e425
Filed by Allied World Assurance Company Holdings, AG
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Subject Company: Transatlantic Holdings, Inc.
Commission File No.: 1-10545
The following is a transcript of the Q&A session which followed the joint investor conference call
held by Transatlantic Holdings, Inc. and Allied World Assurance Company Holdings, AG on June 13,
2011.
*********************************************************************
Additional Information about the Proposed Merger and Where to Find It
This communication relates to a proposed merger between Transatlantic and Allied World that will
become the subject of a registration statement, which will include a joint proxy
statement/prospectus, to be filed with the U.S. Securities and Exchange Commission (the SEC) that
will provide full details of the proposed merger and the attendant benefits and risk. This
communication is not a substitute for the joint proxy statement/prospectus or any other document
that Transatlantic or Allied World may file with the SEC or send to their shareholders in
connection with the proposed merger. Investors and security holders are urged to read the
registration statement on Form S-4, including the definitive joint proxy statement/prospectus, and
all other relevant documents filed with the SEC or sent to shareholders as they become available
because they will contain important information about the proposed merger. All documents, when
filed, will be available free of charge at the SECs website (www.sec.gov). You may also
obtain these documents by contacting Transatlantics Investor Relations department at Transatlantic
Holdings, Inc., 80 Pine Street, New York, New York 10005, or via e-mail at
investor_relations@transre.com; or by contacting Allied Worlds Corporate Secretary, attn.:
Wesley D. Dupont, at Allied World Assurance Company Holdings, AG, Lindenstrasse 8, 6340 Baar, Zug,
Switzerland, or via e-mail at secretary@awac.com. This communication does not constitute
an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any
vote or approval.
Participants in the Solicitation
Transatlantic, Allied World and their respective directors and executive officers may be deemed to
be participants in any solicitation of proxies in connection with the proposed merger. Information
about Transatlantics directors and executive officers is available in Transatlantics proxy
statement dated April 8, 2011 for its 2011 Annual Meeting of Stockholders. Information about
Allied Worlds directors and executive officers is available in Allied Worlds proxy statement
dated March 17, 2011 for its 2011 Annual Meeting of Shareholders. Other information regarding the
participants in the proxy solicitation and a description of their direct and indirect interests, by
security holdings or otherwise, will be contained in the joint proxy statement/prospectus and other
relevant materials to be filed with the SEC regarding the merger when they become available.
Investors should read the joint proxy statement/prospectus carefully when it becomes available
before making any voting or investment decisions.
Cautionary Statement Regarding Forward-Looking Statements
This communication contains forward-looking statements within the meaning of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 that are not limited to
historical facts, but reflect Transatlantics and Allied Worlds current beliefs, expectations or
intentions regarding future events. Words such as may, will, could, should, expect,
plan, project, intend, anticipate, believe, estimate, predict, potential, pursue,
target, continue, and similar expressions are intended to identify such forward-looking
statements. These forward-looking statements include, without limitation, Transatlantics and
Allied Worlds expectations with respect to the synergies, costs and other anticipated financial
impacts of the proposed transaction; future financial and operating results of the combined
company; the combined companys plans, objectives, expectations and intentions with respect to
future operations and services; approval of the proposed transaction by stockholders and by
governmental regulatory authorities; the satisfaction of the closing conditions to the proposed
transaction; and the timing of the completion of the proposed transaction.
All forward-looking statements involve significant risks and uncertainties that could cause actual
results to differ materially from those in the forward-looking statements, many of which are
generally outside the control of Transatlantic and Allied
World and are difficult to predict. Examples of such risks and uncertainties include, but are not
limited to, (1) the possibility that the proposed transaction is delayed or does not close,
including due to the failure to receive required stockholder or regulatory approvals, the taking of
governmental action (including the passage of legislation) to block the transaction, or the failure
of other closing conditions, and (2) the possibility that the expected synergies will not be
realized, or will not be realized within the expected time period, because of, among other things,
uncertainties relating to economic conditions, financial and credit market conditions, cyclical
industry conditions, credit quality, government, regulatory and accounting policies, volatile and
unpredictable developments (including natural and man-made catastrophes), the legal environment,
legal and regulatory proceedings, failures of pricing models to accurately assess risks, the
reserving process, the competitive environment in which Transatlantic and Allied World operate,
interest rate and foreign currency exchange rate fluctuations and the uncertainties inherent in
international operations.
Transatlantic and Allied World caution that the foregoing list of factors is not exclusive.
Additional information concerning these and other risk factors is contained in Transatlantics and
Allied Worlds most recently filed Annual Reports on Form 10-K, subsequent Quarterly Reports on
Form 10-Q, recent Current Reports on Form 8-K, and other SEC filings. All subsequent written and
oral forward-looking statements concerning Transatlantic, Allied World, the proposed transaction or
other matters and attributable to Transatlantic or Allied World or any person acting on their
behalf are expressly qualified in their entirety by the cautionary statements above. Neither
Transatlantic nor Allied World undertakes any obligation to publicly update any of these
forward-looking statements to reflect events or circumstances that may arise after the date hereof.
