Aspen Reports Net Income of $51 million, Operating Income of $202 million and a Combined Ratio of 93.0% for the Twelve Months Ended December 31, 2022

• Gross written premiums increased by 10% to $4,339 million (2021: $3,938 million)
• Underwriting income* of $190 million (2021: $(30) million)
• Total fee income generated by Aspen Capital Markets of $104 million (2021: $61 million)
• Net investment income of $188 million (2021: $148 million)
• Operating return on average equity* of 11.9% (2021: 2.4%)

HAMILTON, Bermuda–(BUSINESS WIRE)–Aspen Insurance Holdings Limited (“Aspen”) today reported results for the twelve months ended December 31, 2022.

CEO statement

We have continued to make significant progress in 2022, generating $202 million of operating income* (2021: $51 million) and $51 million of net income (2021: $(30) million). We delivered a strong set of results in a challenging year that included Russia’s invasion of Ukraine, rising inflation and significant natural catastrophe activity, all of which generated notable loss activity for our industry.

Against this backdrop, our reported combined ratio improved to 93.0% (2021: 101.2%), an outstanding result. Adjusted for the impacts of the loss portfolio transfer and adverse development contracts, our combined ratio was 92.4%* (2021: 98.8%). We have been clear in our ambition to establish Aspen as a top quartile specialty (re)insurer and we have maintained momentum during 2022 through the strength of our underwriting performance and continued operational resilience.

Strong performance in our insurance and reinsurance businesses

The strength of Aspen’s franchise means we were well positioned to grow. We took advantage of the favorable market conditions in 2022, increasing our gross written premiums by approximately 10% to $4,339 million (2021: $3,938 million), while we continued to strategically shape the underwriting portfolio. We grew in both our insurance and reinsurance segments and the average rate increase across our overall renewed portfolio was 10%.

The adjusted combined ratio of 92.4% represents a strong underwriting result for the year and reflects the quality of our portfolio following extensive repositioning in recent years. The continued improvement across the portfolio is driven by disciplined underwriting and rate increases exceeding loss costs. The loss portfolio transfer, completed in May 2022, improved the strength of our balance sheet and provides significant protection of future earnings from potential reserve development on 2019 and prior accident years. We continue to focus on risk management which included a reduction in our exposure to catastrophe losses. The benefits of this can be seen in our 2022 results, within the context of high industry catastrophe loss activity.

Our net investment income was up 28% to $188 million (2021: $148 million). Like the wider market, Aspen has not been immune from the impact of rising interest rates on our investment portfolio. As we said in our half-year 2022 statement, we broadly expect the unrealized investment losses to unwind as securities reach maturity, while higher interest rates will also positively impact future returns.

Encouraging results of our capital markets franchise

Aspen Capital Markets generated total fee income of $104 million, driven by an increase in assets under management to $1.3 billion. This fee income is primarily reflected as an offset to our acquisition costs and therefore benefits our underwriting results. Given the challenges facing the insurance-linked securities market in raising capital, this is testament to the innovative team we have and our track record of delivering for our investors.

Building a culture of which we are proud

I would like to thank our people for their commitment and the role they have played in instilling an innovative and collaborative culture that we can all be proud of. I firmly believe that this culture helps us attract and retain talent, maintain our strong market relationships and sustain an environment of high performance.

In 2022, work continued to build a more diverse, equitable and inclusive business. We established employee-led gender and ethnicity communities across the UK, US and Bermuda, and started collecting diversity data for our employees to better understand our workforce and create a welcoming working environment for all.

As we continue to grow and strive for excellence, it’s critical that we reward our people not only for what they do, but how they do it. Over the past few years, we have put significant emphasis on defining our values as a central part of Aspen’s culture. In 2023, we have taken a step forward and embedded values and behaviors into our annual performance cycle.

Earlier this year, we published our second Environmental Social and Governance (ESG) Report, building on the work started in 2021. The report shows steady progress across all three pillars of ESG, and the continued focus on embedding sustainability into Aspen’s strategy and values.

