Aspen Insurance (NYSE:AHL)
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Aspen Insurance Holdings Limited (NYSE:AHL) today reported that for the
first quarter of 2008 net income after tax was $81.2 million or $0.85
per share versus $121.9 million and $1.27 per share for the first
quarter of 2007. The combined ratio was 85.4%, compared to 79.4% in the
same quarter last year. The annualized return on average equity was
12.8%, down from 22.9% in the first quarter of 2007, and book value per
share increased 23.7% to $29.22 when compared to the first quarter of
2007.
For the quarter, net income per share would be $0.16 higher at $1.01 per
share if losses associated with the investment in funds of hedge funds
were excluded. The $1.01 per share compares to $1.18 per share in Q1
2007. On this basis the Q1 2008 annualized ROE would be 15.3% versus an
equivalent figure of 21.2% for Q1 2007.
First Quarter Financial Highlights
($ in millions, except per share amounts and percentages)
(Unaudited)
Q1 2008
Q1 2007
Change
Gross written premium
$
596.2
$
636.5
(6.3
)%
Net earned premium
$
391.6
$
439.0
(10.8
)%
Net investment income
$
39.1
$
67.5
(42.1
)%
Net Income after tax
$
81.2
$
121.9
(33.4
)%
Net income per share
$
0.85
$
1.27
(33.1
)%
Annualized return on average equity
12.8
%
22.9
%
Combined ratio
85.4
%
79.4
%
Book value per share
$
29.22
$
23.62
23.7
%
Chris O’Kane, Chief Executive Officer said,
“Book value per share at the end of the first
quarter was $29.22, which is up 23.7% year-over-year and the eighth
consecutive quarterly increase in book value. Underwriting results were
strong with a combined ratio of 85.4%, which is well within our plan. As
we anticipated, we wrote less business this quarter because of declines
in rates. We continue to maintain our underwriting discipline. Cash flow
from operating activities also remained strong at $163.5 million for the
quarter, up 27%. However, net income and EPS were impacted by
disappointing returns from our investment in funds of hedge funds.”
Operating Highlights for Q1 2008
Gross written premium for the quarter was in-line with plan at $596.2
million, down 6.3% from Q1 2007.
Aspen established Syndicate 4711 at Lloyd’s,
providing the Company with the benefit of Lloyd’s
global licensing as well as its important distribution platform for
many of the lines in which Aspen has strong leadership positions.
The first quarter combined ratio of 85.4% was achieved during a period
of unusually high single risk losses, reflecting Aspen’s
strong risk selection process.
Cash flows from operating activities increased to $163.5 million from
$128.8 million in the first quarter of 2007. Assets under management
increased to $6.0 billion at the end of the first quarter 2008 from
$5.9 billion at the end of 2007.
Business Segment Highlights for Q1 2008
A summary of the operating highlights for each of Aspen’s
four business segments is presented below.
Property Reinsurance Segment
The Property Reinsurance segment enjoyed a strong first quarter,
recording a combined ratio of 63.4% compared with 69.1% last year. The
industry has suffered a higher than anticipated number of medium to
large sized single risk losses, the majority of which have not impacted
Aspen. The improvement in the loss ratio for the segment from 41.8 % to
29.9% is due mainly to $13.6 million of reserve releases in the first
quarter of 2008 compared with a strengthening of $7.8 million in the
first quarter 2007. The current year reserve releases are attributable
to a reduction in loss estimates associated with the U.K. floods in June
2007 and a favorable settlement on a prior year loss.
Casualty Reinsurance Segment
Casualty Reinsurance faced a challenging pricing environment and the
combined ratio increased from 84.6% in the first quarter of 2007 to
94.9%. The adverse movement in the combined ratio was impacted by
reserve releases which were $7.7 million less than Q1 2007, at $14.3
million and slightly higher than anticipated profit commissions.
International Insurance Segment
The International Insurance segment reported a combined ratio of 95.5%
compared with 82.7% last year. Gross written premium increased by 7.6%
to $199.3 million reflecting the contribution of new teams, which has
improved the diversification of our portfolio. The loss ratio increased
from 55.4% to 65.0% impacted by a satellite loss and lower reserve
releases this quarter compared to the first quarter of 2007.
