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

Exhibit 99.2

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

4th Quarter Ended December 31, 2012

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, AG with the U.S. Securities and Exchange Commission.
Phone: (646) 794-0750 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 security of unpredictable catastrophic events; 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 (the “SEC”). 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, AG

FINANCIAL SUPPLEMENT TABLE OF CONTENTS

		Page
	Basis of Presentation	4
I.	Financial Highlights
	- Consolidated Financial Highlights		5
II.	Consolidated Results
	- Consolidated Statements of Operations		6
	- Consolidated Premium Distribution Analysis by Segment and Geographic Location		7
	- Consolidated Premium Distribution Analysis by Line of Business		8
III.	Segment Results
	- Consolidated Segment Results—Current Quarter		9
	- Consolidated Segment Results—Prior Year Quarter		10
	- Consolidated Segment Results—Current Year to Date		11
	- Consolidated Segment Results—Prior Year to Date		12
	- Consolidated Incurred Loss Analysis by Segment		13
IV.	Balance Sheet Details
	- Consolidated Balance Sheets		14
	- Consolidated Total Investment Portfolio		15
	- Additional Investment Detail		16
	- Reserves for Losses and Loss Expenses		19
	- Capital Structure and Leverage Ratios		20
V.	Other
	- Share Repurchase Detail		21
	- Operating Income Reconciliation and Basic and Diluted Earnings per Share		22
	- Return on Average Shareholders’ Equity and Reconciliation of Average Shareholders’ Equity		23
	- Reconciliation of Diluted Book Value per Share		24
	- Investment Income, Book Yield and Portfolio Return		25
	- Regulation G		26

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

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, AG, along with others in the industry, use 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 ratios, 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, the costs of losses and expenses, respectively. The combined ratio presents the total cost per $100 of earned 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-generally accepted accounting principles (“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 26 for further details.

Page 4

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED FINANCIAL HIGHLIGHTS

	Three Months Ended December 31,									Year Ended December 31,
	2012			2011			Change			2012			2011			Change
HIGHLIGHTS
Gross premiums written	$	497,052		$	416,537			19.3	%	$	2,329,271		$	1,939,521			20.1	%
Net premiums written		362,623			306,832			18.2	%		1,837,823			1,533,766			19.8	%
Net premiums earned		476,244			395,469			20.4	%		1,748,898			1,456,992			20.0	%
Underwriting (loss) income		(78,804	)		65,070			n.m.			96,591			58,885			64.0	%
Net (loss) income		(41,147	)		183,100			n.m.			493,007			274,548			79.6	%
Operating (loss) income		(55,391	)		94,681			n.m.			202,651			183,686			10.3	%
Total shareholders’ equity		3,326,335			3,149,022			5.6	%		3,326,335			3,149,022			5.6	%
Cash flows from operating activities		129,219			56,603			128.3	%		629,438			548,108			14.8	%
PER SHARE AND SHARE DATA
Basic earnings per share
Net (loss) income	$	(1.17	)	$	4.80			n.m.		$	13.67		$	7.21			89.6	%
Operating (loss) income	$	(1.58	)	$	2.48			n.m.		$	5.62		$	4.82			16.6	%
Diluted earnings per share
Net (loss) income	$	(1.17	)	$	4.63			n.m.		$	13.30		$	6.92			92.2	%
Operating (loss) income	$	(1.58	)	$	2.40			n.m.		$	5.47		$	4.63			18.1	%
Book value per share	$	95.59		$	83.44			14.6	%	$	95.59		$	83.44			14.6	%
Diluted book value per share	$	92.59		$	80.11			15.6	%	$	92.59		$	80.11			15.6	%
FINANCIAL RATIOS
Annualized return on average equity (ROAE), net income		(4.9	%)		23.9	%		(28.8	) pts		15.3	%		8.9	%		6.4 pts
Annualized ROAE, operating income		(6.6	%)		12.4	%		(19.0	) pts		6.3	%		6.0	%		0.3 pts
Financial statement portfolio return		0.6	%		0.9	%		(0.3	) pts		5.5	%		2.0	%		3.5 pts
Loss and loss expense ratio		87.1	%		53.9	%		33.2 pts			65.1	%		65.8	%		(0.7	) pts
Acquisition cost ratio		11.7	%		11.8	%		(0.1	) pts		11.8	%		11.5	%		0.3 pts
General and administrative expense ratio		17.7	%		17.8	%		(0.1	) pts		17.6	%		18.6	%		(1.0	) pts
Expense ratio		29.4	%		29.6	%		(0.2	) pts		29.4	%		30.1	%		(0.7	) pts
Combined ratio		116.5	%		83.5	%		33.0 pts			94.5	%		95.9	%		(1.4	) pts

