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Executives

Kerry Calaiaro – Senior Vice President, Investor Relations

Chris O'Kane – Chief Executive Officer

John Worth – Group Chief Financial Officer

Analysts

Michael Zaremski – Credit Suisse

Josh Schrenker – UBS Securities LLC

Amit Kumar – Macquarie Capital, Inc.

Dan Farrell – Sterne, Agee & Leach, Inc.

Max Zormelo – Evercore Partners

Brian Meredith – UBS Securities LLC

Aspen Insurance Holdings Limited (AHL) Q4 2013 Earnings Conference Call February 7, 2014 9:30 AM ET

Operator

Good morning. My name is Arnika, and I will be your conference operator today. At this time, I like to welcome everyone to the Fourth Quarter 2013 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions).

Thank you. I would now like to turn the conference over to Kerry Calaiaro.

Kerry Calaiaro

Thank you and good morning. The presenters on today’s call are Chris O’Kane, Chief Executive Officer; and John Worth, Chief Financial Officer of Aspen Insurance Holdings Limited.

Last night, we issued our press release announcing Aspen’s financial results for the Fourth Quarter of 2013. This press release, as well as corresponding supplementary financial information can be found on our website at www.aspen.co. This presentation contains and Aspen may make time-to-time written or oral forward-looking statements within the meaning under and pursuant to the Safe Harbor provisions of the U.S. Federal Securities laws.

All forward-looking statements will have a number of assumptions concerning future events that are subject to a number of uncertainties and other factors. For more detailed descriptions of these uncertainties and other factors, please see the Risk Factors section in Aspen’s Annual Report on Form 10-K filed with the SEC and on our website.

This presentation contains non-GAAP financial measures, which we believe are meaningful in evaluating the company’s performance. For a detailed disclosure, please see our website.

I’d now like to turn the call over to Chris O’Kane.

Chris O’Kane

Thank you Kerry and good morning everyone. Aspen reported diluted book value per share of $40.90 at December 31, 2013 and there was an operating return on equity of 9.7% for the year. We continue to make good progress on our strategic objectives, our operating results and our profitability.

A year ago, our fourth quarter 2012 earnings call, right I thought it was – we outlined three levers to driving ROE expansion; these three levers for capital management, increasing the returns on investments and business portfolio optimization. I am happy to say that over the course of the year we have made significant progress on all three.

We repurchased $310 million of ordinary shares during the year, including $15 million in the fourth quarter, exceeding our $300 million target for the year. We re-balanced our investment portfolio. During the year we increased our allocation to equity by $200 million; allocated $200 million to BB rated securities and funded $200 million BBB rated in emerging market debt portfolio. We announced 9.7% of the portfolio allocated to alternative investments. These actions helped stabilize investment returns while keeping the portfolio within acceptable risk premises.

Most importantly we made strong progress on our business optimization institutes. First, as we previously discussed, we have been executing a significant controlled reduction of our EMF open-market wind and earthquake exposed U.S. property insurance account. We continue to be on track to release approximately $140 million of capital by the end of this year.

Second, our U.S insurance team continued to gain scale and this growth is driving meaningful operating leverage. Our U.S operations have been profitable every quarter of 2013, and it achieved a loss ratio of 54% for the year. We have built a profitable and valuable business which is contributing to earnings. The future of our U.S. insurance business is now becoming increasingly clear as one of greater profitability, lower expense ratios and increased scale.

Finally as I noted last quarter, we restructured both our ceded reinsurance and retrocessional arrangements. We estimate that this initiative alone will generate $25 million in incremental net income this year, with a further incremental benefit in 2015 of $20 million, equating to a total annual net income benefit of $45 million in 2015 onwards.

The overall price environment in which we operate continues to be varied and highly dynamic. For the U.S primary insurance market overall at the January renewals rates increased, yet at a more modest pace than a year ago. For majority of the international lines, the rates are holding firm. There are few lines which previously experienced loss activity and are now showing rate increases. Conversely, a few specialized areas such as aviation and offshore energy property in the Gulf of Mexico are experiencing downward pressure.

In the reinsurance segment from January renewals the picture is similarly varied. In specialty reinsurance, casualty reinsurance and the less cat exposed property lines the picture is one of broadly stable to slight reductions of 2% to 3%. In Property Catastrophe however, the influx of new capital is most pronounced. This resulted in the most intense competition during the January renewals and rates were under significant pressure.

At January 1st for the property catastrophe market as whole rates were down about 15%. If you look at the individual regions European property cat [indiscernible] rate down 10% to 15%; whereas the U.S. property cat was more pressurized with the rates down between 15% and 20%.

