10-Q 1 ahl10-qq12018doc.htm 10-Q Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 ____________________________________________________________
Form 10-Q
 ____________________________________________________________
  
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2018
Or 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-31909 
  ____________________________________________________________
gemimage.jpg
ASPEN INSURANCE HOLDINGS LIMITED
(Exact Name of Registrant as Specified in its Charter) 
  ____________________________________________________________
 
Bermuda
 
Not Applicable
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
141 Front Street
Hamilton, Bermuda
 
HM 19
(Address of Principal Executive Offices)
 
(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  ý    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  ý    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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
ý
 
Accelerated filer
 
¨
 
 
 
 
 
 
 
Non-accelerated filer
 
¨ (Do not check if a smaller reporting company)
 
Smaller reporting company
 
¨
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨   No  ý
As at March 31, 2018, there were 59,652,826 outstanding ordinary shares, with a par value of 0.15144558¢ per ordinary share, outstanding.



INDEX
 
 
 
Page
 
Item 1.
 
Unaudited Condensed Consolidated Balance Sheets as at March 31, 2018 and December 31, 2017
 
Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Income for the Three Months Ended March 31, 2018 and 2017
 
Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2018 and 2017
 
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Item 4.
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
CERTIFICATIONS
 

2


PART I
FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

ASPEN INSURANCE HOLDINGS LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
As at March 31, 2018 and December 31, 2017
($ in millions, except share and per share amounts)  
 
As at March 31,
2018
 
As at December 31, 2017
ASSETS
 
 
 
Investments:
 
 
 
Fixed income securities, available for sale at fair value
(amortized cost — $5,465.2 and $5,201.2)
$
5,412.2

 
$
5,231.0

Fixed income securities, trading at fair value
(amortized cost — $1,652.7 and $1,643.9)
1,637.6

 
1,649.3

Equity securities, trading at fair value
(cost — $0 and $414.8)

 
491.0

Short-term investments, available for sale at fair value
(amortized cost — $54.7 and $90.0)
54.6

 
89.9

Short-term investments, trading at fair value
(amortized cost — $27.0 and $73.0)
27.0


73.0

Catastrophe bonds, trading at fair value (cost — $35.0 and $33.5)
34.8

 
32.4

Other investments, equity method
66.1

 
66.4

Total investments
7,232.3

 
7,633.0

Cash and cash equivalents (including $103.0 and $166.6 within consolidated variable interest entities)
1,246.9

 
1,054.8

Reinsurance recoverables
 
 
 
Unpaid losses
1,611.3

 
1,515.2

Ceded unearned premiums
683.9

 
515.5

Receivables
 
 
 
Underwriting premiums
1,743.0

 
1,496.5

Other
108.6

 
151.1

Funds withheld
102.9

 
99.8

Deferred policy acquisition costs
319.9

 
294.3

Derivatives at fair value
15.6

 
6.4

Receivables for securities sold
4.1

 
5.3

Office properties and equipment
77.1

 
75.5

Tax recoverable
6.5

 
2.3

Deferred tax assets
27.8

 
28.3

Other assets
0.5

 
0.5

Intangible assets and goodwill
27.5

 
27.9

Total assets
$
13,207.9

 
$
12,906.4

See accompanying notes to unaudited condensed consolidated financial statements.



3



ASPEN INSURANCE HOLDINGS LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
As at March 31, 2018 and December 31, 2017
($ in millions, except share and per share amounts)
 
 
As at March 31,
2018
 
As at December 31, 2017
LIABILITIES
 
 
 
Insurance reserves
 
 
 
Losses and loss adjustment expenses
$
6,679.4

 
$
6,749.5

Unearned premiums
2,097.7

 
1,820.8

Total insurance reserves
8,777.1

 
8,570.3

Payables
 
 
 
Reinsurance premiums
491.3

 
357.5

Accrued expenses and other payables
496.5

 
455.4

Liabilities under derivative contracts
2.3

 
1.0

Total payables
990.1

 
813.9

Loan notes issued by variable interest entities, at fair value
32.2

 
44.2

Long-term debt
549.5

 
549.5

Total liabilities
$
10,348.9

 
$
9,977.9

Commitments and contingent liabilities (see Note 16)

 

SHAREHOLDERS’ EQUITY
 
 
 
Ordinary shares:
 
 
 
59,652,826 shares of par value 0.15144558¢ each
(December 31, 2017 - 59,474,085)
$
0.1

 
$
0.1

Preference shares:
 
 
 
11,000,000 5.95% shares of par value 0.15144558¢ each
(December 31, 2017 — 11,000,000)

 

10,000,000 5.625% shares of par value 0.15144558¢ each
(December 31, 2017 — 10,000,000)

 

Non-controlling interest
2.9

 
2.7

Additional paid-in capital
959.5

 
954.7

Retained earnings
2,035.6

 
2,026.9

Accumulated other comprehensive income, net of taxes
(139.1
)
 
(55.9
)
Total shareholders’ equity
2,859.0

 
2,928.5

Total liabilities and shareholders’ equity
$
13,207.9

 
$
12,906.4

See accompanying notes to unaudited condensed consolidated financial statements.

4


ASPEN INSURANCE HOLDINGS LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND OTHER COMPREHENSIVE INCOME
($ in millions, except share and per share amounts)
 
Three Months Ended March 31,
 
2018
 
2017
Revenues
 
 
 
Net earned premium
$
533.5

 
$
581.1

Net investment income
47.3

 
47.7

Realized and unrealized investment gains
100.6

 
51.2

Other income
2.1

 
3.6

Total revenues
683.5

 
683.6

Expenses
 
 
 
Losses and loss adjustment expenses
310.2

 
328.2

Amortization of deferred policy acquisition costs
90.8

 
113.7

General, administrative and corporate expenses
121.0

 
121.3

Interest on long-term debt
7.4

 
7.4

Change in fair value of derivatives
(23.5
)
 
(3.1
)
Change in fair value of loan notes issued by variable interest entities
(1.0
)
 
2.9

Realized and unrealized investment losses
138.3

 
5.0

Net realized and unrealized foreign exchange losses
4.7

 
8.9

Other expenses
1.2

 

Total expenses
649.1

 
584.3

Income from operations before income tax
34.4

 
99.3

Income tax (expense)
(3.6
)
 
(2.8
)
Net income
$
30.8

 
$
96.5

Amount attributable to non-controlling interest
(0.2
)
 
(0.1
)
Net income attributable to Aspen Insurance Holdings Limited’s ordinary shareholders
$
30.6

 
$
96.4

Other Comprehensive (Loss)/Income:
 
 
 
Available for sale investments:
 
 
 
