PEMBROKE, Bermuda, November 6 /PRNewswire/ --
Allied World Assurance Company Holdings, Ltd (NYSE: AWH) today reported net loss of US$46.4 million, or US$0.95 per diluted share, for the third quarter of 2008 compared to net income of US$109.0 million, or US$1.72 per diluted share, for the third quarter of 2007. Net income for the nine months ended September 30, 2008 was US$163.8 million, or US$3.22 per diluted share, compared to net income of US$346.2 million, or US$5.51 per diluted share, for the first nine months of 2007.
The company reported operating income of US$102.8 million, or US$2.03 per diluted share, for the third quarter of 2008 compared to operating income of US$112.2 million, or US$1.77 per diluted share, for the third quarter of 2007. Operating income for the nine months ended September 30, 2008 was US$313.9 million, or US$6.17 per diluted share, compared to operating income of US$357.9 million, or US$5.70 per diluted share, for the first nine months of 2007.
The company's annualized return on average shareholders' equity for three and nine months ended September 30, 2008 was a loss of 8.0% and a gain of 9.9%, respectively. The company's annualized operating return on average shareholders' equity for the three and nine months ended September 30, 2008 was 17.8% and 19.0%, respectively.
President and Chief Executive Officer Scott Carmilani commented, "Allied World has fared well through the current turmoil in the financial markets due to our strong risk controls and conservative business approach. Despite the quarter's storm activity and the severe disruption in the world's financial markets, we have delivered an annualized operating ROE of 19% year to date and have preserved our shareholders' equity at levels comparable with year end 2007. We believe our financial strength, capacity and selective risk management approach position us well to serve the needs of both our current and prospective clients."
Mr. Carmilani continued, "We are very pleased to have just completed our acquisition of Darwin Professional Underwriters and are looking forward to the combination of our businesses and the breadth of services it affords us. We welcome our new colleagues from Darwin and are proud of the significant strides we have already made in integrating them into Allied World's U.S. operations."
Underwriting Results
Gross premiums written were US$291.0 million in the third quarter of 2008, a 5.3% increase compared to US$276.3 million in the third quarter of 2007. This increase is primarily due to increased writings in our casualty segment by our U.S. offices. Net premiums written were US$233.9 million in the third quarter of 2008, a 6.7% increase compared to US$219.3 million in the third quarter of 2007. Net premiums earned in the third quarter of 2008 were US$272.0 million, a 4.1% decrease compared to US$283.7 million in the third quarter of 2007. This decrease in net premiums earned was the result of lower net premiums written prior to the three months ended September 30, 2008.
Gross premiums written were US$1,134.6 million for the nine months ended September 30, 2008, an 8.9% decrease compared to US$1,245.2 million in the first nine months of 2007. This decrease in gross premiums written was primarily the result of the non-renewal of business that did not meet our underwriting requirements (which included inadequate pricing and/or policy or contract terms and conditions), increased competition and decreasing rates for new business in each of our operating segments. Net premiums written were US$880.7 million for the nine months ended September 30, 2008, an 8.6% decrease compared to US$963.7 million in the first nine months of 2007. Net premiums earned were US$813.9 million for the nine months ended September 30, 2008, a 6.8% decrease from net premiums earned of US$873.3 million in the first nine months of 2007 as a result of lower net premiums written.
The combined ratio was 90.2% in the third quarter of 2008 compared to 84.1% in the third quarter of 2007. The loss and loss expense ratio was 64.7% in the third quarter of 2008 compared to 61.1% in the third quarter of 2007. During the third quarter of 2008, the company recorded net favorable reserve development on prior accident years of US$96.9 million, a benefit of 35.6 percentage points to the company's loss and loss expense ratio for the quarter. Of this net favorable development, US$24.7 million, US$32.8 million and US$39.4 million was recognized in our property, casualty and reinsurance segments, respectively. The combined ratio for the nine months ended September 30, 2008 was 87.1% compared to 81.2% for the first nine months of 2007.
Absent prior year reserve adjustments, the loss and loss expense ratio related to the third quarter of 2008 was 100.3% compared to 71.2% for the third quarter of 2007. The increase in the current year's loss and loss expense ratio for the current period was primarily due to net incurred losses and loss expenses related to Hurricanes Ike and Gustav of US$71.6 million, as well as US$19.2 million due to increased loss activity in our general property and energy lines of business for the 2008 loss year.
