Allied World Assurance Co Holdings, AG - FORM 8-K - EX-99.2

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8-K - FORM 8-K - Allied World Assurance Co Holdings, AG	y92064ee8vk.htm
EX-99.1 - EX-99.1 - Allied World Assurance Co Holdings, AG	y92064eexv99w1.htm
EX-99.3 - EX-99.3 - Allied World Assurance Co Holdings, AG	y92064eexv99w3.htm

Exhibit 99.2

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Any forward-looking statements made in this report 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.

Page 2

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
FINANCIAL SUPPLEMENT TABLE OF CONTENTS


		Page
	Basis of Presentation		4

I.	Financial Highlights
	- Consolidated Financial Highlights		5

II.	Consolidated Results
	- Consolidated Statements of Operations — Consecutive Quarters		6
	- Consolidated Statements of Operations — Year to Date		7
	- Consolidated Premium Distribution Analysis by Segment and Geographic Location — Current Quarter		8
	- Consolidated Premium Distribution Analysis by Line of Business — Current Quarter		9
	- Consolidated Premium Distribution Analysis by Segment and Geographic Location — Year to Date		10
	- Consolidated Premium Distribution Analysis by Line of Business — Year to Date		11

III.	Segment Results
	- Consolidated Segment Results — Current Quarter		12
	- Consolidated Segment Results — Prior Year Quarter		13
	- Consolidated Segment Results — Current Year to Date		14
	- Consolidated Segment Results — Prior Year to Date		15

IV.	Balance Sheet Details
	- Condensed Consolidated Balance Sheets		16
	- Consolidated Total Investment Portfolio		17
	- Investment Portfolio — Additional Detail		18
	- Reserves for Losses and Loss Expenses		20
	- Capital Structure and Leverage Ratios		21

V.	Other
	- Share Repurchase Detail — Current Year		22
	- Operating Income Reconciliation and Basic and Diluted Earnings per Share — Consecutive Quarters		23
	- Operating Income Reconciliation and Basic and Diluted Earnings per Share — Year to Date		24
	- Return on Average Shareholders’ Equity and Reconciliation of Average Shareholders’ Equity — Consecutive Quarters		25
	- Return on Average Shareholders’ Equity and Reconciliation of Average Shareholders’ Equity — Year to Date		26
	- Diluted Book Value per Share		27
	- Calculation of Annualized Investment Book Yield		28
	- Financial Statement Portfolio Return — Year to Date		30
	- Regulation G		31

Page 3

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
BASIS OF PRESENTATION

DEFINITIONS AND PRESENTATION

— All financial information contained herein is unaudited.

— Unless otherwise noted, all data is in thousands of U.S. dollars, except for share, per share, percentage and ratio information.

— Allied World Assurance Company Holdings, AG, along with others in the industry, use underwriting ratios as measures of performance. The loss and loss expense ratio is calculated by dividing net losses and loss expenses by net premiums earned. The acquisition cost ratio is calculated by dividing acquisition costs by net premiums earned. The general and administrative expense ratio is calculated by dividing general and administrative expenses by net premiums earned. The expense ratio is calculated by combining the acquisition cost ratio and the general and administrative expense ratio. The combined ratio is calculated by combining the loss and loss expense ratio, the acquisition cost ratio and the general and administrative expense ratio. These ratios are relative measurements that describe for every $100 of net premiums earned, the cost of losses and expenses, respectively. The combined ratio presents the total cost per $100 of earned premium. A combined ratio below 100% demonstrates underwriting profit; a combined ratio above 100% demonstrates underwriting loss.

— In presenting the company’s results, management has included and discussed certain “non-GAAP” financial measures, as such term is defined in Regulation G promulgated by the SEC. 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”). The reconciliation of such non-GAAP financial measures to their respective most directly comparable GAAP financial measures in accordance with Regulation G is included in this financial supplement. See page 31 for further details.

Page 4

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
CONSOLIDATED FINANCIAL HIGHLIGHTS


		THREE MONTHS ENDED						SIX MONTHS ENDED						Previous				Previous
		JUNE 30,						JUNE 30,						Quarter				Year to Date
		2011			2010			2011			2010			Change				Change
HIGHLIGHTS	Gross premiums written	$	519,598		$	493,847		$	1,080,286		$	998,010			5.2	%			8.2	%
	Net premiums written		395,803			369,795			876,674			803,087			7.0	%			9.2	%
	Net premiums earned		355,307			338,924			690,183			677,248			4.8	%			1.9	%
	Net investment income		52,368			65,594			102,576			134,496			(20.2	%)			(23.7	%)
	Net income		93,800			183,959			102,420			317,699			(49.0	%)			(67.8	%)
	Operating income		44,189			95,668			2,842			156,991			(53.8	%)			(98.2	%)
	Total investments and cash & cash equivalents		8,310,422			7,964,483			8,310,422			7,964,483			4.3	%			4.3	%
	Total assets		10,750,613			10,190,050			10,750,613			10,190,050			5.5	%			5.5	%
	Total shareholders’ equity		3,044,417			3,468,543			3,044,417			3,468,543			(12.2	%)			(12.2	%)
	Cash flows from operating activities		186,931			220,302			361,846			305,602			(15.1	%)			18.4	%

PER SHARE	Basic earnings per share
AND SHARE DATA	Net income	$	2.45		$	3.66		$	2.69		$	6.34			(33.1	%)			(57.6	%)
	Operating income	$	1.15		$	1.90		$	0.08		$	3.13			(39.5	%)			(97.4	%)
	Diluted earnings per share
	Net income	$	2.36		$	3.47		$	2.57		$	5.98			(32.0	%)			(57.0	%)
	Operating income	$	1.11		$	1.80		$	0.07		$	2.96			(38.3	%)			(97.6	%)
	Weighted average common shares outstanding
	Basic		38,346,489			50,222,974			38,061,724			50,123,945
	Diluted		39,800,753			52,974,410			39,873,418			53,086,708
	Book value per share	$	80.23		$	70.20		$	80.23		$	70.20			14.3	%			14.3	%
	Diluted book value per share	$	76.68		$	65.18		$	76.68		$	65.18			17.6	%			17.6	%

FINANCIAL RATIOS	Annualized return on average equity (ROAE), net income		12.6	%		22.5	%		6.8	%		19.9	%		(9.9	)	pts		(13.1	)	pts
	Annualized ROAE, operating income		6.0	%		11.7	%		0.2	%		9.8	%		(5.7	)	pts		(9.6	)	pts
	Annualized investment book yield		2.7	%		3.5	%		2.7	%		3.6	%		(0.8	)	pts		(0.9	)	pts
	Loss and loss expense ratio		66.4	%		55.7	%		78.3	%		62.1	%		10.7		pts		16.2		pts
	Acquisition cost ratio		12.1	%		11.2	%		11.7	%		11.6	%		0.9		pts		0.1		pts
	General and administrative expense ratio		18.9	%		20.1	%		19.6	%		19.4	%		(1.2	)	pts		0.2		pts

