Aspen Insurance Holdings Limited (“Aspen”) (NYSE: AHL) today
reported net income after tax of $280.4 million for the year and
$2.0 million for the fourth quarter of 2012. This is
equivalent to diluted net income per share of $3.38 for the year
and a diluted net loss per share of $0.09 for the fourth quarter of
2012.
Results for the quarter were impacted by net catastrophe
losses of $170 million, after tax and net of reinsurance and
reinstatements, including $175 million from Superstorm Sandy and
favorable development on the 2012 US storms.
Chris O’Kane, Chief Executive Officer commented, “In 2012 Aspen
celebrated its 10 year anniversary. Our success reflects the
support of our clients, with whom we have built strong
relationships, the hard work and skill of all our people, and the
diversified Reinsurance and Insurance platform that we have built
together. In 2012, despite the impact of Superstorm Sandy, we made
strong progress against our strategic objectives and generated an
operating return on equity of 8.5%.
In 2013, we will be intensely focused on further improving
return on equity, against a backdrop of modestly improving
insurance pricing, lackluster global economies, and a continued low
interest rate environment. We will allocate capital efficiently to
profitable underwriting opportunities, scale back in certain lines
whose performance has not been consistent with our targeted risk
profile, and return excess capital to shareholders through our
expanded share repurchase authorization. We will also strive to
generate increased returns from our investment portfolio while
ensuring that our investments remain within our risk
tolerance.”
Operating highlights for the quarter ended December 31,
2012
- Diluted net loss per share of $0.09 for
the quarter ended December 31, 2012 compared with diluted net
earnings per share of $0.09 in the fourth quarter of 2011(1)
- Diluted operating loss per share of
$0.15 for the quarter ended December 31, 2012 compared with diluted
operating loss per share of $0.01 in the fourth quarter of
2011(1)(2)
- Diluted book value per share of $40.65,
up 6.4% from the year ended 2011(1)(2)
- Annualized net return on average equity
of (0.8)% and annualized operating return on average equity of
(1.6)% for the fourth quarter of 2012 compared with 0.8% and Nil%,
respectively in the fourth quarter of 2011(1)(2)
- Gross written premiums of $576.2
million in the fourth quarter of 2012 increased 25.6% from the
fourth quarter of 2011 with the majority of the growth resulting
from a 40.2% increase in the insurance segment
- Combined ratio of 108.0% or 72.0%
excluding catastrophes, pre-tax and net of reinsurance and
reinstatements, for the fourth quarter of 2012 compared with a
combined ratio of 114.3%(1) or 85.9% excluding catastrophes for the
fourth quarter 2011
- Net favorable development on prior year
loss reserves of $42.0 million, or 7.5 combined ratio points, for
the fourth quarter 2012 compared with $22.0 million, or 4.5
combined ratio points, for the fourth quarter of 2011
Operating highlights for the year ended December 31,
2012
- Net return on average equity of 8.5%
and operating return on average equity of 8.5% for 2012 compared
with (4.8)% and (3.4)%, respectively in 2011(1)(2)
- Gross written premiums of $2,583.3
million, up 17.0% from 2011, with growth principally in the
insurance segment
- Combined ratio for 2012 of 94.3%,
including $205.0 million or 10.8 percentage points of pre-tax
catastrophe losses, net of reinsurance and reinstatements compared
with 115.9% for 2011, which included 31.5 percentage points of net
losses from catastrophes
- Net favorable development on prior year
loss reserves of $137.4 million, or 6.6 combined ratio points, for
the year compared with $92.3 million, or 4.9 combined ratio points,
for 2011
Segment highlights
Reinsurance
Operating highlights for Reinsurance for the quarter ended
December 31, 2012 include:
- Gross written premiums of $194.4
million, up 4.3% compared with $186.3 million for the fourth
quarter of 2011, primarily due to increased reinstatement premiums
and premium adjustments to business written in prior years
- Combined ratio of 107.1% compared with
124.2% for the fourth quarter of 2011
- Favorable prior year loss reserve
development of $37.8 million, or 12.6 combined ratio points, with a
favorable development in each of the four principal lines of
business compared with $14.6 million favorable prior year loss
reserve development, or 5.1 combined ratio points, in the fourth
quarter of 2011
The combined ratio for the fourth quarter of 2012 was 107.1%,
and was impacted by $124.0 million of net catastrophe losses,
pre-tax net of reinsurance and reinstatements, including $129.5
million from Superstorm Sandy. Excluding catastrophe losses, the
combined ratio was 55.0%. Favorable reserve movements in the
quarter included a $16.1 million release for the 2010 and 2011
catastrophe events. In comparison, the combined ratio for the
fourth quarter of 2011 was 124.2% or 76.1%(1)(2) excluding
catastrophe losses. The acquisition ratio was 13.7% for the fourth
quarter of 2012 compared to 16.4% for the fourth quarter of 2011
due to a combination of increased reinstatement premiums and a $4.2
million reduction in profit commissions.
