Aspen: “Our Diversified Model Is Robust”
Bermuda-based Aspen Insurance Holdings Limited reported net income after tax of $22.2 million or $0.23 per diluted share for the third quarter of 2011.
Net income included $55 million or $0.75 per diluted share, of net losses resulting from the natural catastrophe events that occurred during the third quarter of 2011 and increases to loss estimates for the US severe weather-related events that occurred in the second quarter of 2011 and the Japan earthquake that occurred in the first quarter of 2011.
Operating income was $56.5 million or $0.70 per diluted share in the third quarter of 2011 compared with $72.0 million or $0.79 per diluted share for the same period last year.
Diluted book value per share was $38.27 at September 30, 2011 compared to $38.22 at September 30, 2010.
Financial Highlights Include:
- Net income per diluted share of $0.23 for the quarter ended September 30, 2011 compared with $1.08 in the same quarter last year
- Operating income per diluted share of $0.70 for the quarter ended September 30, 2011 compared with $0.79 in the same quarter last year
- Diluted book value per share of $38.27, broadly in line with the third quarter of 2010 and up 2.2% from June 30, 2011
- Annualized net income return on equity of 2.8% for the third quarter of 2011
- Annualized operating return on equity of 8.4% for the third quarter of 2011
- Combined ratio of 96.7%, or 85.5% excluding catastrophe losses for the third quarter of 2011, compared with a combined ratio of 94.4% or 89.9% excluding catastrophe losses for the third quarter of 2010
- Gross written premium of $495.6 million for the third quarter of 2011, including $26.6 million of positive prior year premium adjustments mainly in the reinsurance segment, compared with $415.8 million for the third quarter of 2010
Chris O’Kane, CEO said, “This was a quarter dominated by macroeconomic issues ranging from the US debt ceiling negotiations in Washington to concerns over European sovereign debt, the Eurozone and the future of the Euro.
“In addition, 2011 has continued to be a year of exceptional frequency of catastrophe losses, which we now estimate at $95 billion of worldwide industry insured losses year to date.
“Against this backdrop, we are pleased to have increased book value per share by just over 2% to $38.27 in the quarter. We also achieved an annualized operating return on equity of 8.4%, which we view as further evidence of the robustness of our diversified model and vindication of our measured appetite for underwriting risk.”
Aspen Insurance Holdings Limited is a Bermuda holding company that provides property and casualty reinsurance in the global market, property and liability insurance principally in the United Kingdom and surplus lines insurance in the United States through wholly-owned subsidiaries located in Bermuda, London and the United States
Consolidated Highlights
Underwriting profit was $26.7 million for the third quarter compared with $39.6 million for the equivalent period last year with both the insurance and reinsurance segments profitable. The combined ratio was 96.7% compared with 94.4% for the third quarter of 2010.
Prior year net reserve releases were $15.6 million in the third quarter compared with $6.2 million of net reserve strengthening in the comparable period in 2010.
Net earned premiums were $486.9 million in the third quarter, up 7.8% from the prior year.
The underwriting loss for the first nine months of 2011 was $193.8 million compared with an underwriting profit of $74.6 million in 2010. The combined ratio for the first nine months of 2011 was 116.1%, and included $406 million or 29 percentage points of net losses from the significant natural catastrophe losses that have occurred in 2011, compared with 97.2% for the same period in 2010, which included 10 percentage points of net losses from catastrophes.
Prior year net reserve releases were $70.3 million in the first nine months of 2011, compared with $8.8 million of net reserve releases in the comparable period in 2010. The accident year loss ratio, excluding the impact of catastrophe losses, of 59.8% through the nine months, compares with 59.6% for the prior year period.
For the nine months ended September 30, 2011, gross written premiums were $1,749.1 million, up 5.1% from the prior year, principally in the insurance segment.
Segment Highlights
Reinsurance
Underwriting profit was $12.7 million for the third quarter compared with $53.0 million for the equivalent period last year and reflects a combined ratio of 95.4% compared with 80.1% for the third quarter of 2010.
The combined ratio for the quarter included pre-tax losses, net of reinsurance recoveries and reinstatement premiums, of $50 million or 18 percentage points from natural catastrophe events that occurred in the third quarter of 2011, changes to estimates for the US severe weather-related events that occurred in the second quarter of 2011, as previously announced.