Reclassification adjustment for net realized gains on investments included in net income
$
(0.1
)
 
$
(1.0
)
Change in net unrealized gains/(losses) on available for sale securities held
(82.8
)
 
3.0

Net change from current period hedged transactions
0.9

 
1.3

Change in foreign currency translation adjustment
(8.1
)
 
(17.2
)
Other comprehensive (loss), gross of tax
(90.1
)
 
(13.9
)
Tax thereon:
 
 
 
Reclassification adjustment for net realized gains on investments included in net income
0.1

 
0.2

Change in net unrealized gains/(losses) on available for sale securities held
5.4

 
(0.1
)
Net change from current period hedged transactions
(0.2
)
 
(0.1
)
Change in foreign currency translation adjustment
1.6

 
4.3

Total tax on other comprehensive income
6.9

 
4.3

Other comprehensive (loss), net of tax
(83.2
)
 
(9.6
)
Total comprehensive (loss)/income attributable to Aspen Insurance Holdings Limited’s ordinary shareholders
$
(52.6
)
 
$
86.8

Per Share Data
 
 
 
Weighted average number of ordinary share and share equivalents 
 
 
 
Basic
59,546,165

 
59,862,662

Diluted
60,513,147

 
61,196,772

Basic earnings per ordinary share adjusted for preference share dividends
$
0.39

 
$
1.39

Diluted earnings per ordinary share adjusted for preference share dividends
$
0.38

 
$
1.36


See accompanying notes to unaudited condensed consolidated financial statements.

5



ASPEN INSURANCE HOLDINGS LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS’ EQUITY
($ in millions)
 
Three Months Ended March 31,
 
2018
 
2017
Ordinary shares
 
 
 
Beginning and end of the period
$
0.1

 
$
0.1

Preference shares
 
 
 
Beginning and end of the period

 

Non-controlling interest
 
 
 
Beginning of the period
2.7

 
1.4

Net change attributable to non-controlling interest for the period
0.2

 
0.1

End of the period
2.9

 
1.5

Additional paid-in capital
 
 
 
Beginning of the period
954.7

 
1,259.6

New ordinary shares issued
0.2

 
0.1

Preference shares redeemed and cancelled

 
(133.2
)
Preference shares redemption costs (1)

 
2.4

Share-based compensation (2)
4.6

 
13.2

End of the period
959.5

 
1,142.1

Retained earnings
 
 
 
Beginning of the period
2,026.9

 
2,392.3

Net income for the period
30.8

 
96.5

Dividends on ordinary shares
(14.3
)
 
(13.2
)
Dividends on preference shares
(7.6
)
 
(10.5
)
Preference shares redemption costs (1)

 
(2.4
)
Net change attributable to non-controlling interest for the period
(0.2
)
 
(0.1
)
Share-based payment (3)

 
2.8

End of the period
2,035.6

 
2,465.4

Accumulated other comprehensive income:
 
 
 
Cumulative foreign currency translation adjustments, net of taxes:
 
 
 
Beginning of the period
(67.7
)
 
(27.1
)
Change for the period, net of income tax
(6.5
)
 
(12.9
)
End of the period
(74.2
)
 
(40.0
)
Loss on derivatives, net of taxes:
 
 
 
Beginning of the period
2.1

 
(0.5
)
Net change from current period hedged transactions
0.7

 
1.2

End of the period
2.8

 
0.7

Unrealized appreciation on investments, net of taxes:
 
 
 
Beginning of the period
9.7

 
22.5

Change for the period, net of taxes
(77.4
)
 
2.1

End of the period
(67.7
)
 
24.6

Total accumulated other comprehensive (loss)/income, net of taxes
(139.1
)
 
(14.7
)
 
 
 
 
Total shareholders’ equity
$
2,859.0

 
$
3,594.4

 

(1) The $2.4 million deduction from net income in 2017 is attributable to the reclassification from additional paid-in capital to retained earnings representing the difference between the capital raised upon issuance of the 7.401% Perpetual Non-Cumulative Preference Shares, net of issuance costs, and the final redemption costs of $133.2 million.
(2) The balance in 2017 includes $7.9 million reclassification from accrued expenses and other payable as a result of the classification of restricted share units as equity following the adoption of ASU 2016-09.
(3) The $2.8 million relates to the cumulative effect-adjustment to opening retained earnings as a result of the classification of restricted share units as equity following the adoption of ASU 2016-09. The adjustment has been applied using a modified retrospective approach.
See accompanying notes to unaudited condensed consolidated financial statements.

6


ASPEN INSURANCE HOLDINGS LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
 
 
Three Months Ended March 31,
 
2018
 
2017
Cash flows (used in) operating activities:
 
 
 
Net income
$
30.8

 
$
96.5

Proportion due to non-controlling interest
(0.2
)
 
(0.1
)
Adjustments to reconcile net income to net cash flows from operating activities:
 
 
 
Depreciation and amortization
10.6

 
11.0

Share-based compensation
4.6

 
7.9

Realized and unrealized investment gains
(100.6
)
 
(51.2
)
Realized and unrealized investment losses
138.3

 
5.0

Deferred taxes
0.6

 
1.0

Change in fair value of loan notes issued by variable interest entities
(1.0
)
 
2.9

Net realized and unrealized investment foreign exchange (gains)/losses
(1.7
)
 
5.5

Net change from current period hedged transactions
0.7

 
1.2

Changes in:
 
 
 
Insurance reserves:
 
 
 
Losses and loss adjustment expenses
(91.8
)
 
18.3

Unearned premiums
274.9

 
263.7

Reinsurance recoverables:
 
 
 
Unpaid losses
(90.4
)
 
(73.9
)
Ceded unearned premiums
(167.7
)
 
(149.5
)
Other receivables
42.8

 
(24.9
)
Deferred policy acquisition costs
(25.5
)
 
(7.5
)
Reinsurance premiums payable
130.5

 
20.8

Funds withheld
(3.1
)
 
(17.3
)
Premiums receivable
(240.7
)
 
(159.5
)
Income tax payable
(3.6
)
 
1.8

Accrued expenses and other payables
(10.4
)
 
(19.2
)
Fair value of derivatives and settlement of liabilities under derivatives
(7.9
)
 
(12.1
)
Long-term debt and loan notes issued by variable interest entities
(12.0
)
 
(4.7
)
Net cash (used in) operating activities
$
(122.8
)
 
$
(84.3
)
See accompanying notes to unaudited condensed consolidated financial statements.


