Hot on the heels of reporting a net loss for the third-quarter of -$253.8 million due to the major catastrophe activity and hurricanes, insurance and reinsurance player Aspen Insurance Holdings Limited has announced an efficiency and cost-cutting drive.
Clearly Aspen recognises that cost-of-capital is now key in the insurance and reinsurance industry and one way to increase competitiveness and profitability is to reduce expenses and add efficiency.
Chris O’Kane, Chief Executive Officer, explained, “Aspen is a diversified, global company with a strong balance sheet and specialty underwriters across many lines of business. Over the past 15 years, we have developed an underwriting-focused culture that provides creative solutions to our clients and brokers. Today we are announcing a program that will elevate the effectiveness and efficiency of our operating platform and position us for continued success in the future.”
Aspen said it will enhance its market position through actions to “optimize work processes and increase operational efficiency,” in a program it believes will deliver expense savings of around $160 million over the next three years.
$30 million of these expense savings are expected in 2018, $55 million in 2019 and $75 million in 2020, after which run-rate savings are expected to be around $80 million per year.
Of course, adding efficiency isn’t cheap and Aspen expects to spend around $95 million to implement the efficiency program and achieve these savings.
Most of this charge will be incurred in 2018 and 2019, the company said. But Aspen said it also expects to spend around $55 million in incremental capital expenditure, primarily on technology initiatives, in 2018 and 2019 as well, with these costs to be amortized over three to five years from the start of 2020.
O’Kane further explained the strategy, “The program is the result of a rigorous bottom up operational review of our organization which balanced both risks and rewards. The planned actions are highly achievable and will enable our underwriters to focus more of their time on client and broker facing activities rather than on routine and duplicative tasks. The majority of the expected savings will benefit our Insurance segment where we continue to build on the business line assessment we conducted in 2016 and the drive to improve profitability. As a result of this program, we believe Aspen will be a more nimble organization with faster decision-making ability, a competitive expense ratio and the ability to serve our clients even better than we do today.”
By shifting client-facing process to technology platforms Aspen’s insurance business could make significant savings. Additionally, any moves to bring automation into the underwriting process, through artificial intelligence and machine learning could also raise efficiency significantly.
But overall, the likes of Aspen and its competitors need to reduce their expenses and increase their capital efficiency, which will require a range of other cuts, possibly including manpower.
Efficiency is key in reinsurance, particularly with the realisation that returns are unlikely to ever revert back to those seen in past decades. With competition from the capital markets now a permanent feature of the market, companies like Aspen need to undergo major change programs to remain competitive.
