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Aspen News

Aspen reports results for third quarter and nine months ended September 30, 2017

25th October

Aspen reported today a net loss after tax of $(253.8) million, or $(4.48) per diluted ordinary share, and an operating loss after tax of $(276.6) million, or $(4.78) per diluted ordinary share, for the third quarter of 2017.

Chris O’Kane, Chief Executive Officer, commented: “The third quarter was characterized by multiple, large-scale natural catastrophes across our industry. While significant, Aspen's estimated losses from these events are within our expectations for catastrophes of this nature. We are encouraged that, following several years of decline, the industry losses this quarter may be the catalyst that leads to improved market conditions and pricing.

"We remain focused on enhancing the long-term positioning of our insurance and reinsurance businesses and we took another important step in this direction today with the announcement of a comprehensive program to drive greater effectiveness and efficiency across Aspen. The program will deliver substantial benefits, particularly in our Insurance segment, by providing a more competitive expense ratio in our chosen lines of business, as well as an even more scalable operating platform from which to deliver long-term shareholder value.”

Operating highlights for the quarter ended September 30, 2017

Gross written premiums of $852.5 million in the third quarter of 2017, an increase of 11.7% compared with $763.5 million in the third quarter of 2016

  • Insurance: Gross written premiums of $421.0 million, an increase of 5.9% compared with $397.6 million in the third quarter of 2016, primarily due to growth in the Financial and Professional lines sub-segment
  • Reinsurance: Gross written premiums of $431.5 million, an increase of 17.9% from $365.9 million in the third quarter of 2016, primarily due to growth in the Specialty sub-segment, largely from AgriLogic. The growth in the Property Catastrophe and Other Property sub-segments was largely from reinstatement premiums

Net written premiums of $607.4 million in the third quarter of 2017, a decrease of 4.9% compared with $638.4 million in the third quarter of 2016 as Aspen continues to make more efficient use of ceded reinsurance to reduce volatility. The retention ratio in the third quarter of 2017 was 71.2% compared with 83.6% in the third quarter of 2016

  • Insurance: Net written premiums of $243.8 million, a decrease of 24.7% from $323.9 million in the third quarter of 2016, primarily due to increased use of quota share reinsurance to reduce volatility across our longer-tail businesses. The retention ratio in the third quarter of 2017 was 57.9% compared with 81.5% in the third quarter of 2016
  • Reinsurance: Net written premiums of $363.6 million, an increase of 15.6% from $314.5 million in the third quarter of 2016

Loss ratio of 119.0% in the third quarter of 2017 compared with 57.2% in the third quarter of 2016. The loss ratio included pre-tax catastrophe losses of $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, primarily due to hurricanes Harvey, Irma and Maria, and other catastrophes, including weather-related events and the Mexican earthquakes. Pre-tax catastrophe losses, net of reinsurance recoveries and reinstatement premiums, totaled $24.9 million, or 3.7 percentage points, in the third quarter of 2016 

  • Insurance: Loss ratio of 101.3% compared with 57.7% in the third quarter of 2016. Pre-tax catastrophe losses, of $84.0 million, or 30.3 percentage points, net of reinsurance recoveries and $(7.4) million of reinstatement premiums, in the third quarter of 2017 primarily due to hurricanes Harvey, Irma and Maria and weather-related events. Pre-tax catastrophe losses net of reinsurance recoveries totaled $10.1 million, or 2.8 percentage points, in the third quarter of 2016
  • Reinsurance: Loss ratio of 131.5% compared with 56.5% in the third quarter of 2016. The loss ratio included pre-tax catastrophe losses, of $276.3 million, or 74.6 percentage points, net of reinsurance recoveries and $19.9 million of reinstatement premiums, in the third quarter of 2017 primarily due to hurricanes Harvey, Irma and Maria, and the Mexican earthquakes. Pre-tax catastrophe losses, net of reinsurance recoveries and reinstatement premiums, totaled $14.8 million, or 4.7 percentage points, in the third quarter of 2016

Net favorable development on prior year loss reserves of $17.9 million benefited the loss ratio by 2.8% in the third quarter of 2017. Prior year net favorable reserve development of $35.4 million benefited the loss ratio by 5.2% in the third quarter of 2016

  • Insurance: Prior year net favorable reserve development of $0.7 million benefited the loss ratio by 0.3 percentage points in the third quarter of 2017. Prior year net favorable development of $15.3 million benefited the loss ratio by 4.2 percentage points in the third quarter of 2016
  • Reinsurance: Prior year net favorable reserve development of $17.2 million benefited the loss ratio by 4.8 percentage points in the third quarter of 2017. Prior year net favorable development of $20.1 million benefited the loss ratio by 6.4 percentage points in the third quarter of 2016

Accident year loss ratio excluding catastrophes was 65.9% in the third quarter of 2017 compared with 58.6% in the third quarter of 2016 

  • Insurance: Accident year loss ratio excluding catastrophes for the quarter ended September 30, 2017 was 71.3%. This was affected by increased losses in short-tail insurance lines, primarily property. These losses totaled $32.3 million, or 11.9 percentage points, on the accident year ex-cat loss ratio. The accident year loss ratio excluding catastrophes in the third quarter of 2016 was 59.1%
  • Reinsurance: Accident year loss ratio excluding catastrophes for the quarter ended September 30, 2017 was 61.7% compared with 58.2% a year ago. The increase was due largely to a change in business mix, primarily related to AgriLogic 

