Allied World Reports Record Results for 2007.

PEMBROKE, Bermuda -- Allied World Assurance Company Holdings, Ltd (NYSE: AWH) today reported net income of $123.0 million, or $2.01 per diluted share, for the fourth quarter 2007 compared to net income of $128.4 million, or $2.04 per diluted share, for the fourth quarter 2006. Net income for the year ended December 31, 2007 was a record $469.2 million, or $7.53 per diluted share, compared to net income of $442.8 million, or $7.75 per diluted share, for the year ended December 31, 2006.

The company reported operating income of $118.1 million, or $1.93 per diluted share, for the fourth quarter 2007 compared to operating income of $133.6 million, or $2.12 per diluted share, for the fourth quarter 2006. Operating income for the year ended December 31, 2007 was a record $476.0 million, or $7.64 per diluted share, compared to operating income of $472.1 million, or $8.27 per diluted share, for the year ended December 31, 2006. The decrease in diluted earnings per share amounts for the year over year comparison reflects the increase in the weighted average common shares outstanding resulting primarily from the company's initial public offering in July 2006.

The company's annualized net income return on average equity for the quarter and year ended December 31, 2007 was 21.1% and 21.7%, respectively. The company's annualized operating return on average equity (ROE) for the quarter and year ended December 31, 2007 was 20.3% and 22.1%, respectively.

President and Chief Executive Officer Scott Carmilani commented, "Our disciplined underwriting continues to be supported by significant investment returns and our strong balance sheet. Collectively, these factors resulted in our generating an impressive operating income ROE of 22% for 2007 despite the challenging market conditions. Additionally, our diluted book value per share grew by over 20% during the year even as we acquired Allied World stock from one of our founding shareholders."

Mr. Carmilani continued, "These results reflect the strong foundation that we have built at Allied World, which we believe will serve us well as we continue to engage in initiatives designed to sustain our strong results through an increasingly competitive part of the insurance cycle while favorably positioning ourselves for when market conditions improve."

Underwriting Results

Except for a small increase in the gross premiums written in the reinsurance segment for the fourth quarter 2007 compared to the fourth quarter 2006, gross premiums written for both the fourth quarter and the year ended December 31, 2007 in each operating segment were down over the comparable 2006 periods as a result of increasing competition and declining rates for new and renewal business, as well as the non-renewal of business that did not meet our underwriting requirements.

Gross premiums written were $260.3 million in the fourth quarter 2007, a 7.1% decrease compared to $280.1 million in the fourth quarter 2006. For the year ended December 31, 2007, gross premiums written totaled $1,505.5 million, a 9.3% decrease compared to $1,659.0 million for the year ended December 31, 2006. Of the $153.5 million year-over-year decrease, approximately $69.0 million was due to fewer upward estimated premium adjustments recorded in the reinsurance segment for the year ended December 31, 2007 compared to the year ended December 31, 2006. Additionally, the company reduced gross premiums written in the energy line of business by approximately $44.7 million for the year ended December 31, 2007 compared to the year ended December 31, 2006, in response to unfavorable market conditions.

Net premiums written were $189.4 million in the fourth quarter 2007, a 10.1% decrease compared to $210.7 million in the fourth quarter 2006. For the year ended December 31, 2007, net premiums written totaled $1,153.1 million, an 11.7% decrease compared to $1,306.6 million for the year ended December 31, 2006. The decrease in net premiums written included the reduction in gross premiums written and the increased utilization of reinsurance in the casualty segment.

Net premiums earned in the fourth quarter 2007 were $286.6 million, a 10.4% decrease compared to $319.8 million for the fourth quarter 2006. For the year ended December 31, 2007, net premiums earned totaled $1,159.9 million, a 7.4% decrease from net premiums earned of $1,252.0 million for the year ended December 31, 2006.

The combined ratio was 81.4% in the fourth quarter 2007 compared to 75.3% in the fourth quarter 2006. The loss and loss expense ratio was 58.2% in the fourth quarter 2007 compared to 53.9% in the fourth quarter 2006. During the fourth quarter 2007, the company recorded net favorable reserve development on prior loss years of $36.0 million, a benefit of 12.6 percentage points to the company's loss and loss expense ratio for this quarter. In the fourth quarter 2006, the company recorded net favorable reserve development on prior loss years of $43.1 million, a benefit of 13.5 percentage points to the company's loss and loss expense ratio for that quarter. The combined ratio for the year ended December 31, 2007 was 81.3% compared to 78.8% for the year ended December 31, 2006.

Investment Results

Net investment income in the fourth quarter 2007 was $75.2 million, an increase of 13.9% over the $66.0 million of net investment income in the fourth quarter 2006. For the year ended December 31, 2007, net investment income was $297.9 million, an increase of 21.9% over the $244.4 million of net investment income for the year ended December 31, 2006. These increases primarily reflect the growth in the company's invested asset base driven by positive operating cash flows.

Net realized investment gains for the fourth quarter 2007 were $4.5 million compared with net realized investment losses of $4.2 million for the fourth quarter 2006. Net realized investment losses were $7.6 million for the year ended December 31, 2007 compared with net realized investment losses of $28.7 million for the year ended December 31, 2006. During the year ended December 31, 2007, the company recorded investment impairments of approximately $44.6 million related to declines in market value of securities in its available for sale portfolio that were considered to be other than temporary, as well as net realized gains from the sale of securities of $37.0 million.

