Exhibit 99.2
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
1stQuarter 2008
1stQuarter 2008
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, Ltdwith the U.S. Securities and Exchange Commission. | |
| Phone: (212) 635-5319 | ||
| Fax: (212) 635-5532 | ||
| email: keith.lennox@awac.com |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Any forward-looking statements made in this report reflect our current views with respect to future events and financial performance and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties, which may cause actual results to differ materially from those set forth in these statements. For example, our forward-looking statements could be affected by pricing and policy term trends; increased competition; the impact of acts of terrorism and acts of war; greater frequency or severity of unpredictable catastrophic events; investigations of market practices and related settlement terms; negative rating agency actions; the adequacy of our loss reserves; the company or its subsidiaries becoming subject to significant income taxes in the United States or elsewhere; changes in regulations or tax laws; changes in the availability, cost or quality of reinsurance or retrocessional coverage; adverse general economic conditions; and judicial, legislative, political and other governmental developments, as well as management’s response to these factors, and other factors identified in our filings with the U.S. Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We are under no obligation (and expressly disclaim any such obligation) to update or revise any forward-looking statement that may be made from time to time, whether as a result of new information, future developments or otherwise.
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
FINANCIAL SUPPLEMENT TABLE OF CONTENTS
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 | |||||
| - Consolidated Segment Results — Prior Year Quarter | 9 | |||||
| IV. | Balance Sheet Details | |||||
| - Consolidated Balance Sheets | 10 | |||||
| - Consolidated Investment Portfolio | 11 | |||||
| - Reserves for Losses and Loss Expenses | 12 | |||||
| - Capital Structure and Leverage Ratios | 13 | |||||
| V. | Other | |||||
| - Operating Income Reconciliation and Basic and Diluted Earnings per Share — Consecutive Quarters | 14 | |||||
| - Return on Average Shareholders’ Equity and Reconciliation of Average Shareholders’ Equity — Consecutive Quarters | 15 | |||||
| - Diluted Book Value per Share | 16 | |||||
| - Annualized Investment Book Yield | 17 | |||||
| - Regulation G | 19 | |||||
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
BASIS OF PRESENTATION
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, use underwriting ratios as measures of performance. The loss 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 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 generally accepted accounting principles (“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 19 for further details.
Page 4
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
CONSOLIDATED FINANCIAL HIGHLIGHTS
CONSOLIDATED FINANCIAL HIGHLIGHTS
| THREE MONTHS ENDED | Previous | |||||||||||||||||||
| MARCH 31, | Quarter | |||||||||||||||||||
| 2008 | 2007 | Change | ||||||||||||||||||
| HIGHLIGHTS | Gross premiums written | $ | 396,874 | $ | 438,406 | (9.5 | %) | |||||||||||||
| Net premiums written | 326,572 | 357,844 | (8.7 | %) | ||||||||||||||||
| Net premiums earned | 273,072 | 286,566 | (4.7 | %) | ||||||||||||||||
| Net investment income | 76,931 | 72,648 | 5.9 | % | ||||||||||||||||
| Net income | 130,945 | 113,921 | 14.9 | % | ||||||||||||||||
| Operating income | 127,956 | 120,437 | 6.2 | % | ||||||||||||||||
| Total investments and cash & cash equivalents | 6,401,406 | 6,160,903 | 3.9 | % | ||||||||||||||||
| Total assets | 8,244,430 | 8,149,407 | 1.2 | % | ||||||||||||||||
| Total shareholders’ equity | 2,394,620 | 2,355,978 | 1.6 | % | ||||||||||||||||
| Cash flows from operating activities | 152,857 | 157,798 | (3.1 | %) | ||||||||||||||||