7


UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
 
 
Three Months Ended March 31,
 
2018
 
2017
Cash flows from/(used in) investing activities:
 
 
 
(Purchases) of fixed income securities — Available for sale
$
(647.9
)
 
$
(441.2
)
(Purchases) of fixed income securities — Trading
(532.9
)
 
(265.6
)
Proceeds from sales and maturities of fixed income securities — Available for sale
388.5

 
440.6

Proceeds from sales and maturities of fixed income securities — Trading
507.4

 
237.6

(Purchases) of equity securities — Trading
(16.5
)
 
(26.5
)
Net (purchases)/sales of catastrophe bonds — Trading
(1.5
)
 
0.4

Proceeds from sales of equity securities — Trading
505.6

 
20.9

(Purchases) of short-term investments — Available for sale
(8.6
)
 
(33.2
)
Proceeds from sales of short-term investments — Available for sale
44.0

 
15.9

(Purchases) of short-term investments — Trading
(6.0
)
 
(4.8
)
Proceeds from sales of short-term investments — Trading
51.4

 
6.1

Net change in (payable)/receivable for securities (purchased)/sold
109.8

 
8.6

Net (purchases) of equipment
(8.0
)
 
(9.9
)
Sale of investment

 
9.3

Payments for acquisitions and investments, net of cash acquired

 
(2.3
)
Net cash from/(used in) investing activities
385.3

 
(44.1
)
 
 
 
 
Cash flows (used in)/from financing activities:
 
 
 
Proceeds from the issuance of ordinary shares, net of issuance costs
0.2

 
0.1

Preference share redemption

 
(133.2
)
Repayment of long-term debt issued by Silverton
(45.8
)
 
(111.2
)
Dividends paid on ordinary shares
(14.3
)
 
(13.2
)
Dividends paid on preference shares
(7.6
)
 
(10.5
)
Cash paid for tax withholding purposes (1)
(4.2
)
 
(7.8
)
Net cash (used in) financing activities
(71.7
)
 
(275.8
)

 
 
 
Effect of exchange rate movements on cash and cash equivalents
1.3

 
3.5

 
 
 
 
Increase/(decrease) in cash and cash equivalents
192.1

 
(400.7
)
Cash and cash equivalents at beginning of period
1,054.8

 
1,273.8

Cash and cash equivalents at end of period
$
1,246.9

 
$
873.1

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Net cash paid (received) during the period for income tax
$
(0.8
)
 
$
0.9

Cash paid during the period for interest
$
7.4

 
$
7.4


(1) The cash paid to the tax authority when withholding shares from employees’ awards for tax-withholding purposes has been reclassified from operating activity to financing activity following the adoption of ASU 2016-09.
See accompanying notes to unaudited condensed consolidated financial statements.

8



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 as a holding company headquartered in Bermuda. We underwrite specialty insurance and reinsurance on a global basis through our Operating Subsidiaries (as defined below) based in Bermuda, the United States and the United Kingdom: Aspen Insurance UK Limited (“Aspen U.K.”) and Aspen Underwriting Limited (corporate member of Lloyd’s Syndicate 4711, “AUL” and managed by Aspen Managing Agency Limited (“AMAL”)) (United Kingdom), Aspen Bermuda Limited (“Aspen Bermuda”) (Bermuda), Aspen Specialty Insurance Company (“Aspen Specialty”) and Aspen American Insurance Company (“AAIC”) (United States) (collectively, the “Operating Subsidiaries”). We also have branches in Australia, Canada, Ireland, Singapore, Switzerland and the United Arab Emirates. We established Aspen Capital Management, Ltd. and other related entities (collectively, “ACM”) to leverage our existing underwriting franchise, increase our operational flexibility in the capital markets and provide investors direct access to our underwriting expertise. References to the “Company,” the “Group,” “we,” “us” or “our” refer to Aspen Holdings or Aspen Holdings and its 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 considered necessary for a fair presentation have been included. Results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ended December 31, 2018. The unaudited condensed consolidated financial statements include the accounts of Aspen Holdings and its subsidiaries. All intercompany transactions and balances have been eliminated on consolidation.
The balance sheet as at December 31, 2017 has been derived from the audited consolidated financial statements at that date, 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, 2017 contained in the Company’s Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (the “SEC”) on February 22, 2018 (File No. 001-31909).
Assumptions and estimates made by management have a significant effect on the amounts reported within the unaudited condensed consolidated financial statements. The most significant of these assumptions and estimates relate to losses and loss adjustment expenses, reinsurance recoverables, gross written premiums and commissions which have not been reported to the Company such as those relating to proportional treaty reinsurance contracts, unrecognized tax benefits, the fair value of derivatives and the fair value of other investments. All material assumptions and estimates are regularly reviewed and adjustments made as necessary, but actual results could turn out significantly different from those expected when the assumptions or estimates were made.
Accounting Pronouncements Adopted in 2018
On August 12, 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606)” which delayed the effective date of ASU 2014-09 by one year. ASU 2015-04 is effective for annual periods beginning after December 15, 2017. Adoption of this ASU during the three months ended March 31, 2018 did not have a material impact on the Company’s consolidated financial statements as insurance contracts accounted for within the scope of Topic 944, Financial Services are exempt from this ASU and the Company has immaterial other revenue.
On January 5, 2016, the FASB issued ASU 2016-1, “Financial Instruments - Overall (Subtopic 825-10)” which enhances the reporting model for financial instruments. Included within the requirements of this ASU are the following: a) equity investments to be measured at fair value with changes in fair value recognized in net income; b) a simplification of the impairment assessment of equity investments without readily determinable fair values; c) public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; and d) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The amendments required as a result of this ASU are effective for fiscal years beginning after December 15, 2017. Adoption of this ASU during the three months ended March 31, 2018 did not have a material impact on the Company’s consolidated financial statements as the Company’s equity portfolio, prior to being sold, was classified as held for trading with changes in fair value recognized through net income and no valuation allowance was required in relation to deferred tax asset related to available-for-sale securities
Other accounting pronouncements were issued during the three months ended March 31, 2018 which were either not relevant to the Company or did not impact the Company’s consolidated financial statements.

9



Accounting Pronouncements Not Yet Adopted

On February 14, 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220)” which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This ASU is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. The Company is currently evaluating the provisions of ASU 2018-02 to determine how it will be affected, but no material impact is expected on the consolidated financial statements.

