2.2.0.25falsefalse11201 - Disclosure - EMPLOYEE BENEFIT PLANStruefalsefalse1falsefalseUSDfalsefalse1/1/2010 - 12/31/2010
USD ($) / shares
USD ($)
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<table style="font-family: Arial, Helvetica; background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%">
<tr valign="top"><td><b><font style="font-family: 'Times New Roman', Times;" class="_mt">12. </font></b> </td>
<td><b><font style="font-family: 'Times New Roman', Times;" class="_mt">EMPLOYEE BENEFIT PLANS</font></b> </td></tr></table>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<table style="font-family: Arial, Helvetica; background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%">
<tr><td width="3%"> </td>
<td width="97%"> </td></tr>
<tr valign="top"><td><b><i><font style="font-family: 'Times New Roman', Times;" class="_mt">a) </font></i></b> </td>
<td><b><i><font style="font-family: 'Times New Roman', Times;" class="_mt">Employee Option Plan</font></i></b> </td></tr></table>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<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 2001, the Company implemented the Allied World Assurance Holdings, Ltd 2001 Employee Warrant Plan, which was subsequently amended, restated and renamed the Allied World Assurance Company Holdings, Ltd Second Amended and Restated 2001 Employee Stock Option Plan (the "ESOP"). Under the ESOP, up to 4,000,000 common shares may be issued. </div>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<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">As part of the Redomestication, Allied World Switzerland adopted and assumed the ESOP from Allied World Bermuda which was subsequently amended, restated and renamed the Allied World Assurance Company Holdings, AG Third Amended and Restated 2001 Employee Stock Option Plan (the "Plan"). Allied World Switzerland has filed a registration statement on <font style="white-space: nowrap;" class="_mt">Form S-8</font> 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 recommended by the Compensation Committee to the Board of Directors for approval but shall not be less than 100% of the fair market value of the common shares of Allied World Switzerland on the date the option award is granted. </div>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<table style="font-family: 'Times New Roman', Times; background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center">
<tr style="font-size: 1pt;" valign="bottom"><td width="43%"> </td>
<td width="2%"> </td>
<td width="1%" align="right"> </td>
<td width="7%" align="right"> </td>
<td width="1%" align="left"> </td>
<td width="3%"> </td>
<td width="1%" align="right"> </td>
<td width="9%" align="right"> </td>
<td width="1%" align="left"> </td>
<td width="3%"> </td>
<td width="1%" align="right"> </td>
<td width="12%" align="right"> </td>
<td width="1%" align="left"> </td>
<td width="3%"> </td>
<td width="1%" align="right"> </td>
<td width="10%" align="right"> </td>
<td width="1%" align="left"> </td></tr>
<tr style="font-size: 8pt;" valign="bottom" align="center"><td valign="bottom" nowrap="nowrap" align="center"> </td>
<td> </td>
<td valign="bottom" colspan="2" nowrap="nowrap" align="center"> </td>
<td> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="10" align="center"><b>Year Ended December 31, 2010</b> </td>
<td> </td></tr>
<tr style="font-size: 8pt;" valign="bottom" align="center"><td valign="bottom" nowrap="nowrap" align="center"> </td>
<td> </td>
<td valign="bottom" colspan="2" nowrap="nowrap" align="center"> </td>
<td> </td>
<td> </td>
<td valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Weighted<br /></b></td>
<td> </td>
<td> </td>
<td valign="bottom" colspan="2" nowrap="nowrap" align="center"> </td>
<td> </td>
<td> </td>
<td valign="bottom" colspan="2" nowrap="nowrap" align="center"> </td>
<td> </td></tr>
<tr style="font-size: 8pt;" valign="bottom" align="center"><td valign="bottom" nowrap="nowrap" align="center"> </td>
<td> </td>
<td valign="bottom" colspan="2" nowrap="nowrap" align="center"> </td>
<td> </td>
<td> </td>
<td valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Average<br /></b></td>
<td> </td>
<td> </td>
<td valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Weighted Average<br /></b></td>
<td> </td>
<td> </td>
<td valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Aggregate<br /></b></td>
<td> </td></tr>
<tr style="font-size: 8pt;" valign="bottom" align="center"><td valign="bottom" nowrap="nowrap" align="center"> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Options</b> </td>
<td> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Exercise Price</b> </td>
<td> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Contractual Term</b> </td>
<td> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Intrinsic Value</b> </td>
<td> </td></tr>
<tr style="line-height: 3pt; font-size: 1pt;"><td> </td></tr>
<tr style="background: #cceeff;" valign="bottom"><td valign="bottom" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">Outstanding at beginning of year </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">1,314,907 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left">$ </td>
<td valign="bottom" nowrap="nowrap" align="right">33.54 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right"> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right"> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td></tr>
<tr valign="bottom"><td valign="bottom" nowrap="nowrap" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">Granted </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">311,610 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">46.05 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right"> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right"> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td></tr>
