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Aspen News

Aspen reports results for the quarter ended 30 September 2018

24th October

Aspen reported today a net loss after tax of $(15.1) million, or $(0.38) per diluted ordinary share, and operating income after tax of $36.9 million, or $0.49 per diluted ordinary share, for the third quarter of 2018.

Chris O’Kane, Chief Executive Officer, commented: “Aspen delivered solid results in the third quarter. Our priority is to continue to enhance our financial and operational performance and maintain our sharp focus on providing our clients and business partners with outstanding service.

"We are excited about the next chapter in our history with a partner that understands our strengths, culture and customer-centric philosophy. The transaction remains on track to close in the first half of 2019.”

As previously announced on August 28, 2018, Aspen entered into a definitive agreement to be acquired by certain investment funds affiliated with Apollo Global Management, LLC (“Apollo”) in an all-cash transaction valued at approximately $2.6 billion. The closing of the transaction is subject to closing conditions including approval by Aspen's shareholders and receipt of certain insurance and other regulatory approvals, as well as the maintenance of certain financial strength ratings by Aspen.

Operating highlights for the quarter ended September 30, 2018

Gross written premiums of $873.2 million in the third quarter of 2018, an increase of 2.4% compared with $852.5 million in the third quarter of 2017.

  • Insurance: Gross written premiums of $476.8 million, an increase of 13.3% compared with $421.0 million in the third quarter of 2017 due to growth in Financial and Professional Lines and Property and Casualty sub-segments, partially offset by a decrease in the Marine, Aviation and Energy sub-segment
  • Reinsurance: Gross written premiums of $396.4 million, a decrease of 8.1% compared with $431.5 million in the third quarter of 2017 due primarily to a decrease in the Property Catastrophe sub-segment

Net written premiums of $578.9 million in the third quarter of 2018, a decrease of 4.7% compared with $607.4 million in the third quarter of 2017 due to the impact of increased quota share reinsurance attaching during 2018. The retention ratio in the third quarter of 2018 was 66.3% compared with 71.2% in the third quarter of 2017.

  • Insurance: Net written premiums of $222.5 million, a decrease of 8.7% compared with $243.8 million in the third quarter of 2017 due primarily to the increased use of quota share reinsurance. The retention ratio in the third quarter of 2018 was 46.7% compared with 57.9% in the third quarter of 2017
  • Reinsurance: Net written premiums of $356.4 million, a decrease of 2.0% compared with $363.6 million in the third quarter of 2017

Loss ratio of 69.2% in the third quarter of 2018 compared with 119.0% in the third quarter of 2017. The loss ratio included pre-tax catastrophe losses of $56.4 million, or 9.4 percentage points, net of reinsurance recoveries and $4.8 million of reinstatement premiums, in the third quarter of 2018 compared with $360.3 million, or 55.9 percentage points, net of reinsurance recoveries and $12.5 million of reinstatement premiums, in the third quarter of 2017.

  • Insurance: Loss ratio of 63.7% compared with 101.3% in the third quarter of 2017. The loss ratio included pre-tax catastrophe losses of $8.0 million, or 3.4 percentage points, net of reinsurance recoveries, in the third quarter of 2018 primarily as a result of Hurricane Florence in the U.S. In the third quarter of 2017, pre-tax catastrophe losses totaled $84.0 million, or 30.3 percentage points, net of reinsurance recoveries and $(7.4) million of reinstatement premiums
  • Reinsurance: Loss ratio of 72.5% compared with 131.5% in the third quarter of 2017. The loss ratio included pre-tax catastrophe losses of $48.4 million, or 13.0 percentage points, net of reinsurance recoveries and $4.8 million of reinstatement premiums, in the third quarter of 2018 primarily as a result of Typhoon Jebi in Japan, Hurricane Florence in the U.S. and various other weather-related events in the U.S. and Asia. In the third quarter of 2017, pre-tax catastrophe losses totaled $276.3 million, or 74.6 percentage points, net of reinsurance recoveries and $19.9 million of reinstatement premiums

Net favorable development on prior year loss reserves of $19.5 million benefited the loss ratio by 3.2 percentage points in the third quarter of 2018. Prior year net favorable reserve development of $17.9 million benefited the loss ratio by 2.8 loss ratio points in the third quarter of 2017..

  • Insurance: Prior year net favorable reserve development of $11.9 million benefited the loss ratio by 5.1 percentage points in the third quarter of 2018. Prior year net favorable development of $0.7 million benefited the loss ratio by 0.3 percentage points in the third quarter of 2017
  • Reinsurance: Prior year net favorable reserve development of $7.6 million benefited the loss ratio by 2.0 percentage points in the third quarter of 2018. Prior year net favorable development of $17.2 million benefited the loss ratio by 4.8 percentage points in the third quarter of 2017

Accident year loss ratio excluding catastrophes was 63.0% in the third quarter of 2018 compared with 65.9% in the third quarter of 2017. The ratio was impacted by business mix, particularly crop reinsurance. Excluding the impact of the crop reinsurance business, the accident year loss ratio excluding catastrophes in the third quarter of 2018 was 56.7%.

