Edgar Filing: Allied World Assurance Co Holdings, AG

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________

Form 10-Q

(Mark One)



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2015



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-32938

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

(Exact Name of Registrant as Specified in Its Charter)



Switzerland	98-0681223
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

Gubelstrasse 24, Park Tower, 15th Floor, 6300 Zug, Switzerland

(Address of Principal Executive Offices and Zip Code)

41-41-768-1080

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer þ	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

As of October 12, 2015, 90,911,888 common shares were outstanding.

Table of Contents

TABLE OF CONTENTS



PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	73

Item 4.	Controls and Procedures	76

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	77

Item 1A.	Risk Factors	77

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	77

Item 3.	Defaults Upon Senior Securities	78

Item 4.	Mine Safety Disclosures	78

Item 5.	Other Information	78

Item 6.	Exhibits	79

SIGNATURES		80

EXHIBIT INDEX

-i-

Table of Contents

PART I

FINANCIAL INFORMATION



Item 1.	Financial Statements.

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

as of September 30, 2015 and December 31, 2014

(Expressed in thousands, except share and per share amounts)



	September 30, 2015			December 31, 2014
ASSETS:
Fixed maturity investments trading, at fair value (amortized cost: 2015: $6,555,748; 2014: $6,035,240)	$	6,546,993		$	6,069,010
Equity securities trading, at fair value (cost: 2015: $668,061; 2014: $791,206)	663,390			844,163
Other invested assets	969,427			955,509
Total investments	8,179,810			7,868,682
Cash and cash equivalents	603,810			589,339
Restricted cash	159,863			80,971
Insurance balances receivable	905,401			664,815
Funds held	443,670			724,021
Prepaid reinsurance	387,269			360,732
Reinsurance recoverable	1,449,832			1,340,256
Reinsurance recoverable on paid losses	117,110			86,075
Accrued investment income	32,673			28,456
Net deferred acquisition costs	201,313			151,546
Goodwill	354,781			278,258
Intangible assets	130,612			46,298
Balances receivable on sale of investments	29,461			47,149
Net deferred tax assets	27,268			33,615
Other assets	174,706			121,350
Total assets	$	13,197,579		$	12,421,563
LIABILITIES:
Reserve for losses and loss expenses	$	6,436,579		$	5,881,165
Unearned premiums	1,835,527			1,555,313
Reinsurance balances payable	260,225			180,060
Balances due on purchases of investments	108,337			5,428
Senior notes	799,043			798,802
Other long-term debt	23,328			19,213
Dividends payable	23,637			21,669
Accounts payable and accrued liabilities	155,498			181,622
Total liabilities	$	9,642,174		$	8,643,272
SHAREHOLDERS’ EQUITY:
Common shares: 2015 and 2014: par value CHF 4.10 per share (2015: 95,523,230; 2014: 100,775,256 shares issued and 2015: 90,911,888; 2014: 96,195,482 shares outstanding)	$	386,702		$	408,020
Treasury shares, at cost (2015: 4,611,342; 2014: 4,579,774)	(156,281		)	(143,075		)
Accumulated other comprehensive loss	(4,265		)	—
Retained earnings	3,329,249			3,513,346
Total shareholders’ equity	3,555,405			3,778,291
Total liabilities and shareholders’ equity	$	13,197,579		$	12,421,563

See accompanying notes to the consolidated financial statements.

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

for the three and nine months ended September 30, 2015 and 2014

(Expressed in thousands, except share and per share amounts)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
REVENUES:
Gross premiums written	$	754,062		$	707,884		$	2,460,646		$	2,369,682
Premiums ceded	(147,070		)	(139,142		)	(477,457		)	(475,402		)
Net premiums written	606,992			568,742			1,983,189			1,894,280
Change in unearned premiums	43,661			(27,005		)	(117,612		)	(285,011		)
Net premiums earned	650,653			541,737			1,865,577			1,609,269
Net investment income	45,667			43,412			132,978			127,824
Net realized investment (losses) gains	(113,626		)	(35,136		)	(88,783		)	104,286
Other income	735			1,032			2,513			1,032
Total revenue	583,429			551,045			1,912,285			1,842,411
EXPENSES:
Net losses and loss expenses	416,881			336,090			1,173,578			926,231
Acquisition costs	100,101			72,403			279,418			214,404
General and administrative expenses	105,798			88,294			311,299			264,822
Other expense	1,245			6,575			4,303			6,575
Amortization of intangible assets	2,639			633			6,091			1,900
Interest expense	14,469			14,325			43,272			43,451
Foreign exchange (gain) loss	(793		)	278			10,369			978
Total expenses	640,340			518,598			1,828,330			1,458,361
(Loss) income before income taxes	(56,911		)	32,447			83,955			384,050
Income tax (benefit) expense	(5,281		)	1,532			1,771			24,300
NET (LOSS) INCOME	(51,630		)	30,915			82,184			359,750
Other comprehensive loss: foreign currency translation adjustment, net of tax	(993		)	—			(4,265		)	—
COMPREHENSIVE (LOSS) INCOME	$	(52,623	)	$	30,915		$	77,919		$	359,750
PER SHARE DATA
Basic (loss) earnings per share	$	(0.57	)	$	0.32		$	0.88		$	3.67
Diluted (loss) earnings per share	$	(0.57	)	$	0.31		$	0.87		$	3.60
Weighted average common shares outstanding	90,882,511			96,458,231			93,068,088			97,926,378
Weighted average common shares and common share equivalents outstanding	90,882,511			98,444,238			94,724,980			99,965,296
Dividends paid per share	$	0.26		$	0.225		$	0.71		$	0.559

See accompanying notes to the consolidated financial statements.

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

for the nine months ended September 30, 2015 and 2014

(Expressed in thousands)



	Share Capital				Treasury Shares				Accumulated Other Comprehensive Loss				Retained Earnings			Total
December 31, 2014	$	408,020			$	(143,075	)		$	—			$	3,513,346		$	3,778,291
Net income	—				—				—				82,184			82,184
Dividends	—				—				—				(68,751		)	(68,751		)
Stock compensation	—				18,363				—				(5,116		)	13,247
Share repurchases	—				(245,301		)		—				—			(245,301		)
Shares canceled	(21,318		)		213,732				—				(192,414		)	—
Foreign currency translation adjustment	—			—	—			—	(4,265		)	—	—			(4,265		)
September 30, 2015	$	386,702			$	(156,281	)		$	(4,265	)		$	3,329,249		$	3,555,405

December 31, 2013	$	418,988			$	(79,992	)		$	—			$	3,180,830		$	3,519,826
Net income	—				—				—				359,750			359,750
Dividends	—				—				—				(60,017		)	(60,017		)
Stock compensation	—				17,235				—				1,333			18,568
Share repurchases	—				(164,528		)		—				—			(164,528		)
Shares canceled	(10,998		)		92,652				—				(81,654		)	—
September 30, 2014	$	407,990			$	(134,633	)		$	—			$	3,400,242		$	3,673,599

See accompanying notes to the consolidated financial statements.

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

for the nine months ended September 30, 2015 and 2014

(Expressed in thousands)



	Nine Months Ended September 30,
	2015			2014
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income	$	82,184		$	359,750
Adjustments to reconcile net income to cash provided by operating activities:
Net realized gains on sales of investments	(41,185		)	(118,640		)
Mark to market adjustments	112,421			(5,634		)
Stock compensation expense	11,805			10,822
Undistributed loss of equity method investments	19,244			10,452
Changes in:
Reserve for losses and loss expenses, net of reinsurance recoverables	188,835			171,229
Unearned premiums, net of prepaid reinsurance	113,380			285,012
Insurance balances receivable	(123,175		)	(256,993		)
Funds held	280,351			226,727
Reinsurance balances payable	40,354			30,405
Reinsurance recoverable on paid losses	(31,035		)	(3,634		)
Net deferred acquisition costs	(10,901		)	(45,166		)
Net deferred tax assets	(10,141		)	(3,511		)
Accounts payable and accrued liabilities	(39,046		)	4,473
Other items, net	(1,705		)	4,441
Net cash provided by operating activities	591,386			669,733
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of trading securities	(3,962,283		)	(5,608,594		)
Purchases of other invested assets	(110,851		)	(242,227		)
Sales of trading securities	3,888,416			5,500,176
Sales of other invested assets	160,253			243,123
Purchases of fixed assets	(23,798		)	(14,490		)
Change in restricted cash	(78,892		)	(29,565		)
Net cash paid for acquisitions	(141,503		)	(2,565		)
Net cash used in investing activities	(268,658		)	(154,142		)
CASH FLOWS USED IN FINANCING ACTIVITIES:
Dividends paid	(66,784		)	(55,064		)
Proceeds from the exercise of stock options	9,184			7,640
Share repurchases	(246,443		)	(166,207		)
Proceeds from other long-term debt	4,003			—
Repayment of other long-term debt	(154		)	—
Net cash used in financing activities	(300,194		)	(213,631		)
Effect of exchange rate changes on foreign currency cash	(8,063		)	(2,626		)
NET INCREASE IN CASH AND CASH EQUIVALENTS	14,471			299,334
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	589,339			531,936
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	603,810		$	831,270
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	2,213		$	18,052
Cash paid for interest expense	$	45,750		$	45,750

See accompanying notes to the consolidated financial statements.

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

1. GENERAL

Allied World Assurance Company Holdings, AG, a Swiss holding company (“Allied World Switzerland”), through its wholly-owned subsidiaries (collectively, the “Company”), provides property and casualty insurance and reinsurance on a worldwide basis. References to “$” are to the lawful currency of the United States and to “CHF” are to the lawful currency of Switzerland.

During the fourth quarter of 2014, the Company reorganized how it manages its business, and as a result it realigned its executive management team and changed its reportable segments to correspond to the reorganization. The Company's Bermuda insurance operations, except for the trade credit line of business, which had previously been included in the international insurance segment, was combined with the U.S. insurance segment, with the new segment renamed the “North American Insurance” segment. The remaining direct insurance operations of the international insurance segment were renamed the “Global Markets Insurance” segment. The Reinsurance segment remained unchanged. The newly created segments are included in Note 12 and prior periods have been recast to conform to the new presentation.

2. BASIS OF PREPARATION AND CONSOLIDATION

These unaudited condensed consolidated financial statements include the accounts of the Company and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with Article 10 of Regulation S-X as promulgated by the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments that are normal and recurring in nature and necessary for a fair presentation of financial position and results of operations as of the end of and for the periods presented. The results of operations for any interim period are not necessarily indicative of the results for a full year.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates reflected in the Company’s financial statements, include, but are not limited to:


•	The premium estimates for certain reinsurance agreements,


•	Recoverability of deferred acquisition costs,


•	The reserve for outstanding losses and loss expenses,


•	Valuation of ceded reinsurance recoverables,


•	Determination of impairment of goodwill and other intangible assets, and


•	Valuation of financial instruments.

Intercompany accounts and transactions have been eliminated on consolidation and all entities meeting consolidation requirements have been included in the unaudited condensed consolidated financial statements.

These unaudited condensed consolidated financial statements, including these notes, should be read in conjunction with the Company’s audited consolidated financial statements, and related notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

3. NEW ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09, “Revenue from Contracts with Customers" (“ASU 2014-09”). ASU 2014-09 provides a framework, through a five-step process, for recognizing revenue from customers, improves comparability and consistency of recognizing revenue across entities, industries, jurisdictions and capital markets, and requires enhanced disclosures. Certain contracts with customers are specifically excluded from the scope of ASU 2014-09, including, among others, insurance contracts accounted for under

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

Accounting Standard Codification 944, Financial Services - Insurance. With the issuance of ASU 2015-14, this standard will be effective on January 1, 2018 with retrospective adoption required for the comparative periods. The Company is currently assessing the impact the adoption of ASU 2014-09 will have on future financial statements and related disclosures.

In February 2015, the FASB issued Accounting Standards Update 2015-02, “Amendments to the Consolidation Analysis” (“ASU 2015-02”). ASU 2015-02 amends certain aspects of the consolidation guidance in U.S. GAAP. In particular, it will modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities and also eliminates the presumption that a general partner should consolidate a limited partnership, if certain conditions are met. The new guidance will also affect the consolidation analysis of the Company's interests in VIEs, particularly those that have fee arrangements and related party relationships. ASU 2015-02 is effective on January 1, 2016 and adoption is required retrospectively either through a modified retrospective approach by recording a cumulative-effect adjustment to shareholders' equity as of the beginning of the year of adoption or retrospectively for all comparative periods. The Company has determined that the adoption of ASU 2015-02 will result in several of its limited partnership interests meeting the criteria of being considered VIEs. None of the limited partnership interests that will be considered VIE's will be consolidated as the Company is not considered the primary beneficiary. As a result, the Company does not expect any financial statement impact due to the adoption of ASU 2015-02 other than additional disclosures related to the Company's interests in VIEs.

In May 2015, the FASB issued Accounting Standards Update 2015-07, “Fair Value Measurements (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)” (“ASU 2015-07”). ASU 2015-07 removes the requirement to categorize within the fair value hierarchy investments for which fair value is measured using the net asset value per share practical expedient. The Company has applied the net asset value per share practical expedient to all of its private equity and hedge funds in determining fair value. The Company early adopted ASU 2015-07 during the quarter ended June 30, 2015, and as a result removed the fair value category for its investments that are measured using the net asset value per share practical expedient that is disclosed in Note 7.

In May 2015, the FASB issued Accounting Standards Update 2015-09, “Financial Services - Insurance (Topic 944): Disclosures about Short-Duration Contracts” (“ASU 2015-09”). ASU 2015-09 provides enhanced disclosures, on an annual basis, related to the reserve for losses and loss expenses. The enhanced disclosures required by ASU 2015-09 include (1) net incurred and paid claims development information by accident year, (2) a reconciliation of incurred and paid claims development information to the aggregate carrying amount of the reserve for losses and loss expenses, (3) for each accident year presented of incurred claims development information, the total of reserves for incurred but not reported (IBNR), including expected development on reported claims, included in the reserve for losses and loss expenses and a description of the reserving methodologies and changes to the reserving methodologies, and (4) for each accident year presented of incurred claims development information, quantitative information about claims frequency, as well as a description of methodologies used for determining claim frequency information. ASU 2015-09 is effective for annual periods beginning after December 15, 2015, and as such the disclosures will first be presented in the Company's Annual Report on Form 10-K for the year ended December 31, 2016. The Company is currently assessing the impact the adoption of ASU 2015-09 will have on future disclosures.

In September 2015, the FASB issued Accounting Standards Update 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments” (“ASU 2015-16”). ASU 2015-16 requires an acquirer in a business combination to recognize adjustments to the provisional amounts identified during the measurement period in the reporting period in which the adjustment amounts are determined. The acquirer is also required to either present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amounts recorded in the current-period earnings by line item that would have been recorded in previous periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. Under current U.S. GAAP, the acquirer is required to retrospectively adjust provisional amounts recognized at the acquisition date with a corresponding adjustment to goodwill. ASU 2015-16 is effective for annual periods beginning after December 31, 2015, with early application permitted, and shall apply to adjustments to provisional amounts that occur after the effective date. The Company is currently assessing the impact the adoption of ASU 2014-09 will have on future financial statements and related disclosures.

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

4. ACQUISITIONS

a) Hong Kong and Singapore Branches of Royal & Sun Alliance Insurance plc

On April 1, 2015, the Company completed its acquisitions of certain assets and assumed certain liabilities of the Hong Kong and Singapore operations of Royal & Sun Alliance Insurance plc (“RSA”) to further expand its international insurance operations. The assets acquired and liabilities assumed constituted a business, and as such the Company accounted for the acquisitions of the RSA branches under the acquisition method in accordance with U.S. GAAP. The initial cash consideration for the branches was $193,889. There were post-closing adjustments based on the net asset value of the acquired branches at the date of acquisitions that resulted in a decrease in the initial consideration of $31,160. The post-closing adjustments are still being agreed upon with RSA and as such the assets acquired and liabilities assumed are still preliminary and will be adjusted during the measurement period. In addition, completion of the valuation of the assets acquired and liabilities assumed is currently in process and will be finalized during the measurement period. To date, the Company has incurred a total of $8,948 in acquisition related expenses, mostly related to advisory, legal and valuation services rendered, which were recorded in “other expense” in the unaudited condensed consolidated statements of operations and comprehensive income (“consolidated income statements”).

The following table summarizes the consideration paid for the Hong Kong and Singapore branches of RSA and the preliminary amounts of the assets acquired and liabilities assumed at the acquisition date.



Consideration:	Fair Value
Cash for initial consideration	$	193,889
Receivable for post-closing adjustments	(31,160		)
Fair value of consideration transferred	162,729

Recognized amounts of identifiable assets acquired and liabilities assumed:
Fixed maturity investments	245,997
Cash and cash equivalents	46,853
Insurance balances receivable	113,922
Prepaid reinsurance	17,491
Reinsurance recoverable	57,350
Value of business acquired	37,104
Intangible assets	90,600
Other assets	10,041
Reserve for losses and loss expenses	(310,198		)
Unearned premiums	(150,530		)
Reinsurance balances payable	(35,734		)
Net deferred tax liabilities	(16,488		)
Accounts payable and accrued liabilities	(19,918		)
Total identifiable net assets acquired	86,490

Goodwill	76,239
Total net assets acquired	$	162,729

Of the $76,239 of goodwill acquired, $52,427 and $23,812 related to the Singapore and Hong Kong branches, respectively. All of the goodwill has been allocated to the Global Markets Insurance segment as all of the results of the international insurance operations are included in that segment and the expected synergies from these acquisitions are to be realized in that segment.

The Company recognized identifiable finite lived intangible assets, including an intangible asset for the value of businesses acquired (“VOBA”), which will be amortized over a weighted average period of 12 years. The following is a breakdown of the

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

intangible assets acquired.



	Singapore Branch		Estimated Useful Life	Hong Kong Branch		Estimated Useful Life	Total
VOBA	$	19,845	2 years	$	17,259	1.5 years	$	37,104
Customer renewals	8,600		4 years	6,800		7 years	15,400
Distribution channels	48,500		18 years	26,700		18 years	75,200
	$	76,945		$	50,759		$	127,704

The following is an explanation of identifiable finite lived intangible assets acquired:


•	VOBA: Represents the difference between the expected future losses and expenses and the associated unearned premium reserve. This intangible asset will be amortized consistent with how the associated unearned premiums will be earned and will be recorded in “acquisition costs” in the consolidated income statements.


•	Customer renewals: The value of inforce policies renewing taking into consideration the net cash flows generated from these renewals. The amortization expense for this intangible asset will be recorded in “amortization of intangible assets” in the consolidated income statements.


•	Distribution channels: The value of access to contractual and non-contractual relationships (e.g., brokers and affinity relationships) taking into consideration the net cash flows generated from these relationships. The amortization expense for this intangible asset will be recorded in “amortization of intangible assets” in the consolidated income statements.

The following summarizes the results of the Hong Kong and Singapore branches that have been included in the Company’s consolidated income statement since the acquisitions closed on April 1, 2015.



	From April 1, 2015 to September 30, 2015
Total revenue	$	103,265
Net loss	$	(14,788	)

The following unaudited pro forma information presents the combined results of the Company and the acquired Hong Kong and Singapore RSA branches for the nine months ended September 30, 2015 and 2014, with pro forma adjustments related to the acquisition method of accounting as if the acquisitions had been consummated as of January 1, 2014, which is the beginning of the earliest period presented. This unaudited pro forma information is not necessarily indicative of what would have occurred had the acquisitions and related transactions been made on the dates indicated, or of future results of the Company.



	Nine Months Ended September 30, 2015		Nine Months Ended September 30, 2014
Total revenue	$	1,960,185	$	2,010,308
Net income	$	70,633	$	362,143

b) Acquisition of Labuan branch of RSA

On April 30, 2015, the Company also acquired the assets and assumed the liabilities of the Labuan operations of RSA for consideration of one British pound sterling. The Company recorded goodwill of $1,396 related to this acquisition. The goodwill has been allocated to the Global Markets Insurance segment.

c) Acquisition of Latin American Underwriters Holdings, Ltd.

In January 2015, the Company acquired Latin American Underwriters Holdings Ltd. (“LAU”) for cash consideration of $5,105. LAU had previously underwritten trade credit insurance and political risk coverages solely for the Company since 2010. As part of the acquisition, the Company recorded goodwill of $2,467 and customer relationship intangibles of $3,610, which have a five-year useful life. The goodwill has been allocated to the Global Markets Insurance segment. The Company also recorded $1,000 of contingent consideration related to certain earn-out payments. During the three months ended

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

September 30, 2015, it was determined that LAU will not achieve any of the earn-out payments. As a result, the Company reduced the fair value of the contingent consideration to zero with the corresponding gain recorded as a reduction in “general and administrative expenses” in the consolidated income statements.

5. INVESTMENTS

a) Trading Securities

Securities accounted for at fair value with changes in fair value recognized in the consolidated income statements by category are as follows:



	September 30, 2015				December 31, 2014
	Fair Value		Amortized Cost		Fair Value		Amortized Cost
U.S. government and government agencies	$	1,287,749	$	1,283,085	$	1,610,502	$	1,610,880
Non-U.S. government and government agencies	427,096		449,572		188,199		196,332
States, municipalities and political subdivisions	422,007		410,052		170,567		165,615
Corporate debt:
Financial institutions	1,052,636		1,049,451		1,024,667		1,018,777
Industrials	1,256,975		1,276,413		1,029,729		1,037,820
Utilities	118,167		120,856		110,997		111,599
Mortgage-backed	1,302,678		1,273,349		1,263,517		1,219,712
Asset-backed	679,685		692,970		670,832		674,505
Total fixed maturity investments	$	6,546,993	$	6,555,748	$	6,069,010	$	6,035,240



	September 30, 2015				December 31, 2014
	Fair Value		Original Cost		Fair Value		Original Cost
Equity securities	$	663,390	$	668,061	$	844,163	$	791,206
Other invested assets	845,167		762,792		812,543		725,069
	$	1,508,557	$	1,430,853	$	1,656,706	$	1,516,275

Other invested assets, included in the table above, include investments in private equity funds, hedge funds and a high yield loan fund that are accounted for at fair value, but excludes other private securities described below in Note 5(b) that are accounted for using the equity method of accounting.

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

b) Other Invested Assets

Details regarding the carrying value, redemption characteristics and unfunded investment commitments of the other invested assets portfolio as of September 30, 2015 and December 31, 2014 were as follows:



Investment Type	Carrying Value as of September 30, 2015		Investments with Redemption Restrictions		Estimated Remaining Restriction Period	Investments without Redemption Restrictions		Redemption Frequency⁽¹⁾	Redemption Notice Period⁽¹⁾	Unfunded Commitments
Private equity	$	221,862	$	221,862	2 - 8 Years	$	—			$	251,874
Mezzanine debt	194,512		194,512		5 - 9 Years	—				166,476
Distressed	5,845		5,845		3 Years	—				5,591
Real estate	—		—		9 Years	—				200,000
Total private equity	422,219		422,219			—				623,941
Distressed	216,993		47,775		2 Years	169,218		Monthly	60 Days	—
Equity long/short	58,655		—			58,655		Quarterly	45 Days	—
Relative value credit	119,100		—			119,100		Quarterly	60 Days	—
Total hedge funds	394,748		47,775			346,973				—
High yield loan fund	28,200		—			28,200		Monthly	30 Days	—
Total other invested assets at fair value	845,167		469,994			375,173				623,941
Other private securities	124,260		—			124,260				—
Total other invested assets	$	969,427	$	469,994		$	499,433			$	623,941



Investment Type	Carrying Value as of December 31, 2014		Investments with Redemption Restrictions		Estimated Remaining Restriction Period	Investments without Redemption Restrictions		Redemption Frequency⁽¹⁾	Redemption Notice Period⁽¹⁾	Unfunded Commitments
Private equity	$	184,576	$	184,576	2 - 8 Years	$	—			$	223,802
Mezzanine debt	166,905		166,905		5 - 9 Years	—				204,232
Distressed	5,869		5,869		3 Years	—				5,180
Real estate	—		—		9 Years	—				50,000
Total private equity	357,350		357,350			—				483,214
Distressed	170,169		170,169			—		Based on net asset value	60 Days	—
Equity long/short	84,198		—			84,198		Quarterly	30 - 60 Days	—
Multi-strategy	51,507		—			51,507		Quarterly	45 - 90 Days	—
Relative value credit	119,156		—			119,156		Quarterly	60 Days	—
Total hedge funds	425,030		170,169			254,861				—
High yield loan fund	30,163		—			30,163		Monthly	30 Days	—
Total other invested assets at fair value	812,543		527,519			285,024				483,214
Other private securities	142,966		—			142,966				—
Total other invested assets	$	955,509	$	527,519		$	427,990			$	483,214


⁽¹⁾	The redemption frequency and notice periods only apply to the investments without redemption restrictions. Some or all of these investments may be subject to a gate as described below.

