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| 8-K - FORM 8-K - Allied World Assurance Co Holdings, AG | d494220d8k.htm |
 Investor
Presentation 4
Quarter
2012
Exhibit 99.1
th |
 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. 2 |
 Agenda
Executive Summary
Executive Summary
Operating Segments
Operating Segments
U.S. Insurance
U.S. Insurance
International Insurance
International Insurance
Reinsurance
Reinsurance
Financial Highlights
Financial Highlights
Conclusion
Conclusion
Appendix
Appendix
3 |
 Allied
World’s Franchise Well-diversified property and casualty insurer and reinsurer
with significant geographic reach
Experienced executive management team with strong risk
management culture
Excellent capitalization with active capital management
Progressive investment philosophy
Highly
Rated
–
“A”
(Excellent)
by
A.M.
Best,
“A”
(Strong)
by
S&P,
“A2”
(Good)
by
Moody’s
and
“A+”
(Good)
by
Fitch
Industry leading results and value creation
4 |
 Diversified
insurance and reinsurance products offered across global
platform with operations in the U.S., Bermuda, Lloyd’s,
Europe, Hong Kong and Singapore
Emphasis on insurance and
casualty lines with strong reinsurance
and property capabilities
Customer focus
Moving closer to clients in markets
Demonstrated expertise in markets in
which we underwrite
A “go to”
market for targeted lines and
classes of business such as healthcare and
construction
Allied World –
A Diversified mix
Leading specialty insurance company with broad range of product offerings,
global capabilities and significant U.S. focus
5
* Includes healthcare-related program business |
 Experienced
Management: Shifting the Business Focus 6
2007 GPW: $1,506M
In response to the changing macro economic environment, Allied World
has transformed itself since 2007
2012 GPW: $2,329M
Allied World 2007
Allied World Today |
 Active Capital
Management Improves Shareholder Value 7
* Excludes $243.8 million syndicated loan that was repaid on February 23, 2009
|
 Growth in book
value per share calculated by taking change in book value per share from December 31, 2007 through
December 31, 2012 adjusted for dividends paid or declared. Diluted book value per
share used when available. Source: SNL Financial
8
Superior Value Creation |
 Growth in book value per share calculated by taking change in book value per share
from December 31, 2007 through December 31, 2012 adjusted for dividends paid
or declared. Diluted book value per share used when available. Source: SNL
Financial Five Year Value Creation
Book Value Growth (through 12/31/12) Vs. Total Return (through 2/20/13)
9
Superior Value Creation |
 Agenda
Executive Summary
Executive Summary
Operating Segments
Operating Segments
U.S. Insurance
U.S. Insurance
International Insurance
International Insurance
Reinsurance
Reinsurance
Financial Highlights
Financial Highlights
Conclusion
Conclusion
Appendix
Appendix
10 |
 Our U.S.
Insurance Operating Segment -
A significant U.S.-
based specialty franchise with diversified offerings
* Includes healthcare-related program business
Allied World U.S. Insurance Operating Segment
Product Mix
11 |
 Allied World
International Insurance Operating Segment Product Mix
12
Our International Insurance Operating Segment
-
Global Diversification and Expansion
•
Offices in Bermuda, Dublin, Hong Kong,
London, Singapore and Switzerland
position the company to meet developing
opportunities
•
Lloyd’s Syndicate 2232
•
Specialty product capabilities:
•
MGA business initiated in targeted areas
o
Association with Lloyd’s enhances Allied
World’s brand recognition
o
Increases access to Latin America and Asia-
Pacific region
o
Offers individual risk products
o
Trade credit and political risk
o
International healthcare
o
Small-to-medium enterprises (SME Professional) |
 Allied World
Reinsurance Operating Segment Product Mix
13
•
U.S. operation has improved access to
