Second Quarter 2013 Financial Supplement

EX-99.2 3 d571311dex992.htm SECOND QUARTER 2013 FINANCIAL SUPPLEMENT Second Quarter 2013 Financial Supplement

Exhibit 99.2

LOGO

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

2nd Quarter Ended June 30, 2013

Investor Contact:

Sarah Doran

This report is for informational purposes only. It should be read in conjunction with documents filed by Allied World Assurance Company Holdings, AG with the U.S. Securities and Exchange Commission.

Phone: (646) 794-0590

Email: sarah.doran@awac.com

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Any forward-looking statements made in this report reflect our current views with respect to future events and financial performance and are made pursuant to the safe harbor provisions of the Private Securities Litigation reform Act of 1995. Such statements involve risks and uncertainties, which may cause actual results to differ materially from those set forth in these statements. For example, our forward-looking statements could be affected by pricing and policy term trends; increased competition; the impact of acts of terrorism and acts of war; greater frequency or severity of unpredictable catastrophic events; negative rating agency actions; the adequacy of our loss reserves; the company or its subsidiaries becoming subject to significant income taxes in the United States or elsewhere; changes in regulations or tax laws; changes in the availability, cost or quality of reinsurance or retrocessional coverage; adverse general economic conditions; and judicial, legislative, political and other governmental developments, as well as management’s response to these factors, and other factors identified in our filings with the U.S. Securities and Exchange Commission (the “SEC”). You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. 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.

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

FINANCIAL SUPPLEMENT TABLE OF CONTENTS


		Page

	Basis of Presentation		4

I.	Financial Highlights
	- Consolidated Financial Highlights		5

II.	Consolidated Financial Statements
	- Consolidated Statements of Operations		6
	- Consolidated Balance Sheets		7
	- Consolidated Statement of Cash Flows		8

III.	Segment Results
	- Consolidated Segment Results - Current Quarter		9
	- Consolidated Segment Results - Prior Year Quarter		10
	- Consolidated Segment Results - Current Year to Date		11
	- Consolidated Segment Results - Prior Year to Date		12
	- Gross Premiums Written by Segment and Geographic Location		13
	- Gross Premiums Written by Line of Business		14

IV.	Incurred Losses and Loss Reserves
	- Consolidated Incurred Loss Analysis by Segment		15
	- Loss Reserve Development by Loss Year - Current Quarter and Year to Date		16
	- Loss Reserve Development by Loss Year - Prior Year Quarter and Year to Date		17
	- Reserves for Losses and Loss Expenses		18
	- Reinsurance Recoverable		19

V.	Investment Portfolio
	- Consolidated Total Investment Portfolio		20
	- Additional Investment Detail		21
	- Investment Income, Book Yield and Portfolio Return		23

VI.	Other
	- Operating Income Reconciliation and Basic and Diluted Earnings per Share		24
	- Return on Average Shareholders’ Equity and Reconciliation of Average Shareholders’ Equity		25
	- Reconciliation of Diluted Book Value per Share		26
	- Share Repurchase Detail		27
	- Capital Structure and Leverage Ratios		28
	- Probable Maximum Losses		29
	- Regulation G		30

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

BASIS OF PRESENTATION

DEFINITIONS AND PRESENTATION

•

All financial information contained herein is unaudited.

•

Unless otherwise noted, all data is in thousands of U.S. dollars, except for share, per share, percentage and ratio information.

•

Allied World Assurance Company Holdings, AG, along with others in the industry, use underwriting ratios as measures of performance. The loss and loss expense ratio is calculated by dividing net losses and loss expenses by net premiums earned. The acquisition cost ratio is calculated by dividing acquisition costs by net premiums earned. The general and administrative expense ratio is calculated by dividing general and administrative expenses by net premiums earned. The expense ratio is calculated by combining the acquisition cost ratio and the general and administrative expense ratio. The combined ratio is calculated by combining the loss and loss expense ratios, the acquisition cost ratio and the general and administrative expense ratio. These ratios are relative measurements that describe for every $100 of net premiums earned, the costs of losses and expenses, respectively. The combined ratio presents the total cost per $100 of earned premium. A combined ratio below 100% demonstrates underwriting profit; a combined ratio above 100% demonstrates underwriting loss.

•

In presenting the company’s results, management has included and discussed certain non-generally accepted accounting principles (“non-GAAP”) financial measures, as such term is defined in Regulation G promulgated by the SEC. Management believes that these non-GAAP measures, which may be defined differently by other companies, better explain the company’s results of operations in a manner that allows for a more complete understanding of the underlying trends in the company’s business. However, these measures should not be viewed as a substitute for those determined in accordance with generally accepted accounting principles (“GAAP”). The reconciliation of such non-GAAP financial measures to their respective most directly comparable GAAP financial measures in accordance with Regulation G is included in this financial supplement. See page 30 for further details.

Page 4

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED FINANCIAL HIGHLIGHTS


	Three Months Ended June 30,									Six Months Ended June 30,
	2013			2012			Change			2013			2012			Change
HIGHLIGHTS
Gross premiums written	$	765,200		$	646,870			18.3	%	$	1,602,281		$	1,327,799			20.7	%
Net premiums written		581,222			494,710			17.5	%		1,276,274			1,083,663			17.8	%
Net premiums earned		507,271			429,747			18.0	%		970,499			831,637			16.7	%
Underwriting income		86,941			63,800			36.3	%		155,626			122,984			26.5	%
Net (loss) income		(1,862	)		96,351			n.m.			157,130			314,507			(50.0	%)
Operating income		103,525			87,318			18.6	%		187,693			178,823			5.0	%

Total shareholders’ equity		3,373,229			3,283,901			2.7	%		3,373,229			3,283,901			2.7	%
Cash flows from operating activities		120,073			158,956			(24.5	%)		133,642			301,773			(55.7	%)

PER SHARE AND SHARE DATA
Basic earnings per share
Net (loss) income	$	(0.05	)	$	2.66			n.m.		$	4.55		$	8.56			(46.8	%)
Operating income	$	3.01		$	2.41			24.9	%	$	5.44		$	4.87			11.7	%
Diluted earnings per share
Net (loss) income	$	(0.05	)	$	2.59			n.m.		$	4.45		$	8.41			(47.1	%)
Operating income	$	2.95		$	2.35			25.5	%	$	5.31		$	4.78			11.1	%

Book value per share	$	98.70		$	91.36			8.0	%	$	98.70		$	91.36			8.0	%
Diluted book value per share	$	96.18		$	88.24			9.0	%	$	96.18		$	88.24			9.0	%

FINANCIAL RATIOS
Annualized return on average equity (ROAE), net income		(0.2	%)		11.8	%		(12.0) pts			9.4	%		19.6	%		(10.2) pts
Annualized ROAE, operating income		12.2	%		10.7	%		1.5 pts			11.2	%		11.1	%		0.1 pts
Financial statement portfolio return		(0.9	%)		0.6	%		(1.5) pts			0.4	%		2.6	%		(2.2) pts

GAAP Ratios
Loss and loss expense ratio		54.2	%		55.9	%		1.7 pts			54.6	%		56.0	%		1.4 pts
Acquisition cost ratio		12.7	%		12.0	%		(0.7) pts			12.5	%		11.9	%		(0.6) pts
General and administrative expense ratio		15.9	%		17.2	%		1.3 pts			16.8	%		17.3	%		0.5 pts

Expense ratio		28.6	%		29.2	%		0.6 pts			29.3	%		29.2	%		(0.1) pts

Combined ratio		82.8	%		85.1	%		2.3 pts			83.9	%		85.2	%		1.3 pts

Page 5

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended															Six Months Ended
	June 30,			March 31,			December 31,			September 31,			June 30,			June 30,			June 30,
	2013			2013			2012			2012			2012			2013			2012
Revenues
Gross premiums written	$	765,200		$	837,081		$	497,052		$	504,420		$	646,870		$	1,602,281		$	1,327,799
Net premiums written	$	581,222		$	695,052		$	362,623		$	391,537		$	494,710		$	1,276,274		$	1,083,663

Net premiums earned	$	507,271		$	463,228		$	476,244		$	441,017		$	429,747		$	970,499		$	831,637
Net investment income		37,635			33,388			38,360			39,121			42,451			71,023			89,660
Net realized investment (losses) gains		(115,198	)		79,637			14,379			149,813			8,663			(35,561	)		142,244

Total revenues	$	429,708		$	576,253		$	528,983		$	629,951		$	480,861		$	1,005,961		$	1,063,541


Expenses
Net losses and loss expenses	$	275,128		$	255,178		$	414,734		$	258,948		$	240,380		$	530,306		$	465,582
Acquisition costs		64,617			56,685			55,910			51,086			51,588			121,302			98,726
General and administrative expenses		80,585			82,680			84,404			78,572			73,979			163,265			144,345
Amortization of intangible assets		634			633			633			633			634			1,267			1,267
Interest expense		14,188			14,134			13,826			13,822			14,001			28,322			27,757
Foreign exchange loss (gain)		490			2,518			860			1,023			(1,019	)		3,008			(1,100	)

Total expenses	$	435,642		$	411,828		$	570,367		$	404,084		$	379,563		$	847,470		$	736,577


(Loss) Income before income taxes	$	(5,934	)	$	164,425		$	(41,384	)	$	225,867		$	101,298		$	158,491		$	326,964
Income tax (benefit) expense		(4,072	)		5,433			(237	)		6,220			4,947			1,361			12,457

