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Allied World Beats on Earnings, Lags on Revs

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Allied World Assurance Company Holdings, AG reported its third-quarter 2013 operating net income of $2.93 per share, surpassing the Zacks Consensus Estimate by 37.5%. The results also surged 35.6% from the year-ago quarter results.

Allied World’s net income, including net realized investment gains of 73 cents per share and net foreign exchange loss of 12 cents per share, plunged 41% year over year to $3.54 per share in the reported quarter. Deterioration in the top line coupled with increased total expenses induced the reduction in net income.

Operational Update

Allied World’s total revenues excluding net realized investment gains grossed $550 million during the reported quarter, missing the Zacks Consensus Estimate of $553 million. However, the results improved 14.5% year over year.

Net earned premiums improved 15.8% from the year-ago period.

The increase in earned premiums and lower losses drove 52.9% increase in underwriting income to $80.1 million in the reported quarter.

Allied World’s total expenses totaled $449.7 million, rising 11.3% from the prior-year quarter. The rise primarily stemmed from higher net losses and loss expenses (up 6.9% year over year) and acquisition costs (up 27.4%). General and administrative expenses also increased by 12.7% year over year to $88.5 million.

Lower loss ratio drove a year-over-year improvement of 390 basis points (bps) in combined ratio. The figure stood at 84.2% in the reported quarter.

Segment Update

US Insurance: Gross premiums written climbed 17.3% year over year to $308.7 million on the back of new business across present lines, new lines of business and increased premium rates across all the business lines.

The segment incurred an underwriting loss of $3.7 million driven by higher net losses and loss expenses compared to underwriting income in the year-ago quarter.

Combined ratio deteriorated 450 bps to 101.7% in the reported quarter.

International Insurance: Gross premiums written increased 9.5% year over year, driven by inclusion of new aviation business and better performances in Europe- and Bermuda-based Professional liability lines.

Underwriting income of $30.3 million during the reported quarter slid 36.3% from the year-ago quarter, mainly due to higher net losses and loss expenses.

Combined ratio deteriorated significantly by 2110 bps year over year to 65.4%.

Reinsurance: New business in specialty line catalyzed 16.1% improvement in gross premium written during the quarter under review.

Underwriting income of $53.5 million improved substantially from $0.08 million reported in the year-ago quarter. The surge came on the back of lower net losses and loss expenses.

However, combined ratio in this segment of Allied World improved substantially by 2480 bps year over year to 75.1% in the third quarter.

Financial Updates

Allied World exited the reported quarter with cash and cash equivalents of $1.2 billion that surged 39.9% from the 2012-end level.

Total assets of Allied World also increased 2.9% from the end of 2012 to $12.4 billion as of Sep 30, 2013.

Allied World’s long term debt of $798 million was in line with the 2012-end level.

Share Repurchase and Dividend Updates

Allied World spent $40.6 million to buy back 0.43 million shares in the quarter.

On Oct 3, 2013, Allied World paid quarterly dividend of 50 cents to the shareholders on record as of Jun 25, 2013.

Performance of Other Property and Casualty insurers

The Travelers Companies Inc. (TRV - Free Report) reported operating net earnings of $2.35 per share in the third quarter of 2013, surpassing the Zacks Consensus Estimate of $1.99 per share and also improving 5.9% year over year.

RLI Corporation (RLI - Free Report) reported third-quarter 2013 operating earnings of $1.40 per share, surpassing both the Zacks Consensus Estimate by 47% and the year-ago figure by 37.2%.

W.R. Berkley Corp. (WRB - Free Report) reported third-quarter core operating earnings of 77 cents per share, 5 cents ahead of the Zacks Consensus Estimate. Earnings were also up 26.2% year over year.

Zacks Rank

Allied World presently carries a Zacks Rank #1 (Strong Buy).

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