Exhibit 99.1
| PRESS RELEASE |
Aspen reports results for the quarter and six months ended June 30, 2012
Hamilton, Bermuda, July 25, 2012 – Aspen Insurance Holdings Limited (“Aspen”) (NYSE: AHL) today reports net income after tax of $84.6 million, or $1.03 per diluted share, for the second quarter of 2012 with an increase in diluted book value per share of 3.7% from March 31, 2012 to $40.01.
Trading highlights in the quarter included low catastrophe levels, areas of pricing improvement, especially in loss affected and peak zone property lines, and net favorable reserve development. The insurance segment had a strong performance with targeted premium growth and a combined ratio of 92.2% while continuing to make progress in developing its US insurance footprint. The reinsurance segment had an excellent quarter with a combined ratio of 79.0%.
Operating highlights for the quarter ended June 30, 2012
| • | Net earnings per diluted share of $1.03 for the quarter ended June 30, 2012 compared with net earnings per diluted share of $0.05 in the second quarter of 2011 (1) |
| • | Operating earnings per diluted share of $1.32 for the quarter ended June 30, 2012 compared with operating earnings per diluted share of $0.35 in the second quarter of 2011 (1)(2) |
| • | Diluted book value per share of $40.01, up 7.4% from the second quarter of 2011 and up 3.7% from March 31, 2012 (1) |
| • | Annualized net income return on average equity of 10.8% and annualized operating return on average equity of 13.6% for the second quarter of 2012 compared with 0.4% and 3.6% respectively in the second quarter of 2011 (2) |
| • | Gross written premiums in the second quarter of 2012 increased 15% from the second quarter of 2011 to $666.6 million with the majority of the growth resulting from a 25% increase in the insurance segment |
| • | Combined ratio of 87.3% for the second quarter of 2012 compared with a combined ratio of 105.3% (1) |
| • | Prior year net reserve releases of $28.6 million for the quarter compared with $32.8 million of net reserve releases in the second quarter of 2011 |
| (1) | See provision of ASU 2010-26 on page 12 |
| (2) | See definition of non-GAAP financial measures on pages 11 and 12 |
Financial highlights, quarter ended June 30, 2012 (unaudited)
$ in millions, except per share amounts and percentages
| Q2 2012 | Q2 2011 (1) | |||||||
| Gross written premiums |
$666.6 | $582.2 | ||||||
| Net earned premiums |
$513.4 | $459.8 | ||||||
| Net investment income |
$52.8 | $58.6 | ||||||
| Net income after tax |
$84.6 | $9.1 | ||||||
| Operating income after tax |
$105.8 | $30.8 | ||||||
| Diluted net income per share |
$1.03 | $0.05 | ||||||
| Diluted operating earnings per share |
$1.32 | $0.35 | ||||||
| Annualized net income return on equity |
10.8 | % | 0.4 | % | ||||
| Annualized operating return on equity |
13.6 | % | 3.6 | % | ||||
| Combined ratio |
87.3 | % | 105.3 | % | ||||
| Combined ratio excluding catastrophes(2) |
87.3 | % | 90.3 | % | ||||
| Book value per ordinary share |
$41.41 | $38.64 | ||||||
| Diluted book value per ordinary share |
$40.01 | $37.24 | ||||||
|
|
|
|||||||
Financial highlights, six months ended June 30, 2012 (unaudited)
$ in millions, except per share amounts and percentages
| H1 2012 | H1 2011 (1) | |||||||
| Gross written premiums |
$1,448.7 | $1,253.5 | ||||||
| Net earned premiums |
$1,008.8 | $912.2 | ||||||
| Net investment income |
$105.2 | $114.1 | ||||||
| Net income (loss) after tax |
$163.3 | $(143.7 | ) | |||||
| Operating income (loss) after tax |
$176.3 | $(130.9 | ) | |||||
| Diluted net income (loss) per share |
$2.02 | $(2.19 | ) | |||||
| Diluted operating earnings (loss) per share |
$2.20 | $(2.01 | ) | |||||
| Annualized net income (loss) return on equity |
10.6 | % | (11.2 | )% | ||||
| Annualized operating return (loss) on equity |
11.4 | % | (10.2 | )% | ||||
| Combined ratio |
90.4 | % | 126.8 | % | ||||
| Combined ratio excluding catastrophes(2) |
88.3 | % | 87.9 | % | ||||
| (1) | See provision of ASU 2010-26 on page 12 |
| (2) | See definition of non-GAAP financial measures on pages 11 and 12 |
Chris O’Kane, Chief Executive Officer commented, “Our operating income for the second quarter was $106 million, or $1.32 per diluted share, the result of strong underwriting results in both reinsurance and insurance, supported by solid investment returns. Diluted book value per share grew 3.7% to over $40, a first for Aspen and we generated an annualized operating return on equity of 13.6%. I am very pleased with the strong results for the quarter as we enter the second half of the year, with a strong capital base and total assets now over $10 billion. We continue to be committed to returning capital to shareholders through our share repurchase program when we are not able to use our capital in a manner we believe to be sufficiently productive.”
