Bermuda (State or Other Jurisdiction of Incorporation or Organization) | 6331 (Primary Standard Industrial Classification Code Number) | 98-0481737 (I.R.S. Employer Identification No.) |
Steven A. Seidman, Esq. Cristopher Greer, Esq. Willkie Farr & Gallagher LLP 787 Seventh Avenue New York, NY 10019 (212) 728-8000 (212) 728-8111 (Facsimile) | Wesley D. Dupont, Esq. Allied World Assurance Company Holdings, Ltd 27 Richmond Road Pembroke HM 08, Bermuda (441) 278-5400 (441) 292-0055 (Facsimile) | Lois Herzeca, Esq. Fried, Frank, Harris, Shriver & Jacobson LLP One New York Plaza New York, NY 10004 (212) 859-8000 (212) 859-4000 (Facsimile) |
Title of Each Class of | Amount to Be | Proposed Maximum | Proposed Maximum | Amount of | ||||||||
Securities to Be Registered | Registered | Offering Price Per Note | Aggregate Offering Price | Registration Fee | ||||||||
7.50% Senior Notes | $500,000,000 | $500,000,000 | $53,500(2) | |||||||||
(1) | This Registration Statement covers the registration of senior notes for resale by Goldman, Sachs & Co. in market-making transactions. | |
(2) | Previously paid. No fee is required for market-making activities. |
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• | Property Segment. Our property segment includes the insurance of physical property and business interruption coverage for commercial property and energy-related risks. We write solely commercial coverages. This type of coverage is usually not written in one contract; rather, the total amount of protection is split into layers and separate contracts are written with separate consecutive limits that aggregate to the total amount of coverage required by the insured. We focus on the insurance of primary risk layers. This means that we are typically part of the first group of insurers that cover a loss up to a specified limit. Our current average net risk exposure (net of reinsurance) is approximately between $3 to $5 million per individual risk. The property segment generated $463.9 million of gross premiums written in 2006, representing 28.0% of our total gross premiums written and 42.7% of our total direct insurance gross premiums written. For the same period, the property segment generated $51.7 million of underwriting income. | |
• | Casualty Segment. Our casualty segment specializes in insurance products providing coverage for general and product liability, professional liability and healthcare liability risks. We focus primarily on insurance of excess layers, which means we are insuring the secondand/or subsequent layers of a policy above the primary layer. Our direct casualty underwriters provide a variety of specialty insurance casualty products to large and complex organizations around the world. This segment generated $622.4 million of gross premiums written in 2006, representing 37.5% of our total gross premiums written and 57.3% of our total direct insurance gross premiums written. For the same period, the casualty segment generated $119.3 million of underwriting income. | |
• | Reinsurance Segment. Our reinsurance segment includes the reinsurance of property, general casualty, professional liability, specialty lines and property catastrophe coverages written by other insurance companies. We presently write reinsurance on both a treaty and facultative basis, targeting several niche reinsurance markets including professional liability lines, specialty casualty, property for U.S. regional insurers, and accident and health and to a lesser extent marine and aviation lines. The reinsurance segment generated $572.7 million of gross premiums written in 2006, representing 34.5% of our total gross premiums written. For the same period, the reinsurance segment generated $94.2 million of underwriting income. Of our total reinsurance premiums written in 2006, $432.0 million, representing 75.4%, were related to specialty and casualty lines, and $140.7 million, representing 24.6%, were related to property lines. |
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• | Strong Underwriting Expertise Across Multiple Business Lines and Geographies. We have strong underwriting franchises offering specialty coverages in both the direct property and casualty markets as well as the reinsurance market. Our underwriting strengths allow us to assess and price complex risks and direct our efforts to the risk layers within each account that provide the highest potential return for the risk assumed. We are able to opportunistically grow our business in those segments of the market that are producing the most attractive returns and do not rely on any one segment for a disproportionately large portion of our business. | |
• | Established Direct Casualty Business. We have developed substantial underwriting expertise in multiple specialty casualty niches, including excess casualty, professional liability and healthcare liability. We believe that our underwriting expertise, established presence on existing insurance programs and ability to write substantial participations give us a significant advantage over our competition in the casualty marketplace. | |
• | Leading Direct Property Insurer in Bermuda. We believe we have developed one of the largest direct property insurance businesses in Bermuda as measured by gross premiums written. We continue to diversify our property book of business, serving clients in various industries, including retail chains, real estate, light manufacturing, communications and hotels. We also insure energy-related risks. | |
• | Strong Franchise in Niche Reinsurance Markets. We have established a reputation for skilled underwriting in various niche reinsurance markets in the United States and Bermuda, including specialty casualty for small to middle-market commercial risks; liability for directors, officers and professionals; commercial property risks in regional markets; and the excess and surplus lines market for manufacturing, energy and construction risks. In particular, we have developed a niche capability in providing reinsurance capacity to regional specialty carriers. | |
• | Financial Strength. As of December 31, 2006, we had shareholders’ equity of $2,220.1 million, total assets of $7,620.6 million and an investment portfolio with a fair market value of $5,440.3 million, consisting primarily of fixed-income securities with an average rating of AA by |
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Standard & Poor’s and Aa2 by Moody’s. Our insurance subsidiaries currently have an “A” (Excellent) financial strength rating from A.M. Best and an “A−” (Strong) financial strength rating from S&P. Moody’s has assigned an “A2” (Good) financial strength rating to certain of our insurance subsidiaries. |
• | Low-Cost Operating Model. We believe that our operating platform is one of the most efficient among our competitors due to our significantly lower expense ratio as compared to most of our peers. For the year ended December 31, 2006, our expense ratio was 19.8%, compared to an average of 26.3% for U.S. publicly-traded, Bermuda-based insurers and reinsurers. | |
• | Experienced Management Team. The six members of our executive management team have an average of approximately 23 years of insurance industry experience. Most members of our management team are former executives of subsidiaries of AIG, one of our principal shareholders. |
• | Leverage Our Diversified Underwriting Franchises. Our business is diversified by both product line and geography. Our underwriting skills across multiple lines and multiple geographies allow us to remain flexible and opportunistic in our business selection in the face of fluctuating market conditions. | |
• | Expand Our Distribution and Our Access to Markets in the United States. We have made substantial investments to expand our U.S. business and expect this business to grow in size and importance in the coming years. We employ a regional distribution strategy in the United States predominantly focused on underwriting direct casualty and property insurance for middle-market and non-Fortune 1000 client accounts. Through our U.S. excess and surplus lines capability, we believe we have a strong presence in specialty casualty lines and maintain an attractive base of U.S. middle-market clients, especially in the professional liability market. | |
• | Grow Our European Business. We intend to grow our European business, with particular emphasis on the United Kingdom and Western Europe, where we believe the insurance and reinsurance markets are developed and stable. Our European strategy is predominantly focused on direct property and casualty insurance for large European and international accounts. The European operations provide us with diversification and the ability to spread our underwriting risks. | |
• | Continue Disciplined, Targeted Underwriting of Property Risks. We have profited from the increase in property rates for various catastrophe-exposed insurance risks following the 2005 hurricane season. Given our extensive underwriting expertise and strong market presence, we believe we choose the markets and layers that generate the largest potential for profit for the amount of risk assumed. | |
• | Further Reduce Earnings Volatility by Actively Monitoring Our Property Catastrophe Exposure. We have historically managed our property catastrophe exposure by closely monitoring our policy limits in addition to utilizing complex risk models. This discipline has substantially reduced our historical loss experience and our exposure. Following Hurricanes Katrina, Rita and Wilma, we have further enhanced our catastrophe management approach. In addition to our continued focus on aggregate limits and modeled probable maximum loss, we have introduced a strategy based on gross exposed policy limits in critical earthquake and hurricane zones. |
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• | Expand Our Casualty Business with a Continued Focus on Specialty Lines. We believe we have established a leading excess casualty business. We will continue to target the risk needs of Fortune 1000 companies through our operations in Bermuda, large international accounts through our operations in Europe and middle-market and non-Fortune 1000 companies through our operations in the United States. We believe our focus on specialty casualty lines makes us less dependent on the property underwriting cycle. | |
• | Continue to Opportunistically Underwrite Diversified Reinsurance Risks. As part of our reinsurance segment, we target certain niche reinsurance markets because we believe we understand the risks and opportunities in these markets. We will continue to seek to selectively deploy our capital in reinsurance lines where we believe there are profitable opportunities. In order to diversify our portfolio and complement our direct insurance business, we target the overall contribution from reinsurance to be approximately 30% to 35% of our total annual gross premiums written. |
• | Inability to Obtain or Maintain Our Financial Strength Ratings. If the rating of any of our insurance subsidiaries is revised downward or revoked, our competitive position in the insurance and reinsurance industry may suffer, and it may be more difficult for us to market our products which could result in a significant reduction in the number of contracts we write and in a substantial loss of business. | |
• | Adequacy of Our Loss Reserves and the Need to Adjust such Reserves as Claims Develop Over Time. To the extent that actual losses or loss expenses exceed our expectations and reserves, we will be required to increase our reserves to reflect our changed expectations which could cause a material increase in our liabilities and a reduction in our profitability, including operating losses and a reduction of capital. | |
• | Impact of Litigation and Investigations of Governmental Agencies on the Insurance Industry and on Us. Attorneys general from multiple states have been investigating market practices of the insurance industry. Policyholders have filed numerous class action suits alleging that certain insurance brokerage and placement practices violated, among other things, federal antitrust laws. We have been named in one civil suit and have recently settled all matters under an investigation by the Texas Attorney General’s Office, as described in “Business — Legal Proceedings”. The effects of investigations by any attorney general’s office into market practices, in particular insurance brokerage practices, of the insurance industry in general or us specifically, together with the class action litigations and any other legal or regulatory proceedings, related settlements and industry reform or other changes arising therefrom, may materially adversely affect our results of operations, financial condition and financial strength ratings. | |
• | Unanticipated Claims and Loss Activity. There may be 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. As a result, it is possible |
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that our unearned premium and loss reserves for such catastrophes will be inadequate to cover the losses. |
• | Impact of Acts of Terrorism, Political Unrest and Acts of War. It is impossible to predict the timing or severity of acts of terrorism and political instability with statistical certainty or to estimate the amount of loss that any given occurrence will generate. To the extent we suffer losses from these risks, such losses could be significant. | |
• | Effectiveness of Our Loss Limitation Methods. We cannot be certain that any of the loss limitation methods we employ will be effective. The failure of any of these loss limitation methods could have a material adverse effect on our financial condition or results of operations. | |
• | Changes in the Availability or Creditworthiness of Our Brokers or Reinsurers. Loss of all or a substantial portion of the business provided by any one of the brokers upon which we rely could have a material adverse effect on our financial condition and results of operations. We also assume a degree of credit risk associated with our brokers in connection with the payment of claims and the receipt of premiums. | |
• | Changes in the Availability, Cost or Quality of Reinsurance Coverage. We may be unable to purchase reinsurance for our own account on commercially acceptable terms or to collect under any reinsurance we have purchased. | |
• | Loss of Key Personnel. Our business could be adversely affected if we lose any member of our management team or are unable to attract and retain our personnel. | |
• | Decreased Demand for Our Products and Increased Competition. Decreased level of demand for direct property and casualty insurance or reinsurance or increased competition due to an increase in capacity of property and casualty insurers or reinsurers could adversely affect our financial results. | |
• | Changes in the Competitive Landscape. The effects of competitors’ pricing policies and of changes in the laws and regulations on competition, including industry consolidation and development of competing financial products, could negatively impact our business. |
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Issuer | Allied World Assurance Company Holdings, Ltd | |
Notes offered | $500 million aggregate principal amount of 7.50% senior notes due 2016. | |
Interest rate | 7.50% per year. | |
Maturity | August 1, 2016. | |
Interest payment dates | February 1 and August 1 of each year, beginning on February 1, 2007. | |
Ranking | The notes will be our unsecured and unsubordinated obligations and will rank equal in right of payment with all of our other unsubordinated indebtedness. The notes, however, will be effectively subordinated in right of payment to all of our secured indebtedness to the extent of the collateral securing such indebtedness. | |
We currently conduct substantially all of our operations through our subsidiaries and our subsidiaries generate substantially all of our operating income and cash flow. The notes will not be guaranteed by any of our subsidiaries and will be effectively subordinated to all existing and future obligations (including to policyholders, trade creditors, debt holders and taxing authorities) of our subsidiaries. | ||
As of December 31, 2006, our outstanding consolidated indebtedness for money borrowed consisted solely of the notes offered hereby. As of December 31, 2006, the consolidated liabilities of our subsidiaries reflected on our balance sheet were approximately $5,400.5 million. All such liabilities (including to policyholders, trade creditors, debt holders and taxing authorities) of our subsidiaries are effectively senior to the notes. | ||
Optional redemption | We may redeem some or all of the notes at any time at a “make-whole” redemption price equal to the greater of: | |
• 100% of the principal amount being redeemed and | ||
• the sum of the present values of the remaining scheduled payments of principal and interest (other than accrued interest) on the notes being redeemed, discounted to the redemption date on a semi-annual basis at the Treasury Rate (as defined in “Description of The Notes — Optional Redemption”) plus 40 basis points; | ||
plus, in either case, accrued and unpaid interest to, but excluding, the redemption date. | ||
Additional Amounts | Subject to certain limitations and exceptions, Allied World Assurance Company Holdings, Ltd will make all payments of principal and of premium, if any, interest and any other amounts on, or in respect of, the notes without withholding or |
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deduction at source for, or on account of, any present or future taxes, fees, duties, assessments or governmental charges of whatever nature with respect to payments made by Allied World Assurance Company Holdings, Ltd imposed by or on behalf of Bermuda or any other jurisdiction in which Allied World Assurance Company Holdings, Ltd is organized or otherwise considered to be a resident for tax purposes or any other jurisdiction from which or through which a payment on the notes is made by Allied World Assurance Company Holdings, Ltd. See “Description of The Notes — Payment of Additional Amounts”. | ||
Tax redemption | We may redeem all of the notes at any time if certain tax events occur as described in “Description of The Notes — Redemption for Tax Purposes”. | |
Sinking fund | There are no provisions for a sinking fund. | |
Form and denomination | Notes will be represented by global certificates deposited with, or on behalf of, The Depository Trust Company (“DTC”) or its nominee. Notes sold will be issuable in denominations of $1,000 or any integral multiples of $1,000 in excess thereof. | |
Governing law | The notes will be governed by the laws of the State of New York. | |
Covenants | The indenture under which the notes will be issued will not contain any financial covenants or any provisions restricting us or our subsidiaries from purchasing or redeeming share capital. In addition, we will not be required to repurchase, redeem or modify the terms of any of the notes upon a change of control or other event involving us, which may adversely affect the value of the notes. In addition, the indenture will not limit the aggregate principal amount of debt securities we may issue under it, and we may issue additional debt securities in one or more series. | |
Risk factors | See “Risk Factors” and the other information in this prospectus for a discussion of factors you should consider carefully before deciding to invest in the notes. | |
Clearance and settlement | The notes will be cleared through DTC. | |
Use of proceeds | See “Use of Proceeds”. |
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Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
($ in millions, except per share | ||||||||||||
amounts and ratios) | ||||||||||||
Summary Statement of Operations Data: | ||||||||||||
Gross premiums written | $ | 1,659.0 | $ | 1,560.3 | $ | 1,708.0 | ||||||
Net premiums written | $ | 1,306.6 | $ | 1,222.0 | $ | 1,372.7 | ||||||
Net premiums earned | $ | 1,252.0 | $ | 1,271.5 | $ | 1,325.5 | ||||||
Net investment income | 244.4 | 178.6 | 129.0 | |||||||||
Net realized investment (losses) gains | (28.7 | ) | (10.2 | ) | 10.8 | |||||||
Net losses and loss expenses | 739.1 | 1,344.6 | 1,013.4 | |||||||||
Acquisition costs | 141.5 | 143.4 | 170.9 | |||||||||
General and administrative expenses | 106.1 | 94.3 | 86.3 | |||||||||
Foreign exchange loss (gain) | 0.6 | 2.2 | (0.3 | ) | ||||||||
Interest expense | 32.6 | 15.6 | — | |||||||||
Income tax expense (recovery) | 5.0 | (0.4 | ) | (2.2 | ) | |||||||
Net income (loss) | $ | 442.8 | $ | (159.8 | ) | $ | 197.2 | |||||
Per Share Data: | ||||||||||||
Earnings (loss) per share(1): | ||||||||||||
Basic | $ | 8.09 | $ | (3.19 | ) | $ | 3.93 | |||||
Diluted | 7.75 | (3.19 | ) | 3.83 | ||||||||
Weighted average number of common shares outstanding: | ||||||||||||
Basic | 54,746,613 | 50,162,842 | 50,162,842 | |||||||||
Diluted | 57,115,172 | 50,162,842 | 51,425,389 | |||||||||
Dividends paid per share | $ | 0.15 | $ | 9.93 | — |
Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
Selected Ratios: | ||||||||||||
Loss ratio(2) | 59.0 | % | 105.7 | % | 76.5 | % | ||||||
Acquisition cost ratio(3) | 11.3 | 11.3 | 12.9 | |||||||||
General and administrative expense ratio(4) | 8.5 | 7.4 | 6.5 | |||||||||
Expense ratio(5) | 19.8 | 18.7 | 19.4 | |||||||||
Combined ratio(6) | 78.8 | 124.4 | 95.9 |
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As of December 31, | ||||||||
2006 | 2005 | |||||||
($ in millions, except per share amounts) | ||||||||
Summary Balance Sheet Data: | ||||||||
Cash and cash equivalents | $ | 366.8 | $ | 172.4 | ||||
Investments at fair market value | 5,440.3 | 4,687.4 | ||||||
Reinsurance recoverable | 689.1 | 716.3 | ||||||
Total assets | 7,620.6 | 6,610.5 | ||||||
Reserve for losses and loss expenses | 3,637.0 | 3,405.4 | ||||||
Unearned premiums | 813.8 | 740.1 | ||||||
Total debt | 498.6 | 500.0 | ||||||
Total shareholders’ equity | 2,220.1 | 1,420.3 | ||||||
Book value per share(7): | ||||||||
Basic | $ | 36.82 | $ | 28.31 | ||||
Diluted | 35.26 | 28.20 |
(1) | Please refer to Note 10 of the notes to the consolidated financial statements included in this prospectus for the calculation of basic and diluted earnings per share. | |
(2) | Calculated by dividing net losses and loss expenses by net premiums earned. | |
(3) | Calculated by dividing acquisition costs by net premiums earned. | |
(4) | Calculated by dividing general and administrative expenses by net premiums earned. | |
(5) | Calculated by combining the acquisition cost ratio and the general and administrative expense ratio. | |
(6) | Calculated by combining the loss ratio, acquisition cost ratio and general and administrative expense ratio. | |
(7) | Basic book value per share is defined as total shareholders’ equity available to common shareholders divided by the number of common shares outstanding as at the end of the period, giving no effect to dilutive securities. Diluted book value per share is a non-GAAP financial measure and is defined as total shareholders’ equity available to common shareholders divided by the number of common shares and common share equivalents outstanding at the end of the period, calculated using the treasury stock method for all potentially dilutive securities. When the effect of dilutive securities would be anti-dilutive, these securities are excluded from the calculation of diluted book value per share. Certain warrants that were anti-dilutive were excluded from the calculation of the diluted book value per share as of December 31, 2005. The number of warrants that were anti-dilutive was 5,873,500 as of December 31, 2005. |
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business provided by any one of them could adversely affect us.
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conduct business.
investment portfolio.
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• | legislative mandates for insurers to provide specified types of coverage in areas where we or our ceding clients do business, such as the terrorism coverage mandated in the United States Terrorism Risk Insurance Act of 2002 (which we refer to in this prospectus as TRIA) and the Terrorism Risk Insurance Extension Act of 2005 (which we refer to in this prospectus as the TRIA Extension), could eliminate or reduce opportunities for us to write those coverages; and | |
• | programs in which state-sponsored entities provide property insurance or reinsurance in catastrophe prone areas, such as recent legislative enactments passed in the State of Florida, or other “alternative market” types of coverage could eliminate or reduce opportunities for us to write those coverages. |
• | larger settlements and jury awards in cases involving professionals and corporate directors and officers covered by professional liability and directors and officers liability insurance; and | |
• | a trend of plaintiffs targeting property and casualty insurers in class action litigation related to claims handling, insurance sales practices and other practices related to the conduct of our business. |
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• | require Allied World Assurance Company, Ltd to maintain minimum levels of capital and surplus, | |
• | impose liquidity requirements which restrict the amount and type of investments it may hold, | |
• | prescribe solvency standards that it must meet and | |
• | restrict payments of dividends and reductions of capital and provide for the performance of periodic examinations of Allied World Assurance Company, Ltd and its financial condition. |
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• | rank equal in right of payment with all our other unsubordinated indebtedness; | |
• | be effectively subordinated in right of payment to all our secured indebtedness to the extent of the value of the collateral securing such indebtedness; and | |
• | not be guaranteed by any of our subsidiaries and, therefore, will be effectively subordinated to the obligations (including to policyholders, trade creditors, debt holders and taxing authorities) of our subsidiaries. |
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• | incur additional debt, including debt effectively senior in right of payment to the notes; | |
• | pay dividends on or purchase or redeem share capital; | |
• | sell assets (other than certain restrictions on our ability to consolidate, merge, amalgamate or sell all or substantially all of our assets and our ability to sell the shares of certain subsidiaries); | |
• | enter into transactions with affiliates; | |
• | create liens (other than certain limitations on creating liens on the shares of certain subsidiaries) or enter into sale and leaseback transactions; or | |
• | create restrictions on the payment of dividends or other amounts to us from our subsidiaries. |
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• | the inability to obtain or maintain financial strength ratings by one or more of our insurance subsidiaries, | |
• | changes in insurance or financial rating agency policies or practices, | |
• | the adequacy of our loss reserves and the need to adjust such reserves as claims develop over time, | |
• | the impact of investigations of possible anti-competitive practices by the company, | |
• | the effects of investigations into market practices, in particular insurance and insurance brokerage practices, together with any legal or regulatory proceedings, related settlements and industry reform or other changes arising therefrom, | |
• | 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, | |
• | the impact of acts of terrorism, political unrest and acts of war, | |
• | the effects of terrorist-related insurance legislation and laws, | |
• | the effectiveness of our loss limitation methods, | |
• | changes in the availability or creditworthiness of our brokers or reinsurers, | |
• | changes in the availability, cost or quality of reinsurance coverage, | |
• | changes in general economic conditions, including inflation, foreign currency exchange rates, interest rates, prevailing credit terms and other factors that could affect our investment portfolio, | |
• | changes in agreements and business relationships with affiliates of some of our principal shareholders, | |
• | loss of key personnel, | |
• | decreased level of demand for direct property and casualty insurance or reinsurance or increased competition due to an increase in capacity of property and casualty insurers or reinsurers, | |
• | the effects of competitors’ pricing policies and of changes in laws and regulations on competition, including industry consolidation and development of competing financial products, | |
• | changes in Bermuda law or regulation or the political stability of Bermuda, | |
• | changes in legal, judicial and social conditions, |
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• | if we or one of ournon-U.S. subsidiaries become subject to significant, or significantly increased, income taxes in the United States or elsewhere and | |
• | changes in regulations or tax laws applicable to us, our subsidiaries, brokers, customers or U.S. insurers or reinsurers. |
Year Ended December 31, | ||||||||||||||||||||
2006 | 2005(2) | 2004 | 2003 | 2002 | ||||||||||||||||
Ratio of Earnings to Fixed Charges(1) | 13.9 | (9.3 | ) | * | * | * |
(1) | For purposes of determining this ratio, “earnings” consist of consolidated net income before federal income taxes plus fixed charges. “Fixed charges” consist of interest expense on our bank loan, interest on our senior notes and one third of payments under our operating lease. | |
(2) | For the year ended December 31, 2005, earnings were insufficient to cover fixed charges by $175.8 million. | |
* | Our bank loan was funded on March 30, 2005. Prior to this date, we did not have any fixed charges and, accordingly, no ratios have been provided for the years ended December 31, 2002 through December 31, 2004. |
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December 31, | ||||
2006 | ||||
($ in millions) | ||||
Senior Notes | $ | 498.6 | ||
Shareholders’ equity: | ||||
Common shares, $0.03 par value per share, outstanding 60,287,696(1) | 1.8 | |||
Additional paid-in capital | 1,822.6 | |||
Retained earnings | 389.2 | |||
Accumulated other comprehensive income | 6.5 | |||
Total shareholders’ equity | $ | 2,220.1 | ||
Total capitalization | $ | 2,718.7 | ||
(1) | Excludes: 5,500,000 common shares issuable upon the exercise of warrants granted to our principal shareholders, exercisable at an exercise price of $34.20 per share; 2,000,000 common shares reserved for issuance pursuant to the Allied World Assurance Company Holdings, Ltd Amended and Restated 2001 Stock Option Plan, of which 1,195,990 common shares will be issuable upon exercise of stock options granted to employees, which options will be exercisable over ten years from the date of grant, at exercise prices ranging from $23.61 to $41.00 per share; 2,000,000 common shares reserved for issuance pursuant to the Allied World Assurance Company Holdings, Ltd Amended and Restated 2004 Stock Incentive Plan, of which 704,372 restricted stock units (“RSUs”) were issued; and 2,000,000 common shares reserved for issuance pursuant to the Allied World Assurance Company Holdings, Ltd Long-Term Incentive Plan, of which 228,334 performance based equity awards have been granted. See a detailed description of these plans in “Management — Executive Compensation”. |
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Year Ended December 31, | ||||||||||||||||||||
2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
($ in millions, except per share amounts and ratios) | ||||||||||||||||||||
Summary Statement of Operations Data: | ||||||||||||||||||||
Gross premiums written | $ | 1,659.0 | $ | 1,560.3 | $ | 1,708.0 | $ | 1,573.7 | $ | 922.5 | ||||||||||
Net premiums written | $ | 1,306.6 | $ | 1,222.0 | $ | 1,372.7 | $ | 1,346.5 | $ | 846.0 | ||||||||||
Net premiums earned | $ | 1,252.0 | $ | 1,271.5 | $ | 1,325.5 | $ | 1,167.2 | $ | 434.0 | ||||||||||
Net investment income | 244.4 | 178.6 | 129.0 | 101.0 | 81.6 | |||||||||||||||
Net realized investment (losses) gains | (28.7 | ) | (10.2 | ) | 10.8 | 13.4 | 7.1 | |||||||||||||
Net losses and loss expenses | 739.1 | 1,344.6 | 1,013.4 | 762.1 | 304.0 | |||||||||||||||
Acquisition costs | 141.5 | 143.4 | 170.9 | 162.6 | 58.2 | |||||||||||||||
General and administrative expenses | 106.1 | 94.3 | 86.3 | 66.5 | 31.5 | |||||||||||||||
Foreign exchange loss (gain) | 0.6 | 2.2 | (0.3 | ) | (4.9 | ) | (1.5 | ) | ||||||||||||
Interest expense | 32.6 | 15.6 | — | — | — | |||||||||||||||
Income tax (recovery) expense | 5.0 | (0.4 | ) | (2.2 | ) | 6.9 | 2.9 | |||||||||||||
Net income (loss) | $ | 442.8 | $ | (159.8 | ) | $ | 197.2 | $ | 288.4 | $ | 127.6 | |||||||||
Per Share Data: | ||||||||||||||||||||
Earnings (loss) per share:(1) | ||||||||||||||||||||
Basic | $ | 8.09 | $ | (3.19 | ) | $ | 3.93 | $ | 5.75 | $ | 2.55 | |||||||||
Diluted | 7.75 | (3.19 | ) | 3.83 | 5.66 | 2.55 | ||||||||||||||
Weighted average number of common shares outstanding: | ||||||||||||||||||||
Basic | 54,746,613 | 50,162,842 | 50,162,842 | 50,162,842 | 50,089,767 | |||||||||||||||
Diluted | 57,115,172 | 50,162,842 | 51,425,389 | 50,969,715 | 50,089,767 | |||||||||||||||
