Allied World Reports Decreases in Q2 Net and Operating Income

July 23, 2015

Allied World Assurance Company Holdings, AG has reported net income of $9.5 million, or $0.10 per diluted share, for the second quarter of 2015 compared to net income of $151.9 million, or $1.52 per diluted share, for the second quarter of 2014.

The company also reported operating income of $25.8 million, or $0.27 per diluted share, for the second quarter of 2015, compared to operating income of $76.1 million, or $0.76 per diluted share, for the second quarter of 2014.

The earnings bulletin also noted that gross premiums written in the quarter grew across both insurance segments offset by a double digit decrease in the Reinsurance segment. In addition “net income for the quarter was reduced by catastrophe losses of $25.0 million from the New South Wales storms, non-catastrophe weather and fire-related losses of approximately $20 million, and mark-to-market losses on investments of $60.1 million.

Allied World listed the following operating results for the second quarter of 2015:
• Gross premiums written were $826.0 million, an 8.6 percent increase compared to $760.4 million in the second quarter of 2014.
— The North American Insurance segment grew 9.6 percent led by growth in the Defense Base Act, Excess Casualty and Environmental lines, offset by a continued decrease in the Healthcare line. Healthcare gross premiums written have decreased 16.8 percent compared to the prior year quarter and 30.1 percent compared to the same quarter two years ago.
— The Global Markets Insurance segment grew 83.5 percent driven by the inclusion of the acquired Asian operations for the first time and 7.7 percent excluding the impact of the acquired Asian operations results. On a constant dollar basis, the segment grew 99.0 percent and 16.6 percent excluding the impact of the acquired Asian operations.
— Offsetting the growth in the two insurance segments was a 19.1 percent decrease in the Reinsurance segment driven by the non-renewal of several casualty and property treaties.
• Net premiums written were $603.7 million, a 9.0 percent increase compared to $553.9 million in the second quarter of 2014.
• Net premiums earned were $646.4 million, a 20.3 percent increase compared to $537.2 million in the second quarter of 2014.
• Underwriting income was $5.9 million, compared to underwriting income of $51.9 million in the second quarter of 2014.
• The combined ratio was 99.2 percent compared to 90.3 percent in the second quarter of 2014.
• The loss and loss expense ratio was 66.8 percent in the second quarter of 2015 compared to 58.6 percent in the prior year quarter. During the second quarter of 2015, the company recorded net favorable reserve development on prior loss years of $21.8 million, a benefit of 3.4 percentage points to the loss and loss expense ratio, compared to $45.1 million a year ago, a benefit of 8.4 percentage points. The decrease in net favorable reserve development was mostly driven by reserve strengthening related to selected claims within large account North American professional lines and Healthcare.
• The company experienced $25.0 million of catastrophe losses in the second quarter of 2015 related to the New South Wales storms, which impacted the Reinsurance and Global Markets Insurance segments. The company did not have any reportable catastrophe losses in the prior year quarter.
• The company’s expense ratio was 32.4 percent for the second quarter of 2015 compared to 31.7 percent for the second quarter of 2014. The increase was driven mostly by acquisition costs associated with the business of the acquired Asian operations.
• Net income for the first half of 2015 was $133.8 million, a 59.3 percent decrease compared to $328.8 million for the first half of last year. The decrease was driven by elevated catastrophe and non-catastrophe weather and fire-related losses, a decrease in net favorable reserve development, and increased mark-to-market losses on investments.

Investment Results were given as follows:
• The total financial statement return on the company’s investment portfolio for the three months ended June 30, 2015 was 0.3 percent compared to 1.4 percent for the three months ended June 30, 2014.
• The decrease in total return was driven by an increase in unrealized losses within the fixed income portfolio due to rising bond yields.
• Net investment income increased 16.2 percent compared to the prior year quarter as a result of contributions from the fixed income portfolio as well as higher returns from our hedge fund and private equity portfolios.

President and CEO Scott Carmilani commented: “While we are excited to report our first quarter inclusive of the results of the recently acquired Asian operations, unfortunately this quarter’s results were impacted by catastrophe and current year events. We continue to take steps to grow attractive insurance businesses, and look to manage our growth while mitigating exposure to less attractive risks.”

Source: Allied World Assurance Company Holdings, AG

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