The company's expense ratio was 25.5% for the third quarter of 2008 compared to 23.0% for the third quarter of 2007. The expense ratio was 26.0% for the nine months ended September 30, 2008 compared to 22.2% for the nine months ended September 30, 2007. As part of our ongoing strategic initiatives, the company has significantly expanded its U.S. operations. Accordingly, the company's staff count increased to 351 at September 30, 2008 from 284 at September 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 third quarter of 2008 was US$76.9 million, an increase of 1.1% from the US$76.1 million of net investment income in the third quarter of 2007. For the nine months ended September 30, 2008, net investment income was US$226.2 million, an increase of 1.6% over the US$222.7 million of net investment income in the first nine months of 2007. The year to date increase was primarily the result of an increase in the dividend received from our global high-yield bond fund.
During the third quarter of 2008, the company recorded net realized investment losses of US$151.9 million compared to net realized investment losses of US$4.2 million in the third quarter of 2007. The US$151.9 million in realized losses for the third quarter 2008 includes US$49.2 million in losses from sales of securities, US$27.6 million in losses from the mark-to-market of the company's alternative investment portfolio and approximately US$75.0 million in losses from other-than-temporary impairments. The declines in market value of these securities in the third quarter 2008 were primarily due to widening of credit spreads caused by the continued decline in the U.S. housing market and the current turmoil in the financial markets.
Shareholders' Equity
As of September 30, 2008, shareholders' equity was US$2.3 billion, an increase of 1.5%, compared to US$2.2 billion reported as of December 31, 2007. The increase was primarily the result of net income for the nine-month period ended September 30, 2008 of US$163.8 million partially offset by unrealized losses of US$129.7 million during the nine months ended September 30, 2008.
As of September 30, 2008, diluted book value per share was US$43.55, an increase of 2.4%, 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 December 11, 2008 to shareholders of record on November 25, 2008.
Darwin Acquisition
On June 27, 2008, the company entered into a definitive merger agreement to acquire Darwin Professional Underwriters, Inc. ("Darwin"). Darwin offers healthcare professional liability, errors and omissions and other specialty professional liability coverages. The transaction was completed on October 20, 2008 and has been accounted for as a purchase. In connection with this transaction, the company expects to record approximately US$250 million in goodwill and US$65 million in other intangible assets in the fourth quarter 2008. Subsequent to this acquisition, the company's staff count increased to 554 as of October 31, 2008.
Conference Call
Allied World will host a conference call on Friday, November 7, 2008 at 9:30 a.m. (Eastern Time) to discuss its third 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 +1-866-713-8562 (U.S. and Canada callers) or +1-617-597-5310 (international callers) and entering the passcode 51597243 approximately ten minutes prior to the call.
Following the conclusion of the presentation, a replay of the call will be available through Friday, November 21, 2008 by dialing +1-888-286-8010 (U.S. and Canada callers) or +1-617-801-6888 (international callers) and entering the passcode 94417370. In addition, the webcast will remain available online through Friday, November 21, 2008 at www.awac.com.
Financial Supplement
A financial supplement relating to the third 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 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 innovative property, casualty and specialty 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. 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 ability to recognize the benefits of the Darwin acquisition; 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 Nine Months Ended September 30, September 30, 2008 2007 2008 2007 Revenues: Gross premiums written $290,981 $276,253 $1,134,638 $1,245,208 Premiums ceded (57,078) (56,956) (253,913) (281,480) Net premiums written 233,903 219,297 880,725 963,728 Change in unearned premiums 38,070 64,362 (66,804) (90,384) Net premiums earned 271,973 283,659 813,921 873,344 Net investment income 76,916 76,133 226,192 222,718 Net realized investment losses (151,876) (4,196) (152,804) (12,161) Total revenue 197,013 355,596 887,309 1,083,901 Expenses: Net losses and loss expenses 176,010 173,246 497,591 515,466 Acquisition costs 28,615 29,198 81,720 90,266 General and administrative expenses 40,794 36,050 130,445 103,685 Interest expense 9,515 9,481 28,538 28,337 Foreign exchange gain (2,728) (976) (2,651) (412) Total expenses 252,206 246,999 735,643 737,342 (Loss)/income before income taxes (55,193) 108,597 151,666 346,559 Income tax (recovery) expense (8,826) (362) (12,117) 392 NET (LOSS) INCOME $(46,367) $108,959 $163,783 $346,167 PER SHARE DATA: Basic (loss)/earnings per share $(0.95) $1.80 $3.37 $5.73 Diluted (loss)/earnings per share $(0.95) $1.72 $3.22 $5.51 Weighted average common shares outstanding 49,007,389 60,413,019 48,547,839 60,381,867 Weighted average common shares and common share equivalents outstanding 49,007,389 63,250,024 50,869,098 62,808,186 Dividends declared per share $0.18 $0.15 $0.54 $0.45
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 September 30, December 31, ASSETS: 2008 2007 Fixed maturity investments available for sale, at fair value (amortized cost: 2008: $5,440,019; 2007: $5,595,943) $5,433,260 $5,707,143 Other invested assets available for sale, at fair value (cost: 2008: $81,262 ; 2007: $291,458) 71,528 322,144 Other invested assets, at fair value 167,674 - Total investments 5,672,462 6,029,287 Cash and cash equivalents 744,245 202,582 Restricted cash 47,689 67,886 Securities lending collateral 48,815 147,241 Insurance balances receivable 359,921 304,499 Prepaid reinsurance 166,161 163,836 Reinsurance recoverable 777,283 682,765 Accrued investment income 49,641 55,763 Deferred acquisition costs 117,348 108,295 Goodwill and other intangible assets 19,837 3,920 Balances receivable on sale of investments 36,264 84,998 Net deferred tax assets 10,198 4,881 Other assets 52,387 43,155 Total assets $8,102,251 $7,899,108 LIABILITIES: Reserve for losses and loss expenses $4,198,761 $3,919,772 Unearned premiums 880,211 811,083 Unearned ceding commissions 28,172 28,831 Reinsurance balances payable 79,592 67,175 Securities lending payable 48,815 147,241 Balances due on purchase of investments 68,681 141,462 Senior notes 498,767 498,682 Accounts payable and accrued liabilities 26,424 45,020 Total liabilities $5,829,423 $5,659,266 SHAREHOLDERS' EQUITY: Common shares, par value $0.03 per share, issued and outstanding 2008:49,022,495; 2007: 48,741,927 shares 1,471 1,462 Additional paid-in capital 1,307,185 1,281,832 Retained earnings 983,947 820,334 Accumulated other comprehensive income: net unrealized (losses)/gains on investments, net of tax (19,775) 136,214 Total shareholders' equity 2,272,828 2,239,842 Total liabilities and shareholders' equity $8,102,251 $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 September 30, 2008 Property Casualty Reinsurance Total Gross premiums written $57,437 $140,003 $93,541 $290,981 Net premiums written 35,460 106,157 92,286 233,903 Net premiums earned 42,919 105,492 123,562 271,973 Net losses and loss expenses (71,243) (46,813) (57,954) (176,010) Acquisition costs (2,434) (2,212) (23,969) (28,615) General and administrative expenses (9,240) (19,852) (11,702) (40,794) Underwriting (loss) income (39,998) 36,615 29,937 26,554 Net investment income 76,916 Net realized investment losses (151,876) Interest expense (9,515) Foreign exchange gain 2,728 Loss before income taxes $(55,193) GAAP Ratios: Loss and loss expense ratio 166.0% 44.4% 46.9% 64.7% Acquisition cost ratio 5.7% 2.1% 19.4% 10.5% General and administrative expense ratio 21.5% 18.8% 9.5% 15.0% Combined ratio 193.2% 65.3% 75.8% 90.2% Quarter Ended September 30, 2007 Property Casualty Reinsurance Total Gross premiums written $60,192 $122,212 $93,849 $276,253 Net premiums written 32,400 92,917 93,980 219,297 Net premiums earned 44,246 114,977 124,436 283,659 Net losses and loss expenses (29,271) (71,369) (72,606) (173,246) Acquisition costs 811 (2,927) (27,082) (29,198) General and administrative expenses (8,421) (17,876) (9,753) (36,050) Underwriting income 7,365 22,805 14,995 45,165 Net investment income 76,133 Net realized investment losses (4,196) Interest expense (9,481) Foreign exchange loss 976 Income before income taxes $108,597 GAAP Ratios: Loss and loss expense ratio 66.2% 62.1% 58.4% 61.1% Acquisition cost ratio (1.8%) 2.5% 21.8% 10.3% General and administrative expense ratio 19.0% 15.6% 7.8% 12.7% Combined ratio 83.4% 80.2% 88.0% 84.1%
