10-Q
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended
March 31, 2009
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number
001-31909
ASPEN INSURANCE HOLDINGS
LIMITED
(Exact Name of Registrant as
Specified in Its Charter)
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Bermuda
(State or other
jurisdiction
of incorporation or organization)
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Not Applicable
(I.R.S. Employer
Identification No.)
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Maxwell Roberts Building
1 Church Street
Hamilton, Bermuda
(Address of principal
executive offices)
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HM 11
(Zip Code)
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Registrants telephone number, including area code
(441) 295-8201
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter periods that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files). Yes
o No
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
As of May 1, 2009, there were 82,921,422 outstanding
ordinary shares, with a par value of 0.15144558¢ per
ordinary share, outstanding.
INDEX
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Page
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FINANCIAL INFORMATION
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2
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Unaudited Condensed Consolidated Financial
Statements
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2
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Condensed Consolidated Balance Sheets as at
March 31, 2009 (Unaudited) and December 31, 2008
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2
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Unaudited Condensed Consolidated Statements of
Operations, for the Three Months Ended March 31, 2009 and
2008
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4
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Unaudited Condensed Consolidated Statements of
Changes in Shareholders Equity, for the Three Months Ended
March 31, 2009 and 2008
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5
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Unaudited Condensed Consolidated Statements of
Comprehensive Income, for the Three Months Ended March 31,
2009 and 2008
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6
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Unaudited Condensed Consolidated Statements of
Cash Flows, for the Three Months Ended March 31, 2009 and
2008
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7
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Notes to the Unaudited Condensed Consolidated
Financial Statements
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9
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Managements Discussion and Analysis of
Financial Condition and Results of Operations
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26
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Quantitative and Qualitative Disclosures About
Market Risk
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49
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Controls and Procedures
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50
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OTHER INFORMATION
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52
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Legal Proceedings
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52
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Risk Factors
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52
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Unregistered Sale of Equity Securities and Use of
Proceeds
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52
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Defaults Upon Senior Securities
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52
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Submission of Matters to a Vote of Security
Holders
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52
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Other Information
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52
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Exhibits
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52
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53
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CERTIFICATIONS
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EX-31.1 |
EX-31.2 |
EX-32.1 |
1
PART I
FINANCIAL
INFORMATION
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Item 1.
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Unaudited
Condensed Consolidated Financial Statements
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ASPEN
INSURANCE HOLDINGS LIMITED
($ in
millions, except share and per share amounts)
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As at
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As at
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March 31,
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December 31,
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2009
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2008
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(Unaudited)
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ASSETS
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Investments
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Fixed income maturities, available for sale at fair value
(amortized cost $4,382.9 and $4,365.7)
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$
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4,453.6
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$
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4,433.1
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Fixed income maturities, trading at fair value (amortized
cost $112.4 and $nil)
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113.0
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Other investments
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290.9
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286.9
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Short-term investments, available for sale at fair value
(amortized cost $289.8 and $224.9)
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289.8
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224.9
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Short-term investments, trading at fair value (amortized
cost $2.0 and $nil)
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2.0
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Total investments
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5,149.3
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4,944.9
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Cash and cash equivalents
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913.2
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809.1
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Reinsurance recoverables
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Unpaid losses
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297.9
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283.3
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Ceded unearned premiums
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138.8
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46.3
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Receivables
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Underwriting premiums
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793.6
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677.5
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Other
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44.3
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46.5
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Funds withheld
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71.9
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85.0
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Deferred policy acquisition costs
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166.6
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149.7
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Derivatives at fair value
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7.2
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11.8
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Receivable for securities sold
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5.1
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177.2
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Office properties and equipment
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27.0
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33.8
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Other assets
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16.7
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15.5
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Intangible assets
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8.2
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8.2
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Total assets
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$
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7,639.8
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$
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7,288.8
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See accompanying notes to
unaudited condensed consolidated financial statements.
2
ASPEN
INSURANCE HOLDINGS LIMITED
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS Continued
($ in
millions, except share and per share amounts)
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As at
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As at
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March 31,
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December 31,
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2009
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2008
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(Unaudited)
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LIABILITIES
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Insurance reserves
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Losses and loss adjustment expenses
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$
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3,096.2
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$
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3,070.3
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Unearned premiums
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963.8
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810.7
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Total insurance reserves
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4,060.0
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3,881.0
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Payables
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Reinsurance premiums
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197.1
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103.0
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Deferred taxation
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57.5
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63.6
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Current taxation
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27.1
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9.0
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Accrued expenses and other payables
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206.7
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192.5
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Liabilities under derivative contracts
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9.4
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11.1
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Total payables
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497.8
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379.2
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Long-term debt
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249.6
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249.5
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Total liabilities
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$
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4,807.4
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$
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4,509.7
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Commitments and contingent liabilities (see Note 11)
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SHAREHOLDERS EQUITY
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Ordinary shares:82,762,673 shares of 0.15144558¢ each
(2008 81,506,503)
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$
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0.1
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0.1
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Preference shares:
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4,600,000 5.625% shares of par value 0.15144558¢ each
(2008 4,600,000)
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5,327,500 7.401% shares of par value 0.15144558¢ each
(2008 8,000,000)
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Additional Paid-in Capital
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1,749.9
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1,754.8
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Retained earnings
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956.9
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884.7
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Accumulated other comprehensive income, net of taxes
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125.5
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139.5
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Total shareholders equity
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2,832.4
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2,779.1
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Total liabilities and shareholders equity
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$
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7,639.8
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$
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7,288.8
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See accompanying notes to
unaudited condensed consolidated financial statements.
3
ASPEN
INSURANCE HOLDINGS LIMITED
($ in
millions, except share and per share amounts)
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Three Months Ended
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March 31,
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2009
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2008
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Revenues
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Net earned premiums
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$
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447.3
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$
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391.6
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Net investment income
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59.2
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39.1
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Realized investment (losses) gains
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(12.2
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)
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1.0
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Change in fair value of derivatives
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(2.0
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)
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(2.2
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)
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Total Revenues
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492.3
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429.5
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Expenses
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Losses and loss adjustment expenses
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250.8
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207.2
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Policy acquisition expenses
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78.6
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76.4
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Operating and administrative expenses
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48.5
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50.8
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Interest on long-term debt
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3.9
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3.9
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Net foreign exchange gains (losses)
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2.3
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(4.3
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)
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Other (income) expenses
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0.7
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Total Expenses
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384.8
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334.0
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Income from operations before income tax
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107.5
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95.5
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Income tax expense
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(16.1
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)
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(14.3
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)
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Net Income
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$
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91.4
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$
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81.2
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Per Share Data
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Weighted average number of ordinary shares and share equivalents
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Basic
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81,534,704
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85,510,759
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Diluted
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83,571,852
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87,956,836
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Basic earnings per ordinary share adjusted for preference share
dividend and in 2009 preferred shares repurchase gain of $0.39
per share
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$
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1.42
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$
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0.87
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Diluted earnings per ordinary share adjusted for preference
share dividend and in 2009 preferred shares repurchase gain of
$0.38 per share
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$
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1.39
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$
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0.85
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See accompanying notes to
unaudited condensed consolidated financial statements.
4
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Three Months Ended
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March 31,
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2009
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2008
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Ordinary shares
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Beginning and end of period
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$
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0.1
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$
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0.1
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Preference shares
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Beginning and end of period
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Additional paid-in capital
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Beginning of period
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1,754.8
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1,846.1
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New shares issued
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25.1
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Preference shares repurchased and cancelled
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(34.1
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)
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Share-based compensation
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4.1
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3.4
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End of period
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1,749.9
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1,849.5
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Retained earnings
|
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Beginning of period
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884.7
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858.8
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Net income for the period
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91.4
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81.2
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Dividends on ordinary and preference shares
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(19.2
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)
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(19.8
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)
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End of period
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956.9
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920.2
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Accumulated Other Comprehensive Income:
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|
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|
|
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|
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Cumulative foreign currency translation adjustments
|
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|
|
|
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Beginning of period
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|
|
87.6
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80.2
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Change for the period
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(15.2
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)
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5.4
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|
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End of period
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72.4
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85.6
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Loss on derivatives
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Beginning and end of period
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(1.4
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)
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(1.6
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)
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Unrealized appreciation/(depreciation) on investments:
|
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|
|
|
|
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Beginning of period
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53.3
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|
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34.0
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Change for the period
|
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1.2
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|
|
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34.9
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|
|
|
|
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End of period
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|
|
54.5
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|
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68.9
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|
|
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|
|
|
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Total accumulated other comprehensive income
|
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|
125.5
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|
|
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152.9
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|
|
|
|
|
|
|
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|
Total Shareholders Equity
|
|
$
|
2,832.4
|
|
|
$
|
2,922.7
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|
|
|
|
|
|
|
|
|
|
See accompanying notes to
unaudited condensed consolidated financial statements.
5
ASPEN
INSURANCE HOLDINGS LIMITED
($ in
millions)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net income
|
|
$
|
91.4
|
|
|
$
|
81.2
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of taxes:
|
|
|
|
|
|
|
|
|
Available for sale investments
|
|
|
|
|
|
|
|
|
Reclassification adjustment for net realized loss (gain) on
investments included in net income
|
|
|
4.1
|
|
|
|
(0.8
|
)
|
Change in net unrealized gains and losses on investments
|
|
|
(2.9
|
)
|
|
|
35.7
|
|
Change in foreign currency translation adjustment
|
|
|
(15.2
|
)
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
(14.0
|
)
|
|
|
40.3
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
77.4
|
|
|
$
|
121.5
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to
unaudited condensed consolidated financial statements.
6
ASPEN
INSURANCE HOLDINGS LIMITED
($ in
millions)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows provided by operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
91.4
|
|
|
$
|
81.2
|
|
Adjustments to reconcile net income to net cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1.9
|
|
|
|
2.9
|
|
Share-based compensation expense
|
|
|
4.1
|
|
|
|
3.4
|
|
Net realized (gains) losses
|
|
|
12.7
|
|
|
|
(1.0
|
)
|
Other investments (gains) losses
|
|
|
(4.0
|
)
|
|
|
16.9
|
|
Changes in:
|
|
|
|
|
|
|
|
|
Insurance reserves:
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses
|
|
|
46.9
|
|
|
|
(6.6
|
)
|
Unearned premiums
|
|
|
153.1
|
|
|
|
172.6
|
|
Reinsurance recoverables:
|
|
|
|
|
|
|
|
|
Unpaid losses
|
|
|
(14.6
|
)
|
|
|
28.7
|
|
Ceded unearned premiums
|
|
|
(92.5
|
)
|
|
|
(44.8
|
)
|
Accrued investment income and other receivables
|
|
|
2.2
|
|
|
|
9.5
|
|
Deferred policy acquisition costs
|
|
|
(16.3
|
)
|
|
|
(17.7
|
)
|
Reinsurance premiums payables
|
|
|
93.5
|
|
|
|
57.9
|
|
Premiums receivable
|
|
|
(116.1
|
)
|
|
|
(113.9
|
)
|
Funds withheld
|
|
|
13.1
|
|
|
|
4.5
|
|
Deferred taxes
|
|
|
(6.1
|
)
|
|
|
10.2
|
|
Income tax payable
|
|
|
18.0
|
|
|
|
(16.1
|
)
|
Accrued expenses and other payables
|
|
|
5.2
|
|
|
|
(20.5
|
)
|
Fair value of derivatives and settlement of liabilities under
derivatives
|
|
|
2.9
|
|
|
|
0.2
|
|
Other assets
|
|
|
(1.2
|
)
|
|
|
(3.9
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
194.2
|
|
|
$
|
163.5
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to
unaudited condensed consolidated financial statements.
7
ASPEN
INSURANCE HOLDINGS LIMITED
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Continued
($ in
millions)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
Purchases of fixed maturities
|
|
$
|
(650.8
|
)
|
|
$
|
(509.6
|
)
|
Proceeds from sales and maturities of fixed maturities
|
|
|
490.6
|
|
|
|
473.8
|
|
Net sales of short-term investments
|
|
|
(64.5
|
)
|
|
|
(35.0
|
)
|
Proceeds from other investments sold
|
|
|
172.1
|
|
|
|
|
|
Purchase of equipment
|
|
|
(0.6
|
)
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(53.2
|
)
|
|
|
(73.5
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows used in financing activities:
|
|
|
|
|
|
|
|
|
Dividends paid on ordinary shares
|
|
|
(12.3
|
)
|
|
|
(12.9
|
)
|
Dividends paid on preference shares
|
|
|
(6.9
|
)
|
|
|
(6.9
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(19.2
|
)
|
|
|
(19.8
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate movements on cash and cash equivalents
|
|
|
(17.7
|
)
|
|
|
(25.9
|
)
|
|
|
|
|
|
|
|
|
|
Increase/(decrease) in cash and cash equivalents
|
|
|
104.1
|
|
|
|
44.3
|
|
Cash and cash equivalents at beginning of period
|
|
|
809.1
|
|
|
|
651.4
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
913.2
|
|
|
$
|
695.7
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the period for income tax
|
|
|
6.0
|
|
|
|
28.9
|
|
Cash paid during the period for interest
|
|
|
7.5
|
|
|
|
7.5
|
|
See accompanying notes to
unaudited condensed consolidated financial statements.
8
ASPEN
INSURANCE HOLDINGS LIMITED
|
|
1.
|
History
and Organization
|
Aspen Insurance Holdings Limited (Aspen Holdings)
was incorporated on May 23, 2002 and holds subsidiaries
that provide insurance and reinsurance on a worldwide basis. Its
principal operating subsidiaries are Aspen Insurance UK Limited
(Aspen U.K.), Aspen Insurance Limited (Aspen
Bermuda), Aspen Specialty Insurance Company (Aspen
Specialty) and Aspen Underwriting Limited (corporate
member of Lloyds Syndicate 4711, AUL),
(collectively, the Insurance Subsidiaries).
The accompanying unaudited condensed consolidated financial
statements have been prepared on the basis of generally accepted
accounting principles in the United States (GAAP)
for interim financial information and in accordance with the
instructions to
Form 10-Q
and Article 10 of
Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Results for the three months ended
March 31, 2009 are not necessarily indicative of the
results that may be expected for the year ended
December 31, 2009. The unaudited condensed consolidated
financial statements include the accounts of Aspen Holdings and
its wholly-owned subsidiaries, which are collectively referred
to herein as the Company. All intercompany
transactions and balances have been eliminated on consolidation.
The balance sheet at December 31, 2008 has been derived
from the audited consolidated financial statements at that date
but does not include all of the information and footnotes
required by GAAP for complete financial statements. These
unaudited condensed consolidated financial statements and notes
thereto should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended
December 31, 2008 contained in Aspens Annual Report
on
Form 10-K
filed with the United States Securities and Exchange Commission
(File
No. 001-31909).
Assumptions and estimates made by management have a significant
effect on the amounts reported within the consolidated financial
statements. The most significant of these relate to the losses
and loss adjustment expenses, reinsurance recoverables, the fair
value of derivatives and the value of other investments. All
material assumptions and estimates are regularly reviewed and
adjustments made as necessary, but actual results could be
significantly different from those expected when the assumptions
or estimates were made.
New
Accounting Pronouncements Adopted in 2009
In April 2009, the FASB issued FSP
FAS 157-4
Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly
(FSP
FAS 157-4).
This FSP provides additional guidance when the volume or level
of activity for the asset or liability have significantly
decreased. The FSP also includes guidance on identifying
circumstances that indicate a transaction is not orderly. FSP
FAS 157-4
is effective for interim periods ending after June 15,
2009, but early adoption is permitted for interim periods ending
after March 15, 2009. If a reporting entity elects to early
adopt either FSP
FAS 115-2
and
FAS 124-2
or FSP
FAS 107-1
and APB 28-1
(see below) the reporting entity also is required to adopt early
FSP FAS 157-4.
The Company adopted the provisions of FSP
FAS 157-4
during the first quarter of 2009. For more information see
Note 5 to the financial statements.
In April 2009, the FASB issued FSP
No. FAS 115-2
and
FAS 124-2,
Recognition and Presentation of Other-Than-Temporary
Impairments. (FSP
FAS 115-2
and
FAS 124-2).
This proposal amends the other than temporary guidance for debt
securities to make the guidance more operational and to improve
the presentation and disclosure of other-than-temporary
impairments on debt securities in the financial
9
ASPEN
INSURANCE HOLDINGS LIMITED
NOTES TO
THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
statements. For debt securities where the amortized cost is
greater than the fair market value the company shall assess if
the impairment is other than temporary. If a company intends to
sell a security (that is, it has decided to sell the security)
or it is more likely than not that it will be required to sell a
security prior to recovery of its cost basis, a security
would be written down to fair value with the full charge
recorded in earnings. If a company does not intend to sell a
security and it is not more likely than not that it will be
required to sell the security prior to recovery, the amount of
other than temporary impairment related to credit losses would
be recognized in earnings. Any remaining difference between the
fair value and the cost basis would be recognized as part of
other comprehensive income.
On May 23, 2008, the Financial Accounting Standards Board
(FASB) issued Statement No. 163,
Accounting For Financial Guarantee Insurance Contracts
an interpretation of FASB Statement No. 60
(FAS 163). The statement requires an
insurance enterprise to recognize a claim liability prior to an
event of default when there is evidence that credit
deterioration has occurred in an insured financial obligation.
The statement also clarifies how Statement No. 60 applies
to financial guarantee insurance contracts, including the
recognition and measurement to be used to account for premium
revenue and claim liabilities. It is effective for fiscal years
beginning after December 15, 2008, and all interim periods
within the fiscal year except for some disclosures about the
insurance enterprises risk management activities. The
adoption of FAS 163 did not have any impact on the
Companys consolidated financial statements as of and for
the three months ended March 31, 2009.
On March 8, 2008, the FASB issued Statement
No. 161, Disclosures About Derivative Instruments and
Hedging Activities an amendment of FASB statement
133 (FAS 161). This Statement changes the
disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced
disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related
hedged items are accounted for under Statement 133 and its
related interpretations, and (c) how derivative instruments
and related hedged items affect an entitys financial
position, financial performance, and cash flows. The statement
requires qualitative disclosures about objectives and strategies
for using derivatives, quantitative disclosures about fair value
amounts of gains and losses on derivative instruments, and
disclosures about credit-risk-related contingent features in
derivative agreements. The Company adopted the disclosures
required by FAS 161 in the first quarter of fiscal 2009.
Since FAS 161 only required additional disclosure, the
adoption did not impact the Companys consolidated results
of operations, financial condition or cash flows.
Accounting
standards not yet adopted
In March 2009, the FASB released Proposed Staff Position
FAS 107-1
and Accounting Principles Board (APB) Opinion
No. 28-1,
Interim Disclosures about Fair Value of Financial
Instruments (FSP
FAS 107-1
and APB
28-1).
This proposal amends FASB Statement No. 107,
Disclosures about Fair Values of Financial
Instruments, to require disclosures about fair value
of financial instruments in interim financial statements as well
as in annual financial statements. The proposal also amends APB
Opinion No. 28, Interim Financial
Reporting, to require those disclosures in all interim
financial statements. This proposal is effective for interim
periods ending after June 15, 2009, but early adoption is
permitted for interim periods ending after March 15, 2009.
