Aspen Insurance Holdings Limited (“Aspen”) (NYSE: AHL) reported
results today for the twelve months ended December 31, 2019.
Mark Cloutier, Group Executive Chairman and Chief Executive
Officer, commented: "2019 was both a challenging and transitional
year for our Group. Since completion of the merger transaction
early in the year we have undertaken a number of initiatives
targeted at protecting the financial strength of the company, while
also driving change geared at improving performance over the medium
and longer term - all with a focus on long term total value
creation.
These actions include refocusing the products we underwrite,
strengthening our balance sheet, enhancing our management team, and
simplifying our global footprint and operating structure.
During 2019, we saw sustained improvement to wider insurance
market conditions, including reduced capacity and limits in a
number of our core product lines, which has contributed to
improving rates, terms, and conditions. Within reinsurance, we also
saw pockets of corrections over 2018, which extended to
improvements in rate across the majority of classes and regions
throughout 2019. We have seen these trends continue into 2020.
These trends are indeed positive but we continue to take a
cautious and selective approach to growth as evidenced in our
year-over-year gross written premium numbers.
While our financial results for 2019 are disappointing, given
the impact of deal related costs, restructuring charges and
specific actions taken to improve underwriting performance and
strengthen reserves, it is rewarding to see that underlying trends
in our forward trading businesses are showing significant
improvement. I am confident that the decisive actions we have taken
are the right ones and will see us realize our objective of
becoming a top quartile specialty (re)insurer in the near term.
I continue to be impressed by the quality and expertise of our
people and the depth of our trading relationships across the
multiple markets we serve. While we have more work to do, I firmly
believe we are building a strong platform for future success.”
Key strategic and financial highlights
Increased operational efficiency, with financial results
impacted by legacy business
- Gross written premiums broadly in line with 2018, at $3,442.4
million for 2019, compared to $3,446.9 million for 2018, with the
Group maintaining its strong market position despite significant
reshaping of the underwriting portfolio with around $700 million of
business that did not meet our profitability requirements or risk
appetite.
- General and administrative expenses, excluding non-operating
expenses, of $396.0 million down from $414.5 million in 2018 with
an operating expense ratio of 17.3% compared with 18.7% in
2018.
- Investment income of $197.3 million for the twelve months ended
December 31, 2019 (2018: $198.2 million).
- Net loss after tax of $(241.7) million and an operating loss
after tax of $(48.4) million driven by costs relating to the
acquisition of the company by certain investment funds managed by
affiliates of Apollo Global Management, Inc. (the "Apollo Funds")
restructuring costs, reserve strengthening, unrealized investment
losses and exchange rate impact.
Improving underlying underwriting performance
- The combined ratio, excluding non-operating expenses, of 108.5%
was impacted by 5.8 percentage points from legacy and U.S.
agriculture business (2018: 106.5%).
- Improved combined ratio in insurance, excluding legacy
business, of 97.4% and reinsurance, excluding legacy and U.S.
agriculture business, of 101.5%, with overall underwriting result
impacted by reserve strengthening in specific casualty lines.
- Catastrophe losses, net of reinstatement premiums, of $143.2
million in 2019 (2018: $262.9 million) evidencing the continued
reduction in catastrophe risk exposure.
- Excluding legacy and U.S. agriculture business, insurance and
reinsurance segments produced accident year ex-catastrophe net loss
ratios of 57.8% and 56.8%, respectively.
- Accident year ex-catastrophe combined ratio* of 96.0%.
*Adjusted for prior year losses, catastrophe losses, legacy and
U.S. agriculture business
Strong capital and reserve position
- Group capital position remains robust, with capital reserves of
$2,725.5 million.
- Net reserve strengthening of $59.5 million in 2019 following
comprehensive review by new management following the acquisition by
the Apollo Funds in February 2019.
- In March 2020, announced an agreement for Adverse Development
Cover reinsurance, providing greater certainty around prior-year
underwriting exposures. The transaction is expected to close in the
first half of 2020.
Significant progress in ongoing efforts to strengthen Aspen’s
global platform
- Added a number of senior appointments to the leadership team,
including Jonathan Ritz as President of Aspen Insurance Holdings
Limited, Mo Kang as Chief People Officer, Andrew Kudera as Group
Chief Actuary and Crystal Ottaviano as Group Chief Risk
Officer.
- Refocused our underwriting portfolio on core products, and
wound down those that do not meet long-term performance criteria,
including International Marine and Energy Liability, Accident &
Health, Credit and Surety reinsurance, International Excess
Casualty, and UK regional P&C.
- Repositioned our investment portfolio to enhance risk-adjusted
returns.
- Streamlined global footprint including branch closures in
Dubai, Miami, Dublin, and Aspen Risk Management Limited (ARML)
branches in the UK.
- Adjusted risk appetite, including reducing exposure to US
catastrophe, California wildfires, Japanese windstorm and certain
classes of credit.
- We have also introduced new Aspen Values and Principles as part
of our commitment to building an inclusive and diverse business for
all employees. These are now embedded across the business and frame
how we operate. In addition, we have undertaken a significant
program focused on Corporate Social Responsibility and
Environmental Social and Governance.
Non-GAAP financial measures are used throughout this release.
For additional information and reconciliation of non-GAAP financial
measures, refer to our website at www.aspen.co.
Refer to "Cautionary Statement Regarding Forward-Looking
Statements" at the end of this press release.
Earnings materials
The operating highlights for the year ended 2019 and
supplementary financial information will be published on Aspen’s
website at www.aspen.co.
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 “A2” by Moody’s
Investors Service, Inc.
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 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 catastrophe events including
but not limited to Hurricane Dorian, Typhoon Hagibis, Typhoon
Faxai, 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
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 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 COVID-19, 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 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 and Aspen's Annual Report on Form
20-F for the twelve month ended December 31, 2019 to be 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.
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version on businesswire.com: https://www.businesswire.com/news/home/20200316005868/en/
Grahame Dawe, Chief Accounting Officer, Aspen
Grahame.Dawe@Aspen.co +44 20 7184 8760
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