On February 28, 2018, the FASB issued ASU 2018-03, “Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10)” which amends multiple areas in Subtopic 825-10 via improvements to clarify the Codification or to correct unintended application of guidance. This ASU is effective for fiscal years beginning after December 15, 2017 and for interim periods within those fiscal years beginning after June 15, 2018. The Company is currently evaluating the provisions of ASU 2018-03 to determine how it will be affected, but no material impact is expected on the consolidated financial statements.
Other accounting pronouncements were issued during the three months ended March 31, 2018 which were either not relevant to the Company or did not impact the Company’s consolidated financial statements.
3.
Reclassifications from Accumulated Other Comprehensive Income
The following tables set out the components of the Company’s accumulated other comprehensive income (“AOCI”) that are reclassified into the unaudited condensed consolidated statement of operations for the three months ended March 31, 2018 and 2017:
 
 
Amount Reclassified from AOCI
 
 
Details about the AOCI Components
 
Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2017
 
Affected Line Item in the Unaudited
Condensed Consolidated Statement
of Operations
 
 
($ in millions)
 
 
Available for sale securities:
 
 
 
 
Realized gains on sale of securities
 
$
2.0

 
$
2.3

 
Realized and unrealized investment gains
Realized (losses) on sale of securities
 
(1.9
)
 
(1.3
)
 
Realized and unrealized investment losses
 
 
0.1

 
1.0

 
Income from operations before income tax
Tax on net realized gains of securities
 
(0.1
)
 
(0.2
)
 
Income tax expense
 
 
$

 
$
0.8

 
Net income
Realized derivatives:
 
 
 
 
 
 
Net realized gains on settled derivatives
 
$
1.7

 
$
0.3

 
General, administrative and corporate expenses
Tax on settled derivatives
 
(0.3
)
 
(0.1
)
 
Income tax expense
 
 
$
1.4

 
$
0.2

 
Net income
 
 
 
 
 
 
 
Total reclassifications from AOCI to the statement of operations, net of income tax
 
$
1.4

 
$
1.0

 
Net income



10



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. Net income available to ordinary shareholders is calculated by deducting preference share dividends and net income/(loss) attributable to non-controlling interest from net income/ (loss) after tax for the period. 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 ordinary share for the three months ended March 31, 2018 and 2017, respectively:
 
Three Months Ended March 31,
 
2018
 
2017
 
($ in millions, except share and per share amounts)
 
 
 
 
Net income
$
30.8

 
$
96.5

Preference share dividends
(7.6
)
 
(10.5
)
Preference share redemption costs (1)

 
(2.4
)
Net amount attributable to non-controlling interest
(0.2
)
 
(0.1
)
Basic and diluted net income available to ordinary shareholders
$
23.0

 
$
83.5

Ordinary shares:
 
 
 
Basic weighted average ordinary shares
59,546,165

 
59,862,662

Weighted average effect of dilutive securities (2)
966,982

 
1,334,110

Total diluted weighted average ordinary shares
60,513,147

 
61,196,772

Earnings per ordinary share:
 
 
 
Basic
$
0.39

 
$
1.39

Diluted (3)
$
0.38

 
$
1.36

 
(1) 
The $2.4 million deduction from net income in 2017 is attributable to the reclassification from additional paid-in capital to retained earnings representing the difference between the capital raised upon issuance of the 7.401% Perpetual Non-Cumulative Preference Shares, net of issuance costs, and the final redemption costs of $133.2 million.
(2) 
Dilutive securities consist of employee restricted share units and performance shares associated with the Company’s long-term incentive plan, employee share purchase plans and director restricted share units as described in Note 14.

Dividends. On May 2, 2018, the Company’s Board of Directors (the “Board of Directors”) declared the following quarterly dividends:
 
Dividend
 
Payable on:
 
Record Date:
Ordinary shares
$
0.24

 
June 5, 2018
 
May 18, 2018
5.95% preference shares
$
0.3719

 
July 1, 2018
 
June 15, 2018
5.625% preference shares
$
0.3516

 
July 1, 2018
 
June 15, 2018
5.
Segment Reporting
The Company has two reporting business segments: Insurance and Reinsurance. The Company has determined its reportable segments, Aspen Insurance and Aspen Reinsurance, by taking into account the manner in which management makes operating decisions and assesses operating performance. Profit or loss for each of the Company’s business 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, amortization of deferred policy acquisition costs and general and administrative expenses. Underwriting profit or loss provides a basis for management to evaluate the business segment’s underwriting performance.
Reinsurance Segment. The reinsurance segment consists of property catastrophe reinsurance, other property reinsurance, casualty reinsurance and specialty insurance and reinsurance. ACM forms part of our property catastrophe reinsurance line of business as it focuses primarily on property catastrophe business through the use of alternative capital. For a more detailed description of this business segment, see Part I, Item 1, “Business — Business Segments — Reinsurance” in the Company’s 2017 Annual Report on Form 10-K filed with the SEC.

11



Insurance Segment. The insurance segment consists of property and casualty insurance, marine, aviation and energy insurance and financial and professional lines insurance. For a more detailed description of this business segment, see Part I, Item 1 “Business — Business Segments — Insurance” in the Company’s 2017 Annual Report on Form 10-K filed with the SEC.
Non-underwriting Disclosures. The Company has provided additional disclosures for corporate and other (non-operating) income and expenses. Corporate and other income and expenses include net investment income, net realized and unrealized investment gains or losses, expenses associated with managing the Group, certain strategic and non-recurring costs, changes in fair value of derivatives and changes in fair value of the loan notes issued by variable interest entities, interest expenses, net realized and unrealized foreign exchange gains or losses, and income taxes, none of which are allocated to the business segments. Corporate expenses are not allocated to the Company’s business segments as they typically do not fluctuate with the levels of premiums written and are not directly related to the Company’s business segment operations. The Company does not allocate its assets by business segment as it evaluates underwriting results of each business segment separately from the results of the Company’s investment portfolio.

12



The following tables provide a summary of gross and net written and earned premiums, underwriting results, ratios and reserves for each of the Company’s business segments for the three months ended March 31, 2018 and 2017:
 
Three Months Ended March 31, 2018
 
 
Reinsurance
 
Insurance
 
Total
 
 
($ in millions)
 
Underwriting Revenues
 
 
 
 
 
 
Gross written premiums
$
623.5

 
$
493.3

 
$
1,116.8

 
Net written premiums
425.0

 
210.5

 
635.5

 
Gross earned premiums
375.0

 
467.6

 
842.6

 
Net earned premiums
282.5

 
251.0

 
533.5

 
Underwriting Expenses
 
 
 
 
 
 
Losses and loss adjustment expenses
166.9

 
143.3

 
310.2

 
Amortization of deferred policy acquisition costs
55.9

 
34.9

 
90.8

 
General and administrative expenses
31.6

 
63.6

 
95.2

 
Underwriting income
$
28.1

 
$
9.2

 
37.3

 
Corporate expenses
 
 
 
 
(13.7
)
 
Non-operating expenses (1)
 
 
 
 
(12.1
)
 
Net investment income
 
 
 