	Expense ratio		31.0	%		31.3	%		31.3	%		31.0	%		(0.3	)	pts		0.3		pts

	Combined ratio		97.4	%		87.0	%		109.6	%		93.1	%		10.4		pts		16.5		pts

Page 5

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
CONSOLIDATED STATEMENTS OF OPERATIONS — CONSECUTIVE QUARTERS


	THREE MONTHS ENDED			THREE MONTHS ENDED			THREE MONTHS ENDED			THREE MONTHS ENDED			THREE MONTHS ENDED
	JUNE 30, 2011			MARCH 31, 2011			DECEMBER 31, 2010			SEPTEMBER 30, 2010			JUNE 30, 2010
Revenues
Gross premiums written	$	519,598		$	560,688		$	381,942		$	378,445		$	493,847
Net premiums written	$	395,803		$	480,871		$	287,199		$	302,169		$	369,795

Net premiums earned	$	355,307		$	334,876		$	342,804		$	339,496		$	338,924
Net investment income		52,368			50,208			50,168			59,479			65,594
Net realized investment gains (losses)		58,878			50,376			(3,738	)		116,930			94,933
Other income		—			—			—			—			616

Total revenues	$	466,553		$	435,460		$	389,234		$	515,905		$	500,067


Expenses
Net losses and loss expenses:
Current year	$	279,514		$	348,802		$	233,950		$	228,362		$	252,816
Prior years		(43,701)	*		(44,350	)		(73,931	)		(101,374	)		(64,094	)

Total net losses and loss expenses	$	235,813		$	304,452		$	160,019		$	126,988		$	188,722
Acquisition costs		42,971			38,082			38,848			41,919			37,938
General and administrative expenses		67,201			67,956			85,134			69,871			68,089
Amortization and impairment of intangible assets		766			767			808			892			891
Interest expense		13,745			13,742			11,650			9,533			9,531
Foreign exchange loss (gain)		1,184			(442	)		196			(1,387	)		559

Total expenses	$	361,680		$	424,557		$	296,655		$	247,816		$	305,730


Income before income taxes	$	104,873		$	10,903		$	92,579		$	268,089		$	194,337
Income tax expense (benefit)		11,073			2,283			(207	)		13,569			10,378

Net income	$	93,800		$	8,620		$	92,786		$	254,520		$	183,959


GAAP Ratios
Loss and loss expense ratio		66.4	%		90.9	%		46.7	%		37.4	%		55.7	%
Acquisition cost ratio		12.1	%		11.4	%		11.3	%		12.3	%		11.2	%
General and administrative expense ratio		18.9	%		20.3	%		24.8	%		20.6	%		20.1	%

Expense ratio		31.0	%		31.7	%		36.1	%		32.9	%		31.3	%

Combined ratio		97.4	%		122.6	%		82.8	%		70.3	%		87.0	%


Per Share Data
Basic earnings per share
Net income	$	2.45		$	0.23		$	2.30		$	5.59		$	3.66
Operating income (loss)	$	1.15		$	(1.08	)	$	2.41		$	3.15		$	1.90
Diluted earnings per share
Net income	$	2.36		$	0.21		$	2.13		$	5.21		$	3.47
Operating income (loss)	$	1.11		$	(1.02	)	$	2.24		$	2.94		$	1.80


*		Includes prior year development of $55.2 million and the impact of a commutation, which increased prior years net losses and loss expenses by $11.5 million.

Page 6

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
CONSOLIDATED STATEMENTS OF OPERATIONS — YEAR TO DATE


	SIX MONTHS ENDED			SIX MONTHS ENDED
	JUNE 30, 2011			JUNE 30, 2010
Revenues
Gross premiums written	$	1,080,286		$	998,010
Net premiums written		876,674			803,087

Net premiums earned	$	690,183		$	677,248
Net investment income		102,576			134,496
Net realized investment gains		109,254			172,420
Net impairment charges recognized in earnings		—			(168	)
Other income		—			913

Total revenues	$	902,013		$	984,909


Expenses
Net losses and loss expenses:
Current year	$	628,316		$	550,062
Prior years		(88,051)	*		(129,186)	**

Total net losses and loss expenses		540,265			420,876
Acquisition costs		81,053			78,722
General and administrative expenses		135,157			131,552
Amortization and impairment of intangible assets		1,533			1,783
Interest expense		27,487			19,059
Foreign exchange loss		742			1,635

Total expenses	$	786,237		$	653,627


Income before income taxes	$	115,776		$	331,282
Income tax expense		13,356			13,583

Net income	$	102,420		$	317,699


GAAP Ratios
Loss and loss expense ratio		78.3	%		62.1	%
Acquisition cost ratio		11.7	%		11.6	%
General and administrative expense ratio		19.6	%		19.4	%

Expense ratio		31.3	%		31.0	%

Combined ratio		109.6	%		93.1	%


Per Share Data
Basic earnings per share
Net income	$	2.69		$	6.34
Operating income	$	0.08		$	3.13
Diluted earnings per share
Net income	$	2.57		$	5.98
Operating income	$	0.07		$	2.96


*		Includes prior year reserve development of $99.6 million and the impact of a commutation, which increased prior years net losses and loss expenses by $11.5 million.

**		Includes prior year reserve development of $138.1 million and the impact of a commutation, which increased prior years net losses and loss expenses by $8.9 million.

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
CONSOLIDATED PREMIUM DISTRIBUTION ANALYSIS BY SEGMENT AND GEOGRAPHIC LOCATION
CURRENT QUARTER

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
CONSOLIDATED PREMIUM DISTRIBUTION ANALYSIS BY LINE OF BUSINESS
CURRENT QUARTER


*		Includes premiums written in our i-Bind line of business

**		Includes premiums written in our facultative reinsurance line of business

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
CONSOLIDATED PREMIUM DISTRIBUTION ANALYSIS BY SEGMENT AND GEOGRAPHIC LOCATION
YEAR TO DATE

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
CONSOLIDATED PREMIUM DISTRIBUTION ANALYSIS BY LINE OF BUSINESS
YEAR TO DATE


*		Includes premiums written in our i-Bind line of business

**		Includes premiums written in our facultative reinsurance line of business

Page 11

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
CONSOLIDATED SEGMENT RESULTS
FOR THE THREE MONTHS ENDED JUNE 30, 2011


	U.S.			INTERNATIONAL						CONSOLIDATED
	INSURANCE			INSURANCE			REINSURANCE			TOTALS
Revenues
Gross premiums written	$	226,738		$	178,593		$	114,267		$	519,598
Net premiums written	$	172,887		$	108,985		$	113,931		$	395,803

Net premiums earned	$	145,857		$	79,956		$	129,494		$	355,307
Other income	$	—		$	—		$	—		$	—

