e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: June 30, 2011
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-32938
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
(Exact Name of Registrant as Specified in Its Charter)
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Switzerland
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98-0681223 |
(State or Other Jurisdiction of
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(I.R.S. Employer |
Incorporation or Organization)
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Identification No.) |
Lindenstrasse 8, 6340 Baar, Zug, Switzerland
(Address of Principal Executive Offices and Zip Code)
41-41-768-1080
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of August 1, 2011, 38,122,226 common shares were outstanding.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
as of June 30, 2011 and December 31, 2010
(Expressed in thousands of United States dollars, except share and per share amounts)
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As of |
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As of |
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June 30, |
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December 31, |
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2011 |
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2010 |
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ASSETS |
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Fixed maturity investments available for sale, at fair value (amortized cost: 2011: $318,711;
2010: $828,544) |
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$ |
345,551 |
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$ |
891,849 |
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Fixed maturity investments trading, at fair value |
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6,201,034 |
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5,769,097 |
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Equity securities trading, at fair value |
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393,913 |
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174,976 |
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Other invested assets trading, at fair value |
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562,267 |
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347,632 |
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Total investments |
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7,502,765 |
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7,183,554 |
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Cash and cash equivalents |
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740,804 |
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756,995 |
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Restricted cash |
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66,853 |
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96,373 |
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Insurance balances receivable |
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653,002 |
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529,927 |
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Prepaid reinsurance |
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223,269 |
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187,287 |
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Reinsurance recoverable |
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1,013,951 |
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927,588 |
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Accrued investment income |
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39,582 |
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40,520 |
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Net deferred acquisition costs |
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112,083 |
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96,803 |
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Goodwill |
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268,376 |
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268,376 |
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Intangible assets |
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55,342 |
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56,876 |
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Balances receivable on sale of investments |
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106,486 |
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188,408 |
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Net deferred tax assets |
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19,826 |
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19,740 |
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Other assets |
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54,760 |
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75,184 |
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Total assets |
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$ |
10,857,099 |
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$ |
10,427,631 |
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LIABILITIES: |
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Reserve for losses and loss expenses |
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$ |
5,251,304 |
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$ |
4,879,188 |
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Unearned premiums |
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1,184,676 |
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962,203 |
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Reinsurance balances payable |
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132,661 |
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99,732 |
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Balances due on purchases of investments |
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358,837 |
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506,978 |
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Senior notes |
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797,823 |
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797,700 |
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Accounts payable and accrued liabilities |
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87,381 |
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106,010 |
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Total liabilities |
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$ |
7,812,682 |
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$ |
7,351,811 |
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SHAREHOLDERS EQUITY: |
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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) |
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600,055 |
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600,055 |
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Additional paid-in capital |
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82,037 |
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170,239 |
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Treasury shares, at cost (2011: 2,058,599; 2010: 1,914,416) |
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(124,392 |
) |
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(112,811 |
) |
Retained earnings |
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2,463,622 |
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2,361,202 |
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Accumulated other comprehensive income: net unrealized gains on investments, net of tax |
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23,095 |
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57,135 |
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Total shareholders equity |
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3,044,417 |
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3,075,820 |
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Total liabilities and shareholders equity |
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$ |
10,857,099 |
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$ |
10,427,631 |
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See accompanying notes to the consolidated financial statements.
-1-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
for the three and six months ended June 30, 2011 and 2010
(Expressed in thousands of United States dollars, except share and per share amounts)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2011 |
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2010 |
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2011 |
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2010 |
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REVENUES: |
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Gross premiums written |
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$ |
519,598 |
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$ |
493,847 |
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$ |
1,080,286 |
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$ |
998,010 |
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Premiums ceded |
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(123,795 |
) |
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(124,052 |
) |
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(203,612 |
) |
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(194,923 |
) |
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Net premiums written |
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395,803 |
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369,795 |
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876,674 |
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803,087 |
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Change in unearned premiums |
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(40,496 |
) |
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(30,871 |
) |
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(186,491 |
) |
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(125,839 |
) |
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Net premiums earned |
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355,307 |
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338,924 |
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690,183 |
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677,248 |
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Net investment income |
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52,368 |
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65,594 |
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102,576 |
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134,496 |
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Net realized investment gains |
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58,878 |
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94,933 |
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109,254 |
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172,420 |
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Net impairment charges recognized in earnings: |
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Total other-than-temporary impairment charges |
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(168 |
) |
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Portion of loss recognized in other comprehensive income,
before taxes |
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Net impairment charges recognized in earnings |
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(168 |
) |
Other income |
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616 |
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913 |
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466,553 |
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500,067 |
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902,013 |
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984,909 |
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EXPENSES: |
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Net losses and loss expenses |
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235,813 |
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188,722 |
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540,265 |
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420,876 |
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Acquisition costs |
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42,971 |
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37,938 |
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81,053 |
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78,722 |
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General and administrative expenses |
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67,201 |
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68,089 |
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135,157 |
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131,552 |
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Amortization and impairment of intangible assets |
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766 |
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|
891 |
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1,533 |
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1,783 |
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Interest expense |
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13,745 |
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9,531 |
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27,487 |
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19,059 |
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Foreign exchange loss |
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1,184 |
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|
559 |
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742 |
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1,635 |
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361,680 |
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305,730 |
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786,237 |
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653,627 |
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Income before income taxes |
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104,873 |
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|
194,337 |
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115,776 |
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331,282 |
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Income tax expense |
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11,073 |
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|
10,378 |
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13,356 |
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13,583 |
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NET INCOME |
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93,800 |
|
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|
183,959 |
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|
102,420 |
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|
317,699 |
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Other comprehensive loss: |
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Unrealized gains on investments arising during the period net
of applicable deferred income tax expense for the three
months ended June 30, 2011: $1,461; 2010: $471 and six
months ended June 30, 2011: $2,425; 2010: $690 |
|
|
13,680 |
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|
63,852 |
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|
|
5,636 |
|
|
|
101,322 |
|
Reclassification adjustment for net realized investment gains
included in net income, net of applicable income tax |
|
|
(23,548 |
) |
|
|
(67,891 |
) |
|
|
(39,676 |
) |
|
|
(112,926 |
) |
|
|
|
|
|
|
|
|
|
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Other comprehensive loss |
|
|
(9,868 |
) |
|
|
(4,039 |
) |
|
|
(34,040 |
) |
|
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(11,604 |
) |
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COMPREHENSIVE INCOME |
|
$ |
83,932 |
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|
$ |
179,920 |
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$ |
68,380 |
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$ |
306,095 |
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PER SHARE DATA |
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Basic earnings per share |
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$ |
2.45 |
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$ |
3.66 |
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$ |
2.69 |
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$ |
6.34 |
|
Diluted earnings per share |
|
$ |
2.36 |
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$ |
3.47 |
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$ |
2.57 |
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$ |
5.98 |
|
Weighted average common shares outstanding |
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|
38,346,489 |
|
|
|
50,222,974 |
|
|
|
38,061,724 |
|
|
|
50,123,945 |
|
Weighted average common shares and common share
equivalents outstanding |
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|
39,800,753 |
|
|
|
52,974,410 |
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|
39,873,418 |
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|
53,086,708 |
|
Dividends paid per share |
|
$ |
|
|
|
$ |
0.20 |
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|
$ |
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|
$ |
0.40 |
|
See accompanying notes to the consolidated financial statements.
-2-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
for the six months ended June 30, 2011 and 2010
(Expressed in thousands of United States dollars, except Swiss Franc (CHF) share capital)
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Accumulated |
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Additional |
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Other |
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Share Capital |
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Share Capital |
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Paid-in |
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|
Treasury |
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Comprehensive |
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Retained |
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|
|
|
|
|
USD |
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CHF |
|
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Capital |
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Shares |
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Income |
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Earnings |
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|
Total |
|
December 31, 2010 |
|
$ |
|
|
|
|
600,055 |
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|
$ |
170,239 |
|
|
$ |
(112,811 |
) |
|
$ |
57,135 |
|
|
$ |
2,361,202 |
|
|
$ |
3,075,820 |
|
|
|
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|
|
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|
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|
|
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Net income |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
102,420 |
|
|
|
102,420 |
|
Dividends |
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Other comprehensive loss |
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
(34,040 |
) |
|
|
|
|
|
|
(34,040 |
) |
Stock compensation |
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|
|
|
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|
(34,582 |
) |
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|
48,419 |
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|
|
|
|
|
|
|
|
13,837 |
|
Share repurchases |
|
|
|
|
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|
|
|
|
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|
(60,000 |
) |
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|
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|
|
|
(60,000 |
) |
Repurchase of founder warrants |
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|
|
|
|
|
|
|
|
(53,620 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53,620 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
$ |
|
|
|
|
600,055 |
|
|
$ |
82,037 |
|
|
$ |
(124,392 |
) |
|
$ |
23,095 |
|
|
$ |
2,463,622 |
|
|
$ |
3,044,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
$ |
1,492 |
|
|
|
|
|
|
$ |
1,359,934 |
|
|
$ |
|
|
|
$ |
149,849 |
|
|
$ |
1,702,020 |
|
|
$ |
3,213,295 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
317,699 |
|
|
|
317,699 |
|
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,109 |
) |
|
|
(20,109 |
) |
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,604 |
) |
|
|
|
|
|
|
(11,604 |
) |
Stock compensation |
|
|
23 |
|
|
|
|
|
|
|
18,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,351 |
|
Share repurchase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49,089 |
) |
|
|
|
|
|
|
|
|
|
|
(49,089 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010 |
|
$ |
1,515 |
|
|
|
|
|
|
$ |
1,378,262 |
|
|
$ |
(49,089 |
) |
|
$ |
138,245 |
|
|
$ |
1,999,610 |
|
|
$ |
3,468,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
See accompanying notes to the consolidated financial statements.
-3-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended June 30, 2011 and 2010
(Expressed in thousands of United States dollars)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
102,420 |
|
|
$ |
317,699 |
|
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
Net realized gains on sales of investments |
|
|
(52,906 |
) |
|
|
(113,151 |
) |
Mark to market adjustments |
|
|
(77,318 |
) |
|
|
(59,269 |
) |
Net impairment charges recognized in earnings |
|
|
|
|
|
|
168 |
|
Stock compensation expense |
|
|
12,112 |
|
|
|
17,454 |
|
Insurance balances receivable |
|
|
(123,075 |
) |
|
|
(156,709 |
) |
Prepaid reinsurance |
|
|
(35,982 |
) |
|
|
(15,497 |
) |
Reinsurance recoverable |
|
|
(86,363 |
) |
|
|
(12,444 |
) |
Accrued investment income |
|
|
938 |
|
|
|
6,941 |
|
Net deferred acquisition costs |
|
|
(15,280 |
) |
|
|
(15,465 |
) |
Net deferred tax assets |
|
|
2,339 |
|
|
|
8,415 |
|
Other assets |
|
|
15,686 |
|
|
|
22,318 |
|
Reserve for losses and loss expenses |
|
|
372,116 |
|
|
|
158,663 |
|
Unearned premiums |
|
|
222,473 |
|
|
|
141,337 |
|
Reinsurance balances payable |
|
|
32,929 |
|
|
|
34,953 |
|
Accounts payable and accrued liabilities |
|
|
(18,629 |
) |
|
|
(23,806 |
) |
Other items, net |
|
|
10,386 |
|
|
|
(6,005 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
361,846 |
|
|
|
305,602 |
|
|
|
|
|
|
|
|
CASH FLOWS USED IN INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchases of fixed maturity investments available for sale |
|
|
(352 |
) |
|
|
(113,118 |
) |
Purchases of fixed maturity investments trading |
|
|
(3,949,447 |
) |
|
|
(6,927,637 |
) |
Purchases of equity securities |
|
|
(245,340 |
) |
|
|
(75,473 |
) |
Purchases of other invested assets |
|
|
(240,410 |
) |
|
|
(127,538 |
) |
Sales of fixed maturity investments available for sale |
|
|
560,794 |
|
|
|
1,827,800 |
|
Sales of fixed maturity investments trading |
|
|
3,503,758 |
|
|
|
5,344,007 |
|
Sales of equity securities |
|
|
36,295 |
|
|
|
2,019 |
|
Sales of other invested assets |
|
|
36,067 |
|
|
|
1,136 |
|
Purchases of fixed assets |
|
|
(2,316 |
) |
|
|
(5,213 |
) |
Change in restricted cash |
|
|
29,520 |
|
|
|
(13,643 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(271,431 |
) |
|
|
(87,660 |
) |
|
|
|
|
|
|
|
CASH FLOWS USED IN FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Dividends paid |
|
|
|
|
|
|
(20,109 |
) |
Proceeds from the exercise of stock options |
|
|
4,824 |
|
|
|
3,576 |
|
Share repurchases |
|
|
(60,000 |
) |
|
|
(49,089 |
) |
Repurchase of founder warrants |
|
|
(53,620 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(108,796 |
) |
|
|
(65,622 |
) |
|
|
|
|
|
|
|
Effect of exchange rate changes on foreign currency cash |
|
|
2,190 |
|
|
|
(1,819 |
) |
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
(16,191 |
) |
|
|
150,501 |
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
|
756,995 |
|
|
|
292,188 |
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
$ |
740,804 |
|
|
$ |
442,689 |
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
433 |
|
|
$ |
4,386 |
|
Cash paid for interest expense |
|
|
27,000 |
|
|
|
18,750 |
|
See
accompanying notes to the consolidated financial statements.
-4-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
1. GENERAL
Allied World Assurance Company Holdings, AG, a Swiss holding company (Allied World
Switzerland), through its wholly-owned subsidiaries (collectively, the Company), provides
property and casualty insurance and reinsurance on a worldwide basis through operations in Bermuda,
the United States, Europe, Hong Kong and Singapore.
On November 26, 2010, the Company received approval from the Supreme Court of Bermuda to
change the place of incorporation of the ultimate parent company from Bermuda to Switzerland (the
Redomestication), which was completed on December 1, 2010. The ultimate parent company is now
Allied World Switzerland, which wholly owns the former public company, Allied World Assurance
Company Holdings, Ltd (Allied World Bermuda). After the Redomestication, the Company continues to
report under accounting principles generally accepted in the United States of America (U.S. GAAP)
and the Companys common shares continue to trade on the New York Stock Exchange under the symbol
AWH, the same symbol under which the common shares were listed prior to the Redomestication. In
addition, the Company remains subject to U.S. Securities and Exchange Commission (SEC) reporting
requirements and continues to report consolidated financial results in U.S. dollars. The Company
believes the Redomestication provides the ability to maintain a competitive worldwide effective
corporate tax rate.
2. BASIS OF PREPARATION AND CONSOLIDATION
These unaudited condensed consolidated financial statements include the accounts of the
Company and have been prepared in accordance with U.S. GAAP for interim financial information and
with Article 10 of Regulation S-X as promulgated by the SEC. Accordingly, they do not include all
of the information and footnotes required by U.S. GAAP for complete financial statements. In the
opinion of management, these unaudited condensed consolidated financial statements reflect all
adjustments that are normal and recurring in nature and necessary for a fair presentation of
financial position and results of operations as of the end of and for the periods presented. The
results of operations for any interim period are not necessarily indicative of the results for a
full year.
The preparation of financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates. The significant estimates reflected in the Companys financial statements
include, but are not limited to:
|
|
|
The premium estimates for certain reinsurance agreements, |
|
|
|
|
Recoverability of deferred acquisition costs, |
|
|
|
|
The reserve for outstanding losses and loss expenses, |
|
|
|
|
Valuation of ceded reinsurance recoverables, |
|
|
|
|
Determination of impairment of goodwill and other intangible assets, |
|
|
|
|
Valuation of financial instruments, and |
|
|
|
|
Determination of other-than-temporary impairment of investments. |
Inter-company accounts and transactions have been eliminated on consolidation and all entities
meeting consolidation requirements have been included in the consolidation.
These unaudited condensed consolidated financial statements, including these notes, should be
read in conjunction with the Companys audited consolidated financial statements, and related notes
thereto, included in the Companys Annual Report on Form 10-K for the year ended December 31, 2010.
-5-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
3. NEW ACCOUNTING PRONOUNCEMENTS
In July 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) 2010-20, Disclosures about the Credit Quality of Financing Receivables and the
Allowance for Credit Losses (ASU 2010-20). ASU 2010-20 enhances disclosures about credit quality
of financing receivables and the allowance of credit losses by requiring additional information
regarding the Companys credit risk exposures and evaluating the adequacy of its allowance for
credit losses. The balance sheet related disclosures for ASU 2010-20 were effective for the year
ended December 31, 2010 and the income statement related disclosures were effective for the quarter
ended March 31, 2011. Refer to Note 15 for the Companys related disclosures.
In October 2010, the FASB issued ASU 2010-26, Accounting for Costs Associated with Acquiring
or Renewing Insurance Contracts (ASU 2010-26). ASU 2010-26 clarifies what costs associated with
acquiring or renewing insurance contracts can be deferred and amortized over the coverage period.
Under the revised guidance of ASU 2010-26, incremental direct costs that result directly from and
are essential to the insurance contract and would not have been incurred had the insurance contract
not been written are costs that may be capitalized, including costs relating to activities
specifically performed by the Company such as underwriting, policy issuance and processing. ASU
2010-26 will be effective January 1, 2012 and early adoption is permitted. The Company has not
elected early adoption and is currently evaluating the provisions of ASU 2010-26 and its potential
impact on future financial statements.
In January 2011, the FASB issued ASU 2011-01, Deferral of the Effective Date of Disclosures
about Troubled Debt Restructurings in Update No. 2010-20. In April 2011, the FASB issued ASU
2011-02 A Creditors Determination of Whether a Restructuring is a Troubled Debt Restructuring
(ASU 2011-02). ASU 2011-02 provides further guidance on what constitutes a troubled debt
restructuring. The guidance is effective for interim and annual periods beginning on or after June
15, 2011 and applies retrospectively to restructurings within the fiscal year of adoption. Refer to
Note 15 for the Companys related disclosures.
In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement
and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04). ASU 2011-04 provides a
consistent meaning for the term fair value between the FASB and International Accounting
Standards Board and establishes common requirements for measuring and disclosing information
related thereto. ASU 2011-04 is effective on a prospective basis for interim and annual periods
beginning on or after December 15, 2011 and early adoption is prohibited. The Company is currently
assessing the provisions of ASU 2011-04 and its potential impact on future financial statements.
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (ASU
2011-05). ASU 2011-05 eliminates the option to present the components of other comprehensive
income as part of the statement of changes in stockholders equity, requires consecutive
presentation of the statement of net income and other comprehensive income and requires the
presentation of reclassification adjustments on the face of the financial statements from other
comprehensive income to net income. ASU 2011-05 is effective on a retrospective basis for interim
and annual periods beginning on or after December 15, 2011. The Company is currently assessing the
provisions of ASU 2011-05 and its potential impact on future financial statements.
4. INVESTMENTS
a) Available for Sale Securities
The amortized cost, gross unrealized gains, gross unrealized losses and fair value of the
Companys available for sale investments by category are as follows:
-6-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Value |
|
June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and Government agencies |
|
$ |
37,597 |
|
|
$ |
1,419 |
|
|
$ |
|
|
|
$ |
39,016 |
|
States, municipalities and political subdivisions |
|
|
43,343 |
|
|
|
5,323 |
|
|
|
|
|
|
|
48,666 |
|
Corporate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial institutions |
|
|
41,186 |
|
|
|
2,365 |
|
|
|
|
|
|
|
43,551 |
|
Industrials |
|
|
95,583 |
|
|
|
7,656 |
|
|
|
|
|
|
|
103,239 |
|
Utilities |
|
|
101,002 |
|
|
|
10,077 |
|
|
|
|
|
|
|
111,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity investments, available for
sale |
|
$ |
318,711 |
|
|
$ |
26,840 |
|
|
$ |
|
|
|
$ |
345,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and Government agencies |
|
$ |
85,030 |
|
|
$ |
6,923 |
|
|
$ |
|
|
|
$ |
91,953 |
|
Non-U.S. Government and Government agencies |
|
|
138,386 |
|
|
|
9,539 |
|
|
|
(2,541 |
) |
|
|
145,384 |
|
States, municipalities and political subdivisions |
|
|
107,289 |
|
|
|
10,901 |
|
|
|
(13 |
) |
|
|
118,177 |
|
Corporate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial institutions |
|
|
66,660 |
|
|
|
6,776 |
|
|
|
(38 |
) |
|
|
73,398 |
|
Industrials |
|
|
310,664 |
|
|
|
20,548 |
|
|
|
(2 |
) |
|
|
331,210 |
|
Utilities |
|
|
120,515 |
|
|
|
11,212 |
|
|
|
|
|
|
|
131,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity investments, available for
sale |
|
$ |
828,544 |
|
|
$ |
65,899 |
|
|
$ |
(2,594 |
) |
|
$ |
891,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
b) Trading Securities
Securities accounted for at fair value with changes in fair value recognized in the unaudited
condensed consolidated statements of operations (consolidated income statements) by category are
as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
December 31, 2010 |
|
U.S. Government and Government agencies |
|
$ |
982,274 |
|
|
$ |
1,229,720 |
|
Non-U.S. Government and Government agencies |
|
|
177,529 |
|
|
|
120,793 |
|
States, municipalities and political subdivisions |
|
|
108,256 |
|
|
|
127,436 |
|
Corporate debt: |
|
|
|
|
|
|
|
|
Financial institutions |
|
|
1,440,554 |
|
|
|
1,261,219 |
|
Industrials |
|
|
772,829 |
|
|
|
627,524 |
|
Utilities |
|
|
135,492 |
|
|
|
101,472 |
|
Residential mortgage-backed: |
|
|
|
|
|
|
|
|
Non-agency residential |
|
|
363,408 |
|
|
|
371,935 |
|
Agency residential |
|
|
1,229,647 |
|
|
|
1,195,905 |
|
Commercial mortgage-backed |
|
|
311,509 |
|
|
|
184,043 |
|
Asset-backed |
|
|
679,536 |
|
|
|
549,050 |
|
|
|
|
|
|
|
|
Total fixed maturity investments, trading |
|
|
6,201,034 |
|
|
|
5,769,097 |
|
Equity securities |
|
|
393,913 |
|
|
|
174,976 |
|
Hedge funds (1) |
|
|
562,267 |
|
|
|
347,632 |
|
|
|
|
|
|
|
|
Total |
|
$ |
7,157,214 |
|
|
$ |
6,291,705 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Within the Companys financial statements and footnotes hedge funds include
the Companys investments in both hedge funds and private equity funds. |
c) Contractual Maturity Dates
The contractual maturity dates of available for sale fixed maturity investments are as
follows:
-7-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
|
Amortized Cost |
|
|
Fair Value |
|
Due within one year |
|
$ |
33,343 |
|
|
$ |
33,999 |
|
Due after one year through five years |
|
|
233,119 |
|
|
|
252,903 |
|
Due after five years through ten years |
|
|
49,168 |
|
|
|
55,314 |
|
Due after ten years |
|
|
3,081 |
|
|
|
3,335 |
|
|
|
|
|
|
|
|
|
|
$ |
318,711 |
|
|
$ |
345,551 |
|
|
|
|
|
|
|
|
Expected maturities may differ from contractual maturities because borrowers may have the
right to prepay obligations with or without prepayment penalties.