Net (loss) income	$	(1,862	)	$	158,992		$	(41,147	)	$	219,647		$	96,351		$	157,130		$	314,507


GAAP Ratios
Loss and loss expense ratio		54.2	%		55.1	%		87.1	%		58.7	%		55.9	%		54.6	%		56.0	%
Acquisition cost ratio		12.7	%		12.2	%		11.7	%		11.6	%		12.0	%		12.5	%		11.9	%
General and administrative expense ratio		15.9	%		17.8	%		17.7	%		17.8	%		17.2	%		16.8	%		17.3	%

Expense ratio		28.6	%		30.0	%		29.4	%		29.4	%		29.2	%		29.3	%		29.2	%

Combined ratio		82.8	%		85.1	%		116.5	%		88.1	%		85.1	%		83.9	%		85.2	%


Per Share Data
Basic earnings per share
Net (loss) income	$	(0.05	)	$	4.59		$	(1.17	)	$	6.16		$	2.66		$	4.55		$	8.56
Operating income (loss)	$	3.01		$	2.43		$	(1.58	)	$	2.22		$	2.41		$	5.44		$	4.87
Diluted earnings per share
Net (loss) income	$	(0.05	)	$	4.49		$	(1.17	)	$	6.00		$	2.59		$	4.45		$	8.41
Operating income (loss)	$	2.95		$	2.38		$	(1.58	)	$	2.16		$	2.35		$	5.31		$	4.78

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED BALANCE SHEETS


	As of			As of
	June 30, 2013			December 31, 2012
ASSETS
Fixed maturity investments trading, at fair value	$	6,285,778		$	6,626,454
Equity securities trading, at fair value		640,925			523,949
Other invested assets		849,100			783,534

Total investments		7,775,803			7,933,937
Cash and cash equivalents		674,103			681,879
Restricted cash		194,046			183,485
Insurance balances receivable		814,620			510,532
Funds held		387,599			336,368
Prepaid reinsurance		339,936			277,406
Reinsurance recoverable		1,179,525			1,141,110
Accrued investment income		24,112			29,135
Net deferred acquisition costs		153,812			108,010
Goodwill		268,376			268,376
Intangible assets		50,098			51,365
Balances receivable on sale of investments		277,025			418,879
Net deferred tax assets		40,550			25,580
Other assets		85,272			63,884

TOTAL ASSETS	$	12,264,877		$	12,029,946


LIABILITIES
Reserve for losses and loss expenses	$	5,696,865		$	5,645,549
Unearned premiums		1,586,327			1,218,021
Reinsurance balances payable		205,884			136,264
Balances due on purchases of investments		487,063			759,934
Senior notes		798,355			798,215
Dividends payable		17,127			—
Accounts payable and accrued liabilities		100,027			145,628

TOTAL LIABILITIES	$	8,891,648		$	8,703,611


SHAREHOLDERS’ EQUITY
Common shares: 2013: par value CHF 12.30 per share and 2012: par value CHF 12.64 per share (2013: 35,429,423; 2012: 36,369,868 shares issued and 2013: 34,175,831; 2012: 34,797,781 shares outstanding)	$	430,397		$	454,980
Treasury shares, at cost (2013: 1,253,592; 2012: 1,572,087)		(91,661	)		(113,818	)
Retained earnings		3,034,493			2,985,173

TOTAL SHAREHOLDERS’ EQUITY	$	3,373,229		$	3,326,335

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	12,264,877		$	12,029,946


Book value per share	$	98.70		$	95.59
Diluted book value per share	$	96.18		$	92.59

Page 7

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended															Six Months Ended
	June 30,			March 31,			December 31,			September 31,			June 30,			June 30,			June 30,
	2013			2013			2012			2012			2012			2013			2012
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net (loss) income	$	(1,862	)	$	158,992		$	(41,147	)	$	219,647		$	96,351		$	157,130		$	314,507
Adjustments to reconcile net (loss) income to cash provided by operating activities:
Net realized gains (losses) on sales of investments		(24,388	)		(38,533	)		119,490			(16,791	)		(34,669	)		(62,921	)		(46,834	)
Mark to market adjustments		141,810			(46,112	)		45,045			(130,693	)		27,602			95,698			(94,732	)
Stock compensation expense		2,571			3,995			4,524			3,824			3,823			6,566			9,294
Undistributed income of equity method investments		(2,316	)		—			—			—			—			(2,316	)		—
Changes in:
Reserve for losses and loss expenses, net of reinsurance recoverables		7,623			5,278			131,174			69,359			29,268			12,901			81,682
Unearned premiums, net of prepaid reinsurance		73,952			231,824			(113,621	)		(49,481	)		64,965			305,776			252,026
Insurance balances receivable		(147,121	)		(156,967	)		38,227			65,616			(63,664	)		(304,088	)		(187,038	)
Funds held		(17,019	)		(34,212	)		(130,149	)		25,069			(33,862	)		(51,231	)		(6,467	)
Reinsurance balances payable		87,423			(17,803	)		15,832			(7,874	)		35,044			69,620			3,767
Net deferred acquisition costs		(11,661	)		(34,141	)		19,517			2,291			(4,173	)		(45,802	)		(29,484	)
Net deferred tax assets		(12,813	)		(2,157	)		(1,650	)		5,308			(8,816	)		(14,970	)		(3,458	)
Accounts payable and accrued liabilities		25,179			(70,780	)		30,811			16,982			22,362			(45,601	)		(19,978	)
Other items, net		(1,305	)		14,185			11,166			(4,811	)		24,725			12,880			28,488

Net cash provided by operating activities		120,073			13,569			129,219			198,446			158,956			133,642			301,773


CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES:
Net (purchases) sales of investments		68,966			(98,465	)		121,770			(536,260	)		(99,052	)		(29,499	)		258,848
Purchases of fixed assets		(985	)		(2,378	)		(1,173	)		(1,162	)		(312	)		(3,363	)		(879	)
Change in restricted cash		(127,346	)		116,785			(136,562	)		192,453			47,738			(10,561	)		(156,768	)

Net cash (used in) provided by investing activities		(59,365	)		15,942			(15,965	)		(344,969	)		(51,626	)		(43,423	)		101,201


CASH FLOWS USED IN FINANCING ACTIVITIES:
Dividends paid — par value reduction		—			(12,981	)		(13,104	)		(26,718	)		(13,795	)		(12,981	)		(28,003	)
Proceeds from the exercise of stock options		2,821			2,472			1,423			2,407			3,365			5,293			6,697
Share repurchases		(46,326	)		(36,245	)		(59,196	)		(55,797	)		(55,926	)		(82,571	)		(148,949	)

Net cash used in financing activities		(43,505	)		(46,754	)		(70,877	)		(80,108	)		(66,356	)		(90,259	)		(170,255	)


Effect of exchange rate changes on foreign currency cash		(5,681	)		(2,055	)		(15	)		1,698			(2,510	)		(7,736	)		(2,265	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		11,522			(19,298	)		42,362			(224,933	)		38,464			(7,776	)		230,454
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		662,581			681,879			639,517			864,450			825,986			681,879			633,996

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	674,103		$	662,581		$	681,879		$	639,517		$	864,450		$	674,103		$	864,450

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED SEGMENT RESULTS – CURRENT QUARTER


	Three Months Ended June 30, 2013
	U.S.			International						Consolidated
	Insurance			Insurance			Reinsurance			Totals
Revenues
Gross premiums written	$	307,297		$	192,593		$	265,310		$	765,200
Net premiums written	$	221,419		$	106,394		$	253,409		$	581,222
Net premiums earned	$	197,436		$	87,041		$	222,794		$	507,271

Total revenues	$	197,436		$	87,041		$	222,794		$	507,271


Expenses
Net losses and loss expenses	$	124,364		$	30,968		$	119,796		$	275,128
Acquisition costs		27,270			(358	)		37,705			64,617
General and administrative expenses		38,302			24,135			18,148			80,585

Total expenses	$	189,936		$	54,745		$	175,649		$	420,330


Underwriting income	$	7,500		$	32,296		$	47,145		$	86,941

Net investment income											37,635
Net realized investment losses											(115,198	)
Amortization of intangible assets											(634	)
Interest expense											(14,188	)
Foreign exchange loss											(490	)

Loss before income taxes										$	(5,934	)


GAAP Ratios
Loss and loss expense ratio		63.0	%		35.6	%		53.8	%		54.2	%
Acquisition cost ratio		13.8	%		(0.4	%)		16.9	%		12.7	%
General and administrative expense ratio		19.4	%		27.7	%		8.1	%		15.9	%

Expense ratio		33.2	%		27.3	%		25.0	%		28.6	%

Combined ratio		96.2	%		62.9	%		78.8	%		82.8	%

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ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED SEGMENT RESULTS – PRIOR YEAR QUARTER


	Three Months Ended June 30, 2012
	U.S.			International						Consolidated
	Insurance			Insurance			Reinsurance			Totals
Revenues
Gross premiums written	$	265,974		$	183,593		$	197,303		$	646,870
Net premiums written	$	196,661		$	111,342		$	186,707		$	494,710
Net premiums earned	$	162,785		$	82,605		$	184,357		$	429,747

Total revenues	$	162,785		$	82,605		$	184,357		$	429,747


Expenses
Net losses and loss expenses	$	103,074		$	22,233		$	115,073		$	240,380
Acquisition costs		21,250			(582	)		30,920			51,588
General and administrative expenses		34,730			21,648			17,601			73,979

