Aspen Insurance Holdings Limited (NYSE: AHL) today reported net
income after tax for the third quarter of 2010 of $92.8 million and
operating earnings of $0.79 per diluted ordinary share. This
compares to a net income after tax of $145.8 million, and operating
earnings of $1.40 per diluted share for the third quarter last
year.
Book value per share on a diluted basis of $38.22 increased by
15.3% when compared to September 30, 2009 and by 3.4% since the end
of June 2010 as a result of $75.6 million of retained income and a
$61.5 million increase in unrealized gains, net of tax, from the
fixed income investment portfolio in the quarter.
Third Quarter 2010 Financial
Highlights
($ in millions, except per share
amounts and percentages)
(Unaudited)
Q3 2010 Q3 2009 Change Gross
written premium $415.8 $490.3
(15.2 %) Net earned premium $451.7 $470.9
(4.1 %) Net investment income $58.1
$58.9 (1.4 %) Net income after tax
$92.8 $145.8 (36.4 %) Operating income
after tax $69.7 $125.6 (44.5 %)
Diluted net income per share $1.08 $1.63
(33.7 %) Diluted operating earnings per share
$0.79 $1.40 (43.6 %) Net income
annualized return on equity 13.2 % 22.4 %
Annualized operating return on equity 9.6 %
19.2 % Combined ratio 94.4 % 80.3 %
Book value per ordinary share $40.28
$34.40 17.1 % Diluted book value per ordinary
share $38.22 $33.16 15.3 %
Nine Months to September 30 Financial
Highlights
($ in millions, except per share
amounts and percentages)
(Unaudited)
2010 2009 Change Gross written
premium $1,664.0 $1,661.4 0.2 %
Net earned premium $1,399.2 $1,346.8
3.9 % Net investment income $175.0
$190.3 (8.0 %) Net income after tax $220.0
$347.6 (36.7 %) Operating income after
tax $180.7 $335.1 (46.1 %)
Diluted net income per share $2.51 $4.25
(40.9 %) Diluted operating earnings per share
$2.03 $3.72 (45.4 %) Net income
annualized return on equity 10.4 % 18.4 %
Annualized operating return on equity 8.4 %
17.7 % Combined ratio 97.2 % 84.0 %
Chris O’Kane, Chief Executive Officer said: "I am pleased
to announce our 8th successive quarter of increasing book value per
share, a 15% increase year on year. Third quarter net income
amounted to $92.8 million and we reported an annualized return on
equity of 13.2%. Market conditions remain highly challenging;
in these circumstances our underwriters are hard at work in
identifying those few segments where good profits are available
and increasing our exposure to them. Elsewhere, it is a
question of cutting back top line volume, rigorous risk selection
and maintaining a very defensive underwriting posture."
Overview of Operations for the Third Quarter and Nine Months
in 2010
- Gross written premiums of
$415.8 million in the quarter, down 15% on last year, with the
decrease coming mainly from the reinsurance segment.
- Underwriting income for the quarter of
$25.3 million against $92.5 million in the previous year
included $20.4 million of losses from the New Zealand
earthquake and three large insurance losses totalling
$40.0 million from oil and gas pipelines.
- Reserves were strengthened in the
quarter by $6.2 million compared with $44.2 million of reserve
releases in the equivalent period in 2009. For the nine months in
2010, reserve releases were $8.8 million compared with $71.0
million in 2009.
- Unrealized gains in the
available-for-sale fixed income portfolio increased by
$68.3 million in the quarter to $361.6 million compared
with unrealized gains of $106.3 million in the third quarter
of 2009.
- Cash flows from operating activities
were $255.9 million for the quarter and $503.8 million
for the nine months in 2010 compared with $186.8 million and
$489.1 million, respectively in 2009.
- Continued investment in the Company’s
U.S. insurance capability and the establishment of a U.K. regional
platform and Swiss market presence increased the expense ratio in
the quarter by 1 percentage point when compared to the same period
in 2009.
Operating Segment Highlights
A summary of the operating highlights for Aspen’s operating
segments is presented below.
Insurance Segment
The insurance segment underwriting loss for the quarter, which
excludes investment income, was $13.4 million compared with an
underwriting profit of $20.9 million in the third quarter of 2009.
The combined ratio was 107.3% for the third quarter compared with
88.6% in 2009. There has been net reserve strengthening in the
insurance segment of $9.5 million for the quarter compared with
$11.0 million of reserve releases in the third quarter last year.
The reserve strengthening in the current quarter has arisen mainly
from the financial and professional lines of business. Gross
written premium was $179.8 million compared with $194.2 million in
the third quarter of 2009 with the decrease attributable to the
casualty insurance lines of business.
