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Rating Action:

Moody’s affirms Aspen’s A2 insurance financial strength rating; outlook remains negative

23 July 2019

London , July 23, 2019 – Moody's Investors Service ("Moody's") has today affirmed the insurance financial strength (IFS) ratings of Aspen Insurance UK Limited and Aspen Bermuda Limited (collectively, Aspen), and the Baa1 senior unsecured debt rating and Baa3(hyb) preferred stock ratings of Aspen Insurance Holdings Limited. The outlook remains negative.

A complete list of ratings affected by this rating action is available at the end of this document.

RATINGS RATIONALE

The affirmation of Aspen's A2 IFS rating reflects the significant and credible steps the group has undertaken to improve its underwriting performance, and the meaningful reduction in its natural catastrophe exposure, both in absolute terms and relative to its capital. In addition, Aspen's franchise and market position have not shown signs of meaningful deterioration despite a significant reduction in its balance sheet equity and the uncertainties and changes the company has faced over the past 18 months.

The continuation of the negative outlook reflects (i) Moody's view that more time is necessary to demonstrate sustainability of the improvements in underwriting profits and the group's ability to rebuild its earnings power, (ii) Aspen's dependence on ceded and retrocessional reinsurance to support its gross underwriting capacity, which increases its vulnerability to changes in retrocession pricing and availability, and (iii) the prospective changes to its investment portfolio as the company invests in more illiquid and structured assets.

The actions that Aspen has taken to improve its underwriting performance, including exiting certain lines of business and re-underwriting a significant portion of its portfolio, have recently contributed to a notable improvement in underlying underwriting performance. The improvement is currently most evident in Aspen's primary insurance segment where the accident year ex-cat loss ratio improved to 70.9% in 4Q 2018 from a high of 95% in 4Q 2017. In the reinsurance segment, the accident year ex-cat loss ratio improved to 65.6% in 4Q 2018 from a high of 70.7% in 4Q 2017. The group expects ex-cat loss ratios to improve to the mid-50% range during 2019, as underwriting actions continue to take effect. In addition, Aspen expects operating expense improvements to strengthen profitability. Moody's will continue to monitor the underwriting performance of the group and any meaningful deviation from management's targets may result in negative rating implications.

Aspen's shareholder's equity has decreased significantly over the past two years. Underwriting losses in 2017 and 2018 accounted for a meaningful portion of this reduction, although redemption of preference shares, unrealised investment losses and restructuring expenses also contributed to declining equity. Despite its lower shareholder's equity, Aspen's economic and regulatory capital has remained good, as a result of the significant de-risking actions taken by the group, including selling its entire holdings of traded equity securities and reducing its net natural catastrophe exposure through significant use of retrocession. The group's Bermuda regulatory solvency capital coverage (BSCR) was at 218% at year-end 2018, compared to 192% at year-end 2017. More negatively, increased use of retrocession has heightened the group's exposure to volatility in pricing and availability of retrocession.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Given the negative outlook, there is limited upward pressure on Aspen's rating at present. However, the following factors could lead to a stable outlook over the next 12 months: (i) increased capitalisation such that gross underwriting leverage improves to a level below 3.5x, (ii) improvement in underwriting performance with Aspen's combined ratio sustainably below 100% and the group achieving its internal profitability objectives, and (iii) Aspen demonstrating reduced dependence on ceded and retrocessional reinsurance or improved resilience to a potential dislocation in retrocession pricing or capacity.

Conversely, the following factors could lead to a downgrade: (i) further erosion of shareholder's equity, (ii) profitability meaningfully below management's targets, including insurance or reinsurance combined ratios in excess of 100%, (iii) indications of weakening in Aspen's market position or its ability to retain a level of influence and importance to reinsurance buyers typical of most mid-tier reinsurers; (iv) financial leverage above 25%, (v) meaningful re-risking of Aspen's investment portfolio, (vi) increased dependence on ceded and retrocessional reinsurance or evidence of difficulty in renewing sufficient retrocession capacity, or (vii) gross underwriting leverage remaining above 3.5x with no clear path to improvement.

Aspen is a global (re)insurer that operates out of wholly-owned subsidiaries and offices in a number of jurisdictions, principally Bermuda, the United Kingdom and the United States. For the year ended December 31, 2018, Aspen reported $12.5 billion in total assets, $7.1 billion in gross reserves, $2.7 billion in total shareholders' equity and $3.4 billion in gross written premiums.

LIST OF RATING ACTIONS

Issuer: Aspen Insurance Holdings Limited

....Preference Stock, Affirmed Baa3(hyb)

....Preferred Stock Non-cumulative, Affirmed Baa3(hyb)

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa1

..Outlook Action:

....Outlook, Remains Negative

Issuer: Aspen Insurance UK Limited

....Insurance Financial Strength Rating, Affirmed A2

..Outlook Action:

....Outlook, Remains Negative

Issuer: Aspen Bermuda Limited

....Insurance Financial Strength Rating, Affirmed A2

..Outlook Action:

....Outlook, Remains Negative

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Reinsurers published in May 2018. Please see the Rating 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.

Brandan Holmes
VP-Sr Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London
United Kingdom
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

Antonello Aquino
Associate Managing Director
Financial Institutions Group
JOURNALISTS : 44 20 7772 5456
Client Service : 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
Client Service : 44 20 7772 5454

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