Total expenses	$	159,054		$	43,299		$	163,594		$	365,947


Underwriting income	$	3,731		$	39,306		$	20,763		$	63,800

Net investment income											42,451
Net realized investment gains											8,663
Amortization of intangible assets											(634	)
Interest expense											(14,001	)
Foreign exchange gain											1,019

Income before income taxes										$	101,298


GAAP Ratios
Loss and loss expense ratio		63.3	%		26.9	%		62.4	%		55.9	%
Acquisition cost ratio		13.1	%		(0.7	%)		16.8	%		12.0	%
General and administrative expense ratio		21.3	%		26.2	%		9.5	%		17.2	%

Expense ratio		34.4	%		25.5	%		26.3	%		29.2	%

Combined ratio		97.7	%		52.4	%		88.7	%		85.1	%

Page 10

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED SEGMENT RESULTS – CURRENT YEAR TO DATE


	Six Months Ended June 30, 2013
	U.S.			International						Consolidated
	Insurance			Insurance			Reinsurance			Totals
Revenues
Gross premiums written	$	563,315		$	321,109		$	717,857		$	1,602,281
Net premiums written	$	413,672		$	184,139		$	678,463		$	1,276,274
Net premiums earned	$	385,875		$	171,255		$	413,369		$	970,499

Total revenues	$	385,875		$	171,255		$	413,369		$	970,499


Expenses
Net losses and loss expenses	$	257,688		$	59,903		$	212,715		$	530,306
Acquisition costs		50,398			(1,207	)		72,111			121,302
General and administrative expenses		77,898			48,924			36,443			163,265

Total expenses	$	385,984		$	107,620		$	321,269		$	814,873


Underwriting (loss) income	$	(109	)	$	63,635		$	92,100		$	155,626

Net investment income											71,023
Net realized investment losses											(35,561	)
Amortization of intangible assets											(1,267	)
Interest expense											(28,322	)
Foreign exchange loss											(3,008	)

Income before income taxes										$	158,491


GAAP Ratios
Loss and loss expense ratio		66.8	%		35.0	%		51.5	%		54.6	%
Acquisition cost ratio		13.1	%		(0.7	%)		17.4	%		12.5	%
General and administrative expense ratio		20.2	%		28.6	%		8.8	%		16.8	%

Expense ratio		33.3	%		27.9	%		26.2	%		29.3	%

Combined ratio		100.1	%		62.9	%		77.7	%		83.9	%

Page 11

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED SEGMENT RESULTS – PRIOR YEAR TO DATE


	Six Months Ended June 30, 2012
	U.S.			International						Consolidated
	Insurance			Insurance			Reinsurance			Totals
Revenues
Gross premiums written	$	470,185		$	297,183		$	560,431		$	1,327,799
Net premiums written	$	350,507		$	183,951		$	549,205		$	1,083,663
Net premiums earned	$	316,143		$	162,476		$	353,018		$	831,637

Total revenues	$	316,143		$	162,476		$	353,018		$	831,637


Expenses
Net losses and loss expenses	$	200,778		$	60,333		$	204,471		$	465,582
Acquisition costs		41,222			(1,110	)		58,614			98,726
General and administrative expenses		65,774			44,049			34,522			144,345

Total expenses	$	307,774		$	103,272		$	297,607		$	708,653


Underwriting income	$	8,369		$	59,204		$	55,411		$	122,984

Net investment income											89,660
Net realized investment gains											142,244
Amortization of intangible assets											(1,267	)
Interest expense											(27,757	)
Foreign exchange gain											1,100

Income before income taxes										$	326,964


GAAP Ratios
Loss and loss expense ratio		63.5	%		37.1	%		57.9	%		56.0	%
Acquisition cost ratio		13.0	%		(0.7	%)		16.6	%		11.9	%
General and administrative expense ratio		20.8	%		27.1	%		9.8	%		17.3	%

Expense ratio		33.8	%		26.4	%		26.4	%		29.2	%

Combined ratio		97.3	%		63.5	%		84.3	%		85.2	%

Page 12

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

GROSS PREMIUMS WRITTEN BY SEGMENT AND GEOGRAPHIC LOCATION


	Three Months Ended										Six Months Ended
	June 30, 2013					June 30, 2012					June 30, 2013					June 30, 2012
	Amount		% of Total			Amount		% of Total			Amount		% of Total			Amount		% of Total
Gross Premiums Written by Segment
U.S. Insurance	$	307,297		40.2	%	$	265,974		41.1	%	$	563,315		35.2	%	$	470,185		35.4	%
International Insurance		192,593		25.2	%		183,593		28.4	%		321,109		20.0	%		297,183		22.4	%
Reinsurance		265,310		34.6	%		197,303		30.5	%		717,857		44.8	%		560,431		42.2	%

Total	$	765,200		100.0	%	$	646,870		100.0	%	$	1,602,281		100.0	%	$	1,327,799		100.0	%


Gross Premiums Written by Underwriting Location
United States	$	440,151		57.5	%	$	349,577		54.0	%	$	918,594		57.3	%	$	738,548		55.6	%
Bermuda		211,040		27.6	%		193,195		29.9	%		439,712		27.4	%		375,358		28.3	%
Europe		60,234		7.9	%		60,008		9.3	%		146,743		9.2	%		135,384		10.2	%
Singapore		48,918		6.4	%		40,128		6.2	%		87,031		5.4	%		69,311		5.2	%
Hong Kong		4,857		0.6	%		3,962		0.6	%		10,201		0.7	%		9,198		0.7	%

Total	$	765,200		100.0	%	$	646,870		100.0	%	$	1,602,281		100.0	%	$	1,327,799		100.0	%


Direct Premiums Written by Insured Location⁽¹⁾
United States	$	435,364		87.1	%	$	390,585		86.9	%	$	774,307		87.5	%	$	662,248		86.3	%
United Kingdom		17,464		3.5	%		13,999		3.1	%		30,275		3.4	%		24,282		3.2	%
Australia		4,976		1.0	%		4,353		1.0	%		9,658		1.1	%		9,474		1.2	%
Germany		3,395		0.7	%		5,408		1.2	%		8,093		0.9	%		12,545		1.6	%
Canada		2,787		0.6	%		2,732		0.6	%		4,701		0.5	%		4,743		0.6	%
All other		35,904		7.1	%		32,490		7.2	%		57,390		6.6	%		54,076		7.1	%

Total	$	499,890		100.0	%	$	449,567		100.0	%	$	884,424		100.0	%	$	767,368		100.0	%

(1)	Excludes reinsurance segment gross premiums written.

Page 13

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

GROSS PREMIUMS WRITTEN BY LINE OF BUSINESS


	Three Months Ended										Six Months Ended
	June 30, 2013					June 30, 2012					June 30, 2013					June 30, 2012
	Amount		% of Total			Amount		% of Total			Amount		% of Total			Amount		% of Total
U.S. Insurance
General casualty	$	97,363		31.7	%	$	78,323		29.4	%	$	164,244		29.2	%	$	126,749		27.0	%
Professional liability		64,442		21.0	%		66,655		25.1	%		127,528		22.6	%		125,857		26.8	%
Healthcare		46,517		15.1	%		46,241		17.4	%		100,039		17.8	%		93,276		19.8	%
General property		35,641		11.6	%		37,210		14.0	%		55,294		9.8	%		55,639		11.8	%
Programs		33,659		11.0	%		25,579		9.6	%		66,601		11.8	%		48,888		10.4	%
Other		29,675		9.6	%		11,966		4.5	%		49,609		8.8	%		19,776		4.2	%

Total	$	307,297		100.0	%	$	265,974		100.0	%	$	563,315		100.0	%	$	470,185		100.0	%


International Insurance
General property	$	65,180		33.8	%	$	61,276		33.4	%	$	103,868		32.3	%	$	98,017		33.0	%
Professional liability		57,204		29.7	%		52,872		28.8	%		90,363		28.1	%		83,816		28.2	%
General casualty		44,398		23.1	%		43,110		23.5	%		68,362		21.3	%		64,850		21.8	%
Healthcare		21,189		11.0	%		20,291		11.1	%		47,717		14.9	%		40,330		13.6	%
Other		4,622		2.4	%		6,044		3.2	%		10,799		3.4	%		10,170		3.4	%

Total	$	192,593		100.0	%	$	183,593		100.0	%	$	321,109		100.0	%	$	297,183		100.0	%


Reinsurance
Property	$	152,403		57.4	%	$	121,750		61.7	%	$	364,018		50.7	%	$	275,349		49.1	%
Casualty		76,755		28.9	%		52,815		26.8	%		174,291		24.3	%		148,393		26.5	%
Specialty		36,152		13.7	%		22,738		11.5	%		179,548		25.0	%		136,689		24.4	%

Total	$	265,310		100.0	%	$	197,303		100.0	%	$	717,857		100.0	%	$	560,431		100.0	%

Page 14

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED INCURRED LOSS ANALYSIS BY SEGMENT


	Three Months Ended												Six Months Ended
	June 30, 2013						June 30, 2012						June 30, 2013						June 30, 2012
	Amount			% of NPE⁽¹⁾			Amount			% of NPE⁽¹⁾			Amount			% of NPE⁽¹⁾			Amount			% of NPE⁽¹⁾
U.S. Insurance
Current year - non-catastrophe	$	127,306			64.5	%	$	109,251			67.1	%	$	250,083			64.8	%	$	214,160			67.7	%
Current year - property catastrophe		—			0.0	%		—			0.0	%		—			0.0	%		—			0.0	%
Prior year - increase (decrease)		(2,942	)		(1.5	%)		(6,177	)		(3.8	%)		7,605			2.0	%		(13,382	)		(4.2	%)

