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Allied World Reports 53% Growth In Underwriting Income For The Third Quarter 2013

Stocks in this article: AWH

Allied World Assurance Company Holdings, AG (NYSE: AWH) today reported net income of $122.8 million, or $3.54 per diluted share, for the third quarter of 2013 compared to net income of $219.6 million, or $6.00 per diluted share, for the third quarter of 2012. Net income for the nine months ended September 30, 2013 was $280.0 million, or $7.97 per diluted share, compared to net income of $534.2 million, or $14.28 per diluted share, for the first nine months of 2012.

The company reported operating income of $101.8 million, or $2.93 per diluted share, for the third quarter of 2013, compared to operating income of $79.2 million, or $2.16 per diluted share, for the third quarter of 2012. Operating income for the nine months ended September 30, 2013 was $289.5 million, or $8.24 per diluted share, compared to operating income of $258.0 million, or $6.90 per diluted share, for the first nine months of 2012.

President and Chief Executive Officer Scott Carmilani commented, "Once again, Allied World delivered an excellent underwriting performance. We benefited from profitable growth across our well balanced, niche book of business amid an attractive rate environment. The improved investment environment also contributed to diluted book value per share growth of over 3% for the quarter.”

Third Quarter Summary (in thousands, except per share amounts) (Unaudited)

     
Three months ended September 30,

Diluted per share  

2013     2012      

2013 

   

2012 

Net income $ 122,843   $ 219,647 $         3.54     $         6.00
Add after tax effect of:
Net realized investment gains (25,395 ) (141,451 ) (0.73 ) (3.86 )
Foreign exchange loss   4,353       1,023                 0.12                 0.02  
Operating income $ 101,801     $ 79,219       $         2.93       $         2.16  
 

Third Quarter Operating Results

  • Gross premiums written were $580.9 million, a 15.2% increase compared to $504.4 million in the third quarter of 2012. This was attributable to growth across all three segments. U.S. Insurance grew by 17.3% helped by new business across existing lines including general casualty and programs, contributions from newer lines including primary construction, and premium rate increases across all lines of business; International grew by 9.5% in part due to new aviation business and from growth in professional liability lines across the European and Bermuda platforms; Reinsurance grew by 16.1% driven by new business in the specialty line.
  • Net premiums written were $453.1 million, a 15.7% increase compared to $391.5 million in the third quarter of 2012.
  • Net premiums earned were $510.8 million, a 15.8% increase compared to $441.0 million in the third quarter of 2012.
  • Underwriting income was $80.1 million, a 52.9% increase compared to $52.4 million in the third quarter of 2012 due to higher premiums earned as well as a fewer losses.
  • The combined ratio was 84.2% compared to 88.1% in the third quarter of 2012 primarily due to a lower reported loss ratio offset by a slightly higher expense ratio.
  • The loss and loss expense ratio was 54.2% in the third quarter of 2013 compared to 58.7% in the prior year. During the third quarter of 2013, the company recorded net favorable reserve development on prior loss years of $61.5 million, a benefit of 12.0 percentage points to the loss and loss expense ratio, compared to $56.2 million a year ago, a benefit of 12.7 percentage points.
  • Excluding prior year reserve adjustments, the loss and loss expense ratio for the third quarter of 2013 was 66.2% compared to 71.4% for the third quarter of 2012.
  • The company experienced no catastrophe losses for the quarter ended September 30, 2013.
  • The company's expense ratio was 30.0% for the third quarter of 2013 compared to 29.4% for the third quarter of 2012. The increase was largely driven by higher accruals for performance based compensation, the impact of a higher share price in the quarter on the stock compensation accrual, as well as increased headcount.

Investment Results

  • The total return on the company's investment portfolio for the three months ended September 30, 2013 was 0.8% compared to 2.2% for the three months ended September 30, 2012.
  • The decrease in total return is primarily due to realized and unrealized gains being much lower in the third quarter of 2013 than in the third quarter of 2012.
  • See the table below for the components of our investment returns:
(Expressed in millions of U.S. Dollars)   Three months ended September 30,   Nine months ended September 30,
2013   2012   2013   2012
Net investment income $ 39.3   $ 39.1 $ 110.3   $ 128.8
Net realized investment gains (losses) 27.5 149.8 (8.1 ) 292.0
Change in unrealized losses   -       -       -       (15.4 )
Net investment income, realized gains

and unrealized gains

$ 66.8     $ 188.9     $ 102.2     $ 405.4  
 
Average invested assets $ 8,522.7 $ 8,449.4 $ 8,534.9 $ 8,332.5
Financial statement portfolio return 0.8 % 2.2 % 1.2 % 4.9 %
 
Note: net investment income, realized gains and unrealized gains are disclosed on a pre-tax basis
 

Shareholders' Equity

  • As of September 30, 2013, the company’s total shareholders' equity was $3,443.9 million, compared to $3,326.3 million as of December 31, 2012.
  • As of September 30, 2013, diluted book value per share was $99.16, an increase of 3.1% compared to $96.18 as of June 30, 2013, and an increase of 7.1% compared to $92.59 as of December 31, 2012.

Capital Management

  • During the third quarter of 2013, the company repurchased 427,388 of its common shares through its share repurchase program in the open market at an average price of $94.93 per share and an aggregate cost of $40.6 million.
  • In May 2013, the company’s shareholders approved a quarterly dividend equal to $0.50 per share. The first dividend was paid on July 3, 2013 to shareholders of record on June 25, 2013 while the second dividend was paid on October 3, 2013 to shareholders of record on September 24, 2013. The two remaining dividends are anticipated to be paid on January 2, 2014 and April 3, 2014.

Supplementary Information

Allied World will be providing a Financial Supplement relating to third quarter 2013 and an Investment Supplement as of September 30, 2013. This information will be available in the "Investor Relations" section of the company's website at  www.awac.com.

Conference Call

Allied World will host a conference call on Thursday, October 24, 2013 at 9:00 a.m. (Eastern Time) to discuss the results for the third quarter ended September 30, 2013. 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 (888) 317-6003 (U.S. and Canada callers) or (412) 317-6061 (international callers) and entering the passcode 4405281 approximately ten minutes prior to the call.

Following the conclusion of the presentation, a replay of the call will be available through Friday, November 8, 2013 by dialing (877) 344-7529 (U.S. and Canada callers) or (412) 317-0088 (international callers) and entering the passcode 10034009. In addition, the webcast will remain available online through Friday, November 8, 2013 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").

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