1163348--3/19/2007--ALLIED_WORLD_ASSURANCE_CO_HOLDINGS

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{regulation, change, law}

{loss, insurance, financial}

{tax, income, asset}

{financial, litigation, operation}

{provision, law, control}

{operation, international, foreign}

{interest, director, officer}

{stock, price, share}

{operation, natural, condition}

{capital, credit, financial}

{competitive, industry, competition}

{stock, price, operating}

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{investment, property, distribution}

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{acquisition, growth, future}

{debt, indebtedness, cash}

{product, liability, claim}

Actual claims may exceed our reserves for losses and loss expenses. The impact of investigations of possible anti-competitive practices by the company may impact our results of operations, financial condition and financial strength ratings. A complaint filed against our Bermuda insurance subsidiary could, if adversely determined or resolved, subject us to a material loss. Government authorities are continuing to investigate the insurance industry, which may adversely affect our business. When we act as a property insurer and reinsurer, we are particularly vulnerable to losses from catastrophes. We could face losses from terrorism and political unrest. 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. 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 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 could result in significant losses in the fair value of our investment portfolio. We may be adversely affected by fluctuations in currency exchange rates. We may require additional capital in the future that may not be available to us on commercially favorable terms. Conflicts of interests may arise because affiliates of some of our principal shareholders have continuing agreements and business relationships with us, and also may compete with us in several of our business lines. Our business could be adversely affected if we lose any member of our management team or are unable to attract and retain our personnel. 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 Bermudian 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. 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. insurance 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 common 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 common shares under the passive foreign investment company ( PFIC ) rules. Application of a recently published IRS Revenue Ruling with respect to our insurance or reinsurance arrangements can materially adversely affect us and our shareholders. Future U.S. legislative action or other changes in U.S. tax law might adversely affect us or our shareholders. 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. If corporate tax rates in Ireland increase, our business and financial results could be adversely affected. If investments held by our Irish companies are determined not to be integral to the insurance and reinsurance businesses carried on by those companies, additional Irish tax could be imposed and our business and financial results could be adversely affected. We may become subject to taxes in Bermuda after March 28, 2016, which may have a material adverse effect on our results of operations and our investment.

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1163348--3/19/2007--ALLIED_WORLD_ASSURANCE_CO_HOLDINGS_LTD