Aspen Insurance (NYSE:AHL)
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Aspen Insurance Holdings Limited (NYSE:AHL) today reported a net loss
after tax for the third quarter of 2008 of $116.7 million or an
operating loss of $1.02 per share, compared to a net profit after tax of
$117.2 million, or earnings of $1.12 per share for the same quarter last
year. On a year-to-date basis, diluted operating earnings per share were
$1.28 compared with $3.52 in 2007. Hurricanes Ike and Gustav accounted
for $1.91 of the reduction in diluted earnings per share for the third
quarter and $1.80 per share for the first nine months of 2008. The fund
of hedge funds performance within the Company’s
net investment income accounted for $0.52 of the reduction in diluted
earnings per share for the quarter and $0.56 for the first nine months
of 2008.
Book value per share on a diluted basis at the end of the third quarter
was $26.21 compared with $25.68 at September 30, 2007. Diluted book
value per share has decreased by $0.87 since December 31, 2007 and by
$2.78 since the end of June 2008, mainly as a result of hurricane
losses, impairment losses and increased unrealized losses in the
investment portfolio.
Third Quarter Financial Highlights
($ in millions, except per share amounts and percentages)
(Unaudited)
Q3 2008
Q3 2007
Change
Gross written premium
$
441.3
$
373.5
18.2
%
Net earned premium
$
434.2
$
419.7
3.5
%
Net investment income
$
19.3
$
72.4
(73.3
)%
Net income/(loss) after tax
$
(116.7
)
$
117.2
(199.6
)%
Operating earnings per share
$
(1.02
)
$
1.12
(191.1
)%
Annualized operating return on equity
(14.4
)%
18.7
%
Combined ratio
123.3
%
84.5
%
Diluted book value per share
$
26.21
$
25.68
2.1
%
First Nine Months 2008 Financial Highlights
($ in millions, except per share amounts and percentages)
(Unaudited)
2008
2007
Change
Gross written premium
$
1,566.3
$
1,513.5
3.5
%
Net earned premium
$
1,223.1
$
1,309.9
(6.6
)%
Net investment income
$
128.9
$
218.7
(41.1
)%
Net income after tax
$
91.4
$
353.8
(74.2
)%
Combined ratio
96.5
%
84.1
%
Annualized operating return on equity
6.4
%
20.3
%
Diluted operating earnings per share
$
1.28
$
3.52
(63.6
)%
Chris O'Kane, Chief Executive Officer said, "Our third quarter earnings
were impacted by the September hurricanes and investment losses
resulting from the global financial crisis. Our estimated losses from
Hurricanes Ike and Gustav are in line with our expectations for storms
of this size and nature. The impairment charge to our investment
portfolio was mainly due to write downs on our holdings of Lehman
Brothers bonds and we also experienced negative performance in our funds
of hedge funds investments. Our strong balance sheet leaves us well
positioned to benefit from the improved pricing environment which we
expect to result from the hurricanes and financial markets crisis. Our
prudent risk management and disciplined underwriting approach will
enable us to deploy our capital effectively against a backdrop of a
radically changing economic landscape."
Third Quarter 2008 Highlights
The expense ratio for the quarter was 28.1%, down from 32.1% in the
third quarter of 2007 due to a combination of an increase in earned
premiums from new underwriting teams and a reduction in operating
expenses.
Cash flow from operations for the quarter was $122.6 million and
$442.4 million for the first nine months of 2008.
Reserve releases were $15.6 million for the third quarter and $95.6
million for the first nine months of 2008.
Business Segment Highlights
A summary of the operating highlights for each of Aspen’s
four business segments is presented below.
Property Reinsurance
The property reinsurance segment recorded a combined ratio of 146.0% for
the third quarter compared with 69.1% for the same period in 2007.
Hurricanes Ike and Gustav accounted for 89 percentage points on the
combined ratio for the quarter. On a year-to-date basis, as of September
30, 2008, Aspen’s combined ratio was 93.4%
compared to 71.9% in the comparative period in 2007. Gross written
premium of $152.8 million for the third quarter of 2008 increased by
9.5% when compared to the same period in 2007 mainly as a result of
reinstatement premiums associated with Hurricanes Ike and Gustav. For
the first nine months of 2008, gross written premium of $507.5 million
decreased by 2.8% when compared to the same period in 2007.
