Aspen Insurance Holdings Limited (“Aspen”) (NYSE: AHL) reported
today operating income of $101.8 million, and a net loss of $(37.3)
million, for the six months ended June 30, 2019.
Mark Cloutier, Chief Executive Officer, commented: “We continue
to see improvement in our underwriting performance as a result of
our focus on underwriting discipline and active management of the
underwriting portfolio, which have been underpinned by improving
market conditions. We have seen good results across both our
insurance and reinsurance businesses and we are particularly
encouraged by the strong improvement in the ex-cat accident year
loss ratio from our continuing insurance lines at 55.4% compared to
64.5% from our total insurance book during the six months ended
June 30, 2018.
“While we are seeing rate and terms improving in some classes,
particularly where there has been substantial withdrawal of
capacity, we will continue to approach a number of the specialty
classes cautiously as evidenced in the 5.9% reduction in gross
written premium year on year.
“In my short period of time with Aspen I have come to appreciate
the depth of talent and experience in the group and firmly believe
we can show the right combination of entrepreneurialism and
discipline the current market conditions and trends demand of us in
order to build a successful business into the future.”
Operating highlights for the six months ended June 30,
2019
- Gross written premiums decreased by 5.9% to $1,854.4
million in the first half of 2019 compared with $1,970.6 million in
the first half of 2018.
- Net written premiums increased by 7.6% to $1,206.9
million in the first half of 2019 compared with $1,121.5 million in
the first half of 2018. The retention ratio in the first half of
2019 was 65.1% compared with 56.9% in the first half of 2018.
- Loss ratio of 60.7% for the first half of 2019 compared
with 58.9% for the first half of 2018. The loss ratio for the first
half of 2019 included $29.7 million, or 2.9 percentage points, of
pre-tax catastrophe losses, net of reinsurance recoveries, compared
with $42.4 million or 4.0 percentage points in the first half of
2018.
- Net favorable development on prior year loss reserves of
$9.1 million benefited the loss ratio by 0.9 percentage points in
the first half of 2019, compared with net favorable development of
$80.2 million which benefited the loss ratio by 7.6 percentage
points in the first half of 2018.
- Accident year loss ratio excluding catastrophes of 58.7%
for the first half of 2019 compared with 62.5% for the first half
of 2018.
- Total expense ratio of 43.7% and total expense ratio
(excluding non-operating expenses) of 37.7% for the first half
of 2019 compared with 38.8% and 36.7%, respectively, for the first
half of 2018. Non-operating expenses in the first half of 2019 were
$61.9 million compared with $21.2 million in the first half of
2018. Non-operating expenses in the first half of 2019 included
$43.9 million of expenses related to or triggered by the
transaction with affiliates of certain investment funds ("the
Apollo Funds") affiliated with Apollo Global Management, LLC, $6.0
million of expenses related to the operational effectiveness and
efficiency program and $12.0 million of expenses in relation to
severance, amortization and other non-recurring costs.
- Net loss after tax of $(37.3) million for the six months
ended June 30, 2019 compared with a net income of $16.1 million,
for the six months ended June 30, 2018. The net loss includes $99.2
million of investment income, compared with $97.7 million for the
first half of 2018, which was offset by the above-mentioned
underwriting and expense movements, as well as $(58.2) million of
net realized and unrealized investment losses largely attributable
to net realized and unrealized gains and losses from interest rate
swaps entered into in 2019, compared with net realized and
unrealized investment losses of $(58.4) million in the first half
of 2018. The net loss in the first half of 2019 also included
$(27.0) million of net realized and unrealized foreign exchange
losses compared with $(22.1) million of net realized and unrealized
foreign exchange losses in the first half of 2018.
- Operating income after tax of $101.8 million for the six
months ended June 30, 2019 compared with an operating income of
$119.3 million for the six months ended June 30, 2018.
- Annualized net income return on average equity of (4.6)%
and annualized operating return on average equity of 8.0%
for the first half of 2019 compared with 0.1% and 8.8%,
respectively, for the first half of 2018.
