Allied World Assurance 8-K Results of Operations and Financial Condition

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD REPORTS THIRD
QUARTER 2006 OPERATING RESULTS; DECLARES QUARTERLY DIVIDEND
OF $0.15 PER COMMON SHARE

HAMILTON, BERMUDA,November 8, 2006- Allied World Assurance Company Holdings, Ltd (NYSE: AWH) today reported net income of $114.0 million, or $1.89 per diluted share, for the third quarter 2006 compared to a net loss of $283.4 million, or $5.65 per diluted share, for the third quarter 2005. Net income for the nine months ended September 30, 2006 was $314.5 million, or $5.76 per diluted share, compared to a net loss of $147.5 million, or $2.94 per diluted share, for the first nine months of 2005. Results for the three and nine months ended September 30, 2005 were adversely impacted by Hurricanes Katrina and Rita.

The company reported record operating income of $122.5 million, or $2.03 per diluted share, for the third quarter 2006 compared to an operating loss of $287.6 million, or $5.73 per diluted share, for the third quarter 2005. Operating income for the nine months ended September 30, 2006 was $338.5 million, or $6.20 per diluted share, compared to a net loss of $142.1 million, or $2.83 per diluted share, for the first nine months of 2005.

President and Chief Executive Officer Scott Carmilani commented, “Allied World has had another very strong quarter with each of our operating segments continuing to perform very well. During the quarter, the company achieved record operating income of $122.5 million and grew our book value per share by approximately 11%. In addition to benefiting from benign catastrophe activity during the quarter, the company recognized favorable prior year reserve development and our growing investment portfolio continues to generate a substantial level of investment income.”

“We are energized by the company’s performance and our successful capital raising initiatives in July, including our initial public offering, which now allows us to support our business with almost $2.6 billion in capital and an invested asset base in excess of $5.8 billion. While market conditions are currently mixed depending on the line of business and geography, we believe that the diversity of our portfolio and our established operating platforms in Bermuda, Europe and the United States position us extremely well.”

Underwriting Results

Gross premiums written were $362.5 million in the third quarter 2006, a 9.9% increase compared to $329.9 million in the third quarter 2005. For the nine months ended September 30, 2006, gross premiums written totaled $1,378.9 million, an 8.0% increase compared to $1,276.9 million in the first nine months of 2005. This increase was primarily the result of an increase in general property rates in catastrophe prone areas and increased market opportunities that developed following the 2005 hurricane season. In addition, premiums from the company’s reinsurance segment increased due to upward premium adjustments on prior year business and from new business written.

Net premiums written were $298.0 million in the third quarter 2006, a 19.3% increase compared to $249.7 million in the third quarter 2005. For the nine months ended September 30, 2006, net premiums written totaled $1,095.9 million, an 8.7% increase compared to $1,008.4 million in the first nine months of 2005. This increase primarily reflects increased writings in the company’s reinsurance segment and the increased general property rates in catastrophe prone areas.

Net premiums earned in the third quarter were $317.8 million, a 1.4% increase compared to $313.3 million for the third quarter 2005. For the nine months ended September 30, 2006, net premiums earned totaled $932.2 million, a 3.8% decrease from net premiums earned of $969.5 million in the first nine months of 2005. This decrease reflects the reduction in net premiums written during 2005.

The combined ratio was 76.9% in the third quarter 2006 compared to 207.5% in the third quarter 2005. The loss ratio was 56.9% in the third quarter 2006 compared to 189.4% in the third quarter 2005. During the third quarter 2006, the company recorded net favorable reserve development on prior accident years of $38.7 million, a benefit of 12.2 percentage points to the company’s loss ratio for this quarter. The combined ratio for the nine months ended September 30, 2006 was 80.0% compared to 127.1% for the first nine months of 2005. Results for the three and nine months ended September 30, 2005 were adversely impacted by Hurricanes Katrina and Rita.