The segment underwriting loss for the fourth quarter of 2012 was
$21.4 million compared with an underwriting loss of $70.0 million
for the fourth quarter of 2011.(1)
Operating highlights for Reinsurance for the twelve months ended
December 31, 2012 include:
- Gross written premiums of $1,227.9
million, up 3.4% compared with $1,187.5 million for the twelve
months ended December 31, 2011 as a result of improved market
conditions in Property Other and Casualty sub segments,
specifically US Casualty
- Combined ratio of 85.4% compared with
125.6% for the twelve months ended December 31, 2011(1)
- Favorable prior year loss reserve
development for 2012 was $102.2 million or 9.0 combined ratio
points compared with $72.3 million favorable prior year loss
reserve development or 6.5 combined ratio points, for 2011
The segment underwriting profit for the twelve months ended
December 31, 2012 was $165.4 million compared with an underwriting
loss of $284.5 million(1) for the twelve months ended December 31,
2011 which was severely impacted by natural catastrophes, primarily
the Japan and New Zealand earthquakes, Thailand floods and US
tornadoes.
The combined ratio for the twelve months of 2012, excluding net
catastrophe losses, pre-tax and net of reinsurance recoveries and
reinstatement premiums was 69.4%. In comparison, the combined ratio
on the same basis for the full year 2011 was 73.6%(1)(2).
Insurance
Operating highlights for Insurance for the quarter ended
December 31, 2012 include:
- Gross written premiums of $381.8
million, up 40.2% compared with $272.4 million in the fourth
quarter of 2011
- Combined ratio of 104.2% compared with
93.7% for the fourth quarter of 2011(1)
- Favorable prior year loss reserve
development of $4.2 million or 1.6 combined ratio points compared
with $7.4 million or 3.7 combined ratio points in the fourth
quarter of 2011
The increase in gross written premiums was mainly attributable
to growth in our US based insurance operations. The combined ratio
for the fourth quarter of 2012 was 104.2%, negatively impacted by
$61.1 million catastrophe losses, pre-tax and net of reinsurance
and reinstatements, primarily from Superstorm Sandy.
Operating highlights for Insurance for the twelve months ended
December 31, 2012 include:
- Gross written premiums of $1,355.4
million, up 32.8% compared with $1,020.3 million in the twelve
months ended December 31, 2011
- Combined ratio of 99.3% compared with
96.1% for the twelve months ended December 31, 2011(1)
- Favorable prior year loss reserve
development of $35.2 million or 3.7 combined ratio points compared
with $20.0 million or 2.6 combined ratio points in the twelve
months ended December 31, 2011
The combined ratio of 99.3% for the twelve months of 2012
included catastrophe losses, pre-tax and net of reinsurance
recoveries and reinstatement premiums, of $62.6 million or 4.2
percentage points. It also included losses, pre-tax net of
reinsurance recoveries and reinstatement premiums of $31.1 million
or 2.2 percentage points related to the Costa Concordia event. In
comparison, the combined ratio for the twelve months of 2011 was
96.1% or 94.3%(1)(2) excluding catastrophe losses.
Investment performance
Net investment income for the fourth quarter of 2012 was $51.1
million compared with $54.2 million in the fourth quarter of 2011.
Net realized and unrealized investment gains included in net income
for the quarter were $5.6 million, which included $0.1 million of
losses from the Company’s interest rate swaps.