The Company will adopt FSP
FAS 107-1
and APB 28-1
and provide the additional disclosure requirements for second
quarter 2009.
|
|
3.
|
Earnings
Per Ordinary Share
|
Basic earnings per ordinary share are calculated by dividing net
income available to holders of Aspens ordinary shares by
the weighted average number of ordinary shares outstanding.
Diluted earnings per ordinary share are based on the weighted
average number of ordinary shares and dilutive potential
ordinary shares outstanding during the period of calculation
using the treasury stock method. The
10
ASPEN
INSURANCE HOLDINGS LIMITED
NOTES TO
THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
following table sets forth the computation of basic and diluted
earnings per share for the three months ended March 31,
2009 and 2008, respectively:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in millions, except share and per share amounts)
|
|
|
Earnings
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
Net income as reported
|
|
$
|
91.4
|
|
|
$
|
81.2
|
|
Preference dividends
|
|
|
(6.9
|
)
|
|
|
(6.9
|
)
|
Preference stock repurchase gain
|
|
|
31.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to ordinary shareholders
|
|
|
116.0
|
|
|
|
74.3
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
Net income available to ordinary shareholders
|
|
|
116.0
|
|
|
|
74.3
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares
|
|
|
81,534,704
|
|
|
|
85,510,759
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares
|
|
|
81,534,704
|
|
|
|
85,510,759
|
|
Weighted average effect of dilutive securities
|
|
|
2,037,148
|
|
|
|
2,446,077
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
83,571,852
|
|
|
|
87,956,836
|
|
|
|
|
|
|
|
|
|
|
Earnings per ordinary share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.42
|
|
|
$
|
0.87
|
|
Diluted
|
|
$
|
1.39
|
|
|
$
|
0.85
|
|
Purchase of preference shares. On
March 31, 2009, we purchased 2,672,500 of our 7.401% $25
liquidation price preference shares (NYSE : AHL-PA) at a price
of $12.50 per share. Under FASB-EITF Issue D-42, The
Effect on the Calculation of Earnings Per Share for Redemption
or Induced Conversion of Preferred Stock for earnings
per share purposes, the purchase resulted in a first quarter
gain of approximately $31.5 million, net of a non-cash
charge of $1.2 million reflecting the write off of the
pro-rata portion of the original issuance costs of the 7.401%
preference shares.
On April 29, 2009, the Companys Board of Directors
declared the following quarterly dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
|
|
|
Payable on:
|
|
Record Date:
|
|
|
Ordinary shares
|
|
$
|
0.15
|
|
|
May 28, 2009
|
|
|
May 13, 2009
|
|
5.625% preference shares
|
|
$
|
0.703125
|
|
|
July 1, 2009
|
|
|
June 15, 2009
|
|
7.401% preference shares
|
|
$
|
0.462563
|
|
|
July 1, 2009
|
|
|
June 15, 2009
|
|
The Company is organized into four business segments: Property
Reinsurance, Casualty Reinsurance, International Insurance, and
U.S. Insurance. These segments form the basis of how the
Company monitors the performance of its operations.
Property Reinsurance. Our property reinsurance
segment is written on both a treaty and facultative basis and
consists of the following principal lines of business: treaty
catastrophe, treaty risk excess, treaty
11
ASPEN
INSURANCE HOLDINGS LIMITED
NOTES TO
THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
pro rata, and property facultative. Treaty reinsurance contracts
provide for automatic coverage of a type or category of risk
underwritten by our ceding clients. We also write some
structured reinsurance contracts out of Aspen Bermuda. These
contracts are tailored to the individual client circumstances
and although written by a single team are accounted for within
the business segment that best reflects the economic
characteristics of the contract. We also include within this
segment some credit, surety and political risk reinsurance
contracts written by the Zurich branch of Aspen U.K. This
portfolio is written principally on a treaty basis.
Casualty Reinsurance. Our casualty reinsurance
segment is written on both a treaty and facultative basis and
consists of the following principal lines of business:
U.S. treaty, international treaty, and casualty
facultative. The casualty treaty reinsurance we write includes
excess of loss and pro rata reinsurance which are applied to
portfolios of primary insurance policies. Our excess of loss
positions comes most commonly from layered reinsurance
structures with underlying ceding company retentions. We also
write some structured reinsurance contracts.
International Insurance. Our international
insurance segment consists of the following principal lines of
business: U.K. commercial property (including construction),
U.K. commercial liability, excess casualty, professional
liability, marine hull, energy property damage, marine, energy
and construction liability, non-marine transportation liability,
aviation, financial institutions, management and technology
liability, financial and political risk insurance and specialty
reinsurance written principally by Aspen U.K. and our
Lloyds operations, Syndicate 4711. Specialty reinsurance
consists of marine and aviation reinsurance as well as
terrorism, nuclear, personal accident, crop and satellite. Our
international insurance lines are written on a primary, quota
share and facultative basis and our specialty reinsurance is
written on both a treaty pro rata and excess of loss basis.
U.S. Insurance. Our U.S. insurance
segment consists of property and casualty insurance written on
an excess and surplus lines basis.
We do not allocate our assets by segment as we evaluate
underwriting results of each segment separately from the results
of our investment portfolio. Segment profit or loss for each of
the Companys operating segments is measured by
underwriting profit or loss. Underwriting profit or loss
provides a basis for management to evaluate the segments
underwriting performance.
12
ASPEN
INSURANCE HOLDINGS LIMITED
NOTES TO
THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following tables provide a summary of gross and net written
and earned premiums, underwriting results, ratios and reserves
for each of our business segments for the three months ended
March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009
|
|
|
|
Property
|
|
|
Casualty
|
|
|
International
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
Reinsurance
|
|
|
Reinsurance
|
|
|
Insurance
|
|
|
Insurance
|
|
|
Investing
|
|
|
Total
|
|
|
|
($ in millions, except percentages)
|
|
|
|
|
|
Gross written premiums
|
|
$
|
220.5
|
|
|
$
|
186.8
|
|
|
$
|
194.7
|
|
|
$
|
34.8
|
|
|
$
|
|
|
|
$
|
636.8
|
|
Net written premiums
|
|
|
182.1
|
|
|
|
185.8
|
|
|
|
124.8
|
|
|
|
13.9
|
|
|
|
|
|
|
|
506.6
|
|
Gross earned premiums
|
|
|
150.9
|
|
|
|
110.0
|
|
|
|
198.8
|
|
|
|
33.5
|
|
|
|
|
|
|
|
493.2
|
|
Net earned premiums
|
|
|
139.1
|
|
|
|
109.5
|
|
|
|
175.0
|
|
|
|
23.7
|
|
|
|
|
|
|
|
447.3
|
|
Losses and loss expenses
|
|
|
40.2
|
|
|
|
72.2
|
|
|
|
127.0
|
|
|
|
11.4
|
|
|
|
|
|
|
|
250.8
|
|
Policy acquisition expenses
|
|
|
24.8
|
|
|
|
21.9
|
|
|
|
28.0
|
|
|
|
3.9
|
|
|
|
|
|
|
|
78.6
|
|
Operating and administrative expenses
|
|
|
15.2
|
|
|
|
9.0
|
|
|
|
18.6
|
|
|
|
5.7
|
|
|
|
|
|
|
|
48.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
|
|
|
58.9
|
|
|
|
6.4
|
|
|
|
1.4
|
|
|
|
2.7
|
|
|
|
|
|
|
|
69.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59.2
|
|
|
|
59.2
|
|
Realized investment (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12.2
|
)
|
|
|
(12.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
$
|
58.9
|
|
|
$
|
6.4
|
|
|
$
|
1.4
|
|
|
$
|
2.7
|
|
|
$
|
47.0
|
|
|
$
|
116.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.0
|
)
|
Interest on long term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.9
|
)
|
Realized exchange (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.3
|
)
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
107.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reserves for loss and loss adjustment expenses
|
|
$
|
402.8
|
|
|
$
|
1,322.9
|
|
|
$
|
950.4
|
|
|
$
|
122.2
|
|
|
|
|
|
|
$
|
2,798.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
|
|
28.9
|
%
|
|
|
65.9
|
%
|
|
|
72.6
|
%
|
|
|
48.1
|
%
|
|
|
|
|
|
|
56.1
|
%
|
Policy acquisition expense ratio
|
|
|
17.8
|
%
|
|
|
20.0
|
%
|
|
|
16.0
|
%
|
|
|
16.5
|
%
|
|
|
|
|
|
|
17.6
|
%
|
Operating and administration expense ratio
|
|
|
10.9
|
%
|
|
|
8.2
|
%
|
|
|
10.6
|
%
|
|
|
24.1
|
%
|
|
|
|
|
|
|
10.8
|
%
|
Expense ratio
|
|
|
28.7
|
%
|
|
|
28.2
|
%
|
|
|
26.6
|
%
|
|
|
40.6
|
%
|
|
|
|
|
|
|
28.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
57.6
|
%
|
|
|
94.1
|
%
|
|
|
99.2
|
%
|
|
|
88.7
|
%
|
|
|
|
|
|
|
84.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
ASPEN
INSURANCE HOLDINGS LIMITED
NOTES TO
THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008
|
|
|
|
Property
|
|
|
Casualty
|
|
|
International
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
Reinsurance
|
|
|
Reinsurance
|
|
|
Insurance
|
|
|
Insurance
|
|
|
Investing
|
|
|
Total
|
|
|
|
($ in millions, except percentages)
|
|
|
Gross written premiums
|
|
$
|
184.2
|
|
|
$
|
182.1
|
|
|
$
|
199.3
|
|
|
$
|
30.6
|
|
|
$
|
|
|
|
$
|
596.2
|
|
Net written premiums
|
|
|
175.4
|
|
|
|
180.0
|
|
|
|
142.0
|
|
|
|
22.2
|
|
|
|
|
|
|
|
519.6
|
|
Gross earned premiums
|
|
|
140.3
|
|
|
|
95.7
|
|
|
|
165.3
|
|
|
|
26.0
|
|
|
|
|
|
|
|
427.3
|
|
Net premiums earned
|
|
|
127.0
|
|
|
|
94.7
|
|
|
|
150.2
|
|
|
|
19.7
|
|
|
|
|
|
|
|
391.6
|
|
Losses and loss expenses
|
|
|
38.0
|
|
|
|
61.5
|
|
|
|
97.7
|
|
|
|
10.0
|
|
|
|
|
|
|
|
207.2
|
|
Policy acquisition expenses
|
|
|
25.9
|
|
|
|
17.7
|
|
|
|
28.0
|
|
|
|
4.8
|
|
|
|
|
|
|
|
76.4
|
|
Operating and administrative expenses
|
|
|
16.6
|
|
|
|
10.7
|
|
|
|
17.9
|
|
|
|
5.6
|
|
|
|
|
|
|
|
50.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit/(loss)
|
|
|
46.5
|
|
|
|
4.8
|
|
|
|
6.6
|
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
57.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39.1
|
|
|
|
39.1
|
|
Realized investment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit/(loss)
|
|
$
|
46.5
|
|
|
$
|
4.8
|
|
|
$
|
6.6
|
|
|
$
|
(0.7
|
)
|
|
$
|
40.1
|
|
|
$
|
97.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.2
|
)
|
Interest on long term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.9
|
)
|
Realized exchange gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
95.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reserves for loss and loss adjustment expenses
|
|
$
|
424.7
|
|
|
$
|
1,302.5
|
|
|
$
|
883.9
|
|
|
$
|
63.2
|
|
|
|
|
|
|
$
|
2,674.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
|
|
29.9
|
%
|
|
|
64.9
|
%
|
|
|
65.0
|
%
|
|
|
50.8
|
%
|
|
|
|
|
|
|
52.9
|
%
|
Policy acquisition expense ratio
|
|
|
20.4
|
%
|
|
|
18.7
|
%
|
|
|
18.6
|
%
|
|
|
24.3
|
%
|
|
|
|
|
|
|
19.5
|
%
|
Operating and administration expense ratio
|
|
|
13.1
|
%
|
|
|
11.3
|
%
|
|
|
11.9
|
%
|
|
|
28.4
|
%
|
|
|
|
|
|
|
13.0
|
%
|
Expense ratio
|
|
|
33.5
|
%
|
|
|
30.0
|
%
|
|
|
30.5
|
%
|
|
|
52.7
|
%
|
|
|
|
|
|
|
32.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
63.4
|
%
|
|
|
94.9
|
%
|
|
|
95.5
|
%
|
|
|
103.6
|
%
|
|
|
|
|
|
|
85.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
ASPEN
INSURANCE HOLDINGS LIMITED
NOTES TO
THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fixed Maturities Available For
Sale. The following presents the cost, gross
unrealized gains and losses, and estimated fair value of
available for sale investments in fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March 31, 2009
|
|
|
|
Cost or
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
($ in millions)
|
|
|
U.S. Government Securities
|
|
$
|
623.6
|
|
|
$
|
41.5
|
|
|
$
|
|
|
|
$
|
665.1
|
|
U.S. Agency Securities
|
|
|
367.9
|
|
|
|
27.9
|
|
|
|
(0.3
|
)
|
|
|
395.5
|
|
Municipal Securities
|
|
|
7.7
|
|
|
|
0.4
|
|
|
|
|
|
|
|
8.1
|
|
Corporate Securities
|
|
|
1,567.9
|
|
|
|
32.5
|
|
|
|
(49.8
|
)
|
|
|
1,550.6
|
|
Foreign Government
|
|
|
328.9
|
|
|
|
20.8
|
|
|
|
|
|
|
|
349.7
|
|
Asset-backed Securities
|
|
|
179.2
|
|
|
|
1.1
|
|
|
|
(2.3
|
)
|
|
|
178.0
|
|
Non-agency Residential Mortgage-backed Securities
|
|
|
61.9
|
|
|
|
|
|
|
|
(11.3
|
)
|
|
|
50.6
|
|
Non-agency Commercial Mortgage-backed Securities
|
|
|
252.5
|
|
|
|
0.3
|
|
|
|
(31.3
|
)
|
|
|
221.5
|
|
Agency Mortgage-backed Securities
|
|
|
993.3
|
|
|
|
41.3
|
|
|
|
(0.1
|
)
|
|
|
1,034.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed income
|
|
$
|
4,382.9
|
|
|
$
|
165.8
|
|
|
$
|
(95.1
|
)
|
|
$
|
4,453.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2008
|
|
|
|
Cost or
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
($ in millions)
|
|
|
U.S. Government Securities
|
|
$
|
601.3
|
|
|
$
|
49.9
|
|
|
$
|
(0.5
|
)
|
|
$
|
650.7
|
|
U.S. Agency Securities
|
|
|
356.6
|
|
|
|
36.7
|
|
|
|
(0.2
|
)
|
|
|
393.1
|
|
Municipal Securities
|
|
|
7.7
|
|
|
|
0.3
|
|
|
|
|
|
|
|
8.0
|
|
Corporate Securities
|
|
|
1,426.0
|
|
|
|
29.0
|
|
|
|
(30.5
|
)
|
|
|
1,424.5
|
|
Foreign Government
|
|
|
363.6
|
|
|
|
20.9
|
|
|
|
|
|
|
|
384.5
|
|
Asset-backed Securities
|
|
|
218.1
|
|
|
|
|
|
|
|
(12.6
|
)
|
|
|
205.5
|
|
Non-agency Residential Mortgage-backed Securities
|
|
|
80.0
|
|
|
|
0.4
|
|
|
|
(24.1
|
)
|
|
|
56.3
|
|
Non-agency Commercial Mortgage-backed Securities
|
|
|
253.9
|
|
|
|
|
|
|
|
(34.7
|
)
|
|
|
219.2
|
|
Agency Mortgage-backed Securities
|
|
|
1,058.5
|
|
|
|
33.2
|
|
|
|
(0.4
|
)
|
|
|
1,091.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed income
|
|
$
|
4,365.7
|
|
|
$
|
170.4
|
|
|
$
|
(103.0
|
)
|
|
|
4,433.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Maturities Trading. The
following presents the cost, gross unrealized gains and losses,
and estimated fair value of trading investments in fixed
maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March 31, 2009
|
|
|
|
Cost or
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
($ in millions)
|
|
|
Corporate Securities
|
|
$
|
111.5
|
|
|
$
|
0.8
|
|
|
$
|
(0.4
|
)
|
|
$
|
111.9
|
|
Foreign Government
|
|
|
0.9
|
|
|
|
0.2
|
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed income
|
|
$
|
112.4
|
|
|
$
|
1.0
|
|
|
$
|
(0.4
|
)
|
|
$
|
113.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
ASPEN
INSURANCE HOLDINGS LIMITED
NOTES TO
THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Gross unrealized loss. The following tables
summarize as at March 31, 2009 and December 31, 2008,
by type of security, the aggregate fair value and gross
unrealized loss by length of time the security has been in an
unrealized loss position for our available for sale portfolio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March 31, 2009
|
|
|
|
0-12 months
|
|
|
Over 12 months
|
|
|
Total
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
value
|
|
|
loss
|
|
|
value
|
|
|
loss
|
|
|
value
|
|
|
loss
|
|
|
|
($ in millions)
|
|
|
U.S. Agency Securities
|
|
$
|
11.3
|
|
|
$
|
(0.3
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11.3
|
|
|
$
|
(0.3
|
)
|
Corporate Securities
|
|
|
411.8
|
|
|
|
(30.7
|
)
|
|
|
146.3
|
|
|
|
(19.1
|
)
|
|
|
558.1
|
|
|
|
(49.8
|
)
|
Asset-backed Securities
|
|
|
51.8
|
|
|
|
(2.0
|
)
|
|
|
9.1
|
|
|
|
(0.3
|
)
|
|
|
60.9
|
|
|
|
(2.3
|
)
|
Non-agency Residential Mortgage-backed Securities
|
|
|
17.3
|
|
|
|
(7.0
|
)
|
|
|
33.3
|
|
|
|
(4.3
|
)
|
|
|
50.6
|
|
|
|
(11.3
|
)
|
Non-agency Commercial Mortgage-backed Securities
|
|
|
115.9
|
|
|
|
(5.5
|
)
|
|
|
95.0
|
|
|
|
(25.9
|
)
|
|
|
210.9
|
|
|
|
(31.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
608.1
|
|
|
$
|
(45.5
|
)
|
|
$
|
283.7
|
|
|
$
|
(49.6
|
)
|
|
$
|
891.8
|
|
|
$
|
(95.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2008
|
|
|
|
0-12 months
|
|
|
Over 12 months
|
|
|
Total
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
value
|
|
|
loss
|
|
|
value
|
|
|
loss
|
|
|
value
|
|
|
loss
|
|
|
|
($ in millions)
|
|
|
U.S. Government Securities
|
|
$
|
7.4
|
|
|
$
|
(0.4
|
)
|
|
$
|
1.0
|
|
|
$
|
(0.1
|
)
|
|
$
|
8.4
|
|
|
$
|
(0.5
|
)
|
U.S. Agency Securities
|
|
|
11.4
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
11.4
|
|
|
|
(0.2
|
)
|
Corporate Securities
|
|
|
326.8
|
|
|
|
(19.0
|
)
|
|
|
192.0
|
|
|
|
(11.5
|
)
|
|
|
518.8
|
|
|
|
(30.5
|
)
|
Asset-backed Securities
|
|
|
190.4
|
|
|
|
(11.1
|
)
|
|
|
15.0
|
|
|
|
(1.5
|
)
|
|
|
205.4
|
|
|
|
(12.6
|
)
|
Non-agency Residential Mortgage-backed Securities
|
|
|
55.9
|
|
|
|
(24.0
|
)
|
|
|
0.4
|
|
|
|
(0.1
|
)
|
|
|
56.3
|
|
|
|
(24.1
|
)
|
Non-agency Commercial Mortgage-backed Securities
|
|
|
114.2
|
|
|
|
(7.2
|
)
|
|
|
105.0
|
|
|
|
(27.5
|
)
|
|
|
219.2
|
|
|
|
(34.7
|
)
|
Agency Mortgage-backed Securities
|
|
|
42.3
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
42.3
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
748.4
|
|
|
$
|
(62.3
|
)
|
|
$
|
313.4
|
|
|
$
|
(40.7
|
)
|
|
$
|
1,061.8
|
|
|
$
|
(103.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March 31, 2009, the Company held 517 fixed maturities
(December 31, 2008 634 fixed maturities) in an
unrealized loss position with a fair value of
$891.8 million (2008 $1,061.8 million) and
gross unrealized losses of $95.1 million (2008
$103.0 million). The Company believes that the gross
unrealized losses are attributable mainly to a combination of
widening credit spreads and interest rate movements and has
concluded that the recovery period of those investments in an
unrealized loss position is temporary. In addition, the
unrealized losses are not a result of structural or collateral
issues.