Investment Results

Net investment income in the third quarter 2006 was $61.4 million, an increase of 29.0% over the $47.6 million of net investment income in the third quarter 2005. For the nine months ended September 30, 2006, net investment income was $178.4 million, an increase of 39.6% over the first nine months of 2005. These increases primarily reflect the increase in the company’s invested asset base driven by strong operating cash flows and the receipt of approximately $316 million in net proceeds from the company’s initial public offering. During the third quarter 2006, the company recorded net realized losses of $9.1 million compared to net realized gains of $4.2 million in the third quarter 2005. For the nine months ended September 30, 2006, the company recorded net realized losses of $24.5 million compared to net realized losses of $4.9 million over the first nine months of 2005.

Shareholders’ Equity

At September 30, 2006, shareholders’ equity was $2.1 billion compared to $1.4 billion reported at December 31, 2005. Diluted book value per share was $33.54 at September 30, 2006 compared to $28.20 at December 31, 2005. The company’s annualized return on average equity for the three and nine months ended September 30, 2006 was 24.4% and 23.7%, respectively. The company’s annualized operating return on average equity for the three and nine months ended September 30, 2006 was 26.2% and 25.5%, respectively.

Quarterly Dividend

The Board of Directors of Allied World Assurance Company Holdings, Ltd has declared a quarterly dividend of $0.15 per common share payable on December 21, 2006 to the shareholders of record on December 5, 2006.

Conference Call

Allied World Assurance Company Holdings, Ltd will host a conference call on Thursday, November 9, 2006 at 10:00 a.m. (Eastern Time) to discuss its third quarter financial results. The public may access a live webcast of the conference call at the “Investor Relations” section of the company’s website at www.awac.com. In addition, the conference call can be accessed by dialing (866) 761-0748 (U.S. and Canada callers) or (617) 614-2706 (international callers) and entering the passcode 79639647 approximately ten minutes prior to the call.

Following the conclusion of the presentation, a replay of the call will be available through Thursday, November 30, 2006 by dialing (888) 286-8010 (U.S. and Canada callers) or (617) 801-6888 (international callers) and entering the passcode 99687854. In addition, the webcast will remain available online through Thursday, November 30, 2006 at www.awac.com.

Financial Supplement

A financial supplement relating to the third quarter of 2006 will be available at the “Investor Relations” section of the company’s website at www.awac.com.

Non-GAAP Financial Measures

In presenting the company’s results, management has included and discussed in this press release certain non-GAAP financial measures within the meaning of Regulation G as promulgated by the U.S. Securities and Exchange Commission. Management believes that these non-GAAP measures, which may be defined differently by other companies, better explain the company’s results of operations in a manner that allows for a more complete understanding of the underlying trends in the company’s business. However, these measures should not be viewed as a substitute for those determined in accordance with GAAP.

“Operating income” is an internal performance measure used by the company in the management of its operations and represents after-tax operational results excluding, as applicable, net realized investment gains or losses and foreign exchange gains or losses. The company excludes net realized investment gains or losses and net foreign exchange gains or losses from its calculation of operating income because the amount of these gains or losses is heavily influenced by, and fluctuates in part, according to the availability of market opportunities. The company believes these amounts are largely independent of its business and underwriting process and including them may distort the analysis of trends in its insurance and reinsurance operations. In addition to presenting net income determined in

accordance with GAAP, the company believes that showing operating income enables investors, analysts, rating agencies and other users of its financial information to more easily analyze the company’s results of operations in a manner similar to how management analyzes the company’s underlying business performance. Operating income should not be viewed as a substitute for GAAP net income.

The company has included “diluted book value per share” because it takes into account the effect of dilutive securities; therefore, the company believes it is a better measure of calculating shareholder returns than book value per share.

“Annualized return on average equity” (ROAE) is calculated using average equity, excluding the average after tax unrealized gains or losses on investments. Unrealized gains (losses) on investments are primarily the result of interest rate movements and the resultant impact on fixed income securities. Such gains (losses) are not related to management actions or operational performance, nor are they likely to be realized. Therefore, the company believes that excluding these unrealized gains (losses) provides a more consistent and useful measurement of operating performance, which supplements GAAP information. In calculating ROAE, the net income (loss) available to shareholders for the period is multiplied by the number of such periods in a calendar year in order to arrive at annualized net income (loss) available to shareholders. The company presents ROAE as a measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information.

