aspen insurance holdings limited · 5 operational review aspen insurance holdings limited financial...

Aspen Insurance Holdings LimitedFinancial Statements for the period23 May 2002 to 31 December 2002

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Aspen Insurance Holdings LimitedFinancial Statements for the period 23 May 2002 to 31 December 2002

CONTENTS Page

Group Overview 3

Operational Review 4

Consolidated Statement of Operations 8

Consolidated Balance Sheet 9

Consolidated Statement of Shareholders’ Equity 10

Statement of Consolidated Cashflows 11

Notes to the Consolidated Financial Statements 13

Management’s Responsibility for Financial Statements 31

Report of the Independent Auditors 32


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building a globalforce in specialtyinsurance andreinsurance,offering domesticsolutions withan internationalperspective

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Established in June 2002, AspenInsurance Holdings Limited(Aspen), domiciled in Bermuda, is aglobal provider of specialty insuranceand reinsurance products through itsthree operating subsidiaries. Aspen’stotal shareholder equity is someUS$990 million and our principalshareholders are Blackstone,Candover, CSFB and WellingtonUnderwriting plc.

Aspen Insurance UK Limited (AspenRe), formerly Wellington Re, wasestablished in London in June 2002 toservice the growing needs of theLondon and wider UK brokingcommunities and our clients and theiragents globally.The company, whichtrades under the names of AspenInsurance and Aspen Re, is the majorbusiness in the Aspen Group writing arange of specialty insurance andreinsurance lines across eight keybusiness lines with a strong focus on

UK commercial insurance andproperty and casualty reinsurance.We offer strong technical rating andrisk management practices, significantline size and service standards thathelp set us apart from other providers.

Aspen Insurance Limited (Aspen) wasestablished in Bermuda in December2002 to access this increasinglyimportant market and to allow theexpansion of business in London byway of a quota share agreement withAspen Re. In addition, Aspen writes alimited book of property reinsuranceand retrocession contracts.

Aspen Specialty Insurance Company(Aspen Specialty) was established inBoston, Massachusetts in September2003 and writes a focused book ofproperty and casualty surplus linesbusiness, predominantly through theUS wholesale surplus lines brokernetwork.

Group Overview

Aspen is committed to building a strongly capitalised, diversified business,positioned to meet our clients’ risk transfer needs and has been awarded thefollowing ratings from the major agencies:

Aspen Insurance UK Limited

Standard & Poor’s A (Strong) AM Best A (Excellent) Moody’s A2 (Good)

Aspen Insurance Limited

Standard & Poor’s A (Strong) AM Best A- (Excellent)

Aspen Specialty Insurance Company

AM Best A- (Excellent)

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Consolidated overview

Aspen Insurance Holdings Limited(Aspen) was incorporated under thename of Exali Reinsurance HoldingsLimited (‘Exali’) on 23 May 2002.Exali subsequently changed its nameto Aspen on 20 November 2002.On 21 June 2002 Aspen acquired theentire issued share capital of The City Fire Insurance Company Limited(‘City Fire’). City Fire was renamedWellington Reinsurance Limited(Wellington Re) and re-capitalisedwith an ordinary share capital of£410 million. Wellington Recommenced underwriting on 23June 2002. On 4 March 2003Wellington Re was renamed AspenInsurance UK Limited (Aspen Re).

On 6 November 2002 Aspenestablished a wholly ownedBermudian subsidiary, Exali InsuranceLimited. The company changed itsname to Aspen Insurance Limited(Aspen) on 22 November 2002.Aspen has been capitalised with anissued share capital of US$200 million.

The activities of each of the Groupcompanies is as follows:

Aspen Insurance Holdings Limited Bermudian registered holdingcompany of the Aspen operationswith paid up capital of £552 million(US$837 million).

Aspen Insurance UK Limited UK registered and FSA authorisedreinsurance and insurance companywith issued share capital of £410million.

Aspen Insurance UK Services LimitedProvider of services to AspenInsurance UK Limited in its capacityas the employer of the directors andstaff of Aspen Insurance UK Limited.

Aspen Insurance LimitedBermudian registered Class 4authorised reinsurance operation withpaid up capital of US$200 million.

Sources of business

The Group's operations are currently

managed as two segments,reinsurance and insurance.

The reinsurance segment hasthree primary elements, propertyreinsurance, casualty reinsuranceand specialty lines. The first twoof these, property reinsurance andcasualty reinsurance are alldirectly underwritten byemployees of the Group. Specialtylines comprises classes of businessnot directly underwritten by theGroup but sourced through quotashare arrangements. This elementwill continue to be sourcedthrough a quota sharearrangement in 2003 whereas allother lines will be written directlyby the Group.

The insurance operations areunderwritten directly byemployees of the Group andinclude both public andemployers’ liability businesstogether with a UK commercialproperty account.

Operational Review


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Operational Review


An analysis of the technical account for the period 23 May 2002 to 31 December 2002 by segment is set out below.

Reinsurance operations Insurance operations TotalUS$m US$m US$m

Gross written premiums 288.2 86.6 374.8

Gross earned premiums 135.8 28.0 163.8

Net earned premiums 96.9 23.4 120.3Net incurred claims (60.9) (16.0) (76.9)Expenses (22.9) (5.3) (28.2)

Underwriting profit before investment income 13.1 2.1 15.2

Investment return 8.4Other net income 11.5

Income from continuing operations before tax 35.1

Net claims ratio 63% 68% 64%Expense ratio 24% 23% 23%Combined ratio 87% 91% 87%

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Overall analysis

This being the first period ofoperation of the Group impacts theresults of all classes of business. First,losses occurring during (‘LOD’)reinsurance is wholly expensed inthe period whereas only a portion ofthe written premiums are earned.This produces a proportionatelyhigher reinsurance cost in the firstyear of operation compared tosubsequent years. Second, theexpense costs are proportionatelyhigher in the first year of operationas the volume of premium againstwhich they are offset is lower. Of thetotal business written US$158.6mwas written by the Group andUS$216.2m was written bySyndicates 2020 and 3030 asdescribed in greater detail below.

Reinsurance operations

The majority of the reinsurancebusiness written arises from twoquota share contracts under whichthe Group reinsured part of a

portfolio of risks written bySyndicates 2020 and 3030 whichare managed by WellingtonUnderwriting Agencies Limited, asubsidiary of WellingtonUnderwriting plc which is one ofour principal shareholders.

