Aspen Insurance Holdings Limited (NYSE:AHL) today reported a net
loss after tax for the third quarter of 2008 of $116.7 million or
an operating loss of $1.02 per share, compared to a net profit
after tax of $117.2 million, or earnings of $1.12 per share for the
same quarter last year. On a year-to-date basis, diluted operating
earnings per share were $1.28 compared with $3.52 in 2007.
Hurricanes Ike and Gustav accounted for $1.91 of the reduction in
diluted earnings per share for the third quarter and $1.80 per
share for the first nine months of 2008. The fund of hedge funds
performance within the Company�s net investment income accounted
for $0.52 of the reduction in diluted earnings per share for the
quarter and $0.56 for the first nine months of 2008. Book value per
share on a diluted basis at the end of the third quarter was $26.21
compared with $25.68 at September 30, 2007. Diluted book value per
share has decreased by $0.87 since December 31, 2007 and by $2.78
since the end of June 2008, mainly as a result of hurricane losses,
impairment losses and increased unrealized losses in the investment
portfolio. Third Quarter Financial Highlights ($ in millions,
except per share amounts and percentages) (Unaudited) � � � Q3 2008
Q3 2007 Change Gross written premium � $ 441.3 � $ 373.5 � 18.2 %
Net earned premium � $ 434.2 � $ 419.7 � 3.5 % Net investment
income � $ 19.3 � $ 72.4 � (73.3 )% Net income/(loss) after tax � $
(116.7 ) $ 117.2 � (199.6 )% Operating earnings per share � $ (1.02
) $ 1.12 � (191.1 )% Annualized operating return on equity � �
(14.4 )% � 18.7 % � Combined ratio � � 123.3 % � 84.5 % � Diluted
book value per share � $ 26.21 � $ 25.68 � 2.1 % First Nine Months
2008 Financial Highlights ($ in millions, except per share amounts
and percentages) (Unaudited) � � � � 2008 � � 2007 � Change Gross
written premium � $ 1,566.3 � $ 1,513.5 � 3.5 % Net earned premium
� $ 1,223.1 � $ 1,309.9 � (6.6 )% Net investment income � $ 128.9 �
$ 218.7 � (41.1 )% Net income after tax � $ 91.4 � $ 353.8 � (74.2
)% Combined ratio � � 96.5 % � 84.1 % � Annualized operating return
on equity � � 6.4 % � 20.3 % � Diluted operating earnings per share
� $ 1.28 � $ 3.52 � (63.6 )% Chris O'Kane, Chief Executive Officer
said, "Our third quarter earnings were impacted by the September
hurricanes and investment losses resulting from the global
financial crisis. Our estimated losses from Hurricanes Ike and
Gustav are in line with our expectations for storms of this size
and nature. The impairment charge�to�our investment
portfolio�was�mainly due to�write downs on�our holdings of�Lehman
Brothers�bonds and�we also experienced negative�performance in our
funds of hedge funds investments. Our strong balance sheet leaves
us well positioned to benefit from the improved pricing environment
which we expect to result from the hurricanes and financial markets
crisis. Our prudent risk management and disciplined underwriting
approach will enable us to deploy our capital effectively against a
backdrop of a radically changing economic landscape." Third Quarter
2008 Highlights The expense ratio for the quarter was 28.1%, down
from 32.1% in the third quarter of 2007 due to a combination of an
increase in earned premiums from new underwriting teams and a
reduction in operating expenses. Cash flow from operations for the
quarter was $122.6 million and $442.4 million for the first nine
months of 2008. Reserve releases were $15.6 million for the third
quarter and $95.6 million for the first nine months of 2008.
Business Segment Highlights A summary of the operating highlights
for each of Aspen�s four business segments is presented below.
