Aspen Insurance Holdings Limited (NYSE:AHL) today reported net
income after tax for the second quarter of 2010 of $108.9 million
and operating earnings of $1.23 per diluted ordinary share. This
compares to net income after tax of $110.4 million and operating
earnings of $1.14 per diluted share for the second quarter last
year.
Book value per share on a diluted basis of $36.96 increased by
21.3% when compared to June 30, 2009 and by 6.8% since the end of
March 2010 as a result of $91.5 million of retained income and a
$77.9 million increase in unrealized gains, net of tax, from the
fixed income investment portfolio in the quarter.
Second Quarter 2010 Financial
Highlights
($ in millions, except per
share amounts and percentages)
(Unaudited)
Q2 2010 Q2 2009
Change Gross written premium $ 545.4 $
534.3 2.1 % Net earned premium $ 479.9
$ 428.6 12.0 % Net investment income $
57.5 $ 72.2 (20.4 %) Net income after
tax $ 108.9 $ 110.4 (1.4 %)
Operating income after tax $ 104.9 $ 103.8
1.1 % Diluted net income per share $ 1.28
$ 1.22 4.9 % Diluted operating earnings
per share $ 1.23 $ 1.14 7.9 %
Net income annualized return on equity 16.4 %
17.6 % Annualized operating return on equity
15.6 % 16.4 % Combined
ratio 86.9 % 87.7 % Book
value per ordinary share $ 38.46 $ 31.54
21.9 % Diluted book value per ordinary share $
36.96 $ 30.46 21.3 %
First Half 2010 Financial
Highlights
($ in millions, except per
share amounts and percentages)
(Unaudited)
H1 2010 H1 2009
Change Gross written premium $ 1,248.2
$ 1,171.1 6.6 % Net earned premium $ 947.5
$ 875.9 8.2 % Net investment income
$ 116.9 $ 131.4 (11.0 %) Net
income after tax $ 127.2 $ 201.8
(37.0 %) Operating income after tax $ 111.0 $
209.5 (47.0 %) Diluted net income per share $
1.43 $ 2.61 (45.2 %) Diluted operating
earnings per share $ 1.24 $ 2.32
(46.6 %) Net income annualized return on equity 9.0 %
16.2 % Annualized operating return on
equity 7.8 % 17.0 %
Combined ratio 98.4 % 86.0 %
Chris O’Kane, Chief Executive Officer
said: "I am pleased to report that our diversified portfolio
of insurance and reinsurance business generated an annualized
operating return on equity of 15.6% for the second quarter
notwithstanding challenging market conditions. We do not
expect rating pressure to abate and underwriting
discipline remains our watchword."
Second Quarter and First Half 2010 Operating
Highlights
- Chilean earthquake losses, net
of reinstatement premiums and tax, remained unchanged from the
first quarter of 2010 at $100.3 million.
- Reserves attributable to the
Deepwater Horizon loss at $18.6 million, net of tax and
reinstatement premiums, across reinsurance and insurance.
- Cash flows from operating
activities were $147.5 million for the quarter and $247.9 million
for the six months in 2010 compared with $99.1 million and $302.3
million respectively in 2009.
- Reserve releases were $2.1
million for the quarter and $15.0 million for the six months in
2010, compared with $16.9 million and $26.8 million respectively in
2009.
- Unrealized gains in the
available-for-sale fixed income portfolio increased by $77.9
million this quarter to $255.0 million, net of tax, compared with
unrealized gains of $37.4 million in the second quarter of
2009.
- Completed $200.0 million
accelerated share repurchase entered into in the first quarter of
2010 resulting in the repurchase and cancellation of a total of 7.2
million ordinary shares during the first half of 2010.
Operating Segment Highlights
A summary of the operating highlights for Aspen’s operating
segments is presented below.
Insurance Segment
The insurance segment underwriting profit for the quarter, which
excludes investment income, was $6.0 million compared with an
underwriting loss of $14.9 million in the second quarter of 2009.
This underwriting result reflects a combined ratio of 96.9% for the
second quarter compared with 108.7% in 2009 with the improvement
led by the property insurance line of business. There has been net
reserve strengthening in the insurance segment of $9.0 million for
the quarter compared with $15.2 million of strengthening in the
second quarter last year. The reserve strengthening in the current
quarter has arisen mainly from the financial and professional line
of business. The underwriting profit for the first half of 2010 was
$8.1 million compared with an underwriting loss of $19.0 million in
2009. This reflects a combined ratio for the first half of 2010 of
97.8% compared with 105.5% for the same period in 2009. Gross
written premium for the quarter was $262.1 million compared with
$276.9 million in the second quarter of 2009. For the first half of
2010, gross written premium was $474.8 million compared with $460.9
million for the equivalent period in 2009.
