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Allied World profits boosted by merger termination fee

Allied World Assurance Company Holdings last night reported an annual profit of $274.5 million, boosted by a merger termination fee from its failed attempt to combine with US reinsurer Transatlantic Holdings.

The Switzerland-based re/insurer, which redomiciled from Bermuda in 2010 but which still has substantial operations on the Island, took in $101.7 million from the termination fee last year, $66.7 million of it in the fourth quarter.

However, even with one-off items such as the merger fee stripped out, Allied’s results surpassed expectations.

Operating income of $94.7 million, or $2.40 per share, for the fourth quarter, trounced the $1.07 per share estimate of analysts polled by Bloomberg. The figure almost matched the $94.7 million operating income recorded in the same period in 2010.

Net income for the quarter, which included part of the termination fee, was $183.1 million, or $4.63 per share, compared to $92.8 million, or $2.13 per diluted share, for the fourth quarter of 2010.

“In the face of a number of challenges that confronted our company and the insurance industry globally, Allied World continues to generate solid profitability and growth in book value,” chief executive officer Scott Carmilani said.

“Our three operating segments all contributed, with each experiencing premium growth in 2011.

“We again benefited from focusing our efforts on targeted lines and select geographies throughout the world. Collectively, our gross production was up by 10 percent for the year with our new business initiatives driving the increase.”

He noted that the company had benefited from continued favourable loss reserve emergence, as well as from the break-up fee, while investment returns underperformed 2010 due to lower interest rates and a weaker overall investment environment.

“Ultimately, we judge ourselves by our ability to build shareholder value, and we grew diluted book value per share by eight percent in what was a volatile 2011,” Mr Carmilani added.

“This reflects our robust risk management controls, strong ratings and a healthy capital base. The company is well positioned as we move forward into 2012.”

Gross premiums written were $416.5 million in the fourth quarter of 2011, a 9.1 percent increase from the previous year. For the full year gross premiums rose 10.3 percent to $1.94 billion.

Allied’s combined ratio, the proportion of premium dollars spent on claims and expenses, was 83.5 percent in the fourth quarter, compared to 82.8 percent. For the full year, the combined ratio was 95.9 percent.

During the fourth quarter, the company recorded net favourable reserve development on prior loss years of $92.4 million, which benefited the loss and loss expense ratio by 23.4 percentage points.

During the fourth quarter, Allied was hit by $59.1 million of net losses, or 14.9 percentage points, from the flooding in Thailand and increases in estimates of earlier catastrophes in 2011.

The total return on the company’s investment portfolio for the three months and year ended December 31, 2011 was 0.9 percent and two percent, respectively.

Allied World CEO Scott Carmilani

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Published February 16, 2012 at 1:00 am (Updated February 16, 2012 at 8:21 am)

Allied World profits boosted by merger termination fee

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