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

EXHIBIT 99.2

FINANCIAL SUPPLEMENT

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
March 31, 2007

Investor Contact: Keith Lennox	This report is for informational purposes only. It should be read in conjunction with documents filed by Allied World Assurance Company Holdings, Ltd with the U.S. Securities and Exchange Commission.
Phone: (212) 635-5319
Fax: (212) 635-5532
email: keith.lennox@awac.com

NOTE ON FORWARD-LOOKING STATEMENTS

This report may contain forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 that involve inherent risks and uncertainties. Statements that are not historical facts, including statements that use terms such as “believes”, “anticipates”, “intends” or “expects” and that relate to our plans and objectives for future operations, are forward-looking statements. In light of the risks and uncertainties inherent in all forward-looking statements, the inclusion of such statements in this report should not be considered as a representation by us or any other person that our objectives or plans will be achieved. These statements are based on current plans, estimates and expectations. Actual results may differ materially from those projected in such forward-looking statements and therefore you should not place undue reliance on them. A non-exclusive list of the important factors that could cause actual results to differ materially from those in such forward-looking statements includes the following: (a) the effects of competitors’ pricing policies, and of changes in laws and regulations on competition, including industry consolidation and development of competing financial products; (b) the effects of investigations into market practices, in particular insurance brokerage practices, together with any legal or regulatory proceedings, related settlements and industry reform or other changes arising therefrom; (c) the impact of acts of terrorism and acts of war; (d) greater frequency or severity of claims and loss activity, including as a result of natural or man-made catastrophic events, than our underwriting, reserving or investment practices have anticipated; (e) increased competition due to an increase in capacity of property and casualty insurers or reinsurers; (f) the inability to obtain or maintain financial strength ratings by one or more of the company’s subsidiaries; (g) the adequacy of our loss reserves and the need to adjust such reserves as claims develop over time; (h) the company or one of its subsidiaries becoming subject to significant income taxes in the United States or elsewhere; (i) changes in regulations or tax laws applicable to the company, its subsidiaries, brokers or customers; (j) changes in the availability, cost or quality of reinsurance or retrocessional coverage; (k) loss of key personnel; (l) changes in general economic conditions, including inflation, foreign currency exchange rates, interest rates and other factors that could affect the company’s investment portfolio; and (m) such other risk factors as may be discussed in our most recent documents on file with the U.S. Securities and Exchange Commission (“SEC”). We are under no obligation (and expressly disclaim any such obligation) to update or revise any forward-looking statement that may be made from time to time, whether as a result of new information, future developments or otherwise.

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
FINANCIAL SUPPLEMENT TABLE OF CONTENTS

		Page
	Basis of Presentation		4
I.	Financial Highlights
	- Consolidated Financial Highlights		5
II.	Consolidated Results
	- Consolidated Statements of Operations — Consecutive Quarters		6
	- Consolidated Premium Distribution Analysis — Current Quarter		7
III.	Segment Results
	- Consolidated Segment Results — Current Quarter		8
IV.	Balance Sheet Details
	- Consolidated Balance Sheets		9
	- Investment Portfolio		10
	- Reserve for Losses and Loss Expenses		11
	- Capital Structure		12
V.	Other
	- Basic and Diluted Earnings per Share		13
	- Return on Average Shareholders’ Equity — Consecutive Quarters		14
	- Diluted Book Value per Share		15
	- Annualized Investment Book Yield		16
	- Regulation G		18

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
BASIS OF PRESENTATION

DEFINITIONS AND PRESENTATION

- All financial information contained herein is unaudited.

- Unless otherwise noted, all data is in thousands of U.S. dollars, except for share, per share, percentage and ratio information.

- Allied World Assurance Company Holdings, Ltd, along with others in the industry, uses underwriting ratios as measures of performance. The loss and loss expense ratio is calculated by dividing net losses and loss expenses by net premiums earned. The acquisition cost ratio is calculated by dividing acquisition costs by net premiums earned. The general and administrative expense ratio is calculated by dividing general and administrative expenses by net premiums earned. The expense ratio is calculated by combining the acquisition cost ratio and the general and administrative expense ratio. The combined ratio is calculated by combining the loss and loss expense ratio, the acquisition cost ratio and the general and administrative expense ratio. These ratios are relative measurements that describe for every $100 of net premiums earned or written, the cost of losses and expenses, respectively. The combined ratio presents the total cost per $100 of earned or written premium. A combined ratio below 100% demonstrates underwriting profit; a combined ratio above 100% demonstrates underwriting loss.

