Allied World Assurance Company Holdings, AG (NYSE:AWH) today reported net income of $124.4 million, or $1.27 per diluted share, for the first quarter of 2015 compared to net income of $177.0 million, or $1.74 per diluted share, for the first quarter of 2014.

The company reported operating income of $91.7 million, or $0.93 per diluted share, for the first quarter of 2015, compared to operating income of $129.9 million, or $1.28 per diluted share, for the first quarter of 2014.

President and Chief Executive Officer Scott Carmilani commented, "Allied World is off to a strong start in 2015. Our North American Insurance segment continues to gain scale and see attractive rate increases. We are pleased to have completed our acquisitions of the RSA Hong Kong and Singapore operations and are looking forward to completing the combination of our platforms as we continue to grow our Global Markets Insurance segment."

     

First Quarter Summary (Unaudited)

 
(Expressed in millions of U.S. dollars, except per share amounts) Three Months Ended March 31,
        Diluted per share
2015   2014   2015   2014
     
Net income $124.4 $177.0 $1.27 $1.74
Add after tax effect of:
Net realized investment gains (42.6) (47.2) (0.44) (0.46)
Foreign exchange loss 9.9   0.1   0.10   0.00
Operating income $91.7   $129.9   $0.93   $1.28
 

First Quarter Operating Results

  • Gross premiums written were $880.6 million, a 2.3% decrease compared to $901.4 million in the first quarter of 2014. This was driven by a decline in the Reinsurance segment, partially offset by growth in both the North American Insurance and Global Markets Insurance segments.
    • The North American Insurance segment grew by 10.1% led by growth across casualty lines, including Defense Base Act, offset in part by a continued decrease in healthcare insurance.
    • The Global Markets Insurance segment grew by 11.9% on a constant dollar basis and 3.8% on an as reported basis, driven by new lines of business, including onshore construction and marine liability, as well as growth across existing lines including general casualty and professional liability.
    • The Reinsurance segment decreased by 11.6% driven largely by the non-renewal of business, including certain property and crop treaties.
  • Net premiums earned were $568.5 million, a 7.2% increase compared to $530.3 million in the first quarter of 2014 as the company retained more premium on a net basis.
  • Underwriting income was $67.5 million compared to $106.9 million in the first quarter of 2014.
  • The company did not experience any reportable catastrophe losses for the first quarter of 2015 or the comparable quarter last year, but did experience attritional property and aviation losses.
  • The combined ratio was 88.1% compared to 79.9% in the first quarter of 2014.
  • The loss and loss expense ratio was 57.2% in the first quarter of 2015 compared to 51.9% in the prior year quarter. During the first quarter of 2015, the company recorded net favorable reserve development on prior loss years of $63.6 million, a benefit of 11.2 percentage points to the loss and loss expense ratio, compared to $48.9 million a year ago, a benefit of 9.2 percentage points.
  • The company's expense ratio was 30.9% for the first quarter of 2015 compared to 28.0% for the first quarter of 2014. The increase was largely driven by the impact of a higher stock price on compensation expense.
  • Foreign exchange losses were $9.9 million for the first quarter of 2015 compared to $0.1 million for the first quarter of 2014, largely driven by hedges the company placed on the British pound sterling purchase price of the RSA acquisitions as well as strengthening of the U.S. dollar against other currencies.

Investment Results

  • The total financial statement return on the company's investment portfolio for the three months ended March 31, 2015 was 1.0% compared to 1.2% for the three months ended March 31, 2014.
  • Net investment income decreased 6.4% in the quarter compared to the prior year quarter, driven by lower income derived from equity method investments owned through Allied World Financial Services.
  • See the table below for the components of the investment returns:
       
(Expressed in millions of U.S. dollars, except percentages) Three Months Ended March 31,
2015

 

2014

Net investment income $44.6 $47.6
Net realized investment gains 45.0   54.2
Total financial statement portfolio return $89.6   $101.8
 
Average invested assets $8,615.0 $8,498.0
Financial statement portfolio return 1.0 %   1.2%
 
    Note: Net investment income, realized gains and unrealized gains are disclosed on a pre-tax basis.

