9,906
Weighted average common shares and common share equivalents outstanding - diluted	99,724,802		103,267,659			100,691,568		105,949,785		97,577,029		101,584,662
Diluted earnings (loss) per share	$	1.52	$	(0.02	)	$	3.27	$	1.48
Diluted earnings per share										$	1.27	$	1.74

2019

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

For the three months ended ~~June 30,~~March 31, 2015 and 2014, ~~there~~a weighted average of 175,175 and 75 RSUs, respectively, were ~~no common shares~~ considered anti-dilutive and ~~therefore excluded from the calculation of the diluted earnings per share. For the three months ended June 30, 2013, there~~ were ~~no common share equivalents included in calculating diluted earnings per share as there was a net loss and any additional shares would be anti-dilutive.~~

~~For the six months ended June 30, 2014 and 2013, there were no common shares considered anti-dilutive and~~ therefore excluded from the calculation of the diluted earnings per share.

12. SEGMENT INFORMATION

The determination of reportable segments is based on how senior management monitors the Company’s underwriting operations. Management monitors the performance of its direct underwriting operations based on the geographic location of the Company’s offices, the markets and customers served and the type of accounts written. The Company is currently organized into three operating segments: ~~U.S. insurance, international insurance~~North American Insurance, Global Markets Insurance and ~~reinsurance.~~Reinsurance. All product lines ~~of business~~ fall within these classifications.

The ~~U.S. insurance~~North American Insurance segment includes the Company’s direct specialty insurance operations in the United States, Bermuda and Canada, as well as the Company's claim administration services operations. The Company acquired the remaining interest in a claims administration services company it did not own in May 2014 and recorded goodwill of $9,385 related to the transaction. The U.S. insuranceoperation. This segment provides both direct property and ~~specialty~~ casualty insurance primarily to ~~non-Fortune 1000~~ North American domiciled ~~accounts, as well as third-party claims administration services.~~accounts. The ~~international insurance~~Global Markets Insurance segment includes the Company’s ~~direct~~ insurance operations in ~~Bermuda,~~ Europe and Asia Pacific, which includes offices in Australia, Hong Kong, Singapore and ~~Singapore.~~a Lloyd's coverholder operation in Miami, which services business from Latin America and the Caribbean. This segment provides both direct property and casualty insurance primarily to ~~Fortune 1000 North American domiciled accounts from the Bermuda office and direct property and specialty casualty insurance to~~ non-North American domiciled ~~accounts from the European and Asia Pacific offices.~~accounts. The ~~reinsurance~~Reinsurance segment includes the Company’s reinsurance operations in the United States, Bermuda, Europe and Singapore. This segment provides reinsurance of property, general casualty, professional liability, specialty lines and property catastrophe coverages written by insurance companies. The Company presently writes reinsurance on both a treaty and a facultative basis, targeting several niche reinsurance markets.

Responsibility and accountability for the results of underwriting operations are assigned by major line of business within each segment. Because the Company does not manage its assets by segment, investment income, interest expense and total assets are not allocated to individual reportable segments. General and administrative expenses are allocated to segments based on various factors, including staff count and each segment’s proportional share of gross premiums written.

The Company measures its segment profit or loss as underwriting income or loss plus other insurance-related income and expenses, which may include the net earnings from our claims administration services operations and other income or expense that is not directly related to our underwriting operations. Management measures results for each ~~segment~~segment's underwriting income on the basis of the “loss and loss expense ratio,” “acquisition cost ratio,” “general and administrative expense ~~ratio”,~~ratio,” “expense ratio” and the “combined ratio.” The “loss and loss expense ratio” is derived by dividing net losses and loss expenses by net premiums earned. The “acquisition cost ratio” is derived by dividing acquisition costs by net premiums earned. The “general and administrative expense ratio” is derived by dividing general and administrative expenses by net premiums earned. The expense ratio is the sum of the ~~acquisition~~“acquisition cost ~~ratio~~ratio” and the ~~general~~“general and administrative expense ~~ratio.~~ratio”. The “combined ratio” is the sum of the “loss and loss expense ratio,” the “acquisition cost ratio” and the “general and administrative expense ratio.”

2120

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

The following tables provide a summary of the segment results:


Three Months Ended June 30, 2014	U.S. Insurance			International Insurance			Reinsurance			Total
Three Months Ended March 31, 2015													North American Insurance			Global Markets Insurance			Reinsurance			Total
Gross premiums written	$	341,426		$	204,478		$	214,501		$	760,405		$	380,767		$	60,562		$	439,285		$	880,614
Net premiums written	221,950			122,171			209,803			553,924			296,883			42,895			432,750			772,528
Net premiums earned	214,593			89,205			233,449			537,247			312,970			50,040			205,538			568,548
Net losses and loss expenses	(145,485		)	(35,920		)	(133,450		)	(314,855		)	(195,479		)	(20,510		)	(109,187		)	(325,176		)
Acquisition costs	(29,677		)	(575		)	(44,027		)	(74,279		)	(31,032		)	(7,008		)	(40,659		)	(78,699		)
General and administrative expenses	(46,593		)	(29,411		)	(20,184		)	(96,188		)	(59,288		)	(18,025		)	(19,825		)	(97,138		)
Underwriting (loss) income	(7,162		)	23,299			35,788			51,925
Underwriting income													27,171			4,497			35,867			67,535
Other insurance-related income													854			—			—			854
Other insurance-related expenses													(855		)	(968		)	—			(1,823		)
Segment income													27,170			3,529			35,867			66,566
Net investment income										36,793												44,551
Net realized investment gains										85,217												45,025
Amortization of intangible assets										(634		)										(633		)
Interest expense										(14,592		)										(14,337		)
Foreign exchange loss										(651		)										(9,897		)
Income before income taxes										$	158,058											$	131,275

Loss and loss expense ratio	67.8		%	40.3		%	57.2		%	58.6		%	62.5		%	41.0		%	53.1		%	57.2		%
Acquisition cost ratio	13.8		%	0.6		%	18.9		%	13.8		%	9.9		%	14.0		%	19.8		%	13.8		%
General and administrative expense ratio	21.7		%	33.0		%	8.6		%	17.9		%	18.9		%	36.0		%	9.6		%	17.1		%
Expense ratio	35.5		%	33.6		%	27.5		%	31.7		%	28.8		%	50.0		%	29.4		%	30.9		%
Combined ratio	103.3		%	73.9		%	84.7		%	90.3		%	91.3		%	91.0		%	82.5		%	88.1		%

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)



Three Months Ended March 31, 2014	North American Insurance			Global Markets Insurance			Reinsurance			Total
Gross premiums written	$	345,912		$	58,397		$	497,084		$	901,393
Net premiums written	247,152			31,047			493,415			771,614
Net premiums earned	265,451			35,011			229,823			530,285
Net losses and loss expenses	(161,172		)	(4,389		)	(109,725		)	(275,286		)
Acquisition costs	(23,675		)	(2,879		)	(41,168		)	(67,722		)
General and administrative expenses	(47,615		)	(14,582		)	(18,143		)	(80,340		)
Underwriting income	32,989			13,161			60,787			106,937
Other insurance-related income	—			—			—			—
Other insurance-related expenses	—			—			—			—
Segment income	32,989			13,161			60,787			106,937
Net investment income										47,619
Net realized investment gains										54,205
Amortization of intangible assets										(633		)
Interest expense										(14,534		)
Foreign exchange loss										(49		)
Income before income taxes										$	193,545

Loss and loss expense ratio	60.7		%	12.5		%	47.7		%	51.9		%
Acquisition cost ratio	8.9		%	8.2		%	17.9		%	12.8		%
General and administrative expense ratio	17.9		%	41.6		%	7.9		%	15.2		%
Expense ratio	26.8		%	49.8		%	25.8		%	28.0		%
Combined ratio	87.5		%	62.3		%	73.5		%	79.9		%

The following table shows an analysis of the Company’s gross premiums written by geographic location of the Company’s subsidiaries and branches. All intercompany premiums have been eliminated.

Three Months Ended June 30, 2013 U.S. Insurance
International
Insurance
Reinsurance Total
Gross premiums written $ 307,297
$ 192,593
$ 265,310
$ 765,200
Net premiums written 221,419
106,394
253,409
581,222
Net premiums earned 197,436
87,041
222,794
507,271
Net losses and loss expenses (124,364 ) (30,968 ) (119,796 ) (275,128 )
Acquisition costs (27,270 ) 358
(37,705 ) (64,617 )
General and administrative expenses (38,302 ) (24,135 ) (18,148 ) (80,585 )
Underwriting income 7,500
32,296
47,145
86,941
Net investment income 37,635
Net realized investment losses (115,198 )
Amortization of intangible assets (634 )
Interest expense (14,188 )
Foreign exchange loss (490 )
Loss before income taxes $ (5,934 )

Loss and loss expense ratio 63.0 % 35.6 % 53.8 % 54.2 %
Acquisition cost ratio 13.8 % (0.4 )% 16.9 % 12.7 %
General and administrative expense ratio 19.4 % 27.7 % 8.1 % 15.9 %
Expense ratio 33.2 % 27.3 % 25.0 % 28.6 %
Combined ratio 96.2 % 62.9 % 78.8 % 82.8 %



	Three Months Ended March 31,
	2015		2014
United States	$	536,632	$	520,773
Bermuda	196,628		229,631
Europe	103,969		103,336
Asia Pacific	40,058		46,823
Canada	3,327		830
Total gross premiums written	$	880,614	$	901,393

Europe includes gross premiums written attributable to Switzerland of $40,383 and $44,293 for the three months ended March 31, 2015 and 2014, respectively.

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

Six Months Ended June 30, 2014 U.S. Insurance
International
Insurance
Reinsurance Total
Gross premiums written $ 611,371
$ 338,842
$ 711,585
$ 1,661,798
Net premiums written 424,690
197,630
703,218
1,325,538
Net premiums earned 426,716
177,544
463,272
1,067,532
Net losses and loss expenses (287,480 ) (59,486 ) (243,175 ) (590,141 )
Acquisition costs (57,180 ) 374
(85,195 ) (142,001 )
General and administrative expenses (84,030 ) (54,171 ) (38,327 ) (176,528 )
Underwriting (loss) income (1,974 ) 64,261
96,575
158,862
Net investment income 84,412
Net realized investment gains 139,422
Amortization of intangible assets (1,267 )
Interest expense (29,126 )
Foreign exchange loss (700 )
Income before income taxes $ 351,603

Loss and loss expense ratio 67.4 % 33.5 % 52.5 % 55.3 %
Acquisition cost ratio 13.4 % (0.2 )% 18.4 % 13.3 %
General and administrative expense ratio 19.7 % 30.5 % 8.3 % 16.5 %
Expense ratio 33.1 % 30.3 % 26.7 % 29.8 %
Combined ratio 100.5 % 63.8 % 79.2 % 85.1 %

Six Months Ended June 30, 2013 U.S. Insurance
International
Insurance
Reinsurance Total
Gross premiums written $ 563,315
$ 321,109
$ 717,857
$ 1,602,281
Net premiums written 413,672
184,139
678,463
1,276,274
Net premiums earned 385,875
171,255
413,369
970,499
Net losses and loss expenses (257,688 ) (59,903 ) (212,715 ) (530,306 )
Acquisition costs (50,398 ) 1,207
(72,111 ) (121,302 )
General and administrative expenses (77,898 ) (48,924 ) (36,443 ) (163,265 )
Underwriting (loss) income (109 ) 63,635
92,100
155,626
Net investment income 71,023
Net realized investment losses (35,561 )
Amortization of intangible assets (1,267 )
Interest expense (28,322 )
Foreign exchange loss (3,008 )
Income before income taxes $ 158,491

Loss and loss expense ratio 66.8 % 35.0 % 51.5 % 54.6 %
Acquisition cost ratio 13.1 % (0.7 )% 17.4 % 12.5 %
General and administrative expense ratio 20.2 % 28.6 % 8.8 % 16.8 %
Expense ratio 33.3 % 27.9 % 26.2 % 29.3 %
Combined ratio 100.1 % 62.9 % 77.7 % 83.9 %

~~Table of Contents~~

~~ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Expressed in thousands, except share, per share, percentage and ratio information)~~

The following table shows ~~an analysis of~~ the Company’s ~~gross~~net premiums ~~written~~earned by ~~geographic location~~line of ~~the Company’s subsidiaries and branches. All intercompany premiums have been eliminated.~~

Three Months Ended
June 30, Six Months Ended
June 30,
2014 2013 2014 2013
United States $ 442,549
$ 440,151
$ 963,321
$ 918,594
Bermuda 185,872
211,040
415,503
439,712
Europe 77,985
60,234
181,321
146,743
Singapore 45,375
48,918
87,316
87,031
Hong Kong 3,756
4,857
8,639
10,201
Canada 3,094
—
3,924
—
Australia 1,774
—
1,774
—
Total gross premiums written $ 760,405
$ 765,200
$ 1,661,798
$ 1,602,281

~~Europe includes gross premiums written attributable to Switzerland of $10,261 and $5,868~~business for each segment for the three months ended ~~June 30,~~March 31, 2015 and 2014, ~~and 2013, respectively and~~ respectively.~~$54,554~~ ~~and $46,674 for the six months ended June 30, 2014 and 2013.~~



	Three Months Ended March 31,
	2015		2014
North American Insurance:
General casualty	$	104,924	$	76,302
Professional liability	78,916		64,271
Healthcare	38,041		42,493
Programs	34,147		30,469
General property	28,000		34,939
Inland marine	13,349		8,890
Environmental	6,822		4,586
Other	8,771		3,501
Total	312,970		265,451

Global Markets Insurance:
Professional liability	19,503		11,720
General property	8,232		8,239
Aviation	5,953		5,637
General casualty	5,913		2,693
Trade credit	4,276		4,012
Healthcare	3,606		2,502
Other	2,557		208
Total	50,040		35,011

Reinsurance:
Property	104,351		137,084
Specialty	44,285		45,225
Casualty	56,902		47,514
Total	205,538		229,823
Total net premiums earned	$	568,548	$	530,285

13. COMMITMENTS AND CONTINGENCIES

The Company, in common with the insurance industry in general, is subject to litigation and arbitration in the normal course of its business. These legal proceedings generally relate to claims asserted by or against the Company in the ordinary course of insurance or reinsurance operations. Estimated amounts payable under these proceedings are included in the reserve for losses and loss expenses in the Company’s consolidated balance sheets. As of ~~June 30, 2014,~~March 31, 2015, the Company was not a party to any material legal proceedings arising outside the ordinary course of business that management believes will have a material adverse effect on the Company’s results of operations, financial position or cash flow.

The Company entered into a 20-year mortgage commitment with a Swiss bank for a company-used office building in Zug, Switzerland. The total proceeds to be received under the mortgage are CHF 18,000 with a fixed annual interest rate of 3.2% payable quarterly. The mortgage payments will be CHF 300 per year, plus accrued interest, for the first 19 years with the remaining balance payable at the end of the mortgage. The Company will receive the proceeds from the bank during the fourth quarter of 2014 at which time the Company will recognize the mortgage loan liability in its consolidated balance sheets.

In conjunction with the above mortgage commitment, the Company entered into a three-year credit facility with a Swiss bank that provides up to CHF 5,000 for general corporate purposes; however, the Company will use the proceeds from the credit facility to fund the purchase

Table of ~~the office building~~Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in ~~Zug, Switzerland. The interest rate for the credit facility is 2.5%.~~thousands, except share, per share, percentage and ratio information)

14. CONDENSED CONSOLIDATED GUARANTOR FINANCIAL STATEMENTS

The following tables present unaudited condensed consolidating financial information as of ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013~~2014 and for the three ~~and six~~ months ended ~~June 30,~~March 31, 2015 and 2014 ~~and 2013~~ for Allied World Switzerland (the “Parent Guarantor”) and Allied World Bermuda (the “Subsidiary Issuer”). The Subsidiary Issuer is a direct, 100%-owned subsidiary of the Parent Guarantor. Investments in subsidiaries are accounted for by the Parent Guarantor under the equity method for purposes of the supplemental consolidating presentation. Earnings of subsidiaries are reflected in the Parent Guarantor’s investment accounts and earnings. The Parent Guarantor fully and unconditionally guarantees the senior notes issued by the Subsidiary Issuer.

~~Table of Contents~~

~~ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Expressed in thousands, except share, per share, percentage and ratio information)~~

Unaudited Condensed Consolidating Balance Sheet:


As of June 30, 2014	Allied World Switzerland (Parent Guarantor)		Allied World Bermuda (Subsidiary Issuer)		Other Allied World Subsidiaries		Consolidating Adjustments			Allied World Switzerland Consolidated
As of March 31, 2015												Allied World Switzerland (Parent Guarantor)		Allied World Bermuda (Subsidiary Issuer)		Other Allied World Subsidiaries		Consolidating Adjustments			Allied World Switzerland Consolidated
ASSETS:
Investments	$	—	$	—	$	8,027,840	$	—		$	8,027,840	$	—	$	—	$	8,071,956	$	—		$	8,071,956
Cash and cash equivalents	40,976		1,286		592,876		—			635,138		36,499		2,109		476,462		—			515,070
Insurance balances receivable	—		—		976,441		—			976,441		—		—		773,394		—			773,394
Funds held	—		—		414,445		—			414,445		—		—		479,909		—			479,909
Reinsurance recoverable	—		—		1,301,742		—			1,301,742		—		—		1,350,311		—			1,350,311
Reinsurance recoverable on paid losses												—		—		107,071		—			107,071
Net deferred acquisition costs	—		—		163,259		—			163,259		—		—		187,246		—			187,246
Goodwill and intangible assets	—		—		325,325		—			325,325		—		—		329,999		—			329,999
Balances receivable on sale of investments	—		—		164,713		—			164,713		—		—		46,822		—			46,822
Investments in subsidiaries	3,600,731		4,201,054		—		(7,801,785		)	—		3,600,273		4,170,400		—		(7,770,673		)	—
Due from subsidiaries	75,813		18,859		15,536		(110,208		)	—		226,081		27,963		16,454		(270,498		)	—
Other assets	1,090		4,026		655,628		—			660,744		2,128		2,838		751,042		—			756,008
Total assets	$	3,718,610	$	4,225,225	$	12,637,805	$	(7,911,993	)	$	12,669,647	$	3,864,981	$	4,203,310	$	12,590,666	$	(8,041,171	)	$	12,617,786
LIABILITIES:
Reserve for losses and loss expenses	$	—	$	—	$	5,935,678	$	—		$	5,935,678	$	—	$	—	$	5,905,110	$	—		$	5,905,110
Unearned premiums	—		—		1,703,684		—			1,703,684		—		—		1,717,399		—			1,717,399
Reinsurance balances payable	—		—		224,182		��			224,182		—		—		184,322		—			184,322
Balances due on purchases of investments	—		—		180,378		—			180,378		—		—		34,396		—			34,396
Senior notes	—		798,648		—		—			798,648		—		798,881		—		—			798,881
Other long-term debt												—		—		19,730		—			19,730
Due to subsidiaries	8,373		7,163		94,672		(110,208		)	—		10,009		6,445		254,044		(270,498		)	—
Other liabilities	27,475		17,976		98,864		—			144,315		25,905		14,303		88,673		—			128,881
Total liabilities	35,848		823,787		8,237,458		(110,208		)	8,986,885		35,914		819,629		8,203,674		(270,498		)	8,788,719
Total shareholders’ equity	3,682,762		3,401,438		4,400,347		(7,801,785		)	3,682,762		3,829,067		3,383,681		4,386,992		(7,770,673		)	3,829,067
Total liabilities and shareholders’ equity	$	3,718,610	$	4,225,225	$	12,637,805	$	(7,911,993	)	$	12,669,647	$	3,864,981	$	4,203,310	$	12,590,666	$	(8,041,171	)	$	12,617,786

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)


As of December 31, 2013	Allied World Switzerland (Parent Guarantor)		Allied World Bermuda (Subsidiary Issuer)		Other Allied World Subsidiaries		Consolidating Adjustments			Allied World Switzerland Consolidated
As of December 31, 2014												Allied World Switzerland (Parent Guarantor)		Allied World Bermuda (Subsidiary Issuer)		Other Allied World Subsidiaries		Consolidating Adjustments			Allied World Switzerland Consolidated
ASSETS:
Investments	$	—	$	—	$	7,712,036	$	—		$	7,712,036	$	—	$	—	$	7,868,682	$	—		$	7,868,682
Cash and cash equivalents	10,790		2,775		518,371		—			531,936		32,579		1,734		555,026		—			589,339
Insurance balances receivable	—		—		664,731		—			664,731		—		—		664,815		—			664,815
Funds held	—		—		632,430		—			632,430		—		—		724,021		—			724,021
Reinsurance recoverable	—		—		1,234,504		—			1,234,504		—		—		1,340,256		—			1,340,256
Reinsurance recoverable on paid losses												—		—		86,075		—			86,075
Net deferred acquisition costs	—		—		126,661		—			126,661		—		—		151,546		—			151,546
Goodwill and intangible assets	—		—		317,207		—			317,207		—		—		324,556		—			324,556
Balances receivable on sale of investments	—		—		76,544		—			76,544		—		—		47,149		—			47,149
Investments in subsidiaries	3,413,001		4,018,619		—		(7,431,620		)	—		3,629,301		4,218,028		—		(7,847,329		)	—
Due from subsidiaries	111,172		122,846		123,479		(357,497		)	—		147,072		19,190		14,396		(180,658		)	—
Other assets	1,757		4,671		643,353		—			649,781		1,470		3,192		620,462		—			625,124
Total assets	$	3,536,720	$	4,148,911	$	12,049,316	$	(7,789,117	)	$	11,945,830	$	3,810,422	$	4,242,144	$	12,396,984	$	(8,027,987	)	$	12,421,563
LIABILITIES:
Reserve for losses and loss expenses	$	—	$	—	$	5,766,529	$	—		$	5,766,529	$	—	$	—	$	5,881,165	$	—		$	5,881,165
Unearned premiums	—		—		1,396,256		—			1,396,256		—		—		1,555,313		—			1,555,313
Reinsurance balances payable	—		—		173,023		—			173,023		—		—		180,060		—			180,060
Balances due on purchases of investments	—		—		104,740		—			104,740		—		—		5,428		—			5,428
Senior notes	—		798,499		—		—			798,499		—		798,802		—		—			798,802
Other long-term debt												—		—		19,213					19,213
Due to subsidiaries	12,945		110,534		234,018		(357,497		)	—		7,599		6,797		166,262		(180,658		)	—
Other liabilities	3,949		17,797		165,211		—			186,957		24,532		19,618		159,141		—			203,291
Total liabilities	16,894		926,830		7,839,777		(357,497		)	8,426,004		32,131		825,217		7,966,582		(180,658		)	8,643,272
Total shareholders’ equity	3,519,826		3,222,081		4,209,539		(7,431,620		)	3,519,826		3,778,291		3,416,927		4,430,402		(7,847,329		)	3,778,291
Total liabilities and shareholders’ equity	$	3,536,720	$	4,148,911	$	12,049,316	$	(7,789,117	)	$	11,945,830	$	3,810,422	$	4,242,144	$	12,396,984	$	(8,027,987	)	$	12,421,563

The investment in subsidiaries and total shareholders' equity balances reported above in the Unaudited Condensed Consolidating Balance Sheet for Allied World Bermuda (Subsidiary Issuer) as of December 31, 2013 were reduced by $776,000 from the previously reported amounts to properly record intercompany dividends as a reduction in the investment in subsidiaries balance due to a miscalculation. Since the intercompany dividends were eliminated in consolidation there was no impact to consolidated total shareholders' equity.