d) Other Invested Assets
Included in other invested assets are the Companys hedge fund investments. As of the balance
sheet date, the Company held 21 hedge fund investments with a total fair value of $562,267, which
comprised 6.8% of the total fair value of its investments and cash and cash equivalents and are
summarized as follows by type of investment strategy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long |
|
|
Short |
|
|
|
|
|
|
|
Hedge Fund |
|
Fair Value as of |
|
|
Unfunded |
|
|
Exposure(1) |
|
|
Exposure(2) |
|
|
Gross |
|
|
Net |
|
Type |
|
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 |
|
$ |
562,267 |
|
|
$ |
332,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Long exposure represents the ratio of the funds long investments in securities to the funds
equity capital (over 100% may denote explicit borrowing). |
|
(2) |
|
Short exposure represents the ratio of the securities sold short to the funds equity
capital. |
|
(3) |
|
Gross exposure is the addition of the long and short exposures (over 100% may denote explicit
borrowing). |
|
(4) |
|
Net exposure is the subtraction of the short exposure from the long exposure. |
|
|
|
Private equity funds: These funds buy limited partnership interests from existing limited
partners of primary private equity funds. As owners of private equity funds seek liquidity,
they can sell their existing investments, plus any remaining commitment, to secondary market
participants. The Company has invested in four private equity funds to purchase those
primary limited partnership interests. The fair values of the investments in this class have
been estimated using the net asset value per share of the investments. These funds cannot be
redeemed because the investments include restrictions that do not allow for redemption until
termination of the fund. The restriction period for these funds from initial investment
ranges from eight to ten years. |
|
|
|
|
Mezzanine debt funds: Mezzanine debt funds invest primarily in privately negotiated
mezzanine investments. The funds strategies will focus primarily on providing capital to
upper middle market and middle market companies, and private equity sponsors, in connection
with leveraged buyouts, mergers and acquisitions, recapitalizations, growth financings and
other corporate transactions. The most common position in the capital structure will be
between the senior secured debt holder and the equity, however the funds will utilize a
flexible approach when structuring investments, which may include secured debt, subordinated
debt, preferred stock and/or private equity. The fair values of the funds in this class have
been estimated using the net asset value per share of the funds. The Company has invested in
one mezzanine debt fund which cannot be redeemed at this |
-8-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
|
|
|
time because the investments
include restrictions that do not allow for redemption until termination of the fund. The
remaining restriction period for this fund is approximately ten years. |
|
|
|
Distressed funds: In distressed debt investing, managers take positions in the debt of
companies experiencing significant financial difficulties, including bankruptcy, or in
certain positions of the capital structure of structured securities. The manager relies on
the fundamental analysis of these securities, including the claims on the assets and the
likely return to bondholders. The fair values of the funds in this class have been estimated
using the net asset value per share of the funds. The Company has invested in five
distressed funds, three of which (representing approximately 34% of the value of the funds
in this class) are not currently eligible for redemption due to imposed lock-up periods from
initial investments ranging from one to eight years. The remaining funds representing
approximately 42% and 24% of the value of the funds in this class are currently eligible for
quarterly redemption with a 65-day and 45-day notification period, respectively, and are
subject to redemption limitations and a redemption fee if redeemed prior to January 2012,
respectively. |
|
|
|
|
Equity long/short funds: In equity long/short funds, managers take long positions in
companies they deem to be undervalued and short positions in companies they deem to be
overvalued. Long/short managers may invest in countries, regions or sectors and vary by
their use of leverage and target net long position. The fair values of the funds in this
class have been estimated
using the net asset value per share of the funds. The Company has invested in five equity
long/short funds, one of which (representing approximately 24% of the value of the funds in
this class) is not currently eligible for redemption due to an imposed lock-up period of
eighteen months from initial investment, at which time the fund will be eligible for quarterly
redemption with a 45-day notification period. The remaining four funds, representing
approximately 76% of the value of the funds in this class, are currently eligible for
quarterly redemption, one with a 30-day notification period or monthly redemption with a
30-day notification period and redemption fee, one with a 45-day notification period and
redemption fee if redeemed prior to July 2012 and two with a 60-day notification period. |
|
|
|
|
Multi-strategy funds: These funds may utilize many strategies employed by specialized
funds including distressed investing, equity long/short, merger arbitrage, convertible
arbitrage, fixed income arbitrage and macro trading. The fair values of the funds in this
class have been estimated using the net asset value per share of the funds. The Company has
invested in four equity long/short funds, all of which are currently eligible for quarterly
redemption. Three of the funds require notification periods before redemption which range
from 45 days to 90 days. The remaining fund is currently eligible for redemption of one
third of the net asset value with a 65-day notification period. |
|
|
|
|
Event driven funds: Event driven strategies seek to deploy capital into specific
securities whose returns are affected by a specific event that affects the value of one or
more securities of a company. Returns for such securities are linked primarily to the
specific outcome of the events and not by the overall direction of the bond or stock
markets. Examples could include mergers and acquisitions (arbitrage), corporate
restructurings and spin-offs and capital structure arbitrage. The fair values of the funds
in this class have been estimated using the net asset value per share of the funds. The
Company has invested in two event driven funds. Approximately 52% of the value of the funds
is not currently eligible for redemption due to an imposed two year lock-up period from
initial investment. The remaining 48% of the value of the funds in this class is currently
eligible for quarterly redemption, but is subject to redemption fees and limitations. |
Five of the Companys hedge funds, three equity long/short funds, one multi-strategy funds and
one event driven fund, had long exposure greater than 100% of the funds net asset value
(indicating explicit leverage) of 120%, 117%, 110%, 133%, and 151%, respectively, as of June 30,
2011.
e) Net Investment Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Fixed maturity investments |
|
$ |
50,648 |
|
|
$ |
67,552 |
|
|
$ |
101,594 |
|
|
$ |
138,650 |
|
Equity securities and other invested assets |
|
|
5,015 |
|
|
|
940 |
|
|
|
7,211 |
|
|
|
1,246 |
|
Cash and cash equivalents |
|
|
127 |
|
|
|
111 |
|
|
|
445 |
|
|
|
163 |
|
Expenses |
|
|
(3,422 |
) |
|
|
(3,009 |
) |
|
|
(6,674 |
) |
|
|
(5,563 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
$ |
52,368 |
|
|
$ |
65,594 |
|
|
$ |
102,576 |
|
|
$ |
134,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-9-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
f) Components of Realized Gains and Losses
Components of realized gains are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Gross realized gains on sale of securities |
|
$ |
34,611 |
|
|
$ |
78,572 |
|
|
$ |
78,168 |
|
|
$ |
130,239 |
|
Gross realized losses on sale of securities |
|
|
(3,330 |
) |
|
|
(6,724 |
) |
|
|
(25,262 |
) |
|
|
(13,130 |
) |
Treasury yield hedge |
|
|
|
|
|
|
(3,958 |
) |
|
|
|
|
|
|
(3,958 |
) |
Futures not designated as hedges |
|
|
(15,755 |
) |
|
|
|
|
|
|
(20,410 |
) |
|
|
|
|
Foreign exchange forwards not designated as
hedges |
|
|
(560 |
) |
|
|
|
|
|
|
(560 |
) |
|
|
|
|
Mark-to-market changes: debt securities trading |
|
|
31,872 |
|
|
|
32,746 |
|
|
|
45,336 |
|
|
|
60,477 |
|
Mark-to-market changes: foreign exchange
forwards and futures not designated as hedges |
|
|
6,275 |
|
|
|
|
|
|
|
5,434 |
|
|
|
|
|
Mark-to-market changes: hedge funds and equity
securities |
|
|
5,765 |
|
|
|
(5,703 |
) |
|
|
26,548 |
|
|
$ |
(1,208 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized investment gains |
|
$ |
58,878 |
|
|
$ |
94,933 |
|
|
$ |
109,254 |
|
|
$ |
172,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of available for sale securities |
|
$ |
202,671 |
|
|
$ |
1,306,625 |
|
|
$ |
546,191 |
|
|
$ |
1,846,074 |
|
Proceeds from sale of trading securities |
|
$ |
1,432,148 |
|
|
$ |
1,215,553 |
|
|
$ |
3,418,548 |
|
|
$ |
5,297,353 |
|
g) Pledged Assets
As of June 30, 2011 and December 31, 2010, $286,393 and $280,175, respectively, of cash and
cash equivalents and investments were on deposit with various state or government insurance
departments or pledged in favor of ceding companies in order to comply with relevant insurance
regulations. In addition, the Company has set up trust accounts to meet security requirements for
inter-company reinsurance transactions. These trusts contained assets of $1,321,751 and $1,377,266
as of June 30, 2011 and December 31, 2010, respectively, and are included in fixed maturity
investments.
The Company also has facilities available for the issuance of letters of credit collateralized
against the Companys investment portfolio. The collateralized portion of these facilities is up to
$1,300,000 as of June 30, 2011 and December 31, 2010. See Note 8 Debt and Financing Arrangements
for details on the facilities.
The following table shows the Companys trust accounts on deposit, as well as outstanding and
remaining letter of credit facilities, and the collateral committed to support the letter of credit
facilities:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
As of |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Total trust accounts on deposit |
|
$ |
1,608,143 |
|
|
$ |
1,657,441 |
|
Total letter of credit facilities: |
|
|
|
|
|
|
|
|
Citibank Europe plc |
|
|
900,000 |
|
|
|
900,000 |
|
Credit Facility |
|
|
800,000 |
|
|
|
800,000 |
|
|
|
|
|
|
|
|
Total letter of credit facilities |
|
|
1,700,000 |
|
|
|
1,700,000 |
|
|
|
|
|
|
|
|
Total letter of credit facilities outstanding: |
|
|
|
|
|
|
|
|
Citibank Europe plc |
|
|
712,454 |
|
|
|
689,851 |
|
Credit Facility |
|
|
158,983 |
|
|
|
158,983 |
|
|
|
|
|
|
|
|
Total letter of credit facilities outstanding |
|
|
871,437 |
|
|
|
848,834 |
|
|
|
|
|
|
|
|
Total letter of credit facilities remaining: |
|
|
|
|
|
|
|
|
Citibank Europe plc |
|
|
187,546 |
|
|
|
210,149 |
|
Credit Facility (1) |
|
|
641,017 |
|
|
|
641,017 |
|
|
|
|
|
|
|
|
Total letter of credit facilities remaining |
|
|
828,563 |
|
|
|
851,166 |
|
|
|
|
|
|
|
|
Collateral committed to support the letter of credit facilities |
|
$ |
1,054,206 |
|
|
$ |
1,121,345 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net of any borrowing or repayments under the Unsecured Facility (as defined in Note 8).
See Note 8 for further details on the Unsecured Facility. |
-10-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
Total trust accounts on deposit includes available for sale securities, trading securities and
cash and cash equivalents. The fair values of the combined total cash and cash equivalents and
investments held under trust were $2,662,349 and $2,778,786 as of June 30, 2011 and December 31,
2010, respectively. Of the total letters of credit facilities outstanding as of June 30, 2011 and
December 31, 2010, $7,295 was used to meet security requirements for inter-company transactions and
the remaining letters of credit facilities outstanding of $864,142 and $841,539 was used for
third-party beneficiaries, respectively.
h) Analysis of Unrealized Losses
As of June 30, 2011 and December 31, 2010, there were approximately nil and nine securities,
respectively, in an unrealized loss position. The following table summarizes the market value of
those investments in an unrealized loss position for periods less than and greater than 12 months:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
Gross Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Loss |
|
Less than 12 months |
|
|
|
|
|
|
|
|
U.S. Government and Government
agencies |
|
$ |
|
|
|
$ |
|
|
Non-U.S. Government and Government
agencies |
|
|
34,204 |
|
|
|
(1,116 |
) |
States, municipalities and political
subdivisions |
|
|
472 |
|
|
|
(13 |
) |
Corporate debt: |
|
|
|
|
|
|
|
|
Financial institutions |
|
|
2,796 |
|
|
|
(38 |
) |
Industrials |
|
|
2,150 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
$ |
39,622 |
|
|
$ |
(1,169 |
) |
|
|
|
|
|
|
|
More than 12 months |
|
|
|
|
|
|
|
|
Non-U.S. Government and Government
agencies |
|
$ |
10,998 |
|
|
$ |
(1,425 |
) |
|
|
|
|
|
|
|
|
|
$ |
10,998 |
|
|
$ |
(1,425 |
) |
|
|
|
|
|
|
|
|
|
$ |
50,620 |
|
|
$ |
(2,594 |
) |
|
|
|
|
|
|
|
i) Other-than-temporary impairment charges
Following the Companys review of the securities in the investment portfolio during the three
and six months ended June 30, 2011, no securities were considered to be other-than-temporarily
impaired.
Following the Companys review of the securities in the investment portfolio during the three
and six months ended June 30, 2010 nil and one mortgage-backed security was considered to be
other-than-temporarily impaired due to the present value of the expected cash flows being lower
than the amortized cost. The $168 of other than temporary impairment (OTTI) during the six months
ended June 30, 2010 was recognized through earnings due to credit related losses.
The following table summarizes the amounts related to credit losses on debt securities for
which a portion of the OTTI was recognized in other comprehensive income in the consolidated income
statements for the three and six months ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
For the Six Months |
|
|
|
Ended June 30, |
|
|
Ended June 30, |
|
|
|
2010 |
|
|
2010 |
|
Beginning balance of credit losses |
|
$ |
1,264 |
|
|
$ |
1,096 |
|
Additions for credit loss for which OTTI was not previously recognized |
|
|
|
|
|
|
168 |
|
Reductions for securities sold during the period (realized) |
|
|
|
|
|
|
|
|
Reductions for OTTI previously recognized due to intent to sell |
|
|
|
|
|
|
|
|
Additions resulting from the increase in credit losses |
|
|
|
|
|
|
|
|
Reductions resulting from the improvement in expected cash flows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance of credit losses |
|
$ |
1,264 |
|
|
$ |
1,264 |
|
|
|
|
|
|
|
|
-11-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
5. DERIVATIVE INSTRUMENTS
The following table summarizes information on the location and amounts of derivative fair
values on the unaudited condensed consolidated balance sheets (consolidated balance sheets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
December
31, 2010 |
|
|
|
|
|
|
Asset |
|
|
|
|
|
|
Liability |
|
|
|
|
|
|
Asset |
|
|
|
|
|
|
Liability |
|
|
|
|
|
|
Derivative |
|
|
Asset |
|
|
Derivative |
|
|
Liability |
|
|
Derivative |
|
|
Asset |
|
|
Derivative |
|
|
Liability |
|
|
|
Notional |
|
|
Derivative |
|
|
Notional |
|
|
Derivative |
|
|
Notional |
|
|
Derivative |
|
|
Notional |
|
|
Derivative |
|
|
|
Amount |
|
|
Fair Value |
|
|
Amount |
|
|
Fair Value |
|
|
Amount |
|
|
Fair Value |
|
|
Amount |
|
|
Fair Value |
|
Derivatives not designated as hedging
instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relating to investment portfolio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
contracts (1) |
|
$ |
122,311 |
|
|
$ |
1,487 |
|
|
$ |
33,873 |
|
|
$ |
204 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Interest rate futures (1) |
|
|
1,797,200 |
|
|
|
4,183 |
|
|
|
142,300 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,919,511 |
|
|
$ |
5,670 |
|
|
$ |
176,173 |
|
|
$ |
236 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Relating to operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
contracts (2) |
|
$ |
125,528 |
|
|
$ |
1,378 |
|
|
$ |
34,830 |
|
|
$ |
418 |
|
|
$ |
26,758 |
|
|
$ |
858 |
|
|
$ |
51,308 |
|
|
$ |
1,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
$ |
2,045,039 |
|
|
$ |
7,048 |
|
|
$ |
211,003 |
|
|
$ |
654 |
|
|
$ |
26,758 |
|
|
$ |
858 |
|
|
$ |
51,308 |
|
|
$ |
1,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Asset and liability derivatives relating to the investment portfolio are classified within
balances receivable on sale of investments or balances due on the purchase of investments
on the consolidated balance sheets. |
|
(2) |
|
Asset and liability derivatives relating to operating activities are classified within other
assets or other liabilities on the consolidated balance sheets. |
The following table provides the total unrealized and realized gains (losses) on derivatives
recorded in the consolidated income statement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain (Loss) |
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
Recognized in the Consolidated |
|
June 30, |
|
|
June 30, |
|
|
|
Income Statements |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Derivatives not designated as
hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relating to investment portfolio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Net realized investment gains |
|
$ |
723 |
|
|
$ |
|
|
|
$ |
723 |
|
|
$ |
|
|
Interest rate futures |
|
Net realized investment losses |
|
|
(10,763 |
) |
|
|
|
|
|
|
(16,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(10,040 |
) |
|
$ |
|
|
|
$ |
(15,536 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relating to operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Foreign exchange gains (losses) |
|
$ |
1,345 |
|
|
$ |
(1,361 |
) |
|
$ |
2,601 |
|
|
$ |
(1,412 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
|
|
$ |
(8,695 |
) |
|
$ |
(1,361 |
) |
|
$ |
(12,935 |
) |
|
$ |
(1,412 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments not Designated as Hedging Instruments
a) Relating to Investment Portfolio
The Company is exposed to foreign currency risk in its investment portfolio. Accordingly, the
fair values of the Companys investment portfolio are partially influenced by the change in foreign
exchange rates. The Company entered into foreign currency forward contracts to manage the effect of
this foreign currency risk. These foreign currency hedging activities have not been designated as
specific hedges for financial reporting purposes.
-12-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
The Company also purchases and sells interest rate future contracts to actively manage the
duration and yield curve positioning of its fixed income portfolio. Interest rate futures can
efficiently increase or decrease the overall duration of the portfolio. Additionally, interest rate
future contracts can be utilized to obtain the desired position along the yield curve in order to
protect against certain future yield curve shapes.
b) Relating to Operating Activities
The Companys insurance and reinsurance subsidiaries and branches operate in various foreign
countries and consequently the Companys underwriting portfolio is exposed to foreign currency
risk. The Company manages foreign currency risk by seeking to match liabilities under the insurance
policies and reinsurance contracts that it writes and that are payable in foreign currencies with
cash and investments that are denominated in such currencies. When necessary, the Company may also
use derivatives to economically hedge un-matched foreign currency exposures, specifically forward
contracts and currency options.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with U.S. GAAP, fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. There is a three-level valuation hierarchy for disclosure of fair value
measurements. The valuation hierarchy is based upon whether the inputs to the valuation of an asset
or liability are observable or unobservable in the market at the measurement date, with quoted
market prices being the highest level (Level 1) and unobservable inputs being the lowest level
(Level 3). A fair value measurement will fall within the level of the hierarchy based on the input
that is significant to determining such measurement. The three levels are defined as follows:
|
|
|
Level 1: Observable inputs to the valuation methodology that are quoted prices
(unadjusted) for identical assets or liabilities in active markets. |
|
|
|
|
Level 2: Observable inputs to the valuation methodology other than quoted market prices
(unadjusted) for identical assets or liabilities in active markets. Level 2 inputs include
quoted prices for similar assets and liabilities in active markets, quoted prices for
identical assets in markets that are not active and inputs other than quoted prices that are
observable for the asset or liability, either directly or indirectly, for substantially the
full term of the asset or liability. |
|
|
|
|
Level 3: Inputs to the valuation methodology that are unobservable for the asset or
liability. |
The following table shows the fair value of the Companys financial instruments and where in
the fair value hierarchy the fair value measurements are included as of June 30, 2011:
-13-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement using: |
|
|
|
|
|
|
|
|
|
|
|
Quoted prices in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
active markets |
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
|
for identical |
|
|
Significant other |
|
|
unobservable |
|
|
|
Carrying |
|
|
Total fair |
|
|
assets |
|
|
observable inputs |
|
|
inputs |
|
|
|
amount |
|
|
value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Available for sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and Government
agencies |
|
$ |
39,016 |
|
|
$ |
39,016 |
|
|
$ |
39,016 |
|
|
$ |
|
|
|
$ |
|
|
States, municipalities and political
subdivisions |
|
|
48,666 |
|
|
|
48,666 |
|
|
|
|
|
|
|
48,666 |
|
|
|
|
|
Corporate debt |
|
|
257,869 |
|
|
|
257,869 |
|
|
|
|
|
|
|
257,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale fixed maturity
investments |
|
|
345,551 |
|
|
|
345,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and Government
agencies |
|
$ |
982,274 |
|
|
$ |
982,274 |
|
|
$ |
835,748 |
|
|
$ |
146,526 |
|
|
$ |
|
|
Non-U.S. Government and Government
agencies |
|
|
177,529 |
|
|
|
177,529 |
|
|
|
|
|
|
|
177,529 |
|
|
|
|
|
States, municipalities and political
subdivisions |
|
|
108,256 |
|
|
|
108,256 |
|
|
|
|
|
|
|
108,256 |
|
|
|
|
|
Corporate debt |
|
|
2,348,875 |
|
|
|
2,348,875 |
|
|
|
|
|
|
|
2,348,875 |
|
|
|
|
|
Mortgage-backed |
|
|
1,904,564 |
|
|
|
1,904,564 |
|
|
|
|
|
|
|
1,687,904 |
|
|
|
216,660 |
|
Asset-backed |
|
|
679,536 |
|
|
|
679,536 |
|
|
|
|
|
|
|
566,226 |
|
|
|
113,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading fixed maturity investments |
|
|
6,201,034 |
|
|
|
6,201,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity investments |
|
|
6,546,585 |
|
|
|
6,546,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge funds |
|
|
562,267 |
|
|
|
562,267 |
|
|
|
|
|
|
|
|
|
|
|
562,267 |
|
Equity securities |
|
|
393,913 |
|
|
|
393,913 |
|
|
|
393,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
$ |
7,502,765 |
|
|
$ |
7,502,765 |
|
|
$ |
1,268,677 |
|
|
$ |
5,341,851 |
|
|
$ |
892,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes |
|
$ |
797,823 |
|
|
$ |
878,085 |
|
|
$ |
|
|
|
$ |
878,085 |
|
|
$ |
|
|
The following describes the valuation techniques used by the Company to determine the
fair value of financial instruments held as of the balance sheet date.
U.S. government and U.S. government agencies: Comprised primarily of bonds issued by the U.S.
treasury, the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation and the Federal
National Mortgage Association. The fair values of the Companys U.S. government securities are
based on quoted market prices in active markets and are included in the Level 1 fair value
hierarchy. The Company believes the market for U.S. treasury securities is an actively traded
market given the high level of daily trading volume. The fair values of U.S. government agency
securities are priced using the spread above the risk-free yield curve. As the yields for the
risk-free yield curve and the spreads for these securities are observable market inputs, the fair
values of U.S. government agency securities are included in the Level 2 fair value hierarchy.
Non-U.S. government and government agencies: Comprised of fixed income obligations of non-U.S.
governmental entities. The fair values of these securities are based on prices obtained from
international indices and are included in the Level 2 fair value hierarchy.
States, municipalities and political subdivisions: Comprised of fixed income obligations of
U.S. domiciled state and municipality entities. The fair values of these securities are based on
prices obtained from the new issue market, and are included in the Level 2 fair value hierarchy.
Corporate debt: Comprised of bonds issued by corporations that are diversified across a wide
range of issuers and industries. The fair values of corporate bonds that are short-term are priced
using spread above the London Interbank Offered Rate yield curve, and the fair value of corporate
bonds that are long-term are priced using the spread above the risk-free yield curve. The spreads
are
-14-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
sourced from broker-dealers, trade prices and the new issue market. As the significant inputs
used to price corporate bonds are observable market inputs, the fair values of corporate bonds are
included in the Level 2 fair value hierarchy.
Mortgage-backed: Primarily comprised of residential and commercial mortgages originated by
both U.S. government agencies (such as the Federal National Mortgage Association) and non-U.S.
government agencies originators. The fair values of mortgage-backed securities originated by U.S.
government agencies and non-U.S. government agencies are based on a pricing model that incorporates
prepayment speeds and spreads to determine appropriate average life of mortgage-backed securities.
The spreads are sourced from broker-dealers, trade prices and the new issue market. As the
significant inputs used to price the mortgage-backed securities are observable market inputs, the
fair values of these securities are included in the Level 2 fair value hierarchy, unless the
significant inputs used to price the mortgage-backed securities are broker-dealer quotes and the
Company is not able to determine if those quotes are based on observable market inputs, in which
case the fair value is included in the Level 3 hierarchy.
Asset-backed: Principally comprised of bonds backed by pools of automobile loan receivables,
home equity loans, credit card receivables and collateralized loan obligations originated by a
variety of financial institutions. The fair values of asset-backed securities are priced using
prepayment speed and spread inputs that are sourced from the new issue market or broker-dealer
quotes. As the significant inputs used to price the asset-backed securities are observable market
inputs, the fair values of these securities are included in the Level 2 fair value hierarchy,
unless the significant inputs used to price the asset-backed securities are broker-dealer quotes
and the Company is not able to determine if those quotes are based on observable market inputs, in
which case the fair value is included in the Level 3 hierarchy.
Hedge funds: Comprised of hedge funds invested in a range of diversified strategies. In
accordance with U.S. GAAP, the fair values of the hedge funds are based on the net asset value of
the funds as reported by the fund manager which the Company believes is an unobservable input, and
as such, the fair values of those hedge funds are included in the Level 3 fair value hierarchy.
Equity securities: The fair value of the equity securities are priced from market exchanges
and therefore included in the Level 1 fair value hierarchy.
Senior notes: The fair value of the senior notes is based on trades as reported in Bloomberg.
As of June 30, 2011, the 7.50% Senior Notes and 5.50% Senior Notes (each as defined in Note 8) were
traded at 115.1% and 100.9% of their principal amount, providing an effective yield of 4.2% and
5.4%, respectively. The fair value of the senior notes is included in the Level 2 fair value
hierarchy.
