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ASPEN INSURANCE HOLDINGS LTD (AHL-PC)·Q1 2018 Earnings Summary

Executive Summary

  • Q1 2018 marked a return to underwriting profitability: combined ratio 97.8% (vs. 152.6% in Q4 2017; 152.2% in Q3 2017) with both Insurance and Reinsurance segments posting underwriting profits .
  • Gross written premiums exceeded $1.00B for the first time in company history ($1.1168B, +11.9% YoY), driven by targeted growth in Financial & Professional Lines and Property & Casualty (Insurance), and Specialty and Property Cat (Reinsurance) .
  • Operating EPS was $0.91 vs. GAAP diluted EPS of $0.38, reflecting $37.7M of realized/unrealized investment losses partly offset by $18.8M FX gains; operating ROE annualized was 9.2% (vs. 6.8% in Q1 2017) .
  • Expense ratio improved: 37.4% ex-amortization/non-recurring (vs. 40.1% in Q1 2017), consistent with the Operational Effectiveness program trajectory toward mid-to-low 30s by 2020 .
  • Estimates context: Wall Street consensus (S&P Global) for AHL-PC was unavailable; beat/miss vs. estimates cannot be assessed (SPGI mapping missing for AHL-PC).

What Went Well and What Went Wrong

What Went Well

  • “First in Aspen's history… wrote more than a billion dollars of premium” as GWP rose 11.9% YoY to $1.1168B, with growth in both segments and underwriting profits in Insurance ($9.2M) and Reinsurance ($28.1M) .
  • Expense discipline: total expense ratio ex-amortization/non-recurring fell to 37.4% (from 40.1% in Q1 2017), with policy acquisition ratio down to 17.0% (from 19.6%) .
  • Favorable prior-year reserve development of $37.7M benefited the loss ratio by 7.1 pts; Insurance drove $30.2M releases (12.0 pts), reflecting favorable development from 2017 natural catastrophes .

What Went Wrong

  • Accident-year ex-cat loss ratio rose to 60.7% (vs. 56.0% in Q1 2017), with Insurance elevated at 65.4% due to a trade credit loss (2.6 pts) and a fire-related loss (1.9 pts) .
  • Investment result drag: total portfolio return was (0.9)% with $37.7M realized/unrealized investment losses; diluted BVPS declined to $38.70 from $40.10 at YE17 .
  • Retention ratio remained structurally lower at 56.9% (vs. 68.8% in Q1 2017) amid increased use of ceded reinsurance (reducing volatility but limiting earned premium growth) .

Financial Results

MetricQ3 2017Q4 2017Q1 2018
Gross Written Premiums ($USD Millions)$852.5 $688.3 $1,116.8
Net Earned Premiums ($USD Millions)$652.5 $511.0 $533.5
Net Income After Tax ($USD Millions)$(253.8) $(184.9) $30.8
Diluted EPS (GAAP) ($USD)$(4.48) $(3.25) $0.38
Operating Income After Tax ($USD Millions)$(276.6) $(178.1) $63.0
Diluted Operating EPS ($USD)$(4.78) $(3.14) $0.91
Net Investment Income ($USD Millions)$46.4 $47.5 $47.3
Loss Ratio (%)119.0% 106.5% 58.1%
Expense Ratio (%)33.2% 46.1% 39.7%
Combined Ratio (%)152.2% 152.6% 97.8%

Segment breakdown (underwriting performance):

Segment MetricQ3 2017Q4 2017Q1 2018
Reinsurance Net Earned Premiums ($USD Millions)$382.0 $273.9 $282.5
Insurance Net Earned Premiums ($USD Millions)$270.5 $237.1 $251.0
Reinsurance Loss Ratio (%)131.5% 116.3% 59.1%
Insurance Loss Ratio (%)101.3% 95.2% 57.1%
Reinsurance Expense Ratio (%)24.7% 36.9% 31.0%
Insurance Expense Ratio (%)38.2% 38.4% 39.2%
Reinsurance Combined Ratio (%)156.2% 153.2% 90.1%
Insurance Combined Ratio (%)139.5% 133.6% 96.3%
Reinsurance Underwriting Income ($USD Millions)$(214.5) $(145.6) $28.1
Insurance Underwriting Income ($USD Millions)$(106.8) $(79.6) $9.2

KPIs and balance sheet:

KPIQ3 2017Q4 2017Q1 2018
Retention Ratio (%)71.2% 49.4% 56.9%
Accident-Year Ex-Cat Loss Ratio (Total, %)65.9% 82.0% 60.7%
Prior-Year Reserve Development (Net, $USD Millions)$17.9 $12.6 $37.7
Catastrophe Losses (Net of Reins., $USD Millions; pts)$360.3; 55.9 pts $137.6; 27.0 pts $24.2; 4.5 pts
Expense Ratio ex amortization/non-recurring (%)32.4% 41.5% 37.4%
Diluted Book Value per Share ($USD)$44.00 $40.10 $38.70
Investment Portfolio Total Return (%)0.8% 0.3% (0.9)%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Operational Effectiveness & Efficiency Program – Expected Expense Savings ($USD Millions)2018$30 $30 Maintained
Operational Effectiveness & Efficiency Program – Expected Expense Savings ($USD Millions)2019$55 $55 Maintained
Operational Effectiveness & Efficiency Program – Expected Expense Savings ($USD Millions)2020$75 $75 Maintained
Operational Effectiveness & Efficiency Program – Run-Rate Savings ($USD Millions)2021~$80 ~$80 Maintained
Total Expense Ratio TargetBy 2020Not disclosed in Q3 launch Mid-to-low 30s Introduced

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2017 and Q4 2017)Current Period (Q1 2018)Trend
Operational effectiveness programProgram launched; cumulative $160M savings plan, majority benefits Insurance $11.8M program expenses recorded; expense ratio ex non-recurring improved to 37.4% Progressing/benefiting Insurance
Catastrophe lossesQ3: heavy CATs (Harvey/Irma/Maria, Mexico EQ) ; Q4: California wildfires drove losses Q1: modest weather/CAT losses ($24.2M; 4.5 pts) Improving
Insurance attritional loss trendsQ3: short‑tail property losses elevated ; Q4: mid‑sized/attritional losses (+25.0 pts) Insurance AY ex-cat 65.4% impacted by trade credit and fire losses Elevated but moderating vs Q4
Investment positioningQ3: total return 0.8% ; Q4: 0.3% Sold equity portfolio; total return (0.9)%; book yield 2.63%; duration ~4 years De-risking; near-term headwind
Retention/ceding strategyRetention fell to 71.2% (Q3) and 49.4% (Q4) as company increased cessions Retention 56.9%; continued use of quota shares and ACM cessions Structurally lower to reduce volatility

Management Commentary

  • “The first quarter of 2018 was the first in Aspen's history in which we wrote more than a billion dollars of premium… Both segments generated underwriting profits, we improved our total expense ratio and we continue to implement our operational effectiveness and efficiency program.” — Chris O’Kane, CEO .
  • “Aspen's fourth quarter 2017 results were well below acceptable levels… we need to take further actions to deliver substantially better results… 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.” — Chris O’Kane, CEO (context for prior quarter) .
  • “The third quarter was characterized by multiple, large-scale natural catastrophes… [program] will deliver substantial benefits, particularly in our Insurance segment…” — Chris O’Kane, CEO (program launch) .

Q&A Highlights

  • The Q1 2018 earnings call transcript was not available in the document set or external sources searched; no Q&A themes or clarifications could be extracted .

Estimates Context

  • S&P Global consensus estimates for AHL-PC were unavailable due to missing mapping (SPGI CIQ mapping not found for AHL-PC). As a result, comparisons vs. Street EPS/revenue estimates and beat/miss determinations cannot be made.

Key Takeaways for Investors

  • Underwriting recovery: combined ratio improved to 97.8%, with Insurance at 96.3% and Reinsurance at 90.1%; both segments delivered underwriting profits in Q1 after severe CAT quarters in 2H17 .
  • Growth scaling: GWP surpassed $1.1B (+11.9% YoY) on targeted lines (Financial & Professional, P&C; Specialty and Property Cat), signaling effective growth allocation .
  • Expense trajectory: expense ratio (ex amortization/non-recurring) declined to 37.4% (vs. 40.1% YoY), consistent with the multi‑year program aiming for mid‑to‑low 30s by 2020; $11.8M of program costs booked in Q1 .
  • Loss normalization watch: Insurance accident‑year ex‑cat loss ratio at 65.4% (trade credit and fire losses added 4.5 pts) suggests focus on attritional loss remediation and underwriting discipline .
  • Capital and investments: equity portfolio sale and fixed‑income book yield uptick to 2.63% (duration ~3.98 years) support income stability, but Q1 total return of (0.9)% weighed on BVPS (diluted $38.70) .
  • Risk posture: retention ratio at 56.9% (vs. 68.8% YoY) reflects continued use of quota shares/ceded reinsurance to reduce earnings volatility through the cycle .
  • Near-term catalysts: continued execution against expense program and stabilization in Insurance attritional losses are likely to drive the narrative; management’s savings schedule and expense ratio target provide measurable checkpoints .

Additional Notes on Non-GAAP and Adjustments

  • Operating EPS ($0.91) excludes after‑tax FX gains/losses, realized/unrealized investment gains/losses, and non‑recurring expenses; GAAP diluted EPS was $0.38, with $37.7M investment losses and $18.8M FX gains impacting reported results .
  • Non-GAAP definitions and reconciliations, including Operating ROE, Operating EPS, and accident‑year ex‑cat loss ratios, are provided in the company’s financial supplement and press release .