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

Unaudited Condensed Consolidating Statement of Operations and Comprehensive Income:


Three Months Ended June 30, 2014	Allied World Switzerland (Parent Guarantor)			Allied World Bermuda (Subsidiary Issuer)			Other Allied World Subsidiaries			Consolidating Adjustments			Allied World Switzerland Consolidated
Three Months Ended March 31, 2015																Allied World Switzerland (Parent Guarantor)			Allied World Bermuda (Subsidiary Issuer)			Other Allied World Subsidiaries			Consolidating Adjustments			Allied World Switzerland Consolidated
Net premiums earned	$	—		$	—		$	537,247		$	—		$	537,247		$	—		$	—		$	568,548		$	—		$	568,548
Net investment income	2			—			36,791			—			36,793			2			—			44,549			—			44,551
Net realized investment gains (losses)	—			—			85,217			—			85,217
Net realized investment losses																—			—			45,025			—			45,025
Other income																—			—			854			—			854
Net losses and loss expenses	—			—			(314,855		)	—			(314,855		)	—			—			(325,176		)	—			(325,176		)
Acquisition costs	—			—			(74,279		)	—			(74,279		)	—			—			(78,699		)	—			(78,699		)
General and administrative expenses	(10,813		)	1,654			(87,029		)	—			(96,188		)	(9,462		)	240			(87,916		)	—			(97,138		)
Other expense																—			—			(1,823		)	—			(1,823		)
Amortization of intangible assets	—			—			(634		)	—			(634		)	—			—			(633		)	—			(633		)
Interest expense	—			(13,853		)	(739		)	—			(14,592		)	—			(13,866		)	(471		)	—			(14,337		)
Foreign exchange gain (loss)	(2		)	(12		)	(637		)	—			(651		)	5			10			(9,912		)	—			(9,897		)
Income tax (expense) benefit	323			—			(6,518		)	—			(6,195		)	(639		)	—			(6,280		)	—			(6,919		)
Equity in earnings of consolidated subsidiaries	162,353			170,796			—			(333,149		)	—			134,450			143,696			—			(278,146		)	—
NET INCOME (LOSS)	$	151,863		$	158,585		$	174,564		$	(333,149	)	$	151,863		$	124,356		$	130,080		$	148,066		$	(278,146	)	$	124,356
Other comprehensive income	—			—			—			—			—			—			—			—			—			—
COMPREHENSIVE INCOME (LOSS)	$	151,863		$	158,585		$	174,564		$	(333,149	)	$	151,863		$	124,356		$	130,080		$	148,066		$	(278,146	)	$	124,356

Three Months Ended June 30, 2013
Allied World
Switzerland
(Parent
Guarantor)

Allied World
Bermuda
(Subsidiary
Issuer)

Other Allied
World
Subsidiaries

Consolidating
Adjustments

Allied World
Switzerland
Consolidated
Net premiums earned $ —
$ —
$ 507,271
$ —
$ 507,271
Net investment income 1
2
37,632
—
37,635
Net realized investment gains (losses) —
—
(115,198 ) —
(115,198 )
Net losses and loss expenses —
—
(275,128 ) —
(275,128 )
Acquisition costs —
—
(64,617 ) —
(64,617 )
General and administrative expenses (8,566 ) (455 ) (71,564 ) —
(80,585 )
Amortization of intangible assets —
—
(634 ) —
(634 )
Interest expense —
(13,835 ) (353 ) —
(14,188 )
Foreign exchange gain (loss) 2
(628 ) 136
—
(490 )
Income tax (expense) benefit —
—
4,072
—
4,072
Equity in earnings of consolidated subsidiaries 6,701
21,147
—
(27,848 ) —
NET INCOME (LOSS) $ (1,862 ) $ 6,231
$ 21,617
$ (27,848 ) $ (1,862 )
Other comprehensive income —
—
—
—
—
COMPREHENSIVE INCOME (LOSS) $ (1,862 ) $ 6,231
$ 21,617
$ (27,848 ) $ (1,862 )

~~Table of Contents~~

~~ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Expressed in thousands, except share, per share, percentage and ratio information)~~

Six Months Ended June 30, 2014
Allied World
Switzerland
(Parent
Guarantor)

Allied World
Bermuda
(Subsidiary
Issuer)

Other Allied
World
Subsidiaries

Consolidating
Adjustments

Allied World
Switzerland
Consolidated
Net premiums earned $ —
$ —
$ 1,067,532
$ —
$ 1,067,532
Net investment income 4
—
84,408
—
84,412
Net realized investment gains (losses) —
—
139,422
—
139,422
Net losses and loss expenses —
—
(590,141 ) —
(590,141 )
Acquisition costs —
—
(142,001 ) —
(142,001 )
General and administrative expenses (19,727 ) (737 ) (156,064 ) —
(176,528 )
Amortization of intangible assets —
—
(1,267 ) —
(1,267 )
Interest expense —
(27,700 ) (1,426 ) —
(29,126 )
Foreign exchange gain (loss) (4 ) 21
(717 ) —
(700 )
Income tax (expense) benefit (86 ) —
(22,682 ) —
(22,768 )
Equity in earnings of consolidated subsidiaries 348,648
369,803
—
(718,451 ) —
NET INCOME (LOSS) $ 328,835
$ 341,387
$ 377,064
$ (718,451 ) $ 328,835
Other comprehensive income —
—
—
—
—
COMPREHENSIVE INCOME (LOSS) $ 328,835
$ 341,387
$ 377,064
$ (718,451 ) $ 328,835


Six Months Ended June 30, 2013	Allied World Switzerland (Parent Guarantor)			Allied World Bermuda (Subsidiary Issuer)			Other Allied World Subsidiaries			Consolidating Adjustments			Allied World Switzerland Consolidated
Three Months Ended March 31, 2014																Allied World Switzerland (Parent Guarantor)			Allied World Bermuda (Subsidiary Issuer)			Other Allied World Subsidiaries			Consolidating Adjustments			Allied World Switzerland Consolidated
Net premiums earned	$	—		$	—		$	970,499		$	—		$	970,499		$	—		$	—		$	530,285		$	—		$	530,285
Net investment income	8			4			71,011			—			71,023			2			—			47,617			—			47,619
Net realized investment gains (losses)	—			—			(35,561		)	—			(35,561		)
Net realized investment gains																—			—			54,205			—			54,205
Other income																—			—			—			—			—
Net losses and loss expenses	—			—			(530,306		)	—			(530,306		)	—			—			(275,286		)	—			(275,286		)
Acquisition costs	—			—			(121,302		)	—			(121,302		)	—			—			(67,722		)	—			(67,722		)
General and administrative expenses	(19,552		)	(912		)	(142,801		)	—			(163,265		)	(8,914		)	(2,391		)	(69,035		)	—			(80,340		)
Other expense																—			—			—			—			—
Amortization of intangible assets	—			—			(1,267		)	—			(1,267		)	—			—			(633		)	—			(633		)
Interest expense	—			(27,665		)	(657		)	—			(28,322		)	—			(13,848		)	(686		)	—			(14,534		)
Foreign exchange gain (loss)	274			(723		)	(2,559		)	—			(3,008		)	(2		)	33			(80		)	—			(49		)
Income tax (expense) benefit	—			—			(1,361		)	—			(1,361		)	(409		)	—			(16,164		)	—			(16,573		)
Equity in earnings of consolidated subsidiaries	176,400			202,627			—			(379,027		)	—			186,295			199,007			—			(385,302		)	—
NET INCOME (LOSS)	$	157,130		$	173,331		$	205,696		$	(379,027	)	$	157,130		$	176,972		$	182,801		$	202,501		$	(385,302	)	$	176,972
Other comprehensive income	—			—			—			—			—			—			—			—			—			—
COMPREHENSIVE INCOME (LOSS)	$	157,130		$	173,331		$	205,696		$	(379,027	)	$	157,130		$	176,972		$	182,801		$	202,501		$	(385,302	)	$	176,972

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

Unaudited Condensed Consolidating Statement of Cash Flows:


Six Months Ended June 30, 2014	Allied World Switzerland (Parent Guarantor)			Allied World Bermuda (Subsidiary Issuer)			Other Allied World Subsidiaries			Consolidating Adjustments		Allied World Switzerland Consolidated
Three Months Ended March 31, 2015															Allied World Switzerland (Parent Guarantor)			Allied World Bermuda (Subsidiary Issuer)			Other Allied World Subsidiaries			Consolidating Adjustments			Allied World Switzerland Consolidated
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	194,890		$	(1,489	)	$	258,707		$	—	$	452,108		$	71,639		$	80,375		$	339,583		$	(179,000	)	$	312,597
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases trading securities	—			—			(3,905,650		)	—		(3,905,650		)	—			—			(1,723,443		)	—			(1,723,443		)
Purchases of other invested assets	—			—			(181,419		)	—		(181,419		)	—			—			(233,252		)	—			(233,252		)
Sales of trading securities	—			—			3,705,229			—		3,705,229			—			—			1,561,890			—			1,561,890
Sales of other invested assets	—			—			184,166			—		184,166			—			—			56,535			—			56,535
Other	—			—			13,472			—		13,472			—			—			19,123			—			19,123
Net cash provided by (used in) investing activities	—			—			(184,202		)	—		(184,202		)	—			—			(319,147		)	—			(319,147		)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Dividends paid	(33,207		)	—			—			—		(33,207		)	(21,669		)	—			—			—			(21,669		)
Intercompany dividends paid															—			(80,000		)	(99,000		)	179,000			—
Proceeds from the exercise of stock options	6,313			—			—			—		6,313			4,223			—			—			—			4,223
Share repurchases	(137,810		)	—			—			—		(137,810		)	(50,273		)	—			—			—			(50,273		)
Net cash provided by (used in) financing activities	(164,704		)	—			—			—		(164,704		)	(67,719		)	(80,000		)	(99,000		)	179,000			(67,719		)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	30,186			(1,489		)	74,505			—		103,202			3,920			375			(78,564		)	—			(74,269		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	10,790			2,775			518,371			—		531,936			32,579			1,734			555,026			—			589,339
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	40,976		$	1,286		$	592,876		$	—	$	635,138		$	36,499		$	2,109		$	476,462		$	—		$	515,070

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)


Six Months Ended June 30, 2013	Allied World Switzerland (Parent Guarantor)			Allied World Bermuda (Subsidiary Issuer)			Other Allied World Subsidiaries			Consolidating Adjustments		Allied World Switzerland Consolidated
Three Months Ended March 31, 2014															Allied World Switzerland (Parent Guarantor)			Allied World Bermuda (Subsidiary Issuer)			Other Allied World Subsidiaries			Consolidating Adjustments			Allied World Switzerland Consolidated
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:	$	73,938		$	(3,025	)	$	54,993		$	—	$	125,906		$	94,128		$	92,272		$	324,382		$	(206,000	)	$	304,782
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of trading securities	—			—			(3,186,162		)	—		(3,186,162		)	—			—			(1,568,993		)	—			(1,568,993		)
Purchases of other invested assets	—			—			(141,805		)	—		(141,805		)	—			—			(779,934		)	—			(779,934		)
Sales of trading securities	—			—			3,171,977			—		3,171,977			—			—			1,494,648			—			1,494,648
Sales of other invested assets	—			—			126,491			—		126,491			—			—			663,237			—			663,237
Other	—			—			(13,924		)	—		(13,924		)	—			—			2,487			—			2,487
Net cash provided by (used in) investing activities	—			—			(43,423		)	—		(43,423		)	—			—			(188,555		)	—			(188,555		)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Partial par value reduction	(12,981		)	—			—			—		(12,981		)
Dividends paid															(16,732		)	—			—			—			(16,732		)
Intercompany dividends paid															—			(94,000		)	(112,000		)	206,000			—
Proceeds from the exercise of stock options	5,293			—			—			—		5,293			3,030			—			—			—			3,030
Share repurchases	(82,571		)	—			—			—		(82,571		)	(68,659		)	—			—			—			(68,659		)
Net cash provided by (used in) financing activities	(90,259		)	—			—			—		(90,259		)	(82,361		)	(94,000		)	(112,000		)	206,000			(82,361		)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(16,321		)	(3,025		)	11,570			—		(7,776		)	11,767			(1,728		)	23,827			—			33,866
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	19,997			11,324			650,558			—		681,879			10,790			2,775			518,371			—			531,936
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	3,676		$	8,299		$	662,128		$	—	$	674,103		$	22,557		$	1,047		$	542,198		$	—		$	565,802

Notes to Parent Company Condensed Financial Information

a) Dividends

Allied World Switzerland received cash dividends from its subsidiaries of ~~$205,000~~$80,000 and ~~$155,000~~$94,000 for the ~~six~~three months ended ~~June 30,~~March 31, 2015 and 2014, ~~and 2013,~~ respectively. Such dividends are included in “cash flows provided by (used in) operating activities” in the unaudited condensed consolidating cash flows.

15. SUBSEQUENT EVENTS

On ~~July~~April 1, 2015, the Company completed its acquisitions of the Hong Kong and Singapore operations of Royal & Sun Alliance Insurance plc ("RSA") for approximately $192,692, subject to post-closing adjustments. In addition to the purchase price, the Company contributed an additional $90,000 to capitalize the businesses on an ongoing basis. Completion of the valuation of the assets acquired and liabilities assumed is currently in process, in particular related to insurance-related contract intangibles and other intangibles acquired. The required disclosures related to this acquisition will be provided upon the completion of the valuation of the assets acquired and liabilities assumed in the second quarter of 2015. In addition, the Company has entered into a contract to acquire the Labuan operations of RSA for one British pound sterling. This transaction is expected to close in the second quarter of 2015.

On April 2, ~~2014,~~2015, the Company paid a quarterly dividend of $0.225 per share to shareholders of record on ~~June~~March 24, ~~2014.~~2015.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q. References in this Form 10-Q to the terms “we,” “us,” “our,” the “Company” or other similar terms mean the consolidated operations of Allied World Assurance Company Holdings, AG, a Swiss holding company, and our consolidated subsidiaries, unless the context requires otherwise. References in this Form 10-Q to the term “Allied World Switzerland” or “Holdings” ~~means~~mean only Allied World Assurance Company Holdings, AG. References to “Allied World Bermuda” mean only Allied World Assurance Company Holdings, Ltd, a Bermuda holding company. References to “our insurance subsidiaries” may include our reinsurance subsidiaries. References in this Form 10-Q to $ are to the lawful currency of the United States and to CHF are to the lawful currency of Switzerland. References in this Form 10-Q to Holdings’ “common shares” mean its registered voting shares.

Note on Forward-Looking Statement

This Form 10-Q and other publicly available documents may include, and our officers and representatives may from time to time make, projections concerning financial information and statements concerning future economic performance and events, plans and objectives relating to management, operations, products and services, and assumptions underlying these projections and statements. These projections and statements are forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 and are not historical facts but instead represent only our belief regarding future events, many of which, by their nature, are inherently uncertain and outside our control. These projections and statements may address, among other things, our strategy for growth, product development, financial results and reserves. Actual results and financial condition may differ, possibly materially, from these projections and statements and therefore you should not place undue reliance on them. Factors that could cause our actual results to differ, possibly materially, from those in the specific projections and statements are discussed throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations and in “Risk Factors” in Item 1A. of Part I of our ~~2013~~2014 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on February ~~18, 2014~~17, 2015 (the ~~“2013~~“2014 Form 10-K”). 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.

Overview

Our Business

We ~~write~~are a Swiss-based global provider of a diversified portfolio of property and casualty insurance and reinsurance ~~internationally through our subsidiaries and branches based~~products with operations in Australia, Bermuda, Canada, Europe, Hong Kong, Singapore, and the United States as well as our Lloyd’s Syndicate 2232. We manage our business through three operating segments: ~~U.S. insurance, international insurance~~North American Insurance, Global Markets Insurance and ~~reinsurance.~~Reinsurance. As of ~~June 30, 2014,~~March 31, 2015, we had approximately ~~$12.7~~$12.6 billion of total assets, ~~$3.7~~$3.8 billion of total shareholders’ equity and ~~$4.5~~$4.6 billion of total capital, which includes shareholders’ equity, senior notes and ~~senior notes.~~other long-term debt.

During the three months ended ~~June 30, 2014,~~March 31, 2015, we continued to grow our ~~direct~~ insurance business ~~in particular in~~(the North American Insurance segment and Global Markets Insurance segment), but also selectively entered into reinsurance treaties. For the ~~United States and Europe, as~~insurance operations, we ~~entered new lines of business and added~~continued to add scale to our existing lines of business ~~while~~and build-out our ~~reinsurance operations had lower premiums mainly due to the timing~~less mature lines of ~~certain treaties renewing. During the quarter, we experienced positive~~business. We did however experience negative rate ~~improvements~~changes in certain lines of business such as general ~~casualty, primary casualty, healthcare~~property and ~~professional liability~~healthcare. For our Reinsurance segment, we are experiencing unfavorable market conditions in ~~our U.S. insurance segment, as well as positive rate changes~~terms of pricing, terms and conditions, and either did not renew or renewed at lower line sizes on several treaties in our international insurance segment for certain parts of our general casualty and healthcare lines of business. However also during the quarter, we did experience negative rate changes in our general property line of business in both our U.S. insurance and international insurance segments, as well as negative rate changes in our professional liability line of businessresponse to these market conditions. We expect this trend to continue in the ~~international insurance segment. We believe going forward in the near-term, there will be pricing pressure across most lines of business, in particular in~~near-term. As a result, our ~~international insurance segment.~~

~~Our~~ consolidated gross premiums written decreased by ~~$4.8~~$20.8 million, or ~~0.6%~~2.3%, for the three months ended ~~June 30, 2014~~March 31, 2015 compared to the three months ended ~~June 30, 2013.~~March 31, 2014. Overall our combined ratio is higher by ~~7.5~~8.2 percentage points, driven by ~~increased property loss activity during the quarter~~higher current year losses incurred and higher ~~expenses primarily caused by increased headcount and employee~~ stock-based compensation ~~due primarily~~expense.

Our net income decreased by $52.6 million to ~~an 11% increase in our stock price. As a result of the above factors, each of our operating segments reported lower underwriting income during the three months ended June 30, 2014~~$124.4 million compared to the three months ended ~~June 30, 2013. Also during~~March 31, 2014. The decrease was primarily due to the ~~quarter, we opened a branch office~~lower underwriting income reported by each of ~~Allied World Assurance Company, Ltd in Sydney, Australia to further expand~~ our ~~distribution network in the Asia Pacific region. The branch will initially offer general~~operating segments and lower total investment return.

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~~casualty, healthcare, professional liability, mergers~~Recent Developments

On April 1, 2015, we completed our acquisitions of the Hong Kong and ~~acquisitions~~Singapore operations of Royal & Sun Alliance Insurance plc ("RSA") for approximately $192.7 million, subject to post-closing adjustments. In addition to the purchase price, we contributed an additional $90.0 million to capitalize the businesses on an ongoing basis. Completion of the valuation of the assets acquired and ~~trade credit insurance products. In May 2014, we acquired the remaining interest~~liabilities assumed is currently in ~~a claims administration services company we did not own and recorded goodwill of $9.4 million~~process, in particular related to insurance-related contract intangibles and other intangibles acquired. In addition, we have entered into a contract to acquire the ~~transaction. The results~~Labuan operations of RSA for one British pound sterling. This transaction is expected to close in the ~~claims administration services company are included in our U.S. insurance segment.~~second quarter of 2015.

~~Our net income increased by $153.8 million to $151.9 million compared to~~During the ~~three months ended June 30, 2013. The increase was primarily due to recording net realized gains on~~fourth quarter of 2014, our ~~investments of $85.2 million during the three months ended June 30, 2014 compared to recording net realized losses of $115.2 million during the three months ended June 30, 2013~~Chief Executive Officer reorganized how we manage our business, and as a result we realigned our executive management team and changed our reportable segments to correspond to the reorganization. Our Bermuda insurance operations, except for the trade credit line of ~~lower interest rates during~~business, which had previously been included in the ~~current quarter.~~international insurance segment, was combined with the U.S. insurance segment, with the new segment renamed the "North American Insurance" segment. The remaining insurance operations of the international insurance segment was renamed the "Global Markets Insurance" segment. The Reinsurance segment remained unchanged. The new segments have been recast and our historical financial information has been updated to conform to the new presentation.

On May 1, 2014, the shareholders approved a 3-for-1 stock split of the ~~Company approved the following proposals:~~

A cash dividend in the form of a distribution out of general legal reserve from capital contributions. The distribution amount will be paid to shareholders in quarterly installments of $0.225 per share. The first installment of the dividend was paid on July 2, 2014. We expect to distribute the remaining installments of the dividend in October 2014, January 2015 and April 2015.

~~A new share repurchase program in order to repurchase up to $500.0 million of our~~Company's common shares. ~~This supersedes the 2012 share repurchase program and no further repurchases will be made under the 2012 share repurchase program.~~

~~A three-for-one stock split for shareholders of record as of May 12, 2014.~~ All historical share and per share amounts ~~have been recast to~~ reflect the effect of the stock split.

Financial Highlights


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2014			2013			2014			2013			2015			2014
	($ in millions except share, per share and percentage data)												($ in millions except share, per share and percentage data)
Gross premiums written	$	760.4		$	765.2		$	1,661.8		$	1,602.3		$	880.6		$	901.4
Net income (loss)	151.9			(1.9		)	328.8			157.1
Net income													124.4			177.0
Operating income	76.1			103.5			205.9			187.7			91.7			129.9
Basic earnings (loss) per share:
Net income (loss)	$	1.55		$	(0.02	)	$	3.33		$	1.52
Basic earnings per share:
Net income													$	1.30		$	1.78
Operating income	$	0.78		$	1.00		$	2.09		$	1.82		$	0.96		$	1.31
Diluted earnings (loss) per share:
Net income (loss)	$	1.52		$	(0.02	)	$	3.27		$	1.48
Diluted earnings per share:
Net income													$	1.27		$	1.74
Operating income	$	0.76		$	0.98		$	2.05		$	1.77		$	0.93		$	1.28
Weighted average common shares outstanding:
Basic	97,809,639			103,267,659			98,672,618			103,552,656			95,935,551			99,545,187
Diluted	99,724,802			105,408,888			100,691,568			105,949,785			97,577,029			101,584,662
Basic book value per common share	$	37.99		$	32.90		$	37.99		$	32.90		$	40.12		$	36.63
Diluted book value per common share	$	36.98		$	32.06		$	36.98		$	32.06		$	38.99		$	35.68
Annualized return on average equity (ROAE), net income (loss)	16.6		%	(0.2		)%	18.3		%	9.4		%
Annualized return on average equity (ROAE), net income													13.1		%	19.8		%
Annualized ROAE, operating income	8.3		%	12.2		%	11.4		%	11.2		%	9.6		%	14.6		%

Non-GAAP Financial Measures

In presenting the company’s results, management has included and discussed certain non-GAAP financial measures, as such term is defined in Item 10(e) of Regulation S-K promulgated by the SEC. 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 accounting principles generally accepted in the United States of America (“U.S. GAAP”).

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Operating income and operating income per share

Operating income is an internal performance measure used in the management of our 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. We exclude net realized investment gains or losses, net foreign exchange gain or loss and any other non-recurring items from our 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, we believe that showing operating income enables investors, analysts, rating agencies and other users of our financial information to more easily analyze our results of operations and our underlying business performance. Operating income should not be viewed as a substitute for U.S. GAAP net income.

The following is a reconciliation of operating income to its most closely related U.S. GAAP measure, net income.

Three Months Ended
June 30, Six Months Ended
June 30,
2014 2013 2014 2013
($ in millions, except share, per share and percentage data)
Net income (loss) $ 151.9
$ (1.9 ) $ 328.8
$ 157.1
Add after tax effect of:
Net realized investment (gains) losses (76.4 ) 104.9
(123.6 ) 27.6
Foreign exchange loss 0.6
0.5
0.7
3.0
Operating income $ 76.1
$ 103.5
$ 205.9
$ 187.7
Basic per share data:
Net income (loss) $ 1.55
$ (0.02 ) $ 3.33
$ 1.52
Add after tax effect of:
Net realized investment (gains) losses (0.78 ) 1.02
(1.25 ) 0.27
Foreign exchange loss 0.01
—
0.01
0.03
Operating income $ 0.78
$ 1.00
$ 2.09
$ 1.82
Diluted per share data:
Net income (loss) $ 1.52
$ (0.02 ) * $ 3.27
$ 1.48
Add after tax effect of:
Net realized investment (gains) losses (0.77 ) 1.00
(1.23 ) 0.26
Foreign exchange loss 0.01
—
0.01
0.03
Operating income $ 0.76
$ 0.98
$ 2.05
$ 1.77

~~___________~~



*	Diluted weighted average common shares outstanding was 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 be anti-dilutive.



	Three Months Ended March 31,
	2015			2014
	($ in millions, except share, per share and percentage data)
Net income	$	124.4		$	177.0
Add after tax effect of:
Net realized investment gains	(42.6		)	(47.2		)
Foreign exchange loss	9.9			0.1
Operating income	$	91.7		$	129.9
Basic per share data:
Net income	$	1.30		$	1.78
Add after tax effect of:
Net realized investment gains	(0.44		)	(0.47		)
Foreign exchange loss	0.10			—
Operating income	$	0.96		$	1.31
Diluted per share data:
Net income	$	1.27		$	1.74
Add after tax effect of:
Net realized investment gains	(0.44		)	(0.46		)
Foreign exchange loss	0.10			—
Operating income	$	0.93		$	1.28

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Diluted book value per share

We have included diluted book value per share because it takes into account the effect of dilutive securities; therefore, we believe it is an important measure of calculating shareholder returns.


	As of June 30,						As of March 31,
	2014			2013			2015			2014
	($ in millions, except share and per share data)						($ in millions, except share and per share data)
Price per share at period end	$	38.02		$	30.50		$	40.40		$	34.40
Total shareholders’ equity	$	3,682.8		$	3,373.2		$	3,829.1		$	3,616.7
Basic common shares outstanding	96,929,091			102,527,493			95,444,669			98,726,463
Add:
Unvested restricted stock units	516,546			251,190			843,607			523,245
Performance-based equity awards	619,428			812,559			596,224			621,276
Employee share purchase plan	29,293			31,866			30,504			16,716
Dilutive stock options outstanding	2,620,016			3,333,798			2,212,247			2,760,303
Weighted average exercise price per share	$	16.24		$	15.88		$	16.73		$	16.11
Deduct:
Options bought back via treasury method	(1,119,123		)	(1,735,830		)	(916,111		)	(1,292,814		)
Common shares and common share equivalents outstanding	99,595,251			105,221,076			98,211,140			101,355,189
Basic book value per common share	$	37.99		$	32.90		$	40.12		$	36.63
Diluted book value per common share	$	36.98		$	32.06		$	38.99		$	35.68

Annualized return on average equity

Annualized return on average shareholders’ equity (“ROAE”) is calculated using average shareholders’ equity. We present ROAE as a measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of our financial information.

Annualized operating return on average shareholders’ equity is calculated using operating income and average shareholders’ equity.

Three Months Ended
June 30, Six Months Ended
June 30,
2014 2013 2014 2013
($ in millions except percentage data)
Opening shareholders’ equity $ 3,616.7
$ 3,432.0
$ 3,519.8
$ 3,326.3

Closing shareholders’ equity $ 3,682.8
$ 3,373.2
$ 3,682.8
$ 3,373.2

Average shareholders’ equity $ 3,649.7
$ 3,402.6
$ 3,601.3
$ 3,349.8

Net income (loss) available to shareholders $ 151.9
$ (1.9 ) $ 328.8
$ 157.1
Annualized return on average shareholders’ equity —
net income (loss) available to shareholders
16.6 % (0.2 )% 18.3 % 9.4 %
Operating income available to shareholders $ 76.1
$ 103.5
$ 205.9
$ 187.7
Annualized return on average shareholders’ equity —
operating income available to shareholders
8.3 % 12.2 % 11.4 % 11.2 %



	Three Months Ended March 31,
	2015			2014
	($ in millions except percentage data)
Opening shareholders’ equity	$	3,778.3		$	3,519.8

Closing shareholders’ equity	$	3,829.1		$	3,616.7

Average shareholders’ equity	$	3,803.7		$	3,568.3

Net income available to shareholders	$	124.4		$	177.0
Annualized return on average shareholders’ equity — net income available to shareholders	13.1		%	19.8		%
Operating income available to shareholders	$	91.7		$	129.9
Annualized return on average shareholders’ equity — operating income available to shareholders	9.6		%	14.6		%

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Relevant Factors

Revenues

We derive our revenues primarily from premiums on our insurance policies and reinsurance contracts, net of any reinsurance or retrocessional coverage purchased. Insurance and reinsurance premiums are a function of the amounts and types of policies and contracts we write, as well as prevailing market prices. Our prices are determined before our ultimate costs, which may extend far into the future, are known. In addition, our revenues include income generated from our investment portfolio, consisting of net investment income and net realized investment gains or ~~losses.~~losses, and other income related to our non-insurance operations. Investment income is principally derived from interest and dividends earned on investments, as well as distributed and undistributed income from equity method investments, partially offset by investment management expenses and fees paid to our custodian bank. Net realized investment gains or losses include gains or losses from the sale of investments, as well as the change in the fair value of investments that we mark-to-market through net income. Other income currently includes revenue from our third party claims administration services operation.

Expenses

Our expenses consist largely of net losses and loss expenses, acquisition costs and general and administrative expenses. Net losses and loss expenses incurred are comprised of three main components:

losses paid, which are actual cash payments to insureds and reinsureds, net of recoveries from reinsurers;

outstanding loss or case reserves, which represent management’s best estimate of the likely settlement amount for known claims, less the portion that can be recovered from reinsurers; and

reserves for losses incurred but not reported, or “IBNR”, which are reserves (in addition to case reserves) established by us that we believe are needed for the future settlement of claims. The portion recoverable from reinsurers is deducted from the gross estimated loss.

Acquisition costs are comprised of commissions, brokerage fees, insurance taxes and other ~~acquisition related~~acquisition-related costs such as profit ~~commissions.~~commissions and are reduced for ceding commission income received on our ceded reinsurance. Commissions and brokerage fees are usually calculated as a percentage of premiums and depend on the market and line of business. Acquisition costs are reported after (1) deducting commissions received on ceded reinsurance, (2) deducting the part of deferred acquisition costs relating to the successful acquisition of new and renewal insurance and reinsurance contracts and (3) including the amortization of previously deferred acquisition costs.

