Aspen Reports Results for the Quarter and Six Months Ended June 30, 2013

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Aspen Reports Results for the Quarter and Six Months Ended June 30, 2013

HAMILTON, Bermuda--(BUSINESS WIRE)-- Aspen Insurance Holdings Limited ("Aspen") (NYSE: AHL) today reported net income after tax of $40.1 million, or $0.36 diluted net income per share, for the second quarter of 2013.

Chris O'Kane, Chief Executive Officer commented, "In the second quarter, Aspen delivered solid operating results in an above average catastrophe quarter, with our combined ratio excluding catastrophes improving modestly from last year. We continue to make progress on the three initiatives we outlined earlier this year to drive increased profitability. We have released $70 million of capital in our U.S. property insurance line and our U.S. operations overall continue to gain scale and momentum towards sustainable profitability. We executed over $240 million of share repurchases in the first six months of the year and continued to carefully reallocate a portion of our investment portfolio to achieve higher risk-adjusted returns. We remain intensely focused on executing these initiatives and achieving increased profitability."


Operating highlights for the quarter ended June 30, 2013

  • Gross written premiums increased overall by 3.1% to $687.3 million in the second quarter of 2013 from the second quarter of 2012. Gross written premiums in Reinsurance were flat while Insurance grew 6.0%
  • Combined ratio of 97.1% for the second quarter of 2013 compared with a combined ratio of 87.3% for the second quarter of 2012. This increase was due to $58.7 million or 10.9 percentage points, of pre-tax catastrophe losses net of reinsurance recoveries and $5.2 million of reinstatement premiums in the second quarter of 2013 compared with no catastrophe losses in the second quarter of 2012
  • Net favorable development on prior year loss reserves of $27.4 million, or 5.0 combined ratio points, for the second quarter of 2013 compared with $28.6 million, or 5.6 combined ratio points, for the second quarter of 2012

Financial highlights for the quarter and six months ended June 30, 2013

  • Annualized net income return on average equity of 4.4% and annualized operating return on average equity of 6.4% for the second quarter of 2013 compared with 10.8% and 13.6%, respectively in the second quarter of 2012(1)
  • Annualized net income return on average equity of 8.0% and annualized operating return on average equity of 8.6% for the first half of 2013 compared with 10.6% and 11.4%, respectively in the first half of 2012(1)
  • Diluted net income per share of $0.36 for the quarter ended June 30, 2013 compared with diluted net income per share of $1.03 for the second quarter of 2012, and diluted net income per share of $1.52 for the six months ended June 30, 2013 compared with diluted net income per share of $2.02 for the six months ended June 30, 2012
  • Diluted operating income per share of $0.63 for the quarter ended June 30, 2013 compared with diluted operating income per share of $1.32 for the second quarter of 2012(1) and diluted operating income per share of $1.70 for the six months ended June 30, 2013 compared with diluted net income per share of $2.20 for the six months ended June 30, 2012
  • On an after-tax basis, catastrophe losses were $53.7 million, or $0.77 per share, for the second quarter of 2013, and $53.7 million, or $0.75 per share, for the first six months of 2013
  • Diluted book value per share of $38.87 at June 30, 2013 down 4.4% from March 31, 2013(1) mainly due to the $138.4million of unrealized losses in the investment portfolio as a result of widening credit spreads and interest rate movements
  • On April 25, 2013, Aspen issued 11.0 million 5.950% Preference Shares with a liquidation preference of $25 for an aggregate amount of $275.0 million and net proceeds of approximately $270.4 million from this issuance

Segment highlights

Reinsurance

Operating highlights for Reinsurance for the quarter ended June 30, 2013 include:

  • Gross written premiums of $298.6 million, largely flat compared with $299.8 million for the second quarter of 2012
  • Combined ratio of 88.9% compared with 79.0% for the second quarter of 2012
  • Favorable prior year loss reserve development of $24.1 million, or 8.7 combined ratio points, compared with $14.1 million favorable prior year loss reserve development, or 5.0 combined ratio points, for the second quarter of 2012

The combined ratio of 88.9% for the second quarter of 2013 included $51.8 million, or 19.4 percentage points, of pre-tax catastrophe losses, net of reinsurance recoveries and $5.2 million of reinstatement premiums, related to flooding in Central Europe, Canada and India, and tornadoes and hailstorms in the U.S. The combined ratio of 79.0% for the second quarter of 2012 included no natural catastrophe losses.