-15-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
The following is a reconciliation of the beginning and ending balance of financial instruments using significant unobservable inputs (Level 3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement using significant |
|
|
|
unobservable inputs (Level 3): |
|
|
|
Hedge funds |
|
|
Mortgage-backed |
|
|
Asset-backed |
|
Three Months Ended June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
|
$ |
469,999 |
|
|
$ |
234,087 |
|
|
$ |
143,829 |
|
Total realized and unrealized gains included in net income |
|
|
5,435 |
|
|
|
4,251 |
|
|
|
596 |
|
Total realized and unrealized losses included in net income |
|
|
(4,621 |
) |
|
|
(2,571 |
) |
|
|
(102 |
) |
Purchases |
|
|
94,290 |
|
|
|
29,827 |
|
|
|
32,408 |
|
Sales |
|
|
(2,836 |
) |
|
|
(34,329 |
) |
|
|
(2,800 |
) |
Transfers into Level 3 |
|
|
|
|
|
|
24,389 |
|
|
|
20,246 |
|
Transfers out of Level 3 |
|
|
|
|
|
|
(38,994 |
) |
|
|
(80,867 |
) |
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
562,267 |
|
|
$ |
216,660 |
|
|
$ |
113,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
|
$ |
242,135 |
|
|
$ |
233,667 |
|
|
$ |
36,532 |
|
Total realized and unrealized gains included in net income |
|
|
1,742 |
|
|
|
9,703 |
|
|
|
79 |
|
Total realized and unrealized losses included in net income |
|
|
(2,906 |
) |
|
|
(6,987 |
) |
|
|
(279 |
) |
Change in unrealized gains included in Other |
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (OCI) |
|
|
|
|
|
|
1,639 |
|
|
|
9 |
|
Change in unrealized losses included in OCI |
|
|
|
|
|
|
(205 |
) |
|
|
|
|
Purchases |
|
|
78,621 |
|
|
|
96,089 |
|
|
|
28,868 |
|
Sales |
|
|
|
|
|
|
(47,560 |
) |
|
|
(2,058 |
) |
Transfers into Level 3 |
|
|
|
|
|
|
2,286 |
|
|
|
50,641 |
|
Transfers out of Level 3 |
|
|
|
|
|
|
(9,843 |
) |
|
|
(10,237 |
) |
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
319,592 |
|
|
$ |
278,789 |
|
|
$ |
103,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
|
$ |
347,632 |
|
|
$ |
172,558 |
|
|
$ |
48,707 |
|
Total realized and unrealized gains included in net income |
|
|
21,884 |
|
|
|
5,495 |
|
|
|
660 |
|
Total realized and unrealized losses included in net income |
|
|
(9,391 |
) |
|
|
(2,268 |
) |
|
|
(73 |
) |
Purchases |
|
|
245,340 |
|
|
|
62,604 |
|
|
|
115,417 |
|
Sales |
|
|
(43,198 |
) |
|
|
(43,287 |
) |
|
|
(3,226 |
) |
Transfers into Level 3 |
|
|
|
|
|
|
86,085 |
|
|
|
32,801 |
|
Transfers out of Level 3 |
|
|
|
|
|
|
(64,527 |
) |
|
|
(80,976 |
) |
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
562,267 |
|
|
$ |
216,660 |
|
|
$ |
113,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
|
$ |
184,725 |
|
|
$ |
253,979 |
|
|
$ |
104,871 |
|
Total realized and unrealized gains included in net income |
|
|
6,584 |
|
|
|
18,084 |
|
|
|
634 |
|
Total realized and unrealized losses included in net income |
|
|
(3,386 |
) |
|
|
(7,098 |
) |
|
|
(209 |
) |
Change in unrealized gains included in OCI |
|
|
|
|
|
|
5,084 |
|
|
|
51 |
|
Change in unrealized losses included in OCI |
|
|
|
|
|
|
(447 |
) |
|
|
(6 |
) |
Purchases |
|
|
131,669 |
|
|
|
120,943 |
|
|
|
51,181 |
|
Sales |
|
|
|
|
|
|
(119,228 |
) |
|
|
(5,246 |
) |
Transfers into Level 3 |
|
|
|
|
|
|
48,731 |
|
|
|
50,739 |
|
Transfers out of Level 3 |
|
|
|
|
|
|
(41,259 |
) |
|
|
(98,460 |
) |
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
319,592 |
|
|
$ |
278,789 |
|
|
$ |
103,555 |
|
|
|
|
|
|
|
|
|
|
|
-16-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
The Company attempts to verify the significant inputs used by broker-dealers in
determining the fair value of the securities priced by them. If the Company could not obtain
sufficient information to determine if the broker-dealers were using significant observable inputs,
such securities have been transferred to Level 3 fair value hierarchy. The Company believes the
prices obtained from the broker-dealers are the best estimate of fair value of the securities being
priced as the broker-dealers are typically involved in the initial pricing of the security, and the
Company has compared the price per the broker-dealer to other pricing sources and noted no material
differences.
During the three and six months ended June 30, 2011, the Company transferred $38,994 and
$64,527 of mortgage-backed securities, respectively and $80,867 and $80,976 of asset-backed
securities, respectively, from Level 3 to Level 2 in the fair value hierarchy. During the three and
six months ended June 30, 2010, the Company transferred $9,843 and $41,259 of mortgage-backed
securities, respectively, and $10,237 and $98,460 of asset-backed securities, respectively, from
Level 3 to Level 2 in the fair value hierarchy. The Company transferred those securities as they no
longer utilized broker-dealer quotes and instead used other pricing sources that have significant
observable inputs. The Company recognizes transfers between levels at the end of the reporting
period.
7. RESERVE FOR LOSSES AND LOSS EXPENSES
The reserve for losses and loss expenses consists of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Outstanding loss reserves |
|
$ |
1,462,144 |
|
|
$ |
1,166,516 |
|
Reserves for losses incurred but not reported |
|
|
3,789,160 |
|
|
|
3,712,672 |
|
|
|
|
|
|
|
|
Reserve for losses and loss expenses |
|
$ |
5,251,304 |
|
|
$ |
4,879,188 |
|
|
|
|
|
|
|
|
The table below is a reconciliation of the beginning and ending liability for unpaid
losses and loss expenses. Losses incurred and paid are reflected net of reinsurance recoveries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Gross liability at beginning of period |
|
$ |
5,100,643 |
|
|
$ |
4,853,359 |
|
|
$ |
4,879,188 |
|
|
$ |
4,761,772 |
|
Reinsurance recoverable at beginning of period |
|
|
(975,523 |
) |
|
|
(920,480 |
) |
|
|
(927,588 |
) |
|
|
(919,991 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net liability at beginning of period |
|
|
4,125,120 |
|
|
|
3,932,879 |
|
|
|
3,951,600 |
|
|
|
3,841,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses incurred related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commutation of variable-rated reinsurance contracts |
|
|
11,529 |
|
|
|
|
|
|
|
11,529 |
|
|
|
8,864 |
|
Current year |
|
|
279,513 |
|
|
|
252,816 |
|
|
|
628,315 |
|
|
|
550,062 |
|
Prior years |
|
|
(55,229 |
) |
|
|
(64,094 |
) |
|
|
(99,579 |
) |
|
|
(138,050 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total incurred |
|
|
235,813 |
|
|
|
188,722 |
|
|
|
540,265 |
|
|
|
420,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net paid losses related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year |
|
|
19,579 |
|
|
|
26,704 |
|
|
|
21,279 |
|
|
|
33,410 |
|
Prior years |
|
|
109,238 |
|
|
|
102,690 |
|
|
|
243,596 |
|
|
|
231,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total paid |
|
|
128,817 |
|
|
|
129,394 |
|
|
|
264,875 |
|
|
|
265,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange revaluation |
|
|
5,237 |
|
|
|
(4,207 |
) |
|
|
10,363 |
|
|
|
(9,257 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net liability at end of period |
|
|
4,237,353 |
|
|
|
3,988,000 |
|
|
|
4,237,353 |
|
|
|
3,988,000 |
|
Reinsurance recoverable at end of period |
|
|
1,013,951 |
|
|
|
932,435 |
|
|
|
1,013,951 |
|
|
|
932,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross liability at end of period |
|
$ |
5,251,304 |
|
|
$ |
4,920,435 |
|
|
$ |
5,251,304 |
|
|
$ |
4,920,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three and six months ended June 30, 2011, the Company commuted certain
variable-rated reinsurance contracts that have swing-rated provisions, reducing ceded losses by
$11,529 in accordance with the terms of the contracts resulting in a net gain of $865.
-17-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
For the three months ended June 30, 2011, the Company had net favorable reserve development in
each of its segments due to actual loss emergence being lower than the initial expected loss
emergence. The majority of the net favorable reserve development was recognized in the reinsurance
segment related to the 2004 through 2007 loss years for casualty reinsurance lines and in the
international insurance segment related to the 2004 through 2007 loss years for casualty lines of
business.
For the six months ended June 30, 2011, the Company had net favorable reserve development in
its international and reinsurance segments due to actual loss emergence being lower than the
initial expected loss emergence. The majority of the net favorable reserve development was
recognized in the international insurance and reinsurance segments in the 2004 through 2007 loss
years related to casualty insurance and reinsurance lines of business. The Company had net
unfavorable reserve development in its U.S. insurance segment due to actual loss emergence being
higher than the initial expected loss emergence. The majority of the net unfavorable reserve
development was recognized in the 2006 and 2010 loss years related to the professional liability
line of business.
For the three and six months ended June 30, 2010, the Company had net favorable reserve
development in each of its segments due to actual loss emergence being lower than the initial
expected loss emergence. For the three months ended June 30, 2010, the majority of the net
favorable reserve development was recognized in the international insurance segment in the 2005 and
2008 loss years related to the general casualty and general property lines of business and in the
U.S. insurance segment in the 2004 through 2005 loss years related to the professional liability
and general casualty lines of business. For the six months ended June 30, 2010, the majority of the
net favorable reserve development was recognized in the international and U.S. insurance segment in
the 2004 through 2005 loss years related to the general casualty, professional liability and
healthcare lines of business.
While the Company has experienced favorable development in its insurance and reinsurance
lines, there is no assurance that conditions and trends that have affected the development of
liabilities in the past will continue. It is not appropriate to extrapolate future redundancies
based on prior years development. The methodology of estimating loss reserves is periodically
reviewed to ensure that the key assumptions used in the actuarial models continue to be
appropriate.
8. DEBT AND FINANCING ARRANGEMENTS
In November 2010, Allied World Bermuda issued $300,000 aggregate principal amount of 5.50%
Senior Notes due November 10, 2020 (5.50% Senior Notes), with interest on the notes payable on
May 15 and November 15 of each year commencing on May 15, 2011. The 5.50% Senior Notes were offered
by the underwriters at a price of 98.89% of their principal amount, providing an effective yield to
investors of 5.56%. The net proceeds from the offering of the 5.50% Senior Notes were used for
general corporate purposes, including the repurchase of the Companys outstanding common shares.
The 5.50% Senior Notes are Allied World Bermudas unsecured and unsubordinated obligations and rank
equally in right of payment with all existing and future unsecured and unsubordinated indebtedness.
Allied World Bermuda may redeem the 5.50% Senior Notes at any time or from time to time in whole or
in part at a redemption price equal to the greater of the principal amount of the 5.50% Senior
Notes to be redeemed or a make-whole price, plus accrued and unpaid interest. Allied World Bermuda
has no current expectations of redeeming the notes prior to maturity. The 5.50% Senior Notes
include covenants and events of default that are usual and customary, but do not contain any
financial covenants.
In 2006, Allied World Bermuda issued $500,000 aggregate principal amount of 7.50% Senior Notes
due August 1, 2016 (7.50% Senior Notes), with interest on the notes payable on August 1 and
February 1 of each year, commencing on February 1, 2007. The 7.50% Senior Notes were offered by the
underwriters at a price of 99.71% of their principal amount, providing an effective yield to
investors of 7.54%. The 7.50% Senior Notes can be redeemed by Allied World Bermuda prior to
maturity subject to payment of a make-whole premium. Allied World Bermuda has no current
expectations of redeeming the notes prior to maturity. The 7.50% Senior Notes include covenants and
events of default that are usual and customary, but do not contain any financial covenants.
The 5.50% Senior Notes and the 7.50% Senior Notes have been unconditionally and irrevocably
guaranteed for the payment of the principal and interest by Allied World Switzerland.
Allied World Assurance Company, Ltd has a collateralized amended letter of credit facility of
$900,000 with Citibank Europe plc. that has been, and will continue to be, used to issue standby
letters of credit.
In addition, Allied World Bermuda entered into an $800,000 five-year senior credit facility
(the Credit Facility) with a syndication of lenders. The Credit Facility consists of a $400,000
secured letter of credit facility for the issuance of standby letters of credit (the Secured
Facility) and a $400,000 unsecured facility for the making of revolving loans and for the issuance
of standby
-18-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
letters of credit (the Unsecured Facility). Both the Secured Facility and the
Unsecured Facility have options to increase the
aggregate commitments by up to $200,000, subject to approval of the lenders. The Credit
Facility will be used for general corporate purposes and to issue standby letters of credit. The
Credit Facility contains representations, warranties and covenants customary for similar bank loan
facilities, including a covenant to maintain a ratio of consolidated indebtedness to total
capitalization as of the last day of each fiscal quarter or fiscal year of not greater than 0.35 to
1.0 and a covenant under the Unsecured Facility to maintain a certain consolidated net worth. In
addition, each material insurance subsidiary must maintain a financial strength rating from A.M
Best Company of at least A- under the Unsecured Facility and of at least B++ under the Secured
Facility. Allied World Bermuda is in compliance with all covenants under the Credit Facility as of
June 30, 2011 and December 31, 2010.
There are a total of 13 lenders that make up the Credit Facility syndication and that have
varying commitments ranging from $20,000 to $87,500. Of the 13 lenders, four have commitments of
$87,500 each, four have commitments of $62,500 each, four have commitments of $45,000 each and one
has a commitment of $20,000.
In May 2010, Allied World Capital (Europe) Limited established an irrevocable standby letter
of credit in order to satisfy funding requirements of the Companys Lloyds Syndicate 2232. As of
June 30, 2011 and December 31, 2010, the amount of the letter of credit was £67,400 ($108,258) and
£53,700 ($82,838), respectively.
9. GOODWILL AND INTANGIBLE ASSETS
The following table shows an analysis of goodwill and intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible |
|
|
|
|
|
|
|
|
|
|
|
|
|
assets with |
|
|
Intangible |
|
|
|
|
|
|
|
|
|
|
indefinite |
|
|
assets with |
|
|
|
|
|
|
Goodwill |
|
|
lives |
|
|
finite lives |
|
|
Total |
|
Net balance at December 31, 2009 |
|
$ |
268,376 |
|
|
$ |
23,920 |
|
|
$ |
36,439 |
|
|
$ |
328,735 |
|
Additions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
(3,483 |
) |
|
|
(3,483 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance at December 31, 2010 |
|
|
268,376 |
|
|
|
23,920 |
|
|
|
32,956 |
|
|
|
325,252 |
|
Additions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
(1,533 |
) |
|
|
(1,533 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance at June 30, 2011 |
|
|
268,376 |
|
|
|
23,920 |
|
|
|
31,423 |
|
|
|
323,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross balance |
|
|
268,532 |
|
|
|
23,920 |
|
|
|
48,200 |
|
|
|
340,652 |
|
Accumulated amortization |
|
|
|
|
|
|
|
|
|
|
(9,911 |
) |
|
|
(9,911 |
) |
Accumulated impairments |
|
|
(156 |
) |
|
|
|
|
|
|
(6,866 |
) |
|
|
(7,022 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance |
|
$ |
268,376 |
|
|
$ |
23,920 |
|
|
$ |
31,423 |
|
|
$ |
323,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortization of the intangible assets with definite lives for the remainder of 2011 and
for the years ended December 31, 2012, 2013, 2014, 2015 and thereafter will be $1,443, $2,533,
$2,533, $2,533, $2,533 and $19,846, respectively. The intangible assets will be amortized over a
weighted average useful life of 12.3 years.
10. INCOME TAXES
Under Swiss law, a resident company is subject to income tax at the federal, cantonal and
communal levels that is levied on net income. Income attributable to permanent establishments or
real estate located abroad is excluded from the Swiss tax base. Allied World Switzerland is a
holding company and, therefore, is exempt from cantonal and communal income tax. As a result,
Allied World Switzerland is subject to Swiss income tax only at the federal level. Allied World
Switzerland is a resident of the Canton of Zug and, as such, is subject to an annual cantonal and
communal capital tax on the taxable equity of Allied World Switzerland in Switzerland. Allied World
Switzerland has a Swiss operating company resident in the Canton of Zug. The operating company is
subject to federal, cantonal and communal income tax and to annual cantonal and communal capital
tax.
Under current Bermuda law, Allied World Bermuda and its Bermuda subsidiaries are not required
to pay taxes in Bermuda on either income or capital gains. Allied World Bermuda and Allied World
Assurance Company, Ltd have received an assurance from the Bermuda Minister of Finance under the
Exempted Undertakings Tax Protection Act 1966 of Bermuda, that in the event of any such taxes being
imposed, Allied World Bermuda and Allied World Assurance Company, Ltd will be exempted until March
2035.
-19-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
Certain subsidiaries of Allied World Switzerland file U.S. federal income tax returns and
various U.S. state income tax returns, as well as income tax returns in the United Kingdom,
Ireland, Switzerland, Hong Kong and Singapore. The following tax years by jurisdiction are open to
examination:
|
|
|
|
|
|
|
Fiscal Years |
U.S. Internal Revenue Service for the U.S. subsidiaries |
|
|
2007 2010 |
|
Inland Revenue for the U.K. branches |
|
|
2009 2010 |
|
Irish Revenue Commissioners for the Irish subsidiaries |
|
|
2006 2010 |
|
Swiss Federal Tax Administration for the Swiss branch |
|
|
2008 2010 |
|
Inland Revenue Department for the Hong Kong branch |
|
|
2009 2010 |
|
Inland Revenue Department for the Singapore branch |
|
|
2010 |
|
To the best of the Companys knowledge, there are no examinations pending by any tax
authority.
Management has deemed that all material tax positions will more likely than not be sustained
based on technical merits if challenged. The Company does not expect any material unrecognized tax
benefits within 12 months of January 2011.
11. SHAREHOLDERS EQUITY
a) Authorized shares
The articles of association authorize the Board of Directors to increase the share capital by
a maximum amount of 20% of the share capital registered in the commercial register up to CHF
119,404 or 7,690,260 voting shares, and create conditional capital of 7,200,000 voting shares. The
issued share capital consists of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Common shares issued and fully paid, CHF 15.00 per share |
|
|
40,003,642 |
|
|
|
40,003,642 |
|
|
|
|
|
|
|
|
Share capital at end of period |
|
|
600,055 |
|
|
|
600,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, 2011 |
|
Total shares issued at beginning and end of period |
|
|
40,003,642 |
|
|
|
|
|
|
Treasury shares issued, balance at beginning of period |
|
|
1,914,416 |
|
Shares repurchased |
|
|
969,163 |
|
Shares issued out of treasury |
|
|
(824,980 |
) |
|
|
|
|
Total treasury shares at end of period |
|
|
2,058,599 |
|
|
|
|
|
|
Total shares outstanding at end of period |
|
|
37,945,043 |
|
|
|
|
|
As of June 30, 2011, there were outstanding 37,901,183 voting common shares and 43,860
non-voting common shares.
b) Share Warrants
In conjunction with the private placement offering at the formation of Allied World Bermuda,
Allied World Bermuda granted warrant agreements to certain founding shareholders to acquire up to
5,500,000 common shares at an exercise price of $34.20 per share. These warrants were exercisable
in certain limited conditions, including a public offering of common shares, and were due to expire
November 21, 2011. All warrants granted have been purchased by the Company as discussed below.
In August 2010, Allied World Bermuda repurchased a warrant owned by The Chubb Corporation
(Chubb) in a privately negotiated transaction. The warrant entitled Chubb to purchase 2,000,000
of Allied World Bermudas common shares for $34.20 per share. Allied World Bermuda repurchased the
warrant for an aggregate purchase price of $32,819. In November 2010, Allied World Bermuda
repurchased warrants owned by GS Capital Partners and other investment funds, which are affiliates
of The Goldman Sachs Group, Inc. (Goldman Sachs) and founding shareholders in a privately
negotiated transaction. The warrants entitled Goldman Sachs to purchase 1,500,000 of Allied World
Bermudas common shares for $34.20 per share. Allied World Bermuda repurchased the warrants
for an aggregate purchase price of $37,197. In February 2011, the Company repurchased a warrant
owned by American International Group, Inc. (AIG) in a privately negotiated transaction. The
warrant entitled AIG to purchase 2,000,000 of the Companys common shares for $34.20 per share. The
Company repurchased the warrant for an aggregate purchase price of $53,620. The repurchases of the
warrants were recognized as a reduction in additional paid-in capital on the consolidated balance
sheets. The
-20-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
repurchases were executed separately from the share repurchase program discussed in Note 11(d)
below. After these repurchases, Chubb, Goldman Sachs and AIG have no warrants remaining and no
other disclosed equity interest in the Company.
c) Dividends
Under Swiss law, distributions to shareholders may be paid only if the Company has sufficient
distributable profits from previous fiscal years, or if the Company has freely distributable
reserves, each as presented on the audited stand-alone statutory balance sheet. Distributions to
shareholders out of the share and participation capital may be made by way of a capital reduction
in the form of a reduction to par value to achieve a similar result as the payment of a dividend.
On May 5, 2011, the shareholders approved the Companys proposal to pay dividends in the form
of a distribution by way of par value reductions. The aggregate reduction amount will be paid to
shareholders in quarterly installments of $0.375 per share. The Company made the first such
quarterly dividend payment on August 5, 2011 to shareholders of record on July 27, 2011. The
amount of the first par value reduction was CHF 0.30, based on the exchange rate as of July 18,
2011. The Company expects to distribute the remaining quarterly installments in October 2011,
January 2012 and April 2012. Dividend payments are subject to Swiss law and other related factors
described in the Companys 2011 Proxy Statement and the Companys other filings with the SEC.
In February 2010, the Company declared a dividend of $0.20 per common share payable on April
1, 2010 to shareholders of record on March 16, 2010. The total dividend payable amounted to
$10,092. In May 2010, the Company declared a quarterly dividend of $0.20 per common share, payable
on June 10, 2010 to shareholders of record on May 25, 2010. The total dividend paid amounted to
$10,017.
d) Share repurchase
In May 2010, the Company established a share repurchase program in order to repurchase its
common shares. Repurchases may be effected from time to time through open market purchases,
privately negotiated transactions, tender offers or otherwise. The timing, form and amount of the
share repurchases under the program will depend on a variety of factors, including market
conditions, the Companys capital position, legal requirements and other factors. During the six
months ended June 30, 2011, the Company repurchased through open market purchases 969,163 shares at
a total cost of $60,000 for an average price of $61.91 per share. No shares were repurchased during
the three months ended June 30, 2011 because of the merger negotiations with Transatlantic
Holdings, Inc. These repurchased shares have been classified as Treasury shares, at cost on the
consolidated balance sheets. The Company will issue shares out of treasury principally related to
the Companys employee benefit plans.
In August 2010, the Company repurchased 5,000,000 of its common shares for $250,000, or $50.00
per share, in a privately negotiated transaction from Goldman Sachs. The shares repurchased were
classified as Treasury shares, at cost on the consolidated balance sheets. In November 2010, the
Company repurchased the remaining 3,159,793 common shares from Goldman Sachs for $185,448, or
$58.69 per share. The repurchase price per common share is based on and reflects 0.5% discount from
the volume-weighted average trading price of the Companys common shares on November 5, 2010. These
repurchases were executed separately from the Companys share repurchase program discussed above.
12. EMPLOYEE BENEFIT PLANS
a) Employee option plan
In 2001, the Company implemented the Allied World Assurance Holdings, Ltd 2001 Employee
Warrant Plan, which was subsequently amended, restated and renamed the Allied World Assurance
Company Holdings, Ltd Second Amended and Restated 2001 Employee Stock Option Plan (the ESOP).
Under the ESOP, up to 4,000,000 common shares may be issued.
As part of the Redomestication, Allied World Switzerland adopted and assumed the ESOP from
Allied World Bermuda which was subsequently amended, restated and renamed the Allied World
Assurance Company Holdings, AG Third Amended and Restated 2001 Employee Stock Option Plan (the
Plan). Allied World Switzerland has filed a registration statement on Form S-8 under the
Securities Act of 1933, as amended, to register common shares issued or reserved for issuance under
the Plan. These options are exercisable in certain limited conditions, expire after 10 years, and
generally vest pro-rata over four years from the date of grant. The exercise price of options
issued are recommended by the Compensation Committee to the Board of Directors for approval but
shall not be less than 100% of the fair market value of the common shares of Allied World
Switzerland on the date the option award is granted.
-21-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2011 |
|
|
|
|
|
|
Weighted Average |
|
|
Options |
|
Exercise Price |
Outstanding at beginning of period |
|
|
1,272,739 |
|
|
$ |
38.77 |
|
Granted |
|
|
494,885 |
|
|
|
61.51 |
|
Exercised |
|
|
(128,487 |
) |
|
|
37.55 |
|
Forfeited |
|
|
(27,819 |
) |
|
|
48.54 |
|
Expired |
|
|
(170 |
) |
|
|
39.02 |
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period |
|
|
1,611,148 |
|
|
$ |
45.68 |
|
|
|
|
|
|
|
|
|
|
Assumptions used in the option-pricing model are as follows:
|
|
|
|
|
|
|
Options Granted During |
|
|
|
the Six Months Ended |
|
|
|
June 30, 2011 |
|
Expected term of option |
|
|
5.48 |
years |
Weighted average risk-free interest rate |
|
|
2.33 |
% |
Weighted average expected volatility |
|
|
31.51 |
% |
Dividend yield |
|
|
1.00 |
% |
Weighted average fair value on grant date |
|
$ |
18.27 |
|
|
|
|
|
The Company has assumed a weighted average annual forfeiture rate of 6.72% in determining the
compensation expense over the service period.
