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					Aspen Insurance Holdings Limited
        Annual Report & Accounts 2004
                                                                                        Aspen Insurance Holdings Limited
                                                                                            Annual Report & Accounts 2004




Note on forward-looking statements
This Annual Report 2004 contains, and the
Company may from time to time make other
verbal or written, forward-looking statements
                                                    CONTENTS                                               Page
that involve risks and uncertainties, including
statements regarding our capital needs,
business strategy, expectations and
intentions. Statements that use the terms           Financial Highlights                                          2
‘believe,’ ‘do not believe,’ ‘anticipate,’
‘expect,’‘plan,’ ‘estimate,’ ‘intend’ and similar
expressions are intended to identify                Letter to our Shareholders                                    4
forward-looking statements. These
statements reflect our current views with
respect to future events and because our            Review of Operations                                          5
business is subject to numerous risks,
uncertainties and other factors, our actual
                                                    Company Overview                                             10
results could differ materially from those
anticipated in the forward-looking
statements, including those set forth under         Classes of Business                                          11
‘Risk Factors’ in our annual report on Form
10-K filed with the SEC, and the differences
could be substantial. The risks, uncertainties      Our Teams                                                    14
and other cautionary statements made in
this report should be read and understood
as being applicable to all related                  Review of Financial Operations                               20
forward-looking statements wherever
they appear in this report.
                                                    Consolidated Financial Statements                            22
All forward-looking statements address
matters that involve risks and uncertainties.       Notes to Consolidated Financial Statements                   29
Accordingly, there are or will be important
factors that could cause actual results to
differ materially from those indicated in           Report of Independent Registered Public Accounting Firm      59
these statements.

We undertake no obligation to publicly              Management’s Responsibility for Financial Statements         60
update or review any forward-looking
statement, whether as a result of new
information, future developments or                 Attestation Report of Independent Registered
otherwise or disclose any difference
                                                    Public Accounting Firm                                       61
between our actual results and those
reflected in such statements. If one or
more such risks or uncertainties materialize,
                                                    Management’s Summary Discussion and Analysis                 62
or if our underlying assumptions prove to
be incorrect, actual results may vary
materially from what we projected.                  NYSE Corporate Governance                                    85
Any forward-looking statements you read
in this report reflect our current views with
respect to future events and are subject to         Non-GAAP and GAAP Financial Measures                         86
these and other risks, uncertainties and
assumptions relating to our operations,
results of operations, growth strategy and          Directors and Officers                                       88
liquidity. All subsequent written and oral
forward-looking statements attributable
to us or individuals acting on our behalf           Glossary of Terms                                            90
are expressly qualified in their entirety by
this paragraph. You should specifically
consider the factors identified in this report      Contacts                                                     92
which could cause actual results to differ
before making an investment decision.




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Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




financial
highlights                         “ Aspen is now firmly established as a leading specialty
                                     insurer and reinsurer in our key lines of business with
                                     operating platforms in the United Kingdom, Bermuda
                                     and the United States. We have continued to expand our
                                     underwriting capacity in Bermuda and the US and have
                                     diversified our insurance and reinsurance operations
                                     further by controlled expansion into new lines of business.
                                     We delivered strong financial performance in a year marked
                                     by an unprecedented series of hurricanes in the US and a
                                     major typhoon in Japan.”
                                    Christopher O'Kane
                                    Chief Executive Officer

                                    Aspen is committed to building a strongly capitalized, diversified business,
                                    positioned to meet our clients’ risk transfer needs and has been awarded the
                                    following financial strength ratings from the major agencies:

                                    Aspen Insurance UK Limited

                                    Standard & Poor’s                         A (Strong)
                                    AM Best                                   A (Excellent)
                                    Moody’s                                   A2 (Good)

                                    Aspen Insurance Limited

                                    Standard & Poor’s                         A (Strong)
                                    AM Best                                   A- (Excellent)

                                    Aspen Specialty Insurance Company

                                    AM Best                                   A- (Excellent)


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                             Aspen Insurance Holdings Limited
                                 Annual Report & Accounts 2004




US$1.6 bn
   gross written premiums
                            US$1.8 bn      market value (1)




US$195.1m     net income
                            US$1.5 bn  shareholders’ equity




          14%
        operating ROE (1)
                             US$21.3
                                   book value per share (1)




          83%
       combined ratio (1)
                            US$961m
                                cash flow from operations




                            US$3.0 bn
                                  cash and invested assets




                                                    (1) See page 86.