Reconciliations of these financial measures to their most directly comparable GAAP measures are included in the attached tables.

About Allied World Assurance Company

Allied World Assurance Company Holdings, Ltd, founded in November 2001, is one of Bermuda’s leading property and casualty insurers. The company, through its operating subsidiaries, offers property and casualty insurance and reinsurance on a worldwide basis. The principal operating subsidiaries of Allied World Assurance Company Holdings, Ltd have A (Excellent) ratings from A.M. Best Company and A- ratings from Standard & Poor’s. The company’s Bermuda and U.S. operating subsidiaries are rated A2 by Moody’s Investors Service.

Forward-Looking Statements

This press release may contain forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 that involve inherent risks and uncertainties. Statements that are not historical facts, including statements that use terms such as “believes,” “anticipates,” “intends” or “expects” and that relate to our plans and objectives for future operations, are forward-looking statements. In light of the risks and uncertainties inherent in all forward-looking statements, the inclusion of such statements in this press release should not be considered as a representation by us or any other person that our objectives or plans will be achieved. These statements are based on current plans, estimates

and expectations. Actual results may differ materially from those projected in such forward-looking statements and therefore you should not place undue reliance on them. A non-exclusive list of the important factors that could cause actual results to differ materially from those in such forward-looking statements includes the following: (a) the effects of competitors’ pricing policies, and of changes in laws and regulations on competition, including industry consolidation and development of competing financial products; (b) the effects of investigations into market practices, in particular insurance brokerage practices, together with any legal or regulatory proceedings, related settlements and industry reform or other changes arising therefrom; (c) the impact of acts of terrorism and acts of war; (d) greater frequency or severity of claims and loss activity, including as a result of natural or man-made catastrophic events, than our underwriting, reserving or investment practices have anticipated; (e) increased competition due to an increase in capacity of property and casualty insurers or reinsurers; (f) the inability to obtain or maintain financial strength ratings by one or more of the company’s subsidiaries; (g) the adequacy of our loss reserves and the need to adjust such reserves as claims develop over time; (h) the company or one of its subsidiaries becoming subject to significant income taxes in the United States or elsewhere; (i) changes in regulations or tax laws applicable to the company, its subsidiaries, brokers or customers; (j) changes in the availability, cost or quality of reinsurance or retrocessional coverage; (k) loss of key personnel; (l) changes in general economic conditions, including inflation, foreign currency exchange rates, interest rates and other factors that could affect the company’s investment portfolio; and (m) such other risk factors as may be discussed in our most recent documents on file with the U.S. Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Expressed in thousands of United States dollars, except share and per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2006			2005			2006			2005
Revenues:
Gross premiums written	$	362,478		$	329,930		$	1,378,914		$	1,276,933
Premiums ceded		(64,462	)		(80,210	)		(283,057	)		(268,553	)
Net premiums written		298,016			249,720			1,095,857			1,008,380
Change in unearned premiums		19,743			63,556			(163,638	)		(38,901	)
Net premiums earned		317,759			313,276			932,219			969,479
Net investment income		61,407			47,592			178,351			127,737
Net realized investment (losses) gains		(9,080	)		4,152			(24,488	)		(4,937	)
Total Revenue		370,086			365,020			1,086,082			1,092,279
Expenses:
Net losses and loss expenses		180,934			593,276			566,738			1,055,931
Acquisition costs		37,785			35,871			106,920			109,823
General and administrative expenses		25,640			20,795			72,218			66,676
Interest expense		9,529			5,146			23,056			9,783
Foreign exchange (gain) loss		(561	)		(46	)		(491	)		486
Total Expenses		253,327			655,042			768,441			1,242,699
Income (loss) before income taxes		116,759			(290,022	)		317,641			(150,420	)
Income tax expense (recovery)		2,774			(6,617	)		3,164			(2,922	)
NET INCOME (LOSS)	$	113,985		$	(283,405	)	$	314,477		$	(147,498	)
PER SHARE DATA:
Basic earnings (loss) per share	$	1.95		$	(5.65	)	$	5.94		$	(2.94	)
Diluted earnings (loss) per share	$	1.89		$	(5.65	)	$	5.76		$	(2.94	)
Weighted average common shares outstanding		58,376,307			50,162,842			52,900,664			50,162,842
Weighted average common shares and common share equivalents outstanding		60,451,643			50,162,842			54,577,445			50,162,842

