Annualized Operating ROE of 10.0%
Diluted Operating Income Per Share of
$1.08
Diluted Book Value Per Share of $44.60, up
9.0% (10.1% excluding bid defense costs) from December 31,
2013
Aspen Insurance Holdings Limited (“Aspen”) (NYSE:AHL) today
reported net income after tax of $37.4 million, or $0.42 diluted
net income per share, for the quarter ended September 30, 2014.
Chris O’Kane, Chief Executive Officer, commented, “During the
third quarter we continued to execute our strategy to increase ROE
and shareholder value with good operating results, opportunistic
share repurchases and further rebalancing of our investment
portfolio. Reinsurance had another very strong quarter and
continues to successfully navigate a dynamic market. Insurance
continued to evidence momentum, with our U.S. Insurance teams
continuing to make strong progress in building out the platform
through profitable growth. As we enter the final quarter of 2014 we
are well positioned to comfortably exceed our 10% ROE target for
the year. We will continue to focus on ROE improvement in 2015 and
beyond.”
Operating highlights for the quarter ended September 30,
2014
- Gross written premiums increased 12.2%
to $652.5 million in the third quarter of 2014 from the third
quarter of 2013, with growth from both Insurance and Reinsurance
segments
- Combined ratio of 94.6% (91.3%
excluding corporate expenses related to bid defense costs) for the
third quarter of 2014 compared with 91.8% for the third quarter of
2013. There were $17.1 million, or 2.8 combined ratio points, of
pre-tax catastrophe losses in the third quarter of 2014 compared
with $14.2 million, or 2.6 percentage points, of pre-tax
catastrophe losses net of reinsurance recoveries and reinstatement
premiums in the third quarter of 2013
- Net favorable development on prior year
loss reserves of $32.6 million, or 5.3 combined ratio points, for
the third quarter of 2014 compared with $33.6 million, or 6.2
combined ratio points, for the third quarter of 2013
Financial highlights for the quarter and nine months ended
September 30, 2014
- Annualized net income return on average
equity of 4.0% (6.4% excluding bid defense costs) and annualized
operating return on average equity of 10.0% for the third quarter
of 2014 compared with 14.8% and 10.8%, respectively, for the third
quarter of 2013(1)
- Annualized net income return on average
equity of 12.0% (13.3% excluding bid defense costs) and annualized
operating return on average equity of 12.4% for the first nine
months of 2014 compared with 10.1% and 9.2%, respectively, for the
first nine months of 2013(1)
- Diluted net income per share of $0.42
($0.72 excluding $20.2 million of bid defense costs) for the
quarter ended September 30, 2014, compared with diluted net income
per share of $1.43 for the third quarter of 2013. Diluted net
income per share of $3.91 ($4.34 excluding $28.5 million of bid
defense costs) for the nine months ended September 30, 2014
compared with diluted net income per share of $2.95 for the nine
months ended September 30, 2013
- Diluted operating income per share of
$1.08 for the quarter ended September 30, 2014, compared with $1.05
for the third quarter of 2013. Diluted operating income per share
of $4.04 for the nine months ended September 30, 2014 compared with
diluted operating income per share of $2.78 for the nine months
ended September 30, 2013(1)
- On a pre-tax basis, net catastrophe
losses were $17.1 million, or $0.26 per diluted share, for the
third quarter of 2014 compared with $14.2 million, or $0.21 per
diluted share, for the third quarter of 2013
- Diluted book value per share of $44.60
at September 30, 2014 up 9.0% from December 31, 2013; Diluted book
value per share increased 10.1% excluding bid defense costs 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
September 30, 2014 include:
- Gross written premiums of $256.9
million, an increase of 17.0% from $219.5 million in the third
quarter of 2013
- Combined ratio of 79.5% compared with
80.5% for the third quarter of 2013
- Prior year favorable reserve
development of $26.0 million, or 9.3 combined ratio points,
compared with $32.3 million prior year favorable loss reserve
development, or 12.6 combined ratio points, for the third quarter
of 2013
The growth in gross written premiums was primarily due to
increased production and new business in Other Property.