Compensation expense of $997 and $2,176 relating to the options has been included in general
and administrative expenses in the Companys consolidated income statements for the three and six
months ended June 30, 2011, respectively. Compensation expense of $758 and $1,550 relating to the
options has been included in general and administrative expenses in the Companys consolidated
income statements for the three and six months ended June 30, 2010, respectively. As of June 30,
2011 and December 31, 2010, the Company has recorded in additional paid-in capital on the
consolidated balance sheets an amount of $41,207 and $41,505, respectively, in connection with all
options granted.
b) Stock incentive plan
In 2004, the Company implemented the Allied World Assurance Holdings, Ltd 2004 Stock Incentive
Plan. As part of the Redomestication, Allied World Switzerland adopted and assumed this plan from
Allied World Bermuda, which was subsequently amended, restated and renamed the Allied World
Assurance Company Holdings, AG Third Amended and Restated 2004 Stock Incentive Plan (the Stock
Incentive Plan). The Stock Incentive Plan provides for grants of restricted stock, restricted
stock units (RSUs), dividend equivalent rights and other equity-based awards. A total of
2,000,000 common shares may be issued under the Stock Incentive Plan. To date, only RSUs have been
granted. These RSUs generally vest pro-rata over four years from the date of grant or vest in the
fourth or fifth year from the date of grant.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2011 |
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
Grant Date Fair |
|
|
RSUs |
|
Value |
Outstanding RSUs at beginning of period |
|
|
851,078 |
|
|
$ |
39.88 |
|
RSUs granted |
|
|
45,239 |
|
|
|
61.51 |
|
Performance-based RSUs granted |
|
|
139,210 |
|
|
|
61.51 |
|
RSUs fully vested |
|
|
(130,252 |
) |
|
|
42.59 |
|
RSUs forfeited |
|
|
(12,198 |
) |
|
|
37.24 |
|
|
|
|
|
|
|
|
|
|
Outstanding RSUs at end of period |
|
|
893,077 |
|
|
$ |
43.99 |
|
|
|
|
|
|
|
|
|
|
The Company granted performance-based RSUs in lieu of utilizing the LTIP (as defined in Note
12(c)). The performance-based RSUs are structured in exactly the same form as shares issued under
the LTIP in terms of vesting restrictions and achievement of established performance criteria. For
the performance-based RSUs granted in 2010 and 2011, the Company anticipates that the performance
goals are likely to be achieved. Based on the performance goals, the performance-based RSUs granted
in 2010 and 2011 are expensed at 100% of the fair market value of Allied World Switzerlands common
shares on the date of grant. The expense is recognized over the performance period.
-22-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
Compensation expense of $3,707 and $7,529 relating to the issuance of the RSUs, including the
performance-based RSUs, has been recognized in general and administrative expenses in the
Companys consolidated income statements for the three and six months ended June 30, 2011,
respectively. Compensation expense of $3,327 and $7,041 relating to the issuance of the RSUs,
including the performance-based RSUs, has been recognized in general and administrative expenses
in the Companys consolidated income statements for the three and six months ended June 30, 2010,
respectively. The compensation expense for the RSUs is based on the fair market value of Allied
World Switzerlands common shares at the time of grant. The Company believes it is unlikely that
performance-based RSUs will be forfeited as these awards are issued to senior management. Thus, no
forfeiture rate is applied to the performance-based RSUs. The Company has assumed a weighted
average annual forfeiture rate of 2.80%, excluding performance-based RSUs, in determining the
compensation expense over the service period.
As of June 30, 2011 and December 31, 2010, the Company has recorded $34,865 and $37,991,
respectively, in additional paid-in capital on the consolidated balance sheets in connection with
the RSUs awarded.
c) Long-term incentive plan
In May 2006, the Company implemented the Long-Term Incentive Plan (LTIP), which it amended
and restated in November 2007. The LTIP provides for performance-based equity awards to key
employees in order to promote the long-term growth and profitability of the Company. As part of the
Redomestication, Allied World Switzerland adopted and assumed the LTIP from Allied World Bermuda.
Each award represents the right to receive a number of common shares in the future, based upon the
achievement of established performance criteria during the applicable three-year performance
period. A total of 2,000,000 common shares may be issued under the LTIP. The awards granted in 2009
will vest after the fiscal year ending December 31, 2011, subject to the achievement of the
performance conditions and terms of the LTIP. The awards granted in 2008 generally vested after the
fiscal year ended December 31, 2010, however, a portion of this award will vest after the fourth or
fifth year from the original grant date, subject to the achievement of the performance conditions
and terms of the LTIP.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2011 |
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
Grant Date Fair |
|
|
LTIP |
|
Value |
Outstanding LTIP awards at beginning of period |
|
|
773,411 |
|
|
$ |
41.74 |
|
Additional LTIP awards granted due to the
achievement of 2008 2010 performance criteria |
|
|
212,938 |
|
|
|
43.27 |
|
LTIP forfeited |
|
|
(13,500 |
) |
|
|
42.48 |
|
LTIP awards vested |
|
|
(638,813 |
) |
|
|
43.27 |
|
|
|
|
|
|
|
|
|
|
Outstanding LTIP awards at end of period |
|
|
334,036 |
|
|
$ |
39.76 |
|
|
|
|
|
|
|
|
|
|
Compensation expense of $1,558 and $2,407 relating to the LTIP has been recognized in general
and administrative expenses in the Companys consolidated income statements for the three and six
months ended June 30, 2011, respectively. Compensation expense of $3,842 and $8,863 relating to the
LTIP has been recognized in general and administrative expenses in the Companys consolidated
income statements for the three and six months ended June 30, 2010, respectively. The decrease in
compensation expense relating to LTIP is primarily the result of the Company issuing
performance-based RSUs in lieu of LTIP as discussed in Note 12(b). The compensation expense for the
LTIP is based on the fair market value of Allied World Switzerlands common shares at the time of
grant. The LTIP is deemed to be an equity plan and as such, $46,852 and $77,728 have been included
in additional paid-in capital on the consolidated balance sheets as of June 30, 2011 and December
31, 2010, respectively.
In calculating the compensation expense and in the determination of share equivalents for
the purpose of calculating diluted earnings per share, it is estimated for the unvested LTIP awards
granted in 2008 and 2009 that the maximum performance goals as set by the LTIP are likely to be
achieved over the performance period. Based on the performance goals, the unvested LTIP awards
granted in 2008 and 2009 are expensed at 150% of the fair market value of Allied World
Switzerlands common shares on the date of grant. The expense is recognized over the performance
period.
d) Cash-equivalent stock awards
Since 2009, as part of the Companys annual year-end compensation awards, the Company
granted both stock-based awards and cash-equivalent stock awards. The cash-equivalent awards were
granted to employees who received RSU, LTIP and performance-
-23-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
based RSU awards and were granted in lieu of granting the full award as a stock-based award. The
cash-equivalent RSU awards vest pro-rata over four years from the date of grant. The
cash-equivalent LTIP and performance-based RSU awards vest after a three-year performance period.
As the cash-equivalent awards are settled in cash, we establish a liability equal to the product of
the fair market value of Allied World Switzerlands common shares as of the end of the reporting
period and the total awards outstanding. The liability is included in accounts payable and accrued
expenses in the balance sheets and changes in the liability are recorded in general and
administrative expenses in the consolidated income statements. For the three and six months ended
June 30, 2011, the expense recognized for the cash-equivalent stock awards was $3,406 and $8,575,
respectively. For the three and six months ended June 30, 2010, the expense recognized for the
cash-equivalent stock awards was $3,012 and $5,321, respectively.
The following table shows the stock related compensation expense relating to the stock
options, RSUs, LTIP and cash equivalent awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Stock Options |
|
$ |
997 |
|
|
$ |
758 |
|
|
$ |
2,176 |
|
|
$ |
1,550 |
|
RSUs |
|
|
3,707 |
|
|
|
3,327 |
|
|
|
7,529 |
|
|
|
7,041 |
|
LTIP |
|
|
1,558 |
|
|
|
3,842 |
|
|
|
2,407 |
|
|
|
8,863 |
|
Cash-equivalent stock awards |
|
|
3,406 |
|
|
|
3,012 |
|
|
|
8,575 |
|
|
|
5,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
9,668 |
|
|
$ |
10,939 |
|
|
$ |
20,687 |
|
|
$ |
22,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. EARNINGS PER SHARE
The following table sets forth the comparison of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Basic earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
93,800 |
|
|
$ |
183,959 |
|
|
$ |
102,420 |
|
|
$ |
317,699 |
|
Weighted average common shares outstanding |
|
|
38,346,489 |
|
|
|
50,222,974 |
|
|
|
38,061,724 |
|
|
|
50,123,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
2.45 |
|
|
$ |
3.66 |
|
|
$ |
2.69 |
|
|
$ |
6.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
93,800 |
|
|
$ |
183,959 |
|
|
$ |
102,420 |
|
|
$ |
317,699 |
|
Weighted average common shares outstanding |
|
|
38,346,489 |
|
|
|
50,222,974 |
|
|
|
38,061,724 |
|
|
|
50,123,945 |
|
Share equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants and options |
|
|
333,837 |
|
|
|
1,486,465 |
|
|
|
503,529 |
|
|
|
1,534,861 |
|
Restricted stock units |
|
|
507,969 |
|
|
|
456,946 |
|
|
|
503,954 |
|
|
|
469,301 |
|
LTIP awards |
|
|
612,458 |
|
|
|
808,025 |
|
|
|
804,211 |
|
|
|
958,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares and common
share equivalents outstanding diluted |
|
|
39,800,753 |
|
|
|
52,974,410 |
|
|
|
39,873,418 |
|
|
|
53,086,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
2.36 |
|
|
$ |
3.47 |
|
|
$ |
2.57 |
|
|
$ |
5.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2011, a weighted average of 634,579 employee stock
options and 28,256 RSUs were considered anti-dilutive and were therefore excluded from the
calculation of the diluted earnings per share. For the six months ended June 30, 2011, a weighted
average of 568,359 employee stock options and 119,354 RSUs were considered anti-dilutive and were
therefore excluded from the calculation of the diluted earnings per share.
For the three months ended June 30, 2010, a weighted average of 686,938 employee stock options
and 24,833 RSUs were considered anti-dilutive and were therefore excluded from the calculation of
the diluted earnings per share. For the six months ended
-24-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
June 30, 2010, a weighted average of 600,567 employee stock options and 15,988 RSUs were
considered anti-dilutive and were therefore excluded from the calculation of the diluted earnings
per share.
14. SEGMENT INFORMATION
The determination of reportable segments is based on how senior management monitors the
Companys underwriting operations. Management monitors the performance of its direct underwriting
operations based on the geographic location of the Companys offices, the markets and customers
served and the type of accounts written. The Company is currently organized into three operating
segments: U.S. insurance, international insurance and reinsurance. All product lines fall within
these classifications.
The U.S. insurance segment includes the Companys direct specialty insurance operations in the
United States. This segment provides both direct property and specialty casualty insurance
primarily to non-Fortune 1000 North American domiciled accounts. The international insurance
segment includes the Companys direct insurance operations in Bermuda, Europe, Singapore and Hong
Kong. This segment provides both direct property and casualty insurance primarily to Fortune 1000
North American domiciled accounts and mid-sized to large non-North American domiciled accounts. The
reinsurance segment includes the reinsurance of property, general casualty, professional liability,
specialty lines and property catastrophe coverages written by insurance companies. The Company
presently writes reinsurance on both a treaty and a facultative basis, targeting several niche
reinsurance markets.
Responsibility and accountability for the results of underwriting operations are assigned by
major line of business within each segment. Because the Company does not manage its assets by
segment, investment income, interest expense and total assets are not allocated to individual
reportable segments. General and administrative expenses are allocated to segments based on various
factors, including staff count and each segments proportional share of gross premiums written.
Management measures results for each segment on the basis of the loss and loss expense
ratio, acquisition cost ratio, general and administrative expense ratio and the combined
ratio. The loss and loss expense ratio is derived by dividing net losses and loss expenses by
net premiums earned. The acquisition cost ratio is derived by dividing acquisition costs by net
premiums earned. The general and administrative expense ratio is derived by dividing general and
administrative expenses by net premiums earned. The combined ratio is the sum of the loss and
loss expense ratio, the acquisition cost ratio and the general and administrative expense
ratio.
The following tables provide a summary of the segment results:
-25-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
|
|
|
|
|
Three months ended June 30, 2011 |
|
U.S. Insurance |
|
|
Insurance |
|
|
Reinsurance |
|
|
Total |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
97.8 |
% |
|
|
115.1 |
% |
|
|
85.9 |
% |
|
|
97.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
|
|
|
|
|
Three months ended June 30, 2010 |
|
U.S. Insurance |
|
|
Insurance |
|
|
Reinsurance |
|
|
Total |
|
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 |
|
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
92.1 |
% |
|
|
97.4 |
% |
|
|
74.2 |
% |
|
|
87.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
-26-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2011 |
|
U.S. Insurance |
|
|
International
Insurance |
|
|
Reinsurance |
|
|
Total |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
109.3 |
% |
|
|
116.5 |
% |
|
|
105.8 |
% |
|
|
109.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International |
|
|
|
|
|
|
|
Six months ended June 30, 2010 |
|
U.S. Insurance |
|
|
Insurance |
|
|
Reinsurance |
|
|
Total |
|
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 |
|
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
101.4 |
% |
|
|
94.3 |
% |
|
|
84.0 |
% |
|
|
93.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows an analysis of the Companys net premiums written by geographic
location of the Companys subsidiaries. All inter-company premiums have been eliminated.
-27-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
United States |
|
$ |
215,343 |
|
|
$ |
192,980 |
|
|
$ |
478,574 |
|
|
$ |
438,260 |
|
Bermuda |
|
|
125,452 |
|
|
|
131,119 |
|
|
|
271,783 |
|
|
|
258,901 |
|
Europe |
|
|
40,663 |
|
|
|
38,550 |
|
|
|
92,539 |
|
|
|
90,710 |
|
Singapore |
|
|
10,331 |
|
|
|
5,912 |
|
|
|
25,567 |
|
|
|
9,603 |
|
Hong Kong |
|
|
4,014 |
|
|
|
1,234 |
|
|
|
8,211 |
|
|
|
5,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net premiums written |
|
$ |
395,803 |
|
|
$ |
369,795 |
|
|
$ |
876,674 |
|
|
$ |
803,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15. COMMITMENTS AND CONTINGENCIES
Insurance balances receivable primarily consist of net premiums due from insureds and
reinsureds. The Company believes that the counterparties to these receivables are able to meet, and
will meet, all of their obligations. Consequently, the Company has not included any allowance for
doubtful accounts against the receivable balance. Of the $653,002 in insurance balances receivable
as of June 30, 2011, $5,698 was past due over 90 days, which represented 0.9% of the total balance.
Of the $529,927 in insurance balances receivable as of December 31, 2010, $2,658 was past due over
90 days, which represented 0.5% of the total balance.
16. CONDENSED CONSOLIDATED GUARANTOR FINANCIAL STATEMENTS
The following tables present unaudited condensed consolidating financial information for
Allied World Switzerland (the Parent Guarantor) and Allied World Bermuda (the Subsidiary
Issuer). The Subsidiary Issuer is a direct 100 percent-owned subsidiary of the Parent Guarantor.
Investments in subsidiaries are accounted for by the Parent Guarantor under the equity method for
purposes of the supplemental consolidating presentation. Earnings of subsidiaries are reflected in
the Parent Guarantors investment accounts and earnings. The Parent Guarantor fully and
unconditionally guarantees the 5.50% Senior Notes and the 7.50% Senior Notes issued by Subsidiary
Issuer.
-28-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
Unaudited Condensed Consolidating Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allied World |
|
|
Allied World |
|
|
|
|
|
|
|
|
|
|
|
|
|
Switzerland |
|
|
Bermuda |
|
|
Other Allied |
|
|
|
|
|
|
Allied World |
|
|
|
(Parent |
|
|
(Subsidiary |
|
|
World |
|
|
Consolidating |
|
|
Switzerland |
|
As of June 30, 2011 |
|
Guarantor) |
|
|
Issuer) |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
$ |
|
|
|
$ |
|
|
|
$ |
7,502,765 |
|
|
$ |
|
|
|
$ |
7,502,765 |
|
Cash and cash equivalents |
|
|
70,587 |
|
|
|
38,402 |
|
|
|
631,815 |
|
|
|
|
|
|
|
740,804 |
|
Insurance balances receivable |
|
|
|
|
|
|
|
|
|
|
653,002 |
|
|
|
|
|
|
|
653,002 |
|
Prepaid reinsurance |
|
|
|
|
|
|
|
|
|
|
223,269 |
|
|
|
|
|
|
|
223,269 |
|
Reinsurance recoverable |
|
|
|
|
|
|
|
|
|
|
1,013,951 |
|
|
|
|
|
|
|
1,013,951 |
|
Net deferred acquisition costs |
|
|
|
|
|
|
|
|
|
|
112,083 |
|
|
|
|
|
|
|
112,083 |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
268,376 |
|
|
|
|
|
|
|
268,376 |
|
Intangible assets |
|
|
|
|
|
|
|
|
|
|
55,342 |
|
|
|
|
|
|
|
55,342 |
|
Balances receivable on sale of investments |
|
|
|
|
|
|
|
|
|
|
106,486 |
|
|
|
|
|
|
|
106,486 |
|
Investments in subsidiaries |
|
|
2,978,767 |
|
|
|
1,990,580 |
|
|
|
|
|
|
|
(4,969,347 |
) |
|
|
|
|
Due (to) from subsidiaries |
|
|
(1,771 |
) |
|
|
(7,421 |
) |
|
|
9,192 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
216 |
|
|
|
61,229 |
|
|
|
173,196 |
|
|
|
(53,620 |
) |
|
|
181,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,047,799 |
|
|
$ |
2,082,790 |
|
|
$ |
10,749,477 |
|
|
$ |
(5,022,967 |
) |
|
$ |
10,857,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for losses and loss expenses |
|
$ |
|
|
|
$ |
|
|
|
$ |
5,251,304 |
|
|
$ |
|
|
|
$ |
5,251,304 |
|
Unearned premiums |
|
|
|
|
|
|
|
|
|
|
1,184,676 |
|
|
|
|
|
|
|
1,184,676 |
|
Reinsurance balances payable |
|
|
|
|
|
|
|
|
|
|
132,661 |
|
|
|
|
|
|
|
132,661 |
|
Balances due on purchases of investments |
|
|
|
|
|
|
|
|
|
|
358,837 |
|
|
|
|
|
|
|
358,837 |
|
Senior notes |
|
|
|
|
|
|
797,823 |
|
|
|
|
|
|
|
|
|
|
|
797,823 |
|
Accounts payable and accrued liabilities |
|
|
3,382 |
|
|
|
18,074 |
|
|
|
65,925 |
|
|
|
|
|
|
|
87,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
3,382 |
|
|
|
815,897 |
|
|
|
6,993,403 |
|
|
|
|
|
|
|
7,812,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
3,044,417 |
|
|
|
1,266,893 |
|
|
|
3,756,074 |
|
|
|
(5,022,967 |
) |
|
|
3,044,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
3,047,799 |
|
|
$ |
2,082,790 |
|
|
$ |
10,749,477 |
|
|
$ |
(5,022,967 |
) |
|
$ |
10,857,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allied World |
|
|
Allied World |
|
|
|
|
|
|
|
|
|
|
|
|
|
Switzerland |
|
|
Bermuda |
|
|
Other Allied |
|
|
|
|
|
|
Allied World |
|
|
|
(Parent |
|
|
(Subsidiary |
|
|
World |
|
|
Consolidating |
|
|
Switzerland |
|
As of December 31, 2010 |
|
Guarantor) |
|
|
Issuer) |
|
|
Subsidiaries |
|
|
adjustments |
|
|
Consolidated |
|
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
|
$ |
|
|
|
$ |
|
|
|
$ |
7,183,554 |
|
|
$ |
|
|
|
$ |
7,183,554 |
|
Cash and cash equivalents |
|
|
138,488 |
|
|
|
125,663 |
|
|
|
492,844 |
|
|
|
|
|
|
|
756,995 |
|
Insurance balances receivable |
|
|
|
|
|
|
|
|
|
|
529,927 |
|
|
|
|
|
|
|
529,927 |
|
Prepaid reinsurance |
|
|
|
|
|
|
|
|
|
|
187,287 |
|
|
|
|
|
|
|
187,287 |
|
Reinsurance recoverable |
|
|
|
|
|
|
|
|
|
|
927,588 |
|
|
|
|
|
|
|
927,588 |
|
Net deferred acquisition costs |
|
|
|
|
|
|
|
|
|
|
96,803 |
|
|
|
|
|
|
|
96,803 |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
268,376 |
|
|
|
|
|
|
|
268,376 |
|
Intangible assets |
|
|
|
|
|
|
|
|
|
|
56,876 |
|
|
|
|
|
|
|
56,876 |
|
Balances receivable on sale of investments |
|
|
|
|
|
|
|
|
|
|
188,408 |
|
|
|
|
|
|
|
188,408 |
|
Investments in subsidiaries |
|
|
2,944,975 |
|
|
|
1,981,158 |
|
|
|
|
|
|
|
(4,926,133 |
) |
|
|
|
|
Due (to) from subsidiaries |
|
|
(7,143 |
) |
|
|
(9,419 |
) |
|
|
16,562 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
8,801 |
|
|
|
223,016 |
|
|
|
|
|
|
|
231,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,076,320 |
|
|
$ |
2,106,203 |
|
|
$ |
10,171,241 |
|
|
$ |
(4,926,133 |
) |
|
$ |
10,427,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for losses and loss expenses |
|
$ |
|
|
|
$ |
|
|
|
$ |
4,879,188 |
|
|
$ |
|
|
|
$ |
4,879,188 |
|
Unearned premiums |
|
|
|
|
|
|
|
|
|
|
962,203 |
|
|
|
|
|
|
|
962,203 |
|
Reinsurance balances payable |
|
|
|
|
|
|
|
|
|
|
99,732 |
|
|
|
|
|
|
|
99,732 |
|
Balances due on purchases of investments |
|
|
|
|
|
|
|
|
|
|
506,978 |
|
|
|
|
|
|
|
506,978 |
|
Senior notes |
|
|
|
|
|
|
797,700 |
|
|
|
|
|
|
|
|
|
|
|
797,700 |
|
Accounts payable and accrued liabilities |
|
|
500 |
|
|
|
18,111 |
|
|
|
87,399 |
|
|
|
|
|
|
|
106,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
500 |
|
|
|
815,811 |
|
|
|
6,535,500 |
|
|
|
|
|
|
|
7,351,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
3,075,820 |
|
|
|
1,290,392 |
|
|
|
3,635,741 |
|
|
|
(4,926,133 |
) |
|
|
3,075,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
3,076,320 |
|
|
$ |
2,106,203 |
|
|
$ |
10,171,241 |
|
|
$ |
(4,926,133 |
) |
|
$ |
10,427,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-29-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
Unaudited Condensed Consolidating Income Statement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allied World |
|
|
Allied World |
|
|
|
|
|
|
|
|
|
|
|
|
|
Switzerland |
|
|
Bermuda |
|
|
Other Allied |
|
|
|
|
|
|
Allied World |
|
|
|
(Parent |
|
|
(Subsidiary |
|
|
World |
|
|
Consolidating |
|
|
Switzerland |
|
For the three months ended June 30, 2011 |
|
Guarantor) |
|
|
Issuer) |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
|
|
|
$ |
|
|
|
$ |
519,598 |
|
|
$ |
|
|
|
$ |
519,598 |
|
Premiums ceded |
|
|
|
|
|
|
|
|
|
|
(123,795 |
) |
|
|
|
|
|
|
(123,795 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
|
|
|
|
|
|
|
|
|
395,803 |
|
|
|
|
|
|
|
395,803 |
|
Change in unearned premiums |
|
|
|
|
|
|
|
|
|
|
(40,496 |
) |
|
|
|
|
|
|
(40,496 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
|
|
|
|
|
|
|
|
355,307 |
|
|
|
|
|
|
|
355,307 |
|
Net investment income |
|
|
15 |
|
|
|
8 |
|
|
|
52,345 |
|
|
|
|
|
|
|
52,368 |
|
Net realized investment gains |
|
|
|
|
|
|
|
|
|
|
58,878 |
|
|
|
|
|
|
|
58,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
8 |
|
|
|
466,530 |
|
|
|
|
|
|
|
466,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss expenses |
|
|
|