Property reinsurance

The property reinsuranceoperations comprise catastrophe,risk excess and pro-rata treatyreinsurance. The year hasdeveloped well with relatively fewmajor losses. The catastropheaccount was impacted by theEuropean floods which haveproduced in excess of US$3 millionof gross and net claims to theGroup. The only material loss onthe risk excess account was aUS$1.8 million gross and net loss ata United States grain store.

Casualty reinsurance

The casualty reinsurance accountconsists of international casualty

business including motor excess,international liability andprofessional indemnity proportionalreinsurance written throughout theworld including the United States ofAmerica. No material claims havebeen reported in the periodreflecting the long tail nature of thebusiness written.

Specialty reinsurance

The business written includes allclasses of marine and aviation risksas well as US property binders andproperty facultative business. Thisbusiness is written by Syndicate2020 at Lloyd's and the Group willcontinue to underwrite a quotashare of that syndicate in 2003. For2003 the Group has entered into a7.5% quota share with Syndicate2020.

Insurance operations

The majority of the insurancebusiness was written directly byAspen Insurance UK Limited.

Operational Review


Commercial liability insurance

The commercial liability accountconsists of UK employers’ andpublic liability insurance. Thisbusiness was primarily written inthe second half of the year andaccordingly a relatively smallproportion of the writtenpremiums are earned in the periodunder review. No material claimshave been notified in respect ofthis business.

Commercial property insurance

The commercial property accountwas also primarily written in thesecond half of the year andaccordingly only a small amount ofpremiums were earned before theyear end. No major claims havebeen notified in respect of thisbusiness.

Investment strategy

The Group maintains itsinvestments primarily in UK and UShigh quality fixed interest bonds. Itholds no equities. These

investments, including liquidityfunds, are currently managed bythe following fund managers:

Aim Global Investment company Limited

Citigroup Asset Management

Barclays Global Investors (Ireland) Limited

Wellington Management company LLP

Weiss, Peck & Greer LLC

Other net income

Other income comprises a realisedforeign exchange gain of US$12.7million for the Group. This arosefrom a contract taken out to avoidany adverse currency movementbetween the date ofestablishment of Aspen and thedate that the second tranche ofshare capital was paid to thecompany on 29 November 2002.This gain is partly offset by thecentral costs of the Group ofUS$1.0 million.

Consolidated balance sheet

The consolidated balance sheet ofthe Group as at 31 December 2002shows total assets of US$1,211.8million and total commonshareholders' equity of US$878.1million. Of the total assets US$922.4million is represented by financialinvestments. Debtors amount toUS$215.3 million and relate toamounts due under the insurancecontracts entered into. The largestportion of this relates to the quotashare arrangements which operateon a cash-withheld basis for a 36month period. The cash withheldwill be utilised to meet anyassociated claims on the businesswritten with the balance plusinvestment income being paid overto the company at the end of the 36month period.

Chris O'KaneChief Executive19 May 2003

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Operational Review


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2002Notes US$m

For the period from incorporation on 23 May 2002 to 31 December 2002

RevenuesNet premiums earned (includes US$74.3m from related parties) 15 120.3 Net investment income 5 8.5 Realised investment losses 5 (0.1)Realised foreign exchange gain 6 12.7

Other 0.4

Total revenues 141.8

ExpensesInsurance losses and loss adjustment expenses (includes US$51.7m from related parties) 7, 15 (76.9)Policy acquisition expenses (includes US$14.1m from related parties) (21.1)Operating and administration expenses (includes US$2.6m from related parties) (8.7)

Total expenses (106.7)

Income from operations before income tax 35.1 Income tax expense 8 (6.5)

Net income 28.6

US$

Basic earnings per common share 3 0.89

Diluted earnings per common share 3 0.89

See notes to consolidated financial statements

Consolidated Statement of Operations


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As at 31 December 2002

2002Assets Notes US$m

InvestmentsFixed maturities 87.3 Short term investments 835.1

Total investments 4 922.4

Cash and cash equivalents 9.6Reinsurance recoverables (includes US$10.4m from related parties) 7 12.5

Ceded unearned premiums (includes US$12.8m from related parties) 18.9 Receivables

Underwriting premiums (includes US$151.4m from related parties) 214.5 Other 0.8

Deferred policy acquisition costs (includes US$13.9m from related parties) 31.0 Office properties and equipment 0.1 Intangible assets 13 2.0

Total assets 1,211.8

Liabilities

Insurance reservesLosses and loss adjustment expenses (includes US$62.2m from related parties) 7 93.9 Unearned premiums (includes US$104.6m from related parties) 215.7

Total insurance reserves 309.6

Deferred income taxes 8 4.6Payables

Reinsurance premiums 2.1 Accrued expenses and other (includes US$1.5m from related parties) 17.4

Total liabilities 333.7

Shareholders' equity

Common Stock: 56,876,360 ordinary shares of 0.1544558¢ each 9 836.9Retained earnings 28.6 Accumulated other comprehensive income, net of taxes

Unrealised appreciation on investments 17 0.6 Unrealised gains on foreign currency 17 12.0

Total accumulated other comprehensive income 12.6

Total shareholders' equity 878.1

Total liabilities and shareholders' equity 1,211.8


Consolidated Balance Sheet

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2002 Shareholders' equity Notes US$m

Common Stock:On 23 May 2002 0.0 Stock Issued:

New shares issued 836.9

End of period 9 836.9

Retained earnings:On 23 May 2002 0.0 Net income for the period 28.6

End of period 28.6

Unrealised appreciation on investments, net of taxes:On 23 May 2002 0.0 Change for the period 0.6


Unrealised gain on foreign currency translation, net of taxes:On 23 May 2002 0.0 Change for the period 12.0


Total shareholders' equity 878.1

Consolidated statement of comprehensive Income2002

Aspen Insurance Holdings Limited US$m

Net income 28.6Other comprehensive income, net of taxes

Change in unrealised appreciation on investments 0.6 Change in unrealised gain on foreign currency translation 12.0 Other comprehensive income 12.6

Comprehensive income 41.2


Consolidated Statement of Shareholders' Equity

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Statement of Consolidated Cash Flows


2002Operating activities US$m

Net income (includes US$6.1m from related parties) 28.6AdjustmentsChange in assets and liabilities net of effects of purchase of City Fire Insurance Company LimitedChange in property-liability insurance reserves

Losses and loss adjustment expenses (includes US$62.2m from related parties) 86.0Unearned premiums (includes US$104.6m from related parties) 210.6

Change in reinsurance balancesReinsurance recoverables (includes US$10.4m from related parties) (10.5)Ceded unearned premiums (includes US$12.8m from related parties) (18.4)

