Annualized Operating ROE of 12.8%
Diluted Operating Income Per Share of $1.40,
122.2% Increase from Second Quarter of 2013
Diluted Book Value Per Share of $44.84, Up
9.6% from December 31, 2013
Aspen Insurance Holdings Limited (“Aspen”) (NYSE:AHL) today
reported net income after tax of $130.8 million, or $1.82 diluted
net income per share, for the quarter ended June 30, 2014.
Chris O’Kane, Chief Executive Officer, commented, “Aspen’s
strong, high-quality results for the second quarter and first half
of 2014 demonstrate the benefits of the investments we have made in
our business, our operating focus and our successful strategy to
manage a dynamic market. The combination of top-line growth, sound
underwriting, impressive performance in our Reinsurance business
and increasing scale in the U.S. Insurance platform is driving
increases in ROE and book value per share. Going forward we expect
our operating leverage to continue to increase with premiums
growing across many lines and at a faster rate than both expenses
and allocated capital. Improving operating leverage will drive an
increase in ROE which will enable us to continue to enhance
shareholder value.”
Operating highlights for the quarter ended June 30,
2014
- Gross written premiums increased
overall by 13.4% to $779.3 million in the second quarter of 2014
from the second quarter of 2013. Gross written premiums in
Reinsurance were flat and Insurance increased by 23.7% compared
with the second quarter of 2013
- Combined ratio of 90.1% (89.2%
excluding non-recurring corporate expenses) for the second quarter
of 2014 compared with 97.1% for the second quarter of 2013. There
were $22.1 million, or 3.6 combined ratio points, of pre-tax
catastrophe losses net of reinsurance recoveries and reinstatement
premiums in the second quarter of 2014 compared with $58.7 million,
or 10.9 percentage points, of pre-tax catastrophe losses net of
reinsurance recoveries and reinstatement premiums in the second
quarter of 2013
- Net favorable development on prior year
loss reserves of $31.8 million, or 5.2 combined ratio points, for
the second quarter of 2014 compared with $27.4 million, or 5.0
combined ratio points, for the second quarter of 2013
- The loss ratio of 54.7% for the second
quarter of 2014 compared with 61.3% for the second quarter of 2013
and accident year ex-catastrophe loss ratio of 56.3% compared with
55.4% for the second quarter of 2013
Financial highlights for the quarter and six months ended
June 30, 2014
- Annualized net income return on average
equity of 16.8% and annualized operating return on average equity
of 12.8% for the second quarter of 2014 compared with 4.4% and
6.4%, respectively, for the second quarter of 2013(1)
- Annualized net income return on average
equity of 16.2% and annualized operating return on average equity
of 13.8% for the first half of 2014 compared with 8.0% and 8.6%,
respectively, for the first half of 2013(1)
- Diluted net income per share of $1.82
for the quarter ended June 30, 2014, compared with diluted net
income per share of $0.36 for the second quarter of 2013, and
diluted net income per share of $3.48 for the six months ended June
30, 2014 compared with diluted net income per share of $1.52 for
the six months ended June 30, 2013
- Diluted operating income per share of
$1.40 for the quarter ended June 30, 2014, an increase of 122.2%
from $0.63 for the second quarter of 2013 and diluted operating
income per share of $2.94 for the six months ended June 30, 2014
compared with diluted operating income per share of $1.70 for the
six months ended June 30, 2013(1)
- On a pre-tax basis, net catastrophe
losses were $22.1 million, or $0.33 per diluted share, for the
second quarter of 2014 compared with $58.7 million, or $0.85 per
share, for the second quarter of 2013
- Diluted book value per share of $44.84
at June 30, 2014, up 5.0% from March 31, 2014 and up 9.6% from
December 31, 2013
(1) See definition of non-GAAP financial measures at the end of
this release.
Segment highlights
Reinsurance
Operating highlights for Reinsurance for the quarter ended June
30, 2014 include:
- Gross written premiums of $298.4
million in line with $298.6 million for the second quarter of
2013
- Combined ratio of 75.5% compared with
88.9% for the second quarter of 2013
- Favorable prior year loss reserve
development of $28.4 million, or 10.2 combined ratio points,
compared with $24.1 million favorable prior year loss reserve
development, or 8.7 combined ratio points, for the second quarter
of 2013
Growth in gross written premiums in Catastrophe and Other
Property lines of business was offset by declines in Casualty and
Specialty lines.
