Aspen Insurance Holdings Limited (“Aspen”) (NYSE: AHL) reported
today an operating loss after tax of $48.2 million and a 109.2%
combined ratio for the six months ended June 30, 2020, which
included losses associated with COVID-19 totaling $187.3 million or
15.7%. Excluding COVID-19 losses, the Company reported an operating
gain after tax of $139.1 million and a combined ratio of 93.5%. The
Company also reported a 14.2% increase in gross written premiums
for the period.
Mark Cloutier, Chief Executive Officer, commented: “The COVID-19
pandemic with its tragic human toll will have a meaningful and
lasting impact on our lives and businesses. From the very onset of
the pandemic, our team at Aspen were committed to doing our part to
help ease the burden on those most affected by the pandemic and we
will steadfastly maintain that commitment through to what will
hopefully be an end to this terrible event. I am very proud of the
commitment our people have shown to supporting those less fortunate
and or deeply impacted by the pandemic and equally proud of how our
people have responded to the sudden change in business practices,
pivoting quickly to new ways of working and demonstrating
exceptional professionalism, commitment and customer service, all
while continuing to live our shared values and principles."
"Despite the many challenges we faced in the first half of the
year, including a COVID-19 reserve of $187.3 million (15.7%
combined ratio points), we are pleased with the progress we have
made as we continue to reshape the business with a clear focus on
total value creation. Underlying key performance ratios illustrate
clearly the progress we are making with our accident year ex-cat
combined ratio and accident year ex-cat loss ratio of 90.7% and
54.7%, respectively, comparing very favourably to prior year at
102.4% and 58.7% respectively. Our efforts to simplify and gain
efficiencies in the business are also showing results with our
operating expense ratio at 15.7% versus prior year of 19.4%. We
have also seen growth in Gross Written Premium notwithstanding
having exited several non or underperforming lines of business.
This performance is a testament to Aspen's strong brand and ability
to grow in those classes of business we have focused upon as core
to our success."
"In Aspen Capital Markets, which is becoming ever more important
to both PML1 management and product offerings, we continue to build
on its contribution to our group wherein we expect both AUM2 and
fee income will grow over the prior year through a combination of
renewal and expansion of existing structures and the introduction
of some new and innovative structures."
"Market conditions are definitely improving and while some lines
of business still have some distance to achieve adequacy, we have
seen strong risk adjusted rate change across both our insurance and
reinsurance segments. Seizing upon the opportunities in this
improving rate environment while having the benefit of the Adverse
Development Cover, completed in the first half of the year,
protecting the group against potential adverse impacts from 2019
and prior underwriting years will position us well as we continue
our work to simplify the business and build for the future."
"Looking ahead, I believe that we have the right combination of
entrepreneurialism, talent and discipline to build our business and
position Aspen as a leading International Specialty (re)insurer.
Our ambition is underpinned by a determination to build a culture
that embraces and advocates for greater diversity, inclusion and
corporate responsibility and recognizes their importance as pillars
of future success."
Operating highlights for the six months ended June 30,
2020
- Gross written premiums increased by 14.2% to $2,118.6
million in the first half of 2020 compared with $1,854.4 million in
the first half of 2019.
- Net written premiums increased by 19.0% to $1,436.8
million in the first half of 2020 compared with $1,206.9 million in
the first half of 2019. The retention ratio in the first half of
2020 was 67.8% compared with 65.1% in the first half of 2019.
- Loss ratio of 74.1% for the first half of 2020 compared
with 60.7% for the first half of 2019. The loss ratio for the first
half of 2020 included $231.3 million or 19.4 percentage points, of
pre-tax catastrophe losses, net of reinsurance recoveries, compared
with $29.7 million or 2.9 percentage points in the first half of
2019.
Pre-tax catastrophe losses of $231.3 million for the first half
of 2020 included losses associated with COVID-19 totaling $187.3
million.
- Operating loss after tax of $(48.2) million for the six
months ended June 30, 2020 compared with an operating income of
$101.8 million for the six months ended June 30, 2019.