U.S. regional business and
strengthened local relationships
•
Strategic Bermuda Platform
•
Swiss and Singapore offices and Lloyd’s
Syndicate 2232 increase global reach
Our Reinsurance Operating Segment
-
Flexibility to take advantage of reinsurance opportunities in the global marketplace
o
Property reinsurance capabilities that
focus on small and medium account
regional carriers
o
Global Marine and Specialty Unit offers
marine and aerospace coverages as well
as crop and hail business
o
Property catastrophe, property per risk,
workers’
compensation catastrophe,
accident & health and specialty casualty
o
Reinsurance capabilities in Europe, Latin
America, Middle East, Africa and the Asia
Pacific region |
 Quarterly
Highlights – Fourth Quarter 2012
Investments in operations are paying off with increased production and strong
underwriting results across all of our operating segments
14 |
 Quarterly
Highlights – Allied World Financial Services
15
Allied World Financial Services was established in September
2012 with the following objectives:
•
Optimize expenses by getting the best value for the fees we pay
•
Increase our knowledge and expertise by partnering with experts
•
Participate in the economic returns of these business relationships
Completed $127.6 million of transactions, including:
Cunningham Lindsey (Global TPA)
MatlinPatterson Asset Management (Asset Manager)
Aeolus Capital Management (Collateralized Reinsurer)
Crescent Capital Group (Asset Manager) |
 Agenda
Executive Summary
Executive Summary
Operating Segments
Operating Segments
U.S. Insurance
U.S. Insurance
International Insurance
International Insurance
Reinsurance
Reinsurance
Financial Highlights
Financial Highlights
Conclusion
Conclusion
Appendix
Appendix
16 |
 Financial Highlights
Operating Results
Operating Results
2012
2012
2011
2011
2010
2010
2009
2009
2008
2008
Net Income
$493M
$275M
$665M
$607M
$184M
Operating Income
$203M
$184M
$398M
$538M
$455M
Net Income Return on Average Equity
15.3%
8.9%
21.9%
22.6%
8.3%
Operating Return on Average Equity
6.3%
6.0%
13.1%
20.0%
20.6%
Combined Ratio
94.5%
95.9%
84.9%
76.1%
84.1%
Cash flow from Operations
$629M
$548M
$451M
$668M
$657M
Total Financial Statement Portfolio Return
5.5%
2.0%
6.1%
7.9%
0.5%
Ending Diluted Book Value per Share
$92.59
$80.11
$74.29
$59.56
$46.05
Growth in Diluted Book Value Per Share
15.6%
7.8%
24.7%
29.3%
8.3%
Allied World has reported very strong results despite competitive
landscape, financial turbulence and catastrophe activity
17 |
 18
Expense Ratio Declining as We Build Scale
Note: GAAP expense ratio
*Peer average includes ALTE, ACGL, AGII, AHL, AXS, ENH, HCC, MKL, NAVG, OB, PRA, RLI, THG and
WRB. Source: SNL Financial |
 Case Incurred through
2012 Q4 41.4%
34.1%
46.0%
62.3%
40.0%
39.0%
51.9%
29.5%
47.9%
41.1%
23.9%
Remaining IBNR / EP Ratio @ 2012 Q4
1.3%
7.3%
4.8%
12.1%
13.2%
13.5%
24.3%
32.4%
29.5%
45.8%
50.9%
Strong Underwriting Results
Underwriting performance has been strong since our inception
(1) Pro-forma including Darwin development since inception
(2)
Case
incurred
ratios
by
year
are
not
directly
comparable
to
our
financial
statements
as
reinsurance
case
incurred
losses
shown
above
are
on
a
treaty
year
basis
19
Historical Loss Ratios Through December 2012 ($MM)
1
2
AY
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
CY Total
CY Original Loss Ratio
70.1%
65.3%
75.9%
103.1%
59.6%
58.4%
55.6%
45.9%
52.1%
65.8%
65.1%
Prior Year Development
0.0%
-4.9%
-5.8%
-3.6%
-8.2%
-10.2%
-24.2%
-18.8%
-23.1%
-17.4%
-9.7%
AY Original Loss Ratio
70.1%
70.1%
81.7%
106.7%
67.7%
68.6%
79.8%
64.7%
75.1%
83.2%
74.9%
2002
2003
(57)
(57)
2004
(27)
(53)
(79)
2005
(8)
(46)
6
(49)
2006
(16)
(43)
(45)
(8)
(113)
2007
6
(34)
(77)
(6)
(26)
(137)
2008
(9)
(88)
(100)
(74)
(8)
(34)
(313)
2009
(17)
(57)
(118)
(103)
12
2
32
(248)
2010
4
(11)
(57)
(147)
(54)
(25)
(23)
(1)
(313)