| PER SHARE AND SHARE DATA | Basic earnings per share | |||||||||||||||||||
| Net income | $ | 2.68 | $ | 1.89 | 41.8 | % | ||||||||||||||
| Operating income | $ | 2.62 | $ | 2.00 | 31.0 | % | ||||||||||||||
| Diluted earnings per share | ||||||||||||||||||||
| Net income | $ | 2.55 | $ | 1.83 | 39.3 | % | ||||||||||||||
| Operating income | $ | 2.49 | $ | 1.94 | 28.4 | % | ||||||||||||||
| Weighted average common shares outstanding | ||||||||||||||||||||
| Basic | 48,811,932 | 60,333,209 | ||||||||||||||||||
| Diluted | 51,380,423 | 62,207,941 | ||||||||||||||||||
| Book value | $ | 49.03 | $ | 39.01 | 25.7 | % | ||||||||||||||
| Diluted book value | $ | 45.44 | $ | 37.05 | 22.6 | % | ||||||||||||||
| FINANCIAL RATIOS | Return on average equity (ROAE), net income | 24.0 | % | 20.1 | % | 3.9 | pts | |||||||||||||
| ROAE, operating income | 23.5 | % | 21.2 | % | 2.3 | pts | ||||||||||||||
| Annualized investment book yield | 4.7 | % | 4.7 | % | 0.1 | pts | ||||||||||||||
| Loss and loss expense ratio | 52.5 | % | 57.9 | % | (5.4 | ) | pts | |||||||||||||
| Acquisition cost ratio | 9.8 | % | 10.2 | % | (0.4 | ) | pts | |||||||||||||
| General and administrative expense ratio | 15.9 | % | 11.6 | % | 4.3 | pts | ||||||||||||||
| Expense ratio | 25.7 | % | 21.8 | % | 3.9 | pts | ||||||||||||||
| Combined ratio | 78.2 | % | 79.7 | % | (1.5 | ) | pts | |||||||||||||
Page 5
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
CONSOLIDATED STATEMENTS OF OPERATIONS — CONSECUTIVE QUARTERS
CONSOLIDATED STATEMENTS OF OPERATIONS — CONSECUTIVE QUARTERS
| THREE MONTHS ENDED | THREE MONTHS ENDED | THREE MONTHS ENDED | THREE MONTHS ENDED | THREE MONTHS ENDED | ||||||||||||||||
| MARCH 31, 2008 | DECEMBER 31, 2007 | SEPTEMBER 30, 2007 | JUNE 30, 2007 | MARCH 31, 2007 | ||||||||||||||||
Revenues | ||||||||||||||||||||
| Gross premiums written | $ | 396,874 | $ | 260,301 | $ | 276,253 | $ | 530,549 | $ | 438,406 | ||||||||||
| Net premiums written | $ | 326,572 | $ | 189,382 | $ | 219,297 | $ | 386,587 | $ | 357,844 | ||||||||||
| Net premiums earned | $ | 273,072 | $ | 286,598 | $ | 283,659 | $ | 303,119 | $ | 286,566 | ||||||||||
| Net investment income | 76,931 | 75,214 | 76,133 | 73,937 | 72,648 | |||||||||||||||
| Net realized investment gains (losses) | 3,465 | 4,544 | (4,196 | ) | (1,481 | ) | (6,484 | ) | ||||||||||||
Total revenues | $ | 353,468 | $ | 366,356 | $ | 355,596 | $ | 375,575 | $ | 352,730 | ||||||||||
Expenses | ||||||||||||||||||||
| Net losses and loss expenses: | ||||||||||||||||||||
| Current year | $ | 196,611 | $ | 202,873 | $ | 201,799 | $ | 208,643 | $ | 192,102 | ||||||||||
| Prior years | (53,114 | ) | (35,999 | ) | (28,553 | ) | (32,418 | ) | (26,107 | ) | ||||||||||
| Total net losses and loss expenses | $ | 143,497 | $ | 166,874 | $ | 173,246 | $ | 176,225 | $ | 165,995 | ||||||||||
| Acquisition costs | 26,840 | 28,693 | 29,198 | 31,872 | 29,196 | |||||||||||||||
| General and administrative expenses | 43,271 | 37,956 | 36,050 | 34,432 | 33,203 | |||||||||||||||
| Interest expense | 9,510 | 9,511 | 9,481 | 9,482 | 9,374 | |||||||||||||||
| Foreign exchange loss (gain) | 476 | (405 | ) | (976 | ) | 532 | 32 | |||||||||||||
Total expenses | $ | 223,594 | $ | 242,629 | $ | 246,999 | $ | 252,543 | $ | 237,800 | ||||||||||
Income before income taxes | $ | 129,874 | $ | 123,727 | $ | 108,597 | $ | 123,032 | $ | 114,930 | ||||||||||
| Income tax (recovery) expense | (1,071 | ) | 712 | (362 | ) | (255 | ) | 1,009 | ||||||||||||
Net income | $ | 130,945 | $ | 123,015 | $ | 108,959 | $ | 123,287 | $ | 113,921 | ||||||||||
GAAP Ratios | ||||||||||||||||||||
| Loss and loss expense ratio | 52.5 | % | 58.2 | % | 61.1 | % | 58.1 | % | 57.9 | % | ||||||||||
| Acquisition cost ratio | 9.8 | % | 10.0 | % | 10.3 | % | 10.5 | % | 10.2 | % | ||||||||||
| General and administrative expense ratio | 15.9 | % | 13.2 | % | 12.7 | % | 11.4 | % | 11.6 | % | ||||||||||
| Expense ratio | 25.7 | % | 23.2 | % | 23.0 | % | 21.9 | % | 21.8 | % | ||||||||||
| Combined ratio | 78.2 | % | 81.4 | % | 84.1 | % | 80.0 | % | 79.7 | % | ||||||||||
