Allied World Q4 Net Income Down 83.9%; Full Year Drops 60.8%

February 6, 2009

Allied World Assurance Company Holdings reported net income of $19.9 million, or $0.39 per diluted share, for the fourth quarter of 2008 compared to net income of $123.0 million, or $2.01 per diluted share, for the fourth quarter of 2007, an 83.9 percent decline.

Net income for the year ended December 31, 2008 was $183.6 million, or 3.59 per diluted share, compared to net income of $469.2 million, or $7.53 per diluted share, for the year ended December 31, 2007, down 60.8 percent.

However, the Group reported record operating income of $141.1 million, or $2.80 per diluted share, for the fourth quarter of 2008 compared to operating income of $118.1 million, or $1.93 per diluted share, for the fourth quarter of 2007. Operating income for the year ended December 31, 2008 was $455.1 million, or $8.90 per diluted share, compared to operating income of $476.0 million, or $7.64 per diluted share, for the year ended December 31, 2007.

President and CEO Scott Carmilani commented, “Allied World has emerged from 2008 as an even stronger company despite it being a very difficult year for insurance companies and the financial sector as a whole. While not immune to the impact of the catastrophe losses for the year, we still managed to generate a very impressive 20.6 percent operating ROE for 2008 and ended the year with over $2.4 billion in shareholders’ equity, up 8 percent from year end 2007. In the fourth quarter, we achieved record operating income driven by strong investment income, favorable reserve development and a meaningful contribution from our recently acquired Darwin business.”

Carmilani added: “We accomplished these strong results in a year when we made significant investments in our operating platforms and infrastructure, particularly in the United States. These actions combined with our strong capital have helped position us right where we want to be in the market at a time when we believe there are significant opportunities.”

The bulletin also noted that Allied World had completed its acquisition of Darwin Professional Underwriters, Inc. on October 20, 2008, “and Darwin’s results for the period of October 20, 2008 through December 31, 2008 are included in Allied World’s consolidated results.”

Gross premiums written were $310.9 million in the fourth quarter of 2008, a 19.5 percent increase compared to $260.3 million in the fourth quarter of 2007. Net premiums written were $226.5 million in the fourth quarter of 2008, a 19.6 percent increase compared to $189.4 million in the fourth quarter of 2007. “These increases were primarily due to the inclusion of Darwin business and increased writings in our casualty segment by our U.S. offices,” the bulletin noted.

Net premiums earned in the fourth quarter of 2008 were $303.0 million, a 5.7 percent increase compared to $286.6 million in the fourth quarter of 2007.

Gross premiums written were $1.4456 billion for the year ended December 31, 2008, a 4.0 percent decrease compared to $1.5055 billion for the year ended December 31, 2007. Net premiums written were $1.1072 billion for the year ended December 31, 2008, a 4.0 percent decrease compared to $1.1531 billion for the year ended December 31, 2007.

Allied explained that the “decreases were primarily the result of the non-renewal of business that did not meet our underwriting requirements (which included inadequate pricing and/or policy or contract terms and conditions), increased competition and decreasing rates for renewal business in each of our operating segments.”

Net premiums earned were $1.1169 billion for the year ended December 31, 2008, a 3.7 percent decrease from net premiums earned of $1.1599 billion for the year ended December 31, 2007, primarily due to lower net premiums written in 2008.

The Group’s “combined ratio was 76.1 percent in the fourth quarter of 2008 compared to 81.4 percent in the fourth quarter of 2007,” said the earning announcement. “The loss and loss expense ratio was 47.4 percent in the fourth quarter of 2008 compared to 58.2 percent in the fourth quarter of 2007. During the fourth quarter of 2008, the company recorded net favorable reserve development on prior loss years of $90.3 million, a benefit of 29.8 percentage points to the company’s loss and loss expense ratio for the quarter. Of this net favorable development, $15.6 million, $63.8 million and $10.9 million was recognized in our property, casualty and reinsurance segments, respectively.

“The combined ratio for the year ended December 31, 2008 was 84.2 percent compared to 81.3 percent for the year ended December 31, 2007. During the year ended December 31, 2008, the company recorded net favorable reserve development on prior loss years of $280.1 million, a benefit of 25.1 percentage points to the company’s loss and loss expense ratio for the year.”

The full earnings report and a replay of the web cast conference, held today, can be obtained on Allied World’s web site at: www.awac.com. The web cast will remain available online through Friday, February 20, 2009.

Source: Allied World

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