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Allied World Reports Strong Growth Across U.S. Insurance Platform for the Third Quarter 2014

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Allied World Assurance Company Holdings, AG (NYSE:AWH) today reported net income of $30.9 million, or $0.31 per diluted share, for the third quarter of 2014 compared to net income of $122.8 million, or $1.18 per diluted share, for the third quarter of 2013.

The company reported operating income of $60.6 million, or $0.61 per diluted share, for the third quarter of 2014, compared to operating income of $101.8 million, or $0.98 per diluted share, for the third quarter of 2013.

“We continue to see attractive opportunities for selective organic growth,” said President and Chief Executive Officer Scott Carmilani. “The strategic changes to our management team, and reorganization of our segments, will better align us with our clients and position us well for continued opportunities. Given the footprint of our business outside of North America, and the announced RSA transaction, these regions represent the next phase of our development.”

Effective December 31, 2014, the company will realign its two insurance business segments from the current U.S. Insurance (U.S. and Canada) and International Insurance (all other regions). The company will report across North American Insurance (all North America business, including U.S., Canada, Bermuda) and Global Markets Insurance (all business outside of North America). The Reinsurance segment will remain unchanged. In conjunction with these changes, several strategic positions will be realigned in order to best serve clients and trading partners:

  • Frank D’Orazio, currently President, Bermuda and International Insurance, Allied World Assurance Company, Ltd, will be appointed President, Underwriting and Global Risk, and will be responsible for the company’s global underwriting (management, controls and processes) as well as coordination of our risk management tools across the organization.
  • Louis Iglesias, as President, Allied World North America, will continue to oversee production and profitability for Canada and all U.S. branch offices, and will assume responsibility for all insurance lines of business of the Bermuda operation.
  • Julian James, currently President, Allied World Assurance Company (Europe) Limited, will be appointed President, Global Markets. In this new role, he will continue to oversee all insurance lines of business for Allied World Europe and Syndicate 2232, as well as assume responsibility for Allied World’s operations in Asia Pacific and any other initiatives outside of North America.

All three executives will report directly to Scott Carmilani, President and Chief Executive Officer.

Third Quarter Summary (Unaudited)

(Expressed in millions of U.S. dollars, except per share amounts)

Three Months Ended September 30,
Diluted per share
2014 2013 2014 2013
Net income $ 30.9 $ 122.8 $ 0.31 $ 1.18
Add after tax effect of:
Net realized investment losses (gains) 29.4 (25.4 ) 0.30 (0.24 )
Foreign exchange loss 0.3 4.4 0.00 0.04
Operating income $ 60.6 $ 101.8 $ 0.61 $ 0.98

Note: On May 1, 2014, our shareholders approved a 3-for-1 stock split of the Company’s common shares. All historical share and per share amounts reflect the effect of the stock split.

Third Quarter Operating Results

  • Gross premiums written were $707.9 million, a 21.9% increase compared to $580.9 million in the third quarter of 2013. This was driven by growth across all three segments.
    • The U.S. insurance segment grew by 25.3% led by 42.7% growth in general casualty and offset by a continued decrease in healthcare of 10.2%.
    • The international insurance segment grew by 8.5% driven by more recently added lines of business, including marine cargo, as well as growth across existing lines.
    • The reinsurance segment grew by 27.0%, driven by a large, new professional liability treaty and a treaty that had previously renewed in the second quarter, which, because it included a significant fronting arrangement, had an outsized impact on gross premiums written that did not carry through to net premiums written.
  • Net premiums written were $568.7 million, a 25.5% increase compared to $453.1 million in the third quarter of 2013.
  • Net premiums earned were $541.7 million, a 6.1% increase compared to $510.8 million in the third quarter of 2013.
  • The company experienced $29.8 million of catastrophe losses for the third quarter of 2014 related to Hurricane Odile ($18.5 million) in Mexico, which largely impacted the international insurance segment, and Windstorm Ela ($8.0 million) in Western Europe, and PCS 45 in the Midwestern U.S. ($3.3 million), which both impacted the reinsurance segment. There were no reportable catastrophe losses for the comparable quarter last year. Including losses recorded in the second quarter of 2014, year to date, the company has experienced $43.0 million of catastrophe losses.
  • Underwriting income was $45.0 million, compared to underwriting income of $80.1 million in the third quarter of 2013.
  • The combined ratio was 91.7% compared to 84.2% in the third quarter of 2013.
  • The loss and loss expense ratio was 62.0% in the third quarter of 2014 compared to 54.2% in the prior year quarter. During the third quarter of 2014, the company recorded net favorable reserve development on prior loss years of $46.9 million, a benefit of 8.7 percentage points to the loss and loss expense ratio, compared to $61.5 million a year ago, a benefit of 12.0 percentage points.
  • The company’s expense ratio was 29.7% for the third quarter of 2014 compared to 30.0% for the third quarter of 2013.

