Investor Presentation 1 st Quarter 2013 Exhibit 99.1 |
Forward-Looking Statements & Safe Harbor 2 This presentation contains certain statements, estimates and forecasts with respect to future performance and events. These statements, estimates and forecasts are "forward-looking statements". In some cases, forward-looking statements can be identified by the use of forward-looking terminology such as "may," “might,” “will," “should,” "expect," “plan,” "intend," "estimate," "anticipate," "believe,” “predict,” “potential” or "continue" or the negatives thereof or variations thereon or similar terminology. All statements other than statements of historical fact included in this presentation are forward-looking statements and are based on various underlying assumptions and expectations and are subject to known and unknown risks, uncertainties and assumptions, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied in the forward-looking statements. As a result, there can be no assurance that the forward-looking statements included in this presentation will prove to be accurate or correct. In light of these risks, uncertainties and assumptions, the future performance or events described in the forward-looking statements in this presentation might not occur. Accordingly, you should not rely upon forward-looking statements as a prediction of actual results and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements that may be made from time to time. We are under no obligation (and expressly disclaim any such obligation) to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. |
Agenda Executive Summary Executive Summary Operating Segments Operating Segments U.S. Insurance U.S. Insurance International Insurance International Insurance Reinsurance Reinsurance Financial Highlights Financial Highlights Conclusion Conclusion Appendix Appendix 3 |
Allied World’s Franchise Well-diversified property and casualty insurer and reinsurer with significant geographic reach Experienced executive management team with strong risk management culture Total return investment philosophy Excellent capitalization with active capital management Highly Rated – “A” (Excellent) by A.M. Best, “A” (Strong) by S&P, “A2” (Good) by Moody’s and “A+” (Good) by Fitch Industry leading results and value creation 4 |
Diversified insurance and reinsurance products offered across a global platform with operations in the U.S., Bermuda, Lloyd’s, Europe, Hong Kong and Singapore Emphasis on insurance and casualty lines with strong reinsurance and property capabilities Customer focus Moving closer to clients in markets Demonstrated expertise in markets in which we underwrite A “go to” market for targeted lines and classes of business such as healthcare and construction Allied World – A Diversified mix Leading specialty insurance company with a broad range of product offerings, global capabilities and significant U.S. focus 5 * Includes healthcare-related program business Total TTM March 2013 GPW: $ 2,485M 66% Insurance / 34% Reinsurance 72% Casualty / 28% Property |
Experienced Management: Shifting the Business Focus 6 2007 GPW: $1,506M In response to the changing macro economic environment, Allied World has transformed itself since 2007 Total TTM March 2013 GPW: $2,485M Allied World 2007 Allied World Today Reduced dependence on Bermuda large account excess business U.S. segment has increased significantly with focus on small and middle market account primary and specialty business Reinsurance segment has strong U.S. presence and is growing internationally |
o We focus on total investment return as a key driver of book value growth, of which net investment income is one component • All investments categorized as “trading” • Similar treatment of cash and derivatives • Management incentive focused on net income o We currently maintain a short duration, overweight credit position in core fixed income o We continue to build out the non- core portfolio in 2013 including equity investments through Allied World Financial Services o Emphasis on detailed transparency 7 Investment Strategy * $7.7 $8.1 $8.5 Portfolio Size ($Bn) $6.2 $6.9 $7.5 * $8.4 $8.6 $426 $20 $418 $469 $160 $456 $167 $113 * * Total Investment Return ($MM) Book Yield vs. Total Return * Prior to the 2009 move from an “available for sale” portfolio to a trading portfolio, which impacts the presentation of returns from the non core portfolio. - Focused on maximizing total return performance via a diversified portfolio |