2
Segment highlights
Reinsurance
Operating highlights for Reinsurance for the quarter ended June 30, 2012 include:
| • | Gross written premiums of $299.8 million, up 4.1% compared with $288.0 million for the second quarter of 2011 |
| • | Combined ratio of 79.0% compared with 105.3% for the second quarter of 2011 |
| • | Favorable prior year loss reserve development of $14.1 million primarily in property other and specialty reinsurance compared with $25.3 million in the second quarter of 2011 |
The combined ratio for the second quarter of 2012 was 79.0%. There was no net overall material change in reserves for the 2010 and 2011 catastrophe events. In comparison, the combined ratio for the second quarter of 2011 was 105.3% or 82.7% excluding natural catastrophe losses.
The segment underwriting profit for the second quarter of 2012 was $59.0 million compared with an underwriting loss of $14.3 million for the second quarter of 2011.
Operating highlights for Reinsurance for the six months ended June 30, 2012 include:
| • | Gross written premiums of $774.0 million, up 6.7% compared with $725.1 million for the first half of 2011 |
| • | Combined ratio of 79.5% compared with 141.9% for the first half of 2011 |
| • | Favorable prior year loss reserve development for the first half of 2012 was $42.2 million primarily in property other and casualty reinsurance compared with $46.1 million for the first half of 2011 |
The combined ratio of 79.5% for the first half of 2012 included pre-tax catastrophe losses, net of reinsurance recoveries and reinstatement premiums, of $15.7 million or 3.4 percentage points. In comparison, the combined ratio for the first half of 2011 was 141.9% or 77.5% excluding natural catastrophe losses.
The segment underwriting profit for the first half of 2012 was $113.6 million compared with an underwriting loss of $226.8 million for the first half of 2011 which was severely impacted by natural catastrophes, primarily the Japan and New Zealand earthquakes.
Insurance
Operating highlights for Insurance for the quarter ended June 30, 2012 include:
| • | Gross written premiums of $366.8 million, up 24.7% compared with $294.2 million in the second quarter of 2011 |
| • | Combined ratio of 92.2% compared with 97.7% for the second quarter of 2011 |
| • | Favorable prior year loss reserve development of $14.5 million compared with $7.5 million in the second quarter of 2011, mainly from shorter-tail lines |
The increase in gross written premiums was mainly attributable to property, specifically in the US, reflecting rate improvement for catastrophe-exposed risks as well as growth in the Programs business.
Operating highlights for Insurance for the six months ended June 30, 2012 include:
| • | Gross written premiums of $674.7 million, up 27.7% compared with $528.4 million in the first half of 2011 |
3
| • | Combined ratio of 98.1% compared with 98.9% for the first half of 2011 |
| • | Favorable prior year loss reserve development of $23.3 million compared with $8.6 million in the first half of 2011 |
Investment performance
Net investment income for the second quarter of 2012 was $52.8 million compared with $58.6 million in the second quarter of 2011. Net realized and unrealized investment losses included in net income for the quarter were $10.0 million which includes $11.3 million of losses from the Company’s interest rate swaps.
Unrealized gains in the available for sale investment portfolio, including equity securities, at the end of June 30, 2012 were $360.7 million, an increase of $36.6 million from the end of the first quarter of 2012.
Book yield at June 30, 2012 on the fixed income portfolio was 3.19% a decrease of 45 basis points from 3.64% at the end of the second quarter of 2011. The average credit quality of the fixed income portfolio was AA and it had an average duration of 2.9 years at June 20, 2012, excluding the impact of interest rate swaps.
