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Section 1: 10-Q (10-Q)

Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
 ___________________________________________________________
Form 10-Q
 ____________________________________________________________
  
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2018
Or 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-31909 
  ____________________________________________________________
395572881_gemimagea03.jpg
ASPEN INSURANCE HOLDINGS LIMITED
(Exact Name of Registrant as Specified in its Charter) 
  ____________________________________________________________
 
Bermuda
 
Not Applicable
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
141 Front Street
Hamilton, Bermuda
 
HM 19
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s telephone number, including area code
(441) 295-8201
___________________________________________________________
  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
ý
 
Accelerated filer
 
¨
 
 
 
 
 
 
 
Non-accelerated filer
 
¨ (Do not check if a smaller reporting company)
 
Smaller reporting company
 
¨
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨   No  ý
As at September 30, 2018, there were 59,697,669 outstanding ordinary shares, with a par value of 0.15144558¢ per ordinary share, outstanding.



INDEX
 
 
 
Page
 
Item 1.
 
Unaudited Condensed Consolidated Balance Sheets as at September 30, 2018 and December 31, 2017
 
Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Income for the Three and Nine Months Ended September 30, 2018 and 2017
 
Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended September 30, 2018 and 2017
 
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Item 4.
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
CERTIFICATIONS
 

2


PART I
FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

ASPEN INSURANCE HOLDINGS LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
As at September 30, 2018 and December 31, 2017
($ in millions, except share and per share amounts)
 
As at September 30,
2018
 
As at December 31, 2017
ASSETS
 
 
 
Investments:
 
 
 
Fixed income securities, available for sale at fair value
(amortized cost — $5,273.4 and $5,201.2)
$
5,176.4

 
$
5,231.0

Fixed income securities, trading at fair value
(amortized cost — $1,434.2 and $1,634.9)
1,407.2

 
1,649.3

Equity securities, trading at fair value
(cost — $0 and $414.8)

 
491.0

Short-term investments, available for sale at fair value
(amortized cost — $120.4 and $90.0)
120.4

 
89.9

Short-term investments, trading at fair value
(amortized cost — $4.3 and $73.0)
4.3


73.0

Catastrophe bonds, trading at fair value (cost — $37.7 and $33.5)
37.4

 
32.4

Investments, equity method
66.9

 
66.4

Other investments
100.5

 

Total investments
6,913.1

 
7,633.0

Cash and cash equivalents (including $41.0 and $166.6 within consolidated variable interest entities)
1,026.6

 
1,054.8

Reinsurance recoverables
 
 
 
Unpaid losses
1,767.1

 
1,515.2

Ceded unearned premiums
666.5

 
515.5

Receivables
 
 
 
Underwriting premiums
1,700.1

 
1,496.5

Other
202.2

 
151.1

Funds withheld
91.6

 
99.8

Deferred policy acquisition costs
290.1

 
294.3

Derivatives at fair value
6.4

 
6.4

Receivables for securities sold
7.7

 
5.3

Office properties and equipment
75.0

 
75.5

Tax recoverable
24.3

 
2.3

Deferred tax assets
26.3

 
28.3

Other assets
0.5

 
0.5

Intangible assets and goodwill
26.7

 
27.9

Total assets
$
12,824.2

 
$
12,906.4

See accompanying notes to unaudited condensed consolidated financial statements.



3



ASPEN INSURANCE HOLDINGS LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
As at September 30, 2018 and December 31, 2017
($ in millions, except share and per share amounts)
 
 
As at September 30,
2018
 
As at December 31, 2017
LIABILITIES
 
 
 
Insurance reserves
 
 
 
Losses and loss adjustment expenses
$
6,726.2

 
$
6,749.5

Unearned premiums
1,974.4

 
1,820.8

Total insurance reserves
8,700.6

 
8,570.3

Payables
 
 
 
Reinsurance premiums
586.4

 
357.5

Accrued expenses and other payables
333.6

 
455.4

Liabilities under derivative contracts
3.1

 
1.0

Total payables
923.1

 
813.9

Loan notes issued by variable interest entities, at fair value

 
44.2

Long-term debt
424.7

 
549.5

Total liabilities
$
10,048.4

 
$
9,977.9

Commitments and contingent liabilities (see Note 16)

 

SHAREHOLDERS’ EQUITY
 
 
 
Ordinary shares:
 
 
 
59,697,669 shares of par value 0.15144558¢ each
(December 31, 2017 - 59,474,085)
$
0.1

 
$
0.1

Preference shares:
 
 
 
11,000,000 5.95% shares of par value 0.15144558¢ each
(December 31, 2017 — 11,000,000)

 

10,000,000 5.625% shares of par value 0.15144558¢ each
(December 31, 2017 — 10,000,000)

 

Non-controlling interest
2.9

 
2.7

Additional paid-in capital
966.0

 
954.7

Retained earnings
1,962.0

 
2,026.9

Accumulated other comprehensive income, net of taxes
(155.2
)
 
(55.9
)
Total shareholders’ equity
2,775.8

 
2,928.5

Total liabilities and shareholders’ equity
$
12,824.2

 
$
12,906.4

See accompanying notes to unaudited condensed consolidated financial statements.

4


ASPEN INSURANCE HOLDINGS LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND OTHER COMPREHENSIVE INCOME
($ in millions, except share and per share amounts)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Revenues
 
 
 
 
 
 
 
Net earned premium
$
623.2

 
$
652.5

 
$
1,676.2

 
$
1,795.6

Net investment income
48.0

 
46.4

 
145.7

 
141.5

Realized and unrealized investment gains
1.8

 
29.9

 
105.9

 
130.1

Other income
1.4

 
(2.2
)
 
5.6

 
5.0

Total revenues
674.4

 
726.6

 
1,933.4

 
2,072.2

Expenses
 
 
 
 
 
 
 
Losses and loss adjustment expenses
431.1

 
776.2

 
1,051.7

 
1,450.5

Amortization of deferred policy acquisition costs
101.0

 
105.4

 
277.7

 
315.4

General, administrative and corporate expenses
160.4

 
110.9

 
391.6

 
352.1

Interest on long-term debt
5.4

 
7.4

 
20.4

 
22.2

Change in fair value of derivatives
(7.2
)
 
(4.5
)
 
15.4

 
(25.2
)
Change in fair value of loan notes issued by variable interest entities
1.7

 
(9.8
)
 
4.1

 
(3.6
)
Realized and unrealized investment losses
2.7

 
12.4

 
165.2

 
24.4

Realized loss on the debt extinguishment

 

