Allied World Reports Net Income for 1st Quarter 2011 Despite Major Global Catastrophe Activity
ZUG, Switzerland, May 4, 2011 /PRNewswire/ -- Allied World Assurance Company Holdings, AG (NYSE: AWH) today reported net income of $8.6 million, or $0.21 per diluted share, for the first quarter of 2011 compared to net income of $133.7 million, or $2.52 per diluted share for the first quarter of 2010. The company reported an operating loss of $41.3 million, or $1.02 per diluted share for the first quarter of 2011, compared to operating income of $61.3 million, or $1.16 per diluted share, for the first quarter of 2010.
President and Chief Executive Officer Scott Carmilani commented, “We are pleased and fortunate to have generated net income in the quarter, despite the multiple major catastrophe events that included floods in Australia, an earthquake in New Zealand and a major earthquake and related tsunami that devastated Japan. Allied World’s prudent risk appetite and stable investment approach during these challenging times has again helped us effectively manage our business and control our relative exposures to severity losses during one of the costliest first quarters the industry has faced.”
Underwriting Results
Gross premiums written were $560.7 million in the first quarter of 2011, an 11.2% increase compared to $504.2 million in the first quarter of 2010. Net premiums written were $480.9 million in the first quarter of 2011, an 11.0% increase compared to $433.3 million in the first quarter of 2010. These increases were primarily due to the expansion of our reinsurance and U.S. insurance business segments offset by our selectively paring back risks in our international insurance segment that did not meet our underwriting requirements.
Net premiums earned in the first quarter of 2011 were $334.9 million, a 1.0% decrease compared to $338.3 million in the first quarter of 2010.
The combined ratio was 122.6% in the first quarter of 2011 compared to 99.5% in the first quarter of 2010. The loss and loss expense ratio was 90.9% in the first quarter of 2011 compared to 68.6% in the first quarter of 2010. During the first quarter of 2011, the company recorded net favorable reserve development on prior loss years of $44.3 million, a benefit of 13.2 percentage points to the company's loss and loss expense ratio for the quarter. This compares to the first quarter of 2010, where the company recorded net favorable reserve development on prior loss years of $73.9 million, a benefit of 21.8 percentage points to the company's loss and loss expense ratio for that quarter. Absent prior year reserve adjustments, the loss and loss expense ratio related to the first quarter of 2011 was 104.1% compared to 90.4% for the first quarter of 2010. The first quarter 2011 ratio was impacted by $132.2 million of net losses, or 39.5 percentage points, from global catastrophe events occurring during the quarter. These catastrophe losses were comprised of $43.2 million from our international insurance segment and $89.0 million from our reinsurance segment. The first quarter 2010 ratio was impacted by losses of $86.5 million from the earthquake in Chile as well as other major loss events in that quarter which contributed 25.6 points to the 2010 loss year's loss and loss expense ratio.
The company's expense ratio was 31.7% for the first quarter of 2011 compared to 30.9% for the first quarter of 2010. The increase in our general and administrative expense ratio was primarily due to an increase in our global staff count and the build out of our offices as well as professional fees incurred related to the operations of our Lloyd's Syndicate 2232 which was established in June 2010.
Investment Results
The total return on the company's investment portfolio for the three months ended March 31, 2011 was 1.0% compared to 1.8% for the three months ended March 31, 2010. See table below for the components of our investment returns:
THREE MONTHS ENDED |
THREE MONTHS ENDED |
|||
(Expressed in thousands of United States Dollars) |
MARCH 31, 2011 |
MARCH 31, 2010 |
||
Net investment income |
$ 50,208 |
$ 68,902 |
||
Net realized investment gains |
50,376 |
77,487 |
||
Change in unrealized gains |
(25,136) |
(7,347) |
||
Net investment income, realized gains and unrealized gains |
$ 75,448 |
$ 139,042 |
||
Average invested assets |
$ 7,752,641 |
$ 7,609,405 |
||
Financial statement portfolio return |
1.0% |
1.8% |
||
Note: net investment income, net realized gains/losses and change in unrealized gains/losses are disclosed on a pre-tax basis. |
||||
Shareholders' Equity
As of March 31, 2011, shareholders' equity was $3.0 billion, a decrease of 4.1% compared to $3.1 billion reported as of December 31, 2010. The decrease was primarily the result of our share repurchases and a warrant repurchase during the quarter.
Share Repurchases
As of March 31, 2011, diluted book value per share was $74.23, a decrease of 0.1% compared to $74.29 at December 31, 2010. During the first quarter 2011, the company repurchased 969,163 of its common shares under its share repurchase program at an average repurchase price of $61.91 per share for an aggregate cost of $60.0 million.