Shareholders' Equity

  • As of March 31, 2015, the company’s total shareholders' equity grew to $3,829.1 million, compared to $3,778.3 million as of December 31, 2014.
  • As of March 31, 2015, diluted book value per share was $38.99, an increase of 1.9% compared to $38.27 as of December 31, 2014.
  • Annualized net income return on average shareholders' equity was 13.1% for the quarter, compared to 19.8% for the comparable quarter last year.

Capital Management

  • During the first quarter of 2015, the company repurchased 1,271,213 of its common shares through its open market share repurchase program at an average price of $40.08 per share and an aggregate cost of $50.9 million.
  • In May 2014, the company’s shareholders approved four quarterly dividends equal to $0.225 per share. The fourth and last dividend was paid on April 2, 2015. Pending shareholder approval at the Annual Shareholder Meeting scheduled for April 30, 2015, the annual dividend payment will increase 15% to $1.04 per share from $0.90 per share.

Supplementary Information

Allied World has provided both a Financial Supplement and an Investment Supplement as of March 31, 2015. This information is available in the "Investor Relations" section of the company's website at www.awac.com.

Conference Call

Allied World will host a conference call on Thursday, April 23, 2015 at 9:00 a.m. (Eastern Time) to discuss the results for the first quarter ended March 31, 2015. The public may access a live webcast of the conference call at the "Investor Relations" section of the company's website at www.awac.com. In addition, the conference call can be accessed by dialing (888) 317-6003 (U.S. callers) or (412) 317-6061 (international callers) and entering the passcode 2239296 approximately ten minutes prior to the call.

A replay of the call will be available through Friday, May 8, 2015 by dialing (877) 344-7529 (U.S. callers and Canada) or (412) 317-0088 (international callers) and entering the passcode 10062718. In addition, the webcast will also remain available online through Friday, May 8, 2015 at www.awac.com.

Non-GAAP Financial Measures

In presenting the company's results, management has included and discussed in this press release 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 foreign exchange gain or loss, and other non-recurring items. The company excludes net realized investment gains or losses, 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. 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.

Reconciliations of these financial measures to their most directly comparable U.S. GAAP measures are included in the attached tables.

About Allied World Assurance Company

Allied World Assurance Company Holdings, AG, through its subsidiaries and brand known as Allied World, is a global provider of innovative property, casualty and specialty insurance and reinsurance solutions. Allied World offers superior client service through a global network of offices and branches. All of Allied World's rated insurance and reinsurance subsidiaries are rated A by A.M. Best Company, A by Standard & Poor's, and A2 by Moody's, and our Lloyd's Syndicate 2232 is rated A+ by Standard & Poor's and AA- by Fitch.

Please visit the following for further information on Allied World: Web: www.awac.com | Facebook: www.facebook.com/alliedworld | LinkedIn: http://www.linkedin.com/company/Allied-World.

Cautionary Statement Regarding Forward-Looking Statements

Any forward-looking statements made in this press release 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 risks that the RSA acquisitions disrupt each company's current plans and operations; the ability to retain key personnel; the ability to recognize the benefits of the RSA acquisitions; the amounts of costs, fees, expenses, and charges related to the RSA acquisitions; pricing and policy term trends; increased competition; the adequacy of our loss reserves; negative rating agency actions; greater frequency or severity of unpredictable catastrophic events; the impact of acts of terrorism and acts of war; 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, AG
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in thousands of United States dollars, except share and per share amounts)
       
Quarter Ended
March 31,
2015   2014
 
Revenues:
Gross premiums written $ 880,614 $ 901,393
Premiums ceded   (108,086 )     (129,779 )
 
Net premiums written 772,528 771,614
Change in unearned premiums   (203,980 )     (241,329 )
Net premiums earned 568,548 530,285
 
Net investment income 44,551 47,619
Net realized investment gains 45,025 54,205
Other income   854      

—

 
Total revenues   658,978       632,109  
Expenses:
Net losses and loss expenses 325,176 275,286
Acquisition costs 78,699 67,722
General and administrative expenses 97,138 80,340
Other expense 1,823 —
Amortization of intangible assets 633 633
Interest expense 14,337 14,534
Foreign exchange loss   9,897       49  
Total expenses   527,703       438,564  
Income before income taxes 131,275 193,545
Income tax expense   6,919       16,573  
NET INCOME $ 124,356     $ 176,972  
 
PER SHARE DATA:
Basic earnings per share $ 1.30 $ 1.78
Diluted earnings per share $ 1.27 $ 1.74
 
Weighted average common shares outstanding 95,935,551 99,545,187
Weighted average common shares and common share equivalents outstanding 97,577,029 101,584,662
 
Dividends paid per share (1) $ 0.225 $ 0.167
 

(1)

   A dividend of $0.225 was also paid on April 2, 2015 to shareholders of record on March 24, 2015.
       
