Highlights Strong Preliminary Results, Operating Momentum and
Benefits of Investments in Business
Urges Shareholders to Sign, Date and Return BLUE Revocation Card to
REJECT Endurance Proposals
Earlier today, Aspen announced preliminary financial results for the quarter ended
Information on Aspen’s response to Endurance’s unsolicited offer, including links to press releases, presentations, and other important documents and
Below is the full text of the letter to Aspen shareholders:
Dear Aspen Shareholder:
ASPEN’S PLAN IS DELIVERING STRONG, HIGH-QUALITY RESULTS
Board Urges Shareholders NOT to Submit Any White Endurance
Authorization Cards –
Please Sign, Date and Return the BLUE Revocation Card Instead
As you may have seen, this afternoon your company,
|Preliminary Q2 2014|
Diluted Book Value Per Sharei
Annualized Operating Return on Equityii
12.0% – 12.8%
Diluted Operating Earnings Per Shareii
Preliminary book value per share figures indicate 4.4%-4.9% growth since
While we are delivering strong results for shareholders, Endurance continues to pursue its ill-conceived and inadequate offer along with proposals related to the calling of a special meeting and a convoluted legal strategy Endurance has said it will pursue with the
ENDURANCE’S OFFER IS HIGHLY INADEQUATE AND IS BECOMING EVEN
IN LIGHT OF ASPEN’S CONTINUED STRONG, HIGH-QUALITY RESULTS
Our plan is working – we are delivering high-quality results, including diversified revenues and continued strong returns from our investments in our business, and we remain well-positioned to deliver increased value to our shareholders. As our book value grows, Endurance’s offer is increasingly inadequate; it now represents about half of the premium to Aspen’s book value per share in Endurance’s initial proposal. iii
ENDURANCE CONTINUES TO MISCHARACTERIZE
ASPEN’S CLEARLY SUPERIOR UNDERWRITING RESULTS
Aspen’s underwriting results have been consistently better than those of Endurance as shown by historic accident year combined ratios in the graph below. Lower ratios represent stronger performance – and Aspen has performed better than Endurance in four of the past five years with continued outperformance in the first quarter of 2014.
Aspen’s superior results came in spite of the fact that during this period we were investing
SETTING THE RECORD STRAIGHT ON ENDURANCE’S LATEST ERRONEOUS CLAIMS
In a letter filed publicly this morning, Endurance made a number of erroneous and ill-informed claims about Aspen’s business, which underscores our deep concern about their failure to understand the significant dis-synergies that would result from the misguided transaction they are proposing. We want to set the record straight:
Aspen’s catastrophe reinsurance exposures: In contrast to Endurance,
U.S. programs: Similar to most major insurers, we have found that for certain categories of smaller and homogenous risks, it is economically beneficial to participate on a program basis, with tight and careful controls over underwriting, claims, and risk management. Currently our U.S. Program business is profitable and represents approximately 6% of our 2013 annual written premium.
Reserving: We have consistently said publicly that we aim to maintain our reserves at a prudent level such that the probability of reserve redundancies in future periods is in the mid-to-high 80% range. At year end 2013 the figure was 86%. Endurance references our year end 2011 reserving at the 90th percentile in a veiled attempt to discredit our robust reserving process. The higher than normal percentile selected at that time was due to the extreme catastrophe events that occurred during that year. At year end 2009 our reserving percentile stood at 86%. Furthermore, since Endurance does not make a similar type of disclosure, it is impossible for shareholders to assess the consistency of their reserving strength over time or the relative level of the reserving risk they are taking. This is one of many reasons for our deep concern with receiving Endurance shares in exchange for Aspen’s.
PROTECT THE VALUE OF YOUR INVESTMENT:
PLEASE SIGN, DATE AND RETURN THE ENCLOSED BLUE REVOCATION CARD TODAY
Aspen strongly urges shareholders not to sign any white authorization cards sent to you by Endurance. Whether or not you have previously executed Endurance’s white authorization card, you may reject Endurance’s proposals if you sign, date and return the enclosed BLUE revocation card using the pre-paid envelope provided.
- Do NOT sign Endurance’s white authorization card.
- Sign, date and return the enclosed BLUE revocation card.
- Even if you have already signed Endurance’s white authorization card, you have every right to revoke your authorizations by signing, dating and returning the enclosed BLUE revocation card.
If you have questions or need assistance revoking your authorizations for your shares, please contact our agent
Regardless of the number of ordinary shares of Aspen that you own, your views and your vote are important.