Unrealized gains in the available for sale investment portfolio,
including equity securities, at the end of December 31, 2012 were
$355.0 million, a decrease of $37.9 million from the end of the
third quarter of 2012.
Book yield at December 31, 2012 on the fixed income portfolio
was 2.88%, a decrease of 49 basis points from 3.37% at the end of
the fourth quarter of 2011. The average credit quality of the fixed
income portfolio was AA and it had an average duration of 3.0 years
at December 31, 2012, excluding the impact of interest rate swaps,
or 2.5 years including the impact of interest rate swaps.
Capital
Total shareholders’ equity decreased $65.8 million in the
quarter to $3.5 billion at December 31, 2012.
During the fourth quarter of 2012, Aspen repurchased 308,674
ordinary shares in the open market at an average price of $31.85
per share for a total cost of $9.8 million. Between January 1, 2013
and February 6, 2013, Aspen repurchased 956,879 ordinary shares
under its Rule 10b5-1 plan at an average price of $33.23 per share
for a total cost of $31.8 million. Aspen had $358 million remaining
under its current share repurchase authorization at February 6,
2013.
Aspen today announced that its Board of Directors has replaced
its existing share repurchase authorization with a new
authorization of $500 million. The total share repurchase
authorization, which is effective immediately through February 7,
2015, permits Aspen to effect the repurchases from time to time
through a combination of transactions, including open market
repurchases, privately negotiated transactions and accelerated
share repurchase transactions.
Guidance
Assuming a pre-tax catastrophe load of $190 million per annum,
normal loss experience and given the current interest rate and
pricing environment, we expect to achieve an operating return on
equity of 10% in 2014.
See “Forward-looking Statements Safe Harbor” below.
(1) See provision of ASU 2010-26 on page 14(2) See definition of
non-GAAP financial measures on pages 13 and 14
Earnings conference call and web cast
Aspen will host a conference call to discuss the results at 9:00
am (EST) on Friday, February 8, 2013.
To participate in the February 8 conference call by
phonePlease call to register at least 10 minutes before the
conference call begins by dialing:
+1 (888) 459 5609 (US toll free) or+1 (404) 665 9920
(international)Conference ID 86526888
To listen live onlineAspen will provide a live webcast on
Aspen’s website at www.aspen.co
To download the materialsThe earnings press release and a
detailed financial supplement will also be published on Aspen’s
website at www.aspen.co.
To listen laterA replay of the call will be available for
14 days via phone and internet, available two hours after the end
of the live call. To listen to the replay by phone please dial:
+1 (855) 859 2056 (US toll free) or+1 (404) 537 3406
(international)Replay ID 86526888
The recording will be also available at www.aspen.co on the
Event Calendar page within the Investor Relations section.
Aspen Insurance Holdings
Limited
Summary consolidated balance sheet
(unaudited)
$ in millions, except per share data
As at
December 31,
2012
As at
December 31,
2011
ASSETS Total investments
$6,692.4
$6,335.1 Cash and cash equivalents
1,463.6 1,239.1
Reinsurance recoverables
621.6 514.4 Premiums receivable
1,057.5 894.4 Other assets(1)
475.5
477.5 Total assets
$10,310.6
$9,460.5 LIABILITIES Losses and loss adjustment expenses
$4,779.7 $4,525.2 Unearned premiums
1,120.8 916.1