In general, the Company has invested in hedge funds that require at least 30 days’ notice of redemption and may be redeemed on a monthly, quarterly, semi-annual, annual or longer basis, depending on the fund. Certain hedge funds have lock-up periods ranging from one to three years from initial investment. A lock-up period refers to the initial amount of time an

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

investor is contractually required to invest before having the ability to redeem. Funds that provide for periodic redemptions may, depending on the funds’ governing documents, have the ability to deny or delay a redemption request, called a “gate.” The fund may implement this restriction because the aggregate amount of redemption requests as of a particular date exceeds a specified level, generally ranging from 15% to 25% of the fund’s net assets. The gate is a method for executing an orderly redemption process to reduce the possibility of adversely affecting investors in the fund. Typically, the imposition of a gate delays a portion of the requested redemption, with the remaining portion settled in cash sometime after the redemption date. Certain funds may impose a redemption fee on early redemptions. Interests in private equity funds cannot be redeemed because the investments include restrictions that do not allow for redemption until termination of the fund.

The following describes each investment type:

•

Private equity funds: Primary funds may invest in companies and general partnership interests. Secondary funds buy limited partnership interests from existing limited partners of primary private equity funds. As owners of private equity funds seek liquidity, they can sell their existing investments, plus any remaining commitment, to secondary market participants. These funds cannot be redeemed because the investments include restrictions that do not allow for redemption until termination of the fund.

•

Mezzanine debt funds: Mezzanine debt funds primarily focus on providing capital to upper middle market and middle market companies and private equity sponsors, in connection with leveraged buyouts, mergers and acquisitions, recapitalizations, growth financings and other corporate transactions. The most common position in the capital structure will be between the senior secured debt holder and the equity; however, the funds will utilize a flexible approach when structuring investments, which may include secured debt, subordinated debt, preferred stock and/or private equity. These funds cannot be redeemed because the investments include restrictions that do not allow for redemption until termination of the fund.

•

Distressed funds: In distressed debt investing, managers take positions in the debt of companies experiencing significant financial difficulties, including bankruptcy, or in certain positions of the capital structure of structured securities. The manager relies on the fundamental analysis of these securities, including the claims on the assets and the likely return to bondholders. Certain funds cannot be redeemed because the investments include restrictions that do not allow for redemption until termination of the fund.

•

Real estate funds: Private real estate funds invest directly in, and lend to commercial real estate (multifamily units, industrial buildings, office spaces and retail stores) and some residential property. Real estate managers have diversified portfolios that generally follow core, core-plus, value-added, opportunistic or real estate debt strategies. These funds cannot be redeemed because the investments include restrictions that do not allow for redemption until termination of the fund.


•	Equity long/short funds: In equity long/short funds, managers take long positions in companies they deem to be undervalued and short positions in companies they deem to be overvalued. Long/short managers may invest in countries, regions or sectors and vary by their use of leverage and by their targeted net long position.


•	Relative value credit funds: These funds seek to take exposure to credit-sensitive securities, long and/or short, based upon credit analysis of issuers and securities and credit market views.


•	Multi-strategy funds: These funds may utilize many strategies employed by specialized funds, including distressed investing, equity long/short, merger arbitrage, convertible arbitrage, fixed income arbitrage and macro trading.


•	High yield loan fund: A long-only private mutual fund that invests in high yield fixed income securities.


•	Other private securities: These securities include strategic non-controlling minority investments in private asset management companies and other insurance related investments that are accounted for using the equity method of accounting.

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

c) Net Investment Income



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Fixed maturity investments	$	42,801		$	38,762		$	120,264		$	110,998
Equity securities	3,115			3,711			11,540			12,876
Other invested assets: hedge funds and private equity	3,342			2,249			16,305			8,767
Other invested assets: other private securities	1,804			3,292			(1,119		)	7,291
Cash and cash equivalents	277			552			1,178			1,562
Expenses	(5,672		)	(5,154		)	(15,190		)	(13,670		)
Net investment income	$	45,667		$	43,412		$	132,978		$	127,824

The loss from other invested assets: other private securities for the nine months ended September 30, 2015 included an other-than-temporary impairment of $6,261 related to one of the Company's equity method investments. The Company recorded the other-than-temporary impairment as the fair value of this investment was below its carrying value.

d) Components of Realized Gains and Losses



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Gross realized gains on sale of invested assets	$	18,694		$	28,773		$	100,060		$	146,780
Gross realized losses on sale of invested assets	(34,735		)	(9,955		)	(57,798		)	(26,228		)
Net realized and unrealized (losses) gains on derivatives	(19,905		)	2,171			(17,616		)	(24,469		)
Mark-to-market (losses) gains:
Fixed maturity investments, trading	(15,270		)	(40,843		)	(42,441		)	18,039
Equity securities, trading	(62,853		)	(8,479		)	(57,761		)	(8,768		)
Other invested assets, trading	443			(6,803		)	(13,227		)	(1,068		)
Net realized investment (losses) gains	$	(113,626	)	$	(35,136	)	$	(88,783	)	$	104,286

e) Pledged Assets

As of September 30, 2015 and December 31, 2014, $2,975,115 and $3,585,792, respectively, of cash and cash equivalents and investments were deposited, pledged or held in trust accounts in favor of ceding companies and other counterparties or government authorities to comply with reinsurance contract provisions, insurance laws and other contract provisions.

In addition, as of September 30, 2015 and December 31, 2014, a further $570,363 and $571,750, respectively, of cash and cash equivalents and investments were pledged as collateral for the Company’s letter of credit facilities. See Note 10(f) to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 for details on the Company’s credit facilities.

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

6. DERIVATIVE INSTRUMENTS

As of September 30, 2015 and December 31, 2014, none of the Company’s derivatives were designated as hedges for accounting purposes. The following table summarizes information on the location and amounts of derivative fair values on the unaudited condensed consolidated balance sheets (“consolidated balance sheets”):



	September 30, 2015								December 31, 2014
	Asset Derivative Notional Amount		Asset Derivative Fair Value		Liability Derivative Notional Amount		Liability Derivative Fair Value		Asset Derivative Notional Amount		Asset Derivative Fair Value		Liability Derivative Notional Amount		Liability Derivative Fair Value
Foreign exchange contracts	$	4,331	$	28	$	890	$	9	$	33,875	$	1,274	$	167,376	$	991
Interest rate swaps	547,000		330		—		—		—		—		571,500		683
Total derivatives	$	551,331	$	358	$	890	$	9	$	33,875	$	1,274	$	738,876	$	1,674

Derivative assets and derivative liabilities are classified within “other assets” or “accounts payable and accrued liabilities” on the consolidated balance sheets.

The following table provides the net realized and unrealized gains (losses) on derivatives not designated as hedges recorded on the consolidated income statements:



	Three Months Ended September 30,					Nine Months Ended September 30,
	2015			2014		2015			2014
Foreign exchange contracts	$	183		$	1,886	$	(5,975	)	$	(580	)
Total included in foreign exchange loss	183			1,886		(5,975		)	(580		)
Foreign exchange contracts	134			1,701		928			857
Interest rate futures and swaps	(20,039		)	470		(18,544		)	(25,326		)
Total included in net realized investment gains (losses)	(19,905		)	2,171		(17,616		)	(24,469		)
Total realized and unrealized gains (losses) on derivatives	$	(19,722	)	$	4,057	$	(23,591	)	$	(25,049	)

Derivative Instruments Not Designated as Hedging Instruments

The Company is exposed to foreign currency risk in its investment portfolio. Accordingly, the fair values of the Company’s investment portfolio are partially influenced by the change in foreign exchange rates. These foreign currency hedging activities have not been designated as specific hedges for financial reporting purposes.

The Company’s insurance and reinsurance subsidiaries and branches operate in various foreign countries and consequently the Company’s underwriting portfolio is exposed to foreign currency risk. The Company manages foreign currency risk by seeking to match liabilities under the insurance policies and reinsurance contracts that it writes and that are payable in foreign currencies with cash and investments that are denominated in such currencies. When necessary, the Company may also use derivatives to economically hedge un-matched foreign currency exposures, specifically forward contracts and currency options.

The Company also purchases and sells interest rate future and interest rate swap contracts to actively manage the duration and yield curve positioning of its fixed income portfolio. Interest rate futures and interest rate swaps can efficiently increase or decrease the overall duration of the portfolio. Additionally, interest rate future and interest rate swap contracts can be utilized to obtain the desired position along the yield curve in order to protect against certain future yield curve shapes.

The Company also purchases options to actively manage its equity portfolio.

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

In accordance with U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is a three-level valuation

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon whether the inputs to the valuation of an asset or liability are observable or unobservable in the market at the measurement date, with quoted market prices being the highest level (Level 1) and unobservable inputs being the lowest level (Level 3). A fair value measurement will fall within the level of the hierarchy based on the input that is significant to determining such measurement. The three levels are defined as follows:


•	Level 1: Observable inputs to the valuation methodology that are quoted prices (unadjusted) for identical assets or liabilities in active markets.

•

Level 2: Observable inputs to the valuation methodology other than quoted market prices (unadjusted) for identical assets or liabilities in active markets. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets in markets that are not active and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.


•	Level 3: Inputs to the valuation methodology that are unobservable for the asset or liability.

The following table shows the fair value of the Company’s financial instruments and where in the fair value hierarchy the fair value measurements are included as of the dates indicated below:



September 30, 2015	Carrying Amount		Total Fair Value		Level 1		Level 2		Level 3
ASSETS:
Fixed maturity investments:
U.S. government and government agencies	$	1,287,748	$	1,287,748	$	1,225,745	$	62,003	$	—
Non-U.S. government and government agencies	427,096		427,096		—		427,096		—
States, municipalities and political subdivisions	422,007		422,007		—		422,007		—
Corporate debt	2,427,779		2,427,779		—		2,427,779		—
Mortgage-backed	1,302,678		1,302,678		—		1,199,013		103,665
Asset-backed	679,685		679,685		—		622,131		57,554
Total fixed maturity investments	6,546,993		6,546,993		1,225,745		5,160,029		161,219
Equity securities	663,390		663,390		636,576		—		26,814
Other invested assets ⁽¹⁾	845,167		845,167		—		—		—
Total investments	$	8,055,550	$	8,055,550	$	1,862,321	$	5,160,029	$	188,033
Derivative assets:
Foreign exchange contracts	$	28	$	28	$	—	$	28	$	—
Interest rate swaps	330		330		—		330		—
LIABILITIES:
Derivative liabilities:
Foreign exchange contracts	$	9	$	9	$	—	$	9	$	—
Senior notes	$	799,043	$	859,307	$	—	$	859,307	$	—
Other long-term debt	$	23,328	$	28,112	$	—	$	28,112	$	—

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)



December 31, 2014	Carrying Amount		Total Fair Value		Level 1		Level 2		Level 3
ASSETS:
Fixed maturity investments:
U.S. government and government agencies	$	1,610,502	$	1,610,502	$	1,499,347	$	111,155	$	—
Non-U.S. government and government agencies	188,199		188,199		—		188,199		—
States, municipalities and political subdivisions	170,567		170,567		—		170,567		—
Corporate debt	2,165,393		2,165,393		—		2,165,393		—
Mortgage-backed	1,263,517		1,263,517		—		1,081,734		181,783
Asset-backed	670,832		670,832		—		615,419		55,413
Total fixed maturity investments	6,069,010		6,069,010		1,499,347		4,332,467		237,196
Equity securities	844,163		844,163		800,833		—		43,330
Other invested assets⁽¹⁾	812,543		812,543		—		—		—
Total investments	$	7,725,716	$	7,725,716	$	2,300,180	$	4,332,467	$	280,526
Derivative assets:
Foreign exchange contracts	$	1,274	$	1,274	$	—	$	1,274	$	—
LIABILITIES:
Derivative liabilities:
Foreign exchange contracts	$	991	$	991	$	—	$	991	$	—
Interest rate swaps	$	683	$	683	$	—	$	683	$	—
Senior notes	$	798,802	$	879,317	$	—	$	879,317	$	—
Other long-term debt	$	19,213	$	22,583	$	—	$	22,583	$	—

⁽¹⁾ In accordance with U.S. GAAP, other invested assets, excluding other private securities, are measured at fair value using the net asset value per share (or its equivalent) practical expedient and have not been classified in the fair value hierarchy.

The following describes the valuation techniques used by the Company to determine the fair value of financial instruments held as of the balance sheet date.

Recurring Fair Value of Financial Instruments

U.S. government and government agencies: Comprised primarily of bonds issued by the U.S. Treasury, the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association. The fair values of the Company’s U.S. government securities are based on quoted market prices in active markets and are included in the Level 1 fair value hierarchy. The Company believes the market for U.S. Treasury securities is an actively traded market given the high level of daily trading volume. The fair values of U.S. government agency securities are priced using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads for these securities are observable market inputs, the fair values of U.S. government agency securities are included in the Level 2 fair value hierarchy.

Non-U.S. government and government agencies: Comprised of fixed income obligations of non-U.S. governmental entities. The fair values of these securities are based on prices obtained from international indices and are included in the Level 2 fair value hierarchy.

States, municipalities and political subdivisions: Comprised of fixed income obligations of U.S.-domiciled state and municipality entities. The fair values of these securities are based on prices obtained from the new issue market, and are included in the Level 2 fair value hierarchy.

Corporate debt: Comprised of bonds issued by or loan obligations of corporations that are diversified across a wide range of issuers and industries. The fair values of corporate debt that are short-term are priced using spread above the LIBOR yield curve, and the fair values of corporate debt that are long-term are priced using the spread above the risk-free yield curve. The

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

spreads are sourced from broker-dealers, trade prices and the new issue market. As the significant inputs used to price corporate bonds are observable market inputs, the fair values of corporate debt are included in the Level 2 fair value hierarchy.

Mortgage-backed: Primarily comprised of residential and commercial mortgages originated by both U.S. government agencies (such as the Federal National Mortgage Association) and non-U.S. government agencies. The fair values of mortgage-backed securities originated by U.S. government agencies and non-U.S. government agencies are based on a pricing model that incorporates prepayment speeds and spreads to determine the appropriate average life of mortgage-backed securities. The spreads are sourced from broker-dealers, trade prices and the new issue market. As the significant inputs used to price the mortgage-backed securities are observable market inputs, the fair values of these securities are included in the Level 2 fair value hierarchy, unless the significant inputs used to price the mortgage-backed securities are broker-dealer quotes and the Company is not able to determine if those quotes are based on observable market inputs, in which case the fair value is included in the Level 3 hierarchy.

Asset-backed: Principally comprised of bonds backed by pools of automobile loan receivables, home equity loans, credit card receivables and collateralized loan obligations originated by a variety of financial institutions. The fair values of asset-backed securities are priced using prepayment speed and spread inputs that are sourced from the new issue market or broker-dealer quotes. As the significant inputs used to price the asset-backed securities are observable market inputs, the fair values of these securities are included in the Level 2 fair value hierarchy, unless the significant inputs used to price the asset-backed securities are broker-dealer quotes and the Company is not able to determine if those quotes are based on observable market inputs, in which case the fair value is included in the Level 3 hierarchy.

Equity securities: Comprised of common and preferred stocks and mutual funds. Equities are generally included in the Level 1 fair value hierarchy as prices are obtained from market exchanges in active markets. Non-U.S. mutual funds where the net asset value is not provided on a daily basis are included in the Level 3 fair value hierarchy.

Other invested assets: Comprised of funds invested in a range of diversified strategies. In accordance with U.S. GAAP, the fair values of the funds are based on the net asset value of the funds as reported by the fund manager.

Derivative instruments: The fair value of foreign exchange contracts, interest rate futures and interest rate swaps are priced from quoted market prices for similar exchange-traded derivatives and pricing valuation models that utilize independent market data inputs. The fair value of derivatives are included in the Level 2 fair value hierarchy.

Senior notes: The fair value of the senior notes is based on reported trades. The fair value of the senior notes is included in the Level 2 fair value hierarchy.

Other long-term debt: Comprised of the mortgage and credit facility associated with the purchase of office space in Switzerland. The fair value of the other long-term debt is based on the value of the debt using current interest rates. The fair value of the other long-term debt is included in the Level 2 fair value hierarchy.

Non-recurring Fair Value of Financial Instruments

The Company measures the fair value of certain assets on a non-recurring basis, generally quarterly, annually or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. These assets include investments accounted for using the equity method, goodwill and intangible assets. The Company uses a variety of techniques to measure the fair value of these assets when appropriate, as described below:

Investments accounted for using the equity method: When the Company determines that the carrying value of these assets may not be recoverable, the Company records the assets at fair value with the loss recognized in income. In such cases, the Company measures the fair value of these assets using discounted expected future cash flow and market multiple models.

Goodwill and intangible assets: The Company tests goodwill and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, but at least annually for goodwill and indefinite-lived intangibles. If the Company determines that goodwill and intangible assets may be impaired, the Company uses techniques, including discounted expected future cash flows and market multiple models, to measure fair value.

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

Rollforward of Level 3 Financial Instruments

The following is a reconciliation of the beginning and ending balance of financial instruments using significant unobservable inputs (Level 3):



Three Months Ended September 30, 2015	Mortgage-backed			Asset-backed			Equities
Opening balance	$	99,637		$	83,908		$	57,807
Realized and unrealized gains (losses) included in net (loss) income	808			(2,547		)	(10,993		)
Purchases	9,666			122			—
Sales	(9,390		)	(7,892		)	(20,000		)
Transfers into Level 3 from Level 2	3,126			627			—
Transfers out of Level 3 into Level 2⁽¹⁾	(182		)	(16,664		)	—
Ending balance	$	103,665		$	57,554		$	26,814
Three Months Ended September 30, 2014
Opening balance	$	146,801		$	71,232		$	34,863
Realized and unrealized gains (losses) included in net (loss) income	(882		)	(253		)	3,172
Purchases	16,311			18,021			—
Sales	(28,761		)	(9,970		)	—
Transfers into Level 3 from Level 2	1,628			17,863			—
Transfers out of Level 3 into Level 2 ⁽¹⁾	(15,189		)	(5,523		)	—
Ending balance	$	119,908		$	91,370		$	38,035



Nine Months Ended September 30, 2015	Mortgage-backed			Asset-backed			Equities
Opening balance	$	181,783		$	55,413		$	43,330
Realized and unrealized gains (losses) included in net (loss) income	27			(2,960		)	3,484
Purchases	16,657			7,011			—
Sales	(94,802		)	(20,160		)	(20,000		)
Transfers into Level 3 from Level 2	—			41,234			—
Transfers out of Level 3 into Level 2⁽¹⁾	—			(22,984		)	—
Ending balance	$	103,665		$	57,554		$	26,814
Nine Months Ended September 30, 2014
Opening balance	$	147,338		$	93,413		$	73,904
Realized and unrealized gains (losses) included in net (loss) income	3,654			(659		)	(6,572		)
Purchases	34,187			35,526			—
Sales	(65,038		)	(19,871		)	(29,297		)
Transfers into Level 3 from Level 2	1,253			13,923			—
Transfers out of Level 3 into Level 2⁽¹⁾	(1,486		)	(30,962		)	—
Ending balance	$	119,908		$	91,370		$	38,035


⁽¹⁾	Transfers out of Level 3 are primarily attributable to the availability of market observable information.

The Company attempts to verify the significant inputs used by broker-dealers in determining the fair value of the securities priced by them. If the Company could not obtain sufficient information to determine if the broker-dealers were using significant observable inputs, then such securities have been transferred to the Level 3 fair value hierarchy. The Company believes the prices obtained from the broker-dealers are the best estimate of fair value of the securities being priced as the broker-dealers are typically involved in the initial pricing of the security, and the Company has compared the price per the broker-dealer to other pricing sources and noted no material differences. The Company recognizes transfers between levels at the end of the reporting period. There were no transfers between Level 1 and Level 2 during the period.

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

The Company’s external investment accounting service provider receives prices from internationally recognized independent pricing services to measure the fair values of its fixed maturity investments. Pricing sources are evaluated and selected in a manner to ensure that the most reliable sources are used. The Company uses a pricing service ranking to consistently select the most appropriate pricing service in instances where it receives multiple quotes on the same security. The Company obtains multiple quotes for the majority of its securities. The independent pricing sources obtain market quotations and actual transaction prices for securities that have quoted prices in active markets. Each pricing service has its own proprietary method for determining the fair value of securities that are not actively traded. In general, these methods involve the use of “matrix pricing” in which the independent pricing service uses observable market inputs, including, but not limited to, reported trades, benchmark yields, broker-dealer quotes, interest rates, prepayment speeds, default rates and such other inputs as are available from market sources to determine a reasonable fair value.

All of the Company’s securities classified as Level 3 are valued based on unadjusted broker-dealer quotes. This includes less liquid securities such as lower quality asset-backed securities, commercial mortgage-backed securities and residential mortgage-backed securities. The primary valuation inputs include monthly payment information, the probability of default, loss severity rates and estimated prepayment rates. Significant changes in these inputs in isolation would result in a significantly lower or higher fair value measurement. In general, a change in the assumption of the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity in an event of default and prepayment rates.

The Company records the unadjusted price provided and validates this price through a process that includes, but is not limited to, monthly and/or quarterly: (i) comparison of prices between two independent sources, with significant differences requiring additional price sources; (ii) quantitative analysis (e.g., comparing the quarterly return for each managed portfolio to their target benchmark, with significant differences identified and investigated); (iii) evaluation of methodologies used by external parties to calculate fair value, including a review of the inputs used for pricing; (iv) comparing the price to the Company’s knowledge of the current investment market; and (v) back-testing, which includes randomly selecting purchased or sold securities and comparing the executed prices to the fair value estimates from the pricing service. In addition to internal controls, management relies on the effectiveness of the valuation controls in place at the Company’s external investment accounting service provider (supported by a Statement on Standards for Attestation Engagements No. 16 report) in conjunction with regular discussion and analysis of the investment portfolio’s structure and performance.

8. RESERVE FOR LOSSES AND LOSS EXPENSES

The reserve for losses and loss expenses consists of the following:



	September 30, 2015		December 31, 2014
Outstanding loss reserves	$	1,707,409	$	1,514,051
Reserves for losses incurred but not reported	4,729,170		4,367,114
Reserve for losses and loss expenses	$	6,436,579	$	5,881,165

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

The table below is a reconciliation of the beginning and ending liability for unpaid losses and loss expenses. Losses incurred and paid are reflected net of reinsurance recoverables.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Gross liability at beginning of period	$	6,363,948		$	5,935,678		$	5,881,165		$	5,766,529
Reinsurance recoverable at beginning of period	(1,433,109		)	(1,301,742		)	(1,340,256		)	(1,234,504		)
Net liability at beginning of period	4,930,839			4,633,936			4,540,909			4,532,025
Acquisition of net reserves for losses and loss expenses	—			—			256,991			—
Net losses incurred related to:
Current year	425,473			382,970			1,267,649			1,067,111
Prior years	(8,591		)	(46,880		)	(94,071		)	(140,880		)
Total incurred	416,882			336,090			1,173,578			926,231
Net paid losses related to:
Current year	60,828			53,596			95,388			80,401
Prior years	287,840			202,626			866,770			666,555
Total paid	348,668			256,222			962,158			746,956
Foreign exchange revaluation	(12,306		)	(10,550		)	(22,573		)	(8,046		)
Net liability at end of period	4,986,747			4,703,254			4,986,747			4,703,254
Reinsurance recoverable at end of period	1,449,832			1,349,009			1,449,832			1,349,009
Gross liability at end of period	$	6,436,579		$	6,052,263		$	6,436,579		$	6,052,263

The net reserve for losses and loss expenses acquired of $256,991 represents the net reserves acquired from the Hong Kong and Singapore branches of RSA of $252,848 and the net reserves from the Labuan branch of RSA of $4,143.

For the three months ended September 30, 2015, the Company recognized net favorable prior year reserve development primarily due to lower than expected loss emergence across each of its segments. The net favorable prior year reserve development for the North American Insurance segment primarily related to net favorable prior year reserve development in the professional liability line of business, partially offset by unfavorable prior year development in the casualty line of business from the 2012 to 2014 loss years. The net favorable reserve development in the Global Markets Insurance segment was primarily due to net favorable loss reserve development in the professional liability line of business, partially offset by unfavorable prior year reserve development in the specialty and other line of business from the 2013 loss year. The net favorable reserve development in the Reinsurance segment was primarily related to the property and casualty reinsurance lines of business.

For the three months ended September 30, 2014, the Company recognized net favorable prior year reserve development in each of its segments. The net favorable prior year reserve development for the North American Insurance segment primarily related to net favorable prior year reserve development in the professional liability, casualty and programs lines of business, partially offset by unfavorable prior year development in the healthcare line of business mainly from the 2011 to 2013 loss years. The net favorable reserve development in the Global Markets Insurance segment was primarily due to net favorable loss reserve development in the professional liability and general casualty lines of business. The net favorable reserve development in the Reinsurance segment was primarily due to lower than expected loss activity in the property reinsurance line of business for the 2013 loss year.

For the nine months ended September 30, 2015, the Company recognized net favorable prior year reserve development primarily due to lower than expected loss emergence across each of its segments. The net favorable prior year reserve development for the North American Insurance segment primarily related to net favorable prior year reserve development in the professional liability, programs and property lines of business, partially offset by unfavorable prior year development in the healthcare and casualty lines of business mainly from the 2012 and 2013 loss years. The net favorable reserve development in the Global Markets Insurance segment was primarily due to net favorable loss reserve development in the property, professional liability and casualty lines of business, partially offset by unfavorable prior year reserve development in the specialty and other

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

line of business from the 2013 loss year. The net favorable reserve development in the Reinsurance segment was primarily related to the property and casualty reinsurance lines of business.