The combined ratio of 79.5% for the third quarter of 2014
included $10.5 million, or 3.8 percentage points, of pre-tax
catastrophe losses primarily related to North American and European
storms. The combined ratio of 80.5% for the third quarter of 2013
included $11.3 million, or 4.5 percentage points, of pre-tax
catastrophe losses, net of reinsurance recoveries and $1.4 million
of reinstatement premiums. For the quarter ended September 30, 2014
the Reinsurance accident year ex catastrophe loss ratio improved
320 basis points to 52.7% from 55.9% a year ago.(1)
Insurance
Operating highlights for Insurance for the quarter ended
September 30, 2014 include:
- Gross written premiums of $395.6
million, an increase of 9.3% from $362.1 million in the third
quarter of 2013
- Combined ratio of 96.7% in line with
the third quarter of 2013
- Prior year favorable reserve
development of $6.6 million, or 2.0 combined ratio points, compared
with prior year favorable reserve development of $1.3 million, or
0.5 combined ratio point, for the third quarter of 2013
The increase in gross written premiums was attributable to
Property and Casualty and Financial and Professional Lines,
primarily resulting from the continued growth from the U.S. teams.
The U.S. Insurance teams were again profitable in the quarter and
through the first nine months of 2014 have achieved a loss ratio of
59.4%.
The combined ratio of 96.7% for the third quarter of 2014
included $6.6 million, or 2.0 percentage points, of pre-tax
catastrophe losses related to U.S. storms. The combined ratio for
the third quarter of 2013 included $2.9 million, or 1.0 percentage
point, of pre-tax catastrophe losses related to U.S. storms. There
was a higher frequency of non-correlated mid-sized losses of $14.3
million principally in the Marine, Energy and Aviation lines which
accounted for 4.3 percentage points on the loss ratio.
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 3.51 years at September 30, 2014 excluding the impact
of interest rate swaps, or 3.26 years including the impact of
interest rate swaps. The total return on Aspen’s investment
portfolio was relatively flat for the third quarter of 2014, and
was 2.19% for the nine months ended September 30, 2014. The equity
portfolio which comprises 7.6% of the total portfolio, had a total
return of negative 2.25% for the quarter and a total return of
positive 5.36% for the nine months ended September 30, 2014.
Net investment income for the third quarter of 2014 was $48.0
million compared with $45.0 million for the third quarter of 2013.
Book yield as at September 30, 2014 on the fixed income portfolio
was 2.65% compared with 2.74% at December 31, 2013 and 2.82% at
September 30, 2013.
Capital
Total shareholders’ equity was $3.4 billion at September 30,
2014.
During the third quarter of 2014, 2,120,625 ordinary shares were
repurchased under a Rule 10b5-1 plan at an average price of $42.46
per share for a total cost of $90.0 million. For the nine months
ended September 30, 2014, a total of 2,891,130 ordinary shares were
repurchased at an average price of $41.82 per ordinary share for a
total cost of $120.9 million. Between September 30, 2014 and
October 28, 2014, a further 1,249,326 ordinary shares were
repurchased under a Rule 10b5-1 plan at an average price of $42.78
per ordinary share for a total cost of $53.4 million.
Outlook
Aspen now expects to achieve an operating return on equity
comfortably in excess of 10% in 2014, assuming normal loss
experience.
Aspen expects to achieve an operating return on equity of 11% in
2015, and to achieve an operating return on equity of between 11%
and 12% in 2016(3).
See “Forward-looking Statements Safe Harbor” below.
Earnings conference call and webcast
Aspen will host a conference call to discuss the results at 9:00
am (EDT) on Thursday, October 30, 2014.
To participate in the October 30 conference call by
phone
Please call to register at least 10 minutes before the
conference call begins by dialing:
+1 (888) 868 3191 (US toll free) or+1 (973) 321 1024
(international)Conference ID 1931681
To listen live online
Aspen will provide a live webcast on Aspen’s website at
www.aspen.co.