Property Reinsurance The property reinsurance segment recorded a
combined ratio of 146.0% for the third quarter compared with 69.1%
for the same period in 2007. Hurricanes Ike and Gustav accounted
for 89 percentage points on the combined ratio for the quarter. On
a year-to-date basis, as of September 30, 2008, Aspen�s combined
ratio was 93.4% compared to 71.9% in the comparative period in
2007. Gross written premium of $152.8 million for the third quarter
of 2008 increased by 9.5% when compared to the same period in 2007
mainly as a result of reinstatement premiums associated with
Hurricanes Ike and Gustav. For the first nine months of 2008, gross
written premium of $507.5 million decreased by 2.8% when compared
to the same period in 2007. Casualty Reinsurance The combined ratio
for the casualty reinsurance segment improved to 90.4% for the
quarter from 101.7% in the third quarter of 2007. The improvement
in the combined ratio is due largely to favorable development from
prior years and prior period premium adjustments particularly in
our US Casualty line. On a year-to-date basis, as of September 30,
2008, the combined ratio improved to 92.2% from 94.0% in 2007. In
the third quarter, gross written premium in this segment increased
marginally, however in the nine months gross written premium
decreased by 16% over the same period in 2007, reflecting the
Company�s response to the prevailing market conditions.
International Insurance The international insurance segment
reported a combined ratio for the third quarter of 119.4% compared
with 81.0% for the same period in 2007. Losses associated with
Hurricanes Ike and Gustav of $46.0 million, net of reinsurance
recoveries and reinstatement premiums, accounted for 29 percentage
points of the combined ratio for the quarter, arising mainly in our
offshore energy account. The residual variance in the combined
ratio is attributable mainly to the reduction in reserve releases
from $24.1 million in the third quarter of 2007 to $1.9 million in
the current quarter. On a year-to-date basis, the combined ratio
for the segment was 97.9% compared to 84.0% for the same period in
2007. Gross written premium increased by 40.2% to $180.8 million,
reflecting the incremental contributions from business lines such
as financial institutions, professional liability and excess
casualty insurance, which have been developed over the past year.
U.S. Insurance The combined ratio for the U.S. insurance segment in
the quarter was 172.1% with Hurricanes Ike and Gustav accounting
for 63 percentage points of the increase compared with 97.3% for
the same period in 2007. Losses of $15.0 million have been incurred
in respect of Hurricanes Ike and Gustav. Excluding the impact of
the hurricanes, the combined ratio for the first nine months of
2008 has reduced slightly compared to the same period in 2007.
Nine-month gross written premium increased marginally to $101.2
million when compared to the same period last year. Investment
Performance Net investment income for the quarter was $19.3 million
compared with $72.4 million in the third quarter of 2007 due
primarily to the performance from the funds of hedge funds. Funds
of hedge funds have been materially impacted by the turmoil in the
financial markets, with performance, measured by funds net asset
value, down by 7.6% or $42.2 million in the quarter and by 8.6% or
$48.3 million for the first nine months of 2008. In the prior year,
funds of hedge funds returned 1.6% in the third quarter of 2007 and
7.1% for the first nine months. The book yield on the fixed income
portfolio is 4.87% down from 5.08% in the third quarter of 2007.
Third quarter performance included a $44.5 million, pre tax, charge
for other than temporary impairments in the investment portfolio,
principally in connection with Aspen�s holdings in Lehman Brothers
Holdings Inc. senior notes and subordinated debt. This charge
represents approximately 0.8% of cash and invested assets at
September 30, 2008. Unrealized losses at the end of September 2008
were $82.2 million compared with unrealized gains of $41.7 million
at the end of 2007. Aspen�s fixed income portfolio consists of high
quality, diversified assets with 45.9% of the portfolio invested in
U.S. and foreign government-backed securities. The fixed income
portfolio has an average credit quality of AAA or equivalent, as
rated by S&P, and an average duration of 3.5 years. Outlook for
2008 The Company anticipates that total gross written premium will
remain within original guidance of $1.8 billion +/- 5%. The
combined ratio has been revised to a range of 92% - 96% as a result
of the hurricane driven loss activity in the third quarter.
Volatility in the financial markets is expected to continue
throughout the remainder of the year and as a result guidance for
investment income has been revised to a range of $160 million to
$205 million, with fixed income and short-term investments expected
to contribute $230 million to $245 million and funds of hedge funds
expected to contribute losses of between $40 million and $70
million. The tax rate has been revised to a range of 14% to 17% as
a result of the distribution of hurricane losses within the group.