Insurance

Operating highlights for Insurance for the quarter ended June 30, 2013 include:

  • Gross written premiums of $388.7 million, up 6.0% compared with $366.8 million for the second quarter of 2012
  • Combined ratio of 99.8% compared with 92.2% for the second quarter of 2012
  • Favorable prior year loss reserve development of $3.3 million, or 1.2 combined ratio points, compared with $14.5 million, or 6.3 combined ratio points, for the second quarter of 2012

The increase in gross written premiums was mainly attributable to growth in Marine, Energy and Construction Liability, Global Casualty, as well as the U.S.-based insurance teams specifically in Programs, Professional Liability and Marine. The combined ratio for the second quarter of 2013 included $6.9 million, or 2.6 percentage points, of pre-tax catastrophe losses net of reinsurance recoveries and reinstatement premiums related to tornadoes and hailstorms in the U.S. The combined ratio for the second quarter of 2012 included no natural catastrophe losses.

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 3.4 years at June 30, 2013, excluding the impact of interest rate swaps, or 3.0 years including the impact of interest rate swaps. The total return on the Company's investment portfolio was negative 1.2% for the second quarter of 2013, compared to a gain of 1.0% for the second quarter of 2012. The equity portfolio had a loss of 0.3% for the quarter and a gain of 8.3% for the first half of 2013.

Net investment income for the second quarter of 2013 was $45.9 million. Book yield as at June 30, 2013 on the fixed income portfolio was 2.71% compared to 3.19% at June 30, 2012. The decline in the yield primarily reflects the effect of lower prevailing interest rates.

Net realized and unrealized investment losses including unrealized movements in the trading portfolio included in net income for the quarter were $6.6 million. Total unrealized gains in the available for sale investment portfolio, including equity securities, decreased $138.4 million from March 31, 2013 to $199.0 million at June 30, 2013.

Capital

Total shareholders' equity decreased by $104.7 million in the quarter to $3.2 billion at June 30, 2013.

During the second quarter of 2013, Aspen repurchased 800,042 ordinary shares in the open market at an average price of $37.38 per share for a total cost of $29.9 million. Between July 1, 2013 and July 22, 2013, Aspen repurchased 174,202 ordinary shares under its Rule 10b5-1 plan at an average price of $37.83 per share for a total cost of $6.6 million. Aspen had $287 million remaining under its current share repurchase authorization at July 22, 2013.

On April 25, 2013 Aspen elected to mandatorily redeem all of its outstanding 5.625% Perpetual Preferred Income Equity Replacement Securities ("Perpetual PIERS"). Accordingly, the conversion settlement amount for each $50 liquidation preference of Perpetual PIERS was paid in the following forms of consideration: $50.00 in cash and approximately 0.3991 shares of Aspen ordinary shares. As a result, Aspen issued a total of 1,835,860 ordinary shares.

On April 25, 2013 Aspen priced 11,000,000 shares of 5.95% Fixed-to-Floating Rate Perpetual Non-Cumulative Preference Shares with a liquidation preference of $25 per share or $275 million in aggregate liquidation preference.

Guidance

Aspen continues to expect to achieve an operating return on equity of 10% in 2014, assuming a pre-tax catastrophe load of $190 million per annum and normal loss experience and given the current interest rate environment. While recent decreases in pricing in certain business lines, if sustained, are expected to have an adverse effect on operating return on equity, Aspen continues to identify actions in each of its three operating return on equity levers - optimization of the business portfolio, capital efficiency and enhancing investment returns - to help mitigate the impact of pricing declines on operating return on equity.

See "Forward-looking Statements Safe Harbor" below.

(1)See definition of non-GAAP financial measures on pages 12 and 13

Earnings conference call and web cast

Aspen will host a conference call to discuss the results at 9:00 am (EST) on Thursday, July 25, 2013.

To participate in the July 25 conference call by phone
Please call to register at least 10 minutes before the conference call begins by dialing:

+1 (888) 459 5609 (US toll free) or
+1 (404) 665 9920 (international)
Conference ID 97869477

To listen live online
Aspen will provide a live webcast on Aspen's website at www.aspen.co

To download the materials
The earnings press release and a detailed financial supplement will also be published on Aspen's website at www.aspen.co.