U.S. Insurance Segment
The U.S. Insurance operation continues its rebuilding phase against the
backdrop of a highly competitive pricing environment. The combined ratio
has increased for the segment from 96.0% to 103.7% due mainly to a
reduction in earned premium associated with the restructuring of the
segment to enhance its long-term prospects. The loss ratio of 50.8%
compares favorably with 59.6% for the prior period.
Investment Performance for Q1 2008
Net investment income declined from $67.5 million in the first quarter
of 2007 to $39.1 million in 2008 primarily due to the performance of our
funds of hedge funds which are equity accounted for in our net income.
Net investment income for the quarter also included a one-off negative
accounting adjustment of $7.8 million relating to 2007. The funds of
hedge funds investments have produced cumulative returns of more than
15% since April 2006, when the company initiated investing in them, and
they remain an important component of Aspen’s
investment diversification strategy.
Outlook for 2008
The Company expects that for the remainder of 2008 pricing will continue
to soften but total Gross Written Premium and Net Earned Premium levels
will remain within Aspen’s original guidance.
On the investment side, market volatility and lower interest rates are
expected to impact returns. As a result, 2008 guidance on investment
income is revised to $250 million to $285 million, with fixed income and
short-term investments expected to contribute $240 million to $255
million and funds of hedge funds expected to contribute $10 million to
$30 million. Aspen expects to report an ROAE (return on average equity)
in the range of 13.0% to 16.0% for 2008, assuming normal loss
experience, reducing the top and bottom of the range of our original
guidance by 1 percentage point.
Earnings conference call
Aspen will hold a conference call May 1st, 2008 at 8:30am
(Eastern Time).
Dial-in: 888-459-5609 (toll-free domestic U.S.) or 973-321-1024
(international)
Conference ID: 40596535
Please call to register at least 10 minutes before the conference call
begins.
The conference call will be webcast live in the ‘presentations’
section of the Investor Relations page of Aspen's website. A detailed
financial supplement has been posted to the website. A brief slide
presentation will also available on the website and may be used for
reference during the earnings call.
A replay of the call will be available for 10 days via telephone
starting two hours following the end of the live call and can be
accessed at 800-642-1687 (toll-free domestic U.S.) or 706-645-9291
(international); digital pin: 40596535. A replay will also be
available for 10 days via Aspen’s website at www.aspen.bm.
For more information, please contact:
Aspen Insurance Holdings Limited
Summary Consolidated Balance Sheet
($ in millions, except per share data)
(Unaudited)
(in US$ millions)
As at March 31, 2008
As at December 31, 2007
ASSETS
Total investments
$
5,326.0
$
5,227.3
Cash and cash equivalents
695.7
651.4
Reinsurance recoverables
276.0
304.7
Premiums receivables
796.7
680.1
Other assets
393.0
337.8
Total assets
$
7,487.4
$
7,201.3
LIABILITIES
Losses and loss adjustment expenses
$
2,950.3
$
2,946.0
Unearned premiums
930.1
757.6
Other payables
434.8
430.6
Long-term debt
249.5
249.5
Total liabilities
$
4,564.7
$
4,383.7
SHAREHOLDERS’ EQUITY
Total shareholders’ equity
2,922.7
2,817.6
Total liabilities and shareholders’ equity
$
7,487.4
$
7,201.3
Book value per share
29.22
27.95
Diluted book value per share (treasury stock method)
28.48
27.08
Aspen Insurance Holdings Limited
Summary Consolidated Statements of Income
($ in millions, except share, per share data and ratios)