For the nine months ended September 30, 2014, the Company recognized net favorable prior year reserve development in each of its segments. The net favorable prior year reserve development for the North American Insurance segment primarily related to net favorable prior year reserve development in the professional liability, programs and general property lines of business, partially offset by unfavorable prior year development in the healthcare and general casualty lines of business. The net favorable prior year reserve development in the Global Markets Insurance segment was primarily due to net favorable reserve development in the professional liability, general casualty and general property lines of business. The net favorable reserve development in the Reinsurance segment was primarily due to lower than expected loss activity in the property reinsurance line of business for the 2013 loss year.

While the Company at times has experienced favorable reserve development in its insurance and reinsurance lines, there is no assurance that conditions and trends that have affected the development of liabilities in the past will continue. It is not appropriate to extrapolate future redundancies based on prior years’ development. The methodology of estimating loss reserves is periodically reviewed to ensure that the key assumptions used in the actuarial models continue to be appropriate.

9. INCOME TAXES

Under Swiss law, a resident company is subject to income tax at the federal, cantonal and communal levels that is levied on net income. Income attributable to permanent establishments or real estate located abroad is excluded from the Swiss tax base. Allied World Switzerland is a holding company and, therefore, is exempt from cantonal and communal income tax. As a result, Allied World Switzerland is subject to Swiss income tax only at the federal level. Allied World Switzerland is a resident of the Canton of Zug and, as such, is subject to an annual cantonal and communal capital tax on its taxable equity. One of Allied World Switzerland's subsidiaries is a Swiss operating company, which is a resident in the Canton of Zug. The operating company is subject to federal, cantonal and communal income tax and to annual cantonal and communal capital tax.

Under current Bermuda law, Allied World Assurance Company Holdings, Ltd (“Allied World Bermuda”) and its Bermuda subsidiaries are not required to pay taxes in Bermuda on either income or capital gains. Allied World Bermuda and Allied World Assurance Company, Ltd have received an assurance from the Bermuda Minister of Finance under the Exempted Undertakings Tax Protection Act 1966 of Bermuda, that in the event of any such taxes being imposed, Allied World Bermuda and Allied World Assurance Company, Ltd will be exempted until March 2035.

Certain subsidiaries of Allied World Switzerland file U.S. federal income tax returns and various U.S. state income tax returns, as well as income tax returns in Canada, Hong Kong, Ireland, Singapore and the United Kingdom. The U.S. Internal Revenue Service is currently conducting an audit of the 2012 tax return of the Company's U.S. subsidiaries. To the best of the Company’s knowledge, there are no other income tax examinations pending by any other tax authority.

Management has deemed all material tax positions to have a greater than 50% likelihood of being sustained based on technical merits if challenged. The Company does not expect any material unrecognized tax benefits within 12 months of September 30, 2015.

10. SHAREHOLDERS’ EQUITY

a) Authorized shares

The issued share capital consists of the following:



	September 30, 2015		December 31, 2014
Common shares issued and fully paid, 2015 and 2014: CHF 4.10 per share	95,523,230		100,775,256
Share capital at end of period	$	386,702	$	408,020

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)



	Nine Months Ended September 30, 2015
Shares issued at beginning of period	100,775,256
Shares canceled	(5,252,026	)
Total shares issued at end of period	95,523,230
Treasury shares issued at beginning of period	4,579,774
Shares repurchased	6,047,437
Shares issued out of treasury	(763,843	)
Shares canceled	(5,252,026	)
Total treasury shares at end of period	4,611,342
Total shares outstanding at end of period	90,911,888

During the nine months ended September 30, 2015, 5,252,026 shares repurchased and designated for cancellation were constructively retired and canceled.

b) Dividends

The Company paid the following dividends during the nine months ended September 30, 2015:



Dividend Paid	Dividend Per Share		Total Amount Paid
January 2, 2015	$	0.225	$	21,669
April 2, 2015	$	0.225	$	21,528
July 2, 2015	$	0.260	$	23,606

On May 1, 2014, the shareholders approved the Company’s proposal to pay cash dividends in the form of a distribution out of general legal reserve from capital contributions. The distribution amount was paid to shareholders in quarterly dividends of $0.225 per share. The four installments of the dividend were distributed on July 2, 2014, October 2, 2014, January 2, 2015 and April 2, 2015.

On April 30, 2015, the shareholders approved the Company's proposal to pay cash dividends in the form of a distribution out of general legal reserve from capital contributions. The distribution amount will be paid to shareholders in quarterly installments of $0.26 per share. The first installment of the dividend was distributed on July 2, 2015 and the second installment was distributed on October 1, 2015. The Company expects to distribute the remaining installments of the dividend in January 2016 and April 2016.

c) Share Repurchases

On May 1, 2014, the shareholders approved a share repurchase program (the “2014 share repurchase program”) in order for the Company to repurchase up to $500,000 of its common shares. Repurchases may be effected from time to time through open market purchases, privately negotiated transactions, tender offers or otherwise. The timing, form and amount of the share repurchases under the program will depend on a variety of factors, including market conditions, the Company’s capital position, legal requirements and other factors. Under the terms of the 2014 share repurchase program, the first three million of common shares repurchased will remain in treasury and will be used by the Company to satisfy share delivery obligations under its equity-based compensation plans. Any additional common shares repurchased will be designated for cancellation at acquisition and will be canceled upon shareholder approval. Shares repurchased and designated for cancellation are constructively retired and recorded as a share cancellation.

The Company’s share repurchases were as follows:

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Common shares repurchased	—		654,851		6,047,437		4,616,543
Total cost of shares repurchased	$	—	$	24,996	$	245,301	$	164,528
Average price per share	$	—	$	38.17	$	40.56	$	35.64

No common shares were repurchased during the three months ended September 30, 2015.

On May 6, 2015, the Company repurchased 4,053,537 shares from Exor S.A. at a repurchase price of $40.546 per share, for an aggregate purchase price of $164,355. The repurchase was executed under the 2014 share repurchase program.

11. EARNINGS PER SHARE

The following table sets forth the comparison of basic and diluted (loss) earnings per share:



	Three Months Ended September 30,					Nine Months Ended September 30,
	2015			2014		2015		2014
Basic (loss) earnings per share:
Net (loss) income	$	(51,630	)	$	30,915	$	82,184	$	359,750
Weighted average common shares outstanding	90,882,511			96,458,231		93,068,088		97,926,378
Basic (loss) earnings per share	$	(0.57	)	$	0.32	$	0.88	$	3.67



	Three Months Ended September 30,					Nine Months Ended September 30,
	2015			2014		2015		2014
Diluted (loss) earnings per share:
Net (loss) income	$	(51,630	)	$	30,915	$	82,184	$	359,750
Weighted average common shares outstanding	90,882,511			96,458,231		93,068,088		97,926,378
Share equivalents:
Stock options	—			1,430,243		1,071,569		1,449,641
RSUs and performance-based equity awards	—			541,711		569,276		575,675
Employee share purchase plan	—			14,053		16,047		13,602
Weighted average common shares and common share equivalents outstanding - diluted	90,882,511			98,444,238		94,724,980		99,965,296
Diluted (loss) earnings per share	$	(0.57	)	$	0.31	$	0.87	$	3.60

For the three months ended September 30, 2015, there were no common share equivalents included in calculating diluted earnings per share as there was a net loss and any additional shares would be anti-dilutive.

For the three months ended September 30, 2014 and the nine months ended September 30, 2015 and 2014, there were no common shares considered anti-dilutive and therefore excluded from the calculation of the diluted earnings per share.

12. SEGMENT INFORMATION

The determination of reportable segments is based on how senior management monitors the Company’s underwriting operations. Management monitors the performance of its direct underwriting operations based on the geographic location of the Company’s offices, the markets and customers served and the types of account written. The Company is currently organized into three operating segments: North American Insurance, Global Markets Insurance and Reinsurance. All lines of business fall within these classifications.

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

The North American Insurance segment includes the Company’s specialty insurance operations in the United States, Bermuda and Canada, as well as the Company's claim administration services operations. This segment provides both property and specialty casualty insurance primarily to North American domiciled accounts. The Global Markets Insurance segment includes the Company’s specialty insurance operations in Europe and Asia Pacific, which includes offices in Australia, Hong Kong, Labuan, Singapore and Lloyd's coverholder operation in Miami, which services business from Latin America and the Caribbean. This segment provides both property and casualty insurance primarily to non-North American domiciled accounts. The Reinsurance segment includes the Company’s reinsurance operations in the United States, Bermuda, Europe and Singapore. This segment provides reinsurance of property, general casualty, professional liability, specialty lines and property catastrophe coverages written by insurance companies. The Company presently writes reinsurance on both a treaty and a facultative basis, targeting several niche reinsurance markets.

Responsibility and accountability for the results of underwriting operations are assigned by major line of business within each segment. Because the Company does not manage its assets by segment, investment income, interest expense and total assets are not allocated to individual reportable segments. General and administrative expenses are allocated to segments based on various factors, including staff count and each segment’s proportional share of gross premiums written.

The Company measures its segment income or loss as underwriting income or loss plus other insurance-related income and expenses, which may include the net earnings from the claims administration services operation and other income or expense that is not directly related to our underwriting operations. Management measures results for each segment's underwriting income on the basis of the “loss and loss expense ratio,” “acquisition cost ratio,” “general and administrative expense ratio”, “expense ratio” and the “combined ratio.” The “loss and loss expense ratio” is derived by dividing net losses and loss expenses by net premiums earned. The “acquisition cost ratio” is derived by dividing acquisition costs by net premiums earned. The “general and administrative expense ratio” is derived by dividing general and administrative expenses by net premiums earned. The expense ratio is the sum of the acquisition cost ratio and the general and administrative expense ratio. The “combined ratio” is the sum of the “loss and loss expense ratio,” the “acquisition cost ratio” and the “general and administrative expense ratio.”

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

The following tables provide a summary of the segment results:



Three Months Ended September 30, 2015	North American Insurance			Global Markets Insurance			Reinsurance			Total
Gross premiums written	$	460,386		$	132,664		$	161,012		$	754,062
Net premiums written	350,791			104,075			152,126			606,992
Net premiums earned	332,722			110,327			207,604			650,653
Net losses and loss expenses	(222,250		)	(70,935		)	(123,696		)	(416,881		)
Acquisition costs	(35,585		)	(22,731		)	(41,785		)	(100,101		)
General and administrative expenses	(58,301		)	(29,344		)	(18,153		)	(105,798		)
Underwriting income (loss)	16,586			(12,683		)	23,970			27,873
Other insurance-related income	735			—			—			735
Other insurance-related expenses	(631		)	(614		)	—			(1,245		)
Segment income (loss)	$	16,690		$	(13,297	)	$	23,970		$	27,363
Net investment income										45,667
Net realized investment losses										(113,626		)
Amortization of intangible assets										(2,639		)
Interest expense										(14,469		)
Foreign exchange gain										793
Loss before income taxes										$	(56,911	)

Loss and loss expense ratio	66.8		%	64.3		%	59.6		%	64.1		%
Acquisition cost ratio	10.7		%	20.6		%	20.1		%	15.4		%
General and administrative expense ratio	17.5		%	26.6		%	8.7		%	16.3		%
Expense ratio	28.2		%	47.2		%	28.8		%	31.7		%
Combined ratio	95.0		%	111.5		%	88.4		%	95.8		%

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)



Three Months Ended September 30, 2014	North American Insurance			Global Markets Insurance			Reinsurance			Total
Gross premiums written	$	466,792		$	64,125		$	176,967		$	707,884
Net premiums written	364,739			44,794			159,209			568,742
Net premiums earned	277,203			41,574			222,960			541,737
Net losses and loss expenses	(180,682		)	(28,142		)	(127,266		)	(336,090		)
Acquisition costs	(27,027		)	(5,313		)	(40,063		)	(72,403		)
General and administrative expenses	(52,921		)	(16,802		)	(18,571		)	(88,294		)
Underwriting income (loss)	16,573			(8,683		)	37,060			44,950
Other insurance-related income	1,032			—			—			1,032
Other insurance-related expenses	(1,270		)	(5,305		)	—			(6,575		)
Segment income (loss)	$	16,335		$	(13,988	)	$	37,060		$	39,407
Net investment income										43,412
Net realized investment losses										(35,136		)
Amortization of intangible assets										(633		)
Interest expense										(14,325		)
Foreign exchange loss										(278		)
Income before income taxes										$	32,447

Loss and loss expense ratio	65.2		%	67.7		%	57.1		%	62.0		%
Acquisition cost ratio	9.7		%	12.8		%	18.0		%	13.4		%
General and administrative expense ratio	19.1		%	40.4		%	8.3		%	16.3		%
Expense ratio	28.8		%	53.2		%	26.3		%	29.7		%
Combined ratio	94.0		%	120.9		%	83.4		%	91.7		%

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)



Nine Months Ended September 30, 2015	North American Insurance			Global Markets Insurance			Reinsurance			Total
Gross premiums written	$	1,358,636		$	328,223		$	773,787		$	2,460,646
Net premiums written	1,019,866			216,230			747,093			1,983,189
Net premiums earned	974,232			262,993			628,352			1,865,577
Net losses and loss expenses	(655,475		)	(157,200		)	(360,903		)	(1,173,578		)
Acquisition costs	(100,818		)	(54,076		)	(124,524		)	(279,418		)
General and administrative expenses	(175,732		)	(78,093		)	(57,474		)	(311,299		)
Underwriting income (loss)	42,207			(26,376		)	85,451			101,282
Other insurance-related income	2,513			—			—			2,513
Other insurance-related expenses	(2,076		)	(2,227		)	—			(4,303		)
Segment income (loss)	$	42,644		$	(28,603	)	$	85,451		$	99,492
Net investment income										132,978
Net realized investment losses										(88,783		)
Amortization of intangible assets										(6,091		)
Interest expense										(43,272		)
Foreign exchange loss										(10,369		)
Income before income taxes										$	83,955

Loss and loss expense ratio	67.3		%	59.8		%	57.4		%	62.9		%
Acquisition cost ratio	10.3		%	20.6		%	19.8		%	15.0		%
General and administrative expense ratio	18.0		%	29.7		%	9.1		%	16.7		%
Expense ratio	28.3		%	50.3		%	28.9		%	31.7		%
Combined ratio	95.6		%	110.1		%	86.3		%	94.6		%

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)



Nine Months Ended September 30, 2014	North American Insurance			Global Markets Insurance			Reinsurance			Total
Gross premiums written	$	1,285,044		$	196,086		$	888,552		$	2,369,682
Net premiums written	905,279			126,574			862,427			1,894,280
Net premiums earned	808,453			114,584			686,232			1,609,269
Net losses and loss expenses	(520,586		)	(35,204		)	(370,441		)	(926,231		)
Acquisition costs	(76,531		)	(12,615		)	(125,258		)	(214,404		)
General and administrative expenses	(159,063		)	(48,861		)	(56,898		)	(264,822		)
Underwriting income	52,273			17,904			133,635			203,812
Other insurance-related income	1,032			—			—			1,032
Other insurance-related expenses	(1,270		)	(5,305		)	—			(6,575		)
Segment income	$	52,035		$	12,599		$	133,635		$	198,269
Net investment income										127,824
Net realized investment gains										104,286
Amortization of intangible assets										(1,900		)
Interest expense										(43,451		)
Foreign exchange loss										(978		)
Income before income taxes										$	384,050

Loss and loss expense ratio	64.4		%	30.7		%	54.0		%	57.6		%
Acquisition cost ratio	9.5		%	11.0		%	18.3		%	13.3		%
General and administrative expense ratio	19.7		%	42.6		%	8.3		%	16.5		%
Expense ratio	29.2		%	53.6		%	26.6		%	29.8		%
Combined ratio	93.6		%	84.3		%	80.6		%	87.4		%

The following table shows an analysis of the Company’s gross premiums written by geographic location of the Company’s subsidiaries and branches. All intercompany premiums have been eliminated.



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
United States	$	489,562	$	483,992	$	1,509,314	$	1,447,652
Asia Pacific	106,039		45,070		239,323		142,798
Bermuda	84,486		109,503		448,988		525,005
Europe	70,814		64,947		251,042		245,931
Canada	3,161		4,372		11,979		8,296
Total gross premiums written	$	754,062	$	707,884	$	2,460,646	$	2,369,682

Europe includes gross premiums written attributable to Switzerland of $12,209 and $11,130 for the three months ended September 30, 2015 and 2014, respectively, and $56,876 and $65,684 for the nine months ended September 30, 2015 and 2014, respectively.

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

The following table shows the Company's net premiums earned by line of business for each segment for each of the periods indicated.



	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
North American Insurance:
Casualty	$	112,093	$	86,114	$	326,236	$	240,981
Professional liability	87,678		68,512		251,005		197,042
Property	39,333		42,457		123,201		127,402
Programs	38,306		28,933		109,163		88,109
Healthcare	35,322		40,775		111,759		126,591
Specialty and other	19,990		10,412		52,868		28,328
Total	332,722		277,203		974,232		808,453

Global Markets Insurance:
Casualty	32,033		4,396		68,979		10,298
Specialty and other	29,952		11,915		69,886		31,935
Professional liability	27,719		17,001		76,976		47,091
Property	20,623		8,262		47,152		25,260
Total	110,327		41,574		262,993		114,584

Reinsurance:
Property	102,329		113,560		311,498		379,575
Casualty	58,170		65,915		173,953		163,591
Specialty	47,105		43,485		142,901		143,066
Total	207,604		222,960		628,352		686,232
Total net premiums earned	$	650,653	$	541,737	$	1,865,577	$	1,609,269

13. COMMITMENTS AND CONTINGENCIES

The Company, in common with the insurance industry in general, is subject to litigation and arbitration in the normal course of its business. These legal proceedings generally relate to claims asserted by or against the Company in the ordinary course of insurance or reinsurance operations. Estimated amounts payable under these proceedings are included in the reserve for losses and loss expenses in the Company’s consolidated balance sheets. As of September 30, 2015, the Company was not a party to any material legal proceedings arising outside the ordinary course of business that management believes will have a material adverse effect on the Company’s results of operations, financial position or cash flow.

14. CONDENSED CONSOLIDATED GUARANTOR FINANCIAL STATEMENTS

The following tables present unaudited condensed consolidating financial information as of September 30, 2015 and December 31, 2014 and for the three and nine months ended September 30, 2015 and 2014 for Allied World Switzerland (the “Parent Guarantor”) and Allied World Bermuda (the “Subsidiary Issuer”). The Subsidiary Issuer is a direct, 100%-owned subsidiary of the Parent Guarantor. Investments in subsidiaries are accounted for by the Parent Guarantor under the equity method for purposes of the supplemental consolidating presentation. Earnings of subsidiaries are reflected in the Parent Guarantor’s investment accounts and earnings. The Parent Guarantor fully and unconditionally guarantees the senior notes issued by the Subsidiary Issuer.

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

Unaudited Condensed Consolidating Balance Sheet:



September 30, 2015	Allied World Switzerland (Parent Guarantor)		Allied World Bermuda (Subsidiary Issuer)		Other Allied World Subsidiaries		Consolidating Adjustments			Allied World Switzerland Consolidated
ASSETS:
Investments	$	—	$	—	$	8,179,810	$	—		$	8,179,810
Cash and cash equivalents	30,561		1,462		571,787		—			603,810
Insurance balances receivable	—		—		905,401		—			905,401
Funds held	—		—		443,670		—			443,670
Reinsurance recoverable	—		—		1,449,832		—			1,449,832
Reinsurance recoverable on paid losses	—		—		117,110		—			117,110
Net deferred acquisition costs	—		—		201,313		—			201,313
Goodwill and intangible assets	—		—		485,393		—			485,393
Balances receivable on sale of investments	—		—		29,461		—			29,461
Investments in subsidiaries	3,337,480		3,882,163		—		(7,219,643		)	—
Due from subsidiaries	216,992		45,005		14,100		(276,097		)	—
Other assets	2,402		2,298		777,079		—			781,779
Total assets	$	3,587,435	$	3,930,928	$	13,174,956	$	(7,495,740	)	$	13,197,579
LIABILITIES:
Reserve for losses and loss expenses	$	—	$	—	$	6,436,579	$	—		$	6,436,579
Unearned premiums	—		—		1,835,527		—			1,835,527
Reinsurance balances payable	—		—		260,225		—			260,225
Balances due on purchases of investments	—		—		108,337		—			108,337
Senior notes	—		799,043		—		—			799,043
Other long-term debt	—		—		23,328		—			23,328
Due to subsidiaries	6,559		7,541		261,997		(276,097		)	—
Other liabilities	25,471		12,477		141,187		—			179,135
Total liabilities	32,030		819,061		9,067,180		(276,097		)	9,642,174
Total shareholders’ equity	3,555,405		3,111,867		4,107,776		(7,219,643		)	3,555,405
Total liabilities and shareholders’ equity	$	3,587,435	$	3,930,928	$	13,174,956	$	(7,495,740	)	$	13,197,579

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)



December 31, 2014	Allied World Switzerland (Parent Guarantor)		Allied World Bermuda (Subsidiary Issuer)		Other Allied World Subsidiaries		Consolidating Adjustments			Allied World Switzerland Consolidated
ASSETS:
Investments	$	—	$	—	$	7,868,682	$	—		$	7,868,682
Cash and cash equivalents	32,579		1,734		555,026		—			589,339
Insurance balances receivable	—		—		664,815		—			664,815
Funds held	—		—		724,021		—			724,021
Reinsurance recoverable	—		—		1,340,256		—			1,340,256
Reinsurance recoverable on paid losses	—		—		86,075		—			86,075
Net deferred acquisition costs	—		—		151,546		—			151,546
Goodwill and intangible assets	—		—		324,556		—			324,556
Balances receivable on sale of investments	—		—		47,149		—			47,149
Investments in subsidiaries	3,629,301		4,218,028		—		(7,847,329		)	—
Due from subsidiaries	147,072		19,190		14,396		(180,658		)	—
Other assets	1,470		3,192		620,462		—			625,124
Total assets	$	3,810,422	$	4,242,144	$	12,396,984	$	(8,027,987	)	$	12,421,563
LIABILITIES:
Reserve for losses and loss expenses	$	—	$	—	$	5,881,165	$	—		$	5,881,165
Unearned premiums	—		—		1,555,313		—			1,555,313
Reinsurance balances payable	—		—		180,060		—			180,060
Balances due on purchases of investments	—		—		5,428		—			5,428
Senior notes	—		798,802		—		—			798,802
Other long-term debt	—		—		19,213		—			19,213
Due to subsidiaries	7,599		6,797		166,262		(180,658		)	—
Other liabilities	24,532		19,618		159,141		—			203,291
Total liabilities	32,131		825,217		7,966,582		(180,658		)	8,643,272
Total shareholders’ equity	3,778,291		3,416,927		4,430,402		(7,847,329		)	3,778,291
Total liabilities and shareholders’ equity	$	3,810,422	$	4,242,144	$	12,396,984	$	(8,027,987	)	$	12,421,563

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

Unaudited Condensed Consolidating Statement of Operations and Comprehensive Income:



Three Months Ended September 30, 2015	Allied World Switzerland (Parent Guarantor)			Allied World Bermuda (Subsidiary Issuer)			Other Allied World Subsidiaries			Consolidating Adjustments		Allied World Switzerland Consolidated
Net premiums earned	$	—		$	—		$	650,653		$	—	$	650,653
Net investment income	—			—			45,667			—		45,667
Net realized investment gains (losses)	—			—			(113,626		)	—		(113,626		)
Other income	—			—			735			—		735
Net losses and loss expenses	—			—			(416,881		)	—		(416,881		)
Acquisition costs	—			—			(100,101		)	—		(100,101		)
General and administrative expenses	(7,438		)	590			(98,950		)	—		(105,798		)
Other expense	—			—			(1,245		)	—		(1,245		)
Amortization of intangible assets	—			—			(2,639		)	—		(2,639		)
Interest expense	—			(13,876		)	(593		)	—		(14,469		)
Foreign exchange gain (loss)	2			—			791			—		793
Income tax (expense) benefit	(472		)	—			5,753			—		5,281
Equity in earnings of consolidated subsidiaries	(43,722		)	(37,021		)	—			80,743		—
NET INCOME (LOSS)	$	(51,630	)	$	(50,307	)	$	(30,436	)	$	80,743	$	(51,630	)
Other comprehensive income (loss)	(993		)	—			(993		)	993		(993		)
COMPREHENSIVE INCOME (LOSS)	$	(52,623	)	$	(50,307	)	$	(31,429	)	$	81,736	$	(52,623	)



Three Months Ended September 30, 2014	Allied World Switzerland (Parent Guarantor)			Allied World Bermuda (Subsidiary Issuer)			Other Allied World Subsidiaries			Consolidating Adjustments			Allied World Switzerland Consolidated
Net premiums earned	$	—		$	—		$	541,737		$	—		$	541,737
Net investment income	2			—			43,410			—			43,412
Net realized investment gains (losses)	—			—			(35,136		)	—			(35,136		)
Other income	—			—			1,032			—			1,032
Net losses and loss expenses	—			—			(336,090		)	—			(336,090		)
Acquisition costs	—			—			(72,403		)	—			(72,403		)
General and administrative expenses	(8,285		)	(182		)	(79,827		)	—			(88,294		)
Other expense	—			—			(6,575		)	—			(6,575		)
Amortization of intangible assets	—			—			(633		)	—			(633		)
Interest expense	—			(13,855		)	(470		)	—			(14,325		)
Foreign exchange gain (loss)	16			47			(341		)	—			(278		)
Income tax (expense) benefit	—			—			(1,532		)	—			(1,532		)
Equity in earnings of consolidated subsidiaries	39,182			49,491			—			(88,673		)	—
NET INCOME (LOSS)	$	30,915		$	35,501		$	53,172		$	(88,673	)	$	30,915
Other comprehensive income (loss)	—			—			—			—			—
COMPREHENSIVE INCOME (LOSS)	$	30,915		$	35,501		$	53,172		$	(88,673	)	$	30,915

