Aspen Insurance : Full Year 2022 Earnings Press Release

The adjusted combined ratio of 92.4% represents a strong underwriting result for the year and reflects the quality of our portfolio following extensive repositioning in recent years. The continued improvement across the portfolio is driven by disciplined underwriting and rate increases exceeding loss costs. The loss portfolio transfer, completed in May 2022, improved the strength of our balance sheet and provides significant protection of future earnings from potential reserve development on 2019 and prior accident years. We continue to focus on risk management which included a reduction in our exposure to catastrophe losses. The benefits of this can be seen in our 2022 results, within the context of high industry catastrophe loss activity.

Our net investment income was up 28% to $188 million (2021: $148 million). Like the wider market, Aspen has not been immune from the impact of rising interest rates on our investment portfolio. As we said in our half-year 2022 statement, we broadly expect the unrealized investment losses to unwind as securities reach maturity, while higher interest rates will also positively impact future returns.

Encouraging results of our capital markets franchise

Aspen Capital Markets generated total fee income of $104 million, driven by an increase in assets under management to $1.3 billion. This fee income is primarily reflected as an offset to our acquisition costs and therefore benefits our underwriting results. Given the challenges facing the insurance-linked securities market in raising capital, this is testament to the innovative team we have and our track record of delivering for our investors.

Building a culture of which we are proud

I would like to thank our people for their commitment and the role they have played in instilling an innovative and collaborative culture that we can all be proud of. I firmly believe that this culture helps us attract and retain talent, maintain our strong market relationships and sustain an environment of high performance.

In 2022, work continued to build a more diverse, equitable and inclusive business. We established employee-led gender and ethnicity communities across the UK, US and Bermuda, and started collecting diversity data for our employees to better understand our workforce and create a welcoming working environment for all.

As we continue to grow and strive for excellence, it's critical that we reward our people not only for what they do, but how they do it. Over the past few years, we have put significant emphasis on defining our values as a central part of Aspen's culture. In 2023, we have taken a step forward and embedded values and behaviors into our annual performance cycle.

Earlier this year, we published our second Environmental Social and Governance (ESG) Report, building on the work started in 2021. The report shows steady progress across all three pillars of ESG, and the continued focus on embedding sustainability into Aspen's strategy and values.

A business transformed and focused on delivering consistent performance

The results we have reported today mark the third consecutive year of improved underwriting performance. This is a reflection of our transformation efforts over the past few years as we simplified, reshaped and improved Aspen, taking decisive and timely actions on our risk appetite and exposures. Our proactive approach to portfolio management means we have a flexible, robust and diversified franchise across multiple product lines and geographies that provides value and support for our clients.

As a result, we are well-positioned to take advantage of the opportunities that the market is currently providing. Our focus remains on sustainable growth, optimizing our underwriting returns and prudently managing catastrophe risk, as we continue to work towards our objective of delivering consistent top quartile results.