To download the materials
The earnings press release and a detailed financial supplement
will also be published on Aspen’s website at www.aspen.co.
To listen later
A replay of the call will be available for 14 days via phone and
internet, available two hours after the end of the live call. To
listen to the replay by phone please dial:
+1 (855) 859 2056 (US toll free) or+1 (404) 537 3406
(international)Replay ID 1931681
The recording will be also available at www.aspen.co on the Event
Calendar page within the Investor Relations section.
Aspen Insurance Holdings LimitedSummary consolidated
balance sheet (unaudited)$ in millions, except per share
data
As atSeptember 30, 2014 As
atDecember 31, 2013 ASSETS Total
investments
$ 7,274.0 $ 6,959.8 Cash and cash
equivalents
1,289.1 1,293.6 Reinsurance recoverables
614.5 484.6 Premiums receivable
1,105.3 999.0 Other
assets
546.7 493.5 Total assets
$
10,829.6 $ 10,230.5 LIABILITIES Losses and
loss adjustment expenses
$ 4,787.3 $ 4,678.9 Unearned
premiums
1,508.7 1,280.6 Other payables
475.5 372.4
Silverton loan notes
64.5 50.0 Long-term debt
549.1
549.0 Total liabilities
$ 7,385.1 $ 6,930.9
SHAREHOLDERS’ EQUITY Total shareholders’ equity
3,444.5 3,299.6 Total liabilities and shareholders’
equity
$ 10,829.6 $ 10,230.5 Book value
per share
$ 45.60 $ 41.87 Diluted book value per
share (treasury stock method)
$ 44.60 $ 40.90
Aspen Insurance Holdings LimitedSummary consolidated
statement of income (unaudited)$ in millions, except ratios
Three Months Ended September 30, 2014
September 30, 2013 UNDERWRITING REVENUES Gross
written premiums
$ 652.5 $ 581.6 Premiums ceded
(75.2 ) (39.6 ) Net written premiums
577.3
542.0 Change in unearned premiums
33.1 2.3 Net
earned premiums
610.4 544.3 UNDERWRITING
EXPENSES Losses and loss adjustment expenses
342.7 290.2
Amortization of deferred policy acquisition costs
115.5
110.5 General, administrative and corporate expenses (excluding
non-recurring corporate expenses)
99.6 98.9
Total underwriting expenses
557.8 499.6
Underwriting income including corporate expenses
52.6
44.7 OTHER OPERATING REVENUE Net investment income
48.0 45.0 Interest expense
(7.4 ) (7.7 ) Other
(expense) income
(7.8 ) 1.6 Total other
operating revenue
32.8 38.9
OPERATING INCOME BEFORE TAX
85.4 83.6
Non-recurring corporate expenses (bid defense costs)
(20.2 ) — Net realized and unrealized exchange
(losses) gains
(26.5 ) 13.3 Net realized and
unrealized investment gains
— 13.4 INCOME
BEFORE TAX
38.7 110.3 Income tax expense
(1.3
) (2.9 ) NET INCOME AFTER TAX
37.4 107.4 Dividends
paid on ordinary shares
(13.1 ) (12.2 ) Dividends
paid on preference shares
(9.5 ) (9.5 ) Proportion
due to non-controlling interest
0.1 0.3
Retained income
$ 14.9 $ 86.0
Components of net income (after tax) Operating income
$ 81.7 $ 82.0 Non-recurring corporate expenses
(20.2 ) — Net realized and unrealized exchange
(losses) gains after tax
(24.1 ) 12.0 Net realized
investment gains after tax
— 13.4 NET INCOME
AFTER TAX
$ 37.4 $ 107.4 Loss
ratio
56.1 % 53.3 % Policy acquisition expense ratio
18.9 % 20.3 % General, administrative and corporate
expense ratio
19.6 % 18.2 % General, administrative
and corporate expense ratio (excluding non-recurring corporate
expenses)
16.3 % 18.2 % Expense ratio
38.5
% 38.5 % Expense ratio (excluding non-recurring corporate
expenses)