Segment highlights for the six months ended June 30,
2019
- Insurance
- Gross written premiums of $972.6 million, a decrease of 4.7% in
the first half of 2019 compared with $1,021.1 million in the first
half of 2018 primarily due to reductions in property and casualty
insurance lines and marine, aviation and energy insurance lines,
partially offset by growth in financial and professional insurance
lines.
- Net written premiums of $522.3 million, an increase of 21.6%
compared with $429.6 million in the first half of 2018. Net written
premiums in the first half of 2019 were higher than 2018 primarily
due to the changes to the ceded reinsurance program, which have
resulted in a reduction in the proportion of business ceded on our
financial and professional insurance lines.
- Loss ratio of 62.5% compared with 59.5% in the first half of
2018. The loss ratio included pre-tax catastrophe losses of $9.7
million, or 2.0 percentage points, net of reinsurance recoveries,
in the first half of 2019 as a result of weather-related events. In
the first half of 2018 pre-tax catastrophe losses totaled $17.5
million or 3.6 percentage points, net of reinsurance recoveries and
reinstatement premiums, as a result of U.S. weather related
events.
- Prior year net unfavorable reserve development of $9.9 million
increased the loss ratio by 2.0 percentage points in the first half
of 2019. Prior year net favorable development of $41.3 million
benefited the loss ratio by 8.6 percentage points in the first half
of 2018.
- Accident year loss ratio excluding catastrophes was 58.5% in
the first half of 2019 compared with 64.5% in the first half of
2018, reflecting actions taken to enhance underwriting performance
throughout the insurance segment.
- The accident year loss ratio excluding catastrophes from
continuing lines in insurance was 55.4%.
- Reinsurance
- Gross written premiums of $881.8 million, a decrease of 7.1% in
the first half of 2019 compared with $949.5 million in the first
half of 2018 primarily due to reductions in property catastrophe
reinsurance, specialty reinsurance and casualty reinsurance.
- Net written premiums of $684.6 million, a decrease of 1.1%
compared with $691.9 million in the first half of 2018.
- Loss ratio of 59.2% compared with 58.4% in the first half of
2018. The loss ratio included pre-tax catastrophe losses of $20.0
million or 3.6 percentage points, net of reinsurance recoveries in
the first half of 2019 as a result of weather-related events. In
the first half of 2018 pre-tax catastrophe losses totaled $24.9
million or 4.4 percentage points, net of reinsurance recoveries,
including $3.9 million from Storm Friederike, and $21.0 million
from U.S. weather-related events.
- Prior year net favorable reserve development of $19.0 million
benefited the loss ratio by 3.4 percentage points in the first half
of 2019. Prior year net favorable development of $38.9 million
benefited the loss ratio by 6.8 percentage points in the first half
of 2018.
- Accident year loss ratio excluding catastrophes was 59.0% in
the first half of 2019 compared with 60.8% in the first half of
2018, reflecting improvement in the Casualty Reinsurance and Other
Property Reinsurance lines of business.
- Excluding the impact from our U.S. Agricultural business, the
accident year loss ratio excluding catastrophes was 53.6%.
Investment performance
- Investment income of $99.2 million for the six months ended
June 30, 2019 compared with $97.7 million for the six months ended
June 30, 2018.
- Net realized and unrealized investment losses reported in the
statement of income of $(58.2) million for the six months ended
June 30, 2019 consisted of a loss of $(120.5) million associated
with the interest rate-swaps offsetting investment gains of $62.3
million primarily from the fixed income portfolio. In addition
$146.8 million of unrealized investment gains were recognised
through other comprehensive income in the six months ended June 30,
2019.
- The total return on Aspen’s aggregate investment portfolio was
2.5% for the six months ended June 30, 2019 and reflects net
investment income, net realized and unrealized gains and losses
mainly in the fixed income portfolio and losses associated with
interest rate-swaps.
- Aspen’s investment portfolio as at June 30, 2019 consisted
primarily of high quality fixed income securities with an average
credit quality of “AA-”. The average duration of the fixed income
portfolio was 1.37 years including the impact of interest rate
swaps as at June 30, 2019.
- Book yield on the fixed income portfolio as at June 30, 2019
was 2.79% compared with 2.69% as at December 31, 2018.