Investment Results

  • The total financial statement return on the company’s investment portfolio for the three months ended September 30, 2014 was 0.1% compared to 0.8% for the three months ended September 30, 2013, and 2.7% for the nine months ended September 30, 2014 compared to 1.2% for the nine months ended September 30, 2013.
  • For the quarter, the decrease in total return was primarily due to both higher interest rates and wider spreads.
  • For the quarter, net investment income was $43.4 million, a 10.5% increase compared to $39.3 million for the third quarter of 2013. For the first nine months of 2014, net investment income was $127.8 million, a 15.9% increase compared to $110.3 million for the comparable period last year.
  • As previously announced, through AWFS, the company completed a strategic minority investment in Blue Vista, a Chicago-based real estate private equity firm. AWFS is a subsidiary of Allied World that invests in businesses intended to complement and diversify Allied World’s revenue streams. Results for AWFS are included within other invested assets: other private securities.
  • See the table below for the components of our investment returns:
(Expressed in millions of U.S. dollars, except percentages)

Three Months Ended
September 30,

2014 2013
Net investment income $ 43.4 $ 39.3
Net realized investment (losses) gains

(35.1

)

27.5
Total financial statement portfolio return $ 8.3 $ 66.8
Average invested assets $ 8,841.0 $ 8,522.7
Financial statement portfolio return

0.1%

0.8%

Note: net investment income, realized gains and unrealized gains are disclosed on a pre-tax basis.

Shareholders’ Equity

  • As of September 30, 2014, the company’s total shareholders’ equity grew to $3,673.6 million, compared to $3,519.8 million as of December 31, 2013.
  • As of September 30, 2014, diluted book value per share was $37.12, an increase of 0.4% compared to $36.98 as of June 30, 2014, and an increase of 8.5% compared to $34.20 as of December 31, 2013.

Capital Management

  • During the third quarter of 2014, the company repurchased 654,851 of its common shares through its share repurchase program in the open market at an average price of $38.17 per share and an aggregate cost of $25.0 million.
  • In May 2014, the company’s shareholders approved four quarterly dividends equal to $0.225 per share. The first and second dividends were paid on July 2, 2014 and October 2, 2014, respectively.

Supplementary Information

Allied World will be providing both a Financial Supplement and an Investment Supplement as of September 30, 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, October 23, 2014 at 9:00 a.m. (Eastern Time) to discuss the results for the third quarter ended September 30, 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 7750105 approximately ten minutes prior to the call.

Following the conclusion of the presentation, a replay of the call will be available through Friday, November 7, 2014 by dialing (877) 344-7529 (U.S. callers) or (412) 317-0088 (international callers) and entering the passcode 10052466. In addition, the webcast will remain available online through Friday, November 7, 2014 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 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.

