e10vq
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 Period Ended
September 30,
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
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Not Applicable
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(State or other jurisdiction
of
incorporation or organization)
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(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 October 30, 2009, there were 83,153,623 outstanding
ordinary shares, with a par value of 0.15144558¢ per
ordinary share, outstanding.
INDEX
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Page
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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
September 30, 2009 (Unaudited) and December 31,
2008
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2
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Unaudited Condensed Consolidated Statements of
Operations, for the Three and Nine Months Ended
September 30, 2009 and 2008
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4
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Unaudited Condensed Consolidated Statements of
Changes in Shareholders Equity, for the Nine Months Ended
September 30, 2009 and 2008
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5
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Unaudited Condensed Consolidated Statements of
Comprehensive Income, for the Three and Nine Months Ended
September 30, 2009 and 2008
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6
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Unaudited Condensed Consolidated Statements of
Cash Flows, for the Nine Months Ended September 30, 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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32
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Quantitative and Qualitative Disclosures About
Market Risk
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65
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Controls and Procedures
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67
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PART II. OTHER
INFORMATION
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68
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Legal Proceedings
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68
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Risk Factors
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68
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Unregistered Sale of Equity Securities and Use of
Proceeds
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68
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Defaults Upon Senior Securities
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68
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Submission of Matters to a Vote of Security
Holders
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68
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Other Information
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68
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Exhibits
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68
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69
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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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September 30,
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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 $4,619.5 and $4,365.7)
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$
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4,838.2
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$
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4,433.1
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Fixed income maturities, trading at fair value
(amortized cost $330.5 and $Nil)
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346.1
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Other investments, equity method
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25.9
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286.9
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Short-term investments, available for sale at fair value
(amortized cost $427.6 and $224.9)
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427.6
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224.9
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Short-term investments, trading at fair value
(amortized cost $4.0 and $Nil)
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4.0
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Total investments
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5,641.8
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4,944.9
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Cash and cash equivalents
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948.8
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809.1
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Reinsurance recoverables
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Unpaid losses
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333.5
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283.3
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Ceded unearned premiums
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114.9
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46.3
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Receivables
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Underwriting premiums
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755.7
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677.5
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Other
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65.5
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46.5
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Funds withheld
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85.2
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85.0
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Deferred policy acquisition costs
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180.1
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149.7
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Derivatives at fair value
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3.6
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11.8
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Receivable for securities sold
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47.3
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177.2
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Office properties and equipment
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27.6
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33.8
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Other assets
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14.8
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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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8,227.0
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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
($ in millions, except share and per share amounts)
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As at
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As at
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September 30,
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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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3,314.0
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$
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3,070.3
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Unearned premiums
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1,006.3
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810.7
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Total insurance reserves
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4,320.3
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3,881.0
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Payables
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Reinsurance premiums
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121.3
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103.0
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Deferred taxation
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89.7
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63.6
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Current taxation
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22.4
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9.0
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Accrued expenses and other payables
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205.6
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192.5
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Liabilities under derivative contracts
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6.0
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11.1
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Total payables
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445.0
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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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5,014.9
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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: 83,094,615 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
|
|
|
1,760.6
|
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|
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1,754.8
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Retained earnings
|
|
|
1,176.8
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|
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884.7
|
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Accumulated other comprehensive income, net of taxes
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274.6
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139.5
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Total shareholders equity
|
|
|
3,212.1
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|
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2,779.1
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|
|
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Total liabilities and shareholders equity
|
|
$
|
8,227.0
|
|
|
$
|
7,288.8
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|
|
|
|
|
|
|
|
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See accompanying notes to
unaudited condensed consolidated financial statements.
3
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Three Months Ended
|
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Nine Months Ended
|
|
|
|
September 30,
|
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September 30,
|
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|
2009
|
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|
2008
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2009
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|
|
2008
|
|
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Revenues
|
|
|
|
|
|
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|
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|
|
|
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|
|
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Net earned premiums
|
|
$
|
470.9
|
|
|
$
|
434.2
|
|
|
$
|
1,346.8
|
|
|
$
|
1,223.1
|
|
Net investment income
|
|
|
58.9
|
|
|
|
19.3
|
|
|
|
190.3
|
|
|
|
128.9
|
|
Realized and unrealized investment gains (losses)
|
|
|
14.6
|
|
|
|
(58.1
|
)
|
|
|
7.2
|
|
|
|
(56.3
|
)
|
Change in fair value of derivatives
|
|
|
(2.0
|
)
|
|
|
(0.7
|
)
|
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|
(5.9
|
)
|
|
|
(5.9
|
)
|
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|
|
|
|
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|
|
|
|
|
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Total Revenues
|
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|
542.4
|
|
|
|
394.7
|
|
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|
1,538.4
|
|
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|
1,289.8
|
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|
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|
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|
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|
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Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Losses and loss adjustment expenses
|
|
|
235.1
|
|
|
|
413.4
|
|
|
|
720.6
|
|
|
|
808.9
|
|
Policy acquisition expenses
|
|
|
79.6
|
|
|
|
70.4
|
|
|
|
239.0
|
|
|
|
211.8
|
|
Operating and administrative expenses
|
|
|
63.7
|
|
|
|
51.6
|
|
|
|
172.1
|
|
|
|
159.5
|
|
Interest on long-term debt
|
|
|
3.9
|
|
|
|
3.8
|
|
|
|
11.8
|
|
|
|
11.7
|
|
Net foreign exchange (gains) losses
|
|
|
(7.9
|
)
|
|
|
2.7
|
|
|
|
(8.7
|
)
|
|
|
3.4
|
|
Other income
|
|
|
(3.1
|
)
|
|
|
(1.3
|
)
|
|
|
(5.0
|
)
|
|
|
(4.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Expenses
|
|
|
371.3
|
|
|
|
540.6
|
|
|
|
1,129.8
|
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1,191.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Income (loss) from operations before income tax
|
|
|
171.1
|
|
|
|
(145.9
|
)
|
|
|
408.6
|
|
|
|
98.8
|
|
Income tax (expense) recovery
|
|
|
(25.3
|
)
|
|
|
19.8
|
|
|
|
(61.0
|
)
|
|
|
(16.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
145.8
|
|
|
$
|
(126.1
|
)
|
|
$
|
347.6
|
|
|
$
|
82.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Per Share Data
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|
|
|
|
|
|
|
|
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|
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|
Weighted average number of ordinary shares and share equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
83,056,587
|
|
|
|
81,375,969
|
|
|
|
82,519,807
|
|
|
|
83,458,963
|
|
Diluted
|
|
|
85,993,289
|
|
|
|
81,375,969
|
|
|
|
84,952,620
|
|
|
|
86,113,072
|
|
Basic earnings per ordinary share adjusted for preference share
dividend
|
|
$
|
1.69
|
|
|
$
|
(1.63
|
)
|
|
$
|
4.37
|
|
|
$
|
0.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per ordinary share adjusted for preference
share dividend
|
|
$
|
1.63
|
|
|
$
|
(1.63
|
)
|
|
$
|
4.25
|
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The basic and diluted number of ordinary shares for the three
months ended September 30, 2008 are the same, as the
inclusion of dilutive securities would be anti-dilutive.
See accompanying notes to
unaudited condensed consolidated financial statements.
4
|
|
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|
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|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Ordinary shares
|
|
|
|
|
|
|
|
|
Beginning and end of period
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
Preference shares
|
|
|
|
|
|
|
|
|
Beginning and end of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
1,754.8
|
|
|
|
1,846.1
|
|
New shares issued
|
|
|
25.1
|
|
|
|
|
|
Ordinary shares repurchased and cancelled
|
|
|
|
|
|
|
(100.2
|
)
|
Preference shares repurchased and cancelled
|
|
|
(34.1
|
)
|
|
|
|
|
Share-based compensation
|
|
|
14.8
|
|
|
|
8.2
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
|
1,760.6
|
|
|
|
1,754.1
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
884.7
|
|
|
|
858.8
|
|
Net income for the period
|
|
|
347.6
|
|
|
|
82.0
|
|
Dividends on ordinary and preference shares
|
|
|
(55.5
|
)
|
|
|
(58.7
|
)
|
|
|
|
|
|
|
|
|
|
End of period
|
|
|
1,176.8
|
|
|
|
882.1
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
Cumulative foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
87.6
|
|
|
|
80.2
|
|
Change for the period
|
|
|
5.7
|
|
|
|
(15.0
|
)
|
|
|
|
|
|
|
|
|
|
End of period
|
|
|
93.3
|
|
|
|
65.2
|
|
|
|
|
|
|
|
|
|
|
Loss on derivatives
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
(1.4
|
)
|
|
|
(1.6
|
)
|
Reclassification to interest payable
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
|
(1.3
|
)
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
|
|
|
Unrealized appreciation/(depreciation) on investments
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
53.3
|
|
|
|
34.0
|
|
Change for the period
|
|
|
129.3
|
|
|
|
(96.4
|
)
|
|
|
|
|
|
|
|
|
|
End of period
|
|
|
182.6
|
|
|
|
(62.4
|
)
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income
|
|
|
274.6
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders equity
|
|
$
|
3,212.1
|
|
|
$
|
2,637.6
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to
unaudited condensed consolidated financial statements.
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Net income
|
|
$
|
145.8
|
|
|
$
|
(126.1
|
)
|
|
$
|
347.6
|
|
|
$
|
82.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for net realized losses (gains) on
investments included in net income
|
|
|
4.6
|
|
|
|
1.1
|
|
|
|
15.0
|
|
|
|
(2.7
|
)
|
Change in net unrealized gains and losses on investments
|
|
|
86.1
|
|
|
|
(43.8
|
)
|
|
|
114.3
|
|
|
|
(93.7
|
)
|
Amortization of loss on derivative contract
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Change in foreign currency translation adjustment
|
|
|
14.8
|
|
|
|
(29.2
|
)
|
|
|
5.7
|
|
|
|
(15.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income
|
|
|
105.5
|
|
|
|
(71.9
|
)
|
|
|
135.1
|
|
|
|
(111.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
|
$
|
251.3
|
|
|
$
|
(198.0
|
)
|
|
$
|
482.7
|
|
|
$
|
(29.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to
unaudited condensed consolidated financial statements
6
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows provided by operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
347.6
|
|
|
$
|
82.0
|
|
Adjustments to reconcile net income to net cash flows from
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
7.2
|
|
|
|
10.3
|
|
Share-based compensation expense
|
|
|
14.8
|
|
|
|
8.2
|
|
Net realized and unrealized (gains) losses
|
|
|
(7.2
|
)
|
|
|
56.3
|
|
Net realized (gains) losses included in net investment income
|
|
|
(20.2
|
)
|
|
|
48.3
|
|
Loss on derivative contracts
|
|
|
0.1
|
|
|
|
0.1
|
|
Changes in:
|
|
|
|
|
|
|
|
|
Insurance reserves:
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses
|
|
|
154.5
|
|
|
|
219.2
|
|
Unearned premiums
|
|
|
195.6
|
|
|
|
183.2
|
|
Reinsurance recoverables:
|
|
|
|
|
|
|
|
|
Unpaid losses
|
|
|
(50.6
|
)
|
|
|
63.2
|
|
Ceded unearned premiums
|
|
|
(68.6
|
)
|
|
|
(0.5
|
)
|
Accrued investment income and other receivables
|
|
|
(19.0
|
)
|
|
|
(42.8
|
)
|
Deferred policy acquisition costs
|
|
|
(30.4
|
)
|
|
|
(32.8
|
)
|
Reinsurance premiums payables
|
|
|
15.8
|
|
|
|
16.8
|
|
Premiums receivable
|
|
|
(106.7
|
)
|
|
|
(143.9
|
)
|
Funds withheld
|
|
|
(0.2
|
)
|
|
|
27.1
|
|
Deferred taxes
|
|
|
26.1
|
|
|
|
(24.1
|
)
|
Income tax payable
|
|
|
13.4
|
|
|
|
(60.5
|
)
|
Accrued expenses and other payables
|
|
|
13.1
|
|
|
|
36.1
|
|
Fair value of derivatives and settlement of liabilities under
derivatives
|
|
|
3.1
|
|
|
|
4.1
|
|
Other assets
|
|
|
0.7
|
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
489.1
|
|
|
$
|
444.3
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to
unaudited condensed consolidated financial statements
7
ASPEN
INSURANCE HOLDINGS LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows used in investing activities:
|
|
|
|
|
|
|
|
|
Purchases of fixed maturities
|
|
$
|
(2,064.7
|
)
|
|
$
|
(1,911.3
|
)
|
Proceeds (purchases) of other investments
|
|
|
412.2
|
|
|
|
|
|
Proceeds from sales and maturities of fixed maturities
|
|
|
1,536.6
|
|
|
|
1,642.6
|
|
Net (purchases)/sales of short-term investments
|
|
|
(217.0
|
)
|
|
|
70.1
|
|
Purchase of equipment
|
|
|
(3.7
|
)
|
|
|
(11.1
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(336.6
|
)
|
|
|
(209.7
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows used in financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of ordinary shares, net of issuance
costs
|
|
|
25.1
|
|
|
|
|
|
Ordinary shares repurchased
|
|
|
|
|
|
|
(100.2
|
)
|
Costs from the redemption of preference shares
|
|
|
(34.1
|
)
|
|
|
|
|
Dividends paid on ordinary shares
|
|
|
(37.2
|
)
|
|
|
(37.9
|
)
|
Dividends paid on preference shares
|
|
|
(18.3
|
)
|
|
|
(20.8
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(64.5
|
)
|
|
|
(158.9
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate movements on cash and cash equivalents
|
|
|
51.7
|
|
|
|
14.5
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease) in cash and cash equivalents
|
|
|
139.7
|
|
|
|
90.2
|
|
Cash and cash equivalents at beginning of period
|
|
|
809.1
|
|
|
|
651.4
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
948.8
|
|
|
$
|
741.6
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the period for income tax
|
|
|
35.8
|
|
|
|
78.9
|
|
Cash paid during the period for interest
|
|
|
15.0
|
|
|
|
15.0
|
|
See accompanying notes to
unaudited condensed consolidated financial statements
8
|
|
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 and nine months ended
September 30, 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, the value of investments,
reinsurance recoverables and the fair value of derivatives. 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 June 2009, the Financial Accounting Standards Board
(FASB) issued Statement No. 168 The
FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles a
replacement of FASB Statement No. 162 (the
Codification). The Codification establishes the FASB
Accounting Standards Codification (ASC) as the
source of authoritative accounting principles to be applied in
preparation of financial statements in accordance with GAAP. The
Codification supersedes all existing U.S. accounting
standards; all other accounting literature not included in the
Codification (other than Securities and Exchange Commission
guidance for publicly traded companies) is considered
non-authoritative. The Codification was effective on a
prospective basis for interim and annual reporting periods
ending after September 15, 2009. The adoption of the
Codification changed the Companys references to
U.S. GAAP accounting standards but did not impact the
consolidated results of operations, financial condition or cash
flows for the nine months ended September 30, 2009.
In May 2009, the FASB issued new guidance for accounting for
subsequent events. The new guidance which is now part of ASC 855
Subsequent Events, requires disclosures of the date
through which subsequent events have been evaluated and whether
that date is the date the financial statements were issued or
the date the financial statements were available to be issued.
Additionally, the guidance replaces Type 1 and Type 2 subsequent
events with recognized and
9
non-recognized subsequent events. The guidance requires
prospective application and is effective for interim and annual
periods ending after June 15, 2009. The adoption of the new
guidance requires additional disclosures and has not had an
impact on the consolidated results of operations, financial
condition or cash flows for the nine months ended
September 30, 2009.
In April 2009, the FASB issued new guidance related to the
disclosure of the fair value of financial instruments. The new
guidance, which is now part of ASC 825 Financial
Instruments, requires disclosures about the fair value of
financial instruments in interim financial statements as well as
in annual financial statements. Additionally, the new guidance
requires disclosure of the methods and significant assumptions
used to estimate the fair value of financial instruments on an
interim basis as well as changes of the methods and significant
assumptions from prior periods. It does not change the
accounting treatment for these financial instruments. The
provisions of the new guidance have not had an impact on the
consolidated financial statements for the three or nine months
ended September 30, 2009.
In April 2009, the FASB issued new guidance for determining when
a market is not orderly and for estimating fair market value
when the volume or level of activity for the asset or liability
has significantly decreased. The new guidance, which is now part
of ASC 820 Fair Value Measurements and Disclosures, was
effective for interim periods ending after June 15, 2009.
The adoption of the new guidance has not had an impact on the
consolidated financial statements for the three or nine months
ended September 30, 2009.
In April 2009, the FASB issued new guidance for the accounting
for
other-than-temporary
impairments. Under the new guidance, which is now part of ASC
320 Investments Debt and Equity Securities,
debt securities where the amortized cost is greater than the
fair market value shall be assessed to determine 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. The adoption of the new guidance has not
had a material impact on the consolidated financial statements
for the three or nine months ended September 30, 2009.
In May 2008, the FASB issued new guidance for the accounting for
financial guarantee insurance contracts. Under the new guidance,
which is now part of ASC 944 Financial Services
Insurance, an insurance enterprise is required 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 guidance also clarifies recognition
and measurement 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 the new guidance has not
had an impact on the consolidated financial statements for the
three or nine months ended September 30, 2009.
In March 2008, the FASB issued new guidance on the disclosure of
derivative instruments and hedging activities. The new guidance,
which is now part of ASC 815 Derivatives and Hedging
Activities, 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 and (c) how derivative instruments and related hedged
items affect an entitys financial position, financial
performance, and cash flows. The guidance 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 the
new guidance in the first quarter of 2009. The provisions of the
new
10
guidance only required additional disclosure which did not have
an impact on the consolidated results of operations, financial
condition or cash flows.
Accounting
standards not yet adopted
In August 2009, the FASB issued new guidance for the accounting
for the fair value measurement of liabilities. The new guidance,
which is now part of ASC 820 Fair Value Measurements and
Disclosures, provides clarification that in certain
circumstances in which a quoted price in an active market for
the identical liability is not available, a company is required
to measure the fair value using one or more of the following
techniques: the quoted price of the identical liability when
traded as an asset and the quoted prices for similar
liabilities, or similar liabilities when traded as assets or
another valuation technique that is consistent with the
principles of ASC 820. The new guidance is effective for interim
and annual periods beginning after August 27, 2009. The
Company does not expect that the provisions of the new guidance
will have an impact on the Companys consolidated financial
statements.
In June 2009, the FASB issued revised guidance on the accounting
for variable interest entities. The revised guidance which was
issued as Statement No. 167, Amendments to FASB
Interpretation No. 46R has not yet been adopted
into the Codification. The revised guidance replaces the
quantitative approach previously required for determining the
primary beneficiary of a variable interest entity with an
approach focused on the power to direct activities that
significantly impact an entitys economic performance and
the obligation to absorb losses of the entity or the right to
receive benefits from the entity. It also requires ongoing
assessment of whether an enterprise is a variable interest
entity. The statement is effective for each annual reporting
period that begins after November 15, 2009. The Company is
currently evaluating the impact, if any, that the provisions of
the revised guidance will have on its consolidated financial
statements.