On February 3, 2011, the company repurchased a warrant owned by American International Group, Inc. ("AIG"), a founding shareholder, which entitled AIG to purchase a total of 2,000,000 common shares. The aggregate repurchase price was $53.6 million. The transaction was funded using available cash on hand and was executed separately from the company's share repurchase program.
Investment Supplement
Allied World will be providing additional information on its investment portfolio as of March 31, 2011. 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 2011 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 Thursday, May 5, 2011 at 9:00 a.m. (Eastern Time) to discuss the results for the first quarter of 2011. 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 (877) 317-6701 (U.S. and Canada callers) or (412) 317-6701 (international callers) and entering the passcode 4757432 approximately ten minutes prior to the call.
Following the conclusion of the presentation, a replay of the call will be available through Thursday, May 19, 2011 by dialing (877) 344-7529 (U.S. and Canada callers) or (412) 317-0088 (international callers) and entering the passcode 449870. In addition, the webcast will remain available online through Thursday, May 19, 2011 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. In addition to presenting net income determined in accordance with U.S. GAAP, the company believes that showing operating income enables investors, analysts, rating agencies and other users of the company's financial information to more easily analyze our results of operations and underlying business performance. Operating income should not be viewed as a substitute for U.S. GAAP net income.
The company has included "diluted book value per share" because it takes into account the effect of dilutive securities; therefore, the company believes it is an important measure of calculating shareholder returns.
"Annualized net income return on average shareholders' equity" ("ROAE") is calculated using average shareholders' equity, excluding the average after tax unrealized gains (or losses) on investments. Unrealized gains (losses) on investments are primarily the result of interest rate and credit spread movements and the resultant impact on fixed income securities. Such gains (losses) are not related to management actions or operational performance, nor are they likely to be realized. Therefore, the company believes that excluding these unrealized gains (losses) provides a more consistent and useful measurement of operating performance, which supplements U.S. GAAP information. In calculating ROAE, the net income (loss) available to shareholders for the period is multiplied by the number of such periods in a calendar year in order to arrive at annualized net income (loss) available to shareholders. The company presents ROAE as a measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information.
"Annualized operating return on average shareholders' equity" is calculated using operating income (as defined above and annualized in the manner described for net income (loss) available to shareholders under ROAE above), and average shareholders' equity, excluding the average after tax unrealized gains (losses) on investments. Unrealized gains (losses) are excluded from equity for the reasons outlined in the annualized net income return on average shareholders' equity explanation above.
Reconciliations of these financial measures to their most directly comparable U.S. GAAP measures are included in the attached tables.
About Allied World Assurance Company
Allied World Assurance Company Holdings, AG, through its subsidiaries, is a global provider of innovative property, casualty and specialty insurance and reinsurance solutions, offering superior client service through a global network of branches and affiliates. Our insurance and reinsurance subsidiaries are rated A (Excellent) by A.M. Best Company, and our Lloyd's Syndicate 2232 is rated A+ (Strong) by Standard & Poor's and Fitch. Please visit our website at www.awac.com for further information on 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 impact of acts of terrorism and acts of war; greater frequency or severity of unpredictable catastrophic events; 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, AG UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Expressed in thousands of United States dollars, except share and per share amounts) |