 
8.6

 

Net realized and unrealized foreign exchange losses/(gains)
9.5

 
(8.4
)
 
9.0

 
21.1

Other expenses
0.4

 

 
2.1

 
2.0

Total expenses
705.0

 
989.6

 
1,945.8

 
2,158.9

(Loss) from operations before income tax
(30.6
)
 
(263.0
)
 
(12.4
)
 
(86.7
)
Income tax credit
15.5

 
9.2

 
13.4

 
5.2

Net (loss)/income
$
(15.1
)
 
$
(253.8
)
 
$
1.0

 
$
(81.5
)
Amount attributable to non-controlling interest
0.1

 
(0.6
)
 
(0.2
)
 
(0.8
)
Net (loss)/income attributable to Aspen Insurance Holdings Limited’s ordinary shareholders
$
(15.0
)
 
$
(254.4
)
 
$
0.8

 
$
(82.3
)
Other Comprehensive Income/(Loss):
 
 
 
 
 
 
 
Available for sale investments:
 
 
 
 
 
 
 
Reclassification adjustment for net realized gains on investments included in net income
$
0.3

 
$
(1.0
)
 
$
3.5

 
$
(2.8
)
Change in net unrealized (losses)/gains on available for sale securities held
(21.3
)
 
1.3

 
(130.2
)
 
18.0

Net change from current period hedged transactions
(0.5
)
 
(0.4
)
 
(2.2
)
 
3.3

Change in foreign currency translation adjustment
2.0

 
(4.9
)
 
26.9

 
(49.7
)
Other comprehensive (loss), gross of tax
(19.5
)
 
(5.0
)
 
(102.0
)
 
(31.2
)
Tax thereon:
 
 
 
 
 
 
 
Reclassification adjustment for net realized gains on investments included in net income
(0.1
)
 
0.2

 
(0.4
)
 
0.4

Change in net unrealized gains/(losses) on available for sale securities held
1.4

 
(0.6
)
 
8.4

 
(1.8
)
Net change from current period hedged transactions
0.1

 

 
0.4

 
(0.5
)
Change in foreign currency translation adjustment
2.3

 
2.3

 
(5.7
)
 
12.9

Total tax on other comprehensive income
3.7

 
1.9

 
2.7

 
11.0

Other comprehensive (loss), net of tax
(15.8
)
 
(3.1
)
 
(99.3
)
 
(20.2
)
Total comprehensive (loss) attributable to Aspen Insurance Holdings Limited’s ordinary shareholders
$
(30.8
)
 
$
(257.5
)
 
$
(98.5
)
 
$
(102.5
)
Per Share Data
 
 
 
 
 
 
 
Weighted average number of ordinary share and share equivalents 
 
 
 
 
 
 
 
Basic
59,692,623

 
59,759,730

 
59,637,361

 
59,862,540

Diluted
59,692,623

 
59,759,730

 
59,637,361

 
59,862,540

Basic (loss) per ordinary share adjusted for preference share dividends
$
(0.38
)
 
$
(4.48
)
 
$
(0.37
)
 
$
(1.99
)
Diluted (loss) per ordinary share adjusted for preference share dividends
$
(0.38
)
 
$
(4.48
)
 
$
(0.37
)
 
$
(1.99
)
See accompanying notes to unaudited condensed consolidated financial statements.

5



ASPEN INSURANCE HOLDINGS LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS’ EQUITY
($ in millions)
 
Nine Months Ended September 30,
 
2018
 
2017
Ordinary shares
 
 
 
Beginning and end of the period
$
0.1

 
$
0.1

Preference shares
 
 
 
Beginning and end of the period

 

Non-controlling interest
 
 
 
Beginning of the period
2.7

 
1.4

Net change attributable to non-controlling interest for the period
0.2

 
0.8

End of the period
2.9

 
2.2

Additional paid-in capital
 
 
 
Beginning of the period
954.7

 
1,259.6

New ordinary shares issued
2.6

 
0.4

Ordinary shares repurchased and cancelled

 
(30.0
)
Preference shares redeemed and cancelled

 
(293.2
)
Preference shares redemption costs (1)

 
8.0

Share-based compensation (2)
8.7

 
7.0

End of the period
966.0

 
951.8

Retained earnings
 
 
 
Beginning of the period
2,026.9

 
2,392.3

Net income/(loss) for the period
1.0

 
(81.5
)
Dividends on ordinary shares
(42.9
)
 
(42.0
)
Dividends on preference shares
(22.8
)
 
(28.7
)
Preference shares redemption costs (1)

 
(8.0
)
Net change attributable to non-controlling interest for the period
(0.2
)
 
(0.8
)
Share-based payment (3)

 
2.8

End of the period
1,962.0

 
2,234.1

Accumulated other comprehensive income:
 
 
 
Cumulative foreign currency translation adjustments, net of taxes:
 
 
 
Beginning of the period
(67.7
)
 
(27.1
)
Change for the period, net of income tax
21.2

 
(36.8
)
End of the period
(46.5
)
 
(63.9
)
Loss on derivatives, net of taxes:
 
 
 
Beginning of the period
2.1

 
(0.5
)
Net change from current period hedged transactions
(1.8
)
 
2.8

End of the period
0.3

 
2.3

Unrealized appreciation on investments, net of taxes:
 
 
 
Beginning of the period
9.7

 
22.5

Change for the period, net of taxes
(118.7
)
 
13.8

End of the period
(109.0
)
 
36.3

Total accumulated other comprehensive (loss), net of taxes
(155.2
)
 
(25.3
)
 
 
 
 
Total shareholders’ equity
$
2,775.8

 
$
3,162.9

 

(1) The $8.0 million deduction from net income in 2017 is attributable to the reclassification from additional paid-in capital to retained earnings representing the difference between the capital raised upon issuance of the 7.401% and 7.250% Perpetual Non-Cumulative Preference Shares, net of issuance costs, and the final redemption costs of $293.2 million.
(2) The balance in 2017 includes $7.9 million reclassification from accrued expenses and other payable as a result of the classification of restricted share units as equity following the adoption of ASU 2016-09.
(3) The $2.8 million relates to the cumulative effect-adjustment to opening retained earnings as a result of the classification of restricted share units as equity following the adoption of ASU 2016-09. The adjustment has been applied using a modified retrospective approach.
See accompanying notes to unaudited condensed consolidated financial statements.