(Unaudited)
(in US$ millions)
Three Months EndedMarch 31, 2008
Three Months EndedMarch 31, 2007
UNDERWRITING REVENUES
Gross written premiums
$
596.2
$
636.5
Premiums ceded
(76.6
)
(81.4
)
Net written premiums
519.6
555.1
Change in unearned premiums
(128.0
)
(116.1
)
Net earned premiums
391.6
439.0
UNDERWRITING EXPENSES
Losses and loss expenses
207.2
225.5
Acquisition expenses
76.4
77.7
General and administrative expenses
50.8
45.3
Total underwriting expenses
334.4
348.5
Underwriting income
57.2
90.5
OTHER OPERATING REVENUE
Net investment income
39.1
67.5
Interest expense
(3.9
)
(4.2
)
Total other operating revenue
35.2
63.3
Other income (expense)
(2.2
)
(7.3
)
OPERATING INCOME BEFORE TAX
90.2
146.5
OTHER
Net realized exchange gains (losses)
4.3
5.5
Net realized investment gains (losses)
1.0
(4.8
)
INCOME BEFORE TAX
95.5
147.2
Income taxes
(14.3
)
(25.3
)
NET INCOME AFTER TAX
81.2
121.9
Dividends paid on ordinary shares
(12.9
)
(13.2
)
Dividends paid on preference shares
(6.9
)
(6.9
)
Retained income
$
61.4
$
101.8
Components of net income (after tax)
Operating income
$
76.0
$
120.6
Net realized exchange gains (losses) (after tax)
4.3
5.5
Net realized investment gains (losses) (after tax)
0.9
(4.2
)
NET INCOME AFTER TAX
$
81.2
$
121.9
Aspen Insurance Holdings Limited
Summary Consolidated Financial Data
($ in millions, except share, per share data and ratios)
(Unaudited)
Three Months EndedMarch 31, 2008
Three Months EndedMarch 31, 2007
Basic earnings per ordinary share
Net income adjusted for preference share dividend
$
0.87
$
1.31
Net income adjusted for preference share dividend excluding net
income or losses from other investments accounted for by the equity
method
$
1.04
$
1.21
Operating income adjusted for preference dividend
$
0.81
$
1.29
Diluted earnings per ordinary share
Net income adjusted for preference share dividend
$
0.85
$
1.27
Net income adjusted for preference share dividend excluding net
income or losses from other investments accounted for by the equity
method
$
1.01
$
1.18
Operating income adjusted for preference dividend
$
0.79
$
1.26
Combined ratio
85.4
%
79.4
%
Aspen Insurance Holdings Limited
Summary Consolidated Segment Information
($ in millions except ratios)
(Unaudited)
Three Months EndedMarch 31, 2008
Three Months EndedMarch 31, 2007
Gross written premiums
Property Reinsurance
$
184.2
$
192.1
Casualty Reinsurance
182.1
223.3
International Insurance
199.3
185.3
U.S. Insurance
30.6
35.8
Total
$
596.2
$
636.5
Premiums ceded
Property Reinsurance
$
8.8
$
15.0
Casualty Reinsurance
2.1
6.7
International Insurance
57.3
45.4
U.S. Insurance
8.4
14.3
Total
$
76.6
$
81.4
Net written premiums
Property Reinsurance
$
175.4
$
177.1
Casualty Reinsurance
180.0
216.6
International Insurance
142.0
139.9
U.S. Insurance
22.2
21.5
Total
$
519.6
$
555.1
Net earned premiums
Property Reinsurance
$
127.0
$
153.4
Casualty Reinsurance
94.7
106.4
International Insurance
150.2
146.8
U.S. Insurance
19.7
32.4
Total
$
391.6
$
439.0
Underwriting profit
Property Reinsurance
$
46.5
$
47.4
Casualty Reinsurance
4.8
16.4
International Insurance
6.6
25.4
U.S. Insurance
(0.7
)
1.3
Total
$
57.2
$
90.5
Combined ratio
Property Reinsurance
63.4
%
69.1
%
Casualty Reinsurance
94.9
%
84.6
%
International Insurance
95.5
%
82.7
%
U.S. Insurance
103.7
%
96.0
%
Total
85.4
%
79.4
%
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 Bermuda, France, Ireland, the United States, the United
Kingdom, and Switzerland. For the three months ended March 31, 2008,
Aspen reported gross written premiums of $596.2 million, net income of
$81.2 million and total assets of $7.5 billion. For more information
about Aspen, please visit www.aspen.bm.