Change in deferred policy acquisition costs (includes US$13.9m from related parties) (30.0)Change in insurance premiums receivable (includes US$151.4m from related parties) (209.7) Change in reinsurance premiums payable 2.1Change in deferred income taxes 3.8Change in accounts receivable (0.8)Change in accrued expenses and other (includes US$1.5m from related parties) 16.4

Net cash from operating activities 78.1

Investing activities

Purchase of investments (963.2)Proceeds from the sales and maturities of investments 63.5 Payment for purchase of City Fire Insurance Company Limited net of cash acquired (17.7)

Net cash used for investing activities (917.4)

Financing activities

Proceeds from the issuance of common shares, net of issuance costs 836.9

Net cash from financing activities 836.9

Effect of exchange rate movements on cash and cash equivalents 12.0

Increase in cash and cash equivalents 9.6

Cash at beginning of the period 0.0

Cash at end of the period 9.6



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committed tobuilding a stronglycapitalised,diversified business,positioned to meetour clients’risktransfer needs

1 Basis of presentation and summary of significant accounting policies

Basis of presentation and consolidation

Aspen Insurance Holdings Limited (‘The Holding Company’) was incorporated under the name of Exali Reinsurance Holdings Limited (‘Exali’) on 23 May 2002 to hold the subsidiaries that provide insurance and reinsurance on a world-wide basis. Exali subsequently changed its name to Aspen Insurance Holdings Limited on 20 November 2002.On 21 June 2002 The Holding Company acquired the entire issued share capital of The CityFire Insurance Company Limited(‘City Fire’). City Fire wasrenamed Wellington ReinsuranceLimited (Wellington Re) andcommenced underwriting on 23June 2002. On 4 March 2003,Wellington Re was renamedAspen Insurance UK Limited(Aspen Re). Aspen InsuranceLimited was established on 6November 2002 as ExaliInsurance Limited and changedits name to Aspen InsuranceLimited on 22 November 2002.Aspen Insurance UK ServicesLimited provides services toGroup companies in its capacityas the employer of the directorsand staff of Aspen Insurance UKLimited.

The Consolidated FinancialStatements of Aspen InsuranceHoldings Limited (‘The HoldingCompany’) are prepared inaccordance with United StatesGenerally Accepted AccountingPrinciples (‘GAAP’). The financialstatements are presented on aconsolidated basis including thetransactions of all operatingsubsidiaries. Transactions

between Group companies areeliminated within theconsolidated financialstatements.

Use of Estimates

Estimates and assumptions aremade by the directors that havean effect on the amountsreported within theseconsolidated financialstatements. The mostsignificant estimates relate tothe reserves for property andliability losses. These estimatesare continually reviewed andadjustments made as necessary,but actual results could turn outsignificantly different from thoseexpected when the estimateswere made.

Accounting for underwriting operations

Premiums earned

Assumed premiums arerecognised as revenuesproportionately over thecoverage period. Premiumsearned are recorded in thestatement of operations, net ofthe cost of purchasedreinsurance. Premiums not yetrecognised as revenue arerecorded in the consolidatedbalance sheet as unearnedpremiums, gross of any cededunearned premiums. Writtenand earned premiums, and therelated costs, which have not yetbeen reported to the Group areestimated and accrued. Due tothe time lag inherent inreporting of premiums bycedants, such estimatedpremiums written and earned, aswell as related costs, may besignificant. Differences betweensuch estimates and actualamounts will be recorded in theperiod in which the actual

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Notes to the Consolidated Financial Statements


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Premiums on proportional treatytype contracts are generally notreported to the Group until afterthe reinsurance coverage is inforce and the reinsurer is at risk.As a result an estimate of these‘pipeline’ premiums is recorded.The company estimates pipelinepremiums based on estimates ofultimate premium, calculatedunearned premium andpremiums reported from cedingcompanies. The Group estimatescommissions, losses and lossadjustment expenses on thesepremiums.

Reinstatement premiums andadditional premiums are accruedas provided for in the provisionsof assumed reinsurancecontracts, based on experienceunder such contracts.Reinstatement premiums are thepremiums charged for therestoration of the reinsurancelimit of a catastrophe contract toits full amount after payment bythe reinsurer of losses as a resultof an occurrence. Thesepremiums relate to the futurecoverage obtained during theremainder of the initial policyterm and are earned over theremaining policy term.Additional premiums arepremiums charged after

coverage has expired, related toexperience during the policyterm, which are earnedimmediately. An allowance foruncollectable premiums isestablished for possible non-payment of such amounts due,as deemed necessary.

Outward reinsurance premiumsare accounted for in the sameaccounting period as thepremiums for the related directinsurance or inwards reinsurancebusiness. Reinsurance contractsthat operate on a 'lossesoccurring during' basis areaccounted for in full over theperiod of coverage whilst 'riskattaching during' policies areexpensed using the same ratio asthe underlying premiums on adaily pro-rata basis.

Insurance losses and lossadjustment expenses

Losses represent the amountpaid or expected to be paid toclaimants in respect of eventsthat have occurred on or beforethe balance sheet date. The costsof investigating, resolving andprocessing these claims areknown as loss adjustmentexpenses (‘LAE’). The statementof operations records these

losses net of reinsurance,meaning that gross losses andloss adjustment expensesincurred are reduced by theamounts recovered or expectedto be recovered underreinsurance contracts.

Reinsurance

Written premiums, earnedpremiums and incurred claimsand LAE all reflect the net effectof assumed and cededreinsurance transactions.Assumed reinsurance refers tothe Group's acceptance ofcertain insurance risks that otherinsurance companies haveunderwritten. Ceded reinsurancemeans other insurancecompanies have agreed to sharecertain risks with this Group.Reinsurance accounting isfollowed when risk transferrequirements have been met.

The Group regularly evaluatesthe financial condition of itsreinsurers and monitors theconcentration of credit risk tominimise its exposure to financialloss from reinsurers' insolvency.Where it is considered required,appropriate provision is made forbalances deemed irrecoverablefrom reinsurers.



Insurance reserves

Insurance reserves areestablished for the total unpaidcost of claims and LAE, whichcover events that have occurredby the balance sheet date. Thesereserves reflect the Group'sestimates of the total cost ofclaims incurred but not yetreported to it (‘IBNR’). Claimreserves are reduced forestimated amounts of salvageand subrogation recoveries.Estimated amounts recoverablefrom reinsurers on unpaid lossesand LAE are reflected as assets.

