10-Q 1 d402119d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

  þ  

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

  
    For the Quarterly Period Ended September 30, 2012   
    Or   
  ¨  

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

  

Commission file number 001-31909

 

 

ASPEN INSURANCE HOLDINGS LIMITED

(Exact name of registrant as specified in its charter)

 

Bermuda

(State or other jurisdiction of

incorporation or organization)

 

Not Applicable

(I.R.S. Employer

Identification No.)

141 Front Street

Hamilton, Bermuda

(Address of principal executive offices)

 

HM 19

(Zip Code)

Registrant’s telephone number, including area code

(441) 295-8201

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   þ   Accelerated filer   ¨   Non-accelerated filer  ¨     Smaller reporting company  ¨
        (Do not check if a smaller reporting company)    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of October 31, 2012, there were 70,988,697 outstanding ordinary shares, with a par value of 0.15144558¢ per ordinary share, outstanding.

 

 

 


Table of Contents

INDEX

 

          Page  

PART I. FINANCIAL INFORMATION

  

Item 1.

   Unaudited Condensed Consolidated Financial Statements      3   
   Unaudited Condensed Consolidated Balance Sheets as at September 30, 2012 and December 31, 2011      3   
   Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Income for the Three and Nine Months Ended September 30, 2012 and 2011      5   
   Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended September 30, 2012 and 2011      6   
   Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011      7   
   Notes to the Unaudited Condensed Consolidated Financial Statements      9   

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      38   

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk      62   

Item 4.

   Controls and Procedures      64   

PART II. OTHER INFORMATION

  

Item 1.

   Legal Proceedings      65   

Item 1A.

   Risk Factors      65   

Item 2.

   Unregistered Sale of Equity Securities and Use of Proceeds      65   

Item 3.

   Defaults Upon Senior Securities      66   

Item 4.

   Mine Safety Disclosures      66   

Item 5.

   Other Information      66   

Item 6.

   Exhibits      66   

SIGNATURES

     67   

CERTIFICATIONS

  

 

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PART I

FINANCIAL INFORMATION

 

Item 1. Unaudited Condensed Consolidated Financial Statements

ASPEN INSURANCE HOLDINGS LIMITED

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

As at September 30, 2012 and December 31, 2011

($ in millions, except share and per share amounts)

 

     As at
September 30, 2012
     As at
December 31, 2011
 
            (As Adjusted)  

ASSETS

     

Investments

     

Fixed income maturities, available for sale at fair value
(amortized cost — $5,180.8 and $5,099.7)

   $ 5,547.8       $ 5,425.8   

Fixed income maturities, trading at fair value
(amortized cost — $408.4 and $380.4)

     435.3         394.4   

Equity securities, available for sale at fair value
(cost — $171.4 and $169.8)

     197.1         179.5   

Other investments, equity method

     34.8         33.1   

Short-term investments, available for sale at fair value
(amortized cost — $494.5 and $298.2)

     494.7         298.2   

Short-term investments, trading at fair value
(amortized cost — $10.6 and $4.1)

     10.6         4.1   
  

 

 

    

 

 

 

Total investments

     6,720.3         6,335.1   

Cash and cash equivalents

     1,374.2         1,239.1   

Reinsurance recoverables

     

Unpaid losses

     461.6         426.6   

Ceded unearned premiums

     151.3         87.8   

Receivables

     

Underwriting premiums

     993.4         894.4   

Other

     76.4         69.7   

Funds withheld

     79.5         90.7   

Deferred policy acquisition costs(1)

     232.0         184.5   

Derivatives at fair value

     5.8         1.3   

Receivable for securities sold

     14.6         1.1   

Office properties and equipment

     59.1         53.9   

Tax recoverable

     12.3         19.5   

Other assets

     38.1         36.8   

Intangible assets

     19.2         20.0   
  

 

 

    

 

 

 

Total assets(1)

   $ 10,237.8       $ 9,460.5   
  

 

 

    

 

 

 

 

(1) In 2012, the Company adopted the provision of ASU 2010-26, “Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts.Under the standard, the Company is required to expense the proportion of its general and administrative deferred acquisition costs not directly related to successful business acquisition. For more information on the impact of ASU 2010-26, please refer to Note 2 of these financial statements.

See accompanying notes to unaudited condensed consolidated financial statements.

 

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ASPEN INSURANCE HOLDINGS LIMITED

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

As at September 30, 2012 and December 31, 2011

($ in millions, except share and per share amounts)

 

     As at
September 30, 2012
    As at
December 31, 2011
 
           (As Adjusted)  

LIABILITIES

    

Insurance reserves

    

Losses and loss adjustment expenses

   $ 4,639.6      $ 4,525.2   

Unearned premiums

     1,184.0        916.1   
  

 

 

   

 

 

 

Total insurance reserves

     5,823.6        5,441.3   

Payables

    

Reinsurance premiums

     71.1        155.8   

Deferred taxation

     23.7        18.5   

Accrued expenses and other payables

     261.4        187.8   

Liabilities under derivative contracts

     4.7        2.1   
  

 

 

   

 

 

 

Total payables

     360.9        364.2   

Long-term debt

     499.1        499.0   
  

 

 

   

 

 

 

Total liabilities

   $ 6,683.6      $ 6,304.5   
  

 

 

   

 

 

 

Commitments and contingent liabilities (see Note 14)

              
  

 

 

   

 

 

 

SHAREHOLDERS’ EQUITY

    

Ordinary shares: 71,012,237 shares of par value 0.15144558¢ each (December 31, 2011 — 70,655,698)

   $ 0.1        0.1   

Preference shares:

    

4,600,000 5.625% shares of par value 0.15144558¢ each
(December 31, 2011 — 4,600,000)

              

5,327,500 7.401% shares of par value 0.15144558¢ each
(December 31, 2011 — 5,327,500)

              

6,400,000 7.250% shares of par value 0.15144558¢ each
(December 31, 2011 — Nil)

              

Non-controlling interest

     (0.1     0.4   

Additional paid-in capital

     1,521.9        1,385.0   

Retained earnings(1)

     1,562.6        1,341.6   

Accumulated other comprehensive income, net of taxes

     469.7        428.9   
  

 

 

   

 

 

 

Total shareholders’ equity(1)

     3,554.2        3,156.0   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity(1)

   $ 10,237.8      $ 9,460.5   
  

 

 

   

 

 

 

 

(1) In 2012, the Company adopted the provision of ASU 2010-26, “Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts.Under the standard, the Company is required to expense the proportion of its general and administrative deferred acquisition costs not directly related to successful business acquisition. For more information on the impact of ASU 2010-26, please refer to Note 2 of these financial statements.

See accompanying notes to unaudited condensed consolidated financial statements.

 

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ASPEN INSURANCE HOLDINGS LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

($ in millions, except share and per share amounts)

 

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2012     2011     2012     2011  
          (As Adjusted)           (As Adjusted)  

Revenues

       

Net earned premiums

  $ 516.2      $ 486.9      $ 1,525.0      $ 1,399.1   

Net investment income

    48.6        57.3        153.8        171.4   

Net realized and unrealized investment gains

    10.8        3.2        21.1        21.4   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Revenues

    575.6        547.4        1,699.9        1,591.9   
 

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

       

Losses and loss adjustment expenses

    255.0        306.2        801.1        1,161.5   

Policy acquisition expenses

    103.1        93.4        301.2        261.5   

General, administrative and corporate expenses(1)

    90.7        72.0        259.0        205.2   

Change in fair value of derivatives

    4.9        30.0        24.0        55.7   

Interest on long-term debt

    7.8        7.7        23.2        23.1   

Net realized and unrealized foreign exchange losses

    (4.5     5.8        0.5        10.3   

Other (income)/expenses

    (4.5     9.1        (7.1     10.4   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Expenses

    452.5        524.2        1,401.9        1,727.7   
 

 

 

   

 

 

   

 

 

   

 

 

 

Income/(loss) from operations before income tax

    123.1        23.2        298.0        (135.8

Income tax (expense)/credit

    (8.0     (2.0     (19.6     13.3   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net Income/(Loss)(1)

  $ 115.1      $ 21.2      $ 278.4      $ (122.5

Less: Net (Income)/Loss attributable to non-controlling interest

    0.1        (0.2     0.3        0.2   

Net Income/(Loss) attributable to Aspen Insurance Holdings Limited’s ordinary shareholders

  $ 115.2        21.0      $ 278.7        (122.3
 

 

 

   

 

 

   

 

 

   

 

 

 

Other Comprehensive Income, net of taxes:

       

Net Income/(Loss)(1)

  $ 115.1      $ 21.2      $ 278.4      $ (122.5

Available for sale investments:

       

Reclassification adjustment for net realized losses/(gains) on investments included in net income

    4.8        (5.2     5.1        (13.6

Change in net unrealized gains on available for sale securities held

    26.3        69.0        51.2        96.5   

Amortization of loss on derivative contract

    0.2        0.1        0.3        0.2   

Change in foreign currency translation adjustment

    (4.9     (17.4     (15.8     0.3   
 

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

    26.4        46.5        40.8        83.4   
 

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income/(Loss) attributable to Aspen Insurance Holdings Limited’s ordinary shareholders(1)

  $ 141.5        67.7      $ 319.2        (39.1
 

 

 

   

 

 

   

 

 

   

 

 

 

Per Share Data

       

Weighted average number of ordinary shares and share equivalents

       

Basic(2)

    71,129,102        70,699,343        71,125,664        70,681,993   

Diluted(2)

    73,397,796        73,299,874        73,703,038        70,681,993   

Basic earnings/(loss) per ordinary share adjusted for preference share dividend

  $ 1.50      $ 0.22      $ 3.60      $ (1.98
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings/(loss) per ordinary share adjusted for preference share dividend

  $ 1.45      $ 0.21      $ 3.47      $ (1.98
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) In 2012, the Company adopted the provision of ASU 2010-26, “Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts.Under the standard, the Company is required to expense the proportion of its general and administrative deferred acquisition costs not directly related to successful business acquisition. For more information on the impact of ASU 2010-26, please refer to Note 2 of these financial statements.
(2) The basic and diluted number of ordinary shares for the nine months ended September 30, 2011 in the tables above is the same, as the inclusion of dilutive securities in a loss making period would be anti-dilutive.

See accompanying notes to unaudited condensed consolidated financial statements.