Application of the Safe Harbor of the Private Securities Litigation
Reform Act of 1995:
This press release contains, and Aspen's earnings conference call will
contain, written or oral "forward-looking statements" within the meaning
of the U.S. federal securities laws. These statements 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, and can be
identified by the use of words such as "expect," "intend," "plan,"
"believe," "project," "anticipate," "seek," "will," "estimate," "may,"
"continue," “guidance,”
and similar expressions of a future or forward-looking nature.
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.
Due to the complexity of factors contributing to the losses and the
preliminary nature of the information used to prepare these estimates,
there can be no assurance that Aspen's ultimate losses will remain
within the stated amount.
All forward-looking statements address matters that involve risks and
uncertainties. Accordingly, there are or will be important factors that
could cause actual results to differ materially from those indicated in
these statements. Aspen believes these factors include, but are not
limited to: the impact of deteriorating credit environment created by
the sub-prime crisis and global credit crunch; a decline in the value of
our investment portfolio or a rating downgrade of the securities in our
portfolio; changes in the total industry losses resulting from
Hurricanes Katrina, Rita and Wilma and any other events, and the actual
number of Aspen's insureds incurring losses from these events; with
respect to events such as Hurricanes Katrina, Rita and Wilma, Aspen’s
reliance on loss reports received from cedants and loss adjustors,
Aspen's reliance on industry loss estimates and those generated by
modeling techniques, the impact of these events on Aspen's reinsurers,
any changes in Aspen's reinsurers' credit quality, the amount and timing
of reinsurance recoverables and reimbursements actually received by
Aspen from its reinsurers and the overall level of competition and the
related demand and supply dynamics as contracts come up for renewal; the
impact that our future operating results, capital position and rating
agency and other considerations have on the execution of any capital
management initiatives; the impact of any capital management activities
on our financial condition; the impact of acts of terrorism and related
legislation and acts of war; the possibility of greater frequency or
severity of claims and loss activity, including as a result of natural
or man-made catastrophic events than our underwriting, reserving or
investment practices have anticipated; evolving interpretive issues with
respect to coverage as a result of Hurricanes Katrina, Rita and Wilma
and any other events such as the U.K. floods; the level of inflation in
repair costs due to limited availability of labor and materials after
catastrophes; the effectiveness of Aspen's loss limitation methods;
changes in the availability, cost or quality of reinsurance or
retrocessional coverage, which may affect our decision to purchase such
coverage; the reliability of, and changes in assumptions to, catastrophe
pricing, accumulation and estimated loss models; loss of key personnel;
a decline in our operating subsidiaries' ratings with Standard & Poor's,
A.M. Best Company or Moody's Investors Service; changes in general
economic conditions including inflation, foreign currency exchange
rates, interest rates and other factors that could affect our investment
portfolio; the number and type of insurance and reinsurance contracts
that we wrote at the January 1st and other
renewal periods in 2008 and the premium rates available at the time of
such renewals within our targeted business lines; increased competition
on the basis of pricing, capacity, coverage terms or other factors;
decreased demand for Aspen’s insurance or
reinsurance products and cyclical downturn of the industry; changes in
governmental regulations, interpretations or tax laws in jurisdictions
where Aspen conducts business; proposed and future changes to insurance
laws and regulations, including with respect to U.S. state- and other
government-sponsored reinsurance funds and primary insurers; Aspen or
its Bermudian subsidiary becoming subject to income taxes in the United
States or the United Kingdom; the effect on insurance markets, business
practices and relationships of ongoing litigation, investigations and
regulatory activity by the New York State Attorney General's office and
other authorities concerning contingent commission arrangements with
brokers and bid solicitation activities. For a more detailed description
of these uncertainties and other factors, please see the "Risk Factors"
section in Aspen's Annual Reports on Form 10-K as filed with the U.S.
Securities and Exchange Commission on February 29, 2008. Aspen
undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the
dates on which they are made.
Non-GAAP Financial Measures
In presenting Aspen's results, management has included and discussed
certain "non-GAAP financial measures" as such term is defined in
Regulation G. Management believes that these non-GAAP measures, which
may be defined differently by other companies, better explain Aspen's
results of operations in a manner that allows for a more complete
understanding of the underlying trends in Aspen's business. However,
these measures should not be viewed as a substitute for those determined
in accordance with GAAP. The reconciliation of such non-GAAP financial
measures to their respective most directly comparable GAAP financial
measures in accordance with Regulation G is included in the financial
supplement, which can be obtained from the Investor Relations section of
Aspen's website at www.aspen.bm.