<tr style="background: #cceeff;" valign="bottom"><td valign="bottom" nowrap="nowrap" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">Exercised </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">(304,315 </td>
<td valign="bottom" nowrap="nowrap" align="left">) </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">(31.54 </td>
<td valign="bottom" nowrap="nowrap" align="left">) </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right"> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right"> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td></tr>
<tr valign="bottom"><td valign="bottom" nowrap="nowrap" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">Forfeited </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">(44,401 </td>
<td valign="bottom" nowrap="nowrap" align="left">) </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">(43.00 </td>
<td valign="bottom" nowrap="nowrap" align="left">) </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right"> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right"> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td></tr>
<tr style="background: #cceeff;" valign="bottom"><td valign="bottom" nowrap="nowrap" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">Expired </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">(5,062 </td>
<td valign="bottom" nowrap="nowrap" align="left">) </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">(45.72 </td>
<td valign="bottom" nowrap="nowrap" align="left">) </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right"> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right"> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td></tr>
<tr style="font-size: 1pt;" valign="bottom"><td> </td>
<td> </td>
<td style="border-top: #000000 1px solid;"> </td>
<td style="border-top: #000000 1px solid;"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr valign="bottom"><td valign="bottom" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">Outstanding at end of year </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">1,272,739 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">38.77 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">6.8 years </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left">$ </td>
<td valign="bottom" nowrap="nowrap" align="right">26,308 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td></tr>
<tr style="font-size: 1pt;" valign="bottom"><td> </td>
<td> </td>
<td style="border-top: #000000 1px solid;"> </td>
<td style="border-top: #000000 1px solid;"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr style="background: #cceeff;" valign="bottom"><td valign="bottom" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">Exercisable at end of year </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">617,121 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left">$ </td>
<td valign="bottom" nowrap="nowrap" align="right">34.39 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">5.2 years </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left">$ </td>
<td valign="bottom" nowrap="nowrap" align="right">15,456 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td></tr>
<tr style="font-size: 1pt;" valign="bottom"><td> </td>
<td> </td>
<td style="border-top: #000000 1px solid;"> </td>
<td style="border-top: #000000 1px solid;"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr></table>
<div style="text-indent: 0%; 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"> </div>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<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 total intrinsic value of options exercised during the years ended December 31, 2010, 2009 and 2008 was $5,888, $4,283 and $2,403, respectively. </div>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<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">Assumptions used in the option-pricing model for the options granted during the years ended December 31, 2010, 2009 and 2008 are as follows: </div>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<table style="font-family: 'Times New Roman', Times; background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center">
<tr style="font-size: 1pt;" valign="bottom"><td width="35%"> </td>
<td width="2%"> </td>
<td width="1%" align="right"> </td>
<td width="17%" align="right"> </td>
<td width="1%" align="left"> </td>
<td width="3%"> </td>
<td width="1%" align="right"> </td>
<td width="17%" align="right"> </td>
<td width="1%" align="left"> </td>
<td width="3%"> </td>
<td width="1%" align="right"> </td>
<td width="17%" align="right"> </td>
<td width="1%" align="left"> </td></tr>
<tr style="font-size: 8pt;" valign="bottom" align="center"><td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Options Granted<br /></b></td>
<td> </td>
<td> </td>
<td valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Options Granted<br /></b></td>
<td> </td>
<td> </td>
<td valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Options Granted<br /></b></td>
<td> </td></tr>
<tr style="font-size: 8pt;" valign="bottom" align="center"><td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>During the Year Ended<br /></b></td>
<td> </td>
<td> </td>
<td valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>During the Year Ended<br /></b></td>
<td> </td>
<td> </td>
<td valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>During the Year Ended<br /></b></td>
<td> </td></tr>
<tr style="font-size: 8pt;" valign="bottom" align="center"><td valign="bottom" nowrap="nowrap" align="left">
<div style="border-bottom: #000000 1px solid; padding-bottom: 1px; width: 1%;"> </div></td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>December 31, 2010</b> </td>
<td> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>December 31, 2009</b> </td>
<td> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>December 31, 2008</b> </td>
<td> </td></tr>
<tr style="line-height: 3pt; font-size: 1pt;"><td> </td></tr>