35.2 % 38.5 % Combined ratio
94.6
% 91.8 % Combined ratio (excluding non-recurring corporate
expenses)
91.3 % 91.8 %
Aspen Insurance Holdings LimitedSummary consolidated
statement of income (unaudited)$ in millions, except ratio
Nine Months Ended September 30, 2014
September 30, 2013 UNDERWRITING REVENUES Gross
written premiums
$ 2,287.3 $ 2,042.3 Premiums ceded
(326.1 ) (290.6 ) Net written premiums
1,961.2
1,751.7 Change in unearned premiums
(168.1 ) (152.5 )
Net earned premiums
1,793.1 1,599.2
UNDERWRITING EXPENSES Losses and loss adjustment expenses
967.9 892.3 Amortization of deferred policy acquisition
costs
336.4 322.3 General, administrative and corporate
expenses (excluding non-recurring corporate expenses)
295.7
273.2 Total underwriting expenses
1,600.0
1,487.8 Underwriting income including corporate
expenses
193.1 111.4 OTHER OPERATING REVENUE
Net investment income
143.6 139.2 Interest expense
(22.1 ) (23.2 ) Other (expense) / income
(5.9
) 3.0 Total other operating revenue
115.6
119.0 OPERATING INCOME
BEFORE TAX
308.7 230.4 Non-recurring
corporate expenses (bid defense costs)
(28.5 ) — Net
realized and unrealized exchange (losses)
(13.8 )
(10.7 ) Net realized and unrealized investment gains
33.5
29.4 INCOME BEFORE TAX
299.9 249.1 Income tax
expense
(11.3 ) (9.8 ) NET INCOME AFTER TAX
288.6 239.3 Dividends paid on ordinary shares
(37.9
) (36.0 ) Dividends paid on preference shares
(28.4
) (26.1 ) Change in redemption value
— (7.1 )
Proportion due to non-controlling interest
— 0.3
Retained income
$ 222.3 $ 170.4
Components of net income (after tax) Operating income
$ 297.2 $ 219.9 Non-recurring corporate expenses
(28.5 ) — Net realized and unrealized exchange
(losses) after tax
(13.3 ) (9.5 ) Net realized
investment gains after tax
33.2 28.9 NET
INCOME AFTER TAX
$ 288.6 $ 239.3
Loss ratio
54.0 % 55.8 % Policy acquisition expense
ratio
18.8 % 20.2 % General, administrative and
corporate expense ratio
18.1 % 17.1 % General,
administrative and corporate expense ratio (excluding non-recurring
corporate expenses)
16.5 % 17.1 % Expense ratio
36.9 % 37.3 % Expense ratio (excluding non-recurring
corporate expenses)
35.3 % 37.3 % Combined ratio
90.9 % 93.1 % Combined ratio (excluding non-recurring
corporate expenses)
89.3 % 93.1 %
Aspen Insurance Holdings LimitedSummary consolidated
financial data (unaudited)$ in millions, except number of
shares
Three Months Ended Nine Months Ended
September 30,
2014
September 30,
2013
September 30,
2014
September 30,
2013
Basic earnings per ordinary share Net income adjusted for
preference share dividend
$ 0.43 $ 1.47
$
3.99 $ 3.07 Operating income adjusted for preference share
dividend
$ 1.11 $ 1.09
$ 4.12 $ 2.89
Diluted earnings per ordinary share Net income adjusted for
preference share dividend
$ 0.42 $ 1.43
$
3.91 $ 2.95 Operating income adjusted for preference share
dividend
$ 1.08 $ 1.05
$ 4.04 $ 2.78
Weighted average number of ordinary shares outstanding (in
millions)
65.116 66.716
65.284 67.303 Weighted
average number of ordinary shares outstanding and dilutive
potential ordinary shares (in millions)
66.513 68.562
66.599 69.959 Book value per ordinary share
$
45.60 $ 41.33
$ 45.60 $ 41.33 Diluted book
value per ordinary share (treasury stock method)
$
44.60 $ 40.43
$ 44.60 $ 40.43 Ordinary
shares outstanding at end of the period (in millions)