For reported claims, reserves areestablished on a case by casebasis within the parameters ofcoverage provided in theinsurance policy or reinsuranceagreement. For IBNR claims,reserves are estimated usingestablished actuarial methods.Both case and IBNR reserveestimates consider such variablesas past loss experience, changesin legislative conditions, changesin judicial interpretation of legalliability policy coverages, andinflation.

Because many of the coveragesunderwritten involve claims thatmay not ultimately be settled for

many years after they areincurred, subjective judgementsas to the ultimate exposure tolosses are an integral andnecessary component of the lossreserving process. Reserves areestablished by the selection of a'best estimate' from within arange of estimates. The Groupcontinually reviews its reserves,using a variety of statistical andactuarial techniques to analysecurrent claims costs, frequencyand severity data, and prevailingeconomic, social and legalfactors. Reserves established inprior periods are adjusted asclaim experience develops andnew information becomesavailable. Adjustments topreviously estimated reserves arereflected in the financial resultsof the period in which theadjustments are made.

Whilst the reported reservesmake a reasonable provision forunpaid claim and LAEobligations, it should be notedthat the process of estimatingrequired reserves does, by its verynature, involve uncertainty. Thelevel of uncertainty can beinfluenced by factors such as theexistence of coverage with longduration payment patterns andchanges in claims handling

practices, as well as the factorsnoted above. Ultimate actualpayments for claims and LAEcould turn out to be significantlydifferent from our estimates.

Policy acquisition expenses

The costs directly related towriting an insurance policy arereferred to as policy acquisitionexpenses and consist ofcommissions, premium taxes andother direct underwritingexpenses. Although theseexpenses are incurred when apolicy is issued they are deferredand amortised over the sameperiod as the correspondingpremiums are recorded asrevenues.

On a regular basis a recoverabilityanalysis is performed of thedeferred policy acquisition costsin relation to the expectedrecognition of revenues,including anticipated investmentincome, and reflect adjustments,if any, as period costs. Should theanalysis indicate that theacquisition costs areunrecoverable, further analysesare performed to determine if areserve is required to provide forlosses which may exceed therelated unearned premium.

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Accounting for investments

Fixed maturities

The fixed maturity portfolio iscomposed primarily of high-quality, US and UK governmentsecurities. The entire fixedmaturity investment portfoliois classified as available forsale. Accordingly thatportfolio is carried on theconsolidated balance sheet atestimated fair value. Fairvalues are based on quotedmarket prices from a thirdparty pricing service.

Short term investments

Short term investmentsinclude highly liquid debtinstruments and commercialpaper and is held as part of theinvestment portfolio of theGroup.

Realised investment gains andlosses

The cost of each individualinvestment is recorded so thatwhen an investment is sold theresulting gain or loss can beidentified and recorded in thestatement of operations.

The difference between the costand the estimated fair marketvalue of all investments ismonitored. If we determine thatany investment has experienceda decline in value that is believedto be other than temporary, weconsider the current facts andcircumstances, including thefinancial position and futureprospects of the entity thatissued the investment security,and make a decision to eitherrecord a write-down in thecarrying value of the security orsell the security; in either case arealised loss is recorded in thestatement of operations.

Unrealised appreciation ordepreciation on investments

For investments carried atestimated fair value the differencebetween amortised cost and fairvalue, net of deferred taxes, isrecorded as part of shareholders'equity. This difference is referredto as unrealised appreciation ordepreciation on investments. Thechange in unrealisedappreciation or depreciation, netof taxes, during the year is acomponent of othercomprehensive income.

Cash and cash equivalents

Cash and cash equivalents includecash on hand and at bank.

Derivative financial instruments

In accordance with Statement ofFinancial Accounting Standards(‘SFAS’) No. 133, ‘Accounting forDerivative Instruments andHedging Activities’, all derivativesare recorded on theconsolidated balance sheet atfair value. The accounting for thegain or loss due to the changesin the fair value of theseinstruments is dependent onwhether the derivative qualifiesas a hedge. If the derivative doesnot qualify as a hedge, the gainsor losses are reported inearnings when they occur. If thederivative does qualify as ahedge, the accounting variesbased on the type of risk beinghedged. The Group has notentered into any derivativecontracts qualifying as hedgesduring the reporting period.

Intangible assets

Acquired insurance licences areheld in the consolidated balancesheet at cost. This intangible



asset is not currently beingamortised as the directorsbelieve that these will have anindefinite life. The directors testfor impairment annually orwhen events or changes incircumstances indicate that theasset might be impaired.

Office properties and equipment

Office equipment is carried atdepreciated cost. These assetsare depreciated on a straightline basis over the estimateduseful lives of the assets of fouryears.

Foreign currency translation

The functional currencies of theGroup's operations are USdollars for the reinsuranceoperations segment and BritishPounds for the UK insuranceoperations segment.Transactions in currencies otherthan the functional currency ofan operations segment aremeasured in the functionalcurrency of that operationssegment at the exchange rateprevailing at the date of thetransaction. Monetary assetsand liabilities denominated in

non-functional currencies areremeasured at the exchangerate prevailing at the balancesheet date. Any resultingforeign exchange gains orlosses are reflected in thestatement of operations.

Assets and liabilities of theGroup's British Pound functionalcurrency operations segmentare then translated into USdollars at the exchange rateprevailing at the balance sheetdate. Income and expenses ofthis operations segment aretranslated at the averageexchange rate for the period.The unrealised gain or loss fromthis translation, net of tax, isrecorded as part ofshareholders' equity. Thechange in unrealised foreigncurrency translation gain or lossduring the year, net of tax, is acomponent of othercomprehensive income.

Earnings per share

Basic earnings per share isdetermined by dividing income /loss available to shareholders bythe weighted average number

of shares outstanding duringthe period. Diluted earningsper share reflects the effect onearnings and average numberof shares outstandingassociated with dilutivesecurities.

Income tax

Income taxes are accounted forunder the asset and liabilitymethod. Deferred tax assets andliabilities are recognised for thefuture tax consequencesattributable to differencesbetween the financialstatement carrying amounts ofexisting assets and liabilitiesand their respective tax basesand operating loss and taxcredit carryforwards. Deferredtax assets and liabilities aremeasured using enacted taxrates expected to apply totaxable income in the years inwhich those temporarydifferences are expected to berecovered or settled. The effecton deferred tax assets andliabilities of a change in taxrates is recognised in income inthe period that includes theenactment date.

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Related party transactions

The following summarises therelated party transactions ofthe Group.

