(6) Book value per share is based on total shareholders' equity divided by the number of shares outstanding of 58,876,360, 69,179,303 and 69,315,099 at December 31, 2002, 2003 and 2004, respectively.
We are a Bermuda holding company. We provide property and casualty reinsurance in the global market through Aspen Re and Aspen Bermuda. We provide property and liability insurance principally in the United Kingdom and in the United States through Aspen Re and Aspen Specialty and we provide marine and aviation insurance worldwide through Aspen Re. Aspen Re America is a reinsurance intermediary which provides property and casualty reinsurance in the United States exclusively on behalf of Aspen Re.
During 2004 we continued to expand and diversify our portfolio of business lines. In the United States we established an office in Connecticut to write property reinsurance through Aspen Re America. We also continued the development of our surplus lines operation through Aspen Specialty, by expanding our underwriting capacity in Boston and by opening offices in Georgia and Arizona.
2003 and $28.6 million, or $0.89 per share, for the period ended December 31, 2002. Management considers this per share increase in net income to reflect a strong overall performance in 2004 given the relatively short period since the Company started its operations in June 2002 and the relative immaturity of its earnings profile. We measure the maturity of the Company's earnings profile by the ratio of net premiums earned to net premiums written, which has increased from 38% for the period ended December 31, 2002, compared to 74% for the twelve months ended December 31, 2003, and 90.8% for the twelve months ended December 31, 2004. In a "steady state" in which written premiums were neither increasing nor decreasing from one year to the next, earned premium would equal written premium.
Gross premiums written increased from $374.8 million for the period ended December 31, 2002 to $1,306.8 million for the twelve months ended December 31, 2003 to $1,586.2 million for the twelve months ended December 31, 2004. Provisions for losses and related reinstatement premiums arising from catastrophe windstorm losses in the third quarter of 2004 amounted to $204.3 million, equivalent to an impact of 16% on our loss ratio.
We monitor the ratio of losses and loss adjustment expenses to net earned premium (the "loss ratio") as a measure of relative underwriting performance where a lower ratio represents a better result than a higher ratio. Our overall loss ratio was 59% for 2004 compared to 53% for 2003 and 64% for 2002. There was a release of net reserves in 2003 from prior years of $9.6 million, equivalent to around 1.1 percentage points on net earned premium for the year. For 2004 there was a release of net reserves of $62 million equivalent to around 5.0% percentage points on net earned premium for the year. Further information relating to the release of reserves can be found below under "Critical Accounting Policies" below.
We did not pay any dividends to shareholders in 2003. In 2004, we paid a quarterly dividend of $0.03 per ordinary share. On March 3, 2005, our board of directors authorized an increase in dividends to $0.15 from $0.03 per ordinary share. The dividend will be paid on March 25, 2005 for shareholders of record on March 15, 2005.
Management considers that the Company has advanced its business position as a result of its enhanced capital and surplus which are important in securing the confidence of policyholders and in providing capital to support continued development of the insurance and reinsurance business conducted by our Insurance Subsidiaries.
Total shareholders' equity increased from $1,298.7 million at the beginning of 2004 to $1,481.5 million at the end of 2004. The most significant movements were:
Our total capital was increased on August 16, 2004 by the issuance and sale of $250 million in aggregate principal amount of 6.00% Senior Notes due 2014 (the "Senior Notes"). The amounts outstanding under our Senior Notes (as further described under "-Liquidity and Capital Resources") were the only material debt that we had outstanding as of December 31, 2004. Management monitors the ratio of debt to total capital, with total capital being defined as shareholders' equity plus outstanding debt. At December 31, 2004, this ratio was 14.4%, compared to 3% as of December 31, 2003 (2002 - Nil). Management considers this to be well under the level at which it would expect rating agencies or customers to be concerned about excessive financial leverage.
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 to shareholders and to provide financial support to the Insurance Subsidiaries. During 2004, Aspen Holdings received $35 million in dividends from Aspen Re. As at December 31, 2004, Aspen Holdings held $19.9 million in cash and cash equivalents which, taken together with our credit facilities, management considered sufficient to provide us liquidity at such time.
The amount of net premiums included as revenue in any reporting period depends on:
• the amount and type of contracts written and the premiums we are able to charge to policyholders which are influenced by multiple factors, including prevailing market prices;
• the length of time over which the premiums receivable are earned and reinsurance premiums are expensed.