The combined ratio of 75.5% for the second quarter of 2014
included $11.9 million, or 4.3 percentage points, of pre-tax
catastrophe losses, net of reinsurance recoveries and reinstatement
premiums related to U.S. storms and Japanese snowstorms. The
combined ratio of 88.9% for the second quarter of 2013 included
$51.8 million, or 19.4 percentage points, of pre-tax catastrophe
losses, net of reinsurance recoveries and $5.2 million of
reinstatement premiums, related to flooding in Central Europe,
Canada and India, and tornadoes and hailstorms in the U.S. The
accident year ex-catastrophe loss ratio for the Reinsurance segment
was 50.7% for the second quarter of 2014 compared with 46.7% for
the second quarter of 2013.
Insurance
Operating highlights for Insurance for the quarter ended June
30, 2014 include:
- Gross written premiums of $480.9
million, increased 23.7% compared with $388.7 million for the
second quarter of 2013
- Combined ratio of 95.5% compared with
99.8% for the second quarter of 2013
- Prior year favorable reserve
development of $3.4 million, or 1.0 combined ratio point, compared
with prior year reserve favorable development of $3.3 million, or
1.2 combined ratio points, for the second quarter of 2013
The increase in gross written premiums was mainly attributable
to continued higher contribution from the U.S. teams in addition to
growth in our International Financial and Professional lines. The
U.S. Insurance teams were again profitable in the quarter with an
impressive loss ratio of 58.9%.
The combined ratio of 95.5% for the second quarter of 2014
included $10.2 million, or 3.0 percentage points, of pre-tax
catastrophe losses, net of reinsurance recoveries, related to U.S.
storms. The combined ratio for the second quarter of 2013 included
$6.9 million, or 2.6 percentage points, of pre-tax catastrophe
losses net of reinsurance recoveries and reinstatement premiums
related to tornadoes and hailstorms in the U.S. The accident year
ex-catastrophe loss ratio for the Insurance segment was 60.9%
compared with 63.8% for the second quarter of 2013.
Investment performance
Aspen’s investment portfolio continues to be comprised primarily
of high quality fixed income securities with an average credit
quality of “AA-”. The average duration of the fixed income
portfolio was 3.4 years at June 30, 2014, excluding the impact of
interest rate swaps, or 3.1 years including the impact of interest
rate swaps. The total return on Aspen’s investment portfolio was
1.3% for the second quarter of 2014, compared to negative 1.2% for
the second quarter of 2013. The equity portfolio had a total return
of 5.2% for the quarter compared to a loss of 0.3% for the second
quarter of 2013.
Net investment income for the second quarter of 2014 was $46.1
million compared with $45.9 million for the second quarter of 2013.
Book yield as at June 30, 2014 on the fixed income portfolio was
2.61% compared to 2.74% at December 31, 2013 and 2.71% at June 30,
2013.
Net realized and unrealized investment gains included in net
income for the quarter were $25.2 million.
Capital
Total shareholders’ equity increased by $167.4 million in the
quarter to $3.6 billion at June 30, 2014.
Aspen had $193.3 million remaining under its current share
repurchase authorization as at June 30, 2014.
Outlook
Aspen continues to expect to achieve or exceed an operating
return on equity of 10% in 2014, assuming a pre-tax catastrophe
load of $185 million(2), normal loss experience, the current
interest rate environment and insurance pricing environment.
We expect to achieve an operating return on equity of 11% in
2015, and to achieve an operating return on equity of between 11%
and 12% in 2016, assuming normal loss experience, our expectations
for rising interest rates and a less favorable insurance pricing
environment(3).
See “Forward-looking Statements Safe Harbor” below.
Earnings conference call and webcast
Aspen will host a conference call to discuss the results at 9:00
am (EDT) on Thursday, July 24, 2014.
