Aspen Insurance Holdings' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Aspen Insurance Holdings Ltd. ( AHL)

Q4 2011 Earnings Conference Call

February 07, 2012, 09:00 a.m. ET

Executi ve s

Kerry Calaiaro - SVP, IR

Chris O’Kane - CEO

Richard Houghton - CFO

Analyst s

Mike Zaremski - Credit Suisse

Amit Kumar - Macquarie

Sarah DeWitt - Barclays Capital

Vinay Misquith - Evercore Partners

Josh Shanker - Deutsche Bank

Dan Farrell - Sterne Agee

Brian Meredith - UBS

Geoff Dancey - Cutler Capital

Presentation

Operator

Good morning. My name is Cassandra, and I will be your conference operator today. At this time I’d like to welcome everyone to the Aspen Insurance Holdings Fourth Quarter 2011 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. (Operator Instructions) Thank you.

And now I’d like to turn the call over to Kerry Calaiaro, you may begin.

Kerry Calaiaro

Thank you and good morning. The presenters on today’s call are Chris O’Kane, Chief Executive Officer; and Richard Houghton, Chief Financial Officer of Aspen Insurance Holdings. Before we get underway I’d like to make the following remarks, last night we issued our press release announcing Aspen’s financial results for the quarter and year ended December 31, 2011. This press release as well as corresponding supplementary financial information and the short slide presentation can be found on our website at www.aspen.co.

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 description of these uncertainties, and other factors please see the risks factor section in Aspen’s Annual Report on Form-10K 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 detailed disclosure of non-GAAP financials please refer to the supplementary financial data and our earnings slide presentation posted on the Aspen website.

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

Chris O’Kane

Thanks Kerry. Good morning everyone. A significant combination of catastrophe events and depressed investment returns makes 2011 one of the tougher years the insurance industry have seen for some time.

Many will look back November the year as one of the worst years of catastrophe related losses in history. Companies around the globe take series of natural disasters including an earthquake and tsunami in Japan, earthquakes in New Zealand, cyclone and flooding in Australia, a hurricane and the series of severe tornadoes in United States, and devastating floods in Thailand.

Industry-wide losses in 2011 totaled $508 billion which is more than double the figure of $48 billion in 2010 and second only to the record of $123 billion in 2005 when the three U.S. hurricanes; Katrina, Rita and Wilma alone cost the insurance industry over $100 billion.

So, these conditions impacted our financial results for the year. We continue to execute our strategy and adjusted our practice as required to protect our balance sheet, create shareholder value and position our business for future growth.

Aspen has a track record prudent underwriting growth and extensive experience and our own perspective on exposures using both internal and external risk models. This creates clear review of the risk landscape which we carefully evaluate before making underwriting decisions. As we have discussed before, experience and sound judgment mattered just as much as our models. We also use market share data to evaluate the amount of risk we’re willing to take in any given full reserve.

Now, for the global economy in the past 15 years or so, the drive to lower cost of industrial reduction has led to new clusters of significant value building up especially in Asia, and sometimes in locations heavily exposed to natural perils. We believe that many insurers have not realistically affect the level of exposure and the range of perils that could potentially impact these new industrial parks.

As a consequence, data standards can be poor and premiums charge inadequate and therefore we seek to minimize our exposures in those areas. An example of this is the recent loss experienced in Thailand. Regarding our Thailand loss, net of reinsurance, reinstating premiums and tax, our estimate is $54 million.

Our exposure derives from seven Asian region treaties, eight Japanese (inaudible) with international exposure, three multinational insurers, and one Thai contract. You might like to refer to Slide 11 for a breakdown of our 2011 catastrophe losses on both gross and net basis.

Now, let me review our performance. I’m pleased to report that despite the tough environment, we had a breakeven result for the fourth quarter and a very good performance indeed in our insurance business. We reported operating income of $6 million, or $0.01 per share for this quarter, and Richard will give you more detail of those in few minutes.

For the full-year 2011, we reported an operating loss of $1.26 per share, diluted book value per share was $38.43 per share, down 1.2% from year-end 2010. Our insurance segment had a very strong year, with underwriting profit of $33 million. This reflected not only significant growth in certain niche areas but also an improvement across a number of lines. Our casualty and specialty reinsurance lines also had good performances, although the reinsurance segment was materially impacted by the high frequency and severity of natural cats in 2011.

Now, let’s take a look at our underwriting performance beginning with insurance. In the insurance segment, we reported, as already mentioned, an underwriting profit (inaudible) for full-year and the combined ratio of 95.8% compared to 103.1% for 2010. Gross written premiums rose 12% from last year, reflecting among other things strong demand for our kidnap and ransom offering and the successful progress of our U.S. professional lines of business.

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