Page 5

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended															Year Ended
	December 31, 2012			September 30, 2012			June 30, 2012			March 31, 2012			December 31, 2011			December 31, 2012			December 31, 2011
Revenues
Gross premiums written	$	497,052		$	504,420		$	646,870		$	680,929		$	416,537		$	2,329,271		$	1,939,521
Net premiums written	$	362,623		$	391,537		$	494,710		$	588,953		$	306,832		$	1,837,823		$	1,533,766
Net premiums earned	$	476,244		$	441,017		$	429,747		$	401,890		$	395,469		$	1,748,898		$	1,456,992
Net investment income		38,360			39,121			42,451			47,209			45,489			167,141			195,948
Net realized investment gains		14,379			149,813			8,663			133,581			31,632			306,436			10,077
Other income—termination fee		—			—			—			—			66,744			—			101,744
Total revenues	$	528,983		$	629,951		$	480,861		$	582,680		$	539,334		$	2,222,475		$	1,764,761
Expenses
Net losses and loss expenses	$	414,734		$	258,948		$	240,380		$	225,202		$	213,345		$	1,139,264		$	959,156
Acquisition costs		55,910			51,086			51,588			47,138			46,562			205,722			167,295
General and administrative expenses		84,404			78,572			73,979			70,366			70,492			307,321			271,656
Amortization of intangible assets		633			633			634			633			678			2,533			2,978
Interest expense		13,826			13,822			14,001			13,756			13,754			55,405			54,989
Foreign exchange loss (gain)		860			1,023			(1,019	)		(81	)		(549	)		783			3,159
Total expenses	$	570,367		$	404,084		$	379,563		$	357,014		$	344,282		$	1,711,028		$	1,459,233
(Loss) Income before income taxes	$	(41,384	)	$	225,867		$	101,298		$	225,666		$	195,052		$	511,447		$	305,528
Income tax (benefit) expense		(237	)		6,220			4,947			7,510			11,952			18,440			30,980
Net (loss) income	$	(41,147	)	$	219,647		$	96,351		$	218,156		$	183,100		$	493,007		$	274,548
GAAP Ratios
Loss and loss expense ratio		87.1	%		58.7	%		55.9	%		56.0	%		53.9	%		65.1	%		65.8	%
Acquisition cost ratio		11.7	%		11.6	%		12.0	%		11.7	%		11.8	%		11.8	%		11.5	%
General and administrative expense ratio		17.7	%		17.8	%		17.2	%		17.5	%		17.8	%		17.6	%		18.6	%
Expense ratio		29.4	%		29.4	%		29.2	%		29.2	%		29.6	%		29.4	%		30.1	%
Combined ratio		116.5	%		88.1	%		85.1	%		85.2	%		83.5	%		94.5	%		95.9	%
Per Share Data
Basic earnings per share
Net (loss) income	$	(1.17	)	$	6.16		$	2.66		$	5.86		$	4.80		$	13.67		$	7.21
Operating (loss) income	$	(1.58	)	$	2.22		$	2.41		$	2.46		$	2.48		$	5.62		$	4.82
Diluted earnings per share
Net (loss) income	$	(1.17	)	$	6.00		$	2.59		$	5.70		$	4.63		$	13.30		$	6.92
Operating (loss) income	$	(1.58	)	$	2.16		$	2.35		$	2.39		$	2.40		$	5.47		$	4.63

Page 6

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED PREMIUM DISTRIBUTION ANALYSIS BY SEGMENT AND GEOGRAPHIC LOCATION

	Three Months Ended										Year Ended
	December 31, 2012					December 31, 2011					December 31, 2012					December 31, 2011
	Amount		% of Total			Amount		% of Total			Amount		% of Total			Amount		% of Total
Gross Premiums Written by Segment
U.S. Insurance	$	260,604		52.4	%	$	227,005		54.5	%	$	993,918		42.7	%	$	838,567		43.2	%
International Insurance		156,605		31.5	%		130,920		31.4	%		575,103		24.7	%		530,450		27.3	%
Reinsurance		79,843		16.1	%		58,612		14.1	%		760,250		32.6	%		570,504		29.5	%
Total	$	497,052		100.0	%	$	416,537		100.0	%	$	2,329,271		100.0	%	$	1,939,521		100.0	%
Gross Premiums Written by Geographic
Location
United States	$	308,835		62.1	%	$	258,622		62.1	%	$	1,360,190		58.4	%	$	1,080,134		55.7	%
Bermuda		127,069		25.6	%		103,812		24.9	%		611,382		26.2	%		565,801		29.2	%
Europe		46,571		9.4	%		40,578		9.7	%		228,791		9.8	%		210,435		10.8	%
Singapore		10,481		2.1	%		9,563		2.3	%		111,694		4.8	%		68,382		3.5	%
Hong Kong		4,096		0.8	%		3,962		1.0	%		17,214		0.8	%		14,769		0.8	%
Total	$	497,052		100.0	%	$	416,537		100.0	%	$	2,329,271		100.0	%	$	1,939,521		100.0	%

Page 7

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED PREMIUM DISTRIBUTION ANALYSIS BY LINE OF BUSINESS

	Three Months Ended										Year Ended
	December 31, 2012					December 31, 2011					December 31, 2012					December 31, 2011
	Amount		% of Total			Amount		% of Total			Amount		% of Total			Amount		% of Total
U.S. Insurance
General casualty	$	64,949		24.9	%	$	53,182		23.4	%	$	269,558		27.1	%	$	205,252		24.5	%
Professional liability		68,477		26.3	%		64,641		28.5	%		260,759		26.2	%		235,422		28.1	%
Healthcare		61,685		23.7	%		63,971		28.2	%		207,318		20.9	%		201,635		24.0	%
Programs		24,234		9.3	%		20,327		9.0	%		105,342		10.6	%		87,119		10.4	%
General property		23,060		8.8	%		17,064		7.5	%		94,352		9.5	%		78,503		9.4	%
Other		18,199		7.0	%		7,820		3.4	%		56,589		5.7	%		30,636		3.6	%
Total	$	260,604		100.0	%	$	227,005		100.0	%	$	993,918		100.0	%	$	838,567		100.0	%
International Insurance
Professional liability	$	60,488		38.6	%	$	48,426		37.0	%	$	182,045		31.7	%	$	164,452		31.0	%
General property		36,961		23.6	%		34,489		26.3	%		157,189		27.3	%		159,382		30.0	%
General casualty		34,098		21.8	%		32,972		25.2	%		131,615		22.9	%		127,204		24.0	%
Healthcare		15,114		9.7	%		10,817		8.3	%		73,190		12.7	%		68,135		12.8	%
Other		9,944		6.3	%		4,216		3.2	%		31,064		5.4	%		11,277		2.2	%
Total	$	156,605		100.0	%	$	130,920		100.0	%	$	575,103		100.0	%	$	530,450		100.0	%
Reinsurance
Property	$	19,883		24.9	%	$	17,616		30.1	%	$	354,600		46.6	%	$	266,900		46.8	%
Casualty		45,140		56.5	%		33,580		57.3	%		254,228		33.4	%		234,418		41.1	%
Specialty		14,820		18.6	%		7,416		12.6	%		151,422		20.0	%		69,186		12.1	%
Total	$	79,843		100.0	%	$	58,612		100.0	%	$	760,250		100.0	%	$	570,504		100.0	%

Page 8

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED SEGMENT RESULTS – CURRENT QUARTER