To participate in the July 24 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 60476327
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 60476327
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 atJune 30,2014
As atDecember
31,2013
ASSETS Total investments
$ 7,260.3 $ 6,959.8
Cash and cash equivalents
1,345.2 1,293.6 Reinsurance
recoverables
577.9 484.6 Premiums receivable
1,192.7
999.0 Other assets
558.9 493.5 Total assets
$
10,935.0 $ 10,230.5 LIABILITIES Losses and loss
adjustment expenses
$ 4,795.8 $ 4,678.9 Unearned
premiums
1,568.5 1,280.6 Other payables
411.4 372.4
Silverton loan notes
56.0 50.0 Long-term debt
549.1
549.0 Total liabilities
$ 7,380.8 $ 6,930.9
SHAREHOLDERS’ EQUITY Total shareholders’ equity
3,554.2
3,299.6 Total liabilities and shareholders’ equity
$
10,935.0 $ 10,230.5 Book value per share
$
45.81 $ 41.87 Diluted book value per share (treasury stock
method)
$ 44.84 $ 40.90
Aspen Insurance Holdings
Limited
Summary consolidated statement of
income (unaudited)
$ in millions, except ratios
Three Months Ended
June 30,2014
June 30,2013
UNDERWRITING REVENUES Gross written premiums
$ 779.3
$ 687.3 Premiums ceded
(92.9 ) (74.6 ) Net written
premiums
686.4 612.7 Change in unearned premiums
(70.2 ) (68.7 ) Net earned premiums
616.2
544.0 UNDERWRITING EXPENSES Losses and loss
adjustment expenses
337.1 333.4 Amortization of deferred
policy acquisition costs
108.9 107.2
General, administrative and corporate
expenses (excluding non-recurringcorporate expenses)
103.5 87.7 Total underwriting expenses
549.5 528.3 Underwriting income including
corporate expenses
66.7 15.7 OTHER OPERATING
REVENUE Net investment income
46.1 45.9 Interest expense
(7.3 ) (7.8 ) Other income
2.0 0.9
Total other operating revenue
40.8 39.0
OPERATING INCOME BEFORE TAX
107.5 54.7
Non-recurring corporate expenses
(5.3 )
— Net realized and unrealized exchange gains (losses)
9.6
(13.8 ) Net realized and unrealized investment gains
25.2
0.2 INCOME BEFORE TAX
137.0 41.1 Income tax
expense
(6.2 ) (1.0 ) NET INCOME AFTER TAX
130.8 40.1 Dividends paid on ordinary shares
(13.1
) (11.9 ) Dividends paid on preference shares
(9.4
) (8.0 ) Change in redemption value
— (7.1 )
Proportion due to non-controlling interest — —
Retained income
$ 108.3 $ 13.1
Components of net income (after tax) Operating income
$
102.8 $ 52.2 Non-recurring corporate expenses
(5.3
) — Net realized and unrealized exchange gains (losses)
after tax
8.2 (12.0 ) Net realized investment gains (losses)
after tax
25.1 (0.1 ) NET INCOME AFTER TAX
$
130.8 $ 40.1 Loss ratio
54.7
% 61.3 % Policy acquisition expense ratio
17.7
% 19.7 % General, administrative and corporate expense ratio
17.7 % 16.1 %
General, administrative and corporate
expense ratio (excluding non-recurring corporate expenses)
16.8 % 16.1 % Expense ratio
35.4 % 35.8
% Expense ratio (excluding non-recurring corporate expenses)
34.5 % 35.8 % Combined ratio
90.1 %
97.1 % Combined ratio (excluding non-recurring corporate expenses)
89.2 % 97.1 %
Aspen Insurance Holdings
Limited
Summary consolidated statement of
income (unaudited)
$ in millions, except ratios
Six Months Ended
June 30,2014
June 30,2013
UNDERWRITING REVENUES Gross written premiums
$
1,634.8 $ 1,460.7 Premiums ceded
(250.9 )
(251.0 ) Net written premiums
1,383.9 1,209.7 Change in
unearned premiums
(201.2 ) (154.8 ) Net earned
premiums
1,182.7 1,054.9 UNDERWRITING EXPENSES
Losses and loss adjustment expenses
625.2 602.1 Amortization
of deferred policy acquisition costs
220.9 211.8
General, administrative and corporate