Total revenues	$	145,857		$	79,956		$	129,494		$	355,307


Expenses
Net losses and loss expenses:
Current year	$	91,251		$	84,126		$	104,137		$	279,514
Prior years		1,344	*		(12,044	)		(33,001	)		(43,701)	**

Total net losses and loss expenses	$	92,595		$	72,082		$	71,136		$	235,813
Acquisition costs		18,876			(747	)		24,842			42,971
General and administrative expenses		31,253			20,653			15,295			67,201

Total expenses	$	142,724		$	91,988		$	111,273		$	345,985


Underwriting income (loss)	$	3,133		$	(12,032	)	$	18,221		$	9,322

Net investment income										$	52,368
Net realized investment gains											58,878
Net impairment charges recognized in earnings											—
Amortization and impairment of intangible assets											(766	)
Interest expense											(13,745	)
Foreign exchange loss											(1,184	)


Income before income taxes										$	104,873


GAAP Ratios
Loss and loss expense ratio		63.5	%		90.2	%		54.9	%		66.4	%
Acquisition cost ratio		12.9	%		(0.9	%)		19.2	%		12.1	%
General and administrative expense ratio		21.4	%		25.8	%		11.8	%		18.9	%

Expense ratio		34.3	%		24.9	%		31.0	%		31.0	%

Combined ratio		97.8	%		115.1	%		85.9	%		97.4	%


*		Includes prior year favorable development of $10.2 million and the impact of a commutation, which increased prior years net losses and loss expenses by $11.5 million.

**		Includes prior year favorable development of $55.2 million and the impact of a commutation, which increased prior years net losses and loss expenses by $11.5 million.

Page 12

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
CONSOLIDATED SEGMENT RESULTS
FOR THE THREE MONTHS ENDED JUNE 30, 2010


	U.S.			INTERNATIONAL						CONSOLIDATED
	INSURANCE			INSURANCE			REINSURANCE			TOTALS
Revenues
Gross premiums written	$	189,663		$	167,601		$	136,583		$	493,847
Net premiums written	$	135,238		$	98,509		$	136,048		$	369,795

Net premiums earned	$	125,659		$	89,427		$	123,838		$	338,924
Other income	$	616		$	—		$	—		$	616

Total revenues	$	126,275		$	89,427		$	123,838		$	339,540


Expenses
Net losses and loss expenses:
Current year	$	90,104		$	87,755		$	74,957		$	252,816
Prior years		(20,906	)		(23,175	)		(20,013	)		(64,094	)

Total net losses and loss expenses	$	69,198		$	64,580		$	54,944		$	188,722
Acquisition costs		15,854			(66	)		22,150			37,938
General and administrative expenses		30,683			22,657			14,749			68,089

Total expenses	$	115,735		$	87,171		$	91,843		$	294,749


Underwriting income	$	10,540		$	2,256		$	31,995		$	44,791

Net investment income										$	65,594
Net realized investment gains											94,933
Net impairment charges recognized in earnings											—
Amortization and impairment of intangible assets											(891	)
Interest expense											(9,531	)
Foreign exchange loss											(559	)


Income before income taxes										$	194,337


GAAP Ratios
Loss and loss expense ratio		55.1	%		72.2	%		44.4	%		55.7	%
Acquisition cost ratio		12.6	%		(0.1	%)		17.9	%		11.2	%
General and administrative expense ratio		24.4	%		25.3	%		11.9	%		20.1	%

Expense ratio		37.0	%		25.2	%		29.8	%		31.3	%

Combined ratio		92.1	%		97.4	%		74.2	%		87.0	%

Page 13

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
CONSOLIDATED SEGMENT RESULTS
FOR THE SIX MONTHS ENDED JUNE 30, 2011


	U.S.			INTERNATIONAL						CONSOLIDATED
	INSURANCE			INSURANCE			REINSURANCE			TOTALS
Revenues
Gross premiums written	$	410,040		$	289,918		$	380,328		$	1,080,286
Net premiums written	$	312,789		$	183,895		$	379,990		$	876,674

Net premiums earned	$	281,338		$	156,246		$	252,599		$	690,183
Other income	$	—		$	—		$	—		$	—

Total revenues	$	281,338		$	156,246		$	252,599		$	690,183


Expenses
Net losses and loss expenses:
Current year	$	184,913		$	183,909		$	259,494		$	628,316
Prior years		23,513	*		(40,643	)		(70,921	)		(88,051)	**

Total net losses and loss expenses	$	208,426		$	143,266		$	188,573		$	540,265
Acquisition costs		36,978			(2,603	)		46,678			81,053
General and administrative expenses		62,052			41,381			31,724			135,157

Total expenses	$	307,456		$	182,044		$	266,975		$	756,475


Underwriting loss	$	(26,118	)	$	(25,798	)	$	(14,376	)	$	(66,292	)

Net investment income										$	102,576
Net realized investment gains											109,254
Net impairment charges recognized in earnings											—
Amortization and impairment of intangible assets											(1,533	)
Interest expense											(27,487	)
Foreign exchange loss											(742	)


Income before income taxes										$	115,776


GAAP Ratios
Loss and loss expense ratio		74.1	%		91.7	%		74.7	%		78.3	%
Acquisition cost ratio		13.1	%		(1.7	%)		18.5	%		11.7	%
General and administrative expense ratio		22.1	%		26.5	%		12.6	%		19.6	%

Expense ratio		35.2	%		24.8	%		31.1	%		31.3	%

Combined ratio		109.3	%		116.5	%		105.8	%		109.6	%


*		Includes prior year unfavorable development of $12.0 million and the impact of a commutation, which increased prior years net losses and loss expenses by $11.5 million.

**		Includes prior year favorable development of $99.6 million and the impact of a commutation, which increased prior years net losses and loss expenses by $11.5 million.

Page 14

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
CONSOLIDATED SEGMENT RESULTS
FOR THE SIX MONTHS ENDED JUNE 30, 2010


	U.S.			INTERNATIONAL						CONSOLIDATED
	INSURANCE			INSURANCE			REINSURANCE			TOTALS
Revenues
Gross premiums written	$	351,748		$	289,023		$	357,239		$	998,010
Net premiums written	$	266,793		$	179,590		$	356,704		$	803,087

Net premiums earned	$	254,864		$	176,470		$	245,914		$	677,248
Other income	$	913		$	—		$	—		$	913

Total revenues	$	255,777		$	176,470		$	245,914		$	678,161


Expenses
Net losses and loss expenses:
Current year	$	183,355		$	202,820		$	163,887		$	550,062
Prior years		(15,732)	*		(80,791	)		(32,663	)		(129,186)	**

Total net losses and loss expenses	$	167,623		$	122,029		$	131,224		$	420,876
Acquisition costs		32,814			—			45,908			78,722
General and administrative expenses		57,797			44,502			29,253			131,552

Total expenses	$	258,234		$	166,531		$	206,385		$	631,150


Underwriting (loss) income	$	(2,457	)	$	9,939		$	39,529		$	47,011

Net investment income										$	134,496
Net realized investment gains											172,420
Net impairment charges recognized in earnings											(168	)
Amortization and impairment of intangible assets											(1,783	)
Interest expense											(19,059	)
Foreign exchange loss											(1,635	)


Income before income taxes										$	331,282


GAAP Ratios
Loss and loss expense ratio		65.8	%		69.1	%		53.4	%		62.1	%
Acquisition cost ratio		12.9	%		0.0	%		18.7	%		11.6	%
General and administrative expense ratio		22.7	%		25.2	%		11.9	%		19.4	%

Expense ratio		35.6	%		25.2	%		30.6	%		31.0	%

Combined ratio		101.4	%		94.3	%		84.0	%		93.1	%


*		Includes prior year favorable development of $24.6 million and the impact of a commutation, which increased prior years net losses and loss expenses by $8.9 million.

