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Aspen reports results for the fourth quarter and twelve months ended December 31, 2018

6th February

Aspen reported today a net loss after tax of $(146.8) million, or $(2.60) per diluted ordinary share, and operating income after tax of $(124.4) million, or $(2.23) per diluted ordinary share, for the fourth quarter of 2018.

Chris O’Kane, Chief Executive Officer, commented: “Aspen's fourth quarter 2018 results were impacted by the significant natural catastrophe activity that we witnessed across the industry during the period. However, we improved our underwriting performance for the full year and achieved our target for reducing our expense ratio.(1) We continue to focus on providing our clients and business partners with outstanding service and enhancing further our financial and operational performance.

"We are making good progress with our proposed transaction with the Apollo Funds and have received most of the required regulatory approvals. We anticipate completing the transaction during the first quarter of 2019."

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

Operating highlights for the quarter ended December 31, 2018

Gross written premiums of $603.1 million in the fourth quarter of 2018, a decrease of 12.4% compared with $688.3 million in the fourth quarter of 2017.

  • Insurance: Gross written premiums of $453.3 million, a decrease of 4.0% compared with $472.2 million in the fourth quarter of 2017 due primarily to a decrease in the Marine, Aviation and Energy sub-segment,  mainly as a result of the previously announced exit from the Aviation business, partially offset by growth in the Financial and Professional Lines sub-segment
  • Reinsurance: Gross written premiums of $149.8 million, a decrease of 30.7% compared with $216.1 million in the fourth quarter of 2017. The reduction in gross written premiums was due primarily to a decrease in the Specialty Reinsurance sub-segment following the commutation of a mortgage reinsurance contract during the fourth quarter of 2018. In addition, gross written premiums in the fourth quarter of 2017 included approximately $35 million related to transitional arrangements following the sale of AgriLogic during that quarter

Net written premiums of $381.6 million in the fourth quarter of 2018, an increase of 12.2% compared with $340.2 million in the fourth quarter of 2017. The retention ratio in the fourth quarter of 2018 was 63.3% compared with 49.4% in the fourth quarter of 2017.

  • Insurance: Net written premiums of $247.0 million, an increase of 31.7% compared with $187.5 million in the fourth quarter of 2017. Net written premiums in the fourth quarter of 2017 were lower due to changes to the ceded reinsurance program that were implemented during that quarter and that related primarily to the U.S. property business
  • Reinsurance: Net written premiums of $134.6 million, a decrease of 11.9% compared with $152.7 million in the fourth quarter of 2017. The fourth quarter of 2017 reflected ceded written premiums of approximately $35 million relating to the transitional arrangements following the sale of AgriLogic

Loss ratio of 96.8% in the fourth quarter of 2018 compared with 106.5% in the fourth quarter of 2017. The loss ratio included pre-tax catastrophe losses of $164.1 million, or 30.9 percentage points, net of reinsurance recoveries and reinstatement premiums, in the fourth quarter of 2018 compared with $137.6 million, or 27.0 percentage points, net of reinsurance recoveries and reinstatement premiums, in the fourth quarter of 2017.

  • Insurance: Loss ratio of 86.6% compared with 95.2% in the fourth quarter of 2017. The loss ratio included pre-tax catastrophe losses of $27.8 million, or 11.4 percentage points, net of reinsurance recoveries, in the fourth quarter of 2018 primarily as a result of wildfires in California and Hurricane Michael in the U.S. In the fourth quarter of 2017, pre-tax catastrophe losses totaled $2.4 million, or 1.0 percentage point, net of reinsurance recoveries and reinstatement premiums
  • Reinsurance: Loss ratio of 105.1% compared with 116.3% in the fourth quarter of 2017. The loss ratio included pre-tax catastrophe losses of $136.3 million, or 47.1 percentage points, net of reinsurance recoveries and $7.8 million of reinstatement premiums, in the fourth quarter of 2018 primarily as a result of wildfires in California and Hurricane Michael in the U.S., Typhoon Jebi in Japan and various other weather-related events in the U.S. and Asia. In the fourth quarter of 2017, pre-tax catastrophe losses totaled $135.2 million, or 49.6 percentage points, net of reinsurance recoveries and reinstatement premiums

Net favorable development on prior year loss reserves of $11.4 million benefited the loss ratio by 2.1 percentage points in the fourth quarter of 2018. Prior year net favorable reserve development of $12.6 million benefited the loss ratio by 2.5 percentage points in the fourth quarter of 2017.