In June 2009, the FASB issued new guidance on the accounting for
the transfer of financial assets. The new guidance, which was
issued as Statement No. 166, Accounting For
Transfers of Financial Assets an amendment of FASB
Statement No. 140 has not yet been adopted into
the Codification. The new guidance eliminates the concept of a
qualifying special purpose entity and therefore any qualifying
special purpose entities in existence before the effective date
will need to be evaluated for consolidation. The criteria for
reporting a transfer of financial assets has also changed. The
guidance is effective on a prospective basis on January 1,
2010 and interim and annual periods thereafter. The Company does
not expect that the provisions of the new guidance will have an
impact on the Companys consolidated financial statements.
11
|
|
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 following table sets forth
the computation of basic and diluted earnings per share for the
three and nine months ended September 30, 2009 and 2008,
respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in millions, except share and per share amounts)
|
|
|
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income as reported
|
|
$
|
145.8
|
|
|
$
|
(126.1
|
)
|
|
$
|
347.6
|
|
|
$
|
82.0
|
|
Preference dividends
|
|
|
(5.6
|
)
|
|
|
(6.9
|
)
|
|
|
(18.3
|
)
|
|
|
(20.8
|
)
|
Preference stock repurchase gain
|
|
|
|
|
|
|
|
|
|
|
31.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to ordinary shareholders
|
|
|
140.2
|
|
|
|
(133.0
|
)
|
|
|
360.8
|
|
|
|
61.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to ordinary shareholders
|
|
|
140.2
|
|
|
|
(133.0
|
)
|
|
|
360.8
|
|
|
|
61.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares
|
|
|
83,056,587
|
|
|
|
81,375,969
|
|
|
|
82,519,807
|
|
|
|
83,458,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares
|
|
|
83,056,587
|
|
|
|
81,375,969
|
|
|
|
82,519,807
|
|
|
|
83,458,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average effect of dilutive securities
|
|
|
2,936,702
|
|
|
|
|
|
|
|
2,432,813
|
|
|
|
2,654,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
85,993,289
|
|
|
|
81,375,969
|
|
|
|
84,952,620
|
|
|
|
86,113,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per ordinary share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.69
|
|
|
$
|
(1.63
|
)
|
|
$
|
4.37
|
|
|
$
|
0.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.63
|
|
|
$
|
(1.63
|
)
|
|
$
|
4.25
|
|
|
$
|
0.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The basic and diluted number of shares for the three months
ended September 30, 2008 is the same as the inclusion of
dilutive securities in a loss-making period would be
anti-dilutive.
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. 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.
12
Dividends. On October 28, 2009, the
Companys Board of Directors declared the following
quarterly dividends:
|
|
|
|
|
|
|
|
|
|
|
Dividend
|
|
|
Payable on:
|
|
Record Date:
|
|
Ordinary shares
|
|
$
|
0.15
|
|
|
November 25, 2009
|
|
November 11, 2009
|
5.625% preference shares
|
|
$
|
0.703125
|
|
|
January 1, 2010
|
|
December 15, 2009
|
7.401% preference shares
|
|
$
|
0.462563
|
|
|
January 1, 2010
|
|
December 15, 2009
|
The Company has four reportable business segments: property
reinsurance; casualty reinsurance; international insurance; and
U.S. insurance. The Company has considered similarities in
economic characteristics, products, customers, distribution, and
the regulatory environment of the Companys operating
segments and quantitative thresholds to determine the
Companys reportable segments.
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 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 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 come 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 and construction, U.K.
commercial liability, excess casualty (which now includes
non-marine and transportation liability), professional
liability, marine hull, energy property damage, marine, energy
and construction liability, aviation, financial institutions,
management and technology liability, specie, 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 and excess of loss 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 principally of property and casualty insurance
written on an excess and surplus lines basis. We also write
property insurance that provides lead underwriting support to a
select group of U.S. program managers. This is referred to
as our risk solutions business.
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.
13
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
September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2009
|
|
|
|
Property
|
|
|
Casualty
|
|
|
International
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
Reinsurance
|
|
|
Reinsurance
|
|
|
Insurance
|
|
|
Insurance
|
|
|
Investments
|
|
|
Total
|
|
|
|
($ in millions, except percentages)
|
|
|
Gross written premiums
|
|
$
|
171.2
|
|
|
$
|
96.5
|
|
|
$
|
183.9
|
|
|
$
|
38.7
|
|
|
$
|
|
|
|
$
|
490.3
|
|
Net written premiums
|
|
|
163.4
|
|
|
|
98.7
|
|
|
|
170.9
|
|
|
|
29.1
|
|
|
|
|
|
|
|
462.1
|
|
Gross earned premiums
|
|
|
155.4
|
|
|
|
113.4
|
|
|
|
214.3
|
|
|
|
39.1
|
|
|
|
|
|
|
|
522.2
|
|
Net earned premiums
|
|
|
140.9
|
|
|
|
115.2
|
|
|
|
187.8
|
|
|
|
27.0
|
|
|
|
|
|
|
|
470.9
|
|
Losses and loss expenses
|
|
|
36.5
|
|
|
|
72.6
|
|
|
|
113.2
|
|
|
|
12.8
|
|
|
|
|
|
|
|
235.1
|
|
Policy acquisition expenses
|
|
|
24.4
|
|
|
|
19.2
|
|
|
|
31.0
|
|
|
|
5.0
|
|
|
|
|
|
|
|
79.6
|
|
Operating and administrative expenses
|
|
|
21.0
|
|
|
|
9.9
|
|
|
|
24.5
|
|
|
|
8.3
|
|
|
|
|
|
|
|
63.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit
|
|
|
59.0
|
|
|
|
13.5
|
|
|
|
19.1
|
|
|
|
0.9
|
|
|
|
|
|
|
|
92.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58.9
|
|
|
|
58.9
|
|
Realized investment gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.6
|
|
|
|
14.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
$
|
59.0
|
|
|
$
|
13.5
|
|
|
$
|
19.1
|
|
|
$
|
0.9
|
|
|
$
|
73.5
|
|
|
$
|
166.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.0
|
)
|
Interest on long term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.9
|
)
|
Net foreign exchange gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.9
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
171.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reserves for loss and loss adjustment expenses
|
|
$
|
375.2
|
|
|
$
|
1,467.6
|
|
|
$
|
976.0
|
|
|
$
|
161.7
|
|
|
|
|
|
|
$
|
2,980.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
|
|
25.9
|
%
|
|
|
63.0
|
%
|
|
|
60.3
|
%
|
|
|
47.4
|
%
|
|
|
|
|
|
|
49.9
|
%
|
Policy acquisition expense ratio
|
|
|
17.3
|
%
|
|
|
16.7
|
%
|
|
|
16.5
|
%
|
|
|
18.5
|
%
|
|
|
|
|
|
|
16.9
|
%
|
Operating and administrative expense ratio
|
|
|
14.9
|
%
|
|
|
8.6
|
%
|
|
|
13.0
|
%
|
|
|
30.7
|
%
|
|
|
|
|
|
|
13.5
|
%
|
Expense ratio
|
|
|
32.2
|
%
|
|
|
25.3
|
%
|
|
|
29.5
|
%
|
|
|
49.2
|
%
|
|
|
|
|
|
|
30.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
58.1
|
%
|
|
|
88.3
|
%
|
|
|
89.8
|
%
|
|
|
96.6
|
%
|
|
|
|
|
|
|
80.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2008
|
|
|
|
Property
|
|
|
Casualty
|
|
|
International
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
Reinsurance
|
|
|
Reinsurance
|
|
|
Insurance
|
|
|
Insurance
|
|
|
Investments
|
|
|
Total
|
|
|
|
($ in millions, except percentages)
|
|
|
Gross written premiums
|
|
$
|
152.8
|
|
|
$
|
79.7
|
|
|
$
|
180.8
|
|
|
$
|
28.0
|
|
|
$
|
|
|
|
$
|
441.3
|
|
Net written premiums
|
|
|
140.2
|
|
|
|
79.8
|
|
|
|
162.2
|
|
|
|
21.6
|
|
|
|
|
|
|
|
403.8
|
|
Gross earned premiums
|
|
|
152.3
|
|
|
|
113.7
|
|
|
|
185.4
|
|
|
|
31.5
|
|
|
|
|
|
|
|
482.9
|
|
Net premiums earned
|
|
|
138.8
|
|
|
|
112.9
|
|
|
|
158.6
|
|
|
|
23.9
|
|
|
|
|
|
|
|
434.2
|
|
Losses and loss expenses
|
|
|
164.6
|
|
|
|
75.9
|
|
|
|
141.8
|
|
|
|
31.1
|
|
|
|
|
|
|
|
413.4
|
|
Policy acquisition expenses
|
|
|
23.4
|
|
|
|
16.6
|
|
|
|
26.5
|
|
|
|
3.9
|
|
|
|
|
|
|
|
70.4
|
|
Operating and administrative expenses
|
|
|
14.7
|
|
|
|
9.6
|
|
|
|
21.1
|
|
|
|
6.2
|
|
|
|
|
|
|
|
51.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit/(loss)
|
|
|
(63.9
|
)
|
|
|
10.8
|
|
|
|
(30.8
|
)
|
|
|
(17.3
|
)
|
|
|
|
|
|
|
(101.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19.3
|
|
|
|
19.3
|
|
Realized investment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(58.1
|
)
|
|
|
(58.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit/(loss)
|
|
$
|
(63.9
|
)
|
|
$
|
10.8
|
|
|
$
|
(30.8
|
)
|
|
$
|
(17.3
|
)
|
|
$
|
(38.8
|
)
|
|
$
|
(140.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
Interest on long term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.8
|
)
|
Net foreign exchange gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.7
|
)
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(145.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reserves for loss and loss adjustment expenses
|
|
$
|
495.6
|
|
|
$
|
1,324.7
|
|
|
$
|
886.3
|
|
|
$
|
133.8
|
|
|
|
|
|
|
$
|
2,840.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
|
|
118.6
|
%
|
|
|
67.2
|
%
|
|
|
89.4
|
%
|
|
|
130.1
|
%
|
|
|
|
|
|
|
95.2
|
%
|
Policy acquisition expense ratio
|
|
|
16.8
|
%
|
|
|
14.7
|
%
|
|
|
16.7
|
%
|
|
|
16.3
|
%
|
|
|
|
|
|
|
16.2
|
%
|
Operating and administrative expense ratio
|
|
|
10.6
|
%
|
|
|
8.5
|
%
|
|
|
13.3
|
%
|
|
|
25.7
|
%
|
|
|
|
|
|
|
11.9
|
%
|
Expense ratio
|
|
|
27.4
|
%
|
|
|
23.2
|
%
|
|
|
30.0
|
%
|
|
|
42.0
|
%
|
|
|
|
|
|
|
28.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
146.0
|
%
|
|
|
90.4
|
%
|
|
|
119.4
|
%
|
|
|
172.1
|
%
|
|
|
|
|
|
|
123.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
The following table provides a summary of gross and net written
and earned premiums, underwriting results, ratios and reserves
for each of our business segments for the nine months ended
September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009
|
|
|
|
Property
|
|
|
Casualty
|
|
|
International
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
Reinsurance
|
|
|
Reinsurance
|
|
|
Insurance
|
|
|
Insurance
|
|
|
Investments
|
|
|
Total
|
|
|
|
($ in millions, except percentages)
|
|
|
Gross written premiums
|
|
$
|
571.7
|
|
|
$
|
342.3
|
|
|
$
|
617.3
|
|
|
$
|
130.1
|
|
|
$
|
|
|
|
$
|
1,661.4
|
|
Net written premiums
|
|
|
523.9
|
|
|
|
343.5
|
|
|
|
495.8
|
|
|
|
90.2
|
|
|
|
|
|
|
|
1,453.4
|
|
Gross earned premiums
|
|
|
451.5
|
|
|
|
324.7
|
|
|
|
622.4
|
|
|
|
108.1
|
|
|
|
|
|
|
|
1,506.7
|
|
Net earned premiums
|
|
|
412.0
|
|
|
|
325.9
|
|
|
|
533.0
|
|
|
|
75.9
|
|
|
|
|
|
|
|
1,346.8
|
|
Losses and loss expenses
|
|
|
97.3
|
|
|
|
213.8
|
|
|
|
357.4
|
|
|
|
52.1
|
|
|
|
|
|
|
|
720.6
|
|
Policy acquisition expenses
|
|
|
77.1
|
|
|
|
61.1
|
|
|
|
88.9
|
|
|
|
11.9
|
|
|
|
|
|
|
|
239.0
|
|
Operating and administrative expenses
|
|
|
51.3
|
|
|
|
30.0
|
|
|
|
65.9
|
|
|
|
24.9
|
|
|
|
|
|
|
|
172.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit/(loss)
|
|
|
186.3
|
|
|
|
21.0
|
|
|
|
20.8
|
|
|
|
(13.0
|
)
|
|
|
|
|
|
|
215.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
190.3
|
|
|
|
190.3
|
|
Realized investment gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.2
|
|
|
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit/(loss)
|
|
$
|
186.3
|
|
|
$
|
21.0
|
|
|
$
|
20.8
|
|
|
$
|
(13.0
|
)
|
|
$
|
197.5
|
|
|
$
|
412.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.9
|
)
|
Interest on long term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11.8
|
)
|
Net foreign exchange gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.7
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
408.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reserves for loss and loss adjustment expenses
|
|
$
|
375.2
|
|
|
$
|
1,467.6
|
|
|
$
|
976.0
|
|
|
$
|
161.7
|
|
|
|
|
|
|
$
|
2,980.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
|
|
23.6
|
%
|
|
|
65.6
|
%
|
|
|
67.1
|
%
|
|
|
68.6
|
%
|
|
|
|
|
|
|
53.5
|
%
|
Policy acquisition expense ratio
|
|
|
18.7
|
%
|
|
|
18.7
|
%
|
|
|
16.7
|
%
|
|
|
15.7
|
%
|
|
|
|
|
|
|
17.7
|
%
|
Operating and administrative expense ratio
|
|
|
12.5
|
%
|
|
|
9.2
|
%
|
|
|
12.4
|
%
|
|
|
32.8
|
%
|
|
|
|
|
|
|
12.8
|
%
|
Expense ratio
|
|
|
31.2
|
%
|
|
|
27.9
|
%
|
|
|
29.1
|
%
|
|
|
48.5
|
%
|
|
|
|
|
|
|
30.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
54.8
|
%
|
|
|
93.5
|
%
|
|
|
96.2
|
%
|
|
|
117.1
|
%
|
|
|
|
|
|
|
84.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2008
|
|
|
|
Property
|
|
|
Casualty
|
|
|
International
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
|
Reinsurance
|
|
|
Reinsurance
|
|
|
Insurance
|
|
|
Insurance
|
|
|
Investments
|
|
|
Total
|
|
|
|
($ in millions, except percentages)
|
|
|
Gross written premiums
|
|
$
|
507.5
|
|
|
$
|
318.6
|
|
|
$
|
639.0
|
|
|
$
|
101.2
|
|
|
$
|
|
|
|
$
|
1,566.3
|
|
Net written premiums
|
|
|
481.1
|
|
|
|
314.3
|
|
|
|
555.8
|
|
|
|
78.2
|
|
|
|
|
|
|
|
1,429.4
|
|
Gross earned premiums
|
|
|
437.1
|
|
|
|
297.1
|
|
|
|
529.3
|
|
|
|
87.1
|
|
|
|
|
|
|
|
1,350.6
|
|
Net earned premiums
|
|
|
389.4
|
|
|
|
293.4
|
|
|
|
471.7
|
|
|
|
68.6
|
|
|
|
|
|
|
|
1,223.1
|
|
Losses and loss expenses
|
|
|
240.9
|
|
|
|
191.7
|
|
|
|
323.1
|
|
|
|
53.2
|
|
|
|
|
|
|
|
808.9
|
|
Policy acquisition expenses
|
|
|
72.9
|
|
|
|
46.0
|
|
|
|
80.5
|
|
|
|
12.4
|
|
|
|
|
|
|
|
211.8
|
|
Operating and administrative expenses
|
|
|
49.7
|
|
|
|
32.8
|
|
|
|
58.2
|
|
|
|
18.8
|
|
|
|
|
|
|
|
159.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting profit/(loss)
|
|
|
25.9
|
|
|
|
22.9
|
|
|
|
9.9
|
|
|
|
(15.8
|
)
|
|
|
|
|
|
|
42.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128.9
|
|
|
|
128.9
|
|
Realized investment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56.3
|
)
|
|
|
(56.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit/(loss)
|
|
$
|
25.9
|
|
|
$
|
22.9
|
|
|
$
|
9.9
|
|
|
$
|
(15.8
|
)
|
|
$
|
72.6
|
|
|
$
|
115.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.9
|
)
|
Interest on long term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11.7
|
)
|
Net foreign exchange gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.4
|
)
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
98.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reserves for loss and loss adjustment expenses
|
|
$
|
495.6
|
|
|
$
|
1,324.7
|
|
|
$
|
886.3
|
|
|
$
|
133.8
|
|
|
|
|
|
|
$
|
2,840.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
|
|
61.9
|
%
|
|
|
65.3
|
%
|
|
|
68.5
|
%
|
|
|
77.6
|
%
|
|
|
|
|
|
|
66.1
|
%
|
Policy acquisition expense ratio
|
|
|
18.7
|
%
|
|
|
15.7
|
%
|
|
|
17.1
|
%
|
|
|
18.1
|
%
|
|
|
|
|
|
|
17.3
|
%
|
Operating and administrative expense ratio
|
|
|
12.8
|
%
|
|
|
11.2
|
%
|
|
|
12.3
|
%
|
|
|
27.4
|
%
|
|
|
|
|
|
|
13.1
|
%
|
Expense ratio
|
|
|
31.5
|
%
|
|
|
26.9
|
%
|
|
|
29.4
|
%
|
|
|
45.5
|
%
|
|
|
|
|
|
|
30.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
93.4
|
%
|
|
|
92.2
|
%
|
|
|
97.9
|
%
|
|
|
123.1
|
%
|
|
|
|
|
|
|
96.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
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 September 30, 2009
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Cost or
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Amortized Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
($ in millions)
|
|
|
U.S. Government Securities
|
|
$
|
585.3
|
|
|
$
|
26.5
|
|
|
$
|
(0.6
|
)
|
|
$
|
611.2
|
|
U.S. Agency Securities
|
|
|
387.3
|
|
|
|
27.1
|
|
|
|
(0.4
|
)
|
|
|
414.0
|
|
Municipal Securities
|
|
|
20.0
|
|
|
|
1.0
|
|
|
|
|
|
|
|
21.0
|
|
Corporate Securities
|
|
|
1,911.7
|
|
|
|
95.4
|
|
|
|
(1.0
|
)
|
|
|
2,006.1
|
|
Foreign Government Securities
|
|
|
423.0
|
|
|
|
16.8
|
|
|
|
(0.2
|
)
|
|
|
439.6
|
|
Asset-backed Securities
|
|
|
139.7
|
|
|
|
5.8
|
|
|
|
(0.2
|
)
|
|
|
145.3
|
|
Non-agency Residential Mortgage-backed Securities
|
|
|
41.2
|
|
|
|
8.0
|
|
|
|
(0.7
|
)
|
|
|
48.5
|
|
Non-agency Commercial Mortgage-backed Securities
|
|
|
191.2
|
|
|
|
3.2
|
|
|
|
(4.8
|
)
|
|
|
189.6
|
|
Agency Mortgage-backed Securities
|
|
|
920.1
|
|
|
|
42.9
|
|
|
|
(0.1
|
)
|
|
|
962.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed income
|
|
$
|
4,619.5
|
|
|
$
|
226.7
|
|
|
$
|
(8.0
|
)
|
|
|
4,838.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2008
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Cost or
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Amortized 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 Securities
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
The following table provides the contractual maturity
distribution of our available for sale fixed income investments
as of September 30, 2009. Actual maturities may differ from
contractual maturities because issuers of securities may have
the right to call or prepay obligations with or without call or
prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
Cost or
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
|
($ in millions)
|
|
|
Due one year or less
|
|
$
|
300.3
|
|
|
$
|
305.2
|
|
Due after one year through five years
|
|
|
1,833.4
|
|
|
|
1,921.1
|
|
Due after five years through ten years
|
|
|
1,065.8
|
|
|
|
1,126.0
|
|
Due after ten years
|
|
|
127.8
|
|
|
|
139.6
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
3,327.3
|
|
|
|
3,491.9
|
|
Non-agency Residential Mortgage-backed Securities
|
|
|
41.2
|
|
|
|
48.5
|
|
Non-agency Commercial Mortgage-backed Securities
|
|
|
191.2
|
|
|
|
189.6
|
|
Agency Mortgage-backed Securities
|
|
|
920.1
|
|
|
|
962.9
|
|
Other asset-backed securities
|
|
|
139.7
|
|
|
|
145.3
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,619.5
|
|
|
$
|
4,838.2
|
|
|
|
|
|
|
|
|
|
|
Net Investment Gains (Losses). The following
table sets forth net investment gains (losses) for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Three Months
|
|
|
Ended
|
|
|
|
Ended September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in millions)
|
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains on sale
|
|
$
|
6.7
|
|
|
$
|
4.0
|
|
|
$
|
20.2
|
|
|
$
|
8.3
|
|
Realized losses on sale
|
|
|
(0.3
|
)
|
|
|
(6.3
|
)
|
|
|
(10.0
|
)
|
|
|
(8.8
|
)
|
Impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other-than-temporary
impairments
|
|
|
(1.8
|
)
|
|
|
(55.8
|
)
|
|
|
(19.9
|
)
|
|
|
(55.8
|
)
|
Trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains on sale
|
|
|
1.3
|
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
Unrealized gains on sale
|
|
|
9.0
|
|
|
|
|
|
|
|
16.1
|
|
|
|
|
|
Unrealized losses on sale
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment gains (losses)
|
|
$
|
14.6
|
|
|
$
|
(58.1
|
)
|
|
$
|
7.2
|
|
|
$
|
(56.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales and maturities of fixed maturity investments
during the three months ended September 30, 2009 and 2008
were $563.8 million and $692.3 million, respectively.