Chairman of the Board of Directors
Chief Executive Officer
Even if you have already signed Endurance’s white authorization
Goldman, Sachs & Co. is acting as financial advisor and
Aspen provides reinsurance and insurance coverage to clients in various domestic and global markets through wholly-owned subsidiaries and offices in
Cautionary Statements Concerning Forward-Looking Statements
This press release contains written, and Aspen may make related oral, "forward-looking statements" within the meaning of the U.S. federal securities laws. These statements are made pursuant to common law doctrine and, to the extent applicable, the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that do not relate solely to historical or current facts, and can be identified by the use of words such as "expect," "intend," "plan," "believe," "do not believe," "aim," "project," "anticipate," "seek," "will," "likely," “assume,” "estimate," "may," "continue," "guidance," “objective,” “outlook,” “trends,” “future,” “could,” “would,” “should,” “target,” and similar expressions of a future or forward-looking nature.
The preannounced preliminary results referred to in this press release are forward-looking statements of particular financial measures and no inferences should be made in relation to other financial measures, outlook or guidance that Aspen may disclose when the final second quarter and six month results are announced on
Forward-looking statements do not reflect the potential impact of any future collaboration, acquisition, merger, disposition, joint venture or investments that Aspen may enter into or make, and the risks, uncertainties and other factors relating to such statements might also relate to the counterparty in any such transaction if entered into or made by Aspen.
All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in these statements. Aspen believes these factors include, but are not limited to: our ability to successfully implement steps to further optimize the business portfolio, ensure capital efficiency and enhance investment returns; the possibility of greater frequency or severity of claims and loss activity, including as a result of natural or man-made (including economic and political risks) catastrophic or material loss events, than our underwriting, reserving, reinsurance purchasing or investment practices have anticipated; the assumptions and uncertainties underlying reserve levels that may be impacted by future payments for settlements of claims and expenses or by other factors causing adverse or favorable development; the reliability of, and changes in assumptions to, natural and man-made catastrophe pricing, accumulation and estimated loss models; decreased demand for our insurance or reinsurance products and cyclical changes in the highly competitive insurance and reinsurance industry; increased competition from existing insurers and reinsurers and from alternative capital providers and insurance-linked funds and collateralized special purpose insurers on the basis of pricing, capacity, coverage terms, new capital, binding authorities to brokers or other factors and the related demand and supply dynamics as contracts come up for renewal; changes in general economic conditions, including inflation, deflation, foreign currency exchange rates, interest rates and other factors that could affect our financial results; the risk of a material decline in the value or liquidity of all or parts of our investment portfolio; evolving issues with respect to interpretation of coverage after major loss events; our ability to adequately model and price the effect of climate cycles and climate change; any intervening legislative or governmental action and changing judicial interpretation and judgments on insurers’ liability to various risks; the effectiveness of our risk management loss limitation methods, including our reinsurance purchasing; changes in the total industry losses, or our share of total industry losses, resulting from past events and, with respect to such events, our reliance on loss reports received from cedants and loss adjustors, our reliance on industry loss estimates and those generated by modeling techniques, changes in rulings on flood damage or other exclusions as a result of prevailing lawsuits and case law; the impact of one or more large losses from events other than natural catastrophes or by an unexpected accumulation of attritional losses; the impact of acts of terrorism, acts of war and related legislation; any changes in our reinsurers’ credit quality and the amount and timing of reinsurance recoverables; changes in the availability, cost or quality of reinsurance or retrocessional coverage; the continuing and uncertain impact of the current depressed lower growth economic environment in many of the countries in which we operate; the level of inflation in repair costs due to limited availability of labor and materials after catastrophes; a decline in our operating subsidiaries’ ratings with S&P,
In addition, any estimates relating to loss events involve the exercise of considerable judgment and reflect a combination of ground-up evaluations, information available to date from brokers and cedants, market intelligence, initial tentative loss reports and other sources. The actuarial range of reserves and management's best estimate represents a distribution from our internal capital model for reserving risk based on our then current state of knowledge and explicit and implicit assumptions relating to the incurred pattern of claims, the expected ultimate settlement amount, inflation and dependencies between lines of business. Due to the complexity of factors contributing to the losses and the preliminary nature of the information used to prepare these estimates, there can be no assurance that Aspen’s ultimate losses will remain within the stated amounts.
