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PEMBROKE, Bermuda, August 7 /PRNewswire/ --
Allied World Assurance Company Holdings, Ltd (NYSE: AWH) today reported
net income of US$79.2 million, or US$1.56 per diluted share, for the second
quarter of 2008 compared to net income of US$123.3 million, or US$1.96 per
diluted share, for the second quarter of 2007. Net income for the six months
ended June 30, 2008 was US$210.2 million, or US$4.12 per diluted share,
compared to net income of US$237.2 million, or US$3.81 per diluted share, for
the first six months of 2007.
The company reported operating income of US$83.2 million, or US$1.64 per
diluted share, for the second quarter of 2008 compared to operating income of
US$125.3 million, or US$1.99 per diluted share, for the second quarter of
2007. Operating income for the six months ended June 30, 2008 was US$211.2
million, or US$4.14 per diluted share, compared to operating income of
US$245.7 million, or US$3.95 per diluted share, for the first six months of
2007.
The company's annualized net income return on average shareholders'
equity for three and six months ended June 30, 2008 was 13.8% and 18.9%,
respectively. The company's annualized operating return on average
shareholders' equity for the three and six months ended June 30, 2008 was
14.5% and 19.0%, respectively.
President and Chief Executive Officer Scott Carmilani commented, "Allied
World has reported solid operating results despite the continued downturn in
pricing in the insurance marketplace and the negative impact of worldwide
catastrophes during the quarter. Our operating cash flows continue to be very
strong, and we are reporting a 19% annualized operating return on equity for
the first half of the year."
Mr. Carmilani continued, "Although our revenue declined in this
competitive environment, we continue to seek out strategic opportunities to
better position ourselves assuming that the current state of the insurance
marketplace will remain in place for the foreseeable future. To that end, we
are very excited about our recently announced agreement to acquire Darwin
Professional Underwriters. This transaction will significantly accelerate our
expansion efforts for our U.S. specialty insurance operations by providing us
with a well-regarded and complementary small account platform where we
believe rates are less sensitive to swings in the market."
Underwriting Results
Gross premiums written were US$446.8 million in the second quarter of
2008, a 15.8% decrease compared to US$530.5 million in the second quarter of
2007. For the six months ended June 30, 2008, gross premiums written totaled
US$843.7 million, a 12.9% decrease compared to US$969.0 million in the
first six months of 2007. This decrease in gross premiums written was the
result of the non-renewal of business that did not meet our underwriting
requirements (which included pricing and/or policy and contract terms and
conditions), increased competition and decreasing rates for new and renewal
business in each of our operating segments.
Net premiums written were US$320.3million in the second quarter of 2008,
a 17.2% decrease compared to US$386.6 million in the second quarter of 2007.
For the six months ended June 30, 2008, net premiums written totaled
US$646.8 million, a 13.1% decrease compared to US$744.4 million in the
first six months of 2007. This decrease in net premiums written was due to
lower gross premiums written and increased reinsurance utilization.
Net premiums earned in the second quarter of 2008 were US$268.9 million,
a 11.3% decrease compared to US$303.1 million in the second quarter of 2007.
For the six months ended June 30, 2008, net premiums earned totaled
US$541.9 million, a 8.1% decrease from net premiums earned of US$589.7
million in the first six months of 2007. This decrease in net premiums earned
was the result of lower net premiums written.
The combined ratio was 93.2% in the second quarter of 2008 compared to
80.0% in the second quarter of 2007. The loss and loss expense ratio was
66.2% in the second quarter of 2008 compared to 58.1% in the second quarter
of 2007. During the second quarter of 2008, the company recorded net
favorable reserve development on prior accident years of US$39.8 million, a
benefit of 14.8 percentage points to the company's loss and loss expense
ratio for the quarter. Of this net favorable development, US$38.0 million was
recognized in our casualty segment. The combined ratio for the six months
ended June 30, 2008 was 85.6% compared to 79.9% for the first six months of
2007.