Shareholders' Equity 

As of December 31, 2007 and 2006, shareholders' equity was $2.2 billion. Shareholders' equity as of December 31, 2007 included net income of $469.2 million for the year ended December 31, 2007; a net increase of $129.7 million in the unrealized market value of investments, net of deferred taxes; the acquisition of the company's common shares from AIG, one of the company's founding shareholders, which reduced shareholders' equity by $563.4 million; and dividends paid to holders of common shares aggregating $38.1 million. Diluted book value per share was $42.53 as of December 31, 2007 compared to $35.26 as of December 31, 2006.

Conference Call

Allied World will host a conference call on Friday, February 8, 2008 at 8:30 a.m. (Eastern Time) to discuss its fourth quarter and year ended 2007 financial results. The public may access a live webcast of the conference call at the "Investor Relations" section of the company's website at www.awac.com. In addition, the conference call can be accessed by dialing [phone] (U.S. and Canada callers) or [phone] (international callers) and entering the passcode 82882542 approximately ten minutes prior to the call.

Following the conclusion of the presentation, a replay of the call will be available through Friday, February 22, 2008 by dialing [phone] (U.S. and Canada callers) or [phone] (international callers) and entering the passcode 97444541. In addition, the webcast will remain available online through Friday, February 22, 2008 at www.awac.com.

Financial Supplement

A financial supplement relating to the fourth quarter and year ended 2007 will be available at the "Investor Relations" section of the company's website at www.awac.com.

Non-GAAP Financial Measures

In presenting the company's results, management has included and discussed in this press release certain non-GAAP financial measures within the meaning of Regulation G as promulgated by the U.S. Securities and Exchange Commission. Management believes that these non-GAAP measures, which may be defined differently by other companies, better explain the company's results of operations in a manner that allows for a more complete understanding of the underlying trends in the company's business. However, these measures should not be viewed as a substitute for those determined in accordance with generally accepted accounting principles ("GAAP").

"Operating income" is an internal performance measure used by the company in the management of its operations and represents after-tax operational results excluding, as applicable, net realized investment gains or losses and foreign exchange gains or losses. The company excludes net realized investment gains or losses and net foreign exchange gains or losses from its calculation of operating income because the amount of these gains or losses is heavily influenced by, and fluctuates in part according to, the availability of market opportunities. The company believes these amounts are largely independent of its business and underwriting process and including them may distort the analysis of trends in its insurance and reinsurance operations. In addition to presenting net income determined in accordance with GAAP, the company believes that showing operating income enables investors, analysts, rating agencies and other users of its financial information to more easily analyze the company's results of operations in a manner similar to how management analyzes the company's underlying business performance. Operating income should not be viewed as a substitute for GAAP net income.

The company has included "diluted book value per share" because it takes into account the effect of dilutive securities; therefore, the company believes it is a better measure of calculating shareholder returns than book value per share.

"Annualized net income return on average equity" ("ROAE") is calculated using average equity, excluding the average after tax unrealized gains or losses on investments. Unrealized gains (losses) on investments are primarily the result of interest rate movements and the resultant impact on fixed income securities. Such gains (losses) are not related to management actions or operational performance, nor are they likely to be realized. Therefore, the company believes that excluding these unrealized gains (losses) provides a more consistent and useful measurement of operating performance, which supplements GAAP information. In calculating ROAE, the net income (loss) available to shareholders for the period is multiplied by the number of such periods in a calendar year in order to arrive at annualized net income (loss) available to shareholders. The company presents ROAE as a measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information.

"Annualized operating return on average equity" is calculated using operating income (as defined above and annualized in the manner described for net income (loss) available to shareholders under ROAE above), and average equity, excluding the average after tax unrealized gains (losses) on investments. Unrealized gains (losses) are excluded from equity for the reasons outlined in the annualized return on average equity explanation above.

Reconciliations of these financial measures to their most directly comparable GAAP measures are included in the attached tables.

About Allied World Assurance Company

Allied World Assurance Company Holdings, Ltd, through its insurance subsidiaries, is a global provider of insurance and reinsurance solutions, offering superior client service through offices in Bermuda, the United States and Europe. Our insurance subsidiaries are rated A (Excellent) by A.M. Best Company and A- (Strong) by Standard & Poor's. Our Bermuda and U.S. insurance subsidiaries are rated A2 (Good) by Moody's Investors Service. For further information on Allied World Assurance Company, please visit our website at www.awac.com.

Cautionary Statement Regarding Forward-Looking Statements 

Any forward-looking statements made in this press release reflect our current views with respect to future events and financial performance and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties, which may cause actual results to differ materially from those set forth in these statements. For example, our forward-looking statements could be affected by pricing and policy term trends; increased competition; the impact of acts of terrorism and acts of war; greater frequency or severity of unpredictable catastrophic events; investigations of market practices and related settlement terms; negative rating agency actions; the adequacy of our loss reserves; the company or its subsidiaries becoming subject to significant income taxes in the United States or elsewhere; changes in regulations or tax laws; changes in the availability, cost or quality of reinsurance or retrocessional coverage; adverse general economic conditions; and judicial, legislative, political and other governmental developments, as well as management's response to these factors, and other factors identified in our filings with the U.S. Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We are under no obligation (and expressly disclaim any such obligation) to update or revise any forward-looking statement that may be made from time to time, whether as a result of new information, future developments or otherwise.

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