Net losses and loss expenses	$	124,364			63.0	%	$	103,074			63.3	%	$	257,688			66.8	%	$	200,778			63.5	%


International Insurance
Current year - non-catastrophe	$	56,664			65.1	%	$	51,343			62.1	%	$	115,263			67.3	%	$	109,740			67.5	%
Current year - property catastrophe		—			0.0	%		—			0.0	%		—			0.0	%		—			0.0	%
Prior year - increase (decrease)		(25,696	)		(29.5	%)		(29,110	)		(35.2	%)		(55,360	)		(32.3	%)		(49,407	)		(30.4	%)

Net losses and loss expenses	$	30,968			35.6	%	$	22,233			26.9	%	$	59,903			35.0	%	$	60,333			37.1	%


Reinsurance
Current year - non-catastrophe	$	139,586			62.7	%	$	121,708			66.0	%	$	257,458			62.3	%	$	223,086			63.2	%
Current year - property catastrophe		—			0.0	%		—			0.0	%		—			0.0	%		—			0.0	%
Prior year - increase (decrease)		(19,790	)		(8.9	%)		(6,635	)		(3.6	%)		(44,743	)		(10.8	%)		(18,615	)		(5.3	%)

Net losses and loss expenses	$	119,796			53.8	%	$	115,073			62.4	%	$	212,715			51.5	%	$	204,471			57.9	%


Consolidated
Current year - non-catastrophe	$	323,556			63.7	%	$	282,302			65.7	%	$	622,804			64.1	%	$	546,986			65.8	%
Current year - property catastrophe		—			0.0	%		—			0.0	%		—			0.0	%		—			0.0	%
Prior year - increase (decrease)		(48,428	)		(9.5	%)		(41,922	)		(9.8	%)		(92,498	)		(9.5	%)		(81,404	)		(9.8	%)

Net losses and loss expenses	$	275,128			54.2	%	$	240,380			55.9	%	$	530,306			54.6	%	$	465,582			56.0	%

(1)	“NPE” means net premiums earned.

Page 15

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NET LOSS RESERVE DEVELOPMENT BY LOSS YEAR – CURRENT QUARTER AND YEAR TO DATE


(Favorable) Unfavorable	Three Months Ended June 30, 2013
Development ($ in millions)	Prior			2004			2005			2006			2007			2008			2009			2010			2011			2012			Total

U.S. Insurance
General casualty	$	—		$	(0.3	)	$	(0.2	)	$	—		$	(1.2	)	$	(1.4	)	$	0.3		$	—		$	0.8		$	0.5		$	(1.5	)
Programs		—			—			—			(1.4	)		(1.7	)		0.1			(0.1	)		(1.8	)		(0.2	)		1.4			(3.7	)
General property		—			0.1			—			0.3			(0.2	)		(1.3	)		0.1			(2.5	)		1.6			—			(1.9	)
Healthcare		—			(0.7	)		(0.7	)		(1.7	)		(1.5	)		(3.6	)		(1.3	)		(1.0	)		10.1			2.2			1.8
Professional liability		—			—			(0.5	)		3.2			(1.5	)		(4.3	)		0.7			(1.8	)		1.3			5.0			2.1
Other		—			—			—			—			—			—			—			(0.1	)		(0.4	)		0.8			0.3

Total	$	—		$	(0.9	)	$	(1.4	)	$	0.4		$	(6.1	)	$	(10.5	)	$	(0.3	)	$	(7.2	)	$	13.2		$	9.9		$	(2.9	)


International Insurance
General casualty	$	6.6		$	(0.7	)	$	(1.4	)	$	(3.3	)	$	(2.4	)	$	(2.0	)	$	1.7		$	—		$	(0.2	)	$	—		$	(1.7	)
General property		—			—			(0.1	)		0.2			0.8			(0.4	)		(3.7	)		(2.7	)		(1.6	)		(4.9	)		(12.4	)
Professional liability		(0.2	)		(4.7	)		4.5			(1.4	)		(5.5	)		—			(6.1	)		(0.1	)		(0.1	)		—			(13.6	)
Healthcare		—			(0.2	)		(0.1	)		(0.4	)		(0.4	)		(0.4	)		3.9			(0.2	)		(0.2	)		—			2.0

Total	$	6.4		$	(5.6	)	$	2.9		$	(4.9	)	$	(7.5	)	$	(2.8	)	$	(4.2	)	$	(3.0	)	$	(2.1	)	$	(4.9	)	$	(25.7	)


Reinsurance
Property	$	—		$	0.1		$	(0.5	)	$	0.1		$	—		$	(0.1	)	$	—		$	(0.6	)	$	(1.5	)	$	(22.6	)	$	(25.1	)
Casualty		(0.3	)		(1.1	)		(0.1	)		0.8			—			(1.1	)		(0.1	)		0.7			3.3			5.3			7.4
Specialty		—			(0.3	)		(0.4	)		0.4			—			(2.7	)		1.5			—			0.8			(1.4	)		(2.1	)

Total	$	(0.3	)	$	(1.3	)	$	(1.0	)	$	1.3		$	—		$	(3.9	)	$	1.4		$	0.1		$	2.6		$	(18.7	)	$	(19.8	)


Consolidated
U.S. insurance	$	—		$	(0.9	)	$	(1.4	)	$	0.4		$	(6.1	)	$	(10.5	)	$	(0.3	)	$	(7.2	)	$	13.2		$	9.9		$	(2.9	)
International insurance		6.4			(5.6	)		2.9			(4.9	)		(7.5	)		(2.8	)		(4.2	)		(3.0	)		(2.1	)		(4.9	)		(25.7	)
Reinsurance		(0.3	)		(1.3	)		(1.0	)		1.3			—			(3.9	)		1.4			0.1			2.6			(18.7	)		(19.8	)

Total	$	6.1		$	(7.8	)	$	0.5		$	(3.2	)	$	(13.6	)	$	(17.2	)	$	(3.1	)	$	(10.1	)	$	13.7		$	(13.7	)	$	(48.4	)


(Favorable) Unfavorable	Six Months Ended June 30, 2013
Development ($ in millions)	Prior			2004			2005			2006			2007			2008			2009			2010			2011			2012			Total

U.S. Insurance
General casualty	$	—		$	(0.7	)	$	(0.5	)	$	—		$	(4.5	)	$	(3.1	)	$	0.1		$	—		$	2.0		$	0.5		$	(6.2	)
Programs		—			—			—			(1.4	)		(3.3	)		0.2			(0.7	)		(2.7	)		(0.6	)		2.8			(5.7	)
General property		—			0.1			—			0.3			(0.2	)		(1.3	)		(1.3	)		(0.2	)		1.5			2.0			0.9
Healthcare		(0.1	)		(1.0	)		(1.6	)		(2.7	)		(2.3	)		(6.2	)		(1.2	)		(1.6	)		13.1			9.0			5.4
Professional liability		—			(0.5	)		(1.4	)		2.7			(2.7	)		(3.8	)		0.1			(2.7	)		2.1			18.3			12.1
Other		—			—			—			—			—			—			—			(0.1	)		(0.4	)		1.6			1.1

Total	$	(0.1	)	$	(2.1	)	$	(3.5	)	$	(1.1	)	$	(13.0	)	$	(14.2	)	$	(3.0	)	$	(7.3	)	$	17.7		$	34.2		$	7.6


International Insurance
General casualty	$	6.3		$	2.4		$	(7.0	)	$	(6.7	)	$	(8.7	)	$	(4.7	)	$	(1.2	)	$	(0.2	)	$	—		$	0.9		$	(18.9	)
General property		—			—			(0.1	)		(0.2	)		1.1			(1.0	)		(3.5	)		(4.0	)		(9.5	)		(8.1	)		(25.3	)
Professional liability		(0.3	)		(5.0	)		3.3			(2.9	)		(10.9	)		0.3			(6.5	)		(0.4	)		(0.1	)		—			(22.5	)
Healthcare		(0.1	)		(0.3	)		(0.5	)		(1.1	)		8.2			(4.5	)		10.6			(0.9	)		(0.1	)		—			11.3

Total	$	5.9		$	(2.9	)	$	(4.3	)	$	(10.9	)	$	(10.3	)	$	(9.9	)	$	(0.6	)	$	(5.5	)	$	(9.7	)	$	(7.2	)	$	(55.4	)


Reinsurance
Property	$	—		$	0.1		$	(2.3	)	$	0.1		$	—		$	(0.2	)	$	(0.1	)	$	(2.9	)	$	(8.5	)	$	(35.5	)	$	(49.3	)
Casualty		0.2			(1.2	)		(0.3	)		0.7			(2.2	)		(3.6	)		(0.4	)		0.9			3.3			5.3			2.7
Specialty		—			(0.3	)		(0.5	)		0.3			—			(3.1	)		0.9			(0.1	)		2.3			2.4			1.9

Total	$	0.2		$	(1.4	)	$	(3.1	)	$	1.1		$	(2.2	)	$	(6.9	)	$	0.4		$	(2.1	)	$	(2.9	)	$	(27.8	)	$	(44.7	)