Dividends paid per share | $ | 0.15 | $ | 9.93 | — | — | — |
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Year Ended December 31, | ||||||||||||||||||||
2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||
Selected Ratios: | ||||||||||||||||||||
Loss ratio(2) | 59.0 | % | 105.7 | % | 76.5 | % | 65.3 | % | 70.1 | % | ||||||||||
Acquisition cost ratio(3) | 11.3 | 11.3 | 12.9 | 13.9 | 13.4 | |||||||||||||||
General and administrative expense ratio(4) | 8.5 | 7.4 | 6.5 | 5.7 | 7.3 | |||||||||||||||
Expense ratio(5) | 19.8 | 18.7 | 19.4 | 19.6 | 20.7 | |||||||||||||||
Combined ratio(6) | 78.8 | 124.4 | 95.9 | 84.9 | 90.8 |
As of December 31, | ||||||||||||||||||||||||
2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||||||
($ in millions, except per share amounts and ratios | ||||||||||||||||||||||||
Selected Balance Sheet Data: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 366.8 | $ | 172.4 | $ | 190.7 | $ | 66.1 | $ | 87.9 | ||||||||||||||
Investments at fair market value | 5,440.3 | 4,687.4 | 4,087.9 | 3,184.9 | 2,129.9 | |||||||||||||||||||
Reinsurance recoverable | 689.1 | 716.3 | 259.2 | 93.8 | 10.6 | |||||||||||||||||||
Total assets | 7,620.6 | 6,610.5 | 5,072.2 | 3,849.0 | 2,560.3 | |||||||||||||||||||
Reserve for losses and loss expenses | 3,637.0 | 3,405.4 | 2,037.1 | 1,058.7 | 310.5 | |||||||||||||||||||
Unearned premiums | 813.8 | 740.1 | 795.3 | 725.5 | 475.8 | |||||||||||||||||||
Total debt | 498.6 | 500.0 | — | — | — | |||||||||||||||||||
Total shareholders’ equity | 2,220.1 | 1,420.3 | 2,138.5 | 1,979.1 | 1,682.4 | |||||||||||||||||||
Book value per share:(7) | ||||||||||||||||||||||||
Basic | $ | 36.82 | $ | 28.31 | $ | 42.63 | $ | 39.45 | $ | 33.59 | ||||||||||||||
Diluted | 35.26 | 28.20 | 41.58 | 38.83 | 33.59 |
(1) | Please refer to Note 10 of the notes to the consolidated financial statements included in this prospectus for the calculation of basic and diluted earnings per share. | |
(2) | Calculated by dividing net losses and loss expenses by net premiums earned. | |
(3) | Calculated by dividing acquisition costs by net premiums earned. | |
(4) | Calculated by dividing general and administrative expenses by net premiums earned. | |
(5) | Calculated by combining the acquisition cost ratio and the general and administrative expense ratio. | |
(6) | Calculated by combining the loss ratio, acquisition cost ratio and general and administrative expense ratio. | |
(7) | Basic book value per share is defined as total shareholders’ equity available to common shareholders divided by the number of common shares outstanding as at the end of the period, giving no effect to dilutive securities. Diluted book value per share is a non-GAAP financial measure and is defined as total shareholders’ equity available to common shareholders divided by the number of common shares and common share equivalents outstanding at the end of the period, calculated using the treasury stock method for all potentially dilutive securities. When the effect of dilutive securities would be anti-dilutive, these securities are excluded from the calculation of diluted book value per share. Certain warrants that were anti-dilutive were excluded from the calculation of the diluted book value per share as of December 31, 2005 and 2002. The number of warrants that were anti-dilutive were 5,873,500 and 5,956,667 as of December 31, 2005 and 2002, respectively. |
35
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
36
37
As of December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
($ in millions) | ||||||||||||
Case reserves | $ | 935.2 | $ | 921.2 | $ | 321.9 | ||||||
IBNR | 2,701.8 | 2,484.2 | 1,715.2 | |||||||||
Reserve for losses and loss expenses | 3,637.0 | 3,405.4 | 2,037.1 | |||||||||
Reinsurance recoverables | (689.1 | ) | (716.3 | ) | (259.2 | ) | ||||||
Net reserve for losses and loss expenses | $ | 2,947.9 | $ | 2,689.1 | $ | 1,777.9 | ||||||
38
39
40
41
42
Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
($ in millions) | ||||||||||||
Gross premiums written | $ | 1,659.0 | $ | 1,560.3 | $ | 1,708.0 | ||||||
Net premiums written | $ | 1,306.6 | $ | 1,222.0 | $ | 1,372.7 | ||||||
Net premiums earned | $ | 1,252.0 | $ | 1,271.5 | $ | 1,325.5 | ||||||
Net investment income | 244.4 | 178.6 | 129.0 | |||||||||
Net realized investment (losses) gains | (28.7 | ) | (10.2 | ) | 10.8 | |||||||
$ | 1,467.7 | $ | 1,439.9 | $ | 1,465.3 | |||||||
Net losses and loss expenses | $ | 739.1 | $ | 1,344.6 | $ | 1,013.4 | ||||||
Acquisition costs | 141.5 | 143.4 | 170.9 | |||||||||
General and administrative expenses | 106.1 | 94.3 | 86.3 | |||||||||
Interest expense | 32.6 | 15.6 | — | |||||||||
Foreign exchange loss (gain) | 0.6 | 2.2 | (0.3 | ) | ||||||||
$ | 1,019.9 | $ | 1,600.1 | $ | 1,270.3 | |||||||
Income (loss) before income taxes | $ | 447.8 | $ | (160.2 | ) | $ | 195.0 | |||||
Income tax expense (recovery) | 5.0 | (0.4 | ) | (2.2 | ) | |||||||
Net income (loss) | $ | 442.8 | $ | (159.8 | ) | $ | 197.2 | |||||
Ratios | ||||||||||||
Loss and loss expense ratio | 59.0 | % | 105.7 | % | 76.5 | % | ||||||
Acquisition cost ratio | 11.3 | 11.3 | 12.9 | |||||||||
General and administrative expense ratio | 8.5 | 7.4 | 6.5 | |||||||||
Expense ratio | 19.8 | 18.7 | 19.4 | |||||||||
Combined ratio | 78.8 | 124.4 | 95.9 |
43
Year Ended | ||||||||||||||||
December 31, | Dollar | Percentage | ||||||||||||||
2006 | 2005 | Change | Change | |||||||||||||
($ in millions) | ||||||||||||||||
Bermuda | $ | 1,208.1 | $ | 1,159.2 | $ | 48.9 | 4.2 | % | ||||||||
Europe | 278.5 | 265.0 | 13.5 | 5.1 | ||||||||||||
United States | 172.4 | 136.1 | 36.3 | 26.7 | ||||||||||||
$ | 1,659.0 | $ | 1,560.3 | $ | 98.7 | 6.3 | % | |||||||||
44
Gross | Net | |||||||||||||||
Premiums | Premiums | |||||||||||||||
Written | Earned | |||||||||||||||
Year Ended December 31, | ||||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Property | 28.0 | % | 26.5 | % | 15.2 | % | 17.8 | % | ||||||||
Casualty | 37.5 | 40.6 | 42.7 | 45.7 | ||||||||||||
Reinsurance | 34.5 | 32.9 | 42.1 | 36.5 |
45
Year Ended December 31, | ||||||||
2006 | 2005 | |||||||
($ in millions) | ||||||||
Net loss on fixed income investments | $ | (29.1 | ) | $ | (15.0 | ) | ||
Net gain on interest rate swaps | 0.4 | 4.8 | ||||||
Net realized investment losses | $ | (28.7 | ) | $ | (10.2 | ) | ||
46
• | losses paid, which are actual cash payments to insureds, net of recoveries from reinsurers; | |
• | changes in 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 | |
• | changes in IBNR reserves, which are reserves established by us for claims that are not yet reported but can reasonably be expected to have occurred based on industry information, management’s experience and actuarial evaluation. The portion recoverable from reinsurers is deducted from the gross estimated loss. |
• | Approximately $456.0 million in property losses accrued in relation to Hurricanes Katrina, Rita and Wilma, which occurred in August, September and October 2005, respectively, as well as a general liability loss of $25.0 million that related to Hurricane Katrina; | |
• | Loss and loss expenses of approximately $13.4 million related to Windstorm Erwin, which occurred in the first quarter of 2005; | |
• | Net adverse development of approximately $62.5 million related to the windstorms of 2004; and | |
• | Net favorable development related to prior years of approximately $111.5 million, excluding development related to the 2004 windstorms. This net favorable development was primarily due to actual loss emergence in the non-casualty lines and the casualty claims-made lines being lower than the initial expected loss emergence. |
47
• | Higher loss and loss expense ratios for our property lines in 2005 in comparison to 2006, which reflected the impact of rate decreases and increases in reported loss activity; and | |
• | Costs incurred in relation to our property catastrophe reinsurance protection were approximately $9.7 million greater in the year ended December 31, 2005 than for 2006, primarily due to charges incurred to reinstate our coverage after Hurricanes Katrina and Rita. The higher charge in 2005 resulted in lower net premiums earned and, thus, increased the loss and loss expense ratio. |
Year Ended | ||||||||||||
December 31, | Dollar | |||||||||||
2006 | 2005 | Change | ||||||||||
($ in millions) | ||||||||||||
Net losses paid | $ | 482.7 | $ | 430.1 | $ | 52.6 | ||||||
Net change in reported case reserves | (35.6 | ) | 410.1 | (445.7 | ) | |||||||
Net change in IBNR | 292.0 | 504.4 | (212.4 | ) | ||||||||
Net losses and loss expenses | $ | 739.1 | $ | 1,344.6 | $ | (605.5 | ) | |||||
48
Year Ended | ||||||||
December 31, | ||||||||
2006 | 2005 | |||||||
($ in millions) | ||||||||
Net reserves for losses and loss expenses, January 1 | $ | 2,689.1 | $ | 1,777.9 | ||||
Incurred related to: | ||||||||
Current period non-catastrophe | 849.8 | 924.2 | ||||||
Current period property catastrophe | — | 469.4 | ||||||
Prior period non-catastrophe | (106.1 | ) | (111.5 | ) | ||||
Prior period property catastrophe | (4.6 | ) | 62.5 | |||||
Total incurred | $ | 739.1 | $ | 1,344.6 | ||||
Paid related to: | ||||||||
Current period non-catastrophe | 27.7 | 40.8 | ||||||
Current period property catastrophe | — | 84.2 | ||||||
Prior period non-catastrophe | 237.2 | 194.7 | ||||||
Prior period property catastrophe | 217.8 | 110.4 | ||||||
Total paid | $ | 482.7 | $ | 430.1 | ||||
Foreign exchange revaluation | 2.4 | (3.3 | ) | |||||
Net reserve for losses and loss expenses, December 31 | 2,947.9 | 2,689.1 | ||||||
Losses and loss expenses recoverable | 689.1 | 716.3 | ||||||
Reserve for losses and loss expenses, December 31 | $ | 3,637.0 | $ | 3,405.4 | ||||
49
50
Year Ended | ||||||||||||||||
December 31, | Dollar | Percentage | ||||||||||||||
2005 | 2004 | Change | Change | |||||||||||||
($ in millions) | ||||||||||||||||
Bermuda | $ | 1,159.2 | $ | 1,105.4 | $ | 53.8 | 4.9 | % | ||||||||
Europe | 265.0 | 277.3 | (12.3 | ) | (4.4 | ) | ||||||||||
United States | 136.1 | 325.3 | (189.2 | ) | (58.2 | ) | ||||||||||
$ | 1,560.3 | $ | 1,708.0 | $ | (147.7 | ) | (8.6 | )% | ||||||||
51
Gross | Net | |||||||||||||||
Premiums | Premiums | |||||||||||||||
Written | Earned | |||||||||||||||
Year Ended | Year Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Property | 26.5 | % | 32.1 | % | 17.8 | % | 25.1 | % | ||||||||
Casualty | 40.6 | 44.0 | 45.7 | 48.0 | ||||||||||||
Reinsurance | 32.9 | 23.9 | 36.5 | 26.9 |
52
Year Ended | ||||||||
December 31, | ||||||||
2005 | 2004 | |||||||
($ in millions) | ||||||||
Net (loss) gain from the sale of securities | $ | (15.0 | ) | $ | 13.2 | |||
Net loss on settlement of futures | — | (2.4 | ) | |||||
Net gain on interest rate swaps | 4.8 | — | ||||||
Net realized investment (losses) gains | $ | (10.2 | ) | $ | 10.8 | |||
Year Ended | ||||||||
December 31, | ||||||||
2005 | 2004 | |||||||
($ in millions) | ||||||||
Net losses paid | $ | 430.1 | $ | 202.5 | ||||
Net change in reported case reserves | 410.1 | 126.9 | ||||||
Net change in IBNR | 504.4 | 684.0 | ||||||
Net losses and loss expenses | $ | 1,344.6 | $ | 1,013.4 | ||||
53
Year Ended | ||||||||
December 31, | ||||||||
2005 | 2004 | |||||||
($ in millions) | ||||||||
Net reserves for losses and loss expenses, January 1 | $ | 1,777.9 | $ | 964.9 | ||||
Incurred related to: | ||||||||
Current year non-catastrophe | 924.2 | 906.6 | ||||||
Current year property catastrophe | 469.4 | 186.2 | ||||||
Prior year non-catastrophe | (111.5 | ) | (79.4 | ) | ||||
Prior year property catastrophe | 62.5 | — | ||||||
Total incurred | $ | 1,344.6 | $ | 1,013.4 | ||||
Paid related to: | ||||||||
Current year non-catastrophe | 40.8 | 12.1 | ||||||
Current year property catastrophe | 84.2 | 57.1 | ||||||
Prior year non-catastrophe | 194.7 | 133.3 | ||||||
Prior year property catastrophe | 110.4 | — | ||||||
Total paid | $ | 430.1 | $ | 202.5 | ||||
Foreign exchange revaluation | (3.3 | ) | 2.1 | |||||
Net reserve for losses and loss expenses, December 31 | 2,689.1 | 1,777.9 | ||||||
Losses and loss expenses recoverable | 716.3 | 259.2 | ||||||
Reserve for losses and loss expenses, December 31 | $ | 3,405.4 | $ | 2,037.1 | ||||
54
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Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
($ in millions) | ||||||||||||
Revenues | ||||||||||||
Gross premiums written | $ | 463.9 | $ | 412.9 | $ | 548.0 | ||||||
Net premiums written | 193.7 | 170.8 | 308.6 | |||||||||
Net premiums earned | 190.8 | 226.8 | 333.2 | |||||||||
Expenses | ||||||||||||
Net losses and loss expenses | $ | 115.0 | $ | 410.3 | $ | 320.5 | ||||||
Acquisition costs | (2.2 | ) | 5.7 | 30.4 | ||||||||
General and administrative expenses | 26.3 | 20.2 | 25.5 | |||||||||
Underwriting income (loss) | 51.7 | (209.4 | ) | (43.2 | ) | |||||||
Ratios | ||||||||||||
Loss ratio | 60.3 | % | 180.9 | % | 96.2 | % | ||||||
Acquisition cost ratio | (1.2 | ) | 2.5 | 9.1 | ||||||||
General and administrative expense ratio | 13.8 | 8.9 | 7.7 | |||||||||
Expense ratio | 12.6 | 11.4 | 16.8 | |||||||||
Combined ratio | 72.9 | 192.3 | 113.0 |
56
• | Premiums ceded in relation to our property catastrophe reinsurance protection for the property segment were $42.3 million for the year ended December 31, 2006, which was a $14.7 million increase over the prior year. The increase in cost was due to market rate increases resulting from the 2004 and 2005 windstorms and changes in the level of coverage obtained, as well as internal changes in the structure of the program. These increases were partially offset by additional premiums ceded in 2005 to reinstate our coverage following losses incurred from Hurricanes Katrina and Rita; no such reinstatement premiums were incurred in 2006. | |
• | We now cede a portion of the gross premiums written in our U.S. offices on a quota share basis under our property treaties. |
• | Loss and loss expenses of approximately $237.8 million accrued in relation to Hurricanes Katrina, Rita, and Wilma which occurred in August, September and October 2005, respectively; | |
• | Net unfavorable development of approximately $49.0 million related to the windstorms of 2004; and |
57
• | Net favorable reserve development related to prior years of approximately $71.8 million. This net favorable development was primarily due to low loss emergence on our 2003 and 2004 accident year general property and energy business, exclusive of the 2004 windstorms. |
• | Favorable loss emergence on 2004 accident year general property and energy business; | |
• | Excluding the losses related to the 2005 windstorms, lighter than expected loss emergence on 2005 accident year general property business, offset partially by unfavorable development on our energy business for that accident year; | |
• | Anticipated recoveries of approximately $3.4 million recognized under our property catastrophe reinsurance protection related to Hurricane Frances; and | |
• | Unfavorable development of approximately $2.7 million relating to the 2005 windstorms due to updated claims information that increased our reserves for this segment. |
58
Year Ended | ||||||||
December 31, | ||||||||
2006 | 2005 | |||||||
($ in millions) | ||||||||
Net reserves for losses and loss expenses, January 1 | $ | 543.7 | $ | 404.2 | ||||
Incurred related to: | ||||||||
Current period non-catastrophe | 146.0 | 195.3 | ||||||
Current period property catastrophe | — | 237.8 | ||||||
Prior period non-catastrophe | (30.3 | ) | (71.8 | ) | ||||
Prior period property catastrophe | (0.7 | ) | 49.0 | |||||
Total incurred | $ | 115.0 | $ | 410.3 | ||||
Paid related to: | ||||||||
Current period non-catastrophe | 12.9 | 38.6 | ||||||
Current period property catastrophe | — | 36.6 | ||||||
Prior period non-catastrophe | 121.5 | 123.0 | ||||||
Prior period property catastrophe | 102.8 | 69.3 | ||||||
Total paid | $ | 237.2 | $ | 267.5 | ||||
Foreign exchange revaluation | 2.4 | (3.3 | ) | |||||
Net reserve for losses and loss expenses, December 31 | 423.9 | 543.7 | ||||||
Losses and loss expenses recoverable | 468.4 | 515.1 | ||||||
Reserve for losses and loss expenses, December 31 | $ | 892.3 | $ | 1,058.8 | ||||
59
60
Year Ended December 31, | ||||||||
2005 | 2004 | |||||||
($ in millions) | ||||||||
Net reserves for losses and loss expenses, January 1 | $ | 404.2 | $ | 221.7 | ||||
Incurred related to: | ||||||||
Current year non-catastrophe | 195.3 | 234.4 | ||||||
Current year property catastrophe | 237.8 | 104.5 | ||||||
Prior year non-catastrophe | (71.8 | ) | (18.4 | ) | ||||
Prior year property catastrophe | 49.0 | — | ||||||
Total incurred | $ | 410.3 | $ | 320.5 | ||||
Paid related to: | ||||||||
Current year non-catastrophe | 38.6 | 10.9 | ||||||
Current year property catastrophe | 36.6 | 32.2 | ||||||
Prior year non-catastrophe | 123.0 | 97.1 | ||||||
Prior year property catastrophe | 69.3 | — | ||||||
Total paid | $ | 267.5 | $ | 140.2 | ||||
Foreign exchange revaluation | (3.3 | ) | 2.2 | |||||
Net reserve for losses and loss expenses, December 31 | 543.7 | 404.2 | ||||||
Losses and loss expenses recoverable | 515.1 | 185.1 | ||||||
Reserve for losses and loss expenses, December 31 | $ | 1,058.8 | $ | 589.3 | ||||
61
Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
($ in millions) | ||||||||||||
Revenues | ||||||||||||
Gross premiums written | $ | 622.4 | $ | 633.0 | $ | 752.1 | ||||||
Net premiums written | 541.0 | 557.6 | 670.0 | |||||||||
Net premiums earned | 534.3 | 581.3 | 636.3 | |||||||||
Expenses | ||||||||||||
Net losses and loss expenses | $ | 331.8 | $ | 431.0 | $ | 436.1 | ||||||
Acquisition cost | 30.4 | 33.5 | 59.5 | |||||||||
General and administrative expenses | 52.8 | 44.3 | 39.8 | |||||||||
Underwriting income | 119.3 | 72.5 | 100.9 | |||||||||
Ratios | ||||||||||||
Loss ratio | 62.1 | % | 74.1 | % | 68.5 | % | ||||||
Acquisition cost ratio | 5.7 | 5.8 | 9.4 | |||||||||
General and administrative expense ratio | 9.9 | 7.6 | 6.2 | |||||||||
Expense ratio | 15.6 | 13.4 | 15.6 | |||||||||
Combined ratio | 77.7 | 87.5 | 84.1 |
62
Years Ended | ||||||||
December 31, | ||||||||
2006 | 2005 | |||||||
($ in millions) | ||||||||
Net reserves for losses and loss expenses, January 1 | $ | 1,419.1 | $ | 1,019.6 | ||||
Incurred related to: | ||||||||
Current period non-catastrophe | 395.2 | 428.7 | ||||||
Current period catastrophe | — | 25.0 | ||||||
Prior period non-catastrophe | (63.4 | ) | (22.7 | ) | ||||
Prior period catastrophe | — | — | ||||||
Total incurred | $ | 331.8 | $ | 431.0 | ||||
Paid related to: | ||||||||
Current period non-catastrophe | — | — | ||||||
Current period catastrophe | — | — | ||||||
Prior period non-catastrophe | 34.7 | 31.5 | ||||||
Prior period catastrophe | 25.0 | — | ||||||
Total paid | $ | 59.7 | $ | 31.5 | ||||
Foreign exchange revaluation | — | — | ||||||
Net reserve for losses and loss expenses, December 31 | 1,691.2 | 1,419.1 | ||||||
Losses and loss expenses recoverable | 182.6 | 128.6 | ||||||
Reserve for losses and loss expenses, December 31 | $ | 1,873.8 | $ | 1,547.7 | ||||
63
64
Year Ended | ||||||||
December 31, | ||||||||
2005 | 2004 | |||||||
($ in millions) | ||||||||
Net reserves for losses and loss expenses, January 1 | $ | 1,019.6 | $ | 590.6 | ||||
Incurred related to: | ||||||||
Current year non-catastrophe | 428.7 | 479.4 | ||||||
Current year catastrophe | 25.0 | — | ||||||
Prior year non-catastrophe | (22.7 | ) | (43.3 | ) | ||||
Prior year catastrophe | — | — | ||||||
Total incurred | $ | 431.0 | $ | 436.1 | ||||
Paid related to: | ||||||||
Current year non-catastrophe | — | 0.9 | ||||||
Current year catastrophe | — | — | ||||||
Prior year non-catastrophe | 31.5 | 6.2 | ||||||
Prior year catastrophe | — | — | ||||||
Total paid | $ | 31.5 | $ | 7.1 | ||||
Foreign exchange revaluation | — | — | ||||||
Net reserve for losses and loss expenses, December 31 | 1,419.1 | 1,019.6 | ||||||
Losses and loss expenses recoverable | 128.6 | 73.6 | ||||||
Reserve for losses and loss expenses, December 31 | $ | 1,547.7 | $ | 1,093.2 | ||||
65
Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
($ in millions) | ||||||||||||
Revenues | ||||||||||||
Gross premiums written | $ | 572.7 | $ | 514.4 | $ | 407.9 | ||||||
Net premiums written | 572.0 | 493.5 | 394.1 | |||||||||
Net premiums earned | 526.9 | 463.4 | 356.0 | |||||||||
Expenses | ||||||||||||
Net losses and loss expenses | $ | 292.4 | $ | 503.3 | $ | 256.7 | ||||||
Acquisition costs | 113.3 | 104.2 | 80.9 | |||||||||
General and administrative expenses | 27.0 | 29.8 | 21.1 | |||||||||
Underwriting income (loss) | 94.2 | (173.9 | ) | (2.7 | ) | |||||||
Ratios | ||||||||||||
Loss ratio | 55.5 | % | 108.6 | % | 72.1 | % | ||||||
Acquisition cost ratio | 21.5 | 22.5 | 22.8 | |||||||||
General and administrative expense ratio | 5.1 | 6.4 | 5.9 | |||||||||
Expense ratio | 26.6 | 28.9 | 28.7 | |||||||||
Combined ratio | 82.1 | 137.5 | 100.8 | |||||||||
66
• | Increased net premiums written over the past two years. Premiums related to our reinsurance business earn slower than those related to our direct insurance business. Direct insurance premiums typically earn ratably over the term of a policy. Reinsurance premiums are often earned over the same period as the underlying policies, or risks, covered by the contract. As a result, the earning pattern may extend up to 24 months, reflecting the inception dates of the underlying policies. | |
• | Net upward revisions to premium estimates on business written in prior years were significantly higher in 2006 in comparison with 2005. As the adjustments relate to prior periods, the associated premiums make a proportionately larger contribution to net premiums earned. | |
• | Premiums ceded in relation to the property catastrophe reinsurance protection were significantly lower in 2006. Net premiums earned during the year ended December 31, 2006 were approximately $11.5 million higher as a result. |
• | Losses and loss expenses of approximately $13.4 million as a result of Windstorm Erwin, which occurred in the first quarter of 2005; | |
• | Losses and loss expenses of approximately $218.2 million accrued in relation to Hurricanes Katrina, Rita and Wilma, which occurred in August, September and October 2005, respectively; | |
• | Net unfavorable development of approximately $13.5 million related to the windstorms of 2004; and | |
• | Net favorable reserve development related to prior years of approximately $17.0 million, which was primarily due to low loss emergence on our 2003 and 2004 property reinsurance business, exclusive of the 2004 windstorms. |
• | Recognition of approximately $12.4 million of favorable reserve development. The majority of this development related to 2003 and 2005 accident year business written on our behalf by IPCUSL, as well as certain workers compensation catastrophe business written during the period from 2002 to 2005. | |
• | Net favorable development related to the 2005 windstorms totaled approximately $2.8 million due to updated claims information that reduced our reserves for this segment; and | |
• | Anticipated recoveries of approximately $1.1 million on our property catastrophe reinsurance protection related to Hurricane Frances. |
67
Year Ended | ||||||||
December 31, | ||||||||
2006 | 2005 | |||||||
($ in millions) | ||||||||
Net reserves for losses and loss expenses, January 1 | $ | 726.3 | $ | 354.1 | ||||
Incurred related to: | ||||||||
Current period non-catastrophe | 308.7 | 275.2 | ||||||
Current period property catastrophe | — | 231.6 | ||||||
Prior period non-catastrophe | (12.4 | ) | (17.0 | ) | ||||
Prior period property catastrophe | (3.9 | ) | 13.5 | |||||
Total incurred | $ | 292.4 | $ | 503.3 | ||||
Paid related to: | ||||||||
Current period non-catastrophe | 14.9 | 2.1 | ||||||
Current period property catastrophe | — | 47.6 | ||||||
Prior period non-catastrophe | 56.0 | 40.3 | ||||||
Prior period property catastrophe | 115.0 | 41.1 | ||||||
Total paid | $ | 185.9 | $ | 131.1 | ||||
Foreign exchange revaluation | — | — | ||||||
Net reserve for losses and loss expenses, December 31 | 832.8 | 726.3 | ||||||
Losses and loss expenses recoverable | 38.1 | 72.6 | ||||||
Reserve for losses and loss expenses, December 31 | $ | 870.9 | $ | 798.9 | ||||
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Year Ended | ||||||||
December 31, | ||||||||
2005 | 2004 | |||||||
($ in millions) | ||||||||
Net reserves for losses and loss expenses, January 1 | $ | 354.1 | $ | 152.6 | ||||
Incurred related to: | ||||||||
Current year non-catastrophe | 275.2 | 192.9 | ||||||
Current year property catastrophe | 231.6 | 81.6 | ||||||
Prior year non-catastrophe | (17.0 | ) | (17.8 | ) | ||||
Prior year property catastrophe | 13.5 | — | ||||||
Total incurred | $ | 503.3 | $ | 256.7 | ||||
Paid related to: | ||||||||
Current year non-catastrophe | 2.1 | 0.4 | ||||||
Current year property catastrophe | 47.6 | 24.9 | ||||||
Prior year non-catastrophe | 40.3 | 29.9 | ||||||
Prior year property catastrophe | 41.1 | — | ||||||
Total paid | $ | 131.1 | $ | 55.2 | ||||
Foreign exchange revaluation | — | — | ||||||
Net reserve for losses and loss expenses, December 31 | 726.3 | 354.1 | ||||||
Losses and loss expenses recoverable | 72.6 | 0.5 | ||||||
Reserve for losses and loss expenses, December 31 | $ | 798.9 | $ | 354.6 | ||||
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Property | Casualty | Reinsurance | Total | |||||||||||||||||||||||||||||||||||||||||||||
December 31, | December 31, | December 31, | December 31, | |||||||||||||||||||||||||||||||||||||||||||||
2006 | 2005 | 2004 | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||||||||||||||||||||||||||||
($ in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||
Case reserves | $ | 562.2 | $ | 602.8 | $ | 224.5 | $ | 175.0 | $ | 77.6 | $ | 29.7 | $ | 198.0 | $ | 240.8 | $ | 67.7 | $ | 935.2 | $ | 921.2 | $ | 321.9 | ||||||||||||||||||||||||
IBNR | 330.1 | 456.0 | 364.8 | 1,698.8 | 1,470.1 | 1,063.5 | 672.9 | 558.1 | 286.9 | 2,701.8 | 2,484.2 | 1,715.2 | ||||||||||||||||||||||||||||||||||||
Reserve for losses and loss expenses | 892.3 | 1,058.8 | 589.3 | 1,873.8 | 1,547.7 | 1,093.2 | 870.9 | 798.9 | 354.6 | 3,637.0 | 3,405.4 | 2,037.1 | ||||||||||||||||||||||||||||||||||||
Reinsurance recoverables | (468.4 | ) | (515.1 | ) | (185.1 | ) | (182.6 | ) | (128.6 | ) | (73.6 | ) | (38.1 | ) | (72.6 | ) | (0.5 | ) | (689.1 | ) | (716.3 | ) | (259.2 | ) | ||||||||||||||||||||||||
Net reserve for losses and loss expenses | $ | 423.9 | $ | 543.7 | $ | 404.2 | $ | 1,691.2 | $ | 1,419.1 | $ | 1,019.6 | $ | 832.8 | $ | 726.3 | $ | 354.1 | $ | 2,947.9 | $ | 2,689.1 | $ | 1,777.9 | ||||||||||||||||||||||||
Reserve for Losses and Loss | ||||||||||||
Expenses Gross of | ||||||||||||
Reinsurance Recoverable(1) | ||||||||||||
Carried | Low | High | ||||||||||
Reserves | Estimate | Estimate | ||||||||||
($ in millions) | ||||||||||||
Property | $ | 892.3 | $ | 697.4 | $ | 1,055.0 | ||||||
Casualty | 1,873.8 | 1,397.7 | 2,148.9 | |||||||||
Reinsurance | 870.9 | 584.4 | 985.9 |
Reserve for Losses and Loss | ||||||||||||
Expenses Net of | ||||||||||||
Reinsurance Recoverable(1) | ||||||||||||
Carried | Low | High | ||||||||||
Reserves | Estimate | Estimate | ||||||||||
($ in millions) | ||||||||||||
Property | $ | 423.9 | $ | 314.4 | $ | 484.6 | ||||||
Casualty | 1,691.2 | 1,255.0 | 1,955.1 | |||||||||
Reinsurance | 832.8 | 566.7 | 963.2 |
(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. |
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Gross Premiums Written and | ||||||||||||
Premiums Ceded | ||||||||||||
Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
($ in millions) | ||||||||||||
Gross | $ | 1,659.0 | $ | 1,560.3 | $ | 1,708.0 | ||||||
Ceded | (352.4 | ) | (338.3 | ) | (335.3 | ) | ||||||
Net | $ | 1,306.6 | $ | 1,222.0 | $ | 1,372.7 | ||||||
Ceded as percentage of gross | 21.2 | % | 21.7 | % | 19.6 | % | ||||||
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Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
($ in millions) | ||||||||||||
Premiums written ceded | 352.4 | 338.3 | 335.3 | |||||||||
Premiums earned ceded | 332.4 | 344.2 | 312.7 | |||||||||
Losses and loss expenses ceded | 244.8 | 602.1 | 200.1 | |||||||||
Acquisition costs ceded | 61.6 | 66.9 | 59.1 | |||||||||
• | Our property segment has purchased quota share reinsurance almost from inception. During this time, we have ceded from 35% to 55% of up to $10 million of each applicable general property policy limit, and we have ceded from 58.5% to 66% of up to $20 million of each applicable energy policy limit. We also purchase reinsurance to provide protection for specified catastrophes insured by our property segment. The limits for catastrophe protection have decreased from 2003 to 2006 as a result of reducing our exposures in catastrophe-exposed areas. Our property per risk reinsurance treaties did not cover property premiums written under the surplus lines program administrator agreements and a reinsurance agreement with subsidiaries of AIG. Our property reinsurance treaties do cover property premiums written by our U.S. underwriters since 2005. We have also purchased a limited amount of facultative reinsurance for general property and energy policies. | |
• | Our casualty segment has purchased variable quota share reinsurance for general casualty business since December 2002. Typically we ceded about 10% to 12% of policies with limits less than or equal to $25 million (or its currency equivalent) and for policies greater than $25 million, about 85% to 95% of up to $25 million of a variable quota share determined by the amount of the policy limit in excess of $25 million divided by the policy limit. We have also purchased a limited amount of facultative reinsurance to lessen volatility in our professional liability book of business and for U.S. general casualty business which is not subject to the treaty. | |
• | We have purchased a limited amount of retrocession coverage for our reinsurance segment. |
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Reinsurance Recoverable | ||||||||
As of December 31, | ||||||||
2006 | 2005 | |||||||
($ in millions) | ||||||||
Ceded case reserves | $ | 303.9 | $ | 256.4 | ||||
Ceded IBNR reserves | 385.2 | 459.9 | ||||||
Reinsurance recoverable | $ | 689.1 | $ | 716.3 | ||||
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December 31, | December 31, | |||||||
2006 | 2005 | |||||||
($ in millions) | ||||||||
Due in one year or less | $ | 146.6 | $ | 381.5 | ||||
Due after one year through five years | 2,461.6 | 2,716.0 | ||||||
Due after five years through ten years | 335.3 | 228.6 | ||||||
Due after ten years | 172.0 | 2.1 | ||||||
Mortgage-backed | 1,823.9 | 846.1 | ||||||
Asset-backed | 238.4 | 216.2 | ||||||
Total | $ | 5,177.8 | $ | 4,390.5 | ||||
A.M. Best | A/stable | |
Moody’s | A2/stable* | |
S&P | A−/stable |
* | Moody’s financial strength ratings are for the company’s Bermuda and U.S. insurance subsidiaries. |
A.M. Best | bbb/stable | |
Moody’s | Baa1/stable | |
S&P | BBB/stable |
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Payment Due by Period | ||||||||||||||||||||
Less Than | More Than | |||||||||||||||||||
Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | ||||||||||||||||
($ in millions) | ||||||||||||||||||||
Contractual Obligations | ||||||||||||||||||||
Senior notes (including interest) | $ | 875.5 | $ | 38.0 | $ | 75.0 | $ | 75.0 | $ | 687.5 | ||||||||||
Operating lease obligations | 98.4 | 8.0 | 15.3 | 14.7 | 60.4 | |||||||||||||||
Gross reserve for losses and loss expenses | 3,637.0 | 1,189.3 | 943.6 | 352.0 | 1,152.1 | |||||||||||||||
Total | $ | 4,610.9 | $ | 1,235.3 | $ | 1,033.9 | $ | 441.7 | $ | 1,900.0 | ||||||||||
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Interest Rate Shift in Basis Points | ||||||||||||||||||||||||||||
−200 | −100 | −50 | −0 | +50 | +100 | +200 | ||||||||||||||||||||||
($ in millions) | ||||||||||||||||||||||||||||
Total market value | $ | 5,754.5 | $ | 5,597.4 | $ | 5,518.6 | $ | 5,440.3 | $ | 5,362.6 | $ | 5,285.3 | $ | 5,130.3 | ||||||||||||||
Market value change from base | 314.2 | 157.1 | 78.3 | 0 | (77.7 | ) | (155.0 | ) | (310.0 | ) | ||||||||||||||||||
Change in unrealized appreciation | 314.2 | 157.1 | 78.3 | 0 | (77.7 | ) | (155.0 | ) | (310.0 | ) |
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Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
($ in millions) | ||||||||||||
Realized exchange gains (losses) | $ | 1.4 | $ | (0.2 | ) | $ | 1.6 | |||||
Unrealized exchange (losses) | (2.0 | ) | (2.0 | ) | (1.3 | ) | ||||||
Foreign exchange (losses) gains | $ | (0.6 | ) | $ | (2.2 | ) | $ | 0.3 | ||||
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• | loss experience for the industry in general, and for specific lines of business or risks in particular, | |
• | natural and man-made disasters, such as hurricanes, windstorms, earthquakes, floods, fires and acts of terrorism, | |
• | trends in the amounts of settlements and jury awards in cases involving professionals and corporate directors and officers covered by professional liability and directors and officers liability insurance, | |
• | a growing trend of plaintiffs targeting property and casualty insurers in class action litigation related to claims handling, insurance sales practices and other practices related to the insurance business, | |
• | development of reserves for mass tort liability, professional liability and other long-tail lines of business, and | |
