Aspen’s results pressure Endurance to increase bid

Aspen Insurance’s stronger than expected performance in the first half of 2014 will put pressure on Endurance to increase its offer price. But a combination of the two firms could work given market conditions in the reinsurance markets, one investment bank has claimed.

Endurance made an unsolicited £3.2 billion bid, amounting to $49.50 per Aspen common share, earlier this year, which was rejected by the target’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.

Most recently, Aspen responded to another attack on its performance by Endurance by issuing its preliminary financial results for the second quarter of 2014 and writing to its shareholders asking them to reject moves by Endurance to force a special general meeting that would pave the way for Endurance to buy the company.

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 between $1.70 and $1.75; its gross written premiums 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.

Its return on equity for the period will be between 12 percent and 12.8 percent – exceeding its target of 10 percent for the full year of 2014.

According to a note by analysts in the global research unit of UBS, Aspen’s strong earnings and growth “will likely put pressure on ENH [Endurance] to once again raise its offer price from the current $49.50 per share.”

UBS noted that while Aspen’s earnings per share is below UBS’s own estimate, it is ahead of the consensus at $1.22.

“The variances to our estimates in other disclosed items include – higher gross written premiums and higher favourable loss reserve development, offset by higher than expected catastrophe losses,” UBS said.

It went onto note that it believes a tie-up between the two firms could work but that Endurance may need to increase its offer.

“Strategically, we continue to believe a combination of AHL [Aspen] and ENH makes sense given the benefits of a larger balance sheet (particularly in the increasingly competitive reinsurance business), and the capital and expense efficiencies that would likely be generated.

“We continue to believe that a fair takeout value for AHL is in the range of 1.2x – 1.3x fully diluted BVPS, or $53 - $58 per share taking into account 2Q14 results,” the UBS note said.