expenses (excluding non-recurringcorporate expenses)
196.1 174.3 Total underwriting expenses
1,042.2 988.2 Underwriting income including
corporate expenses
140.5 66.7 OTHER OPERATING
REVENUE Net investment income
95.6 94.2 Interest expense
(14.7 ) (15.5 ) Other (expense) income
1.9
1.4 Total other operating revenue
82.8
80.1 OPERATING INCOME BEFORE TAX
223.3
146.8 Non-recurring corporate expenses
(8.3 ) — Net realized and unrealized exchange gains
(losses)
12.7 (24.0 ) Net realized and unrealized investment
gains
33.5 16.0 INCOME BEFORE TAX
261.2
138.8 Income tax expense
(10.0 ) (6.9 ) NET INCOME
AFTER TAX
251.2 131.9 Dividends paid on ordinary shares
(24.8 ) (23.8 ) Dividends paid on preference shares
(18.9 ) (16.6 ) Change in redemption value
—
(7.1 ) Proportion due to non-controlling interest
(0.1
) — Retained income
$ 207.4 $
84.4 Components of net income (after tax) Operating income
$ 215.5 $ 137.9 Non-recurring corporate expenses
(8.3 ) — Net realized and unrealized exchange gains
(losses) after tax
10.8 (21.5 ) Net realized investment
gains after tax
33.2 15.5 NET INCOME AFTER TAX
$ 251.2 $ 131.9 Loss ratio
52.9 % 57.1 % Policy acquisition expense ratio
18.7 % 20.1 % General, administrative and corporate
expense ratio
17.3 % 16.5 %
General, administrative and corporate
expense ratio (excluding non-recurring corporate expenses)
16.6 % 16.5 % Expense ratio
36.0 % 36.6
% Expense ratio (excluding non-recurring corporate expenses)
35.3 % 36.6 % Combined ratio
88.9 %
93.7 % Combined ratio (excluding non-recurring corporate expenses)
88.1 % 93.7 %
Aspen Insurance Holdings
Limited
Summary consolidated financial data
(unaudited)
$ in millions, except number of shares
Three Months Ended Six Months
Ended
June 30,2014
June 30,2013
June 30,2014
June 30,2013
Basic earnings per ordinary share Net income adjusted for
preference share dividend
$1.85 $0.38
$3.55 $1.60
Operating income adjusted for preference share dividend
$1.42 $0.67
$3.00 $1.80 Diluted earnings per ordinary
share Net income adjusted for preference share dividend
$1.82 $0.36
$3.48 $1.52 Operating income adjusted for
preference share dividend
$1.40 $0.63
$2.94 $1.70
Weighted average number of ordinary shares
outstanding (inmillions)
65.447 66.191
65.369 67.601
Weighted average number of ordinary shares
outstanding anddilutive potential ordinary shares (in millions)
66.700 69.291
66.646 71.087 Book value per
ordinary share
$45.81
$39.98
$45.81
$39.98
Diluted book value per ordinary share (treasury stock method)
$44.84 $38.86
$44.84 $38.86 Ordinary shares
outstanding at end of the period (in millions)
65.463 67.003
65.463 67.003
Ordinary shares outstanding and dilutive
potential ordinary sharesat end of the period (treasury stock
method) (in millions)
66.871 68.934
66.871 68.934
Aspen Insurance Holdings
Limited
Summary consolidated segment
information (unaudited)
$ in millions, except ratios
Three Months Ended June 30, 2014 Three
Months Ended June 30, 2013
Reinsurance
Insurance Total Reinsurance Insurance
Total Gross written premiums
$ 298.4
$ 480.9 $ 779.3 $ 298.6 $ 388.7 $ 687.3
Net written premiums
286.9 399.5 686.4 288.6
324.1 612.7 Gross earned premiums
289.7 404.5
694.2 288.4 331.3 619.7 Net earned premiums
278.8
337.4 616.2 275.8 268.2 544.0
Losses and loss adjustmentexpenses
125.0 212.1 337.1 158.4 175.0 333.4 Policy
acquisition expenses
49.8 59.1 108.9 56.6 50.6
107.2
General and administrativeexpenses
35.8 51.1 86.9 30.4
42.1 72.5 Underwriting income
$
68.2 $ 15.1 $ 83.3
$ 30.4 $ 0.5 $ 30.9 Net investment income
46.1 45.9
Net realized and unrealizedinvestment
gains (1)