The statement of operations for the period from May 23, 2002 to December 31, 2002 includes a significant amount in respect of realized currency exchange gains but such gains are not expected to be a material recurrent component of our revenues.
Losses and loss adjustment expenses. These expenses include claims paid and payable under our insurance and reinsurance contracts and the internal and external costs of settling these claims ("loss adjustment expenses").
Our method for setting the reserves for unpaid losses and loss adjustment expenses at the end of any period is discussed below under "Critical Accounting Policies."
Income tax expense. This expense primarily represents corporation tax paid or payable by our U.K. operating company.
Our consolidated financial statements contain certain amounts that are inherently subjective in nature and have required management to make assumptions and best estimates to determine the reported values. If actual events differ significantly from management's underlying assumptions or estimates, there could be a material adverse effect on our results of operations and financial condition and liquidity.
We take all reasonable steps to ensure that we have appropriate information regarding our claims exposures. However, given the uncertainty in establishing claims liabilities, it is likely that the final outcome will prove to be different from the original provision established.
The following presents our loss reserves by business segment as at December 31, 2004 and 2003.
For classes of business which are not related to catastrophe, and where early claims experience may not provide a sound statistical basis to estimate the loss reserves, our approach is to establish an initial expected loss and loss expense ratio. This is based upon a combination of (a) an analysis of our own claims experience to date on our portfolio, (b) market benchmark data, (c) a contract by contract analysis, and (d) an analysis of a portfolio of similar business written by Syndicate 2020, as available, adjusted by an index reflecting how insurance rates, terms and conditions have changed. This initial expected loss and loss expense ratio is then modified in light of the actual experience to date measured against the expected experience. Loss reserves for known catastrophic events are based upon a detailed analysis of our reported losses and potential exposures conducted in conjunction with our underwriters.
In selecting our best estimates of the reserves for each line of business we take into account all of the factors set out above, and in particular the quality of the historical information the Company has on which to establish its reserves and the degree of estimation where information is received from cedents on an underwriting year basis and needs to be converted to an accident year basis. In addition, consideration is given to the point estimate produced by our independent consulting actuaries which was towards the upper end of the range for the year ended December 31, 2004.
Prior year loss reserves. In the twelve months ended December 31, 2004 and 2003, there was a reduction of our estimate of the ultimate claims to be paid. An analysis of this reduction by line of business is as follows:
For the twelve months ended December 31, 2004. The analysis of the favorable development by each line of business is as follows:
Property Reinsurance: The net reserves of the property reinsurance line of business as at December 31, 2003 were $95.3 million, which included specific case reserves in relation to brush fires
in the United States, Hurricanes, Fabian and Isabel and a Phillips factory loss in Normandy, France. Further claims information received during the twelve months to December 31, 2004 highlighted a lower severity of these reported claims than was originally anticipated and has given rise to a $17.1 million reduction in reserves in the period.
Casualty Reinsurance: The net reserves of the casualty reinsurance line of business as at December 31, 2003 were $125.6 million. We do not receive notice of most of the claims in this line of business until a considerable time has passed, however incurred claims development in the twelve months ended December 31, 2004 has resulted in a small increase in the projected loss ratio for this class of business giving rise to a strengthening of reserves of $0.6 million.
Commercial Property: The net reserves of the commercial property line of business as at December 31, 2003 were $40.5 million. Better than expected development in incurred claims during 2004 and the short tail nature of this class of business has enabled the Company to refine its accident year assessment. This has given rise to a release in net reserves of $13.8 million.
Commercial Liability: The net reserves of the commercial liability line of business as at December 31, 2003 were $126.8 million. During 2004, development of incurred claims has been slower than previously expected resulting in a reduction in the projected loss ratio suggested by the actuarial projection at December 31, 2004. This has resulted in a release in net reserves of $13.6 million in the period.
For the twelve months ended December 31, 2003. The analysis of the favorable development on a line of business basis is as follows:
Property Reinsurance: The net reserves of the property reinsurance line of business as at December 31, 2002 were $24 million, of which $9 million related to the Wellington quota share arrangements. Premiums and claims information received from the Syndicates and other cedents during the twelve months ended December 31, 2003 has indicated both a reduction in the 2002 underwriting year loss ratio and also an improvement in the accident year loss ratio for 2002. This results from a lower development of the severity of reported claims than is often observed in this line of business and gave rise to a $3.8 million reduction in reserves.