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in thousands of United States dollars, except share and per share amounts)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2014 2013 2014 2013
Revenues:
Gross premiums written $ 707,884 $ 580,893 $ 2,369,682 $ 2,183,174
Premiums ceded (139,142 ) (127,816 ) (475,402 ) (453,823 )
Net premiums written 568,742 453,077 1,894,280 1,729,351
Change in unearned premiums (27,005 ) 57,696 (285,011 ) (248,079 )
Net premiums earned 541,737 510,773 1,609,269 1,481,272
Net investment income 43,412 39,271 127,824 110,294
Net realized investment (losses) gains (35,136 ) 27,487 104,286 (8,074 )
Other income 1,032 1,032
Total revenues 551,045 577,531 1,842,411 1,583,492
Expenses:
Net losses and loss expenses 336,090 276,970 926,231 807,276
Acquisition costs 72,403 65,114 214,404 186,416
General and administrative expenses 88,294 88,553 264,822 251,818
Other expense 6,575 6,575
Amortization of intangible assets 633 633 1,900 1,900
Interest expense 14,325 14,094 43,451 42,416
Foreign exchange loss 278 4,353 978 7,361
Total expenses 518,598 449,717 1,458,361 1,297,187
Income before income taxes 32,447 127,814 384,050 286,305
Income tax expense 1,532 4,971 24,300 6,332
NET INCOME $ 30,915 $ 122,843 $ 359,750 $ 279,973
PER SHARE DATA:
Basic earnings per share $ 0.32 $ 1.20 $ 3.67 $ 2.72
Diluted earnings per share $ 0.31 $ 1.18 $ 3.60 $ 2.66
Weighted average common shares outstanding 96,458,231 101,974,077 97,926,378 103,020,681
Weighted average common shares and common share equivalents outstanding 98,444,238 104,184,579 99,965,296 105,393,276
Dividends paid per share (1) $ 0.225 $ 0.167 $ 0.559 $ 0.292
(1) A dividend of $0.225 was also paid on October 2, 2014 to shareholders of record on September 23, 2014.
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of United States dollars, except share and per share amounts)
As of As of
September 30, December 31,
ASSETS: 2014 2013
Fixed maturity investments trading, at fair value $ 6,128,237 $ 6,100,798
Equity securities trading, at fair value 945,076 699,846
Other invested assets 929,201 911,392
Total investments 8,002,514 7,712,036
Cash and cash equivalents 1,010,228 681,329
Insurance balances receivable 926,183 664,731
Funds held 405,703 632,430
Prepaid reinsurance 376,651 340,992
Reinsurance recoverable 1,349,009 1,234,504
Accrued investment income 30,554 32,236
Net deferred acquisition costs 171,827 126,661
Goodwill 278,085 268,376
Intangible assets 46,931 48,831
Balances receivable on sale of investments 60,122 76,544
Net deferred tax assets 41,312 37,469
Other assets 110,449 89,691
Total assets $ 12,809,568 $ 11,945,830
LIABILITIES:
Reserve for losses and loss expenses $ 6,052,263 $ 5,766,529
Unearned premiums 1,716,927 1,396,256
Reinsurance balances payable 203,428 173,023
Balances due on purchases of investments 166,026 104,740
Senior notes 798,725 798,499
Dividends payable 21,686 16,732
Accounts payable and accrued liabilities 176,914 170,225
Total liabilities 9,135,969 8,426,004
SHAREHOLDERS’ EQUITY:
Common shares: 2014: par value CHF 4.10 per share and 2013: par

value CHF 4.10 per share (2014: 100,775,256; 2013: 103,477,452

shares issued and 2014: 96,382,238; 2013:

100,253,646 shares outstanding)

407,990 418,988
Treasury shares, at cost (2014: 4,393,018; 2013: 3,223,806) (134,633 ) (79,992 )
Retained earnings 3,400,242 3,180,830
Total shareholders’ equity 3,673,599 3,519,826
Total liabilities and shareholders’ equity $ 12,809,568 $ 11,945,830
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
UNAUDITED CONSOLIDATED SEGMENT DATA
(Expressed in thousands of United States dollars, except for ratio information)
U.S. International
Three Months Ended September 30, 2014 Insurance Insurance Reinsurance Total
Gross premiums written $ 386,681 $ 144,236 $ 176,967 $ 707,884
Net premiums written 321,713 87,820 159,209 568,742
Net premiums earned 224,764 94,013 222,960 541,737
Net losses and loss expenses

(153,010

)

(55,814

)

(127,266

)

(336,090

)

Acquisition costs

(31,131

)

(1,209

)

(40,063

)

(72,403

)

General and administrative expenses

(41,730

)

(27,993

)

(18,571

)

(88,294

)

Underwriting (loss) income

(1,107

)

8,997 37,060 44,950
Other insurance-related revenues 1,032 1,032
Other insurance-related expenses

(1,270

)

(5,305

)

(6,575

)

Segment (loss) income

(1,345

)

3,692 37,060 39,407
Net investment income 43,412
Net realized investment losses

(35,136

)

Amortization of intangible assets

(633

)

Interest expense

(14,325

)

Foreign exchange loss

(278

)