Premiums is just within our property catastrophe book as a whole, we limited the overall rate reduction to 12% in the January renewals. So we were able to achieve better rates for the month. Another positive outcome is that in the case of retrocession where we are a buyer and not a seller, we benefit from rates declining in the range of 25% to 35%.

Our capacity is enabling us to navigate the changing market. Specifically we are benefiting from our regional structure and new product offerings. In late 2012, we introduced our regional structure within reinsurance which enabled us to meet customers’ increasing demands for local market solutions. We’ve also had successful introductions of new product offering such as those provided by Aspen Capital Markets which is by the way off to a great start.

As a result of our strategy, we are achieving technical pricing levels that we deem commensurate with the risks we write, while continuing to grow our business. During the January 1st renewal season we recorded access to the most sought-after risks and we’re extremely pleased with our achievements.

In insurance, we expect the continued successful build-out of our [indiscernible] U.S. business to drive increased profitability. Furthermore, in international insurance growth in targeted areas of investment such as UK region and in global causality are doing well in achieving our objectives.

Let me first start with 2014 ROE guidance a year ago. We told you that we expected to achieve a 10% ROE subject to both insurance pricing environment and also the interest rate environment continuing unchanged. As I mentioned, reinsurance pricing is pressured in some lines of business notably property catastrophe reinsurance as are some special insurance lines such as aviation and offshore energy property.

Nevertheless, in the face of this difficult pricing environment we have taken some actions to maintain our profitability, specifically reallocating capital within our underwriting portfolio to the best business lines. Retaining more of the best business rather than ceding it out as reinsurance and we’ve also striven to maintain and increase our investment return. Therefore, we can tell you that we continue to expect to achieve an ROE of 10% in 2014 assuming a pretax cat load of $185 million, normal loss experience and given the current interest rate and insurance rate environment.

I’ll provide additional thoughts on the market and on the growth strategy in a moment, but first I will turn the call over to John to provide some detail on our results.

John Worth

Thank you, Chris. I will begin with an overview of the results for the quarter and then provide an update on our capital management and investment leaders.

Operating earnings per diluted share for the fourth quarter 2013 was $1.13. The annualized operating return on equity was 11.3% in the fourth quarter in 2013.

Gross written premiums for the group at $604 million increased, 5% in the fourth quarter compared with the year ago, with underwriting income of $47 million. The combined ratio was 91.9% or $34.7 million or 6.1 points of net catastrophe losses in the fourth quarter.

For our reinsurance segment gross written premium declined 9% to $176 million, partially due to a decline in the reinstatement premium primarily related to Superstorm Sandy in the fourth quarter 2012. The segment recorded underwriting income of $118 million in the fourth quarter. The resulting reinsurance combined ratio was very favorable at 58.6% with $29.4 million or 10.4 points of net cat losses in the quarter, mainly related to European windstorms.

In the fourth quarter all four sub-segments in reinsurance improved their accident year ex-catastrophe loss ratio.

In our insurance segment gross written premium increased 12% to $428 million. This is a result of growth in our casualty and our programs business and financial and professional lines. The combined ratio for the insurance segment in the fourth quarter was 121.6%. Basically it’s largely a reflection of a higher frequency of mid-sized losses in the marine and casualty sub-segment of approximately $45 million, which accounted for 16 points on the loss ratio. Prior year reserve releases for the group were $20.5 million or 3.6 combined ratio points.

In reinsurance, favorable reserve development was $46.1 million or 16.2 combined ratio points, split evenly between short-tail and long-tail line. The long tail releases were predominantly from 2009 and prior accident years. In the insurance segment, that was $25.6 million or 8.9 combined ratio points of reserve development.

During 2013, we observed an increase in the frequency of mid-sized energy and construction losses in recent accident years, which prompted further analysis. The analysis was completed in the fourth quarter, which resulted in an increase in our estimated loss [indiscernible]. The associated reserve review caused us to increase reserves in the quarter for prior accident years by $60 million in the marine, energy and transportation sub-segments. This reserve increase was partially offset by releases in our casualty and professional and financial lines.

For the Aspen Group as a whole based on our capital model we aim hold reserves at a diversified level such that there is a mid to high 80% chance that they will turn to be adequate or redundant. This is a level of reserve which is very strong.

At the end of the fourth quarter 2013, we were at 86th percentile which is consistent with our reserving philosophy.

For the group, the expense ratio was 34% for the fourth quarter, an increase from 29.7% a year ago. The fourth quarter of 2012 had a number of non-recurring items which reduced the expenses. Therefore, it more reflected with the expense date to look at the full year comparison. For the full year 2013, the expense ratio was 36.3% compared with 34.9% a year ago.

Policy acquisition costs increased from 18.3% to 19.4%. This reflects both a change in business mix without growing the U.S. programs business having a higher acquisition cost as well as a reduction in the provision for profit commission in the fourth quarter of 2012.