  • Insurance: Accident year loss ratio excluding catastrophes was 65.4% in the third quarter of 2018 compared with 71.3% in the third quarter of 2017. The third quarter of 2018 ratio included $15.1 million of fire-related losses in the U.K.
  • Reinsurance: Accident year loss ratio excluding catastrophes was 61.5% in the third quarter of 2018 compared with 61.7% in the third quarter of 2017. Excluding the impact of the crop reinsurance business, the accident year loss ratio excluding catastrophes in the third quarter of 2018 was 49.0%

Total expense ratioof 41.9% and total expense ratio (excluding amortization and non-recurring expenses) of 33.8% in the third quarter of 2018 compared with 33.2% and 32.4%, respectively, in the third quarter of 2017

  • Amortization and non-recurring expenses in the third quarter of 2018 included $11.1 million of expenses related to the operational effectiveness and efficiency program and $38.6 million of advisor fees relating to the transaction with Apollo
  • The policy acquisition expense ratio was 16.2% in the third quarter of 2018 in line with the third quarter of 2017
  • General and administrative expenses (excluding amortization and non-recurring expenses) were $109.4 million in the third quarter of 2018 compared with $105.7 million in the third quarter of 2017 as variable compensation in the third quarter of 2017 was impacted by losses during that quarter. The general and administrative expense ratio (excluding amortization and non-recurring expenses) increased to 17.6% from 16.2% in the third quarter of 2017

Net (loss) after tax of $(15.1) million, or $(0.38) per diluted ordinary share, in the third quarter of 2018 compared with net (loss) of $(253.8) million, or $(4.48) per diluted ordinary share, in the third quarter of 2017.

  • The income tax credit for the three months ended September 30, 2018 included $12.5 million related to the successful conclusion of a U.K. tax inquiry.
  • Net (loss) in the third quarter of 2018 included $(0.9) million of net realized and unrealized investment losses and $(2.3) million of net realized and unrealized foreign exchange (losses) compared with $17.5 million of net realized and unrealized investment gains and $12.9 million gain of net realized and unrealized foreign exchange (losses) in the third quarter of 2017

Operating income after tax of $36.9 million, or $0.49 per diluted ordinary share, in the third quarter of 2018 compared with operating (loss) of $(276.6) million, or $(4.78) per diluted ordinary share, in the third quarter of 2017.

Annualized net income return on average equity of (4.0)% and annualized operating return on average equity of 5.2% for the quarter ended September 30, 2018 compared with (37.6)% and (40.0)%, respectively, for the third quarter of 2017.

Operating highlights for the nine months ended September 30, 2018

Gross written premiums increased by 6.4% to $2,843.8 million in the first nine months of 2018 compared with $2,672.6 million in the first nine months of 2017.

Net written premiums decreased by 9.2% to $1,700.4 million in the first nine months of 2018 compared with $1,872.3 million in the first nine months of 2017. The retention ratio in the first nine months of 2018 was 59.8% compared with 70.1% in the first nine months of 2017.

Loss ratio of 62.7% for the first nine months of 2018 compared with 80.8% for the first nine months of 2017. The loss ratio included $98.8 million, or 6.0 percentage points, of pre-tax catastrophe losses, net of reinsurance recoveries and $4.8 million of reinstatement premiums, in the first nine months of 2018. This compared with $424.3 million, or 23.9 percentage points, of pre-tax catastrophe losses, net of reinsurance recoveries and $12.5 million of reinstatement premiums, in the first nine months of 2017.

Net favorable development on prior year loss reserves of $99.7 million benefited the loss ratio by 6.0 percentage points in the first nine months of 2018. In the first nine months of 2017, net favorable development of $92.8 million benefited the loss ratio by 5.2 percentage points.

Accident year loss ratio excluding catastrophes of 62.7% for the first nine months of 2018 compared with 62.1% for the first nine months of 2017.

Total expense ratio of 40.0% and total expense ratio (excluding amortization and non-recurring expenses) of 35.7% for the first nine months of 2018 compared with 37.2% and 36.7%, respectively, for the first nine months of 2017, primarily due to a decrease in the policy acquisition expense ratio.

  • Amortization and non-recurring expenses in the first nine months of 2018 included $31.5 million of expenses related to the operational effectiveness and efficiency program and $38.6 million of advisor fees relating to the transaction with Apollo

Net income after tax of $1.0 million or $(0.37) per diluted ordinary share (adjusted for preference shares dividends and non-controlling interest) for the nine months ended September 30, 2018 compared with net (loss) of $(81.5) million, or $(1.99) per diluted ordinary share, for the nine months ended September 30, 2017. Net income in the first nine months of 2018 included $(59.3) million of net realized and unrealized investment (losses) and $(24.4) million of net realized and unrealized foreign exchange (losses) compared with net realized and unrealized investment gains of $105.7 million and $4.1 million of net realized and unrealized foreign exchange gains in the first nine months of 2017. Net income in the first nine months of 2018 also included an $8.6 million make-whole payment associated with the partial redemption of Aspen’s 6.00% Senior Notes due 2020.

Operating income after tax of $156.2 million, or $2.20 per diluted ordinary share, for the nine months ended September 30, 2018 compared with operating (loss) of $(177.6) million, or $(3.46) per diluted ordinary share, for the nine months ended September 30, 2017.

Annualized net income return on average equity of (1.2)% and annualized operating return on average equity of 7.6% for the first nine months of 2018 compared with (5.5)% and (9.6)%, respectively, for the first nine months of 2017.

Investment performance

  • Investment income of $48.0 million in the third quarter of 2018 compared with $46.4 million in the third quarter of 2017.
  • The total return on Aspen’s aggregate investment portfolio was 0.32% for the three months ended September 30, 2018 and reflects net realized and unrealized gains and losses mainly in the fixed income portfolio.
  • Aspen’s investment portfolio is comprised primarily of high quality fixed income securities with an average credit quality of “AA-”. The average duration of the fixed income portfolio was 3.7 years as at September 30, 2018.
  • Book yield on the fixed income portfolio as at September 30, 2018 was 2.67% compared with 2.56% as at December 31, 2017.

Capital and Debt

  • Total shareholders’ equity was $2.8 billion as at September 30, 2018.
  • Diluted book value per share was $37.46 as at September 30, 2018, a 6.6% decrease from December 31, 2017 primarily due to retained losses and unrealized investment losses on the available for sale portfolio in the first nine months of 2018.