|
|
|
|
|
|
|
235,813 |
|
|
|
|
|
|
|
235,813 |
|
Acquisition costs |
|
|
|
|
|
|
|
|
|
|
42,971 |
|
|
|
|
|
|
|
42,971 |
|
General and administrative expenses |
|
|
4,746 |
|
|
|
1,483 |
|
|
|
60,972 |
|
|
|
|
|
|
|
67,201 |
|
Amortization and impairment of intangible assets |
|
|
|
|
|
|
|
|
|
|
766 |
|
|
|
|
|
|
|
766 |
|
Interest expense |
|
|
|
|
|
|
13,745 |
|
|
|
|
|
|
|
|
|
|
|
13,745 |
|
Foreign exchange loss (gain) |
|
|
3 |
|
|
|
(17 |
) |
|
|
1,198 |
|
|
|
|
|
|
|
1,184 |
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
11,073 |
|
|
|
|
|
|
|
11,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,749 |
|
|
|
15,211 |
|
|
|
352,793 |
|
|
|
|
|
|
|
372,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before equity in earnings of consolidated subsidiaries |
|
|
(4,734 |
) |
|
|
(15,203 |
) |
|
|
113,737 |
|
|
|
|
|
|
|
93,800 |
|
Equity in earnings of consolidated subsidiaries |
|
|
98,534 |
|
|
|
|
|
|
|
|
|
|
|
(98,534 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
93,800 |
|
|
$ |
(15,203 |
) |
|
$ |
113,737 |
|
|
$ |
(98,534 |
) |
|
$ |
93,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-30-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allied World |
|
|
Allied World |
|
|
|
|
|
|
|
|
|
|
|
|
|
Switzerland |
|
|
Bermuda |
|
|
Other Allied |
|
|
|
|
|
|
Allied World |
|
|
|
(Parent |
|
|
(Subsidiary |
|
|
World |
|
|
Consolidating |
|
|
Switzerland |
|
For the three months ended June 30, 2010 |
|
Guarantor) |
|
|
Issuer) |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
|
|
|
$ |
|
|
|
$ |
493,847 |
|
|
$ |
|
|
|
$ |
493,847 |
|
Premiums ceded |
|
|
|
|
|
|
|
|
|
|
(124,052 |
) |
|
|
|
|
|
|
(124,052 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
|
|
|
|
|
|
|
|
|
369,795 |
|
|
|
|
|
|
|
369,795 |
|
Change in unearned premiums |
|
|
|
|
|
|
|
|
|
|
(30,871 |
) |
|
|
|
|
|
|
(30,871 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
|
|
|
|
|
|
|
|
338,924 |
|
|
|
|
|
|
|
338,924 |
|
Net investment income |
|
|
|
|
|
|
20 |
|
|
|
65,574 |
|
|
|
|
|
|
|
65,594 |
|
Net realized investment gains (losses) |
|
|
|
|
|
|
(3,958 |
) |
|
|
98,891 |
|
|
|
|
|
|
|
94,933 |
|
Net impairment charges recognized in earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
|
|
|
|
|
|
|
|
616 |
|
|
|
|
|
|
|
616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,938 |
) |
|
|
504,005 |
|
|
|
|
|
|
|
500,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss expenses |
|
|
|
|
|
|
|
|
|
|
188,722 |
|
|
|
|
|
|
|
188,722 |
|
Acquisition costs |
|
|
|
|
|
|
|
|
|
|
37,938 |
|
|
|
|
|
|
|
37,938 |
|
General and administrative expenses |
|
|
|
|
|
|
3,168 |
|
|
|
64,921 |
|
|
|
|
|
|
|
68,089 |
|
Amortization and impairment of intangible assets |
|
|
|
|
|
|
|
|
|
|
891 |
|
|
|
|
|
|
|
891 |
|
Interest expense |
|
|
|
|
|
|
9,531 |
|
|
|
|
|
|
|
|
|
|
|
9,531 |
|
Foreign exchange loss |
|
|
|
|
|
|
|
|
|
|
559 |
|
|
|
|
|
|
|
559 |
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
10,378 |
|
|
|
|
|
|
|
10,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,699 |
|
|
|
303,409 |
|
|
|
|
|
|
|
316,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before equity in earnings of consolidated subsidiaries |
|
|
|
|
|
|
(16,637 |
) |
|
|
200,596 |
|
|
|
|
|
|
|
183,959 |
|
Equity in earnings of consolidated subsidiaries |
|
|
|
|
|
|
200,596 |
|
|
|
|
|
|
|
(200,596 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
|
|
|
$ |
183,959 |
|
|
$ |
200,596 |
|
|
$ |
(200,596 |
) |
|
$ |
183,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-31-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allied World |
|
|
Allied World |
|
|
|
|
|
|
|
|
|
|
|
|
|
Switzerland |
|
|
Bermuda |
|
|
Other Allied |
|
|
|
|
|
|
Allied World |
|
|
|
(Parent |
|
|
(Subsidiary |
|
|
World |
|
|
Consolidating |
|
|
Switzerland |
|
For the six months ended June 30, 2011 |
|
Guarantor) |
|
|
Issuer) |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,080,286 |
|
|
$ |
|
|
|
$ |
1,080,286 |
|
Premiums ceded |
|
|
|
|
|
|
|
|
|
|
(203,612 |
) |
|
|
|
|
|
|
(203,612 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
|
|
|
|
|
|
|
|
|
876,674 |
|
|
|
|
|
|
|
876,674 |
|
Change in unearned premiums |
|
|
|
|
|
|
|
|
|
|
(186,491 |
) |
|
|
|
|
|
|
(186,491 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
|
|
|
|
|
|
|
|
690,183 |
|
|
|
|
|
|
|
690,183 |
|
Net investment income |
|
|
45 |
|
|
|
22 |
|
|
|
102,509 |
|
|
|
|
|
|
|
102,576 |
|
Net realized investment gains |
|
|
|
|
|
|
|
|
|
|
109,254 |
|
|
|
|
|
|
|
109,254 |
|
Net impairment charges recognized in earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45 |
|
|
|
22 |
|
|
|
901,946 |
|
|
|
|
|
|
|
902,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss expenses |
|
|
|
|
|
|
|
|
|
|
540,265 |
|
|
|
|
|
|
|
540,265 |
|
Acquisition costs |
|
|
|
|
|
|
|
|
|
|
81,053 |
|
|
|
|
|
|
|
81,053 |
|
General and administrative expenses |
|
|
5,810 |
|
|
|
4,229 |
|
|
|
125,118 |
|
|
|
|
|
|
|
135,157 |
|
Amortization and impairment of intangible assets |
|
|
|
|
|
|
|
|
|
|
1,533 |
|
|
|
|
|
|
|
1,533 |
|
Interest expense |
|
|
|
|
|
|
27,487 |
|
|
|
|
|
|
|
|
|
|
|
27,487 |
|
Foreign exchange loss (gain) |
|
|
(1 |
) |
|
|
224 |
|
|
|
519 |
|
|
|
|
|
|
|
742 |
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
13,356 |
|
|
|
|
|
|
|
13,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,809 |
|
|
|
31,940 |
|
|
|
761,844 |
|
|
|
|
|
|
|
799,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before equity in earnings of consolidated subsidiaries |
|
|
(5,764 |
) |
|
|
(31,918 |
) |
|
|
140,102 |
|
|
|
|
|
|
|
102,420 |
|
Equity in earnings of consolidated subsidiaries |
|
|
108,184 |
|
|
|
|
|
|
|
|
|
|
|
(108,184 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
102,420 |
|
|
$ |
(31,918 |
) |
|
$ |
140,102 |
|
|
$ |
(108,184 |
) |
|
$ |
102,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-32-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allied World |
|
|
Allied World |
|
|
|
|
|
|
|
|
|
|
|
|
|
Switzerland |
|
|
Bermuda |
|
|
Other Allied |
|
|
|
|
|
|
Allied World |
|
|
|
(Parent |
|
|
(Subsidiary |
|
|
World |
|
|
Consolidating |
|
|
Switzerland |
|
For the six months ended June 30, 2010 |
|
Guarantor) |
|
|
Issuer) |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
|
|
|
$ |
|
|
|
$ |
998,010 |
|
|
$ |
|
|
|
$ |
998,010 |
|
Premiums ceded |
|
|
|
|
|
|
|
|
|
|
(194,923 |
) |
|
|
|
|
|
|
(194,923 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
|
|
|
|
|
|
|
|
|
803,087 |
|
|
|
|
|
|
|
803,087 |
|
Change in unearned premiums |
|
|
|
|
|
|
|
|
|
|
(125,839 |
) |
|
|
|
|
|
|
(125,839 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
|
|
|
|
|
|
|
|
677,248 |
|
|
|
|
|
|
|
677,248 |
|
Net investment income |
|
|
|
|
|
|
21 |
|
|
|
134,475 |
|
|
|
|
|
|
|
134,496 |
|
Net realized investment gains |
|
|
|
|
|
|
(3,958 |
) |
|
|
176,378 |
|
|
|
|
|
|
|
172,420 |
|
Net impairment charges recognized in earnings |
|
|
|
|
|
|
|
|
|
|
(168 |
) |
|
|
|
|
|
|
(168 |
) |
Other income |
|
|
|
|
|
|
|
|
|
|
913 |
|
|
|
|
|
|
|
913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,937 |
) |
|
|
988,846 |
|
|
|
|
|
|
|
984,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss expenses |
|
|
|
|
|
|
|
|
|
|
420,876 |
|
|
|
|
|
|
|
420,876 |
|
Acquisition costs |
|
|
|
|
|
|
|
|
|
|
78,722 |
|
|
|
|
|
|
|
78,722 |
|
General and administrative expenses |
|
|
|
|
|
|
6,651 |
|
|
|
124,901 |
|
|
|
|
|
|
|
131,552 |
|
Amortization and impairment of intangible assets |
|
|
|
|
|
|
|
|
|
|
1,783 |
|
|
|
|
|
|
|
1,783 |
|
Interest expense |
|
|
|
|
|
|
19,059 |
|
|
|
|
|
|
|
|
|
|
|
19,059 |
|
Foreign exchange loss |
|
|
|
|
|
|
|
|
|
|
1,635 |
|
|
|
|
|
|
|
1,635 |
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
13,583 |
|
|
|
|
|
|
|
13,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,710 |
|
|
|
641,500 |
|
|
|
|
|
|
|
667,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before equity in earnings of consolidated subsidiaries |
|
|
|
|
|
|
(29,647 |
) |
|
|
347,346 |
|
|
|
|
|
|
|
317,699 |
|
Equity in earnings of consolidated subsidiaries |
|
|
|
|
|
|
347,346 |
|
|
|
|
|
|
|
(347,346 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
|
|
|
$ |
317,699 |
|
|
$ |
347,346 |
|
|
$ |
(347,346 |
) |
|
$ |
317,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-33-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
Unaudited Condensed Consolidating Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allied World |
|
|
Allied World |
|
|
|
|
|
|
|
|
|
|
|
|
|
Switzerland |
|
|
Bermuda |
|
|
Other Allied |
|
|
|
|
|
|
Allied World |
|
|
|
(Parent |
|
|
(Subsidiary |
|
|
World |
|
|
Consolidating |
|
|
Switzerland |
|
For the six months ended June 30, 2011 |
|
Guarantor) |
|
|
Issuer) |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
102,420 |
|
|
$ |
(31,918 |
) |
|
$ |
140,102 |
|
|
$ |
(108,184 |
) |
|
$ |
102,420 |
|
Adjustments to reconcile net income to cash
Provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of consolidated subsidiaries |
|
|
(108,184 |
) |
|
|
|
|
|
|
|
|
|
|
108,184 |
|
|
|
|
|
Dividends received from subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation expense |
|
|
457 |
|
|
|
|
|
|
|
11,655 |
|
|
|
|
|
|
|
12,112 |
|
Amortization of discount on senior notes |
|
|
|
|
|
|
122 |
|
|
|
|
|
|
|
|
|
|
|
122 |
|
Other assets |
|
|
(216 |
) |
|
|
(928 |
) |
|
|
(358,363 |
) |
|
|
|
|
|
|
(359,507 |
) |
Accounts payable and accrued liabilities |
|
|
(2,490 |
) |
|
|
(36 |
) |
|
|
611,415 |
|
|
|
|
|
|
|
608,889 |
|
Interest payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances due to subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating
activities |
|
|
(8,013 |
) |
|
|
(32,760 |
) |
|
|
404,809 |
|
|
|
|
|
|
|
364,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS USED IN INVESTING
ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash paid for acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of fixed maturity investments
available for sale |
|
|
|
|
|
|
|
|
|
|
(352 |
) |
|
|
|
|
|
|
(352 |
) |
|
Purchase of fixed maturity investments
trading |
|
|
|
|
|
|
|
|
|
|
(3,949,447 |
) |
|
|
|
|
|
|
(3,949,447 |
) |
Purchases of equity securities and other invested
assets |
|
|
|
|
|
|
|
|
|
|
(485,750 |
) |
|
|
|
|
|
|
(485,750 |
) |
|
Sales of fixed maturity investments available
for sale |
|
|
|
|
|
|
|
|
|
|
560,794 |
|
|
|
|
|
|
|
560,794 |
|
Sales of fixed maturity investments trading |
|
|
|
|
|
|
|
|
|
|
3,503,758 |
|
|
|
|
|
|
|
3,503,758 |
|
|
Sale of equity securities and other invested
assets |
|
|
|
|
|
|
|
|
|
|
72,362 |
|
|
|
|
|
|
|
72,362 |
|
Other |
|
|
(4,496 |
) |
|
|
|
|
|
|
31,700 |
|
|
|
|
|
|
|
27,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(4,496 |
) |
|
|
|
|
|
|
(266,935 |
) |
|
|
|
|
|
|
(271,431 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS (USED IN) PROVIDED BY
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the exercise of stock options |
|
|
4,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,824 |
|
Share repurchase |
|
|
(60,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60,000 |
) |
Repurchase of founder warrants |
|
|
|
|
|
|
(53,620 |
) |
|
|
|
|
|
|
|
|
|
|
(53,620 |
) |
Stock compensation funding due from
subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
(216 |
) |
|
|
(881 |
) |
|
|
1,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing
activities |
|
|
(55,392 |
) |
|
|
(54,501 |
) |
|
|
1,097 |
|
|
|
|
|
|
|
(108,796 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS |
|
|
(67,901 |
) |
|
|
(87,261 |
) |
|
|
138,971 |
|
|
|
|
|
|
|
(16,191 |
) |
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD |
|
|
138,488 |
|
|
|
125,663 |
|
|
|
492,844 |
|
|
|
|
|
|
|
756,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END
OF PERIOD |
|
$ |
70,587 |
|
|
$ |
38,402 |
|
|
$ |
631,815 |
|
|
$ |
|
|
|
$ |
740,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-34-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allied World |
|
|
Allied World |
|
|
|
|
|
|
|
|
|
|
|
|
|
Switzerland |
|
|
Bermuda |
|
|
Other Allied |
|
|
|
|
|
|
Allied World |
|
|
|
(Parent |
|
|
(Subsidiary |
|
|
World |
|
|
Consolidating |
|
|
Switzerland |
|
For the six months ended June 30, 2010 |
|
Guarantor) |
|
|
Issuer) |
|
|
Subsidiaries |
|
|
Adjustments |
|
|
Consolidated |
|
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
|
$ |
317,699 |
|
|
$ |
347,346 |
|
|
$ |
(347,346 |
) |
|
$ |
317,699 |
|
Adjustments to reconcile net income to cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of consolidated subsidiaries |
|
|
|
|
|
|
(347,346 |
) |
|
|
|
|
|
|
347,346 |
|
|
|
|
|
Dividends received from subsidiaries |
|
|
|
|
|
|
80,000 |
|
|
|
|
|
|
|
(80,000 |
) |
|
|
|
|
Stock compensation expense |
|
|
|
|
|
|
295 |
|
|
|
17,159 |
|
|
|
|
|
|
|
17,454 |
|
Amortization of discount on senior notes |
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
65 |
|
Other assets |
|
|
|
|
|
|
847 |
|
|
|
(343,427 |
) |
|
|
|
|
|
|
(342,580 |
) |
Accounts payable and accrued liabilities |
|
|
|
|
|
|
5,789 |
|
|
|
305,356 |
|
|
|
|
|
|
|
311,145 |
|
Interest payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating
activities |
|
|
|
|
|
|
57,349 |
|
|
|
326,434 |
|
|
|
(80,000 |
) |
|
|
303,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS USED IN INVESTING
ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of fixed maturity investments
available for sale |
|
|
|
|
|
|
|
|
|
|
(113,118 |
) |
|
|
|
|
|
|
(113,118 |
) |
|
Purchase of fixed maturity investments
trading |
|
|
|
|
|
|
|
|
|
|
(6,927,637 |
) |
|
|
|
|
|
|
(6,927,637 |
) |
Purchases of equity securities and other
invested
assets |
|
|
|
|
|
|
|
|
|
|
(203,011 |
) |
|
|
|
|
|
|
(203,011 |
) |
|
Sales of fixed maturity investments available
for sale |
|
|
|
|
|
|
|
|
|
|
1,827,800 |
|
|
|
|
|
|
|
1,827,800 |
|
Sales of fixed maturity investments trading |
|
|
|
|
|
|
|
|
|
|
5,344,007 |
|
|
|
|
|
|
|
5,344,007 |
|
Sale of equity securities and other invested
assets |
|
|
|
|
|
|
|
|
|
|
3,155 |
|
|
|
|
|
|
|
3,155 |
|
Other |
|
|
|
|
|
|
(2,097 |
) |
|
|
(16,759 |
) |
|
|
|
|
|
|
(18,856 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities |
|
|
|
|
|
|
(2,097 |
) |
|
|
(85,563 |
) |
|
|
|
|
|
|
(87,660 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS (USED IN) PROVIDED BY
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid |
|
|
|
|
|
|
(20,109 |
) |
|
|
(80,000 |
) |
|
|
80,000 |
|
|
|
(20,109 |
) |
Proceeds from the exercise of stock options |
|
|
|
|
|
|
3,576 |
|
|
|
|
|
|
|
|
|
|
|
3,576 |
|
Stock repurchase |
|
|
|
|
|
|
(49,089 |
) |
|
|
|
|
|
|
|
|
|
|
(49,089 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing
activities |
|
|
|
|
|
|
(65,622 |
) |
|
|
(80,000 |
) |
|
|
80,000 |
|
|
|
(65,622 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS |
|
|
|
|
|
|
(10,370 |
) |
|
|
160,871 |
|
|
|
|
|
|
|
150,501 |
|
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD |
|
|
|
|
|
|
53,849 |
|
|
|
238,339 |
|
|
|
|
|
|
|
292,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END
OF PERIOD |
|
$ |
|
|
|
$ |
43,479 |
|
|
$ |
399,210 |
|
|
$ |
|
|
|
$ |
442,689 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17. SUBSEQUENT EVENTS
Allied World Switzerland entered into a definitive agreement and plan of merger (the Merger
Agreement) on June 12, 2011 with GO Sub, LLC, a newly formed Delaware limited liability company
and a wholly-owned subsidiary of Allied World Switzerland (Merger Sub), and Transatlantic
Holdings, Inc. (Transatlantic), a Delaware corporation. The Merger Agreement provides for the
merger of Merger Sub with and into Transatlantic, with Transatlantic continuing as the surviving
corporation and a wholly-owned subsidiary of Allied World Switzerland. Transatlantic offers
reinsurance capacity for a full range of property and casualty products, directly and through
brokers, to insurance and reinsurance companies, in both the domestic and international markets on
both a treaty
-35-
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share, percentage and ratio information)
and facultative basis. Upon completion of the merger, Allied World Switzerland will
be the parent company of Transatlantic and Allied World Switzerlands name will be changed to
TransAllied Group Holdings, AG.
Pursuant to the terms of the Merger Agreement, stockholders of Transatlantic will be entitled
to receive 0.88 shares of Allied World Switzerland for each share of Transatlantic together with
cash in lieu of any fractional shares, as applicable. The transaction is expected to be completed
during the fourth quarter of 2011 subject to the satisfaction of customary closing conditions,
including regulatory approvals. The transaction will be accounted for using the acquisition method
of accounting with Transatlantic being considered the acquirer for accounting purposes.
Accordingly, the assets, liabilities and commitments of Allied World Switzerland will be recorded
at their fair values on the acquisition date.
On May 5, 2011, the shareholders approved the Companys proposal to pay dividends in the form
of a distribution by way of par value reduction. The aggregate reduction amount will be paid to
shareholders in quarterly installments of $0.375 per share. The Company made the first such
quarterly dividend payment on August 5, 2011 to shareholders of record on July 27, 2011. The
amount of the par value reduction was CHF 0.30, based on the exchange rate as of July 18, 2011.
-36-
Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations
should be read in conjunction with our unaudited condensed consolidated financial statements and
related notes included elsewhere in this Form 10-Q. References in this Form 10-Q to the terms we,
us, our, the company or other similar terms mean the consolidated operations of Allied World
Assurance Company Holdings, AG, a Swiss holding company, and our consolidated subsidiaries, unless
the context requires otherwise. References in this Form 10-Q to the term Allied World Switzerland
or Holdings means only Allied World Assurance Company Holdings, AG. References to Allied World
Bermuda means only Allied World Assurance Company Holdings, Ltd, a Bermuda holding company.
References to our insurance subsidiaries may include our reinsurance subsidiaries. References in
this Form 10-Q to $ are to the lawful currency of the United States and to CHF are to the lawful
currency of Switzerland. References in this Form 10-Q to Holdings common shares means its
registered voting shares and non-voting participation certificates.
Note on Forward-Looking Statement
This Form 10-Q and other publicly available documents may include, and our officers and
representatives may from time to time make, projections concerning financial information and
statements concerning future economic performance and events, plans and objectives relating to
management, operations, products and services, and assumptions underlying these projections and
statements. These projections and statements are forward-looking statements within the meaning of
The Private Securities Litigation Reform Act of 1995 and are not historical facts but instead
represent only our belief regarding future events, many of which, by their nature, are inherently
uncertain and outside our control. These projections and statements may address, among other
things, our strategy for growth, product development, financial results and reserves. Actual
results and financial condition may differ, possibly materially, from these projections and
statements and therefore you should not place undue reliance on them. Factors that could cause our
actual results to differ, possibly materially, from those in the specific projections and
statements are discussed throughout this Managements Discussion and Analysis of Financial
Condition and Results of Operations; in Risk Factors in Item 1A. of this Form 10-Q; in Risk
Factors in Item 1A. of Part I of our 2010 Annual Report on Form 10-K filed with the U.S.
Securities and Exchange Commission (SEC) on March 1, 2011 (the 2010 Form 10-K); and in the
Risk Factors and the Special Note Regarding Forward-Looking Statements sections of our
Registration Statement on Form S-4 filed with the SEC on July 8, 2011, [as amended] (the Form
S-4), which we filed in connection with our holding an extraordinary general meeting of
shareholders to consider and vote on proposals related to the Agreement and Plan of Merger, dated
as of June 12, 2011 (the Merger Agreement), by and among Holdings, GO Sub, LLC (Merger Sub) and
Transatlantic Holdings, Inc. (Transatlantic). 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.
Overview
Our Business
We write a diversified portfolio of property and casualty insurance and reinsurance
internationally through our subsidiaries and branches based in Bermuda, Europe, Hong Kong,
Singapore and the United States as well as our Lloyds Syndicate 2232. We manage our business
through three operating segments: U.S. insurance, international insurance and reinsurance. As of
June 30, 2011, we had approximately $10.9 billion of total assets, $3.0 billion of total
shareholders equity and $3.8 billion of total capital, which includes shareholders equity and
senior notes.
During the three months ended June 30, 2011, we experienced rate increases on property lines
which had experienced significant loss activity on a year-to-date basis. We also continued to see
rate improvement on our general casualty line of business while rates continued to decline in some
of our other casualty lines. We believe the premium rate decreases are generally due to increased
competition and excess capacity over the past several years. Despite the challenging pricing
environment, we believe that there are opportunities where certain products have adequate premium
rates and that the expanded breadth of our operations allows us to target those classes of
business. Given these trends, we continue to be selective in the insurance policies and reinsurance
contracts we underwrite. Our consolidated gross premiums written increased by $25.8 million, or
5.2%, for the three months ended June 30, 2011 compared to the three months ended June 30, 2010,
and our net income decreased by $90.2 million, or 49.0%, to $93.8 million for the
same three-month period as a result of a decrease in the total return from investments as well
as losses of $43.0 million from storms in the Midwestern U.S. and net unfavorable loss reserve
development of $24.5 million related to the Asia-Pacific earthquakes and Australian storms
occurring in the first quarter of 2011. Our consolidated gross premiums written increased by $82.3
million, or 8.2%, for the six months ended June 30, 2011 compared to the six months ended June 30,
2010 and our net income decreased by $215.3 million, or 67.8%, to $102.4 million for the same
six-month period. The decrease in net income for the six months ended June 30,
-37-
2011 compared to the six months ended June 30, 2010 was primarily due to lower total return from investments and higher
net losses and loss expenses from property catastrophe losses of $156.7 million in the Asia-Pacific
region and $43.0 million from the Midwestern U.S. storms.
Recent Developments
On June 12, 2011, we entered into the Merger Agreement with Transatlantic providing for a
merger of equals. The combined company will operate under a holding company structure with the
corporate name of TransAllied Group Holdings, AG, offering specialty insurance and reinsurance
products. Under the terms of the Merger Agreement, stockholders of Transatlantic will be entitled
to receive 0.88 shares of Allied World Switzerland for each share of Transatlantic common stock
together with cash in lieu of any fractional shares, as applicable. The transaction is expected to
be completed during the fourth quarter of 2011 subject to the satisfaction of customary closing
conditions, including regulatory approvals. The transaction will be accounted for using the
acquisition method of accounting for a business combination and Transatlantic will be treated as
the acquirer for accounting purposes.