Capital and Debt
- Total shareholders’ equity was $2,729.1 million as at June 30,
2019, an increase of $73.1 million compared with $2,656.0 million
as at December 31, 2018.
- On August 13, 2019, Aspen issued 10,000,000 Depositary Shares,
each of which represents 1/1000th interest in a share of Aspen's
newly designated 5.625% Perpetual Non-Cumulative Preference Shares
(the “Preference Shares”). The Preference Shares have a liquidation
preference of $25,000 per Preference Share, equivalent to $25 per
Depositary Share (or $250 million in aggregate liquidation
preference). Aspen intends to use the net proceeds from the
offering to redeem all of Aspen's outstanding 6.00% Senior notes
due 2020 and for general corporate purposes.
Earnings materials
The earnings press release and a detailed financial supplement
will be published on Aspen’s website at www.aspen.co.
Aspen Insurance Holdings
Limited
Summary consolidated balance sheet
(unaudited)
$ in millions, except per share data
As at
June 30,
2019
As at
December 31,
2018
ASSETS
Total investments
$
6,584.0
$
6,739.4
Cash and cash equivalents
1,195.4
1,083.7
Reinsurance recoverables
2,885.8
2,636.4
Premiums receivable
1,516.2
1,459.3
Other assets
783.8
614.1
Total assets
$
12,965.2
$
12,532.9
LIABILITIES
Losses and loss adjustment expenses
$
6,782.7
$
7,074.2
Unearned premiums
1,947.3
1,709.1
Other payables
1,081.3
668.9
Long-term debt
424.8
424.7
Total liabilities
$
10,236.1
$
9,876.9
SHAREHOLDERS’ EQUITY
Total shareholders’ equity
2,729.1
2,656.0
Total liabilities and shareholders’
equity
$
12,965.2
$
12,532.9
Aspen Insurance Holdings
Limited
Summary consolidated statement of
income (unaudited)
$ in millions, except ratios
Six Months Ended
June 30, 2019
June 30, 2018
UNDERWRITING REVENUES
Gross written premiums
$
1,854.4
$
1,970.6
Premiums ceded
(647.5
)
(849.1
)
Net written premiums
1,206.9
1,121.5
Change in unearned premiums
(166.7
)
(68.5
)
Net earned premiums
1,040.2
1,053.0
UNDERWRITING EXPENSES
Losses and loss adjustment expenses
631.9
620.6
Amortization of deferred policy
acquisition costs
190.0
176.7
General, administrative and corporate
expenses
202.1
210.0
Total underwriting expenses
1,024.0
1,007.3
Underwriting income including corporate
expenses
16.2
45.7
Net investment income
99.2
97.7
Interest expense
(11.0
)
(15.0
)
Other (expense) income
(1.4
)
0.1
Total other revenue
86.8
82.8
Non-operating expenses (1)
(61.9
)
(21.2
)
Net realized and unrealized exchange
(losses) (2)
(27.0
)
(22.1
)
Net realized and unrealized investment
(losses) (3)
(58.2
)
(58.4
)
Realized (loss) on debt extinguishment
—
(8.6
)
(LOSS) INCOME BEFORE TAX
(44.1
)
18.2
Income tax benefit (expense)
6.8
(2.1
)
NET (LOSS) INCOME AFTER TAX
(37.3
)
16.1
Dividends paid on ordinary shares
—
(28.6
)
Dividends paid on preference shares
(15.2
)
(15.2
)
Proportion due to non-controlling
interest
1.2
(0.3
)
Retained (loss)
$
(51.3
)
$
(28.0
)
Loss ratio
60.7
%
58.9
%
Policy acquisition expense ratio
18.3
%
16.8
%
General, administrative and corporate
expense ratio
25.4
%
22.0
%
General, administrative and corporate
expense ratio (excluding non-operating expenses)
19.4
%
19.9
%
Expense ratio
43.7
%
38.8
%
Expense ratio (excluding non-operating
expenses)
37.7
%
36.7
%
Combined ratio
104.4
%
97.7
%
Combined ratio (excluding non-operating
expenses)
98.4
%
95.6
%
(1) Non-operating expenses includes $43.9
million of costs related to the transaction with the Apollo Funds,
$6.0 million of expenses related to the Operational Effectiveness
and Efficiency Program and $12.0 million of expenses in relation to
severance, amortization and other non-recurring costs.