Reinsurance Segment
The reinsurance segment underwriting profit for the quarter,
which excludes investment income, was $67.4 million compared with
$77.8 million last year. This underwriting result reflects a
combined ratio of 76.8% compared with 69.5% for the second quarter
in 2009. Net favorable reserve development for the current quarter
was $11.1 million compared with $32.1 million for the second
quarter of 2009. Reserve releases were relatively strong in the
second quarter of 2009 with the current quarter containing a
combination of reserve releases and some reserve strengthening
within the segment. Gross written premiums in the reinsurance
segment for the quarter were $283.3 million compared to $257.4
million in 2009 with the increase from both property catastrophe,
where we chose to write more catastrophe business in the beginning
of the year ahead of expectations of further declining rates, and
new business written in our specialty reinsurance lines.
Underwriting profit for the half year was $26.9 million compared
with $161.1 million in the equivalent period in 2009. The combined
ratio for the first half of 2010, which includes 19.8 percentage
points of losses from the earthquake in Chile, was 95.4%, compared
with 69.6% for the same period in 2009. Gross written premiums for
the first half of 2010 were $773.4 million compared with $710.2
million in 2009.
Investment Performance
Net investment income for the quarter of $57.5 million was down
from $72.2 million in the second quarter of 2009, with the latter
including $16.2 million of gains from the investment in the funds
of hedge funds which the Company no longer holds. Net realized and
unrealized gains included in income for the quarter were $5.7
million compared with $4.8 million in the second quarter of 2009.
There were no securities selected for other-than-temporary
impairment in the quarter compared with $2.9 million for the same
period in 2009.
Unrealized gains on the available-for-sale fixed income
portfolio at the end of the second quarter of 2010 were $293.3
million, pre-tax, an increase of $82.4 million from the end of the
first quarter in 2010. Total investment return for the current
quarter was $145.6 million or 8.7% annualized.
The book yield on the fixed income portfolio of 4.1% decreased
from 4.2% at the end of the first quarter of 2010. The average
credit quality of the portfolio remains AA+ with an average
duration of 3.0 years.
Capital Position
As previously announced in January 2010, the Company entered
into an accelerated share repurchase program to repurchase
$200 million of its ordinary shares. This transaction was
completed during the second quarter, resulting in the repurchase
and cancellation of 7.2 million ordinary shares in the first half
of 2010. In February 2010, the board of directors authorized the
Company to repurchase up to $400 million of its ordinary shares
over the next two years.
Outlook for 2010
In light of the catastrophe losses associated with the
earthquake in Chile, and general market conditions, the Company
anticipates the combined ratio for the full year to be in the range
of 92%-98% including a catastrophe load of $110 million for the
remainder of the year, assuming normal loss experience. In light of
the market outlook, the Company has reduced its full year gross
written premium estimate to approximately $2.1 billion, from
approximately $2.2 billion, with ceded premium between 8% and 10%
of gross earned premium. Due to the continuing low interest rate
environment, the Company expects a book yield of between 3.75% to
4.0% on its fixed income portfolio during 2010. The tax rate is
expected to be in the range of 9% to 13%.
Earnings conference call
Aspen will hold a conference call to discuss its financial
results on Thursday, July 29, 2010 at 8:30 a.m. (Eastern Time).
CONFERENCE CALL PARTICIPATION DETAILS – July 29, 2010 at 8:30
a.m. (ET)
Participant Dial-In
Numbers:
+1 (888) 459-5609 (US Toll Free) +1 (404) 665-9920
(International)
Conference ID:
82798733 Please call to register at least 10 minutes before the
conference call begins.
The conference call will be webcast live in the ‘presentations’
section of the Investor Relations page of Aspen's website, which is
located at www.aspen.bm. The earnings press release and a detailed
financial supplement will be posted to the website, as well as a
brief slide presentation which may be used for reference during the
earnings call.
REPLAY DETAILS
A replay of the call will be available for 14 days via telephone
and internet starting two hours following the end of the live
call.