Consolidated
U.S. insurance	$	(0.1	)	$	(2.1	)	$	(3.5	)	$	(1.1	)	$	(13.0	)	$	(14.2	)	$	(3.0	)	$	(7.3	)	$	17.7		$	34.2		$	7.6
International insurance		5.9			(2.9	)		(4.3	)		(10.9	)		(10.3	)		(9.9	)		(0.6	)		(5.5	)		(9.7	)		(7.2	)		(55.4	)
Reinsurance		0.2			(1.4	)		(3.1	)		1.1			(2.2	)		(6.9	)		0.4			(2.1	)		(2.9	)		(27.8	)		(44.7	)

Total	$	6.0		$	(6.4	)	$	(10.9	)	$	(10.9	)	$	(25.5	)	$	(31.0	)	$	(3.2	)	$	(14.9	)	$	5.1		$	(0.8	)	$	(92.5	)

Page 16

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NET LOSS RESERVE DEVELOPMENT BY LOSS YEAR – PRIOR QUARTER AND YEAR TO DATE


(Favorable) Unfavorable	Three Months Ended June 30, 2012
Development ($ in millions)	Prior			2004			2005			2006			2007			2008			2009			2010			2011			Total

U.S. Insurance
General casualty	$	(0.2	)	$	(0.3	)	$	(0.3	)	$	(3.7	)	$	(0.1	)	$	(1.2	)	$	(0.4	)	$	(0.1	)	$	—		$	(6.3	)
Programs		—			—			—			(0.1	)		(0.1	)		—			(0.1	)		3.8			2.6			6.1
General property		—			0.4			(0.1	)		—			—			0.3			—			(0.1	)		—			0.5
Healthcare		(0.2	)		(1.6	)		0.4			(0.3	)		(0.8	)		1.1			(1.2	)		0.1			0.5			(2.0	)
Professional liability		—			—			(0.2	)		0.2			(8.3	)		0.6			(1.0	)		0.8			4.1			(3.8	)
Other		—			—			—			—			—			—			—			—			(0.7	)		(0.7	)

Total	$	(0.4	)	$	(1.5	)	$	(0.2	)	$	(3.9	)	$	(9.3	)	$	0.8		$	(2.7	)	$	4.5		$	6.5		$	(6.2	)


International Insurance
General casualty	$	6.5		$	(1.9	)	$	(3.1	)	$	(2.5	)	$	(6.1	)	$	(3.1	)	$	—		$	—		$	—		$	(10.2	)
General property		—			0.1			(2.5	)		(0.2	)		0.2			(2.1	)		(1.2	)		—			(1.3	)		(7.0	)
Professional liability		(0.1	)		(1.2	)		(1.4	)		(8.3	)		(1.1	)		4.7			—			—			—			(7.4	)
Healthcare		(0.2	)		(0.3	)		(0.5	)		(0.4	)		(0.5	)		(2.6	)		—			—			—			(4.5	)

Total	$	6.2		$	(3.3	)	$	(7.5	)	$	(11.4	)	$	(7.5	)	$	(3.1	)	$	(1.2	)	$	—		$	(1.3	)	$	(29.1	)


Reinsurance
Property	$	—		$	(0.1	)	$	—		$	(0.1	)	$	(0.1	)	$	—		$	1.1		$	(5.9	)	$	5.4		$	0.3
Casualty		1.4			(0.5	)		1.1			(3.4	)		(3.6	)		(0.6	)		(0.1	)		(0.1	)		4.7			(1.1	)
Specialty		(0.2	)		(1.1	)		(1.4	)		(1.3	)		(1.6	)		(0.1	)		—			0.2			(0.3	)		(5.8	)

Total	$	1.2		$	(1.7	)	$	(0.3	)	$	(4.8	)	$	(5.3	)	$	(0.7	)	$	1.0		$	(5.8	)	$	9.8		$	(6.6	)


Consolidated
U.S. insurance	$	(0.4	)	$	(1.5	)	$	(0.2	)	$	(3.9	)	$	(9.3	)	$	0.8		$	(2.7	)	$	4.5		$	6.5		$	(6.2	)
International insurance		6.2			(3.3	)		(7.5	)		(11.4	)		(7.5	)		(3.1	)		(1.2	)		—			(1.3	)		(29.1	)
Reinsurance		1.2			(1.7	)		(0.3	)		(4.8	)		(5.3	)		(0.7	)		1.0			(5.8	)		9.8			(6.6	)

Total	$	7.0		$	(6.5	)	$	(8.0	)	$	(20.1	)	$	(22.1	)	$	(3.0	)	$	(2.9	)	$	(1.3	)	$	15.0		$	(41.9	)


(Favorable) Unfavorable	Six Months Ended June 30, 2012
Development ($ in millions)	Prior			2004			2005			2006			2007			2008			2009			2010			2011			Total

U.S. Insurance
General casualty	$	(0.4	)	$	0.9		$	(0.6	)	$	(8.1	)	$	(0.1	)	$	(1.0	)	$	(0.4	)	$	(0.1	)	$	—		$	(9.8	)
Programs		—			—			—			(0.1	)		(0.2	)		(0.6	)		—			7.3			3.8			10.2
General property		—			0.7			(0.3	)		—			(0.2	)		1.7			(0.4	)		(0.5	)		1.1			2.1
Healthcare		0.3			(2.7	)		(2.6	)		(2.3	)		(2.8	)		1.1			(1.7	)		3.5			0.5			(6.7	)
Professional liability		—			(0.1	)		(0.3	)		0.1			(15.1	)		(0.1	)		(2.8	)		(0.9	)		10.2			(9.0	)
Other		—			—			—			—			—			—			—			—			(0.2	)		(0.2	)

Total	$	(0.1	)	$	(1.2	)	$	(3.8	)	$	(10.4	)	$	(18.4	)	$	1.1		$	(5.3	)	$	9.3		$	15.4		$	(13.4	)


International Insurance
General casualty	$	4.2		$	(3.1	)	$	(4.8	)	$	(11.4	)	$	(7.2	)	$	(7.6	)	$	—		$	—		$	20.0		$	(9.9	)
General property		—			0.2			(1.5	)		(1.0	)		1.1			(2.2	)		(1.8	)		(6.6	)		3.1			(8.7	)
Professional liability		(0.2	)		(2.3	)		(3.1	)		(15.1	)		(7.2	)		7.0			—			—			—			(20.9	)
Healthcare		(0.7	)		(0.6	)		(1.1	)		(0.8	)		(4.1	)		(2.6	)		—			—			—			(9.9	)

Total	$	3.3		$	(5.8	)	$	(10.5	)	$	(28.3	)	$	(17.4	)	$	(5.4	)	$	(1.8	)	$	(6.6	)	$	23.1		$	(49.4	)


Reinsurance
Property	$	—		$	(0.8	)	$	0.2		$	(0.1	)	$	0.1		$	(0.3	)	$	2.0		$	(1.2	)	$	5.5		$	5.4
Casualty		1.1			3.2			(2.7	)		(5.1	)		(9.4	)		(1.2	)		(0.1	)		(0.1	)		5.0			(9.3	)
Specialty		(0.3	)		(3.2	)		(5.1	)		(1.8	)		(2.2	)		(0.1	)		—			—			(2.0	)		(14.7	)

Total	$	0.8		$	(0.8	)	$	(7.6	)	$	(7.0	)	$	(11.5	)	$	(1.6	)	$	1.9		$	(1.3	)	$	8.5		$	(18.6	)


Consolidated
U.S. insurance	$	(0.1	)	$	(1.2	)	$	(3.8	)	$	(10.4	)	$	(18.4	)	$	1.1		$	(5.3	)	$	9.3		$	15.4		$	(13.4	)
International insurance		3.3			(5.8	)		(10.5	)		(28.3	)		(17.4	)		(5.4	)		(1.8	)		(6.6	)		23.1			(49.4	)
Reinsurance		0.8			(0.8	)		(7.6	)		(7.0	)		(11.5	)		(1.6	)		1.9			(1.3	)		8.5			(18.6	)

Total	$	4.0		$	(7.8	)	$	(21.9	)	$	(45.7	)	$	(47.3	)	$	(5.9	)	$	(5.2	)	$	1.4		$	47.0		$	(81.4	)

Page 17

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

RESERVE FOR LOSSES AND LOSS EXPENSES


	As of June 30, 2013
	U.S.			International						Consolidated
	Insurance			Insurance			Reinsurance			Total

Case reserves (net of reinsurance recoverable)	$	441,131		$	380,894		$	463,778		$	1,285,803
IBNR (net of reinsurance recoverable)		1,014,460			1,193,676			1,023,401			3,231,537

Total	$	1,455,591		$	1,574,570		$	1,487,179		$	4,517,340

IBNR/Total reserves (net of reinsurance recoverable)		69.7	%		75.8	%		68.8	%		71.5	%


	As of December 31, 2012
	U.S.			International						Consolidated
	Insurance			Insurance			Reinsurance			Total

Case reserves (net of reinsurance recoverable)	$	402,473		$	422,859		$	479,546		$	1,304,878
IBNR (net of reinsurance recoverable)		978,414			1,223,229			997,918			3,199,561

Total	$	1,380,887		$	1,646,088		$	1,477,464		$	4,504,439

IBNR/Total reserves (net of reinsurance recoverable)		70.9	%		74.3	%		67.5	%		71.0	%

Page 18

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

REINSURANCE RECOVERABLE


	June 30, 2013								December 31, 2012
Top Ten Reinsurers	A.M. Best Rating	Reinsurance Recoverable		Percentage			Collateral		A.M. Best Rating	Reinsurance Recoverable		Percentage			Collateral

