Aspen Suffers $106M Net Loss In 2011
Bermuda-based Aspen Insurance Holdings Limited yesterday [Feb.6] reported net income after tax of $13.5 million, or $0.11 per diluted share, for the fourth quarter of 2011.
For the full year 2011, net loss after tax was $105.8 million, or $1.82 per diluted share.
Performance in Aspen’s insurance segment was strong, a result of significant growth in certain niche areas and improvement across a number of lines.
Reinsurance results were materially impacted by a high frequency and severity of natural catastrophes in 2011, which were partially offset by a good performance in casualty and specialty reinsurance lines.
Operating highlights for the quarter ended December 31, 2011 include:
- Strong performance in the insurance segment with an improvement in the loss ratio to 58.0% in the fourth quarter of 2011 compared with 77.4% in the fourth quarter of 2010
- Net earnings per diluted share of $0.11 for the quarter ended December 31, 2011 compared with $1.12 in the fourth quarter of 2010
- Operating earnings per diluted share of $0.01 for the quarter ended December 31, 2011 compared with operating earnings per diluted share of $1.02 in the fourth quarter of 2010
- Diluted book value per share of $38.43, down 1.2% from the fourth quarter of 2010 and up 0.4% from September 30, 2011
- Annualized net income return on average equity of 1.2% for the fourth quarter of 2011 and annualized operating return on average equity of nil
- Gross written premiums of $458.7 million for the fourth quarter of 2011, compared with $412.8 million for the fourth quarter of 2010
- Combined ratio of 114.1%, or 89.2% excluding catastrophe losses for the quarter ended December 31, 2011 compared with a combined ratio of 95.3% or 88.3% excluding catastrophe losses for the fourth quarter of 2010
- Prior year net reserve releases of $22.0 million for the quarter ended December 31, 2011 compared with $12.6 million of net reserve releases in the fourth quarter of 2010
Chris O’Kane, Chief Executive Officer commented, “A combination of natural catastrophes and global economic uncertainty made 2011 a very difficult year for our industry. Aspen reported an operating loss of $1.26 per share and a book value of $38.43 per share for 2011, down 1.2% from year end 2010.
“Whilst the performance of our catastrophe exposed reinsurance lines has been impacted by the near record year for natural catastrophes, both our casualty and specialty reinsurance units generated good results in a challenging environment. In our Insurance segment our loss ratios were good to excellent in most classes.
“The recent January renewals saw attractive rate increases in certain property catastrophe reinsurance lines and encouraging signs in many commercial insurance lines. Our strong capital base and diversified model leave us well positioned to benefit from the improving pricing trend and the investment we have made in our franchise.”
Consolidated highlights
Net income for the fourth quarter included $101.5 million, or $1.39 per diluted share, of net losses after tax resulting from the natural catastrophes occurring during the fourth quarter of 2011 and increases to previous 2011 catastrophe estimates.
Net earned premiums were $489.4 million in the fourth quarter of 2011, down 2.1% compared with the fourth quarter of 2010. Aspen reported an underwriting loss of $68.8 million for the fourth quarter of 2011, with the insurance segment profitable, compared with $23.2 million of underwriting profit for the fourth quarter of 2010.
For the year ended December 31, 2011, gross written premiums were $2,207.8 million, up 6.3% from 2010, principally in the insurance segment.
The underwriting loss for 2011 was $294.7 million compared with an underwriting profit of $63.1 million in 2010. The combined ratio for 2011 was 115.6%, including $534.3 million (or 28.5 percentage points of net losses, net of reinstatements) from the significant natural catastrophe losses occurring in 2011 compared with 96.7% for 2010, which included 9.0 percentage points of net losses from catastrophes.
Prior year net reserve releases were $92.3 million in 2011, compared with $21.4 million of net reserve releases in 2010. The accident year loss ratio, excluding the impact of catastrophe losses, was 58.3% for 2011 compared with 57.7% for 2010.
Segment highlights
Reinsurance
Operating highlights for Aspen’s reinsurance segment for the quarter ended December 31, 2011 include:
- Net written premiums of $182.3 million, an increase of 22.8% from the fourth quarter of 2010
- Combined ratio of 124.0% including 42.7 percentage points of catastrophe losses compared with an 81.6% combined ratio for the fourth quarter of 2010, including 12.1 percentage points of catastrophe losses
- Favorable prior year loss reserve development of $14.6 million compared to $36.1 million in the fourth quarter of 2010
Operating highlights for Aspen’s reinsurance segment for the year ended December 31, 2011 include:
- Net written premiums of $1,098.1 million, a decrease of 1.8% from 2010 due to higher reinsurance purchases
- Combined ratio of 125.4% including 47.5 percentage points of catastrophe losses compared with 88.2% combined ratio for the prior year, including 15.0 percentage points of catastrophe losses
- Favorable prior year loss reserve development of $72.3 million compared to $65.6 million for the full year ended December 31, 2010
Gross written premiums in the reinsurance segment were $186.3 million in the fourth quarter of 2011, up 21.9% compared with $152.8 million from the 2010 comparable period. This increase was primarily driven by growth in property lines which reflects a more positive pricing environment in catastrophe exposed property. Specialty reinsurance including credit and surety lines also contributed to the growth.