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of United States dollars, except share and per share amounts)

	As of September		As of December
	30, 2006		31, 2005
			(Audited)
ASSETS:
Fixed maturity investments available for sale at fair value (amortized cost: 2006: $5,289,411; 2005:$4,442,040)	$	5,283,799	$	4,390,457
Other invested assets available for sale, at fair value (cost: 2006: $246,854; 2005: $270,138)		256,997		296,990
Cash and cash equivalents		270,848		172,379
Restricted cash		50,871		41,788
Securities lending collateral		700,804		456,792
Insurance balances receivable		306,084		218,044
Prepaid reinsurance		176,355		140,599
Reinsurance recoverable		688,066		716,333
Accrued investment income		43,498		48,983
Deferred acquisition costs		119,845		94,557
Intangible assets		3,920		3,920
Balances receivable on sale of investments		70,174		3,633
Income tax assets		5,540		8,516
Other assets		36,092		17,501
Total assets	$	8,012,893	$	6,610,492
LIABILITIES:
Reserve for losses and loss expenses	$	3,586,964	$	3,405,353
Unearned premiums		939,485		740,091
Unearned ceding commissions		25,537		27,465
Reinsurance balances payable		68,446		28,567
Securities lending payable		700,804		456,792
Balances due on purchase of investments		66,874		—
Senior notes		498,543		—
Long term debt		—		500,000
Accounts payable and accrued liabilities		31,368		31,958
Total liabilities	$	5,918,021	$	5,190,226
SHAREHOLDERS’ EQUITY:
Common stock, par value $0.03 per share, issued and outstanding 2006: 60,283,040 shares; 2005: 50,162,842 shares		1,809		1,505
Additional paid-in capital		1,819,730		1,488,860
Retained earnings (accumulated deficit)		269,886		(44,591	)
Accumulated other comprehensive income (loss): net unrealized gains (losses) on investments, net of tax		3,447		(25,508	)
Total shareholders’ equity		2,094,872		1,420,266
Total liabilities and shareholders’ equity	$	8,012,893	$	6,610,492

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
UNAUDITED CONSOLIDATED SEGMENT DATA
(Expressed in thousands of United States dollars)

Three Months Ended September 30, 2006	Property			Casualty			Reinsurance			Total
Gross premiums written	$	88,150		$	144,576		$	129,752		$	362,478
Net premiums written		40,855			127,893			129,268			298,016
Net premiums earned		46,576			135,186			135,997			317,759
Net losses and loss expenses		(28,917	)		(78,979	)		(73,038	)		(180,934	)
Acquisition costs		373			(7,301	)		(30,857	)		(37,785	)
General and administrative expenses		(6,273	)		(12,894	)		(6,473	)		(25,640	)
Underwriting income		11,759			36,012			25,629			73,400
Net investment income		—			—			—			61,407
Net realized investment losses		—			—			—			(9,080	)
Interest expense		—			—			—			(9,529	)
Foreign exchange gain		—			—			—			561
Income before income taxes		—			—			—		$	116,759
GAAP Ratios:
Loss and loss expense ratio		62.1	%		58.4	%		53.7	%		56.9	%
Acquisition cost ratio		(0.8	%)		5.4	%		22.7	%		11.9	%
General and administrative expense ratio		13.5	%		9.6	%		4.8	%		8.1	%
Combined ratio		74.8	%		73.4	%		81.2	%		76.9	%