- In presenting the company’s results, management has included and discussed certain “non-GAAP” financial measures, as such term is defined in Regulation G promulgated by the SEC. Management believes that these non-GAAP measures, which may be defined differently by other companies, better explain the company’s results of operations in a manner that allows for a more complete understanding of the underlying trends in the company’s business. However, these measures should not be viewed as a substitute for those determined in accordance with GAAP. The reconciliation of such non-GAAP financial measures to their respective most directly comparable GAAP financial measures in accordance with Regulation G is included in this financial supplement. See page 18 for further details.

Page 4

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
CONSOLIDATED FINANCIAL HIGHLIGHTS

	THREE MONTHS ENDED						Previous
	MARCH 31,						Quarter
	2007			2006			Change
HIGHLIGHTS
Gross premiums written	$	438,406		$	498,120			(12.0	%)
Net premiums written		357,844			427,503			(16.3	%)
Net premiums earned		286,566			308,943			(7.2	%)
Net investment income		72,648			62,001			17.2	%
Net income		113,921			98,121			16.1	%
Operating income		120,437			103,902			15.9	%
Total assets		8,149,407			6,642,307			22.7	%
Total shareholders’ equity		2,355,978			1,478,907			59.3	%
Cash flows from operating activities		157,798			187,098			(15.7	%)
PER SHARE AND SHARE DATA
Basic earnings per share
Net income	$	1.89		$	1.96			(3.6	%)
Operating income	$	2.00		$	2.07			(3.4	%)
Diluted earnings per share
Net income	$	1.83		$	1.94			(5.7	%)
Operating income	$	1.94		$	2.06			(5.8	%)
Weighted average common shares outstanding
Basic		60,333,209			50,162,842
Diluted		62,207,941			50,485,556
Book value	$	39.01		$	29.48			32.3	%
Diluted book value (treasury stock method)	$	37.89		$	29.29			29.4	%
FINANCIAL RATIOS
Return on average equity (ROAE), net income		20.1	%		26.3	%		(6.2	)	pts
ROAE, operating income		21.2	%		27.8	%		(6.6	)	pts
Annualized investment book yield		4.7	%		4.3	%		0.4		pts
Loss and loss expense ratio		57.9	%		66.7	%		(8.8	)	pts
Acquisition cost ratio		10.2	%		11.8	%		(1.6	)	pts
General and administrative expense ratio		11.6	%		6.6	%		5.0		pts
Expense ratio		21.8	%		18.4	%		3.4		pts
Combined ratio		79.7	%		85.1	%		(5.4	)	pts

Page 5

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
CONSOLIDATED STATEMENTS OF OPERATIONS