General and administrative expenses include personnel expenses including stock-based compensation expense, rent expense, professional fees, information technology costs and other general operating expenses.

Ratios

~~Management measures~~We measure segment profit or loss as underwriting income or loss plus other insurance-related income and expenses, which may include the net earnings from our claims administration services operation and other income or expense that is not directly related to our underwriting operations. We also measure the results for each segment on the basis of the “loss and loss expense ratio,” “acquisition cost ratio,” “general and administrative expense ratio,” “expense ratio” and the “combined ratio.” Because we do not manage our assets by segment, investment income, interest expense and total assets are not allocated to individual reportable segments. General and administrative expenses are allocated to segments based on various factors, including staff count and each segment’s proportional share of gross premiums written. The loss and loss expense ratio is derived by dividing net losses and loss expenses by net premiums earned. The acquisition cost ratio is derived by dividing acquisition costs by net premiums earned. The general and administrative expense ratio is derived by dividing general and administrative expenses by net premiums earned. The expense ratio is the sum of the acquisition cost ratio and the general and administrative expense ratio. The combined ratio is the sum of the loss and loss expense ratio, the acquisition cost ratio and the general and administrative expense ratio.

Critical Accounting Policies

It is important to understand our accounting policies in order to understand our financial position and results of operations. Our unaudited condensed consolidated financial statements reflect determinations that are inherently subjective in nature and require management to make assumptions and best estimates to determine the reported values. If events or other

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factors cause actual results to differ materially from management’s underlying assumptions or estimates, there could be a material adverse effect on our financial condition or results of operations. We believe that some of the more critical judgments in the areas of accounting estimates and assumptions that affect our financial condition and results of operations are related to

~~Table of Contents~~

reserves for losses and loss expenses, reinsurance recoverables, premiums and acquisition costs, valuation of financial instruments and goodwill and other intangible asset impairment valuation. For a detailed discussion of our critical accounting policies, please refer to our ~~2013~~2014 Form 10-K. There were no material changes in the application of our critical accounting estimates subsequent to that report.

Results of Operations

The following table sets forth our selected consolidated statement of operations data for each of the periods indicated.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2014			2013			2014			2013			2015			2014
	($ in millions)												($ in millions)
Revenues
Gross premiums written	$	760.4		$	765.2		$	1,661.8		$	1,602.3		$	880.6		$	901.4
Net premiums written	$	553.9		$	581.2		$	1,325.5		$	1,276.3		$	772.5		$	771.6
Net premiums earned	$	537.3		$	507.3		$	1,067.5		$	970.5		$	568.5		$	530.3
Net investment income	36.8			37.6			84.4			71.0			44.6			47.6
Net realized investment gains (losses)	85.2			(115.2		)	139.4			(35.6		)
Net realized investment gains													45.0			54.2
Other income													0.9			—
	$	659.3		$	429.7		$	1,291.3		$	1,005.9		$	659.0		$	632.1
Expenses
Net losses and loss expenses	$	314.9		$	275.2		$	590.1		$	530.3		$	325.2		$	275.3
Acquisition costs	74.3			64.6			142.0			121.3			78.7			67.7
General and administrative expenses	96.2			80.6			176.5			163.3			97.1			80.3
Other expense													1.8			—
Amortization of intangible assets	0.6			0.6			1.3			1.2			0.6			0.6
Interest expense	14.6			14.2			29.1			28.3			14.4			14.6
Foreign exchange loss	0.6			0.4			0.7			3.0			9.9			0.1
	$	501.2		$	435.6		$	939.7		$	847.4		$	527.7		$	438.6
Income (loss) before income taxes	158.1			(5.9		)	351.6			158.5
Income tax expense (benefit)	6.2			(4.0		)	22.8			1.4
Net income (loss)	$	151.9		$	(1.9	)	$	328.8		$	157.1
Income before income taxes													131.3			193.5
Income tax expense													6.9			16.5
Net income													$	124.4		$	177.0
Ratios
Loss and loss expense ratio	58.6		%	54.2		%	55.3		%	54.6		%	57.2		%	51.9		%
Acquisition cost ratio	13.8		%	12.7		%	13.3		%	12.5		%	13.8		%	12.8		%
General and administrative expense ratio	17.9		%	15.9		%	16.5		%	16.8		%	17.1		%	15.2		%
Expense ratio	31.7		%	28.6		%	29.8		%	29.3		%	30.9		%	28.0		%
Combined ratio	90.3		%	82.8		%	85.1		%	83.9		%	88.1		%	79.9		%

Comparison of Three Months Ended ~~June 30,~~March 31, 2015 and 2014 ~~and 2013~~

Premiums

Gross premiums written decreased by ~~$4.8~~$20.8 million, or ~~0.6%~~2.3%, for the three months ended ~~June 30, 2014~~March 31, 2015 compared to the three months ended ~~June 30, 2013.~~March 31, 2014. The overall decrease in gross premiums written was primarily the result of the following:

~~U.S. insurance:~~North American Insurance: Gross premiums written increased by ~~$34.1~~$34.9 million, or ~~11.1%~~10.1%. The increase in gross premiums written was primarily due to ~~$11.4 million of new business~~the growth from new lines of business and new insureds during the three months ended June 30, 2014 compared to the three months ended June 30, 2013, as well as premium rate increases across most lines of business. This was particularly evident in our general casualty ~~and inland marine lines~~line of business ~~that had an overall increase in gross premiums written of $30.3 million. This growth was partially~~driven primarily by new

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business, including non-recurring business, as well as growth in our less mature lines of business such as inland marine and primary construction. This growth was partially offset by the non-renewal of business, particularly in ~~certain classes within~~ our healthcare line of ~~business, which did not meet our underwriting requirements (which included inadequate pricing and/or terms and conditions);~~business;

~~International insurance:~~Global Markets Insurance: Gross premiums written increased by ~~$11.9~~$2.2 million, or ~~6.2%~~3.8%. Assuming constant foreign exchange rates, gross premiums written increased by 11.9%. The increase was primarily due to ~~continued growth from~~ new ~~initiatives and~~business written driven by new lines of ~~business. Our new aviation~~business such as onshore construction and marine cargo business contributed a combined $9.3 million of gross premiums written during the current quarter. Our professional liability line of business grew $4.9 million primarily on new business writings in our mergers and acquisitions class of business.marine. This growth was partially offset by ~~our general casualty line of business, which decreased by $3.7 million primarily due to~~ the non-renewal of ~~certain policies during the current quarter, which did not meet~~business, particularly in our underwriting requirements (which included inadequate pricing and/or terms and conditions). During the quarter, we opened a new branch office in Sydney, Australia to further expand our distribution network in the Asia Pacific region;healthcare line of business; and

Reinsurance: Gross premiums written decreased by ~~$50.8~~$57.8 million, or ~~19.1%~~11.6%. The decrease was primarily due to ~~the timing~~non-renewals of ~~renewals that were not renewed in the current quarter but were previously bound during the quarter ended June 30, 2013~~certain treaties, across all lines of business, either due to poor terms and conditions or cedents retaining more of their own business, and lower premiums ~~written~~on renewed treaties mainly due to our assuming a lower percentage of the premiums than in ~~our property reinsurance lines of business. In our property reinsurance lines of~~the prior period. These reductions were partially offset by new business we had lower premiums written during the current quarter compared to the same quarter last year of $12.4 million from our collateralized property catastrophe reinsurance program through Aeolus Re, Ltd. ("Aeolus Re").written.

The table below illustrates our ~~consolidated~~ gross premiums written by underwriter location for each of the periods indicated.


	Three Months Ended June 30,				Dollar			Percentage		Three Months Ended March 31,				Dollar Change			Percentage Change
	2014		2013		Change			Change		2015		2014					Percentage Change
	($ in millions)									($ in millions)				Dollar Change
United States	$	442.5	$	440.2	$	2.3		0.5	%	$	536.6	$	520.8	$	15.8		3.0	%
Bermuda	185.9		211.0		(25.1		)	(11.9	)%	196.6		229.6		(33.0		)	(14.4	)%
Europe	78.0		60.3		17.7			29.4	%	104.0		103.3		0.7			0.7	%
Asia Pacific	50.9		53.8		(2.9		)	(5.4	)%	40.1		46.9		(6.8		)	(14.5	)%
Canada	3.1		—		3.1			n/a		3.3		0.8		2.5			312.5	%
	$	760.4	$	765.2	$	(4.8	)	(0.6	)%	$	880.6	$	901.4	$	(20.8	)	(2.3	)%

Net premiums written ~~decreased~~increased by ~~$27.3~~$0.9 million, or ~~4.7%~~0.1%, for the three months ended ~~June 30, 2014~~March 31, 2015 compared to the three months ended ~~June 30, 2013.~~March 31, 2014. The ~~decrease~~increase in net premiums written was ~~primarily~~ due to higher ~~ceded~~net premiums written during the three months ended June 30, 2014 compared to the three months ended June 30, 2013. The increase in ceded premiums written was due to reinsurance treaties in support of our less mature lines of business that we did not have in place during the three months ended June 30, 2013, and recognizing annual ceded premiums written at the inception of treaties that have contractual minimum premiums. P~~reviously, we recognized ceded premiums written on these agreements based on the actual premiums ceded each quarter. This resulted in the acceleration of ceded premiums written of $41.9 million~~ in our ~~U.S. insurance segment this quarter, but had no impact on net premiums earned. These increases in ceded premiums were~~North American Insurance and Global Markets Insurance segments partially offset by lower ~~ceded~~net premiums onwritten in our ~~property catastrophe reinsurance protection for the three months ended June 30, 2014 compared to the three months ended June 30, 2013.~~Reinsurance segment. The difference between gross and net premiums written is the cost to us of purchasing reinsurance coverage, including the cost of property catastrophe reinsurance coverage. We ceded ~~27.2%~~12.3% of gross premiums written for the three months ended ~~June 30, 2014~~March 31, 2015 compared to ~~24.0%~~14.4% for the same period in ~~2013.~~2014. The ~~increase~~decrease was primarily due to retaining more of our premiums on certain lines of business in the ~~acceleration of~~current period than in the prior period, partially offset by higher premiums ceded ~~premiums in~~related to our ~~U.S. insurance segment that increased the ratio by 5.5 percentage points.~~collateralized property catastrophe reinsurance coverage.

Net premiums earned increased by ~~$30.0~~$38.2 million, or ~~5.9%~~7.2%, for the three months ended ~~June 30, 2014~~March 31, 2015 compared to the three months ended ~~June 30, 2013~~March 31, 2014 as a result of higher premiums earned in ~~each of~~ our ~~operating segments.~~insurance operations.

We evaluate our business by segment, distinguishing between ~~U.S. insurance, international insurance~~North American Insurance, Global Markets Insurance and ~~reinsurance.~~Reinsurance. The following table illustrates the mix of our business on both a gross premiums written and net premiums earned basis.



	Gross Premiums Written				Net Premiums Earned
	Three Months Ended March 31,				Three Months Ended March 31,
	2015		2014		2015		2014
North American Insurance	43.2	%	38.3	%	55.1	%	50.1	%
Global Markets Insurance	6.9	%	6.5	%	8.8	%	6.6	%
Reinsurance	49.9	%	55.2	%	36.1	%	43.3	%
Total	100.0	%	100.0	%	100.0	%	100.0	%

Gross premiums written by our reinsurance segment typically accounts for the largest portion of gross premiums written during the first quarter of a calendar year as many reinsurance contracts have January 1st renewal dates.

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Gross Premiums Written Net Premiums Earned
Three Months Ended
June 30, Three Months Ended
June 30,
2014 2013 2014 2013
U.S. insurance 44.9 % 40.1 % 39.9 % 39.0 %
International insurance 26.9 % 25.2 % 16.6 % 17.1 %
Reinsurance 28.2 % 34.7 % 43.5 % 43.9 %
Total 100.0 % 100.0 % 100.0 % 100.0 %

Net Investment Income

Net investment income decreased by ~~$0.8~~$3.0 million, or ~~2.1%~~6.3%, for the three months ended ~~June 30, 2014~~March 31, 2015 compared to the three months ended ~~June 30, 2013.~~March 31, 2014. The decrease was ~~primarily~~ due to ~~a net loss recorded for~~lower income from our equity method investments owned through Allied World Financial Services ~~Inc,~~ partially offset by higher ~~investment~~ income from our ~~fixed maturity investments. The annualized period book yield of the investment portfolio for the three months ended June 30, 2014~~hedge fund and ~~2013 was 1.7% and 1.8%, respectively.~~

~~We reported a net loss of $0.9 million~~private equity investments due to higher distributions from our other invested assets during the three months ended June 30, 2014 compared to earnings of $3.8 million during the three months ended June 30, 2013. The loss reported for the three months ended June 30, 2014 was due to a loss of $9.3 million recorded for anprivate equity ~~method investment due to impairment charges that it recorded.~~funds. The earnings from our equity method investments can fluctuate from period to period based on the performance of each equity method investment and the seasonality of their results, and as such the ~~current~~earnings in any given period ~~earnings~~ may not be indicative of the performance in future periods. The annualized period book yield of the investment portfolio for the three months ended March 31, 2015 and 2014 was 2.1% and 2.3%, respectively.

As of ~~June 30, 2014,~~March 31, 2015, we held ~~10.6%~~10.7% of our total investments and cash equivalents in other invested assets compared to ~~9.9%~~11.5% as of ~~June 30, 2013.~~

Investment management expenses of $4.7 million and $3.8 million were incurred during the three months ended June 30, 2014 and 2013, respectively. The increase of $0.9 million, or 23.7%, was primarily due to additional investment portfolio managers utilized in the current period as compared to prior period.March 31, 2014.

As of ~~June 30, 2014,~~March 31, 2015, approximately ~~88.3%~~88.6% of our fixed income investments consisted of investment grade securities. As of ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013,~~2014, the average ~~Standard & Poor’s~~ credit rating of our fixed income portfolio was A+ and AA-, ~~respectively.~~respectively, as rated by Standard & Poor’s.

Realized Investment Gains ~~(Losses)~~

Net realized investment gains ~~(losses)~~ were comprised of the following:


	Three Months Ended June 30,						Three Months Ended March 31,
	2014			2013			2015			2014
	($ in millions)						($ in millions)
Net realized gains on sale:
Fixed maturity investments, trading	$	10.3		$	7.6		$	5.4		$	7.5
Equity securities, trading	8.2			6.4			14.5			36.2
Other invested assets: hedge funds and private equity, trading	33.2			9.1			12.3			6.4
Total net realized gains on sale	51.7			23.1			32.2			50.1
Net realized and unrealized (losses) gains on derivatives	(13.7		)	8.5
Net realized and unrealized losses on derivatives							(11.6		)	(12.9		)
Mark-to-market gains (losses):							��
Fixed maturity investments, trading	36.4			(115.1		)	25.6			22.4
Equity securities, trading	21.3			(34.3		)	5.4			(21.6		)
Other invested assets: hedge funds and private equity, trading	(10.5		)	2.6			(6.6		)	16.2
Total mark-to-market gains (losses)	47.2			(146.8		)
Net realized investment gains (losses)	$	85.2		$	(115.2	)
Total mark-to-market gains							24.4			17.0
Net realized investment gains							$	45.0		$	54.2

~~Table of Contents~~

The total return of our investment portfolio was ~~1.4%~~1.0% and ~~(0.9)%~~1.2% for the three months ended ~~June 30,~~March 31, 2015 and 2014, ~~and 2013,~~ respectively. The ~~increase~~slight decrease in total return was primarily due to lower ~~interest rates that caused mark-to-market~~net investment income and lower realized gains on ~~our fixed maturity investments and~~equity securities. We sold a lower volume of equity securities during the current period than in the prior period. These decreases were partially offset by higher stock price appreciation ~~of our~~on equity securities we held during the three months ended ~~June 30, 2014~~March 31, 2015 compared to three months ended ~~June 30, 2013. The realized and unrealized losses on derivatives for~~March 31, 2014.

Other Income

Other income represents the ~~three months ended June 30, 2014 were~~revenue of our third-party claims administration services operation that we acquired in the ~~result~~second quarter of selling interest rate future and swap contracts to reduce the duration of the investment portfolio. Given the decrease in interest rates during the quarter, we recorded a loss related to these interest rate future and swap contracts.2014.

Net Losses and Loss Expenses

Net losses and loss expenses increased by ~~$39.7~~$49.9 million, or ~~14.4%~~18.1%, for the three months ended ~~June 30, 2014~~March 31, 2015 compared to the three months ended ~~June 30, 2013.~~March 31, 2014. The following is a breakdown of the loss and loss expense ratio for the three months ended ~~June 30, 2014~~March 31, 2015 and ~~2013:~~2014:

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	Three Months Ended June 30, 2014					Three Months Ended June 30, 2013					Dollar Change			Loss Ratio Percentage Point Change	Three Months Ended March 31, 2015					Three Months Ended March 31, 2014					Dollar Change			Change in Percentage Points
	Amount			% of NPE (1)		Amount			% of NPE (1)				Amount				% of NPE (1)		Amount			% of NPE (1)			Dollar Change			Change in Percentage Points
						($ in millions)					Dollar Change			Loss Ratio Percentage Point Change								($ in millions)
Non-catastrophe	$	360.0		67.0	%	$	323.6		63.7	%	$	36.4		3.3	$	388.8		68.4	%	$	324.2		61.1	%	$	64.6		7.3
Property catastrophe	—			—		—			—		—			—	—			—		—			—		—			—
Current period	360.0			67.0		323.6			63.7		36.4			3.3	388.8			68.4		324.2			61.1		64.6			7.3
Prior period	(45.1		)	(8.4	)	(48.4		)	(9.5	)	3.3			1.1	(63.6		)	(11.2	)	(48.9		)	(9.2	)	(14.7		)	(2.0	)
Net losses and loss expenses	$	314.9		58.6	%	$	275.2		54.2	%	$	39.7		4.4	$	325.2		57.2	%	$	275.3		51.9	%	$	49.9		5.3

________________________


(1)	“NPE” means net premiums earned.

Current year non-catastrophe losses and loss expenses

The increase in the ~~current year~~ non-catastrophe losses and loss expenses and related ratio was primarily due to ~~the overall growth of our operations and~~ higher reported property losses in our U.S. insurance and reinsurance segments, primarily due to several storm events in the United States, an earthquake in Chile, an oil spill in the Gulf of Mexico and a fire at a Russian oil refinery, partially offset by lower reported property losses in our international insurance segment. The net increase in reported property loss activity ~~during the three months ended June 30, 2014 compared to the three months ended June 30, 2013~~in each of our operating segments, aviation losses in our Global Markets Insurance segment and higher loss ratio assumptions in our Reinsurance segment. The higher reported property and aviation loss activity increased the ~~current year~~ non-catastrophe loss and loss ~~adjustment~~ expense ratio by ~~2.5~~3.5 percentage points.

Current year property catastrophe losses and loss expenses

During the three months ended ~~June 30, 2014~~March 31, 2015 and ~~June 30, 2013,~~March 31, 2014, we did not ~~incur~~have any net losses incurred that we classified as property catastrophe losses.

Prior year losses and loss expenses

We recorded net favorable reserve development related to prior years of ~~$45.1~~$63.6 million during the three months ended ~~June 30, 2014~~March 31, 2015 compared to net favorable reserve development of ~~$48.4~~$48.9 million for the three months ended ~~June 30, 2013,~~March 31, 2014, as shown in the tables below.

(Favorable) and Unfavorable Loss Reserve Development by Loss Year
For the Three Months Ended June 30, 2014
2004 and
Prior 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total
($ in millions)
U.S. insurance $ (1.5 ) $ (0.5 ) $ —
$ (0.6 ) $ (4.0 ) $ (8.7 ) $ 1.1
$ 8.2
$ (0.6 ) $ 7.7
$ 1.1
International insurance 3.9
(1.5 ) 1.9
(10.6 ) 15.1
(14.5 ) (11.9 ) —
2.2
(4.6 ) (20.0 )
Reinsurance 0.7
(1.1 ) (0.7 ) (0.3 ) 0.3
(0.6 ) 0.8
(5.3 ) 2.4
(22.4 ) (26.2 )
$ 3.1
$ (3.1 ) $ 1.2
$ (11.5 ) $ 11.4
$ (23.8 ) $ (10.0 ) $ 2.9
$ 4.0
$ (19.3 ) $ (45.1 )



	(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Three Months Ended March 31, 2015
	2009 and Prior			2010			2011			2012		2013			2014			Total
	($ in millions)
North American Insurance	$	(19.7	)	$	(11.9	)	$	(5.5	)	$	8.6	$	(0.2	)	$	3.5		$	(25.2	)
Global Markets Insurance	(6.4		)	(3.8		)	(0.5		)	5.1		(5.4		)	(4.2		)	(15.2		)
Reinsurance	(12.1		)	(7.7		)	(0.5		)	1.0		2.3			(6.2		)	(23.2		)
	$	(38.2	)	$	(23.4	)	$	(6.5	)	$	14.7	$	(3.3	)	$	(6.9	)	$	(63.6	)

~~Table~~We recorded net favorable prior year reserve development in each of ~~Contents~~

~~For~~our operating segments due to actual loss emergence being lower than initially expected. The net favorable prior year reserve development in the ~~three months ended~~ ~~June 30, 2014~~,North American Insurance segment was primarily related to the professional liability and general casualty lines of business, partially offset by net unfavorable prior year reserve development in the ~~U.S. insurance segment primarily related to the~~ healthcare line of ~~business due to adverse development on several claims above our previous expectations in the medical malpractice class of~~ business. The ~~U.S. insurance~~Global Markets Insurance segment ~~also~~ had ~~adverse development on reported claims in our lawyers errors and omissions ("E&O") and primary casualty classes of business. The unfavorable~~favorable prior year reserve development ~~in the international insurance segment related to a single claim from the 2008 loss year in our general casualty line~~across most major lines of business ~~that is estimated to reach our full limit.~~. The net favorable prior year reserve development in ~~our reinsurance~~the Reinsurance segment ~~for the 2013 loss year~~ was primarily ~~due~~related to ~~lower than expected~~our property ~~loss activity.~~reinsurance and casualty reinsurance lines of business.

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The following table shows the net favorable reserve development by loss year for each of our segments for the three months ended ~~June 30, 2013.~~March 31, 2014.

(Favorable) and Unfavorable Loss Reserve Development by Loss Year
For the Three Months Ended June 30, 2013
2003 and
Prior 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total
($ in millions)
U.S. insurance $ —
$ (0.9 ) $ (1.4 ) $ 0.4
$ (6.1 ) $ (10.5 ) $ (0.3 ) $ (7.2 ) $ 13.2
$ 9.9
$ (2.9 )
International insurance 6.4
(5.6 ) 2.9
(4.9 ) (7.5 ) (2.8 ) (4.2 ) (3.0 ) (2.1 ) (4.9 ) (25.7 )
Reinsurance (0.3 ) (1.3 ) (1.0 ) 1.3
—
(3.9 ) 1.4
0.1
2.6
(18.7 ) (19.8 )
$ 6.1
$ (7.8 ) $ 0.5
$ (3.2 ) $ (13.6 ) $ (17.2 ) $ (3.1 ) $ (10.1 ) $ 13.7
$ (13.7 ) $ (48.4 )



	(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Three Months Ended March 31, 2014
	2008 and Prior			2009			2010			2011			2012			2013			Total
	($ in millions)
North American Insurance	$	(19.9	)	$	(3.4	)	$	(3.3	)	$	2.6		$	(0.7	)	$	13.2		$	(11.5	)
Global Markets Insurance	(8.1		)	(2.7		)	(1.2		)	(3.1		)	(0.6		)	(1.4		)	(17.1		)
Reinsurance	(5.8		)	0.2			1.5			0.2			(2.1		)	(14.3		)	(20.3		)
	$	(33.8	)	$	(5.9	)	$	(3.0	)	$	(0.3	)	$	(3.4	)	$	(2.5	)	$	(48.9	)

~~For the three months ended June 30, 2013, the unfavorable~~We recorded net favorable prior year reserve development ~~for the 2011 and 2012 loss years for~~in each of our ~~U.S. insurance segment was~~operating segments due to ~~higher than expected~~actual loss emergence being lower than initially expected. The net favorable prior year reserve development in the North American Insurance segment primarily related to the professional liability, general casualty, programs and general property lines of business, partially offset by net unfavorable prior year reserve development in ~~our private/not for profit directors’ and officers’ (“D&O”) and~~the healthcare ~~lines~~line of business. The ~~healthcare emergence~~Global Markets Insurance segment had favorable prior year reserve development across all major lines of business. The net favorable prior year reserve development in the Reinsurance segment was ~~largely driven by one large claim and loss emergence in our medical malpractice class of business~~primarily due to ~~higher than expected~~benign property loss ~~frequency. The emergence in our private/not for profit D&O class of business was due to higher than expected loss frequency.~~

~~The favorable reserve development for the 2012 loss year for our reinsurance segment was due to lower than expected reported losses in our property reinsurance line of business.~~activity.

The following table shows the components of net losses and loss expenses for each of the periods indicated.

Three Months Ended
June 30, Dollar
2014 2013 Change
($ in millions)
Net losses paid $ 258.4
$ 262.9
$ (4.5 )
Net change in reported case reserves 48.3
(18.2 ) 66.5
Net change in IBNR 8.2
30.5
(22.3 )
Net losses and loss expenses $ 314.9
$ 275.2
$ 39.7

~~Table of Contents~~

~~The table below is a reconciliation of the beginning and ending reserves for losses and loss expenses. Losses incurred and paid are reflected net of reinsurance recoverables.~~

Three Months Ended
June 30,
2014 2013
($ in millions)
Net reserves for losses and loss expenses, April 1 $ 4,576.3
$ 4,509.7
Incurred related to:
Current period non-catastrophe 360.0
323.6
Prior period (45.1 ) (48.4 )
Total incurred 314.9
275.2
Paid related to:
Current period non-catastrophe 23.1
21.0
Prior period 235.3
241.9
Total paid 258.4
262.9
Foreign exchange revaluation 1.2
(4.7 )
Net reserve for losses and loss expenses, June 30 4,634.0
4,517.3
Losses and loss expenses recoverable 1,301.7
1,179.6
Reserve for losses and loss expenses, June 30 $ 5,935.7
$ 5,696.9

~~Acquisition Costs~~

Acquisition costs increased by $9.7 million, or 15.0%, for the three months ended June 30, 2014 compared to the three months ended June 30, 2013. The increase in acquisition costs was primarily due to the growth in premiums earned and higher acquisition costs in our reinsurance segment. Acquisition costs as a percentage of net premiums earned were 13.8% for the three months ended June 30, 2014 compared to 12.7% for the same period in 2013. The higher acquisition cost ratio was primarily driven from our reinsurance segment.

