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Aspen Reports First Quarter 2014 Results

23rd April

Read the full press release

Aspen Insurance Holdings Limited today reported net income after tax of $120.4 million, or $1.66 diluted net income per share, for the quarter ended March 31, 2014.

Chris O’Kane, Chief Executive Officer, commented, “We are very pleased with our strong results this quarter, which reflect the successful execution and growing impact of our three strategic levers: capital management, enhanced investment returns and optimization of our business portfolio Our annualized operating return on average equity was 14.8%, the highest quarterly ROE since we began significant investments in our U.S. insurance lines in 2010.  The U.S. Insurance teams continued their trajectory of profitable growth and International Insurance achieved a solid quarter. Our Reinsurance business had yet another strong quarter and remains a preferred trading partner for our clients.

“We continue to execute on targeted growth opportunities building off of our prior investments and the strength of our teams. Historically, we invested in both Insurance and Reinsurance to position our businesses for profitable growth. Those investments are paying dividends and driving meaningful improvements in our results. We expect the benefits garnered from those investments to continue to increase in the coming years and to drive premium growth faster than both expenses and allocated risk capital, which will result in continued improvement in ROE.” 

Operating highlights for the quarter ended March 31, 2014

  • Gross written premiums increased overall by 10.6% to $855.5 million in the first quarter of 2014 from the first quarter of 2013. Gross written premiums in Reinsurance and Insurance increased by 7.4% and 14.8% respectively from the first quarter of 2013
  • Combined ratio of 87.6% (87.0% excluding non-recurring corporate expenses) for the first quarter of 2014 compared with 90.1% for the first quarter of 2013. There were $10.6 million, or 1.9 combined ratio points, of catastrophe losses pre-tax net of reinsurance recoveries and reinstatement premiums in the first quarter of 2014 compared with no catastrophe losses in the first quarter of 2013
  • Net favorable development on prior year loss reserves of $28.2 million, or 5.0 combined ratio points, for the first quarter of 2014 compared with $26.2 million, or 5.1 combined ratio points, for the first quarter of 2013
  • The loss ratio of 50.9% for the first quarter of 2014 compared with 52.6% for the first quarter of 2013.  The accident year ex-catastrophe loss ratio of 54.0% compared with 57.7% for the first quarter of 2013

Financial highlights for the quarter ended March 31, 2014

  • Annualized net income return on average equity of 16.0% and annualized operating return on average equity of 14.8% for the first quarter of 2014 compared with 11.6% and 10.8%, respectively, for the first quarter of 2013(1)
  • Diluted net income per share of $1.66 for the quarter ended March 31, 2014 an increase of 44% from diluted net income per share of $1.15 for the first quarter of 2013
  • Diluted operating income per share of $1.55 for the quarter ended March 31, 2014 an increase of 46% from $1.06 for the first quarter of 2013(1)
  • On a pre-tax basis, net catastrophe losses were $10.6 million, or $0.16 per diluted share, for the first quarter of 2014 compared with no catastrophe losses in the first quarter of 2013
  • Diluted book value per share of $42.72 at March 31, 2014, up 4.4% from December 31, 2013 and up 5.0% from March 31, 2013

(1) See definition of non-GAAP financial measures at the end of this release.

Segment highlights

Reinsurance

Operating highlights for Reinsurance for the quarter ended March 31, 2014 include:

  • Gross written premiums of $472.2 million increased 7.4% compared with $439.6 million for the first quarter of 2013
  • Combined ratio of 72.6% compared with 78.5% for the first quarter of 2013
  • Favorable prior year loss reserve development of $21.2 million, or 7.9 combined ratio points, compared with $20.1 million favorable prior year loss reserve development, or 7.8 combined ratio points, for the first quarter of 2013

The increase in gross written premiums was primarily attributable to growth in Catastrophe and Other Property lines of business.