Other-than-temporary impairments. The Company
recorded other-than-temporary impairments for the three months
ended March 31, 2009 of $15.2 million
(December 31, 2008 $59.6 million). We
review all of our investments in fixed maturities designated
available for sale for potential impairment each quarter based
on criteria including issuer-specific circumstances, credit
ratings actions and general macro-economic conditions. The
process of determining whether a decline in value is
other-than-temporary requires considerable judgment.
As part of the assessment process we evaluate whether it is more
likely than not that we will sell any fixed maturity security in
an unrealized loss position until its
16
ASPEN
INSURANCE HOLDINGS LIMITED
NOTES TO
THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
market value recovers to amortized cost. Once a security has
been identified as other-than-temporarily impaired, the amount
of any impairment included in net income is determined by
reference to that portion of the unrealized loss that is
considered to be credit related. Non-credit related unrealized
losses are included in other comprehensive income.
Other investments. Other investments represent
the Companys investments in funds of hedge funds which are
recorded using the equity method of accounting. Adjustments to
the carrying value of these investments are made based on the
net asset values reported by the fund managers, which result in
a carrying value that approximates fair value. Realized and
unrealized gains of $4.0 million (March 31,
2008 losses of $16.9 million) have been
recognized through the statement of operations in the three
months ended March 31, 2009. The Company invested
$150.0 million in the share capital of two funds in 2006, a
further $247.5 million in one of these funds and
$112.5 million in the share capital of a third fund in
2007. In 2008, the Company sold share capital in the funds that
cost $198.6 million for proceeds of $177.2 million
realizing a loss of $21.4 million. In February 2009, the
Company gave notice of redemption in respect of the remaining
investments in the funds of hedge funds; the earliest date at
which these notices will take effect is June 30, 2009.
The Companys involvement with the funds is limited to the
making and holding of these investments and it is not committed
to making further investments in the funds; accordingly, the
carrying value of the investments represents the Companys
maximum exposure to loss as a result of its involvement with the
funds at each balance sheet date.
Other investments as at March 31, 2009 and
December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
($ in millions)
|
|
|
Investment funds
|
|
$
|
311.3
|
|
|
$
|
290.9
|
|
|
$
|
311.3
|
|
|
$
|
286.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification within the fair value hierarchy under
SFAS 157. In September 2006, the FASB issued
SFAS 157, Fair Value Measurements
(SFAS 157). From January 1, 2008, the
Company adopted SFAS 157.
Under SFAS 157, a company must determine the appropriate
level in the fair value hierarchy for each fair value
measurement. The fair value hierarchy in SFAS 157
prioritizes the inputs, which refer broadly to assumptions
market participants would use in pricing an asset or liability,
into three levels, which are described in detail below.
The Company considers prices for actively traded Treasury
securities to be derived based on quoted prices in active
markets for identical assets (Level 1 inputs as defined in
SFAS 157). The Company considers prices for other
securities priced via vendors, indices, or broker-dealers to be
derived based on inputs that are observable for the asset,
either directly or indirectly (Level 2 inputs as defined in
SFAS 157).
The Company considers securities, other financial instruments
and derivative insurance contracts subject to fair value
measurement whose valuation is derived by internal valuation
models to be based largely on unobservable inputs (Level 3
inputs as defined in SFAS 157). There have been no changes
in the Companys use of valuation techniques since its
adoption of SFAS 157.
Our fixed income securities are traded on the over-the-counter
market, based on prices provided by one or more market makers in
each security. Securities such as U.S. Government,
U.S. Agency, Foreign Government and investment grade
corporate bonds have multiple market makers in addition to
readily observable market value indicators such as expected
credit spread, except for Treasury securities, over the yield
curve. We use a variety of pricing sources to value our fixed
income securities including those
17
ASPEN
INSURANCE HOLDINGS LIMITED
NOTES TO
THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
securities that have pay down/prepay features such as
mortgage-backed securities and asset-backed securities in order
to ensure fair and accurate pricing. The fair value estimates of
the investment grade securities in our portfolio do not use
significant unobservable inputs or modeling techniques.
The Companys assets subject to SFAS 157 are allocated
between Levels 1, 2 and 3 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
($ in millions)
|
|
|
Fixed income maturities available for sale, at fair value
|
|
$
|
1,015.0
|
|
|
$
|
3,428.1
|
|
|
$
|
10.5
|
|
Short-term investments available for sale, at fair value
|
|
|
217.3
|
|
|
|
72.5
|
|
|
|
|
|
Fixed income maturities, trading at fair value
|
|
|
1.1
|
|
|
|
111.9
|
|
|
|
|
|
Short-term investments, trading at fair value
|
|
|
|
|
|
|
2.0
|
|
|
|
|
|
Derivatives at fair value
|
|
|
|
|
|
|
|
|
|
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,233.4
|
|
|
$
|
3,614.5
|
|
|
$
|
17.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents a reconciliation of the beginning
and ending balances for all assets measured at fair value on a
recurring basis using Level 3 inputs during the three
months ended March 31, 2009.
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31, 2009
|
|
|
|
($ in millions)
|
|
|
Beginning Balance
|
|
$
|
11.8
|
|
Total unrealized gains or (losses):
|
|
|
|
|
Included in earnings
|
|
|
(1.9
|
)
|
Settlements
|
|
|
(2.7
|
)
|
|
|
|
|
|
Ending Balance
|
|
$
|
7.2
|
|
|
|
|
|
|
The Companys liabilities subject to FAS 157 are
allocated between Levels 1, 2 and 3 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
($ in millions)
|
|
|
Liabilities under derivatives contracts
|
|
|
|
|
|
|
|
|
|
$
|
9.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents a reconciliation of the beginning
and ending balances for the liability measured at fair value on
a recurring basis using Level 3 inputs during the three
months ended March 31, 2009.
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31, 2009
|
|
|
|
($ in millions)
|
|
|
Beginning Balance
|
|
$
|
11.1
|
|
Total realized losses
|
|
|
|
|
Included in earnings
|
|
|
(1.7
|
)
|
|
|
|
|
|
Ending Balance
|
|
$
|
9.4
|
|
|
|
|
|
|
18
ASPEN
INSURANCE HOLDINGS LIMITED
NOTES TO
THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We purchase retrocession and reinsurance to limit and diversify
our own risk exposure and to increase our own insurance
underwriting capacity. These agreements provide for recovery of
a portion of losses and loss expenses from reinsurers. As is the
case with most reinsurance treaties, we remain liable to the
extent that reinsurers do not meet their obligations under these
agreements, and therefore, in line with our risk management
objectives, we evaluate the financial condition of our
reinsurers and monitor concentrations of credit risk. In
addition, we have entered into reinsurance agreements and
derivative instruments as described below:
Ajax Re. On April 25, 2007, we entered
into a reinsurance agreement that provided us with coverage
incepting on August 18, 2007. Under the reinsurance
agreement, Ajax Re Limited (Ajax Re) provided us
with $100 million of aggregate indemnity protection for
certain losses from individual earthquakes in California
occurring between August 18, 2007 and May 1, 2009. The
reinsurance agreement was fully collateralized by proceeds
received by Ajax Re from the issuance of catastrophe bonds. The
amount of the recovery was limited to the lesser of our losses
and the proportional amount of $100 million based on the
Property Claims Services (PCS) reported losses and
the attachment level of $23.1 billion and the exhaustion
level of $25.9 billion. The $100 million of aggregate
indemnity protection was exhausted when the reported industry
insured losses by PCS reach $25.9 billion. For further
information, see Note 11. At the balance sheet date and at
expiry of the contract on May 1, 2009, no recovery was due
from Ajax Re.
In order to ensure that Ajax Re had sufficient funding to
service the LIBOR portion of interest due on the bonds issued by
Ajax Re, Ajax Re entered into a total return swap (the
swap) with Lehman Brothers Special Financing, Inc.
(Lehman Financing), whereby Lehman Financing
directed Ajax Re to invest the proceeds from the bonds into
permitted investments. Lehman Brothers Holdings Inc.
(Lehman Brothers) also provided a guarantee of
Lehman Financings obligations under the swap.
On September 15, 2008, Lehman Brothers filed for
bankruptcy, which is a termination event under the swap. Ajax Re
terminated the swap on September 16, 2008. Nevertheless,
Aspen remains within its risk tolerances without benefit of this
cover. We currently expect the value of the collateral to be
substantially less than $100 million, being the limit of
our cover.
The following table summarizes information on the location and
amounts of derivative fair values on the consolidated balance
sheet as at March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
Hedging Instruments Under
|
|
Notional
|
|
|
Balance Sheet
|
|
|
|
|
Balance Sheet
|
|
|
|
FAS 133
|
|
Amount
|
|
|
Location
|
|
Fair Value
|
|
|
Location
|
|
Fair Value
|
|
|
|
($ in millions)
|
|
|
|
|
($ in millions)
|
|
|
|
|
($ in millions)
|
|
|
Relating to underwriting portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit insurance contract
|
|
$
|
452.4
|
|
|
Derivatives at fair
value
|
|
$
|
7.2
|
|
|
Liabilities under
derivatives
|
|
$
|
9.4
|
|
19
ASPEN
INSURANCE HOLDINGS LIMITED
NOTES TO
THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As at December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
Notional
|
|
Balance Sheet
|
|
|
|
Balance Sheet
|
|
|
Derivatives Not Designated as Hedging Instruments Under FAS
133
|
|
Amount
|
|
Location
|
|
Fair Value
|
|
Location
|
|
Fair Value
|
|
|
($ in millions)
|
|
|
|
($ in millions)
|
|
|
|
($ in millions)
|
|
Relating to underwriting portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Insurance Contract
|
|
$
|
452.4
|
|
|
Derivatives
at fair value
|
|
$
|
9.1
|
|
|
Liabilities
under
derivatives
|
|
$
|
11.1
|
|
Foreign Exchange Contract
|
|
$
|
18.8
|
|
|
Derivatives
at fair value
|
|
$
|
2.7
|
|
|
|
|
|
|
|
The following table provides the total unrealized and realized
gains (losses) recorded in earnings for the three months ended
March 31, 2009 and March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated as Hedging Instruments Under FAS
133
|
|
Location of Gain/(Loss) Recognized in Income
|
|
Amount of Gain/(Loss) Recognized in Income
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
($ millions)
|
|
|
Relating to underwriting portfolio
|
|
|
|
|
|
|
|
|
|
|
Credit Insurance Contract
|
|
Derivatives at Fair Value
|
|
$
|
2.0
|
|
|
$
|
2.2
|
|
Foreign Exchange Contract
|
|
Net Foreign Exchange
(Gains)/Losses
|
|
$
|
1.8
|
|
|
|
|
|
Credit insurance contract. On
November 28, 2006, the Company entered into a credit
insurance contract which, subject to its terms, insures the
Company against losses due to the inability of one or more of
our reinsurance counterparties to meet their financial
obligations to the Company.
The Company considers that under Accounting for
Derivative Instruments and Hedging Activities, as
amended (SFAS 133) this contract is a financial
guarantee insurance contract that does not qualify for exemption
from treatment for accounting purposes as a derivative. This is
because it provides for the final settlement, expected to take
place two years after expiry of cover, to include an amount
attributable to outstanding and IBNR claims which may not at
that point in time be due and payable to the Company.
As a result of the application of derivative accounting rules
under SFAS 133, the contract is treated as an asset and
measured at the directors estimate of its fair value.
Changes in the estimated fair value from time to time will be
included in the consolidated statement of operations.
The contract is for a maximum of five years and provides 90%
cover for a named panel of reinsurers up to individual defined
sub-limits. The contract does allow, subject to certain
conditions, for substitution and replacement of panel members if
the Companys panel of reinsurers changes. Payments are
made on a quarterly basis throughout the period of the contract
based on the aggregate limit, which was set initially at
$477 million but is subject to adjustment.
Foreign exchange contract. The Company uses
forward exchange contracts to manage foreign currency risk. A
forward foreign currency exchange contract involves an
obligation to purchase or sell a specified currency at a future
date at a price set at the time of the contract. Foreign
currency exchange contracts will not eliminate fluctuations in
the value of our assets and liabilities denominated in foreign
currencies but rather allow us to establish a rate of exchange
for a future point in time. The foreign currency contracts are
recorded as derivatives at fair value with changes recorded as a
realized gain or loss in the Companys statement of
operations.
20
ASPEN
INSURANCE HOLDINGS LIMITED
NOTES TO
THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
8.
|
Reserves
for Losses and Adjustment Expenses
|
The following table represents a reconciliation of beginning and
ending consolidated loss and loss adjustment expenses
(LAE) reserves:
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
As at
|
|
|
|
March 31, 2009
|
|
|
December 31, 2008
|
|
|
|
($ in millions)
|
|
|
Provision for losses and LAE at start of year
|
|
$
|
3,070.3
|
|
|
$
|
2,946.0
|
|
Less reinsurance recoverable
|
|
|
(283.3
|
)
|
|
|
(304.7
|
)
|
|
|
|
|
|
|
|
|
|
Net loss and LAE at start of year
|
|
|
2,787.0
|
|
|
|
2,641.3
|
|
|
|
|
|
|
|
|
|
|
Net loss and LAE expenses disposed of
|
|
|
(11.7
|
)
|
|
|
(15.4
|
)
|
|
|
|
|
|
|
|
|
|
Provision for losses and LAE for claims incurred:
|
|
|
|
|
|
|
|
|
Current year
|
|
|
260.6
|
|
|
|
1,203.0
|
|
Prior years
|
|
|
(9.8
|
)
|
|
|
(83.5
|
)
|
|
|
|
|
|
|
|
|
|
Total incurred
|
|
|
250.8
|
|
|
|
1,119.5
|
|
|
|
|
|
|
|
|
|
|
Losses and LAE payments for claims incurred:
|
|
|
|
|
|
|
|
|
Current year
|
|
|
(48.1
|
)
|
|
|
(205.2
|
)
|
Prior years
|
|
|
(90.7
|
)
|
|
|
(534.2
|
)
|
|
|
|
|
|
|
|
|
|
Total paid
|
|
|
(138.8
|
)
|
|
|
(739.4
|
)
|
|
|
|
|
|
|
|
|
|
Foreign exchange (gains)
|
|
|
(89.0
|
)
|
|
|
(219.0
|
)
|
|
|
|
|
|
|
|
|
|
Net losses and LAE reserves at period end
|
|
|
2,798.3
|
|
|
|
2,787.0
|
|
Plus reinsurance recoverable on unpaid losses at period end
|
|
|
297.9
|
|
|
|
283.3
|
|
|
|
|
|
|
|
|
|
|
Loss and LAE reserves at March 31, 2009 and
December 31, 2008
|
|
$
|
3,096.2
|
|
|
$
|
3,070.3
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2009, there was a
reduction in reserves of $9.8 million compared to
$39.5 million for the three months ended March 31,
2008 in our estimate of the ultimate claims to be paid in
respect of prior accident years.
The net loss and loss expenses disposed of represent reductions
in reserves for several Lloyds syndicates which we
originally assumed under reinsurance to close arrangements
accounted for by the syndicates prior to 2007 (2008
2006).
21
ASPEN
INSURANCE HOLDINGS LIMITED
NOTES TO
THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table provides a summary of the Companys
authorized and issued share capital at March 31, 2009 and
December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March 31, 2009
|
|
|
As at December 31, 2008
|
|
|
|
|
|
|
$ in
|
|
|
|
|
|
$ in
|
|
|
|
Number
|
|
|
Thousands
|
|
|
Number
|
|
|
Thousands
|
|
|
Authorized Share Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares 0.15144558¢ per share
|
|
|
969,629,030
|
|
|
$
|
1,469
|
|
|
|
969,629,030
|
|
|
|
1,469
|
|
Non-Voting shares 0.15144558¢ per share
|
|
|
6,787,880
|
|
|
|
10
|
|
|
|
6,787,880
|
|
|
|
10
|
|
Preference shares 0.15144558¢ per share
|
|
|
100,000,000
|
|
|
|
152
|
|
|
|
100,000,000
|
|
|
|
152
|
|
Issued Share Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued ordinary shares of 0.15144558¢ per share
|
|
|
82,762,673
|
|
|
|
125
|
|
|
|
81,506,503
|
|
|
|
123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued preference shares of 0.15144558¢ each with a
liquidation preference of $50 per share
|
|
|
4,600,000
|
|
|
|
7
|
|
|
|
4,600,000
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued preference shares of 0.15144558¢ each with a
liquidation preference of $25 per share
|
|
|
5,327,500
|
|
|
|
8
|
|
|
|
8,000,000
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total issued share capital
|
|
|
|
|
|
|
140
|
|
|
|
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital ($ in millions)
|
|
|
|
|
|
$
|
1,749.9
|
|
|
|
|
|
|
|
1,754.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital includes the aggregate liquidation
preferences of our preference shares of $363.2 million
(2008 $430.0 million) less issue costs of
$9.6 million (2008 $10.8 million).
Purchase of preference shares. On
March 31, 2009, we purchased 2,672,500 of our 7.401% $25
liquidation price preference shares (NYSE : AHL-PA) at a price
of $12.50 per share. Under FASB-EITF Issue D-42, The
Effect on the Calculation of Earnings Per Share for Redemption
or Induced Conversion of Preferred Stock for earnings
per share purposes, the purchase resulted in a first quarter
gain of approximately $31.5 million, net of a non-cash
charge of $1.2 million reflecting the write off of the
pro-rata portion of the original issuance costs of the 7.401%
preference shares.