Per Share Data | ||||||||||||||||||||
| Basic earnings per share | ||||||||||||||||||||
| Net income | $ | 2.68 | $ | 2.11 | $ | 1.80 | $ | 2.04 | $ | 1.89 | ||||||||||
| Operating income | $ | 2.62 | $ | 2.03 | $ | 1.86 | $ | 2.07 | $ | 2.00 | ||||||||||
| Diluted earnings per share | ||||||||||||||||||||
| Net income | $ | 2.55 | $ | 2.01 | $ | 1.72 | $ | 1.96 | $ | 1.83 | ||||||||||
| Operating income | $ | 2.49 | $ | 1.93 | $ | 1.77 | $ | 1.99 | $ | 1.94 | ||||||||||
Page 6
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
CONSOLIDATED PREMIUM DISTRIBUTION ANALYSIS — CURRENT QUARTER
CONSOLIDATED PREMIUM DISTRIBUTION ANALYSIS — CURRENT QUARTER
| THREE MONTHS ENDED MARCH 31, 2008 | THREE MONTHS ENDED MARCH 31, 2007 | |
| Gross Premiums Written = $396,874 | Gross Premiums Written = $438,406 | |
 |  | |
 |  |
Page 7
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
CONSOLIDATED SEGMENT RESULTS
FOR THE THREE MONTHS ENDED MARCH 31, 2008
CONSOLIDATED SEGMENT RESULTS
FOR THE THREE MONTHS ENDED MARCH 31, 2008
| CONSOLIDATED | ||||||||||||||||
| PROPERTY | CASUALTY | REINSURANCE | TOTALS | |||||||||||||
Revenues | ||||||||||||||||
| Gross premiums written | $ | 86,060 | $ | 121,063 | $ | 189,751 | $ | 396,874 | ||||||||
| Net premiums written | $ | 46,597 | $ | 90,634 | $ | 189,341 | $ | 326,572 | ||||||||
| Net premiums earned | $ | 43,581 | $ | 109,115 | $ | 120,376 | $ | 273,072 | ||||||||
Total revenues | $ | 43,581 | $ | 109,115 | $ | 120,376 | $ | 273,072 | ||||||||
Expenses | ||||||||||||||||
| Net losses and loss expenses: | ||||||||||||||||
| Current year | $ | 35,830 | $ | 82,373 | $ | 78,408 | $ | 196,611 | ||||||||
| Prior years | (21,083 | ) | (9,258 | ) | (22,773 | ) | (53,114 | ) | ||||||||
| Total net losses and loss expenses | $ | 14,747 | $ | 73,115 | $ | 55,635 | $ | 143,497 | ||||||||
| Acquisition costs | 549 | 3,270 | 23,021 | 26,840 | ||||||||||||
| General and administrative expenses | 10,494 | 23,708 | 9,069 | 43,271 | ||||||||||||
Total expenses | $ | 25,790 | $ | 100,093 | $ | 87,725 | $ | 213,608 | ||||||||
Underwriting income | $ | 17,791 | $ | 9,022 | $ | 32,651 | $ | 59,464 | ||||||||
| Net investment income | 76,931 | |||||||||||||||
| Net realized investment gains | 3,465 | |||||||||||||||
| Interest expense | (9,510 | ) | ||||||||||||||
| Foreign exchange loss | (476 | ) | ||||||||||||||
Income before income taxes | $ | 129,874 | ||||||||||||||
GAAP Ratios | ||||||||||||||||
| Loss and loss expense ratio | 33.8 | % | 67.0 | % | 46.2 | % | 52.5 | % | ||||||||
| Acquisition cost ratio | 1.3 | % | 3.0 | % | 19.1 | % | 9.8 | % | ||||||||
| General and administrative expense ratio | 24.1 | % | 21.7 | % | 7.5 | % | 15.9 | % | ||||||||
| Expense ratio | 25.4 | % | 24.7 | % | 26.6 | % | 25.7 | % | ||||||||
| Combined ratio | 59.2 | % | 91.7 | % | 72.8 | % | 78.2 | % | ||||||||
Page 8
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
CONSOLIDATED SEGMENT RESULTS
FOR THE THREE MONTHS ENDED MARCH 31, 2007
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: | ||||||||||||||||
| Current year | $ | 32,530 | $ | 89,661 | $ | 69,911 | $ | 192,102 | ||||||||
| Prior years | (25,665 | ) | 706 | (1,148 | ) | (26,107 | ) | |||||||||
| Total 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 | ||||||||
| Net investment income | 72,648 | |||||||||||||||
| Net realized investment losses | (6,484 | ) | ||||||||||||||
| Interest expense | (9,374 | ) | ||||||||||||||
| Foreign exchange loss | (32 | ) | ||||||||||||||
Income before income taxes | $ | 114,930 | ||||||||||||||
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 9
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
| MARCH 31, 2008 | DECEMBER 31, 2007 | |||||||
ASSETS | ||||||||
| Fixed maturity investments available for sale, at fair value (amortized cost: 2008: $5,071,730; 2007: $5,595,943) | $ | 5,218,726 | $ | 5,707,143 | ||||
| Other invested assets available for sale, at fair value (cost: 2008: $82,380; 2007: $291,458) | 77,099 | 322,144 | ||||||
| Other invested assets, at fair value | 191,195 | — | ||||||
