Allied World Reports Increase in Net Income Despite Increased Industry Loss Activity; Announces US$500 Million Share Repurchase Program
By Allied World Assurance Company Holdings Ltd, PRNEWednesday, May 5, 2010
PEMBROKE, Bermuda, May 6, 2010 - Allied World Assurance Company Holdings, Ltd (NYSE: AWH) today reported
net income of US$133.7 million, or US$2.52 per diluted share, for the first
quarter of 2010 compared to net income of US$131.4 million, or US$2.57 per
diluted share, for the first quarter of 2009. The company reported operating
income of US$61.3 million, or US$1.16 per diluted share, for the first
quarter of 2010 compared to operating income of US$137.6 million, or US$2.69
per diluted share, for the first quarter of 2009.
President and Chief Executive Officer Scott Carmilani commented, "I am
pleased to report that Allied World continued to grow book value in the first
quarter of 2010 despite continued competitive pricing pressures and some
significant catastrophic loss activity that occurred throughout the world.
Thanks to our underwriting discipline, strong and stable investment portfolio
and our historically prudent reserving philosophy we were able to grow book
value by 3.9% during the quarter and now have a total capital base in excess
of US$3.8 billion."
Mr. Carmilani continued, "Since our company went public in 2006, we have
more than doubled our total book value and outperformed our peer group over
that period. Given the continued soft market conditions, we are finding it
increasingly difficult to find attractive opportunities to deploy excess
capital. Accordingly, our board of directors has authorized us to initiate a
share repurchase program of up to US$500 million over the next two years.
Based upon the average closing price of our shares over the past 30 days,
this plan would equate to a repurchase of over 20% of our common shares
outstanding. We believe this authorization gives us additional financial
flexibility to manage the company's capital as we work to continue to meet
shareholder expectations both in terms of operating returns and growth in
book value per share."
Underwriting Results
Gross premiums written were US$504.2 million in the first quarter of
2010, a 5.1% increase compared to US$479.6 million in the first quarter of
2009. The increase was primarily due to increased new business in our
reinsurance and U.S. insurance segments offset by the non-renewal of business
in all three of our operating segments which did not meet our underwriting
requirements (which included inadequate pricing and/or terms and conditions).
The growth in the reinsurance segment included higher gross premiums written
in our international reinsurance business during the first quarter of 2010.
Net premiums written were US$433.3 million in the first quarter of 2010,
a 7.0% increase compared to US$405.0 million in the first quarter of 2009.
The increase in net premiums written was primarily due to higher gross
premiums written as well as a reduction of premiums ceded.
Net premiums earned in the first quarter of 2010 were US$338.3 million, a
4.4% increase compared to US$324.0 million in the first quarter of 2009. This
increase was driven by increased net premiums written in the current and
prior periods, as well as the impact of the US$9.3 million commutation of
certain swing-rated reinsurance contracts that were fully earned.
The combined ratio was 99.5% in the first quarter of 2010 compared to
75.0% in the first quarter of 2009. The loss and loss expense ratio was 68.6%
in the first quarter of 2010 compared to 45.8% in the first quarter of 2009.
During the first quarter of 2010, the company recorded net favorable reserve
development on prior loss years of US$73.9 million, a benefit of 21.8
percentage points to the company's loss and loss expense ratio for the
quarter. Absent prior year reserve adjustments, the loss and loss expense
ratio related to the first quarter of 2010 was 90.4%, compared to 64.4% for
the first quarter of 2009. The increase in the loss and loss expense ratio
for the first quarter of 2010 was primarily due to losses from the earthquake
in Chile of US$65 million as well as losses of US$21.5 million from other
major loss events in the quarter. These items contributed 25.6 points to the
current loss year's loss and loss expense ratio.
The company's expense ratio was 30.9% for the first quarter of 2010
compared to 29.2% for the first quarter of 2009 due to an increase in both
the company's acquisition cost ratio and general and administrative expense
ratio. Our acquisition cost ratio increased to 12.1% for the first quarter of
2010 compared to 11.5% for the first quarter of 2009. The increase in the
acquisition cost ratio was primarily due to the increase in net premiums
earned in our U.S. insurance and reinsurance segments, which typically have
higher acquisition costs than our international insurance segment, and
represented a greater proportion of earned premiums in the first quarter of
2010 compared to the same period in 2009. Our general and administrative
expense ratio increased to 18.8% for the first quarter of 2010 compared to
17.7% for the first quarter 2009. The increase in our general and
administrative expense ratio was primarily due to increases in our overall
staff count and related increases in incentive compensation expenses.
Investment Results
The total return on the company's investment portfolio for the first
quarter 2010 was approximately 1.8% which annualizes to 7.3%. Net investment
income in the first quarter of 2010 was US$68.9 million, a decrease of 11.5%
from the US$77.9 million of net investment income in the first quarter of
2009. The decrease was primarily the result of lower reinvestment yields on
our fixed maturity securities. Annualized book yield for the first quarter of
2010 was 3.7%, versus the annualized book yield of 4.6% in the first quarter
of 2009.