The combined ratio for the quarter of 124.0% included pre-tax losses, net of reinsurance recoveries and reinstatement premiums, of $121.7 million or 42.7 percentage points from the Thai flooding that occurred in the fourth quarter of 2011 and changes in estimates for other 2011 events.
The segment underwriting loss for 2011 was $282.5 million compared with an underwriting profit of $133.6 million for 2010. The combined ratio for 2011 was 125.4%, and included $520.1 million or 47.5 percentage points of pre-tax losses, net of reinsurance and reinstatement premiums, from the significant natural catastrophe losses in 2011, compared with 88.2% for 2010, which included 15.0 percentage points of catastrophe losses. The accident year combined ratio, excluding the impact of catastrophe events, was 86.0% compared with 79.4% for 2010. The increase in the accident year ratio is attributable primarily to the increase in reinsurance purchases when compared to the prior year.
Insurance
Operating highlights for Aspen’s insurance segment for the quarter ended December 31, 2011 include:
- Net written premiums of $248.9 million, an increase of 0.9% from the fourth quarter of 2010
- Combined ratio of 93.4% compared with 108.8% for the fourth quarter of 2010
- Favorable prior year loss reserve development of $7.4 million compared to strengthening of $23.5 million in the fourth quarter of 2010
Operating highlights for Aspen’s insurance segment for the year ended December 31, 2011 include:
- Net written premiums of $831.0 million, an increase of 7.6% from 2010
- Combined ratio of 95.8% compared with 103.1% for the prior year
- Favorable prior year loss reserve development of $20.0 million compared to strengthening of $44.2 million for the prior year
Gross written premiums were $272.4 million in the fourth quarter of 2011, up 4.8% compared with $260.0 million in 2010, with the increase primarily attributable to the property insurance line.
The underwriting profit for the fourth quarter of 2011 of $13.2 million was a significant improvement compared to an underwriting loss of $18.3 million for the same period in 2010. This improvement was primarily attributable to the marine, aviation and transportation line, as well as US property insurance.
Gross written premiums were $1,020.3 million for 2011, up 11.6% compared with $914.6 million in 2010.
The underwriting profit for 2011 was $32.5 million compared with an underwriting loss of $23.6 million in 2010. The combined ratio for 2011 was 95.8% compared with 103.1% for 2010. The accident year loss ratio of 63.6% for the twelve months improved from 69.0% for the prior year.
Investment performance
Net investment income in the fourth quarter of 2011 was $54.2 million compared with $57.0 million in the fourth quarter of 2010. Net realized and unrealized investment gains included in net income for the quarter were $6.0 million which includes $2.9 million of losses from the company’s interest rate swaps. This compares with $19.7 million of net realized and unrealized gains in the fourth quarter of 2010 which included $9.2 million of gains from the company’s interest rate swaps.
Unrealized gains in the available-for-sale investment portfolio, including equity securities, at the end of 2011 were $335.8 million. These gains are primarily due to the prolonged low interest rate environment associated with expectations of a slower economic recovery particularly in the US From the end of the third quarter of 2011, these gains increased by $6.1 million, pre-tax.
Book yield on the fixed income portfolio of 3.37% was down 17 basis points when compared to the third quarter of 2011 and down from 3.70% at the end of the fourth quarter of 2010. The average credit quality of the portfolio is AA with an average duration of 2.22 years, including the impact of interest rate swaps.
Tax
In the fourth quarter of 2011, the company recorded a tax credit of $23.9 million compared with a tax expense of $3.2 million in the fourth quarter of 2010. This is primarily due to the geographic distribution of catastrophe losses, adjustments to prior year positions and changes in UK corporation tax rates.
For the full year 2011, the company recorded a tax credit of $37.2 million compared with a tax expense of $27.6 million for the full year 2010.
Subsequent events
The “Costa Concordia” cruise liner incident which took place off the coast of Italy on January 13, 2012 is a complex loss and there are various factors and uncertainties which will have an impact on the quantum of loss. Aspen has exposure in both its insurance and reinsurance segments, mainly arising from its marine hull and marine liability insurance accounts.
Aspen expects that its loss from the insurance business will be contained within its outwards reinsurance program and that its retained loss will be less than $30 million before reinstatement premiums. In the reinsurance segment, Aspen’s exposure arises from its specialty reinsurance account, and losses are expected to be less than one percent of the market loss.
Given current market conditions, the company anticipates gross written premiums for 2012 to be $2.3 billion +/- five percent, premiums ceded to be between 10% and 12% of gross earned premiums and the combined ratio to be in the range of 93% to 98% including a catastrophe load of $190 million assuming normal loss experience in the year. The company expects the effective tax rate in 2012 to be in the range of eight percent to 12 percent.