• | investment results, including realized and unrealized gains and losses on investment portfolios and annual investment yields. |
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• | a well-developed hub for insurance services, | |
• | excellent professional and other business services, | |
• | a well-developed brokerage market offering worldwide risks to Bermuda-based insurance and reinsurance companies, | |
• | political and economic stability, and | |
• | ease of access to global insurance markets. |
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• | Property Segment. Our property segment includes the insurance of physical property and business interruption coverage for commercial property and energy-related risks. We write solely commercial coverages. This type of coverage is usually not written in one contract; rather, the total amount of protection is split into layers and separate contracts are written with separate consecutive limits that aggregate to the total amount of coverage required by the insured. We focus on the insurance of primary risk layers. This means that we are typically part of the first group of insurers that cover a loss up to a specified limit. We believe that there is generally less pricing competition in these layers which allows us to retain greater control over our pricing and terms. These risks also carry higher premium rates and require specialized underwriting skills. Additionally, participation in the primary insurance layers, rather than the excess layers, helps us to better define and manage our property catastrophe exposure. Our current average net risk exposure (net of reinsurance) is approximately between $3 to $5 million per individual risk. The property segment generated $463.9 million of gross premiums written in 2006, representing 28.0% of our total gross premiums written and 42.7% of our total direct insurance gross premiums written. For the same period, the property |
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segment generated $51.7 million of underwriting income. In 2006, our property segment had a loss ratio of 60.3% and a combined ratio of 72.9%. |
• | Casualty Segment. Our casualty segment specializes in insurance products providing coverage for general and product liability, professional liability and healthcare liability risks. We focus primarily on insurance of excess layers, where we insure the secondand/or subsequent layers of a policy above the primary layer. Our direct casualty underwriters provide a variety of specialty insurance casualty products to large and complex organizations around the world. This segment generated $622.4 million of gross premiums written in 2006, representing 37.5% of our total gross premiums written and 57.3% of our total direct insurance gross premiums written. For the same period, the casualty segment generated approximately $119.3 million of underwriting income and had a loss ratio of 62.1% and a combined ratio of 77.7%. | |
• | Reinsurance Segment. Our reinsurance segment includes the reinsurance of property, general casualty, professional liability, specialty lines and property catastrophe coverages written by other insurance companies. We presently write reinsurance on both a treaty and facultative basis, targeting several niche reinsurance markets including professional liability lines, specialty casualty, property for U.S. regional insurers, and accident and health, and to a lesser extent marine and aviation lines. Pricing in the reinsurance market tends to be more cyclical than in the direct insurance market. As a result, we seek to increase or decrease our presence in this marketplace based on market conditions. For example, we increased our reinsurance business in 2005 due to favorable market conditions. The reinsurance segment generated $572.7 million of gross premiums written in 2006, representing 34.5% of our total gross premiums written. For the same period, the reinsurance segment generated $94.2 million of underwriting income. Of our total reinsurance premiums written in 2006, $432.0 million, representing 75.4%, were related to specialty and casualty lines, and $140.7 million, representing 24.6%, were related to property lines. In 2006, our reinsurance segment had a loss ratio of 55.5% and a combined ratio of 82.1%. |
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• | Strong Underwriting Expertise Across Multiple Business Lines and Geographies. We have strong underwriting franchises offering specialty coverages in both the direct property and casualty markets as well as the reinsurance market. Our underwriting strengths allow us to assess and price complex risks and direct our efforts to the risk layers within each account that provide the highest potential return for the risk assumed. Further, our underwriters have significant experience in the geographic markets in which we do business. As a result, we are able to opportunistically grow our business in those segments of the market that are producing the most attractive returns and do not rely on any one segment for a disproportionately large portion of our business. We believe that maintaining diversification in our areas of underwriting expertise, products and geography enhances our ability to target business lines with the highest returns under specific market conditions, while diversifying our business and reducing our earnings volatility. | |
• | Established Direct Casualty Business. We have developed substantial underwriting expertise in multiple specialty casualty niches, including excess casualty, professional liability and healthcare liability. Our direct casualty insurance business accounted for 57.3% of our total direct insurance gross premiums written in 2006. We believe that our underwriting expertise, established presence on existing insurance programs and ability to write substantial participations give us a significant advantage over our competition in the casualty marketplace. Furthermore, given the relatively long-tailed nature of casualty lines, we expect to hold the premium payments from this line as invested assets for a relatively longer period of time and thereby generate additional net investment income. | |
• | Leading Direct Property Insurer in Bermuda. We believe we have developed one of the largest direct property insurance businesses in Bermuda as measured by gross premiums written. We continue to diversify our property book of business, serving clients in various industries, including retail chains, real estate, light manufacturing, communications and hotels. We also insure energy-related risks, such as oil, gas, petrochemical, mining, power generation and heavy manufacturing facilities. | |
• | Strong Franchise in Niche Reinsurance Markets. We have established a reputation for skilled underwriting in various niche reinsurance markets in the United States and Bermuda, including specialty casualty for small to middle-market commercial risks; liability for directors, officers and professionals; commercial property risks in regional markets; and the excess and surplus lines market for manufacturing, energy and construction risks. In particular, we have developed a niche capability in providing reinsurance capacity to regional specialty carriers. Additionally, we believe that we are the only Bermuda-based reinsurer that has a dedicated facultative casualty reinsurance business. Our reinsurance business complements our direct casualty and property lines and Fortune 1000 client base. | |
• | Financial Strength. As of December 31, 2006, we had shareholders’ equity of $2,220.1 million, total assets of $7,620.6 million and an investment portfolio with a fair market value of $5,440.3 million, consisting primarily of fixed-income securities with an average rating of AA by S&P and Aa2 by Moody’s. Approximately 99% of our fixed income investments (which includes individually held securities and securities held in a high-yield bond fund) consist of investment grade securities. Our insurance subsidiaries currently have an “A” (Excellent) financial strength rating from A.M. Best and an “A−” (Strong) financial strength rating from S&P. Moody’s has assigned an “A2” (Good) financial strength rating to certain of our insurance subsidiaries. | |
• | Low-Cost Operating Model. We believe that our operating platform is one of the most efficient among our competitors due to our significantly lower expense ratio as compared to |
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most of our peers. We closely monitor our general and administrative expenses and maintain a flat, streamlined management structure. We also outsource certain portions of our operations, such as investment management, to third-party providers to enhance our efficiency. For the year ended December 31, 2006, our expense ratio was 19.8%, compared to an average of 26.3% for U.S. publicly-traded, Bermuda-based insurers and reinsurers. |
• | Experienced Management Team. The six members of our executive management team have an average of approximately 23 years of insurance industry experience. Our management team has extensive background in operating large insurance and reinsurance businesses successfully over multiple insurance underwriting cycles. Most members of our management team are former executives of subsidiaries of AIG, one of our principal shareholders. |
• | Leverage Our Diversified Underwriting Franchises. Our business is diversified by both product line and geography. We underwrite a broad array of property, casualty and reinsurance risks from our operations in Bermuda, Europe and the United States. Our underwriting skills across multiple lines and multiple geographies allow us to remain flexible and opportunistic in our business selection in the face of fluctuating market conditions. | |
• | Expand Our Distribution and Our Access to Markets in the United States. We have made substantial investments to expand our U.S. business and expect this business to grow in size and importance in the coming years. We employ a regional distribution strategy in the United States predominantly focused on underwriting direct casualty and property insurance for middle-market and non-Fortune 1000 client accounts. Through our U.S. excess and surplus lines capability, we believe we have a strong presence in specialty casualty lines and maintain an attractive base of U.S. middle-market clients, especially in the professional liability market. |
• | Grow Our European Business. We intend to grow our European business, with particular emphasis on the United Kingdom and Western Europe, where we believe the insurance and reinsurance markets are developed and stable. Our European strategy is predominantly focused on direct property and casualty insurance for large European and international accounts. The European operations provide us with diversification and the ability to spread our underwriting risks. In June 2004, our reinsurance department began underwriting international accident and health business. In August 2004, our reinsurance subsidiary in Ireland received regulatory approval from the U.K. Financial Services Authority for our branch office in London. Such approval provides us with access to the London wholesale market, which allows us to underwrite property risks, including energy, oil and gas, and casualty risks. | |
• | Continue Disciplined, Targeted Underwriting of Property Risks. We have profited from the increase in property rates for various catastrophe-exposed insurance risks following the |
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2005 hurricane season. Given our extensive underwriting expertise and strong market presence, we believe we choose the markets and layers that generate the largest potential for profit for the amount of risk assumed. Maintaining our underwriting discipline will be critical to our continued profitability in the property business as market conditions change over the underwriting cycle. |
• | Further Reduce Earnings Volatility by Actively Monitoring Our Property Catastrophe Exposure. We have historically managed our property catastrophe exposure by closely monitoring our policy limits in addition to utilizing complex risk models. This discipline has substantially reduced our historical loss experience and our exposure. Following Hurricanes Katrina, Rita and Wilma, we have further enhanced our catastrophe management approach. In addition to our continued focus on aggregate limits and modeled probable maximum loss, we have introduced a strategy based on gross exposed policy limits in critical earthquake and hurricane zones. Our gross exposed policy limits approach focuses on exposures in catastrophe-prone geographic zones and expands our previous analysis, taking into consideration flood severity, demand surge and business interruption exposures for each critical area. We have also redefined our critical earthquake and hurricane zones globally. We believe that using this approach will mitigate the likelihood that a single property catastrophic loss will exceed 10% of our total capital for a“one-in-250-year” event, after all applicable reinsurance. | |
• | Expand Our Casualty Business with a Continued Focus on Specialty Lines. We believe we have established a leading excess casualty business. We will continue to target the risk needs of Fortune 1000 companies through our operations in Bermuda, large international accounts through our operations in Europe and middle-market and non-Fortune 1000 companies through our operations in the United States. In the past five years, we have established ourselves as a major writer of excess casualty, professional liability and healthcare liability business. We will continue to focus on niche opportunities within these business lines and diversify our product portfolio as new opportunities emerge. We believe our focus on specialty casualty lines makes us less dependent on the property underwriting cycle. | |
• | Continue to Opportunistically Underwrite Diversified Reinsurance Risks. As part of our reinsurance segment, we target certain niche reinsurance markets, including professional liability, specialty casualty, property for U.S. regional carriers, and accident and health because we believe we understand the risks and opportunities in these markets. We will continue to seek to selectively deploy our capital in reinsurance lines where we believe there are profitable opportunities. In order to diversify our portfolio and complement our direct insurance business, we target the overall contribution from reinsurance to be approximately 30% to 35% of our total annual gross premiums written. We strive to maintain a well managed reinsurance portfolio, balanced by line of business, ceding source, geography and contract configuration. Our primary customer focus is on highly-rated carriers with proven underwriting skills and dependable operating models. |
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Year Ended | Year Ended | |||||||||||||||
December 31, 2006 | December 31, 2005 | |||||||||||||||
Gross Premiums Written | Gross Premiums Written | |||||||||||||||
$ (In millions) | % of Total | $ (In millions) | % of Total | |||||||||||||
Operating Segments | ||||||||||||||||
Property | $ | 463.9 | 28.0% | $ | 412.9 | 26.5% | ||||||||||
Casualty | 622.4 | 37.5% | 633.0 | 40.6% | ||||||||||||
Reinsurance | 572.7 | 34.5% | 514.4 | 32.9% | ||||||||||||
Total | $ | 1,659.0 | 100.0% | $ | 1,560.3 | 100.0% | ||||||||||
• | we specialize in commercial risks and therefore have little residential exposure; | |
• | we concentrate our efforts on primary risk layers of insurance (as opposed to excess layers) and offer meaningful but limited capacity in these layers. When we write primary risk layers of insurance it means that we are typically part of the first group of insurers that covers a loss up to a specified limit. When we write excess risk layers of insurance it means that we are insuring the secondand/or subsequent layers of a policy above the primary layer. Our current average net risk exposure is approximately between $3 million to $5 million per individual risk; | |
• | we purchase catastrophe cover reinsurance to reduce our ultimate exposure; | |
• | our underwriters emphasize careful risk selection by evaluating an insured’s risk management practices, loss history and the adequacy of their retention; and | |
• | we monitor our geographical diversification to limit any concentration of exposures. |
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• | as a result of Hurricane Katrina, the insurance industry’s largest natural catastrophe loss, and two subsequent substantial hurricanes (Rita and Wilma), existing insurers and reinsurers have raised new capital and significant investments have been made in new insurance and reinsurance companies in Bermuda; | |
• | legislative mandates for insurers to provide specified types of coverage in areas where we or our ceding clients do business, such as the mandated terrorism coverage in TRIA, could eliminate or reduce the opportunities for us to write those coverages; and | |
• | programs in which state-sponsored entities provide property insurance or reinsurance in catastrophe prone areas, such as the recent legislative enactments passed in the State of Florida, or other “alternative market” types of coverage could eliminate or reduce opportunities for us to write those coverages. |
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Percentage of Gross | ||||
Premiums Written | ||||
For the Year Ended | ||||
December 31, | ||||
2006 | ||||
Broker | ||||
Marsh & McLennan Companies, Inc. | 32% | |||
Aon Corporation | 19% | |||
Willis Group Holdings Ltd. | 10% | |||
Jardine Lloyd Thompson Group plc | 7% | |||
All Others | 32% | |||
100% | ||||
• | Our underwriting operations have written guidelines that identify the classes of business that can be written and establish specific parameters for capacity, attachment points and terms and conditions. Senior managers in charge of each business line are the only individuals that can authorize exceptions to the underwriting guidelines. | |
• | Our underwriters are given a written authority statement that provides a specific framework for their underwriting decisions. Although we provide our underwriters with significant local autonomy, we centralize authority for strategic decisions with our senior managers in Bermuda in order to achieve underwriting consistency and control across all of our operations. | |
• | Our underwriters work closely with our actuarial staff, particularly when pricing complex risks in certain lines of business, and in determining rate change trends in all of our lines of business. Actuarial assessments of loss development in all of our product segments are integral to the establishment of our business plan. This information allows us to target growth in specific areas that are performing well and to take corrective action in areas that are not performing satisfactorily. | |
• | We manage our individual risk limits, and we believe that we provide a meaningful but prudent amount of capacity to each client. We purchase reinsurance in lines of business where we want to increase our gross limits to gain more leverage, but mitigate our net exposure to loss. |
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• | Our guidelines do not allow multiple underwriting offices to provide coverage to the same client for the same line of business, which allows us to control our capacity allocations and avoid redundancy of effort. We minimize overlap between our operations by providing each with distinct operating parameters while at the same time encouraging communication between underwriters and offices. | |
• | Our underwriting offices are subject to annual underwriting, operational and administrative audits to assess compliance with our corporate guidelines. |
• | Measurement. We will generally only underwrite risks in which we can obtain an electronic statement of property values. This statement of values must be current and include proper addresses and a breakdown of values for each location to be insured. We require an electronic format because we need the ability to arrange the information in a manner acceptable to our third party modeling company. This also gives us the ability to collate the information in a way that assists our internal catastrophe team in measuring our total gross limits in critical catastrophe zones. | |
• | Professional Modeling. We model the locations covered in each policy. This is a time-consuming process, but it enables us to obtain a more accurate assessment of our property catastrophe exposure. We have contracted with an industry-recognized modeling firm to analyze our property catastrophe exposure on a quarterly basis. This periodic measurement of our property business gives us anup-to-date objective estimate of our property catastrophe exposure. Using data that we provide, this modeling firm runs numerous computer-simulated events and provides us with loss probabilities for our book of business. | |
• | Gross Exposed Policy Limits. Prior to Hurricane Katrina in 2005, a majority of the insurance industry and all of the insurance rating agencies relied heavily on the probable maximum losses produced by the various professional modeling companies. Hurricane Katrina demonstrated that reliance solely on the results of the modeling companies was inappropriate given their apparent failure to accurately predict the ultimate losses sustained. When the limitations of the professional models became evident, we instituted an additional approach to determine our probable maximum loss. |
• | Ceded Reinsurance. We purchase treaty and facultative reinsurance to reduce our exposure to significant losses from our general property and energy portfolios of business. We also |
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purchase property catastrophe reinsurance to protect these lines of business from catastrophic loss. |
• | Probable Maximum Loss and Risk Tolerance. Our direct property and reinsurance senior managers work together to develop our probable maximum loss. We manage our business with the goal of mitigating the likelihood that our combined probable maximum losses for property business (including property reinsurance business), will exceed 10% of our total capital for any“one-in-250-year” event, after all applicable reinsurance. |
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Cumulative Deficiency (Redundancy)
Year Ended December 31, | ||||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | 2006 | |||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||
As Originally Estimated: | $ | 213 | $ | 310,508 | $ | 1,058,653 | $ | 2,037,124 | $ | 3,405,353 | $ | 3,636,997 | ||||||||||||
Liability Re-estimated as of: | ||||||||||||||||||||||||
One Year Later | 213 | 253,691 | 979,218 | 1,929,571 | 3,318,303 | |||||||||||||||||||
Two Years Later | 213 | 226,943 | 896,649 | 1,844,630 | ||||||||||||||||||||
Three Years Later | 213 | 217,712 | 843,178 | |||||||||||||||||||||
Four Years Later | 213 | 199,982 | ||||||||||||||||||||||
Five Years Later | 213 | |||||||||||||||||||||||
Cumulative (Redundancy) | — | (110,526 | ) | (215,475 | ) | (192,494 | ) | (87,050 | ) | |||||||||||||||
Cumulative Claims Paid as of: | ||||||||||||||||||||||||
One Year Later | — | 54,288 | 138,793 | 372,823 | 712,032 | |||||||||||||||||||
Two Years Later | — | 83,465 | 237,394 | 571,149 | ||||||||||||||||||||
Three Years Later | — | 100,978 | 300,707 | |||||||||||||||||||||
Four Years Later | 18 | 124,109 | ||||||||||||||||||||||
Five Years Later | 18 |
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Year Ended December 31, | ||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||
Liability Re-estimated as of: | ||||||||||||||||||||
One Year Later | 100 | % | 82 | % | 92 | % | 95 | % | 97 | % | ||||||||||
Two Years Later | 100 | % | 73 | % | 85 | % | 91 | % | ||||||||||||
Three Years Later | 100 | % | 70 | % | 80 | % | ||||||||||||||
Four Years Later | 100 | % | 64 | % | ||||||||||||||||
Five Years Later | 100 | % | ||||||||||||||||||
Cumulative (Redundancy) | — | (36 | )% | (20 | )% | (9 | )% | (3 | )% | |||||||||||
Gross Loss and Loss Expense Cumulative Paid as a Percentage of Originally Estimated Liability Cumulative Claims Paid as of: | ||||||||||||||||||||
One Year Later | 0 | % | 17 | % | 13 | % | 18 | % | 21 | % | ||||||||||
Two Years Later | 0 | % | 27 | % | 22 | % | 28 | % | ||||||||||||
Three Years Later | 0 | % | 33 | % | 28 | % | ||||||||||||||
Four Years Later | 8 | % | 40 | % | ||||||||||||||||
Five Years Later | 8 | % |
Year Ended December 31 | ||||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | 2006 | |||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||
As Originally Estimated: | $ | 213 | $ | 299,946 | $ | 964,810 | $ | 1,777,953 | $ | 2,689,020 | $ | 2,947,892 | ||||||||||||
Liability Re-estimated as of: | ||||||||||||||||||||||||
One Year Later | 213 | 243,129 | 885,375 | 1,728,868 | 2,578,303 | |||||||||||||||||||
Two Years Later | 213 | 216,381 | 830,969 | 1,626,709 | ||||||||||||||||||||
Three Years Later | 213 | 207,945 | 771,983 | |||||||||||||||||||||
Four Years Later | 213 | 191,593 | ||||||||||||||||||||||
Five Years Later | 213 | |||||||||||||||||||||||
Cumulative (Redundancy) | — | (108,353 | ) | (192,827 | ) | (151,244 | ) | (110,717 | ) | |||||||||||||||
Cumulative Claims Paid as of: | ||||||||||||||||||||||||
One Year Later | — | 52,077 | 133,286 | 305,083 | 455,079 | |||||||||||||||||||
Two Years Later | — | 76,843 | 214,384 | 478,788 | ||||||||||||||||||||
Three Years Later | — | 93,037 | 271,471 | |||||||||||||||||||||
Four Years Later | 18 | 116,494 | ||||||||||||||||||||||
Five Years Later | 18 |
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Year Ended December 31, | ||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||
Liability Re-estimated as of: | ||||||||||||||||||||
One Year Later | 100 | % | 81 | % | 92 | % | 97 | % | 96 | % | ||||||||||
Two Years Later | 100 | % | 72 | % | 86 | % | 91 | % | ||||||||||||
Three Years Later | 100 | % | 69 | % | 80 | % | ||||||||||||||
Four Years Later | 100 | % | 64 | % | ||||||||||||||||
Five Years Later | 100 | % | ||||||||||||||||||
Cumulative (Redundancy) | — | (36 | )% | (20 | )% | (9 | )% | (4 | )% | |||||||||||
Net Loss and Loss Expense Cumulative Paid as a Percentage of Originally Estimated Liability Cumulative Claims Paid as of: | ||||||||||||||||||||
One Year Later | 0 | % | 17 | % | 14 | % | 17 | % | 17 | % | ||||||||||
Two Years Later | 0 | % | 26 | % | 22 | % | 27 | % | ||||||||||||
Three Years Later | 0 | % | 31 | % | 28 | % | ||||||||||||||
Four Years Later | 8 | % | 39 | % | ||||||||||||||||
Five Years Later | 8 | % |
Year Ended December 31, | ||||||||||||
2006 | 2005 | 2004 | ||||||||||
($ in thousands) | ||||||||||||
Gross liability at beginning of year | $ | 3,405,353 | $ | 2,037,124 | $ | 1,058,653 | ||||||
Reinsurance recoverable at beginning of year | (716,333 | ) | (259,171 | ) | (93,843 | ) | ||||||
Net liability at beginning of year | 2,689,020 | 1,777,953 | 964,810 | |||||||||
Net losses incurred related to: | ||||||||||||
Current year | 849,850 | 1,393,685 | 1,092,789 | |||||||||
Prior years | (110,717 | ) | (49,085 | ) | (79,435 | ) | ||||||
Total incurred | 739,133 | 1,344,600 | 1,013,354 | |||||||||
Net paid losses related to: | ||||||||||||
Current year | 27,748 | 125,018 | 69,186 | |||||||||
Prior years | 455,079 | 305,082 | 133,287 | |||||||||
Total paid | 482,827 | 430,100 | 202,473 | |||||||||
Foreign exchange revaluation | 2,566 | (3,433 | ) | 2,262 | ||||||||
Net liability at end of year | 2,947,892 | 2,689,020 | 1,777,953 | |||||||||
Reinsurance recoverable at end of year | 689,105 | 716,333 | 259,171 | |||||||||
Gross liability at end of year | $ | 3,636,997 | $ | 3,405,353 | $ | 2,037,124 | ||||||
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Fair | ||||||||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
($ in millions) | ||||||||||||||||
Type of Investment | ||||||||||||||||
U.S. government and agencies | $ | 1,704.9 | $ | 4.8 | $ | (9.6 | ) | $ | 1,700.1 | |||||||
Non-U.S. government securities | 93.8 | 4.2 | (0.7 | ) | 97.3 | |||||||||||
Corporate securities | 1,322.9 | 2.9 | (7.7 | ) | 1,318.1 | |||||||||||
Mortgage-backed securities | 1,828.5 | 5.7 | (10.3 | ) | 1,823.9 | |||||||||||
Asset-backed securities | 238.3 | 0.5 | (0.4 | ) | 238.4 | |||||||||||
Fixed IncomeSub-Total | 5,188.4 | 18.1 | (28.7 | ) | 5,177.8 | |||||||||||
Global high-yield bond fund | 27.7 | 5.3 | — | 33.0 | ||||||||||||
Hedge funds | 217.9 | 11.6 | — | 229.5 | ||||||||||||
Total | $ | 5,434.0 | $ | 35.0 | $ | (28.7 | ) | $ | 5,440.3 | |||||||
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Percentage | ||||||||||||
of Total | ||||||||||||
Amortized | Fair Market | Fair Market | ||||||||||
Cost | Value | Value | ||||||||||
($ in millions) | ||||||||||||
Ratings | ||||||||||||
U.S. government and government agencies | $ | 1,704.9 | $ | 1,700.1 | 32.8% | |||||||
AAA/Aaa | 2,427.5 | 2,426.3 | 46.9% | |||||||||
AA/Aa | 306.8 | 306.2 | 5.9% | |||||||||
A/A | 702.6 | 699.3 | 13.5% | |||||||||
BBB/Baa | 46.6 | 45.9 | 0.9% | |||||||||
Total | $ | 5,188.4 | $ | 5,177.8 | 100.0% | |||||||
Percentage | ||||||||||||
of Total | ||||||||||||
Amortized | Fair Market | Fair Market | ||||||||||
Cost | Value | Value | ||||||||||
($ in millions) | ||||||||||||
Maturity | ||||||||||||
Due within one year | $ | 147.2 | $ | 146.6 | 2.9% | |||||||
Due after one year through five years | 2,468.0 | 2,461.6 | 47.5% | |||||||||
Due after five years through ten years | 335.4 | 335.3 | 6.5% | |||||||||
Due after ten years | 171.0 | 172.0 | 3.3% | |||||||||
Mortgage-backed securities | 1,828.5 | 1,823.9 | 35.2% | |||||||||
Asset-backed securities | 238.3 | 238.4 | 4.6% | |||||||||
Total | $ | 5,188.4 | $ | 5,177.8 | 100.0% | |||||||
Net investment income | $ | 244.4 | ||
Net realized loss on sales of investments | $ | (28.7 | ) | |
Net change in unrealized gains and losses | $ | 32.0 | ||
Total net investment return | $ | 247.7 | ||
Total return(1) | 4.7 | % | ||
Effective annualized yield(2) | 4.5 | % |
(1) | Total return for our investment portfolio is calculated using beginning and ending market values adjusted for external cash flows and includes unrealized gains and losses. | |
(2) | Effective annualized yield is calculated by dividing net investment income by the average balance of aggregate invested assets, on an amortized cost basis. |
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• | is required, with respect to its general business, to maintain a minimum solvency margin equal to the greatest of (1) $100,000,000, (2) 50% of net premiums written (being gross premiums written less any premiums ceded, but the company may not deduct more than 25% of gross premiums written when computing net premiums written) and (3) 15% of net losses and loss expense reserves; | |
• | is prohibited from declaring or paying any dividends during any financial year if it is in breach of its minimum solvency margin or minimum liquidity ratio or if the declaration or payment of those dividends would cause it to fail to meet that margin or ratio (and if it has failed to meet its minimum solvency margin or minimum liquidity ratio on the last day of any financial year, Allied World Assurance Company, Ltd would be prohibited, without the approval of the BMA, from declaring or paying any dividends during the next financial year); | |
• | is prohibited from declaring or paying in any financial year dividends of more than 25% of its total statutory capital and surplus (as shown on its previous financial year’s statutory balance sheet) unless it files with the BMA (at least seven days before payment of those dividends) an affidavit stating that it will continue to meet the required margins; | |
• | is prohibited, without the approval of the BMA, from reducing by 15% or more its total statutory capital as set out in its previous year’s financial statements, and any application for an approval of that type must include an affidavit stating that it will continue to meet the required margins; and | |
• | is required, at any time it fails to meet its solvency margin, within 30 days (45 days where total statutory capital and surplus falls to $75 million or less) after becoming aware of that failure or having reason to believe that a failure has occurred, to file with the BMA a written report containing specified information. |
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Name | Age | Position | ||||
Michael I.D. Morrison | 77 | Chairman of the Board | ||||
Bart Friedman | 62 | Deputy Chairman of the Board | ||||
Scott A. Carmilani | 42 | President, Chief Executive Officer & Director | ||||
Philip D. Defeo | 61 | Director | ||||
James F. Duffy | 63 | Director | ||||
Scott Hunter | 55 | Director | ||||
Mark R. Patterson | 55 | Director | ||||
Samuel J. Weinhoff | 56 | Director |
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Fees | ||||||||||||||||||||
Earned or | ||||||||||||||||||||
Paid in | Stock | Option | All Other | |||||||||||||||||
Name | Cash ($)(1) | Awards ($)(2) | Awards ($) | Compensation | Total ($)(6) | |||||||||||||||
Michael I.D. Morrison | $ | 55,000 | $ | 104,483 | (3) | $ | 215,249 | (4) | $ | 157,902 | (5) | $ | 532,634 | |||||||