6


ASPEN INSURANCE HOLDINGS LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
 
 
Nine Months Ended September 30,
 
2018
 
2017
Cash flows (used in)/from operating activities:
 
 
 
Net income/(loss)
$
1.0

 
$
(81.5
)
Proportion due to non-controlling interest
(0.2
)
 
(0.8
)
Adjustments to reconcile net income to net cash flows from operating activities:
 
 
 
Depreciation and amortization
32.0

 
39.7

Share-based compensation
8.7

 
7.0

Realized and unrealized investment gains
(105.9
)
 
(130.1
)
Realized and unrealized investment losses
165.2

 
24.4

Deferred taxes
1.9

 
(5.6
)
Change in fair value of loan notes issued by variable interest entities
4.1

 
(3.6
)
Net realized and unrealized investment foreign exchange losses/(gains)
6.3

 
(10.7
)
Net change from current period hedged transactions
(1.8
)
 
2.8

Changes in:
 
 
 
Insurance reserves:
 
 
 
Losses and loss adjustment expenses
29.4

 
1,045.5

Unearned premiums
172.0

 
278.1

Reinsurance recoverables:
 
 
 
Unpaid losses
(258.4
)
 
(797.9
)
Ceded unearned premiums
(153.0
)
 
(188.9
)
Other receivables
(50.5
)
 
(70.1
)
Deferred policy acquisition costs
0.6

 
9.6

Reinsurance premiums payable
233.4

 
108.3

Funds withheld
8.2

 
(27.0
)
Premiums receivable
(219.4
)
 
(133.3
)
Income tax payable
(23.0
)
 
(1.0
)
Accrued expenses and other payables
(31.3
)
 
13.0

Fair value of derivatives and settlement of liabilities under derivatives
2.1

 
(16.7
)
Long-term debt and loan notes issued by variable interest entities
(44.2
)
 
(13.4
)
Net cash (used in)/from operating activities
$
(222.8
)
 
$
47.8

See accompanying notes to unaudited condensed consolidated financial statements.


7


UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
 
 
Nine Months Ended September 30,
 
2018
 
2017
Cash flows from investing activities:
 
 
 
(Purchases) of fixed income securities — Available for sale
$
(1,435.3
)
 
$
(1,239.4
)
(Purchases) of fixed income securities — Trading
(1,037.8
)
 
(1,125.1
)
Proceeds from sales and maturities of fixed income securities — Available for sale
1,327.0

 
1,581.9

Proceeds from sales and maturities of fixed income securities — Trading
1,223.5

 
763.9

(Purchases) of equity securities — Trading
(16.5
)
 
(111.5
)
Net (purchases)/sales of catastrophe bonds — Trading
(4.0
)
 
8.7

Proceeds from sales of equity securities — Trading
505.6

 
301.2

(Purchases) of short-term investments — Available for sale
(85.8
)
 
(42.7
)
Proceeds from sales of short-term investments — Available for sale
55.9

 
156.4

(Purchases) of short-term investments — Trading
(8.3
)
 
(68.7
)
Proceeds from sales of short-term investments — Trading
76.2

 
167.8

Net change in (payable)/receivable for securities (purchased)/sold
6.0

 
20.6

Net (purchases) of other investments
(100.0
)
 

Net (purchases) of equipment
(20.8
)
 
(26.7
)
Sale of investment

 
9.3

Net (purchases) of investments, equity method
(1.3
)
 
(0.1
)
Payments for acquisitions and investments, net of cash acquired

 
(2.3
)
Net cash from investing activities
484.4

 
393.3

 
 
 
 
Cash flows (used in) financing activities:
 
 
 
Proceeds from the issuance of ordinary shares, net of issuance costs
2.6

 
0.4

Ordinary shares repurchased

 
(30.0
)
Preference share redemption

 
(293.2
)
Repayment of long-term debt issued by Silverton
(78.4
)
 
(115.9
)
Dividends paid on ordinary shares
(42.9
)
 
(42.0
)
Dividends paid on preference shares
(22.8
)
 
(28.7
)
Cash paid for tax withholding purposes (1)
(4.6
)
 
(9.5
)
Long-term debt redeemed
(125.0
)
 

Make-whole payment
(8.6
)
 

Net cash (used in) financing activities
(279.7
)
 
(518.9
)

 
 
 
Effect of exchange rate movements on cash and cash equivalents
(10.1
)
 
13.3

 
 
 
 
Decrease in cash and cash equivalents
(28.2
)
 
(64.5
)
Cash and cash equivalents at beginning of period
1,054.8

 
1,273.8

Cash and cash equivalents at end of period
$
1,026.6

 
$
1,209.3

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Net cash paid/(received) during the period for income tax
$
5.2

 
$
(0.2
)
Cash paid during the period for interest
$
20.4

 
$
22.2


(1) The cash paid to the tax authority when withholding shares from employees’ awards for tax-withholding purposes has been reclassified from operating activity to financing activity following the adoption of ASU 2016-09.
See accompanying notes to unaudited condensed consolidated financial statements.