| Total investments | 5,487,020 | 6,029,287 | ||||||
| Cash and cash equivalents | 774,337 | 202,582 | ||||||
| Restricted cash | 140,049 | 67,886 | ||||||
| Securities lending collateral | 337,567 | 147,241 | ||||||
| Insurance balances receivable | 376,788 | 304,499 | ||||||
| Prepaid reinsurance | 147,402 | 163,836 | ||||||
| Reinsurance recoverable | 758,723 | 682,765 | ||||||
| Accrued investment income | 42,389 | 55,763 | ||||||
| Deferred acquisition costs | 112,619 | 108,295 | ||||||
| Intangible assets | 14,714 | 3,920 | ||||||
| Balances receivable on sale of investments | 6,323 | 84,998 | ||||||
| Net deferred tax assets | 4,158 | 4,881 | ||||||
| Other assets | 42,341 | 43,155 | ||||||
TOTAL ASSETS | $ | 8,244,430 | $ | 7,899,108 | ||||
LIABILITIES | ||||||||
| Reserve for losses and loss expenses | $ | 4,048,187 | $ | 3,919,772 | ||||
| Unearned premiums | 848,149 | 811,083 | ||||||
| Unearned ceding commissions | 26,666 | 28,831 | ||||||
| Reinsurance balances payable | 60,437 | 67,175 | ||||||
| Securities lending payable | 337,567 | 147,241 | ||||||
| Balances due on purchase of investments | — | 141,462 | ||||||
| Dividends payable | 8,788 | — | ||||||
| Senior notes | 498,710 | 498,682 | ||||||
| Accounts payable and accrued liabilities | 21,306 | 45,020 | ||||||
TOTAL LIABILITIES | $ | 5,849,810 | $ | 5,659,266 | ||||
SHAREHOLDERS’ EQUITY | ||||||||
| Common shares, par value $0.03 per share: | ||||||||
| 48,841,837 issued and outstanding (2007 - 48,741,927) | $ | 1,465 | $ | 1,462 | ||||
| Additional paid-in capital | 1,288,776 | 1,281,832 | ||||||
| Retained earnings | 968,753 | 820,334 | ||||||
| Accumulated other comprehensive income: | ||||||||
| net unrealized gains on investments, net of tax | 135,626 | 136,214 | ||||||
TOTAL SHAREHOLDERS’ EQUITY | $ | 2,394,620 | $ | 2,239,842 | ||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 8,244,430 | $ | 7,899,108 | ||||
| Book value per share | $ | 49.03 | $ | 45.95 | ||||
| Diluted book value per share | 45.44 | 42.53 | ||||||
Page 10
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
CONSOLIDATED INVESTMENT PORTFOLIO
CONSOLIDATED INVESTMENT PORTFOLIO
| MARCH 31, 2008 | DECEMBER 31, 2007 | SEPTEMBER 30, 2007 | JUNE 30, 2007 | MARCH 31, 2007 | ||||||||||||||||||||||||||||||||||||
| FAIR MARKET | FAIR MARKET | FAIR MARKET | FAIR MARKET | FAIR MARKET | ||||||||||||||||||||||||||||||||||||
| VALUE | VALUE | VALUE | VALUE | VALUE | ||||||||||||||||||||||||||||||||||||
MARKET VALUE | ||||||||||||||||||||||||||||||||||||||||
| Fixed maturities available for sale | $ | 5,218,726 | 95.1 | % | $ | 5,707,143 | 94.7 | % | $ | 6,022,625 | 95.1 | % | $ | 5,689,348 | 96.2 | % | $ | 5,407,813 | 95.3 | % | ||||||||||||||||||||
| Other invested assets available for sale | 77,099 | 1.4 | % | 322,144 | 5.3 | % | 310,715 | 4.9 | % | 227,173 | 3.8 | % | 263,993 | 4.7 | % | |||||||||||||||||||||||||
| Other invested assets | 191,195 | 3.5 | % | — | 0.0 | % | — | 0.0 | % | — | 0.0 | % | — | 0.0 | % | |||||||||||||||||||||||||
| Total | $ | 5,487,020 | 100.0 | % | $ | 6,029,287 | 100.0 | % | $ | 6,333,340 | 100.0 | % | $ | 5,916,521 | 100.0 | % | $ | 5,671,806 | 100.0 | % | ||||||||||||||||||||
ASSET ALLOCATION BY MARKET VALUE | ||||||||||||||||||||||||||||||||||||||||
| U.S. government and agencies | $ | 1,817,827 | 28.4 | % | $ | 2,053,224 | 32.6 | % | $ | 2,409,398 | 35.9 | % | $ | 2,062,352 | 33.1 | % | $ | 1,939,024 | 31.5 | % | ||||||||||||||||||||
| Non-U.S. government securities | 127,561 | 2.0 | % | 118,843 | 1.9 | % | 112,680 | 1.7 | % | 105,397 | 1.7 | % | 100,064 | 1.6 | % | |||||||||||||||||||||||||
| Corporate securities | 1,142,447 | 17.8 | % | 1,252,617 | 19.9 | % | 1,250,990 | 18.6 | % | 1,191,679 | 19.1 | % | 1,242,895 | 20.2 | % | |||||||||||||||||||||||||
| Mortgage-backed securities | 1,988,016 | 31.1 | % | 2,117,539 | 33.6 | % | 2,098,494 | 31.3 | % | 2,123,124 | 34.0 | % | 1,897,086 | 30.8 | % | |||||||||||||||||||||||||
| Asset-backed securities | 142,875 | 2.2 | % | 164,920 | 2.6 | % | 151,063 | 2.3 | % | 206,796 | 3.3 | % | 228,744 | 3.7 | % | |||||||||||||||||||||||||
