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Aspen News

Aspen reports results for the fourth quarter and twelve months ended December 31, 2017

7th February

Aspen reported today a net loss after tax of $(184.9) million, or $(3.25) per diluted ordinary share, and an operating loss after tax of $(178.1) million, or $(3.14) per diluted ordinary share, for the fourth quarter of 2017.

Chris O’Kane, Chief Executive Officer, commented: “Aspen's fourth quarter 2017 results were well below acceptable levels.  While some of the losses we reported arose from abnormally high natural catastrophe activity, we recognize that despite prior actions to strengthen our Insurance book, we need to take further actions to deliver substantially better results.

“We are redoubling our efforts to reduce volatility and improve Aspen’s profitability. Most of our non-natural catastrophe losses were concentrated in a limited number of lines within Aspen Insurance. We are actively reviewing these lines, and our focus is on taking all actions necessary to mitigate our residual exposure and deliver value to our shareholders. Our loss reserves are strong, and we continue to focus on achieving appropriate loss ratios and realizing the benefits to our expense ratio from the successful implementation of our operational effectiveness and efficiency program.”

Operating highlights for the quarter ended December 31, 2017

Gross written premiums of $688.3 million in the fourth quarter of 2017, an increase of 13.6% compared with $606.1 million in the fourth quarter of 2016 

  • Insurance: Gross written premiums of $472.2 million, an increase of 15.5% compared with $409.0 million in the fourth quarter of 2016, due to growth in all sub-segments
  • Reinsurance: Gross written premiums of $216.1 million, an increase of 9.6% compared with  $197.1 million in the fourth quarter of 2016, primarily due to growth in the Specialty sub-segment as a result of AgriLogic 

Net written premiums of $340.2 million in the fourth quarter of 2017, a decrease of 21.0% compared with $430.8 million in the fourth quarter of 2016 as Aspen continues to make more efficient use of ceded reinsurance to seek to reduce volatility. The retention ratio in the fourth quarter of 2017 was 49.4% compared with 71.1% in the fourth quarter of 2016 

  • Insurance: Net written premiums of $187.5 million, a decrease of 19.3% compared with $232.4 million in the fourth quarter of 2016, primarily due to increased use of quota share reinsurance to seek to reduce volatility. The retention ratio in the fourth quarter of 2017 was 39.7% compared with 56.8% in the fourth quarter of 2016
  • Reinsurance: Net written premiums of $152.7 million, a decrease of 23.0% compared with $198.4 million in the fourth quarter of 2016, primarily due to transitional changes to ceding of premiums following the sale of AgriLogic in the fourth quarter of 2017 

Loss ratio of 106.5% in the fourth quarter of 2017 compared with 63.2% in the fourth quarter of 2016. The loss ratio included pre-tax catastrophe losses of $137.6 million, or 27.0 percentage points, net of reinsurance recoveries and $1.6 million of reinstatement premiums, in the fourth quarter of 2017, including $133.8 million related to wildfires in California. Pre-tax catastrophe losses, net of reinsurance recoveries, totaled $54.6 million, or 8.9 percentage points, in the fourth quarter of 2016  

  • Insurance: Loss ratio of 95.2% compared with 68.5% in the fourth quarter of 2016. The loss ratio included pre-tax catastrophe losses of $2.4 million, or 1.0 percentage points, net of reinsurance recoveries and a $(0.7) million credit for reinstatement premiums, in the fourth quarter of 2017. Total pre-tax catastrophe losses in the Insurance segment included $10.2 million of losses related to the wildfires in California offset by favorable development related primarily to other weather-related events in the U.S. Pre-tax catastrophe losses, net of reinsurance recoveries, totaled $17.0 million, or 5.2 percentage points, in the fourth quarter of 2016
  • Reinsurance: Loss ratio of 116.3% compared with 57.2% in the fourth quarter of 2016. The loss ratio included pre-tax catastrophe losses of $135.2 million, or 49.6 percentage points, net of reinsurance recoveries and $2.3 million of reinstatement premiums, in the fourth quarter of 2017. Total pre-tax catastrophe losses in the Reinsurance segment included $123.6 million related to the wildfires in California while the remainder related primarily to other weather-related events. Pre-tax catastrophe losses, net of reinsurance recoveries, totaled $37.6 million, or 13.2 percentage points, in the fourth quarter of 2016 

Net favorable development on prior year loss reserves of $12.6 million benefited the loss ratio by 2.5 percentage points in the fourth quarter of 2017. Prior year net favorable reserve development of $51.1 million benefited the loss ratio by 8.3 percentage points in the fourth quarter of 2016 

  • Insurance: Prior year net favorable reserve development of $1.8 million benefited the loss ratio by 0.8 percentage points in the fourth quarter of 2017. Prior year net favorable development of $16.2 million benefited the loss ratio by 5.0 percentage points in the fourth quarter of 2016
  • Reinsurance: Prior year net favorable reserve development of $10.8 million benefited the loss ratio by 4.0 percentage points in the fourth quarter of 2017. Prior year net favorable development of $34.9 million benefited the loss ratio by 12.2 percentage points in the fourth quarter of 2016 

Accident year loss ratio excluding catastrophes was 82.0% in the fourth quarter of 2017 compared with 62.6% in the fourth quarter of 2016  

  • Insurance: Accident year loss ratio excluding catastrophes for the quarter ended December 31, 2017 was 95.0%. This included 25.0 percentage points related to an increased frequency of mid-sized and attritional losses in the fourth quarter of 2017 which totaled $59.3 million, net of reinstatement premiums. The accident year loss ratio excluding catastrophes in the fourth quarter of 2016 was 68.3%
  • Reinsurance: Accident year loss ratio excluding catastrophes for the quarter ended December 31, 2017 was 70.7%. This included 12.2 percentage points related to premium adjustments which reduced net earned premium by $33.5 million. The accident year loss ratio excluding catastrophes in the fourth quarter of 2016 was 56.2% 