63.350
65.701
63.350 65.701 Ordinary shares outstanding and
dilutive potential ordinary shares at end of the period (treasury
stock method) (in millions)
64.783 67.171
64.783
67.171
Aspen Insurance Holdings LimitedSummary consolidated
segment information (unaudited)$ in millions, except ratios
Three Months Ended September 30, 2014 Three
Months Ended September 30, 2013 Reinsurance
Insurance Total Reinsurance
Insurance Total Gross written premiums
$ 256.9 $ 395.6 $ 652.5 $
219.5 $ 362.1 $ 581.6 Net written premiums
250.9
326.4 577.3 218.4 323.6 542.0 Gross earned premiums
291.0 403.9 694.9 268.6 356.5 625.1 Net earned
premiums
279.6 330.8 610.4 255.7 288.6 544.3
Losses and loss adjustment expenses
132.0 210.7
342.7 122.2 168.0 290.2 Policy acquisition expenses
52.1 63.4 115.5 49.1 61.4 110.5 General and
administrative expenses
38.4 45.6
84.0 34.6 49.5 84.1 Underwriting
income
$ 57.1 $ 11.1
$ 68.2 $ 49.8 $ 9.7 $ 59.5 Net
investment income
48.0 45.0 Net realized and unrealized
investment gains (1) — 13.4 Corporate expenses
(15.6
) (14.8 ) Non-recurring corporate expenses
(20.2
) — Other (expense) / income
9exp
9expenseincome
(7.8 ) 1.6 Interest expenses
(7.4 )
(7.7 ) Net realized and unrealized foreign exchange (losses) gains
(2)
(26.5 ) 13.3 Income before tax
$
38.7 $ 110.3 Income tax expense
(1.3 ) (2.9 )
Net income $ 37.4 $ 107.4
Ratios Loss ratio
47.2 % 63.7 %
56.1 % 47.8 % 58.2 % 53.3 % Policy acquisition
expense ratio
18.6 % 19.2 % 18.9
% 19.2 % 21.3 % 20.3 % General and administrative expense
ratio (3)
13.7 % 13.8 % 19.6
% 13.5 % 17.2 % 18.2 % General and administrative expense
ratio (excluding non-recurring corporate expenses) (3)
13.7
% 13.8 % 16.3 % 13.5 % 17.2 %
18.2 % Expense ratio
32.3 % 33.0 %
38.5 % 32.7 % 38.5 % 38.5 % Expense ratio (excluding
non-recurring corporate expenses)
32.3 % 33.0
% 35.2 % 32.7 % 38.5 % 38.5 % Combined ratio
79.5 % 96.7 % 94.6 % 80.5
% 96.7 % 91.8 % Combined ratio (excluding non-recurring corporate
expenses)
79.5 % 96.7 % 91.3
% 80.5 % 96.7 % 91.8 %
(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 LimitedSummary consolidated
segment information (unaudited)$ in millions, except ratios
Nine Months Ended September 30, 2014 Nine Months
Ended September 30, 2013 Reinsurance
Insurance Total Reinsurance
Insurance Total Gross written premiums
$ 1,027.5 $ 1,259.8 $
2,287.3 $ 957.7 $ 1,084.6 $ 2,042.3 Net written premiums
980.4 980.8 1,961.2 907.5 844.2 1,751.7 Gross
earned premiums
859.2 1,182.0 2,041.2 828.9
1,000.7 1,829.6 Net earned premiums
825.1 968.0
1,793.1 788.2 811.0 1,599.2 Losses and loss adjustment
expenses
367.4 600.5 967.9 394.9 497.4 892.3
Policy acquisition expenses
152.3 184.1 336.4
161.0 161.3 322.3 General and administrative expenses
107.0
142.6 249.6 97.2 134.0
231.2 Underwriting income
$ 198.4
$ 40.8 $ 239.2 $ 135.1
$ 18.3 $ 153.4 Net investment income
143.6 139.2 Net realized and unrealized investment gains (1)
33.5 29.4 Corporate expenses
(46.1 ) (42.0 )
Non-recurring corporate expenses
(28.5 ) — Other
(expense) income
(5.9 ) 3.0 Interest expenses
(22.1 ) (23.2 ) Net realized and unrealized foreign
exchange gains (losses) (2)
(13.8 ) (10.7 ) Income
before tax
$ 299.9 $ 249.1 Income tax expense
(11.3 ) (9.8 )
Net income $
288.6 $ 239.3
Ratios Loss ratio
44.5 % 62.0 % 54.0 % 50.1
% 61.3 % 55.8 % Policy acquisition expense ratio
