10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2008

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                        to                       

Commission file number: 001-32938

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD

(Exact Name of Registrant as Specified in Its Charter)

Bermuda	98-0481737
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

27 Richmond Road, Pembroke HM 08, Bermuda
(Address of Principal Executive Offices and Zip Code)

(441) 278-5400
(Registrant’s Telephone Number, Including Area Code)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ  No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No þ

     The number of outstanding common shares, par value $0.03 per share, of Allied World Assurance Company Holdings, Ltd as of May 5, 2008 was 48,847,487.

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
	Item 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II
	Item 1. Legal Proceedings
	Item 1A. Risk Factors
	Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits
SIGNATURES
EXHIBIT INDEX
EX-3.1: SECOND AMENDED AND RESTATED BYE-LAWS
EX-10.1: EMPLOYMENT AGREEMENT
EX-10.2: DEFERRED FEE PLAN FOR NON-EMPLOYEE DIRECTORS
EX-10.3: SECOND AMENDED AND RESTATED 2001 EMPLOYEE STOCK OPTION PLAN
EX-10.4: FORM OF OPTION GRANT NOTICE AND OPTION AGREEMENT
EX-10.5: SECOND AMENDED AND RESTATED 2004 STOCK INCENTIVE PLAN
EX-10.6: FORM OF RSU AWARD AGREEMENT
EX-10.7: FORM OF RSU AWARD AGREEMENT
EX-10.8: 2008 EMPLOYEE SHARE PURCHASE PLAN
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION

PART I
FINANCIAL INFORMATION

     Item 1. Financial Statements.

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
as of March 31, 2008 and December 31, 2007
(Expressed in thousands of United States dollars, except share and per share amounts)

	As of		As of
	March 31,		December 31,
	2008		2007
ASSETS:
Fixed maturity investments available for sale, at fair value (amortized cost: 2008: $5,071,730; 2007: $5,595,943)	$	5,218,726	$	5,707,143
Other invested assets available for sale, at fair value (cost: 2008: $82,380; 2007: $291,458)		77,099		322,144
Other invested assets, at fair value		191,195		—
Total investments		5,487,020		6,029,287
Cash and cash equivalents		774,337		202,582
Restricted cash		140,049		67,886
Securities lending collateral		337,567		147,241
Insurance balances receivable		376,788		304,499
Prepaid reinsurance		147,402		163,836
Reinsurance recoverable		758,723		682,765
Accrued investment income		42,389		55,763
Deferred acquisition costs		112,619		108,295
Intangible assets		14,714		3,920
Balances receivable on sale of investments		6,323		84,998
Net deferred tax assets		4,158		4,881
Other assets		42,341		43,155
Total assets	$	8,244,430	$	7,899,108
LIABILITIES:
Reserve for losses and loss expenses	$	4,048,187	$	3,919,772
Unearned premiums		848,149		811,083
Unearned ceding commissions		26,666		28,831
Reinsurance balances payable		60,437		67,175
Securities lending payable		337,567		147,241
Balances due on purchase of investments		—		141,462
Dividends payable		8,788		—
Senior notes		498,710		498,682
Accounts payable and accrued liabilities		21,306		45,020
Total liabilities	$	5,849,810	$	5,659,266
SHAREHOLDERS’ EQUITY:
Common shares, par value $0.03 per share, issued and outstanding 2008: 48,841,837 shares and 2007: 48,741,927 shares		1,465		1,462
Additional paid-in capital		1,288,776		1,281,832
Retained earnings		968,753		820,334
Accumulated other comprehensive income:
net unrealized gains on investments, net of tax		135,626		136,214
Total shareholders’ equity		2,394,620		2,239,842
Total liabilities and shareholders’ equity	$	8,244,430	$	7,899,108

See accompanying notes to the unaudited condensed consolidated financial statements.

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
for the three months ended March 31, 2008 and 2007
(Expressed in thousands of United States dollars, except share and per share amounts)

	Three Months Ended
	March 31,
	2008			2007
REVENUES:
Gross premiums written	$	396,874		$	438,406
Premiums ceded		(70,302	)		(80,562	)
Net premiums written		326,572			357,844
Change in unearned premiums		(53,500	)		(71,278	)
Net premiums earned		273,072			286,566
Net investment income		76,931			72,648
Net realized investment gains (losses)		3,465			(6,484	)
		353,468			352,730
EXPENSES:
Net losses and loss expenses		143,497			165,995
Acquisition costs		26,840			29,196
General and administrative expenses		43,271			33,203
Interest expense		9,510			9,374
Foreign exchange loss		476			32
		223,594			237,800
Income before income taxes		129,874			114,930
Income tax (recovery) expense		(1,071	)		1,009
NET INCOME		130,945			113,921
Other comprehensive (loss) income Unrealized gains on investments arising during the period net of applicable deferred income tax expense 2008: ($251); 2007: ($817)		15,364			18,533
Reclassification adjustment for net realized (gains) losses included in net income		(15,952	)		6,484
Other comprehensive (loss) income		(588	)		25,017
COMPREHENSIVE INCOME	$	130,357		$	138,938
PER SHARE DATA
Basic earnings per share	$	2.68		$	1.89
Diluted earnings per share	$	2.55		$	1.83
Weighted average common shares outstanding		48,811,932			60,333,209
Weighted average common shares and common share equivalents outstanding		51,380,423			62,207,941
Dividends declared per share	$	0.18		$	0.15

See accompanying notes to the unaudited condensed consolidated financial statements.

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
for the three months ended March 31, 2008 and 2007
(Expressed in thousands of United States dollars)

					Accumulated
			Additional		Other
			Paid-in		Comprehensive			Retained
	Share Capital		Capital		Income			Earnings			Total
December 31, 2007	$	1,462	$	1,281,832	$	136,214		$	820,334		$	2,239,842
Cumulative effect adjustment upon adoption of FAS 159		—		—		(26,262	)		26,262			—
Net income		—		—		—			130,945			130,945
Dividends		—		—		—			(8,788	)		(8,788	)
Other comprehensive income		—		—		25,674			—			25,674
Stock compensation		3		6,944		—			—			6,947
March 31, 2008	$	1,465	$	1,288,776	$	135,626		$	968,753		$	2,394,620

					Accumulated
			Additional		Other
			Paid-in		Comprehensive		Retained
	Share Capital		Capital		Income		Earnings			Total
December 31, 2006	$	1,809	$	1,822,607	$	6,464	$	389,204		$	2,220,084
Net income		—		—		—		113,921			113,921
Dividends		—		—		—		(9,052	)		(9,052	)
Other comprehensive income		—		—		25,017		—			25,017
Stock compensation		3		6,005		—		—			6,008
March 31, 2007	$	1,812	$	1,828,612	$	31,481	$	494,073		$	2,355,978

See accompanying notes to the unaudited condensed consolidated financial statements.

-3-

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 2008 and 2007
(Expressed in thousands of United States dollars)

	Three Months Ended
	March 31,
	2008			2007
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income	$	130,945		$	113,921
Adjustments to reconcile net income to cash provided by operating activities:
Net realized gains on sales of investments		(27,322	)		(2,898	)
Impairment charges for other-than-temporary impairments on investments		11,370			9,382
Change in fair value of hedge fund investments		12,487			—
Amortization of premiums net of accrual of discounts on fixed maturities		(1,005	)		(88	)
Amortization and depreciation of fixed assets		2,206			2,075
Amortization of discount and expenses on senior notes		111			104
Stock compensation expense		6,154			6,316
Insurance balances receivable		(72,289	)		(95,970	)
Prepaid reinsurance		16,434			5,258
Reinsurance recoverable		(75,958	)		21,055
Accrued investment income		13,374			6,941
Deferred acquisition costs		(4,324	)		(7,139	)
Net deferred tax assets		472			79
Other assets		(1,450	)		(2,228	)
Reserve for losses and loss expenses		128,415			26,227
Unearned premiums		37,066			66,020
Unearned ceding commissions		(2,165	)		1,438
Reinsurance balances payable		(6,738	)		30,519
Accounts payable and accrued liabilities		(14,926	)		(23,214	)
Net cash provided by operating activities		152,857			157,798
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of fixed maturity investments		(586,715	)		(866,584	)
Purchases of other invested assets		(18,845	)		(3,873	)
Sales of fixed maturity investments		1,067,763			698,521
Sales of other invested assets		83,206			2,976
Net cash used for acquisition		(44,052	)		—
Purchase of intangible assets		(10,794	)		—
Changes in securities lending collateral received		(190,326	)		230,032
Purchase of fixed assets		(281	)		(4,929	)
Change in restricted cash		(72,163	)		(62,590	)
Net cash provided by (used in) investing activities		227,793			(6,447	)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from the exercise of stock options		550			—
Changes in securities lending collateral		190,326			(230,032	)
Net cash provided by (used in) financing activities		190,876			(230,032	)
Effect of exchange rate changes on foreign currency cash		229			148
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		571,755			(78,533	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		202,582			366,817
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	774,337		$	288,284
Supplemental disclosure of cash flow information:
— Cash paid for income taxes	$	5,354		$	1,600
— Cash paid for interest expense		18,750			19,271
— Change in balance receivable on sale of investments		78,675			(8,694	)
— Change in balance payable on purchase of investments		(141,462	)		46,517

See accompanying notes to the unaudited condensed consolidated financial statements.

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share and percentage information)

1.  GENERAL

     Allied World Assurance Company Holdings, Ltd (“Holdings”) was incorporated in Bermuda on November 13, 2001. Holdings, through its wholly-owned subsidiaries (collectively, the “Company”), provides property and casualty insurance and reinsurance on a worldwide basis through operations in Bermuda, the United States, Ireland and the United Kingdom.

2.  BASIS OF PREPARATION AND CONSOLIDATION

     These unaudited condensed consolidated financial statements include the accounts of Holdings and its subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with Article 10 of Regulation S-X as promulgated by the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments that are normal and recurring in nature and necessary for a fair presentation of financial position and results of operations as of the end of and for the periods presented. The results of operations for any interim period are not necessarily indicative of the results for a full year.

     The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates reflected in the Company’s financial statements include, but are not limited to:

• The premium estimates for certain reinsurance agreements,

• Recoverability of deferred acquisition costs,

• The reserve for losses and loss expenses,

• Valuation of ceded reinsurance recoverables, 

• Valuation of financial instruments, and

• Determination of other-than-temporary impairment of investments.

     Intercompany accounts and transactions have been eliminated on consolidation, and all entities meeting consolidation requirements have been included in the consolidation. Certain immaterial reclassifications in the unaudited condensed consolidated statements of cash flows have been made to the prior period’s amounts to conform to the current period’s presentation.

     These unaudited condensed consolidated financial statements, including these notes, should be read in conjunction with the Company’s audited consolidated financials statements, and related notes thereto, included in the Company’s Annual Report on Form  10-K for the year ended December 31, 2007.

3.  NEW ACCOUNTING PRONOUNCEMENTS

     In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“FAS”) No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (“FAS 159”). FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement is expected to expand the use of fair value measurement, which is consistent with the FASB’s long-term measurement objectives for accounting for financial instruments. The fair value option will permit all entities to choose to measure eligible items at fair value at specified election dates. An entity shall record unrealized gains and losses on items for which the fair value option has been elected through net income in the statement of operations at each subsequent reporting date. The Company adopted FAS 159 as of January 1, 2008. See Note 7 “Fair Value of Financial Instruments” regarding the Company’s adoption of FAS 159.

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share and percentage information)

     In September 2006, the FASB issued FAS No. 157 “Fair Value Measurements” (“FAS 157”). This statement defines fair value, establishes a framework for measuring fair value under U.S. GAAP, and expands disclosures about fair value measurements. FAS 157 applies under other accounting pronouncements that require or permit fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company adopted FAS 157 as of January 1, 2008. See Note 7 “Fair Value of Financial Instruments” regarding the Company’s adoption of FAS 157.

     In December 2007, the FASB issued FAS No. 141(R) “Business Combinations” (“FAS 141(R)”). FAS 141(R) replaces FAS No. 141 “Business Combinations” (“FAS 141”), but retains the fundamental requirements in FAS 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. FAS 141(R) requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date. FAS 141(R) also requires acquisition-related costs to be recognized separately from the acquisition, requires assets acquired and liabilities assumed arising from contractual contingencies to be recognized at their acquisition-date fair values and requires goodwill to be recognized as the excess of the consideration transferred plus the fair value of any noncontrolling interest in the acquiree at the acquisition date over the fair values of the identifiable net assets acquired. FAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 (January 1, 2009 for calendar year-end companies). The Company is currently evaluating the provisions of FAS 141(R) and its potential impact on future financial statements.

     In December 2007, the FASB issued FAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (“FAS 160”). FAS 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. FAS 160 clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. FAS 160 requires consolidated net income to be reported at the amounts that include the amounts attributable to both the parent and the noncontrolling interest. This statement also establishes a method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation and for changes in a parent’s ownership interest in a subsidiary that does result in deconsolidation. FAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 (January 1, 2009 for calendar year-end companies). The presentation and disclosure requirements of FAS 160 shall be applied retrospectively for all periods presented. The Company is currently evaluating the provisions of FAS 160 and its potential impact on future financial statements.

     In March 2008, the FASB issued FAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133” (“FAS 161”). FAS 161 requires enhanced interim and annual disclosures about an entity’s derivative and hedging activities including how and why the entity uses derivative instruments, how the entity accounts for its derivatives under FAS No. 133 (“Accounting for Derivative Instruments and Hedging Activities), and how derivative instruments and related hedged items affect the entity’s financial position, financial performance and cash flows. FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008 (January 1, 2009 for calendar year-end companies). The Company is currently evaluating the provisions of FAS 161 and its potential impact on future financial statements.

4.  ACQUISITION OF FINIAL INSURANCE COMPANY

     In November 2007, Allied World Assurance Holdings (U.S.) Inc. entered into an agreement to purchase all of the outstanding stock of Finial Insurance Company (formerly known as Converium Insurance (North America) Inc.) from Finial Reinsurance Company, an affiliate of Berkshire Hathaway Inc. Finial Insurance Company was renamed Allied World Reinsurance Company, is currently licensed to write insurance and reinsurance in 49 states and the District of Columbia and has been used to launch the Company’s new reinsurance operations in the United States. This transaction closed on February 29, 2008 for a purchase price of $12,000 plus the Finial Insurance Company’s policyholders’ surplus of $47,082 and an adjustment for the difference between the fair values of investments acquired under U.S. GAAP and statutory reporting of $300. The total purchase price of $59,382 was paid in cash from existing resources. As a part of the acquisition, the Company recorded $10,794 of intangible assets with indefinite lives for the value of the insurance and reinsurance licenses acquired. The remaining assets and liabilities acquired were principally comprised of bonds, at fair value, of $31,690, cash of $15,330, other assets of $1,568, and a reserve for losses and loss expenses of $104,914, of which 100% are recorded as “reinsurance recoverable” as the entire reserve for losses and loss expenses is ceded to National Indemnity Company, an affiliate of Berkshire Hathaway Inc.

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share and percentage information)

5.  INVESTMENTS

     The amortized cost, gross unrealized gains, gross unrealized losses and fair value of total investments by category as of March 31, 2008 and December 31, 2007 are as follows:

			Gross		Gross
			Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
March 31, 2008
U.S. government and government agencies	$	1,711,844	$	105,983	$	—		$	1,817,827
Non-U.S. government and government agencies		109,052		18,529		(20	)		127,561
Corporate		1,131,653		22,119		(11,325	)		1,142,447
Mortgage backed		1,977,417		21,692		(11,093	)		1,988,016
Asset backed		141,764		1,350		(239	)		142,875
Total fixed maturity investments, available for sale		5,071,730		169,673		(22,677	)		5,218,726
Hedge funds		191,195		—		—			191,195
Global high-yield bond fund		81,220		—		(5,281	)		75,939
Other invested assets		1,160		—		—			1,160
	$	5,345,305	$	169,673	$	(27,958	)	$	5,487,020
December 31, 2007
U.S. government and government agencies	$	1,987,577	$	65,653	$	(6	)	$	2,053,224
Non-U.S. government and government agencies		100,440		18,694		(291	)		118,843
Corporate		1,248,338		10,114		(5,835	)		1,252,617
Mortgage backed		2,095,561		22,880		(902	)		2,117,539
Asset backed		164,027		897		(4	)		164,920
Total fixed maturity investments, available for sale		5,595,943		118,238		(7,038	)		5,707,143
Hedge funds		215,173		27,250		(988	)		241,435
Global high-yield bond fund		75,125		4,424		—			79,549
Other invested assets		1,160		—		—			1,160
	$	5,887,401	$	149,912	$	(8,026	)	$	6,029,287

     Due to the adoption of FAS 159 as of January 1, 2008, the Company’s investment in hedge funds is included in “other invested assets, at fair value” on the unaudited condensed consolidated balance sheet. As of March 31, 2008, the Company’s investments in the global high-yield bond fund and other invested assets are included in “other invested assets available for sale, at fair value” on the unaudited condensed consolidated balance sheet. As of December 31, 2007, the Company’s investment in hedge funds, the global high-yield bond fund and other invested assets were included in “other invested assets available for sale, at fair value” on the unaudited condensed consolidated balance sheet.

     On a quarterly basis, the Company reviews the carrying value of its investments to determine if a decline in value is considered to be other than temporary. This review involves consideration of several factors including: (i) the significance of the decline in value and the resulting unrealized loss position; (ii) the time period for which there has been a significant decline in value; (iii) an analysis of the issuer of the investment, including its liquidity, business prospects and overall financial position; and (iv) the Company’s intent and ability to hold the investment for a sufficient period of time for the value to recover. The identification of potentially impaired investments involves significant management judgment that includes the determination of their fair value and the assessment of whether any decline in value is other than temporary. If the decline in value is determined to be other than temporary, then the Company records a realized loss in the consolidated statements of operations and comprehensive income in the period that it is determined.

     As of March 31, 2008, the Company’s investment portfolio had gross unrealized losses of $27,958 and were primarily the result of the widening of overall sector credit spreads for our fixed maturity investments. Following the Company’s review of the securities in its investment portfolio, 83 securities were considered to be other-than-temporarily impaired for the three months ended March 31, 2008. Consequently, the Company recorded an other-than-temporary impairment charge within “net realized investment gains (losses)” on the unaudited condensed consolidated statement of operations and comprehensive income of $11,370 for the three months ended March 31, 2008. The declines in market value of these securities were primarily due to the write-down of residential and commercial mortgage-backed securities due to the widening of credit spreads caused by the continued decline in the U.S. housing

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share and percentage information)

market. All of the residential and commercial mortgage-backed securities written down were AAA rated securities. Given the current market environment for mortgage-backed securities, it is difficult to determine when recovery will occur and as such the Company recorded an other-than-temporary charge. During the three months ended March 31, 2007, 302 securities were considered to be other-than-temporarily impaired and as a result the Company recorded a charge of $9,382 within “net realized investment gains (losses)” on the unaudited condensed consolidated statement of operations and comprehensive income.

     During 2007, the Company submitted a redemption notice to sell its shares in the Goldman Sachs Global Equity Opportunities Fund, plc. The Company sold its shares on February 29, 2008 and recognized a loss on the sale of $278, which is included in “net realized investment gains (losses)” in the unaudited condensed consolidated statements of operations and comprehensive income.

6. DEBT AND FINANCING ARRANGEMENTS

     On July 21, 2006, the Company issued $500,000 aggregate principal amount of 7.50% Senior Notes due August 1, 2016 (“Senior Notes”), with interest on the Senior Notes payable on August 1 and February 1 of each year, commencing on February 1, 2007. The Senior Notes were offered by the underwriters at a price of 99.71% of their principal amount, providing an effective yield to investors of 7.54%. The Company used a portion of the proceeds from the Senior Notes to repay the outstanding amount of its then existing credit agreement as well as to provide additional capital to its subsidiaries and for other general corporate purposes.

     The Senior Notes can be redeemed by the Company prior to maturity subject to payment of a “make-whole” premium. The Company has no current expectations of calling the Senior Notes prior to maturity. The Senior Notes contain certain covenants that include: (i) limitations on liens on stock of designated subsidiaries; (ii) limitation as to the disposition of stock of designated subsidiaries; and (iii) limitations on mergers, amalgamations, consolidations or sale of assets. The Company was in compliance with all covenants related to its Senior Notes as of March 31, 2008 and December 31, 2007.

     Events of default include: (i) the default in the payment of any interest or principal on any outstanding notes, and the continuance of such default for a period of 30 days; (ii) the default in the performance, or breach, of any of the covenants in the indenture (other than a covenant added solely for the benefit of another series of debt securities) and continuance of such default or breach for a period of 60 days after the Company has received written notice specifying such default or breach; and (iii) certain events of bankruptcy, insolvency or reorganization. Where an event of default occurs and is continuing, either the trustee of the Senior Notes or the holders of not less than 25% in principal amount of the Senior Notes may have the right to declare that all unpaid principal amounts and accrued interest then outstanding be due and payable immediately.

     In March 2007, the Company entered into a collateralized $750,000 amended letter of credit facility (the “Credit Facility”) with Citibank Europe plc. The Credit Facility will be used to issue standby letters of credit.

     In November 2007, the Company entered into a $800,000 five-year senior credit facility (the “Facility”) with a syndication of lenders. The Facility consists of a $400,000 secured letter of credit facility for the issuance of standby letters of credit (the “Secured Facility”) and a $400,000 unsecured facility for the making of revolving loans and for the issuance of standby letters of credit (the “Unsecured Facility”). Both the Secured Facility and the Unsecured Facility have options to increase the aggregate commitments by up to $200,000, subject to approval of the lenders. The Facility will be used for general corporate purposes and to issue standby letters of credit. The Facility contains representations, warranties and covenants customary for similar bank loan facilities, including a covenant to maintain a ratio of consolidated indebtedness to total capitalization as of the last day of each fiscal quarter or fiscal year of not greater than 0.35 to 1.0 and a covenant under the Unsecured Facility to maintain a certain consolidated net worth. In addition, each material insurance subsidiary must maintain a financial strength rating from A.M. Best Company of at least A- under the Unsecured Facility and of at least B++ under the Secured Facility. The Company is in compliance with all covenants under the Facility as of March 31, 2008 and December 31, 2007.

     The Company currently has access to up to $1,550,000 in letters of credit under the two letter of credit facilities described above. These facilities are used to provide security to reinsureds and are collateralized by the Company, at least to the extent of letters of credit outstanding at any given time. As of March 31, 2008 and December 31, 2007, there were outstanding letters of credit totaling $872,033 and $922,206, respectively, under the two facilities. Collateral committed to support the letter of credit facilities was $1,341,765 as of March 31, 2008, compared to $1,170,731 as of December 31, 2007.

     At this time, the Company uses trust accounts primarily to meet security requirements for inter-company and certain related-party reinsurance transactions. The Company also has cash and cash equivalents and investments on deposit with various state or government insurance departments or pledged in favor of ceding companies in order to comply with relevant insurance regulations. As of March 31, 2008, total trust account deposits were $742,644 compared to $802,737 as of December 31, 2007.

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

     The Company adopted FAS 159 as of January 1, 2008, and has elected the fair value option for its hedge fund investments, which are classified as “other invested assets, at fair value” in the unaudited condensed consolidated balance sheets. At the time of adoption, the fair value and carrying value of the hedge fund investments were $241,435 and the net unrealized gain was $26,262. These funds are comprised of liquid portfolios that have no fixed maturity with the objective of achieving current income and capital appreciation. The Company has elected the fair value option for its hedge fund investments as the Company believes that recognizing changes in the fair value of the hedge funds in the consolidated statements of operations and comprehensive income each period better reflects the results of the Company’s investment in the hedge funds rather than recognizing changes in fair value in accumulated other comprehensive income.

     Upon adoption of FAS 159, the Company reclassified the net unrealized gain related to the hedge funds of $26,262 from “accumulated other comprehensive income” and recorded a cumulative-effect adjustment in “retained earnings”. There was no net deferred tax liability associated with the net unrealized gain as the hedge fund investments are held by Holdings’ Bermuda insurance subsidiary, which pays no income tax. Any subsequent change in unrealized gain or loss of “other invested assets, at fair value” will be recognized in the consolidated statements of operations and comprehensive income and included in “net realized investment gains (losses)”. Prior to the adoption of FAS 159 any change in unrealized gain or loss was included in “accumulated other comprehensive income” in the unaudited condensed consolidated balance sheet. The net loss recognized for the change in fair value of the hedge fund investments in the unaudited condensed consolidated statements of operations and comprehensive income during the three months ended March 31, 2008 was $12,487.

-8-

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share and percentage information)

     The Company adopted FAS 157 as of January 1, 2008. This statement defines fair value and establishes a framework for measuring fair value under U.S. GAAP. FAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FAS 157 also established a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon whether the inputs to the valuation of an asset or liability are observable or unobservable in the market at the measurement date, with quoted market prices being the highest level (Level 1) and unobservable inputs being the lowest level (Level 3). A fair value measurement will fall within the level of the hierarchy based on the input that is significant to determining such measurement. The three levels are defined as follows:

• Level 1: Observable inputs to the valuation methodology that are quoted prices (unadjusted) for identical assets or liabilities in active markets.

• Level 2: Observable inputs to the valuation methodology other than quoted market prices (unadjusted) for identical assets or liabilities in active markets. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets in markets that are not active and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

• Level 3: Inputs to the valuation methodology that are unobservable for the asset or liability.

     The following table shows the fair value of the Company’s financial instruments and where in the FAS 157 fair value hierarchy the fair value measurements are included as of March 31, 2008.

					Fair value measurement using:
					Quoted prices
					in active
					markets for		Significant other		Significant
	Carrying		Total fair		identical assets		observable inputs		unobservable
	amount		value		(Level 1)		(Level 2)		inputs (Level 3)
U.S. government and government agencies	$	1,817,827	$	1,817,827	$	932,046	$	885,781
Non-U.S. government and government agencies		127,561		127,561				127,561
Corporate		1,142,447		1,142,447				1,142,447
Mortgage backed		1,988,016		1,988,016				1,988,016
Asset backed		142,875		142,875				142,875
Total fixed maturity investments, available for sale		5,218,726		5,218,726
Total other invested assets, available for sale		77,099		77,099				77,099
Total other invested assets, fair value		191,195		191,195						191,195
Total investments		5,487,020		5,487,020
Senior notes		498,710		491,640				491,640

     The following describes the valuation techniques used by the Company to determine the fair value of financial instruments held as of March 31, 2008.

     U.S. government and U.S. government agencies: Comprised primarily of bonds issued by the U.S. Treasury, the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association. The fair values of U.S. government securities are based on quoted market prices in active markets, and are included in the Level 1 fair value hierarchy. We believe the market for U.S. Treasury securities is an actively traded market given the high level of daily trading volume. The fair values of U.S. government agency securities are priced using the spread above the risk-free yield curve. As the yields for the risk-free yield curve are observable market inputs, the fair values of U.S. government agency securities are included in the Level 2 fair value hierarchy.

     Non-U.S. government and government agencies: Comprised of fixed income obligations of non-U.S. governmental entities. The fair values of these securities are based on broker-dealer quotes, and are included in the Level 2 fair value hierarchy.

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share and percentage information)

     Corporate: Comprised of bonds issued by corporations that on acquisition are rated BBB-/Baa3 or higher provided that, in aggregate, corporate bonds with ratings of BBB-/Baa3 do not constitute more than 5% of the market value of the Company’s fixed income securities and are diversified across a wide range of issuers and industries. The fair values of corporate bonds that are short-term are priced using spread above the London Interbank Offering Rate yield curve, and the fair value of corporate bonds that are long-term are priced using the spread above the risk-free yield curve. The spreads are sourced from dealer quotes, trade prices and the new issue market. As the inputs used to price corporate bonds are observable market inputs, the fair values of corporate bonds are included in the Level 2 fair value hierarchy.

     Mortgage-backed: Principally comprised of AAA-rated pools of residential and commercial mortgages originated by both agency (such as the Federal National Mortgage Association) and non-agency originators. The fair values of mortgage-backed securities originated by U.S. government agencies and non-U.S. government agencies are based on a pricing model that incorporates prepayment speeds and spreads to determine appropriate average life of mortgage-backed securities. The spreads are sourced from dealer quotes, trade prices and the new issue market. As the inputs used to price the mortgage-backed securities are observable market inputs, the fair values of these securities are included in the Level 2 fair value hierarchy.

     Asset-backed: Comprised of primarily AAA-rated bonds backed by pools of automobile loan receivables, home equity loans and credit card receivables originated by a variety of financial institutions. The fair values of asset-backed securities are priced using prepayment speed and spread inputs that are sourced from the new issue market. As the inputs used to price the asset-backed securities are observable market inputs, the fair values of these securities are included in the Level 2 fair value hierarchy.

     Other invested assets available for sale: Principally comprised of an open-end global high-yield bond fund that invests in non-investment grade bonds issued by various issuers and industries. The fair value of the global high-yield bond fund is based on the net asset value as reported by the fund manager. The net asset value is an observable input as it is quoted on a market exchange on a daily basis. The fair value of the global high-yield bond fund is included in the Level 2 fair value hierarchy.

     Other invested assets, at fair value: Comprised of several hedge funds with objectives to seek attractive long-term returns with lower volatility by investing in a range of diversified investment strategies. The fair values of the hedge funds are based on the net asset value of the funds as reported by the fund manager less a liquidity discount where hedge fund investments contain lock-up provisions that prevent immediate dissolution. The Company considers these lock-up provisions to be obligations that market participants would assign a value to in determining the price of these hedge funds, and as such have considered these obligations in determining the fair value measurement of the related hedge funds. The liquidity discount was estimated by calculating the value of a protective put over the lock-up period. The protective put measures the risk of holding a restricted asset over a certain time period. The Company used the Black-Scholes option-pricing model to estimate the value of the protective put for each hedge fund. The aggregate liquidity discount recorded during the three months ended March 31, 2008 was $215. The net asset value and the liquidity discount are significant unobservable inputs, and as such the fair values of the Company’s hedge funds are included in the Level 3 fair value hierarchy.

     Senior notes: The fair value of the senior notes is based on the price as published by Bloomberg, which was 98.33% of their principal amount, providing an effective yield of 7.77% as of March 31, 2008. The fair value of the senior notes is included in the Level 2 fair value hierarchy.

-10-

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share and percentage information)

     The following is a reconciliation of the beginning and ending balance of financial instruments using significant unobservable inputs
(Level 3).

	Fair value
	measurement using
	significant
	unobservable
	inputs (Level 3):
	hedge funds
Balance classified as Level 3, January 1, 2008	$	241,435
Total gains or losses included in earnings:
Net realized gains		1,229
Change in fair value of hedge fund investments		(12,487	)
Purchases or sales		(38,982	)
Transfers in and/or out of Level 3		—
Ending balance, March 31, 2008	$	191,195

8.  INCOME TAXES

     Certain subsidiaries of Holdings file U.S. federal income tax returns and various U.S. state income tax returns, as well as income tax returns in the U.K. and Ireland. The tax years open to examination by the U.S. Internal Revenue Service for the U.S. subsidiaries are the fiscal years from 2004 to the present. The tax years open to examination by the Inland Revenue for the U.K. branches are fiscal years from 2004 to the present. The tax years open to examination by Irish Revenue Commissioners for the Irish subsidiaries are the fiscal years from 2003 to the present. To the best of the Company’s knowledge, there are no examinations pending by the U.S. Internal Revenue Service, the Inland Revenue or the Irish Revenue Commissioners.

     Management has deemed all material tax provisions to have a greater than 50% likelihood of being sustained based on technical merits if challenged. The Company has not recorded any interest or penalties during the three-month periods ended March 31, 2008 and 2007 and has not accrued any payment of interest and penalties as of March 31, 2008 and December 31, 2007.

     The Company does not expect any material unrecognized tax benefits within 12 months of January 1, 2008.

9.  SHAREHOLDERS’ EQUITY

a) Authorized shares

     The authorized share capital of Holdings as of March 31, 2008 and December 31, 2007 was $10,000.

     The issued share capital consists of the following:

	March 31, 2008		December 31, 2007
Common shares issued and fully paid, par value $0.03 per share		48,841,837		48,741,927
Share capital at end of period	$	1,465	$	1,462

     As of March 31, 2008, there were outstanding 34,925,119 voting common shares and 13,916,718 non-voting common shares.

b)  Dividends

     In February 2008, the Company declared a quarterly dividend of $0.18 per common share payable on April 3, 2008 to shareholders of record on March 18, 2008. The total dividend payable amounted to $8,788 and has been included in the unaudited condensed consolidated balance sheets.  

     In March 2007, the Company declared a quarterly dividend of $0.15 per common share payable on April 5, 2007 to shareholders of record on March 20, 2007. The total dividend payable amounted to $9,052.

-11-

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share and percentage information)

10.  EMPLOYEE BENEFIT PLANS

a) Employee option plan

     In 2001, the Company implemented the Allied World Assurance Company Holdings, Ltd Amended and Restated 2001 Employee Stock Option Plan (the “Plan”). Under the Plan, up to 2,000,000 common shares of Holdings may be issued. Holdings has filed a registration statement on Form S-8 under the Securities Act of 1933, as amended, to register common shares issued or reserved for issuance under the Plan. These options are exercisable in certain limited conditions, expire after 10 years, and generally vest pro-rata over four years from the date of grant. The exercise price of options issued are determined by the compensation committee of the Board of Directors but shall not be less than 100% of the fair market value of the common shares of Holdings on the date the option award is granted.

	Three months ended March 31, 2008
				Weighted Average
	Options			Exercise Price
Outstanding at beginning of period		1,223,875		$	31.03
Granted		257,300			43.27
Exercised		(18,733	)		29.35
Forfeited		(3,917	)		37.04
Outstanding at end of period		1,458,525		$	33.19

     Assumptions used in the option-pricing model for the options granted during the three months ended March 31, 2008:

	Options granted during
	the three months ended
	March 31, 2008
Expected term of option		6.25	years
Weighted average risk-free interest rate		2.50	%
Expected volatility		23.46	%
Dividend yield		1.66	%
Weighted average fair value on grant date		$9.78

     There is limited historical data available for the Company to base the expected term of the options. As these options are considered to have standard characteristics, the Company has used the simplified method to determine the expected life as set forth in the SEC’s Staff Accounting Bulletin 107 and 110. Likewise, as the Company became a public company in July 2006, there is limited historical data available on which to base the volatility of its common shares. As such, the Company used the average of five volatility statistics from comparable companies, as well as the Company’s volatility, in order to derive the volatility value above. The Company has assumed a forfeiture rate of 4.91% in determining the compensation expense over the service period.

     Compensation expense of $548 and $689 relating to the options has been recognized in “general and administrative expenses” in the Company’s unaudited condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2008 and 2007, respectively. As of March 31, 2008 and December 31, 2007, the Company recorded in “additional paid-in capital” on the unaudited condensed consolidated balance sheets an amount of $13,271 and $11,840, respectively, in connection with all options granted.

b)  Stock incentive plan

     In 2004, the Company implemented the Allied World Assurance Company Holdings, Ltd Amended and Restated 2004 Stock Incentive Plan (the “Stock Incentive Plan”). The Stock Incentive Plan provides for grants of restricted stock, restricted stock units (“RSUs”), dividend equivalent rights and other equity-based awards. A total of 2,000,000 common shares may be issued under the Stock Incentive Plan. To date only RSUs have been granted. These RSUs generally vest pro-rata over four years from the date of grant or in the fourth or fifth year from the original grant date.

-12-

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share and percentage information)

	Three months ended March 31, 2008
				Weighted Average
				Grant Date Fair
	RSUs			Value
Outstanding RSUs at beginning of period		820,890		$	36.09
RSUs granted		239,479			43.27
RSUs fully vested		(75,097	)		34.00
RSUs forfeited		(26,834	)		35.13
Outstanding RSUs at end of period		958,438		$	38.07

     Compensation expense of $1,476 and $1,987 relating to the issuance of the RSUs has been recognized in “general and administrative expenses” in the Company’s unaudited condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2008 and 2007, respectively. The compensation expense for the RSUs is based on the fair market value of Holdings’ common shares at the time of grant. The Company has assumed a forfeiture rate of 4.30% in determining the compensation expense over the service period. As of March 31, 2008 and December 31, 2007, the Company has recorded $13,721 and $12,337, respectively, in “additional paid-in capital” on the unaudited condensed consolidated balance sheets in connection with the RSUs awarded.

c)  Long-term incentive plan

     In 2006, the Company implemented the Allied World Assurance Company Holdings, Ltd Amended and Restated Long-Term Incentive Plan (“LTIP”), which provides for performance based equity awards to key employees in order to promote the long-term growth and profitability of the Company. Each award represents the right to receive a number of common shares in the future, based upon the achievement of established performance criteria during the applicable performance period. A total of 2,000,000 common shares may be issued under the LTIP. The awards granted in 2008 will generally vest after three years, or in the fourth or fifth year from the original grant date, subject to the achievement of the performance conditions and terms of the LTIP.

	Three months ended March 31, 2008
				Weighted Average
				Grant Date Fair
	LTIP			Value
Outstanding LTIP awards at beginning of period		590,834		$	40.09
LTIP awards granted		507,152			43.27
LTIP awards subjected to accelerated vesting		(11,667	)		34.00
LTIP awards forfeited		(20,000	)		43.40
Outstanding LTIP awards at end of period		1,066,319		$	41.61

     Compensation expense of $4,129 and $3,640 relating to the LTIP has been recognized in “general and administrative expenses” in the Company’s unaudited condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2008 and 2007, respectively. The compensation expense for the LTIP is based on the fair market value of Holdings’ common shares at the time of grant. As of March 31, 2008 and December 31, 2007, the Company has recorded $20,532 and $16,403, respectively, in “additional paid-in capital” on the unaudited condensed consolidated balance sheets in connection with the LTIP awards.

     In calculating the compensation expense, and in the determination of share equivalents for the purpose of calculating diluted earnings per share, it is estimated for the LTIP awards granted in 2006 and 2007 that the maximum performance goals as set by the LTIP are likely to be achieved over the performance period. For the LTIP awards granted in 2008 it is estimated that the target performance goals as set by the LTIP are likely to be achieved over the performance period. Based on the target performance goals the LTIP awards granted in 2008 are expensed at 100% of the fair market value of Holdings’ common shares on the date of grant. The expense is recognized over the performance period.

-13-

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share and percentage information)

     The total stock compensation expense of $6,154 and $6,316 relating to the stock options, RSUs and LTIP awards has been recognized in “general and administrative expenses” in the Company’s unaudited condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2008 and 2007, respectively.

11.  EARNINGS PER SHARE

     The following table sets forth the comparison of basic and diluted earnings per share:

	Three Months Ended
	March 31,
	2008		2007
Basic earnings per share
Net income	$	130,945	$	113,921
Weighted average common shares outstanding		48,811,932		60,333,209
Basic earnings per share	$	2.68	$	1.89

	Three Months Ended
	March 31,
	2008		2007
Diluted earnings per share
Net income	$	130,945	$	113,921
Weighted average common shares outstanding		48,811,932		60,333,209
Share equivalents:
Warrants and options		1,602,689		1,366,365
Restricted stock units		403,294		316,544
LTIP awards		562,508		191,823
Weighted average common shares and common share equivalents outstanding — diluted		51,380,423		62,207,941
Diluted earnings per share	$	2.55	$	1.83

     For the three-month period ended March 31, 2008, 23,000 employee stock options were considered antidilutive and were therefore excluded from the calculation of the diluted earnings per share. For the three-month period ended March 31, 2007, 215,650 employee stock options were considered antidilutive and were therefore excluded from the calculation of the diluted earnings per share.

12.  SEGMENT INFORMATION

     The determination of reportable segments is based on how senior management monitors the Company’s underwriting operations. The Company measures the results of its underwriting operations under three major business categories, namely property insurance, casualty insurance and reinsurance. All product lines fall within these classifications.

     The property segment provides direct coverage of physical property and energy-related risks. These risks generally relate to tangible assets and are considered “short-tail” in that the time from a claim being advised to the date when the claim is settled is relatively short. The casualty segment provides direct coverage of general liability risks, professional liability risks and healthcare risks. Such risks are “long-tail” in nature since the emergence and settlement of a claim can take place many years after the policy period has expired. The reinsurance segment includes any reinsurance of other companies in the insurance and reinsurance industries. The Company writes reinsurance on both a treaty and facultative basis.

     Responsibility and accountability for the results of underwriting operations are assigned by major line of business on a worldwide basis. Because the Company does not manage its assets by segment, investment income, interest expense and total assets are not allocated to individual reportable segments.

     Management measures results for each segment on the basis of the “loss and loss expense ratio”, “acquisition cost ratio”, “general and administrative expense ratio” and the “combined ratio”. The “loss and loss expense ratio” is derived by dividing net losses and loss expenses by net premiums earned. The “acquisition cost ratio” is derived by dividing acquisition costs by net premiums earned. The “general and administrative expense ratio” is derived by dividing general and administrative expenses by net premiums earned.

-14-

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share and percentage information)

The “combined ratio” is the sum of the loss and loss expense ratio, the acquisition cost ratio and the general and administrative expense ratio.

     The following table provides a summary of the segment results for the three months ended March 31, 2008 and 2007.

Three Months Ended March 31, 2008	Property			Casualty			Reinsurance			Total
Gross premiums written	$	86,060		$	121,063		$	189,751		$	396,874
Net premiums written		46,597			90,634			189,341			326,572
Net premiums earned		43,581			109,115			120,376			273,072
Net losses and loss expenses		(14,747	)		(73,115	)		(55,635	)		(143,497	)
Acquisition costs		(549	)		(3,270	)		(23,021	)		(26,840	)
General and administrative expenses		(10,494	)		(23,708	)		(9,069	)		(43,271	)
Underwriting income		17,791			9,022			32,651			59,464
Net investment income											76,931
Net realized investment gains											3,465
Interest expense											(9,510	)
Foreign exchange loss											(476	)
Income before income taxes										$	129,874
Loss and loss expense ratio		33.8	%		67.0	%		46.2	%		52.5	%
Acquisition cost ratio		1.3	%		3.0	%		19.1	%		9.8	%
General and administrative expense ratio		24.1	%		21.7	%		7.5	%		15.9	%
Combined ratio		59.2	%		91.7	%		72.8	%		78.2	%

Three Months Ended March 31, 2007	Property			Casualty			Reinsurance			Total
Gross premiums written	$	101,865		$	125,189		$	211,352		$	438,406
Net premiums written		46,132			100,645			211,067			357,844
Net premiums earned		44,491			124,409			117,666			286,566
Net losses and loss expenses		(6,865	)		(90,367	)		(68,763	)		(165,995	)
Acquisition costs		(332	)		(6,038	)		(22,826	)		(29,196	)
General and administrative expenses		(7,757	)		(15,307	)		(10,139	)		(33,203	)
Underwriting income		29,537			12,697			15,938			58,172
Net investment income											72,648
Net realized investment losses											(6,484	)
Interest expense											(9,374	)
Foreign exchange loss											(32	)
Income before income taxes										$	114,930
Loss and loss expense ratio		15.4	%		72.6	%		58.4	%		57.9	%
Acquisition cost ratio		0.8	%		4.9	%		19.4	%		10.2	%
General and administrative expense ratio		17.4	%		12.3	%		8.6	%		11.6	%
Combined ratio		33.6	%		89.8	%		86.4	%		79.7	%

     The following table shows an analysis of the Company’s net premiums written by geographic location of the Company’s subsidiaries for the three months ended March 31, 2008 and 2007. All inter-company premiums have been eliminated.

	Three Months Ended
	March 31,
	2008		2007
Bermuda	$	263,541	$	290,602
United States		23,120		22,910
Europe		39,911		44,332
Total net premiums written	$	326,572	$	357,844

-15-

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in thousands of United States dollars, except share, per share and percentage information)

13.  SUBSEQUENT EVENTS

     On May 8, 2008, the Company declared a quarterly dividend of $0.18 per common share, payable on June 12, 2008 to shareholders of record on May 27, 2008. At the 2008 Annual General Meeting held on May 8, 2008, shareholders of Holdings approved the Second Amended and Restated 2001 Employee Stock Option Plan to increase by 2,000,000 common shares (from 2,000,000 to 4,000,000) the total number of Holdings’ common shares that may be issued thereunder, and extend the termination date from June 9, 2016 to May 8, 2018, after which date no awards may be granted.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q. References in this Form 10-Q to the terms “we,” “us,” “our,” “the company” or other similar terms mean the consolidated operations of Allied World Assurance Company Holdings, Ltd and its subsidiaries, unless the context requires otherwise. References in this Form 10-Q to the term “Holdings” means Allied World Assurance Company Holdings, Ltd only.

Note on Forward-Looking Statement

     This Form 10-Q and other publicly available documents may include, and our officers and representatives may from time to time make, projections concerning financial information and statements concerning future economic performance and events, plans and objectives relating to management, operations, products and services, and assumptions underlying these projections and statements. These projections and statements are forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 and are not historical facts but instead represent only our belief regarding future events, many of which, by their nature, are inherently uncertain and outside our control. These projections and statements may address, among other things, our strategy for growth, product development, financial results and reserves. Actual results and financial condition may differ, possibly materially, from these projections and statements and therefore you should not place undue reliance on them. Factors that could cause our actual results to differ, possibly materially, from those in the specific projections and statements are discussed throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations and in “Risk Factors” in Item 1A. of Part I of our 2007 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on February 29, 2008. 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.

Overview

Our Business

     We write a diversified portfolio of property and casualty insurance and reinsurance lines of business internationally through our subsidiaries or branches based in Bermuda, the United States, Ireland and the United Kingdom. We manage our business through three operating segments: property, casualty and reinsurance. As of March 31, 2008, we had $8.2 billion of total assets, $2.4 billion of shareholders’ equity and $2.9 billion of total capital, which includes shareholders’ equity and senior notes.

