Aspen Comments on the Impact of Financial Market Events and Recent Hurricanes
10 October 2008 - 11:40PM
Business Wire
Aspen Insurance Holdings Limited (�Aspen�) (NYSE:AHL) today
commented on the impact of recent events in the financial markets
on its investment portfolio. The Company also commented on the
impact of Hurricanes Ike and Gustav on third quarter earnings. As
previously announced, Aspen will release its third quarter 2008
financial results on Wednesday, October 29, 2008, following the
close of U.S. markets. Investment Portfolio In respect of its fixed
income portfolio, Aspen disclosed on September 15, 2008 that it
held approximately $38 million in principal amount of Lehman
securities comprised of $30 million in senior debt and $8 million
in subordinated debt. Aspen�s holdings in Lehman at such time
represented less than 0.7% of its total investment portfolio.
Aspen�s direct investment portfolio has no holding in Lehman equity
or preferred shares and has no holding in preferred or ordinary
stock in AIG and has less than $2 million held in bonds issued by
AIG subsidiaries. Aspen�s direct investment portfolio also has no
holdings in the subordinated debt, preferred or ordinary stock of
the Federal National Mortgage Association (Fannie Mae), the Federal
Home Loan Mortgage Corporation (Freddie Mac) or Washington Mutual,
Inc (WaMu), or any corporate debt issued by WaMu. Aspen may have
exposure to the securities listed above through its investments in
funds of hedge funds, the value of which are discussed below. The
turmoil in financial markets has impacted the performance and value
of Aspen�s holdings in funds of hedge funds. The Company�s holdings
in funds of hedge funds represented approximately 9% of Aspen�s
investment portfolio at June 30, 2008, when they were valued at
$555.3 million. Based on preliminary valuations received to date,
the estimated returns on Aspen�s alternative investments for the
three months ended September 30, 2008 are expected to be negative
$41.3 million or negative 7.4%, reflecting monthly results of
negative 2.1% in July, negative 0.6% in August and negative 4.7% in
September. On a year to date basis to September 30, 2008 estimated
returns are expected to be negative $47.4 million, or negative
8.4%. In accordance with Aspen�s accounting policy, any unrealized
mark to market gains and losses emanating from the alternative
investment portfolio will be recorded through its net investment
income. As these estimated returns are based on preliminary quarter
end market and reported information, they are subject to change.
Hurricanes Gustav and Ike The Company�s preliminary net after tax
loss estimate for Hurricane Gustav is approximately $14 million,
net of reinsurance and reinstatement premiums. The Company�s
preliminary net after tax loss estimate for Hurricane Ike is
approximately $141 million, net of reinsurance and reinstatement
premiums, with its reinsurance operations accounting for
approximately 78% and 22% from its insurance segment. Further
detail is set out in the table below. Hurricane � Loss Estimate(a)
� On-shore � Off-shore � Total Ike � Industry(a) � $13 billion � $3
billion � $16 billion � � Aspen(a) � $103 million � $38 million �
$141 million (a) Aspen estimates in all cases Firm market loss
estimates for Hurricane Ike have yet to be determined and Aspen has
received only a very limited number of definitive loss advices from
its reinsurance clients. However, Aspen�s investigation and
analysis to date suggest that total industry losses from Hurricane
Ike will be in the region of $16 billion, comprised of
approximately $3 billion off-shore and $13 billion on-shore, with
approximately $11 billion of the on-shore losses arising from
Texas. Aspen�s Chief Executive Officer, Chris O�Kane commented:
�The most recent information we have received from clients, brokers
and loss adjusters has reinforced our belief that industry losses
from Hurricane Ike are likely to be more costly than the industry
initially thought and this is reflected in our preliminary loss
estimate for this event.� Aspen�s preliminary estimate of losses
from Hurricanes Gustav and Ike are based on currently available
information and involve considerable judgment reflecting a
combination of a review of certain in-force contracts, the
application of Aspen�s catastrophe modelling systems, industry
assessments of exposure, market intelligence, preliminary data from
clients, brokers and loss adjusters, initial tentative loss reports
and other sources. Due to the preliminary nature of the information
used to prepare these estimates, Aspen�s actual losses from these
events may vary materially from the estimates provided due to
inherent uncertainties in making such determinations, including the
potential inaccuracies and inadequacies in the data provided by
clients and brokers, current modeling techniques and their
application, the contingent nature of business interruption
exposures, the effects of any demand surge on claims and any
coverage issues. About Aspen Insurance Holdings Limited Aspen
provides reinsurance and insurance 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 year ended December 31, 2007,
Aspen reported gross written premiums of $1.8 billion, net income
of $489.0 million and total assets of $7.2 billion. 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. Aspen's Ratings � Aspen Insurance UK Limited Aspen
Insurance Limited A (Strong) Standard & Poor's A (Strong)
Standard & Poor's A (Excellent) A. M. Best A (Excellent) A. M.
Best A2 (Good) Moody's A2 (Good) Moody's Application of the Safe
Harbor of the Private Securities Litigation Reform Act of 1995:
This press release contains, and Aspen�s earnings conference call
may 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,� 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 continuing impact of the
global financial crisis and credit crunch; a decline in the value
of our investment portfolio or a rating downgrade of the securities
in our portfolio; in respect of hurricane loss estimates such as
Hurricanes Gustav and Ike, 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 and 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.
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