This also included a change to our aggregate estimate for the first quarter catastrophe events due to information received in the past week from two Japanese insurance companies.
Net favorable reserve development was $11.7 million in the third quarter of 2011 compared with $3.3 million for the same period in 2010.
Gross written premiums in the reinsurance segment of $276.1 million in the third quarter of 2011, included $17.6 million of positive prior year premium adjustments mainly in casualty reinsurance. Gross written premium excluding premium adjustments of $258.5 million was up 9.5% compared with $236.0 million from the 2010 comparable period with moderate increases in our property lines reflecting a more positive pricing environment in catastrophe exposed business and specialty reinsurance, in particular, the credit and surety line of business.
The segment underwriting loss for the first nine months of 2011 was $213.1 million compared with an underwriting profit of $79.9 million for the first nine months of 2010. The combined ratio for the first nine months of 2011 was 125.9%, and included $393 million or 49 percentage points of pre-tax losses, net of reinsurance and reinstatement premiums, from the significant natural catastrophe losses in 2011, compared with 90.6% for the same period in 2010, which included 16 percentage points of catastrophe losses. The accident year loss ratio, excluding the impact of catastrophe events, was 58.7% compared with 53.3% for the same period in 2010. The increase in the current accident year loss ratio is attributable primarily to the increase in reinsurance purchases when compared to the prior year.
Gross written premiums for the first nine months of 2011 were $1,001.2 million compared with $1,009.4 million in 2010.
Insurance
The underwriting profit for the quarter of $14.0 million compares with an underwriting loss of $13.4 million for the same period in 2010.The combined ratio for the third quarter of 93.2% compares with 107.3% for the same period in 2010. Net favorable reserve development was $3.9 million compared with net reserve strengthening of $9.5 million in the third quarter last year.
Gross written premiums were $219.5 million in the third quarter of 2011, up 22.1% compared with $179.8 million in 2010, with the increase primarily attributable to the financial and professional lines, in particular the kidnap and ransom account and professional lines business written in the US.
The underwriting profit for the first nine months of 2011 was $19.3 million compared with an underwriting loss of $5.3 million in the 2010 comparable period. The combined ratio for the first nine months of 2011 was 96.7%, compared with 101.0% for the same period in 2010. The accident year loss ratio of 64.0% for the nine months improved from 68.8% for the prior year period.
Gross written premiums were $747.9 million for the first nine months of 2011, up 14.3% compared with $654.6 million in 2010.
Investment Performance
Net investment income in the quarter was $57.3 million, compared with $58.1 million in the third quarter of 2010. Net realized and unrealized investment losses included in net income for the quarter were $32.9 million which includes $36.1 million of losses from the Company’s interest rate swaps. This compares with $19.8 million of net realized and unrealized gains in the third quarter of 2010.
Unrealized gains in the available-for-sale investment portfolio, including equity securities, at the end of the third quarter of 2011 were $329.7 million, an increase of $71.6 million, pre-tax, from the end of the second quarter of 2011, primarily due to persistent low interest rates associated with expectations of a slower economic recovery, particularly in the US.
Book yield on the fixed income portfolio of 3.54% was down 10 basis points when compared to the second quarter of 2011 and down from 3.91% at the end of the third quarter of 2010. The average credit quality of the portfolio is AA with an average duration of 2.4 years, including the impact of interest rate swaps.
Capital Position
Aspen’s balance sheet remained strong with $9.4 billion in total assets, $4.4 billion in gross reserves and $3.2 billion of shareholders’ equity.
Outlook for 2011
In light of current market conditions and the significant level of natural catastrophe losses that occurred during the first nine months of 2011, the Aspen currently anticipates gross written premium for 2011 to be unchanged from its last guidance at $2.1 billion +/- 5%, with premium ceded between 11% and 14% of gross earned premium and the full year combined ratio to be in the range of 108%-114% including a fourth quarter catastrophe load of $40 million, assuming normal loss experience for the remainder of the year.
The anticipated effective tax rate for 2011 remains unchanged in the range of 8% to 12%.