The company recorded net investment gains of US$77.5 million for the
first quarter of 2010 comprised of US$45.3 million in net realized gains
primarily from the sale of debt securities and US$32.2 million related to the
mark-to-market adjustments of our hedge fund investments and debt securities
that are carried as "trading" on our balance sheet.
As of March 31, 2010 and December 31, 2009, net accumulated unrealized
gains were US$142.3 million and US$149.8 million, respectively.
Shareholders' Equity
As of March 31, 2010, shareholders' equity was US$3.3 billion, a 3.9%
increase compared to US$3.2 billion as of December 31, 2009, primarily driven
by strong investment returns.
The company's annualized net income return on average shareholders'
equity for the first quarter of 2010 was 17.1% and the annualized operating
return on average shareholders' equity for the first quarter of 2010 was
7.8%.
As of March 31, 2010, diluted book value per share was US$61.59, an
increase of 3.4% compared to US$59.56 as of December 31, 2009.
Quarterly Dividend
Allied World announced today that its board of directors has declared a
quarterly dividend of US$0.20 per common share. The dividend will be payable
on June 10, 2010 to shareholders of record on May 25, 2010.
Share Repurchase Program
Allied World announced today that its board of directors has authorized
the company to repurchase up to US$500 million in the company's common shares
through a share repurchase program. Repurchases may be effected from time to
time through open market purchases, privately negotiated transactions, tender
offers or otherwise. This authorization is effective through May 3, 2012. The
timing, form and amount of the share repurchases under the program will
depend on a variety of factors, including market conditions, the company's
capital position, legal requirements and other factors. At any time, the
repurchase program may be modified, extended or terminated by the board of
directors.
Investment Supplement
Allied World will be providing additional information on its investment
portfolio as of March 31, 2010. This information will be available at the
"Investor Relations" section of the company's website at www.awac.com.
Financial Supplement
A financial supplement relating to the first quarter of 2010 will be
available at the "Investor Relations" section of the company's website at
www.awac.com.
Conference Call
Allied World will host a conference call on Friday, May 7, 2010 at 8:00
a.m. (Eastern Time) to discuss the first quarter 2010 financial results. 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 1-800-901-5241 (U.S.
and Canada callers) or +1-617-786-2963 (international callers) and entering
the passcode 95279218 approximately ten minutes prior to the call.
Following the conclusion of the presentation, a replay of the call will
be available through Friday, May 21, 2010 by dialing 1-888-286-8010 (U.S. and
Canada callers) or +1-617-801-6888 (international callers) and entering the
passcode 99990951. In addition, the webcast will remain available online
through Friday, May 21, 2010 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 impairment charges recognized in earnings, impairment of intangible
assets and foreign exchange gain or loss. The company excludes net realized
investment gains or losses, net impairment charges recognized in earnings and
net foreign exchange gain or loss from the calculation of operating income
because the amount of these gains or losses is heavily influenced by and
fluctuates in part according to the availability of market opportunities and
other factors. The company excludes impairment of intangible assets as these
are non-recurring charges. The company believes these amounts are largely
independent of our business and underwriting process and including them
distorts the analysis of trends in operations. 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 in a manner similar to how management analyzes
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 a better measure of calculating shareholder returns than book
value per share.
"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 risk premium
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.
"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 GAAP measures are included in the attached tables.
About Allied World Assurance Company
Allied World Assurance Company Holdings, Ltd, through its subsidiaries,
is a global provider of innovative property, casualty and specialty insurance
and reinsurance solutions, offering superior client service through offices
in Bermuda, Europe, Hong Kong, Singapore and the United States. Our insurance
and reinsurance subsidiaries are rated A (Excellent) by A.M. Best Company.
For further information on Allied World, please visit our website at
www.awac.com.
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 impact of acts of terrorism and acts of war; greater frequency or
severity of unpredictable catastrophic events; investigations of market
practices and related settlement terms; negative rating agency actions; the
adequacy of our loss reserves; the company or its subsidiaries becoming
subject to significant income taxes in the United States or elsewhere;
changes in regulations or tax laws; changes in the availability, cost or
quality of reinsurance or retrocessional coverage; adverse general economic
conditions; and judicial, legislative, political and other governmental
developments, as well as management's response to these factors, and other
factors identified in our filings with the U.S. Securities and Exchange
Commission. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date on which they are
made. We are under no obligation (and expressly disclaim any such obligation)
to update or revise any forward-looking statement that may be made from time
to time, whether as a result of new information, future developments or
otherwise.