Casualty Reinsurance
The combined ratio for the casualty reinsurance segment improved to
90.4% for the quarter from 101.7% in the third quarter of 2007. The
improvement in the combined ratio is due largely to favorable
development from prior years and prior period premium adjustments
particularly in our US Casualty line. On a year-to-date basis, as of
September 30, 2008, the combined ratio improved to 92.2% from 94.0% in
2007. In the third quarter, gross written premium in this segment
increased marginally, however in the nine months gross written premium
decreased by 16% over the same period in 2007, reflecting the Company’s
response to the prevailing market conditions.
International Insurance
The international insurance segment reported a combined ratio for the
third quarter of 119.4% compared with 81.0% for the same period in 2007.
Losses associated with Hurricanes Ike and Gustav of $46.0 million, net
of reinsurance recoveries and reinstatement premiums, accounted for 29
percentage points of the combined ratio for the quarter, arising mainly
in our offshore energy account. The residual variance in the combined
ratio is attributable mainly to the reduction in reserve releases from
$24.1 million in the third quarter of 2007 to $1.9 million in the
current quarter. On a year-to-date basis, the combined ratio for the
segment was 97.9% compared to 84.0% for the same period in 2007. Gross
written premium increased by 40.2% to $180.8 million, reflecting the
incremental contributions from business lines such as financial
institutions, professional liability and excess casualty insurance,
which have been developed over the past year.
U.S. Insurance
The combined ratio for the U.S. insurance segment in the quarter was
172.1% with Hurricanes Ike and Gustav accounting for 63 percentage
points of the increase compared with 97.3% for the same period in 2007.
Losses of $15.0 million have been incurred in respect of Hurricanes Ike
and Gustav. Excluding the impact of the hurricanes, the combined ratio
for the first nine months of 2008 has reduced slightly compared to the
same period in 2007. Nine-month gross written premium increased
marginally to $101.2 million when compared to the same period last year.
Investment Performance
Net investment income for the quarter was $19.3 million compared with
$72.4 million in the third quarter of 2007 due primarily to the
performance from the funds of hedge funds. Funds of hedge funds have
been materially impacted by the turmoil in the financial markets, with
performance, measured by funds net asset value, down by 7.6% or $42.2
million in the quarter and by 8.6% or $48.3 million for the first nine
months of 2008. In the prior year, funds of hedge funds returned 1.6% in
the third quarter of 2007 and 7.1% for the first nine months. The book
yield on the fixed income portfolio is 4.87% down from 5.08% in the
third quarter of 2007.
Third quarter performance included a $44.5 million, pre tax, charge for
other than temporary impairments in the investment portfolio,
principally in connection with Aspen’s
holdings in Lehman Brothers Holdings Inc. senior notes and subordinated
debt. This charge represents approximately 0.8% of cash and invested
assets at September 30, 2008. Unrealized losses at the end of September
2008 were $82.2 million compared with unrealized gains of $41.7 million
at the end of 2007.
Aspen’s fixed income portfolio consists of
high quality, diversified assets with 45.9% of the portfolio invested in
U.S. and foreign government-backed securities. The fixed income
portfolio has an average credit quality of AAA or equivalent, as rated
by S&P, and an average duration of 3.5 years.
Outlook for 2008
The Company anticipates that total gross written premium will remain
within original guidance of $1.8 billion +/- 5%. The combined ratio has
been revised to a range of 92% - 96% as a result of the hurricane driven
loss activity in the third quarter. Volatility in the financial markets
is expected to continue throughout the remainder of the year and as a
result guidance for investment income has been revised to a range of
$160 million to $205 million, with fixed income and short-term
investments expected to contribute $230 million to $245 million and
funds of hedge funds expected to contribute losses of between $40
million and $70 million. The tax rate has been revised to a range of 14%
to 17% as a result of the distribution of hurricane losses within the
group. The assumed cat-load has also been revised to $235 million for
the full year. Operating return on average equity is expected to be in
the range of 8.0% to 11.0% for 2008 assuming normal loss experience for
the remainder of the year.
Earnings conference call
Aspen will hold a conference call to discuss its financial results on
Thursday, October 30, 2008 at 10:00 a.m. (Eastern Time).
