Aspen outlook revised to negative due to capital erosion after three FY losses in a row

AM Best has revised the outlook of re/insurer Aspen Insurance Holdings and its subsidiaries pointing to  losses reported in the last three years that have eroded the capital.

Aspen’s recent operating performance has been below AM Best’s expectations. This is due to the impact of catastrophe losses and weaker-than-expected results for certain lines of business, and a five-year weighted average combined ratio of 107.5 percent (2015-2019).

The agency stated that even though the carrier has taken several corrective measures, such as exiting poorly performing lines of business, enhancing underwriting risk selection and reducing operating expenses, these actions have had a "limited impact" on financial results so far.

AM Best said that it will continue to monitor the impact of these actions, and the improvement plan adopted by the new management team appointed in 2019, on the group’s underwriting results. It warned that failure to improve operating performance could lead to further negative rating action.

The rating agency noted that Aspen's risk-adjusted capitalisation has remained at the strongest level, despite reduction in its capital base. This is because of the steps taken by its management to limit exposure to catastrophe losses and the adverse development of legacy business.

In March 2020, Aspen entered into an adverse development cover for all years up until 31 December 2019. Aspen decreased its reliance on reinsurance in 2019, as part of its plan to increase retention of non-catastrophe-exposed lines, whilst maintaining its catastrophe and tail event protections.

AM Best concluded that the group's business profile benefits from its well-diversified portfolio of property/casualty and specialty insurance and reinsurance business, as well as a good geographical footprint. The group’s ERM is developed and aligned appropriately with its relatively high-risk profile.