Other payables
422.6 364.2 Long-term debt
499.1
499.0 Total liabilities
6,822.2 6,304.5
SHAREHOLDERS’ EQUITY Total shareholders’ equity(1)
3,488.4 3,156.0 Total liabilities and
shareholders’ equity(1)
$10,310.6
$9,460.5 Book value per share(1)
$42.12 $39.66
Diluted book value per share (treasury stock method) (1)
$40.65 $38.21
(1) See provision of ASU 2010-26 on page
14
Aspen Insurance Holdings
Limited
Summary consolidated statement of
income (unaudited)
$ in millions, except ratios
Three Months
Ended
December 31,
2012
December 31,
2011(1)
UNDERWRITING REVENUES Gross written premiums
$576.2 $458.7 Premiums ceded
(51.8)
(27.5) Net written premiums
524.4 431.2 Change in
unearned premiums
34.1 58.2 Net earned
premiums
558.5 489.4 UNDERWRITING
EXPENSES Losses and loss adjustment expenses
437.4 394.5
Policy acquisition expenses
80.0 85.5 General,
administrative and corporate expenses
86.1
79.3 Total underwriting expenses
603.5
559.3 Underwriting income (loss) including corporate
expenses
(45.0) (69.9) OTHER OPERATING
REVENUE Net investment income
51.1 54.2 Interest expense
(7.7) (7.7) Other income (expense)
(6.2)
3.6 Total other operating revenue
37.2
50.1 OPERATING INCOME (LOSS) BEFORE TAX
(7.8) (19.8) Net realized and unrealized exchange
gains (losses)
(0.4) 2.3 Net realized and unrealized
investment gains
5.6 6.0 INCOME (LOSS)
BEFORE TAX
(2.6) (11.5) Income taxes benefit
4.6
23.9 NET INCOME AFTER TAX
2.0 12.4
Dividends paid on ordinary shares
(12.0) (10.7) Dividends
paid on preference shares
(8.5) (5.7) Dividends paid to
non-controlling interest
─ ─ Proportion due to
non-controlling interest
(0.1) (0.2)
Retained (loss)
$(18.6) $(4.2)
Components of net income (after tax) Operating income (loss)
$(2.9) $5.0 Net realized and unrealized exchange gains
(losses) after tax
(0.4) 3.7 Net realized investment gains
after tax
5.3 3.7 NET INCOME AFTER TAX
$2.0 $12.4 Loss ratio
78.3% 80.6% Policy acquisition expense ratio
14.3%
17.5% General, administrative and corporate expense ratio
15.4% 16.2% Expense ratio
29.7% 33.7% Combined ratio
108.0% 114.3%
(1) See provision of ASU 2010-26 on page
14
Aspen Insurance Holdings
Limited
Summary consolidated statement of
income (unaudited)
$ in millions, except ratios
Twelve Months
Ended
December 31,
2012
December 31,
2011(1)
UNDERWRITING REVENUES Gross written premiums
$2,583.3 $2,207.8 Premiums ceded
(336.4)
(278.7) Net written premiums
2,246.9 1,929.1
Change in unearned premiums
(163.4)
(40.6) Net earned premiums
2,083.5
1,888.5 UNDERWRITING EXPENSES Losses and loss adjustment expenses
1,238.5 1,556.0 Policy acquisition expenses
381.2
347.0 General, administrative and corporate expenses
345.1
284.5 Total underwriting expenses
1,964.8 2,187.5 Underwriting income
(loss) including corporate expenses
118.7
(299.0) OTHER OPERATING REVENUE Net investment income
204.9 225.6 Interest expense
(30.9) (30.8) Other
income (expense)
0.9 (6.8) Total other
operating revenue
174.9 188.0
OPERATING INCOME (LOSS) BEFORE TAX
293.6 (111.0) Net
realized and unrealized exchange (losses)
(2.0) (2.2) Net
realized and unrealized investment gains (losses)
3.8
(34.1) INCOME (LOSS) BEFORE TAX
295.4 (147.3)
Income taxes (expense) benefit
(15.0)
37.2 NET INCOME (LOSS) AFTER TAX
280.4 (110.1) Dividends
paid on ordinary shares
(47.0) (42.5) Dividends paid on
preference shares
(31.1) (22.8) Dividends paid to
non-controlling interest
(0.1) (0.1) Proportion due to
non-controlling interest
0.2 0.1
Retained income (loss)
$202.4 $(175.4)
Components of net income (loss) (after tax) Operating income (loss)