||||
Quarter Ended March 31, |
||||
2011 |
2010 |
|||
Revenues: |
||||
Gross premiums written |
$ 560,688 |
$ 504,163 |
||
Premiums ceded |
(79,817) |
(70,871) |
||
Net premiums written |
480,871 |
433,292 |
||
Change in unearned premiums |
(145,995) |
(94,968) |
||
Net premiums earned |
334,876 |
338,324 |
||
Net investment income |
50,208 |
68,902 |
||
Net realized investment gains |
50,376 |
77,487 |
||
Net impairment charges recognized in earnings |
- |
(168) |
||
Other income |
- |
297 |
||
Total revenue |
435,460 |
484,842 |
||
Expenses: |
||||
Net losses and loss expenses |
304,452 |
232,154 |
||
Acquisition costs |
38,082 |
40,784 |
||
General and administrative expenses |
67,956 |
63,463 |
||
Amortization and impairment of intangible assets |
767 |
892 |
||
Interest expense |
13,742 |
9,528 |
||
Foreign exchange (gain) loss |
(442) |
1,076 |
||
Total expenses |
424,557 |
347,897 |
||
Income before income taxes |
10,903 |
136,945 |
||
Income tax expense |
2,283 |
3,205 |
||
NET INCOME |
$ 8,620 |
$ 133,740 |
||
PER SHARE DATA: |
||||
Basic earnings per share |
$ 0.23 |
$ 2.67 |
||
Diluted earnings per share |
$ 0.21 |
$ 2.52 |
||
Weighted average common shares outstanding |
38,199,867 |
50,023,816 |
||
Weighted average common shares and common share equivalents outstanding |
40,383,523 |
53,115,756 |
||
Dividends declared per share |
$ - |
$ 0.20 |
||
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: |
2011 |
2010 |
||
Fixed maturity investments available for sale, at fair value (amortized cost: 2011: $505,638; 2010: $828,544) |
$ 543,808 |
$ 891,849 |
||
Fixed maturity investments trading, at fair value |
5,960,830 |
5,769,097 |
||
Equity securities trading, at fair value |
271,057 |
174,976 |
||
Other invested assets trading, at fair value |
469,999 |
347,632 |
||
Total investments |
7,245,694 |
7,183,554 |
||
Cash and cash equivalents |
746,002 |
853,368 |
||
Insurance balances receivable |
569,836 |
529,927 |
||
Prepaid reinsurance |
175,348 |
187,287 |
||
Reinsurance recoverable |
975,523 |
927,588 |
||
Accrued investment income |
41,328 |
40,520 |
||
Net deferred acquisition costs |
113,097 |
96,803 |
||
Goodwill |
268,376 |
268,376 |
||
Intangible assets |
56,109 |
56,876 |
||
Net deferred tax assets |
20,618 |
19,740 |
||
Other assets |
93,697 |
75,184 |
||
Total assets |
$ 10,305,628 |
$ 10,239,223 |
||
LIABILITIES: |
||||
Reserve for losses and loss expenses |
$ 5,100,643 |
$ 4,879,188 |
||
Unearned premiums |
1,096,260 |
962,203 |
||
Reinsurance balances payable |
91,852 |
99,732 |
||
Net balances payable on purchases and sales of investments |
204,767 |
318,570 |
||
Senior notes |
797,761 |
797,700 |
||
Accounts payable and accrued liabilities |
63,392 |
106,010 |
||
Total liabilities |
$ 7,354,675 |
$ 7,163,403 |
||
SHAREHOLDERS' EQUITY: |
||||
Common shares: par value CHF 15.00 per share (2011: 40,003,642; 2010: 40,003,642 shares issued and 2011: 37,899,699; 2010: 38,089,226 shares outstanding) |
600,055 |
600,055 |
||
Additional paid-in capital |
75,166 |
170,239 |
||
Treasury shares, at cost (2011: 2,103,943; 2010: 1,914,416) |
(127,053) |
(112,811) |
||
Retained earnings |
2,369,822 |
2,361,202 |
||
Accumulated other comprehensive income, net of tax |
32,963 |
57,135 |
||
Total shareholders' equity |
2,950,953 |
3,075,820 |
||
Total liabilities and shareholders' equity |
$ 10,305,628 |
$ 10,239,223 |
||
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG UNAUDITED CONSOLIDATED SEGMENT DATA (Expressed in thousands of United States dollars, except for ratio information) |
|||||
U.S. |
International |
||||
Quarter Ended March 31, 2011 |
Insurance |
Insurance |
Reinsurance |
Total |
|
Gross premiums written |
$ 183,302 |
$ 111,325 |
$ 266,061 |
$ 560,688 |
|
Net premiums written |
139,902 |
74,910 |
266,059 |
480,871 |
|
Net premiums earned |
135,481 |
76,290 |
123,105 |
334,876 |
|
Net losses and loss expenses |
(115,831) |
(71,184) |
(117,437) |
(304,452) |
|
Acquisition costs |
(18,102) |
1,856 |
(21,836) |
(38,082) |
|
General and administrative expenses |
(30,799) |
(20,728) |
(16,429) |
(67,956) |
|
Underwriting loss |
(29,251) |
(13,766) |
(32,597) |
(75,614) |
|
Net investment income |
50,208 |
||||
Net realized investment gains |
50,376 |
||||
Net impairment charges recognized in earnings |
- |
||||
Amortization and impairment of intangible assets |
(767) |
||||
Interest expense |
(13,742) |
||||