Income before income taxes $ 32,447
GAAP Ratios:
Loss and loss expense ratio 68.1 % 59.4 % 57.1 % 62.0 %
Acquisition cost ratio 13.9 % 1.3 % 18.0 % 13.4 %
General and administrative expense ratio 18.6 % 29.8 % 8.3 % 16.3 %
Expense ratio 32.5 % 31.1 % 26.3 % 29.7 %
Combined ratio 100.6 % 90.5 % 83.4 % 91.7 %
U.S. International
Three Months Ended September 30, 2013 Insurance Insurance Reinsurance Total
Gross premiums written $ 308,709 $ 132,881 $ 139,303 $ 580,893
Net premiums written 238,792 75,632 138,653 453,077
Net premiums earned 207,602 87,554 215,617 510,773
Net losses and loss expenses

(141,222

)

(31,094

)

(104,654

)

(276,970

)

Acquisition costs

(28,426

)

282

(36,970

)

(65,114

)

General and administrative expenses

(41,616

)

(26,450

)

(20,487

)

(88,553

)

Underwriting (loss) income

(3,662

)

30,292 53,506 80,136
Other insurance-related revenues

Other insurance-related expenses
Segment (loss) income

(3,662

)

30,292 53,506 80,136
Net investment income 39,271
Net realized investment gains 27,487
Amortization of intangible assets

(633

)

Interest expense

(14,094

)

Foreign exchange loss

(4,353

)

Income before income taxes $ 127,814
GAAP Ratios:
Loss and loss expense ratio 68.0 % 35.5 % 48.5 % 54.2 %
Acquisition cost ratio 13.7 % (0.3 )% 17.1 % 12.7 %
General and administrative expense ratio 20.0 % 30.2 % 9.5 % 17.3 %
Expense ratio 33.7 % 29.9 % 26.6 % 30.0 %
Combined ratio 101.7 % 65.4 % 75.1 % 84.2 %
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
UNAUDITED CONSOLIDATED SEGMENT DATA
(Expressed in thousands of United States dollars, except for ratio information)
U.S. International
Nine Months Ended September 30, 2014 Insurance Insurance Reinsurance Total
Gross premiums written $ 998,051 $ 483,079 $ 888,552 $ 2,369,682
Net premiums written 746,403 285,450 862,427 1,894,280
Net premiums earned 651,480 271,557 686,232 1,609,269
Net losses and loss expenses

(440,491

)

(115,299

)

(370,441

)

(926,231

)

Acquisition costs

(88,311

)

(835

)

(125,258

)

(214,404

)

General and administrative expenses

(125,760

)

(82,164

)

(56,898

)

(264,822

)

Underwriting (loss) income

(3,082

)

73,259 133,635 203,812
Other insurance-related revenues 1,032 1,032
Other insurance-related expenses

(1,270

)

(5,305

)

(6,575

)

Segment (loss) income

(3,320

)

67,954 133,635 198,269
Net investment income 127,824
Net realized investment gains 104,286
Amortization of intangible assets

(1,900

)

Interest expense

(43,451

)

Foreign exchange loss

(978

)

Income before income taxes $ 384,050
GAAP Ratios:
Loss and loss expense ratio 67.6 % 42.5 % 54.0 % 57.6 %
Acquisition cost ratio 13.6 % 0.3 % 18.3 % 13.3 %
General and administrative expense ratio 19.3 % 30.3 % 8.3 % 16.5 %
Expense ratio 32.9 % 30.6 % 26.6 % 29.8 %
Combined ratio 100.5 % 73.1 % 80.6 % 87.4 %
U.S. International
Nine Months Ended September 30, 2013 Insurance Insurance Reinsurance Total
Gross premiums written $ 872,024 $ 453,990 $ 857,160 $ 2,183,174
Net premiums written 652,464 259,771 817,116 1,729,351
Net premiums earned 593,477 258,809 628,986 1,481,272
Net losses and loss expenses

(398,910

)

(90,997

)

(317,369

)

(807,276

)

Acquisition costs

(78,824

)

1,489

(109,081

)

(186,416

)

General and administrative expenses

(119,514

)

(75,374

)

(56,930

)

(251,818

)

Underwriting (loss) income

(3,771

)

93,927 145,606 235,762
Other insurance-related revenues

Other insurance-related expenses
Segment (loss) income

(3,771

)

93,927 145,606 235,762
Net investment income 110,294
Net realized investment losses

(8,074

)

Amortization of intangible assets

(1,900

)

