S&P Global Ratings has maintained its negative outlook on the ratings of Bermudian re/insurer Aspen Insurance Holdings and its subsidiaries, citing continued pressure on the company’s underwriting performance compared to its peers.
The rating agency also affirmed its ‘BBB+’ long-term issuer credit rating for Aspen, and ‘A-‘ long-term issuer credit and financial strength ratings on its core subsidiaries.
Analysts warned that the ratings could be lowered by one notch if Aspen does not post results showing that its underwriting performance is likely to be in line with that of ‘A’ rated peers over the next two years.
Ratings could also be lowered if Aspen proves unable to maintain its risk-based capital at least at the ‘AA’ level, if there is an unexpected turnover in management that weakens expertise, or if there is an unexpected change in Apollo’s policy or Aspen’s strategy that weakens the company’s financial profile, S&P said.
On the other hand, S&P could revise its outlook to stable in the next 12 months if it believes that Aspen’s underwriting performance is likely to improve to a level consistent with ‘A’ rated peers while maintain its ‘AA’ level capital and strong competitive position.
Analysts explained that the affirmation in ratings reflects their expectation that Aspen will preserve its strong business and financial risk profile under its new owner Apollo Global Management’s private equity fund, Apollo Management IX L.P.
S&P believes that Aspen remains focused on improving its underwriting performance and reducing the expense ratio, with the firm having exited more than $500 million of premium resulting from corrective underwriting actions.
It does not expect Aspen’s premium base to decline further as this would place further pressure on its competitive position and earnings.
For year-end 2018, Aspen posted a combined ratio of 106.5% with catastrophe losses contributing 12 percentage points following disappointing results in recent years.
That said, in 2018 Aspen’s attritional loss and expense ratios improved to 94.5% (from 100.3% in 2017), reflecting signs of underwriting improvements.
S&P anticipates that the group will generate combined ratios of 98% (including 7 percentage points of cat losses) for 2019-2020, with a return on equity of 5-7%.
Using Apollo’s asset management expertise, Aspen is also in the process of repositioning some of its assets into private assets, which is expected to gradually improve the company’s investment returns.