8



ASPEN INSURANCE HOLDINGS LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1.
History, Organization and Business Combination
History and Organization. Aspen Insurance Holdings Limited (“Aspen Holdings”) was incorporated on May 23, 2002 as a holding company headquartered in Bermuda. We underwrite specialty insurance and reinsurance on a global basis through our Operating Subsidiaries (as defined below) based in Bermuda, the United States and the United Kingdom: Aspen Insurance UK Limited (“Aspen U.K.”) and Aspen Underwriting Limited (corporate member of Lloyd’s Syndicate 4711, “AUL” and managed by Aspen Managing Agency Limited (“AMAL”)) (United Kingdom), Aspen Bermuda Limited (“Aspen Bermuda”) (Bermuda), Aspen Specialty Insurance Company (“Aspen Specialty”) and Aspen American Insurance Company (“AAIC”) (United States) (collectively, the “Operating Subsidiaries”). We also have branches in Australia, Canada, Ireland, Singapore, Switzerland and the United Arab Emirates. We established Aspen Capital Management, Ltd. and other related entities (collectively, “ACM”) to leverage our existing underwriting franchise, increase our operational flexibility in the capital markets and provide investors direct access to our underwriting expertise. References to the “Company,” the “Group,” “we,” “us” or “our” refer to Aspen Holdings or Aspen Holdings and its subsidiaries.
Business Combination. On August 28, 2018, the Company entered into a definitive agreement and plan of merger (the “Merger Agreement”) with Highlands Holdings, Ltd., a Bermuda exempted company (“Highlands”), and Highlands Merger Sub, Ltd., a Bermuda exempted company and wholly owned subsidiary of Highlands (“Merger Sub”). Under the Merger Agreement, subject to the satisfaction or waiver of certain conditions set forth therein, and in the related statutory merger agreement, the Company will merge with and into Merger Sub in accordance with the Bermuda Companies Act (the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of Highlands. Highlands and Merger Sub are affiliates of certain investment funds managed by affiliates of Apollo Global Management, LLC (“Apollo”).
Pursuant to the Merger Agreement, at the effective time of the Merger, each ordinary share of the Company issued and outstanding immediately prior to such time (other than ordinary shares owned by Aspen as treasury shares, owned by any subsidiary of the Company or owned by Highlands, Merger Sub or or any subsidiary of Highlands, which will be canceled as set forth in the Merger Agreement) will be converted into the right to receive $42.75 in cash, without interest and less any required withholding taxes. Each of the Company’s issued and outstanding 5.95% Fixed-to-Floating Rate Perpetual Non-Cumulative Preference Shares and 5.625% Perpetual Non-Cumulative Preference Shares (collectively, the “Preference Shares”) will remain issued and outstanding following the Merger. The Merger Agreement restricts the Company from declaring or paying any dividends other than the quarterly dividend on Aspen’s ordinary shares that were previously declared and publicly announced prior to the date of the Merger Agreement and periodic cash dividends on the Preference Shares in accordance with the terms of the applicable certificate of designation.
The Merger is expected to close in the first half of 2019, subject to shareholder and regulatory approvals, and other closing conditions as set forth in the Merger Agreement including, among others, the maintenance of certain financial strength ratings of certain of the Company’s insurance subsidiaries. The Merger Agreement also contains certain termination rights, including Highlands’ right to terminate if the Company suffers aggregate losses exceeding $350 million resulting from certain catastrophic events occurring between July 1, 2018 and January 31, 2019.
Additional information about the Merger is set forth in the Company's Current Report on Form 8-K filed with the United States Securities and Exchange Commission (the “SEC”) on August 28, 2018 and the exhibits thereto, including the Merger Agreement, and the Company's preliminary proxy statement on Schedule 14A filed with the SEC on September 22, 2018.

9



2.
Basis of Preparation
The accompanying unaudited condensed consolidated financial statements have been prepared on the basis of generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Results for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ended December 31, 2018. The unaudited condensed consolidated financial statements include the accounts of Aspen Holdings and its subsidiaries. All intercompany transactions and balances have been eliminated on consolidation.
The balance sheet as at December 31, 2017 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2017 contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 22, 2018 (File No. 001-31909).
Assumptions and estimates made by management have a significant effect on the amounts reported within the unaudited condensed consolidated financial statements. The most significant of these assumptions and estimates relate to losses and loss adjustment expenses, reinsurance recoverables, gross written premiums and commissions which have not been reported to the Company such as those relating to proportional treaty reinsurance contracts, unrecognized tax benefits, the fair value of derivatives and the fair value of other investments. All material assumptions and estimates are regularly reviewed and adjustments made as necessary, but actual results could differ significantly from those expected when the assumptions or estimates were made.
Accounting Pronouncements Adopted in 2018
On August 12, 2015, the Financial Standards Accounting Board (“FASB”) issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606)” which delayed the effective date of ASU 2014-09 by one year. This ASU is effective for annual periods beginning after December 15, 2017. Adoption of this ASU during the three and nine months ended September 30, 2018 did not have a material impact on the Company’s consolidated financial statements because insurance contracts accounted for within the scope of Topic 944, Financial Services are exempt from this ASU and the Company has immaterial other revenue.
On January 5, 2016, the FASB issued ASU 2016-1, “Financial Instruments - Overall (Subtopic 825-10)” which enhances the reporting model for financial instruments. Included within the requirements of this ASU are the following: a) equity investments to be measured at fair value with changes in fair value recognized in net income; b) a simplification of the impairment assessment of equity investments without readily determinable fair values; c) public business entities to use the exit price concept when measuring the fair value of financial instruments for disclosure purposes; and d) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The amendments required as a result of this ASU are effective for fiscal years beginning after December 15, 2017. Adoption of this ASU during the three and nine months ended September 30, 2018 did not have a material impact on the Company’s consolidated financial statements because the Company’s equity portfolio, prior to being sold, was classified as held for trading with changes in fair value recognized through net income and no valuation allowance was required in relation to deferred tax asset related to available-for-sale securities.
On February 28, 2018, the FASB issued ASU 2018-03, “Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10)” which amends multiple areas in Subtopic 825-10 via improvements to clarify the Codification or to correct unintended application of guidance. This ASU is effective for fiscal years beginning after December 15, 2017 and for interim periods within those fiscal years beginning after June 15, 2018. Adoption of this ASU during the three and nine months ended September 30, 2018 did not have a material impact on the Company’s consolidated financial statements.
2018 Accounting Pronouncements Not Yet Adopted    

On February 14, 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220)” which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This ASU will be effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. The Company is currently evaluating the provisions of ASU 2018-02 to determine how it will be affected but no material impact is expected on the consolidated financial statements.




10



On June 20, 2018, the FASB issued ASU 2018-07, “Compensation - Stock Compensation (Topic 718)” which amends the scope of Topic 718 via improvements to non-employee share-based payment accounting. Amendments include allowing companies to account for share-based payment transactions with non-employees in the same way as share-based payment transactions with employees and includes elections that offer relief to non-public companies when measuring non-employee equity share options. This ASU will be effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. The Company is currently evaluating the provisions of ASU 2018-07 to determine how it will be affected but no material impact is expected on the consolidated financial statements.

On July 30, 2018, the FASB issued ASU 2018-11, “Targeted Improvements (Topic 984)” which amends the transitional guidance of ASU 2016-2, “Leases (Topic 842)” providing an alternative transition method to the existing modified retrospective method, allowing entities to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The amendments of this ASU are effective for fiscal years beginning after December 15, 2018, aligned to the effective date and transition requirements of ASU 2016-2. ASU 2016-2 is expected to have a material impact on the Company’s consolidated financial statements, by increasing the Company’s assets and liabilities as all leases greater than twelve months will be recognized on the balance sheet as a right of use asset and lease liability.

On August 28, 2018, the FASB issued ASU 2018-13, “Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements (Topic 820)” which amends the disclosure requirements on fair value measurements. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. This ASU will not have a material impact on the Company’s consolidated financial results but it will have an impact on the disclosures in the Company’s Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q for periods beginning after December 15, 2019.
Other accounting pronouncements were issued during the three and nine months ended September 30, 2018 which were either not relevant to the Company or did not impact the Company’s consolidated financial statements.