	THREE MONTHS ENDED			THREE MONTHS ENDED			THREE MONTHS ENDED			THREE MONTHS ENDED			THREE MONTHS ENDED			THREE MONTHS ENDED
	MARCH 31, 2007			DECEMBER 31, 2006			SEPTEMBER 30, 2006			JUNE 30, 2006			MARCH 31, 2006			DECEMBER 31, 2005
Revenues
Gross premiums written	$	438,406		$	280,111		$	362,478		$	518,316		$	498,120		$	283,393
Net premiums written	$	357,844		$	210,739		$	298,016		$	370,338		$	427,503		$	213,571
Net premiums earned	$	286,566		$	319,791		$	317,759		$	305,517		$	308,943		$	302,032
Net investment income		72,648			66,009			61,407			54,943			62,001			50,823
Net realized investment losses		(6,484	)		(4,190	)		(9,080	)		(10,172	)		(5,236	)		(5,286	)
Total revenues	$	352,730		$	381,610		$	370,086		$	350,288		$	365,708		$	347,569
Expenses
Net losses and loss expenses	$	165,995		$	172,395		$	180,934		$	179,844		$	205,960		$	288,669
Acquisition costs		29,196			34,568			37,785			32,663			36,472			33,604
General and administrative expenses		33,203			33,856			25,640			26,257			20,322			27,594
Foreign exchange loss (gain)		32			1,092			(561	)		(475	)		545			1,670
Interest expense		9,374			9,510			9,529			7,076			6,451			5,832
Total expenses	$	237,800		$	251,421		$	253,327		$	245,365		$	269,750		$	357,369
Income (loss) before income taxes	$	114,930		$	130,189		$	116,759		$	104,923		$	95,958		$	(9,800	)
Income tax expense (recovery)		1,009			1,827			2,774			2,553			(2,163	)		2,478
Net income (loss)	$	113,921		$	128,362		$	113,985		$	102,370		$	98,121		$	(12,278	)
GAAP Ratios
Loss and loss expense ratio		57.9	%		53.9	%		56.9	%		58.9	%		66.7	%		95.6	%
Acquisition cost ratio		10.2	%		10.8	%		11.9	%		10.7	%		11.8	%		11.1	%
General and administrative expense ratio		11.6	%		10.6	%		8.1	%		8.6	%		6.6	%		9.1	%
Expense ratio		21.8	%		21.4	%		20.0	%		19.3	%		18.4	%		20.2	%
Combined ratio		79.7	%		75.3	%		76.9	%		78.2	%		85.1	%		115.8	%

Page 6

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
CONSOLIDATED PREMIUM DISTRIBUTION
FOR THE THREE MONTHS ENDED MARCH 31, 2007

Gross Premiums Written = $438,406

Page 7

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
CONSOLIDATED SEGMENT RESULTS
FOR THE THREE MONTHS ENDED MARCH 31, 2007

										CONSOLIDATED
	PROPERTY			CASUALTY			REINSURANCE			TOTALS
Revenues
Gross premiums written	$	101,865		$	125,189		$	211,352		$	438,406
Net premiums written	$	46,132		$	100,645		$	211,067		$	357,844
Net premiums earned	$	44,491		$	124,409		$	117,666		$	286,566
Total revenues	$	44,491		$	124,409		$	117,666		$	286,566
Expenses
Net losses and loss expenses	$	6,865		$	90,367		$	68,763		$	165,995
Acquisition costs		332			6,038			22,826			29,196
General and administrative expenses		7,757			15,307			10,139			33,203
Total expenses	$	14,954		$	111,712		$	101,728		$	228,394
Underwriting Income	$	29,537		$	12,697		$	15,938		$	58,172
GAAP Ratios
Loss and loss expense ratio		15.4	%		72.6	%		58.4	%		57.9	%
Acquisition cost ratio		0.8	%		4.9	%		19.4	%		10.2	%
General and administrative expense ratio		17.4	%		12.3	%		8.6	%		11.6	%
Expense ratio		18.2	%		17.2	%		28.0	%		21.8	%
Combined ratio		33.6	%		89.8	%		86.4	%		79.7	%

Page 8

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
CONSOLIDATED BALANCE SHEETS

	MARCH 31, 2007		DECEMBER 31, 2006
ASSETS
Fixed maturity investments available for sale, at fair value	$	5,407,813	$	5,177,812
Other invested assets available for sale, at fair value		263,993		262,557
Cash and cash equivalents		288,284		366,817
Restricted cash		200,813		138,223
Securities lending collateral		534,774		304,742
Insurance balances receivable		400,231		304,261
Prepaid reinsurance		154,461		159,719
Reinsurance recoverable		668,050		689,105
Accrued investment income		44,171		51,112
Deferred acquisition costs		107,465		100,326
Intangible assets		3,920		3,920
Balances receivable on sale of investments		25,239		16,545
Net deferred tax assets		5,259		5,094
Other assets		44,934		40,347
TOTAL ASSETS	$	8,149,407	$	7,620,580
LIABILITIES
Reserve for losses and loss expenses	$	3,663,224	$	3,636,997
Unearned premiums		879,817		813,797
Unearned ceding commissions		25,352		23,914
Reinsurance balances payable		112,731		82,212
Securities lending payable		534,774		304,742
Balances due on purchase of investments		46,517		—
Dividends payable		9,052		—
Senior notes		498,602		498,577
Accounts payable and accrued liabilities		23,360		40,257
TOTAL LIABILITIES	$	5,793,429	$	5,400,496
SHAREHOLDERS’ EQUITY
Common shares, par value $0.03 per share:
60,390,269 issued and outstanding (2006 - 60,287,696)	$	1,812	$	1,809
Additional paid-in capital		1,828,612		1,822,607
Retained earnings		494,073		389,204
Accumulated other comprehensive income:
net unrealized gains on investments, net of tax		31,481		6,464
TOTAL SHAREHOLDERS’ EQUITY	$	2,355,978	$	2,220,084
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	8,149,407	$	7,620,580
Book value per share	$	39.01	$	36.82
Diluted book value per share (treasury stock method)		37.89	$	35.26