The operating expense ratio on the other hand remained relatively flat. As you know, we’ve been focused on finding operational efficiency throughout the group, and our general and administrative expense ratio for the year came in slightly lower than targeted. We will continue to look for operational efficiencies going forward, and expect the G&A ratio to decrease as the U.S. insurance team continues to achieve scale. I’ll now move on to investments.

Investment income was $47.2 million in the fourth quarter of 2013, down 8% from the equivalent quarter a year ago. Fixed income book yields for fourth quarter 2013 was 2.74% down 8 basis points from the quarter, while the duration of the fixed income portfolio was 3.5 years including the effects of our interest rate swaps the duration was 3.2 years.

Our alternative investments now comprise 9.7% of total investment. At December 31st, 2013, we held $460.4 million in equities up from $200.1 million a year ago, reflecting our strategy practically diversifying our investment portfolio by investing in high quality global equity income strategies. The equity portfolio generated a total return of 21% for the full year 2013, including again a 4.9% in the quarter.

In 2013, we repurchased $310 million of common equity, and to date in 2014 we repurchased a further $22 million. We continue to allocate capital in the most efficient ways, whether it be investing in new business opportunities, allocating a higher proportion of our investment portfolio for alternative assets or returning capital to shareholders. We review this very actively and expect to continue to repurchase our shares opportunistically throughout 2014.

In the fourth quarter, we were able to take advantage of the very attractive interest rate environment and issued $300 million of ten-year 4.65% senior notes. We used the proceeds from the issuance to redeem $250 million of our 6% 2014 senior notes and for general corporate purposes.

I will now turn the call back to Chris.

Chris O’Kane

Thanks, John. I would now like to provide a few additional comments on the operating environment in general as well as Aspen’s specific achievements and performance within that environment.

Currently in the reinsurance market, the rate dynamics are evolving rapidly. January 1st renewal season again saw an influx of new capital. We view it as increased demand of capital in the reinsurance market, less as a developing story and more as the new norm. This renewal season saw a further increase in the supply in the market, which was happening at the same time as a reduction in demand from clients for the reinsurance product.

Companies have reassessed the reinsurance needs to take advantage both of high levels of capital on the balance sheet, and the declining rate environment. As a result of these market dynamics the trend that has been developing steadily accelerated during the January renewals. Specifically, companies that buy meaningful amounts of reinsurance are choosing to concentrate their purchases with a fewer number of large reinsurance. The role [ph] was if you like, a battle of the signings, which resulted in a bifurcated market.

On one side with those companies that have tried to remain relevant to customers and on the other side those companies that do not. Well Aspen landed solidly on the winning side in January. We formed the Aspen Capital Markets early in 2013 to help capitalize on opportunities and with changing market. [indiscernible] another initiative, we now have a $100 million in third party capital vehicles. This additional capacity combined with strength of our planned relationships, with range of product offering at local distribution resulted in a very successful January 1 renewal season for Aspen Re.

We’re able to grow our premiums while maintaining same [indiscernible] exposure by utilizing our relationships with third party capital, as well as taking advantage of less expensive retrocession. I am not surprised by the success of our team in January. I am pleased to say that Aspen Re is a key player in this changing market.

I would not want the attention of 1/1 [indiscernible] or the success of our 1/1 renewal season to overshadow the performance of Aspen Re in 2013. They simply had an excellent result for the year. Many of the initiatives we discussed on earnings calls are now established and growing. Our local office distribution across the globe, our U.S. regional strategy, our close relationships with clients throughout the business enabled us to gain access to the most sought-after risks.

As I look forward into 2014, we expect to see the benefits for these investments that we made both in platform and people to come to provision. Within our reinsurance segments during 1/1 renewals our U.S. regional strategy was very successful and surpassed its new business goal for the entire year. Roughly our facultative reinsurance initiatives in the broker market, our U.S. surety reinsurance initiatives could start in the latter part of 2013 both being well received by the market.

Agriculture signings are in February, it’s too early to discuss our results there, but I can say that Michael Dicker, our new head – global ahead of agriculture is up and running and has been well received by brokers and clients. We look forward to discussing his success over the coming quarters.

As you can tell we are very proud of the performance of our reinsurance business in 2013 and excited to keep driving the business forward in 2014.

I will now discuss our insurance business. The majority of the international teams had a very successful 2013, with very strong performance in U.S. programs, in management professional liability, as well as admirable growth across our casualty lines.

I am proud to say that our U.S. teams have a yet another quarter of impressive underwriting performance. I cannot say emphatically enough how excited I am about our achievements in U.S. We built a solid successful profitable business. We continue to expect the U.S. teams to be at the scale to support their expense base at the end of 2015, with about $550 million of net earned premiums. At that point, we would expect the G&A expense ratio to be about 16%.

