Aspen Insurance Holdings Limited (AHL)

Q2 2010 Earnings Call Transcript

July 29, 2010 8:30 am ET


Noah Fields – Head of IR

Chris O'Kane – Group CEO

Richard Houghton – Group CFO

James Few – Managing Director, Aspen Re and Head of Property Reinsurance


Josh Shanker – Deutsche Bank

Dean Evans – KBW

Amit Kumar – Macquarie

Vinay Misquith – Credit Suisse



Good morning. My name is Tamika and I will be your conference operator today. At this time, I would like to welcome everyone to the Aspen Insurance Holdings second quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator instructions) Thank you. I would now like to turn the call to Mr. Noah Fields. Please go ahead, sir.

Noah Fields

Thank you and good morning. The presenters on this morning's call are Chris O'Kane, chief executive officer; Richard Houghton, chief financial officer of Aspen Insurance Holdings; and, James Few, president of Aspen Re.

Before we get underway, I'd like to make the following remarks. Yesterday afternoon, we issued our press release announcing Aspen's financial results for the quarter ended June 30th, 2010. This press release as well as corresponding supplementary financial can be found on our Web site at I would also like to draw your attention to the fact that we have posted a short slide presentation on our Web site to accompany this call.

This presentation contains statements Aspen may have made from time-to-time, written or oral, forward-looking statements within the meaning under and pursuant to the Safe Harbor provisions of the US Federal Securities laws. All forward-looking statements will have a number of assumptions concerning future events that are subject to a certain number of uncertainties and other factors. For a more detailed description 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 Web site.

This presentation will contain non-GAAP financial measures, which we believe are meaningful in evaluating the company's performance. For a detailed disclosure on non-GAAP financials, please refer to the supplementary financial data in our earnings slide presentation posted on the Aspen Web site.

Now, I'll turn the call over to Chris O'Kane.

Chris O'Kane

Thank you, Noah, and good morning. I'm very pleased to report a strong set of results for the second quarter. Our operating income for the quarter was $105 million, an increase of just over 1% on the same quarter last year. This equates to an annualized operating return on average equity for the quarter of 15.6%. Our combined ratio for the quarter was 86.9%. For the six months of 2010, annualized return on average equity was 7.8%, with a combined ratio of 98.4%. A summary of our results is set out in slides three and four of the accompanying presentation.

I'm going to begin with our losses from Chile and Deepwater Horizon. We stated in March 29th that we anticipated that our net loss from the Chilean earthquake would be in the range of $70 million to $110 million. And we recorded a net (inaudible) risk of $100 million at our first quarter results. I'm pleased to report that this quarter we've seen no movement in overall net Chilean earthquake loss estimates.

As a reminder, the vast majority of our exposure to this event derives from our proxy reinsurance account and is mainly from worldwide coverage for international funds. As a point of further clarification, we do not write any (inaudible) shares in Chile. And we do not have any exposure to these for this event.

The events surrounding Deepwater Horizon are also highly complex and ongoing. But I would like to comment briefly on our estimated loss from this event. Further detail is also included on slide six. We have booked a net loss after tax and reinstatements of $18.6 million in our second quarter results, which compares with our initial estimate, where we stated our exposure was unlikely to exceed $25 million. This is for $10 million in our insurance segment and $9 million in our reinsurance segment.

In determining our exposure to this event, we evaluated a number of potential scenarios. And our estimate is based on our view of the most likely outcomes. Our exposure within our insurance segment is to some elements of the various liability covers purchased by members of the operating group, not including BP, and to one of the drilling subcontractors. We did not facilitate in the insurance of the property damage risks to the rig, which we declined on underwriting grounds.

In our reinsurance segment, we have some exposure to our seeding companies, who may have added (inaudible) property or I believe we covered to some other parties involved.

Turning now to forecast of the current hurricane season, as you were mostly predicting, it was a very active season indeed. The three main agencies are suggesting a range of 12 to 33 named storms. It's extremely difficult to predict the likely level of storm activity with a high degree of accuracy. And this is illustrated in slide seven, where you are shown predictions versus observed storms for each year since 2003. To put it mildly, the correlation is very low.

What we do know, however, is that unlike 2006 through 2009, when activity was dampened by the El Niño effect, this will not be the case this year because sea surface temperatures, which are the primary engine of hurricane activity, remain very high. More importantly, what matters from a financial loss perspective is the number of hurricanes making landfall, the severity with which landfall is made, and whether the track taken is over high population density. All of these factors are impossible to predict.

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