     During the year ended December 31, 2007, we experienced rate declines from increased competition across all of our operating segments. This trend of increased competition and decreasing rates has continued during the three months ended March 31, 2008, and we expect this trend to continue during the remainder of 2008. Given this trend, we continue to be selective in the policies and reinsurance contracts we underwrite. Our consolidated gross premiums written decreased $41.5 million, or 9.5%, for the three months ended March 31, 2008 compared to the three months ended March 31, 2007. Our net income for the three months ended March 31, 2008 increased $17.0 million, or 15.0%, to $130.9 million compared to $113.9 million for the three months ended March 31, 2007. Net income for the three months ended March 31, 2008 included net investment income of $76.9 million compared to $72.6 million for the three months ended March 31, 2007.

Relevant Factors

Revenues

     We derive our revenues primarily from premiums on our insurance policies and reinsurance contracts, net of any reinsurance or retrocessional coverage purchased. Insurance and reinsurance premiums are a function of the amounts and types of policies and contracts we write, as well as prevailing market prices. Our prices are determined before our ultimate costs, which may extend far into the future, are known. In addition, our revenues include income generated from our investment portfolio, consisting of net investment income and net realized gains or losses. Investment income is principally derived from interest and dividends earned on investments, partially offset by investment management fees and fees paid to our custodian bank. Net realized gains or losses include (1) net realized investment gains or losses from the sale of investments, (2) write-downs related to declines in the market value of securities on our available for sale portfolio that were considered to be other than temporary and (3) the change in the fair value of investments that we mark-to-market in the condensed consolidated statements of operations and comprehensive income.

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Expenses

     Our expenses consist largely of net losses and loss expenses, acquisition costs and general and administrative expenses. Net losses and loss expenses incurred are comprised of three main components:

• losses paid, which are actual cash payments to insureds or losses payable to insureds, net of recoveries from reinsurers;

• outstanding loss or case reserves, which represent management’s best estimate of the likely settlement amount for known claims, less the portion that can be recovered from reinsurers; and

• reserves for losses incurred but not reported, or “IBNR”, which are reserves established by us for claims that are not yet reported but can reasonably be expected to have occurred based on industry information, management’s experience and/or actuarial evaluation. The portion recoverable from reinsurers is deducted from the gross estimated loss.

     Acquisition costs are comprised of commissions, brokerage fees and insurance taxes. Commissions and brokerage fees are usually calculated as a percentage of premiums and depend on the market and line of business. Acquisition costs are reported after (1) deducting commissions received on ceded reinsurance, (2) deducting the part of acquisition costs relating to unearned premiums and (3) including the amortization of previously deferred acquisition costs.

     General and administrative expenses include personnel expenses including stock-based compensation charges, rent expense, professional fees, information technology costs and other general operating expenses. We are experiencing increases in general and administrative expenses resulting from additional staff, increased stock-based compensation expense, increased rent expense for our U.S. offices and additional amortization expense for building-related and infrastructure expenditures. We believe this trend will continue during the remainder of 2008 as we continue to hire additional staff and build our infrastructure.

Ratios

     Management measures results for each segment on the basis of the “loss and loss expense ratio,” “acquisition cost ratio,” “general and administrative expense ratio,” “expense ratio” and the “combined ratio.” Because we do not manage our assets by segment, investment income, interest expense and total assets are not allocated to individual reportable segments. General and administrative expenses are allocated to segments based on various factors, including staff count and each segment’s proportional share of gross premiums written. The “loss and loss expense ratio” is derived by dividing net losses and loss expenses by net premiums earned. The “acquisition cost ratio” is derived by dividing acquisition costs by net premiums earned. The “general and administrative expense ratio” is derived by dividing general and administrative expenses by net premiums earned. The expense ratio is the sum of the acquisition cost ratio and the general and administrative expense ratio. The “combined ratio” is the sum of the loss and loss expense ratio, the acquisition cost ratio and the general and administrative expense ratio.

Critical Accounting Policies

     It is important to understand our accounting policies in order to understand our financial position and results of operations. Our unaudited condensed consolidated financial statements reflect determinations that are inherently subjective in nature and require management to make assumptions and best estimates to determine the reported values. If events or other factors cause actual results to differ materially from management’s underlying assumptions or estimates, there could be a material adverse effect on our financial condition or results of operations. We believe that some of the more critical judgments in the areas of accounting estimates and assumptions that affect our financial condition and results of operations are related to reserves for losses and loss expenses, reinsurance recoverables, premiums and acquisition costs, valuation of financial instruments and other-than-temporary impairment of investments. For a detailed discussion of our critical accounting policies please refer to our Annual Report on Form 10-K for the year ended December 31, 2007 filed with the SEC. There were no material changes in the application of our critical accounting estimates subsequent to that report, except as discussed below related to the valuation of financial instruments.

Fair Value of Financial Instruments

     Under existing accounting principles generally accepted in the United States (“U.S. GAAP”), we are required to recognize certain assets at their fair value in our condensed consolidated balance sheets. This includes our fixed maturity investments, global high-yield bond fund, hedge funds and other invested assets. Fair value, as defined in Financial Accounting Standard No. 157 “Fair Value Measurements” (“FAS 157”), is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction

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between market participants at the measurement date. FAS 157 also established a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon whether the inputs to the valuation of an asset or liability are observable or unobservable in the market at the measurement date, with quoted market prices being the highest level (Level 1) and unobservable inputs being the lowest level (Level 3). A fair value measurement will fall within the level of the hierarchy based on the input that is significant to determining such measurement. The three levels are defined as follows:

• Level 1: Observable inputs to the valuation methodology that are quoted prices (unadjusted) for identical assets or liabilities in active markets.

• Level 2: Observable inputs to the valuation methodology other than quoted market prices (unadjusted) for identical assets or liabilities in active markets. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets in markets that are not active and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

• Level 3: Inputs to the valuation methodology that are unobservable for the asset or liability.

     At each measurement date, we estimate the fair value of the financial instruments using various valuation techniques. We utilize, to the extent available, quoted market prices in active markets or observable market inputs in estimating the fair value of our financial instruments. When quoted market prices or observable market inputs are not available, we utilize valuation techniques that rely on unobservable inputs to estimate the fair value of financial instruments. The following describes the valuation techniques used by us to determine the fair value of financial instruments held as of March 31, 2008 and what level within the FAS 157 fair value hierarchy the valuation technique resides.

     U.S. government and U.S. government agencies: Comprised primarily of bonds issued by the U.S. Treasury, the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association. The fair values of U.S. government securities are based on quoted market prices in active markets, and are included in the Level 1 fair value hierarchy. We believe the market for U.S. Treasury securities is an actively traded market given the high level of daily trading volume. The fair values of U.S. government agency securities are priced using the spread above the risk-free yield curve. As the yields for the risk-free yield curve are observable market inputs, the fair values of U.S. government agency securities are included in the Level 2 fair value hierarchy.

     Non-U.S. government and government agencies: Comprised of fixed income obligations of non-U.S. governmental entities. The fair values of these securities are based on broker-dealer quotes, and are included in the Level 2 fair value hierarchy.

     Corporate: Comprised of bonds issued by corporations that on acquisition are rated BBB-/Baa3 or higher provided that, in aggregate, corporate bonds with ratings of BBB-/Baa3 do not constitute more than 5% of the market value of our fixed income securities and are diversified across a wide range of issuers and industries. The fair values of corporate bonds that are short-term are priced using spread above the London Interbank Offering Rate yield curve, and the fair value of corporate bonds that are long-term are priced using the spread above the risk-free yield curve. The spreads are sourced from dealer quotes, trade prices and the new issue market. As the inputs used to price corporate bonds are observable market inputs, the fair values of corporate bonds are included in the Level 2 fair value hierarchy.

     Mortgage-backed: Principally comprised of AAA-rated pools of residential and commercial mortgages originated by both agency (such as the Federal National Mortgage Association) and non-agency originators. The fair values of mortgage-backed securities originated by U.S. government agencies and non-U.S. government agencies are based on a pricing model that incorporates prepayment speeds and spreads to determine appropriate average life of mortgage-backed securities. The spreads are sourced from dealer quotes, trade prices and the new issue market. As the inputs used to price the mortgage-backed securities are observable market inputs, the fair values of these securities are included in the Level 2 fair value hierarchy.

     Asset-backed: Comprised of primarily AAA-rated bonds backed by pools of automobile loan receivables, home equity loans and credit card receivables originated by a variety of financial institutions. The fair values of asset-backed securities are priced using prepayment speed and spread inputs that are sourced from the new issue market. As the inputs used to price the asset-backed securities are observable market inputs, the fair values of these securities are included in the Level 2 fair value hierarchy.

     Other invested assets available for sale: Principally comprised of an open-end global high-yield bond fund that invests in non-investment grade bonds issued by various issuers and industries. The fair value of the global high-yield bond fund is based on the net asset value as reported by the fund manager. The net asset value is an observable input as it is quoted on a market exchange on a daily basis. The fair value of the global high-yield bond fund is included in the Level 2 fair value hierarchy.

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     Other invested assets, at fair value: Comprised of several hedge funds with objectives to seek attractive long-term returns with lower volatility by investing in a range of diversified investment strategies. The fair values of the hedge funds are based on the net asset value of the funds as reported by the fund manager less a liquidity discount where hedge fund investments contain lock-up provisions that prevent immediate dissolution. We consider these lock-up provisions to be obligations that market participants would assign a value to in determining the price of these hedge funds, and as such have considered these obligations in determining the fair value measurement of the related hedge funds. The liquidity discount was estimated by calculating the value of a protective put over the lock-up period. The protective put measures the risk of holding a restricted asset over a certain time period. We used the Black-Scholes option-pricing model to estimate the value of the protective put for each hedge fund. The aggregate liquidity discount recorded during the three months ended March 31, 2008 was $0.2 million. The net asset value and the liquidity discount are significant unobservable inputs, and as such the fair values of the our hedge funds are included in the Level 3 fair value hierarchy. Our hedge funds are the only assets that use Level 3 inputs in determining fair value. The hedge funds represent 3.5% of our total investments.

     There have been no material changes to any of our valuation techniques from what was used as of December 31, 2007. Since fair valuing a financial instrument is an estimate of what a willing buyer would pay for our asset if we sold it, we will not know the ultimate value of our financial instruments until they are sold. We believe the valuation techniques utilized provide us with the best estimate of the price that would be received to sell our assets in an orderly transaction between participants at the measurement date.

Results of Operations

     The following table sets forth our selected consolidated statement of operations data for each of the periods indicated.

	Three Months
	Ended March 31,
	2008			2007
	($ in millions)
Gross premiums written	$	396.9		$	438.4
Net premiums written		326.6			357.8
Net premiums earned		273.1			286.6
Net investment income		76.9			72.6
Net realized investment gains (losses)		3.5			(6.5	)
	$	353.5		$	352.7
Net losses and loss expenses	$	143.5		$	166.0
Acquisition costs		26.8			29.2
General and administrative expenses		43.3			33.2
Interest expense		9.5			9.4
Foreign exchange loss		0.5			—
	$	223.6		$	237.8
Income before income taxes	$	129.9		$	114.9
Income tax (recovery) expense		(1.0	)		1.0
Net income	$	130.9		$	113.9
Ratios
Loss and loss expense ratio		52.5	%		57.9	%
Acquisition cost ratio		9.8			10.2
General and administrative expense ratio		15.9			11.6
Expense ratio		25.7			21.8
Combined ratio		78.2			79.7

Comparison of Three Months Ended March 31, 2008 and 2007

Premiums

     Gross premiums written decreased by $41.5 million, or 9.5%, for the three months ended March 31, 2008 compared to the three months ended March 31, 2007. The decrease was primarily the result of the non-renewal of business that did not meet our underwriting requirements (which included pricing and/or policy and contract terms and conditions), increased competition and

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decreasing rates for new and renewal business in each of our operating segments. Also causing lower gross premiums written for our reinsurance segment was the fact that some cedents increased their retentions and purchased less reinsurance.

     The table below illustrates our gross premiums written by geographic location for the three months ended March 31, 2008 and 2007.

	Three Months
	Ended March 31,				Dollar			Percentage
	2008		2007		Change			Change
	($ in millions)
Bermuda	$	297.2	$	334.2	$	(37.0	)		(11.1	)%
Europe		63.9		71.6		(7.7	)		(10.8	)
United States		35.8		32.6		3.2			9.8
	$	396.9	$	438.4	$	(41.5	)		(9.5	)%

     Net premiums written decreased by $31.2 million, or 8.7%, for the three months ended March 31, 2008 compared to the three months ended March 31, 2007, a lower percentage decrease than that of gross premiums written. The difference between gross and net premiums written is the cost to us of purchasing reinsurance, both on a proportional and a non-proportional basis, including the cost of property catastrophe reinsurance coverage. We ceded 17.7% of gross premiums written for the three months ended March 31, 2008 compared to 18.4% for the same period in 2007. The decrease in the cession percentage was due to lower reinsurance utilization in our property segment, partially offset by increased reinsurance utilization in our casualty segment.

     Net premiums earned decreased by $13.5 million, or 4.7%, for the three months ended March 31, 2008 compared to the three months ended March 31, 2007 as a result of lower net premiums written. The percentage decrease in net premiums earned was lower than that of net premiums written due to the continued earning of higher net premiums that were written prior to the three months ended March 31, 2008.

     We evaluate our business by segment, distinguishing between property insurance, casualty insurance and reinsurance. The following chart illustrates the mix of our business on both a gross premiums written and net premiums earned basis.

	Gross						Net
	Premiums						Premiums
	Written						Earned
	Three Months Ended March 31,
	2008			2007			2008			2007
Property		21.7	%		23.2	%		16.0	%		15.5	%
Casualty		30.5			28.6			40.0			43.4
Reinsurance		47.8			48.2			44.0			41.1

     The increase in the percentage of casualty gross premiums written reflects the continued growth of our U.S. operations, where casualty gross premiums written increased by $5.6 million, or 24.7%, for the three months ended March 31, 2008 compared to the three months ended March 31, 2007.

  Net Investment Income and Realized Investment Gains (Losses)

     Net investment income increased by $4.3 million, or 5.9%, for the three months ended March 31, 2008 compared to the three months ended March 31, 2007. The increase was primarily the result of a $4.0 million increase in the dividend received from our global high-yield bond fund, as well as an approximate 4.5% increase in the market value of the average aggregate invested assets from March 31, 2007 to March 31, 2008. The dividend from the global high-yield bond fund increased from $2.1 million for the three months ended March 31, 2007 to $6.1 million for the three months ended March 31, 2008. Our aggregate invested assets grew due to positive operating cash flows partially offset by funds used to acquire our common shares from American International Group, Inc. in December 2007. For both the three months ended March 31, 2008 and 2007, we incurred investment management fees of $1.4 million.

     For the three months ended March 31, 2008 and 2007, the annualized period book yield of the investment portfolio was 4.7%. As of March 31, 2008, approximately 99% of our fixed income investments (which included individually held securities and securities held in a global high-yield bond fund) consisted of investment grade securities. The average credit rating of our fixed income

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portfolio was AA as rated by Standard & Poor’s and Aa1 as rated by Moody’s Investors Service, with an average duration of approximately 3.0 years as of March 31, 2008.

     Net realized investment gains (losses) increased by $10.0 million from a net loss of $6.5 million to a net gain of $3.5 million. Net realized investment gains for the three months ended March 31, 2008 included net realized gains of $27.4 million from the sale of securities. We sold a number of securities during the three months ended March 31, 2008 to capitalize the initial operations of our U.S. reinsurance platform, which will be reinvested. Also included in the net realized investment gains for the three months ended March 31, 2008 was a loss of $12.5 million related to the mark-to-market of our hedge fund investments. On January 1, 2008, we adopted Statement of Financial Accounting Standards No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (“FAS 159”) and elected to fair value our hedge fund investments. As a result, any change in the fair value of our hedge fund investments is recognized as realized investment gains or losses in the condensed consolidated statements of operations and comprehensive income at each reporting period. As we adopted FAS 159 in 2008, there were no realized investment gains or losses recognized from our hedge fund investments in the unaudited condensed consolidated statement of operations and comprehensive income during the three months ended March 31, 2007 as the change in fair value was included in “accumulated other comprehensive income” in the unaudited condensed consolidated balance sheet. During the three months ended March 31, 2008, net realized investment gains included a write-down of approximately $11.4 million related to declines in the market value of securities in our available for sale portfolio that were considered to be other than temporary. The declines in market value of these securities were primarily due to the write-down of residential and commercial mortgage-backed securities due to the widening of credit spreads caused by the continued decline in the U.S. housing market. All of the residential and commercial mortgage-backed securities written down were AAA rated securities. Given the current market environment for mortgage-backed securities, it is difficult to determine when recovery will occur and as such we recorded an other-than-temporary charge. During the three months ended March 31, 2007, the net loss on fixed income investments included a write-down of approximately $9.4 million related to declines in the market value of securities in our available for sale portfolio that were considered to be other than temporary.

   Net Losses and Loss Expenses

     Net losses and loss expenses decreased by $22.5 million, or 13.6%, for the three months ended March 31, 2008 compared to the three months ended March 31, 2007. The primary reasons for the reduction in these expenses were favorable prior year loss development and lower earned premiums during the three months ended March 31, 2008 compared to the three months ended March 31, 2007. Because our net exposures tend to vary with net premiums earned, lower net premiums earned will reduce the ultimate loss reserve amount, and therefore, reduce the losses and loss expenses incurred. We were not subject to any material losses from catastrophes during the three months ended March 31, 2008 and 2007.

     We recorded net favorable reserve development related to prior years of approximately $53.1 million and $26.2 million during the three months ended March 31, 2008 and 2007, respectively. The following is a breakdown of the major factors contributing to the net favorable reserve development for the three months ended March 31, 2008:

• We recognized net favorable reserve development of $33.2 million related to the 2005 windstorms, of which $10.5 million was recognized by our property segment and $22.7 million was recognized by our reinsurance segment. We recognized the net favorable reserve development for the 2005 windstorms due to less than anticipated reported loss activity over the past twelve months. Accordingly, as of March 31, 2008, we estimated our net losses related to Hurricanes Katrina, Rita and Wilma to be $387.7 million, which was a reduction from our original estimate of $456.0 million.

• Net favorable reserve development of $10.6 million, excluding the 2005 windstorms, was recognized by our property segment primarily as a result of general property business actual loss emergence being lower than the initial expected loss emergence for the 2002, 2003, 2006 and 2007 loss years.

• Net favorable reserve development of $9.3 million was recognized by our casualty segment primarily as a result of general casualty and healthcare lines of business actual loss emergence being lower than the initial expected loss emergence for the 2002 through 2005 loss years.

     The following is a breakdown of the major factors contributing to the net favorable reserve development for the three months ended March 31, 2007:

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• Net favorable reserve development of $13.3 million, excluding catastrophes, for our property segment was primarily the result of general property business actual loss emergence being lower than the initial expected loss emergence for the 2006 loss year.

• Net favorable reserve development of $12.6 million related to the 2005 windstorms.

• Net favorable reserve development of $1.0 million primarily due to additional recoveries under our property catastrophe reinsurance protection related to Hurricane Frances.

• Net unfavorable reserve development of $0.7 million for our casualty segment, which included net unfavorable reserve development of $27.8 million for loss years 2002 and 2005 due to a higher incidence of reported losses in our 2002 professional liability business and our 2005 general casualty business. This was offset by net favorable reserve development of $27.1 million in our general casualty, professional liability and healthcare business due to actual loss emergence being lower than the initial expected loss emergence for the 2003 and 2004 loss years.

     The loss and loss expense ratio for the three months ended March 31, 2008 was 52.5%, compared to 57.9% for the three months ended March 31, 2007. Net favorable reserve development recognized in the three months ended March 31, 2008 reduced the loss and loss expense ratio by 19.4 percentage points. Thus, the loss and loss expense ratio related to the current period’s business was 71.9%. Net favorable reserve development recognized in the three months ended March 31, 2007 reduced the loss and loss expense ratio by 9.1 percentage points. Thus, the loss and loss expense ratio related to that period’s business was 67.0%. The increase in the loss and loss expense ratio for the current period’s business was due to higher than expected reported loss activity in our property segment, as well as a decline in net premiums earned due to lower rates on new and renewal business for each of our operating segments. During the three months ended March 31, 2008, there were a number of large individual property losses throughout the world to which we had exposure, including losses from tornadoes in the United States, fires in the United States, Asia and Africa and flooding in Africa. These losses were not considered to be individually material to our results of operations, but in the aggregate resulted in net reported losses and loss expenses of approximately $15.0 million.

     We continue to review the impact of the subprime mortgage market and credit related downturn on professional liability insurance policies and reinsurance contracts we write. We have high attachment points for our professional liability policies and reinsurance contracts, which makes estimating whether losses will exceed our attachment point more difficult. Based on claims information received to date and our analysis, the average attachment point for our professional liability policies with potential subprime and credit related exposure is approximately $126 million with average limits of $12 million (gross of reinsurance). Our direct insurance policies with subprime and credit related loss notices may have the benefit of facultative reinsurance, treaty reinsurance or a combination of both. For our professional liability reinsurance contracts with potential subprime and credit related exposure, the average attachment point is approximately $89 million with average limits of $1.5 million. At this time we believe, based on the claims information received to date, our current IBNR is adequate to meet any potential subprime and credit related losses. As of March 31, 2008, we have recorded case reserves of $3.8 million in our reinsurance operating segment for subprime and credit related losses. We will continue to monitor our reserve for losses and loss expenses for any new claims information and adjust our reserve for losses and loss expenses accordingly.

     The following table shows the components of the decrease in net losses and loss expenses of $22.5 million for the three months ended March 31, 2008 from the three months ended March 31, 2007.

	Three Months
	Ended
	March 31,					Dollar
	2008		2007			Change
	($ in millions)
Net losses paid	$	92.6	$	119.2		$	(26.6	)
Net change in reported case reserves		1.4		(21.0	)		22.4
Net change in IBNR		49.5		67.8			(18.3	)
Net losses and loss expenses	$	143.5	$	166.0		$	(22.5	)

     Net losses paid have decreased $26.6 million for the three months ended March 31, 2008 primarily due to lower claim payments relating to the 2004 and 2005 windstorms than the amount paid during the three months ended March 31, 2007. During the three months ended March 31, 2008, $13.7 million of net losses were paid in relation to the 2004 and 2005 windstorms compared to $35.4 million during the three months ended March 31, 2007. During the three months ended March 31, 2008, we recovered $4.5 million on our property catastrophe reinsurance protection in relation to losses paid as a result of Hurricanes Katrina and Rita

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compared to $9.4 million for the three months ended March 31, 2007. The increase in reported case reserves is due to increased case reserves for our casualty segment. The decrease in IBNR for the three months ended March 31, 2008 compared to the three months ended March 31, 2007 was primarily due to net favorable loss reserve development and a reduction in business written, partially offset by increased loss reserves for our current period’s business.

     The table below is a reconciliation of the beginning and ending reserves for losses and loss expenses for the three months ended March 31, 2008 and 2007. Losses incurred and paid are reflected net of reinsurance recoverables.

	Three Months
	Ended March 31,
	2008			2007
	($ in millions)
Net reserve for losses and loss expenses, January 1	$	3,237.0		$	2,947.9
Incurred related to:
Current period non-catastrophe		196.6			192.2
Current period property catastrophe		—			—
Prior period non-catastrophe		(19.9	)		(12.6	)
Prior period property catastrophe		(33.2	)		(13.6	)
Total incurred	$	143.5		$	166.0
Paid related to:
Current period non-catastrophe		2.8			0.8
Current period property catastrophe		—			—
Prior period non-catastrophe		76.1			83.0
Prior period property catastrophe		13.7			35.4
Total paid	$	92.6		$	119.2
Foreign exchange revaluation		1.6			0.4
Net reserve for losses and loss expenses, March 31		3,289.5			2,995.1
Losses and loss expenses recoverable		758.7			668.1
Reserve for losses and loss expenses, March 31	$	4,048.2		$	3,663.2

Acquisition Costs

     Acquisition costs decreased by $2.4 million, or 8.2%, for the three months ended March 31, 2008 compared to the three months ended March 31, 2007. Acquisition costs as a percentage of net premiums earned were 9.8% for the three months ended March 31, 2008 compared to 10.2% for the same period in 2007. The decrease in this rate was primarily due to increased commissions received on ceded reinsurance in our casualty segment.

General and Administrative Expenses

     General and administrative expenses increased by $10.1 million, or 30.4%, for the three months ended March 31, 2008 compared to the same period in 2007. The following is a breakdown of the major factors contributing to the increase:

• Salary and employee welfare costs increased by $5.6 million due to increased headcount, as well as a one-time expense of $3.3 million for the reimbursement of stock compensation and signing bonuses for new executives hired as a result of the continued expansion of our U.S. operations. We increased our average staff count by approximately 9.9%.

• Information technology costs increased by approximately $2.3 million due to the amortization of hardware and software as well as consulting costs required as part of the development of our technological infrastructure.

• Rent increased by approximately $0.4 million due to additional office space in New York. There was a gain of $0.6 million on the sale of fixed assets from our previous office space in Bermuda during the three months ended March 31, 2007. No such gain on fixed assets occurred during the three months ended March 31, 2008.

     Our general and administrative expense ratio was 15.9% for the three months ended March 31, 2008, which was higher than the 11.6% for the three months ended March 31, 2007. The increase was primarily due to the factors discussed above, while net premiums earned declined.

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     Our expense ratio was 25.7% for the three months ended March 31, 2008 compared to 21.8% for the three months ended March 31, 2007. The increase resulted from increased general and administrative expenses.

Interest Expense

     Interest expense increased by $0.1 million, or 1.1%, for the three months ended March 31, 2008 compared to the three months ended March 31, 2007. Interest expense incurred during the three months ended March 31, 2008 and 2007 represented one quarter of the annual interest expense on the senior notes, which bear interest at an annual rate of 7.50%.

Net Income

     Net income for the three months ended March 31, 2008 was $130.9 million compared to net income of $113.9 million for the three months ended March 31, 2007. The increase was primarily the result of favorable prior year loss development, increased net investment income and net realized investment gains that more than offset the reduction in net premiums earned. Net income for the three months ended March 31, 2008 included a net foreign exchange loss of $0.5 million and income tax recovery of $1.0 million. Net income for the three months ended March 31, 2007 included a small net foreign exchange loss and an income tax expense of $1.0 million.

Underwriting Results by Operating Segments

     Our company is organized into three operating segments:

     Property Segment.  Our property segment provides direct coverage of physical property and business interruption coverage for commercial property and energy-related risks. We write solely commercial coverages and focus on the insurance of primary risk layers. This means that we are typically part of the first group of insurers that cover a loss up to a specified limit.

     Casualty Segment.   Our casualty segment provides direct coverage for general and product liability, professional liability and healthcare liability risks. We focus primarily on insurance of excess layers, where we insure the second and/or subsequent layers of a policy above the primary layer. Our direct casualty underwriters provide a variety of specialty insurance casualty products to large and complex organizations around the world.

     Reinsurance Segment.  Our reinsurance segment includes the reinsurance of property, general casualty, professional liability, specialty lines and property catastrophe coverages written by other insurance companies. We presently write reinsurance on both a treaty and a facultative basis, targeting several niche reinsurance markets including professional liability lines, specialty casualty, property for U.S. regional insurers, accident and health and to a lesser extent marine and aviation lines.

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Property Segment

     The following table summarizes the underwriting results and associated ratios for the property segment for the three months ended March 31, 2008 and 2007.

	Three Months
	Ended
	March 31,
	2008			2007
	($ in millions)
Revenues
Gross premiums written	$	86.1		$	101.9
Net premiums written		46.6			46.1
Net premiums earned		43.6			44.5
Expenses
Net losses and loss expenses	$	14.7		$	6.8
Acquisition costs		0.6			0.3
General and administrative expenses		10.5			7.8
Underwriting income		17.8			29.6
Ratios
Loss and loss expense ratio		33.8	%		15.4	%
Acquisition cost ratio		1.3			0.8
General and administrative expense ratio		24.1			17.4
Expense ratio		25.4			18.2
Combined ratio		59.2			33.6

     Comparison of Three Months Ended March 31, 2008 and 2007

     Premiums.   Gross premiums written decreased $15.8 million, or 15.5%, for the three months ended March 31, 2008 compared to the same period in 2007. This decrease was primarily due to the non-renewal of business that did not meet our underwriting requirements (which included pricing and/or policy terms and conditions) and rate decreases from increased competition for new and renewal business.

     The table below illustrates our gross premiums written by line of business for the three months ended March 31, 2008 and 2007.

	Three Months Ended
	March 31,				Dollar			Percentage
	2008		2007		Change			Change
	($ in millions)
General property	$	69.1	$	79.9	$	(10.8	)		(13.5	)%
Energy		16.9		21.7		(4.8	)		(22.1	)
Other		0.1		0.3		(0.2	)		(66.7	)
	$	86.1	$	101.9	$	(15.8	)		(15.5	)%

     Net premiums written increased by $0.5 million, or 1.1%, for the three months ended March 31, 2008 compared to the three months ended March 31, 2007. This was primarily the result of the non-renewal of our energy treaty which expired on June 1, 2007, partially offset by the amendment of our general property treaty to cede a portion of certain energy classes. This amendment expired February 28, 2008 and was not renewed. Overall, we ceded 45.9% of gross premiums written for the three months ended March 31, 2008 compared to 54.7% for the three months ended March 31, 2007. Net premiums earned decreased $0.9 million, or 2.0%, primarily due to lower net premiums written in the general property line of business.

     Net losses and loss expenses.  Net losses and loss expenses increased by $7.9 million, or 116.2%, for the three months ended March 31, 2008 compared to the three months ended March 31, 2007. The increase in net losses and loss expenses was primarily the result of higher than expected loss activity for the current period’s business and lower net favorable reserve development recognized during the three months ended March 31, 2008 compared to the three months ended March 31, 2007.

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     Overall, our property segment recorded net favorable reserve development of $21.1 million during the three months ended March 31, 2008 compared to net favorable reserve development of $25.7 million for the three months ended March 31, 2007.

     The $21.1 million of net favorable reserve development during the three months ended March 31, 2008 included the following:

• Net favorable reserve development of $10.5 million related to the 2005 windstorms due to less than anticipated reported loss activity over the past twelve months.

• Net favorable reserve development of $10.6 million, excluding the 2005 windstorms, primarily the result of general property business actual loss emergence being lower than the initial expected loss emergence for the 2002, 2003, 2006 and 2007 loss years.

     The $25.7 million of net favorable reserve development during the three months ended March 31, 2007 included the following:

• Net favorable reserve development of $13.3 million, primarily as a result of actual loss emergence for the general property business written in our Bermuda and U.S. offices being lower than the initial expected loss emergence for the 2006 loss year.

• Net favorable reserve development of $8.7 million for Hurricanes Katrina, Rita and Wilma.

• Net favorable reserve development of $3.7 million related to the 2004 windstorms.

     The loss and loss expense ratio for the three months ended March 31, 2008 was 33.8% compared to 15.4% for the three months ended March 31, 2007. Net favorable reserve development recognized in the three months ended March 31, 2008 reduced the loss and loss expense ratio by 48.4 percentage points. Thus, the loss and loss expense ratio related to the current period’s business was 82.2%. In comparison, net favorable reserve development recognized in the three months ended March 31, 2007 reduced the loss and loss expense ratio by 57.7 percentage points. Thus, the loss and loss expense ratio for that period’s business was 73.1%. The increase in the loss and loss expense ratio for the current period’s business was due to higher than expected reported loss activity in the current period as well as lower rates on new and renewal business. During the three months ended March 31, 2008, there were a number of large individual property losses throughout the world to which we had exposure, including losses from tornadoes in the United States, fires in the United States, Asia and Africa and flooding in Africa. These losses were not considered to be individually material to our results of operations, but in the aggregate resulted in net reported losses and loss expenses of approximately $15.0 million.

     Net paid losses for the three months ended March 31, 2008 and 2007 were $51.1 million and $49.7 million, respectively. The increase in paid losses was due to higher net paid losses for recent loss years during the three months ended March 31, 2008 compared to the three months ended March 31, 2007, partially offset by lower net paid losses related to the 2004 and 2005 windstorms. During the three months ended March 31, 2008, approximately $9.2 million of net losses were paid in relation to the 2004 and 2005 windstorms compared to approximately $23.5 million during the three months ended March 31, 2007.

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     The table below is a reconciliation of the beginning and ending reserves for losses and loss expenses for the three months ended March 31, 2008 and 2007. Losses incurred and paid are reflected net of reinsurance recoverables.

	Three Months
	Ended March 31,
	2008			2007
	($ in millions)
Net reserve for losses and loss expenses, January 1	$	360.6		$	423.9
Incurred related to:
Current period non-catastrophe		35.8			32.5
Current period property catastrophe		—			—
Prior period non-catastrophe		(10.6	)		(13.3	)
Prior period property catastrophe		(10.5	)		(12.4	)
Total incurred	$	14.7		$	6.8
Paid related to:
Current period non-catastrophe		1.3			0.8
Current period property catastrophe		—			—
Prior period non-catastrophe		40.6			25.4
Prior period property catastrophe		9.2			23.5
Total paid	$	51.1		$	49.7
Foreign exchange revaluation		1.6			0.4
Net reserve for losses and loss expenses, March 31		325.8			381.4
Losses and loss expenses recoverable		357.2			433.4
Reserve for losses and loss expenses, March 31	$	683.0		$	814.8

     Acquisition costs.  Acquisition costs increased by $0.3 million, or 100.0%, for the three months ended March 31, 2008 compared to March 31, 2007. The increase is due to less reinsurance utilization for our energy line of business, which reduced ceding commission income. The acquisition cost ratio increased to 1.3% for the three months ended March 31, 2008 from 0.8% for the same period in 2007 primarily as a result of lower ceding commissions earned on reinsurance we purchased, as we have ceded less premiums during the three months ended March 31, 2008 compared to the three months ended March 31, 2007. The factors that will determine the amount of acquisition costs going forward are the amount of brokerage fees and commissions incurred on policies we write less ceding commissions earned on reinsurance we purchase. We normally negotiate our reinsurance treaties on an annual basis, so the ceding commission rates and amounts ceded will vary from renewal period to renewal period.

     General and administrative expenses.  General and administrative expenses increased by $2.7 million, or 34.6%, for the three months ended March 31, 2008 compared to three months ended March 31, 2007. The increase in general and administrative expenses was attributable to increased salary and employee welfare costs including a one-time expense of $0.5 million for the reimbursement of stock compensation and signing bonuses for new executives hired as a result of the continued expansion of our U.S. operations, increased building-related costs and higher costs associated with information technology. The increase in the general and administrative expense ratio from 17.4% for the three months ended March 31, 2007 to 24.1% for the same period in 2008 was the result of the factors discussed above, while net premiums earned declined.

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Casualty Segment

     The following table summarizes the underwriting results and associated ratios for the casualty segment for the three months ended March 31, 2008 and 2007.

	Three Months
	Ended March 31,
	2008			2007
	($ in millions)
Revenues
Gross premiums written	$	121.1		$	125.2
Net premiums written		90.6			100.6
Net premiums earned		109.1			124.4
Expenses
Net losses and loss expenses	$	73.1		$	90.4
Acquisition cost		3.3			6.0
General and administrative expenses		23.7			15.3
Underwriting income		9.0			12.7
Ratios
Loss and loss expense ratio		67.0	%		72.6	%
Acquisition cost ratio		3.0			4.9
General and administrative expense ratio		21.7			12.3
Expense ratio		24.7			17.2
Combined ratio		91.7			89.8

Comparison of Three Months Ended March 31, 2008 and 2007

     Premiums.  Gross premiums written decreased $4.1 million, or 3.3%, for the three months ended March 31, 2008 compared to the same period in 2007. This decrease was primarily due to the non-renewal of business that did not meet our underwriting requirements (which included pricing and/or policy terms and conditions) and rate decreases from increased competition for new and renewal business. This was most noticeable for our Bermuda operations where gross premiums written decreased $5.3 million, or 7.4%, and our European operations where gross premiums written decreased $4.4 million, or 14.0%. This reduction was partially offset by an increase in the amount of business written through our U.S. offices as a result of the continued expansion of our U.S. operations. Gross premiums written by our U.S. operations increased $5.6 million, or 24.7%, for the three months ended March 31, 2008 compared to the three months ended March 31, 2007.

     The table below illustrates our gross premiums written by line of business for the three months ended March 31, 2008 and 2007.

	Three Months Ended
	March 31,				Dollar			Percentage
	2008		2007		Change			Change
	($ in millions)
Professional liability	$	51.1	$	56.2	$	(5.1	)		(9.1	)%
General casualty		41.3		50.6		(9.3	)		(18.4	)
Healthcare		24.0		17.2		6.8			39.5
Other		4.7		1.2		3.5			291.7
	$	121.1	$	125.2	$	(4.1	)		(3.3	)%

     Net premiums written decreased $10.0 million, or 9.9%, from $100.6 million for the three months ended March 31, 2007 to $90.6 million for the three months ended March 31, 2008. The decrease in net premiums written was greater than the decrease in gross premiums written. This was due to an increase in reinsurance purchased on our casualty business for the three months ended March 31, 2008 compared to the same period in 2007. We ceded 25.1% of gross premiums written for the three months ended March 31, 2008 compared to 19.6% for the three months ended March 31, 2007. The percentage of premiums ceded were higher for each of our lines of business during the three months ended March 31, 2008 compared to the three months ended March 31, 2007. Net premiums earned decreased $15.3 million, or 12.3%, due to lower gross premiums written and increased reinsurance utilization.

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     Net losses and loss expenses.  Net losses and loss expenses decreased by $17.3 million, or 19.1%, for the three months ended March 31, 2008 compared to the three months ended March 31, 2007. The decrease in net losses and loss expenses was primarily due to higher net favorable reserve development recognized and the reduction in net premiums earned. Overall, our casualty segment recorded net favorable reserve development of $9.3 million during the three months ended March 31, 2008 compared to net unfavorable reserve development of $0.7 million for the three months ended March 31, 2007.

     The net favorable reserve development of $9.3 million recognized during the three months ended March 31, 2008 was primarily the result of general casualty and healthcare lines of business actual loss emergence being lower than the initial expected loss emergence for the 2002 through 2005 loss years.

     The $0.7 million net unfavorable reserve development during the three months ended March 31, 2007 included the following:

• Net unfavorable reserve development of $13.6 million and $14.2 million for loss years 2002 and 2005, respectively. We saw an increase in reported loss activity for 2002 professional liability and 2005 general casualty business written by our Bermuda subsidiary, and thus increased our reserves for the increased loss activity.

• Net favorable reserve development of $17.3 million and $9.8 million for loss years 2003 and 2004, respectively. For our general casualty, professional liability and healthcare lines of business, actual loss emergence was lower than the initial expected loss emergence for these loss years.

     The loss and loss expense ratio for the three months ended March 31, 2008 was 67.0%, compared to 72.6% for the three months ended March 31, 2007. The net favorable reserve development recognized during the three months ended March 31, 2008 decreased the loss and loss expense ratio by 8.5 percentage points. Thus, the loss and loss expense ratio related to the current period’s business was 75.5% for the three months ended March 31, 2008. Comparatively, the net unfavorable reserve development recognized during the three months ended March 31, 2007 increased the loss and loss expense ratio by 0.6 percentage points. Thus, the loss and loss expense ratio related to that period’s business was 72.0%. The increase in the loss and loss expense ratio for the current period’s business was due to lower rates on new and renewal policies.

     We continue to review the impact of the subprime mortgage market and credit related downturn on professional liability insurance policies we write. We have high attachment points for our professional liability policies, which makes estimating whether losses will exceed our attachment point more difficult. Based on claims information received to date and our analysis, the average attachment point for our professional liability policies with potential subprime and credit related exposure is approximately $126 million with average limits of $12 million (gross of reinsurance). Our direct insurance polices with subprime and credit related loss notices may have the benefit of facultative reinsurance, treaty reinsurance or a combination of both.  At this time we believe, based on the claims information received to date, our current IBNR is adequate to meet any potential subprime and credit related losses. We will continue to monitor our reserve for losses and loss expenses for any new claims information and adjust our reserve for losses and loss expenses accordingly.

     Net paid losses were $13.9 million for the three months ended March 31, 2008 compared to $23.2 million for the three months ended March 31, 2007. The decrease is due to the timing of payments of claims that have already been reserved for in prior periods.

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     The table below is a reconciliation of the beginning and ending reserves for losses and loss expenses for the three months ended March 31, 2008 and 2007. Losses incurred and paid are reflected net of reinsurance recoverables.

	Three Months
	Ended March 31,
	2008			2007
	($ in millions)
Net reserve for losses and loss expenses, January 1	$	1,878.2		$	1,691.2
Incurred related to:
Current period non-catastrophe		82.4			89.7
Current period catastrophe		—			—
Prior period non-catastrophe		(9.3	)		0.7
Prior period catastrophe		—			—
Total incurred	$	73.1		$	90.4
Paid related to:
Current period non-catastrophe		—			—
Current period catastrophe		—			—
Prior period non-catastrophe		13.9			23.2
Prior period catastrophe		—			—
Total paid	$	13.9		$	23.2
Foreign exchange revaluation		—			—
Net reserve for losses and loss expenses, March 31		1,937.4			1,758.4
Losses and loss expenses recoverable		390.7			201.5
Reserve for losses and loss expenses, March 31	$	2,328.1		$	1,959.9

     Acquisition costs.  Acquisition costs decreased $2.7 million, or 45.0%, for the three months ended March 31, 2008 compared to the three months ended March 31, 2007. The decrease was primarily related to lower gross premiums written and an increase in ceding commission income with the increase in reinsurance we purchased. The decrease in the acquisition cost ratio from 4.9% for the three months ended March 31, 2007 to 3.0% for the three months ended March 31, 2008 was due to the increase in ceding commission received.

     General and administrative expenses.  General and administrative expenses increased $8.4 million, or 54.9%, for the three months ended March 31, 2008 compared to the three months ended March 31, 2007. The increase in general and administrative expenses was attributable to increased salary and related costs including a one-time expense of $2.1 million for the reimbursement of stock compensation and signing bonuses for new executives hired as a result of the continued expansion of our U.S. operations, increased building-related costs and higher costs associated with information technology. The 9.4 percentage point increase in the general and administrative expense ratio from 12.3% for the three months ended March 31, 2007 to 21.7% for the same period in 2008 was primarily a result of the factors discussed above, while net premiums earned declined.

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Reinsurance Segment

     The following table summarizes the underwriting results and associated ratios for the reinsurance segment for the three months ended March 31, 2008 and 2007.

	Three Months
	Ended
	March 31,
	2008			2007
	($ in millions)
Revenues
Gross premiums written	$	189.8		$	211.3
Net premiums written		189.3			211.1
Net premiums earned		120.4			117.7
Expenses
Net losses and loss expenses	$	55.6		$	68.8
Acquisition costs		23.0			22.8
General and administrative expenses		9.1			10.2
Underwriting income		32.7			15.9
Ratios
Loss and loss expense ratio		46.2	%		58.4	%
Acquisition cost ratio		19.1			19.4
General and administrative expense ratio		7.5			8.6
Expense ratio		26.6			28.0
Combined ratio		72.8			86.4

Comparison of Three Months Ended March 31, 2008 and 2007

     Premiums.  Gross premiums written decreased $21.5 million, or 10.2%, for the three months ended March 31, 2008 compared to the same period in 2007. The decrease in gross premiums written was primarily due to non-renewal of business that did not meet our underwriting requirements (which included pricing and/or contract terms and conditions) and rate decreases from increased competition for new and renewal business. Gross premiums written also decreased because some cedents increased their retentions and purchased less reinsurance. Partially offsetting these reductions was new business written and an increase in our participation on other treaties where the pricing and terms remained attractive.

     The table below illustrates our gross premiums written by line of business for the three months ended March 31, 2008 and 2007.

	Three Months Ended March 31,
					Dollar			Percentage
	2008		2007		Change			Change
	($ in millions)
Professional liability reinsurance	$	77.7	$	96.6	$	(18.9	)		(19.6	)%
General casualty reinsurance		44.1		47.9		(3.8	)		(7.9	)
International reinsurance		30.3		32.2		(1.9	)		(5.9	)
Property reinsurance		26.2		25.5		0.7			2.7
Facultative reinsurance		6.6		6.3		0.3			4.8
Other		4.9		2.8		2.1			75.0
	$	189.8	$	211.3	$	(21.5	)		(10.2	)%

     Net premiums written decreased by $21.8 million, or 10.3%, which was consistent with the decrease in gross premiums written. Net premiums earned increased $2.7 million, or 2.3%, as a result of the continued earning of higher premiums that were written prior to the three months ended March 31, 2008. Premiums related to our reinsurance business earn at a slower rate than those related to our direct insurance business. Direct insurance premiums typically earn ratably over the term of a policy. Reinsurance premiums under a proportional contract are typically earned over the same period as the underlying policies, or risks, covered by the contract. As a result, the earning pattern of a proportional contract may extend up to 24 months, reflecting the inception dates of the underlying policies. Property catastrophe premiums and premiums for other treaties written on a losses occurring basis earn ratably over the term of the reinsurance contract.

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     Net losses and loss expenses.  Net losses and loss expenses decreased by $13.2 million, or 19.2%, for the three months ended March 31, 2008 compared to the three months ended March 31, 2007. The decrease in net losses and loss expenses was primarily due to higher net favorable reserve development recognized during the three months ended March 31, 2008 compared to the three months ended March 31, 2007. We recognized net favorable reserve development of $22.7 million for the 2005 windstorms. Comparatively, net favorable development of $1.2 million was recognized during the three months ended March 31, 2007, which included net favorable loss development of $3.9 million related to the 2005 windstorms offset by net unfavorable loss development related to the 2004 windstorms of approximately $2.7 million.

