Allied World Reports 79.3% Combined Ratio for the Fourth Quarter 2014

Allied World Assurance Company Holdings, AG (NYSE:AWH) today reported net income of $130.5 million, or $1.33 per diluted share, for the fourth quarter of 2014 compared to net income of $137.9 million, or $1.34 per diluted share, for the fourth quarter of 2013. Net income for the year ended December 31, 2014 was $490.3 million, or $4.92 per diluted share, compared to net income of $417.9 million, or $3.98 per diluted share, for the year ended December 31, 2013.

The company reported operating income of $148.5 million, or $1.51 per diluted share, for the fourth quarter of 2014, compared to operating income of $74.5 million, or $0.72 per diluted share, for the fourth quarter of 2013. Operating income for the year ended December 31, 2014 was $415.1 million, or $4.17 per diluted share, compared to operating income of $364.0 million, or $3.47 per diluted share, for the year ended December 31, 2013.

President and Chief Executive Officer Scott Carmilani commented, "Allied World had an excellent fourth quarter and full year. Another great underwriting year has helped us to generate a five-year average combined ratio of 89.4%. The company made great progress in 2014 on executing our goals and initiatives, and is well positioned for 2015 and beyond. We look forward to the close of the RSA acquisitions and continued attractive opportunities across our platforms."

As previously announced, the company realigned its two insurance business segments during the fourth quarter of 2014 from the previous U.S. Insurance (U.S. and Canada) and International Insurance (all other regions) segments to better manage the business. Our segments now report across North American Insurance, Global Markets Insurance, and Reinsurance.

Fourth Quarter Operating Results

• Gross premiums written were $565.7 million, a 1.8% increase compared to $555.5 million in the fourth quarter of 2013. This was driven by growth in the Global Markets Insurance segment and North American Insurance segment, offset by a decrease in the Reinsurance segment.

• The Reinsurance segment decreased by 34.7%, driven largely by the non-renewal of business that did not meet our pricing thresholds.
• The Global Markets Insurance segment grew by 10.7% led by new lines of business, including marine and on-shore construction, as well as growth in existing lines.
• The North American Insurance segment grew by 7.1% driven by most lines of business, and led by casualty, offset by a continued decrease in healthcare of 18.7%.

• Net premiums earned were $573.5 million, a 9.3% increase compared to $524.6 million in the fourth quarter of 2013.
• The company experienced $22.0 million of catastrophe losses in the fourth quarter of 2014 related to a hailstorm in Brisbane, Australia and Typhoon Rammasun, both of which impacted the Reinsurance segment. This compares to $13.5 million of catastrophe losses in the prior year quarter related to Typhoon Fitow.
• Underwriting income was $118.9 million, compared to underwriting income of $41.9 million in the fourth quarter of 2013.
• The combined ratio was 79.3% compared to 92.0% in the fourth quarter of 2013.
• The loss and loss expense ratio was 47.6% in the fourth quarter of 2014 compared to 60.2% in the prior year quarter. During the fourth quarter of 2014, the company recorded net favorable reserve development on prior loss years of $71.7 million, a benefit of 12.5 percentage points to the loss and loss expense ratio, compared to $26.4 million a year ago, a benefit of 5.0 percentage points.
• The company's expense ratio was largely flat for the fourth quarter of 2014 at 31.7% compared to 31.8% for the prior year quarter.

Investment Results

• The total financial statement return on the company's investment portfolio for the three months ended December 31, 2014 was 0.4% compared to 1.4% for the three months ended December 31, 2013. The decrease in total return was primarily due to net realized investment losses driven by a flatter treasury curve and accompanied interest rate movements, as compared to net realized investment gains generated across the portfolio during the fourth quarter of 2013.
• For the quarter, net investment income grew 3.8% compared to the prior year quarter.
• See the table below for the components of our investment returns:

Shareholders' Equity

• As of December 31, 2014, the company’s total shareholders' equity grew to $3,778.3 million compared to $3,519.8 million as of December 31, 2013.
• As of December 31, 2014, diluted book value per share was $38.27, an increase of 11.9% compared to $34.20 as of December 31, 2013, and an increase of 3.1% compared to $37.12 as of September 30, 2014.

Capital Management

• During the fourth quarter of 2014, the company repurchased 290,242 of its common shares through its share repurchase program in the open market at an average price of $37.36 per share and an aggregate cost of $10.8 million. The company restarted its repurchase program late in the fourth quarter.
• In May 2014, the company’s shareholders approved four quarterly dividends equal to $0.225 per share. Three of the four dividends have been paid, and the remaining dividend is anticipated to be paid on April 2, 2015.

Supplementary Information

Allied World will be providing both a Financial Supplement and an Investment Supplement as of December 31, 2014. This information will be available in the "Investor Relations" section of the company's website at www.awac.com.