 
47.3

 
Realized and unrealized investment gains
 
 
 
 
100.6

 
Realized and unrealized investment losses
 
 
 
 
(138.3
)
 
Change in fair value of loan notes issued by variable interest entities
 
 
 
 
1.0

 
Change in fair value of derivatives
 
 
 
 
23.5

 
Interest expense on long term debt
 
 
 
 
(7.4
)
 
Net realized and unrealized foreign exchange (losses)
 
 
 
 
(4.7
)
 
Other income
 
 
 
 
2.1

 
Other expenses
 
 
 
 
(1.2
)
 
Income before tax
 
 
 
 
$
34.4

 
 
 
 
 
 
 
 
Net reserves for loss and loss adjustment expenses
$
2,823.6

 
$
2,244.5

 
$
5,068.1

 
Ratios
 
 
 
 
 
 
Loss ratio
59.1
%
 
57.1
%
 
58.1
%
 
Policy acquisition expense ratio
19.8

 
13.9

 
17.0

 
General and administrative expense ratio
11.2

 
25.3

 
22.7

(2) 
Expense ratio
31.0

 
39.2

 
39.7

 
Combined ratio
90.1
%
 
96.3
%
 
97.8
%
 
 
(1) 
Non-operating expenses includes $11.8 million of expenses related to the Company’s Effectiveness and Efficiency Program.
(2) 
The general and administrative expense ratio in the “Total” column includes corporate and non-operating expenses.

13



 
Three Months Ended March 31, 2017
 
 
Reinsurance
 
Insurance
 
Total
 
 
( $ in millions)
 
Underwriting Revenues
 
 
 
 
 
 
Gross written premiums
$
565.3

 
$
432.7

 
$
998.0

 
Net written premiums
448.2

 
238.0

 
686.2

 
Gross earned premiums
327.6

 
423.7

 
751.3

 
Net earned premiums
277.5

 
303.6

 
581.1

 
Underwriting Expenses
 
 
 
 
 
 
Losses and loss adjustment expenses
143.1

 
185.1

 
328.2

 
Amortization of deferred policy acquisition costs
59.5

 
54.2

 
113.7

 
General and administrative expenses
43.9

 
61.8

 
105.7

 
Underwriting income
$
31.0

 
$
2.5

 
33.5

 
Corporate expenses
 
 
 
 
(13.4
)
 
Non-operating expenses
 
 
 
 
(2.2
)
 
Net investment income
 
 
 
 
47.7

 
Realized and unrealized investment gains
 
 
 
 
51.2

 
Realized and unrealized investment losses
 
 
 
 
(5.0
)
 
Change in fair value of loan notes issued by variable interest entities
 
 
 
 
(2.9
)
 
Change in fair value of derivatives
 
 
 
 
3.1

 
Interest expense on long term debt
 
 
 
 
(7.4
)
 
Net realized and unrealized foreign exchange gains
 
 
 
 
(8.9
)
 
Other income
 
 
 
 
3.6

 
Income before tax
 
 
 
 
$
99.3

 
 
 
 
 
 
 
 
Net reserves for loss and loss adjustment expenses
$
2,445.4

 
$
2,284.7

 
$
4,730.1

 
Ratios
 
 
 
 
 
 
Loss ratio
51.6
%
 
61.0
%
 
56.5
%
 
Policy acquisition expense ratio
21.4

 
17.9

 
19.6

 
General and administrative expense ratio
15.8

 
20.4

 
20.9

(1) 
Expense ratio
37.2

 
38.3

 
40.5

 
Combined ratio
88.8
%
 
99.3
%
 
97.0
%
 
 
(1) 
The general and administrative expense ratio in the “Total” column includes corporate and non-operating expenses.

The Company uses underwriting ratios as measures of performance. The loss ratio is the ratio of losses and loss adjustment expenses to net earned premiums. The policy acquisition expense ratio is the ratio of amortization of deferred policy acquisition costs to net earned premiums. The general and administrative expense ratio is the ratio of general, administrative and corporate expenses to net earned premiums. The combined ratio is the sum of the loss ratio, the policy acquisition expense ratio and the general and administrative expense ratio.


14



6.     Investments
Income Statement
Investment Income. The following table summarizes investment income for the three months ended March 31, 2018 and 2017:
 
For the Three Months Ended
 
March 31, 2018
 
March 31, 2017
 
($ in millions)
Fixed income securities — Available for sale
$
33.3

 
$
33.9

Fixed income securities — Trading
12.0

 
10.1

Short-term investments — Available for sale
0.2

 
0.1

Short-term investments — Trading
0.2

 
0.2

Fixed term deposits (included in cash and cash equivalents)
2.4

 
0.7

Equity securities — Trading
1.2

 
5.2

Catastrophe bonds — Trading
0.6

 
0.4

Total
$
49.9

 
$
50.6

Investment expenses
(2.6
)
 
(2.9
)
Net investment income
$
47.3

 
$
47.7


15



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 other comprehensive income for the three months ended March 31, 2018 and 2017:

 
For the Three Months Ended
 
March 31, 2018
 
March 31, 2017
 
($ in millions)
Available for sale:
 
 
 
Fixed income securities — gross realized gains
$
1.8

 
$
2.2

Fixed income securities — gross realized (losses)
(1.8
)
 
(1.3
)
Short-term investments — gross realized gains

 
0.1

Cash and cash equivalents — gross realized gains
0.2

 

Cash and cash equivalents — gross realized (losses)
(0.1
)
 

Other-than-temporary impairments

 
(0.3
)
Trading:
 
 
 
Fixed income securities — gross realized gains
1.6

 
1.8

Fixed income securities — gross realized (losses)
(7.0
)
 
(2.0
)
Cash and cash equivalents — gross realized gains
1.6

 

Equity securities — gross realized gains
94.5

 
4.5

Equity securities — gross realized (losses)
(20.3
)
 
(1.4
)
Catastrophe bonds — net unrealized (losses)/gains
0.9

 

Net change in gross unrealized (losses)/gains
(108.8
)
 
40.9

Other investments:
 
 
 
Gross realized and unrealized (loss) in MVI
(0.1
)
 

Gross realized (loss)/gain in Chaspark

 
1.7

Gross realized and unrealized (loss) in Bene
(0.2
)
 

Total net realized and unrealized investment (losses)/gains recorded in the statement of operations
$
(37.7
)
 
$
46.2

 
 
 
 
Change in available for sale net unrealized (losses)/gains:
 
 
 
Fixed income securities
(82.9
)
 
2.0

Total change in pre-tax available for sale unrealized (losses)/gains
(82.9
)
 
2.0

Change in taxes
5.5

 
0.1

Total change in net unrealized gains, net of taxes, recorded in other comprehensive income
$
(77.4
)
 
