Moody's also assigns Ba1(hyb) rating to Aspen Insurance Holdings' preference shares
London, 14 September 2016 -- Moody's Investors Service has today affirmed the A2 insurance financial
strength ratings (IFSR) of Aspen Insurance UK Limited and Aspen Bermuda
Limited, and the Baa2 senior unsecured debt rating and Ba1(hyb)
preferred stock ratings issued by Aspen Insurance Holdings Ltd ("Aspen").
The outlook is stable.
In the same rating action, Moody's assigned a Ba1(hyb) rating to
the Non-Cumulative Preference Shares to be issued by Aspen.
These preference shares are perpetual and are callable by Aspen after
ten years. Proceeds from the offering will be used to fund the
redemption or repurchase of the group's 7.401% preference
shares and 7.250% preference shares, after they become
redeemable on January 1, 2017 and July 1, 2017, respectively.
The rating is based on the expectation that there will be no material
differences between current and final documentation.
RATINGS RATIONALE
---AFFIRMATION OF THE INSURANCE FINANCIAL STRENGTH
RATING ---
The rating affirmation reflect Aspen's conservative investment portfolio,
good business diversification and reserve adequacy and proven access to
debt markets. These strengths are mitigated by Aspen's relatively
high natural catastrophe exposures and total leverage positions,
along with the inherent volatility and cyclicality in many of its lines
of business and a difficult trading environment. The ratings affirmation
with a stable outlook also incorporates Moody's view that a number of
Aspen's strategic actions over the past several years will enable
the group to withstand some of headwinds faced by the sector.
Moody's believes that Aspen's expertise, deep relationships
with chosen clients, and continued focus on innovation, including
capabilities to leverage third party capital, will enable the group
not only to defend its market position, but broaden its reach in
a difficult market while managing peak exposures. While property
catastrophe reinsurance, the line most vulnerable to disruptive
forces in the sector, accounted for around a third of the group's
2015 profit before tax, this remains low relative to peers and the
company has expanded its primary business, particularly in the US.
Aspen's A2 IFSR is also supported by the group's asset quality,
which Moody's views as very good. The group has a conservative
investment portfolio dominated by highly rated fixed income securities.
As part of its profit improvement strategy, Aspen has tactically
invested into equities and investment grade emerging debt, although
its high risk assets as a percentage of equity remain relatively low at
26% as at YE2015.
Moody's expects profitability to be broadly stable over the next
12-16 months. The rating agency acknowledges that disruption
from inflows of alternative capital (most acutely in catastrophe reinsurance),
tepid reinsurance demand, changing buyer behaviour and low investment
returns are headwinds to Aspen's profitability in the next 12-16
months. However, in Moody's view, the build-out
of the group's US insurance business, recent portfolio cleansing
and prudent reserving approach have strengthened Aspen's prospective core
underwriting profitability while also improving its product diversification.
More negatively, while Aspen's gross underwriting leverage
remains stable at 2.6x, the group's adjusted shareholders'
equity as a percentage of net written premiums has been reducing year-on-year
and reached its lowest level of 129% at YE2015 - affected
by USD574 million share buy-backs over the three years to YE2015.
Notwithstanding the group's progressive dividend strategy,
Moody's views Aspen's economic solvency position as supportive
of the current rating, and believes that capital adequacy will remain
adequate with only modest further share buy-backs.
The group's adjusted financial leverage, which at YE2015 was
relatively high at 23% (excluding external debt issued by Silverton
Re, the group's sidecar), will temporarily increase
as at YE2016 as a result of the issuance of preference shares to refinance
securities maturing in 2017. Following the preference share redemption
in 2017, Moody's expects Aspen's leverage to continue
to trend downwards with modest improvements in earnings coverage of interest
as the group continues to grows profitably and benefits from a lower coupon
rate on the newly issued securities.