Excluding the impact of COVID-19 the operating gain after tax
was $139.1 million for the six months ended June 30, 2020.
- Net unfavorable development on prior year loss reserves
of $(0.3) million had a negligible effect on the loss ratio in the
first half of 2020, compared with net favorable development of $9.1
million which benefited the loss ratio by 0.9 percentage points in
the first half of 2019.
- Accident year loss ratio excluding catastrophes of 54.7%
for the first half of 2020 compared with 58.7% for the first half
of 2019.
- Total expense ratio of 36.0% and total expense ratio
(excluding non-operating expenses) of 35.1% for the first half
of 2020 compared with 43.7% and 37.7%, respectively, for the first
half of 2019. Non-operating expenses in the first half of 2020 were
$11.6 million compared with $61.9 million in the first half of
2019.
Non-operating expenses in the first half of 2020 totaling $11.6
million related to severance, retention awards, amortization of
intangible assets and other non-recurring costs, compared with
non-operating expenses in the first half of 2019 totaling $61.9
million which included $43.9 million of expenses related to or
triggered by the transaction with certain investment funds managed
by affiliates of Apollo Global Management, Inc, ("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 of intangible assets and
other non-recurring costs.
- Net loss after tax of $(168.7) million for the six
months ended June 30, 2020 compared with $(37.3) million, for the
six months ended June 30, 2019, after reporting an underwriting
loss of $108.9 million and an underwriting gain of $16.2 million
for 2020 and 2019 respectively. The net loss includes $84.9 million
of investment income, compared with $99.2 million for the first
half of 2019, as well as $(114.5) 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 $(58.2) million in the first half of 2019.
The net loss in the first half of 2020 also included $7.1
million of net realized and unrealized foreign exchange gains
compared with $(27.0) million of net realized and unrealized
foreign exchange losses in the first half of 2019.
Excluding the impact of COVID-19 the net income after tax was
$18.6 million for the six months ended June 30, 2020.
- Annualized net income return on average equity of
(19.8)% and annualized operating return on average equity of
(7.4)% for the first half of 2020 compared with (4.6)% and 8.0%,
respectively, for the first half of 2019.
Excluding the impact of COVID-19 the annualized net income
return on average equity is (0.4)% and the annualized operating
return on average equity is 12.0% for the first half of 2020.
Segment highlights for the six months ended June 30,
2020
- Gross written premiums of $996.3 million, an increase of 2.4%
in the first half of 2020 compared with $972.6 million in the first
half of 2019 due to growth in both financial and professional lines
insurance and property and casualty insurance lines, partially
offset by reductions in marine, aviation and energy insurance
lines.
- Net written premiums of $594.0 million, an increase of 13.7%
compared with $522.3 million in the first half of 2019.
- Loss ratio of 69.0% compared with 62.5% in the first half of
2019. The loss ratio included pre-tax catastrophe losses of $70.4
million, or 11.2 percentage points, net of reinsurance recoveries,
in the first half of 2020 which includes $56.4 million of COVID-19
losses and $14.0 million of weather-related events. In the first
half of 2019 pre-tax catastrophe losses totaled $9.7 million or 2.0
percentage points, net of reinsurance recoveries and reinstatement
premiums, as a result of weather related events.
- Prior year net favorable reserve development of $0.1 million
had a negligible effect on the loss ratio in the first half of
2020. Prior year net unfavorable development of $(9.9) million
increased the loss ratio by 2.0 percentage points in the first half
of 2019.
- Accident year loss ratio excluding catastrophes was 57.8% in
the first half of 2020 compared with 58.5% in the first half of
2019, reflecting actions taken to enhance underwriting performance
throughout the insurance segment.
- The accident year loss ratio excluding catastrophes from
continuing lines in insurance was 54.2%.
- Gross written premiums of $1,122.3 million, an increase of
27.3% in the first half of 2020 compared with $881.8 million in the
first half of 2019 primarily due to growth in specialty
reinsurance, property catastrophe reinsurance and casualty
reinsurance.