18.5
% 19.0 % 18.8 % 20.4 % 19.9 %
20.2 % General and administrative expense ratio (3)
13.0
% 14.7 % 18.1 % 12.3 % 16.5 %
17.1 % General and administrative expense ratio (excluding
non-recurring corporate expenses) (3)
13.0 %
14.7 % 16.5 % 12.3 % 16.5 % 17.1 %
Expense ratio
31.5 % 33.7 % 36.9
% 32.7 % 36.4 % 37.3 % Expense ratio (excluding
non-recurring corporate expenses)
31.5 % 33.7
% 35.3 % 32.7 % 36.4 % 37.3 % Combined ratio
76.0 % 95.7 % 90.9 % 82.8
% 97.7 % 93.1 % Combined ratio (excluding non-recurring corporate
expenses)
76.0 % 95.7 % 89.3
% 82.8 % 97.7 % 93.1 %
(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
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.
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 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 and deterioration with loss estimates; 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 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. 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
$20.2 million and $28.5 million for the three and nine months ended
September 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.
Aspen has defined catastrophe losses in the third quarter of 2014
as losses predominantly associated with North American and European
storms. Aspen has defined losses in the comparative period in 2013
as losses primarily associated with hailstorms in Germany, floods
in Toronto and Mexico and changes in loss estimates for natural
catastrophe losses which occurred in the first half of 2013.
Accident Year Loss Ratio Excluding Catastrophes is a
non-GAAP financial measure. Aspen believes that the presentation of
loss ratio excluding catastrophes and prior year reserve movements
supports meaningful comparison from period to period of the
underlying performance of the business. Accident year loss ratio
excluding catastrophes is calculated by dividing net losses
excluding catastrophe losses, net expenses and prior year reserve
movements by net earned premiums excluding catastrophe related
reinstatement premiums. Aspen has defined catastrophe losses in the
third quarter of 2014 as losses predominantly associated with North
American and European storms. Aspen has defined losses in the
comparative period in 2013 as losses primarily associated with
hailstorms in Germany, floods in Toronto and Mexico and changes in
loss estimates for natural catastrophe losses which occurred in the
first half of 2013. The third quarter of 2014 accident year loss
ratio excluding catastrophes for the Reinsurance Segment of 52.7%
is calculated as follows: the loss ratio 47.2% plus 9.3 percentage
points of prior year loss reserve development less 3.8 percentage
points of pre-tax catastrophe losses.
(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) The outlook for 2015 and 2016 assumes normal loss
experience and the current insurance rate environment. 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, +1 646-502-1076Senior Vice
President, Investor Relations, AspenKerry.Calaiaro@aspen.coorKathleen de Guzman, +1
646-289-4912Vice President, Investor Relations, AspenKathleen.deGuzman@aspen.coorMediaSteve
Colton, +44 20 7184 8337Head of Communications, AspenSteve.Colton@aspen.coorInternational - 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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