Aspen Looks to Rebound from ‘Considerable Poor Performance’ by Insurance Unit

By | February 12, 2018

While California wildfire catastrophe costs contributed greatly to Aspen’s Q4 results, Chief Executive Officer Chris O’Kane also blamed his still-struggling Insurance division.

“That business has been the source of considerable poor performance,” O’Kane said during the insurer’s Feb. 8 conference call.

The Q4 2017 losses are significant compared to the same period a year ago, when Aspen produced a consolidated $71.5 million loss, or $1.41 per diluted share, and a 107.2 consolidated combined ratio.

During the call, O’Kane was candid about the company’s overall results.

“We’re not here today to make excuses,” O’Kane said. “We’re here to explain what happened, why it happened, and what we’re doing [moving] forward … so it does not happen again.”

Moving Away From Some Major Property Accounts

One of those actions appears to have been the abrupt departure of former Aspen Insurance CEO Stephen Postlewhite, whose exit was announced on Jan. 26 with little explanation. David Cohen, president and chief underwriting officer of Aspen Insurance, was named to replace him.

Another action taken involves Aspen Insurance “moving away from major property accounts that contain considerable catastrophe exposure,” O’Kane said during the call.

In January, Aspen disclosed its $245 million underwriting loss for Q4 that it blamed in part on California wildfire losses, but also “an increased frequency of mid-sized and attritional losses primarily in Aspen’s Insurance segment.” Those losses range from property and fire-related U.K. and U.S. losses, a bump in surety loss and also cyber losses.

Don’t Blame David Cohen

O’Kane, during the investor call, was quick to mention Cohen’s performance so far, and to absolve him of any issues with Aspen Insurance’s performance thus far.

Cohen “has brought about a profound repositioning of our Insurance business,” O’Kane said. “It is extremely important to know and understand that the overwhelming negative issues in 2017 predate [his] arrival.”

In the 2017 third quarter, Aspen reported a whopping $253.8 million net loss, which O’Kane blamed at the time primarily on the fall’s cluster of natural disasters.

O’Kane promised investors that Aspen was doubling down overall on reducing volatility and boosting profitability, noting that most of the carrier’s non-natural catastrophe losses were within a limited number of lines within Aspen Insurance.

“We are actively reviewing these lines, and our focus is on taking all actions necessary to mitigate our residual exposure and deliver value to our shareholders,” O’Kane said in a statement issued on Feb. 7. “Our loss reserves are strong and we continue to focus on achieving appropriate loss ratios and realizing the benefits to our expense ratio from the successful implementation of our operational effectiveness and efficiency program.”

That program, announced in October 2017, is a $160 million cost-cutting effort that is expected to include job cuts.

Here are highlights of Aspen’s Q4 results:

  • Aspen’s reported a 153.2 combined ratio (largely due to natural catastrophes) for reinsurance, and a 133.6 combined ratio for insurance, versus 95.9 and 109.1, respectively, over the same period in 2016.
  • Reinsurance gross written premiums for Q4 hit $216 million, up from $197.1 million over the 2016 fourth quarter. For insurance, gross written premiums were $472.2 million, up from $409 million in the same, year-ago quarter.
  • Net earned premiums for reinsurance were $273.9 million for the fourth quarter, down from $285.9 million in the 2016 fourth quarter. For insurance, net earned premiums reached $237 million, compared to $326.5 million a year ago.
  • Net investment income came in at $47.5 million for Q4, compared to $43.2 million in the 2016 fourth quarter. Aspen said it produced a 0.3 percent return on its aggregate investment portfolio during the quarter. (For the year, its aggregate investment portfolio produced a 3.4 percent return.)
  • Net income included $14.8 million of net realized and unrealized investment gains in Q4, compared to $58.1 million of net realized and unrealized investment losses in the 20126 fourth quarter.

For the year, Aspen lost $266.4 million, or negative $5.22 per diluted share, versus $203.4 million, or $2.61 per diluted share for 2016.

Source: Aspen Insurance Holdings