Active Capital Management Improves Shareholder Value 8 Diluted book value per share has more than doubled since 2008 Capital Management History o Share Repurchases: • $1.7 billion of shares and warrants repurchased since December 2007 • $367 million remaining capacity in share repurchase program as of April 2013 • Increased the dividend over 30% in May 2013 to $0.50 per share • $276 million of common dividends since going public in 2006 • Financial leverage of 18.9% at March 2013 (In millions, except for per share amounts) * Excludes $243.8 million syndicated loan that was repaid on February 23, 2009 $96.50 $92.59 $46.05 $59.56 $74.29 $80.11 $2,417 $499 -$646 $2,916 $3,213 $499 -$682 $3,712 $3,075 $798 -$1,475 $3,873 $3,149 $798 -$1,658 $3,947 $3,326 $798 -$1,975 $4,124 $3,432 $798 -$2,025 $4,230 2008 2009 2010 2011 2012 Q1 2013 Shareholder's Equity Debt Accumulated Share and Warrant Repurchases & Dividends Diluted Book Value per Share * Dividends: o Conservative Capital Position: o |
Growth in book value per share calculated by taking change in book value per share from March 31, 2008 through March 31, 2013 adjusted for dividends. Diluted book value per share used when available. Source: SNL Financial 9 Peer Average = 63% Five Year Growth in Book Value per Share April 2008 – March 2013 Superior Value Creation 124% 110% 99% 77% 73% 70% 64% 63% 61% 58% 52% 41% 39% 7% Allied World ProAssurance Arch RLI HCC W.R. Berkley Markel Endurance Axis Navigators Aspen Hanover Argo OneBeacon |
Quarterly Highlights – First Quarter 2013 Solid underwriting, investment and reserving expertise – as well as a focus on capital management – continue to drive book value growth 10 • 4.2% growth in diluted book value per share • Underwriting income of $69 million for quarter, up 16.1% from prior period • Gross premiums written of $837 million for quarter, up 23% from prior period o Combined ratio of 85.1% o Expense ratio of 30.0% o U.S. Insurance gross premiums written increased $52 million, up 25% from prior period o International Insurance gross premiums written increased $15 million, up 13% o Reinsurance gross premiums written increased $89 million, up 25% |
Agenda Executive Summary Executive Summary Operating Segments Operating Segments U.S. Insurance U.S. Insurance International Insurance International Insurance Reinsurance Reinsurance Financial Highlights Financial Highlights Conclusion Conclusion Appendix Appendix 11 |
U.S. Insurance Segment - A significant U.S.- based specialty franchise with diversified offerings • Direct property and casualty insurance for small and middle-market non-Fortune 1000 companies • 10 branch offices in strategic locations throughout the U.S. • Admitted and excess & surplus lines (E&S) capabilities in all 50 states • Increased access to attractive small account primary business • Industry verticals strategy o • Specialty product capabilities o * Includes healthcare-related program business Allied World U.S. Insurance Segment Product Mix 12 Total TTM March 2013 GPW: $1,046M Healthcare* 27% Inland Marine 3% Primary General Casualty 13% Programs 4% D&O Private 8% D&O Public 7% E&O 10% Environmental 3% Excess General Casualty 15% General Property 9% M&A 1% Focused on servicing products in select industry classes, including healthcare, private / non-profit, and public entity / construction Defense Base Act approved underwriter, surety, primary construction, environmental, inland marine and M&A capabilities |
Allied World International Insurance Segment Product Mix 13 International Insurance Segment - Global diversification and expansion • Offices in Bermuda, Dublin, Hong Kong, London, Singapore and Switzerland position the company to meet developing opportunities • Lloyd’s Syndicate 2232 • Specialty product capabilities: • MGA business initiated in targeted areas Total TTM March 2013 GPW: $590M Healthcare 13% General Casualty 23% Professional Lines 30% General Property 27% SME 1% Trade Credit 6% o Association with Lloyd’s enhances Allied World’s brand recognition o Increases access to Latin America and Asia- Pacific region o Offers individual risk products o Trade credit and political risk o International healthcare o Small-to-medium enterprises (SME Professional) |