Total expense ratio of 46.1% and total expense ratio (excluding amortization and non-recurring expenses) of 41.5% in the fourth quarter of 2017 compared with 44.0% and 43.5%, respectively, in the fourth quarter of 2016

  • The policy acquisition expense ratio was 16.7% in the fourth quarter of 2017 compared with 23.0% in the fourth quarter of 2016
  • General and administrative expenses (excluding amortization and non-recurring expenses) were $126.9 million in the fourth quarter of 2017, compared with $125.5 million in the fourth quarter of 2016. The general and administrative expense ratio (excluding amortization and non-recurring expenses) increased to 24.8% from 20.5% in the fourth quarter of 2016 

Net loss after tax of $(184.9) million, or $(3.25) per diluted ordinary share, in the fourth quarter of 2017 compared with net loss of $(71.5) million, or $(1.41) per diluted ordinary share, in the fourth quarter of 2016.  Net income included $14.8 million of net realized and unrealized investment gains in the fourth quarter of 2017 compared with $(58.1) million net realized and unrealized investment losses in the fourth quarter of 2016. Operating loss after tax of $(178.1) million, or $(3.14) per diluted ordinary share, in the fourth quarter of 2017 compared with operating loss of $(7.4) million, or $(0.34) per diluted ordinary share, in the fourth quarter of 2016 

Annualized net income return on average equity of (30.4)% and annualized operating return on average equity of (29.6)% for the quarter ended December 31, 2017 compared with (11.6)% and (2.8)%, respectively, for the fourth quarter of 2016

Operating highlights for the twelve months ended December 31, 2017

  • Gross written premiums increased by 6.8% to $3,360.9 million in the full year of 2017 compared with $3,147.0 million in the full year of 2016
  • Net written premiums decreased by 14.7% to $2,212.5 million in the full year of 2017 compared with $2,593.7 million in the full year of 2016. The retention ratio in the full year of 2017 was 65.8% compared with 82.4% in the full year of 2016
  • Loss ratio of 86.5% for the full year of 2017 compared with 59.8% for the full year of 2016. The loss ratio included $561.9 million, or 24.6 percentage points, of pre-tax catastrophe losses, net of reinsurance recoveries and $14.1 million of reinstatement premiums, in the full year of 2017. This compared with $164.4 million, or 6.3 percentage points, of pre-tax catastrophe losses, net of reinsurance recoveries and $2.0 million of reinstatement premiums, in the full year of 2016 
  • Net favorable development on prior year loss reserves of $105.4 million benefited the loss ratio by 4.6 percentage points in the full year of 2017. In the full year of 2016, net favorable development of $129.3 million benefited the loss ratio by 4.9 percentage points
  • Accident year loss ratio excluding catastrophes of 66.5% for the full year of 2017 compared with 58.4% for the full year of 2016
  • Total expense ratio of 39.2% and total expense ratio (excluding amortization and non-recurring expenses) of37.8% for the full year of 2017 compared with 38.7% and 38.3%, respectively, for the full year of 2016, reflecting a decrease in the policy acquisition expense ratio and an increase in the general and administrative expense ratio
  • Net loss after tax of $(266.4) million or $(5.22) per diluted ordinary share for the twelve months ended December 31, 2017 compared with net income of $203.4 million, or $2.61 per diluted ordinary share, for the twelve months ended December 31, 2016. Net loss included $120.5 million of net realized and unrealized investment gains in the full year of 2017 compared with $42.1 million in the full year of 2016.  Operating loss after tax of $(355.7) million, or$(6.59) per diluted ordinary share, for the twelve months ended December 31, 2017 compared with operating income of $185.9 million, or $2.33 per diluted ordinary share, for the twelve months ended December 31, 2016
  • Annualized net income return on average equity of (11.1)% and annualized operating return on average equity of (14.0)% for the full year of 2017 compared with 5.4% and 4.8%, respectively, for the full year of 2016

Investment performance 

  • Investment income of $47.5 million in the fourth quarter of 2017 compared with $43.2 million in the fourth quarter of 2016
  • The total return on Aspen’s aggregate investment portfolio was 0.3% for the three months ended December 31, 2017 and reflects net realized and unrealized gains and losses in both the fixed income and equity portfolios. In the full year of 2017, Aspen's aggregate investment portfolio had a total return of 3.4%
  • Aspen’s investment portfolio was comprised primarily of high quality fixed income securities with an average credit quality of “AA-”. The average duration of the fixed income portfolio was 3.9 years as at December 31, 2017 and December 31, 2016
  • Book yield on the fixed income portfolio as at December 31, 2017 was 2.56% compared with 2.49% as at December 31, 2016

Capital

  • Total shareholders’ equity was $2.9 billion as at December 31, 2017
  • Diluted book value per share was $40.10 as at December 31, 2017, down 14.2% from December 31, 2016
  • Aspen repurchased 648,941 ordinary shares in 2017 at an average price of $46.23 per ordinary share for a total cost of $30.0 million.
  • During 2017, Aspen redeemed Perpetual Non-Cumulative Preference Shares in the aggregate amount of $293.2 million

Operational Effectiveness and Improvement Program

  • Aspen recorded $11.1 million of expenses related to its operational effectiveness and improvement program in the fourth quarter of 2017 and $15.2 million in the full year of 2017

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