Aspen defends itself; issues preliminary Q2 results

Aspen Insurance has responded to another attack on its performance made by Endurance yesterday (Thursday July 10) by issuing its preliminary financial results for the second quarter of 2014 and writing to shareholders refuting several of Endurance’s specific claims.

Aspen has again asked its shareholders to reject moves by Endurance to force a special general meeting that would pave the way for Endurance to buy the company. In its preliminary Q2 results, it also highlighted what it described as the continued benefits of its strategic investments in its business and the strength of its plan to drive shareholder value.

Endurance made an unsolicited £3.2 billion bid for Aspen earlier this year, which was rejected by the insurer’s board. Since then, the two companies have engaged in a very public war of words as they battle to win the confidence of Aspen’s shareholders.

For the second quarter of 2014, Aspen said it anticipates its diluted book value per share (as of June 30, 2014) to be between $44.60 and $44.80, up 4.4-4.9 percent from March 31, 2014; its diluted operating earnings per share to be between $1.30 and $1.35; its diluted earnings per share to be between $1.70 and $1.75; its gross written premiums to be between $775 and $780 million; and its combined ratio between 90 percent and 91 percent or 89 percent to 90 percent excluding bid defence costs.

The company also said that its net favourable reserve development will equate to between 4.5 and 5.5 combined ratio points; its annualised operating return on equity will be between 12 percent and 12.8 percent and its annualised net income ROE between 16.0 percent and 16.8 percent.

Chris O’Kane, chief executive officer, said: “Our results this quarter reinforce the strong momentum evidenced by Aspen in the first quarter. The continued excellent performance across our businesses gives us confidence in the diversity, growth, quality and profitability of our platforms. We remain intensely focused on the achievement of our strategic and financial objectives for 2014 and beyond and are excited about seeing our shareholders benefit from the investments we have made in our business.”

Aspen will discuss its second quarter results and outlook for 2014 on a conference call on Thursday, July 24.

In the letter to shareholders, Aspen also defended itself against specific criticisms made by Endurance in its own letter to shareholders, which it described as “erroneous and ill-informed claims”.

Commenting on Endurance’s contention that Aspen has increased its catastrophe exposures in a declining rate environment, Aspen said: “In contrast to Endurance, Aspen Re has a very strong and successful brand and track record in the catastrophe reinsurance business. Unlike Endurance, Aspen has embraced the significant changes heralded by third party capital in catastrophe reinsurance and views this as a significant opportunity for future growth and diversity of earnings.

“Since Aspen Re enjoys numerous long-term and highly profitable relationships with core clients, Aspen Re was able to increase its share on some of the most desirable risks in the catastrophe reinsurance market, not only during the important January 1 renewal period, but throughout this year. We have benefited significantly from Aspen Capital Markets, our third-party capital markets entity, which enables us to increase our gross premiums written while maintaining the same net risk position by redistributing risk to the capital markets and at the same time adding underwriting fees and profit commission.”

Commenting on Endurance’s contention that Aspen has been “propping up” the growth of its US insurance business with third party insurance programmes, Aspen said: “Similar to most major insurers, we have found that for certain categories of smaller and homogenous risks, it is economically beneficial to participate on a programme basis, with tight and careful controls over underwriting, claims, and risk management. Currently our US programme business is profitable and represents approximately 6 percent of our 2013 annual written premium.”

Finally, it contested Endurance’s claim that it has performed worse than Endurance over the last five years. “Aspen’s underwriting results have been consistently better than those of Endurance as shown by historic accident year combined ratios. Lower ratios represent stronger performance – and Aspen has performed better than Endurance in four of the past five years with continued outperformance in the first quarter of 2014,” it said.

“Aspen’s superior results came in spite of the fact that during this period we were investing $150 million in our insurance platform to build underwriting, claims, actuarial, technological and other infrastructure capabilities in the US – investments that are now paying dividends and enabling us to generate even stronger results.”

Endurance has been approached to comment on the latest release by Aspen but had not responded at the time of going to press.