CONFERENCE CALL PARTICIPATION DETAILS –
October 30, 2008 at 10:00 a.m. (ET)
Participant Dial-In Numbers: +1 (888) 459-5609 (US Toll Free)
+1 (404) 665-9920 (International)
Conference ID: 65669655
Please call to register at least 10 minutes before the conference call
begins.
The conference call will be webcast live in the ‘presentations’
section of the Investor Relations page of Aspen's website, which is
located at www.aspen.bm.
The earnings press release and a detailed financial supplement will be
posted to the website, as well as a brief slide presentation which may
be used for reference during the earnings call.
REPLAY DETAILS
A replay of the call will be available for 10 days via telephone and
Internet starting two hours following the end of the live call.
Replay Access: +1 (800) 642-1687 (US Toll Free)
+1 (706) 645-9291 (International)
www.aspen.bm
Replay ID: 65669655
Aspen Insurance Holdings Limited
Summary Consolidated Balance Sheet
($ in millions, except per share data)
(Unaudited)
(in US$ millions)
As at September 30,
2008
As at December 31,
2007
ASSETS
Total investments
5,150.1
5,227.3
Cash and cash equivalents
741.6
651.4
Reinsurance recoverables
319.0
381.7
Premium receivables
675.4
575.6
Other assets
418.0
365.3
Total assets
7,304.1
7,201.3
LIABILITIES
Losses and loss adjustment expenses
3,081.9
2,946.0
Unearned premiums
940.8
757.6
Other payables
394.3
430.6
Long-term debt
249.5
249.5
Total liabilities
4,666.5
4,383.7
SHAREHOLDERS’ EQUITY
Total shareholders’ equity
2,637.6
2,817.6
Total liabilities and shareholders’ equity
7,304.1
7,201.3
Tangible book value per share
27.14
27.95
Diluted book value per share (treasury stock method)
26.21
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 Ended
September 30, 2008
Three Months Ended
September 30, 2007
UNDERWRITING REVENUES
Gross written premiums
441.3
373.5
Premiums ceded
(37.5
)
(24.7
)
Net written premiums
403.8
348.8
Change in unearned premiums
30.4
70.9
Net earned premiums
434.2
419.7
UNDERWRITING EXPENSES
Losses and loss expenses
413.4
219.9
Acquisition expenses
70.4
76.1
General and administrative expenses
51.6
58.6
Total underwriting expenses
535.4
354.6
Underwriting income
(101.2
)
65.1
OTHER OPERATING REVENUE
Net investment income
19.3
72.4
Interest expense
(3.8
)
(4.2
)
Total other operating revenue
15.5
68.2
Other income (expense)
0.6
(2.7
)
OPERATING INCOME BEFORE TAX
(85.1
)
130.6
OTHER
Net realized exchange gains
(2.7
)
9.2
Net realized investment losses
(46.8
)
(1.9
)
INCOME BEFORE TAX
(134.6
)
137.9
Income tax expense
17.9
(20.7
)
NET INCOME AFTER TAX
(116.7
)
117.2
Dividends paid on ordinary shares
(12.2
)
(13.3
)
Dividend paid on preference shares
(6.9
)
(6.9
)
Retained income
(135.8
)
97.0
Components of net income (after tax)
Operating income
(76.1
)
109.2
Net realized exchange gains (after tax)
(2.7
)
9.2
Net realized investment losses (after tax)
(37.9
)
(1.2
)
NET INCOME AFTER TAX
(116.7
)
117.2
Loss ratio
95.2
%
52.4
%
Policy acquisition expense ratio
16.2
%
18.1
%
General and administrative expense ratio
11.9
%
14.0
%
Expense ratio
28.1
%
32.1
%
Combined ratio
123.3
%
84.5
%
Aspen Insurance Holdings Limited
Summary Consolidated Financial Data
($ in millions, except share, per share data and ratios)
(Unaudited)
Three Months Ended
Nine Months Ended
(in US$ except for number of shares)
September 30, 2008
September 30, 2007
September 30, 2008
September 30, 2007
Basic earnings (loss) per ordinary share
Net income (loss) adjusted for preference share
dividend
$
(1.52
)
$
1.24
$
0.85
$
3.77
Operating income (loss) adjusted for preference
dividend
$
(1.02
)
$
1.15
$
1.32
$
3.62
Diluted earnings (loss) per ordinary share
Net income (loss) adjusted for preference share
dividend
$
(1.52
)
$
1.21
$
0.82
$
3.67
Operating income (loss) adjusted for preference
dividend
$
(1.02
)
$
1.12
$
1.28
$
3.52
Weighted average number of ordinary shares outstanding (in millions)
81.376
88.712
83.459
88.250
Weighted average number of ordinary shares outstanding and dilutive
potential ordinary shares (in millions)
81.376
91.082
86.114
90.758
Book value per ordinary share
$
27.14
$
26.46
Diluted book value (treasury stock method)
$
26.21
$
25.68
Ordinary shares outstanding at end of the period (in millions)
81.450
87.146
Ordinary shares outstanding and dilutive potential ordinary shares
at end of the period (treasury stock method) (in millions)
84.325
89.794
The basic and diluted number of ordinary shares for the three
months ended September 30, 2008 are the same, as the inclusion of
dilutive securities in a loss-making period would be anti-dilutive.