Bart Friedman | $ | 56,500 | $ | 15,612 | — | — | $ | 72,112 | ||||||||||||
Philip D. DeFeo | $ | 11,250 | — | — | — | $ | 11,250 | |||||||||||||
James F. Duffy | $ | 30,000 | $ | 7,515 | — | — | $ | 37,515 | ||||||||||||
Scott Hunter | $ | 61,500 | $ | 15,612 | — | — | $ | 77,112 | ||||||||||||
Mark R. Patterson | $ | 62,000 | $ | 15,612 | — | — | $ | 77,612 | ||||||||||||
Samuel J. Weinhoff | $ | 31,500 | $ | 7,515 | — | — | $ | 39,015 | ||||||||||||
Allan Cockell(7) | $ | 2,000 | — | — | — | $ | 2,000 | |||||||||||||
Anthony Pilling(8) | $ | 2,000 | — | — | — | $ | 2,000 |
(1) | Reflects the pro rata portion of the $45,000 annual retainer received by each non-employee director as well as meeting fees and committeeand/or chairman fees. Messrs. Friedman, Hunter and Patterson joined our board of directors on March 3, 2006; Messrs. Duffy and Weinhoff joined our board of directors on July 17, 2006; and Mr. DeFeo joined our board of directors on November 10, 2006. | |
(2) | As of December 31, 2006, an aggregate of 20,436 RSUs were outstanding and held by our non-employee directors. Messrs. Friedman, Hunter and Patterson each received 2,204 RSUs in March 2006 and Messrs. Duffy and Weinhoff each received 1,912 RSUs in July 2006. The RSUs issued in March 2006 to Messrs. Friedman, Hunter and Patterson were revalued in July 2006 as a result of a modification in the Allied World Assurance Company Holdings, Ltd Amended and Restated 2004 Stock Incentive Plan (the “Stock Incentive Plan”) combined with the IPO. The revised grant date fair value of each of these RSUs was based on the IPO price of $34.00 per share, and totaled $74,936 for each of these directors. On March 3, 2007, 25% of the RSUs awarded to Messrs. Friedman, Hunter and Patterson vested and each director received 551 common shares. The RSUs issued to Messrs. Duffy and Weinhoff in July 2006 had a grant date fair value of $34.00 per RSU for a fair value of $65,000. To date, no portion of these July 2006 RSU awards |
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has vested. The total stock award compensation expense recorded in this table represents the accounting expense recognized in the consolidated financial statements of the company in accordance with the Statement of Financial Accounting Standards No. 123(R) “Share Based Payment” (“FAS 123(R)”) and does not correspond to the actual value that will be recognized by each director. For additional information on the calculation of the compensation expense, please refer to note 9(b) and (c) of the company’s consolidated financial statements contained in this prospectus. | ||
(3) | Mr. Morrison received 10,000 RSUs in May 2004 when he was our President and Chief Executive Officer. To date, no portion of these RSU awards has vested. These RSUs were revalued in July 2006 as a result of a modification in the Stock Incentive Plan combined with the IPO. The incremental value as a result of the modification of the plan amounted to $28,000 and has been calculated using the difference between the IPO price and our book value just prior to the IPO. The total stock award compensation expense recorded in this table represents the accounting expense recognized in our consolidated financial statements in accordance with FAS 123(R) and does not correspond to the actual value that will be recognized by this director. | |
(4) | No stock options were granted to our non-employee directors in 2006. The $215,249 reflects the incremental fair value related to stock options to purchase 116,667 common shares granted to Mr. Morrison in 2001 and 2003, when he was our President and Chief Executive Officer, and which amount was recognized in our 2006 consolidated financial statements in accordance with FAS 123(R) and does not correspond to the actual value that will be recognized by this director. Mr. Morrison’s outstanding stock options were fully vested as of December 31, 2006 and represent all of the outstanding stock options currently held by our non-employee directors. No stock options were exercised by Mr. Morrison in 2006. | |
(5) | In October 2004, we entered into a consulting agreement with Mr. Morrison, who presently serves as our Chairman of the Board, pursuant to which he receives $150,000 annually. In 2006, we also paid health benefits on behalf of Mr. Morrison and his wife. These amounts are shown in the “All Other Compensation” column above. | |
(6) | In 2006, none of our non-employee directors received any non-equity incentive plan compensation. In addition, we do not currently have any pension or deferred compensation plans for our non-employee directors. Accordingly, these columns are not included in the “Non-Employee Directors Compensation” table above. | |
(7) | Resigned from our board of directors on February 17, 2006. | |
(8) | Resigned from our board of directors on February 10, 2006. |
• | $45,000 annually for serving as a director; and | |
• | $1,500 per meeting attended by a director (meetings of Allied World Assurance Company Holdings, Ltd and Allied World Assurance Company, Ltd held on the same day are considered one meeting for the purpose of calculating attendance fees). |
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Name | Age | Position | ||||
Scott A. Carmilani(1) | 42 | President, Chief Executive Officer and Director | ||||
Joan H. Dillard | 55 | Senior Vice President and Chief Financial Officer | ||||
Wesley D. Dupont | 38 | Senior Vice President, General Counsel and Secretary | ||||
Marshall J. Grossack | 47 | Senior Vice President — Chief Corporate Actuary | ||||
Richard E. Jodoin | 55 | President, Allied World Assurance Company (U.S.) Inc. and Newmarket Underwriters Insurance Company | ||||
John T. Redmond | 51 | President — Allied World Assurance Company (Europe) Limited and Allied World Assurance Company (Reinsurance) Limited |
(1) | Biography available under “Directors”. |
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• | Driving and rewarding employee performance that supports our business objectives and financial success; | |
• | Attracting and retaining talented and highly-skilled employees; | |
• | Aligning senior officer compensation with our financial success by having a substantial portion of compensation in performance-based equity awards, particularly at the senior officer level where such person can more directly affect our financial success; | |
• | Encouraging employees at all levels to strive to advance our business objectives, grow within the organization and build a career at the company; | |
• | Remaining competitive with other insurance and reinsurance companies, particularly other Bermuda insurance and reinsurance companies with whom we compete for talent; and | |
• | Balancing the objectives ofpay-for-performance and retention. The insurance and reinsurance industry is cyclical and often volatile. Even in periods of downturns in the industry generally and in our performance specifically, our compensation programs should continue to ensure that successful, high-achieving employees will remain motivated and committed to the company. |
• | Using the services of Watson Wyatt, an independent compensation consultant, to advise on executive compensation issues; | |
• | Realigning compensation structures, including adopting a performance-based equity plan in 2006, based on a more clearly defined pay strategy; and | |
• | Reviewing an industry specific Bermuda Peer Group (as discussed below) and reviewing other published survey and compensation market data for more precise compensation comparisons. |
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• | The compensation committee meets with the CEO and reviews his compensation recommendations for senior officers, including the other NEOs; | |
• | Our board of directors interacts with the NEOs and certain other senior officers throughout the year, helping the board members understand each person’s role at the company; and | |
• | We have engaged Watson Wyatt for the benefit of the compensation committee to conduct analyses on key aspects of NEO and other senior officer pay and performance, and to provide recommendations about plan design. |
• | Assessment of company performance; | |
• | Assessment of individual performance; | |
• | Benchmarking; and | |
• | Total compensation review, which includes base salary, annual cash bonuses, long-term incentive compensation, perquisites and contributions to retirement plans. |
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• | Base salary; | |
• | Annual Cash bonus; | |
• | Equity compensation, through grants of RSUs and performance-based awards under our Long-Term Incentive Plan (“LTIP”); | |
• | Perquisites, particularly reimbursement for housing expenses and a cost of living allowance for our senior officers residing in Bermuda; and | |
• | Retirement, health and welfare benefits. |
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Bonus Target | ||||
Name | Percentage | |||
Scott A. Carmilani | 100 | % | ||
Joan H. Dillard | 75 | % | ||
Wesley D. Dupont | 40 | % | ||
Richard E. Jodoin | 60 | % | ||
G. William Davis, Jr. | 75 | % |
Performance | Minimum | Maximum | ||||
Versus Goal | Target | Target | Target | |||
EBIT | $282 million | $353 million | $424 million | |||
EBIT as a Percentage Goal | 80% | 100% | 120% | |||
Bonus Pool Funding | 50% | 100% | 150% |
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• | successfully completing the IPO and obtaining a New York Stock Exchange listing; | |
• | successfully raising approximately $500.0 million in July 2006 through the issuance of our 7.50% senior notes due 2016 (which are described in this prospectus); | |
• | growing our U.S. operations, with offices in Boston, Chicago, New York and San Francisco; and | |
• | transitioning away from services provided by our founding shareholders and providing our own technological infrastructure and administrative services. |
Bonus as a | Bonus as a | |||||||
Name | Percentage of Salary | Percentage of Target | ||||||
Scott A. Carmilani | 163.6 | % | 163.6 | % | ||||
Joan H. Dillard | 110.0 | % | 146.7 | % | ||||
Wesley D. Dupont | 58.5 | % | 146.2 | % | ||||
Richard E. Jodoin | 75.0 | % | 125.0 | % | ||||
G. William Davis, Jr. | 123.1 | % | 164.1 | % |
• | the Allied World Assurance Company Holdings, Ltd Amended and Restated 2001 Employee Stock Option Plan (the “Stock Option Plan”); | |
• | the Stock Incentive Plan; and | |
• | the LTIP. |
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Performance | Below | |||||||
Versus Goal | Threshold | Threshold | Target | Maximum | ||||
2006-2008 Average Per Annum Adjusted Book Value Growth | Below 9% | 9% | 12% | 15% | ||||
Number of Shares Earned | 0 | 50% | 100% | 150% | ||||
of Targeted Shares | of Targeted Shares | of Targeted Shares |
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Name | Target Shares | |||
Scott A. Carmilani | 60,000 | |||
Joan H. Dillard | 13,333 | |||
Wesley D. Dupont | 10,000 | |||
Richard E. Jodoin | 13,333 | |||
G. William Davis, Jr. | 20,000 |
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2007 | ||||
Name | Base Salary(1) | |||
Scott A. Carmilani | $ | 900,000 | ||
Joan H. Dillard | $ | 320,000 | ||
Wesley D. Dupont | $ | 276,500 | ||
Richard E. Jodoin | $ | 302,500 | ||
G. William Davis, Jr.(2) | $ | 345,000 |
(1) | Effective retroactive to January 1, 2007. | |
(2) | Mr. Davis retired effective as of March 31, 2007. Pursuant to the terms of his Retirement and Consulting Agreement, described below in “— Employment Agreements”, Mr. Davis will receive all accrued but unpaid base salary through March 31, 2007. |
Change in | ||||||||||||||||||||||||||||||||
Pension Value | ||||||||||||||||||||||||||||||||
and Non-Qualified | ||||||||||||||||||||||||||||||||
Non-Equity | Deferred | |||||||||||||||||||||||||||||||
Stock | Option | Incentive Plan | Compensation | All Other | ||||||||||||||||||||||||||||
Salary | Awards | Awards | Compensation | Earnings | Compensation | Total | ||||||||||||||||||||||||||
Name and Principal Position | Year | ($) | ($)(2) | ($)(3) | ($)(4) | ($) | ($)(5) | ($) | ||||||||||||||||||||||||
Scott A. Carmilani(1) | 2006 | $ | 550,000 | $ | 1,457,120 | $ | 209,105 | $ | 900,000 | — | $ | 418,633 | $ | 3,534,858 | ||||||||||||||||||
President, Chief ExecutiveOfficer and Director | ||||||||||||||||||||||||||||||||
Joan H. Dillard | 2006 | $ | 300,000 | $ | 325,117 | $ | 100,589 | $ | 330,000 | — | $ | 238,333 | $ | 1,294,039 | ||||||||||||||||||
Senior Vice President andChief Financial Officer | ||||||||||||||||||||||||||||||||
Wesley D. Dupont | 2006 | $ | 265,000 | $ | 303,518 | $ | 75,442 | $ | 155,000 | — | $ | 279,702 | $ | 1,078,662 | ||||||||||||||||||
Senior Vice President, GeneralCounsel and Secretary | ||||||||||||||||||||||||||||||||
Richard E. Jodoin | 2006 | $ | 300,000 | $ | 322,481 | $ | 58,385 | $ | 225,000 | — | $ | 37,075 | $ | 942,941 | ||||||||||||||||||
President, Allied World AssuranceCompany (U.S.) Inc. and NewmarketUnderwriters Insurance Company | ||||||||||||||||||||||||||||||||
G. William Davis, Jr.(6) | 2006 | $ | 325,000 | $ | 462,623 | $ | 115,286 | $ | 400,000 | — | $ | 286,403 | $ | 1,589,312 | ||||||||||||||||||
Jordan M. Gantz(7) | 2006 | $ | 425,000 | $ | 139,162 | $ | 105,607 | — | — | $ | 782,809 | $ | 1,452,578 |
(1) | Mr. Carmilani receives no additional compensation for serving as one of our directors. | |
(2) | The amounts shown in the “Stock Awards” column equal the dollar amount recognized by us during 2006 as compensation expense for financial statement reporting purposes as a result of RSU awards made in 2006 and in prior years and performance-based awards made under our LTIP in 2006 in accordance with FAS 123(R). Pursuant to the SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For RSUs and LTIP awards issued in 2006, the fair value has been calculated using the closing price of the company’s common shares on the date of grant. For RSUs issued prior to 2006, the incremental fair value as a result of the IPO and modification of the plans has been calculated using the difference between the IPO price of $34.00 per share and the book value immediately prior to the IPO. For additional information on the calculation of the compensation expense, please refer to note 9(b) and (c) of our consolidated financial statements contained in this prospectus. These amounts reflect our accounting expense for these awards and do not correspond to the actual value that will be recognized by the NEOs. For more information on RSU and performance-based awards under our LTIP made to the NEOs during 2006, please see the “Grants of Plan-Based Awards” table below. | |
(3) | The amounts shown in the “Option Awards” column equal the dollar amount recognized by us during 2006 as compensation expense for financial reporting purposes as a result of options granted in 2006 and in prior years in accordance with FAS 123(R). Pursuant to the SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service- |
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based vesting conditions. For stock option awards issued in 2006 and in prior years, the fair value has been calculated by using the Black-Scholes option-pricing model. For additional information on the calculation of the compensation expense including the valuation assumptions used within the option-pricing model, please refer to note 9(a) of our consolidated financial statements contained in this prospectus. These amounts reflect our accounting expense for these awards and do not correspond to the actual value that will be recognized by the NEOs. For more information on option grants made to the NEOs during 2006, please see the “Grants of Plan-Based Awards” table below. | ||
(4) | The amounts shown in the “Non-Equity Incentive Plan Compensation” column represent cash bonuses earned under our 2006 cash bonus plan and were paid in February 2007. For a description of our annual cash bonus plan, see “— Compensation Discussion and Analysis — Cash Compensation — Annual Cash Bonus”. | |
(5) | The amounts shown in the “All Other Compensation” column are attributable to perquisites and other personal benefits or compensation not reported elsewhere in the Summary Compensation Table. The table below shows certain components of the “All Other Compensation” column. |
401(k)/ | ||||||||||||||||||||||||
Bermuda | ||||||||||||||||||||||||
Pension Plan | SERP | Tax | Voluntary | Aggregate | ||||||||||||||||||||
Company | Company | ‘‘Gross- | Termination | “All Other | ||||||||||||||||||||
Name | Contributions | Contributions(b) | Perquisites(c) | Ups”(d) | Payments | Compensation” | ||||||||||||||||||
Scott A. Carmilani | $ | 11,000 | $ | 20,000 | $ | 289,222 | $ | 98,411 | — | $ | 418,633 | |||||||||||||
Joan H. Dillard | $ | 11,000 | $ | 20,000 | $ | 166,119 | $ | 41,214 | — | $ | 238,333 | |||||||||||||
Wesley D. Dupont | $ | 11,000 | $ | 20,000 | $ | 192,264 | $ | 56,438 | — | $ | 279,702 | |||||||||||||
Richard E. Jodoin | $ | 11,000 | $ | 20,000 | $ | 6,075 | — | — | $ | 37,075 | ||||||||||||||
G. William Davis, Jr. | $ | 16,250 | (a) | $ | 20,000 | $ | 192,010 | $ | 58,143 | — | $ | 286,403 | ||||||||||||
Jordan M. Gantz | $ | 11,000 | $ | 20,000 | $ | 222,176 | $ | 72,424 | $ | 457,209 | (e) | $ | 782,809 |
(a) | Mr. Davis participates in our Bermuda pension plan. | |
(b) | We made contributions to the SERP on behalf of Messrs. Carmilani, Davis, Dupont, Jodoin and Gantz and Ms. Dillard. | |
(c) | Perquisites in 2006 for the NEOs include reimbursements for amounts for certain home leave travel expenses, housing allowances, utilities, club dues, life insurance premiums, tax preparation, parking, storage expenses, company-leased or fractionally-owned airplane usage and cost of living allowances. Not all of these perquisites are applicable to all of our NEOs. For 2006, Mr. Carmilani received a housing allowance of $192,000 and a cost of living allowance of $62,088; Ms. Dillard received a housing allowance of $88,200 and a cost of living allowance of $61,380; Mr. Davis received a housing allowance of $120,000 and a cost of living allowance of $61,380; and Mr. Dupont received a housing allowance of $112,700 and a cost of living allowance of $60,313. For 2006, Mr. Gantz received a housing allowance of $144,000 and a cost of living allowance of $61,380. We lease the fractional use of one aircraft and fractionally own another. The incremental cost of the personal use of these aircraft is based on the variable operating costs to us, including fuel costs, mileage, trip-related maintenance, federal excise tax, landing/ramp fees and other miscellaneous variable costs. Fixed costs that do not change based on usage, such as the lease and ownership costs and the cost of maintenance not related to trips, are excluded. During 2006, Mr. Carmilani used one aircraft on one occasion for personal use. The incremental cost of such use is included in the aggregate amount of perquisites he received in 2006. For more information on personal benefits and perquisites, please see “— Compensation Discussion and Analysis — Benefits and Perquisites”. | |
(d) | We agreed to“gross-up” our employees residing in Bermuda who are U.S. taxpayers for additional tax obligations incurred in 2006 as a result of the Tax Act. The amounts provided in the table above for TaxGross-Ups are estimates based on advice from an independent tax advisor and our current understanding of the Tax Act. The application of the Tax Act to the applicable NEOs has not been finalized and the“gross-up” amounts provided above are subject to revision. For more information on personal benefits and perquisites, please see “— Compensation Discussion and Analysis — Benefits and Perquisites”. | |
(e) | Pursuant to his separation and release agreement, “voluntary termination payments” to Mr. Gantz included a discounted lump sum payment of nine month’s base salary of $315,247, repatriation and shipping expenses between Bermuda and the United States of $100,000, a cash payment of $32,962 for unused vacation days and up to $9,000 for medical and dental benefits equivalent to those provided by the company. |
(6) | Mr. Davis retired as our Executive Vice President — Worldwide Treaty & Facultative Reinsurance, effective as of March 31, 2007. | |
(7) | Mr. Gantz, our former Executive Vice President and Chief Underwriting Officer, voluntarily terminated his employment with the company and its subsidiaries as of December 31, 2006. |
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All | All | |||||||||||||||||||||||||||||||||||||||||||
Other | Other | Grant | ||||||||||||||||||||||||||||||||||||||||||
Stock | Option | Exercise | Date Fair | |||||||||||||||||||||||||||||||||||||||||
Awards: | Awards: | or Base | Value of | |||||||||||||||||||||||||||||||||||||||||
Number of | Number of | Price of | Stock | |||||||||||||||||||||||||||||||||||||||||
Estimated Future Payouts Under Non- | Estimated Future Payouts Under | Shares of | Securities | Option | and | |||||||||||||||||||||||||||||||||||||||
Grant | Equity Incentive Plan Awards(2) | Equity Incentive Plan Awards(3) | Stock or | Underlying | Awards | Option | ||||||||||||||||||||||||||||||||||||||
Name | Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | Units (#) | Options (#)(6) | ($/Sh) | Awards | |||||||||||||||||||||||||||||||||
Scott A. Carmilani | 5/22/2006 | $ | 275,000 | $ | 550,000 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
5/22/2006 | — | — | — | 30,000 | 60,000 | 90,000 | — | — | — | $ | 3,060,000 | |||||||||||||||||||||||||||||||||
7/11/2006 | (1) | — | — | — | — | — | — | 25,000 | (4) | — | — | 70,000 | ||||||||||||||||||||||||||||||||
7/11/2006 | — | — | — | — | — | — | 50,000 | (5) | — | — | 1,700,000 | |||||||||||||||||||||||||||||||||
7/11/2006 | (1) | — | — | — | — | — | — | — | 66,667 | $ | 24.27 | 46,447 | ||||||||||||||||||||||||||||||||
7/11/2006 | (1) | — | — | — | — | — | — | — | 13,333 | $ | 23.61 | 41,673 | ||||||||||||||||||||||||||||||||
7/11/2006 | (1) | — | — | — | — | — | — | — | 13,333 | $ | 29.52 | 84,074 | ||||||||||||||||||||||||||||||||
7/11/2006 | (1) | — | — | — | — | — | — | — | 20,000 | $ | 32.70 | 172,912 | ||||||||||||||||||||||||||||||||
Joan H. Dillard | 5/22/2006 | $ | 112,500 | $ | 225,000 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
5/22/2006 | — | — | — | 6,666 | 13,333 | 19,999 | — | — | — | $ | 679,983 | |||||||||||||||||||||||||||||||||
7/11/2006 | (1) | — | — | — | — | — | — | 3,333 | (4) | — | — | 9,332 | ||||||||||||||||||||||||||||||||
7/11/2006 | — | — | — | — | — | — | 20,000 | (5) | — | — | 680,000 | |||||||||||||||||||||||||||||||||
7/11/2006 | (1) | — | — | — | — | — | — | — | 33,333 | $ | 28.32 | 402,354 | ||||||||||||||||||||||||||||||||
Wesley D. Dupont | 5/22/2006 | $ | 53,000 | $ | 106,000 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
5/22/2006 | — | — | — | 5,000 | 10,000 | 15,000 | — | — | — | $ | 510,000 | |||||||||||||||||||||||||||||||||
7/11/2006 | (1) | — | — | — | — | — | — | 3,333 | (4) | — | — | 9,332 | ||||||||||||||||||||||||||||||||
7/11/2006 | — | — | — | — | — | — | 30,000 | (5) | — | — | 1,020,000 | |||||||||||||||||||||||||||||||||
7/11/2006 | (1) | — | — | — | — | — | — | — | 25,000 | $ | 28.32 | 301,769 | ||||||||||||||||||||||||||||||||
Richard E. Jodoin | 5/22/2006 | $ | 90,000 | $ | 180,000 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
5/22/2006 | — | — | — | 6,666 | 13,333 | 19,999 | — | — | — | $ | 679,983 | |||||||||||||||||||||||||||||||||
7/11/2006 | (1) | — | — | — | — | — | — | 3,334 | (4) | — | — | 9,335 | ||||||||||||||||||||||||||||||||
7/11/2006 | — | — | — | — | — | — | 17,500 | (5) | — | — | 595,000 | |||||||||||||||||||||||||||||||||
7/11/2006 | (1) | — | — | — | — | — | — | — | 50,000 | $ | 24.27 | 34,835 | ||||||||||||||||||||||||||||||||
7/11/2006 | (1) | — | — | — | — | — | — | — | 1,667 | $ | 23.61 | 5,210 | ||||||||||||||||||||||||||||||||
7/11/2006 | (1) | — | — | — | — | — | — | — | 2,500 | $ | 29.52 | 15,764 | ||||||||||||||||||||||||||||||||
7/11/2006 | (1) | — | — | — | — | — | — | — | 2,500 | $ | 32.70 | 21,614 | ||||||||||||||||||||||||||||||||
G. William Davis, Jr.(7) | 5/22/2006 | $ | 121,875 | $ | 243,750 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
5/22/2006 | — | — | — | 10,000 | 20,000 | 30,000 | — | — | — | $ | 1,020,000 | |||||||||||||||||||||||||||||||||
7/11/2006 | (1) | — | — | — | — | — | — | 11,666 | (4) | — | — | 32,665 | ||||||||||||||||||||||||||||||||
7/11/2006 | (1) | — | — | — | — | — | — | — | 8,333 | $ | 24.27 | 5,806 | ||||||||||||||||||||||||||||||||
7/11/2006 | (1) | — | — | — | — | — | — | — | 13,333 | $ | 23.61 | 41,673 | ||||||||||||||||||||||||||||||||
7/11/2006 | (1) | — | — | — | — | — | — | — | 6,667 | $ | 29.52 | 42,040 | ||||||||||||||||||||||||||||||||
7/11/2006 | (1) | — | — | — | — | — | — | — | 5,000 | $ | 31.47 | 36,734 | ||||||||||||||||||||||||||||||||
7/11/2006 | (1) | — | — | — | — | — | — | — | 8,333 | $ | 32.70 | 72,044 | ||||||||||||||||||||||||||||||||
Jordan M. Gantz(8) | 7/11/2006 | (1) | — | — | — | — | — | — | 13,333 | (4) | — | — | $ | 37,332 | ||||||||||||||||||||||||||||||
7/11/2006 | (1) | — | — | — | — | — | — | — | 50,000 | $ | 24.27 | 34,835 | ||||||||||||||||||||||||||||||||
7/11/2006 | (1) | — | — | — | — | — | — | — | 5,000 | $ | 23.61 | 15,628 | ||||||||||||||||||||||||||||||||
7/11/2006 | (1) | — | — | — | — | — | — | — | 6,667 | $ | 29.52 | 42,040 | ||||||||||||||||||||||||||||||||
7/11/2006 | (1) | — | — | — | — | — | — | — | 8,333 | $ | 32.70 | 72,044 |
(1) | Represents the date on which the Stock Incentive Plan and Stock Option Plan was modified in accordance with FAS 123(R) due to our IPO. | |
(2) | Our 2006 cash bonus plan provided for funding of the pool based on target EBIT goals. The NEOs are eligible for annual cash bonuses as a percentage of their base salaries. For more information on the target EBIT goals and percentages, see “— Compensation Discussion and Analysis — Cash Compensation — Annual Cash Bonus”. | |
The amounts provided in the “Estimated Future Payouts Under Non-Equity Incentive Plan Awards” columns above assume that the same percentage of funding of the annual cash bonus pool will be applied to each NEO. | ||
Threshold. The amounts provided in the applicable “threshold” column above assume that the annual cash bonus pool will be 50% funded and that each NEO will receive 50% of the cash bonus that he or she is eligible to receive. Accordingly, we have reduced by 50% the amount each NEO would be eligible to receive based on his or her target bonus as a percentage of base salary, as reflected below in the “adjusted bonus” column below. |
Bonus Target as a | Adjusted Bonus Target as | |||||||
Percentage of | a Percentage of | |||||||
Name | Base Salary | Base Salary | ||||||
Scott A. Carmilani | 100 | % | 50.0 | % | ||||
Joan H. Dillard | 75 | % | 37.5 | % | ||||
Wesley D. Dupont | 40 | % | 20.0 | % | ||||
Richard E. Jodoin | 60 | % | 30.0 | % | ||||
G. William Davis | 75 | % | 37.5 | % |
The amounts provided in the applicable “threshold” column above indicates the dollar amount calculated by multiplying the “adjusted bonus target as a percentage of base salary” (as set forth in the table in this footnote) by the NEO’s base salary. |
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Target. The amounts provided in the applicable “target” column above assume that the annual cash bonus pool will be 100% funded and that each NEO will receive the full amount of the cash bonus that he or she is eligible to receive. The dollar amount for each NEO is calculated by multiplying the “bonus target as a percentage of base salary” (as set forth in the table in this footnote) by the NEO’s base salary. | ||
Maximum. Individual bonuses under the 2006 cash bonus plan are not capped or subject to any maximums. Accordingly, no information appears in the applicable column above. | ||
(3) | The vesting of performance-based awards under the LTIP are currently based on “average per annum adjusted book value” growth, which is described in greater detail in “— Compensation Discussion and Analysis — Equity Compensation — LTIP”. The vested share amounts disclosed in the applicable “threshold”, “target” and “maximum” columns of the “Estimated Future Payouts Under Equity Incentive Plan Awards” heading assume a 9%, 12% and 15% per annum growth in adjusted book value. Each of the performance-based awards made under the LTIP had a grant date fair value equal to the IPO price of $34.00 per share. In calculating the grant date value, it was assumed that the maximum performance target regarding such awards will be attained, and accordingly, the grant date value has been increased to 150% of the value based on the target performance-based awards issued. | |
(4) | In conjunction with the IPO, the previously implemented Stock Incentive Plan was amended and modified. In accordance with FAS 123(R), the outstanding RSUs issued under the Stock Incentive Plan were revalued as of the modification date at the IPO price of $34.00 per share. The number of RSUs reflected for each NEO is the aggregate number of RSUs issued to the NEO prior to 2006. The grant date fair value included in the table reflects the difference between the value of the RSUs prior to the IPO and the IPO price of $34.00 per share multiplied by the aggregate number of RSU issued to the NEO. | |
(5) | On July 11, 2006, special retention RSUs were granted to our employees. For more information on the special retention RSU awards, please see “— Compensation Discussion and Analysis — Equity Compensation — RSU Awards”. The grant date value per RSU was equal to the IPO price of $34.00 per share. | |
(6) | In conjunction with the IPO, the previously implemented warrant plan was amended and modified and converted to the Stock Option Plan. Any warrants issued under the warrant plan were revalued and converted to stock options. The stock options were then revalued using the Black-Scholes option-pricing model. The grant date value included in the table reflects the difference between the value of the stock options taken prior to the IPO, and the revised value based on the Black-Scholes option-pricing model. | |
(7) | In connection with his retirement on March 31, 2007, Mr. Davis received 30,000 common shares, which is equivalent to 150% of his 2006 target award under the LTIP. | |
(8) | Mr. Gantz received no cash bonus or equity award from the company during 2006. |
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Number of Securities | ||||||||||||
Number of Securities | Remaining Available | |||||||||||
to be Issued | Weighted-Average | for Future Issuance | ||||||||||
Upon Exercise of | Exercise Price of | Under Equity Compensation | ||||||||||
Outstanding Options, | Outstanding Options, | Plans (Excluding Securities | ||||||||||
Plan Category | Warrants and Rights(1) | Warrants and Rights | Reflected in the First Column) | |||||||||
Equity compensation plans approved by shareholders | 1,195,990 | $ | 27.59 | 2,094,784 | (2) | |||||||
Equity compensation plans not approved by shareholders(3) | — | $ | — | 1,771,666 | ||||||||
Total | 1,195,990 | $ | 27.59 | 3,866,450 |
(1) | Represents stock options granted under the Stock Option Plan. | |
(2) | Includes common shares available for issuance pursuant to the stock options granted under the Stock Option Plan and RSUs available for issuance under the Stock Incentive Plan. | |
(3) | Represents common shares available for issuance under the LTIP. |
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Option Awards | Stock Awards | |||||||||||||||||||||||||||||||
Equity Incentive | ||||||||||||||||||||||||||||||||
Market Value | Equity Incentive | Plan Awards: | ||||||||||||||||||||||||||||||
Number of | Number of | Number of | of Shares | Plan Awards: | Market or | |||||||||||||||||||||||||||
Securities | Securities | Shares or | or Units of | Number of | Payout Value of | |||||||||||||||||||||||||||
Underlying | Underlying | Units of | Stock That | Unearned Shares, | Unearned Shares, | |||||||||||||||||||||||||||
Unexercised | Unexercised | Option | Option | Stock That | Have Not | Units, or Other | Units, or Other | |||||||||||||||||||||||||
Options (#) | Options (#) | Exercise | Expiration | Have Not | Vested | Rights That Have | Rights That Have | |||||||||||||||||||||||||
Name | Exercisable | Unexercisable | Price(1)($) | Date | Vested (#) | ($)(6) | Not Vested (#)(7) | Not Vested ($)(6) | ||||||||||||||||||||||||
Scott A. Carmilani | 66,667 | — | $ | 24.27 | 11/21/2011 | 16,667 | (2) | $ | 727,181 | 60,000 | $ | 2,617,800 | ||||||||||||||||||||
9,999 | 3,334 | $ | 23.61 | 1/02/2013 | 8,333 | (3) | $ | 363,569 | — | — | ||||||||||||||||||||||
9,999 | 3,334 | $ | 29.52 | 12/31/2013 | 50,000 | (4) | $ | 2,181,500 | — | — | ||||||||||||||||||||||
5,000 | 15,000 | $ | 32.70 | 1/03/2015 | — | — | — | — | ||||||||||||||||||||||||
Joan H. Dillard | 8,333 | 25,000 | $ | 28.32 | 12/01/2015 | 2,500 | (5) | $ | 109,075 | 13,333 | $ | 581,719 | ||||||||||||||||||||
— | — | — | — | 20,000 | (4) | $ | 872,600 | — | — | |||||||||||||||||||||||
Wesley D. Dupont | 6,250 | 18,750 | $ | 28.32 | 12/01/2015 | 2,500 | (5) | $ | 109,075 | 10,000 | $ | 436,300 | ||||||||||||||||||||
— | — | — | — | 30,000 | (4) | $ | 1,308,900 | — | — | |||||||||||||||||||||||
Richard E. Jodoin | 50,000 | — | $ | 24.27 | 11/21/2011 | 1,667 | (2) | $ | 72,731 | 13,333 | $ | 581,719 | ||||||||||||||||||||