Shareholders’ Equity
Aspen increased its total shareholders’ equity by $224.2 million in the quarter to $3.4 billion at June 30, 2012.
On April 11, 2012, Aspen issued 6,400,000 shares of its newly designated 7.250% Perpetual Non-Cumulative Preference Shares each having a liquidation preference of $25 representing $160.0 million in aggregate liquidation preferences. Net proceeds were $154.5 million.
During the second quarter of 2012, Aspen repurchased 891,335 ordinary shares under its open market repurchase program at an average price of $28.05 per share for a total cost of $25.0 million. The company has $167 million remaining under its current buyback authorization.
Outlook for 2012
Given current market conditions, Aspen now anticipates gross written premiums for 2012 to be $2.4 billion +/- 5%, premiums ceded to be between 10% and 12% of gross earned premiums and the combined ratio to be in the range of 93% to 98% including a catastrophe load of $135 million for the remainder of the year, assuming normal loss experience. Aspen now expects the effective tax rate in 2012 to be in the range of 6% to 10%.
See “Forward-looking Statements Safe Harbor” below.
Earnings conference call and web cast
Aspen will host a conference call to discuss the results at 9:00 am (EST) on Thursday, July 26, 2012.
To participate in the July 26 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 85054688
4
To listen live online
Aspen will provide a live webcast at www.aspen.co
(Investors and Media > Investor Relations > Event Calendar)
To download the materials
The earnings press release and a detailed financial supplement will also be published on Aspen’s web site.
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 85054688
The recording will be also available at www.aspen.co.
For further information please contact
Investors
Kerry Calaiaro, Senior Vice President, Investor Relations, Aspen
Kerry.Calaiaro@aspen.co
+1 646 502 1076
Media
Tim Dickenson, Global Head of Communications, Aspen
Tim.Dickenson@aspen.co
+44 20 7184 8034
Europe and Asia – Citigate Dewe Rogerson
Justin Griffiths
Justin.Griffiths@citigatedr.co.uk
+44 20 7638 9571
North America – Abernathy MacGregor
Allyson Morris
amv@abmac.com
+1 212 371 5999
5
Aspen Insurance Holdings Limited
Summary consolidated balance sheet (unaudited)
$ in millions, except per share data
| As at June 30, 2012 |
As at December 31, 2011 |
|||||||
| ASSETS |
||||||||
| Total investments |
$6,515.3 | $6,335.1 | ||||||
| Cash and cash equivalents |
1,309.0 | 1,239.1 | ||||||
| Reinsurance recoverables |
648.2 | 514.4 | ||||||
| Premiums receivable |
1,063.3 | 894.4 | ||||||
| Other assets (1) |
543.5 | 477.5 | ||||||
|
|
|
|||||||
| Total assets |
$10,079.3 | $9,460.5 | ||||||
|
|
|
|||||||
| LIABILITIES |
||||||||
| Losses and loss adjustment expenses |
$4,556.4 | $4,525.2 | ||||||
| Unearned premiums |
1,223.8 | 916.1 | ||||||
| Other payables |
365.0 | 364.2 | ||||||
| Long-term debt |
499.0 | 499.0 | ||||||
|
|
|
|||||||
| Total liabilities |
6,644.2 | 6,304.5 | ||||||
| SHAREHOLDERS’ EQUITY |
||||||||
| Total shareholders’ equity (1) |
3,435.1 | 3,156.0 | ||||||
|
|
|
|||||||
| Total liabilities and shareholders’ equity (1) |
$10,079.3 | $9,460.5 | ||||||
|
|
|
|||||||
| Book value per share (1) |
$41.41 | $39.66 | ||||||
| Diluted book value per share (treasury stock method) (1) |
$40.01 | $38.21 | ||||||
|
|
|
|||||||
| (1) | See provision of ASU 2010-26 on page 12 |
6
Aspen Insurance Holdings Limited
Summary consolidated statement of income (unaudited)
$ in millions, except share, per share data and ratios
| Three Months Ended | ||||||||
| June 30, 2012 | June 30, 2011 (1) | |||||||
| UNDERWRITING REVENUES |
||||||||
| Gross written premiums |
$666.6 | $582.2 | ||||||