$
2.1




16



Balance Sheet
Fixed Income Securities and Short-Term Investments 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 income securities and short-term investments as at March 31, 2018 and December 31, 2017:
 
As at March 31, 2018
 
Cost or
Amortized Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Market
Value
 
($ in millions)
U.S. government
$
1,311.3

 
$
2.5

 
$
(21.6
)
 
$
1,292.2

U.S. agency
52.9

 
0.2

 
(0.4
)
 
52.7

Municipal
46.5

 
1.7

 
(0.6
)
 
47.6

Corporate
2,471.3

 
16.3

 
(41.4
)
 
2,446.2

Non-U.S. government-backed corporate
98.2

 
0.1

 
(0.5
)
 
97.8

Non-U.S. government
480.7

 
4.5

 
(1.8
)
 
483.4

Asset-backed
18.7

 

 
(0.2
)
 
18.5

Agency mortgage-backed
985.6

 
8.6

 
(20.4
)
 
973.8

Total fixed income securities — Available for sale
5,465.2

 
33.9

 
(86.9
)
 
5,412.2

Total short-term investments — Available for sale
54.7

 

 
(0.1
)
 
54.6

Total
$
5,519.9

 
$
33.9

 
$
(87.0
)
 
$
5,466.8

 
 
As at December 31, 2017
 
Cost or
Amortized Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Market
Value
 
($ in millions)
U.S. government
$
1,166.5

 
$
4.5

 
$
(11.6
)
 
$
1,159.4

U.S. agency
51.8

 
0.5

 
(0.2
)
 
52.1

Municipal
53.0

 
2.1

 
(0.2
)
 
54.9

Corporate
2,391.4

 
36.1

 
(11.8
)
 
2,415.7

Non-U.S. government-backed corporate
91.5

 
0.3

 
(0.5
)
 
91.3

Non-U.S. government
479.7

 
6.4

 
(1.2
)
 
484.9

Asset-backed
26.3

 

 
(0.1
)
 
26.2

Agency mortgage-backed
941.0

 
13.7

 
(8.2
)
 
946.5

Total fixed income securities — Available for sale
5,201.2

 
63.6

 
(33.8
)
 
5,231.0

Total short-term investments — Available for sale
90.0

 

 
(0.1
)
 
89.9

Total
$
5,291.2

 
$
63.6

 
$
(33.9
)
 
$
5,320.9


17




Fixed Income Securities, Short-Term Investments, Equities and Catastrophe Bonds — 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 income securities, short-term investments, equity securities and catastrophe bonds as at March 31, 2018 and December 31, 2017:
 
As at March 31, 2018
 
Cost or
Amortized Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Market
Value
 
($ in millions)
U.S. government
$
141.8

 
$
0.6

 
$
(0.7
)
 
$
141.7

Municipal
75.0

 

 
(0.7
)
 
74.3

Corporate
1,014.5

 
5.8

 
(16.7
)
 
1,003.6

Non-U.S government-backed corporate
1.0

 

 

 
1.0

Non-U.S. government
216.2

 
3.4

 
(3.0
)
 
216.6

Asset-backed
8.4

 

 
(0.1
)
 
8.3

Agency mortgage-backed
195.8

 
0.3

 
(4.0
)
 
192.1

Total fixed income securities — Trading
1,652.7

 
10.1

 
(25.2
)
 
1,637.6

Total short-term investments — Trading
27.0

 

 

 
27.0

Total catastrophe bonds — Trading
35.0

 

 
(0.2
)
 
34.8

Total
$
1,714.7

 
$
10.1

 
$
(25.4
)
 
$
1,699.4

 
 
As at December 31, 2017
 
Cost or
Amortized Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Market
Value
 
($ in millions)
U.S. government
$
162.3

 
$
0.4

 
$
(0.8
)
 
$
161.9

Municipal
32.4

 

 
(0.2
)
 
32.2

Corporate
1,036.5

 
14.0

 
(4.2
)
 
1,046.3

Non-U.S. government-backed corporate
1.0

 

 

 
1.0

Non-U.S. government
196.1

 
6.9

 
(0.5
)
 
202.5

Asset-backed
9.9

 

 

 
9.9

Agency mortgage-backed
196.7

 
0.2

 
(1.4
)
 
195.5

Total fixed income securities — Trading
1,634.9

 
21.5

 
(7.1
)
 
1,649.3

Total short-term investments — Trading
73.0

 

 

 
73.0

Total equity securities — Trading
414.8

 
83.5

 
(7.3
)
 
491.0

Total catastrophe bonds — Trading
33.5

 

 
(1.1
)
 
32.4

Total
$
2,156.2

 
$
105.0

 
$
(15.5
)
 
$
2,245.7

The Company classifies the financial instruments presented in the tables above as held for trading as this most closely reflects the facts and circumstances of the investments held.
Catastrophe Bonds. The Company has invested in catastrophe bonds with a total value of $34.8 million as at March 31, 2018.  The bonds receive quarterly interest payments based on variable interest rates with scheduled maturities ranging from 2018 to 2021.  The redemption value of the bonds will adjust based on the occurrence of a covered event, such as windstorms and earthquakes in the United States, Canada, the North Atlantic, Japan or Australia.
Other Investments. In January 2015, the Company established, along with seven other insurance companies, a micro-insurance venture consortium and micro-insurance incubator (“MVI”) domiciled in Bermuda. The MVI is a social impact organization that provides micro-insurance products to assist global emerging consumers. The Company’s initial investment in the MVI was $0.8 million. The Company made an additional investment of $0.1 million in the twelve months ended December 31, 2017.

