Background
Allied
World Assurance Holdings is the parent of Allied World Assurance Company
(AWAC), a Bermuda-based insurance and reinsurance company. Worldwide,
AWAC writes all lines of property and casualty insurance and reinsurance.
The global shortfall in insurance and
reinsurance capacity combined with increasing demand for insurance coverage
following the events of September 11, 2001 led to the formation of the
company in November of 2001. AWAC was founded by the allied financial forces
of American International Group (AIG), The Chubb Corporation, and GS Capital
2000, an investment fund managed by Goldman, Sachs, as well as other investors.
In its first four years, AWAC has concentrated
on building its global platforms and implementing its plan to become an
international insurance and reinsurance company, providing
producers and customers with substantial coverage and capacity, and protecting
the property of corporate clients and energy related risks on a primary
basis.
AWAC also offers excess casualty liability, professional liability and
healthcare liability in the United States, United Kingdom, Continental
Europe and other markets worldwide. The company expanded its European
operations in 2004 and received regulatory approval from the U.K. Financial
Services Authority for its branch office in London in August, 2004.
The company
also increased its distribution in the United States through the opening of
a branch office in New York in June 2004. Previously, the distribution of its
insurance products in the United States was accomplished mainly through production
arrangements between its US subsidiaries and various subsidiaries of AIG. These
arrangements, which had accounted for $280 million, or 16 percent of AWAC’s
gross written premium, were cancelled by AIG for strategic business reasons
in January 2005.
The cancellation
of those arrangements has allowed AWAC to further expand its US operations
independently in 2005, and the company has already begun to write business
and diversify product distribution for US businesses with added personnel
in Boston and New York.
Spotlight – Giving
something back
In the
spring of 2005, the board of AWAC paid a special one-time cash dividend of
$500 million in the aggregate to all shareholders.
The goal was to return excess capital to shareholders in an environment
where underwriting conditions were tightening for the first time since
the company’s formation. Simultaneously, the company completed
a $500 million unsecured credit facility, which fully matures in March
2012.
The move, which was widely applauded in financial circles, may have had
the effect of reducing the company’s shareholder equity, but it
effectively replaced that capitalm with the more flexible ability to
use whatever capital was required, and to do so at a cheaper cost than
had been the case with shareholders’ capital.
By adopting this non-traditional approach
to its capital, AWAC signaled to the financial markets that it was actively
managing its affairs, and that it had great faith in its own financial
future.
Analysis
Among the
lines AWAC offers are:
- Property: Commercial real
estate accounts; communication risks; energy-related risks; heavy
manufacturing; inland marine; municipal and institutional exposures;
and primary participation in the largest corporate “Fortune
1000” accounts.
For property risks, AWAC writes up to a $10 million net and treaty
limit with a minimum attachment above the working layer, or a meaningful
self-insured retention or deductible. AWAC’s net and treaty limit for energy
accounts is $20 million. The company targets property accounts that provide
in excess of $100,000 per annum for AWAC’s percentage share.
- Casualty: Directors’ and officers’ liability;
energy liability; excess general liability and products liability;
hospital professional liability; professional liability; and transportation
liability.
For casualty risks, AWAC seeks an attachment point above the working
layer — typically between $10 million and $100 million for each
occurrence — and can provide limits up to $50 million. For
professional lines coverage, AWAC can provide limits of $25 million
in single or across multiple layers. The company prefers to write
casualty risks with an annual premium to AWAC in excess of $150,000.
- Treaty Reinsurance: AWAC’s
assumed reinsurance department provides treaty protection to a
wide range of insurers, including local, regional, national, and
excess and speciality carriers operating in the US and Canada.
AWAC also writes European-domiciled treaty business with a focus
on property and casualty exposures in Europe.
- Traditional non-life reinsurance for
working level and catastrophe portfolios, on a proportional and excess
basis, as applicable, is underwritten on a range of business lines.
- Facultative Reinsurance: Emphasis
for US cedents and exposures only, is on general liability, including
product liability; automobile liability; and workers’ compensation.
Senior management
Chairman: Kevin H. Kelley
President and CEO: Scott Carmilani
Financial data
(half-year to June 30, 2005)
Gross premiums written: $947 million, down 4 percent
Net premiums earned: $656 million, down 2 percent
Net income: $139.6 million, down 12 percent
Shareholders’ equity: $1.8 billion, down 15 percent
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