<tr style="background: #cceeff;" valign="bottom"><td valign="bottom" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">Expected term of option </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">5.47 years </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">4.75 years </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">6.25 years </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td></tr>
<tr valign="bottom"><td valign="bottom" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">Weighted average risk-free interest rate </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">2.65 </td>
<td valign="bottom" nowrap="nowrap" align="left">% </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">2.03 </td>
<td valign="bottom" nowrap="nowrap" align="left">% </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">2.58 </td>
<td valign="bottom" nowrap="nowrap" align="left">% </td></tr>
<tr style="background: #cceeff;" valign="bottom"><td valign="bottom" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">Weighted average expected volatility </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">42.35 </td>
<td valign="bottom" nowrap="nowrap" align="left">% </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">42.96 </td>
<td valign="bottom" nowrap="nowrap" align="left">% </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">24.22 </td>
<td valign="bottom" nowrap="nowrap" align="left">% </td></tr>
<tr valign="bottom"><td valign="bottom" nowrap="nowrap" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">Dividend yield </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">1.25 </td>
<td valign="bottom" nowrap="nowrap" align="left">% </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">1.71 </td>
<td valign="bottom" nowrap="nowrap" align="left">% </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">1.66 </td>
<td valign="bottom" nowrap="nowrap" align="left">% </td></tr>
<tr style="background: #cceeff;" valign="bottom"><td valign="bottom" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">Weighted average fair value on grant date </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left">$ </td>
<td valign="bottom" nowrap="nowrap" align="right">17.34 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left">$ </td>
<td valign="bottom" nowrap="nowrap" align="right">12.80 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left">$ </td>
<td valign="bottom" nowrap="nowrap" align="right">9.63 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td></tr>
<tr style="font-size: 1pt;" valign="bottom"><td> </td>
<td> </td>
<td style="border-top: #000000 1px solid;"> </td>
<td style="border-top: #000000 1px solid;"> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 1px solid;"> </td>
<td style="border-top: #000000 1px solid;"> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 1px solid;"> </td>
<td style="border-top: #000000 1px solid;"> </td>
<td> </td></tr></table>
<div style="text-indent: 0%; 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"> </div>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<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 2009, the Company determined that there was sufficient Company specific information available to determine the expected term of the option and the expected volatility. As a result, the expected term of the option is based on the historical terms of options granted since the inception of the Company and the expected volatility is based on the volatility of the fair market value of Allied World Switzerland's common shares. During the year ended December 31, 2008, the Company used the simplified method to determine the expected life, and the Company used the average of five volatility statistics from comparable companies, as well as the Company's volatility, in order to derive the expected volatility. The Company has assumed a weighted average annual forfeiture rate of 6.37% in determining the compensation expense over the service period. </div>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<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">Compensation expense of $2,953, $2,556 and $2,405 relating to the options have been included in "general and administrative expenses" in the Company's consolidated income statements for the years ended December 31, 2010, 2009 and 2008, respectively. As of December 31, 2010 and 2009, the Company has recorded in "additional paid-in capital" on the consolidated balance sheets an amount of $41,505 and $28,699, respectively, in connection with all options granted. During the year ended December 31, 2010, the Company received cash upon the exercise of stock options of $9,598. </div>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<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">As of December 31, 2010, there was remaining $6,919 of total unrecognized compensation expense related to unvested options granted under the Plan. This expense is expected to be recognized over a weighted-average period of 1.7 years. </div>
<div style="margin-top: 12pt; font-size: 1pt;"> </div>
<table style="font-family: Arial, Helvetica; background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%">
<tr><td width="3%"> </td>
<td width="97%"> </td></tr>
<tr valign="top"><td><b><i><font style="font-family: 'Times New Roman', Times;" class="_mt">b) </font></i></b> </td>
<td><b><i><font style="font-family: 'Times New Roman', Times;" class="_mt">Stock Incentive Plan</font></i></b> </td></tr></table>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<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 2004, the Company implemented the Allied World Assurance Holdings, Ltd 2004 Stock Incentive Plan. As part of the Redomestication, Allied World Switzerland adopted and assumed this plan from Allied World Bermuda, which was subsequently amended, restated and renamed the Allied World Assurance Company Holdings, AG Third Amended and Restated 2004 Stock Incentive Plan (the "Stock Incentive Plan"). The Stock Incentive Plan provides for grants of restricted stock, 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 vest in the fourth or fifth year from the date of grant. </div>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<table style="font-family: 'Times New Roman', Times; background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center">
