Aspen & Endurance –‘Two Peas from the Same Pod’– Litmus Study Concludes

July 3, 2014

Stuart Shipperlee, Analytical Partner of Litmus Analysis, decided to analyze some of the financial facts “behind the ‘muck and bullets’ of the Aspen and Endurance battle,” focusing on the “background noise of relative performance.”

In its bulletin announcing the results Litmus said: “Endurance assert Aspen’s has been poor and that Endurance is the answer. Aspen question the leadership style and culture at Endurance and its ability, therefore, to deliver sustainable performance in a risk driven business.

“Both claims are partly about an unknowable future. However, ignoring the convention of ‘not letting the facts get in the way of a good story’ we wondered what their respective performance histories actually looked like.”

Shipperlee, a former executive with A.M. Best consulted the rating agency’s latest reports on the financials of the respective holding companies (which cover the period 2009 – 2013), as an objective source.

"These are two peas from the same performance pod." Stuart Shipperlee, Analytical Partner of Litmus Analysis

“The results across 4 key performance metrics are striking!,” Litmus concluded. “These are two peas from the same performance pod. Even the volatility profiles are remarkably alike. Indeed given the inherent variances in exposures between any two organizations in their sectors the numbers are almost spookily similar.”

Litmus acknowledged that “both organizations are really trying to tell a story about the future. Aspen’s being that it has built a business platform and culture that it can now leverage to drive up sustainable profitability; Endurance’s that dynamic new leadership will do the same. And, to be frank, neither group’s last 5 years have been stellar. OK, but not great (2011, of course, had a big impact on that).

“RoE and Combined Ratios get the most coverage. We tend to see Loss Ratios and Return on Revenues (RoR) as at least as important if not more so. We are not persuaded that competition based on keeping the expense ratio down really makes sense for these kinds of businesses – fundamentally performance must come down to underwriting quality (observed in the Loss Ratios) unless a higher risk investment strategy is followed which is a whole other story.”

Litmus explained that “RoE reflects underwriting and debt leverage (hence RoR gives us a ‘purer’ view of overall operating performance). We are keen on Operating Ratios too, but Best does not publish these in its holding company reports and RoR anyway does a similar job.

“Inevitably, there’s lots of key background not shown here. These are calendar year numbers and hence reflect the recent history of prior year reserve releases. The Loss Ratios are net (gross results can give a key perspective of the fundamental quality of the book). There will be differences in the duration of the claims tails.

“But, it’s hard to look past the story of the data below. For the last 5 years these have been two very, very similarly performing businesses.”

Source: Litmus Analysis

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