Aspen sees 2016 profits fall in wake of nat cat pummelling

Aspen Insurance Holdings has seen its full year 2016 results fall sharply after reporting a 2016 fourth quarter net loss due to higher catastrophe losses and costs associated with efforts to reposition its insurance segment.

For the full year of 2016, the re/insurer made a net profit of $203.4 million, a fall of a third compared to the $323.1 million it made in 2015.

The company said that this fall was primarily because of its net loss of $71.5 million in the fourth quarter of 2016 compared with a profit of $117.9 million in the same period a year earlier. It also reported an operating loss after tax of $7.4 million in Q4 2016 compared with a profit of $84 million in Q4 2015.

Aspen’s overall combined ratio last year increased to 98.1 percent compared with 91.9 percent a year earlier. Its loss ratio for the year rose to 59.8 percent compared 55.2 percent a year earlier. According to the company the 2016 figure included pre-tax catastrophe losses, net of reinsurance recoveries and $2.0 million of reinstatement premiums, of $164.4 million, or 6.3 percentage points. This compared with $90.5 million, or 3.7 percentage points, of pre-tax catastrophe losses, net of reinsurance recoveries, in the full year of 2015.

While it posted net favourable development on prior year loss reserves of $129.3 million in 2016, which benefited the loss ratio by 4.9 percentage points, this was lower than in 2015 when it benefitted to the tune of $156.5 million, or 6.3 percentage points.

The company endured a particularly difficult fourth quarter. Its loss ratio in this quarter increased to 63.2 percent compared with 53 percent in the fourth quarter of 2015. It said the loss ratio included pre-tax catastrophe losses, net of reinsurance recoveries, of $54.6 million, or 8.9 percentage points. Within this, the loss ratio for its insurance unit was 68.5 percent; its loss ratio for reinsurance was 57.2 percent.

Despite the losses, the company did grow in 2016, its gross written premiums increasing by 5 percent to $3.1 billion. However, its stated strategy of being more selective on business appears to be kicking in. Its gross written premiums dropped to $606.1 million in the fourth quarter of 2016, a decrease of 4.5 percent compared with $634.8 million in the fourth quarter of 2015.

The cutbacks have mainly been on the insurance side of the business. Its gross written premiums on this side of the business fell by 8.7 percent in the fourth quarter; in contrast GWP in reinsurance increased by 5 percent.

“2016 was an important year in positioning Aspen for the future,” said Chris O’Kane, chief executive officer. “Our reinsurance business performed strongly once again despite a much higher level of catastrophe losses. We expanded further our geographic footprint, successfully integrated our diversifying AgriLogic business and continued to target opportunities for profitable growth in what continues to be a challenging market environment.

“During the year, our insurance team took significant actions to reposition product lines where returns are not expected to meet our requirements while at the same time working to identify and invest in the best opportunities for long-term profitable growth.

"While the repositioning of our insurance segment had a significant negative impact on the fourth quarter’s results, we are confident that the actions taken are the right ones and that the underlying quality of our book of business is very strong. We remain intensely focused on driving growth and profitability by offering innovative solutions to meet our clients’ needs and risks, diversifying and expanding our global product offering, and enhancing capital efficiency. Our business is now firmly on course for the next stage of profitable growth.”