Specialty Reinsurance: The net reserves of the specialty reinsurance line of business as at December 31, 2002 were $30.9 million. All of the specialty business as at December 31, 2002 was derived through the Wellington quota share arrangements. The reserves established as at December 31, 2002 were based upon the cedents' underwriting year estimates. Management assessed these estimates and, with the data provided, determined the accident year loss ratio. Premiums and claims information received from the cedent during the twelve months ended December 31, 2003 has enabled the Company to refine its accident year assessment. This has resulted in a release in reserves of $4.2 million.
As at December 31, 2003, a 5% change in the reserve for net IBNR losses would equate to a change of approximately $16.0 million in loss reserves which would represent 7.8% of income from operations before income tax for the twelve months ended December 31, 2003. As at December 31, 2004, a 5% change in the reserve net for IBNR losses would equate to a change of approximately $30.6 million in loss reserves which would represent 11.6% of income from operations before income tax for the twelve months ended December 31, 2004.
underwriting on June 21, 2002. Aspen Bermuda was formed on November 6, 2002 and commenced insurance operations on December 9, 2002. Aspen Specialty was acquired on September 5, 2003. Our fiscal year ends on December 31. Our financial statements are prepared in accordance with U.S. GAAP. The following is a discussion and analysis of our consolidated results of operations for the twelve months ended December 31, 2004 and 2003, the twelve months ended December 31, 2004 and 2003 and the period from our incorporation on May 23, 2002 to December 31, 2002.
For the Twelve Months Ended December 31, 2004 and Twelve Months Ended December 31, 2003
Reinsurance ceded. Reinsurance premiums ceded for the twelve months ended December 31, 2004 were $228.6 million including reinstatement premiums of $21.3 million. Reinsurance premiums ceded for the twelve months ended December 31, 2003 were $214.0 million. The increase related to reinstatement premiums payable in respect of the windstorm losses in the southeastern United States and Typhoon Songda in the third quarter of 2004.
Net premiums written. Net premiums written for the twelve months ended December 31, 2004 were $1,357.6 million compared to $1,092.8 million in 2003 reflecting the increased gross premiums written during the year.
Net premiums earned. Net premiums earned for the twelve months ended December 31, 2004 were $1,232.8 million, representing 90.8% of net premiums written for such period, compared to net premiums earned of $812.3 million for the twelve months ended December 31, 2003, representing 74.3% of net premiums written.
Policy acquisition expenses. Policy acquisition expenses for the twelve months ended December 31, 2004 were $212.0 million, representing 17.2% of net premiums earned, compared to $152.3 million representing 18.7% of net premiums earned for the twelve months ended December 31, 2003.
Operating and administrative expenses. Operating and administrative expense for the twelve months ended December 31, 2004 were $93.0 million, compared to $53.3 million for the twelve months ended December 31, 2003. The operating and administrative expenses include provisions for fixed and performance related staff compensations. This increase represents higher staffing levels as new business lines have been introduced, and full year costs for Aspen Specialty and Aspen Re America. Operating and administrative expenses as a percentage of net earned premiums were 7.5% in 2004 and 6.6% in 2003.
Net investment income. Net investment income for the twelve months ended December 31, 2004 was $68.3 million compared with $29.6 million for the twelve months ended December 31, 2003, an increase of $38.7 million. The increase results from a 69% rise in investment balances together with rising interest rates and incremental extension during the year of portfolio duration from 1.14 years at December 31, 2003 to 1.76 years at December 31, 2004. The increase in duration results in greater exposure to interest rate risk as discussed below. Investment returns also increased from 2.0% in 2003 to 2.6% in 2004. Net investment income consisted primarily of interest on fixed income securities, which were partially offset by expenses relating to management of our investments.
Income before tax. Income before tax for the twelve months ended December 31, 2004 was $263.2 million, consisting of underwriting income of $204.2 million, net investment income of $68.3 million and other realized gains of $1.6 million, less interest on loans of $6.9 million, compared to $206.6 million for the twelve months ended December 31, 2003, which consisted of underwriting income of $178.3 million and investment returns of $28.7 million less interest on loans of $0.4 million.