Absent prior year reserve adjustments, the loss and loss expense ratio
related to the second quarter of 2008 was 81.0% compared to 68.8% for the
second quarter of 2007. The increase in this ratio was due primarily to
worldwide catastrophe loss activity experienced in our property and
reinsurance segments. These catastrophe events include a June pipeline
explosion in Western Australia where the company provides business
interruption protection as part of its property coverage to large industrial
businesses that depend on the natural gas produced through the pipeline, and
the Midwestern United States floods where the company also provides general
property and business interruption coverages.
The company's expense ratio was 27.0% for the second quarter of 2008
compared to 21.9% for the second quarter of 2007. The expense ratio was 26.3%
for the six months ended June 30, 2008 compared to 21.9% for the six months
ended June 30, 2007. As part of ongoing U.S. strategic initiatives, the
company has significantly expanded its U.S. operations. Accordingly, the
company's average staff count increased through June 30, 2008 by
approximately 13.3% from June 30, 2007, and the company also increased its
expenditures for rent and related costs, professional fees and system
improvements over the same period.
Investment Results
Net investment income in the second quarter of 2008 was US$72.3 million,
a decrease of 2.2% from the US$73.9 million of net investment income in the
second quarter of 2007. For the six months ended June 30, 2008, net
investment income was US$149.3 million, an increase of 1.8% over the US$146.6
million of net investment income in the first six months of 2007.
During the second quarter of 2008, the company recorded net realized
investment losses of US$4.4 million compared to net realized investment
losses of US$1.5 million in the second quarter of 2007. The net realized
losses included US$25.9 million in other than temporary impairments offset by
US$20.9 million in net realized gains from the sale of securities and US$0.6
million in net realized gains related to the mark-to-market of the company's
hedge fund investments. For the six months ended June 30, 2008, net realized
investment losses were US$0.9 million compared to net realized investment
losses of US$8.0 million in the first six months of 2007. The net realized
losses included US$37.3 million in other than temporary impairments and
US$11.9 million in net realized losses related to the mark-to-market of the
company's hedge fund investments offset by US$48.3 million in net realized
gains from the sale of securities.
Shareholders' Equity
As of June 30, 2008, shareholders' equity was US$2.4 billion compared to
US$2.2 billion reported as of December 31, 2007. Diluted book value per share
was US$45.09 as of June 30, 2008 compared to US$42.53 as of December 31,
2007.
Quarterly Dividend
Allied World announced today that its Board of Directors has declared a
quarterly dividend of US$0.18 per common share. The dividend will be payable
on September 11, 2008 to shareholders of record on August 26, 2008.
Conference Call
Allied World will host a conference call on Friday, August 8, 2008 at
8:30 a.m. (Eastern Time) to discuss its second quarter 2008 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 +1-866-713-8395
(U.S. and Canada callers) or +1-617-597-5309 (international callers) and
entering the passcode 88486726 approximately ten minutes prior to the call.
Following the conclusion of the presentation, a replay of the call will
be available through Friday, August 22, 2008 by dialing +1-888-286-8010
(U.S. and Canada callers) or +1-617-801-6888 (international callers) and
entering the passcode 49291441. In addition, the webcast will remain
available online through Friday, August 22, 2008 at www.awac.com.
Financial Supplement
A financial supplement relating to the second quarter of 2008 will be
available at the "Investor Relations" section of the company's website 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-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 ("GAAP").
"Operating income" is an internal performance measure used by the company
in the management of its operations and represents after-tax operational
results excluding, as applicable, net realized investment gains or losses and
foreign exchange gains or losses. The company excludes net realized
investment gains or losses and net foreign exchange gains or losses from its
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. The company believes these amounts are
largely independent of its business and underwriting process and including
them may distort the analysis of trends in its insurance and reinsurance
operations. In addition to presenting net income determined in accordance
with GAAP, the company believes that showing operating income enables
investors, analysts, rating agencies and other users of its financial
information to more easily analyze the company's results of operations in a
manner similar to how management analyzes the company's underlying business
performance. Operating income should not be viewed as a substitute for 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 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 insurance and reinsurance solutions, offering
superior client service through offices in Bermuda, the United States and
Europe. Our insurance and reinsurance subsidiaries are rated A (Excellent) by
A.M. Best Company and A- (Strong) by Standard & Poor's. Our Bermuda and U.S.