11



3.
Reclassifications from Accumulated Other Comprehensive Income
The following tables set out the components of the Company’s accumulated other comprehensive income (“AOCI”) that are reclassified into the unaudited condensed consolidated statement of operations for the three and nine months ended September 30, 2018 and 2017:
 
 
Amount Reclassified from AOCI
 
 
Details about the AOCI Components
 
Three Months Ended September 30, 2018
 
Three Months Ended September 30, 2017
 
Affected Line Item in the Unaudited
Condensed Consolidated Statement
of Operations
 
 
($ in millions)
 
 
Available for sale securities:
 
 
 
 
Realized gains on sale of securities
 
$
0.8

 
$
2.6

 
Realized and unrealized investment gains
Realized (losses) on sale of securities
 
(1.1
)
 
(1.6
)
 
Realized and unrealized investment losses
 
 
(0.3
)
 
1.0

 
Income from operations before income tax
Tax on net realized (losses)/gains on securities
 
0.1

 
(0.2
)
 
Income tax credit/(expense)
 
 
$
(0.2
)
 
$
0.8

 
Net (loss)/income
Realized derivatives:
 
 
 
 
 
 
Net realized gains on settled derivatives
 
$
(2.7
)
 
$
1.2

 
General, administrative and corporate expenses
Tax on settled derivatives
 
0.5

 
(0.2
)
 
Income tax credit/(expense)
 
 
$
(2.2
)
 
$
1.0

 
Net (loss)/income
 
 
 
 
 
 
 
Total reclassifications from AOCI to the statement of operations, net of income tax
 
$
(2.4
)
 
$
1.8

 
Net (loss)/income

 
 
Amount Reclassified from AOCI
 
 
Details about the AOCI Components
 
Nine Months Ended September 30, 2018
 
Nine Months Ended September 30, 2017
 
Affected Line Item in the Unaudited
Condensed Consolidated Statement
of Operations
 
 
($ in millions)
 
 
Available for sale securities:
 
 
 
 
Realized gains on sale of securities
 
$
5.4

 
$
8.2

 
Realized and unrealized investment gains
Realized (losses) on sale of securities
 
(8.9
)
 
(5.4
)
 
Realized and unrealized investment losses
 
 
(3.5
)
 
2.8

 
Income from operations before income tax
Tax on net realized (losses)/gains on securities
 
0.4

 
(0.4
)
 
Income tax credit/(expense)
 
 
$
(3.1
)
 
$
2.4

 
Net (loss)/income
Realized derivatives:
 
 
 
 
 
 
Net realized gains on settled derivatives
 
$
0.3

 
$
2.4

 
General, administrative and corporate expenses
Tax on settled derivatives
 
(0.1
)
 
(0.5
)
 
Income tax credit/(expense)
 
 
$
0.2

 
$
1.9

 
Net (loss)/income
 
 
 
 
 
 
 
Total reclassifications from AOCI to the statement of operations, net of income tax
 
$
(2.9
)
 
$
4.3

 
Net (loss)/income


12



4.
Earnings per Ordinary Share
Basic earnings per ordinary share are calculated by dividing net income available to holders of Aspen Holdings’ ordinary shares by the weighted average number of ordinary shares outstanding. Net income available to ordinary shareholders is calculated by deducting preference share dividends and net income/(loss) attributable to non-controlling interest from net income/ (loss) after tax for the period. Diluted earnings per ordinary share are based on the weighted average number of ordinary shares and dilutive potential ordinary shares outstanding during the period of calculation using the treasury stock method. The following table sets forth the computation of basic and diluted earnings per ordinary share for the three and nine months ended September 30, 2018 and 2017, respectively:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
($ in millions, except share and per share amounts)
 
 
 
 
 
 
 
 
Net (loss)/income
$
(15.1
)
 
$
(253.8
)
 
$
1.0

 
$
(81.5
)
Preference share dividends
(7.6
)
 
(7.7
)
 
(22.8
)
 
(28.7
)
Preference share redemption costs (1)

 
(5.6
)
 

 
(8.0
)
Net amount attributable to non-controlling interest
0.1

 
(0.6
)
 
(0.2
)
 
(0.8
)
Basic and diluted net (loss) available to ordinary shareholders (2)
$
(22.6
)
 
$
(267.7
)
 
$
(22.0
)
 
$
(119.0
)
Ordinary shares:
 
 
 
 
 
 
 
Basic weighted average ordinary shares
59,692,623

 
59,759,730

 
59,637,361

 
59,862,540

Weighted average effect of dilutive securities (2) (3)

 

 

 

Total diluted weighted average ordinary shares
59,692,623

 
59,759,730

 
59,637,361

 
59,862,540

(Loss)/earnings per ordinary share:
 
 
 
 
 
 
 
Basic
$
(0.38
)
 
$
(4.48
)
 
$
(0.37
)
 
$
(1.99
)
Diluted (2)
$
(0.38
)
 
$
(4.48
)
 
$
(0.37
)
 
$
(1.99
)
 
(1) 
The $8.0 million deduction from net income in 2017 is attributable to the reclassification from additional paid-in capital to retained earnings representing the difference between the capital raised upon issuance of the 7.401% and 7.250% Perpetual Non-Cumulative Preference Shares, net of issuance costs, and the final redemption costs of $293.2 million.
(2) 
The basic and diluted number of ordinary shares was the same because the inclusion of dilutive securities in a loss-making period would be anti-dilutive.
(3) 
Dilutive securities consist of employee restricted share units and performance shares associated with the Company’s long-term incentive plan, employee share purchase plans and director restricted share units as described in Note 14.

Dividends. On October 24, 2018, the Company’s Board of Directors (the “Board of Directors”) declared the following quarterly dividends:
 
Dividend
 
Payable on:
 
Record Date:
5.95% preference shares
$
0.3719

 
January 1, 2019
 
December 15, 2018
5.625% preference shares
$
0.3516

 
January 1, 2019
 
December 15, 2018
The Merger Agreement restricts the Company from declaring or paying any dividends other than the quarterly dividend on Aspen’s ordinary shares that were previously declared and publicly announced prior to the date of the Merger Agreement and periodic cash dividends on the Preference Shares in accordance with the terms of the applicable certificate of designation.