Income tax expense. Income tax expense for the twelve months ended December 31, 2004 was $68.1 million compared to $54.4 million for the twelve months ended December 31, 2003. Our consolidated tax rate for 2004 was 25.5%, whereas in 2003 it was 26.4%. The tax rate decreased due to a greater proportion of the Company's profit which emanated from our Bermudian operations.
Net premiums written. Net premiums written for the period were $312.6 million of which $166.3 million were derived from the Wellington 2002 quota share arrangements and the balance from our own business.
Net premiums earned. Net premiums earned for the period were $120.3 million, representing 38.5% of net premiums written and including $74.3 million in respect of the Wellington 2002 quota share arrangements.
Policy acquisition expenses. Policy acquisition expenses for the period were $21.1 million including $14.1 million of ceding commissions and other acquisition expenses in respect of the Wellington 2002 quota share arrangements, the balance comprising brokerage in respect of our own business.
Our business segments are based on how we monitor the performance of our underwriting operations. Management measures segment results on the basis of the combined ratio, which is obtained by dividing the sum of the losses and loss expenses, acquisition expenses and general and administrative expenses by net premiums earned. As a newly formed company, our historical combined ratio may not be indicative of future underwriting performance. We do not manage our assets by segment; accordingly, investment income and total assets are not allocated to the individual segments. General and administrative expenses are allocated to segments based on each segment's proportional share of gross premiums written.
For the Twelve Months Ended December 31, 2004 and the Twelve Months Ended December 31, 2003
Premiums. Gross premiums written for the twelve months ended December 31, 2004 were $1,177.7 million, compared to $1,001.9 million for 2003, an increase of $175.8 million. The increases
included $47.1 million from new property reinsurance business written through Aspen Re America, which consisted mostly of risk excess, treaty catastrophe and treaty pro rata. Casualty saw an increase of $154.4 million largely due to increases in U.S. casualty although U.S. auto liability business written through WU Inc. in 2003 was discontinued in 2004 and we are no longer writing automobile reinsurance of this type. Premiums within our specialty line of business decreased by $69.7 million as we did not continue into 2004 our quota share reinsurance of Syndicate 2020 which accounted for $78.4 million in 2003.
Losses and loss adjustment expenses. Losses and loss adjustment expenses for the twelve months ended December 31, 2004 were $553.1 million compared to $303.0 million for the twelve months ended December 31, 2003. The increase by $250.1 million in losses and loss adjustment expenses was primarily due to material claims incurred during 2004 from Hurricanes Charley, Frances, Ivan and Jeanne and Typhoon Songda totaling $190.2 million. The loss ratio for the twelve months ended December 31, 2004 was 59.6% compared to 50.8% for the twelve months ended December 31, 2003.
Policy acquisition, operating and administration expenses. Total expenses for the twelve months ended December 31, 2004 were $233.1 million compared to $165.6 million for the twelve months ended December 31, 2003, an increase of $67.5 million. The expense ratio for the twelve months ended December 31, 2004 was 25% compared to 28% for the twelve months ended December 31,2003. As a percentage of gross premiums earned, the level of expenses was 21% for the twelve months ended December 31, 2004 compared to 22.1% for the twelve months ended December 31, 2003.
in excess of $3 million of claims. The only material loss on the risk excess account was a $1.8 million loss at a U.S. grain store. No material casualty reinsurance claims were reported in the period, reflecting the long tail nature of the casualty reinsurance business written. Total loss and loss adjustment expenses were $60.9 million representing 63% of net premiums earned.
We write both commercial property and commercial liability insurance. Our commercial property line of business is primarily composed of U.K. commercial property insurance, U.S. excess and surplus lines property business written through Aspen Specialty and worldwide property insurance focusing on providing coverage to major commercial and industrial companies on a global basis.
For the Twelve Months Ended December 31, 2004 and the Twelve Months ended December 31, 2003
Premiums. Gross premiums written for the twelve months ended December 31, 2004 were $408.5 million compared to $304.9 million for the twelve months ended December 31, 2003, an increase of $103.6 million. This increase was primarily due to our marine and aviation lines of business which were established in the third quarter of 2004 and the first full year of premiums from Aspen Specialty which wrote both property and casualty insurance in the U.S. Our gross written premiums in commercial property increased by $40.4 million primarily as a result of increased property insurance written by Aspen Specialty.
ended December 31, 2003, an increase of $45.1 million. The only material claim incurred during 2004 arose from a factory fire ($14.4m) in Suffolk, U.K. The loss ratio for the twelve months ended December 31, 2004 was 55.8% compared to 58.1% for the twelve months ended December 31, 2003.