**		Includes prior year favorable development of $138.1 million and the impact of a commutation, which increased prior years net losses and loss expenses by $8.9 million.

Page 15

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
CONSOLIDATED CONSOLIDATED BALANCE SHEETS


	JUNE 30, 2011			DECEMBER 31, 2010
ASSETS
Fixed maturity investments available for sale, at fair value (amortized cost: 2011: $318,711; 2010: $828,544)	$	345,551		$	891,849
Fixed maturity investments trading, at fair value		6,201,034			5,769,097
Equity securities trading, at fair value		393,913			174,976
Other invested assets trading, at fair value		562,267			347,632

Total investments		7,502,765			7,183,554
Cash and cash equivalents		807,657			853,368
Insurance balances receivable		653,002			529,927
Prepaid reinsurance		223,269			187,287
Reinsurance recoverable		1,013,951			927,588
Accrued investment income		39,582			40,520
Net deferred acquisition costs		112,083			96,803
Goodwill		268,376			268,376
Intangible assets		55,342			56,876
Net deferred tax assets		19,826			19,740
Other assets		54,760			75,184

TOTAL ASSETS	$	10,750,613		$	10,239,223


LIABILITIES
Reserve for losses and loss expenses	$	5,251,304		$	4,879,188
Unearned premiums		1,184,676			962,203
Reinsurance balances payable		132,661			99,732
Net balances payable on purchases and sales of investments		252,351			318,570
Senior notes		797,823			797,700
Accounts payable and accrued liabilities		87,381			106,010

TOTAL LIABILITIES	$	7,706,196		$	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: 37,945,043; 2010: 38,089,226 shares outstanding)		600,055			600,055
Additional paid-in capital		82,037			170,239
Treasury shares, at cost (2011: 2,058,599; 2010: 1,914,416)		(124,392	)		(112,811	)
Retained earnings		2,463,622			2,361,202
Accumulated other comprehensive income:
net unrealized gains on investments, net of tax		23,095			57,135

TOTAL SHAREHOLDERS’ EQUITY		3,044,417			3,075,820

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	10,750,613		$	10,239,223


Book value per share	$	80.23		$	80.75
Diluted book value per share	$	76.68		$	74.29

Page 16

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
CONSOLIDATED TOTAL INVESTMENT PORTFOLIO


	JUNE 30, 2011					MARCH 31, 2011					DECEMBER 31, 2010					SEPTEMBER 30, 2010					JUNE 30, 2010
	FAIR VALUE					FAIR VALUE					FAIR VALUE					FAIR VALUE					FAIR VALUE
FAIR VALUE
Fixed maturities available for sale	$	345,551		4.2	%	$	543,808		6.8	%	$	891,849		11.1	%	$	1,570,144		19.4	%	$	2,755,934		34.6	%
Fixed maturities trading		6,201,034		74.6	%		5,960,830		74.6	%		5,769,097		71.8	%		5,231,358		64.7	%		4,275,893		53.7	%
Equity securities		393,913		4.7	%		271,057		3.4	%		174,976		2.2	%		121,740		1.5	%		69,169		0.9	%
Other invested assets trading		562,267		6.8	%		469,999		5.9	%		347,632		4.3	%		328,275		4.1	%		319,592		4.0	%
Cash and cash equivalents		807,657		9.7	%		746,002		9.3	%		853,368		10.6	%		831,444		10.3	%		543,895		6.8	%

Total	$	8,310,422		100.0	%	$	7,991,696		100.0	%	$	8,036,922		100.0	%	$	8,082,961		100.0	%	$	7,964,483		100.0	%


ASSET ALLOCATION BY FAIR VALUE
U.S. government and agencies	$	1,021,290		12.3	%	$	1,145,787		14.3	%	$	1,321,673		16.5	%	$	1,206,987		14.9	%	$	1,769,987		22.2	%
Non-U.S. government securities		177,529		2.1	%		176,193		2.2	%		266,177		3.3	%		388,262		4.8	%		386,786		4.9	%
Corporate securities		2,606,743		31.4	%		2,654,399		33.3	%		2,526,550		31.4	%		2,539,994		31.5	%		2,392,033		30.0	%
State, municipalities and political subdivisions		156,922		1.9	%		199,875		2.5	%		245,614		3.1	%		240,348		3.0	%		249,010		3.1	%
Mortgage-backed securities		1,904,565		22.9	%		1,702,619		21.3	%		1,751,883		21.8	%		1,749,598		21.6	%		1,564,077		19.7	%
Asset-backed securities		679,536		8.2	%		625,765		7.8	%		549,049		6.8	%		676,313		8.3	%		669,934		8.4	%
Fixed income sub-total		6,546,585		78.8	%		6,504,638		81.4	%		6,660,946		82.9	%		6,801,502		84.1	%		7,031,827		88.3	%
Hedge funds		496,358		6.0	%		426,415		5.3	%		310,638		3.9	%		300,981		3.8	%		299,639		3.8	%
Private equity (funded)		65,909		0.8	%		43,584		0.6	%		36,994		0.4	%		27,294		0.3	%		19,953		0.2	%
Equity securities		393,913		4.7	%		271,057		3.4	%		174,976		2.2	%		121,740		1.5	%		69,169		0.9	%
Cash & cash equivalents		807,657		9.7	%		746,002		9.3	%		853,368		10.6	%		831,444		10.3	%		543,895		6.8	%

Total	$	8,310,422		100.0	%	$	7,991,696		100.0	%	$	8,036,922		100.0	%	$	8,082,961		100.0	%	$	7,964,483		100.0	%