13



5.
Segment Reporting
The Company has two reporting business segments: Insurance and Reinsurance. The Company has determined its reportable segments, Aspen Insurance and Aspen Reinsurance, by taking into account the manner in which management makes operating decisions and assesses operating performance. Profit or loss for each of the Company’s business segments is measured by underwriting profit or loss. Underwriting profit is the excess of net earned premiums over the sum of losses and loss expenses, amortization of deferred policy acquisition costs and general and administrative expenses. Underwriting profit or loss provides a basis for management to evaluate the business segment’s underwriting performance.
The Company uses underwriting ratios as measures of performance. The loss ratio is the ratio of losses and loss adjustment expenses to net earned premiums. The policy acquisition expense ratio is the ratio of amortization of deferred policy acquisition costs to net earned premiums. The general and administrative expense ratio is the ratio of general, administrative and corporate expenses to net earned premiums. The combined ratio is the sum of the loss ratio, the policy acquisition expense ratio and the general and administrative expense ratio.
Reinsurance Segment. The reinsurance segment consists of property catastrophe reinsurance, other property reinsurance, casualty reinsurance and specialty reinsurance. ACM forms part of our property catastrophe reinsurance line of business as it focuses primarily on property catastrophe business through the use of alternative capital. For a more detailed description of this business segment, see Part I, Item 1, “Business — Business Segments — Reinsurance” in the Company’s 2017 Annual Report on Form 10-K filed with the SEC.
Insurance Segment. The insurance segment consists of property and casualty insurance, marine, aviation and energy insurance and financial and professional lines insurance. For a more detailed description of this business segment, see Part I, Item 1 “Business — Business Segments — Insurance” in the Company’s 2017 Annual Report on Form 10-K filed with the SEC.
Non-underwriting Disclosures. The Company has provided additional disclosures for corporate and other (non-operating) income and expenses. Corporate and other income and expenses include net investment income, net realized and unrealized investment gains or losses, expenses associated with managing the Group, certain strategic and non-recurring costs, changes in fair value of derivatives and changes in fair value of the loan notes issued by variable interest entities, interest expenses, net realized and unrealized foreign exchange gains or losses, and income taxes, none of which are allocated to the business segments. Corporate expenses are not allocated to the Company’s business segments as they typically do not fluctuate with the levels of premiums written and are not directly related to the Company’s business segment operations. The Company does not allocate its assets by business segment as it evaluates underwriting results of each business segment separately from the results of the Company’s investment portfolio.

14



The following tables provide a summary of gross and net written and earned premiums, underwriting results, ratios and reserves for each of the Company’s business segments for the three months ended September 30, 2018 and 2017:
 
Three Months Ended September 30, 2018
 
 
Reinsurance
 
Insurance
 
Total
 
 
($ in millions)
 
Underwriting Revenues
 
 
 
 
 
 
Gross written premiums
$
396.4

 
$
476.8

 
$
873.2

 
Net written premiums
356.4

 
222.5

 
578.9

 
Gross earned premiums
475.3

 
498.3

 
973.6

 
Net earned premiums
388.5

 
234.7

 
623.2

 
Underwriting Expenses
 
 
 
 
 
 
Losses and loss adjustment expenses
281.5

 
149.6

 
431.1

 
Amortization of deferred policy acquisition costs
75.7

 
25.3

 
101.0

 
General and administrative expenses
34.7

 
58.7

 
93.4

 
Underwriting (loss)/income
$
(3.4
)
 
$
1.1

 
(2.3
)
 
Corporate expenses
 
 
 
 
(16.0
)
 
Non-operating expenses (1)
 
 
 
 
(51.0
)
 
Net investment income
 
 
 
 
48.0

 
Realized and unrealized investment gains
 
 
 
 
1.8

 
Realized and unrealized investment losses
 
 
 
 
(2.7
)
 
Change in fair value of loan notes issued by variable interest entities
 
 
 
 
(1.7
)
 
Change in fair value of derivatives
 
 
 
 
7.2

 
Interest expense on long term debt
 
 
 
 
(5.4
)
 
Net realized and unrealized foreign exchange losses
 
 
 
 
(9.5
)
 
Other income
 
 
 
 
1.4

 
Other expenses
 
 
 
 
(0.4
)
 
(Loss) before tax
 
 
 
 
$
(30.6
)
 
 
 
 
 
 
 
 
Net reserves for loss and loss adjustment expenses
$
2,829.1

 
$
2,130.0

 
$
4,959.1

 
Ratios
 
 
 
 
 
 
Loss ratio
72.5
%
 
63.7
%
 
69.2
%
 
Policy acquisition expense ratio
19.5

 
10.8

 
16.2

 
General and administrative expense ratio
8.9

 
25.0

 
25.7

(2) 
Expense ratio
28.4

 
35.8

 
41.9

 
Combined ratio
100.9
%
 
99.5
%
 
111.1
%
 
 
(1) 
Non-operating expenses includes $11.1 million of expenses related to the Company’s operating effectiveness and efficiency program (the “Effectiveness and Efficiency Program”) and $38.6 million of advisor fees related to the Merger.
(2) 
The general and administrative expense ratio in the “Total” column includes corporate and non-operating expenses.

15



 
Three Months Ended September 30, 2017
 
 
Reinsurance
 
Insurance
 
Total
 
 
( $ in millions)
 
Underwriting Revenues
 
 
 
 
 
 
Gross written premiums
$
431.5

 
$
421.0

 
$
852.5

 
Net written premiums
363.6

 
243.8

 
607.4

 
Gross earned premiums
464.0

 
449.3

 
913.3

 
Net earned premiums
382.0

 
270.5

 
652.5

 
Underwriting Expenses
 
 
 
 
 
 
Losses and loss adjustment expenses
502.2

 
274.0

 
776.2

 
Amortization of deferred policy acquisition costs
61.5

 
43.9

 
105.4

 
General and administrative expenses
32.8

 
59.4

 
92.2

 
Underwriting (loss)
$
(214.5
)
 
$
(106.8
)
 
(321.3
)
 
Corporate expenses
 
 
 
 
(13.5
)
 
Non-operating expenses(1)
 
 
 
 
(5.2
)
 
Net investment income
 
 
 
 
46.4

 
Realized and unrealized investment gains
 
 
 
 
29.9

 
Realized and unrealized investment losses
 
 
 
 
(12.4
)
 
Change in fair value of loan notes issued by variable interest entities
 
 
 
 
9.8

 
Change in fair value of derivatives
 
 
 
 
4.5

 
Interest expense on long term debt
 
 
 
 
(7.4
)
 
Net realized and unrealized foreign exchange gains
 
 
 
 
8.4

 
Net other expense
 
 
 
 
(2.2
)
 
(Loss) before tax
 
 
 
 
$
(263.0
)
 
 
 
 
 
 
 
 
Net reserves for loss and loss adjustment expenses
$
2,865.8

 
$
2,255.3

 
$
5,121.1

 
Ratios
 
 
 
 
 
 
Loss ratio
131.5
%
 
101.3
%
 
119.0
%
 
Policy acquisition expense ratio
16.1

 
16.2

 
16.2

 
General and administrative expense ratio
8.6

 
22.0

 
17.0

(2) 
Expense ratio
24.7

 
38.2

 
33.2

 
Combined ratio
156.2
%
 
139.5
%
 
152.2
%
 
 
(1) 
Non-operating expenses includes $4.1 million of expenses related to the Company’s Effectiveness and Efficiency Program.
(2) 
The general and administrative expense ratio in the “Total” column includes corporate and non-operating expenses.