Wellington Underwriting plc

Wellington Underwriting plc(‘WU’) holds 21.2% of thecommon shares of The HoldingCompany and is represented onthe Board of Directors of TheHolding Company. Details of theshareholding of WU aredisclosed in note 9. In addition,WU holds 3,781,120 options tosubscribe for ordinary shares ofThe Holding Company, as notedbelow and in note 12.

The principal operatingsubsidiary of the Group, AspenInsurance UK Limited (Aspen Re),has a number of arrangementswith WU. These arrangementscan be summarised as follows:

Quota share arrangements

For 2002, WU's managedSyndicate 2020 (‘Syndicate

2020’) has placed a qualifyingquota share contract with aBerkshire Hathaway groupcompany, National IndemnityCorporation of Omaha (‘NICO’)and established a consortiumSyndicate 3030 with anotherBerkshire Hathaway subsidiary.Aspen Re has accessed certainof its business through thesearrangements.

On 9 July 2002 Aspen Re wrotetwo quota share contracts.Under the first, Aspen Reassumed a 34% share of NICO'squalifying quota sharereinsurance of syndicate 2020,subject to an overall premiumlimit of £63.8 million. Underthe second, Aspen Re assumeda 70% reinsurance quota shareof Syndicate 3030. Of the grosswritten premiums of US$374.8million for the period ended 31 December 2002, US$98.2million related to the Syndicate2020 qualifying quota shareand US$118.0 million to thequota share of Syndicate 3030.

These arrangements wereundertaken on a fundswithheld basis whereby thepremiums due to Aspen Re will be paid net of claims and expenses, along withinterest due on the fundswithheld, calculated at ratesspecified in the quota shareagreements.

For 2003, the Group hasentered into a 7.5% quotashare agreement directly withSyndicate 2020. The Group has an option, but nocontractual obligation, toassume up to a 20% quotashare of Syndicate 2020'sbusiness for subsequent years,while Syndicate 2020 has anoption, but no contractualobligation, to assume up to a20% quota share of Aspen Re'sbusiness for subsequent years.These options will terminate for years after 2005 if TheHolding Company completesan initial public offering priorto 21 December 2005.

At 31 December 2002 the net amounts receivable from NICO and Syndicate 3030 under these contracts were US$7.4mand US$0.4m respectively, analysed as follows:



NICO 3030 TotalAssets US$m US$m US$m

Reinsurance recoverable 6.3 4.1 10.4Ceded unearned premiums 2.4 10.4 12.8Underwriting premium receivables 98.2 118.0 216.2Other receivables 0.0 0.1 0.1

106.9 132.6 239.5

Liabilities

Losses and loss adjustment expenses (37.4) (24.8) (62.2)Unearned premiums (30.0) (74.6) (104.6)Reinsurance premiums payables (24.4) (25.5) (49.9)Accrued expenses and other payables (7.7) (7.3) (15.0)

(99.5) (132.2) (231.7)

7.4 0.4 7.8

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Option to purchase retrocessionagreement

The quota share arrangementsfor 2002 described above wereentered into pursuant to anoption agreement entered intoon 28 May 2002, whereby WUand The Holding Companyagreed to pay NICO US$2.5million and US$2.0 million,respectively, to procure (i) theretrocession to a subsidiary ofThe Holding Company of theNICO qualifying quota share ofSyndicate 2020 and (ii) thereinsurance of Syndicate 3030.On 21 June 2002 Aspen Rereimbursed WU US$2.5 millionfor the amount that WU paid toNICO for the option, togetherwith a fee of US$275,000 for therisk borne by WU during theperiod 28 May 2002 to 21 June2002. Subsequently The HoldingCompany recharged the cost ofthe option to Aspen Re. The costof these option agreements hasbeen treated as a policyacquisition cost and is chargedto the income statement inproportion to the premiumsrecognised under the contracts.

Provision of services

The Group has entered into acontract for the provision ofservices by a subsidiary companyof WU to the Group. Theseservices include accounting,actuarial, operations andtechnical support. Thisagreement is for an indefinite

period but may be terminated byeither party upon the occurrenceof certain specifiedcircumstances, such as theinability to pay debts, on an InitialPublic Offering, and, after aninitial period of 3 years, may beterminated by either party on 18months' prior notice. The Groupmay also terminate specificservices if it undertakes thoseservices itself and does notcontract those services to a thirdparty. The provision of theseservices is covered by a detailedservice level agreement and ispriced on an actual cost basis.The cost of these services in 2002was US$2.6 million, and theamount due to WU at 31December 2002 was US$1.5m.

Stock options

As disclosed in note 12, thecompany granted options tosubscribe to its shares to WU andto a trust established for thebenefit of the unalignedmembers of Syndicate 2020 inconsideration for the transfer ofan underwriting team from WU,the right to seek to renew certainbusiness written by Syndicate2020, an agreement in which WUagrees not to compete withAspen until April 2004, the use ofthe Wellington name and logoand the provision of certainoutsourced services to theGroup. These options have beenrecorded at a value of nil, equalto the transferor's historical cost

basis of the assets transferred tothe Group.

Shares issued to the directors

Shares in The Holding Companyhave been issued to the directorsof Group companies in theperiod. These amounts and theconsideration received by thecompany are disclosed in note 9.

2 Acquisition of City Fire Insurance Company Limited

In June 2002 the Groupcompleted the acquisition of CityFire Insurance Company Limitedfor a total consideration ofUS$24.2 million (includingacquisition costs and stamp dutyof US$1.1 million). That company,at the date of acquisition, wasnot writing any new or renewalbusiness and its only employeeswere responsible for managingits effective run-off. The name ofthe company was subsequentlychanged to WellingtonReinsurance Limited and then toAspen Re and the companybecame the principal tradingentity of the Group. The directorshave assessed the fair value ofthe net tangible and financialassets acquired at US$22.8million. An amount of US$2.0million, gross of US$0.6mdeferred tax, is the estimated fairvalue of that company'sinsurance licences that aretreated as an intangible asset.

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3 Earnings per common share

Earnings US$m

Basic

Net income as reported and available to common shareholders 28.6

DilutedNet income as reported and available to common shareholders 28.6Effect of dilutive securities 0.0

Net diluted income as reported and available to common shareholders 28.6

Common shares

Basic 32.0

Weighted average common shares 32.0

DilutedWeighted average common shares 32.0 Weighted average effect of dilutive securities 0.0

Total 32.0

Earnings per common share US$

Basic 0.89

Diluted 0.89



4 Investments

The following presents the cost, gross unrealised appreciation and depreciation, and estimated fair value of investments in fixed maturities and other investments.