     The loss and loss expense ratio for the three months ended March 31, 2008 was 46.2% compared to 58.4% for the three months ended March 31, 2007. Net favorable development recognized during the three months ended March 31, 2008 reduced the loss and loss expense ratio by 18.9 percentage points. Thus, the loss and loss expense ratio related to the current period’s business was 65.1%. In comparison, net favorable loss development recognized in the three months ended March 31, 2007 reduced the loss and loss expense ratio by 1.0 percentage points. Thus, the loss and loss expense ratio related to that period’s business was 59.4%. The increase in the loss and loss expense ratio for the current period’s business was due to lower rates on new and renewal contracts.

     We continue to review the impact of the subprime mortgage market and credit related downturn on professional liability reinsurance contracts we write. We have high attachment points for our professional liability reinsurance contracts, which makes estimating whether losses will exceed our attachment point more difficult. Based on claims information received to date and our analysis, the average attachment point for our professional liability reinsurance contracts with potential subprime and credit related exposure is approximately $89 million with average limits of $1.5 million. At this time we believe, based on the claims information received to date, our current IBNR is adequate to meet any potential subprime and credit related losses. As of March 31, 2008, we have recorded case reserves of $3.8 million for subprime and credit related losses. We will continue to monitor our reserve for losses and loss expenses for any new claims information and adjust our reserve for losses and loss expenses accordingly.

     Net paid losses were $27.5 million for the three months ended March 31, 2008 compared to $46.3 million for the three months ended March 31, 2007. The decrease reflects lower net losses paid in relation to the 2004 and 2005 windstorms from $11.9 million for the three months ended March 31, 2007 to $4.6 million for the three months ended March 31, 2008 and lower losses paid for our property treaty line of business.

     The table below is a reconciliation of the beginning and ending reserves for losses and loss expenses for the three months ended March 31, 2008 and 2007. Losses incurred and paid are reflected net of reinsurance recoverables.

	Three Months
	Ended March 31,
	2008			2007
	($ in millions)
Net reserve for losses and loss expenses, January 1	$	998.2		$	832.8
Incurred related to:
Current period non-catastrophe		78.3			70.0
Current period property catastrophe		—			—
Prior period non-catastrophe		—			—
Prior period property catastrophe		(22.7	)		(1.2	)
Total incurred	$	55.6		$	68.8
Paid related to:
Current period non-catastrophe		1.5			—
Current period property catastrophe		—			—
Prior period non-catastrophe		21.4			34.4
Prior period property catastrophe		4.6			11.9
Total paid	$	27.5		$	46.3
Foreign exchange revaluation		—			—
Net reserve for losses and loss expenses, March 31		1,026.3			855.3
Losses and loss expenses recoverable		10.8			33.2
Reserve for losses and loss expenses, March 31	$	1,037.1		$	888.5

     Acquisition costs.  Acquisition costs increased by $0.2 million for the three months ended March 31, 2008 compared to the three months ended March 31, 2007 primarily as a result of the related increase in net premiums earned. The acquisition cost ratio of 19.1% for the three-month period ended March 31, 2008 was in line with the 19.4% acquisition cost ratio for the three-month period ended March 31, 2007.

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     General and administrative expenses.  General and administrative expenses decreased $1.1 million, or 10.8%, for the three months ended March 31, 2008 compared to the three months ended March 31, 2007. The decrease was primarily the result of lower salary and related costs, partially offset by a one-time expense of $0.7 million for the reimbursement of stock compensation and signing bonuses for new executives hired as a result of the continued expansion of our U.S. operations. The 1.1 percentage point decrease in the general and administrative expense ratio from 8.6% for the three months ended March 31, 2007 to 7.5% for the three months ended March 31, 2008 was primarily a result of the lower salary and related costs, while net premiums earned increased.

Reserves for Losses and Loss Expenses

     Reserves for losses and loss expenses as of March 31, 2008 and December 31, 2007 were comprised of the following:

	Property						Casualty						Reinsurance						Total
	Mar. 31,			Dec. 31,			Mar. 31,			Dec. 31,			Mar. 31,			Dec. 31,			Mar. 31,			Dec. 31,
	2008			2007			2008			2007			2008			2007			2008			2007
	($ in millions)
Case reserves	$	429.0		$	480.0		$	343.4		$	270.7		$	220.9		$	212.7		$	993.3		$	963.4
IBNR		254.0			280.7			1,984.7			1,872.0			816.2			803.7			3,054.9			2,956.4
Reserve for losses and loss expenses		683.0			760.7			2,328.1			2,142.7			1,037.1			1,016.4			4,048.2			3,919.8
Reinsurance recoverables		(357.2	)		(400.1	)		(390.7	)		(264.5	)		(10.8	)		(18.2	)		(758.7	)		(682.8	)
Net reserve for losses and loss expenses	$	325.8		$	360.6		$	1,937.4		$	1,878.2		$	1,026.3		$	998.2		$	3,289.5		$	3,237.0

     Casualty segment reserves for losses and loss expenses as of March 31, 2008 include losses assumed in connection with the acquisition of Finial Insurance Company, now known as Allied World Reinsurance Company. As a part of the acquisition, we assumed case reserves of $56.4 million and IBNR of $48.5 million. The case reserves and IBNR assumed were 100% ceded to National Indemnity Company, an affiliate of Berkshire Hathaway Inc., resulting in an increase of $104.9 million in reinsurance recoverables. Please refer to Note 4 of the notes to the unaudited condensed consolidated financial statements for additional information regarding the acquisition of Finial Insurance Company.

     We participate in certain lines of business where claims may not be reported for many years. Accordingly, management does not solely rely upon reported claims on these lines for estimating ultimate liabilities. As such, we also use statistical and actuarial methods to estimate expected ultimate losses and loss expenses. Loss reserves do not represent an exact calculation of liability. Rather, loss reserves are estimates of what we expect the ultimate resolution and administration of claims will cost. These estimates are based on various factors including underwriters’ expectations about loss experience, actuarial analysis, comparisons with the results of industry benchmarks and loss experience to date. Loss reserve estimates are refined as experience develops and as claims are reported and resolved. Establishing an appropriate level of loss reserves is an inherently uncertain process. Ultimate losses and loss expenses may differ from our reserves, possibly by material amounts.

     The following tables provide our ranges of loss and loss expense reserve estimates by business segment as of March 31, 2008:

	Reserve for Losses and Loss Expenses
	Gross of Reinsurance Recoverable(1)
	Carried		Low		High
	Reserves		Estimate		Estimate
	($ in millions)
Property	$	683.0	$	544.9	$	806.5
Casualty		2,328.1		1,610.1		2,548.0
Reinsurance		1,037.1		733.2		1,299.1

	Reserve for Losses and Loss Expenses
	Net of Reinsurance Recoverable(1)
	Carried		Low		High
	Reserves		Estimate		Estimate
	($ in millions)
Property	$	325.8	$	252.9	$	391.5
Casualty		1,937.4		1,403.2		2,225.9
Reinsurance		1,026.3		731.8		1,296.4

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(1) For statistical reasons, it is not appropriate to add together the ranges of each business segment in an effort to determine the low and high range around the consolidated loss reserves.

     Our range for each business segment was determined by utilizing multiple actuarial loss reserving methods along with various assumptions of reporting patterns and expected loss ratios by loss year. The various outcomes of these techniques were combined to determine a reasonable range of required loss and loss expense reserves.

     Our selection of the actual carried reserves has typically been above the midpoint of the range. We believe that we should be conservative in our reserving practices due to the lengthy reporting patterns and relatively large limits of net liability for any one risk of our direct excess casualty business and of our casualty reinsurance business. Thus, due to this uncertainty regarding estimates for reserve for losses and loss expenses, we have historically carried our consolidated reserve for losses and loss expenses, net of reinsurance recoverable, above the midpoint of the low and high estimates for the consolidated net losses and loss expenses. These long-tail lines of business include our entire casualty segment, as well as the general casualty, professional liability, facultative casualty and the international casualty components of our reinsurance segment. We believe that relying on the more conservative actuarial indications for these lines of business is prudent for a relatively new company. For a discussion of loss and loss expense reserve estimate, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Critical Accounting Policies–Reserve for Losses and Loss Expenses” in our Annual Report on Form 10-K filed with the SEC on February 29, 2008.

Reinsurance Recoverable

     The following table illustrates our reinsurance recoverable as of March 31, 2008 and December 31, 2007:

	Reinsurance Recoverable
	As of		As of
	Mar. 31,		Dec. 31,
	2008		2007
	($ in millions)
Ceded case reserves	$	316.1	$	289.2
Ceded IBNR reserves		442.6		393.6
Reinsurance recoverable	$	758.7	$	682.8

     Included in the increase in ceded case reserves and ceded IBNR from December 31, 2007 to March 31, 2008 was the reinsurance recoverable recorded for the reserves assumed as a part of the acquisition of Finial Insurance Company. As a part of the acquisition, we assumed case reserves of $56.4 million and IBNR of $48.5 million. The case reserves and IBNR assumed were 100% ceded to National Indemnity Company, resulting in additional reinsurance recoverables of $104.9 million. Please refer to Note 4 of the notes to the unaudited condensed consolidated financial statements for additional information regarding the acquisition of Finial Insurance Company. We remain obligated for amounts ceded in the event our reinsurers do not meet their obligations. Accordingly, we have evaluated the reinsurers that are providing reinsurance protection to us and will continue to monitor their credit ratings and financial stability. We generally have the right to terminate our treaty reinsurance contracts at any time, upon prior written notice to the reinsurer, under specified circumstances, including the assignment to the reinsurer by A.M. Best of a financial strength rating of less than “A-.” Approximately 97% of ceded case reserves as of March 31, 2008 were recoverable from reinsurers who had an A.M. Best rating of “A-” or higher.

Liquidity and Capital Resources

General

     As of March 31, 2008, our shareholders’ equity was $2.4 billion, a 6.8% increase compared to $2.2 billion as of December 31, 2007. The increase was primarily the result of net income for the three-month period ended March 31, 2008 of $130.9 million. On January 1, 2008, we adopted FAS 159 and elected the fair value option for our hedge fund investments. Upon adoption of FAS 159, we reclassified the net unrealized gain related to the hedge funds of $26.3 million from accumulated other comprehensive income and recorded a cumulative-effect adjustment in retained earnings. Any subsequent change in the fair value of our hedge fund investments will be recognized in the consolidated statements of operations and comprehensive income and included in “net realized investment gains (losses)”. Please refer to Note 7 of the notes to our unaudited condensed consolidated financial statements regarding our adoption of FAS 159.

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     Holdings is a holding company and transacts no business of its own. Cash flows to Holdings may comprise dividends, advances and loans from its subsidiary companies. Holdings is therefore reliant on receiving dividends and other permitted distributions from its subsidiaries to make principal, interest and/or dividend payments on its senior notes and common shares.

     As part of the acquisition of Finial Insurance Company, we capitalized the subsidiary, now known as Allied World Reinsurance Company, with over $500 million of capital and reorganized our corporate structure.  Under the corporate reorganization, all of our U.S. subsidiaries are now direct, wholly-owned subsidiaries of Allied World Assurance Holdings (U.S.) Inc., a wholly-owned subsidiary of Allied World Assurance Holdings (Ireland) Ltd.  Allied World Assurance Holdings (Ireland) Ltd is now a direct, wholly-owned subsidiary of Allied World Assurance Company, Ltd, which is the parent, directly or indirectly, of all of our subsidiaries (other than our Bermuda services company). Allied World Assurance Company, Ltd remains wholly-owned by Holdings.

Restrictions and Specific Requirements

     The jurisdictions in which our insurance subsidiaries are licensed to write business impose regulations requiring companies to maintain or meet various defined statutory ratios, including solvency and liquidity requirements. Some jurisdictions also place restrictions on the declaration and payment of dividends and other distributions.

     The payment of dividends from Holdings’ Bermuda domiciled insurance subsidiary is, under certain circumstances, limited under Bermuda law, which requires our Bermuda insurance subsidiary to maintain certain measures of solvency and liquidity. Holdings’ U.S. domiciled subsidiaries are subject to significant regulatory restrictions limiting their ability to declare and pay dividends. In particular, payments of dividends by Allied World Assurance Company (U.S.) Inc., Allied World National Assurance Company and Allied World Reinsurance Company are subject to restrictions on statutory surplus pursuant to Delaware law, New Hampshire law and New Jersey law, respectively. Each state requires prior regulatory approval of any payment of extraordinary dividends. In addition, Allied World Assurance Company (Europe) Limited and Allied World Assurance Company (Reinsurance) Limited are subject to significant regulatory restrictions limiting their ability to declare and pay any dividends without the consent of the Irish Financial Services Regulatory Authority. As a result of the corporate reorganization, we now have insurance subsidiaries that are the parent company for other insurance subsidiaries, which means that dividends and other distributions will be subject to multiple layers of regulations as funds are pushed up to Holdings. The inability of the subsidiaries of Holdings to pay dividends and other permitted distributions could have a material adverse effect on Holdings’ cash requirements and ability to make principal, interest and dividend payments on its senior notes and common shares.

     Holdings’ insurance subsidiary in Bermuda, Allied World Assurance Company, Ltd, is neither licensed nor admitted as an insurer, nor is it accredited as a reinsurer, in any jurisdiction in the United States. As a result, it is required to post collateral security with respect to any reinsurance liabilities it assumes from ceding insurers domiciled in the United States in order for U.S. ceding companies to obtain credit on their U.S. statutory financial statements with respect to insurance liabilities ceded to them. Under applicable statutory provisions, the security arrangements may be in the form of letters of credit, reinsurance trusts maintained by trustees or funds-withheld arrangements where assets are held by the ceding company.

     At this time, Allied World Assurance Company, Ltd uses trust accounts primarily to meet security requirements for inter-company and certain related-party reinsurance transactions. We also have cash and cash equivalents and investments on deposit with various state or government insurance departments or pledged in favor of ceding companies in order to comply with relevant insurance regulations. As of March 31, 2008, total trust account deposits were $742.6 million compared to $802.7 million as of December 31, 2007. In addition, Allied World Assurance Company, Ltd currently has access to up to $1.55 billion in letters of credit under two letter of credit facilities, one with Citibank Europe plc and one with a syndication of lenders described below. These facilities are used to provide security to reinsureds and are collateralized by us, at least to the extent of letters of credit outstanding at any given time. As of March 31, 2008 and December 31, 2007, there were outstanding letters of credit totaling $872.0 million and $922.2 million, respectively, under the two facilities. Collateral committed to support the letter of credit facilities was $1,341.8 million as of March 31, 2008, compared to $1,170.7 million as of December 31, 2007.

     In November 2007, we entered into a $800 million five-year senior credit facility (the “Facility”) with a syndication of lenders. The Facility consists of a $400 million secured letter of credit facility for the issuance of standby letters of credit (the “Secured Facility”) and a $400 million unsecured facility for the making of revolving loans and for the issuance of standby letters of credit (the “Unsecured Facility”). Both the Secured Facility and the Unsecured Facility have options to increase the aggregate commitments by up to $200 million, subject to approval of the lenders. The Facility will be used for general corporate purposes and to issue standby letters of credit. The Facility contains representations, warranties and covenants customary for similar bank loan facilities, including a

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covenant to maintain a ratio of consolidated indebtedness to total capitalization as of the last day of each fiscal quarter or fiscal year of not greater than 0.35 to 1.0 and a covenant under the Unsecured Facility to maintain a certain consolidated net worth. In addition, each material insurance subsidiary must maintain a financial strength rating from A.M Best Company of at least A– under the Unsecured Facility and of at least B++ under the Secured Facility. Concurrent with this new Facility, we terminated the Letter of Credit Facility with Barclays Bank PLC and all outstanding letters of credit issued thereunder were transferred to the Secured Facility. We were in compliance with all covenants under the Facility as of March 31, 2008.

     On December 31, 2007, we filed a shelf-registration statement on Form S-3 (No. 333-148409) with the SEC in which we may offer from time to time common shares, preference shares, depository shares representing common shares or preference shares, senior or subordinated debt securities, warrants to purchase common shares, preference shares and debt securities, share purchase contracts, share purchase units and units which may consist of any combination of the securities listed above. The proceeds from any issuance may be used for working capital, capital expenditures, acquisitions and other general corporate purposes.

     Security arrangements with ceding insurers may subject our assets to security interests or require that a portion of our assets be pledged to, or otherwise held by, third parties. Both of our letter of credit facilities are fully collateralized by assets held in custodial accounts at the Bank of New York Mellon held for the benefit of the banks. Although the investment income derived from our assets while held in trust accrues to our benefit, the investment of these assets is governed by the terms of the letter of credit facilities or the investment regulations of the state or territory of domicile of the ceding insurer, which may be more restrictive than the investment regulations applicable to us under Bermuda law. The restrictions may result in lower investment yields on these assets, which may adversely affect our profitability.

     We participate in a securities lending program whereby the securities we own that are included in fixed maturity investments available for sale are loaned to third parties, primarily brokerage firms, for a short period of time through a lending agent. We maintain control over the securities we lend and can recall them at any time for any reason. We receive amounts equal to all interest and dividends associated with the loaned securities and receive a fee from the borrower for the temporary use of the securities. Collateral in the form of cash is required initially at a minimum rate of 102% of the market value of the loaned securities and may not decrease below 100% of the market value of the loaned securities before additional collateral is required. We had $331.2 million and $144.6 million in securities on loan as of March 31, 2008 and December 31, 2007, respectively, with collateral held against such loaned securities amounting to $337.6 million and $147.2 million, respectively.

     We do not anticipate that the restrictions on liquidity resulting from restrictions on the payments of dividends by our subsidiary companies or from assets committed in trust accounts or to collateralize the letter of credit facilities or by our securities lending program will have a material impact on our ability to carry out our normal business activities, including interest and dividend payments, respectively, on our senior notes and common shares.

Sources and Uses of Funds

     Our sources of funds primarily consist of premium receipts net of commissions, investment income, net proceeds from capital raising activities that may include the issuance of common shares, senior notes and other debt or equity issuances, and proceeds from sales and redemption of investments. Cash is used primarily to pay losses and loss expenses, purchase reinsurance, pay general and administrative expenses and taxes, and pay dividends and interest, with the remainder made available to our investment managers for investment in accordance with our investment policy.

     Cash flows from operations for the three months ended March 31, 2008 were $152.9 million compared to $157.8 million for the three months ended March 31, 2007. The decrease in cash flows from operations was primarily due to lower net premiums written, partially offset by increased investment income received during the three months ended March 31, 2008 compared to the three months ended March 31, 2007.

     Cash flows from investing activities consist primarily of proceeds on the sale of investments and payments for investments acquired. We had cash flows provided by investing activities of $227.8 million for the three months ended March 31, 2008 compared to cash flows used in investing activities of $6.4 million for the three months ended March 31, 2007. The increase in investing cash flows was due to higher proceeds on the sale of fixed maturity securities caused by selling securities to capitalize the initial operations of our U.S. reinsurance platform, which have not yet been reinvested. Also included in the cash flows provided from investing activities was the net cash paid for Finial Insurance Company. Please refer to Note 4 of our unaudited condensed consolidated financial statements regarding our acquisition of Finial Insurance Company.

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     Over the next two years, we expect to pay approximately $30.5 million in claims related to Hurricanes Katrina, Rita and Wilma, net of reinsurance recoverable. On May 8, 2008, our board of directors declared a quarterly dividend of $0.18 per share, or approximately $8.8 million in aggregate, payable on June 12, 2008 to the shareholders of record as of May 27, 2008. We expect our operating cash flows, together with our existing capital base, to be sufficient to meet these requirements and to operate our business. Our funds are primarily invested in liquid, high-grade fixed income securities. As of March 31, 2008 and December 31, 2007, including a global high-yield bond fund, 99% of our fixed income portfolio consisted of investment grade securities. As of March 31, 2008 and December 31, 2007, net accumulated unrealized gains, net of income taxes, were $135.6 million and $136.2 million, respectively. This change reflected both movements in interest rates and the recognition of approximately $11.4 million of realized losses on securities that were considered to be impaired on an other-than-temporary-basis. The maturity distribution of our fixed income portfolio (on a market value basis) as of March 31, 2008 and December 31, 2007 was as follows:

	March 31,		December 31,
	2008		2007
	($ in millions)
Due in one year or less	$	417.8	$	474.1
Due after one year through five years		1,664.7		1,982.1
Due after five years through ten years		898.4		869.0
Due after ten years		106.9		99.5
Mortgage-backed		1,988.0		2,117.5
Asset-backed		142.9		164.9
Total	$	5,218.7	$	5,707.1

     We have investments in various hedge funds, the market value of which was $191.2 million as of March 31, 2008. Each of the hedge funds has redemption notice requirements. For those hedge funds that are in the form of limited partnerships, liquidity is allowed after the term of the partnership and could be extended at the option of the general partner. As of March 31, 2008, we had two hedge funds that were in the form of limited partnerships, which allowed for liquidity in 2010 unless extended by the general partners. Our other hedge funds typically allow liquidity an average of three months after we give notice of redemption.

     We do not believe that inflation has had a material effect on our consolidated results of operations. The potential exists, after a catastrophe loss, for the development of inflationary pressures in a local economy. The effects of inflation are considered implicitly in pricing. Loss reserves are established to recognize likely loss settlements at the date payment is made. Those reserves inherently recognize the effects of inflation. The actual effects of inflation on our results cannot be accurately known, however, until claims are ultimately resolved.

Financial Strength Ratings

     Financial strength ratings and senior unsecured debt ratings represent the opinions of rating agencies on our capacity to meet our obligations. Some of our reinsurance treaties contain special funding and termination clauses that are triggered in the event that we or one of our subsidiaries is downgraded by one of the major rating agencies to levels specified in the treaties, or our capital is significantly reduced. If such an event were to happen, we would be required, in certain instances, to post collateral in the form of letters of credit and/or trust accounts against existing outstanding losses, if any, related to the treaty. In a limited number of instances, the subject treaties could be cancelled retroactively or commuted by the cedent and might affect our ability to write business.

     The following were our financial strength ratings as of May 2, 2008:

A.M. Best	A/stable
Moody’s	A2/stable*
Standard & Poor’s	A-/stable

* Moody’s financial strength ratings are for the company’s Bermuda and U.S. insurance and reinsurance subsidiaries.

     The following were our senior unsecured debt ratings as of May 2, 2008:

A.M. Best	bbb/stable
Moody’s	Baa1/stable
Standard & Poor’s	BBB/stable

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Long-Term Debt

     On July 21, 2006, we issued $500.0 million aggregate principal amount of 7.50% senior notes due August 1, 2016, with interest payable August 1 and February 1 each year, commencing February 1, 2007. We can redeem the senior notes prior to maturity, subject to payment of a “make-whole” premium, however, we currently have no intention of redeeming the notes. The senior notes include certain covenants that include:

• Limitation on liens on stock of designated subsidiaries;

• Limitation as to the disposition of stock of designated subsidiaries; and

• Limitations on mergers, amalgamations, consolidations or sale of assets.

     We were in compliance with all covenants related to our senior notes as of March 31, 2008.

Off-Balance Sheet Arrangements

     As of March 31, 2008, we did not have any off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

     We believe that we are principally exposed to three types of market risk: interest rate risk, credit risk and currency risk.

     The fixed income securities in our investment portfolio are subject to interest rate risk. Any change in interest rates has a direct effect on the market values of fixed income securities. As interest rates rise, the market values fall, and vice versa. We estimate that an immediate adverse parallel shift in the U.S. Treasury yield curve of 200 basis points would cause an aggregate decrease in the market value of our investment portfolio (excluding cash and cash equivalents) of approximately $315.5 million, or 5.7%, on our portfolio valued at approximately $5.5 billion as of March 31, 2008, as set forth in the following table:

	Interest Rate Shift in Basis Points
	-200			-100			-50			0			+50			+100			+200
	($ in millions)
Total market value	$	5,822.3		$	5,652.2		$	5,569.0		$	5,487.0		$	5,406.3		$	5,326.8		$	5,171.5
Market value change from base		335.3			165.2			82.0			0			(80.7	)		(160.2	)		(315.5	)
Change in unrealized appreciation/(depreciation)		6.1	%		3.0	%		1.5	%		0.0	%		(1.5	)%		(2.9	)%		(5.7	)%

     As a holder of fixed income securities, we also have exposure to credit risk. In an effort to minimize this risk, our investment guidelines have been defined to ensure that the assets held are well diversified and are primarily high-quality securities. As of March 31, 2008, approximately 99% of our fixed income investments (which includes individually held securities and securities held in a global high-yield bond fund) consisted of investment grade securities. We were not exposed to any significant concentrations of credit risk.

     As of March 31, 2008, we held $1,988.0 million, or 31.0%, of our aggregate invested assets in mortgage-backed securities. These assets are exposed to prepayment risk, which occurs when holders of individual mortgages increase the frequency with which they prepay the outstanding principal before the maturity date to refinance at a lower interest rate cost. Given the proportion that these securities comprise of the overall portfolio, and the current interest rate environment, prepayment risk is not considered significant at this time. In addition, nearly all of our investments in mortgage-backed securities were rated “Aaa” by Moody’s and “AAA” by Standard & Poor’s as of March 31, 2008. As of March 31, 2008, our mortgage-backed securities that have exposure to subprime mortgages was limited to $2.8 million, or 0.05%, of our fixed maturity investments.

     As of March 31, 2008, we invested in various hedge funds with a market value of $ 191.2 million. Investments in hedge funds involve certain risks related to, among other things, the illiquid nature of the fund shares, the limited operating history of the fund, as well as risks associated with the strategies employed by the managers of the funds. The funds’ objectives are generally to seek attractive long-term returns with lower volatility by investing in a range of diversified investment strategies. As our reserves and capital continue to build, we may consider additional investments in these or other alternative investments.

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     The U.S. dollar is our reporting currency and the functional currency of all of our operating subsidiaries. We enter into insurance and reinsurance contracts where the premiums receivable and losses payable are denominated in currencies other than the U.S. dollar. In addition, we maintain a portion of our investments and liabilities in currencies other than the U.S. dollar, primarily Euro, British Sterling and the Canadian dollar. Assets in non-U.S. currencies are generally converted into U.S. dollars at the time of receipt. When we incur a liability in a non-U.S. currency, we carry such liability on our books in the original currency. These liabilities are converted from the non-U.S. currency to U.S. dollars at the time of payment. As a result, we have an exposure to foreign currency risk resulting from fluctuations in exchange rates.

     As of March 31, 2008 and December 31, 2007, 2.3% of our aggregate invested assets were denominated in currencies other than the U.S. dollar. Of our business written in the three months ended March 31, 2008 and 2007, approximately 15% and 17% was written in currencies other than the U.S. dollar, respectively. Of our business written in the year ended December 31, 2007, approximately 14% was written in currencies other than the U.S. dollar. We utilize a hedging strategy whose objective is to minimize the potential loss of value caused by currency fluctuations by using foreign currency forward contract derivatives that expire in 90 days.

     Our foreign exchange (losses) gains for the three months ended March 31, 2008 and 2007 and the year ended December 31, 2007 are set forth in the chart below.

	Three Months						Year
	Ended						Ended
	March 31,						December 31
	2008			2007			2007
	($ in millions)
Realized exchange (losses) gains	$	(0.4	)	$	(0.5	)	$	1.6
Unrealized exchange (losses) gains		(0.1	)		0.5			(0.8	)
Foreign exchange (losses) gains	$	(0.5	)	$	(0.0	)	$	0.8

Item 4. Controls and Procedures.

     In connection with the preparation of this quarterly report, our management has performed an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of March 31, 2008. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by SEC rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosures. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2008, our company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by SEC rules and forms and accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosures.

     Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide an absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.

     No changes were made in our internal controls over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f), during the first quarter ended March 31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II
OTHER INFORMATION

Item 1. Legal Proceedings.

     On April 4, 2006, a complaint was filed in the U.S. District Court for the Northern District of Georgia (Atlanta Division) by a group of several corporations and certain of their related entities in an action entitled New Cingular Wireless Headquarters, LLC et al, as plaintiffs, against certain defendants, including Marsh & McLennan Companies, Inc., Marsh Inc. and Aon Corporation, in their capacities as insurance brokers, and 78 insurers, including our insurance subsidiary in Bermuda, Allied World Assurance Company, Ltd.

     The action generally relates to broker defendants’ placement of insurance contracts for plaintiffs with the 78 insurer defendants. Plaintiffs maintain that the defendants used a variety of illegal schemes and practices designed to, among other things, allocate customers, rig bids for insurance products and raise the prices of insurance products paid by the plaintiffs. In addition, plaintiffs allege that the broker defendants steered policyholders’ business to preferred insurer defendants. Plaintiffs claim that as a result of these practices, policyholders either paid more for insurance products or received less beneficial terms than the competitive market would have produced. The eight counts in the complaint allege, among other things, (i) unreasonable restraints of trade and conspiracy in violation of the Sherman Act, (ii) violations of the Racketeer Influenced and Corrupt Organizations Act, or RICO, (iii) that broker defendants breached their fiduciary duties to plaintiffs, (iv) that insurer defendants participated in and induced this alleged breach of fiduciary duty, (v) unjust enrichment, (vi) common law fraud by broker defendants and (vii) statutory and consumer fraud under the laws of certain U.S. states. Plaintiffs seek equitable and legal remedies, including injunctive relief, unquantified consequential and punitive damages, and treble damages under the Sherman Act and RICO. On October 16, 2006, the Judicial Panel on Multidistrict Litigation ordered that the litigation be transferred to the U.S. District Court for the District of New Jersey for inclusion in the coordinated or consolidated pretrial proceedings occurring in that court. Neither Allied World Assurance Company, Ltd nor any of the other defendants have responded to the complaint. Written discovery has begun but has not been completed. As a result of the court granting motions to dismiss in the related putative class action proceeding, prosecution of this case is currently stayed and the court is deciding whether to extend the current stay during the pendency of an appeal filed by the class action plaintiffs with the Third Circuit Court of Appeals. While this matter is in an early stage, it is not possible to predict its outcome, the company does not, however, currently believe that the outcome will have a material adverse effect on the company’s operations or financial position.

     We may become involved in various claims and legal proceedings that arise in the normal course of our business, which are not likely to have a material adverse effect on our results of operations.

Item 1A. Risk Factors.

     Our business is subject to a number of risks, including those identified in Item 1A. of Part I of our 2007 Annual Report on Form 10-K filed with the SEC, that could have a material effect on our business, results of operations, financial condition and/or liquidity and that could cause our operating results to vary significantly from period to period. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also could have a material effect on our business, results of operations, financial condition and/or liquidity.

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds.

     None.

Item 3. Defaults Upon Senior Securities.

     None.

Item 4. Submission of Matters to a Vote of Security Holders.

     None.

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Item 5. Other Information.

     On May 8, 2008, the shareholders of Holdings approved, among other things, the Allied World Assurance Company Holdings, Ltd Second Amended and Restated 2001 Employee Stock Option Plan (the “Stock Option Plan”) and the Allied World Assurance Company Holdings, Ltd Second Amended and Restated 2004 Stock Incentive Plan (the “Stock Incentive Plan”) at the 2008 Annual General Meeting. The Stock Option Plan and Stock Incentive Plan are attached to this Form 10-Q as Exhibits 10.3 and 10.5, respectively, and the description of each plan as set forth under its respective proposal in Holdings’ proxy statement that was filed with the SEC on March 21, 2008 is incorporated herein by reference. The form of Option Grant Notice and Option Agreement under the Stock Option Plan and the forms of RSU Award Agreements for employees and non-employee directors under the Stock Incentive Plan are attached to this Form 10-Q as Exhibits 10.4, 10.6 and 10.7, respectively.

Item 6. Exhibits.

Exhibit
Number	Description
3.1	Second Amended and Restated Bye-laws.
10.1†	Employment Agreement, dated as of January 16, 2008, by and between Allied World National Assurance Company and W. Gordon Knight.
10.2†	Allied World Assurance Company Holdings, Ltd Deferred Fee Plan for Non-Employee Directors.
10.3†	Allied World Assurance Company Holdings, Ltd Second Amended and Restated 2001 Employee Stock Option Plan.
10.4†	Form of Option Grant Notice and Option Agreement under the Allied World Assurance Company Holdings, Ltd Second Amended and Restated 2001 Employee Stock Option Plan.
10.5†	Allied World Assurance Company Holdings, Ltd Second Amended and Restated 2004 Stock Incentive Plan.
10.6†	Form of RSU Award Agreement for employees under the Allied World Assurance Company Holdings, Ltd Second Amended and Restated 2004 Stock Incentive Plan.
10.7†	Form of RSU Award Agreement for non-employee directors under the Allied World Assurance Company Holdings, Ltd Second Amended and Restated 2004 Stock Incentive Plan.
10.8	Allied World Assurance Company Holdings, Ltd 2008 Employee Share Purchase Plan.
31.1	Certification by Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification by Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification by Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.

†	Management contract or compensatory plan, contract or arrangement.
*	These certifications are being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18 United States Code) and are not being filed as part of this report.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
Dated: May 9, 2008	By:	/s/ Scott A. Carmilani
	Name:    Scott A. Carmilani
	Title:      President and Chief Executive Officer
Dated: May 9, 2008	By:	/s/ Joan H. Dillard
	Name:    Joan H. Dillard
	Title:      Senior Vice President and Chief Financial Officer

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EXHIBIT INDEX

Exhibit
Number	Description
3.1	Second Amended and Restated Bye-laws.
10.1†	Employment Agreement, dated as of January 16, 2008, by and between Allied World National Assurance Company and W. Gordon Knight.
10.2†	Allied World Assurance Company Holdings, Ltd Deferred Fee Plan for Non-Employee Directors.
10.3†	Allied World Assurance Company Holdings, Ltd Second Amended and Restated 2001 Employee Stock Option Plan.
10.4†	Form of Option Grant Notice and Option Agreement under the Allied World Assurance Company Holdings, Ltd Second Amended and Restated 2001 Employee Stock Option Plan.
10.5†	Allied World Assurance Company Holdings, Ltd Second Amended and Restated 2004 Stock Incentive Plan.
10.6†	Form of RSU Award Agreement for employees under the Allied World Assurance Company Holdings, Ltd Second Amended and Restated 2004 Stock Incentive Plan.
10.7†	Form of RSU Award Agreement for non-employee directors under the Allied World Assurance Company Holdings, Ltd Second Amended and Restated 2004 Stock Incentive Plan.
10.8	Allied World Assurance Company Holdings, Ltd 2008 Employee Share Purchase Plan.
31.1	Certification by Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification by Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification by Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.

†	Management contract or compensatory plan, contract or arrangement.
*	These certifications are being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18 United States Code) and are not being filed as part of this report.

EX-3.1

Exhibit 3.1

Second Amended and Restated
BYE-LAWS
of
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
(Effective as of May 8, 2008)

Table of Contents

Bye-Law		Page
1.	Interpretation		1
2.	Board of Directors		4
3.	Management of the Company		4
4.	Power to appoint managing director or chief executive officer		5
5.	Power to appoint manager		5
6.	Power to authorise specific actions		5
7.	Power to appoint attorney		5
8.	Power to delegate to a committee		5
9.	Power in respect of employees		5
10.	Power to borrow and charge property		5
11.	Exercise of power to purchase shares of or discontinue the Company		5
12.	Election of Directors		6
13.	Defects in appointment of Directors		6
14.	Alternate Directors		7
15.	Removal of Directors		7
16.	Vacancies on the Board		7
17.	Notice of meetings of the Board		7
18.	Quorum at meetings of the Board		8
19.	Meetings of the Board		8
20.	Chairman of meetings		8
21.	Unanimous written resolutions		8
22.	Contracts and disclosure of Directors’ interests		8
23.	Remuneration of Directors		8
24.	Officers of the Company		9
25.	Appointment of Officers		9
26.	Remuneration of Officers		9
27.	Duties of Officers		9
28.	Register of Directors and Officers		9
29.	Obligations of Board to keep minutes		9
30.	Indemnification of Directors and Officers of the Company		9
31.	Waiver of claim by Member		10
32.	Notice of annual general meeting		10
33.	Notice of special general meeting		10
34.	Advance notice of Member nominees for Director and other Member proposals		10
35.	Accidental omission of notice of general meeting		12
36.	Meeting called on requisition of Members		12
37.	Short notice		12
38.	Postponement of meetings		12
39.	Quorum for general meeting		12
40.	Adjournment of meetings		12
41.	Attendance at meetings		12
42.	Attendance of Directors		12
43.	Voting at meetings		13

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Bye-Law		Page
44.	Voting on show of hands		13
45.	Decision of chairman		13
46.	Demand for a poll		13
47.	Seniority of joint holders voting		14
48.	Instrument of proxy		14
49.	Representation of corporations at meetings		14
50.	Rights of shares		14
51.	Limitation on voting rights of Controlled Shares		16
52.	Power to issue shares		17
53.	Variation of rights, alteration of share capital and purchase of shares of the Company		18
54.	Conversion and transfer of Non-Voting Shares		18
55.	Registered holder of shares		19
56.	Death of a joint holder		19
57.	Share certificates		19
58.	Calls on shares		19
59.	Forfeiture of shares		20
60.	Contents of Register of Members		20
61.	Inspection of Register of Members		20
62.	Determination of record dates		20
63.	Instrument of transfer		20
64.	Restriction on transfer		21
65.	Transfers by joint holders		23
66.	Representative of deceased Member		23
67.	Registration on death or bankruptcy		23
68.	Declaration of dividends by the Board		23
69	Other distributions		23
70.	Reserve fund		23
71.	Deduction of amounts due to the Company		23
72.	Unclaimed dividends		23
73.	Interest on dividends		24
74.	Issue of bonus shares		24
75.	Records of account		24
76.	Financial year end		24
77.	Financial statements		24
78.	Appointment of Auditor		24
79.	Remuneration of Auditor		24
80.	Vacation of office of Auditor		25
81.	Access to books of the Company		25
82.	Report of the Auditor		25
83.	Notices to Members of the Company		25
84.	Notices to joint Members		25
85.	Service and delivery of notice		25
86.	The seal		25
87.	Manner in which seal is to be affixed		25

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Bye-Law		Page
88.	Winding-up/distribution by liquidator		26
89.	Alteration of Bye-laws		26
90.	Directors of Bermuda Insurance Subsidiaries		26
91.	Directors of Non-U.S., Non-Bermuda Insurance Subsidiaries		26
92.	Bye-laws or articles of association of certain insurance subsidiaries		27

Schedule — Form A (Bye-law 59)

Schedule — Form B (Bye-law 63)

Schedule — Form C (Bye-law 67)

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INTERPRETATION

1.  Interpretation

(1) In these Bye-laws the following words and expressions shall, where not inconsistent with the context, have the following meanings respectively:

(a) “Act” means the Companies Act 1981 of Bermuda, as amended from time to time;

(b) “Affiliate” means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person. For the purposes of this definition, the term “control” means the power to direct the management of an entity, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlled” and “controlling” have meanings correlative to the foregoing;

(c) “Auditor” includes any individual or partnership appointed as auditor of the Company in accordance with Bye-law 78;

(d) “Bermuda Insurance Subsidiary” means Allied World Assurance Company, Ltd, and any other insurance company incorporated and organized under the laws of Bermuda that is a subsidiary of the Company;

(e) “Board” means the Board of Directors appointed or elected pursuant to these Bye-laws and acting by resolution in accordance with the Act and these Bye-laws or the Directors present at a meeting of Directors at which there is a quorum;

(f) “Business Day” means any day, other than a Saturday, a Sunday or any day on which banks in Hamilton, Bermuda or The City of New York, United States are authorized or obligated by law or executive order to close;

(g) “Cause” shall be deemed to exist only if (i) the Director whose removal is proposed has been charged with or convicted of an indictable offence or a felony by a court of competent jurisdiction or has been adjudged by a court of competent jurisdiction to be liable for fraud or dishonesty in the performance of such Director’s duty to the Company or (ii) the Director whose removal is proposed suffers from any physical or mental disability that substantially impairs the ability of such Director to function in that capacity;

(h) “Code” means the United States Internal Revenue Code of 1986, as amended from time to time, or any federal statute from time to time in effect that has replaced such statute, and any reference in these Bye-laws to a provision of the Code or a rule or regulation promulgated thereunder means such provision, rule or regulation, as amended from time to time, or any provision of a federal law, or any federal rule or regulation, from time to time in effect that has replaced such provision, rule or regulation;

(i) “Common Shares” means the common shares, par value U.S.$0.03 per share, of the Company and includes a fraction of a Common Share;

(j) “Company” means the company for which these Bye-laws are approved and confirmed;

(k) “Controlled Shares” of any Person means all shares of the Company, of all classes entitled to vote or to elect, appoint or replace Directors, owned by such Person, whether:

(i) directly,

(ii) with respect to Persons who are U.S. Persons, by application of the attribution and constructive ownership rules of Sections 958(a) and 958(b) of the Code or

(iii) beneficially owned directly or indirectly within the meaning of Section 13(d)(3) of the Exchange Act and the rules and regulations thereunder other than Excluded Controlled Shares;

(l) “debenture” means debenture stock, mortgages, bonds and any other such debt securities of the Company whether constituting a charge on the assets of the Company or not;

(m) “Director” means a director of the Company;

1

(n) “Eligible Subsidiary Director” has the meaning ascribed thereto in Bye-law 91(1);

(o) “Exchange Act” means the United States Securities Exchange Act of 1934, as amended from time to time, or any federal statute from time to time in effect that has replaced such statute, and any reference in these Bye-laws to a provision of the Exchange Act or a rule or regulation promulgated thereunder means such provision, rule or regulation, as amended from time to time, or any provision of a federal law, or any federal rule or regulation, from time to time in effect that has replaced such provision, rule or regulation;

(p) “Excluded Controlled Shares” in reference to any Person means Controlled Shares of such Person that would not be Controlled Shares of such Person but for clause (iii) of the definition of Controlled Shares, provided that (i) such Person is registered under the United States federal securities laws as a broker, dealer or investment adviser; (ii) such Person is the beneficial owner of such shares solely because it has discretionary authority to vote or dispose of such shares in a fiduciary capacity on behalf of its client who is also a beneficial owner of such shares; (iii) the voting rights carried by such shares are not being exercised (and the client is informed that they are not being exercised) by such broker, dealer or adviser and are being exercised (if they are exercised at all) by such client; and (iv) the Person would meet the eligibility test for the filing of Schedule 13G contained in Rule 13d-1(b)(1) under the Exchange Act with respect to the entirety of its common share ownership (without regard to whether such Person actually has any filing obligations under Section 13(d) of the Exchange Act), and provided, further, that the Company shall have received such assurances as it may request confirming that such shares are Excluded Controlled Shares. The Company may assume that the Controlled Shares of each Member do not include any Excluded Controlled Shares unless such Member otherwise notifies the Company and provides such assurance;

(q) “Fair Market Value” means, with respect to a repurchase of any shares of the Company in accordance with these Bye-laws, (i) if such shares are listed on a securities exchange (or quoted in a securities quotation system), the average closing sale price of such shares on such exchange (or in such quotation system), or, if such shares are listed on (or quoted in) more than one exchange (or quotation system), the average closing sale price of the shares on the principal securities exchange (or quotation system) on which such shares are then traded, or, if such shares are not then listed on a securities exchange (or quotation system) but are traded in the over-the-counter market, the average of the latest bid and asked quotations for such shares in such market, in each case for the last five trading days immediately preceding the day on which the Repurchase Notice of such shares is sent pursuant to these Bye-laws; or (ii) if no such closing sales prices or quotations are available because such shares are not publicly traded or otherwise, the fair value of such shares as determined by one independent nationally recognized investment banking firm chosen by the Company and reasonably satisfactory to the Member whose shares are to be so repurchased by the Company, provided that the calculation of the Fair Market Value of the shares made by such appointed investment banking firm (i) shall not include any discount relating to the absence of a public trading market for, or any transfer restrictions on, such shares, and (ii) such calculation shall be final and the fees and expenses stemming from such calculation shall be borne by the Company or its assignee, as the case may be;

(r) “Formula” has the meaning ascribed thereto in Bye-law 51(1);

(s) “Founder” means any of the Industry Founders or GS Capital Partners 2000, L.P., GS Capital Partners 2000 Offshore, L.P., GS Capital Partners 2000 GmbH & Co. Beteiligungs KG, GS Capital Partners 2000 Employee Fund, L.P., Stone Street Fund 2000, L.P. and Bridge Street Special Opportunities Fund 2000, L.P.;

(t) “Founder Back-Attribution Convention” has the meaning ascribed thereto in Bye-law 64(7);

(u) “Indemnitees” has the meaning ascribed thereto in Bye-law 30;

(v) “Industry Founders” means American International Group, Inc. and The Chubb Corporation;

(w) “Member” means the Person registered in the Register of Members as the holder of shares in the Company and, when two or more Persons are so registered as joint holders of shares, means the Person whose name stands first in the Register of Members as one of such joint holders or all of such Persons as the context so requires;

(x) “Member Notice” has the meaning ascribed thereto in Bye-law 34(2);

2

(y) “Non-U.S., Non-Bermuda Insurance Subsidiary” means any insurance company incorporated and organized under the laws of any non-U.S. jurisdiction other than Bermuda that is a subsidiary of the Company;

(z) “Non-Voting Shares” has the meaning ascribed thereto in Bye-law 50(1);

(aa) “notice” means written notice as further defined in these Bye-laws unless otherwise specifically stated;

(bb) “Offending Member” has the meaning ascribed thereto in Bye-law 64(9);

(cc) “Officer” means any individual appointed by the Board to hold an office in the Company;

(dd) “Other Meeting Date” has the meaning ascribed thereto in Bye-law 34(2);

(ee) “Ownership Limits” has the meaning ascribed thereto in Bye-law 64(8);

(ff) percentage of “the total combined voting power of all classes of shares entitled to vote” has the meaning ascribed thereto in Section 951(b) of the Code and Treasury Regulations Section 1.951-1(g)(2);

(gg) “Person” means any individual, company, corporation, firm, partnership, limited liability company, trust or any other business, entity or person, whether or not recognized as constituting a separate legal entity;

(hh) “Preference Shares” has the meaning ascribed thereto in Bye-law 50(1);

(ii) “Register of Directors and Officers” means the Register of Directors and Officers referred to in Bye-law 28;

(jj) “Register of Members” means the Register of Members referred to in Bye-law 60;

(kk) “Repurchase Notice” has the meaning ascribed thereto in Bye-law 11(3);

(ll) “Repurchase Price” has the meaning ascribed thereto in Bye-law 11(3);

(mm) “Secretary” means the individual appointed to perform any or all the duties of secretary of the Company and includes any deputy or assistant secretary;

(nn) “Securities Act” means the United States Securities Act of 1933, as amended from time to time, or any federal statute from time to time in effect which has replaced such statute, and any reference in these Bye-laws to a provision of the Securities Act or a rule or regulation promulgated thereunder means such provision, rule or regulation, as amended from time to time, or any provision of a federal law, or any federal rule or regulation, from time to time in effect that has replaced such provision, rule or regulation;

(oo) “share” means a share of any class of shares in the capital of the Company and includes a fraction of a share;

(pp) “subsidiary”, with respect to any Person, means a company more than fifty percent (50%) (or, in the case of a wholly-owned subsidiary, one hundred percent (100%)) of the outstanding voting shares of which are owned, directly or indirectly, by such Person, or by one or more other subsidiaries of any such Person, and one or more other subsidiaries;

(qq) “10% Shareholder” means a Person who owns, in the aggregate,

(i) directly,

(ii) with respect to Persons who are U.S. Persons, by application of the attribution and constructive ownership rules of Sections 958(a) and 958(b) of the Code or

(iii) beneficially, directly or indirectly within the meaning of Section 13(d)(3) of the Exchange Act,

3

issued or issuable shares of the Company representing ten percent (10%) or more of the total combined voting power of all classes of shares entitled to vote of the Company other than, with respect to clause (iii), Excluded Controlled Shares;

(rr) “United States” means the United States of America and dependent territories or any part thereof;

(ss) “U.S. Person” means (i) an individual who is a citizen or resident of the United States; (ii) a corporation, limited liability company or partnership that is, as to the United States, a domestic corporation, limited liability company or partnership; (iii) an estate that is subject to United States federal income tax on its income regardless of its source; and (iv) a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States Persons are authorized to control all substantial decisions of the trust;

(tt) “Voting Shares” has the meaning ascribed thereto in Bye-law 50(1).