 

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ASPEN INSURANCE HOLDINGS LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF

CHANGES IN SHAREHOLDERS’ EQUITY

($ in millions)

 

     Nine Months Ended
September 30,
 
     2012     2011  
           (As Adjusted)  

Ordinary shares

    

Beginning and end of period

   $ 0.1      $ 0.1   
  

 

 

   

 

 

 

Preference shares

    

Beginning and end of period

              
  

 

 

   

 

 

 

Non-controlling interest

    

Beginning of period

     0.3        0.5   

Net income/(loss) attributable to non-controlling interest

     (0.3     (0.2

Dividends due to non-controlling interest

     (0.1     (0.1
  

 

 

   

 

 

 

End of period

     (0.1     0.2   
  

 

 

   

 

 

 

Additional paid-in capital

    

Beginning of period

     1,385.0        1,388.3   

New ordinary shares issued

     21.5        0.5   

Ordinary shares repurchased and cancelled

     (51.9     (8.1

Preference shares issued

     154.5          

Share-based compensation

     12.8        1.1   
  

 

 

   

 

 

 

End of period

     1,521.9        1,381.8   
  

 

 

   

 

 

 

Retained earnings

    

Beginning of period(1)

     1,341.6        1,517.0   

Net income/(loss) for the period(1)

     278.4        (122.5

Dividends on ordinary shares

     (35.1     (31.8

Dividends on preference shares

     (22.6     (17.1

Proportion due to non-controlling interest

     0.3        0.2   
  

 

 

   

 

 

 

End of period(1)

     1,562.6        1,345.8   
  

 

 

   

 

 

 

Accumulated other comprehensive income:

    

Cumulative foreign currency translation adjustments, net of taxes:

    

Beginning of period

     124.2        113.4   

Change for the period, net of income tax

     (15.8     0.3   
  

 

 

   

 

 

 

End of period

     108.4        113.7   
  

 

 

   

 

 

 

Loss on derivatives, net of taxes:

    

Beginning of period

     (0.7     (1.0

Reclassification to interest payable

     0.3        0.2   
  

 

 

   

 

 

 

End of period

     (0.4     (0.8
  

 

 

   

 

 

 

Unrealized appreciation on investments, net of taxes:

    

Beginning of period

     305.4        211.9   

Change for the period, net of taxes

     56.3        82.9   
  

 

 

   

 

 

 

End of period

     361.7        294.8   
  

 

 

   

 

 

 

Total accumulated other comprehensive income, net of taxes

     469.7        407.7   
  

 

 

   

 

 

 

Total shareholders’ equity(1)

   $ 3,554.2      $ 3,135.6   
  

 

 

   

 

 

 

 

 

(1) In 2012, the Company adopted the provision of ASU 2010-26, “Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts.” Under the standard, the Company is required to expense the proportion of its general and administrative deferred acquisition costs not directly related to successful business acquisition. For more information on the impact of ASU 2010-26, please refer to Note 2 of these financial statements.

See accompanying notes to unaudited condensed consolidated financial statements.

 

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ASPEN INSURANCE HOLDINGS LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in millions)

 

     Nine Months  Ended
September 30,
 
     2012     2011  
           (As Adjusted)  

Cash flows from operating activities:

    

Net income/(loss)(1)

   $ 278.4      $ (122.5

Proportion due to non-controlling interest

     0.3        0.2   

Adjustments to reconcile net income to net cash flows from operating activities:

    

Depreciation and amortization

     31.1        19.3   

Share-based compensation

     12.8        1.1   

Net realized and unrealized investment and foreign exchange (gains)

     (19.5     (21.5

Loss on derivative contracts

     0.3        0.2   

Changes in:

    

Insurance reserves:

    

Losses and loss adjustment expenses

     69.5        578.3   

Unearned premiums

     261.1        150.9   

Reinsurance recoverables:

    

Unpaid losses

     (32.8     (77.0

Ceded unearned premiums

     (62.7     (67.4

Other receivables

     (3.4     (1.4

Deferred policy acquisition costs(1)

     (46.7     (37.0

Reinsurance premiums payables

     (85.1     21.0   

Funds withheld

     11.2        18.2   

Premiums receivable

     (105.2     (121.6

Deferred taxes

     (2.9     (21.1

Income tax payable

     14.5        (23.9

Accrued expenses and other payables

     30.2        (2.6

Fair value of derivatives and settlement of liabilities under derivatives

     (2.2     0.3   

Long term debt

     0.1        0.1   

Other assets

     (3.9     (15.2
  

 

 

   

 

 

 

Net cash from operating activities

   $ 345.1      $ 278.4   
  

 

 

   

 

 

 

 

 

(1) In 2012, the Company adopted the provision of ASU 2010-26, “Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts.” Under the standard, the Company is required to expense the proportion of its general and administrative deferred acquisition costs not directly related to successful business acquisition. For more information on the impact of ASU 2010-26, please refer to Note 2 of these financial statements.

See accompanying notes to unaudited condensed consolidated financial statements.

 

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ASPEN INSURANCE HOLDINGS LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in millions)

 

     Nine Months  Ended
September 30,
 
     2012     2011  
           (As Adjusted)  

Cash flows (used in) investing activities:

    

(Purchases) of fixed income maturities — Available for sale

   $ (1,057.1   $ (1,544.6

(Purchases) of fixed income maturities — Trading

     (187.7     (335.2

(Purchases) of equity securities — Available for sale

     (41.5     (185.7

Proceeds from sales and maturities of fixed income maturities — Available for sale

     989.7        1,398.2   

Proceeds from sales and maturities of fixed income maturities — Trading

     164.5        356.0   

Proceeds from sales of equity securities — Available for sale

     35.9        12.6   

Net (purchases)/sales of short-term investments

     (190.4     (7.4

Net change in (payable) for securities (purchased)

     19.3        (40.7

(Purchases) of equipment

     (19.9     (21.6
  

 

 

   

 

 

 

Net cash (used in) investing activities

     (287.2     (368.4
  

 

 

   

 

 

 

Cash flows from/(used in) financing activities:

    

Proceeds from the issuance of ordinary shares, net of issuance costs

     21.5        0.5   

Proceeds from the issuance of preference shares, net of issuance costs

     154.5          

Ordinary shares repurchased

     (51.9     (8.1

Dividends paid on ordinary shares

     (35.1     (31.8

Dividends paid on preference shares

     (22.6     (17.1
  

 

 

   

 

 

 

Net cash from/(used in) financing activities

     66.4        (56.5
  

 

 

   

 

 

 

Effect of exchange rate movements on cash and cash equivalents

     10.8        6.2   
  

 

 

   

 

 

 

Increase/(decrease) in cash and cash equivalents

     135.1        (140.3

Cash and cash equivalents at beginning of period

     1,239.1        1,179.1   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 1,374.2      $ 1,038.8   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid during the period for income tax expense

   $ 6.4      $ 4.8   

Cash paid during the period for interest on long-term debt

   $ 22.5      $ 22.7   

See accompanying notes to unaudited condensed consolidated financial statements.

 

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ASPEN INSURANCE HOLDINGS LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.    History and Organization

Aspen Insurance Holdings Limited (“Aspen Holdings”) was incorporated on May 23, 2002 and holds subsidiaries that provide insurance and reinsurance on a worldwide basis. Its principal operating subsidiaries are Aspen Insurance UK Limited (“Aspen U.K.”), Aspen Bermuda Limited (“Aspen Bermuda”), Aspen Specialty Insurance Company (“Aspen Specialty”), Aspen American Insurance Company (“AAIC”) and Aspen Underwriting Limited (corporate member of Lloyd’s Syndicate 4711, “AUL”) (collectively, the “Operating Subsidiaries”). References to the “Company”, “we”, “us” or “our” refer to Aspen Holdings or Aspen Holdings and its wholly-owned subsidiaries.

2.    Basis of Preparation

The accompanying unaudited condensed consolidated financial statements have been prepared on the basis of generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ended December 31, 2012. The unaudited condensed consolidated financial statements include the accounts of Aspen Holdings and its subsidiaries, which are collectively referred to herein as the “Company.” All intercompany transactions and balances have been eliminated on consolidation.

The balance sheet at December 31, 2011 has been derived from the audited consolidated financial statements at that date adjusted for the adoption of ASU 2010-26, “Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts,” but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2011 contained in the Company’s Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (File No. 001-31909).

Assumptions and estimates made by management have a significant effect on the amounts reported within the consolidated financial statements. The most significant of these relate to losses and loss adjustment expenses, the value of investments, reinsurance recoverables and the fair value of derivatives. All material assumptions and estimates are regularly reviewed and adjustments made as necessary, but actual results could be significantly different from those expected when the assumptions or estimates were made.

New Accounting Policies Adopted in 2012

In 2010, the Financial Accounting Standard Board (“FASB”) issued ASU 2010-26, “Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts, which requires costs incrementally or directly related to the successful acquisition of new or renewal insurance contracts to be capitalized as deferred acquisition costs, effective for the 2012 interim and annual reporting period. This decision requires us to expense the proportion of our general and administrative deferred acquisition costs which relate to quoted business which does not successfully convert into a policy. We adopted this standard for the first time on January 1, 2012 and followed the full retrospective method permitted by the FASB which requires prior periods to be represented.

The provisions of the standard have increased general, administrative and corporate expenses by $3.2 million in the nine months ended September 30, 2012 and reduced closing retained earnings for the period ended September 30, 2012 by an aggregate of $19.2 million. The brought forward accumulated operating deferred acquisition costs as at December 31, 2011 were reduced by $16.0 million due to a write down of previously deferred costs and resulted in a corresponding reduction in retained earnings brought forward.

 

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The adoption of the standard has required the comparative data to be restated as follows:

 

Consolidated Balance Sheet

   As at December 31, 2011  
     As Reported     As Adjusted  
     ($ in millions)  

Assets

  

Deferred policy acquisition costs (reported and adjusted)

   $ 200.5      $ 184.5   

Shareholders’ equity

    

Retained earnings (reported and adjusted)

   $     1,357.6      $     1,341.6   

Consolidated Statement of Shareholders’ Equity

   Nine Months Ended
September 30, 2011
 
     As Reported     As Adjusted  
     ($ in millions)  

Retained earnings

    

Beginning of the period (reported and adjusted)

   $ 1,528.7      $ 1,517.0   

Net (loss) for the period (reported and adjusted)

     (119.3     (122.5

Dividends on ordinary shares (reported and adjusted)

     (31.8     (31.8

Dividends on preference shares (reported and adjusted)

     (17.1     (17.1

Proportion due to non-controlling interest (reported and adjusted)

     0.1        0.2   
  

 

 

   

 

 

 

End of period (reported and adjusted)

   $ 1,360.6      $ 1,345.8   
  

 

 

   

 

 

 

Consolidated Statement of Operations

   Three Months Ended
September 30, 2011
 
     As Reported     As Adjusted  
     ($ in millions)  

Expenses

  

General, administrative and corporate expenses (reported and adjusted)

   $ 71.0      $ 72.0   
      Nine Months Ended
September 30, 2011
 
     As Reported     As Adjusted  
     ($ in millions)  

Expenses

  

General, administrative and corporate expenses (reported and adjusted)

   $ 202.0      $ 205.2   

Consolidated Statement of Cash Flows

   Nine Months Ended
September 30, 2011
 
     As Reported     As Adjusted  
     ($ in millions)  

Net (loss) (reported and adjusted)

   $ (119.3   $ (122.5

Deferred policy acquisition costs (reported and adjusted)

     (40.2     (37.0

 

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Earnings per Ordinary Share

The above standard has also resulted in a change to the calculations of earnings per share as follows:

 

    Three Months Ended
September 30, 2011
    Nine Months Ended
September 30, 2011
 
    ($ in millions, except for per share amounts)  

Net income/(loss) (reported)

  $ 22.2      $ (119.3

Preference dividends

    (5.7     (17.1
 

 

 

   

 

 

 

Basic and diluted net income/(loss) available to ordinary shareholders

    16.5        (136.4

Additional deferred acquisition costs expensed

    (1.0     (3.2
 

 

 

   

 

 

 

Adjusted basic and diluted net income/(loss) available to ordinary shareholders

  $ 15.5      $ (139.6
 

 

 

   

 

 

 

Basic weighted average ordinary shares

    70,699,343        70,681,993   

Weighted average effect of diluted securities

    2,600,642          
 

 

 

   

 

 

 

Total diluted weighted average ordinary shares

    73,299,985        70,681,993   
 

 

 

   

 

 

 

Reported basic income/(loss) per ordinary share

  $ 0.23      $ (1.93
 

 

 

   

 

 

 

Adjusted basic income/(loss) per ordinary share

  $ 0.22      $ (1.98
 

 

 

   

 

 

 

Reported diluted income/(loss) per ordinary share

  $ 0.23      $ (1.93
 

 

 

   

 

 

 

Adjusted diluted income/(loss) per ordinary share

  $ 0.21      $ (1.98
 

 

 

   

 

 

 

If the above standard had not been adopted, the basic and diluted earnings per ordinary share adjusted for preference share dividends for the three and nine months ended September 30, 2012 would be as follows:

 

     Three Months Ended
September 30, 2012
     Nine Months Ended
September 30, 2012
 
     ($ in millions, except for per share amounts)  

Adjusted basic income per ordinary share

   $ 1.51       $ 3.63   
  

 

 

    

 

 

 

Adjusted diluted income per ordinary share

   $ 1.47       $ 3.50   
  

 

 

    

 

 

 

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income,” which eliminates the option to report other comprehensive income and its components in the statement of changes in shareholders’ equity. The standard requires comprehensive income to be reported in either a single statement, which the Company has implemented, or in two consecutive statements including the components of net income, the components of other comprehensive income and total comprehensive income. The Company adopted this standard in the first quarter of 2012.