FIXED INCOME CREDIT QUALITY BY FAIR VALUE
U.S. government and agencies	$	1,021,290		15.6	%	$	1,145,787		17.6	%	$	1,321,673		19.9	%	$	1,206,987		17.8	%	$	1,769,987		25.2	%
AAA/Aaa		2,825,333		43.2	%		2,615,609		40.2	%		2,677,441		40.2	%		2,968,935		43.7	%		2,754,502		39.2	%
AA/Aa		500,935		7.7	%		607,630		9.3	%		622,446		9.3	%		562,112		8.3	%		580,084		8.2	%
A/A		1,205,929		18.4	%		1,289,286		19.8	%		1,259,295		18.9	%		1,404,202		20.6	%		1,327,374		18.9	%
BBB/Baa		626,466		9.7	%		575,290		8.9	%		523,577		7.9	%		366,685		5.4	%		336,284		4.8	%
BB		116,425		1.8	%		33,887		0.5	%		28,050		0.4	%		30,707		0.5	%		28,172		0.4	%
B/B		64,451		1.1	%		54,162		0.9	%		52,793		0.8	%		63,892		0.8	%		59,795		0.8	%
CCC+ and below		185,754		2.8	%		182,987		2.8	%		175,671		2.6	%		197,982		2.9	%		175,629		2.5	%

Total	$	6,546,584		100.0	%	$	6,504,638		100.0	%	$	6,660,946		100.0	%	$	6,801,502		100.0	%	$	7,031,827		100.0	%


STATISTICS
Annualized book yield, year to date		2.7	%				2.6	%				3.3	%				3.4	%				3.6	%
Duration*	2.3 years					2.8 years					2.7 years					2.5 years					2.6 years
Average credit quality (S&P)	AA					AA					AA					AA					AA


*		Includes only cash and cash equivalents and fixed maturity investments

Page 17

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
INVESTMENT PORTFOLIO — ADDITIONAL DETAIL
JUNE 30, 2011


			AVERAGE	PORTFOLIO
	FAIR VALUE		RATING	PERCENTAGE
Cash & cash equivalents	$	807,657	AAA		9.7	%
U.S. government securities		874,764	AAA		10.5	%
U.S. government agencies		146,526	AAA		1.8	%
Non-U.S. government securities		177,529	AAA		2.1	%
Mortgage-backed securities:
Agency MBS		1,229,648	AAA		14.8	%
Non-agency RMBS		156,879	AA-		1.9	%
Non-agency RMBS — Non investment grade strategy		206,529	B-		2.5	%
CMBS		311,509	AAA		3.7	%
Total mortgage-backed securities		1,904,565			22.9	%
Corporate securities:
Financials		1,484,106	AA-		17.9	%
Industrials		876,067	BBB		10.5	%
Utilities		246,570	BBB+		3.0	%
Total corporate securities		2,606,743			31.4	%
Asset-backed securities
Credit cards		80,710	AAA		1.0	%
Auto receivables		102,686	AAA		1.2	%
Student loans		230,659	AAA		2.8	%
Collateralized loan obligations		190,189	AA+		2.3	%
Other		75,292	AAA		0.9	%
Total asset-backed securities		679,536			8.2	%

State, municipalities and political subdivisions		156,922	AA		1.9	%
Hedge funds		496,358	N/A		6.0	%
Private equity (funded)		65,909	N/A		0.8	%
Equities		393,913	N/A		4.7	%


Total Investment Portfolio	$	8,310,422			100.0	%

TOP 10 CORPORATE EXPOSURES


			PORTFOLIO
CORPORATE	FAIR VALUE		PERCENTAGE
JPMorgan Chase & Co	$	76,095		0.9	%
General Electric Co		73,547		0.9	%
Citigroup Inc		68,408		0.8	%
Bank of America Corp		62,773		0.8	%
Morgan Stanley		54,132		0.7	%
Sparebank 1 Boligkreditt AS		52,035		0.6	%
Wells Fargo & Co		49,221		0.6	%
Verizon Communications Inc		43,147		0.5	%
American Express Co		42,603		0.5	%
Nordea Bank AB		37,632		0.5	%


					LONG			SHORT
	FAIR VALUE		UNFUNDED		EXPOSURE⁽¹⁾			EXPOSURE⁽²⁾			GROSS			NET
HEDGE FUND DETAILS	JUNE 30, 2011		COMMITMENTS		(% OF FUNDED)			(% OF FUNDED)			EXPOSURE⁽³⁾			EXPOSURE⁽⁴⁾
Private equity (primary and secondary)	$	56,707	$	182,296		100	%		0	%		100	%		100	%
Mezzanine debt		1,978		113,022		100	%		0	%		100	%		100	%
Distressed		62,498		37,289		73	%		10	%		83	%		63	%

Total private equity		121,183		332,607

Equity long/short		186,142		—		104	%		67	%		171	%		37	%
Multi-strategy		170,168		—		101	%		60	%		161	%		41	%
Event driven		84,774		—		115	%		75	%		190	%		40	%

Total hedge funds	$	562,267	$	332,607


(1)		Long exposure represents the ratio of the fund’s equity to investments in securities (over 100% may denote explicit borrowing).
(2)		Short exposure represents the ratio of the fund’s equity to securities sold short.

(3)		Gross exposure is the addition of the long and short exposures.

(4)		Net exposure is the subtraction of the short exposure from the long exposure.

Page 18

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
INVESTMENT PORTFOLIO — ADDITIONAL DETAIL
JUNE 30, 2011

NON-AGENCY RESIDENTIAL MORTGAGE BACKED SECURITIES DETAIL
NON INVESTMENT GRADE STRATEGY


																					AVERAGE
																			TOTAL		CREDIT
Vintage	AAA		AA		A		BBB		BB		B		CCC		CC		D		FAIR VALUE		ENHANCEMENT**
2007	$	—	$	—	$	—	$	—	$	—	$	6,822	$	33,678	$	10,906	$	6,200	$	57,606		22.4	%
2006		—		7,910		2,536		—		1,027		15,051		37,902		—		32,937		97,363		20.9	%
2005 and prior		14,507		459		322		—		—		9,531		12,807		10,095		3,839		51,560		24.1	%

Total*	$	14,507	$	8,369	$	2,858	$	—	$	1,027	$	31,404	$	84,387	$	21,001	$	42,976	$	206,529		21.8	%


*		Included in the above is fair value of $4.6m million of subprime mortgages with an average rating of B-.

NON-AGENCY RESIDENTIAL MORTGAGE BACKED SECURITIES DETAIL
CORE FIXED INCOME ACCOUNT


																					AVERAGE
																			TOTAL		CREDIT
Vintage	AAA		AA		A		BBB		BB		B		CCC		CC		D		FAIR VALUE		ENHANCEMENT**
2007	$	269	$	—	$	—	$	—	$	—	$	—	$	773	$	625	$	—	$	1,667		1.7	%
2006		11,132		—		5,158		—		—		1,791		—		—		—		18,081		13.9	%
2005 and prior		88,851		7,080		7,043		1,641		21,085		10,497		934		—		—		137,131		11.2	%

Total*	$	100,252	$	7,080	$	12,201	$	1,641	$	21,085	$	12,288	$	1,707	$	625	$	—	$	156,879		11.4	%


*		Included in the above is fair value of $0.1 million of subprime mortgages with an average rating of AA+.