(2) Includes the net realized and
unrealized gains/(losses) from foreign exchange contracts.
(3) Includes the net realized and
unrealized gains/(losses) from interest rate swaps.
Aspen Insurance Holdings
Limited
Summary consolidated segment
information (unaudited)
$ in millions, except ratios
Six Months Ended June 30,
2019
Reinsurance
Insurance
Total
Gross written premiums
$
881.8
$
972.6
$
1,854.4
Net written premiums
684.6
522.3
1,206.9
Gross earned premiums
670.9
956.9
1,627.8
Net earned premiums
552.8
487.4
1,040.2
Losses and loss adjustment expenses
327.5
304.4
631.9
Amortization of deferred policy
acquisition expenses
126.4
63.6
190.0
General and administrative expenses
59.9
116.3
176.2
Underwriting income
$
39.0
$
3.1
$
42.1
Net investment income
99.2
Net realized and unrealized investment
(losses) (1)
(58.2
)
Corporate expenses
(25.9
)
Non-operating expenses (2)
(61.9
)
Other expense
(1.4
)
Interest expense
(11.0
)
Net realized and unrealized foreign
exchange (losses) (3)
(27.0
)
(Loss) before tax
$
(44.1
)
Income tax benefit
6.8
Net (loss)
$
(37.3
)
Ratios
Loss ratio
59.2
%
62.5
%
60.7
%
Policy acquisition expense ratio
22.9
%
13.0
%
18.3
%
General and administrative expense ratio
(4)
10.8
%
23.9
%
25.4
%
General and administrative expense ratio
(excluding non-operating expenses) (5)
10.8
%
23.9
%
19.4
%
Expense ratio
33.7
%
36.9
%
43.7
%
Expense ratio (excluding non-operating
expenses)
33.7
%
36.9
%
37.7
%
Combined ratio
92.9
%
99.4
%
104.4
%
Combined ratio (excluding non-operating
expenses)
92.9
%
99.4
%
98.4
%
Accident Year Ex-cat Loss Ratio
Loss ratio
59.2
%
62.5
%
60.7
%
Prior year loss development
3.4
%
(2.0
)%
0.9
%
Catastrophe losses
(3.6
)%
(2.0
)%
(2.9
)%
Accident year ex-cat loss ratio
59.0
%
58.5
%
58.7
%
(1) Includes the net realized and
unrealized gains/(losses) from interest rate swaps.
(2) Non-operating expenses includes $43.9
million of costs related to the transaction with the Apollo Funds,
$6.0 million of expenses related to the Operational Effectiveness
and Efficiency Program and $12.0 million of expenses in relation to
severance, amortization and other non-recurring costs.
(3) Includes the net realized and
unrealized gains/(losses) from foreign exchange contracts.
(4) The total group general and
administrative expense ratio includes the impact from corporate
expenses and non-operating expenses.
(5) The total group general and
administrative expense ratio includes the impact from corporate
expenses.
Aspen Insurance Holdings Limited
Non-GAAP supplementary summary consolidated segment information
(unaudited) $ in millions, except ratios
The following table presents supplementary
financial performance information regarding our two reporting
segments, Reinsurance and Insurance, and is included to show
further details of the segmental information found on the previous
page.
Six Months Ended June 30,
2019
Reinsurance
Insurance
Reinsurance
U.S.