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in thousands of United States dollars, except
share and per share amounts)
Quarter Ended March 31,
2010 2009
---- ----
Revenues:
Gross premiums written $504,163 $479,597
Premiums ceded (70,871) (74,559)
------- -------
Net premiums written 433,292 405,038
Change in unearned premiums (94,968) (81,066)
------- -------
Net premiums earned 338,324 323,972
Net investment income 68,902 77,854
Net realized investment gains 77,487 36,602
Net impairment charges recognized
in earnings (168) (41,963)
Other income 297 466
--- ---
Total revenue 484,842 396,931
------- -------
Expenses:
Net losses and loss expenses 232,154 148,497
Acquisition costs 40,784 37,129
General and administrative
expenses 63,463 57,365
Amortization and impairment of
intangible assets 892 1,065
Interest expense 9,528 10,447
Foreign exchange loss 1,076 835
----- ---
Total expenses 347,897 255,338
------- -------
Income before income taxes 136,945 141,593
Income tax expense 3,205 10,185
----- ------
NET INCOME $133,740 $131,408
======== ========
PER SHARE DATA:
Basic earnings per share $2.67 $2.67
Diluted earnings per share $2.52 $2.57
Weighted average common shares
outstanding 50,023,816 49,248,118
Weighted average common shares and
common share equivalents
outstanding 53,115,756 51,120,049
Dividends declared per share $0.20 $0.18
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
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: 2010 2009
---- ----
Fixed maturity investments available
for sale, at fair value (amortized
cost: 2010: $3,069,009; 2009:
$4,260,844) $3,227,889 $4,427,072
Fixed maturity investments trading, at
fair value 3,868,044 2,544,322
Other invested assets trading, at fair
value 261,930 184,869
------- -------
Total investments 7,357,863 7,156,263
Cash and cash equivalents 497,574 379,751
Insurance balances receivable 493,775 395,621
Prepaid reinsurance 170,948 186,610
Reinsurance recoverable 920,480 919,991
Accrued investment income 54,532 53,046
Net deferred acquisition costs 97,429 87,821
Goodwill 268,376 268,376
Intangible assets 59,467 60,359
Net balances receivable on purchases
and sales of investments - 184
Net deferred tax assets 16,897 21,895
Other assets 75,386 67,566
Total assets $10,012,727 $9,597,483
----------- ----------
LIABILITIES:
Reserve for losses and loss expenses $4,853,359 $4,761,772
Unearned premiums 1,007,926 928,619
Reinsurance balances payable 82,541 102,837
Net balances payable on purchases and
sales of investments 172,797 -
Dividends payable 10,092 -
Senior notes 498,951 498,919
Accounts payable and accrued
liabilities 48,254 92,041
Total liabilities $6,673,920 $6,384,188
---------- ----------
SHAREHOLDERS' EQUITY:
Common shares, par value $0.03 per
share:issued and outstanding 2010:
50,459,000 shares; 2009: 49,734,487
shares $1,514 $1,492
Additional paid-in capital 1,369,341 1,359,934
Retained earnings 1,825,668 1,702,020
Accumulated other comprehensive income,
net of tax 142,284 149,849
------- -------
Total shareholders' equity $3,338,807 $3,213,295
---------- ----------
Total liabilities and shareholders'
equity $10,012,727 $9,597,483
=========== ==========
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
UNAUDITED CONSOLIDATED SEGMENT DATA
(Expressed in thousands of United States dollars,
except for ratio information)
Quarter Ended U.S. International
March 31, 2010 Insurance Insurance Reinsurance Total
------------- --------- --------- --------- -----
Gross premiums
written $162,085 $121,422 $220,656 $504,163
Net premiums
written 131,555 81,081 220,656 433,292
Net premiums
earned 129,205 87,043 122,076 338,324
Other income 297 - - 297
Net losses and
loss expenses (98,425) (57,449) (76,280) (232,154)
Acquisition
costs (16,960) (66) (23,758) (40,784)
General and
administrative (27,114) (21,845) (14,504) (63,463)
expenses ------- ------- ------- -------
Underwriting
(loss) income (12,997) 7,683 7,534 2,220
Net investment
income 68,902
Net realized
investment
gains 77,487
Net impairment
charges (168)
recognized in
earnings
Amortization
and
impairment (892)
of intangible
assets
Interest
expense (9,528)
Foreign
exchange loss (1,076)
------
Income before
income taxes $136,945
========
GAAP Ratios:
Loss and loss
expense ratio 76.2% 66.0% 62.5% 68.6%
Acquisition
cost ratio 13.1% 0.1% 19.5% 12.1%
General and
administrative
expense ratio 21.0% 25.1% 11.9% 18.8%
------- ------- ------- -------
Combined ratio 110.3% 91.2% 93.9% 99.5%
===== ==== ==== ====
Quarter Ended U.S. International