COMMERCIAL MORTGAGE BACKED SECURITIES DETAIL


																					AVERAGE
																			TOTAL		CREDIT
Vintage	AAA		AA		A		BBB		BB		B		CCC		CC		D		FAIR VALUE		ENHANCEMENT**
2011	$	47,087	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	47,087		9.0	%
2010		47,378		—		—		—		—		—		—		—		—		47,378		72.0	%
2009		—		—		—		—		—		—		—		—		—		—		0.0	%
2008		6,473		—		—		—		—		—		—		—		—		6,473		28.0	%
2007		31,196		923		—		—		—		—		—		—		—		32,119		45.0	%
2006		71,362		—		—		410		—		—		—		—		—		71,772		32.0	%
2005 and prior		105,806		—		874		—		—		—		—		—		—		106,680		35.0	%

Total	$	309,302	$	923	$	874	$	410	$	—	$	—	$	—	$	—	$	—	$	311,509		41.0	%


**		Average credit enhancement is the amount, reported as a percentage, of subordination and/or overcollateralization available to support the security.

Page 19

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
RESERVES FOR LOSSES AND LOSS EXPENSES


	AT JUNE 30, 2011

	U.S.			INTERNATIONAL						CONSOLIDATED
	INSURANCE			INSURANCE			REINSURANCE			TOTAL
Case reserves (net of reinsurance recoverable)	$	283,489		$	503,159		$	412,849		$	1,199,497
IBNR (net of reinsurance recoverable)		875,072			1,271,853			890,931			3,037,856

Total	$	1,158,561		$	1,775,012		$	1,303,780		$	4,237,353

IBNR/Total reserves (net of reinsurance recoverable)		75.5	%		71.7	%		68.3	%		71.7	%


	AT DECEMBER 31, 2010

	U.S.			INTERNATIONAL						CONSOLIDATED
	INSURANCE			INSURANCE			REINSURANCE			TOTAL
Case reserves (net of reinsurance recoverable)	$	213,574		$	374,105		$	372,707		$	960,386
IBNR (net of reinsurance recoverable)		821,531			1,321,593			848,090			2,991,214

Total	$	1,035,105		$	1,695,698		$	1,220,797		$	3,951,600

IBNR/Total reserves (net of reinsurance recoverable)		79.4	%		77.9	%		69.5	%		75.7	%

Page 20

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
CAPITAL STRUCTURE AND LEVERAGE RATIOS


	JUNE 30,			MARCH 31,			DECEMBER 31,			SEPTEMBER 30,			JUNE 30,
	2011			2011			2010			2010			2010
Senior notes	$	797,823		$	797,761		$	797,700		$	499,017		$	498,984
Shareholders’ equity		3,044,417			2,950,953			3,075,820			3,341,314			3,468,543

Total capitalization	$	3,842,240		$	3,748,714		$	3,873,520		$	3,840,331		$	3,967,527


Leverage ratios
Debt to total capitalization		20.8	%		21.3	%		20.6	%		13.0	%		12.6	%

Closing shareholders’ equity	$	3,044,417		$	2,950,953		$	3,075,820		$	3,341,314		$	3,468,543
Deduct: accumulated other comprehensive income		(23,095	)		(32,963	)		(57,135	)		(111,760	)		(138,245	)

Adjusted shareholders’ equity	$	3,021,322		$	2,917,990		$	3,018,685		$	3,229,554		$	3,330,298

Net premiums written (trailing 12 months)	$	1,466,042		$	1,440,034		$	1,392,455		$	1,338,950		$	1,357,737
Net premiums written (trailing 12 months) to adjusted shareholders’ equity		0.49			0.49			0.46			0.41			0.41

Total investments and cash & cash equivalents	$	8,310,422		$	7,991,696		$	8,036,922		$	8,082,961		$	7,964,483
Total investments and cash & cash equivalents to adjusted shareholders’ equity		2.75			2.74			2.66			2.50			2.39

Reserve for losses and loss expenses	$	5,251,304		$	5,100,643		$	4,879,188		$	4,889,825		$	4,920,435
Deduct: reinsurance recoverable		(1,013,951	)		(975,523	)		(927,588	)		(939,956	)		(932,435	)

Net reserve for losses and loss expenses	$	4,237,353		$	4,125,120		$	3,951,600		$	3,949,869		$	3,988,000
Net reserve for losses and loss expenses to adjusted shareholders’ equity		1.40			1.41			1.31			1.22			1.20

Page 21

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
SHARE REPURCHASE DETAIL — CURRENT YEAR


								Maximum Dollar Value (or
	Total Number of Shares			Average Price Paid per				Approximate Dollar Value) of Shares
Period	Purchased			Share		Total Actual Cost		that May Yet Be Purchased
January 1-31, 2011		—		$	—	$	—	$	260,873
February 1-28, 2011		282,609			61.67		17,428		243,445
March 1-31, 2011		686,554			62.01		42,572		200,873

Total March 31, 2011		969,163		$	61.91	$	60,000	$	200,873

April 1-30, 2011		—		$	—	$	—	$	200,873
May 1-31, 2011		—			—		—		200,873
June 1-30, 2011		—			—		—		200,873

Total June 30, 2011		—	*	$	—	$	—	$	200,873

Year to date June 30, 2011		969,163		$	61.91	$	60,000	$	200,873


*		The plan was inactive in the second quarter of 2011 because of the merger negotiations with Transatlantic Holdings, Inc.

Page 22

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
OPERATING INCOME RECONCILIATION AND
BASIC AND DILUTED EARNINGS PER SHARE INFORMATION


	THREE MONTHS ENDED			THREE MONTHS ENDED			THREE MONTHS ENDED		THREE MONTHS ENDED			THREE MONTHS ENDED
	JUNE 30, 2011			MARCH 31, 2011			DECEMBER 31, 2010		SEPTEMBER 30, 2010			JUNE 30, 2010
Net income	$	93,800		$	8,620		$	92,786	$	254,520		$	183,959
Add after tax effect of:
Net realized investment (gains) losses		(50,795	)		(49,526	)		4,306		(109,581	)		(88,850	)
Foreign exchange loss (gain)		1,184			(442	)		196		(1,387	)		559

Operating income (loss)	$	44,189		$	(41,348	)	$	97,288	$	143,552		$	95,668


Weighted average common shares outstanding
Basic		38,346,489			38,199,867			40,291,620		45,544,060			50,222,974
Diluted		39,800,753			40,383,523			43,501,068		48,839,991			52,974,410

Basic per share data
Net income	$	2.45		$	0.23		$	2.30	$	5.59		$	3.66
Add after tax effect of:
Net realized investment (gains) losses		(1.32	)		(1.30	)		0.11		(2.41	)		(1.77	)
Foreign exchange loss (gain)		0.02			(0.01	)		—		(0.03	)		0.01

