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Allied World re-evaluating underwriting strategy as profit dives


Allied World Assurance Co. Holdings A.G. reported net income of $1.7 million for the fourth quarter of 2015, down 98.7% from the same quarter in 2014 as the insurer saw a significant drop in its underwriting income.

Executives for the Zug, Switzerland-based insurer said in a conference call Thursday that they are working to shift the company's underwriting strategies within its health care business after the company “came up short” last year.

The company generated $464.8 million in net written premiums during the quarter, up 8.7% from the prior-year period, according to an earnings statement released Wednesday. But Allied reported underwriting income of only $19.1 million in the fourth quarter of 2015, down 83.9% from the fourth quarter of 2014.

In a statement Wednesday, Allied World President and CEO Scott Carmilani said, “2015 was a challenging year, marked by a difficult underwriting environment and financial market volatility” for the insurer.

During Thursday's investor call, Allied executives said that they worked during the fourth quarter to re-evaluate the insurer's underwriting strategies, including bringing in an outside actuary to consider Allied's various insurance lines, which executives said the company does every year.

Allied's actions included “recognition that the traditional actuarial methods came up short a couple quarters in a row, and that led to the realization of we need to do something a little different and bring in some ... other analysis,” Mr. Carmilani said during the conference call. “So our normal hope is that the actuarial methods work and get us to the right point in the right period of time.”

Allied reported net investment income of $49.1 million for the recent quarter, which remained flat compared with the same quarter in 2014. The insurer reported a net realized investment loss of $38.85 million in the fourth quarter of 2015, a sharp increase from its $15.3 million loss in the prior-year quarter.

Allied's combined ratio climbed to 97% during the fourth quarter of last year, up from 79.3% in the fourth quarter of 2014.

For the full 2015 year, the insurer reported net income of $83.9 million, down 82.9% from 2014. The company reported $2.45 billion in net written premiums for 2015, up 5.4% from 2014, and a combined ratio of 95.1% for 2015, up from 85.2% the prior year. Allied reported net investment income of $182.1 million in 2015, up 2.9% from 2014. But the company reported net realized investment losses of $127.63 million for last year, compared with a net realized investment gain of $89.0 million the prior year.

Allied reported $120.4 million in underwriting income for all of 2015, down 62.7% from 2014.

Mr.Carmilani said in the statement that Allied's recent acquisitions are expected to position the insurer for growth. Allied World completed the acquisitions last April of the Hong Kong and Singapore operations of Royal & Sun Alliance Insurance P.L.C. — transactions the company valued at about $193 million.

“With the close of the Asian acquisitions and targeted growth in our insurance segments, I believe our franchise is well positioned,” the statement reads. “We look forward to creating and capitalizing on profitable opportunities in 2016.”

Allied Chief Financial Officer Tom Bradley said in the conference call that the insurer did not experience any catastrophe losses during the fourth quarter of 2015. But he noted that Allied incurred $60.5 million in catastrophe losses for 2015.

The insurer's largest cat loss came from explosions in the port of Tianjin, China, in August, which resulted in a $28.9 million loss during the third quarter, Mr. Bradley said.