2011
(0)
(1)
(22)
(90)
(42)
(69)
(22)
(28)
20
(254)
2012
4
(4)
(9)
(11)
(82)
(91)
(35)
(8)
11
53
(170)
Subsequent Development
(119)
(336)
(423)
(438)
(201)
(216)
(47)
(37)
31
53
(1,732)
Loss Ratio Points
-27.4%
-28.7%
-30.9%
-32.3%
-14.5%
-16.1%
-3.6%
-2.8%
2.3%
3.7%
AY Developed
42.6%
41.4%
50.8%
74.4%
53.2%
52.5%
76.2%
61.9%
77.4%
86.9%
74.9%
Cat Losses
16.4%
28.1%
9.7%
6.1%
20.3%
10.3%
AY Developed EX Cat Losses
42.6%
41.4%
34.4%
46.3%
53.2%
52.5%
66.5%
61.9%
71.3%
66.6%
64.6% |
 December 31,
2012 Total: $4.5 B •
Net reserves about 4.5% above mid-point of range at
December 31, 2012
•
Over $1.7 billion net favorable reserve development
since inception
•
71% of net reserves are IBNR
Net Loss & LAE Reserve Mix at December 31, 2012
Case
U.S. Insurance
9%
IBNR
International
Insurance
27%
Case
International
Insurance
9%
IBNR
Reinsurance
22%
Case
Reinsurance
11%
IBNR
U.S. Insurance
22%
Net Prior Year Reserve Releases* ($MM)
Range of Net Reserves at December 31, 2012 ($MM)
Prudent Reserving Philosophy
20
* Pro-forma including Darwin
development since inception |
 21
•
We maintain a short
duration/overweight credit
position in core fixed-income
•
We will continue to build out
non-core portfolio in 2013
•
Relative value and significant
market volatility remains in
favor of a diversified portfolio,
by asset class as well as by
issuer.
Investment Portfolio Highlights |
 Peer
Comparisons – Operating Income ROE
Source: SNL Financial
22 |
 Agenda
Executive Summary
Executive Summary
Operating Segments
Operating Segments
U.S. Insurance
U.S. Insurance
International Insurance
International Insurance
Reinsurance
Reinsurance
Financial Highlights
Financial Highlights
Conclusion
Conclusion
Appendix
Appendix
23 |
 Conclusion
24
Strong top line growth with diversified product mix
•
Gross premiums increasing in each operating segment
Historically strong operating returns
•
Combined ratio compares favorably to peers
•
Expense ratio remains below 30% as we build scale
Solid investment returns
Active capital management
Industry leading value creation
Current valuation is inconsistent with company’s historical performance
and strong position to capitalize on market opportunities |
 Growth in book value per share calculated by taking change in book value per share
from December 31, 2007 through December 31, 2012 adjusted for dividends paid
or declared. Price to book as of February 20, 2013. Diluted book value
per share used when available. Five Year Growth in Book Value per Share (through December
2012) vs.
Price to Book Value @ February 20, 2013
25
Conclusion
-
Allied World is attractively valued given its historical performance
|
 Agenda
Executive Summary
Executive Summary
Operating Segments
Operating Segments
U.S. Insurance
U.S. Insurance
International Insurance
International Insurance
Reinsurance
Reinsurance
Financial Highlights
Financial Highlights
Conclusion
Conclusion
Appendix
Appendix
26 |
 Non-GAAP
Financial Measures In
presenting
the
company's
results,
management
has
included
and
discussed
in
this
presentation
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
impairment
charges
recognized
in
earnings,
net
foreign
exchange
gain
or
loss
and
other
non-recurring
items.
The company excludes net realized investment gains or losses, net impairment charges
recognized in earnings, 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. The company has excluded from operating income the
termination fee received from Transatlantic Holdings, Inc. in 2011 as this is a
non-recurring
item.
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.
See slides 28 -
30 for a reconciliation of non-GAAP measures used in this presentation to their most
directly comparable U.S. GAAP measures. 27 |
 Non-GAAP
Financial Measures - Reconciliations
28 |
 29
Non-GAAP Financial Measures -
Reconciliations |
 Non-GAAP
Financial Measures - Reconciliations
30 |