For an insurance IPO, Aspen Insurance Holdings Ltd. (NYSE:AHL) had an impressive first-day, gaining about 7% to close above $24 per share. Keep in mind that the number of shares offered increased from 9.5 to 10.5 million and that the initial price range for the offering was $20-$22.
Then again, this is a new era for insurance. And Aspen is of a new breed of insurer recently hitting the public markets. Others include Axis Capital Holdings Ltd. (NYSE:AXS) and Montpelier Re Holdings Ltd. (NYSE:MRH).
We'd witnessed the perfect storm for property and casualty insurers. With costs ranging from $36 billion to $54 billion, September 11 stands as the largest insured loss in history. Meanwhile, the investment climate had been horrendous: A three-year bear market joined forces with the lowest interest rates in 40 years. Not good for insurance companies.
To meet the new global risks, a handful of insurance companies were set up after September 11. Of these, Aspen pursued a familiar tack, setting up as a holding company based in Bermuda, known for its political stability, well-developed insurance industry, and favorable regulatory and tax climate.
Most importantly, Aspen also has the benefit of an unencumbered balance sheet, which means no legacy exposure to pre-2002 liabilities. Through a variety of acquisitions, Aspen has also gained a foothold both in the U.K. and the U.S. As a result, the firm has been able to exact favorable terms and conditions on its policies.
That's not to say that reading through Aspect's prospectus isn't scary. There are references to such things as "nuclear, biological, or chemical attack outside the U.S.," "windstorms," "earthquakes," and "hurricanes." Alas, such is the world we live in, and such are the new companies emerging to deal with these catastrophic events.
Tom Taulli is the author of six books on investing, such as Investing in IPOs (Bloomberg Press), as well as a professor of finance at the USC School of Business (don't worry, but he does come out of his ivory tower). You can reach him at [email protected].