As you know we made some strategic hires in insurance business in the past 12 months including Tony Carroll. Tony is leading our U.S. energy business. His team of underwriters, engineers, and claims professionals in the U.S. surpassed our initial expectations in 2013 and they’re very active in market.

Another area we had good results in 2013 and look forward to continuing our progress in 2014 is our UK based global casualty business. This team under the strong leadership of Bob Patten had a very strong performance in 2013 and we have high expectation of this team for the year to come.

Individuals like Tony and like Bob are contributing meaningfully to the business and are helping to keep a high level of excitement throughout Aspen as we try to continue to develop a world class insurance operation.

In closing, we had a strong 2013 and we are well positioned for the year and beyond. We are operating in a challenging and rapidly evolving marketplace, but we remain confident that the initiatives we are undertaking and our ongoing strategic focus will enable us to continue to deliver for our shareholders.

Thanks for listening to us, and with that John and I will be very pleased to take any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Mike Zaremski.

Michael Zaremski – Credit Suisse

Hi, good morning everybody. First question, can you guys hear me?

Chris O’Kane

Yes, likely we hear you loud.

Michael Zaremski – Credit Suisse

Okay, great. First question, sitting from my seat a kind of a hot time getting to a, seeing the 10% ROE for 2014. The cat this year were well under base plan for 2014 of 185, and you guys grew up a good amount of reserve redundancy this year. Of the three levers what would you say is the main lever to get to the 10, versus this year it would be 9.7. Is it the business portfolio optimization maybe you can help us think through that? Thank you.

Chris O’Kane

Okay, Mike. , Let me kick that off and John might want to come in on this question as well. I’d say the big thing the difference between 2014 and 2013 is our increased reinsurance retentions, which I talked about that on the last call. So, really what we’re doing that what we were saying is, teams that used to be new teams that we didn’t know and understand so well are now established possible teams could be less. We see less need for reinsurance. We’re happy. We understand the risk. We're happy we retained a little bit more risk.

And it’s pretty diversified risk. We are choosing bigger shares to retain a lots of different programs throughout the place.

That in a slightly different approach to buying retro contribute $25 million of net income to bottom line. That was not there at all in 2013. With none of that effect in 2013. So, that’s probably the biggest single chunk of the difference and that maybe all that you’re looking for.

If you look elsewhere, what we would continue to evolve the business mix. I think that’s in combined rates terms U.S. improved this year 2013, I mean over the 2012, over 2011 and so on. And I think that’s just going to continue. Mainly what we are going to see there is not better loss rate. Because we really happy the loss rate is there, we are going to see a big with the lower expense rates and constantly better combined.

As we mentioned in the call, some adverse experience in the marine energy area that looks like a few bumps from certain a few big losses. They don’t look like they are going to be recurring, but in any case we are going to be deemphasizing that part of the book. So, I’d expect the underwriting performance part of the international business [indiscernible] those what I said would be some of the main differences in the concept of the bridge in 2013 to 2014. John may like to add to that.

John Worth

Yes, I mean Mike, this time last year we outlined three levers that we were pulling on to get to 10% ROE for 2014. And I think in order of contribution, but probably further business optimization initiatives first and then followed by the share buybacks that we’ve been doing in the contribution they give us and then investments in alternate assets. That all three are doing what would you expect of them and it’s in 2014 as [indiscernible] contribution comfort.

Michael Zaremski – Credit Suisse

Okay that’s helpful. And John regarding the reserve true ups in the insurance segments, can you give us some more color on what, is that recent action in your business and also and I believe you said the reserves are being held it up and 86% maybe confidence percentile. I don’t know maybe you correct me if I’m wrong I guess what percentile had Aspen been taking it before hand?

Chris O’Kane

So, as I said earlier, we aim to reserve between the 85, but 90th percentile. We remain pretty stable between those percentiles in the last year, and it was 87 percentile. So we're broadly at the same level of reserving.

Michael Zaremski – Credit Suisse

Okay. And I might have missed on the prepared remarks, in regards to what happened there exactly was that all recent accident year reserve true ups?

John Worth

Mike what we’ve had was a few significant losses in the marine, energy, construction liability portfolio. We won’t be happy with that. We took a close look at and we went back to look at the previous years. we increased reserves for prior periods by about $60 million in the fourth quarter. And we did it really looking at how that book was running.

We didn't like it as much as before we did. So, $60 million reserve strengthen because of that, but also that type of business going forward. It’s underperforming. Does that help you?

Michael Zaremski – Credit Suisse

Yes, thank you.

Chris O’Kane

Thank you.

Operator

Your next question comes from Amit Kumar.

Amit Kumar – Macquarie Capital, Inc.