Foreign exchange gain |
442 |
||||
Income before income taxes |
$ 10,903 |
||||
GAAP Ratios: |
|||||
Loss and loss expense ratio |
85.5% |
93.3% |
95.4% |
90.9% |
|
Acquisition cost ratio |
13.4% |
(2.4%) |
17.7% |
11.4% |
|
General and administrative expense ratio |
22.7% |
27.2% |
13.3% |
20.3% |
|
Combined ratio |
121.6% |
118.1% |
126.4% |
122.6% |
|
U.S. |
International |
||||
Quarter Ended 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 expenses |
(27,114) |
(21,845) |
(14,504) |
(63,463) |
|
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 recognized in earnings |
(168) |
||||
Amortization and impairment of intangible assets |
(892) |
||||
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% |
|
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG UNAUDITED OPERATING INCOME RECONCILIATION (Expressed in thousands of United States dollars, except share and per share amounts) |
|||||
Quarter Ended March 31, |
|||||
2011 |
2010 |
||||
Net income |
$ 8,620 |
$ 133,740 |
|||
Add after tax affect of: |
|||||
Net realized investment gains |
(49,526) |
(73,602) |
|||
Net impairment charges recognized in earnings |
- |
109 |
|||
Foreign exchange (gain) loss |
(442) |
1,076 |
|||
Operating (loss) income |
$ (41,348) |
$ 61,323 |
|||
Weighted average common shares outstanding: |
|||||
Basic |
38,199,867 |
50,023,816 |
|||
Diluted |
40,383,523 |
53,115,756 |
|||
Basic per share data: |
|||||
Net income |
$ 0.23 |
$ 2.67 |
|||
Add after tax affect of: |
|||||
Net realized investment gains |
(1.30) |
(1.47) |
|||
Net impairment charges recognized in earnings |
- |
- |
|||
Foreign exchange (gain) loss |
(0.01) |
0.03 |
|||
Operating (loss) income |
$ (1.08) |
$ 1.23 |
|||
Diluted per share data |
|||||
Net income |
$ 0.21 |
$ 2.52 |
|||
Add after tax affect of: |
|||||
Net realized investment gains |
(1.22) |
(1.38) |
|||
Net impairment charges recognized in earnings |
- |
- |
|||
Foreign exchange (gain) loss |
(0.01) |
0.02 |
|||
Operating (loss) income |
$ (1.02) |
$ 1.16 |
|||
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 |
As of |
||||
March 31, |
December 31, |
March 31, |
||||
2011 |
2010 |
2010 |
||||
Price per share at period end |
$ 62.69 |
$ 59.44 |
$ 44.85 |
|||
Total shareholders' equity |
$ 2,950,953 |
$ 3,075,820 |
$ 3,338,807 |
|||
Basic common shares outstanding |
37,899,699 |
38,089,226 |
50,459,000 |
|||
Add: unvested restricted share units |
475,679 |
571,178 |
801,540 |
|||
Add: Performance based equity awards |
920,164 |
1,440,017 |
1,409,984 |
|||
Add: employee purchase plan |
- |
10,576 |
- |
|||
Add: dilutive options/warrants outstanding |
1,674,993 |
3,272,739 |
6,702,546 |
|||
Weighted average exercise price per share |
$ 45.47 |
$ 35.98 |
$ 34.53 |
|||
Deduct: options bought back via treasury method |
(1,215,020) |
(1,980,884) |
(5,159,746) |
|||
Common shares and common share |
||||||
equivalents outstanding |
39,755,515 |
41,402,852 |
54,213,324 |
|||
Basic book value per common share |
$ 77.86 |
$ 80.75 |
$ 66.17 |
|||
Diluted book value per common share |
$ 74.23 |
$ 74.29 |
$ 61.59 |
|||
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG UNAUDITED ANNUALIZED RETURN ON SHAREHOLDERS' EQUITY RECONCILIATION (Expressed in thousands of United States dollars, except for percentage information) |
|||
Quarter Ended March 31, |
|||
2011 |
2010 |
||
Opening shareholders' equity |
$ 3,075,820 |
$ 3,213,295 |
|
Deduct: accumulated other comprehensive income |
(57,135) |
(149,849) |
|
Adjusted opening shareholders' equity |
3,018,685 |
3,063,446 |
|
- |
- |
||
Closing shareholders' equity |
$ 2,950,953 |
$ 3,338,807 |
|
Deduct: accumulated other comprehensive income |
(32,963) |
(142,284) |
|
Adjusted closing shareholders' equity |
2,917,990 |
3,196,523 |
|
Average shareholders' equity |
$ 2,968,338 |
$ 3,129,985 |
|
Net income available to shareholders |
$ 8,620 |
$ 133,740 |
|
Annualized net income available to shareholders |
34,480 |
534,960 |
|
Annualized return on average shareholders' equity - net income available to shareholders |
1.2% |
17.1% |
|
Operating (loss) income available to shareholders |
$ (41,348) |
$ 61,323 |
|
Annualized operating (loss) income available to shareholders |
(165,392) |
245,292 |
|
Annualized return on average shareholders' equity - operating (loss) income available to shareholders |
(5.6%) |
7.8% |
|
SOURCE Allied World Assurance Company Holdings, AG
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