Bermuda (State or Other Jurisdiction of Incorporation) |
001-32938 (Commission File Number) |
98-0481737 (I.R.S. Employer Identification No.) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 7.01. Regulation FD Disclosure | ||||||||
Item 9.01. Financial Statements and Exhibits. | ||||||||
SIGNATURES | ||||||||
EXHIBIT INDEX |
Exhibit | ||
Number | Description | |
99.1
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Slides from presentation by management. |
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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD |
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Dated: August 31, 2007 | By: | /s/ Wesley D. Dupont | ||
Name: | Wesley D. Dupont | |||
Title: | Senior Vice President and General Counsel |
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Forward Looking Statements & Safe Harbor |
This presentation contains certain statements, estimates and forecasts with respect to future performance and events. These statements, estimates and forecasts are forward-looking statements. In some cases, forward-looking statements can be identified by the use of forward- looking terminology such as may, might, will, should, expect, plan, intend, estimate, anticipate, believe, predict, potential or continue or the negatives thereof or variations thereon or similar terminology. All statements other than statements of historical fact included in this presentation are forward-looking statements and are based on various underlying assumptions and expectations and are subject to known and unknown risks, uncertainties and assumptions, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied in the forward-looking statements. As a result, there can be no assurance that the forward-looking statements included in this presentation will prove to be accurate or correct. In light of these risks, uncertainties and assumptions, the future performance or events described in the forward- looking statements in this presentation might not occur. Accordingly, you should not rely upon forward-looking statements as a prediction of actual results and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements that may be made from time to time. We are under no obligation (and expressly disclaim any such obligation) to update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise. |
Agenda |
· Executive Summary |
· Financial Review |
· Appendix |
Strong Stock Performance Since July 2006 IPO |
Relative Stock Price Comparison Daily from July 12, 2006 to Aug 17, 2007 |
Allied Worlds Franchise |
Allied World is a leading well-diversified property and casualty insurer and reinsurer |
Five year old franchise with strong results since inception |
Diversified mix of business with operating platforms in |
Bermuda, Europe and the United States |
Strong risk management culture |
Excellent capitalization and financial flexibility |
Industry leading executive management team |
Low cost operating structure |
Strong financial strength and debt ratings |
Business Strategy |
Leverage Diversified Underwriting Operations |
Capitalize on ability to offer multiple products across global operating platform |
Maintain lead positions in Bermuda excess casualty and direct property business |
Pursue Profitable Business Opportunities |
U.S. expand E&S business, utilize admitted capabilities and continue program initiative |
Europe emphasis on U.K. and western Europe and use of Lloyds Box |
Maintain Strong Risk Management |
Target risks in markets and layers that potentially generate attractive returns |
Maintain reduced earnings volatility by conservatively managing prop/cat exposure |
Continue prudent reserving practices |
Maintain investment strategy with emphasis on capital preservation and supporting underwriting operations |
Diversified Portfolio |
Diversified book of business by product lines and geography able to accommodate a broad range of market conditions |
Long-term strategy has been to emphasize insurance and casualty lines |
Product Lines Gross Premiums Written by Segment and Office ($ MM) |
June 2007 YTD Casualty Property Reinsurance Total Percent |
Bermuda $196 $133 $397 $727 75% Europe 63 90 153 16% United States 53 36 89 9% $313 $258 $397 $969 100% Percent 32% 27% 41% 100% |
Business Type Splits |
Casualty / Property 65% / 35% |
Direct / Reinsurance 59% / 41% |
Leading Specialty Casualty Operation |
MARKET OUTLOOK |
· Competition is increasing and rates continue to decline but remain adequate |
· Terms and conditions are holding but beginning to experience some pressure |
GPW ($MM) |
6/07 YTD GPW |
STRENGTHS AND STRATEGY |
· Emphasis on specialty excess lines |
· Leading player in middle excess layers |
Ground-up underwriting approach is a |
key strength |
Results in preferred market position |
· Diversified risk portfolio |
General casualty covers complex risks |
in variety of industries and territories |
