Best Affirms Aspen UK, Bermuda Companies and Subs Ratings; Outlook Stable

October 14, 2011

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 Aspen Insurance Limited (AIL) (Bermuda).

Best also affirmed the ICR of “bbb” and the debt ratings of Bermuda-based Aspen Insurance Holdings Limited, the non-operating holding company of the Aspen group of companies. The outlook for all of the ratings remains stable.

Best indicated that Aspen’s consolidated risk-adjusted capitalization is “expected to remain strong, despite anticipated deterioration during 2011 due to a reduction in retained earnings. At year-end 2011, consolidated shareholders’ funds are expected to be lower than the $3.2 billion reported at year-end 2010, taking into account estimated catastrophe losses in the first half of the year of $316 million (net of reinsurance, reinstatements and taxes).”

Best also said that it expects AIL and AIUK “to maintain strong stand-alone risk-adjusted capitalization. AIUK continues to be the main earnings contributor of the Aspen group, while AIL remains important to Aspen’s capital management strategy as the provider of internal reinsurance to other Aspen group companies.”

For 2011 Best said it expects the group “to report a modest consolidated pre-tax loss, compared to a pre-tax profit of $340 million in 2010. The combined ratio is expected to increase by over 10 percentage points from 97 percent in 2010, reflecting the group’s exposure to catastrophes in the first half of 2011, including the earthquakes in New Zealand and Japan, the Australian floods and the U.S. tornadoes, as well as assuming average catastrophe experience in the remainder of the year.

“The results of Aspen’s U.S.-domiciled subsidiaries are expected to dampen overall performance, owing to high start-up costs relative to premiums earned and ongoing weak market conditions. In more recent years, the U.S. account has been affected by the unfavorable development of prior year claims, although consolidated underwriting results have been supported by overall reserve releases.

“Investment income from the group’s conservative portfolio of cash and fixed income investments is likely to be positive but lower than in 2010 due to low interest rates.”

Best described Aspen as maintaining “a robust business profile in the London and Bermudian markets, supported by its diversified portfolio of property/casualty and specialty lines insurance and reinsurance business.

“Additionally, Aspen’s access to business is enhanced by its U.S. subsidiaries 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.

“To date, the growth and performance of Aspen’s local U.S. business have been affected by competitive market conditions.” Best added that it “will continue to closely monitor Aspen’s expansion in the United States, particularly in view of the weak rating environment for this business and the potential impact of the economic downturn on claims experience.”

Best summarized the affirmation of a number of debt ratings as follows:
Aspen Insurance Holdings Limited—
— “bbb” on $250 million 6 percent senior unsecured notes, due 2014
— “bbb” on $250 million 6 percent senior unsecured notes due 2020
— “bb+” on $ 200 million perpetual non-cumulative preference shares (currently USD 133 million outstanding)
— “bb+” on $230 million perpetual preferred income equity replacement securities

The following debt ratings under the universal shelf registration have been affirmed:
Aspen Insurance Holdings Limited—
— “bbb” on senior unsecured debt
— “bbb-” on junior subordinated debt
— “bbb-” on senior subordinated debt
–“bb+” on preferred stock

Source: A.M. Best

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