Ordinary Shares. The following table
summarizes transactions in our ordinary shares during the three
month period ended March 31, 2009.
|
|
|
|
|
|
|
Number of
|
|
|
|
Shares
|
|
|
Shares in issue at December 31, 2008
|
|
|
81,506,503
|
|
Share transactions in the three months ended March 31,
2009:
|
|
|
|
|
Shares issued to employees under the share incentive plan
|
|
|
36,170
|
|
Shares issued through registered public offerings
|
|
|
1,220,000
|
|
|
|
|
|
|
Shares in issue at March 31, 2009
|
|
|
82,762,673
|
|
|
|
|
|
|
The Company has issued options and other equity incentives under
three arrangements: investor options, employee awards and
non-employee director awards. When options are exercised or
other equity awards have vested, new shares are issued as the
Company does not currently hold treasury shares. Until
January 1, 2006, the employee stock option grants were
measured and recognized according to the fair value recognition
provisions of SFAS No. 123 Accounting For
Stock Based Compensation. Effective
22
ASPEN
INSURANCE HOLDINGS LIMITED
NOTES TO
THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
January 1, 2006, the Company adopted the provisions of
SFAS 123R Share Based Payments which
requires all entities to apply a fair-value based measurement
method and an estimate of future forfeitures in the calculation
of the compensation costs of stock options and restricted share
units.
Investor Options. The investor options were
issued on June 21, 2002 to Wellington Investment Holdings
(Jersey) Limited (Wellington Investment) and members
of Syndicate 2020 who were not corporate members of Syndicate
2020. The options conferred to the members of Syndicate 2020 are
held for their benefit by Appleby Services (Bermuda) Ltd.
(formerly Appleby Trust (Bermuda) Limited) (Names
Trustee). The subscription price payable under the options
is initially £10 and increases by 5% per annum, less any
dividends paid. Option holders are not entitled to participate
in any dividends prior to exercise and would not rank as a
creditor in the event of liquidation. If not exercised, the
options will expire after a period of ten years. During the
three months ended March 31, 2009, no options were
exercised by the Names Trustee (2008 - 12,059). Wellington
Investment exercised all its options on March 28, 2007.
Employee and Non-Executive Director
awards. Employee options and other awards are
granted under the Aspen 2003 Share Incentive Plan and
non-executive director awards are granted under the 2006 Stock
Option Plan for Non-Employee Directors.
Stock options are granted with an exercise price equivalent to
the fair value of the share on the grant date. The weighted
average value at grant date is determined using the
Black-Scholes option pricing model. Stock options typically vest
over a three-year period with a ten-year contract period (except
for options granted in 2007 which have a
7-year
exercise period) with vesting dependent on time and performance
conditions established at the time of grant. No options were
granted or exercised in the three months ended March 31,
2009. Compensation costs charged against income in respect of
employee options for the three months ended March 31, 2009
was $0.6 million (2008 - $0.9 million).
Restricted share units (RSUs) vest equally
over a two or three-year period. Some of the grants vest at
year-end, while some other grants vest on the anniversary of the
date of grant. The fair value of the restricted share units is
based on the closing price on the date of the grant. The fair
value is expensed through the income statement evenly over the
vesting period. During the three months ended March 31,
2009, the Company granted 39,376 restricted share units. In the
case of non-employee directors (other than the Chairman),
one-twelfth of the RSUs vest on each one month anniversary
of the date of grant, with 100% of the RSUs becoming
vested on the first anniversary of the date of grant.
Compensation costs charged against income in respect of
restricted share units for the three months ended March 31,
2009 was $0.6 million (2008 - $0.7 million). On
April 29, 2009, the Board of Directors approved a total of
25,316 RSUs for the non-employee directors and 8,439
RSUs to the Chairman.
The fair value of performance share awards is based on the value
of the average of the high and low of the share price on the
date of the grant less a deduction for expected dividends which
would not accrue during the vesting period. Performance shares
vest over a three or four-year period with vesting dependent on
the achievement of performance targets at the end of specified
periods as established at the time of grant. For the three
months ended March 31, 2009, the Company granted nil
performance shares. Compensation costs charged against income in
respect of performance shares was $1.7 (2008 -
$2.2 million) million in the three months ended
March 31, 2009.
On April 28, 2009 the Compensation Committee approved the
grant of 937,626 performance shares with a grant date of
May 1, 2009. The performance shares will be subject to a
three-year vesting period with a separate annual Return on
Equity (ROE) test for each year. One-third of the
grant will be eligible for vesting each year based on the
following formula, and will only be issuable at the end of the
three-year period. If the ROE achieved in any given year is less
than 7%, then the portion of the performance shares subject to
the vesting conditions in such year will be forfeited (i.e.
33.33% of the initial grant). If the ROE achieved in any given
year is between 7% and 12%, then the percentage of the
performance shares eligible for vesting in such year will be
between 10% and 100% on a straight-line
23
ASPEN
INSURANCE HOLDINGS LIMITED
NOTES TO
THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
basis. If the ROE achieved in any given year is between 12% and
22%, then the percentage of the performance shares eligible for
vesting in such year will be between 100% and 200% on a
straight-line basis. Notwithstanding the vesting criteria for
each given year, if in any given year, the shares eligible for
vesting are greater than 100% for the portion of such
years grant (i.e. the ROE was greater than 12% in such
year) and the average ROE over such year and the preceding year
is less than 7%, then only 100% (and no more) of the shares that
are eligible for vesting in such year shall vest. If the average
ROE over the two years is greater than 7%, then there will be no
diminution in vesting and the shares eligible for vesting in
such year will vest in accordance with the vesting schedule
without regard to the average ROE over the two-year period.
|
|
11.
|
Commitments
and Contingencies
|
(a) Restricted
assets
We are obliged by the terms of our contractual obligations to
U.S. policyholders and by undertakings to certain
regulatory authorities to facilitate the issue of letters of
credit or maintain certain balances in trust funds for the
benefit of policyholders.
The following table shows the forms of collateral or other
security provided to policyholders as at March 31, 2009 and
December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
As at
|
|
|
|
March 31, 2009
|
|
|
December 31, 2008
|
|
|
|
($ in millions, except percentages)
|
|
|
Assets held in multi-beneficiary trusts
|
|
$
|
1,316.3
|
|
|
$
|
1,345.6
|
|
Assets held in single beneficiary trusts
|
|
|
53.6
|
|
|
|
54.0
|
|
Letters of credit issued under our revolving credit facilities
(1)
|
|
|
74.7
|
|
|
|
84.6
|
|
Secured letters of credit (2)
|
|
|
428.3
|
|
|
|
422.4
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,872.9
|
|
|
$
|
1,906.6
|
|
|
|
|
|
|
|
|
|
|
Total as % of cash and invested assets
|
|
|
30.9
|
%
|
|
|
33.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
These letters of credit are not
secured by cash or securities, though they are secured by a
pledge of the shares of certain of the Companys
subsidiaries under a pledge agreement.
|
|
(2)
|
|
As of March 31, 2009, the
Company had funds on deposit of $578.2 million and
£25.4 million (December 31, 2008
$604.6 million and £25.3 million) as collateral
for the secured letters of credit.
|
Funds at Lloyds. AUL operates in
Lloyds as the corporate member for Syndicate 4711.
Lloyds agrees Syndicate 4711s required capital
principally through the syndicates annual business plan.
Such capital, called Funds at Lloyds, comprises: cash,
investments and a fully collateralized letter of credit. The
amounts of cash, investments and letter of credit at
March 31, 2009 amount to $196.7 million
(December 31, 2008 $200.3 million).
Amounts outstanding under operating leases as of March 31,
2009 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Later
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Years
|
|
|
Total
|
|
|
|
($ in millions)
|
|
|
Operating Lease Obligations
|
|
|
5.5
|
|
|
|
6.9
|
|
|
|
6.5
|
|
|
|
5.7
|
|
|
|
5.7
|
|
|
|
24.2
|
|
|
|
54.5
|
|
24
ASPEN
INSURANCE HOLDINGS LIMITED
NOTES TO
THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(c) Variable
interest entities
As disclosed in Note 6, we entered into a reinsurance
agreement with Ajax Re that provided the Company with
$100 million of aggregate indemnity protection for certain
losses from individual earthquakes in California occurring
between August 18, 2007 and May 1, 2009.
Ajax Re is a special purpose Cayman Islands exempted company
licensed as a restricted Class B reinsurer in the Cayman
Islands and formed solely for the purpose of entering into
certain reinsurance agreements and other risk transfer
agreements with subsidiaries of Aspen to provide up to
$1 billion of reinsurance protection covering various
perils, subject to Ajax Res ability to raise the necessary
capital.
The Company has determined that Ajax Re has the characteristics
of a variable interest entity that are addressed by FASB
Interpretation No. 46R Consolidation of Variable
Interest Entities (FIN 46R). In
accordance with FIN 46R, Ajax Re is not consolidated
because the majority of the expected losses and expected
residual returns will not be absorbed by the Company but rather
by the bond holders of Ajax Re.
25
Item 2.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of our financial
condition and results of operations for the three months ended
March 31, 2009 and 2008. This discussion and analysis
should be read in conjunction with the unaudited condensed
consolidated financial statements and related notes contained in
this
Form 10-Q
and the audited consolidated financial statements and related
notes for the fiscal year ended December 31, 2008, as well
as the discussions of critical accounting policies, contained in
our Financial Statements in our 2008 Annual Report on
Form 10-K
filed with the United States Securities and Exchange Commission.
Some of the information contained in this discussion and
analysis or set forth elsewhere in this
Form 10-Q,
including information with respect to our plans and strategy for
our business and in Outlook and Trends below,
includes forward-looking statements that involve risk and
uncertainties. Please see the section captioned Cautionary
Statement Regarding Forward-Looking Statements in this
report and the Risk Factors in Item 1A of our
2008 Annual Report on
Form 10-K
for more information on factors that could cause actual results
to differ materially from the results described in or implied by
any forward-looking statements contained in this discussion and
analysis.
Recent
Developments
At the Companys Board of Directors meeting held on
April 29, 2009, Mr. Peter OFlinn was appointed
to the Board. He also serves on the Audit Committee and chairs
the Corporate Governance and Nominating Committee.
On April 29, 2009, Aspen Bermuda replaced its existing letter of
credit facility with Citibank Europe dated October 29, 2008 in a
maximum aggregate amount of up to $450 million with a new letter
of credit facility in a maximum aggregate amount of up to $550
million.
Overview
We are a Bermuda holding company. We write insurance and
reinsurance business through our wholly-owned subsidiaries in
three major jurisdictions: Aspen U.K. and AUL, corporate member
of Syndicate 4711 at Lloyds of London (United Kingdom),
Aspen Bermuda (Bermuda) and Aspen Specialty (United States).
Aspen U.K. also has branches in Paris, France, Zurich,
Switzerland, Dublin, Ireland, Singapore, Australia and Canada.
We operate in the global markets for property and casualty
insurance and reinsurance.
The most significant features of our results for the three
months ended March 31, 2009 were:
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Tangible book value per ordinary share at March 31, 2009
was $29.85, an increase of 2.2% compared to $29.22 at
March 31,
20081;
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Net earned premium for the quarter increased by 14.2% to
$447.3 million compared to $391.6 million in the same
period in 2008;
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Underwriting income for the quarter increased by 21.3% to
$69.4 million from $57.2 million reported in the first
quarter of 2008;
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Net investment income in the first quarter of 2009 increased by
51.4% to $59.2 million compared to the first quarter of
2008;
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Other-than-temporary impairment charges of $15.2 million
for the quarter compared with $Nil charge in the first quarter
of 2008;
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1 Tangible
book value per ordinary share is based on total
shareholders equity, less intangible assets and preference
shares (liquidation preference less issue expenses), divided by
the number of ordinary shares in issue at the end of the period.
26
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Net income after tax of $91.4 million for the quarter ended
March 31, 2009 increased by 12.6% compared to
$81.2 million for the comparative quarter in 2008;
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Diluted earnings per ordinary share after preference share
dividends and a gain on preference share repurchase of $1.39 for
the quarter ended March 31, 2009 increased by 63.5% over
the comparative quarter in 2008; and
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On March 31, 2009, we purchased 2,672,500 of our 7.401% $25
liquidation price preference shares (NYSE : AHL-PA) at a price
of $12.50 per share, which resulted in a first quarter gain of
$31.5 million.
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Shareholders equity and ordinary shares in issue as at
March 31, 2009 and March 31, 2008 were:
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As at
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As at
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March 31, 2009
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March 31, 2008
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($ in millions, except for share amounts)
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Total shareholders equity
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$
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2,832.4
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$
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2,922.7
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Intangible assets
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(8.2
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(8.2
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Preference shares less issue expenses
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(353.6
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(419.2
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Net tangible assets attributable to ordinary shareholders
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$
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2,470.6
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$
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2,495.3
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Ordinary shares
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82,762,673
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85,395,154
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Diluted ordinary shares
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84,832,466
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87,606,822
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The following overview of our results for the three months ended
March 31, 2009 and 2008 and of our financial condition at
March 31, 2009, is intended to identify important trends
and should be read in conjunction with the more detailed
discussion further below.
Gross written premiums. Total gross written
premiums increased by 6.8% in the first quarter of 2009 compared
to 2008. The table below shows our gross written premiums for
each segment for the three months ended March 31, 2009 and
2008, and the percentage change in gross written premiums for
each segment.
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For the
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For the
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Three Months Ended
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Three Months Ended
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Business Segment
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March 31, 2009
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March 31, 2008
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($ in millions)
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% increase/
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($ in millions)
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(decrease)
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Property reinsurance
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$
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220.5
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19.7
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%
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$
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184.2
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Casualty reinsurance
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186.8
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2.6
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182.1
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International insurance
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194.7
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(2.3
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199.3
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U.S. insurance
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34.8
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13.7
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30.6
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Total
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$
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636.8
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6.8
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%
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$
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596.2
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Gross written premiums have increased from $596.2 million
in the first quarter of 2008 to $636.8 million at the end
of the first quarter of 2009 due mainly to favorable market
conditions particularly in property reinsurance and favorable
premium adjustments related to prior years. Premium rate
increases within our property reinsurance segment as a result of
2008 Hurricanes Ike and Gustav and Credit and Surety premium of
$7.3 million contributed to the growth in premiums for the
quarter. Favorable prior year premium adjustments were
$35.0 million compared with negative premium adjustments of
$5.5 million in the comparative quarter of 2008. The
favorable prior year premium adjustment in the first quarter of
2009 related mainly to cedant advised premium increases on
reinsurance contracts written in 2008 in our property
reinsurance segment.
Reinsurance. Total reinsurance ceded for the
three months ended March 31, 2009 of $130.2 million
increased by $53.6 million from the first quarter of 2008.
In the first quarter of 2008, ceded reinsurance premiums were
unusually low as a number of multi-year industry loss warranties
were
27
purchased in 2007 covering the 2008 wind season. The ceded
written premium was recognized in 2007 and earned through 2008
when these covers expired.
Loss ratio. We monitor the ratio of losses and
loss adjustment expenses to net earned premium (the loss
ratio) as a measure of relative underwriting performance
where a lower ratio represents a better result than a higher
ratio.
The loss ratios for our four business segments for the three
months ended March 31, 2009 and 2008 were as follows:
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For the Three
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For the Three
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Months Ended
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Months Ended
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Business Segment
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March 31, 2009
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March 31, 2008
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Property reinsurance
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28.9
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%
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29.9
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%
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Casualty reinsurance
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65.9
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%
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64.9
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%
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International insurance
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72.6
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%
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65.0
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%
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U.S. insurance
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48.1
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%
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50.8
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%
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Total Loss Ratio
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56.1
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%
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52.9
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%
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The international insurance segment has been impacted by prior
year reserve strengthening in our lines exposed to the global
financial crisis, in particular our financial institutions line
of business. The casualty reinsurance loss ratio has increased
mainly as a result of a reduction in reserve releases from
$14.3 million in the first quarter of 2008 to
$3.1 million in the first quarter of 2009. The property
reinsurance loss ratio in 2008 was impacted by a higher
frequency of mid-sized risk losses. The U.S. insurance loss
ratio has decreased as a result of better loss experience from
the continued reshaping of the property account.
Reserve releases. The loss ratios take into
account changes in our assessments of reserves for unpaid claims
and loss adjustment expenses arising from earlier years. In the
three months ended March 31, 2009 and 2008, we recorded a
reduction in the level of reserves for prior years. The amounts
of these reductions and their effect on the loss ratio in each
period are shown in the following table:
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For the Three
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For the Three
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Months Ended
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Months Ended
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March 31, 2009
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March 31, 2008
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Reserve releases ($ in millions)
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$
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9.8
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$
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39.5
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% of net premiums earned
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2.2
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%
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10.1
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%
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Overall, reserve releases in the quarter decreased by
$29.7 million from the comparative quarter in 2008 mainly
as a result of a reduction in reserve releases from the casualty
reinsurance and the international insurance segments. Casualty
reinsurance reserve releases decreased by $11.2 million to
$3.1 million mainly as a result of loss experience in the
international casualty reinsurance line of business. The
international insurance segment has seen net reserve
strengthening of $2.0 million compared to reserve releases
of $6.9 million in the first quarter of 2008, with the
first quarter of 2009 being impacted by $9.8 million of
reserve strengthening in respect of our lines exposed to the
global financial crisis. Further information relating to the
movement of prior year reserves can be found below under
Reserves for Loss and Loss Adjustment Expenses.
Expense ratio. We monitor the ratio of
expenses to net earned premium (the expense ratio)
as a measure of the cost effectiveness of our policy
acquisition, operating and administrative processes. The table
below presents the contribution of the policy acquisition
expenses and operating and administrative
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expenses to the expense ratio and the total expense ratios for
each of the three months ended March 31, 2009 and 2008:
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For the Three
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For the Three
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Months Ended
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Months Ended
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March 31, 2009
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March 31, 2008
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Policy acquisition expenses
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17.6
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%
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19.5
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%
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Operating and administrative expenses
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10.8
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%
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13.0
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%
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Expense ratio
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28.4
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%
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32.5
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%
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The main driver for the reduction in the policy acquisition
expense ratio is property reinsurance which has lower
reinsurance costs impacting earned premiums. This was offset by
higher profit commissions in 2009 for casualty reinsurance when
compared to the same period in 2008. Higher net earned premium
in 2009 over 2008 in all segments also contributed to an
improved ratio.
The improvement in the operating and administrative expense
ratio was due to a combination of disciplined cost management,
higher net earned premiums and favorable movements in the
exchange rate between the British Pound and the U.S. Dollar.
Net investment income. In the first quarter of
2009, we generated net investment income of $59.2 million
(2008 $39.1 million). The increase in net
investment income was due primarily to gains of
$4.0 million from our investment in funds of hedge funds
compared with losses of $16.9 million in the comparative
period in 2008. Investment income from fixed maturities
decreased by $0.8 million to $55.2 million compared to
March 31, 2008 as a result of slightly lower yields.
Change in fair value of derivatives. In the
three months ended March 31, 2009, we recorded a reduction
of $2.0 million (2008 $2.2 million) in the
estimated fair value of our credit insurance contract including
an interest expense charge of $0.2 million
(2008 $0.3 million). Further information on
these contracts can be found in Note 7 to the financial
statements.