Three Months Ended September 30, 2005	Property			Casualty			Reinsurance			Total
Gross premiums written	$	85,048		$	153,267		$	91,615		$	329,930
Net premiums written		25,304			138,589			85,827			249,720
Net premiums earned		40,047			146,556			126,673			313,276
Net losses and loss expenses		(252,679	)		(101,928	)		(238,669	)		(593,276	)
Acquisition costs		1,771			(7,950	)		(29,692	)		(35,871	)
General and administrative expenses		(4,871	)		(10,314	)		(5,610	)		(20,795	)
Underwriting (loss) income		(215,732	)		26,364			(147,298	)		(336,666	)
Net investment income		—			—			—			47,592
Net realized investment gains		—			—			—			4,152
Interest expense		—			—			—			(5,146	)
Foreign exchange gain		—			—			—			46
Loss before income taxes		—			—			—		$	(290,022	)
GAAP Ratios:
Loss and loss expense ratio		630.9	%		69.6	%		188.4	%		189.4	%
Acquisition cost ratio		(4.4	%)		5.4	%		23.5	%		11.5	%
General and administrative expense ratio		12.2	%		7.0	%		4.4	%		6.6	%
Combined ratio		638.7	%		82.0	%		216.3	%		207.5	%

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
UNAUDITED CONSOLIDATED SEGMENT DATA
(Expressed in thousands of United States dollars)

Nine Months Ended September 30, 2006	Property			Casualty			Reinsurance			Total
Gross premiums written	$	374,830		$	475,074		$	529,010		$	1,378,914
Net premiums written		152,808			414,812			528,237			1,095,857
Net premiums earned		141,633			400,488			390,098			932,219
Net losses and loss expenses		(86,965	)		(258,993	)		(220,780	)		(566,738	)
Acquisition costs		2,631			(23,575	)		(85,976	)		(106,920	)
General and administrative expenses		(18,233	)		(35,873	)		(18,112	)		(72,218	)
Underwriting income		39,066			82,047			65,230			186,343
Net investment income		—			—			—			178,351
Net realized investment losses		—			—			—			(24,488	)
Interest expense		—			—			—			(23,056	)
Foreign exchange gain		—			—			—			491
Income before income taxes		—			—			—		$	317,641
GAAP Ratios:
Loss and loss expense ratio		61.4	%		64.7	%		56.6	%		60.8	%
Acquisition cost ratio		(1.9	%)		5.9	%		22.0	%		11.5	%
General and administrative expense ratio		12.9	%		8.9	%		4.7	%		7.7	%
Combined ratio		72.4	%		79.5	%		83.3	%		80.0	%

Nine Months Ended September 30, 2005	Property			Casualty			Reinsurance			Total
Gross premiums written	$	316,459		$	478,511		$	481,963		$	1,276,933
Net premiums written		123,276			423,852			461,252			1,008,380
Net premiums earned		178,552			447,849			343,078			969,479
Net losses and loss expenses		(345,339	)		(322,608	)		(387,984	)		(1,055,931	)
Acquisition costs		(7,720	)		(24,876	)		(77,227	)		(109,823	)
General and administrative expenses		(14,194	)		(30,675	)		(21,807	)		(66,676	)
Underwriting (loss) income		(188,701	)		69,690			(143,940	)		(262,951	)
Net investment income		—			—			—			127,737
Net realized investment losses		—			—			—			(4,937	)
Interest expense		—			—			—			(9,783	)
Foreign exchange loss		—			—			—			(486	)
Loss before income taxes		—			—			—		$	(150,420	)
GAAP Ratios:
Loss and loss expense ratio		193.4	%		72.0	%		113.1	%		108.9	%
Acquisition cost ratio		4.3	%		5.6	%		22.5	%		11.3	%
General and administrative expense ratio		8.0	%		6.8	%		6.4	%		6.9	%
Combined ratio		205.7	%		84.4	%		142.0	%		127.1	%

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
UNAUDITED OPERATING INCOME RECONCILIATION
(Expressed in thousands of United States dollars, except share and per share amounts)