Allied World Reinsurance Segment Product Mix 14 • Opportunistic and flexible approach to respond to dynamic market opportunities • U.S. operation has improved access to U.S. regional business and strengthened local relationships • Strategic Bermuda Platform • Miami, Singapore, and Swiss offices and Lloyd’s Syndicate 2232 increase global reach Reinsurance Segment - Flexibility to take advantage of reinsurance opportunities in the global marketplace Total TTM March 2013 GPW: $849M o Expansion into newer lines including crop and hail o Property reinsurance capabilities that focus on small and medium account regional carriers o Property catastrophe, property per risk, workers’ compensation catastrophe, accident & health and specialty casualty North American CAT 22% Global CAT 14% Global Property 6% North American Property 7% Global Marine, Aerospace & Crop 15% Professional Liability 6% General Casualty 19% Global Casualty 5% Specialty 6% o Partnership with Aeolus Capital Management |
Agenda Executive Summary Executive Summary Operating Segments Operating Segments U.S. Insurance U.S. Insurance International Insurance International Insurance Reinsurance Reinsurance Financial Highlights Financial Highlights Conclusion Conclusion Appendix Appendix 15 |
Financial Highlights Operating Results Operating Results Q1 Q1 2013 2013 Q1 Q1 2012 2012 2012 2012 2011 2011 2010 2010 2009 2009 Net Income $159 $218 $493 $275 $665 $607 Operating Income $84 $92 $203 $184 $398 $538 Net Income Return on Average Equity 18.8% 27.4% 15.3% 8.9% 21.9% 22.6% Operating Return on Average Equity 10.0% 11.5% 6.3% 6.0% 13.1% 20.0% Combined Ratio 85.1% 85.2% 94.5% 95.9% 84.9% 76.1% Cash Flow from Operations $14 $143 $629 $548 $451 $668 Total Financial Statement Portfolio Return 1.3% 2.0% 5.5% 2.0% 6.1% 7.9% Ending Diluted Book Value per Share $96.50 $85.48 $92.59 $80.11 $74.29 $59.56 Growth in Diluted Book Value per Share 4.2% 6.7% 15.6% 7.8% 24.7% 29.3% Allied World has reported consistently strong results despite a competitive landscape, financial turbulence and catastrophe activity 16 ($ in millions, except per share amounts) |
17 Expense Ratio Declining as We Build Scale Note: GAAP expense ratio *Peer average includes ACGL, AGII, AHL, AXS, ENH, HCC, MKL, NAVG, OB, PRA, RLI, THG and WRB. Source: SNL Financial Allied World expanded global operations, including: the build-out of the U.S. platform, the acquisition of Darwin, the establishment of a U.S. reinsurance company and the opening of Lloyd's Syndicate 2232 22.5% 26.7% 30.2% 32.8% 30.1% 29.4% 30.0% 30.1% 30.4% 32.1% 33.6% 33.7% 34.2% 34.6% 2007 2008 2009 2010 2011 2012 Q1 2013 Allied World Peer Average* |
18 Growth Balanced With Underwriting Profitability -Consistent performance despite a presence in varied lines of business Five Year Performance Average Combined Ratio vs. Growth in Net Premiums Earned * ProAssurance not shown on chart (five year Average Combined Ratio of 62.3% with net premiums earned five-year CAGR of 2.2% from April 2008 through March 2013). Source: SNL Financial |
Strong Underwriting Results Underwriting performance has been strong since our inception 19 Historical Loss Ratios Through March 2013 ($MM) 1 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 CY Total 70.1% 65.3% 75.9% 103.1% 59.6% 58.4% 55.6% 45.9% 52.0% 65.8% 65.1% 55.1% 0.0% -4.9% -5.8% -3.6% -8.2% -10.2% -24.2% -18.8% -23.0% -17.4% -9.7% -9.5% 70.1% 70.1% 81.7% 106.7% 67.7% 68.6% 79.8% 64.7% 75.1% 83.2% 74.9% 64.6% (56.8) (56.8) (26.7) (52.7) (79.4) (8.4) (45.7) 5.6 (48.5) (16.5) (43.1) (45.3) (8.2) (113.0) 6.2 (33.8) (76.9) (6.2) (26.1) (136.9) (8.9) (87.9) (100.3) (73.8) (7.8) (33.9) (312.6) (16.5) (57.2) (118.1) (102.5) 11.6 2.4 32.2 (248.0) 4.4 (10.9) (57.0) (146.7) (54.4) (24.8) (22.6) (1.2) (313.4) (0.0) (1.3) (22.1) (89.5) (42.3) (68.7) (21.7) (27.9) 20.1 (253.5) 4.4 (3.5) (9.1) (11.1) (81.7) (90.9) (34.9) (7.9) 11.1 53.4 (170.3) 0.0 (0.1) 1.4 (11.4) (7.6) (12.0) (13.8) (0.1) (4.7) (8.6) 12.9 (44.1) (119.0) (336.2) (421.7) (449.5) (208.3) (227.9) (60.9) (37.1) 26.5 44.8 12.9 (1,776.5) -27.4% -28.7% -30.7% -33.1% -15.0% -17.0% -4.7% -2.8% 1.9% 3.1% 0.7% 42.6% 41.4% 50.9% 73.6% 52.7% 51.6% 75.1% 61.9% 77.0% 86.3% 75.6% 64.6% 16.4% 28.0% 9.7% 5.9% 19.9% 10.3% 42.6% 41.4% 34.5% 45.6% 52.7% 51.6% 65.4% 61.9% 71.1% 66.5% 65.3% 64.6% Case Incurred through 2013 Q1 2 40.8% 34.1% 46.7% 61.4% 40.0% 40.5% 53.3% 31.0% 48.8% 42.9% 31.0% 3.6% Remaining IBNR / EP Ratio @ 2013 Q1 1.8% 7.3% 4.2% 12.1% 12.6% 11.0% 21.8% 30.9% 28.2% 43.4% 44.7% 61.0% AY CY Original Loss Ratio Prior Year Development AY Original Loss Ratio 2002 2004 2006 2007 2008 2009 2003 2005 2010 2011 2012 2013 Subsequent Development Loss Ratio Points AY Developed Cat Losses AY Developed ex Cat Losses (1) Pro-forma including Darwin development since inception (2) Case incurred ratios by year are not directly comparable to our financial statements as reinsurance case incurred losses shown above are on a treaty year basis |