A business transformed and focused on delivering consistent performance

The results we have reported today mark the third consecutive year of improved underwriting performance. This is a reflection of our transformation efforts over the past few years as we simplified, reshaped and improved Aspen, taking decisive and timely actions on our risk appetite and exposures. Our proactive approach to portfolio management means we have a flexible, robust and diversified franchise across multiple product lines and geographies that provides value and support for our clients.

As a result, we are well-positioned to take advantage of the opportunities that the market is currently providing. Our focus remains on sustainable growth, optimizing our underwriting returns and prudently managing catastrophe risk, as we continue to work towards our objective of delivering consistent top quartile results.

Mark Cloutier, Group Executive Chairman and Chief Executive Officer

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* Non-GAAP financial measures are used throughout this release, such as Operating Income and Adjusted Combined Ratio. For additional information and reconciliation of non-GAAP financial measures, refer to the end of this press release.

Refer to “Cautionary Statement Regarding Forward-Looking Statements” at the end of this press release.

Key financial highlights

Significantly improved financial results driven by underwriting performance

• Gross written premiums of $4,339 million in the twelve months ended December 31, 2022, an increase of 10% compared to $3,938 million in the twelve months ended December 31, 2021, primarily due to rate improvement and growth in both of our underwriting segments.
• Net written premiums of $2,896 million in the twelve months ended December 31, 2022, an increase of 12% compared to $2,588 million in the twelve months ended December 31, 2021. Premiums ceded to reinsurers as a percentage of gross written premium in the twelve months ended December 31, 2022, was 33% compared with 34% in the twelve months ended December 31, 2021.
• Underwriting income of $190 million (adjusted underwriting income* of $205 million) in the twelve months ended December 31, 2022, compared to an underwriting loss of $30 million (adjusted underwriting income of $28 million) in the twelve months ended December 31, 2021, resulting in a combined ratio of 93.0% (adjusted combined ratio of 92.4%) for the twelve months ended December 31, 2022, compared to 101.2% (adjusted combined ratio of 98.8%) for the twelve months ended December 31, 2021.
• Losses and loss adjustment expenses include:
  • Catastrophe losses of $307 million, or 11 percentage points on the combined ratio, for the twelve months ended December 31, 2022, included losses associated with Hurricane Ian, floods in Australia and South Africa, the Russian/Ukraine war and other weather-related events. Catastrophe losses of $327 million, or 14 percentage points on the combined ratio, for the twelve months ended December 31, 2021, included losses associated with Texas winter storms, Hurricane Ida, European floods and other weather-related events.
  • Net unfavorable development on prior year loss reserves of $28 million, or 1 percentage point on the combined ratio, in the twelve months ended December 31, 2022, compared with net unfavorable development of $45 million, or 2 percentage points on the combined ratio in the twelve months ended December 31, 2021.
  • Remaining improvement in the loss ratio reflects improved pricing in excess of loss costs as well as the impact of portfolio repositioning from underwriting actions taken over the past few years across both our insurance and reinsurance segments.
• Acquisition costs as a percentage of net earned premium improved from 17% in 2021 to 16% in 2022, primarily within our insurance segment, due to a greater proportion of our business being ceded to Aspen Capital Markets businesses.
• General and administrative expenses increased to $387 million, representing 14 percentage points on the combined ratio, in the twelve months ended December 31, 2022, compared with $333 million, and 14 percentage points on the combined ratio, in the twelve months ended December 31, 2021. Increases are primarily due to increased staff costs, higher professional and consulting fees, an increase in IT and organizational change costs as we continue to reshape the business as well as an increase in Lloyd’s related costs due to increased capacity in the year.
• Net investment income of $188 million in the twelve months ended December 31, 2022, compared to $148 million in the twelve months ended December 31, 2021.
• Net income includes net realized and unrealized investment losses of $178 million in the twelve months ended December 31, 2022, primarily due to adverse interest rate movements. This compares to $9 million net realized and unrealized investment gains in the twelve months ended December 31, 2021.
• Annualized operating return on average equity of 11.9% in the twelve months ended December 31, 2022, compared to 2.4% in the twelve months ended December 31, 2021.