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QUESTION AND ANSWER SECTION
Operator: [Operator Instructions] The first question comes from Keith Walsh of Citi.
<Q Keith Walsh Citigroup Global Markets (United States)>: Hey, good morning gentlemen.
First off congratulations to Bob Orlich on a really long great career and then Ive got a few
questions. First for Transatlantic holders, this kind of gets the stock I guess to $51 which where
it was two months ago still well below book, maybe if you could talk about is there a break-up fee
associated with this if a better offer is presented and then Ive got a couple of follow-ups.
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Yes, there is a going work Keith working backwards, there is a
break-up fee as part of the merger agreement. And while it does bring the deal back to $51 a share,
were making incremental steps right? Mike, you want to add to that?
<A Michael Sapnar EVP, Chief Operating Officer (Transatlantic Holdings, Inc.)>: Yeah,
first of all, yeah, we are not selling the company. This is a merger of equals. The valuation is in
line with our peers and we are getting a 16% premium which is not common in a MOE transaction where
for the larger entity. So I think the fact that we are not selling the company, we are getting a
premium as the larger entity and the valuation is in line with peers, we think thats a good story.
<Q Keith Walsh Citigroup Global Markets (United States)>: And what is that break-up
fee, if you could just let us know that?
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Yes, Wes, would you like to?
<A Wesley Dupont Secretary, Executive VP & General Counsel (Allied World Assurance Company
Holdings, AG)>: Sure, in certain termination situations, the break-up fee would be $115 million.
<Q Keith Walsh Citigroup Global Markets (United States)>: Okay. Then the next question
just on the EPS accretion, the $80 million run rate that you talked about, is that is all that
cost or is the tax benefits included in that and if you can just give a little more color around
the tax benefits?
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Steve Skalicky, our CFO is here, let me ask him to elaborate a little
bit.
<A Steven Skalicky EVP, Chief Financial Officer (Transatlantic Holdings, Inc.)>: Yeah,
we havent broken up the pieces between the expected expenses and the tax benefit, but it does
include tax benefit and a lot of that will have to be worked out going forward, were still early
in the deal.
<Q Keith Walsh Citigroup Global Markets (United States)>: Okay. And then lastly around
the reserves, you mentioned two firms independently look at reserving for both companies and now
theres to be fair a lot of IBNR here. Maybe if you can give us a lot of color around the stress
testing that went on within both companies and maybe differences in methodology and I will stop
there? Thanks.
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Jack Sennott is here. And let me ask him to answer that question. Jack?
<A John Sennott Chief Corporate Strategy Officer & Executive VP (Allied World Assurance
Company Holdings, AG)>: So, each company did independent reviews on each others reserves
through third-party firms. We also had our own actuaries both look at each side. So, in addition to
looking at what I think is a lot of data for both organizations, we clearly looked through some key
aspects. So, we focused on the recent property cat activity that weve seen around the globe and
looked at both companies reserve capacity there. We looked at going back to the financial and
credit crisis 2007- 2008 period to make certain that each company was comfortable on that
perspective. And obviously with the number of lines from casualty perspective, we got comfortable
with that as well. We looked at pricing, we looked at inflation assumptions, and then for us
looking at Transatlantic since they have more history, we went back and looked at the 1985 and
prior type of results as well.
3
Once we did that and started to bring the organizations together, we did both companies brought
together the enterprise risk teams and looked at performing a pro forma economic capital model.
And one of the great kind of structural benefits out of this is kind of the volatility benefit that
you get by bringing these two books of business together. One of the slides that Mike went through
shows you the balance between short and long-tail duration liability in that regard.
<A Michael Sapnar EVP, Chief Operating Officer (Transatlantic Holdings, Inc.)>: And,
yeah, just to add from a Transatlantic perspective, we have a while the assumed premium is not
very large, we actually are in a fair number of Allied World treaties and have been for a while, so
we had audits, claims reports, and historical discussions over expected loss ratios on those
businesses over the past five years. That would touch almost 80% of the U.S. exposed premium that
is coming into the combined company. So we had a very good feel about the reserves on those lines.
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Yeah, Keith, just to wrap up that question and add more color, this is
Scott. We have the external advisors stress test the pre-86 reserves that Jack mentioned. We did
some stress test around the financial institutions crisis from 2007 to 2008. We also took a real
hard look at the recent cat activity at the end of 2010, early 2011 and looked at the adequacy of
those reserves. I should point out that our own guys did some stress testing to our own economic
capital models on each others books. So, we feel pretty confident about what were looking at and
what weve got.