In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS,” which emphasizes using the same meaning and disclosures of fair value within the financial statements prepared in accordance with U.S. GAAP and International Financial Reporting Standards (“IFRS”). This decision requires the Company to disclose additional information about transfers between Level 1 and Level 2 of the fair value hierarchy, additional disclosures for Level 3 fair value measurement, including quantitative and qualitative information about significant unobservable inputs and discussions about the sensitivity of these unobservable inputs, and a description of the Company’s valuation process. ASU 2011-04 was effective for annual reporting periods beginning after December 15, 2011 with early adoption prohibited. The Company adopted this standard in the first quarter of 2012. This standard does not have a material impact on the Company’s consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In 2011, the FASB issued ASU 2011-11, “Disclosures about Offsetting Assets and Liabilities.” The ASU 2011-11 retains the existing offsetting model under U.S. GAAP but requires disclosures to allow investors to better compare financial statements prepared under U.S. GAAP with financial statements prepared under IFRS

 

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by aligning these requirements. ASU 2011-11 is effective for annual reporting periods beginning January 1, 2013, and interim periods within those annual periods. Retrospective application is required. The provisions of the new guidance are not expected to have a material impact on the Company’s consolidated financial statements.

In July 2012, the FASB issued ASU 2012-02, “Indefinite-Lived Intangible Assets Impairment Test” which permits an entity to make a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset, other than goodwill, is impaired. The ASU applies to both public and non-public entities and is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The provisions of the new guidance are not expected to have a material impact on the Company’s consolidated financial statements.

3.    Acquisitions

There were no acquisition-related transactions during the nine months ended September 30, 2012.

4.    Earnings per Ordinary Share

Basic earnings per ordinary share are calculated by dividing net income available to holders of Aspen Holdings’ ordinary shares by the weighted average number of ordinary shares outstanding. Diluted earnings per ordinary share are based on the weighted average number of ordinary shares and dilutive potential ordinary shares outstanding during the period of calculation using the treasury stock method. The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2012 and 2011, respectively:

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
             2012                     2011                     2012                     2011          
           (As Adjusted)           (As Adjusted)  
     ($ in millions, except share and per share amounts)  

Earnings

        

Basic:

        

Net income/(loss)(1)

   $ 115.1      $ 21.2      $ 278.4      $ (122.5

Preference share dividends

     (8.6     (5.7     (22.6     (17.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted net income/(loss) available to ordinary shareholders(1)

     106.5        15.5        255.8        (139.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Ordinary shares:

        

Basic weighted average ordinary shares

     71,129,102        70,699,343        71,125,664        70,681,993   

Weighted average effect of dilutive securities(2)

     2,268,694        2,600,531        2,577,374          
  

 

 

   

 

 

   

 

 

   

 

 

 

Total diluted weighted average ordinary shares

     73,397,796        73,299,874        73,703,038        70,681,993   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings/(loss) per ordinary share:

        

Basic

   $ 1.50      $ 0.22      $ 3.60      $ (1.98
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 1.45      $ 0.21      $ 3.47      $ (1.98
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(1) In 2012, the Company adopted the provision of ASU 2010-26, “Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts.” Under the standard, the Company is required to expense the proportion of its general and administrative deferred acquisition costs not directly related to successful business acquisition. For more information on the impact of ASU 2010-26, please refer to Note 2 of these financial statements.

 

(2) The basic and diluted number of ordinary shares for the nine months ended September 30, 2011 in the table above is the same, as the inclusion of dilutive securities in a loss making period would be anti-dilutive. Dilutive securities comprise: investor options, employee options, performance shares associated with the Company’s long term incentive program and restricted stock units as described in Note 12 in addition to Perpetual Preferred Income Equity Replacement Securities.

 

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Dividends.    On October 24, 2012, the Company’s Board of Directors declared the following quarterly dividends:

 

     Dividend      Payable on:      Record Date:  

Ordinary shares

   $ 0.17                November 26, 2012         November 8, 2012   

5.625% preference shares

   $ 0.703125         January 1, 2013         December 15, 2012   

7.401% preference shares

   $ 0.462563         January 1, 2013         December 15, 2012   

7.250% preference shares

   $ 0.4531            January 1, 2013         December 15, 2012   

5.    Segment Reporting

The Company has two reporting business segments: Insurance and Reinsurance. In arriving at these reporting segments, we have considered similarities in economic characteristics, products, customers, distribution, the regulatory environment of our operating segments and quantitative thresholds to determine our reportable segments. Segment profit or loss for each of the Company’s operating segments is measured by underwriting profit or loss. Underwriting profit is the excess of net earned premiums over the sum of losses and loss expenses, policy acquisition expenses and general and administrative expenses. Underwriting profit or loss provides a basis for management to evaluate the segment’s underwriting performance.

Reinsurance Segment.    Our reinsurance segment consists of property catastrophe reinsurance, other property reinsurance (risk excess, pro rata and facultative), casualty reinsurance (U.S. treaty, international treaty and global facultative) and specialty reinsurance (credit and surety, structured, agriculture and specialty). For a more detailed description of this segment, see Part I, Item 1, “Business — Business Segment — Reinsurance” in the Company’s 2011 Annual Report on Form 10-K filed with the United States Securities and Exchange Commission.

Insurance Segment.    Our insurance segment consists of property insurance, casualty insurance, marine, energy and transportation insurance and financial and professional lines insurance. For a more detailed description of this segment, see Part I, Item 1 “Business — Business Segment — Insurance” in the Company’s 2011 Annual Report on Form 10-K filed with the United States Securities and Exchange Commission.

Non-underwriting Disclosures.    We have provided additional disclosures for corporate and other (non-underwriting) income and expenses. Corporate and other includes net investment income, net realized and unrealized investment gains or losses, corporate expenses, interest expenses, net realized and unrealized foreign exchange gains or losses and income taxes, which are not allocated to the underwriting segments. Corporate expenses are not allocated to the Company’s operating segments as they typically do not fluctuate with the levels of premiums written and are not directly related to our segment operations. They include group executive costs, group finance costs, legal and actuarial costs, non-underwriting share-based compensation and certain strategic costs including new teams before they commence underwriting.

We do not allocate our assets by segment as we evaluate underwriting results of each segment separately from the results of our investment portfolio. Segment profit or loss for each of the Company’s operating segments is measured by underwriting profit or loss.

 

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The following tables provide a summary of gross and net written and earned premiums, underwriting results, ratios and reserves for each of our business segments for the three months ended September 30, 2012 and 2011:

 

     Three Months Ended September 30, 2012  
     Reinsurance     Insurance     Total  
     ($ in millions)  

Underwriting Revenues

      

Gross written premiums

   $ 259.5      $ 298.9      $ 558.4   

Net written premiums

     256.9        250.2        507.1   

Gross earned premiums

     299.8        302.0        601.8   

Net earned premiums

     279.6        236.6        516.2   

Underwriting Expenses

      

Losses and loss adjustment expenses

     117.1        137.9        255.0   

Policy acquisition expenses

     55.7        47.4        103.1   

General and administrative expenses

     33.6        42.8        76.4   
  

 

 

   

 

 

   

 

 

 

Underwriting income

     73.2        8.5        81.7   
  

 

 

   

 

 

   

Corporate expenses

         (14.3

Net investment income

         48.6   

Net realized and unrealized investment gains

         10.8   

Change in fair value of derivatives

         (4.9

Interest expense on long term debt

         (7.8

Net realized and unrealized foreign exchange gains

         4.5   

Other income

         4.5   
      

 

 

 

Net profit before tax

       $ 123.1   
      

 

 

 

Net reserves for loss and loss adjustment expenses

   $ 2,755.1      $ 1,422.9      $ 4,178.0   
  

 

 

   

 

 

   

 

 

 

Ratios

      

Loss ratio

     41.9     58.3     49.4

Policy acquisition expense ratio

     19.9        20.0        20.0   

General and administrative expense ratio(1)

     12.0        18.1        17.6   

Expense ratio

     31.9        38.1        37.6   
  

 

 

   

 

 

   

 

 

 

Combined ratio

     73.8     96.4     87.0
  

 

 

   

 

 

   

 

 

 

 

 

(1) The total general and administrative expense ratio includes corporate expenses.

 

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Table of Contents
     Three Months Ended September 30, 2011  
     Reinsurance     Insurance     Total  
     (As Adjusted, $ in millions)  

Underwriting Revenues

      

Gross written premiums

   $ 276.1      $ 219.5      $ 495.6   

Net written premiums

     270.5        192.1        462.6   

Gross earned premiums

     303.2        246.7        549.9   

Net earned premiums

     279.6        207.3        486.9   

Underwriting Expenses

      

Losses and loss adjustment expenses

     188.8        117.4        306.2   

Policy acquisition expenses

     51.8        41.6        93.4   

General and administrative expenses(1)

     26.7        34.9        61.6   
  

 

 

   

 

 

   

 

 

 

Underwriting income(1)

     12.3        13.4        25.7   
  

 

 

   

 

 

   

Corporate expenses

         (10.4

Net investment income

         57.3   

Realized and unrealized investment gains

         3.2   

Change in fair value of derivatives

         (30.0

Interest expense on long term debt

         (7.7

Net realized and unrealized foreign exchange (losses)

         (5.8

Other income

         (9.1
      

 

 

 

Net profit before tax(1)

       $ 23.2   
      

 

 

 

Net reserves for loss and loss adjustment expenses

   $ 2,713.3      $ 1,328.4      $ 4,041.7   
  

 

 

   

 

 

   

 

 

 

Ratios

      

Loss ratio

     67.5     56.6     62.9

Policy acquisition expense ratio

     18.5        20.1        19.2   

General and administrative expense ratio(1)(2)

     9.5        16.8        14.8   

Expense ratio(1)

     28.0        36.9        34.0   
  

 

 

   

 

 

   

 

 

 

Combined ratio(1)

     95.5     93.5     96.9
  

 

 

   

 

 

   

 

 

 

 

 

(1) The application of ASU 2010-26 has resulted in a net $1.0 million increase in the general, administrative and corporate expenses for the three months ended September 30, 2011. For more information, refer to Note 2 of these financial statements.
(2) The total general and administrative expense ratio includes corporate expenses.