Financial Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
($ in millions except share, per share and percentage data) |
|
Gross premiums written |
|
$ |
519.6 |
|
|
$ |
493.8 |
|
|
$ |
1,080.3 |
|
|
$ |
998.0 |
|
Net income |
|
|
93.8 |
|
|
|
184.0 |
|
|
|
102.4 |
|
|
|
317.7 |
|
Operating income |
|
|
44.2 |
|
|
|
95.7 |
|
|
|
2.8 |
|
|
|
157.0 |
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2.45 |
|
|
$ |
3.66 |
|
|
$ |
2.69 |
|
|
$ |
6.34 |
|
Operating income |
|
$ |
1.15 |
|
|
$ |
1.90 |
|
|
$ |
0.08 |
|
|
$ |
3.13 |
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2.36 |
|
|
$ |
3.47 |
|
|
$ |
2.57 |
|
|
$ |
5.98 |
|
Operating income |
|
$ |
1.11 |
|
|
$ |
1.80 |
|
|
$ |
0.07 |
|
|
$ |
2.96 |
|
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 |
|
Basic book value per common share |
|
$ |
80.23 |
|
|
$ |
70.20 |
|
|
$ |
80.23 |
|
|
$ |
70.20 |
|
Diluted book value per common share |
|
$ |
76.68 |
|
|
$ |
65.18 |
|
|
$ |
76.68 |
|
|
$ |
65.18 |
|
Annualized return on average equity
(ROAE), net income |
|
|
12.6 |
% |
|
|
22.5 |
% |
|
|
6.8 |
% |
|
|
19.9 |
% |
Annualized ROAE, operating income |
|
|
6.0 |
% |
|
|
11.7 |
% |
|
|
0.2 |
% |
|
|
9.8 |
% |
Non-GAAP Financial Measures
In presenting the companys results, management has included and discussed certain non-GAAP
financial measures, as such term is defined in Item 10(e) of Regulation S-K promulgated by the SEC.
Management believes that these non-GAAP measures, which may be defined differently by other
companies, better explain the companys results of operations in a manner that allows for a more
complete understanding of the underlying trends in the companys business. However, these measures
should not be viewed as a substitute for those determined in accordance with accounting principles
generally accepted in the United States (U.S. GAAP).
Operating income & operating income per share
Operating income is an internal performance measure used in the management of our 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. We exclude net realized investment gains or losses, net impairment
charges recognized in earnings and net foreign exchange gain or loss from our 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. We
exclude impairment of intangible assets as these are non-recurring charges. In addition to
presenting net income determined in accordance with U.S. GAAP, we believe that showing operating
income enables investors, analysts, rating agencies and
-38-
other users of our financial information to
more easily analyze our results of operations and our underlying business performance. Operating
income should not be viewed as a substitute for U.S. GAAP net income. The following is a
reconciliation of operating income to its most closely related U.S. GAAP measure, net income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
($ in millions except per share data) |
|
Net income |
|
$ |
93.8 |
|
|
$ |
184.0 |
|
|
$ |
102.4 |
|
|
$ |
317.7 |
|
Add after tax effect of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized investment gains |
|
|
(50.8 |
) |
|
|
(88.9 |
) |
|
|
(100.3 |
) |
|
|
(162.4 |
) |
Net impairment charges
recognized in earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
Foreign exchange loss |
|
|
1.2 |
|
|
|
0.6 |
|
|
|
0.7 |
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
44.2 |
|
|
$ |
95.7 |
|
|
$ |
2.8 |
|
|
$ |
157.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic per share data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2.45 |
|
|
$ |
3.66 |
|
|
$ |
2.69 |
|
|
$ |
6.34 |
|
Add after tax effect of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized investment gains |
|
|
(1.32 |
) |
|
|
(1.77 |
) |
|
|
(2.64 |
) |
|
|
(3.24 |
) |
Net impairment charges
recognized in earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange loss |
|
|
0.02 |
|
|
|
0.01 |
|
|
|
0.03 |
|
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
1.15 |
|
|
$ |
1.90 |
|
|
$ |
0.08 |
|
|
$ |
3.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted per share data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2.36 |
|
|
$ |
3.47 |
|
|
$ |
2.57 |
|
|
$ |
5.98 |
|
Add after tax effect of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized investment gains |
|
|
(1.28 |
) |
|
|
(1.68 |
) |
|
|
(2.52 |
) |
|
|
(3.05 |
) |
Net impairment charges
recognized in earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange loss |
|
|
0.03 |
|
|
|
0.01 |
|
|
|
0.02 |
|
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
1.11 |
|
|
$ |
1.80 |
|
|
$ |
0.07 |
|
|
$ |
2.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted book value per share
We have included diluted book value per share because it takes into account the effect of
dilutive securities; therefore, we believe it is an important measure of calculating shareholder
returns.
-39-
|
|
|
|
|
|
|
|
|
|
|
As of June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
|
($ in millions except share |
|
|
|
and per share data) |
|
Price per share at period end |
|
$ |
57.58 |
|
|
$ |
45.38 |
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
$ |
3,044.4 |
|
|
$ |
3,468.5 |
|
|
|
|
|
|
|
|
|
|
Basic common shares outstanding |
|
|
37,945,043 |
|
|
|
49,407,301 |
|
Add: |
|
|
|
|
|
|
|
|
Unvested restricted share units |
|
|
473,967 |
|
|
|
804,644 |
|
Performance based equity awards |
|
|
920,164 |
|
|
|
1,409,984 |
|
Dilutive options/warrants outstanding |
|
|
1,124,438 |
|
|
|
6,667,941 |
|
Weighted average exercise price per share |
|
$ |
38.83 |
|
|
$ |
34.52 |
|
Deduct: |
|
|
|
|
|
|
|
|
Options bought back via treasury method |
|
|
(758,342 |
) |
|
|
(5,072,455 |
) |
|
|
|
|
|
|
|
Common shares and common share equivalents
outstanding |
|
|
39,705,270 |
|
|
|
53,217,415 |
|
|
|
|
|
|
|
|
|
|
Basic book value per common share |
|
$ |
80.23 |
|
|
$ |
70.20 |
|
Diluted book value per common share |
|
$ |
76.68 |
|
|
$ |
65.18 |
|
Annualized return on average equity
Annualized return on average shareholders equity (ROAE) is calculated using average equity,
excluding the average after tax unrealized gains or losses on investments. We present ROAE as a
measure that is commonly recognized as a standard of performance by investors, analysts, rating
agencies and other users of our financial information.
Annualized operating return on average shareholders equity is calculated using operating
income and average shareholders equity, excluding the average after tax unrealized gains or losses
on investments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six
Months Ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
($ in millions except percentage data) |
|
Opening shareholders equity |
|
$ |
2,951.0 |
|
|
$ |
3,338.8 |
|
|
$ |
3,075.8 |
|
|
$ |
3,213.3 |
|
Deduct: accumulated other comprehensive income |
|
|
(33.0 |
) |
|
|
(142.3 |
) |
|
|
(57.1 |
) |
|
|
(149.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted opening shareholders equity |
|
$ |
2,918.0 |
|
|
$ |
3,196.5 |
|
|
$ |
3,018.7 |
|
|
$ |
3,063.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing shareholders equity |
|
$ |
3,044.4 |
|
|
$ |
3,468.5 |
|
|
$ |
3,044.4 |
|
|
$ |
3,468.5 |
|
Deduct: accumulated other comprehensive income |
|
|
(23.1 |
) |
|
|
(138.3 |
) |
|
|
(23.1 |
) |
|
|
(138.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted closing shareholders equity |
|
$ |
3,021.3 |
|
|
$ |
3,330.2 |
|
|
$ |
3,021.3 |
|
|
$ |
3,330.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shareholders equity |
|
$ |
2,969.7 |
|
|
$ |
3,263.4 |
|
|
$ |
3,020.0 |
|
|
$ |
3,196.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to shareholders |
|
$ |
93.8 |
|
|
$ |
184.0 |
|
|
$ |
102.4 |
|
|
$ |
317.7 |
|
Annualized return on average shareholders
equity
net income available to shareholders |
|
|
12.6 |
% |
|
|
22.5 |
% |
|
|
6.8 |
% |
|
|
19.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income available to shareholders |
|
$ |
44.2 |
|
|
$ |
95.7 |
|
|
$ |
2.8 |
|
|
$ |
157.0 |
|
Annualized return on average shareholders
equity
operating income available to shareholders |
|
|
6.0 |
% |
|
|
11.7 |
% |
|
|
0.2 |
% |
|
|
9.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
-40-
Relevant Factors
Revenues
We derive our revenues primarily from premiums on our insurance policies and reinsurance
contracts, net of any reinsurance or retrocessional coverage purchased. Insurance and reinsurance
premiums are a function of the amounts and types of policies and contracts we write, as well as
prevailing market prices. Our prices are determined before our ultimate costs, which may extend far
into the future, are known. In addition, our revenues include income generated from our investment
portfolio, consisting of net investment income and net realized investment gains or losses.
Investment income is principally derived from interest and dividends earned on investments,
partially offset by investment management expenses and fees paid to our custodian bank. Net
realized investment gains or losses include gains or losses from the sale of investments, as well
as the change in the fair value of investments that we mark-to-market through net income.
Expenses
Our expenses consist largely of net losses and loss expenses, acquisition costs, and general
and administrative expenses. Net losses and loss expenses incurred are comprised of three main
components:
|
|
|
losses paid, which are actual cash payments to insureds and reinsureds, net of recoveries
from reinsurers; |
|
|
|
|
outstanding loss or case reserves, which represent managements best estimate of the
likely settlement amount for known claims, less the portion that can be recovered from
reinsurers; and |
|
|
|
|
reserves for losses incurred but not reported, or IBNR, which are reserves (in addition
to case reserves) established by us that we believe are needed for the future settlement of
claims. The portion recoverable from reinsurers is deducted from the gross estimated loss. |
Acquisition costs are comprised of commissions, brokerage fees and insurance taxes.
Commissions and brokerage fees are usually calculated as a percentage of premiums and depend on the
market and line of business. Acquisition costs are reported after (1) deducting commissions
received on ceded reinsurance, (2) deducting the part of acquisition costs relating to unearned
premiums and (3) including the amortization of previously deferred acquisition costs.
General and administrative expenses include personnel expenses including stock-based
compensation expense, rent expense, professional fees, information technology costs and other
general operating expenses.
Ratios
Management measures results for each segment on the basis of the loss and loss expense
ratio, acquisition cost ratio, general and administrative expense ratio, expense ratio and
the combined ratio. Because we do not manage our assets by segment, investment income, interest
expense and total assets are not allocated to individual reportable segments. General and
administrative expenses are allocated to segments based on various factors, including staff count
and each segments proportional share of gross premiums written. The loss and loss expense ratio is
derived by dividing net losses and loss expenses by net premiums earned. The acquisition cost ratio
is derived by dividing acquisition costs by net premiums earned. The general and administrative
expense ratio is derived by dividing general and administrative expenses by net premiums earned.
The expense ratio is the sum of the acquisition cost ratio and the general and administrative
expense ratio. The combined ratio is the sum of the loss and loss expense ratio, the acquisition
cost ratio and the general and administrative expense ratio.
Critical Accounting Policies
It is important to understand our accounting policies in order to understand our financial
position and results of operations. Our unaudited condensed consolidated financial statements
reflect determinations that are inherently subjective in nature and require management to make
assumptions and best estimates to determine the reported values. If events or other factors cause
actual results to differ materially from managements underlying assumptions or estimates, there
could be a material adverse effect on our financial condition or results of operations. We believe
that some of the more critical judgments in the areas of accounting estimates and assumptions that
affect our financial condition and results of operations are related to reserves for losses and
loss expenses, reinsurance recoverables, premiums and acquisition costs, valuation of financial
instruments and goodwill and other intangible asset
-41-
impairment valuation. For a detailed discussion of our critical accounting policies please
refer to our 2010 Form 10-K. There were no material changes in the application of our critical
accounting estimates subsequent to that report.
Results of Operations
The following table sets forth our selected consolidated statement of operations data for each
of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
Gross premiums written |
|
$ |
519.6 |
|
|
$ |
493.8 |
|
|
$ |
1,080.3 |
|
|
$ |
998.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
$ |
395.8 |
|
|
$ |
369.8 |
|
|
$ |
876.7 |
|
|
$ |
803.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
355.3 |
|
|
|
338.9 |
|
|
|
690.2 |
|
|
|
677.2 |
|
Net investment income |
|
|
52.4 |
|
|
|
65.6 |
|
|
|
102.6 |
|
|
|
134.5 |
|
Net realized investment gains |
|
|
58.9 |
|
|
|
94.9 |
|
|
|
109.3 |
|
|
|
172.4 |
|
Net impairment charges recognized in earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2 |
) |
Other income |
|
|
|
|
|
|
0.6 |
|
|
|
|
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
466.6 |
|
|
$ |
500.0 |
|
|
$ |
902.1 |
|
|
$ |
984.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss expenses |
|
$ |
235.8 |
|
|
$ |
188.7 |
|
|
$ |
540.3 |
|
|
$ |
420.9 |
|
Acquisition costs |
|
|
43.0 |
|
|
|
37.9 |
|
|
|
81.1 |
|
|
|
78.7 |
|
General and administrative expenses |
|
|
67.2 |
|
|
|
68.1 |
|
|
|
135.2 |
|
|
|
131.5 |
|
Amortization and impairment of intangible assets |
|
|
0.8 |
|
|
|
0.9 |
|
|
|
1.5 |
|
|
|
1.8 |
|
Interest expense |
|
|
13.7 |
|
|
|
9.4 |
|
|
|
27.5 |
|
|
|
19.0 |
|
Foreign exchange loss |
|
|
1.2 |
|
|
|
0.6 |
|
|
|
0.7 |
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
361.7 |
|
|
$ |
305.6 |
|
|
$ |
786.3 |
|
|
$ |
653.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
104.9 |
|
|
$ |
194.4 |
|
|
$ |
115.8 |
|
|
$ |
331.3 |
|
Income tax expense |
|
|
11.1 |
|
|
|
10.4 |
|
|
|
13.4 |
|
|
|
13.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
93.8 |
|
|
$ |
184.0 |
|
|
$ |
102.4 |
|
|
$ |
317.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss expense ratio |
|
|
66.4 |
% |
|
|
55.7 |
% |
|
|
78.3 |
% |
|
|
62.1 |
% |
Acquisition cost ratio |
|
|
12.1 |
% |
|
|
11.2 |
% |
|
|
11.7 |
% |
|
|
11.6 |
% |
General and administrative expense ratio |
|
|
18.9 |
% |
|
|
20.1 |
% |
|
|
19.6 |
% |
|
|
19.4 |
% |
Expense ratio |
|
|
31.0 |
% |
|
|
31.3 |
% |
|
|
31.3 |
% |
|
|
31.0 |
% |
Combined ratio |
|
|
97.4 |
% |
|
|
87.0 |
% |
|
|
109.6 |
% |
|
|
93.1 |
% |
Comparison of Three Months Ended June 30, 2011 and 2010
Premiums
Gross premiums written increased by $25.8 million, or 5.2%, for the three months ended June
30, 2011 compared to the three months ended June 30, 2010. The overall increase in gross premiums
written was primarily the result of the following:
|
|
|
Gross premiums written in our U.S. insurance segment increased by $37.0 million, or
19.5%. The increase in gross premiums written was primarily due to increased new business,
including new products. This increase was partially offset by the non-renewal of business
that did not meet our underwriting requirements (which included inadequate pricing and/or
terms and conditions) and increased competition. |
|
|
|
|
Gross premiums written in our international insurance segment increased by $11.0 million,
or 6.6%, primarily as a result of increased premiums in our healthcare line of business, new
business including new products and rate increases within our general property line of
business, partially offset by the continued trend of the non-renewal of business that did
not meet our underwriting requirements (which included inadequate pricing and/or terms and
conditions) and increased competition. |
-42-
|
|
|
Gross premiums written in our reinsurance segment decreased by $22.3 million, or 16.3%.
The decrease in gross premiums written was primarily due to the non-renewal of business that
did not meet our underwriting requirements (which included inadequate pricing and/or terms
and conditions). These decreases were partially offset by gross premiums written in our new
global marine and specialty division and the continued build-out of our international
platform. |
The table below illustrates our gross premiums written by geographic location for each of the
periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
Dollar |
|
|
Percentage |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
Change |
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
United States |
|
$ |
269.2 |
|
|
$ |
247.4 |
|
|
$ |
21.8 |
|
|
|
8.8 |
% |
Bermuda |
|
|
177.9 |
|
|
|
182.3 |
|
|
|
(4.4 |
) |
|
|
(2.4 |
) |
Europe |
|
|
58.2 |
|
|
|
57.0 |
|
|
|
1.2 |
|
|
|
2.1 |
|
Singapore |
|
|
10.3 |
|
|
|
5.9 |
|
|
|
4.4 |
|
|
|
74.6 |
|
Hong Kong |
|
|
4.0 |
|
|
|
1.2 |
|
|
|
2.8 |
|
|
|
233.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
519.6 |
|
|
$ |
493.8 |
|
|
$ |
25.8 |
|
|
|
5.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written increased by $26.0 million, or 7.0%, for the three months ended June 30,
2011 compared to the three months ended June 30, 2010. The increase in net premiums written was due
to the increase in gross premiums written as well as a reduction of premiums ceded. The reduction
in premiums ceded was primarily due to the commutation of certain variable-rated reinsurance
contracts that have swing-rated provisions of $12.4 million. A swing-rated reinsurance contract
links the ultimate amount of ceded premium to the ultimate loss ratio on the reinsured business.
It enables the cedent to retain a greater portion of premium if the ultimate loss ratio develops at
a level below the initial loss threshold set by the reinsurers but requires a higher amount of
ceded premium if the ultimate loss ratio develops above the initial threshold. Swing-rated
reinsurance contracts often, but not always, contain a provision limiting the maximum decrease or
increase in ceded premium. In commuting these swing-rated reinsurance contracts, we reduced
certain premiums previously ceded by $12.4 million and also reduced ceded IBNR by $11.5 million in
accordance with the terms of the contracts. The net impact of the commutation was a net gain of
$0.9 million.
The difference between gross and net premiums written is the cost to us of purchasing
reinsurance coverage, including the cost of property catastrophe reinsurance coverage. We ceded
23.8% of gross premiums written for the three months ended June 30, 2011 compared to 25.1% for the
same period in 2010. The decrease in the cession percentage was primarily due to the reduction of
premiums ceded of $12.4 million related to the commutation of the swing-rated reinsurance
contracts.
Net premiums earned increased by $16.4 million, or 4.8%, for the three months ended June 30,
2011 compared to the three months ended June 30, 2010 primarily due to the reduction of premiums
ceded of $12.4 million related to the commutation of the swing-rated reinsurance contracts, which
was fully earned. In addition, upward adjustments on estimated premiums, the majority of which were
fully earned, were higher by $4.1 million during the three months ended June 30, 2011 compared to
the same period in 2010. There also was a decrease in net premiums earned in our international
insurance segment during the three months ended June 30, 2011 as a result of lower net premiums
written in 2010. This was partially offset by higher net premiums earned for the U.S. insurance
segment, driven by premium growth in our U.S. operations.
We evaluate our business by segment, distinguishing between U.S. insurance, international
insurance and reinsurance. The following chart illustrates the mix of our business on both a gross
premiums written and net premiums earned basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Net |
|
|
|
Premiums |
|
|
Premiums |
|
|
|
Written |
|
|
Earned |
|
|
|
Three Months Ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
U.S. insurance |
|
|
43.6 |
% |
|
|
38.4 |
% |
|
|
41.1 |
% |
|
|
37.1 |
% |
International insurance |
|
|
34.4 |
% |
|
|
33.9 |
% |
|
|
22.5 |
% |
|
|
26.4 |
% |
Reinsurance |
|
|
22.0 |
% |
|
|
27.7 |
% |
|
|
36.4 |
% |
|
|
36.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
-43-
Net Investment Income
Net investment income decreased by $13.2 million, or 20.1%, for the three months ended June
30, 2011 compared to the three months ended June 30, 2010. The decrease was due to lower yields on
our fixed maturity investments as well as an increased allocation to equity securities and hedge
funds, including private equity funds (together, the hedge funds), which contribute to our total
return but carry little or no current yield. The annualized period book yield of the investment
portfolio for the three months ended June 30, 2011 and 2010 was 2.7% and 3.5%, respectively, and
the financial statement total return of our investment portfolio was 2.2% for the three months
ended June 30, 2011. Investment management expenses of $3.4 million and $3.0 million were incurred
during the three months ended June 30, 2011 and 2010, respectively. The increase in investment
management expenses was primarily due to the increase in the size of our investment portfolio, as
well as expenses from higher expense asset classes (equities).
As of June 30, 2011, approximately 94.6% of our fixed income investments consisted of
investment grade securities. As of June 30, 2011 and December 31, 2010, the average credit rating
of our fixed income portfolio was AA as rated by Standard & Poors and Aa2 as rated by Moodys. The
average duration of fixed maturity investments and cash and cash equivalents was approximately 2.3
years as of June 30, 2011 and 2.6 years as of June 30, 2010.
Realized Investment Gains/Losses and Net Impairment Charges Recognized in Earnings
During the three months ended June 30, 2011, we recognized $58.9 million in net realized
investment gains compared to net realized investment gains of $94.9 million during the three months
ended June 30, 2010. During the three months ended June 30, 2011 and 2010 we did not recognize any
net impairment charges. Net realized investment gains of $58.9 million for the three months ended
June 30, 2011 were comprised of the following:
|
|
|
Net realized investment gains of $15.0 million primarily from the sale of fixed maturity
securities due to the rebalancing of our portfolio. |
|
|
|
|
Net realized investment gains of $43.9 million related to mark-to-market adjustments. |
|
|
|
|
|
|
|
Mark-to-Market Adjustments |
|
|
|
for the Three Months Ended |
|
|
|
June 30, 2011 |
|
|
|
($ in millions) |
|
Fixed maturity investments accounted for as trading securities |
|
$ |
31.9 |
|
Hedge funds and equity securities |
|
|
5.7 |
|
Futures and foreign exchange forwards |
|
|
6.3 |
|
|
|
|
|
Total |
|
$ |
43.9 |
|
|
|
|
|
Net realized investment gains of $94.9 million for the three months ended June 30, 2010 were
primarily comprised of the following:
|
|
|
Net realized investment gains of $71.8 million from the sale of securities. |
|
|
|
|
Net realized investment gains of $27.1 million primarily related to the mark-to-market
adjustments for our hedge fund investments, equity securities and fixed maturity investments
that are accounted for as trading securities. |
Other Income
The other income of $0.6 million for the three months ended June 30, 2010 represented fee
income from our program administrator operations and our wholesale brokerage operations. We sold
our wholesale brokerage operations during the third quarter of 2010.
Net Losses and Loss Expenses
Net losses and loss expenses increased by $47.1 million, or 25.0%, for the three months ended
June 30, 2011 compared to the three months ended June 30, 2010. The increase in net losses and loss
expenses was due to higher catastrophe loss activity in the current period, which included $43.0
million from storms in the Midwestern U.S. and net unfavorable loss reserve development of $24.5
million related to the Asia-Pacific earthquakes and Australian storms occurring in the first
quarter of 2011. We also recognized lower
-44-
net favorable prior year reserve development for the three months ended June 30, 2011 compared
to June 30, 2010 and an $11.5 million reduction of ceded IBNR as part of the commutation of certain
swing-rated reinsurance contracts.
We recorded net favorable reserve development related to prior years of $55.2 million and
$64.1 million during the three months ended June 30, 2011 and 2010, respectively. The $55.2 million
of net favorable reserve development excludes the impact of the commutation of the swing-rated
reinsurance contracts of $11.5 million discussed above. The following table shows the net favorable
reserve development of $55.2 million by loss year for each of our segments for the three months
ended June 30, 2011. In the table, a negative number represents net favorable reserve development
and a positive number represents net unfavorable reserve development.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Reserve Development by Loss Year |
|
|
|
For the Three Months Ended June 30, 2011 |
|
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
Total |
|
|
|
($ in millions) |
|
U.S. insurance |
|
$ |
|
|
|
$ |
(0.7 |
) |
|
$ |
(1.8 |
) |
|
$ |
(6.7 |
) |
|
$ |
(1.1 |
) |
|
$ |
(2.2 |
) |
|
$ |
0.9 |
|
|
$ |
0.8 |
|
|
$ |
0.6 |
|
|
$ |
(10.2 |
) |
International insurance |
|
|
(0.3 |
) |
|
|
(1.4 |
) |
|
|
(3.0 |
) |
|
|
(6.3 |
) |
|
|
(9.8 |
) |
|
|
(14.0 |
) |
|
|
6.6 |
|
|
|
(6.0 |
) |
|
|
22.2 |
|
|
|
(12.0 |
) |
Reinsurance |
|
|
(0.5 |
) |
|
|
(0.8 |
) |
|
|
(1.1 |
) |
|
|
(12.9 |
) |
|
|
(6.3 |
) |
|
|
(3.9 |
) |
|
|
(0.7 |
) |
|
|
(0.8 |
) |
|
|
(6.0 |
) |
|
|
(33.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.8 |
) |
|
$ |
(2.9 |
) |
|
$ |
(5.9 |
) |
|
$ |
(25.9 |
) |
|
$ |
(17.2 |
) |
|
$ |
(20.1 |
) |
|
$ |
6.8 |
|
|
$ |
(6.0 |
) |
|
$ |
16.8 |
|
|
$ |
(55.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unfavorable reserve development in our international insurance segment for the 2010
loss year was primarily due to a casualty claim emanating from an oil field service risk.