(2) In these Bye-laws, where not inconsistent with the context:

(a) words denoting the plural number include the singular number and vice versa;

(b) words denoting the masculine gender, feminine gender or neuter shall include the masculine gender, feminine gender or neuter as the case may be;

(c) the word:

(i) “may” shall be construed as permissive;

(ii) “shall” shall be construed as imperative;

(d) the word “insurance” shall include reinsurance; and

(e) unless otherwise provided herein, words or expressions defined in the Act shall bear the same meaning in these Bye-laws.

(3) Expressions referring to writing or written shall, unless the contrary intention appears, include facsimile, printing, lithography, photography, electronic mail and other modes of representing words in a visible form.

(4) Headings used in these Bye-laws are for convenience only and are not to be used or relied upon in the construction hereof.

BOARD OF DIRECTORS

2.  Board of Directors

The business of the Company shall be managed and conducted by the Board.

3.  Management of the Company

(1) In managing the business of the Company, the Board may exercise all such powers of the Company as are not, by statute or by these Bye-laws, required to be exercised by the Company in general meeting subject, nevertheless, to these Bye-laws, the provisions of any statute and to such regulations as may be prescribed by the Company in general meeting.

(2) No regulation or alteration to these Bye-laws made by the Company in general meeting shall invalidate any prior act of the Board which would have been valid if that regulation or alteration had not been made.

(3) The Board may procure that the Company pays all expenses incurred in promoting and incorporating the Company.

4

4.  Power to appoint managing director or chief executive officer

The Board may from time to time appoint an individual (including a Director) to act as managing director or chief executive officer of the Company, and who shall, subject to the control of the Board, supervise and administer all of the general business and affairs of the Company.

5.  Power to appoint manager

The Board may appoint a Person to act as manager of the Company’s day to day business and may entrust to and confer upon such manager such powers and duties as it deems appropriate for the transaction or conduct of such business.

6.  Power to authorise specific actions

The Board may from time to time and at any time authorise any Person to act on behalf of the Company for any specific purpose and in connection therewith to execute any agreement, document or instrument on behalf of the Company.

7.  Power to appoint attorney

The Board may from time to time and at any time by power of attorney appoint any Person, whether nominated directly or indirectly by the Board, to be an attorney of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Board) and for such period and subject to such conditions as it may think fit and any such power of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Board may think fit and may also authorise any such attorney to sub-delegate all or any of the powers, authorities and discretions so vested in the attorney. Such attorney may, if so authorised under the seal of the Company, execute any deed or instrument under such attorney’s personal seal with the same effect as the affixation of the seal of the Company.

8.  Power to delegate to a committee

The Board may appoint one or more Board committees and may delegate any of its powers (including the power to sub-delegate) to any such committee. Such committees may consist partly or entirely of non-Directors.

All Board committees shall conform to such directions as the Board shall impose on them. It is further provided that each member of a Board committee shall have one (1) vote, and each committee shall have the right as it deems appropriate to retain outside experts. Each committee may adopt rules for the conduct of its affairs, including rules governing the adoption of resolutions by unanimous written consent, and the place, time, and notice of meetings, as such committee shall consider advisable and as shall not be inconsistent with these Bye-laws or with any applicable resolution adopted by the Board. Failing the adoption of such rules, the meetings and proceedings of any such committee shall be governed by the provisions of these Bye-laws regulating the meetings and proceedings of the Board so far as the same are applicable and are not superseded by directions of the Board. Each committee shall cause minutes to be made of all meetings of such committee and of the attendance thereat and shall cause such minutes and copies of resolutions adopted by unanimous consent to be promptly inscribed or incorporated by the Secretary in the Company’s minute book.

9.  Power in respect of employees

The Board may appoint, suspend or remove any managing director, manager, officer, secretary, clerk, agent or employee of the Company and may fix their remuneration and determine their duties.

10.  Power to borrow and charge property

The Board may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled capital, or any part thereof, and may issue debentures and other securities whether outright or as security for any debt, liability or obligation of the Company or any third party.

11.  Exercise of power to purchase shares of or discontinue the Company

(1) The Board may exercise all the powers of the Company to purchase all or any part of its own shares pursuant to Section 42A of the Act.

5

(2) The Board may exercise all the powers of the Company to discontinue the Company to a named country or jurisdiction outside Bermuda pursuant to Section 132G of the Act.

(3) Unilateral Repurchase Right — If the Board in its absolute and unfettered discretion, on behalf of the Company, determines that share ownership by any Member may (i) result in adverse regulatory or legal consequences or (ii) result in, or materially increase the risk of, material adverse tax consequences, to the Company, any of its subsidiaries or any of the Members, the Company will have the option, but not the obligation, to repurchase, in accordance with Section 42A of the Act, all or part of the shares held by such Member (to the extent the Board, in the reasonable exercise of its discretion, determines it is necessary to avoid or cure such adverse consequences) for immediately available funds in an amount equal to the Fair Market Value of such shares on the date the Company sends the Repurchase Notice referred to below (the “Repurchase Price”); provided that the Board will use its best efforts to exercise this option equally among similarly situated Members (to the extent possible under the circumstances). In that event, the Company will also be entitled to assign its right to purchase to a third party or parties including the other Members. Each Member shall be bound by the determination by the Company to repurchase or assign its right to purchase such Member’s shares and, if so required by the Company, shall sell the number of shares that the Company requires it to sell.

In the event that the Company or its assignee(s) determines to repurchase any such shares in accordance with this Bye-law 11(3), the Company shall provide each Member concerned with written notice of such determination (a “Repurchase Notice”) at least seven (7) calendar days prior to such repurchase or such shorter period as each such Member may authorize, specifying the date on which any such shares are to be repurchased and the Repurchase Price. The Company may revoke the Repurchase Notice at any time before it (or its assignee(s)) pays for the shares. The Member shall retain the ability, subject to these Bye-laws, to transfer its shares to a third party or parties that is not an Affiliate, prior to the closing of the repurchase. Neither the Company nor its assignee(s) shall be obliged to give general notice to the Members of any intention to purchase or the conclusion of any purchase of shares. Payment of the Repurchase Price by the Company or its assignee(s) shall be by wire transfer and made at a closing to be held on the first Business Day that is no less than seven (7) calendar days after receipt of the Repurchase Notice by the Member.

(4) Restrictions on repurchases — If the Company repurchases shares, or assigns its repurchase right, pursuant to this Bye-law 11, it shall do so only in a manner the Board, in its sole and absolute discretion, believes would not result in, or materially increase the risk of, a material adverse regulatory or tax treatment of the Company, any subsidiary thereof, or any Member in any jurisdiction.

12.  Election of Directors

The Board shall consist of not less than seven (7) Directors or such number in excess thereof as the Board may from time to time determine up to a maximum of thirteen (13) Directors, each having one vote, who shall be elected, except in the case of vacancy, by the Members holding a plurality of the votes cast for a resolution approving such director, at a general meeting in accordance with and subject to the limitations in these Bye-laws, including, but not limited to, Bye-law 51. The Directors shall be divided into three (3) classes as nearly equal as possible (Class I, Class II and Class III). The initial Class I Directors shall serve for a term expiring at the annual general meeting of Members to be held in 2008; the initial Class II Directors shall serve for a term expiring at the annual general meeting of Members to be held in 2007; and the initial Class III Directors shall serve for a term expiring at the annual general meeting of Members to be held in 2006. At each annual general meeting of Members, the successor or successors of the class of Directors shall hold office for a term expiring at the annual general meeting of Members held in the third year following the year of their election. The Directors elected to each class shall hold office until their successors are duly elected and qualified or until their earlier death, disqualification, resignation or removal.

13.  Defects in appointment of Directors

All acts done bona fide by any meeting of the Board or by a committee of the Board or by any person acting as a Director shall, notwithstanding that it be afterwards discovered that there was some defect in the appointment of any Director or person acting as aforesaid, or that they or any of them were disqualified, be as valid as if every person had been duly appointed and was qualified to be a Director.

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14.  Alternate Directors

No Director shall have the right to appoint another person to act as his alternate director.

15.  Removal of Directors

(1) Subject to any provision to the contrary in these Bye-laws, the Members may, at any special general meeting convened and held in accordance with these Bye-laws, remove a Director, but only for Cause, provided that the notice of any such meeting convened for the purpose of removing a Director shall contain a statement of the intention so to do and be served on such Director not less than 14 days before the meeting and at such meeting such Director shall be entitled to be heard on the motion for such Director’s removal.

(2) A vacancy on the Board created by the removal of a Director under the provisions of subparagraph (1) of this Bye-law may be filled by the Members at the meeting at which such Director is removed and, in the absence of such election or appointment, the Board may fill any such vacancy in accordance with Bye-law 16. A Director so appointed shall hold office for the remainder of the removed Director’s term or until such Director’s successor is elected or appointed or such Director’s office is otherwise vacated.

16.  Vacancies on the Board

(1) The Board shall have the power from time to time and at any time to appoint any person as a Director to fill a vacancy on the Board occurring as the result of the death, disability, disqualification or resignation of any Director or from an increase in the size of the Board pursuant to Bye-law 12 or if such Director’s office is otherwise vacated. The Board shall also have the power from time to time to fill any vacancy left unfilled at a general meeting. A Director so appointed by the Board shall hold office for the remainder of the removed Director’s term or until such Director’s successor is elected or appointed or such Director’s office is otherwise vacated.

(2) The Board may act notwithstanding any vacancy in its number but, if and so long as its number is reduced below the number fixed by these Bye-laws as the quorum necessary for the transaction of business at meetings of the Board, the continuing Directors or Director may act only for the purpose of (a) summoning a general meeting of the Company or (b) preserving the assets of the Company.

(3) The office of Director shall be vacated if:

(a) a Director is removed from office pursuant to these Bye-laws or is prohibited from being a Director by law;

(b) a Director is or becomes bankrupt or makes any arrangement or composition with his creditors generally;

(c) a Director is or becomes of unsound mind or dies; or

(d) a Director resigns his or her office by notice in writing to the Company.

17.  Notice of meetings of the Board

(1) The chairman, deputy chairman or any two (2) Directors may, and the Secretary on the requisition of the chairman, deputy chairman or any two (2) Directors shall, at any time summon a meeting of the Board by at least three (3) Business Days notice to each Director, unless such Director consents to shorter notice. Attendance at a meeting of the Board shall constitute consent to short notice.

(2) Notice of a meeting of the Board shall be deemed to be duly given to a Director if it is given to such Director verbally in person or by telephone or otherwise communicated or sent to such Director by registered mail, electronic mail, courier service, facsimile or other mode of representing words in a legible and non-transitory form at such Director’s last known address or any other address given by such Director to the Company for this purpose. If such notice is sent by electronic mail, next-day courier or facsimile, it shall be deemed to have been given the Business Day following the sending thereof and, if by registered mail, five (5) Business Days following the sending thereof.

(3) Meetings of the Directors shall be held within Bermuda, or such other countries as the Board may determine, excluding the United States.

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18.  Quorum at meetings of the Board

The quorum necessary for the transaction of business at a meeting of the Board shall be a majority of the Directors then in office, present in person or represented by a duly authorized representative appointed in accordance with the Act, provided that at least two Directors are present in person.

19.  Meetings of the Board

(1) The Board shall appoint a Chairman and a Deputy Chairman who shall be Directors. The Board may meet for the transaction of business, adjourn and otherwise regulate its meetings as it sees fit.

(2) Subject to Bye-law 17(3), Directors may participate in any meeting of the Board by means of such telephone, electronic or other communication facilities as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and participation in such a meeting shall constitute presence in person at such meeting.

(3) Upon any vote of the Directors at a meeting of the Board, each Director shall have one vote.

(4) A resolution put to a vote at a duly constituted meeting of the Board at which a quorum is present and acting throughout shall be carried by the affirmative votes of a majority of the votes cast and in the case of an equality of votes, the resolution shall fail.

20.  Chairman of meetings

The Chairman shall have the right to act as chairman at all meetings of the Members and of the Board at which the Chairman is present or, in the case of meetings of Members, such other person as the Chairman may designate to act as chairman of the meeting. In his absence, the Deputy Chairman, if present, shall have the right to act, or to designate another person to act, as chairman and in the absence of all of them a chairman shall be appointed or elected by those present at the meeting and entitled to vote.

21.  Unanimous written resolutions

A resolution in writing signed by all the Directors which may be in counterparts, shall be as valid as if it had been passed at a meeting of the Board duly called and constituted, such resolution to be effective on the date on which and at the place at which, the last Director signs the resolution.

22.  Contracts and disclosure of Directors’ interests

(1) Any Director, or any Director’s firm, partner or any company with whom any Director is associated, may act in a professional capacity for the Company and such Director or such Director’s firm, partner or such company shall be entitled to remuneration for professional services as if such Director were not a Director, provided that nothing herein contained shall authorise a Director or Director’s firm, partner or such company to act as Auditor of the Company.

(2) A Director who is directly or indirectly interested in a contract or proposed contract or arrangement with the Company shall declare the nature of such interest as required by the Act.

(3) Following a declaration being made pursuant to this Bye-law, and unless disqualified by a majority of the Board present at the relevant Board meeting, a Director may vote in respect of any contract or proposed contract or arrangement in which such Director is interested and may be counted in the quorum at such meeting.

23.  Remuneration of Directors

(1) The remuneration (if any) of the Directors shall be determined by the Board and shall be deemed to accrue from day to day. The Directors may also be paid all travel, hotel and other expenses reasonably and properly incurred by them in attending and returning from meetings of the Board, any committee appointed by the Board, general meetings of the Company or in connection with the business of the Company or their duties as Directors generally.

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(2) A Director may hold any other office or place of profit under the Company (other than the office of Auditor) in conjunction with his office of Director for such period and on such terms as to remuneration and otherwise as the Board may determine.

OFFICERS

24.  Officers of the Company

The Officers of the Company shall include a Secretary, a chief executive officer and such additional Officers as the Board may from time to time determine all of whom shall be deemed to be Officers for the purposes of these Bye-laws.

25.  Appointment of Officers

The Secretary, the chief executive officer and additional Officers, if any, shall be appointed by the Board from time to time.

26.  Remuneration of Officers

The Officers shall receive such remuneration as the Board may from time to time determine.

27.  Duties of Officers

The Officers shall have such powers and perform such duties in the management, business and affairs of the Company as may be delegated to them by the Board from time to time.

28.  Register of Directors and Officers

The Board shall cause to be kept in one or more books at the registered office of the Company a Register of Directors and Officers and shall enter therein the particulars required by the Act.

MINUTES

29.  Obligations of Board to keep minutes

(1) The Board shall cause minutes to be duly entered in books provided for the purpose:

(a) of all elections and appointments of Officers;

(b) of the names of the Directors present at each meeting of the Board and of any committee appointed by the Board; and

(c) of all resolutions and proceedings of general meetings of the Members, meetings of the Board, and meetings of committees appointed by the Board.

(2) Minutes prepared in accordance with the Act and these Bye-laws shall be kept by the Secretary at the registered office of the Company.

INDEMNITY

30.  Indemnification of Directors and Officers of the Company

The Directors, Secretary and other Officers (such terms to include, for the purposes of Bye-laws 30 and 31, any person appointed to any committee by the Board) for the time being acting in relation to any of the affairs of the Company and the liquidator or trustees (if any) for the time being acting in relation to any of the affairs of the Company and every one of them, and their heirs, executors and administrators, shall be indemnified and secured harmless out of the assets of the Company from and against all actions, costs, charges, losses, damages and expenses which they or any of them, their heirs, executors or administrators, (together, the “Indemnitees”) shall or may incur or sustain by or by reason of any act done, concurred in or omitted in or about the execution of their duty, or supposed duty, or in their respective offices or trusts, and none of them shall be answerable for the acts, receipts,

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neglects or defaults of the others of them or for joining in any receipts for the sake of conformity, or for any bankers or other persons with whom any moneys or effects belonging to the Company shall or may be lodged or deposited for safe custody, or for insufficiency or deficiency of any security upon which any moneys of or belonging to the Company shall be placed out on or invested, or for any other loss, misfortune or damage which may happen in the execution of their respective offices or trusts, or in relation thereto, and the Company shall advance to each Indemnitee any legal or other expenses such Indemnitee reasonably incurs in investigating or defending any such claim upon receipt of notice from the Indemnitee of such expense having been levied, incurred or being expected to be incurred (together with a copy of any order, invoice, bill or other evidence thereof reasonably acceptable to the Company), provided that this indemnity shall not extend to any matter in which any of said persons is found, in a final judgment or decree not subject to appeal, to have committed fraud or dishonesty.

31.  Waiver of claim by Member

Each Member agrees to waive any claim or right of action such Member might have, whether individually or by or in the right of the Company, against any Director or Officer on account of any action taken by such Director or Officer, or the failure of such Director or Officer to take any action in the performance of his duties with or for the Company, provided that such waiver shall not extend to any matter in respect of any fraud or dishonesty which may attach to such Director or Officer.

MEETINGS

32.  Notice of annual general meeting

An annual general meeting of the Company shall be held in each year on such date and at such time and place as the Chairman or the Board shall appoint. At least ten (10) days’ notice of such meeting shall be given to each Member stating the date, place and time at which the meeting is to be held, that the election of Directors will take place thereat, and as far as practicable, the other business to be conducted at the meeting.

33.  Notice of special general meeting

The Chairman or any two (2) Directors or any Director and the Secretary or the Board may convene a special general meeting of the Company whenever in their judgement such a meeting is necessary, upon not less than ten (10) days’ notice which shall state the date, time, place and the general nature of the business to be considered at the meeting.

34.  Advance notice of Member nominees for Director and other Member proposals

(1) The matters to be considered and brought before any annual or special general meeting of Members of the Company shall be limited to only such matters, including the nomination and election of directors, as shall be brought properly before such general meeting in compliance with the Act or procedures set forth in this Bye-law 34.

(2) For any matter to be properly brought before any annual general meeting of Members, the matter must be (i) specified in the notice of annual general meeting given by or at the direction of the Board, (ii) otherwise brought before the annual general meeting by or at the direction of the Board or (iii) brought before the annual general meeting in the manner specified in this Bye-law 34(2) by a Member of record. In addition to any other requirements under applicable law, the Memorandum of Association of the Company and these Bye-laws, persons nominated by Members for election as directors of the Company and any other proposals by Members shall be properly brought before the annual general meeting only if notice in the manner contemplated hereby of any such matter to be presented by a Member at such annual general meeting of Members (the “Member Notice”) is delivered to the Secretary of the Company at the principal executive office of the Company not less than 90 nor more than 120 days prior to the first anniversary date of the annual general meeting for the preceding year; provided, however, if and only if the annual general meeting is not scheduled to be held within a period that commences 30 days before such anniversary date and ends 30 days after such anniversary date (an annual general meeting date outside such period being referred to herein as an “Other Meeting Date”), such Member Notice shall be given in the manner provided herein by the later of the close of business on (i) the date 90 days prior to such Other Meeting Date or (ii) the tenth day following the date such Other Meeting Date is first publicly announced or disclosed. Any Member entitled to nominate any person or persons (as the case may be) for election as a director or directors of the Company shall

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deliver, as part of such Member Notice, a statement in writing setting forth the name of the person or persons to be nominated, the number and class of all shares of the Company owned of record and beneficially by each such person, as reported to such Member by such nominee(s), the information regarding each such person required by paragraphs (a), (e) and (f) of Item 401 of Regulation S-K adopted by the Securities and Exchange Commission (or the corresponding provisions of any regulation subsequently adopted by the Securities and Exchange Commission applicable to the Company), each such person’s signed consent to serve as a director of the Company if elected, such Member’s name and address and the number and class of all shares of the Company owned of record and beneficially by such Member. Any Member who gives a Member Notice of any matter proposed to be brought before the annual general meeting (not involving nominees for director) shall deliver, as part of such Member Notice, the text of the proposal to be presented (including the text of any resolutions to be proposed for consideration by shareholders) and a brief written statement of the reasons why such Member favors the proposal and setting forth such Member’s name and address, the number and class of all shares of the Company owned of record and beneficially by such Member and, if applicable, any material interest of such Member in the matter proposed (other than as a Member). As used herein, shares “beneficially owned” shall mean all shares which such person is deemed to beneficially own pursuant to Rules 13d-3 and 13d-5 under the Exchange Act. The Company may require any proposed nominee to furnish such other information as it may reasonably require to determine whether the nominee would be considered “independent” under the various rules and standards applicable to the Company.

Notwithstanding anything in this Bye-law 34(2) to the contrary, in the event that the number of directors to be elected to the Board of the Company is increased and either all of the nominees for director or the size of the increased Board is not publicly announced or disclosed by the Company at least 100 days prior to the first anniversary of the preceding year’s annual general meeting, a Member Notice shall also be considered timely hereunder, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary of the Company at the principal executive office of the Company not later than the close of business on the tenth day following the first date all of such nominees or the size of the increased Board shall have been publicly announced or disclosed.

(3) Only such matters shall be properly brought before a special general meeting of Members as shall have been brought before the special general meeting pursuant to the Company’s notice of special general meeting. In the event the Company calls a special general meeting of Members for the purpose of electing one or more directors to the Board, not at the request of any Members acting pursuant to Bye-law 36 of these Bye-laws, any Member may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Company’s notice of special general meeting, if the Member Notice required by Bye-law 34(2) hereof shall be delivered to the Secretary of the Company at the principal executive office of the Company not later than the close of business on the tenth day following the day on which the date of the special general meeting and of the nominees proposed by the Board to be elected at such special general meeting is publicly announced or disclosed.

(4) For purposes of this Bye-law 34, a matter shall be deemed to have been “publicly announced or disclosed” if such matter is disclosed in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Company with the Securities and Exchange Commission.

(5) In no event shall the postponement or adjournment of an annual general meeting for which notice has already been given or any announcement of such postponement or adjournment, commence a new period for the giving of notice as provided in this Bye-law 34. This Bye-law 34 shall not apply to Members’ proposals made pursuant to Rule 14a-8 under the Exchange Act.

(6) The person acting as chairman at any general meeting of Members, in addition to making any other determinations that may be appropriate to the conduct of the general meeting, shall have the power and duty to determine whether notice of nominees and other matters proposed to be brought before a general meeting has been duly given in the manner provided in this Bye-law 34 and, if not so given, shall direct and declare at the general meeting that such nominees and other matters are not properly before the general meeting and shall not be considered.

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35.  Accidental omission of notice of general meeting

The accidental omission to give notice of a general meeting to, or the non-receipt of notice of a general meeting by, any Person entitled to receive notice shall not invalidate the proceedings at that meeting.

36.  Meeting called on requisition of Members

Notwithstanding anything herein, the Board shall, on the requisition of Members holding at the date of the deposit of the requisition not less than one-tenth of such of the paid-up share capital of the Company as at the date of the deposit carries the right to vote at general meetings of the Company, forthwith proceed to convene a special general meeting of the Company and the provisions of Section 74 of the Act shall apply.

37.  Short notice

A general meeting of the Company shall, notwithstanding that it is called by shorter notice than that specified in these Bye-laws, be deemed to have been properly called if it is so agreed by (i) all the Members entitled to attend and vote thereat in the case of an annual general meeting; and (ii) by a majority in number of the Members having the right to attend and vote at the meeting, being a majority together holding not less than ninety-five percent (95%) in nominal value of the shares giving a right to attend and vote thereat in the case of a special general meeting.

38.  Postponement of meetings

The Secretary may postpone any general meeting called in accordance with the provisions of these Bye-laws (other than a meeting requisitioned under Bye-law 36), provided that notice of postponement is given to each Member before the time for such meeting. Fresh notice of the date, time and place for the postponed meeting shall be given to each Member in accordance with the provisions of these Bye-laws.

39.  Quorum for general meeting

At any general meeting of the Company two or more persons present in person and representing in person or by proxy in excess of fifty percent (50%) of the total issued and outstanding Voting Shares throughout the meeting shall form a quorum for the transaction of business; provided, that if the Company shall at any time have only one Member, one Member present in person or by proxy shall constitute a quorum. If within half an hour from the time appointed for the meeting a quorum is not present, the meeting shall stand adjourned to the same day two (2) weeks later, at the same time and place or to such other day, time or place as the chairman of the meeting or failing him the Secretary may determine. Unless the meeting is adjourned to a specific date and time, fresh notice of the date, time and place for the resumption of the adjourned meeting shall be given to each Member in accordance with the provisions of these Bye-laws.

40.  Adjournment of meetings

The chairman of a general meeting may, with the consent of the Members at any general meeting at which a quorum is present (and shall if so directed), adjourn the meeting. Unless the meeting is adjourned to a specific date and time, fresh notice of the date, time and place for the resumption of the adjourned meeting shall be given to each Member in accordance with the provisions of these Bye-laws.

41.  Attendance at meetings

Members or their duly appointed proxies may participate in any general meeting solely by means of their physical attendance at the meetings, and participation by telephone, electronic or other communications facilities shall not be permitted.

42.  Attendance of Directors

The Directors of the Company shall be entitled to receive notice of and to attend and be heard at any general meeting.

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43.  Voting at meetings

(1) Subject to the provisions of the Act and these Bye-laws, any question proposed for the consideration of the Members at any general meeting shall be decided by the affirmative votes of a majority of the votes cast in accordance with the provisions of these Bye-laws and in the case of an equality of votes the resolution shall fail.

(2) A resolution put to a vote at any general meeting or other meeting of Members as may be required by the Act to amalgamate the Company with any Person in accordance with the Act shall be decided by the affirmative votes of a majority of the votes cast at any such meeting in accordance with the provisions of these Bye-laws and in the case of an equality of votes such resolution shall fail.

(3) No Member shall be entitled to vote at any general meeting unless such Member has paid all the calls on all shares held by such Member.

44.  Voting on show of hands

At any general meeting a resolution put to the vote of the meeting shall, in the first instance, be voted upon by a show of hands and, subject to any rights or restrictions for the time being lawfully attached to any class of shares and subject to the provisions of these Bye-laws, every Member present in person and every person holding a valid proxy at such meeting shall be entitled to one vote and shall cast such vote by raising his or her hand.

45.  Decision of chairman

At any general meeting a declaration by the chairman of the meeting that a question proposed for consideration has, on a show of hands, been carried, or carried unanimously, or by a particular majority, or lost, and an entry to that effect in a book containing the minutes of the proceedings of the Company shall, subject to the provisions of these Bye-laws, be conclusive evidence of that fact.

46.  Demand for a poll

(1) Notwithstanding the provisions of the immediately preceding two Bye-laws, at any general meeting of the Company, in respect of any question proposed for the consideration of the Members (whether before or on the declaration of the result of a show of hands as provided for in these Bye-laws), a poll may be demanded by any of the following persons:

(a) the chairman of such meeting;

(b) at least three (3) Members present in person or represented by proxy;

(c) any Member or Members present in person or represented by proxy and holding between them not less than one-tenth of the total voting rights of all the Members having the right to vote at such meeting; or

(d) any Member or Members present in person or represented by proxy holding shares in the Company conferring the right to vote at such meeting, being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all such shares conferring such right.

(2) Where, in accordance with the provisions of subparagraph (1) of this Bye-law, a poll is demanded, subject to any rights or restrictions for the time being lawfully attached to any class of shares, including any limitation on the voting power of any Controlled Shares pursuant to Bye-law 51, every Person present at such meeting shall have one vote for each Voting Share (as defined in Bye-law 50) of which such Person is the holder or for which such person holds a proxy and such vote shall be counted in the manner set out in subparagraph (4) of this Bye-law and the result of such poll shall be deemed to be the resolution of the meeting at which the poll was demanded and shall replace any previous resolution upon the same matter which has been the subject of a show of hands.

(3) A poll demanded in accordance with the provisions of subparagraph (1) of this Bye-law, for the purpose of electing a chairman of the meeting or on a question of adjournment, shall be taken forthwith and a poll demanded on any other question shall be taken in such manner and at such time and place as the chairman of the meeting may direct and any business other than that upon which a poll has been demanded may be proceeded with pending the taking of the poll.

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(4) Where a vote is taken by poll, each Person present and entitled to vote shall be furnished with a ballot paper on which such Person shall record his, her or its vote in such manner as shall be determined at the meeting having regard to the nature of the question on which the vote is taken, and each ballot paper shall be signed or initialled or otherwise marked so as to identify the voter and the registered holder in the case of a proxy. At the conclusion of the poll, the ballot papers shall be examined and counted as the chairman of the meeting directs for the purpose and the result of the poll shall be declared by the chairman.

47.  Seniority of joint holders voting

In the case of joint holders, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the Register of Members.

48.  Instrument of proxy

(1) The instrument appointing a proxy shall be in any common form or in such other form as the Board may approve, shall be in writing, and shall be signed or, in the case of a transmission by electronic mail, electronically signed in a manner acceptable to the chairman of the meeting, by the appointor or of the appointor’s attorney duly authorised in writing, or if the appointor is a corporation, either under its seal, or under the hand of a duly authorised officer or attorney. The decision of the chairman of any general meeting as to the validity of any instrument of proxy shall be final.

(2) The appointment of a proxy must be received by the Company at the registered office or at such other place or in such manner as is specified in the notice convening the meeting or in any instrument of proxy sent out by the Company in relation to the meeting at which the person named in the appointment proposes to vote, and an appointment of proxy not received in the manner so permitted shall be invalid.

49.  Representation of corporations at meetings

A corporation which is a Member may, by written instrument, authorise such Person as it thinks fit to act as its representative at any meeting of the Members and the Person so authorised shall be entitled to exercise the same powers on behalf of the corporation which such Person represents as that corporation could exercise if it were an individual Member. Notwithstanding the foregoing, the chairman of the meeting may accept such assurances as he or she thinks fit as to the right of any Person to attend and vote at general meetings on behalf of a corporation which is a Member.

50.  Rights of shares

(1) At the date these Bye-laws are adopted, the share capital of the Company shall be divided into three (3) classes of shares: Common Shares that carry voting rights (“Voting Shares”), Common Shares that do not carry voting rights (“Non-Voting Shares”) and Preference Shares (“Preference Shares”). The holders of Voting Shares shall, subject to the provisions of these Bye-laws (including, without limitation, the rights attaching to the Preference Shares):

(a) be entitled to one vote per Voting Share or, in the case of a Controlled Share of a Person that would be a 10% Shareholder without giving effect to Bye-law 51, a fraction of a vote per Controlled Share as determined pursuant to Bye-law 51;

(b) be entitled to such dividends as the Board may from time to time declare;

(c) in the event of a winding-up or dissolution of the Company, whether voluntary or involuntary or for the purpose of a reorganisation or otherwise or upon any distribution of capital, be entitled to the surplus assets of the Company; and

(d) generally be entitled to enjoy all of the rights attaching to shares.

Non-Voting Shares shall at all times rank, as to assets, dividends and in all other respects, on a parity with Voting Shares, except that the Non-Voting Shares shall not have the right to vote, except as otherwise provided by the Act.

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(2) The Board is authorised to provide for the issuance of the Preference Shares in one or more series, and to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof (and, for the avoidance of doubt, such matters and the issuance of such Preference Shares shall not be deemed to vary the rights attached to the Common Shares). The authority of the Board with respect to each series shall include, but not be limited to, determination of the following:

(a) the number of shares constituting that series and the distinctive designation of that series;

(b) the dividend rate (or the basis therefor, if floating) on the shares of that series, whether dividends shall be cumulative and, if so, from which date or dates, and the relative rights of priority, if any, of the payment of dividends on shares of that series;

(c) whether that series shall have voting rights, in addition to the voting rights provided by law, and if so, the terms of such voting rights;

(d) whether that series shall have conversion or exchange privileges (including, without limitation, conversion into Common Shares), and, if so, the terms and conditions of such conversion or exchange, including provision for adjustment of the conversion or exchange rate in such events as the Board shall determine;

(e) whether or not the shares of that series shall be redeemable or repurchaseable (whether at the option of the Company or the holder), and, if so, the terms and conditions of such redemption or repurchase, including the manner of selecting shares for redemption or repurchase if less than all shares are to be redeemed or repurchased, the date or dates upon or after which they shall be redeemable or repurchaseable, and the amount per share payable in case of redemption or repurchase, which amount may vary under different conditions and at different redemption or repurchase dates;

(f) whether that series shall have a sinking fund for the redemption or repurchase of shares of that series, and, if so, the terms and amount of such sinking fund;

(g) the right of the shares of that series to the benefit of conditions and restrictions upon the creation of indebtedness of the Company or any subsidiary, upon the issue of any additional shares (including additional shares of such series or any other series) and upon the payment of dividends or the making of other distributions on, and the purchase, redemption or other acquisition by the Company or any subsidiary of any issued shares of the Company;

(h) the rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Company, and the relative rights of priority, if any, of payment of shares of that series; and

(i) any other relative participating, optional or other special rights, qualifications, limitations or restrictions of that series including the right to appoint directors and the manner for appointing and removing such directors and the number and term of such directors.

(3) Any Preference Shares of any series which have been redeemed (whether through the operation of a sinking fund or otherwise) or which, if convertible or exchangeable, have been converted into or exchanged for shares of any other class or classes shall have the status of authorized and unissued Preference Shares of the same series and may be reissued as a part of the series of which they were originally a part or may be reclassified and reissued as part of a new series of Preference Shares to be created by resolution or resolutions of the Board or as part of any other series of Preference Shares, all subject to the conditions and the restrictions on issuance set forth in the resolution or resolutions adopted by the Board providing for the issue of any series of Preference Shares.

(4) At the discretion of the Board, whether or not in connection with the issuance and sale of any shares or other securities of the Company, the Company may issue securities, contracts, warrants or other instruments evidencing any shares, option rights, securities having conversion or option rights, or obligations on such terms, conditions and other provisions as are fixed by the Board, including, without limiting the generality of this authority, conditions that preclude or limit any Person or Persons owning or offering to acquire a specified number or percentage of the outstanding Common Shares, other shares, option rights, securities having conversion or option

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rights, or obligations of the Company or transferee of the Person or Persons from exercising, converting, transferring or receiving the shares, option rights, securities having conversion or option rights, or obligations.

51.  Limitation on voting rights of Controlled Shares

(1) Subject to any rights or restrictions for the time being attached to any class or classes of shares, on a poll at a general meeting every Member present in person or by proxy shall have one vote for each Voting Share registered in his, her or its name in the Register of Members; provided, however, that, subject to the following provisions of this Bye-law 51, if and for so long as (i) the aggregate number of votes conferred by the Controlled Shares of any Person would constitute ten percent (10%) or more of the total combined voting power of all classes of shares entitled to vote of the Company (calculated after giving effect to any prior reduction in voting rights attaching to shares of other Persons as provided in this Bye-law 51) and (ii) with respect to any Person described in clause (i) who is a U.S. Person, such Person owns by application of Section 958(a) of the Code any shares of the Company, such Controlled Shares, regardless of the identity of the registered holder thereof, shall collectively confer a number of votes determined by the following formula (the “Formula”):

((T − C) ¸ 9) − 1

Where:   “T” is the aggregate number of votes conferred by all the issued shares of the Company immediately prior to the application of the Formula with respect to such Controlled Shares, adjusted to take into account each reduction in such aggregate number of votes that results from a prior reduction in the exercisable votes conferred by any Controlled Shares pursuant to Bye-law 51(4) as at the same date;

“C” is the aggregate number of votes conferred by the Controlled Shares attributable to such Person.

Each Controlled Share shall be affected equally by such diminution.

(2) The Directors may, by notice in writing, require any Member to provide within not less than ten (10) Business Days, complete and accurate information to the registered office or such other place as the Directors may designate in respect of any or all of the following matters:

(a) the number of shares in which such Member is legally or beneficially interested;

(b) the Persons who are beneficially interested in shares in respect of which such Member is the registered holder;

(c) the relationship, association or affiliation of such Member with any other Member or Person whether by means of common control or ownership or otherwise; or

(d) any other facts or matters which the Directors may consider relevant to the determination of the number of Controlled Shares attributable to any Person.

(3) If any Member does not respond to any notice given pursuant to Bye-law 51(2) above within the time specified therein or the Directors shall have reason to believe that any information provided in relation thereto is incomplete or inaccurate, the Directors may determine that the votes attaching to any shares registered in the name of such Member shall be disregarded for all purposes until such time as a response (or additional response) to such notice reasonably satisfactory to the Directors has been received as specified therein.

(4) The Formula shall be applied successively as many times as may be necessary to ensure that (i)  no U.S. Person who owns by application of Section 958(a) of the Code any shares of the Company shall be a 10% Shareholder at any time, and (ii) no Person who is not a U.S. Person shall be a 10% Shareholder at any time. For the purposes of determining the votes exercisable by Members as of any date, the Formula shall be applied to the Controlled Shares of each Person in declining order based on the respective numbers of Controlled Shares attributable to each Person. Thus, the Formula will be applied first to the Controlled Shares of the Person to whom the largest number of Controlled Shares are attributable and thereafter sequentially with respect to the Controlled Shares of the Person with the next largest number of Controlled Shares. In each case, calculations are made on the basis of the aggregate number of votes conferred by the issued shares as of such date, as reduced by the prior application of the Formula to any Controlled Shares of any Person as of such date.

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(5) Notwithstanding the provisions of subparagraphs (1) and (2) of this Bye-law 51 above, having applied the provisions thereof as best as they consider reasonably practicable, the Directors may make such final adjustments to the aggregate number of votes attaching to the shares of any Member that they consider fair and reasonable in all the circumstances to ensure that no Person shall be a 10% Shareholder at any time. It is the intention of these Bye-laws to prevent any Person from being treated as a “United States shareholder”, within the meaning of Section 951(b) of the Code, that would be required to include any amounts in income for United States federal income tax purposes in respect of such Person’s investment in the Company prior to receipt of dividend distributions from the Company or disposition of such Person’s shares in the Company. In order to insure that no Person shall be treated as a “United States shareholder” within the meaning of Section 951(b) of the Code, it is also the intention of these Bye-laws to prevent any Person from exercising, through beneficial (direct or indirect) ownership within the meaning of Section 13(d)(3) of the Exchange Act, ten percent (10%) or more of the total combined voting power of all classes of shares of the Company entitled to vote. Accordingly, this Bye-law 51 should be interpreted so as to effectuate this goal (along with conforming definitional changes as needed) in light of future events, including, but not limited to, (i) the issuance of other shares, or right to acquire shares, that are entitled to vote; and (ii) any recapitalization or modification to the rights of any shares the effect of which is, in part, to alter the voting rights or relative voting rights of any shares.

52.  Power to issue shares

(1) Subject to these Bye-laws and to any rights attaching to issued shares of the Company, the unissued shares of the Company (whether forming part of the original share capital or any increased share capital) shall be at the disposal of the Board, which may issue, offer, allot, exchange or otherwise dispose of shares or options, warrants or other rights to purchase shares or, subject to Section 43 of the Act, securities convertible into or exercisable or exchangeable for shares (including any employee benefit plan providing for the issuance of shares or options or rights in respect thereof), at such times, for such consideration and on such terms and conditions as it may determine (including, without limitation, such preferred or other special rights or restrictions with respect to dividend, voting, liquidation or other rights of the shares as may be determined by the Board).

(2) Notwithstanding the foregoing provisions of this Bye-law, the Company shall not issue any shares in a manner that the Board believes would cause, by reason of such issuance, a violation of the Ownership Limits (described below under Bye-law 64).

Notwithstanding the foregoing provisions of this Bye-law, the restrictions of this Bye-law 52(2) shall not apply to any issuance of shares to a Person acting as an underwriter in the ordinary course of its business, purchasing such shares pursuant to a purchase agreement to which the Company is a party, for resale.

(3) The Board shall, in connection with the issue of any share, have the power to pay such commission and brokerage as may be permitted by law.

(4) The Company shall not give, whether directly or indirectly, whether by means of loan, guarantee, provision of security or otherwise, any financial assistance for the purpose of a purchase or subscription made or to be made by any Person of or for any shares in the Company, but nothing in this Bye-law shall prohibit transactions mentioned in or permitted pursuant to Sections 39A, 39B and 39C of the Act.

(5) The Company may from time to time do any one or more of the following things:

(a) make arrangements on the issue of shares for a difference between the Members in the amounts and times of payments of calls on their shares;

(b) accept from any Member the whole or a part of the amount remaining unpaid on any shares held by him, although no part of that amount has been called up;

(c) pay dividends in proportion to the amount paid up on each share where a larger amount is paid up on some shares than on others; and

(d) issue its shares in fractional denominations and deal with such fractions to the same extent as its whole shares and shares in fractional denominations shall have in proportion to the respective fractions

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represented thereby all of the rights of whole shares including (but without limiting the generality of the foregoing) the right to vote, to receive dividends and distributions and to participate in a winding up.

53.  Variation of rights, alteration of share capital and purchase of shares of the Company

(1) Without limitation to Bye-law 50, subject to the provisions of Sections 42 and 43 of the Act any Preference Shares may be issued or converted into shares that, at a determinable date or at the option of the Company, are liable to be redeemed on such terms and in such manner as the Company before the issue or conversion may by resolution of the Board determine.

(2) While the share capital is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may, whether or not the Company is being wound-up, be varied with the consent in writing of the holders of three-fourths of the issued shares of that class or with the sanction of a resolution passed by a majority of the votes cast at a separate general meeting of the holders of the shares of the class in accordance with Section 47(7) of the Act. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

(3) The Company may from time to time by resolution of the Members change the currency denomination of, increase, alter or reduce its share capital in accordance with the provisions of Sections 45 and 46 of the Act. Where, on any alteration of share capital, fractions of shares or some other difficulty would arise, the Board may deal with or resolve the same in such manner as it thinks fit, including, without limiting the generality of the foregoing, the issue to Members, as appropriate, of fractions of shares and/or arranging for the sale or transfer of the fractions of shares of Members.

(4) Subject to Bye-law 11(4), the Company may from time to time purchase its own shares in accordance with the provisions of Section 42A of the Act.

(5) Notwithstanding Bye-law 53(3), the Board may generally exercise the powers of the Company set out in Sections 45(1)(b), (c), (d) and (e) of the Act, without the need of any approval of the Members as might otherwise be required by such sections of the Act.

54.  Conversion and transfer of Non-Voting Shares

Subject to Bye-law 64:

(1) Except as provided in Bye-law 54(3) below, upon the sale, transfer or other disposition of Non-Voting Shares by any Member, such Non-Voting Shares shall become Voting Shares in the hands of the transferee, and shall be so reflected in the Register of Members.

(2) (a) Subject to the terms and conditions hereof, a holder of Non-Voting Shares shall have the right at any time and from time to time, without payment of additional consideration, to convert all or any part of such Member’s Non-Voting Shares into Voting Shares on a one-for-one basis.

(b) Such conversion shall take effect upon the registration of such conversion, which shall (subject to Bye-law 64) occur upon the holder providing written notice of such conversion to the Company specifying the date on which such conversion is to be registered, which shall be a date at least 10 days after the date on which such notice is delivered to the Company, or such other date as the holder and the Company may agree. From and after the date such conversion is registered, the holder of the Non-Voting Shares shall cease to be entitled to any rights or privileges attached to the Non-Voting Shares and the certificates representing the Non-Voting Shares shall represent only a right to receive certificates for the Voting Shares into which such Non-Voting Shares have been converted. The Company shall deliver or caused to be delivered, to the order of all holders of Non-Voting Shares who have surrendered to the Company for cancellation certificates representing Non-Voting Shares, certificates representing the Voting Shares into which such Non-Voting Shares have been converted.

