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

November 16, 2012

A.M. Best Europe – Ratings Services Limited has affirmed the financial strength rating of ‘A’ (Excellent) and the issuer credit rating (ICR) of “a” of Aspen Insurance UK Limited (AIUK) and Aspen Bermuda Limited (ABL), as well as the ICR of “bbb” and the debt ratings of Aspen Insurance Holdings Limited, the Bermuda-based non-operating holding company of the Aspen group of companies.

The outlook for all of the ratings remains stable.

Aspen’s consolidated risk-adjusted capitalization is “expected to remain strong and supportive of its growth plans,” said Best. “Following deterioration in 2011 due to the impact of catastrophe losses on retained earnings and reserves, risk-adjusted capitalization has been strengthened in 2012 by the issuance of $160 million perpetual non-cumulative preference shares and an increase in retained earnings in the first nine months of the year.

“At year-end 2012, consolidated shareholders’ funds are expected to be higher than the $3.2 billion reported at year-end 2011. ABL 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 ABL remains important to Aspen’s capital management strategy as the provider of internal reinsurance to other Aspen group companies.”

Best also noted that it anticipates a consolidated pre-tax profit in 2012, compared to a loss of $143 million in 2010, “underpinned by a positive underwriting result. This reflects benign catastrophe experience in the first nine months of the year and assumes normal catastrophe experience in the fourth quarter of 2012. Both the insurance and reinsurance segments are expected to contribute positively to the result”.

However, Best also indicated that the “results of Aspen’s US-domiciled subsidiaries are expected to continue to dampen overall performance, owing to high start-up costs relative to premiums earned and ongoing weak market conditions. Investment income from the group’s conservative portfolio of cash and fixed income investments is likely to be positive but lower than in 2011 due to low interest rates.

“Aspen maintains a robust business profile in the London and Bermudian markets, supported by its diversified portfolio of property/casualty and specialty insurance and reinsurance business. Additionally, Aspen’s access to business is enhanced by its US subsidiaries and network of branches in Europe, Canada, Singapore and Australia. The group is expected to achieve growth in premium income of over 10 percent in 2012, with locally placed US business remaining the main focus of its expansion. Modest premium growth is anticipated in the European and UK regional markets.

“Positive rating actions are unlikely in the near future for the Aspen group; however, the maintenance of strong risk-adjusted capitalization and catastrophe risk management, as well as continued profitability from the group’s insurance operation, would place upward pressure on the ratings in the longer term. Unexpected weak operating performance or a material deterioration in the group’s consolidated risk-adjusted capitalization could lead to negative rating pressure.”

Best added that the “following debt ratings have been affirmed:
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
— “bb+” on the $160 million perpetual non-cumulative preference shares

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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