Conference Call

Allied World will host a conference call on Thursday, February 5, 2015 at 8:30 a.m. (Eastern Time) to discuss the results for the fourth quarter ended December 31, 2014. The public may access a live webcast of the conference call at the "Investor Relations" section of the company's website at www.awac.com. In addition, the conference call can be accessed by dialing (888) 317-6003 (U.S. callers) or (412) 317-6061 (international callers) and entering the passcode 2916755 approximately ten minutes prior to the call.

A replay of the call will be available through Friday, February 20, 2015 by dialing (877) 344-7529 (U.S. callers) or (412) 317-0088 (international callers) and entering the passcode 10058325. In addition, the webcast will remain available online through Friday, February 20, 2015 at www.awac.com.

Non-GAAP Financial Measures

In presenting the company's results, management has included and discussed in this press release certain non-generally accepted accounting principles ("non-GAAP") financial measures within the meaning of Regulation G as promulgated by the U.S. Securities and Exchange Commission. Management believes that these non-GAAP measures, which may be defined differently by other companies, better explain the company's results of operations in a manner that allows for a more complete understanding of the underlying trends in the company's business. However, these measures should not be viewed as a substitute for those determined in accordance with generally accepted accounting principles ("U.S. GAAP").

"Operating income" is an internal performance measure used in the management of the company's operations and represents after-tax operational results excluding, as applicable, net realized investment gains or losses, net foreign exchange gain or loss, and other non-recurring items. The company excludes net realized investment gains or losses, net foreign exchange gain or loss, and other non-recurring items from the calculation of operating income because these amounts are heavily influenced by and fluctuate in part according to the availability of market opportunities and other factors. In addition to presenting net income determined in accordance with U.S. GAAP, the company believes that showing operating income enables investors, analysts, rating agencies and other users of the company's financial information to more easily analyze our results of operations and underlying business performance. Operating income should not be viewed as a substitute for U.S. GAAP net income.

The company has included "diluted book value per share" because it takes into account the effect of dilutive securities; therefore, the company believes it is an important measure of calculating shareholder returns.

"Annualized net income return on average shareholders' equity" ("ROAE") is calculated using average shareholders' equity, excluding the average after tax unrealized gains (or losses) on investments. Unrealized gains (losses) on investments are primarily the result of interest rate and credit spread movements and the resultant impact on fixed income securities. Such gains (losses) are not related to management actions or operational performance, nor are they likely to be realized. Therefore, the company believes that excluding these unrealized gains (losses) provides a more consistent and useful measurement of operating performance, which supplements U.S. GAAP information. In calculating ROAE, the net income (loss) available to shareholders for the period is multiplied by the number of such periods in a calendar year in order to arrive at annualized net income (loss) available to shareholders. The company presents ROAE as a measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information.

"Annualized operating return on average shareholders' equity" is calculated using operating income (as defined above and annualized in the manner described for net income (loss) available to shareholders under ROAE above) and average shareholders' equity, excluding the average after tax unrealized gains (losses) on investments. Unrealized gains (losses) are excluded from equity for the reasons outlined in the annualized net income return on average shareholders' equity explanation above.

Reconciliations of these financial measures to their most directly comparable U.S. GAAP measures are included in the attached tables.

About Allied World

Allied World Assurance Company Holdings, AG, through its subsidiaries and brand known as Allied World, is a global provider of innovative property, casualty and specialty insurance and reinsurance solutions. Allied World offers 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 our Lloyd's Syndicate 2232 is rated A+ by Standard & Poor's and AA- by Fitch.

Please visit the following for further information on Allied World: Web: www.awac.com | Facebook: www.facebook.com/alliedworld | LinkedIn: http://www.linkedin.com/company/Allied-World.

Cautionary Statement Regarding Forward-Looking Statements

Any forward-looking statements made in this press release reflect our current views with respect to future events and financial performance and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties, which may cause actual results to differ materially from those set forth in these statements. For example, our forward-looking statements could be affected by the occurrence of any event, change or other circumstance that could give rise to the termination of the definitive agreements with RSA; the inability to receive the required regulatory approvals to complete the acquisitions; risks that the proposed acquisitions disrupt each company’s current plans and operations; the ability to retain key personnel; the ability to recognize the benefits of the acquisitions; the amount of costs, fees, expenses and charges related to the acquisitions; pricing and policy term trends; increased competition; the adequacy of our loss reserves; negative rating agency actions; greater frequency or severity of unpredictable catastrophic events; the impact of acts of terrorism and acts of war; the company or its subsidiaries becoming subject to significant income taxes in the United States or elsewhere; changes in regulations or tax laws; changes in the availability, cost or quality of reinsurance or retrocessional coverage; adverse general economic conditions; and judicial, legislative, political and other governmental developments, as well as management’s response to these factors, and other factors identified in our filings with the U.S. Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We are under no obligation (and expressly disclaim any such obligation) to update or revise any forward-looking statement that may be made from time to time, whether as a result of new information, future developments or otherwise.