(1) Annualized Operating Return on Average Equity (“Operating
ROAE”) is a non-GAAP financial measure.
Annualized Operating Return on Average Equity 1) is calculated using
operating income, as defined below and 2) excludes from average equity,
the average after-tax unrealized appreciation or depreciation on
investments and the average after-tax unrealized foreign exchange gains
or losses and the aggregate value of the liquidation preferences of our
preference shares. Unrealized appreciation (depreciation) on investments
is primarily the result of interest rate movements and the resultant
impact on fixed income securities, and unrealized appreciation
(depreciation) on foreign exchange is the result of exchange rate
movements between the U.S. dollar and the British pound. Such
appreciation (depreciation) is not related to management actions or
operational performance (nor is it likely to be realized). Therefore,
Aspen believes that excluding these unrealized appreciations
(depreciations) provides a more consistent and useful measurement of
operating performance, which supplements GAAP information. Average
equity is calculated as the arithmetic average on a monthly basis for
the stated periods.
Aspen presents Operating ROAE as a measure that is commonly recognized
as a standard of performance by investors, analysts, rating agencies and
other users of its financial information.
See page 25 of Aspen's financial supplement for a reconciliation of
operating income to net income and page 7 or a reconciliation of average
equity.
(2) Operating income is a non-GAAP financial measure. Operating
income is an internal performance measure used by Aspen in the
management of its operations and represents after-tax operational
results excluding, as applicable, after-tax net realized capital gains
or losses and after-tax net foreign exchange gains or losses.
Aspen excludes after-tax net realized capital gains or losses and
after-tax net foreign exchange gains or losses from its calculation of
operating income because the amount of these gains or losses is heavily
influenced by, and fluctuates in part, according to the availability of
market opportunities. Aspen believes these amounts are largely
independent of its business and underwriting process and including them
distorts the analysis of trends in its operations. In addition to
presenting net income determined in accordance with GAAP, Aspen believes
that showing operating income enables investors, analysts, rating
agencies and other users of its financial information to more easily
analyze Aspen's results of operations in a manner similar to how
management analyzes Aspen's underlying business performance. Operating
income should not be viewed as a substitute for GAAP net income. Please
see above and page 25 of Aspen's financial supplement for a
reconciliation of operating income to net income. Aspen’s
financial supplement can be obtained from the Investor Relations section
of Aspen's website at www.aspen.bm.
(3) Net income excluding net income or losses from other investments
accounted for by the equity method is a non-GAAP financial measure.
This is an internal performance measure used by Aspen in the management
of its operations and represents net income adjusted for preference
share dividends excluding after-tax net income or losses from
investments accounted for using the equity method.
Aspen excludes net income or loss from investments accounted for using
the equity method from its calculation of net income because the amount
of these gains or losses are largely independent of its business and
underwriting process and including them distorts the analysis of trends
in its operations. In addition to presenting net income determined in
accordance with GAAP, Aspen believes that showing net income excluding
net income or losses for other investments accounted for by the equity
method enables investors, analysts, rating agencies and other users of
its financial information to more easily analyze Aspen's results of
operations in a manner similar to how management analyzes Aspen's
underlying business performance. Net income excluding net income or
losses for other investments accounted for by the equity method should
not be viewed as a substitute for GAAP net income. Please see above and
page 26 of Aspen's financial supplement for a reconciliation of net
income excluding net income or losses for other investments accounted
for by the equity method income to net income. Aspen’s
financial supplement can be obtained from the Investor Relations section
of Aspen's website at www.aspen.bm.
(4) Diluted book value per ordinary share is a non-GAAP financial
measure. Aspen has included diluted book value per ordinary share
because it takes into account the effect of dilutive securities;
therefore, Aspen believes it is a better measure of calculating
shareholder returns than book value per share. Please see page 24 of
Aspen's financial supplement for a reconciliation of diluted book value
per share to basic book value per share. Aspen's financial supplement
can be obtained from the Investor Relations section of Aspen's website
at www.aspen.bm.