<Q Keith Walsh Citigroup Global Markets (United States)>: Yeah. Thanks a lot,
gentlemen.
Operator: The next question is from Matthew Heimermann of JPMorgan.
<Q Matthew Heimermann JPMorgan Securities LLC>: Couple of questions. First, just would
you mind first giving us a little bit more color on the background? I know I think especially on
the TRH case, I think strategically thinking about potentially something that got the company
offshore isnt necessarily ground-breaking but just be curious to hear both sides perspective on
that.
And then two other quick numbers questions. Would be curious whether or not you could talk a
little bit about where one-in-100 or one-in-250 PML would be for the combined company and how that
risk threshold might look on an ongoing basis, as well as just to put into perspective some of the
opportunities that Mike Sapnar discussed? And then also just if the premium overlap, if we just
look at Schedule F for TRH, is that going to will that give us the right number for premium
overlap or is there anything that would be missed there?
<A Robert Orlich President, Chief Executive Officer & Director (Transatlantic Holdings,
Inc.)>: Well, its Bob Orlich, let me start in the beginning hello Matt, by the way.
<Q Matthew Heimermann JPMorgan Securities LLC>: Hi, Bob.
<A Robert Orlich President, Chief Executive Officer & Director (Transatlantic Holdings,
Inc.)>: Were as you know from our prior calls, we have several items that we were looking to
achieve in a merger, one of which was re-domestication but thats certainly not the only one. We
were also interested in getting closer to the business through either a primary company and/or a
different distribution system. I think this certainly helps in that regard. It allows us to have
capital overseas where frankly we believe we need it. It goes a long way towards solving Solvency
II issues, so I think there is a lot of things at play. And probably the best thing that from my
point of view was how well the respective teams were able to get together in a common ground and
with a common language and get over a lot of the other issues that oftentimes get in the way of a
good deal. So, we are extremely pleased with the merger. We think from certainly from
Transatlantics point of view, it creates a lot more value potential and Im sure Allied World
feels the same way.
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Yeah, Matt, from my perspective, page nine says a lot of it in the
presentation when it goes through the complementary fits of products and what each side receives.
Thats a good slide that really reiterates that. And on top of that we have always been driving and
think that internationally the reinsurance model is a better fit in a soft and weak economy and
gives you a better spread and better access to the business in emerging markets.
It gives us size and scale, which no one can argue is a bad thing. And it gives us the right team
that we can work with. And when you combine all those things with diversification by products and
geography, that kind of gives you all the tools in the chest that you can work with. For your
question on the one-in-100, one-in-250 PMLs, we did do a fair amount of work
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on that even though we have only been working on this for a few months now and we have looked at
the impact for the new models as theyve been coming out both pre and post.
What I can tell you that separately and combined, we are still looking at less than 20% of our
capital being exposed and when you go zone by zone and you break it down further in lot of areas
and a lot of zones, we are much less than that. So, there is still more work to be done there,
quite a bit more. We wouldnt pretend to say weve got that all figured out. Remember this deal is
not going to close till the fourth quarter, so I think for this year you can expect since were
already in June and working on July renewals, that business is pretty much the way it is for 2011.
And we will be working very closely together on the 1/1 business for next year as to how we deploy
that capital in which zones, for which clients, which cedants and how it works as we come together.
<A Michael Sapnar EVP, Chief Operating Officer (Transatlantic Holdings, Inc.)>: Right,
and I think its important to note that in that analysis, we were pretty conservative in the
assumptions and we even looked at it via the intercompany quota share that Allied World currently
has and we are still well within the 20% tolerances that both companies used as our metric. Allied
World used total capital, Transatlantic used shareholders equity. But we have we will have
we anticipate having room if market conditions dictate ability to expand. I think one of the
powerful things about the company is property cat loss activity outside of whats budgeted or what
have you should not have really devastating impact on earnings.
Obviously, its going to hurt, but with the investment size of the portfolio and the breadth of the
products, we believe we can provide a much less volatile type of earnings pattern with significant
exposure to a line of business that frankly has produced attractive ROEs for the industry, first
quarter notwithstanding. Some of the other things that Transatlantic gets, being a long-time
casualty writer, weve come up cedants are continually more aware of counterparty credit limits
and exposures so as collectibles build up on balance sheet that becomes a discussion point. A
bigger balance sheet gives us a lot more flexibility in those discussions. And I think we have
found certainly in the last five years a lot of our larger cedants wanting to keep more and more of
the low limit, less volatile business and ceding more of the higher limits, less predictable stuff,
which is natural. The combination gives Transatlantic access to that less volatile low-limit
business to balance the portfolio and in many cases, business were just not seeing currently.