	Three Months Ended December 31, 2012
	U.S. Insurance			International Insurance			Reinsurance			Consolidated Totals
Revenues
Gross premiums written	$	260,604		$	156,605		$	79,843		$	497,052
Net premiums written	$	192,142		$	91,198		$	79,283		$	362,623
Net premiums earned	$	181,503		$	88,982		$	205,759		$	476,244
Total revenues	$	181,503		$	88,982		$	205,759		$	476,244
Expenses
Net losses and loss expenses	$	155,279		$	87,698		$	171,757		$	414,734
Acquisition costs		22,752			890			32,268			55,910
General and administrative expenses		38,567			24,898			20,939			84,404
Total expenses	$	216,598		$	113,486		$	224,964		$	555,048
Underwriting loss	$	(35,095	)	$	(24,504	)	$	(19,205	)	$	(78,804	)
Net investment income											38,360
Net realized investment gains											14,379
Amortization of intangible assets											(633	)
Interest expense											(13,826	)
Foreign exchange loss											(860	)
Loss before income taxes										$	(41,384	)
GAAP Ratios
Loss and loss expense ratio		85.6	%		98.6	%		83.5	%		87.1	%
Acquisition cost ratio		12.5	%		1.0	%		15.7	%		11.7	%
General and administrative expense ratio		21.2	%		28.0	%		10.2	%		17.7	%
Expense ratio		33.7	%		29.0	%		25.9	%		29.4	%
Combined ratio		119.3	%		127.6	%		109.4	%		116.5	%

Page 9

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED SEGMENT RESULTS – PRIOR YEAR QUARTER

	Three Months Ended December 31, 2011
	U.S.			International						Consolidated
	Insurance			Insurance			Reinsurance			Totals
Revenues
Gross premiums written	$	227,005		$	130,920		$	58,612		$	416,537
Net premiums written	$	169,097		$	79,813		$	57,922		$	306,832
Net premiums earned	$	152,491		$	80,585		$	162,393		$	395,469
Total revenues	$	152,491		$	80,585		$	162,393		$	395,469
Expenses
Net losses and loss expenses	$	92,953		$	19,661		$	100,731		$	213,345
Acquisition costs		18,449			165			27,948			46,562
General and administrative expenses		33,437			21,351			15,704			70,492
Total expenses	$	144,839		$	41,177		$	144,383		$	330,399
Underwriting income	$	7,652		$	39,408		$	18,010		$	65,070
Net investment income											45,489
Net realized investment gains											31,632
Other income—termination fee											66,744
Amortization of intangible assets											(678	)
Interest expense											(13,754	)
Foreign exchange gain											549
Income before income taxes										$	195,052
GAAP Ratios
Loss and loss expense ratio		61.0	%		24.4	%		62.0	%		53.9	%
Acquisition cost ratio		12.1	%		0.2	%		17.2	%		11.8	%
General and administrative expense ratio		21.9	%		26.5	%		9.7	%		17.8	%
Expense ratio		34.0	%		26.7	%		26.9	%		29.6	%
Combined ratio		95.0	%		51.1	%		88.9	%		83.5	%

Page 10

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED SEGMENT RESULTS – CURRENT YEAR TO DATE

	Year Ended December 31, 2012
	U.S.			International						Consolidated
	Insurance			Insurance			Reinsurance			Totals
Revenues
Gross premiums written	$	993,918		$	575,103		$	760,250		$	2,329,271
Net premiums written	$	743,428		$	346,348		$	748,047		$	1,837,823
Net premiums earned	$	671,594		$	336,787		$	740,517		$	1,748,898
Total revenues	$	671,594		$	336,787		$	740,517		$	1,748,898
Expenses
Net losses and loss expenses	$	465,168		$	163,130		$	510,966		$	1,139,264
Acquisition costs		86,670			(486	)		119,538			205,722
General and administrative expenses		141,729			91,867			73,725			307,321
Total expenses	$	693,567		$	254,511		$	704,229		$	1,652,307
Underwriting (loss) income	$	(21,973	)	$	82,276		$	36,288		$	96,591
Net investment income											167,141
Net realized investment gains											306,436
Amortization of intangible assets											(2,533	)
Interest expense											(55,405	)
Foreign exchange loss											(783	)
Income before income taxes										$	511,447
GAAP Ratios
Loss and loss expense ratio		69.3	%		48.4	%		69.0	%		65.1	%
Acquisition cost ratio		12.9	%		(0.1	%)		16.1	%		11.8	%
General and administrative expense ratio		21.1	%		27.3	%		10.0	%		17.6	%
Expense ratio		34.0	%		27.2	%		26.1	%		29.4	%
Combined ratio		103.3	%		75.6	%		95.1	%		94.5	%

Page 11

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED SEGMENT RESULTS – PRIOR YEAR TO DATE

	Year Ended December 31, 2011
	U.S.			International						Consolidated
	Insurance			Insurance			Reinsurance			Totals
Revenues
Gross premiums written	$	838,567		$	530,450		$	570,504		$	1,939,521
Net premiums written	$	639,196		$	325,094		$	569,476		$	1,533,766
Net premiums earned	$	584,303		$	317,006		$	555,683		$	1,456,992
Total revenues	$	584,303		$	317,006		$	555,683		$	1,456,992
Expenses
Net losses and loss expenses	$	387,099		$	206,593		$	365,464		$	959,156
Acquisition costs		74,976			(2,781	)		95,100			167,295
General and administrative expenses		124,434			84,290			62,932			271,656
Total expenses	$	586,509		$	288,102		$	523,496		$	1,398,107
Underwriting (loss) income	$	(2,206	)	$	28,904		$	32,187		$	58,885
Net investment income											195,948
Net realized investment gains											10,077
Other income—termination fee											101,744
Amortization of intangible assets											(2,978	)
Interest expense											(54,989	)
Foreign exchange loss											(3,159	)
Income before income taxes										$	305,528
GAAP Ratios
Loss and loss expense ratio		66.2	%		65.2	%		65.8	%		65.8	%
Acquisition cost ratio		12.8	%		(0.9	%)		17.1	%		11.5	%
General and administrative expense ratio		21.3	%		26.6	%		11.3	%		18.6	%
Expense ratio		34.1	%		25.7	%		28.4	%		30.1	%
Combined ratio		100.3	%		90.9	%		94.2	%		95.9	%

Page 12

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED INCURRED LOSS ANALYSIS BY SEGMENT

