Allied World Assurance Company Holdings, AG (NYSE: AWH) today reported net income of $74.1 million, or $0.81 per diluted share, for the first quarter of 2016 compared to net income of $124.4 million, or $1.27 per diluted share, for the first quarter of 2015.

The company reported operating income of $59.0 million, or $0.65 per diluted share, for the first quarter of 2016, compared to operating income of $91.7 million, or $0.93 per diluted share, for the first quarter of 2015.

President and Chief Executive Officer Scott Carmilani commented, "We are pleased at the positive contributions from our investment portfolio and solid underwriting results this quarter. Although market conditions remain challenging, we continue to find attractive opportunities while maintaining our strong focus on risk selection and capital management."

First Quarter Summary (Unaudited)

 
(Expressed in millions of U.S. dollars, Three Months Ended March 31,
except per share amounts)               Diluted per share
2016   2015         2016   2015
           
Net income $74.1 $124.4 $0.81 $1.27
Add after tax effect of:
Net realized investment gains (12.1) (42.6) (0.13) (0.44)
Foreign exchange (gain) loss (3.0)   9.9         (0.03)   0.10
Operating income $59.0   $91.7         $0.65   $0.93
 

First Quarter Operating Results

  • Gross premiums written were $863.5 million, a 1.9% decrease compared to $880.6 million for the first quarter of 2015. This was driven by a decline in the Reinsurance segment, partially offset by growth in the Global Markets Insurance segment. North American Insurance was essentially flat.
    • The Global Markets Insurance segment grew by 94.7% on a constant dollar basis and 90.6% on an as reported basis, driven by the inclusion of the acquired Asian operations. The first quarter of 2016 was the fourth quarterly period to include the results of the acquired Asian operations, making future prior year quarter references directly comparable.
    • The North American Insurance segment was essentially unchanged, led by growth across programs and environmental businesses, offset in part by declines in primary casualty, healthcare, and property businesses.
    • The Reinsurance segment decreased by 16.0% driven largely by the reduction in property catastrophe risk as well as the non-renewal of certain other property and casualty treaties.
  • The company did not experience any reportable catastrophe losses for the first quarter of 2016 or the comparable quarter last year.
  • The combined ratio was 96.0% compared to 88.1% for the first quarter of 2015.
  • The loss and loss expense ratio was 64.2% for the first quarter of 2016 compared to 57.2% for the prior year quarter. During the first quarter of 2016, the company recorded net favorable reserve development on prior loss years of $25.4 million, a benefit of 4.4 percentage points to the loss and loss expense ratio, compared to $63.6 million a year ago, a benefit of 11.2 percentage points. In the prior year quarter, the company benefited from significant favorable development related to 2010 and prior accident years in its North American Insurance general casualty and professional lines businesses. During the quarter, the company experienced $8.6 million of current year development in the Global Markets Insurance segment largely due to the impact of certain aviation and property events.
  • The company's expense ratio was 31.8% for the first quarter of 2016 compared to 30.9% for the first quarter of 2015. The increase was largely driven by higher acquisition ratios across all three business segments, most notably within the acquired Asian operations. The company's general and administrative expense ratio was 16.6% for the first quarter of 2016 compared to 17.1% for the prior year quarter. This improvement was driven by lower compensation expenses.

Investment Results

  • The total financial statement return on the company's investment portfolio for the three months ended March 31, 2016 was 0.8% compared to 1.0% for the three months ended March 31, 2015.
  • Net investment income increased 19.5% in the quarter compared to the prior year quarter, driven by increased returns from fixed maturity assets and the improved performance of Allied World Financial Services.
  • As of March 31, 2016, non-core assets represented 19.3% of the investment portfolio, a decrease as compared to 22.5% as of December 31, 2015 and 28.9% as of March 31, 2015. This decrease was largely driven by a reduced allocation to public equities.
  • See the table below for the components of the investment returns:
(Expressed in millions of U.S. dollars,   Three Months Ended March 31,
except percentages) 2016   2015
Net investment income $53.2   $44.6
Net realized investment gains 18.9   45.0
Total financial statement portfolio return $72.1   $89.6
Average invested assets $9,299.1 $8,615.0
Financial statement portfolio return 0.8%   1.0%
 

Note: Net investment income, realized gains and unrealized gains are disclosed on a pre-tax basis.

Shareholders' Equity

  • As of March 31, 2016, the company’s total shareholders' equity was $3,535.5 million, compared to $3,532.5 million as of December 31, 2015.
  • As of March 31, 2016, diluted book value per share was $38.13, an increase of 0.9% compared to $37.78 as of December 31, 2015.
  • As of March 31, 2016, diluted tangible book value per share was $32.68, an increase of 0.9% compared to $32.38 as of December 31, 2015.
  • Annualized net income return on average shareholders' equity was 8.4% for the quarter, compared to 2.3% for the full year 2015.