As at 31 December 2002 US$m US$m US$m US$mCost or Gross Gross Estimated

amortised unrealised unrealised fairInvestments cost appreciation depreciation value

Fixed maturitiesForeign governments 56.9 1.1 1.4 56.6 Corporate securities 30.6 0.2 0.1 30.7

Total fixed maturities 87.5 1.3 1.5 87.3Short term investments 834.1 1.7 0.7 835.1

Total 921.6 3.0 2.2 922.4

The following table presents the breakdown of fixed maturities by year to stated maturity. Actual maturities may differ from those stated as a result of calls and prepayments.

US$m US$mAmortised Estimated fair

Fixed maturities by maturity date cost value

One year or less 30.6 30.7 Over one year through five years 56.9 56.6

Total 87.5 87.3

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5 Investment transactions

The following table sets out an analysis of investment purchases, sales and maturities.

Purchases US$m

Fixed maturities 129.1 Short term investments 834.1

Total purchases 963.2

Proceeds from sales and maturitiesFixed maturities

Sales 14.4

Maturities and redemptions 49.1

Total sales and maturities 63.5

Net purchases 899.7

The following is a summary of investment income.US$m

Fixed maturities 1.5Short term investments 7.0

Net investment income 8.5

The following table summarises the pretax realised investment gains and losses, and the change in unrealised appreciation of investments recorded in shareholders' equity and in comprehensive income.

Pretax realised investment gains and losses US$m

Short term investmentsGross realised gains 0.1Gross realised losses (0.2)

Total fixed maturities (0.1)

Total pretax realised investment gains (losses) (0.1)

Change in unrealised appreciation US$m

Fixed maturities (0.2)Short term investments 1.0

Total change in pretax unrealised appreciation 0.8

Change in taxes (0.2)

Total change in unrealised appreciation, net of taxes 0.6



7 Reserves for losses and loss adjustment expenses

The following table represents a reconciliation of beginning and ending consolidated property-liability insurance loss and loss adjustment expenses ('LAE') reserves.

As at 31 December 2002

Reserves for losses and loss adjustment expenses US$m

Provision for losses and LAE at date of incorporation 0.0Less reinsurance recoverable 0.0

Net loss and LAE reserves at date of incorporation 0.0

Loss and LAE reserves of subsidiary at date of acquisition 6.1 Less reinsurance recoverables (1.6)

Net loss and LAE reserves of subsidiary at date of acquisition 4.5

Provision for losses and LAE for claims incurredCurrent year 76.2Prior years 0.7

Total incurred 76.9

Losses and LAE payments for claims incurredCurrent year (0.7)Prior years (3.0)

Total paid (3.7)

Foreign exchange gains / (losses) 3.7Net loss and LAE reserves at year end 81.4 Plus reinsurance recoverables on unpaid losses at end of year 12.5

Loss and LAE reserves at end of year 93.9

6 Derivative financial instruments

Derivative financial instrumentsinclude futures, forward, swap andoption contracts and otherfinancial instruments with similarcharacteristics. The Group hasvery limited involvement withthese instruments, primarily forthe purpose of protecting againstfluctuations in foreign currency

exchange rates. The Group hasnot had any instruments thatqualify as hedges under SFAS 133during the reporting period.

Non-Hedge Derivatives - duringthe period the Group soldforward, under a contract whichmatured before the period end,£230 million at a fixed exchangerate. A gain of US$12.7 million

was realised under the contract.This contract was taken out toprotect the Group from exchangerate fluctuations between theperiod of establishment of theGroup and its receipt of theproceeds from its second trancheof capital. There were noderivatives outstanding at theend of the period.

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8 Income taxes

Total income tax for the year ended 31 December 2002 is allocated as follows:

US$m

Income from operations 6.5Shareholders' equity, for unrealised change in appreciation on investments 0.2

Total income tax 6.7

Income from continuing operations before tax and income tax expense attributable to that income consists of:

Income Current Deferred Totalbefore income income income

tax taxes taxes taxes

United Kingdom 33.9 2.5 4.0 6.5Bermuda 1.2 0.0 0.0 0.0

Total 35.1 2.5 4.0 6.5

Income tax reconciliation US$m

Income tax at the statutory rate applicable in the United Kingdom (30%) 10.5Effect of exchange gains exempt from UK taxation (3.6)Effect of lower rate applicable to operations in Bermuda (Bermudian operations taxed at 0%) (0.4)

Total income tax expense 6.5

The tax effects of temporary differences that give rise to deferred tax liabilities are presented in the following table.

Deferred tax liabilities US$m

Insurance reserves 4.0Intangible assets 0.6

Deferred tax liabilities 4.6



9 Capital structure

The Holding Company wasformed on 23 May 2002 with theissue of 12,000 nil paid shareswith a par value of US$0.1 tomembers of management of theGroup. On 18 June 2002 thedenomination of the share capitalwas changed to British pounds

and the par value of the shareschanged to £0.001. On August20, 2003, the denomination of theshare capital was changed fromBritish pounds to US dollars andthe par value of the shareschanged to 0.15144558¢.Following the funding of AspenHoldings by the accredited

investors on June 21, 2002 the nilpaid shares were purchased byAspen Holdings and madeavailable for reissue, extinguishingthe liability of the originalshareholders for the amountsunpaid on those shares. Thefollowing summarises the capitalstructure.

No. US$000

Authorised share capitalOrdinary shares of 0.15144558¢ each 76,416,910 116

Issued share capital of 0.15144558¢ per share 56,876,360 86Share premium account 836,772

Issued common shares 56,876,360 836,858

The proceeds from the issue of equities are shown net of related issuance costs of US$28.1 million. The shares in The Holding Company were issued to the investors as follows:

No. £000 US$000

21 June 2002Accredited investors 24,729,470 247,327 370,991Members of management of the Group 130,120 1,269 1,904

16 October 2002Wellington Underwriting plc 4,625,070 47,000 73,052

19 November 2002Wellington Underwriting plc 4,874,930 49,763 79,044

29 November 2002Wellington Underwriting plc 2,555,230 26,089 40,498Accredited investors 19,910,690 199,093 298,640Members of management of the Group 40,630 420 629

The remaining issued shares, numbering 10,220, were issued to staff of Aspen Group companies at various times during the period to 31 December 2002 for a total consideration of US$165,000.