Hi thanks and good morning. Two quick follow-ups to the previous question. First of all, maybe, I missed this in the opening remarks. What exactly is that $25 million benefit, is that the retro impact to some higher loss ratio lines, maybe can you just expand on that?

Chris O’Kane

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Amit, hi, good morning. What I think you’re asking is how do you get a $25 million improvement in net income by changing your ceded reinsurance practices. I think that’s the question. If that is the question, the answer is that we buy a lot of reinsurance, some excessive loss, some proportional across the wide range of our insurance line. And these have been performing extremely well and most of that seen rate increases in the last year. So we think it’s going to perform much better in future. So if we may replacing 100% reinsurance with external parties we’re going to cut back ceded share. So maybe, we’ll cut it back in some cases, 75, 60, 35, 40, just sense what it is. We'll basically keep and eat more of own cooking rather than giving it to other people.

We still do want to external transpose. We are not actually dropping program. we’re just carefully bearing the percentage ceded to optimize our own retained portfolio.

Our capital model, which is very, very useful effective tool used all the time, run business guys [indiscernible] what the right retention is. And since we would expect our reinsurance to makes profits in the reinsurance. When we decide to retain more of our business, we retained more of our profits. The sum total of all those shares and individually treaties, mainly reinsurance, but few in the retro side as well. The sum total of all those in 2014 is expected to be $25 million. And then in 2015 we said on the call, it gets bigger goes up about $45 million. If goes, this is the first year, this year also have some reinsurance place during 2013 that it’s so valid for life in 2014. So, we don’t get full kind of benefits program this year. Does that help you?

Amit Kumar – Macquarie Capital, Inc.

Yes. What was the biggest piece in that 25? Which sub segment would be the biggest piece?

Chris O’Kane

It is actually pretty well diversified. It actually it would be a mistake to retain too much of one because that’s going to give spike of exposure. So we really – it’s pretty even run in place in terms of the different categories of risk. I couldn’t really point to one and say one is bigger. I would say the retro is the smallest, because that is a key part of what we do and then that drives our capital needs. So the change in retro is a comparatively small base, and I don't think it will go that much. I could actually see us buying a little more retro as time goes by, because that’s a very competitive market to buy in.

Amit Kumar – Macquarie Capital, Inc.

That’s actually quite helpful. The other question going back to Mike’s question on the reserve adjustment, did you mention you have some specific claim, so I guess, maybe I misheard, was there an adjustment to the level of IBNR, or was it okay? And what was I guess the ultimate loss ratio it was running at and what is sort of the developed loss ratio? Could you expand on both points please?

Chris O’Kane

Okay, ‘m going to kick off and John will explain on the specific claims. But what I would say happened in Q4 is that, we have three or four chunky sort of losses, not huge but quite big, all coming from the same area of the book in this M.E.C. liability and then in a moment John will tell you what those plans were and what the cost was. That made us to look at the prior period, the previous three quarters and indeed the previous years and we kind of said it was running this bad this quarter, maybe we should carry bit more reserve of past quarters. So in a quarter we increased reserves for prior periods by $60 million. And I think you’re asking what those claims we’re, which I think John have.

John Worth

Yes, I mentioned earlier, Amit that we had approximately $45 million, which related to high frequency of midsize losses in Marine and Casualty sub-segments. There were actually three, they were unrelated, although they were personal injury losses in marine liability. There was also as a contribution to that $45 million a pharmaceutical product defect claim in the global casualty area. So those are the main items that relate to $45 million.

Amit Kumar – Macquarie Capital, Inc.

Got it. And I guess what’s the readjusted loss ratio now what that book is or what the year is running at?

John Worth

So after taking account of those one-off losses?

Amit Kumar – Macquarie Capital, Inc.

Yes.

John Worth

I’d say broadly they would contribute that $45 million, about 16 points on the loss ratio.

Amit Kumar – Macquarie Capital, Inc.

16. Okay, maybe I will follow-up offline. I’ll stop here. Thanks for the answers.

Chris O’Kane

Okay. Amit, thanks for your questions.

Operator

The next question comes from Josh Schrenker.

Josh Schrenker – UBS Securities LLC

Good morning, everyone. You guys get the award for the most long-term planning on your guidance, of course. And I think that when you…

Chris O’Kane

We’re very happy to accept that word from you Josh.

Josh Schrenker – UBS Securities LLC

I’m not sure what you guys first talked about, I think it’s probably about six quarters ago, I mean, maybe I’m mistaken, but that seems about right. And obviously property cap pricing is weaker now than when you set that guidance and probably weaker than you thought it would be. Maybe you’re telling me that’s not the case at all.

Do you have less room on the long-term planning goal? Were you saying 10, you really thought 12 back a year and a half and now you are close to a 11, or I mean, really the change in property CAT pricing have a negligible effect overall on that guidance?