Capital Management

  • Through April 18, 2016, year to date, the company repurchased a total of 1,936,812 of its common shares for an aggregate cost of $66.7 million at an average price of $34.42 per share.
  • In May 2015, the company’s shareholders approved four quarterly dividends equal to $0.26 per share. The fourth and last dividend was paid on March 31, 2016.
  • Proposals for an additional four quarterly dividends equal to $0.26 per share and a new, two-year $500 million share repurchase authorization were approved by the company's shareholders at the Annual Shareholder Meeting held earlier today.

Supplementary Information

Allied World has provided a Financial Supplement as of March 31, 2016. 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 Wednesday, April 20, 2016 at 8:00 a.m. (Eastern Time) to discuss the results for the first quarter ended March 31, 2016. 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 1 (888) 771-4371 (U.S. callers) or 1 (847) 585-4405 (international callers) and entering the passcode 42198699 approximately ten minutes prior to the call. A replay of the call will be available through Friday, May 6, 2016 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.

"Annualized return on average shareholders' equity" ("ROAE") is calculated using average shareholders’ equity, excluding the average after tax other comprehensive income or loss, which may include unrealized gains (losses) on investments or currency translation adjustments. 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 amounts 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 or currency translation adjustments. Unrealized gains (losses) are excluded from equity for the reasons outlined in the ROAE explanation above.

"Tangible shareholders' equity and diluted book value per share" is calculated using total shareholders' equity excluding goodwill and intangible assets, because it represents a more liquid measure of the company's net assets than total shareholders' equity. The company also 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.

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

About Allied World

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: https://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 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,
2016   2015
 
Revenues:
Gross premiums written $ 863,545 $ 880,614
Premiums ceded   (159,499)     (108,086)
 
Net premiums written 704,046 772,528
Change in unearned premiums   (123,924)     (203,980)
Net premiums earned 580,122 568,548
Net investment income 53,253 44,551
Net realized investment gains 18,858 45,025
Other income   565     854
Total revenues   652,798     658,978
Expenses:
Net losses and loss expenses 372,366 325,176
Acquisition costs 88,308 78,699
General and administrative expenses 96,352 97,138
Other expense 1,134 1,823
Amortization of intangible assets 2,500 633
Interest expense 19,949 14,337
Foreign exchange (gain) loss   (3,011)     9,897
Total expenses   577,598     527,703
Income before income taxes 75,200 131,275
Income tax expense   1,101     6,919
NET INCOME $ 74,099   $ 124,356
 
PER SHARE DATA:
Basic earnings per share $ 0.82 $ 1.30
Diluted earnings per share $ 0.81 $ 1.27
 
Weighted average common shares outstanding 90,254,512 95,935,551
Weighted average common shares and common share equivalents outstanding 91,559,225 97,577,029
 
Dividends paid per share $ 0.260 $ 0.225
 
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: 2016 2015
Fixed maturity investments trading, at fair value $ 7,568,110 $ 7,201,538
Equity securities trading, at fair value 201,968 403,022
Other invested assets   940,342   966,709
 
Total investments 8,710,420 8,571,269
Cash and cash equivalents 859,457 668,612
Insurance balances receivable 885,415 745,888
Funds held 353,156 640,819
Prepaid reinsurance 380,319 392,265
Reinsurance recoverable 1,511,959 1,479,959
Reinsurance recoverable on paid losses 82,662 96,437
Accrued investment income 40,146 38,304
Net deferred acquisition costs 186,878 165,206
Goodwill 389,695 388,127
Intangible assets 115,719 116,623
Balances receivable on sale of investments 24,627 36,889
Net deferred tax assets 24,972 24,401
Other assets   162,595   147,149
 
Total assets $ 13,728,020 $ 13,511,948
 
LIABILITIES:
Reserve for losses and loss expenses $ 6,575,078 $ 6,456,156
Unearned premiums 1,796,861 1,683,274
Reinsurance balances payable 221,633 214,369
Balances due on purchases of investments 147,959 125,126
Senior notes 1,293,302 1,292,907
Other long-term debt 23,311 23,033
Accounts payable and accrued liabilities   134,413   184,541
Total liabilities   10,192,557   9,979,406
 