~~General and Administrative Expenses~~

General and administrative expenses increased by $15.6 million, or 19.4%, for the three months ended June 30, 2014 compared to the same period in 2013. Our general and administrative expense ratio was 17.9% and 15.9% for the three months ended June 30, 2014 and 2013, respectively. The increase in general and administrative expenses was primarily due to higher stock-based compensation and higher salary related costs due to higher headcount. We have granted cash equivalent restricted stock units and performance-based equity awards to certain key employees, and we measure the value of each of those awards at the period ending share price. Changes in our share price are recognized as increases or decreases in our compensation expense ratably over the service period. Our share price increased 11% for the three months ended June 30, 2014 compared to a 1% decrease for the same period in 2013.

~~Amortization of Intangible Assets~~

~~The amortization of intangible assets was unchanged for the three months ended June 30, 2014 compared to the three months ended June 30, 2013.~~

~~Interest Expense~~

~~Interest expense increased by $0.4 million, or 2.8%, for the three months ended June 30, 2014 compared to the three months ended June 30, 2013.~~

~~Net Income~~

Net income for the three months ended June 30, 2014 was $151.9 million compared to a net loss of $1.9 million for the three months ended June 30, 2013. The $153.8 million increase was primarily the result of recording net realized gains on our investments of $85.2 million during the three months ended June 30, 2014 compared to net realized losses of $115.2 million

~~Table of Contents~~

during the three months ended June 30, 2013. Income tax expense for the three months ended June 30, 2014 increased by $10.2 million compared to the three months ended June 30, 2013. The increase in income tax expense was primarily due to higher taxable income in our U.S. operations.

~~Comparison of Six Months Ended June 30, 2014 and 2013~~

~~Premiums~~

Gross premiums written increased by $59.5 million, or 3.7%, for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The overall increase in gross premiums written was primarily the result of the following:

~~U.S. insurance:~~ Gross premiums written increased by $48.1 million, or 8.5%. The increase in gross premiums written was primarily due to $21.7 million of new business growth from new lines of business and new insureds during the six months ended June 30, 2014 compared to the six months ended June 30, 2013, as well as premium rate increases across most lines of business. This was particularly evident in our general casualty, programs, inland marine and environmental lines of business that had an overall increase in gross premiums written of $58.8 million. This growth was partially offset by the non-renewal of business, particularly in certain classes within our healthcare line of business, which did not meet our underwriting requirements (which included inadequate pricing and/or terms and conditions);

~~International insurance:~~ Gross premiums written increased by $17.7 million, or 5.5%. The increase was primarily due to continued growth from new initiatives and new lines of business. Our new aviation and marine cargo business contributed $13.6 million of gross premiums written during the current period. The professional liability line of business grew $9.4 million on new business writings in European E&O and mergers and acquisitions classes of business. This growth was partially offset by the general casualty line of business, which decreased by $7.6 million compared to the prior period, due to non-recurring business written in 2013 and the non-renewal of certain policies during the current period, which did not meet our underwriting requirements (which included inadequate pricing and/or terms and conditions); and

~~Reinsurance:~~ Gross premiums written decreased by $6.3 million, or 0.9%. The decrease was driven primarily by the timing of a renewal that was not renewed in the current period but was previously bound during the six months ended June 30, 2013 partially offset by new business and increased renewals across several major lines of business. In our property reinsurance lines of business, we had increased premiums of approximately $3.6 million from our collateralized property catastrophe reinsurance program through Aeolus Re. In our specialty lines of business, our crop reinsurance line of business increased gross premiums written by $8.5 million primarily due to increases on renewals and new business. We also experienced non-renewals of certain treaties, particularly in our casualty reinsurance line of business, either due to poor terms and conditions or the cedents not renewing their reinsurance or finding other reinsurance alternatives, and net downward premium adjustments on inforce treaties.

~~The table below illustrates our consolidated gross premiums written by underwriter location for each of the periods indicated.~~

Six Months Ended
June 30, Dollar Percentage
2014 2013 Change Change
($ in millions)
United States $ 963.3
$ 918.6
$ 44.7
4.9 %
Bermuda 415.5
439.7
(24.2 ) (5.5 )%
Europe 181.3
146.8
34.5
23.5 %
Asia Pacific 97.7
97.2
0.5
0.5 %
Canada 3.9
—
3.9
n/a
$ 1,661.8
$ 1,602.3
$ 59.5
3.7 %

Net premiums written increased by $49.2 million, or 3.9%, for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The increase in net premiums written was due to the increase in gross premiums written partially offset by an increase in ceded premiums written. The increase in ceded premiums written was due to new reinsurance treaties in support of our lines of business that we did not have in place during the six months ended June 30, 2013, recognizing annual ceded premiums written at the inception of treaties that have contractual minimum premiums partially offset by lower ceded premiums related to our property catastrophe reinsurance protection during the six months ended June 30, 2014 compared to

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the six months ended June 30, 2013. The difference between gross and net premiums written is the cost to us of purchasing reinsurance coverage, including the cost of property catastrophe reinsurance coverage. We ceded 20.2% of gross premiums written for the six months ended June 30, 2014 compared to 20.3% for the same period in 2013. The above factors contributed to the increase in ceded premiums written but overall did not materially impact the ceded premium percentage during the six months ended June 30, 2014 compared to the six months ended June 30, 2013.

Net premiums earned increased by $97.0 million, or 10.0%, for the six months ended June 30, 2014 compared to the six months ended June 30, 2013 as a result of higher premiums earned in each of our operating segments.

~~The following table illustrates the mix of our business on both a gross premiums written and net premiums earned basis.~~

Gross Premiums Written Net Premiums Earned
Six Months Ended
June 30, Six Months Ended
June 30,
2014 2013 2014 2013
U.S. insurance 36.8 % 35.2 % 40.0 % 39.8 %
International insurance 20.4 % 20.0 % 16.6 % 17.6 %
Reinsurance 42.8 % 44.8 % 43.4 % 42.6 %
Total 100.0 % 100.0 % 100.0 % 100.0 %

~~Net Investment Income~~

Net investment income increased by $13.4 million, or 18.9%, for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The increase was due to higher income across most asset classes. The annualized period book yield of the investment portfolio for the six months ended June 30, 2014 and 2013 was 2.0% and 1.7%, respectively.

Investment management expenses of $8.5 million and $8.1 million were incurred during the six months ended June 30, 2014 and 2013, respectively. The increase of $0.4 million, or 4.9%, was primarily due to additional investment portfolio managers utilized in the current period as compared to prior period.

~~Realized Investment Gains (Losses)~~

~~Net realized investment gains (losses) were comprised of the following:~~

Six Months Ended
June 30,
2014 2013
($ in millions)
Net realized gains on sale:
Fixed maturity investments, trading $ 17.7
$ 29.5
Equity securities, trading 44.4
16.2
Other invested assets: hedge funds and private equity, trading 39.6
14.7
Total net realized gains on sale 101.7
60.4
Net realized and unrealized (losses) gains on derivatives (26.6 ) 7.6
Mark-to-market gains (losses):
Fixed maturity investments, trading 58.9
(131.6 )
Equity securities, trading (0.3 ) (1.4 )
Other invested assets: hedge funds and private equity, trading 5.7
29.4
Total mark-to-market gains (losses) 64.3
(103.6 )
Net realized investment gains (losses) $ 139.4
$ (35.6 )

The total return of our investment portfolio was 2.6% and 0.4% for the six months ended June 30, 2014 and 2013, respectively. The increase in total return was primarily due to lower interest rates that caused mark-to-market gains on our fixed maturity investments during the six months ended June 30, 2014 compared to higher interest rates and tightening credit spreads which caused mark-to-market losses during the six months ended June 30, 2013. The realized and unrealized losses on

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derivatives for the six months ended June 30, 2014 were the result of selling interest rate future and swap contracts to reduce the duration of the investment portfolio. Given the decrease in interest rates during the year, we recorded a loss related to these interest rate future and swap contracts.

~~Net Losses and Loss Expenses~~

Net losses and loss expenses increased by $59.8 million, or 11.3%, for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The following is a breakdown of the loss and loss expense ratio for the six months ended June 30, 2014 and 2013:

Six Months Ended
June 30, 2014 Six Months Ended
June 30, 2013 Dollar Change Loss Ratio Percentage Point Change
Amount % of NPE (1) Amount % of NPE (1)
($ in millions)
Non-catastrophe $ 684.1
64.1 % $ 622.8
64.1 % $ 61.3
—
Property catastrophe —
—
—
—
—
—
Current period 684.1
64.1
622.8
64.1
61.3
—
Prior period (94.0 ) (8.8 ) (92.5 ) (9.5 ) (1.5 ) 0.7
Net losses and loss expenses $ 590.1
55.3 % $ 530.3
54.6 % $ 59.8
0.7

~~________________________~~


~~(1)~~	~~“NPE” means net premiums earned.~~

~~Current year non-catastrophe losses and loss expenses~~

~~The increase in the current year non-catastrophe losses and loss expenses was primarily due to the overall growth of our operations.~~

~~Current year property catastrophe losses and loss expenses~~

~~During the six months ended June 30, 2014 and June 30, 2013, we did not incur any property catastrophe losses.~~

~~Prior year losses and loss expenses~~

We recorded net favorable reserve development related to prior years of $94.0 million during the six months ended June 30, 2014 compared to net favorable reserve development of $92.5 million for the six months ended June 30, 2013, as shown in the tables below.

(Favorable) and Unfavorable Loss Reserve Development by Loss Year
Six Months Ended June 30, 2014
2004 and
Prior 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total
($ in millions)
U.S. insurance $ (4.7 ) $ (0.5 ) $ —
$ (0.4 ) $ (4.5 ) $ (9.0 ) $ 1.0
$ 12.7
$ (0.5 ) $ 7.7
$ 1.8
International insurance 7.8
(3.8 ) (0.7 ) (28.4 ) 9.3
(20.3 ) (16.3 ) (5.0 ) 0.8
7.2
(49.4 )
Reinsurance (0.6 ) (0.3 ) (2.1 ) (2.4 ) (1.4 ) (0.4 ) 2.3
(5.1 ) 0.3
(36.7 ) (46.4 )
$ 2.5
$ (4.6 ) $ (2.8 ) $ (31.2 ) $ 3.4
$ (29.7 ) $ (13.0 ) $ 2.6
$ 0.6
$ (21.8 ) $ (94.0 )

~~For the six months ended June 30, 2014, the net unfavorable prior year reserve development in the U.S. insurance segment for the 2011 loss year was in~~ our healthcare line of business and was due to adverse development on several claims above our previous expectations in the managed care E&O class of business and higher than expected loss frequency in the medical malpractice class of business. The favorable prior year reserve development in the international insurance segment for the 2007 loss year was due to favorable reserve development on an individual professional liability claim, the net favorable development for the 2009 and 2010 loss years was due to ~~actual loss emergence being lower than anticipated across several lines of business,~~ ~~and the unfavorable reserve development for the 2013 loss year was due to~~ a single claim in our healthcare line of business. The net favorable prior year reserve development in our reinsurance segment for the 2013 loss year was primarily due to benign property loss activity, and therefore reported losses were less than our expectations.

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~~The following table shows the net favorable reserve development by loss year for each of our segments for the six months ended June 30, 2013.~~

(Favorable) and Unfavorable Loss Reserve Development by Loss Year
For the Six Months Ended June 30, 2013
2003 and
Prior 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total
($ in millions)
U.S. insurance $ (0.1 ) $ (2.1 ) $ (3.5 ) $ (1.1 ) $ (13.0 ) $ (14.2 ) $ (3.0 ) $ (7.3 ) $ 17.7
$ 34.2
$ 7.6
International insurance 5.9
(2.9 ) (4.3 ) (10.9 ) (10.3 ) (9.9 ) (0.6 ) (5.5 ) (9.7 ) (7.2 ) (55.4 )
Reinsurance 0.2
(1.4 ) (3.1 ) 1.1
(2.2 ) (6.9 ) 0.4
(2.1 ) (2.9 ) (27.8 ) (44.7 )
$ 6.0
$ (6.4 ) $ (10.9 ) $ (10.9 ) $ (25.5 ) $ (31.0 ) $ (3.2 ) $ (14.9 ) $ 5.1
$ (0.8 ) $ (92.5 )

For the six months ended June 30, 2013, the unfavorable reserve development for the 2011 and 2012 loss years for our U.S. insurance segment was due to higher than expected loss emergence, primarily in our private/not for profit D&O, healthcare and E&O lines of business. The healthcare emergence was largely driven by three large claims, each in excess of $3 million. The emergence in the E&O and private/not for profit D&O is due to higher than expected loss frequency.

~~The favorable reserve development for the 2012 loss year for our reinsurance segment was due to lower than expected reported losses in our property reinsurance line of business.~~

~~The following table shows the components of net losses and loss expenses for each of the periods indicated.~~


	Six Months Ended June 30,						Dollar			Three Months Ended March 31,						Dollar
	2014			2013			Change			2015			2014			Change
	($ in millions)									($ in millions)
Net losses paid	$	490.7		$	507.5		$	(16.8	)	$	299.7		$	232.3		$	67.4
Net change in reported case reserves	(2.9		)	(9.2		)	6.3			(68.8		)	(51.1		)	(17.7		)
Net change in IBNR	102.3			32.0			70.3			94.3			94.1			0.2
Net losses and loss expenses	$	590.1		$	530.3		$	59.8		$	325.2		$	275.3		$	49.9

The table below is a reconciliation of the beginning and ending reserves for losses and loss expenses. Losses incurred and paid are reflected net of reinsurance recoverables.


	Six Months Ended June 30,						Three Months Ended March 31,
	2014			2013			2015			2014
	($ in millions)						($ in millions)
Net reserves for losses and loss expenses, January 1	$	4,532.0		$	4,504.4		$	4,540.9		$	4,532.0
Incurred related to:
Current period non-catastrophe	684.1			622.8			388.8			324.2
Prior period	(94.0		)	(92.5		)	(63.6		)	(48.9		)
Total incurred	590.1			530.3			325.2			275.3
Paid related to:
Current period non-catastrophe	26.8			24.4			6.6			3.7
Prior period	463.9			483.0			293.1			228.6
Total paid	490.7			507.4			299.7			232.3
Foreign exchange revaluation	2.6			(9.9		)	(11.6		)	1.3
Net reserve for losses and loss expenses, June 30	4,634.0			4,517.4
Net reserve for losses and loss expenses, March 31							4,554.8			4,576.3
Losses and loss expenses recoverable	1,301.7			1,179.6			1,350.3			1,280.5
Reserve for losses and loss expenses, June 30	$	5,935.7		$	5,697.0
Reserve for losses and loss expenses, March 31							$	5,905.1		$	5,856.8

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Acquisition Costs

Acquisition costs increased by ~~$20.7~~$11.0 million, or ~~17.1%~~16.2%, for the ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 compared to the ~~six~~three months ended ~~June 30, 2013.~~March 31, 2014. The increase in acquisition costs was primarily due to ~~the growth in premiums and~~ higher acquisition costs in our ~~reinsurance segment.~~North American Insurance and Global Markets Insurance segments. Acquisition costs as a percentage of net premiums earned were ~~13.3%~~13.8% for the ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 compared to ~~12.5%~~12.8% for the same period in ~~2013. The higher acquisition cost ratio was driven from our reinsurance segment.~~2014.

General and Administrative Expenses

General and administrative expenses increased by ~~$13.2~~$16.8 million, or ~~8.1%~~20.9%, for the ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 compared to the same period in ~~2013.~~2014. Our general and administrative expense ratio was ~~16.5%~~17.1% and ~~16.8%~~15.2% for the ~~six~~three months ended ~~June 30,~~March 31, 2015 and 2014, ~~and 2013,~~ respectively. The increase in general and administrative expenses was primarily due to higher stock-based compensation and higher salary related costs as headcount increased to support our continued growth, particularly in our insurance operations, as well as higher infrastructure-related costs to support the increased headcount. The increase in stock-based compensation was due to ~~higher headcount as~~the change in our ~~average headcount increased by 13% partially offset by lower stock-based compensation due~~cash equivalent awards. We have granted cash equivalent restricted stock units and performance-based equity awards to ~~changes~~certain key employees, and we measure the value of each award at the period ending share price. Changes in our share ~~price.~~price are recognized as increases or decreases in our compensation expense ratably over the service period. Our share price increased 1%7% for the ~~six~~three months ended ~~June 30, 2014~~March 31, 2015, compared to a ~~16% increase~~9% decrease for the same period in ~~2013.~~2014.

Other Expense

Other expense represents the expenses of our third-party claims administration services operation that we acquired in the second quarter of 2014 and the transaction-related costs incurred for the acquisitions of the Hong Kong and Singapore operations of RSA.

Amortization of Intangible Assets

The amortization of intangible assets was ~~virtually~~ unchanged for the ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 compared to the ~~six~~three months ended ~~June 30, 2013.~~March 31, 2014.

Interest Expense

Interest expense ~~increased~~decreased by ~~$0.8~~$0.2 million, or ~~2.8%~~1.4%, for the ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 compared to the ~~six~~three months ended ~~June 30, 2013.~~March 31, 2014. The decrease in interest expense was due to lower letter of credit fees partially offset by interest expense on the mortgage and credit facility used to purchase our Swiss office building.

Foreign Exchange Loss

Foreign exchange loss increased by $9.8 million for the three months ended March 31, 2015 compared to the three months ended March 31, 2014. The increase was due to a loss recorded to the close out of the foreign currency forward contract we entered into to economically hedge a portion of our foreign currency exposure related to the consideration paid for the Hong Kong and Singapore operations of RSA and the strengthening of the U.S. dollar relative to other major currencies during the current period.

Income Tax Expense

Corporate income tax expense or benefit is generated through our operations in Australia, Canada, Europe, Hong Kong, Singapore and the United States. Our income tax expense or benefit may fluctuate significantly from period to period depending on the geographic distribution of pre-tax net income or loss in any given period between different jurisdictions with different tax rates. The geographic distribution of pre-tax net income or loss can vary significantly between periods principally due to the geographic location of the business written, the mix of business and the profitability of such business, the geographic location of investment income, the geographic location of net losses and loss expenses incurred, and the amount of inter-company reinsurance utilized for rating agency purposes.

Income tax expense for the three months ended March 31, 2015 decreased by $9.6 million compared to the three months ended March 31, 2014. The decrease in income tax expense was primarily due to lower taxable income in our U.S. operations.

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Net Income

Net income for the ~~six~~three months ended ~~June 30, 2014~~March 31, 2015 was ~~$328.8~~$124.4 million compared to net income of ~~$157.1~~$177.0 million for the ~~six~~three months ended ~~June 30, 2013.~~March 31, 2014. The ~~$171.7~~$52.6 million ~~increase~~decrease was primarily the result of ~~recording net realized gains on~~lower underwriting income from each of our investments of $139.4 million during the six months ended June 30, 2014 compared to net realized losses of $35.6 million during the six months ended June 30, 2013. Income tax expense for the six months ended June 30, 2014 increased by $21.4 million compared to the six months ended June 30, 2013. The increase in income tax expense was primarily due to higher taxable income in our U.S. operations.operating segments and lower total investment return.

Underwriting Results by Operating Segments

Our company is organized into three operating segments:

~~U.S.~~North American Insurance Segment. The ~~U.S. insurance~~North American Insurance segment includes our direct specialty insurance operations in the United States, Bermuda and Canada, as well as ~~our claims~~the company's claim administration services operations. This segment provides both direct property and specialty casualty insurance primarily to non-Fortune 1000 North American domiciled accounts, as well as third-party claims administration services.

~~International Insurance Segment.~~ ~~The international insurance segment includes our direct insurance operations in Bermuda, Europe and Asia Pacific, which includes offices in Australia, Singapore and Hong Kong.~~operation. This segment provides both direct property and casualty insurance primarily to ~~Fortune 1000~~ North American domiciled ~~accounts~~accounts.

Global Markets Insurance Segment. The Global Markets Insurance segment includes our insurance operations in Europe and Asia Pacific, which includes offices in Australia, Hong Kong and Singapore and a Lloyd's coverholder operation in Miami, which services business from ~~our Bermuda office~~Latin America and the Caribbean. This segment provides both direct property and ~~specialty~~ casualty insurance primarily to ~~our~~ non-North American domiciled ~~accounts from our European and Asia Pacific offices.~~accounts.

Reinsurance Segment. Our reinsurance segment has operations in Bermuda, Europe, Singapore and the United States. This segment includes the reinsurance of property, general casualty, professional liability, specialty lines and property catastrophe coverages written by insurance companies. We presently write reinsurance on both a treaty and a facultative basis, targeting several niche reinsurance markets.

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~~U.S.~~North American Insurance Segment

The following table summarizes the underwriting results and associated ratios for the ~~U.S. insurance~~North American Insurance segment for each of the periods indicated.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2014			2013			2014			2013			2015			2014
	($ in millions)												($ in millions)
Revenues
Gross premiums written	$	341.4		$	307.3		$	611.4		$	563.3		$	380.8		$	345.9
Net premiums written	222.0			221.4			424.7			413.7			296.9			247.2
Net premiums earned	214.6			197.5			426.7			385.9			313.0			265.5
Expenses
Net losses and loss expenses	$	145.5		$	124.4		$	287.5		$	257.7		$	195.5		$	161.2
Acquisition costs	29.7			27.3			57.2			50.4			31.0			23.7
General and administrative expenses	46.6			38.3			84.0			77.9			59.3			47.6
Underwriting (loss) income	$	(7.2	)	$	7.5		$	(2.0	)	$	(0.1	)
Underwriting income													27.2			33.0
Other insurance-related income													0.9			—
Other insurance-related expenses													0.9			—
Segment income													$	27.2		$	33.0
Ratios
Loss and loss expense ratio	67.8		%	63.0		%	67.4		%	66.8		%	62.5		%	60.7		%
Acquisition cost ratio	13.8		%	13.8		%	13.4		%	13.1		%	9.9		%	8.9		%
General and administrative expense ratio	21.7		%	19.4		%	19.7		%	20.2		%	18.9		%	17.9		%
Expense ratio	35.5		%	33.2		%	33.1		%	33.3		%	28.8		%	26.8		%
Combined ratio	103.3		%	96.2		%	100.5		%	100.1		%	91.3		%	87.5		%

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Comparison of Three Months Ended ~~June 30,~~March 31, 2015 and 2014 ~~and 2013~~

Premiums. Gross premiums written increased by ~~$34.1~~$34.9 million, or ~~11.1%~~10.1%, for the three months ended ~~June 30, 2014~~March 31, 2015 compared to the same period in ~~2013~~2014. The increase in gross premiums written was primarily due to ~~$11.4 million of new business~~the growth from new lines of business and new insureds during the three months ended June 30, 2014 compared to the three months ended June 30, 2013, as well as premium rate increases across most lines of business. This was particularly evident in our general casualty ~~and inland marine~~line of business driven primarily by new business, including non-recurring business, as well as growth in our less mature lines of business ~~that had an overall increase in gross premiums written of $30.3 million.~~such as inland marine and primary construction. This growth was partially offset by the non-renewal of business, particularly in ~~certain classes within~~ our healthcare line of ~~business, which did not meet~~business.

The table below illustrates our ~~underwriting requirements (which included inadequate pricing and/or terms and conditions).~~gross premiums written by underwriter location for our North American Insurance operations.



	Three Months Ended March 31,				Dollar Change		Percentage Change
	2015		2014		Dollar Change		Percentage Change
			($ in millions)
U.S.	$	300.5	$	269.1	$	31.4	11.7	%
Bermuda	77.0		76.0		1.0		1.3	%
Canada	3.3		0.8		2.5		312.5	%
	$	380.8	$	345.9	$	34.9	10.1	%

The table below illustrates our gross premiums written by line of business for each of the periods indicated.


	Three Months Ended June 30,				Dollar			Percentage		Three Months Ended March 31,				Dollar Change			Percentage Change
	2014		2013		Change			Change		2015		2014					Percentage Change
			($ in millions)									($ in millions)		Dollar Change
General casualty	$	119.7	$	97.4	$	22.3		22.9	%	$	123.5	$	93.1	$	30.4		32.7	%
Professional liability	62.0		64.4		(2.4		)	(3.7	)%	85.3		86.3		(1.0		)	(1.2	)%
Healthcare	37.7		46.5		(8.8		)	(18.9	)%	45.6		53.1		(7.5		)	(14.1	)%
General property	34.8		35.6		(0.8		)	(2.2	)%
General property (including energy)										43.3		44.4		(1.1		)	(2.5	)%
Programs	34.2		33.7		0.5			1.5	%	40.5		39.0		1.5			3.8	%
Inland marine	20.7		12.7		8.0			63.0	%	18.2		12.1		6.1			50.4	%
Environmental	11.4		9.7		1.7			17.5	%	11.4		10.3		1.1			10.7	%
Other*	20.9		7.3		13.6			186.3	%	13.0		7.6		5.4			71.1	%
	$	341.4	$	307.3	$	34.1		11.1	%	$	380.8	$	345.9	$	34.9		10.1	%

________________________


*	Includes our primary construction, ~~mergers~~surety and ~~acquisitions and surety~~trade credit lines of business.

~~Table of Contents~~

Net premiums written increased by ~~$0.6~~$49.7 million, or ~~0.3%~~20.1%, for the three months ended ~~June 30, 2014~~March 31, 2015 compared to the three months ended ~~June 30, 2013.~~March 31, 2014. The increase in net premiums written was ~~primarily~~ due to ~~higher~~the increase in gross premiums written and ~~lower ceded~~a reduction in premiums related to our property catastrophe reinsurance protection, partially offset by $41.9 million of additional ceded premiums written due to recognizing annual ceded premiums written at the inception of several reinsurance treaties rather than ratably over the contract period as these reinsurance contracts had contractual minimum premiums. This resulted in the acceleration of ceded premiums written but had no impact on net premiums earned.ceded. We ceded ~~35.0%~~22.0% of gross premiums written for the three months ended ~~June 30, 2014~~March 31, 2015 compared to ~~28.0%~~28.5% for the three months ended ~~June 30, 2013.~~March 31, 2014. The decrease was primarily due to retaining more of our gross premiums written in several lines of business in the current period compared to the prior period.

Net premiums earned increased by ~~$17.2~~$47.5 million, or ~~8.7%~~17.9%, for the three months ended ~~June 30, 2014~~March 31, 2015 compared to the same period in ~~2013.~~2014. The increase was due to the continued growth of our U.S. insurance operations during ~~2013~~2014 and into ~~2014.~~2015.