1,250 | 417 | $ | 23.61 | 1/02/2013 | 1,667 | (3) | $ | 72,731 | — | — | ||||||||||||||||||||||
1,875 | 625 | $ | 29.52 | 12/31/2013 | 17,500 | (4) | $ | 763,525 | — | — | ||||||||||||||||||||||
625 | 1,875 | $ | 32.70 | 1/03/2015 | — | — | — | — | ||||||||||||||||||||||||
G. William Davis, Jr. | 8,333 | — | $ | 24.27 | 11/21/2011 | 8,333 | (2)(8) | $ | 363,569 | (8) | 20,000 | (8) | $ | 872,600 | (8) | |||||||||||||||||
9,999 | 3,334 | (8) | $ | 23.61 | 1/02/2013 | 3,333 | (3)(8) | $ | 145,419 | (8) | — | — | ||||||||||||||||||||
5,000 | 1,667 | (8) | $ | 29.52 | 12/31/2013 | — | — | — | — | |||||||||||||||||||||||
2,500 | 2,500 | (8) | $ | 31.47 | 5/27/2014 | — | — | — | — | |||||||||||||||||||||||
2,083 | 6,250 | (8) | $ | 32.70 | 1/03/2015 | — | — | — | — | |||||||||||||||||||||||
Jordan M. Gantz | 50,000 | — | $ | 24.27 | 03/31/2007 | 8,333 | (9) | $ | 363,569 | — | — | |||||||||||||||||||||
3,750 | 1,250 | $ | 23.61 | 03/31/2007 | 5,000 | (9) | $ | 218,150 | — | — | ||||||||||||||||||||||
5,000 | 1,667 | $ | 29.52 | 03/31/2007 | — | — | — | — | ||||||||||||||||||||||||
2,083 | 6,250 | $ | 32.70 | 03/31/2007 | — | — | — | — |
(1) | The table below shows the vesting dates of each stock option: |
Stock Option | ||
Exercise Price | Vesting Dates | |
$24.27 | Fully vested | |
$23.61 | January 2, 2007 | |
$29.52 | December 31, 2007 | |
$32.70 | Pro rata on January 3, 2007, 2008 and 2009 | |
$28.32 | Pro rata on December 1, 2007, 2008 and 2009 | |
$31.47 | Pro rata on May 27, 2007 and 2008 |
(2) | These RSUs vest on May 27, 2008. | |
(3) | These RSUs vest on January 3, 2009. | |
(4) | These RSUs vest as follows: 50% on July 11, 2010 and 50% on July 11, 2011. | |
(5) | These RSUs vest pro rata on December 1, 2007, 2008 and 2009. | |
(6) | Assumes a price of $43.63 per common share, the closing price as of December 31, 2006. | |
(7) | These performance-based equity awards are not eligible to vest until after December 31, 2008. | |
(8) | In connection with Mr. Davis’ retirement from the company, all stock options and restricted stock units received by Mr. Davis vested as of March 31, 2007. | |
(9) | Pursuant to Mr. Gantz’s separation and release agreement, all of his unvested equity grants will be forfeited. |
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Option Awards | Stock Awards | |||||||||||||||
Number of | Value | Number of | ||||||||||||||
Shares | Realized on | Shares | Value | |||||||||||||
Acquired on | Exercise | Acquired on | Realized on | |||||||||||||
Name | Exercise (#) | ($) | Vesting (#) | Vesting ($)(1) | ||||||||||||
Scott A. Carmilani | — | — | — | — | ||||||||||||
Joan H. Dillard | — | — | 833 | $ | 35,278 | |||||||||||
Wesley D. Dupont | — | — | 833 | $ | 35,278 | |||||||||||
Richard E. Jodoin | — | — | — | — | ||||||||||||
G. William Davis, Jr. | — | — | — | — | ||||||||||||
Jordan M. Gantz | — | — | — | — |
(1) | Assumes a price of $42.35 per common share, the closing price on December 1, 2006. |
Executive | Registrant | Aggregate | Aggregate | |||||||||||||||||
Contributions | Contributions | Earnings | Aggregate | Balance at | ||||||||||||||||
in Last | in Last | in Last | Withdrawals/ | Last Fiscal | ||||||||||||||||
Fiscal Year | Fiscal Year | Fiscal Year | Distributions | Year-End | ||||||||||||||||
Name | ($)(1) | ($)(2) | ($)(3) | ($) | ($) | |||||||||||||||
Scott A. Carmilani | — | $ | 20,000 | $ | 17,683 | — | $ | 166,353 | ||||||||||||
Joan H. Dillard | $ | 24,446 | $ | 20,000 | $ | 2,634 | — | $ | 47,080 | |||||||||||
Wesley D. Dupont | — | $ | 20,000 | $ | 842 | — | $ | 20,842 | ||||||||||||
Richard E. Jodoin | — | $ | 20,000 | $ | 6,594 | — | $ | 97,657 | ||||||||||||
G. William Davis, Jr. | $ | 22,000 | $ | 20,000 | $ | 32,278 | — | $ | 249,718 | |||||||||||
Jordan M. Gantz | — | $ | 20,000 | $ | 6,143 | — | $ | 127,545 |
(1) | Reflects amount of base salary deferred by the NEO under the SERP in 2006. | |
(2) | Reflects amounts contributed by us on behalf of the NEO. All amounts that we contributed on behalf of the NEO have been reported in the Summary Compensation Table. In 2005, contributions that we made on behalf of the NEO to the SERP were reported as compensation. | |
(3) | Represents dividends on and earnings from the investments made in one or more mutual funds selected by the NEO, less any losses incurred from one or more selected mutual funds during 2006. |
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Type of | Voluntary | Involuntary | Change in | |||||||||||||||||||
Name | Payment | Termination(1) | Termination(2) | Control(3) | Death(4) | Disability(5) | ||||||||||||||||
Scott A. Carmilani | Cash Severance: | $ | 550,000 | $ | 2,200,000 | $ | 3,300,000 | $ | 550,000 | $ | 1,100,000 | |||||||||||
Continued Benefits: | $ | 16,824 | $ | 33,648 | $ | 50,472 | $ | 700,000 | $ | 16,824 | ||||||||||||
Equity Acceleration: | $ | — | $ | 3,513,421 | $ | 6,167,789 | $ | 4,204,439 | $ | 932,189 | ||||||||||||
TOTAL: | $ | 566,824 | $ | 5,747,069 | $ | 9,518,261 | $ | 5,454,439 | $ | 2,049,013 | ||||||||||||
Joan H. Dillard | Cash Severance: | $ | 300,000 | $ | 1,050,000 | $ | 1,575,000 | $ | 225,000 | $ | 525,000 | |||||||||||
Continued Benefits: | $ | 11,858 | $ | 23,716 | $ | 34,755 | $ | 600,000 | $ | 11,858 | ||||||||||||
Equity Acceleration: | $ | — | $ | 909,563 | $ | 1,946,144 | $ | 1,509,844 | $ | 564,513 | ||||||||||||
TOTAL: | $ | 311,858 | $ | 1,983,279 | $ | 3,555,899 | $ | 2,334,844 | $ | 1,101,371 | ||||||||||||
Wesley D. Dupont | Cash Severance: | $ | 265,000 | $ | 742,000 | $ | 1,113,000 | $ | 106,000 | $ | 371,000 | |||||||||||
Continued Benefits: | $ | 14,708 | $ | 29,416 | $ | 44,124 | $ | 530,000 | $ | 14,708 | ||||||||||||
Equity Acceleration: | $ | — | $ | 700,363 | $ | 2,141,338 | $ | 1,814,113 | $ | 432,482 | ||||||||||||
TOTAL: | $ | 279,708 | $ | 1,471,779 | $ | 3,298,462 | $ | 2,450,113 | $ | 818,190 | ||||||||||||
Richard E. Jodoin | Cash Severance: | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
Continued Benefits: | $ | — | $ | — | $ | — | $ | 500,000 | $ | — | ||||||||||||
Equity Acceleration: | $ | — | $ | — | $ | — | $ | 1,092,067 | $ | 183,080 | ||||||||||||
TOTAL: | $ | — | $ | — | $ | — | $ | 1,592,067 | $ | 183,080 | ||||||||||||
G. William Davis, Jr.(6) | Equity Acceleration: | $ | 2,001,604 | |||||||||||||||||||
Repatriation and Shipping Reimbursement: | $ | 50,000 | ||||||||||||||||||||
Housing Allowance: | $ | 65,000 | ||||||||||||||||||||
Unused Vacation: | $ | 4,644 | ||||||||||||||||||||
Tax Services: | $ | 5,000 | ||||||||||||||||||||
Tax Gross-Up: | $ | 43,628 | ||||||||||||||||||||
TOTAL: | $ | 2,169,876 | ||||||||||||||||||||
Jordan M. Gantz(7) | Cash Severance: | $ | 315,247 | |||||||||||||||||||
Continued Benefits: | $ | 9,000 | ||||||||||||||||||||
Repatriation and Shipping Reimbursement: | $ | 100,000 | ||||||||||||||||||||
Unused Vacation: | $ | 32,962 | ||||||||||||||||||||
Tax Gross-Up: | $ | 72,424 | ||||||||||||||||||||
TOTAL: | $ | 529,633 |
(1) | Under the employment agreements by and between the company and each NEO (other than Mr. Jodoin, who has no employment agreement), in the case of a termination of employment by the NEO without good reason, the NEO is entitled only to the prior accrued obligations. However, for purposes of precluding the NEO from joining an organization that competes with the company, we may elect to extend the Non-Compete Period for up to 12 months from the date employment is terminated by the NEO without good reason. The amounts included in the voluntary termination column above under “Cash Severance” represent the NEO’s 2006 base salary (the amount to which the NEO would be entitled for the Non-Compete Period) and the amounts included under “Continued Benefits” represent participation in our health and insurance plans (or the economic equivalent of such participation), based on current health and insurance premiums projected over the applicable period, and such amounts assume that we have elected to extend the Non-Compete Period for the full 12 months. |
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Please see “— Narrative Disclosure Regarding Equity Plans and Employment Agreements — Employment Agreements” for more information on the employment agreements. |
(2) | Under the employment agreements executed by and between the company and each NEO, “involuntary” terminations consist of terminations of employment by the company without cause and by the NEO with good reason. In such circumstances, the NEO is entitled to: (i) his or her base salary and 2006 target cash bonus multiplied by two, (ii) participation in our health and insurance plans (or the economic equivalent of such participation) for a period of two years from the date of such termination and (iii) vesting in the number of equity awards held by the NEO that otherwise would have vested during the two-year period from the date of such termination. | |
(3) | Under the employment agreements executed by and between the company and each NEO, upon the occurrence of a change in control of the company all equity awards held by the NEO shall fully vest immediately prior to such change in control. If within 12 months of a change in control the NEO is terminated by the company without cause or the NEO terminates his or her employment with good reason, the NEO is entitled to: (i) his or her base salary and 2006 target cash bonus multiplied by three and (ii) participation in our health and insurance plans (or the economic equivalent of such participation) for a period of three years from the date of such termination. | |
We believe that the change in control provisions are appropriate for certain of the NEOs to further align their interests and shareholders’ interests when considering corporate transactions that may be in the best interests of the shareholders without causing undue concern over whether the transaction may jeopardize the NEO’s own employment. Our board of directors approved the acceleration of vesting of equity awards in the event of a change in control to permit the NEOs to participate in the transaction in the same manner that all other shareholders will be participating, without being exposed to continuing vesting risk. As the full vesting of equity awards does not occur until immediately prior to the change in control, the acceleration provision also has a retention element in that it helps to ensure that the NEOs will remain with the company through the entire transaction process. The increase in the Severance Multiplier (from two to three) upon a qualified termination within 12 months of a change in control also provides a greater incentive for the NEO to remain with the company through the change in control regardless of potential redundancies in executive personnel. | ||
(4) | The amounts included under the Death column above for “Cash Severance” represent the NEO’s accrued 2006 target cash bonus to which the NEO would be entitled under his or her employment agreement. Under the employment agreement, upon an NEO’s death, the NEO’s estate or beneficiary is also entitled to receive a pro rata annual bonus for that portion of the year that the NEO worked. | |
Under the employment agreements, as of the date of the NEO’s death, his or her estate or beneficiaries would also be entitled to the number of equity awards held by the NEO that otherwise would have vested during the one-year period following such date. In addition, the Stock Option Plan and the Stock Incentive Plan provide for the accelerated vesting of all stock options and RSUs, respectively, held by the NEO in the event of his or her death. The LTIP provides for vesting on a proportional basis depending on the date of death in relation to the three-year performance period. If the NEO were to die in the first fiscal year of the three-year performance period, the NEO would be entitled to 25% of the award. The dollar value reflected under the Death column above for “Equity Acceleration” assumes all equity awards vested and were exercised and sold as of December 31, 2006. | ||
In addition, each employee of the company has life insurance paid by the company for the employee’s benefit (or the benefit of his or her estate or beneficiaries). Assuming the death of each NEO as of December 31, 2006, the estate or beneficiaries of such NEO would be entitled to the amounts reflected under the Death column above for “Continued Benefits” for the NEOs. | ||
(5) | Under the employment agreements by and between the company and each NEO, in the case of a termination of employment as a result of the NEO’s disability, the NEO is entitled to: (i) his or her 2006 target cash bonus and (ii) the number of equity awards held by the NEO that otherwise would have vested during the one-year period following the date of disability. For purposes of precluding the NEO from joining an organization that competes with the company, we may elect to extend the Non-Compete Period for up to 12 months from the date the NEO’s employment is terminated as a result of a disability. The amounts included in the disability column above under “Cash Severance” represent the NEO’s 2006 base salary and 2006 target cash bonus and “Continued Benefits” represent participation in our health and insurance plans (or the economic equivalent of such participation) and assumes that we have elected to extend the Non-Compete Period for the full 12 months. We pay on behalf of our employees, including the NEOs, long-term disability insurance. Under this insurance, if the NEO is considered disabled, he or she will be entitled to 75% of his or her base salary up to a maximum of $15,000 per month until the age of 65. | |
The Stock Option Plan provides for the accelerated vesting of all stock options held by the NEO in the event of his or her disability. Under the Stock Incentive Plan, there is no acceleration of vesting of the RSUs, however, the NEO would not forfeit his or her RSUs upon being disabled and these RSUs will vest according to the schedule established on the date of grant. The LTIP provides for vesting on a proportional basis depending on the date of disability in relation to the three-year performance period. If the NEO were to become disabled in the first fiscal year of the three-year performance period, the NEO would be entitled to 25% of the award. The dollar value reflected under the disability column above for “Equity Acceleration” assumes all eligible equity awards vested and were exercised and sold as of December 31, 2006. | ||
(6) | The amounts reported for Mr. Davis were pursuant to a retirement and consulting agreement with the company, which superseded his prior employment agreement with the company. Except as provided by such retirement and consulting agreement, Mr. Davis is not entitled to any additional compensation. In connection with Mr. Davis’s retirement, all stock |
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options and restricted stock units received by Mr. Davis vested as of March 31, 2007. Mr. Davis also received common shares equivalent to 150% of his 2006 target award under the LTIP. “Repatriation and shipping expense reimbursement” is an estimate of expenses Mr. Davis will incur in his move from Bermuda back to the United States. “Housing Allowance” represents Mr. Davis’s housing allowance (currently $10,000 per month) and an estimate of the amount of reimbursement of utilities through September 30, 2007. “Tax Services” represent an estimate of tax preparation services Mr. Davis is eligible to receive during the 2007 calendar year, which is on the same basis as other executive officers of the company. Under the retirement and consulting agreement, we agreed to“gross-up” Mr. Davis for tax obligations incurred in the 2007 calendar year as a result of the Tax Act, which are estimated in the table above for TaxGross-Ups. All estimates are subject to revision. | ||
In addition, under his retirement and consulting agreement with the company, Mr. Davis is entitled to receive $120,000 in consulting fees during any consulting period as well as benefits under the Company’s health and insurance plans. During the consulting period ending March 31, 2008, the dollar value of Mr. Davis’s participation in our health and insurance plans is estimated to be $9,330. For more information about Mr. Davis’s retirement and consulting agreement with the company, please see “— Employment Agreements”. | ||
(7) | The amounts reported for Mr. Gantz were pursuant to a separation and release agreement by and between him and the company. Except as provided by such agreement, Mr. Gantz is not entitled to any additional compensation. Under the separation and release agreement, we agreed to“gross-up” Mr. Gantz for additional tax obligations incurred in 2006 as a result of the Tax Act. The amounts provided in the table above for TaxGross-Ups are estimates based on advice from an independent tax advisor and is subject to revision. As reflected in the table above, “Continued Benefits” represent participation in our health and insurance plans (or the economic equivalent of such participation) and “Repatriation and shipping expense reimbursement” covers Mr. Gantz’s move from Bermuda back to the United States. |
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• | each person known by us to beneficially own more than 5% of our outstanding common shares, | |
• | each of our directors, | |
• | our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and our three other most highly compensated officers who were serving as executive officers at the end of our 2006 fiscal year (collectively, our “named executive officers” or “NEOs”), and | |
• | all of our directors and executive officers as a group. |
Beneficial Ownership of | ||||||||||||
Common Shares(1) | ||||||||||||
Non- | Percent of | |||||||||||
Name and Address of Beneficial Owner | Voting | Voting | Common Shares | |||||||||
American International Group, Inc. | 1,266,995 | 10,751,669 | (2) | 19.8 | % | |||||||
70 Pine Street New York, NY 10270 | ||||||||||||
The Chubb Corporation | 1,266,995 | 8,326,656 | (3) | 15.8 | % | |||||||
15 Mountain View Road Warren, NJ 07059 | ||||||||||||
GS Capital Partners 2000, L.P.(4) | — | 4,730,750 | (5) | 7.8 | % | |||||||
85 Broad Street New York, NY 10004 | ||||||||||||
GS Capital Partners 2000 Offshore, L.P.(4) | — | 1,716,715 | (6) | 2.8 | % | |||||||
85 Broad Street New York, NY 10004 | ||||||||||||
GS Capital Partners 2000 Employee Fund, L.P.(4) | — | 1,500,068 | (7) | 2.5 | % | |||||||
85 Broad Street New York, NY 10004 | ||||||||||||
GS Capital Partners 2000, GmbH & Co. Beteiligungs KG(4) | — | 197,378 | (8) | * | ||||||||
85 Broad Street New York, NY 10004 | ||||||||||||
Stone Street Fund 2000, L.P.(4) | — | 144,645 | (9) | * | ||||||||
85 Broad Street New York, NY 10004 | ||||||||||||
Bridge Street Special Opportunities Fund 2000, L.P.(4) | — | 72,347 | (10) | * | ||||||||
85 Broad Street New York, NY 10004 | ||||||||||||
Michael I.D. Morrison | 116,667 | (11) | — | * | ||||||||
Bart Friedman | 2,551 | (12) | — | * | ||||||||
Scott A. Carmilani | 105,999 | (13) | — | * | ||||||||
Philip D. DeFeo | 2,000 | |||||||||||
James F. Duffy | 1,000 | — | * | |||||||||
Scott Hunter | 551 | (14) | — | * | ||||||||
Mark R. Patterson | 14,551 | (15) | — | * | ||||||||
Samuel J. Weinhoff | 1,000 | — | * | |||||||||
G. William Davis, Jr. | 33,332 | (16) | — | * | ||||||||
Joan H. Dillard | 16,166 | (17) | — | * | ||||||||
Wesley D. Dupont | 9,083 | (18) | — | * | ||||||||
Richard E. Jodoin | 28,792 | (19) | — | * | ||||||||
All directors and executive officers as a group (13 persons) | 320,537 | (20) | — | * |
* | Less than 1%. |
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(1) | Pursuant to the regulations promulgated by the SEC, our common shares are deemed to be “beneficially owned” by a person if such person directly or indirectly has or shares the power to vote or dispose of our common shares, whether or not such person has any pecuniary interest in our common shares, or the right to acquire the power to vote or dispose of our common shares within 60 days, including any right to acquire through the exercise of any option, warrant or right. | |
(2) | Based on information reported on Schedule 13G, as filed by AIG with the SEC on February 1, 2007, and information we received from our transfer agent. Of the aggregate amount of 12,018,664 common shares reported as beneficially owned by AIG in the table above, (i) 1,266,995 shares are voting shares, (ii) 10,426,338 shares are non-voting shares and (iii) 325,331 shares are non-voting shares issuable upon exercise of a warrant held by AIG. A total of 2,000,000 common shares are issuable upon the exercise of this warrant, but the warrant is exercisable, in whole or in part, only (1) in connection with a contemporaneous sale by AIG of common shares or (2) to avoid a reduction of AIG’s equity ownership percentage below 19.8%. Based upon the percentage of currently outstanding common shares, the number of common shares with respect to which AIG may currently exercise the warrant, other than for purposes of the contemporaneous sale of common shares, is 325,331 common shares. | |
(3) | Based on information reported on Schedule 13G, as filed by Chubb with the SEC on February 13, 2007, and information we received from our transfer agent. Of the aggregate amount of 9,593,651 common shares shown as beneficially owned by Chubb in the table above, (i) 1,266,995 shares are voting shares, (ii) 8,078,005 shares are non-voting shares and (iii) 248,651 shares are non-voting shares issuable upon exercise of a warrant held by Chubb. A total of 2,000,000 common shares are issuable upon exercise of this warrant, but the warrant is exercisable, in whole or in part, only (1) in connection with the contemporaneous sale by Chubb of common shares or (2) to avoid a reduction of Chubb’s equity ownership percentage below 15.8%. Based upon the percentage of currently outstanding common shares, the number of common shares with respect to which Chubb may currently exercise the warrant, other than for purposes of the contemporaneous sale of common shares, is 248,651 common shares. | |
(4) | The Goldman Sachs Funds have converted all of the voting shares they owned prior to the IPO to non-voting shares. The warrants held by each of the Goldman Sachs Funds were amended so that they may only be exercised into non-voting shares. In addition, under our Bye-Laws, all voting shares held by the Goldman Sachs Funds and their affiliates automatically convert to non-voting shares. | |
Based on previously received information, we believe that: (i) affiliates of The Goldman Sachs Group, Inc. (the “Goldman Sachs Group”) and Goldman, Sachs & Co. (“Goldman Sachs”), which is a broker-dealer, are the general partner, managing general partner or managing limited partner of the Goldman Sachs Funds; and (ii) Goldman Sachs is the investment manager for certain of the Goldman Sachs Funds. Each of the Goldman Sachs Group and Goldman Sachs has previously disclaimed beneficial ownership of the common shares owned by the Goldman Sachs Funds, except to the extent of the Goldman Sachs Group’s and Goldman Sachs’ pecuniary interest therein, if any. Based on previously received information, we also believe that the Goldman Sachs Group, Goldman Sachs and the Goldman Sachs Funds share voting power and investment power with certain of their respective affiliates and Goldman Sachs is a direct and indirect, wholly-owned subsidiary of the Goldman Sachs Group. | ||
Each of the Goldman Sachs Funds owns warrants that are exercisable into non-voting shares. The number of warrants held by each Goldman Sachs Fund is reported in “Certain Relationships and Related Transactions — Formation — Warrants”. Each Goldman Sachs Fund may exercise its respective warrant, in whole or in part, only (1) in connection with a contemporaneous sale by such Goldman Sachs Fund of common shares or (2) to avoid a reduction of such Goldman Sachs Fund’s equity ownership percentage as of the date the company completed the IPO. Based upon the percentage of currently outstanding common shares, the number of common shares with respect to which each Goldman Sachs Fund may currently exercise its respective warrant, other than for purposes of the contemporaneous sale of common shares, is reflected in footnotes 5 through 10 below. | ||
(5) | Includes warrants currently exercisable to purchase up to approximately 117,130 non-voting shares. | |
(6) | Includes warrants currently exercisable to purchase up to approximately 40,105 non-voting shares. | |
(7) | Includes warrants currently exercisable to purchase up to approximately 35,085 non-voting shares. | |
(8) | Includes warrants currently exercisable to purchase up to approximately 4,540 non-voting shares. |
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(9) | Includes warrants currently exercisable to purchase up to approximately 3,350 non-voting shares. | |
(10) | Includes warrants currently exercisable to purchase up to approximately 1,700 non-voting shares. | |
(11) | Represents vested stock options exercisable to purchase 116,667 voting shares. | |
(12) | On March 3, 2007, Mr. Friedman received 551 voting shares upon the vesting of certain RSUs held by him. | |
(13) | Includes vested stock options exercisable to purchase 99,999 voting shares. | |
(14) | On March 3, 2007, Mr. Hunter received 551 voting shares upon the vesting of certain RSUs held by him. | |
(15) | On March 3, 2007, Mr. Patterson received 551 voting shares upon the vesting of certain RSUs held by him. | |
(16) | Represents vested stock options exercisable to purchase 33,332 voting shares as of February 28, 2007. As of March 31, 2007, Mr. Davis retired from the company. As of the date of his retirement, stock options to purchase an additional 8,334 voting shares vested and Mr. Davis received an aggregate of 44,666 voting shares as a result of the vesting of his RSUs and 150% of his 2006 target award under the LTIP. The stock options that vested and the additional voting shares received by Mr. Davis in connection with his retirement are not included in the Principal Shareholders table above. | |
(17) | Includes vested stock options exercisable to purchase 8,333 voting shares. | |
(18) | Includes vested stock options exercisable to purchase 6,250 voting shares. | |
(19) | Includes vested stock options exercisable to purchase 27,292 voting shares. | |
(20) | Includes vested stock options exercisable to purchase 278,122 voting shares. |
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Warrants to | ||||
Acquire | ||||
Common | ||||
Holder | Shares | |||
American International Group, Inc. | 2,000,000 | |||
The Chubb Corporation | 2,000,000 | |||
GS Capital Partners 2000, L.P. | 848,113 | |||
GS Capital Partners 2000 Offshore, L.P. | 308,172 | |||
GS Capital Partners 2000 Employee Fund, L.P. | 269,305 | |||
GS Capital Partners 2000, GmbH & Co. Beteiligungs KG | 35,449 | |||
Stone Street Fund 2000, L.P. | 25,974 | |||
Bridge Street Special Opportunities Fund 2000, L.P. | 12,987 |
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155
156
157
158
159
160
161
162
• | will be exchangeable for any authorized denomination of other notes of the same series and of a like aggregate principal amount and tenor upon surrender of such notes at the trustee’s corporate trust office or at the office of any other registrar designated by us for such purpose; and | |
• | may be surrendered for registration of transfer or exchange thereof at the corporate trust office of the trustee or at the office of any other registrar designated by us for such purpose. |
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164
165
• | rank equal in right of payment with all our other unsubordinated indebtedness; | |
• | be effectively subordinated in right of payment to all our secured indebtedness to the extent of the value of the collateral securing such indebtedness; | |
• | not be guaranteed by any of our subsidiaries; and | |
• | be effectively subordinated to all existing and future obligations including policyholders, trade creditors, debt holders and taxing authorities of our subsidiaries. |
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• | either (a) we shall be the surviving person or (b) the surviving person (if other than us) shall (1) be a corporation or limited liability company organized and existing under the laws of the United States of America, any state thereof, the District of Columbia or Bermuda and (2) expressly assume, by an indenture supplemental to the indenture, executed and delivered to the trustee, in form reasonably satisfactory to the trustee, all of our obligations under the notes and the indenture; | |
• | immediately after giving effect to such transaction, no event of default, and no event that, after notice or lapse of time or both, would become an event of default, shall have occurred and be continuing; and | |
• | we shall have delivered to the trustee an officers’ certificate stating that such consolidation, amalgamation, merger, conveyance, transfer, sale or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with the indenture and that all conditions precedent herein provided for relating to such transaction have been satisfied. |
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168
169
170
• | to cure any ambiguity, omission, defect or inconsistency; | |
• | to make any other change that does not, in the good faith opinion of our board of directors and the trustee, adversely affect the interests of holders of the notes; | |
• | to provide for the assumption of our obligations under the indenture by a successor upon any merger, consolidation or asset transfer permitted under the indenture; | |
• | to provide any security for or guarantees of the notes; | |
• | to add events of default with respect to the notes; | |
• | to add covenants that would benefit the holders of the notes or to surrender any rights or powers we have under the indenture; | |
• | to make any change necessary for the registration of the notes under the Securities Act or to comply with the Trust Indenture Act of 1939, or any amendment thereto, or to comply with any requirement of the SEC in connection with the qualification of the indenture under the Trust Indenture Act of 1939;provided, however, that such modification or amendment does not, in the good faith opinion of our board of directors and the trustee, adversely affect the interests of the holders of the notes in any material respect; | |
• | to provide for uncertificated notes in addition to or in place of certificated notes or to provide for bearer notes; | |
• | to add to or change any of the provisions of the indenture to such extent as will be necessary to permit or facilitate the issuance of the notes in bearer form, registrable or not registrable as to principal, and with or without interest coupons; | |
• | to change or eliminate any of the provisions of the indenture,provided, however, that any such change or elimination will become effective only when there is no note outstanding of any |
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series created prior to the execution of the indenture which is entitled to the benefit of such provision; |
• | to establish the form or terms of the notes as permitted by the indenture; or | |
• | to evidence and provide for the acceptance of appointment by a successor trustee with respect to the notes of one or more series and to add to or change any of the provisions of the indenture as will be necessary to provide for or facilitate the administration of the trusts under the indenture by more than one trustee, pursuant to the requirements of the indenture. |
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173
174
Where: | (1) “T” is the aggregate number of votes conferred by all of our issued shares immediately prior to the application of the formula with respect to such controlled shares, adjusted to take into account each reduction in such aggregate number of votes that results from a prior reduction in the exercisable votes conferred by any controlled shares pursuant to the sequencing provision as at the same date; |
(2) | “C” is the aggregate number of votes conferred by controlled shares attributable to such person. “Controlled shares” of any person means all voting shares (i) owned or with respect to persons who are U.S. persons deemed owned by application of the attribution |
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and constructive ownership rules of Sections 958(a) and 958(b) of the Code by that person, or (ii) beneficially owned directly or indirectly within the meaning of Section 13(d)(3) of the Exchange Act and the rules and regulations thereunder other than Excluded Controlled Shares (as defined below). |
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177
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• | By a procedure under the Companies Act known as a “scheme of arrangement”. A scheme of arrangement could be effected by obtaining the agreement of the company and of holders of common shares, representing in the aggregate a majority in number and at least 75% in value of the common shareholders present and voting at a court ordered meeting held to consider the scheme or arrangement. The scheme of arrangement must then be sanctioned by the Bermuda Supreme Court. If a scheme of arrangement receives all necessary agreements and sanctions, upon the filing of the court order with the Registrar of Companies in Bermuda, all holders of common shares could be compelled to sell their shares under the terms of the scheme of arrangement. | |