- Net written premiums of $842.8 million, an increase of 23.1%
compared with $684.6 million in the first half of 2019.
- Loss ratio of 79.7% compared with 59.2% in the first half of
2019. The loss ratio included pre-tax catastrophe losses of $160.9
million or 28.5 percentage points, net of reinsurance recoveries in
the first half of 2020, which includes $130.9 million of COVID-19
losses. In the first half of 2019 pre-tax catastrophe losses
totaled $20.0 million or 3.6 percentage points, net of reinsurance
recoveries as a result of weather-related events.
- Prior year net unfavorable reserve development of $0.4 million
increased the loss ratio by 0.1 percentage points in the first half
of 2020. Prior year net favorable development of $19.0 million
benefited the loss ratio by 3.4 percentage points in the first half
of 2019.
- Accident year loss ratio excluding catastrophes was 51.1% in
the first half of 2020 compared with 59.0% in the first half of
2019, reflecting improvement in the specialty reinsurance and other
property reinsurance lines of business.
- Excluding the impact from our U.S. Agricultural business and
legacy business, the accident year loss ratio excluding
catastrophes was 46.6%
Investment performance
- Investment income of $84.9 million for the six months ended
June 30, 2020 compared with $99.2 million for the six months ended
June 30, 2019.
- Net realized and unrealized investment losses reported in the
statement of income of $(114.5) million for the six months ended
June 30, 2020 consisted of a loss of $(80.7) million associated
with the interest rate-swaps and investment losses of $(33.8)
million primarily from the fixed income portfolio. In addition
$164.1 million of unrealized investment gains, gross of tax, were
recognized through other comprehensive income in the six months
ended June 30, 2020.
- The total return on Aspen’s aggregate investment portfolio was
1.8% for the six months ended June 30, 2020 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, 2020 consisted
primarily of high quality fixed income securities with an average
credit quality of “AA-”. The average duration of the fixed income
portfolio was 2.35 years including the impact of interest rate
swaps as at June 30, 2020.
- Book yield on the fixed income portfolio as at June 30, 2020
was 2.51% compared with 2.74% as at December 31, 2019.
Capital and Debt
- Total shareholders’ equity was $2,678.8 million as at June 30,
2020, a decrease of $(46.7) million compared with $2,725.5 million
as at December 31, 2019.
Earnings materials
The earnings press release will be published on Aspen’s website
at www.aspen.co.
Aspen Insurance Holdings Limited
Summary consolidated balance sheet (unaudited)
$ in millions
As at June 30,
2020
As at December 31,
2019
ASSETS
Total investments
6,651.4
6,771.4
Cash and cash equivalents
1,135.4
1,030.5
Reinsurance recoverables (1)
3,858.8
2,763.5
Premiums receivable
1,780.8
1,318.4
Other assets
721.6
696.7
Total assets
$
14,148.0
$
12,580.5
LIABILITIES
Losses and loss adjustment expenses
$
7,055.2
$
6,951.8
Unearned premiums
2,150.4
1,737.7
Other payables
1,963.7
865.7
Long-term debt
299.9
299.8
Total liabilities
$
11,469.2
$
9,855.0
SHAREHOLDERS’ EQUITY
Total shareholders’ equity
2,678.8
2,725.5
Total liabilities and shareholders’
equity
$
14,148.0
$
12,580.5
(1) Included within reinsurance
recoverables for unpaid losses and ceded premiums payable are
$770.0 million of recoveries and $770.0 million of premiums payable
associated with the purchase of an adverse development cover.