The following table shows the net favorable reserve development of $64.1 million by loss year
for each of our segments for the three months ended June 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Reserve Development by Loss Year |
|
|
|
For the Three Months Ended June 30, 2010 |
|
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
Total |
|
|
|
($ in millions) |
|
U.S. insurance |
|
$ |
(0.1 |
) |
|
$ |
(0.8 |
) |
|
$ |
(6.8 |
) |
|
$ |
(10.0 |
) |
|
$ |
(2.5 |
) |
|
$ |
0.1 |
|
|
$ |
(0.8 |
) |
|
$ |
0.2 |
|
|
$ |
(20.7 |
) |
International insurance |
|
|
2.6 |
|
|
|
(4.7 |
) |
|
|
5.1 |
|
|
|
(15.0 |
) |
|
|
(1.3 |
) |
|
|
(3.0 |
) |
|
|
(10.7 |
) |
|
|
3.7 |
|
|
|
(23.3 |
) |
Reinsurance |
|
|
0.3 |
|
|
|
(1.3 |
) |
|
|
(6.9 |
) |
|
|
(4.1 |
) |
|
|
(0.8 |
) |
|
|
(1.4 |
) |
|
|
0.2 |
|
|
|
(6.1 |
) |
|
|
(20.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2.8 |
|
|
$ |
(6.8 |
) |
|
$ |
(8.6 |
) |
|
$ |
(29.1 |
) |
|
$ |
(4.6 |
) |
|
$ |
(4.3 |
) |
|
$ |
(11.3 |
) |
|
$ |
(2.2 |
) |
|
$ |
(64.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The loss and loss expense ratio for the three months ended June 30, 2011 was 66.4%
compared to 55.7% for the three months ended June 30, 2010. Net favorable reserve development
recognized and the impact of the commutation adjustment during the three months ended June 30, 2011
reduced the loss and loss expense ratio by 15.8 percentage points. Thus, the loss and loss expense
ratio related to the current loss year was 82.2%. Net favorable reserve development recognized
during the three months ended June 30, 2010 reduced the loss and loss expense ratio by 18.9
percentage points. Thus, the loss and loss expense ratio related to that loss year was 74.6%. The
increase in the loss and loss expense ratio for the current loss year was primarily due to the
$67.5 million of losses from catastrophes recognized during the three months ended June 30, 2011,
as previously discussed, which contributed 19.0 percentage points to the current years loss and
loss expense ratio. In comparison, $30.0 million of large individual losses contributed 8.9
percentage points to the loss and loss expense ratio for the three months ended June 30, 2010.
The following table shows the components of the increase in net losses and loss expenses of
$47.1 million for each of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
June 30, |
|
|
Dollar |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
($ in millions) |
|
Net losses paid |
|
$ |
128.7 |
|
|
$ |
129.4 |
|
|
$ |
(0.7 |
) |
Net change in reported case reserves |
|
|
116.5 |
|
|
|
72.1 |
|
|
|
44.4 |
|
Net change in IBNR |
|
|
(9.4 |
) |
|
|
(12.8 |
) |
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss expenses |
|
$ |
235.8 |
|
|
$ |
188.7 |
|
|
$ |
47.1 |
|
|
|
|
|
|
|
|
|
|
|
The table below is a reconciliation of the beginning and ending reserves for losses and loss
expenses. Losses incurred and paid are reflected net of reinsurance recoverables.
-45-
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
|
($ in millions) |
|
Net reserves for losses and loss expenses, April 1 |
|
$ |
4,125.1 |
|
|
$ |
3,933.0 |
|
Incurred related to: |
|
|
|
|
|
|
|
|
Commutation of variable-rated reinsurance contracts |
|
|
11.5 |
|
|
|
|
|
Current period non-catastrophe |
|
|
212.0 |
|
|
|
252.8 |
|
Current period property catastrophe |
|
|
67.5 |
|
|
|
|
|
Prior period non-catastrophe |
|
|
(56.5 |
) |
|
|
(60.3 |
) |
Prior period property catastrophe |
|
|
1.3 |
|
|
|
(3.8 |
) |
|
|
|
|
|
|
|
Total incurred |
|
$ |
235.8 |
|
|
$ |
188.7 |
|
Paid related to: |
|
|
|
|
|
|
|
|
Current period non-catastrophe |
|
|
9.6 |
|
|
|
7.8 |
|
Current period property catastrophe |
|
|
9.9 |
|
|
|
18.9 |
|
Prior period non-catastrophe |
|
|
108.5 |
|
|
|
93.4 |
|
Prior period property catastrophe |
|
|
0.7 |
|
|
|
9.3 |
|
|
|
|
|
|
|
|
Total paid |
|
$ |
128.7 |
|
|
$ |
129.4 |
|
Foreign exchange revaluation |
|
|
5.2 |
|
|
|
(4.3 |
) |
|
|
|
|
|
|
|
Net reserve for losses and loss expenses, June 30 |
|
|
4,237.4 |
|
|
|
3,988.0 |
|
Losses and loss expenses recoverable |
|
|
1,013.9 |
|
|
|
932.4 |
|
|
|
|
|
|
|
|
Reserve for losses and loss expenses, June 30 |
|
$ |
5,251.3 |
|
|
$ |
4,920.4 |
|
|
|
|
|
|
|
|
Acquisition Costs
Acquisition costs increased by $5.1 million, or 13.5%, for the three months ended June 30,
2011 compared to the three months ended June 30, 2010. The increase in acquisition costs was
primarily due to the growth in our U.S. insurance segment which carries a higher acquisition cost
ratio. Acquisition costs as a percentage of net premiums earned were 12.1% for the three months
ended June 30, 2011 compared to 11.2% for the same period in 2010.
General and Administrative Expenses
General and administrative expenses decreased by $0.9 million, or 1.3%, for the three months
ended June 30, 2011 compared to the same period in 2010. The decrease in general and administrative
expenses was primarily due to a decrease in performance-based incentive compensation, partially
offset by an increase in salary expense due to an increase in global headcount from 684 at June 30,
2010 to 692 at June 30, 2011. We also incurred approximately $2.6 million in costs during the
quarter related to our proposed merger with Transatlantic.
Our general and administrative expense ratio was 18.9% for the three months ended June 30,
2011, which was lower than the 20.1% for the three months ended June 30, 2010. The decrease was
primarily due to the factors discussed above while net premiums earned increased, particularly with
the commutation of certain swing-rated reinsurance contracts.
Our expense ratio was 31.0% for the three months ended June 30, 2011 compared to 31.3% for the
three months ended June 30, 2010 primarily due to the decrease in the general and administrative
expense ratio.
Amortization and Impairment of Intangible Assets
The amortization and impairment of intangible assets decreased by $0.1 million, or 11.1%, for
the three months ended June 30, 2011 compared to the three months ended June 30, 2010. The decrease
was due to the non-compete covenants related to the acquisition of Darwin Professional
Underwriters, Inc. (Darwin) being fully amortized during 2010. No impairment of intangible assets
was recognized during the three months ended June 30, 2011 and 2010.
-46-
Interest Expense
Interest expense increased $4.3 million, or 45.7%, for the three months ended June 30, 2011
compared to the three months ended June 30, 2010 primarily as a result of additional interest
expense on our 5.50% senior notes that were issued by Allied World Bermuda in November 2010.
Net Income
Net income for the three months ended June 30, 2011 was $93.8 million compared to $184.0
million for the three months ended June 30, 2010. The decrease was primarily the result of higher
net loss and loss expenses and lower realized investment gains and net investment income. Net
income for the three months ended June 30, 2011 included a net foreign exchange loss of $1.2
million and an income tax expense of $11.1 million. Net income for the three months ended June 30,
2010 included a net foreign exchange loss of $0.6 million and an income tax expense of $10.4
million.
Comparison of Six Months Ended June 30, 2011 and 2010
Premiums
Gross premiums written increased by $82.3 million, or 8.2%, for the six months ended June 30,
2011 compared to the six months ended June 30, 2010. The overall increase in gross premiums written
was primarily the result of the following:
|
|
|
Gross premiums written in our U.S. insurance segment increased by $58.4 million, or
16.6%. The increase in gross premiums written was primarily due to increased new business,
including new products, for the six months ended June 30, 2011 compared to the six months
ended June 30, 2010. This increase was partially offset by the non-renewal of business that
did not meet our underwriting requirements (which included inadequate pricing and/or terms
and conditions) and increased competition. |
|
|
|
|
Gross premiums written in our international insurance segment increased by $0.9 million,
or 0.3%, due to increased premiums in our healthcare line of business as well as increased
property premiums due to rate increases and new business. These increases were partially
offset by the non-renewal of business that did not meet our underwriting requirements (which
included inadequate pricing and/or terms and conditions) and increased competition. |
|
|
|
|
Gross premiums written in our reinsurance segment increased by $23.1 million, or 6.5%.
The increase in gross premiums written was primarily due to increased new business,
including gross premiums written by our new global marine and specialty division and the
build-out of our international reinsurance platform. This increase was partially offset by
the non-renewal of business that did not meet our underwriting requirements (which included
inadequate pricing and/or terms and conditions). |
The table below illustrates our gross premiums written by geographic location for each of the
periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
Dollar |
|
|
Percentage |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
Change |
|
|
|
($ in millions) |
|
United States |
|
$ |
575.8 |
|
|
$ |
523.2 |
|
|
$ |
52.6 |
|
|
|
10.1 |
% |
Bermuda |
|
|
348.3 |
|
|
|
336.4 |
|
|
|
11.9 |
|
|
|
3.5 |
|
Europe |
|
|
122.3 |
|
|
|
123.2 |
|
|
|
(0.9 |
) |
|
|
(0.7 |
) |
Singapore |
|
|
25.6 |
|
|
|
9.6 |
|
|
|
16.0 |
|
|
|
166.7 |
|
Hong Kong |
|
|
8.3 |
|
|
|
5.6 |
|
|
|
2.7 |
|
|
|
48.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,080.3 |
|
|
$ |
998.0 |
|
|
$ |
82.3 |
|
|
|
8.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written increased by $73.6 million, or 9.2%, for the six months ended June 30,
2011 compared to the six months ended June 30, 2010. The increase in net premiums written was
primarily due to the increase in gross premiums written. Premiums ceded was reduced by $12.4
million due to the commutation of certain variable-rated reinsurance contracts that have
swing-rated provisions. In commuting these swing-rated reinsurance contracts, we reduced certain
premiums previously ceded and also reduced ceded IBNR by $11.5 million in accordance with the terms
of the contracts. During the six months ended June 30, 2010, net premiums written included a $9.3
million reduction in premiums ceded for the commutation of certain variable-rated reinsurance
contracts.
-47-
The difference between gross and net premiums written is the cost to us of purchasing
reinsurance coverage, including the cost of property catastrophe reinsurance coverage. We ceded
18.8% of gross premiums written for the six months ended June 30, 2011 compared to 19.5% for the
same period in 2010. The decrease in the cession percentage was primarily due to the reduction of
premiums ceded of $12.4 million during the six months ended June 30, 2011 compared to $9.3 million
during the six months ended June 30, 2010 related to the commutation of certain swing-rated
reinsurance contracts.
Net premiums earned increased by $13.0 million, or 1.9%, for the six months ended June 30,
2011 compared to the six months ended June 30, 2010. This was primarily a result of higher net
premiums earned for the U.S. insurance segment, driven by premium growth of our U.S. operations.
Additionally, the commutation of swing-rated reinsurance contracts during the six months ended June
30, 2011 added $12.4 million to net premiums earned compared to $9.3 million during the six months
ended June 30, 2010.
We evaluate our business by segment, distinguishing between U.S. insurance, international
insurance and reinsurance. The following chart illustrates the mix of our business on both a gross
premiums written and net premiums earned basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
Net |
|
|
Premiums |
|
Premiums |
|
|
Written |
|
Earned |
|
|
Six Months Ended June 30, |
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
U.S. insurance |
|
|
38.0 |
% |
|
|
35.2 |
% |
|
|
40.8 |
% |
|
|
37.6 |
% |
International insurance |
|
|
26.8 |
% |
|
|
29.0 |
% |
|
|
22.6 |
% |
|
|
26.1 |
% |
Reinsurance |
|
|
35.2 |
% |
|
|
35.8 |
% |
|
|
36.6 |
% |
|
|
36.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income
Net investment income decreased by $31.9 million, or 23.7%, for the six months ended June 30,
2011 compared to the six months ended June 30, 2010. The decrease was due to lower yields on our
fixed maturity investments as well as an increased allocation to equity securities and hedge funds,
which contribute to our total return but carry little or no current yield. We increased our equity
and hedge fund investments by $567.4 million between June 30, 2010 and June 30, 2011. The
annualized period book yield of the investment portfolio for the six months ended June 30, 2011 and
2010 was 2.7% and 3.6%, respectively, and the financial statement total return of our investment
portfolio was 2.2% for the six months ended June 30, 2011. Investment management expenses of $6.7
million and $5.6 million were incurred during the six months ended June 30, 2011 and 2010,
respectively. The increase in investment management expenses was primarily due to the increase in
the size of our investment portfolio, as well as expenses from higher expense asset classes
(equities).
As of June 30, 2011, approximately 94.6% of our fixed income investments consisted of
investment grade securities. As of June 30, 2011 and December 31, 2010, the average credit rating
of our fixed income portfolio was AA as rated by Standard & Poors and Aa2 as rated by Moodys. The
average duration of fixed maturity investments and cash and cash equivalents was approximately 2.3
years as of June 30, 2011 and 2.6 years as of June 30, 2010.
Realized Investment Gains/Losses and Net Impairment Charges Recognized in Earnings
During the six months ended June 30, 2011, we recognized $109.3 million in net realized
investment gains compared to net realized investment gains of $172.4 million during the six months
ended June 30, 2010. During the six months ended June 30, 2011, we did not recognize any net
impairment charges compared to $0.2 million during the six months ended June 30, 2010. Net realized
investment gains of $109.3 million for the six months ended June 30, 2011 were comprised of the
following:
|
|
|
Net realized investment gains of $32.0 million primarily from the sale of fixed maturity
securities due to the rebalancing of our portfolio. |
|
|
|
|
Net realized investment gains of $77.3 million related to mark-to-market adjustments. |
-48-
|
|
|
|
|
|
|
Mark-to-Market Adjustments |
|
|
|
for the Six Months Ended |
|
|
|
June 30, 2011 |
|
|
|
($ in millions) |
|
Fixed maturity investments accounted for as trading securities |
|
$ |
45.3 |
|
Hedge funds and equity securities |
|
|
26.6 |
|
Futures and foreign exchange forwards |
|
|
5.4 |
|
|
|
|
|
Total |
|
$ |
77.3 |
|
|
|
|
|
Net realized investment gains of $172.4 million for the six months ended June 30, 2010 were
comprised primarily of the following:
|
|
|
Net realized investment gains of $117.1 million from the sale of securities. |
|
|
|
|
Net realized investment gains of $59.3 million primarily related to the mark-to-market
adjustments for our hedge fund investments, equity securities and fixed maturity investments
that are accounted for as trading securities. |
Other Income
The other income of $0.9 million for the six months ended June 30, 2010 represented fee income
from our program administrator operations and our wholesale brokerage operations. We sold our
wholesale brokerage operations during the third quarter of 2010.
Net Losses and Loss Expenses
Net losses and loss expenses increased by $119.4 million, or 28.4%, for the six months ended
June 30, 2011 compared to the six months ended June 30, 2010. The increase in net losses and loss
expenses was due to higher catastrophe loss activity in the current period totaling $199.7 million,
which included estimated net losses and loss expenses incurred of $89.5 million for the Tohoku
earthquake and tsunami, $51.2 million for the New Zealand earthquake, $43.0 million for the
Midwestern U.S. storms and $16.0 million for the Australian storms. During the six months ended
June 30, 2010, we incurred $116.5 million of net losses and loss expenses related to the
earthquakes in Haiti, Chile and Baja, Mexico, a Connecticut power plant explosion, European
Windstorm Xynthia, a mine collapse and hail storms in Australia. We also recognized lower net
favorable prior year reserve development for the six months ended June 30, 2011 compared to June
30, 2010.
We recorded net favorable reserve development related to prior years of $99.5 million and
$138.1 million during the six months ended June 30, 2011 and 2010, respectively. The $99.5 million
of net favorable reserve development excludes the impact of the commutation of swing-rated
reinsurance contracts of $11.5 million. The following table shows the net favorable reserve
development of $99.5 million by loss year for each of our segments for the six months ended June
30, 2011. In the table, a negative number represents net favorable reserve development and a
positive number represents net unfavorable reserve development.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Reserve Development by Loss Year |
|
|
|
For the Six Months Ended June 30, 2011 |
|
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
Total |
|
|
|
($ in millions) |
|
U.S. insurance |
|
$ |
(0.1 |
) |
|
$ |
(1.4 |
) |
|
$ |
(3.5 |
) |
|
$ |
(12.7 |
) |
|
$ |
23.8 |
|
|
$ |
(2.1 |
) |
|
$ |
(0.7 |
) |
|
$ |
(0.3 |
) |
|
$ |
9.0 |
|
|
$ |
12.0 |
|
International insurance |
|
|
1.2 |
|
|
|
(4.0 |
) |
|
|
(1.2 |
) |
|
|
(23.5 |
) |
|
|
(14.3 |
) |
|
|
(21.6 |
) |
|
|
10.2 |
|
|
|
(7.4 |
) |
|
|
20.0 |
|
|
|
(40.6 |
) |
Reinsurance |
|
|
(0.6 |
) |
|
|
(3.0 |
) |
|
|
(3.8 |
) |
|
|
(24.7 |
) |
|
|
(12.2 |
) |
|
|
(7.1 |
) |
|
|
(3.1 |
) |
|
|
(9.5 |
) |
|
|
(6.9 |
) |
|
|
(70.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.5 |
|
|
$ |
(8.4 |
) |
|
$ |
(8.5 |
) |
|
$ |
(60.9 |
) |
|
$ |
(2.7 |
) |
|
$ |
(30.8 |
) |
|
$ |
6.4 |
|
|
$ |
(17.2 |
) |
|
$ |
22.1 |
|
|
$ |
(99.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unfavorable reserve development in our international insurance segment for the 2010
loss year was primarily due to a casualty claim emanating from an oil field service risk.
The net favorable reserve development is a result of actual loss emergence being lower than
anticipated. The unfavorable reserve development of $23.8 million in our U.S. insurance segment for
the 2006 loss year was primarily due to directors and officers claims within our professional
liability line of business related to a class action suit filed against a number of private equity
firms alleging collusion.
-49-
The following table shows the net favorable reserve development of $138.1 million by loss year
for each of our segments for the six months ended June 30, 2010. The $138.1 million of net
favorable reserve development excludes the impact of the commutation of swing-rated reinsurance
contracts of $8.9 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Reserve Development by Loss Year |
|
|
|
For the Six Months Ended June 30, 2010 |
|
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
Total |
|
|
|
($ in millions) |
|
U.S. insurance |
|
$ |
(0.5 |
) |
|
$ |
(1.8 |
) |
|
$ |
(14.4 |
) |
|
$ |
(12.5 |
) |
|
$ |
(2.3 |
) |
|
$ |
2.2 |
|
|
$ |
3.9 |
|
|
$ |
0.8 |
|
|
$ |
(24.6 |
) |
International insurance |
|
|
2.5 |
|
|
|
(6.8 |
) |
|
|
(14.9 |
) |
|
|
(43.8 |
) |
|
|
(11.3 |
) |
|
|
(7.5 |
) |
|
|
(3.3 |
) |
|
|
4.3 |
|
|
|
(80.8 |
) |
Reinsurance |
|
|
(0.4 |
) |
|
|
(1.1 |
) |
|
|
(9.9 |
) |
|
|
(8.1 |
) |
|
|
(1.1 |
) |
|
|
(2.3 |
) |
|
|
(2.2 |
) |
|
|
(7.6 |
) |
|
|
(32.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1.6 |
|
|
$ |
(9.7 |
) |
|
$ |
(39.2 |
) |
|
$ |
(64.4 |
) |
|
$ |
(14.7 |
) |
|
$ |
(7.6 |
) |
|
$ |
(1.6 |
) |
|
$ |
(2.5 |
) |
|
$ |
(138.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The loss and loss expense ratio for the six months ended June 30, 2011 was 78.3% compared
to 62.1% for the six months ended June 30, 2010. Net favorable reserve development recognized and
the impact of the commutation adjustment during the six months ended June 30, 2011 reduced the loss
and loss expense ratio by 14.8 percentage points. Thus, the loss and loss expense ratio related to
the current loss year was 93.1%. Net favorable reserve development recognized and the impact of the
commutation during the six months ended June 30, 2010 reduced the loss and loss expense ratio by
20.2 percentage points. Thus, the loss and loss expense ratio related to that loss year was 82.3%.
The increase in the loss and loss expense ratio for the current loss year was primarily due to the
$199.7 million of losses from global catastrophes during the six months ended June 30, 2011, as
previously discussed, which contributed 28.9 percentage points to the current periods loss and
loss expense ratio.
The following table shows the components of the increase in net losses and loss expenses of
$119.4 million for each of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
June 30, |
|
|
Dollar |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
|
($ in millions) |
|
Net losses paid |
|
$ |
264.8 |
|
|
$ |
265.4 |
|
|
$ |
(0.6 |
) |
Net change in reported case reserves |
|
|
228.8 |
|
|
|
78.4 |
|
|
|
150.4 |
|
Net change in IBNR |
|
|
46.7 |
|
|
|
77.1 |
|
|
|
(30.4 |
) |
|
|
|
|
|
|
|
|
|
|
Net losses and loss expenses |
|
$ |
540.3 |
|
|
$ |
420.9 |
|
|
$ |
119.4 |
|
|
|
|
|
|
|
|
|
|
|
-50-
The table below is a reconciliation of the beginning and ending reserves for losses and loss
expenses. Losses incurred and paid are reflected net of reinsurance recoverables.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
|
($ in millions) |
|
Net reserves for losses and loss expenses, January 1 |
|
$ |
3,951.6 |
|
|
$ |
3,841.8 |
|
Incurred related to: |
|
|
|
|
|
|
|
|
Commutation of variable-rated reinsurance contracts |
|
|
11.5 |
|
|
|
8.9 |
|
Current period non-catastrophe |
|
|
428.6 |
|
|
|
485.1 |
|
Current period property catastrophe |
|
|
199.7 |
|
|
|
65.0 |
|
Prior period non-catastrophe |
|
|
(91.8 |
) |
|
|
(133.4 |
) |
Prior period property catastrophe |
|
|
(7.7 |
) |
|
|
(4.7 |
) |
|
|
|
|
|
|
|
Total incurred |
|
$ |
540.3 |
|
|
$ |
420.9 |
|
Paid related to: |
|
|
|
|
|
|
|
|
Current period non-catastrophe |
|
|
11.1 |
|
|
|
14.1 |
|
Current period property catastrophe |
|
|
10.2 |
|
|
|
19.3 |
|
Prior period non-catastrophe |
|
|
234.2 |
|
|
|
216.8 |
|
Prior period property catastrophe |
|
|
9.3 |
|
|
|
15.2 |
|
|
|
|
|
|
|
|
Total paid |
|
$ |
264.8 |
|
|
$ |
265.4 |
|
Foreign exchange revaluation |
|
|
10.3 |
|
|
|
(9.3 |
) |
|
|
|
|
|
|
|
Net reserve for losses and loss expenses, June 30 |
|
|
4,237.4 |
|
|
|
3,988.0 |
|
Losses and loss expenses recoverable |
|
|
1,013.9 |
|
|
|
932.4 |
|
|
|
|
|
|
|
|
Reserve for losses and loss expenses, June 30 |
|
$ |
5,251.3 |
|
|
$ |
4,920.4 |
|
|
|
|
|
|
|
|
Acquisition Costs
Acquisition costs increased by $2.4 million, or 3.0%, for the six months ended June 30, 2011
compared to the six months ended June 30, 2010. The increase in acquisition costs was primarily due
to the increase in net premiums earned. Acquisition costs as a percentage of net premiums earned
were 11.7% for the six months ended June 30, 2011 compared to 11.6% for the same period in 2010.
General and Administrative Expenses
General and administrative expenses increased by $3.7 million, or 2.8%, for the six months
ended June 30, 2011 compared to the same period in 2010. The increase in general and
administrative expenses was primarily due to an increase in global headcount from 684 at June 30,
2010 to 692 at June 30, 2011 offset by a decrease in performance-based incentive compensation
expense. We incurred approximately $2.6 million in costs during the six months ended June 30, 2011
related to our proposed merger with Transatlantic and we incurred additional building related
expenses as a result of the expansion of several of our offices.
Our general and administrative expense ratio was 19.6% for the six months ended June 30, 2011,
which was higher than the 19.4% for the six months ended June 30, 2010. The increase was primarily
due to the factors discussed above.
Our expense ratio was 31.3% for the six months ended June 30, 2011 compared to 31.0% for the
six months ended June 30, 2010 primarily due to an increase in the general and administrative
expense ratio.
Amortization and Impairment of Intangible Assets
The amortization and impairment of intangible assets decreased $0.3 million, or 16.7%, for the
six months ended June 30, 2011 compared the six months ended June 30, 2010. The decrease was due to
the non-compete covenants related to the acquisition of Darwin being fully amortized during 2010.
No impairment of intangible assets was recognized during the six months ended June 30, 2011 and
June 30, 2010, respectively.
-51-
Interest Expense
Interest expense increased $8.5 million, or 44.7%, for the six months ended June 30, 2011
compared to the six months ended June 30, 2010 primarily as a result of additional interest expense
on our 5.50% senior notes that were issued by Allied World Bermuda in November 2010.