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(3) Notwithstanding anything in this Bye-law 54 to the contrary and subject to Bye-law 64, a holder of Non-Voting Shares shall have the right to transfer such Non-Voting Shares to (i) an Affiliate or (ii) any other Member that is, prior to such transfer, a holder of Non-Voting Shares. Any Non-Voting Shares transferred pursuant to this Bye-law 54(3) shall retain their status as Non-Voting Shares.

(4) Voting Shares shall not be convertible into Non-Voting Shares, except that so long as a Founder (other than an Industry Founder) or any of such Founder’s Affiliates owns directly or by application of the attribution and constructive ownership rules of Sections 958(a) and 958(b) of the Code any Common Shares, all Voting Shares owned directly or by application of the attribution and constructive ownership rules of Sections 958(a) and 958(b) of the Code by such Founder or any of such Founder’s Affiliates shall automatically convert into Non-Voting Shares, provided that, with respect to Voting Shares converted into Non-Voting Shares by operation of this sentence, such shares shall revert to being Voting Shares after the date such Common Shares are no longer owned by such Founder or its Affiliates. Upon the request of the Company, such Founder or Affiliate shall timely identify to the Company all shares subject to the exception and the first proviso in this Bye-law 54(4).

55.  Registered holder of shares

(1) The Company shall be entitled to treat the registered holder of any share as the absolute owner thereof and accordingly shall not be bound to recognise any equitable or other claim to, or interest in, such share on the part of any other Person.

(2) Any dividend, interest or other moneys payable in cash in respect of shares may be paid by cheque or draft sent through the post directed to the Member at such Member’s address in the Register of Members or, in the case of joint holders, to such address of the holder first named in the Register of Members, or to such Person and to such address as the holder or joint holders may in writing direct. If two (2) or more Persons are registered as joint holders of any shares, any one can give an effectual receipt for any dividend paid in respect of such shares.

56.  Death of a joint holder

Where two (2) or more persons are registered as joint holders of a share or shares, then in the event of the death of any joint holder or holders, the remaining joint holder or holders shall be absolutely entitled to the said share or shares, and the Company shall recognise no claim in respect of the estate of any joint holder except in the case of the last survivor of such joint holders.

57.  Share certificates

(1) Every Member shall be entitled to a certificate under the seal of the Company (or a facsimile thereof) specifying the number and, where appropriate, the class of shares held by such Member and whether the same are fully paid up and, if not, how much has been paid thereon. The Board may by resolution determine, either generally or in a particular case, that any or all signatures on certificates may be printed thereon or affixed by mechanical means.

(2) The Company shall be under no obligation to complete and deliver a share certificate unless specifically called upon to do so by the Person to whom such shares have been allotted.

(3) If any such certificate shall be proved to the satisfaction of the Board to have been worn out, lost, mislaid or destroyed, the Board may cause a new certificate to be issued and request an indemnity for the lost certificate if it sees fit.

(4) The share certificates may bear legends concerning restrictions on transfer or otherwise as the Board may from time to time determine.

58.  Calls on shares

(1) The Board may from time to time make such calls as it thinks fit upon the Members in respect of any moneys unpaid on the shares allotted to or held by such Members and, if a call is not paid on or before the day appointed for payment thereof, the Member may at the discretion of the Board be liable to pay the Company interest on the amount of such call at such rate as the Board may determine, from the date when such call was payable up to

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the actual date of payment. The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof.

(2) The Board may, on the issue of shares, differentiate between the holders as to the amount of calls to be paid and the times of payment of such calls.

59.  Forfeiture of shares

(1) If any Member fails to pay, on the day appointed for payment thereof, any call in respect of any share allotted to or held by such Member, the Board may, at any time thereafter during such time as the call remains unpaid, direct the Secretary to forward to such Member a notice in the form, or as near thereto as circumstances admit, of Form “A” in the Schedule hereto.

(2) If the requirements of such notice are not complied with, any such share may at any time thereafter before the payment of such call and the interest due in respect thereof be forfeited by a resolution of the Board to that effect, and such share shall thereupon become the property of the Company and may be disposed of as the Board shall determine.

(3) A Member whose share or shares have been forfeited as aforesaid shall, notwithstanding such forfeiture, be liable to pay to the Company all calls owing on such share or shares at the time of the forfeiture and all interest due thereon.

REGISTER OF MEMBERS

60.  Contents of Register of Members

The Board shall cause to be kept in one or more books a Register of Members and shall enter therein the particulars required by the Act.

61.  Inspection of Register of Members

The Register of Members shall be open to inspection at the registered office of the Company on every Business Day, subject to such reasonable restrictions as the Board may impose, so that not less than two (2) hours in each business day be allowed for inspection. The Register of Members may, after notice has been given in accordance with the Act, be closed for any time or times not exceeding in the whole 30 days in each year.

62.  Determination of record dates

Notwithstanding any other provision of these Bye-laws, the Board may fix any date as the record date for:

(a) determining the Members entitled to receive any dividend; and

(b) determining the Members entitled to receive notice of and to vote at any general meeting of the Company.

TRANSFER OF SHARES

63.  Instrument of transfer

(1) An instrument of transfer shall be in writing in the form, or as near thereto as circumstances admit, of Form “B” in the Schedule hereto or in such other common form as the Board may accept. Such instrument of transfer shall be signed by or on behalf of the transferor and transferee, provided that, in the case of a fully paid share, the Board may accept the instrument signed by or on behalf of the transferor alone. The transferor shall be deemed to remain the holder of such share until the same has been transferred to the transferee in the Register of Members.

(2) The Board may refuse to recognise any instrument of transfer unless it is accompanied by the certificate in respect of the shares to which it relates and by such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer.

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(3) Shares may be transferred without a written instrument if transferred by an appointed agent or otherwise in accordance with the Act.

64.  Restriction on transfer

(1) Subject to the Act, this Bye-law 64 and such other of the restrictions contained in these Bye-laws and elsewhere as may be applicable, and except, in the case of any shares other than the Voting Shares, as may otherwise be provided by the terms of issuance thereof, any Member may sell, assign, transfer or otherwise dispose of shares of the Company at any time owned by it and, subject to Bye-law 63, the Directors shall procure the timely registration of the same. If the Directors refuse to register a transfer for any reason they shall notify the proposed transferor and transferee within thirty (30) days of such refusal.

(2) The Directors may, in their sole and absolute discretion, decline to register a transfer (including a conversion pursuant to Bye-law 54(2)) of shares if the Directors have reason to believe that, such transfer would cause (i) any U.S. Person to become a 10% Shareholder (as determined without giving effect to any adjustments to the voting rights of any Member under Bye-law 51), other than a Person who does not own (including as a result of such transfer) any shares of the Company by application of Section 958(a) of the Code; (ii) any Founder, any Affiliate of a Founder or any Person to whom shares of a Founder are attributed under Section 318(a)(3) of the Code (giving effect to Treasury Regulations Section 1.958-2(d)), to own (after taking into account the Founder Back-Attribution Convention), directly or by application of the constructive and indirect ownership rules of Sections 958(a) and 958(b) of the Code, a greater percentage of the shares than the greater of (x) 9.99% and (y) the percentage of shares such Founder, Affiliate or Person so owned as of July 17, 2006 (other than as a result of any Affiliate of a Founder (other than an Industry Founder) holding shares as an underwriter, market maker, broker, dealer or investment adviser, but in no event more than 24.5% of the shares); or (iii) any U.S. Person who is not a Founder, to own, by application of the constructive and indirect ownership rules of Section 958(a) and 958(b) of the Code, ten percent (10%) or more of the shares, but only (for purposes of this Bye-law 64(2)(iii)) if such Person owns (including as a result of such transfer), or is deemed to own by application of Section 958(a) of the Code (including as a result of such transfer), any shares in the Company.

(3) The Directors may, in their sole and absolute discretion, decline to register the transfer (including a conversion pursuant to Bye-law 54(2)) of any shares if the Directors have reason to believe (i) that such transfer may expose the Company, any subsidiary thereof or any Member to, or materially increase the risk of, material adverse tax or regulatory treatment in any jurisdiction or (ii) that registration of such transfer under the Securities Act or under any blue sky or other U.S. state securities laws or under the laws of any other jurisdiction is required and such registration has not been duly effected; provided, however, that in case (ii), the Directors shall be entitled to request and rely on an opinion of counsel to the transferor or the transferee, in form and substance satisfactory to the Directors, that no such approval or consent is required and no such violation would occur, and the Directors shall not be obligated to register any transfer absent the receipt of such an opinion.

(4) Without limiting the foregoing, the Board shall decline to approve or register a transfer of shares unless all applicable consents, authorisations, permissions or approvals of any governmental body or agency in Bermuda, the United States or any other applicable jurisdiction required to be obtained prior to such transfer shall have been obtained.

(5) The registration of transfers may be suspended at such time and for such periods as the Directors may from time to time determine; provided that such registration shall not be suspended for more than forty-five (45) days in any period of three hundred and sixty five (365) consecutive days.

(6) The Directors may require any Member, or any Person proposing to acquire shares of the Company, to certify or otherwise provide information in writing as to such matters as the Directors may request for the purpose of giving effect to Bye-laws 11(3), 11(4), 52(2), 64(2) and 64(3) including as to such Member or Person’s status as a U.S. Person, its Controlled Shares, whether such Person is directly or indirectly insured or reinsured by any subsidiary of the Company, whether any Person related to such Member or Person is directly or indirectly insured or reinsured by any subsidiary of the Company, and other matters of the kind contemplated by Bye-law 51(2). Such request shall be made by written notice and the certification or other information requested shall be provided to such place and within such period (not less than ten (10) Business Days after such notice is given unless the Directors and

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such Member or proposed acquiror otherwise agree) as the Directors may designate in such request. If any Member or proposed acquiror does not respond to any such request by the Directors as requested, or if the Directors have reason to believe that any certification or other information provided pursuant to any such request is inaccurate or incomplete, the Directors may decline to register any transfer or to effect any issuance or purchase of shares to which such request relates.

(7) Founder Back-Attribution Convention — For the purposes of Bye-law 64(2)(ii), in applying the constructive ownership rules of Section 958(b) of the Code, the rules of Section 318(a)(3) and Treasury Regulations 1.958-2(d) of the Code shall only apply with respect to Founders and their Affiliates to the extent that the rules would attribute to a Founder, or its Affiliate, the shares owned (directly or by application of the constructive and indirect ownership rules of Sections 958(a) and 958(b) of the Code) by (i) a Person that owns twenty-five percent (25%) or more of such Founder, by vote or value; or (ii) an Affiliate of such Founder (the convention set forth in this paragraph (7), the “Founder Back-Attribution Convention”).

(8) If the Company has reasonable grounds to believe that, as a result of a Person’s purchase or other acquisition of or ownership of shares or exercise of any right to acquire shares, one or more Members are or, upon consummation of such purchase or exercise will be, in violation of the ownership limits described in paragraphs (2) and (3) above (the “Ownership Limits”) (or as to which requested evidence of compliance with the Ownership Limits has not been provided to the Company), such purchase or other acquisition shall not be registered in the Register of Members of the Company. In the event that such a transfer is registered, such transfer shall, upon determination by the Company, in its sole discretion, that such violation has occurred (which determination shall be binding on all Members), be reversed. Neither the Company nor the Board of Directors shall be obligated to investigate the circumstances pertaining to any proposed acquisition or any ownership in order to determine compliance with the Ownership Limits.

(9) If the Company has reasonable grounds to believe that as a result of a Person’s direct or indirect purchase or other acquisition or ownership of shares (or any rights to acquire shares), one or more Members are in violation of the Ownership Limits (or if the Company has requested evidence of compliance with the Ownership Limits but has not received it in a timely manner), the Board shall determine as soon as practicable and in its sole discretion whether, and to what extent, to require any, or all, Members, including the aforementioned Person (if such Person is a Member, the “Offending Member”) to require the Offending Member to dispose of shares, provided that a disposition under this clause shall be required only if the Board determines (in its sole discretion) that it would have been reasonably practicable for such Offending Member to determine that its actions (including its activities unrelated to its ownership in the Company) would likely result in a violation of the Ownership Limits and, provided, further that under no circumstances shall a Founder, or any of its Affiliates, be required to dispose of shares pursuant to this clause.

(10) Any disposition pursuant to this Bye-law 64 should occur no later than the 28th calendar day after the date on which the Board first received notice that the aforementioned Member exceeded the Ownership Limits and the disposing Member shall make all reasonable efforts to effect such disposition within such 28-day period.

(11) In addition to that set forth in paragraphs (8), (9) and (10), if as a result of a Person’s purchase or other acquisition of or ownership of shares, the Company has reasonable grounds to believe that one or more Members are in violation of the Ownership Limits, the Board may take such other action in connection therewith or incidentally thereto as the Board may determine is necessary or advisable in its sole discretion. Any determinations made by the Board or the Company in connection with this Bye-law 64 or Bye-law 51 or other related provisions shall be made in its sole discretion (which determinations shall, in each case, be final and binding upon all Members).

(12) The restrictions on transfer authorized by this Bye-law 64 shall not be imposed in any circumstance in a way that would interfere with the settlement of trades or transactions in shares entered into through the facilities of the New York Stock Exchange, Inc.; provided, however, that the Directors may decline to register transfers in accordance with these Bye-laws after a settlement has taken place.

(13) Notwithstanding any other provision of these Bye-laws to the contrary, the provisions of this Bye-law 64 shall not apply in any way to purchases made by the Company of all or any part of its shares in accordance with Bye-law 11.

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65.  Transfers by joint holders

The joint holders of any share or shares may transfer such share or shares to one or more of such joint holders, and the surviving holder or holders of any share or shares previously held by them jointly with a deceased Member may transfer any such share or shares to the executors or administrators of such deceased Member.

TRANSMISSION OF SHARES

66.  Representative of deceased Member

In the case of the death of a Member, the survivor or survivors where the deceased Member was a joint holder, and the legal personal representatives of the deceased Member where the deceased Member was a sole holder, shall be the only Persons recognised by the Company as having any title to the deceased Member’s interest in the shares. Nothing herein contained shall release the estate of a deceased joint holder from any liability in respect of any share which had been jointly held by such deceased Member with other Persons. Subject to the provisions of Section 52 of the Act, for the purpose of this Bye-law, legal personal representative means the executor or administrator of a deceased Member or such other Person as the Board may in its absolute discretion decide as being properly authorised to deal with the shares of a deceased Member.

67.  Registration on death or bankruptcy

Subject to Bye-law 64, any Person becoming entitled to a share in consequence of the death or the bankruptcy of any Member may be registered as a Member upon such evidence as the Board may deem sufficient or may elect to nominate some Person to be registered as a transferee of such share, and in such case the Person becoming entitled shall execute in favour of such nominee an instrument of transfer in the form, or as near thereto as circumstances admit, of Form “C” in the Schedule hereto. On the presentation thereof to the Board, accompanied by such evidence as the Board may require to prove the title of the transferor, the transferee shall be registered as a Member but the Board shall, in either case, have the same right to decline or suspend registration as it would have had in the case of a transfer of the share by that Member before such Member’s death or bankruptcy, as the case may be.

DIVIDENDS AND OTHER DISTRIBUTIONS

68.  Declaration of dividends by the Board

The Board may, subject to these Bye-laws and in accordance with Section 54 of the Act, declare a dividend to be paid to the Members, in proportion to the number of shares held by them, and such dividend may be paid in cash or wholly or partly in specie in which case the Board may fix the value for distribution in specie of any assets.

69.  Other distributions

The Board may declare and make such other distributions (in cash or in specie) to the Members as may be lawfully made out of the assets of the Company.

70.  Reserve fund

The Board may from time to time before declaring a dividend set aside, out of the surplus or profits of the Company, such sum as it thinks proper as a reserve fund to be used to meet contingencies or for equalising dividends or for any other special purpose.

71.  Deduction of amounts due to the Company

The Board may deduct from the dividends or distributions payable to any Member all moneys due from such Member to the Company on account of calls or otherwise.

72.  Unclaimed dividends

Any dividend or other sum payable on or in respect of a share which has remained unclaimed for a period of six (6) years from the date when it became due for payment shall be forfeited and shall cease to remain owing by the

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Company and the payment of any unclaimed dividend or other sum payable on or in respect of a share into a separate account shall not constitute the Company a trustee in respect thereof.

73.  Interest on dividends

No dividend or distribution shall bear interest against the Company.

74.  Issue of bonus shares

(1) Subject to the Ownership Limits, the Board may resolve to capitalise any part of the amount for the time being standing to the credit of any of the Company’s share premium or other reserve accounts or to the credit of the profit and loss account or otherwise available for distribution by applying such sum in paying up unissued shares to be allotted as fully paid bonus shares pro rata to the Members.

(2) Subject to the Ownership Limits, the Company may capitalise any sum standing to the credit of a reserve account or sums otherwise available for dividend or distribution by applying such amounts in paying up in full partly paid shares of those Members who would have been entitled to such sums if they were distributed by way of dividend or distribution.

ACCOUNTS AND FINANCIAL STATEMENTS

75.  Records of account

The Board shall cause to be kept proper records of account with respect to all transactions of the Company and in particular with respect to:

(a) all sums of money received and expended by the Company and the matters in respect of which the receipt and expenditure relates;

(b) all sales and purchases of goods by the Company; and

(c) the assets and liabilities of the Company.

Such records of account shall be kept at the registered office of the Company or, subject to Section 83(2) of the Act, at such other place as the Board thinks fit and shall be available for inspection by the Directors during normal business hours.

76.  Financial year end

The financial year end of the Company may be determined by resolution of the Board and failing such resolution shall be 31st December in each year.

77.  Financial statements

Subject to any rights to waive laying of accounts pursuant to Section 88 of the Act, financial statements as required by the Act shall be laid before the Members in general meeting.

AUDIT

78.  Appointment of Auditor

Subject to Section 88 of the Act and to Bye-law 80, at the annual general meeting or at a subsequent special general meeting in each year, an independent representative of the Members shall be appointed by them as Auditor of the accounts of the Company. Such Auditor may be a Member but no Director, Officer or employee of the Company shall, during his or her continuance in office, be eligible to act as an Auditor of the Company.

79.  Remuneration of Auditor

The remuneration of the Auditor shall be fixed by the Board or a committee thereof.

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80.  Vacation of office of Auditor

If the office of Auditor becomes vacant by the resignation or death of the Auditor, or by the Auditor becoming incapable of acting by reason of illness or other disability at a time when the Auditor’s services are required, the Board shall, as soon as practicable, fill the vacancy thereby created. The Board may fill any other casual vacancy in the office of Auditor, but while the vacancy continues the surviving or continuing Auditor, if any, may act.

81.  Access to books of the Company

The Auditor shall at all reasonable times have access to all books kept by the Company and to all accounts and vouchers relating thereto, and the Auditor may call on the Directors or Officers of the Company for any information in their possession relating to the books or affairs of the Company.

82.  Report of the Auditor

(1) Subject to any rights to waive laying of accounts or appointment of an Auditor pursuant to Section 88 of the Act, the accounts of the Company shall be audited at least once in every year.

(2) The financial statements provided for by these Bye-laws shall be audited by the Auditor in accordance with generally accepted auditing standards. The Auditor shall make a written report thereon in accordance with generally accepted auditing standards and the report of the Auditor shall be submitted to the Members in general meeting.

(3) The generally accepted auditing standards referred to in paragraph (2) of this Bye-law shall be those of the United States of America and the financial statements and the report of the Auditor shall disclose this fact.

NOTICES

83.  Notices to Members of the Company

A notice may be given by the Company to any Member either by delivering it to such Member in person or by sending it to such Member’s address in the Register of Members or to such other address given for the purpose. For the purposes of this Bye-law, a notice may be sent by mail, courier service, cable, telex, telecopier, facsimile, electronic mail or other mode of representing words in a legible and non-transitory form.

84.  Notices to joint Members

Any notice required to be given to a Member shall, with respect to any shares held jointly by two (2) or more Persons, be given to whichever of such Persons is named first in the Register of Members and notice so given shall be sufficient notice to all the holders of such shares.

85.  Service and delivery of notice

Any notice shall be deemed to have been duly served at the time when the same would be delivered in the ordinary course of transmission and, in proving such service, it shall be sufficient to prove that the notice was properly addressed and prepaid, if posted, and the time when it was posted, delivered to the courier or to the cable company or transmitted by telex, facsimile or other method as the case may be.

SEAL OF THE COMPANY

86.  The seal

The Company may adopt a seal in such form as the Board may determine. The Board may adopt one or more duplicate seals for use in or outside Bermuda.

87.  Manner in which seal is to be affixed

A seal of the Company may, but need not, be affixed to any deed, instrument, share certificate or document, and if the seal is to be affixed thereto, it shall be attested by the signature of (i)  any Director, (ii) any Officer, (iii) the Secretary, or (iv) any person 

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authorized by the Board that purpose.

WINDING-UP

88.  Winding-up/distribution by liquidator

If the Company shall be wound up, the liquidator may, with the sanction of a resolution of the Members, divide amongst the Members in specie or in kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may, for such purpose, set such value as he, she or it deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the Members or different classes of Members. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the Members as the liquidator shall think fit, but so that no Member shall be compelled to accept any shares or other securities or assets whereon there is any liability.

ALTERATION OF BYE-LAWS

89.  Alteration of Bye-laws

No Bye-law shall be rescinded, altered or amended and no new Bye-law shall be made until the same has been approved by a resolution of the Board and by a resolution of the Members.

CERTAIN SUBSIDIARIES

90.  Directors of Bermuda Insurance Subsidiaries

Notwithstanding any other provision of these Bye-laws to the contrary:

(1) The only individuals who shall be eligible to be elected or appointed by the Company as the Class I directors, Class II directors and Class III directors of any Bermuda Insurance Subsidiary shall be the Class I Directors, Class II Directors and Class III Directors, respectively from time to time.

(2) Any resignation or removal of a Director from the Board or other vacancy arising therein, as well as any replacement or succession of a Director, shall in each case have the same effect on the board of directors of the Bermuda Insurance Subsidiary.

(3) The total number of directors of each Bermuda Insurance Subsidiary shall be equal to the total number of Directors. Each director of each Bermuda Insurance Subsidiary shall have the same vote, as the respective Director. The directors of each Bermuda Insurance Subsidiary shall be divided into the same classes as the Directors.

91.  Directors of Non-U.S., Non-Bermuda Insurance Subsidiaries

Notwithstanding any other provision of these Bye-laws to the contrary:

(1) No person shall be elected as a director of any Non-U.S., Non-Bermuda Insurance Subsidiary unless such person has, within the preceding 120 calendar days, been approved, by resolution of the Members in accordance with and subject to the limitations in these Bye-laws, including, but not limited to, Bye-law 51, as a person eligible to be elected as a director of such Non-U.S., Non-Bermuda Insurance Subsidiary (an “Eligible Subsidiary Director”); and

(2) No person may be elected as a director of a Non-U.S., Non-Bermuda Insurance Subsidiary, unless all Eligible Subsidiary Directors approved for the relevant Non-U.S. Direct Subsidiary or Non-U.S., Non-Bermuda Insurance Subsidiary are elected at the same time.

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(3) In the event of a vacancy in the Board of a Non-U.S., Non-Bermuda Insurance Subsidiary, provisions substantially the same as Bye-law 16 of these Bye-laws shall apply.

(4) In the event of the formation of a new Non-U.S., Non-Bermuda Insurance Subsidiary, the initial directors of such subsidiary may be appointed by the shareholders of such subsidiary, provided that such directors shall be approved by resolution of the Members in accordance with and subject to the limitations in these Bye-laws as a person eligible to be elected as a director of such Non-U.S., Non-Bermuda Insurance Subsidiary at the next annual meeting of the Company occurring immediately after such subsidiary’s formation.

92.  Bye-laws or articles of association of certain insurance subsidiaries

The Board in its discretion shall require that the Bye-laws of each Bermuda Insurance Subsidiary shall contain provisions substantially similar to Bye-law 90, and the Bye-laws, Articles of Association or other constitutive documents of each Non-U.S., Non-Bermuda Insurance Subsidiary shall contain provisions substantially similar to Bye-law 91.

*****

***

*

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SCHEDULE — FORM A (Bye-law 59)

NOTICE OF LIABILITY TO FORFEITURE FOR NON-PAYMENT OF CALL

You have failed to pay the call of [amount of call] made on the  day of     , 20   last, in respect of the [number] share(s) [numbers in figures] standing in your name in the Register of Members of the Company, on the  day of     , 20   last, the day appointed for payment of such call. You are hereby notified that unless you pay such call together with interest thereon at the rate of          per annum computed from the said  day of     , 20   last, on or before the   day of     , 20   next at the place of business of the Company the share(s) will be liable to be forfeited.

Dated this  day of     , 20  

[Signature of Secretary]
By order of the Board

SCHEDULE — FORM B (Bye-law 63)

TRANSFER OF A SHARE OR SHARES

FOR VALUE RECEIVED	[amount]
	[transferor]
hereby sell, assign and transfer unto	[transferee]
of	[address]
	[number of shares]
shares of Allied World Assurance Company Holdings, Ltd

Dated ­ ­

(Transferor)

In the presence of:

(Witness)

(Transferee)

In the presence of:

(Witness)

SCHEDULE — FORM C (Bye-law 67)

TRANSFER BY A PERSON BECOMING ENTITLED ON DEATH/BANKRUPTCY OF A MEMBER

I/We having become entitled in consequence of the [death/bankruptcy] of [name of the deceased Member] to [number] share(s) standing in the Register of Members of Allied World Assurance Company Holdings, Ltd in the name of the said [name of deceased Member] instead of being registered myself/ourselves elect to have [name of transferee] (the “Transferee”) registered as a transferee of such share(s), and I/we do hereby accordingly transfer the said share(s) to the Transferee to hold the same unto the Transferee his, her or its executors, administrators and assigns subject to the conditions on which the same were held at the time of the execution thereof; and the Transferee does hereby agree to take the said share(s) subject to the same conditions.

WITNESS our hands this  day of     , 20  

Signed by the above-named	)
[person or persons entitled]	)
in the presence of:	)
Signed by the above-named	)
[transferee]	)
in the presence of:	)

EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

          This EMPLOYMENT AGREEMENT is made and entered into as of this 16^th day of January, 2008 by and between Allied World National Assurance Company, a New Hampshire corporation (the “Company”), and W. Gordon Knight (“Employee”).

WITNESSETH:

          WHEREAS, the Company desires to employ Employee and to enter into an agreement embodying the terms of such employment (this “Agreement”) and Employee desires to enter into this Agreement and to accept such employment, subject to the terms and provisions of this Agreement;

          NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are mutually acknowledged, the Company and Employee hereby agree as follows:

          Section 1. Definitions.

          (a) “Accrued Obligations” shall mean (i) all accrued but unpaid Base Salary through the date of termination of Employee’s employment; (ii) any unpaid or unreimbursed expenses incurred in accordance with Company policy, including amounts due under Section 7 hereof, to the extent incurred prior to termination of employment; (iii) any benefits provided under the Company’s employee benefit plans upon a termination of employment, in accordance with the terms therein, including rights to equity in Holdings pursuant to any plan or grant; and (iv) rights to indemnification by virtue of Employee’s position as an officer or director of the Company or any other member of the Company Group and the benefits under any directors’ and officers’ liability insurance policy maintained by the Company, in accordance with its terms thereof.

          (b) “Agreement” shall have the meaning set forth in the recitals hereto.

          (c) “Annual Bonus” shall have the meaning set forth in Section 4(b) below.

          (d) “Base Salary” shall mean the salary provided for in Section 4(a) or any increased salary granted to Employee pursuant to Section 4(a) below.

          (e) “Board” shall mean the Board of Directors of the Company.

          (f) “Cause” shall mean (i) Employee’s willful failure (except where due to physical or mental incapacity), willful neglect or willful refusal to substantially perform his duties; (ii) any willful or intentional act of Employee with regard to any member of the Company Group that has the effect of injuring the reputation or business of any member of the Company Group in a material manner; (iii) Employee’s conviction of, or plea of guilty or nolo contendere to, the commission of a criminal act that would constitute a felony in the United States; (iv) the commission by Employee of an act of fraud, embezzlement or material dishonesty against any member of the Company Group (other than a good faith expense account dispute); or (v) Employee’s breach of any material provision of this Agreement.

          (g) “Change in Control” shall mean and be deemed to occur if (i) any “person” (as such term is defined in Section 3(a)(9) and as used in Sections 13(d) and 14(d) of the Exchange Act), excluding any member of the Company Group, a trustee or any fiduciary holding securities under an employee benefit plan of any member of the Company Group, an underwriter temporarily holding Holdings’ securities pursuant to an offering of such securities or a corporation owned, directly or indirectly, by shareholders of Holdings in substantially the same proportion as their ownership of Holdings, is or becomes the “beneficial owner” as defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of securities of Holdings representing 50% or more of the combined voting power of Holdings’ then outstanding securities (“Voting Securities”); (ii) during any period of not more than two years, individuals who constitute the Board of Directors of Holdings as of the beginning of the period and any new director (other than a director designated by a person who has entered into an agreement with Holdings to effect a transaction described in clause (i) or (iii) of this sentence) whose election by the Board of Directors of Holdings or nomination for election by Holdings’ shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at such time or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (iii) the shareholders of Holdings approve a merger, consolidation, amalgamation or reorganization or a court of competent jurisdiction approves a scheme of arrangement of Holdings, other than a merger, consolidation, amalgamation, reorganization or scheme of arrangement which would result in the Voting Securities of Holdings outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 50% of the combined voting power of the Voting Securities of Holdings or such surviving entity outstanding immediately after such merger, consolidation, amalgamation, reorganization or scheme of arrangement; or (iv) the shareholders of Holdings approve a plan of complete liquidation of Holdings or any agreement for the sale or disposition by Holdings of all or substantially all of its assets.

          (h) “Commencement Date” shall mean January 16, 2008.

          (i) “Company” shall have the meaning set forth in the preamble hereto.

          (j) “Company Group” means Holdings together with any direct or indirect subsidiary.

          (k) “Competitive Activities” shall mean any business activities in which any member of the Company Group is engaged, or has committed plans to engage, during the Term of Employment.

          (l) “Confidential Information” shall have the meaning set forth in Section 9(a) below.

          (m) “Developments” shall have the meaning set forth in Section 9(e) below.

          (n) “Disability” shall mean any physical or mental disability or infirmity that has prevented the performance of Employee’s duties in all material respects for a period of one hundred eighty (180) consecutive calendar days.

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          (o) “Employee” shall have the meaning set forth in the preamble hereto.

          (p) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

          (q) “Good Reason” shall mean, without Employee’s written consent, (i) an adverse change in Employee’s employment title; (ii) a material diminution in Employee’s employment duties or responsibilities, or the assignment to Employee of duties that are materially inconsistent with his position; (iii) any reduction in Base Salary or target Annual Bonus opportunity; or (iv) any breach by the Company of any material provision of this Agreement.

          (r) “Holdings” shall mean Allied World Assurance Company Holdings, Ltd, a Bermuda corporation and the Company’s ultimate parent.

          (s) “Interfering Activities” shall mean (i) encouraging, soliciting or inducing, or in any manner attempting to encourage, solicit or induce, any Person employed by, as agent of, or a service provider to, any member of the Company Group to terminate (or, in the case of an agent or service provider, reduce) such Person’s employment, agency or service, as the case may be, with any member of the Company Group; provided, that the foregoing shall not be violated by general advertising not targeted at employees of any member of the Company Group nor by serving as a reference upon an employee’s request with regard to an entity with which Employee is not affiliated; or (ii) encouraging, soliciting or inducing, or in any manner attempting to encourage, solicit or induce any customer, supplier (including insurance brokers), licensee or other business relation of any member of the Company Group to cease doing business with or reduce the amount of business conducted with any member of the Company Group, or in any way interfere with the relationship between any such customer, supplier (including insurance brokers), licensee or business relation and any member of the Company Group.

          (t) “Person” shall mean any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust (charitable or non-charitable), unincorporated organization or other form of business entity.

          (u) “Non-Interference Period” shall mean the period commencing on the Commencement Date and ending on the twenty-four (24) month anniversary of the date of termination of Employee’s employment for any reason.

          (v) “Non-Compete Period” shall mean the period commencing on the Commencement Date and:

          (i) in the case of Employee’s termination of employment hereunder by the Company for Cause, ending on the date of such termination;

          (ii) in the case of Employee’s termination of employment hereunder by the Company without Cause or by Employee for Good Reason, ending on the twenty-four (24) month anniversary of the date of such termination; or

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          (iii) in the case of Employee’s termination of employment hereunder by the Employee without Good Reason or as a result of his Disability, ending on the date of such termination; provided, however, that the Company may elect to extend the Non-Compete Period up to an additional twelve (12) months following the date of such termination by providing Employee written notice of such election within five (5) business days following such termination specifying the applicable period of extension, in which case, the Company shall be required to continue, through the end of the Non-Compete Period, as so extended, (A) to pay Employee his Base Salary, in accordance with the Company’s regular payroll practices, and (B) to provide participation under the Company’s health and other insurance plans, or if such continued participation in is not permissible, provide Employee with coverage that is economically equivalent to Employee through alternative arrangements, or the cash value of such coverage, in a manner that places the Employee in a net economic position that is at least equivalent to the position in which the Employee would have been had such alternative arrangements not been used by the Company.

          (w) “Severance Multiplier” shall mean an amount equal to two (2); provided, however, if Employee’s termination occurs within the twelve (12) month period following a Change in Control the Severance Multiplier shall equal five (5) in the first twelve (12) month period following the Commencement Date; four (4) in second twelve (12) month period following the Commencement Date and three (3) thereafter.

          (x) “Severance Term” shall mean the period specified in Section 8(d)(iii) below.

          (y) “Term of Employment” shall mean the period specified in Section 2 below.

          Section 2. Acceptance and Term of Employment.

          The Company agrees to employ Employee and Employee agrees to serve the Company on the terms and conditions set forth herein. The Term of Employment shall commence on the Commencement Date and shall continue until Employee is terminated as provided in Section 8 hereof.

          Section 3. Position, Duties and Responsibilities; Place of Performance.

          (a) During the Term of Employment, Employee shall be employed and serve as President of U.S. Operations, Distribution and Marketing of the Company (together with such other position or positions consistent with Employee’s title as the Board or the officer of the Company to which Employee reports shall specify from time to time) and shall have such duties typically associated with such title. Subject to the foregoing, Employee also agrees to serve as an officer and/or director of any other member of the Company Group, in each case without additional compensation. Notwithstanding anything contained herein to the contrary, in connection with any restructuring of the Company Group, the Company shall be permitted to transfer Employee’s employment to any other member of the Company Group without such

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transfer in and of itself resulting in an event pursuant to which Employee may terminate employment with Good Reason.

          (b) Subject to the terms and conditions set forth in this Agreement, Employee shall devote his full business time, attention and efforts to the performance of his duties under this Agreement and shall not engage in any other business or occupation during the Term of Employment, including, without limitation, any activity that (x) conflicts with the interests of any member of the Company Group, (y) interferes with the proper and efficient performance of his duties for the Company or (z) interferes with the exercise of his judgment in the Company’s best interests. Notwithstanding the foregoing, nothing herein shall preclude Employee from (i) serving, with the prior written consent of the Company, as a member of the board of directors or advisory boards (or their equivalents in the case of a non-corporate entity) of non-competing businesses and charitable organizations, (ii) engaging in charitable activities and community affairs, and (iii) subject to the terms and conditions set forth in Section 9 hereof, managing his personal investments and affairs; provided, however, that the activities set out in clauses (i), (ii) and (iii) shall be limited by Employee so as not to materially interfere, individually or in the aggregate, with the performance of his duties and responsibilities hereunder.

          (c) Employee’s principal place of employment shall be at 199 Water Street, New York, New York, although Employee understands and agrees that he may be required to travel from time to time for business reasons.

          Section 4. Compensation.

          During the Term of Employment, Employee shall be entitled to the following compensation:

          (a) Base Salary. Employee shall be paid an annualized Base Salary, payable in accordance with the regular payroll practices of the Company, of not less than $525,000, subject to increase, if any, as may be approved in writing by the Company, but not to decrease from the then current Base Salary.

          (b) Annual Bonus. Employee shall be eligible for an annual incentive bonus award determined by the Company in respect of each fiscal year during the Term of Employment (the “Annual Bonus”). The Annual Bonus shall be earned and payable in accordance with the terms of Holdings’ annual bonus plan as in effect from time to time.

          (c) Change in Control Acceleration. Notwithstanding any contrary terms of any Holdings equity plan or other agreement pursuant to which equity-based awards have been granted to Employee, upon the occurrence of a Change in Control, all such equity-based awards shall fully vest immediately prior to such Change in Control.

          Section 5. Employee Benefits.

          During the Term of Employment, Employee shall be entitled to participate in health, insurance, retirement and other perquisites and benefits generally provided to other senior executives of the Company that are made available and as are in effect from time to time. Employee shall also be entitled to the same number of holidays, vacation and sick days as are

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generally allowed to senior executives of the Company in accordance with the Company policy in effect from time to time. During the Term of Employment, Employee shall also be entitled to reimbursement or payment of the cost of financial and tax planning, such reimbursement not to exceed $10,000 per year.

          Section 6. “Key-Man” Insurance.

          At any time during the Term of Employment, the Company shall have the right to insure the life of Employee for the sole benefit of the Company, in such amounts, and with such terms, as it may determine. All premiums payable thereon shall be the obligation of the Company. Employee shall have no interest in any such policy, but agrees to reasonably cooperate with the Company in taking out such insurance by submitting to physical examinations, supplying all information reasonably required by the insurance company, and executing all necessary documents, provided that no financial obligation or liability is imposed on Employee by any such documents.

          Section 7. Reimbursement of Business Expenses.

          Employee is authorized to incur reasonable business expenses in carrying out his duties and responsibilities under this Agreement and the Company shall promptly reimburse him for all such reasonable business expenses incurred in connection with carrying out the business of the Company, subject to documentation in accordance with the Company’s policy, as in effect from time to time.

          Section 8. Termination of Employment.

          (a) General. The Term of Employment shall terminate upon the earliest to occur of (i) Employee’s death, (ii) a termination by reason of a Disability, (iii) a termination by the Company with or without Cause, and (iv) a termination by Employee with or without Good Reason. Upon any termination of Employee’s employment for any reason, except as may otherwise be requested by the Company in writing and agreed upon in writing by Employee, Employee shall resign from any and all directorships, committee memberships or any other positions Employee holds with any member of the Company Group.

          (b) Termination due to Death or Disability. Employee’s employment shall terminate automatically upon his death. The Company may terminate Employee’s employment immediately upon the occurrence of a Disability, such termination to be effective upon Employee’s receipt of written notice of such termination. In the event Employee’s employment is terminated due to his death or Disability, Employee or his estate or his beneficiaries, as the case may be, shall be entitled to:

          (i) The Accrued Obligations;

          (ii) Any unpaid Annual Bonus in respect to any completed fiscal year which has ended prior to the date of such termination, such amount to be paid at the same time it would otherwise be paid to Employee had no such termination occurred;

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          (iii) A pro rata Annual Bonus (determined using the target Annual Bonus if such termination occurs during the fiscal year in which the Commencement Date falls, and using the highest Annual Bonus paid or payable for the two immediately prior fiscal years for terminations after the fiscal year in which the Commencement Date falls) based on the number of days elapsed from the commencement of such fiscal year through and including the date of such termination, such amount to be paid within five (5) business days of such termination; and

          (iv) Vesting, as of the date of such termination, in the number of equity-based awards, if any, which would otherwise have vested during the one (1) year period immediately following such termination (without regard to any subsequent vesting events).

Except as set forth in this Section 8(b), following Employee’s termination by reason of his death or Disability, Employee shall have no further rights to any compensation or any other benefits under this Agreement.

          (c) Termination by the Company for Cause.

          (i) A termination for Cause shall not take effect unless the provisions of this subsection (i) are complied with. Employee shall be given not less than fifteen (15) days prior written notice by the Company of the intention to terminate his employment for Cause, such notice to state in detail the particular act or acts or failure or failures to act that constitute the grounds on which the proposed termination for Cause is based. Employee shall have fifteen (15) days after the date that such written notice has been given to Employee in which to cure such act or acts or failure or failures to act, to the extent such cure is possible. If he fails to cure such act or acts or failure or failures to act, the termination shall be effective on the date immediately following the expiration of the fifteen (15) day notice period. If cure is not possible, the termination shall be effective on the date of receipt of such notice by Employee. During any cure period provided hereunder, the Company may, in its sole and absolute discretion, prohibit Employee from entering the premises of any member of the Company Group or otherwise performing his duties hereunder, and any such prohibition shall in no event constitute an event pursuant to which Employee may terminate employment with Good Reason; provided, however, that if cure is possible, and Employee can reasonably demonstrate to the Company that he desires to enter the premises of any member of the Company Group or to otherwise perform his duties hereunder solely to attempt to cure the act or acts or failure or failures to act that constitute the grounds on which the proposed termination for Cause is based, Employee shall be permitted to enter the premises of any member of the Company Group or otherwise to perform his duties hereunder solely for the purposes of curing such act or acts or failure or failures to act.

          (ii) In the event the Company terminates Employee’s employment for Cause, he shall be entitled only to the Accrued Obligations. Following such termination of Employee’s employment for Cause, except as set forth in this Section 8(c)(ii), Employee shall have no further rights to any compensation or any other benefits under this Agreement.

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          (d) Termination by the Company without Cause. The Company may terminate Employee’s employment at any time without Cause, effective upon Employee’s receipt of written notice of such termination. In the event Employee’s employment is terminated by the Company without Cause (other than due to death or Disability), Employee shall be entitled to:

          (i) The Accrued Obligations;

          (ii) Any unpaid Annual Bonus in respect to any completed fiscal year which has ended prior to the date of such termination, such amount to be paid at the same time it would otherwise be paid to Employee had no such termination occurred;

          (iii) An amount equal to the Severance Multiplier multiplied by the sum of his then current Base Salary and Annual Bonus (determined using the target Annual Bonus if such termination occurs during the fiscal year in which the Commencement Date falls, and using the highest Annual Bonus paid or payable for the two immediately prior fiscal years for terminations after the fiscal year in which the Commencement Date falls), payable in substantially equal monthly installments over the period commencing on the date of termination and ending on the date that is one day prior to two and one-half months following the end of the Company’s fiscal year in which such termination occurs (the “Severance Term”);

          (iv) Continuation of participation under the Company’s health and other insurance plans for a period of years equal to the Severance Multiplier, or if such continued participation in is not permissible, provide Employee with coverage that is economically equivalent to Employee through alternative arrangements, or the cash value of such coverage, in a manner that places the Employee in a net economic position that is at least equivalent to the position in which the Employee would have been had such alternative arrangements not been used by the Company; and

          (v) Vesting, as of the date of such termination, in the number of equity-based awards, if any, which would otherwise have vested during the two (2) year period immediately following such termination (without regard to any subsequent vesting events).

Notwithstanding the foregoing, the payments and benefits described in subsections (ii) through (iv) above shall immediately cease, and the Company shall have no further obligations to Employee with respect thereto, in the event that Employee breaches any provision of Section 9 hereof.

          Following such termination of Employee’s employment by the Company without Cause, except as set forth in this Section 8(d), Employee shall have no further rights to any compensation or any other benefits under this Agreement.

          (e) Termination by Employee with Good Reason. Employee may terminate his employment with Good Reason by providing the Company fifteen (15) days prior written notice setting forth in reasonable specificity the event that constitutes Good Reason, which written notice, to be effective, must be provided to the Company within ninety (90) days of the occurrence of such event. During such fifteen (15) day notice period, the Company shall have a

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cure right (if curable), and if not cured within such period, Employee’s termination will be effective upon the date immediately following the expiration of the fifteen (15) day notice period, and Employee shall be entitled to the same payments and benefits as provided in Section 8(d) above for a termination without Cause, it being agreed that Employee’s right to any such payments and benefits shall be subject to the same terms and conditions as described in Section 8(d) above. Following such termination of Employee’s employment by Employee with Good Reason, except as set forth in this Section 8(e), Employee shall have no further rights to any compensation or any other benefits under this Agreement.

          (f) Termination by Employee without Good Reason. Employee may terminate his employment without Good Reason by providing the Company thirty (30) days prior written notice of such termination. In the event of a termination of employment by Employee under this Section 8(f), Employee shall be entitled only to the Accrued Obligations. In the event of termination of Employee’s employment under this Section 8(f), the Company may, in its sole and absolute discretion, by written notice accelerate such date of termination and still have it treated as a termination without Good Reason. Following such termination of Employee’s employment by Employee without Good Reason, except as set forth in this Section 8(f), and, if applicable, such additional compensation and benefits described in Section 1(v)(iii), Employee shall have no further rights to any compensation or any other benefits under this Agreement.

          (g) Release. Notwithstanding any provision herein to the contrary, the Company may require that, prior to payment of any amount or provision of any benefit pursuant to subsections (d) or (e) of this Section 8, Employee shall have executed a general release in favor of the Company and any other member of the Company Group and related parties in the form as is reasonably required by the Company, and any waiting periods contained in such release shall have expired; provided, however, that in any case where the first and last days of the applicable waiting periods fall in two separate taxable years, any payments required to be made to Employee that are treated as deferred compensation for purposes of Section 409A of the United States Internal Revenue Code of 1986, as amended, shall be made in the later taxable year, promptly following the conclusion of the applicable waiting period.

          Section 9. Restrictive Covenants.

          Employee acknowledges and agrees that (A) the agreements and covenants contained in this Section 9 are (i) reasonable and valid in geographical and temporal scope and in all other respects, and (ii) essential to protect the value of the business and assets of the Company Group; and (B) by his employment with the Company, Employee will obtain knowledge, contacts, know-how, training and experience and there is a substantial probability that such knowledge, contacts, know-how, training and experience could be used to the substantial advantage of a competitor of the Company Group and to the Company Group’s substantial detriment.