• | A scheme of arrangement could also be effected by obtaining the agreement of the company and of holders of notes, representing in the aggregate a majority in number and at least 75% in value of the notes present and voting at a court ordered meeting held to consider the scheme or arrangement. The scheme of arrangement must then be sanctioned by the Bermuda Supreme Court. If a scheme of arrangement receives all necessary agreements and sanctions, upon the filing of the court order with the Registrar of Companies in Bermuda, all holders of the notes could be compelled to sell their notes under the terms of the scheme of arrangement. |
179
• | If the acquiring party is a company it may compulsorily acquire all the shares of the target company, by acquiring pursuant to a tender offer 90% of the shares or class of shares not already owned by, or by a nominee for, the acquiring party (the offeror), or any of its subsidiaries. If an offeror has, within four months after the making of an offer for all the shares or class of shares not owned by, or by a nominee for, the offeror, or any of its subsidiaries, obtained the approval of the holders of 90% or more of all the shares to which the offer relates, the offeror may, at any time within two months beginning with the date on which the approval was obtained, require by notice any nontendering shareholder to transfer its shares on the same terms as the original offer. In those circumstances, nontendering shareholders will be compelled to sell their shares unless the Supreme Court of Bermuda (on application made within a one-month period from the date of the offeror’s notice of its intention to acquire such shares) orders otherwise. | |
• | Where one or more parties holds not less than 95% of the shares or a class of shares of a company, such holder(s) may, pursuant to a notice given to the remaining shareholders or class of shareholders, the shares of such remaining shareholders or class of shareholders. When this notice is given, the acquiring party is entitled and bound to acquire the shares of the remaining shareholders on the terms set out in the notice, unless a remaining shareholder, within one month of receiving such notice, applies to the Supreme Court of Bermuda for an appraisal of the value of their shares. This provision only applies where the acquiring party offers the same terms to all holders of shares whose shares are being acquired. |
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• | a dealer in securities, | |
• | a trader in securities that elects to use amark-to-market method of accounting for securities holdings, | |
• | a tax-exempt organization, | |
• | an insurance company, | |
• | a person liable for alternative minimum tax, | |
• | a person that holds notes as part of a straddle or a hedging or conversion transaction, or | |
• | a U.S. holder whose functional currency is not the U.S. dollar. |
• | a citizen or resident of the United States, | |
• | a corporation, or other entity treated for U.S. federal income tax purposes as a corporation, in either case created or organized in or under the laws of the United States or any state thereof, | |
• | an estate whose income is subject to U.S. federal income tax regardless of its source, or | |
• | a trust if a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust. |
188
• | the gain is “effectively connected” with your conduct of a trade or business in the United States, and the gain is attributable to a permanent establishment that you maintain in the United States if that is required by an applicable income tax treaty as a condition for subjecting you to U.S. taxation on a net income basis, or | |
• | you are an individual, you are present in the United States for 183 or more days in the taxable year of the sale and certain other conditions exist. |
189
190
191
27 Richmond Road
Pembroke HM 08, Bermuda
Attn: Corporate Secretary
(441) 278-5400
www.awac.com
U.S. FEDERAL SECURITIES LAWS AND OTHER MATTERS
192
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F-5 | ||||
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F-7 | ||||
S-1 | ||||
S-6 | ||||
S-7 |
F-1
F-2
CONSOLIDATED BALANCE SHEETS
as of December 31, 2006 and 2005
(Expressed in thousands of United States dollars, except share and per share amounts)
As of | As of | |||||||
December 31, | December 31, | |||||||
2006 | 2005 | |||||||
ASSETS: | ||||||||
Fixed maturity investments available for sale, at fair value (amortized cost: 2006: $5,188,379, 2005: $4,442,040) | $ | 5,177,812 | $ | 4,390,457 | ||||
Other invested assets available for sale, at fair value (cost: 2006: $245,657; 2005: $270,138) | 262,557 | 296,990 | ||||||
Total Investments | 5,440,369 | 4,687,447 | ||||||
Cash and cash equivalents | 366,817 | 172,379 | ||||||
Restricted cash | 138,223 | 41,788 | ||||||
Securities lending collateral | 304,742 | 456,792 | ||||||
Insurance balances receivable | 304,261 | 218,044 | ||||||
Prepaid reinsurance | 159,719 | 140,599 | ||||||
Reinsurance recoverable | 689,105 | 716,333 | ||||||
Accrued investment income | 51,112 | 48,983 | ||||||
Deferred acquisition costs | 100,326 | 94,557 | ||||||
Intangible assets | 3,920 | 3,920 | ||||||
Balances receivable on sale of investments | 16,545 | 3,633 | ||||||
Net deferred tax assets | 5,094 | 3,802 | ||||||
Other assets | 40,347 | 22,215 | ||||||
Total assets | $ | 7,620,580 | $ | 6,610,492 | ||||
LIABILITIES: | ||||||||
Reserve for losses and loss expenses | $ | 3,636,997 | $ | 3,405,353 | ||||
Unearned premiums | 813,797 | 740,091 | ||||||
Unearned ceding commissions | 23,914 | 27,465 | ||||||
Reinsurance balances payable | 82,212 | 28,567 | ||||||
Securities lending payable | 304,742 | 456,792 | ||||||
Senior notes | 498,577 | — | ||||||
Long-term debt | — | 500,000 | ||||||
Accounts payable and accrued liabilities | 40,257 | 31,958 | ||||||
Total liabilities | $ | 5,400,496 | $ | 5,190,226 | ||||
SHAREHOLDERS’ EQUITY: | ||||||||
Common shares, par value $0.03 per share, issued and outstanding 2006: 60,287,696 shares and 2005: 50,162,842 shares | 1,809 | 1,505 | ||||||
Additional paid-in capital | 1,822,607 | 1,488,860 | ||||||
Retained earnings (accumulated deficit) | 389,204 | (44,591 | ) | |||||
Accumulated other comprehensive income (loss): | ||||||||
net unrealized gains (losses) on investments, net of tax | 6,464 | (25,508 | ) | |||||
Total shareholders’ equity | 2,220,084 | 1,420,266 | ||||||
Total liabilities and shareholders’ equity | $ | 7,620,580 | $ | 6,610,492 | ||||
F-3
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
for the years ended December 31, 2006, 2005 and 2004
(Expressed in thousands of United States dollars, except share and per share amounts)
2006 | 2005 | 2004 | ||||||||||
REVENUES: | ||||||||||||
Gross premiums written | $ | 1,659,025 | $ | 1,560,326 | $ | 1,707,992 | ||||||
Premiums ceded | (352,429 | ) | (338,375 | ) | (335,332 | ) | ||||||
Net premiums written | 1,306,596 | 1,221,951 | 1,372,660 | |||||||||
Change in unearned premiums | (54,586 | ) | 49,560 | (47,203 | ) | |||||||
Net premiums earned | 1,252,010 | 1,271,511 | 1,325,457 | |||||||||
Net investment income | 244,360 | 178,560 | 128,985 | |||||||||
Net realized investment (losses) gains | (28,678 | ) | (10,223 | ) | 10,791 | |||||||
1,467,692 | 1,439,848 | 1,465,233 | ||||||||||
EXPENSES: | ||||||||||||
Net losses and loss expenses | 739,133 | 1,344,600 | 1,013,354 | |||||||||
Acquisition costs | 141,488 | 143,427 | 170,874 | |||||||||
General and administrative expenses | 106,075 | 94,270 | 86,338 | |||||||||
Interest expense | 32,566 | 15,615 | — | |||||||||
Foreign exchange loss (gain) | 601 | 2,156 | (326 | ) | ||||||||
1,019,863 | 1,600,068 | 1,270,240 | ||||||||||
Income (loss) before income taxes | 447,829 | (160,220 | ) | 194,993 | ||||||||
Income tax expense (recovery) | 4,991 | (444 | ) | (2,180 | ) | |||||||
NET INCOME (LOSS) | 442,838 | (159,776 | ) | 197,173 | ||||||||
Other comprehensive income (loss) | ||||||||||||
Unrealized gains (losses) on investments arising during the year net of applicable deferred income tax (expense) recovery 2006: ($342); 2005: $838; 2004: $79 | 3,294 | (68,902 | ) | (26,965 | ) | |||||||
Reclassification adjustment for net realized losses (gains) included in net income | 28,678 | 10,223 | (10,791 | ) | ||||||||
Other comprehensive income (loss) net of tax | 31,972 | (58,679 | ) | (37,756 | ) | |||||||
COMPREHENSIVE INCOME (LOSS) | $ | 474,810 | $ | (218,455 | ) | $ | 159,417 | |||||
PER SHARE DATA | ||||||||||||
Basic earnings (loss) per share | $ | 8.09 | $ | (3.19 | ) | $ | 3.93 | |||||
Diluted earnings (loss) per share | $ | 7.75 | $ | (3.19 | ) | $ | 3.83 | |||||
Weighted average common shares outstanding | 54,746,613 | 50,162,842 | 50,162,842 | |||||||||
Weighted average common shares and common share equivalents outstanding | 57,115,172 | 50,162,842 | 51,425,389 |
F-4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
for the years ended December 31, 2006, 2005 and 2004
(Expressed in thousands of United States dollars)
Accumulated | Retained | |||||||||||||||||||
Additional | Other | Earnings | ||||||||||||||||||
Share | Paid-in | Comprehensive | (Accumulated | |||||||||||||||||
Capital | Capital | Income (Loss) | Deficit) | Total | ||||||||||||||||
December 31, 2003 | 1,505 | 1,488,860 | 70,927 | 417,812 | 1,979,104 | |||||||||||||||
Net income | — | — | — | 197,173 | 197,173 | |||||||||||||||
Other comprehensive loss | — | — | (37,756 | ) | — | (37,756 | ) | |||||||||||||
December 31, 2004 | 1,505 | 1,488,860 | 33,171 | 614,985 | 2,138,521 | |||||||||||||||
Net loss | — | — | — | (159,776 | ) | (159,776 | ) | |||||||||||||
Dividends | — | — | — | (499,800 | ) | (499,800 | ) | |||||||||||||
Other comprehensive loss | — | — | (58,679 | ) | — | (58,679 | ) | |||||||||||||
December 31, 2005 | 1,505 | 1,488,860 | (25,508 | ) | (44,591 | ) | 1,420,266 | |||||||||||||
Stock issuance in initial public offering | 304 | 315,485 | — | — | 315,789 | |||||||||||||||
Net income | — | — | — | 442,838 | 442,838 | |||||||||||||||
Stock compensation plans | — | 18,262 | — | — | 18,262 | |||||||||||||||
Dividends | — | — | — | (9,043 | ) | (9,043 | ) | |||||||||||||
Other comprehensive income | — | — | 31,972 | — | 31,972 | |||||||||||||||
December 31, 2006 | $ | 1,809 | $ | 1,822,607 | $ | 6,464 | $ | 389,204 | $ | 2,220,084 | ||||||||||
F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 2006, 2005 and 2004
(Expressed in thousands of United States dollars)
2006 | 2005 | 2004 | ||||||||||
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: | ||||||||||||
Net income (loss) | $ | 442,838 | $ | (159,776 | ) | $ | 197,173 | |||||
Adjustments to reconcile net income (loss) to cash provided by operating activities: | ||||||||||||
Net realized losses (gains) on sales of investments | 4,800 | 10,223 | (10,791 | ) | ||||||||
Net realized losses forother-than-temporary impairment charges on investments | 23,878 | — | — | |||||||||
Amortization of premiums net of accrual of discounts on fixed maturities | 11,981 | 38,957 | 49,989 | |||||||||
Deferred income taxes | (1,111 | ) | 1,271 | (2,790 | ) | |||||||
Stock compensation expense | 10,805 | 3,079 | 2,561 | |||||||||
Debt issuance expense | 724 | 333 | — | |||||||||
Amortization of discount and expenses on senior notes | 168 | — | — | |||||||||
Cash settlements on interest rate swaps | 7,340 | (2,107 | ) | — | ||||||||
Mark to market on interest rate swaps | (6,896 | ) | 6,896 | — | ||||||||
Insurance balances receivable | (86,217 | ) | (8,835 | ) | (42,511 | ) | ||||||
Prepaid reinsurance | (19,120 | ) | 4,427 | (22,682 | ) | |||||||
Reinsurance recoverable | 27,228 | (457,162 | ) | (165,328 | ) | |||||||
Accrued investment income | (2,129 | ) | (9,550 | ) | (8,382 | ) | ||||||
Deferred acquisition costs | (5,769 | ) | 8,428 | 6,015 | ||||||||
Net deferred tax assets | (181 | ) | 630 | (1,145 | ) | |||||||
Other assets | 12,024 | (766 | ) | 5,900 | ||||||||
Reserve for losses and loss expenses | 231,644 | 1,368,229 | 978,471 | |||||||||
Unearned premiums | 73,706 | (55,247 | ) | 69,885 | ||||||||
Unearned ceding commissions | (3,551 | ) | (2,686 | ) | 7,082 | |||||||
Reinsurance balances payable | 53,645 | (25,899 | ) | 12,736 | ||||||||
Accounts payable and accrued liabilities | 15,757 | 12,327 | (4,937 | ) | ||||||||
Net cash provided by operating activities | 791,564 | 732,772 | 1,071,246 | |||||||||
CASH FLOWS USED IN INVESTING ACTIVITIES: | ||||||||||||
Purchases of fixed maturity investments | (5,663,168 | ) | (3,891,935 | ) | (3,565,350 | ) | ||||||
Purchases of other invested assets | (132,011 | ) | (114,576 | ) | (100,667 | ) | ||||||
Sales of fixed maturity investments | 4,855,816 | 3,288,257 | 2,670,600 | |||||||||
Sales of other invested assets | 165,250 | 2,879 | 20,000 | |||||||||
Purchases of fixed assets | (29,418 | ) | (2,661 | ) | (2,330 | ) | ||||||
Change in restricted cash | (96,435 | ) | (31,714 | ) | 30,934 | |||||||
Net cash used in investing activities | (899,966 | ) | (749,750 | ) | (946,813 | ) | ||||||
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: | ||||||||||||
Dividends paid | (9,043 | ) | (499,800 | ) | — | |||||||
Gross proceeds from initial public offering | 344,080 | — | — | |||||||||
Issuance costs paid on initial public offering | (28,291 | ) | — | — | ||||||||
Proceeds from issuance of senior notes | 498,535 | — | — | |||||||||
(Repayment of) proceeds from long-term debt | (500,000 | ) | 500,000 | — | ||||||||
Debt issuance costs paid | (3,250 | ) | (1,021 | ) | — | |||||||
Net cash provided by (used in) financing activities | 302,031 | (821 | ) | — | ||||||||
Effect of exchange rate changes on foreign currency cash | 809 | (560 | ) | 252 | ||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 194,438 | (18,359 | ) | 124,685 | ||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 172,379 | 190,738 | 66,053 | |||||||||
CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 366,817 | $ | 172,379 | $ | 190,738 | ||||||
Supplemental disclosure of cash flow information: | ||||||||||||
— Cash paid for income taxes | $ | 707 | $ | 313 | $ | 4,537 | ||||||
— Cash paid for interest expense | 15,495 | 15,399 | — | |||||||||
— Change in balance receivable on sale of investments | (12,912 | ) | (3,633 | ) | 6,932 | |||||||
— Change in balance payable on purchase of investments | — | — | (2,101 | ) | ||||||||
F-6
1. | General |
F-7
1. | General — (continued) |
2. | Significant Accounting Policies |
• | 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; and | |
• | Determination ofother-than-temporary impairment of investments. |
F-8
2. | Significant Accounting Policies — (continued) |
F-9
2. | Significant Accounting Policies — (continued) |
F-10
2. | Significant Accounting Policies — (continued) |
F-11
2. | Significant Accounting Policies — (continued) |
F-12
2. | Significant Accounting Policies — (continued) |
F-13
2. | Significant Accounting Policies — (continued) |
F-14
2. | Significant Accounting Policies — (continued) |
F-15
3. | Investments |
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | ||||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
December 31, 2006 | ||||||||||||||||
U.S. Government and Government agencies | $ | 1,704,911 | $ | 4,747 | $ | (9,606 | ) | $ | 1,700,052 | |||||||
Non U.S. Government and Government agencies | 93,741 | 4,209 | (630 | ) | 97,320 | |||||||||||
Corporate | 1,322,893 | 2,884 | (7,641 | ) | 1,318,136 | |||||||||||
Mortgage backed | 1,828,526 | 5,745 | (10,364 | ) | 1,823,907 | |||||||||||
Asset backed | 238,308 | 545 | (456 | ) | 238,397 | |||||||||||
$ | 5,188,379 | $ | 18,130 | $ | (28,697 | ) | $ | 5,177,812 | ||||||||
December 31, 2005 | ||||||||||||||||
U.S. Government and Government agencies | $ | 2,351,081 | $ | 164 | $ | (42,843 | ) | $ | 2,308,402 | |||||||
Non U.S. Government and Government agencies | 80,359 | 5,583 | (1,955 | ) | 83,987 | |||||||||||
Corporate | 945,882 | 556 | (10,673 | ) | 935,765 | |||||||||||
Mortgage backed | 847,339 | 3,737 | (4,969 | ) | 846,107 | |||||||||||
Asset backed | 217,379 | 57 | (1,240 | ) | 216,196 | |||||||||||
$ | 4,442,040 | $ | 10,097 | $ | (61,680 | ) | $ | 4,390,457 | ||||||||
Amortized Cost | Fair Value | |||||||
December 31, 2006 | ||||||||
Due within one year | $ | 147,161 | $ | 146,579 | ||||
Due after one year through five years | 2,468,018 | 2,461,656 | ||||||
Due after five years through ten years | 335,364 | 335,317 | ||||||
Due after ten years | 171,002 | 171,956 | ||||||
Mortgage backed | 1,828,526 | 1,823,907 | ||||||
Asset backed | 238,308 | 238,397 | ||||||
$ | 5,188,379 | $ | 5,177,812 | |||||
F-16
3. | Investments — (continued) |
2006 | 2005 | |||||||||||||||
Cost | Fair Value | Cost | Fair Value | |||||||||||||
Global High Yield Fund | $ | 27,707 | $ | 33,031 | $ | 63,024 | $ | 81,926 | ||||||||
Hedge Funds | 217,950 | 229,526 | 207,114 | 215,064 | ||||||||||||
$ | 245,657 | $ | 262,557 | $ | 270,138 | $ | 296,990 | |||||||||
F-17
3. | Investments — (continued) |
2006 | 2005 | 2004 | ||||||||||
Fixed maturities and other investments | $ | 221,847 | $ | 157,209 | $ | 124,604 | ||||||
Other invested assets | 11,307 | 18,995 | 5,666 | |||||||||
Cash and cash equivalents | 16,169 | 6,726 | 2,450 | |||||||||
Expenses | (4,963 | ) | (4,370 | ) | (3,735 | ) | ||||||
Net investment income | $ | 244,360 | $ | 178,560 | $ | 128,985 | ||||||
2006 | 2005 | 2004 | ||||||||||
Gross realized gains | $ | 31,030 | $ | 8,458 | $ | 18,406 | ||||||
Gross realized losses | (60,152 | ) | (23,470 | ) | (5,164 | ) | ||||||
Realized gains on interest rate swaps | 7,340 | (2,107 | ) | — | ||||||||
Unrealized loss on interest rate swaps | (6,896 | ) | 6,896 | — | ||||||||
Net losses on futures contracts | — | — | (2,451 | ) | ||||||||
Net realized investment (losses) gains | $ | (28,678 | ) | $ | (10,223 | ) | $ | 10,791 | ||||
F-18
3. | Investments — (continued) |
2006 | 2005 | 2004 | ||||||||||
Net change in unrealized gains and losses net of taxes | $ | 31,972 | $ | (58,679 | ) | $ | (37,756 | ) | ||||
2006 | 2005 | |||||||||||||||
Gross | Unrealized | Gross | Unrealized | |||||||||||||
Fair Value | Losses | Fair Value | Losses | |||||||||||||
Less than 12 months | ||||||||||||||||
U.S. Government and Government agencies | $ | 381,989 | $ | (2,961 | ) | $ | 1,667,847 | $ | (28,283 | ) | ||||||
Non U.S. Government and Government agencies | 51,330 | (620 | ) | 54,235 | (1,954 | ) | ||||||||||
Corporate | 545,902 | (3,115 | ) | 488,175 | (5,593 | ) | ||||||||||
Mortgage backed | 856,533 | (6,243 | ) | 609,000 | (4,415 | ) | ||||||||||
Asset backed | — | — | 102,103 | (392 | ) | |||||||||||
$ | 1,835,754 | $ | (12,939 | ) | $ | 2,921,360 | $ | (40,637 | ) | |||||||
More than 12 months | ||||||||||||||||
U.S. Government and Government agencies | $ | 338,072 | $ | (6,645 | ) | $ | 533,204 | $ | (14,561 | ) | ||||||
Non U.S. Government and Government agencies | 515 | (9 | ) | — | — | |||||||||||
Corporate | 316,526 | (4,527 | ) | 209,944 | (5,081 | ) | ||||||||||
Mortgage backed | 389,761 | (4,121 | ) | 28,274 | (553 | ) | ||||||||||
Asset backed | 107,049 | (456 | ) | 73,346 | (848 | ) | ||||||||||
$ | 1,151,923 | $ | (15,758 | ) | $ | 844,768 | $ | (21,043 | ) | |||||||
$ | 2,987,677 | $ | (28,697 | ) | $ | 3,766,128 | $ | (61,680 | ) | |||||||
F-19
3. | Investments — (continued) |
4. | Reserve for Losses and Loss Expenses |
2006 | 2005 | |||||||
OSLR | $ | 935,214 | $ | 921,117 | ||||
IBNR | 2,701,783 | 2,484,236 | ||||||
Reserve for losses and loss expenses | $ | 3,636,997 | $ | 3,405,353 | ||||
F-20
4. | Reserve for Losses and Loss Expenses — (continued) |
2006 | 2005 | 2004 | ||||||||||
Gross liability at beginning of year | $ | 3,405,353 | $ | 2,037,124 | $ | 1,058,653 | ||||||
Reinsurance recoverable at beginning of year | (716,333 | ) | (259,171 | ) | (93,843 | ) | ||||||
Net liability at beginning of year | 2,689,020 | 1,777,953 | 964,810 | |||||||||
Net losses incurred related to: | ||||||||||||
Current year | 849,850 | 1,393,685 | 1,092,789 | |||||||||
Prior years | (110,717 | ) | (49,085 | ) | (79,435 | ) | ||||||
Total incurred | 739,133 | 1,344,600 | 1,013,354 | |||||||||
Net paid losses related to: | ||||||||||||
Current year | 27,748 | 125,018 | 69,186 | |||||||||
Prior years | 455,079 | 305,082 | 133,287 | |||||||||
Total paid | 482,827 | 430,100 | 202,473 | |||||||||
Foreign exchange revaluation | 2,566 | (3,433 | ) | 2,262 | ||||||||
Net liability at end of year | 2,947,892 | 2,689,020 | 1,777,953 | |||||||||
Reinsurance recoverable at end of year | 689,105 | 716,333 | 259,171 | |||||||||
Gross liability at end of year | $ | 3,636,997 | $ | 3,405,353 | $ | 2,037,124 | ||||||
5. | Ceded Reinsurance |
F-21
5. | Ceded Reinsurance — (continued) |
2006 | 2005 | |||||||
OSLR recoverable | $ | 303,945 | $ | 256,404 | ||||
IBNR recoverable | 385,160 | 459,929 | ||||||
Reinsurance recoverable | $ | 689,105 | $ | 716,333 | ||||
Losses | ||||||||||||
Premiums | Premiums | and Loss | ||||||||||
Written | Earned | Expenses | ||||||||||
December 31, 2006 | ||||||||||||
Direct | $ | 1,086,290 | $ | 1,051,317 | $ | 699,528 | ||||||
Assumed | 572,735 | 533,089 | 284,368 | |||||||||
Ceded | (352,429 | ) | (332,396 | ) | (244,763 | ) | ||||||
$ | 1,306,596 | $ | 1,252,010 | $ | 739,133 | |||||||
December 31, 2005 | ||||||||||||
Direct | $ | 1,045,954 | $ | 1,130,020 | $ | 1,370,816 | ||||||
Assumed | 514,372 | 485,733 | 575,905 | |||||||||
Ceded | (338,375 | ) | (344,242 | ) | (602,121 | ) | ||||||
$ | 1,221,951 | $ | 1,271,511 | $ | 1,344,600 | |||||||
December 31, 2004 | ||||||||||||
Direct | $ | 1,300,077 | $ | 1,275,346 | $ | 956,173 | ||||||
Assumed | 407,915 | 362,760 | 257,278 | |||||||||
Ceded | (335,332 | ) | (312,649 | ) | (200,097 | ) | ||||||
$ | 1,372,660 | $ | 1,325,457 | $ | 1,013,354 | |||||||
F-22
6. | Debt and Financing Arrangements |
7. | Taxation |
F-23
7. | Taxation — (continued) |
2006 | 2005 | 2004 | ||||||||||
Current income tax expense (recovery) | $ | 6,102 | $ | (1,715 | ) | $ | 610 | |||||
Deferred income tax (recovery) expense | (1,111 | ) | 1,271 | (2,790 | ) | |||||||
Income tax expense (recovery) | $ | 4,991 | $ | (444 | ) | $ | (2,180 | ) | ||||
2006 | 2005 | |||||||
Current income tax asset | $ | 46 | $ | 4,714 | ||||
Net deferred tax assets | 5,094 | 3,802 | ||||||
$ | 5,140 | $ | 8,516 | |||||
2006 | 2005 | |||||||
Unearned premium | $ | 961 | $ | 761 | ||||
Unrealized depreciation and timing difference on investments | 562 | 904 | ||||||
Realized gains | 686 | 379 | ||||||
Reserve for losses and loss expenses | 3,470 | 3,465 | ||||||
Unrealized translation | (605 | ) | (1,856 | ) | ||||
Other deferred tax assets | 20 | 149 | ||||||
$ | 5,094 | $ | 3,802 | |||||
F-24
7. | Taxation — (continued) |
2006 | 2005 | 2004 | ||||||||||
Income (loss) before taxes | $ | 447,829 | $ | (160,220 | ) | $ | 194,993 | |||||
Expected tax rate | 0.0 | % | 0.0 | % | 0.0 | % | ||||||
Foreign taxes at local expected tax rates | 1.1 | % | 0.9 | % | (1.1 | )% | ||||||
Statutory adjustments | 0.0 | % | (1.5 | )% | (0.1 | )% | ||||||
Disallowed expenses and capital allowances | 0.0 | % | 0.0 | % | 0.1 | % | ||||||
Prior year refunds and adjustments | (0.1 | )% | 0.9 | % | (0.1 | )% | ||||||
Other | 0.1 | % | 0.0 | % | 0.1 | % | ||||||
Effective tax rate | 1.1 | % | 0.3 | % | (1.1 | )% | ||||||
8. | Shareholders’ Equity |
2006 | 2005 | |||||||
Common shares issued and fully paid, par value $0.03 per share | 60,287,696 | 50,162,842 | ||||||
Share capital at end of year | $ | 1,809 | $ | 1,505 | ||||
F-25
8. | Shareholders’ Equity — (continued) |
9. | Employee Benefit Plans |
2006 | 2005 | 2004 | ||||||||||
Outstanding at beginning of year | 1,036,322 | 788,162 | 697,827 | |||||||||
Granted | 179,328 | 255,993 | 91,668 | |||||||||
Exercised | (10,118 | ) | — | — | ||||||||
Forfeited | (9,542 | ) | (7,833 | ) | (1,333 | ) | ||||||
Outstanding at end of year | 1,195,990 | 1,036,322 | 788,162 | |||||||||
Weighted average exercise price per option | $ | 27.59 | $ | 27.26 | $ | 35.90 |
Weighted Average | ||||||||||||
Options | Remaining | Options | ||||||||||
Exercise Price Range | Outstanding | Contractual Life | Exercisable | |||||||||
$23.61 - $26.94 | 554,584 | 5.42 years | 529,442 | |||||||||
$28.08 - $31.47 | 428,661 | 8.14 years | 154,584 | |||||||||
$31.77 - $35.01 | 206,745 | 8.16 years | 49,965 | |||||||||
$41.00 | 6,000 | 9.86 years | — | |||||||||
1,195,990 | 733,991 | |||||||||||
F-26
9. | Employee Benefit Plans — (continued) |
Options revalued | Options granted | |||||||
at the time of | after the IPO and | |||||||
the IPO on | prior to | |||||||
July 11, 2006 | December 31, 2006 | |||||||
Expected term of option | 6.25 | years | 6.25 | years | ||||
Weighted average risk-free interest rate | 5.11 | % | 4.64 | % | ||||
Weighted average expected volatility | 23.44 | % | 23.68 | % | ||||
Dividend yield | 1.50 | % | 1.50 | % | ||||
F-27
9. | Employee Benefit Plans — (continued) |
2006 | 2005 | 2004 | ||||||||||
Outstanding RSUs at beginning of year | 127,163 | 90,833 | — | |||||||||
RSUs granted | 586,708 | 36,330 | 90,833 | |||||||||
RSUs fully vested | (1,666 | ) | — | — | ||||||||
RSUs forfeited | (7,833 | ) | — | — | ||||||||
Outstanding RSUs at end of year | 704,372 | 127,163 | 90,833 | |||||||||
F-28
9. | Employee Benefit Plans — (continued) |
2006 | ||||
Outstanding LTIP awards at beginning of year | — | |||
LTIP awards granted | 228,334 | |||
LTIP awards forfeited | — | |||
Outstanding LTIP awards at end of year | 228,334 | |||
F-29
9. | Employee Benefit Plans — (continued) |
10. | Earnings Per Share |
2006 | 2005 | 2004 | ||||||||||
Basic earnings per share | ||||||||||||
Net income (loss) | $ | 442,838 | $ | (159,776 | ) | $ | 197,173 | |||||
Weighted average common shares outstanding | 54,746,613 | 50,162,842 | 50,162,842 | |||||||||
Basic earnings (loss) per share | $ | 8.09 | $ | (3.19 | ) | $ | 3.93 | |||||
2006 | 2005 | 2004 | ||||||||||
Diluted earnings per share | ||||||||||||
Net income (loss) | $ | 442,838 | $ | (159,776 | ) | $ | 197,173 | |||||
Weighted average common shares outstanding | 54,746,613 | 50,162,842 | 50,162,842 | |||||||||
Share equivalents: | ||||||||||||
Options and warrants | 1,630,501 | — | 1,209,564 | |||||||||
Restricted stock units | 438,370 | — | 52,983 | |||||||||
LTIP awards | 299,688 | — | — | |||||||||
Weighted average common shares and common share equivalents outstanding — diluted | 57,115,172 | 50,162,842 | 51,425,389 | |||||||||
Diluted earnings (loss) per share | $ | 7.75 | $ | (3.19 | ) | $ | 3.83 | |||||
11. | Related Party Transactions |
F-30
11. | Related Party Transactions — (continued) |
F-31
11. | Related Party Transactions — (continued) |
2006 | 2005 | 2004 | ||||||||||
Gross premiums assumed | $ | 26,977 | $ | 60,774 | $ | 333,730 | ||||||
Brokerage and commissions | 3,995 | 8,868 | 23,325 | |||||||||
Net losses and loss expenses | 15,916 | 64,238 | 255,303 |
2006 | 2005 | 2004 | ||||||||||
Gross premiums assumed | $ | 105,971 | $ | 85,477 | $ | 92,341 | ||||||
Net losses and loss expenses | 62,523 | 90,349 | 70,641 |
2006 | 2005 | 2004 | ||||||||||
Premiums ceded | $ | 12,727 | $ | 27,755 | $ | 22,441 |
F-32
11. | Related Party Transactions — (continued) |
2006 | 2005 | 2004 | ||||||||||
Gross premiums written | $ | 52,141 | $ | 82,969 | $ | 68,026 | ||||||
Acquisition costs | (8,791 | ) | (12,994 | ) | (4,496 | ) | ||||||
Net losses and loss expenses | 7,571 | (231,971 | ) | (44,896 | ) |
12. | Commitments and Contingencies |
F-33
12. | Commitments and Contingencies — (continued) |
2007 | $ | 8,068 | ||
2008 | 7,692 | |||
2009 | 7,585 | |||
2010 | 7,463 | |||
2011 | 7,254 | |||
2012 through 2022 | 60,378 | |||
$ | 98,440 | |||
F-34
12. | Commitments and Contingencies — (continued) |
F-35
13. | Statutory Capital and Surplus |
F-36
13. | Statutory Capital and Surplus — (continued) |
14. | Segment Information |
F-37
14. | Segment Information — (continued) |
2006 | Property | Casualty | Reinsurance | Total | ||||||||||||
Gross premiums written | $ | 463,903 | $ | 622,387 | $ | 572,735 | $ | 1,659,025 | ||||||||
Net premiums written | 193,655 | 540,980 | 571,961 | 1,306,596 | ||||||||||||
Net premiums earned | 190,784 | 534,294 | 526,932 | 1,252,010 | ||||||||||||
Net losses and loss expenses | (114,994 | ) | (331,759 | ) | (292,380 | ) | (739,133 | ) | ||||||||
Acquisition costs | 2,247 | (30,396 | ) | (113,339 | ) | (141,488 | ) | |||||||||
General and administrative expenses | (26,294 | ) | (52,809 | ) | (26,972 | ) | (106,075 | ) | ||||||||
Underwriting income | 51,743 | 119,330 | 94,241 | 265,314 | ||||||||||||
Net investment income | 244,360 | |||||||||||||||
Net realized investment losses | (28,678 | ) | ||||||||||||||
Interest expense | (32,566 | ) | ||||||||||||||
Foreign exchange loss | (601 | ) | ||||||||||||||
Income before income taxes | $ | 447,829 | ||||||||||||||
Loss and loss expense ratio | 60.3 | % | 62.1 | % | 55.5 | % | 59.0 | % | ||||||||
Acquisition cost ratio | (1.2 | )% | 5.7 | % | 21.5 | % | 11.3 | % | ||||||||
General and administrative expense ratio | 13.8 | % | 9.9 | % | 5.1 | % | 8.5 | % | ||||||||
Combined ratio | 72.9 | % | 77.7 | % | 82.1 | % | 78.8 | % | ||||||||
F-38
14. | Segment Information — (continued) |
2005 | Property | Casualty | Reinsurance | Total | ||||||||||||
Gross premiums written | $ | 412,879 | $ | 633,075 | $ | 514,372 | $ | 1,560,326 | ||||||||
Net premiums written | 170,781 | 557,622 | 493,548 | 1,221,951 | ||||||||||||
Net premiums earned | 226,828 | 581,330 | 463,353 | 1,271,511 | ||||||||||||
Net losses and loss expenses | (410,265 | ) | (430,993 | ) | (503,342 | ) | (1,344,600 | ) | ||||||||
Acquisition costs | (5,685 | ) | (33,544 | ) | (104,198 | ) | (143,427 | ) | ||||||||
General and administrative expenses | (20,261 | ) | (44,273 | ) | (29,736 | ) | (94,270 | ) | ||||||||
Underwriting (loss) income | (209,383 | ) | 72,520 | (173,923 | ) | (310,786 | ) | |||||||||
Net investment income | 178,560 | |||||||||||||||
Net realized investment losses | (10,223 | ) | ||||||||||||||
Interest expense | (15,615 | ) | ||||||||||||||
Foreign exchange loss | (2,156 | ) | ||||||||||||||
Loss before income taxes | $ | (160,220 | ) | |||||||||||||
Loss and loss expense ratio | 180.9 | % | 74.1 | % | 108.6 | % | 105.7 | % | ||||||||
Acquisition cost ratio | 2.5 | % | 5.8 | % | 22.5 | % | 11.3 | % | ||||||||
General and administrative expense ratio | 8.9 | % | 7.6 | % | 6.4 | % | 7.4 | % | ||||||||
Combined ratio | 192.3 | % | 87.5 | % | 137.5 | % | 124.4 | % | ||||||||
2004 | Property | Casualty | Reinsurance | Total | ||||||||||||
Gross premiums written | $ | 547,961 | $ | 752,116 | $ | 407,915 | $ | 1,707,992 | ||||||||
Net premiums written | 308,627 | 669,965 | 394,068 | 1,372,660 | ||||||||||||
Net premiums earned | 333,172 | 636,262 | 356,023 | 1,325,457 | ||||||||||||
Net losses and loss expenses | (320,510 | ) | (436,098 | ) | (256,746 | ) | (1,013,354 | ) | ||||||||
Acquisition costs | (30,425 | ) | (59,507 | ) | (80,942 | ) | (170,874 | ) | ||||||||
General and administrative expenses | (25,503 | ) | (39,759 | ) | (21,076 | ) | (86,338 | ) | ||||||||
Underwriting (loss) income | (43,266 | ) | 100,898 | (2,741 | ) | 54,891 | ||||||||||
Net investment income | 128,985 | |||||||||||||||
Net realized investment gains | 10,791 | |||||||||||||||
Foreign exchange gain | 326 | |||||||||||||||
Income before income taxes | $ | 194,993 | ||||||||||||||
Loss and loss expense ratio | 96.2 | % | 68.5 | % | 72.1 | % | 76.5 | % | ||||||||
Acquisition cost ratio | 9.1 | % | 9.4 | % | 22.8 | % | 12.9 | % | ||||||||
General and administrative expense ratio | 7.7 | % | 6.2 | % | 5.9 | % | 6.5 | % | ||||||||
Combined ratio | 113.0 | % | 84.1 | % | 100.8 | % | 95.9 | % | ||||||||
F-39
14. | Segment Information — (continued) |
2006 | 2005 | 2004 | ||||||||||
Bermuda | $ | 983,532 | $ | 925,644 | $ | 870,965 | ||||||
United States | 144,694 | 128,039 | 323,375 | |||||||||
Europe | 178,370 | 168,268 | 178,320 | |||||||||
Total net premiums written | $ | 1,306,596 | $ | 1,221,951 | $ | 1,372,660 | ||||||
15. | Subsequent Event |
F-40
16. | Unaudited Quarterly Financial Data |
Quarter Ended | ||||||||||||||||
December 31, | September 30, | June 30, | March 31, | |||||||||||||
2006 | 2006 | 2006 | 2006 | |||||||||||||
REVENUES: | ||||||||||||||||
Gross premiums written | $ | 280,111 | $ | 362,478 | $ | 518,316 | $ | 498,120 | ||||||||
Premiums ceded | (69,372 | ) | (64,462 | ) | (147,978 | ) | (70,617 | ) | ||||||||
Net premiums written | 210,739 | 298,016 | 370,338 | 427,503 | ||||||||||||
Change in unearned premiums | 109,052 | 19,743 | (64,821 | ) | (118,560 | ) | ||||||||||
Net premiums earned | 319,791 | 317,759 | 305,517 | 308,943 | ||||||||||||
Net investment income | 66,009 | 61,407 | 54,943 | 62,001 | ||||||||||||
Net realized investment loss | (4,190 | ) | (9,080 | ) | (10,172 | ) | (5,236 | ) | ||||||||
381,610 | 370,086 | 350,288 | 365,708 | |||||||||||||
EXPENSES: | ||||||||||||||||
Net losses and loss expenses | 172,395 | 180,934 | 179,844 | 205,960 | ||||||||||||
Acquisition costs | 34,568 | 37,785 | 32,663 | 36,472 | ||||||||||||
General and administrative expenses | 33,856 | 25,640 | 26,257 | 20,322 | ||||||||||||
Interest expense | 9,510 | 9,529 | 7,076 | 6,451 | ||||||||||||
Foreign exchange loss (gain) | 1,092 | (561 | ) | (475 | ) | 545 | ||||||||||