18




On July 26, 2016, the Company purchased through its wholly-owned subsidiary, Acorn Limited, a 20% share of Bene Assicurazioni (“Bene”), an Italian-based motor insurer for a total consideration of $3.3 million. The investment is accounted for under the equity method and adjustments to the carrying value of this investment are made based on the Company’s share of capital, including share of income and expenses.
On January 1, 2017, the Company purchased through its wholly-owned subsidiary, Aspen U.S. Holdings, Inc. (“Aspen U.S. Holdings”), a 49% share of Digital Risk Resources, LLC (“Digital Re”), a U.S.-based enterprise engaged in the business of developing, marketing and servicing turnkey information security and privacy liability insurance products, for a total consideration of $2.3 million. The investment is accounted for under the equity method and adjustments to the carrying value of this investment are made based on the Company’s share of capital, including share of income and expenses.
On December 18, 2017, the Company acquired through its wholly-owned subsidiary, Aspen U.S. Holdings, a 23.2% share of Crop Re Services LLC (“Crop Re”), a newly formed U.S.-based subsidiary of CGB Diversified Services, Inc (“CGB DS”) in exchange for the sale of AG Logic Holdings, LLC (“AgriLogic”), the Company’s former U.S. crop insurance business. Total consideration for the sale of AgriLogic consisted of the 23.2% share of Crop Re valued at $62.5 million and cash in the amount of $5.9 million. Crop Re is responsible for directing the placement of reinsurance on behalf of CGB DS and CGB Insurance Company (“CGBIC”), an Indiana insurance company affiliate of CGB DS and an RMA licensed crop insurer. The remaining 76.8% of Crop Re is owned by CGB DS. AAIC’s primary crop insurance coverage will be run-off and AAIC, or an affiliate of AAIC, will provide quota share reinsurance to CGBIC for both federal and state regulated crop insurance as part of Aspen’s ownership in Crop Re. The investment in Crop Re represents the Company’s share of the net assets of Crop Re plus the difference between the cost of the investment and the amount of underlying equity in net assets, the basis difference. The Company has determined that this basis difference of $62.5 million represents the value attributable to the ability of Crop Re to direct the placement of reinsurance business under the reinsurance commitment contained within the operating agreement between Crop Re and the Company. The investment in Crop Re is accounted for under the equity method and adjustments to the carrying value of this investment are made based on the Company’s share of capital, including share of income and expenses.
The tables below show the Company’s investments in the MVI, Bene, Digital Re and Crop Re for the three months ended March 31, 2018:
 
For the Three Months Ended March 31, 2018
 
MVI
 
Bene
 
Digital Re
 
Crop Re
 
Total
 
($ in millions)
Opening undistributed value of investment
$
0.5

 
$
2.9

 
$
0.5

 
$
62.5

 
$
66.4

Realized/unrealized losses for the three months to March 31, 2018
(0.1
)
 
(0.2
)
 

 

 
(0.3
)
Closing undistributed value of investment
$
0.4

 
$
2.7

 
$
0.5

 
$
62.5

 
$
66.1


Fixed Income Securities. The scheduled maturity distribution of available for sale fixed income securities as at March 31, 2018 and December 31, 2017 is set forth in the tables 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 March 31, 2018
 
Amortized
Cost or Cost
 
Fair Market
Value
 
Average
S&P Ratings by
Maturity
 
($ in millions)
Due one year or less
$
592.2

 
$
593.2

 
AA
Due after one year through five years
2,608.0

 
2,582.6

 
AA-
Due after five years through ten years
1,153.4

 
1,128.1

 
AA-
Due after ten years
107.3

 
116.0

 
A+
Subtotal
4,460.9

 
4,419.9

 
 
Agency mortgage-backed
985.6

 
973.8

 
AA+
Asset-backed
18.7

 
18.5

 
AAA
Total fixed income securities — Available for sale
$
5,465.2

 
$
5,412.2

 
 
 

19



 
As at December 31, 2017
 
Amortized
Cost or Cost
 
Fair Market
Value
 
Average
S&P Ratings by
Maturity
 
($ in millions)
Due one year or less
$
561.7

 
$
562.4

 
AA
Due after one year through five years
2,486.7

 
2,492.2

 
AA-
Due after five years through ten years
1,092.2

 
1,097.4

 
A+
Due after ten years
93.3

 
106.3

 
A
Subtotal
4,233.9

 
4,258.3

 
 
Agency mortgage-backed
941.0

 
946.5

 
AA+
Asset-backed
26.3

 
26.2

 
AAA
Total fixed income securities — Available for sale
$
5,201.2

 
$
5,231.0

 
 
Guaranteed Investments. The Company held no investments which are guaranteed by mono-line insurers, excluding those with explicit government guarantees as March 31, 2018 and December 31, 2017. The Company’s exposure to other third-party guaranteed debt is primarily to investments backed by non-U.S. government guaranteed issuers.
Gross Unrealized Loss. The following tables summarize, 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 in the Company’s available for sale portfolio as at March 31, 2018 and December 31, 2017:
 
As at March 31, 2018
 
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
$
772.9

 
$
(12.7
)
 
$
286.8

 
$
(8.9
)
 
$
1,059.7

 
$
(21.6
)
 
112

U.S. agency
30.8

 
(0.4
)
 
5.5

 

 
36.3

 
(0.4
)
 
12

Municipal
36.0

 
(0.6
)
 

 

 
36.0

 
(0.6
)
 
11

Corporate
1,544.3

 
(26.3
)
 
320.4

 
(15.0
)
 
1,864.7

 
(41.3
)
 
661

Non-U.S. government-backed corporate
50.0

 
(0.4
)
 
10.0

 
(0.1
)
 
60.0

 
(0.5
)
 
17

Non-U.S. government
247.5

 
(1.4
)
 
23.8

 
(0.4
)
 
271.3

 
(1.8
)
 
58

Asset-backed
13.4

 
(0.1
)
 
5.0

 
(0.1
)
 
18.4

 
(0.2
)
 
7

Agency mortgage-backed
427.5

 
(8.6
)
 
290.5

 
(11.8
)
 
718.0

 
(20.4
)
 
228

Total fixed income securities — Available for sale
3,122.4

 
(50.5
)
 
942.0

 
(36.3
)
 
4,064.4

 
(86.8
)
 
1,106

Total short-term investments — Available for sale
41.8

 
(0.1
)
 

 

 
41.8

 
(0.1
)
 
10

Total
$
3,164.2

 
$
(50.6
)
 
$
942.0

 
$
(36.3
)
 
$
4,106.2

 
$
(86.9
)
 
1,116

 

20



 
As at December 31, 2017
 
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
$
652.1

 
$
(5.1
)
 
$
259.8

 
$
(6.5
)
 
$
911.9

 
$
(11.6
)
 
101
U.S. agency
20.1

 
(0.2
)
 
6.1

 

 
26.2

 
(0.2
)
 
10
Municipal
28.5

 
(0.2
)
 

 

 
28.5

 
(0.2
)
 
9
Corporate
699.3

 
(3.4
)
 
360.7

 
(8.4
)
 
1,060.0

 
(11.8
)
 
412
Non-U.S. government-backed corporate
43.5

 
(0.3
)
 
13.3

 
(0.2
)
 
56.8

 
(0.5
)
 
15
Non-U.S. government
206.2

 
(0.8
)
 
32.0

 
(0.4
)
 
238.2

 
(1.2
)
 
47
Asset-backed
11.1

 

 
10.5

 
(0.1
)
 
21.6

 
(0.1
)
 
11
Agency mortgage-backed
257.6

 
(1.9
)
 
301.9

 
(6.3
)
 
559.5

 
(8.2
)
 
156
Total fixed income securities — Available for sale
1,918.4

 
(11.9
)
 
984.3

 
(21.9
)
 
2,902.7

 
(33.8
)
 
761
Total short-term investments — Available for sale
46.9

 
(0.1
)
 

 

 
46.9

 
(0.1
)
 
8
Total
$
1,965.3

 
$
(12.0
)
 
$
984.3

 
$
(21.9
)
 
$
2,949.6

 
$
(33.9
)
 
769

Other-Than-Temporary Impairments. A security is potentially impaired when its fair value is below its amortized cost. The Company reviews its available for sale fixed income 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. The total OTTI charge for the three months ended March 31, 2018 was $Nil (2017$0.3 million). For a more detailed description of accounting policies for OTTI, please refer to Note 2(c) of the “Notes to the Audited Consolidated Financial Statements” in the Company’s 2017 Annual Report on Form 10-K filed with the SEC.