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Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Letter to our Shareholders

                                   Dear Shareholders:                       opportunities where complexity and
                                                                            creativity are rewarded.
                                   In our first full year as a public
                                   company Aspen generated value for        Financial strength is of paramount
                                   shareholders by concentrating on         concern to us as strong ratings drive
                                   the strategies that differentiate our    our business. We will continue to
                                   company. Focused underwriting,           take a conservative approach to
                                   diversification and conservative         capital management. However, as
                                   capital management underlie our          we accumulate excess capital from
                                   success and will continue to guide       operations we will move to return it
                                   our growth. Strict adherence to          to shareholders if appropriate. The
                                   these strategies generated strong        Board of Directors recently
                                   results for Aspen in 2004, and we        demonstrated this commitment by
                                   believe also positions us to achieve     raising Aspen’s quarterly dividend to
                                   superior returns in 2005.                US$0.15 per ordinary share from
                                                                            US$0.03 per ordinary share.
                                   Aspen is a company driven by
                                   underwriting talent. We focus on         I am enthusiastic about our
                                   complex risks because these risks are    accomplishments thus far and
                                   more profitable, less prone to           optimistic about our future. We have
                                   cyclicality and play to our technical    successfully established Aspen as a
                                   capabilities. The benefit of this        franchise with a proven track record
                                   underwriting strategy is clearly         that can deliver the returns expected
                                   evidenced by our results in 2004, a      by investors. On behalf of the Board
                                   year that saw unprecedented              of Directors, I want to thank all of our
                                   catastrophe activity worldwide.          employees whose hard work is
                                                                            critical to moving our company
                                   Diversification is another core          forward.
                                   component of Aspen’s strategy. Our
                                   company remains well-diversified by      Sincerely,
                                   class, line and geography. We
                                   believe this will serve us well in a
                                   changing market and enable us to
                                   uncover profitable underwriting
                                   opportunities. In 2004, we diversified
                                   our capabilities further into marine     Paul Myners
                                   and aviation insurance, where we         Chairman
                                   anticipate good growth prospects.        Aspen Insurance Holdings Limited
                                   As in other lines, we seek               paul.myners@aspen-re.com




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                                         Aspen Insurance Holdings Limited
                                             Annual Report & Accounts 2004




                                                   Review of Operations

Dear Shareholders:                          We have diversified our insurance
                                            and reinsurance operations
We have made considerable                   further by controlled expansion
progress in achieving our strategic         into new lines of business; for
goals in 2004 and Aspen is now              example, we added capabilities
firmly established as a leading             for writing property reinsurance
specialty insurer and reinsurer in our      in the US market through Aspen
key lines of business with operating        Re America and aviation and
platforms in the United Kingdom,            marine business through our UK
Bermuda and the United States.              operation

The year 2004 was marked by an              We increased our invested asset
unprecedented series of hurricanes,         base to approximately US$3.0
resulting in the highest level of           billion from US$1.8 billion at the
natural catastrophe losses ever             end of 2003 and implemented a
recorded by the industry in the US.         number of measures to improve
Last summer also saw a major                our investment yield
typhoon strike Japan and our
property lines in particular were        Overall, we have seen the rate
adversely affected by this               environment soften in 2004 and we
combination of hurricanes and            expect this trend to continue in
typhoon. Total losses (net of            2005. In spite of this, we believe all
reinsurance recoveries, reinstatement    of our lines of business continue to
premiums and tax) from these             offer good profit potential. We
events amounted to approximately         expect to see fewer opportunities
US$166 million. Notwithstanding          overall for top line growth, however,
this, our financial performance has      we believe there is room for
been strong: we reported net             profitable growth in our marine,
income of US$195.1 million for the       aviation and US excess and surplus
year, an increase of 28%; net            lines businesses.
premiums written of US$1.4 billion
(up 24% compared to 2003) and            In a softening market, we believe
delivered our shareholders a return      that execution is even more critical
on average equity of 14%.                to success and we have
                                         implemented a number of measures
Key achievements over the year           to manage our business better
include:                                 through the cycle. Underwriting
                                         integrity is paramount and we will
   We have continued to expand           continue to maintain strict
   our underwriting capacity in          underwriting discipline across our
   Bermuda and the US and                business to ensure appropriate levels
   increased the size of our             of profitability. Our approach is to
   property reinsurance                  focus on identifying ‘best return’
   underwriting team in Bermuda          opportunities and we will seek to