<tr style="font-size: 1pt;" valign="bottom"><td width="74%"> </td>
<td width="2%"> </td>
<td width="1%" align="right"> </td>
<td width="6%" align="right"> </td>
<td width="1%" align="left"> </td>
<td width="3%"> </td>
<td width="1%" align="right"> </td>
<td width="11%" align="right"> </td>
<td width="1%" align="left"> </td></tr>
<tr style="font-size: 8pt;" valign="bottom" align="center"><td valign="bottom" nowrap="nowrap" align="center"> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center"><b>Year Ended December 31, 2010</b> </td>
<td> </td></tr>
<tr style="font-size: 8pt;" valign="bottom" align="center"><td valign="bottom" nowrap="nowrap" align="center"> </td>
<td> </td>
<td valign="bottom" colspan="2" nowrap="nowrap" align="center"> </td>
<td> </td>
<td> </td>
<td valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Weighted<br /></b></td>
<td> </td></tr>
<tr style="font-size: 8pt;" valign="bottom" align="center"><td valign="bottom" nowrap="nowrap" align="center"> </td>
<td> </td>
<td valign="bottom" colspan="2" nowrap="nowrap" align="center"> </td>
<td> </td>
<td> </td>
<td valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Average Grant<br /></b></td>
<td> </td></tr>
<tr style="font-size: 8pt;" valign="bottom" align="center"><td valign="bottom" nowrap="nowrap" align="center"> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>RSUs</b> </td>
<td> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Date Fair Value</b> </td>
<td> </td></tr>
<tr style="line-height: 3pt; font-size: 1pt;"><td> </td></tr>
<tr style="background: #cceeff;" valign="bottom"><td valign="bottom" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">Outstanding RSUs at beginning of year </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">915,432 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left">$ </td>
<td valign="bottom" nowrap="nowrap" align="right">36.51 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td></tr>
<tr valign="bottom"><td valign="bottom" nowrap="nowrap" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">RSUs granted </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">41,197 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">46.05 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td></tr>
<tr style="background: #cceeff;" valign="bottom"><td valign="bottom" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">Performance-based RSUs granted </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">279,900 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">46.05 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td></tr>
<tr valign="bottom"><td valign="bottom" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">RSUs fully vested </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">(364,335 </td>
<td valign="bottom" nowrap="nowrap" align="left">) </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">(36.87 </td>
<td valign="bottom" nowrap="nowrap" align="left">) </td></tr>
<tr style="background: #cceeff;" valign="bottom"><td valign="bottom" nowrap="nowrap" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">RSUs forfeited </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">(21,116 </td>
<td valign="bottom" nowrap="nowrap" align="left">) </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">(39.35 </td>
<td valign="bottom" nowrap="nowrap" align="left">) </td></tr>
<tr style="font-size: 1pt;" valign="bottom"><td> </td>
<td> </td>
<td style="border-top: #000000 1px solid;"> </td>
<td style="border-top: #000000 1px solid;"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr valign="bottom"><td valign="bottom" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">Outstanding RSUs at end of year </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">851,078 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left">$ </td>
<td valign="bottom" nowrap="nowrap" align="right">39.88 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td></tr>
<tr style="font-size: 1pt;" valign="bottom"><td> </td>
<td> </td>
<td style="border-top: #000000 1px solid;"> </td>
<td style="border-top: #000000 1px solid;"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr></table>
<div style="text-indent: 0%; 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"> </div>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<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">During 2010, the Company granted performance-based RSUs in lieu of utilizing the LTIP. The performance-based RSUs are structured in exactly the same form as shares issued under the LTIP in terms of vesting restrictions and achievement of established performance criteria and are accounted for consistent with the accounting policy described in Note 2(k). For the performance-based RSUs granted in 2010, the Company anticipates that the performance goals are likely to be achieved. Based on the performance goals, the performance-based RSUs granted in 2010 are expensed at 100% of the fair market value of Holding's common share on the date of grant. The expense is recognized over the performance period. </div>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<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">Compensation expense of $13,473, $9,003 and $7,988 relating to the issuance of the RSUs has been recognized in "general and administrative expenses" in the Company's consolidated income statements for the years ended December 31, 2010, 2009 and 