Replay Access: +1 (800) 642-1687 (US Toll Free)
+1 (706) 645-9291
(International)
www.aspen.bm
Replay ID: 82798733
Aspen Insurance Holdings
Limited
Summary Consolidated Balance
Sheet
($ in millions, except per
share data)
(Unaudited)
(in US$ millions, except per share data)
As at June 30,
2010
As at December 31,
2009
ASSETS Total investments
$ 6,085.7 $ 5,997.0
Cash and cash equivalents
726.1 748.4 Reinsurance
recoverables
353.8 425.3 Premiums receivable
981.0
708.3 Other assets
435.2 378.2 Total assets
8,581.8 8,257.2 LIABILITIES
Losses and loss adjustment expenses
3,485.7 3,331.1 Unearned
premiums
1,061.2 907.6 Other payables
481.4 463.5
Long-term debt
249.6 249.6 Total liabilities
5,277.9 4,951.8 SHAREHOLDERS’ EQUITY Total
shareholders’ equity
3,303.9 3,305.4 Total
liabilities and shareholders’ equity
8,581.8
8,257.2 Tangible book value per share
38.46 35.42
Diluted book value per share (treasury stock method)
36.96
34.14
Aspen Insurance Holdings
Limited
Summary Consolidated Statements
of Income
($ in millions, except share,
per share data and ratios)
(Unaudited)
(in US$ millions) except share, per share data and
ratios
Three Months
Ended
June 30, 2010
Three Months
Ended
June 30, 2009
UNDERWRITING REVENUES Gross written premiums
$
545.4 534.3 Premiums ceded
(6.6 ) (49.6
) Net written premiums
538.8 484.7 Change in unearned
premiums
(58.9 ) (56.1 ) Net earned premiums
479.9 428.6 UNDERWRITING EXPENSES Losses and loss expenses
276.7 234.7 Acquisition expenses
77.8 80.8 General
and administrative expenses
62.6 59.9
Total underwriting expenses
417.1 375.4
Underwriting income
62.8 53.2 OTHER
OPERATING REVENUE Net investment income
57.5 72.2 Interest
expense
(4.0 ) (4.0 ) Total other operating
revenue
53.5 68.2 Other income
(expense)
1.6 0.7 OPERATING INCOME
BEFORE TAX
117.9 122.1 OTHER Net realized and unrealized
exchange (losses)/gains
(2.6 ) 3.1 Net realized and
unrealized investment gains/(losses)
5.7 4.8
INCOME BEFORE TAX
121.0 130.0 Income taxes expense
(12.1 ) (19.6 ) NET INCOME AFTER TAX
108.9 110.4 Dividends paid on ordinary shares
(11.7
) (12.3 ) Dividend paid on preference shares
(5.7 ) (5.8 ) Retained income
91.5
92.3 Components of net income (after tax)
Operating income 104.9 103.8 Net realized and
unrealized exchange gains (losses) after tax
(1.3 )
3.1 Net realized and unrealized investment gains (losses) after tax
5.3 3.5 NET INCOME AFTER TAX
108.9 110.4 Loss ratio
57.7
% 54.8 % Policy acquisition expense ratio
16.2
% 18.9 % General and administrative expense ratio
13.0 % 14.0 % Expense ratio
29.2 % 32.9
% Combined ratio
86.9 % 87.7 %
Aspen Insurance Holdings
Limited
Summary Consolidated Financial
Data
($ in millions, except share,
per share data and ratios)
(Unaudited)
Three Months Ended
Six Months Ended
(in US$ except for number of shares)
June 30,
2010
June 30,
2009
June 30,
2010
June 30,
2009
Basic earnings per ordinary share Net income adjusted
for preference share dividend
$1.34 $1.26
$1.50 $2.68
Operating income adjusted for preference dividend
$1.29
$1.18
$1.30 $2.39 Diluted earnings per ordinary share
Net income adjusted for preference share dividend
$1.28
$1.22
$1.43 $2.61 Operating income adjusted for preference
dividend
$1.23 $1.14
$1.24 $2.32 Weighted
average number of ordinary shares outstanding (in millions)
77.289 82.940
77.342 82.241 Weighted average number
of ordinary shares outstanding and dilutive potential ordinary
shares (in millions)
80.727 85.645
80.706 84.612
Book value per ordinary share
$38.46 $31.54 Diluted
book value (treasury stock method)
$36.96 $30.46
Ordinary shares outstanding at end of the period (in millions)
76.701 83.022 Ordinary shares outstanding and dilutive
potential ordinary shares at end of the period (treasury stock
method) (in millions)
79.831 85.985
Aspen Insurance Holdings
Limited
Summary Consolidated Segment
Information
($ in millions except
ratios)
(Unaudited)
(in US$ millions except for ratios)
Three Months Ended June 30,
2010
Three Months Ended June 30,
2009
Reinsurance
Insurance
Total
Reinsurance
Insurance
Total
Gross written premiums
$283.3 $262.1
$545.4 $ 257.4 $276.9 $534.3 Net written premiums
279.1 259.7 538.8 255.8 228.9 484.7 Gross
earned premiums
302.7 220.8 523.5 268.8 222.5
491.3 Net earned premiums
291.2 188.7 479.9
255.5 173.1 428.6 Losses and loss expenses
146.4
130.3 276.7 102.8 131.9 234.7 Policy acquisition
expenses
47.3 30.5 77.8 51.8 29.0 80.8
Operating and administrative expenses
30.1 21.9
52.0 23.1 27.1 50.2 Underwriting (loss)/income
$67.4
$ 6.0 $73.4 $ 77.8 $(14.9) $ 62.9 Net
investment income
57.5 72.2 Net realized gains /(losses)
5.7 4.8 Corporate (expenses)
(10.6) (9.7) Other
(expenses)
1.6 0.7 Interest (expenses)
(4.0) (4.0)
Net foreign exchange gains/(losses)
(2.6) 3.1 Income before
income taxes
121.0 130.0 Income tax expense
(12.1)
(19.6)
Net income $ 108.9 $ 110.4
Ratios Loss ratio
50.3% 69.1% 57.7%
40.2% 76.2% 54.8% Policy acquisition expense ratio
16.2%