Chris O’Kane

It’s pretty interesting question Josh. First of all, we operated the guidance on this call last year on the February call. It's actually 12 months ago. And, no I think the property CAT impact is actually quite significant. We had expected prices to fall through that as you know that the property CAT margins never ever stable is always going up and going down. But as it’s being going done quite a bit and what we have done is work hard elsewhere to find other sources of revenue where it retain profits to offset the reduced profit expectation from the property cat.

And I think it was handed earlier I was explaining about the increased reinsurance retention. We hadn’t got that actually worked out to certain aspects so that’s something that was very beneficial it does take away a lot of the downward impact to the property cat stuff.

We’ve also ACM’s relevancy here because that’s Aspen Capital Markets which has Aspen REIT managing cat capacity, cat capital for third-party. And, we have in some of the peak zones, which is probably still we are able to pricing as honest. We have been able to underwrite for third-parties and that has actually helped the bottom line a little bit. And then I also mentioned there that is the retro market is the softest part of the property cat market. So, we are actually we restructured our retro. We are buying a bit more retro and the consequence of them only thing that helps is probably not a single thing you can point to.

But, overall we managed to basically make up lost ground I would say we are pretty equal level of confidence today with where we were a year ago in terms of expecting to hit the turnover this year. That helps of course we’re closer to now we know more than we did a year ago that probably maybe in some ways we are more familiar when we were expanding more confidence.

Josh Schrenker – UBS Securities LLC

And so if I’m going to paraphrase that cat worked harder than you thought you would find some incremental earnings power, but overall given you this idea of more clarity now you are about in the same place you thought you were a year ago for 2014?

Chris O’Kane

I guess that same place maybe slightly better place because we are close to do this year. We know that better than we did a year ago.

Josh Schrenker – UBS Securities LLC

And in terms of the rating agency thoughts on cat versus the rating agency thoughts on your overall business. To what extent do you think the greatest I guess bounce or constraints on your capital management is it the overall Aspen business or is your PMLs that were guiding right now how much you can buyback?

Chris O’Kane

It will probably be overall business. I mean, I will just tell you that if you on business today and in three months time well then all new season might change, but if you look at our peak zone net retained cat I don’t mean the growth level I mean the net retain. We are actually $60 million lower in terms of our net retained peak zone when cat exposing were year ago so, we actually had more headroom on the cat side. But and if we see some deals we like we could use that again. So I’m not saying that money to buyback shares. It’s money. It’s capital it’s not working hard right now, but it could be to work on or might buyback shares. We will have to see.

Josh Schrenker – UBS Securities LLC

And this is the marketplace where you would want to maximize your PMLs I assume?

Chris O’Kane

That’s exactly why it has trended down year-on-year instead of peak zone.

John Worth

Josh, if I may. In terms of our ability to continue buybacks and that affects our decision, as part of our guidance, we’ve said that – we’ve assumed $185 million of cat losses and clearly that’s consideration. Others are the amounts of unrealized gains and losses, particularly as they affect OCI and anticipation of increased interest rate and how much we choose to invest in alternative assets. So this is a very real and live decision making process that we go through all the time in terms of balancing the decisions, buyback capital with where we think we might earn that tackling the business or get enhanced returns from alternative assets.

Josh Schrenker – UBS Securities LLC

And that makes perfect sense. Well, good luck in 2014. I hope you guys deliver.

Chris O’Kane

Thank you very much.

John Worth

Thank you, Josh. Thanks for that.

Operator

Your next question comes from Dan Farrell.

Dan Farrell – Sterne, Agee & Leach, Inc.

Hi, good morning. Just on the increased retention and insurance for next year, any particular quarters where we’ll head more. I think you obviously see the lot more in the first quarter this year a larger proportion there while all quarters to some extent do you see increases? And then, thinking about the ratios, I mean obviously your premium will have a benefit on both. Are there any other moving parts of ratios to think about with the changes to the reinsurance program? Thanks.

Chris O’Kane

In terms of product, it’s going step up. Yes, it’s going to be pretty even. A lot of our reinsurance outward is 11. So that would just be earned quarterly through the year. We do have a few programs, not to many that are in the spring or even with a couple in July. So that I guess it will be a little bit to the back of the year, but I wouldn’t say it 25% each quarter. That’s it’s probably not too far.

John Worth

Second part of your question, Dan, would you mind. Couldn’t quite catch…

Dan Farrell – Sterne, Agee & Leach, Inc.

I’m sorry. Just the expense ratio, the acquisition ratio, G&A ratio. I mean obviously the earned premium benefit, I’m just trying to think if there is any other component changes which you should be thinking about with the meaningful change in the reinsurance structure?