 

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The following tables provide a summary of gross and net written and earned premiums, underwriting results, ratios and reserves for each of our business segments for the nine months ended September 30, 2012 and 2011:

 

     Nine Months Ended September 30, 2012  
         Reinsurance             Insurance         Total  
     ($ in millions)  

Underwriting Revenues

      

Gross written premiums

   $ 1,033.5      $ 973.6      $ 2,007.1   

Net written premiums

     963.2        759.3        1,722.5   

Gross earned premiums

     890.8        848.8        1,739.6   

Net earned premiums

     832.6        692.4        1,525.0   

Underwriting Expenses

      

Losses and loss adjustment expenses

     386.4        414.7        801.1   

Policy acquisition expenses

     166.8        134.4        301.2   

General and administrative expenses

     92.6        126.3        218.9   
  

 

 

   

 

 

   

 

 

 

Underwriting income

     186.8        17.0        203.8   
  

 

 

   

 

 

   

Corporate expenses

         (40.1

Net investment income

         153.8   

Net realized and unrealized investment gains

         21.1   

Change in fair value of derivatives

         (24.0

Interest expense on long term debt

         (23.2

Net realized and unrealized foreign exchange (losses)

         (0.5

Other income

         7.1   
      

 

 

 

Net profit before tax

       $ 298.0   
      

 

 

 

Net reserves for loss and loss adjustment expenses

   $ 2,755.1      $ 1,422.9      $ 4,178.0   
  

 

 

   

 

 

   

 

 

 

Ratios

      

Loss ratio

     46.4     59.9     52.5

Policy acquisition expense ratio

     20.0        19.4        19.8   

General and administrative expense ratio(1)

     11.1        18.2        17.0   

Expense ratio

     31.1        37.6        36.8   
  

 

 

   

 

 

   

 

 

 

Combined ratio

     77.5     97.5     89.3
  

 

 

   

 

 

   

 

 

 

 

 

(1) The total general and administrative expense ratio includes corporate expenses.

 

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Table of Contents
     Nine Months Ended September 30, 2011  
     Reinsurance     Insurance     Total  
     (As Adjusted, $ in millions)  

Underwriting Revenues

      

Gross written premiums

   $ 1,001.2      $ 747.9      $ 1,749.1   

Net written premiums

     915.8        582.1        1,497.9   

Gross earned premiums

     878.7        704.8        1,583.5   

Net earned premiums

     819.6        579.5        1,399.1   

Underwriting Expenses

      

Losses and loss adjustment expenses

     805.2        356.3        1,161.5   

Policy acquisition expenses

     150.3        111.2        261.5   

General and administrative expenses(1)

     78.6        94.5        173.1   
  

 

 

   

 

 

   

 

 

 

Underwriting (loss)/income(1)

     (214.5     17.5        (197.0
  

 

 

   

 

 

   

Corporate expenses

         (32.1

Net investment income

         171.4   

Realized and unrealized investment gains

         21.4   

Change in fair value of derivatives

         (55.7

Interest expense on long term debt

         (23.1

Net realized and unrealized foreign exchange (losses)

         (10.3

Other (expenses)

         (10.4
      

 

 

 

Net (loss) before tax(1)

       $ (135.8
      

 

 

 

Net reserves for loss and loss adjustment expenses

   $ 2,713.3      $ 1,328.4      $ 4,041.7   
  

 

 

   

 

 

   

 

 

 

Ratios

      

Loss ratio

     98.2     61.5     83.0

Policy acquisition expense ratio

     18.3        19.2        18.7   

General and administrative expense ratio(1)(2)

     9.6        16.3        14.7   

Expense ratio(1)

     27.9        35.5        33.4   
  

 

 

   

 

 

   

 

 

 

Combined ratio(1)

     126.1     97.0     116.4
  

 

 

   

 

 

   

 

 

 

 

 

(1) The application of ASU 2010-26 has resulted in a net $3.2 million increase in the general, administrative and corporate expenses for the nine months ended September 30, 2011. For more information, refer to Note 2 of these financial statements.

 

(2) The total general and administrative expense ratio includes corporate expenses.

 

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6.    Investments

Income Statement

Investment Income.    The following table summarizes investment income for the three and nine months ended September 30, 2012 and 2011:

 

    For the Three Months Ended     For the Nine Months Ended  
    September 30,
2012
    September 30,
2011
    September 30,
2012
    September 30,
2011
 
    ($ in millions)     ($ in millions)  

Fixed income maturities — Available for sale

  $ 43.7      $ 51.0      $ 136.9      $ 154.0   

Fixed income maturities — Trading

    4.0        4.2        12.2        12.8   

Short-term investments — Available for sale

    0.5        0.3        1.8        0.8   

Short-term investments — Trading

                         0.1   

Fixed term deposits (included in cash and cash equivalents)

    1.4        2.0        4.7        4.4   

Equity securities

    1.9        1.7        5.1        4.9   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 51.5      $ 59.2      $ 160.7      $ 177.0   

Investment expenses

    (2.9     (1.9     (6.9     (5.6
 

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

  $ 48.6      $ 57.3      $ 153.8      $ 171.4   
 

 

 

   

 

 

   

 

 

   

 

 

 

The following table summarizes the net realized and unrealized investment gains and losses recorded in the statement of operations and the change in unrealized gains and losses on investments recorded in comprehensive income:

 

    For the Three Months Ended     For the Nine Months Ended  
    September 30,
2012
    September 30,
2011
    September 30,
2012
    September 30,
2011
 
    ($ in millions)     ($ in millions)  

Available for sale short-term investments, fixed income maturities and equity securities:

       

Gross realized gains

  $ 2.5      $ 5.1      $ 8.2      $ 24.5   

Gross realized (losses)

    (0.2     (0.7     (4.9     (5.2

Trading portfolio short-term investments and fixed income maturities:

       

Gross realized gains

    2.3        1.4        6.7        5.9   

Gross realized (losses)

    (0.1     (0.1     (0.3     (1.6

Net change in gross unrealized gains/(losses)

    6.7        (4.8     12.7        (4.5

Impairments:

       

Total other-than-temporary impairments

    (2.1            (3.0       

Other investments:

       

Gross realized and unrealized gains in Cartesian Iris Offshore Fund L.P.

    1.7        2.3        1.7        2.3   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total net realized and unrealized investment gains recorded in the statement of operations

  $ 10.8      $ 3.2      $ 21.1      $ 21.4   
 

 

 

   

 

 

   

 

 

   

 

 

 

Change in available for sale unrealized gains/(losses):

       

Fixed income maturities

    25.5        81.8        40.9        94.0   

Short-term investments

    0.2        0.1        0.2          

Equity securities

    6.5        (10.2     16.1        (3.8
 

 

 

   

 

 

   

 

 

   

 

 

 

Total change in pre-tax available for sale unrealized gains

    32.2        71.7        57.2        90.2   

Change in taxes

    (1.1     (7.9     (0.9     (7.3
 

 

 

   

 

 

   

 

 

   

 

 

 

Total change in unrealized gains, net of taxes recorded in other comprehensive income

  $ 31.1      $ 63.8      $ 56.3      $ 82.9   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Other-than-temporary impairments.    A security is impaired when its fair value is below its amortized cost. The Company reviews its available for sale fixed income and equity portfolios on an individual security basis for potential other-than-temporary impairment (“OTTI”) each quarter based on criteria including issuer-specific circumstances, credit ratings actions and general macro-economic conditions. For a more detailed description of OTTI, please refer to Note 2 (c) of our “Notes to the Audited Consolidated Financial Statements” in the Company’s 2011 Annual Report on Form 10-K, filed with the United States Securities and Exchange Commission. The total OTTI charge for the three and nine months ended September 30, 2012 was $2.1 million (2011 — $Nil) and $3.0 million (2011 — $Nil), respectively.

Balance Sheet

Fixed Income Maturities, Short-Term Investments and Equities-Available For Sale.    The following tables present the cost or amortized cost, gross unrealized gains and losses and estimated fair market value of available for sale investments in fixed maturities, short-term investments and equities as at September 30, 2012 and December 31, 2011:

 

     As at September 30, 2012  
     Cost or
Amortized Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair Market
Value
 
     ($ in millions)  

U.S. government

   $ 1,007.8       $ 61.0       $ (0.2   $ 1,068.6   

U.S. agency

     289.4         22.3                311.7   

Municipal

     37.2         2.7                39.9   

Corporate

     1,770.2         159.7         (0.2     1,929.7   

FDIC guaranteed corporate

     3.0                        3.0   

Non-U.S. government-backed corporate

     135.4         3.7                139.1   

Foreign government

     600.1         28.5         (0.1     628.5   

Asset-backed

     58.8         5.0                63.8   

Non-agency commercial mortgage-backed

     65.7         9.9                75.6   

Agency mortgage-backed

     1,213.2         74.8         (0.1     1,287.9   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total fixed income maturities — Available for sale

     5,180.8         367.6         (0.6     5,547.8   

Total short-term investments — Available for sale

     494.5         0.2                494.7   

Total equity securities — Available for sale

     171.4         27.0         (1.3     197.1   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 5,846.7       $ 394.8       $ (1.9   $ 6,239.6   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

     As at December 31, 2011  
     Cost or
Amortized Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair Market
Value
 
     ($ in millions)  

U.S. government

   $ 873.9       $ 58.5       $      $ 932.4   

U.S. agency

     271.7         23.8                295.5   

Municipal

     33.6         2.0                35.6   

Corporate

     1,722.6         127.7         (3.8     1,846.5   

FDIC guaranteed corporate

     72.5         0.4                72.9   

Non-U.S. government-backed corporate

     163.9         3.9                167.8   

Foreign government

     632.1         28.4         (0.1     660.4   

Asset-backed

     56.4         4.6                61.0   

Non-agency commercial mortgage-backed

     77.1         8.3                85.4   

Agency mortgage-backed

     1,195.9         72.5         (0.1     1,268.3   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total fixed income maturities — Available for sale

     5,099.7         330.1         (4.0     5,425.8   

Total short-term investments — Available for sale

     298.2                        298.2   

Total equity securities — Available for sale

     169.8         15.1         (5.4     179.5   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 5,567.7       $ 345.2       $ (9.4   $ 5,903.5   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents

Fixed Income Maturities and Short Term Investments — Trading.    The following tables present the cost or amortized cost, gross unrealized gains and losses, and estimated fair market value of trading investments in fixed maturities and short-term investments as at September 30, 2012 and December 31, 2011:

 

     As at September 30, 2012  
     Cost or
Amortized Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair Market
Value
 
     ($ in millions)  

U.S. government

   $ 38.1       $ 0.8       $ (0.1   $ 38.8   

U.S. agency

     1.6         0.4                2.0   

Municipal

     2.8         0.1                2.9   

Corporate

     344.5         24.0         (0.3     368.2   

Foreign government

     19.8         2.0                21.8   

Asset-backed

     1.3                        1.3   

Agency mortgage-backed

     0.3                        0.3   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total fixed income maturities — Trading

     408.4         27.3         (0.4     435.3   

Total short-term investments — Trading

     10.6                        10.6   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 419.0       $ 27.3       $ (0.4   $ 445.9   
  

 

 

    

 

 

    

 

 

   

 

 

 
     As at December 31, 2011  
     Cost or
Amortized Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair Market
Value
 
     ($ in millions)  

U.S. government

   $ 30.3       $ 2.0       $      $ 32.3   

U.S. agency

     1.6         0.2                1.8   

Municipal

     2.8         0.1                2.9   

Corporate

     337.9         15.6         (4.2     349.3   

Foreign government

     7.1         0.3                7.4   

Asset-backed

     0.7                        0.7   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total fixed income maturities — Trading

     380.4         18.2         (4.2     394.4   

Total short-term investments — Trading

     4.1                        4.1   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 384.5       $ 18.2       $ (4.2   $ 398.5   
  

 

 

    

 

 

    

 

 

   

 

 

 

The Company classifies these financial instruments as held for trading as this most closely reflects the facts and circumstances of the investments held.

In September 2012, Aspen funded a BB High Yield portfolio, an investment portfolio investing in bonds rated BB by Standard & Poor’s Financial Services LLC (“S&P”) or Ba2 by Moody’s Investors Services, Inc. (“Moody’s”), with $60.0 million in cash. As of September 30, 2012, the portfolio had invested $7.0 million in BB High Yield bonds.

