Aspen moderates appetite for U.S. and Japanese catastrophe risk

Bermuda headquartered insurance and reinsurance group Aspen Insurance Holdings Limited has adjusted its risk appetite for certain exposures following recent catastrophe loss challenges.

In reporting its annual results this week, as our sister site covered earlier today, Aspen revealed $143.2 million of catastrophe losses for 2019, much lower than 2018’s $262.9 million and which the company said reflects its reduced appetite for and exposure to catastrophe risks.

On an ex-cat basis, Aspen reported a combined ratio of 96% for the accident year.

But, excluding any non-operating expenses, the combined ratio actually came out at 108.5% for 2019, suggesting even after the reduction in catastrophe exposure further work needs to be done.

Removing legacy books of business from the equation the combined ratio drops to 97.4%, but Aspen’s reinsurance unit still reported a combined ratio of 101.5% with catastrophe losses one of the drivers.

Mark Cloutier, Group Executive Chairman and Chief Executive Officer, explained that 2019 had been a “transitional year” for Aspen.

Part of the expense of 2019 was down to Aspen’s sale to funds managed by investment giant Apollo Global Management.

The company reported a net loss after tax of -$241.7 million and an operating loss after tax of -$48.4 million, which was driven by acquisition related costs as well as restructuring costs, reserve strengthening, unrealized investment losses and exchange rate impact.

“Since completion of the merger transaction early in the year we have undertaken a number of initiatives targeted at protecting the financial strength of the company, while also driving change geared at improving performance over the medium and longer term – all with a focus on long term total value creation,” Cloutier said.

“These actions include refocusing the products we underwrite, strengthening our balance sheet, enhancing our management team, and simplifying our global footprint and operating structure.”

Cloutier said that, “The decisive actions we have taken are the right ones and will see us realize our objective of becoming a top quartile specialty (re)insurer in the near term.”

Among those decisive actions are a pull-back from catastrophe risks in the regions most hit by losses.

In 2019 Aspen adjusted its risk appetite quite significantly, which included a reduction in its exposure to U.S. catastrophe risks, in particular California wildfires, and also to Japanese windstorms.

These steps are designed to reduce volatility in the insurance and reinsurance firms book.

Looking ahead, Cloutier said that Aspen is also beginning to see the benefits of a firming marketplace, with reinsurance rate increases one area that could become a driver of future performance.

He explained, “During 2019, we saw sustained improvement to wider insurance market conditions, including reduced capacity and limits in a number of our core product lines, which has contributed to improving rates, terms, and conditions.

“Within reinsurance, we also saw pockets of corrections over 2018, which extended to improvements in rate across the majority of classes and regions throughout 2019. We have seen these trends continue into 2020.

“These trends are indeed positive but we continue to take a cautious and selective approach to growth as evidenced in our year-over-year gross written premium numbers.”