Allied World Assurance's CEO Discusses Q3 2011 Results - Earnings Call Transcript

Allied World Assurance Company Holdings, AG ( AWH)

Q3 2011 Earnings Call

November 4, 2011 9:00 a.m. ET

Executives

Keith Lennox - Investor Relations

Scott Carmilani - President, Chief Executive Officer & Chairman of the Board

Joan Dillard - Executive Vice President & Chief Financial Officer

John Gauthier - Executive Vice President and Chief Investment Officer

Barry Zurbuchen - Chief Risk Officer

Analysts

Ron Bobman - Capital Returns

Michael Nannizzi - Goldman Sachs

Dean Evans - Keefe, Bruyette, & Woods

Matthew Heimermann - JPMorgan

Ian Gutterman - Adage Capital

Presentation

Operator

Good morning, and welcome to the Allied World Assurance Company Third Quarter of 2011 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Keith Lennox, Investor Relations Officer. Please go ahead.

Keith Lennox

Thank you. Good morning, everyone. Our press release and financial supplements were issued last night after the market closed. If you'd like copies of either, please visit the Investor Relations section of our website at www.awac.com. Today's call will also be available till November 18 on our website and as a teleconference replay. The dialing information for this replay is included in our earnings press release.

Our speakers this morning are Scott Carmilani, Allied World's President and Chief Executive Officer; Joan Dillard, the company's Chief Financial Officer; and John Gauthier, the company's’ Chief Investment Officer. Also with us to assist with questions, are several other members of our management team.

Before we begin, I will note that statements made during the call may include forward-looking statements within the meanings of the U.S. federal security laws. Forward-looking statements are subject to a number of uncertainties and risks that could significantly affect the company's current plans, anticipated actions and its future financial condition and results. These uncertainties and risks include, but are not limited to, those disclosed in the company's filings with the Securities and Exchange Commission. Forward-looking statements speak only to the date they are made, and the company assumes no obligation to update or revise any forward-looking statements in light of new information, future events or otherwise.

Additionally, during the call, management will discuss certain non-GAAP measures within the meaning of the U.S. federal security laws. For more information and a reconciliation of these measures to their most directly comparable GAAP financial measures, please refer to our earnings press release which was issued last night and is available on our website.

With that complete, I can turn the call over to Scott.

Scott Carmilani

Thank you, Keith, and good morning everybody. The company is reporting an operating income of $86 million or $2.19 per share for the quarter, which equates to an 11.5% annualized return on shareholders equity. The event in this quarter that dampened our operating result was of course hurricane Irene. It did some damage along the east coast and throughout New England. Otherwise we are pleased with our operating performance this quarter.

We often comment on our prudent reserving philosophy. This is again on display this quarter. Not only did our results benefit from over $60 million in reserve releases, but as importantly we did not experience any meaningful creep from the global catastrophe activity which occurred throughout the first half of 2011. Including the massive Japanese earthquake and tsunami.

On a net income basis mark-to-market losses in our investment portfolio are driving a loss of $11 million for the quarter. John Gauthier, our Chief Investment Officer will speak to the specifics of these losses in a moment and about the negative macroeconomic events and the volatility that impacted our portfolio this quarter.

While I am not happy with our investment results for the quarter on an absolute basis, we remain focused on the longer-term performance in our portfolio. We have demonstrated a strong record for managing our assets and have consistently outperformed many peers and our own benchmarks in recent year. We also believe firmly that despite this quarter’s result, the measures that we have taken to shorten the duration of and diversify our portfolio are in the best long-term interests of the company.

On the production front I am very pleased with the growth that we are reporting in all three of our operating segments for the quarter as we continue to penetrate the targeted lines and territories we operate in throughout the world. This is most apparent in our reinsurance segment where premiums were up over 35% from the prior period, due primarily from or Lloyd’s businesses written out of both our Singapore and London offices. This growth includes almost $20 million in increase from our international catastrophe reinsurance business, where we have gotten some payback from the global catastrophe losses experience over the last two years. Rates are up some 40% to 60% from many of the programs where we have participated.

In our reinsurance segment -- sorry, in our U.S. insurance segment, premiums are up over 10% and we are very pleased with the growth in our specialty classes of business, including our defense based liability business and in the marine initiatives. We are also seeing some growth in our healthcare business as our industry vertical strategy has continued to take hold. Healthcare is one of the industries where we have demonstrated expertise, unique service offerings, and a suite of products for that whole sector. Breadth of products and services that we offer to that industry continues to differentiate us in this market.

Finally, the premiums in our international insurance segment are also up for the quarter by 8.7%. This increase is due to the increased traction in our small market professional liability business, and our international trade credit initiatives that we started earlier in 2010. We are also seeing some growth in our general casualty line, where we are seeing some positive rate movement as well. In fact, up about 8% to 10% year-to-date in our Bermuda and European platforms.

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