Net Income
Net income for the six months ended June 30, 2011 was $102.4 million compared to $317.7
million for the six months ended June 30, 2010. The decrease was primarily the result of higher net
loss and loss expenses and lower realized investment gains and net investment income. Net income
for the six months ended June 30, 2011 included a net foreign exchange loss of $0.7 million and an
income tax expense of $13.4 million. Net income for the six months ended June 30, 2010 included a
net foreign exchange loss of $1.6 million and an income tax expense of $13.6 million.
Underwriting Results by Operating Segments
Our company is organized into three operating segments:
U.S. Insurance Segment. The U.S. insurance segment includes our direct specialty insurance
operations in the United States. This segment provides both direct property and specialty casualty
insurance primarily to non-Fortune 1000 North American domiciled accounts.
International Insurance Segment. The international insurance segment includes our direct
insurance operations in Bermuda, Europe, Singapore and Hong Kong. This segment provides both direct
property and casualty insurance primarily to Fortune 1000 North American domiciled accounts and
mid-sized to large non-North American domiciled accounts.
Reinsurance Segment. Our reinsurance segment has operations in Bermuda, Europe, Singapore and
the United States. This segment includes the reinsurance of property, general casualty,
professional liability, specialty lines and property catastrophe coverages written by insurance
companies. We presently write reinsurance on both a treaty and a facultative basis, targeting
several niche reinsurance markets.
-52-
U.S. Insurance Segment
The following table summarizes the underwriting results and associated ratios for the U.S.
insurance segment for each of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
|
($ in millions) |
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
226.7 |
|
|
$ |
189.7 |
|
|
$ |
410.1 |
|
|
$ |
351.7 |
|
Net premiums written |
|
|
172.9 |
|
|
|
135.2 |
|
|
|
312.8 |
|
|
|
266.8 |
|
Net premiums earned |
|
|
145.9 |
|
|
|
125.7 |
|
|
|
281.3 |
|
|
|
254.9 |
|
Other income |
|
|
|
|
|
|
0.6 |
|
|
|
|
|
|
|
0.9 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss expenses |
|
$ |
92.6 |
|
|
$ |
69.2 |
|
|
$ |
208.4 |
|
|
$ |
167.6 |
|
Acquisition costs |
|
|
18.9 |
|
|
|
15.9 |
|
|
|
37.0 |
|
|
|
32.8 |
|
General and administrative expenses |
|
|
31.3 |
|
|
|
30.7 |
|
|
|
62.0 |
|
|
|
57.8 |
|
Underwriting income (loss) |
|
|
3.1 |
|
|
|
10.5 |
|
|
|
(26.1 |
) |
|
|
(2.4 |
) |
Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss expense ratio |
|
|
63.5 |
% |
|
|
55.1 |
% |
|
|
74.1 |
% |
|
|
65.8 |
% |
Acquisition cost ratio |
|
|
12.9 |
% |
|
|
12.6 |
% |
|
|
13.1 |
% |
|
|
12.9 |
% |
General and administrative expense ratio |
|
|
21.4 |
% |
|
|
24.4 |
% |
|
|
22.1 |
% |
|
|
22.7 |
% |
Expense ratio |
|
|
34.3 |
% |
|
|
37.0 |
% |
|
|
35.2 |
% |
|
|
35.6 |
% |
Combined ratio |
|
|
97.8 |
% |
|
|
92.1 |
% |
|
|
109.3 |
% |
|
|
101.4 |
% |
Comparison of Three Months Ended June 30, 2011 and 2010
Premiums. Gross premiums written increased by $37.0 million, or 19.5%, for the three months
ended June 30, 2011 compared to the same period in 2010. The increase in gross premiums written was
primarily due to new business from existing products and $16.0 million in premiums from new
products, specifically in our general casualty, environmental and inland marine lines of business,
where we believe profitable underwriting opportunities exist. The increase was partially offset by
the non-renewal of business that did not meet our underwriting requirements (which included
inadequate pricing and/or terms and conditions) and increased competition.
The table below illustrates our gross premiums written by line of business for each of the
periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
Dollar |
|
|
Percentage |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
Change |
|
|
|
($ in millions) |
|
Professional liability(1) |
|
$ |
58.8 |
|
|
$ |
51.6 |
|
|
$ |
7.2 |
|
|
|
14.0 |
% |
General casualty |
|
|
56.5 |
|
|
|
38.4 |
|
|
|
18.1 |
|
|
|
47.1 |
|
Healthcare |
|
|
50.2 |
|
|
|
41.1 |
|
|
|
9.1 |
|
|
|
22.1 |
|
General property |
|
|
32.9 |
|
|
|
30.0 |
|
|
|
2.9 |
|
|
|
9.7 |
|
Programs |
|
|
20.3 |
|
|
|
26.2 |
|
|
|
(5.9 |
) |
|
|
(22.5 |
) |
Other |
|
|
8.0 |
|
|
|
2.4 |
|
|
|
5.6 |
|
|
|
233.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
226.7 |
|
|
$ |
189.7 |
|
|
$ |
37.0 |
|
|
|
19.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes our i-bind line of business |
Net premiums written increased by $37.7 million, or 27.9%, for the three months ended June 30,
2011 compared to the three months ended June 30, 2010. The increase in net premiums written was
primarily due to higher gross premiums written, as well as a reduction of premiums ceded. The
reduction in premiums ceded was primarily due to the commutation of certain variable-rated
reinsurance contracts that have swing-rated provisions of $12.4 million. In commuting these
swing-rated reinsurance contracts, we reduced certain premiums previously ceded and also reduced
ceded losses by $11.5 million in accordance with the terms of the contracts. The net impact of the
commutation was a net gain of $0.9 million. We ceded 23.8% of gross premiums written for the three
months ended June 30, 2011 compared to 28.7% for the same period in 2010. The decrease in the
cession percentage was
-53-
primarily due to the reduction of premiums ceded of $12.4 million related to the commutation
of the swing-rated reinsurance contracts.
Net premiums earned increased $20.2 million, or 16.1%, for the three months ended June 30,
2011 compared to the same period in 2010 primarily due to the growth of our U.S. insurance
operations during 2010 and 2011 and $12.4 million from the commutation which was fully earned.
Net losses and loss expenses. Net losses and loss expenses increased by $23.4 million, or
33.8%, for the three months ended June 30, 2011 compared to the three months ended June 30, 2010.
The increase in net losses and loss expenses was primarily due to the growth of the U.S. insurance
operations, the reduction of ceded IBNR for the commutation of swing-rated reinsurance contracts of
$11.5 million and lower net favorable reserve development recognized. Catastrophe losses of $3.0
million from the Tohoku earthquake and tsunami (business interruption claims) and $2.0 million from
the Midwestern U.S. storms were also recognized during the three months ended June 30, 2011.
Overall, our U.S. insurance segment recorded net favorable reserve development of $10.2
million during the three months ended June 30, 2011 compared to net favorable reserve development
of $20.9 million for the three months ended June 30, 2010, as shown in the tables below. The $10.2
million of net favorable reserve development recorded during the three months ended June 30, 2011
excludes the impact of the commutation of swing-rated reinsurance contracts of $11.5 million. In
the tables, a negative number represents net favorable reserve development and a positive number
represents net unfavorable reserve development.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Reserve Development by Loss Year |
|
|
|
For the Three Months Ended June 30, 2011 |
|
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
Total |
|
|
|
($ in millions) |
|
Professional liability |
|
$ |
|
|
|
$ |
(0.1 |
) |
|
$ |
(0.1 |
) |
|
$ |
(0.6 |
) |
|
$ |
(0.2 |
) |
|
$ |
(2.0 |
) |
|
$ |
|
|
|
$ |
(1.1 |
) |
|
$ |
0.6 |
|
|
$ |
(3.5 |
) |
Healthcare |
|
|
(0.1 |
) |
|
|
(0.4 |
) |
|
|
(1.3 |
) |
|
|
(0.7 |
) |
|
|
(0.9 |
) |
|
|
0.3 |
|
|
|
(0.5 |
) |
|
|
0.7 |
|
|
|
(0.9 |
) |
|
|
(3.8 |
) |
General casualty |
|
|
0.1 |
|
|
|
(0.2 |
) |
|
|
(0.4 |
) |
|
|
(5.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
(5.8 |
) |
General property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.7 |
|
|
|
0.2 |
|
|
|
0.3 |
|
|
|
1.2 |
|
Programs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.5 |
) |
|
|
0.7 |
|
|
|
0.9 |
|
|
|
0.6 |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
(0.7 |
) |
|
$ |
(1.8 |
) |
|
$ |
(6.7 |
) |
|
$ |
(1.1 |
) |
|
$ |
(2.2 |
) |
|
$ |
0.9 |
|
|
$ |
0.8 |
|
|
$ |
0.6 |
|
|
$ |
(10.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Reserve Development by Loss Year |
|
|
|
For the Three Months Ended June 30, 2010 |
|
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
Total |
|
|
|
($ in millions) |
|
Professional liability |
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.2 |
) |
|
$ |
(5.6 |
) |
|
$ |
(1.0 |
) |
|
$ |
(1.4 |
) |
|
$ |
(0.8 |
) |
|
$ |
1.7 |
|
|
$ |
(7.3 |
) |
Healthcare |
|
|
(0.4 |
) |
|
|
(0.3 |
) |
|
|
0.1 |
|
|
|
(1.9 |
) |
|
|
(1.4 |
) |
|
|
0.5 |
|
|
|
0.7 |
|
|
|
(1.3 |
) |
|
|
(4.0 |
) |
General casualty |
|
|
0.3 |
|
|
|
(0.4 |
) |
|
|
(7.6 |
) |
|
|
(1.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9.2 |
) |
General property |
|
|
|
|
|
|
(0.1 |
) |
|
|
0.9 |
|
|
|
(1.0 |
) |
|
|
(0.2 |
) |
|
|
(0.3 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
(1.2 |
) |
Programs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
1.2 |
|
|
|
(0.3 |
) |
|
|
(0.2 |
) |
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.1 |
) |
|
$ |
(0.8 |
) |
|
$ |
(6.8 |
) |
|
$ |
(10.0 |
) |
|
$ |
(2.5 |
) |
|
$ |
|
|
|
$ |
(0.9 |
) |
|
$ |
0.2 |
|
|
$ |
(20.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The loss and loss expense ratio for the three months ended June 30, 2011 was 63.5% compared to
55.1% for the three months ended June 30, 2010. Net favorable reserve development recognized and
the impact of the commutation adjustment to ceded IBNR during the three months ended June 30, 2011
decreased the loss and loss expense ratio by 6.3 percentage points. Thus, the loss and loss expense
ratio for the current loss year was 69.8%. In comparison, net favorable reserve development during
the three months ended June 30, 2010 decreased the loss and loss expense ratio by 16.6 percentage
points. Thus, the loss and loss expense ratio for that loss year was 71.7%.
The table below is a reconciliation of the beginning and ending reserves for losses and loss
expenses. Losses incurred and paid are reflected net of reinsurance recoverables.
-54-
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
|
($ in millions) |
|
Net reserves for losses and loss expenses, April 1 |
|
$ |
1,109.9 |
|
|
$ |
972.0 |
|
Incurred related to: |
|
|
|
|
|
|
|
|
Commutation of variable-rated reinsurance contracts |
|
|
11.5 |
|
|
|
|
|
Current period non-catastrophe |
|
|
86.3 |
|
|
|
90.1 |
|
Current period property catastrophe |
|
|
5.0 |
|
|
|
|
|
Prior period non-catastrophe |
|
|
(10.2 |
) |
|
|
(22.1 |
) |
Prior period property catastrophe |
|
|
|
|
|
|
1.2 |
|
|
|
|
|
|
|
|
Total incurred |
|
$ |
92.6 |
|
|
$ |
69.2 |
|
Paid related to: |
|
|
|
|
|
|
|
|
Current period non-catastrophe |
|
|
4.2 |
|
|
|
2.3 |
|
Current period property catastrophe |
|
|
0.5 |
|
|
|
|
|
Prior period non-catastrophe |
|
|
39.2 |
|
|
|
29.3 |
|
Prior period property catastrophe |
|
|
|
|
|
|
3.9 |
|
|
|
|
|
|
|
|
Total paid |
|
$ |
43.9 |
|
|
$ |
35.5 |
|
Net reserve for losses and loss expenses, June 30 |
|
|
1,158.6 |
|
|
|
1,005.7 |
|
Losses and loss expenses recoverable |
|
|
421.4 |
|
|
|
378.0 |
|
|
|
|
|
|
|
|
Reserve for losses and loss expenses, June 30 |
|
$ |
1,580.0 |
|
|
$ |
1,383.7 |
|
|
|
|
|
|
|
|
Acquisition costs. Acquisition costs increased by $3.0 million, or 18.9%, for the three
months ended June 30, 2011 compared to the three months ended June 30, 2010. The increase was
primarily caused by increased net premiums earned. The acquisition cost ratio increased to 12.9%
for the three months ended June 30, 2011 from 12.6% for the same period in 2010.
General and administrative expenses. General and administrative expenses increased by $0.6
million, or 2.0%, for the three months ended June 30, 2011 compared to the three months ended June
30, 2010. The decrease in the general and administrative expense ratio from 24.4% for the three
months ended June 30, 2010 to 21.4% for the same period in 2011 was a result of the increase in net
premiums earned as well as our expense management initiatives.
Comparison of Six Months Ended June 30, 2011 and 2010
Premiums. Gross premiums written increased by $58.4 million, or 16.6%, for the six months
ended June 30, 2011 compared to the same period in 2010. The increase in gross premiums written was
primarily due to new business from existing products and higher volume from new products,
specifically in our general casualty, environmental and inland marine lines of business, where we
believe profitable underwriting opportunities exist. The increase was partially offset by the
non-renewal of business that did not meet our underwriting requirements (which included inadequate
pricing and/or terms and conditions) and increased competition.
The table below illustrates our gross premiums written by line of business for each of the
periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
|
|
|
|
|
|
June 30, |
|
|
Dollar |
|
|
Percentage |
|
|
|
2011 |
|
|
2010 |
|
|
Change |
|
|
Change |
|
|
|
($ in millions) |
|
Professional liability(1) |
|
$ |
113.8 |
|
|
$ |
96.8 |
|
|
$ |
17.0 |
|
|
|
17.6 |
% |
General casualty |
|
|
97.5 |
|
|
|
66.4 |
|
|
|
31.1 |
|
|
|
46.8 |
|
Healthcare |
|
|
95.6 |
|
|
|
88.6 |
|
|
|
7.0 |
|
|
|
7.9 |
|
General property |
|
|
46.5 |
|
|
|
46.5 |
|
|
|
|
|
|
|
|
|
Programs |
|
|
40.2 |
|
|
|
51.0 |
|
|
|
(10.8 |
) |
|
|
(21.2 |
) |
Other |
|
|
16.5 |
|
|
|
2.4 |
|
|
|
14.1 |
|
|
|
587.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
410.1 |
|
|
$ |
351.7 |
|
|
$ |
58.4 |
|
|
|
16.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes our i-bind line of business |
-55-
Net premiums written increased by $46.0 million, or 17.2%, for the six months ended June
30, 2011 compared to the six months ended June 30, 2010. The increase in net premiums written was
primarily due to higher gross premiums written and due to the commutation of certain variable-rated
reinsurance contracts that have swing-rated provisions of $12.4 million. In commuting these
swing-rated reinsurance contracts, we reduced certain premiums previously ceded and also reduced
ceded losses by $11.5 million in accordance with the terms of the contracts. The net impact of the
commutation was a net gain of $0.9 million. For the six months ended June 30, 2010, the
commutation of certain variable-rated reinsurance contracts reduced premiums ceded by $9.3 million.
We ceded 23.7% of gross premiums written for the six months ended June 30, 2011 compared to 24.2%
for the same period in 2010. The decrease in the ceded premium ratio was primarily due to the
commutation of certain variable-rated reinsurance contracts with swing-rated provisions of $12.4
million during the six months ended June 30, 2011 compared to $9.3 million during the six months
ended June 30, 2010.
Net premiums earned increased $26.4 million, or 10.4%, for the six months ended June 30, 2011
compared to the same period in 2010 primarily due to the growth of our U.S. insurance operations
during 2010. Additionally, the commutation of swing-rated reinsurance contracts during the six
months ended June 30, 2011 added $12.4 million to net premiums earned compared to $9.3 million
during the six months ended June 30, 2010.
Net losses and loss expenses. Net losses and loss expenses increased by $40.8 million, or
24.3%, for the six months ended June 30, 2011 compared to the six months ended June 30, 2010. The
increase in net losses and loss expenses was primarily due to growth of the U.S. insurance
operations and unfavorable prior year reserve development in the 2006 loss year related to
directors and officers claims within our professional liability line of business related to a class
action suit filed against a number of private equity firms alleging collusion.
Overall, our U.S. insurance segment recorded net unfavorable reserve development of $12.0
million during the six months ended June 30, 2011 compared to net favorable reserve development of
$24.6 million for the six months ended June 30, 2010, as shown in the tables below. The $12.0
million of net unfavorable reserve development recorded during the six months ended June 30, 2011
excludes the impact of the commutation of swing-rated reinsurance contracts of $11.5 million. The
$24.6 million of net favorable reserve development recorded during the six months ended June 30,
2010 excludes the impact of the commutation of swing-rated reinsurance contracts of $8.9 million.
In the tables, a negative number represents net favorable reserve development and a positive number
represents net unfavorable reserve development.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Reserve Development by Loss Year |
|
|
|
For the Six Months Ended June 30, 2011 |
|
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional liability |
|
$ |
|
|
|
$ |
(0.1 |
) |
|
$ |
(0.2 |
) |
|
$ |
(1.3 |
) |
|
$ |
24.1 |
|
|
$ |
(2.2 |
) |
|
$ |
0.5 |
|
|
$ |
(2.7 |
) |
|
$ |
6.9 |
|
|
$ |
25.0 |
|
Healthcare |
|
|
(0.2 |
) |
|
|
(0.9 |
) |
|
|
(1.8 |
) |
|
|
0.3 |
|
|
|
(0.3 |
) |
|
|
0.7 |
|
|
|
(1.7 |
) |
|
|
1.2 |
|
|
|
(0.8 |
) |
|
|
(3.5 |
) |
General casualty |
|
|
0.1 |
|
|
|
(0.4 |
) |
|
|
(1.2 |
) |
|
|
(11.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12.6 |
) |
General property |
|
|
|
|
|
|
|
|
|
|
(0.3 |
) |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
(0.3 |
) |
|
|
|
|
|
|
1.4 |
|
|
|
0.2 |
|
Programs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.6 |
) |
|
|
0.8 |
|
|
|
1.2 |
|
|
|
1.5 |
|
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.1 |
) |
|
$ |
(1.4 |
) |
|
$ |
(3.5 |
) |
|
$ |
(12.7 |
) |
|
$ |
23.8 |
|
|
$ |
(2.1 |
) |
|
$ |
(0.7 |
) |
|
$ |
(0.3 |
) |
|
$ |
9.0 |
|
|
$ |
12.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Reserve Development by Loss Year |
|
|
|
For the Six Months Ended June 30, 2010 |
|
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
Total |
|
|
|
($ in millions) |
|
Professional liability |
|
$ |
|
|
|
$ |
|
|
|
$ |
(0.7 |
) |
|
$ |
(5.8 |
) |
|
$ |
(1.2 |
) |
|
$ |
(0.9 |
) |
|
$ |
0.1 |
|
|
$ |
1.7 |
|
|
$ |
(6.8 |
) |
Healthcare |
|
|
(0.8 |
) |
|
|
(0.7 |
) |
|
|
(0.6 |
) |
|
|
(3.6 |
) |
|
|
(1.0 |
) |
|
|
0.5 |
|
|
|
1.7 |
|
|
|
(1.3 |
) |
|
|
(5.8 |
) |
General casualty |
|
|
0.3 |
|
|
|
(1.0 |
) |
|
|
(14.0 |
) |
|
|
(1.5 |
) |
|
|
|
|
|
|
(1.0 |
) |
|
|
3.6 |
|
|
|
|
|
|
|
(13.6 |
) |
General property |
|
|
|
|
|
|
(0.1 |
) |
|
|
0.9 |
|
|
|
(1.6 |
) |
|
|
(0.2 |
) |
|
|
1.5 |
|
|
|
(1.5 |
) |
|
|
|
|
|
|
(1.0 |
) |
Programs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1 |
|
|
|
|
|
|
|
0.5 |
|
|
|
2.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.5 |
) |
|
$ |
(1.8 |
) |
|
$ |
(14.4 |
) |
|
$ |
(12.5 |
) |
|
$ |
(2.4 |
) |
|
$ |
2.2 |
|
|
$ |
3.9 |
|
|
$ |
0.9 |
|
|
$ |
(24.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The loss and loss expense ratio for the six months ended June 30, 2011 was 74.1% compared
to 65.8% for the six months ended June 30, 2010. Net unfavorable reserve development and the impact
of a commutation adjustment to ceded IBNR recognized during the six months ended June 30, 2011
increased the loss and loss expense ratio by 4.6 percentage points. Thus, the loss and loss expense
ratio for the current loss year was 69.5%. In comparison, net favorable reserve development and the
impact of a commutation
-56-
adjustment to ceded IBNR recognized in the six months ended June 30, 2010 decreased the loss
and loss expense ratio by 8.8 percentage points. Thus, the loss and loss expense ratio for that
loss year was 74.6%, which includes a $12.0 million net loss on a Connecticut power plant
explosion.
The table below is a reconciliation of the beginning and ending reserves for losses and loss
expenses. Losses incurred and paid are reflected net of reinsurance recoverables.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
|
($ in millions) |
|
Net reserves for losses and loss expenses, January 1 |
|
$ |
1,035.1 |
|
|
$ |
901.9 |
|
Incurred related to: |
|
|
|
|
|
|
|
|
Commutation of variable-rated reinsurance contracts |
|
|
11.5 |
|
|
|
8.9 |
|
Current period non-catastrophe |
|
|
179.9 |
|
|
|
183.3 |
|
Current period property catastrophe |
|
|
5.0 |
|
|
|
|
|
Prior period non-catastrophe |
|
|
13.6 |
|
|
|
(25.6 |
) |
Prior period property catastrophe |
|
|
(1.6 |
) |
|
|
1.0 |
|
|
|
|
|
|
|
|
Total incurred |
|
$ |
208.4 |
|
|
$ |
167.6 |
|
Paid related to: |
|
|
|
|
|
|
|
|
Current period non-catastrophe |
|
|
4.8 |
|
|
|
2.9 |
|
Current period property catastrophe |
|
|
0.5 |
|
|
|
|
|
Prior period non-catastrophe |
|
|
79.6 |
|
|
|
57.3 |
|
Prior period property catastrophe |
|
|
|
|
|
|
3.6 |
|
|
|
|
|
|
|
|
Total paid |
|
$ |
84.9 |
|
|
$ |
63.8 |
|
Net reserve for losses and loss expenses, June 30 |
|
|
1,158.6 |
|
|
|
1,005.7 |
|
Losses and loss expenses recoverable |
|
|
421.4 |
|
|
|
378.0 |
|
|
|
|
|
|
|
|
Reserve for losses and loss expenses, June 30 |
|
$ |
1,580.0 |
|
|
$ |
1,383.7 |
|
|
|
|
|
|
|
|
Acquisition costs. Acquisition costs increased by $4.2 million, or 12.8%, for the six
months ended June 30, 2011 compared to the six months ended June 30, 2010. The increase was
primarily caused by increased net premiums earned. The acquisition cost ratio increased to 13.1%
for the six months ended June 30, 2011 from 12.9% for the same period in 2010.
General and administrative expenses. General and administrative expenses increased by $4.2
million, or 7.3%, for the six months ended June 30, 2011 compared to the six months ended June 30,
2010. The increase in general and administrative expenses was due to an increase in headcount
offset by a decrease in performance-based incentive compensation. The decrease in the general and
administrative expense ratio from 22.7% for the six months ended June 30, 2010 to 22.1% for the
same period in 2011 was primarily caused by increased net premiums earned.
-57-
International Insurance Segment
The following table summarizes the underwriting results and associated ratios for the
international insurance segment for each of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
|
($ in millions) |
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
178.6 |
|
|
$ |
167.6 |
|
|
$ |
289.9 |
|
|
$ |
289.0 |
|
Net premiums written |
|
|
109.0 |
|
|
|
98.5 |
|
|
|
183.9 |
|
|
|
179.6 |
|
Net premiums earned |
|
|
80.0 |
|
|
|
89.4 |
|
|
|
156.3 |
|
|
|
176.4 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss expenses |
|
$ |
72.1 |
|
|
$ |
64.6 |
|
|
$ |
143.3 |
|
|
$ |
122.0 |
|
Acquisition costs |
|
|
(0.7 |
) |
|
|
(0.1 |
) |
|
|
(2.6 |
) |
|
|
|
|
General and administrative expenses |
|
|
20.7 |
|
|
|
22.6 |
|
|
|
41.4 |
|
|
|
44.5 |
|
Underwriting (loss) income |
|
|
(12.1 |
) |
|
|
2.3 |
|
|
|
(25.8 |
) |
|
|
9.9 |
|
Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss expense ratio |
|
|
90.2 |
% |
|
|