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)



Nine Months Ended September 30, 2015	Allied World Switzerland (Parent Guarantor)			Allied World Bermuda (Subsidiary Issuer)			Other Allied World Subsidiaries			Consolidating Adjustments			Allied World Switzerland Consolidated
Net premiums earned	$	—		$	—		$	1,865,577		$	—		$	1,865,577
Net investment income	5			—			132,973			—			132,978
Net realized investment gains (losses)	—			—			(88,783		)	—			(88,783		)
Other income	—			—			2,513			—			2,513
Net losses and loss expenses	—			—			(1,173,578		)	—			(1,173,578		)
Acquisition costs	—			—			(279,418		)	—			(279,418		)
General and administrative expenses	(27,053		)	405			(284,651		)	—			(311,299		)
Other expense	—			—			(4,303		)	—			(4,303		)
Amortization of intangible assets	—			—			(6,091		)	—			(6,091		)
Interest expense	—			(41,613		)	(1,659		)	—			(43,272		)
Foreign exchange gain (loss)	9			13			(10,391		)	—			(10,369		)
Income tax (expense) benefit	(553		)	—			(1,218		)	—			(1,771		)
Equity in earnings of consolidated subsidiaries	109,776			138,603			—			(248,379		)	—
NET INCOME (LOSS)	$	82,184		$	97,408		$	150,971		$	(248,379	)	$	82,184
Other comprehensive income (loss)	(4,265		)	—			(4,265		)	4,265			(4,265		)
COMPREHENSIVE INCOME (LOSS)	$	77,919		$	97,408		$	146,706		$	(244,114	)	$	77,919



Nine Months Ended September 30, 2014	Allied World Switzerland (Parent Guarantor)			Allied World Bermuda (Subsidiary Issuer)			Other Allied World Subsidiaries			Consolidating Adjustments			Allied World Switzerland Consolidated
Net premiums earned	$	—		$	—		$	1,609,269		$	—		$	1,609,269
Net investment income	6			—			127,818			—			127,824
Net realized investment gains (losses)	—			—			104,286			—			104,286
Other income	—			—			1,032			—			1,032
Net losses and loss expenses	—			—			(926,231		)	—			(926,231		)
Acquisition costs	—			—			(214,404		)	—			(214,404		)
General and administrative expenses	(28,012		)	(919		)	(235,891		)	—			(264,822		)
Other expense	—			—			(6,575		)	—			(6,575		)
Amortization of intangible assets	—			—			(1,900		)	—			(1,900		)
Interest expense	—			(41,556		)	(1,895		)	—			(43,451		)
Foreign exchange gain (loss)	12			68			(1,058		)	—			(978		)
Income tax (expense) benefit	(86		)	—			(24,214		)	—			(24,300		)
Equity in earnings of consolidated subsidiaries	387,830			419,294			—			(807,124		)	—
NET INCOME (LOSS)	$	359,750		$	376,887		$	430,237		$	(807,124	)	$	359,750
Other comprehensive income	—			—			—			—			—
COMPREHENSIVE INCOME (LOSS)	$	359,750		$	376,887		$	430,237		$	(807,124	)	$	359,750

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)

Unaudited Condensed Consolidating Statement of Cash Flows:



Nine Months Ended September 30, 2015	Allied World Switzerland (Parent Guarantor)			Allied World Bermuda (Subsidiary Issuer)			Other Allied World Subsidiaries			Consolidating Adjustments			Allied World Switzerland Consolidated
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	302,025		$	333,128		$	661,020		$	(712,850	)	$	583,323
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases trading securities	—			—			(3,962,283		)	—			(3,962,283		)
Purchases of other invested assets	—			—			(110,851		)	—			(110,851		)
Sales of trading securities	—			—			3,888,416			—			3,888,416
Sales of other invested assets	—			—			160,253			—			160,253
Net cash paid for acquisitions	—			—			(141,503		)	—			(141,503		)
Other	—			—			(102,690		)	—			(102,690		)
Net cash provided by (used in) investing activities	—			—			(268,658		)	—			(268,658		)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Dividends paid	(66,784		)	—			—			—			(66,784		)
Intercompany dividends paid	—			(333,400		)	(379,450		)	712,850			—
Proceeds from the exercise of stock options	9,184			—			—			—			9,184
Share repurchases	(246,443		)	—			—			—			(246,443		)
Proceeds from other long-term debt	—			—			4,003			—			4,003
Repayments of other long-term debt	—			—			(154		)	—			(154		)
Net cash provided by (used in) financing activities	(304,043		)	(333,400		)	(375,601		)	712,850			(300,194		)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(2,018		)	(272		)	16,761			—			14,471
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	32,579			1,734			555,026			—			589,339
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	30,561		$	1,462		$	571,787		$	—		$	603,810

Table of Contents

ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands, except share, per share, percentage and ratio information)



Nine Months Ended September 30, 2014	Allied World Switzerland (Parent Guarantor)			Allied World Bermuda (Subsidiary Issuer)			Other Allied World Subsidiaries			Consolidating Adjustments			Allied World Switzerland Consolidated
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:	$	241,037		$	263,554		$	737,516		$	(575,000	)	$	667,107
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of trading securities	—			—			(5,608,594		)	—			(5,608,594		)
Purchases of other invested assets	—			—			(242,227		)	—			(242,227		)
Sales of trading securities	—			—			5,500,176			—			5,500,176
Sales of other invested assets	—			—			243,123			—			243,123
Net cash paid for acquisitions	—			—			(2,565		)	—			(2,565		)
Other	—			—			(44,055		)	—			(44,055		)
Net cash provided by (used in) investing activities	—			—			(154,142		)	—			(154,142		)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Dividends paid	(55,064		)	—			—			—			(55,064		)
Intercompany dividends paid	—			(264,000		)	(311,000		)	575,000			—
Proceeds from the exercise of stock options	7,640			—			—			—			7,640
Share repurchases	(166,207		)	—			—			—			(166,207		)
Net cash provided by (used in) financing activities	(213,631		)	(264,000		)	(311,000		)	575,000			(213,631		)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	27,406			(446		)	272,374			—			299,334
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	10,790			2,775			518,371			—			531,936
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	38,196		$	2,329		$	790,745		$	—		$	831,270

Notes to Parent Company Condensed Financial Information

a) Dividends

Allied World Switzerland received cash dividends from its subsidiaries of $333,400 and $264,000 for the nine months ended September 30, 2015 and 2014, respectively. Such dividends are included in “cash flows provided by (used in) operating activities” in the unaudited condensed consolidating cash flows.

15. SUBSEQUENT EVENTS

On October 1, 2015, the Company paid a quarterly dividend of $0.26 per share to shareholders of record on September 22, 2015.

Table of Contents



Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Form 10-Q. References in this Form 10-Q to the terms “we,” “us,” “our,” the “Company” or other similar terms mean the consolidated operations of Allied World Assurance Company Holdings, AG, a Swiss holding company, and our consolidated subsidiaries, unless the context requires otherwise. References in this Form 10-Q to the term “Allied World Switzerland” or “Holdings” means only Allied World Assurance Company Holdings, AG. References to “Allied World Bermuda” mean only Allied World Assurance Company Holdings, Ltd, a Bermuda holding company. References to “our insurance subsidiaries” may include our reinsurance subsidiaries. References in this Form 10-Q to “$” are to the lawful currency of the United States and to “CHF” are to the lawful currency of Switzerland. References in this Form 10-Q to Holdings’ “common shares” mean its registered voting shares.

Note on Forward-Looking Statement

This Form 10-Q and other publicly available documents may include, and our officers and representatives may from time to time make, projections concerning financial information and statements concerning future economic performance and events, plans and objectives relating to management, operations, products and services, and assumptions underlying these projections and statements. These projections and statements are forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 and are not historical facts but instead represent only our belief regarding future events, many of which, by their nature, are inherently uncertain and outside our control. These projections and statements may address, among other things, our strategy for growth, product development, financial results and reserves. Actual results and financial condition may differ, possibly materially, from these projections and statements and therefore you should not place undue reliance on them. Factors that could cause our actual results to differ, possibly materially, from those in the specific projections and statements are discussed throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations and in “Risk Factors” in Part I of our 2014 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on February 17, 2015 (the “2014 Form 10-K”). 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.

Overview

Our Business

We are a Swiss-based global provider of a diversified portfolio of property and casualty insurance and reinsurance products with operations in Australia, Bermuda, Canada, Europe, Hong Kong, Labuan, Singapore and the United States, as well as our Lloyd’s Syndicate 2232. We manage our business through three operating segments: North American Insurance, Global Markets Insurance and Reinsurance. As of September 30, 2015, we had approximately $13.2 billion of total assets, $3.6 billion of total shareholders’ equity and $4.4 billion of total capital, which includes shareholders’ equity, senior notes and other long-term debt.

During the three months ended September 30, 2015, despite challenging market conditions, we continued to selectively grow our insurance business, particularly in our Global Markets Insurance segment, as we continued to add scale to our existing lines of business and build-out our less mature lines of business, as well as from our acquisitions of the Hong Kong and Singapore operations of Royal & Sun Alliance Insurance plc (“RSA”), which closed on April 1, 2015. See footnote 4 - “Acquisitions” of the unaudited condensed consolidated financial statements for additional information regarding the RSA acquisitions. The results from the RSA acquisitions are also referred to as the “acquired Asian operations”. Similar challenging market conditions have persisted for our Reinsurance segment for the past several quarters, and we expect the trend to continue in the near term. As a result, we either did not renew or renewed with lower line sizes on several reinsurance treaties in response to these market conditions.

Our consolidated gross premiums written increased by $46.2 million, or 6.5%, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. This growth was driven by the acquired Asian operations, partially offset by reduced premiums in our Reinsurance segment. Overall, our combined ratio was higher by 4.1 percentage points, driven by increased property loss activity during the quarter, including $35.5 million of catastrophe losses ($28.9 million net of reinstatement premiums) from explosions in the port of Tianjin, China, and higher acquisition costs.

Table of Contents

Our net income decreased by $82.5 million to a net loss of $51.6 million for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. The decrease was primarily due to net realized losses on our investments of $113.6 million during the three months ended September 30, 2015 compared to $35.1 million during the three months ended September 30, 2014.

During the fourth quarter of 2014, our Chief Executive Officer reorganized how we manage our business, and as a result we realigned our executive management team and changed our reportable segments to correspond to the reorganization. Our Bermuda insurance operations, except for the trade credit line of business, which had previously been included in the international insurance segment, was combined with the U.S. insurance segment, with the new segment renamed the "North American Insurance" segment. The remaining insurance operations of the international insurance segment were renamed the "Global Markets Insurance" segment. The Reinsurance segment remained unchanged. The new segments have been recast and our historical financial information has been updated to conform to the new presentation.

Financial Highlights



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	($ in millions except share, per share and percentage data)
Gross premiums written	$	754.1		$	707.9		$	2,460.6		$	2,369.7
Net (loss) income	(51.6		)	30.9			82.2			359.7
Operating income	51.4			60.6			169.0			266.5
Basic (loss) earnings per share:
Net (loss) income	$	(0.57	)	$	0.32		$	0.88		$	3.67
Operating income	$	0.56		$	0.62		$	1.81		$	2.72
Diluted (loss) earnings per share:
Net (loss) income	$	(0.57	)	$	0.31		$	0.87		$	3.60
Operating income	$	0.55		$	0.61		$	1.79		$	2.67
Weighted average common shares outstanding:
Basic	90,882,511			96,458,231			93,068,088			97,926,378
Diluted	92,440,277		*	98,444,238			94,724,980			99,965,296
Basic book value per common share	$	39.11		$	38.11		$	39.11		$	38.11
Diluted book value per common share	$	38.03		$	37.12		$	38.03		$	37.12
Annualized return on average equity (ROAE), net (loss) income	(5.7		)%	3.4		%	3.0		%	13.2		%
Annualized ROAE, operating income	5.7		%	6.6		%	6.1		%	9.7		%

* Diluted weighted average common shares outstanding were only used in the calculation of diluted operating income per share and not in the calculation of diluted earnings per share, as there was a net loss during the three months ended September 30, 2015.

Non-GAAP Financial Measures

In presenting the Company’s results, management has included and discussed certain non-GAAP financial measures, as such term is defined in Item 10(e) of Regulation S-K promulgated by the SEC. 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 accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Operating income and operating income per share

Operating income is an internal performance measure used in the management of our operations and represents after-tax operational results, excluding, as applicable, net realized investment gains or losses, net foreign exchange gain or loss, and other non-recurring items. We exclude net realized investment gains or losses, net foreign exchange gain or loss and any other

Table of Contents

non-recurring items from our calculation of operating income because these amounts are heavily influenced by and fluctuate in part according to the availability of market opportunities and other factors. In addition to presenting net income determined in accordance with U.S. GAAP, we believe that showing operating income enables investors, analysts, rating agencies and other users of our financial information to more easily analyze our results of operations and our underlying business performance. Operating income should not be viewed as a substitute for U.S. GAAP net income.

The following is a reconciliation of operating income to its most closely related U.S. GAAP measure, net income.



	Three Months Ended September 30,					Nine Months Ended September 30,
	2015			2014		2015		2014
	($ in millions, except share, per share and percentage data)
Net (loss) income	$	(51.6	)	$	30.9	$	82.2	$	359.8
Add after tax effect of:
Net realized investment losses (gains)	103.9			29.4		76.4		(94.2		)
Foreign exchange (gain) loss	(0.8		)	0.3		10.4		1.0
Operating income	$	51.4		$	60.6	$	169.0	$	266.6
Basic per share data:
Net (loss) income	$	(0.57	)	$	0.32	$	0.88	$	3.67
Add after tax effect of:
Net realized investment losses (gains)	1.14			0.30		0.82		(0.96		)
Foreign exchange (gain) loss	(0.01		)	0.00		0.11		0.01
Operating income	$	0.56		$	0.62	$	1.81	$	2.72
Diluted per share data:
Net (loss) income	$	(0.56	)*	$	0.31	$	0.87	$	3.60
Add after tax effect of:
Net realized investment losses (gains)	1.12			0.30		0.81		(0.94		)
Foreign exchange (gain) loss	(0.01		)	0.00		0.11		0.01
Operating income	$	0.55		$	0.61	$	1.79	$	2.67

Table of Contents

Diluted book value per share

We have included diluted book value per share because it takes into account the effect of dilutive securities; therefore, we believe it is an important measure of calculating shareholder returns.



	As of September 30,
	2015			2014
	($ in millions, except share and per share data)
Price per share at period end	$	38.17		$	36.84
Total shareholders’ equity	$	3,555.4		$	3,673.6
Basic common shares outstanding	90,911,888			96,382,238
Add:
Unvested restricted stock units	823,635			512,112
Performance-based equity awards	591,683			619,428
Employee share purchase plan	32,515			28,381
Dilutive stock options outstanding	2,020,354			2,532,918
Weighted average exercise price per share	$	16.70		$	16.30
Deduct:
Options bought back via treasury method	(883,846		)	(1,120,699		)
Common shares and common share equivalents outstanding	93,496,229			98,954,378
Basic book value per common share	$	39.11		$	38.11
Diluted book value per common share	$	38.03		$	37.12

Annualized return on average equity

Annualized return on average shareholders’ equity (“ROAE”) is calculated using average shareholders’ equity. We present ROAE as a measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of our financial information.

Annualized operating return on average shareholders’ equity is calculated using operating income and average shareholders’ equity, adjusted for other comprehensive income or loss.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	($ in millions except percentage data)
Opening shareholders’ equity	$	3,624.8		$	3,682.8		$	3,778.3		$	3,616.7
Add: accumulated other comprehensive loss	3.3			—			—			—
Adjusted opening shareholders’ equity	$	3,628.1		$	3,682.8		$	3,778.3		$	3,616.7

Closing shareholders’ equity	$	3,555.4		$	3,673.6		$	3,555.4		$	3,673.6
Deduct: accumulated other comprehensive loss	4.3			—			4.3			—
Adjusted closing shareholders’ equity	$	3,559.7		$	3,673.6		$	3,559.7		$	3,673.6

Average shareholders’ equity	$	3,593.9		$	3,678.2		$	3,669.0		$	3,645.1

Net (loss) income available to shareholders	$	(51.6	)	$	30.9		$	82.2		$	359.8
Annualized return on average shareholders’ equity — net (loss) income available to shareholders	(5.7		)%	3.4		%	3.0		%	13.2		%
Operating income available to shareholders	$	51.4		$	60.6		$	169.0		$	266.5
Annualized return on average shareholders’ equity — operating income available to shareholders	5.7		%	6.6		%	6.1		%	9.7		%

Table of Contents

Relevant Factors

Revenues

We derive our revenues primarily from premiums on our insurance policies and reinsurance contracts, net of any reinsurance or retrocessional coverage purchased. Insurance and reinsurance premiums are a function of the amounts and types of policies and contracts we write, as well as prevailing market prices. Our prices are determined before our ultimate costs, which may extend far into the future, are known. In addition, our revenues include income generated from our investment portfolio, consisting of net investment income and net realized investment gains or losses, and other income related to our non-insurance operations. Investment income is principally derived from interest and dividends earned on investments, as well as distributed and undistributed income from equity method investments, partially offset by investment management expenses and fees paid to our custodian bank. Net realized investment gains or losses include gains or losses from the sale of investments, as well as the change in the fair value of investments that we mark-to-market through net income. Other income currently includes revenue from our third-party claims administration services.

Expenses

Our expenses consist largely of net losses and loss expenses, acquisition costs and general and administrative expenses. Net losses and loss expenses incurred are comprised of three main components:


•	losses paid, which are actual cash payments to insureds and reinsureds, net of recoveries from reinsurers;


•	outstanding loss or case reserves, which represent management’s best estimate of the likely settlement amount for known claims, less the portion that can be recovered from reinsurers; and


•	reserves for losses incurred but not reported, or “IBNR”, which are reserves (in addition to case reserves) established by us that we believe are needed for the future settlement of claims. The portion recoverable from reinsurers is deducted from the gross estimated loss.

Acquisition costs are comprised of commissions, brokerage fees, insurance taxes and other acquisition-related costs such as profit commissions and amortization of insurance-related intangible assets, and are reduced for ceding commission income received on our ceded reinsurance. Commissions and brokerage fees are usually calculated as a percentage of premiums and depend on the market and line of business. Acquisition costs are reported after (1) deducting commissions received on ceded reinsurance, (2) deducting the part of deferred acquisition costs relating to the successful acquisition of new and renewal insurance and reinsurance contracts and (3) including the amortization of previously deferred acquisition costs.

General and administrative expenses include personnel expenses including stock-based compensation expense, rent expense, professional fees, information technology costs and other general operating expenses.

Ratios

We measure segment income or loss as underwriting income or loss plus other insurance-related income and expenses, which may include the net earnings from our claims administration services operation and other income or expense that is not directly related to our underwriting operations. We also measure the results for each segment's underwriting income or loss on the basis of the “loss and loss expense ratio,” “acquisition cost ratio,” “general and administrative expense ratio,” “expense ratio” and the “combined ratio.” Because we do not manage our assets by segment, investment income, interest expense and total assets are not allocated to individual reportable segments. General and administrative expenses are allocated to segments based on various factors, including staff count and each segment’s proportional share of gross premiums written. The loss and loss expense ratio is derived by dividing net losses and loss expenses by net premiums earned. The acquisition cost ratio is derived by dividing acquisition costs by net premiums earned. The general and administrative expense ratio is derived by dividing general and administrative expenses by net premiums earned. The expense ratio is the sum of the acquisition cost ratio and the general and administrative expense ratio. The combined ratio is the sum of the loss and loss expense ratio, the acquisition cost ratio and the general and administrative expense ratio.

Table of Contents

Critical Accounting Policies

It is important to understand our accounting policies in order to understand our financial position and results of operations. Our unaudited condensed consolidated financial statements reflect determinations that are inherently subjective in nature and require management to make assumptions and best estimates to determine the reported values. If events or other factors cause actual results to differ materially from management’s underlying assumptions or estimates, there could be a material adverse effect on our financial condition or results of operations. We believe that some of the more critical judgments in the areas of accounting estimates and assumptions that affect our financial condition and results of operations are related to reserves for losses and loss expenses, reinsurance recoverables, premiums and acquisition costs, valuation of financial instruments and goodwill and other intangible asset impairment valuation. For a detailed discussion of our critical accounting policies, please refer to our 2014 Form 10-K. There were no material changes in the application of our critical accounting estimates subsequent to that report.

Results of Operations

The following table sets forth our selected consolidated statement of operations data for each of the periods indicated.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	($ in millions)
Revenues
Gross premiums written	$	754.1		$	707.9		$	2,460.6		$	2,369.7
Net premiums written	$	607.0		$	568.7		$	1,983.2		$	1,894.3
Net premiums earned	$	650.7		$	541.7		$	1,865.6		$	1,609.3
Net investment income	45.7			43.4			133.0			127.8
Net realized investment (losses) gains	(113.6		)	(35.1		)	(88.8		)	104.3
Other income	0.7			1.0			2.5			1.0
	$	583.4		$	551.0		$	1,912.3		$	1,842.4
Expenses
Net losses and loss expenses	$	416.9		$	336.1		$	1,173.6		$	926.2
Acquisition costs	100.1			72.4			279.4			214.4
General and administrative expenses	105.8			88.3			311.3			264.8
Other expense	1.2			6.6			4.3			6.6
Amortization of intangible assets	2.6			0.6			6.1			1.9
Interest expense	14.5			14.3			43.3			43.5
Foreign exchange (gain) loss	(0.8		)	0.3			10.4			1.0
	$	640.3		$	518.6		$	1,828.3		$	1,458.4
(Loss) income before income taxes	(56.9		)	32.4			84.0			384.0
Income tax (benefit) expense	(5.3		)	1.5			1.8			24.3
Net (loss) income	$	(51.6	)	$	30.9		$	82.2		$	359.7
Ratios
Loss and loss expense ratio	64.1		%	62.0		%	62.9		%	57.6		%
Acquisition cost ratio	15.4		%	13.4		%	15.0		%	13.3		%
General and administrative expense ratio	16.3		%	16.3		%	16.7		%	16.5		%
Expense ratio	31.7		%	29.7		%	31.7		%	29.8		%
Combined ratio	95.8		%	91.7		%	94.6		%	87.4		%

Table of Contents

Comparison of Three Months Ended September 30, 2015 and 2014

Premiums

Gross premiums written increased by $46.2 million, or 6.5%, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. The overall increase in gross premiums written was primarily the result of the following:

•

North American Insurance: Gross premiums written decreased by $6.4 million, or 1.4%. The decrease in gross premiums written was primarily due to the non-renewal of certain accounts in our casualty, professional liability, property and healthcare lines of business that did not meet our underwriting requirements partially offset by growth in our programs and specialty lines of business primarily due to new business written;


•	Global Markets Insurance: Gross premiums written increased by $68.6 million, or 107.0%. The increase was primarily due to gross premiums written of $62.2 million from the acquired Asian operations; and

•

Reinsurance: Gross premiums written decreased by $16.0 million, or 9.0%. The decrease was primarily due to the non-renewal of a property reinsurance treaty that had a fronting component and lower premiums on a large casualty reinsurance treaty that we renewed in the current period. The decrease in the property reinsurance line of business was partially offset by reinstatement premiums recorded in the current period primarily related to losses incurred from explosions in the port of Tianjin, China.

The table below illustrates our consolidated gross premiums written by underwriter location for each of the periods indicated.



	Three Months Ended September 30,				Dollar Change			Percentage Change
	2015		2014		Dollar Change			Percentage Change
	($ in millions)
United States	$	489.6	$	484.0	$	5.6		1.2	%
Asia Pacific	106.0		45.1		60.9			135.0	%
Bermuda	84.5		109.4		(24.9		)	(22.8	)%
Europe	70.8		65.0		5.8			8.9	%
Canada	3.2		4.4		(1.2		)	(27.3	)%
	$	754.1	$	707.9	$	46.2		6.5	%

Net premiums written increased by $38.3 million, or 6.7%, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014, which is consistent with the increase in gross premiums written. The difference between gross and net premiums written is the cost to us of purchasing reinsurance coverage, including the cost of property catastrophe reinsurance coverage. We ceded 19.5% of gross premiums written for the three months ended September 30, 2015 compared to 19.7% for the same period in 2014.

Net premiums earned increased by $109.0 million, or 20.1%, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014 as a result of higher premiums earned in our North American Insurance and Global Markets Insurance segments.

We evaluate our business by segment, distinguishing between North American Insurance, Global Markets Insurance and Reinsurance. The following table illustrates the mix of our business on both a gross premiums written and net premiums earned basis.