As far as the premium overlap, again, if you could look at scheduled assets, its not a big number
in terms of the actual treaties that we write. We did look also with the top 70 top 75 treaties,
I think, from Transatlantics portfolio to see where there was common reinsurance overlap. And,
again, it came away with only, I think, eight accounts in that group that we had same line sizes on
and we feel in some of those cases, we feel strongly that well be able to maintain the combined
line sizes of the two companies.
Again, this kind of underscores one of the things that Allied World is getting in the international
reinsurance franchise. There is not a lot of overlap there and a lot of our larger cedants in terms
of premium are outside the U.S. So there is less overlap.
<Q Matthew Heimermann JPMorgan Securities LLC>: Thats helpful. And then just maybe,
Bob or Scott, can you just also elaborate on how to what degree you scoured the landscape, I
guess, before you ended up with each other or as part of the process?
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Well, Im not going to elaborate too much on that, but I think both
firms have been going through strategic discussions on their own separately and we always evaluate
bolt-ons, add-ons, teams, companies, jurisdictions, and strategic transformational ideas. Weve
learned through this process that we were both high on each others list of potential
transformational opportunities and it came together, late winter, early spring.
<A Robert Orlich President, Chief Executive Officer & Director (Transatlantic Holdings,
Inc.)>: I would echo that; we were both on each others shortlist.
<Q Matthew Heimermann JPMorgan Securities LLC>: Fair enough. Thanks.
<A Robert Orlich President, Chief Executive Officer & Director (Transatlantic Holdings,
Inc.)>: Thanks, Matt.
Operator: The next question is from Jay Gelb of Barclays Capital.
5
<Q Jay Gelb Barclays Capital, Inc.>: Thanks and good morning. Should we expect any
purchase GAAP adjustments when the deal closes?
<A Steven Skalicky EVP, Chief Financial Officer (Transatlantic Holdings, Inc.)>: Yeah,
it will be obviously, you have to do some purchase accounting. And, I think, as we indicated
Transatlantic would be deemed acquired for accounting purposes. So the balance sheet of Allied
would be fair value. One area that we did take into account is the goodwill thats carried on
Allieds books and were expecting that that would be eliminated in that exercise.
<Q Jay Gelb Barclays Capital, Inc.>: Any preliminary view on what the as opposed to
just putting the two companies balance sheet together currently, what will be if you are fair
value at today, what will be the impact of book value per share?
<A Steven Skalicky EVP, Chief Financial Officer (Transatlantic Holdings, Inc.)>: Well,
as you know, in order to fair value it on a full-GAAP basis, youve got to do extensive studies as
to what the intangibles are for an insurance company, but on the surface, we are assuming that
those are not going to be significant adjustments. But there is a lot more work that has to be done
before we finalize that.
<Q Jay Gelb Barclays Capital, Inc.>: I understand. And then if I I mean, going back
to former transaction, Travelers, St. Paul; they had a reserve charge, sort of, when the deal
closed due to deferring reserve methodologies. And I just want to get a confirm from both
companies that you shouldnt be expecting anything like that?
<A Steven Skalicky EVP, Chief Financial Officer (Transatlantic Holdings, Inc.)>: I
think weve discussed that and weve indicated that the philosophies are quite similar. A lot of
work has been done in that area already. So, we are not expecting anything.
<Q Jay Gelb Barclays Capital, Inc.>: Okay. And then what needs to be completed from a
shareholder vote perspective? Do both companies need to approve the transaction?
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Wes, can you handle that?
<A Wesley Dupont Secretary, Executive VP & General Counsel (Allied World Assurance Company
Holdings, AG)>: Yeah, sure. Both companies will have to approve the transaction as part of the
closing process.
<Q Jay Gelb Barclays Capital, Inc.>: Okay, thats great. And any jurisdictional issues
that need to still be worked out?
<A Wesley Dupont Secretary, Executive VP & General Counsel (Allied World Assurance Company
Holdings, AG)>: There are a few customary regulatory approvals we will have to get from an
anti-trust perspective as well as an insurance regulatory perspective. Weve reached out to a
number of our insurance regulators already. We wouldnt anticipate any issues in that regard at
this point in time and wed be hopeful to have all of the regulatory sign-offs we need in the next
120 days.
<Q Jay Gelb Barclays Capital, Inc.>: Right, thank you.
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Our pleasure.
Operator: The next question is from Mike Nannizzi of Goldman Sachs.
<Q Michael Nannizzi Goldman Sachs & Co.>: Thank you. Just a quick question if I could.
So on the $50 million to $80 million of expense save, imagine that includes a tax benefit of new
jurisdiction and if it does, does that mean that you think youll be able to fully harvest that tax
benefit in a couple of years?
And then just kind of on that topic, can you just walk us through how the process was, given that
TRHs capital is in the U.S.? You have that muni book and how we should think about portfolio
optimization towards that new structure?