The combined ratio of 72.6% for the first quarter of 2014 included $5.5 million, or 2.1 percentage points, of catastrophe losses, pre-tax net of reinsurance recoveries and reinstatement premiums related to Japanese snowstorms and U.S. winter storms. The combined ratio of 78.5% for the first quarter of 2013 included no catastrophe losses.  The accident year ex-catastrophe loss ratio for the Reinsurance segment was 47.2% compared with 52.3% for the first quarter of 2013. 

Insurance

Operating highlights for Insurance for the quarter ended March 31, 2014 include:

  • Gross written premiums of $383.3 million increased 14.8% compared with $333.8 million for the first quarter of 2013
  • Combined ratio of 95.1% compared with 96.8% for the first quarter of 2013
  • Prior year favorable development of $7.0 million, or 2.3 combined ratio points, compared with prior year reserve favorable development of $6.1 million, or 2.4 combined ratio points, for the first quarter of 2013.

The increase in gross written premiums was mainly attributable to continued growth from the U.S. teams.  The U.S. Insurance teams were again profitable in the quarter with a combined ratio of 98.8%.

The combined ratio of 95.1% for the first quarter of 2014 included $5.1 million, or 1.7 percentage points, of net catastrophe losses, pre-tax net of reinsurance recoveries, related to U.S. winter storms and U.K. floods. The accident year ex-catastrophe loss ratio for the Insurance segment was 59.9% compared with 63.1% for the first quarter of 2013. 

Investment performance

Aspen’s investment portfolio continues to be comprised primarily of high quality fixed income securities with an average credit quality of “AA-”. The average duration of the fixed income portfolio was 3.5 years at March 31, 2014, excluding the impact of interest rate swaps, or 3.2 years including the impact of interest rate swaps.  The total return on Aspen’s investment portfolio was 1.0% for the first quarter of 2014, compared to 0.5% for the first quarter of 2013.  The equity portfolio had a gain of 2.4% for the quarter compared to 8.7% for the first quarter of 2013.

Net investment income for the first quarter of 2014 was $49.5 million compared with $48.3 million for the first quarter of 2013. Book yield as at March 31, 2014 on the fixed income portfolio was 2.68% compared to 2.74% at December 31, 2013 and 2.80% at March 31, 2013.

Net realized and unrealized investment gains included in net income for the quarter were $8.3 million.

Dividend Increase

The Board of Directors has declared a quarterly cash dividend on Aspen’s ordinary shares of $0.20 per ordinary share.  The amount payable increased by 11.1% from Aspen’s previous quarterly dividend of $0.18 per ordinary share.

Capital

Total shareholders’ equity increased by $87.2 million in the quarter to $3.4 billion at March 31, 2014.

During the first quarter of 2014, Aspen repurchased 770,505 ordinary shares in the open market at an average price of $40.08 per share for a total cost of $30.9 million. Aspen had $193.3 million remaining under its current share repurchase authorization as at March 31, 2014.

Outlook

Aspen continues to expect to achieve an operating return on equity of 10% in 2014, assuming a pre-tax catastrophe load of $185 million, normal loss experience and the current interest rate curve and insurance pricing environment.  

We expect operating return on equity to increase in each of 2015 and 2016.  The building blocks for the expected acceleration of ROE are growth in our U.S. Insurance business, portfolio optimization initiatives, rising interest rates and capital management. We expect to achieve premium scale in our U.S Insurance business in 2015 and for that business to be a strong contributor to overall results as Aspen gains greater premium leverage over time. Our U.S. Insurance business net earned premiums grew 25% in the first quarter over a year ago and we are experiencing continued growth momentum with attractive loss ratios. Further, we expect our portfolio optimization initiatives, including the restructuring of our reinsurance and retrocession program, combined with a rising interest rate environment, to be a more positive contributor to operating income. 

In the aggregate, assuming pretax catastrophe load of $200 million, normal loss experience, our expectations for rising interest rates and a less favorable insurance pricing environment, we would expect operating return on equity in 2015 to increase over 2014 on the order of 100 basis points, and beyond 2015 we expect to obtain additional continued benefits to our ROE from increasing operating leverage.

Read the full press release