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of United States dollars, except share and per share amounts)
 
As of As of
March 31, December 31,
ASSETS: 2015 2014
Fixed maturity investments trading, at fair value $ 6,288,897 $ 6,069,010
Equity securities trading, at fair value 856,652 844,163
Other invested assets   926,407     955,509  
 
Total investments 8,071,956 7,868,682
Cash and cash equivalents 565,001 670,310
Insurance balances receivable 773,394 664,815
Funds held 479,909 724,021
Prepaid reinsurance 318,838 360,732
Reinsurance recoverable 1,350,311 1,340,256
Reinsurance recoverable on paid losses 107,071 86,075
Accrued investment income 28,267 28,456
Net deferred acquisition costs 187,246 151,546
Goodwill 280,725 278,258
Intangible assets 49,274 46,298
Balances receivable on sale of investments 46,822 47,149
Net deferred tax assets 29,922 33,615
Other assets   329,050     121,350  
 
Total assets $ 12,617,786   $ 12,421,563  
 
LIABILITIES:
Reserve for losses and loss expenses $ 5,905,110 $ 5,881,165
Unearned premiums 1,717,399 1,555,313
Reinsurance balances payable 184,322 180,060
Balances due on purchases of investments 34,396 5,428
Senior notes 798,881 798,802
Other long-term debt 19,730 19,213
Dividends payable 21,528 21,669
Accounts payable and accrued liabilities   107,353     181,622  
Total liabilities   8,788,719     8,643,272  
 
SHAREHOLDERS' EQUITY:

Common shares: 2015 and 2014: par value CHF 4.10 per share (2015: 100,299,454; 2014:
100,775,256 shares issued and 2015: 95,444,669; 2014: 96,195,482 shares outstanding)

406,088 408,020
Treasury shares, at cost (2015: 4,854,785; 2014: 4,579,774) (162,356 ) (143,075 )
Retained earnings   3,585,335     3,513,346  
Total shareholders' equity   3,829,067     3,778,291  
 
Total liabilities and shareholders' equity $ 12,617,786   $ 12,421,563  
 
       
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
UNAUDITED CONSOLIDATED SEGMENT DATA
(Expressed in thousands of United States dollars, except for ratio information)
 
North American Global Markets
Three Months Ended March 31, 2015 Insurance Insurance Reinsurance Total
 
Gross premiums written $ 380,767 $ 60,562 $ 439,285 $ 880,614
Net premiums written 296,883 42,895 432,750 772,528
Net premiums earned 312,970 50,040 205,538 568,548
Net losses and loss expenses (195,479 ) (20,510 ) (109,187 ) (325,176 )
Acquisition costs (31,032 ) (7,008 ) (40,659 ) (78,699 )
General and administrative expenses   (59,288 )   (18,025 )   (19,825 )   (97,138 )
Underwriting income 27,171 4,497 35,867 67,535
Other insurance-related income 854 — —

854

Other insurance-related expense   (855 )   (968 )   —     (1,823 )
Segment income 27,170 3,529 35,867 66,566
Net investment income 44,551
Net realized investment gains 45,025
Amortization of intangible assets (633 )
Interest expense (14,337 )
Foreign exchange loss   (9,897 )
Income before income taxes $ 131,275  
 
GAAP Ratios:
Loss and loss expense ratio 62.5 % 41.0 % 53.1 % 57.2 %
Acquisition cost ratio 9.9 % 14.0 % 19.8 % 13.8 %
General and administrative expense ratio   18.9 %   36.0 %   9.6 %   17.1 %
Expense ratio   28.8 %   50.0 %   29.4 %   30.9 %
Combined ratio   91.3 %   91.0 %   82.5 %   88.1 %
 
North American Global Markets
Three Months Ended March 31, 2014 Insurance Insurance Reinsurance Total
 