2008, respectively. The compensation expense for the RSUs is based on the fair market value of Allied World Switzerland's common shares at the time of grant. The Company has assumed a weighted average annual forfeiture rate, excluding performance-based RSUs, of 4.98% in determining the compensation expense over the service period. The Company believes it is unlikely that performance-based RSUs will be forfeited as these awards are issued to senior management. Thus, no forfeiture rate is applied to the performance-based RSUs. The RSUs vested in 2010, 2009 and 2008 had intrinsic values of $17,302, $6,212 and $6,663 at the time of vesting, based on average market values per share of $47.49, $39.79 and $46.05, respectively. </div>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<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">As of December 31, 2010 and 2009, the Company has recorded $37,991 and $28,827, respectively, in "additional paid-in capital" on the consolidated balance sheets in connection with the RSUs awarded. </div>
<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">As of December 31, 2010, there was remaining $18,506 of total unrecognized compensation expense related to unvested RSUs awarded. This expense is expected to be recognized over a weighted-average period of 1.6 years. Based on a December 31, 2010 market value of $59.44 per share, the outstanding RSUs had an intrinsic value of $50,588 as of December 31, 2010. </div>
<div style="margin-top: 12pt; font-size: 1pt;"> </div>
<table style="font-family: Arial, Helvetica; background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%">
<tr><td width="3%"> </td>
<td width="97%"> </td></tr>
<tr valign="top"><td><b><i><font style="font-family: 'Times New Roman', Times;" class="_mt">c) </font></i></b> </td>
<td><b><i><font style="font-family: 'Times New Roman', Times;" class="_mt">Long-Term Incentive Plan</font></i></b> </td></tr></table>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<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 2006, the Company implemented the LTIP, which it amended and restated in November 2007. The LTIP provides for performance based equity awards to key employees in order to promote the long-term growth and profitability of the Company. As part of the Redomestication, Allied World Switzerland adopted and assumed the LTIP from Allied World Bermuda. 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 three-year performance period. A total of 2,000,000 common shares may be issued under the LTIP. The awards granted in 2009 will vest after the fiscal year ending December 31, 2011, subject to the achievement of the performance conditions and terms of the LTIP. The awards granted in 2008 will vest after the fiscal year ending December 31, 2010 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. </div>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<table style="font-family: 'Times New Roman', Times; background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center">
<tr style="font-size: 1pt;" valign="bottom"><td width="70%"> </td>
<td width="2%"> </td>
<td width="1%" align="right"> </td>
<td width="1%" align="right"> </td>
<td width="1%" align="left"> </td>
<td width="3%"> </td>
<td width="1%" align="right"> </td>
<td width="7%" align="right"> </td>
<td width="1%" align="left"> </td>
<td width="3%"> </td>
<td width="1%" align="right"> </td>
<td width="10%" align="right"> </td>
<td width="1%" align="left"> </td></tr>
<tr style="font-size: 8pt;" valign="bottom" align="center"><td valign="bottom" nowrap="nowrap" align="center"> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="10" align="center"><b>Year Ended December 31, 2010</b> </td>
<td> </td></tr>
<tr style="font-size: 8pt;" valign="bottom" align="center"><td valign="bottom" nowrap="nowrap" align="center"> </td>
<td> </td>
<td valign="bottom" colspan="6" align="center"> </td>
<td> </td>
<td> </td>
<td valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Weighted<br /></b></td>
<td> </td></tr>
<tr style="font-size: 8pt;" valign="bottom" align="center"><td valign="bottom" nowrap="nowrap" align="center"> </td>
<td> </td>
<td valign="bottom" colspan="6" align="center"> </td>
<td> </td>
<td> </td>
<td valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Average Grant<br /></b></td>
<td> </td></tr>
<tr style="font-size: 8pt;" valign="bottom" align="center"><td valign="bottom" nowrap="nowrap" align="center"> </td>
<td> </td>
<td valign="bottom" colspan="6" align="center"> </td>
<td> </td>
<td> </td>
<td valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Date<br /></b></td>
<td> </td></tr>
<tr style="font-size: 8pt;" valign="bottom" align="center"><td valign="bottom" nowrap="nowrap" align="center"> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="6" align="center"><b>LTIP</b> </td>
<td> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>Fair Value</b> </td>
<td> </td></tr>
<tr style="line-height: 3pt; font-size: 1pt;"><td> </td></tr>
<tr style="background: #cceeff;" valign="bottom"><td valign="bottom" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">Outstanding LTIP awards at beginning of year </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right"> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">1,148,411 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left">$ </td>
<td valign="bottom" nowrap="nowrap" align="right">42.28 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td></tr>
<tr valign="bottom"><td valign="bottom" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">Additional LTIP awards granted due to the achievement of 2007 — 2009 performance criteria </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right"> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">187,500 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">43.40 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td></tr>
