Allied World Assurance Co Holdings, AG - FORM 8-K - EX-99.1 - SLIDES FROM PRESENTATION BY MANAGEMENT

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8-K - FORM 8-K - Allied World Assurance Co Holdings, AG	d352413d8k.htm

Industry Leader in Value Creation

Quarter 2012 Investor Presentation

Exhibit 99.1

Forward-Looking Statements & Safe Harbor

This presentation contains certain statements, estimates and forecasts with respect to future performance and

events. These statements, estimates and forecasts are "forward-looking statements". In some cases, forward-

looking statements can be identified by the use of forward-looking terminology such as "may," “might,” “will,"

“should,” "expect," “plan,” "intend," "estimate," "anticipate," "believe,” “predict,” “potential” or "continue" or

the negatives thereof or variations thereon or similar terminology. All statements other than statements of

historical fact included in this presentation are forward-looking statements and are based on various underlying

assumptions and expectations and are subject to known and unknown risks, uncertainties and assumptions,

may include projections of our future financial performance based on our growth strategies and anticipated

trends in our business. These statements are only predictions based on our current expectations and

projections about future events. There are important factors that could cause our actual results, level of

activity, performance or achievements to differ materially from the results, level of activity, performance or

achievements expressed or implied in the forward-looking statements. As a result, there can be no assurance

that the forward-looking statements included in this presentation will prove to be accurate or correct. In light

of these risks, uncertainties and assumptions, the future performance or events described in the forward-

looking statements in this presentation might not occur. Accordingly, you should not rely upon forward-looking

statements as a prediction of actual results and we do not assume any responsibility for the accuracy or

completeness of any of these forward-looking statements that may be made from time to time. We are under

no obligation (and expressly disclaim any such obligation) to update or revise any forward-looking statements,

whether as a result of new information, future developments or otherwise.

Agenda

Executive Summary

Operating Segments

U.S. Insurance

International Insurance

Reinsurance

Financial Highlights

Conclusion

Appendix

Allied World’s Franchise

Well-diversified property and casualty insurer and reinsurer

with significant geographic reach

Experienced executive management team with strong risk

management culture

Excellent capitalization with active capital management

Highly

Rated

–

“A”

(Strong)

S&P,

“A”

(Excellent)

A.M.

Best

and

“A2”

(Good)

Moody’s

Industry leading results and value creation

Diversified

insurance

and

reinsurance

products offered across global platform with

operations in the U.S., Bermuda, Lloyd’s,

Europe, Hong Kong and Singapore

Emphasis on insurance and

casualty

lines

with

strong

reinsurance

and property capabilities

Customer focus

Moving closer to clients in markets

Demonstrated expertise in markets in

which we underwrite

A “go to”

market for targeted lines and

classes of business such as healthcare and

construction

Allied World –

A Diversified mix

Leading specialty insurance company with broad range of product offerings,

global capabilities and significant U.S. focus

* Includes healthcare-related program business

Total TTM March 2012 GPW: $ 2,060M

68% Insurance / 32% Reinsurance

74% Casualty / 26% Property

Experienced Management: Shifting the Business Focus

2007 GPW: $1,506M

In response to the changing macro economic environment, Allied World

has transformed itself since 2007

TTM March 2012 GPW: $2,060M

Allied World 2007

Allied World Today

Reduced dependence on Bermuda

large account excess business

U.S. segment has increased

significantly with focus on small and

middle market account primary and

specialty business

Reinsurance segment now with strong

U.S. presence and growing

internationally

Active Capital Management Improves Shareholder Value

* Excludes $243.8 million syndicated loan which was repaid on February 23, 2009

Diluted book value per

share has more than

doubled since 2007

Capital Management History

o

Share Repurchases

•

Shareholders approved new $500

million share repurchase program in

May 2012

•

$1.5 billion of shares and warrants

repurchased between December 2007

and March 2011

•

$81 million remaining capacity in

original share repurchase program as of

March 2012

•

$214 million of common dividends paid

since 2007; current quarterly dividend

of $0.375 per share

o

Conservative Capital Position:

•

$300 million in ten-year senior notes

issued in November 2010; financial

leverage of 19.7% at March 2012

(In millions, except for per share amounts)

Dividends:

Superior Value Creation Since 2006 IPO

Compound annual growth in diluted book value per share calculated by taking change in diluted book value per share from

September 2006 through March 2012 adjusted for common dividends declared or paid.

