Allied World: ‘Solid Profitability’
Allied World Assurance Company Holdings, AG — which redomiciled to Switzerland from Bermuda in 2010 – today reported operating income of $94.7 million, or $2.40 per diluted share, for the fourth quarter of 2011 compared to operating income of $97.3 million, or $2.24 per diluted share, for the fourth quarter of 2010.
The firm — which still maintains a large Bermuda presence — reported operating income for the year ended December 31, 2011 was $183.7 million, or $4.63 per diluted share, compared to operating income of $397.8 million, or $7.97 per diluted share, for the year ended December 31, 2010.
The company reported net income of $183.1 million, or $4.63 per diluted share, for the fourth quarter of 2011 compared to net income of $92.8 million, or $2.13 per diluted share, for the fourth quarter of 2010. Net income for the year ended December 31, 2011 was $274.5 million, or $6.92 per diluted share, compared to net income of $665.0 million, or $13.32 per diluted share, for the year ended December 31, 2010.
President and Chief Executive Officer Scott Carmilani commented, “In the face of a number of challenges that confronted our company and the insurance industry globally, Allied World continues to generate solid profitability and growth in book value. Our three operating segments all contributed, with each experiencing premium growth in 2011. We again benefited from focusing our efforts on targeted lines and select geographies throughout the world. Collectively, our gross production was up by 10% for the year with our new business initiatives driving the increase.”
“The company had a strong fourth quarter of 2011, producing operating income of $95 million and net income of $183 million. For the full year, we made $275 million in net income in spite of it being the costliest catastrophe year in history. We benefited from continued favorable loss reserve emergence that significantly offset our catastrophe losses for the year as well as from a merger breakup fee. The investment returns underperformed 2010 due to lower interest rates and a weaker overall investment environment.”
Mr. Carmilani concluded, “Ultimately, we judge ourselves by our ability to build shareholder value, and we grew diluted book value per share by 8% in what was a volatile 2011. This reflects our robust risk management controls, strong ratings and a healthy capital base. The company is well positioned as we move forward into 2012.”
Underwriting Results
Gross premiums written were $416.5 million in the fourth quarter of 2011, a 9.1% increase compared to $381.9 million in the fourth quarter of 2010. For the year ended December 31, 2011, gross premiums written totaled $1,939.5 million, a 10.3% increase compared to $1,758.4 million for the year ended December 31, 2010. Net premiums written were $306.8 million in the fourth quarter of 2011, a 6.8% increase compared to $287.2 million in the fourth quarter of 2010. For the year ended December 31, 2011, net premiums written totaled $1,533.8 million, a 10.1% increase compared to $1,392.5 million for the year ended December 31, 2010.
The combined ratio was 83.5% in the fourth quarter of 2011 compared to 82.8% in the fourth quarter of 2010. The loss and loss expense ratio was 53.9% in the fourth quarter of 2011 compared to 46.7% in the fourth quarter of 2010. During the fourth quarter of 2011, the company recorded net favorable reserve development on prior loss years of $92.4 million. This favorable reserve development resulted in a benefit of 23.4 percentage points to the company’s loss and loss expense ratio for the quarter. This compares to the fourth quarter of 2010, where the company recorded net favorable reserve development on prior loss years of $73.9 million, a benefit of 21.6 percentage points to the company’s loss and loss expense ratio for that quarter. Absent these adjustments, the loss and loss expense ratio for the fourth quarter of 2011 was 77.3% compared to 68.3% for the fourth quarter of 2010. The fourth quarter 2011 loss and loss expense ratio was impacted by $59.1 million of net losses, or 14.9 percentage points, from the flooding in Thailand [pictured] that occurred in the fourth quarter of 2011 and from other catastrophes that occurred earlier in 2011.
These catastrophe losses were comprised of $23.6 million from our international insurance segment and $35.8 million from our reinsurance segment and were modestly offset by a $0.3 million reduction for prior quarter catastrophe losses recorded in our US insurance segment. The fourth quarter 2010 loss and loss expense ratio was impacted by $21.4 million of net losses, or 6.2 percentage points, from major loss events occurring during 2010.
For the year ended December 31, 2011, the combined ratio was 95.9% compared to 84.9% for the year ended December 31, 2010. For the year ended December 31, 2011, the company recorded net favorable reserve development on prior loss years of $253.5 million, a benefit of 17.4 percentage points to the company’s loss and loss expense ratio. For the year ended December 31, 2010, the company recorded net favorable reserve development on prior loss years of $313.3 million, a benefit of 23.1 percentage points to the company’s loss and loss expense ratio. Absent prior year reserve adjustments, the loss and loss expense ratio related to 2011 was 83.2% compared to 75.2% for 2010. The 2011 loss and loss expense ratio was impacted by $292.2 million of net losses, or 20.1 percentage points, from global catastrophes occurring during 2011. This compares to 2010 which was impacted by $164.6 million of net losses, or 12.1 percentage points, from major loss events occurring during 2010.
The company’s expense ratio was 29.6% for the fourth quarter of 2011 compared to 36.1% for the fourth quarter of 2010. The expense ratio was 30.1% for the year ended December 31, 2011 compared to 32.8% for the year ended December 31, 2010. The decreases in these ratios for the three months and year ended December 31, 2011 were driven by increases in earned premiums and decreases in performance-based incentive compensation expenses. In 2010, we also incurred one-time expenses in connection with our redomestication to Switzerland.
Investment Results
The total return on the company’s investment portfolio for the three months and year ended December 31, 2011 was 0.9% and 2.0%, respectively.
Other income for the three months and year ended December 31, 2011 was $66.7 million and $101.7 million, respectively. This represented the termination fee resulting from our previously announced merger agreement with Transatlantic Holdings, Inc., which was terminated on September 15, 2011.
Given the non-recurring nature of this item, it has been excluded from the computation of the company’s operating returns.
Shareholders’ Equity
As of December 31, 2011, our total shareholders’ equity was $3,149.0 million, compared to $3,075.8 million as of December 31, 2010.
The company’s annualized net income return on average shareholders’ equity for the three months and year ended December 31, 2011 was 23.9% and 8.9%, respectively. The company’s annualized operating return on average shareholders’ equity for the three months and year ended December 31, 2011 was 12.4% and 6.0%, respectively.
As of December 31, 2011, diluted book value per share was $80.11, an increase of 5.7% and 7.8% compared to $75.82 and $74.29, respectively, as of September 30, 2011 and December 31, 2010.
Share Repurchase Program
During the fourth quarter 2011, the company repurchased 450,000 of its common shares through its share repurchase program in the open market at an average repurchase price of $59.33 per share for an aggregate cost of $26.7 million. For the year ended December 31, 2011, the company repurchased 1,419,163 of its common shares through its program in the open market at an average repurchase price of $61.09 per share for an aggregate cost of $86.7 million. As of December 31, 2011, the company had $174.2 million of remaining capacity available under its share repurchase program.
Allied World Assurance Company Holdings, AG, through its subsidiaries, is a global provider of innovative property, casualty and specialty insurance and reinsurance solutions, offering superior client service through a global network of offices and branches.
All of Allied World’s rated insurance and reinsurance subsidiaries are rated A by A.M. Best Company, A by Standard & Poor’s, and A2 by Moody’s, and its Lloyd’s Syndicate 2232 is rated A+ by Standard & Poor’s and Fitch.
Good job Allied World keep up the good work. You have some great Underwriters