$279.9 $(70.4) Net realized and unrealized exchange (losses)
after tax
(2.2) (0.1) Net realized investment gains (losses)
after tax
2.7 (39.6) NET INCOME (LOSS)
AFTER TAX
$280.4 $(110.1) Loss
ratio
59.4% 82.4% Policy acquisition expense ratio
18.3% 18.4% General, administrative and corporate expense
ratio
16.6% 15.1% Expense ratio
34.9% 33.5% Combined
ratio
94.3% 115.9%
(1) See provision of ASU 2010-26 on page
14
Aspen Insurance Holdings Limited Summary
consolidated financial data (unaudited) $ in millions,
except number of shares Three
Months Ended Twelve Months Ended
December 31, December 31, December
31, December 31, 2012
2011(1)
2012
2011(1)
Basic earnings per ordinary share Net income/(loss) adjusted
for preference share dividend
$(0.09) $0.09
$3.51
$(1.88) Operating income/(loss) adjusted for preference dividend
$(0.15) $(0.01)
$3.50 $(1.32) Diluted earnings per
ordinary share Net income/(loss) adjusted for preference share
dividend
$(0.09) $0.09
$3.38 $(1.88) Operating
income/(loss) adjusted for preference dividend
$(0.15)
$(0.01)
$3.37 $(1.32) Weighted average number of
ordinary shares outstanding (in millions)(2)
71.007 70.615
71.096 70.665 Weighted average number of ordinary shares
outstanding and dilutive potential ordinary shares (in millions)(2)
73.558 73.258
73.689 70.665 Book value per
ordinary share
$42.12 $39.66 Diluted book value (treasury
stock method)
$40.65 $38.21 Ordinary shares
outstanding at end of the period (in millions)
70.754 70.656
Ordinary shares outstanding and dilutive potential ordinary shares
at end of the period (treasury stock method) (in millions)
73.312 73.339 (1) See provision of ASU 2010-26 on
page 14 (2) The basic and diluted number of ordinary shares
for the twelve months ended December 31, 2011 is the same, as the
inclusion of dilutive shares in a loss-making period would be
anti-dilutive
Aspen Insurance Holdings Limited
Summary consolidated segment information (unaudited) $ in
millions, except ratios
Three Months Ended December 31, 2012
Three Months Ended December 31, 2011
Reinsurance Insurance
Total Reinsurance Insurance
Total
Gross written premiums
$194.4
$381.8 $576.2 $186.3 $272.4 $458.7 Net written
premiums
193.7 330.7 524.4 182.3 248.9 431.2
Gross earned premiums
317.2 328.2 645.4 311.9
245.7 557.6 Net earned premiums
299.8 258.7
558.5 288.7 200.7 489.4 Losses and loss adjustment expenses
248.9 188.5 437.4 278.1 116.4 394.5 Policy
acquisition expenses
41.0 39.0 80.0 47.4 38.1
85.5 General and administrative expenses(1)
31.3
41.9 73.2 33.2
33.5 66.7 Underwriting income/(loss)
$(21.4)
$(10.7) $(32.1) $(70.0)
$12.7 $(57.3) Net investment income
51.1 54.2 Net
realized and unrealized investment gains (2)
5.6 6.0
Corporate expenses
(12.9) (12.6) Other income/(expenses)
(6.2) 3.6 Interest expenses
(7.7) (7.7) Net realized
and unrealized foreign exchange gains/(losses) (3)
(0.4) 2.3
Income/(loss) before tax
(2.6) (11.5) Income tax benefit
4.6 23.9
Net income $2.0 $12.4
Ratios Loss ratio
83.0% 72.9% 78.3%
96.3% 58.0% 80.6% Policy acquisition expense ratio
13.7%
15.1% 14.3% 16.4% 19.0% 17.5% General and
administrative expense ratio (4)
10.4% 16.2%
15.4% 11.5% 16.7% 16.2% Expense ratio
24.1%
31.3% 29.7% 27.9% 35.7% 33.7% Combined ratio
107.1% 104.2%
108.0% 124.2%
93.7% 114.3% (1) See provision of ASU 2010-26
on page 14 (2) Includes realized and unrealized capital gains and
losses and realized and unrealized gains and losses on interest
rate swaps (3) Includes realized and unrealized foreign exchange