<tr style="background: #cceeff;" valign="bottom"><td valign="bottom" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">LTIP awards subject to accelerated vesting </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right"> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">(18,750 </td>
<td valign="bottom" nowrap="nowrap" align="left">) </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">43.27 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td></tr>
<tr valign="bottom"><td valign="bottom" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">LTIP awards vested </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right"> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">(543,750 </td>
<td valign="bottom" nowrap="nowrap" align="left">) </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">43.40 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td></tr>
<tr style="font-size: 1pt;" valign="bottom"><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 1px solid;"> </td>
<td style="border-top: #000000 1px solid;"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr>
<tr style="background: #cceeff;" valign="bottom"><td valign="bottom" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">Outstanding LTIP awards at end of year </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right"> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">773,411 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left">$ </td>
<td valign="bottom" nowrap="nowrap" align="right">41.74 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td></tr>
<tr style="font-size: 1pt;" valign="bottom"><td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 3px double;"> </td>
<td style="border-top: #000000 3px double;"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td></tr></table>
<div style="text-indent: 0%; 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"> </div>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<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">Compensation expense of $17,817, $25,580 and $17,820 relating to the LTIP has been recognized in "general and administrative expenses" in the Company's consolidated income statements for the years ended December 31, 2010, 2009 and 2008, respectively. The compensation expense for the LTIP is based on the fair market value of the Company's common shares at the time of grant. The LTIP is deemed to be an equity plan and as such, $77,728 and $59,777 have been included in "additional paid-in capital" on the consolidated balance sheets as of December 31, 2010 and 2009, respectively. </div>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<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 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 2009 and 2008 that the maximum performance goals as set by the LTIP are likely to be achieved over the performance period. Based on the performance goals, the LTIP awards granted in 2009 and 2008 are expensed at 150% of the fair market value of Allied World Switzerland's common shares on the date of grant. The expense is recognized over the performance period. </div>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<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">As of December 31, 2010, there was remaining $6,657 of total unrecognized compensation expense related to unvested LTIP awards. This expense is expected to be recognized over a period of 1.2 years. Based on a December 31, 2010 market value of $59.44 per share, the outstanding LTIP awards had an intrinsic value of $68,957 as of December 31, 2010. </div>
<table style="font-family: Arial, Helvetica; background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%">
<tr><td width="3%"> </td>
<td width="97%"> </td></tr>
<tr valign="top"><td><b><i><font style="font-family: 'Times New Roman', Times;" class="_mt">c) </font></i></b> </td>
<td><b><i><font style="font-family: 'Times New Roman', Times;" class="_mt">Long-Term Incentive Plan — (continued)</font></i></b> </td></tr></table>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<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">As part of the acquisition of Darwin, the Company assumed Darwin's Long-Term Incentive Plan ("Darwin LTIP") that it had implemented for certain of its key employees. Initially, the Darwin LTIP allocated 20% of the underwriting profit for each year (premiums net of losses and expenses) plus 20% of the investment income based on average net assets outstanding in each year (at a deemed interest rate equal to the 10 year U.S. Treasury note rate) to the Darwin LTIP participants, based on their assigned percentage interests. Interests in these profit pools vest over a four-year period. The payments due are made in increments over the fourth, fifth and sixth years. </div>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<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">Effective January 1, 2006, the Darwin LTIP was modified to reflect changes in the calculation of the underwriting profitability allocated to the participants of the Darwin LTIP. For 2006 and later years, the amount allocated to the participants is calculated as an amount equal to 20% of the underwriting profit less an amount equal to 5% of net premiums earned. In addition, imputed investment income will no longer be credited to the pool participants. </div>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<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 Darwin LTIP is intended to produce payouts consistent with long-term profitability. Accordingly, the right of offset exists where, in the event that any year produces a negative underwriting result, this negative amount would be offset against credits available under the profit pool established for another year. This offset can be applied against any of the unpaid year balances whether prior or subsequent to the year in question. </div>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<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">At December 31, 2010 and 2009, the Company had recorded liabilities of $5,155 and $16,516, respectively, for the LTIP in "accounts payable and accrued expenses" on the consolidated balance sheets. The Company recognized $932 and $5,851 in expenses related to the Darwin LTIP during the years ended December 31, 2010 and 2009, respectively, which have been included in "general and administrative expenses" in the Company's consolidated income statements. The Darwin LTIP is in run-off and any awards after 2008 to former participants in the Darwin LTIP are being granted under the Company's LTIP. </div>