Other Investments.    Other investments represent the Company’s investment in Cartesian Iris Offshore Fund L.P. (“Cartesian”), which provides capital to Iris Re, a Class 3 Bermudian reinsurer. The Company has accounted for its investment in Cartesian in accordance with the equity method of accounting. The Company is not committed to making further investments in Cartesian; accordingly, the carrying value of the investment represents the Company’s maximum exposure to a loss as a result of its involvement with the partnership at each balance sheet date. In addition to returns on its investment, the Company provides services on risk selection, pricing and portfolio design in return for a percentage of profits from Iris Re. Adjustments to the carrying value of this investment are made based on our share of capital including our share of income and expenses, which is provided in the quarterly management accounts of the partnership. The adjusted carrying value approximates fair value.

 

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Table of Contents

In the three and nine months ended September 30, 2012, our share of gains and losses increased the value of our investment by $1.7 million (2011 — $2.3 million) and $1.7 million (2011 — $2.3 million), respectively. The change in value has been recognized in realized and unrealized investment gains and losses in the unaudited condensed consolidated statement of operations. For more information regarding our investment in Cartesian, refer to “Notes to Audited Consolidated Financial Statements — Investments” in the Company’s 2011 Annual Report filed on Form 10-K filed with the United States Securities and Exchange Commission.

The table below shows our investment in Cartesian for the nine months ended September 30, 2012 and twelve months ended December 31, 2011:

 

     Opening
Undistributed
Value of
Investment
     Unrealized
Gain
     Closing
Value
     Funds
Distributed
     Closing
Undistributed
Value of
Investment
 
     ($ in millions)  

Cartesian Iris Offshore Fund L.P.

              

Nine months ended September 30, 2012

   $ 33.1       $ 1.7       $ 34.8       $       $ 34.8   

Twelve months ended December 31, 2011

   $ 30.0       $ 3.1       $ 33.1       $       $ 33.1   

Fixed Maturities.    The scheduled maturity distribution of available for sale fixed income maturity securities as at September 30, 2012 and December 31, 2011 is set forth below. Actual maturities may differ from contractual maturities because issuers of securities may have the right to call or prepay obligations with or without call or prepayment penalties.

 

     As at September 30, 2012
     Amortized
Cost or Cost
     Fair Market
Value
     Average
Ratings by
Maturity
     ($ in millions)

Due one year or less

   $ 599.9       $ 605.9       AA

Due after one year through five years

     2,096.3         2,214.7       AA

Due after five years through ten years

     1,057.2         1,190.2       AA–

Due after ten years

     89.7         109.7       AA–
  

 

 

    

 

 

    

Subtotal

     3,843.1         4,120.5      

Non-agency commercial mortgage-backed

     65.7         75.6       AA

Agency mortgage-backed

     1,213.2         1,287.9       AA+

Other asset-backed

     58.8         63.8       AAA
  

 

 

    

 

 

    

Total fixed income maturities — Available for sale

   $ 5,180.8       $ 5,547.8      
  

 

 

    

 

 

    
     As at December 31, 2011
     Amortized
Cost or Cost
     Fair Market
Value
     Average
Ratings by
Maturity
     ($ in millions)

Due one year or less

   $ 726.0       $ 732.9       AA+

Due after one year through five years

     1,955.0         2,057.9       AA

Due after five years through ten years

     997.9         1,112.3       AA–

Due after ten years

     91.4         108.0       AA–
  

 

 

    

 

 

    

Subtotal

     3,770.3         4,011.1      

Non-agency commercial mortgage-backed

     77.1         85.4       AA+

Agency mortgage-backed

     1,195.9         1,268.3       AA+

Other asset-backed

     56.4         61.0       AAA
  

 

 

    

 

 

    

Total fixed income maturities — Available for sale

   $ 5,099.7       $ 5,425.8      
  

 

 

    

 

 

    

 

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Table of Contents

Gross Unrealized Loss.    The following tables summarize as at September 30, 2012 and December 31, 2011, by type of security, the aggregate fair value and gross unrealized loss by length of time the security has been in an unrealized loss position for our available for sale portfolio:

 

    As at September 30, 2012  
    0-12 months     Over 12 months     Total  
    Fair
Market
Value
    Gross
Unrealized
Loss
    Fair
Market
Value
    Gross
Unrealized
Loss
    Fair
Market
Value
    Gross
Unrealized
Loss
    Number of
Securities
 
    ($ in millions)  

U.S. government

  $ 49.5      $ (0.2   $      $      $ 49.5      $ (0.2     7   

Foreign government

    19.5               7.4        (0.1     26.9        (0.1     10   

Municipal

    1.5                             1.5               1   

Corporate

    43.4        (0.2     5.9               49.3        (0.2     29   

Non-U.S. government-backed corporate

    6.6               2.9               9.5               4   

Agency mortgage-backed

    9.3        (0.1                   9.3        (0.1     9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed income maturities — Available for sale

    129.8        (0.5     16.2        (0.1     146.0        (0.6     60   

Total short-term investments — Available for sale

    14.5                             14.5               8   

Total equity securities — Available for sale

    29.9        (1.0     4.4        (0.3     34.3        (1.3     21   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 174.2      $ (1.5   $ 20.6      $ (0.4   $ 194.8      $ (1.9     89   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    As at December 31, 2011  
    0-12 months     Over 12 months     Total  
    Fair
Market
Value
    Gross
Unrealized
Loss
    Fair
Market
Value
    Gross
Unrealized
Loss
    Fair
Market
Value
    Gross
Unrealized
Loss
    Number of
Securities
 
    ($ in millions)  

U.S. government

  $ 6.3      $      $      $      $ 6.3      $        2   

U.S. agency

    2.7                             2.7               1   

Municipal

    2.4                             2.4               1   

Foreign government

    14.6        (0.1                   14.6        (0.1     7   

Corporate

    133.7        (3.4     11.1        (0.4     144.8        (3.8     96   

Non-U.S. government-backed corporate

    17.4               3.4               20.8               14   

Asset-backed

    8.2                             8.2               20   

Agency mortgage-backed

    24.4        (0.1     0.1               24.5        (0.1     11   

FDIC guaranteed corporate

    2.0                             2.0               1   

Non-agency commercial mortgage-backed

    0.4               0.7               1.1               2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed income maturities — Available for sale

    212.1        (3.6     15.3        (0.4     227.4        (4.0     155   

Total short-term investments — Available for sale

    18.1                             18.1               9   

Total equity securities — Available for sale

    37.5        (5.4                   37.5        (5.4     15   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 267.7      $ (9.0   $ 15.3      $ (0.4   $ 283.0      $ (9.4     179   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Investment Purchases and Sales.    The following table summarizes investment purchases, sales and maturities for the three and nine months ended September 30, 2012 and 2011:

 

    For the Three Months Ended     For the Nine Months Ended  
    September 30,
2012
    September 30,
2011
    September 30,
2012
    September 30,
2011
 
    ($ in millions)     ($ in millions)  

Purchases of fixed income maturities — Available for sale

  $ 351.8      $ 323.7      $ 1,057.1      $ 1,544.6   

Purchases of fixed income maturities — Trading

    73.0        57.5        187.7        335.2   

Purchases of equity securities

    12.0        10.7        41.5        185.7   

(Proceeds) from sales of equity securities

    (10.1     (7.0     (35.9     (12.6

(Proceeds) from sales and maturities of fixed income maturities — Available for sale

    (240.4     (348.6     (989.7     (1,398.2

(Proceeds) from sales and maturities of fixed income maturities — Trading

    (49.8     (52.2     (164.5     (356.0

Net change in payable/(receivable) for securities purchased /(sold)

    22.8        (1.0     19.3        40.7   

Net (sales)/purchases of short-term investments

    (13.2     98.7        190.4        7.4   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net (sales)/purchases for the period

  $ 146.1      $ 81.8      $ 305.9      $ 346.8   
 

 

 

   

 

 

   

 

 

   

 

 

 

Guaranteed Investments.    The following table presents the investments which are guaranteed by mono-line insurers and excludes those with explicit government guarantees. The standalone rating (rating without guarantee) is determined as the senior unsecured debt rating of the issuer. Where the credit ratings were split between the two main rating agencies, S&P and Moody’s, the lowest rating was used.

 

As at September 30, 2012

     As at December 31, 2011  

Rating With

Guarantee

   Rating without
Guarantee
   Market
Value
     Rating With
Guarantee
   Rating without
Guarantee
   Market
Value
 
($ in millions)      ($ in millions)  

BBB

   BBB    $ 0.1       BBB    BBB    $ 0.5   

BBB+

   BBB+      1.5                 
     

 

 

          

 

 

 
      $ 1.6             $ 0.5   
     

 

 

          

 

 

 

Our exposure to mono-line insurers as at September 30, 2012 was limited to two municipal holdings (2011 — one municipal holding). Our exposure to other third-party guaranteed debt is primarily to investments backed by non-U.S. government guaranteed issuers.

7.    Fair Value Measurements

Our estimates of fair value for financial assets and liabilities are based on the framework established in the fair value accounting guidance included in ASC Topic 820, “Fair Value Measurements and Disclosures.” The framework prioritizes the inputs, which refer broadly to assumptions market participants would use in pricing an asset or liability, into three levels.

The Company considers prices for actively traded securities to be derived based on quoted prices in an active market for identical assets, which are Level 1 inputs in the fair value hierarchy. As identified in the tables below, the majority of securities are valued using prices supplied by index providers.

The Company considers prices for other securities that may not be as actively traded which are priced via pricing services, index providers, vendors and broker-dealers, or with reference to interest rates and yield curves, to be derived based on inputs that are observable for the asset, either directly or indirectly, which are Level 2 inputs in the fair value hierarchy. As identified in the table below, these securities are also valued using prices supplied by index providers.

 

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Table of Contents

The Company considers securities, other financial instruments and derivative insurance contracts subject to fair value measurement whose valuation is derived by internal valuation models to be based largely on unobservable inputs, which are Level 3 inputs in the fair value hierarchy.

The following tables present the level within the fair value hierarchy at which our financial assets and liabilities are measured on a recurring basis at September 30, 2012 and December 31, 2011.

 

     As at September 30, 2012  
     Level 1      Level 2     Total  
     ($ in millions)  

Available for sale financial assets, at fair value

       

U.S. government

   $ 1,068.6       $      $ 1,068.6   

U.S. government agency

             311.7        311.7   

Municipal

             39.9        39.9   

Foreign government

     466.3         162.2        628.5   

Non-agency commercial mortgage-backed

             75.6        75.6   

Agency mortgage-backed

             1,287.9        1,287.9   

Asset-backed

             63.8        63.8   

Corporate

             1,929.7        1,929.7   

FDIC guaranteed corporate

             3.0        3.0   

Bonds backed by foreign government

             139.1        139.1   
  

 

 

    

 

 

   

 

 

 

Total fixed income maturities available for sale, at fair value

   $ 1,534.9       $ 4,012.9      $ 5,547.8   

Short-term investments available for sale, at fair value

     478.7         16.0        494.7   

Equity investments available for sale, at fair value

     197.1                197.1   

Held for trading financial assets, at fair value

       

U.S. government

   $ 38.8       $      $ 38.8   

U.S. government agency

             2.0        2.0   

Municipal

             2.9        2.9   

Foreign government

     4.2         17.6        21.8   

Agency mortgage-backed

             0.3        0.3   

Asset-backed

             1.3        1.3   

Corporate

             368.2        368.2   
  

 

 

    

 

 

   

 

 

 

Total fixed income maturities trading, at fair value

   $ 43.0       $ 392.3      $ 435.3   

Short-term investments trading, at fair value

     10.2         0.4        10.6   

Other financial assets and liabilities, at fair value

       

Derivatives at fair value

             5.8        5.8   

Liabilities under derivative contracts

             (4.7     (4.7
  

 

 

    

 

 

   

 

 

 

Total

   $ 2,263.9       $ 4,422.7      $ 6,686.6   
  

 

 

    

 

 

   

 

 

 

There were no transfers between Level 1 and Level 2 during the nine months ended September 30, 2012 and no assets or liabilities were classified as Level 3.