Other revenues and expenses. Other revenues
and expenses in the three months ended March 31, 2009
included $2.3 million of foreign currency exchange gains
(2008 $4.3 million gain) and $12.2 million
of realized and unrealized investment losses (2008
$1.0 million gain). The realized investment losses in 2009
compared with a gain in 2008 is the result of taking a charge in
2009 of $15.2 million for investments we believe to be
other-than-temporarily impaired.
Other-than-temporary impairments. We review
all of our investments in fixed maturities designated available
for sale for potential impairment each quarter based on criteria
including issuer-specific circumstances, credit ratings actions
and general macro-economic conditions. The process of
determining whether a decline in value is
other-than-temporary requires considerable judgment.
As part of the assessment process we evaluate whether it is more
likely than not that we will sell any fixed maturity security in
an unrealized loss position until its market value recovers to
amortized cost. Once a security has been identified as
other-than-temporarily impaired, the amount of any impairment
included in net income is determined by reference to the portion
of the unrealized loss that is considered credit-related.
Non-credit related unrealized losses are included in other
comprehensive income.
Taxes. The estimated effective rate of tax for
the period is 15.0% (2008 15.0%). This is subject to
revision in future periods if circumstances change and in
particular, depending on the relative claims experience of those
parts of business conducted in Bermuda where the rate of tax on
corporate profits is zero and where the U.K. corporate tax rate
is 28%.
Dividends. The dividend has been maintained at
$0.15 per ordinary share for the quarter.
Dividends paid on our preference shares in the three months
ended March 31, 2009 were $6.9 million
(2008 $6.9 million).
29
Shareholders equity and financial
leverage. Total shareholders equity
increased by $53.3 million to $2,832.4 million for the
three months ended March 31, 2009. The most significant
movements were:
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net retained income after tax for the period of
$72.2 million;
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the issue of 1,220,000 ordinary shares for proceeds of
$25.1 million; and
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net decrease of $34.1 million related to the repurchase of
2,672,500 of our 7.401% $25 liquidation value preference shares
with an aggregate liquidation value net of issue costs of
$65.6 million. The repurchase resulted in a gain of
$31.5 million.
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As at March 31, 2009, total ordinary shareholders
equity was $2,478.8 million compared to
$2,359.9 million at December 31, 2008. The remainder
of our total shareholders equity, as at March 31,
2009, was funded by two classes of preference shares with a
total value as measured by their respective liquidation
preferences of $353.6 million net of share issuance costs
(December 31, 2008 $419.2 million).
The amounts outstanding under our senior notes, less
amortization of expenses, of $249.6 million
(December 31, 2008 $249.5 million) were
the only material debt that we had outstanding as of
March 31, 2009 and December 31, 2008.
Management monitors the ratio of debt to total capital, with
total capital being defined as shareholders equity plus
outstanding debt. At March 31, 2009, this ratio was 8.1%
(December 31, 2008 8.2%).
Our preference shares are classified in our balance sheet as
equity but may receive a different treatment in some cases under
the capital adequacy assessments made by certain rating
agencies. Such securities are often referred to as
hybrids as they have certain attributes of both debt
and equity. We also monitor the ratio of the total of debt and
hybrids to total capital which was 19.6% as of March 31,
2009 (December 31, 2008 22.1%).
Capital Management. On March 31, 2009, we
purchased 2,672,500 of our 7.401% $25 liquidation value
preference shares (NYSE: AHL-PA) at a price of $12.50 per share.
Under FASB-EITF Issue D-42, The Effect on the
Calculation of Earnings Per Share for Redemption or Induced
Conversion of Preferred Stock the purchase resulted in
a gain attributable to ordinary shareholders of
$31.5 million for the first quarter of 2009, which is not
recognized in the income statement but is included in the
calculation of earnings per share for the quarter.
Liquidity. Management monitors the liquidity
of Aspen Holdings and of each of its Insurance Subsidiaries.
With respect to Aspen Holdings, management monitors its ability
to service debt, to finance dividend payments and to provide
financial support to the Insurance Subsidiaries. As at
March 31, 2009, Aspen Holdings held $19.5 million in
cash and cash equivalents which, taken together with dividends
declared or expected to be declared by subsidiary companies and
our credit facilities, management considered sufficient to
provide Aspen Holdings liquidity at such time.
At March 31, 2009, our subsidiaries held
$893.7 million in cash and cash equivalents that are
readily realizable securities. Management monitors the value,
currency and duration of the cash and investments within its
Insurance Subsidiaries to ensure that they are able to meet
their insurance and other liabilities as they become due and was
satisfied that there was a comfortable margin of liquidity as at
March 31, 2009 and for the foreseeable future.
As of March 31, 2009, we had in issue $331.3 million
and £120.1 million in letters of credit to cedants,
for which $578.2 million and £25.4 million were
held as collateral for the secured letters of credit. Further
information relating to letters of credit is found below under
Liquidity.
Outlook
and Trends
Property Reinsurance. We observed that rates
for peak zone exposures continued the hardening trend
experienced in the January renewal season driven upward by
strong market demand to protect
30
capital. As a result, we believe U.S. catastrophe business
is attractively priced. April renewals included the Japanese
portfolio where margins are much tighter. A combination of
capital preservation goals and exchange rate movement weakening
the Yen led to single digit rate increases. The risk excess
market is showing signs of improvement after a difficult
18 months but remains much more inconsistent than the
catastrophe market. Our U.S. property facultative
reinsurance team is benefiting from some market hardening, but
international property facultative reinsurance remains highly
competitive.
Casualty Reinsurance. In our casualty
reinsurance segment, we continue to see greater than expected
submission flow, in part due to the challenges faced by some
major competitors. Rating pressure remains acute in our
U.S. casualty business. In international casualty, there
are indications that the insurance and reinsurance market is
starting to improve and rate increases are apparent on primary
business. We are continuing to experience downward rate pressure
in our casualty facultative lines. In general, terms and
conditions continue to remain stable across the casualty
reinsurance market.
International Insurance. In our international
insurance segment we are seeing strong rate increases in a
number of our lines of business. The first quarter is not a
particularly significant renewal time for aviation insurance;
however early signs are encouraging with single digit rate
increases from the few airline accounts renewing at this time as
the market continues to firm following significant overall loss
activity. The renewal season for Gulf of Mexico energy physical
damage insurance is in its preliminary stages with some of our
competitors indicating that they will not write any Gulf of
Mexico exposure this year. We have revised our pricing model for
this class so that it assumes that the loss history we have
experienced in the last 5 years is typical rather than
adopting a longer time horizon, which will result in us charging
much higher prices whilst reducing coverage and seeking higher
deductibles. We will have a better sense of how this is likely
to unfold in coming weeks as buyers focus on how much cover they
wish to buy. In our marine and energy liability business, the
rating environment remains positive and we recorded average
increases of approximately 20% to 30% on our book, which is in
line with our expectations. In U.K. commercial property,
excluding the property owners business, we are continuing to see
signs of modest rate hardening, and expect this to gain momentum
as the year progresses. In our excess casualty line, rates are
basically flat. We have not seen the broader market upturn which
we had anticipated at the end of last year as we understand that
one large competitor is offering rate decreases of as much as
15%. This is in contrast to the broader market where most of our
competitors are seeking to achieve rate increases.
U.S. Insurance. In our
U.S. insurance business, we are seeing rate improvements of
up to 15% on catastrophe exposed lines. The excess and casualty
insurance market continues to be competitive with rates
declining on average from 5% to 10%.
Application
of Critical Accounting Policies
Our condensed consolidated financial statements are based on the
selection of accounting policies and the application of
significant accounting estimates, which require management to
make significant estimates and assumptions. We believe that some
of the more critical judgments in the areas of accounting
estimates and assumptions that affect our financial condition
and results of operations are related to reserves for property
and liability losses, premiums receivable in respect of assumed
reinsurance, the fair value of derivatives and the value of
investments, including the extent of any other-than-temporary
impairment. For a detailed discussion of our critical accounting
policies please refer to our 2008 Annual Report on
Form 10-K
filed with the United States Securities and Exchange Commission.
The material changes in the application of our critical
accounting estimates subsequent to that report are the
application of FAS 159 The Fair Value Option for
Financial Assets and Financial Liabilities in respect
of a portfolio of fixed income investments purchased in the
first quarter of 2009 as shown as fixed income maturities,
trading and short-term investments, trading on the balance
sheet. In addition, we have adopted FSP
FAS 157-4
Determining Whether a Market Is Not Active and a
Transaction Is Not Distressed and FSP
FAS 115-2
and
FAS 124-2,
Recognition and Presentation of
31
Other-Than-Temporary Impairments as disclosed in
the notes to the unaudited condensed consolidated financial
statements.
We have discussed the application of these critical accounting
estimates with our Board of Directors and Audit Committee.
Results
of Operations for the Three Months Ended March 31, 2009
Compared to the Three Months Ended March 31, 2008
The following is a discussion and analysis of our consolidated
results of operations for the three months ended March 31,
2009 and 2008 starting with a discussion of segmental results
and then summarizing our consolidated results under Total
Income Statement First quarter below.
Underwriting
Results by Operating Segments
The Company is currently organized into four business segments:
Property Reinsurance, Casualty Reinsurance, International
Insurance, and U.S. Insurance. These segments form the
basis of how the Company monitors the performance of its
operations.
Management measures segment results on the basis of the combined
ratio, which is obtained by dividing the sum of the losses and
loss expenses, acquisition expenses and operating and
administrative expenses by net premiums earned. Indirect
operating and administrative expenses are allocated to segments
based on each segments proportional share of gross earned
premiums. As a relatively new company, our historical combined
ratio may not be indicative of future underwriting performance.
We do not manage our assets by segment; accordingly, investment
income and total assets are not allocated to the individual
segments.
Please refer to the tables in Note 4 in our unaudited
financial statements of this report for a summary of gross and
net written and earned premiums, underwriting results and
combined ratios and reserves for each of our four business
segments for the three months ended March 31, 2009 and 2008.
The contributions of each segment to gross written premiums in
the three months ended March 31, 2009 and 2008 were as
follows:
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Gross Written Premiums
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For the Three
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For the Three
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Months Ended
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Months Ended
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Business Segment
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March 31, 2009
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March 31, 2008
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% of total gross written premiums
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Property reinsurance
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34.6
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%
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30.9
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%
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Casualty reinsurance
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29.3
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%
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30.6
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%
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International insurance
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30.6
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%
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33.4
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%
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U.S. insurance
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5.5
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%
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5.1
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%
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Total
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|
100.0
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%
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100.0
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%
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Gross Written Premiums
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For the Three
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For the Three
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Months Ended
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Months Ended
|
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Business Segment
|
|
March 31, 2009
|
|
|
March 31, 2008
|
|
|
|
($ in millions)
|
|
|
Property reinsurance
|
|
$
|
220.5
|
|
|
$
|
184.2
|
|
Casualty reinsurance
|
|
|
186.8
|
|
|
|
182.1
|
|
International insurance
|
|
|
194.7
|
|
|
|
199.3
|
|
U.S. insurance
|
|
|
34.8
|
|
|
|
30.6
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
636.8
|
|
|
$
|
596.2
|
|
|
|
|
|
|
|
|
|
|
32
Property
Reinsurance
Our property reinsurance segment is mainly written on a treaty
basis and includes catastrophe, risk excess, and proportional
treaty risks. We also write U.S. and international property
facultative risks. Our property reinsurance business is written
out of Bermuda, London, the U.S., Paris, Zurich and Singapore.
Aspen U.K.s Paris branch writes property facultative
business in continental Europe and the Zurich branch writes
property and casualty reinsurance in Europe. We also write some
structured risks out of Aspen Bermuda. These contracts are
tailored to the individual client circumstances and although
written by a single team are accounted for within the business
segment to which the contract most closely relates. We also
include within this segment some credit, surety and political
risk reinsurance contracts written by the Zurich branch of Aspen
U.K. This portfolio is written principally on a treaty basis.
Gross written premiums. Gross written premiums
in our property reinsurance segment increased by 19.7% compared
to the three months ended March 31, 2008. This increase is
attributed mainly to significant rate increases for
U.S. peak zone catastrophe contracts, moderate increases in
U.S. regional business and European wind exposure and new
premiums from the credit and surety line of business which began
writing business in 2009. The increase also reflects premium
adjustments to deposit premiums paid in 2008 where underlying
exposures have changed.
The table below shows our gross written premiums for each line
of business for the three months ended March 31, 2009 and
2008, and the percentage change in gross written premiums for
each such line:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Written Premiums
|
|
|
|
For the Three
|
|
|
For the Three
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
Lines of Business
|
|
March 31, 2009
|
|
|
March 31, 2008
|
|
|
|
($ in millions)
|
|
|
% increase/
|
|
|
($ in millions)
|
|
|
|
|
|
|
(decrease)
|
|
|
|
|
|
Treaty catastrophe
|
|
$
|
116.7
|
|
|
|
4.6
|
%
|
|
$
|
111.6
|
|
Treaty risk excess
|
|
|
31.3
|
|
|
|
4.7
|
|
|
|
29.9
|
|
Treaty pro rata
|
|
|
48.2
|
|
|
|
47.4
|
|
|
|
32.7
|
|
Property facultative
|
|
|
17.0
|
|
|
|
70.0
|
|
|
|
10.0
|
|
Credit, surety and political risk reinsurance
|
|
|
7.3
|
|
|
|
Nm
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
220.5
|
|
|
|
19.7
|
%
|
|
$
|
184.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Not meaningful This
line of business was not operational at March 31, 2008.
|
Losses and loss adjustment expenses. The net
loss ratio for the three months ended March 31, 2009 was
28.9% compared to 29.9% in 2008. Higher net earned premiums in
the quarter and a greater frequency of risk losses in the first
quarter of 2008 are the main drivers for the reduction in the
net loss ratio. Reserve releases in the quarter were
$6.7 million, down from $13.6 million in the first
quarter of 2008.
Further information relating to the movement of prior year
reserves is found below under Reserves for Losses and Loss
Adjustment Expenses.
Policy acquisition, operating and administrative
expenses. Total expenses were $40.0 million
equivalent to 28.7% of net premiums earned for the three months
ended March 31, 2009 compared with $42.5 million and
33.5% of net premiums earned for the three months ended
March 31, 2008. Policy acquisition expenses of
$24.8 million for the first quarter of 2009 are broadly in
line with those for the first quarter of 2008, but produce a
lower acquisition ratio as they apply to a higher premium base.
The reduction in ratio is due to changes in the mix of business
in the segment and reductions in accruals for profit
commissions. The decrease in the operating and administrative
expenses of $1.4 million from the first quarter of 2008 is
attributable mainly to favorable exchange rate movements between
the U.S. Dollar and British Pound.
33
Casualty
Reinsurance
Our casualty reinsurance segment is written mainly on a treaty
basis with a small proportion of facultative risks. The casualty
treaty reinsurance is primarily written on an excess of loss
basis and includes coverage for claims arising from automobile
accidents, employers liability, professional indemnity and
other third party liabilities. It is written in respect of
cedants located mainly in the United States, the United Kingdom,
Europe and Australia. We also write some structured reinsurance
contracts out of Aspen Bermuda.
Gross written premiums. Gross written premium
increased by 2.6% to $186.8 million due mainly to favorable
premium adjustments in our U.S. treaty casualty business.
This was offset by a reduction in written premium from our
international treaty business which was impacted by the
strengthening of the U.S. Dollar against the British Pound
and the Euro, as these currencies account for the majority of
written premium in this segment.
The table below shows our gross written premiums for each line
of business for the three months ended March 31, 2009 and
2008, and the percentage change in gross written premiums for
each such line:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Written Premiums
|
|
|
|
For the Three
|
|
|
For the Three
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
Lines of Business
|
|
March 31, 2009
|
|
|
March 31, 2008
|
|
|
|
($ in millions)
|
|
|
% increase/
|
|
|
($ in millions)
|
|
|
|
|
|
|
(decrease)
|
|
|
|
|
|
U.S. treaty
|
|
$
|
109.8
|
|
|
|
22.5
|
%
|
|
$
|
89.6
|
|
International treaty
|
|
|
73.5
|
|
|
|
(17.9
|
)
|
|
|
89.5
|
|
Casualty facultative
|
|
|
3.5
|
|
|
|
16.7
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
186.8
|
|
|
|
2.6
|
%
|
|
$
|
182.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses. Losses
and loss adjustment expenses for the first quarter of 2009
increased by $10.7 million when compared to the first
quarter 2008. The increase can be attributed mainly to a
reduction in reserve releases which were $14.2 million in
the first quarter of 2008, compared to $3.1 million for the
same period in 2009. The reduction in reserve releases are
attributable to reserve strengthening in international casualty
compared to reserve releases in the comparable period in 2008.
Prior year reserve releases are further discussed below under
Reserves for Losses and Loss Expenses.
Policy acquisition, operating and administrative
expenses. Total expenses were $30.9 million
for the three months ended March 31, 2009 equivalent to
28.2% of net premiums earned (2008 30.0%). Policy
acquisition expenses have increased from $17.7 million in
the first quarter of 2008 to $21.9 million in same period
in 2009 due mainly to the recognition of $3.4 million of
additional profit commissions. Operating and administrative
expenses have decreased to $9.0 million from
$10.7 million for the three months ended March 31,
2008 mainly due to favorable movements in the exchange rate
between the U.S. Dollar and British Pound.
International
Insurance
Our international insurance segment mainly comprises marine
hull, marine, energy and construction liability, energy property
damage, non-marine transportation liability, aviation,
professional liability, excess casualty, financial institutions,
financial and political risk, management and technology
liability, U.K. commercial property (including construction) and
U.K. commercial liability insurance. The commercial liability
line of business consists of U.K. employers and public
liability insurance. Our specialty reinsurance lines of business
include aviation, marine and other specialty reinsurance.
Gross written premiums. Overall premiums have
decreased by $4.6 million compared to the equivalent period
in 2008, despite favorable premium adjustments in a number of
lines, most notably in specialty reinsurance. The decrease in
gross written premium is attributable to the timing of
renewals,
34
particularly in our energy account, where a number of loss
impacted contracts which were expected to renew in the first
quarter of 2009 will not renew until the second quarter of 2009.
In addition, gross written premiums in our U.K. commercial and
property liability lines have been impacted by exchange rate
movements as premiums are written in British Pounds which has
weakened against the U.S Dollar during the period.