Proceeds from securities sold during the nine months ended
September 30, 2009 and 2008 were $1,536.6 million and
$1,642.6 million, respectively.
19
Fixed Maturities Trading. The
following table presents the cost, gross unrealized gains and
losses, and estimated fair value of trading investments in fixed
maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at September 30, 2009
|
|
|
|
Cost or
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
($ in millions)
|
|
|
U.S. Government Securities
|
|
$
|
3.0
|
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
3.1
|
|
U.S. Agency Securities
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
Municipal Securities
|
|
|
1.7
|
|
|
|
0.1
|
|
|
|
|
|
|
|
1.8
|
|
Corporate Securities
|
|
|
315.0
|
|
|
|
15.7
|
|
|
|
(0.5
|
)
|
|
|
330.2
|
|
Foreign Government Securities
|
|
|
10.4
|
|
|
|
0.2
|
|
|
|
|
|
|
|
10.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed income
|
|
$
|
330.5
|
|
|
$
|
16.1
|
|
|
$
|
(0.5
|
)
|
|
$
|
346.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company classifies these financial instruments as held for
trading as this most closely reflects the facts and
circumstances of the investments held. The trading portfolio was
established in 2009.
Gross unrealized loss. The following tables
summarize as at September 30, 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 September 30, 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. Government Securities
|
|
$
|
36.2
|
|
|
$
|
(0.6
|
)
|
|
$
|
2.0
|
|
|
$
|
|
|
|
$
|
38.2
|
|
|
$
|
(0.6
|
)
|
U.S. Agency Securities
|
|
|
15.1
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
15.1
|
|
|
|
(0.4
|
)
|
Foreign Government Securities
|
|
|
26.4
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
26.4
|
|
|
|
(0.2
|
)
|
Corporate Securities
|
|
|
19.9
|
|
|
|
(0.3
|
)
|
|
|
53.3
|
|
|
|
(0.7
|
)
|
|
|
73.2
|
|
|
|
(1.0
|
)
|
Asset-backed Securities
|
|
|
0.5
|
|
|
|
|
|
|
|
8.0
|
|
|
|
(0.2
|
)
|
|
|
8.5
|
|
|
|
(0.2
|
)
|
Non-agency Residential Mortgage-backed Securities
|
|
|
2.9
|
|
|
|
(0.7
|
)
|
|
|
8.0
|
|
|
|
|
|
|
|
10.9
|
|
|
|
(0.7
|
)
|
Non-agency Commercial Mortgage-backed Securities
|
|
|
10.7
|
|
|
|
(1.2
|
)
|
|
|
51.6
|
|
|
|
(3.6
|
)
|
|
|
62.3
|
|
|
|
(4.8
|
)
|
Agency Mortgage-backed Securities
|
|
|
14.9
|
|
|
|
(0.1
|
)
|
|
|
1.5
|
|
|
|
|
|
|
|
16.4
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
126.6
|
|
|
$
|
(3.5
|
)
|
|
$
|
124.4
|
|
|
$
|
(4.5
|
)
|
|
$
|
251.0
|
|
|
$
|
(8.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2009, the Company held 138 fixed
maturities (December 31, 2008 634 fixed
maturities) in an unrealized loss position with a fair value of
$251.0 million (December 31, 2008
$1,061.8 million) and gross unrealized losses of
$8.0 million (December 31, 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 period of those investments in an unrealized
loss position is temporary.
Other-than-temporary
impairments. The Company recorded
other-than-temporary
impairments for the three and nine months ended
September 30, 2009 of $1.8 million (2008
$55.8 million) and $19.9 million (2008
$55.8 million), respectively. We review all of our
investments in fixed maturities designated available for sale
for potential impairment each quarter based on criteria
including issuer-specific circumstances, credit ratings actions
and general macro-economic conditions. The process of
determining whether a decline in value is
other-than-temporary
requires considerable judgment. As part of the assessment
process we evaluate whether it is more likely than not that we
will sell any fixed maturity security in an unrealized loss
position before its market value recovers to amortized cost.
Once a security has been identified as
other-than-temporarily
impaired, the amount of any impairment included in net income is
determined by reference to that portion of the unrealized loss
that is considered to be credit related. Non-credit related
unrealized losses are included in other comprehensive income.
Other-than-temporary
impairment is discussed further in Note 2 of the unaudited
condensed consolidated financial statements.
Other investments. Other investments as at
September 30, 2009 and December 31, 2008 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Cost
|
|
|
Carrying Value
|
|
|
Cost
|
|
|
Carrying Value
|
|
|
|
($ in millions)
|
|
|
Investment funds
|
|
$
|
|
|
|
$
|
|
|
|
$
|
311.3
|
|
|
$
|
286.9
|
|
Cartesian Iris 2009A L.P.
|
|
|
25.0
|
|
|
|
25.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other investments
|
|
$
|
25.0
|
|
|
$
|
25.9
|
|
|
$
|
311.3
|
|
|
$
|
286.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment funds. Investment funds represented
our investments in funds of hedge funds which were recorded
using the equity method of accounting. Adjustments to the
carrying value of these investments were made based on the net
asset values reported by the fund managers, resulting in a
carrying value that approximated fair value. Realized and
unrealized gains of $Nil (2008 loss of
$42.2 million) and $20.2 million (2008
loss of $48.3 million) were recognized through the
statement of operations in the three and nine months ended
September 30, 2009, respectively. We 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
21
share capital of a third fund in 2007. In 2008, we 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, we gave notice to redeem the balance of the
funds in June 2009. As a result, we recognized proceeds from the
redemption of funds of $307.1 million at June 30, 2009.
The Companys involvement with the funds ceased at
June 30, 2009. The carrying value of the receivables
represents the Companys maximum exposure to loss at the
balance sheet date. Of the $16.3 million receivable at
September 30, 2009, $4.8 million was received by
October 31, 2009 with the remaining balance of
$11.5 million to be received subsequent to the completion
of the audited financial statements for the fund.
Cartesian Iris 2009A. On May 19, 2009,
Aspen Holdings invested $25 million in Cartesian Iris 2009A
L.P. through our wholly owned subsidiary, Acorn Limited.
Cartesian Iris 2009A L.P. is a Delaware Limited Partnership
formed to provide capital to Iris Re, a newly formed
Class 3 Bermudian reinsurer focusing on insurance linked
securities. In addition to the investment in Cartesian Iris
2009A L.P., Aspen provides certain underwriting and actuarial
services in return for a percentage of profits from Iris Re. In
the three and nine months ended September 30, 2009, a fee
of $0.1 million was payable to Aspen.
The Company accounts for its investment in accordance with the
equity method of accounting. Adjustments to the carrying value
of this investment are made based on the Companys share of
capital including its share of income and expenses, which is
provided in the quarterly management accounts of the
partnership. The adjusted carrying value approximates fair
value. In the three and nine months ended September 30,
2009, the Companys share of gains and losses increased the
value of our investment by $1.2 million (2008-$Nil) and
$0.9 million (2008-$Nil), respectively. The increase in
value has been recognized in realized and unrealized gains and
losses in the condensed consolidated statement of operations.
For more information see Note 12(c).
The Companys involvement with Cartesian Iris 2009A L.P. is
limited to its investment in the partnership and it is not
committed to making further investments in Cartesian Iris 2009A
L.P.; accordingly, the carrying value of the investment
represents the Companys maximum exposure to a loss as a
result of its involvement with the partnership at each balance
sheet date.
22
|
|
6.
|
Fair
Value Measurements
|
The Companys estimates of fair value for financial assets
and liabilities are based on the framework established in the
fair value accounting guidance. The framework 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 more detail below.
The Company considers prices for actively traded Treasury
securities to be derived based on quoted prices in active
markets for identical assets, which are Level 1 inputs in
the fair value hierarchy. 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, which are Level 2 inputs in
the fair value hierarchy.
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, which are
Level 3 inputs in the fair value hierarchy. There have been
no changes in the Companys use of valuation techniques
during the year.
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 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 following table presents the table within the fair value
hierarchy at which the Companys financial assets are
measured on a recurring basis at September 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
($ in millions)
|
|
|
Fixed income maturities available for sale, at fair value
|
|
$
|
1,050.8
|
|
|
$
|
3,773.4
|
|
|
$
|
14.0
|
|
Short-term investments available for sale, at fair value
|
|
|
337.2
|
|
|
|
90.4
|
|
|
|
|
|
Fixed income maturities, trading at fair value
|
|
|
10.6
|
|
|
|
335.5
|
|
|
|
|
|
Short-term investments, trading at fair value
|
|
|
|
|
|
|
4.0
|
|
|
|
|
|
Derivatives at fair value
|
|
|
|
|
|
|
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,398.6
|
|
|
$
|
4,203.2
|
|
|
$
|
17.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
($ in millions)
|
|
|
Fixed income maturities available for sale, at fair value
|
|
$
|
1,035.2
|
|
|
$
|
3,395.1
|
|
|
$
|
2.8
|
|
Short-term investments available for sale, at fair value
|
|
$
|
141.2
|
|
|
$
|
83.7
|
|
|
|
|
|
Derivatives at fair value
|
|
|
|
|
|
|
|
|
|
|
11.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,176.4
|
|
|
$
|
3,478.8
|
|
|
$
|
14.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income maturities classified as Level 3 include
holdings where there are significant unobservable inputs in
determining the assets fair value and also securities of
Lehman Brothers Holdings, Inc. (Lehman Brothers).
Although the market value of Lehman Brothers bonds was based on
broker dealer quoted prices, management believes that the
valuation is based, in part, on market expectations of future
recoveries out of bankruptcy proceedings, which involve
significant unobservable inputs to the valuation. Derivatives at
fair value consist of the credit insurance contract as described
in Note 8.
23
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 for the three and nine
months ended September 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2009
|
|
|
|
Fixed Maturity
|
|
|
Derivatives at
|
|
|
|
|
|
|
Investments
|
|
|
Fair Value
|
|
|
Total
|
|
|
|
($ in millions)
|
|
|
Level 3 assets as of July 1, 2009
|
|
$
|
18.3
|
|
|
$
|
5.4
|
|
|
$
|
23.7
|
|
Securities transferred in/(out) of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized gains or (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
|
|
|
|
(1.8
|
)
|
|
|
(1.8
|
)
|
Included in comprehensive income
|
|
|
1.5
|
|
|
|
|
|
|
|
1.5
|
|
Sales
|
|
|
(5.8
|
)
|
|
|
|
|
|
|
(5.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 assets as of September 30, 2009
|
|
$
|
14.0
|
|
|
$
|
3.6
|
|
|
$
|
17.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009
|
|
|
|
Fixed Maturity
|
|
|
Derivatives at
|
|
|
|
|
|
|
Investments
|
|
|
Fair Value
|
|
|
Total
|
|
|
|
($ in millions)
|
|
|
Level 3 assets as of January 1, 2009
|
|
$
|
2.8
|
|
|
$
|
11.8
|
|
|
$
|
14.6
|
|
Securities transferred in/(out) of Level 3
|
|
|
14.0
|
|
|
|
|
|
|
|
14.0
|
|
Total unrealized gains or (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
|
|
|
|
(5.5
|
)
|
|
|
(5.5
|
)
|
Included in comprehensive income
|
|
|
3.0
|
|
|
|
|
|
|
|
3.0
|
|
Settlements
|
|
|
|
|
|
|
(2.7
|
)
|
|
|
(2.7
|
)
|
Sales
|
|
|
(5.8
|
)
|
|
|
|
|
|
|
(5.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 assets as of September 30, 2009
|
|
$
|
14.0
|
|
|
$
|
3.6
|
|
|
$
|
17.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the Companys liabilities
within the fair value hierarchy at which the Companys
financial liabilities are measured on a recurring basis at
September 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
($ in millions)
|
|
|
Liabilities under derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit insurance contract
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
($ in millions)
|
|
|
Liabilities under derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit insurance contract
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
The following table presents a reconciliation of the beginning
and ending balances for the liabilities under derivative
contracts measured at fair value on a recurring basis using
Level 3 inputs during the three and nine months ended
September 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2009
|
|
|
September 30, 2009
|
|
|
|
($ in millions)
|
|
|
($ in millions)
|
|
|
Beginning Balance
|
|
$
|
7.7
|
|
|
$
|
11.1
|
|
Settlements
|
|
|
(1.7
|
)
|
|
|
(5.1
|
)
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
6.0
|
|
|
$
|
6.0
|
|
|
|
|
|
|
|
|
|
|
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 $25.9 billion. For further information, see
Note 12(c). At the balance sheet date and at expiry of the
contract on May 1, 2009, no recovery was due from Ajax Re.
In order to ensure that Ajax Re had sufficient funding to
service the LIBOR portion of interest due on the bonds issued by
Ajax Re, Ajax Re entered into a total return swap (the
swap) with Lehman Brothers Special Financing, Inc.
(Lehman Financing), whereby Lehman Financing
directed Ajax Re to invest the proceeds from the bonds into
permitted investments. Lehman Brothers also provided a guarantee
of Lehman Financings obligations under the swap.
On September 15, 2008, Lehman Brothers filed for
bankruptcy, which is a termination event under the swap. Ajax Re
terminated the swap on September 16, 2008. Nevertheless,
Aspen remained within its risk tolerances during the period of
cover without benefit of this reinsurance.
25
The following table summarizes information on the location and
amounts of derivative fair values on the consolidated balance
sheet as at September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
Derivatives Not Designated as
|
|
Notional
|
|
|
Balance Sheet
|
|
|
|
|
Balance Sheet
|
|
|
|
Hedging Instruments Under ASC 815
|
|
Amount
|
|
|
Location
|
|
Fair Value
|
|
|
Location
|
|
Fair Value
|
|
|
|
($ in millions)
|
|
|
|
|
($ in millions)
|
|
|
|
|
($ in millions)
|
|
|
Credit insurance contract
|
|
$
|
452.4
|
|
|
Derivatives at fair value
|
|
$
|
3.6
|
|
|
Liabilities under derivatives
|
|
$
|
6.0
|
|
As at December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
Derivatives Not Designated as
|
|
Notional
|
|
|
Balance Sheet
|
|
|
|
|
Balance Sheet
|
|
|
|
Hedging Instruments Under ASC 815
|
|
Amount
|
|
|
Location
|
|
Fair Value
|
|
|
Location
|
|
Fair Value
|
|
|
|
($ in millions)
|
|
|
|
|
($ in millions)
|
|
|
|
|
($ in millions)
|
|
|
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 and nine
months ended September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
|
|
|
Gain/(Loss)
|
|
|
|
|
|
Recognized in
|
|
|
|
|
|
Income
|
|
|
|
|
|
Nine Months Ended
|
|
Derivatives Not Designated as
|
|
|
|
September 30,
|
|
|
September 30,
|
|
Hedging Instruments Under ASC 815
|
|
Location of Gain/(Loss) Recognized in Income
|
|
2009
|
|
|
2008
|
|
|
|
|
|
($ millions)
|
|
|
Credit Insurance Contract
|
|
Change in Fair Value of Derivatives
|
|
$
|
(5.9
|
)
|
|
$
|
(5.9
|
)
|
Foreign Exchange Contract
|
|
Net Foreign Exchange Gains and Losses
|
|
$
|
1.8
|
|
|
$
|
(3.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
|
|
|
Gain/(Loss)
|
|
|
|
|
|
Recognized in
|
|
|
|
|
|
Income
|
|
|
|
|
|
Three Months Ended
|
|
Derivatives Not Designated as
|
|
|
|
September 30,
|
|
|
September 30,
|
|
Hedging Instruments Under ASC 815
|
|
Location of Gain/(Loss) Recognized in Income
|
|
2009
|
|
|
2008
|
|
|
|
|
|
($ millions)
|
|
|
Credit Insurance Contract
|
|
Change in Fair Value of Derivatives
|
|
$
|
(2.0
|
)
|
|
$
|
(2.1
|
)
|
Foreign Exchange Contract
|
|
Change in Fair Value of Derivatives
|
|
$
|
|
|
|
$
|
1.4
|
|
Foreign Exchange Contract
|
|
Net Foreign Exchange Gains and Losses
|
|
$
|
|
|
|
$
|
(3.8
|
)
|
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 the contract to be a derivative instrument
because the final settlement is expected to take place two years
after expiry of cover and 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
guidance, the contract is treated as an asset or a liability 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
26
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 $477 million but is
subject to adjustment. The carrying value of the derivative is
the Companys maximum exposure to loss.