16



The following tables provide a summary of gross and net written and earned premiums, underwriting results, ratios and reserves for each of the Company’s business segments for the nine months ended September 30, 2018 and 2017:
 
Nine Months Ended September 30, 2018
 
 
Reinsurance
 
Insurance
 
Total
 
 
($ in millions)
 
Underwriting Revenues
 
 
 
 
 
 
Gross written premiums
$
1,345.9

 
$
1,497.9

 
$
2,843.8

 
Net written premiums
1,048.3

 
652.1

 
1,700.4

 
Gross earned premiums
1,216.5

 
1,445.2

 
2,661.7

 
Net earned premiums
960.0

 
716.2

 
1,676.2

 
Underwriting Expenses
 
 
 
 
 
 
Losses and loss adjustment expenses
615.4

 
436.3

 
1,051.7

 
Amortization of deferred policy acquisition costs
194.4

 
83.3

 
277.7

 
General and administrative expenses
94.2

 
179.5

 
273.7

 
Underwriting income
$
56.0

 
$
17.1

 
73.1

 
Corporate expenses
 
 
 
 
(45.7
)
 
Non-operating expenses (1)
 
 
 
 
(72.2
)
 
Net investment income
 
 
 
 
145.7

 
Realized and unrealized investment gains
 
 
 
 
105.9

 
Realized and unrealized investment losses
 
 
 
 
(165.2
)
 
Realized loss on the debt extinguishment
 
 
 
 
(8.6
)
 
Change in fair value of loan notes issued by variable interest entities
 
 
 
 
(4.1
)
 
Change in fair value of derivatives
 
 
 
 
(15.4
)
 
Interest expense on long term debt
 
 
 
 
(20.4
)
 
Net realized and unrealized foreign exchange gains
 
 
 
 
(9.0
)
 
Other income
 
 
 
 
5.6

 
Other expenses
 
 
 
 
(2.1
)
 
(Loss) before tax
 
 
 
 
$
(12.4
)
 
 
 
 
 
 
 
 
Net reserves for loss and loss adjustment expenses
$
2,829.1

 
$
2,130.0

 
$
4,959.1

 
Ratios
 
 
 
 
 
 
Loss ratio
64.1
%
 
60.9
%
 
62.7
%
 
Policy acquisition expense ratio
20.3

 
11.6

 
16.6

 
General and administrative expense ratio
9.8

 
25.1

 
23.4

(2) 
Expense ratio
30.1

 
36.7

 
40.0

 
Combined ratio
94.2
%
 
97.6
%
 
102.7
%
 
 
(1) 
Non-operating expenses includes $31.5 million of expenses related to the Company’s Effectiveness and Efficiency Program and $38.6 million of advisor fees related to the Merger.
(2) 
The general and administrative expense ratio in the “Total” column includes corporate and non-operating expenses.

17



 
Nine Months Ended September 30, 2017
 
 
Reinsurance
 
Insurance
 
Total
 
 
( $ in millions)
 
Underwriting Revenues
 
 
 
 
 
 
Gross written premiums
$
1,332.4

 
$
1,340.2

 
$
2,672.6

 
Net written premiums
1,097.3

 
775.0

 
1,872.3

 
Gross earned premiums
1,112.2

 
1,302.1

 
2,414.3

 
Net earned premiums
932.2

 
863.4

 
1,795.6

 
Underwriting Expenses
 
 
 
 
 
 
Losses and loss adjustment expenses
797.9

 
652.6

 
1,450.5

 
Amortization of deferred policy acquisition costs
174.4

 
141.0

 
315.4

 
General and administrative expenses
117.4

 
186.9

 
304.3

 
Underwriting (loss)
$
(157.5
)
 
$
(117.1
)
 
(274.6
)
 
Corporate expenses
 
 
 
 
(38.3
)
 
Non-operating expenses(1)
 
 
 
 
(9.5
)
 
Net investment income
 
 
 
 
141.5

 
Realized and unrealized investment gains
 
 
 
 
130.1

 
Realized and unrealized investment losses
 
 
 
 
(24.4
)
 
Change in fair value of loan notes issued by variable interest entities
 
 
 
 
3.6

 
Change in fair value of derivatives
 
 
 
 
25.2

 
Interest expense on long term debt
 
 
 
 
(22.2
)
 
Net realized and unrealized foreign exchange (losses)
 
 
 
 
(21.1
)
 
Other income
 
 
 
 
5.0

 
Other expenses
 
 
 
 
(2.0
)
 
(Loss) before tax
 
 
 
 
$
(86.7
)
 
 
 
 
 
 
 
 
Net reserves for loss and loss adjustment expenses
$
2,865.8

 
$
2,255.3

 
$
5,121.1

 
Ratios
 
 
 
 
 
 
Loss ratio
85.6
%
 
75.6
%
 
80.8
%
 
Policy acquisition expense ratio
18.7

 
16.3

 
17.6

 
General and administrative expense ratio
12.6

 
21.6

 
19.6

(2) 
Expense ratio
31.3

 
37.9

 
37.2

 
Combined ratio
116.9
%
 
113.5
%
 
118.0
%
 
 
(1) 
Non-operating expenses includes $4.1 million of expenses related to the Company’s Effectiveness and Efficiency Program.
(2) 
The general and administrative expense ratio in the “Total” column includes corporate and non-operating expenses.