| Premiums ceded |
(84.7 | ) | (56.5 | ) | ||||
|
|
|
|||||||
| Net written premiums |
581.9 | 525.7 | ||||||
| Change in unearned premiums |
(68.5 | ) | (65.9 | ) | ||||
|
|
|
|||||||
| Net earned premiums |
513.4 | 459.8 | ||||||
|
|
|
|||||||
| UNDERWRITING EXPENSES |
||||||||
| Losses and loss adjustment expenses |
262.1 | 326.4 | ||||||
| Policy acquisition expenses |
102.0 | 86.7 | ||||||
| General, administrative and corporate expenses |
83.5 | 70.7 | ||||||
|
|
|
|||||||
| Total underwriting expenses |
447.6 | 483.8 | ||||||
|
|
|
|||||||
| Underwriting income/(loss) including corporate expenses |
65.8 | (24.0 | ) | |||||
|
|
|
|||||||
| OTHER OPERATING REVENUE |
||||||||
| Net investment income |
52.8 | 58.6 | ||||||
| Interest expense |
(7.7 | ) | (7.7 | ) | ||||
| Other income |
2.9 | 6.8 | ||||||
|
|
|
|||||||
| Total other operating revenue |
48.0 | 57.7 | ||||||
|
|
|
|||||||
| OPERATING INCOME BEFORE TAX |
113.8 | 33.7 | ||||||
| Net realized and unrealized exchange gains/(losses) |
(13.0 | ) | (7.7 | ) | ||||
| Net realized and unrealized investment gains/(losses) |
(10.0 | ) | (15.7 | ) | ||||
|
|
|
|||||||
| INCOME BEFORE TAX |
90.8 | 10.3 | ||||||
| Income taxes (expense) |
(6.2 | ) | (1.2 | ) | ||||
|
|
|
|||||||
| NET INCOME AFTER TAX |
84.6 | 9.1 | ||||||
| Dividends paid on ordinary shares |
(12.2 | ) | (10.6 | ) | ||||
| Dividends paid on preference shares |
(8.3 | ) | (5.7 | ) | ||||
| Proportion due to non-controlling interest |
0.2 | 0.2 | ||||||
|
|
|
|||||||
| Retained income/(loss) |
$64.3 | $(7.0 | ) | |||||
|
|
|
|||||||
| Components of net income (after tax) |
||||||||
| Operating income |
$105.8 | $30.8 | ||||||
| Net realized and unrealized exchange gains/(losses) after tax |
(10.9) | (4.8) | ||||||
| Net realized and unrealized investment gains/(losses) after tax |
(10.3) | (16.9) | ||||||
|
|
|
|||||||
| NET INCOME AFTER TAX |
$84.6 | $9.1 | ||||||
|
|
|
|||||||
| Loss ratio |
51.1 | % | 71.0 | % | ||||
| Policy acquisition expense ratio |
19.9 | % | 18.9 | % | ||||
| General, administrative and corporate expense ratio |
16.3 | % | 15.4 | % | ||||
| Expense ratio |
36.2 | % | 34.3 | % | ||||
| Combined ratio |
87.3 | % | 105.3 | % | ||||
|
|
|
|||||||
| (1) | See provision of ASU 2010-26 on page 12 |
7
Aspen Insurance Holdings Limited
Summary consolidated financial data (unaudited)
$ in millions, except share, per share data and ratios
| Three Months Ended | Six Months Ended | |||||||||||||||
| (in US$ except for number of shares) | June 30, 2012 |
June 30, 2011 (1) |
June 30, 2012 |
June 30, 2011 (1) |
||||||||||||
| Basic earnings per ordinary share |
||||||||||||||||
| Net income/(loss) adjusted for preference share dividend |
$1.07 | $0.05 | $2.10 | $(2.19 | ) | |||||||||||
| Operating income/(loss) adjusted for preference dividend |
$1.36 | $0.36 | $2.28 | $(2.01 | ) | |||||||||||
| Diluted earnings per ordinary share |
||||||||||||||||
| Net income/(loss) adjusted for preference share dividend |
$1.03 | $0.05 | $2.02 | $(2.19 | ) | |||||||||||
| Operating income/(loss) adjusted for preference dividend |
$1.32 | $0.35 | $2.20 | $(2.01 | ) | |||||||||||
| Weighted average number of ordinary shares outstanding (in millions) (2) |
71.304 | 70.792 | 71.124 | 70.673 | ||||||||||||
| Weighted average number of ordinary shares outstanding and dilutive potential ordinary shares (in millions) (2) |
73.846 | 73.569 | 73.844 | 70.673 | ||||||||||||
| Book value per ordinary share |
$41.41 | $38.64 | ||||||||||||||
| Diluted book value (treasury stock method) |
$40.01 | $37.24 | ||||||||||||||
| Ordinary shares outstanding at end of the period (in millions) |
70.687 | 70.833 | ||||||||||||||