Page 9

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
INVESTMENT PORTFOLIO

	MARCH 31, 2007						DECEMBER 31, 2006						SEPTEMBER 30, 2006						JUNE 30, 2006
	FAIR MARKET						FAIR MARKET						FAIR MARKET						FAIR MARKET
	VALUE						VALUE						VALUE						VALUE
MARKET VALUE
Fixed maturities available for sale	$	5,407,813		95.3	%		$	5,177,812		95.2	%		$	5,283,799		95.4	%		$	4,808,403		94.8	%
Other invested assets available for sale		263,993		4.7	%			262,557		4.8	%			256,997		4.6	%			264,700		5.2	%
Total	$	5,671,806		100.0	%		$	5,440,369		100.0	%		$	5,540,796		100.0	%		$	5,073,103		100.0	%
ASSET ALLOCATION BY MARKET VALUE
U.S. government and agencies	$	1,939,024		31.5	%		$	1,700,052		28.6	%		$	2,412,080		41.1	%		$	2,375,542		44.7	%
Non-U.S. government securities		100,064		1.6	%			97,319		1.6	%			99,504		1.7	%			91,384		1.7	%
Corporate securities		1,242,895		20.2	%			1,318,136		22.2	%			1,057,457		18.0	%			839,861		15.8	%
Mortgage-backed securities		1,897,086		30.8	%			1,823,907		30.7	%			1,456,789		24.9	%			1,248,140		23.5	%
Asset-backed securities		228,744		3.7	%			238,398		3.9	%			257,969		4.4	%			253,476		4.8	%
Fixed Income Sub-Total		5,407,813		87.8	%			5,177,812		87.0	%			5,283,799		90.1	%			4,808,403		90.5	%
Global high-yield bond fund		33,968		0.6	%			33,031		0.6	%			31,724		0.5	%			30,519		0.6	%
Hedge funds		230,025		3.7	%			229,526		3.9	%			225,273		3.9	%			234,181		4.4	%
Cash & cash equivalents		489,097		7.9	%			505,040		8.5	%			321,719		5.5	%			237,222		4.5	%
Total	$	6,160,903		100.0	%		$	5,945,409		100.0	%		$	5,862,515		100.0	%		$	5,310,325		100.0	%
CREDIT QUALITY BY MARKET VALUE
U.S. government and agencies	$	1,939,024		35.9	%		$	1,700,052		32.8	%		$	2,412,080		45.7	%		$	2,374,326		49.5	%
AAA/Aaa		2,416,429		44.7	%			2,426,331		46.9	%			2,005,127		37.9	%			1,752,653		36.4	%
AA/Aa		377,225		7.0	%			306,242		5.9	%			274,377		5.2	%			246,483		5.1	%
A/A		629,368		11.6	%			699,267		13.5	%			546,204		10.3	%			418,172		8.7	%
BBB/Baa		45,767		0.8	%			45,920		0.9	%			46,011		0.9	%			16,769		0.3	%
Total	$	5,407,813		100.0	%		$	5,177,812		100.0	%		$	5,283,799		100.0	%		$	4,808,403		100.0	%
STATISTICS
Annualized book yield, year to date		4.7	%					4.5	%					4.3	%					4.3	%
Duration	2.9		years				2.8		years				3.0		years				3.2		years
Average credit quality (S&P)	AA					AA						AA						AA

