Aspen: Cloutier’s path to profitability

The latest half-year results from Aspen can be viewed as a clear sign that actions taken under the stewardship of CEO Mark Cloutier to improve the carrier’s underwriting performance are taking shape.

Aspen’s H1 results included an improvement in the combined ratio to 98.0 percent from 110.1 percent in last year’s Covid-19-impacted first half.

The Bermudian’s ex-catastrophe combined ratio improved to 89.9 percent from 90.7 percent.

While that was at the top end of the mid- to high-80s range that Cloutier had previously told The Insurer his firm should be aiming for, the result showed that Aspen was “getting the fundamentals of the business right,” the executive said in an interview with this publication.

“I think if you look at it through that ex-cat lens it certainly appears that we’re moving in the right direction,” he said.

Net income after tax at Aspen stood at $87.4mn at the end of H1 2021, compared to a net loss after tax of $172.8mn in the prior-year period.

The H1 net income included an underwriting profit, including corporate expenses, of $33.3mn, which compared to an underwriting loss of $108.9mn in the first six months of 2020.

The carrier also swung to an operating profit after tax of $88.9mn from a loss after tax of $49.0mn.

The half-year KPIs followed improvements from full-year 2019 to 2020 (see table), despite the impact of Covid-19 on Aspen and its peers.

The seeds of the turnaround were sown in 2019, when Aspen began streamlining its relatively complicated operating structure following its $2.6bn buyout by investment heavyweight Apollo Global Management.

In tandem with the takeover being announced, Apollo parachuted in Brit executive Cloutier, who took over the reins from long-serving CEO Chris O’Kane.

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.

Cloutier also inked a multi-line adverse development cover with legacy giant Enstar in March 2020, providing ~$1bn of protection.

Aspen has also reduced its headcount, with several senior executives departing the firm. 

These and other actions led to Aspen’s general, admin and corporate expenses falling from $396mn in 2019 to $378.2mn last year.

Its operating expense ratio improved from 17.3 percent to 14.9 percent over the same period.

The carrier – one of the so-called ‘Class of 2001’ reinsurance start-ups that were formed in the hard market following the 11 September terrorist attacks – has also been building out its capital markets arm – Aspen Capital Markets (ACM).

At a time when several other ILS funds have struggled to grow assets under management or have seen investors pull back, Aspen grew capital managed by ACM by 15 percent last year, from around $700mn to $800mn year on year. 

In H1 this grew to ~$850mn, with Aspen pointing to ACM as being an an important pillar of the carrier’s strategy, reflecting the appetite from third-party investors for access to both its platform and underwriting. 

Specialty insurance focus

Cloutier’s turnaround programme has also seen the carrier restructure its underwriting portfolio, with about $800mn of business non-renewed in the past 18 months.

As a result Aspen’s gross written premium (GWP) fell 4.7 percent in the first half to $2.02bn, compared with $2.12bn in the same period of 2020.

Earlier this month Cloutier told The Insurer that he expects GWP for the whole of 2020 to be “flat to up slightly”. Going forward, he said “high single-digit, low double-digit growth is a reasonable expectation”.

He added: “Notwithstanding being in the midst of non-renewing business, we were able to take full advantage, we think, of the market opportunity that is presenting itself to us.”

The executive said the realignment of the portfolio is substantially done with only the future of a few small portfolios to be decided upon as planning for next year concludes. 

“It is about a couple of geographies where we’re kind of asking ourselves if it makes sense but not large portfolios,” Cloutier said.

“The impact on GWP numbers going forward of the remedial steps that we’re taking will be de minimis.”

Aspen’s insurance GWP increased 12.6 percent in the first half to $1.12bn, driven by growth in both casualty and liability lines and financial and professional lines as a result of improved market conditions.

In contrast, reinsurance GWP fell 20.2 percent, due primarily to reductions in specialty reinsurance as a result of the sale of Aspen’s US crop reinsurance business, which was previously written on a reinsurance basis through a strategic partnership with CGB DS via Crop Re Services.

This means insurance accounted for 55.6 percent of H1 2021 GWP while reinsurance represented 44.4 percent.

Looking forward, Cloutier commented: “I think we will be more a specialty insurance business than the current split. I think you should expect to see us always be weighted more insurance than reinsurance, and that is by design and it is also a function of the lines that we’re in.”

With the seeds of Aspen’s turnaround now successfully sown, the carrier will be looking to reap the benefits of its remedial efforts and continue to improve its underlying performance.