However, the year also benefitted from a release of $27.4 million of prior year reserves in the period largely due to slower than expected development of incurred claims, as further described above under "Critical Accounting Policies-Prior Year Loss Reserves."
Policy acquisition, operating and administration expenses. Total expenses were $71.9 million for the twelve months ended December 31, 2004 compared to $40.0 million for the twelve months ended December 31, 2003, an increase of $31.9 million. The increase over the comparative period is due to the set up costs associated with the establishment of our U.S. insurance operations, Aspen Specialty, and the relatively low contribution to earned premiums from these operations during this early stage of development. Additionally, the worldwide property team's costs were recorded in 2004. Neither of these had costs in 2003. The expense ratio for the twelve months ended December 31, 2004 was 24% compared to 19% for the twelve months ended December 31, 2003. The increase in the expense ratio was due to a greater proportion of commercial property business, which attracts higher brokerage rates, being written in 2004 when compared with 2003.
Policy acquisition, operating and administration expenses. Total expenses were $5.4 million for the period, equivalent to 19.3% of gross earned premiums and 23% of net earned premiums.
In 2003, Aspen Re paid a total of $20 million in dividends to the Company. On August 3, 2004, Aspen Re paid the Company a dividend of $15 million. On December 9, 2004 an additional dividend of $20 million was paid.
Management monitors the liquidity of Aspen Holdings and of each of its Insurance Subsidiaries. In relation to Aspen Holdings, we monitor its ability to service debt, to finance dividend payments to shareholders and to provide financial support to the Insurance Subsidiaries. During 2003, the cash position of Aspen Holdings was significantly enhanced by the payment of $20.0 million in dividends by Aspen Re to Aspen Holdings and by the retention within Aspen Holdings of part of the proceeds from our initial public offering. As at December 31, 2004 and 2003, Aspen Holdings held $19.9 and $52.7 million, respectively, in cash and fixed interest securities and nil and $12.6 million, respectively, in short-term investments which management considers sufficient to provide us liquidity at this time.
Our aggregate invested assets as of December 31, 2004 totaled $2.74 billion compared to aggregate invested assets of $1.62 billion as of December 31, 2003. The increase in invested assets since December 31, 2003 resulted from the issuance of our Senior Notes, collections of premiums on insurance policies and reinsurance contracts and investment income, offset by policy acquisition expenses paid, reinsurance premiums paid, payment of losses and loss adjustment expenses, operating and administrative expenses paid and repayment of short-term borrowings.
Cash flows for the twelve months ended December 31, 2003. In the twelve months ended December 31, 2003 we generated net cash from operating activities of $636.6 million, primarily relating to premiums and investment income received offset by reinsurance premiums payable. We paid claims of $53.9 million in the period. We made net investments in the amount of $696.4 million in market securities during the period. Cash and cash equivalents increased from $9.6 million at the beginning of the period to $230.8 million at the end of the period.
Aspen Holdings was formed on May 23, 2002 but did not commence operations until June 21, 2002. The condensed consolidated statement of cash flows for the period from May 23, 2002 to December 31, 2002 therefore reflects the results for only twenty-eight weeks and comparisons with the year ended December 31, 2003 may not be meaningful.
Aspen Bermuda is subject to the solvency requirements of the Insurance Act (as defined in Part I, Item 1, "-Regulatory Matters-Bermuda Regulation"). See Part I, Item 1, "Business-Regulatory Matters-Bermuda Regulation" elsewhere in this report. Aspen Bermuda's fully paid up share capital was $1.0 million and statutory capital and surplus was $357.5 million at December 31, 2003 and $632.7 million at December 31, 2004.
Aspen Specialty is regulated by the North Dakota insurance laws and is subject to risk-based capital regulations. See Part I, Item 1, "Business-Regulatory Matters-U.S. Regulation-North Dakota State Risk-Based Capital Regulations" elsewhere in this report.
