Aspen Insurance Holdings Limited (NYSE:AHL) is an insurance and reinsurance holding company operating out of Bermuda. Two developments make Aspen an interesting play. At present, Aspen’s market cap is around $2.46 billion, which means that with a book value of $3.34 billion, it is trading at a 26% discount. Moreover, it seems that, as of December 2011, Aspen Insurance Holdings Limited (NYSE:AHL) was over-reserved by $137 million.
Aspen reduced its reserves at the end of 2012 to $3,961 million from $4,098 million a year earlier. This overestimation of reserves implies a redundancy that results in an understated book value. Therefore, the discount to book value could be as much as 15.5%. The second development is the buy-back program that Aspen Insurance Holdings Limited (NYSE:AHL) has been conducting since the beginning of the year.
Aspen Insurance Holdings is in the property and casualty (P&C) insurance business. Aspen Insurance Holdings Limited (NYSE:AHL)’s revenue is split evenly between insurance and reinsurance premiums, at least since 2010, but with a steady increase in that period for the insurance premiums part of the business as part of total revenue, which went from 44% in 2010 to 52% in 2012. This is in line with the move away from the reinsurance business, which is deemed too volatile and incapable of sustaining rising premiums as a result of overcapacity.
Within the insurance business, marine, energy, and transportation premiums represent 39% of the total, down from 47% in 2010. In 2011, this part of Aspen Insurance Holdings Limited (NYSE:AHL)’s business grew 11% over 2010, and in 2012, it grew three times that rate, at 33%. Always on the insurance side, there is a 6% increase in premiums on renewals, mostly due to a 15% increase in insurance premiums. An analyst expects an 8% to 10% increase in earnings over the very long run.
Better than the competition?
Aspen’s share price has had a good run this year, going from $32 at the beginning of the year to over $38.33 at present. Its P/E ratio is 10.91. Among Aspen’s direct competitors in terms of size and line of business, Allied World Assurance Co Holdings, AG. (NYSE:AWH) and Partnerre Ltd (NYSE:PRE) stand out.
Allied World Assurance Co Holdings, AG. (NYSE:AWH) has a stronger earnings record than Aspen Insurance Holdings Limited (NYSE:AHL) and has been upgraded by Zacks from a neutral rating to an outperform one. Its 2013 first-quarter revenue and earnings were nearly flat from a year ago, resulting in 4.2% growth in diluted book value per share. Zacks has a $96.70 target on the stock, as opposed to a current price of $91.65.