Net losses and loss expenses. Net losses and loss expenses increased by ~~$21.1~~$34.3 million, or ~~17.0%~~21.3%, for the three months ended ~~June 30, 2014~~March 31, 2015 compared to the three months ended ~~June 30, 2013.~~March 31, 2014. The following is a breakdown of the loss and loss expense ratio for the three months ended ~~June 30, 2014~~March 31, 2015 and ~~2013:~~2014:

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	Three Months Ended June 30, 2014				Three Months Ended June 30, 2013					Dollar Change			Loss Ratio Percentage Point Change	Three Months Ended March 31, 2015					Three Months Ended March 31, 2014					Dollar Change			Change in Percentage Points
	Amount		% of NPE		Amount			% of NPE				Amount				% of NPE		Amount			% of NPE			Dollar Change			Change in Percentage Points
					($ in millions)					Dollar Change			Loss Ratio Percentage Point Change								($ in millions)
Non-catastrophe	$	144.4	67.3	%	$	127.3		64.5	%	$	17.1		2.8 Pts	$	220.7		70.6	%	$	172.7		65.0	%	$	48.0		5.6 Pts
Property catastrophe	—		—		—			—		—			—	—			—		—			—		—			—
Current period	144.4		67.3		127.3			64.5		17.1			2.8	220.7			70.6		172.7			65.0		48.0			5.6
Prior period	1.1		0.5		(2.9		)	(1.5	)	4.0			2.0	(25.2		)	(8.1	)	(11.5		)	(4.3	)	(13.7		)	(3.8	)
Net losses and loss expenses	$	145.5	67.8	%	$	124.4		63.0	%	$	21.1		4.8 Pts	$	195.5		62.5	%	$	161.2		60.7	%	$	34.3		1.8 Pts

Current year non-catastrophe losses and loss expenses

The increase in the ~~current year~~ non-catastrophe losses and loss expenses and ~~the~~ related ratio was primarily due to ~~growth of the business and~~ higher ~~non-catastrophe~~reported large property losses inof $10.6 million during the ~~current period~~three months ended March 31, 2015 compared to the ~~same period last year.~~three months ended March 31, 2014. This increased the loss and loss expense ratio by 3.4 percentage points.

Current year property catastrophe losses and loss expenses

During the three months ended ~~June 30, 2014~~March 31, 2015 and ~~June 30, 2013,~~March 31, 2014, we did not ~~incur~~have any net losses incurred that we classified as property catastrophe losses.

Prior year losses and loss expenses

Overall, our ~~U.S. insurance~~North American Insurance segment recorded net ~~unfavorable~~favorable reserve development of ~~$1.1~~$25.2 million during the three months ended ~~June 30, 2014~~March 31, 2015 compared to net favorable reserve development of ~~$2.9~~$11.5 million for the three months ended ~~June 30, 2013,~~March 31, 2014, as shown in the tables below.


	(Favorable) and Unfavorable Loss Reserve Development by Loss Year																																(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Three Months Ended June 30, 2014																																For the Three Months Ended March 31, 2015
	2004 and Prior			2005			2006		2007			2008			2009			2010			2011			2012			2013			Total			2009 and Prior			2010			2011			2012			2013			2014			Total
	($ in millions)																																($ in millions)
General casualty	$	(0.1	)	$	—		$	—	$	(0.2	)	$	(2.5	)	$	—		$	1.4		$	—		$	(1.9	)	$	4.2		$	0.9		$	(8.5	)	$	0.4		$	(4.9	)	$	2.2		$	2.3		$	0.3		$	(8.2	)
Programs	—			—			—		(0.1		)	(0.3		)	(0.3		)	0.3			(0.8		)	(0.6		)	(1.4		)	(3.2		)	(2.1		)	(1.8		)	(0.3		)	(0.1		)	—			(0.3		)	(4.6		)
General property	—			—			—		—			—			—			0.5			(1.6		)	(0.3		)	3.2			1.8			(0.1		)	—			0.2			(1.6		)	(1.8		)	1.2			(2.1		)
Healthcare	(1.4		)	(0.5		)	—		—			(0.8		)	1.1			0.1			9.9			2.0			2.1			12.5			(3.8		)	(2.5		)	2.2			9.1			—			—			5.0
Professional liability	—			—			—		(0.3		)	(0.4		)	(9.5		)	(1.0		)	1.7			1.6			—			(7.9		)	(5.2		)	(7.9		)	(2.7		)	(1.5		)	—			—			(17.3		)
Inland Marine	—			—			—		—			—			—			—			—			(0.2		)	(0.4		)	(0.6		)	—			—			—			—			(0.7		)	0.9			0.2
Environmental	—			—			—		—			—			—			(0.2		)	(1.0		)	(1.2		)	—			(2.4		)	—			(0.1		)	—			0.5			—			—			0.4
Other																																	—			—			—			—			—			1.4			1.4
	$	(1.5	)	$	(0.5	)	$	—	$	(0.6	)	$	(4.0	)	$	(8.7	)	$	1.1		$	8.2		$	(0.6	)	$	7.7		$	1.1		$	(19.7	)	$	(11.9	)	$	(5.5	)	$	8.6		$	(0.2	)	$	3.5		$	(25.2	)

~~Table of Contents~~

~~For the three months ended~~ ~~June 30, 2014, the~~The net unfavorable prior year reserve development in ~~our~~the healthcare lines of business for the 2011 ~~through 2013~~and 2012 loss years was ~~primarily~~ due to adverse development on several claims above our previous ~~expectations~~expectations.

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	(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Three Months Ended March 31, 2014
	2008 and Prior			2009			2010			2011			2012			2013			Total
	($ in millions)
General casualty	$	(4.3	)	$	(0.2	)	$	(3.9	)	$	2.1		$	—		$	—		$	(6.3	)
Programs	2.6			(3.0		)	—			(1.0		)	(0.2		)	—			(1.6		)
General property	(0.2		)	(0.5		)	0.6			(2.0		)	(0.8		)	(2.8		)	(5.7		)
Healthcare	(4.0		)	2.0			—			4.3			1.8			16.0			20.1
Professional liability	(14.0		)	(1.7		)	—			(0.5		)	(1.2		)	—			(17.4		)
Other	—			—			—			(0.3		)	(0.3		)	—			(0.6		)
	$	(19.9	)	$	(3.4	)	$	(3.3	)	$	2.6		$	(0.7	)	$	13.2		$	(11.5	)

The unfavorable prior year reserve development in the ~~medical malpractice class of business. We also experienced adverse development on reported claims in our lawyers E&O class~~healthcare line of business for the ~~2011~~2013 loss year primarily related to a single claim. The favorable prior year reserve development in the professional liability line of business for the 2008 and ~~2012~~prior loss years ~~and our primary casualty class~~was a result of ~~business~~actual loss emergence being lower than anticipated on an individual claim in the ~~2013~~2007 loss year.

(Favorable) and Unfavorable Loss Reserve Development by Loss Year
For the Three Months Ended June 30, 2013
2003 and
Prior 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total
($ in millions)
General casualty $ —
$ (0.3 ) $ (0.2 ) $ —
$ (1.2 ) $ (1.4 ) $ 0.3
$ —
$ 0.8
$ 0.5
$ (1.5 )
Programs —
—
—
(1.4 ) (1.7 ) 0.1
(0.1 ) (1.8 ) (0.2 ) 1.4
(3.7 )
General property —
0.1
—
0.3
(0.2 ) (1.3 ) 0.1
(2.5 ) 1.6
—
(1.9 )
Healthcare —
(0.7 ) (0.7 ) (1.7 ) (1.5 ) (3.6 ) (1.3 ) (1.0 ) 10.1
2.2
1.8
Professional liability —
—
(0.5 ) 3.2
(1.5 ) (4.3 ) 0.7
(1.8 ) 1.3
5.0
2.1
Other —
—
—
—
—
—
—
(0.1 ) (0.4 ) 0.8
0.3
$ —
$ (0.9 ) $ (1.4 ) $ 0.4
$ (6.1 ) $ (10.5 ) $ (0.3 ) $ (7.2 ) $ 13.2
$ 9.9
$ (2.9 )

For the three months ended June 30, 2013, the unfavorable reserve development for the 2011 and 2012 loss years was due to higher than expected loss emergence, primarily in our private/not for profit D&O and healthcare lines of business. The healthcare emergence was largely driven by one large claim and loss emergence in our medical malpractice class of business. The emergence in the private/not for profit D&O is due to higher than expected loss frequency.

Acquisition costs. Acquisition costs increased by ~~$2.4~~$7.3 million, or ~~8.8%~~30.8%, for the three months ended ~~June 30, 2014~~March 31, 2015 compared to the three months ended ~~June 30, 2013.~~March 31, 2014. The increase was ~~primarily~~ driven by the growth of the operations and lower premiums ceded, which resulted in ~~net premiums earned.~~lower ceding commission income. The acquisition cost ratio was ~~13.8%~~9.9% and 8.9% for ~~both~~ the three months ended ~~June 30,~~March 31, 2015 and 2014, ~~and 2013.~~respectively. The increase in the acquisition cost ratio was due to the reduction in ceding commission income.

General and administrative expenses. General and administrative expenses increased by ~~$8.3~~$11.7 million, or ~~21.7%~~24.6%, for the three months ended ~~June 30, 2014~~March 31, 2015 compared to the three months ended June 30, 2013. The increase was primarily due to higher stock-based compensation expense and higher salary related costs as we continue to grow our U.S. insurance operations. The general and administrative expense ratio increased to 21.7% for the three months ended June 30, 2014 from 19.4% for the same period in 2013, reflecting higher expenses partially offset by higher net premiums earned.

~~Comparison of Six Months Ended June 30, 2014 and 2013~~

~~Premiums.~~ ~~Gross premiums written increased by $48.1 million, or 8.5%, for the six months ended June 30, 2014 compared to the same period in~~ ~~2013~~. The increase in gross premiums written was primarily due to $21.7 million of new business growth from new lines of business and new insureds during the six months ended June 30, 2014 compared to the six months ended June 30, 2013, as well as premium rate increases across most lines of business. This was particularly evident in our general casualty, programs, inland marine and environmental lines of business that had an overall increase in gross premiums written of $58.8 million. This growth was partially offset by the non-renewal of business, particularly in certain classes within our healthcare line of business, which did not meet our underwriting requirements (which included inadequate pricing and/or terms and conditions).

~~Table of Contents~~

~~The table below illustrates our gross premiums written by line of business for each of the periods indicated.~~

Six Months Ended
June 30, Dollar Percentage
2014 2013 Change Change
($ in millions)

General casualty $ 199.0
$ 164.3
$ 34.7
21.1 %
Professional liability 124.2
127.5
(3.3 ) (2.6 )%
Programs 73.2
66.6
6.6
9.9 %
Healthcare 72.1
100.0
(27.9 ) (27.9 )%
General property 53.7
55.3
(1.6 ) (2.9 )%
Inland marine 32.8
20.7
12.1
58.5 %
Environmental 21.7
16.3
5.4
33.1 %
Other* 34.6
12.6
22.0
174.6 %
$ 611.4
$ 563.3
$ 48.1
8.5 %

~~________________________~~


*	~~Includes our primary construction, mergers and acquisitions and surety lines of business.~~

Net premiums written increased by $11.0 million, or 2.7%, for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The increase in net premiums written was due to higher gross premiums written and lower ceded premiums related to our property catastrophe reinsurance protection partially offset by higher premiums ceded due to recognizing annual ceded premiums written at the inception of the treaty rather than ratably over the contract period for those reinsurance contracts where there is a contractual minimum premium. We ceded 30.5% of gross premiums written for the six months ended June 30, 2014 compared to 26.6% during during the same period in ~~2013~~.

~~Net premiums earned increased by $40.8 million, or 10.6%, for the six months ended June 30, 2014 compared to the same period in 2013.~~March 31, 2014. The increase was due to the continued growth of our U.S. insurance operations, ~~during 2013~~which drove an increase in salary and ~~into 2014.~~related costs, as well as increased costs related to expanding and improving our office space to support this growth. The increase in general and administrative expenses was also due to higher stock-based compensation expense due to the change in our stock price. The general and administrative expense ratio increased to 18.9% for the three months ended March 31, 2015 from 17.9% for the same period in 2014, reflecting the increase in expenses out-pacing the increase in net premiums earned.

~~Net losses~~Other insurance-related income and ~~loss expenses.~~expense. ~~Net losses~~The other insurance-related income and ~~loss~~expense represents the revenue and related expenses ~~increased by $29.8 million, or 11.6%, for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The following is a breakdown~~ of ~~the loss and loss expense ratio for the six months ended June 30, 2014 and 2013:~~

Six Months Ended
June 30, 2014 Six Months Ended
June 30, 2013 Dollar Change Loss Ratio Percentage Point Change
Amount % of NPE Amount % of NPE
($ in millions)
Non-catastrophe $ 285.7
67.0 % $ 250.1
64.8 % $ 35.6
2.2 Pts
Property catastrophe —
—
—
—
—
—
Current period 285.7
67.0
250.1
64.8
35.6
2.2
Prior period 1.8
0.4
7.6
2.0
(5.8 ) (1.6 )
Net losses and loss expenses $ 287.5
67.4 % $ 257.7
66.8 % $ 29.8
0.6 Pts

~~Current year non-catastrophe losses and loss expenses~~

~~The increase~~our third-party claims administration services operation that we acquired in the current year non-catastrophe losses and loss expenses and the related ratio was primarily due to growth and mix of the business, higher non-catastrophe property losses in the current period compared to the same period last year, and increased loss adjustment expenses across several lines of business.

~~Current year property catastrophe losses and loss expenses~~

~~During the six months ended June 30, 2014 and June 30, 2013, we did not incur any property catastrophe losses.~~

May 2014.

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~~Prior year losses and loss expenses~~

Overall, our U.S. insurance segment recorded net unfavorable reserve development of $1.8 million during the three months ended June 30, 2014 compared to net unfavorable reserve development of $7.6 million for the three months ended June 30, 2013, as shown in the tables below.

(Favorable) and Unfavorable Loss Reserve Development by Loss Year
For the Six Months Ended June 30, 2014
2004 and
Prior 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total
($ in millions)
General casualty $ (3.0 ) $ —
$ —
$ (0.7 ) $ (4.8 ) $ 0.3
$ 1.3
$ 2.0
$ (1.9 ) $ 4.2
$ (2.6 )
Programs —
—
—
0.9
1.3
(3.3 ) 0.3
(1.8 ) (0.8 ) (1.4 ) (4.8 )
General property —
—
—
—
—
—
0.5
(1.6 ) (0.3 ) 3.2
1.8
Healthcare (1.7 ) (0.5 ) —
(0.3 ) (0.6 ) 3.1
0.1
14.2
3.8
2.1
20.2
Professional liability —
—
—
(0.3 ) (0.4 ) (9.1 ) (1.0 ) 1.2
0.4
—
(9.2 )
Inland Marine —
—
—
—
—
—
—
(0.3 ) (0.5 ) (0.4 ) (1.2 )
Environmental —
—
—
—
—
—
(0.2 ) (1.0 ) (1.2 ) —
(2.4 )
$ (4.7 ) $ (0.5 ) $ —
$ (0.4 ) $ (4.5 ) $ (9.0 ) $ 1.0
$ 12.7
$ (0.5 ) $ 7.7
$ 1.8

~~For the six months ended June 30, 2014~~, the net unfavorable prior year reserve development in the healthcare line of business for the 2011 through 2013 loss years was due to adverse development on several claims above our previous expectations in the managed care E&O class of business and higher than expected loss frequency and severity in the medical malpractice class of business. We also experienced adverse development on reported claims in our lawyers E&O class of business for the 2011 and 2012 loss years and the primary casualty class of business in the 2013 loss year.

(Favorable) and Unfavorable Loss Reserve Development by Loss Year
For the Six Months Ended June 30, 2013
2003 and
Prior 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total
($ in millions)
General casualty $ —
$ (0.7 ) $ (0.5 ) $ —
$ (4.5 ) $ (3.1 ) $ 0.1
$ —
$ 2.0
$ 0.5
$ (6.2 )
Programs —
—
—
(1.4 ) (3.3 ) 0.2
(0.7 ) (2.7 ) (0.6 ) 2.8
(5.7 )
General property —
0.1
—
0.3
(0.2 ) (1.3 ) (1.3 ) (0.2 ) 1.5
2.0
0.9
Healthcare (0.1 ) (1.0 ) (1.6 ) (2.7 ) (2.3 ) (6.2 ) (1.2 ) (1.6 ) 13.1
9.0
5.4
Professional liability —
(0.5 ) (1.4 ) 2.7
(2.7 ) (3.8 ) 0.1
(2.7 ) 2.1
18.3
12.1
Other —
—
—
—
—
—
—
(0.1 ) (0.4 ) 1.6
1.1
$ (0.1 ) $ (2.1 ) $ (3.5 ) $ (1.1 ) $ (13.0 ) $ (14.2 ) $ (3.0 ) $ (7.3 ) $ 17.7
$ 34.2
$ 7.6

For the six months ended June 30, 2013, the unfavorable reserve development for the 2011 and 2012 loss years was due to higher than expected loss emergence, primarily in our private/not for profit D&O, healthcare D&O and E&O lines of business. The healthcare D&O emergence was largely driven by three large claims, each in excess of $3 million. The emergence in the E&O and private/not for profit D&O is due to higher than expected loss frequency.

~~Acquisition costs.~~ Acquisition costs increased by $6.8 million, or 13.5%, for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The increase was driven by the growth in net premiums earned, higher commission and brokerage rates compared to last year due to changes in the mix of business and higher rates charged by brokers, and an increase in other acquisition related costs. The acquisition cost ratio was 13.4% and 13.1% for the six months ended June 30, 2014 and 2013.

~~General and administrative expenses.~~ General and administrative expenses increased by $6.1 million, or 7.8%, for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The increase was primarily due to higher salary-

~~Table of Contents~~

related costs as we continue to grow our U.S. insurance operations. The general and administrative expense ratio decreased to 19.7% for the six months ended June 30, 2014 from 20.2% for the same period in 2013.

~~International~~Global Markets Insurance Segment

The following table summarizes the underwriting results and associated ratios for the ~~international insurance~~Global Markets Insurance segment for each of the periods indicated.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2014			2013			2014			2013			2015			2014
	($ in millions)												($ in millions)
Revenues
Gross premiums written	$	204.5		$	192.6		$	338.8		$	321.1		$	60.6		$	58.4
Net premiums written	122.2			106.4			197.6			184.1			42.9			31.0
Net premiums earned	89.2			87.0			177.6			171.2			50.0			35.0
Expenses
Net losses and loss expenses	$	35.9		$	31.0		$	59.5		$	59.9		$	20.5		$	4.4
Acquisition costs	0.6			(0.4		)	(0.4		)	(1.2		)	7.0			2.9
General and administrative expenses	29.4			24.1			54.2			48.9			18.0			14.6
Underwriting income	$	23.3		$	32.3		$	64.3		$	63.6		4.5			13.1
Other insurance-related income													—			—
Other insurance-related expenses													1.0			—
Segment income													$	3.5		$	13.1
Ratios
Loss and loss expense ratio	40.3		%	35.6		%	33.5		%	35.0		%	41.0		%	12.5		%
Acquisition cost ratio	0.6		%	(0.4		)%	(0.2		)%	(0.7		)%	14.0		%	8.2		%
General and administrative expense ratio	33.0		%	27.7		%	30.5		%	28.6		%	36.0		%	41.6		%
Expense ratio	33.6		%	27.3		%	30.3		%	27.9		%	50.0		%	49.8		%
Combined ratio	73.9		%	62.9		%	63.8		%	62.9		%	91.0		%	62.3		%

Comparison of Three Months Ended ~~June 30,~~March 31, 2015 and 2014 ~~and 2013~~

Premiums. Gross premiums written increased by ~~$11.9~~$2.2 million, or ~~6.2%~~3.8%, for the three months ended ~~June 30, 2014~~March 31, 2015 compared to the three months ended ~~June 30, 2013.~~March 31, 2014. Assuming constant foreign exchange rates, gross premiums written increased by 11.9%. The increase was primarily due to ~~continued growth from~~ new ~~initiatives and~~business written driven by new lines of ~~business. Our new aviation~~business such as onshore construction and marine cargo business contributed a combined $9.3 million of gross premiums written during the current quarter. The professional liability line of business grew $4.9 million primarily on new business writings in the mergers and acquisitions class of business.marine. This growth was partially offset by the ~~general casualty~~non-renewal of business, particularly in our healthcare line of business, which decreased by $3.7 million primarily due to the non-renewal of certain policies during the current quarter, which did not meet our underwriting requirements (which included inadequate pricing and/or terms and conditions). During the quarter, we opened a new branch office in Sydney, Australia to further expand our distribution network in the Asia Pacific region.business.

The table below illustrates our gross premiums written by underwriter location for our ~~international insurance~~Global Markets Insurance operations.


	Three Months Ended June 30,				Dollar			Percentage		Three Months Ended March 31,				Dollar Change			Percentage Change
	2014		2013		Change			Change		2015		2014					Percentage Change
			($ in millions)									($ in millions)		Dollar Change
Bermuda	$	135.0	$	136.3	$	(1.3	)	(1.0	)%
Europe	61.9		49.2		12.7			25.8	%	$	52.5	$	49.0	$	3.5		7.1	%
Asia Pacific	7.6		7.1		0.5			7.0	%	7.1		5.5		1.6			29.1	%
Bermuda										1.0		3.9		(2.9		)	(74.4	)%
	$	204.5	$	192.6	$	11.9		6.2	%	$	60.6	$	58.4	$	2.2		3.8	%

The Bermuda gross premiums written was related to the trade credit line of business which did not transfer to the North American Insurance segment. There should be no further new trade credit business written out of our Bermuda office going forward.

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The table below illustrates our gross premiums written by line of business for each of the periods indicated.


	Three Months Ended June 30,				Dollar			Percentage		Three Months Ended March 31,				Dollar Change			Percentage Change
	2014		2013		Change			Change		2015		2014					Percentage Change
	($ in millions)									($ in millions)				Dollar Change
Professional liability										$	22.8	$	19.6	$	3.2		16.3	%
General property	$	65.5	$	65.2	$	0.3		0.5	%	9.6		11.2		(1.6		)	(14.3	)%
Professional liability	62.2		57.3		4.9			8.6	%
General casualty	40.6		44.3		(3.7		)	(8.4	)%	8.7		6.2		2.5			40.3	%
Trade credit										6.8		8.5		(1.7		)	(20.0	)%
Healthcare	19.9		21.2		(1.3		)	(6.1	)%	3.7		8.5		(4.8		)	(56.5	)%
Trade credit	7.0		4.6		2.4			52.2	%
Aviation	6.7		—		6.7			n/a		3.4		2.9		0.5			17.2	%
Other*	2.6		—		2.6			n/a		5.6		1.5		4.1			273.3	%
	$	204.5	$	192.6	$	11.9		6.2	%	$	60.6	$	58.4	$	2.2		3.8	%

________________________


*	Includes our marine ~~cargo line~~and onshore construction lines of business.

Net premiums written increased by ~~$15.8~~$11.9 million, or ~~14.8%~~38.4%, for the three months ended ~~June 30, 2014~~March 31, 2015 compared to the three months ended ~~June 30, 2013.~~March 31, 2014. The increase in net premiums written was primarily due to ~~higher gross premiums written and~~ lower ceded ~~premiums related to our property catastrophe reinsurance protection for the three months ended June 30, 2014 compared to the three months ended June 30, 2013.~~premiums. We ceded ~~40.2%~~29.2% of gross premiums written for the three months ended ~~June 30, 2014~~March 31, 2015 compared to ~~44.8%~~46.9% for the three months ended ~~June 30, 2013.~~March 31, 2014. The decrease was primarily due to lower cessions on our professional liability, healthcare and aviation reinsurance treaties and lower minimum ceded premium accruals.

Net premiums earned increased by ~~$2.2~~$15.0 million, or ~~2.5%~~42.9%, primarily due to higher net premiums written during ~~2013~~2014 and the ~~first half~~beginning of ~~2014.~~2015.

Net losses and loss expenses. Net losses and loss expenses increased by ~~$4.9~~$16.1 million ~~or 15.8%,~~ for the three months ended ~~June 30, 2014~~March 31, 2015 compared to the three months ended ~~June 30, 2013.~~March 31, 2014. The following is a breakdown of the loss and loss expense ratio for the three months ended ~~June 30, 2014~~March 31, 2015 and ~~2013:~~2014:


	Three Months Ended June 30, 2014					Three Months Ended June 30, 2013					Dollar Change				Loss Ratio Percentage Point Change		Three Months Ended March 31, 2015					Three Months Ended March 31, 2014						Dollar Change		Change in Percentage Points
	Amount			% of NPE		Amount			% of NPE					Amount				% of NPE		Amount			% of NPE					Dollar Change		Change in Percentage Points
						($ in millions)					Dollar Change				Loss Ratio Percentage Point Change										($ in millions)
Non-catastrophe	$	55.9		62.7	%	$	56.7		65.1	%	$	(0.8	)		(2.4) Pts		$	35.7		71.4	%	$	21.5			61.5	%	$	14.2	9.9 Pts
Property catastrophe	—			—		—			—		—				—		—			—		—				—		—		—
Current period	55.9			62.7		56.7			65.1		(0.8		)		(2.4	)	35.7			71.4		21.5				61.5		14.2		9.9
Prior period	(20.0		)	(22.4	)	(25.7		)	(29.5	)	5.7				7.1		(15.2		)	(30.4	)	(17.1		)		(48.7	)	1.9		18.3
Net losses and loss expenses	$	35.9		40.3	%	$	31.0		35.6	%	$	4.9			4.7 Pts		$	20.5		41.0	%	$	4.4			12.8	%	$	16.1	28.2 Pts

Current year non-catastrophe losses and loss expenses

The ~~decrease~~increase in the ~~current year~~ non-catastrophe losses and loss expenses and related ratio was primarily due to ~~lower~~higher reported aviation and large property ~~loss activity~~losses of $4.5 million during the three months ended ~~June 30, 2014~~March 31, 2015 compared to the three months ended ~~June 30, 2013.~~March 31, 2014. This increased the loss and loss expense ratio by 9.1 percentage points.

Current year property catastrophe losses and loss expenses

During the three months ended ~~June 30, 2014~~March 31, 2015 and ~~June 30, 2013,~~March 31, 2014, we did not ~~incur~~have any net losses incurred that we classified as property catastrophe losses.

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Prior year losses and loss expenses

Overall, our ~~international insurance~~Global Markets Insurance segment recorded net favorable reserve development of ~~$20.0~~$15.2 million during the three months ended ~~June 30, 2014~~March 31, 2015 compared to net favorable reserve development of ~~$25.7~~$17.1 million for the three months ended ~~June 30, 2013,~~March 31, 2014, as shown in the tables below.