Compound Annual

Growth in Diluted

Book Value per

Share through

March 2012

19.7%

17.7%

15.2%

13.6%

13.3%

13.1%

13.0%

12.7%

11.9%

11.6%

8.6%

Allied World

Arch

Endurance

Axis

HCC

RLI

Aspen

Berkley

Navigators

Markel

Argo

Agenda

Executive Summary

Operating Segments

U.S. Insurance

International Insurance

Reinsurance

Financial Highlights

Conclusion

Appendix

Our U.S. Insurance Operating Segment

A significant U.S.-

based specialty franchise with diversified offerings

•

Direct property and casualty insurance for

small and middle-market non-Fortune 1000

companies

•

Ten branch offices in strategic locations

throughout the U.S.

•

Admitted and excess & surplus lines (E&S)

capabilities in all 50 states

•

Increased access to attractive small account

primary business

•

Industry verticals strategy

•

New specialty products

o

Defense Base Act approved underwriter,

environmental, inland marine and M&A

capabilities

* Includes healthcare-related program business

Allied World U.S. Insurance Operating Segment

Product Mix

Total TTM March 2012 GPW: $860M

o

Focused on servicing products in select industry

classes, including healthcare, private / non-profit,

and public entity / construction

Allied World International Insurance Operating

Segment Product Mix

Our International Insurance Operating Segment

Global Diversification and Expansion

•

Offices in Bermuda, Dublin, Hong Kong,

London, Singapore and Zug position the

company to meet developing

opportunities

•

Lloyd’s Syndicate 2232

•

New product capabilities:

•

MGA and program business initiated in

targeted areas

Total TTM March 2012 GPW: $533M

o

Association with Lloyd’s enhances Allied World’s

brand recognition

o

Increases access to Latin America and Asia-

Pacific region

o

Offers treaty and individual risk products

o

Trade credit and political risk

o

European healthcare

o

Small-to-medium enterprises (SME Professional)

Allied World Reinsurance Operating Segment

Product Mix

•

U.S. operation has improved access to

U.S. regional business and

strengthened local relationships

•

Strategic Bermuda Platform

•

Swiss and Singapore offices and Lloyd’s

Syndicate 2232 increases global reach

Our Reinsurance Operating Segment

Flexibility to take advantage of reinsurance opportunities in the global marketplace

Total TTM March 2012 GPW: $667M

o

Property reinsurance capabilities that focus on

small and medium account regional carriers

o

In late 2010, launched Global Marine and

Specialty Unit that offers marine and aerospace

coverages as well as crop and hail business

o

Property catastrophe, property per risk,

workers’

compensation catastrophe, accident

& health and specialty casualty

o

Significantly expanded reinsurance capabilities

throughout Europe, Latin American, Middle

East, Africa and the Asia Pacific region

Quarterly Highlights –

First Quarter 2012

Investments in operations are paying off with increased production and strong

underwriting results across all of our operating segments

•

Record quarter for the company with gross premiums written of

$680 million, up over 21% from prior period

•

Combined ratio of 85.2% for the quarter reflecting benign

catastrophe activity; expense ratio lowered to 29.2%, down 2.5

points from prior period

•

Reinsurance Segment

•

U.S. Insurance Segment

•

International Insurance Segment

o

Crop and marine business increased to $80 million, up 4.5 times from the prior

year reflecting added expertise and capabilities in this area

o

Asia platform premiums increased to $29 million in the first quarter of 2012,

almost doubling from prior period

o

Premium increased $21 million, or 11.4% from prior period with growth across

most product lines including general property and specialty casualty classes

o

Premiums increased for fourth straight quarter reflecting the continued

build out of specialty classes of business

Agenda

Executive Summary

Operating Segments

U.S. Insurance

International Insurance

Reinsurance

Financial Highlights

Conclusion

Appendix

* Peer

average

include

ACGL,

AGII,

AHL,

AXS,

ENH,

HCC,

MKL,

RLI,

THG,

NAVG

and

WRB.