Segment highlights for twelve months ended December 31, 2022

• Insurance
  • Gross written premiums of $2,532 million in the twelve months ended December 31, 2022, an increase of 8% compared to $2,341 million in the twelve months ended December 31, 2021, primarily due to strong performance across the retention of existing business, positive rate improvement and growth in financial and professional and casualty and liability lines.
  • Net written premiums of $1,470 million, in the twelve months ended December 31, 2022, an increase of 5.8% compared with $1,389 million in the twelve months ended December 31, 2021, primarily due to growth in gross written premiums. Premiums ceded to reinsurers as a percentage of gross written premium in the twelve months ended December 31, 2022, was 42% compared with 41% in the twelve months ended December 31, 2021.
  • Underwriting income of $104 million (adjusted underwriting income of $153 million) in the twelve months ended December 31, 2022, compared to an underwriting loss of $101 million (adjusted underwriting loss of $84 million) in the twelve months ended December 31, 2021, resulting in a combined ratio of 92.8% (adjusted combined ratio of 89.3%) for the twelve months ended December 31, 2022, compared to 107.8% (adjusted combined ratio of 106.5%) for the twelve months ended December 31, 2021.
  • Losses and loss adjustment expenses include:
    • Catastrophe losses of $62 million, or 4 percentage points, in the twelve months ended December 31, 2022, compared with $72 million, or 6 percentage points, in the twelve months ended December 31, 2021.
    • Prior year net unfavorable reserve development of $87 million or 6 percentage points on the combined ratio, in the twelve months ended December 31, 2022, mainly due to adverse development on accident years 2020 and 2021 within international marine and energy liability, U.S. management and professional liability and excess and U.S. casualty of $38 million and unfavorable movement of $49 million due to the impact of the LPT. Prior year net unfavorable development of $180 million, or 14 percentage points on the combined ratio, in the twelve months ended December 31, 2021.
• Reinsurance
  • Gross written premiums of $1,807 million, in the twelve months ended December 31, 2022, an increase of 13% compared to $1,597 million in the twelve months ended December 31, 2021, primarily due to rate improvement and growth within our casualty and specialty reinsurance lines.
  • Net written premiums of $1,426 million, in the twelve months ended December 31, 2022, an increase of 19% compared with $1,199 million in the twelve months ended December 31, 2021. Premiums ceded to reinsurers as a percentage of gross written premium in the twelve months ended December 31, 2022, decreased to 21% compared with 25% in the twelve months ended December 31, 2021.
  • Underwriting income of $87 million (adjusted underwriting income of $52 million) in the twelve months ended December 31, 2022, compared to an underwriting income of $71 million (adjusted underwriting income of $112 million) in the twelve months ended December 31, 2021, resulting in a combined ratio of 93.1% (adjusted combined ratio of 95.8%) for the twelve months ended December 31, 2022, compared to 93.6% (adjusted combined ratio of 90.0%) for the twelve months ended December 31, 2021.
  • Losses and loss adjustment expenses include:
    • Catastrophe losses of $245 million, or 20 percentage points, net of reinsurance recoveries, in the twelve months ended December 31, 2022, compared with $255 million, or 23 percentage points, net of reinsurance recoveries, in the twelve months ended December 31, 2021.
  • Prior year net favorable reserve development of $59 million, or 5 percentage points on the combined ratio, in the twelve months ended December 31, 2022, primarily from favorable reserve development on accident years 2020 and 2021 of $25 million on casualty reinsurance and other property reinsurance lines and the favorable impact of the LPT of $34 million. Prior year net favorable reserve development of $134 million, or 12 percentage points on the combined ratio, in the twelve months ended December 31, 2021.

Investment performance

• Investment income of $188 million for the twelve months ended December 31, 2022, compared with $148 million for the twelve months ended December 31, 2021.
• Net realized and unrealized investment losses of $178 million in the twelve months ended December 31, 2022, which includes unrealized losses of $106 million. In addition, $368 million of unrealized investment losses after tax were recognized through other comprehensive income in the twelve months ended December 31, 2022, compared to $158 million in the twelve months ended December 31, 2021. Unrealized losses are due to higher interest rate and we would expect these to unwind as securities reach maturity. This compares to $9 million net realized and unrealized investment gains in the twelve months ended December 31, 2021, which includes net unrealized gain of $5 million.
• The total return, after tax, on Aspen’s managed investment portfolio was (4.8)% for the twelve months ended December 31, 2022, compared to (0.02)% in the twelve months ended December 31, 2021, and reflects net investment income and net realized and unrealized gains and losses mainly in the fixed income portfolio.
• Aspen’s investment portfolio as at December 31, 2022, consisted primarily of high quality fixed income securities with an average credit rating of “AA-”. The average duration of the fixed income securities was 3.0 years as at December 31, 2022 compared with 3.3 years as at December 31, 2021.
• Book yield on these fixed income securities as at December 31, 2022, was 3.2% compared with 2.1% as at December 31, 2021.

