EMPLOYEE BENEFIT PLANS

a) Restricted stock units and performance-based equity awards

Restricted stock units ("RSUs") vest pro-rata over four years from the date of grant. The compensation expense for the RSUs is based on the fair market value of Allied World Switzerland’s common shares at the date of grant. The Company estimates the expected forfeitures of RSUs at the date of grant and recognizes compensation expense only for those awards that the Company expects to vest. The forfeiture assumption is ultimately adjusted to the actual forfeiture rate.

Performance-based equity awards represent the right to receive a number of common shares in the future, based upon the achievement of established performance criteria during an applicable performance period. For the performance-based equity awards granted in 2014, 2013 and 2012, the Company anticipates that the performance goals are likely to be achieved. Based on the performance goals, the performance-based equity awards granted in 2014, 2013 and 2012 are expensed at 100%, 100% and 135%, respectively, of the fair value of Allied World Switzerland's common shares on the date of grant. The expense is recognized over the performance period.

The activity related to the Company’s RSUs awards is as follows:



	Nine Months Ended September 30, 2014
	Number of Awards		Weighted Average Grant Date Fair Value
Outstanding at beginning of period	143,697		$	21.69
RSUs granted	454,176		33.56
RSUs forfeited	(8,061	)	(31.71		)
RSUs fully vested	(77,700	)	(21.68		)
Outstanding at end of period	512,112		$	32.06

The activity related to the Company’s performance-based equity awards is as follows:



	Nine Months Ended September 30, 2014
	Number of Awards		Weighted Average Grant Date Fair Value
Outstanding at beginning of period	804,519		$	23.21
Performance-based equity awards granted	166,302		33.56
Additional awards granted due to achievement of performance criteria	104,895		20.50
Performance-based equity awards forfeited	(1,848	)	(25.28		)
Performance-based equity awards fully vested	(454,440	)	(20.50		)
Outstanding at end of period	619,428		$	27.51

b) Cash-equivalent stock awards

As part of the Company’s annual year-end compensation awards, the Company granted both awards classified as equity and cash-equivalent stock awards. The cash-equivalent awards were granted to employees who received RSUs and performance-based equity awards in tandem with stock-based awards. The cash-equivalent RSU awards vest pro-rata over four years from the date of grant. The cash-equivalent performance-based equity awards vest after a three-year performance period. The amount payable per unit awarded will be equal to the price per share of Allied World Switzerland’s common shares, and as such the Company measures the value of the award each reporting period based on the period-ending share price. The effects of changes in the share price at each period-end during the service period are recognized as changes in compensation expense ratably over the service period. The liability is included in “accounts payable and accrued liabilities” in the consolidated balance sheets and changes in the liability are recorded in “general and administrative expenses” in the consolidated income statements.

The activity related to the Company's cash-equivalent RSUs and performance-based awards is as follows:



	RSU's					Performance-based Awards
Nine Months Ended September 30, 2014	Number of Awards		Weighted Average Grant Date Fair Value			Number of Awards		Weighted Average Grant Date Fair Value
Outstanding at beginning of period	2,049,084		$	24.69		1,031,961		23.67
Granted	438,162		33.56			249,438		33.56
Additional awards granted due to achievement of performance criteria	—		—			104,895		20.50
Forfeited	(50,106	)	(26.75		)	(2,769	)	(25.28		)
Fully vested	(752,668	)	(22.51		)	(454,440	)	(20.50		)
Outstanding at end of period	1,684,472		$	27.98		929,085		$	27.51

c) Total Stock Related Compensation Expense

The following table shows the total stock-related compensation expense relating to the stock options, RSUs and cash equivalent awards.



	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Stock options	$	424	$	647	$	1,564	$	2,662
RSUs and performance-based equity awards	2,767		2,070		9,258		6,621
Cash-equivalent stock awards	8,433		13,699		25,930		34,666
Total	$	11,624	$	16,416	$	36,752	$	43,949