Foreign exchange contract. The Company uses
forward exchange contracts to manage foreign currency risk. A
forward foreign currency exchange contract involves an
obligation to purchase or sell a specified currency at a future
date at a price set at the time of the contract. Foreign
currency exchange contracts will not eliminate fluctuations in
the value of our assets and liabilities denominated in foreign
currencies but rather allow us to establish a rate of exchange
for a future point in time. The foreign currency contracts are
recorded as derivatives at fair value with changes recorded as a
net foreign exchange gain or loss in the Companys
statement of operations.
|
|
9.
|
Reserves
for Losses and Adjustment Expenses
|
The following table represents a reconciliation of beginning and
ending consolidated loss and loss adjustment expenses
(LAE) reserves:
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
As at
|
|
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
|
($ 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
|
|
|
(10.0
|
)
|
|
|
(15.4
|
)
|
|
|
|
|
|
|
|
|
|
Provision for losses and LAE for claims incurred:
|
|
|
|
|
|
|
|
|
Current year
|
|
|
791.6
|
|
|
|
1,203.0
|
|
Prior years
|
|
|
(71.0
|
)
|
|
|
(83.5
|
)
|
|
|
|
|
|
|
|
|
|
Total incurred
|
|
|
720.6
|
|
|
|
1,119.5
|
|
|
|
|
|
|
|
|
|
|
Losses and LAE payments for claims incurred:
|
|
|
|
|
|
|
|
|
Current year
|
|
|
(122.8
|
)
|
|
|
(205.2
|
)
|
Prior years
|
|
|
(497.7
|
)
|
|
|
(534.2
|
)
|
|
|
|
|
|
|
|
|
|
Total paid
|
|
|
(620.5
|
)
|
|
|
(739.4
|
)
|
|
|
|
|
|
|
|
|
|
Foreign exchange losses (gains)
|
|
|
103.4
|
|
|
|
(219.0
|
)
|
|
|
|
|
|
|
|
|
|
Net losses and LAE reserves at period end
|
|
|
2,980.5
|
|
|
|
2,787.0
|
|
Plus reinsurance recoverable on unpaid losses at period end
|
|
|
333.5
|
|
|
|
283.3
|
|
|
|
|
|
|
|
|
|
|
Loss and LAE reserves at September 30, 2009 and
December 31, 2008
|
|
$
|
3,314.0
|
|
|
$
|
3,070.3
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, 2009, there were
reserve releases of $71.0 million compared to
$95.6 million for the nine months ended September 30,
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 represents reductions
in reserves for several Lloyds syndicates which we
originally assumed under reinsurance to close arrangements
accounted for by the syndicates prior to 2007.
27
The following table provides a summary of the Companys
authorized and issued share capital at September 30, 2009
and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at September 30, 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
|
|
|
83,094,615
|
|
|
|
126
|
|
|
|
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 $25 per share
|
|
|
5,327,500
|
|
|
|
8
|
|
|
|
8,000,000
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total issued share capital
|
|
|
|
|
|
|
141
|
|
|
|
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital ($ in millions)
|
|
|
|
|
|
$
|
1,760.6
|
|
|
|
|
|
|
$
|
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. 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 nine
month period ended September 30, 2009.
|
|
|
|
|
|
|
Number of
|
|
|
|
Shares
|
|
|
Shares in issue at December 31, 2008
|
|
|
81,506,503
|
|
Share transactions in the nine months ended
September 30, 2009:
|
|
|
|
|
Shares issued to the Names trust upon exercise of investor
options
|
|
|
1,815
|
|
Shares issued to employees under the share incentive plan
|
|
|
366,297
|
|
Shares issued through registered public offerings
|
|
|
1,220,000
|
|
|
|
|
|
|
Shares in issue at September 30, 2009
|
|
|
83,094,615
|
|
|
|
|
|
|
28
The Company has issued options and other equity incentives under
four arrangements: investor options, employee awards,
non-employee director awards and the employee share purchase
plans. When options are exercised or other equity awards have
vested, new shares are issued as the Company does not currently
hold treasury shares. The Company applies 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 on June 21, 2012. Wellington Investment
exercised all of its options on March 28, 2007.
During the three and nine months ended September 30, 2009,
the Names Trustee exercised 627 options and 4,469 options
on a cash and cashless basis, respectively (2008
2,868 and 17,391, respectively).
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 during 2009. However, 106,166 and 164,625 options were
exercised in the three and nine months ended September 30,
2009.
Compensation costs charged against income in respect of employee
options for the three and nine months ended September 30,
2009 were $0.5 million and $1.6 million, respectively
(2008 $1.1 million and $3.1 million).
Restricted share units (RSUs) to employees
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 and
nine months ended September 30, 2009, the Company granted
to employees nil and 42,291 restricted share units,
respectively. In the case of non-employee directors (other than
the Chairman whose RSUs vest annually over a three-year
period), 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.
During the three and nine months ended September 30, 2009, the
Company granted to non-employee directors nil and 33,755
restricted share units, respectively.
Compensation costs charged against income in respect of
restricted share units for the three and nine months ended
September 30, 2009 were $0.7 million and
$2.1 million, respectively (2008
$1.0 million and $2.1 million).
29
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 shares eligible for
vesting dependent on the achievement of performance targets at
the end of specified periods as established at the time of
grant. For the three and nine months ended September 30,
2009, the Company granted nil and 912,919 performance shares,
respectively.
Compensation costs charged against income in the three and nine
months ended September 30, 2009 in respect of performance
shares were $5.5 million and $11.9 million,
respectively (2008 $0.6 million credit and
$3.7 million charge).
Employee Share Purchase Plans. On
April 30, 2008, the shareholders of the Company approved
the Employee Share Purchase Plan (the ESPP), the
U.K. Sharesave Plan and the international plan, which are
implemented by a series of consecutive offering periods as
determined by the Board. In respect of the ESPP, employees can
save up to $500 per month over a two-year period, at the end of
which they will be eligible to purchase Company shares at a
discounted price. In respect of the U.K. Sharesave Plan,
employees can save up to £250 per month over a three-year
period, at the end of which they will be eligible to purchase
Company shares at a discounted price. The purchase price will be
eighty-five percent (85%) of the fair market value of a share on
the offering date which may be adjusted upon changes in
capitalization of the Company. No shares were issued under the
plan during 2008 or 2009.
|
|
12.
|
Commitments
and Contingencies
|
We are obliged by the terms of our contractual obligations to
U.S. policyholders and by undertakings to certain
regulatory authorities to facilitate the issue of letters of
credit or maintain certain balances in trust funds for the
benefit of policyholders.
The following table shows the forms of collateral or other
security provided to policyholders as at September 30, 2009
and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
As at September 30,
|
|
|
As at December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in millions, except percentages)
|
|
|
Assets held in multi-beneficiary trusts
|
|
$
|
1,409.7
|
|
|
$
|
1,345.6
|
|
Assets held in single beneficiary trusts
|
|
|
55.9
|
|
|
|
54.0
|
|
Letters of credit issued under our revolving credit facilities(1)
|
|
|
59.3
|
|
|
|
84.6
|
|
Secured letters of credit(2)
|
|
|
412.3
|
|
|
|
422.4
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,937.2
|
|
|
$
|
1,906.6
|
|
|
|
|
|
|
|
|
|
|
Total as % of cash and invested assets
|
|
|
29.4
|
%
|
|
|
33.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
These letters of credit are not
secured by cash or securities, though we have the ability to
issue secured letters of credit under the revolving credit
facility
|
|
(2)
|
|
As of September 30, 2009, the
Company had funds on deposit of $588.7 million and
£21.2 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 determines Syndicate 4711s required
regulatory capital principally based on 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 September 30, 2009
amount to $212.6 million (December 31,
2008 $200.3 million).
30
Amounts outstanding under operating leases as of
September 30, 2009 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Later
|
|
|
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
Years
|
|
Total
|
|
|
($ in millions)
|
|
Operating Lease Obligations
|
|
|
2.9
|
|
|
|
7.7
|
|
|
|
7.4
|
|
|
|
6.5
|
|
|
|
6.4
|
|
|
|
27.1
|
|
|
|
58.0
|
|
|
|
(c)
|
Variable
interest entities
|
Ajax Re. As disclosed in Note 7, 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 was 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 had the characteristics
of a variable interest entity that are addressed by the guidance
included in ASC 810, Consolidation. As a result, Ajax Re
was not consolidated because the majority of the expected losses
and expected residual returns would not be absorbed by the
Company but rather by the bond holders of Ajax Re.
Cartesian Iris 2009A L.P. As disclosed in
Note 5, on May 19, 2009, Aspen Holdings invested
$25 million in Cartesian Iris 2009A L.P. through our wholly
owned subsidiary, Acorn Limited. Cartesian Iris 2009A L.P. is a
Delaware Limited Partnership formed to provide capital to Iris
Re, a newly formed Class 3 Bermudian reinsurer focusing on
insurance linked securities. In addition to the investment in
Cartesian Iris 2009A L.P., Aspen provides certain underwriting
and actuarial services in return for a percentage of profits. In
the three and nine months ended September 30, 2009, a fee
of $0.1 million was payable to Aspen. The Companys
investment in Cartesian Iris 2009A L.P. represents 31.25% of the
equity invested in the partnership.
The Company has determined that Cartesian Iris 2009A L.P. has
the characteristics of a variable interest entity that are
addressed by the guidance in ASC 810, Consolidation. As a
result, Cartesian Iris 2009A L.P. is not consolidated because
the majority of the expected losses and expected residual
returns will not be absorbed by the Company. The Company has no
decision-making power, those powers having been reserved for the
general partner.
The Companys involvement with Cartesian Iris 2009A L.P. is
limited to its investment in the partnership and it is not
committed to making further investments in Cartesian Iris 2009A
L.P.; accordingly, the carrying value of the investment
represents the Companys maximum exposure to a loss as a
result of its involvement with the partnership at each balance
sheet date.
The Company has considered subsequent events through
November 4, 2009, the date of filing of this report.
31
|
|
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 and nine
months ended September 30, 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
On October 6, 2009, Aspen U.K. and Aspen Bermuda entered
into a $200 million secured letter of credit facility with
Barclays Bank plc. All letters of credit issued under the
facility will be used to support reinsurance obligations of the
parties to the agreement and their respective subsidiaries.
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 global markets for property and casualty insurance
and reinsurance.
The most significant features of our results for the three and
nine months ended September 30, 2009 were:
|
|
|
|
|
Net income after tax for the three months ended
September 30, 2009 of $145.8 million, compared with a
net loss after tax of $126.1 million for the third quarter
of 2008. For the nine months ended September 30, 2009, net
income after tax was $347.6 million compared to
$82.0 million for the same period last year.
|
|
|
|
A combined ratio of 80.3% for the three months ended
September 30, 2009 versus 123.3% for the three months ended
September 30, 2008;
|
|
|
|
Third quarter net investment income of $58.9 million, up
205.2% over the same quarter last year and down 18.4% over the
second quarter of 2009;
|
|
|
|
Diluted earnings per ordinary share after preference share
dividends of $1.63 for the three months ended September 30,
2009 increased by $3.26 over the comparative period in 2008.
Diluted earnings per ordinary share after preference share
dividends was $4.25 for the nine months ended September 30,
2009, an increase of 498.6% compared to the same period last
year; and
|
32
|
|
|
|
|
Tangible book value per ordinary share at September 30,
2009 was $34.30, an increase of 26.4% compared to $27.14 at
September 30, 2008.
|
Tangible book value per ordinary share is based on total
shareholders equity, less intangible assets and preference
shares (liquidation preference less issue expenses), divided by
the number of ordinary shares in issue at the end of the period.
Shareholders equity and ordinary shares in issue as at
September 30, 2009 and September 30, 2008 were:
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
As at
|
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
|
|
($ in millions, except for share amounts)
|
|
|
Total shareholders equity
|
|
$
|
3,212.1
|
|
|
$
|
2,637.6
|
|
Intangible assets
|
|
|
(8.2
|
)
|
|
|
(8.2
|
)
|
Preference shares less issue expenses
|
|
|
(353.6
|
)
|
|
|
(419.2
|
)
|
|
|
|
|
|
|
|
|
|
Net tangible assets attributable to ordinary shareholders
|
|
$
|
2,850.3
|
|
|
$
|
2,210.2
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares
|
|
|
83,094,615
|
|
|
|
81,450,413
|
|
Diluted ordinary shares
|
|
|
86,192,623
|
|
|
|
84,325,027
|
|
The following overview of our results for the three months ended
September 30, 2009 and 2008 and of our financial condition
at September 30, 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 11.1% to $490.3 million in the third
quarter of 2009 when compared to 2008 with the increase
attributable mainly to property and casualty reinsurance
segments.. The table below shows our gross written premiums for
each segment for the three months ended September 30, 2009
and 2008, and the percentage change in gross written premiums
for each segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Three Months
|
|
Business Segment
|
|
Ended September 30, 2009
|
|
|
Ended September 30, 2008
|
|
|
|
($ in millions)
|
|
|
% increase/
|
|
|
($ in millions)
|
|
|
|
|
|
|
(decrease)
|
|
|
|
|
|
Property reinsurance
|
|
$
|
171.2
|
|
|
|
12.0
|
%
|
|
$
|
152.8
|
|
Casualty reinsurance
|
|
|
96.5
|
|
|
|
21.1
|
|
|
|
79.7
|
|
International insurance
|
|
|
183.9
|
|
|
|
1.7
|
|
|
|
180.8
|
|
U.S. insurance
|
|
|
38.7
|
|
|
|
38.2
|
|
|
|
28.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
490.3
|
|
|
|
11.1
|
%
|
|
$
|
441.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross written premiums for the quarter have increased to
$490.3 million from $441.3 million in the third
quarter of 2008 due mainly to increased contributions from our
property reinsurance and casualty reinsurance segments. The
casualty reinsurance segment has benefited principally from
$13.0 million of premium adjustments, particularly in our
U.S. treaty business. The property reinsurance segment has
benefited from a $27.3 million contribution from the newly
established credit, surety and political risk business line
compensating for reductions in premiums written in our treaty
risk excess business line. Our U.S. insurance segment has
also experienced growth in the quarter particularly in the
property line due mainly to new business subsequent to the
reshaping of the portfolio in 2008 and increased prices for
catastrophe-exposed
business. Gross written premiums in the international insurance
segment have increased marginally by 1.7% to $183.9 million
when compared to the third quarter of 2008 due to a
$4.7 million contribution from the specie and management
and technology liability business lines which commenced
underwriting after the third quarter of 2008, compensating for a
small net reduction in premiums written in the other business
lines.
33
Reinsurance. Total reinsurance ceded for the
quarter of $28.2 million has decreased by $9.3 million
from the third quarter of 2008. Ceded written premiums in the
third quarter of 2008 included $7.4 million of
reinstatement premiums in relation to Hurricanes Ike and Gustav.
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 September 30, 2009 and 2008 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Three Months
|
|
Business Segment
|
|
Ended September 30, 2009
|
|
|
Ended September 30, 2008
|
|
|
Property reinsurance
|
|
|
25.9
|
%
|
|
|
118.6
|
%
|
Casualty reinsurance
|
|
|
63.0
|
%
|
|
|
67.2
|
%
|
International insurance
|
|
|
60.3
|
%
|
|
|
89.4
|
%
|
U.S. insurance
|
|
|
47.4
|
%
|
|
|
130.1
|
%
|
Total Loss Ratio
|
|
|
49.9
|
%
|
|
|
95.2
|
%
|
The loss ratio for the quarter of 49.9% has decreased by
45.3 percentage points compared to the third quarter of
2008 mainly due to the hurricane losses incurred in 2008 with no
comparable events in the third quarter of 2009. The property
reinsurance loss ratio of 25.9% is 92.7 percentage points
below the third quarter of 2008 due mainly to the absence of
catastrophes but also due to $19.1 million of prior year
reserve releases in the quarter compared to a $3.3 million
release in the third quarter of 2008.
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
|
|
|
Hurricane Claims
|
|
|
Prior Year
|
|
For the Three Months Ended September 30, 2009
|
|
Ratio
|
|
|
Adjustment
|
|
|
Adjustment
|
|
|
Adjustments
|
|
|
Property reinsurance
|
|
|
25.9
|
%
|
|
|
12.0
|
%
|
|
|
|
|
|
|
37.9
|
%
|
Casualty reinsurance
|
|
|
63.0
|
%
|
|
|
8.3
|
%
|
|
|
|
|
|
|
71.3
|
%
|
International insurance
|
|
|
60.3
|
%
|
|
|
8.9
|
%
|
|
|
|
|
|
|
69.2
|
%
|
U.S. insurance
|
|
|
47.4
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
49.0
|
%
|
Total
|
|
|
49.9
|
%
|
|
|
9.0
|
%
|
|
|
|
|
|
|
58.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio Excluding
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior Year
|
|
|
|
|
|
|
Prior Year
|
|
|
Hurricane
|
|
|
Reserve and
|
|
|
|
Total Loss
|
|
|
Claims
|
|
|
Claims
|
|
|
Hurricane
|
|
For the Three Months Ended September 30, 2008
|
|
Ratio
|
|
|
Adjustment
|
|
|
Adjustment
|
|
|
Adjustments
|
|
|
Property reinsurance
|
|
|
118.6
|
%
|
|
|
2.4
|
%
|
|
|
(94.5
|
)%
|
|
|
26.5
|
%
|
Casualty reinsurance
|
|
|
67.2
|
%
|
|
|
8.6
|
%
|
|
|
|
|
|
|
75.8
|
%
|
International insurance
|
|
|
89.4
|
%
|
|
|
1.2
|
%
|
|
|
(25.1
|
)%
|
|
|
65.5
|
%
|
U.S. insurance
|
|
|
130.1
|
%
|
|
|
2.9
|
%
|
|
|
(62.8
|
)%
|
|
|
70.2
|
%
|
Total
|
|
|
95.2
|
%
|
|
|
3.6
|
%
|
|
|
(42.8
|
)%
|
|
|
56.0
|
%
|
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 September 30, 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:
34
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
For the Three Months
|
|
|
Ended September 30, 2009
|
|
Ended September 30, 2008
|
|
Reserve releases ($ in millions)
|
|
$
|
44.2
|
|
|
$
|
15.6
|
|
% of net premiums earned
|
|
|
9.4
|
%
|
|
|
3.6
|
%
|
Reserve releases in the quarter increased by $28.6 million
from the third quarter in 2008 due mainly to an increase in
releases in the property reinsurance and the international
insurance segments. Property reinsurance reserve releases
increased by $15.8 million to $19.1 million due to
better than expected development on outstanding claims
particularly in our risk excess and property pro-rata lines of
business. Our international insurance segment has also seen net
reserve releases of $16.4 million as a result of favorable
loss experience across most lines of business. These have been
partially offset by reductions in reserve releases of
$0.2 million in the casualty reinsurance segment and
reserve strengthening in the U.S. insurance segment. The U.S.
insurance segment strengthened prior year reserves by
$0.8 million due to adverse experience from the casualty
insurance business line compared to reserve releases of
$0.7 million in the third quarter of 2008. 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 expenses to the
expense ratio and the total expense ratios for each of the three
months ended September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
For the Three Months
|
|
|
|
Ended September 30, 2009
|
|
|
Ended September 30, 2008
|
|
|
Policy acquisition expenses
|
|
|
16.9
|
%
|
|
|
16.2
|
%
|
Operating and administrative expenses
|
|
|
13.5
|
%
|
|
|
11.9
|
%
|
|
|
|
|
|
|
|
|
|
Expense ratio
|
|
|
30.4
|
%
|
|
|
28.1
|
%
|
|
|
|
|
|
|
|
|
|
The policy acquisition expense ratio of 16.9% for the quarter
has increased marginally from 16.2% in the third quarter of
2008, due mainly to an adjustment in acquisition expenses in
casualty reinsurance and a change in the mix of business for
U.S. insurance which has seen an increase in the proportion
of property insurance business written that has higher average
commission rates than casualty business.
