Allied World Q2 Earnings Miss on Lower Underwriting Income - Analyst Blog


Allied World Assurance Company Holdings, AG ( AWH ) reported second-quarter 2014 operating income of 76 cents per share. Earings lagged the Zacks Consensus Estimate by 13.6% and fell 22.4% year over year.

The quarter experienced lower premiums written in the Reinsurance segment, weak underwriting performances and a decline in the investment income. Total expense also escalated in the quarter.

Including net realized investment gains of 77 cents and foreign exchange loss of 1 cent, the property and casualty insurer reported a net income of $1.52 per share, rebounding from the year-ago loss of 2 cents per share.

Operational Performance

Net premiums written of Allied World declined 4.7% year over year to $553.9 million in the reported quarter.

Net investment income declined 2.2% to $36.8 million year over year due to the net loss incurred in the private securities portfolio.

Total revenue increased 5.3% year over year to $574 million driven by higher premiums earned. However, results missed the Zacks Consensus Estimate by 5%.

The total expense increased 15% year over year to $501 million due to increase in net losses and loss expenses, acquisition costs as well as general and administrative expenses.

Underwriting income declined 40.3% year over year to $51.9 million. Combined ratio deteriorated 750 basis points (bps) to 90.3%

Allied World also purchased new global property catastrophe protection to reduce single catastrophic loss in major zones.

Segment Update

Gross premiums written at the US Insurance segment increased 11.1% year over year. This rise was driven by growth in the general casualty, inland marine as well as representations and warranties insurance, which more than offset a continued decrease in healthcare insurance.

Underwriting loss of $7.1 million compared unfavorably with the year-ago income of $7.5 million. The combine ratio deteriorated by 710 bps year over year.

Gross premiums written at the International Insurance segment grew 6.2% year over year due to overall growth, which included new insurance business lines in Europe in aviation and marine cargo.

Underwriting income decreased 27.8% year over year. The combine ratio deteriorated by 1100 bps year over year.

Gross premiums written at the Reinsurance segment fell 19.1% due to lower premiums across most lines of business.

The underwriting income declined 24.1% year over year. The combine ratio deteriorated by 590 bps year over year.

Financial Update

Allied World exited the second quarter of 2014 with cash and cash equivalents of $762.8 million, up 12% from 2013-end.

Total assets were $12.7 billion, up 6% from Dec 31, 2013.

Shareholder's equity was $3.7 billion, up 4.6% from 2013-end level.

Allied World's book value per share increased 3.6% from 2013-end level to $36.98 per share as of Jun 30, 2014.

Return on the company's investment portfolio improved 1.4% as of Jun 30, 2014, driven by net realized investment gains and net investment income compared with a loss in the year-ago quarter.

Capital Management

Allied World spent $70.9 million to repurchase 1.9 million shares. Its board of directors approved a new $500 million share buyback program.

In addition, the board approved a 35% hike in dividend and four quarterly dividends of 22.5 cents per share in May. The first one was paid on Jul 2.

Performance of Other Property and Casualty Insurers

While ACE Limited ( ACE ) outperformed the Zacks Consensus Estimate, RLI Corporation 's ( RLI ) earnings were in line with the expectation. However, The Travelers Companies Inc. 's ( TRV ) missed the Zacks Consensus Estimate on higher-than-expected catastrophe losses.

Zacks Rank

Allied World Assurance Company currently has Zacks Rank #3 (Hold).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: RLI , TRV , ACE , AWH

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