  • Insurance: Prior year net unfavorable reserve development of $10.5 million negatively impacted the loss ratio by (4.3) percentage points in the fourth quarter of 2018. Prior year net favorable development of $1.8 million benefited the loss ratio by 0.8 percentage points in the fourth quarter of 2017
  • Reinsurance: Prior year net favorable reserve development of $21.9 million benefited the loss ratio by 7.6 percentage points in the fourth quarter of 2018. Prior year net favorable development of $10.8 million benefited the loss ratio by 4.0 percentage points in the fourth quarter of 2017

Accident year loss ratio excluding catastrophes was 68.0% in the fourth quarter of 2018 compared with 82.0% in the fourth quarter of 2017, reflecting improvements in both the Insurance and Reinsurance segments.

  • Insurance: Accident year loss ratio excluding catastrophes was 70.9% in the fourth quarter of 2018 compared with 95.0% in the fourth quarter of 2017, reflecting actions taken to enhance underwriting performance in a number of areas, including the U.S. Property business
  • Reinsurance: Accident year loss ratio excluding catastrophes was 65.6% in the fourth quarter of 2018 compared with 70.7% in the fourth quarter of 2017, reflecting improvement in the Casualty Reinsurance and Specialty Reinsurance sub-segments

Total expense ratio of 36.0% and total expense ratio (excluding amortization and non-recurring expenses) of 35.1% in the fourth quarter of 2018 compared with 46.1% and 41.5%, respectively, in the fourth quarter of 2017.

  • Amortization and non-recurring expenses of $5.0 million in the fourth quarter of 2018 included $11.6 million of expenses related to the operational effectiveness and efficiency program, $5.7 million of retention costs and $0.4 million of advisor fees relating to the proposed transaction with the Apollo Funds, partially offset by the write-back of a $14.1 million buy-out provision. Amortization and non-recurring expenses in the fourth quarter of 2017 were $23.2 million
  • The policy acquisition expense ratio was 17.4% in the fourth quarter of 2018 compared with 16.7% in the fourth quarter of 2017
  • General and administrative expenses (excluding amortization and non-recurring expenses) were $95.1 million in the fourth quarter of 2018 compared with $126.9 million in the fourth quarter of 2017. The decrease reflects a reduction in performance-based variable compensation, savings from the operational effectiveness and efficiency program and the elimination of expenses associated with AgriLogic which was sold in December 2017. The general and administrative expense ratio (excluding amortization and non-recurring expenses) decreased to 17.7% from 24.8% in the fourth quarter of 2017

Net loss after tax of $(146.8) million, or $(2.60) per diluted ordinary share, in the fourth quarter of 2018 compared with net loss of $(184.9) million, or $(3.25) per diluted ordinary share, in the fourth quarter of 2017.

  • Net loss in the fourth quarter of 2018 included $(5.4) million of net realized and unrealized investment losses and $(10.9) million of net realized and unrealized foreign exchange losses compared with $14.8 million of net realized and unrealized investment gains and $(0.3) million of net realized and unrealized foreign exchange losses in the fourth quarter of 2017

Operating loss after tax of $(124.4) million, or $(2.23) per diluted ordinary share, in the fourth quarter of 2018 compared with operating loss of $(178.1) million, or $(3.14) per diluted ordinary share, in the fourth quarter of 2017.

Annualized net income return on average equity of (28.4)% and annualized operating return on average equity of (24.0)% for the quarter ended December 31, 2018 compared with (30.4)% and (29.6)%, respectively, for the fourth quarter of 2017.