John Worth

If your question is about the overall expense ratio in the way moving compared with last year?

Dan Farrell – Sterne, Agee & Leach, Inc.

Sure, sure, you can take it from that. That’s fine.

John Worth

Does that work?

Dan Farrell – Sterne, Agee & Leach, Inc.

Sure.

John Worth

So I mean, and the G&A ratio in particular, which as I said earlier, that increased slightly partly due to – in the reinsurance segment, I think it’s best by giving the spend out, reinsurance of that there are higher performance from [indiscernible] compared with last year and in insurance definitely this is what we’d expect. The G&A rate here was trending down and actually improved by about a percentage point compared with 2012 as we’ve grown into our cost base in the U.S. Does that help, Dan?

Dan Farrell – Sterne, Agee & Leach, Inc.

Yes, yes. Thank you. And then, just on the reserve review in marine transportation energy, you said you did a detailed analysis of seeing some increased frequency. Are there any other lines that you also did sort of detailed reserve for these, it came out fine, was there an overall reserve review? I’m just trying to – just think if that was sort of the only keep it was where drilled into that level.

Chris O’Kane

Sure, enough. I mean our reserve process is very thorough, very meticulous. We look at every line in some detail every quarter then we select other lines about once a year with a roaming basis if we take a look at them more deeply. With our external actuaries take a overall look at everything every quarter and any issues that come up we take a deep dive and they will take a deep dive as well and then we [indiscernible].

So pretty much everything gets its tires kicked pretty thoroughly. What the marine energy liability did was it kind of came up and said that you need to kick me a bit harder. Nothing else did that in the year. There is nothing I think required extra additional attention. But let me reassure everything gets a pretty thorough examination at least annually in asking.

Dan Farrell – Sterne, Agee & Leach, Inc.

Okay, all right. Well thank you very much.

Chris O’Kane

Sure Dan.

Operator

Your next question comes from Max Zormelo.

Max Zormelo – Evercore Partners

Hi, good morning. Wanted to talk about margins for, I can just thinking about 2014 versus 2013 given all the different moving pieces the business portfolio transition going on how usually think about margins this year versus last year. Should we expect margins to deteriorate?

John Worth

Let me start off, if I may. I think in some parts of the business you said it going to deterioration in margin and then in particular in the U.S. business, which you will be aware we’ve invested in over the last few years. And we’re expecting to freeze that investment further come true in 2014 as we have done in 2013.

And come back to a previous question that was one of the components of the improvements in ROE and 10% ROE guidance that we're giving for this year.

Max Zormelo – Evercore Partners

Okay and it comes off just related to that. Chris I think .last quarter you gave the rate increased with the first nine months of about 3% across the entire book. Could you give us an update on that. What is it now and what was the last trend across your book?

Chris O’Kane

In terms of not really very much happened in the fourth quarter it’s a smallest quarter by some margin in the reinsurance side and nothing not much in the insurance at all. But overall if you’re looking just of that last quarter insurance were still up about 3%. So, it’s still moving in the right direction maybe not as fast as it was couple of quarters ago, but it still moving nicely. Reinsurance if you’re thinking about 1/1 renewals overall blended basis was about flat.

Max Zormelo – Evercore Partners

And the last question.

Chris O’Kane

Nothing really significant throughput our book is a spiky book, there is a lot of different areas of exposure. Most of our lines is very hard say quarter to quarter as meaningful trend. In some areas sort of UK employees’ liability, public liability is actually quite favorable. U.S. shows the kind of absence of major loss to the quarter, lot of that we already doing that is holding IBNR. Nothing I would say to worry about in terms of loss trend.

Max Zormelo – Evercore Partners

Okay. And then second question is on if you could update us on the excess capital position and how you’re thinking about share repurchases, the share business though you are still looking at dividends and buybacks equal to operating earnings.

John Worth

Our excess capital position remains at about $200 million, which I think the number I’ve given on previous earnings call. We probably during the fourth quarter we had earnings of about $90 million. And that was offset by ACI reductions and dividends and buybacks.

And in terms of going forward, we are very much connected to a share buyback program. We have executed, continue to execute against that program so far during the third quarter is $22 million of buyback.

Going forward we will pursue on an opportunistic basis, I said earlier taking into consideration capital requirements for investing in the business and new business opportunities, market conditions as well as the prevailing share prices.

Max Zormelo – Evercore Partners

Okay. Last one if I may any adverse development on the New Zealand earthquakes?

Chris O’Kane

On New Zealand, a small amount of deterioration couple of million dollars maybe in the fourth quarter, where we got enough data [indiscernible]. But overall the 2013 we have seen a net favorable development from our reserve estimates for 2012 in our cat.

Max Zormelo – Evercore Partners

Thank you.