gains and losses and realized and unrealized gains and losses on
foreign exchange contracts (4) The total group general and
administrative expense ratio includes the impact from corporate
expenses
Aspen Insurance Holdings Limited
Summary consolidated segment information (unaudited) $ in
millions, except ratios
Twelve Months Ended December 31, 2012
Twelve Months Ended December 31, 2011
Reinsurance Insurance
Total Reinsurance Insurance
Total
Gross written premiums
$1,227.9
$1,355.4 $2,583.3 $1,187.5 $1,020.3 $2,207.8 Net
written premiums
1,156.9 1,090.0 2,246.9
1,098.1 831.0 1,929.1 Gross earned premiums
1,208.0
1,177.0 2,385.0 1,190.6 950.5 2,141.1 Net earned
premiums
1,132.4 951.1 2,083.5 1,108.3 780.2
1,888.5 Losses and loss adjustment expenses
635.3
603.2 1,238.5 1,083.3 472.7 1,556.0 Policy
acquisition expenses
207.8 173.4 381.2 197.7
149.3 347.0 General and administrative expenses(1)
123.9
168.2 292.1 111.8
128.0 239.8 Underwriting income/(loss)
$165.4 $6.3 $171.7 $(284.5)
$30.2 $(254.3) Net investment income
204.9 225.6 Net realized and unrealized investment
gains/(losses) (2)
3.8 (34.1) Corporate expenses
(53.0) (44.7) Other income/(expenses)
0.9 (6.8)
Interest expenses
(30.9) (30.8) Net realized and unrealized
foreign exchange (losses) (3)
(2.0) (2.2) Income/(loss)
before tax
295.4 (147.3) Income tax (expense)/benefit
(15.0) 37.2
Net income/(loss) $280.4 $(110.1)
Ratios Loss ratio
56.1% 63.4%
59.4% 97.7% 60.6% 82.4% Policy acquisition expense ratio
18.4% 18.2% 18.3% 17.8% 19.1% 18.4% General
and administrative expense ratio (4)
10.9% 17.7%
16.6% 10.1% 16.4% 15.1% Expense ratio
29.3%
35.9% 34.9% 27.9% 35.5% 33.5% Combined ratio
85.4% 99.3% 94.3%
125.6% 96.1%
115.9% (1) See provision of ASU 2010-26 on page 14
(2) Includes realized and unrealized capital gains and losses and
realized and unrealized gains and losses on interest rate swaps (3)
Includes realized and unrealized foreign exchange gains and losses
and realized and unrealized gains and losses on foreign exchange
contracts (4) The total group general and administrative expense
ratio includes the impact from corporate expenses
About Aspen Insurance Holdings Limited
Aspen provides reinsurance and insurance coverage to clients in
various domestic and global markets through wholly-owned
subsidiaries and offices in Bermuda, France, Germany, Ireland,
Singapore, Switzerland, the United Kingdom and the United States.
For the year ended December 31, 2012, Aspen reported $10.3 billion
in total assets, $4.8 billion in gross reserves, $3.5 billion in
total shareholders’ equity and $2.6 billion in gross written
premiums. Its operating subsidiaries have been assigned a rating of
“A” (“Strong”) by Standard & Poor’s, an “A” (“Excellent”) by
A.M. Best and an “A2” (“Good”) by Moody’s Investors Service.
For more information about Aspen, please visit www.aspen.co.
Forward-looking Statements Safe Harbor
This press release contains, and Aspen's earnings conference
call will contain, written or oral "forward-looking statements"
within the meaning of the US federal securities laws. These
statements are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward-looking
statements include all statements that do not relate solely to
historical or current facts, and can be identified by the use of
words such as "expect," "intend," "plan," "believe," "do not
believe," "aim," "project," "anticipate," "seek," "will,"
"estimate," "may," "continue," “guidance,” and similar expressions
of a future or forward-looking nature.