251,421 | 253,327 | 245,365 | 269,750 | |||||||||||||
Income before income taxes | 130,189 | 116,759 | 104,923 | 95,958 | ||||||||||||
Income tax expense (recovery) | 1,827 | 2,774 | 2,553 | (2,163 | ) | |||||||||||
NET INCOME | 128,362 | 113,985 | 102,370 | 98,121 | ||||||||||||
Basic earnings per share | 2.13 | 1.95 | 2.04 | 1.96 | ||||||||||||
Diluted earnings per share | 2.04 | 1.89 | 2.02 | 1.94 | ||||||||||||
Weighted average common shares outstanding | 60,284,459 | 58,376,307 | 50,162,842 | 50,162,842 | ||||||||||||
Weighted average common shares and common share equivalents outstanding | 62,963,243 | 60,451,643 | 50,682,557 | 50,485,556 |
F-41
16. | Unaudited Quarterly Financial Data — (continued) |
Quarter Ended | ||||||||||||||||
December 31, | September 30, | June 30, | March 31, | |||||||||||||
2005 | 2005 | 2005 | 2005 | |||||||||||||
REVENUES: | ||||||||||||||||
Gross premiums written | $ | 283,393 | $ | 329,930 | $ | 441,675 | $ | 505,328 | ||||||||
Premiums ceded | (69,822 | ) | (80,210 | ) | (121,669 | ) | (66,674 | ) | ||||||||
Net premiums written | 213,571 | 249,720 | 320,006 | 438,654 | ||||||||||||
Change in unearned premiums | 88,461 | 63,556 | 12,091 | (114,548 | ) | |||||||||||
Net premiums earned | 302,032 | 313,276 | 332,097 | 324,106 | ||||||||||||
Net investment income | 50,823 | 47,592 | 39,820 | 40,325 | ||||||||||||
Net realized investment (loss) gain | (5,286 | ) | 4,152 | (6,632 | ) | (2,457 | ) | |||||||||
347,569 | 365,020 | 365,285 | 361,974 | |||||||||||||
EXPENSES: | ||||||||||||||||
Net losses and loss expenses | 288,669 | 593,276 | 224,253 | 238,402 | ||||||||||||
Acquisition costs | 33,604 | 35,871 | 37,502 | 36,450 | ||||||||||||
General and administrative expenses | 27,594 | 20,795 | 24,972 | 20,909 | ||||||||||||
Interest expense | 5,832 | 5,146 | 4,587 | 50 | ||||||||||||
Foreign exchange loss (gain) | 1,670 | (46 | ) | 397 | 135 | |||||||||||
357,369 | 655,042 | 291,711 | 295,946 | |||||||||||||
(Loss) income before income taxes | (9,800 | ) | (290,022 | ) | 73,574 | 66,028 | ||||||||||
Income tax expense (recovery) | 2,478 | (6,617 | ) | 2,027 | 1,668 | |||||||||||
NET (LOSS) INCOME | (12,278 | ) | (283,405 | ) | 71,547 | 64,360 | ||||||||||
Basic (loss) earnings per share | (0.24 | ) | (5.65 | ) | 1.43 | 1.28 | ||||||||||
Diluted (loss) earnings per share | (0.24 | ) | (5.65 | ) | 1.41 | 1.28 | ||||||||||
Weighted average common shares outstanding | 50,162,842 | 50,162,842 | 50,162,842 | 50,162,842 | ||||||||||||
Weighted average common shares and common share equivalents outstanding | 50,162,842 | 50,162,842 | 50,631,645 | 50,455,313 |
F-42
2006 | 2005 | |||||||
ASSETS: | ||||||||
Cash and cash equivalents | $ | 99,583 | $ | 459 | ||||
Investments in subsidiaries | 2,641,903 | 1,925,947 | ||||||
Balances due from subsidiaries | 25 | 25 | ||||||
Other assets | 5,612 | 9,463 | ||||||
Total assets | $ | 2,747,123 | $ | 1,935,894 | ||||
LIABILITIES: | ||||||||
Accounts payable and accrued liabilities | $ | 196 | $ | 698 | ||||
Interest payable | 16,250 | — | ||||||
Reserve for stock compensation | — | 7,457 | ||||||
Balances due to affiliates | — | 5,000 | ||||||
Balances due to subsidiaries | 12,016 | 2,473 | ||||||
Senior notes | 498,577 | — | ||||||
Long term debt | — | 500,000 | ||||||
Total liabilities | 527,039 | 515,628 | ||||||
SHAREHOLDERS’ EQUITY: | ||||||||
Common shares, par value $0.03 per share, issued and outstanding 2006: 60,287,696 shares and 2005: 50,162,842 shares | 1,809 | 1,505 | ||||||
Additional paid-in capital | 1,822,607 | 1,488,860 | ||||||
Retained earnings (accumulated deficit) | 389,204 | (44,591 | ) | |||||
Accumulated other comprehensive income (loss) | 6,464 | (25,508 | ) | |||||
Total shareholders’ equity | 2,220,084 | 1,420,266 | ||||||
Total liabilities and shareholders’ equity | $ | 2,747,123 | $ | 1,935,894 | ||||
S-1
2006 | 2005 | 2004 | ||||||||||
REVENUES: | ||||||||||||
Net investment income | $ | 3,452 | $ | 114 | $ | — | ||||||
Net realized gain on interest rate swaps | 444 | 4,789 | — | |||||||||
Dividend income | 15,000 | 17,332 | 20,000 | |||||||||
18,896 | 22,235 | 20,000 | ||||||||||
EXPENSES: | ||||||||||||
General and administrative expenses | 12,476 | 10,079 | 4,390 | |||||||||
Interest expense | 32,566 | 15,615 | — | |||||||||
45,042 | 25,694 | 4,390 | ||||||||||
(Loss) income before equity in undistributed earnings of consolidated subsidiaries | (26,146 | ) | (3,459 | ) | 15,610 | |||||||
Equity in undistributed earnings of consolidated subsidiaries | 468,984 | (156,317 | ) | 181,563 | ||||||||
NET INCOME (LOSS) | $ | 442,838 | $ | (159,776 | ) | $ | 197,173 | |||||
Other comprehensive income (loss) | ||||||||||||
Unrealized gains (losses) on investments arising during the year net of applicable deferred income tax (expense) recovery | 3,294 | (68,902 | ) | (26,965 | ) | |||||||
Reclassification adjustment for net realized losses (gains) included in net income | 28,678 | 10,223 | (10,791 | ) | ||||||||
Other comprehensive income (loss) net of tax | 31,972 | (58,679 | ) | (37,756 | ) | |||||||
COMPREHENSIVE INCOME (LOSS) | $ | 474,810 | $ | (218,455 | ) | $ | 159,417 | |||||
S-2
2006 | 2005 | 2004 | ||||||||||
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: | ||||||||||||
Net income (loss) | $ | 442,838 | $ | (159,776 | ) | $ | 197,173 | |||||
Adjustments to reconcile net income (loss) to cash provided by operating activities: | ||||||||||||
Equity in earnings of consolidated subsidiaries | (468,984 | ) | 156,317 | (181,563 | ) | |||||||
Stock compensation expenses | 10,805 | 3,079 | 2,561 | |||||||||
Amortization of discount on senior notes | 42 | — | — | |||||||||
Balance due from subsidiaries | — | 1,994 | 1,717 | |||||||||
Other assets | 3,851 | (9,463 | ) | 20 | ||||||||
Accounts payable and accrued liabilities | (502 | ) | 605 | 93 | ||||||||
Interest payable | 16,250 | — | — | |||||||||
Balances due to affiliates | (5,000 | ) | 5,000 | — | ||||||||
Balances due to subsidiaries | 9,543 | 2,473 | — | |||||||||
Net cash provided by operating activities | 8,843 | 229 | 20,001 | |||||||||
CASH FLOWS USED IN INVESTING ACTIVITIES: | ||||||||||||
Investment in subsidiaries | (215,000 | ) | — | (20,000 | ) | |||||||
Net cash used in investing activities | (215,000 | ) | — | (20,000 | ) | |||||||
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: | ||||||||||||
Dividends paid | (9,043 | ) | (499,800 | ) | — | |||||||
Gross proceeds from initial public offering | 344,080 | — | — | |||||||||
Issuance costs paid on initial public offering | (28,291 | ) | — | — | ||||||||
Proceeds from issuance of senior notes | 498,535 | — | — | |||||||||
(Repayment of) proceeds from long term debt | (500,000 | ) | 500,000 | — | ||||||||
Net cash provided by financing activities | 305,281 | 200 | — | |||||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 99,124 | 429 | 1 | |||||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 459 | 30 | 29 | |||||||||
CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 99,583 | $ | 459 | $ | 30 | ||||||
S-3
1. | General |
2. | Significant Accounting Policies |
3. | Long-Term Debt |
S-4
4. | Shareholders’ Equity |
2006 | 2005 | |||||||
Common shares issued and fully paid, par value $0.03 per share | 60,287,696 | 50,162,842 | ||||||
Share capital at end of year | $ | 1,809 | $ | 1,505 | ||||
5. | Dividends from Subsidiaries |
2006 | 2005 | 2004 | ||||||||||
Dividends received | $ | 15,000 | $ | 17,332 | $ | 20,000 |
S-5
Reserve for | Amortization | |||||||||||||||||||||||||||||||||||
Deferred | Losses | Net | Net | Losses | of Deferred | Other | Net | |||||||||||||||||||||||||||||
Acquisition | and Loss | Unearned | Premiums | Investment | and Loss | Acquisition | Operating | Premiums | ||||||||||||||||||||||||||||
Costs | Expenses | Premiums | Earned | Income | Expenses | Costs | Expenses | Written | ||||||||||||||||||||||||||||
Property | $ | 17,769 | $ | 892,375 | $ | 199,133 | $ | 190,784 | $ | — | $ | 114,994 | $ | (2,247 | ) | $ | 26,294 | $ | 193,655 | |||||||||||||||||
Casualty | 22,701 | 1,873,733 | 346,350 | 534,294 | — | 331,759 | 30,396 | 52,809 | 540,980 | |||||||||||||||||||||||||||
Reinsurance | 59,856 | 870,889 | 268,314 | 526,932 | — | 292,380 | 113,339 | 26,972 | 571,961 | |||||||||||||||||||||||||||
Corporate | — | — | — | — | 244,360 | — | — | — | — | |||||||||||||||||||||||||||
Total | $ | 100,326 | $ | 3,636,997 | $ | 813,797 | $ | 1,252,010 | $ | 244,360 | $ | 739,133 | $ | 141,488 | $ | 106,075 | $ | 1,306,596 | ||||||||||||||||||
Reserve for | Amortization | |||||||||||||||||||||||||||||||||||
Deferred | Losses | Net | Net | Losses | of Deferred | Other | Net | |||||||||||||||||||||||||||||
Acquisition | and Loss | Unearned | Premiums | Investment | and Loss | Acquisition | Operating | Premiums | ||||||||||||||||||||||||||||
Costs | Expenses | Premiums | Earned | Income | Expenses | Costs | Expenses | Written | ||||||||||||||||||||||||||||
Property | $ | 16,683 | $ | 1,060,634 | $ | 176,752 | $ | 226,828 | $ | — | $ | 410,265 | $ | 5,685 | $ | 20,261 | $ | 170,781 | ||||||||||||||||||
Casualty | 26,169 | 1,547,403 | 334,522 | 581,330 | — | 430,993 | 33,544 | 44,273 | 557,622 | |||||||||||||||||||||||||||
Reinsurance | 51,705 | 797,316 | 228,817 | 463,353 | — | 503,342 | 104,198 | 29,736 | 493,548 | |||||||||||||||||||||||||||
Corporate | — | — | — | — | 178,560 | — | — | — | — | |||||||||||||||||||||||||||
Total | $ | 94,557 | $ | 3,405,353 | $ | 740,091 | $ | 1,271,511 | $ | 178,560 | $ | 1,344,600 | $ | 143,427 | $ | 94,270 | $ | 1,221,951 | ||||||||||||||||||
Reserve for | Amortization | |||||||||||||||||||||||||||||||||||
Deferred | Losses | Net | Net | Losses | of Deferred | Other | Net | |||||||||||||||||||||||||||||
Acquisition | and Loss | Unearned | Premiums | Investment | and Loss | Acquisition | Operating | Premiums | ||||||||||||||||||||||||||||
Costs | Expenses | Premiums | Earned | Income | Expenses | Costs | Expenses | Written | ||||||||||||||||||||||||||||
Property | $ | 28,606 | $ | 589,284 | $ | 239,249 | $ | 333,172 | $ | — | $ | 320,510 | $ | 30,425 | $ | 25,503 | $ | 308,627 | ||||||||||||||||||
Casualty | 27,846 | 1,093,152 | 355,819 | 636,262 | — | 436,098 | 59,507 | 39,759 | 669,965 | |||||||||||||||||||||||||||
Reinsurance | 46,533 | 354,688 | 200,270 | 356,023 | — | 256,746 | 80,942 | 21,076 | 394,068 | |||||||||||||||||||||||||||
Corporate | — | — | — | — | 128,985 | — | — | — | — | |||||||||||||||||||||||||||
Total | $ | 102,985 | $ | 2,037,124 | $ | 795,338 | $ | 1,325,457 | $ | 128,985 | $ | 1,013,354 | $ | 170,874 | $ | 86,338 | $ | 1,372,660 | ||||||||||||||||||
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Percentage | ||||||||||||||||||
(b) | (c) | (d) | of Amount | |||||||||||||||
Ceded to | Assumed from | Net | Assumed | |||||||||||||||
(a) | Other | Other | Amount | to Net | ||||||||||||||
Gross | Companies | Companies | (a) − (b) + (c) | (c)/(d) | ||||||||||||||
Year ended December 31, 2006 | $ | 1,086,290 | $ | 352,429 | $ | 572,735 | $ | 1,306,596 | 44% | |||||||||
Year ended December 31, 2005 | $ | 1,045,954 | $ | 338,375 | $ | 514,372 | $ | 1,221,951 | 42% | |||||||||
Year ended December 31, 2004 | $ | 1,300,077 | $ | 335,332 | $ | 407,915 | $ | 1,372,660 | 30% |
S-7
Admitted insurer | An insurer that is licensed or authorized to write insurance in a particular jurisdiction. | |
A.M. Best | A.M. Best Company, a rating agency. | |
Attachment point | The loss point of which an insurance or reinsurance policy becomes operative and below which any losses are retained by either the insured or other insurers or reinsurers, as the case may be. | |
Broker | An intermediary who negotiates contracts of insurance or reinsurance on behalf of an insured party, receiving a commission from the insured, insurerand/or reinsurer for placement and other services rendered. | |
Capacity | The maximum percentage of surplus, or the dollar amount of exposure, that an insurer or reinsurer is willing or able to place at risk. Capacity may apply to a single risk, a program, a line of business or an entire book of business. Capacity may be constrained by legal restrictions, corporate restrictions or indirect restrictions. | |
Case reserves | Loss reserves, established with respect to specific, individual reported claims. | |
Casualty insurance or reinsurance | Insurance or reinsurance which is primarily concerned with the losses caused by injuries to third persons (i.e., not the insured) or to property owned by third persons and the legal liability imposed on the insured resulting therefrom. It includes, but is not limited to, employers’ liability, workers’ compensation, public liability, automobile liability and personal liability. It excludes certain types of losses that by law or custom are considered as being exclusively within the scope of other types of insurance or reinsurance, such as fire or marine. | |
Catastrophe | A severe loss, typically involving multiple claimants. Common perils include earthquakes, hurricanes, tsunamis, hailstorms, severe winter weather, floods, fires, tornadoes, explosions and other natural or man-made disasters. Catastrophe losses may also arise from acts of war, acts of terrorism and political instability. | |
Catastrophe cover or coverage | See “Catastrophe reinsurance”. | |
Catastrophe loss | Losses incurred and loss adjustment expenses from catastrophes. | |
Catastrophe reinsurance | A form ofexcess-of-loss reinsurance that, subject to a specified limit, indemnifies the ceding company for the amount of loss in excess of a specified retention with respect to an accumulation of losses resulting from a catastrophic event. The actual reinsurance document is called a “catastrophe cover”. These reinsurance contracts are typically designed to cover property insurance losses but can be written to cover other types of insurance losses such as from workers’ compensation policies. |
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Cede, cedent, ceding company | When an insurer transfers some or all of its risk to a reinsurer, it “cedes” business and is referred to as the “ceding company” or “cedent”. | |
Claim | Request by an insured or reinsured for indemnification by an insurance company or a reinsurance company for losses incurred from an insured peril or event. | |
Credit ratings | The opinions of rating agencies regarding an entity’s ability to repay its indebtedness. | |
The purpose of Moody’s credit ratings is to provide investors with a simple system of gradation by which relative creditworthiness of securities may be noted. Moody’s long-term obligation ratings currently range from “Aaa” (highest quality) to “C” (lowest rated). Moody’s long-term obligation ratings grade debt according to its investment quality. Moody’s considers “Aa2” and “A3” rated long-term obligations to be upper-medium grade obligations and subject to low risk. Moody’s short-term credit ratings range from“P-1” (superior) to “NP” (not prime). | ||
S&P’s credit ratings range from “AAA” (highest rating) to “D” (payment default). S&P publications indicate that an “A+” rated issue is somewhat more susceptible to the adverse effects of changes in circumstances and economic condition than obligations in higher rated categories; however, the obligor’s capacity to meet its financial commitment to the obligation is still strong. S&P short-term ratings range from“A-1” (highest category) to “D” (payment default). Within theA-1 category some obligations are designated with a plus sign (+) indicating that the obligor’s capacity to meet its financial commitment on the obligation is extremely strong. | ||
Debt ratings | The principal agencies that rate the company’s senior unsecured debt securities are A.M. Best, Moody’s and S&P. | |
A.M. Best’s long-term debt rating is an opinion as to the issuer’s ability to meets its financial obligations to security holders when due. A.M. Best debt ratings range from “aaa” (Exceptional) to “d” (In Default). Ratings between “aaa” and “bbb” represent investment grade securities. Ratings from “aa” to “ccc” may be enhanced with a plus sign (+) or minus sign (−) to indicate whether credit quality is near the top or bottom of a category. A rating of “bbb” (Adequate; 9th of 22 categories) is assigned to issues, where the issuer has an adequate ability to meet the terms of the obligation; however, it is more susceptible to changes in economic or other conditions. | ||
Moody’slong-term obligation ratings are opinions of the relative credit risk offixed-income obligations with an original maturity of one year or more. They address the possibility that a financial obligation will not be honored as promised. Moody’s debt ratings range from “Aaa” (highest quality) to “C” (in default). Ratings from “Aa” to “Caa” are modified by the addition of a 1, 2 or 3 to show relative standing within the |
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major rating categories. A rating of “Baa1” (Moderate; 8th of 22 categories) is assigned to obligations that are subject to moderate credit risk. | ||
S&P’s long-term issue credit rating is an opinion of the creditworthiness of an obligor with respect to a specific financial obligation. S&P issue credit ratings range from “AAA” (Extremely Strong) to “D” (In Default). The ratings from “AA” to “CCC” may be modified by the addition of a plus sign (+) or minus sign (−) to show relative standing within the major rating categories. A rating of “BBB” (Adequate; 9th of 22 categories) is assigned to an obligation that exhibits adequate protection parameters; however, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. | ||
Deductible | The amount of loss that an insured retains. Also referred to as “retention”. | |
Direct insurance | Insurance sold by an insurer that contracts with the insured, as distinguished from reinsurance. | |
Directors and officers liability | Insurance that covers liability for corporate directors and officers for wrongful acts, subject to applicable exclusions, terms and conditions of the policy. | |
Earned premiums or premiums earned | That portion of premiums written that applies to the expired portion of the policy term. Earned premiums are recognized as revenues under both statutory accounting practice and U.S. GAAP. | |
Excess insurance | Insurance to cover losses in one or more layers above a certain amount with losses below that amount usually covered by the insured’s primary policy and its self-insured retention. | |
Excess-of-loss reinsurance | Reinsurance that indemnifies the insured against all or a specified portion of losses over a specified amount or “retention”. | |
Exclusions | Provisions in an insurance or reinsurance policy excluding certain risks or otherwise limiting the scope of coverage. | |
Exposure | The possibility of loss. A unit of measure of the amount of risk a company assumes. | |
Facultative reinsurance | The reinsurance of all or a portion of the insurance provided by a single policy. Each policy reinsured is separately negotiated. | |
Financial strength ratings | The opinions of rating agencies regarding the financial ability of an insurance or reinsurance company to meet its obligations under its policies. | |
A.M. Best’s financial strength ratings for insurance and reinsurance companies currently range from “A++” (Superior) to “F” (in liquidation). A.M. Best’s ratings reflect its opinion of an insurance company’s financial strength, operating performance and ability to meet its obligations to policyholders. |
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A.M. Best considers “A” and “A−” rated companies to have an excellent ability to meet their ongoing obligations to policyholders and “B++” companies to have a good ability to meet their ongoing obligations to policyholders. S&P maintains a letter rating system ranging from “AAA” (Extremely Strong) to “R” (Under Regulatory Supervision). S&P’s ratings reflect its opinion of the ability of an insurance company to pay under its insurance policies and contracts in accordance with their terms. Within these categories, “AAA” (Extremely Strong) is the highest, followed by “AA+”, “AA” and “AA−” (Very Strong) and “A+”, “A” and “A−” (Strong). Publications of S&P’s indicate that the “A+”, “A” and “A−” ratings are assigned to those companies that, in S&P’s opinion, have demonstrated strong financial security characteristics, but are somewhat more likely to be affected by adverse business conditions than are insurers with higher ratings. Moody’s maintains a letter rating system ranging from “Aaa” to “C” and appends numerical modifiers 1, 2, and 3 to the generic rating categories to show relative position within rating categories. Moody’s ratings reflect its opinion of the ability of an insurance company to punctually repay senior policyholder claims and obligations. Of the top three categories, Moody’s believes that insurance companies rated “Aaa” offer exceptional financial security, rated “Aa” offer excellent financial security, and rated “A” offer good financial security (although Moody’s believes that for insurance companies rated “A” elements may be present which suggest a susceptibility to impairment sometime in the future). | ||
Frequency | The number of claims occurring during a specified period of time. | |
Fronting | The use of an insurer to issue paper (i.e., an insurance policy) on behalf of a self-insured organization or captive insurer without the intention that such insurer will bear any of the risk; the risk of loss is transferred back to the self-insured or captive insurer with an indemnity or reinsurance agreement. Fronting arrangements allow captives and self-insurers to comply with financial responsibility laws imposed by many states that require evidence of coverage written by an admitted insurer, and must also be used in business contracts with other organizations, such as leases and construction contracts, where evidence of coverage through an admitted insurer is also required. | |
Gross premiums written | Total premiums for insurance written and assumed reinsurance written during a given period. | |
Incurred but not reported (“IBNR”) reserves | Reserves for estimated loss expenses that have been incurred but not yet reported to the insurer or reinsurer. | |
In-force | Policies and contracts reflected on our applicable records that have not expired or been terminated as of a given date. | |
Liability insurance | Same as “casualty insurance”. |
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Limits | The maximum amount that an insurer or reinsurer will insure or reinsure for a specified risk or portfolio of risks. The term also refers to the maximum amount of benefit payable for a given claim or occurrence. | |
Loss | An occurrence that is the basis for submission or payment of a claim. Losses may be covered, limited or excluded from coverage, depending on the terms of the insurance policy or other insurance or reinsurance contracts. | |
Loss adjustment expense | The expense involved in an insurance or reinsurance company settling a loss, excluding the actual value of the loss. | |
Losses incurred | The total losses and loss adjustment expenses paid, plus the change in loss and loss adjustment expense reserves, including IBNR, sustained by an insurance or reinsurance company under its insurance policies or other insurance or reinsurance contracts. | |
Losses reported | Claims or potential claims that have been identified to an insurer by an insured or to a reinsurer by a ceding company. | |
Loss expenses | The expenses involved in an insurance or reinsurance company settling a loss, including the actual value of the loss. | |
Loss reserves | Liabilities established by insurers and reinsurers to reflect the estimated cost of claims incurred that the insurer or reinsurer will ultimately be required to pay. Reserves are established for losses and for loss expenses, and consist of case reserves and IBNR reserves. As the term is used in this prospectus, “loss reserves” is meant to include reserves for both losses and for loss expenses. | |
Maximum foreseeable loss | An estimate of the worst loss that is likely to occur due to a single event. | |
Monoline | Insurance that applies to one kind of coverage. | |
Moody’s | Moody’s, Inc., a rating agency. | |
National Association of Insurance Commissioners (“NAIC”) | An organization of the U.S. insurance commissioners or directors of all 50 states and the District of Columbia organized to promote consistency of regulatory practice and statutory accounting standards. | |
Net premiums earned | The portion of net premiums written during or prior to a given period that was recognized as income during such period. | |
Net premiums written | Gross premiums written less premiums ceded to reinsurers. | |
Per occurrence limitations | The maximum amount recoverable under an insurance or reinsurance policy as a result of any one event, regardless of the number of claims. | |
Premiums | The amount charged during the term on policies and contracts issued, renewed or reinsured by an insurance company or reinsurance company. |
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Primary insurance | Insurance that pays compensation for a loss ahead of any excess insurance coverages the policyholder may have. | |
Probable maximum loss | An estimate of the largest probable loss on any given insurance policy or coverage. | |
Professional liability | Insurance that provides liability coverage for attorneys, doctors, accountants and other professionals who offer services to the general public and claim expertise in a particular area greater than the ordinary layperson. | |
Property insurance | Insurance that provides coverage for property loss, damage or loss of use. | |
Proportional treaties | Reinsurance treaties that assume a proportional share of the risks and premiums taken on by the ceding company. | |
Quota share reinsurance | A form of reinsurance in which the ceding insurer cedes an agreed-on percentage of every risk it insures that falls within a class or classes of business subject to a reinsurance treaty. | |
Rates | Amounts charged per unit of insurance or reinsurance. | |
Reinstatement premium | The premium paid by a ceding company for the right and, typically, obligation to reinstate the portion of coverage exhausted by prior claims. Reinstatement provisions typically limit the amount of aggregate coverage for all claims during the contract period and often require additional premium payments. | |
Reinsurance | The practice whereby one insurer, called the reinsurer, in consideration of a premium paid to that reinsurer, agrees to indemnify another insurer, called the ceding company, for part or all of the liability of the ceding company under one or more policies or contracts of insurance that it has issued. | |
Reinsurance agreement | A contract specifying the terms of a reinsurance transaction. | |
Reported losses | Claims or potential claims that have been identified to an insurer by an insured or to a reinsurer by a ceding company. | |
Retention | The amount of exposure a policyholder retains on any one risk or group of risks. The term may apply to an insurance policy, where the policyholder is an individual, family or business, or a reinsurance policy, where the policyholder is an insurance company. See “Deductible”. | |
Retrocessional coverage | A transaction whereby a reinsurer cedes to another reinsurer, the retrocessionaire, all or part of the reinsurance that the first reinsurer has assumed. Retrocessional reinsurance does not legally discharge the ceding reinsurer from its liability with respect to its obligations to the reinsured. Reinsurance companies cede risks to retrocessionaires for reasons similar to those that cause insurers to purchase reinsurance: to reduce net liability on individual risks, to protect against catastrophic losses, to stabilize financial ratios and to obtain additional underwriting capacity. | |
Risk-based capital | A measure adopted by the NAIC and enacted by U.S. states for determining the minimum statutory capital and surplus |
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requirements of insurers. Several different regulatory and company actions apply when an insurer’s capital and surplus falls below certain multiples of these minimums. | ||
Run-off | Liability of an insurance or reinsurance company for future claims that it expects to pay and for which a loss reserve has been established. | |
Self-insured | That portion of the risk retained by an insured for its own account. | |
Specialty lines | A term used in the insurance industry to describe types of insurance or classes of business that require specialized expertise to underwrite. Insurance for these classes of business is not widely available and is typically purchased from the specialty lines divisions of larger insurance companies or from small specialty lines insurers. | |
Standard & Poor’s (“S&P”) | Standard & Poor’s Ratings Services, a rating agency. | |
Statutory accounting practices or principles | The practices and procedures prescribed or permitted by state insurance regulatory authorities in the United States for recording transactions and preparing financial statements. | |
Statutory surplus or surplus | As determined under U.S. statutory accounting principles, the amount remaining after all liabilities, including loss reserves, are subtracted from all admitted assets. Admitted assets are assets of an insurer prescribed or permitted by an insurance regulator to be recognized on the statutory balance sheet. Statutory surplus is also referred to as “surplus” or “surplus as regards policyholders” for statutory accounting purposes. | |
Surplus lines | A risk or a part of a risk for which there is no insurance market available among licensed (or “admitted”) insurers; or insurance written by non-admitted insurance companies to cover such risks. | |
Treaty reinsurance | The reinsurance of a specified type or category of risks defined in a reinsurance agreement (a “treaty”) between an insurer or other reinsured and a reinsurer. Typically, in treaty reinsurance, the primary insurer or reinsured is obligated to offer and the reinsurer is obligated to accept a specified portion of all of that type or category of risks originally written by the insurer or reinsured. | |
Underwriter | An employee of an insurance or reinsurance company who examines, accepts or rejects risks and classifies accepted risks in order to charge an appropriate premium for each accepted risk. The underwriter is expected to select business that will produce an average risk of loss no greater than that anticipated for the class of business. | |
Underwriting | The insurer’s or reinsurer’s process of reviewing applications for insurance coverage, and the decision whether to accept all or part of the coverage and determination of the applicable premiums; also refers to the acceptance of that coverage. |
G-7
Underwriting income | The pre-tax profit or loss experienced by an insurance company that is calculated by deducting net losses and loss expenses, net acquisition costs and general and administration expenses from net premiums earned. This profit or loss calculation includes reinsurance assumed and ceded but excludes investment income. This amount is not calculated under U.S. GAAP. | |
Unearned premium | The portion of premiums written that is allocable to the unexpired portion of the policy term. | |
U.S. GAAP | Generally accepted accounting principles in the United States. | |
U.S. person | For U.S. federal income tax purposes, (1) a citizen or resident of the United States, (2) a corporation, partnership or other entity created or organized in the United States or under the laws of the United States or of any of its political subdivisions, (3) an estate the income of which is subject to U.S. federal income tax without regard to its source or (4) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust. | |
Workers’ compensation | A system (established under state and federal laws) under which employers provide insurance for benefit payments to their employees for work-related injuries, deaths and diseases, regardless of fault. | |
Working layer | Primary insurance that absorbs the losses immediately above the insured’s retention layer. A working layer insurer will pay up to a certain dollar amount of losses over the insured’s retention, at which point a higher layer excess insurer will be liable for additional losses. The coverage terms of a working layer typically assume an element of loss frequency. | |
Written premium | The premium entered on an insurer’s books for a policy issued during a given period of time, whether coverage is provided only during that period of time or also during subsequent periods. |
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G-1 |
Item 13. | Other Expenses of Issuance and Distribution |
SEC registration fee | $ | 53,500 | ||
NASD listing fee | 50,500 | |||
Printing and engraving expenses | 125,000 | |||
Legal fees and expenses | 375,000 | |||
Accounting fees and expenses | 45,900 | |||
Rating agency fees and expenses | 487,500 | |||
Trustee and Transfer agent fees | 15,000 | |||
Miscellaneous fees and expenses | 35,000 | |||
Total | $ | 1,187,400 | ||
Item 14. | Indemnification of Directors and Officers |
Item 15. | Recent Sales of Unregistered Securities |
II-1
Item 16. | Exhibits and Financial Statement Schedules |