25.2 0.2 Corporate expenses
(16.6 ) (15.2 )
Non-recurring corporate expenses
(5.3 ) — Other
income
2.0 0.9 Interest expenses
(7.3 ) (7.8 )
Net realized and unrealized
foreignexchange gains (losses) (2)
9.6 (13.8 ) Income before tax
$ 137.0 $
41.1 Income tax expense
(6.2 ) (1.0 )
Net
income $ 130.8 $ 40.1
Ratios Loss ratio
44.8 % 62.9 %
54.7 % 57.4 % 65.2 % 61.3 % Policy acquisition
expense ratio
17.9 % 17.5 % 17.7
% 20.5 % 18.9 % 19.7 %
General and administrativeexpense ratio
(3)
12.8 % 15.1 % 17.7 % 11.0
% 15.7 % 16.1 %
General and administrativeexpense ratio
(excluding non-recurring corporate expenses) (3)
12.8 % 15.1 % 16.8 % 11.0
% 15.7 % 16.1 % Expense ratio
30.7 % 32.6
% 35.4 % 31.5 % 34.6 % 35.8 %
Expense ratio (excluding non-recurring
corporate expenses)
30.7 % 32.6 % 34.5 % 31.5
% 34.6 % 35.8 % Combined ratio
75.5 % 95.5
% 90.1 % 88.9 % 99.8 % 97.1 %
Combined ratio (excluding non-recurring
corporate expenses)
75.5 % 95.5 % 89.2 % 88.9
% 99.8 % 97.1 %
(1) Includes realized and unrealized capital gains and losses
and realized and unrealized gains and losses on interest rate
swaps
(2) Includes realized and unrealized foreign exchange gains and
losses and realized and unrealized gains and losses on foreign
exchange contracts
(3) 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
Six Months Ended June 30, 2014 Six Months
Ended June 30, 2013
Reinsurance
Insurance Total
Reinsurance
Insurance Total Gross written
premiums
$ 770.6 $ 864.2 $
1,634.8 $ 738.2 $ 722.5 $1,460.7 Net written premiums
729.5 654.4 1,383.9 689.1 520.6 1,209.7 Gross
earned premiums
568.2 778.1 1,346.3 560.3
644.2 1,204.5 Net earned premiums
545.5 637.2
1,182.7 532.5 522.4 1,054.9
Losses and loss adjustmentexpenses
235.4 389.8 625.2 272.7 329.4 602.1 Policy
acquisition expenses
100.2 120.7 220.9 111.9
99.9 211.8
General and administrativeexpenses
68.6 97.0 165.6
62.6 84.5 147.1 Underwriting income
$ 141.3 $ 29.7
$ 171.0 $ 85.3 $ 8.6 $ 93.9
Net investment income
95.6 94.2
Net realized and unrealizedinvestment
gains (1)
33.5 16.0 Corporate expenses
(30.5 ) (27.2 )
Non-recurring corporate expenses
(8.3 ) — Other
income
1.9 1.4 Interest expenses
(14.7 ) (15.5
)
Net realized and unrealized
foreignexchange gains (losses) (2)
12.7 (24.0 ) Income before tax
$ 261.2
$ 138.8 Income tax expense
(10.0 ) (6.9 )
Net
income $ 251.2 $ 131.9
Ratios Loss ratio
43.2 % 61.2 %
52.9 % 51.2 % 63.1 % 57.1 %
Policy acquisition expense ratio
18.4 % 18.9 % 18.7 % 21.0
% 19.1 % 20.1 %
General and administrativeexpense ratio
(3)
12.6 % 15.2 % 17.3 % 11.8
% 16.2 % 16.5 %
General and administrativeexpense ratio
(excluding non-recurring corporate expenses) (3)
12.6 % 15.2 % 16.6 % 11.8
% 16.2 % 16.5 % Expense ratio
31.0 % 34.1
% 36.0 % 32.8 % 35.3 % 36.6 %
Expense ratio (excluding non-recurring
corporate expenses)
31.0 % 34.1 % 35.3 % 32.8
% 35.3 % 36.6 % Combined ratio
74.2 % 95.3
% 88.9 % 84.0 % 98.4 % 93.7 %
Combined ratio (excluding non-recurring
corporate expenses)
74.2 % 95.3 % 88.1
% 84.0 % 98.4 % 93.7 %
(1) Includes realized and unrealized capital gains and losses
and realized and unrealized gains and losses on interest rate
swaps
(2) Includes realized and unrealized foreign exchange gains and
losses and realized and unrealized gains and losses on foreign
exchange contracts
(3) 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, 2013, Aspen reported $10.2 billion
in total assets, $4.7 billion in gross reserves, $3.3 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 Financial Services LLC
(“S&P”), an “A” (“Excellent”) by A.M. Best Company Inc. (“A.M.