<div style="margin-top: 12pt; font-size: 1pt;"> </div>
<table style="font-family: Arial, Helvetica; background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%">
<tr><td width="3%"> </td>
<td width="97%"> </td></tr>
<tr valign="top"><td><b><i><font style="font-family: 'Times New Roman', Times;" class="_mt">d) </font></i></b> </td>
<td><b><i><font style="font-family: 'Times New Roman', Times;" class="_mt">Cash-Equivalent Stock Awards</font></i></b> </td></tr></table>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<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">Since 2009, as part of the Company's annual year-end compensation awards, the Company granted both stock-based awards and cash-equivalent stock awards. The cash-equivalent awards were granted to employees who received RSU and LTIP awards and were granted in lieu of granting the full award as a stock-based award. The cash-equivalent RSU awards vest pro-rata over four years from the date of grant. The cash-equivalent LTIP awards vest after a three-year performance period. As the cash-equivalent awards are settled in cash, we establish a liability equal to the product of the fair market value of Allied World Switzerland's common shares as of the end of the reporting period and the total awards outstanding. The liability is included in "accounts payable and accrued expenses" in the balance sheets and changes in the liability are recorded in "general and administrative expenses" in the consolidated income statements. For the years ended December 31, 2010 and 2009, the expense recognized for the cash-equivalent stock awards was $15,132 and $3,260, respectively. </div>
<table style="font-family: Arial, Helvetica; background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%">
<tr><td width="3%"> </td>
<td width="97%"> </td></tr>
<tr valign="top"><td><b><i><font style="font-family: 'Times New Roman', Times;" class="_mt">d) </font></i></b> </td>
<td><b><i><font style="font-family: 'Times New Roman', Times;" class="_mt">Cash-Equivalent Stock Awards — (continued)</font></i></b> </td></tr></table>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<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 following table shows the stock related compensation expense relating to the stock options, RSUs, LTIP and cash equivalent awards for the years ended December 31, 2010, 2009 and 2008. </div>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<table style="font-family: 'Times New Roman', Times; background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%" align="center">
<tr style="font-size: 1pt;" valign="bottom"><td width="71%"> </td>
<td width="2%"> </td>
<td width="1%" align="right"> </td>
<td width="5%" align="right"> </td>
<td width="1%" align="left"> </td>
<td width="3%"> </td>
<td width="1%" align="right"> </td>
<td width="5%" align="right"> </td>
<td width="1%" align="left"> </td>
<td width="3%"> </td>
<td width="1%" align="right"> </td>
<td width="5%" align="right"> </td>
<td width="1%" align="left"> </td></tr>
<tr style="font-size: 8pt;" valign="bottom" align="center"><td valign="bottom" nowrap="nowrap" align="center"> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="10" align="center"><b>For the Years Ended December 31,</b> </td>
<td> </td></tr>
<tr style="font-size: 8pt;" valign="bottom" align="center"><td valign="bottom" nowrap="nowrap" align="center"> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>2010</b> </td>
<td> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>2009</b> </td>
<td> </td>
<td> </td>
<td style="border-bottom: #000000 1px solid;" valign="bottom" colspan="2" nowrap="nowrap" align="center"><b>2008</b> </td>
<td> </td></tr>
<tr style="line-height: 3pt; font-size: 1pt;"><td> </td></tr>
<tr style="background: #cceeff;" valign="bottom"><td valign="bottom" nowrap="nowrap" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">Stock Options </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left">$ </td>
<td valign="bottom" nowrap="nowrap" align="right">2,953 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left">$ </td>
<td valign="bottom" nowrap="nowrap" align="right">2,556 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left">$ </td>
<td valign="bottom" nowrap="nowrap" align="right">2,405 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td></tr>
<tr valign="bottom"><td valign="bottom" nowrap="nowrap" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">RSUs </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">13,473 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">9,003 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">7,988 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td></tr>
<tr style="background: #cceeff;" valign="bottom"><td valign="bottom" nowrap="nowrap" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">LTIP </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">17,817 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">25,580 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">17,820 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td></tr>