| Fixed income sub-total | 5,218,726 | 81.5 | % | 5,707,143 | 90.6 | % | 6,022,625 | 89.8 | % | 5,689,348 | 91.2 | % | 5,407,813 | 87.8 | % | |||||||||||||||||||||||||
| Global high-yield bond fund | 75,939 | 1.2 | % | 79,549 | 1.3 | % | 80,765 | 1.2 | % | 34,142 | 0.5 | % | 33,968 | 0.6 | % | |||||||||||||||||||||||||
| Hedge funds | 191,195 | 3.0 | % | 241,435 | 3.8 | % | 229,950 | 3.4 | % | 193,031 | 3.1 | % | 230,025 | 3.7 | % | |||||||||||||||||||||||||
| Other invested assets | 1,160 | 0.0 | % | 1,160 | 0.0 | % | — | 0.0 | % | — | 0.0 | % | — | 0.0 | % | |||||||||||||||||||||||||
| Cash & cash equivalents | 914,386 | 14.3 | % | 270,468 | 4.3 | % | 376,765 | 5.6 | % | 322,467 | 5.2 | % | 489,097 | 7.9 | % | |||||||||||||||||||||||||
| Total | $ | 6,401,406 | 100.0 | % | $ | 6,299,755 | 100.0 | % | $ | 6,710,105 | 100.0 | % | $ | 6,238,988 | 100.0 | % | $ | 6,160,903 | 100.0 | % | ||||||||||||||||||||
CREDIT QUALITY BY MARKET VALUE | ||||||||||||||||||||||||||||||||||||||||
| U.S. government and agencies | $ | 1,817,826 | 34.8 | % | $ | 2,053,224 | 36.0 | % | $ | 2,409,398 | 40.0 | % | $ | 2,062,351 | 36.3 | % | $ | 1,939,024 | 35.9 | % | ||||||||||||||||||||
| AAA/Aaa | 2,480,380 | 47.5 | % | 2,655,246 | 46.5 | % | 2,580,781 | 42.8 | % | 2,605,371 | 45.8 | % | 2,416,429 | 44.7 | % | |||||||||||||||||||||||||
| AA/Aa | 379,798 | 7.3 | % | 411,796 | 7.2 | % | 450,219 | 7.5 | % | 370,794 | 6.5 | % | 377,225 | 7.0 | % | |||||||||||||||||||||||||
| A/A | 462,182 | 8.9 | % | 519,336 | 9.1 | % | 533,924 | 8.9 | % | 609,453 | 10.7 | % | 629,368 | 11.6 | % | |||||||||||||||||||||||||
| BBB/Baa | 78,540 | 1.5 | % | 67,541 | 1.2 | % | 48,303 | 0.8 | % | 41,379 | 0.7 | % | 45,767 | 0.8 | % | |||||||||||||||||||||||||
| Total | $ | 5,218,726 | 100.0 | % | $ | 5,707,143 | 100.0 | % | $ | 6,022,625 | 100.0 | % | $ | 5,689,348 | 100.0 | % | $ | 5,407,813 | 100.0 | % | ||||||||||||||||||||
STATISTICS | ||||||||||||||||||||||||||||||||||||||||
| Annualized book yield, year to date | 4.7 | % | 4.9 | % | 4.7 | % | 4.7 | % | 4.7 | % | ||||||||||||||||||||||||||||||
| Duration | 3.0 years | 3.1 years | 3.2 years | 3.0 years | 2.9 years | |||||||||||||||||||||||||||||||||||
| Average credit quality (S&P) | AA | AA | AA | AA | AA | |||||||||||||||||||||||||||||||||||
Page 11
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
RESERVES FOR LOSSES AND LOSS EXPENSES
RESERVES FOR LOSSES AND LOSS EXPENSES
| AT MARCH 31, 2008 | ||||||||||||||||
| CONSOLIDATED | ||||||||||||||||
| PROPERTY | CASUALTY | REINSURANCE | TOTAL | |||||||||||||
| Case reserves (net of reinsurance recoverable) | $ | 206,713 | $ | 249,870 | $ | 220,577 | $ | 677,160 | ||||||||
| IBNR (net of reinsurance recoverable) | 119,075 | 1,687,560 | 805,669 | 2,612,304 | ||||||||||||
| Total | $ | 325,788 | $ | 1,937,430 | $ | 1,026,246 | $ | 3,289,464 | ||||||||
IBNR/Total reserves (net of reinsurance recoverable) | 36.5 | % | 87.1 | % | 78.5 | % | 79.4 | % | ||||||||
| AT DECEMBER 31, 2007 | ||||||||||||||||
| CONSOLIDATED | ||||||||||||||||
| PROPERTY | CASUALTY | REINSURANCE | TOTAL | |||||||||||||
| Case reserves (net of reinsurance recoverable) | $ | 234,023 | $ | 227,888 | $ | 212,315 | $ | 674,226 | ||||||||
| IBNR (net of reinsurance recoverable) | 126,593 | 1,650,354 | 785,834 | 2,562,781 | ||||||||||||
| Total | $ | 360,616 | $ | 1,878,242 | $ | 998,149 | $ | 3,237,007 | ||||||||
IBNR/Total reserves (net of reinsurance recoverable) | 35.1 | % | 87.9 | % | 78.7 | % | 79.2 | % | ||||||||
Page 12
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
CAPITAL STRUCTURE AND LEVERAGE RATIOS
CAPITAL STRUCTURE AND LEVERAGE RATIOS
| MARCH 31, | DECEMBER 31, | SEPTEMBER 30, | JUNE 30, | MARCH 31, | ||||||||||||||||
| 2008 | 2007 | 2007 | 2007 | 2007 | ||||||||||||||||
| Senior notes | $ | 498,710 | $ | 498,682 | $ | 498,655 | $ | 498,629 | $ | 498,602 | ||||||||||
| Shareholders’ equity | 2,394,620 | 2,239,842 | 2,612,775 | 2,418,186 | 2,355,978 | |||||||||||||||
| Total capitalization | $ | 2,893,330 | $ | 2,738,524 | $ | 3,111,430 | $ | 2,916,815 | $ | 2,854,580 | ||||||||||