The assumed cat-load has also been revised to $235 million for the
full year. Operating return on average equity is expected to be in
the range of 8.0% to 11.0% for 2008 assuming normal loss experience
for the remainder of the year. Earnings conference call Aspen will
hold a conference call to discuss its financial results on
Thursday, October 30, 2008 at 10:00 a.m. (Eastern Time). CONFERENCE
CALL PARTICIPATION DETAILS � October 30, 2008 at 10:00 a.m. (ET)
Participant Dial-In Numbers: +1 (888) 459-5609 (US Toll Free) +1
(404) 665-9920 (International) Conference ID: 65669655 Please call
to register at least 10 minutes before the conference call begins.
The conference call will be webcast live in the �presentations�
section of the Investor Relations page of Aspen's website, which is
located at www.aspen.bm. The earnings press release and a detailed
financial supplement will be posted to the website, as well as a
brief slide presentation which may be used for reference during the
earnings call. REPLAY DETAILS A replay of the call will be
available for 10 days via telephone and Internet starting two hours
following the end of the live call. Replay Access: +1 (800)
642-1687 (US Toll Free) +1 (706) 645-9291 (International)
www.aspen.bm Replay ID: 65669655 Aspen Insurance Holdings Limited
Summary Consolidated Balance Sheet ($ in millions, except per share
data) (Unaudited) � (in US$ millions) As at September 30, 2008 � As
at December 31, 2007 ASSETS Total investments 5,150.1 5,227.3 Cash
and cash equivalents 741.6 651.4 Reinsurance recoverables 319.0
381.7 Premium receivables 675.4 575.6 Other assets 418.0 365.3 �
Total assets 7,304.1 7,201.3 � LIABILITIES Losses and loss
adjustment expenses 3,081.9 2,946.0 Unearned premiums 940.8 757.6
Other payables 394.3 430.6 Long-term debt 249.5 249.5 Total
liabilities 4,666.5 4,383.7 � SHAREHOLDERS� EQUITY Total
shareholders� equity 2,637.6 2,817.6 Total liabilities and
shareholders� equity 7,304.1 7,201.3 � Tangible book value per
share 27.14 27.95 Diluted book value per share (treasury stock
method) 26.21 27.08 Aspen Insurance Holdings Limited Summary
Consolidated Statements of Income ($ in millions, except share, per
share data and ratios) (Unaudited) � (in US$ millions) Three Months
Ended September 30, 2008 � Three Months Ended September 30, 2007 �
UNDERWRITING REVENUES Gross written premiums 441.3 373.5 Premiums
ceded (37.5 ) (24.7 ) Net written premiums 403.8 348.8 Change in
unearned premiums 30.4 � 70.9 � Net earned premiums 434.2 � 419.7 �
UNDERWRITING EXPENSES Losses and loss expenses 413.4 219.9
Acquisition expenses 70.4 76.1 General and administrative expenses
51.6 � 58.6 � Total underwriting expenses 535.4 � 354.6 �
Underwriting income (101.2 ) 65.1 � OTHER OPERATING REVENUE Net
investment income 19.3 72.4 Interest expense (3.8 ) (4.2 ) Total
other operating revenue 15.5 � 68.2 � � Other income (expense) 0.6
� (2.7 ) OPERATING INCOME BEFORE TAX (85.1 ) 130.6 OTHER Net
realized exchange gains (2.7 ) 9.2 Net realized investment losses
(46.8 ) (1.9 ) INCOME BEFORE TAX (134.6 ) 137.9 Income tax expense
17.9 � (20.7 ) NET INCOME AFTER TAX (116.7 ) 117.2 Dividends paid
on ordinary shares (12.2 ) (13.3 ) Dividend paid on preference
shares (6.9 ) (6.9 ) Retained income (135.8 ) 97.0 � Components of
net income (after tax) � Operating income (76.1 ) 109.2 Net
realized exchange gains (after tax) (2.7 ) 9.2 Net realized
investment losses (after tax) (37.9 ) (1.2 ) NET INCOME AFTER TAX
(116.7 ) 117.2 � � Loss ratio 95.2 % 52.4 % Policy acquisition
expense ratio 16.2 % 18.1 % General and administrative expense
ratio 11.9 % 14.0 % Expense ratio 28.1 % 32.1 % Combined ratio
123.3 % 84.5 % 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, 2008 �
September 30, 2007 September 30, 2008 � September 30, 2007 � Basic
earnings (loss) per ordinary share Net income (loss) adjusted for
preference share dividend $ (1.52 ) $ 1.24 $ 0.85 $ 3.77 Operating
income (loss) adjusted for preference dividend $ (1.02 ) $ 1.15 $
1.32 $ 3.62 Diluted earnings (loss) per ordinary share Net income
(loss) adjusted for preference share dividend $ (1.52 ) $ 1.21 $
0.82 $ 3.67 Operating income (loss) adjusted for preference
dividend $ (1.02 ) $ 1.12 $ 1.28 $ 3.52 � Weighted average number
of ordinary shares outstanding (in millions) 81.376 88.712 83.459
88.250 Weighted average number of ordinary shares outstanding and
dilutive potential ordinary shares (in millions) 81.376 91.082
86.114 90.758 � Book value per ordinary share $ 27.14 $ 26.46
Diluted book value (treasury stock method) $ 26.21 $ 25.68 �
Ordinary shares outstanding at end of the period (in millions)
81.450 87.146 Ordinary shares outstanding and dilutive potential
ordinary shares at end of the period (treasury stock method) (in
millions) 84.325 89.794 � The basic and diluted number of ordinary
shares for the three months ended September 30, 2008 are the same,
as the inclusion of dilutive securities in a loss-making period
would be anti-dilutive. Aspen Insurance Holdings Limited Summary
Consolidated Segment Information ($ in millions except ratios)
(Unaudited) � � � Three Months EndedSeptember 30, 2008 � Three
Months EndedSeptember 30, 2007 � Gross written premiums Property
Reinsurance 152.8 139.5 Casualty Reinsurance 79.7 77.5
International Insurance 180.8 129.0 U.S. Insurance 28.0 � 27.5 �
Total 441.3 373.5 � Premiums ceded Property Reinsurance 12.6 8.0
Casualty Reinsurance (0.1 ) 0.4 International Insurance 18.6 10.9
U.S. Insurance 6.4 � 5.4 � Total 37.5 24.7 � Net written premiums
Property Reinsurance 140.2 131.5 Casualty Reinsurance 79.8 77.1
International Insurance 162.2 118.1 U.S. Insurance 21.6 � 22.1 �
Total 403.8 348.8 � Net earned premiums Property Reinsurance 138.8
125.3 Casualty Reinsurance 112.9 123.7 International Insurance
158.6 146.7 U.S. Insurance 23.9 � 24.0 � Total 434.2 419.7 �
Underwriting profit/(loss) Property Reinsurance (63.9 ) 38.7
Casualty Reinsurance 10.8 (2.1 ) International Insurance (30.8 )
27.8 U.S. Insurance (17.3 ) 0.7 � Total (101.2 ) 65.1 � Combined
ratio Property Reinsurance 146.0 % 69.1 % Casualty Reinsurance 90.4
% 101.7 % International Insurance 119.4 % 81.0 % U.S. Insurance
172.1 % 97.3 % Total 123.3 % 84.5 % 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, the United
States, the United Kingdom, and Switzerland. For the three months
ended September 30, 2008, Aspen reported gross written premiums of
$441.3 million, a net loss after tax of $116.7 million and total
assets of $7.3 billion. 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 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. 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 or 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)
Accident Year Loss Ratios (a non-GAAP financial measure):
Management also uses accident year loss ratios to evaluate current
underwriting performance. The accident year loss ratio excludes the
effect of prior years' premium adjustments and reserve
developments. This ratio focuses on the relationship between
current premiums earned and losses incurred related to the current
year. Please see pages 15 and 16 of Aspen�s financial supplement
for a reconciliation of accident year loss ratios calculated in
accordance with U.S. GAAP. Aspen's financial supplement can be
obtained from the Investor Relations section of Aspen's website at
www.aspen.bm.
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