<tr valign="bottom"><td valign="bottom" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">Cash-equivalent stock awards </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">15,132 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">3,260 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td valign="bottom" nowrap="nowrap" align="right">— </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td></tr>
<tr style="font-size: 1pt;" valign="bottom"><td> </td>
<td> </td>
<td style="border-top: #000000 1px solid;"> </td>
<td style="border-top: #000000 1px solid;"> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 1px solid;"> </td>
<td style="border-top: #000000 1px solid;"> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 1px solid;"> </td>
<td style="border-top: #000000 1px solid;"> </td>
<td> </td></tr>
<tr style="background: #cceeff;" valign="bottom"><td valign="bottom" nowrap="nowrap" align="left">
<div style="text-indent: -10pt; margin-left: 10pt;">Total </div></td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left">$ </td>
<td valign="bottom" nowrap="nowrap" align="right">49,375 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left">$ </td>
<td valign="bottom" nowrap="nowrap" align="right">40,399 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td>
<td> </td>
<td valign="bottom" nowrap="nowrap" align="left">$ </td>
<td valign="bottom" nowrap="nowrap" align="right">28,213 </td>
<td valign="bottom" nowrap="nowrap" align="left"> </td></tr>
<tr style="font-size: 1pt;" valign="bottom"><td> </td>
<td> </td>
<td style="border-top: #000000 3px double;"> </td>
<td style="border-top: #000000 3px double;"> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 3px double;"> </td>
<td style="border-top: #000000 3px double;"> </td>
<td> </td>
<td> </td>
<td style="border-top: #000000 3px double;"> </td>
<td style="border-top: #000000 3px double;"> </td>
<td> </td></tr></table>
<div style="text-indent: 0%; 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"> </div>
<div style="text-indent: 0%; 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"> </div>
<div style="margin-top: 12pt; font-size: 1pt;"> </div>
<table style="font-family: Arial, Helvetica; background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%">
<tr><td width="3%"> </td>
<td width="97%"> </td></tr>
<tr valign="top"><td><b><i><font style="font-family: 'Times New Roman', Times;" class="_mt">e) </font></i></b> </td>
<td><b><i><font style="font-family: 'Times New Roman', Times;" class="_mt">Pension Plans</font></i></b> </td></tr></table>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<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 Company provides defined contribution retirement plans for its employees and officers. Pursuant to the employees' plan, each participant can contribute 5% or more of their salary and the Company will contribute an amount equal to 5% of each participant's salary. Officers are also eligible to participate in one of various supplementary retirement plans, in which each participant may contribute up to 25% of their annual base salary. The Company will contribute to the officer plans an amount equal to 10% of each officer's annual base salary. Prior to April 1, 2008, base salary was capped at $200 per year for pension purposes. Effective as of April 1, 2008, the Company contributes under the Supplemental Executive Retirement Plan ("SERP") up to 10% of a participant's annual base salary in excess of the then-effective maximum amount of annual compensation that could be taken into account under a qualified plan under the Internal Revenue Code, as established by the Internal Revenue Service from time to time, with an annual base salary cap of $600. The amount that an individual employee or officer can contribute may also be subject to any regulatory requirements relating to the country of which the individual is a citizen. The amounts funded and expensed during the years ended December 31, 2010, 2009 and 2008 were $8,011, $4,886 and $3,364, respectively. </div>
<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"> </div>
<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">
<div style="width: 87%; margin-left: 6%;">
<table style="font-family: Arial, Helvetica; background: none transparent scroll repeat 0% 0%; color: #000000; font-size: 10pt;" border="0" cellspacing="0" cellpadding="0" width="100%">
<tr valign="top"><td><b><i><font style="font-family: 'Times New Roman', Times;" class="_mt">f) </font></i></b> </td>
<td><b><i><font style="font-family: 'Times New Roman', Times;" class="_mt">Employee Share Purchase Plan</font></i></b> </td></tr></table>
<div style="margin-top: 6pt; font-size: 1pt;"> </div>
<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 2008, the Company established the Allied World Assurance Company Holdings, Ltd 2008 Employee Share Purchase Plan ("ESPP"). Under this plan, eligible employees of the Company may purchase common shares of the Company at a 15% discount from the fair market value of one common share on the last trading day of each offering period. Employees purchase a variable number of common shares through payroll deductions elected as of the beginning of the offering period. The Company may sell up to 1,000,000 common shares to eligible employees under the ESPP. As part of the Redomestication, Allied World Switzerland adopted and assumed the ESPP from Allied World Bermuda. The amount expensed during the years ended December 31, 2010, 2009 and 2008 were $160, $162 and $62, respectively. </div></div></div> </div>12.
EMPLOYEE BENEFIT PLANS
a)
Employee Option Plan
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-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 123R
-Paragraph 64, 65, A240
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-Publisher AICPA
-Name Statement of Position (SOP)
-Number 93-6
-Paragraph 53
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-Publisher SEC
-Name Staff Accounting Bulletin (SAB)
-Number Topic 14
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