Aspen Insurance Holdings Limited — 2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under U.S. GAAP. Amounts are in U.S. dollars unless noted. Aspen is a Bermuda-based specialty insurer and reinsurer; its ordinary shares are wholly owned by an Apollo affiliate, while preference securities trade on the NYSE.
Financial performance and position
- Premiums: Gross written premiums rose 6.5% to $3.938 billion. Net written premiums were $2.588 billion, nearly unchanged, while net premiums earned fell 4.6% to $2.411 billion, reflecting higher ceded premiums.
- Underwriting: GAAP underwriting loss improved to $30.0 million from $87.0 million; combined ratio improved to 101.2% from 103.4%. Adjusted underwriting profit was $28.3 million and adjusted combined ratio was 98.8%, including the full economic benefit of a $58.3 million deferred gain from retroactive reinsurance. Insurance remained loss-making, with a 107.8% combined ratio; Reinsurance reported a 93.6% ratio.
- Claims and catastrophe losses: Net losses and loss-adjustment expenses were $1.693 billion, down from $1.841 billion. Catastrophe losses were $326.7 million, including Hurricane Ida, U.S. winter storms and European floods. Prior-year reserves developed adversely by $45.1 million overall: $134.4 million of releases in Reinsurance were more than offset by $179.5 million of strengthening in Insurance.
- Earnings and investment results: Net income was $29.8 million versus a $56.4 million net loss in 2020; pretax income was $35.1 million versus a $38.0 million loss. Net investment income declined to $147.5 million from $154.6 million. Net realized and unrealized investment gains were $8.8 million, versus $71.1 million in 2020.
- Cash flow: Operating activities generated $524.7 million, compared with $672.7 million used in 2020. Investing activities used $950.3 million; financing activities generated $0.5 million, including a $45.0 million parent contribution and $44.5 million of preference dividends. Year-end cash and cash equivalents were $1.314 billion.
- Balance sheet and liquidity: Total cash and investments were $7.831 billion; total assets were $13.844 billion and shareholders’ equity was $2.775 billion, down from $2.887 billion. Gross loss reserves were $7.612 billion and net reserves $4.314 billion. Management reported $1.157 billion of cash and short-term investments at operating subsidiaries and described liquidity as adequate. However, $4.531 billion of assets were restricted, and $151.3 million was invested in illiquid real estate funds.
- Debt and capital: The company reported $299.9 million of long-term debt, principally $300 million of 4.65% senior notes due 2023. It also had $100 million drawn under a credit facility, payable within 12 months. Debt to total capital was 9.8%; debt and preference-share hybrids were 34.3% of total capital.
Material changes versus 2020
- Insurance gross written premiums increased 14.7%, led by financial and professional lines and casualty; Reinsurance premiums decreased 3.6%, largely because the 2020 comparison included the Crop Re partnership, sold in December 2020.
- Underwriting improved, but results include substantial catastrophe losses and divergent reserve trends: Reinsurance releases contrasted with significant Insurance reserve strengthening, especially in legacy lines and U.S. primary casualty.
- Shareholders’ equity fell by $112.4 million, principally reflecting a $142.7 million decrease in other comprehensive income, including unrealized losses on available-for-sale investments as interest rates rose. The parent contributed $45.0 million, compared with $268.0 million in 2020.
- 2020 and 2019 comparatives were revised for identified immaterial errors involving foreign-exchange accounting, branch tax data and premium balances. The company reported that the corrections did not change historical operating cash flows.
Outlook, risks and unusual items
- Outlook: Management gave no quantified earnings or premium guidance. It said the market had experienced rate increases and expected strengthening to continue, and aimed to deploy capital selectively while maintaining underwriting discipline. It described the business as positioned to improve underwriting margins.
- Enstar loss portfolio transfer: On January 10, 2022, Aspen agreed to replace and expand its existing adverse-development cover with an LPT covering pre-2020 losses. The agreement covers reserves of $3.12 billion (as of September 30, 2021), with a $3.57 billion limit and $3.16 billion premium, including $770 million previously paid. Closing was expected in the first half of 2022, subject to approvals and conditions; the transaction did not affect 2021 results. If it does not close, the prior agreement remains in effect.
- Other notable items: 2021 net income included a $9.7 million contingent gain related to the prior sale of the surety business. Insurance reserve strengthening included deterioration in legacy lines and an opioid provision. The $58.3 million remaining ADC benefit was deferred on the balance sheet rather than recognized in 2021 income.
- Key risks: Reserve estimates are highly judgmental; a 5% change in net reserves would equal $215.7 million, and the filing’s scenarios show material potential reserve variability. The company also highlights catastrophe exposure, climate and social inflation, COVID-19 coverage disputes, rising rates and investment-value declines, reinsurance-counterparty risk, geopolitical disruption including Russia’s invasion of Ukraine, and liquidity constraints from restricted assets.
- Controls and audit: Management concluded internal control over financial reporting was ineffective at year-end due to material weaknesses in foreign-exchange controls, branch tax accounting, valuation of one private investment and outwards-reinsurance processes. Disclosure controls were also deemed ineffective. Remediation was ongoing, with testing expected during 2022. KPMG gave an unqualified opinion on the financial statements; it did not provide an opinion on internal-control effectiveness.
Important facts for investors to verify
- Whether the Enstar LPT closed, its final terms and reserve adjustments, and the resulting capital and earnings effects.
- Subsequent reserve development, particularly Insurance legacy and casualty claims, the opioid provision, and the adequacy of the $4.314 billion net reserve.
- Whether control weaknesses were remediated and tested effectively, and whether further corrections or reporting delays arise.
- How catastrophe losses, inflation and rising interest rates affect underwriting results, reserve adequacy and investment values.
- Available liquidity after accounting for restricted assets, subsidiary dividend limits, the $100 million credit-facility draw and 2023 notes maturity.
- The extent to which the 98.8% adjusted combined ratio depends on the deferred ADC benefit; the reported GAAP combined ratio was 101.2%.