6
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Yeah, Mike, youre little ahead of the game and ahead of yourself on
that question. Weve talked about that quite intensively internally and how we should respond to
that, because you can understand that the investment portfolio and the size that it is, you dont
snap your fingers and move it overnight, especially when you have jurisdictional issues and
regulatory issues what we spoke to.
So there is a incremental time that has to work through its normal process. And we will be working
through that, but if youre trying to figure out effective tax rate, you can look at Allied Worlds
effective tax rate and then you can look at Transatlantics effective tax rate as it is today,
blend the two and weight them, and that will give you an idea of where it come from in the
beginning and well work towards the lower number over time as we as it makes sense and as
business moves and reserves move with the business.
<Q Michael Nannizzi Goldman Sachs & Co.>: Okay, great. Thanks.
Operator: Next, we have a question from Dean Evans of KBW.
<Q Dean Evans Keefe, Bruyette & Woods, Inc.>: Yeah. Thanks, good morning. I guess I was
first wondering what if any protections do you sort of have in place as we sit here in the early
stages of Atlantic hurricane season? What catastrophe protections, in case there is a big event or
if there is substantial development on any of the other recent events, are there in place?
<A Michael Sapnar EVP, Chief Operating Officer (Transatlantic Holdings, Inc.)>: Other
than our excellent underwriting?
<Q Dean Evans Keefe, Bruyette & Woods, Inc.>: Yes, of course.
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Yes, Dean, I assume you mean in the actual merger agreement itself, so
Wes why dont you talk about that.
<A Wesley Dupont Secretary, Executive VP & General Counsel (Allied World Assurance Company
Holdings, AG)>: Yeah. I guess the best way I could answer that is to say that really this
transaction has been signed up in a way that risk is transferring as of yesterday when the deal was
signed. Unless there is a real disparate treatment in terms of the industry and what one companys
result is versus the industry, there really wouldnt be an out in this transaction.
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Dean, let me explain that. If you look at page 13 in the group where it
compares our catastrophe losses against the peer group, both companies individually are pretty much
at the low end of exposure and experience over the last two years. Even if you were to put that
chart up against the actual capital separately and together, were still at the low end of that
peer group. So, we feel that combining them now, pre and post the deal, we are pretty comfortable
that our exposures and then our results, no matter what, will be at the low end of any peer groups
experience this year.
<A Michael Sapnar EVP, Chief Operating Officer (Transatlantic Holdings, Inc.)>: And
just for people on the call not totally familiar with Transatlantic as respect to Japan, we have
reserved almost all of our aggregate as respects our retro portfolio and our excess of loss book.
And in addition, we are not large property risk writers as opposed to property cat. So we think
there is a limited exposure to Transatlantic from business interruption standpoint. So l think that
provides a fair amount of comfort about the Japanese number we are having.
<Q Dean Evans Keefe, Bruyette & Woods, Inc.>: Perfect, thats very helpful color.
Second area I wanted to touch on is what obviously, we are in the early stages of this type of
thing, but what are you thinking about and what have you sort of put in place as far as retention
of some of the key employees? Obviously, thats one of selling points of the deal is that you do
have a deeper bench. What have you done and what will you be doing to kind of ensure that you keep
it that way?
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Yeah, not to over alarm our own employees who could be listening in to
this call, Mike and I and legal and HR have been working very diligently, Id like to let everyone
know that we have been working every day over the weekend on that subject and well be working on
it every day over the next couple of weeks on that subject to ensure that we keep the majority of
both staffs in place and together.
7
<A Michael Sapnar EVP, Chief Operating Officer (Transatlantic Holdings, Inc.)>: Yeah,
there is not a lot of I think overlap from that standpoint, because of the insurance versus
reinsurance arms of our franchises that are coming together here. So, as Scott points out, wed
like to get with our employees before we start talking about all this other stuff. But we feel good
about the transaction and how good the fit is and why we think everyones going to be excited and I
mean everyone.
<Q Dean Evans Keefe, Bruyette & Woods, Inc.>: Okay. And I guess last thing, if I could,
weve talked a little bit about shareholders vote, but do you have a timetable for when that will
happen?
<A Wesley Dupont Secretary, Executive VP & General Counsel (Allied World Assurance Company
Holdings, AG)>: I think wed be hopeful, assuming no issues, that wed get to a shareholder vote
for both companies by mid-September.
<Q Dean Evans Keefe, Bruyette & Woods, Inc.>: Perfect. Thank you.
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Sure.
<A Robert Orlich President, Chief Executive Officer & Director (Transatlantic Holdings,
Inc.)>: Thank you.
Operator: The next question is from John Hall of Wells Fargo.
<Q John Hall Wells Fargo Advisors LLC>: Good morning and congratulations to you Bob.
<A Robert Orlich President, Chief Executive Officer & Director (Transatlantic Holdings,
Inc.)>: Thank you.