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Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Review of Operations

deploy and redeploy our capital           8% from our specialty insurance and    variations in our key geographies.
opportunistically into and away from      reinsurance business.                  Despite some decline in market rates
various lines as market conditions                                               overall, we succeeded in renewing
dictate. We do not regard top line        We started the year by establishing    our January book of business with
growth as a desirable goal across all     an office in Connecticut to write      an overall modest price increase. We
stages of the cycle and we will shrink    property reinsurance through Aspen     achieved this by increasing our share
our top line if required to preserve      Re America. This was followed by       in contracts which were impacted
margin adequacy. Effective capital        the expansion of our surplus lines     by the 2004 storms and selectively
management becomes increasingly           operations in Georgia and Arizona.     canceling other treaties. We remain
important in this environment and         We also added teams in marine,         optimistic that, barring unforeseen
we will actively seek to right size our   energy and aviation in our specialty   losses, Property Reinsurance will
capital in keeping with market            business. In November 2004, we         continue to be a major contributor
conditions and adopt measures to          relocated the majority of our          to our top and bottom line in 2005
return capital to shareholders if         property reinsurance team to           and beyond.
appropriate.                              Bermuda in time for the January
                                          2005 renewal season.                   Casualty Reinsurance
During our first three years of
                                                                                 In 2004 casualty reinsurance gross
operation, we adopted a highly            Property Reinsurance
                                                                                 written premium was US$447
conservative investment policy as
                                          Property reinsurance continues to      million, approximately 28% of
we developed our book of business.
                                          be our single largest segment by       Aspen’s total. This compares to
Against a backdrop of historically
                                          premium: in 2004 gross written         US$292 million in 2003, or 22% of
low interest rates, we opted for a
                                          premiums amounted to US$649            Aspen’s total gross written premium.
short portfolio duration to maximize
                                          million, a significant increase from   The combined ratio for casualty
flexibility: at the end of 2004, the
                                          the US$558 million written in 2003.    reinsurance was 92%, a slight
average duration of our investment
                                          It is a testament to this team’s       improvement over the 93%
portfolio was 2.2 years. As we move
                                          underwriting skills that property      combined ratio reported in 2003.
forward we expect investment
                                          reinsurance achieved a combined
income to become a greater
                                          ratio of 86% in 2004 (70% in 2003)     The growth and progress of our
contributor to earnings growth and
                                          in spite of the extensive damage       casualty reinsurance business has
we expect to reinvest at higher
                                          caused in the South East of the US     been very encouraging to date. We
yields throughout 2005.
                                          by four major hurricanes and by a      have seen the momentum
                                          typhoon in Japan.                      generated in 2004 continue into
Operating Review
                                                                                 2005 with the recent completion of
Throughout 2004 we continued to           Some of our underwriting team          a strong January 1 renewal season.
diversify our book of business. In the    relocated to Bermuda over the          We continued to see modest rate
last couple of years we have moved        course of 2004, which has been a       increases in certain lines, for example
from a property reinsurance               great success so far. The move has     medical malpractice where we are
dominated portfolio with some             enabled the team to see a larger       seeing single digit increases.
casualty business to a much better        number of new programs than we
balanced portfolio covering property      would have expected to see had the     Specialty Lines
and casualty and specialty                team remained in London. Business
                                                                                 Our specialty business is largely
reinsurance as well as insurance lines    lost as a result of the move was
                                                                                 focused on the insurance and
spanning property, casualty, marine       minimal and was more than offset
                                                                                 reinsurance of marine, energy and
and aviation. At the end of the year,     by the amount of new premiums
                                                                                 aviation lines. In 2004 specialty lines
property reinsurance represented          written.
                                                                                 contributed US$125 million in gross
41% of gross written premium,
                                                                                 written premium (2003: US$151
followed by casualty reinsurance at       The outlook for property reinsurance
                                                                                 million). Our 2004 combined ratio for
28%, with 23% from commercial             in 2005 is encouraging, although we
                                                                                 specialty lines was 60% (81% in 2003).
property and liability insurance and      are experiencing significant rate




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                                                                                 Aspen Insurance Holdings Limited
                                                                                     Annual Report & Accounts 2004




