Allied World Reports a 96.2% Combined Ratio for the Third Quarter 2016

Allied World Assurance Company Holdings, AG (NYSE:AWH) today reported net income of $68.6 million, or $0.77 per diluted share, for the third quarter of 2016 compared to a net loss of $51.6 million, or $0.57 per diluted share, for the third quarter of 2015.

The company reported operating income of $55.2 million, or $0.62 per diluted share, for the third quarter of 2016, compared to operating income of $51.4 million, or $0.55 per diluted share, for the third quarter of 2015.

"I am pleased we were able to generate a 96.2% combined ratio and strong investment returns which resulted in net income of $68.6 million, in spite of some large loss events that took place in the quarter," commented President and Chief Executive Officer, Scott Carmilani.

Third Quarter Operating Results

• Gross premiums written were $730.2 million, a 3.2% decrease compared to $754.1 million in the third quarter of 2015.
  • The North American Insurance segment grew 1.3% to $466.5 million, led by increases in programs and other specialty lines. Partially offsetting this were reductions in healthcare and property lines.
  • The Global Markets Insurance segment decreased 4.5% to $126.7 million, driven by reductions in several lines of business across Europe and Asia.
  • The Reinsurance segment decreased 14.9% to $137.0 million, driven by continued strategic non-renewal of several property and casualty treaties.
• The company did not experience any new reportable catastrophe losses this quarter, compared to $35.5 million in the prior year period. There was an increase of $4.9 million in catastrophe losses due to the Texas hailstorms which occurred in the second quarter of 2016.
• Underwriting income was $21.5 million compared to underwriting income of $27.9 million in the third quarter of 2015.
• The combined ratio was 96.2% compared to 95.8% in the third quarter of 2015.
• The loss and loss expense ratio was 64.4% in the third quarter of 2016 compared to 64.1% in the prior year quarter.
• During the third quarter of 2016, the company recorded net favorable reserve development on prior loss years of $29.7 million, a benefit of 5.1 percentage points to the loss and loss expense ratio, compared to $8.6 million a year ago, a benefit of 1.3 percentage points.
• The company's expense ratio was 31.8% for the third quarter of 2016, compared to 31.7% for the third quarter of 2015.

Investment Results

• The total financial statement return on the company's investment portfolio for the three months ended September 30, 2016 was 0.7% compared to (0.8)% for the three months ended September 30, 2015, and 2.9% for the nine months ended September 30, 2016 compared to 0.5% for the nine months ended September 30, 2015.
• Net investment income increased 10.7% compared to the prior year quarter as a result of contributions from the fixed income portfolio and higher returns from the hedge fund and private equity portfolios.
• Net realized gains of $10.7 million were a significant contributor to the year-over-year increase in total return, as the prior year period included net realized losses of $113.6 million, largely driven by the performance of the equity portfolio.
• See the table below for the components of our investment returns:

Shareholders' Equity

• As of September 30, 2016, the company’s total shareholders' equity increased to $3,615.9 million, compared to $3,584.5 million as of June 30, 2016.
• As of September 30, 2016, basic book value per share was $41.57, an increase of 1.4% compared to $40.98 as of June 30, 2016, and an increase of 7.0% compared to $38.84 as of December 31, 2015.
• As of September 30, 2016, diluted book value per share was $40.29, an increase of 1.5% compared to $39.70 as of June 30, 2016, and an increase of 6.6% compared to $37.78 as of December 31, 2015.
• As of September 30, 2016, diluted tangible book value per share was $34.67, an increase of 1.7% compared to $34.10 as of June 30, 2016, and an increase of 7.1% compared to $32.38 as of December 31, 2015.

Capital Management

• Year to date through September 30, 2016, the company repurchased 4,669,213 shares for an aggregate cost of $166.3 million at an average price of $35.61. This includes 716,970 common shares purchased during the third quarter for an aggregate cost of $26.2 million at an average price of $36.59.
• As of November 1, 2016, the company had $400.4 million remaining on its outstanding share repurchase authorization.
• In April 2016, the company’s shareholders approved four quarterly dividends equal to $0.26 per share. The first and second dividends were paid on June 30, 2016 and September 29, 2016, respectively.

Supplementary Information

Allied World has provided a Financial Supplement as of September 30, 2016. This information is available in the "Investors" section of the company's website at www.awac.com.

Conference Call

Allied World will host a conference call on Tuesday, November 1, 2016 at 9:30 a.m. (Eastern Time) to discuss the results of the third quarter ended September 30, 2016. The public may access a live webcast of the conference call at the "Investors" section of the company's website at www.awac.com. In addition, the conference call can be accessed by dialing 1 (888) 771-4371 (U.S. callers) or 1 (847) 585-4405 (international callers) and entering the passcode 43453615 approximately ten minutes prior to the call.

A replay of the call will be available through December 1, 2016 by dialing 1 (888) 843-7419 (U.S. callers) or 1 (630) 652-3042 and entering the passcode 43453615.

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.

"Annualized return on average shareholders' equity" is calculated using average shareholders’ equity, excluding the average after tax unrealized gains (losses) on investments and currency translation adjustment gains (losses). Unrealized gains (losses) on investments are primarily the result of interest rate and credit spread movements and the resultant impact on fixed income securities. These 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 gains (losses) provides a more consistent and useful measurement of operating performance, which supplements GAAP information. In calculating ROAE, the net income (loss) available to shareholders for the period is multiplied by the number of such periods in a calendar year in order to arrive at annualized net income (loss) available to shareholders. The ROATE is the same calculation but reduces shareholders' equity for goodwill and intangible assets. The company presents ROAE and ROATE as measures that are commonly recognized as standards 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 or currency translation adjustment gains (losses). The ROATE is the same calculation but reduces shareholders' equity for goodwill and intangible assets. Unrealized gains (losses) are excluded from equity for the reasons outlined in the annualized return on average shareholders' equity explanation above.

The company has included "tangible shareholders' equity", which is total shareholders' equity excluding goodwill and intangible assets, because it represents a more liquid measure of the company's net assets than total shareholders' equity. The company also 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.

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: https://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 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.

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