          (a) Confidential Information. At any time during and after the end of the Term of Employment, without the prior written consent of the Company, except to the extent required by an order of a court having jurisdiction or under subpoena from an appropriate government agency, in which event, Employee shall, to the extent legally permitted, consult with

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the Company prior to responding to any such order or subpoena, and except as he in good faith believes necessary or desirable in the performance of his duties hereunder, Employee shall not disclose to or use for the benefit of any third party any confidential or proprietary trade secrets, customer lists, drawings, designs, information regarding product development (including types of insurance products), marketing plans, sales plans, management organization information, operating policies (including underwriting policies and risk assessment policies) or manuals, business plans, financial records, packaging design or other financial, commercial, business or technical information (i) relating to any member of the Company Group, or (ii) that any member of the Company Group may receive belonging to suppliers, customers or others who do business with any member of the Company Group (including insurance brokers) as a result of his position with any member of the Company Group (collectively, “Confidential Information”). Employee’s obligation under this Section 9(a) shall not apply to any information that is publicly available or hereafter becomes publicly available, in each case without the breach by Employee of this Section 9(a).

          (b) Non-Competition. Employee covenants and agrees that during the Non-Compete Period, with respect to Bermuda (including any province thereof), any State of the United States of America or any other jurisdiction in which any member of the Company Group engages (or has committed plans to engage) in business during the Term of Employment, or, following termination of Employee’s employment, was engaged in business (or had committed plans to engage) at the time of such termination of employment, Employee shall not, directly or indirectly, individually or jointly, own any interest in, operate, join, control or participate as a partner, director, principal, officer, or agent of, enter into the employment of, act as a consultant to, or perform any services for any Person (other than any member of the Company Group), that engages in any Competitive Activities. Notwithstanding anything herein to the contrary, this Section 9(b) shall not prevent Employee from acquiring as an investment securities representing not more than three percent (3%) of the outstanding voting securities of any publicly-held corporation or from being a passive investor in any mutual fund, hedge fund, private equity fund or similar pooled account so long as Employee’s interest therein is less than three percent (3%) and he has no role in selecting or managing investments thereof.

          (c) Non-Interference. During the Non-Interference Period, Employee shall not, directly or indirectly, for his own account or for the account of any other Person, engage in Interfering Activities.

          (d) Return of Documents. In the event of the termination of Employee’s employment for any reason, Employee shall deliver to the Company all of (i) the property of any member of the Company Group, and (ii) the documents and data of any nature and in whatever medium of any member of the Company Group, and he shall not take with him any such property, documents or data or any reproduction thereof, or any documents containing or pertaining to any Confidential Information.

          (e) Works for Hire. Employee agrees that the Company shall own all right, title and interest throughout the world in and to any and all inventions, original works of authorship, developments, concepts, know-how, improvements or trade secrets, whether or not patentable or registerable under copyright or similar laws, which Employee may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to

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practice during the Term of Employment, whether or not during regular working hours, provided they either (i) relate at the time of conception or development to the actual or demonstrably proposed business or research and development activities of any member of the Company Group; (ii) result from or relate to any work performed for any member of the Company Group; or (iii) are developed through the use of Confidential Information and/or Company resources or in consultation with personnel of any member of the Company Group (collectively referred to as “Developments”). Employee hereby assigns all right, title and interest in and to any and all of these Developments to the Company. Employee agrees to assist the Company, at the Company’s expense (but for no other consideration of any kind), to further evidence, record and perfect such assignments, and to perfect, obtain, maintain, enforce and defend any rights specified to be so owned or assigned. Employee hereby irrevocably designates and appoints the Company and its agents as attorneys-in-fact to act for and on Employee’s behalf to execute and file any document and to do all other lawfully permitted acts to further the purposes of the foregoing with the same legal force and effect as if executed by Employee. In addition, and not in contravention of any of the foregoing, Employee acknowledges that all original works of authorship which are made by him (solely or jointly with others) within the scope of employment and which are protectable by copyright are “works made for hire,” as that term is defined in the United States Copyright Act (17 USC Sec. 101) or any similar law or regulation. To the extent allowed by law, this includes all rights of paternity, integrity, disclosure and withdrawal and any other rights that may be known as or referred to as “moral rights.” To the extent Employee retains any such moral rights under applicable law, Employee hereby waives such moral rights and consents to any action consistent with the terms of this Agreement with respect to such moral rights, in each case, to the full extent of such applicable law. Employee will confirm any such waivers and consents from time to time as requested by the Company.

          (f) Blue Pencil. If any court of competent jurisdiction shall at any time deem the duration or the geographic scope of any of the provisions of this Section 9 unenforceable, the other provisions of this Section 9 shall nevertheless stand and the duration and/or geographic scope set forth herein shall be deemed to be the longest period and/or greatest size permissible by law under the circumstances, and the parties hereto agree that such court shall reduce the time period and/or geographic scope to a permissible duration or size.

          Section 10. Breach of Restrictive Covenants.

          Without limiting the remedies available to the Company, Employee acknowledges that a breach of any of the covenants contained in Section 9 hereof may result in material irreparable injury to the Company Group for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, the Company shall be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction, without the posting of a bond or the necessity of proving irreparable harm or injury as a result of such breach or threatened breach of Section 9 hereof, restraining Employee from engaging in activities prohibited by Section 9 hereof or such other relief as may be required specifically to enforce any of the covenants in Section 9 hereof. Notwithstanding any other provision to the contrary, the Non-Compete Period, in the case of the covenants contained in Section 9(b), and the Non-Interference Period, in the case of the covenants contained in Section 9(c), shall be tolled during any period of violation of any of such covenants and during any other period required for litigation during which the Company seeks to

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enforce such covenants against Employee or another Person with whom Employee is affiliated if it is ultimately determined that Employee was in breach of such covenants.

          Section 11. Representations and Warranties of Employee.

          Employee represents and warrants to the Company that:

          (a) Employee’s employment will not conflict with or result in his breach of any agreement to which he is a party or otherwise may be bound;

          (b) Employee has not violated, and in connection with his employment with the Company will not violate, any non-solicitation, non-competition or other similar covenant or agreement of a prior employer by which he is or may be bound; and

          (c) In connection with Employee’s employment with the Company, he will not use any confidential or proprietary information that he may have obtained in connection with employment with any prior employer.

          Section 12. Indemnification.

          Subject to the terms and conditions of the Articles of Incorporation and Bylaws of the Company (in each case, as in effect from time to time), the Company agrees to indemnify and hold Employee harmless to the fullest extent permitted by the laws of the United States, as in effect at the time of the subject act or omission. In connection therewith, Employee shall be entitled to the protection of any insurance policies which the Company elects to maintain generally for the benefit of the Company’s directors and officers, against all costs, charges and expenses whatsoever incurred or sustained by Employee in connection with any action, suit or proceeding to which he may be made a party by reason of his being or having been a director, officer or employee of the Company. This provision shall survive any termination of Employee’s employment hereunder.

          Section 13. Taxes.

          The Company may withhold from any payments made under this Agreement all applicable taxes, including, but not limited to, income, employment and social insurance taxes, as shall be required by law.

          Section 14. No Mitigation or Set Off.

          Employee shall not be required to mitigate the amount of any payment provided for pursuant to this Agreement by seeking other employment or otherwise and the amount of any payment provided for pursuant to this Agreement shall not be reduced by any compensation earned as a result of Employee’s other employment or otherwise.

          Section 15. Successors and Assigns; No Third-Party Beneficiaries.

          (a) The Company. This Agreement shall inure to the benefit of and be enforceable by, and may be assigned by the Company to, any purchaser of all or substantially all

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of Holdings’ or the Company’s business or assets or any successor to Holdings or the Company (whether direct or indirect, by purchase, merger, consolidation or otherwise). Holdings or the Company will require, as applicable, in a writing delivered to Employee, any such purchaser, successor or assignee to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Holdings and the Company would be required to perform it if no such purchase, succession or assignment had taken place. The Company may make no other assignment of this Agreement or its obligations hereunder.

          (b) Employee. Employee’s rights and obligations under this Agreement shall not be transferable by Employee by assignment or otherwise, without the prior written consent of the Company; provided, however, that if Employee shall die, all amounts then payable to Employee hereunder shall be paid in accordance with the terms of this Agreement to Employee’s devisee, legatee or other designee or, if there be no such designee, to Employee’s estate.

          (c) No Third-Party Beneficiaries. Except as otherwise set forth in Section 8(b) or Section 15(b) hereof, nothing expressed or referred to in this Agreement will be construed to give any Person other than the Company and Employee any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement.

          Section 16. Waiver and Amendments.

          Any waiver, alteration, amendment or modification of any of the terms of this Agreement shall be valid only if made in writing and signed by each of the parties hereto. No waiver by either of the parties hereto of their rights hereunder shall be deemed to constitute a waiver with respect to any subsequent occurrences or transactions hereunder unless such waiver specifically states that it is to be construed as a continuing waiver.

          Section 17. Severability.

          If any covenants or such other provisions of this Agreement are found to be invalid or unenforceable by a final determination of a court of competent jurisdiction: (a) the remaining terms and provisions hereof shall be unimpaired, and (b) the invalid or unenforceable term or provision hereof shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision hereof.

          Section 18. Governing Law.

          THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES THEREOF) APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.

          Section 19. Dispute Resolution.

          Any controversy arising out of or relating to this Agreement or the breach hereof (other than claims for injunctive relief pursuant to Section 10 hereof) shall be settled by binding arbitration in accordance with the Employment Dispute Resolution Rules of the American

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Arbitration Association (before a single arbitrator) and judgment upon the award rendered may be entered in any court having jurisdiction thereof. The costs of any such arbitration proceedings shall be borne equally by the Company and Employee; provided, however, that the arbitrator shall have the right to award to either party reasonable attorneys’ fees and costs expended in the course of such arbitration or enforcement of the awarded rendered thereunder. Any award made by such arbitrator shall be final, binding and conclusive on the parties for all purposes, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof.

          Section 20. Notices.

          (a) Every notice or other communication relating to this Agreement shall be in writing, and shall be mailed to or delivered to the party for whom it is intended at such address as may from time to time be designated by it in a notice mailed or delivered to the other party as herein provided, provided that, unless and until some other address be so designated, all notices or communications by Employee to the Company shall be mailed or delivered to the Company at its principal executive office, with a copy sent to the General Counsel of Holdings, and all notices or communications by the Company to Employee may be given to Employee personally or may be mailed to Employee at Employee’s last known address, as reflected in the Company’s records.

          (b) Any notice so addressed shall be deemed to be given: (i) if delivered by hand, on the date of such delivery; (ii) if mailed by courier or by overnight mail, on the first business day following the date of such mailing; and (iii) if mailed by registered or certified mail, on the third business day after the date of such mailing.

          Section 21. Section Headings.

          The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not be deemed to constitute a part thereof, affect the meaning or interpretation of this Agreement or of any term or provision hereof.

          Section 22. Entire Agreement.

          This Agreement constitutes the entire understanding and agreement of the parties hereto regarding the employment of Employee. This Agreement supersedes all prior negotiations, discussions, correspondence, communications, understandings and agreements between the parties relating to the subject matter of this Agreement.

          Section 23. Survival of Operative Sections.

          Upon any termination of Employee’s employment, the provisions of Section 8 through Section 25 of this Agreement (together with any related definitions set forth in Section 1 hereof) shall survive to the extent necessary to give effect to the provisions thereof.

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          Section 24. Currency.

          All sums of money expressed in this Agreement are in the lawful money of the United States of America.

          Section 25. Counterparts.

          This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. The execution of this Agreement may be by actual or facsimile signature.

[Signatures to appear on the following page.]

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     IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.

ALLIED WORLD NATIONAL ASSURANCE COMPANY
By:	/s/ Scott A. Carmilani
	Name:
	Title:
EMPLOYEE
By:	/s/ W. Gordon Knight
	W. Gordon Knight

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EX-10.2

Exhibit 10.2

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
DEFERRED FEE PLAN FOR NON-EMPLOYEE DIRECTORS

     1. Purpose. The purpose of this Plan is to aid the Company in retaining and attracting well-qualified individuals for service as Directors by providing them with the opportunity to receive Deferred Share Units in lieu of all or a portion of their Cash Director Fees payable, and to defer the settlement of their RSU Awards granted, with respect to any calendar year beginning with calendar year 2008.

     2. Definitions.

     (i) “Award Agreement” means an agreement by which an award of unrestricted Common Shares is granted to a Participant under the Stock Incentive Plan in settlement of Deferred Share Units hereunder.

     (ii) “Board” means the Board of Directors of the Company.

     (iii) “Cash Director Fees” means the annual cash retainer payable to a Director with respect to a calendar year in consideration for service on the Board (including additional retainer payable with respect to a Director’s position as a Board committee member or chairman, if applicable); provided, however, that the term “Cash Director Fees” shall not include meeting fees.

     (iv) “Change in Control” means a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company, within the meaning of Section 409A(a)(2)(A)(v) of the Code.

     (v) “Code” means the Internal Revenue Code of 1986, as amended.

     (vi) “Common Shares” shall have the meaning attributed to it in the Stock Incentive Plan.

     (vii) “Company” means Allied World Assurance Company Holdings, Ltd.

     (viii) “Compensation Committee” means the Compensation Committee of the Board.

     (ix) “Deferral Election” means, with respect to the Cash Director Fees otherwise payable to such Director with respect to a Plan Year, an irrevocable election made by a Director pursuant to Section 3 hereof to receive Deferred Share Units in lieu of all or a portion of such fees, and with respect to an RSU Award to be granted to such Director, an irrevocable election made by a Director pursuant to Section 4 below to defer the settlement of such RSU Award.

     (x) “Deferred Share Unit” means a hypothetical investment for Cash Director Fees credited to a Deferred Share Unit Account hereunder representing the right

to receive upon settlement, pursuant to Section 6(a) hereof, one unrestricted Common Share under the Stock Incentive Plan.

     (xi) “Deferred Share Unit Account” means a bookkeeping account established and maintained by the Company in the name of each Participant who elects hereunder to receive Deferred Share Units in lieu of Cash Director Fees.

     (xii) “Director” means any non-employee member of the Board.

     (xiii) “Dividend Equivalents” shall have the meaning ascribed to such term in Section 5(c) below.

     (xiv) “Election Form” means the form or forms established from time to time by the Company that a Director completes, signs and returns to the Company or the Company’s designated third-party plan administrator to make a Deferral Election under the Plan. An Election Form also includes any other method approved by the Company that a Director may use to make an election under the Plan.

     (xv) “Fair Market Value” means, on a given date, (i) if the Common Shares are listed or traded on an established securities exchange, the closing price reported as having occurred on the primary exchange with which the Common Shares are listed or traded on such date, or if there is no such sale on such date, then on the last preceding date on which such a sale was reported; or (ii) if the Common Shares are not listed on an established securities exchange, the amount determined by the Board to be the fair market value of a Common Share based upon a good-faith attempt to value the Common Shares accurately and computed in accordance with applicable regulations of the Internal Revenue Service and the Department of the Treasury.

     (xvi) “Participant” means a Director who has made a Deferral Election and for whom the Company currently maintains a Deferred Share Unit Account or who has deferred RSU Awards outstanding hereunder.

     (xvii) “Plan” means this Allied World Assurance Company Holdings, Ltd Deferred Fee Plan for Non-Employee Directors.

     (xviii) “Plan Year” means a calendar year.

     (xix) “RSU Award” means a restricted stock unit award granted to a Director pursuant to the terms of the Stock Incentive Plan in consideration for service on the Board.

     (xx) “Settlement Date” means, with respect to the settlement of a Participant’s Deferred Share Units and deferred RSU Awards, the earliest to occur of (i) a Change in Control, (ii) such Participant’s death, and (iii) such Participant’s separation from service with the Company.

     (xxi) “Stock Incentive Plan” means the Allied World Assurance Company Holdings, Ltd Amended and Restated 2004 Stock Incentive Plan.

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     3. Deferral Election for Cash Director Fees.

     a. Deferral Election. Directors may make a Deferral Election with respect to Cash Director Fees for a given Plan Year by timely filing with the Company or the Company’s designated third-party plan administrator a completed Election Form with respect to such Plan Year that shall specify the percentage (in increments of 10% up to 100%) of any Cash Director Fees otherwise payable during such Plan Year that will be credited to the Participant’s Deferred Share Unit Account as Deferred Share Units. A Deferral Election with respect to Cash Director Fees will not be effective for any Plan Year unless a properly completed Election Form is received by the Company or the Company’s designated third-party plan administrator no later than the last day of the Plan Year immediately preceding the Plan Year to which the Cash Director Fees to be deferred relate; provided, however, that with respect to Cash Director Fees related to the first Plan Year in which a Director becomes eligible to participate in the Plan (including the 2008 Plan Year with respect to all Directors), a Director’s completed Election Form must be received by the Company or the Company’s designated third-party plan administrator within 30 days following the date on which such Director first becomes eligible to participate in the Plan (provided that such election shall relate only to amounts earned subsequent to the date such Election Form is so received).

     b. Duration of Elections. Any Deferral Election under subsection (a) above (including a failure to make an election) shall remain in effect from Plan Year to each subsequent Plan Year unless a written request to modify or terminate that election for such subsequent Plan Year is submitted to the Company in accordance with the time periods provided under subsection (a) applicable to an election with respect to such subsequent Plan Year.

     4. Deferral Election for RSU Awards. A Deferral Election with respect to an RSU Award may be made by filing with the Company or the Company’s designated third-party plan administrator a properly completed Election Form on or prior to the date that is 12 months in advance of the earliest date on which such RSU Award may vest pursuant to its terms (but in no event later than 30 days following the date of grant of such RSU Award); provided, however, that no Deferral Election may be made with respect to an RSU Award that vests earlier than 12 months from the date of grant. The Election Form shall be effective only with respect to the RSU Awards with respect to which the Deferral Election is being made, and the electing Director must file an additional Election Form (in a timely manner as set forth above in this Section 4) with respect to each future RSU Award with respect to which such Director desires to make a Deferral Election. Other than with respect to deferring the date of settlement of an RSU Award, the filing of a Deferral Election under this Plan shall in no way modify any other term or condition of such RSU Award (including vesting conditions) under any applicable award agreement or plan.

     5. Deferred Share Unit Accounts.

     a. Deferred Share Unit Account. The Company will establish and maintain in its bookkeeping records a Deferred Share Unit Account for each Participant who receives Deferred Share Units hereunder until all such Deferred Share Units have been settled pursuant to the terms hereof. As of any date on which the Company would otherwise pay to a Participant Cash Director Fees with respect to which such Participant has made a Deferral Election hereunder, the

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Company shall credit to such Participant’s Deferred Share Unit Account that number of Deferred Share Units whose underlying Common Shares have a Fair Market Value equal to such Cash Director Fees so payable as of such date.

     b. Vesting. Each Participant shall be 100% vested in the full balance of his Deferred Share Unit Account.

     c. Dividend Equivalents. On each date that cash dividends are payable to holders of the Common Shares, the Company shall credit each Participant’s Deferred Share Unit Account with that number of additional Deferred Share Units having a number of underlying Common Shares with an aggregate Fair Market Value equal to the cash dividends that would have otherwise been payable to a holder of the number of Common Shares underlying the Deferred Share Units in each such Participant’s Deferred Share Unit Account as of the record date established by the Company with respect to such cash dividends (“Dividend Equivalents”), which Dividend Equivalents shall be settled on the Settlement Date.

     d. No Actual Investment. Notwithstanding any other provision of the Plan to the contrary, a Deferred Share Unit shall not be considered or construed in any manner as an actual investment in the Common Shares. In the event that the Company, in its discretion, decides to invest funds in Common Shares or to contribute Common Shares to a trust for the benefit of Participants receiving Deferred Share Units hereunder, no Participant shall have any rights in or to such invested funds or Common Shares themselves.

     e. Adjustment. Deferred Share Units hereunder shall be adjusted pursuant to Section 1.6 of the Stock Incentive Plan (or a successor plan as may be approved by the Board or Committee from time to time) in the same manner as outstanding awards thereunder.

     6. Settlement of Deferred Share Units and Deferred RSU Awards.

     a. Settlement of Deferred Share Units. A Participant’s Deferred Share Units shall be settled in whole Common Shares on the Settlement Date. Settlement of Deferred Share Units under this plan will be satisfied by the award of unrestricted Common Shares, evidenced by an Award Agreement, under Section 2.6 of the Stock Incentive Plan (or a successor plan as may be approved by the Board or Committee from time to time). No fractional Common Share shall be delivered to a Participant, and any fractional Deferred Share Unit shall be settled in cash equal to the Fair Market Value of such fractional Deferred Share Unit on the Settlement Date. By accepting and executing an Award Agreement, a Participant thereby agrees that the award of unrestricted Common Shares granted pursuant thereto shall be subject to all of the terms and provisions of the Stock Incentive Plan and such agreement.

     b. Settlement of Deferred RSU Awards. A Participant’s deferred RSU Awards shall be settled on the Settlement Date to the extent such Participant is then vested in such RSU Awards.

     c. Accelerated Settlement upon Unforeseeable Emergency. Notwithstanding anything herein to the contrary, a Participant may petition the Compensation Committee for the settlement of a portion of his Deferred Share Units and/or his deferred RSU Awards upon the occurrence of an “unforeseeable emergency” (as defined in Section 409A(a)(2)(B)(ii)(I) of the

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Code and Treasury Regulation § 1.409A-3(i)(3)). Upon such a petition by a Participant and as soon as reasonably practicable following the approval thereof by the Compensation Committee (which shall deliberate on and approve such petition without any involvement of the petitioning Participant), the Company shall settle only the portion of such Participant’s Deferred Share Units and/or only the portion of such Participant’s deferred RSU Awards reasonably necessary to satisfy the emergency need (which may include amounts necessary to pay any federal, state, local or foreign income taxes or penalties reasonably anticipated to result from the distribution); provided, however, that in determining the amount reasonably necessary to satisfy the emergency need, the Compensation Committee is not required to take into account any additional compensation that due to the unforeseeable emergency is available under another nonqualified deferred compensation plan but has not actually been paid; provided further, however, that in no event may the number of Deferred Share Units settled exceed the total number of Deferred Share Units in such Participant’s Deferred Share Unit Account, and in no event may the number of deferred RSU Awards settled exceed the total number of such Participant’s deferred RSU Awards under this Plan. To the extent a Participant does not provide for the allocation between the settlement of Deferred Share Units and/or the settlement of deferred RSU Awards, the Compensation Committee may determine such allocation, in its sole discretion, which determination shall be final and binding on the petitioning Participant.

     d. Settlement in the Event of Income Inclusion under Section 409A of the Code. Notwithstanding anything herein to the contrary, if any portion of a Participant’s Deferred Share Units and/or deferred RSU Awards is required to be included in income by the Participant prior to settlement due to a violation of the requirements of Code Section 409A, the Participant may petition the Compensation Committee for the settlement of those portions of his Deferred Share Units and/or deferred RSU Awards that are required to be included in income. As soon as reasonably practicable following the grant of such a petition, which grant shall not be unreasonably withheld, the Company shall settle a portion of such Participant’s Deferred Share Units and/or a portion of such Participant’s deferred RSU Awards equal to the amount required to be included in income as a result of the failure of the Plan to meet the requirements of Code Section 409A; provided, however, that in no event may the number of Deferred Share Units settled exceed the total number of Deferred Share Units in such Participant’s Deferred Share Unit Account, and in no event may the number of deferred RSU Awards settled exceed the total number of such Participant’s deferred RSU Awards under this Plan. To the extent a Participant does not provide for the allocation between the settlement of Deferred Share Units and/or the settlement of deferred RSU Awards, the Compensation Committee may determine such allocation, in its sole discretion, which determination shall be final and binding on the petitioning Participant.

     7. Beneficiaries. A Participant shall have the right to designate one or more beneficiaries to receive the Participant’s Deferred Share Units and deferred RSU Awards in the event the Participant dies prior to the settlement of all of such Deferred Share Units and deferred RSU Awards. A beneficiary designation shall be made, and may be amended at any time, by the Participant by filing a written designation with the Company or the Company’s designated third-party plan administrator, on such form and in accordance with such procedures as the Company shall establish from time to time. A Participant may change the designated beneficiaries under this Plan at any time by providing such designation in writing to the Company or the Company’s designated third-party plan administrator. If a Participant fails to make a beneficiary

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designation, or if all designated beneficiaries predecease the Participant, the Participant’s beneficiary shall be deemed to be the Participant’s estate. If the Company is unable to determine a Participant’s beneficiaries, or if any dispute arises concerning a Participant’s beneficiaries, the Company may pay benefits to the Participant’s estate. Upon such payment, the Company shall have no further liability hereunder.

     8. No Funding; Participant’s Rights Unsecured. The Company will not fund the amount of any Deferred Share Units, Deferred Share Unit Accounts or deferred RSU Awards under this Plan (which in no event will preclude the Company from “funding” through a “rabbi” trust), and Participants will have the status of general unsecured creditors of the Company with respect thereto. The Company will not be required to establish any special or separate fund or to make any segregation of assets to assure the payment of any amount credited to a Participant’s Deferred Share Unit Accounts under the Plan.

     9. Administration. This Plan will be administered by the Compensation Committee or its designee, who will have the authority to adopt rules and regulations for carrying out the Plan; provided, however, that in the case of any Participant who is also a member of the Compensation Committee, such Participant shall not take part, directly or indirectly, in any action by the Compensation Committee which affects only such individual Participant’s rights under the Plan, other than actions that apply to all Participants equally. The Compensation Committee or its designee will have the authority to interpret, construe and implement the provisions of the Plan and to prescribe the form of the request for deferral of Cash Director Fees and RSU Awards in accordance with the terms of the Plan. Each member of the Compensation Committee and any designee of the Compensation Committee shall be fully justified in relying, acting or failing to act, and shall not be liable for having so relied, acted or failed to act in good faith, upon any report made by the independent public accountant of the Company and upon any other information furnished in connection with the Plan by any person or persons other than such member.

     10. Amendment and Termination.

     a. Amendment. The Board or the Compensation Committee may amend the Plan at any time and from time to time without the consent of any Participant or beneficiary; provided, however, that no amendment shall reduce any benefits accrued under the terms of the Plan prior to the date of amendment without the consent of all Participants prior to the date of such amendment.

     b. Termination. The Board or the Compensation Committee may terminate the Plan at any time and for any reason without the consent of any Participant or beneficiary. All outstanding Deferred Share Units and deferred RSU Awards shall be settled upon the Company’s termination and liquidation of the Plan, provided that: (i) the termination and liquidation do not occur proximate to a downturn in the financial health of the Company; (ii) the Company terminates and liquidates all agreements, methods, programs and other arrangements sponsored by the Company that would be aggregated with the Plan and any other terminated and liquidated agreements, methods, programs and other arrangements under Section 409A of the Code if the Participant had deferrals of compensation under all the agreements, methods, programs and other arrangements that are terminated and liquidated; (iii) no payments in

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liquidation of the Plan are made within 12 months of the date the Company takes all necessary actions to irrevocably terminate and liquidate the Plan other than payments that would be payable under the terms of the Plan if the action to terminate and liquidate the Plan had not occurred; (iv) all payments are made within 24 months of the date the Company takes all necessary actions to irrevocably terminate and liquidate the Plan; and (v) the Company does not adopt a new plan that would be aggregated with the Plan or any other terminated and liquidated plan under Section 409A of the Code if the Participant participated in both plans, at any time within three years following the date the Company takes all necessary actions to irrevocably terminate and liquidate the Plan.

     11. Miscellaneous.

     a. Taxes. If the Company is required to withhold amounts under applicable federal, state, local or foreign tax laws, rules or regulations, the Company may make such provisions and take such actions as it may deem necessary or appropriate for the withholding, including, but not limited to, the withholding of appropriate sums from any amount otherwise payable to a Participant. Each Participant, however, shall be responsible for the payment of all individual tax liabilities relating to any such benefits.

     b. Terms of the Stock Incentive Plan. All deferred RSU Awards hereunder shall at all times remain subject to the terms of the Stock Incentive Plan (including without limitation, any such terms relating to the adjustment of “Awards” thereunder pursuant to Section 1.6 thereof), and to the extent any of the provisions of this Plan contradict the terms of the Stock Incentive Plan, the terms of the Stock Incentive Plan shall govern.

     c. Successors. Other than pursuant to Section 7 hereof, the right to receive any payment under this Plan shall not be assignable or transferable, whether by pledge, creation of a security interest or otherwise. The provisions of this Plan shall bind the Company and its successors and assigns. The term “successors” as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, amalgamation, purchase or otherwise, acquire all or substantially all of the business and assets of the Company, and successors of any such corporation or other business entity.

     d. Severability. The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provision of this Plan.

     e. No Rights to Board Membership. Nothing contained herein shall (i) be construed as conferring upon any Participant the right to continue as a member of the Board, (ii) affect in any way the right of the Company to terminate such membership, or (iii) affect in any way the rights of any Participant contained in any agreement with the Company governing a Participant’s service as a member of the Board.

     f. Titles and Headings. The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.

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     g. Governing Law. The Plan and the rights of all persons claiming hereunder shall be construed and determined in accordance with the laws of New York without giving effect to the choice of law principles thereof.

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EX-10.3

Exhibit 10.3

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD

SECOND AMENDED AND RESTATED 2001 EMPLOYEE STOCK OPTION PLAN

1.  Purpose.  As of May 8, 2008 (the “Second Amendment and Restatement Effective Date”), the Allied World Assurance Company Holdings, Ltd Amended and Restated 2001 Employee Stock Option Plan was amended and restated and renamed the Allied World Assurance Company Holdings, Ltd Second Amended and Restated 2001 Employee Stock Option Plan (the “Plan”). The purpose of the Plan is to advance the interest of Allied World Assurance Company Holdings, Ltd (“Allied World”) and its subsidiaries (collectively, the “Company”) by providing certain Key Persons (as defined below) with the opportunity to acquire a proprietary interest in the success of the Company, to enhance the long-term performance of the Company, as well as to attract people with training, experience and ability to the Company and its subsidiaries and affiliates.

2.  Definitions of Certain Terms.

(i) “Award” means a stock option granted pursuant to the Plan, including Prior Grants. Stock options granted under the Plan are not intended to qualify as “incentive stock options” meeting the requirements of Section 422 of the Code.

(ii) “Award Agreement” means the written document by which each Award is evidenced.

(iii) “Board” means the Board of Directors of Allied World.

(iv) “Code” means the Internal Revenue Code of 1986, as amended from time to time, and the applicable rulings and regulations thereunder.

(v) “Committee” has the meaning set forth in Section 3.a.

(vi) “Common Shares” means the common shares of Allied World.

(vii) “Covered Person” has the meaning set forth in Section 3.c.

(viii) “Fair Market Value” means, with respect to a Common Share on any day, the fair market value as determined in accordance with a valuation methodology approved by the Committee and consistent with the requirements of Section 409A of the Code, or if there is a public market for the shares on such date, the closing price of the Common Shares on such stock exchange on which the shares are principally trading on the date in question, or, if there were no sales on such date, on the closest preceding date on which there were sales of shares.

(ix) “Key Persons” means officers, directors, employees (including prospective employees), consultants and others who may perform services for the Company. For purposes of the Plan, if a Key Person provides services to the Company in a non-employee capacity, references herein to “employee” shall instead refer to “service provider” and references herein to “employment” or similar terms shall instead refer to “service” or similar terms.

(x) “Prior Grants” means stock options and warrants granted prior to the Second Amendment and Restatement Effective Date under previous versions of the Plan.

3.  Administration.

a. Except as otherwise provided herein, the Plan shall be administered by a committee (the “Committee”) of the Board to be drawn solely from members of the Board who are not and have not been officers of the Company. The Committee is authorized, subject to the provisions of the Plan, to establish such rules and regulations as it deems necessary for the proper administration of the Plan and to make such determinations and interpretations and to take such action in connection with the Plan and any Award granted hereunder as it deems necessary or advisable. All determinations and interpretations made by the Committee shall be final, binding and conclusive on all grantees and on their legal representatives and beneficiaries. The Committee shall have the authority, in its absolute discretion, to determine which Key Persons shall receive Awards, the time when Awards shall be issued, the terms of

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such Awards and the number of shares for which Awards shall be issued; provided, however, that the Board shall have the sole authority to make such determinations with respect to Awards, if any, to be issued to the members of the Committee. Unless otherwise expressly provided in the Plan or an Award Agreement, the Committee shall have the authority, in its absolute discretion, to (i) amend any outstanding Award Agreement in any respect, subject to the consent of any grantee where the rights of the grantee of such Award are adversely affected, including, without limitation, to accelerate the time or times at which the Award becomes vested, unrestricted or may be exercised, waive or amend any restrictions or conditions set forth in such Award Agreement, or impose new restrictions and conditions, or reflect a change in the grantee’s circumstances; and (ii) determine whether, to what extent and under what circumstances and method or methods (A) Awards may be (1) settled in cash, Common Shares, other securities, other Awards or other property or (2) canceled, forfeited or suspended, (B) Common Shares, other securities, other Awards or other property, and other amounts payable with respect to an Award may be deferred either automatically or at the election of the grantee thereof or of the Committee and (C) Awards may be settled by the Company or any of its designees. Notwithstanding anything to the contrary contained herein, the Board may, in its sole discretion, at any time and from time to time, grant Awards (including grants to members of the Board who are not employees of the Company) or administer the Plan, in which case the Board shall have all of the authority and responsibility granted to the Committee herein.

b. Actions of the Committee may be taken by the vote of a majority of its members. The Committee may allocate among its members and delegate to any person who is not a member of the Committee any of its powers, responsibilities or duties in accordance with applicable law.

c. No member of the Board or the Committee or any employee of the Company (each such person a “Covered Person”) shall have any liability to any person (including any grantee) for any action taken or omitted to be taken or any determination made in good faith with respect to the Plan or any Award. Each Covered Person shall be indemnified and held harmless by Allied World against and from any loss, cost, liability or expense (including attorneys’ fees) that may be imposed upon or incurred by such Covered Person in connection with or resulting from any action, suit or proceeding to which such Covered Person may be a party or in which such Covered Person may be involved by reason of any action taken or omitted to be taken under the Plan or any Award Agreement and against and from any and all amounts paid by such Covered Person, with Allied World’s approval, in settlement thereof, or paid by such Covered Person in satisfaction of any judgment in any such action, suit or proceeding against such Covered Person, provided that Allied World shall have the right, at its own expense, to assume and defend any such action, suit or proceeding and, once Allied World gives notice of its intent to assume the defense, Allied World shall have sole control over such defense with counsel of Allied World’s choice. The foregoing right of indemnification shall not be available to a Covered Person to the extent that a court of competent jurisdiction in a final judgment or other final adjudication, in either case, not subject to further appeal, determines that the acts or omissions of such Covered Person giving rise to the indemnification claim resulted from such Covered Person’s fraud or dishonesty. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which Covered Persons may be entitled under Allied World’s Memorandum of Association or Bye-laws, as a matter of law, or otherwise, or any other power that Allied World may have to indemnify such persons or hold them harmless.

4.  Common Shares Available for Awards; Adjustments.

a. Common Shares Available for Awards.  The total number of Common Shares that may be issued pursuant to Awards granted under the Plan shall not exceed four million (4,000,000) Common Shares (the “Maximum Number”) as adjusted pursuant to the provisions of Section 4.b. Common Shares issued upon exercise of Prior Grants shall count against the Maximum Number. Awards may be granted to Key Persons in such number and at such times during the term of this Plan as the Committee or the Board shall determine; provided, however, that during any time that the Company is subject to Section 162(m) of the Code, the maximum number of Common Shares with respect to which Awards may be granted to any individual in any one year shall not exceed the maximum number of Common Shares available for issue hereunder, as such number may change from time to time. Shares granted pursuant to this Plan may be authorized but unissued Common Shares or authorized and issued Common Shares held by the Company or acquired by the Company for the purposes of the Plan. If any Award granted under this Plan or any Prior Grant is forfeited or otherwise terminates or is canceled without the delivery of Common Shares, then the Common Shares covered by such forfeited, terminated or canceled Award or Prior Grant shall again become available for transfer pursuant to Awards granted or to be granted under this Plan. Without

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affecting the number of Common Shares reserved or available hereunder, the Committee may authorize under the Plan the issuance of Awards or the assumption of awards granted under plans of other entities in connection with any amalgamation, merger, consolidation, acquisition of property or stock, or reorganization upon such terms and conditions as it may deem appropriate, and any other applicable laws or stock exchange rules.

b. Capitalization Adjustments.  The aggregate number of Common Shares which may be granted or purchased pursuant to Awards granted hereunder, the number of Common Shares covered by each outstanding Award, and the price per share thereof in each such Award shall be equitably and proportionally adjusted or substituted, as determined by the Committee in good faith and in its sole discretion, as to the number, price or kind of Common Shares or other consideration subject to such Awards or as otherwise determined by the Committee in good faith to be fair and equitable (i) in the event of changes in the outstanding Common Shares or in the capital structure of the Company by reason of stock dividends, stock splits, reverse stock splits, recapitalizations, reorganizations, mergers, consolidations, combinations, exchanges or other relevant changes in capitalization occurring after the date of grant of any such Award; (ii) in the event of any change in applicable laws or any change in circumstances which results in or would result in any substantial dilution or enlargement of the rights granted to, or available for, participants in the Plan; or (iii) for any other reason which the Committee determines, in its sole discretion and acting in good faith, to otherwise warrant equitable adjustment.

c. Corporate Events.  Notwithstanding subsection (b) above, in the event of (i) a merger, amalgamation or consolidation involving the Company in which the Company is not the surviving corporation; (ii) a merger, amalgamation or consolidation involving the Company in which the Company is the surviving corporation but the holders of Common Shares receive securities of another corporation and/or other property, including cash; (iii) the sale of greater than fifty percent (50%) of the securities of the Company entitled to vote in the election of directors to the Board; or (iv) the reorganization or liquidation of the Company (each, a “Corporate Event”), in lieu of providing the adjustment set forth in subsection (b) above, the Committee may, in its discretion, provide that all outstanding Awards shall terminate as of the consummation of such Corporate Event, and either (x) accelerate the exercisability of, and cause all vesting restrictions to lapse on, all outstanding Awards to a date at least ten days prior to the date of such Corporate Event, such that holders may exercise all such Awards prior to the Corporate Event, or (y) provide that holders of Awards will receive a payment in respect of cancellation of their Awards based on the amount of the per share consideration being paid for the Common Shares in connection with such Corporate Event less the applicable exercise price. Payments to holders pursuant to the preceding sentence shall be made in cash, or, in the sole discretion of the Committee, in such other consideration necessary for a holder of an Award to receive property, cash or securities as such holder would have been entitled to receive upon the occurrence of the transaction if the holder had been, immediately prior to such transaction, the holder of the number of Common Shares covered by the Award at such time.

d. Fractional Shares.  Any such adjustment may provide for the elimination of any fractional share which might otherwise become subject to an Award.

5.  Eligibi1ity.  Awards under the Plan may be made to such Key Persons as the Committee may select in its discretion.

6.  Grant of Awards.  The Committee is authorized to grant Awards only in the form of stock options to purchase Common Shares from the Company, to such Key Persons, in such amounts and subject to such terms and conditions, as the Committee shall determine in its discretion.

7.  Terms and Conditions of Award Agreements.  Each Award granted under the Plan shall be evidenced by a written document which shall contain such provisions and conditions as the Committee deems appropriate. By accepting an Award pursuant to the Plan, a grantee thereby agrees that the Award shall be subject to all of the terms and provisions of the Plan and the applicable Award Agreement. All Awards granted under the Plan shall be subject to the following terms and conditions:

a. Exercise Price.  The exercise price per share with respect to each Award shall be determined by the Committee or the Board but shall not be less than 100% of the Fair Market Value of the Common Shares on the date the Award is granted.

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b. Term of Award.  In no event shall any Award be exercisable after the expiration of 10 years from the date on which the Award is issued.

c. Termination of Employment.  Except as otherwise provided by the Committee or the Board, no part of any Award issued to an employee (including an officer) may be exercised after the termination of his or her employment with the Company, except that:

(i) if such termination of employment is on or after the date the employee attains age sixty-five (65) or due to disability or death, any portion of an Award, whether or not exercisable at the time of such termination, may be exercised by the grantee (or in case of death by the person or persons to whom the grantee’s rights under such Award are transferred by will or the laws of descent and distribution) at any time within the term of the Award; and

(ii) if such termination of employment is not at or after normal retirement age or due to disability or death, any portion of an Award may be exercised by the grantee within 90 days after such termination, but only to the extent such Award was exercisable at the time of such termination, and any portion of such Award that remains unvested at the time of such termination shall terminate and no longer be exercisable at any time.

8.  Term of Plan.  The Plan shall terminate on, and no Awards shall be issued pursuant to the Plan after, May 8, 2018; provided, however, that Awards granted theretofore may extend beyond such date and the terms and conditions of the Plan shall continue to apply thereto.

9.  Termination or Amendment of Plan.  The Board may at any time terminate the Plan with respect to any Common Shares of Allied World not at the time subject to an Award, and may from time to time alter or amend the Plan or any part thereof. Unless otherwise determined by the Board, shareholder approval of any suspension, discontinuance, revision or amendment shall be obtained only to the extent necessary to comply with any applicable law or stock exchange listing requirement; provided, however, that unless approved by the Company’s shareholders or as otherwise specifically provided under Section 4(a) hereof, no adjustments or reduction of the exercise price of any outstanding Awards shall be made in the event of a decline in stock price, either by reducing the exercise price of outstanding Awards or through cancellation of outstanding Awards in connection with a re-granting of Awards at a lower price to the same individual.

10.  Employment Status and Rights; Waiver of Claims.  The granting of any Award does not alter the at-will nature of any grantee’s employment with the Company. In addition, prior to being granted an Award, no employee of the Company has any right to any benefits hereunder. Accordingly, in consideration of a Key Person’s selection to receive an Award under the Plan and by acceptance of the grant of such Award, such Key Person expressly waives any right to contest the number of Awards issued to him or her, the terms of the Plan or the Award Agreement, any determination, action or omission under the Plan or any Award Agreement by Allied World, the Board or the Committee, or any amendment to the Plan or any Award Agreement (other than an amendment to the Plan or an Award Agreement to which his or her consent is expressly required by the express terms of an Award Agreement).

11.  Confidentiality.  In consideration of the grantee’s acceptance of any Award, the grantee hereby agrees to keep confidential the existence of, and any information concerning, any dispute arising in connection with any Award, the Plan and any related matters, except that the grantee may disclose information concerning such dispute to the court that is considering such dispute or to the grantee’s legal counsel (provided that such counsel agrees not to disclose any such information other than as necessary to the prosecution or defense of the dispute).

12.  Tax Withholding.  As a condition to the delivery of any Common Shares pursuant to any Award, or in connection with any other event that gives rise to a federal or other governmental tax withholding obligation on the part of the Company relating to an Award (including, without limitation, FICA tax), (a) the Company may deduct or withhold (or cause to be deducted or withheld) from any payment or distribution to a grantee whether or not pursuant to the Plan or (b) the Committee shall be entitled to require that the grantee remit cash to the Company (through payroll deduction or otherwise), in each case in an amount sufficient in the opinion of the Company to satisfy such withholding obligation.

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13.  Required Consents and Legends.

a. If the Committee shall at any time determine that any consent (as hereinafter defined) is necessary or desirable as a condition of, or in connection with, the granting of any Award, the delivery of Common Shares or the delivery of any cash, securities or other property under the Plan, or the taking of any other action hereunder (each such action being hereinafter referred to as a “Plan Action”), then such Plan Action shall not be taken, in whole or in part, unless and until such consent shall have been effected or obtained to the full satisfaction of the Committee. The Committee may direct that any certificate evidencing shares delivered pursuant to the Plan shall bear a legend setting forth such restrictions on transferability as the Committee may determine to be necessary or desirable, and may advise the transfer agent to place a stop transfer order against any legended shares.

b. The term “consent” as used in this Section 13 with respect to any Plan Action includes (i) any and all listings, registrations or qualifications in respect thereof upon any securities exchange or under any federal, state or local law, or law, rule or regulation of a jurisdiction outside the United States; (ii) or any other matter, which the Committee may deem necessary or desirable to comply with the terms of any such listing, registration or qualification or to obtain an exemption from the requirement that any such listing, qualification or registration be made; (iii) any and all other consents, clearances and approvals in respect of a Plan Action by any governmental or other regulatory body or any stock exchange or self-regulatory agency; and (iv) any and all consents required by the Committee. Nothing herein shall require Allied World to list, register or qualify the Common Shares on any securities exchange.

14.  Nonassignability; No Hedging.  Except to the extent otherwise expressly provided in the applicable Award Agreement or determined by the Committee, no Award (or any rights and obligations thereunder) granted to any person under the Plan may be sold, exchanged, transferred, assigned, pledged, hypothecated or otherwise disposed of or hedged, in any manner (including through the use of any cash-settled instrument), whether voluntarily or involuntarily and whether by operation of law or otherwise, other than by will or by the laws of descent and distribution, and all such Awards (and any rights thereunder) shall be exercisable during the life of the grantee only by the grantee or the grantee’s legal representative. Any sale, exchange, transfer, assignment, pledge, hypothecation or other disposition in violation of the provisions of this Section 14 shall be null and void and any Award which is hedged in any manner shall immediately be forfeited. All of the terms and conditions of this Plan and the Award Agreements shall be binding upon any permitted successors and assigns.

15.  Successor Entity.  Unless otherwise provided in the applicable Award Agreement and except as otherwise determined by the Committee, in the event of a merger, amalgamation, consolidation, mandatory share exchange or other similar business combination of Allied World with or into any other entity or any transaction in which another person or entity acquires all of the issued and outstanding Common Shares of Allied World, or all or substantially all of the assets of Allied World, outstanding Awards may be assumed or a substantially equivalent award may be substituted by such successor entity or a parent or subsidiary of such successor entity.