Operating income (loss)	$	1.15		$	(1.08	)	$	2.41	$	3.15		$	1.90


Diluted per share data
Net income	$	2.36		$	0.21		$	2.13	$	5.21		$	3.47
Add after tax effect of:
Net realized investment (gains) losses		(1.28	)		(1.22	)		0.10		(2.24	)		(1.68	)
Foreign exchange loss (gain)		0.03			(0.01	)		0.01		(0.03	)		0.01

Operating income (loss)	$	1.11		$	(1.02	)	$	2.24	$	2.94		$	1.80

Page 23

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
OPERATING INCOME RECONCILIATION AND
BASIC AND DILUTED EARNINGS PER SHARE INFORMATION


	SIX MONTHS ENDED			SIX MONTHS ENDED
	JUNE 30, 2011			JUNE 30, 2010
Net income	$	102,420		$	317,699
Add after tax affect of:
Net realized investment gains		(100,320	)		(162,452	)
Net impairment charges in earnings		—			109
Foreign exchange loss		742			1,635

Operating income	$	2,842		$	156,991


Weighted average common shares outstanding
Basic		38,061,724			50,123,945
Diluted		39,873,418			53,086,708

Basic per share data
Net income	$	2.69		$	6.34
Add after tax affect of:
Net realized investment gains		(2.64	)		(3.24	)
Net impairment charges in earnings		—			—
Foreign exchange loss		0.03			0.03

Operating income	$	0.08		$	3.13


Diluted per share data
Net income	$	2.57		$	5.98
Add after tax affect of:
Net realized investment gains		(2.52	)		(3.05	)
Net impairment charges in earnings		—			—
Foreign exchange loss		0.02			0.03

Operating income	$	0.07		$	2.96

Page 24

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
RETURN ON AVERAGE SHAREHOLDERS’ EQUITY AND
RECONCILIATION OF AVERAGE SHAREHOLDERS’ EQUITY


	THREE MONTHS ENDED			THREE MONTHS ENDED			THREE MONTHS ENDED			THREE MONTHS ENDED			THREE MONTHS ENDED
	JUNE 30, 2011			MARCH 31, 2011			DECEMBER 31, 2010			SEPTEMBER 30, 2010			JUNE 30, 2010
Opening shareholders’ equity	$	2,950,953		$	3,075,820		$	3,341,314		$	3,468,543		$	3,338,807
Deduct: accumulated other comprehensive income		(32,963	)		(57,135	)		(111,760	)		(138,245	)		(142,284	)

Adjusted opening shareholders’ equity	$	2,917,990		$	3,018,685		$	3,229,554		$	3,330,298		$	3,196,523

Closing shareholders’ equity	$	3,044,417		$	2,950,953		$	3,075,820		$	3,341,314		$	3,468,543
Deduct: accumulated other comprehensive income		(23,095	)		(32,963	)		(57,135	)		(111,760	)		(138,245	)

Adjusted closing shareholders’ equity	$	3,021,322		$	2,917,990		$	3,018,685		$	3,229,554		$	3,330,298

Average shareholders’ equity	$	2,969,656		$	2,968,338		$	3,124,120		$	3,279,926		$	3,263,411

Net income available to shareholders	$	93,800		$	8,620		$	92,786		$	254,520		$	183,959
Annualized net income available to shareholders		375,200			34,480			371,144			1,018,080			735,836

Annualized return on average shareholders’ equity — net income available to shareholders		12.6	%		1.2	%		11.9	%		31.0	%		22.5	%

Operating (loss) income available to shareholders	$	44,189		$	(41,348	)	$	97,288		$	143,552		$	95,668
Annualized operating (loss) income available to shareholders		176,756			(165,392	)		389,152			574,208			382,672

Annualized return on average shareholders’ equity — operating (loss) income available to shareholders		6.0	%		(5.6	%)		12.5	%		17.5	%		11.7	%

Page 25

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
RETURN ON AVERAGE SHAREHOLDERS’ EQUITY AND
RECONCILIATION OF AVERAGE SHAREHOLDERS’ EQUITY


	SIX MONTHS ENDED			SIX MONTHS ENDED
	JUNE 30, 2011			JUNE 30, 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	$	3,044,417		$	3,468,543
Deduct: accumulated other comprehensive income		(23,095	)		(138,245	)

Adjusted closing shareholders’ equity	$	3,021,322		$	3,330,298

Average shareholders’ equity	$	3,020,004		$	3,196,872

Net income available to shareholders	$	102,420		$	317,699
Annualized net income available to shareholders		204,840			635,398
Annualized net income available to shareholders

Annualized return on average shareholders’ equity — net income available to shareholders		6.8	%		19.9	%

Operating income available to shareholders	$	2,842		$	156,991
Annualized operating income available to shareholders		5,684			313,982
Annualized operating income available to shareholders
Annualized return on average shareholders’ equity — operating income available to shareholders		0.2	%		9.8	%

Page 26

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
DILUTED BOOK VALUE PER SHARE


	JUNE 30,			DECEMBER 31,			JUNE 30,
	2011			2010			2010
Price per share at period end	$	57.58		$	59.44		$	45.38

Total shareholders’ equity	$	3,044,417		$	3,075,820		$	3,468,543

Basic common shares outstanding		37,945,043			38,089,226			49,407,301

Add: unvested restricted share units		473,967			571,178			804,644

Add: performance based equity awards		920,164			1,440,017			1,409,984

Add: employee purchase plan		—			10,576			—

Add: dilutive options/warrants outstanding		1,124,438			3,272,739			6,667,941
Weighted average exercise price per share	$	38.83		$	35.98		$	34.52
Deduct: options bought back via treasury method		(758,342	)		(1,980,884	)		(5,072,455	)


Common shares and common share equivalents outstanding		39,705,270			41,402,852			53,217,415

Basic book value per common share	$	80.23		$	80.75		$	70.20
Year-to-date percentage change in basic book value per common share		(0.6	%)		25.0	%

Diluted book value per common share	$	76.68		$	74.29		$	65.18
Year-to-date percentage change in dilutive book value per common share		3.2	%		24.7	%

Page 27

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
CALCULATION OF ANNUALIZED INVESTMENT BOOK YIELD


	THREE MONTHS ENDED			THREE MONTHS ENDED			SIX MONTHS ENDED			SIX MONTHS ENDED
	JUNE 30, 2011			JUNE 30, 2010			JUNE 30, 2011			JUNE 30, 2010
Net investment income	$	52,368		$	65,594		$	102,576		$	134,496
Deduct: annual and non-recurring items		—			—			—			—

Net investment income, recurring	$	52,368		$	65,594		$	102,576		$	134,496

Annualized net investment income, recurring	$	209,472		$	262,376		$	205,152		$	268,992