The increase in the operating and administrative expense ratio
to 13.5% from 11.9% in the third quarter of 2008 was driven
predominantly by
performance-related
remuneration linked to our improved performance during the
period.
Net investment income. In the third quarter of
2009, we generated net investment income of $58.9 million
(2008 $19.3 million). The increase in net
investment income was due primarily to the comparative quarter
in 2008 experiencing a loss of $42.2 million from our
investment in funds of hedge funds. Investment income from fixed
maturities decreased by $2.6 million compared to
September 30, 2008 as a result of lower bond yields.
Change in fair value of derivatives. In the
three months ended September 30, 2009, we recorded a
reduction of $2.0 million (2008
$2.1 million reduction in the credit insurance contract
less an adjustment of $1.4 million in changes in foreign
exchange) in the estimated fair value of our credit insurance
contract including an interest expense charge of
$0.2 million (2008 $0.2 million). Further
information on these contracts can be found in Note 8 to
the financial statements.
Other revenues and expenses. Other revenues
and expenses in the three months ended September 30, 2009
included $7.9 million of foreign currency exchange gains
(2008 $2.7 million loss) and $14.6 million
of realized and unrealized investment gains (2008
$58.1 million loss). Realized and unrealized gains included
$8.7 million (2008 $Nil) of unrealized gains
and $1.3 million (2008 $Nil) of net realized
gains from our fixed income maturities trading portfolio for the
three months ended September 30, 2009. The realized
investment gains
35
in 2009 include a charge of $1.8 million for investments we
believe to be
other-than-temporarily
impaired (2008 $55.8 million).
Other-than-temporary
impairments. We review all of our investments in
fixed maturities designated as 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 before 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.
Other-than-temporary
impairment losses of $1.8 million for the quarter are
credit-related and therefore are included in the income
statement. The
other-than-temporary
impairment charge of $55.8 million in the third quarter of
2008 was attributable mainly to the write-down of Lehman
Brothers bonds subsequent to that companys collapse in
September 2008.
Taxes. The estimated effective rate of tax for
the quarter is 14.8% (2008 13.6% credit). 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 underwritten in Bermuda where the
rate of tax on corporate profits is zero while 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 September 30, 2009 were $5.6 million
(2008 $6.9 million). The reduction between the
two periods is due to the repurchase and cancellation on
March 31, 2009 of 2,672,500 of our 7.401% $25 liquidation
preference shares.
Shareholders equity and financial
leverage. Total shareholders equity
increased by $239.6 million to $3,212.1 million for
the three months ended September 30, 2009. The most
significant movements were:
|
|
|
|
|
net retained income after tax for the period of
$127.6 million; and
|
|
|
|
unrealized appreciation on investments, net of taxes of
$90.7 million.
|
As at September 30, 2009, total ordinary shareholders
equity was $2,858.5 million compared to
$2,359.9 million at December 31, 2008. The remainder
of our total shareholders equity, as at September 30,
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
September 30, 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 September 30, 2009, this ratio was
7.2% (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 17.4% as of
September 30, 2009 (December 31, 2008
22.1%).
36
Capital Management. On March 31, 2009, we
repurchased and cancelled 2,672,500 of our 7.401% $25
liquidation value preference shares (NYSE: AHL-PA) at a price of
$12.50 per share. The purchase resulted in a gain attributable
to ordinary shareholders of $31.5 million for the first
quarter of 2009, which was not recognized in the income
statement but was included in the calculation of earnings per
share.
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
September 30, 2009, Aspen Holdings held $8.9 million
(2008 $25.0 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 September 30, 2009, our subsidiaries held
$939.9 million (2008 $716.6 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 September 30, 2009
and for the foreseeable future.
As of September 30, 2009, we had in issue
$441.3 million and £18.8 million in letters of
credit to cedants, for which the Company had funds on deposit of
$588.7 million and £21.2 million as collateral
for the secured letters of credit. Further information relating
to letters of credit is found below under Liquidity.
37
Outlook
and Trends
Property Reinsurance. Within our property
reinsurance segment, we had commented last quarter on the highly
satisfactory pricing environment for U.S. catastrophe with
pricing on average up 17% at the half year stage and the
favorable impact this had on written premium. The proportional
treaty and risk excess business lines have also performed well
given challenging conditions where rates have increased between
3% and 5%.
Casualty Reinsurance. The pricing conditions
in the casualty reinsurance segment continue to be mixed with
some rate increases in international business, with the
U.S. closer to flat. Whereas in 2008 rate decreases were
common, they are now less frequent with most business renewing
on an as before basis. The international casualty
line which represents approximately 30% of this segment is
showing more positive trends. Specifically, we are experiencing
more positive movement in professional lines and disciplined
general liability pricing. We continue to believe that
U.S. casualty rates across the market as a whole are
inadequate and that pricing improvement is needed.
International Insurance. In our international
insurance segment as a whole, average rate increases are still
in the double digits, although we continue to see significant
variation by line of business. In energy and marine hull
accounts, there has been some moderation from the high increases
seen in previous quarters this year but average rates rises in
these lines were 10% and 9%, respectively in the quarter.
Significant price increases are also being achieved in the
financial institutions account, particularly on larger clients.
In aviation, the important October renewal season has completed
and our current pricing confidence is well supported. For the
quarter, we experienced average rate increases of 19% with
increments of approximately 25% in airline business on average.
Elsewhere in the segment, U.K. property rates are broadly flat
within a range of +5% and −5%. Employers liability
and public liability renewals in the U.K. are also tending to
renew at close to expiring prices. In our U.K. professional
liability line, conditions are still challenging but the rating
trend is still upwards and we have achieved average rate
increases in this line of 5%
year-to-date.
U.S. Insurance. In our
U.S. insurance segment, the rating environment is unchanged
from the second quarter. We continue to see some evidence of
better pricing in catastrophe-exposed property risks but this is
not the case in other property lines or casualty lines.
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
and the notes to the financial statements contained in this
report.
We have discussed the application of these critical accounting
estimates with our Board of Directors and Audit Committee.
38
Results
of Operations for the Three Months Ended September 30, 2009
Compared to the Three Months Ended September 30,
2008
The following is a discussion and analysis of our consolidated
results of operations for the three months ended
September 30, 2009 and 2008 starting with a discussion of
segmental results and then summarizing our consolidated results
under Total Income Statement Third
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. The Company has considered
similarities in economic characteristics, products, customers,
distribution, and the regulatory environment of the
Companys operating segments and quantitative thresholds to
determine the Companys reportable segments.
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 September 30, 2009 and
2008.
The contributions of each segment to gross written premiums in
the three months ended September 30, 2009 and 2008 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
Gross Written Premiums
|
|
|
|
For the Three Months
|
|
|
For the Three Months
|
|
Business Segment
|
|
Ended September 30, 2009
|
|
|
Ended September 30, 2008
|
|
|
|
% of total gross written premiums
|
|
|
Property reinsurance
|
|
|
34.9
|
%
|
|
|
34.6
|
%
|
Casualty reinsurance
|
|
|
19.7
|
%
|
|
|
18.1
|
%
|
International insurance
|
|
|
37.5
|
%
|
|
|
41.0
|
%
|
U.S. insurance
|
|
|
7.9
|
%
|
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Written Premiums
|
|
|
|
For the Three Months
|
|
|
For the Three Months
|
|
Business Segment
|
|
Ended September 30, 2009
|
|
|
Ended September 30, 2008
|
|
|
|
($ in millions)
|
|
|
Property reinsurance
|
|
$
|
171.2
|
|
|
$
|
152.8
|
|
Casualty reinsurance
|
|
|
96.5
|
|
|
|
79.7
|
|
International insurance
|
|
|
183.9
|
|
|
|
180.8
|
|
U.S. insurance
|
|
|
38.7
|
|
|
|
28.0
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
490.3
|
|
|
$
|
441.3
|
|
|
|
|
|
|
|
|
|
|
39
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. We also include within
this segment 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 12.0% compared
to the three months ended September 30, 2008. This increase
is attributed mainly to new premiums from the credit and surety
line of business which began writing business in 2009 in
addition to our geographic expansion into Singapore where we
write property treaty and facultative business. The reduction in
written premiums by our risk excess business line is due to a
large contract which had previously been written on a combined
risk excess and pro-rata basis which renewed on a pro-rata basis
only.
The table below shows our gross written premiums for each line
of business for the three months ended September 30, 2009
and 2008, and the percentage change in gross written premiums
for each such line:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Written Premiums
|
|
|
|
For the Three Months
|
|
|
For the Three Months
|
|
Lines of Business
|
|
Ended September 30, 2009
|
|
|
Ended September 30, 2008
|
|
|
|
($ in millions)
|
|
|
% increase/
|
|
|
($ in millions)
|
|
|
|
|
|
|
(decrease)
|
|
|
|
|
|
Treaty catastrophe
|
|
$
|
69.7
|
|
|
|
7.2
|
|
|
$
|
65.0
|
|
Treaty risk excess
|
|
|
24.8
|
|
|
|
(31.7
|
)
|
|
|
36.3
|
|
Treaty pro rata
|
|
|
36.6
|
|
|
|
0.3
|
|
|
|
36.5
|
|
Property facultative
|
|
|
12.8
|
|
|
|
(14.7
|
)
|
|
|
15.0
|
|
Credit, surety and political risk reinsurance
|
|
|
27.3
|
|
|
|
Nm
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
171.2
|
|
|
|
12.0
|
%
|
|
$
|
152.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Not meaningful This
line of business was not operational at September 30, 2008.
|
Losses and loss adjustment expenses. The net
loss ratio for the three months ended September 30, 2009
was 25.9% compared to 118.6% in 2008. An absence of significant
catastrophe-related losses in the quarter compared to losses
from Hurricanes Ike and Gustav in the third quarter of 2008 is
the main driver for the reduction in the net loss ratio. Reserve
releases in the quarter were $19.1 million, up from
$3.3 million in the third quarter of 2008 with the increase
driven by better than expected development on outstanding
claims, particularly in our risk excess and property pro-rata
lines.
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 $45.4 million
equivalent to 32.2% of net premiums earned for the three months
ended September 30, 2009 compared with $38.1 million
or 27.4% of net premiums earned for the three months ended
September 30, 2008. The increase in the expense ratio is
driven by the higher operating and administrative expense ratio
which increased to 14.9% from 10.6% in the third quarter of
2008. The increase in operating and administrative expenses of
$6.3 million from the third quarter of 2008 is attributable
mainly to an increase in performance-related expenses.
40
Casualty
Reinsurance
Our casualty reinsurance segment is written mainly on a pro rata
and treaty basis with a small proportion of facultative risks.
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 21.1% to $96.5 million due mainly to
additional premiums of $13.0 million for the 2006 and
2007 years in our U.S. casualty treaty line. The table
below shows our gross written premiums for each line of business
for the three months ended September 30, 2009 and 2008, and
the percentage change in gross written premiums for each such
line:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Written Premiums
|
|
|
|
For the Three Months
|
|
|
For the Three Months
|
|
Lines of Business
|
|
Ended September 30, 2009
|
|
|
Ended September 30, 2008
|
|
|
|
($ in millions)
|
|
|
% increase/
|
|
|
($ in millions)
|
|
|
|
|
|
|
(decrease)
|
|
|
|
|
|
U.S. treaty
|
|
$
|
74.8
|
|
|
|
24.5
|
%
|
|
$
|
60.1
|
|
International treaty
|
|
|
16.3
|
|
|
|
6.5
|
|
|
|
15.3
|
|
Casualty facultative
|
|
|
5.4
|
|
|
|
25.6
|
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
96.5
|
|
|
|
21.1
|
%
|
|
$
|
79.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses. Losses
and loss adjustment expenses for the third quarter of 2009
decreased by $3.3 million when compared to the third
quarter of 2008. The decrease is attributable mainly to the
third quarter of 2008 including a $10 million increase in
loss provisions for potential exposure associated with the
global financial crisis. Prior year reserve releases are further
discussed below under Reserves for Losses and Loss
Expenses.
Policy acquisition, operating and administrative
expenses. Total expenses were $29.1 million
for the three months ended September 30, 2009 equivalent to
25.3% of net premiums earned (2008 23.2%). Policy
acquisition expenses have increased by $2.6 million in the
third quarter of 2009 compared to the same period in 2008, as
the comparative period included an adjustment to brokerage in
the international treaty business line. Operating and
administrative expenses of $9.9 million are broadly in line
with the same period in 2008.
International
Insurance
Our international insurance segment comprises marine hull,
marine, energy and construction liability, energy property
damage, aviation, professional liability, excess casualty,
financial institutions, financial and political risk, specie,
management and technology liability, U.K. commercial property
(including construction) and U.K. commercial liability
insurance. The U.K. 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
increased marginally to $183.9 for the quarter from
$180.8 million in the equivalent period in 2008. The
increase in gross written premium is attributable to a
$4.7 million contribution from the specie and management
and technology liability business lines which commenced
underwriting after the third quarter of 2008, compensating for a
small net reduction in premiums written in the other business
lines. We have written 26% less premium in energy property
insurance than the comparable period of 2008 due to a lack of
demand for wind cover and we have written 50% less premium in
financial institutions due to the repositioning of the business
line following the global financial crisis.
41
Gross written premiums in our U.K. commercial property and
liability lines have also been adversely impacted by exchange
rate movements as premiums are written in British Pounds which
has weakened against the U.S. Dollar during the period.
The table below shows our gross written premiums for each line
of business for the three months ended September 30, 2009
and 2008, and the percentage change in gross written premiums
for each line:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Written Premiums
|
|
|
|
For the Three Months
|
|
|
For the Three Months
|
|
Lines of Business
|
|
Ended September 30, 2009
|
|
|
Ended September 30, 2008
|
|
|
|
($ in millions)
|
|
|
% increase/
|
|
|
($ in millions)
|
|
|
|
|
|
|
(decrease)
|
|
|
|
|
|
Marine, energy and construction liability
|
|
$
|
19.7
|
|
|
|
39.7
|
%
|
|
$
|
14.1
|
|
Energy property insurance
|
|
|
16.5
|
|
|
|
(26.0
|
)
|
|
|
22.3
|
|
Marine hull
|
|
|
13.1
|
|
|
|
22.4
|
|
|
|
10.7
|
|
Aviation insurance
|
|
|
23.5
|
|
|
|
21.8
|
|
|
|
19.3
|
|
U.K. commercial property and construction
|
|
|
13.2
|
|
|
|
(28.6
|
)
|
|
|
18.5
|
|
U.K. commercial liability
|
|
|
15.9
|
|
|
|
(31.8
|
)
|
|
|
23.3
|
|
Professional liability
|
|
|
17.8
|
|
|
|
33.8
|
|
|
|
13.3
|
|
Excess casualty
|
|
|
18.3
|
|
|
|
4.0
|
|
|
|
17.6
|
|
Financial institutions
|
|
|
7.9
|
|
|
|
(50.0
|
)
|
|
|
15.8
|
|
Financial and political risk
|
|
|
7.4
|
|
|
|
34.5
|
|
|
|
5.5
|
|
Management and technology liability
|
|
|
2.5
|
|
|
|
Nm
|
*
|
|
|
|
|
Specie
|
|
|
2.2
|
|
|
|
Nm
|
*
|
|
|
|
|
Specialty reinsurance
|
|
|
25.9
|
|
|
|
27.0
|
|
|
|
20.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
183.9
|
|
|
|
1.7
|
%
|
|
$
|
180.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Not meaningful This
line of business was not operational at September 30, 2008.
|
Losses and loss adjustment expenses. The loss
ratio for the quarter was 60.3% compared to 89.4% for the three
months ended September 30, 2008, a decrease of
29.1 percentage points. During the third quarter of 2008,
the segment was impacted by Hurricanes Ike and Gustav which
increased the loss ratio by 25.1 percentage points during
that quarter. The three months ended September 30, 2009
were not impacted by any such catastrophic events with the only
notable net loss being $7.0 million following a failed
satellite launch. Prior year reserve releases have increased by
$14.5 million to $16.4 million due to generally
favorable loss experience across a number of lines of business.
Policy acquisition, operating and administrative
expenses. Policy acquisition expenses were
$31.0 million for the three months ended September 30,
2009 equivalent to 16.5% of net premiums earned
(2008 $26.5 million or 16.7% of net earned
premium). The increase in operating and administrative expenses
to $24.5 million in the third quarter of 2009 from
$21.1 million for the comparative period in 2008 is
attributable mainly to an increase in profit-related staff
costs. The additional costs have been partly offset by favorable
movements in the exchange rates between the U.S. Dollar and
the British Pound.
42
U.S.
Insurance
We write both U.S. property and casualty insurance on an
excess and surplus lines basis. We also write property insurance
that provides underwriting support to a select group of
U.S. program managers. This is referred to as our risk
solutions business.
Gross written premiums. Gross written premiums
increased by 38.2% compared to the third quarter of 2008 due
mainly to new business subsequent to the reshaping of our
property insurance line in 2008 and increased prices for
catastrophe-exposed business. Casualty premium is broadly in
line with the prior period while an additional $2.5 million
contribution was recognized in the new risk solutions line of
business.
The table below shows our gross written premiums for each line
of business for the three months ended September 30, 2009
and 2008, and the percentage change in gross written premiums
for each such line:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Written Premiums
|
|
|
|
For the Three Months
|
|
|
For the Three Months
|
|
Lines of Business
|
|
Ended September 30, 2009
|
|
|
Ended September 30, 2008
|
|
|
|
($ in millions)
|
|
|
% increase/
|
|
|
($ in millions)
|
|
|
|
|
|
|
(decrease)
|
|
|
|
|
|
U.S. property
|
|
$
|
17.3
|
|
|
|
61.7
|
%
|
|
$
|
10.7
|
|
U.S. casualty
|
|
|
18.9
|
|
|
|
9.2
|
%
|
|
|
17.3
|
|
U.S. risk solutions
|
|
|
2.5
|
|
|
|
Nm
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
38.7
|
|
|
|
38.2
|
%
|
|
$
|
28.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Not meaningful This
line of business was not operational at September 30, 2008.
|
Losses and loss adjustment expenses. The loss
ratio has decreased from 130.1% for the third quarter of 2008 to
47.4% for the same period in 2009 mainly as a result of the
prior period experiencing $15.0 million of losses related
to Hurricanes Ike and Gustav. In the third quarter of 2008,
there were reserve releases of $0.7 million compared to
$0.8 million of reserve strengthening in the third quarter
of 2009 due to a small deterioration in casualty insurance which
exhibited marginally worse than expected experience.
Policy acquisition, operating and administrative
expenses. Policy acquisition expenses have
increased to $5.0 million in the current period from
$3.9 million for the equivalent period in 2008 due mainly
to higher earned premium and changes in the business mix.
Operating and administrative expenses have increased to
$8.3 million in 2009 from $6.2 million in 2008 due
mainly to an increase related to certain reorganization costs.
Total
Income Statement Third 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 third quarter of 2009 have increased by 11.1% to
$490.3 million when compared to the third quarter of 2008
due mainly to increased contributions from our property
reinsurance and casualty reinsurance segments. The casualty
reinsurance segment has benefited principally from
$13.0 million of premium adjustments, particularly in our
U.S. treaty business. The property reinsurance segment has
benefited from a $27.3 million contribution from the newly
established credit, surety and political risk business line
compensating for reductions in premiums written in our treaty
risk excess business line. Our U.S. insurance segment has
also experienced growth in the quarter particularly in the
property line due mainly to new business subsequent
43
to the reshaping of the portfolio in 2008 and increased prices
for catastrophe exposed business. Gross written premiums in the
international insurance segment have increased marginally by
1.7% to $183.9 million when compared to the third quarter
of 2008 due to a $4.7 million contribution from the specie
and management and technology liability business lines which
commenced underwriting after the third quarter of 2008,
compensating for a small net reduction in premiums written in
the other business lines.