~~Table of Contents~~


	(Favorable) and Unfavorable Loss Reserve Development by Loss Year																																	(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Three Months Ended June 30, 2014																																	For the Three Months Ended March 31, 2015
	2004 and Prior			2005			2006			2007			2008			2009			2010			2011			2012			2013			Total			2009 and Prior			2010			2011			2012			2013			2014			Total
	($ in millions)																																	($ in millions)
General casualty	$	5.2		$	(0.7	)	$	(1.2	)	$	(1.4	)	$	15.5		$	(6.6	)	$	(4.1	)	$	2.0		$	(0.1	)	$	—		$	8.6		$	(2.4	)	$	(0.2	)	$	(0.3	)	$	—		$	(0.5	)	$	—		$	(3.4	)
General property	—			(0.2		)	(0.4		)	(0.1		)	—			(0.2		)	(0.4		)	(1.4		)	(2.3		)	(5.9		)	(10.9		)	0.1			(0.2		)	—			(0.1		)	(3.7		)	(3.3		)	(7.2		)
Professional liability	(1.2		)	(0.7		)	3.5			(9.1		)	(0.4		)	(7.7		)	(3.5		)	(0.4		)	6.0			—			(13.5		)	(4.1		)	(3.4		)	(0.1		)	5.3			(0.4		)	—			(2.7		)
Healthcare	(0.1		)	0.1			—			—			—			—			(3.9		)	(0.2		)	(0.2		)	—			(4.3		)	—			—			(0.1		)	(0.1		)	0.4			—			0.2
Trade Credit	—			—			—			—			—			—			—			—			(1.2		)	1.3			0.1			—			—			—			—			(2.8		)	2.8			—
Aviation																																		—			—			—			—			1.6			(3.7		)	(2.1		)
	$	3.9		$	(1.5	)	$	1.9		$	(10.6	)	$	15.1		$	(14.5	)	$	(11.9	)	$	—		$	2.2		$	(4.6	)	$	(20.0	)	$	(6.4	)	$	(3.8	)	$	(0.5	)	$	5.1		$	(5.4	)	$	(4.2	)	$	(15.2	)

~~For the three months ended~~ ~~June 30, 2014, the~~The unfavorable ~~prior year~~ reserve development for the 2012 loss year in the ~~general casualty~~professional liability line of business ~~for the 2008 loss year~~was related to a single claim ~~estimated to reach our full limit.~~that was reported in the current period.


	(Favorable) and Unfavorable Loss Reserve Development by Loss Year																																	(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Three Months Ended June 30, 2013																																	For the Three Months Ended March 31, 2014
	2003 and Prior			2004			2005			2006			2007			2008			2009			2010			2011			2012			Total			2008 and Prior			2009			2010			2011			2012			2013			Total
	($ in millions)																																	($ in millions)
General casualty	$	6.6		$	(0.7	)	$	(1.4	)	$	(3.3	)	$	(2.4	)	$	(2.0	)	$	1.7		$	—		$	(0.2	)	$	—		$	(1.7	)	$	(5.3	)	$	(2.2	)	$	(0.9	)	$	(0.1	)	$	—		$	—		$	(8.5	)
General property	—			—			(0.1		)	0.2			0.8			(0.4		)	(3.7		)	(2.7		)	(1.6		)	(4.9		)	(12.4		)	(1.2		)	—			(0.1		)	(1.3		)	(1.5		)	(1.4		)	(5.5		)
Professional liability	(0.2		)	(4.7		)	4.5			(1.4		)	(5.5		)	—			(6.1		)	(0.1		)	(0.1		)	—			(13.6		)	(1.6		)	(0.5		)	(0.1		)	(0.4		)	(0.1		)	—			(2.7		)
Healthcare	—			(0.2		)	(0.1		)	(0.4		)	(0.4		)	(0.4		)	3.9			(0.2		)	(0.2		)	—			2.0			—			—			—			(0.3		)	—			—			(0.3		)
Trade credit																																		—			—			(0.1		)	(1.0		)	1.0			—			(0.1		)
	$	6.4		$	(5.6	)	$	2.9		$	(4.9	)	$	(7.5	)	$	(2.8	)	$	(4.2	)	$	(3.0	)	$	(2.1	)	$	(4.9	)	$	(25.7	)	$	(8.1	)	$	(2.7	)	$	(1.2	)	$	(3.1	)	$	(0.6	)	$	(1.4	)	$	(17.1	)

Acquisition costs. Acquisition costs increased by $~~1.0~~4.1 million, for the three months ended ~~June 30, 2014~~March 31, 2015 compared to the three months ended ~~June 30, 2013.~~March 31, 2014. The increase in acquisition costs was primarily due to the growth in certain professional liability lines of business, which carries a higher acquisition cost relative to other lines of business and lower premiums ceded, which resulted in lower ceding commission income. The acquisition cost ratio was ~~0.6%~~14.0% for the three months ended ~~June 30, 2014~~March 31, 2015 ~~and negative 0.4%~~compared to 8.2% for the three months ended ~~June 30, 2013.~~March 31, 2014. The ~~negative~~increase in the acquisition cost ~~represents ceding commissions received on ceded premiums, that have been earned, in excess of the brokerage fees and commissions paid on gross premiums written, that have been amortized. The~~ratio was due to lower ceding commission income ~~also covers costs that are expensed as incurred.~~in the current period compared to the prior period.

General and administrative expenses. General and administrative expenses increased by ~~$5.3~~3.4 million, or ~~22.0%~~23.3%, for the three months ended ~~June 30, 2014~~March 31, 2015 compared to the three months ended ~~June 30, 2013.~~March 31, 2014. The increase in general and administrative expenses was ~~primarily~~ due to the continued expansion of our Global Markets Insurance operations which caused higher ~~stock-based compensation expense~~salary and ~~higher salary-related~~infrastructure-related costs ~~as we continue to grow our international insurance operations.~~partially offset by the strengthening of the U.S. dollar. The general and administrative expense ratio was ~~33.0%~~36.0% and ~~27.7%~~41.6% for the three months ended ~~June 30, 2014~~March 31, 2015 and ~~2013,~~2014, respectively. The ~~increase~~decrease in the general and administrative expense ratio was ~~primarily~~ due to ~~the~~ higher ~~compensation costs discussed above.~~growth in net premiums earned relative to expenses.

~~Comparison of Six Months Ended June 30, 2014 and 2013~~

~~Premiums.~~Other insurance-related income and expense. ~~Gross premiums written increased by $17.7 million, or 5.5%,~~The other insurance-related expenses incurred represent the transaction-related costs incurred for ~~the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The increase was primarily due to continued growth from new initiatives~~our acquisitions of RSA's Hong Kong and new lines of business. Our new aviation and marine cargo business contributed $13.6 million of gross premiums written during the current period. The professional liability line of business grew $9.4 million on new business writings in European E&O and mergers and acquisitions classes of business. This growth was partially offset by the general casualty line of business, which decreased by $7.6 million compared to the prior period, due to non-recurring business written in 2013 and the non-renewal of certain policies during the current period, which did not meet our underwriting requirements (which included inadequate pricing and/or terms and conditions).Singapore branches.

5446

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~~The table below illustrates our gross premiums written by underwriter location for our international insurance operations.~~

Six Months Ended
June 30, Dollar Percentage
2014 2013 Change Change
($ in millions)
Bermuda $ 214.9
$ 221.5
$ (6.6 ) (3.0 )%
Europe 110.9
86.8
24.1
27.8 %
Asia Pacific 13.0
12.8
0.2
1.6 %
$ 338.8
$ 321.1
$ 17.7
5.5 %

~~The table below illustrates our gross premiums written by line of business for each of the periods indicated.~~

Six Months Ended
June 30, Dollar Percentage
2014 2013 Change Change
($ in millions)
General property $ 102.1
$ 103.9
$ (1.8 ) (1.7 )%
Professional liability 99.8
90.4
9.4
10.4 %
General casualty 60.7
68.3
(7.6 ) (11.1 )%
Healthcare 47.1
47.7
(0.6 ) (1.3 )%
Trade credit 15.5
10.8
4.7
43.5 %
Aviation 9.5
—
9.5
n/a
Other* 4.1
—
4.1
n/a
$ 338.8
$ 321.1
$ 17.7
5.5 %

~~________________________~~


*	~~Includes our marine cargo line of business.~~

Net premiums written increased by $13.5 million, or 7.3%, for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The increase in net premiums written was primarily due to higher gross premiums written and lower ceded premiums related to our property catastrophe reinsurance protection for the six months ended June 30, 2014 compared to the six months ended June 30, 2013 partially offset by higher premiums ceded for new reinsurance contracts for our aviation, marine cargo and small- to medium-sized enterprise lines of business, which included additional ceded premium due to recognizing annual ceded premiums written at the inception of certain reinsurance treaties rather than ratably over the contract period where there is a contractual minimum premium. We ceded 41.7% of gross premiums written for the six months ended June 30, 2014 compared to 42.7% for the six months ended June 30, 2013.

~~Net premiums earned increased by $6.4 million, or 3.7%, primarily due to higher net premiums written during 2013 and into 2014.~~

~~Net losses and loss expenses.~~ Net losses and loss expenses decreased by $0.4 million, or 0.7%, for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The following is a breakdown of the loss and loss expense ratio for the six months ended June 30, 2014 and 2013:

Six Months Ended
June 30, 2014 Six Months Ended
June 30, 2013 Dollar Change Loss Ratio Percentage Point Change
Amount % of NPE Amount % of NPE
($ in millions)
Non-catastrophe $ 108.9
61.3 % $ 115.3
67.4 % $ (6.4 ) (6.1) Pts
Property catastrophe —
—
—
—
—
—
Current period 108.9
61.3
115.3
67.4
(6.4 ) (6.1 )
Prior period (49.4 ) (27.8 ) (55.4 ) (32.4 ) 6.0
4.6
Net losses and loss expenses $ 59.5
33.5 % $ 59.9
35.0 % $ (0.4 ) (1.5) Pts

~~Table of Contents~~

~~Current year non-catastrophe losses and loss expenses~~

The decrease in the current year non-catastrophe losses and loss expenses and related ratio was primarily due lower reported property loss activity during the six months ended June 30, 2014 compared to the six months ended June 30, 2013 and an increase to the loss adjustment expense reserve during the six months ended June 30, 2013 that did not occur during the six months ended June 30, 2014.

~~Current year property catastrophe losses and loss expenses~~

~~During the six months ended June 30, 2014 and June 30, 2013, we did not incur any property catastrophe losses.~~

~~Prior year losses and loss expenses~~

Overall, our international insurance segment recorded net favorable reserve development of $49.4 million during the six months ended June 30, 2014 compared to net favorable reserve development of $55.4 million for the six months ended June 30, 2013, as shown in the tables below.

(Favorable) and Unfavorable Loss Reserve Development by Loss Year
For the Six Months Ended June 30, 2014
2004 and
Prior 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total
($ in millions)
General casualty $ 9.6
$ (1.4 ) $ (2.5 ) $ (3.5 ) $ 11.4
$ (9.3 ) $ (8.8 ) $ 1.9
$ (0.1 ) $ —
$ (2.7 )
General property (0.3 ) 0.1
(0.5 ) (1.1 ) (0.3 ) (0.7 ) 0.1
(4.6 ) (4.6 ) (10.1 ) (22.0 )
Professional liability (1.4 ) (1.6 ) 3.2
(22.8 ) (1.0 ) (10.3 ) (3.6 ) (0.8 ) 5.9
—
(32.4 )
Healthcare (0.1 ) (0.9 ) (0.9 ) (1.0 ) (0.8 ) —
(3.9 ) (0.5 ) (0.2 ) 16.0
7.7
Trade Credit —
—
—
—
—
—
(0.1 ) (1.0 ) (0.2 ) 1.3
—
$ 7.8
$ (3.8 ) $ (0.7 ) $ (28.4 ) $ 9.3
$ (20.3 ) $ (16.3 ) $ (5.0 ) $ 0.8
$ 7.2
$ (49.4 )

~~For the six months ended June 30, 2014~~, the unfavorable prior year reserve development in the healthcare line of business for the 2013 loss year and for the general casualty line of business for the 2008 loss year related to single claims within each of those lines of business. The favorable prior year reserve development in the professional liability line of business for the 2007 loss year was primarily due to favorable reserve development on an individual claim. The favorable development in the 2009 and 2010 loss years was primarily due to actual loss emergence being lower than anticipated across several lines of business.

(Favorable) and Unfavorable Loss Reserve Development by Loss Year
For the Six Months Ended June 30, 2013
2003 and
Prior 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total
($ in millions)
General casualty $ 6.3
$ 2.4
$ (7.0 ) $ (6.7 ) $ (8.7 ) $ (4.7 ) $ (1.2 ) $ (0.2 ) $ —
$ 0.9
$ (18.9 )
General property —
—
(0.1 ) (0.2 ) 1.1
(1.0 ) (3.5 ) (4.0 ) (9.5 ) (8.1 ) (25.3 )
Professional liability (0.3 ) (5.0 ) 3.3
(2.9 ) (10.9 ) 0.3
(6.5 ) (0.4 ) (0.1 ) —
(22.5 )
Healthcare (0.1 ) (0.3 ) (0.5 ) (1.1 ) 8.2
(4.5 ) 10.6
(0.9 ) (0.1 ) —
11.3
$ 5.9
$ (2.9 ) $ (4.3 ) $ (10.9 ) $ (10.3 ) $ (9.9 ) $ (0.6 ) $ (5.5 ) $ (9.7 ) $ (7.2 ) $ (55.4 )

For the six months ended June 30, 2013, the net favorable reserve development for loss years 2004 through 2012 was a result of actual loss emergence being lower than anticipated. The unfavorable reserve development in our healthcare line in the 2007 and 2009 loss years was due to adverse development on individual claims.

~~Acquisition costs.~~ Acquisition costs increased by $0.8 million, for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The acquisition cost ratio was negative 0.2% for the six months ended June 30, 2014 and negative

~~Table of Contents~~

0.7% for the six months ended June 30, 2013. The lower negative acquisition cost ratio is primarily due to higher other acquisition related costs during the current year as compared to prior year partially offset by additional ceding commission income earned on the new aviation reinsurance treaties and increased ceding commission income on certain renewal reinsurance treaties.

~~General and administrative expenses.~~ General and administrative expenses increased by $5.3 million, or 10.8%, for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The increase in general and administrative expenses were due to increased salary and related costs. The general and administrative expense ratio was 30.5% and 28.6% for the six months ended June 30, 2014 and 2013, respectively.

Reinsurance Segment

The following table summarizes the underwriting results and associated ratios for the reinsurance segment for each of the periods indicated.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2014			2013			2014			2013			2015			2014
	($ in millions)												($ in millions)
Revenues
Gross premiums written	$	214.5		$	265.3		$	711.6		$	717.9		$	439.3		$	497.1
Net premiums written	209.8			253.4			703.2			678.5			432.8			493.4
Net premiums earned	233.4			222.8			463.3			413.4			205.5			229.8
Expenses
Net losses and loss expenses	$	133.4		$	119.8		$	243.2		$	212.7		$	109.2		$	109.7
Acquisition costs	44.0			37.7			85.2			72.1			40.7			41.2
General and administrative expenses	20.2			18.1			38.3			36.5			19.8			18.1
Underwriting income	$	35.8		$	47.2		$	96.6		$	92.1		$	35.8		$	60.8
Ratios
Loss and loss expense ratio	57.2		%	53.8		%	52.5		%	51.5		%	53.1		%	47.7		%
Acquisition cost ratio	18.9		%	16.9		%	18.4		%	17.4		%	19.8		%	17.9		%
General and administrative expense ratio	8.6		%	8.1		%	8.3		%	8.8		%	9.6		%	7.9		%
Expense ratio	27.5		%	25.0		%	26.7		%	26.2		%	29.4		%	25.8		%
Combined ratio	84.7		%	78.8		%	79.2		%	77.7		%	82.5		%	73.5		%

Comparison of Three Months Ended ~~June 30,~~March 31, 2015 and 2014 ~~and 2013~~

Premiums. Gross premiums written decreased by ~~$50.8~~$57.8 million, or ~~19.1%~~11.6%, for the three months ended ~~June 30, 2014~~March 31, 2015 compared to the same period in ~~2013~~2014. The decrease was primarily due to ~~the timing~~non-renewals of ~~renewals that were not renewed in the current quarter but were previously bound during the quarter ended June 30, 2013~~certain treaties, across all lines of business, either due to poor terms and conditions or cedents retaining more of their own business, and lower premiums ~~written~~on renewed treaties mainly due to our assuming a lower percentage of the premiums than in ~~our property reinsurance lines of business. In our property reinsurance lines of~~the prior period. These reductions were partially offset by new business ~~we had lower premiums written during the current quarter compared to the same quarter last year of $12.4 million from our collateralized property catastrophe reinsurance program through Aeolus Re.~~written.

~~Table of Contents~~

The table below illustrates our gross premiums written by underwriter location for our reinsurance operations.


	Three Months Ended June 30,				Dollar			Percentage		Three Months Ended March 31,				Dollar Change			Percentage Change
	2014		2013		Change			Change		2015		2014					Percentage Change
			($ in millions)									($ in millions)		Dollar Change
United States	$	104.2	$	132.9	$	(28.7	)	(21.6	)%	$	235.3	$	251.7	$	(16.4	)	(6.5	)%
Bermuda	50.9		74.7		(23.8		)	(31.9	)%	118.7		149.7		(31.0		)	(20.7	)%
Asia	43.3		46.7		(3.4		)	(7.3	)%
Europe	16.1		11.0		5.1			46.4	%	52.4		54.4		(2.0		)	(3.7	)%
Asia Pacific										32.9		41.3		(8.4		)	(20.3	)%
	$	214.5	$	265.3	$	(50.8	)	(19.1	)%	$	439.3	$	497.1	$	(57.8	)	(11.6	)%

Table of Contents

The table below illustrates our gross premiums written by line of business for each of the periods indicated.


	Three Months Ended June 30,				Dollar			Percentage		Three Months Ended March 31,				Dollar Change			Percentage Change
	2014		2013		Change			Change		2015		2014					Percentage Change
			($ in millions)									($ in millions)		Dollar Change
Property	$	119.8	$	152.4	$	(32.6	)	(21.4	)%	$	231.1	$	250.5	$	(19.4	)	(7.7	)%
Specialty										146.1		161.5		(15.4		)	(9.5	)%
Casualty	64.4		76.7		(12.4		)	(16.1	)%	62.1		85.1		(23.0		)	(27.0	)%
Specialty	30.3		36.2		(5.9		)	(16.3	)%
	$	214.5	$	265.3	$	(50.8	)	(19.1	)%	$	439.3	$	497.1	$	(57.8	)	(11.6	)%

Net premiums written decreased by ~~$43.6~~$60.6 million, or ~~17.2%~~12.3%, primarily due to the decrease in gross premiums written, ~~partially offset by lower ceded premiums during~~as well as the ~~three months ended June 30, 2014 compared to~~cost of our collateralized property catastrophe reinsurance coverage in the ~~three months ended June 30, 2013.~~current period that we did not have in the prior period.

Net premiums earned ~~increased~~decreased by ~~$10.6~~$24.3 million, or ~~4.8%~~10.6%, as a result of the ~~increase~~decrease in net premiums written during the previous quarters, as well as the reduction in ceded earned premium related to the non-renewal of the collateralized retrocessional catastrophe cover that we purchased during the first quarter of 2013 partially offset by2015 and the ceded premiums earned ~~premium related to~~for the collateralized property catastrophe reinsurance ~~we purchased in the current quarter.~~coverage.

Net losses and loss expenses. Net losses and loss expenses ~~increased~~decreased by ~~$13.6~~$0.5 million, or ~~11.4%~~0.5%, for the three months ended ~~June 30, 2014~~March 31, 2015 compared to the three months ended ~~June 30, 2013.~~March 31, 2014. The following is a breakdown of the loss and loss expense ratio for the three months ended ~~June 30, 2014~~March 31, 2015 and ~~2013:~~2014:


	Three Months Ended June 30, 2014					Three Months Ended June 30, 2013					Dollar Change				Loss Ratio Percentage Point Change		Three Months Ended March 31, 2015					Three Months Ended March 31, 2014						Dollar Change			Change in Percentage Points
	Amount			% of NPE		Amount			% of NPE					Amount				% of NPE		Amount			% of NPE					Dollar Change			Change in Percentage Points
						($ in millions)					Dollar Change				Loss Ratio Percentage Point Change										($ in millions)
Non-catastrophe	$	159.6		68.4	%	$	139.6		62.7	%	$	20.0			5.7		$	132.4		64.4	%	$	130.0			56.5	%	$	2.4		7.9
Property catastrophe	—			—		—			—		—				—		—			—		—				—		—			—
Current period	159.6			68.4		139.6			62.7		20.0				5.7		132.4			64.4		130.0				56.5		2.4			7.9
Prior period	(26.2		)	(11.2	)	(19.8		)	(8.9	)	(6.4		)		(2.3	)	(23.2		)	(11.3	)	(20.3		)		(8.8	)	(2.9		)	(2.5	)
Net losses and loss expenses	$	133.4		57.2	%	$	119.8		53.8	%	$	13.6			3.4		$	109.2		53.1	%	$	109.7			47.7	%	$	(0.5	)	5.4

Current year non-catastrophe losses and loss expenses

The increase in the ~~current year~~ non-catastrophe losses and loss expenses and related ratio was primarily due to ~~the growth of the business~~higher loss ratio assumptions and higher reported large property losses of $5.0 million during the three months ended ~~June 30, 2014~~March 31, 2015 compared to the ~~same period in 2013.~~three months ended March 31, 2014. The higher reported large property losses ~~during~~increased the three months ended June 30, 2014 primarily related to several storm events in the United States, an earthquake in Chile, an oil spill in the Gulf of Mexico and a fire at a Russian oil refinery. The increase in the current year non-catastrophe lossesloss and loss expense ratio ~~was primarily due to the higher reported large losses discussed above, which resulted in an increase of 6.0~~by 2.4 percentage ~~points in the current year non-catastrophe losses and loss expense ratio.~~points.

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Current year property catastrophe losses and loss expenses

During the three months ended ~~June 30, 2014~~March 31, 2015 and ~~June 30, 2013,~~March 31, 2014, we did not ~~incur~~have any net losses incurred that we classified as property catastrophe losses.

Prior year losses and loss expenses

Overall, our ~~reinsurance~~Reinsurance segment recorded net favorable reserve development of ~~$26.2~~$23.2 million during the three months ended ~~June 30, 2014~~March 31, 2015 compared to net favorable reserve development of ~~$19.8~~$20.3 million for the three months ended ~~June 30, 2013,~~March 31, 2014, as shown in the tables below.

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	(Favorable) and Unfavorable Loss Reserve Development by Loss Year																															(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Three Months Ended June 30, 2014																															For the Three Months Ended March 31, 2015
	2004 and Prior			2005			2006			2007			2008		2009			2010		2011			2012			2013			Total			2009 and Prior			2010			2011			2012			2013			2014			Total
	($ in millions)																															($ in millions)
Property	$	0.4		$	—		$	(0.1	)	$	—		$	0.1	$	0.4		$	0.4	$	(5.1	)	$	(2.6	)	$	(15.9	)	$	(22.4	)	$	(1.3	)	$	(0.1	)	$	0.2		$	(0.6	)	$	(0.7	)	$	(11.3	)	$	(13.8	)
Casualty	0.7			(0.6		)	(0.5		)	(0.2		)	0.2		(1.2		)	0.2		0.2			(0.9		)	(0.8		)	(2.9		)	(10.7		)	(7.6		)	(0.7		)	1.7			3.3			0.5			(13.5		)
Specialty	(0.4		)	(0.5		)	(0.1		)	(0.1		)	—		0.2			0.2		(0.4		)	5.9			(5.7		)	(0.9		)	(0.1		)	—			—			(0.1		)	(0.3		)	4.6			4.1
	$	0.7		$	(1.1	)	$	(0.7	)	$	(0.3	)	$	0.3	$	(0.6	)	$	0.8	$	(5.3	)	$	2.4		$	(22.4	)	$	(26.2	)	$	(12.1	)	$	(7.7	)	$	(0.5	)	$	1.0		$	2.3		$	(6.2	)	$	(23.2	)

~~For the three months ended~~ ~~June 30, 2014, the~~The net favorable reserve development in the 2014 loss year was due to favorable reserve development in the property reinsurance line of business due to benign reported loss activity partially offset by unfavorable development in the specialty reinsurance line of business primarily due to higher than expected reported losses in our crop reinsurance line of business. We also experienced net favorable development in the 2009 and prior loss years in our casualty reinsurance line of business, primarily in our U.S. and Bermuda casualty reinsurance lines, as a result of actual loss emergence being lower than anticipated in the 2008 and 2009 loss years.



	(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Three Months Ended March 31, 2014
	2008 and Prior			2009			2010		2011			2012			2013			Total
	($ in millions)
Property	$	(0.6	)	$	(0.1	)	$	0.6	$	(0.7	)	$	(1.7	)	$	(13.7	)	$	(16.2	)
Casualty	(5.4		)	0.2			0.8		0.9			0.7			2.2			(0.6		)
Specialty	0.2			0.1			0.1		—			(1.1		)	(2.8		)	(3.5		)
	$	(5.8	)	$	0.2		$	1.5	$	0.2		$	(2.1	)	$	(14.3	)	$	(20.3	)

The net favorable reserve development in the property reinsurance line of business for the 2013 loss year iswas due to ~~lower than expected~~benign reported loss activity.

(Favorable) and Unfavorable Loss Reserve Development by Loss Year
For the Three Months Ended June 30, 2013
2003 and
Prior 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total
($ in millions)
Property $ —
$ 0.1
$ (0.5 ) $ 0.1
$ —
$ (0.1 ) $ —
$ (0.6 ) $ (1.5 ) $ (22.6 ) $ (25.1 )
Casualty (0.3 ) (1.1 ) (0.1 ) 0.8
—
(1.1 ) (0.1 ) 0.7
3.3
5.3
7.4
Specialty —
(0.3 ) (0.4 ) 0.4
—
(2.7 ) 1.5
—
0.8
(1.4 ) (2.1 )
$ (0.3 ) $ (1.3 ) $ (1.0 ) $ 1.3
$ —
$ (3.9 ) $ 1.4
$ 0.1
$ 2.6
$ (18.7 ) $ (19.8 )

For the three months ended June 30, 2013, the favorable reserve development for the 2012 loss year for our reinsurance segment was largely due to lower than expected reported losses in our property line of business. Our casualty line of business experienced higher than expected loss emergence that caused the unfavorable loss reserve development in the 2011 and 2012 loss years.

Acquisition costs. Acquisition costs ~~increased~~decreased by ~~$6.3~~$0.5 million, or ~~16.7%~~1.2%, for the three months ended ~~June 30, 2014~~March 31, 2015 compared to the three months ended ~~June 30, 2013.~~March 31, 2014. The ~~increase~~decrease was due to ~~the increase in~~lower net premiums ~~earned, as well as~~written largely offset by higher ~~profit commission accruals recorded in the current quarter and increased ceding commission~~commissions charged by cedents ~~in certain~~across most lines of business. The acquisition cost ratio was ~~18.9%~~19.8% for the three months ended ~~June 30, 2014~~March 31, 2015 compared to ~~16.9%~~17.9% for the three months ended ~~June 30, 2013.~~March 31, 2014. The increase in the acquisition cost ratio was due to higher ~~profit commission accruals and increased~~ ceding commission charged by ~~cedents.~~cedents and the decrease in net premiums earned.