	Gross Premiums Written				Net Premiums Earned
	Three Months Ended September 30,				Three Months Ended September 30,
	2015		2014		2015		2014
North American Insurance	61.0	%	65.9	%	51.1	%	51.1	%
Global Markets Insurance	17.6	%	9.1	%	17.0	%	7.7	%
Reinsurance	21.4	%	25.0	%	31.9	%	41.2	%
Total	100.0	%	100.0	%	100.0	%	100.0	%

Table of Contents

Net Investment Income

Net investment income increased by $2.3 million, or 5.3%, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. The increase was primarily due to higher interest income in the current period from our fixed maturity investments driven by the investment portfolio of the newly acquired Asian operations. The annualized period book yield of the investment portfolio for the three months ended September 30, 2015 and 2014 was 2.1% and 2.0%, respectively.

As of September 30, 2015, we held 10.8% of our total investments and cash equivalents in “other invested assets” compared to 10.7% as of September 30, 2014.

As of September 30, 2015, approximately 88.2% of our fixed income investments consisted of investment grade securities. As of September 30, 2015 and December 31, 2014, the average Standard & Poor’s credit rating of our fixed income portfolio was “A+” and “AA-”, respectively.

Realized Investment (Losses) Gains

Net realized investment (losses) gains were comprised of the following:



	Three Months Ended September 30,
	2015			2014
	($ in millions)
Net realized (losses) gains on sale:
Fixed maturity investments, trading	$	(5.2	)	$	5.8
Equity securities, trading	(12.2		)	(0.6		)
Other invested assets: hedge funds and private equity, trading	1.4			13.6
Derivatives	(19.8		)	(0.5		)
Total net realized (losses) gains on sale	(35.8		)	18.3
Mark-to-market (losses) gains:
Fixed maturity investments, trading	(15.3		)	(40.8		)
Equity securities, trading	(62.8		)	(8.5		)
Other invested assets: hedge funds and private equity, trading	0.4			(6.8		)
Derivatives	(0.1		)	2.7
Total mark-to-market (losses) gains	(77.8		)	(53.4		)
Net realized investment (losses) gains	$	(113.6	)	$	(35.1	)

The total return of our investment portfolio was negative 0.8% for the three months ended September 30, 2015 compared to positive 0.1% for the same period in 2014. The decrease in total return was primarily due to the volatility in the equity markets during the current period.

Other Income

Other income represents the revenue from our third-party claims administration services that we acquired in 2014.

Net Losses and Loss Expenses

Net losses and loss expenses increased by $80.8 million, or 24.0%, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. The following is a breakdown of the loss and loss expense ratio for the three months ended September 30, 2015 and 2014:

Table of Contents



	Three Months Ended September 30, 2015					Three Months Ended September 30, 2014					Dollar Change		Loss Ratio Percentage Point Change
	Amount			% of NPE (1)		Amount			% of NPE (1)		Dollar Change		Loss Ratio Percentage Point Change
						($ in millions)
Non-catastrophe	$	390.0		59.9	%	$	353.2		65.2	%	$	36.8	5.3 pts
Property catastrophe	35.5			5.5		29.8			5.5		5.7		—
Current period	425.5			65.4		383.0			70.7		42.5		5.3
Prior period	(8.6		)	(1.3	)	(46.9		)	(8.7	)	38.3		(7.4	)
Net losses and loss expenses	$	416.9		64.1	%	$	336.1		62.0	%	$	80.8	(2.1) pts

________________________


(1)	“NPE” means net premiums earned.

Current year non-catastrophe losses and loss expenses

The increase in the current year non-catastrophe losses and loss expenses was primarily due to the growth of our operations, including additional losses incurred related to the acquired Asian operations partially offset by a reduction in IBNR loss reserves due to lower than expected property losses in our Reinsurance segment and lower non-catastrophe large property losses. The lower non-catastrophe large property losses improved the losses and loss expense ratio by 3.3 percentage points.

Current year property catastrophe losses and loss expenses

During the three months ended September 30, 2015, we incurred property catastrophe losses and loss expenses of $35.5 million related to explosions in port of Tianjin, China. During the three months ended September 30, 2014, we incurred $18.5 million of property catastrophe losses and loss expenses related to Hurricane Odile, $8.0 million related to Windstorm Ela, and $3.3 million related to Property Claims Services (“PCS") designated storm #45 in the Midwestern U.S. (“PCS designated storm 45 in the Midwestern U.S.”).

Prior year losses and loss expenses

We recorded net favorable reserve development related to prior years of $8.6 million during the three months ended September 30, 2015 compared to net favorable reserve development of $46.9 million for the three months ended September 30, 2014, as shown in the tables below.



	(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Three Months Ended September 30, 2015
	2009 and Prior			2010			2011			2012			2013			2014			Total
	($ in millions)
North American Insurance	$	(11.6	)	$	(4.2	)	$	(2.9	)	$	2.8		$	6.1		$	8.3		$	(1.5	)
Global Markets Insurance	(2.0		)	(2.5		)	(1.1		)	(0.6		)	5.7			(1.9		)	(2.4		)
Reinsurance	(5.5		)	(1.2		)	(0.2		)	2.0			(0.9		)	1.1			(4.7		)
	$	(19.1	)	$	(7.9	)	$	(4.2	)	$	4.2		$	10.9		$	7.5		$	(8.6	)

For the three months ended September 30, 2015, the net favorable prior year reserve development was primarily due to lower than expected loss emergence across each of our segments. The net favorable prior year reserve development for the North American Insurance segment primarily related to net favorable prior year reserve development in the professional liability line of business, partially offset by unfavorable prior year development in the casualty line of business from the 2011 to 2014 loss years. The net favorable reserve development in the Global Markets Insurance segment was primarily due to net favorable loss reserve development in the professional liability line of business, partially offset by unfavorable prior year reserve development in the specialty and other line of business from the 2013 loss year. The net favorable reserve development in the Reinsurance segment was primarily related to the property and specialty reinsurance lines of business.

Table of Contents

The following table shows the net favorable reserve development by loss year for each of our segments for the three months ended September 30, 2014.



	(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Three Months Ended September 30, 2014
	2008 and Prior			2009			2010			2011			2012			2013			Total
	($ in millions)
North American Insurance	$	(18.8	)	$	(20.0	)	$	(6.2	)	$	(2.4	)	$	18.7		$	12.6		$	(16.1	)
Global Markets Insurance	(2.4		)	(2.5		)	(4.8		)	(2.7		)	(3.3		)	3.1			(12.6		)
Reinsurance	(1.3		)	(0.9		)	(0.6		)	(3.1		)	1.9			(14.2		)	(18.2		)
	$	(22.5	)	$	(23.4	)	$	(11.6	)	$	(8.2	)	$	17.3		$	1.5		$	(46.9	)

For the three months ended September 30, 2014, the net favorable prior year reserve development was primarily due to lower than expected loss emergence across each of our segments. The unfavorable reserve development in the North American Insurance segment for the 2012 and 2013 loss years related primarily to our healthcare and professional liability lines of business. The favorable reserve development for the Reinsurance segment for the 2013 loss year was primarily related to our property reinsurance line of business.

The following table shows the components of net losses and loss expenses for each of the periods indicated.



	Three Months Ended September 30,					Dollar
	2015			2014		Change
	($ in millions)
Net losses paid	$	348.6		$	256.2	$	92.4
Net change in reported case reserves	(14.6		)	40.3		(54.9		)
Net change in IBNR	82.9			39.6		43.3
Net losses and loss expenses	$	416.9		$	336.1	$	80.8

The table below is a reconciliation of the beginning and ending reserves for losses and loss expenses. Losses incurred and paid are reflected net of reinsurance recoverables.



	Three Months Ended September 30,
	2015			2014
	($ in millions)
Net reserves for losses and loss expenses, July 1	$	4,930.8		$	4,633.9
Incurred related to:
Current period non-catastrophe	390.0			353.2
Current period property catastrophe	35.5			29.8
Prior period	(8.6		)	(46.9		)
Total incurred	416.9			336.1
Paid related to:
Current period	60.8			53.6
Prior period	287.8			202.6
Total paid	348.6			256.2
Foreign exchange revaluation	(12.3		)	(10.5		)
Net reserve for losses and loss expenses, September 30	4,986.8			4,703.3
Losses and loss expenses recoverable	1,449.8			1,349.0
Reserve for losses and loss expenses, September 30	$	6,436.6		$	6,052.3

Table of Contents

Acquisition Costs

Acquisition costs increased by $27.7 million, or 38.3%, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. The increase in acquisition costs was primarily due to higher acquisition costs in our North American Insurance and Global Markets Insurance segments. Acquisition costs as a percentage of net premiums earned were 15.4% for the three months ended September 30, 2015 compared to 13.4% for the same period in 2014. The higher acquisition cost ratio was primarily due to less ceding commission income and restructuring of some for our underlying reinsurance programs in our North American Insurance segment and higher acquisition costs related to our acquired Asian operations, including additional amortization of the insurance-related intangible asset recorded as part of the acquisitions of the RSA operations.

General and Administrative Expenses

General and administrative expenses increased by $17.5 million, or 19.8%, for the three months ended September 30, 2015 compared to the same period in 2014. Our general and administrative expense ratio was 16.3% for both the three months ended September 30, 2015 and 2014. The increase in general and administrative expenses was primarily due to expenses related to our acquired Asian operations partially offset by lower incentive and stock-based compensation. We have granted cash equivalent restricted stock units and performance-based equity awards to certain key employees, and we measure the value of each of those awards at the share price at the end of the period. Changes in our share price are recognized as increases or decreases in our compensation expense ratably over the service period. Our share price decreased 12% for the three months ended September 30, 2015 compared to a 3% decrease for the same period in 2014.

Other Expense

Other expense represents the expenses of our third-party claims administration services operation that we acquired in 2014 and the transaction-related costs incurred for the acquisitions of the Hong Kong and Singapore operations of RSA.

Amortization of Intangible Assets

The amortization of intangible assets increased by $2.0 million for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. The increase in the amortization of intangible assets was due to the intangible assets acquired during 2015 related to the RSA and Latin American Underwriters Holdings Ltd. (“LAU”) acquisitions.

Interest Expense

Interest expense increased by $0.2 million, or 1.4%, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014.

Foreign Exchange (Gain) Loss

We recorded a foreign exchange gain of $0.8 million during the three months ended September 30, 2015 compared to a loss of $0.3 million during the three months ended September 30, 2014.

Income Tax (Benefit) Expense

Corporate income tax expense or benefit is generated through our operations in Australia, Canada, Europe, Hong Kong, Labuan, Singapore and the United States. Our income tax expense or benefit may fluctuate significantly from period to period depending on the geographic distribution of pre-tax net income or loss in any given period between different jurisdictions with different tax rates. The geographic distribution of pre-tax net income or loss can vary significantly between periods principally due to the geographic location of the business written, the mix of business and the profitability of such business, the geographic location of investment income, the geographic location of net losses and loss expenses incurred, and the amount of inter-company reinsurance utilized for rating agency purposes.

We recorded an income tax benefit of $5.3 million for the three months ended September 30, 2015 compared to income tax expense of $1.5 million for the three months ended September 30, 2014. The change was primarily due to lower taxable income in our U.S. operations.

Table of Contents

Net (Loss) Income

Net loss for the three months ended September 30, 2015 was $51.6 million compared to net income of $30.9 million for the three months ended September 30, 2014. The $82.5 million decrease was primarily the result of recording net realized losses on our investments of $113.6 million during the three months ended September 30, 2015 compared to net realized losses of $35.1 million during the three months ended September 30, 2014, as well as lower underwriting income from our operating segments during the current quarter compared to the prior quarter.

Comparison of Nine Months Ended September 30, 2015 and 2014

Premiums

Gross premiums written increased by $90.9 million, or 3.8%, for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. The overall increase in gross premiums written was primarily the result of the following:

•

North American Insurance: Gross premiums written increased by $73.6 million, or 5.7%. The increase in gross premiums written was primarily due to growth in our casualty and programs lines of business due to increased premiums on renewals and new business, and growth in our specialty line of business due to new business. This growth was partially offset by the non-renewal of business, particularly in certain classes within our healthcare and our professional liability lines of business, which did not meet our underwriting requirements;


•	Global Markets Insurance: Gross premiums written increased by $132.1 million, or 67.4%. The increase was primarily due to gross premiums written of $117.8 million from the acquired Asian operations; and

•

Reinsurance: Gross premiums written decreased by $114.8 million, or 12.9%. The decrease was primarily due to lower premiums written across each line of business. The decrease was due to non-renewal of business due to poor terms and conditions, cedents retaining more of their own business, and lower premiums on renewed treaties mainly due to year-over-year rate decreases and our assuming a lower percentage of the premiums than in the prior period. These reductions were partially offset by new business written for each line of business and higher reinstatement premiums in our property reinsurance line of business.

The table below illustrates our consolidated gross premiums written by underwriter location for each of the periods indicated.



	Nine Months Ended September 30,				Dollar Change			Percentage Change
	2015		2014		Dollar Change			Percentage Change
	($ in millions)
United States	$	1,509.3	$	1,447.7	$	61.6		4.3	%
Bermuda	449.0		525.0		(76.0		)	(14.5	)%
Europe	251.0		246.0		5.0			2.0	%
Asia Pacific	239.3		142.8		96.5			67.6	%
Canada	12.0		8.3		3.7			44.6	%
	$	2,460.6	$	2,369.7	$	90.9		3.8	%

Net premiums written increased by $88.9 million, or 4.7%, for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. The increase in net premiums written was due to the overall increase in gross premiums written and a decrease in ceded premiums written primarily in our North American Insurance segment. We ceded 19.4% of gross premiums written for the nine months ended September 30, 2015 compared to 20.1% for the same period in 2014.

Net premiums earned increased by $256.3 million, or 15.9%, for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 as a result of higher premiums earned in the North American Insurance and Global Markets Insurance segments.

Table of Contents

The following table illustrates the mix of our business on both a gross premiums written and net premiums earned basis.



	Gross Premiums Written				Net Premiums Earned
	Nine Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
North American Insurance	55.2	%	54.2	%	52.2	%	50.3	%
Global Markets Insurance	13.3	%	8.3	%	14.1	%	7.1	%
Reinsurance	31.4	%	37.5	%	33.7	%	42.6	%
Total	100.0	%	100.0	%	100.0	%	100.0	%

Net Investment Income

Net investment income increased by $5.2 million, or 4.1%, for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. The increase was primarily due to higher interest income in the current period from our fixed maturity investments and higher returns from our hedge fund and private equity investments. These increases were partially offset by lower income from our other private securities due to an other-than-temporary impairment of $6.3 million related to one of our equity method investments. The annualized period book yield of the investment portfolio for the nine months ended September 30, 2015 and 2014 was 2.1% and 2.0%, respectively.

Investment management expenses of $15.2 million and $13.7 million were incurred during the nine months ended September 30, 2015 and 2014, respectively. The increase of $1.5 million, or 10.9%, was primarily due to additional investment portfolio managers utilized in the current period as compared to the prior period.

Realized Investment (Losses) Gains

Net realized investment (losses) gains were comprised of the following:



	Nine Months Ended September 30,
	2015			2014
	($ in millions)
Net realized gains on sale:
Fixed maturity investments, trading	$	5.1		$	23.6
Equity securities, trading	14.9			43.8
Other invested assets: hedge funds and private equity, trading	22.3			53.2
Derivatives	(17.5		)	(21.9		)
Total net realized gains on sale	24.8			98.7
Mark-to-market (losses) gains:
Fixed maturity investments, trading	(42.5		)	18.1
Equity securities, trading	(57.8		)	(8.8		)
Other invested assets: hedge funds and private equity, trading	(13.2		)	(1.1		)
Derivatives	(0.1		)	(2.6		)
Total mark-to-market (losses) gains	(113.6		)	5.6
Net realized investment (losses) gains	$	(88.8	)	$	104.3

The total return of our investment portfolio was 0.5% and 2.7% for the nine months ended September 30, 2015 and 2014, respectively. The decrease in total return was primarily due to mark-to-market losses on our fixed maturity investments and equity securities. The mark-to-market losses on our fixed maturity investments were due to higher interest rates and widening credit spreads and the mark-to-market losses on our equity securities were due to volatility in the equity markets, particularly during the three months ended September 30, 2015.

Table of Contents

Other Income

Other income represents the revenue from our third-party claims administration services that we acquired in 2014.

Net Losses and Loss Expenses

Net losses and loss expenses increased by $247.4 million, or 26.7%, for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. The following is a breakdown of the loss and loss expense ratio for the nine months ended September 30, 2015 and 2014:



	Nine Months Ended September 30, 2015					Nine Months Ended September 30, 2014					Dollar Change		Loss Ratio Percentage Point Change
	Amount			% of NPE (1)		Amount			% of NPE (1)		Dollar Change		Loss Ratio Percentage Point Change
						($ in millions)
Non-catastrophe	$	1,207.2		64.7	%	$	1,024.1		63.7	%	$	183.1	(1.0) pts
Property catastrophe	60.5			3.2		43.0			2.7		17.5		(0.5	)
Current period	1,267.7			67.9		1,067.1			66.4		200.6		(1.5	)
Prior period	(94.1		)	(5.0	)	(140.9		)	(8.8	)	46.8		(3.8	)
Net losses and loss expenses	$	1,173.6		62.9	%	$	926.2		57.6	%	$	247.4	(5.3) pts

________________________


(1)	“NPE” means net premiums earned.

Current year non-catastrophe losses and loss expenses

The increase in the current year non-catastrophe losses and loss expenses was primarily due to the overall growth of our operations partially offset by a reduction in IBNR loss reserves due to lower than expected property losses in our Reinsurance segment.

Current year property catastrophe losses and loss expenses

During the nine months ended September 30, 2015, we incurred $25.0 million in property catastrophe losses and loss expenses related to windstorms that occurred in the New South Wales region of Australia and $35.5 million related to explosions in the port of Tianjin, China. During the nine months ended September 30, 2014, we incurred $18.5 million of property catastrophe losses and loss expenses related to Hurricane Odile, $12.5 million related to PCS designated storm 45 in the Midwestern U.S., and $12.0 million related to Windstorm Ela.

Prior year losses and loss expenses

We recorded net favorable reserve development related to prior years of $94.1 million during the nine months ended September 30, 2015 compared to net favorable reserve development of $140.9 million for the nine months ended September 30, 2014, as shown in the tables below.



	(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	Nine Months Ended September 30, 2015
	2009 and Prior			2010			2011			2012			2013		2014			Total
	($ in millions)
North American Insurance	$	(16.8	)	$	(26.3	)	$	(17.6	)	$	14.3		$	14.7	$	15.7		$	(16.0	)
Global Markets Insurance	(10.0		)	(9.8		)	(2.5		)	5.2			1.4		(4.1		)	(19.8		)
Reinsurance	(20.1		)	(12.5		)	4.0			(0.5		)	10.9		(40.1		)	(58.3		)
	$	(46.9	)	$	(48.6	)	$	(16.1	)	$	19.0		$	27.0	$	(28.5	)	$	(94.1	)

For the nine months ended September 30, 2015, we recognized prior year reserve development primarily due to lower than expected loss emergence across each of our segments. The net favorable prior year reserve development for the North American Insurance segment primarily related to net favorable prior year reserve development in the professional liability,

Table of Contents

programs and property lines of business, partially offset by unfavorable prior year development in the healthcare and casualty lines of business mainly from the 2012 and 2013 loss years. The unfavorable prior year reserve development in the 2014 loss year related mainly to the professional liability line of business. The net favorable reserve development in the Global Markets Insurance segment was primarily due to net favorable loss reserve development in the property, professional liability and casualty lines of business, partially offset by unfavorable prior year reserve development in the specialty and other line of business from the 2013 loss year. The net favorable reserve development in the Reinsurance segment was primarily related to the property and specialty reinsurance lines of business.



	(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Nine Months Ended September 30, 2014
	2008 and Prior			2009			2010			2011			2012			2013			Total
	($ in millions)
North American Insurance	$	(29.0	)	$	(42.1	)	$	(14.1	)	$	8.2		$	19.0		$	31.2		$	(26.8	)
Global Markets Insurance	(18.0		)	(9.7		)	(12.2		)	(5.6		)	(3.3		)	(0.6		)	(49.4		)
Reinsurance	(8.2		)	(1.3		)	1.7			(8.2		)	2.2			(50.9		)	(64.7		)
	$	(55.2	)	$	(53.1	)	$	(24.6	)	$	(5.6	)	$	17.9		$	(20.3	)	$	(140.9	)

For the nine months ended September 30, 2014, the net unfavorable prior year reserve development in the North American Insurance segment for the 2011 through 2013 loss years was primarily in our healthcare line of business. The net favorable prior year reserve development in the Global Markets Insurance segment was primarily related to our professional liability, casualty and property lines of business. The net favorable prior year reserve development in our Reinsurance segment for the 2013 loss year was primarily due to benign property loss activity, and therefore reported losses were less than our expectations.

The following table shows the components of net losses and loss expenses for each of the periods indicated.



	Nine Months Ended September 30,					Dollar
	2015			2014		Change
	($ in millions)
Net losses paid	$	962.2		$	747.0	$	215.2
Net change in reported case reserves	(15.7		)	37.3		(53.0		)
Net change in IBNR	227.1			141.9		85.2
Net losses and loss expenses	$	1,173.6		$	926.2	$	247.4

The table below is a reconciliation of the beginning and ending reserves for losses and loss expenses. Losses incurred and paid are reflected net of reinsurance recoverables.

Table of Contents



	Nine Months Ended September 30,
	2015			2014
	($ in millions)
Net reserves for losses and loss expenses, January 1	$	4,540.9		$	4,532.0
Acquisition of net reserves for losses and loss expenses	257.0			—
Incurred related to:
Current period non-catastrophe	1,207.2			1,024.1
Current period property catastrophe	60.5			43.0
Prior period	(94.1		)	(140.9		)
Total incurred	1,173.6			926.2
Paid related to:
Current period	95.4			80.4
Prior period	866.8			666.6
Total paid	962.2			747.0
Foreign exchange revaluation	(22.5		)	(7.9		)
Net reserve for losses and loss expenses, September 30	4,986.8			4,703.3
Losses and loss expenses recoverable	1,449.8			1,349.0
Reserve for losses and loss expenses, September 30	$	6,436.6		$	6,052.3

The net reserves for losses and loss expenses acquired relates to the acquired Asian operations.

Acquisition Costs

Acquisition costs increased by $65.0 million, or 30.3%, for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. The increase in acquisition costs was primarily due to higher acquisition costs in our North American Insurance and Global Markets Insurance segments. Acquisition costs as a percentage of net premiums earned were 15.0% for the nine months ended September 30, 2015 compared to 13.3% for the same period in 2014.

General and Administrative Expenses

General and administrative expenses increased by $46.5 million, or 17.6%, for the nine months ended September 30, 2015 compared to the same period in 2014. Our general and administrative expense ratio was 16.7% and 16.5% for the nine months ended September 30, 2015 and 2014, respectively. The increase in general and administrative expenses was the result of costs related to the acquired Asian operations and higher salary-related costs due to higher headcount.

Other Expense

Other expense represents the expenses of our third-party claims administration services that we acquired in the current year and the transaction-related costs incurred for the acquisition of the Hong Kong and Singapore operations of RSA.

Amortization of Intangible Assets

The amortization of intangible assets increased by $4.2 million for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. The increase in the amortization of intangible assets was due to the intangible assets acquired during 2015 related to the RSA and LAU acquisitions.

Interest Expense

Interest expense decreased by $0.2 million, or 0.5%, for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014.

Foreign Exchange Loss

Table of Contents

The foreign exchange loss increased by $9.4 million for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. The increase was the result of the strengthening of the U.S. dollar relative to other major currencies during the current period.

Income Tax (Benefit) Expense

Income tax expense for the nine months ended September 30, 2015 decreased by $22.5 million compared to the nine months ended September 30, 2014. The decrease in income tax expense was primarily due to lower taxable income in our U.S. operations driven by higher investment losses.

Net Income

Net income for the nine months ended September 30, 2015 was $82.2 million compared to net income of $359.7 million for the nine months ended September 30, 2014. The $277.5 million decrease was primarily the result of recording net realized losses on our investments of $88.8 million during the nine months ended September 30, 2015 compared to net realized gains of $104.3 million during the nine months ended September 30, 2014 combined with lower underwriting income from our operating segments.

Underwriting Results by Operating Segments

Our Company is organized into three operating segments:

North American Insurance Segment. The North American Insurance segment includes our direct specialty insurance operations in the United States, Bermuda and Canada, as well as the Company's claims administration services operation. This segment provides both property and specialty casualty insurance primarily to North American domiciled accounts.

Global Markets Insurance Segment. The Global Markets Insurance segment includes our direct specialty insurance operations in Europe and Asia Pacific, which includes offices in Australia, Hong Kong, Labuan and Singapore, and a Lloyd's coverholder operation in Miami, which services business for Latin America and the Caribbean. This segment provides both property and casualty insurance primarily to non-North American domiciled accounts.

Reinsurance Segment. Our reinsurance segment has operations in Bermuda, Europe, Singapore and the United States. This segment includes the reinsurance of property, general casualty, professional liability, specialty lines and property catastrophe coverages written by insurance companies. We presently write reinsurance on both a treaty and a facultative basis, targeting several niche reinsurance markets.