(a) | Exhibits |
Exhibit | ||||
Number | Description of Document | |||
1 | .1** | Form of Underwriting Agreement | ||
3 | .1(1) | Memorandum of Association | ||
3 | .2(1) | Amended and Restated Bye-laws | ||
4 | .1(1) | American International Group, Inc. Warrant, dated November 21, 2001 | ||
4 | .2(1) | The Chubb Corporation Warrant, dated November 21, 2001 | ||
4 | .3(1) | GS Capital Partners 2000, L.P. Warrant, dated November 21, 2001 | ||
4 | .4(1) | GS Capital Partners 2000 Offshore, L.P. Warrant, dated November 21, 2001 | ||
4 | .5(1) | GS Capital Partners 2000 Employee Fund, L.P. Warrant, dated November 21, 2001 | ||
4 | .6(1) | GS Capital Partners 2000, GmbH & Co. Beteiligungs KG Warrant, dated November 21, 2001 | ||
4 | .7(1) | Stone Street Fund 2000, L.P. Warrant, dated November 21, 2001 | ||
4 | .8(1) | Bridge Street Special Opportunities Fund 2000, L.P. Warrant, dated November 21, 2001 | ||
4 | .9(2) | Indenture, dated as of July 26, 2006, by and between Allied World Assurance Company Holdings, Ltd, as issuer, and The Bank of New York, as trustee | ||
4 | .10(2) | First Supplemental Indenture, dated as of July 26, 2006, by and between Allied World Assurance Company, Ltd, as issuer, and The Bank of New York, as trustee | ||
4 | .11(2) | Form of Note (Included as part of Exhibit 4.10) | ||
4 | .12(3) | Amendment to Warrants to Purchase Common Shares of Allied World Assurance Company Holdings, Ltd, dated as of August 1, 2006, by and among Allied World Assurance Company Holdings, Ltd and GS Capital Partners 2000, L.P.; GS Capital Partners 2000 Offshore, L.P.; GS Capital Partners 2000, GmbH & Co. Beteiligungs KG; GS Capital Partners 2000 Employee Fund, L.P.; Stone Street Fund 2000, L.P.; and Bridge Street Special Opportunities Fund 2000, L.P. | ||
5 | .1** | Opinion of Conyers Dill & Pearman | ||
8 | .1** | Opinion of Willkie Farr & Gallagher LLP as to certain tax matters | ||
8 | .2** | Opinion of Conyers Dill & Pearman as to certain tax matters (included as part of Exhibit 5.1) | ||
10 | .1(1) | Shareholders Agreement, dated as of November 21, 2001 | ||
10 | .2(1) | Amendment No. 1 to Shareholders Agreement, dated as of February 20, 2002 | ||
10 | .3(1) | Amendment No. 2 to Shareholders Agreement, dated as of January 31, 2005 | ||
10 | .4(1) | Amendment No. 3 to Shareholders Agreement, dated as of June 20, 2005 | ||
10 | .5(1) | Form of Termination Consent among Allied World Assurance Company Holdings, Ltd and the shareholders named therein | ||
10 | .6(1) | Registration Rights Agreement by and among Allied World Assurance Company Holdings, Ltd and the shareholders named therein | ||
10 | .7(1) | Administrative Services Agreement, dated as of January 1, 2006, among Allied World Assurance Company, Ltd, Allied World Assurance Company Holdings, Ltd, Allied World Assurance Holdings (Ireland) Ltd and American International Company Limited | ||
10 | .8(1) | Amended and Restated Administrative Services Agreement, dated as of January 1, 2006, among Newmarket Underwriters Insurance Company, Allied World Assurance Company (U.S.) Inc. and Lexington Insurance Company | ||
10 | .9(1) | Services Agreement, dated as of January 1, 2006, among Allied World Assurance Company (Europe) Limited, Allied World Assurance Company (Reinsurance) Limited and AIG Insurance Management Services (Ireland) Limited |
II-2
Exhibit | ||||
Number | Description of Document | |||
10 | .10(1) | Termination Agreement, dated as of December 31, 2005, among Allied World Assurance Company, Ltd, Allied World Assurance Company Holdings, Ltd, Allied World Assurance Holdings (Ireland) Ltd, Allied World Assurance Company (U.S.) Inc., Newmarket Underwriters Insurance Company, Allied World Assurance Company (Europe) Limited, Allied World Assurance Company (Reinsurance) Limited and American International Company Limited | ||
10 | .11(1) | Schedule of Discretionary Investment Management Agreements between Allied World Assurance Company Holdings, Ltd entities and Goldman Sachs entities | ||
10 | .12(1) | Master Services Agreement, dated as of May 9, 2006, between Allied World Assurance Company, Ltd and AIG Technologies, Inc. | ||
10 | .13(1) | Placement Agency Agreement, dated October 25, 2001, among Allied World Assurance Company Holdings, Ltd, American International Group, Inc., The Chubb Corporation, GS Capital Partners 2000, L.P. and Goldman, Sachs & Co. | ||
10 | .14(1) | Underwriting Agency Agreement, dated December 1, 2001, between Allied World Assurance Company, Ltd and IPCRe Underwriting Services Limited | ||
10 | .15(1) | Amended and Restated Amendment No. 1 to Underwriting Agency Agreement, dated as of April 19, 2004 | ||
10 | .16(1) | Amendment No. 2 to Underwriting Agency Agreement, as amended, dated as of March 28, 2003 | ||
10 | .17(1) | Amendment No. 3 to Underwriting Agency Agreement, as amended, dated as of October 31, 2003 | ||
10 | .18(1) | Amendment No. 4 to Underwriting Agency Agreement, as amended, dated as of October 26, 2005 | ||
10 | .19(4) | Amendment No. 5 to Underwriting Agency Agreement, as amended, dated as of December 1, 2006 | ||
10 | .20(1) | Software License Agreement Terms and Conditions, dated as of November 14, 2003, between Allied World Assurance Company, Ltd and Transatlantic Holdings, Inc. | ||
10 | .21(1) | Guarantee, dated May 22, 2006, of Allied World Assurance Company, Ltd in favor of American International Group, Inc. | ||
10 | .22(1) | Summary of Terms of Property Excess Catastrophe Reinsurance Contract, dated May 1, 2006, among Allied World Assurance Company, Ltd, Allied World Assurance Company (Europe) Limited, Allied World Assurance Company (Reinsurance) Limited, Allied World Assurance Company (U.S.) Inc., Newmarket Underwriters Insurance Company and Transatlantic Reinsurance Company, Inc. and the other reinsurers named party thereto | ||
10 | .23(9) | Amended and Restated Software License Agreement, effective as of November 17, 2006, by and between Transatlantic Holdings, Inc. and Allied World Assurance Company, Ltd | ||
10 | .24(1) | Placement slips, effective March 1, 2004 and March 1, 2005, respectively, for the Casualty Variable Quota Share Reinsurance Agreement among Allied World Assurance Company, Ltd, Allied World Assurance Company (Europe) Limited, Allied World Assurance Company (Reinsurance) Limited and National Union Fire Insurance Company of Pittsburgh, PA | ||
10 | .25(1) | Casualty Variable Quota Share Reinsurance Agreement, effective December 1, 2002, among Allied World Assurance Company, Ltd, Allied World Assurance Company (Europe) Limited, Allied World Assurance Company (Reinsurance) Limited and Chubb Re, Inc. on behalf of Federal Insurance Company, as amended |
II-3
Exhibit | ||||
Number | Description of Document | |||
10 | .26(1) | Casualty Variable Quota Share Reinsurance Agreement, effective as of March 1, 2006, among Allied World Assurance Company, Ltd, Allied World Assurance Company (Europe) Limited, Allied World Assurance Company (Reinsurance) Limited, Allied World Company (U.S.) Inc., Newmarket Underwriters Insurance Company and Harbor Point Services, Inc. on behalf of Federal Insurance Company | ||
10 | .27(1) | Surplus Lines Program Administrator Agreement, effective June 11, 2002, between Allied World Assurance Company (U.S.) Inc. and Chubb Custom Market, Inc. | ||
10 | .28(1) | Surplus Lines Program Administrator Agreement, effective June 11, 2002, between Newmarket Underwriters Insurance Company and Chubb Custom Market, Inc. | ||
10 | .29(1) | Insurance Letters of Credit Master Agreement, dated September 19, 2002, between Allied World Assurance Company, Ltd and Citibank N.A. | ||
10 | .30(1) | Account Control Agreement, dated September 19, 2002, among Allied World Assurance Company, Ltd, Citibank, N.A. and Mellon Bank, N.A. | ||
10 | .31(1) | Amendment No. 1 to Account Control Agreement, dated March 31, 2004 | ||
10 | .32(1) | Pledge Agreement, dated as of September 19, 2002, between Allied World Assurance Company, Ltd and Citibank, N.A. | ||
10 | .33(1) | Credit Agreement, dated as of December 31, 2003, between Allied World Assurance Company, Ltd and Barclays Bank Plc | ||
10 | .34(1) | Global Amendment Agreement, dated as of January 11, 2005, between Allied World Assurance Company, Ltd and Barclays Bank Plc | ||
10 | .35(1) | Agreement, dated as of December 31, 2005, amending the original credit agreement as amended, between Allied World Assurance Company, Ltd and Barclays Bank Plc | ||
10 | .36(1) | Account Control Agreement, dated as of December 31, 2003, among Allied World Assurance Company, Ltd, Barclays Bank Plc and Mellon Bank, N.A. | ||
10 | .37(1) | Credit Agreement, dated as of March 30, 2005, among Allied World Assurance Company Holdings, Ltd, Bank of America, N. A., as administrative agent, Wachovia Bank, National Association, as syndication agent and the other banks named party thereto | ||
10 | .38(1) | Allied World Assurance Company Holdings, Ltd Amended and Restated 2004 Stock Incentive Plan | ||
10 | .39(1)† | Form of RSU Award Agreement under the Allied World Assurance Company Holdings, Ltd Amended and Restated 2004 Stock Incentive Plan | ||
10 | .40(1)† | Allied World Assurance Company Holdings, Ltd Amended and Restated 2001 Employee Stock Option Plan | ||
10 | .41(1)† | Form of Option Grant Notice and Option Agreement under the Allied World Assurance Company Holdings, Ltd Amended and Restated 2001 Employee Stock Option Plan | ||
10 | .42(1)† | Allied World Assurance Company Holdings, Ltd Long-Term Incentive Plan | ||
10 | .43(1)† | Form of Participation Agreement under the Allied World Assurance Company Holdings, Ltd Long-Term Incentive Plan | ||
10 | .44(1)† | Allied World Assurance Company, Ltd Supplemental Executive Retirement Plan | ||
10 | .45(1)† | Newmarket Underwriters Insurance Company Supplemental Executive Retirement Plan | ||
10 | .46(1) | Reinsurance Custody Agreement, dated September 30, 2002, among Commerce & Industry Insurance Company of Canada, Allied World Assurance Company (U.S.) Inc. and Royal Trust Corporation of Canada (including a Consent to Assignment, dated December 21, 2005, whereby Royal Trust Corporation of Canada assigned its rights and obligations to RBC Drexia Investor Services Trust) | ||
10 | .47(1) | Agreement, dated September 30, 2002, among Allied World Assurance Company (U.S.) Inc., American Home Assurance Company, Royal Trust Corporation of Canada and the Superintendent of Financial Institutions Canada (including a Consent to Assignment, dated December 21, 2005, whereby Royal Trust Corporation of Canada assigned its rights and obligations to RBC Drexia Investors Services Trust) |
II-4
Exhibit | ||||
Number | Description of Document | |||
10 | .48(1) | Agreement, dated December 16, 2002, among Allied World Assurance Company, Ltd, American Home Assurance Company, Royal Trust Corporation of Canada and the Superintendent of Financial Institutions of Canada (including a Consent of Assignment, dated April 27, 2006, whereby Royal Trust Corporation of Canada assigned its rights and obligations to RBC Drexia Investor Services Trust) | ||
10 | .49(1)† | Letter Agreement, dated October 1, 2004, between Allied World Assurance Company Holdings, Ltd and Michael Morrison | ||
10 | .50(5)† | Form of Indemnification Agreement | ||
10 | .51(6)† | Form of Employment Agreement | ||
10 | .52(3) | Addendum to Schedule B, effective as of September 25, 2006, to the Master Services Agreement by and between Allied World Assurance Company, Ltd and AIG Technologies, Inc. | ||
10 | .53(7) | Lease, dated November 29, 2006, by and between American International Company Limited and Allied World Assurance Company, Ltd | ||
10 | .54(8)† | Allied World Assurance Company (U.S.) Inc. Supplemental Executive Retirement Plan | ||
10 | .55(8)† | Separation and Release Agreement, dated as of December 31, 2006, between Allied World Assurance Company Holdings, Ltd and Jordan M. Gantz | ||
10 | .56(10) | Letter Agreement, dated as of February 28, 2007, by and between Allied World Assurance Company, Ltd and AIG Technologies, Inc., terminating the Master Services Agreement by and between the parties effective as of December 18, 2006 | ||
10 | .57(11)† | Contract of Employment by and between Allied World Assurance Company (Europe) Limited and John Redmond | ||
10 | .58(12) | Insurance Letters of Credit — Master Agreement, dated February 28, 2007, by and among Allied World Assurance Company, Ltd, Citibank N.A. and Citibank Europe plc | ||
10 | .59(12) | Pledge Agreement, dated as of February 28, 2007, by and between Allied World Assurance Company, Ltd and Citibank Europe plc | ||
10 | .60(12) | Account Control Agreement, dated March 5, 2007, by and among Citibank Europe plc, as secured party; Allied World Assurance Company, Ltd, as pledgor; and Mellon Bank, N.A. | ||
10 | .61(13)† | Retirement and Consulting Agreement, dated effective as of March 31, 2007, by and between Allied World Assurance Company Holdings, Ltd and G. William Davis, Jr. | ||
12 | .1 | Statement regarding the computation of ratio of earnings to fixed charges | ||
21 | .1(14) | Subsidiaries of the Registrant | ||
23 | .1** | Consent of Conyers Dill & Pearman (included in Exhibit 5.1) | ||
23 | .2** | Consent of Willkie Farr & Gallagher LLP (included in Exhibit 8.1) | ||
23 | .3 | Consent of Deloitte & Touche, an independent registered public accounting firm | ||
24 | .1 | Powers of Attorney (included on signature page) | ||
25 | .1** | Form T-1 Statement of Eligibility of Trustee (Notes Indenture) |
** | Previously filed. | |
† | Management contract or compensatory plan, contract or arrangement. | |
(1) | Incorporated herein by reference to the Registration Statement on FormS-1 (RegistrationNo. 333-132507) of Allied World Assurance Company Holdings, Ltd filed with the SEC on March 17, 2006, as amended, and declared effective by the SEC on July 11, 2006. | |
(2) | Incorporated herein by reference to the Current Report onForm 8-K of Allied World Assurance Company Holdings, Ltd filed with the SEC on August 1, 2006. | |
(3) | Incorporated herein by reference to the Quarterly Report onForm 10-Q of Allied World Assurance Company Holdings, Ltd filed with the SEC on November 14, 2006. |
II-5
(4) | Incorporated herein by reference to the Current Report onForm 8-K of Allied World Assurance Company Holdings, Ltd filed with the SEC on December 7, 2006. | |
(5) | Incorporated herein by reference to the Current Report onForm 8-K of Allied World Assurance Company Holdings, Ltd filed with the SEC on August 7, 2006. | |
(6) | Incorporated herein by reference to the Current Report onForm 8-K of Allied World Assurance Company Holdings, Ltd filed with the SEC on November 6, 2006. | |
(7) | Incorporated herein by reference to the Current Report onForm 8-K of Allied World Assurance Company Holdings, Ltd filed with the SEC on December 1, 2006. | |
(8) | Incorporated herein by reference to the Current Report onForm 8-K of Allied World Assurance Company Holdings, Ltd filed with the SEC on January 5, 2007. | |
(9) | Incorporated herein by reference to the Current Report onForm 8-K of Allied World Assurance Company Holdings, Ltd filed with the SEC on February 21, 2007. | |
(10) | Incorporated herein by reference to the Current Report onForm 8-K of Allied World Assurance Company Holdings, Ltd filed with the SEC on March 2, 2007. | |
(11) | Incorporated herein by reference to the Current Report onForm 8-K of Allied World Assurance Company Holdings, Ltd filed with the SEC on January 16, 2007. | |
(12) | Incorporated herein by reference to the Current Report onForm 8-K of Allied World Assurance Company Holdings, Ltd filed with the SEC on January 16, 2007. | |
(13) | Incorporated herein by reference to the Current Report onForm 8-K of Allied World Assurance Company Holdings, Ltd filed with the SEC on March 23, 2007. | |
(14) | Incorporated herein by reference to the Current Report onForm 10-K of Allied World Assurance Company Holdings, Ltd filed with the SEC on March 19, 2007. |
(b) | Financial Statement Schedules |
Index to Financial Statement Schedules | Schedule | Page | ||||||
Condensed Financial Statements of Parent Company | II | S-1 | ||||||
Supplementary Insurance Information | III | S-6 | ||||||
Supplementary Reinsurance Information | IV | S-7 |
Item 17. | Undertakings |
II-6
II-7
By: | /s/ Scott A. Carmilani |
Title: | President and Chief Executive |
Signature | Title | Date | ||||
/s/ Scott A. Carmilani Name: Scott A. Carmilani | President and Chief Executive Officer, Director (Principal Executive Officer) | April 30, 2007 | ||||
/s/ Joan H. Dillard Name: Joan H. Dillard | Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) | April 30, 2007 | ||||
/s/ Michael I.D. Morrison Name: Michael I.D. Morrison | Chairman of the Board of Directors | April 30, 2007 | ||||
/s/ Bart Friedman Name: Bart Friedman | Deputy Chairman of the Board of Directors | April 30, 2007 |
II-8
Signature | Title | Date | ||||
/s/ Philip D. DeFeo Name: Philip D. DeFeo | Director | April 30, 2007 | ||||
/s/ James F. Duffy Name: James F. Duffy | Director | April 30, 2007 | ||||
/s/ Scott Hunter Name: Scott Hunter | Director | April 30, 2007 | ||||
/s/ Mark R. Patterson Name: Mark R. Patterson | Director | April 30, 2007 | ||||
/s/ Samuel J. Weinhoff Name: Samuel J. Weinhoff | Director | April 30, 2007 | ||||
* Puglisi & Associates | Authorized Representative in the United States | April 30, 2007 | ||||
*By: | /s/ Wesley D. Dupont Wesley D. Dupont Attorney-in-Fact |
II-9
Exhibit | ||||
Number | Description of Document | |||
1 | .1** | Form of Underwriting Agreement | ||
3 | .1(1) | Memorandum of Association | ||
3 | .2(1) | Amended and Restated Bye-laws | ||
4 | .1(1) | American International Group, Inc. Warrant, dated November 21, 2001 | ||
4 | .2(1) | The Chubb Corporation Warrant, dated November 21, 2001 | ||
4 | .3(1) | GS Capital Partners 2000, L.P. Warrant, dated November 21, 2001 | ||
4 | .4(1) | GS Capital Partners 2000 Offshore, L.P. Warrant, dated November 21, 2001 | ||
4 | .5(1) | GS Capital Partners 2000 Employee Fund, L.P. Warrant, dated November 21, 2001 | ||
4 | .6(1) | GS Capital Partners 2000, GmbH & Co. Beteiligungs KG Warrant, dated November 21, 2001 | ||
4 | .7(1) | Stone Street Fund 2000, L.P. Warrant, dated November 21, 2001 | ||
4 | .8(1) | Bridge Street Special Opportunities Fund 2000, L.P. Warrant, dated November 21, 2001 | ||
4 | .9(2) | Indenture, dated as of July 26, 2006, by and between Allied World Assurance Company Holdings, Ltd, as issuer, and The Bank of New York, as trustee | ||
4 | .10(2) | First Supplemental Indenture, dated as of July 26, 2006, by and between Allied World Assurance Company, Ltd, as issuer, and The Bank of New York, as trustee | ||
4 | .11(2) | Form of Note (Included as part of Exhibit 4.10) | ||
4 | .12(3) | Amendment to Warrants to Purchase Common Shares of Allied World Assurance Company Holdings, Ltd, dated as of August 1, 2006, by and among Allied World Assurance Company Holdings, Ltd and GS Capital Partners 2000, L.P.; GS Capital Partners 2000 Offshore, L.P.; GS Capital Partners 2000, GmbH & Co. Beteiligungs KG; GS Capital Partners 2000 Employee Fund, L.P.; Stone Street Fund 2000, L.P.; and Bridge Street Special Opportunities Fund 2000, L.P. | ||
5 | .1** | Opinion of Conyers Dill & Pearman | ||
8 | .1** | Opinion of Willkie Farr & Gallagher LLP as to certain tax matters | ||
8 | .2** | Opinion of Conyers Dill & Pearman as to certain tax matters (included as part of Exhibit 5.1) | ||
10 | .1(1) | Shareholders Agreement, dated as of November 21, 2001 | ||
10 | .2(1) | Amendment No. 1 to Shareholders Agreement, dated as of February 20, 2002 | ||
10 | .3(1) | Amendment No. 2 to Shareholders Agreement, dated as of January 31, 2005 | ||
10 | .4(1) | Amendment No. 3 to Shareholders Agreement, dated as of June 20, 2005 | ||
10 | .5(1) | Form of Termination Consent among Allied World Assurance Company Holdings, Ltd and the shareholders named therein | ||
10 | .6(1) | Registration Rights Agreement by and among Allied World Assurance Company Holdings, Ltd and the shareholders named therein | ||
10 | .7(1) | Administrative Services Agreement, dated as of January 1, 2006, among Allied World Assurance Company, Ltd, Allied World Assurance Company Holdings, Ltd, Allied World Assurance Holdings (Ireland) Ltd and American International Company Limited | ||
10 | .8(1) | Amended and Restated Administrative Services Agreement, dated as of January 1, 2006, among Newmarket Underwriters Insurance Company, Allied World Assurance Company (U.S.) Inc. and Lexington Insurance Company | ||
10 | .9(1) | Services Agreement, dated as of January 1, 2006, among Allied World Assurance Company (Europe) Limited, Allied World Assurance Company (Reinsurance) Limited and AIG Insurance Management Services (Ireland) Limited | ||
10 | .10(1) | Termination Agreement, dated as of December 31, 2005, among Allied World Assurance Company, Ltd, Allied World Assurance Company Holdings, Ltd, Allied World Assurance Holdings (Ireland) Ltd, Allied World Assurance Company (U.S.) Inc., Newmarket Underwriters Insurance Company, Allied World Assurance Company (Europe) Limited, Allied World Assurance Company (Reinsurance) Limited and American International Company Limited |
Exhibit | ||||
Number | Description of Document | |||
10 | .11(1) | Schedule of Discretionary Investment Management Agreements between Allied World Assurance Company Holdings, Ltd entities and Goldman Sachs entities | ||
10 | .12(1) | Master Services Agreement, dated as of May 9, 2006, between Allied World Assurance Company, Ltd and AIG Technologies, Inc. | ||
10 | .13(1) | Placement Agency Agreement, dated October 25, 2001, among Allied World Assurance Company Holdings, Ltd, American International Group, Inc., The Chubb Corporation, GS Capital Partners 2000, L.P. and Goldman, Sachs & Co. | ||
10 | .14(1) | Underwriting Agency Agreement, dated December 1, 2001, between Allied World Assurance Company, Ltd and IPCRe Underwriting Services Limited | ||
10 | .15(1) | Amended and Restated Amendment No. 1 to Underwriting Agency Agreement, dated as of April 19, 2004 | ||
10 | .16(1) | Amendment No. 2 to Underwriting Agency Agreement, as amended, dated as of March 28, 2003 | ||
10 | .17(1) | Amendment No. 3 to Underwriting Agency Agreement, as amended, dated as of October 31, 2003 | ||
10 | .18(1) | Amendment No. 4 to Underwriting Agency Agreement, as amended, dated as of October 26, 2005 | ||
10 | .19(4) | Amendment No. 5 to Underwriting Agency Agreement, as amended, dated as of December 1, 2006 | ||
10 | .20(1) | Software License Agreement Terms and Conditions, dated as of November 14, 2003, between Allied World Assurance Company, Ltd and Transatlantic Holdings, Inc. | ||
10 | .21(1) | Guarantee, dated May 22, 2006, of Allied World Assurance Company, Ltd in favor of American International Group, Inc. | ||
10 | .22(1) | Summary of Terms of Property Excess Catastrophe Reinsurance Contract, dated May 1, 2006, among Allied World Assurance Company, Ltd, Allied World Assurance Company (Europe) Limited, Allied World Assurance Company (Reinsurance) Limited, Allied World Assurance Company (U.S.) Inc., Newmarket Underwriters Insurance Company and Transatlantic Reinsurance Company, Inc. and the other reinsurers named party thereto | ||
10 | .23(9) | Amended and Restated Software License Agreement, effective as of November 17, 2006, by and between Transatlantic Holdings, Inc. and Allied World Assurance Company, Ltd | ||
10 | .24(1) | Placement slips, effective March 1, 2004 and March 1, 2005, respectively, for the Casualty Variable Quota Share Reinsurance Agreement among Allied World Assurance Company, Ltd, Allied World Assurance Company (Europe) Limited, Allied World Assurance Company (Reinsurance) Limited and National Union Fire Insurance Company of Pittsburgh, PA | ||
10 | .25(1) | Casualty Variable Quota Share Reinsurance Agreement, effective December 1, 2002, among Allied World Assurance Company, Ltd, Allied World Assurance Company (Europe) Limited, Allied World Assurance Company (Reinsurance) Limited and Chubb Re, Inc. on behalf of Federal Insurance Company, as amended | ||
10 | .26(1) | Casualty Variable Quota Share Reinsurance Agreement, effective as of March 1, 2006, among Allied World Assurance Company, Ltd, Allied World Assurance Company (Europe) Limited, Allied World Assurance Company (Reinsurance) Limited, Allied World Company (U.S.) Inc., Newmarket Underwriters Insurance Company and Harbor Point Services, Inc. on behalf of Federal Insurance Company | ||
10 | .27(1) | Surplus Lines Program Administrator Agreement, effective June 11, 2002, between Allied World Assurance Company (U.S.) Inc. and Chubb Custom Market, Inc. | ||
10 | .28(1) | Surplus Lines Program Administrator Agreement, effective June 11, 2002, between Newmarket Underwriters Insurance Company and Chubb Custom Market, Inc. | ||
10 | .29(1) | Insurance Letters of Credit Master Agreement, dated September 19, 2002, between Allied World Assurance Company, Ltd and Citibank N.A. |
Exhibit | ||||
Number | Description of Document | |||
10 | .30(1) | Account Control Agreement, dated September 19, 2002, among Allied World Assurance Company, Ltd, Citibank, N.A. and Mellon Bank, N.A. | ||
10 | .31(1) | Amendment No. 1 to Account Control Agreement, dated March 31, 2004 | ||
10 | .32(1) | Pledge Agreement, dated as of September 19, 2002, between Allied World Assurance Company, Ltd and Citibank, N.A. | ||
10 | .33(1) | Credit Agreement, dated as of December 31, 2003, between Allied World Assurance Company, Ltd and Barclays Bank Plc | ||
10 | .34(1) | Global Amendment Agreement, dated as of January 11, 2005, between Allied World Assurance Company, Ltd and Barclays Bank Plc | ||
10 | .35(1) | Agreement, dated as of December 31, 2005, amending the original credit agreement as amended, between Allied World Assurance Company, Ltd and Barclays Bank Plc | ||
10 | .36(1) | Account Control Agreement, dated as of December 31, 2003, among Allied World Assurance Company, Ltd, Barclays Bank Plc and Mellon Bank, N.A. | ||
10 | .37(1) | Credit Agreement, dated as of March 30, 2005, among Allied World Assurance Company Holdings, Ltd, Bank of America, N. A., as administrative agent, Wachovia Bank, National Association, as syndication agent and the other banks named party thereto | ||
10 | .38(1) | Allied World Assurance Company Holdings, Ltd Amended and Restated 2004 Stock Incentive Plan | ||
10 | .39(1)† | Form of RSU Award Agreement under the Allied World Assurance Company Holdings, Ltd Amended and Restated 2004 Stock Incentive Plan | ||
10 | .40(1)† | Allied World Assurance Company Holdings, Ltd Amended and Restated 2001 Employee Stock Option Plan | ||
10 | .41(1)† | Form of Option Grant Notice and Option Agreement under the Allied World Assurance Company Holdings, Ltd Amended and Restated 2001 Employee Stock Option Plan | ||
10 | .42(1)† | Allied World Assurance Company Holdings, Ltd Long-Term Incentive Plan | ||
10 | .43(1)† | Form of Participation Agreement under the Allied World Assurance Company Holdings, Ltd Long-Term Incentive Plan | ||
10 | .44(1)† | Allied World Assurance Company, Ltd Supplemental Executive Retirement Plan | ||
10 | .45(1)† | Newmarket Underwriters Insurance Company Supplemental Executive Retirement Plan | ||
10 | .46(1) | Reinsurance Custody Agreement, dated September 30, 2002, among Commerce & Industry Insurance Company of Canada, Allied World Assurance Company (U.S.) Inc. and Royal Trust Corporation of Canada (including a Consent to Assignment, dated December 21, 2005, whereby Royal Trust Corporation of Canada assigned its rights and obligations to RBC Drexia Investor Services Trust) | ||
10 | .47(1) | Agreement, dated September 30, 2002, among Allied World Assurance Company (U.S.) Inc., American Home Assurance Company, Royal Trust Corporation of Canada and the Superintendent of Financial Institutions Canada (including a Consent to Assignment, dated December 21, 2005, whereby Royal Trust Corporation of Canada assigned its rights and obligations to RBC Drexia Investors Services Trust) | ||
10 | .48(1) | Agreement, dated December 16, 2002, among Allied World Assurance Company, Ltd, American Home Assurance Company, Royal Trust Corporation of Canada and the Superintendent of Financial Institutions of Canada (including a Consent of Assignment, dated April 27, 2006, whereby Royal Trust Corporation of Canada assigned its rights and obligations to RBC Drexia Investor Services Trust) | ||
10 | .49(1)† | Letter Agreement, dated October 1, 2004, between Allied World Assurance Company Holdings, Ltd and Michael Morrison | ||
10 | .50(5)† | Form of Indemnification Agreement | ||
10 | .51(6)† | Form of Employment Agreement | ||
10 | .52(3) | Addendum to Schedule B, effective as of September 25, 2006, to the Master Services Agreement by and between Allied World Assurance Company, Ltd and AIG Technologies, Inc. |
Exhibit | ||||
Number | Description of Document | |||
10 | .53(7) | Lease, dated November 29, 2006, by and between American International Company Limited and Allied World Assurance Company, Ltd | ||
10 | .54(8)† | Allied World Assurance Company (U.S.) Inc. Supplemental Executive Retirement Plan | ||
10 | .55(8)† | Separation and Release Agreement, dated as of December 31, 2006, between Allied World Assurance Company Holdings, Ltd and Jordan M. Gantz | ||
10 | .56(10) | Letter Agreement, dated as of February 28, 2007, by and between Allied World Assurance Company, Ltd and AIG Technologies, Inc., terminating the Master Services Agreement by and between the parties effective as of December 18, 2006 | ||
10 | .57(11)† | Contract of Employment by and between Allied World Assurance Company (Europe) Limited and John Redmond | ||
10 | .58(12) | Insurance Letters of Credit — Master Agreement, dated February 28, 2007, by and among Allied World Assurance Company, Ltd, Citibank N.A. and Citibank Europe plc | ||
10 | .59(12) | Pledge Agreement, dated as of February 28, 2007, by and between Allied World Assurance Company, Ltd and Citibank Europe plc | ||
10 | .60(12) | Account Control Agreement, dated March 5, 2007, by and among Citibank Europe plc, as secured party; Allied World Assurance Company, Ltd, as pledgor; and Mellon Bank, N.A. | ||
10 | .61(13)† | Retirement and Consulting Agreement, dated effective as of March 31, 2007, by and between Allied World Assurance Company Holdings, Ltd and G. William Davis, Jr. | ||
12 | .1 | Statement regarding the computation of ratio of earnings to fixed charges | ||
21 | .1(14) | Subsidiaries of the Registrant | ||
23 | .1** | Consent of Conyers Dill & Pearman (included in Exhibit 5.1) | ||
23 | .2** | Consent of Willkie Farr & Gallagher LLP (included in Exhibit 8.1) | ||
23 | .3 | Consent of Deloitte & Touche, an independent registered public accounting firm | ||
24 | .1 | Powers of Attorney (included on signature page) | ||
25 | .1** | Form T-1 Statement of Eligibility of Trustee (Notes Indenture) |
** | Previously filed. | |
† | Management contract or compensatory plan, contract or arrangement. | |
(1) | Incorporated herein by reference to the Registration Statement on FormS-1 (RegistrationNo. 333-132507) of Allied World Assurance Company Holdings, Ltd filed with the SEC on March 17, 2006, as amended, and declared effective by the SEC on July 11, 2006. | |
(2) | Incorporated herein by reference to the Current Report onForm 8-K of Allied World Assurance Company Holdings, Ltd filed with the SEC on August 1, 2006. | |
(3) | Incorporated herein by reference to the Quarterly Report onForm 10-Q of Allied World Assurance Company Holdings, Ltd filed with the SEC on November 14, 2006. | |
(4) | Incorporated herein by reference to the Current Report onForm 8-K of Allied World Assurance Company Holdings, Ltd filed with the SEC on December 7, 2006. | |
(5) | Incorporated herein by reference to the Current Report onForm 8-K of Allied World Assurance Company Holdings, Ltd filed with the SEC on August 7, 2006. | |
(6) | Incorporated herein by reference to the Current Report onForm 8-K of Allied World Assurance Company Holdings, Ltd filed with the SEC on November 6, 2006. | |
(7) | Incorporated herein by reference to the Current Report onForm 8-K of Allied World Assurance Company Holdings, Ltd filed with the SEC on December 1, 2006. | |
(8) | Incorporated herein by reference to the Current Report onForm 8-K of Allied World Assurance Company Holdings, Ltd filed with the SEC on January 5, 2007. |
(9) | Incorporated herein by reference to the Current Report onForm 8-K of Allied World Assurance Company Holdings, Ltd filed with the SEC on February 21, 2007. | |
(10) | Incorporated herein by reference to the Current Report onForm 8-K of Allied World Assurance Company Holdings, Ltd filed with the SEC on March 2, 2007. | |
(11) | Incorporated herein by reference to the Current Report onForm 8-K of Allied World Assurance Company Holdings, Ltd filed with the SEC on January 16, 2007. | |
(12) | Incorporated herein by reference to the Current Report onForm 8-K of Allied World Assurance Company Holdings, Ltd filed with the SEC on January 16, 2007. | |
(13) | Incorporated herein by reference to the Current Report onForm 8-K of Allied World Assurance Company Holdings, Ltd filed with the SEC on March 23, 2007. | |
(14) | Incorporated herein by reference to the Current Report onForm 10-K of Allied World Assurance Company Holdings, Ltd filed with the SEC on March 19, 2007. |