Total expense ratio of 33.2% and total expense ratio (excluding amortization and non-recurring expenses) of 32.4% in the third quarter of 2017 compared with 37.6% and 36.6%, respectively, in the third quarter of 2016. The policy acquisition expense ratio was 16.2% in the third quarter of 2017, compared with 19.2% in the third quarter of 2016. General and administrative expenses (excluding amortization and non-recurring expenses) were $105.7 million in the third quarter of 2017, compared with $118.7 million in the third quarter of 2016. The general and administrative expense ratio (excluding amortization and non-recurring expenses) decreased to 16.2% from 17.4% in the third quarter of 2016

Net loss after tax of $(253.8) million, or $(4.48) per diluted ordinary share, in the third quarter of 2017 compared with net income of $95.6 million, or $1.40 per diluted ordinary share, in the third quarter of 2016.  Net income included $17.5 million of net realized and unrealized investment gains in the third quarter of 2017 compared with $21.5 million in the third quarter of 2016. Operating loss after tax of $(276.6) million, or $(4.78) per diluted ordinary share, in the third quarter of 2017 compared with operating income of $69.3 million, or $0.97 per diluted ordinary share, in the third quarter of 2016 

Annualized net income return on average equity of (37.6)% and annualized operating return on average equity of (40.0)% for the quarter ended September 30, 2017 compared with 11.2% and 8.0%, respectively, for the third quarter of 2016

Operating highlights for the nine months ended September 30, 2017

  • Gross written premiums increased by 5.2% to $2,672.6 million in the first nine months of 2017 compared with $2,540.9 million in the first nine months of 2016 
  • Net written premiums decreased by 13.4% to $1,872.3 million in the first nine months of 2017 compared with $2,162.9 million in the first nine months of 2016. The retention ratio in the first nine months of 2017 was 70.1% compared with 85.1% in the first nine months of 2016
  • Loss ratio of 80.8% for the first nine months of 2017 compared with 58.7% for the first nine months of 2016. The loss ratio included $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. This compared with $108.7 million, or 5.4 percentage points, of pre-tax catastrophe losses, net of reinsurance recoveries and reinstatement premiums, in the first nine months of 2016
  • Net favorable development on prior year loss reserves of $92.8 million benefited the loss ratio by 5.2 percentage points in the first nine months of 2017. In the first nine months of 2016, net favorable development of $78.2 million benefited the loss ratio by 3.9 percentage point
  • Accident year loss ratio excluding catastrophes of 62.1% for the first nine months of 2017 compared with 57.2% for the first nine months of 2016
  • Total expense ratio of 37.2% and total expense ratio (excluding amortization and non-recurring expenses) of36.7% for the first nine months of 2017 compared with 37.0% and 36.7%, respectively, for the first nine months of 2016, reflecting an increase in the general and administrative expense ratio and a decrease in the policy acquisition expense ratio
  • Net loss after tax of $(81.5) million or $(1.99) per diluted ordinary share for the nine months ended September 30, 2017 compared with net income of $274.9 million, or $3.97 per diluted ordinary share, for the nine months ended September 30, 2016. Net loss included $105.7 million of net realized and unrealized investment gains in the first nine months of 2017 compared with $100.2 million in the first nine months of 2016.  Operating loss after tax of $(177.6) million, or$(3.46) per diluted ordinary share, for the nine months ended September 30, 2017 compared with operating income of $193.3 million, or $2.65 per diluted ordinary share, for the nine months ended September 30, 2016
  • Annualized net income return on average equity of (5.5)% and annualized operating return on average equity of (9.6)% for the first nine months of 2017 compared with 10.9% and 7.3%, respectively, for the first nine months of 2016

Investment performance

  • Investment income of $46.4 million in the third quarter of 2017 was unchanged from the third quarter of 2016
  • The total return on Aspen’s aggregate investment portfolio was 0.8% for the three months ended September 30, 2017 and reflects net realized and unrealized gains and losses in both the fixed income and equity portfolios. In the first nine months of 2017, Aspen's aggregate investment portfolio had a total return of 3.1%.
  • Aspen’s investment portfolio continues to be comprised primarily of high quality fixed income securities with an average credit quality of “AA-”. The average duration of the fixed income portfolio was 3.91 years as at September 30, 2017
  • Book yield on the fixed income portfolio as at September 30, 2017 was 2.54% compared with 2.49% as at December 31, 2016

Capital

  • Total shareholders’ equity was $3.2 billion as at September 30, 2017
  • Diluted book value per share was $44.00 as at September 30, 2017, down 5.8% from December 31, 2016
  • During the third quarter of 2017, Aspen repurchased 451,268 ordinary shares at an average price of $44.32 per share for a cost of $20 million. Since the beginning of 2017, Aspen has repurchased 648,941 ordinary shares at an average price of $46.23 per share for a total cost of $30 million
  • On July 3, 2017, Aspen redeemed its outstanding 7.250% Perpetual Non-Cumulative Preference Shares for  $160.0 million. Since the beginning of 2017, Aspen has redeemed Perpetual Non-Cumulative Preference Shares in the aggregate amount of $293.2 million

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