                                                                                              Review of Operations

In 2003, we wrote a quota share          third quarter. Our combined ratio for   signs that most of the companies
of Lloyd’s Syndicate 2020, which         this line was 82% (69% in 2003).        formed in 2001 and 2002 are
is managed by Wellington                 Commercial liability insurance was      managing capital as well as
Underwriting plc., which amounted        up about 9% to US$243 million, with     exposures and pricing.
to US$78 million of gross written        a combined ratio of 77% (80% in
premium that year. We opted not          2003). This book consists mostly of     Another issue which the industry
to renew this in 2004 and continued      UK based employers liability and        must face is the rebuilding of trust
to build out our own capability in       public liability business, as well as   with customers, regulators and
this area by adding teams in marine      casualty insurance written by Aspen     shareholders in the wake of the
and aviation.                            Specialty.                              New York Attorney General’s
                                                                                 investigations of bid-rigging and
We were very encouraged by the           We are very pleased with the            other anti-competitive acts. We are
rates we experienced across the          underwriting performance of our         not aware of any such practices
specialty segment both on new and        insurance lines thus far. However,      involving Aspen and we were
renewal business in the January          we are mindful that the potential       saddened by the unacceptable
2005 renewals. Rates in marine hull      for continued rapid growth in           behavior uncovered in our industry.
and liability held up at expiring        premiums and for excess returns
terms or were marginally increased.      is declining as certain legacy          Finally, in our view, the risk posed for
Energy physical damage saw               carriers are aggressively competing     the modern world from terrorism
significant price rises on risks which   for business.                           has not abated and as stewards of
sustained a loss from Hurricane Ivan                                             your capital, we are ever mindful of
and increasing prices on risks where     Outlook                                 the need to limit the exposure to
no loss occurred but exposure is in                                              our balance sheet from this peril.
                                         Looking forward, the insurance and
the Gulf of Mexico. We believe that                                              We await with interest the future
                                         reinsurance markets throughout the
our entry into this segment is well                                              of the TRIA (Terrorism Risk Insurance
                                         world stand at a crossroads. After
timed as we will benefit from the                                                Act) legislation in the US and we
                                         several years of highly profitable
rate improvements but did not                                                    firmly believe that the insurance
                                         underwriting the industry is faced
have a significant book of business                                              industry will serve its clients’ needs
                                         with a choice of maintaining
when the losses occurred. We have                                                more effectively with US Federal
                                         underwriting discipline, shrinking
recently underwritten our first                                                  Government backing for terrorism
                                         its capital base and focusing on
aviation insurance risks and we                                                  cover.
                                         attractive bottom line performance
have been encouraged by the
                                         versus the superficial attractions
support from brokers and clients.                                                In closing, I would like to thank
                                         of top line growth. The alternative
We believe that our selective niche                                              our clients for their business, our
                                         route, which has been taken too
approach in specialty lines will be                                              employees for their hard work
                                         often in the past, has involved
an important future growth channel                                               and dedication and you, our
                                         self-delusion, weakening of controls,
for Aspen.                                                                       shareholders, for your continued
                                         and poorly thought out ventures
                                                                                 support.
                                         into little understood businesses.
Insurance
                                         You should be in no doubt as to
                                                                                 Sincerely,
In commercial property insurance,        which route Aspen will choose,
gross premiums were US$122               but the size of our business over
million, up from US$82 million in        the next few years as we endeavor
2003. The majority of this increase      to preserve margins will be
was due to growth in the business        determined both by our own efforts
from Aspen Specialty, our Boston         and the behavior of competitors.
based excess and surplus business        Thus far, however, the picture is
set up in 2003. We were pleased          encouraging with a good measure         Christopher O’Kane
that our results were only impacted      of discipline being maintained in       Chief Executive Officer
minimally by the hurricanes in the       most lines of business and positive     Aspen Insurance Holdings Limited




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Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




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                                                            Aspen Insurance Holdings Limited
                                                                Annual Report & Accounts 2004




skilled
  in our judgment
  We choose the right people. We then manage and
  develop the talent of our teams to ensure we offer a
  superior service. We recruit the highest quality people
  and give them the essential training and tools they
  need to excel. We abide by strict codes of professional
  conduct. We are disciplined in our approach.
  Our integrity, professionalism and commitment
  ensures we work together to offer the best service
  available. We have a true team spirit.