	Three Months Ended												Year Ended
	December 31, 2012						December 31, 2011						December 31, 2012						December 31, 2011
	Amount			% of  NPE(1)			Amount			% of  NPE(1)(2)			Amount			% of  NPE(1)			Amount			% of  NPE(1)(2)
U.S. Insurance
Current year—non-catastrophe	$	129,285			71.3	%	$	106,530			69.9	%	$	459,108			68.4	%	$	390,527			68.3	%
Current year—property catastrophe		21,297			11.7	%		(200	)		(0.1	%)		22,972			3.4	%		8,300			1.5	%
Prior year		4,697			2.6	%		(13,377	)		(8.8	%)		(16,912	)		(2.5	%)		(23,257	)		(4.1	%)
Impact of prior year commutation(3)		—			0.0	%		—			0.0	%		—			0.0	%		11,529			0.5	%
Net losses and loss expenses	$	155,279			85.6	%	$	92,953			61.0	%	$	465,168			69.3	%	$	387,099			66.2	%
International Insurance
Current year—non-catastrophe	$	49,039			55.1	%	$	54,129			67.1	%	$	210,533			62.4	%	$	217,455			68.7	%
Current year—property catastrophe		73,303			82.4	%		23,500			29.2	%		75,628			22.5	%		107,600			33.9	%
Prior year		(34,644	)		(38.9	%)		(57,968	)		(71.9	%)		(123,031	)		(36.5	%)		(118,462	)		(37.4	%)
Net losses and loss expenses	$	87,698			98.6	%	$	19,661			24.4	%	$	163,130			48.4	%	$	206,593			65.2	%
Reinsurance
Current year—non-catastrophe	$	94,601			46.0	%	$	86,010			53.0	%	$	460,372			62.2	%	$	300,973			54.2	%
Current year—property catastrophe		80,000			38.9	%		35,800			22.0	%		81,000			10.9	%		176,300			31.7	%
Prior year		(2,844	)		(1.4	%)		(21,079	)		(13.0	%)		(30,406	)		(4.1	%)		(111,809	)		(20.1	%)
Net losses and loss expenses	$	171,757			83.5	%	$	100,731			62.0	%	$	510,966			69.0	%	$	365,464			65.8	%
Consolidated
Current year—non-catastrophe	$	272,925			57.3	%	$	246,669			62.4	%	$	1,130,013			64.5	%	$	908,955			62.9	%
Current year—property catastrophe		174,600			36.7	%		59,100			14.9	%		179,600			10.3	%		292,200			20.2	%
Prior year		(32,791	)		(6.9	%)		(92,424	)		(23.4	%)		(170,349	)		(9.7	%)		(253,528	)		(17.6	%)
Impact of prior year commutation(3)		—			0.0	%		—			0.0	%		—			0.0	%		11,529			0.3	%
Net losses and loss expenses	$	414,734			87.1	%	$	213,345			53.9	%	$	1,139,264			65.1	%	$	959,156			65.8	%

(1) “NPE” means net premiums earned.

(2) Current year and prior year losses as a % of net premiums earned are calculated excluding the effect of the commutation on net premiums earned.

(3) Reflects the impact of a commutation of a prior year contract in the year ended December 31, 2011, which increased prior year net losses and loss expenses by $11.5 million and increased net premiums earned by $12.4 million.

Page 13

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED BALANCE SHEETS

	As of December 31, 2012			As of December 31, 2011
ASSETS
Fixed maturity investments trading, at fair value	$	6,626,454		$	6,254,686
Fixed maturity investments available for sale, at fair value		—			244,016
Equity securities trading, at fair value		523,949			367,483
Other invested assets		783,534			540,409
Total investments		7,933,937			7,406,594
Cash and cash equivalents		681,879			633,996
Restricted cash		183,485			82,608
Insurance balances receivable		846,900			652,158
Prepaid reinsurance		277,406			226,721
Reinsurance recoverable		1,141,110			1,002,919
Accrued investment income		29,135			38,263
Net deferred acquisition costs		108,010			100,334
Goodwill		268,376			268,376
Intangible assets		51,365			53,898
Balances receivable on sale of investments		418,879			580,443
Net deferred tax assets		25,580			22,646
Other assets		63,884			53,202
TOTAL ASSETS	$	12,029,946		$	11,122,158
LIABILITIES
Reserve for losses and loss expenses	$	5,645,549		$	5,225,143
Unearned premiums		1,218,021			1,078,412
Reinsurance balances payable		136,264			124,539
Balances due on purchases of investments		759,934			616,728
Senior notes		798,215			797,949
Dividends payable		—			14,302
Accounts payable and accrued liabilities		145,628			116,063
TOTAL LIABILITIES	$	8,703,611		$	7,973,136
SHAREHOLDERS’ EQUITY
Common shares: 2012: par value CHF 12.64 per share and 2011: par value CHF 14.03 per share (2012: 36,369,868; 2011: 40,003,642 shares issued and 2012: 34,797,781; 2011: 37,742,131 shares outstanding)	$	454,980		$	557,153
Additional paid-in capital		—			78,225
Treasury shares, at cost (2012: 1,572,087; 2011: 2,261,511)		(113,818	)		(136,590	)
Retained earnings		2,985,173			2,635,750
Accumulated other comprehensive income		—			14,484
TOTAL SHAREHOLDERS’ EQUITY	$	3,326,335		$	3,149,022
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	12,029,946		$	11,122,158
Book value per share	$	95.59		$	83.44
Diluted book value per share	$	92.59		$	80.11

Page 14

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED TOTAL INVESTMENT PORTFOLIO