The underwriting loss for the nine-month period was $5.3 million
compared with an underwriting profit of $1.9 million in 2009. This
reflects a nine-month period combined ratio of 101.0% compared with
99.7% for the same period in 2009. The accident year combined ratio
for the nine-month period was 98.1% compared with 100.6% in the
equivalent period in 2009. For the nine months ended September 30,
2010, gross written premium of $654.6 million was in line with the
same period in 2009.
Reinsurance Segment
The reinsurance segment underwriting profit for the quarter was
$53.0 million compared with $86.3 million last year. This
underwriting result reflects a combined ratio of 80.1% compared
with 70.1% for the third quarter in 2009. The combined ratio for
the quarter includes 7.6 percentage points of losses from the
earthquake in New Zealand. Net favorable reserve development was
$3.3 million compared with $33.2 million for the third quarter of
2009 with the decrease attributable to a reduction in reserve
releases in the property and specialty reinsurance lines of
business. Gross written premiums in the reinsurance segment for the
quarter were $236.0 million compared to $296.1 million in 2009 with
decreases across the segment and particularly in specialty
reinsurance.
Underwriting profit for the nine months ended September 30, 2010
was $79.9 million compared with $247.4 million in 2009. The
combined ratio for the nine months ended September 30, 2010 of
90.6% has been impacted by 16.0 percentage points, or $132.7
million of losses, net of reinstatement premiums, from the
earthquakes in Chile and New Zealand and compares with 69.8% for
the same period in 2009. Gross written premiums for the nine months
were $1,009.4 million compared with $1,006.3 million in 2009.
Investment Performance
Net investment income for the quarter of $58.1 million was down
slightly from $58.9 million in the third quarter of 2009. Net
realized and unrealized gains included in income for the quarter
were $22.1 million compared with $14.6 million in the third quarter
of 2009. There were no securities selected for other-than-temporary
impairment in the quarter compared with $1.8 million for the same
period in 2009.
Unrealized gains on the available-for-sale fixed income
portfolio at the end of the third quarter of 2010 were $361.6
million, an increase of $68.3 million, gross of tax, from the end
of second quarter in 2010. Total investment return for the current
quarter was $148.5 million or 8.5% annualized.
The book yield on the fixed income portfolio of 3.9% was down
from 4.1% at the end of the second quarter of 2010. The average
credit quality of the portfolio remains AA+ with an average
duration of 3.1 years.
Capital Position
During the quarter, the Company repurchased 0.3 million common
shares in the open market at an average price of $28.97 per share,
for a total cost of $7.7 million. As of September 30, 2010, the
Company has approximately $392 million of remaining authorization
for common share repurchases through March 2012.
Outlook for 2010
In light of the catastrophe losses associated with the
earthquakes in Chile and New Zealand, and general market
conditions, the Company anticipates the combined ratio for the full
year to be in the range of 94%-99% including a catastrophe load of
$40 million for the remainder of the year, assuming normal loss
experience. The Company anticipates gross written premium for the
full year of $2.0 billion +/- 5%, down from $2.1 billion, with
ceded premium between 8% and 10% of gross earned premium. The tax
rate is expected to be in the range of 9% to 11%.
Earnings conference call
Aspen will hold a conference call to discuss its financial
results on Thursday, October 28, 2010 at 10:30 a.m. (Eastern
Time).
CONFERENCE CALL PARTICIPATION DETAILS – October 28, 2010 at
10:30 a.m. (ET)
Participant Dial-In Numbers:
+1 (888) 459-5609 (US Toll Free) +1 (404) 665-9920
(International)
Conference ID:
14788114
Please call to register at least 10 minutes before the
conference call begins.
The conference call will be webcast live in the ‘presentations’
section of the Investor Relations page of Aspen's website, which is
located at www.aspen.bm. The earnings press release and a detailed
financial supplement will be posted to the website, as well as a
brief slide presentation which may be used for reference during the
earnings call.
REPLAY DETAILS
A replay of the call will be available for 14 days via telephone
and internet starting two hours following the end of the live
call.