Leverage ratios | ||||||||||||||||||||
Debt to total capitalization | 17.2 | % | 18.2 | % | 16.0 | % | 17.1 | % | 17.5 | % | ||||||||||
| Closing shareholders’ equity | $ | 2,394,620 | $ | 2,239,842 | $ | 2,612,775 | $ | 2,418,186 | $ | 2,355,978 | ||||||||||
| Deduct/add: accumulated other comprehensive (income)/loss | (135,626 | ) | (136,214 | ) | (62,917 | ) | 25,663 | (31,481 | ) | |||||||||||
| Adjusted shareholders’ equity | $ | 2,258,994 | $ | 2,103,628 | $ | 2,549,858 | $ | 2,443,849 | $ | 2,324,497 | ||||||||||
| Net premiums written (trailing 12 months) | $ | 1,121,838 | $ | 1,153,110 | $ | 1,174,467 | $ | 1,253,186 | $ | 1,236,937 | ||||||||||
Net premiums written (trailing 12 months) to adjusted shareholders’ equity | 0.50 | 0.55 | 0.46 | 0.51 | 0.53 | |||||||||||||||
| Total investments and cash & cash equivalents | $ | 6,401,406 | $ | 6,299,755 | $ | 6,710,105 | $ | 6,238,988 | $ | 6,160,903 | ||||||||||
Total investments and cash & cash equivalents to adjusted shareholders’ equity | 2.83 | 2.99 | 2.63 | 2.55 | 2.65 | |||||||||||||||
| Reserve for losses and loss expenses | $ | 4,048,187 | $ | 3,919,772 | $ | 3,831,962 | $ | 3,743,680 | $ | 3,663,224 | ||||||||||
| Deduct: reinsurance recoverable | (758,723 | ) | (682,765 | ) | (674,398 | ) | (679,198 | ) | (668,050 | ) | ||||||||||
| Net reserve for losses and loss expenses | $ | 3,289,464 | $ | 3,237,007 | $ | 3,157,564 | $ | 3,064,482 | $ | 2,995,174 | ||||||||||
Net reserve for losses and loss expenses to adjusted shareholders’ equity | 1.46 | 1.54 | 1.24 | 1.25 | 1.29 | |||||||||||||||
Page 13
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
OPERATING INCOME RECONCILIATION AND
BASIC AND DILUTED EARNINGS PER SHARE INFORMATION
OPERATING INCOME RECONCILIATION AND
BASIC AND DILUTED EARNINGS PER SHARE INFORMATION
| THREE MONTHS ENDED | THREE MONTHS ENDED | THREE MONTHS ENDED | THREE MONTHS ENDED | THREE MONTHS ENDED | ||||||||||||||||
| MARCH 31, 2008 | DECEMBER 31, 2007 | SEPTEMBER 30, 2007 | JUNE 30, 2007 | MARCH 31, 2007 | ||||||||||||||||
| Net income | $ | 130,945 | $ | 123,015 | $ | 108,959 | $ | 123,287 | $ | 113,921 | ||||||||||
| Add: | ||||||||||||||||||||
| Net realized investment (gains) losses | (3,465 | ) | (4,544 | ) | 4,196 | 1,481 | 6,484 | |||||||||||||
| Foreign exchange loss (gain) | 476 | (405 | ) | (976 | ) | 532 | 32 | |||||||||||||
| Operating income | $ | 127,956 | $ | 118,066 | $ | 112,179 | $ | 125,300 | $ | 120,437 | ||||||||||
Weighted average common shares outstanding | ||||||||||||||||||||
| Basic | 48,811,932 | 58,247,755 | 60,413,019 | 60,397,591 | 60,333,209 | |||||||||||||||
| Diluted | 51,380,423 | 61,133,206 | 63,250,024 | 62,874,235 | 62,207,941 | |||||||||||||||
Basic per share data | ||||||||||||||||||||
| Net income | $ | 2.68 | $ | 2.11 | $ | 1.80 | $ | 2.04 | $ | 1.89 | ||||||||||
| Add: | ||||||||||||||||||||
| Net realized investment (gains) losses | (0.07 | ) | (0.07 | ) | 0.08 | 0.02 | 0.11 | |||||||||||||
| Foreign exchange loss (gain) | 0.01 | (0.01 | ) | (0.02 | ) | 0.01 | — | |||||||||||||
| Operating income | $ | 2.62 | $ | 2.03 | $ | 1.86 | $ | 2.07 | $ | 2.00 | ||||||||||
Diluted per share data | ||||||||||||||||||||
| Net income | $ | 2.55 | $ | 2.01 | $ | 1.72 | $ | 1.96 | $ | 1.83 | ||||||||||
| Add: | ||||||||||||||||||||
| Net realized investment (gains) losses | (0.07 | ) | (0.07 | ) | 0.07 | 0.02 | 0.11 | |||||||||||||
| Foreign exchange loss (gain) | 0.01 | (0.01 | ) | (0.02 | ) | 0.01 | — | |||||||||||||
| Operating income | $ | 2.49 | $ | 1.93 | $ | 1.77 | $ | 1.99 | $ | 1.94 | ||||||||||
Page 14
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
RETURN ON AVERAGE SHAREHOLDERS’ EQUITY AND
RECONCILIATION OF AVERAGE SHAREHOLDERS’ EQUITY
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, 2008 | DECEMBER 31, 2007 | SEPTEMBER 30, 2007 | JUNE 30, 2007 | MARCH 31, 2007 | ||||||||||||||||
| Opening shareholders’ equity | $ | 2,239,842 | $ | 2,612,775 | $ | 2,418,186 | $ | 2,355,978 | $ | 2,220,084 | ||||||||||
| Deduct/add: accumulated other comprehensive (income)/loss | (136,214 | ) | (62,917 | ) | 25,663 | (31,481 | ) | (6,464 | ) | |||||||||||