Gross premiums written $ 345,912 $ 58,397 $ 497,084 $ 901,393
Net premiums written 247,152 31,047 493,415 771,614
Net premiums earned 265,451 35,011 229,823 530,285
Net losses and loss expenses (161,172 ) (4,389 ) (109,725 ) (275,286 )
Acquisition costs (23,675 ) (2,879 ) (41,168 ) (67,722 )
General and administrative expenses   (47,615 )   (14,582 )   (18,143 )   (80,340 )
Underwriting income 32,989 13,161 60,787 106,937
Other insurance-related income —

—

—

—

Other insurance-related expense   —     —     —     —  
Segment income 32,989 13,161 60,787 106,937
Net investment income 47,619
Net realized investment gains 54,205
Amortization of intangible assets (633 )
Interest expense (14,534 )
Foreign exchange loss   (49 )
Income before income taxes $ 193,545  
 
GAAP Ratios:
Loss and loss expense ratio 60.7 % 12.5 % 47.7 % 51.9 %
Acquisition cost ratio 8.9 % 8.2 % 17.9 % 12.8 %
General and administrative expense ratio   17.9 %   41.6 %   7.9 %   15.2 %
Expense ratio   26.8 %   49.8 %   25.8 %   28.0 %
Combined ratio   87.5 %   62.3 %   73.5 %   79.9 %
 
 
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
UNAUDITED OPERATING INCOME RECONCILIATION
(Expressed in thousands of United States dollars, except share and per share amounts)
       
 
Three Months Ended March 31,
2015   2014
 
Net income $ 124,356 $ 176,972
Add after tax effect of:
Net realized investment gains (42,572 ) (47,164 )
Foreign exchange loss   9,897       49  
Operating income $ 91,681     $ 129,857  
 
Weighted average common shares outstanding:
Basic 95,935,551 99,545,187
Diluted 97,577,029 101,584,662
 
Basic per share data:
Net income $ 1.30 $ 1.78
Add after tax effect of:
Net realized investment gains (0.44 ) (0.47 )
Foreign exchange loss   0.10       0.00  
Operating income $ 0.96     $ 1.31  
 
Diluted per share data:
Net income $ 1.27 $ 1.74
Add after tax effect of:
Net realized investment gains (0.44 ) (0.46 )
Foreign exchange loss   0.10       0.00  
Operating income $ 0.93     $ 1.28  
 
 
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
March 31, December 31,
2015 2014
Price per share at period end $ 40.40 $ 37.92
 
Total shareholders' equity $ 3,829,067 $ 3,778,291
 
Basic common shares outstanding 95,444,669 96,195,482
 
Add: unvested restricted share units 843,607 502,506
 
Add: performance based equity awards 596,224 616,641
 
Add: employee share purchase plan 30,504 42,176
 
Add: dilutive options outstanding 2,212,247 2,426,674
Weighted average exercise price per share $ 16.73 $ 16.41
Deduct: options bought back via treasury method   (916,111 )   (1,050,151 )
 
Common shares and common share
equivalents outstanding 98,211,140 98,733,328
 
Basic book value per common share $ 40.12 $ 39.28
Diluted book value per common share $ 38.99 $ 38.27
 
 
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
UNAUDITED ANNUALIZED RETURN ON SHAREHOLDERS' EQUITY RECONCILIATION
(Expressed in thousands of United States dollars, except for percentage information)
       
Three Months Ended March 31,
2015   2014
 
Opening shareholders' equity $ 3,778,291 $ 3,519,826
Deduct: accumulated other comprehensive income   —       —  
Adjusted opening shareholders' equity 3,778,291 3,519,826
 
Closing shareholders' equity $ 3,829,067 $ 3,616,678
Deduct: accumulated other comprehensive income   —      

—

 
Adjusted closing shareholders' equity 3,829,067 3,616,678
 
Average shareholders' equity $ 3,803,679   $ 3,568.252
 
Net income available to shareholders $ 124,356 $ 176,972
Annualized net income available to shareholders 497,424 707,888
 
Annualized return on average shareholders' equity -
net income available to shareholders   13.1 %     19.8 %
 
Operating income available to shareholders $ 91,681 $ 129,857
Annualized operating income available to shareholders 366,724 519,428
 
Annualized return on average shareholders' equity -
operating income available to shareholders   9.6 %     14.6 %