 

24


Table of Contents
     As at December 31, 2011  
     Level 1      Level 2     Total  
     ($ in millions)  

Available for sale financial assets, at fair value

       

U.S. government

   $ 932.4       $      $ 932.4   

U.S. government agency

             295.5        295.5   

Municipal

             35.6        35.6   

Foreign government

     548.8         111.6        660.4   

Non-agency commercial mortgage-backed

             85.4        85.4   

Agency mortgage-backed

             1,268.3        1,268.3   

Asset-backed

             61.0        61.0   

Corporate

             1,846.5        1,846.5   

FDIC guaranteed corporate

             72.9        72.9   

Bonds backed by foreign government

             167.8        167.8   
  

 

 

    

 

 

   

 

 

 

Total fixed income maturities available for sale, at fair value

   $ 1,481.2       $ 3,944.6      $ 5,425.8   

Short-term investments available for sale, at fair value

     270.6         27.6        298.2   

Equity investments available for sale, at fair value

     179.5                179.5   

Held for trading financial assets, at fair value

       

U.S. government

   $ 32.3       $      $ 32.3   

U.S. government agency

             1.8        1.8   

Municipal

             2.9        2.9   

Foreign government

     4.1         3.3        7.4   

Asset-backed

             0.7        0.7   

Corporate

             349.3        349.3   
  

 

 

    

 

 

   

 

 

 

Total fixed income maturities trading, at fair value

   $ 36.4       $ 358.0      $ 394.4   

Short-term investments trading, at fair value

     3.4         0.7        4.1   

Other financial assets and liabilities, at fair value

       

Derivatives at fair value

             1.3        1.3   

Liabilities under derivative contracts

             (2.1     (2.1
  

 

 

    

 

 

   

 

 

 

Total

   $ 1,971.1       $ 4,330.1      $ 6,301.2   
  

 

 

    

 

 

   

 

 

 

There were no transfers between Level 1 and Level 2 during the twelve months ended December 31, 2011 and no assets or liabilities were classified as Level 3 as at December 31, 2011.

The following tables present a reconciliation of the beginning and ending balances for all assets measured at fair value on a recurring basis using Level 3 inputs for the nine months ended September 30, 2011:

 

     Nine Months Ended September 30, 2011  
     Fixed Maturity
Investments
    Derivatives at
Fair Value
     Total  
     ($ in millions)  

Level 3 assets as of January 1, 2011

   $ 6.8      $       $ 6.8   

Total unrealized gains or (losses):

       

Included in comprehensive income

     (4.0             (4.0

Included in earnings

     4.8                4.8   

Sales

     (7.6             (7.6
  

 

 

   

 

 

    

 

 

 

Level 3 assets as of September 30, 2011

   $      $       $   
  

 

 

   

 

 

    

 

 

 

There were no transactions for assets measured at fair value on a recurring basis using Level 3 inputs during the three and nine months ended September 30, 2012 and during the three months ended September 30, 2011.

 

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Fixed Maturities.    The Company’s fixed income maturity securities are classified as either available for sale or trading and carried at fair value. At September 30, 2012 and December 31, 2011, the Company’s fixed income securities were valued by pricing services, index providers or broker-dealers, using standard market conventions. The market conventions utilize market quotations, market transactions in comparable instruments and various relationships between instruments including, but not limited to, yield to maturity, dollar prices and spread prices in determining value. The pricing sources are primarily internationally recognized independent pricing services and broker-dealers.

Independent Pricing Services and Index Providers.    The underlying methodology used to determine the fair value of securities in the Company’s available for sale and trading portfolios by the pricing services and index providers the Company uses is very similar. Pricing services will gather observable pricing inputs from multiple external sources, including buy and sell-side contacts and broker-dealers, in order to develop their internal prices. Index providers are those firms which provide prices for a range of securities within one or more asset classes, typically using their own in-house market makers (traders) as the primary pricing source for the indices, although ultimate valuations may also rely on other observable data inputs to derive a dollar price for all index-eligible securities. Index providers without in-house trading desks will function similarly to a pricing service in that they will gather their observable pricing inputs from multiple external sources. All prices for the Company’s securities attributed to index providers are for an individual security within the respective indices.

Pricing services and index providers, provide pricing for less complex, liquid securities based on market quotations in active markets. Pricing services and index providers supply prices for a broad range of securities including those for actively traded securities, such as Treasury and other Government securities, in addition to those that trade less frequently or where valuation includes reference to credit spreads, pay down and pre-pay features and other observable inputs. These securities include Government Agency, Municipals, Corporate and Asset-Backed Securities.

For securities that may trade less frequently or do not trade on a listed exchange, these pricing services and index providers may use matrix pricing consisting of observable market inputs to estimate the fair value of a security. These observable market inputs include: reported trades, benchmark yields, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic factors. Additionally, pricing services and index providers may use a valuation model such as an option adjusted spread model commonly used for estimating fair values of mortgage-backed and asset-backed securities. Neither the Company, nor its index providers, derives dollar prices using an index as a pricing input for any individual security.

Broker-Dealers.    We obtain quotes from broker-dealers who are active in the corresponding markets when prices are unavailable from independent pricing services or index providers. Generally, broker-dealers value securities through their trading desks based on observable market inputs. Their pricing methodologies include mapping securities based on trade data, bids or offers, observed spreads and performance on newly issued securities. They may also establish pricing through observing secondary trading of similar securities. Quotes from broker-dealers are non-binding.

The Company obtains prices for all of its fixed income investment securities via its third-party accounting service provider, in the majority of cases receiving a number of quotes so as to obtain the most comprehensive information available to determine a security’s fair value. A single valuation is applied to each security based on the vendor hierarchy maintained by our third-party accounting service provider.

 

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At September 30, 2012, we obtained an average of 2.8 quotes per fixed income investment, compared to 2.6 quotes at December 31, 2011. Pricing sources used in pricing our fixed income investments at September 30, 2012 and December 31, 2011 were as follows:

 

     As at
September 30, 2012
    As at
December 31, 2011
 

Index providers

     89     83

Pricing services

     8        15   

Broker-dealers

     3        2   
  

 

 

   

 

 

 

Total

     100     100
  

 

 

   

 

 

 

A summary of securities priced using pricing information from index providers at September 30, 2012 and December 31, 2011 is provided below:

Fixed Income Maturities — Available For Sale

 

    September 30, 2012     December 31, 2011  
    Fair Market
Value Determined
using Prices from
Index Providers
    % of Total
Fair Value by
Security Type
    Fair Market
Value Determined
using Prices from
Index Providers
    % of Total
Fair Value by
Security Type
 
    ($ in millions, except for percentages)  

U.S. Government

  $ 1,062.7        99   $ 932.4        100

U.S. Agency

    270.1        87        238.1        81   

Municipal

    23.8        60        26.4        74   

Corporate

    1,840.6        95        1,635.0        89   

FDIC Guaranteed Corporate

    3.0        100        1.0        1   

Non-U.S. Government-backed Corporate

    88.0        63        111.3        66   

Foreign Government

    457.8        73        498.6        75   

Asset-backed

    52.7        83        37.4        61   

Non-agency Commercial Mortgage-backed

    69.1        91        2.9        3   

Agency Mortgage-backed

    1,050.1        82        1,011.6        80   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Fixed Maturities — Available for Sale

  $ 4,917.9        89   $ 4,494.7        83
 

 

 

   

 

 

   

 

 

   

 

 

 

Fixed Income Maturities — Trading

 

    September 30, 2012     December 31, 2011  
    Fair Market
Value Determined
using Prices from
Index Providers
    % of Total
Fair Value by
Security Type
    Fair Market
Value Determined
using Prices from
Index Providers
    % of Total
Fair Value by
Security Type
 
    ($ in millions, except for percentages)  

U.S. Government

  $ 38.8        100   $ 32.3        100

U.S. Agency

    2.0        100        1.8        100   

Municipal

    0.7        23        2.9        100   

Corporate

    348.5        95        322.1        92   

Asset-backed

    0.4        34        0.5        70   

Agency mortgage-backed securities

    0.3        100                 

Foreign Government

    14.2        65        3.7        49   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Fixed Maturities — Trading

  $ 404.9        93   $ 363.3        92
 

 

 

   

 

 

   

 

 

   

 

 

 

The Company, in conjunction with its third-party accounting service provider, obtains an understanding of the methods, models and inputs used by the third-party pricing service and index provider to assess the on-going

 

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appropriateness of vendors’ prices. The Company and its third-party accounting service provider also have controls in place to validate that amounts provided represent fair values. Processes to validate and review pricing include, but are not limited to:

 

   

quantitative analysis (e.g., comparing the quarterly return for each managed portfolio to its target benchmark, with significant differences identified and investigated);

 

   

comparison of market values obtained from pricing services, index providers and broker-dealers against alternative price sources where further investigation is completed when significant differences exist for pricing of individual securities between pricing sources;

 

   

initial and ongoing evaluation of methodologies used by outside parties to calculate fair value; and

 

   

comparison of the fair value estimates to our knowledge of the current market and on a sample basis against alternative internationally recognized independent pricing sources.

Prices obtained from pricing services, index providers and broker-dealers are not adjusted by us; however, prices provided by a pricing service, index provider or broker-dealer in certain instances may be challenged based on market or information available from internal sources, including those available to our third-party investment accounting service provider. Subsequent to any challenge, revisions made by the pricing service, index provider or broker-dealer to the quotes are supplied to our investment accounting service provider.

Management reviews the vendor hierarchy maintained by our third-party accounting service provider in order to determine which price source provides the most appropriate fair value (i.e., a price obtained from a pricing service with more seniority in the hierarchy will be used over a less senior one in all cases). The hierarchy level assigned to each security in the Company’s available for sale and trading portfolios is based upon its assessment of the transparency and reliability of the inputs used in the valuation as of the measurement date. The hierarchy of index providers and pricing services is determined using various qualitative and quantitative points arising from reviews of the vendors conducted by the Company’s third-party accounting service provider. Vendor reviews include annual onsite due diligence meetings with index providers and pricing services vendors covering valuation methodology, operational walkthroughs and legal and compliance updates. Index providers are assigned the highest priority in the pricing hierarchy due primarily to availability and reliability of pricing information.

The Company’s fixed income securities are traded on the over-the-counter market based on prices provided by one or more market makers in each security. Securities such as U.S. Government, U.S. Agency, Foreign Government and investment grade corporate bonds have multiple market makers in addition to readily observable market value indicators such as expected credit spread, except for Treasury securities, over the yield curve. The Company uses a variety of pricing sources to value our fixed income securities including those securities that have pay down/prepay features such as mortgage-backed securities and asset-backed securities in order to ensure fair and accurate pricing. The fair value estimates for the investment grade securities in the Company’s portfolio do not use significant unobservable inputs or modeling techniques.

U.S. Government and Agency.    U.S. government and agency securities consist primarily of bonds issued by the U.S. Treasury and corporate debt issued by agencies such as the Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”) and the Federal Home Loan Bank. As the fair values of our U.S. Treasury securities are based on unadjusted market prices in active markets, they are classified within Level 1. The fair values of U.S. government agency securities are priced using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads for these securities are observable market inputs, the fair values of U.S. government agency securities are classified within Level 2.