| Adjusted opening shareholders’ equity | $ | 2,103,628 | $ | 2,549,858 | $ | 2,443,849 | $ | 2,324,497 | $ | 2,213,620 | ||||||||||
| Closing shareholders’ equity | $ | 2,394,620 | $ | 2,239,842 | $ | 2,612,775 | $ | 2,418,186 | $ | 2,355,978 | ||||||||||
| Deduct/add: accumulated other comprehensive (income)/loss | (135,626 | ) | (136,214 | ) | (62,917 | ) | 25,663 | (31,481 | ) | |||||||||||
| Adjusted closing shareholders’ equity | $ | 2,258,994 | $ | 2,103,628 | $ | 2,549,858 | $ | 2,443,849 | $ | 2,324,497 | ||||||||||
| Average shareholders’ equity | $ | 2,181,311 | $ | 2,326,743 | $ | 2,496,854 | $ | 2,384,173 | $ | 2,269,059 | ||||||||||
| Net income available to shareholders | $ | 130,945 | $ | 123,015 | $ | 108,959 | $ | 123,287 | $ | 113,921 | ||||||||||
| Annualized net income available to shareholders | 523,780 | 492,060 | 435,836 | 493,148 | 455,684 | |||||||||||||||
| Annualized return on average shareholders’ equity — net income available to shareholders | 24.0 | % | 21.1 | % | 17.5 | % | 20.7 | % | 20.1 | % | ||||||||||
| Operating income available to shareholders | $ | 127,956 | $ | 118,066 | $ | 112,179 | $ | 125,300 | $ | 120,437 | ||||||||||
| Annualized operating income available to shareholders | 511,824 | 472,264 | 448,716 | 501,200 | 481,748 | |||||||||||||||
| Annualized return on average shareholders’ equity — operating income available to shareholders | 23.5 | % | 20.3 | % | 18.0 | % | 21.0 | % | 21.2 | % | ||||||||||
Page 15
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
DILUTED BOOK VALUE PER SHARE
DILUTED BOOK VALUE PER SHARE
| MARCH 31, | DECEMBER 31, | MARCH 31, | ||||||||||||
| 2008 | 2007 | 2007 | ||||||||||||
| Price per share at period end | $ | 39.70 | $ | 50.17 | $ | 42.75 | ||||||||
| Total shareholders’ equity | $ | 2,394,620 | $ | 2,239,842 | $ | 2,355,978 | ||||||||
| Basic common shares outstanding | 48,841,837 | 48,741,927 | 60,390,269 | |||||||||||
| Add: unvested restricted share units | 958,438 | 820,890 | 837,056 | |||||||||||
| Add: performance based equity awards | 1,345,943 | 886,251 | 886,251 | |||||||||||
| Add: dilutive options/warrants outstanding | 6,958,525 | 6,723,875 | 6,588,782 | |||||||||||
| Weighted average exercise price per share | $ | 30.85 | $ | 33.62 | $ | 33.18 | ||||||||
| Deduct: options bought back via treasury method | (5,407,138 | ) | (4,506,182 | ) | (5,114,200 | ) | ||||||||
| Common shares and common share equivalents outstanding | 52,697,605 | 52,666,761 | 63,588,158 | |||||||||||
| Basic book value per common share | $ | 49.03 | $ | 45.95 | $ | 39.01 | ||||||||
| Diluted book value per common share | $ | 45.44 | $ | 42.53 | $ | 37.05 | ||||||||
Page 16
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
ANNUALIZED INVESTMENT BOOK YIELD
ANNUALIZED INVESTMENT BOOK YIELD
| THREE MONTHS ENDED | THREE MONTHS ENDED | |||||||
| MARCH 31, 2008 | MARCH 31, 2007 | |||||||
| Net investment income | $ | 76,931 | $ | 72,648 | ||||
| Deduct: annual and non-recurring items | 6,073 | 2,062 | ||||||
| Net investment income, recurring | $ | 70,858 | $ | 70,586 | ||||
| Annualized net investment income, recurring | $ | 283,432 | $ | 282,344 | ||||
| Add: annual and non-recurring items | 6,073 | 2,062 | ||||||
| Normalized net investment income | $ | 289,505 | $ | 284,406 | ||||
| Fixed maturity investments available for sale, amortized cost | $ | 5,595,943 | $ | 5,188,379 | ||||
| Other invested assets, available for sale, cost | 291,458 | 245,657 | ||||||
| Cash and cash equivalents | 202,582 | 366,817 | ||||||
| Restricted cash | 67,886 | 138,223 | ||||||
| Balances receivable on sale of investments | 84,998 | 16,545 | ||||||
| Balances due on purchase of investments | (141,462 | ) | — | |||||
| Opening aggregate invested assets | $ | 6,101,405 | $ | 5,955,621 | ||||
| Fixed maturity investments available for sale, amortized cost | $ | 5,071,730 | $ | 5,392,983 | ||||
| Other invested assets, available for sale, cost | 82,380 | 246,500 | ||||||
| Other invested assets, at fair value | 191,195 | — | ||||||