Add: annual and non-recurring items		—			—			—			—

Normalized net investment income	$	209,472		$	262,376		$	205,152		$	268,992

Opening aggregate invested assets:
Fixed maturity investments, amortized cost	$	6,398,230		$	6,896,718		$	6,542,867		$	6,792,563
Equity securities, cost		245,618			19,826			160,513			309
Other invested assets, at cost		444,331			237,285			331,772			184,237
Cash and cash equivalents		746,002			497,574			853,368			379,751
Net balances on purchases and sales of investments		(204,767	)		(172,797	)		(318,570	)		184

Opening aggregate invested assets	$	7,629,414		$	7,478,606		$	7,569,950		$	7,357,044

Closing aggregate invested assets:
Fixed maturity investments, amortized cost	$	6,419,637		$	6,804,813		$	6,419,637		$	6,804,813
Equity securities, cost		365,394			73,786			365,394			73,786
Other invested assets, cost		533,914			315,906			533,914			315,906
Cash and cash equivalents		807,657			543,895			807,657			543,895
Net balances on purchases and sales of investments		(252,351	)		(26,107	)		(252,351	)		(26,107	)

Closing aggregate invested assets	$	7,874,251		$	7,712,293		$	7,874,251		$	7,712,293

Average aggregate invested assets	$	7,751,833		$	7,595,450		$	7,722,101		$	7,534,669

Annualized investment book yield		2.7	%		3.5	%		2.7	%		3.6	%

Page 28

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
CALCULATION OF ANNUALIZED INVESTMENT BOOK YIELD


	THREE MONTHS ENDED			YEAR ENDED			NINE MONTHS ENDED
	MARCH 31, 2011			DECEMBER 31, 2010			SEPTEMBER 30, 2010
Net investment income	$	50,208		$	244,143		$	193,975
Deduct: annual and non-recurring items		—			6,438			6,438

Net investment income, recurring	$	50,208		$	237,705		$	187,537

Annualized net investment income, recurring	$	200,832		$	237,705		$	250,049

Add: annual and non-recurring items		—			6,438			6,438

Normalized net investment income	$	200,832		$	244,143		$	256,487

Opening aggregate invested assets:
Fixed maturity investments, amortized cost	$	6,542,867		$	6,792,563		$	6,792,563
Equity securities, cost		160,513			309			309
Other invested assets, at cost		331,772			184,237			184,237
Cash and cash equivalents		853,368			379,751			379,751
Net balances on purchases and sales of investments		(318,570	)		184			184

Opening aggregate invested assets	$	7,569,950		$	7,357,044		$	7,357,044

Closing aggregate invested assets:
Fixed maturity investments, amortized cost	$	6,398,230		$	6,542,867		$	6,529,858
Equity securities, cost		245,618			160,513			117,599
Other invested assets, at cost		444,331			331,772			322,486
Cash and cash equivalents		746,002			853,368			831,444
Net balances on purchases and sales of investments		(204,767	)		(318,570	)		(307,140	)

Closing aggregate invested assets	$	7,629,414		$	7,569,950		$	7,494,247

Average aggregate invested assets	$	7,599,682		$	7,463,497		$	7,425,646

Annualized investment book yield		2.6	%		3.3	%		3.4	%

Page 29

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
FINANCIAL STATEMENT PORTFOLIO RETURN


	SIX MONTHS ENDED			SIX MONTHS ENDED
	JUNE 30, 2011			JUNE 30, 2010
Net investment income	$	102,576		$	134,496
Net realized investment gains	$	109,254		$	176,378

Opening net unrealized gains on investments:
Net unrealized gains on fixed maturities	$	109,060	*	$	166,187
Net unrealized (losses)/gains on foreign exchange		(3,866	)		41

Opening net unrealized gains on investments	$	105,194		$	166,228

Closing net unrealized gains on investments:
Net unrealized gains on fixed maturities	$	68,729	*	$	160,963
Net unrealized losses on foreign exchange		—			(7,029	)

Closing net unrealized gains on investments	$	68,729		$	153,934

Net investment income, realized gains and unrealized gains	$	175,365		$	298,580

Opening aggregate invested assets, at fair value:
Fixed maturities available for sale	$	891,849		$	4,427,072
Fixed maturities trading		5,769,097			2,544,322
Other invested assets trading		522,608			184,869
Cash and cash equivalents		853,368			379,751

Total investments and cash		8,036,922			7,536,014
Net balances on purchases and sales of investments		(318,570	)		184

Opening aggregate invested assets, at fair value	$	7,718,352		$	7,536,198

Closing aggregate invested assets, at fair value:
Fixed maturities available for sale	$	345,551		$	2,755,934
Fixed maturities trading		6,201,034			4,275,893
Other invested assets trading		956,180			388,761
Cash and cash equivalents		807,657			543,895

Total investments and cash		8,310,422			7,964,483
Net balances on purchases and sales of investments		(252,351	)		(26,107	)

Closing aggregate invested assets, at fair value	$	8,058,071		$	7,938,376

Average invested assets	$	7,888,212		$	7,737,287

Financial statement portfolio return		2.2	%		3.9	%


*		Excludes reclassification of net unrealized gains of $41,889 related to the adoption of ASU 2010-11.

Note: net investment income, net realized gains/losses and change in unrealized gains/losses are disclosed on a pre-tax basis.

Page 30

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
REGULATION G

In presenting the company’s results, management has included and discussed certain non-GAAP financial measures. 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 GAAP.

OPERATING INCOME

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, 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 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 excludes impairment of intangible assets as these are non-recurring charges. 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 and the company’s underlying business performance. Operating income should not be viewed as a substitute for GAAP net income. See pages 23 and 24 for reconciliation of operating income to net income.

ANNUALIZED RETURN ON AVERAGE SHAREHOLDERS’ EQUITY (“ROAE”)

Annualized return on average shareholders’ equity is calculated using average 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 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. See pages 25 and 26 for reconciliation of average shareholders’ equity.

ANNUALIZED OPERATING RETURN ON AVERAGE SHAREHOLDERS’ EQUITY

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 return on average shareholders’ equity explanation above. See pages 23 and 24 for the reconciliation of net income to operating income and pages 25 and 26 for the reconciliation of average shareholders’ equity.

DILUTED BOOK VALUE PER SHARE

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. See page 27 for a reconciliation of diluted book value per share to basic book value per share.

ANNUALIZED INVESTMENT BOOK YIELD

Annualized investment book yield is calculated by dividing normalized net investment income by average aggregate invested assets at book value. In calculating annualized investment book yield, normalized net investment income for the period is multiplied by the number of such periods in a calendar year in order to arrive at annualized net investment income. Normalized net investment income is adjusted for known annual or non-recurring items. The company utilizes and presents the investment yield in order to better disclose the performance of the company’s investments and to show the components of the company’s ROAE. See pages 28 and 29 for calculation of annualized investment book yield.

Page 31

Allied World Assurance Co Holdings, AG - FORM 8-K - EX-99.2 - August 3, 2011

Attached files

Allied World Assurance Co Holdings, AG Reports