Reinsurance ceded. Total reinsurance ceded for
the three months ended September 30, 2009 of
$28.2 million decreased by $9.3 million from the third
quarter of 2008. The reduction in ceded written premiums in the
quarter is due to the comparative period including
$7.4 million of reinstatement premiums associated with
Hurricanes Ike and Gustav.
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 third quarter of 2009 increased by 8.1% compared to the
third quarter of 2008 reflecting the earning of the newer
business lines written in the second half of 2008.
Net premiums earned. Net premiums earned have
increased by $36.7 million or 8.5% in the third quarter of
2009 compared to 2008 which is consistent with the increase in
gross earned premiums. The increase in gross earned premiums has
been partially offset by an increase in ceded earned premiums
resulting from the increases in reinsurance purchased to cover
new lines.
Losses and loss adjustment expenses. The
decrease in losses and loss adjustment expenses resulted from
the prior year experiencing $186.0 million of losses from
Hurricanes Ike and Gustav. Reserve releases are higher in the
current quarter due generally to favorable development across
most lines.
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
|
|
|
|
|
|
|
|
|
|
Hurricane
|
|
|
Excluding
|
|
|
|
Total Loss
|
|
|
Prior Year
|
|
|
Claims
|
|
|
Prior Year
|
|
For the Three Months Ended September 30, 2009
|
|
Ratio
|
|
|
Adjustment
|
|
|
Adjustment
|
|
|
Adjustments
|
|
|
Property reinsurance
|
|
|
25.9
|
%
|
|
|
12.0
|
%
|
|
|
|
|
|
|
37.9
|
%
|
Casualty reinsurance
|
|
|
63.0
|
%
|
|
|
8.3
|
%
|
|
|
|
|
|
|
71.3
|
%
|
International insurance
|
|
|
60.3
|
%
|
|
|
8.9
|
%
|
|
|
|
|
|
|
69.2
|
%
|
U.S. insurance
|
|
|
47.4
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
49.0
|
%
|
Total
|
|
|
49.9
|
%
|
|
|
9.0
|
%
|
|
|
|
|
|
|
58.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior Year
|
|
|
|
|
|
|
Prior Year
|
|
|
Hurricane
|
|
|
Reserve and
|
|
|
|
Total Loss
|
|
|
Claims
|
|
|
Claims
|
|
|
Hurricane
|
|
For the Three Months Ended September 30, 2008
|
|
Ratio
|
|
|
Adjustment
|
|
|
Adjustment
|
|
|
Adjustments
|
|
|
Property reinsurance
|
|
|
118.6
|
%
|
|
|
2.4
|
%
|
|
|
(94.5
|
)%
|
|
|
26.5
|
%
|
Casualty reinsurance
|
|
|
67.2
|
%
|
|
|
8.6
|
%
|
|
|
|
|
|
|
75.8
|
%
|
International insurance
|
|
|
89.4
|
%
|
|
|
1.2
|
%
|
|
|
(25.1
|
)%
|
|
|
65.5
|
%
|
U.S. insurance
|
|
|
130.1
|
%
|
|
|
2.9
|
%
|
|
|
(62.8
|
)%
|
|
|
70.2
|
%
|
Total
|
|
|
95.2
|
%
|
|
|
3.6
|
%
|
|
|
(42.8
|
)%
|
|
|
56.0
|
%
|
44
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
September 30, 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 Months
|
|
|
For the Three Months
|
|
|
|
Ended September 30, 2009
|
|
|
Ended September 30, 2008
|
|
|
Policy acquisition expenses
|
|
|
15.2
|
%
|
|
|
14.6
|
%
|
Operating and administrative expenses
|
|
|
12.2
|
%
|
|
|
10.7
|
%
|
|
|
|
|
|
|
|
|
|
Gross expense ratio
|
|
|
27.4
|
%
|
|
|
25.3
|
%
|
Effect of reinsurance
|
|
|
3.0
|
%
|
|
|
2.8
|
%
|
|
|
|
|
|
|
|
|
|
Total net expense ratio
|
|
|
30.4
|
%
|
|
|
28.1
|
%
|
|
|
|
|
|
|
|
|
|
45
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 September 30, 2009 and 2008 are shown in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2009
|
|
|
For the Three Months Ended September 30, 2008
|
|
Ratios Based on Gross
|
|
Property
|
|
|
Casualty
|
|
|
International
|
|
|
U.S.
|
|
|
|
|
|
Property
|
|
|
Casualty
|
|
|
International
|
|
|
U.S.
|
|
|
|
|
Earned Premium
|
|
Insurance
|
|
|
Reinsurance
|
|
|
Insurance
|
|
|
Insurance
|
|
|
Total
|
|
|
Insurance
|
|
|
Reinsurance
|
|
|
Insurance
|
|
|
Insurance
|
|
|
Total
|
|
|
Policy acquisition expense ratio
|
|
|
15.7
|
%
|
|
|
16.9
|
%
|
|
|
14.5
|
%
|
|
|
12.8
|
%
|
|
|
15.2
|
%
|
|
|
15.4
|
%
|
|
|
14.6
|
%
|
|
|
14.3
|
%
|
|
|
12.4
|
%
|
|
|
14.6
|
%
|
Operating and administrative expense ratio
|
|
|
13.5
|
|
|
|
8.7
|
|
|
|
11.4
|
|
|
|
21.2
|
|
|
|
12.2
|
|
|
|
9.7
|
|
|
|
8.4
|
|
|
|
11.4
|
|
|
|
19.7
|
|
|
|
10.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross expense ratio
|
|
|
29.2
|
|
|
|
25.6
|
|
|
|
25.9
|
|
|
|
34.0
|
|
|
|
27.4
|
|
|
|
25.1
|
|
|
|
23.0
|
|
|
|
25.7
|
|
|
|
32.1
|
|
|
|
25.3
|
|
Effect of reinsurance
|
|
|
3.0
|
|
|
|
(0.3
|
)
|
|
|
3.6
|
|
|
|
15.2
|
|
|
|
3.0
|
|
|
|
2.3
|
|
|
|
0.2
|
|
|
|
4.3
|
|
|
|
9.9
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net expense ratio
|
|
|
32.2
|
%
|
|
|
25.3
|
%
|
|
|
29.5
|
%
|
|
|
49.2
|
%
|
|
|
30.4
|
%
|
|
|
27.4
|
%
|
|
|
23.2
|
%
|
|
|
30.0
|
%
|
|
|
42.0
|
%
|
|
|
28.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The policy acquisition ratio, gross of the effect of
reinsurance, has increased to 15.2% for the three months ended
September 30, 2009 from 14.6% for the comparative period in
2008. The third quarter of 2008 had an adjustment to brokerage
in the casualty reinsurance segment which contributed to a lower
expense figure in that period. The increase was also due to
changes in business mix in the U.S. insurance and
international insurance segments which changed the relative
contributions from business lines which have different average
acquisition costs.
Between the two periods we have experienced a $12.1 million
increase in our operating and administrative expenses. The
increase is due mainly to profit related staff costs but also to
$1.8 million of expenses associated with the new teams.
Net investment income. Net investment income
consists of interest on fixed income securities, short term
investments and money market holdings, and the change in value
of other investments, less investment management fees. In the
third quarter of 2009, we generated net investment income of
$58.9 million (2008 $19.3 million). The
$39.6 million increase in investment income was primarily
due to the 2008 period having losses of $42.2 million from
our investment in funds of hedge funds reported in investment
income in the three months ended September 30, 2008. Book
yield on our fixed income portfolio of 4.4% is broadly in line
with the second quarter of 2009, however, it has decreased from
4.9% in the third quarter of 2008 due mainly to the decrease in
interest rates. The portfolio duration increased from
3.2 years at the end of the second quarter of 2009 to
3.3 years. This compares with 3.5 years in the third
quarter of 2008. The average credit quality of our fixed income
portfolio is AA+, with 73%
(2008 88%) of the portfolio being rated
AA or higher.
Change in fair value of derivatives. In the
three months ended September 30, 2009, we recorded a
reduction of $2.0 million (2008
$0.7 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 8 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 before 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 the third quarter of 2009 include a
$1.8 million charge for investments we believe to be
other-than-temporarily impaired (2008
$55.8 million). Other-than-temporary impairment losses of
$1.8 million for the quarter were credit related and
therefore are included in the income statement. The
other-than-temporary impairment charge of
46
$55.8 million in the third quarter of 2008 was attributable
mainly to the write-down of Lehman Brothers bonds subsequent to
that companys collapse in September 2008.
Income before tax. In the third quarter of
2009, income before tax was $171.1 million and comprised
$92.5 million of underwriting profit, $58.9 million in
net investment income, $22.5 million of net realized and
unrealized investment and foreign exchange gains
$3.9 million of interest expense and $1.1 million of
other income. In the third quarter of 2008, we reported a loss
before tax of $145.9 million which comprised
$101.2 million of underwriting loss, $19.3 million in
net investment income, $60.8 million of net foreign
exchange and investment losses, $0.6 million of other
income and $3.8 million of interest expense. Underwriting
losses in the third quarter of 2008 were heavily impacted by
Hurricanes Ike and Gustav. Our higher net investment income in
the quarter was due to the absence of losses from our
investments funds of hedge funds which we redeemed with effect
on June 30, 2009.
Income tax expense. Income tax expense for the
three months ended September 30, 2009 was
$25.3 million. Our effective consolidated tax rate for the
three months ended September 30, 2009 was 14.8%
(2008 13.6% credit). 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 September 30, 2009 was
$145.8 million, equivalent to $1.69 basic earnings per
ordinary share adjusted for the $5.6 million preference
share dividends and $1.63 fully diluted earnings per ordinary
share adjusted for the preference share dividends on the basis
of the weighted average number of ordinary shares in issue
during the three months ended September 30, 2009. The net
loss for the three months ended September 30, 2008 was
$126.1 million equivalent to a basic and diluted loss of
$1.63 per ordinary share.
Results
of Operations for the Nine Months Ended September 30, 2009
Compared to the Nine Months Ended September 30,
2008
The following is a discussion and analysis of our consolidated
results of operations for the nine months ended
September 30, 2009 and 2008 starting with a discussion of
segmental results and then summarizing our consolidated results
under Total Income Statement Nine months ended
September 30, 2009 below.
Underwriting
Results by Operating Segments
Please refer to the tables in Note 4 in our unaudited
financial statements of this report for a summary of gross and
net written and earned premiums, underwriting results and
combined ratios and reserves for each of our four business
segments for the nine months ended September 30, 2009 and
2008. The contributions of each segment to gross written
premiums in the nine months ended September 30, 2009 and
2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Gross Written Premiums
|
|
|
|
For the Nine Months
|
|
|
For the Nine Months
|
|
Business Segment
|
|
Ended September 30, 2009
|
|
|
Ended September 30, 2008
|
|
|
|
% of total gross written premiums
|
|
|
Property reinsurance
|
|
|
34.4
|
%
|
|
|
32.4
|
%
|
Casualty reinsurance
|
|
|
20.6
|
%
|
|
|
20.3
|
%
|
International insurance
|
|
|
37.2
|
%
|
|
|
40.8
|
%
|
U.S. insurance
|
|
|
7.8
|
%
|
|
|
6.5
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
Gross Written Premiums
|
|
|
|
For the Nine Months
|
|
|
For the Nine Months
|
|
Business Segment
|
|
Ended September 30, 2009
|
|
|
Ended September 30, 2008
|
|
|
|
($ in millions)
|
|
|
Property reinsurance
|
|
$
|
571.7
|
|
|
$
|
507.5
|
|
Casualty reinsurance
|
|
|
342.3
|
|
|
|
318.6
|
|
International insurance
|
|
|
617.3
|
|
|
|
639.0
|
|
U.S. insurance
|
|
|
130.1
|
|
|
|
101.2
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,661.4
|
|
|
$
|
1,566.3
|
|
|
|
|
|
|
|
|
|
|
Property
Reinsurance
For a description of our property reinsurance segment, refer to
Results of Operations for the Three Months Ended
September 30, 2009 Compared to the Three Months Ended
September 30, 2008 Property Reinsurance,
above.
Gross written premiums. Gross written premiums
in our property reinsurance segment increased by 12.7% compared
to the nine months ended September 30, 2008. This increase
is mainly due to the $42.9 million contribution from our
new credit, surety and political risk team.
The table below shows our gross written premiums for each line
of business for the nine months ended September 30, 2009
and 2008, and the percentage change in gross written premiums
for each such line:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Written Premiums
|
|
|
|
For the Nine Months
|
|
|
For the Nine Months
|
|
Lines of Business
|
|
Ended September 30, 2009
|
|
|
Ended September 30, 2008
|
|
|
|
($ in millions)
|
|
|
% increase/
|
|
|
($ in millions)
|
|
|
|
|
|
|
(decrease)
|
|
|
|
|
|
Treaty catastrophe
|
|
$
|
264.8
|
|
|
|
3.5
|
|
|
$
|
255.8
|
|
Treaty risk excess
|
|
|
93.3
|
|
|
|
(12.1
|
)
|
|
|
106.2
|
|
Treaty pro rata
|
|
|
129.3
|
|
|
|
22.3
|
|
|
|
105.7
|
|
Property facultative
|
|
|
41.4
|
|
|
|
4.0
|
|
|
|
39.8
|
|
Credit, surety and political risk reinsurance
|
|
|
42.9
|
|
|
|
Nm
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
571.7
|
|
|
|
12.6
|
%
|
|
$
|
507.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Not meaningful This
line of business was not operational at September 30, 2008.
|
Losses and loss adjustment expenses. The net
loss ratio for the nine months ended September 30, 2009 was
23.6% compared to 61.9% in 2008 due to a lack of hurricane
losses in 2009 and a $27.1 million increase in prior year
reserve releases compared to the prior period. The loss ratio in
2008 was adversely affected by $131.2 million of losses
from Hurricanes Ike and Gustav and a high incidence of risk
losses particularly in the first quarter of 2008. Reserve
releases in the year to date were $46.6 million, up from
$19.5 million in the nine months ending September 30,
2008 due mainly to favorable loss experience in relation to
reductions in loss provisions for 2008 hurricane losses and
better than expected development on outstanding claims. 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 $128.4 million
for the nine months ended September 30, 2009 equivalent to
31.2% of net premiums earned (2008 31.5%). The
policy acquisition expense ratio for the nine months ended
September 30, 2009 of 18.7% is in line with 2008. The
increase in the operating and administrative expenses to
$51.3 million from $49.7 million for the comparative
period in 2008 is mainly attributable to profit related staff
costs partly offset by continued cost management and favorable
movement in the exchange rate between the U.S. Dollar and
British Pounds between the two periods.
48
Casualty
Reinsurance
For a description of our casualty reinsurance segment, refer to
Results of Operations for the Three Months Ended
September 30, 2009 Compared to the Three Months Ended
September 30, 2008 Casualty Reinsurance.
Gross written premiums. The 7.4% increase in
gross written premiums for the segment was due mainly to an
increased contribution from our U.S. treaty business unit
which has recorded additional premiums from adjustable
contracts. The reduction in premiums from the international
treaty business line was due to increased competition. The table
below shows our gross written premiums for each line of business
for the nine months ended September 30, 2009 and 2008, and
the percentage change in gross written premiums for each such
line:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Written Premiums
|
|
|
|
For the Nine Months
|
|
|
For the Nine Months
|
|
Lines of Business
|
|
Ended September 30, 2009
|
|
|
Ended September 30, 2008
|
|
|
|
($ in millions)
|
|
|
% increase/
|
|
|
($ in millions)
|
|
|
|
|
|
|
(decrease)
|
|
|
|
|
|
U.S. treaty
|
|
$
|
237.8
|
|
|
|
21.0
|
%
|
|
$
|
196.6
|
|
International treaty
|
|
|
92.8
|
|
|
|
(16.0
|
)
|
|
|
110.5
|
|
Casualty facultative
|
|
|
11.7
|
|
|
|
1.7
|
|
|
|
11.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
342.3
|
|
|
|
7.4
|
%
|
|
$
|
318.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses. Losses
and loss adjustment expenses increased by $22.1 million in
2009 compared to the equivalent period in 2008, due primarily to
a $29.4 million decrease in prior year reserve releases.
The change in reserve releases is mainly due to the
international casualty treaty line which experienced a reserve
strengthening of $5.6 million in the period compared to a
$22.6 million release in the nine months ended
September 30, 2008. The reserve strengthening for
international casualty was due to adverse development on our
auto and general liability accounts. Prior year reserve
movements are further discussed below under Reserves for
Losses and Loss Expenses.
Policy acquisition, operating and administrative
expenses. Total expenses were $91.1 million
for the nine months ended September 30, 2009 equivalent to
27.9% of net premiums earned (2008 26.9%). The
policy acquisition expense ratio has increased to 18.7% in 2009
from 15.7% in 2008 driven mainly by a $2.0 million increase
in profit commission accruals but also due to 2008 including an
adjustment to brokerage which resulted in a lower expense. This
has been offset by a decrease in the operating and
administrative expense ratio from 11.2% in 2008 to 9.2% in the
current year due to a $3.0 million reallocation of expenses
to property reinsurance, and favorable movement in the exchange
rate between the U.S. Dollar and British Pound between the
two periods.
International
Insurance
For a description of our international insurance segment, refer
to Results of Operations for the Three Months Ended
September 30, 2009 Compared to the Three Months Ended
September 30, 2008 International
Insurance.
Gross written premiums. Overall premiums have
reduced by $21.7 million in the period compared to the nine
months ended September 30, 2008, mainly due to our response
to market conditions in certain lines of business and adverse
exchange rate movements impacting our U.K. property and
liability business lines. The contribution from our professional
liability and excess casualty business lines has increased as
these new lines were still being established in the first half
of 2008. Marine, energy and construction liability has also
benefited from additional premiums from loss affected contracts
in 2008. Even though rates for Gulf of Mexico energy risks have
improved significantly, some clients chose to buy less insurance
or retain the risk altogether. Our premiums written in financial
institutions have also decreased due to the repositioning of
this line following the global financial crisis. We also
declined a number of risks that did not meet our underwriting
criteria.
