Aspen Insurance Holdings Limited (AHL)

Q1 2012 Earnings Call

April 26, 2012 9:00 AM ET


Kerry Calaiaro – SVP, IR

Christopher O’Kane – CEO

Julian Cusack – Acting Group CFO


Michael Zaremski – Credit Suisse

Amit Kumar – Macquarie

Dan Farrell – Sterne Agee

Vinay Misquith – Evercore Partners

Joshua Shanker – Deutsche Bank

Brian Meredith – UBS

Matthew Rohrmann – KBW

Wayne Archambo – Monarch Partners



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Good morning. My name is Jody and I will be your conference operator today. At this time, I would like to everyone to the Aspen Insurance Holdings First Quarter 2012 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question-and-answer session. (Operator Instructions) Thank you.

I would now like to introduce Ms. Kerry Calaiaro. Please go ahead ma’am.

Kerry Calaiaro

Thank you and good morning, the presenters on today’s call are Chris O’Kane, Chief Executive Officer, and Julian Cusack, Chief Financial Officer of Aspen Insurance Holdings. Before we get underway, I would like to make the following remark.

Last night we issued our press release announcing Aspens financial results for the quarter ended March 31, 2012. This press release as well as the corresponding supplementary financial information can be found on our website at

This presentation contains and Aspen may make from time to time written or oral forward-looking statements within the meaning under and pursuant to the Safe Harbor provisions of the U.S. Federal securities laws.

All forward-looking statements will have a number of assumptions concerning future events that are subject to a number of uncertainties and other factors. For more detailed descriptions of these uncertainties and other factors, please see the “Risk Factors” section in Aspen’s Annual Report on Form 10-K filed with the SEC and on our website.

This presentation contains non-GAAP financial measures, which we believe are meaningful in evaluating the company’s performance. For a detailed disclosure on our non-GAAP financials, please refer to the supplementary financial data posted on the Aspen website.

I’ll now turn the call over to Chris O’Kane.

Christopher O’Kane

Thank Kerry. And good morning everyone. Like so many recent quarters, the first quarter 2012 prove to be very interesting one. This time though the interest arises not from past catastrophe losses, but rather from the wide diversity of price changes and momentum in the underwriting cycle is affecting the industry throughout the world.

If I tell you that the line of business with the greatest rate movements in the quarter for us was Japanese earthquake with cumulative rates up 74% and that’s in contrast with the number of other events, which renewed flat, you’ll understand what I mean. And why is this coming about?

Well, in my view there are three or four drivers. First, the industry has finally recognized that the reduction in investment income resulting from the present yield environment, need to be offset by improved underwriting income. This is at last being understood and acted upon.

Second, the fact that the industry sustained catastrophe losses of $117 billion last year has given many management teams the confidence and the authority to demand more price from the customers. Is a slow burning fuse, but one if it certainly looked at as a result we are moving well in the right direction.

Importantly, it’s not only customers with loss making lines they are speeding with upward draft. We observed a number of our major reinsurance clients, perhaps more particularly in Europe, successfully using the argument that losses they sustained in one part of the globe need to be compensated for by improved prices around the globe.

In third place, if you look at the supply capital. And that I mean is the degree of over or under capitalization to give line and this is not evenly distributed. There is a mismatch between where the supply of capital is and where the demand for capital is. Therefore, we are seeing the same macro phenomenon at a global level, having differential impact in different regions and in different lines.

By virtue of Aspens’ extensive distributions network onshore and offshore and in diverse product mix, we are well placed to exploit these relatively undercapitalized pockets, which offer well above average pricing.

And fourth, U.S. wind air version 12.5 and RMS version 11 releases, last year is telling insurers and reinsurers like that there is more risk from the same amount of exposure. RMS version of 11 delivers the same message, but in a more muted way to the Europeans.

In Japan, (inaudible) stress transferred theory and is associated a less than the Tokyo earthquake are telling Asian insurers and reinsurers that there is heightened risk of an earthquake in the Tokyo Bay area. This is not about charging more money for the same risk, because bad experience. This is about charging more money because the risk itself is greater.

Later in the call, I will illustrate how these macro factors bring themselves very specifically investment lines of business in the regions in which we operate.

But before I move to discuss our performance of the quarter, I want to mention our recent capital raise. In April, as a result of the attractive debt pricing environment, we opportunistically accessed the public markets and completed a $160 million preferred offering. This enhances our financial flexibility and rating momentum continues. And also support our U.S. lines and gives us the opportunity for more share repurchases.

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