insurance and reinsurance subsidiaries are rated A2 (Good) by Moody's
Investors Service. For further information on Allied World, please visit our
website at http://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 the occurrence of any event, change or other
circumstances that could give rise to the termination of the merger agreement
which Allied World Assurance Company Holdings, Ltd will acquire Darwin
Professional Underwriters, Inc. ("Darwin"); the inability to obtain Darwin's
stockholder approval or the failure to satisfy other conditions to completion
of the merger; risks that the proposed transaction disrupts current plans and
operations; the ability to recognize the benefits of the merger; the amount
of costs, fees, expenses, and charges related to the merger; 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 Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Revenues:
Gross premiums written $446,784 $530,549 $843,657 $968,955
Premiums ceded (126,534) (143,962) (196,835) (224,524)
Net premiums written 320,250 386,587 646,822 744,431
Change in unearned
premiums (51,374) (83,468) (104,874) (154,746)
Net premiums earned 268,876 303,119 541,948 589,685
Net investment income 72,345 73,937 149,276 146,585
Net realized investment
losses (4,393) (1,481) (928) (7,965)
Total revenue 336,828 375,575 690,296 728,305
Expenses:
Net losses and loss
expenses 178,084 176,225 321,581 342,220
Acquisition costs 26,265 31,872 53,105 61,068
General and
administrative expenses 46,380 34,432 89,651 67,635
Interest expense 9,513 9,482 19,023 18,856
Foreign exchange (gain)
loss (399) 532 77 564
Total expenses 259,843 252,543 483,437 490,343
Income before income taxes 76,985 123,032 206,859 237,962
Income tax (recovery)
expense (2,220) (255) (3,291) 754
NET INCOME $79,205 $123,287 $210,150 $237,208
PER SHARE DATA:
Basic earnings per share $1.62 $2.04 $4.33 $3.95
Diluted earnings per
share $1.56 $1.96 $4.12 $3.81
Weighted average common
shares outstanding 48,897,931 60,397,591 48,585,015 60,028,523
Weighted average common
shares and common share
equivalents outstanding 50,873,712 62,874,235 51,013,633 62,277,010
Dividends declared per
share $0.18 $0.15 $0.36 $0.30
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
June 30, December 31,
ASSETS: 2008 2007
Fixed maturity investments available
for sale, at fair value (amortized
cost: 2008: $5,685,111; 2007:
$5,595,943) $5,733,523 $5,707,143
Other invested assets available for
sale, at fair value (cost: 2008:
$81,241 ; 2007: $291,458) 77,444 322,144
Other invested assets, at fair value 192,661 -
Total investments 6,003,628 6,029,287
Cash and cash equivalents 439,933 202,582
Restricted cash 84,492 67,886
Securities lending collateral 190,960 147,241
Insurance balances receivable 432,468 304,499
Prepaid reinsurance 193,005 163,836
Reinsurance recoverable 778,578 682,765
Accrued investment income 54,735 55,763
Deferred acquisition costs 126,995 108,295
Goodwill and other intangible assets 19,450 3,920
Balances receivable on sale of
investments 96,801 84,998
Net deferred tax assets 2,032 4,881
Other assets 45,519 43,155
Total assets $8,468,596 $7,899,108
LIABILITIES:
Reserve for losses and loss expenses $4,164,220 $3,919,772
Unearned premiums 945,126 811,083
Unearned ceding commissions 32,356 28,831
Reinsurance balances payable 120,888 67,175
Securities lending payable 190,960 147,241
Balances due on purchase of
investments 107,054 141,462
Senior notes 498,738 498,682
Accounts payable and accrued
liabilities 31,208 45,020