	Fair Value December 31, 2012					Fair Value December 31, 2011
FAIR VALUE
Fixed maturity securities	$	6,626,454		75.3	%	$	6,498,702		80.0	%
Equity securities		523,949		6.0	%		367,483		4.5	%
Other invested assets		783,534		8.9	%		540,409		6.7	%
Cash and cash equivalents		865,364		9.8	%		716,604		8.8	%
Total	$	8,799,301		100.0	%	$	8,123,198		100.0	%
ASSET ALLOCATION BY FAIR VALUE
U.S. government securities	$	1,529,158		17.3	%	$	1,087,633		13.4	%
U.S. government agencies		336,755		3.8	%		224,262		2.7	%
Non-U.S. government and government agencies		261,627		3.0	%		256,756		3.2	%
State, municipalities and political subdivisions		40,444		0.5	%		167,381		2.1	%
Corporate securities		2,089,202		23.7	%		2,431,381		29.9	%
Mortgage-backed securities		1,958,373		22.3	%		1,818,091		22.4	%
Asset-backed securities		410,895		4.7	%		513,198		6.3	%
Fixed income sub-total		6,626,454		75.3	%		6,498,702		80.0	%
Private equity (funded)		151,009		1.7	%		108,865		1.3	%
Hedge funds		504,879		5.7	%		431,544		5.4	%
Other private securities		127,646		1.5	%		—		0.0	%
Equity securities		523,949		6.0	%		367,483		4.5	%
Cash and cash equivalents		865,364		9.8	%		716,604		8.8	%
Total	$	8,799,301		100.0	%	$	8,123,198		100.0	%
FIXED INCOME CREDIT QUALITY BY FAIR VALUE
U.S. government and agencies	$	1,865,913		28.2	%	$	1,311,895		20.2	%
AAA/Aaa		866,692		13.1	%		1,336,221		20.6	%
AA/Aa		1,905,341		28.8	%		1,656,861		25.4	%
A/A		876,080		13.2	%		1,148,138		17.7	%
BBB/Baa		393,878		5.9	%		565,105		8.7	%
BB		245,888		3.7	%		168,095		2.6	%
B/B		262,317		4.0	%		103,324		1.6	%
CCC+ and below		210,345		3.1	%		209,063		3.2	%
Total	$	6,626,454		100.0	%	$	6,498,702		100.0	%
STATISTICS
Annualized book yield, year to date		2.1	%				2.5	%
Duration*		2.1 years					1.9 years
Average credit quality (S&P)		AA-					AA-

* Includes only cash and cash equivalents and fixed maturity investments

Page 15

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

ADDITIONAL INVESTMENT DETAIL

	Fair Value December 31, 2012		Average Rating	Portfolio Percentage
Cash and cash equivalents	$	865,364	AAA		9.8	%
U.S. government securities		1,529,158	AA+		17.3	%
U.S. government agencies		336,755	AA+		3.8	%
Non-U.S. government and government agencies		261,627	AA+		3.0	%
State, municipalities and political subdivisions		40,444	AA-		0.5	%
Mortgage-backed securities:
Agency MBS		1,400,917	AA+		15.9	%
Non-agency RMBS		90,256	BBB+		1.0	%
Non-agency MBS—Non investment grade		176,776	CCC		2.0	%
CMBS		290,424	AA+		3.4	%
Total mortgage-backed securities		1,958,373			22.3	%
Corporate securities:
Financials		866,140	A+		9.8	%
Industrials		1,153,909	BBB-		13.1	%
Utilities		69,153	BBB-		0.8	%
Total corporate securities		2,089,202			23.7	%
Asset-backed securities:
Credit cards		24,906	AAA		0.3	%
Auto receivables		31,251	AAA		0.4	%
Student Loans		133,042	AA+		1.5	%
Collateralized loan obligations		190,196	AA+		2.2	%
Other		31,500	AAA		0.3	%
Total asset-backed securities		410,895			4.7	%
Other invested assets:
Private equity		151,009	N/A		1.7	%
Hedge funds		504,879	N/A		5.7	%
Other private securities		127,646	N/A		1.5	%
Total other invested assets		783,534			8.9	%
Equities		523,949	N/A		6.0	%
Total investment portfolio	$	8,799,301			100.0	%

Top 10 Corporate Exposures:
Corporate	Fair Value December 31, 2012		Portfolio Percentage
Bank of America Corp.	$	50,958		0.6	%
Citigroup Inc.		43,021		0.5	%
Morgan Stanley		37,196		0.4	%
General Electric Co.		34,933		0.4	%
JPMorgan Chase & Co.		31,433		0.4	%
Wells Fargo & Co.		29,871		0.3	%
Mitsubishi UFJ Financial		28,273		0.3	%
Lloyds Banking Group PLC		26,972		0.3	%
AT&T Inc.		25,678		0.3	%
Anheuser- Busch InBev NV		24,229		0.3	%
Other Invested Assets:
Fund Details	Carrying Value December 31, 2012		Unfunded Commitments
Private Equity:
Primary and secondary	$	111,879	$	174,772
Mezzanine debt		29,834		85,850
Distressed		9,296		5,794
Total private equity		151,009		266,416
Hedge Funds:
Distressed		138,213		—
Equity long/short		169,845		—
Multi-strategy		131,713		—
Global macro		19,117		—
Event driven		45,991		—
Total hedge funds		504,879		—
Other private securities		127,646		—
Total other invested assets	$	783,534	$	266,416

Page 16

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

ADDITIONAL INVESTMENT DETAIL

	December 31, 2012									December 31, 2011
	Non-Agency MBS						Commercial			Non-Agency RMBS						Commercial
	Non Investment			Core Fixed			Mortgage Backed			Non Investment			Core Fixed			Mortgage Backed
Credit Quality by Fair Value	Grade Strategy			Income Account			Securities			Grade Strategy			Income Account			Securities
AAA	$	—		$	6,054		$	190,164		$	12,073		$	72,415		$	299,960
AA		6,685			16,531			61,292			391			7,642			30,466
A		488			18,518			19,500			—			8,077			531
BBB		6,439			21,507			19,468			287			1,515			414
BB		139			19,447			—			2,978			16,635			—
B		5,929			7,588			—			3,587			12,257			—
CCC		94,289			—			—			97,611			1,347			—
CC		15,274			611			—			10,289			457			—
C		12,009			—			—
D		35,524			—			—			55,266			—			—
Total fair value	$	176,776		$	90,256		$	290,424		$	182,482		$	120,345		$	331,371
Average credit rating		CCC			BBB+			AA+			CCC			A+			AAA
Average credit enhancement **		14.5	%		14.2	%		42.0	%		20.1	%		10.9	%		36.1	%

** Average credit enhancement is the amount, reported as a percentage, of subordination and/or overcollateralization available to support the security.