Munich Re	A+	$	182,390		15.5	%	$	41,638	A+	$	165,036		14.5	%	$	26,379
Arch Re	A+		146,605		12.4	%		3,857	A+		148,553		13.0	%		6,318
Axis Capital	A		139,630		11.8	%		6,485	A		137,459		12.0	%		17,046
Platinum Underwriters	A		103,985		8.8	%		—	A		104,536		9.2	%		—
Odyssey Reinsurance Company	A		85,873		7.3	%		—	A		86,854		7.6	%		—
Markel (including Alterra)	A		81,196		6.9	%		41,512	A		76,649		6.7	%		53,936
XL Group	A		64,034		5.4	%		30,468	A		57,142		5.0	%		30,409
National Indemnity Company	A++		59,712		5.1	%		—	A++		60,708		5.3	%		—
Transatlantic Holdings, Inc.	A		53,671		4.6	%		—	A		54,337		4.8	%		—
Swiss Re	A+		40,674		3.4	%		—	A+		32,080		2.8	%		—

Top ten reinsurers			957,770		81.2	%		123,960			923,354		80.9	%		134,088
Other reinsurers’ balances			221,755		18.8	%		14,343			217,756		19.1	%		12,452

Total reinsurance recoverable		$	1,179,525		100.0	%	$	138,303		$	1,141,110		100.0	%	$	146,540


A.M Best Rating		Reinsurance Recoverable		Percentage			Collateral			Reinsurance Recoverable		Percentage			Collateral

A++		$	74,544		6.3	%	$	—		$	78,053		6.7	%	$	—
A+			462,621		39.2	%		52,423			440,027		38.6	%		38,963
A			633,232		53.7	%		84,616			612,780		53.7	%		107,577
A-			1,100		0.1	%		—			592		0.1	%		—

Total “A-” or higher			1,171,497		99.3	%		137,039			1,131,452		99.1	%		146,540
B++			3,947		0.3	%		1,264			5,296		0.5	%		—
NR			4,081		0.4	%		—			4,362		0.4	%		—

Total reinsurance recoverable		$	1,179,525		100.0	%	$	138,303		$	1,141,110		100.0	%	$	146,540

Page 19

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CONSOLIDATED TOTAL INVESTMENT PORTFOLIO


	June 30, 2013							December 31, 2012
				Average	Portfolio						Average	Portfolio
	Fair Value			Rating	Percentage			Fair Value			Rating	Percentage
Cash and cash equivalents	$	868,149		AAA		10.0	%	$	865,364		AAA		9.8	%
U.S. government securities		1,709,513		AA+		19.7	%		1,529,158		AA+		17.3	%
U.S. government agencies		339,699		AA+		3.9	%		336,755		AA+		3.8	%
Non-U.S. government and government agencies		233,301		AA+		2.7	%		261,627		AA+		3.0	%
State, municipalities and political subdivisions		33,621		AA-		0.4	%		40,444		AA-		0.5	%
Mortgage-backed securities:
Agency MBS		1,037,451		AA+		12.0	%		1,400,917		AA+		15.9	%
Non-agency RMBS		84,355		A-		1.0	%		90,256		BBB+		1.0	%
Non-agency high yield mandate		181,559		CCC+		2.1	%		176,776		CCC		2.0	%
CMBS		285,656		AA+		3.3	%		290,424		AA+		3.4	%

Total mortgage-backed securities		1,589,021				18.4	%		1,958,373				22.3	%
Corporate securities:
Financials		794,552		A+		9.2	%		866,140		A+		9.8	%
Industrials		1,089,904		BBB		12.6	%		1,153,909		BBB-		13.1	%
Utilities		66,684		BBB		0.8	%		69,153		BBB-		0.8	%

Total corporate securities		1,951,140				22.6	%		2,089,202				23.7	%
Asset-backed securities:
Credit cards		24,634		AAA		0.3	%		24,906		AAA		0.3	%
Auto receivables		25,440		AAA		0.3	%		31,251		AAA		0.4	%
Student Loans		112,462		AA+		1.3	%		133,042		AA+		1.5	%
Collateralized loan obligations		213,631		AA+		2.5	%		190,196		AA+		2.2	%
Other		53,316		AAA		0.6	%		31,500		AAA		0.3	%

Total asset-backed securities		429,483				5.0	%		410,895				4.7	%
Other invested assets:
Private equity		190,072		N/A		2.2	%		151,009		N/A		1.7	%
Hedge funds		492,156		N/A		5.7	%		504,879		N/A		5.7	%
Other private securities		134,709		N/A		1.6	%		127,646		N/A		1.5	%
High yield loan fund		32,163		N/A		0.4	%		—		N/A		0.0	%

Total other invested assets		849,100				9.9	%		783,534				8.9	%
Equities		640,925		N/A		7.4	%		523,949		N/A		6.0	%

Total investment portfolio	$	8,643,952				100.0	%	$	8,799,301				100.0	%


Annualized book yield, year to date		1.7	%						2.1	%
Duration*		2.2 years							2.0 years
Average credit quality (S&P)		AA-							AA-

*	Includes only cash and cash equivalents and fixed maturity investments.

Page 20

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

ADDITIONAL INVESTMENT DETAIL


Other Invested Assets:					Top 10 Corporate Exposures:
Fund Details	Carrying Value June 30, 2013		Unfunded Commitments		Corporate	Fair Value June 30, 2013		Portfolio Percentage
Private Equity:					Bank of America Corp.	$	42,234		0.5	%
Primary and secondary	$	125,950	$	160,490	Morgan Stanley		41,045		0.5	%
Mezzanine debt		55,232		209,623	JPMorgan Chase & Co.		40,154		0.5	%
Distressed		8,890		6,174	Citigroup Inc.		39,858		0.5	%

Total private equity		190,072		376,287	General Electric Co.		37,739		0.4	%

Hedge Funds:					Verizon Communications Inc.		32,746		0.4	%
Distressed		136,779		—	Wells Fargo & Co.		29,107		0.3	%
Equity long/short		110,889		—	Swedbank AB		28,072		0.3	%
Multi-strategy		127,107		—	American Express Co.		25,118		0.3	%
Global macro		19,842		—	Anheuser-Busch InBev NV		24,810		0.3	%
Event driven		22,430		—
Relative value credit		75,109		—

Total hedge funds		492,156		—

Other private securities		134,709		5,000
High yield loan fund		32,163		—

Total other invested assets	$	849,100	$	381,287


Fixed Income Credit Quality:	June 30, 2013					December 31, 2012
Rating	Fair Value		Percentage			Fair Value		Percentage
U.S. government and agencies	$	2,049,212		32.6	%	$	1,865,913		28.2	%
AAA/Aaa		761,074		12.1	%		866,692		13.1	%
AA/Aa		1,568,600		25.0	%		1,905,341		28.8	%
A/A		903,386		14.4	%		876,080		13.2	%
BBB/Baa		352,791		5.5	%		393,878		5.9	%

Total BBB/Baa and above		5,635,063		89.6	%		5,907,904		89.2	%
BB/Bb		201,568		3.2	%		245,888		3.7	%
B/B		301,303		4.8	%		262,317		4.0	%
CCC+ and below		147,844		2.4	%		210,345		3.1	%

Total	$	6,285,778		100.0	%	$	6,626,454		100.0	%

Page 21

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

ADDITIONAL INVESTMENT DETAIL

TOTAL EXPOSURE BY ASSET TYPE AND REGION - JUNE 30, 2013


				Sovereign
				Guaranteed				Mortgage-Backed Securities						Asset-		Corporate Securities
				Financial		State and		Agency						Backed								Equity		Total
Region	Country	Sovereign*		Institutions		Municipalities		MBS		MBS		CMBS		Securities		Financials		Industrials		Utilities		Securities		Exposure

Africa	South Africa	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	5,862	$	—	$	—	$	5,862


Australia	Australia		27,833		45,024		—		—		—		—		—		18,550		21,188		—		27,471		140,066


Europe	Belgium		—		—		—		—		—		—		—		—		18,910		—		—		18,910
	France		—		—		—		—		—		—		3,490		20,741		17,543		—		2,715		44,489
	Germany		54,296		909		—		—		—		3,658		2,197		1,309		6,579		—		—		68,948
	Ireland		—		—		—		—		—		—		1,363		—		749		—		—		2,112
	Italy		—		—		—		—		—		—		—		483		774		—		—		1,257
	Luxembourg		—		—		—		—		—		—		—		—		16,920		—		—		16,920
	Netherlands		—		36,012		—		—		—		—		—		28,683		16,078		—		19,078		99,851
	Norway		6,748		—		—		—		—		—		—		20,870		2,747		—		2,596		32,961
	Russia		—		—		—		—		—		—		—		2,535		9,980		2,002		—		14,517
	Spain		—		—		—		—		—		—		—		5,565		13,477		—		—		19,042
	Sweden		5,823		—		—		—		—		—		—		44,095		—		—		—		49,918
	Switzerland		2,261		—		—		—		—		—		—		7,494		559		—		32,834		43,148
	United Kingdom		23,935		5,079		—		—		2,148		—		14,910		39,930		65,323		434		14,159		165,918

	Total		93,063		42,000		—		—		2,148		3,658		21,960		171,705		169,639		2,436		71,382		577,991


Latin	Brazil		—		—		—		—		—		—		—		707		8,098		—		5,128		13,933
America	Chile		—		—		—		—		—		—		—		430		—		—		—		430
	Mexico		25,205		—		—		—		—		—		—		—		1,828		—		14,933		41,966
	Puerto Rico		—		—		—		—		—		—		—		—		72		—		—		72

