The future of Aspen Insurance Holdings Limited, the Bermudian insurance and reinsurance group, has come under increasing levels of scrutiny in recent days, in particular after the firm filed details of a hike in the severance compensation plans for the CEO and CFO.
Aspen has been under scrutiny from analysts for some time though, highlighted as a company name to watch and a potential takeover target for larger players, or a merger target for a similarly sized player.
Aspen has struggled somewhat with its results of late and the disappointment over its results in U.S. property underwriting triggered a raft of rumours over the future of the company this year.
This was followed by the news that Aspen had hired investment bankers to help the company investigate its strategic options.
The fact that this has all occurred around the time of the announcements of the AIG acquisition of Validus, the Swiss Re and SoftBank news and the AXA acquisition of XL Group, has likely not helped Aspen, as it has intensified the expectation that more marginalised companies have little choise but to find a partner to give them greater scale, or alternative routes to revenue.
At the end of last week Aspen filed news of a hike in its executive compensation plan for CEO Chris O’Kane and CFO Scott Kirk, with a proposal to increase the cash severance payable to the pair should their employment be terminated prior to or within two years following a change of control of the firm.
Aspen said that this proposal came about after a review of the “market competitiveness of our named executive officers’ Change of Control Employment Agreements,” which led it to conclude they needed increasing.
The proposal would hike the cash severance payment to CEO O’Kane by 50%, from two times the sum of his average salary and bonus to three times it. For CFO Kirk the increase is lower, from one and a half times up to two times his compensation, so a 33% uplift.
Clearly observers believe that this is due to plans to merge with another or to sell the company to an acquirer, with the severance compensation being increased to ensure the senior leadership are motivated to achieve the goals of the Board.
O’Kane has previously discussed a desire to achieve shareholder value for investors in Aspen, which right now seems only possible through some sort of M&A deal that secures a sufficient price for the company to appease investors.
However, it should be noted that the changes to severance compensation for the CEO and CFO were not the only announcements. Aspen is also updating its bonus pool funding for business segments, to ensure that leadership in its insurance and reinsurance businesses are compensated more on improvements in performance.
This suggests the company still has a longer term view and goal of greater profitability, although perhaps being put in place to provide the motivation to key leadership in case a deal or M&A is not forthcoming.
Overall, Aspen should remain an attractive target for some buyers, offering line of business diversification, a global platform including operations at Lloyd’s, and a solid team of underwriters to any willing acquirer with the right business profile.
However the company won’t be for everyone, as players of similar size could find considerable cross-over between the businesses, suggesting that any acquirer may come from left-field, in not being among the typically expected candidates.
But the question will come down to valuation, of course, and it will be interesting to see whether anyone is ready to pay the multiples seen in other recent acquisition deals.