Page 17

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

ADDITIONAL INVESTMENT DETAIL

TOTAL EXPOSURE BY ASSET TYPE AND REGION—DECEMBER 31, 2012
				Sovereign
				Guaranteed				Mortgage-Backed Securities						Asset-		Corporate Securities
				Financial		State and		Agency						Backed								Equity		Total
Region	Country	Sovereign*		Institutions		Municipalities		MBS		MBS		CMBS		Securities		Financials		Industrials		Utilities		Securities		Exposure
Africa	South Africa	$	9,354	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	6,285	$	—	$	—	$	15,639
Australia	Australia		32,773		48,225		—		—		—		—		—		18,013		25,586		—		8,570		133,167
Europe	Belgium		—		22,008		—		—		—		—		—		—		19,082		—		—		41,090
	Denmark		—		34,740		—		—		—		—		—		—		—		—		—		34,740
	France		—		—		—		—		—		—		5,587		20,804		25,338		—		8,126		59,855
	Germany		28,121		43,344		—		—		—		—		2,652		1,323		16,486		—		—		91,926
	Ireland		—		—		—		—		—		—		1,693		—		2,785		—		—		4,478
	Italy		—		—		—		—		—		—		—		—		1,306		1,839		—		3,145
	Luxembourg		—		—		—		—		—		—		—		—		19,289		—		—		19,289
	Netherlands		—		38,785		—		—		—		—		—		18,248		20,320		—		11,279		88,632
	Norway		—		6,926		—		—		—		—		—		20,449		2,778		—		8,129		38,282
	Russia		—		—		—		—		—		—		—		2,626		7,433		2,189		—		12,248
	Spain		—		—		—		—		—		—		—		11,294		13,577		—		—		24,871
	Sweden		—		—		—		—		—		—		—		31,993		—		—		—		31,993
	Switzerland		10,933		—		—		—		—		—		—		13,493		3,740		—		24,965		53,131
	United Kingdom		25,902		5,486		—		—		2,402		—		16,558		53,154		54,549		441		—		158,492
	Total		64,956		151,289		—		—		2,402		—		26,490		173,384		186,683		4,469		52,499		662,172
Latin America	Brazil		—		—		—		—		—		—		—		699		4,661		—		—		5,360
	Chile		—		—		—		—		—		—		—		250		—		—		3,677		3,927
	Colombia		—		—		—		—		—		—		—		—		—		—		—		—
	Mexico		9,723		—		—		—		—		—		—		—		1,870		—		—		11,593
	Panama		—		—		—		—		—		—		—		—		100		—		—		100
	Puerto Rico		—		—		—		—		—		—		—		—		310		—		—		310
	Total		9,723		—		—		—		—		—		—		949		6,941		—		3,677		21,290
North America	Bermuda		—		—		—		—		—		—		—		—		2,139		—		2,798		4,937
	Canada		66,868		—		—		—		—		—		—		64,387		52,912		531		24,056		208,754
	Cayman Islands		—		—		—		—		—		—		148,496		—		—		—		—		148,496
	United States		1,893,596		—		40,444		1,400,917		264,630		290,424		235,909		436,964		855,930		60,920		297,838		5,777,572
	Total		1,960,464		—		40,444		1,400,917		264,630		290,424		384,405		501,351		910,981		61,451		324,692		6,139,759
Asia /Middle East	China		—		—		—		—		—		—		—		—		—		—		71,889		71,889
	Hong Kong		—		—		—		—		—		—		—		—		—		—		4,042		4,042
	India		—		—		—		—		—		—		—		—		—		—		—		—
	Indonesia		—		—		—		—		—		—		—		—		—		—		—		—
	Israel		—		—		—		—		—		—		—		—		625		—		8,076		8,701
	Japan		—		—		—		—		—		—		—		21,028		16,808		—		3,844		41,680
	Malaysia		—		—		—		—		—		—		—		—		—		—		—		—
	Philippines		—		—		—		—		—		—		—		—		—		—		7,817		7,817
	Qatar		—		—		—		—		—		—		—		—		—		—		—		—
	Singapore		—		—		—		—		—		—		—		—		—		—		30,567		30,567
	South Korea		—		—		—		—		—		—		—		2,171		—		3,233		—		5,404
	Taiwan		—		—		—		—		—		—		—		—		—		—		8,276		8,276
	UAE		—		—		—		—		—		—		—		—		—		—		—		—
	Total		—		—		—		—		—		—		—		23,199		17,433		3,233		134,511		178,376
	Grand Total	$	2,077,270	$	199,514	$	40,444	$	1,400,917	$	267,032	$	290,424	$	410,895	$	716,896	$	1,153,909	$	69,153	$	523,949	$	7,150,403

* Allied World has no direct exposure to any of the Sovereign governments of Portugal, Italy, Ireland, Greece or Spain.

Page 18

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

RESERVE FOR LOSSES AND LOSS EXPENSES

	As of December 31, 2012
	U.S.			International						Consolidated
	Insurance			Insurance			Reinsurance			Total
Case reserves (net of reinsurance recoverable)	$	402,473		$	422,859		$	479,546		$	1,304,878
IBNR (net of reinsurance recoverable)		978,414			1,223,229			997,918			3,199,561
Total	$	1,380,887		$	1,646,088		$	1,477,464		$	4,504,439
IBNR/Total reserves (net of reinsurance recoverable)		70.9	%		74.3	%		67.5	%		71.0	%
	As of December 31, 2011
	U.S.			International						Consolidated
	Insurance			Insurance			Reinsurance			Total
Case reserves (net of reinsurance recoverable)	$	313,750		$	400,292		$	455,940		$	1,169,982
IBNR (net of reinsurance recoverable)		910,383			1,284,434			857,425			3,052,242
Total	$	1,224,133		$	1,684,726		$	1,313,365		$	4,222,224
IBNR/Total reserves (net of reinsurance recoverable)		74.4	%		76.2	%		65.3	%		72.3	%

Page 19

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CAPITAL STRUCTURE AND LEVERAGE RATIOS

