A.M. Best Europe – Ratings Services Limited has affirmed the financial strength ratings of ‘A’ (Excellent) and the issuer credit ratings (ICR) of “a” of Aspen Insurance UK Limited (AIUK) and Bermuda-based Aspen Insurance Limited (AIL).
Best also affirmed the ICR of “bbb” and the ratings of “bbb” on $250 million 6 percent senior unsecured notes, “bb+” on $133 million perpetual non-cumulative preference shares and “bb+” on $230 million perpetual preferred income equity replacement securities of Aspen Insurance Holdings Limited, the non-operating holding company of the Aspen group of companies, as well as the ratings for Aspen’s universal shelf registration of “bbb”, “bbb-” and “bb+” on senior unsecured debt, subordinated debt, and preferred stock, respectively.
The outlook for all of the ratings remains stable.
The ratings of the Aspen group companies reflect Best’s expectation that “consolidated risk-adjusted capitalization will remain strong in 2010, in spite of a $200 million share buy-back undertaken at the start of the year. Planned premium growth, mainly in the United States, is likely to continue to be supported by internal capital generation. Additionally, AIL and AIUK are expected to maintain strong stand-alone risk-adjusted capitalization. AIUK continues to be the main earnings contributor of the Aspen group, whilst AIL remains important to Aspen’s capital management strategy as the provider of internal reinsurance to other Aspen group companies.”
Best also said it anticipates that Aspen will achieve “a good, albeit lower, consolidated pre-tax profit” in 2010, compared to the $534.7 million it posted in 2009. The forecast is “largely supported by positive earnings from the group’s conservative cash and fixed income investment portfolio.”
However, Best also indicated that it anticipates “a deterioration in the combined ratio to between 95 percent and 100 percent,” compared to 83.9 percent in 2009. The change reflects the “weaker rating environment and the impact of the major loss events in the first half of 2010 (including a net loss of $112 million from the Chilean earthquake).
“Business derived from Aspen’s US-domiciled subsidiary (representing less than 10 percent of consolidated gross written premiums) is likely to continue to dampen performance, owing to high start-up costs relative to premium earned and ongoing weak market conditions. In more recent years, the US account has also been affected by the unfavorable development of prior year claims, although consolidated underwriting results have been supported by consistent small overall reserve releases relative to net earned premium.”
Best also pointed out that Aspen maintains a “strong business profile in the London and Bermudian markets, writing a diversified portfolio of property, casualty and specialty lines insurance and reinsurance business.
“Additionally, Aspen’s access to business is enhanced by its US subsidiary and network of branch offices in Europe, Canada, Singapore and Australia. The United States remains Aspen’s primary focus for growth in the medium term, with more modest growth anticipated in the European and UK regional markets. Although Aspen’s growth plans in the United States have been constrained due to ongoing competitive conditions, A.M. Best will continue to closely monitor expansion of the US casualty account in view of the weak rating environment for this business and the potential impact of the economic downturn on claims experience.
Source: A.M. Best
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