	Total		25,205		—		—		—		—		—		—		1,137		9,998		—		20,061		56,401


North	Bermuda		—		—		—		—		—		—		—		—		2,114		—		1,993		4,107
America	Canada		59,208		—		—		—		—		—		—		60,046		50,082		7,527		32,845		209,708
	Cayman Islands		—		—		—		—		—		—		181,809		—		177		—		—		181,986
	United States		2,076,297		—		33,621		1,037,451		185,984		359,780		225,714		432,002		817,057		53,538		352,326		5,573,770

	Total		2,135,505		—		33,621		1,037,451		185,984		359,780		407,523		492,048		869,430		61,065		387,164		5,969,571


Asia /	China		—		—		—		—		—		—		—		—		4,189		—		65,860		70,049
Middle East	Hong Kong		—		—		—		—		—		—		—		—		—		—		5,713		5,713
	Israel		—		—		—		—		—		—		—		—		616		—		1,873		2,489
	Japan		—		—		—		—		—		—		—		22,047		4,963		—		6,313		33,323
	Philippines		—		—		—		—		—		—		—		—		—		—		8,185		8,185
	Qatar		—		—		—		—		—		—		—		—		309		—		—		309
	Singapore		—		—		—		—		—		—		—		—		—		—		46,903		46,903
	South Korea		—		—		—		—		—		—		—		2,129		—		3,183		—		5,312
	Taiwan		—		—		—		—		—		—		—		—		3,710		—		—		3,710
	UAE		—		—		—		—		—		—		—		819		—		—		—		819

	Total		—		—		—		—		—		—		—		24,995		13,787		3,183		134,847		176,812



	Grand Total	$	2,281,606	$	87,024	$	33,621	$	1,037,451	$	188,132	$	363,438	$	429,483	$	708,435	$	1,089,904	$	66,684	$	640,925	$	6,926,703

*	Allied World has no direct exposure to any of the Sovereign governments of Portugal, Italy, Ireland, Greece or Spain.

Page 22

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

INVESTMENT INCOME, BOOK YIELD AND PORTFOLIO RETURN


	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2013			2012			2013			2012
NET INVESTMENT INCOME
Fixed maturity investments	$	32,662		$	37,219		$	65,187		$	84,105
Equity securities		4,409			4,963			7,608			8,495
Other invested assets: hedge funds and private equity		725			3,681			2,189			4,223
Other invested assets: other private securities		3,118			—			3,118			—
Cash and cash equivalents		529			550			1,017			1,157
Expenses		(3,808	)		(3,962	)		(8,096	)		(8,320	)

Net investment income	$	37,635		$	42,451		$	71,023		$	89,660


NET REALIZED INVESTMENT (LOSSES) GAINS
Net realized gains (losses) on sale:
Fixed maturity investments	$	7,624		$	38,067		$	29,550		$	64,504
Equity securities		6,391			1,609			16,187			(1,014	)
Other invested assets: hedge funds and private equity		9,131			(1,663	)		14,693			(8,215	)
Mark-to-market gains (losses):
Fixed maturity investments		(115,113	)		(24,287	)		(131,588	)		44,203
Equity securities		(34,330	)		(182	)		(1,357	)		19,603
Other invested assets: hedge funds and private equity		2,561			1,033			29,393			22,393
Net realized and unrealized gains (losses) on derivatives		8,538			(5,914	)		7,561			770

Net realized investment (losses) gains	$	(115,198	)	$	8,663		$	(35,561	)	$	142,244


CHANGE IN NET UNREALIZED GAINS ON INVESTMENTS	$	—		$	(1,401	)	$	—		$	(15,443	)

TOTAL FINANCIAL STATEMENT PORTFOLIO RETURN	$	(77,563	)	$	49,713		$	35,462		$	216,461


ANNUALIZED INVESTMENT BOOK YIELD
Net investment income, recurring	$	37,635		$	42,451		$	71,023		$	89,660
Annualized net investment income		150,540			169,804			142,046			179,320
Average aggregate invested assets, at cost	$	8,239,006		$	8,102,826		$	8,247,988		$	8,080,393

Annualized investment book yield		1.8	%		2.1	%		1.7	%		2.2	%


FINANCIAL STATEMENT PORTFOLIO RETURN
Total financial statement portfolio return	$	(77,563	)	$	49,713		$	35,462		$	216,461
Average aggregate invested assets, at fair value	$	8,459,473		$	8,276,111		$	8,446,080		$	8,203,819

Financial statement portfolio return		(0.9	%)		0.6	%		0.4	%		2.6	%

Page 23

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

OPERATING INCOME RECONCILIATION AND

BASIC AND DILUTED EARNINGS PER SHARE INFORMATION


	Three Months Ended															Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			June 30,		June 30,
	2013			2013			2012			2013			2012			2013		2012

Net (loss) income	$	(1,862	)	$	158,992		$	(41,147	)	$	219,647		$	96,351		$	157,130	$	314,507
Add after tax effect of:
Net realized investment losses (gains)		104,897			(77,342	)		(15,104	)		(141,451	)		(8,014	)		27,555		(134,584	)
Foreign exchange loss (gain)		490			2,518			860			1,023			(1,019	)		3,008		(1,100	)

Operating income (loss)	$	103,525		$	84,168		$	(55,391	)	$	79,219		$	87,318		$	187,693	$	178,823


Weighted average common shares outstanding
Basic		34,422,553			34,613,606			35,097,043			35,652,768			36,288,596			34,517,552		36,746,881

Diluted		35,136,296	*		35,431,843			35,097,043			36,616,734			37,189,722			35,316,595		37,395,559

Basic per share data
Net (loss) income	$	(0.05	)	$	4.59		$	(1.17	)	$	6.16		$	2.66		$	4.55	$	8.56
Add after tax effect of:
Net realized investment losses (gains)		3.05			(2.23	)		(0.43	)		(3.97	)		(0.22	)		0.80		(3.66	)
Foreign exchange loss (gain)		0.01			0.07			0.02			0.03			(0.03	)		0.09		(0.03	)

Operating income (loss)	$	3.01		$	2.43		$	(1.58	)	$	2.22		$	2.41		$	5.44	$	4.87


Diluted per share data

Net (loss) income	$	(0.05	)*	$	4.49		$	(1.17	)	$	6.00		$	2.59		$	4.45	$	8.41
Add after tax effect of:
Net realized investment losses (gains)		2.99			(2.18	)		(0.43	)		(3.86	)		(0.22	)		0.78		(3.60	)
Foreign exchange loss (gain)		0.01			0.07			0.02			0.02			(0.02	)		0.08		(0.03	)

Operating income (loss)	$	2.95		$	2.38		$	(1.58	)	$	2.16		$	2.35		$	5.31	$	4.78

*	Diluted weighted average common shares outstanding were only used in the calculation of diluted operating income per share. There were no common share equivalents included in calculating diluted earnings per share as there was a net loss and any additional shares would be anti-dilutive.

Page 24

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

RETURN ON AVERAGE SHAREHOLDERS’ EQUITY AND RECONCILIATION OF AVERAGE

SHAREHOLDERS’ EQUITY


	Three Months Ended															Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2013			2013			2012			2013			2012			2013			2012

Opening shareholders’ equity	$	3,431,963		$	3,326,335		$	3,435,786		$	3,283,901		$	3,245,821		$	3,326,335		$	3,149,022
Deduct: accumulated other comprehensive income		—			—			(1,385	)		(1,414	)		(2,325	)		—			(14,484	)

Adjusted opening shareholders’ equity	$	3,431,963		$	3,326,335		$	3,434,401		$	3,282,487		$	3,243,496		$	3,326,335		$	3,134,538

Closing shareholders’ equity	$	3,373,229		$	3,431,963		$	3,326,335		$	3,435,786		$	3,283,901		$	3,373,229		$	3,283,901
Deduct: accumulated other comprehensive income		—			—			—			(1,385	)		(1,414	)		—			(1,414	)

Adjusted closing shareholders’ equity	$	3,373,229		$	3,431,963		$	3,326,335		$	3,434,401		$	3,282,487		$	3,373,229		$	3,282,487

Average adjusted shareholders’ equity	$	3,402,596		$	3,379,149		$	3,380,368		$	3,358,444		$	3,262,992		$	3,349,782		$	3,208,513

Net (loss) income available to shareholders	$	(1,862	)	$	158,992		$	(41,147	)	$	219,647		$	96,351		$	157,130		$	314,507

Annualized net (loss) income available to shareholders	$	(7,448	)	$	635,968		$	(164,588	)	$	878,588		$	385,404		$	314,260		$	629,014

Annualized return on average shareholders’ equity - net (loss) income available to shareholders		(0.2	%)		18.8	%		(4.9	%)		26.2	%		11.8	%		9.4	%		19.6	%


Operating income (loss) available to shareholders	$	103,525		$	84,168		$	(55,391	)	$	79,219		$	87,318		$	187,693		$	178,823

Annualized operating income (loss) available to shareholders	$	414,100		$	336,672		$	(221,564	)	$	316,876		$	349,272		$	375,386		$	357,646

Annualized return on average shareholders’ equity - operating income (loss) available to shareholders		12.2	%		10.0	%		(6.6	%)		9.4	%		10.7	%		11.2	%		11.1	%