General and administrative expenses. General and administrative expenses increased by ~~$2.1~~$1.7 million, or ~~11.6%~~9.4%, for the three months ended ~~June 30, 2014~~March 31, 2015 compared to the same period in ~~2013.~~2014. The increase in general and administrative expenses was primarily due to higher stock-based compensation ~~expense.~~expense, due to the change in our stock price, and increased building-related costs. The general and administrative expense ratios for the three months ended ~~June 30, 2014~~March 31, 2015 and ~~2013~~2014 were ~~8.6%~~9.6% and ~~8.1%~~7.9%, ~~respectively,~~respectively. The increase in the general and administrative expenses ratio was due to the higher general and administrative expenses ~~noted above partially offset by higher~~and lower net premiums earned.

~~Comparison of Six Months Ended June 30, 2014 and 2013~~

~~Premiums.~~ ~~Gross premiums written decreased by $6.3 million, or 0.9%, for the six months ended June 30, 2014 compared to the same period in~~ ~~2013~~. The decrease was driven primarily by the timing of a renewal that was not renewed in the current period but was previously bound during the six months ended June 30, 2013 partially offset by new business and increased

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renewals across several major lines of business. In our property reinsurance lines of business, we had increased premiums of approximately $3.6 million from our collateralized property catastrophe reinsurance program through Aeolus Re. In our specialty lines of business, our crop reinsurance line of business increased gross premiums written by $8.5 million primarily due to increases on renewals and new business. We also experienced non-renewals of certain treaties, particularly in our casualty reinsurance line of business, either due to poor terms and conditions or the cedents not renewing their reinsurance or finding other reinsurance alternatives, and net downward premium adjustments on inforce treaties.

~~The table below illustrates our gross premiums written by underwriter location for our reinsurance operations.~~

Six Months Ended
June 30, Dollar Percentage
2014 2013 Change Change
($ in millions)
United States $ 355.9
$ 355.3
$ 0.6
0.2 %
Bermuda 200.6
218.2
(17.6 ) (8.1 )%
Asia 84.7
84.4
0.3
0.4 %
Europe 70.4
60.0
10.4
17.3 %
$ 711.6
$ 717.9
$ (6.3 ) (0.9 )%

~~The table below illustrates our gross premiums written by line of business for each of the periods indicated.~~

Six Months Ended
June 30, Dollar Percentage
2014 2013 Change Change
($ in millions)
Property $ 370.3
$ 364.0
$ 6.3
1.7 %
Specialty 191.8
179.6
12.2
6.8 %
Casualty 149.5
174.3
(24.8 ) (14.2 )%
$ 711.6
$ 717.9
$ (6.3 ) (0.9 )%

Net premiums written increased by $24.7 million, or 3.6%, primarily due to not renewing the collateralized retrocessional catastrophe cover partially offset by ceded premiums written for the current year collateralized property catastrophe reinsurance protection.

Net premiums earned increased by $49.9 million, or 12.1%, as a result of the increase in net premiums written during 2013 and into 2014, as well as the reduction in ceded earned premium related to the non-renewal of the collateralized retrocessional catastrophe cover.

~~Net losses and loss expenses.~~ Net losses and loss expenses increased by $30.5 million, or 14.3%, for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The following is a breakdown of the loss and loss expense ratio for the three months ended June 30, 2014 and 2013:

Six Months Ended
June 30, 2014 Six Months Ended
June 30, 2013 Dollar Change Loss Ratio Percentage Point Change
Amount % of NPE Amount % of NPE
($ in millions)
Non-catastrophe $ 289.6
62.5 % $ 257.4
62.3 % $ 32.2
0.2
Property catastrophe —
—
—
—
—
—
Current period 289.6
62.5
257.4
62.3
32.2
0.2
Prior period (46.4 ) (10.0 ) (44.7 ) (10.8 ) (1.7 ) 0.8
Net losses and loss expenses $ 243.2
52.5 % $ 212.7
51.5 % $ 30.5
1.0

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~~Current year non-catastrophe losses and loss expenses~~

The increase in the current year non-catastrophe losses and loss expenses and the related ratio was primarily due to higher reported property losses during the six months ended June 30, 2014 compared to the six months ended June 30, 2013 partially offset by the mix of business.

~~Current year property catastrophe losses and loss expenses~~

~~During the six months ended June 30, 2014 and June 30, 2013, we did not incur any property catastrophe losses.~~

~~Prior year losses and loss expenses~~

Overall, our reinsurance segment recorded net favorable reserve development of $46.4 million during the six months ended June 30, 2014 compared to net favorable reserve development of $44.7 million for the six months ended June 30, 2013, as shown in the tables below.

(Favorable) and Unfavorable Loss Reserve Development by Loss Year
For the Six Months Ended June 30, 2014
2004 and
Prior 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total
($ in millions)
Property $ 0.5
$ —
$ (0.2 ) $ (0.2 ) $ (0.2 ) $ 0.3
$ 1.0
$ (5.8 ) $ (4.3 ) $ (29.6 ) $ (38.5 )
Casualty (0.7 ) —
(1.8 ) (2.1 ) (1.2 ) (1.0 ) 1.0
1.1
(0.2 ) 1.4
(3.5 )
Specialty (0.4 ) (0.3 ) (0.1 ) (0.1 ) —
0.3
0.3
(0.4 ) 4.8
(8.5 ) (4.4 )
$ (0.6 ) $ (0.3 ) $ (2.1 ) $ (2.4 ) $ (1.4 ) $ (0.4 ) $ 2.3
$ (5.1 ) $ 0.3
$ (36.7 ) $ (46.4 )

~~For the six months ended June 30, 2014, the net favorable reserve development in the property line of business for the 2013 loss year is due to lower than expected reported loss activity.~~

(Favorable) and Unfavorable Loss Reserve Development by Loss Year
For the Six Months Ended June 30, 2013
2003 and
Prior 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total
($ in millions)
Property $ —
$ 0.1
$ (2.3 ) $ 0.1
$ —
$ (0.2 ) $ (0.1 ) $ (2.9 ) $ (8.5 ) $ (35.5 ) $ (49.3 )
Casualty 0.2
(1.2 ) (0.3 ) 0.7
(2.2 ) (3.6 ) (0.4 ) 0.9
3.3
5.3
2.7
Specialty —
(0.3 ) (0.5 ) 0.3
—
(3.1 ) 0.9
(0.1 ) 2.3
2.4
1.9
$ 0.2
$ (1.4 ) $ (3.1 ) $ 1.1
$ (2.2 ) $ (6.9 ) $ 0.4
$ (2.1 ) $ (2.9 ) $ (27.8 ) $ (44.7 )

For the six months ended June 30, 2013, the favorable reserve development for the 2012 loss year for our reinsurance segment was largely due to lower than expected reported losses in our property line of business.

~~Acquisition costs.~~ Acquisition costs increased by $13.1 million, or 18.2%, for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The increase was due to the increase in premiums written, as well as higher profit commission accruals recorded in the current quarter and increased ceding commission charged by cedents in certain lines of business. The acquisition cost ratio was 18.4% for the six months ended June 30, 2014 compared to 17.4% for the six months ended June 30, 2013. The increase in the acquisition cost ratio was due to higher profit commission accruals and increased ceding commission charged by cedents

~~General and administrative expenses.~~ General and administrative expenses increased by $1.8 million, or 4.9%, for the six months ended June 30, 2014 compared to the same period in 2013. The increase in general and administrative expenses was primarily due to higher salary related costs partially offset by lower stock-based compensation expense. The general and administrative expense ratios for the six months ended June 30, 2014 and 2013 were 8.3% and 8.8%, respectively. The decrease in the general and administrative expense ratio was due to the increase in net premiums earned outpacing the increase in expenses.

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Reserves for Losses and Loss Expenses

Reserves for losses and loss expenses by segment were comprised of the following:


	U.S. Insurance						International Insurance						Reinsurance						Total						North American Insurance						Global Markets Insurance						Reinsurance						Total
	Jun 30, 2014			Dec 31, 2013			Jun 30, 2014			Dec 31, 2013			Jun 30, 2014			Dec 31, 2013			Jun 30, 2014			Dec 31, 2013			Mar 31, 2015			Dec 31, 2014			Mar 31, 2015			Dec 31, 2014			Mar 31, 2015			Dec 31, 2014			Mar 31, 2015			Dec 31, 2014
	($ in millions)																								($ in millions)
Case reserves	$	591.9		$	609.8		$	483.6		$	441.0		$	468.1		$	470.1		$	1,543.6		$	1,520.9		$	863.3		$	937.7		$	121.3		$	117.8		$	429.9		$	458.6		$	1,414.5		$	1,514.1
IBNR	1,607.4			1,509.2			1,683.7			1,710.4			1,101.0			1,026.0			4,392.1			4,245.6			2,943.1			2,868.9			460.1			450.4			1,087.4			1,047.8			4,490.6			4,367.1
Reserve for losses and loss expenses	2,199.3			2,119.0			2,167.3			2,151.4			1,569.1			1,496.1			5,935.7			5,766.5			3,806.4			3,806.6			581.4			568.2			1,517.3			1,506.4			5,905.1			5,881.2
Reinsurance recoverables	(576.4		)	(558.7		)	(717.3		)	(669.6		)	(8.0		)	(6.2		)	(1,301.7		)	(1,234.5		)	(1,155.6		)	(1,156.4		)	(183.2		)	(173.2		)	(11.5		)	(10.7		)	(1,350.3		)	(1,340.3		)
Net reserve for losses and loss expenses	$	1,622.9		$	1,560.3		$	1,450.0		$	1,481.8		$	1,561.1		$	1,489.9		$	4,634.0		$	4,532.0		$	2,650.8		$	2,650.2		$	398.2		$	395.0		$	1,505.8		$	1,495.7		$	4,554.8		$	4,540.9

We participate in certain lines of business where claims may not be reported for many years. Accordingly, management does not solely rely upon reported claims on these lines for estimating ultimate liabilities. We also use statistical and actuarial methods to estimate expected ultimate losses and loss expenses. Loss reserves do not represent an exact calculation of liability. Rather, loss reserves are estimates of what we expect the ultimate resolution and administration of claims will cost. These estimates are based on various factors including underwriters’ expectations about loss experience, actuarial analysis, comparisons with the results of industry benchmarks and loss experience to date. Loss reserve estimates are refined as experience develops and as claims are reported and resolved. Establishing an appropriate level of loss reserves is an inherently uncertain process. Ultimate losses and loss expenses may differ from our reserves, possibly by material amounts.

The following tables provide our ranges of loss and loss expense reserve estimates by business segment as of ~~June 30, 2014:~~March 31, 2015:


	Reserve for Losses and Loss Expenses Gross of Reinsurance Recoverable						Reserve for Losses and Loss Expenses Gross of Reinsurance Recoverable
	Carried Reserves		Low Estimate		High Estimate		Carried Reserves		Low Estimate		High Estimate
	($ in millions)						($ in millions)
U.S. insurance	$	2,199.3	$	1,734.8	$	2,469.5
International insurance	2,167.3		1,691.6		2,378.0
North American Insurance							$	3,806.4	$	3,008.7	$	4,197.9
Global Markets Insurance							581.4		472.8		637.7
Reinsurance	1,569.1		1,281.2		1,750.5		1,517.3		1,212.8		1,696.7
Consolidated (1)	5,935.7		4,795.5		6,512.1		5,905.1		4,785.5		6,441.2


	Reserve for Losses and Loss Expenses Net of Reinsurance Recoverable						Reserve for Losses and Loss Expenses Net of Reinsurance Recoverable
	Carried Reserves		Low Estimate		High Estimate		Carried Reserves		Low Estimate		High Estimate
	($ in millions)						($ in millions)
U.S. insurance	$	1,622.9	$	1,287.8	$	1,854.3
International insurance	1,450.0		1,123.4		1,606.6
North American Insurance							$	2,650.8	$	2,106.3	$	2,978.9
Global Markets Insurance							398.2		327.9		438.6
Reinsurance	1,561.1		1,275.0		1,742.1		1,505.8		1,205.2		1,684.9
Consolidated (1)	4,634.0		3,763.5		5,125.8		4,554.8		3,719.4		5,022.4

________________________


(1)	For statistical reasons, it is not appropriate to add together the ranges of each business segment in an effort to determine the low and high range around the consolidated loss reserves.

Our range for each business segment was determined by utilizing multiple actuarial loss reserving methods along with various assumptions of reporting patterns and expected loss ratios by loss year. The various outcomes of these techniques were combined to determine a reasonable range of required loss and loss expense reserves. While we believe our approach to determine the range of loss and loss expense is reasonable, there are no assurances that actual loss experience will be within the ranges of loss and loss expense noted above.

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Our selection of the actual carried reserves is generally above the midpoint of the range. We believe that we should be prudent in our reserving practices due to the lengthy reporting patterns and relatively large limits of net liability for any one risk of our direct excess casualty business and of our casualty reinsurance business. Thus, due to this uncertainty regarding estimates for ~~reserve~~reserves for losses and loss expenses, we have carried our consolidated ~~reserve~~reserves for losses and loss expenses, net of reinsurance recoverable, above the midpoint of the low and high estimates for the consolidated net losses and loss expenses. We believe that relying on the more prudent actuarial indications is appropriate for these lines of business.

Reinsurance Recoverable

The following table illustrates our reinsurance recoverable as of ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013:~~2014:


	June 30, 2014		December 31, 2013		March 31, 2015		December 31, 2014
	($ in millions)				($ in millions)
Ceded case reserves	$	248.8	$	225.8	$	213.3	$	232.6
Ceded IBNR reserves	1,052.9		1,008.7		1,137.0		1,107.7
Reinsurance recoverable	$	1,301.7	$	1,234.5	$	1,350.3	$	1,340.3

We remain obligated for amounts ceded in the event our reinsurers do not meet their obligations. Accordingly, we have evaluated the reinsurers that are providing reinsurance protection to us and will continue to monitor their credit ratings and financial stability. We generally have the right to terminate our treaty reinsurance contracts at any time, upon prior written notice to the reinsurer, under specified circumstances, including the assignment to the reinsurer by A.M. Best of a financial strength rating of less than “A-.” Approximately 99% of ceded reserves as of ~~June 30, 2014~~March 31, 2015 were recoverable from reinsurers who had an A.M. Best rating of “A-” or higher.

Liquidity and Capital Resources

Liquidity

Liquidity is a measure of our ability to access sufficient cash flows to meet the short-term and long-term cash requirements of our business operations. The company believes that its cash flows from operations and investments will provide sufficient liquidity for the foreseeable future.

Holdings is a holding company and transacts no business of its own. Cash flows to Holdings may comprise dividends, advances and loans from its subsidiary companies. Holdings is therefore reliant on receiving dividends and other permitted distributions from its subsidiaries to make dividend payments on its common shares.

Our operating subsidiaries depend upon cash inflows from premium receipts, net of commissions, investment income and proceeds from sales and redemptions of investments. Cash outflows for our operating subsidiaries are in the form of claims payments, net of reinsurance recoveries, reinsurance premium payments, purchase of investments, operating expenses and income tax payments as well as dividend payments to the holding company.

Historically, our operating subsidiaries have generated sufficient cash flows to meet all of their obligations. Because of the inherent volatility of our business, the seasonality in the timing of payments by insureds and cedents, the irregular timing of loss payments, and the impact of a change in interest rates and credit spreads on the investment income as well as seasonality in coupon payment dates for fixed income securities, cash flows from operating activities may vary between periods. In the unlikely event that paid losses exceed operating cash flows in any given period, we would use our cash balances available, liquidate a portion of our investment portfolio or borrow under our revolving loan facility (see "Credit Facilities" below) in order to meet our short-term liquidity needs.

Our total investments and cash and cash equivalents totaled ~~$8.8~~$8.6 billion as of ~~June 30, 2014,~~March 31, 2015, the main components of which were investment grade fixed income securities and cash and cash equivalents. As of ~~June 30, 2014,~~March 31, 2015, we held ~~$635.1~~$515.1 million of unrestricted cash and cash equivalents and ~~$518.0~~$226.0 million of fixed income securities with a maturity of less than one year to meet short-term liquidity needs. Our remaining fixed income securities, equity securities and "other invested assets" are available to meet our long-term liquidity needs.

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As of ~~June 30, 2014,~~March 31, 2015, we had $150 million available under our revolving loan facility.

Dividend Restrictions

The jurisdictions in which our operating subsidiaries are licensed to write business impose regulations requiring companies to maintain or meet various defined statutory ratios, including solvency and liquidity requirements. Some jurisdictions also place restrictions on the declaration and payment of dividends and other distributions. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in the Company’s ~~2013~~2014 Form 10-K.

Cash Flows


	Six Months Ended June 30,						Three Months Ended March 31,
	2014			2013			2015			2014
	($ in millions)						($ in millions)
Cash flows provided by operating activities	$	448.9		$	133.6		$	317.6		$	303.1
Cash flows used in investing activities	(184.2		)	(43.4		)	(319.1		)	(188.5		)
Cash flows used in financing activities	(164.7		)	(90.3		)	(67.7		)	(82.4		)
Effect of exchange rate changes on foreign currency cash	3.2			(7.7		)	(5.0		)	1.7
Net increase (decrease) in cash and cash equivalents	103.2			(7.8		)
Net (decrease) increase in cash and cash equivalents							(74.2		)	33.9
Cash and cash equivalents, beginning of period	531.9			681.9			589.3			531.9
Cash and cash equivalents, end of period	$	635.1		$	674.1		$	515.1		$	565.8

The primary sources of cash inflows from operating activities are premiums received, loss payments from reinsurers, return of funds held balances related to our ~~collateralized~~assumed collaterlized property catastrophe reinsurance program through Aeolus Re Ltd. ("Aeolus Re") and investment income. The primary sources of cash outflows from operating activities are ceded premiums paid to reinsurers, claims paid, contributions of funds held balances, commissions paid, operating expenses, interest expense and income taxes. The primary factor in our ability to generate positive operating cash flow is underwriting profitability. We have generated positive operating cash flow for more than 1011 consecutive years.

In our casualty lines of business, claims may be reported and settled many years after the coverage period has terminated. As a result, we expect that we will generate significant operating cash flow as we accumulate casualty loss reserves on our balance sheet. In our property lines of business, claims are generally reported and paid within a relatively short period of time and we expect volatility in our operating cash flows as losses are incurred. We expect increases in the amount of expected loss payments in future periods with a resulting decrease in operating cash flow; however, we do not expect loss payments to exceed the premiums generated. Actual premiums written and collected and losses and loss expenses paid in any period could vary materially from our expectations and could have a significant and adverse effect on operating cash flow.

The increase in cash flows from operations was primarily due to the receipt of $212.3 million of our funds held balance from Aeolus Re, which is included in "funds held" on the unaudited condensed consolidated balance sheets, for the 2013 and prior underwriting years. The return of our funds held balance from Aeolus Re is a function of the performance of each underwriting year. The timing and the amounts received from Aeolus Re can vary significantly, and we could potentially not receive any amounts back.

Cash flows from investing activities consist primarily of proceeds on the sale of investments and payments for investments acquired in addition to changes in restricted cash. The change in cash flows used in investing activities reflects the higher net purchases of securities during the six months ended June 30, 2014 compared to the same period in 2013.

Cash flows from financing activities consist primarily of capital raising activities, which include the issuance of common shares or debt, the repurchase of our shares, the payment of dividends and the repayment of debt. The increase in cash flows used in financing activities was due to the $55.2 million increase in share repurchases for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. Dividends paid increased as we increased our quarterly dividend per share amount to $0.167 in 2014 from $0.125 in 2013.

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Investments

Our funds are primarily invested in liquid, high-grade fixed income securities. As of ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013, 88.3%~~2014, 88.6% and ~~89.3%~~88.5%, respectively, of our fixed income portfolio consisted of investment grade securities. The maturity distribution of our fixed-maturity portfolio (on a fair value basis) as of ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013~~2014 was as follows:


	June 30, 2014		December 31, 2013		March 31, 2015		December 31, 2014
	($ in millions)				($ in millions)
Due in one year or less	$	518.0	$	838.8	$	226.0	$	250.4
Due after one year through five years	2,805.5		2,698.8		3,262.6		3,167.8
Due after five years through ten years	739.2		697.8		677.8		637.2
Due after ten years	93.2		67.0		107.4		79.3
Mortgage-backed	1,323.8		1,292.5		1,286.2		1,263.5
Asset-backed	677.4		505.9		728.9		670.8
Total	$	6,157.1	$	6,100.8	$	6,288.9	$	6,069.0

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We have investments in "other invested assets", comprising interests in hedge funds, private equity funds, other private securities and high yield loan funds, the carrying value of which was ~~$932.6~~$926.4 million as of ~~June 30, 2014.~~March 31, 2015. Some of these funds have redemption notice requirements. For each of our funds, liquidity is allowed after certain defined periods based on the terms of each fund. See Note 4(b) “Investments — Other Invested Assets” to our unaudited condensed consolidated financial statements for additional details on our other invested assets.

We do not believe that inflation has had a material effect on our consolidated results of operations. The potential exists, after a catastrophe loss, for the development of inflationary pressures in a local economy. The effects of inflation are considered implicitly in pricing. Loss reserves are established to recognize likely loss settlements at the date payment is made. Those reserves inherently recognize the effects of inflation. The actual effects of inflation on our results cannot be accurately known, however, until claims are ultimately resolved.

Credit Facilities

In the normal course of our operations, we enter into agreements with financial institutions to obtain secured and unsecured credit facilities.

Allied World Assurance Company, Ltd currently has access to up to ~~$1.45~~$1.15 billion in letters of credit under two letter of credit facilities, a $1.0 billion uncommitted secured facility with Citibank Europe plc and a ~~$450~~$150 million committed secured credit facility with a syndication of lenders (the “Amended Secured Credit Facility”). These credit facilities are primarily for the issuance of standby letters of credit to support obligations in connection with the insurance and reinsurance business.

The letters of credit issued under the credit facility with Citibank Europe plc are deemed to be automatically extended without amendment for twelve months from the expiry date, or any future expiration date unless at least 30 days prior to any expiration date Citibank Europe plc notifies us that they elect not to consider the letters of credit renewed for any such additional period.

A portion of the Amended Secured Credit Facility may also be used for revolving loans for general corporate and working capital purposes, up to a maximum of $150 million. We may request that existing lenders under the Amended Secured Credit Facility make additional commitments from time to time, up to $150 million, subject to approval by the lenders. The Amended Secured Credit Facility contains representations, warranties and covenants customary for similar bank loan facilities, including certain covenants that, among other things, require us to maintain a certain leverage ratio and financial strength rating. We are in compliance with all covenants under the Amended Secured Credit Facility as of ~~June 30, 2014.~~March 31, 2015.

As of ~~June 30, 2014,~~March 31, 2015, we had a combined unused letters of credit capacity of ~~$747.6~~$659.6 million from the Amended Secured Credit Facility and Citibank Europe plc. We believe that this remaining capacity is sufficient to meet our future letter of credit needs. During the ~~six~~three months ended ~~June 30, 2014,~~March 31, 2015, we did not utilize the revolving loan available under the Amended Secured Credit Facility.

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In September 2014, Allied World Assurance Company, AG entered into a 20-year mortgage commitment with a Swiss bank for ~~a company-used~~the purchase of three floors in an office building in Zug, Switzerland. See "Long-Term Debt" below for additional information regarding the 20-year mortgage commitment. In conjunction with the mortgage commitment, Allied World Assurance Company, AG entered into a three-year credit facility with a Swiss bank that ~~provides up to CHF~~provided us $5.2 million (CHF 5.0 ~~million~~million) for general corporate purposes; however, we ~~will use~~used the proceeds from the credit facility to fund the purchase of three floors of the office building in Zug, Switzerland. The interest rate for the credit facility is 2.5%.

Pledged Assets

We use trust accounts primarily to meet security requirements for inter-company and certain reinsurance transactions. We also have cash and cash equivalents and investments on deposit with various state or government insurance departments or pledged in favor of ceding companies in order to comply with reinsurance contract provisions and relevant insurance regulations. In addition, our credit facilities are collateralized, at least to the extent of letters of credit outstanding at any given time.

Security arrangements with ceding insurers may subject our assets to security interests or require that a portion of our assets be pledged to, or otherwise held by, third parties. Both of our letter of credit facilities are fully collateralized by assets held in custodial accounts at the Bank of New York Mellon held for the benefit of the banks. Although the investment income derived from our assets while held in trust accrues to our benefit, the investment of these assets is governed by the terms of the letter of credit facilities or the investment regulations of the state or territory of domicile of the ceding insurer, which may be

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more restrictive than the investment regulations otherwise applicable to us. The restrictions may result in lower investment yields on these assets, which may adversely affect our profitability.

As of ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013, $2,745.4~~2014, $3,114.1 million and ~~$2,894.4~~$3,585.8 million, respectively, of cash and cash equivalents and investments were deposited, pledged or held in escrow accounts in favor of ceding companies and other counterparties or government authorities to comply with reinsurance contract provisions, insurance laws and other contract provisions.

In addition, as of ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013,~~2014, a further ~~$886.2~~$599.7 million and ~~$1,053.6~~$571.8 million, respectively, of cash and cash equivalents and investments were pledged as collateral for our credit facilities.

We do not currently anticipate that the restrictions on liquidity resulting from restrictions on the payment of dividends by our subsidiary companies or from assets committed in trust accounts or to collateralize the letter of credit facilities will have a material impact on our ability to carry out our normal business activities, including interest and dividend payments, respectively, on our senior notes (described below) and common shares.

Financial Strength Ratings

Financial strength ratings represent the opinions of rating agencies on our capacity to meet our obligations. In the event of a significant downgrade in ratings, our ability to write business and to access the capital markets could be impacted. Our financial strength ratings as of ~~June 30, 2014~~March 31, 2015 have not changed since December 31, ~~2013.~~2014. See Item 1. “Business” in our ~~2013~~2014 Form 10-K.

Capital Resources

The table below sets forth the capital structure of the Company as of ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013:~~2014:


	June 30, 2014			December 31, 2013			March 31, 2015			December 31, 2014
	($ in millions)						($ in millions)
Senior notes	$	798.6		$	798.5		$	798.9		$	798.8
Other long-term debt							19.7			19.2
Shareholders’ equity	3,682.8			3,519.8			3,829.1			3,778.3
Total capitalization	$	4,481.4		$	4,318.3		$	4,647.7		$	4,596.3
Debt to total capitalization	17.8		%	18.5		%	17.6		%	17.8		%

On September 10, 2012, we filed a shelf registration statement on Form S-3 with the U.S. Securities and Exchange Commission in which we may offer from time to time common shares of Allied World Switzerland, senior or subordinated debt securities of Allied World Bermuda, guarantees of debt securities of Allied World Bermuda, warrants to purchase common

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shares of Allied World Switzerland, warrants to purchase debt securities of Allied World Bermuda or units which may consist of any combination of the securities listed above. The registration statement is intended to provide us with additional flexibility to access capital markets for general corporate purposes, subject to market conditions and our capital needs.

