Aspen Insurance (NYSE:AHL)
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Aspen Insurance Holdings Limited (NYSE:AHL) today reported net income
for the second quarter of 2008 of $126.9 million or diluted earnings per
share of $1.44, an increase of 26.3% over the same quarter last year.
The combined ratio was 78.2%, comparing favorably to 88.4% in the same
quarter last year. Annualized operating return on equity was 21.2%, an
increase of 1.5 percentage points compared with the second quarter of
2007. Book value per share increased 22.1% to $29.84 when compared to
the second quarter of 2007.
Second Quarter Financial Highlights
($ in millions, except per share amounts and percentages)
(Unaudited)
Q2 2008
Q2 2007
Change
Gross written premium
$528.8
$503.5
5.0%
Net earned premium
$397.3
$451.2
(11.9)%
Net investment income
$70.5
$78.8
(10.5)%
Net income after tax
$126.9
$114.7
10.6%
Diluted earnings per share
$1.44
$1.14
26.3%
Operating return on equity
21.2%
19.7%
Combined ratio
78.2%
88.4%
Book value per share
$29.84
$24.44
22.1%
Diluted book value per share
$28.99
$23.63
22.7%
First Half 2008 Financial Highlights
($ in millions, except per share amounts and percentages)
(Unaudited)
H1 2008
H1 2007
Change
Gross written premium
$1,125.0
$1,140.0
(1.3)%
Net earned premium
$788.9
$890.2
(11.4)%
Net investment income
$109.6
$146.3
(25.1)%
Net income after tax
$208.1
$236.6
(12.1)%
Combined ratio
81.7%
83.9%
Operating return on equity
16.6%
21.1%
Diluted earnings per share
$2.23
$2.40
(7.1)%
Chris O'Kane, Chief Executive Officer, said, “Aspen
had a strong quarter and delivered results ahead of our expectations
including net income of $126.9 million, operating ROE of 21.2%, EPS of
$1.44 and a combined ratio of 78.2%. Our solid underwriting performance
demonstrates our well diversified portfolio and stringent risk selection
criteria."
Second Quarter 2008 Operating Highlights
Second quarter combined ratio of 78.2% reflects Aspen’s
benign catastrophe loss experience against a backdrop of significant
industry losses in the U.S. Midwest.
Commenced writing business in our new Lloyd’s
syndicate, Syndicate 4711.
Repurchased $100 million ordinary shares under our share repurchase
program.
Launch of our Singapore branch at the end of June.
$40 million favorable prior year claims development for the quarter
across all segments.
Improving performance from our U.S. insurance business.
Book value per share of $29.84 increased from $24.44 a year ago, up
22.1%.
Eleventh consecutive quarterly increase in book value per share, up
2.1% in the quarter.
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 65.0% for
the quarter, a 12.3 percentage point improvement over the same period in
2007, with no significant loss activity in the second quarter 2008. On a
year to date basis, the combined ratio of 64.2% compares favorably to
73.0% recorded in the first half of 2007. Aspen’s
exposure to the storms and floods in the U.S. Midwest is within our
expectations. The prior year was impacted by catastrophe losses from
windstorm Kyrill and the June U.K. Floods. Gross written premium
decreased by 10.4% compared with the second quarter of 2007, and 7.2%
year to date.
Casualty Reinsurance
The combined ratio for the quarter for the casualty reinsurance segment
improved to 91.5% from 94.7% in the second quarter of 2007. The
improvement in the combined ratio was due largely to $24.0 million of
reserve releases during the quarter, reflecting favorable loss
experience from a number of classes in this segment including
international casualty and U.S. casualty reinsurance. The combined ratio
for the second quarter of 2007 included $4.6 million of reserve
strengthening. On an accident year basis, the combined ratio for the
first half of 2008 was 100.6%. Gross written premium in this segment was
down by 28.5% compared to the second quarter of 2007, and down by 21.1%
for the first half of this year versus the same period in 2007. The
reduction in written premium was primarily due to our rigorous risk
selection criteria in challenging market conditions in addition to
downward premium adjustments and commutations in our international and
U.S. casualty lines.
International Insurance
The international insurance segment reported a combined ratio for the
second quarter of 79.2% compared with 88.0% for the same period in 2007.
The loss ratio for the segment has improved to 51.3% in the second
quarter of 2008 from 61.3% for the second quarter in 2007. This
improvement was driven by more favorable loss experience this quarter
compared with 2007, which was adversely impacted by large losses on the
marine hull and U.K. commercial property business lines during that
period. On a year to date basis, the combined ratio was 87.1% compared
with 85.5% last year. Gross written premium for the quarter was up by
30.2% at $258.9 million, reflecting the incremental contributions from
lines of business such as political risk, excess casualty insurance and
professional lines.