The table below shows our gross written premiums for each line
of business for the three months ended March 31, 2009 and
2008, and the percentage change in gross written premiums for
each line:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Written Premiums
|
|
|
|
For the Three
|
|
|
For the Three
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
Lines of Business
|
|
March 31, 2009
|
|
|
March 31, 2008
|
|
|
|
($ in millions)
|
|
|
% increase/
|
|
|
($ in millions)
|
|
|
|
|
|
|
(decrease)
|
|
|
|
|
|
Marine, energy and construction liability
|
|
$
|
50.8
|
|
|
|
(7.3
|
)%
|
|
$
|
54.8
|
|
Energy property insurance
|
|
|
16.4
|
|
|
|
(29.9
|
)
|
|
|
23.4
|
|
Marine hull
|
|
|
16.5
|
|
|
|
(11.3
|
)
|
|
|
18.6
|
|
Aviation insurance
|
|
|
10.4
|
|
|
|
(7.1
|
)
|
|
|
11.2
|
|
U.K. commercial property
|
|
|
7.4
|
|
|
|
(21.2
|
)
|
|
|
9.4
|
|
U.K. commercial liability
|
|
|
9.1
|
|
|
|
(54.7
|
)
|
|
|
20.1
|
|
Non-marine transportation liability
|
|
|
7.9
|
|
|
|
12.9
|
|
|
|
7.1
|
|
Professional liability
|
|
|
7.7
|
|
|
|
1.3
|
|
|
|
7.6
|
|
Excess casualty
|
|
|
4.8
|
|
|
|
140
|
|
|
|
2.0
|
|
Financial institutions
|
|
|
3.7
|
|
|
|
27.6
|
|
|
|
2.9
|
|
Financial and political risk
|
|
|
9.2
|
|
|
|
104.4
|
|
|
|
4.5
|
|
U.K. commercial property construction
|
|
|
3.5
|
|
|
|
Nm
|
*
|
|
|
|
|
Management and technology liability
|
|
|
1.8
|
|
|
|
Nm
|
*
|
|
|
|
|
Specialty reinsurance
|
|
|
45.5
|
|
|
|
20.4
|
|
|
|
37.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
194.7
|
|
|
|
(2.3
|
)%
|
|
$
|
199.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Not meaningful These
lines of business were not operational at March 31, 2008.
|
Losses and loss adjustment expenses. The loss
ratio for the quarter was 72.6% compared to 65.0% for the three
months ended March 31, 2008, an increase of
7.6 percentage points. Higher net earned premiums were more
than offset by the $29.3 million increase in loss and loss
adjustment expenses. The segment has been impacted by an
increase in current year loss reserves for our lines of business
exposed to the global financial crisis. A $2.0 million
prior year reserve strengthening, compared to a
$6.9 million reserve release in 2008, was due predominantly
to a $9.8 million increase in reserves for our financial
institutions account and a $3.0 million reserve increase
for a specific non-marine transportation liability loss.
Policy acquisition, operating and administrative
expenses. Acquisition expenses for the first
quarter of 2009 were unchanged at $28.0 million. The
increase in operating and administrative expenses to
$18.6 million in the first quarter of 2009 from
$17.9 million for the comparative period in 2008 relates to
direct costs for the new teams established in 2008 and
additional infrastructure costs associated with our Lloyds
operations. These additional costs have been offset by favorable
movements in the exchange rates between the U.S. Dollar and
the British Pound.
U.S.
Insurance
We write both U.S. property and casualty insurance on an
excess and surplus lines basis.
35
Gross written premiums. Gross written premiums
increased by 13.7% compared to the first quarter of 2008 due
primarily to a $3.9 million increase in property premiums.
This increase is the result of new business written as the
property account has been reshaped.
The table below shows our gross written premiums for each line
of business for the three months ended March 31, 2009 and
2008, and the percentage change in gross written premiums for
each such line:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Written Premiums
|
|
|
|
For the Three
|
|
|
For the Three
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
Lines of Business
|
|
March 31, 2009
|
|
|
March 31, 2008
|
|
|
|
($ in millions)
|
|
|
% increase/
|
|
|
($ in millions)
|
|
|
|
|
|
|
(decrease)
|
|
|
|
|
|
U.S. property
|
|
$
|
14.4
|
|
|
|
37.1
|
%
|
|
$
|
10.5
|
|
U.S. casualty
|
|
|
20.4
|
|
|
|
1.5
|
|
|
|
20.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34.8
|
|
|
|
13.7
|
%
|
|
$
|
30.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses. The loss
ratio has decreased from 50.8% for the first quarter of 2008 to
48.1% for the same period in 2009 mainly as a result of
favorable loss experience from our property account. Reserve
releases have decreased from $4.7 million in the first
quarter of 2008 to $2.0 million for the same period in 2009.
Policy acquisition, operating and administrative
expenses. Policy acquisition expenses have
decreased to $3.9 million in the current period from
$4.8 million for the equivalent period in 2008 due to lower
accruals for profit commissions and changes in the business mix.
Operating and administrative expenses were largely unchanged at
$5.7 million in 2009 versus $5.6 million in 2008.
Total
Income Statement First quarter
Our statements of operations consolidates the underwriting
results of our four segments and includes certain other revenue
and expense items that are not allocated to the business
segments.
Gross written premiums. Gross written premiums
for the first quarter of 2009 have increased by 6.8% to
$636.8 million when compared to the first quarter of 2008
due mainly to favorable market conditions particularly in
property reinsurance and favorable premium adjustments related
to prior years. Favorable prior year premium adjustments were
$35.0 million compared with negative premium adjustments of
$5.5 million in the comparative quarter of 2008.
Reinsurance ceded. Total reinsurance ceded for
the three months ended March 31, 2009 of
$130.2 million increased by $53.6 million from the
first quarter of 2008. In the first quarter of 2008, ceded
reinsurance premium was unusually low as a number of multi-year
industry loss warranties were purchased in 2007 covering the
2008 wind season. The ceded written premium was recognized in
2007 and earned through 2008 when these covers expired.
Gross premiums earned. Gross premiums earned
reflect the portion of gross premiums written which are recorded
as revenues over the policy periods of the risks we write. The
earned premium recorded in any year includes premium from
policies incepting in prior years and excludes premium to be
earned subsequent to the reporting date. Gross premiums earned
in the first quarter of 2009 increased by 15.4% compared to the
first quarter of 2008 reflecting the earning of business written
by teams new to the Company in 2008 in addition to favorable
prior period premium development.
Net premiums earned. Net premiums earned have
increased by $55.7 million or 14.2% in the first quarter of
2009 compared to 2008 which is consistent with the increase in
gross earned premiums.
Losses and loss adjustment expenses. The
increase in loss and loss adjustment expenses resulted from
lower prior year reserve releases in the first quarter of 2009
when compared with the same period in 2008. The reserve releases
were lower in the quarter as a result of increased claims
related to the
36
economic crisis and in particular our financial institution
line. Current year losses have been impacted by an increase in
losses related to the economic crisis in the international
insurance segment in particular. Both years had limited natural
catastrophe losses.
The underlying changes in accident year loss ratios by segment
are shown in the table below. The prior year adjustment in the
table below reflects claims development and excludes premium
adjustments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accident Year Loss
|
|
|
|
|
|
|
|
|
|
Ratio Excluding
|
|
|
|
Total Loss
|
|
|
Prior Year
|
|
|
Prior Year
|
|
For the Three Months Ended March 31, 2009
|
|
Ratio
|
|
|
Adjustment
|
|
|
Adjustments
|
|
|
Property reinsurance
|
|
|
28.9
|
%
|
|
|
8.4
|
%
|
|
|
37.3
|
%
|
Casualty reinsurance
|
|
|
65.9
|
%
|
|
|
9.2
|
%
|
|
|
75.1
|
%
|
International insurance
|
|
|
72.6
|
%
|
|
|
3.7
|
%
|
|
|
76.3
|
%
|
U.S. insurance
|
|
|
48.1
|
%
|
|
|
8.9
|
%
|
|
|
57.0
|
%
|
Total
|
|
|
56.1
|
%
|
|
|
6.9
|
%
|
|
|
63.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accident Year
|
|
|
|
|
|
|
|
|
|
Loss Ratio
|
|
|
|
Total Loss
|
|
|
Prior Year
|
|
|
Excluding Prior
|
|
For the Three Months Ended March 31, 2008
|
|
Ratio
|
|
|
Adjustment
|
|
|
Year Adjustments
|
|
|
Property reinsurance
|
|
|
29.9
|
%
|
|
|
11.1
|
%
|
|
|
41.0
|
%
|
Casualty reinsurance
|
|
|
64.9
|
%
|
|
|
11.6
|
%
|
|
|
76.5
|
%
|
International insurance
|
|
|
65.0
|
%
|
|
|
6.1
|
%
|
|
|
71.1
|
%
|
U.S. insurance
|
|
|
50.8
|
%
|
|
|
26.6
|
%
|
|
|
77.4
|
%
|
Total
|
|
|
52.9
|
%
|
|
|
10.2
|
%
|
|
|
63.1
|
%
|
Expenses. We monitor the ratio of expenses to
gross earned premium (the gross expense ratio) as a
measure of the cost effectiveness of our policy acquisition,
operating and administrative processes. The table below presents
the contribution of the policy acquisition expenses and
operating and administrative expenses to the expense ratio and
the total expense ratios for the three months ended
March 31, 2009 and 2008. We also show the effect of
reinsurance which impacts on the reported net expense ratio by
expressing the expenses as a proportion of net earned premiums.
|
|
|
|
|
|
|
|
|
|
|
Expense Ratios
|
|
|
|
For the Three
|
|
|
For the Three
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
March 31, 2009
|
|
|
March 31, 2008
|
|
|
Policy acquisition expenses
|
|
|
15.9
|
%
|
|
|
17.9
|
%
|
Operating and administrative expenses
|
|
|
9.8
|
%
|
|
|
11.9
|
%
|
|
|
|
|
|
|
|
|
|
Gross expense ratio
|
|
|
25.7
|
%
|
|
|
29.8
|
%
|
Effect of reinsurance
|
|
|
2.7
|
%
|
|
|
2.7
|
%
|
|
|
|
|
|
|
|
|
|
Total net expense ratio
|
|
|
28.4
|
%
|
|
|
32.5
|
%
|
|
|
|
|
|
|
|
|
|
37
Changes in the acquisition and operating and administrative
ratios to gross earned premiums and the impact of reinsurance on
net earned premiums by segment for each of the three months
ended March 31, 2009 and 2008 are shown in the following
table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2009
|
|
|
For the Three Months Ended March 31, 2008
|
|
|
|
Property
|
|
|
Casualty
|
|
|
International
|
|
|
U.S.
|
|
|
|
|
|
Property
|
|
|
Casualty
|
|
|
International
|
|
|
U.S.
|
|
|
|
|
Ratios Based on Gross Earned Premium
|
|
Reinsurance
|
|
|
Reinsurance
|
|
|
Insurance
|
|
|
Insurance
|
|
|
Total
|
|
|
Reinsurance
|
|
|
Reinsurance
|
|
|
Insurance
|
|
|
Insurance
|
|
|
Total
|
|
|
Policy acquisition expense ratio
|
|
|
16.4
|
|
|
|
19.9
|
|
|
|
14.1
|
|
|
|
11.6
|
|
|
|
15.9
|
|
|
|
18.5
|
|
|
|
18.5
|
|
|
|
16.9
|
|
|
|
18.5
|
|
|
|
17.9
|
|
Operating and administrative expense ratio
|
|
|
10.1
|
|
|
|
8.2
|
|
|
|
9.4
|
|
|
|
17.0
|
|
|
|
9.8
|
|
|
|
11.8
|
|
|
|
11.2
|
|
|
|
10.9
|
|
|
|
21.7
|
|
|
|
11.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross expense ratio
|
|
|
26.5
|
|
|
|
28.1
|
|
|
|
23.5
|
|
|
|
28.6
|
|
|
|
25.7
|
|
|
|
30.3
|
|
|
|
29.7
|
|
|
|
27.8
|
|
|
|
40.2
|
|
|
|
29.8
|
|
Effect of reinsurance
|
|
|
2.2
|
|
|
|
0.1
|
|
|
|
3.1
|
|
|
|
12.0
|
|
|
|
2.7
|
|
|
|
3.2
|
|
|
|
0.3
|
|
|
|
2.7
|
|
|
|
12.8
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net expense ratio
|
|
|
28.7
|
|
|
|
28.2
|
|
|
|
26.6
|
|
|
|
40.6
|
|
|
|
28.4
|
|
|
|
33.5
|
|
|
|
30.0
|
|
|
|
30.5
|
|
|
|
53.0
|
|
|
|
32.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The policy acquisition ratio, gross of the effect of
reinsurance, has decreased to 15.9% for the three months ended
March 31, 2009 from 17.9% for the comparative period in
2008. The decrease is driven mainly by the decreased in profit
commissions for the property reinsurance and U.S. insurance
segments and the change in business mix in the international
insurance segment as the teams new to the Company in 2008 are
now fully established. The increase in the acquisition ratio for
casualty reinsurance is mainly due to an increase in profit
related commissions when compared to the first quarter of 2008.
Between the two periods we have experienced a $2.1 million
decrease in our operating and administrative expenses. The
decrease is due mainly to favorable movements in the exchange
rate between the U.S. Dollar and British Pound which
reduces the Dollar value of Sterling denominated expenses.
Net investment income. Net investment income
consists of interest on fixed income securities and the equity
in net income of other investments. In the first quarter of
2009, we generated net investment income of $59.2 million
(2008 $39.1 million). The $20.1 million
increase in investment income was primarily due to gains from
our investment in funds of hedge funds which contributed
$4.0 million compared with a loss of $16.9 million in
the first quarter of 2008. During the quarter, the book yield on
our fixed income portfolio decreased by 22 basis points
from 4.64% to 4.42% and the portfolio duration decreased
marginally from 3.1 years to 2.9 years and the average
credit quality of our fixed income book is AA+, with
79% of the portfolio being graded AA or higher.
Change in fair value of derivatives. In the
three months ended March 31, 2009, we recorded a reduction
of $2.0 million (2008 $2.2 million) in the
estimated fair value of our credit insurance contract including
$0.2 million (2008 $0.3 million) of
interest expense. Further information on these contracts can be
found in Note 7 to the financial statements.
Other-than-temporary impairments. We review
all of our fixed maturities for potential impairment each
quarter based on criteria including issuer-specific
circumstances, credit ratings actions and general macro-economic
conditions. The process of determining whether a decline in
value is other-than-temporary requires considerable
judgment. As part of the assessment process we also evaluate
whether it is more likely than not that we will sell any fixed
maturity security in an unrealized loss position until its
market value recovers to amortized cost. Once a security has
been identified as other-than-temporarily impaired, the amount
of any impairment included in net income is determined by
reference to the portion of the unrealized loss that is
considered credit-related. Non-credit related unrealized losses
are included in other comprehensive income. The realized
investments losses in 2009 include a $15.2 million charge
for investments we believe to be other-than-temporarily
impaired. No other-than-temporary impairment charge was included
in the first quarter of 2008.
Income before tax. In the first quarter of
2009, income before tax was $107.5 million and comprised
$69.4 million of underwriting profit, $59.2 million in
net investment income, $14.5 million of
38
net foreign exchange and investment losses, $3.9 million of
interest expense and $2.7 million of other expenses. In the
first quarter of 2008, income before tax was $95.5 million
and comprised $57.2 million of underwriting profit,
$39.1 million in net investment income, $5.3 million
of net foreign exchange and investment gains, $3.9 million
of interest expense and $2.2 million of other expenses. Our
higher underwriting profit in the quarter compared to the prior
period was mainly due to higher earned premium in the quarter
partially offset by greater losses. Our higher net investment
income in the quarter was due to improved performance from our
funds of hedge funds. Our higher net foreign exchange and
investment losses in the quarter was the result of other than
temporary impairment charges.
Income tax expense. Income tax expense for the
three months ended March 31, 2009 was $16.1 million.
Our effective consolidated tax rate for the three months ended
March 31, 2009 was 15.0% (2008 15.0%). As
required by FAS 109 and APB 28, the charge represents an
estimate of the tax rate which will apply to our pre-tax income
for 2009. As discussed in the Overview above, the
effective tax rate may be subject to revision.
Net income after tax. Net income after tax for
the three months ended March 31, 2009 was
$91.4 million, equivalent to $1.42 basic earnings per
ordinary share adjusted for the $6.9 million preference
share dividends and $31.5 million gain on repurchase of
preference shares and $1.39 fully diluted earnings per ordinary
share adjusted for the preference share dividends and gain on
the repurchase of preference shares on the basis of the weighted
average number of ordinary shares in issue during the three
months ended March 31, 2009. The net income for the three
months ended March 31, 2008 was $81.2 million
equivalent to basic earnings per ordinary share of $0.87 and
fully diluted earnings per share of $0.85.
Reserves
for Losses and Loss Expenses
As of March 31, 2009, we had total net loss and loss
adjustment expense reserves of $2,798.3 million
(December 31, 2008 $2,787.0 million). This
amount represented our best estimate of the ultimate liability
for payment of losses and loss adjustment expenses. Of the total
gross reserves for unpaid losses of $3,096.2 million at the
balance sheet date of March 31, 2009, a total of
$1,828.2 million or 59.0% represented IBNR claims
(December 31, 2008 $3,070.3 million and
58.3%, respectively). The following tables analyze gross and net
loss and loss adjustment expense reserves by segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March 31, 2009
|
|
|
|
|
|
|
Reinsurance
|
|
|
|
|
Business Segment
|
|
Gross
|
|
|
Recoverable
|
|
|
Net
|
|
|
|
($ in millions)
|
|
|
Property reinsurance
|
|
$
|
446.8
|
|
|
$
|
(39.2
|
)
|
|
$
|
407.6
|
|
Casualty reinsurance
|
|
|
1,328.8
|
|
|
|
(5.9
|
)
|
|
|
1,322.9
|
|
International insurance
|
|
|
1,191.6
|
|
|
|
(222.0
|
)
|
|
|
969.6
|
|
U.S. insurance
|
|
|
129.0
|
|
|
|
(30.8
|
)
|
|
|
98.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total losses and loss expense reserves
|
|
$
|
3,096.2
|
|
|
$
|
(297.9
|
)
|
|
$
|
2,798.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2008
|
|
|
|
|
|
|
Reinsurance
|
|
|
|
|
Business Segment
|
|
Gross
|
|
|
Recoverable (1)
|
|
|
Net
|
|
|
|
($ in millions)
|
|
|
Property reinsurance
|
|
$
|
488.5
|
|
|
$
|
(37.9
|
)
|
|
$
|
450.6
|
|
Casualty reinsurance
|
|
|
1,311.1
|
|
|
|
(5.9
|
)
|
|
|
1,305.2
|
|
International insurance
|
|
|
1,117.4
|
|
|
|
(210.9
|
)
|
|
|
906.5
|
|
U.S. insurance
|
|
|
153.3
|
|
|
|
(28.6
|
)
|
|
|
124.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total losses and loss expense reserves
|
|
$
|
3,070.3
|
|
|
$
|
(283.3
|
)
|
|
$
|
2,787.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The 2008 net reserve position
for each of our segments has been revised with no overall effect
on the total. As a result of re-allocation of reinsurance
recoverables among the
|
39
|
|
|
|
|
segments, the net reserve position
for property reinsurance increased by $69.9 million from
$380.7 million to $450.6 million, for casualty
reinsurance decreased by $3.6 million from
$1,308.8 million to $1,305.2 million, for
international insurance decreased by $97.2 million from
$1,003.7 million to $906.5 million and for U.S.
insurance increased by $30.9 million from
$93.8 million to $124.7 million.
|
The increase in reinsurance recoverables in 2009 is due to
increased recoveries in our international insurance segment
related mainly to Hurricane Ike and the global financial crisis.
This has been offset by the continued settlement of losses
associated with Hurricanes Katrina, Rita and Wilma.