Agricultural
Reinsurance
Total
Insurance
Legacy (1)
Insurance Total
Gross written premiums
$
748.7
$
133.1
$
881.8
$
936.9
$
35.7
$
972.6
Net written premiums
562.8
121.8
684.6
507.7
14.6
522.3
Gross earned premiums
589.3
81.6
670.9
881.8
75.1
956.9
Net earned premiums
475.2
77.6
552.8
447.1
40.3
487.4
Losses and loss adjustment expenses
254.0
73.5
327.5
270.0
34.4
304.4
Amortization of deferred policy
acquisition expenses
118.0
8.4
126.4
58.6
5.0
63.6
General and administrative expenses
59.9
—
59.9
105.9
10.4
116.3
Underwriting income (loss)
$
43.3
$
(4.3
)
$
39.0
$
12.6
$
(9.5
)
$
3.1
Ratios
Loss ratio
53.5
%
94.7
%
59.2
%
60.4
%
85.4
%
62.5
%
Policy acquisition expense ratio
24.8
%
10.8
%
22.9
%
13.1
%
12.4
%
13.0
%
General and administrative expense
ratio
12.6
%
0.0
%
10.8
%
23.7
%
25.8
%
23.9
%
Expense ratio
37.4
%
10.8
%
33.7
%
36.8
%
38.2
%
36.9
%
Combined ratio
90.9
%
105.5
%
92.9
%
97.2
%
123.6
%
99.4
%
Accident Year Ex-cat Loss Ratio
Loss ratio
53.5
%
94.7
%
59.2
%
60.4
%
85.4
%
62.5
%
Prior year loss development
4.3
%
(1.5
)%
3.4
%
(2.8
)%
6.9
%
(2.0
)%
Catastrophe losses
(4.2
)%
—
%
(3.6
)%
(2.2
)%
—
%
(2.0
)%
Accident year ex-cat loss ratio
53.6
%
93.2
%
59.0
%
55.4
%
92.3
%
58.5
%
________________
(1)
Legacy includes business we have recently
ceased to underwrite, such as aviation insurance, Lloyd's marine
hull insurance and U.K. regional insurance, and other historical
legacy lines, which are in run-off, such as international cargo
insurance, international professional liability insurance,
international property insurance previously written via a joint
underwriting initiative, and employers and public liability lines
previously written via a specific delegated underwriting
authority
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 Australia, Bermuda, Canada, Ireland,
Singapore, Switzerland, the United Arab Emirates, the United
Kingdom and the United States. For the year ended December 31,
2018, Aspen reported gross written premiums. Aspen's operating
subsidiaries have been assigned a rating of “A” by Standard &
Poor’s Financial Services LLC (“S&P”), an “A” (“Excellent”) by
A.M. Best Company Inc. (“A.M. Best”) and an “A2” by Moody’s
Investors Service, Inc. (“Moody’s”).
As of June 28, 2019, the last business day of our second fiscal
quarter for the fiscal year ending December 31, 2019, we determined
that Aspen is a “foreign private issuer” within the meaning of Rule
405 under the Securities Act and Rule 3b-4 under the Exchange Act.
As a foreign private issuer, we are no longer subject to the U.S.
Securities and Exchange Commission (the “SEC”) registration and
reporting requirements for a U.S. domestic public company but we
are subject to the SEC registration and reporting requirements for
a foreign private issuer, which are different in certain material
respects. In particular, we are no longer required to file
quarterly reports on Form 10-Q with the SEC and we currently intend
to disclose interim results on a semi-annual basis.
For more information about Aspen, please visit www.aspen.co.
(1) Cautionary Statement Regarding Forward-Looking
Statements
This press release may contain written “forward-looking
statements” within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended, that 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. In particular,
statements using the words such as “expect,” “intend,” “plan,”
“believe,” “aim,” “project,” “anticipate,” “seek,” “will,”
“likely,” “assume,” “estimate,” “may,” “continue,” “guidance,”
“objective,” “outlook,” “trends,” “future,” “could,” “would,”
“should,” “target,” “predict,” “potential,” “on track” or their
negatives or variations and similar terminology and words of
similar import generally involve forward-looking statements.