March 31, 2013 Total: $4.5 B • Net reserves about 4.1% above mid-point of range at March 31, 2013 • $1.8 billion net favorable reserve development since inception • 71% of net reserves are IBNR Net Loss & LAE Reserve Mix at March 31, 2013 Case U.S. Insurance 10% IBNR International Insurance 27% Case International Insurance 9% IBNR Reinsurance 22% Case Reinsurance 10% IBNR U.S. Insurance 22% Net Prior Year Reserve Releases* ($MM) Range of Net Reserves at March 31, 2013 ($MM) Prudent Reserving Philosophy 20 * Pro-forma including Darwin development since inception $1,113 $1,232 $1,168 $1,438 $1,611 $1,461 $1,615 $1,815 $1,693 U.S. Insurance International Insurance Reinsurance Low Estimate Carried High Estimate $113 $137 $313 $248 $313 $254 $170 $39 $44 2006 2007 2008 2009 2010 2011 2012 Q1 2012 Q1 2013 |
21 • We maintain a short duration/overweight credit position in core fixed- income • We will continue to build out the non-core portfolio in 2013 Investment Portfolio Highlights Total Cash and Investments: $8.6B Q1 2013 Total Portfolio Return: Q1 2013: 1.3% 2012: 5.5% Average Credit Quality is AA- |
Peer Comparisons – Net Income ROE Source: SNL Financial 22 Five Year Average Quarterly Annualized Net Income ROE April 2008 – March 2013 Peer Average = 8.3% |
Agenda Executive Summary Executive Summary Operating Segments Operating Segments U.S. Insurance U.S. Insurance International Insurance International Insurance Reinsurance Reinsurance Financial Highlights Financial Highlights Conclusion Conclusion Appendix Appendix 23 |
Conclusion 24 Strong growth in underwriting income from a diversified product mix • Gross premiums increasing in each operating segment Historically strong returns • Combined ratio compares favorably to peers • Expense ratio remains at or below 30% as we build scale Solid investment returns Active capital management Industry leading value creation Current valuation is attractive given the company’s historical performance and strong position to capitalize on market opportunities |
Growth in book value per share calculated by taking change in book value per share from March 31, 2008 through March 31, 2013 adjusted for dividends. Diluted book value per share used when available. Five Year Growth in Book Value per Share (through March 2013) vs. Price to Book Value @ May 8, 2013 25 Conclusion - Allied World is attractively valued given its demonstrated ability to grow book value 0.5x 1.0x 1.3x 1.5x 1.8x 2.0x 0.8x 0% 20% 40% 60% 80% 100% 120% Allied World Arch Argo Aspen Axis Endurance HCC Markel Navigators OneBeacon ProAssurance RLI W.R. Berkley Hanover Five Year Growth in Diluted Book Value Per Share |
Agenda Executive Summary Executive Summary Operating Segments Operating Segments U.S. Insurance U.S. Insurance International Insurance International Insurance Reinsurance Reinsurance Financial Highlights Financial Highlights Conclusion Conclusion Appendix Appendix 26 |
Non-GAAP Financial Measures 27 In presenting the company's results, management has included and discussed in this presentation certain non generally accepted accounting principles ("non- GAAP") financial measures within the meaning of Regulation G as promulgated by the U.S. Securities and Exchange Commission. Management believes that these non-GAAP measures, which may be defined differently by other companies, better explain the company's results of operations in a manner that allows for a more complete understanding of the underlying trends in the company's business. However, these measures should not be viewed as a substitute for those determined in accordance with generally accepted accounting principles ("U.S. GAAP"). "Operating income" is an internal performance measure used in the management of the company’s 