Total liabilities $6,090,550 $5,659,266
SHAREHOLDERS' EQUITY:
Common stock, par value $0.03 per
share, issued and outstanding 2008:
48,977,635 shares; 2007: 48,741,927
shares 1,469 1,462
Additional paid-in capital 1,298,375 1,281,832
Retained earnings 1,039,154 820,334
Accumulated other comprehensive
income: net unrealized gains on
investments, net of tax 39,048 136,214
Total shareholders' equity 2,378,046 2,239,842
Total liabilities and
shareholders' equity $8,468,596 $7,899,108
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
UNAUDITED CONSOLIDATED SEGMENT DATA
(Expressed in thousands of United States dollars, except for ratio
information)
Quarter Ended June 30, 2008 Property Casualty Reinsurance Total
Gross premiums written $131,973 $178,212 $136,599 $446,784
Net premiums written 54,289 129,335 136,626 320,250
Net premiums earned 44,164 105,604 119,108 268,876
Net losses and loss expenses (62,593) (41,764) (73,727) (178,084)
Acquisition costs 2,976 (5,229) (24,012) (26,265)
General and administrative
expenses (10,963) (24,286) (11,131) (46,380)
Underwriting (loss) income (26,416) 34,325 10,238 18,147
Net investment income 72,345
Net realized investment losses (4,393)
Interest expense (9,513)
Foreign exchange gain 399
Income before income taxes $76,985
GAAP Ratios:
Loss and loss expense ratio 141.7% 39.5% 61.9% 66.2%
Acquisition cost ratio (6.7%) 5.0% 20.2% 9.8%
General and administrative expense
ratio 24.8% 23.0% 9.3% 17.2%
Combined ratio 159.8% 67.5% 91.4% 93.2%
Quarter Ended June 30, 2007 Property Casualty Reinsurance Total
Gross premiums written $156,463 $188,091 $185,995 $530,549
Net premiums written 58,947 141,620 186,020 386,587
Net premiums earned 48,318 123,715 131,086 303,119
Net losses and loss expenses (34,149) (60,908) (81,168) (176,225)
Acquisition costs (105) (5,033) (26,734) (31,872)
General and administrative
expenses (8,163) (16,711) (9,558) (34,432)
Underwriting income 5,901 41,063 13,626 60,590
Net investment income 73,937
Net realized investment losses (1,481)
Interest expense (9,482)
Foreign exchange loss (532)
Income before income taxes $123,032
GAAP Ratios:
Loss and loss expense ratio 70.7% 49.2% 61.9% 58.1%
Acquisition cost ratio 0.2% 4.1% 20.4% 10.5%
General and administrative expense
ratio 16.9% 13.5% 7.3% 11.4%
Combined ratio 87.8% 66.8% 89.6% 80.0%
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
UNAUDITED CONSOLIDATED SEGMENT DATA
(Expressed in thousands of United States dollars, except for ratio
information)
Six Months Ended June 30, 2008 Property Casualty Reinsurance Total
Gross premiums written $218,033 $299,274 $326,350 $843,657
Net premiums written 100,886 219,970 325,966 646,822
Net premiums earned 87,745 214,718 239,485 541,948
Net losses and loss expenses (77,340) (114,879) (129,362) (321,581)
Acquisition costs 2,427 (8,499) (47,033) (53,105)
General and administrative
expenses (21,457) (47,994) (20,200) (89,651)
Underwriting (loss) income (8,625) 43,346 42,890 77,611
Net investment income 149,276
Net realized investment losses (928)
Interest expense (19,023)
Foreign exchange loss (77)
Income before income taxes $206,859
GAAP Ratios:
Loss and loss expense ratio 88.1% 53.5% 54.0% 59.3%
Acquisition cost ratio (2.8%) 4.0% 19.6% 9.8%
General and administrative expense
ratio 24.5% 22.4% 8.4% 16.5%
Combined ratio 109.8% 79.9% 82.0% 85.6%
Six Months Ended June 30, 2007 Property Casualty Reinsurance Total
Gross premiums written $258,328 $313,280 $397,347 $968,955
Net premiums written 105,079 242,265 397,087 744,431
