1163348--3/1/2010--ALLIED_WORLD_ASSURANCE_CO_HOLDINGS

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{loss, insurance, financial}

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{capital, credit, financial}

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Actual claims may exceed our reserves for losses and loss expenses. We may experience significant losses and volatility in our financial results from catastrophic events. The risk models we use to quantify catastrophe exposures and risk accumulations may prove inadequate in predicting all outcomes from potential catastrophe events. We could face losses from terrorism, political unrest and pandemic diseases. Our business and our financial results may be adversely affected by unexpected levels of loss due to climate change. The failure of any of the loss limitation methods we employ could have a material adverse effect on our financial condition or results of operations. A prolonged recession and other adverse consequences as a result of the recent turmoil in the U.S. and international financial markets could harm our business, liquidity and financial condition, and our share price. We may be impacted from claims relating to the recent financial market turmoil, including subprime and other credit and insurance exposures beyond our current estimates. For our reinsurance business, we depend on the policies, procedures and expertise of ceding companies; these companies may fail to accurately assess the risks they underwrite which may lead us to inaccurately assess the risks we assume. The availability and cost of security arrangements for reinsurance transactions may materially impact our ability to provide reinsurance from Bermuda to insurers domiciled in the United States. We depend on a small number of brokers for a large portion of our revenues. The loss of business provided by any one of them could adversely affect us. Our reliance on brokers subjects us to their credit risk. We may be unable to purchase reinsurance for our own account on commercially acceptable terms or to collect under any reinsurance we have purchased. Our investment performance may adversely affect our financial performance and ability to conduct business. Any increase in interest rates and/or credit spread levels could result in significant losses in the fair value of our investment portfolio. The valuation of our investments may include methodologies, estimations and assumptions that are subject to differing interpretations and could result in changes to investment valuations that may materially adversely affect our financial condition or results of operations. The determination of the impairments taken on our investments is highly subjective and could materially impact our financial position or results of operations. We may be adversely affected by fluctuations in currency exchange rates. We may be adversely impacted by inflation. We may require additional capital in the future that may not be available to us on commercially favorable terms. Our business could be adversely affected if we lose any member of our management team or are unable to attract and retain our personnel. Employee error and misconduct may be difficult to detect and prevent and could adversely affect our business, results of operations and financial condition. If a program administrator were to exceed its underwriting authority or otherwise breach obligations owed to us, we could be adversely affected. If we experience difficulties with our information technology and telecommunications systems and/or data security, our ability to conduct our business might be adversely affected. The integration of acquired companies, the growth of our operations through new lines of insurance or reinsurance business, the expansion into new geographic regions and/or the entering into joint ventures or partnerships may expose us to operational risks. A complaint filed against our Bermuda insurance subsidiary could, if adversely determined or resolved, subject us to a material loss. Conflicts of interests may arise because affiliates of certain of our principal shareholders have continuing agreements and business relationships with us, and our founding shareholders compete with us in several of our business lines. Government authorities are continuing to investigate the insurance industry, which may adversely affect our business. Risks Related to the Insurance and Reinsurance Business The insurance and reinsurance business is historically cyclical and we expect to experience periods with excess underwriting capacity and unfavorable premium rates and policy terms and conditions. Increased competition in the insurance and reinsurance markets in which we operate could adversely impact our operating margins. The effects of emerging claims and coverage issues on our business are uncertain. Risks Related to Laws and Regulations Applicable to Us Compliance by our insurance subsidiaries with the legal and regulatory requirements to which they are subject is expensive. Any failure to comply could have a material adverse effect on our business. Our Bermuda entities could become subject to regulation in the United States. Our holding company structure and regulatory and other constraints affect our ability to pay dividends and make other payments. The U.S. Congress is considering healthcare reform legislation which could have a material impact on our business. Other legislative, regulatory and industry initiatives could adversely affect our business. Our business could be adversely affected by Bermuda employment restrictions. Risks Related to Ownership of Our Common Shares Future sales of our common shares may adversely affect the market price. Our Bye-laws contain restrictions on ownership, voting and transfers of our common shares. Anti-takeover provisions in our Bye-laws could impede an attempt to replace or remove our directors, which could diminish the value of our common shares. As a shareholder of our company, you may have greater difficulties in protecting your interests than as a shareholder of a U.S. corporation. It may be difficult to enforce service of process and enforcement of judgments against us and our officers and directors. There are regulatory limitations on the ownership and transfer of our common shares. U.S. taxation of our non-U.S. companies could materially adversely affect our financial condition and results of operations. Our U.S. subsidiaries may be subject to additional U.S. taxes in connection with our interaffiliate arrangements. You may be subject to U.S. income taxation with respect to income of our non-U.S. companies and ordinary income characterization of gains on disposition of our shares under the controlled foreign corporation ( CFC ) rules. You may be subject to U.S. income taxation under the related person insurance income ( RPII ) rules. U.S. tax-exempt entities may recognize unrelated business taxable income ( UBTI ). You may be subject to additional U.S. federal income taxation with respect to distributions on and gains on dispositions of our shares under the passive foreign investment company ( PFIC ) rules. Application of a published IRS Revenue Ruling with respect to our insurance or reinsurance arrangements can materially adversely affect us. We may be subject to U.K. tax, which may have a material adverse effect on our results of operations. We may be subject to Irish tax, which may have a material adverse effect on our results of operations.

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1163348--3/1/2010--ALLIED_WORLD_ASSURANCE_CO_HOLDINGS_LTD