7.
Variable Interest Entities
As at March 31, 2018, the Company had investments in two variable interest entities (“VIE”): Peregrine Reinsurance Ltd (“Peregrine”) and Silverton Re Ltd (“Silverton”).
Peregrine. In November 2016, Peregrine, a subsidiary of the Company, was registered as a segregated accounts company under the Segregated Accounts Companies Act 2000, as amended. As at March 31, 2018, Peregrine had four segregated accounts which were funded by a third party investor. The segregated accounts have not been consolidated as part of the Company’s consolidated financial statements. The Company has, however, determined that Peregrine has the characteristics of a VIE as addressed by the guidance in ASC 810, Consolidation. The Company concluded that it is not the primary beneficiary of the four segregated accounts of Peregrine but is the primary beneficiary of the Peregrine general fund and, similar to prior reporting periods, the Company has included the results of the Peregrine general fund in its consolidated financial statements. The Company’s exposure to Peregrine’s general fund is not material.
Silverton. On September 10, 2013, the Company established Silverton, a Bermuda domiciled special purpose insurer formed to provide additional collateralized capacity to support Aspen Re’s business through retrocession agreements which are collateralized and funded by Silverton through the issuance of one or more series of participating loan notes (collectively, the “Loan Notes”). Silverton is a non-rated insurer and the risks are fully collateralized by way of funds held in trust for the benefit of Aspen Bermuda and Aspen U.K., the ceding reinsurers.
All proceeds from the issuance of the Loan Notes were deposited into separate collateral accounts for each series of Loan Notes to fund Silverton’s obligations under a retrocession property quota share agreement entered into with Aspen Bermuda or Aspen Bermuda and Aspen U.K, as the case may be. The holders of the Loan Notes participate in any profit or loss generated by Silverton attributable to the operations of the respective Silverton segregated account. Any existing value of the Loan Notes will be returned to the noteholders in installments after the expiration of the risk period of the retrocession agreement issued by Silverton for the related series of Loan Notes with the final payment being contractually due on the respective maturity dates.

21



The following tables show the total liability balance of the Loan Notes for the three months ended March 31, 2018 and 2017:
 
 
For the Three Months Ended March 31, 2018
 
 
Third Party
 
Aspen Holdings
 
Total
 
 
($ in millions)
Opening balance
 
$
86.6

 
$
20.6

 
$
107.2

Total change in fair value for the period
 
(1.0
)
 
(0.3
)
 
(1.3
)
Total distributed in the period
 
(45.8
)
 
(10.7
)
 
(56.5
)
Closing balance as at March 31, 2018
 
$
39.8

 
$
9.6

 
$
49.4

 
 
 
 
 
 
 
Liability
 
 
 
 
 
 
Loan notes (long-term liabilities)
 
$
32.2

 
$
7.7

 
$
39.9

Accrued expenses (current liabilities)
 
7.6

 
1.9

 
9.5

Total aggregate unpaid balance as at March 31, 2018
 
$
39.8

 
$
9.6

 
$
49.4

 
 
For the Three Months Ended March 31, 2017
 
 
Third Party
 
Aspen Holdings
 
Total
 
 
($ in millions)
Opening balance
 
$
223.4

 
$
54.5

 
$
277.9

Total change in fair value for the period
 
2.9

 
0.7

 
3.6

Total distributed in the period
 
(111.2
)
 
(28.3
)
 
(139.5
)
Closing balance as at March 31, 2017
 
$
115.1

 
$
26.9

 
$
142.0

 
 
 
 
 
 
 
Liability
 
 
 
 
 
 
Loan notes (long-term liabilities)
 
$
110.2

 
$
26.9

 
$
137.1

Accrued expenses (current liabilities)
 
4.9

 

 
4.9

Total aggregate unpaid balance as at March 31, 2017
 
$
115.1

 
$
26.9

 
$
142.0

The Company has determined that Silverton has the characteristics of a VIE that are addressed by the guidance in ASC 810, Consolidation. The Company concluded that it is the primary beneficiary of Silverton as it owns all of Silverton’s voting shares and issued share capital, and has a significant financial interest and the power to control Silverton. As a result, the Company consolidated Silverton upon its formation. The Company has no other obligation to provide financial support to Silverton and neither the creditors nor beneficial interest holders of Silverton have recourse to the Company’s general credit.
In the event of an extreme catastrophic property reinsurance event or severe credit-related event, there is a risk that Aspen Bermuda and Aspen U.K. would be unable to recover losses from Silverton. These two risks are mitigated as follows:
i.
Silverton has collateralized the aggregate limit provided to Aspen Bermuda and Aspen U.K. by way of a trust in favor of Aspen Bermuda and Aspen U.K. as beneficiaries;
ii.
the trustee is a large, well-established regulated entity; and
iii.
all funds within the trust account are bound by investment guidelines restricting investments to one of the institutional class money market funds run by large international investment managers.
For further information regarding the Loan Notes attributable to the third-party investments in Silverton, refer to Note 8 of these unaudited condensed consolidated financial statements.
8.
Fair Value Measurements
The Company’s estimates of fair value for financial assets and liabilities are based on the framework established in the fair value accounting guidance included in ASC 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. The majority of these securities are valued using prices supplied by index providers.

22



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. The majority of these securities are also valued using prices supplied by index providers.
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 the Company’s financial assets and liabilities are measured on a recurring basis as at March 31, 2018 and December 31, 2017:
 
As at March 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
 
($ in millions)
Available for sale financial assets, at fair value
 
 
 
 
 
 
 
U.S. government
$
1,292.2

 
$

 
$

 
$
1,292.2

U.S. agency

 
52.7

 

 
52.7

Municipal

 
47.6

 

 
47.6

Corporate

 
2,446.2