<Q John Hall Wells Fargo Advisors LLC>: I have just got a few clean-up sort of
questions. Mike, on page six, the slide that you showed in terms of business mix from 2010, whats
the expectation going forward? Is FI going to look pretty similar in 2012?
<A Michael Sapnar EVP, Chief Operating Officer (Transatlantic Holdings, Inc.)>: Well, I
would say, it would depend on market conditions always as to how the mix of business would change.
But we are going to retain a specialty focus for sure. And I think we are always looking to grow
that part of the pie and property cat as well depending on market conditions. Neither company
philosophically has been big players in workers comp or commercial auto or some of the longer tail
stuff. I think, as market opportunity opens up, we have the flexibility to capitalize on that, but
if anything I think you would see the specialty and the property cat places grow.
<Q John Hall Wells Fargo Advisors LLC>: Great. And I guess its probably safe to assume
that capital management is off the table until the transaction closes, but once it closes, could
you just give us a sense of what you might be thinking?
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Well, we tried to do that in the presentation. As you know, both
companies have had a pretty good run rate of returning capital over the last 18 months and been
very diligent about that and I think done an admirable job. But this is a dynamic world were in
and its a very quickly moving economy. We dont know where the marketplace will be a year from now
or 18 months from now. We know where it should be and where it could be, but until we start seeing
great signs of recovery for the business and for the economy, you can expect that well be paying
as much attention to that aspect of it as we have before.
<Q John Hall Wells Fargo Advisors LLC>: Okay, great. Ill be more specific then. The
ROE expansion that you talk about in the presentation, does that assume any capital management and
how much?
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: No, it does not assume any capital management between now and the next
six months from now.
<Q John Hall Wells Fargo Advisors LLC>: Great, thank you on that. And then as far as
the presentation also went, not many mergers tout executive compensations as an expense saving
area. So I was just wondering what you meant by that?
8
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Well, the reality is you have one CEO retiring. So there is one of
those. There is one CFO, there is one of each of the Section 16 officers, right. But from a
business perspective, we dont see a lot of the a lot of overlap there, as Mike had mentioned.
And this is not an exercise in grabbing the capital cheap and gutting the firm, this is an exercise
and its keeping as much of that intact as we can.
<Q John Hall Wells Fargo Advisors LLC>: Okay, so its not a change in the methodology
of compensation, but more in the number of executives there?
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Thats right.
<Q John Hall Wells Fargo Advisors LLC>: Okay, great. Thanks very much.
<A Robert Orlich President, Chief Executive Officer & Director (Transatlantic Holdings,
Inc.)>: Okay. Thanks, John.
Operator: The next question is from [ph] Tony Reiner (48:49) of Cantor Fitzgerald.
<Q>: Hi, its [ph] Tony Reiner (48:52). How are you?
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Good morning.
<A Robert Orlich President, Chief Executive Officer & Director (Transatlantic Holdings,
Inc.)>: Good morning.
<Q>: Can you just clarify your dividend treatment on both cases, please? If you did, I
apologize; its been a busy morning.
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Weve clarified the dividend treatment on both cases...
<Q>: Or both companies, I understand on the slide there is a its going to be a pro rata
dividend of $0.375, which is a increased dividend for TRH. Can you tell me until deal close, is
there going to be an insurance dividend or how are dividends get treated from now until close, I
mean, going forward please?
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: There is no special dividend between now and then, and Allied World
currently has $0.375 dividend per quarter and Transatlantic is slightly lower, I think $0.22 per
quarter.
<Steven Skalicky EVP, Chief Financial Officer (Transatlantic Holdings, Inc.)>: Right.
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: So, post transaction, we are going to use the $1.50 or $0.375 per share,
which will be an increase in the dividend for Transatlantic shareholders and a constant dividend,
because we just upped ours a few months ago at Allied World, which give us a little over 2% yield,
I believe, 2.5%.
<Q>: Got you. So when is Allied supposed to go ex next, Im sorry?
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Our next dividend basically?
<A John Sennott Chief Corporate Strategy Officer & Executive VP (Allied World Assurance
Company Holdings, AG)>: Yeah. We dont have that one with us. So we will follow up with that
afterwards and I think its probably posted on our website but we will get it posted as a
follow-up.
<Q>: Okay. And is there any treatment for a coordination of dividends if deal closes in
between in our timing of one and the other?
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<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: I dont believe so.
<Q>: So, its possible subject to when the actual deal closes that, one company shareholders
will get one or more dividend or will get one more or maybe one less than the other companys, this
is a merger of equals?
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Well, we are looking at a December closing, right, so each company will
pay its third quarter dividend and then likely the fourth quarter dividend doesnt get paid till
early 2012, right. So, I think well still there will be a combined dividend at that point. So I
think the second and third quarter dividends will be paid as regular course. Im getting a nod from
Steve Skalicky that my answer is correct.