Operating highlights for the twelve months ended December 31, 2018

Gross written premiums increased by 2.6% to $3,446.9 million in the full year of 2018 compared with $3,360.9 million in the full year of 2017.

Net written premiums decreased by 5.9% to $2,082.0 million in the full year of 2018 compared with $2,212.5 million in the full year of 2017. The retention ratio in the full year of 2018 was 60.4% compared with 65.8% in the full year of 2017.

Loss ratio of 71.0% for the full year of 2018 compared with 86.5% for the full year of 2017. The loss ratio for the full year of 2018 included $262.9 million, or 12.1 percentage points, of pre-tax catastrophe losses, net of reinsurance recoveries and reinstatement premiums. The loss ratio for the full year of 2017 included $561.9 million, or 24.6 percentage points, of pre-tax catastrophe losses, net of reinsurance recoveries and reinstatement premiums.

Net favorable development on prior year loss reserves of $111.1 million benefited the loss ratio by 5.0 percentage points in the full year of 2018. In the full year of 2017, net favorable development of $105.4 million benefited the loss ratio by 4.6 percentage points.

Accident year loss ratio excluding catastrophes of 63.9% for the full year of 2018 compared with 66.5% for the full year of 2017.

Total expense ratio of 39.0% and total expense ratio (excluding amortization and non-recurring expenses) of 35.5% for the full year of 2018 compared with 39.2% and 37.8%, respectively, for the full year of 2017, primarily due to a decrease in the general and administrative expense ratio (excluding amortization and non-recurring expenses).

  • Amortization and non-recurring expenses in the full year of 2018 included $37.5 million of expenses related to the operational effectiveness and efficiency program, $39.0 million of advisor fees relating to the proposed transaction with the Apollo Funds, $11.3 million of retention costs, partially offset by the write-back of a $14.1 million buy-out provision

Net loss after tax of $(145.8) million or $(2.97) per diluted ordinary share (adjusted for preference shares dividends and non-controlling interest) for the twelve months ended December 31, 2018 compared with net loss of $(266.4) million, or $(5.22) per diluted ordinary share, for the twelve months ended December 31, 2017. Net loss in the full year of 2018 included $(64.7) million of net realized and unrealized investment losses and $(35.3) million of net realized and unrealized foreign exchange losses compared with net realized and unrealized investment gains of $120.5 million and $3.8 million of net realized and unrealized foreign exchange gains in the full year of 2017. Net loss in the full year 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 $31.8 million, or $0.01 per diluted ordinary share, for the twelve months ended December 31, 2018 compared with operating loss of $(355.7) million, or $(6.59) per diluted ordinary share, for the twelve months ended December 31, 2017.

Annualized net income return on average equity of (7.7)% and annualized operating return on average equity of 0.0% for the full year of 2018 compared with (11.1)% and (14.0)%, respectively, for the full year of 2017.

Investment performance

  • Investment income of $52.5 million in the fourth quarter of 2018 compared with $47.5 million in the fourth quarter of 2017
  • The total return on Aspen’s aggregate investment portfolio was 1.15% for the three months ended December 31, 2018 and reflects net investment income and net realized and unrealized gains and losses mainly in the fixed income portfolio. In the full year of 2018, Aspen's aggregate investment portfolio had a total return of 0.6%
  • Aspen’s investment portfolio as at December 31, 2018 consisted primarily of high quality fixed income securities with an average credit quality of “AA-”. The average duration of the fixed income portfolio was 3.5 years as at December 31, 2018
  • Book yield on the fixed income portfolio as at December 31, 2018 was 2.69% compared with 2.56% as at December 31, 2017

Capital and Debt

  • Total shareholders’ equity was $2.7 billion as at December 31, 2018
  • Diluted book value per share was $35.48 as at December 31, 2018, an 11.5% decrease from December 31, 2017 primarily due to realized and unrealized investment losses, non-recurring costs associated with the operational effectiveness and efficiency program and advisor fees relating to the proposed transaction with the Apollo Funds

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