Foreign government.    The issuers for securities in this category are non-U.S. governments and their agencies. The fair values of non-U.S. government bonds, primarily sourced from international indices, are based on unadjusted market prices in active markets and are therefore classified within Level 1. The fair values of the non-U.S. agency securities, again primarily sourced from international indices, are priced using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads for these securities are observable market inputs, the fair values of non-U.S. agency securities are classified within Level 2.

 

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Municipals.    Our municipal portfolio comprises bonds issued by U.S. domiciled state and municipality entities. The fair value of these securities is determined using spreads obtained from broker-dealers, trade prices and the new issue market which are Level 2 inputs in the fair value hierarchy. Consequently, these securities are classified within Level 2.

Corporate.    Corporate securities consist primarily of U.S. and foreign corporations covering a variety of industries and are for the most part priced by index providers and pricing vendors. Some issuers may participate in the Federal Deposit Insurance Corporation (“FDIC”) program or other similar non-U.S. government programs which guarantee timely payment of principal and interest in the event of a default. The fair values of these securities are generally determined using the spread above the risk-free yield curve. Inputs used in the evaluation of these securities include credit data, interest rate data, market observations and sector news, broker-dealer quotes and trade volumes. The Company classifies these securities within Level 2.

Mortgage-backed securities.    Our residential and commercial mortgage-backed securities consist of bonds issued by the Government National Mortgage Association, the FNMA and the FHLMC as well as private non-agency issuers. The fair values of these securities are determined through the use of a pricing model (including Option Adjusted Spread) which uses prepayment speeds and spreads to determine the appropriate average life of the mortgage-backed security. These spreads are generally obtained from broker-dealers, trade prices and the new issue market. As the significant inputs used to price mortgage-backed securities are observable market inputs, these securities are classified within Level 2.

Asset-backed securities.    The underlying collateral for the Company’s asset-backed securities consists mainly of student loans, automobile loans and credit card receivables. These securities are primarily priced by index providers and pricing vendors. Inputs to the valuation process include broker-dealer quotes and other available trade information, prepayment speeds, interest rate data and credit spreads. The Company classifies these securities within Level 2.

Short-term investments.    Short-term investments comprise highly liquid debt securities with a maturity greater than three months but less than one year from the date of purchase and are classified as either trading or available for sale and carried at estimated fair value. Short-term investments are valued in a manner similar to the Company’s fixed maturity investments and are classified within Levels 1 and 2.

Equity securities.    Equity securities include U.S. and foreign common stocks and are classified as available for sale and carried at fair value. These securities are classified within Level 1 as their fair values are based on quoted market prices in active markets from independent pricing sources.

At September 30, 2012, we obtained an average of 4.7 quotes per equity investment, compared to 4.8 quotes as at December 31, 2011. Pricing sources used in pricing our equities at September 30, 2012 and December 31, 2011, were as follows:

 

     As at
September 30, 2012
    As at
December 31, 2011
 

Index providers

     100     95

Pricing services

            5   
  

 

 

   

 

 

 

Total

     100     100
  

 

 

   

 

 

 

Foreign currency forward contracts.    The foreign currency forward contracts which we use to mitigate currency risk are characterized as over-the-counter (“OTC”) due to their customized nature and the fact that they do not trade on a major exchange. These instruments trade in a very deep liquid market, providing substantial price transparency and accordingly are classified as Level 2.

Interest rate swaps.    The interest rate swaps which we use to mitigate interest rate risk are also characterized as OTC and are valued by the counterparty using quantitative models with multiple market inputs. The market inputs, such as interest rates and yield curves, are observable and the valuation can be compared for reasonableness with third party pricing services. Consequently, these instruments are classified as Level 2.

 

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8.    Reinsurance

We purchase retrocession and reinsurance to limit and diversify the Company’s risk exposure and to increase its own insurance underwriting capacity. These agreements provide for recovery of a portion of losses and loss adjustment expenses from reinsurers. As is the case with most reinsurance contracts, the Company remains liable to the extent that reinsurers do not meet their obligations under these agreements, and therefore, in line with its risk management objectives, the Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk.

The largest concentrations of reinsurance recoverables as at September 30, 2012 were with Lloyd’s syndicates and with Aeolus Re. Balances with Lloyd’s and Aeolus Re represented 21.4% and 10.8%, respectively, of reinsurance recoverables (December 31, 2011 — Lloyds 26.9% and Aeolus Re 15.8%).

9.    Derivative Contracts

The following tables summarize information on the location and amounts of derivative fair values on the consolidated balance sheet as at September 30, 2012 and December 31, 2011:

 

          As at September 30, 2012     As at December 31, 2011  

Derivatives Not Designated as

Hedging Instruments

Under ASC 815

  

Balance Sheet Location

   Notional
    Amount    
     Fair
    Value    
    Notional
    Amount    
     Fair
    Value    
 
          ($ in millions)     ($ in millions)  

Interest Rate Swaps

   Liabilities under Derivative Contracts    $ 1,000.0       $ (1.6 )(1)    $ 1,000.0       $ (2.1 )(1) 

Forward Exchange Contracts

   Liabilities under Derivative Contracts    $ 117.2       $ (3.1   $       $   

Forward Exchange Contracts

   Derivatives at Fair Value    $ 198.6       $ 5.8      $ 192.4       $ 1.3   

 

 

(1) Net of $53.8 million of cash collateral provided to counterparties as security for our net liability position (December 31, 2011 — $43.7 million).

The following tables provide the unrealized and realized gains/(losses) recorded in earnings for the three and nine months ended September 30, 2012 and 2011:

 

Derivatives Not Designated as Hedging
Instruments Under ASC 815

  

Location of Income/(Loss) Recognized in the
Statement of Operations

   Amount of Income/(Loss)
Recognized in the Statement of
Operations
 
      Three Months Ended  
          September 30,
2012
    September 30,
2011
 
          ($ in millions)  

Forward Exchange Contracts

   Change in Fair Value of Derivatives    $ 3.2      $ 6.1   

Interest Rate Swaps

   Change in Fair Value of Derivatives    $ (8.1   $ (36.1

 

Derivatives Not Designated as Hedging
Instruments Under ASC 815

  

Location of Income/(Loss) Recognized in the

Statement of Operations

   Amount of Income/(Loss)
Recognized in the Statement  of
Operations
 
      Nine Months Ended  
          September 30,
2012
    September 30,
2011
 
          ($ in millions)  

Forward Exchange Contracts

   Change in Fair Value of Derivatives    $ (1.1   $ 5.8   

Interest Rate Swaps

   Change in Fair Value of Derivatives    $ (22.9   $ (61.5

Foreign Exchange Contracts.    The Company uses forward exchange contracts to manage foreign currency risk. A forward foreign currency exchange contract involves an obligation to purchase or sell a specified currency at a future date at a price set at the time of the contract. Foreign currency exchange contracts will not eliminate fluctuations in the value of the Company’s assets and liabilities denominated in foreign currencies but rather allow it to establish a rate of exchange for a future point in time.

 

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As at September 30, 2012, we held foreign currency derivative contracts with an aggregate value of $315.8 million. The foreign currency contracts are recorded as derivatives at fair value with changes recorded as a change in fair value of derivatives in the statement of operations. For the three and nine months ended September 30, 2012, the impact of foreign currency contracts on net income was a gain of $3.2 million (September 30, 2011 — a gain of $6.1 million) and a charge of $1.1 million (September 30, 2011 — a gain of $5.8 million), respectively.

Interest Rate Swaps.    As at September 30, 2012, the Company held fixed for floating interest rate swaps with a total notional amount of $1.0 billion (December 31, 2011 — $1.0 billion) that are due to mature between October 8, 2012 and November 9, 2020. The swaps are used in the ordinary course of the Company’s investment activities to partially mitigate the negative impact of rises in interest rates on the market value of the Company’s fixed income portfolio. On August 2, 2012, $27.9 million in notional amount of our interest rate swaps terminated, as a result of which we entered into a $27.9 million notional 5-year interest rate swap with a termination date of August 2, 2017.

For the three and nine months ended September 30, 2012, there was a charge in respect of the interest rate swaps of $8.1 million (September 30, 2011 — charge of $36.1 million) and a charge of $22.9 million (September 30, 2011 — charge of $61.5 million), respectively.

As at September 30, 2012, cash collateral with a fair value of $53.8 million was transferred to the Company’s counterparties to support the current valuation of the interest rate swaps (December 31, 2011 — $43.7 million). As at September 30, 2012, no non-cash collateral was transferred to the Company by its counterparties (December 31, 2011 — $Nil). Transfers of cash collateral are recorded on the balance sheet within Derivatives at Fair Value, while transfers in respect of non-cash collateral are disclosed but not recorded. As at September 30, 2012, no amount was recorded in our balance sheet for the pledged assets.

As a result of the application of derivative accounting guidance, none of the derivatives mentioned above meet the requirements for hedge accounting. Changes in the estimated fair value are therefore included in the consolidated statement of operations.

10.    Reserves for Losses and Adjustment Expenses

The following table represents a reconciliation of beginning and ending consolidated loss and loss adjustment expenses (“LAE”) reserves for the nine months ended September 30, 2012 and twelve months ended December 31, 2011:

 

     Nine Months Ended
September 30, 2012
    Twelve Months Ended
December 31, 2011
 
     ($ in millions)  

Provision for losses and LAE at the start of the year

   $ 4,525.2      $ 3,820.5   

Less reinsurance recoverable

     (426.6     (279.9
  

 

 

   

 

 

 

Net loss and LAE at the start of the year

     4,098.6        3,540.6   
  

 

 

   

 

 

 

Net loss and LAE expenses (disposed)

     (8.8     (20.6
  

 

 

   

 

 

 

Provision for losses and LAE for claims incurred:

    

Current year

     896.5        1,648.3   

Prior years

     (95.4     (92.3
  

 

 

   

 

 

 

Total incurred

     801.1        1,556.0   
  

 

 

   

 

 

 

Losses and LAE payments for claims incurred:

    

Current year

     (186.8     (269.3

Prior years

     (570.1     (712.9
  

 

 

   

 

 

 

Total paid

     (756.9     (982.2
  

 

 

   

 

 

 

Foreign exchange losses

     44.0        4.8   
  

 

 

   

 

 

 

Net losses and LAE reserves at period end

     4,178.0        4,098.6   

Plus reinsurance recoverable on unpaid losses at period end

     461.6        426.6   
  

 

 

   

 

 

 

Provision for losses and LAE at September 30, 2012 and December 31, 2011

   $ 4,639.6      $ 4,525.2   
  

 

 

   

 

 

 

 

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For the nine months ended September 30, 2012, there were reductions of $95.4 million (twelve months ended December 31, 2011 — $92.3 million) in our estimate of the ultimate claims to be paid in respect of prior accident years. For additional information on our reserve releases, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Reserves for Losses and Loss Adjustment Expenses” below. The $8.8 million net loss and LAE expenses disposed in the nine months ended September 30, 2012 (twelve months ended December 31, 2011 —$20.6 million) relates to commuted contracts.