	As of			As of
	December 31, 2012			December 31, 2011
Senior notes	$	798,215		$	797,949
Shareholders’ equity		3,326,335			3,149,022
Total capitalization	$	4,124,550		$	3,946,971
Leverage ratios
Debt to total capitalization		19.4	%		20.2	%
Closing shareholders’ equity	$	3,326,335		$	3,149,022
Deduct: accumulated other comprehensive income		—			(14,484	)
Adjusted shareholders’ equity	$	3,326,335		$	3,134,538
Net premiums written (trailing 12 months)	$	1,837,823		$	1,533,766
Net premiums written (trailing 12 months) to adjusted shareholders’ equity		0.55			0.49
Total investments and cash & cash equivalents	$	8,799,301		$	8,123,198
Total investments and cash & cash equivalents to adjusted shareholders’ equity		2.65			2.59
Reserve for losses and loss expenses	$	5,645,549		$	5,225,143
Deduct: reinsurance recoverable		(1,141,110	)		(1,002,919	)
Net reserve for losses and loss expenses	$	4,504,439			4,222,224
Net reserve for losses and loss expenses to adjusted shareholders’ equity		1.35			1.35

Page 20

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

SHARE REPURCHASE DETAIL

Period	Aggregate Cost of Shares Repurchased		Number of Shares Repurchased		Average Price paid Per Share Repurchased		Average Diluted Book Value Per Share(1)		Average Repurchase Price to Diluted Book Value			Remaining Share Repurchase Authorization
Three Months Ended:
March 31, 2011	$	60,000		969,163	$	61.91	$	74.26		83.4	%
June 30, 2011		—		—		—		75.46		NA
September 30, 2011		—		—		—		76.05		NA
December 31, 2011		26,700		450,000		59.33		77.77		76.3	%
Total—2011	$	86,700		1,419,163	$	61.09	$	75.37		81.1	%
Three Months Ended:
March 31, 2012	$	93,023		1,430,804	$	65.01	$	82.80		78.5	%
June 30, 2012		66,436		905,383		73.38		86.86		84.5	%
September 30, 2012		47,590		605,898		78.54		91.03		86.3	%
December 31, 2012		56,893		713,874		79.70		93.21		85.5	%
Total—2012	$	263,942		3,655,959	$	72.20	$	87.20		82.8	%	$	410,232

(1) Average of beginning and ending diluted book value per share for each period presented and weighted average total.

Page 21

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

OPERATING INCOME RECONCILIATION AND

BASIC AND DILUTED EARNINGS PER SHARE INFORMATION

	Three Months Ended															Year Ended
	December 31, 2012			September 30, 2012			June 30, 2012			March 31, 2012			December 31, 2011			December 31, 2012			December 31, 2011
Net (loss) income	$	(41,147	)	$	219,647		$	96,351		$	218,156		$	183,100		$	493,007		$	274,548
Add after tax effect of:
Net realized investment gains		(15,104	)		(141,451	)		(8,014	)		(126,570	)		(26,332	)		(291,139	)		(213	)
Other income—termination fee		—			—			—			—			(61,538	)		—			(93,808	)
Foreign exchange loss (gain)		860			1,023			(1,019	)		(81	)		(549	)		783			3,159
Operating (loss) income	$	(55,391	)	$	79,219		$	87,318		$	91,505		$	94,681		$	202,651		$	183,686
Weighted average common shares outstanding
Basic		35,097,043			35,652,768			36,288,596			37,205,166			38,138,558			36,057,145			38,093,351
Diluted		35,097,043			36,616,734			37,189,722			38,284,635			39,524,273			37,069,885			39,667,905
Basic per share data
Net (loss) income	$	(1.17	)	$	6.16		$	2.66		$	5.86		$	4.80		$	13.67		$	7.21
Add after tax effect of:
Net realized investment gains		(0.43	)		(3.97	)		(0.22	)		(3.40	)		(0.69	)		(8.07	)		(0.01	)
Other income—termination fee		—						—			—			(1.62	)		—			(2.46	)
Foreign exchange loss (gain)		0.02			0.03			(0.03	)		—			(0.01	)		0.02			0.08
Operating (loss) income	$	(1.58	)	$	2.22		$	2.41		$	2.46		$	2.48		$	5.62		$	4.82
Diluted per share data
Net (loss) income	$	(1.17	)	$	6.00		$	2.59		$	5.70		$	4.63		$	13.30		$	6.92
Add after tax effect of:
Net realized investment gains		(0.43	)		(3.86	)		(0.22	)		(3.31	)		(0.67	)		(7.85	)		(0.01	)
Other income—termination fee		—						—			—			(1.56	)		—			(2.36	)
Foreign exchange loss (gain)		0.02			0.02			(0.02	)		—			—			0.02			0.08
Operating (loss) income	$	(1.58	)	$	2.16		$	2.35		$	2.39		$	2.40		$	5.47		$	4.63

Page 22

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

RETURN ON AVERAGE SHAREHOLDERS’ EQUITY AND RECONCILIATION OF AVERAGE SHAREHOLDERS’ EQUITY

	Three Months Ended															Year Ended
	December 31,			September 30,			June 30,			March 31,			December 31,			December 31,			December 31,
	2012			2012			2012			2012			2011			2012			2011
Opening shareholders’ equity	$	3,435,786		$	3,283,901		$	3,245,821		$	3,149,022		$	3,003,074		$	3,149,022		$	3,075,820
Deduct: accumulated other comprehensive income		(1,385	)		(1,414	)		(2,325	)		(14,484	)		(17,796	)		(14,484	)		(57,135	)
Adjusted opening shareholders’ equity	$	3,434,401		$	3,282,487		$	3,243,496		$	3,134,538		$	2,985,278		$	3,134,538		$	3,018,685
Closing shareholders’ equity	$	3,326,335		$	3,435,786		$	3,283,901		$	3,245,821		$	3,149,022		$	3,326,335		$	3,149,022
Deduct: accumulated other comprehensive income		—			(1,385	)		(1,414	)		(2,325	)		(14,484	)		—			(14,484	)
Adjusted closing shareholders’ equity	$	3,326,335		$	3,434,401		$	3,282,487		$	3,243,496		$	3,134,538		$	3,326,335		$	3,134,538
Average adjusted shareholders’ equity	$	3,380,368		$	3,358,444		$	3,262,992		$	3,189,017		$	3,059,908		$	3,230,437		$	3,076,612
Net (loss) income available to shareholders	$	(41,147	)	$	219,647		$	96,351		$	218,156		$	183,100		$	493,007		$	274,548
Annualized net (loss) income available to shareholders	$	(164,588	)	$	878,588		$	385,404		$	872,624		$	732,400		$	493,007		$	274,548
Annualized return on average shareholders’ equity—net (loss) income available to shareholders		(4.9	%)		26.2	%		11.8	%		27.4	%		23.9	%		15.3	%		8.9	%
Operating (loss) income available to shareholders	$	(55,391	)	$	79,219		$	87,318		$	91,505		$	94,681		$	202,651		$	183,686
Annualized operating (loss) income available to shareholders	$	(221,564	)	$	316,876		$	349,272		$	366,020		$	378,724		$	202,651		$	183,686
Annualized return on average shareholders’ equity—operating (loss) income available to shareholders		(6.6	%)		9.4	%		10.7	%		11.5	%		12.4	%		6.3	%		6.0	%