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD UNAUDITED CONSOLIDATED SEGMENT DATA (Expressed in thousands of United States dollars, except for ratio information) Nine Months Ended September 30, 2008 Property Casualty Reinsurance Total Gross premiums written $275,470 $439,277 $419,891 $1,134,638 Net premiums written 136,346 326,127 418,252 880,725 Net premiums earned 130,664 320,210 363,047 813,921 Net losses and loss expenses (148,583) (161,692) (187,316) (497,591) Acquisition costs (7) (10,711) (71,002) (81,720) General and administrative expenses (30,697) (67,846) (31,902) (130,445) Underwriting (loss) income (48,623) 79,961 72,827 104,165 Net investment income 226,192 Net realized investment losses (152,804) Interest expense (28,538) Foreign exchange gain 2,651 Income before income taxes $151,666 GAAP Ratios: Loss and loss expense ratio 113.7% 50.5% 51.6% 61.1% Acquisition cost ratio 0.0% 3.3% 19.6% 10.0% General and administrative expense ratio 23.5% 21.2% 8.8% 16.0% Combined ratio 137.2% 75.0% 80.0% 87.1% Nine Months Ended September 30, 2007 Property Casualty Reinsurance Total Gross premiums written $318,520 $435,492 $491,196 $1,245,208 Net premiums written 137,479 335,182 491,067 963,728 Net premiums earned 137,055 363,101 373,188 873,344 Net losses and loss expenses (70,285) (222,644) (222,537) (515,466) Acquisition costs 374 (13,998) (76,642) (90,266) General and administrative expenses (24,341) (49,894) (29,450) (103,685) Underwriting income 42,803 76,565 44,559 163,927 Net investment income 222,718 Net realized investment losses (12,161) Interest expense (28,337) Foreign exchange gain 412 Income before income taxes $346,559 GAAP Ratios: Loss and loss expense ratio 51.3% 61.3% 59.6% 59.0% Acquisition cost ratio (0.3%) 3.9% 20.5% 10.3% General and administrative expense ratio 17.8% 13.7% 7.9% 11.9% Combined ratio 68.8% 78.9% 88.0% 81.2%
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 Nine Months Ended September 30, September 30, 2008 2007 2008 2007 Net (loss)/income $(46,367) $108,959 $163,783 $346,167 Net realized investment losses 151,876 4,196 152,804 12,161 Foreign exchange gain (2,728) (976) (2,651) (412) Operating income $102,781 $112,179 $313,936 $357,916 Weighted average common shares outstanding: Basic 49,007,389 60,413,019 48,547,839 60,381,867 Diluted 50,669,262* 63,250,024 50,869,098 62,808,186 Basic per share data: Net (loss)/income $(0.95) $1.80 $3.37 $5.73 Net realized investment losses 3.10 0.07 3.15 0.20 Foreign exchange gain (0.06) (0.02) (0.05) (0.01) Operating income $2.09 $1.85 $6.46 $5.92 Diluted per share data Net (loss)/income $(0.92)* $1.72 $3.22 $5.51 Net realized investment losses 3.00 0.07 3.00 0.19 Foreign exchange gain (0.05) (0.02) (0.05) (0.01) Operating income $2.03 $1.77 $6.17 $5.70 * For the net loss for the three months ended September 30, 2008, because operating income is positive, we are using the fully diluted weighted average common shares outstanding.
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 September 30, December 31, 2008 2007 Price per share at period end $35.52 $50.17 Total shareholders' equity 2,272,828 2,239,842 Basic common shares outstanding 49,022,495 48,741,927 Add: unvested restricted share units 905,621 820,890 Add: Performance based equity awards 1,345,903 886,251 Add: dilutive options/warrants outstanding 6,865,351 6,723,875 Weighted average exercise price per share $30.79 $33.62 Deduct: options bought back via treasury method (5,951,910) (4,506,182) Common shares and common share equivalents outstanding 52,187,460 52,666,761 Basic book value per common share $46.36 $45.95 Diluted book value per common share $43.55 $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 Nine Months Ended September 30, September 30, 2008 2007 2008 2007 Opening shareholders' equity $2,378,046 $2,418,186 $2,239,842 $2,220,084 (Deduct)/add: accumulated other comprehensive (income)/loss (39,048) 25,663 (136,214) (6,464) Adjusted opening shareholders' equity 2,338,998 2,443,849 2,103,628 2,213,620 Closing shareholders' equity $2,272,828 $2,612,775 $2,272,828 $2,612,775 Add/(deduct): accumulated other comprehensive loss/(income) 19,775 (62,917) 19,775 (62,917) Adjusted closing shareholders' equity 2,292,603 2,549,858 2,292,603 2,549,858 Average shareholders' equity $2,315,801 $2,496,854 $2,198,116 $2,381,739 Net (loss) income available to shareholders $(46,367) $108,959 $163,783 $346,167 Annualized net (loss) income available to shareholders (185,468) 435,836 218,377 461,556 Annualized return on average shareholders' equity - net (loss) income available to shareholders (8.0%) 17.5% 9.9% 19.4% Operating income available to shareholders $102,781 $112,179 $313,936 $357,916 Annualized operating income available to shareholders 411,124 448,716 418,581 477,221 Annualized return on average shareholders' equity - operating income available to shareholders 17.8% 18.0% 19.0% 20.0%