| Cash and cash equivalents | 774,337 | 288,284 | ||||||
| Restricted cash | 140,049 | 200,813 | ||||||
| Balances receivable on sale of investments | 6,323 | 25,239 | ||||||
| Balances due on purchase of investments | — | (46,517 | ) | |||||
| Closing aggregate invested assets | $ | 6,266,014 | $ | 6,107,302 | ||||
| Average aggregate invested assets | $ | 6,183,710 | $ | 6,031,462 | ||||
| Annualized investment book yield | 4.7 | % | 4.7 | % | ||||
Page 17
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
ANNUALIZED INVESTMENT BOOK YIELD
ANNUALIZED INVESTMENT BOOK YIELD
| TWELVE MONTHS ENDED | NINE MONTHS ENDED | SIX MONTHS ENDED | ||||||||||
| DECEMBER 31, 2007 | SEPTEMBER 30, 2007 | JUNE 30, 2007 | ||||||||||
| Net investment income | $ | 297,932 | $ | 222,718 | $ | 146,585 | ||||||
| Deduct: annual and non-recurring items | N/A | 2,062 | 2,062 | |||||||||
| Net investment income, recurring | $ | 297,932 | $ | 220,656 | $ | 144,523 | ||||||
| Annualized net investment income, recurring | $ | 297,932 | $ | 294,208 | $ | 289,046 | ||||||
| Add: annual and non-recurring items | N/A | 2,062 | 2,062 | |||||||||
| Normalized net investment income | $ | 297,932 | $ | 296,270 | $ | 291,108 | ||||||
| Fixed maturity investments available for sale, amortized cost | $ | 5,188,379 | $ | 5,188,379 | $ | 5,188,379 | ||||||
| Other invested assets, available for sale, cost | 245,657 | 245,657 | 245,657 | |||||||||
| Cash and cash equivalents | 366,817 | 366,817 | 366,817 | |||||||||
| Restricted cash | 138,223 | 138,223 | 138,223 | |||||||||
| Balances receivable on sale of investments | 16,545 | 16,545 | 16,545 | |||||||||
| Balances due on purchase of investments | — | — | — | |||||||||
| Opening aggregate invested assets | $ | 5,955,621 | $ | 5,955,621 | $ | 5,955,621 | ||||||
| Fixed maturity investments available for sale, amortized cost | $ | 5,595,943 | $ | 5,984,929 | $ | 5,737,857 | ||||||
| Other invested assets, available for sale, cost | 291,458 | 280,696 | 202,016 | |||||||||
| Cash and cash equivalents | 202,582 | 329,862 | 270,571 | |||||||||
| Restricted cash | 67,886 | 46,903 | 51,896 | |||||||||
| Balances receivable on sale of investments | 84,998 | 7,951 | 53,089 | |||||||||
| Balances due on purchase of investments | (141,462 | ) | (123,482 | ) | (21 | ) | ||||||
| Closing aggregate invested assets | $ | 6,101,405 | $ | 6,526,859 | $ | 6,315,408 | ||||||
| Average aggregate invested assets | $ | 6,028,513 | $ | 6,241,240 | $ | 6,135,515 | ||||||
| Annualized investment book yield | 4.9 | % | 4.7 | % | 4.7 | % | ||||||
Page 18
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
REGULATION G
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 14 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 are they likely to be realized. Therefore, the company believes that excluding these unrealized gains (losses) provides a more consistent and useful measurement of operating performance, which supplements GAAP information. In calculating ROAE, the net income (loss) available to shareholders for the period is multiplied by the number of such periods in a calendar year in order to arrive at annualized net income (loss) available to shareholders. The company presents ROAE as a measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information. See page 15 for a reconciliation of average equity.
ANNUALIZED OPERATING RETURN ON AVERAGE EQUITY
Annualized operating return on average equity is calculated using operating income (as defined above and annualized in the manner described for net income (loss) available to shareholders under ROAE above), and average 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 pages 14 for a reconciliation of net income to operating income and page 15 for a reconciliation of average equity.
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 16 for a reconciliation of diluted book value per share to basic book value per share.
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 17 and 18 for reconciliations of annualized investment book yield.
Page 19