To listen later
A replay of the call will be available for 14 days via phone and internet, available two hours after the end of the live call. To listen to the replay by phone please dial:

+1 (855) 859 2056 (US toll free) or
+1 (404) 537 3406 (international)
Replay ID 97869477

The recording will be also available at www.aspen.co on the Event Calendar page within the Investor Relations section.

          
Aspen Insurance Holdings Limited
Summary consolidated balance sheet (unaudited)

$ in millions, except per share data

 

As at

June 30,

2013

As at

December 31,

2012

 
ASSETS
Total investments$6,746.7$6,692.4
Cash and cash equivalents1,188.91,463.6
Reinsurance recoverables698.3621.6
Premiums receivable1,197.61,057.5
Other assets522.3475.5
Total assets$10,353.8$10,310.6
 
LIABILITIES
Losses and loss adjustment expenses$4,734.9$4,779.7
Unearned premiums1,375.31,120.8
Other payables509.5422.6
Long-term debt499.2499.1
Total liabilities7,118.96,822.2
 
SHAREHOLDERS' EQUITY
Total shareholders' equity3,234.93,488.4
Total liabilities and shareholders' equity$10,353.8$10,310.6
 
Book value per share$39.99$42.12
Diluted book value per share (treasury stock method)$38.87$40.65
 
       
Aspen Insurance Holdings Limited
Summary consolidated statement of income (unaudited)

$ in millions, except ratios

  Three Months Ended  

 

  June 30,

2013

   June 30,

2012

  
UNDERWRITING REVENUES   
Gross written premiums$687.3$666.6
Premiums ceded  (74.6)   (84.7)  
Net written premiums612.7581.9
Change in unearned premiums  (68.7)   (68.5)  
Net earned premiums  544.0   513.4  
UNDERWRITING EXPENSES
Losses and loss adjustment expenses333.4262.1
Policy acquisition expenses107.2102.0
General, administrative and corporate expenses  87.7   83.5  
Total underwriting expenses  528.3   447.6  
Underwriting income including corporate expenses  15.7   65.8  
OTHER OPERATING REVENUE
Net investment income45.952.8
Interest expense(7.8)(7.7)
Other income  0.9   2.9  
Total other operating revenue  39.0   48.0  
 
OPERATING INCOME BEFORE TAX54.7113.8
 
Net realized and unrealized exchange (losses)(13.8)(13.0)
Net realized and unrealized investment gains (losses)  0.2   (10.0)  
INCOME BEFORE TAX41.190.8
Income tax expense  (1.0)   (6.2)  
NET INCOME AFTER TAX40.184.6
Dividends paid on ordinary shares(11.9)(12.2)
Dividends paid on preference shares(8.0)(8.3)
Change in redemption value of Perpetual PIERS(7.1)
Proportion due to non-controlling interest     0.2  
Retained income  $13.1   $64.3  
Components of net income (after tax)
 Operating income$52.2105.8
Net realized and unrealized exchange (losses) after tax(12.0)(10.9)
Net realized investment (losses) after tax  (0.1)   (10.3)  
NET INCOME AFTER TAX  $40.1   $84.6  
 
Loss ratio61.3%51.1%
Policy acquisition expense ratio19.7%19.9%
General, administrative and corporate expense ratio16.1%16.3%
Expense ratio35.8%36.2%
Combined ratio  97.1%   87.3%  
 
     
Aspen Insurance Holdings Limited
Summary consolidated statement of income (unaudited)

$ in millions, except ratios

 Six Months Ended 

 

 June 30,

2013

   June 30,

2012

 
UNDERWRITING REVENUES   
Gross written premiums$1,460.7$1,448.7
Premiums ceded (251.0)   (233.3) 
Net written premiums1,209.71,215.4
Change in unearned premiums (154.8)   (206.6) 
Net earned premiums 1,054.9   1,008.8 
UNDERWRITING EXPENSES
Losses and loss adjustment expenses602.1546.1
Policy acquisition expenses211.8198.1
General, administrative and corporate expenses 174.3   168.3 
Total underwriting expenses 988.2   912.5 
Underwriting income including corporate expenses 66.7   96.3 
OTHER OPERATING REVENUE
Net investment income94.2105.2
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