Best”) and an “A2” (“Good”) by Moody’s Investor Service, Inc.
(“Moody's”).
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,” “likely,”
“assume,” “estimate,” “may,” “continue,” “guidance,” “objective,”
“outlook,” “trends,” “future,” “could,” “would,” “should,” “target”
and similar expressions of a future or forward-looking nature.
All forward-looking statements rely on a number of assumptions,
estimates and data concerning future results and events and are
subject to a number of uncertainties and other factors, many of
which are outside Aspen’s control that could cause actual results
to differ materially from such statements. Forward-looking
statements do not reflect the potential impact of any future
collaboration, acquisition, merger, disposition, joint venture or
investments that Aspen may enter into or make, and the risks,
uncertainties and other factors relating to such statements might
also relate to the counterparty in any such transaction if entered
into or made by Aspen.
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: our ability to
successfully implement steps to further optimize the business
portfolio, ensure capital efficiency and enhance investment
returns; 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
assumptions and uncertainties underlying reserve levels that may be
impacted by future payments for settlements of claims and expenses
or by other factors causing adverse or favorable development; the
reliability of, and changes in assumptions to, natural and man-made
catastrophe pricing, accumulation and estimated loss models;
decreased demand for our insurance or reinsurance products and
cyclical changes in the highly competitive insurance and
reinsurance industry; increased competition from existing insurers
and reinsurers and from alternative capital providers and
insurance-linked funds and collateralized special purpose insurers
on the basis of pricing, capacity, coverage terms, new capital,
binding authorities to brokers or other factors and the related
demand and supply dynamics as contracts come up for renewal;
changes in the availability, cost or quality of reinsurance or
retrocessional coverage; changes in general economic conditions,
including inflation, deflation, foreign currency exchange rates,
interest rates and other factors that could affect our financial
results; the risk of a material decline in the value or liquidity
of all or parts of our investment portfolio; evolving issues with
respect to interpretation of coverage after major loss events; our
ability to adequately model and price the effects of climate cycles
and climate change; any intervening legislative or governmental
action and changing judicial interpretation and judgments on
insurers’ liability to various risks; the effectiveness of our risk
management loss limitation methods, including our reinsurance
purchasing; 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 one or more large losses from events other
than natural catastrophes or by an unexpected accumulation of
attritional losses; the impact of acts of terrorism, acts of war
and related legislation; any changes in our reinsurers’ credit
quality and the amount and timing of reinsurance recoverables; the
continuing and uncertain impact of the current depressed lower
growth 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; a decline
in our operating subsidiaries’ ratings with S&P, A.M. Best or
Moody’s; the failure of our reinsurers, policyholders, brokers or
other intermediaries to honor their payment obligations; 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; our
reliance on the assessment and pricing of individual risks by third
parties; our dependence on a few brokers for a large portion of our
revenues; the persistence of heightened financial risks, including
excess sovereign debt, the banking system and the Eurozone debt
crisis; changes in our ability to exercise capital management
initiatives (including our share repurchase program) or to arrange
banking facilities as a result of prevailing market conditions or
changes in our financial position; changes in government
regulations or tax laws in jurisdictions where we conduct business;
changes in accounting principles or policies or in the application
of such accounting principles or policies; Aspen or Aspen Bermuda
Limited becoming subject to income taxes in the United States or
the United Kingdom; loss of one or more of our senior underwriters
or key personnel; our reliance on information and technology and
third party service providers for our operations and systems; 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
U.S. Securities and Exchange Commission on February 20, 2014 and in
Aspen’s quarterly report on Form 10-Q as filed with the U.S.
