Aspen Insurance Holdings Limited Sells a Preferred
By: Tim McPartland,
Global insurance company Aspen Insurance Holdings Limited (NYSE:AHL) has sold a new perpetual preferred stock with a coupon of 5.625%. Being a insurance company the shares are required to be non-cumulative in respect to dividends (if they are not declared and paid they are gone forever). Dividends will qualify for preferential tax treatment (taxed at the lower capital gain tax rate). This issue has a 1st redemption date of 1/1/2027, which is much longer than the typical 1st redemption date 5 years after issuance. Standard and Poor’s has these shares rated low investment grade while Moodys is a notch below investment grade.
AHL insures against property and casualty losses as well as marine, aviation and other transportation losses. Their principal offices are located in Bermuda, London and Singapore.
The recent financial performance of the company has been good in spite of a number of catastrophic losses such as the wildfires in western Canada, earthquakes in Japan and various floods and fires through the United States.
Like all insurers Aspen invests substantial funds in high quality bonds and there is some pain in that sector as insurers are being impacted by low yields for quality bonds. The average duration of Aspens bond portfolio was 3.55 years during the most recently ended quarter. Total return for the portfolio for the quarter was 1.44% as compared to 2.06% in the previous 3 month period. As their older holdings mature there is no doubt that returns will soften further. Not unlike individual investors insurance companies and pension funds are struggling to find yield. While portfolio gains are likely to trend lower we don’t believe this presents any great risk to AHL at this point in time.
AHL has 3 other preferred issues outstanding with coupons ranging from a 5.95% fixed-to-floating rate issue, a 7.25% issue and a 7.401% fixed-to-floating rate issue. Be aware that the company has announced that they will use the proceeds from this new issue to redeem all or part of both the 7.25% issue (NYSE:AHL-B) and the 7.401% issue (AHL-A). AHL-B becomes redeemable on 7/1/2017 and AHL-A becomes redeemable on 1/1/2017.
It is interesting to note that the 7.401% issue begins to “float” on 1/1/2017 at a rate of 3 month LIBOR plus 3.28% meaning the rate with todays LIBOR rate would be 4.13%–so is it really wise to call a 4.13% issue with new 5.625% money? Without a crystal ball we can’t predict the future so there is no answer, but it seems likely that if rates are still rather low on 1/1/2017 they will NOT redeem this issue. You can compare these issues with the new issue on our “swaps” page here.
Obviously being a perpetual preferred issue shares will be subject to movements in prices based upon the direction of interest rate movements. Investors interested in this issue or any other perpetual issue must be will to accept these share price movements in exchange for a reasonably safe long term income stream.
Shares have begun trading on the OTC Grey market under ticker ASPIF and is trading right at $25/share.
To get more information on preferred stocks, screen them, set up your own portfolio and receive email alerts, go to www.preferred-stock.com now.