Aspen Insurance Holdings Limited
Summary consolidated statement of income (unaudited)
$ in millions, except ratios
Six Months Ended
June 30, 2020
June 30, 2019
UNDERWRITING REVENUES
Gross written premiums
$
2,118.6
$
1,854.4
Premiums ceded
(681.8)
(647.5)
Net written premiums
1,436.8
1,206.9
Change in unearned premiums
(245.1)
(166.7)
Net earned premiums
1,191.7
1,040.2
UNDERWRITING EXPENSES
Losses and loss adjustment expenses
883.0
631.9
Amortization of deferred policy
acquisition costs
230.9
190.0
General, administrative and corporate
expenses
186.7
202.1
Total underwriting expenses
1,300.6
1,024.0
Underwriting (loss) income including
corporate expenses
(108.9)
16.2
Net investment income
84.9
99.2
Interest expense (1)
(21.7)
(11.0)
Other income (expense)
0.1
(1.4)
Total other revenue
63.3
86.8
Non-operating expenses (2)
(11.6)
(61.9)
Net realized and unrealized exchange gains
(losses) (3)
7.1
(27.0)
Net realized and unrealized investment
(losses) (4)
(114.5)
(58.2)
(LOSS) BEFORE TAX
(164.6)
(44.1)
Income tax (expense) benefit
(4.1)
6.8
NET (LOSS) AFTER TAX
(168.7)
(37.3)
Dividends paid on preference shares
(22.2)
(15.2)
Proportion due to non-controlling
interest
—
1.2
Retained (loss)
$
(190.9)
$
(51.3)
Loss ratio
74.1
%
60.7
%
Policy acquisition expense ratio
19.4
%
18.3
%
General, administrative and corporate
expense ratio
16.6
%
25.4
%
Operating expense ratio (5)
15.7
%
19.4
%
Expense ratio
36.0
%
43.7
%
Expense ratio (excluding non-operating
expenses)
35.1
%
37.7
%
Combined ratio
110.1
%
104.4
%
Combined ratio (excluding non-operating
expenses)
109.2
%
98.4
%
(1) Interest expense includes interest on
deferred payments for an adverse development cover.
(2) Non-operating expenses includes $11.6
million of expenses in relation to severance, retention awards,
amortization of intangible assets and other non-recurring
costs.
(3) Includes the net realized and
unrealized gains/(losses) from foreign exchange contracts.
(4) Includes the net realized and
unrealized gains/(losses) from interest rate swaps.
(5) Operating expense includes general,
administrative and corporate expenses (excluding non-operating
expenses)
Aspen Insurance Holdings Limited
Summary consolidated segment information (unaudited)
$ in millions, except ratios
Six Months Ended June 30,
2020
Reinsurance
Insurance
Total
Gross written premiums
$
1,122.3
$
996.3
$
2,118.6
Net written premiums
842.8
594.0
1,436.8
Gross earned premiums
685.1
1,008.2
1,693.3
Net earned premiums
564.1
627.6
1,191.7
Losses and loss adjustment expenses
449.8
433.2
883.0
Amortization of deferred policy
acquisition expenses
114.7
116.2
230.9
General and administrative expenses
53.6
102.9
156.5
Underwriting (loss)
$
(54.0)
$
(24.7)
$
(78.7)
Net investment income
84.9
Net realized and unrealized investment
(losses) (1)
(114.5)
Corporate expenses
(30.2)
Non-operating expenses (2)
(11.6)
Other income
0.1
Interest expense (3)
(21.7)
Net realized and unrealized foreign
exchange gains (4)
7.1
(Loss) before tax
$
(164.6)
Income tax (expense)
(4.1)
Net (loss)
$
(168.7)
Ratios
Loss ratio
79.7
%
69.0
%
74.1
%
Policy acquisition expense ratio
20.3
%
18.5
%
19.4
%
General and administrative expense ratio
(5)
9.5
%
16.4
%
16.6
%
Operating expense ratio (6)
9.5
%
16.4
%
15.7
%
Expense ratio
29.8
%
34.9
%
36.0
%
Expense ratio (excluding non-operating
expenses)
29.8
%
34.9
%
35.1
%
Combined ratio
109.5
%
103.9
%
110.1
%
Combined ratio (excluding non-operating
expenses)
109.5
%
103.9
%
109.2
%
Accident Year Ex-cat Loss Ratio
Loss ratio
79.7
%
69.0
%
74.1
%
Prior year loss development
(0.1)
%
—
%
—
%
Catastrophe losses
(28.5)
%
(11.2)
%
(19.4)
%
Accident year ex-cat loss ratio
51.1
%
57.8
%
54.7
%
(1) Includes the net realized and
unrealized gains/(losses) from interest rate swaps.
