Aspen Insurance Holdings Limited — FY2020 Form 20-F
Reporting period: Fiscal year ended December 31, 2020; this is an annual report, not a standalone fourth-quarter filing. Aspen is a Bermuda-based specialty insurer and reinsurer, with Insurance and Reinsurance segments and alternative-capital activities. The consolidated financial statements use U.S. GAAP. Apollo-affiliated Parent owns all ordinary shares; preference shares remain NYSE-listed.
Key financial results and position
| Metric | FY2020 | FY2019 |
|---|---|---|
| Gross written premiums | $3,703.6 million | $3,442.4 million |
| Net premiums written / earned | $2,582.9 million / $2,532.6 million | $2,427.9 million / $2,293.3 million |
| Net investment income | $154.6 million | $197.3 million |
| Net realized and unrealized investment gains | $71.1 million | $86.2 million |
| Loss before tax / net loss | $(31.5) million / $(40.1) million | $(218.8) million / $(241.7) million |
| Loss ratio / expense ratio / combined ratio | 72.7% / 34.6% / 107.3% | 73.2% / 40.7% / 113.9% |
| Cash and investments | $7,502.6 million | $7,801.9 million |
| Total assets / shareholders’ equity | $13,185.4 million / $2,997.6 million | $12,580.5 million / $2,725.5 million |
| Long-term debt | $299.9 million | $299.8 million |
The 2020 combined ratio includes $360.8 million of catastrophe losses, including $181.2 million attributed to COVID-19. The accident-year combined ratio excluding catastrophe losses and prior-year reserve movements was 93.1%, versus 105.0% in 2019. Segment combined ratios were 101.8% for Reinsurance and 104.7% for Insurance.
Operating cash flow was negative $672.7 million, compared with negative $337.8 million in 2019; the company attributed the increased use mainly to the adverse development cover (ADC) purchase. Investing activities provided $1,151.2 million and financing activities provided $223.5 million. Year-end cash and cash equivalents were $1,747.3 million. Operating subsidiaries held $1,600.2 million in cash and short-term investments. Aspen reported that 58.6% of cash and invested assets were restricted or illiquid, including trust assets and collateral.
Debt consisted principally of $300 million of 4.65% Senior Notes due 2023. Aspen reported a 9.1% debt-to-total-capital ratio and a 31.9% ratio for debt and preference-share hybrids to total capital. Parent contributed $268.0 million of additional capital in the fourth quarter.
Material changes versus FY2019
- Gross written premiums rose 7.6%; Reinsurance premiums increased 11.8% and Insurance premiums 4.4%, reflecting rate improvements and growth in selected lines.
- Net loss narrowed by $201.6 million. The improvement reflected lower non-operating costs, improved underlying underwriting results, and $43.1 million of gain from selling surety renewal rights. Aspen still reported an underwriting loss of $81.9 million.
- Combined ratio improved by 6.6 percentage points, primarily as the expense ratio fell; catastrophe losses increased to $360.8 million from $148.9 million in 2019.
- Net investment income declined 21.6%, which Aspen attributed largely to transferring $770.0 million of investments as the ADC premium. The company unwound its remaining $1.8 billion of interest-rate swaps, recording $81.1 million of swap losses in 2020.
- Net loss-reserve development was approximately neutral: $0.9 million adverse in 2020, versus $59.5 million adverse in 2019. Gross loss and LAE reserves were $7,165.3 million; net reserves were $3,970.1 million.
Outlook, management commentary, risks and unusual items
- Management said market rates were strengthening and expected rate momentum to continue. It planned to deploy capital selectively while maintaining underwriting discipline, and described the business as positioned to pursue improved underwriting margins. No quantified earnings or premium guidance was provided.
- COVID-19 losses and potential future claims remain uncertain, including business-interruption coverage disputes, litigation, regulatory or legislative changes, premium non-payment or refunds, investment effects, and operational disruption. Aspen said ultimate exposure could not yet be estimated definitively.
- The ADC with an Enstar subsidiary covers eligible losses incurred through 2019: $770 million above a $3.805 billion retention, plus up to $250 million above a $4.815 billion retention. Aspen said it expects the transaction to reduce volatility from historical business.
- Aspen sold its Crop Re ownership interest in December 2020; its U.S. agricultural business represented $334.8 million of 2020 gross written premiums and is expected to diminish materially in 2021 and beyond. It also sold surety renewal rights and transferred prior-year liabilities; certain crop-year obligations remain with Aspen.
- Aspen identified a potential U.K. licensing issue involving APJ Jersey and an intra-group outsourcing arrangement. New business through APJ Jersey stopped; existing business is in run-off. Regulators were notified, and possible penalties, premium repayment or policyholder compensation remain uncertain.
- Other significant risks include reserve-estimation uncertainty, catastrophe and climate exposure, social inflation, reinsurer and broker credit risk, investment and liquidity risk, ratings pressure, Brexit-related market access, and regulatory remediation requirements. S&P downgraded certain Aspen ratings in March 2020; A.M. Best affirmed ratings but revised outlooks to negative for certain entities.
- Management said a material weakness in internal control over financial reporting identified in 2019 was remediated and tested in 2020; management concluded controls were effective at year-end. KPMG issued an unqualified audit opinion and identified IBNR reserves, ceded IBNR recoverables and Level 3 private-investment valuations as critical audit matters.
Most important facts for investors to verify
- Whether COVID-19 claims, coverage litigation and regulatory developments cause material additional losses beyond the $181.2 million recorded for 2020.
- Reserve adequacy and sensitivity: management disclosed that a 5% change in net loss reserves would equal about $198.5 million; IBNR estimates were a key audit matter.
- ADC recoverability, operation of its coverage terms and remaining net exposure to pre-2020 claims.
- Liquidity after the ADC payment, restricted-asset requirements, and the ability of regulated subsidiaries to upstream capital or dividends.
- Consequences of the APJ Jersey licensing matter and progress in satisfying regulatory remediation requirements.
- Effects of the Crop Re disposal and other run-off decisions on future premium volume, profitability and legacy liabilities.