Table of Contents

North American Insurance Segment

The following table summarizes the underwriting results and associated ratios for the North American Insurance segment for each of the periods indicated.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	($ in millions)
Revenues
Gross premiums written	$	460.4		$	466.8		$	1,358.6		$	1,285.0
Net premiums written	350.8			364.7			1,019.9			905.3
Net premiums earned	332.7			277.2			974.2			808.5
Expenses
Net losses and loss expenses	$	222.3		$	180.7		$	655.5		$	520.6
Acquisition costs	35.6			27.0			100.8			76.5
General and administrative expenses	58.3			52.9			175.7			159.1
Underwriting income	16.5			16.6			42.2			52.3
Other insurance-related income	0.7			1.0			2.5			1.0
Other insurance-related expenses	0.6			1.3			2.1			1.3
Segment income	$	16.6		$	16.3		$	42.6		$	52.0
Ratios
Loss and loss expense ratio	66.8		%	65.2		%	67.3		%	64.4		%
Acquisition cost ratio	10.7		%	9.7		%	10.3		%	9.5		%
General and administrative expense ratio	17.5		%	19.1		%	18.0		%	19.7		%
Expense ratio	28.2		%	28.8		%	28.3		%	29.2		%
Combined ratio	95.0		%	94.0		%	95.6		%	93.6		%

Comparison of Three Months Ended September 30, 2015 and 2014

Premiums. Gross premiums written decreased by $6.4 million, or 1.4%, for the three months ended September 30, 2015 compared to the same period in 2014. The decrease in gross premiums written was primarily due to the non-renewal of certain accounts in our casualty, professional liability, property and healthcare lines of business that did not meet our underwriting requirements partially offset by growth in our programs and specialty lines of business primarily due to new business written.

The table below illustrates our gross premiums written by underwriter location for our North American Insurance operations.



	Three Months Ended September 30,				Dollar Change			Percentage Change
	2015		2014		Dollar Change			Percentage Change
			($ in millions)
U.S.	$	388.3	$	382.3	$	6.0		1.6	%
Bermuda	68.9		80.1		$	(11.2	)	(14.0	)%
Canada	3.2		4.4		$	(1.2	)	(27.3	)%
	$	460.4	$	466.8	$	(6.4	)	(1.4	)%

Table of Contents

The table below illustrates our gross premiums written by line of business for each of the periods indicated.



	Three Months Ended September 30,				Dollar Change			Percentage Change
	2015		2014		Dollar Change			Percentage Change
			($ in millions)
Casualty	$	165.5	$	174.0	$	(8.5	)	(4.9	)%
Professional liability	100.5		106.6		(6.1		)	(5.7	)%
Programs	56.7		46.7		10.0			21.4	%
Property	53.6		58.0		(4.4		)	(7.6	)%
Healthcare	48.5		53.7		(5.2		)	(9.7	)%
Specialty and other*	35.6		27.8		7.8			28.1	%
	$	460.4	$	466.8	$	(6.4	)	(1.4	)%

________________________


*	Includes our environmental, primary construction, surety and trade credit lines of business.

Net premiums written decreased by $13.9 million, or 3.8%, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. The decrease was primarily due to lower premiums written and higher ceded premiums. The increase in ceded premiums was due to higher premiums ceded in our healthcare line of business. We ceded 23.8% of gross premiums written for the three months ended September 30, 2015 compared to 21.9% for the three months ended September 30, 2014. The increase was primarily due to the increased cessions related to our healthcare line of business.

Net premiums earned increased by $55.5 million, or 20.0%, for the three months ended September 30, 2015 compared to the same period in 2014. The increase was due to the growth of our U.S. insurance operations in prior quarters and lower premiums ceded in our professional liability line of business discussed above.

Net losses and loss expenses. Net losses and loss expenses increased by $41.6 million, or 23.0%, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. The following is a breakdown of the loss and loss expense ratio for the three months ended September 30, 2015 and 2014:



	Three Months Ended September 30, 2015					Three Months Ended September 30, 2014					Dollar Change			Loss Ratio Percentage Point Change
	Amount			% of NPE		Amount			% of NPE		Dollar Change			Loss Ratio Percentage Point Change
						($ in millions)
Non-catastrophe	$	221.0		66.5	%	$	192.8		69.6	%	$	28.2		3.1 pts
Property catastrophe	2.8			0.8		4.0			1.4		(1.2		)	0.6
Current period	223.8			67.3		196.8			71.0		27.0			3.7
Prior period	(1.5		)	(0.5	)	(16.1		)	(5.8	)	14.6			(5.3	)
Net losses and loss expenses	$	222.3		66.8	%	$	180.7		65.2	%	$	41.6		(1.6) pts

Current year non-catastrophe losses and loss expenses

The increase in the current year non-catastrophe losses and loss expenses was primarily due to growth of the business. The improvement in the current year non-catastrophe losses and loss expenses ratio was due to lower property-related losses in the current period compared to the prior period. This decrease resulted in a lower current year non-catastrophe losses and loss expenses ratio of 3.3 percentage points.

Current year property catastrophe losses and loss expenses

During the three months ended September 30, 2015, we incurred $2.8 million of property catastrophe losses related to explosions in the port of Tianjin, China. During the three months ended September 30, 2014, we incurred $4.0 million of property catastrophe loss and loss expenses related to Hurricane Odile.

Table of Contents

Prior year losses and loss expenses

Overall, our North American Insurance segment recorded net favorable reserve development of $1.5 million during the three months ended September 30, 2015 compared to net favorable reserve development of $16.1 million for the three months ended September 30, 2014, as shown in the tables below.



	(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Three Months Ended September 30, 2015
	2009 and Prior			2010			2011			2012			2013			2014		Total
	($ in millions)
Casualty	$	(4.5	)	$	(2.2	)	$	1.1		$	6.5		$	9.5		$	1.9	$	12.3
Professional liability	(6.4		)	(1.9		)	(3.7		)	(3.4		)	(2.8		)	3.3		(14.9		)
Property	(1.4		)	0.2			0.2			0.5			(1.6		)	2.0		(0.1		)
Programs	0.4			(0.3		)	(0.5		)	(0.3		)	(1.2		)	0.1		(1.8		)
Healthcare	0.3			—			—			(0.5		)	2.2			—		2.0
Specialty and other	—			—			—			—			—			1.0		1.0
	$	(11.6	)	$	(4.2	)	$	(2.9	)	$	2.8		$	6.1		$	8.3	$	(1.5	)

For the three months ended September 30, 2015, the net favorable prior year reserve development was primarily due to lower than expected loss emergence in our professional liability line of business partially offset by unfavorable prior year reserve development in our casualty line of business. The unfavorable development in the casualty line of business for the 2012 and 2013 loss years was due to increased frequency of reported claims.



	(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Three Months Ended September 30, 2014
	2008 and Prior			2009			2010			2011			2012			2013			Total
	($ in millions)
Casualty	$	(4.4	)	$	(3.8	)	$	1.9		$	(1.3	)	$	2.1		$	—		$	(5.5	)
Professional liability	(8.3		)	(14.9		)	(2.6		)	(1.2		)	12.9			7.3			(6.8		)
Property	0.3			—			(0.1		)	0.3			(0.9		)	(1.2		)	(1.6		)
Programs	(1.7		)	(1.1		)	(1.4		)	(2.1		)	1.1			0.1			(5.1		)
Healthcare	(4.7		)	(0.2		)	(4.0		)	1.9			4.2			7.7			4.9
Specialty and other	—			—			—			—			(0.7		)	(1.3		)	(2.0		)
	$	(18.8	)	$	(20.0	)	$	(6.2	)	$	(2.4	)	$	18.7		$	12.6		$	(16.1	)

For the three months ended September 30, 2014, the net unfavorable prior year reserve development in our healthcare line of business for the 2011 through 2013 loss years was primarily due to higher than expected loss emergence in our medical malpractice line of business. The net unfavorable prior year reserve development in our professional liability line of business for the 2012 and 2013 loss years was primarily related to several large claims reported for those loss years.

Acquisition costs. Acquisition costs increased by $8.6 million, or 31.9%, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. The increase was primarily driven by the growth in net premiums earned and a reduction in ceding commission income due to the restructuring of some for our underlying reinsurance programs. The acquisition cost ratio was 10.7% for the three months ended September 30, 2015 compared to 9.7% for the three months ended September 30, 2014. The increase in the acquisition cost ratio was primarily related to the reduction in ceding commission income due to the reinsurance restructuring mentioned above.

General and administrative expenses. General and administrative expenses increased by $5.4 million, or 10.2%, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. The increase was primarily due to higher salary-related costs as we continue to grow our U.S. insurance operations, partially offset by lower stock-based compensation. The general and administrative expense ratio decreased to 17.5% for the three months ended September 30, 2015 from 19.1% for the same period in 2014 due to higher net premiums earned.

Table of Contents

Comparison of Nine Months Ended September 30, 2015 and 2014

Premiums. Gross premiums written increased by $73.6 million, or 5.7%, for the nine months ended September 30, 2015 compared to the same period in 2014. The increase in gross premiums written was primarily due to growth in our casualty and programs lines of business due to increased premiums on renewals and new business, and growth in our specialty line of business due to new business. This growth was partially offset by the non-renewal of business, particularly in certain classes within our healthcare and our professional liability lines of business, which did not meet our underwriting requirements.

The table below illustrates our gross premiums written by underwriter location for our North American Insurance operations.



	Nine Months Ended September 30,				Dollar Change			Percentage Change
	2015		2014		Dollar Change			Percentage Change
			($ in millions)
U.S.	$	1,080.5	$	989.7	$	90.8		9.2	%
Bermuda	266.1		287.0		(20.9		)	(7.3	)%
Canada	12.0		8.3		3.7			44.6	%
	$	1,358.6	$	1,285.0	$	73.6		5.7	%

The table below illustrates our gross premiums written by line of business for each of the periods indicated.



	Nine Months Ended September 30,				Dollar Change			Percentage Change
	2015		2014		Dollar Change			Percentage Change
			($ in millions)
Casualty	$	470.5	$	415.8	$	54.7		13.2	%
Professional liability	295.0		299.7		(4.7		)	(1.6	)%
Property	219.8		221.6		(1.8		)	(0.8	)%
Healthcare	138.8		160.5		(21.7		)	(13.5	)%
Programs	137.4		119.9		17.5			14.6	%
Specialty and other	97.1		67.5		29.6			43.9	%
	$	1,358.6	$	1,285.0	$	73.6		5.7	%

Net premiums written increased by $114.6 million, or 12.7%, for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. The increase in net premiums written was primarily due to higher gross premiums written and lower premiums ceded. The reduction in premiums ceded was primarily due to lower cessions in our professional liability line of business. We ceded 24.9% of gross premiums written for the nine months ended September 30, 2015 compared to 29.5% for the same period in 2014.

Net premiums earned increased by $165.7 million, or 20.5%, for the nine months ended September 30, 2015 compared to the same period in 2014. The increase was due to the continued growth of our U.S. insurance operations.

Net losses and loss expenses. Net losses and loss expenses increased by $134.9 million, or 25.9%, for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. The following is a breakdown of the loss and loss expense ratio for the nine months ended September 30, 2015 and 2014:

Table of Contents



	Nine Months Ended September 30, 2015					Nine Months Ended September 30, 2014					Dollar Change			Loss Ratio Percentage Point Change
	Amount			% of NPE		Amount			% of NPE		Dollar Change			Loss Ratio Percentage Point Change
						($ in millions)
Non-catastrophe	$	668.7		68.6	%	$	543.4		67.2	%	$	125.3		(1.4) pts
Property catastrophe	2.8			0.3		4.0			0.5		(1.2		)	0.2
Current period	671.5			68.9		547.4			67.7		124.1			(1.2	)
Prior period	(16.0		)	(1.6	)	(26.8		)	(3.3	)	10.8			(1.7	)
Net losses and loss expenses	$	655.5		67.3	%	$	520.6		64.4	%	$	134.9		(2.9) pts

Current year non-catastrophe losses and loss expenses

The increase in the current year non-catastrophe losses and loss expenses, and the related decrease in the losses and loss expenses ratio, was primarily due to growth, mix of the business and higher non-catastrophe property losses in the current period compared to the same period last year.

Current year property catastrophe losses and loss expenses

During the nine months ended September 30, 2015, we incurred $2.8 million of property catastrophe losses related to explosions in the port of Tianjin, China. During the nine months ended September 30, 2014, we incurred $4.0 million of property catastrophe loss and loss expenses related to Hurricane Odile.

Prior year losses and loss expenses

Overall, our North American Insurance segment recorded net favorable reserve development of $16.0 million during the nine months ended September 30, 2015 compared to net favorable reserve development of $26.8 million for the nine months ended September 30, 2014, as shown in the tables below.



	(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Nine Months Ended September 30, 2015
	2009 and Prior			2010			2011			2012			2013			2014			Total
	($ in millions)
Casualty	$	(16.2	)	$	(4.5	)	$	(6.0	)	$	12.7		$	16.5		$	2.2		$	4.7
Professional liability	11.3			(17.8		)	(12.8		)	(8.3		)	(4.1		)	8.8			(22.9		)
Property	(2.1		)	0.2			(0.3		)	(1.9		)	(4.1		)	2.1			(6.1		)
Programs	(2.5		)	(3.5		)	(2.7		)	(2.8		)	(0.5		)	(0.3		)	(12.3		)
Healthcare	(7.3		)	(0.6		)	4.2			14.1			6.9			—			17.3
Specialty and other	—			(0.1		)	—			0.5			—			2.9			3.3
	$	(16.8	)	$	(26.3	)	$	(17.6	)	$	14.3		$	14.7		$	15.7		$	(16.0	)

For the nine months ended September 30, 2015, the net favorable prior year reserve development primarily related to our professional liability and programs lines of business due to lower than expected loss emergence. The net unfavorable prior year reserve development for the casualty line of business for the 2012 and 2013 loss years was primarily due to higher than expected frequency of losses. The net unfavorable prior year reserve development for the healthcare line of business for the 2011 through 2013 loss years was primarily due to adverse development on several claims above our previous expectations. The net unfavorable prior year reserve development in our professional liability line of business for the 2009 and prior loss years was due to adverse development on several large claims in the current period.

Table of Contents



	(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Nine Months Ended September 30, 2014
	2008 and Prior			2009			2010			2011			2012			2013			Total
	($ in millions)
Casualty	$	11.0		$	(7.4	)	$	(2.5	)	$	0.7		$	0.2		$	4.2		$	6.2
Professional liability	(28.6		)	(32.6		)	(3.6		)	0.1			15.2			7.3			(42.2		)
Property	(0.4		)	(0.6		)	1.0			(3.3		)	(2.4		)	(3.2		)	(8.9		)
Programs	0.6			(4.4		)	(1.1		)	(4.1		)	0.3			(1.2		)	(9.9		)
Healthcare	(11.6		)	2.9			(7.7		)	16.1			8.0			25.7			33.4
Specialty and other	—			—			(0.2		)	(1.3		)	(2.3		)	(1.6		)	(5.4		)
	$	(29.0	)	$	(42.1	)	$	(14.1	)	$	8.2		$	19.0		$	31.2		$	(26.8	)

For the nine months ended September 30, 2014, we recorded unfavorable prior year reserve development in our healthcare and casualty lines of business. The unfavorable prior year reserve development in our healthcare line of business for the 2011 through 2013 loss years was primarily due to higher than expected loss frequency and severity. The unfavorable prior year reserve development in our casualty line of business for the 2008 and prior loss years was primarily due to adverse development on reported claims. We also recorded net favorable development in our professional liability line of business that primarily related to our public D&O class of business due to favorable development on several claims in the 2006 and 2009 loss years partially offset by adverse development on reported claims in the 2012 and 2013 loss years.

Acquisition costs. Acquisition costs increased by $24.3 million, or 31.8%, for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. The increase was driven by the growth in net premiums earned, an increase in other acquisition-related costs and lower ceding commission income due to restructuring some of our underlying reinsurance programs. The acquisition cost ratio was 10.3% and 9.5% for the nine months ended September 30, 2015 and 2014, respectively.

General and administrative expenses. General and administrative expenses increased by $16.6 million, or 10.4%, for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. The increase was due to higher salary-related costs as we continue to grow our U.S. insurance operations. The general and administrative expense ratio decreased to 18.0% for the nine months ended September 30, 2015 from 19.7% for the same period in 2014.

Other insurance-related income and expense. The other insurance-related income and expense represents the revenue and related expenses of our third-party claims administration services operation. The increase in the net profit for this operation was primarily due to the results of this operation being included in the Company's results since the beginning of the current year, whereas the results were included in the Company's results starting in the second quarter last year, and reduced costs required to manage the operation.

Table of Contents

Global Markets Insurance Segment

The following table summarizes the underwriting results and associated ratios for the Global Markets Insurance segment for each of the periods indicated.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	($ in millions)
Revenues
Gross premiums written	$	132.7		$	64.1		$	328.2		$	196.1
Net premiums written	104.1			44.8			216.2			126.6
Net premiums earned	110.3			41.6			263.0			114.6
Expenses
Net losses and loss expenses	$	70.9		$	28.1		$	157.2		$	35.2
Acquisition costs	22.7			5.3			54.1			12.6
General and administrative expenses	29.3			16.8			78.1			48.9
Underwriting (loss) income	(12.6		)	(8.6		)	(26.4		)	17.9
Other insurance-related income	—			—			—			—
Other insurance-related expenses	0.6			5.3			2.2			5.3
Segment (loss) income	$	(13.2	)	$	(13.9	)	$	(28.6	)	$	12.6
Ratios
Loss and loss expense ratio	64.3		%	67.7		%	59.8		%	30.7		%
Acquisition cost ratio	20.6		%	12.8		%	20.6		%	11.0		%
General and administrative expense ratio	26.6		%	40.4		%	29.7		%	42.6		%
Expense ratio	47.2		%	53.2		%	50.3		%	53.6		%
Combined ratio	111.5		%	120.9		%	110.1		%	84.3		%

Comparison of Three Months Ended September 30, 2015 and 2014

Premiums. Gross premiums written increased by $68.6 million, or 107.0%, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. The increase was primarily due to gross premiums written of $62.2 million from the acquired Asian operations.

The table below illustrates our gross premiums written by underwriter location for our Global Markets Insurance operations.



	Three Months Ended September 30,				Dollar Change			Percentage Change
	2015		2014		Dollar Change			Percentage Change
			($ in millions)
Asia Pacific	$	74.2	$	8.9	$	65.3		733.7	%
Europe	58.1		51.2		6.9			13.5	%
Bermuda	0.4		4.0		(3.6		)	(90.0	)%
	$	132.7	$	64.1	$	68.6		107.0	%

Table of Contents

The table below illustrates our gross premiums written by line of business for each of the periods indicated.



	Three Months Ended September 30,				Dollar Change		Percentage Change
	2015		2014		Dollar Change		Percentage Change
	($ in millions)
Casualty	$	36.1	$	11.4	$	24.7	216.7	%
Specialty and other*	36.0		17.9		18.1		101.1	%
Professional liability	35.9		29.8		6.1		20.5	%
Property	24.7		5.0		19.7		394.0	%
	$	132.7	$	64.1	$	68.6	107.0	%

________________________


*	Includes our accident and health, trade credit, aviation, marine and onshore construction lines of business.

Net premiums written increased by $59.3 million, or 132.4%, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. The increase in net premiums written was primarily due to the increase in gross premiums written from the acquired Asian operations, partially offset by higher ceded premiums written related to our property catastrophe reinsurance coverage. We ceded 21.6% of gross premiums written for the three months ended September 30, 2015 compared to 30.1% for the three months ended September 30, 2014. The decrease in the ceded premium ratio was due to lower cession percentages on several reinsurance treaties, with improved reinsurance terms, that were renewed in the current year.

Net premiums earned increased by $68.7 million, or 165.1%, due to higher net premiums earned from the acquired Asian operations.

Net losses and loss expenses. Net losses and loss expenses increased by $42.8 million, or 152.3%, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. The following is a breakdown of the loss and loss expense ratio for the three months ended September 30, 2015 and 2014:



	Three Months Ended September 30, 2015					Three Months Ended September 30, 2014					Dollar Change			Loss Ratio Percentage Point Change
	Amount			% of NPE		Amount			% of NPE		Dollar Change			Loss Ratio Percentage Point Change
						($ in millions)
Non-catastrophe	$	73.0		66.2	%	$	29.7		71.4	%	$	43.3		5.2 pts
Property catastrophe	0.3			0.2		11.0			26.5		(10.7		)	26.3
Current period	73.3			66.4		40.7			97.9		32.6			31.5
Prior period	(2.4		)	(2.1	)	(12.6		)	(30.2	)	10.2			(28.1	)
Net losses and loss expenses	$	70.9		64.3	%	$	28.1		67.7	%	$	42.8		3.4 pts

Current year non-catastrophe losses and loss expenses

The increase in the current year non-catastrophe losses and loss expenses was due to higher incurred losses from the acquired Asian operations. The improvement in the current year non-catastrophe losses and loss expenses ratio was due to a reduction in IBNR loss reserves due to lower than expected casualty losses related to the acquired Asian operations in the current period compared to higher than expected losses related to our trade credit line of business in the prior period. These changes resulted in an improvement in the current year non-catastrophe losses and loss expenses ratio of 5.0 percentage points.

Current year property catastrophe losses and loss expenses

During the three months ended September 30, 2015, we incurred $0.3 million of property catastrophe losses related to explosions in the port of Tianjin, China. We incurred $11.0 million of property catastrophe losses and loss expenses related to Hurricane Odile during the three months ended September 30, 2014.

Table of Contents

Prior year losses and loss expenses

Overall, our Global Markets Insurance segment recorded net favorable reserve development of $2.4 million during the three months ended September 30, 2015 compared to net favorable reserve development of $12.6 million for the three months ended September 30, 2014, as shown in the tables below.



	(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Three Months Ended September 30, 2015
	2009 and Prior			2010			2011			2012			2013			2014			Total
	($ in millions)
Casualty	$	(1.2	)	$	(1.0	)	$	0.2		$	(0.4	)	$	2.8		$	0.5		$	0.9
Professional liability	(1.1		)	(1.0		)	(1.1		)	(1.0		)	(1.0		)	(0.3		)	(5.5		)
Property	0.4			(0.5		)	(0.1		)	0.5			(0.1		)	(1.4		)	(1.2		)
Specialty and other	(0.1		)	—			(0.1		)	0.3			4.0			(0.7		)	3.4
	$	(2.0	)	$	(2.5	)	$	(1.1	)	$	(0.6	)	$	5.7		$	(1.9	)	$	(2.4	)

For the three months ended September 30, 2015, we recorded favorable prior year reserve development in our professional liability and property lines of business due to lower than expected loss emergence. The unfavorable prior year reserve development for the specialty and other line of business in the 2013 loss year primarily related to the trade credit line of business due to higher frequency of reported claims above our expectations.



	(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Three Months Ended September 30, 2014
	2008 and Prior			2009			2010			2011			2012			2013		Total
	($ in millions)
Casualty	$	(0.8	)	$	(1.2	)	$	(0.3	)	$	(0.5	)	$	(0.1	)	$	—	$	(2.9	)
Professional liability	(1.6		)	(1.2		)	(4.0		)	(1.4		)	(1.4		)	1.2		(8.4		)
Property	—			(0.1		)	(0.5		)	(0.8		)	0.1			—		(1.3		)
Specialty and other	—			—			—			—			(1.9		)	1.9		—
	$	(2.4	)	$	(2.5	)	$	(4.8	)	$	(2.7	)	$	(3.3	)	$	3.1	$	(12.6	)

For the three months ended September 30, 2014, we recorded favorable loss reserve development in each of our lines of business due to lower than expected loss emergence.

Acquisition costs. Acquisition costs increased by $17.4 million, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. The increase in acquisition costs was due to higher acquisition costs from the acquired Asian operations. The acquisition cost ratio was 20.6% for the three months ended September 30, 2015 compared to 12.8% for the three months ended September 30, 2014. The increase in the acquisition cost ratio was due to higher commissions charged for business written by the acquired Asian operations and the additional amortization of the insurance-related intangible asset recorded related to the acquisitions of the RSA operations.

General and administrative expenses. General and administrative expenses increased by $12.5 million, or 74.4%, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. The increase was primarily due to higher general and administrative expenses from the acquired Asian operations partially offset by lower stock-based compensation expense. The general and administrative expense ratio was 26.6% and 40.4% for the three months ended September 30, 2015 and 2014, respectively. The decrease in the general and administrative expense ratio was due to growth in net premiums earned from the acquired Asian operations.

Other insurance-related income and expense. The other insurance-related expenses incurred represent the transaction-related costs for our acquisitions of the Hong Kong and Singapore operations of RSA.

Table of Contents

Comparison of Nine Months Ended September 30, 2015 and 2014

Premiums. Gross premiums written increased by $132.1 million, or 67.4%, for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. The increase was primarily due to gross premiums written of $117.8 million from the acquired Asian operations.

The table below illustrates our gross premiums written by underwriter location for our Global Markets Insurance operations.



	Nine Months Ended September 30,				Dollar Change			Percentage Change
	2015		2014		Dollar Change			Percentage Change
			($ in millions)
Europe	$	179.4	$	162.1	$	17.3		10.7	%
Asia Pacific	147.3		21.9		125.4			572.6	%
Bermuda	1.5		12.1		(10.6		)	(87.6	)%
	$	328.2	$	196.1	$	132.1		67.4	%

The table below illustrates our gross premiums written by line of business for each of the periods indicated.