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Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Company Overview

Aspen Insurance Holdings Limited           Aspen Re was established in London      expertise. Property business
(‘Aspen Holdings’) is a Bermuda            in June 2002 to serve the needs of      protecting US cedants and buyers
holding company. We attract clients        the London and wider UK insurance       on a treaty and excess of loss basis
from all over the world seeking flexible   market. It is the largest business in   is written on behalf of Aspen Re
solutions to a wide variety of risks.      the Aspen Group. The company            out of our Connecticut office
                                           trades under the names of Aspen         which was established in January
We provide property and casualty           Insurance and Aspen Re, writing a       2004. Casualty facultative
reinsurance in the global market           range of specialty insurance and        reinsurance business is written
through Aspen Insurance UK Limited         reinsurance lines.                      through reinsurance
(‘Aspen Re’) and Aspen Insurance                                                   intermediaries on behalf of Aspen
Limited (‘Aspen Bermuda’). We              Aspen Bermuda was established in        Re by our New Jersey office,
provide property and liability             Bermuda in November 2002 to             established in January 2004. Aspen
insurance principally in the United        access this increasingly important      Re America also writes Property
Kingdom and in the United States           market. Licensed as a Class 4           facultative business through our
through Aspen Re and Aspen                 insurer, Aspen Bermuda writes a         Illinois office, which opened in
Specialty Insurance Company                significant book of property treaty     January 2005.
(‘Aspen Specialty’) and we provide         reinsurance, retrocession and
marine and aviation insurance              structured risk solutions.              We listed on the New York Stock
worldwide through Aspen Re. Aspen                                                  Exchange (NYSE) on December 4,
Re America, Inc. (‘Aspen Re America’)      Aspen Specialty was acquired in         2003 and our ticker symbol is AHL.
is a reinsurance intermediary which        September 2003 and writes a             We have a secondary listing on the
provides property and casualty             focused book of property and            Bermuda Stock Exchange (BSX)
reinsurance in the United States           casualty surplus lines business,        where our ticker symbol is AHL BH.
exclusively on behalf of Aspen Re.         principally through the US
                                           wholesale surplus lines broker          The Aspen Group is committed
We have some US$1.5 billion in             network. In August 2004, Aspen          to building a strongly capitalized,
shareholders' equity and our               Specialty also opened offices in        diversified business, positioned to
finances, as judged by the major           Georgia and Arizona.                    meet our clients' risk transfer needs.
rating agencies, are sound. Our                                                    We offer strong technical and
principal shareholders are Blackstone,     Aspen Re America offers                 financial rating, sound risk
Candover, CSFB and Wellington              both domestic property                  management practices, significant
Underwriting plc. As of December           reinsurance capabilities and            line size and lead capacity and a
31, 2004 we had 261 employees.             casualty facultative reinsurance        proven underwriting track record.




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                                                                                  Aspen Insurance Holdings Limited
                                                                                      Annual Report & Accounts 2004




                                                                                              Classes of Business

At Aspen, specialist teams of                                                  Group business split
underwriters work collectively in key
                                                                                  Property Reinsurance 41%
locations in London, Bermuda and
                                                                                  Casualty Reinsurance 28%
the US sharing and applying both
                                                                                  Specialty Reinsurance 5%
global and local knowledge to help
                                                                                  Liability Insurance 15%
service the needs of our brokers and
                                                                                  Property Insurance 8%
clients around the world.
                                                                                  Marine and Energy Insurance 3%



                                                                              Approximate split by territory
                                                                                  UK and Europe 36%
                                                                                  US and Canada 40%
                                                                                  Worldwide 17%
                                                                                  Other 7%




                                                    Aspen Group

  Casualty Reinsurance          Property Reinsurance         Insurance                   Specialty Lines
     International                  Property Reinsurance        UK Commercial               Specialty Reinsurance
     Casualty Reinsurance           (Bermuda & London)          Property & Liability        (London)
     (London)                                                   Insurance
                                    Retrocession &              (London)                    Aviation Insurance
     US Casualty                    Structured Reinsurance                                  (London)
     Reinsurance                    (Bermuda)                   Worldwide Property
     (London)                                                   Insurance                   Marine & Energy
                                    US Property                 (London)                    Insurance
     US Casualty                    Reinsurance                                             (London)
     Facultative                    (Connecticut)               Excess and Surplus
     Reinsurance                                                Lines Property &
     (New Jersey)                                               Casualty Insurance
                                                                (Massachusetts,
                                                                Georgia, Arizona)




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Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




understanding
                   of our clients’ needs
                   We have a diverse range of expertise and
                   experience in our people. Our underwriters are
                   able to assess and manage technically complex
                   risks in response to the changing needs of our
                   clients. Clients come to us with complicated
                   insurance issues because of our professionalism
                   and our comprehensive understanding of risk.
                   Our ability to interpret our clients' specific
                   requirements effectively means we can
                   recommend the most appropriate cover for
                   their needs.