| Ordinary shares outstanding and dilutive potential ordinary shares at end of the period (treasury stock method) (in millions) |
73.161 | 73.492 | ||||||||||||||
| (1) | See provision of ASU 2010-26 on page 12 |
| (2) | The basic and diluted number of ordinary shares for the six months ended June 30, 2011 is the same, as the inclusion of dilutive shares in a loss-making period would be anti-dilutive |
8
Aspen Insurance Holdings Limited
Summary consolidated segment information (unaudited)
$ in millions, except ratios
| Three Months Ended June 30, 2012 | Three Months Ended June 30, 2011 | |||||||||||||||||||||||||
| Reinsurance | Insurance | Total | Reinsurance | Insurance | Total | |||||||||||||||||||||
| Gross written premiums |
$299.8 | $366.8 | $666.6 | $288.0 | $294.2 | $582.2 | ||||||||||||||||||||
| Net written premiums |
276.8 | 305.1 | 581.9 | 256.9 | 268.8 | 525.7 | ||||||||||||||||||||
| Gross earned premiums |
300.8 | 279.9 | 580.7 | 290.7 | 234.1 | 524.8 | ||||||||||||||||||||
| Net earned premiums |
282.0 | 231.4 | 513.4 | 268.0 | 191.8 | 459.8 | ||||||||||||||||||||
| Losses and loss adjustment expenses |
133.7 | 128.4 | 262.1 | 206.3 | 120.1 | 326.4 | ||||||||||||||||||||
| Policy acquisition expenses |
59.3 | 42.7 | 102.0 | 49.1 | 37.6 | 86.7 | ||||||||||||||||||||
| General and administrative expenses (1) |
30.0 | 42.1 | 72.1 | 26.9 | 29.8 | 56.7 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||
| Underwriting income/(loss) |
$59.0 | $18.2 | $77.2 | $(14.3 | ) | $4.3 | $(10.0 | ) | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||
| Net investment income |
52.8 | 58.6 | ||||||||||||||||||||||||
| Net realized and unrealized investment (losses) (2) |
(10.0 | ) | (15.7 | ) | ||||||||||||||||||||||
| Corporate expenses |
(11.4 | ) | (14.0 | ) | ||||||||||||||||||||||
| Other income |
2.9 | 6.8 | ||||||||||||||||||||||||
| Interest expenses |
(7.7 | ) | (7.7 | ) | ||||||||||||||||||||||
| Net realized and unrealized foreign exchange (losses) (3) |
(13.0 | ) | (7.7 | ) | ||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||
| Income/(loss) before tax |
90.8 | 10.3 | ||||||||||||||||||||||||
| Income tax (expense) |
(6.2 | ) | (1.2 | ) | ||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||
| Net income |
$84.6 | $9.1 | ||||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||
| Ratios |
||||||||||||||||||||||||||
| Loss ratio |
47.4 | % | 55.5 | % | 51.1 | % | 77.0 | % | 62.6 | % | 71.0 | % | ||||||||||||||
| Policy acquisition expense ratio |
21.0 | % | 18.5 | % | 19.9 | % | 18.3 | % | 19.6 | % | 18.9 | % | ||||||||||||||
| General and administrative expense ratio (4) |
10.6 | % | 18.2 | % | 16.3 | % | 10.0 | % | 15.5 | % | 15.4 | % | ||||||||||||||
| Expense ratio |
31.6 | % | 36.7 | % | 36.2 | % | 28.3 | % | 35.1 | % | 34.3 | % | ||||||||||||||
| Combined ratio |
79.0 | % | 92.2 | % | 87.3 | % | 105.3 | % | 97.7 | % | 105.3 | % | ||||||||||||||
|
|
|
|||||||||||||||||||||||||
| (1) | See provision of ASU 2010-26 on page 12 |
| (2) | Includes realized and unrealized capital gains and losses and realized and unrealized gains and losses on interest rate swaps |
| (3) | Includes realized and unrealized foreign exchange gains and losses and realized and unrealized gains and losses on foreign exchange contracts |
| (4) | The total group general and administrative expense ratio includes the impact from corporate expenses |
9
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, Germany, Ireland, Singapore, Switzerland, the United Kingdom and the United States. For the year ended December 31, 2011, Aspen reported $9.5 billion in total assets, $4.5 billion in gross reserves, $3.2 billion in shareholders’ equity and $2.2 billion in gross written premiums. 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.co.
