Aspen Insurance Holdings Ltd. (AHL) reported second-quarter 2014 operating net income of $1.40 per share, which beat the Zacks Consensus Estimate of $1.34 per share. The figure also increased 122.2% year over year from 63 cents. With this earnings beat, the company has delivered four straight quarters of positive earnings surprises, averaging 23.7%.
This property and casualty insurer reported adjusted net income of $1.82 per share for the quarter, which compared favorably with 36 cents in the year-ago quarter.
The quarter witnessed benefits from investments made in business, continued focus on operational performance and initiatives to deal with the dynamic status of the market. These coupled with solid underwriting results, better performing Reinsurance business and expansion of U.S. Insurance helped the company deliver a sturdy quarterly performance.
Operational Update
Gross premiums written increased 13.4% during the quarter to $779.3 million. Higher gross written premiums in the Insurance segment drove the overall improvement.
Aspen Insurance’s net investment income amounted to $46.1 million, up 0.4% year over year.
Total underwriting expenses of Aspen Insurance were $549.5 million in the second quarter, reflecting a year-over-year increase of 4%. This was owing to higher losses and loss adjustment expenses, amortization of deferred policy acquisition costs, and general, administrative and corporate expenses.
Underwriting income of Aspen Insurance improved nearly threefold to $83.3 million led by better underwriting across both its Reinsurance and Insurance segments.
Combined ratio improved 790 basis points (bps) year over year to 89.2% in the second quarter.
Segment Update
Reinsurance: Gross written premiums during the reported quarter were $298.4 million, almost in line with the year-ago quarter.
Underwriting income totaled $68.2 million against $30.4 million in the year-ago quarter. The improvement was primarily attributable to a significant decline in losses and loss adjustment expenses as well as policy acquisition expenses.
Combined ratio of 75.5% improved 1340 bps year over year.
Insurance: $480.9 million of gross written premiums during the reported quarter, improved 23.7% year over year.
Underwriting income of $15.1 million substantially improved from $0.5 million in the prior-year quarteron higher premiums earned.
Combined ratio also improved 430 bps year over year to 95.5%.
Financial Update
Aspen Insurance exited the second quarter with total assets of $10.9 billion, up 7% from the 2013-end level.
As of Jun 30, 2014, total cash and cash equivalents of Aspen Insurance amounted to $1.35 billion, increasing 4% from the end of 2013.
Aspen Insurance’s long-term debt of $549.1 million as of Jun 30, 2014 was almost in line with the 2013-end level.
Aspen Insurance’s total shareholders’ equity amounted to approximately $3.6 billion, up almost 8% from the end of 2013.
Aspen Insurance reported annualized operating return on average equity of 12.8% for the second quarter of 2014, comparing favorably with year ago level of 6.4%. This improvement was driven by an impressive top-line growth, solid underwriting performance, and growth across its Reinsurance and Insurance lines of businesses. The company expects strong operating leverage to generate growth in its premiums at a faster pace than that of expenses, thereby driving ROE as well. This will likely enable Aspen Insurance to enhance shareholders’ value further.
Share Repurchase Update
As of Jun 30, 2014, Aspen Insurance has $193.3 million left in its authorization.
Guidance
Assuming normal loss experience, current interest rate environment and pre-tax catastrophe loss of $185 million per annum, Aspen Insurance expects its operating return on equity to be 10% in 2014, in line with its previously issued guidance.
The company also provided the ROE guidance for 2015 and 2016. Management expects to generate operating ROE of 11% in 2015 and in the range of 11%–12% in 2016.
Performance of Other Property and Casualty Insurers
While ACE Limited (ACE) outperformed the Zacks Consensus Estimate, RLI Corporation’s (RLI) earnings were in line with the expectation. However, The Travelers Companies Inc.’s (TRV) missed the same on higher-than-expected catastrophe losses.
Zacks Rank
Aspen Insurance presently carries a Zacks Rank #3 (Hold).
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