11.    Capital Structure

The following table provides a summary of the Company’s authorized and issued share capital at September 30, 2012 and December 31, 2011:

 

     As at September 30, 2012      As at December 31, 2011  
     Number      $ in
Thousands
     Number      $ in
Thousands
 

Authorized Share Capital:

           

Ordinary Shares 0.15144558¢ per share

     969,629,030         1,469         969,629,030         1,469   

Non-Voting Shares 0.15144558¢ per share

     6,787,880         10         6,787,880         10   

Preference Shares 0.15144558¢ per share

     100,000,000         152         100,000,000         152   

Issued Share Capital:

           

Issued ordinary shares of 0.15144558¢ per share

     71,012,237         108         70,655,698         107   

Issued preference shares of 0.15144558¢ each with a liquidation preference of $50 per share

     4,600,000         7         4,600,000         7   

Issued preference shares of 0.15144558¢ each with a liquidation preference of $25 per share

     5,327,500         8         5,327,500         8   

Issued preference shares of 0.15144558¢ each with a liquidation preference of $25 per share

     6,400,000         10                   
     

 

 

       

 

 

 

Total issued share capital

        133            122   
     

 

 

       

 

 

 

Additional paid-in capital includes the aggregate liquidation preferences of our preference shares of $523.2 million (2011 — $363.2 million) less issue costs of $15.1 million (2011 — $9.6 million). The following table provides the additional paid-in capital as at September 30, 2012 and December 31, 2011:

 

     As at September 30, 2012      As at December 31, 2011  
     ($ in millions)      ($ in millions)  

Additional paid-in capital

   $ 1,521.9       $ 1,385.0   
  

 

 

    

 

 

 

Ordinary Shares.    The following table summarizes transactions in the Company’s ordinary shares during the nine-month period ended September 30, 2012:

 

     Number of
Ordinary
Shares
 

Shares in issue at December 31, 2011

     70,655,698   

Share transactions in the nine months ended September 30, 2012:

  

Issued to the Names’ Trustee upon exercise of investor options (refer to Note 12)

     116,510   

Issued to employees under the 2003 share incentive plan and/or 2008 share purchase plan

     2,021,250   

Issued to non-employee directors

     44,034   

Repurchased from ordinary shareholders

     (1,825,255
  

 

 

 

Shares in issue at September 30, 2012

     71,012,237   
  

 

 

 

 

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Ordinary Share Repurchases.    On May 8, 2012, the Company repurchased 69,286 ordinary shares from the Names’ Trust at an average price of $27.13 per ordinary share for a total amount of $1.9 million, including the costs incurred to effect the repurchases.

On May 14, 2012, the Company initiated a share repurchase program to repurchase ordinary shares on the open market. Under this arrangement, the Company acquired and cancelled 864,634 and 1,755,969 ordinary shares for the three and nine months ended September 30, 2012, respectively. The total consideration paid was $25.0 million and $50.0 million and the average price was $28.91 and $28.47 for the three and nine months ended September 30, 2012, respectively.

Preference Share Issuance.    On April 11, 2012, the Company issued 6,400,000 shares of 7.250% Perpetual Non-Cumulative Preference Shares (the “Preference Shares”). The Preference Shares have a liquidation preference of $25 per share. Net proceeds were $154.5 million, comprising $160.0 million of total liquidation preference less $5.5 million of issue expenses.

The Company intends to use the net proceeds from the offering for general corporate purposes, including supporting its insurance and reinsurance activities through its operating subsidiaries as well as repurchasing its outstanding ordinary shares as determined from time to time.

The Preference Shares rank equally with preference shares previously issued by the Company and have no fixed maturity date. The Company may redeem all or a portion of the Preference Shares at a redemption price of $25 per share on or after July 1, 2017. Aspen has listed the Preference Shares on the New York Stock Exchange under the symbol “AHLPRB”.

12.    Share Based Payments

The Company issued options and other equity incentives under three arrangements: investor options, the employee incentive plan and the non-employee director plan. When options are exercised or other equity awards have vested, new shares are issued as the Company does not currently hold treasury shares.

Investor Options.    The investor options were issued on June 21, 2002 in connection with the transfer to us of part of the operations of Wellington Underwriting plc (“Wellington”), our predecessor company. The Company conferred the option to subscribe for up to 6,787,880 ordinary shares of Aspen Holdings to Wellington and members of Syndicate 2020 who were not corporate members of the Lloyd’s syndicate managed by Wellington (“the Wellington Names”). All of the options issued to Wellington were exercised on March 28, 2007 resulting in the issuance of 426,083 ordinary shares by the Company.

The options issued to the Wellington Names were held for their benefit by Appleby Services (Bermuda) Ltd. (the “Names’ Trustee”). The subscription price payable under the options was initially £10 and increased by 5.0% per annum, less any dividends paid. Option holders were not entitled to participate in any dividends prior to exercise and would not rank as a creditor in the event of liquidation. All options were exercised prior to the expiry date of June 21, 2012.

Employee and Non-Executive Director Awards.    Employee options and other awards are granted under the Aspen 2003 Share Incentive Plan and non-executive director awards are granted under the 2006 Stock Option Plan for Non-Employee Directors.

Stock options are granted with an exercise price equivalent to the fair value of the share on the grant date. The weighted average value at grant date is determined using the Black-Scholes option pricing model. Stock options typically vest over a three-year period with a ten-year contract period (except for options granted in 2007 which have a seven-year exercise period) with vesting dependent on time and performance conditions established at the time of grant. No options were granted during the three and nine months ended September 30, 2012 (2011 — Nil and Nil) and 1,165,201 and 1,221,152 options, respectively, were exercised and issued in the three

 

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months and nine months ended September 30, 2012 (2011 — Nil and 9,208). No charges against income were made in respect of employee options for the three and nine months ended September 30, 2012 (2011 — $Nil and $Nil).

Restricted share units (“RSUs”) granted to employees vest equally over a two or three-year period, based on continued service. Some of the grants vest at year-end, while some other grants vest on the anniversary of the date of grant or when the Compensation Committee of the Board of Directors agrees to deliver them. The fair value of the RSUs is based on the closing price on the date of the grant. The fair value is expensed through the income statement evenly over the vesting period. During the three and nine months ended September 30, 2012, the Company granted to employees Nil and 345,852 RSUs, respectively (2011 — 36,695 and 166,445). In the case of non-employee directors, one-twelfth of the RSUs vest on each one month anniversary of the date of grant, with 100% of the RSUs becoming vested on the first anniversary of the date of grant. On February 2, 2012 (with a grant date of February 8, 2012), the Board of Directors approved a total of 29,071 RSUs for the non-employee directors (February 9, 2011 — 23,408) and 17,705 RSUs to the Chairman (February 9, 2011 — 16,722). Compensation costs charged against income in respect of RSUs for the three and nine months ended September 30, 2012 were $1.8 million and $5.8 million, respectively (2011 — $0.7 million and $4.0 million) with a fair value adjustment in the three and nine months ended September 30, 2012 of $0.2 million and $0.2 million, respectively (2011 — $Nil and $Nil).

Performance Shares.    On February 2, 2012, the Compensation Committee approved the grant of 334,125 performance shares with a grant date of February 8, 2012 (February 9, 2011 — 853,223; March 21, 2011 — 31,669; May 2, 2011 — 5,902). The performance shares will be subject to a three-year vesting period with a separate annual diluted book value per share (“BVPS”) growth test for each year, adjusted to add back ordinary dividends to shareholders’ equity at the end of the relevant year. One-third of the grant will be eligible for vesting each year based on a formula, and will only be issuable at the end of the three-year period. If the diluted BVPS growth achieved in 2012 is less than 5%, then the portion of the performance shares subject to the vesting conditions in such year will be forfeited (i.e., 33.33% of the initial grant). If the diluted BVPS growth achieved in 2012 is between 5% and 10%, then the percentage of the performance shares eligible for vesting will be between 10% and 100% on a straight-line basis. If the diluted BVPS growth achieved in 2012 is between 10% and 20%, then the percentage of the performance shares eligible for vesting will be between 100% and 200% on a straight-line basis. The Compensation Committee will determine the vesting conditions for the 2013 and 2014 portions of the grant in such years taking into consideration the market conditions and the Company’s business plans at the commencement of the years concerned. Notwithstanding the vesting criteria for each given year, if in any given year, the shares eligible for vesting are greater than 100% for the portion of such year’s grant and the average diluted BVPS growth over such year and the preceding year is less than the average of the minimum vesting thresholds for such year and the preceding year (or in the case of the 2012 portion of the grant and the average BVPS of less than 5%), then only 100% (and no more) of the shares that are eligible for vesting in such year shall vest. Notwithstanding the foregoing, if in the judgment of the Compensation Committee, the main reason for the BVPS metric in the earlier year falling below the minimum threshold (or below 5% in the case of 2012) is due to the impact of rising interest rates and bond yields, then the Compensation Committee may, in its discretion, disapply this limitation on 100% vesting.

The fair value of performance share awards is based on the value of the average of the high and low of the share price on the date of the grant less a deduction for expected dividends which would not accrue during the vesting period. Compensation costs charged against income in the three and nine months ended September 30, 2012 in respect of performance shares were $3.3 million and $9.9 million, respectively (2011 — $Nil and $Nil).

Phantom Shares.    On February 2, 2012, the Compensation Committee approved the grant of 278,143 phantom shares with a grant date of February 8, 2012. The phantom shares will be subject to a three-year vesting period with a separate annual diluted BVPS growth test for each year, in accordance with the test described above for the 2012 performance shares, with the difference being that any vested amount would be paid in cash in lieu of shares. As shares are not issued, these instruments have no dilutive effect.

 

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The fair value of the phantom shares is based on the average of the high and low share price on the date of the grant, less estimated dividends payable over the vesting period. The fair value is expensed through the income statement evenly over the vesting period, but as the payment to beneficiaries will ultimately be in cash rather than shares, an adjustment is required each quarter to revalue the accumulated liability to the balance sheet date fair value. Compensation costs charged against income in the three and nine months ended September 30, 2012 in respect of phantom shares were $0.5 million and $1.6 million (2011 — $Nil and $Nil), respectively, with a fair value adjustment in the three and nine months ended September 30, 2012 of $0.2 million and $0.2 million (2011 — $Nil and $Nil), respectively.

Employee Share Purchase Plans.    On April 30, 2008, the shareholders of the Company approved the Employee Share Purchase Plan (the “ESPP”), the 2008 Sharesave Scheme and the International Employee Share Purchase Plan, which are implemented by a series of consecutive offering periods as determined by the Board of Directors. In respect of the ESPP, employees can save up to $500 per month over a two-year period, at the end of which they will be eligible to purchase Company shares at a discounted price, subject to a further one year holding period. In respect of the 2008 Sharesave Scheme, employees can save up to £250 per month over a three-year period, at the end of which they will be eligible to purchase Company shares at a discounted price. The purchase price will be eighty-five percent (85%) of the fair market value of a share on the offering date which may be adjusted upon changes in capitalization of the Company. Under the plan, 200 and 59,184 ordinary shares were issued during the three and nine months ended September 30, 2012, respectively (2011 — 1,174 shares and 42,538 shares). Compensation costs charged against income in the three and nine months ended September 30, 2012 in respect of the ESPP were $Nil and $Nil, respectively (2011 — $0.1 million and $0.4 million).

13.    Intangible Assets

The following table provides a summary of the Company’s intangible assets for the three months and nine months ended September 30, 2012 and 2011:

 

     Three Months Ended September 30, 2012     Three Months Ended September 30, 2011  
     Trade
Mark
     Insurance
Licenses
     Other     Total     Trade
Mark
     Insurance
Licenses
     Other     Total  
     ($ in millions)     ($ in millions)  

Intangible Assets

                    

Beginning of the period

   $ 1.6       $ 16.6       $ 1.3      $ 19.5      $ 1.5       $ 16.6       $ 2.4      $ 20.5   

Amortization

                     (0.3     (0.3                     (0.2     (0.2
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

End of the period

   $ 1.6       $ 16.6       $ 1.0      $ 19.2      $ 1.5       $ 16.6       $ 2.2      $ 20.3   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

     Nine Months Ended September 30, 2012     Nine Months Ended September 30, 2011  
     Trade
Mark
     Insurance
Licenses
     Other     Total     Trade
Mark
     Insurance
Licenses
     Other     Total  
     ($ in millions)     ($ in millions)  

Intangible Assets

                    

Beginning of the period

   $ 1.6       $ 16.6       $ 1.8      $ 20.0      $