49
The table below shows our gross written premiums for each line
of business for the nine months ended September 30, 2009
and 2008, and the percentage change in gross written premiums
for each line:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Written Premiums
|
|
|
|
For the Nine Months
|
|
|
For the Nine Months
|
|
Lines of Business
|
|
Ended September 30, 2009
|
|
|
Ended September 30, 2008
|
|
|
|
($ in millions)
|
|
|
% increase/
|
|
|
($ in millions)
|
|
|
|
|
|
|
(decrease)
|
|
|
|
|
|
Marine, energy and construction liability
|
|
$
|
140.7
|
|
|
|
21.0
|
%
|
|
$
|
116.3
|
|
Energy property insurance
|
|
|
73.9
|
|
|
|
(15.4
|
)
|
|
|
87.4
|
|
Marine hull
|
|
|
44.4
|
|
|
|
(5.1
|
)
|
|
|
46.8
|
|
Aviation insurance
|
|
|
55.5
|
|
|
|
3.5
|
|
|
|
53.6
|
|
U.K. commercial property and construction
|
|
|
44.3
|
|
|
|
(19.6
|
)
|
|
|
55.1
|
|
U.K. commercial liability
|
|
|
36.8
|
|
|
|
(39.2
|
)
|
|
|
60.5
|
|
Professional liability
|
|
|
35.2
|
|
|
|
24.4
|
|
|
|
28.3
|
|
Excess casualty
|
|
|
50.2
|
|
|
|
6.1
|
|
|
|
47.3
|
|
Financial institutions
|
|
|
15.3
|
|
|
|
(45.2
|
)
|
|
|
27.9
|
|
Financial and political risk
|
|
|
20.2
|
|
|
|
(35.5
|
)
|
|
|
31.3
|
|
Management and technology liability
|
|
|
7.0
|
|
|
|
Nm
|
*
|
|
|
|
|
Specie
|
|
|
4.0
|
|
|
|
Nm
|
*
|
|
|
|
|
Specialty reinsurance
|
|
|
89.8
|
|
|
|
6.3
|
|
|
|
84.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
617.3
|
|
|
|
(3.4
|
)%
|
|
$
|
639.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Not Meaningful These
lines of business were not operational at September 30,
2008.
|
Losses and loss adjustment expenses. The net
loss ratio for the nine months ended September 30, 2009 was
67.1% compared to 68.5% in 2008. The improvement in the loss
ratio in the period is due mainly to $39.8 million of
losses from Hurricanes Ike and Gustav in 2008. The reduction in
reserve releases from $20.0 million in 2008 to
$12.7 million in 2009 is predominately due to increased
provisions for those lines affected by the global financial
crisis and to adverse development on our marine, energy and
construction liability and non-marine and transportation
liability (which now forms part of excess casualty) business
lines. Current year losses have been impacted by our aviation
and specialty reinsurance lines which have suffered from a
$10.6 million net loss associated with the Air France
disaster and a $7.0 million satellite loss. In the first
half of 2008, the segment suffered from a $6.4 million
satellite loss, a $15.9 million pollution loss in France
and a $3.4 million airline loss. Prior year reserve
releases are further discussed under Reserves for Losses
and Loss Expenses.
Policy acquisition, operating and administrative
expenses. Total expenses were $154.8 million
for the nine months ended September 30, 2009 equivalent to
29.1% of net premiums earned (2008 29.4%). The
acquisition expense ratio has reduced by 0.4 percentage
points in the period due to changes in the relative
contributions from the business lines.
Operating and administrative expenses have increased by
$7.7 million compared to the nine months ended
September 30, 2008 mainly due to the recognition of
profit-related staff costs, increases in personnel costs
associated with the establishment of our new underwriting teams
and costs associated with the Lloyds syndicate.
50
U.S.
Insurance
We write both U.S. property and casualty insurance on an
excess and surplus lines basis. We also write property insurance
that provides underwriting support to a select group of U.S.
program managers. We refer to this as our risk solutions
business.
Gross written premiums. Gross written premiums
increased by 28.6% compared to the prior period of 2008. The
written premium increase is the result of new business written
as the property account has been reshaped, increased prices for
catastrophe exposed business and the program property business
written by the new risk solutions team.
The table below shows our gross written premiums for each line
of business for the nine months ended September 30, 2009
and 2008, and the percentage change in gross written premiums
for each such line:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Written Premiums
|
|
|
|
For the Nine Months
|
|
|
For the Nine Months
|
|
Lines of Business
|
|
Ended September 30, 2009
|
|
|
Ended September 30, 2008
|
|
|
|
($ in millions)
|
|
|
% increase/
|
|
|
($ in millions)
|
|
|
|
|
|
|
(decrease)
|
|
|
|
|
|
U.S. property
|
|
$
|
66.5
|
|
|
|
57.2
|
%
|
|
$
|
42.3
|
|
U.S. casualty
|
|
|
61.1
|
|
|
|
3.7
|
|
|
|
58.9
|
|
U.S. risk solutions
|
|
|
2.5
|
|
|
|
Nm
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
130.1
|
|
|
|
28.6
|
%
|
|
$
|
101.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Not Meaningful This
line of business was not operational at September 30, 2008.
|
Losses and loss adjustment expenses. Losses
for the period have decreased by $1.1 million. Even though
the period in 2008 experienced losses of $15.0 million from
Hurricanes Ike and Gustav, the period benefitted from
$8.1 million of reserve releases. In contrast, the
nine-month period in 2009 experienced reserve strengthening of
$6.9 million. This strengthening is attributable to adverse
loss development on our casualty line where incurred development
has been greater than expected.
Policy acquisition, operating and administrative
expenses. Policy acquisition expenses have
decreased by $0.5 million due to changes in the mix of
property business. Operating and administrative expenses have
increased from $18.8 million in 2008 to $24.9 million
in 2009 due primarily to reorganization costs. The expense ratio
continues to be adversely impacted in the short-term as a result
of the investment we have made to rebuild the account and
reshape our U.S. operations.
Total
Income Statement Nine Months ended
September 30, 2009
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
increased in the first nine months of 2009 by 6.1% compared to
the corresponding period in 2008 as a result of a number of
factors including the $42.9 million contribution from our
new credit, surety and political risk team included in the
property reinsurance segment, an increased contribution from our
U.S. casualty treaty business unit which has recorded
additional premiums from adjustable contracts and new
U.S. insurance business written as the property account has
been reshaped, increased prices for catastrophe-exposed business
and the program property business written by the new risk
solutions team.
Reinsurance ceded. Our reinsurance spend of
$208.0 million is 51.9% higher than the corresponding
period of 2008, because in 2007 we had taken the opportunity to
purchase property covers at favorable prices for two wind
seasons. We have experienced a general increase in price for
reinsurance in 2009, an increase due to the purchase of
reinsurance for our newer lines and due to reinstatement costs
following losses in our financial institutions and aviation
insurance business lines.
51
Gross premiums earned. Gross premiums earned
in the first nine months of 2009 increased by 11.6% compared to
2008 primarily from the new lines of business which have now
earned premium through a full year and also as a result of the
favorable market conditions particularly in property reinsurance
and U.S. property insurance.
Net premiums earned. Net premiums earned have
increased by 10.1% in the first nine months of 2009 compared to
the first nine months of 2008 due to additional premiums from
our new lines of business being partially offset by additional
reinsurance costs.
Losses and loss adjustment expenses. The loss
ratio decreased from 66.1% in the nine months period of 2008 to
53.5% in the nine months ended September 30, 2009.
Excluding the impact of Hurricanes Ike and Gustav, the loss
ratio has increased in 2009 by 2.6 percentage points
predominantly as a result of a reduction in prior year reserve
releases by $24.6 million. Further information relating to
movements in prior year reserves can be found below under
Reserves for Loss and Loss Adjustment Expenses.
The underlying changes in loss ratios by segment are shown in
the table below. The prior year adjustment in the table below
reflects claims development and does not reflect the impact of
prior year premium adjustments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding
|
|
|
|
|
|
|
Prior Year
|
|
|
Hurricane
|
|
|
Prior Year
|
|
|
|
Total Loss
|
|
|
Claims
|
|
|
Claims
|
|
|
Reserve
|
|
For the Nine Months Ended September 30, 2009
|
|
Ratio
|
|
|
Adjustment
|
|
|
Adjustment
|
|
|
Adjustments
|
|
|
Property reinsurance
|
|
|
23.6
|
%
|
|
|
11.3
|
%
|
|
|
|
|
|
|
34.9
|
%
|
Casualty reinsurance
|
|
|
65.6
|
%
|
|
|
5.7
|
%
|
|
|
|
|
|
|
71.3
|
%
|
International insurance
|
|
|
67.1
|
%
|
|
|
2.4
|
%
|
|
|
|
|
|
|
69.5
|
%
|
U.S. insurance
|
|
|
68.6
|
%
|
|
|
(9.1
|
)%
|
|
|
|
|
|
|
59.5
|
%
|
Total
|
|
|
53.5
|
%
|
|
|
5.3
|
%
|
|
|
|
|
|
|
58.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior Year
|
|
|
|
|
|
|
Prior Year
|
|
|
Hurricane
|
|
|
Reserve and
|
|
|
|
Total Loss
|
|
|
Claims
|
|
|
Claims
|
|
|
Hurricane
|
|
For the Nine Months Ended September 30, 2008
|
|
Ratio
|
|
|
Adjustment
|
|
|
Adjustment
|
|
|
Adjustments
|
|
|
Property reinsurance
|
|
|
61.9
|
%
|
|
|
5.0
|
%
|
|
|
(33.7
|
)%
|
|
|
33.2
|
%
|
Casualty reinsurance
|
|
|
65.3
|
%
|
|
|
16.4
|
%
|
|
|
|
|
|
|
81.7
|
%
|
International insurance
|
|
|
68.5
|
%
|
|
|
4.2
|
%
|
|
|
(8.4
|
)%
|
|
|
64.3
|
%
|
U.S. insurance
|
|
|
77.6
|
%
|
|
|
11.8
|
%
|
|
|
(21.9
|
)%
|
|
|
67.5
|
%
|
Total
|
|
|
66.1
|
%
|
|
|
7.8
|
%
|
|
|
(15.2
|
)%
|
|
|
58.7
|
%
|
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 nine months ended
September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
Expense Ratios
|
|
|
|
For the Nine Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30, 2009
|
|
|
Ended September 30, 2008
|
|
|
Policy acquisition expenses
|
|
|
15.9
|
%
|
|
|
15.7
|
%
|
Operating and administrative expenses
|
|
|
11.4
|
%
|
|
|
11.8
|
%
|
|
|
|
|
|
|
|
|
|
Gross expense ratio
|
|
|
27.3
|
%
|
|
|
27.5
|
%
|
Effect of reinsurance
|
|
|
3.2
|
%
|
|
|
2.9
|
%
|
|
|
|
|
|
|
|
|
|
Total net expense ratio
|
|
|
30.5
|
%
|
|
|
30.4
|
%
|
|
|
|
|
|
|
|
|
|
52
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. 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 nine months ended September 30, 2009 and
2008 are shown in the following table (ratios shown as
percentages):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2009
|
|
|
For the Nine Months Ended September 30, 2008
|
|
Ratios based on
|
|
Property
|
|
|
Casualty
|
|
|
International
|
|
|
U.S.
|
|
|
|
|
|
Property
|
|
|
Casualty
|
|
|
International
|
|
|
U.S.
|
|
|
|
|
Gross Earned Premium
|
|
Reinsurance
|
|
|
Reinsurance
|
|
|
Insurance
|
|
|
Insurance
|
|
|
Total
|
|
|
Reinsurance
|
|
|
Reinsurance
|
|
|
Insurance
|
|
|
Insurance
|
|
|
Total
|
|
|
Policy acquisition expense ratio
|
|
|
17.1
|
%
|
|
|
18.8
|
%
|
|
|
14.3
|
%
|
|
|
11.0
|
%
|
|
|
15.9
|
%
|
|
|
16.7
|
%
|
|
|
15.5
|
%
|
|
|
15.2
|
%
|
|
|
14.2
|
%
|
|
|
15.7
|
%
|
Operating and administrative expense ratio
|
|
|
11.4
|
|
|
|
9.2
|
|
|
|
10.6
|
|
|
|
23.0
|
|
|
|
11.4
|
|
|
|
11.4
|
|
|
|
11.0
|
|
|
|
11.0
|
|
|
|
21.6
|
|
|
|
11.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross expense ratio
|
|
|
28.5
|
|
|
|
28.0
|
|
|
|
24.9
|
|
|
|
34.0
|
|
|
|
27.3
|
|
|
|
28.1
|
|
|
|
26.5
|
|
|
|
26.2
|
|
|
|
35.8
|
|
|
|
27.5
|
|
Effect of reinsurance
|
|
|
2.7
|
|
|
|
(0.1
|
)
|
|
|
4.2
|
|
|
|
14.5
|
|
|
|
3.2
|
|
|
|
3.4
|
|
|
|
0.4
|
|
|
|
3.2
|
|
|
|
9.7
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net expense ratio
|
|
|
31.2
|
%
|
|
|
27.9
|
%
|
|
|
29.1
|
%
|
|
|
48.5
|
%
|
|
|
30.5
|
%
|
|
|
31.5
|
%
|
|
|
26.9
|
%
|
|
|
29.4
|
%
|
|
|
45.5
|
%
|
|
|
30.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The policy acquisition ratio, gross of the effect of
reinsurance, has increased marginally to 15.9% for the nine
months ended September 30, 2009 from 15.7% for the
comparative period in 2008. The operating and administrative
expense ratio has improved to 11.4% in 2009 from 11.8% in 2008
driven by increased earned premium, cost management initiatives
and favorable movements in the exchange rate between the
U.S. dollar and British Pound between the two periods.
Net investment income. Net investment income
consists of interest on fixed income securities, short term
investments and money market holdings, and the change in value
of other investments, less investment management fees. In the
first nine months of 2009, we generated net investment income of
$190.3 million (2008 $128.9 million). The
$61.4 million increase in investment income was primarily
due to $20.2 million of gains from our investment in funds
of hedge funds compared to $48.3 million of losses in the
comparable period of 2008. The contribution from fixed income
investments and cash has reduced by $7.1 million as during
the period, the book yield on our fixed income portfolio has
decreased from 4.9% to 4.4%. During the same period, the fixed
income portfolio duration has decreased from 3.5 years to
3.3 years.
Change in fair value of derivatives. In the
nine months ended September 30, 2009, we recorded a
reduction of $5.8 million (2008
$3.8 million credit insurance contract; $1.4 million
foreign exchange contract) in the estimated fair value of our
credit insurance contract including $0.4 million
(2008 $0.6 million) of interest expense. In the
third quarter of 2009, we held foreign currency derivative
contracts to purchase $18.8 million of foreign currencies.
The foreign currency contracts are recorded as derivatives at
fair value with the gain or loss recorded in net foreign
exchange gains and losses. For the nine months ended
September 30, 2009, the impact of foreign currency
contracts on net income was a charge of $1.8 million
(2008 $3.8 million). Further information on
these contracts can be found in Notes 7 and 8 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 before 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 the nine months ended September 30,
2009 include a $19.9 million charge for investments we
believe to be other-than-temporarily impaired
(2008 $55.8 million). Other-than-temporary
impairment losses of $19.9 million for the nine-month
period are credit related and therefore are included in the
income statement. The other-than-temporary
53
impairment charge of $55.8 million in the third quarter of
2008 was attributable mainly to the write-down of Lehman
Brothers bonds subsequent to that companys collapse in
September 2008.
Income before tax. In the first nine months of
2009, income before tax was $408.6 million and comprised
$215.1 million of underwriting profit, $190.3 million
in net investment income, $15.9 million of net foreign
exchange and investment gains, $11.8 million of interest
expense and $0.9 million of other expenses. In the first
nine months of 2008, income before tax was $98.8 million
and comprised $42.9 million of underwriting profit,
$128.9 million in net investment income, $59.7 million
of net foreign exchange and investment losses,
$11.7 million of interest expense and $1.6 million of
other expenses. The higher underwriting profit in the first nine
months of 2009 was due primarily to the lack of catastrophes in
the period which was partly offset by a $24.6 million
reduction in prior year reserve releases. Our higher investment
income in the first nine months of 2009 compared to the prior
period was due to a positive contribution from our fund of hedge
fund investments, compared to a loss from the fund of hedge
funds in the prior period.
Income tax expense. Income tax expense for the
nine months ended September 30, 2009 was
$61.0 million. Our consolidated tax rate for the nine
months ended September 30, 2009 was 15.0% (2008
17.0%). 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 nine months ended September 30, 2009 was
$347.6 million, equivalent to $4.37 basic earnings per
ordinary share adjusted for the $18.3 million preference
share dividends and $4.25 fully diluted earnings per ordinary
share adjusted for the preference share dividends on the basis
of the weighted average number of ordinary shares in issue
during the nine months ended September 30, 2009. The net
income for the nine months ended September 30, 2008 was
$82.0 million equivalent to basic earnings of $0.73 per
ordinary share and fully diluted earnings of $0.71 per
share.
Reserves
for Losses and Loss Expenses
As of September 30, 2009, we had total net loss and loss
adjustment expense reserves of $2,980.5 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 $3,314.0 million at the
balance sheet date of September 30, 2009, a total of
$1,999.4 million or 60.0% represented IBNR claims
(December 31, 2008 $3,070.3 million and
58.3%, respectively). The following tables analyze gross and net
loss and loss adjustment expense reserves by segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at September 30, 2009
|
|
|
|
|
|
|
Reinsurance
|
|
|
|
|
Business Segment
|
|
Gross
|
|
|
Recoverable
|
|
|
Net
|
|
|
|
($ in millions)
|
|
|
Property reinsurance
|
|
$
|
415.2
|
|
|
$
|
(40.0
|
)
|
|
$
|
375.2
|
|
Casualty reinsurance
|
|
|
1,474.0
|
|
|
|
(6.4
|
)
|
|
|
1,467.6
|
|
International insurance
|
|
|
1,217.2
|
|
|
|
(241.2
|
)
|
|
|
976.0
|
|
U.S. insurance
|
|
|
207.6
|
|
|
|
(45.9
|
)
|
|
|
161.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total losses and loss expense reserves
|
|
$
|
3,314.0
|
|
|
$
|
(333.5
|
)
|
|
$
|
2,980.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
(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 a re-allocation of reinsurance
recoverables among the 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 losses from Hurricane Ike, the Air France
disaster and the global financial crisis. This has been offset
by the continued settlement of losses associated with Hurricanes
Katrina, Rita and Wilma.
For the nine months ended September 30, 2009, there was a
reduction of our estimate of the ultimate net claims to be paid
in respect of prior accident years of $71.0 million. An
analysis of this reduction by line of business is as follows for
each of the three and nine months ended September 30, 2009
and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
Business Segment
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
|
|
($ in millions)
|
|
|
($ in millions)
|
|
|
Property reinsurance
|
|
$
|
19.1
|
|
|
$
|
3.3
|
|
|
$
|
46.6
|
|
|
$
|
19.5
|
|
Casualty reinsurance
|
|
|
9.5
|
|
|
|
9.7
|
|
|
|
18.6
|
|
|
|
48.0
|
|
International insurance
|
|
|
16.4
|
|
|
|
1.9
|
|
|
|
12.7
|
|
|
|
20.0
|
|
U.S. insurance
|
|
|
(0.8
|
)
|
|
|
0.7
|
|
|
|
(6.9
|
)
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Losses and loss expense reserves reductions
|
|
$
|
44.2
|
|
|
$
|
15.6
|
|
|
$
|
71.0
|
|
|
$
|
95.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The key elements which gave rise to the net favorable
development during the three months ended September 30,
2009 were as follows:
Property Reinsurance: The reserve release in
the current quarter is a result of better than expected incurred
development on all classes in the segment, including settlement
of Hurricane Ike and Gustav claims, spread across several
accident years.
Casualty Reinsurance: The release in the
quarter is largely driven by the U.S. casualty lines
($9.5 million) which continue to exhibit favorable
development across the 2003 2006 accident years.
International Insurance: All areas in the
segment were either flat or showed reserve releases. The most
significant of these were releases of $6.6 million in U.K.
liability, $2.4 million in aviation, $4.7 million in
specialty reinsurance, and $1.2 million in U.K. property,
with the balance of $1.5 million spread through several
other lines.