All forward-looking statements rely on a number of assumptions,
estimates and data concerning future results and events and that
are subject to a number of uncertainties, assumptions and other
factors, many of which are outside Aspen’s control that could cause
actual results to differ materially from such forward-looking
statements. Aspen believes these factors include, but are not
limited to: operating costs, customer loss and business disruption
(including, without limitation, difficulties in maintaining
relationships with employees, customers, reinsurers or suppliers)
may be greater than expected following the transaction; the amount
of the costs, fees, expenses and other charges related to the
transaction may be greater than expected; Aspen's controlling
shareholder owns all of its ordinary shares and has the power to
determine the affairs of Aspen; the actual development of losses
and expenses impacting estimates for Typhoon Jebi, Hurricane
Florence and the California wildfires that occurred in the third
quarter of 2018 and subsequently Hurricane Michael in the fourth
quarter of 2018, the California wildfires that occurred in the
fourth quarter of 2017 and Hurricanes Harvey, Irma and Maria and
the earthquakes in Mexico that occurred in the third quarter of
2017; the impact of complex and unique causation and coverage
issues associated with the attribution of losses to wind or flood
damage or other perils such as fire or business interruption
relating to such events; potential uncertainties relating to
reinsurance recoveries, reinstatement premiums and other factors
inherent in loss estimation; our ability to successfully develop
and execute our comprehensive program to enhance the operating
effectiveness and efficiency across our organization and to enhance
our market position; 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, including our assumptions on inflation costs
associated with long-tail casualty business which could differ
materially from actual experience; the United Kingdom’s decision to
withdraw from the European Union; a decline in our operating
subsidiaries’ ratings with S&P, A.M. Best or Moody’s; 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;
cyclical changes in the insurance and reinsurance industry; the
models we use to assess our exposure to losses from future
catastrophes contain inherent uncertainties and our actual losses
may differ significantly from expectations; our capital models may
provide materially different indications than actual results;
increased competition from existing (re)insurers 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; our ability to execute our
business plan to enter new markets, introduce new products and
teams and develop new distribution channels, including their
integration into our existing operations; our acquisition strategy;
changes in market conditions in the agriculture industry, which may
vary depending upon demand for agricultural products, weather,
commodity prices, natural disasters, and changes in legislation and
policies related to agricultural products and producers;
termination of, or changes in, the terms of the U.S. Federal
Multiple Peril Crop Insurance Program or the U.S. Farm Bill,
including modifications to the Standard Reinsurance Agreement put
in place by the Risk Management Agency of the U.S. Department of
Agriculture; the recent consolidation in the (re)insurance
industry; loss of one or more of our senior underwriters or key
personnel; our ability to exercise capital management initiatives,
including the availability of capital to pursue our share
repurchase program at various levels or to declare dividends, or to
arrange banking facilities as a result of prevailing market
conditions, the level of catastrophes or other losses or changes in
our financial results; changes in general economic conditions,
including inflation, deflation, foreign currency exchange rates,
interest rates and other factors that could affect our financial
results; 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; the risks associated with the
management of capital on behalf of investors; a failure in our
operational systems or infrastructure or those of third parties,
including those caused by security breaches or cyber-attacks, or
data protection failures; 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 risks related to litigation; the
effectiveness of our risk management loss limitation methods,
including our reinsurance purchasing; changes in the availability,
cost or quality of reinsurance or retrocessional coverage; changes
in the total industry losses or our share of total industry losses
resulting from events, such as catastrophes, that have occurred in
prior years or may occur 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
catastrophes or by an unexpected accumulation of attritional losses
and deterioration in 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; our reliance on information and
technology and third-party service providers for our operations and
systems; the level of inflation in repair costs due to limited
availability of labor and materials after catastrophes; the failure
of our reinsurers, policyholders, brokers or other intermediaries
to honor their payment obligations; 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; changes in the
U.S. federal income tax laws or regulations applicable to insurance
companies and the manner in which such laws and regulations are
interpreted; the impact of U.S. tax reform on Aspen’s business,
investments, results and assets, including (i) changes to the
valuation of deferred tax assets and liabilities, (ii) the impact
on intra-group reinsurance transactions, (iii) that the costs
associated with U.S. tax reform may be greater than initially
expected, and (iv) the risk that technical corrections, regulations
and supplemental legislation and future interpretations or
applications thereof or other changes may be issued in the future,
including the rules affecting the valuation of deferred tax assets;
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; increased counterparty risk due to the credit impairment
of financial institutions; and Aspen or Aspen Bermuda Limited
becoming subject to income taxes in the United States or the United
Kingdom. For a more detailed description of these uncertainties and
other factors that could impact the forward-looking statements in
this press release, please see the “Risk Factors” section in
Aspen’s Annual Report on Form 10-K for the twelve months ended
December 31, 2018, as amended by Amendment No. 1 on Form 10-K/A and
Quarterly Report on Form 10-Q for the three months ended March 31,
2019, each as filed with the SEC.