Professional liability covers D&O, |
employment practices, fiduciary and E&O |
Healthcare covers hospitals, long term |
care facilities and managed care |
Leading Bermuda Direct Property Operation |
MARKET OUTLOOK 6/07 YTD GPW |
· Competition increasing but margins still attractive for catastrophe exposed business coming off of very favorable 2006 rates |
· Insureds deductible levels have remained stable |
GPW ($MM) |
STRENGTHS AND STRATEGY |
· Leading direct writer of primary property |
insurance in Bermuda |
· Solely commercial accounts |
· Flexible and opportunistic approach |
· Allied Worlds franchise helps maintain |
client loyalty |
Capacity |
Claims handling |
Ability to offer other product lines |
· Manage line size and overall exposure |
· Selectively reducing energy accounts |
Net Combined Ratio (ex. Cats) Net Combined Ratio (with Cats) |
* Excludes $105mm and $287mm cat losses in 2004 and 2005, respectively. |
Flexible Reinsurance Operation |
MARKET OUTLOOK 6/07 YTD GPW |
· Softening of underlying professional liability and general casualty pricing has necessitated shift to providing more XOL covers where market opportunities are more attractive |
· Despite pricing pressures, the U.S. property market is relatively stable and continues to offer opportunities, particularly for catastrophe business |
· The property market internationally is more challenging, proportional treaties are less attractive and catastrophe pricing is weakening but may rise following recent losses |
GPW ($MM)STRENGTHS AND STRATEGY |
· Targeted to represent about 1/3rd of portfolio on a .gross written basis |
·. Focused on E&S and specialty lines |
Complements insurance book . |
Reduces concentration of risk |
· Provides ability to react quickly to changing market conditions |
· Only dedicated Bermuda casualty facultative operation |
· Opportunistically provide ILW contracts |
Early Treaty Renewal Net Combined Ratio (ex. Cats) Net Combined Ratio (with Cats) |
* Excludes $82mm and $245mm cat losses in 2004 and 2005, respectively. |
Industry Leading Management Team |
Years in Years with Name Title / Responsibility Industry Allied World Scott Carmilani President and CEO 21 5 Joan Dillard SVP, Chief Financial Officer 23 4 John Redmond President, Allied World Europe 33 5 Richard Jodoin President, Allied World U.S. 35 5 Daniel Brandon SVP, Reinsurance 25 5 Frank DOrazio SVP, General Casualty 17 4 David Bell SVP, Professional Lines 11 5 Michael McCrimmon SVP, Property 23 5 Marshall Grossack SVP, Chief Corporate Actuary 23 5 Ralph Rathjen SVP, Chief Risk Officer 27 1 Wesley Dupont SVP, General Counsel 5 3 |
Agenda |
· Executive Summary |
· Financial Review |
· Appendix |
1st Half 2007 Financial Highlights |
· Strong Results |
Net income - $237.2 million, includes $146.6 million of net investment income |
Operating income - $245.7 million, a 21.1% return on average shareholders equity |
Diluted Book Value Per Share Increased 12.8% on annualized basis to $37.52 at 6/07 |
Combined ratio - 79.9% which benefited by 9.9 points from net favorable reserve development |
Cash Flow $389.1 million from operations |
· Response to Market Conditions |
Gross written premiums declined by 4.7% overall and 7.4% in direct lines of business |
Reflects response to softening market conditions including non-renewal of business that did not meet underwriting requirements, increased competition and decreasing rates |
· Growing Capital and Invested Asset Base |
Capital base in excess of $2.9 billion as of June 30, 2007 |
Invested asset base in excess of $6.2 billion, 83% of fixed income portfolio rated AAA |
Debt / capital of 17.0% and fixed charge coverage of 13.6X. |
· Consistent Performance |
6 straight quarters with operating income in excess of $100 million |
6 straight quarters with annualized net income and operating return on average equity in excess of 20% |
5 straight quarters with combined ratio of 80% or under |
Strong Underwriting = Consistent Results |
Gross Premiums Written by Underwriting Ratios and Annualized |
Segment ($MM)Operating Return on Average Equity |
Property Casualty ReinsuranceExpense Ratio Loss Ratio Annualized Operating ROAE |
Efficient Operating Structure |
· Greater percentage of direct business results in lower acquisition ratio |
· Flat, streamlined management structure |
· 2007 underwriting expense ratio of 21.9% reflects increased compensation expenses and reduced writings |
Underwriting Expense Ratios |
All Bermuda Companies Average(1) Class of 2001 Average(2) Allied World 1All Bermuda Companies Average includes Platinum, Montpelier, Axis, ACE, Arch, Endurance, Aspen, r Re, Renaissance Re,. XL Capital, Everest |
2Class of 2001 Average includes ce, Aspen, Platinum, expense ratios for Arch, Montpelier, and Axis. Enduran |
Investment Income Momentum |
Growth in investmentncome is driven by flows and growth in invested |