<Q>: Understood. So if it closes in the fourth quarter, its still going to be treated as
subject to timing, youre not going to coordinate the fourth quarter, suppose if it closes in
between the two in the fourth quarter, how is it going to be treated? You understand what Im
getting at?
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Yeah. We havent even worked on that, Steve is going to comment.
<A Steven Skalicky EVP, Chief Financial Officer (Transatlantic Holdings, Inc.)>: Yeah,
I think it would depend on the timing of the closing and we really havent gone that far, but all
of our dividends are declared and payable clearly well in advance. So, you will know what those
dates are as we go through our regular Board meeting.
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: I guess there is a potential one month discussion.
<A Steven Skalicky EVP, Chief Financial Officer (Transatlantic Holdings, Inc.)>: Yeah.
<Q>: Okay. Ill take a look and maybe Ill follow-up after the call. And I appreciate your
time and congratulations.
<A Steven Skalicky EVP, Chief Financial Officer (Transatlantic Holdings, Inc.)>: Thank
you.
<A Robert Orlich President, Chief Executive Officer & Director (Transatlantic Holdings,
Inc.)>: Thank you.
<Q>: Yeah, thanks.
Operator: The next question is from Ian Gutterman of Adage Capital.
<Q Ian Gutterman Adage Capital Advisors LLC>: Hi, guys, a few ones to clarify. The
credit rating, I know some of the issues have already put out some comments, but I guess in
particular, if Transatlantic does not keep the A+, does that cause any concern for their
reinsurance book?
<A Michael Sapnar EVP, Chief Operating Officer (Transatlantic Holdings, Inc.)>: Well,
you always rather have a higher rating. I dont think we did talk about this internally when
looking at the merger. Long story short is, no, we think wed be fine at an A rating. There are
certain countries like Australia, where there is capital charges for cedants based on ratings
issues and obviously sometimes your counterparty credit between companies can be affected by it.
But we went over this pretty extensively with our managers, Paul Bonny and Javier Vijil. And
international and America, we feel confident that we will be fine with an A. Like to have an A+,
feel really good about our meetings with the rating agencies and their comments. So, thats pretty
much where we stand.
<Q Ian Gutterman Adage Capital Advisors LLC>: Got it.
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Ian, this is Scott. Id like to read you something from S&Ps press
release that came out this morning.
<Q Ian Gutterman Adage Capital Advisors LLC>: Okay.
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<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: In their second to last paragraph, it says the ratings on
Transatlantics operating companies are unchanged.
<Q Ian Gutterman Adage Capital Advisors LLC>: Got it, great. Okay, then on the tax
issue, I guess couple of things I want to think about. One, is there any ability to do something
like an LPT on close to try to move reserves offshore faster or is it really just going to be the
new business that will get the tax benefit for Transatlantic?
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: There is always potential for things like that, Ian, but thats not
something were at liberty to discuss at this point in the game.
<Q Ian Gutterman Adage Capital Advisors LLC>: Okay, fair enough. And can you remind me
Allieds how much Allied tends to cede of its U.S. business offshore today? Im just trying to
think of what a reasonable ceding percentage, if I want to try to take a guess for a model of
Transatlantic?
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Round number, 70%.
<Q Ian Gutterman Adage Capital Advisors LLC>: 70% goes offshore, okay, great. And then
just want to make sure, I dont have one other one before I move to the next question. Okay,
great. And then just my last one, Scott, is, just strategically, I just wanted to understand a
little better. I mean I understand financially why the deal works I think and for others, I would
understand why the strategy works. But I guess from the past few years, it seems like AWAC strategy
has been to move away from reinsurance towards insurance. And now youre sort of undoing all that
and becoming a big reinsurance company again.
And I guess Im wondering, two or three years down the road, is it still going to look like that or
is your plan that the reinsurance side sort of stays stable and all the growth comes from the
insurer? Im just trying to understand sort of what the desired insurance/reinsurance mix is longer
term?
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Yes, again good question, great question. That is the secret sauce and
what were building, what weve been building, the concentration of specialty insurance
domestically in the United States and other places does not lose focus whatsoever. We will continue
to build that, well continue to grow that. Well continue to pursue that when and where it makes
sense and by product where it makes sense as well.
Ive been saying now for a while that I think the model of internationally for reinsurance is a
better model, because you dont need it, you dont need the physical plant to compete against the
Avivas and the Zurichs and the international companies with offices in five offices in the U.K.
and three offices in Germany and two offices in France and office in Italy and 14 offices in Asia
and Australia, you can do that with hubs.
And what we do mostly on the insurance there internationally in emerging markets now is mostly
wholesales and hubs. This gives us access to in a much broader bigger scale and a much stronger
position and will give us the diversification. So, while we will be focusing on both things, other
businesses will that we that I have not just mentioned wont be going away.
