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Announcement:

Moody's assigns Baa1 to senior notes of Allied World Assurance; outlook stable

10 Nov 2010

$300 million of 10-year, 5.50% senior notes rated.

New York, November 10, 2010 -- Moody's Investors Service has assigned a Baa1 rating and stable outlook to the 10-year, 5.50% senior notes that will be issued by Allied World Assurance Company Holdings, Ltd (NYSE: AWH). These notes constitute a drawdown under the company's SEC shelf registration. In the same action, Moody's has affirmed the parent company's senior debt rating, the provisional ratings of the shelf and the A2 insurance financial strength ratings of the insurance operating subsidiaries (see complete list below).

RATINGS RATIONALE

Allied World will use the majority of the proceeds to repurchase common shares and warrants from certain founding shareholders who are affiliates of Goldman Sachs. The aggregate repurchase price will be $222.6 million.

The Baa1 senior debt rating is based on the parent company's acceptable debt leverage. Pro forma for the new debt issuance and share repurchases, the group's adjusted debt-to-total capital ratio will increase to 21.9% at September 2010 (from 15.1% at December 2009, including operating lease commitments), putting it at the high end amongst Bermuda insurers. This is balanced by a comfortable level of underwriting leverage at the operations and the expectation of ample credit support from the operating subsidiaries.

Dividends from Allied World Assurance Company, Ltd ("AWAC Bermuda"), which houses the majority of the group's liquid assets, provide the main support for debt service (other subsidiaries are stacked under AWAC Bermuda).

The A2 insurance financial strength rating of AWAC Bermuda and other operating subsidiaries is based on a track record of strong and stable operating returns, comfortable capital adequacy, good product and geographic diversification and manageable exposure to natural catastrophes, which would likely lessen the need to raise capital after a major catastrophe.

These strengths are tempered by a general weakening of industry reserve adequacy.

"Reserve adequacy is a key pressure point because of the company's emphasis on long-tail casualty insurance," said Kevin Lee, senior credit officer at Moody's. Based on its analysis, Moody's believes reported reserves are reasonable (as of December 2009). However, reserve releases -- which have been a significant contributor to earnings -- will likely diminish considerably in the future such that current accident year results will have to stand on their own merit.

Allied World Assurance Company Holdings, Ltd. (NYSE: AWH) is a Bermuda holding company whose subsidiaries write non-life insurance and reinsurance from hubs in the U.S., Bermuda, Ireland, Asia, London and Switzerland. For 9M 2010, the company reported gross premiums written of $1,376.5mn (vs. $1,374.2mn for 9M 2009), net income of $572.2mn (vs. $445.6mn for 9M 2009) and total shareholders' equity of $3,341.3mn at Sept 2010 (vs. $3,213.3mn at Dec 2009).

The last rating action on Allied World occurred on June 30, 2009, when Moody's affirmed the ratings and changed the outlook to stable from negative following the successful integration of Darwin Professional Underwriters Inc.

The principal methodologies used in rating Allied World and its subsidiaries were Moody's Global Rating Methodology for Property and Casualty Insurers published in May 2010 and Moody's Global Rating Methodology for Reinsurers published in July 2008. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

The following ratings have been affirmed with a stable outlook:

Allied World Assurance Company Holdings, Ltd -- senior debt at Baa1; provisional senior unsecured debt at (P)Baa1; provisional subordinated debt at (P)Baa2; provisional preferred stock at (P)Baa3;

Allied World Assurance Company, Ltd -- insurance financial strength at A2;

Allied World Assurance Company (U.S.) Inc. -- insurance financial strength at A2;

Allied World National Assurance Company, Ltd -- insurance financial strength at A2; and

Allied World Reinsurance Company -- insurance financial strength at A2.

New York
Kevin Lee
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Stanislas Rouyer
Senior Vice President
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.

Moody's assigns Baa1 to senior notes of Allied World Assurance; outlook stable
No Related Data.
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