Mark Cloutier, Group Executive Chairman and Chief Executive Officer

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Key financial highlights

Significantly improved financial results driven by underwriting performance

• Gross written premiums of $4,339 million in the twelve months ended December 31, 2022, an increase of 10% compared to $3,938 million in the twelve months ended December 31, 2021, primarily due to rate improvement and growth in both of our underwriting segments.
• Net written premiums of $2,896 million in the twelve months ended December 31, 2022, an increase of 12% compared to $2,588 million in the twelve months ended December 31, 2021. Premiums ceded to reinsurers as a percentage of gross written premium in the twelve months ended December 31, 2022, was 33% compared with 34% in the twelve months ended December 31, 2021.
• Underwriting income of $190 million (adjusted underwriting income* of $205 million) in the twelve months ended December 31, 2022, compared to an underwriting loss of $30 million (adjusted underwriting income of $28 million) in the twelve months ended December 31, 2021, resulting in a combined ratio of 93.0% (adjusted combined ratio of 92.4%) for the twelve months ended December 31, 2022, compared to 101.2% (adjusted combined ratio of 98.8%) for the twelve months ended December 31, 2021.
• Losses and loss adjustment expenses include:
• • Catastrophe losses of $307 million, or 11 percentage points on the combined ratio, for the twelve months ended December 31, 2022, included losses associated with Hurricane Ian, floods in Australia and South Africa, the Russian/Ukraine war and other weather-related events. Catastrophe losses of $327 million, or 14 percentage points on the combined ratio, for the twelve months ended December 31, 2021, included losses associated with Texas winter storms, Hurricane Ida, European floods and other weather-related events.
  • Net unfavorable development on prior year loss reserves of $28 million, or 1 percentage point on the combined ratio, in the twelve months ended December 31, 2022, compared with net unfavorable development of $45 million, or 2 percentage points on the combined ratio in the twelve months ended December 31, 2021.
  • Remaining improvement in the loss ratio reflects improved pricing in excess of loss costs as well as the impact of portfolio repositioning from underwriting actions taken over the past few years across both our insurance and reinsurance segments.
• Acquisition costs as a percentage of net earned premium improved from 17% in 2021 to 16% in 2022, primarily within our insurance segment, due to a greater proportion of our business being ceded to Aspen Capital Markets businesses.
• General and administrative expenses increased to $387 million, representing 14 percentage points on the combined ratio, in the twelve months ended December 31, 2022, compared with $333 million, and 14 percentage points on the combined ratio, in the twelve months ended December 31, 2021. Increases are primarily due to increased staff costs, higher professional and consulting fees, an increase in IT and organizational change costs as we continue to reshape the business as well as an increase in Lloyd's related costs due to increased capacity in the year.
• Net investment income of $188 million in the twelve months ended December 31, 2022, compared to $148 million in the twelve months ended December 31, 2021.
• Net income includes net realized and unrealized investment losses of $178 million in the twelve months ended December 31, 2022, primarily due to adverse interest rate movements. This compares to $9 million net realized and unrealized investment gains in the twelve months ended December 31, 2021.
• Annualized operating return on average equity of 11.9% in the twelve months ended December 31, 2022, compared to 2.4% in the twelve months ended December 31, 2021.

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• Prior year net favorable reserve development of $59 million, or 5 percentage points on the combined ratio, in the twelve months ended December 31, 2022, primarily from favorable reserve development on accident years 2020 and 2021 of $25 million on casualty reinsurance and other property reinsurance lines and the favorable impact of the LPT of $34 million. Prior year net favorable reserve development of $134 million, or 12 percentage points on the combined ratio, in the twelve months ended December 31, 2021.

Investment performance

• Investment income of $188 million for the twelve months ended December 31, 2022, compared with $148 million for the twelve months ended December 31, 2021.
• Net realized and unrealized investment losses of $178 million in the twelve months ended December 31, 2022, which includes unrealized losses of $106 million. In addition, $368 million of unrealized investment losses after tax were recognized through other comprehensive income in the twelve months ended December 31, 2022, compared to $158 million in the twelve months ended December 31, 2021. Unrealized losses are due to higher interest rate and we would expect these to unwind as securities reach maturity. This compares to $9 million net realized and unrealized investment gains in the twelve months ended December 31, 2021, which includes net unrealized gain of $5 million.
• The total return, after tax, on Aspen's managed investment portfolio was (4.8)% for the twelve months ended December 31, 2022, compared to (0.02)% in the twelve months ended December 31, 2021, and reflects net investment income and net realized and unrealized gains and losses mainly in the fixed income portfolio.
• Aspen's investment portfolio as at December 31, 2022, consisted primarily of high quality fixed income securities with an average credit rating of "AA-". The average duration of the fixed income securities was 3.0 years as at December 31, 2022 compared with 3.3 years as at December 31, 2021.
• Book yield on these fixed income securities as at December 31, 2022, was 3.2% compared with 2.1% as at December 31, 2021.

Shareholders' equity

• Total shareholders' equity was $2,358 million as at December 31, 2022, a decrease of $417 million, compared with $2,775 million as at December 31, 2021. The decrease is primarily due to unrealized losses in the available for sale investment portfolio of $368 million caused by the mark-to-market valuation impact from higher interest rates and credit spread widening. Additionally, the decrease was due to ordinary and preference dividends of $85 million, partially offset by net income of $51 million during the twelve months ended December 31, 2022.

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