Page 10

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
ANALYSIS OF RESERVE FOR LOSSES AND LOSS EXPENSES

				AT MARCH 31, 2007
										CONSOLIDATED
	PROPERTY			CASUALTY			REINSURANCE			TOTAL
Case reserves (net of reinsurance recoverable)	$	251,216		$	154,381		$	205,506		$	611,103
IBNR (net of reinsurance recoverable)		130,464			1,603,902			649,705			2,384,071
Total	$	381,680		$	1,758,283		$	855,211		$	2,995,174
IBNR/Total reserves (net of reinsurance recoverable)		34.2	%		91.2	%		76.0	%		79.6	%

				AT DECEMBER 31, 2006
										CONSOLIDATED
	PROPERTY			CASUALTY			REINSURANCE			TOTAL
Case reserves (net of reinsurance recoverable)	$	284,284		$	149,619		$	197,366		$	631,269
IBNR (net of reinsurance recoverable)		139,703			1,541,549			635,371			2,316,623
Total	$	423,987		$	1,691,168		$	832,737		$	2,947,892
IBNR/Total reserves (net of reinsurance recoverable)		32.9	%		91.2	%		76.3	%		78.6	%

	QUARTER ENDED			QUARTER ENDED
	MARCH 31, 2007			MARCH 31, 2006
Net losses incurred related to:
Current year		192,102			205,960
Prior years		(26,107	)		—
Total incurred		165,995			205,960

Page 11

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
CAPITAL STRUCTURE

	MARCH 31,			DECEMBER 31,			SEPTEMBER 30,			JUNE 30,			MARCH 31,
	2007			2006			2006			2006			2006
Senior notes/long-term debt	$	498,602		$	498,577		$	498,543		$	500,000		$	500,000
Shareholders’ equity		2,355,978			2,220,084			2,094,872			1,565,062			1,478,907
Total capitalization	$	2,854,580		$	2,718,661		$	2,593,415		$	2,065,062		$	1,978,907
Leverage ratios
Debt to total capitalization		17.5	%		18.3	%		19.2	%		24.2	%		25.3	%
Annual net premiums written (trailing 12 months)	$	1,236,937		$	1,306,596		$	1,309,428		$	1,261,132		$	1,210,800
Closing shareholders’ equity	$	2,355,978		$	2,220,084		$	2,094,872		$	1,565,062		$	1,478,907
Deduct/(add): accumulated other comprehensive income (loss)		31,481			6,464			3,447			(83,144	)		(64,988	)
Adjusted shareholders’ equity	$	2,324,497		$	2,213,620		$	2,091,425		$	1,648,206		$	1,543,895
Net premiums written (trailing 12 months) to adjusted shareholders’ equity		0.53			0.59			0.63			0.77			0.78

Page 12

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
OPERATING INCOME RECONCILIATION AND
EARNINGS PER SHARE INFORMATION

	THREE MONTHS ENDED
	MARCH 31,
	2007		2006
Net income	$	113,921	$	98,121
Add:
Net realized investment losses		6,484		5,236
Foreign exchange loss		32		545
Operating income	$	120,437	$	103,902
Weighted average common shares outstanding
Basic		60,333,209		50,162,842
Diluted		62,207,941		50,485,556
Basic per share data
Net income	$	1.89	$	1.96
Add:
Net realized investment losses		0.11		0.10
Foreign exchange loss		—		0.01
Operating income	$	2.00	$	2.07
Diluted per share data
Net income	$	1.83	$	1.94
Add:
Net realized investment losses		0.11		0.11
Foreign exchange loss		—		0.01
Operating income	$	1.94	$	2.06

Page 13

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
RETURN ON AVERAGE SHAREHOLDERS’ EQUITY AND
RECONCILIATION OF AVERAGE SHAREHOLDERS’ EQUITY