18



6.     Investments
Statements of Operations and Other Comprehensive Income
Investment Income. The following table summarizes investment income for the three and nine months ended September 30, 2018 and 2017:
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
 
($ in millions)
 
($ in millions)
Fixed income securities — Available for sale
$
33.0

 
$
32.9

 
$
99.8

 
$
100.7

Fixed income securities — Trading
12.5

 
11.1

 
37.7

 
31.6

Short-term investments — Available for sale
0.4

 
0.1

 
0.9

 
0.4

Short-term investments — Trading
0.1

 

 
0.4

 
0.5

Fixed term deposits (included in cash and cash equivalents)
3.5

 
2.1

 
10.1

 
4.1

Equity securities — Trading

 
2.8

 
1.9

 
11.7

Catastrophe bonds — Trading
0.5

 
0.5

 
1.8

 
1.3

Other investments, at fair value
0.5

 

 
0.5

 

Total
$
50.5

 
$
49.5

 
$
153.1

 
$
150.3

Investment expenses
(2.5
)
 
(3.1
)
 
(7.4
)
 
(8.8
)
Net investment income
$
48.0

 
$
46.4

 
$
145.7

 
$
141.5


19



The following table summarizes the net realized and unrealized investment gains and losses recorded in the statement of operations and the change in unrealized gains and losses on investments recorded in other comprehensive income for the three and nine months ended September 30, 2018 and 2017:

 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30, 2018
 
September 30, 2017
 
September 30, 2018
 
September 30, 2017
 
($ in millions)
 
($ in millions)
Available for sale:
 
 
 
 
 
 
 
Fixed income securities — gross realized gains
$
0.8

 
$
2.3

 
$
5.2

 
$
7.8

Fixed income securities — gross realized (losses)
(1.1
)
 
(1.6
)
 
(8.5
)
 
(5.3
)
Short-term investments — gross realized gains

 

 

 
0.1

Short-term investments — gross realized (losses)
(0.1
)
 

 
(0.1
)
 

Cash and cash equivalents — gross realized gains

 
0.3

 
0.2

 
0.3

Cash and cash equivalents — gross realized (losses)

 

 
(0.4
)
 
(0.1
)
Other-than-temporary impairments

 
(0.1
)
 

 
(0.5
)
Trading:
 
 
 
 
 
 
 
Fixed income securities — gross realized gains
1.0

 
3.0

 
3.6

 
8.3

Fixed income securities — gross realized (losses)
(4.1
)
 
(0.2
)
 
(14.5
)
 
(2.6
)
Short-term investments — gross realized gains

 
1.9

 

 
2.0

Short-term investments — gross realized (losses)
(1.4
)
 

 
(1.4
)
 

Cash and cash equivalents — gross realized gains

 
1.3

 
1.5

 
1.3

Cash and cash equivalents — gross realized (losses)
(0.2
)
 

 
(0.2
)
 

Equity securities — gross realized gains

 
46.1

 
94.5

 
55.0

Equity securities — gross realized (losses)

 
(7.4
)
 
(20.1
)
 
(12.4
)
Catastrophe bonds — net unrealized (losses) gains

 
(3.1
)
 
0.9

 
(3.2
)
Net change in gross unrealized gains (losses)
4.5

 
(25.0
)
 
(119.2
)
 
54.4

Investments — equity method:
 
 
 
 
 
 
 
Gross realized and unrealized (loss) in MVI

 

 
(0.2
)
 
(0.1
)
Gross realized (loss)/gain in Chaspark

 

 

 
0.9

Gross realized and unrealized (loss) in Bene
(0.3
)
 

 
(0.6
)
 
(0.2
)
Total net realized and unrealized investment (losses) gains recorded in the statement of operations
$
(0.9
)
 
$
17.5

 
$
(59.3
)
 
$
105.7

 
 
 
 
 
 
 
 
Change in available for sale net unrealized (losses) gains:
 
 
 
 
 
 
 
Fixed income securities
(21.0
)
 
0.3

 
(126.7
)
 
15.2

Total change in pre-tax available for sale unrealized (losses) gains
(21.0
)
 
0.3

 
(126.7
)
 
15.2

Change in taxes
1.3

 
(0.4
)
 
8.0

 
(1.4
)
Total change in net unrealized gains, net of taxes, recorded in other comprehensive income
$
(19.7
)
 
$
(0.1
)
 
$
(118.7
)
 
$
13.8



20



Balance Sheet
Fixed Income Securities and Short-Term Investments Available For Sale. The following tables present the cost or amortized cost, gross unrealized gains and losses and estimated fair market value of available for sale investments in fixed income securities and short-term investments as at September 30, 2018 and December 31, 2017:
 
As at September 30, 2018
 
Cost or
Amortized Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Market
Value
 
($ in millions)
U.S. government
$
1,420.1

 
$
0.8

 
$
(33.1
)
 
$
1,387.8

U.S. agency
47.1

 
0.1

 
(0.8
)
 
46.4

Municipal
51.9

 
1.7

 
(1.5
)
 
52.1

Corporate
2,305.9

 
8.0

 
(47.9
)
 
2,266.0

Non-U.S. government-backed corporate
91.4

 
0.1

 
(0.7
)
 
90.8

Non-U.S. government
404.1

 
3.1

 
(1.8
)
 
405.4

Asset-backed
18.7

 

 
(0.2
)
 
18.5

Agency mortgage-backed
934.2

 
4.3

 
(29.1
)
 
909.4

Total fixed income securities — Available for sale
5,273.4

 
18.1

 
(115.1
)
 
5,176.4

Total short-term investments — Available for sale
120.4

 

 

 
120.4

Total
$
5,393.8

 
$
18.1

 
$
(115.1
)
 
$
5,296.8

 
 
As at December 31, 2017
 
Cost or
Amortized Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Market
Value
 
($ in millions)
U.S. government
$
1,166.5

 
$
4.5

 
$
(11.6
)
 
$
1,159.4

U.S. agency
51.8

 
0.5

 
(0.2
)
 
52.1

Municipal
53.0

 
2.1

 
(0.2
)
 
54.9

Corporate
2,391.4

 
36.1

 
(11.8
)
 
2,415.7

Non-U.S. government-backed corporate
91.5

 
0.3

 
(0.5
)
 
91.3

Non-U.S. government
479.7

 
6.4

 
(1.2
)
 
484.9

Asset-backed
26.3

 

 
(0.1
)
 
26.2

Agency mortgage-backed
941.0

 
13.7

 
(8.2
)
 
946.5

Total fixed income securities — Available for sale
5,201.2

 
63.6

 
(33.8
)
 
5,231.0

Total short-term investments — Available for sale
90.0

 

 
(0.1
)
 
89.9

Total
$
5,291.2

 
$
63.6

 
$
(33.9
)
 
$
5,320.9


21