Replay Access: +1 (800) 642-1687 (US Toll Free) +1 (706)
645-9291 (International) www.aspen.bm Replay ID: 14788114
Aspen Insurance Holdings
Limited
Summary Consolidated Balance
Sheet
($ in millions, except per share
data)
(Unaudited)
(in US$ millions, except per share data)
As atSeptember 30, 2010
As atDecember 31, 2009
ASSETS Total investments
$ 6,291.3 $ 5,997.0 Cash and
cash equivalents
914.3 748.4 Reinsurance recoverables
307.2 425.3 Premiums receivable
880.7 708.3 Other
assets
433.5 378.2 Total assets
8,827.0 8,257.2
LIABILITIES Losses and loss adjustment expenses
3,672.2 3,331.1 Unearned premiums
951.6 907.6 Other
payables
512.8 463.5 Long-term debt
249.7 249.6 Total
liabilities
5,386.3 4,951.8 SHAREHOLDERS’ EQUITY
Total shareholders’ equity
3,440.7 3,305.4 Total liabilities
and shareholders’ equity
8,827.0 8,257.2 Tangible
book value per share
40.28 35.42 Diluted book value per
share (treasury stock method)
38.22 34.14
Aspen Insurance Holdings
Limited
Summary Consolidated Statements of
Income
($ in millions, except share, per share
data and ratios)
(Unaudited)
(in US$ millions) except share, per share data and
ratios
Three Months EndedSeptember 30,
2010
Three Months EndedSeptember 30,
2009
UNDERWRITING REVENUES Gross written premiums 415.8 490.3
Premiums ceded (38.8 ) (28.2 ) Net written premiums 377.0 462.1
Change in unearned premiums 74.7 8.8 Net earned
premiums 451.7 470.9 UNDERWRITING EXPENSES Losses and loss expenses
285.8 235.1 Acquisition expenses 75.6 79.6 General and
administrative expenses 65.0 63.7 Total underwriting
expenses 426.4 378.4 Underwriting income 25.3
92.5 OTHER OPERATING REVENUE Net investment income
58.1 58.9 Interest expense (3.9 ) (3.9 ) Total other operating
revenue 54.2 55.0 Other income (expense) (1.9
) 1.1 OPERATING INCOME BEFORE TAX 77.6 148.6 OTHER Net
realized and unrealized exchange gains 3.4 7.9 Net realized and
unrealized investment gains 22.1 14.6 INCOME BEFORE
TAX 103.1 171.1 Income taxes expense (10.3 ) (25.3 ) NET INCOME
AFTER TAX 92.8 145.8 Dividends paid on ordinary shares (11.5 )
(12.6 ) Dividend paid on preference shares (5.7 ) (5.6 ) Retained
income 75.6 127.6 Components of net income (after
tax)
Operating income 69.7 125.6 Net realized and unrealized
exchange gains after tax 3.0 7.9 Net realized and unrealized
investment gains after tax 20.1 12.3 NET INCOME AFTER
TAX 92.8 145.8 Loss ratio 63.3 % 49.9 % Policy
acquisition expense ratio 16.7 % 16.9 % General and administrative
expense ratio 14.4 % 13.5 % Expense ratio 31.1 % 30.4 % Combined
ratio 94.4 % 80.3 %
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 30,2010
September 30,2009
September 30,2010
September 30,2009
Basic earnings per ordinary share Net income adjusted for
preference share dividend
$1.14 $1.69
$2.63 $4.37
Operating income adjusted for preference dividend
$0.84
$1.44
$2.12 $3.83 Diluted earnings per ordinary share Net
income adjusted for preference share dividend
$1.08 $1.63
$2.51 $4.25 Operating income adjusted for preference
dividend
$0.79 $1.40
$2.03 $3.72 Weighted
average number of ordinary shares outstanding (in millions)
76.723 83.057
77.133 82.520 Weighted average number
of ordinary shares outstanding and dilutive potential ordinary
shares (in millions)
80.363 85.993
80.777 84.952
Book value per ordinary share
$40.28 $34.40 Diluted
book value (treasury stock method)
$38.22 $33.16
Ordinary shares outstanding at end of the period (in millions)
76.642 83.095 Ordinary shares outstanding and dilutive
potential ordinary shares at end of the period (treasury stock
method) (in millions)
80.765 86.193
Aspen Insurance Holdings
Limited
Summary Consolidated Segment
Information
($ in millions except ratios)
(Unaudited)
(in US$ millions except for ratios) Three
Months Ended September 30, 2010 Three Months
Ended September 30, 2009 Reinsurance
Insurance
Total Reinsurance
Insurance Total
Gross written premiums
$236.0 $179.8
$415.8 $296.1 $194.2 $490.3 Net written premiums
229.6 147.4 377.0 289.3 172.8 462.1 Gross
earned premiums
277.9 225.4 503.3 301.4 220.8
522.2 Net earned premiums
267.5 184.2 451.7
288.4 182.5 470.9 Losses and loss expenses
143.5
142.3 285.8 127.1 108.0 235.1 Policy acquisition
expenses
43.9 31.7 75.6 49.3 30.3 79.6
Operating and administrative expenses
27.1
23.6 50.7 25.7 23.3 49.0
Underwriting income/(loss)
$53.0 $(13.4)
$39.6 $86.3 $20.9 $107.2 Net investment income
58.1 58.9 Net realized gains
22.1 14.6 Corporate
(expenses)
(14.3) (14.7) Other (expenses)/income
(1.9) 1.1 Interest (expenses)
(3.9) (3.9) Net foreign
exchange gains
3.4 7.9 Income before income taxes
103.1 171.1 Income tax expense
(10.3) (25.3)
Net
income $ 92.8 $ 145.8
Ratios Loss ratio