The inclusion of forward-looking statements in this press
release or any other communication should not be considered as a
representation by Aspen that current plans or expectations will be
achieved. Forward-looking statements speak only as of the date on
which they are made and Aspen undertakes no obligation to publicly
update or revise any forward-looking statement, whether as a result
of new information, future developments or otherwise, except as
required by law.
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 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 losses and the preliminary
nature of the information used to prepare estimates, there can be
no assurance that Aspen’s ultimate losses will remain within the
stated amounts.
Basis of Preparation
Aspen has prepared the financial information contained within
this semi-annual financial results press release in accordance with
the principles of U.S. Generally Accepted Accounting Principles
(“GAAP”).
Non-GAAP Financial Measures
In presenting Aspen’s results, management has included and
discussed certain “non-GAAP financial measures.” Management
believes 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.
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 gains or losses, after-tax net foreign
exchange gains or losses, including net realized and unrealized
gains and losses from foreign exchange contracts, net realized
gains or losses on investments, amortization of intangible assets
and certain non-recurring income and expenses, including expenses
associated with Aspen's operational effectiveness and efficiency
program.
Aspen excludes the items above 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.
Six Months Ended
(in US$ millions except where
stated)
June 30, 2019
June 30, 2018
(Loss)/income before tax as reported
$
(44.1
)
$
18.2
Add (deduct) non-operating expenses
Net foreign exchange losses
27.0
22.1
Net realized losses on investments
58.2
58.4
Net realized loss on debt
extinguishment
—
8.6
Non-operating expenses
61.9
21.2
Operating income before tax
103.0
128.5
Tax expense/(benefit) on operating
income
(1.2
)
(9.2
)
Operating income after tax
$
101.8
$
119.3
Accident Year Loss Ratio Excluding Catastrophes is a
non-GAAP financial measure. Aspen believes that the presentation of
loss ratios excluding catastrophes and prior year reserve movements
supports meaningful comparison from period to period of the
underlying performance of the business. Accident year loss ratios
excluding catastrophes are calculated by dividing net losses
excluding catastrophe losses and prior year reserve movements by
net earned premiums excluding catastrophe-related reinstatement
premiums. Aspen has defined catastrophe losses in the first half of
2019 as losses associated with various weather-related events.
Catastrophe losses in the first half of 2018 were defined as losses
associated predominantly with Winter Storm Friederike in Europe and
U.K. and U.S. weather-related events.
Retention ratio is a non-GAAP financial measure and is
calculated by dividing net written premiums by gross written
premiums.
Combined Ratio Excluding Non-Operating Expenses is the
sum of the loss ratio and the expenses ratio excluding
non-operating expenses. The loss ratio is calculated by dividing
losses and loss adjustment expenses by net premiums earned. The
expense ratio (excluding non-operating expenses) is calculated by
dividing the sum of amortization and deferred policy acquisition
costs and general, administrative, and corporate expenses excluding
non-operating expenses, by net premiums earned.
Combined Ratio (excluding non-operating
expenses)
Six Months Ended
(in US$ millions except where stated)
June 30, 2019
June 30, 2018
Numerator: Sum of:
Losses and loss adjustment expenses
631.9
620.6
Amortization and deferred policy
acquisition costs
190.0
176.7
General, administrative and corporate
expenses
202.1
210.0
Non-operating expenses
61.9
21.2
Numerator total
1,085.9
1,028.5
Denominator: Net earned premiums
1,040.2
1,053.0
Combined ratio
104.4
%
97.7
%
Adjustments to numerator:
Exclude non-operating expenses
(61.9
)
(21.2
)
Numerator total - excluding non-operating
expenses
1,024.0
1,007.3
Combined ratio (excluding non-operating
expenses)
98.4
%
95.6
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190815005614/en/
Grahame Dawe, Chief Accounting Officer, Aspen
Grahame.Dawe@aspen.co +44 20 7184 8760
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