Aspen’s Dunleavy: IPO “shouldn’t come as a surprise”
Aspen chief underwriting officer Christian Dunleavy has said it shouldn’t be a surprise to the market that the firm is “considering an IPO as an option”, following the remediation work that has been done to “get the company in a really great place”.
“We've always known that Apollo, who has been a great owner for us, is not the forever owner for Aspen; and so, from the beginning of this journey, under the current ownership, we've always known that there would be a next step,” Dunleavy explained.
“We've been doing that work for a while, so I don't think it should be a big surprise to anybody that we would be considering our options and we feel like we've got the company in a great place to start thinking about what the next stage in the evolution of Aspen is,” he added.
Speaking to The Insurer TV in our pop-up studio at the Hôtel de Paris in Monte Carlo, Dunleavy provided further detail following market chatter during the Rendez-Vous suggesting Aspen had appointed banks to gear the company up for a New York IPO, which is expected before the end of the year.
Speculation around a prospective Aspen IPO comes after Hamilton Insurance Group earlier this month filed a confidential S-1 with the Securities and Exchange Commission for a US IPO, with reports earlier this year suggesting a transaction could value the company at more than $2bn.
According to Hamilton’s latest financial condition report with the Bermuda Monetary Authority, it had shareholders’ equity of $1.66bn at the end of 2022, which would suggest an expectation of a valuation of around 1.2x book value. Aspen will no doubt be closely watching how this proceeds.
The IPO market was tested earlier this year when Skyward Specialty went public in January, followed by Fidelis.
A more sustainable cat market
A significant element of Aspen’s remediation work was the company’s decision to reduce its cat exposure, which it has successfully managed to do. But with rates showing no signs of sinking, has Dunleavy been tempted to lean further into this class of business?
“I wouldn't expect us to lean into cat in the near term,” he said. “At 1.1.23 we took the opportunity to onboard margin over exposure and the market helped us. But we wanted to move up programs a little bit and we wanted to be better paid for that risk that we were taking and I think we achieved that.
“I think we're definitely a market that will take cat risk if we think we're being paid for it. But we want to size it right within the group. It is very tightly integrated with Aspen Capital Markets and I think we've been a good steward of capital for the third-party capital providers, and they've been really great long-term partners for us as well,” he explained.
Dunleavy said the change in dynamics in the cat market in 2023 – which saw an upward shift in attachment points for reinsurers and increased retentions at the primary level – will encourage more sustainable capital coming into the market.
“I think it helps everybody to have more skin in the game and the reinsurance industry kind of got a little bit lulled into providing earnings protection at a capital protection price, and that's not really what we're there for,” he explained.
“Moving back to what reinsurance is – which is supposed to be transferring volatility from a balance sheet, not an income statement – I think this is actually the appropriate way to be taking cat risk. And I think the primary companies, who are retaining more than they have been in the past, are going to have to think about ways to manage that,” he added.
More industry pain to come from casualty
Turning to the casualty and specialty markets, Dunleavy’s outlook is largely positive on the specialty lines Aspen is active in, but he believes there is more pain to come from casualty and adverse loss development.
“I think there's more pain to come from some of the soft market years,” he said.
“We feel pretty good following the loss portfolio transfer (LPT) transaction we did and actually feel our reserves are really hard market reserves as they’re post 2020, but there is going to be some development to come in the industry from that.”
In May 2022, Aspen completed a giant $3.57bn LPT with Enstar which saw the legacy specialist assume $3.12bn of the Bermudian (re)insurer’s net loss reserves relating to 2019 and prior years.
In addition, Dunleavy does not share the enthusiasm about aviation shown by other specialty carriers following Aspen’s exit from the market last year.
Reflecting on the decision, he said: “Aviation was just a line that just proved too problematic for us and Russia-Ukraine affirmed that.
“Truthfully, I think if people are objective about aviation, it’s quite a small market in which the pricing power can just disappear overnight. Others seem to think they can do it, and that's fine and I wish them well, but for Aspen, it didn't feel like the right fit,” he added.
Watch the 10-minute interview with Aspen’s Christian Dunleavy to hear more on:
- His reaction to IPO speculation
- Dynamics in the property cat market
- Impact of inflation and casualty pain points
- Operating in Bermuda post corporate tax implementation