Source: SNL Financial

Operating Income and Combined Ratio

Strong Operating Performance

Expense Ratio Declining as We Build Scale

Note: GAAP expense ratio

Peer

average

includes

ACGL,

AGII,

AHL,

AXS,

ENH,

HCC,

MKL,

NAVG,

RLI,

THG

and

WRB.

Source: SNL Financial

Allied World expanded global operations,

including: the build-out of the U.S. platform,

the acquisition of Darwin, the establishment

of a U.S. reinsurance company and the

opening of Lloyd's Syndicate 2232

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

CY Total

CY Original Loss Ratio

70.1%

65.3%

75.9%

103.1%

59.6%

58.4%

55.6%

45.9%

52.1%

65.8%

56.0%

Prior Year Development

0.0%

-4.9%

-5.8%

-3.6%

-8.2%

-10.2%

-24.2%

-18.8%

-23.1%

-17.4%

-9.8%

AY Original Loss Ratio

70.1%

81.7%

106.7%

67.7%

68.6%

79.8%

64.7%

75.1%

83.2%

65.9%

2002

2003

(56.8)

2004

(26.7)

(52.7)

(79.4)

2005

(8.4)

(45.7)

5.6

(48.5)

2006

(16.5)

(43.1)

(45.3)

(8.2)

(113.0)

2007

6.2

(33.8)

(76.9)

(6.2)

(26.1)

(136.9)

2008

(8.9)

(87.9)

(100.3)

(73.8)

(7.8)

(33.9)

(312.6)

2009

(16.5)

(57.2)

(118.1)

(102.5)

11.6

2.4

32.2

(248.0)

2010

4.4

(10.9)

(57.0)

(146.7)

(54.4)

(24.8)

(22.6)

(1.2)

(313.4)

2011

(0.0)

(1.3)

(22.1)

(89.5)

(42.3)

(68.7)

(21.7)

(27.9)

20.1

(253.5)

2012

(1.2)

(1.8)

(1.3)

(13.9)

(25.6)

(25.2)

(2.9)

(2.3)

2.7

32.0

(39.5)

Subsequent Development

(124.6)

(334.3)

(415.3)

(440.9)

(144.7)

(150.2)

(15.0)

(31.4)

22.8

32.0

(1,601.6)

Loss Ratio Points

-28.7%

-28.5%

-30.3%

-32.5%

-10.4%

-11.2%

-1.2%

-2.4%

1.7%

2.2%

AY Developed

41.3%

41.6%

51.4%

74.2%

57.3%

57.4%

78.6%

62.3%

76.8%

85.4%

65.9%

Cat Losses

16.4%

28.1%

9.8%

6.2%

20.8%

AY Developed EX Cat Losses

41.3%

41.6%

35.0%

46.1%

57.3%

57.4%

68.9%

62.3%

70.6%

64.6%

65.9%

Case Incurred through 2012 Q1

39.2%

33.8%

45.4%

59.7%

39.4%

39.0%

48.1%

24.4%

41.6%

35.2%

6.8%

Remaining IBNR / EP Ratio @ 2012 Q1

2.1%

7.8%

6.0%

14.5%

17.8%

18.3%

30.6%

37.9%

35.2%

50.2%

59.1%

Strong Underwriting Results

Underwriting performance has been strong since our inception

Historical Loss Ratios Through March 31, 2012 ($MM)

(1) Pro-forma including Darwin development since inception

(2) Case incurred ratios by year are not directly comparable to our financial statements as reinsurance case incurred losses shown above are on a treaty year basis

March 31, 2012 Total: $4.3B

•

Net reserves about 4.8% above mid-point of range at

March 31, 2012

•

$1.6 billion net favorable reserve development since

inception (including Darwin development)

•

72% of reserves are IBNR

Net Loss & LAE Reserve Mix at March 31, 2012

Net Prior Year Reserve Releases* ($MM)

Range of Net Reserves at March 31, 2012 ($MM)

Prudent Reserving Philosophy

* Pro-forma including Darwin

development since inception

Case

U.S. Insurance

Case

International

Insurance

Case

Reinsurance

11%

Investment Portfolio Highlights

•

We maintain a short

duration/overweight credit

position in core fixed-income

•

We will continue to build out

non-core portfolio in 2012.