For the three months ended March 31, 2009, there was a
reduction of our estimate of the ultimate net claims to be paid
in respect of prior accident years of $9.8 million. An
analysis of this reduction by line of business is as follows for
each of the three months ended March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
Business Segment
|
|
March 31, 2009
|
|
|
March 31, 2008
|
|
|
|
($ in millions)
|
|
|
Property reinsurance
|
|
$
|
6.7
|
|
|
$
|
13.6
|
|
Casualty reinsurance
|
|
|
3.1
|
|
|
|
14.3
|
|
International insurance
|
|
|
(2.0
|
)
|
|
|
6.9
|
|
U.S. insurance
|
|
|
2.0
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
Total losses and loss expense reserves reductions
|
|
$
|
9.8
|
|
|
$
|
39.5
|
|
|
|
|
|
|
|
|
|
|
The key elements which gave rise to the net favorable
development during the three months ended March 31, 2009
were as follows:
Property Reinsurance: Property facultative,
property catastrophe and the risk excess lines had better than
expected loss experience which were partially offset by adverse
development in property pro rata.
Casualty Reinsurance: The U.S. casualty
line had better than expected experience coupled with favorable
commutations of $7.7 million, offset by increases in the
international treaty line reflecting prior premium development.
International Insurance: The segment had a
deterioration of $2.0 million. We increased reserves on the
financial institutions line in response to the ongoing global
financial crisis by $9.8 million and the non-marine
transportation liability line by $3.0 million in response
to a specific loss. We had beneficial claims experience largely
offsetting these increases in U.K. liability of
$3.7 million and specialty reinsurance of $6.1 million.
U.S. Insurance: The $2.0 million
release is from the property account and is largely from the
2008 accident year which had good attritional claims experience.
We did not make any significant changes in assumptions used in
our reserving process. However, because the period of time we
have been in operation is relatively short, our loss experience
is limited and reliable evidence of changes in trends of numbers
of claims incurred, average settlement amounts, numbers of
claims outstanding and average losses per claim will necessarily
take years to develop.
For a more detailed description see Managements
Discussion and Analysis Critical Accounting
Policies and Managements Discussion and
Analysis Reserves for Losses and Loss Adjustment
Expenses, included in our 2008 Annual Report on
Form 10-K
filed with the United States Securities and Exchange Commission.
40
Balance
Sheet
Total cash and investments
At March 31, 2009 and December 31, 2008, total cash
and investments, including accrued interest receivable, were
$6.1 billion and $6.0 billion, respectively. The
composition of our investment portfolio is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at March 31, 2009
|
|
|
As at December 31, 2008
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
Percentage
|
|
|
|
Estimated
|
|
|
of Fixed
|
|
|
Estimated
|
|
|
of Fixed
|
|
|
|
Fair
|
|
|
Income
|
|
|
Fair
|
|
|
Income
|
|
|
|
Value
|
|
|
Portfolio
|
|
|
Value
|
|
|
Portfolio
|
|
|
Marketable Securities Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Securities
|
|
$
|
665.1
|
|
|
|
10.9
|
%
|
|
$
|
650.7
|
|
|
|
10.9
|
%
|
U.S. Agency Securities
|
|
|
395.5
|
|
|
|
6.5
|
%
|
|
|
393.1
|
|
|
|
6.6
|
%
|
Municipal Securities
|
|
|
8.1
|
|
|
|
0.1
|
%
|
|
|
8.0
|
|
|
|
0.1
|
%
|
Corporate Securities
|
|
|
1,550.6
|
|
|
|
25.4
|
%
|
|
|
1,424.5
|
|
|
|
23.8
|
%
|
Foreign Government
|
|
|
349.7
|
|
|
|
5.8
|
%
|
|
|
384.5
|
|
|
|
6.4
|
%
|
Asset-backed Securities
|
|
|
178.0
|
|
|
|
2.9
|
%
|
|
|
205.5
|
|
|
|
3.4
|
%
|
Mortgage-backed Securities
|
|
|
1,306.6
|
|
|
|
21.4
|
%
|
|
|
1,366.8
|
|
|
|
22.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Income Available for Sale
|
|
|
4,453.6
|
|
|
|
73.0
|
%
|
|
|
4,433.1
|
|
|
|
74.1
|
%
|
Marketable Securities Trading
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Securities
|
|
|
111.9
|
|
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
Foreign Government
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Income Trading
|
|
|
113.0
|
|
|
|
1.8
|
%
|
|
|
|
|
|
|
|
|
Total Other Investments
|
|
|
290.9
|
|
|
|
4.8
|
%
|
|
|
286.9
|
|
|
|
4.9
|
%
|
Total Short-term Investments Available for Sale
|
|
|
289.8
|
|
|
|
4.8
|
%
|
|
|
224.9
|
|
|
|
3.8
|
%
|
Total Short-term Investments Trading
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash and Cash Equivalents
|
|
|
913.2
|
|
|
|
15.0
|
%
|
|
|
809.1
|
|
|
|
13.5
|
%
|
Total Receivable for Securities Sold
|
|
|
5.1
|
|
|
|
0.1
|
%
|
|
|
177.2
|
|
|
|
3.0
|
%
|
Total Accrued Interest Receivable
|
|
|
31.0
|
|
|
|
0.5
|
%
|
|
|
43.7
|
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash and Investments
|
|
$
|
6,098.6
|
|
|
|
100.0
|
%
|
|
$
|
5,974.9
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities. At March 31, 2009, the
average credit quality of our fixed income book is
AA+, with 97% of the portfolio being graded
A or higher. At December 31, 2008, the average
credit quality of our fixed income book is AAA, with
92% of the portfolio being graded A or higher. Our
fixed income portfolio duration decreased marginally from
3.1 years as at December 31, 2008 to 2.9 years as
at March 31, 2009.
Other investments. Other investments represent
the Companys investments in funds of hedge funds which are
recorded using the equity method of accounting. Adjustments to
the carrying value of these investments are made based on the
net asset values reported by the fund managers, which results in
a carrying value that approximates fair value. Realized and
unrealized gains of $4.0 million (March 31,
2008 losses of $16.9 million) have been
recognized through the statement of operations in the three
months ended March 31, 2009. The Company invested
$150.0 million in the share capital of two funds in 2006, a
further $247.5 million in one of these funds and
$112.5 million in the share capital of a third fund in
2007. In 2008, the Company sold share capital in the funds that
cost $198.6 million for proceeds of $177.2 million
realizing a loss of $21.4 million. In February 2009, the
Company gave notice of redemption in respect of the remaining
investments in the funds of hedge funds; the earliest date at
which these notices will take effect is June 30, 2009.
41
The following tables summaries the fair value of our
mortgage-backed securities (MBS) by rating and class
at March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
|
|
|
AA and Below
|
|
|
Total
|
|
|
Agency
|
|
$
|
1,034.5
|
|
|
|
|
|
|
$
|
1,034.5
|
|
Non-agency Commercial
|
|
|
221.5
|
|
|
|
|
|
|
|
221.5
|
|
Non-agency Residential
|
|
|
27.4
|
|
|
|
23.3
|
|
|
|
50.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mortgage-backed Securities
|
|
$
|
1,283.4
|
|
|
$
|
23.3
|
|
|
$
|
1,306.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our mortgage-backed portfolio is supported by loans diversified
across a number of geographic and economic sectors.
Alternative- A securities. We define
Alternative-A (alt-A) mortgages as those considered
less risky than sub-prime mortgages, but with lower credit
quality than prime mortgages. At March 31, 2009, we have
$12.4 million invested in alt-A securities
(December 31, 2008 $8.7 million).
Sub-prime securities. We define sub-prime
related investments as those supported by, or contain, sub-prime
collateral based on creditworthiness. We do not invest directly
in sub-prime related securities.
Valuation
of Investments
Valuation of Fixed Income and Short Term Available for Sale
Investments and Fixed Income and Short Term Trading
Investments. All of the fixed income securities
are traded on the over the counter market, based on prices
provided by one or more market makers in each security. In
addition, there are readily observable market value indicators.
We use a variety of pricing sources to value our fixed income
securities including those securities that have prepayment
features such as mortgage-backed securities and asset-backed
securities in order to ensure fair and accurate pricing. The
fair value estimates of the securities in our portfolio are not
sensitive to significant unobservable inputs or modeling
techniques.
Valuation of Other Investments. The value of
our investments in funds of hedge funds are based upon monthly
net asset values reported by the underlying funds to our fund of
hedge fund managers. The financial statements of our funds of
hedge funds are subject to annual audits evaluating the net
asset positions of the underlying investments. We periodically
review the performance of our funds of hedge funds and evaluate
the reasonableness of the valuations.
Other-than-temporary impairment. We review all
of our fixed maturities for potential impairment each quarter
based on criteria including issuer-specific circumstances,
credit ratings actions and general macro-economic conditions.
The process of determining whether a decline in value is
other-than-temporary requires considerable judgment.
As part of the assessment process we also evaluate whether it is
more likely than not that we will sell any fixed maturity
security in an unrealized loss position until its market value
recovers to amortized cost. Once a security has been identified
as other-than-temporarily impaired, the amount of any impairment
included in net income is determined by reference to that
portion of the unrealized loss that is considered to be credit
related. Non-credit related unrealized losses are included in
other comprehensive income.
Capital
Management
On March 31, 2009 we purchased 2,672,500 of our 7.401% $25
liquidation value preference shares (NYSE : AHL-PA) at a price
of $12.50 per share. The repurchase resulted in a first quarter
gain attributable to ordinary shareholders of approximately
$31.5 million.
42
The following table shows our capital structure at
March 31, 2009 compared to December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
As at
|
|
|
|
March 31, 2009
|
|
|
December 31, 2008
|
|
|
|
($ in millions)
|
|
|
Share capital, additional paid-in capital and retained income
and accumulated other comprehensive income attributable to
ordinary shareholders
|
|
$
|
2,478.8
|
|
|
$
|
2,359.9
|
|
Preference shares (liquidation preference less issue expenses)
|
|
|
353.6
|
|
|
|
419.2
|
|
Long-term debt
|
|
|
249.6
|
|
|
|
249.5
|
|
|
|
|
|
|
|
|
|
|
Total capital
|
|
$
|
3,082.0
|
|
|
$
|
3,028.6
|
|
|
|
|
|
|
|
|
|
|
Management monitors the ratio of debt to total capital, with
total capital being defined as shareholders equity plus
outstanding debt. At March 31, 2009, this ratio was 8.1%
(December 31, 2008 8.2%).
Our preference shares are classified in our balance sheet as
equity but may receive a different treatment in some cases under
the capital adequacy assessments made by certain rating
agencies. Such securities are often referred to as
hybrids as they have certain attributes of both debt
and equity. We also monitor the ratio of the total of debt and
hybrids to total capital which was 19.6% as of March 31,
2009 (December 31, 2008 22.1%).
Access to capital. Our business operations are
in part dependent on our financial strength and the
markets perception thereof, as measured by
shareholders equity, which was $2,832.4 million at
March 31, 2009 (December 31, 2008
$2,779.1 million). We believe our financial strength
provides us with the flexibility and capacity to obtain funds
through debt or equity financing. Our continuing ability to
access the capital markets is dependent on, among other things,
our operating results, market conditions and our perceived
financial strength. We continuously monitor our capital and
financial position, as well as investment and security market
conditions, both in general and with respect to Aspen
Holdings securities. Our ordinary shares and all our
preference shares are listed on the New York Stock Exchange.
Liquidity
Liquidity is a measure of a companys ability to generate
cash flows sufficient to meet short-term and long-term cash
requirements of its business operations. Management monitors the
liquidity of Aspen Holdings and of each of its Insurance
Subsidiaries and arranges credit facilities to enhance
short-term liquidity resources on a stand-by basis.
Holding company. We monitor the ability of
Aspen Holdings to service debt, to finance dividend payments to
ordinary and preference shareholders and to provide financial
support to the Insurance Subsidiaries.
As at March 31, 2009, Aspen Holdings held
$19.5 million (December 31, 2008
$32.4 million) in cash and cash equivalents
which management considers sufficient to provide Aspen Holdings
liquidity at such time. Holding company liquidity depends on
dividends, capital distributions and interest payments from our
Insurance Subsidiaries.
In the three months ended March 31, 2009, Aspen U.K.
Holdings paid Aspen Holdings a dividend of $23.0 million.
In the three months ended March 31, 2008, Aspen Bermuda and
Aspen U.K. Holdings paid Aspen Holdings dividends of
$25.0 million and $15.0 million, respectively. No
other dividends were paid to Aspen Holdings in 2008. Aspen
Holdings also received interest of $9.1 million
(2008 $9.1 million) from Aspen U.K. Holdings in
respect of an intercompany loan.
The ability of our Insurance Subsidiaries to pay us dividends or
other distributions is subject to the laws and regulations
applicable to each jurisdiction, as well as the Insurance
Subsidiaries need to maintain capital requirements
adequate to maintain their insurance and reinsurance operations
and their
43
financial strength ratings issued by independent rating
agencies. For a discussion of the various restrictions on our
ability and our Insurance Subsidiaries ability to pay
dividends, see Part I, Item 1
Business Regulatory Matters in our 2008
Annual Report on
Form 10-K
filed with the United States Securities and Exchange Commission.
Also for a more detailed discussion of our Insurance
Subsidiaries ability to pay dividends see Note 14 of
our annual financial statements in our 2008 Annual Report on
Form 10-K
filed with the United States Securities and Exchange Commission.
Insurance subsidiaries. As of March 31,
2009, the Insurance Subsidiaries held approximately
$893.7 million (December 31, 2008
$777.2 million) in cash and short-term investments that are
readily realizable securities. Management monitors the value,
currency and duration of cash and investments held by its
Insurance Subsidiaries to ensure that they are able to meet
their insurance and other liabilities as they become due and was
satisfied that there was a comfortable margin of liquidity as at
March 31, 2009 and for the foreseeable future.
On an ongoing basis, our Insurance Subsidiaries sources of
funds primarily consist of premiums written, investment income
and proceeds from sales and redemptions of investments.
Cash is used primarily to pay reinsurance premiums, losses and
loss adjustment expenses, brokerage commissions, general and
administrative expenses, taxes, interest and dividends and to
purchase new investments.
The potential for individual large claims and for accumulations
of claims from single events means that substantial and
unpredictable payments may need to be made within relatively
short periods of time.
We manage these risks by making regular forecasts of the timing
and amount of expected cash outflows and ensuring that we
maintain sufficient balances in cash and short-term investments
to meet these estimates. Notwithstanding this policy, if our
cash flow forecast is incorrect, we could be forced to liquidate
investments prior to maturity, potentially at a significant loss.
The liquidity of our Insurance Subsidiaries is also affected by
the terms of our contractual obligations to policyholders and by
undertakings to certain regulatory authorities to facilitate the
issue of letters of credit or maintain certain balances in trust
funds for the benefit of policyholders. The following table
shows the forms of collateral or other security provided to
policyholders as at March 31, 2009 and December 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
As at
|
|
|
|
March 31, 2009
|
|
|
December 31, 2008
|
|
|
|
($ in millions except percentages)
|
|
|
Assets held in multi-beneficiary trusts
|
|
$
|
1,316.3
|
|
|
$
|
1,345.6
|
|
Assets held in single beneficiary trusts
|
|
|
53.6
|
|
|
|
54.0
|
|
Letters of credit issued under our revolving credit facilities
(1)
|
|
|
74.7
|
|
|
|
84.6
|
|
Secured letters of credit (2)
|
|
|
428.3
|
|
|
|
422.4
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,872.9
|
|
|
$
|
1,906.6
|
|
|
|
|
|
|
|
|
|
|
Total as % of cash and invested assets
|
|
|
30.9
|
%
|
|
|
33.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
These letters of credit are not
secured by cash or securities, though they are secured by a
pledge of the shares of certain of the Companys
subsidiaries under a pledge agreement.
|
|
(2)
|
|
As of March 31, 2009, the
Company had funds on deposit of $578.2 million and
£25.4 million (December 31, 2008
$604.6 million and £25.3 million) as collateral
for the secured letters of credit.
|
Funds at Lloyds. AUL operates in
Lloyds as the corporate member for Syndicate 4711.
Lloyds agrees Syndicate 4711s required capital
principally through the syndicates annual business plan.
Such capital, called Funds at Lloyds, comprises: cash,
investments and a fully collateralized letter of credit. The
amounts of cash, investments and letter of credit at
March 31, 2009 amount to $196.7 million
(December 31, 2008 $200.3 million).
44
Further information on these arrangements can be found in our
2008 Annual Report on
Form 10-K
filed with the United States Securities and Exchange Commission.
Consolidated cash flows for the three months ended
March 31, 2009. Total net cash flow from
operations from December 31, 2008 through March 31,
2009 was $194.2 million, an increase of $30.7 million
over the comparative period. The increase was due mainly to a
reduction in net claims settlements. For the three months ended
March 31, 2009, our cash flow from operations provided us
with sufficient liquidity to meet our operating requirements. On
February 27, 2009, we paid a dividend of $0.15 per ordinary
share to shareholders of record on February 16, 2009. On
April 1, 2009, dividends totaling $3.2 million on our
Perpetual Preferred Income Equity Replacement Securities
(Perpetual PIERS) were paid to our dividend
disbursing agent, for payment to our Perpetual PIERS holders of
record on March 15. On April 1, 2009, dividends
totaling $3.7 million on our Perpetual Non-Cumulative
Preference Shares (Perpetual Preference Shares) were
paid to our dividend disbursing agent, for payment to our
Perpetual Preference Share holders of record on March 15,
2009.
Credit Facility. On August 2, 2005, we
entered into a five-year $400 million revolving credit
facility pursuant to a credit agreement dated as of
August 2, 2005 (the credit facilities) by and
among the Company, certain of our direct and indirect
subsidiaries, including the Insurance Subsidiaries
(collectively, the Borrowers) the lenders party
thereto, Barclays Bank plc, as administrative agent and letter
of credit issuer, Bank of America, N.A. and Calyon, New York
Branch, as co-syndication agents, Credit Suisse, Cayman Islands
Branch and Deutsche Bank AG, New York Branch, as
co-documentation agents and The Bank of New York, as collateral
agent. On September 1, 2006, the aggregate limit available
under the credit facility was increased to $450 million.
The facility can be used by any of the Borrowers to provide
funding for our Insurance Subsidiaries, to finance the working
capital needs of the Company and our subsidiaries and for
general corporate purposes of the Company and our subsidiaries.
The revolving credit facility provides for a $250 million
sub-facility for collateralized letters of credit. The facility
will expire on August 2, 2010. As of March 31, 2009,
no borrowings were outstanding under the credit facilities,
though we had $294.3 million and $74.7 million of
outstanding collateralized and uncollateralized letters of
credit, respectively. The fees and interest rates on the loans
and the fees on the letters of credit payable by the Borrowers
increase based on the consolidated leverage ratio of the Company.