Net premiums earned 92,809 248,124 248,752 589,685
Net losses and loss expenses (41,014) (151,275) (149,931) (342,220)
Acquisition costs (437) (11,071) (49,560) (61,068)
General and administrative
expenses (15,920) (32,018) (19,697) (67,635)
Underwriting income 35,438 53,760 29,564 118,762
Net investment income 146,585
Net realized investment losses (7,965)
Interest expense (18,856)
Foreign exchange loss (564)
Income before income taxes $237,962
GAAP Ratios:
Loss and loss expense ratio 44.2% 61.0% 60.3% 58.0%
Acquisition cost ratio 0.4% 4.4% 19.9% 10.4%
General and administrative expense
ratio 17.2% 12.9% 7.9% 11.5%
Combined ratio 61.8% 78.3% 88.1% 79.9%
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 Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Net income $79,205 $123,287 $210,150 $237,208
Net realized investment
losses 4,393 1,481 928 7,965
Foreign exchange (gain)
loss (399) 532 77 564
Operating income $83,199 $125,300 $211,155 $245,737
Weighted average common
shares outstanding:
Basic 48,897,931 60,397,591 48,585,015 60,028,523
Diluted 50,873,712 62,874,235 51,013,633 62,277,010
Basic per share data:
Net income $1.62 $2.04 $4.33 $3.95
Net realized investment
losses 0.09 0.02 0.02 0.13
Foreign exchange (gain)
loss (0.01) 0.01 0.00 0.01
Operating income $1.70 $2.07 $4.35 $4.09
Diluted per share data
Net income $1.56 $1.96 $4.12 $3.81
Net realized investment
losses 0.09 0.02 0.02 0.13
Foreign exchange (gain)
loss (0.01) 0.01 0.00 0.01
Operating income $1.64 $1.99 $4.14 $3.95
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
June 30, December 31,
2008 2007
Price per share at period end $39.62 $50.17
Total shareholders' equity 2,378,046 2,239,842
Basic common shares outstanding 48,977,635 48,741,927
Add: unvested restricted share units 892,995 820,890
Add: Performance based equity awards 1,345,903 886,251
Add: dilutive options/warrants
outstanding 6,896,842 6,723,875
Weighted average exercise price per
share $30.85 $33.62
Deduct: options bought back via
treasury method (5,371,066) (4,506,182)
Common shares and common share
equivalents outstanding 52,742,309 52,666,761
Basic book value per common share $48.55 $45.95
Diluted book value per common share $45.09 $42.53
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 Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Opening shareholders'
equity $2,394,620 $2,355,978 $2,239,842 $2,220,084
Deduct: accumulated other
comprehensive income (135,626) (31,481) (136,214) (6,464)
Adjusted opening
shareholders' equity 2,258,994 2,324,497 2,103,628 2,213,620
Closing shareholders'
equity $2,378,046 $2,418,186 $2,378,046 $2,418,186
(Deduct)/add: accumulated
other comprehensive
(income)/loss (39,048) 25,663 (39,048) 25,663
Adjusted closing
shareholders' equity 2,338,998 2,443,849 2,338,998 2,443,849
Average shareholders'
equity $2,298,996 $2,384,173 $2,221,313 $2,328,735
Net income available to
shareholders $79,205 $123,287 $210,150 $237,208
Annualized net income
available to shareholders 316,820 493,148 420,300 474,416
Annualized return on
average shareholders'
equity - net income
available to shareholders 13.8% 20.7% 18.9% 20.4%
Operating income available
to shareholders $83,199 $125,300 $211,155 $245,737
Annualized operating
income available to
shareholders 332,796 501,200 422,310 491,474
Annualized return on
average shareholders'
equity - operating income
available to shareholders 14.5% 21.0% 19.0% 21.1%
Web site: http://www.awac.com
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2006 MoneyAM© |