Shareholders’ equity

• Total shareholders’ equity was $2,358 million as at December 31, 2022, a decrease of $417 million, compared with $2,775 million as at December 31, 2021. The decrease is primarily due to unrealized losses in the available for sale investment portfolio of $368 million caused by the mark-to-market valuation impact from higher interest rates and credit spread widening. Additionally, the decrease was due to ordinary and preference dividends of $85 million, partially offset by net income of $51 million during the twelve months ended December 31, 2022.

Earnings materials

The earnings press release for the twelve months ended December 31, 2022 will be published on Aspen’s website at www.aspen.co.

(1) Reinsurance recoverables and Other payables, have each increased by $1.3 billion due to the ceded reserves recoverable and reinsurance premiums payables related to the LPT contract.

(2) Total shareholders’ equity includes $753 million in relation to preference shares as at both current and comparative periods shown above.

(1) Interest expense in the twelve months ended December 31, 2022 includes interest payable on the funds withheld account on the LPT contract with Enstar of $29.4 million.

(2) Non-operating expenses in the twelve months ended December 31, 2022 includes expenses in relation to fixed assets written off which are no longer in use, severance, consulting and professional services in relation to non-recurring costs and other costs, offset by write-backs related to leased office space.

(3) Includes the net realized and unrealized gains/(losses) from foreign exchange contracts. Effective January 1, 2022, management reassessed its functional currency determination as required by ASC 830, Foreign Currency Matters, as a result of significant changes in the groups economic facts and circumstances, and concluded that the functional currency of certain of its foreign operations had changed. Consequently, Aspen has concluded that USD is now the functional currency for all its branches and overseas entities. The change in the Company’s functional currency determination has been applied on a prospective basis in accordance with ASC 830. Therefore, any translation gains and losses that were previously recorded in accumulated other comprehensive income through December 31, 2021 remain unchanged through December 31, 2021.

(4) Income tax benefit in the twelve months ended December 31, 2022 includes a $94.1 million tax credit resulting from the reversal of brought forward valuation allowance for deferred tax assets in the U.S. operating subsidiaries.

(5) Adjusted combined ratio removes the impact of the change in deferred gain on retroactive reinsurance contracts in order to match the loss recoveries under the ADC/LPT contracts with the underlying loss development of the subject business of 2019 and prior accident years and also excludes the cost of the LPT contract with Enstar that closed in the second quarter of 2022. Adjusted combined ratio represents the performance of our business for accident years 2020 onwards, which reflects the underlying underwriting performance of the ongoing portfolio.

(1) Non-operating expenses in the twelve months ended December 31, 2022 includes expenses in relation to fixed assets written off which are no longer in use, severance, consulting and professional services in relation to non-recurring costs and other costs, offset by write-backs related to leased office space.

(2) Interest expense in the twelve months ended December 31, 2022 includes interest payable on the funds withheld account on the LPT contract with Enstar of $29.4 million.

(3) Includes the net realized and unrealized gains/(losses) from foreign exchange contracts. Effective January 1, 2022, management reassessed its functional currency determination as required by ASC 830, Foreign Currency Matters, as a result of significant changes in the groups economic facts and circumstances, and concluded that the functional currency of certain of its foreign operations had changed. Consequently, Aspen has concluded that USD is now the functional currency for all its branches and overseas entities. The change in the Company’s functional currency determination has been applied on a prospective basis in accordance with ASC 830.

Contacts

Marc MacGillivray, Chief Accounting Officer, Aspen

[email protected]
+44 20 7184 8455

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