Aspen Reports 2021 Full Year Results

Aspen Reports $29.8 million Net Income  for the Twelve Months Ended December 31, 2021 (2020: net loss after tax of $(56.4) million), Driven by Improved Underwriting Performance

Hamilton, Bermuda, May 02, 2022 – Aspen Insurance Holdings Limited (“Aspen”) (NYSE: AHL) reported results today for the twelve months ended December 31, 2021.

Mark Cloutier, Group Executive Chairman and Chief Executive Officer, commented: “I am pleased to report that 2021 was a further year of good progress at Aspen, with the business reporting a net income of $29.8 million and an operating income of $95.1 million, a significant improvement over 2020.

Moreover, this performance occurred in a year that saw the world continuing to adapt to the effects of the ongoing global pandemic. Now as we enter May 2022, our world continues to be rocked by the horrific events unfolding as a result of the invasion in Ukraine. Our thoughts and prayers are with all those whose lives continue to be forever impacted.

Underpinning Aspen’s improved result was a continued focus on underwriting discipline with our adjusted Combined Ratio improving from 103.4% in 2020, which included 14.3 percentage points of catastrophe losses, to 98.8% in 2021; this included 13.6 percentage points of catastrophe losses as well as the full economic benefit of the Adverse Development Cover we entered into during 2020. This trend underscores the improvement initiatives we have put in place, while also showing we have been an active participant in capturing the opportunities presented by improved market and trading conditions.

We also have made significant progress in the optimization of our platforms, including the expansion of our Lloyd’s capacity to £900 million, enabling our teams to go to market with a clearer proposition and greater scale as we shift our focus to growth.

Our well-established Capital Markets business, Aspen Capital Partners, is a core part of our strategy at Aspen, and managed capital grew to more than $900 million. This is particularly pleasing, given the challenging renewal environment that many capital market vehicles have experienced recently, and it reflects the sophistication of our solutions across both property and casualty lines of business, the depth of our investor relationships and our established track record. We expect to see continued growth in 2022 as we work with our trading partners and investors to bring new and innovative capital markets solutions to the market, while at the same time seeing the benefit of diversifying, capital light fee income benefiting our earnings.

Being a responsible business is also an essential part of our vision and strategy, and 2021 saw us launch our inaugural ESG report. This report is an important starting point on our journey to build a more sustainable future for Aspen, and outlines the significant work we have already done, including building a more diverse culture, understanding the impact of what we underwrite and thinking carefully about where we invest.

In the first half of 2021, we refreshed our brand, aligning our external identity with our collaborative internal culture and clear vision to transform risk into opportunity for our clients.

Looking ahead, while we are mindful of broader macroeconomic uncertainty and continued inflationary claims trends, we are confident in the outlook and positioning of our business. We are successfully shifting from ‘transforming’ Aspen to ‘activating’ its true potential, and I am excited by the energy, enthusiasm and commitment I see from our people, the differentiated solutions our platforms are creating for clients and what I believe we can accomplish in 2022 and beyond.”

Key strategic and financial highlights

Continued transformation with improved underlying underwriting performance

• Gross written premiums of $3,938.4 million in the twelve months ended December 31, 2021, an increase of 6.5% compared to $3,698.5 million in the twelve months ended December 31, 2020, primarily due to rate improvements in financial and professional insurance lines, casualty and liability insurance lines and organic growth in casualty reinsurance lines.

• Adjusted underwriting income of $28.3 million in the the twelve months ended December 31, 2021 up from $(87.0) million underwriting loss in the the twelve months ended December 31, 2020 resulting in an adjusted combined ratio of 98.8% for 2021 compared to 103.4% for 2020. Included in our underwriting results were catastrophe losses of $326.7 million, or 13.6 percentage points of the combined ratio in the the twelve months ended December 31, 2021 compared to $360.8 million, or 14.3 percentage points of the combined ratio in the twelve months ended December 31, 2020. Catastrophe losses in the twelve months ended December 31, 2020 also included losses associated with COVID-19 totaling $181.2 million.

• Investment income of $147.5 million in the twelve months ended December 31, 2021 compared to $154.6 million in the twelve months ended December 31, 2020.

• Net income after tax of $29.8 million and an operating income after tax of $95.1 million in the twelve months ended December 31, 2021 compared to a net loss after tax of $(56.4) million and an operating loss after tax of $(52.2) million in the twelve months ended December 31, 2020.