Page 23

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

RECONCILIATION OF DILUTED BOOK VALUE PER SHARE

	As of			As of
	December 31,			December 31,
	2012			2011
Price per share at period end	$	78.80		$	62.93
Total shareholders’ equity	$	3,326,335		$	3,149,022
Basic common shares outstanding		34,797,781			37,742,131
Add: unvested restricted share units		135,123			249,251
Add: performance based equity awards		485,973			889,939
Add: employee purchase plan		10,750			11,053
Add: dilutive options outstanding		1,224,607			1,525,853
Weighted average exercise price per share	$	47.02		$	45.72
Deduct: options bought back via treasury method		(730,652	)		(1,108,615	)
Common shares and common share equivalents outstanding		35,923,582			39,309,612
Basic book value per common share	$	95.59		$	83.44
Year-to-date percentage change in basic book value per common share		14.6	%
Diluted book value per common share	$	92.59		$	80.11
Year-to-date percentage change in dilutive book value per common share		15.6	%

Page 24

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

INVESTMENT INCOME, BOOK YIELD AND PORTFOLIO RETURN

	Three Months Ended						Year Ended
	December 31,			December 31,			December 31,			December 31,
	2012			2011			2012			2011
NET INVESTMENT INCOME
Fixed maturity investments	$	36,554		$	44,622		$	157,437		$	194,093
Equity securities and other invested assets		5,759			4,480			23,852			15,088
Cash and cash equivalents		522			352			2,319			963
Expenses		(4,475	)		(3,965	)		(16,467	)		(14,196	)
Net investment income	$	38,360		$	45,489		$	167,141		$	195,948
NET REALIZED INVESTMENT GAINS
Gross realized gains on sale of invested assets	$	64,438		$	32,099		$	183,592		$	154,941
Gross realized losses on sale of invested assets		(8,347	)		(26,273	)		(51,702	)		(62,169	)
Net realized and unrealized losses on derivatives		(3,416	)		(11,269	)		(3,608	)		(70,090	)
Mark-to-market changes: debt securities trading		(37,696	)		(7,336	)		106,328			(8,078	)
Mark-to-market changes: other invested assets and equity securities		(600	)		44,411			71,826			(4,527	)
Net realized investment gains	$	14,379		$	31,632		$	306,436		$	10,077
NET UNREALIZED LOSSES ON INVESTMENTS
Opening balance	$	2,131		$	20,916		$	17,619		$	63,305
Closing balance		—			17,619			—			17,619
Change in net unrealized losses on investments	$	(2,131	)	$	(3,297	)	$	(17,619	)	$	(45,686	)
TOTAL FINANCIAL STATEMENT PORTFOLIO RETURN	$	50,608		$	73,824		$	455,958		$	160,339
ANNUALIZED INVESTMENT BOOK YIELD
Net investment income, recurring	$	38,360		$	45,489		$	167,141		$	195,948
Annualized net investment income		153,440			181,956			167,141			195,948
Average aggregate invested assets, at cost	$	8,249,390		$	7,989,911		$	8,106,386		$	7,785,439
Annualized investment book yield		1.9	%		2.3	%		2.1	%		2.5	%
FINANCIAL STATEMENT PORTFOLIO RETURN
Total financial statement portfolio return	$	50,608		$	73,824		$	455,958		$	160,339
Average aggregate invested assets, at fair value	$	8,518,126		$	8,062,561		$	8,272,580		$	7,902,633
Financial statement portfolio return		0.6	%		0.9	%		5.5	%		2.0	%

Page 25

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

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, net impairment charges recognized in earnings, net foreign exchange gain or loss, and other non-recurring items. The company excludes net realized investment gains or losses, net impairment charges recognized in earnings, net foreign exchange gain or loss and other non-recurring items from its calculation of operating income because these amounts are heavily influenced by and fluctuate in part according to the availability of market opportunities and other factors. The company has excluded from operating income the termination fee it received from Transatlantic Holdings, Inc. in 2011 as this is a non-recurring item. 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 and the company’s underlying business performance. Operating income should not be viewed as a substitute for GAAP net income. See page 22 for the reconciliation of operating income to net income.

ANNUALIZED RETURN ON AVERAGE SHAREHOLDERS’ EQUITY (“ROAE”)

Annualized return on average shareholders’ equity is calculated using average shareholders’ equity, excluding the average after tax unrealized gains or losses on investments. Unrealized gains (losses) on investments are primarily the result of interest rate and credit spread 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 23 for the reconciliation of average shareholders’ equity.

ANNUALIZED OPERATING RETURN ON AVERAGE SHAREHOLDERS’ EQUITY

Annualized operating return on average shareholders’ 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 shareholders’ 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 shareholders’ equity explanation above. See page 22 for the reconciliation of net income to operating income and page 23 for the reconciliation of average shareholders’ 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 an important measure of calculating shareholder returns. See page 24 for the 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. Aggregate invested assets includes cash and cash equivalents, fixed maturity securities, equity securities, other invested assets and the net balances receivable or payable on purchases and sales of investments. 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 page 25 for the calculation of annualized investment book yield.

Page 26