Aspen ready to expand after Q4 loss

After restructuring its insurance business in the fourth quarter which contributed to a loss for the period, Aspen believes that the company is ready for profitable growth.

The re/insurer reported a net loss of $71.5 million for the fourth quarter of 2016 compared with a profit of $117.9 million in the same period a year earlier.

The loss contributed to a fall in the full year 2016 net profit to $203.4 million from the $323.1 million recorded a year earlier. The company’s overall combined ratio in 2016 increased to 98.1 percent compared with 91.9 percent a year earlier. Its loss ratio for the year soared to 59.8 percent compared 55.2 percent a year earlier.

“During the [fourth] quarter we completed a comprehensive review of our insurance operations,” CEO Chris O'Kane explained during a Feb. 9 results conference call.

As a result of the review, Aspen is discontinuing the writing of some lines because the future expected return did not meet its current requirements. “We concluded that it was best to put our capital to work in areas of potentially higher returns,” O'Kane said.

Aspen has ceased underwriting a “great deal of primary casualty business.” Overall, approximately $150 million of insurance business, or just under 5 percent of Aspen’s total underwriting portfolio, was not renewed, O'Kane noted.

Overall, Aspen’s gross written premiums fell 4.5 percent year-on-year to $606.1 million in the fourth quarter.

“We expect that the actions taken following this review will result in expanded margins and an attractive rate of profitable growth in 2017,” O'Kane said.

O'Kane stressed that most of insurance lines such as professional lines, credit and political risk, surety and crisis management were meeting or exceeding requirements. “We expect to accelerate these growth rates in 2017,” he noted.

But the review did not only result in Aspen shedding some business, it also came at a cost. As part of the decision to exit certain accounts, Aspen purchased additional reinsurance to protect it from the run-off of some of the discontinued business. The reinsurance provides for up to approximately 40 percent deterioration in expected losses for this book, O'Kane said explained. Aspen believes that this will substantially mitigate any potential residual risk.

In addition, Aspen placed considerably more pro rata reinsurance which aims at reducing earnings volatility going into 2017.

The expense of these two purchases negatively impacted the fourth quarter results.

The reinsurance segment continued to perform well in 2016 despite a challenging environment, O'Kane said.

Aspen adapted its strategy in casualty reinsurance with a smaller portfolio, strict pricing requirements and careful responses to tough terms and conditions. As a result, Aspen managed to achieve a small rate increase, the first in many renewals, and won a few new business opportunities with existing select clients at January 2017 renewals, O'Kane said.

Within property reinsurance, Aspen has moved net exposures towards better priced business. O'Kane is also satisfied with the performance of the agrilogic business in its first year as part of Aspen.

The reinsurance franchise has been “pretty strong already”, and with the measures taken in the fourth quarter “we have an improving franchise in insurance,” O'Kane said.

Alluding to the $150 million of business that was not renewed and is being eliminated, O'Kane said that it was not likely to create a lot of value to us and our shareholders going forward, and “we are working hard to replace it with business that we believe makes a lot more sense.”

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