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26

Statutory capital and surplus as reported to the relevant regulatory authorities for the principal operating subsidiariesof the company as of December 31, 2002 is as follows:

Bermuda UKUS$m US$m

Required statutory capital and surplus 100.0 53.8 Actual statutory capital and surplus 199.3 649.0

As at December 31, 2002, there are no statutory restrictions on the payment of dividends from retained earnings bythe company as the minimum statutory capital and surplus requirements are satisfied by the share capital andadditional paid-in capital of the company in all jurisdictions.

As well, the minimum levels of solvency and liquidity have been met and all applicable regulatory requirements andlicensing rules complied with.

11 Retirement plans

The Group operates a definedcontribution retirement plan forthe majority of its employees atvarying rates of their salaries, upto a maximum of 20%. Duringthe period total contributions bythe Group to the retirement planwere US$0.3 million.

12 Share options

The Holding Company issuedoptions to subscribe for up to6,787,880 ordinary shares of0.15144558¢ each in AspenInsurance Holdings Limited to

Wellington and the members ofSyndicate 2020 who are notcorporate members of Wellington.

The subscription price payableunder the options is initially £10and increases by 5% per annum,less any dividends paid. Optionholders are not entitled toparticipate in any dividends priorto exercise and would not rank asa creditor in the event ofliquidation. The options areexercisable on the first registeredpublic offering of the ordinaryshares in the United States ofAmerica or the first listing of the

ordinary shares on a stockexchange (a ‘listing’) or a sale of all or substantially all of thebusiness, assets or undertakings of The Holding Company and itssubsidiaries or a sale of 50% ormore of the shares of The HoldingCompany (a ‘sale’) or, if no listingor sale has occurred prior to June21, 2007, at any time within thefive business days following June21, 2007. If not exercised, theoptions will expire after five years,but if a listing occurs within thosefive years, the term isautomatically extended prior to a period of ten years.

10 Statutory requirements and dividend restrictions

As a holding company, AspenInsurance Holdings Limited relieson dividends from its insurancesubsidiaries to provide cash flowto meet ongoing cashrequirements, including any futuredebt service payments and otherexpenses, and to pay dividends, ifany, to our shareholders.Thecompany’s insurance subsidiariesare subject to insurance laws andregulations in the jurisdictions inwhich they operate, includingBermuda, the United Kingdomand the United States, and are

subject to significant regulatoryrestrictions limiting their ability todeclare and pay dividends.

Aspen Insurance Limited’s ability topay dividends and make capitaldistributions is subject to certainregulatory restrictions basedprincipally on the amount ofAspen Insurance Limited’spremiums written and net reservesfor losses and loss expenses.

Under the jurisdiction of theFinancial Services Authority (‘FSA’),Aspen Insurance UK Limited mustmaintain a margin of solvency at

all times, which is determinedbased on the type and amount ofinsurance business written.TheUK regulatory requirementsimpose no explicit restrictions onAspen Insurance UK Limited’sability to pay a dividend, but thecompany would have to notifythe FSA 28 days prior to anyproposed dividend payment.

Aspen Specialty Insurance Limitedwill be subject to regulation bythe State of North DakotaInsurance Department regardingpayment of dividends and capitaldistributions in 2003.



13 Intangible assets

As at 31 December 2002Insurance licences

Intangible assets US$m

As at 23 May 2002 0.0Cost in period 2.0

End of period 2.0

Impairments

As at 23 May 2002 0.0Charge in period 0.0

End of period 0.0

Net book value

As at 23 May 2002 0.0

As at 31 December 2002 2.0

14 Commitments and contingencies

In the normal course of businessletters of credit are issued ascollateral on behalf of thebusiness, as required within ourreinsurance operations. As of 31December 2002 letters of creditwith an aggregate amount of£47.4 million were outstanding.No amounts have been drawndown on these letters of credit.

15 Reinsurance ceded

The primary purpose of the cededreinsurance program is to protectthe Group from potential losses inexcess of what the Group isprepared to accept. It is expectedthat the companies to which

reinsurance has been ceded willhonour their obligations. In theevent that these companies areunable to honour theirobligations to the group, thegroup will pay these amounts.Appropriate provision is made forpossible non-payment ofamounts due to the Group.

Balances pertaining to reinsurancetransactions are reported 'gross' onthe consolidated balance sheet,meaning that reinsurancerecoverable on unpaid losses andceded unearned premiums are notdeducted from insurance reservesbut are recorded as assets.

The largest concentration ofreinsurance recoverables as at 31

December 2002, excludingrelated party quota sharearrangements, was with XL ReLimited (Bermuda), which israted A+ by AM Best and AA byStandard & Poor's for its financialstrength. The largestconcentration of cededunearned premiums as at 31December 2002, excludingrelated party quota sharearrangements, was with EverestRe (Bermuda) Limited, which israted A+ by AM Best and AA- byStandard & Poor's for its financialstrength. Balances with XL Rerepresented 29.3% ofreinsurance recoverables andbalances with Everest Rerepresent 23.6% of cededunearned premiums.

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15 Reinsurance ceded continued

The effect of assumed and ceded reinsurance on premiums written, premiums earned and insurance losses and lossadjustment expenses is as follows.

For the period from incorporation on 23 May 2002 to 31 December 2002

Premiums written US$m

Direct 86.6Assumed 288.2 Ceded (62.2)

Net premiums written 312.6

Premiums earned

Direct 28.0 Assumed 135.8 Ceded (43.5)

Net premiums earned 120.3

Insurance losses and loss adjustment expenses

Direct 17.2 Assumed 69.8 Ceded (10.1)

Total net insurance losses and loss adjustment expenses 76.9

16 Segment information

The Group has two reportable segments, reinsurance operations and insurance operations. The directors havedetermined these segments with reference to the organisation structure of the business, and the different servicesprovided by the segments. The accounting policies of both segments are the same as those described in the summaryof significant accounting policies. Results are analysed separately for each of our property-liability segments. Property-liability underwriting assets are reviewed in total by the directors for the purpose of decision making.

Geographical areas - the following summary presents financial data of the Group's operations based on their location.

Revenues US$m

UK 32.2US 77.0Non US or UK 11.1

Net premiums earned 120.3



Segment information - the summary below presents revenues and pre-tax income from operations for the reportable segments.