Securities and Exchange Commission on May 1, 2014 and Aspen’s
quarterly report on Form 10-Q to be filed with the U.S. Securities
and Exchange Commission for the second quarter of 2014. 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. The actuarial range of reserves and management's
best estimate represents a distribution from our internal capital
model for reserving risk based on our then current state of
knowledge and explicit and implicit assumptions relating to the
incurred pattern of claims, the expected ultimate settlement
amount, inflation and dependencies between lines of business. 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.
(1) 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.
Annualized Operating Return on Average Equity (“Operating
ROE”) is a non-GAAP financial measure. Operating ROE 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 and the total amount of
non-controlling interest. 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. Aspen’s financial supplement can be obtained from the
Investor Relations section of Aspen's website at www.aspen.co.
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,
after-tax net foreign exchange gains or losses, including net
realized and unrealized gains and losses from foreign exchange
contracts and certain non-recurring items. In 2014, non-recurring
items included costs associated with defending the unsolicited
approach from Endurance Specialty Holdings Ltd. in the amounts of
$5.3 million and $8.3 million for the three and six months ended
June 30, 2014, respectively.
Aspen excludes these above items from its calculation of
operating income because they are either not expected to recur and
therefore are not reflective of underlying performance or 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 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.
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.
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 of Aspen’s financial
supplement 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.
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 catastrophe losses in 2014 as losses associated with
storms in the U.S., snowstorms in Japan and flooding in the U.K. We
have defined losses in the comparative period in 2013 as losses
associated with flooding in Central Europe, Canada and India, and
tornadoes and hailstorms in the U.S.
(2) Catastrophe Load included in our outlook is an
estimate of the average annual aggregate loss before tax and after
reinsurance 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 worldwide 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.
The $185 million catastrophe load included in the 10% Return on
Operating Equity outlook for 2014 provided on February 6, 2014, was
calculated based on the expected catastrophe load for the year .
There is a higher proportion of the catastrophe load allocated to
the third quarter due to the historical frequency of U.S. Wind
events in this period. As an organization, Aspen monitors its
current catastrophe losses to date against expected losses. Actual
catastrophe loss experience may materially differ from the
catastrophe load in any one year or attributable to any one quarter
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.
(3) Our outlook in 2015 and 2016 in particular is
necessarily subject to heightened sensitivity in relation to
assumptions which are likely to be the subject of future change,
amendment, update and review, as necessary. For example, our
assumptions for rising interest rates in 2015 and 2016 are subject
to and dependent upon the anticipated and actual monetary policy
decisions taken by the central banks in the jurisdictions in which
we operate. Our assumptions are also based on the retention of our
senior underwriters and client relationships. In addition, the
models underlying our normal loss experience assumptions will
produce different illustrative loss patterns if the modeling
assumptions are changed. While recent decreases in pricing in
certain business lines, if sustained, are expected to have an
adverse effect on operating return on equity, Aspen continues to
identify actions in each of its three operating return on equity
levers – optimization of the business portfolio, capital efficiency
and enhancing investment returns – to help mitigate the impact of
pricing declines on operating return on equity.
InvestorsKerry Calaiaro, Senior Vice President, Investor
Relations, AspenKerry.Calaiaro@aspen.co+1 (646) 502 1076orKathleen
de Guzman, Vice President, Investor Relations, AspenKathleen.deGuzman@aspen.co+1 (646) 289
4912orMediaSteve Colton, Head of Communications,
AspenSteve.Colton@aspen.co+44 20 7184
8337orInternational - Citigate Dewe RogersonCaroline Merrell or Jos
BienemanCaroline.Merrell@citigatedr.co.ukJos.Bieneman@citigatedr.co.uk+44 20 7638
9571orNorth America - Sard Verbinnen & CoPaul Scarpetta or
Jamie Tully+1 (212) 687 8080
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