U.S. Insurance
The combined ratio for the U.S. insurance segment was 91.0%, down
significantly from 122.6% for the second quarter of 2007. Year to date,
the combined ratio was 96.6%, down from 107.7% in 2007. Gross written
premium on a year to date basis has increased 3.7% when compared to the
same period last year. Our property book has changed significantly with
greater diversity and reduced loss activity.
Investment Performance
Net investment income for the quarter was $70.5 million compared with
$78.8 million in the second quarter of 2007 due primarily to the
performance of our fund of hedge funds and a slight reduction in book
yield. This was a significant improvement on the first quarter of 2008
as a result of the positive contribution from the funds of hedge funds.
Funds of hedge funds contributed $10.8 million in the quarter against
the backdrop of volatile market conditions. Net investment income year
to date was $109.6 million compared with $146.3 million in the first
half of 2007, with the decrease attributable mainly to the reduced
contribution from our investments in funds of hedge funds. The quarter
also included $88.6 million of net unrealized investment losses on the
fixed term bond portfolio. The book yield on the fixed income element of
our portfolio has remained stable at 4.8% when compared to the end of
the first quarter of 2008, and decreased marginally when compared with
4.9% at the end of the second quarter in 2007. The average credit
quality of our fixed income book is AA+, with 89% of the portfolio being
graded A or higher.
Capital Management
On May 13, 2008, Aspen repurchased $100 million of ordinary shares
representing approximately 4% of Aspen’s
market capitalization at that date. The share repurchase of $100 million
was funded from cash on hand of the Company.
Outlook for 2008
The Company expects that for the remainder of 2008 pricing will continue
to soften in most lines. Total gross written premium levels will remain
within the original guidance of $1.8 billion +/- 5%. Volatility in the
capital and equity 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 $230 million to $265 million, with fixed
income and short-term investments expected to contribute $230 million to
$245 million and funds of hedge funds are expected to contribute less
than $20 million. The assumed cat load has also been revised to $115
million for the full year, reflecting experience of the half year.
Estimated return on average equity is unchanged in the range of 13.0% to
16.0% for 2008, assuming normal loss experience for the remainder of the
year.
Earnings conference call
Aspen will hold a conference call to discuss its financial results on
Thursday, July 31, 2008 at 8:30 a.m. (Eastern Time).
CONFERENCE CALL PARTICIPATION DETAILS –
July 31, 2008 at 8:30 a.m. (EST)
Participant Dial-In Numbers:
+1 (888) 459-5609 (US Toll Free)
+1 (404) 665-9920 (International)
Conference ID: 51488921
Please call to register at least 10 minutes before the conference call
begins.
The conference call will be webcast live in the ‘presentations’
section of the Investor Relations page of Aspen's website, which is
located at www.aspen.bm. The earnings
press release and a detailed financial supplement will be posted to the
website, as well as a brief slide presentation which may be used for
reference during the earnings call.
REPLAY DETAILS
A replay of the call will be available for 10 days via telephone and
Internet starting two hours following the end of the live call.
Replay Access:
+1 (800) 642-1687 (US Toll Free)
+1 (706) 645-9291 (International)
www.aspen.bm
Replay ID:
51488921
Aspen Insurance Holdings Limited
Summary Consolidated Balance Sheet
(Unaudited)
(in US$ millions, except for per share data)
As at June 30, 2008
As at December 31, 2007
ASSETS
Total investments
$5,361.6
$5,227.3
Cash and cash equivalents
620.8
651.4
Reinsurance recoverables
330.6
381.7
Premiums receivables
792.0
575.6
Other assets
394.1
365.3
Total assets
$7,499.1
$7,201.3
LIABILITIES
Losses and loss adjustment expenses
$2,944.4
$2,946.0
Unearned premiums
1,018.9
757.6
Other payables
432.4
430.6
Long-term debt
249.5
249.5
Total liabilities
$4,645.2
$4,383.7
SHAREHOLDERS’ EQUITY
Total shareholders’ equity
2,853.9
2,817.6
Total liabilities and shareholders’ equity
$7,499.1
$7,201.3
Book value per share
$29.84
$27.95
Diluted book value per share (treasury stock method)
$28.99
$27.08
Aspen Insurance Holdings Limited
Summary Consolidated Statements of Income
(Unaudited)
(in US$ millions, except for percentages)