SHAREHOLDERS' EQUITY:
Common shares: 2016 and 2015: par value CHF 4.10 per share (2016: 94,062,342; 2015: 95,523,230 shares issued and 2016: 89,840,448; 2015: 90,959,635 shares outstanding) 375,087 386,702
Treasury shares, at cost (2016: 4,221,894; 2015: 4,563,595) (146,287) (155,072)
Accumulated other comprehensive loss (6,168) (9,297)
Retained earnings   3,312,831   3,310,209
Total shareholders' equity   3,535,463   3,532,542
 
Total liabilities and shareholders' equity $ 13,728,020 $ 13,511,948
 
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, 2016 Insurance Insurance Reinsurance Total
 
Gross premiums written $ 379,183 $ 115,529 $ 368,833 $ 863,545
Net premiums written 266,245 87,613 350,188 704,046
Net premiums earned 316,266 94,210 169,646 580,122
Net losses and loss expenses (216,218) (67,800) (88,348) (372,366)
Acquisition costs (33,882) (17,908) (36,518) (88,308)
General and administrative expenses   (52,169)   (29,029)   (15,154)   (96,352)
Underwriting income (loss) 13,997 (20,527) 29,626 23,096
Other insurance-related income 565 — — 565
Other insurance-related expense   (705)   (5)   (423 )   (1,133)
Segment income (loss) 13,857 (20,532) 29,203 22,528
Net investment income 53,253
Net realized investment gains 18,858
Amortization of intangible assets (2,500)
Interest expense (19,950)
Foreign exchange gain   3,011
Income before income taxes $ 75,200
 
GAAP Ratios:
Loss and loss expense ratio 68.4 % 72.0 % 52.1 % 64.2 %
Acquisition cost ratio 10.7 % 19.0 % 21.5 % 15.2 %
General and administrative expense ratio   16.5 %   30.8 %   8.9 %   16.6 %
Expense ratio   27.2 %   49.8 %   30.4 %   31.8 %
Combined ratio   95.6 %   121.8 %   82.5 %   96.0 %
 
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 %
 
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,
2016   2015
 
Net income $ 74,099 $ 124,356
Add after tax effect of:
Net realized investment gains (12,079) (42,572)
Foreign exchange (gain) loss   (3,011)     9,897
Operating income $ 59,009   $ 91,681
 
Weighted average common shares outstanding:
Basic 90,254,512 95,935,551
Diluted 91,559,225 97,577,029
 
Basic per share data:
Net income $ 0.82 $ 1.30
Add after tax effect of:
Net realized investment gains (0.13) (0.44)
Foreign exchange (gain) loss   (0.03)     0.10
Operating income $ 0.66   $ 0.96
 
Diluted per share data:
Net income $ 0.81 $ 1.27
Add after tax effect of:
Net realized investment gains (0.13) (0.44)
Foreign exchange (gain) loss   (0.03)     0.10
Operating income $ 0.65   $ 0.93
 
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,
2016 2015
Price per share at period end $ 34.94 $ 37.19
 
Total shareholders' equity $ 3,535,463 $ 3,532,542
 
Total tangible shareholders' equity $ 3,030,049 $ 3,027,792
 
Basic common shares outstanding 89,840,448 90,959,635
 
Add: unvested restricted share units 1,243,533 819,309
 
Add: performance based equity awards 595,572 591,683
 
Add: employee share purchase plan 38,885 53,514
 
Add: dilutive options outstanding 1,947,836 1,968,607
Weighted average exercise price per share $ 16.88 $ 16.87
Deduct: options bought back via treasury method   (941,259)   (892,993)
 
Common shares and common share
equivalents outstanding 92,725,015 93,499,755
 
Basic book value per common share $ 39.35 $ 38.84
Diluted book value per common share $ 38.13 $ 37.78
 
Basic tangible book value per common share $ 33.73 $ 33.29
Diluted tangible book value per common share $ 32.68 $ 32.38
 
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,
2016   2015
 
Opening shareholders' equity $ 3,532,542 $ 3,778,291
Add: accumulated other comprehensive loss   9,297     —  
Adjusted opening shareholders' equity 3,541,839 3,778,291
 
Closing shareholders' equity $ 3,535,463 $ 3,829,067
Add: accumulated other comprehensive loss   6,168     —  
Adjusted closing shareholders' equity 3,541,631 3,829,067
 
Average shareholders' equity $ 3,541,735   $ 3,803,679
 
Net income available to shareholders $ 74,099 $ 124,356
Annualized net income available to shareholders 296,396 497,424
 
Annualized return on average shareholders' equity -
net income available to shareholders   8.4 %     13.1 %
 
Operating income available to shareholders $ 59,009 $ 91,681
Annualized operating income available to shareholders 236,036 366,724
 
Annualized return on average shareholders' equity -
operating income available to shareholders   6.7 %     9.6 %