Aspen Boosts 4Q Profit While Cutting Exposure to D&O, Financial Lines

Aspen Insurance Holdings Ltd. posted higher fourth-quarter net income as premiums fell as the group limited its exposure to classes such as directors and officers and financial lines.

Source: AM Best | Published on April 2, 2024

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Aspen Insurance Holdings Ltd. posted higher fourth-quarter net income as premiums fell as the group limited its exposure to classes such as directors and officers and financial lines.

Fourth-quarter net income available to ordinary shareholders rose to $215.6 million from $152.6 million. Gross written premiums fell to $859.7 million from $876.9 million. The combined ratio worsened to 89.4 from 84.7.

Net income for 2023 rose to $484.8 million from $6.5 million the previous year.

The group’s annualized operating return on average equity of 20.2% was among significant improvements in 2023 over the prior year, Mark Cloutier, executive chairman and chief executive officer, said in a statement.

“It is pleasing to note the quality of earnings we are now generating, with meaningful contributions from each of our core earning engines,
underwriting, investments and capital markets fees,” he said. “We believe we have reached a state where we are able to sustain strong (returns on equity) across
cycles through the very healthy mix in the sources of our earnings.”

In 2023, Aspen Capital Markets generated $136 million in total fee income from capital sourced across multiple lines and classes in both the insurance and reinsurance segments, he said. Cloutier also noted improved investment income of $276 million, up 47% from 2022.

In the fourth quarter, overall GWP were broadly in line with the prior year as active management of the portfolio in response to market conditions brought reductions in financial and professional insurance lines, offset by targeted growth in property/casualty lines, Aspen said.

The group recognized a deferred tax benefit of $201 million in the fourth quarter from the Bermuda government’s enactment of the Corporate Income Tax Act 2023 in December. The act will apply a 15% corporate income tax to certain Bermuda businesses in fiscal years beginning on or after Jan. 1, 2025.

The insurance segment saw lower underwriting income mainly on a $25 million expense related to a loss portfolio transfer deal that includes the impact of adverse prior-year development on 2019 and prior accident years, net of the change in the deferred gain recognized in relation to retroactive reinsurance contracts, Aspen said.

Prior-year adverse reserve development of $12 million on post-LPT years was driven mainly by adverse development in U.S. primary casualty lines as a result of strengthening of reserving assumptions due to emerging development patterns and to account for greater uncertainty around social inflation.

Aspen said active management of the portfolio resulted in the exit of certain programs that did not meet pricing expectations and the deteriorating pricing environment for directors and officers and mergers and acquisitions business, which contributed to lower GWP. This was partly offset by new construction policies in casualty lines and rate increases on renewals.

In reinsurance, GWP rose even as Aspen exited aviation, space and bloodstock, the group said.

The current year loss ratio improved, partly offset by adverse development on post-LPT prior years. Prior-year strengthening in the period was driven by development in credit and surety of $7 million and COVID-19-related losses of $4 million.

A favorable prior-years reserve development in 2022 related to large reserve releases in property-exposed classes.

In December, Aspen laid out more detail of its proposed initial public offering in a regulatory filing without providing specifics on the stock exchange to be used, the proposed amount to be raised or a time line.

The specialty insurer/reinsurer would not receive any proceeds from the sale of the ordinary shares by selling shareholders, it said in an F-1 registration statement filed with the U.S. Securities and Exchange Commission. Following the IPO, funds managed by Apollo Global Management Inc. will own an undetermined amount of shares, according to the filing.