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Coverage Initiation: Aspen Insurance Holdings Limited
Value Line has initiated coverage of Aspen Insurance Holdings Limited (AHL) in its flagship product, The Value Line Investment Survey. This reinsurer, a Bermudian holding company incorporated on May 23, 2002, conducts insurance and reinsurance business through its subsidiaries in three major jurisdictions: Aspen U.K. & AUL, Aspen Bermuda (Bermuda), and Aspen Specialty & AAIC (United States). The company’s Aspen U.K. unit also has branches in France, Switzerland, Ireland, Germany, Singapore, Australia, and Canada. In addition, it operates in the global markets for property and casualty insurance and reinsurance.
For the year ended December 31, 2012, the reinsurer wrote $2,583.3 million in gross premiums and had total capital employed, including long-term debt, of $3,987.5 million.
The insurance and reinsurance industries are highly competitive. Aspen generally squares off with major U.S., U.K., European, and Bermudian insurers & reinsurers, as well as underwriting syndicates from Lloyd’s of London. Some of its peers have greater financial, marketing, and management resources than AHL, along with participants in the alternative capital markets, such as Nephila and Aeolus. Furthermore, it competes with insurers that provide property and casualty-based lines of insurance and reinsurance, a number of which may be more specific to a particular product or geographical area.
In the company’s reinsurance segment, it goes toe-to-toe principally with Arch Capital Group Ltd. (ACGL), Axis Capital Holdings Limited (AXS), Endurance Specialty Holdings Ltd. (ENH), Everest Re Group Limited (RE), Lancashire Holdings Limited, Montpelier Re Holdings Limited (MRH), PartnerRe Ltd. (PRE), Platinum Underwriters Holdings Ltd. (PTP), Renaissance Re Holdings Ltd. (RNR), Validus Holdings Ltd. (VR), XL Capital Ltd. (XL), and various Lloyd’s syndicates.
A vital component in any insurance business’s bottom line is its investment portfolio. Aspen Holdings follows an investment strategy designed to emphasize the preservation of capital and provide sufficient liquidity for the prompt payment of claims. As of December 31, 2012, its investments consisted of a diversified portfolio replete with fixed income securities, global equities, and money market funds. The total return of the insurer’s portfolio of fixed income investments, cash and cash equivalents for the twelve months ended December 31, 2012 was 2.9% (2011 — 4.7%). However, it should be noted that like most businesses in this industry, Aspen has faced several investment challenges. A persistently low interest-rate environment has hindered returns for fixed-income securities and left most with lower reinvestment yields. These events have forced insurers to shorten durations on holdings, as well as seek riskier assets that may generate increased gains. For now, it appears this climate will likely remain in place for some time.
Investors should remain mindful that stock prices within this space tend to be erratic. Many insurance providers’ bottom lines were hurt by last year’s late season super storm, Sandy. Following that, equities in this industry enjoyed a nice run in price, as Wall Street felt the majority of the hurricane’s ill effects on financials had occurred. Aspen has been no different, with a mild catastrophe season during the first quarter of 2013; the reinsurer is back trading right around its book value. A number of securities in this arena stand to benefit further from excess underwriting capacity present in the marketplace, as well as tighter policy standards, and climbing rates. What’s more, shareholders looking for a bit of income may be enticed by stocks here.
Subscribers interested in this reinsurance provider are advised to consult Value Line’s quarterly reports for Aspen Insurance Holdings Limited, as well as any supplemental reports and relevant articles as important news items arise.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.