Cloutier: Aspen’s LPT provides “clean balance sheet” to capitalise on favourable conditions

Aspen’s recent $3.57bn loss portfolio transfer (LPT) with Enstar has rejuvenated the group’s balance sheet to resemble one belonging to a 2020 start-up company, according to chairman and CEO Mark Cloutier.

In an exclusive interview with The Insurer TV’s Leading Voices following the announcement that legacy giant Enstar will assume net loss reserves of up to $3.57bn in the LPT – applying to a diverse mix of property, liability and specialty lines across the US, UK and other jurisdictions – Cloutier spoke of the “unique” position the group now finds itself in among its peer group.

“We believe the size of the deal and the limit provided [presents] us with an essentially clean balance sheet,” he said.

“A mature business that has been undertaking a lot of performance improvement initiatives, matched up with essentially a clean balance sheet of, say, a 2020 start-up company, gives you a company that has all the benefits of being mature, of having operating leverage, a relevance in its long-term trading relationships and close to $4bn of premium flow,” he said.

Significantly, for Cloutier, the transaction strengthens the group’s capital position, enabling it continue to expand into and take advantage of the “current favourable trading conditions”.

“We have protected the balance sheet and future earnings against the potential impact of the effect of the soft market cycle years that predated the acquisition of the business,” he said.

Mission accomplished?

Cloutier has spent the last three years fully immersed in a transformation project following Apollo Global Management’s $2.6bn acquisition of Aspen in 2019.

Apollo parachuted in Brit executive Cloutier, who took over the reins from long-serving CEO Chris O’Kane, with the task of streamlining the business.

Under his stewardship, Aspen has undertaken a major transformation, which has seen the carrier exit a host of under-performing business lines – including accident and health, international marine, UK SME and energy liability. It has also closed its Dubai, Dublin, Lloyd’s China and Miami offices.

“We have spent close to three years striving to improve performance in the company and striving to re-underwrite the portfolio, manage the risk that we were taking on board differently and generally improve performance as a mature company, as a mature business,” he told Leading Voices.

But the mission, as he says, is not yet complete.

“The mission won’t be complete until we’ve at the very minimum crystallised a return for our investors who supported us with the original transaction. I also don’t think the mission to continue to improve performance and strive to be a leading specialty (re)insurance sector business will ever be finished,” he added.

“The industry, the demands of our customer base and the nature of emerging and evolving risk is such that as a specialty risk insurer and reinsurer, we’re going to have to keep it evolving.”

The P&C market in 2022

Indeed, risks are continuing to evolve, introducing new dynamics into the market – some welcome, some not.

“We’ve had a good couple of years now of rates returning to rational levels; to levels where we have an opportunity to achieve decent returns for our shareholders,” he said.

“But we’re still going to have to be careful in terms of managing our exposure and in particular in the area of secondary under-modelled or non-modelled natural catastrophe-type exposures,” Cloutier warned.

“In the last few years, we’ve received some very interesting and costly lessons in terms of climate change and the impact of climate change on our business.”

But despite the threat of a changing nat cat risk landscape, Cloutier believes 2022 will be a good year for the sector.

Keeping with nat cat and the increasingly associated impact of climate change, Cloutier is even feeling more optimistic about that.

“I think we’re coming at it from a better-informed place,” he said. “And we’ve been able to start at least adjusting pricing and pricing metrics to start to meet that challenge more thoughtfully.”

In long-tail casualty lines, where pricing is also continuing to firm, Cloutier is again optimistic about the outlook.

“So long as the industry continues to manage risk through the positions we’re taking at an individual risk level, I think the outlook for the sector is good.

“I think that the need for capacity will be there at an individual risk level basis and I think so long as that’s there, it signals that pricing should stay rational and there should be an opportunity to achieve decent returns,” he said.

(Re)insurer of the future

Looking forward and thinking about where Aspen is going as a company, Cloutier said the model of the future (re)insurer will be far more about risk allocation as opposed to “risk warehousing”.

“I think the successful specialty (re)insurance business [of the future] is one that is equipped with the pieces that it needs to onboard risk on the front end and then behind that has the ability to allocate that risk to the right form of capital,” he said.

Having multiple platforms – insurance, reinsurance and capital markets capital – will be crucial to this, he explained, in addition to different forms of paper, whether it be non-admitted or admitted paper in the US or Lloyd’s.

“The ability to take risks in through an insurance product or a reinsurance paper and take that risk and allocate that risk or spread that risk across multiple forms of capital with different appetites, I think is the model of the future,” Cloutier concluded.