For our U.K.-based reinsurance and insurance operations, on April 1, 2005, Aspen U.K. signed an agreement (following our entry in October 2004 into a heads of terms agreement) with B.L.C.T. (29038) Limited (the landlord), Tamagon Limited and Cleartest Limited in connection with leasing office space in London of approximately a total of 49,500 square feet covering three floors. The term of each lease for each floor commenced in November 2004 and runs for 15 years. In 2007, the building was sold to Tishman International. The terms of the lease remain unchanged. Each lease will be subject to 5-yearly upwards-only rent reviews. We also license office space within the Lloyd’s building on the basis of a renewable 24-month lease. We also entered into new leases for two additional premises in London (18,000 square feet total), which expire in December 2015 and March 2016. Each lease has a further negotiable extension provision.
Net favorable development on prior year loss reserves of $137.4 million, or 6.6 combined ratio points, for the year compared with $92.3 million, or 4.9 combined ratio points, for 2011 and $21.4 million, or 1.1 combined ratio points, for 2010.
Policy acquisition expenses reduced in 2012 compared to 2011 due mainly to adjustments in profit-related commission accruals and increased in 2011 from 2010 mainly due to an increase in profit-related commissions in the insurance segment. General, administrative and corporate expenses have increased to $345.1 million in 2012 from $284.5 million in 2011 and $258.6 million in 2010. The
Balances as at December 31, 2012 and December 31, 2011 were:
The most likely drivers of change in the estimates in decreasing order of magnitude are:
Changes in loss reserve estimates would not have an immediate effect on our liquidity as settlement of insurance liabilities typically can take a number of years. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity” for a discussion of liquidity risks.
Income/(loss) before tax. Our results before tax comprise underwriting income of $118.7 million (2011 - loss of $299.0 million; 2010 - $63.1 million); net investment income $204.9 million (2011 - $225.6 million; 2010 - $232.0 million) and other expenses of $28.2 million (2011 - $73.9 million; 2010 - other income $45.2 million). Our increase in underwriting income in 2012 compared to 2011 was due to a profitable underwriting year notwithstanding the impact of the losses from Superstorm Sandy and the Costa Concordia loss event. The reduction in underwriting income between 2010 and 2011 was mainly due to the pre-tax $505.2 million of losses net of reinsurance and
reinstatement premiums in 2011 associated with the Japanese earthquake and tsunami, U.S. storms and Hurricane Irene, Thai floods, Australian floods and New Zealand earthquakes.
Losses and loss adjustment expenses. The loss ratio in 2012 was 56.1% compared to 97.7% in 2011. The decrease in the loss ratio is primarily attributable to the reduced level of catastrophe losses
The potential for individual large claims and for accumulations of claims from single events means that substantial and unpredictable payments may need to be made within relatively short periods of time. We manage these risks by making regular forecasts of the timing and amount of expected cash outflows and ensuring that we maintain sufficient balances in cash and short-term investments to meet these estimates. Notwithstanding this policy, if these cash flow forecasts are incorrect, we could be forced to liquidate investments prior to maturity, potentially at a significant loss. Historically, we have not had to liquidate investments to maintain sufficient levels of liquidity.
(1) The long term debt obligations disclosed above do not include the $30.0 million annual interest payable on our outstanding Senior Notes.