All forward-looking statements address matters that involve
risks and uncertainties. Accordingly, there are or will be
important factors that could cause actual results to differ
materially from those indicated in these statements. Aspen believes
these factors include, but are not limited to: the possibility of
greater frequency or severity of claims and loss activity,
including as a result of natural or man-made (including economic
and political risks) catastrophic or material loss events, than our
underwriting, reserving, reinsurance purchasing or investment
practices have anticipated; the reliability of, and changes in
assumptions to, natural and man-made catastrophe pricing,
accumulation and estimated loss models; evolving issues with
respect to interpretation of coverage after major loss events and
any intervening legislative or governmental action; the
effectiveness of our loss limitation methods; changes in the total
industry losses, or our share of total industry losses, resulting
from past events and, with respect to such events, our reliance on
loss reports received from cedants and loss adjustors, our reliance
on industry loss estimates and those generated by modeling
techniques, changes in rulings on flood damage or other exclusions
as a result of prevailing lawsuits and case law; the impact of acts
of terrorism and related legislation and acts of war; decreased
demand for our insurance or reinsurance products and cyclical
changes in the insurance and reinsurance sectors; any changes in
our reinsurers’ credit quality and the amount and timing of
reinsurance recoverables; changes in the availability, cost or
quality of reinsurance or retrocessional coverage; the continuing
and uncertain impact of the current depressed economic environment
in many of the countries in which we operate; the level of
inflation in repair costs due to limited availability of labor and
materials after catastrophes; changes in insurance and reinsurance
market conditions; increased competition on the basis of pricing,
capacity, coverage terms or other factors and the related demand
and supply dynamics as contracts come up for renewal; a decline in
our operating subsidiaries’ ratings with S&P, A.M. Best or
Moody’s; our ability to execute our business plan to enter new
markets, introduce new products and develop new distribution
channels, including their integration into our existing operations;
the persistence of the global financial crisis and the Eurozone
debt crisis, changes in general economic conditions, including
inflation, foreign currency exchange rates, interest rates and
other factors that could affect our investment portfolio; the risk
of a material decline in the value or liquidity of all or parts of
our investment portfolio; changes in our ability to exercise
capital management initiatives or to arrange banking facilities as
a result of prevailing market changes or changes in our financial
position; changes in government regulations or tax laws in
jurisdictions where we conduct business; Aspen Holdings or Aspen
Bermuda becoming subject to income taxes in the United States or
the United Kingdom; loss of key personnel; and increased
counterparty risk due to the credit impairment of financial
institutions. For a more detailed description of these
uncertainties and other factors, please see the "Risk Factors"
section in Aspen's Annual Report on Form 10-K as filed with the US
Securities and Exchange Commission on February 28, 2012. Aspen
undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak
only as of the dates on which they are made.
In addition, any estimates relating to loss events involve the
exercise of considerable judgment and reflect a combination of
ground-up evaluations, information available to date from brokers
and cedants, market intelligence, initial tentative loss reports
and other sources. Due to the complexity of factors contributing to
the losses and the preliminary nature of the information used to
prepare these estimates, there can be no assurance that Aspen's
ultimate losses will remain within the stated amount.
Non-GAAP Financial Measures
In presenting Aspen's results, management has included and
discussed certain "non-GAAP financial measures" as such term is
defined in Regulation G. Management believes that these non-GAAP
financial measures, which may be defined differently by other
companies, better explain Aspen's results of operations in a manner
that allows for a more complete understanding of the underlying
trends in Aspen's business. However, these measures should not be
viewed as a substitute for those determined in accordance with
GAAP. The reconciliation of such non-GAAP financial measures to
their respective most directly comparable GAAP financial measures
in accordance with Regulation G is included in the financial
supplement, which can be obtained from the Investor Relations
section of Aspen's website at www.aspen.co.
(1) Annualized Operating Return on Average Equity (“Operating
ROE”) is a non-GAAP financial measure. Annualized Operating
Return on Average Equity is calculated using operating income, as
defined below, and average equity is calculated as the arithmetic
average on a monthly basis for the stated periods of shareholders’
equity excluding the aggregate value of the liquidation preferences
of our preference shares net of issuance costs.
Aspen presents Operating ROE as a measure that is commonly
recognized as a standard of performance by investors, analysts,
rating agencies and other users of its financial information. See
page 23 of Aspen's financial supplement for a reconciliation of
operating income to net income and page 7 for a reconciliation of
average ordinary shareholders’ equity to average shareholders’
equity.
(2) Operating Income is a non-GAAP financial measure.
Operating income is an internal performance measure used by Aspen
in the management of its operations and represents after-tax
operational results excluding, as applicable, after-tax net
realized and unrealized capital gains or losses, including net
realized and unrealized gains or losses on interest rate swaps, and
after-tax net foreign exchange gains or losses, including net
realized and unrealized gains and losses from foreign exchange
contracts.