So, we will still be growing reinsurance areas in specialty space and well still be downplaying
areas we are not 100% in love with right now, given this marketplace, and be pushing the pedal on
where we do see opportunity. So were not going away from the insurance space just because a bigger
percentage of the combined premium of the holding company now is reinsurance. In a perfect market,
wed grow them faster and be a much even split, but we are not in a perfect market and thats a
very dynamic thing that will warrant what it warrants over a two and three-year period.
<Q Ian Gutterman Adage Capital Advisors LLC>: Great, thats all I had. Thank you very
much.
Operator: We now have a question from Jim Agah of Millennium Partners.
<Q James Agah Millennium Management LLC>: Hi, good morning, guys, congratulations. Can
you talk about the upfront tax treatment here for TRH shareholders? Because I dont think its
not a given that its going to be tax free. And
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if it is in fact taxable, there is a couple large shareholders of TRH that probably have a fairly
low basis in the stock that are going to get penalized for this?
<A Steven Skalicky EVP, Chief Financial Officer (Transatlantic Holdings, Inc.)>: Well,
as the transaction is structured right now and as I think as weve indicated in the
presentation, it would be a taxable event for the TRH shareholders.
<Q James Agah Millennium Management LLC>: Where is that evidenced in the presentation?
<A Steven Skalicky EVP, Chief Financial Officer (Transatlantic Holdings, Inc.)>: I
think it was on...
<Q James Agah Millennium Management LLC>: I didnt see it at all.
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Think its in there.
<Q James Agah Millennium Management LLC>: So, well, regardless, it is taxable then for
TRH shareholders?
<A Scott Carmilani Chairman, President & Chief Executive Officer (Allied World Assurance
Company Holdings, AG)>: Yes.
<Q James Agah Millennium Management LLC>: Okay, so not speaking for Davis funds, but
they own 24% of TRH. Theyve owned it for years, since AIG took TRH public, et cetera. I mean the
odds of someone coming in thats bigger, thats going to end up owning 50% or more of the combined
company, I would say, is very high here?
<A Thomas Cholnoky Senior Vice President-Investor Relations (Transatlantic Holdings,
Inc.)>: Jim, its Tom Cholnoky. I cant recall exactly when Davis built their position, but it
was probably around prices that were here or even perhaps even higher. Obviously, it will be their
decision as to how they may be impacted based on their cost. But at this point, we dont believe
its going to be significant. There could be others that will have some tax consequence, but given
where the stocks been trading, we dont think its going to be a huge amount.
<Q James Agah Millennium Management LLC>: Thanks, good to hear from you, Tommy.
<A Thomas Cholnoky Senior Vice President-Investor Relations (Transatlantic Holdings,
Inc.)>: Thanks.
Operator: And now we have a follow-up question from Matthew Heimermann of JPMorgan.
<Q Matthew Heimermann JPMorgan Securities LLC>: Hi, just I guess this one is for Mike
or Bob, or both, when you guys separated from AIG, one of the opportunities that you sought to take
advantage of was effectively parts of the market were closed to you because you were affiliated
with AIG. And I guess, obviously, in terms of the scope of Allied Worlds business today isnt on
the same scale as AIG, are there any risks from a client receptivity standpoint or a treaty
standpoint that being part of a primary insurance operation might cause? And I guess, primarily,
Id be thinking this might be more domestic than international in nature, but just be curious on
thoughts.
<A Robert Orlich President, Chief Executive Officer & Director (Transatlantic Holdings,
Inc.)>: Yeah, I mean I think if you look at the landscape that reinsurance companies are in now,
as it stands right now, Transatlantic is one of the few that actually dont have a primary company.
I think the world at large has gotten quite used to having insurance and reinsurance in the same
group family. I think the key in all of these things will be, as weve successfully done in
Transatlantic for 30 years, is explain that we dont share information. I mean we were a subsidiary
of AIG for most of our life. And we managed to build a $4 billion book of business, which was not
at all possible, if anybody thought we were providing information to AIG. So I think its had less
it certainly has less impact now as the whole world moves to enhancing distribution systems and
the like.
<A Michael Sapnar EVP, Chief Operating Officer (Transatlantic Holdings, Inc.)>: And I
think that while there is always a risk that there could be some fallout from that is Bobs point
is important in that most almost everybody has an insurance arm. But for us the trade-off in
this what were getting in this deal was so far outweighed the what we thought was the somewhat
much smaller risk of losing some premium, because the client was concerned about the fact that we
had an insurance arm all the way on the other side of the shop. Dont forget were going to run
these as two separate brands and
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really two separate operations certainly here in the near-term.
<Q Matthew Heimermann JPMorgan Securities LLC>: All right. Thanks much.
Operator: This concludes our question-and-answer session. I would like to turn the conference back
over to Tom Cholnoky for any closing remarks.
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