Strong Cash Flows = Increased Asset Base Increased Asset Base = Greater Investment Returns ($ Billion) ($MM) |
Portfolio Yield 4.4% 3.7% 3.5% 3.9% 4.5% 4.3% 4.7% Paid Loss Ratio 1.0% 8.5% 15.3% 33.8% 38.6% 41.9% 38.5% |
Investment Portfolio |
· Conservative, with diversified fixed-income portfolio: |
99% investment grade fixed income securities |
79% of total portfolio is rated AAA |
Only .05% of portfolio ($3 million) is supported by subprime collateral |
Portfolio Summary as of 6/30/2007 Mortgage Backed Securities as of 6/30/2007 ($MM) |
AA % of Total Amount Portfolio Ratings Residential 6% Agency A 1,034 16.58% AAA Non-Agency 10% Prime 394 6.31% AAA Wrapped Sub-Prime Collateral 1 0.02% AAA Sub-Prime Collateral 3 0.05% AAA Total Non-Agency 398 6.38% Total Residential AAA 1,432 22.95% * Commercial MBS 79% 691 11.08% AAA Total MBS 2,123 34.03% |
Prudent Reserving Philosophy |
· Reserves 5.2% above mid-point of range |
Net favorable reserve development in each of the last 4 years and through June 2007 |
· 79.4% of reserves are IBNR |
Net Loss Reserves Mix |
Range of Net at June 30,Reserves |
Net Prior Year Releases (Non- Reserve ($MM) |
Capital Management |
Our capital management strategy is to preserve sufficient capital to support our business plan and future growth while maintaining conservative financial leverage and earnings coverage ratios Over $800 million in capital was raised in July 2006 |
Total Capitalization ($MM) |
Common Equity (Ex AOCI) IPO Proceeds Debt |
Debt to Total Capital Ratio 0.00% 25.7% 18.4% 17.0% Fixed Charge Coverage (9.3)x 14.7x 13.6x |
Conclusion |
Allied World expects to generate a mid-to-high teen ROE, assuming normalized catastrophe activity |
· Strong underwriting franchise diversified by product and geography |
· Solid 5+ year operating history |
· Seasoned, profitable book of business |
· Proven risk management expertise |
· Excellent capitalization, strong balance sheet and financial flexibility |
· Stable industry leading management team |
· Low cost operating structure |
· Strong financial strength and debt ratings |
Investment income momentum |
Agenda |
· Executive Summary |
· Financial Review |
· Appendix |
Segment Results First Half 2007 & 2006 |
Six Months Ended June 30, 2007 Property Casualty Reinsurance Total |
Gross premiums written $258,328 $313,280 $397,347 $968,955 Net premiums written 105,0792 42,265 397,087 744,431 Net premiums earned 92,809 248,124 248,752 589,685 Net losses and loss expenses (41,014) (151,275) (149,931) (342,220) Acquisition costs (437) (11,071) (49,560) (61,068) General and administrative expenses(15,920) (32,018) (19,697) (67,635) Under writing income 35,438 53,760 29,564 118,762 Net investment income 146,585 Net realized investment losses (7,965) Interest expense (18,856) Foreign exchangeloss (564) |
Income before income taxes $237,962 |
GAAP Ratios: |
Loss and loss expense ratio 44.2% 61.0% 60.3% 58.0% Acquisition cost ratio 0.4% 4.4%1 9.9%1 0.4% General and administrative expense ratio17.2% 12.9% 7.9% 11.5% Combined ratio 61.8% 78.3% 88.1% 79.9% |
Six months Ended June 30k 2006 Property Casualty Reinsurance Total |
Gross premiums written $286,680 $330,498 $399,258 $1,016,436 Net premiums written 111,953 286,919 398,969 797,841 Net premium searned 95,057 265,303 254,100 614,460 Net lossesand loss expenses (58,048) (180,014) (147,742) (385,804) Acquisition costs 2,258 (16,274) (55,119) (69,135) General and administrative expenses (11,960) (22,980) (11,639) (46,579) Under writing income 27,307 46,035 39,600 112,942 Net investment income 116,944 Net realized investment losses (15,408) Interest expense (13,527) Foreign exchange loss (70) |
Income before income taxes $200,881 GAAPRatios: |
Loss and loss expense ratio 61.1% 67.9% 58.1% 62.8% Acquisition cost ratio (2.4%) 6.1% 21.7% 11.2% General and administrativ eexpense ratio 12.6% 8.7% 4.6% 7.6% Combined ratio 71.3% 82.7% 84.4% 81.6% |
Non-GAAP Financial Measures In presenting the companys results, management has included and discussed in this press release certain 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 companys results of operations in a manner that allows for a more complete understanding of the underlying trends in the companys business. However, these measures should not be viewed as a substitute for those determined in accordance with GAAP. Operating income is an internal performance measure used by the company in the management of its operations and represents after-tax operational results excluding, as applicable, net realized investment gains or losses and foreign exchange gains or losses. The company excludes net realized investment gains or losses and net foreign exchange gains or losses from its calculation of operating income because the amount of these gains or losses is heavily influenced by, and fluctuates in part according to, the availability of market opportunities. The company believes these amounts are largely