16.5% 16.2% 20.3% 16.8% 18.9% Operating and
administrative expense ratio
10.3% 11.6% 13.0%
9.0% 15.7% 14.0% Expense ratio
26.5% 28.1%
29.2% 29.3% 32.5% 32.9% Combined ratio
76.8%
97.2% 86.9% 69.5% 108.7% 87.7%
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, Singapore,
the United States, the United Kingdom, and Switzerland. For the
three months ended June 30, 2010, Aspen reported gross written
premiums of $545.4 million, net income of $108.9 million and total
assets of $8.6 billion. Its operating subsidiaries have been
assigned a rating of “A” (“Strong”) by Standard & Poor’s, an
“A” (“Excellent”) by A.M. Best and an “A2” (“Good”) by Moody’s
Investors Service. 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 will 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," "do not
believe," "aim," "project," "anticipate," "seek," "will,"
"estimate," "may," "continue," “guidance,” 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 possibility of
greater frequency or severity of claims and loss activity,
including as a result of natural or man-made (including economic
and political risks) catastrophic or material loss events, than our
underwriting, reserving, reinsurance purchasing or investment
practices have anticipated; the reliability of, and changes in
assumptions to, natural and man-made catastrophe pricing,
accumulation and estimated loss models; evolving issues with
respect to interpretation of coverage after major loss events and
any intervening legislative or governmental action; the
effectiveness of our loss limitation methods; changes in the total
industry losses, or our share of total industry losses, resulting
from past events and, with respect to such events, our reliance on
loss reports received from cedants and loss adjustors, our reliance
on industry loss estimates and those generated by modeling
techniques, changes in rulings on flood damage or other exclusions
as a result of prevailing lawsuits and case law; the impact of acts
of terrorism and related legislation and acts of war; decreased
demand for our insurance or reinsurance products and cyclical
changes in the insurance and reinsurance sectors; any changes in
our reinsurers’ credit quality and the amount and timing of
reinsurance recoverables; changes in the availability, cost or
quality of reinsurance or retrocessional coverage; the continuing
and uncertain impact of the current depressed economic environment
in many of the countries in which we operate; the level of
inflation in repair costs due to limited availability of labor and
materials after catastrophes; changes in insurance and reinsurance
market conditions; increased competition on the basis of pricing,
capacity, coverage terms or other factors and the related demand
and supply dynamics as contracts come up for renewal; a decline in
our operating subsidiaries’ ratings with Standard & Poor’s
(“S&P”), A.M. Best or Moody’s Investor Service (“Moody’s”); 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; changes
in general economic conditions, including inflation, foreign
currency exchange rates, interest rates and other factors that
could affect our investment portfolio; the risk of a material
decline in the value or liquidity of all or parts of our investment
portfolio; changes in our ability to exercise capital management
initiatives or to arrange banking facilities as a result of
prevailing market changes or changes in our financial position;
changes in government regulations or tax laws in jurisdictions
where we conduct business; Aspen Holdings or Aspen Bermuda becoming
subject to income taxes in the United States or the United Kingdom;
loss of key personnel; and increased counterparty risk due to the
credit impairment of financial institutions. 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 26, 2010. 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 27 of Aspen's financial supplement for a reconciliation
of operating income to net income and page 7 for 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 27 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 25 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) Diluted Operating Earnings Per Share and Basic Operating
Earnings Per Share is a non-GAAP financial measure. Aspen
believes that the presentation of diluted operating earnings per
share and basic operating earnings per share supports meaningful
comparison from period to period and the analysis of normal
business operations. Diluted operating earnings per share and basic
operating earnings per share are calculated by dividing operating
income by the diluted or basic weighted average number of shares
outstanding for the period. See page 27 for a reconciliation of
diluted and basic operating earnings per share to basic earnings
per share. Aspen’s financial supplement can be obtained from the
Investor Relations section of Aspen’s website at www.aspen.bm.
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