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<tr valign="top"><td><b><font style="font-family: 'Times New Roman', Times;" class="_mt">8. </font></b> </td>
<td><b><font style="font-family: 'Times New Roman', Times;" class="_mt">DEBT AND FINANCING ARRANGEMENTS</font></b></td></tr></table></div>
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<div style="text-indent: 4%; font-family: 'Times New Roman', Times; background: none transparent scroll repeat 0% 0%; color: #000000; margin-left: 0%; font-size: 10pt; margin-right: 0%;" align="left">In November 2010, Allied World Bermuda issued $300,000 aggregate principal amount of 5.50% Senior Notes due November 10, 2020 ("5.50% Senior Notes"), with interest on the notes payable on May 15 and November 15 of each year commencing on May 15, 2011. The 5.50% Senior Notes were offered by the underwriters at a price of 98.89% of their principal amount, providing an effective yield to investors of 5.56%. Included in "interest expense" in the consolidated income statements for the year ended December 31, 2010 is the interest expense of $2,062, the amortization of the discount in the amount of $17, and the amortization of offering costs amounting to $34 related to the 5.50% Senior Notes. Interest payable on the 5.50% Senior Notes at December 31, 2010 was $2,062 and is included in "accounts payable and accrued liabilities" on the consolidated balance sheets. The net proceeds from the offering of the 5.50% Senior Notes will be used for general corporate purposes, including the repurchase of the Company's outstanding common shares or potential acquisitions. The 5.50% Senior Notes are Allied World Bermuda's unsecured and unsubordinated obligations and rank equally in right of payment with all existing and future unsecured and unsubordinated indebtedness. Allied World Bermuda may redeem the 5.50% Senior Notes at any time or from time to time in whole or in part at a redemption price equal to the greater of the principal amount of the 5.50% Senior Notes to be redeemed or a make-whole price, plus accrued and unpaid interest. The 5.50% Senior Notes includes covenants and events of default that are usual and customary, but do not contain any financial covenants. </div>
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<div style="text-indent: 4%; font-family: 'Times New Roman', Times; background: none transparent scroll repeat 0% 0%; color: #000000; margin-left: 0%; font-size: 10pt; margin-right: 0%;" align="left">In 2006, Allied World Bermuda issued $500,000 aggregate principal amount of 7.50% Senior Notes due August 1, 2016 ("7.50% Senior Notes"), with interest on the notes payable on August 1 and February 1 of each year, commencing on February 1, 2007. The 7.50% 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%. Included in "interest expense" in the consolidated income statements for the years ended December 31, 2010, 2009 and 2008, is the interest expense of $37,596, $37,596 and $37,596, the amortization of the discount in the amount of $132, $123 and $114, and the amortization of offering costs amounting to $400, $372 and $345, respectively, related to the 7.50% Senior Notes. Interest payable on the 7.50% Senior Notes at December 31, 2010 and 2009 was $15,625 and is included in "accounts payable and accrued liabilities" on the consolidated balance sheets. The 7.50% Senior Notes can be redeemed by Allied World Bermuda prior to maturity subject to payment of a "make-whole" premium. Allied World Bermuda has no current expectations of redeeming the notes prior to maturity. The 7.50% Senior Notes includes covenants and events of default that are usual and customary, but do not contain any financial covenants. </div>
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<div style="text-indent: 4%; font-family: 'Times New Roman', Times; background: none transparent scroll repeat 0% 0%; color: #000000; margin-left: 0%; font-size: 10pt; margin-right: 0%;" align="left">The 5.50% Senior Notes as well as the 7.50% Senior Notes have been unconditionally and irrevocably guaranteed for the payment of the principal and interest by Allied World Switzerland. </div>
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<div style="text-indent: 4%; font-family: 'Times New Roman', Times; background: none transparent scroll repeat 0% 0%; color: #000000; margin-left: 0%; font-size: 10pt; margin-right: 0%;" align="left">Allied World Bermuda has a collateralized amended letter of credit facility with Citibank Europe plc. that has been and will continue to be used to issue standby letters of credit. This credit facility was amended in December 2008 to provide Allied World Bermuda with greater flexibility in the types of securities that are eligible to be posted as collateral and to increase the maximum aggregate amount available under this credit facility from $750,000 to $900,000 on an uncommitted basis. </div>
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<div style="text-indent: 4%; font-family: 'Times New Roman', Times; background: none transparent scroll repeat 0% 0%; color: #000000; margin-left: 0%; font-size: 10pt; margin-right: 0%;" align="left">In addition, Allied World Bermuda entered into an $800,000 five-year senior credit facility (the "Credit Facility") with a syndication of lenders. The Credit 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 Credit Facility will be used for general corporate purposes and to issue standby letters of credit. The Credit 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. Allied World Bermuda is in compliance with all covenants under the Facility as of December 31, 2010. </div>
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<div style="text-indent: 4%; font-family: 'Times New Roman', Times; background: none transparent scroll repeat 0% 0%; color: #000000; margin-left: 0%; font-size: 10pt; margin-right: 0%;" align="left">There are a total of 13 lenders that make up the Credit Facility syndication and that have varying commitments ranging from $20,000 to $87,500. Of the 13 lenders, four have commitments of $87,500 each, four have commitments of $62,500 each, four have commitments of $45,000 each and one has a commitment of $20,000. </div>
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<div style="text-indent: 4%; font-family: 'Times New Roman', Times; background: none transparent scroll repeat 0% 0%; color: #000000; margin-left: 0%; font-size: 10pt; margin-right: 0%;" align="left">In November 2008, Allied World Bermuda requested a $250,000 borrowing under its Unsecured Facility. The borrowing requested was to ensure the preservation of Allied World Bermuda's financial flexibility in light of the uncertainty in the credit markets at that time. On November 21, 2008, Allied World Bermuda received $243,750 of loan proceeds from the borrowing, as $6,250 was not received from a lender in bankruptcy. On February 23, 2009, Allied World Bermuda repaid in full the $243,750 borrowing under its Unsecured Facility. </div>
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<div style="text-indent: 4%; font-family: 'Times New Roman', Times; background: none transparent scroll repeat 0% 0%; color: #000000; margin-left: 0%; font-size: 10pt; margin-right: 0%;" align="left">In May 2010, Allied World Capital (Europe) Limited established an irrevocable standby letter of credit in order to satisfy funding requirements of the Company's Lloyd's Syndicate 2232. As of December 31, 2010, the amount of the letter of credit was £53,700 ($82,838). </div></div> </div>8.
DEBT AND FINANCING ARRANGEMENTS
In November 2010, Allied World Bermuda issued $300,000 aggregate principal amount of 5.50% Senior NotesfalsefalsefalsefalsefalseOtherus-types:textBlockItemTypestringInformation about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 02
-Paragraph 19, 20, 22
-Article 5
Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 129
-Paragraph 2, 4
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