	Nine Months Ended September 30,				Dollar Change		Percentage Change
	2015		2014		Dollar Change		Percentage Change
	($ in millions)
Professional liability	$	98.9	$	91.0	$	7.9	8.7	%
Specialty and other	95.0		45.7		49.3		107.9	%
Casualty	75.3		29.3		46.0		157.0	%
Property	59.0		30.1		28.9		96.0	%
	$	328.2	$	196.1	$	132.1	67.4	%

Net premiums written increased by $89.6 million, or 70.8%, for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. The increase in net premiums written was primarily due to the higher gross premiums written from the acquired Asian operations. We ceded 34.1% of gross premiums written for the nine months ended September 30, 2015 compared to 35.4% for the nine months ended September 30, 2014.

Net premiums earned increased by $148.5 million, or 129.6%, primarily due to higher net premiums earned from the acquired Asian operations and the growth of our historical operations.

Net losses and loss expenses. Net losses and loss expenses increased by $122.0 million, or 346.6%, for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. The following is a breakdown of the loss and loss expense ratio for the nine months ended September 30, 2015 and 2014:



	Nine Months Ended September 30, 2015					Nine Months Ended September 30, 2014					Dollar Change			Loss Ratio Percentage Point Change
	Amount			% of NPE		Amount			% of NPE		Dollar Change			Loss Ratio Percentage Point Change
						($ in millions)
Non-catastrophe	$	172.7		65.7	%	$	73.6		64.3	%	$	99.1		(1.4) pts
Property catastrophe	4.3			1.6		11.0			9.6		(6.7		)	8.0
Current period	177.0			67.3		84.6			73.9		92.4			6.6
Prior period	(19.8		)	(7.5	)	(49.4		)	(43.2	)	29.6			(35.7	)
Net losses and loss expenses	$	157.2		59.8	%	$	35.2		30.7	%	$	122.0		(29.1) pts

Current year non-catastrophe losses and loss expenses

The increase in the current year non-catastrophe losses and loss expenses, and the related decrease in the losses and loss expense ratio, was primarily due to higher incurred losses in the current year from the acquired Asian operations and higher

Table of Contents

reported aviation, trade credit and large property losses partially offset by a reduction in IBNR loss reserves due to lower than expected casualty losses related to the acquired Asian operations.

Current year property catastrophe losses and loss expenses

During the nine months ended September 30, 2015, we incurred $4.0 million in property catastrophe losses related to windstorms that occurred in the New South Wales region of Australia and $0.3 million related to explosions in the port of Tianjin, China. We incurred $11.0 million of property catastrophe losses and loss expenses related to Hurricane Odile during the nine months ended September 30, 2014.

Prior year losses and loss expenses

Overall, our Global Markets Insurance segment recorded net favorable reserve development of $19.8 million during the nine months ended September 30, 2015 compared to net favorable reserve development of $49.4 million for the nine months ended September 30, 2014, as shown in the tables below.



	(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Nine Months Ended September 30, 2015
	2009 and Prior			2010			2011			2012			2013			2014			Total
	($ in millions)
Casualty	$	(7.7	)	$	(3.6	)	$	0.3		$	1.7		$	2.3		$	(0.6	)	$	(7.6	)
Professional liability	(0.8		)	(5.8		)	(2.0		)	3.3			(1.5		)	0.1			(6.7		)
Property	(1.3		)	(0.3		)	(0.5		)	0.3			(4.4		)	(5.2		)	(11.4		)
Specialty and other	(0.2		)	(0.1		)	(0.3		)	(0.1		)	5.0			1.6			5.9
	$	(10.0	)	$	(9.8	)	$	(2.5	)	$	5.2		$	1.4		$	(4.1	)	$	(19.8	)

For the nine months ended September 30, 2015, the favorable prior year reserve development in our property, professional liability and casualty lines of business was due to lower than expected loss emergence. The unfavorable prior year reserve development for the specialty and other line of business in the 2013 loss year primarily related to the trade credit line of business due to higher frequency of reported claims above our expectations.



	(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Nine Months Ended September 30, 2014
	2008 and Prior			2009			2010			2011			2012			2013			Total
	($ in millions)
Casualty	$	(11.0	)	$	(6.5	)	$	(3.5	)	$	1.5		$	(0.2	)	$	—		$	(19.7	)
Professional liability	(5.7		)	(2.9		)	(7.6		)	(2.7		)	2.5			1.2			(15.2		)
Property	(1.3		)	(0.3		)	(1.0		)	(3.4		)	(3.4		)	(5.0		)	(14.4		)
Specialty and other	—			—			(0.1		)	(1.0		)	(2.2		)	3.2			(0.1		)
	$	(18.0	)	$	(9.7	)	$	(12.2	)	$	(5.6	)	$	(3.3	)	$	(0.6	)	$	(49.4	)

For the nine months ended September 30, 2014, the net favorable reserve development was a result of actual loss emergence being lower than anticipated for each of our lines of business.

Acquisition costs. Acquisition costs increased by $41.5 million for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. The increase in acquisition costs was due to higher acquisition costs from the acquired Asian operations. The acquisition cost ratio was 20.6% for the nine months ended September 30, 2015 compared to 11.0% for the nine months ended September 30, 2014.

General and administrative expenses. General and administrative expenses increased by $29.2 million, or 59.7%, for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. The increase in general and administrative expenses was due to the acquired Asian operations partially offset by lower stock-based compensation expense.

Table of Contents

The general and administrative expense ratio was 29.7% and 42.6% for the nine months ended September 30, 2015 and 2014, respectively.

Other insurance-related income and expense. The other insurance-related expenses incurred for the current period represent the transaction-related costs incurred for our acquisition of RSA's Hong Kong and Singapore operations.

Reinsurance Segment

The following table summarizes the underwriting results and associated ratios for the Reinsurance segment for each of the periods indicated.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	($ in millions)
Revenues
Gross premiums written	$	161.0		$	177.0		$	773.8		$	888.6
Net premiums written	152.1			159.2			747.1			862.4
Net premiums earned	207.6			223.0			628.4			686.2
Expenses
Net losses and loss expenses	$	123.7		$	127.3		$	360.9		$	370.4
Acquisition costs	41.8			40.1			124.5			125.3
General and administrative expenses	18.2			18.6			57.5			56.9
Underwriting income	23.9			37.0			85.5			133.6
Other insurance-related income	—			—			—			—
Other insurance-related expenses	—			—			—			—
Segment income	$	23.9		$	37.0		$	85.5		$	133.6
Ratios
Loss and loss expense ratio	59.6		%	57.1		%	57.4		%	54.0		%
Acquisition cost ratio	20.1		%	18.0		%	19.8		%	18.3		%
General and administrative expense ratio	8.7		%	8.3		%	9.1		%	8.3		%
Expense ratio	28.8		%	26.3		%	28.9		%	26.6		%
Combined ratio	88.4		%	83.4		%	86.3		%	80.6		%

Comparison of Three Months Ended September 30, 2015 and 2014

Premiums. Gross premiums written decreased by $16.0 million, or 9.0%, for the three months ended September 30, 2015 compared to the same period in 2014. The decrease was primarily due to the non-renewal of a property reinsurance treaty that had a fronting component and lower premiums on a large casualty reinsurance treaty that we renewed in the current period. The decrease in the property reinsurance line of business was partially offset by reinstatement premiums recorded in the current period primarily related to losses incurred from explosions in the port of Tianjin, China.

The table below illustrates our gross premiums written by underwriter location for our Reinsurance operations.



	Three Months Ended September 30,				Dollar Change			Percentage Change
	2015		2014		Dollar Change			Percentage Change
			($ in millions)
United States	$	101.1	$	101.8	$	(0.7	)	(0.7	)%
Asia	31.8		36.2		(4.4		)	(12.2	)%
Bermuda	15.2		25.3		(10.1		)	(39.9	)%
Europe	12.9		13.7		(0.8		)	(5.8	)%
	$	161.0	$	177.0	$	(16.0	)	(9.0	)%

Table of Contents

The table below illustrates our gross premiums written by line of business for each of the periods indicated.



	Three Months Ended September 30,				Dollar Change			Percentage Change
	2015		2014		Dollar Change			Percentage Change
			($ in millions)
Casualty	$	84.4	$	86.7	$	(2.3	)	(2.7	)%
Property	70.9		$	83.1	(12.2		)	(14.7	)%
Specialty	5.7		7.2		(1.5		)	(20.8	)%
	$	161.0	$	177.0	$	(16.0	)	(9.0	)%

Net premiums written decreased by $7.1 million, or 4.5%, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. The decrease was due to the decrease in gross premiums written partially offset by lower premiums ceded. The decrease in premiums ceded was due to the non-renewal of a property reinsurance treaty that had a fronting component partially offset by increased ceded premiums related to our outward property catastrophe reinsurance coverage in the current year.

Net premiums earned decreased by $15.4 million, or 6.9%, as a result of the decrease in net premiums written during the previous quarters, as well as the increase in ceded earned premium related to the higher cost of our current year outward property catastrophe reinsurance coverage.

Net losses and loss expenses. Net losses and loss expenses decreased by $3.6 million, or 2.8%, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. The following is a breakdown of the loss and loss expense ratio for the three months ended September 30, 2015 and 2014:



	Three Months Ended September 30, 2015					Three Months Ended September 30, 2014					Dollar Change			Loss Ratio Percentage Point Change
	Amount			% of NPE		Amount			% of NPE		Dollar Change			Loss Ratio Percentage Point Change
						($ in millions)
Non-catastrophe	$	95.9		46.2	%	$	130.7		58.7	%	$	(34.8	)	12.5 pts
Property catastrophe	32.5			15.7		14.8			6.6		17.7			(9.1	)
Current period	128.4			61.9		145.5			65.3		(17.1		)	3.4
Prior period	(4.7		)	(2.3	)	(18.2		)	(8.2	)	13.5			(5.9	)
Net losses and loss expenses	$	123.7		59.6	%	$	127.3		57.1	%	$	(3.6	)	(2.5) pts

Current year non-catastrophe losses and loss expenses

The decrease in the current year non-catastrophe losses and loss expenses, and the related improvement in the losses and loss expense ratio, was primarily due to lower incurred large property losses during the three months ended September 30, 2015 compared to the same period in 2014, as well as a reduction in IBNR loss reserves due to lower than expected property losses.

Current year property catastrophe losses and loss expenses

During the three months ended September 30, 2015, we incurred property catastrophe losses and loss expenses of $32.5 million related to explosions in the port of Tianjin, China. During the three months ended September 30, 2014 we incurred property catastrophe losses and loss expenses of $8.0 million related to Windstorm Ela, $3.5 million related to Hurricane Odile and $3.3 million related to PCS designated storm 45 in the Midwestern U.S..

Prior year losses and loss expenses

Overall, our Reinsurance segment recorded net favorable reserve development of $4.7 million during the three months ended September 30, 2015 compared to net favorable reserve development of $18.2 million for the three months ended September 30, 2014, as shown in the tables below.

Table of Contents



	(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Three Months Ended September 30, 2015
	2009 and Prior			2010			2011			2012			2013			2014			Total
	($ in millions)
Property	$	(0.6	)	$	0.3		$	(0.8	)	$	(0.7	)	$	(1.0	)	$	(0.5	)	$	(3.3	)
Casualty	(4.5		)	(1.4		)	0.8			1.8			0.1			1.1			(2.1		)
Specialty	(0.4		)	(0.1		)	(0.2		)	0.9			—			0.5			0.7
	$	(5.5	)	$	(1.2	)	$	(0.2	)	$	2.0		$	(0.9	)	$	1.1		$	(4.7	)

For the three months ended September 30, 2015, the net favorable prior year reserve development in the property reinsurance line of business was due to lower than expected reported loss activity. The net unfavorable prior year reserve development in the casualty reinsurance line of business for the 2011 to 2014 loss years was due to higher than expected reported loss activity in our facultative reinsurance line of business.



	(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Three Months Ended September 30, 2014
	2008 and Prior			2009			2010			2011			2012			2013			Total
	($ in millions)
Property	$	0.8		$	—		$	0.6		$	0.6		$	1.1		$	(14.8	)	$	(11.7	)
Casualty	(2.0		)	(0.8		)	(0.6		)	(3.1		)	(0.1		)	(0.1		)	(6.7		)
Specialty	(0.1		)	(0.1		)	(0.6		)	(0.6		)	0.9			0.7			0.2
	$	(1.3	)	$	(0.9	)	$	(0.6	)	$	(3.1	)	$	1.9		$	(14.2	)	$	(18.2	)

For the three months ended September 30, 2014, the net favorable reserve development in the property line of business for

the 2013 loss year was due to lower than expected reported loss activity.

Acquisition costs. Acquisition costs increased by $1.7 million, or 4.2%, for the three months ended September 30, 2015 compared to the three months ended September 30, 2014. The increase was due to higher ceding commissions paid to cedents in certain lines of business. The acquisition cost ratio was 20.1% for the three months ended September 30, 2015 compared to 18.0% for the three months ended September 30, 2014. The increase in the acquisition cost ratio was due to higher ceding commissions paid to cedents in certain lines of business.

General and administrative expenses. General and administrative expenses decreased by $0.4 million, or 2.2%, for the three months ended September 30, 2015 compared to the same period in 2014. The decrease in general and administrative expenses was primarily due to lower stock-based compensation expense. The general and administrative expense ratios for the three months ended September 30, 2015 and 2014 were 8.7% and 8.3%, respectively.

Comparison of Nine Months Ended September 30, 2015 and 2014

Premiums. Gross premiums written decreased by $114.8 million, or 12.9%, for the nine months ended September 30, 2015 compared to the same period in 2014. The decrease was primarily due to lower premiums written across each line of business. The decrease was due to non-renewal of business due to poor terms and conditions, cedents retaining more of their own business, and lower premiums on renewed treaties mainly due to year-over-year rate decreases and our assuming a lower percentage of the premiums than in the prior period. These reductions were partially offset by new business written for each line of business and higher reinstatement premiums in our property reinsurance line of business.

Table of Contents

The table below illustrates our gross premiums written by underwriter location for our Reinsurance operations.



	Nine Months Ended September 30,				Dollar Change			Percentage Change
	2015		2014		Dollar Change			Percentage Change
			($ in millions)
United States	$	425.6	$	458.0	$	(32.4	)	(7.1	)%
Bermuda	181.4		225.9		(44.5		)	(19.7	)%
Asia	92.1		120.9		(28.8		)	(23.8	)%
Europe	74.7		83.8		(9.1		)	(10.9	)%
	$	773.8	$	888.6	$	(114.8	)	(12.9	)%

The table below illustrates our gross premiums written by line of business for each of the periods indicated.



	Nine Months Ended September 30,				Dollar Change			Percentage Change
	2015		2014		Dollar Change			Percentage Change
			($ in millions)
Property	$	414.8	$	453.4	$	(38.6	)	(8.5	)%
Casualty	181.5		236.2		(54.7		)	(23.2	)%
Specialty	177.5		199.0		(21.5		)	(10.8	)%
	$	773.8	$	888.6	$	(114.8	)	(12.9	)%

Net premiums written decreased by $115.3 million, or 13.4%, primarily due to the decrease in gross premiums written.

Net premiums earned decreased by $57.8 million, or 8.4%, as a result of the decrease in net premiums written during the previous quarters, as well as the increase in ceded earned premium related to the higher cost of our current year outward property catastrophe reinsurance coverage.

Net losses and loss expenses. Net losses and loss expenses decreased by $9.5 million, or 2.6%, for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. The following is a breakdown of the loss and loss expense ratio for the nine months ended September 30, 2015 and 2014:



	Nine Months Ended September 30, 2015					Nine Months Ended September 30, 2014					Dollar Change			Loss Ratio Percentage Point Change
	Amount			% of NPE		Amount			% of NPE		Dollar Change			Loss Ratio Percentage Point Change
						($ in millions)
Non-catastrophe	$	365.7		58.2	%	$	407.1		59.3	%	$	(41.4	)	1.1 pts
Property catastrophe	53.5			8.5		28.0			4.1		25.5			(4.4	)
Current period	419.2			66.7		435.1			63.4		(15.9		)	(3.3	)
Prior period	(58.3		)	(9.3	)	(64.7		)	(9.4	)	6.4			(0.1	)
Net losses and loss expenses	$	360.9		57.4	%	$	370.4		54.0	%	$	(9.5	)	(3.4) pts

Current year non-catastrophe losses and loss expenses

The decrease in the current year non-catastrophe losses and loss expenses, and related improvement in the losses and loss expense ratio, was primarily due to lower incurred large property losses during the nine months ended September 30, 2015 compared to the same period in 2014, as well as a reduction in IBNR loss reserves due to lower than expected property losses.

Current year property catastrophe losses and loss expenses

During the nine months ended September 30, 2015, we incurred property catastrophe losses and loss expenses of $32.5 million related to explosions in the port of Tianjin, China and $21.0 million in property catastrophe losses related to windstorms that occurred in the New South Wales region of Australia. During the nine months ended September 30, 2014, we incurred property catastrophe losses and loss expenses of $12.5 million related to PCS designated storm 45 in the Midwestern U.S., $12.0 million related to Windstorm Ela and $3.5 million related to Hurricane Odile.

Table of Contents

Prior year losses and loss expenses

Overall, our Reinsurance segment recorded net favorable reserve development of $58.3 million during the nine months ended September 30, 2015 compared to net favorable reserve development of $64.7 million for the nine months ended September 30, 2014, as shown in the tables below.



	(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Nine Months Ended September 30, 2015
	2009 and Prior			2010			2011			2012			2013			2014			Total
	($ in millions)
Property	$	(2.1	)	$	1.9		$	3.2		$	(8.3	)	$	7.9		$	(45.0	)	$	(42.4	)
Casualty	(17.3		)	(14.3		)	1.3			6.6			4.8			2.5			(16.4		)
Specialty	(0.7		)	(0.1		)	(0.5		)	1.2			(1.8		)	2.4			0.5
	$	(20.1	)	$	(12.5	)	$	4.0		$	(0.5	)	$	10.9		$	(40.1	)	$	(58.3	)

For the nine months ended September 30, 2015, the net favorable reserve development in the 2014 loss year was primarily due to favorable reserve development in the property reinsurance line of business due to benign reported loss activity. We also experienced net favorable development in the 2010 and 2009 and prior loss years in our casualty reinsurance line of business, as a result of actual loss emergence being lower than anticipated. The net favorable prior year reserve development for the casualty reinsurance line of business was partially offset by unfavorable prior year reserve development from the 2011 through 2014 loss years due to higher than expected frequency of losses.



	(Favorable) and Unfavorable Loss Reserve Development by Loss Year
	For the Nine Months Ended September 30, 2014
	2008 and Prior			2009			2010			2011			2012			2013			Total
	($ in millions)
Property	$	0.7		$	0.3		$	1.6		$	(5.2	)	$	(3.2	)	$	(44.4	)	$	(50.2	)
Casualty	(7.8		)	(1.8		)	0.4			(2.0		)	(0.3		)	1.3			(10.2		)
Specialty	(1.1		)	0.2			(0.3		)	(1.0		)	5.7			(7.8		)	(4.3		)
	$	(8.2	)	$	(1.3	)	$	1.7		$	(8.2	)	$	2.2		$	(50.9	)	$	(64.7	)

For the nine months ended September 30, 2014, the net favorable reserve development in the property line of business

for the 2013 loss year was due to lower than expected reported loss activity.

Acquisition costs. Acquisition costs decreased by $0.8 million, or 0.6%, for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. The decrease was due to the decrease in net premiums earned. The acquisition cost ratio was 19.8% for the nine months ended September 30, 2015 compared to 18.3% for the nine months ended September 30, 2014. The increase in the acquisition cost ratio was due to higher ceding commission paid to cedents.

General and administrative expenses. General and administrative expenses increased by $0.6 million, or 1.1%, for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. The general and administrative expense ratios for the nine months ended September 30, 2015 and 2014 were 9.1% and 8.3%, respectively.

Table of Contents

Reserves for Losses and Loss Expenses

Reserves for losses and loss expenses by segment were comprised of the following:



	North American Insurance						Global Markets Insurance						Reinsurance						Total
	Sep 30, 2015			Dec 31, 2014			Sep 30, 2015			Dec 31, 2014			Sep 30, 2015			Dec 31, 2014			Sep 30, 2015			Dec 31, 2014
	($ in millions)
Case reserves	$	889.7		$	937.7		$	396.9		$	117.8		$	420.8		$	458.6		$	1,707.4		$	1,514.1
IBNR	3,033.5			2,868.9			543.7			450.4			1,152.0			1,047.8			4,729.2			4,367.1
Reserve for losses and loss expenses	3,923.2			3,806.6			940.6			568.2			1,572.8			1,506.4			6,436.6			5,881.2
Reinsurance recoverables	(1,190.6		)	(1,156.4		)	(250.2		)	(173.2		)	(9.0		)	(10.7		)	(1,449.8		)	(1,340.3		)
Net reserve for losses and loss expenses	$	2,732.6		$	2,650.2		$	690.4		$	395.0		$	1,563.8		$	1,495.7		$	4,986.8		$	4,540.9

We participate in certain lines of business where claims may not be reported for many years. Accordingly, management does not solely rely upon reported claims on these lines for estimating ultimate liabilities. We also use statistical and actuarial methods to estimate expected ultimate losses and loss expenses. Loss reserves do not represent an exact calculation of liability. Rather, loss reserves are estimates of what we expect the ultimate resolution and administration of claims will cost. These estimates are based on various factors including underwriters’ expectations about loss experience, actuarial analysis, comparisons with the results of industry benchmarks and loss experience to date. Loss reserve estimates are refined as experience develops and as claims are reported and resolved. Establishing an appropriate level of loss reserves is an inherently uncertain process. Ultimate losses and loss expenses may differ from our reserves, possibly by material amounts.

The following tables provide our ranges of loss and loss expense reserve estimates by business segment as of September 30, 2015:



	Reserve for Losses and Loss Expenses Gross of Reinsurance Recoverable
	Carried Reserves		Low Estimate		High Estimate
	($ in millions)
North American Insurance	$	3,923.2	$	3,077.5	$	4,403.7
Global Markets Insurance	940.6		737.2		1,066.4
Reinsurance	1,572.8		1,251.8		1,793.0
Consolidated (1)	6,436.6		5,176.3		7,153.5



	Reserve for Losses and Loss Expenses Net of Reinsurance Recoverable
	Carried Reserves		Low Estimate		High Estimate
	($ in millions)
North American Insurance	$	2,732.6	$	2,154.7	$	3,113.6
Global Markets Insurance	690.4		545.1		790.0
Reinsurance	1,563.8		1,247.1		1,783.8
Consolidated (1)	4,986.8		4,040.3		5,594.1

________________________


(1)	For statistical reasons, it is not appropriate to add together the ranges of each business segment in an effort to determine the low and high range around the consolidated loss reserves.

Our range for each business segment was determined by utilizing multiple actuarial loss reserving methods along with various assumptions of reporting patterns and expected loss ratios by loss year. The various outcomes of these techniques were combined to determine a reasonable range of required loss and loss expense reserves. While we believe our approach to determine the range of loss and loss expense is reasonable, there are no assurances that actual loss experience will be within the ranges of loss and loss expense noted above.

Table of Contents

Our selection of the actual carried reserves is generally above the midpoint of the range. We believe that we should be prudent in our reserving practices due to the lengthy reporting patterns and relatively large limits of net liability for any one risk of our direct excess casualty business and of our casualty reinsurance business. Thus, due to this uncertainty regarding estimates for reserve for losses and loss expenses, we have carried our consolidated reserve for losses and loss expenses, net of reinsurance recoverable, above the midpoint of the low and high estimates for the consolidated net losses and loss expenses. We believe that relying on the more prudent actuarial indications is appropriate for these lines of business.

Reinsurance Recoverable

The following table illustrates our reinsurance recoverable as of September 30, 2015 and December 31, 2014:



	September 30, 2015		December 31, 2014
	($ in millions)
Ceded case reserves	$	281.4	$	232.6
Ceded IBNR reserves	1,168.4		1,107.7
Reinsurance recoverable	$	1,449.8	$	1,340.3

We remain obligated for amounts ceded in the event our reinsurers do not meet their obligations. Accordingly, we have evaluated the reinsurers that are providing reinsurance protection to us and will continue to monitor their credit ratings and financial stability. We generally have the right to terminate our treaty reinsurance contracts at any time, upon prior written notice to the reinsurer, under specified circumstances, including the assignment to the reinsurer by A.M. Best of a financial strength rating of less than “A-.” Approximately 99% of ceded reserves as of September 30, 2015 were recoverable from reinsurers who had an A.M. Best rating of “A-” or higher.

Liquidity and Capital Resources

Liquidity

Liquidity is a measure of our ability to access sufficient cash flows to meet the short-term and long-term cash requirements of our business operations. The Company believes that its cash flows from operations and investments will provide sufficient liquidity for the foreseeable future.

Holdings is a holding company and transacts no business of its own. Cash flows to Holdings may comprise dividends, advances and loans from its subsidiary companies. Holdings is therefore reliant on receiving dividends and other permitted distributions from its subsidiaries to make dividend payments on its common shares.

Our operating subsidiaries depend upon cash inflows from premium receipts, net of commissions, investment income and proceeds from sales and redemptions of investments. Cash outflows for our operating subsidiaries are in the form of claims payments, net of reinsurance recoveries, reinsurance premium payments, purchase of investments, operating expenses and income tax payments as well as dividend payments to the holding company.

