We wrote less business in 2007 than in 2006 as a result of a number of factors including a less favorable pricing environment in many lines of business, in particular property catastrophe reinsurance, casualty treaty reinsurance, and U.K. commercial liability insurance and the re-positioning of our U.S. excess and surplus lines property insurance business. Gross written premiums in our casualty reinsurance segment were also reduced by the relocation of our casualty facultative business from our Marlton, New Jersey office to Rocky Hill, Connecticut and a change in underwriting approach.
• dividend payments to ordinary and preference shareholders totaling $80.7 million in 2007; and
Liquidity. Management monitors the liquidity of Aspen Holdings and of each of its Insurance Subsidiaries. With respect to Aspen Holdings, management monitors its ability to service debt, to finance dividend payments and to provide financial support to the Insurance Subsidiaries. During 2007, Aspen Holdings received a $125 million dividend payment from Aspen Bermuda and a $28.6 million payment of inter-company interest in respect of an inter-company loan and a $17.0 million dividend from Aspen U.K. Holdings. During the period ended December 31, 2006 Aspen Holdings received $35.0 million in dividends from Aspen U.K. Holdings and $26.0 million in interest payments under our intercompany loan.
On January 25, 2008, we received and cancelled 115,784 shares in connection with the accelerated share repurchased entered into on September 28, 2007. The accelerated share repurchase resulted in a repurchase of a total of 1,760,199 shares at an average purchase price per share of $28.41.
We believe that the following critical accounting policies affect the more significant estimates used in the preparation of our consolidated financial statements. A statement of all the significant accounting policies we use to prepare our financial statements is included in the Notes to the financial statements. If factors such as those described in Item 1A, ‘‘Risk Factors’’ cause actual events to differ from the assumptions used in applying the accounting policy and calculating financial results, there could be a material adverse effect on our results of operations, financial condition and liquidity.
Earned premiums. Premiums are recognized as earned evenly over the policy periods using the daily pro rata method.
The amounts shown for the lower and upper ends of the actuarial range are different from the sums of the corresponding amounts for the four segments. The difference, which we show in the tables as ‘potential variation’, takes into account the fact that at the higher end of the actuarial range we do not expect all segments to deteriorate at the same time (hence the variation credit) and, conversely, at the lower end of the actuarial range not all segments will improve simultaneously (hence the debit).
The increase in net written premiums for 2006 was not in line with the 7.0% reduction in gross written premiums due to the significantly higher reinsurance costs in 2005. The increased costs in 2005 were a result of the hurricanes in 2005 as, under the terms of our reinsurance contracts, we were obligated to make certain additional payments usually in the form of reinstatement premiums to provide recoveries in respect of more than one loss.
Gross premiums earned. Gross premiums earned reflect the portion of gross written premiums which are recorded as revenues over the policy periods of the risks we write. Therefore, the earned premium recorded in any year includes premium from policies incepting in prior years and excludes premium to be earned subsequent to the balance sheet date. Gross premiums earned in 2007 decreased by 4.9% compared to 2006 mainly as a result of the reduction in gross written premium. Gross earned premium increased by 3.5% in 2006 compared to 2005 primarily as a result of the growth in business written in our marine, specialty liability, energy and aviation insurance lines, which increased by $155.3 million in 2006.
The reduction in gross written premiums in the property reinsurance segment in 2007 was principally due to softening rates in particular in our risk excess line of business, and unfavorable pricing and market conditions and the non-renewal of several large contracts which did not meet our pricing conditions. The reduction in gross written premiums in 2006 when compared to 2005 was due to the change in our approach to catastrophe risk management which resulted in the planned non-renewal of, or reduced participation in, certain catastrophe exposed contracts. There was also a reduction in loss related reinstatement premiums between 2005 and 2006 of $59.6 million.
The decrease in gross written premiums in 2007 of 3.0% over 2006 is due to a number of factors including the prevailing less favorable pricing environment in some lines of business, in particular the aviation and U.K. commercial liability insurance classes. This was partially offset by increases in premiums from the energy insurance business. Contributions from the new lines of business including non-marine and transportation liability and professional liability were relatively small as a result of these lines commencing business late in 2007.
Reserves by segment. The following presents our loss reserves by business segment as at December 31, 2007 and 2006:
Repurchases of ordinary shares. On September 28, 2007, we entered into a Master Confirmation agreement with Goldman Sachs in connection with an ASR for the purchase of ordinary shares to the fixed value of $50 million. Under this arrangement we acquired and cancelled the minimum number of shares of 1,644,415 shares on October 25, 2007. When the contract expires, the Company may receive and subsequently cancel up to a further 143,359 shares, with the actual number being determined by the volume weighted average price of our shares over the period from October 22, 2007 (the end of the hedge period) and the date of termination less a discount. On January 25, 2008, the ASR was completed pursuant to which we canceled an additional 115,784 ordinary shares.