Revenues US$m

UnderwritingTotal primary insurance operations 23.4Total reinsurance operations 96.9

Total underwriting 120.3

Investment operationsNet investment income 8.5 Realised investment gains / (losses) (0.1)

Total investment operations 8.4

Other 13.1

Total revenues 141.8

Expenses US$m

Underwriting - claims and expensesTotal primary insurance operations 21.3Total reinsurance operations 83.8

Total underwriting 105.1

Investment operationsNet investment income -Realised investment gains / (losses) -

Total investment operations -

Other 1.6

Total expenses 106.7

Income from operations before income taxes US$m

UnderwritingTotal primary insurance operations 2.0Total reinsurance operations 11.6

Total underwriting 13.6 Investment operations

Net investment income 8.5 Realised investment gains / (losses) (0.1)

Total investment operations 8.4

Other 13.1

Total income before income taxes 35.1

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17 Other comprehensive income

Other comprehensive income is defined as any change in the Group's equity from transactions and other eventsoriginating from non-owner sources. These changes are comprised of our reported net income, changes inunrealised appreciation and depreciation on investments and changes in unrealised foreign currency adjustments,net of taxes.

The following table sets out the components of the Group's other comprehensive income, other than net income.

US$m US$m US$mOther comprehensive income Pre-tax Income tax effect After tax

Unrealised appreciation on investments 3.0 (1.0) 2.0Unrealised depreciation on investments (2.2) 0.8 (1.4)Net change in foreign currency translation 12.0 - 12.0

Total other comprehensive income 12.8 (0.2) 12.6

18 Supplemental disclosure of cash flow information

Cash paid during the year for: $m

Income taxes 3.2

Non-cash investing and financing activities:

The company purchased all of the capital stock of City Fire Insurance Company Ltd for $24.2m. In conjunction with the acquisition, liabilities were assumed as follows:

Fair value of assets acquired, including cash of US$6.5m 33.0Cash paid for the capital stock (24.2)

Liabilities assumed 8.8

19 Subsequent events

On August 20, 2003, theshareholders of Aspen InsuranceHoldings Limited approved theestablishment of the 2003 ShareIncentive Plan under whichoptions for 3,884,020 ordinaryshares will be issued to directorsand employees of the company.The options are subject to certainrestrictions on vesting but, whenvested, can be exercised at aprice of £10.70 per share. Thecompany will follow theprovisions of SFAS No. 123,‘Accounting for Stock-Based

Compensation’ for any of thecompany’s plans.

On August 26, 2003, the companyentered into a credit facility witha syndicate of commercial banksunder which it may, subject tothe terms of the creditagreements, borrow up toUS$150 million for periods of upto three years and a furtherUS$50 million for periods of upto one year. Credit Suisse FirstBoston, an affiliate of CreditSuisse First Boston Private Equity,which is a shareholder of the

company, is a member of thesyndicate on terms andconditions similar to othersyndicate members.

On September 5, 2003, Aspen USHoldings acquired DakotaSpecialty Insurance Company forcash consideration of US$20.9million. Dakota Specialty wasrenamed Aspen SpecialtyInsurance Company and iseligible to operate as an insurerin the excess and surplus linesmarkets of many states of theUnited States.



Scope of responsibility

Management prepare theaccompanying consolidatedfinancial statements and relatedinformation and are responsible fortheir integrity and objectivity. Thestatements were prepared inconformity with United Statesgenerally accepted accountingprinciples. These consolidatedfinancial statements includeamounts that are based onmanagement's estimates andjudgements, particularly our reservesfor losses and loss adjustmentexpenses. We believe that thesestatements present fairly the Group'sfinancial position and results ofoperations and that otherinformation contained within theannual report is consistent with theconsolidated financial statements.

Internal controls

We maintain and rely on systems ofinternal accounting controlsdesigned to provide reasonableassurance that assets aresafeguarded and transactions areproperly authorised and recorded.We continually monitor theseinternal accounting controls,modifying and improving them as

business conditions and operationschange. We recognise the inherentlimitations in all internal controlsystems and believe that oursystems provide an appropriatebalance between the costs andbenefits desired. We believe oursystems of internal accountingcontrols provide reasonableassurance that errors or irregularitiesthat would be material to theconsolidated financial statementsare prevented or detected in thenormal course of business.

Independent auditors

Our independent auditors, KPMGAudit plc, have audited theconsolidated financial statements.Their audit was conducted inaccordance with auditing standardsgenerally accepted in the UnitedStates of America, which includesthe consideration of our internalcontrols to the extent necessary toform an independent opinion on theconsolidated financial statementsprepared by the directors.

Audit committee

The audit committee of the Board ofDirectors, composed entirely of non-executive directors, assists the Board

of Directors in overseeing theirdischarge of their financial reportingresponsibilities. The committeemeets with management andrepresentatives of KPMG Audit plc todiscuss significant changes tofinancial reporting principles andpolicies and internal controls andprocedures proposed orcontemplated by management orKPMG Audit plc. Additionally thecommittee assists the Board ofDirectors in the selection, evaluationof, and if applicable, replacement ofour independent auditors; and in theevaluation of the independence ofthe independent auditors. KPMGAudit plc have access to the auditcommittee without management'spresence.

Chris O'KaneChief Executive

Julian CusackFinance Director

19 May 2003

31

Management's Responsibility for Financial Statements


32

To the Shareholders and Boardof Directors of Aspen InsuranceHoldings Limited

We have audited the accompanyingconsolidated balance sheet ofAspen Insurance Holdings Limitedand its subsidiaries as of 31December 2002, and the relatedconsolidated statements ofoperations, shareholders' equity,comprehensive income and cashflows for the period fromincorporation on 23 May 2002 to 31December 2002. These consolidatedfinancial statements are theresponsibility of the company'smanagement. Our responsibility isto express an opinion on theseconsolidated financial statementsbased on our audit.

We conducted our audit inaccordance with auditingstandards generally accepted inthe United States of America.Those standards require that weplan and perform the audit toobtain reasonable assurance aboutwhether the consolidated financialstatements are free of materialmisstatement. An audit includesexamining, on a test basis,evidence supporting the amounts

and disclosures in theconsolidated financial statements.An audit also includes assessingthe accounting principles usedand significant estimates made bymanagement, as well as evaluatingthe overall financial statementpresentation. We believe that ouraudit provides a reasonable basisfor our opinion.

In our opinion, the consolidatedfinancial statements referred toabove present fairly, in all materialrespects, the consolidated financialposition of Aspen InsuranceHoldings Limited and itssubsidiaries as of 31 December2002, and the results of theiroperations and their cash flows forthe period from incorporation on23 May 2002 to 31 December 2002,in conformity with accountingprinciples generally accepted inthe United States of America.

KPMG Audit plc19 May 2003 London

Independent Auditors' Report


Contact us

Aspen Insurance Holdings LimitedVictoria Hall 11 Victoria StreetHamilton HM 11Bermuda

T +1 441 295-8201F +1 441 295-1829E [email protected]

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