Page 25

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

RECONCILIATION OF DILUTED BOOK VALUE PER SHARE


	As of June 30, 2013			As of December 31, 2012			As of June 30, 2012

Price per share at period end	$	91.51		$	78.80		$	79.47

Total shareholders’ equity	$	3,373,229		$	3,326,335		$	3,283,901

Basic common shares outstanding		34,175,831			34,797,781			35,942,964

Add: unvested restricted share units		83,730			135,123			185,809

Add: performance based equity awards		270,853			485,973			510,530

Add: employee purchase plan		10,622			10,750			—

Add: dilutive options outstanding		1,111,266			1,224,607			1,365,245
Weighted average exercise price per share	$	47.65		$	47.02		$	46.04
Deduct: options bought back via treasury method		(578,610	)		(730,652	)		(790,888	)


Common shares and common share equivalents outstanding		35,073,692			35,923,582			37,213,660


Basic book value per common share	$	98.70		$	95.59		$	91.36
Year-to-date percentage change in basic book value per common share		3.3	%		4.6	%

Diluted book value per common share	$	96.18		$	92.59		$	88.24
Year-to-date percentage change in dilutive book value per common share		3.9	%		4.9	%

Page 26

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

SHARE REPURCHASE DETAIL


Period	Aggregate Cost of Shares Repurchased		Number of Shares Repurchased		Average Price paid Per Share Repurchased		Average Diluted Book Value Per Share ⁽¹⁾		Average Repurchase Price to Diluted Book Value			Remaining Share Repurchase Authorization

Three Months Ended:
March 31, 2012	$	93,023		1,430,804	$	65.01	$	82.80		78.5	%
June 30, 2012		66,436		905,383		73.38		86.86		84.5	%
September 30, 2012		47,590		605,898		78.54		91.03		86.3	%
December 31, 2012		56,893		713,874		79.70		93.21		85.5	%

Total - 2012	$	263,942		3,655,959	$	72.20	$	87.20		82.8	%


Three Months Ended:
March 31, 2013	$	36,245		432,117	$	83.88	$	94.55		88.7	%
June 30, 2013		46,326		508,328		91.13		96.34		94.6	%

Total - 2013	$	82,571		940,445	$	87.80	$	95.52		91.9	%	$	327,659

(1)	Average of beginning and ending diluted book value per share for each period presented and weighted average total.

Page 27

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

CAPITAL STRUCTURE AND LEVERAGE RATIOS


	As of June 30, 2013			As of December 31, 2012

Senior notes	$	798,355		$	798,215
Shareholders’ equity		3,373,229			3,326,335

Total capitalization	$	4,171,584		$	4,124,550


Leverage ratios
Debt to total capitalization		*19.1*	%		19.4	%

Net premiums written (trailing 12 months)	$	2,030,434		$	1,837,823
Net premiums written (trailing 12 months) to shareholders’ equity		*0.60 x*			0.55 x

Total investments and cash & cash equivalents	$	8,643,952		$	8,799,301
Total investments and cash & cash equivalents to shareholders’ equity		*2.56 x*			2.65 x

Reserve for losses and loss expenses	$	5,696,865		$	5,645,549
Deduct: reinsurance recoverable		(1,179,525	)		(1,141,110	)

Net reserve for losses and loss expenses	$	4,517,340			4,504,439
Net reserve for losses and loss expenses to shareholders’ equity		*1.34 x*			1.35 x

Page 28

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

PROBABLE MAXIMUM LOSSES


($ in millions)		Consolidated Estimated Net Loss
		1-in-100 Year		1-in-250 Year
Zone	Peril	PML		PML

U.S. Southeast⁽¹⁾	Hurricane	$	394	$	529

U.S. Gulf Coast⁽²⁾	Hurricane	$	331	$	462

U.S. Northeast⁽³⁾	Hurricane	$	214	$	396

California	Earthquake	$	335	$	467

(1)	Florida, Georgia, North Carolina and South Carolina.

(2)	Alabama, Louisiana, Mississippi and Texas.

(3)	Connecticut, Maine, Massachusetts, New Hampshire, New York, Rhode Island and Vermont.

The above table shows our largest Probable Maximum Loss (“PML”) from a single catastrophic event within a defined zone which corresponds to peak industry catastrophe exposures at June 1, 2013. A zone is a geographic area in which the insurance risks are considered to be correlated to a single catastrophic event. Net loss estimates and zonal aggregates are before income tax and net of reinsurance and retrocessional recoveries. The 1-in-100 year and 1-in-250 year return periods refer to the frequency with which losses of a given amount or greater are expected to occur.

We develop the estimates of losses expected from certain catastrophes for our portfolio of insurance and reinsurance contracts using commercially available catastrophe models, including RMS and AIR. These estimates include assumptions regarding the location, size and magnitude of an event, the frequency of events, the construction type and susceptibility to damage of property in a zone, policy terms and conditions and the cost of rebuilding property in a zone, among other assumptions. If the estimates and assumptions that are entered into the risk model are incorrect, or if the risk model proves to be an inaccurate forecasting tool, the losses the Company might incur from an actual catastrophe could be materially higher than its expectation of losses generated from modeled catastrophe scenarios. Further, the Company cannot assure that such third party models are free of defects in the modeling logic or in the software code.

Our PML estimates are based on assumptions that are inherently subject to significant uncertainties and contingencies. These uncertainties and contingencies can affect actual losses and could cause actual losses to differ materially from those expressed above. Investors should not rely on the information set forth in this presentation when considering investment in the Company. The information contained in this presentation has not been audited nor has it been subject to independent verification. Our estimated net losses from peak zone catastrophes may change from period to period as a result of several factors, which include but are not limited to, updates to vendor catastrophe models, changes in our own modeling, changes in our underwriting portfolios, changes to our reinsurance purchasing strategy and changes in foreign exchange rates. The events presented reflect a specific set of proscribed calculations and do not necessarily reflect all events that may impact us. The estimates set forth above speak only as of the date of this presentation and the Company undertakes no obligation to update or revise such information to reflect the occurrence of future events, including, but not limited to, the composition of the Company’s business.

Page 29

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

REGULATION G

In presenting the company’s results, management has included and discussed certain non-GAAP financial measures. Management believes that these non-GAAP measures, which may be defined differently by other companies, better explain the company’s results of operations in a manner that allows for a more complete understanding of the underlying trends in the company’s business. However, these measures should not be viewed as a substitute for those determined in accordance with GAAP.

OPERATING INCOME

Operating income is an internal performance measure used by the company in the management of its operations and represents after-tax operational results excluding, as applicable, net realized investment gains or losses, net impairment charges recognized in earnings, net foreign exchange gain or loss, impairment of intangible assets and other non-recurring items. The company excludes net realized investment gains or losses, net impairment charges recognized in earnings, net foreign exchange gain or loss and other non-recurring items from its calculation of operating income because these amounts are heavily influenced by and fluctuate in part according to the availability of market opportunities and other factors. In addition to presenting net income determined in accordance with GAAP, the company believes that showing operating income enables investors, analysts, rating agencies and other users of its financial information to more easily analyze the company’s results of operations and the company’s underlying business performance. Operating income should not be viewed as a substitute for GAAP net income. See page 24 for the reconciliation of net income to operating income.

ANNUALIZED RETURN ON AVERAGE SHAREHOLDERS’ EQUITY (“ROAE”)

Annualized return on average shareholders’ equity is calculated using average shareholders’ equity, excluding the average after tax unrealized gains or losses on investments. Unrealized gains (losses) on investments are primarily the result of interest rate and credit spread movements and the resultant impact on fixed income securities. Such gains (losses) are not related to management actions or operational performance, nor are they likely to be realized. Therefore, the company believes that excluding these unrealized gains (losses) provides a more consistent and useful measurement of operating performance, which supplements GAAP information. In calculating ROAE, the net income (loss) available to shareholders for the period is multiplied by the number of such periods in a calendar year in order to arrive at annualized net income (loss) available to shareholders. The company presents ROAE as a measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information. See page 25 for the reconciliation of average shareholders’ equity.

ANNUALIZED OPERATING RETURN ON AVERAGE SHAREHOLDERS’ EQUITY

Annualized operating return on average shareholders’ equity is calculated using operating income (as defined above and annualized in the manner described for net income (loss) available to shareholders under ROAE above), and average shareholders’ equity, excluding the average after tax unrealized gains (losses) on investments. Unrealized gains (losses) are excluded from equity for the reasons outlined in the annualized return on average shareholders’ equity explanation above. See page 24 for the reconciliation of net income to operating income and page 25 for the reconciliation of average shareholders’ equity.

DILUTED BOOK VALUE PER SHARE

The company has included diluted book value per share because it takes into account the effect of dilutive securities; therefore, the company believes it is an important measure of calculating shareholder returns. See page 26 for the reconciliation of diluted book value per share to basic book value per share.

ANNUALIZED INVESTMENT BOOK YIELD

Annualized investment book yield is calculated by dividing normalized net investment income by average aggregate invested assets at book value. In calculating annualized investment book yield, normalized net investment income for the period is multiplied by the number of such periods in a calendar year in order to arrive at annualized net investment income. Normalized net investment income is adjusted for known annual or non-recurring items. Aggregate invested assets includes cash and cash equivalents, fixed maturity securities, equity securities, other invested assets and the net balances receivable or payable on purchases and sales of investments. The company utilizes and presents the investment yield in order to better disclose the performance of the company’s investments and to show the components of the company’s ROAE. See page 23 for the calculation of annualized investment book yield.

Page 30