Relative value and significant

market volatility remains in

favor of a diversified

portfolio, by asset class as

well as by issuer

Total Cash and Investments: $8.4 B

Portfolio Yield: 2.4%

Q1 2012 Total Portfolio Return: 2.0%

Average Credit Quality (S&P): AA-

Financial Highlights

Operating Results

Q1 2012

2011

2010

2009

2008

Net Income

$218M

$275M

$665M

$607M

$184M

Operating Income

$91M

$184M

$398M

$538M

$455M

Annualized Net Income Return on Average Equity

27.4%

8.9%

21.9%

22.6%

8.3%

Annualized Operating Return on Average Equity

11.5%

6.0%

13.1%

20.0%

20.6%

Combined Ratio

85.2%

95.9%

84.9%

76.1%

84.1%

Cash flow from Operations

$143M

$548M

$451M

$668M

$657M

Total Investment Portfolio Return

2.0%

6.1%

7.9%

0.5%

Ending Diluted Book Value per Share

$85.48

$80.11

$74.29

$59.56

$46.05

Growth in Diluted Book Value Per Share

25%

29%

Allied World has reported very strong results despite competitive landscape,

financial turbulence and catastrophe activity

Peer Comparisons –

Operating Income ROE

Source: SNL Financial

Five Year Average Quarterly Annualized Operating ROE

April

2007

–

March

2012

Peer Average = 10.4%

15.1%

14.8%

13.5%

13.4%

11.7%

10.6%

10.2%

9.0%

8.5%

8.4%

4.0%

AWH

RLI

ACGL

WRB

HCC

ENH

AXS

AHL

MKL

NAVG

Argo

Catastrophe Losses at Low End of Competitors

Catastrophe Losses as a % of Prior Year

Shareholders’

Equity

2007 shareholders’

equity includes Max Capital and Harbor Point

Hurricanes Ike and Gustav

Percentages represent pre tax catastrophe losses divided by prior year-end shareholders equity.

Source: SNL Financial and company filings

Catastrophe

losses in line with

our risk appetite

Growth in book value per share calculated by taking change in book value per share from March 31, 2007 through March 31,

2012 adjusted for dividends paid or declared. Diluted book value per share used when available

Peer Average = 77%

Five Year Growth in Book Value per Share

April 2007 –

March 2012

Superior Book Value Growth Versus Peers

143%

113%

89%

83%

81%

77%

71%

56%

46%

AWH

ACGL

ENH

HCC

AHL

AXS

RLI

WRB

NAVG

MKL

AGII

Agenda

Executive Summary

Operating Segments

U.S. Insurance

International Insurance

Reinsurance

Financial Highlights

Conclusion

Appendix

Conclusion

Despite recent gains, current valuation is still inconsistent

with company’s historical performance and strong

position to capitalize on market opportunities

Well-diversified property and casualty insurer and reinsurer

with significant geographic reach

Experienced executive management team with strong risk

management culture

Excellent capitalization with active capital management

Highly

Rated

–

“A”

(Strong)

S&P,

“A”

(Excellent)

A.M.

Best

and

“A2”

(Good)

Moody’s

Industry leading results and value creation

Five Year Growth in Book Value per Share

vs.