Operator

(Operator Instructions) Your next question comes from Brian Meredith.

Brian Meredith – UBS Securities LLC

Hey good morning. Chris, a couple of question to you. The first one, I’m just curious your PMLs have come down some, but if I look at your one/one renewal information you gave us about 13% increased property cat business it’s really sizeable increased another property business. I’m just wondering what types of business was that, that it didn’t increase your PMLs?

Chris O’Kane

So, let me just repeat Brian and good morning to you. What I have just said. I said on net routine peak zone when PML is down, down by $50 million. Actually at the gross level, at a gross level it’s up $100 million. That’s one thing to bear in mind. So, the difference between the gross and the net in cat reinsurance is actually getting bigger.

Now also there are other places in the world we write cat, it isn’t all about that slow to win. We as you know if we got a very successful operation out of Zurich in Europe particularly both Eastern Europe. We are also have the operations done in Singapore and the Asia-Pacific region, also Latin America. All these guys are growing very nicely. So, if you would like to normal peak zone, some people would call the tier II cat exposures. Those are growing they wouldn’t show up in that peak zone measure, but if I pointed in a different metric, which we mentioned call the cat most to be last year that was 190, this year is 185.

So, you can see overall cat is down a little bit, but it’s a more diverse cat exposures did less peak and did more reliance on third-party capital interventions, where we are underwriting for the people or increased use of reference.

And then the final little bit that’s a long answer Brian, but the final thing we must lose sight of is – in the U.S. the E&S property is reducing that we said a year ago we are doing that. [indiscernible] operation. There is some cat risk that comes with those big oil, gas, energy related risk as well. So that will be one of the plus factors actually increasing the return.

Brian Meredith – UBS Securities LLC

Okay. Yes, the property, what was the big increase at 11, I mean if you can give us the four metrics, one is property, cat and other property was up fairly substantially.

Chris O’Kane

No, that would be – we had a couple of dimes in our Rocky Hill operation, to put a bit more emphasis on U.S. regional business. We’ve always been a big writer of cat, we’ve always been pretty much a large company right here and I think we’re building out some good businesses, it’s more of mutual, the regional accounts et cetera. Those guys had worked hard and were extremely successful 11 and I think that’s probably is a difference and you’re seeing that within the U.S. regional.

Brian Meredith – UBS Securities LLC

Okay, so more….

Chris O’Kane

Exactly and may be some risk too, but not the capital as such.

Brian Meredith – UBS Securities LLC

Okay, and then my second question and I am sorry, that’s going to beat on the whole reinsurance business, an important part of the whole guidance here. What is the premium associated with the $25 million savings, number one. And then number two, I am just curious if you taken the changes you’re making in the program for 2014, it’s over weighted on 2013, what would you say that look like?

Chris O’Kane

I don’t know the answer to your second question, I suspect [indiscernible].

Brian Meredith – UBS Securities LLC

Okay.

John Worth

Maybe lightly growing business, they maybe I think a little small in 2013 than it will be 2014, but not order magnitude. Distance in spent often include 2013 on these sharing side, the ceded rate though was in the region of 20%. And this year, it’s kind of going to be in the region of 15%. And that 15% is actually going to be lower again next year because somehow it was going on this year, just coming out of some business that was placed reinsurance contracts were placed last year.

Brian Meredith – UBS Securities LLC

Great. That’s helpful, thank you.

Chris O’Kane

Thank you Brian.

Operator

Your next question comes from Josh Schrenker. UBS Securities LLC

Josh Schrenker – UBS Securities LLC

Yes, just coming back, following up on Brian’s question about increasing in non peak zones, I had a conversation with James, couple of years ago following the Japanese quake and I think you guys reduced your exposure in Japan at the next renewal. Are you still concerned about pricing, have you taken it back to where it was before?

Chris O’Kane

No, I actually – Japanese quake, Josh it really get one calendar year to write it and that’s in April [indiscernible]. But our view in Japan, I think it’s pretty much the same as the fall which is the true long stress kind of the thing are scared by. We think that last earthquake increase the probability or may increase the probability of lots of peers that we took our exposures down and that’s not one and the amount to grow again. It’s more what we just told to them to [indiscernible], U.S. regional that will be non-peak zone. But it’s going to be the mainly the Aspen’s, Zurich, Singapore and Miami operations that are contributing to but not necessarily the Asian peak zone of Japan not to pull in.

Josh Schrenker – UBS Securities LLC

That’s exactly perfect answer, thank you.

Chris O’Kane

Good. Happy to hear it Josh.

Operator

At this time there are no further questions. I will now turn the call back over to the speakers for closing remarks.

Chris O’Kane

Well thanks everyone for listening to this morning. Thanks for joining for the call. Let us wish you a very pleasant day. Good bye.

Operator

Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.

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