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AHL > SEC Filings for AHL > Form 10-Q on 7-Nov-2012All Recent SEC Filings

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Quarterly Report

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

The following is a discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2012 and 2011. This discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes contained in this Form 10-Q and the audited consolidated financial statements and related notes for the fiscal year ended December 31, 2011, as well as the discussions of critical accounting policies, contained in our Financial Statements in our 2011 Annual Report on Form 10-K filed with the United States Securities and Exchange Commission.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to our plans and strategy for our business and in "Outlook and Trends" below, includes forward-looking statements that involve risks and uncertainties. Please see the section captioned "Cautionary Statement Regarding Forward-Looking Statements" in this report and the "Risk Factors" in Item 1A of our 2011 Annual Report on Form 10-K for more information on factors that could cause actual results to differ materially from the results described in, or implied by, any forward-looking statements contained in this discussion and analysis.


We are a Bermuda holding company and write insurance and reinsurance business through our wholly-owned subsidiaries in Bermuda, the U.K. and the U.S.

Highlights of our results for the three and nine months ended September 30, 2012 were:

Diluted book value per share(1) of $41.53 increased by 9.1% over the end of the third quarter of 2011(2) and by 3.8% from the end of the second quarter of 2012(2);

Combined ratio of 87.0% for the third quarter of 2012 compared with a combined ratio of 96.9% for the third quarter of 2011;

Combined ratio of 89.3% for the nine months of 2012 compared to 116.4% for the first nine months of 2011 which were adversely affected by material catastrophe losses;

Diluted net income per share of $1.45 for the quarter ended September 30, 2012 compared with diluted net income per share of $0.21 in the same quarter last year(2);

Gross written premiums of $558.4 million for the third quarter of 2012, an increase of 12.7% from the third quarter of 2011, principally due to growth in our insurance segment;

Net favorable development on prior year loss reserves of $29.8 million for the third quarter of 2012 compared with $15.6 million in the third quarter of 2011; and

Annualized net income return on average equity(2) of 14.4% for the third quarter of 2012 compared with 2.4% for the third quarter of 2011 and annualized net income return on equity of 11.9% for the nine months of 2012 compared to an annualized net loss of 6.7% for the nine months of 2011.

Total shareholders' equity increased by $119.1 million to $3,554.2 million for the three months ended September 30, 2012. The most significant movements were:

a $94.2 million increase in retained earnings for the period;

an increase in net unrealized gains on investments, net of taxes, of $31.1 million; and

a cash repurchase of 864,634 ordinary shares for $25.0 million in the open market.

(1) Diluted book value per ordinary share is based on total shareholders' equity less preference shares (liquidation preference less issue expenses), divided by the total number of issued and potentially dilutive ordinary shares at the end of the period.

(2) In 2012, the Company adopted the provision of ASU 2010-26, "Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts." Under the standard, the Company is required to expense the proportion of its general and administrative deferred acquisition costs not directly related to successful business acquisition. For more information on the impact of ASU 2010-26, please refer to Note 2 of our unaudited financial statements.

Table of Contents

Shareholders' equity and ordinary shares in issue as at September 30, 2012 and December 31, 2011 were:

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