	THREE MONTHS ENDED			THREE MONTHS ENDED			THREE MONTHS ENDED			THREE MONTHS ENDED			THREE MONTHS ENDED
	MARCH 31, 2007			DECEMBER 31, 2006			SEPTEMBER 30, 2006			JUNE 30, 2006			MARCH 31, 2006
Opening shareholders’ equity	$	2,220,084		$	2,094,872		$	1,565,062		$	1,478,907		$	1,420,266
(Deduct)/add: net unrealized (gains) losses on investments, net of tax		(6,464	)		(3,447	)		83,144			64,988			25,508
Adjusted opening shareholders’ equity	$	2,213,620		$	2,091,425		$	1,648,206		$	1,543,895		$	1,445,774
Closing shareholders’ equity	$	2,355,978		$	2,220,084		$	2,094,872		$	1,565,062		$	1,478,907
(Deduct)/add: net unrealized (gains) losses on investments, net of tax		(31,481	)		(6,464	)		(3,447	)		83,144			64,988
Adjusted closing shareholders’ equity	$	2,324,497		$	2,213,620		$	2,091,425		$	1,648,206		$	1,543,895
Average shareholders’ equity	$	2,269,059		$	2,152,523		$	1,869,816		$	1,596,051		$	1,494,835
Net income available to shareholders	$	113,921		$	128,362		$	113,985		$	102,370		$	98,121
Annualized net income available to shareholders		455,684			513,448			455,940			409,480			392,484
Operating income available to shareholders	$	120,437		$	133,644		$	122,504		$	112,067		$	103,902
Annualized operating income available to shareholders		481,748			534,576			490,016			448,268			415,608
Annualized return on average shareholders’ equity — net income available to shareholders		20.1	%		23.9	%		24.4	%		25.7	%		26.3	%
Annualized return on average shareholders’ equity — operating income available to shareholders		21.2	%		24.8	%		26.2	%		28.1	%		27.8	%

Page 14

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
DILUTED BOOK VALUE PER SHARE

	MARCH 31,			DECEMBER 31,			MARCH 31,
	2007			2006			2006
Price per share at period end	$	42.75		$	43.63			N/A
Total shareholders’ equity		2,355,978			2,220,084			1,478,907
DILUTIVE COMMON SHARES OUTSTANDING:
Basic common shares outstanding		60,390,269			60,287,696			50,162,842
TREASURY STOCK METHOD
Add: unvested restricted share units		266,477			704,372			213,447
Add: Long-term incentive plan share units		206,023			342,501			—
Add: dilutive options/warrants outstanding		6,588,782			6,695,990			811,500
Weighted average exercise price per share	$	33.18		$	33.02		$	25.51
Deduct: treasury stock method adjustment		(5,269,881	)		(5,067,534	)		(702,233	)
Common shares and common share equivalents outstanding		62,181,670			62,963,025			50,485,556
Basic book value per common share	$	39.01		$	36.82		$	29.48
Diluted book value per common share	$	37.89		$	35.26		$	29.29

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
ANNUALIZED INVESTMENT BOOK YIELD

	THREE MONTHS ENDED			THREE MONTHS ENDED
	MARCH 31, 2007			MARCH 31, 2006
Net investment income		72,648			62,001
Deduct: annual/non-recurring items		2,062			11,582
Net investment income, recurring		70,586			50,419
Annualized net investment income, recurring		282,344			201,676
Add: annual/non-recurring items		2,062			11,582
Normalized net investment income		284,406			213,258
Fixed maturity investments available for sale, amortized cost		5,188,379			4,442,040
Other invested assets, available for sale, cost		245,657			270,138
Cash and cash equivalents		366,817			172,379
Restricted cash		138,223			41,788
Balances receivable on sale of investments		16,545			3,633
Balances due on purchase of investments		—			—
Opening aggregate invested assets		5,955,621			4,929,978
Fixed maturity investments available for sale, amortized cost		5,392,983			4,613,208
Other invested assets, available for sale, cost		246,500			247,486
Cash and cash equivalents		288,284			188,599
Restricted cash		200,813			55,161
Balances receivable on sale of investments		25,239			1,224
Balances due on purchase of investments		(46,517	)		—
Closing aggregate invested assets		6,107,302			5,105,678
Average aggregate invested assets		6,031,462			5,017,828
Annualized investment book yield		4.7	%		4.3	%

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
ANNUALIZED INVESTMENT BOOK YIELD