Aspen excludes these items from its calculation of operating
income because the amount of these gains or losses is heavily
influenced by, and fluctuates in part, according to the
availability of market opportunities. Aspen believes these amounts
are largely independent of its business and underwriting process
and including them would distort the analysis of trends in its
operations. In addition to presenting net income determined in
accordance with GAAP, Aspen believes that showing operating income
enables investors, analysts, rating agencies and other users of its
financial information to more easily analyze Aspen's results of
operations in a manner similar to how management analyzes Aspen's
underlying business performance. Operating income should not be
viewed as a substitute for GAAP net income. Please see above and
page 23 of Aspen's financial supplement for a reconciliation of
operating income to net income. Aspen’s financial supplement can be
obtained from the Investor Relations section of Aspen's website at
www.aspen.co.
(3) Diluted Book Value per Ordinary Share is not a
non-GAAP financial measure. Aspen has included diluted book value
per ordinary share as it illustrates the effect on basic book value
per share of dilutive securities thereby providing a better
benchmark for comparison with other companies. Diluted book value
per share is calculated using the treasury stock method, defined on
page 22 of Aspen’s financial supplement, which can be obtained from
the Investor Relations section of Aspen’s website at
www.aspen.co.
(4) Diluted Operating Earnings per Share and Basic Operating
Earnings per Share are non-GAAP financial measures. Aspen
believes that the presentation of diluted operating earnings per
share and basic operating earnings per share supports meaningful
comparison from period to period and the analysis of normal
business operations. Diluted operating earnings per share and basic
operating earnings per share are calculated by dividing operating
income by the diluted or basic weighted average number of shares
outstanding for the period. See page 23 for a reconciliation of
diluted and basic operating earnings per share to basic earnings
per share. Aspen’s financial supplement can be obtained from the
Investor Relations section of Aspen’s website at www.aspen.co.
(5) Combined Ratio Excluding Catastrophes is a non-GAAP
financial measure. Aspen believes that the presentation of combined
ratio excluding catastrophes supports meaningful comparison from
period to period of the underlying performance of the business.
Combined ratio excluding catastrophes is calculated by dividing net
losses excluding catastrophe losses and net expenses by net earned
premiums excluding catastrophe related reinstatement premiums. We
have defined 2012 catastrophe losses as losses associated with the
severe weather in the US in February and March 2012, Hurricane
Isaac in August 2012 and Hurricane Sandy in October 2012 and
movements in losses associated with the 2011 catastrophe events. We
have defined catastrophe losses in the comparative period as losses
associated with the US storms (specifically related to Hurricane
Irene which occurred in the third quarter of 2011, and related to
the tornadoes which occurred in the second quarter of 2011), the
Australian floods and the New Zealand and Japanese earthquakes
which occurred in the first quarter of 2011, and movement in losses
associated with the 2010 catastrophe events (Chilean and New
Zealand earthquakes) which were recognized in 2011.
Other
(1) Provision of ASU 2010-26. In 2012, Aspen
adopted the provision of ASU 2010-26, “Accounting for Costs
Associated with Acquiring or Renewing Insurance Contracts.” Under
the standard, Aspen is required to expense the proportion of its
general and administrative deferred acquisition costs not directly
related to successful business acquisition. The application of this
standard has resulted in a net $16.0 million write down of deferred
acquisition costs through retained earnings brought forward and the
restatement of our quarterly balance sheets from December 31, 2010
to December 31, 2011.
(2) Catastrophe Load included in our guidance is
an estimate of the average annual aggregate loss before reinsurance
and tax from natural catastrophe events based on 50,000 simulations
of our internal capital model which, in relation to its catastrophe
modeling components, is based on a combination of catastrophe
models selected by Aspen to best fit its current understanding of
the world wide natural catastrophe perils to which Aspen has known
exposures. It does not include losses from non-natural catastrophe
events such as terrorism or industrial accidents.
This load is attributed and then released quarter by quarter
based on historic claims patterns. For example, there is a higher
proportion allocated to the third quarter due to the historical
frequency of US Wind events in this period. As an organization,
Aspen monitors its current catastrophe losses to date against
expected losses and updates the projected numbers accordingly based
on this experience.
Actual catastrophe loss experience may materially differ from
the catastrophe load in any one year for reasons which include
natural variability in the frequency and severity of catastrophe
events, and limitations in one or more of the models or
uncertainties in the application of policy terms and limits.
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