--- NON CUMULATIVE PERPETUAL PREFERENCE SHARE RATING
---
Moody's stated that the Ba1(hyb) rating assigned to the preference shares
reflects standard notching (vs. the senior rating) for non-cumulative
preference shares with no "meaningful" mandatory trigger.
The securities contain a "variation or exchange" provision, however
the conditions under which the security could be varied/exchanged and
the nature of changes that could be made, are limited in ways that
retain important protections for investors. First, the security
may be varied or exchanged only in response to a tax event or a capital
disqualification change event. Second, in addition to a broad
prohibition against changes that would be less favourable to investors
(albeit somewhat weakened by the lack of third-party affirmation
of that determination), the security specifically prohibits certain
changes. Prohibited changes include any that would a) change the
amount, b) change the dividend payments, c) change the redemption
dates, d) alter the currency, e) reduce the liquidation preference,
or f) lower the ranking.
Under a capital disqualification change event, there is a risk that
Aspen could tighten the conditions triggering a mandatory dividend suspension
enough for Moody's to judge the trigger as "meaningful", as would
be the case if the trigger were changed to become effective at a capital
ratio materially higher than the Solvency Capital Requirement level.
We believe such a change would be considered less favourable to investors.
In the event that the preference shares were to be varied to include,
or exchanged for new securities with, a meaningful mandatory dividend
suspension trigger, the rating on the preference shares would likely
be lowered by one notch.
WHAT COULD CHANCE THE RATINGS UP/DOWN
Moody's stable outlook on Aspen incorporates the expectation that
the group's disciplined underwriting and reserving approach,
focus on profitable organic growth, dynamic investment portfolio
and proactive capital management will enable it to earn adequate cross-cycle
returns on capital (albeit well below its pre-2008 financial crisis
performance) without fundamentally increasing the group's risk profile.
Given the difficult market conditions, there is unlikely to be positive
rating pressure on Aspen's ratings over the near to medium term.
However, the following factors could positively influence the group's
credit profile: (1) enhanced market position together with on-going
geographic and business line diversification; (2) returns on capital
(normalised for expected catastrophe losses) in the low double digit percentage
range over the cycle; (3) maintaining adjusted financial leverage
below 20% (excluding third party Silverton Re debt); and/or
(4) gross underwriting leverage below 2.0x together with a stable
reserve position.
Conversely, the following factors could lead to a downgrade:
(1) a decline in shareholders' equity (including share repurchases) by
more than 10% over a rolling twelve month period; (2) a significant
increase in catastrophe risk appetite from current levels; (3) deteriorating
profitability and under-performance relative to peers; and/or
(4) adjusted financial leverage consistently in excess of 25% (excluding
third party Silverton Re debt) with EBIT coverage of interest below 4x
in consecutive years.
LIST OF RATING ACTIONS
Affirmations:
Issuer: Aspen Insurance Holdings Limited
....Senior Unsecured (Foreign), Affirmed
Baa2
....Pref. Stock Non-cumulative
(Foreign), Affirmed Ba1 (hyb)
....Preference Stock (Foreign), Affirmed
Ba1 (hyb)
Issuer: Aspen Insurance UK Limited
....Insurance Financial Strength, Affirmed
A2
Issuer: Aspen Bermuda Limited
....Insurance Financial Strength, Affirmed
A2
Assignments:
Issuer: Aspen Insurance Holdings Limited
....Pref. Stock Non-cumulative
(Foreign), Assigned Ba1 (hyb)
Outlook Actions:
Issuer: Aspen Insurance Holdings Limited
....Outlook, Remains Stable
Issuer: Aspen Insurance UK Limited
....Outlook, Remains Stable
Issuer: Aspen Bermuda Limited
....Outlook, Remains Stable
Aspen, headquartered in Hamilton, Bermuda, reported
at YE2015 gross premiums written of USD2,997 million and total shareholders'
equity of USD3,420 million.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Global Reinsurers
published in April 2016. Please see the Ratings Methodologies page
on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Helena Kingsley-Tomkins
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Antonello Aquino
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