Share Repurchases

On May 1, 2014, our shareholders approved a ~~new~~ share repurchase program in order for us to repurchase up to $500.0 million of our common shares. ~~This new share repurchase program supersedes the 2012 share repurchase program and no further repurchases will be made under the 2012 share repurchase program.~~ Under the terms of this ~~new~~ share repurchase program, the first three million of common shares repurchased will remain in treasury and will be used by us to satisfy share delivery obligations under our equity-based compensation plans. Any additional common shares will be designated for cancellation at acquisition and will be canceled upon shareholder approval. As of ~~June 30, 2014~~March 31, 2015, approximately ~~$454.2~~$367.4 million remained under this share repurchase authorization.

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During the three ~~month and six~~ months ended ~~June 30, 2014,~~March 31, 2015, our share repurchases were as follows:


	Three Months Ended June 30, 2014		Six Months Ended June 30, 2014		Three Months Ended March 31, 2015
	($ in millions)				($ in millions other than per share amounts)
Common shares repurchased	1,949,496		3,961,692		1,271,213
Total cost of shares repurchased	$	70.9	$	139.5	$	50.9
Average price per share	$	36.36	$	35.22	$	40.08

Shares repurchased by the Company and not designated for cancellation are classified as “Treasury shares, at cost” on the consolidated balance sheets. The Company will issue shares out of treasury principally related to the Company’s employee benefit plans. Shares repurchased and designated for cancellation are constructively retired and recorded as a share cancellation.

Long-Term Debt

In July 2006, Allied World Bermuda issued $500.0 million aggregate principal amount of 7.50% senior notes due August 1, 2016, with interest payable in arrears August 1 and February 1 each year. Allied World Bermuda can redeem the senior notes prior to maturity, subject to payment of a “make-whole” premium; however, Allied World Bermuda currently has no intention of redeeming the notes.

In November 2010, Allied World Bermuda issued $300.0 million aggregate principal amount of 5.50% senior notes due November 1, 2020, with interest payable in arrears May 15 and November 15 each year, commencing May 15, 2011. Allied World Bermuda can redeem the senior notes prior to maturity, subject to payment of a “make-whole” premium; however, Allied World Bermuda currently has no intention of redeeming the notes.

The senior notes issued in 2006 and 2010 have been unconditionally and irrevocably guaranteed for the payment of the principal and interest by Holdings.

In September 2014, Allied World Assurance Company, AG entered into a 20-year mortgage commitment with a Swiss bank for ~~a company-used~~the the purchase of three floors in an office building in Zug, Switzerland. The total proceeds ~~to be~~ received in 2014 under the mortgage ~~are CHF 18.0~~was $14.1 million (CHF 14.0 million) with a fixed annual interest rate of 3.2% payable ~~quarterly.~~quarterly, and an additional $4.1 million (CHF 4.0 million) of proceeds from the mortgage was received in April 2015. The mortgage payments will be ~~CHF~~$0.3 million (CHF 0.3 ~~million~~million) per year, plus accrued interest, for the first 19 years with the remaining balance payable at the end of the mortgage. ~~We will receive the proceeds from the bank during the fourth quarter of 2014 at which time we will recognize the mortgage loan liability in our consolidated balance sheet.~~

Off-Balance Sheet Arrangements

As of ~~June 30, 2014,~~March 31, 2015, we did not have any off-balance sheet arrangements.

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Item 3.	Quantitative and Qualitative Disclosures About Market Risk.

We believe that we are principally exposed to three types of market risk: interest rate risk, credit risk and currency risk.

The fixed income securities in our investment portfolio are subject to interest rate risk and credit risk. Any changes in interest rates and credit spreads have a direct effect on the fair values of fixed income securities. As interest rates rise, the fair values fall, and vice versa. As credit spreads widen, the fair values fall, and vice versa.

In the table below changes in fair values as a result of changes in interest rates are determined by calculating hypothetical ~~June 30, 2014~~March 31, 2015 ending prices based on yields adjusted to reflect the hypothetical changes in interest rates, comparing such hypothetical ending prices to actual ending prices, and multiplying the difference by the principal amount of the security. The sensitivity analysis is based on estimates. The estimated changes of our fixed maturity investments and cash and cash equivalents are presented below and actual changes for interest rate shifts could differ significantly.

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	Interest Rate Shift in Basis Points																					Interest Rate Shift in Basis Points
	-200			-100			-50			—			+50			+100			+200			-200			-100			-50			—			+50			+100			+200
	($ in millions)																					($ in millions)
Total fair value	$	7,201.7		$	7,065.9		$	6,993.9		$	6,920.0		$	6,846.1		$	6,773.2		$	6,630.6		$	7,068.9		$	6,973.0		$	6,915.9		$	6,853.9		$	6,791.7		$	6,729.6		$	6,606.1
Fair value change from base	281.7			145.9			73.9			—			(73.9		)	(146.8		)	(289.4		)	215.0			119.1			62.0			—			(62.2		)	(124.3		)	(247.8		)
Change in unrealized appreciation/(depreciation)	4.1		%	2.1		%	1.1		%	—		%	(1.1		)%	(2.1		)%	(4.2		)%	3.1		%	1.7		%	0.9		%	—		%	(0.9		)%	(1.8		)%	(3.6		)%

In the table below changes in fair values as a result of changes in credit spreads are determined by calculating hypothetical ~~June 30, 2014~~March 31, 2015 ending prices adjusted to reflect the hypothetical changes in credit spreads, comparing such hypothetical ending prices to actual ending prices, and multiplying the difference by the principal amount of the security. The sensitivity analysis is based on estimates. The estimated changes of our non-cash, non-U.S. Treasury fixed maturity investments are presented below and actual changes in credit spreads could differ significantly.


	Credit Spread Shift in Basis Points																					Credit Spread Shift in Basis Points
	-200			-100			-50			—			+50			+100			+200			-200			-100			-50			—			+50			+100			+200
	($ in millions)																					($ in millions)
Total fair value	$	5,318.3		$	5,208.4		$	5,153.5		$	5,098.5		$	5,043.5		$	4,988.6		$	4,878.7		$	5,003.1		$	4,912.3		$	4,866.9		$	4,821.5		$	4,776.2		$	4,730.8		$	4,640.0
Fair value change from base	219.8			109.9			55.0			—			(55.0		)	(109.9		)	(219.8		)	181.6			90.8			45.4			—			(45.3		)	(90.7		)	(181.5		)
Change in unrealized appreciation/(depreciation)	4.3		%	2.2		%	1.1		%	—		%	(1.1		)%	(2.2		)%	(4.3		)%	3.8		%	1.9		%	0.9		%	—		%	(0.9		)%	(1.9		)%	(3.8		)%

In addition to credit spread risk, our portfolio is also exposed to the risk of securities being downgraded or of issuers defaulting. In an effort to minimize this risk, our investment guidelines have been defined to ensure that the assets held are well diversified and are primarily high-quality securities.

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The following table shows the types of securities in our portfolio, their fair market values, average rating and portfolio percentage as of ~~June 30, 2014.~~March 31, 2015.


	Fair Value June 30, 2014		Average Rating	Portfolio Percentage		Fair Value March 31, 2015		Average Rating	Portfolio Percentage
	($ in millions)					($ in millions)
Cash and cash equivalents	$	762.9	AAA	8.7	%	$	565.0	AAA	6.5	%
U.S. government securities	1,058.6		AA+	11.9	%	1,467.4		AA+	17.0	%
U.S. government agencies	215.7		AA+	2.5	%	110.4		AA+	1.3	%
Non-U.S. government and government agencies	185.1		AA+	2.1	%	189.4		AA+	2.2	%
State, municipalities and political subdivisions	261.3		AA-	3.0	%	178.6		A	2.1	%
Mortgage-backed securities (“MBS”):
Agency MBS	659.0		AA+	7.5	%	575.7		AA+	6.7	%
Non-agency MBS	129.5		B+	1.5	%	105.9		B+	1.2	%
Commercial MBS	535.3		BBB	6.1	%	604.6		BBB+	7.0	%
Total mortgage-backed securities	1,323.8			15.1	%	1,286.2			14.9	%
Corporate securities:
Financials	1,168.9		A	13.3	%	1,107.1		A	12.8	%
Industrials	1,167.5		BBB	13.3	%	1,107.5		BBB	12.8	%
Utilities	98.9		BBB+	1.1	%	113.4		BBB	1.3	%
Total corporate securities	2,435.3			27.7	%	2,328.0			26.9	%
Asset-backed securities:
Credit cards	67.6		AAA	0.8	%	75.6		AAA	1.0	%
Auto receivables	11.2		AAA	0.1	%	51.1		AAA	0.6	%
Student Loans	154.9		AA+	1.8	%	167.5		AAA	1.9	%
Collateralized loan obligations	381.6		AA	4.3	%	376.1		AA	4.4	%
Other	62.1		AAA	0.7	%	58.6		AAA	0.7	%
Total asset-backed securities	677.4			7.7	%	728.9			8.5	%
Other invested assets:
Private equity	266.8		N/A	3.0	%	365.0		N/A	4.2	%
Hedge funds	505.2		N/A	5.7	%	397.2		N/A	4.6	%
Other private securities	128.1		N/A	1.5	%	133.8		N/A	1.5	%
High yield loan fund	32.5		N/A	0.4	%	30.4		N/A	0.4	%
Total other invested assets	932.6			10.6	%	926.4			10.7	%
Equities	938.1		N/A	10.7	%	856.7		N/A	9.9	%
Total investment portfolio	$	8,790.8		100.0	%	$	8,637.0		100.0	%

As of ~~June 30, 2014,~~March 31, 2015, we held ~~$6.2~~$6.3 billion of fixed income securities. Of those assets, approximately ~~88.3%~~88.6% were rated investment grade (Baa3/BBB- or higher) with the remaining ~~11.7%~~11.4% rated in the below investment grade category. The average credit quality of the fixed maturity portfolios was A+ by Standard & Poor’s.

Our agency pass-through mortgage-backed securities are exposed to prepayment risk, which occurs when holders of individual mortgages increase the frequency with which they prepay the outstanding principal before the maturity date to refinance at a lower interest rate cost. Given the proportion that these securities comprise of the overall portfolio, and the current interest rate environment and condition of the credit market, prepayment risk is not considered significant at this time.

Our non-agency commercial mortgage-backed securities are subject to the risk of non-payment due to increased levels of delinquencies, defaults and losses on commercial loans that cumulatively create shortfalls beyond the level of subordination in our specific securities.

As of ~~June 30, 2014,~~March 31, 2015, we held investments in "other invested assets" with a carrying value of ~~$932.6~~$926.4 million. Included in other invested assets are private equity funds, hedge funds, other private securities and a high yield loan fund. Investments in

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these types of assets involve certain risks related to, among other things, the illiquid nature of the fund shares,

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the limited operating history of these investments, as well as risks associated with the strategies employed by the managers of these investments. The funds’ objectives are generally to seek attractive long-term returns with lower volatility by investing in a range of diversified investment strategies. As our reserves and capital continue to build, we may consider additional investments in these or other alternative investments.

As of ~~June 30, 2014,~~March 31, 2015, our direct exposure to European credit across all of Europe was ~~$748.2~~$684.0 million as outlined in the table below and is included within “fixed maturity investments trading, at fair value” and “equity securities trading, at fair value” in the consolidated balance sheets. As of ~~June 30, 2014,~~March 31, 2015, we had no direct sovereign exposure to Greece, Ireland, Italy, Portugal, Spain or Ukraine.


	June 30, 2014								March 31, 2015
	Sovereign and Sovereign Guaranteed		Structured Products		Corporate Bonds and Equities		Total Exposure		Sovereign and Sovereign Guaranteed		Structured Products		Corporate Bonds and Equities		Total Exposure
	($ in millions)								($ in millions)
Austria	$	—	$	—	$	0.1	$	0.1	$	—	$	—	$	1.2	$	1.2
Belgium	—		—		15.8		15.8		—		—		19.1		19.1
Denmark	—		—		2.0		2.0		—		—		4.8		4.8
Finland	—		—		1.2		1.2		—		—		4.0		4.0
France	—		0.9		207.4		208.3		9.4		—		117.9		127.3
Germany	31.8		—		21.1		52.9		25.8		—		69.2		95.0
Greece									—		—		2.3		2.3
Hungary	—		—		0.2		0.2		—		—		0.6		0.6
Ireland	—		5.2		1.5		6.7		—		—		10.4		10.4
Italy	—		—		5.4		5.4		—		—		7.2		7.2
Luxembourg	—		3.7		14.3		18.0		—		3.6		10.3		13.9
Netherlands	34.3		0.8		79.9		115.0		—		—		79.1		79.1
Norway	—		—		24.7		24.7		3.6		—		9.9		13.5
Poland	—		—		0.7		0.7
Portugal	—		—		0.7		0.7		—		—		0.5		0.5
Russia									—		—		0.4		0.4
Spain	—		—		17.8		17.8		—		—		15.3		15.3
Sweden	—		—		45.7		45.7		—		—		25.9		25.9
Switzerland	2.3		—		43.6		45.9		2.1		—		95.7		97.8
United Kingdom	27.3		4.2		155.7		187.2		24.4		8.1		133.2		165.7
Total exposure	$	95.7	$	14.8	$	637.7	$	748.2	$	65.3	$	11.7	$	607.0	$	684.0

The U.S. dollar is our reporting currency and the functional currency of all of our operating subsidiaries. However, we enter into insurance and reinsurance contracts where the premiums receivable and losses payable are denominated in currencies other than the U.S. dollar. In addition, we maintain a portion of our investments and liabilities in currencies other than the U.S. dollar, primarily Euro, British ~~Sterling,~~pound sterling, Swiss Franc and the Canadian dollar. Receivables in non-U.S. currencies are generally converted into U.S. dollars at the time of receipt. When we incur a liability in a non-U.S. currency, we carry such liability on our books in the original currency. These liabilities are converted from the non-U.S. currency to U.S. dollars at the time of payment. As a result, we have an exposure to foreign currency risk resulting from fluctuations in exchange rates. We utilize a hedging strategy to minimize the potential loss of value caused by currency fluctuations by using foreign currency forward contract derivatives that expire in 90 days from purchase.

As of ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013,~~2014, approximately ~~4.3%~~4.2% and ~~2.3%~~3.7%, respectively, of our total investments and cash and cash equivalents were denominated in currencies other than the U.S. dollar. Of our business written during the ~~six~~three months ended ~~June 30,~~March 31, 2015 and 2014, ~~and 2013,~~ approximately ~~14% and 11%, respectively,~~15% was written in currencies other than the U.S. dollar.



Item 4.	Controls and Procedures.

In connection with the preparation of this quarterly report, our management has performed an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and

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procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of ~~June 30, 2014.~~March 31,

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2015. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by SEC rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosures. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~June 30, 2014,~~March 31, 2015, our Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by SEC rules and forms and accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosures.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide an absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected.

No changes were made in our internal controls over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f), during the quarter ended ~~June 30, 2014~~March 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION



Item 1.	Legal Proceedings.



Item 1A.	Risk Factors.

Our business is subject to a number of risks, including those identified in Item 1A. of Part I of our ~~2013~~2014 Form 10-K, that could have a material adverse effect on our business, results of operations, financial condition and/or liquidity and that could cause our operating results to vary significantly from period to period. There have been no material changes to the risk factors described in our ~~2013~~2014 Form 10-K. The risks described in our ~~2013~~2014 Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also could have a material adverse effect on our business, results of operations, financial condition and/or liquidity.

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Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.


(c)	The following table summarizes our repurchases of our common shares during the three months ended ~~June 30, 2014:~~March 31, 2015:

Period
Total Number
of Shares
Purchased

Average
Price Paid
per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

Maximum Dollar Value
(or Approximate
Dollar Value) of
Shares that May Yet
be Purchased Under
the Plans or Programs
April 1 - 30 2014 690,000
$ 34.76
690,000
$ 142.9 million
May 1 - 31, 2014 630,000
36.79
630,000
477.9 million
June 1 - 30, 2014 629,496
37.65
629,496
454.2 million
Total 1,949,496
$ 36.36
1,949,496
$ 454.2 million (1)



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Value (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs
January 1 - 31, 2015	216,982	$	37.77	216,982	$	410.2	million
February 1 - 28, 2015	439,875	40.36		439,875	392.4		million
March 1 - 31, 2015	614,356	40.69		614,356	367.4		million
Total	1,271,213	$	40.08	1,271,213	$	367.4	million	(1)

________________________

(1)

At the 2014 Annual Shareholder Meeting on May 1, 2014, Holdings’ shareholders approved a ~~new,~~ two-year $500 million share repurchase program. ~~The new~~Please see Part I, Item 2 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Share Repurchases” for more information about our share repurchase ~~program superseded the 2012 share repurchase program effective May 1, 2014.~~program. Share repurchases may be effected from time to time through open market purchases, privately negotiated transactions, tender offers or otherwise.

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Item 3.	Defaults Upon Senior Securities.

None.



Item 4.	Mine Safety Disclosures.

Not applicable.



Item 5.	Other Information.

None.

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Item 6.	Exhibits.



Exhibit Number		Description
2.1(1)		Deed of Amendment, dated as of March 31, 2015, by and between Royal & Sun Alliance Insurance plc and Allied World Assurance Company, Ltd related to the Hong Kong branch.
~~3.1(1)~~2.2(2)		~~Articles~~Deed of ~~Association~~Amendment, dated as of March 31, 2015, by and between Royal & Sun Alliance Insurance plc and Allied World Assurance Company, Ltd related to the Singapore branch.
3.1(3)		Organizational Regulations of Allied World Assurance Company Holdings, AG, as amended and restated.

~~10.1(2)†~~		~~Employment Agreement, dated as of May 1, 2014, by and between Allied World National Assurance Company and Louis P. Iglesias.~~

31.1		Certification by Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification by Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification by Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification by Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.

101.1		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013,~~2014, (ii) the Consolidated Statements of Operations and Comprehensive Income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2015 and 2014, ~~and 2013,~~ (iii) the Consolidated Statements of Shareholders’ Equity for the ~~six~~three months ended ~~June 30,~~March 31, 2015 and 2014, ~~and 2013,~~ (iv) the Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2015 and 2014 ~~and 2013~~ and (v) the Notes to the Consolidated Financial Statements.

________________________



(1)	Incorporated herein by reference to Exhibit 2.1 to the Current Report on Form 8-K of Allied World Assurance Company Holdings, AG filed with the SEC on March 31, 2015.
(2)	Incorporated herein by reference to Exhibit 2.2 to the Current Report on Form 8-K of Allied World Assurance Company Holdings, AG filed with the SEC on March 31, 2015.
(3)	Incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K of Allied World Assurance Company Holdings, AG filed with the SEC on ~~May 2, 2014.~~
~~(2)~~	Incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of Allied World Assurance Company Holdings, AG filed with the SEC on August 2, 2013. Other than with respect to commencement date, title, base salary and employer, the employment agreement for Mr. Louis P. Iglesias is materially identical to the employment agreement for Mr. John Gauthier filed thereto.
†	~~Management contract or compensatory plan, contract or arrangement.~~
	February 20, 2015.
*	These certifications are being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18 United States Code) and are not being filed as part of this report.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
Dated: ~~July 23, 2014~~April 22, 2015

	By:	/s/ Scott A. Carmilani
	Name:	Scott A. Carmilani
	Title:	President and Chief Executive Officer
Dated: ~~July 23, 2014~~April 22, 2015

	By:	/s/ Thomas A. Bradley
	Name:	Thomas A. Bradley
	Title:	Executive Vice President and Chief Financial Officer
Dated: ~~July 23, 2014~~April 22, 2015

	By:	/s/ Kent W. Ziegler
	Name:	Kent W. Ziegler
	Title:	Senior Vice President, Finance and Chief Accounting Officer

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EXHIBIT INDEX



Exhibit Number		Description
2.1(1)		Deed of Amendment, dated as of March 31, 2015, by and between Royal & Sun Alliance Insurance plc and Allied World Assurance Company, Ltd related to the Hong Kong branch.
~~3.1(1)~~2.2(2)		~~Articles~~Deed of ~~Association~~Amendment, dated as of March 31, 2015, by and between Royal & Sun Alliance Insurance plc and Allied World Assurance Company, Ltd related to the Singapore branch.
3.1(3)		Organizational Regulations of Allied World Assurance Company Holdings, AG, as amended and restated.

~~10.1(2)†~~		~~Employment Agreement, dated as of May 1, 2014, by and between Allied World National Assurance Company and Louis P. Iglesias.~~

31.1		Certification by Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification by Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification by Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification by Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.

101.1		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of ~~June 30, 2014~~March 31, 2015 and December 31, ~~2013,~~2014, (ii) the Consolidated Statements of Operations and Comprehensive Income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2015 and 2014, ~~and 2013,~~ (iii) the Consolidated Statements of Shareholders’ Equity for the ~~six~~three months ended ~~June 30,~~March 31, 2015 and 2014, ~~and 2013,~~ (iv) the Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2015 and 2014 ~~and 2013~~ and (v) the Notes to the Consolidated Financial Statements.

________________________



(1)	Incorporated herein by reference to Exhibit 2.1 to the Current Report on Form 8-K of Allied World Assurance Company Holdings, AG filed with the SEC on March 31, 2015.
(2)	Incorporated herein by reference to Exhibit 2.2 to the Current Report on Form 8-K of Allied World Assurance Company Holdings, AG filed with the SEC on March 31, 2015.
(3)	Incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K of Allied World Assurance Company Holdings, AG filed with the SEC on ~~May 2, 2014.~~

~~(2)~~	Incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of Allied World Assurance Company Holdings, AG filed with the SEC on August 2, 2013. Other than with respect to commencement date, title, base salary and employer, the employment agreement for Mr. Louis P. Iglesias is materially identical to the employment agreement for Mr. John Gauthier filed thereto.
†	~~Management contract or compensatory plan, contract or arrangement.~~
	February 20, 2015.
*	These certifications are being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18 United States Code) and are not being filed as part of this report.



Investment Type	Carrying Value as of June 30, 2014		Investments with Redemption Restrictions		Estimated Remaining Restriction Period	Investments without Redemption Restrictions		Redemption Frequency(1)	Redemption Notice Period(1)	Unfunded Commitments
Private equity	$	161,667	$	161,667	2 - 9 Years	$	—			$	239,697
Mezzanine debt	95,162		95,162		5 - 9 Years	—				206,856
Distressed	10,008		10,008		4 Years	—				4,941
Total private equity	266,837		266,837			—				451,494
Distressed	165,253		165,253		1 Year	—				—
Equity long/short	134,036		58,568		1 Year	75,468		Quarterly	30 -60 Days	—
Multi-strategy	100,263		—			100,263		Quarterly	45 -90 Days	—
Relative value credit	105,624		—			105,624		Quarterly	60 Days	—
Total hedge funds	505,176		223,821			281,355				—
High yield loan fund	32,492		—			32,492		Monthly	30 days	—
Total other invested assets at fair value	804,505		490,658			313,847				451,494
Other private securities	128,134		—			128,134				—
Total other invested assets	$	932,639	$	490,658		$	441,981			$	451,494



Three Months Ended June 30, 2013	U.S. Insurance			International Insurance			Reinsurance			Total
Gross premiums written	$	307,297		$	192,593		$	265,310		$	765,200
Net premiums written	221,419			106,394			253,409			581,222
Net premiums earned	197,436			87,041			222,794			507,271
Net losses and loss expenses	(124,364		)	(30,968		)	(119,796		)	(275,128		)
Acquisition costs	(27,270		)	358			(37,705		)	(64,617		)
General and administrative expenses	(38,302		)	(24,135		)	(18,148		)	(80,585		)
Underwriting income	7,500			32,296			47,145			86,941
Net investment income										37,635
Net realized investment losses										(115,198		)
Amortization of intangible assets										(634		)
Interest expense										(14,188		)
Foreign exchange loss										(490		)
Loss before income taxes										$	(5,934	)

Loss and loss expense ratio	63.0		%	35.6		%	53.8		%	54.2		%
Acquisition cost ratio	13.8		%	(0.4		)%	16.9		%	12.7		%
General and administrative expense ratio	19.4		%	27.7		%	8.1		%	15.9		%
Expense ratio	33.2		%	27.3		%	25.0		%	28.6		%
Combined ratio	96.2		%	62.9		%	78.8		%	82.8		%



	Six Months Ended June 30, 2014					Six Months Ended June 30, 2013					Dollar Change			Loss Ratio Percentage Point Change
	Amount			% of NPE (1)		Amount			% of NPE (1)		Dollar Change			Loss Ratio Percentage Point Change
						($ in millions)
Non-catastrophe	$	684.1		64.1	%	$	622.8		64.1	%	$	61.3		—
Property catastrophe	—			—		—			—		—			—
Current period	684.1			64.1		622.8			64.1		61.3			—
Prior period	(94.0		)	(8.8	)	(92.5		)	(9.5	)	(1.5		)	0.7
Net losses and loss expenses	$	590.1		55.3	%	$	530.3		54.6	%	$	59.8		0.7



	(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Six Months Ended June 30, 2013
	2003 and Prior			2004			2005			2006			2007			2008			2009			2010			2011			2012			Total
	($ in millions)
U.S. insurance	$	(0.1	)	$	(2.1	)	$	(3.5	)	$	(1.1	)	$	(13.0	)	$	(14.2	)	$	(3.0	)	$	(7.3	)	$	17.7		$	34.2		$	7.6
International insurance	5.9			(2.9		)	(4.3		)	(10.9		)	(10.3		)	(9.9		)	(0.6		)	(5.5		)	(9.7		)	(7.2		)	(55.4		)
Reinsurance	0.2			(1.4		)	(3.1		)	1.1			(2.2		)	(6.9		)	0.4			(2.1		)	(2.9		)	(27.8		)	(44.7		)
	$	6.0		$	(6.4	)	$	(10.9	)	$	(10.9	)	$	(25.5	)	$	(31.0	)	$	(3.2	)	$	(14.9	)	$	5.1		$	(0.8	)	$	(92.5	)



	(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Six Months Ended June 30, 2014
	2004 and Prior			2005			2006		2007			2008			2009			2010			2011			2012			2013			Total
	($ in millions)
General casualty	$	(3.0	)	$	—		$	—	$	(0.7	)	$	(4.8	)	$	0.3		$	1.3		$	2.0		$	(1.9	)	$	4.2		$	(2.6	)
Programs	—			—			—		0.9			1.3			(3.3		)	0.3			(1.8		)	(0.8		)	(1.4		)	(4.8		)
General property	—			—			—		—			—			—			0.5			(1.6		)	(0.3		)	3.2			1.8
Healthcare	(1.7		)	(0.5		)	—		(0.3		)	(0.6		)	3.1			0.1			14.2			3.8			2.1			20.2
Professional liability	—			—			—		(0.3		)	(0.4		)	(9.1		)	(1.0		)	1.2			0.4			—			(9.2		)
Inland Marine	—			—			—		—			—			—			—			(0.3		)	(0.5		)	(0.4		)	(1.2		)
Environmental	—			—			—		—			—			—			(0.2		)	(1.0		)	(1.2		)	—			(2.4		)
	$	(4.7	)	$	(0.5	)	$	—	$	(0.4	)	$	(4.5	)	$	(9.0	)	$	1.0		$	12.7		$	(0.5	)	$	7.7		$	1.8