independent of its business and underwriting process and including them distorts the analysis of trends in its operations. In addition to presenting net income determined in accordance with GAAP, the company believes that showing operating income enables investors, analysts, rating agencies and other users of its financial information to more easily analyze the companys results of operations in a manner similar to how management analyzes the companys underlying business performance. Operating income should not be viewed as a substitute for 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 a better measure of calculating shareholder returns than book value per share. Annualized return on average equity (ROAE) is calculated using average equity, excluding the average after tax unrealized gains or losses on investments. Unrealized gains (losses) on investments are primarily the result of interest rate 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 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 equity is calculated using (1) operating income (as defined above and annualized in the manner described for net income (loss) available to shareholders under ROAE above), and (2) average 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 return on average equity explanation above. See slides 23 25 for a reconciliation of non-GAAP measures used in this presentation to their most directly comparable GAAP measures. |
Non-GAAP Financial Measures Reconciliations |
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD UNAUDITED ANNUALIZED RETURN ON SHAREHOLDERS EQUITY RECONCILIATION (Expressed in thousands of United States dollars, except for percentage information) |
Quarter Ended June 30, Six Months Ended June 30, 2007 2006 2007 2006 |
Opening shareholders equity $2,355,978 $1,478,907 $2,220,084 $1,420,266 |
(Deduct)/add: accumulated other comprehensive (income)/loss (31,481) 64,988 (6,464) 25,508 |
Adjusted opening shareholders equity 2,324,497 1,543,895 2,213,620 1,445,774 |
Closing shareholders equity 2,418,186 1,565,062 2,418,186 1,565,062 |
Add: accumulated other comprehensive loss 25,663 83,144 25,663 83,144 |
Adjusted closing shareholders equity 2,443,849 1,648,206 2,443,849 1,648,206 |
Average shareholders equity $2,384,173 $1,596,051 $2,328,735 $1,546,990 |
Net income available to shareholders $ 123,287 $ 102,370 $ 237,208 $ 200,491 |
Annualized net income available to shareholders 493,148 409,480 474,416 400,982 |
Annualized return on average shareholders equity net income available to shareholders 20.7% 25.7% 20.4% 25.9% Operating income available to shareholders $ 125,300 $ 112,067 $ 245,737 $ 215,969 |
Annualized operating income available to shareholders 501,200 448,268 491,474 431,938 |
Annualized return on average shareholders equity operating income available to shareholders 21.0% 28.1% 21.1% 27.9% |
Non-GAAP Financial Measures Reconciliations |
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
UNAUDITED OPERATING INCOME RECONCILIATION (Expressed in thousands of United States dollars, except share and per share amounts) |
Quarter Ended June 30, Six Months Ended June 30, 2007 2006 2007 2006 |
Net income $ 123,287 $ 102,370 $ 237,208 $ 200,491 |
Net realized investment losses 1,481 10,172 7,965 15,408 |
Foreign exchange loss (gain) 532 (475) 564 70 |
Operating income $ 125,300 $ 112,067 $ 245,737 $ 215,969 |
Weighted average common shares outstanding: |
Basic 60,397,591 50,162,842 60,028,523 50,162,842 |
Diluted 62,874,235 50,682,557 62,277,010 50,637,809 |
Basic per share data: |
Net income $ 2.04 $ 2.04 $ 3.95 $ 4.00 |
Net realized investment losses 0.02 0.20 0.13 0.31 |
Foreign exchange loss (gain) 0.01 (0.01) 0.01 - |
Operating income $ 2.07 $ 2.23 $ 4.09 $ 4.31 |
Diluted per share data |
Net income $ 1.96 $ 2.02 $ 3.81 $ 3.96 |
Net realized investment losses 0.02 0.20 0.13 0.30 |
Foreign exchange loss (gain) 0.01 (0.01) 0.01 - |
Operating income $ 1.99 $ 2.21 $ 3.95 $ 4.26 |
Non-GAAP Financial Measures Reconciliations |
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD UNAUDITED DILUTED BOOK VALUE PER SHARE RECONCILIATION (Expressed in thousands of United States dollars, except share and per share amounts) |
As of As of June 30, December 31, 2007 2006 |
Price per share at period end $ 51.25 $ 43.63 |
Total shareholders equity 2,418,186 2,220,084 |
Basic common shares outstanding 60,405,307 60,287,696 |
Add: unvested restricted share units 828,657 704,372 |
Add: Long-Term Incentive Plan (LTIP) share units 886,251 342,501 |
Add: dilutive options/warrants outstanding 6,764,564 6,695,990 |
Weighted average exercise price per share $ 33.59 $ 33.02 |
Deduct: options bought back via treasury method (4,433,857) (5,067,534) |
Common shares and common share equivalents outstanding 64,450,922 62,963,025 |
Basic book value per common share $ 40.03 $ 36.82 |
Diluted book value per common share $ 37.52 $ 35.26 |