Three Months Ended
June 30, 2008
Three Months Ended
June 30, 2007
UNDERWRITING REVENUES
Gross written premiums
$528.8
$503.5
Premiums ceded
(22.8)
(85.0)
Net written premiums
506.0
418.5
Change in unearned premiums
(108.7)
32.7
Net earned premiums
397.3
451.2
UNDERWRITING EXPENSES
Losses and loss expenses
188.3
272.7
Acquisition expenses
65.0
81.7
General and administrative expenses
57.1
44.4
Total underwriting expenses
310.4
398.8
Underwriting income
86.9
52.4
OTHER OPERATING REVENUE
Net investment income
70.5
78.8
Interest expense
(4.0)
(4.4)
Total other operating revenue
66.5
74.4
Other income
-
1.9
OPERATING INCOME BEFORE TAX
153.4
128.7
OTHER
Net realized and unrealized exchange gains (losses)
(5.0)
8.0
Net realized and unrealized investment gains (losses)
0.8
(5.6)
INCOME BEFORE TAX
149.2
131.1
Income taxes expense
(22.3)
(16.4)
NET INCOME AFTER TAX
126.9
114.7
Dividends paid on ordinary shares
(12.8)
(13.2)
Dividends paid on preference shares
(7.0)
(7.0)
Retained income
$107.1
$94.5
Components of net income (after tax)
Operating income
$131.2
$110.8
Net realized and unrealized exchange gains (losses) (after tax)
(5.0)
8.0
Net realized and unrealized investment gains (losses) (after tax)
0.7
(4.1)
NET INCOME AFTER TAX
$126.9
$114.7
Loss ratio
47.4%
60.5%
Policy acquisition expense ratio
16.4%
18.1%
General and administrative expense ratio
14.4%
9.8%
Expense ratio
30.8%
27.9%
Combined ratio
78.2%
88.4%
Aspen Insurance Holdings Limited
Summary Consolidated Financial Data
(Unaudited)
Three Months Ended
Six Months Ended
(in US$ except for number of shares)
June 30, 2008
June 30, 2007
June 30, 2008
June 30, 2007
Basic earnings per ordinary share
Net income adjusted for preference share dividend
$1.44
$1.22
$2.31
$2.53
Operating income adjusted for preference dividend
$1.49
$1.18
$2.30
$2.47
Diluted earnings per ordinary share
Net income adjusted for preference share dividend
$1.39
$1.19
$2.24
$2.46
Operating income adjusted for preference dividend
$1.44
$1.14
$2.23
$2.40
Weighted average number of ordinary shares outstanding (in millions)
83.513
88.205
84.512
88.014
Weighted average number of ordinary shares outstanding and dilutive
potential ordinary shares (in millions)
86.010
90.827
86.980
90.634
Book value per ordinary share
$29.84
$24.44
Diluted book value (treasury stock method)
$28.99
$23.63
Ordinary shares outstanding at end of the period (in millions)
81.321
88.545
Ordinary shares outstanding and dilutive potential ordinary shares
at end of the period (treasury stock method) (in millions)
83.691
91.553
Aspen Insurance Holdings Limited
Summary Consolidated Segment Information
(Unaudited)
(in US$ millions, except for percentages)
Three Months Ended
June 30, 2008
Three Months Ended
June 30, 2007
Gross written premiums
Property Reinsurance
$170.5
$190.3
Casualty Reinsurance
56.8
79.4
International Insurance
258.9
198.9
U.S. Insurance
42.6
34.9
Total
$528.8
$503.5
Premiums ceded
Property Reinsurance
$5.0
$74.7
Casualty Reinsurance
2.3
1.3
International Insurance
7.3
2.0
U.S. Insurance
8.2
7.0
Total
22.8
85.0
Net written premiums
Property Reinsurance
$165.5
$115.6
Casualty Reinsurance
54.5
78.1
International Insurance
251.6
196.9
U.S. Insurance
34.4
27.9
Total
$506.0
$418.5
Net earned premiums
Property Reinsurance
$123.6
$144.3
Casualty Reinsurance
85.8
125.7
International Insurance
162.9
156.0
U.S. Insurance
25.0
25.2
Total
$397.3
$451.2
Underwriting profit
Property Reinsurance
$43.3
$32.7
Casualty Reinsurance
7.3
6.7
International Insurance
34.1
18.7
U.S. Insurance
2.2
(5.7)
Total
$86.9
$52.4
Combined ratio
Property Reinsurance
65.0%
77.3%
Casualty Reinsurance
91.5%
94.7%
International Insurance
79.2%
88.0%
U.S. Insurance
91.0%
122.6%
Total
78.2%
88.4%
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, Singapore and Switzerland. For the six months ended June 30,
2008, Aspen reported gross written premiums of $1,125.0 million, net
income of $208.1 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.
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; 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; 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 Equity (“Operating
ROE”) is a non-GAAP financial measure
which divides operating income by average equity. Annualized Operating
Return on 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 for a reconciliation of
average equity. Aspen’s financial supplement
can be obtained from the Investor Relations section of Aspen's website
at www.aspen.bm.
(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.