16.  Nature of Payments.

a. Any and all grants of Awards and deliveries of Common Shares, cash, securities or other property under the Plan shall be in consideration of services performed or to be performed for the Company by the grantee. Awards under the Plan may, in the discretion of the Committee, be made in substitution in whole or in part for cash or other compensation otherwise payable to a grantee by the Company. Only whole Common Shares shall be delivered under the Plan. Awards shall, to the extent reasonably practicable, be aggregated in order to eliminate any fractional shares. Fractional shares shall be rounded down to the nearest whole share and any such fractional shares shall be forfeited.

b. All such grants and deliveries shall constitute a special discretionary incentive payment to the grantee and shall not be required to be taken into account in computing the amount of salary or compensation of the grantee for the purpose of determining any contributions to or any benefits under any pension, retirement, profit-sharing, bonus, life insurance, severance or other benefit plan of the Company or under any agreement with the grantee, unless the Company specifically provides otherwise.

17.  Non-Uniform Determinations.  The Committee’s determinations under the Plan and Award Agreements need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive,

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Awards under the Plan (whether or not such persons are similarly situated). Without limiting the generality of the foregoing, the Committee shall be entitled, among other things, to make non-uniform and selective determinations under Award Agreements, and to enter into non-uniform and selective Award Agreements, as to (a) the persons to receive Awards, (b) the terms and provisions of Awards and (c) whether a grantee’s employment has been terminated for purposes of the Plan.

18.  Other Payments or Awards.  Nothing contained in the Plan shall be deemed in any way to limit or restrict the Company from making any award or payment to any person under any other plan, arrangement or understanding, whether now existing or hereafter in effect.

19.  Plan Headings.  The headings in this Plan are for the purpose of convenience only and are not intended to define or limit the construction of the provisions hereof.

20.  Governing Law; Venue.  THIS PLAN SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. IN CONSIDERATION OF THE GRANTEE’S ACCEPTANCE OF THE ISSUANCE OF ANY AWARD, THE GRANTEE HEREBY EXPRESSLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF AND VENUE IN THE COURTS OF BERMUDA WITH RESPECT TO ANY SUIT OR CLAIM INSTITUTED BY THE COMPANY OR THE GRANTEE RELATING TO THIS PLAN OR THE AWARD.

21.  Severability; Entire Agreement.  If any of the provisions of this Plan or any Award Agreement is finally held to be invalid, illegal or unenforceable (whether in whole or in part), such provision shall be deemed modified to the extent, but only to the extent, of such invalidity, illegality or unenforceability and the remaining provisions shall not be affected thereby; provided, that if any of such provisions is finally held to be invalid, illegal, or unenforceable because it exceeds the maximum scope determined to be acceptable to permit such provision to be enforceable, such provision shall be deemed to be modified to the minimum extent necessary to modify such scope in order to make such provision enforceable hereunder. The Plan and any Award Agreements contain the entire agreement of the parties with respect to the subject matter thereof and supersede all prior agreements, promises, covenants, arrangements, communications, representations and warranties between them, whether written or oral with respect to the subject matter thereof.

22.  No Third Party Beneficiaries.  Except as expressly provided therein, neither the Plan nor any Award Agreement shall confer on any person other than Allied World and the grantee of any Award any rights or remedies thereunder. The exculpation and indemnification provisions of Section 3.c shall inure to the benefit of a Covered Person’s estate and beneficiaries and legatees.

23.  Successors and Assigns of Allied World.  The terms of this Plan shall be binding upon and inure to the benefit of Allied World and any successor entity contemplated by Section 15.

24.  Date of Adoption.  This Plan was adopted effective on February 28, 2008 by the Board, subject to approval by the shareholders of Allied World at a General Meeting of Shareholders on May 8, 2008.

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EX-10.4

Exhibit 10.4

OPTION GRANT NOTICE

          Allied World Assurance Company Holdings, Ltd (the “Company”), pursuant to its Second Amended and Restated 2001 Employee Stock Option Plan (the “Plan”), hereby grants to Holder options to purchase the number of Common Shares set forth below. The Options are subject to all of the terms and conditions as set forth herein and in the Option Agreement (attached hereto or previously provided to Holder in connection with a prior grant), and in the Plan, all of which are incorporated herein in their entirety.

Holder:
Date of Grant:
Number of Common Shares Subject to Option:
Exercise Price per Share:
Expiration Date:	Ten Years from the Date of Grant
Type of Grant:	Nonqualified Stock Option
Vesting Schedule:	Options shall vest and become exercisable in accordance with the following schedule:
	Twenty five percent (25%) shall vest and become exercisable on each of the first, second, third and fourth anniversaries of the Date of Grant.

THE UNDERSIGNED HOLDER ACKNOWLEDGES RECEIPT OF THIS GRANT NOTICE, THE OPTION AGREEMENT AND THE PLAN, AND, AS AN EXPRESS CONDITION TO THE GRANT OF OPTIONS HEREUNDER, AGREES TO BE BOUND BY THE TERMS THIS GRANT NOTICE, THE OPTION AGREEMENT AND THE PLAN.

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD		HOLDER
By:
	Signature		Signature
Title:		Date:
Date:

OPTION AGREEMENT
UNDER THE
ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
SECOND AMENDED AND RESTATED 2001 EMPLOYEE STOCK OPTION PLAN

          Pursuant to the Option Grant Notice (the “Grant Notice”) delivered to Holder (as defined in the Grant Notice), and subject to the terms of this Option Agreement (this “Option Agreement”) and the Allied World Assurance Company Holdings, Ltd Second Amended and Restated 2001 Employee Stock Option Plan (the “Plan”), Allied World Assurance Company Holdings, Ltd (the “Company”) and Holder agree as follows. Capitalized terms not otherwise defined herein shall have the same meaning as set forth in the Plan.

     1. Grant of Option. Subject to the terms and conditions set forth herein and in the Plan, the Company hereby grants to Holder options to purchase up to the number of Common Shares provided in the Grant Notice, at an exercise price per share as provided in the Grant Notice (the “Options”). The Company may make one or more additional grants of options to Holder under this Option Agreement by providing Holder with a new Grant Notice, which may also include any terms and conditions differing from this Option Agreement. The Company reserves all rights with respect to the granting of additional options hereunder and makes no implied promise to grant additional options.

     2. Vesting. Subject to the limitations contained herein, the Options shall vest as provided in the Grant Notice; provided, however, that, except as may otherwise be provided in any employment agreement between the Company and Holder that is effective immediately prior to Holder’s termination of employment or service, all vesting shall cease upon Holder’s termination of employment or service, as applicable, with the Company.

     3. Exercise of Options Following Termination of Employment or Service.

          The provisions of Section 7(c) of the Plan are incorporated herein by reference and made a part hereof.

     4. Method of Exercising Options. The Options may be exercised by the delivery of notice of the number of Common Shares with respect to which the Options are being exercised accompanied by payment in full of the purchase price of such shares. Such notice shall be delivered either (x) in writing to the Company at its principal office or at such other address as may be established by the Committee, to the attention of the Company Secretary; or (y) to a third-party stock plan administrator as may be arranged for by the Company or the Committee from time to time for purposes of the administration of outstanding Options under the Plan, in either case of (x) or (y), as communicated to the Holder in a manner consistent with the terms of Section 10 hereof. Payment for such shares may be made (a) in immediately available funds in United States dollars, by certified or bank cashier’s check or wire transfer payable to the Company or third-party administrator, as applicable; (b) through a broker-assisted cashless exercise program established by the third-party stock plan administrator; or (c) by any other means approved by the Committee. Anything herein to the contrary notwithstanding, the Company shall not directly or indirectly extend or maintain credit, or arrange for the extension of credit, in the form of a personal loan to or for any director or executive officer of the Company

through the Plan in violation of Section 402 of the Sarbanes-Oxley Act of 2002 (“Section 402 of SOX”), and to the extent that any form of payment would, in the opinion of the Company’s counsel, result in a violation of Section 402 of SOX, such form of payment shall not be available.

     5. Issuance of Shares. If Holder elects to receive Common Shares after exercise of an Option, then as promptly as practical after receipt of such notification and full payment of such purchase price and any required income tax withholding amount (as provided in Section 9 hereof), the Company shall issue or transfer, or cause such issue or transfer, to Holder the number of shares with respect to which the Options have been so exercised, and shall either (a) deliver, or cause to be delivered, to Holder a certificate or certificates therefor, registered in Holder’s name or (b) cause such shares to be credited to Holder’s account at the third-party stock plan administrator.

     6. Company; Holder.

          (a) The term “Company” as used in this Agreement with reference to employment shall include the Company and its subsidiaries.

          (b) Whenever the word “Holder” is used in any provision of this Agreement under circumstances where the provision should logically be construed to apply to the executors, the administrators, or the person or persons to whom the Options may be transferred by will or by the laws of descent and distribution, the word “Holder” shall be deemed to include such person or persons.

     7. Non-Transferability. The Options are not transferable by Holder except (a) by will or the laws of descent and distribution, to the Company; (b) to or for the benefit of any spouse, child or grandchild of Holder; or (c) to a trust or partnership for the benefit of any of the foregoing. Except as otherwise provided herein, no assignment or transfer of the Options, or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise, shall vest in the assignee or transferee any interest or right herein whatsoever, but immediately upon such assignment or transfer the Options shall terminate and become of no further effect.

     8. Rights as Shareholder. Holder or a transferee of the Options shall have no rights as a shareholder with respect to any share covered by the Options until Holder shall have become the holder of record or the beneficial owner of such share, and no adjustment shall be made for dividends or distributions or other rights in respect of such share for which the record date is prior to the date upon which Holder shall become the holder of record or the beneficial owner thereof.

     9. Tax Withholding. The provisions of Section 12 of the Plan are incorporated herein by reference and made a part hereof.

     10. Notice. Every notice or other communication relating to this Agreement between the Company and Holder shall be in writing, and shall be mailed to or delivered to the party for whom it is intended at such address as may from time to time be designated by it in a notice mailed or delivered to the other party as herein provided, provided that, unless and until some other address be so designated, all notices or communications by Holder to the Company shall be

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mailed or delivered to the Company at its principal executive office, to the attention of the Company Secretary, and all notices or communications by the Company to Holder may be given to Holder personally or may be mailed to Holder at Holder’s last known address, as reflected in the Company’s records. Notwithstanding the above, all notices and communications between the Holder and any third-party stock plan administrator shall be mailed, delivered, transmitted or sent in accordance with the procedures established by such third-party stock plan administrator and communicated to Holder from time to time.

     11. No Right to Continued Service. This Agreement does not confer upon Holder any right to continue as an employee or service provided to the Company.

     12. Binding Effect. This Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto.

     13. Waiver and Amendments. Any waiver, alteration, amendment or modification of any of the terms of this Agreement shall be valid only if made in writing and signed by the parties hereto; provided, however, that any such waiver, alteration, amendment or modification is consented to on the Company’s behalf by the Committee. No waiver by either of the parties hereto of their rights hereunder shall be deemed to constitute a waiver with respect to any subsequent occurrences or transactions hereunder unless such waiver specifically states that it is to be construed as a continuing waiver.

     14. Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of the State of New York, without regard to the principles of conflicts of law thereof. Notwithstanding anything contained in this Option Agreement, the Grant Notice or the Plan to the contrary, if any suit or claim is instituted by Holder or the Company relating to this Option Agreement, the Grant Notice or the Plan, Holder hereby submits to the exclusive jurisdiction of and venue in the courts of Bermuda.

     15. Plan. The terms and provisions of the Plan are incorporated herein by reference. Capitalized terms used herein which are not defined herein shall have the meanings attributable thereto in the Plan. In the event of a conflict or inconsistency between the terms and provisions of the Plan and the provisions of this Agreement, the Plan shall govern and control.

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EX-10.5

Exhibit 10.5

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD

SECOND AMENDED AND RESTATED
2004 STOCK INCENTIVE PLAN

TABLE OF CONTENTS

ARTICLE I GENERAL	1
1.1 Purpose	1
1.2 Definitions of Certain Terms	1
1.3 Administration	1
1.4 Persons Eligible for Awards	2
1.5 Types of Awards Under Plan	2
1.6 Common Shares Available for Awards	2
ARTICLE II AWARDS UNDER THE PLAN	3
2.1 Agreements Evidencing Awards	3
2.2 No Rights as a Shareholder	4
2.3 Grant of Restricted Common Shares	4
2.4 Grant of Restricted Stock Units	4
2.5 Grant of Dividend Equivalent Rights	4
2.6 Other Stock-Based Awards	4
2.7 Certain Restrictions	4
ARTICLE III MISCELLANEOUS	5
3.1 Amendment of the Plan	5
3.2 Confidentiality	5
3.3 Tax Withholding	5
3.4 Required Consents and Legends	5
3.5 Nonassignability; No Hedging	5
3.6 Successor Entity	6
3.7 Right of Discharge Reserved	6
3.8 Nature of Payments	6
3.9 Non-Uniform Determinations	6
3.10 Other Payments or Awards	6
3.11 Plan Headings	7
3.12 Termination of Plan	7
3.13 Governing Law; Venue	7
3.14 Severability; Entire Agreement	7
3.15 Waiver of Claims	7
3.16 No Third Party Beneficiaries	7
3.17 Successors and Assigns of Allied World	7
3.18 Date of Adoption and Approval of Shareholders	8
3.19 Section 409A	8

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD

SECOND AMENDED AND RESTATED

2004 STOCK INCENTIVE PLAN

ARTICLE I

GENERAL

1.1   Purpose

The purpose of the Allied World Assurance Company Holdings, Ltd Second Amended and Restated 2004 Stock Incentive Plan is to attract, retain and motivate officers, directors, employees (including prospective employees), consultants and others who may perform services for the Company, to compensate them for their contributions to the long-term growth and profits of the Company, and to encourage them to acquire a proprietary interest in the success of the Company.

1.2   Definitions of Certain Terms

“ALLIED WORLD” means Allied World Assurance Company Holdings, Ltd or a successor entity contemplated by Section 3.6.

“AWARD” means an award made pursuant to the Plan.

“AWARD AGREEMENT” means the written document by which each Award is evidenced.

“BOARD” means the Board of Directors of Allied World.

“CERTIFICATE” means a share certificate (or other appropriate document or evidence of ownership) representing Common Shares of Allied World.

“COMMITTEE” has the meaning set forth in Section 1.3.1.

“COMMON SHARES” mean the common shares of Allied World.

“COMPANY” means Allied World and its subsidiaries.

“COVERED PERSON” has the meaning set forth in Section 1.3.3.

“EMPLOYMENT” means a grantee’s performance of services for the Company, as determined by the Committee. The terms “employ” and “employed” shall have their correlative meanings.

“EXCHANGE ACT” means the Securities Exchange Act of 1934, as amended from time to time, and the applicable rules and regulations thereunder.

“PLAN” means the Allied World Assurance Company Holdings, Ltd Second Amended and Restated 2004 Stock Incentive Plan, as described herein and as hereafter amended from time to time.

1.3   Administration

1.3.1 Except, as otherwise provided herein, the Plan shall be administered by a committee (the “Committee”) of the Board to be drawn solely from members of the Board who are not and have not been officers of the Company. The Committee is authorized, subject to the provisions of the Plan, to establish such rules and regulations as it deems necessary for the proper administration of the Plan and to make such determinations and interpretations and to take such action in connection with the Plan and any Award granted thereunder as it deems necessary or advisable. All determinations and interpretations made by the Committee shall be final, binding and conclusive on all grantees and on their legal representatives and beneficiaries. The Committee shall have the authority, in its absolute discretion, to determine the persons who shall receive Awards, the time when Awards shall be granted, the terms of such Awards and the number of Common Shares, if any, which shall be subject to such Awards. Unless otherwise provided in an Award Agreement, the Committee shall have the authority, in its absolute discretion, to (i) amend any outstanding Award Agreement in any respect, whether or not the rights of the grantee of such Award

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are adversely affected, including, without limitation, to accelerate the time or times at which the Award becomes vested, unrestricted or may be exercised, waive or amend any goals, restrictions or conditions set forth in such Award Agreement, or impose new goals, restrictions and conditions, or reflect a change in the grantee’s circumstances; and (ii) determine whether, to what extent and under what circumstances and method or methods (A) Awards may be (1) settled in cash, Common Shares, other securities, other Awards or other property or (2) canceled, forfeited or suspended, (B) Common Shares, other securities, other Awards or other property, and other amounts payable with respect to an Award may be deferred either automatically or at the election of the grantee thereof or of the Committee and (C) Awards may be settled by the Company or any of its designees. Notwithstanding anything to the contrary contained herein, the Board may, in its sole discretion, at any time and from time to time, grant Awards (including grants to members of the Board who are not employees of the Company) or administer the Plan, in which case the Board shall have all of the authority and responsibility granted to the Committee herein.

1.3.2 Actions of the Committee may be taken by the vote of a majority of its members. The Committee may allocate among its members and delegate to any person who is not a member of the Committee any of its powers, responsibilities or duties in accordance with applicable law.

1.3.3 No member of the Board or the Committee or any employee of the Company (each such person a “Covered Person”) shall have any liability to any person (including any grantee) for any action taken or omitted to be taken or any determination made in good faith with respect to the Plan or any Award. Each Covered Person shall be indemnified and held harmless by Allied World against and from any loss, cost, liability or expense (including attorneys’ fees) that may be imposed upon or incurred by such Covered Person in connection with or resulting from any action, suit or proceeding to which such Covered Person may be a party or in which such Covered Person may be involved by reason of any action taken or omitted to be taken under the Plan or any Award Agreement and against and from any and all amounts paid by such Covered Person, with Allied World’s approval, in settlement thereof, or paid by such Covered Person in satisfaction of any judgment in any such action, suit or proceeding against such Covered Person, provided that Allied World shall have the right, at its own expense, to assume and defend any such action, suit or proceeding and, once Allied World gives notice of its intent to assume the defense, Allied World shall have sole control over such defense with counsel of Allied World’s choice. The foregoing right of indemnification shall not be available to a Covered Person to the extent that a court of competent jurisdiction in a final judgment or other final adjudication, in either case, not subject to further appeal, determines that the acts or omissions of such Covered Person giving rise to the indemnification claim resulted from such Covered Person’s fraud or dishonesty. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which Covered Persons may be entitled under Allied World’s Memorandum of Association or Bye-Laws, as a matter of law, or otherwise, or any other power that Allied World may have to indemnify such persons or hold them harmless.

1.4    Persons Eligible for Awards

Awards under the Plan may be made to such officers, directors, employees (including prospective employees), consultants and other individuals who may perform services for the Company, as the Committee may select.

1.5    Types of Awards Under Plan

Awards may be made under the Plan in the form of (a) restricted stock, (b) restricted stock units, (c) dividend equivalent rights and (d) other equity-based or equity-related Awards that the Committee determines to be consistent with the purposes of the Plan and the interests of the Company. Allied World, however, will not grant stock options pursuant to the Plan.

1.6    Common Shares Available for Awards

1.6.1 Subject to adjustment as provided in Section 1.6.2 hereof, the maximum number of shares that may be issued under the Plan is two million (2,000,000) Common Shares. Such Common Shares may, in the discretion of the Committee, be either authorized but unissued shares or shares previously issued and reacquired by Allied World. If any Award shall expire, terminate or otherwise lapse, in whole or in part, any Common Shares subject to such Award (or portion thereof) shall again be available for issuance under the Plan. Any Common Shares delivered by

2

Allied World, any Common Shares with respect to which Awards are made by Allied World and any Common Shares with respect to which Allied World becomes obligated to make Awards, through the assumption of, or in substitution for, outstanding awards previously granted by an acquired entity, shall not be counted against the shares available for Awards under this Plan.

1.6.2 The Committee shall adjust the number of Common Shares authorized pursuant to Section 1.6.1 and the terms of any outstanding Awards (including, without limitation, the number of Common Shares covered by each outstanding Award, the type of property to which the Award is subject and the exercise or strike price of any Award), in such manner as it deems appropriate to preserve the benefits or potential benefits intended to be made available to grantees of Awards, for any increase or decrease in the number of issued Common Shares resulting from a recapitalization, stock split, stock dividend, combination or exchange of Common Shares, merger, amalgamation, consolidation, rights offering, separation, reorganization or liquidation, or any other change in the corporate structure or shares of Allied World. After any adjustment made pursuant to this Section 1.6.2, the number of Common Shares subject to each outstanding Award shall be rounded down to the nearest whole number. Notwithstanding the foregoing, in the event of (i) a merger, amalgamation or consolidation involving Allied World in which Allied World is not the surviving corporation; (ii) a merger, amalgamation or consolidation involving Allied World in which Allied World is the surviving corporation but the holders of shares of Common Shares receive securities of another corporation and/or other property, including cash; (iii) a the sale of greater than fifty percent (50%) of the securities of Allied World entitled to vote in the election of directors to the Board; or (iv) the reorganization or liquidation of Allied World (each, a “Corporate Event”), in lieu of providing the adjustment set forth in subsection (b) above, the Committee may, in its discretion, provide that all outstanding Awards shall terminate as of the consummation of such Corporate Event, and either (x) accelerate the vesting of, and cause all vesting restrictions to lapse on, all outstanding Awards to a date at least ten days prior to the date of such Corporate Event, or (y) provide that holders of Awards will receive a payment in respect of cancellation of their Awards based on the amount of the per share consideration being paid for the Common Shares in connection with such Corporate Event. Payments to holders pursuant to the preceding sentence shall be made in cash, or, in the sole discretion of the Committee, in such other consideration necessary for a holder of an Award to receive property, cash or securities as such holder would have been entitled to receive upon the occurrence of the transaction if the holder had been, immediately prior to such transaction, the holder of the number of Common Shares covered by the Award at such time.

1.6.3 There shall be no limit on the amount of cash, securities (other than Common Shares as provided in this Section 1.6) or other property that may be delivered pursuant to the Plan or any Award; provided, however, that during any time that the Company is subject to Section 162(m) of the Code, the maximum number of Common Shares with respect to which Awards may be granted to any individual in any one year shall not exceed the maximum number of Common Shares available for issue hereunder, as such number may change from time to time.

ARTICLE II

AWARDS UNDER THE PLAN

2.1    Agreements Evidencing Awards

Each Award granted under the Plan shall be evidenced by a written document that shall contain such provisions and conditions as the Committee deems appropriate. The Committee may grant Awards in tandem with or in substitution for any other Award or Awards granted under this Plan or any award granted under any other plan of the Company. By accepting an Award pursuant to the Plan, a grantee thereby agrees that the Award shall be subject to all of the terms and provisions of the Plan and the applicable Award Agreement.

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2.2    No Rights as a Shareholder

No grantee of an Award shall have any of the rights of a shareholder of Allied World with respect to Common Shares subject to such Award until the delivery of such shares. Except as otherwise provided in Section 1.6.2, no adjustments shall be made for dividends, distributions or other rights (whether ordinary or extraordinary, and whether in cash, Common Shares, other securities or other property) for which the record date is prior to the date such shares are delivered.

2.3    Grant of Restricted Common Shares

The Committee may grant or offer for sale restricted Common Shares in such amounts and subject to Section 2.7 and such terms and conditions as the Committee shall determine. Upon the delivery of such shares, the grantee shall have the rights of a shareholder with respect to the restricted stock, subject to Section 2.7 and any other restrictions and conditions as the Committee may include in the applicable Award Agreement. In the event that a Certificate is issued in respect of restricted Common Shares, such Certificate may be registered in the name of the grantee but may be held by Allied World or its designated agent until the time the restrictions lapse.

2.4    Grant of Restricted Stock Units

The Committee may grant Awards of restricted stock units in such amounts and subject to Section 2.7 and such terms and conditions as the Committee shall determine. A grantee of a restricted stock unit will have only the rights of a general unsecured creditor of Allied World until delivery of Common Shares, cash or other securities or property is made as specified in the applicable Award Agreement. On the delivery date specified in the Award Agreement, the grantee of each restricted stock unit not previously forfeited or terminated shall receive one Common Share, or cash, securities or other property equal in value to a Common Share or a combination thereof as specified by the Committee.

2.5    Grant of Dividend Equivalent Rights

The Committee may include in the Award Agreement with respect to any Award a dividend equivalent right entitling the grantee to receive amounts equal to all or any portion of the dividends that would be paid on the Common Shares covered by such Award if such shares had been delivered pursuant to such Award. The grantee of a dividend equivalent right will have only the rights of a general unsecured creditor of Allied World until payment of such amounts is made as specified in the applicable Award Agreement. In the event such a provision is included in an Award Agreement, the Committee shall determine whether such payments shall be made in cash, in Common Shares or in another form, whether they shall be conditioned upon the exercise of the Award to which they relate, the time or times at which they shall be made, and such other terms and conditions as the Committee shall deem appropriate.

2.6    Other Stock-Based Awards

The Committee may grant other types of equity-based or equity-related Awards (including the grant or offer for sale of unrestricted Common Shares) in such amounts and subject to such terms and conditions, as the Committee shall determine. Such Awards may entail the transfer of actual Common Shares to Award recipients, or payment in cash or otherwise of amounts based on the value of Common Shares, and may include, without limitation, Awards designed to comply with or take advantage of the applicable local laws of jurisdictions other than the United States.

2.7    Certain Restrictions

In the case of an Award in the form of restricted stock or restricted stock units, at least one year must elapse before the delivery or payment of Common Shares, cash or other property, except in the case of (i) termination of employment due to death, disability, retirement at or after age 65 or change of control; or (ii) an Award that the Committee determines is performance based, in which case at least one year must elapse.

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ARTICLE III

MISCELLANEOUS

3.1 Amendment of the Plan

3.1.1 Unless otherwise provided in an Award Agreement, the Board may from time to time suspend, discontinue, revise or amend the Plan in any respect whatsoever, including in any manner that adversely affects the rights, duties or obligations of any grantee of an Award.

3.1.2 Unless otherwise determined by the Board, shareholder approval of any suspension, discontinuance, revision or amendment shall be obtained only to the extent necessary to comply with any applicable law or stock exchange listing requirement.

3.2 Confidentiality

In consideration of the grantee’s acceptance of any Award, the grantee hereby agrees to keep confidential the existence of, and any information concerning, any dispute arising in connection with any Award, the Plan and any related matters, except that the grantee may disclose information concerning such dispute to the court that is considering such dispute or to the grantee’s legal counsel (provided that such counsel agrees not to disclose any such information other than as necessary to the prosecution or defense of the dispute).

3.3 Tax Withholding

As a condition to the delivery of any Common Shares pursuant to any Award or the lifting or lapse of restrictions on any Award, or in connection with any other event that gives rise to a federal or other governmental tax withholding obligation on the part of the Company relating to an Award (including, without limitation, FICA tax), (a) the Company may deduct or withhold (or cause to be deducted or withheld) from any payment or distribution to a grantee whether or not pursuant to the Plan or (b) the Committee shall be entitled to require that the grantee remit cash to the Company (through payroll deduction or otherwise), in each case in an amount sufficient in the opinion of the Company to satisfy such withholding obligation.

3.4    Required Consents and Legends

3.4.1 If the Committee shall at any time determine that any consent (as hereinafter defined) is necessary or desirable as a condition of, or in connection with, the granting of any Award, the delivery of Common Shares or the delivery of any cash, securities or other property under the Plan, or the taking of any other action thereunder (each such action being hereinafter referred to as a “plan action”), then such plan action shall not be taken, in whole or in part, unless and until such consent shall have been effected or obtained to the full satisfaction of the Committee. The Committee may direct that any Certificate evidencing shares delivered pursuant to the Plan shall bear a legend setting forth such restrictions on transferability as the Committee may determine to be necessary or desirable, and may advise the transfer agent to place a stop transfer order against any legended shares.

3.4.2 The term “consent” as used in this Section 3.4 with respect to any plan action includes (a) any and all listings, registrations or qualifications in respect thereof upon any securities exchange or under any federal, state or local law, or law, rule or regulation of a jurisdiction outside the United States; (b) or any other matter, which the Committee may deem necessary or desirable to comply with the terms of any such listing, registration or qualification or to obtain an exemption from the requirement that any such listing, qualification or registration be made; (c) any and all other consents, clearances and approvals in respect of a plan action by any governmental or other regulatory body or any stock exchange or self-regulatory agency; and (d) any and all consents required by the Committee. Nothing herein shall require Allied World to list, register or qualify the Common Shares on any securities exchange.

3.5    Nonassignability; No Hedging

Except to the extent otherwise expressly provided in the applicable Award Agreement or determined by the Committee, no Award (or any rights and obligations thereunder) granted to any person under the Plan may be sold,

5

exchanged, transferred, assigned, pledged, hypothecated or otherwise disposed of or hedged, in any manner (including through the use of any cash-settled instrument), whether voluntarily or involuntarily and whether by operation of law or otherwise, other than by will or by the laws of descent and distribution, and all such Awards (and any rights thereunder) shall be exercisable during the life of the grantee only by the grantee or the grantee’s legal representative. Any sale, exchange, transfer, assignment, pledge, hypothecation or other disposition in violation of the provisions of this Section 3.5 shall be null and void and any Award which is hedged in any manner shall immediately be forfeited. All of the terms and conditions of this Plan and the Award Agreements shall be binding upon any permitted successors and assigns.

3.6   Successor Entity

Unless otherwise provided in the applicable Award Agreement and except as otherwise determined by the Committee, in the event of a merger, amalgamation, consolidation, mandatory share exchange or other similar business combination of Allied World with or into any other entity or any transaction in which another person or entity acquires all of the issued and outstanding Common Shares of Allied World, or all or substantially all of the assets of Allied World, outstanding Awards may be assumed or a substantially equivalent award may be substituted by such successor entity or a parent or subsidiary of such successor entity.

3.7    Right of Discharge Reserved

Nothing in the Plan or in any Award Agreement shall confer upon any grantee the right to continued Employment by the Company or affect any right that the Company may have to terminate such Employment.

3.8    Nature of Payments

3.8.1 Any and all grants of Awards and deliveries of Common Shares, cash, securities or other property under the Plan shall be in consideration of services performed or to be performed for the Company by the grantee. Awards under the Plan may, in the discretion of the Committee, be made in substitution in whole or in part for cash or other compensation otherwise payable to a grantee by the Company. Only whole Common Shares shall be delivered under the Plan. Awards shall, to the extent reasonably practicable, be aggregated in order to eliminate any fractional shares. Fractional shares shall be rounded down to the nearest whole share and any such fractional shares shall be forfeited.

3.8.2 All such grants and deliveries shall constitute a special discretionary incentive payment to the grantee and shall not be required to be taken into account in computing the amount of salary or compensation of the grantee for the purpose of determining any contributions to or any benefits under any pension, retirement, profit-sharing, bonus, life insurance, severance or other benefit plan of the Company or under any agreement with the grantee, unless the Company specifically provides otherwise.

3.9    Non-Uniform Determinations

The Committee’s determinations under the Plan and Award Agreements need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, Awards under the Plan (whether or not such persons are similarly situated). Without limiting the generality of the foregoing, the Committee shall be entitled, among other things, to make non-uniform and selective determinations under Award Agreements, and to enter into non-uniform and selective Award Agreements, as to (a) the persons to receive Awards, (b) the terms and provisions of Awards and (c) whether a grantee’s Employment has been terminated for purposes of the Plan.

3.10    Other Payments or Awards

Nothing contained in the Plan shall be deemed in any way to limit or restrict the Company from making any award or payment to any person under any other plan, arrangement or understanding, whether now existing or hereafter in effect.

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3.11    Plan Headings

The headings in this Plan are for the purpose of convenience only and are not intended to define or limit the construction of the provisions hereof.

3.12    Termination of Plan

The Board reserves the right to terminate the Plan at any time; provided, however, that in any case, the Plan shall terminate on May 8, 2018, and provided further, that all Awards made under the Plan prior to its termination shall remain in effect until such Awards have been satisfied or terminated in accordance with the terms and provisions of the Plan and the applicable Award Agreements.

3.13 Governing Law; Venue

THIS PLAN SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. IN CONSIDERATION OF THE GRANTEE’S ACCEPTANCE OF THE ISSUANCE OF ANY AWARD, THE GRANTEE HEREBY EXPRESSLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF AND VENUE IN THE COURTS OF BERMUDA WITH RESPECT TO ANY SUIT OR CLAIM INSTITUTED BY THE COMPANY OR THE GRANTEE RELATING TO THIS PLAN OR THE AWARD.

3.14    Severability; Entire Agreement

If any of the provisions of this Plan or any Award Agreement is finally held to be invalid, illegal or unenforceable (whether in whole or in part), such provision shall be deemed modified to the extent, but only to the extent, of such invalidity, illegality or unenforceability and the remaining provisions shall not be affected thereby; provided, that if any of such provisions is finally held to be invalid, illegal or unenforceable because it exceeds the maximum scope determined to be acceptable to permit such provision to be enforceable, such provision shall be deemed to be modified to the minimum extent necessary to modify such scope in order to make such provision enforceable hereunder. The Plan and any Award Agreements contain the entire agreement of the parties with respect to the subject matter thereof and supersede all prior agreements, promises, covenants, arrangements, communications, representations and warranties between them, whether written or oral with respect to the subject matter thereof.

3.15    Waiver of Claims

Each grantee of an Award recognizes and agrees that prior to being selected by the Committee to receive an Award he or she has no right to any benefits hereunder. Accordingly, in consideration of the grantee’s receipt of any Award hereunder, he or she expressly waives any right to contest the amount of any Award, the terms of any Award Agreement, any determination, action or omission hereunder or under any Award Agreement by the Committee, Allied World or the Board, or any amendment to the Plan or any Award Agreement (other than an amendment to this Plan or an Award Agreement to which his or her consent is expressly required by the express terms of an Award Agreement).

3.16    No Third Party Beneficiaries

Except as expressly provided therein, neither the Plan nor any Award Agreement shall confer on any person other than Allied World and the grantee of any Award any rights or remedies thereunder. The exculpation and indemnification provisions of Section 1.3.3 shall inure to the benefit of a Covered Person’s estate and beneficiaries and legatees.

3.17    Successors and Assigns of Allied World

The terms of this Plan shall be binding upon and inure to the benefit of Allied World and any successor entity contemplated by Section 3.6.

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3.18    Date of Adoption and Approval of Shareholders

The Plan was adopted effective on February 28, 2008, by the Board, subject to approval by the shareholders of the Company at a General Meeting of Shareholders, on May 8, 2008.

3.19  Section 409A

The Plan and all Awards granted hereunder are intended to be exempt from the provisions of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”). To the extent that any Awards, payments or benefits provided hereunder are considered deferred compensation subject to Section 409A, the Company intends for this Plan and all Awards to comply with the standards for nonqualified deferred compensation established by 409A (the “409A Standards”). Notwithstanding anything herein to the contrary, to the extent that any terms of the Plan or any Award would subject recipient of an Award to gross income inclusion, interest or an additional tax pursuant to Section 409A, those terms are, to that extent, superseded by the 409A Standards. The Company reserves the right to amend Awards granted hereunder to cause such Awards to comply with or be exempt from Section 409A.

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EX-10.6

Exhibit 10.6

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
SECOND AMENDED AND RESTATED 2004 STOCK INCENTIVE PLAN
RSU AWARD AGREEMENT

          This RSU Award Agreement (this “RSU Agreement”) sets forth the terms and conditions of an award (this “Award”) of restricted stock units (“RSUs”) granted to you under the Allied World Assurance Company Holdings, Ltd Second Amended and Restated 2004 Stock Incentive Plan (the “Plan”).

     1. The Plan. This Award is made pursuant to the Plan, the terms of which are incorporated in this RSU Agreement. Capitalized terms used in this RSU Agreement that are not defined in this RSU Agreement, or in the attached Glossary of Terms, have the meanings as used or defined in the Plan.

     2. Award. The number of RSUs subject to this Award is set forth at the end of this RSU Agreement. Each RSU constitutes an unfunded and unsecured promise of Allied World to deliver (or cause to be delivered) to you, subject to the terms of this RSU Agreement, one Common Share (the “Share” or the “Shares” as the context requires) (or cash equal to the Fair Market Value thereof) on the applicable Delivery Date as provided herein. Until such delivery, you have only the rights of a general unsecured creditor, and no rights as a shareholder of Allied World. THIS AWARD IS SUBJECT TO ALL TERMS, CONDITIONS AND PROVISIONS OF THE PLAN AND THIS AWARD AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE CHOICE OF FORUM PROVISIONS SET FORTH IN PARAGRAPH 15.

     3. Vesting and Delivery.

          (a) Vesting. Except as provided in this Paragraph 3 and in Paragraphs 4 and 6, twenty five percent (25%) of the RSUs shall vest and become exercisable on each of the first, second, third and fourth anniversaries of the Date of Grant specified at the end of this RSU Agreement (each, a “Vesting Date”). Unless the Committee determines otherwise, and except as provided in Paragraph 6, if your Employment terminates for any reason prior to a Vesting Date, your rights in respect of all of your then unvested RSUs shall terminate, and no Shares (and/or cash) shall be delivered in respect of such RSUs.

          (b) Delivery. Except as provided in this Paragraph 3 and in Paragraphs 4, 6, 8 and 9, on the Delivery Dates, the Company shall issue or transfer to you, or cause to be issued or transferred to you, the number of Shares underlying the RSUs to be delivered, and shall either (i) deliver, or cause to be delivered, to you a certificate or certificates therefor, registered in your name; or (ii) cause such Shares to be credited to your account at a third-party stock plan administrator as may be arranged for by the Company or the Committee from time to time for purposes of the administration of outstanding Awards under the Plan. You shall be deemed the beneficial owner of the Shares at the close of business on a Delivery Date and shall be entitled to any dividend or distribution that has not already been made with respect to such Shares if the record date for such dividend or distribution is after the close of business on such Delivery Date. The Company may, at its option, deliver, or cause to be delivered, cash in lieu of all or any portion of the Shares otherwise deliverable on a Delivery Date specified at the end of this RSU

Agreement. Such cash payment shall equal the product of the number of Shares to be delivered on a Delivery Date and the Fair Market Value of one Share on such Delivery Date.

          (c) Death. Notwithstanding any other provision of this RSU Agreement, if you die prior to a Delivery Date, and provided your rights in respect of your RSUs have not previously terminated, the Shares (and/or cash) corresponding to your outstanding RSUs shall be delivered to the representative of your estate as soon as practicable after the date of death and after such documentation, as may be requested by the Company or third-party stock plan administrator, is provided to the Company or such third-party stock plan administrator, as applicable.

          (d) Delay in Delivery. Notwithstanding anything contained herein to the contrary, any delivery of Common Shares or cash otherwise required to be made hereunder to you at any date as a result of the termination of your Employment for any reason shall be delayed for such period of time as may be necessary to meet the requirements of section 409A(a)(2)(B)(i) of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), and shall be delivered and/or paid on the earliest date on which such delivery or payments can be made without violating the requirements of section 409A(a)(2)(B)(i) of the Code.

     4. Termination of RSUs and Non-Delivery of Shares.

          (a) Unless the Committee determines otherwise, and except as provided in Paragraphs 3(c) and 6, your rights in respect of your outstanding RSUs shall immediately terminate, and no Shares (and/or cash) shall be delivered in respect of such unvested RSUs, if at any time prior to a Vesting Date your Employment with the Company terminates for any reason, or you are otherwise no longer actively Employed by the Company.

          (b) Unless the Committee determines otherwise, and except as provided in Paragraph 6, your rights in respect of all of your RSUs (whether or not vested) shall immediately terminate, and no Shares (and/or cash) shall be delivered in respect of such RSUs, if at any time prior to a Delivery Date:

     (i) you attempt to have any dispute under this RSU Agreement or the Plan resolved in any manner that is not provided for by Paragraph 15;

     (ii) any event that constitutes Cause has occurred;

     (iii) you in any manner, directly or indirectly, (A) Solicit any Client to transact business with a Competitive Enterprise or to reduce or refrain from doing any business with the Company, (B) interfere with or damage (or attempt to interfere with or damage) any relationship between the Company and any such Client or (C) Solicit any person who is an employee of the Company to resign from the Company or to apply for or accept employment with any Competitive Enterprise; or

     (iv) you fail to certify to Allied World, in accordance with procedures established by the Committee with respect to a Delivery Date that you have complied, or the Committee determines that you have failed as of a Delivery Date to comply, with all of the terms and conditions of this RSU Agreement. By accepting the delivery of Shares

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(and/or cash) under this RSU Agreement, you shall be deemed to have represented and certified at such time that you have complied with all the terms and conditions of this RSU Agreement.

          (c) Unless the Committee determines otherwise, if a Delivery Date in respect of any of your outstanding RSUs occurs, and Shares (and/or cash) with respect to such outstanding RSUs would be deliverable under the terms and conditions of this RSU Agreement, except that you have not complied with the conditions or your obligations under Paragraph 4(b)(iv), all of your rights with respect to your outstanding RSUs shall terminate no later than the Delivery Date for such Shares.

     5. Repayment. If following the delivery of Shares (and/or cash), the Committee determines that all terms and conditions of this RSU Agreement in respect of such delivery were not satisfied, the Company shall be entitled to receive, and you shall be obligated to pay the Company immediately upon demand therefor, the Fair Market Value of the Shares (determined as of the Delivery Date) and the amount of cash (to the extent that cash was delivered to you) delivered with respect to the Delivery Date, without reduction for any Shares (and/or cash) applied to satisfy withholding tax or other obligations in respect of such Shares (and/or cash).

     6. Disability and Retirement

          (a) Notwithstanding any other provision of this RSU Agreement, but subject to Paragraph 6(b), if your Employment with the Company is terminated by reason of Disability or Retirement, the condition set forth in Paragraph 4(a) shall be waived with respect to your then outstanding unvested RSUs (as a result of which any such then unvested outstanding RSUs shall vest on the Vesting Dates), but all other conditions of this RSU Agreement shall continue to apply.

          (b) Without limiting the application of Paragraph 4(b) or Paragraph 4(c), your rights in respect of any outstanding RSUs that become vested solely by reason of Paragraph 6(a) shall terminate immediately, and no Shares (and/or cash) shall be delivered in respect of such outstanding RSUs if, following the termination of your Employment with the Company by reason of Disability or Retirement and prior to a Delivery Date you (i) form, or acquire a 5% or greater equity ownership, voting or profit participation interest in, any Competitive Enterprise or (ii) associate in any capacity (including, but not limited to, association as an officer, employee, partner, director, consultant, agent or advisor) with any Competitive Enterprise.

     7. Non-transferability. Except as otherwise may be provided by the Committee, the limitations set forth in Section 3.5 of the Plan shall apply. Any assignment in violation of the provisions of this Paragraph 7 shall be null and void.

     8. Withholding, Consent and Legends.

          (a) The delivery of Shares is conditioned on your satisfaction of any applicable withholding taxes (in accordance with Section 3.3 of the Plan).

          (b) Your rights in respect of your RSUs are conditioned on the receipt by the Company or third-party stock plan administrator, as applicable, to the full satisfaction of the

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Committee of any required consents (as defined in Section 3.4 of the Plan) that the Committee may determine to be necessary or advisable (including, without limitation, your consenting to deductions from your wages, or another arrangement satisfactory to the Committee, to reimburse the Company for advances made on your behalf to satisfy withholding and other tax obligations in connection with this Award).

          (c) Allied World may affix to Certificates representing Shares issued pursuant to this RSU Agreement any legend that the Committee determines to be necessary or advisable (including to reflect any restrictions to which you may be subject under a separate agreement with Allied World). Allied World may advise the transfer agent to place a stop transfer order against any legended Shares.

     9. Rights of Offset. The Company shall have the right to offset, or cause to be offset, against the obligation to deliver Shares (and/or cash) under this RSU Agreement any outstanding amounts (including, without limitation, travel and entertainment or advance account balances, loans or amounts repayable to the Company pursuant to tax equalization, housing, automobile or other employee programs) you then owe to the Company and any amounts the Committee otherwise deems appropriate.

     10. No Rights to Continued Employment. Nothing in this RSU Agreement or the Plan shall be construed as giving you any right to continued Employment by the Company or affect any right that the Company may have to terminate or alter the terms and conditions of your Employment.

     11. Successors and Assigns of Allied World. The terms and conditions of this RSU Agreement shall be binding upon, and shall inure to the benefit of, Allied World and its successor entities.

     12. Committee Discretion. The Committee shall have full discretion with respect to any actions to be taken or determinations to be made in connection with this RSU Agreement, and its determinations shall be final, binding and conclusive.

     13. Amendment. The Committee reserves the right at any time to amend the terms and conditions set forth in this RSU Agreement, and the Board may amend the Plan in any respect; provided, that, notwithstanding the foregoing and Sections 1.3.1(i), 1.3.1(ii) and 3.1 of the Plan, no such amendment shall materially adversely affect your rights and obligations under this RSU Agreement without your consent, except that the Committee reserves the right to accelerate the delivery of the Shares and in its discretion provide that such Shares may not be transferable until the Delivery Date on which such Shares otherwise would have been delivered (and that in respect of such Shares you may remain subject to the repayment obligations of Paragraph 5 in the circumstances under which the Shares would not have been delivered pursuant to Paragraph 4 or Paragraph 6). Any amendment of this RSU Agreement shall be in writing signed by an authorized member of the Committee or a person or persons designated by the Committee.

     14. Adjustment. In the event of a recapitalization, stock split, stock dividend, combination or exchange of shares, merger, amalgamation, consolidation, rights offering,

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separation, reorganization or liquidation, or any other change in the corporate structure or the Shares, subsequent to the date of the Date of Grant, the Committee or the Board shall make such equitable adjustments, designed to protect dilution or enlargement of rights, as it may deem appropriate, in the number and kind of Shares covered by the RSUs subject to this RSU Agreement.

     15. Governing Law; Venue. THIS AWARD SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. IN CONSIDERATION OF YOUR ACCEPTANCE OF THIS AWARD, YOU HEREBY EXPRESSLY SUBMIT TO THE EXCLUSIVE JURISDITION OF AND VENUE IN THE COURTS OF BERMUDA WITH RESPECT TO ANY SUIT OR CLAIM INSTITUTED BY THE COMPANY OR YOU RELATING TO THIS AWARD.