U.S. Insurance: The small deterioration this quarter
is from casualty insurance which exhibited marginally worse than
expected 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, for longer tail
lines in particular, 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.
55
Balance
Sheet
Total
cash and investments
At September 30, 2009 and December 31, 2008, total
cash and investments, including accrued interest receivable,
were $6.7 billion and $6.0 billion, respectively. The
composition of our investment portfolio is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at September 30, 2009
|
|
|
As at December 31, 2008
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
|
|
Estimated
|
|
|
Fixed Income
|
|
|
Estimated
|
|
|
Fixed Income
|
|
|
|
Fair Value
|
|
|
Portfolio
|
|
|
Fair Value
|
|
|
Portfolio
|
|
|
Marketable Securities Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Securities
|
|
$
|
611.2
|
|
|
|
9.1
|
%
|
|
$
|
650.7
|
|
|
|
10.9
|
%
|
U.S. Government Agency Securities
|
|
|
414.0
|
|
|
|
6.2
|
%
|
|
|
393.1
|
|
|
|
6.6
|
%
|
Municipal Securities
|
|
|
21.0
|
|
|
|
0.3
|
%
|
|
|
8.0
|
|
|
|
0.1
|
%
|
Corporate Securities
|
|
|
2,006.1
|
|
|
|
30.0
|
%
|
|
|
1,424.5
|
|
|
|
23.8
|
%
|
Foreign Government
|
|
|
439.6
|
|
|
|
6.6
|
%
|
|
|
384.5
|
|
|
|
6.4
|
%
|
Asset-backed Securities
|
|
|
145.3
|
|
|
|
2.2
|
%
|
|
|
205.5
|
|
|
|
3.4
|
%
|
Mortgage-backed Securities
|
|
|
1,201.0
|
|
|
|
17.9
|
%
|
|
|
1,366.8
|
|
|
|
22.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Income Available for Sale
|
|
|
4,838.2
|
|
|
|
72.3
|
%
|
|
|
4,433.1
|
|
|
|
74.1
|
%
|
Marketable Securities Trading
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Securities
|
|
|
330.2
|
|
|
|
4.9
|
%
|
|
|
|
|
|
|
|
|
U.S. Government Securities
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Securities
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agency Securities
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Government Securities
|
|
|
10.6
|
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Income Trading
|
|
|
346.1
|
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
Total Other Investments
|
|
|
25.9
|
|
|
|
0.4
|
%
|
|
|
286.9
|
|
|
|
4.9
|
%
|
Total Short-term Investments Available for Sale
|
|
|
427.6
|
|
|
|
6.4
|
%
|
|
|
224.9
|
|
|
|
3.8
|
%
|
Total Short-term Investments Trading
|
|
|
4.0
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
Total Cash and Cash Equivalents
|
|
|
948.8
|
|
|
|
14.2
|
%
|
|
|
809.1
|
|
|
|
13.5
|
%
|
Total Receivable for Securities Sold
|
|
|
47.3
|
|
|
|
0.7
|
%
|
|
|
177.2
|
|
|
|
3.0
|
%
|
Total Accrued Interest Receivable
|
|
|
54.0
|
|
|
|
0.8
|
%
|
|
|
43.7
|
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash and Investments
|
|
$
|
6,691.9
|
|
|
|
100.0
|
%
|
|
$
|
5,974.9
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities. At September 30, 2009,
the average credit quality of our fixed income portfolio is
AA+, with 95% of the portfolio being rated
A or higher. At December 31, 2008, the average
credit quality of our fixed income portfolio was
AAA, with 92% of the portfolio being rated
A or higher. Our fixed income portfolio duration
increased marginally from 3.1 years as at December 31,
2008 to 3.3 years as at September 30, 2009.
Mortgage-Backed Securities. The following
tables summaries the fair value of our mortgage-backed
securities (MBS) by rating and class at
September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
|
|
|
AA and Below
|
|
|
Total
|
|
|
Agency
|
|
$
|
962.9
|
|
|
$
|
|
|
|
$
|
962.9
|
|
Non-agency Commercial
|
|
|
169.5
|
|
|
|
20.1
|
|
|
|
189.6
|
|
Non-agency Residential
|
|
|
12.6
|
|
|
|
35.9
|
|
|
|
48.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mortgage-backed Securities
|
|
$
|
1,145.0
|
|
|
$
|
56.0
|
|
|
$
|
1,201.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our mortgage-backed portfolio is supported by loans diversified
across a number of geographic and economic sectors.
56
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 September 30, 2009, we had $9.0 million invested in
alt-A securities (December 31, 2008
$8.7 million).
Sub-prime
securities. We define
sub-prime
related investments as those supported by, or contain,
sub-prime
collateral based on creditworthiness. We do not invest directly
in sub-prime
related securities.
Other investments. Other investments as at
September 30, 2009 and December 31, 2008 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
($ in millions)
|
|
|
Investment funds
|
|
$
|
|
|
|
$
|
|
|
|
$
|
311.3
|
|
|
$
|
286.9
|
|
Cartesian Iris 2009A L.P
|
|
|
25.0
|
|
|
|
25.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other investments
|
|
$
|
25.0
|
|
|
$
|
25.9
|
|
|
$
|
311.3
|
|
|
$
|
286.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment funds. Investment funds represented
our investments in funds of hedge funds which were recorded
using the equity method of accounting. Adjustments to the
carrying value of these investments were made based on the net
asset values reported by the fund managers, resulting in a
carrying value that approximates fair value. Realized and
unrealized gains or losses of $nil (2008 loss of
$42.2 million) and $20.2 million (2008
loss of $48.3 million) have been recognized through the
statement of operations in the three and nine months ended
September 30, 2009, respectively. We 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, we 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, we
gave notice to redeem the balance of the funds with effect on
June 30, 2009. As a result, we recognized proceeds from the
redemption of funds of $307.1 million at June 30, 2009.
Our involvement with the funds ceased at June 30, 2009. The
carrying value of the receivables represents our maximum
exposure to loss at the balance sheet date of the
$16.3 million receivable at September 30, 2009,
$4.8 million was received by October 31, 2009 with the
remaining balance of $11.5 million to be received
subsequent to the completion of the audited financial statements
for the funds.
Cartesian Iris 2009A L.P. On May 19,
2009, we invested $25 million with Cartesian Iris 2009A
L.P. through our wholly owned subsidiary, Acorn Limited.
Cartesian Iris 2009A L.P. is a Delaware Limited Partnership
formed to provide capital to Iris Re, a newly formed
Class 3 Bermuda reinsurer focusing on insurance linked
securities. In addition to returns on our investment, we will
receive a fee for providing advice on risk selection, pricing
and portfolio design. In the three and nine months ended
September 30, 2009, a fee of $0.1 million was payable
to Aspen.
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.
57
Valuation of Other Investments. The value of
our investments in funds of hedge funds were based upon monthly
net asset values using fair value reported by the underlying
funds to our funds of hedge funds managers. The financial
statements of our funds of hedge funds were subject to annual
audits evaluating the net asset positions of the underlying
investments. We periodically reviewed the performance of our
funds of hedge funds and evaluated the reasonableness of the
valuations.
The value of our investment in Cartesian Iris 2009A L.P. is
based on our shares of the capital position of the partnership
which includes income and expenses reported by the limited
partnership as provided in its quarterly management accounts.
Cartesian Iris 2009A L.P. is subject to annual audit evaluating
the financial statements of the partnership. We periodically
review the management accounts of Cartesian Iris 2009A L.P. and
evaluate the reasonableness of the valuation of our investment.
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 before 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.
Other-than-temporary
impairment is discussed further in Notes 2 and 5 of the
unaudited condensed consolidated financial statements.
Capital
Management
On March 31, 2009, we repurchased and cancelled 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 $31.5 million which was not recognized in the
income statement but was included in the calculation of earnings
per share.
The following table shows our capital structure at
September 30, 2009 compared to December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
As at
|
|
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
|
($ in millions)
|
|
|
Share capital, additional paid-in capital and retained income
and accumulated other comprehensive income attributable to
ordinary shareholders
|
|
$
|
2,858.5
|
|
|
$
|
2,359.9
|
|
Preference shares (liquidation preference less issue expenses)
|
|
|
353.6
|
|
|
|
419.2
|
|
Long-term debt
|
|
|
249.6
|
|
|
|
249.5
|
|
|
|
|
|
|
|
|
|
|
Total capital
|
|
$
|
3,461.7
|
|
|
$
|
3,028.6
|
|
|
|
|
|
|
|
|
|
|
Management monitors the ratio of debt to total capital, with
total capital being defined as shareholders equity plus
outstanding debt. At September 30, 2009, this ratio was
7.2% (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 17.4% as of
September 30, 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 $3,212.1 million at
September 30, 2009 (December 31, 2008
$2,779.1 million). We believe our financial strength
provides
58
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 regularly monitor our capital and financial
position, as well as investment and securities 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 September 30, 2009, Aspen Holdings held
$8.9 million (December 31, 2008
$32.4 million) in cash and cash equivalents which
management considers sufficient to provide Aspen Holdings
liquidity at such time, taken together with dividends declared
or expected to be declared by subsidiary companies and our
credit facilities. Holding company liquidity depends on
dividends, capital distributions and interest payments from our
Insurance Subsidiaries.
In the nine months ended September 30, 2009, Aspen U.K.
Holdings paid Aspen Holdings a dividend of $138.0 million.
In the nine months ended September 30, 2008, Aspen Bermuda
and Aspen U.K. Holdings paid Aspen Holdings dividends totaling
$70.0 million. Aspen Holdings also received interest of
$27.4 million (2008 $27.4 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 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 15 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
September 30, 2009, the Insurance Subsidiaries held
approximately $939.9 million (December 31,
2008 $777.2 million) in cash and short-term
investments that are readily realizable securities. Management
monitors the value, currency and duration of cash and
investments held by its Insurance Subsidiaries to ensure that
they are able to meet their insurance and other liabilities as
they become due and was satisfied that there was a comfortable
margin of liquidity as at September 30, 2009 and for the
foreseeable future.
On an ongoing basis, our Insurance Subsidiaries sources of
funds primarily consist of premiums written, investment income
and proceeds from sales and redemptions of investments.
Cash is used primarily to pay reinsurance premiums, losses and
loss adjustment expenses, brokerage commissions, general and
administrative expenses, taxes, interest and dividends and to
purchase new investments.
The potential for individual large claims and for accumulations
of claims from single events means that substantial and
unpredictable payments may need to be made within relatively
short periods of time.
59
We manage these risks by making regular forecasts of the timing
and amount of expected cash outflows and ensuring that we
maintain sufficient balances in cash and short-term investments
to meet these estimates. Notwithstanding this policy, if our
cash flow forecast is incorrect, we could be forced to liquidate
investments prior to maturity, potentially at a significant loss.
The liquidity of our Insurance Subsidiaries is also affected by
the terms of our contractual obligations to policyholders and by
undertakings to certain regulatory authorities to facilitate the
issue of letters of credit or maintain certain balances in trust
funds for the benefit of policyholders. The following table
shows the forms of collateral or other security provided to
policyholders as at September 30, 2009 and
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
As at September 30,
|
|
|
As at December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
($ in millions except percentages)
|
|
|
Assets held in multi-beneficiary trusts
|
|
$
|
1,409.7
|
|
|
$
|
1,345.6
|
|
Assets held in single beneficiary trusts
|
|
|
55.9
|
|
|
|
54.0
|
|
Letters of credit issued under our revolving credit facilities
(1)
|
|
|
59.3
|
|
|
|
84.6
|
|
Secured letters of credit (2)
|
|
|
412.3
|
|
|
|
422.4
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,937.2
|
|
|
$
|
1,906.6
|
|
|
|
|
|
|
|
|
|
|
Total as % of cash and invested assets
|
|
|
29.4
|
%
|
|
|
33.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
These letters of credit are not
secured by cash or securities, though we have the ability to
issue secured letters of credit under the revolving credit
facility.
|
|
(2)
|
|
As of September 30, 2009, the
Company had funds on deposit of $588.7 million and
£21.2 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 determines Syndicate 4711s required
regulatory capital principally based on 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 September 30, 2009
amount to $212.6 million (December 31,
2008 $200.3 million).
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 nine months ended
September 30, 2009. Total net cash flow from
operations from December 31, 2008 through
September 30, 2009 was $489.1 million, an increase of
$44.8 million over the comparative period. The increase was
due mainly to an increase in premium receipts from increases in
written premium net claims settlements. For the nine months
ended September 30, 2009, our cash flow from operations
provided us with sufficient liquidity to meet our operating
requirements. On August 27, 2009, we paid a dividend of
$0.15 per ordinary share to shareholders of record on
August 12, 2009. On October 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 September 15, 2009. On
October 1, 2009, dividends totaling $2.5 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 September 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.
60
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 September 30, 2009, no
borrowings were outstanding under the credit facilities, though
we had $59.3 million of outstanding uncollateralized
letters of credit. 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.
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. As at
September 30, 2009 we had $395.9 million of outstanding
collateralized letters of credit under this facility.
On October 6, 2009, Aspen U.K. and Aspen Bermuda entered
into a $200 million secured letter of credit facility with
Barclays Bank plc, which is described on our current report on
Form 8-K filed on October 7, 2009. No letters of
credit were outstanding under this facility as at September 30,
2009.
Contractual
Obligations and Commitments
The following table summarizes our contractual obligations
(other than our obligations to employees, our Perpetual PIERS
and our Perpetual Preference Shares) under long-term debt,
operating leases and reserves relating to insurance and
reinsurance contracts as of September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Later
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Years
|
|
|
Total
|
|
|
|
($ in millions)
|
|
|
Operating Lease Obligations
|
|
$
|
2.9
|
|
|
$
|
7.7
|
|
|
$
|
7.4
|
|
|
$
|
6.5
|
|
|
$
|
6.4
|
|
|
$
|
27.1
|
|
|
$
|
58.0
|
|
Long-Term Debt Obligations (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
250.0
|
|
|
$
|
250.0
|
|
Reserves for Losses and loss adjustment expenses (2)
|
|
$
|
154.0
|
|
|
$
|
931.0
|
|
|
$
|
608.4
|
|
|
$
|
398.2
|
|
|
$
|
273.6
|
|
|
$
|
948.8
|
|
|
$
|
3,314.0
|
|
|
|
|
(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.
|
61
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 8 to our unaudited condensed consolidated
financial statements for the three and nine months ended
September 30, 2009 included elsewhere in this report.
Off-Balance
Sheet Arrangements
Ajax Re. Ajax Re was a variable interest
entity under the guidance contained in ASC 820
Consolidations. We had a variable interest in the entity,
however we were not the primary beneficiary of the entity and
therefore we were not required to consolidate its results into
our consolidated financial statements. For further details on
the Ajax Re transactions please see Note 7 to the unaudited
condensed consolidated financial statements for the three and
nine months ended September 30, 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.
Cartesian Iris 2009A L.P. Cartesian Iris 2009A
L.P. is a variable interest entity under the guidance contained
in ASC 820 Consolidations. On May 19, 2009 we
invested $25.0 million with Cartesian Iris 2009A L.P.
through our wholly owned subsidiary, Acorn Limited. Cartesian
Iris 2009A L.P. is a Delaware Limited Partnership formed to
provide capital to Iris Re, a newly formed Class 3 Bermuda
reinsurer focusing on insurance linked securities. In addition
to returns on our investment, we will receive a fee for
providing advice on risk selection, pricing and portfolio
design. In the three and nine months ended September 30,
2009, a fee of $0.1 million was payable to Aspen. For more
information please see Note 5 and 12(c) to the unaudited
condensed consolidated financial statements for the three and
nine months ended September 30, 2009 included elsewhere in
this report.
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.
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.
62
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. 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 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;
|
63
|
|
|
|
|
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.
64
|
|
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 September 30, 2009, our fixed income portfolio had an
approximate duration of 3.3 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
|
|
$
|
5,799.0
|
|
|
$
|
5,707.4
|
|
|
$
|
5,615.9
|
|
|
$
|
5,524.4
|
|
|
$
|
5,432.8
|
|
Gain/(loss) $ in millions
|
|
|
183.1
|
|
|
|
91.5
|
|
|
|
0.0
|
|
|
|
(91.5
|
)
|
|
|
(183.1
|
)
|
Percentage of portfolio
|
|
|
3.26
|
%
|
|
|
1.63
|
%
|
|
|
0.00
|
%
|
|
|
(1.63
|
)%
|
|
|
(3.26
|
)%
|
Equity risk. We had invested in two funds of
hedge funds where the underlying hedge funds consisted of
diverse strategies and securities. In February 2009, we gave
notice to redeem our remaining investments in funds of hedge
funds with effect on June 30, 2009, which would reduce our
exposure to equity risk. As the notices of redemption have taken
effect, we are no longer exposed to changes in the net asset
value of the funds.
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
September 30, 2009, approximately 83% of our cash, cash
equivalents and investments were held in U.S. Dollars,
approximately 8% were in British Pounds and approximately 9%
were in other currencies. For the nine months ended
September 30, 2009, approximately 17% 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
September 30, 2009, would have impacted reported net
comprehensive income by approximately $18.1 million for the
nine months ended September 30, 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
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 foreign currency
65
contracts at September 30, 2009 compared to
$90.5 million of U.S. and foreign currency contracts
at September 30, 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
September 30, 2009 and December 31, 2008, the average
rating of fixed income securities in our investment portfolio
was AA+ and AAA, respectively.
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
$477 million but is subject to adjustment. See Note 8
to the unaudited financial statements for the three months ended
September 30, 2009 above.
The table below shows our reinsurance recoverables as of
September 30, 2009 and December 31, 2008, and our
reinsurers ratings.
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
As at
|
|
A.M. Best
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
|
($ in millions)
|
|
|
($ in millions)
|
|
|
A++
|
|
|
5.9
|
|
|
|
15.9
|
|
A+
|
|
|
33.5
|
|
|
|
69.5
|
|
A
|
|
|
245.7
|
|
|
|
160.8
|
|
A-
|
|
|
26.0
|
|
|
|
28.6
|
|
Other
|
|
|
2.6
|
|
|
|
2.5
|
|
Not rated
|
|
|
19.8
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
333.5
|
|
|
|
283.3
|
|
|
|
|
|
|
|
|
|
|
66
|
|
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. 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 September 30, 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
September 30, 2009 that has materially affected, or is
reasonably likely to materially affect, the Companys
internal control over financial reporting.
67
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
|
In connection with the options held by the Names Trustee
as described further in Note 10 to our financial
statements, the Names Trustee may exercise the options on
a monthly basis. The options were exercised on a cashless basis
at the exercise price as described in Note 10 to our
unaudited condensed consolidated financial statements. As a
result, we issued the following unregistered shares to the
Names Trustee and its beneficiaries as described below.
|
|
|
|
|
|
|
Number of
|
|
Date Issued
|
|
Shares Issued
|
|
|
August 17, 2009
|
|
|
106
|
|
None of the transactions involved any underwriters, underwriting
discounts or commissions, or any public offering and we believe
that each transaction, if deemed to be a sale of a security, was
exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof or Regulation S for
offerings of securities outside the United States. Such
securities were restricted as to transfers and appropriate
legends were affixed to the share certificates and instruments
in such transactions.
|
|
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.
|
68
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: November 4, 2009
|
|
|
|
By:
|
/s/ Christopher
OKane
|
Christopher OKane
Chief Executive Officer
Date: November 4, 2009
Richard Houghton
Chief Financial Officer
69