Strong capital position

• Group capital position remains robust, with total capital of approximately $2.8 billion as of December 31, 2021, a decrease of $0.1 billion compared with $2.9 billion** as of December 31, 2020.

Significant strengthening of Aspen’s global platform

• Our Capital Markets business contributed total fee income of $61.4 million in the twelve months ended December 31, 2021. Income from Aspen Capital Markets’ activities is primarily allocated to the line of business being ceded and serves to reduce acquisition expenses for that business. Total capital grew to $917.7 million as at December 31, 2021, compared with $680.8 million at December 31, 2020. Our continued ability to grow the capital we manage underpins our view that capital markets business and investors are key partners in Aspen’s further growth and innovation efforts.

• In the first half of 2021 we refreshed our brand, aligning our external identity with our collaborative internal culture and clear vision to transform risk into opportunity for our clients. This was a significant external milestone in the transformation of Aspen.

• We expanded our Lloyd’s capacity to £900 million, further streamlining our UK balance sheet.

• In 2021, we launched our inaugural annual ESG report. We believe that this report is an important starting point and forms part of our commitment to build a more sustainable future for Aspen and its stakeholders. This includes the building of a more diverse culture, understanding the impact of what we underwrite and thinking carefully about where we invest. We will build on this report in the future, detailing our achievements and progress.

*Catastrophe losses in the twelve months ended December 31, 2021 are defined as losses associated with Texas winter storms, Hurricane Ida, European floods  and other weather-related events. Catastrophe losses in the twelve months ended December 31, 2020 were defined as losses associated with COVID-19 and weather-related events.

**For periods 2020 and prior, underwriting premiums receivable, other payables, retained earnings and accumulated other comprehensive income and have been restated to account for the corrections relating to foreign exchange movements which should have been matched with an underwriting premium receivable payment, the completeness and accuracy of the information used in recognizing both current and deferred income tax on Aspen U.K.’s branches and immaterial corrections to gross written premiums and reinsurance premiums payables, as follows:

• Underwriting premiums receivable has been restated downward by $94.8 million as at December 31, 2020;
• Other payables have been restated upward by $15.6 million as at December 31, 2020;
• Total shareholders’ equity has been restated downward by $110.4 million as at December 31, 2020, split between retained earnings and accumulated other comprehensive income totaling $28.5 million and $81.9 million, respectively.

Non-GAAP financial measures are used throughout this release.  For additional information and reconciliation of non-GAAP financial measures, refer to the end of this press release.

Refer to “Cautionary Statement Regarding Forward-Looking Statements” at the end of this press release.

Segment highlights for the twelve months ended December 31, 2021

• Insurance
  • Gross written premiums of $2,341.4 million in the twelve months ended December 31, 2021, an increase compared with $2,042.1 million in the twelve months ended December 31, 2020, due to rate improvements in both financial and professional insurance lines and casualty and liability insurance lines, partially offset by the decrease in first party and specialty insurance due to our decision to cease underwriting in accident and health, international marine and energy liability business which are currently part of our legacy lines.
  • Net written premiums of $1,388.7 million, an increase of 8.5% compared with $1,280.1 million in the twelve months ended December 31, 2020, primarily due to growth in gross written premiums. The retention ratio in the twelve months ended December 31, 2021, was 59.3% compared with 62.7% in the twelve months ended December 31, 2020.
  • Loss ratio of 76.5% in the twelve months ended December 31, 2021 compared with 71.1% in the twelve months ended December 31, 2020. The loss ratio included net catastrophe losses of $71.7 million, or 5.6 percentage points, in the twelve months ended December 31, 2021.
  • Prior year net unfavorable reserve development of $179.5 million increased the loss ratio by 13.9 percentage points in the twelve months ended December 31, 2021. Prior year net unfavorable development of $35.2 million increased the loss ratio by 2.8 percentage points in the twelve months ended December 31, 2020. Unfavorable reserve development in the insurance segment was  mainly due to deterioration of legacy lines business including international marine and energy liability and accident and health, plus further deterioration within continuing U.S. primary casualty lines.
  • Adjusted loss ratio of 75.2% for the twelve months ended December 31, 2021, compared with 71.1% for the twelve months ended December 31, 2020.