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 the 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 received from Transatlantic Holdings, Inc. in 2011 as this is a non-recurring item. In addition to presenting net income determined in accordance with U.S. GAAP, the company believes that showing operating income enables investors, analysts, rating agencies and other users of the company’s financial information to more easily analyze our results of operations and underlying business performance. Operating income should not be viewed as a substitute for U.S. GAAP net income. The company has included "diluted book value per share" because it takes into account the effect of dilutive securities; therefore, the company believes it is an important measure of calculating shareholder returns. "Annualized net income return on average shareholders' equity" ("ROAE") 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 U.S. 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. "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 net income return on average shareholders' equity explanation above. See slides 28 - 30 for a reconciliation of non-GAAP measures used in this presentation to their most directly comparable U.S. GAAP measures. |
Non-GAAP Financial Measures - Reconciliations 28 ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG UNAUDITED ANNUALIZED RETURN ON SHAREHOLDERS' EQUITY RECONCILIATION (Expressed in thousands of United States dollars, except for percentage information) Quarter Ended March 31, 2013 2012 Opening shareholders' equity $ 3,326,335 $ 3,149,022 Deduct: accumulated other comprehensive income - (14,484) Adjusted opening shareholders' equity 3,326,335 3,134,538 Closing shareholders' equity $ 3,431,963 $ 3,245,821 Deduct: accumulated other comprehensive income - (2,325) Adjusted closing shareholders' equity 3,431,963 3,243,496 Average shareholders' equity $ 3,379,149 $ 3,189,017 Net income available to shareholders $ 158,992 $ 218,156 Annualized net income available to shareholders 635,968 872,624 Annualized return on average shareholders' equity - net income available to shareholders 18.8% 27.4% Operating income available to shareholders $ 84,168 $ 91,505 Annualized operating income available to shareholders 336,672 366,020 Annualized return on average shareholders' equity - operating income available to shareholders 10.0% 11.5% |
29 Non-GAAP Financial Measures - Reconciliations ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG UNAUDITED OPERATING INCOME RECONCILIATION (Expressed in thousands of United States dollars, except share and per share amounts) Quarter Ended March 31, 2013 2012 Net income $ 158,992 $ 218,156 Add after tax effect of: Net realized investment gains (77,342) (126,570) Foreign exchange loss (gain) 2,518 (81) Operatin g income $ 84,168 $ 91,505 Weighted average common shares outstanding: Basic 34,613,606 37,205,166 Diluted 35,431,843 38,284,635 Basic per share data: Net income $ 4.59 $ 5.86 Add after tax effect of: Net realized investment gains (2.23) (3.40) Foreign exchange loss (gain) 0.07 - Operating income $ 2.43 $ 2.46 Diluted per share data: Net income $ 4.49 $ 5.70 Add after tax effect of: Net realized investment gains (2.18) (3.31) Foreign exchange loss (gain) 0.07 - Operating income $ 2.38 $ 2.39 |
Non-GAAP Financial Measures - Reconciliations 30 ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG UNAUDITED DILUTED BOOK VALUE PER SHARE RECONCILIATION (Expressed in thousands of United States dollars, except share and per share amounts) As of As of As of March 31, December 31, March 31, 2013 2012 2012 Price per share at period end $ 92.72 $ 78.80 $ 68.67 Total shareholders' equity $ 3,431,963 $ 3,326,335 $ 3,245,821 Basic common shares outstanding 34,626,361 34,797,781 36,786,067 Add: unvested restricted share units 91,159 135,123 187,623 Add: performance based equity awards 272,062 485,973 524,888 Add: employee share purchase plan 5,616 10,750 - Add: dilutive options/warrants outstanding 1,166,137 1,224,607 1,429,333 Weighted average exercise price per share $ 47.34 $ 47.02 $ 45.98 Deduct: options bought back via treasury method (595,451) (730,652) (957,064) Common shares and common share equivalents outstanding 35,565,884 35,923,582 37,970,847 Basic book value per common share $ 99.11 $ 95.59 $ 88.24 Diluted book value per common share $ 96.50 $ 92.59 $ 85.48 |