Historically, our operating subsidiaries have generated sufficient cash flows to meet all of their obligations. Because of the inherent volatility of our business, the seasonality in the timing of payments by insureds and cedents, the irregular timing of loss payments, and the impact of a change in interest rates and credit spreads on the investment income as well as seasonality in coupon payment dates for fixed income securities, cash flows from operating activities may vary between periods. In the unlikely event that paid losses exceed operating cash flows in any given period, we would use our cash balances available, liquidate a portion of our investment portfolio or borrow under our revolving loan facility (see “Credit Facilities” below) in order to meet our short-term liquidity needs.

Our total investments and cash and cash equivalents totaled $8.9 billion as of September 30, 2015, the main components of which were investment grade fixed income securities and cash and cash equivalents. As of September 30, 2015, we held $603.8 million of unrestricted cash and cash equivalents and $383.0 million of fixed income securities with a maturity of less than one year to meet short-term liquidity needs. Our remaining fixed income securities, equity securities and “other invested assets” are available to meet our long-term liquidity needs.

Table of Contents

As of September 30, 2015, we had $150 million available under our revolving loan facility.

Dividend Restrictions

The jurisdictions in which our operating subsidiaries are licensed to write business impose regulations requiring companies to maintain or meet various defined statutory ratios, including solvency and liquidity requirements. Some jurisdictions also place restrictions on the declaration and payment of dividends and other distributions. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in the Company’s 2014 Form 10-K.

Cash Flows



	Nine Months Ended September 30,
	2015			2014
	($ in millions)
Cash flows provided by operating activities	$	591.4		$	669.7
Cash flows used in investing activities	(268.7		)	(154.1		)
Cash flows used in financing activities	(300.2		)	(213.6		)
Effect of exchange rate changes on foreign currency cash	(8.1		)	(2.6		)
Net increase in cash and cash equivalents	14.5			299.4
Cash and cash equivalents, beginning of period	589.3			531.9
Cash and cash equivalents, end of period	$	603.8		$	831.3

The primary sources of cash inflows from operating activities are premiums received, loss payments from reinsurers, return of funds held balances related to our collateralized property catastrophe reinsurance program through Aeolus Re, and investment income. The primary sources of cash outflows from operating activities are ceded premiums paid to reinsurers, claims paid, contributions of funds held balances, commissions paid, operating expenses, interest expense and income taxes. The primary factor in our ability to generate positive operating cash flow is underwriting profitability. We have generated positive operating cash flow for more than 11 consecutive years.

In our casualty lines of business, claims may be reported and settled many years after the coverage period has terminated. As a result, we expect that we will generate significant operating cash flow as we accumulate casualty loss reserves on our balance sheet. In our property lines of business, claims are generally reported and paid within a relatively short period of time and we expect volatility in our operating cash flows as losses are incurred. We expect increases in the amount of expected loss payments in future periods with a resulting decrease in operating cash flow; however, we do not expect loss payments to exceed the premiums generated. Actual premiums written and collected and losses and loss expenses paid in any period could vary materially from our expectations and could have a significant and adverse effect on operating cash flow.

The decrease in cash flows from operations was primarily due to higher net paid losses, partially offset by higher net premiums written during the current period compared to the prior period.

Cash flows used in or provided by investing activities consist primarily of proceeds on the sale of investments and payments for investments or businesses acquired in addition to changes in restricted cash. The increase in cash flows used in investing activities was primarily due to the net cash paid for the RSA and LAU acquisitions of $141.5 million during the current year.

Cash flows from financing activities consist primarily of capital raising activities, which include the issuance of common shares or debt, the repurchase of our common shares, the payment of dividends and the repayment of debt. The increase in cash flows used in financing activities was due to the $80.2 million increase in share repurchases for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. This was primarily driven by the repurchase of 4,053,537 shares from Exor S.A. at a repurchase price of $40.546 per share, for an aggregate purchase price of $164.4 million, on May 6, 2015.

Investments

Our funds are primarily invested in liquid, high-grade fixed income securities. As of September 30, 2015 and December 31, 2014, 88.2% and 88.5%, respectively, of our fixed income portfolio consisted of investment grade securities. The

Table of Contents

maturity distribution of our fixed-maturity portfolio (on a fair value basis) as of September 30, 2015 and December 31, 2014 was as follows:



	September 30, 2015		December 31, 2014
	($ in millions)
Due in one year or less	$	383.0	$	250.4
Due after one year through five years	3,112.2		3,167.8
Due after five years through ten years	703.5		637.2
Due after ten years	366.0		79.3
Mortgage-backed	1,302.7		1,263.5
Asset-backed	679.7		670.8
Total	$	6,547.1	$	6,069.0

We have investments in “other invested assets”, comprising interests in hedge funds, private equity funds, other private securities and high yield loan funds, the carrying value of which was $969.4 million as of September 30, 2015. Some of these funds have redemption notice requirements. For each of our funds, liquidity is allowed after certain defined periods based on the terms of each fund. See Note 5(b) “Investments — Other Invested Assets” to our unaudited condensed consolidated financial statements for additional details on our other invested assets.

We do not believe that inflation has had a material effect on our consolidated results of operations. The potential exists, after a catastrophe loss, for the development of inflationary pressures in a local economy. The effects of inflation are considered implicitly in pricing. Loss reserves are established to recognize likely loss settlements at the date payment is made. Those reserves inherently recognize the effects of inflation. The actual effects of inflation on our results cannot be accurately known, however, until claims are ultimately resolved.

Credit Facilities

In the normal course of our operations, we enter into agreements with financial institutions to obtain secured and unsecured credit facilities.

Allied World Assurance Company, Ltd currently has access to up to $1.45 billion in letters of credit under two letter of credit facilities, a $1.0 billion uncommitted secured facility with Citibank Europe plc and a $450 million committed secured credit facility with a syndication of lenders (the “Amended Secured Credit Facility”). These credit facilities are primarily for the issuance of standby letters of credit to support obligations in connection with the insurance and reinsurance business.

The letters of credit issued under the credit facility with Citibank Europe plc are deemed to be automatically extended without amendment for twelve months from the expiry date, or any future expiration date unless at least 30 days prior to any expiration date Citibank Europe plc notifies us that they elect not to consider the letters of credit renewed for any such additional period.

A portion of the Amended Secured Credit Facility may also be used for revolving loans for general corporate and working capital purposes, up to a maximum of $150 million. We may request that existing lenders under the Amended Secured Credit Facility make additional commitments from time to time, up to $150 million, subject to approval by the lenders. The Amended Secured Credit Facility contains representations, warranties and covenants customary for similar bank loan facilities, including certain covenants that, among other things, require us to maintain a certain leverage ratio and financial strength rating. We are in compliance with all covenants under the Amended Secured Credit Facility as of September 30, 2015.

As of September 30, 2015, we had combined unused letters of credit capacity of $670.9 million from the Amended Secured Credit Facility and Citibank Europe plc. We believe that this remaining capacity is sufficient to meet our future letter of credit needs. During the nine months ended September 30, 2015, we did not utilize the revolving loan available under the Amended Secured Credit Facility.

In September 2014, Allied World Assurance Company, AG entered into a 20-year mortgage commitment with a Swiss bank for the purchase of three floors in an office building in Zug, Switzerland. See “Long-Term Debt” below for additional information regarding the 20-year mortgage commitment. In conjunction with the mortgage commitment, Allied World Assurance Company, AG entered into a three-year credit facility with a Swiss bank that provided us $5.2 million (CHF 5.0

Table of Contents

million) for general corporate purposes; however, we used the proceeds from the credit facility to fund the purchase of three floors of the office building in Zug, Switzerland. The interest rate for the credit facility is 2.5%.

Pledged Assets

We use trust accounts primarily to meet security requirements for inter-company and certain reinsurance transactions. We also have cash and cash equivalents and investments on deposit with various state or government insurance departments or pledged in favor of ceding companies in order to comply with reinsurance contract provisions and relevant insurance regulations. In addition, our credit facilities are collateralized, at least to the extent of letters of credit outstanding at any given time.

Security arrangements with ceding insurers may subject our assets to security interests or require that a portion of our assets be pledged to, or otherwise held by, third parties. Both of our letter of credit facilities are fully collateralized by assets held in custodial accounts at the Bank of New York Mellon held for the benefit of the banks. Although the investment income derived from our assets while held in trust accrues to our benefit, the investment of these assets is governed by the terms of the letter of credit facilities or the investment regulations of the state or territory of domicile of the ceding insurer, which may be more restrictive than the investment regulations otherwise applicable to us. The restrictions may result in lower investment yields on these assets, which may adversely affect our profitability.

As of September 30, 2015 and December 31, 2014, $2,975.1 million and $3,585.8 million, respectively, of cash and cash equivalents and investments were deposited, pledged or held in escrow accounts in favor of ceding companies and other counterparties or government authorities to comply with reinsurance contract provisions, insurance laws and other contract provisions.

In addition, as of September 30, 2015 and December 31, 2014, a further $570.4 million and $571.8 million, respectively, of cash and cash equivalents and investments were pledged as collateral for our credit facilities.

We do not currently anticipate that the restrictions on liquidity resulting from restrictions on the payment of dividends by our subsidiary companies or from assets committed in trust accounts or to collateralize the letter of credit facilities will have a material impact on our ability to carry out our normal business activities, including interest and dividend payments, respectively, on our senior notes (described below) and common shares.

Financial Strength Ratings

Financial strength ratings represent the opinions of rating agencies on our capacity to meet our obligations. In the event of a significant downgrade in ratings, our ability to write business and to access the capital markets could be impacted. Our financial strength ratings as of September 30, 2015 have not changed since December 31, 2014. See Item 1. “Business” in our 2014 Form 10-K.

Capital Resources

The table below sets forth the capital structure of the Company as of September 30, 2015 and December 31, 2014:



	September 30, 2015			December 31, 2014
	($ in millions)
Senior notes	$	799.0		$	798.8
Other long-term debt	23.3			19.2
Shareholders’ equity	3,555.4			3,778.3
Total capitalization	$	4,377.7		$	4,596.3
Debt to total capitalization	18.8		%	17.8		%

On June 18, 2015, we filed a shelf registration statement on Form S-3 with the SEC in which we may offer from time to time common shares of Allied World Switzerland, senior or subordinated debt securities of Allied World Bermuda, guarantees of debt securities of Allied World Bermuda, warrants to purchase common shares of Allied World Switzerland, warrants to purchase debt securities of Allied World Bermuda or units which may consist of any combination of the securities listed above. The registration statement is intended to provide us with additional flexibility to access capital markets for general corporate purposes, subject to market conditions and our capital needs.

Table of Contents

Share Repurchases

On May 1, 2014, our shareholders approved a share repurchase program (the “2014 share repurchase program”) in order for us to repurchase up to $500.0 million of our common shares. Under the terms of this new share repurchase program, the first three million of common shares repurchased will remain in treasury and will be used by us to satisfy share delivery obligations under our equity-based compensation plans. Any additional common shares will be designated for cancellation at acquisition and will be canceled upon shareholder approval. As of September 30, 2015, approximately $173.0 million remained under this share repurchase authorization.

During the three months and nine months ended September 30, 2015, our share repurchases were as follows:



	Three Months Ended September 30, 2015		Nine Months Ended September 30, 2015
	($ in millions)
Common shares repurchased	—		6,047,437
Total cost of shares repurchased	$	—	$	245.3
Average price per share	$	—	$	40.56

No common shares were repurchased during the three months ended September 30, 2015.

On May 6, 2015, the Company repurchased 4,053,537 shares from Exor S.A. at a repurchase price of $40.546 per share, for an aggregate purchase price of $164.4 million. The repurchase was executed under the 2014 share repurchase program.

Shares repurchased by the Company and not designated for cancellation are classified as “Treasury shares, at cost” on the consolidated balance sheets. The Company will issue shares out of treasury principally related to the Company’s employee benefit plans. Shares repurchased and designated for cancellation are constructively retired and recorded as a share cancellation.

Long-Term Debt

In July 2006, Allied World Bermuda issued $500.0 million aggregate principal amount of 7.50% senior notes due August 1, 2016, with interest payable August 1 and February 1 each year. Allied World Bermuda can redeem the senior notes prior to maturity, subject to payment of a “make-whole” premium; however, Allied World Bermuda currently has no intention of redeeming the notes.

In November 2010, Allied World Bermuda issued $300.0 million aggregate principal amount of 5.50% senior notes due November 1, 2020, with interest payable May 15 and November 15 each year, commencing May 15, 2011. Allied World Bermuda can redeem the senior notes prior to maturity, subject to payment of a “make-whole” premium; however, Allied World Bermuda currently has no intention of redeeming the notes.

The senior notes issued in 2006 and 2010 have been unconditionally and irrevocably guaranteed for the payment of the principal and interest by Holdings.

In September 2014, Allied World Assurance Company, AG entered into a 20-year mortgage commitment with a Swiss bank for the the purchase of three floors in an office building in Zug, Switzerland. The total proceeds received in 2014 under the mortgage was $14.1 million (CHF 14.0 million) with a fixed annual interest rate of 3.2% payable quarterly, and an additional $3.9 million (CHF 4.0 million) of proceeds from the mortgage was received in April 2015. The mortgage payments will be $0.3 million (CHF 0.3 million) per year, plus accrued interest, for the first 19 years with the remaining balance payable at the end of the mortgage.

Off-Balance Sheet Arrangements

As of September 30, 2015, we did not have any off-balance sheet arrangements.

Table of Contents



Item 3.	Quantitative and Qualitative Disclosures About Market Risk.

We believe that we are principally exposed to three types of market risk: interest rate risk, credit risk and currency risk.

The fixed income securities in our investment portfolio are subject to interest rate risk and credit risk. Any changes in interest rates and credit spreads have a direct effect on the fair values of fixed income securities. As interest rates rise, the fair values fall, and vice versa. As credit spreads widen, the fair values fall, and vice versa.

In the table below, changes in fair values as a result of changes in interest rates are determined by calculating hypothetical September 30, 2015 ending prices based on yields adjusted to reflect the hypothetical changes in interest rates, comparing such hypothetical ending prices to actual ending prices, and multiplying the difference by the principal amount of the security. The sensitivity analysis is based on estimates. The estimated changes of our fixed maturity investments and cash and cash equivalents are presented below and actual changes for interest rate shifts could differ significantly.



	Interest Rate Shift in Basis Points
	-200			-100			-50			—			+50			+100			+200
	($ in millions)
Total fair value	$	7,606.8		$	7,463.6		$	7,388.1		$	7,310.7		$	7,233.7		$	7,157.7		$	7,009.5
Fair value change from base	296.1			152.9			77.4			—			(77.0		)	(153.0		)	(301.2		)
Change in unrealized appreciation/(depreciation)	4.1		%	2.1		%	1.1		%	—		%	(1.1		)%	(2.1		)%	(4.1		)%

In the table below, changes in fair values as a result of changes in credit spreads are determined by calculating hypothetical September 30, 2015 ending prices adjusted to reflect the hypothetical changes in credit spreads, comparing such hypothetical ending prices to actual ending prices, and multiplying the difference by the principal amount of the security. The sensitivity analysis is based on estimates. The estimated changes of our non-cash, non-U.S. Treasury fixed maturity investments are presented below and actual changes in credit spreads could differ significantly.



	Credit Spread Shift in Basis Points
	-200			-100			-50			—			+50			+100			+200
	($ in millions)
Total fair value	$	5,584.3		$	5,452.8		$	5,387.0		$	5,321.2		$	5,255.5		$	5,189.7		$	5,058.2
Fair value change from base	263.1			131.6			65.8			—			(65.7		)	(131.5		)	(263.0		)
Change in unrealized appreciation/(depreciation)	4.9		%	2.5		%	1.2		%	—		%	(1.2		)%	(2.5		)%	(4.9		)%

In addition to credit spread risk, our portfolio is also exposed to the risk of securities being downgraded or of issuers defaulting. In an effort to minimize this risk, our investment guidelines have been defined to ensure that the assets held are well diversified and are primarily high-quality securities.

Table of Contents

The following table shows the types of securities in our portfolio, their fair market values, average rating and portfolio percentage as of September 30, 2015.



	Fair Value September 30, 2015		Average Rating	Portfolio Percentage
	($ in millions)
Cash and cash equivalents	$	763.7	AAA	8.5	%
U.S. government securities	1,225.7		AA+	13.7	%
U.S. government agencies	62.0		AA+	0.7	%
Non-U.S. government and government agencies	427.1		AA	4.8	%
State, municipalities and political subdivisions	422.0		AA-	4.7	%
Mortgage-backed securities (“MBS”):
Agency MBS	633.9		AA	7.1	%
Non-agency MBS	92.4		CCC+	1.0	%
Commercial MBS	576.4		BBB	6.4	%
Total mortgage-backed securities	1,302.7			14.5	%
Corporate securities:
Financials	1,052.6		A	11.8	%
Industrials	1,257.0		BBB	14.1	%
Utilities	118.2		BBB	1.3	%
Total corporate securities	2,427.8			27.2	%
Asset-backed securities:
Credit cards	62.9		AAA	0.7	%
Auto receivables	36.8		AAA	0.4	%
Student Loans	167.7		AAA	1.9	%
Collateralized loan obligations	347.1		AA	3.9	%
Other	65.2		AA	0.7	%
Total asset-backed securities	679.7			7.6	%
Other invested assets:
Private equity	422.2		N/A	4.7	%
Hedge funds	394.7		N/A	4.4	%
Other private securities	124.3		N/A	1.4	%
High yield loan fund	28.2		N/A	0.3	%
Total other invested assets	969.4			10.8	%
Equities	663.4		N/A	7.5	%
Total investment portfolio	$	8,943.5		100.0	%

As of September 30, 2015, we held $6.5 billion of fixed income securities. Of those assets, approximately 88.2% were rated investment grade (Baa3/BBB- or higher) with the remaining 11.8% rated in the below investment grade category. The average credit quality of the fixed maturity portfolios was “A+” by Standard & Poor’s.

Our agency pass-through mortgage-backed securities are exposed to prepayment risk, which occurs when holders of individual mortgages increase the frequency with which they prepay the outstanding principal before the maturity date to refinance at a lower interest rate cost. Given the proportion that these securities comprise of the overall portfolio, and the current interest rate environment and condition of the credit market, prepayment risk is not considered significant at this time.

Our non-agency commercial mortgage-backed securities are subject to the risk of non-payment due to increased levels of delinquencies, defaults and losses on commercial loans that cumulatively create shortfalls beyond the level of subordination in our specific securities.

As of September 30, 2015, we held investments in “other invested assets” with a carrying value of $969.4 million. Included in other invested assets are private equity funds, hedge funds, other private securities and a high yield loan fund.

Table of Contents

Investments in these types of assets involve certain risks related to, among other things, the illiquid nature of the fund shares, the limited operating history of these investments, as well as risks associated with the strategies employed by the managers of these investments. The funds’ objectives are generally to seek attractive long-term returns with lower volatility by investing in a range of diversified investment strategies. As our reserves and capital continue to build, we may consider additional investments in these or other alternative investments.

As of September 30, 2015, our direct exposure to European credit across all of Europe was $610.6 million as outlined in the table below and is included within “fixed maturity investments trading, at fair value” and “equity securities trading, at fair value” in the consolidated balance sheets. As of September 30, 2015, we had no direct sovereign exposure to Greece, Ireland, Italy, Portugal, Spain or Ukraine. We have exposure to municipal and corporate bonds issued by, or domiciled in, the Commonwealth of Puerto Rico of $61.0 million.



	September 30, 2015
	Sovereign and Sovereign Guaranteed		Structured Products		Corporate Bonds and Equities		Total Exposure
	($ in millions)
Austria	$	—	$	—	$	0.8	$	0.8
Belgium	—		—		18.1		18.1
Denmark	—		—		3.7		3.7
Finland	—		—		3.9		3.9
France	20.1		—		80.9		101.0
Germany	26.9		—		21.7		48.6
Greece	—		—		2.9		2.9
Hungary	—		—		0.6		0.6
Ireland	—		—		12.3		12.3
Italy	—		—		6.6		6.6
Luxembourg	—		3.1		17.7		20.8
Netherlands	—		—		74.3		74.3
Norway	—		—		13.4		13.4
Portugal	—		—		1.5		1.5
Russia	—		—		0.3		0.3
Spain	—		—		7.7		7.7
Sweden	—		—		20.2		20.2
Switzerland	2.1		—		76.1		78.2
United Kingdom	45.1		5.4		145.2		195.7
Total exposure	$	94.2	$	8.5	$	507.9	$	610.6

The U.S. dollar is our reporting currency and the functional currency of all of our operating subsidiaries, except for the Hong Kong and Singapore operations acquired from RSA. However, we enter into insurance and reinsurance contracts where the premiums receivable and losses payable are denominated in currencies other than the U.S. dollar. In addition, we maintain a portion of our investments and liabilities in currencies other than the U.S. dollar, primarily Euro, British Sterling, Swiss Franc and the Canadian dollar. Receivables in non-U.S. currencies are generally converted into U.S. dollars at the time of receipt. When we incur a liability in a non-U.S. currency, we carry such liability on our books in the original currency. These liabilities are converted from the non-U.S. currency to U.S. dollars at the time of payment. As a result, we have an exposure to foreign currency risk resulting from fluctuations in exchange rates. We utilize a hedging strategy to minimize the potential loss of value caused by currency fluctuations by using foreign currency forward contract derivatives that expire in 90 days from purchase.

As of September 30, 2015 and December 31, 2014, approximately 7.2% and 3.7%, respectively, of our total investments and cash and cash equivalents were denominated in currencies other than the U.S. dollar. Of our business written during the nine months ended September 30, 2015 and 2014, approximately 17% and 14%, respectively, was written in currencies other than the U.S. dollar.

Table of Contents



Item 4.	Controls and Procedures.

In connection with the preparation of this quarterly report, our management has performed an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of September 30, 2015. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by SEC rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosures. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2015, our Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by SEC rules and forms and accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosures.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide an absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected.

No changes were made in our internal controls over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f), during the quarter ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION



Item 1.	Legal Proceedings.



Item 1A.	Risk Factors.

Our business is subject to a number of risks, including those identified in Item 1A. of Part I of our 2014 Form 10-K, that could have a material adverse effect on our business, results of operations, financial condition and/or liquidity and that could cause our operating results to vary significantly from period to period. There have been no material changes to the risk factors described in our 2014 Form 10-K. The risks described in our 2014 Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also could have a material adverse effect on our business, results of operations, financial condition and/or liquidity.

Table of Contents



Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.


(c)	The following table summarizes our repurchases of our common shares during the three months ended September 30, 2015:



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Value (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs
July 1 - 31, 2015	—	$	—	—	$	173.0	million
August 1 - 31, 2015	—	—		—	173.0		million
September 1 - 30, 2015	—	—		—	173.0		million
Total	—	$	—	—	$	173.0	million	(1)

________________________

(1)

At the 2014 Annual Shareholder Meeting on May 1, 2014, Holdings’ shareholders approved a two-year $500 million share repurchase program. Please see Part I, Item 2 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Liquidity - Share Repurchases” for more information about our share repurchase program. Share repurchases may be effected from time to time through open market purchases, privately negotiated transactions, tender offers or otherwise.



Item 3.	Defaults Upon Senior Securities.

None.



Item 4.	Mine Safety Disclosures.

Not applicable.



Item 5.	Other Information.

None.

Table of Contents



Item 6.	Exhibits.



Exhibit Number		Description

3.1(1)		Articles of Association of Allied World Assurance Company Holdings, AG, as amended and restated.

31.1		Certification by Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification by Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification by Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification by Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.

101.1		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014, (ii) the Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2015 and 2014, (iii) the Consolidated Statements of Shareholders’ Equity for the nine months ended September 30, 2015 and 2014, (iv) the Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014 and (v) the Notes to the Consolidated Financial Statements.

________________________




(1)	Incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K of Allied World Assurance Company Holdings, AG filed with the SEC on July 14, 2015.

*	These certifications are being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18 United States Code) and are not being filed as part of this report.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	ALLIED WORLD ASSURANCE COMPANY HOLDINGS, AG
Dated: October 21, 2015

	By:	/s/ Scott A. Carmilani
	Name:	Scott A. Carmilani
	Title:	President and Chief Executive Officer
Dated: October 21, 2015

	By:	/s/ Thomas A. Bradley
	Name:	Thomas A. Bradley
	Title:	Executive Vice President and Chief Financial Officer
Dated: October 21, 2015

	By:	/s/ Kent W. Ziegler
	Name:	Kent W. Ziegler
	Title:	Senior Vice President, Finance and Chief Accounting Officer

Table of Contents

EXHIBIT INDEX



Exhibit Number		Description

3.1(1)		Articles of Association of Allied World Assurance Company Holdings, AG, as amended and restated.

31.1		Certification by Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification by Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification by Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification by Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002.

101.1		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014, (ii) the Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2015 and 2014, (iii) the Consolidated Statements of Shareholders’ Equity for the nine months ended September 30, 2015 and 2014, (iv) the Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014 and (v) the Notes to the Consolidated Financial Statements.

_______________________



(1)	Incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K of Allied World Assurance Company Holdings, AG filed with the SEC on July 14, 2015.

*	These certifications are being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, chapter 63 of title 18 United States Code) and are not being filed as part of this report.