This communication does not constitute an offer to buy or solicitation of an offer to sell any securities or a solicitation of any vote or approval. This communication is for informational purposes only and is not a substitute for any relevant documents that Aspen may file with the
Endurance has commenced an exchange offer for the outstanding shares of Aspen (together with associated preferred share purchase rights). Aspen has filed with the
Certain Information Regarding Participants
Aspen and certain of its respective directors and executive officers may be deemed to be participants under the rules of the
i Diluted Book Value per Ordinary Share is not a non-GAAP financial measure. Aspen has included diluted book value per ordinary share as it illustrates the effect on basic book value per share of dilutive securities thereby providing a better benchmark for comparison with other companies. Diluted book value per share is calculated using the treasury stock method, which assumes that the proceeds received from the exercise of options will be used to purchase Aspen's ordinary shares at the average market price during the period of calculation.
ii Non-GAAP Financial Measures
In presenting Aspen's preliminary results, management has included and discussed certain "non-GAAP financial measures" as such term is defined in Regulation G. Management believes that these non-GAAP financial measures, which may be defined differently by other companies, better explain Aspen's results of operations in a manner that allows for a more complete understanding of the underlying trends in Aspen's business. However, these measures should not be viewed as a substitute for those determined in accordance with GAAP. In this letter, Aspen provides non-GAAP financial information regarding its expected financial results for the second quarter of 2014. A reconciliation of such non-GAAP financial measures to their respective most directly comparable GAAP financial measures is not accessible at this time because Aspen believes it is not possible to finalize particular information which can fluctuate significantly within or without a range and may have a significant impact on the GAAP financial measures. The information that is being finalized includes net foreign exchange gains and losses and realized gains and losses in investments. A reconciliation of operating income to net income, average ordinary shareholders’ equity to average shareholders’ equity and diluted and basic operating earnings per share to basic earnings per share will be provided in Aspen’s quarterly financial supplement to be issued with Aspen’s final quarterly earnings announcement to be released on
(1) Annualized Operating Return on Average Equity (“Operating ROE”) is a non-GAAP financial measure. Operating ROE is calculated using operating income, as defined below, and average equity is calculated as the arithmetic average on a monthly basis for the stated periods of shareholders’ equity excluding the aggregate value of the liquidation preferences of our preference shares net of issuance costs and the total amount of non-controlling interest. Aspen presents Operating ROE as a measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information.
(2) Operating Income is a non-GAAP financial measure. Operating income is an internal performance measure used by Aspen in the management of its operations and represents after-tax operational results excluding, as applicable, after-tax net realized and unrealized capital gains or losses, including net realized and unrealized gains or losses on interest rate swaps, after-tax net foreign exchange gains or losses, including net realized and unrealized gains and losses from foreign exchange contracts and certain non-recurring items. In the second quarter 2014, non-recurring items included costs associated with defending the unsolicited approach from
Aspen excludes these above items from its calculation of operating income because they are either not expected to recur and therefore are not reflective of underlying performance or the amount of these gains or losses is heavily influenced by, and fluctuates in part, according to the availability of market opportunities. Aspen believes these amounts are largely independent of its business and underwriting process and including them would distort the analysis of trends in its operations. In addition to presenting net income determined in accordance with GAAP, Aspen believes that showing operating income enables investors, analysts, rating agencies and other users of its financial information to more easily analyze Aspen's results of operations in a manner similar to how management analyzes Aspen's underlying business performance. Operating income should not be viewed as a substitute for GAAP net income.
(3) Accident Year Combined Ratio is a non-GAAP financial measure. Accident Year Combined Ratios exclude the impact of net prior year reserve movements in the period. Accident Year Combined Ratios are calculated by dividing net losses excluding net prior year reserve movements and net expenses by net earned premiums. Aspen believes that the Accident Year Combined Ratios support meaningful comparison from period to period of the underlying performance of the business. The following table contains a reconciliation of Aspen’s Accident Year Combined Ratios.
|Net Earned Premium||1,823.0||1,898.9||1,888.5||2,083.5||2,171.8||566.5|
|% of Net Premiums Earned||4.6%||1.1%||4.9%||6.6%||5.0%||5.0%|
|Accident Year Combined Ratio||88.7%||97.8%||120.8%||100.9%||97.6%||92.5%|
(4) Diluted Operating Earnings per Share and Basic Operating Earnings per Share are non-GAAP financial measures. Aspen believes that the presentation of diluted operating earnings per share and basic operating earnings per share supports meaningful comparison from period to period and the analysis of normal business operations. Diluted operating earnings per share and basic operating earnings per share are calculated by dividing operating income by the diluted or basic weighted average number of shares outstanding for the period.
iii Based on total stock/cash offer value on 4/11/14,