     16. Headings. The headings in this RSU Agreement are for the purpose of convenience only and are not intended to define or limit the construction of the provisions hereof.

     IN WITNESS WHEREOF, Allied World has caused this RSU Agreement to be duly executed and delivered as of the Date of Grant.

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
By:
	Name:
	Title:

Recipient:
Number of RSUs:
Date of Grant:
Delivery Dates:
Receipt
Acknowledge:
Address:
		Street
	City,	State	Zip Code
	Social Security No./Local I.D. No.

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Glossary of Terms

Solely for purposes of this Award of RSUs, the following terms shall have the meanings set forth below. Capitalized terms not defined in this Glossary of Terms shall have the meanings as used or defined in the applicable RSU Agreement or the Plan.

          “Cause” means, in the absence of any employment agreement between you and the Company otherwise defining Cause, (i) your conviction, whether following trial or by plea of guilty or nolo contendere (or similar plea), in a criminal proceeding (A) on a misdemeanor charge involving fraud, false statements or misleading omissions, wrongful taking, embezzlement, bribery, forgery, counterfeiting or extortion; (B) on a felony charge; or (C) on an equivalent charge to those in clauses (A) and (B) in jurisdictions which do not use those designations; (ii) your engaging in any conduct which constitutes an employment disqualification under applicable law (including statutory disqualification as defined under the Exchange Act); (iii) your failure to perform your duties to the Company; (iv) your violation of any securities or commodities laws, any rules or regulations issued pursuant to such laws, or the rules and regulations of any securities or commodities exchange or association of which Allied World or any of its subsidiaries or affiliates is a member; (v) your violation of any Company policy concerning hedging or confidential or proprietary information, or your material violation of any other Company policy as in effect from time to time; (vi) your engaging in any act or making any statement which impairs, impugns, denigrates, disparages or negatively reflects upon the name, reputation or business interests of the Company; or (vii) your engaging in any conduct detrimental to the Company. In the event there is an employment agreement between you and the Company defining Cause, “Cause” shall have the meaning provided in such agreement. The determination as to whether “Cause” has occurred shall be made by the Committee in its sole discretion, unless otherwise provided in an employment agreement between you and the Company. The Committee shall also have the authority in its sole discretion to waive the consequences under the Plan or any RSU Agreement of the existence or occurrence of any of the events, acts or omissions constituting “Cause.”

          “Client” means any client or prospective client of the Company to whom you provided services, or for whom you transacted business, or whose identity became known to you in connection with your relationship with or Employment by the Company.

          “Competitive Enterprise” means a business enterprise that (i) engages in any activity, or (ii) owns or controls a significant interest in any entity that engages in any activity, that, in either case, competes anywhere with any activity in which the Company is engaged. The activities covered by the previous sentence include, without limitation, all insurance and re-insurance, and insurance and reinsurance related activities, and asset management located in Bermuda and abroad.

          “Delivery Date” means each date specified as the Delivery Date in the Award (or as soon as practicable, but in no case more that 10 days, thereafter).

          “Disability” means, in the absence of any employment agreement between you and the Company otherwise defining Disability, (i) total disability as defined in the long-term disability plan of the Company, as in effect from time to time, or (ii) if there is no such plan at

the applicable time, physical or mental incapacity as determined solely by the Committee. In the event there is an employment agreement between you and the Company defining Disability, “Disability” shall have the meaning provided in such agreement.

          “Fair Market Value” means, with respect to a Common Share on any day, the fair market value as determined in accordance with a valuation methodology approved by the Committee and consistent with the requirements of Section 409A of the Code, or if there is a public market for the shares on such date, the closing price of the Common Shares on such stock exchange on which the shares are principally trading on the date in question, or, if there were no sales on such date, on the closest preceding date on which there were sales of shares.

          “Retirement” means any termination of your Employment other than for Cause following the date you attain age 65.

          “Solicit” means any direct or indirect communication of any kind whatsoever, regardless of by whom initiated, inviting, advising, encouraging or requesting any person or entity, in any manner, to take or refrain from taking any action.

EX-10.7

Exhibit 10.7

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
SECOND AMENDED AND RESTATED 2004 STOCK INCENTIVE PLAN
RSU AWARD AGREEMENT

          This RSU Award Agreement (this “RSU Agreement”) sets forth the terms and conditions of an award (this “Award”) of restricted stock units (“RSUs”) granted to you under the Allied World Assurance Company Holdings, Ltd Second Amended and Restated 2004 Stock Incentive Plan (the “Plan”).

     1. The Plan. This Award is made pursuant to the Plan, the terms of which are incorporated in this RSU Agreement. Capitalized terms used in this RSU Agreement that are not defined in this RSU Agreement, or in the attached Glossary of Terms, have the meanings as used or defined in the Plan.

     2. Award. The number of RSUs subject to this Award is set forth at the end of this RSU Agreement. Each RSU constitutes an unfunded and unsecured promise of Allied World to deliver (or cause to be delivered) to you, subject to the terms of this RSU Agreement, one Common Share (the “Share” or the “Shares” as the context requires) (or cash equal to the Fair Market Value thereof) on the Delivery Date as provided herein. Until such delivery, you have only the rights of a general unsecured creditor, and no rights as a shareholder of Allied World. THIS AWARD IS SUBJECT TO ALL TERMS, CONDITIONS AND PROVISIONS OF THE PLAN AND THIS AWARD AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE CHOICE OF FORUM PROVISIONS SET FORTH IN PARAGRAPH 15.

     3. Vesting and Delivery.

          (a) Vesting. Except as provided in this Paragraph 3 and in Paragraphs 4 and 6, one hundred percent (100%) of the RSUs shall vest and become exercisable on the first anniversary of the Date of Grant specified at the end of this RSU Agreement (the “Vesting Date”). Unless the Committee determines otherwise, and except as provided in Paragraph 6, if your service to the Company as a member of its Board of Directors (“Board Service”) terminates for any reason prior to the Vesting Date, your rights in respect of all of your then unvested RSUs shall terminate, and no Shares (and/or cash) shall be delivered in respect of such RSUs.

          (b) Delivery. Except as provided in this Paragraph 3 and in Paragraphs 4, 6, 8 and 9, on the Delivery Date, the Company shall issue or transfer to you, or cause to be issued or transferred to you, the number of Shares underlying the RSUs to be delivered, and shall either (i) deliver, or cause to be delivered, to you a certificate or certificates therefor, registered in your name; or (ii) cause such Shares to be credited to your account at a third-party stock plan administrator as may be arranged for by the Company or the Committee from time to time for purposes of the administration of outstanding Awards under the Plan. You shall be deemed the beneficial owner of the Shares at the close of business on the Delivery Date and shall be entitled to any dividend or distribution that has not already been made with respect to such Shares if the record date for such dividend or distribution is after the close of business on such Delivery Date.

The Company may, at its option, deliver, or cause to be delivered, cash in lieu of all or any portion of the Shares otherwise deliverable on the Delivery Date specified at the end of this RSU Agreement. Such cash payment shall equal the product of the number of Shares to be delivered on the Delivery Date and the Fair Market Value of one Share on such Delivery Date.

          (c) Death. Notwithstanding any other provision of this RSU Agreement, if you die prior to the Delivery Date, and provided your rights in respect of your RSUs have not previously terminated, the Shares (and/or cash) corresponding to your outstanding RSUs shall be delivered to the representative of your estate as soon as practicable after the date of death and after such documentation, as may be requested by the Company or third-party stock plan administrator, is provided to the Company or such third-party stock plan administrator, as applicable.

          (d) Delay in Delivery. Notwithstanding anything contained herein to the contrary, any delivery of Common Shares or cash otherwise required to be made hereunder to you at any date as a result of the termination of your Board Service for any reason shall be delayed for such period of time as may be necessary to meet the requirements of section 409A(a)(2)(B)(i) of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), and shall be delivered and/or paid on the earliest date on which such delivery or payments can be made without violating the requirements of section 409A(a)(2)(B)(i) of the Code.

     4. Termination of RSUs and Non-Delivery of Shares.

          (a) Unless the Committee determines otherwise, and except as provided in Paragraphs 3(c) and 6, your rights in respect of your outstanding RSUs shall immediately terminate, and no Shares (and/or cash) shall be delivered in respect of such unvested RSUs, if at any time prior to the Vesting Date your Board Service to the Company terminates for any reason, or you are otherwise no longer actively serving as a member of the Company’s Board of Directors.

          (b) Unless the Committee determines otherwise, and except as provided in Paragraph 6, your rights in respect of all of your RSUs (whether or not vested) shall immediately terminate, and no Shares (and/or cash) shall be delivered in respect of such RSUs, if at any time prior to the Delivery Date:

     (i) you attempt to have any dispute under this RSU Agreement or the Plan resolved in any manner that is not provided for by Paragraph 15;

     (ii) any event that constitutes Cause has occurred;

     (iii) you in any manner, directly or indirectly, (A) Solicit any Client to transact business with a Competitive Enterprise or to reduce or refrain from doing any business with the Company, (B) interfere with or damage (or attempt to interfere with or damage) any relationship between the Company and any such Client or (C) Solicit any person who is an employee of the Company to resign from the Company or to apply for or accept employment with any Competitive Enterprise; or

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     (iv) you fail to certify to Allied World, in accordance with procedures established by the Committee with respect to the Delivery Date that you have complied, or the Committee determines that you have failed as of the Delivery Date to comply, with all of the terms and conditions of this RSU Agreement. By accepting the delivery of Shares (and/or cash) under this RSU Agreement, you shall be deemed to have represented and certified at such time that you have complied with all the terms and conditions of this RSU Agreement.

          (c) Unless the Committee determines otherwise, if the Delivery Date in respect of any of your outstanding RSUs occurs, and Shares (and/or cash) with respect to such outstanding RSUs would be deliverable under the terms and conditions of this RSU Agreement, except that you have not complied with the conditions or your obligations under Paragraph 4(b)(iv), all of your rights with respect to your outstanding RSUs shall terminate no later than the Delivery Date for such Shares.

     5. Repayment. If following the delivery of Shares (and/or cash), the Committee determines that all terms and conditions of this RSU Agreement in respect of such delivery were not satisfied, the Company shall be entitled to receive, and you shall be obligated to pay the Company immediately upon demand therefor, the Fair Market Value of the Shares (determined as of the Delivery Date) and the amount of cash (to the extent that cash was delivered to you) delivered with respect to the Delivery Date, without reduction for any Shares (and/or cash) applied to satisfy withholding tax or other obligations in respect of such Shares (and/or cash).

     6. Disability and Retirement

          (a) Notwithstanding any other provision of this RSU Agreement, but subject to Paragraph 6(b), if your Board Service to the Company is terminated by reason of Disability or Retirement, the condition set forth in Paragraph 4(a) shall be waived with respect to your then outstanding unvested RSUs (as a result of which your unvested outstanding RSUs shall vest on the Vesting Date), but all other conditions of this RSU Agreement shall continue to apply.

          (b) Without limiting the application of Paragraph 4(b) or Paragraph 4(c), your rights in respect of any outstanding RSUs that become vested solely by reason of Paragraph 6(a) shall terminate immediately, and no Shares (and/or cash) shall be delivered in respect of such outstanding RSUs if, following the termination of your Board Service to the Company by reason of Disability or Retirement and prior to the Delivery Date you (i) form, or acquire a 5% or greater equity ownership, voting or profit participation interest in, any Competitive Enterprise or (ii) associate in any capacity (including, but not limited to, association as an officer, employee, partner, director, consultant, agent or advisor) with any Competitive Enterprise.

     7. Non-transferability. Except as otherwise may be provided by the Committee, the limitations set forth in Section 3.5 of the Plan shall apply. Any assignment in violation of the provisions of this Paragraph 7 shall be null and void.

     8. Withholding, Consent and Legends.

          (a) The delivery of Shares is conditioned on your satisfaction of any applicable withholding taxes (in accordance with Section 3.3 of the Plan).

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          (b) Your rights in respect of your RSUs are conditioned on the receipt by the Company or third-party stock plan administrator, as applicable, to the full satisfaction of the Committee of any required consents (as defined in Section 3.4 of the Plan) that the Committee may determine to be necessary or advisable (including, without limitation, your consenting to deductions from your wages, or another arrangement satisfactory to the Committee, to reimburse the Company for advances made on your behalf to satisfy withholding and other tax obligations in connection with this Award).

          (c) Allied World may affix to Certificates representing Shares issued pursuant to this RSU Agreement any legend that the Committee determines to be necessary or advisable (including to reflect any restrictions to which you may be subject under a separate agreement with Allied World). Allied World may advise the transfer agent to place a stop transfer order against any legended Shares.

     9. Rights of Offset. The Company shall have the right to offset, or cause to be offset, against the obligation to deliver Shares (and/or cash) under this RSU Agreement any outstanding amounts (including, without limitation, travel and entertainment or advance account balances, loans or amounts repayable to the Company for any reason) you then owe to the Company and any amounts the Committee otherwise deems appropriate.

     10. No Rights to Continued Board Service. Nothing in this RSU Agreement or the Plan shall be construed as giving you any right to continued Board Service or affect any right that the Company may have to terminate or alter the terms and conditions of your Board Service.

     11. Successors and Assigns of Allied World. The terms and conditions of this RSU Agreement shall be binding upon, and shall inure to the benefit of, Allied World and its successor entities.

     12. Committee Discretion. The Committee shall have full discretion with respect to any actions to be taken or determinations to be made in connection with this RSU Agreement, and its determinations shall be final, binding and conclusive.

     13. Amendment. The Committee reserves the right at any time to amend the terms and conditions set forth in this RSU Agreement, and the Board may amend the Plan in any respect; provided, that, notwithstanding the foregoing and Sections 1.3.1(i), 1.3.1(ii) and 3.1 of the Plan, no such amendment shall materially adversely affect your rights and obligations under this RSU Agreement without your consent, except that the Committee reserves the right to accelerate the delivery of the Shares and in its discretion provide that such Shares may not be transferable until the Delivery Date on which such Shares otherwise would have been delivered (and that in respect of such Shares you may remain subject to the repayment obligations of Paragraph 5 in the circumstances under which the Shares would not have been delivered pursuant to Paragraph 4 or Paragraph 6). Any amendment of this RSU Agreement shall be in writing signed by an authorized member of the Committee or a person or persons designated by the Committee.

     14. Adjustment. In the event of a recapitalization, stock split, stock dividend, combination or exchange of shares, merger, amalgamation, consolidation, rights offering,

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separation, reorganization or liquidation, or any other change in the corporate structure or the Shares, subsequent to the date of the Date of Grant, the Committee or the Board shall make such equitable adjustments, designed to protect dilution or enlargement of rights, as it may deem appropriate, in the number and kind of Shares covered by the RSUs subject to this RSU Agreement.

     15. Governing Law; Venue. THIS AWARD SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. IN CONSIDERATION OF YOUR ACCEPTANCE OF THIS AWARD, YOU HEREBY EXPRESSLY SUBMIT TO THE EXCLUSIVE JURISDITION OF AND VENUE IN THE COURTS OF BERMUDA WITH RESPECT TO ANY SUIT OR CLAIM INSTITUTED BY THE COMPANY OR YOU RELATING TO THIS AWARD.

     16. Headings. The headings in this RSU Agreement are for the purpose of convenience only and are not intended to define or limit the construction of the provisions hereof.

     IN WITNESS WHEREOF, Allied World has caused this RSU Agreement to be duly executed and delivered as of the Date of Grant.

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD
By:
	Name:
	Title:

Recipient:
Number of RSUs:
Date of Grant:
Delivery Date:
Receipt
Acknowledge:
Address:
		Street
	City,	State	Zip Code
	Social Security No./Local I.D. No.

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Glossary of Terms

Solely for purposes of this Award of RSUs, the following terms shall have the meanings set forth below. Capitalized terms not defined in this Glossary of Terms shall have the meanings as used or defined in the applicable RSU Agreement or the Plan.

          “Cause” means, in the absence of any employment agreement between you and the Company otherwise defining Cause, (i) your conviction, whether following trial or by plea of guilty or nolo contendere (or similar plea), in a criminal proceeding (A) on a misdemeanor charge involving fraud, false statements or misleading omissions, wrongful taking, embezzlement, bribery, forgery, counterfeiting or extortion; (B) on a felony charge; or (C) on an equivalent charge to those in clauses (A) and (B) in jurisdictions which do not use those designations; (ii) your engaging in any conduct which constitutes an employment disqualification under applicable law (including statutory disqualification as defined under the Exchange Act); (iii) your failure to perform your duties to the Company; (iv) your violation of any securities or commodities laws, any rules or regulations issued pursuant to such laws, or the rules and regulations of any securities or commodities exchange or association of which Allied World or any of its subsidiaries or affiliates is a member; (v) your violation of any Company policy concerning hedging or confidential or proprietary information, or your material violation of any other Company policy as in effect from time to time; (vi) your engaging in any act or making any statement which impairs, impugns, denigrates, disparages or negatively reflects upon the name, reputation or business interests of the Company; or (vii) your engaging in any conduct detrimental to the Company. In the event there is an employment agreement between you and the Company defining Cause, “Cause” shall have the meaning provided in such agreement. The determination as to whether “Cause” has occurred shall be made by the Committee in its sole discretion, unless otherwise provided in an employment agreement between you and the Company. The Committee shall also have the authority in its sole discretion to waive the consequences under the Plan or any RSU Agreement of the existence or occurrence of any of the events, acts or omissions constituting “Cause.”

          “Client” means any client or prospective client of the Company to whom you provided services, or for whom you transacted business, or whose identity became known to you in connection with your relationship with or Board Service to the Company.

          “Competitive Enterprise” means a business enterprise that (i) engages in any activity, or (ii) owns or controls a significant interest in any entity that engages in any activity, that, in either case, competes anywhere with any activity in which the Company is engaged. The activities covered by the previous sentence include, without limitation, all insurance and re-insurance, and insurance and reinsurance related activities, and asset management located in Bermuda and abroad.

          “Delivery Date” means the date specified as the Delivery Date in the Award (or as soon as practicable, but in no case more that 10 days, thereafter).

          “Disability” means, in the absence of any employment agreement between you and the Company otherwise defining Disability, (i) total disability as defined in the long-term disability plan of the Company, as in effect from time to time, or (ii) if there is no such plan at

the applicable time, physical or mental incapacity as determined solely by the Committee. In the event there is an employment agreement between you and the Company defining Disability, “Disability” shall have the meaning provided in such agreement.

          “Fair Market Value” means, with respect to a Common Share on any day, the fair market value as determined in accordance with a valuation methodology approved by the Committee and consistent with the requirements of Section 409A of the Code, or if there is a public market for the shares on such date, the closing price of the Common Shares on such stock exchange on which the shares are principally trading on the date in question, or, if there were no sales on such date, on the closest preceding date on which there were sales of shares.

          “Retirement” means any termination of your Board Service other than for Cause following the date you attain age 65.

          “Solicit” means any direct or indirect communication of any kind whatsoever, regardless of by whom initiated, inviting, advising, encouraging or requesting any person or entity, in any manner, to take or refrain from taking any action.

EX-10.8

Exhibit 10.8

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, LTD

2008 EMPLOYEE SHARE PURCHASE PLAN

Allied World Assurance Company Holdings, Ltd, hereby adopts the Allied World Assurance Company Holdings, Ltd 2008 Employee Share Purchase Plan (the “Plan”), effective as of February 28, 2008 (the “Effective Date”), subject to the approval of the shareholders of the Company.

1.  Purpose.  The purposes of the Plan are as follows:

a. To assist Eligible Employees in acquiring an ownership interest in the Company pursuant to a plan that is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423(b) of the Code; and

b. To help such Eligible Employees provide for their future security and to encourage them to remain in the employment of the Company and its Subsidiaries.

2.  Definitions.

(i) “Administrator” shall mean the Compensation Committee of the Board.

(ii) “Board” shall mean the Board of Directors of the Company.

(iii) “Code” shall mean the Internal Revenue Code of 1986, as amended, and the applicable rulings and regulations thereunder.

(iv) “Common Shares” shall mean the common shares of the Company, $0.03 par value per share. “Common Shares” shall also include any other securities of the Company that may be substituted for Common Shares pursuant to Section 19 hereof.

(v) “Company” shall mean Allied World Assurance Company Holdings, Ltd, a Bermuda exempted company, or any successor corporation.

(vi) “Compensation” shall mean all base straight time gross earnings and commissions, exclusive of payments for overtime, shift premiums, incentive compensation, incentive payments, bonuses, expense reimbursements, fringe benefits and other compensation.

(vii) “Eligible Employee” shall mean an Employee of the Company or a Subsidiary (i) who would not, immediately after an option is granted to him hereunder, own shares possessing 5% or more of the total combined voting power or value of all classes of shares of the Company, a Parent, or a Subsidiary (as determined under Section 423(b)(3) of the Code); (ii) whose customary employment is for more than 20 hours per week; and (iii) whose customary employment is for more than five months in any calendar year. For purposes of clause (i) of this subsection (g), the rules of Section 424(d) of the Code with regard to the attribution of share ownership shall apply in determining the share ownership of an individual, and shares which an Employee may purchase under outstanding options shall be treated as shares owned by the Employee.

(viii) “Employee” shall mean any person who renders services to the Company or a Subsidiary in the status of an employee within the meaning of Code Section 3401(c). “Employee” shall not include any director of the Company or a Subsidiary who does not render services to the Company or a Subsidiary in the status of an employee within the meaning of Code Section 3401(c). For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company or Subsidiary and meeting the requirements of Treasury Regulation Section 1.421-7(h)(2). Where the period of leave exceeds 90 days and the individual’s right to reemployment is not guaranteed either by statute or by contract, the employment relationship shall be deemed to have terminated on the 91st day of such leave.

(ix) “Employer” shall mean, as to any particular Employee, the company or corporation which employs such Employee, whether it be the Company or a Subsidiary.

(x) “Enrollment Date” shall mean the first Trading Day of each Offering Period.

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(xi) “Exercise Date” shall mean the last Trading Day of each Offering Period.

(xii) “Fair Market Value” shall mean, as of any date, the value of a Common Share determined as follows:

(i) If the Common Shares are traded on an exchange, Fair Market Value shall be the closing sales price for one Common Share as reported in The Wall Street Journal (or such other source as the Administrator may deem reliable for such purposes) for such date, or if no sale occurred on such date, the first Trading Day immediately prior to such date during which a sale occurred;

(ii) If the Common Shares are not traded on an exchange but are quoted on a quotation system, Fair Market Value shall be the mean between the closing representative bid and asked prices for one Common Share on such date, or if no sale occurred on such date, the first date immediately prior to such date on which sales prices or bid and asked prices, as applicable, are reported by such quotation system; or

(iii) In the absence of an established market for the Common Shares, Fair Market Value shall be determined in good faith by the Administrator.

(xiii) “Offering Period” shall mean each period of approximately six months commencing on each January 1 and July 1 and terminating on the next occurring June 30 or December 31, as applicable. The duration and timing of Offering Periods may be changed pursuant to Section 4 of this Plan, but in no event may an Offering Period have a duration in excess of 27 months.

(xiv) “Parent” means any corporation, other than the Company, in an unbroken chain of corporations ending with the Company if, at the time of the determination, each of the corporations other than the Company owns shares possessing 50% or more of the total combined voting power of all classes of shares in one of the other corporations in such chain.

(xv) “Participant” means an Eligible Employee who participates in the Plan pursuant to Section 5 hereof.

(xvi) “Purchase Price” shall mean 85% of the Fair Market Value of one Common Share on the Exercise Date; provided, however, that the Purchase Price may be adjusted by the Administrator pursuant to Section 19 hereof; provided, further, that the Purchase Price shall not be less than the par value of one Common Share.

(xvii) “Subsidiary” shall mean any corporation, other than the Company, in an unbroken chain of corporations beginning with the Company if, at the time of the determination, each of the corporations other than the last corporation in an unbroken chain owns shares possessing 50% or more of the total combined voting power of all classes of shares in one of the other corporations in such chain.

(xviii) “Trading Day” shall mean a day on which the principal exchange on which the Common Shares are traded is open for trading.

3.  Eligibility.

a. Any Employee who is an Eligible Employee on the Enrollment Date for an Offering Period shall be eligible to participate in the Plan during such Offering Period, subject to the requirements of Section 5 hereof and the limitations imposed by Section 423(b) of the Code.

b. No Eligible Employee shall be granted an option under the Plan to purchase Common Shares, or under any other employee share purchase plan to purchase shares of the Company, any Parent, or any Subsidiary subject to Section 423 of the Code, to accrue at a rate which exceeds $25,000 of the Fair Market Value of such shares (determined at the time the option is granted) for each calendar year in which the option is outstanding at any time. For purposes of the limitation imposed by this subsection, the right to purchase shares under an option accrues when the option (or any portion thereof) first becomes exercisable during the calendar year, the right to purchase shares under an option accrues at the rate provided in the option, but in no case may such rate exceed $25,000 of the Fair Market Value of such shares (determined at the time such option is granted) for any one calendar year, and a right to purchase shares which has accrued under an option may not be carried over to any other option. This limitation shall be applied in accordance with Section 423(b)(8) of the Code.

4.  Offering Periods.  Subject to approval by shareholders of the Company, the Plan shall be implemented by consecutive Offering Periods beginning on July 1, 2008, and shall continue until it expires or is terminated in

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accordance with Section 20 hereof. The Administrator shall have the power to change the duration of Offering Periods (including the commencement dates thereof) with respect to future offerings without shareholder approval if such change is announced at least five days prior to the scheduled beginning of the first Offering Period to be affected thereafter; provided, however, that no Offering Period shall expire later than the date on which this Plan expires or is terminated in accordance with Section 20 hereof.

5.  Participation.

a. Each Eligible Employee may become a Participant with respect to any Offering Period by completing a subscription agreement authorizing payroll deductions in a form acceptable to the Administrator and filing it with the Company (or its designated third-party share plan administrator) 15 business days (or a different number of days as may be determined by the Administrator, in its sole discretion) prior to the first day of such Offering Period. A Participant’s completion of a subscription agreement with respect to any Offering Period will enroll such Participant in the Plan for each subsequent Offering Period on the terms contained therein until the Participant either submits a new subscription agreement, withdraws from participation under the Plan as provided in Section 10 hereof, or otherwise becomes ineligible to participate in the Plan.

b. Payroll deductions for a Participant shall commence on the first payday following the Enrollment Date and shall end on the last payday in the Offering Period with respect to which such authorization is applicable, unless sooner terminated by the Participant as provided in Section 10 hereof.

c. During a Participant’s leave of absence approved by his Employer and meeting the requirements of Treasury Regulation Section 1.421-7(h)(2), such Participant may continue to participate in the Plan by making cash payments to the Company on each payday equal to the amount of the Participant’s payroll deductions under the Plan for the payday immediately preceding the first day of such Participant’s leave of absence. If a leave of absence is unapproved or fails to meet the requirements of Treasury Regulation Section 1.421-7(h)(2), the Participant will automatically cease to participate in the Plan and may not make any further contributions to the Plan hereunder. In such event, the Company will automatically cease to deduct the Participant’s payroll under the Plan. The Company will pay to the Participant his total payroll deductions for the Offering Period, in cash in one lump sum (without interest), as soon as practicable after the Participant ceases to participate in the Plan.

d. The subscription agreement(s) used in connection with the Plan shall be in a form prescribed by the Administrator, and the Administrator may, in its sole discretion, determine whether such agreement shall be submitted in written or electronic form.

6.  Payroll Deductions.

a.  At the time a Participant files his subscription agreement, he shall elect to have payroll deductions made on each payday (such amount to be deducted after any applicable deduction for tax and other withholding) during the Offering Period in an amount from 1% to 10% of the Compensation which he receives on each pay day during the Offering Period.

b.  All payroll deductions made for a Participant shall be credited to his account under the Plan and shall be withheld in whole percentages only. Except as described in Section 5(c) hereof, a Participant may not make any additional payments into such account.

c.  A Participant may discontinue his participation in the Plan as provided in Section 10 hereof, or may increase or decrease the rate of his payroll deductions during the Offering Period by completing or filing with the Company (or its designated third-party share plan administrator) a new subscription agreement authorizing a change in payroll deduction rate. The Administrator may, in its discretion, limit the number of participation rate changes per Participant during any Offering Period. The change in rate shall be effective with the first full payroll period following five business days (or a different number of days as may be determined by the Administrator, in its sole discretion) after the Company’s (or its designated third-party share plan administrator’s) receipt of the new subscription agreement.

d.  Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a Participant’s payroll deductions may be decreased to 0% at any time during an Offering Period.

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e. At the time an option is exercised, in whole or in part, or at the time some or all of the Common Shares issued under the Plan are disposed of, the Participant must make adequate provision for any federal, state or other tax obligations, if any, which arise upon the exercise of the option or the disposition of the Common Shares. At any time, the Company may, but shall not be obligated to, withhold from all of the Participant’s compensation the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefits attributable to the sale or early disposition of Common Shares by the Employee.

7.  Grant of Option.  On the Enrollment Date of each Offering Period, each Participant in such Offering Period shall be granted an option to purchase on the Exercise Date with respect to such Offering Period (at the applicable Purchase Price) up to a number of the Common Shares determined by dividing such Participant’s payroll deductions accumulated prior to such Exercise Date and retained in the Participant’s account as of the Exercise Date by the applicable Purchase Price; provided, however, that such purchase shall be subject to the limitations set forth in Sections 3 and 13 hereof. Exercise of the option shall occur as provided in Section 8 hereof, unless the Participant has withdrawn from participation pursuant to Section 10 hereof or otherwise becomes ineligible to participate in the Plan. The option shall expire on the last day of the Offering Period.

8.  Exercise of Option.

a. Unless a Participant withdraws from the Plan as provided in Section 10 hereof or otherwise becomes ineligible to participate in the Plan, such Participant’s option for the purchase of Common Shares shall be exercised automatically on the Exercise Date, and the maximum number of full Common Shares subject to the option shall be purchased for such Participant at the applicable Purchase Price with the accumulated payroll deductions in his account. No fractional Common Shares shall be purchased, and any payroll deductions accumulated in a Participant’s account which are not sufficient to purchase a full Common Share shall be retained in such Participant’s account for the subsequent Offering Period. During a Participant’s lifetime, a Participant’s option to purchase Common Shares hereunder is exercisable only by him.

b. If the Administrator determines that, on a given Exercise Date, the number of Common Shares with respect to which options are to be exercised may exceed either (i) the number of Common Shares that were available for sale under the Plan on the Enrollment Date of the applicable Offering Period (notwithstanding any authorization of additional Common Shares for issuance under the Plan by the Company’s shareholders subsequent to such Enrollment Date); or (ii) the number of Common Shares available for sale under the Plan on such Exercise Date, the Administrator shall provide that the Company (or its designated third-party share plan administrator) shall make a pro rata allocation of the Common Shares available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all Participants exercising options to purchase Common Shares on such Exercise Date, and shall decide, in its sole discretion, to either (x) continue all Offering Periods then in effect or (y) terminate any or all Offering Periods then in effect pursuant to Section 20 hereof. In the event of such a pro rata allocation of Common Shares pursuant to this Section 8(b), the balance of the amount credited to the account of each Participant that has not been applied to the purchase of Common Shares shall be paid to each such Participant in one lump sum in cash as soon as reasonably practicable after the Exercise Date, without any interest thereon.

9.  Deposit of Common Shares.  As promptly as practicable after each Exercise Date on which a purchase of Common Shares occurs, the Company may arrange for the deposit, into each Participant’s account with any broker designated by the Company to administer this Plan, of the number of Common Shares purchased upon exercise of each such Participant’s option.

10.  Withdrawal.

a. At any time prior to the Exercise Date, a Participant, by giving written notice to the Company (or its designated third-party share plan administrator) in a form acceptable to the Administrator, may withdraw all but not less than all of the payroll deductions credited to his account and not yet used to exercise an option under the Plan. All of the Participant’s payroll deductions credited to his account during the Offering Period, plus any balance retained in his account from a prior Offering Period, if any, shall be paid to such Participant as soon as reasonably practicable after receipt of notice of withdrawal, and such Participant’s option for the Offering Period shall be

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automatically terminated, and no further payroll deductions for the purchase of Common Shares shall be made for such Offering Period. If a Participant withdraws from an Offering Period, payroll deductions shall not resume at the beginning of any subsequent Offering Period unless the Participant delivers to the Company (or its designated third-party share plan administrator) a new subscription agreement in accordance with the terms of Section 5(a) hereof.

b. A Participant’s withdrawal from an Offering Period shall not have any effect upon his eligibility to participate in any similar plan which may hereafter be adopted by the Company or in Offering Periods which commence after the termination of the Offering Period from which the Participant withdraws.

11.  Termination of Employment.  Upon a Participant’s ceasing to be an Eligible Employee, for any reason, such Participant shall be deemed to have elected to withdraw from the Plan, and the payroll deductions credited to such Participant’s account during the Offering Period, plus any balance retained in his account from a prior Offering Period, if any, shall be paid to him, or in the case of his death, to the person or persons entitled thereto under Section 15 hereof, as soon as reasonably practicable, and such Participant’s option for the Offering Period shall be automatically terminated.

12.  Interest.  No interest shall accrue on the payroll deductions or lump sum contributions of a Participant in the Plan.

13.  Shares Subject to Plan.

a. Subject to adjustment upon changes in capitalization of the Company as provided in Section 19 hereof, a maximum of 1,000,000 Common Shares shall be made available for sale under the Plan. If any option granted under the Plan shall for any reason terminate without having been exercised, the Common Shares not purchased under such option shall again become available for issuance under the Plan. The shares subject to the Plan may be unissued shares or reacquired shares bought on the market or otherwise.

b. Except as otherwise provided herein, with respect to Common Shares subject to an option granted under the Plan, a Participant shall not be deemed to be a shareholder of the Company, and the Participant shall not have any of the rights or privileges of a shareholder, until such Common Shares have been issued to the Participant or his nominee following exercise of the Participant’s option. No adjustments shall be made for dividends (ordinary or extraordinary, whether in cash securities, or other property) or distributions or other rights for which the record date occurs prior to the date of such issuance, except as otherwise expressly provided herein.

14.  Administration.

a. It shall be the duty of the Administrator to conduct the general administration of the Plan in accordance with the provisions of the Plan. The Administrator shall have the power to interpret the Plan and the terms of the options and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. The Administrator may adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the Plan by employees who are foreign nationals or employed outside the United States. The Administrator at its option may utilize the services of an agent to assist in the administration of the Plan, including establishing and maintaining an individual securities account under the Plan for each Participant. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Administrator under the Plan.

b. The Administrator may delegate to officers or employees of the Company or any of its affiliates, or committees thereof, the authority, subject to such terms as the Administrator shall determine, to perform such functions, including, but not limited to, administrative functions, as the Administrator may determine appropriate. The Administrator may appoint agents to assist it in administering the Plan.

c. The Administrator may employ attorneys, consultants, accountants, appraisers, brokers or other persons in connection with its administration of the Plan. All expenses and liabilities incurred by the Administrator in connection with the administration of the Plan shall be borne by the Company. The Administrator, the Company, and its officers and directors shall be entitled to rely upon the advice, opinions and valuations of any such persons. All actions taken and all interpretations and determinations made by the Administrator in good faith shall be final and binding upon all Participants, the Company and all other interested persons. No member of the Administrator or person to whom the powers of administration have been delegated hereunder, shall be personally liable for any

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action, determination or interpretation made in good faith with respect to the Plan or the options, and all members of the Administrator, and all persons to whom the powers of administration have been delegated, shall be fully protected by the Company in respect of any such action, determination or interpretation.

15.  Designation of Beneficiary.

a. A Participant may file a written designation of a beneficiary who is to receive any Common Shares and cash, if any, from such Participant’s account under the Plan in the event of such Participant’s death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such Participant of such Common Shares and cash. In addition, a Participant may file a written designation of a beneficiary who is to receive any cash from the Participant’s account under the Plan in the event of such Participant’s death prior to exercise of the option. To the extent required under applicable law, spousal consent shall be required for such designation to be effective if the Participant is married and the designated beneficiary is not the Participant’s spouse.

b. Such beneficiary designation may be changed by the Participant at any time by written notice to the Company. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participant’s death, the Company shall deliver such Common Shares and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such Common Shares and/or cash to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.

16.  Transferability.  Neither payroll deductions credited to a Participant’s account nor any rights with regard to the exercise of an option or to receive Common Shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way by the Participant (other than by will, the laws of descent and distribution, or as provided in Section 15 hereof). Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof.

17.  Use of Funds.  All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions.

18.  Reports.  Individual accounts shall be maintained for each Participant in the Plan. Statements of account shall be given to Participants following each Offering Period, which statements shall set forth the amounts of payroll deductions, the Purchase Price, the number of Common Shares purchased, and the remaining cash balance, if any.

19.  Adjustments Upon Changes in Capitalization, Merger, Amalgamation, Asset Sale, Dissolution or Liquidation.

a. Changes in Capitalization.  The number of Common Shares which have been authorized for issuance under the Plan but not yet placed under option, the maximum number of Common Shares each Participant may purchase in each Offering Period (pursuant to Section 7 hereof), as well as the price per Common Share and the number of Common Shares covered by each option under the Plan which has not yet been exercised shall be proportionately adjusted for any increase or decrease in the number of issued Common Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Shares, or any other increase or decrease in the number of Common Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive on all Participants and the Company. Except as expressly provided herein, no issuance by the Company of shares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Common Shares subject to an option.

b. Merger, Amalgamation, Asset Sale, Dissolution or Liquidation.  In the event of a proposed merger or amalgamation of the Company with or into another corporation or a proposed sale of all or substantially all of the

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assets of the Company, each outstanding option shall be assumed or an equivalent option substituted by the successor corporation or a parent or subsidiary of the successor corporation. In the event that the successor corporation or a parent or subsidiary of the successor corporation refuses to assume or substitute for the option, or in the event of the proposed dissolution or liquidation of the Company, the Offering Period then in progress shall be shortened by the Administrator by setting a new Exercise Date (the “New Exercise Date”), which shall occur no later than immediately prior to the effective date of such proposed merger, amalgamation, sale, dissolution or liquidation, as applicable. The Company shall notify each Participant in writing, at least ten business days prior to the New Exercise Date, that the Exercise Date for the Participant’s option has been changed to the New Exercise Date and that the Participant’s option shall be exercised automatically on the New Exercise Date, unless prior to such New Exercise Date the Participant has withdrawn from the Offering Period as provided in Section 10 hereof.

20.  Amendment or Termination.

a. The Board may at any time and for any reason terminate or amend the Plan. Except as provided in Section 19 hereof, no such termination shall affect options previously granted, provided that an Offering Period may be terminated by the Board if the Board determines that the termination of the Offering Period or the Plan is in the best interests of the Company and its shareholders. Except as provided in Section 19 hereof and this Section 20, no amendment may make any change in any option theretofore granted which adversely affects the rights of any Participant without the consent of such Participant. To the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any other applicable law, regulation or stock exchange rule), the Company shall obtain shareholder approval of any amendment in such a manner and to such a degree as required.

b. Without shareholder consent and without regard to whether any Participant’s rights may be considered to have been “adversely affected,” the Administrator shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Company’s processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Shares for each Participant properly correspond with amounts withheld from the Participant’s Compensation, and establish such other limitations or procedures as the Administrator determines in its sole discretion advisable which are consistent with the Plan.

c. In the event the Board determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Board may, in its discretion and, to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such financial accounting consequences, including, but not limited to:

(i) altering the Purchase Price for any Offering Period including an Offering Period underway at the time of the change in Purchase Price;

(ii) shortening any Offering Period so that the Offering Period ends on a new Exercise Date, including an Offering Period underway at the time of the Administrator action; and

(iii) allocating shares.

Such modifications or amendments shall not require shareholder approval or the consent of any Participants.

21.  Notices.  All notices or other communications by a Participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.

22.  Conditions to Issuance of Shares.

a. The Company shall not be required to issue or deliver to a Participant any certificate or certificates for shares purchased upon the exercise of options prior to fulfillment of all the following conditions:

(i) The admission of such shares to listing on all stock exchanges, if any, on which the Common Shares are then listed;

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(ii) The obtaining of any approval or other clearance from any state or federal governmental agency which the Administrator shall, in its absolute discretion, determine to be necessary or advisable;

(iii) Such Participant’s payment to the Company of all amounts which it is required to withhold under federal, state or local law upon exercise of the option; and

(iv) The lapse of such reasonable period of time following the exercise of the option as the Administrator may from time to time establish for reasons of administrative convenience.

b. The obligation of the Company to make a payment of Common Shares or otherwise shall be subject to all applicable laws, rules and regulations, and to such approvals by governmental agencies as may be required. Notwithstanding any terms or conditions of any option to the contrary, the Company shall be under no obligation to offer to sell or to sell and shall be prohibited from offering to sell or selling any Common Shares pursuant to an option unless such Common Shares have been properly registered for sale with the Securities and Exchange Commission pursuant to the Securities Act of 1933 or unless the Company has received an opinion of counsel, satisfactory to the Company, that such Common Shares may be offered or sold without such registration pursuant to an available exemption therefrom and the terms and conditions of such exemption have been fully complied with. The Company shall be under no obligation to register for sale or resale under the Securities Act of 1933 any of the Common Shares to be offered or sold under the Plan or any Common Shares issued upon exercise or settlement of options. If the Common Shares offered for sale or sold under the Plan are offered or sold pursuant to an exemption from registration under the Securities Act of 1933, the Company may restrict the transfer of such Common Shares and may legend the share certificates representing such Common Shares in such manner as it deems advisable to ensure the availability of any such exemption.

23.  Term of Plan.  The Plan shall become effective as of the Effective Date. The Plan shall be deemed to be approved by the Company’s shareholders if it receives the affirmative vote of the Company’s shareholders in accordance with the Bye-laws of the Company. Subject to approval by the shareholders of the Company in accordance with this Section 23, the Plan shall be in effect until the 10th anniversary of the date of the initial adoption of the Plan by the Board, unless sooner terminated under Section 20 hereof. In the event the Company’s shareholders do not approve this Plan pursuant to this Section 23, neither this Plan nor any elections made hereunder shall be of any force or effect, any outstanding option shall be cancelled for no consideration, and all amounts deducted from each Participant’s paycheck shall be repaid to such Participant as soon as practicable without interest.

24.  Equal Rights and Privileges.  All Eligible Employees of the Company (or of any Subsidiary) will have equal rights and privileges under this Plan so that this Plan qualifies as an “employee stock purchase plan” within the meaning of Section 423 of the Code. Any provision of this Plan that is inconsistent with this requirement to provide equal rights and privileges will, without further act or amendment by the Company, the Board or the Administrator, be reformed to comply with the equal rights and privileges requirement of Section 423 of the Code.

25.  Section 409A.  The options to purchase Common Shares under the Plan are not intended to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code. However, if at any time the Administrator determines that the options may be subject to Section 409A of the Code, the Administrator shall have the right, in its sole discretion, to amend the Plan and any outstanding options as it may determine is necessary or desirable either to exempt the options from the application of Section 409A of the Code or to cause the options to comply with the requirements of Section 409A of the Code.

26.  No Employment Rights.  Nothing in the Plan shall be construed to give any person (including any Eligible Employee or Participant) the right to remain in the employ of the Company, a Parent or a Subsidiary, or to affect the right of the Company, any Parent or any Subsidiary to terminate the employment of any person (including any Eligible Employee or Participant) at any time, with or without cause.

27.  Notice of Disposition of Shares; Transfer Restrictions.  If required by the Company, each Participant shall give prompt notice to the Company (at its local Human Resources office), or cause a designated third-party share administrator to give prompt notice to the Company, of any disposition or other transfer of any Common Shares purchased upon exercise of an option hereunder if such disposition or transfer is made either (a) within two years from the Enrollment Date of the Offering Period in which the Common Shares were purchased or (b) within

8

one year after the Exercise Date on which such Common Shares were purchased. Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness, or other consideration, by the Participant in such disposition or other transfer. Notwithstanding anything herein to the contrary, no Participant shall be permitted to dispose of or transfer any Common Shares purchased pursuant to an option hereunder prior to the date that is 12 months following the date upon which such Common Shares were so purchased. The Administrator may provide, in its sole discretion, that the Common Shares purchased pursuant to an option hereunder shall be held in book entry form, rather than delivered to the Participant, through the expiration of such 12-month period. If certificates representing the Common Shares are registered in the name of the Participant, the Administrator may require that such certificates bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Common Shares and that the Company retain physical possession of the certificates.

28.  Governing Law.  Subject to any applicable provisions of United States federal law (including, without limitation, Section 423(b) of the Code), the validity and enforceability of this Plan shall be governed by and construed in accordance with the laws of the State of New York, without regard to otherwise governing principles of conflicts of law.

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Scott A. Carmilani, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Allied World Assurance Company Holdings, Ltd;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May 9, 2008	By:	/s/ Scott A. Carmilani
	Name:    Scott A. Carmilani
	Title:      President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Joan H. Dillard, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Allied World Assurance Company Holdings, Ltd;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May 9, 2008	By:	/s/ Joan H. Dillard
	Name:    Joan H. Dillard
	Title:      Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION

     Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Allied World Assurance Company Holdings, Ltd (the “Company”), hereby certifies, to such officer’s knowledge, that:

     The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 9, 2008	By:	/s/ Scott A. Carmilani
	Name:    Scott A. Carmilani
	Title:      President and Chief Executive Officer

     The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of the Report.

EX-32.2

Exhibit 32.2

CERTIFICATION

     Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Allied World Assurance Company Holdings, Ltd (the “Company”), hereby certifies, to such officer’s knowledge, that:

     The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 9, 2008	By:	/s/ Joan H. Dillard
	Name:    Joan H. Dillard
	Title:      Senior Vice President and Chief Financial Officer

     The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of the Report.