	YEAR ENDED			NINE MONTHS ENDED			SIX MONTHS ENDED
	DECEMBER 31, 2006			SEPTEMBER 30, 2006			JUNE 30, 2006
Net investment income		244,360			178,351			116,944
Deduct: annual/non-recurring items		N/A			11,689			11,808
Net investment income, recurring		244,360			166,662			105,136
Annualized net investment income, recurring		244,360			222,216			210,272
Add: annual/non-recurring items		N/A			11,689			11,808
Normalized net investment income		244,360			233,905			222,080
Fixed maturity investments available for sale, amortized cost		4,442,040			4,442,040			4,442,040
Other invested assets, available for sale, cost		270,138			270,138			270,138
Cash and cash equivalents		172,379			172,379			172,379
Restricted cash		41,788			41,788			41,788
Balances receivable on sale of investments		3,633			3,633			3,633
Balances due on purchase of investments		—			—			—
Opening aggregate invested assets		4,929,978			4,929,978			4,929,978
Fixed maturity investments available for sale, amortized cost		5,188,379			5,289,411			4,907,653
Other invested assets, available for sale, cost		245,657			246,854			247,975
Cash and cash equivalents		366,817			270,848			223,602
Restricted cash		138,223			50,871			13,620
Balances receivable on sale of investments		16,545			70,174			2,433
Balances due on purchase of investments		—			(66,874	)		(76,779	)
Closing aggregate invested assets		5,955,621			5,861,284			5,318,504
Average aggregate invested assets		5,442,800			5,395,631			5,124,241
Annualized investment book yield		4.5	%		4.3	%		4.3	%

Page 17

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
REGULATION G

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

OPERATING INCOME

Operating income is an internal performance measure used by the company in the management of its operations and represents after-tax operational results excluding, as applicable, net realized investment gains or losses and foreign exchange gains or losses. The company excludes net realized investment gains or losses and net foreign exchange gains or losses from its calculation of operating income because the amount of these gains or losses is heavily influenced by, and fluctuates in part according to, the availability of market opportunities. The company believes these amounts are largely independent of its business and underwriting process and including them distorts the analysis of trends in its operations. In addition to presenting net income determined in accordance with GAAP, the company believes that showing operating income enables investors, analysts, rating agencies and other users of its financial information to more easily analyze the company’s results of operations in a manner similar to how management analyzes the company’s underlying business performance. Operating income should not be viewed as a substitute for GAAP net income. See page 13 for a reconciliation of operating income to net income.

ANNUALIZED RETURN ON AVERAGE EQUITY (ROAE)

Annualized return on average equity is calculated using average equity, excluding the average after tax unrealized gains or losses on investments. Unrealized gains (losses) on investments are primarily the result of interest rate movements and the resultant impact on fixed income securities. Such gains (losses) are not related to management actions or operational performance, nor is it likely to be realized. Therefore, the company believes that excluding these unrealized gains (losses) provides a more consistent and useful measurement of operating performance, which supplements GAAP information. In calculating ROAE, the net income (loss) available to shareholders for the period is multiplied by the number of such periods in a calendar year in order to arrive at annualized net income (loss) available to shareholders. The company presents ROAE as a measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information. See page 14 for a reconciliation of average equity.

ANNUALIZED OPERATING RETURN ON AVERAGE EQUITY

Annualized operating return on average equity is calculated using 1) operating income (as defined above and annualized in the manner described for net income (loss) available to shareholders under ROAE above), and 2) average equity, excluding the average after tax unrealized gains (losses) on investments. Unrealized gains (losses) are excluded from equity for the reasons outlined in the annualized return on average equity explanation above. See page 13 for a reconciliation of net income to operating income and page 14 for a reconciliation of average equity.

ANNUALIZED INVESTMENT BOOK YIELD

Annualized investment book yield is calculated by dividing normalized net investment income by average aggregate invested assets at book value. In calculating annualized investment book yield, normalized net investment income for the period is multiplied by the number of such periods in a calendar year in order to arrive at annualized net investment income. Normalized net investment income is adjusted for known annual or non-recurring items. The company utilizes and presents the investment yield in order to better disclose the performance of the company’s investments and to show the components of the company’s ROAE. See pages 16 and 17 for reconciliations of annualized investment book yield.

DILUTED BOOK VALUE PER SHARE

The company has included diluted book value per share because it takes into account the effect of dilutive securities; therefore, the company believes it is a better measure of calculating shareholder returns than book value per share. See page 15 for a reconciliation of diluted book value per share to basic book value per share.

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