For these purposes, we have specifically established a facility for the issuance of letters of credit in the amount of $50 million with Citibank, N.A. As of December 31, 2004 and December 31, 2003, letters of credit totaling $48.4 million and $24.6 million, respectively, had been issued by Citibank. In addition, in 2002, Barclays Bank plc issued letters of credit totaling £47.4 million to policyholders of the Company. The letters of credit were in place for the entire twelve months ended December 31, 2004. The Company has provided collateral to Citibank and Barclays Bank plc for the full value of the letters of credit issued on its behalf. On June 23, 2003 we established a trust fund at the Bank of New York which will be used as an alternative to letters of credit to satisfy our obligations to provide security to certain U.S.-domiciled cedents. As of December 31, 2004 and December 31, 2003, the balance on this fund was $405.6 million and $45.6 million, respectively. On July 16, 2003 we established an additional trust fund at the Bank of New York, with a balance of $5.4 million, which will serve a similar purpose with respect to certain U.S. insurance clients of Aspen Re for whom we provide surplus lines insurance. As at December 31, 2004 the balance in the trust was $5.5 million.
Aspen Re has established a Canadian trust fund with a Canadian bank to secure a Canadian insurance license. The initial minimum trust fund amount was Can$25 million and the balance at
Capital Resources. On August 29, 2003, the Company entered into a 364-day revolving credit facility in the aggregate principal amount of $50 million and a three-year revolving credit facility in the aggregate principal amount of $150 million (together, the "Credit Facilities") to provide additional liquidity for our operations. Barclays Bank plc is the administrative agent under both Credit Facilities. The terms and conditions of the Credit Facilities are substantially identical.
Other covenants include restrictions on the types and amounts of indebtedness the Company and any subsidiary may create or incur, prohibitions on the disposition of property by the Company and any subsidiary and restrictions on investments, loans and advances by the Company and any subsidiary. The Company and its subsidiaries are also prohibited from paying any dividends or making any payments on account of a sinking or other analogous fund for the purchase, redemption or other acquisition of any share capital or capital stock of the Company or any subsidiary; provided, however, that any such payments may be made by any subsidiary to the Company or another subsidiary (other than an insurance subsidiary) and so long as no default or event of default exists under the Credit Agreements or would result from such payment, the Company may during any fiscal year pay cash dividends in an aggregate amount not to exceed 50% of its consolidated net income for such fiscal year.
The terms of the Credit Agreements provide for customary events of default, as well as an event of default if the rating of any Relevant Subsidiary (as defined below) falls below an A.M. Best financial strength rating of B++ and/or an S&P financial strength rating of A-. A subsidiary is a "Relevant Subsidiary" if the total consolidated assets or total consolidated revenues of it and its subsidiaries exceed 10% of the total consolidated assets or gross consolidated revenues, respectively, of the Company and its subsidiaries on a consolidated basis at the end or for the most recently completed fiscal quarter of the Company for which financial statements should have been delivered to the lenders pursuant to the Credit Agreements. Accordingly, Aspen Re and Aspen Bermuda are currently Relevant Subsidiaries.
On October 15, 2003 we made a drawdown of $90 million on the three-year credit facility. Of this borrowing, $83.9 million was used to provide part of the initial capital to Aspen Specialty and the balance was used to provide working capital to Aspen Holdings. The interest rate is three-month LIBOR plus 42.5 basis points. A facility fee, currently calculated at a rate of 17.5 basis points on the average daily amount of the commitment of each lender, is paid to each lender quarterly in arrears.
Subject to certain exceptions, so long as any of the Senior Notes remain outstanding, we have agreed that neither we nor any of our subsidiaries will (i) create a lien on any shares of capital stock of any designated subsidiary (currently Aspen Re and Aspen Bermuda, as defined in the Indenture), or (ii) issue, sell, assign, transfer or otherwise dispose of any shares of capital stock of any designated subsidiary. Certain events will constitute an event of default under the Indenture, including default in payment at maturity of any of our other indebtedness in excess of $50 million.
The Senior Notes are senior unsecured general obligations of the Company and rank equally with all of our other senior unsecured indebtedness from time to time outstanding. The Senior Notes are not guaranteed by any of our subsidiaries and are effectively subordinated to all existing and future indebtedness and other liabilities of our subsidiaries.
In 2005, we expect to have capital expenditures in respect of our information technology systems and our future premises in London and Bermuda.
For a discussion of derivative instruments we have entered into, please see note 6 to our audited financial statements for the twelve months ended December 31, 2004 included elsewhere in this report.
We are not party to any transaction, agreement or other contractual arrangement to which an affiliated entity unconsolidated with us is a party that management believes is reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.