(2) Non-operating expenses includes $11.6
million of expenses in relation to severance, amortization of
intangible assets and other non-recurring costs.
(3) Interest expense includes interest on
deferred payments for an adverse development cover.
(4) Includes the net realized and
unrealized gains/(losses) from foreign exchange contracts.
(5) The total group general and
administrative expense ratio includes the impact from corporate
expenses and non-operating expenses.
(6) Operating expense includes general,
administrative and corporate expenses (excluding non-operating
expenses)
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
%
Operating expense ratio (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 of intangible assets 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) Operating expense includes general,
administrative and corporate expenses (excluding non-operating
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,
2020
Reinsurance
Insurance
Reinsurance
U.S.
Agricultural (1)
Legacy (2)
Reinsurance
Total
Insurance (3)
Legacy (2)
Insurance
Total
Gross written premiums
$
772.5
$
335.5
$
14.3
$
1,122.3
$
914.8
$
81.5
$
996.3
Net written premiums
601.6
226.9
14.3
842.8
533.9
60.1
594.0
Gross earned premiums
560.8
94.6
29.7
685.1
889.4
118.8
1,008.2
Net earned premiums
469.0
65.4
29.7
564.1
543.7
83.9
627.6
Losses and loss adjustment expenses
385.0
58.5
6.3
449.8
349.4
83.8
433.2
Amortization of deferred policy
acquisition expenses
97.8
5.9
11.0
114.7
93.1
23.1
116.2
General and administrative expenses
51.7
—
1.9
53.6
93.3
9.6
102.9
Underwriting (loss) income
$
(65.5)
$
1.0
$
10.5
$
(54.0)
$
7.9
$
(32.6)
$
(24.7)
Ratios
Loss ratio
82.1
%
89.4
%
21.2
%
79.7
%
64.3
%
99.9
%
69.0
%
Policy acquisition expense ratio
20.9
%
9.0
%
37.0
%
20.3
%
17.1
%
27.5
%
18.5
%
General and administrative expense
ratio
11.0
%
0.0
%
6.4
%
9.5
%
17.2
%
11.4
%
16.4
%
Expense ratio
31.9
%
9.0
%
43.4
%
29.8
%
34.3
%
38.9
%
34.9
%
Combined ratio
114.0
%
98.4
%
64.6
%
109.5
%
98.6
%
138.8
%
103.9
%
Accident Year Ex-cat Loss Ratio
Loss ratio
82.1
%
89.4
%
21.2
%
79.7
%
64.3
%
99.9
%
69.0
%
Prior year loss development
(1.2)
%
—
%
18.2
%
(0.1)
%
2.8
%
(18.0)
%
—
%
Catastrophe losses
(34.3)
%
—
%
—
%
(28.5)
%
(12.9)
%
12.6
%
(11.2)
%
Accident year ex-cat loss ratio
46.6
%
89.4
%
39.4
%
51.1
%
54.2
%
94.5
%
57.8
%
________________
(1) U.S. Agricultural is our U.S. crop
insurance business written on a reinsurance basis through a
strategic partnership.
(2) Legacy reflects business we have
elected to cease underwriting following a series of strategic
underwriting reviews.
Legacy (reinsurance) represents our global
credit and surety reinsurance business that we ceased underwriting
during Q3 2019.