53.6% 77.3% 63.3% 44.1% 59.2% 49.9% Policy
acquisition expense ratio
16.4% 17.2% 16.7%
17.1% 16.6% 16.9% Operating and administrative expense ratio
10.1% 12.8% 14.4% 8.9% 12.8% 13.5% Expense
ratio
26.5% 30.0% 31.1% 26.0% 29.4% 30.4%
Combined ratio
80.1% 107.3% 94.4% 70.1% 88.6%
80.3%
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, Singapore,
the United States, the United Kingdom, Switzerland and Germany. For
the three months ended September 30, 2010, Aspen reported gross
written premiums of $415.8 million, net income of $92.8 million and
total assets of $8.8 billion. Its operating subsidiaries have been
assigned a rating of “A” (“Strong”) by Standard & Poor’s, an
“A” (“Excellent”) by A.M. Best and an “A2” (“Good”) by Moody’s
Investors Service. 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," "do not
believe," "aim," "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 possibility of
greater frequency or severity of claims and loss activity,
including as a result of natural or man-made (including economic
and political risks) catastrophic or material loss events, than our
underwriting, reserving, reinsurance purchasing or investment
practices have anticipated; the reliability of, and changes in
assumptions to, natural and man-made catastrophe pricing,
accumulation and estimated loss models; evolving issues with
respect to interpretation of coverage after major loss events and
any intervening legislative or governmental action; the
effectiveness of our loss limitation methods; changes in the total
industry losses, or our share of total industry losses, resulting
from past events and, with respect to such events, our reliance on
loss reports received from cedants and loss adjustors, our reliance
on industry loss estimates and those generated by modeling
techniques, changes in rulings on flood damage or other exclusions
as a result of prevailing lawsuits and case law; the impact of acts
of terrorism and related legislation and acts of war; decreased
demand for our insurance or reinsurance products and cyclical
changes in the insurance and reinsurance sectors; any changes in
our reinsurers’ credit quality and the amount and timing of
reinsurance recoverables; changes in the availability, cost or
quality of reinsurance or retrocessional coverage; the continuing
and uncertain impact of the current depressed economic environment
in many of the countries in which we operate; the level of
inflation in repair costs due to limited availability of labor and
materials after catastrophes; changes in insurance and reinsurance
market conditions; increased competition on the basis of pricing,
capacity, coverage terms or other factors and the related demand
and supply dynamics as contracts come up for renewal; a decline in
our operating subsidiaries’ ratings with Standard & Poor’s
(“S&P”), A.M. Best or Moody’s Investor Service (“Moody’s”); 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; changes
in general economic conditions, including inflation, foreign
currency exchange rates, interest rates and other factors that
could affect our investment portfolio; the risk of a material
decline in the value or liquidity of all or parts of our investment
portfolio; changes in our ability to exercise capital management
initiatives or to arrange banking facilities as a result of
prevailing market changes or changes in our financial position;
changes in government regulations or tax laws in jurisdictions
where we conduct business; Aspen Holdings or Aspen Bermuda becoming
subject to income taxes in the United States or the United Kingdom;
loss of key personnel; and increased counterparty risk due to the
credit impairment of financial institutions. 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 26, 2010. 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 for 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) Diluted Operating Earnings Per Share and Basic Operating
Earnings Per Share is a non-GAAP financial measure. Aspen
believes that the presentation of diluted operating earnings per
share and basic operating earnings per share supports meaningful
comparison from period to period and the analysis of normal
business operations. Diluted operating earnings per share and basic
operating earnings per share are calculated by dividing operating
income by the diluted or basic weighted average number of shares
outstanding for the period. See page 28 for a reconciliation of
diluted and basic operating earnings per share to basic earnings
per share. Aspen’s financial supplement can be obtained from the
Investor Relations section of Aspen’s website at www.aspen.bm.
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