March 31, 2009 Insurance Insurance Reinsurance Total
------------- --------- --------- ----------- -----
Gross premiums
written $153,369 $125,919 $200,309 $479,597
Net premiums
written 115,844 88,957 200,237 405,038
Net premiums
earned 105,267 111,194 107,511 323,972
Other income 466 - - 466
Net losses and
loss expenses (54,177) (39,193) (55,127) (148,497)
Acquisition
costs (14,411) (1,060) (21,658) (37,129)
General and
administrative (27,399) (18,819) (11,147) (57,365)
expenses ------- ------- ------- -------
Underwriting
income 9,746 52,122 19,579 81,447
Net investment
income 77,854
Net realized
investment
losses 36,602
Net impairment
charges (41,963)
recognized in
earnings
Amortization
and
impairment (1,065)
of intangible
assets
Interest
expense (10,447)
Foreign
exchange loss (835)
----
Income before
income taxes $141,593
========
GAAP Ratios:
Loss and loss
expense ratio 51.5% 35.2% 51.3% 45.8%
Acquisition
cost ratio 13.7% 1.0% 20.1% 11.5%
General and
administrative 26.0% 16.9% 10.4% 17.7%
expense ratio ---- ---- ---- ----
Combined ratio 91.2% 53.1% 81.8% 75.0%
==== ==== ==== ====
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
UNAUDITED OPERATING INCOME RECONCILIATION
(Expressed in thousands of United States dollars, except share
and per share amounts)
Quarter Ended March 31,
2010 2009
---- ----
Net income $133,740 $131,408
Net realized investment gains (73,602) (36,602)
Net impairment charges recognized
in earnings 109 41,963
Foreign exchange loss 1,076 835
----- ---
Operating income $61,323 $137,604
======= ========
Weighted average common shares outstanding:
Basic 50,023,816 49,248,118
Diluted 53,115,756 51,120,049
Basic per share data:
Net income $2.67 $2.67
Net realized investment gains (1.47) (0.74)
Net impairment charges recognized
in earnings - 0.85
Foreign exchange loss 0.03 0.01
---- ----
Operating income $1.23 $2.79
===== =====
Diluted per share data
Net income $2.52 $2.57
Net realized investment gains (1.38) (0.71)
Net impairment charges recognized
in earnings - 0.82
Foreign exchange loss 0.02 0.01
---- ----
Operating income $1.16 $2.69
===== =====
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
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,
2010 2009 2009
---- ---- ----
Price per share at period
end $44.85 $46.07 $38.03
Total shareholders' equity 3,338,807 3,213,295 2,491,860
Basic common shares
outstanding 50,459,000 49,734,487 49,522,766
Add: unvested restricted
share units 801,540 915,432 954,292
Add: Performance based
equity awards 1,409,984 1,583,237 1,332,161
Add: dilutive options/
warrants outstanding 6,702,546 6,805,157 6,268,818
Weighted average exercise
price per share 34.53 34.44 33.42
Deduct: options bought
back via treasury method (5,159,746) (5,087,405) (5,509,056)
---------- ---------- ----------
Common shares and common share
equivalents outstanding 54,213,324 53,950,908 52,568,981
Basic book value per
common share $66.17 $64.61 $50.32
Diluted book value per
common share $61.59 $59.56 $47.40
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
UNAUDITED ANNUALIZED RETURN ON SHAREHOLDERS' EQUITY RECONCILIATION
(Expressed in thousands of United States dollars,
except for percentage information)
Quarter Ended March 31,
2010 2009
---- ----
Opening shareholders' equity $3,213,295 $2,416,862
Deduct: accumulated other
comprehensive income (149,849) (105,632)
-------- --------
Adjusted opening shareholders' equity 3,063,446 2,311,230
- -
Closing shareholders' equity $3,338,807 $2,491,860
Deduct: accumulated other
comprehensive income (142,284) (48,204)
-------- -------
Adjusted closing shareholders' equity 3,196,523 2,443,656
Average shareholders' equity $3,129,985 $2,377,443
========== ==========
Net income available to shareholders $133,740 $131,408
Annualized net income available to
shareholders 534,960 525,632
Annualized return on average shareholders'
equity - net income available to shareholders 17.1% 22.1%
==== ====
Operating income available to shareholders $61,323 $137,604
Annualized operating income available
to shareholders 245,292 550,416
Annualized return on average
shareholders' equity - operating
income available to shareholders 7.8% 23.2%
=== ====
Media: Faye Cook, Vice President, Marketing & Communications, +1-441-278-5406, faye.cook at awac.com; or Investors: Keith J. Lennox, Investor Relations Officer, +1-646-794-0750, keith.lennox at awac.com, both of Allied World Assurance Company Holdings, Ltd; Website: www.awac.com
Tags: Allied World Assurance Company Holdings Ltd, Bermuda, May 6, Nyse, Pembroke, United Kingdom
