Financial services ratings agency Moody’s has downgraded the insurance financial strength ratings (IFSR) of global re/insurer Aspen to A3 from A2, citing diminished earnings power and challenges in rebuilding balance sheet strength.
The downgrade has been applied to Aspen Insurance UK Limited and Aspen Bermuda Limited. At the same time, Moody’s has announced that the senior unsecured debt rating of Aspen Insurance Holdings Limited has also been downgraded to Baa2 from Baa1, and the preferred stock ratings downgraded to Ba1(hyb) from Ba2(hyb).
The outlook for the ratings has been changed to stable from negative, says Moody’s.
“The downgrade of Aspen’s IFSR to A3 from A2 reflects its diminished earnings power and difficulty in rebuilding balance sheet strength, both of which remain weaker than that of its peers and Moody’s expectations,” explains the ratings agency.
Ultimately, Moody’s feels that the company’s reduced earnings power provides it with limited flexibility to assume unexpected losses within current year earnings, with the re/insurer expected to incur meaningful losses related to the ongoing COVID-19 pandemic.
In recent years, Aspen has taken measures to lower its risk profile, including cutting back certain property cat reinsurance exposures, concluding a large adverse development cover reinsurance agreement with Enstar on its existing reserves, and selling the majority of equity exposures in its investment portfolio.
Additionally, the Bermuda-based re/insurer has also exited a number of lines of business, which has served to diminish the size of its premium base.
“While these actions have supported its regulatory capital ratio and reduced the potential for volatility in profits, the group’s earning power and ability to rebuild capital organically is diminished,” says Moody’s.
The ratings agency says that the stable outlook reflects its view that the measures taken by Aspen to improve its underwriting performance and operational efficiency, combined with the hardening reinsurance market, will result in better profitability for the firm moving forward.