Aspen Insurance Holdings Limited
Summary Consolidated Segment Information
($ in millions except ratios)
(Unaudited)
Three Months EndedSeptember 30, 2008
Three Months EndedSeptember 30, 2007
Gross written premiums
Property Reinsurance
152.8
139.5
Casualty Reinsurance
79.7
77.5
International Insurance
180.8
129.0
U.S. Insurance
28.0
27.5
Total
441.3
373.5
Premiums ceded
Property Reinsurance
12.6
8.0
Casualty Reinsurance
(0.1
)
0.4
International Insurance
18.6
10.9
U.S. Insurance
6.4
5.4
Total
37.5
24.7
Net written premiums
Property Reinsurance
140.2
131.5
Casualty Reinsurance
79.8
77.1
International Insurance
162.2
118.1
U.S. Insurance
21.6
22.1
Total
403.8
348.8
Net earned premiums
Property Reinsurance
138.8
125.3
Casualty Reinsurance
112.9
123.7
International Insurance
158.6
146.7
U.S. Insurance
23.9
24.0
Total
434.2
419.7
Underwriting profit/(loss)
Property Reinsurance
(63.9
)
38.7
Casualty Reinsurance
10.8
(2.1
)
International Insurance
(30.8
)
27.8
U.S. Insurance
(17.3
)
0.7
Total
(101.2
)
65.1
Combined ratio
Property Reinsurance
146.0
%
69.1
%
Casualty Reinsurance
90.4
%
101.7
%
International Insurance
119.4
%
81.0
%
U.S. Insurance
172.1
%
97.3
%
Total
123.3
%
84.5
%
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 September 30, 2008,
Aspen reported gross written premiums of $441.3 million, a net loss
after tax of $116.7 million and total assets of $7.3 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 may 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,”
and similar expressions of a future or forward-looking nature.
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 continuing impact of the global financial crisis and
credit crunch; a decline in the value of our investment portfolio or a
rating downgrade of the securities in our portfolio; in respect of
hurricane loss estimates such as Hurricanes Gustav and Ike, 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, any changes in Aspen's reinsurers' credit quality
and changes in assumptions on flood damage exclusions as a result of
prevailing lawsuits and case law; the amount and timing of reinsurance
recoverables and reimbursements actually received by Aspen from its
reinsurers; the impact that our future operating results, capital
position and rating agency and other considerations have on the
execution of any capital management initiatives; our ability to execute
our business plan to enter new markets, introduce new products and
develop new distribution channels, including their integration into our
existing operations; 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 after major loss events; 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 insurance regulators and
prosecutors. 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.
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.
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
ROE”) 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 ROE 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 28 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 28 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) 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 26 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.
(4) Accident Year Loss Ratios (a non-GAAP financial measure):
Management also uses accident year loss ratios to evaluate current
underwriting performance. The accident year loss ratio excludes the
effect of prior years' premium adjustments and reserve developments.
This ratio focuses on the relationship between current premiums earned
and losses incurred related to the current year. Please see pages 15 and
16 of Aspen’s financial supplement for a
reconciliation of accident year loss ratios calculated in accordance
with U.S. GAAP. Aspen's financial supplement can be obtained from the
Investor Relations section of Aspen's website at www.aspen.bm.