Price to Book Value

Conclusion

Allied World is attractively valued given its historical performance

0.50

1.00

1.50

2.00

25%

50%

75%

100%

125%

150%

Five Year Growth in Book Value Per Share

AWH

ACGL

AGII

AHL

AXS

ENH

HCC

MKL

NAVG

RLI

WRB

Growth in book value per share calculated by taking change in book value per share from March 31, 2007 through March 31,

2012 adjusted for dividends paid or declared. Price to book as of May 10, 2012. Diluted book value per share used when

available

Agenda

Executive Summary

Operating Segments

U.S. Insurance

International Insurance

Reinsurance

Financial Highlights

Conclusion

Appendix

Non-GAAP Financial Measures

In presenting the company's results, management has included and discussed in this presentation 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 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, net foreign exchange gain or loss, impairment

of intangible assets and other non-recurring items. The company excludes net realized investment gains or losses, net impairment charges recognized in

earnings, net foreign exchange gain or loss and other non-recurring items from its calculation of operating income because these amounts are heavily

influenced by and fluctuate 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 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.

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 return on average shareholders' equity" ("ROAE") 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 risk premium 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 return on average shareholders' equity

explanation above.

See slides 29 - 31 for a reconciliation of non-GAAP measures used in this presentation to their most directly comparable GAAP measures.

Non-GAAP Financial Measures -

Reconciliations

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

UNAUDITED ANNUALIZED RETURN ON SHAREHOLDERS' EQUITY RECONCILIATION

(Expressed in thousands of United States dollars, except for percentage information)

2012

2011

Opening shareholders' equity

3,149,022

3,075,820

Deduct: accumulated other comprehensive income

(14,484)

(57,135)

Adjusted opening shareholders' equity

3,134,538

3,018,685

Closing shareholders' equity

3,245,821

2,950,953

Deduct: accumulated other comprehensive income

(2,325)

(32,963)

Adjusted closing shareholders' equity

3,243,496

2,917,990

Average shareholders' equity

3,189,017

2,968,338

Net income available to shareholders

218,156

8,620

Annualized net income available to shareholders

872,624

34,480

Annualized return on average shareholders' equity - net income available

to shareholders

27.4%

1.2%

Operating income (loss) available to shareholders

91,505

(41,348)

Annualized operating income (loss) available to shareholders

366,020

(165,392)

Annualized return on average shareholders' equity - operating income

(loss) available to shareholders

11.5%

(5.6%)

Quarter Ended March 31,

Non-GAAP Financial Measures -

Reconciliations

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

UNAUDITED OPERATING INCOME RECONCILIATION

(Expressed in thousands of United States dollars, except share and per share amounts)

2012

2011

Net income

218,156

8,620

Add after tax affect of:

Net realized investment gains

(126,570)

(49,526)

Foreign exchange gain

(81)

(442)

Operating income (loss)

91,505

(41,348)

Weighted average common shares outstanding:

Basic

37,205,166

38,199,867

Diluted

38,284,635

40,383,523

Basic per share data:

Net income

5.86

0.23

Add after tax affect of:

Net realized investment gains

(3.40)

(1.30)

Foreign exchange gain

(0.01)

Operating income (loss)

2.46

(1.08)

Diluted per share data:

Net income

5.70

0.21

Add after tax affect of:

Net realized investment gains

(3.31)

(1.22)

Foreign exchange gain

(0.01)

Operating income (loss)

2.39

(1.02)

Quarter Ended March 31,

Non-GAAP Financial Measures -

Reconciliations

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

March 31,

December 31,

March 31,

2012

2011

Price per share at period end

68.67

62.93

62.69

Total shareholders' equity

3,245,821

3,149,022

2,950,953

Basic common shares outstanding

36,786,067

37,742,131

37,899,699

Add: unvested restricted share units

187,623

249,251

475,679

Add: performance based equity awards

524,888

889,939

920,164

Add: employee share purchase plan

11,053

Add: dilutive options/warrants outstanding

1,429,333

1,525,853

1,674,993

Weighted average exercise price per share

45.98

45.72

45.47

Deduct: options bought back via treasury method

(957,064)

(1,108,615)

(1,215,020)

Common shares and common share

equivalents outstanding

37,970,847

39,309,612

39,755,515

Basic book value per common share

88.24

83.44

77.86

Diluted book value per common share

85.48

80.11

74.23

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