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Why Allied World Assurance Co Holdings Dropped Today

By Jordan Wathen – Feb 4, 2016 at 5:02PM

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Here's why the insurance company's shares were pummeled on Wednesday.

What: Shares of Allied World Assurance Co Holdings (NYSE: AWH) were trading down about 11% at 3 p.m. EST as the market digested its disappointing fourth-quarter results.

So what: Allied World Assurance reported net income of $1.7 million, or $0.02 per diluted share for the fourth quarter of 2015. Operating income, which excludes gains and losses on the company's investment portfolio and foreign exchange losses, was $43 million, or $0.47 per share, compared to the consensus estimate of $0.59 per share.

Net premiums earned of $622.8 million also fell short of analysts' expectations of $646.3 million during the fourth quarter.

Now what: The company will hold a conference call to discuss the quarter on Thursday, but in the press release, the company quoted CEO Scott Carmilani, who said that "2015 was a challenging year, marked by a difficult underwriting environment and financial market volatility."

Notably, the company's full-year combined ratio of 95.1% was nearly 10 percentage points higher than in 2014. Though the financial markets weren't directly responsible for the company's miss -- fluctuations in its portfolio are not included in operating income, which is the figure analysts watch most closely -- they certainly didn't help. The company earned a paltry 0.1% on its investment portfolio, due to realized losses that consumed much of the yield it earned from a bond-heavy portfolio.

Jordan Wathen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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