Excluding the impact of deterioration in 2006 of $35.6 million associated with the 2005 hurricanes, net reserve releases were 5.2% of net premiums earned at December 31, 2006.
• net income after tax for the year of $489.0 million;
Risk transfer swap. On August 17, 2004, Aspen Bermuda entered into a risk transfer swap (‘‘cat swap’’) with a non-insurance counterparty. During the cat swap’s 3 year term, which ended on August 17, 2007, Aspen Bermuda made quarterly payments on an initial notional amount of $100 million. In return Aspen Bermuda was entitled to receive payments of up to $100 million in total if hurricanes made landfall in Florida and caused damage in excess of $39 billion or earthquakes in California caused insured damage in excess of $23 billion. The latest estimate of the insured loss
As a result of the application of derivative accounting rules under SFAS 133, the contract is treated as an asset and measured at the Directors’ estimate of its fair value. Changes in the estimated fair value from time to time will be included in the consolidated statement of operations. The contract is for a maximum of five years and provides 90% cover for a named panel of reinsurers up to individual defined sub-limits. The contract does allow, subject to certain conditions, for substitution and replacement of panel members if the Company’s panel of reinsurers changes. Payments are made on a quarterly basis throughout the period of the contract based on the aggregate limit, which was set initially at $477 million but is subject to adjustment.
Policy acquisition expenses increased by 1.7 percentage points between 2006 and 2005 due to the recognition of profit commission and no claims bonuses on certain contracts, the impact of higher average commission rates for non-U.S. treaty business and the greater proportion of structured business which attracts higher commission rates than the balance of the book.
Gross written premiums. The table below shows our gross written premiums for each line of business for each of 2007, 2006 and 2005, and the percentage change in gross written premiums for each line:
International Insurance. As at December 31, 2006, the international insurance reserves release of $32.7 million was spread across several lines of which the largest contributors are U.K. commercial liability $28.7 million, specialty reinsurance $6.7 million, the run-off of quota shares written in 2002 and 2003 $6.4 million followed by marine hull insurance $2.4 million and aviation insurance $1.8 million. These releases have been offset by increases in Hurricane Katrina reserves for the energy, liability and worldwide property accounts.
On November 9, 2007, we entered into another contract with Goldman Sachs 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 1,631,138 shares on November 28, 2007. When the contract expires, we may receive and subsequently cancel up to a further 298,165 shares, with the actual number being determined by the volume weighted average price of our shares over the period from November 23, 2007 (the end of the hedge period) and the date of termination, less a discount. Apart from our payment of $50 million on November 9, 2007, we will make no further payments or transfer shares under this contract, except under certain circumstances in connection with friendly acquisitions.
The two share repurchase transactions represented a total cumulative repurchase amount of approximately $100 million, being the final tranche of the $300 million share repurchase program authorized by the Company’s Board of Directors as announced on November 8, 2006. The cumulative share repurchase in 2007 of approximately $100 million was funded from cash on hand.
Reference is made to Part IV, Item 15(a) of this report, commencing on page, for the Consolidated Financial Statements and Reports of the Company and the Notes thereto, as well as the Schedules to the Consolidated Financial Statements.