Under the credit facilities, we must maintain at all times a
consolidated tangible net worth of not less than approximately
$1.1 billion plus 50% of consolidated net income and 50% of
aggregate net cash proceeds from the issuance by the Company of
its capital stock, each as accrued from January 1, 2005. On
June 28, 2007, we amended the credit agreement to permit
dividend payments on existing and future hybrid capital
notwithstanding a default or an event of default under the
credit agreement. On April 13, 2006, the agreement was
amended to remove any downward adjustment on maintaining the
Companys consolidated tangible net worth in the event of a
net loss. The Company must also not permit its consolidated
leverage ratio of total consolidated debt to consolidated
tangible net worth to exceed 35%. In addition, the credit
facilities contain other customary affirmative and negative
covenants as well as certain customary events of default,
including with respect to a change in control. The various
affirmative and negative covenants, include, among others,
covenants that, subject to important exceptions, restrict the
ability of the Company and its subsidiaries to: create or permit
liens on assets; engage in mergers or consolidations; dispose of
assets; pay dividends or other distributions, purchase or redeem
the Companys equity securities or those of its
subsidiaries and make other restricted payments; permit the
rating of any insurance subsidiary to fall below A.M. Best
financial strength rating of B++ or Standard &
Poors (S&P) financial strength rating of
A-; make certain investments; agree with others to limit the
ability of the Companys subsidiaries to pay dividends or
other restricted payments or to make loans or transfer assets to
the Company or another of its subsidiaries. The credit
facilities also include covenants that restrict the ability of
our subsidiaries to incur indebtedness and guarantee obligations.
45
Contractual
Obligations and Commitments
The following table summarizes our contractual obligations
(other than our obligations to employees, our Perpetual PIERS
and our Perpetual Preference Shares) under long-term debt,
operating leases and reserves relating to insurance and
reinsurance contracts as of March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Later
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Years
|
|
|
Total
|
|
|
|
($ in millions)
|
|
|
Operating Lease Obligations
|
|
$
|
5.5
|
|
|
$
|
6.9
|
|
|
$
|
6.5
|
|
|
$
|
5.7
|
|
|
$
|
5.7
|
|
|
$
|
24.2
|
|
|
$
|
54.5
|
|
Long-Term Debt Obligations (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
249.6
|
|
|
$
|
249.6
|
|
Reserves for Losses and loss adjustment expenses (2)
|
|
$
|
682.6
|
|
|
$
|
642.0
|
|
|
$
|
421.0
|
|
|
$
|
305.9
|
|
|
$
|
229.9
|
|
|
$
|
812.8
|
|
|
$
|
3,094.2
|
|
|
|
|
(1)
|
|
The long-term debt obligations
disclosed above do not include the $15 million annual
interest payments on our outstanding senior notes.
|
|
(2)
|
|
In estimating the time intervals
into which payments of our reserves for losses and loss
adjustment expenses fall, as set out above, we have utilized
actuarially assessed payment patterns. By the nature of the
insurance and reinsurance contracts under which these
liabilities are assumed, there can be no certainty that actual
payments will fall in the periods shown and there could be a
material acceleration or deceleration of claims payments
depending on factors outside our control. This uncertainty is
heightened by the short time in which we have operated, thereby
providing limited Company-specific claims loss payment patterns.
The total amount of payments in respect of our reserves, as well
as the timing of such payments, may differ materially from our
current estimates for the reasons set out above under
Critical Accounting Policies-Reserves for
Losses and Loss Expenses.
|
Further information on operating leases is given in our 2008
Annual Report on
Form 10-K
filed with the United States Securities and Exchange Commission.
For a discussion of derivative instruments we have entered into,
please see Note 7 to our unaudited financial statements for
the three months ended March 31, 2009 included elsewhere in
this report.
Off-Balance
Sheet Arrangements
Ajax Re is a variable interest entity under the provisions of
FASB interpretation No. 46(R). We have a variable interest
in the entity, however we are not the primary beneficiary of the
entity and therefore we are not required to consolidate its
results into our consolidated financial statements. For further
details on the Ajax Re transactions please see Note 6 to
the unaudited financial statements for the three months ended
March 31, 2009 included elsewhere in this report.
We are not party to any transaction, agreement or other
contractual arrangement to which an affiliated entity
unconsolidated with us is a party, other than that noted above
with Ajax Re, that management believes is reasonably likely to
have a current or future effect on our financial condition,
revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors.
Effects
of Inflation
Inflation may have a material effect on our consolidated results
of operations by its effect on interest rates and on the cost of
settling claims. The potential exists, after a catastrophe or
other large property loss, for the development of inflationary
pressures in a local economy as the demand for services such as
construction typically surges. We believe this had an impact on
the cost of claims arising from the 2005 hurricanes. The cost of
settling claims may also be increased by global commodity price
inflation. We seek to take both these factors into account when
setting reserves for any events where we think they may be
material.
46
Our calculation of reserves for losses and loss expenses in
respect of casualty business includes assumptions about future
payments for settlement of claims and claims-handling expenses,
such as medical treatments and litigation costs. We write
casualty business in the United States, the United Kingdom and
Australia and certain other territories, where claims inflation
has in many years run at higher rates than general inflation. To
the extent inflation causes these costs to increase above
reserves established for these claims, we will be required to
increase our loss reserves with a corresponding reduction in
earnings. The actual effects of inflation on our results cannot
be accurately known until claims are ultimately settled.
In addition to general price inflation we are exposed to a
persisting long-term upwards trend in the cost of judicial
awards for damages. We seek to take this into account in our
pricing and reserving of casualty business.
We also seek to take into account the projected impact of
inflation on the likely actions of central banks in the setting
of short-term interest rates and consequent effects on the
yields and prices of fixed interest securities. As of May 2009,
we consider that although inflation is currently low, in the
medium-term there is a risk that inflation, interest rates and
bond yields will rise with the result that the market value of
certain of our fixed interest investments may reduce.
Cautionary
Statement Regarding Forward-Looking Statements
This
Form 10-Q
contains, and the Company may from time to time make other
verbal or written, forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended
(the Securities Act), and Section 21E of the
Securities Exchange Act of 1934, as amended, that involve risks
and uncertainties, including statements regarding our capital
needs, business strategy, expectations and intentions.
Statements that use the terms believe, do not
believe, anticipate, expect,
plan, estimate, project,
seek, will, may,
aim, continue, intend,
guidance and similar expressions are intended to
identify forward-looking statements. These statements reflect
our current views with respect to future events and because our
business is subject to numerous risks, uncertainties and other
factors, our actual results could differ materially from those
anticipated in the forward-looking statements. The risks,
uncertainties and other factors set forth in the Companys
2008 Annual Report on
Form 10-K
filed with the Securities and Exchange Commission and other
cautionary statements made in this report, as well as the
following factors, should be read and understood as being
applicable to all related forward-looking statements wherever
they appear in this report.
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. We believe
that these factors include, but are not limited to, the
following:
|
|
|
|
|
the continuing and uncertain impact of the current depressed
credit environment, the banking crises and economic recessions
in many of the countries in which we operate and of the measures
being taken by governments to counter these issues;
|
|
|
|
the risk of a material decline in the value or liquidity of all
or parts of our investment portfolio;
|
|
|
|
changes in insurance and reinsurance market conditions;
|
|
|
|
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;
|
|
|
|
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;
|
|
|
|
increased counterparty risk due to the impairment of financial
institutions;
|
|
|
|
changes in the total industry losses, or our share of total
industry losses, resulting from past events such as Hurricanes
Ike and Gustav 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
|
47
|
|
|
|
|
generated by modeling techniques, changes in rulings on flood
damage or other exclusions as a result of prevailing lawsuits
and case law, any changes in our reinsurers credit quality
and the amount and timing of reinsurance recoverables;
|
|
|
|
|
|
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
(including economic and political risks) catastrophic events,
than our underwriting, reserving, reinsurance purchasing 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 our loss limitation methods;
|
|
|
|
changes in the availability, cost or quality of reinsurance or
retrocessional coverage;
|
|
|
|
the reliability of, and changes in assumptions to, natural and
man-made catastrophe pricing, accumulation and estimated loss
models;
|
|
|
|
loss of key personnel;
|
|
|
|
a decline in our operating subsidiaries ratings with
S&P, A.M. Best or Moodys Investor Service;
|
|
|
|
changes in general economic conditions, including inflation,
foreign currency exchange rates, interest rates and other
factors that could affect our investment portfolio;
|
|
|
|
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;
|
|
|
|
decreased demand for our insurance or reinsurance products and
cyclical changes in the insurance and reinsurance sectors;
|
|
|
|
changes in government regulations or tax laws in jurisdictions
where we conduct business; and
|
|
|
|
Aspen Holdings or Aspen Bermuda becoming subject to income taxes
in the United States or the United Kingdom.
|
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 estimates, there can be no assurance that our ultimate
losses will remain within the stated amounts.
The foregoing review of important factors should not be
construed as exhaustive and should be read in conjunction with
the other cautionary statements that are included in this
report. We undertake no obligation to publicly update or review
any forward-looking statement, whether as a result of new
information, future developments or otherwise or disclose any
difference between our actual results and those reflected in
such statements.
If one or more of these or other risks or uncertainties
materialize, or if our underlying assumptions prove to be
incorrect, actual results may vary materially from what we
projected. Any forward-looking statements you read in this
report reflect our current views with respect to future events
and are subject to these and other risks, uncertainties and
assumptions relating to our operations, results of operations,
growth strategy and liquidity. All subsequent written and oral
forward-looking statements attributable to us or individuals
acting on our behalf are expressly qualified in their entirety
by the points made above. You should specifically consider the
factors identified in this report which could cause actual
results to differ before making an investment decision.
48
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
Interest rate risk. Our investment portfolio
consists primarily of fixed income securities. Accordingly, our
primary market risk exposure is to changes in interest rates.
Fluctuations in interest rates have a direct impact on the
market valuation of these securities. As interest rates rise,
the market value of our fixed-income portfolio falls, and the
converse is also true. Our strategy for managing interest rate
risk includes maintaining a high quality portfolio with a
relatively short duration to reduce the effect of interest rate
changes on book value.
As at March 31, 2009, our fixed income portfolio had an
approximate duration of 2.9 years. The table below depicts
interest rate change scenarios and the effect on our
interest-rate sensitive invested assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Changes in Interest Rates on Portfolio Given a
Parallel Shift in the Yield Curve
|
|
Movement in Rates in Basis Points
|
|
-100
|
|
|
-50
|
|
|
0
|
|
|
50
|
|
|
100
|
|
|
|
($ in millions, except percentages)
|
|
|
Market value $ in millions
|
|
$
|
5,001.8
|
|
|
$
|
4,932.9
|
|
|
$
|
4,858.4
|
|
|
$
|
4,781.8
|
|
|
$
|
4,703.8
|
|
Gain/(loss) $ in millions
|
|
|
143.4
|
|
|
|
74.5
|
|
|
|
0.0
|
|
|
|
(76.6
|
)
|
|
|
(154.6
|
)
|
Percentage of portfolio
|
|
|
2.95
|
%
|
|
|
1.53
|
%
|
|
|
0.00
|
%
|
|
|
(1.58
|
)%
|
|
|
(3.18
|
)%
|
Equity risk. We have invested in two funds of
hedge funds with an estimated fair value of $290.9 million
at March 31, 2009. These investments comprise 4.8% of our
total of cash and cash equivalents and invested assets as at
that date. These funds of hedge funds are structured to have low
volatility and limited correlation with traditional fixed income
markets. The nature of the underlying hedge funds consists of
diverse strategies and securities.
To the extent the underlying hedge funds have equity positions
and are market neutral, we are exposed to losses from changes in
prices of those positions; to the extent the underlying hedge
funds have net long or net short equity positions, we are
exposed to losses that are more correlated to changes in equity
markets in general. In February 2009, we gave notice to redeem
our remaining investments in funds of hedge funds in 2009, which
would reduce our exposure to equity risk. The earliest date at
which these notices will take effect is June 30, 2009 and
we will remain exposed to changes in the net asset value of the
funds until at least that date.
Foreign currency risk. Our reporting currency
is the U.S. Dollar. The functional currencies of our
segments are U.S. Dollars, British Pounds, Euros, Swiss
Francs, Australian Dollars and Singaporean Dollars. As of
March 31, 2009, approximately 84% of our cash, cash
equivalents and investments were held in U.S. Dollars,
approximately 9% were in British Pounds and approximately 7%
were in other currencies. For the three months ended
March 31, 2009, approximately 21.6% of our gross premiums
were written in currencies other than the U.S. Dollar and
the British Pound and we expect that a similar proportion will
be written in currencies other than the U.S. Dollar and the
British Pound in the remainder of 2009. Other foreign currency
amounts are re-measured to the appropriate functional currency
and the resulting foreign exchange gains or losses are reflected
in the statement of operations. Functional currency amounts of
assets and liabilities are then translated into
U.S. Dollars. The unrealized gain or loss from this
translation, net of tax, is recorded as part of
shareholders equity. The change in unrealized foreign
currency translation gain or loss during the period, net of tax,
is a component of comprehensive income. Both the re-measurement
and translation are calculated using current exchange rates for
the balance sheets and average exchange rates for the statement
of operations. We may experience exchange losses to the extent
our foreign currency exposure is not hedged, which in turn would
adversely affect our results of operations and financial
condition. Management estimates that a 10% change in the
exchange rate between British Pounds and U.S. Dollars as at
March 31, 2009, would have impacted reported net
comprehensive income by approximately $16.5 million for the
three months ended March 31, 2009.
We manage our foreign currency risk by seeking to match our
liabilities under insurance and reinsurance policies that are
payable in foreign currencies with investments that are
denominated in these
49
currencies. This may involve the use of forward exchange
contracts from time to time. A forward exchange contract
involves an obligation to purchase or sell a specified currency
at a future date at a price set at the time of the contract.
Foreign currency exchange contracts will not eliminate
fluctuations in the value of our assets and liabilities
denominated in foreign currencies, but rather allows us to
establish a rate of exchange for a future point in time. All
realized gains and losses on foreign exchange forward contracts
are recognized in the Statements of Operations. There were no
outstanding contracts at March 31, 2009 or March 31,
2008.
Credit risk. We have exposure to credit risk
primarily as a holder of fixed income securities. Our risk
management strategy and investment policy is to invest in debt
instruments of high credit quality issuers and to limit the
amount of credit exposure with respect to particular ratings
categories, business sectors and any one issuer. As at
March 31, 2009 and December 31, 2008, the average
rating of fixed income securities in our investment portfolio
was AAA.
In addition, we are exposed to the credit risk of our insurance
and reinsurance brokers to whom we make claims payments for our
policyholders, as well as to the credit risk of our reinsurers
and retrocessionaires who assume business from us. Other than
fully collateralized reinsurance the substantial majority of our
reinsurers have a rating of A (Excellent), the third
highest of fifteen rating levels, or better by A.M. Best
and the minimum rating of any of our material reinsurers is
A− (Excellent), the fourth highest of fifteen
rating levels, by A.M. Best.
We have also entered into a credit insurance contract which,
subject to its terms, insures us against losses due to the
inability of one or more of our reinsurance counterparties to
meet their financial obligations to the Company. Payments are
made on a quarterly basis throughout the period of the contract
based on the aggregate limit, which was set initially at
$477 million but is subject to adjustment. See Note 6
to the unaudited financial statements for the three months ended
March 31, 2009 above.
The table below shows our reinsurance recoverables as of
March 31, 2009 and December 31, 2008, and our
reinsurers ratings.
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
As at
|
|
A.M. Best
|
|
March 31, 2009
|
|
|
December 31, 2008
|
|
|
|
($ in millions)
|
|
|
($ in millions)
|
|
|
A++
|
|
|
16.1
|
|
|
|
15.9
|
|
A+
|
|
|
25.8
|
|
|
|
69.5
|
|
A
|
|
|
215.0
|
|
|
|
160.8
|
|
A-
|
|
|
29.0
|
|
|
|
28.6
|
|
Fully collateralized
|
|
|
2.5
|
|
|
|
2.5
|
|
Not rated
|
|
|
9.5
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
297.9
|
|
|
|
283.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 4.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
The Company, under the supervision and with the participation of
the Companys management, including the Companys
Chief Executive Officer and Chief Financial Officer, has
evaluated the design and operation of the Companys
disclosure controls and procedures as of the end of the period
of this report. Our management does not expect that our
disclosure controls or our internal controls will prevent all
errors and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits
of controls must be considered relative to their costs. As a
result of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the
Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty,
and that breakdowns can occur because of simple error or
mistake.
50
Additionally, controls can be circumvented by the individual
acts of some persons or by collusion of two or more people. The
design of any system of controls also is based in part upon
certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in
achieving its stated goals under all potential future
conditions; over time, controls may become inadequate because of
changes in conditions, or the degree of compliance with the
policies or procedures may deteriorate. As a result of the
inherent limitations in a cost-effective control system,
misstatement due to error or fraud may occur and not be
detected. Accordingly, our disclosure controls and procedures
are designed to provide reasonable, not absolute, assurance that
the disclosure requirements are met. Based on the evaluation of
the disclosure controls and procedures, the Chief Executive
Officer and Chief Financial Officer have concluded that the
Companys disclosure controls and procedures were effective
in ensuring that information required to be disclosed in the
reports filed or submitted to the Commission under the Exchange
Act by the Company is recorded, processed, summarized and
reported in a timely fashion, and is accumulated and
communicated to management, including the Companys Chief
Executive Officer and Chief Financial Officer, to allow timely
decisions regarding required disclosure.
Changes
in Internal Control over Financial Reporting
The Companys management has performed an evaluation, with
the participation of the Companys Chief Executive Officer
and the Companys Chief Financial Officer, of changes in
the Companys internal control over financial reporting
that occurred during the quarter ended March 31, 2009.
Based upon that evaluation, the Companys management is not
aware of any change in its internal control over financial
reporting that occurred during the quarter ended March 31,
2009 that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over
financial reporting.
51
PART II
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings
|
Similar to the rest of the insurance and reinsurance industry,
we are subject to litigation and arbitration in the ordinary
course of business. We are not currently involved in any
material pending litigation or arbitration proceedings.
There have been no significant changes in the Companys
risk factors as discussed in the Companys Annual Report on
Form 10-K
for the year ended December 31, 2008. However, also please
refer to the Cautionary Statement Regarding
Forward-Looking Statements provided elsewhere in this
report.
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
None.
|
|
Item 3.
|
Defaults
Upon Senior Securities
|
None.
|
|
Item 4.
|
Submissions
of Matters to a Vote of Security Holders
|
None.
|
|
Item 5.
|
Other
Information
|
None.
(a) The following sets forth those exhibits filed pursuant
to Item 601 of
Regulation S-K:
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
31
|
.1
|
|
Officer Certification of Christopher OKane, Chief
Executive Officer of Aspen Insurance Holdings Limited, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002, filed with this report.
|
|
31
|
.2
|
|
Officer Certification of Richard Houghton, Chief Financial
Officer of Aspen Insurance Holdings Limited, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002, filed
with this report.
|
|
32
|
.1
|
|
Officer Certification of Christopher OKane, Chief
Executive Officer of Aspen Insurance Holdings Limited, and
Richard Houghton, Chief Financial Officer of Aspen Insurance
Holdings Limited, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, submitted with this report.
|
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ASPEN INSURANCE HOLDINGS LIMITED
(Registrant)
|
|
|
Date: May 8, 2009
|
|
By: /s/ Christopher
OKane
Christopher
OKane
Chief Executive Officer
|
|
|
|
Date: May 8, 2009
|
|
By: /s/ Richard
Houghton
Richard
Houghton
Chief Financial Officer
|
53