Legacy (insurance) represents:
(i) international marine and
energy liability products, and our global accident and health line
of business, which, following a strategic review of our
underwriting portfolio that began in December 2019, we determined
to cease underwriting and have started to wind down in February
2020 and March 2020, respectively;
(ii) professional liability and
property and casualty coverages for small to medium sized
U.K.-based businesses that was bound through our managing general
agent, Aspen Risk Management Limited that we placed into runoff
during Q3 2019;
(iii) international cargo
insurance that we ceased underwriting during Q4 2018;
(iv) our aviation line of
business, which we decided to cease underwriting during Q3
2018;
(v) marine hull insurance
written through the Lloyd’s platform that we ceased underwriting
during Q3 2018;
(vi) professional liability
insurance written through the Lloyd’s platform that we ceased
underwriting during Q3 2018;
(vii) international property
insurance previously written via a joint underwriting initiative
that we ceased underwriting during Q1 2017; and
(viii) employers and public
liability lines previously written that we ceased underwriting
during Q4 2015.
(3) The Surety insurance business which
was the subject of a renewal rights transaction that closed in July
2020 is included in continuing lines. The Surety insurance business
contributed $34.5 million of gross written premium and $7.9 million
of underwriting income in the six month ended 30 June 2020.
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, Singapore,
Switzerland, the United Kingdom and the United States. For the year
ended December 31, 2019, Aspen reported $12.6 billion in total
assets, $7.0 billion in gross reserves, $2.7 billion in total
shareholders’ equity and $3.4 billion in gross written premiums.
Aspen's operating subsidiaries have been assigned a rating of “A-”
by Standard & Poor’s Financial Services LLC, an “A”
(“Excellent”) by A.M. Best Company Inc. and an “A3” by Moody’s
Investors Service, Inc.
For more information about Aspen, please visit www.aspen.co.
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)
related to the COVID-19 pandemic 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 impact on our
operating results from our exit or discontinuation of particular
Legacy business; the impact on our operating results and financial
condition from our entry into an adverse development cover
reinsuring losses incurred on or prior to December 31, 2019; the
actual development of losses and expenses impacting estimates for
the COVID-19 pandemic; 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 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 withdrawal 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
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 the effects of the COVID-19 pandemic,
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 adjusters, 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 presentation, please
see the “Risk Factors” section in Aspen’s Annual Report on Form
20-F for the twelve months ended December 31, 2019, 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, 2020
June 30, 2019
(Loss) before tax as reported
(164.6)
(44.1)
Add (deduct) non-operating expenses
Net foreign exchange losses
(7.1)
27.0
Net realized losses on investments
114.5
58.2
Non-operating expenses
11.6
61.9
Operating (loss) income before tax
(45.6)
103.0
Tax (expense) on operating income
(2.6)
(1.2)
Operating (loss) income after tax
(48.2)
101.8
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
2020 as losses associated with COVID-19 and weather-related events,
and catastrophe losses in the first half of 2019 as losses
associated with various weather-related events.
Accident Year Combined Ratio Excluding Catastrophes is a
non-GAAP financial measure, which is calculated by adding the
Accident Year Loss Ratio Excluding Catastrophe ratio together with
the Expense Ratio.
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 operating expenses, by net premiums earned.
Combined Ratio (excluding non-operating
expenses)
Six Months Ended
(in US$ millions except where stated)
June 30, 2020
June 30, 2019
Numerator: Sum of:
Losses and loss adjustment expenses
$883.0
$631.9
Amortization and deferred policy
acquisition costs
230.9
190.0
General, administrative and corporate
expenses
186.7
202.1
Non-operating expenses
11.6
61.9
Numerator total
1,312.2
1,085.9
Denominator: Net earned premiums
1,191.7
1,040.2
Combined ratio
110.1%
104.4%
Adjustments to numerator:
Exclude non-operating expenses
(11.6)
(61.9)
Numerator total - excluding non-operating
expenses
1,300.6
1,024.0
Combined ratio (excluding non-operating
expenses)
109.2%
98.4%
1 Probable Maximum Loss ("PML")
2 Assets under management ("AUM")
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200904005268/en/
For further information please contact Grahame Dawe,
Chief Accounting Officer, Aspen Grahame.Dawe@aspen.co +44 20 7184
8760
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