• Reinsurance
  • Gross written premiums of $1,597.0 million, a decrease of 3.6% in the twelve months ended December 31, 2021, compared with $1,656.4 million in the twelve months ended December 31, 2020, due primarily to the sale of our U.S. crop reinsurance business which contributed $334.8 million of our U.S. agricultural business in 2020 in specialty reinsurance lines, partially offset by an increase in property catastrophe, casualty reinsurance and other property reinsurance lines premiums.
  • Net written premiums of $1,199.0 million, a decrease of 7.6% compared with $1,297.7 million in the twelve months ended December 31, 2020. The retention ratio in the twelve months ended December 31, 2021, was 75.1% compared with 78.3% in the twelve months ended December 31, 2020.
  • Loss ratio of 63.0% in the twelve months ended December 31, 2021, compared with 74.4% in the twelve months ended December 31, 2020. The loss ratio included net catastrophe losses of $255.0 million, or 22.8 percentage points, in the twelve months ended December 31, 2021.
  • Prior year net favorable reserve development of $134.4 million reduced the loss ratio by 12.0 percentage points in the twelve months ended December 31, 2021. Prior year net favorable reserve development of $36.1 million reduced the loss ratio by 2.8 percentage points in the twelve months ended December 31, 2020. Reserve releases in the reinsurance segment totaling $134.4 million, arose primarily from casualty reinsurance and specialty reinsurance partially offset by unfavorable development on property catastrophe reinsurance and other property reinsurance lines.
  • Adjusted loss ratio of 59.3% for the twelve months ended December 31, 2021, compared with 74.4% for the twelve months ended December 31, 2020.

Investment performance

• Investment income of $147.5 million for the twelve months ended December 31, 2021, compared with $154.6 million for the twelve months ended December 31, 2020.

• Net realized and unrealized investment gains reported in the statement of income of $8.8 million for the twelve months ended December 31, 2021. In addition, $157.6 million of unrealized investment losses before tax were recognized through other comprehensive income in the twelve months ended December 31, 2021.

• The total return on Aspen’s managed investment portfolio was (0.02)% for the twelve months ended December 31, 2021, and reflects net investment income and net realized and unrealized gains and losses mainly in the fixed income portfolio.

• Aspen’s investment portfolio as at December 31, 2021, consisted primarily of high quality fixed income securities with an average credit quality of “AA-”. The average duration of the fixed income portfolio was 3.07 years as at December 31, 2021.

• Book yield on the fixed income portfolio as at December 31, 2021, was 2.10% compared with 2.34% as at December 31, 2020.

Capital

• Total shareholders’ equity was $2,774.8 million as at December 31, 2021, a decrease of $112.4 million compared with $2,887.2 million* as at December 31, 2020.

*Correction of immaterial errors

During the year, management identified immaterial errors which resulted in a revision of the Company’s comparative financial statements, as further described below:

Foreign exchange gains and losses. During the second quarter of 2021, the Company identified an error regarding incorrect treatment of foreign exchange gains and losses arising as a result of currency matching issues within Aspen U.K.’s underwriting premiums receivable. The error resulted in previous foreign exchange revaluation and translation amounts, which should have been matched with an underwriting premium receivable payment being carried over, and were incorrectly included in Aspen U.K.’s underwriting premiums receivable, thereby overstating the related asset value. As a result underwriting premiums receivable, retained earnings and accumulated other comprehensive income being corrected downward by $89.7 million, $2.1 million and $87.6 million, respectively as at December 31, 2020.

Income tax expense. During the year, the Company identified an error regarding the completeness and accuracy of the information used in recognizing both current and deferred income tax on Aspen U.K.’s branches and the associated application thereof in respect of local tax rules in the various jurisdictions. As a result, tax liability increased by $10.3 million, retained earnings were corrected downward by $16.0 million and accumulated other comprehensive income being corrected upward by $5.7 million, respectively, as at December 31, 2020.

Net earned premium. During the year, the Company identified immaterial differences within gross written and re-insurance premium relating to prior years which have been corrected. As a result Gross written premium and underwriting premium receivable were corrected downward by $5.1 million, retained earnings were corrected downward by $5.3 million and reinsurance premiums payables increased by $5.3 million, respectively as at December 31, 2020.

The Company has concluded that these errors are immaterial to the prior period financial statements of Aspen and that correcting the errors in the current period would likely materially misstate the current period financial statements. In accordance with U.S. GAAP, we have, therefore, corrected the errors in the comparatives of the 2021 financial statements of Aspen Holdings by adjusting the prior period information and adding disclosure of the errors. As a result, the Company intends to describe in the Form 20-F certain material weaknesses in the Company’s internal controls over financial reporting, including disclosure of the nature and status of remediation plans in place to address such deficiencies.