	Three Months Ended Sept 30,						Nine Months Ended Sept 30,
	2006			2005			2006			2005
Net income (loss)	$	113,985		$	(283,405	)	$	314,477		$	(147,498	)
Net realized investment losses (gains)		9,080			(4,152	)		24,488			4,937
Foreign exchange (gain) loss		(561	)		(46	)		(491	)		486
Operating income (loss)	$	122,504		$	(287,603	)	$	338,474		$	(142,075	)
Weighted average common shares outstanding:
Basic		58,376,307			50,162,842			52,900,664			50,162,842
Diluted		60,451,643			50,162,842			54,577,445			50,162,842
Basic per share data:
Net income (loss)	$	1.95		$	(5.65	)	$	5.94		$	(2.94	)
Net realized investment losses (gains)		0.16			(0.08	)		0.47			0.10
Foreign exchange (gain) loss		(0.01	)		—			(0.01	)		0.01
Operating income (loss)	$	2.10		$	(5.73	)	$	6.40		$	(2.83	)
Diluted per share data
Net income (loss)	$	1.89		$	(5.65	)	$	5.76		$	(2.94	)
Net realized investment losses (gains)		0.15			(0.08	)		0.45			0.10
Foreign exchange (gain) loss		(0.01	)		—			(0.01	)		0.01
Operating income (loss)	$	2.03		$	(5.73	)	$	6.20		$	(2.83	)

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
UNAUDITED DILUTED BOOK VALUE PER SHARE RECONCILIATION
(Expressed in thousands of United States dollars, except share and per share amounts)

	As of September			As of December
	30, 2006			31, 2005
Price per share at period end	$	40.40			N/A
Total shareholders’ equity		2,094,872			1,420,266
Basic common shares outstanding		60,283,040			50,162,842
Add: unvested restricted share units		711,038			127,163
Add: long term incentive plan share units		228,334			—
Add: dilutive options/warrants outstanding		6,704,402			662,833
Weighted average exercise price per share	$	33.00		$	24.88
Less: treasury stock method adjustment		(5,476,585	)		(582,486	)
Common shares and common share equivalents outstanding		62,450,229			50,370,352
Basic book value per common share	$	34.75		$	28.31
Diluted book value per common share	$	33.54		$	28.20

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
UNAUDITED ANNUALIZED RETURN ON SHAREHOLDERS’ EQUITY
(Expressed in thousands of United States dollars)

	Three Months Ended Sept 30,						Nine Months Ended Sept 30,
	2006			2005			2006			2005
Opening shareholders’ equity	$	1,565,062		$	1,756,810		$	1,420,266		$	2,138,521
Add/(deduct): net unrealized losses (gains) on investments, net of tax		83,144			(15,353	)		25,508			(33,171	)
Adjusted opening shareholders’ equity		1,648,206			1,741,457			1,445,774			2,105,350
Closing shareholders’ equity		2,094,872			1,441,956			2,094,872			1,441,956
(Deduct)/add: net unrealized (gains) losses on investments, net of tax		(3,447	)		16,095			(3,447	)		16,095
Adjusted closing shareholders’ equity		2,091,425			1,458,051			2,091,425			1,458,051
Average shareholders’ equity	$	1,869,816		$	1,599,754		$	1,768,600		$	1,781,701
Net income (loss) available to shareholders	$	113,985		$	(283,405	)	$	314,477		$	(147,498	)
Annualized net income (loss) available to shareholders		455,940			(1,133,620	)		419,303			(196,664	)
Annualized return on average shareholders’ equity — net income (loss) available to shareholders		24.4	%		(70.9	%)		23.7	%		(11.0	%)
Operating income (loss) available to shareholders	$	122,504		$	(287,603	)	$	338,474		$	(142,075	)
Annualized operating income (loss) available to shareholders		490,016			(1,150,412	)		451,299			(189,433	)
Annualized return on average shareholders’ equity — operating income (loss) available to shareholders		26.2	%		(71.9	%)		25.5	%		(10.6	%)

     For further information, please contact:

Investor Contact:	Media Contact:
Keith Lennox Allied World Assurance Company 212-635-5319 keith.lennox@awac.com	Jamie Tully/Susan Burns Citigate Sard Verbinnen 212-687-8080 jtully@sardverb.com sburns@sardverb.com