Aspen Insurance Holdings Limited — FY2022 Form 20-F
Reporting period: Fiscal year ended December 31, 2022; filed April 20, 2023. This is an annual report, not a quarterly filing, and the provided filing text does not give standalone fourth-quarter results. Aspen is a Bermuda-based global specialty insurance and reinsurance group, with Insurance and Reinsurance underwriting segments and an alternative-capital business. Its ordinary shares are wholly owned by an Apollo-affiliated parent; preference securities trade on the NYSE.
Key financial results
| Metric | FY2022 | FY2021 |
|---|---|---|
| Gross written premiums | $4,338.7 million | $3,938.4 million |
| Net premiums earned | $2,688.7 million | $2,410.5 million |
| Underwriting income (loss) | $190.4 million | $(30.0) million |
| Combined ratio | 93.0% | 101.2% |
| Adjusted underwriting income; adjusted combined ratio | $205.5 million; 92.4% | $28.3 million; 98.8% |
| Net investment income | $188.1 million | $147.5 million |
| Net realized and unrealized investment result | $(177.6) million | $8.8 million gain |
| Income (loss) before tax | $(27.0) million | $35.1 million |
| Income tax benefit (expense) | $78.1 million | $(5.3) million |
| Net income | $51.1 million | $29.8 million |
| Operating income, non-GAAP | $202.3 million | $50.6 million |
| Operating cash flow | $(55.0) million | $524.7 million |
| Cash and cash equivalents at year-end | $959.2 million | $1,314.1 million |
| Total cash and investments | $7,045.0 million | $7,831.0 million |
| Total shareholders’ equity | $2,358.0 million | $2,774.8 million |
Dollar amounts are U.S. dollars. Adjusted underwriting measures and operating income are non-GAAP; they should not be treated as substitutes for GAAP results.
Performance changes and balance-sheet highlights
- Gross written premiums rose 10.2%. Reinsurance premiums increased 13.1%, led by casualty and specialty growth; property reinsurance premiums declined as Aspen reduced exposure. Insurance premiums increased 8.1%, with growth in financial and professional lines and casualty, partly offset by pullbacks in first-party and specialty business.
- The combined ratio improved to 93.0%, reflecting better current-year underwriting and lower catastrophe losses than in 2021. FY2022 catastrophe losses were $306.8 million, or 11.4 percentage points of the loss ratio, versus $326.7 million and 13.6 points in 2021. Prior-year reserves had $28.1 million of net unfavorable development, compared with $45.1 million in 2021.
- Net income included a $78.1 million tax benefit, principally from reversing a valuation allowance on U.S. deferred tax assets. The company reported a pretax loss; the tax benefit was therefore a significant contributor to reported net income.
- Investment income increased 27.5%, but rising interest rates and wider credit spreads drove significant investment valuation losses. Other comprehensive income declined $383.3 million, including $367.8 million of net unrealized losses on available-for-sale investments. Equity fell $416.8 million year over year.
- Net cash used in operations was $55.0 million, a $579.5 million decline in operating cash flow from 2021. Management attributed the change principally to higher reinsurance recoverables for claims paid but not yet collected and repayment of the credit facility. The company paid $1,291.1 million in net claims and $84.6 million in ordinary and preference dividends.
- Year-end debt included $299.9 million of 4.65% senior notes due November 2023. A separate $300 million revolving credit agreement had no borrowings outstanding at year-end. Total debt and preference-share “hybrids” were 39.6% of total capital, versus 34.3% in 2021.
- Liquidity included $869.1 million of cash and short-term investments at operating subsidiaries and $84.9 million of cash, cash equivalents and investments at the holding company. However, 59.4% of cash and invested assets were restricted or classified as illiquid, principally due to trusts, deposits, letters of credit and illiquid investments.
Significant transactions, outlook and risks
- Enstar loss portfolio transfer: Closed May 20, 2022, transferring covered losses for 2019 and prior accident years. The arrangement covered $3.12 billion of reserves at the referenced September 2021 date, with a $3.57 billion limit and $3.16 billion premium. Year-end recoverables were $2.132 billion, with approximately $420 million of remaining limit estimated. The transaction reduced reserve volatility, but its accounting and claims-control arrangements affected reported underwriting results.
- Management outlook: Management said market pricing and tighter capacity remained favorable, and expected higher interest rates to support investment income. It emphasized sustainable growth, underwriting returns, catastrophe-risk management, cost control and operational efficiency. The filing provides no specific quantified earnings or premium guidance.
- Major exposures: Catastrophes, climate-related losses, inflation and social inflation, the Russia/Ukraine war, cyber and silent-cyber claims, reserve uncertainty, and reinsurer or broker credit risk could adversely affect results. The filing estimates worldwide 1-in-100 and 1-in-250-year natural-catastrophe losses of $219 million and $294 million, respectively, as of January 1, 2023; these are model-based estimates, not loss limits.
- Reserving and investment uncertainty: Net loss reserves were $2.813 billion, while 56.1% of gross reserves were IBNR. A 10% unfavorable change in expected loss ratios would increase estimated net reserves by $269.2 million, according to management’s sensitivity analysis. Privately held investments of $533.0 million were classified as Level 3 and rely on significant unobservable valuation inputs.
- Controls and audit: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end 2022. A continuing material weakness concerned staffing and process controls over outward reinsurance premiums payable, reinsurance receivables and related disclosures; remediation and testing remained ongoing. The auditor issued an unqualified opinion on the financial statements, but did not provide an opinion on internal control effectiveness.
- Other notable matters: The company reported ongoing regulatory remediation initiatives relating to underwriting, reserving, capital management and governance. It also disclosed a Brazilian competition authority proceeding concerning alleged aviation-insurance practices; management did not believe current litigation or arbitration would materially affect the group as a whole.
Investor verification priorities
- Reconcile GAAP net income of $51.1 million with the $78.1 million tax benefit and assess the assumptions supporting recovery of U.S. deferred tax assets.
- Review the LPT’s remaining limit, recoverability, funds-withheld terms, derivative valuation and claims administration, including the treatment of 2019-and-prior losses.
- Track reserve development, IBNR assumptions and catastrophe, inflation and social-inflation exposure; compare subsequent claims emergence with management’s sensitivities.
- Assess investment portfolio duration, unrealized losses, credit quality, Level 3 valuations and the increased allocations to private loans and real estate funds.
- Monitor cash generation, restricted-asset levels, subsidiary dividend capacity and refinancing or repayment of the $300 million senior notes due in November 2023.
- Verify completion and effectiveness testing of internal-control remediation, particularly the outward-reinsurance accounting processes.