Interest expense

(42,416

)

Foreign exchange loss

(7,361

)

Income before income taxes $ 286,305
GAAP Ratios:
Loss and loss expense ratio 67.2 % 35.2 % 50.5 % 54.5 %
Acquisition cost ratio 13.3 % (0.6 )% 17.3 % 12.6 %
General and administrative expense ratio 20.1 % 29.1 % 9.1 % 17.0 %
Expense ratio 33.4 % 28.5 % 26.4 % 29.6 %
Combined ratio 100.6 % 63.7 % 76.9 % 84.1 %
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
UNAUDITED OPERATING INCOME RECONCILIATION
(Expressed in thousands of United States dollars, except share and per share amounts)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2014 2013 2014 2013
Net income $ 30,915 $ 122,843 $ 359,750 $ 279,973
Add after tax effect of:
Net realized investment losses (gains) 29,413 (25,395 ) (94,192 ) 2,160
Foreign exchange loss 278 4,353 978 7,361
Operating income $ 60,606 $ 101,801 $ 266,536 $ 289,494
Weighted average common shares outstanding:
Basic 96,458,231 101,974,077 97,926,378 103,020,681
Diluted 98,444,238 104,184,579 99,965,296 105,393,276
Basic per share data:
Net income $ 0.32 $ 1.20

$

3.67 $ 2.72
Add after tax effect of:
Net realized investment losses (gains) 0.30 (0.25 ) (0.96 ) 0.02
Foreign exchange loss 0.00 0.04 0.01 0.07
Operating income $ 0.62 $ 0.99 $ 2.72 $ 2.81
Diluted per share data:
Net income $ 0.31 $ 1.18 $ 3.60 $ 2.66
Add after tax effect of:
Net realized investment losses (gains) 0.30 (0.24 ) (0.94 ) 0.02
Foreign exchange loss 0.00 0.04 0.01 0.07
Operating income $ 0.61 $ 0.98 $ 2.67 $ 2.75
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
UNAUDITED DILUTED BOOK VALUE PER SHARE RECONCILIATION
(Expressed in thousands of United States dollars, except share and per share amounts)
As of As of
September 30, December 31,
2014 2013
Price per share at period end $ 36.84 $ 37.60
Total shareholders’ equity $ 3,673,599 $ 3,519,826
Basic common shares outstanding 96,382,238 100,253,646
Add: unvested restricted share units 512,112 143,697
Add: performance based equity awards 619,428 804,519
Add: employee share purchase plan 28,381 55,596
Add: dilutive options outstanding 2,532,918 2,928,312
Weighted average exercise price per share $ 16.30 $ 16.07
Deduct: options bought back via treasury method (1,120,699 ) (1,251,687 )
Common shares and common share
equivalents outstanding 98,954,378 102,934,083
Basic book value per common share $ 38.11 $ 35.11
Diluted book value per common share $ 37.12 $ 34.20
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
UNAUDITED ANNUALIZED RETURN ON SHAREHOLDERS’ EQUITY RECONCILIATION
(Expressed in thousands of United States dollars, except for percentage information)
Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013
Opening shareholders’ equity $ 3,682,762 $ 3,373,229 $ 3,616,678 $ 3,326,335
Deduct: accumulated other comprehensive income

Adjusted opening shareholders’ equity 3,682,762 3,373,229 3,616,678 3,326,335
Closing shareholders’ equity $ 3,673,599 $ 3,443,928 $ 3,673,599 $ 3,443,928
Deduct: accumulated other comprehensive income

Adjusted closing shareholders’ equity 3,673,599 3,443,928 3,673,599 3,443,928
Average shareholders’ equity $ 3,678,181 $ 3,408,579 $ 3,645,139 $ 3,385,132
Net income available to shareholders $ 30,915 $ 122,843 $ 359,750 $ 279,973
Annualized net income available to shareholders 123,660 491,372 479,667 373,297
Annualized return on average shareholders’ equity –
net income available to shareholders 3.4

%

14.4 % 13.2 % 11.0 %
Operating income available to shareholders $ 60,606 $ 101,801 $ 266,536 $ 289,494
Annualized operating income available to shareholders 242,424 407,204 355,381 385,992
Annualized return on average shareholders’ equity –
operating income available to shareholders 6.6 % 11.9 % 9.7 % 11.4 %

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