Forward-looking Statements Safe Harbor
This press release contains, and Aspen’s earnings conference call will contain, written or oral “forward-looking statements” within the meaning of the US 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 S&P, A.M. Best or 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; the persistence of the global financial crisis and the Eurozone debt crisis, 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.
10
For a more detailed description of these uncertainties and other factors, please see the “Risk Factors” section in Aspen’s Annual Report on Form 10-K as filed with the US Securities and Exchange Commission on February 28, 2012. 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.co.
(1) Annualized Operating Return on Average Equity (“Operating ROE”) is a non-GAAP financial measure. Annualized Operating Return on Average Equity is calculated using operating income, as defined below, and average equity calculated as the arithmetic average on a monthly basis for the stated periods of shareholders’ equity excluding the aggregate value of the liquidation preferences of our preference shares net of issuance costs.
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 25 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 and unrealized capital gains or losses, including realized and unrealized gains or losses on interest rate swaps, and after-tax net foreign exchange gains or losses including net realized and unrealized gains and losses from foreign exchange contracts.
Aspen excludes these items 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 would distort 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.
11
Operating income should not be viewed as a substitute for GAAP net income. Please see above and page 25 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.co.
(3) Diluted Book Value per Ordinary Share is a non-GAAP financial measure. Aspen has included diluted book value per ordinary share as it illustrates the effect on basic book value per share of dilutive securities thereby providing a better benchmark for comparison with other companies. Diluted book value per share is calculated using the treasury stock method, defined on page 24 of Aspen’s financial supplement, which can be obtained from the Investor Relations section of Aspen’s website at www.aspen.co.
(4) Diluted Operating Earnings per Share and Basic Operating Earnings per Share are non-GAAP financial measures. 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 25 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.co.
(5) Combined Ratio Excluding Catastrophes is a non-GAAP financial measure. Aspen believes that the presentation of combined ratio excluding catastrophes supports meaningful comparison from period to period of the underlying performance of the business. Combined ratio excluding catastrophes is calculated by dividing net earned premiums excluding catastrophe related re-instatement premiums by net losses excluding catastrophe losses and net expenses. We have defined 2012 catastrophe losses as losses associated with the severe weather in the US in February and March 2012. We have defined catastrophe losses in the comparative period as losses associated with the US storms in the second quarter of 2011, the Australian floods and the New Zealand and Japanese earthquakes which occurred in the first quarter of 2011, and movements in losses associated with the 2010 catastrophe events (Chilean and New Zealand earthquakes) which were recognized in the second quarter of 2011.
Other
(1) Provision of ASU 2010-26. In 2012, Aspen adopted the provision of ASU 2010-26, “Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts.” Under the standard, Aspen is required to expense the proportion of its general and administrative deferred acquisition costs not directly related to successful business acquisition. The application of this standard has resulted in a net $16.0 million write down of deferred acquisition costs through retained earnings brought forward and the restatement of our quarterly balance sheets from December 31, 2010 to December 31, 2011.
(2) Catastrophe Load included in our guidance is an estimate of the average annual aggregate loss before reinsurance and tax from natural catastrophe events based on 50,000 simulations of our internal capital model which, in relation to its catastrophe modeling components, is based on a combination of catastrophe models selected by Aspen to best fit its current understanding of the world wide natural catastrophe perils to which Aspen has known exposures. It does not include losses from non-natural catastrophe events such as terrorism or industrial accidents.
This load is attributed and then released quarter by quarter based on historic claims patterns. For example, there is a higher proportion allocated to the third quarter due to the historical frequency of US Wind events in this period. As an organization, Aspen monitors its current catastrophe losses to date against expected and updates the projected numbers accordingly based on this experience.
Actual catastrophe loss experience may materially differ from the catastrophe load in any one year for reasons which include natural variability in the frequency and severity of catastrophe events, and limitations in one or more of the models or uncertainties in the application of policy terms and limits.
12
