Aspen Insurance Holdings Limited ( AHL) Q2 2011 Earnings Call July 28, 2011 9:00 AM ET Executives Kerry Calaiaro – SVP, IR Christopher O’Kane – Group CEO Richard Houghton – Group CFO Analysts Amit Kumar – Macquarie Joshua Shanker – Deutsche Bank Brian Meredith – UBS Presentation Operator
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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 and our earnings slide presentation posted on Aspen website.I’d now like to turn the call over to Chris O’Kane. Christopher O’Kane Thank you, Kerry and good morning, everyone. Our results today marked the midpoint of the year and it has been an event for six months of the industry with severe weather related events impacting the Southeast and Midwestern regions of the U.S. in April to May following all from active first quarter for the natural catastrophes. During our first quarter earnings call, I commented that to the first time in over two years we are seeing market sentiment changing with the growing acceptance in our industry that the market not only needed to harden, but it wasn’t factoring itself. I’ve also stated that I expected to see the hardening take place in catastrophe exposed property lines in the first instance with the effect most apparent in reinsurance. This is what we have witnessed so far. But the key June, July renewals not complete, it is clear that price momentum in catastrophe exposed property currently is continuing to build. As market focus shifts to 2012, I had with Monte Carlo Baden-Baden PCO meetings later this year. This will become more financed. Aspen that clearly identified those catalysts such as the major catastrophe event, it takes time to affect the market turn. As I mentioned, one of our first quarter call the preconditions for markets and are well known understood and it’s fair to say that many of these preconditions and support of the term have not been met. However, the key to affecting the markets and it’s actually underwrite direction, some underwriters will respond faster than others changing circumstances and discernible change in the industry mindset is not taking place. The high incidence of natural catastrophes for the impact of the changes results and from the release of the RMS, U.S. wind catastrophe model in March up two key influences here.
The catastrophe events in the U.S. in the second quarter have added and estimated $18 billion to $48 billion of insured losses from natural catastrophe events in the first quarter. The half year total of $66 billion so far as far exceed the figure $400 billion for the whole of 2010 as you aware, AIR introduced the U. S. wind model version 12.5 last November and this was followed by RMS version 11 this past March. U. S. insurers and reinsurers who use these models to determine pricing and established buying limited in P&L’s are only pathway through the process of incorporating these new findings.We completed, we’ve actually completed our assessments of RMS version 11. We did that by the end of May. We had already incorporated many of the changes in our previous assumptions. And we have now incorporated the reminder of the facts as we believe to be valid into our pricing and accumulation models. In our CAT pricing, accumulation calculations, reinsurance retro buying and use of capital, fully reflect the most up-to-date for pricing models. This is reflected in the P&L’s reported to you on slide 19 of the company presentation and we will be taking no further action regarding this development. At this stage, we do not believe that the border mark has reflected the full impact of these model changes. Some insurers buy reinsurance, as well as some reinsurers do not use RMS and as that we believe they will record little or no impact from the RMS changes. However, the majority of reinsurers and almost 80% of the U. S. primary companies use RMS as at least one of the CAT management models. Read the rest of this transcript for free on seekingalpha.com