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Aspen Insurance Holdings Limited
    Annual Report & Accounts 2004




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Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




our
teams
                Paul Myners                                  Christopher O’Kane
                Chairman                                     Chief Executive Officer




                                   Julian Cusack                                       Sarah Davies
                                   Chief Financial Officer                             Chief Operating Officer




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                                        Aspen Insurance Holdings Limited
                                            Annual Report & Accounts 2004




                                                                    Profiles

Senior Management Team                  together with active underwriting
                                        experience in a range of other
Paul Myners                             insurance disciplines. Christopher
Chairman                                has over 16 years of specialty
                                        insurance and reinsurance
Paul Myners, Chairman of Aspen
                                        underwriting experience, beginning
Holdings and of Aspen Re since
                                        his career as a Lloyd’s broker.
June 2002, is also Chairman of the
Guardian Media Group, a position
                                        Julian Cusack
he has held since March 2000, and
                                        Chief Financial Officer
Chairman of Marks and Spencer, a
position held since May 2004. Paul      Julian Cusack has been Chief
is a non-executive Director of The      Financial Officer and a director
Bank of New York. He completed a        of Aspen Holdings since June
review of Institutional Investment      2002 and is also Chief Executive
for HM Treasury in 2001 and is a        Officer of Aspen Bermuda, a
member of the Financial Reporting       position held since June 2002, and
Council, the body responsible for       a director of both Aspen Re and
overseeing the process for setting      Aspen Specialty. Julian was
UK accounting standards. He was         previously with Wellington
Chairman of Gartmore Investment         Underwriting plc where he was
Management until 30 November            appointed Managing Director of
2001 and has previously held            Wellington Underwriting Agencies
directorships at National               Limited in 1992, and in 1994 joined
Westminster Bank, Coutts & Co., the     the Board of Directors of Wellington
Investment Management Regulatory        Underwriting Holdings Limited.
Organisation, the Lloyd’s Market        Julian was Group Finance Director
Board, Celltech Group, the Scottish     of Wellington Underwriting plc
National Trust, Powergen plc and        from 1996 to 2002.
Orange plc.
                                        Sarah Davies
Christopher O’Kane                      Chief Operating Officer
Chief Executive Officer
                                        Sarah Davies is the Aspen Group’s
Christopher O’Kane is Chief             Chief Operating Officer and a
Executive Officer and a director of     director of Aspen Re, Aspen
Aspen Holdings and is Chief             Bermuda and Aspen Specialty. She
Executive Officer of Aspen Re. He is    had previously joined Wellington
also Chairman of Aspen Bermuda,         Underwriting plc in 1993 from
and a director of both Aspen            Munich Re. She initially joined
Specialty and Aspen Re. Prior to the    the Wellington managed Petzold
creation of Aspen Holdings,             Syndicate as Property Treaty
Christopher was a director of           Underwriter, but in 1995 transferred
Wellington Underwriting plc and         to the Managing Agency business
Chief Underwriting Officer of Lloyd’s   as Business Support Manager. In
Syndicate 2020 where he built his       1999, she was appointed Operations
specialist knowledge in the fields of   Director of Wellington Underwriting
property insurance and reinsurance,     Agencies Limited.




                                                                          15
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




property                                         James Few
                                                 Head of Property Reinsurance
                                                 James Few joined the insurance market in 1993
                                                 and spent eight years underwriting property
                                                 insurance business, mainly for US buyers, before
                                                 moving to property treaty reinsurance in 2001,
                                                 where he worked closely with Christopher
                                                 O’Kane during the creation of Aspen Re.
                                                 James focused on underwriting industrial risk
                                                 and catastrophe programmes, and handled the
                                                 main US facultative reinsurance and excess and
                                                 surplus accounts before his appointment as
James Few                                        Head of the property reinsurance business
Head of Property                                 across the Group.
Reinsurance

                                                 Brian Boornazian
                                                 President and Chief Underwriting Officer,
                                                 US Reinsurance
                                                 Brian Boornazian, who has some 20 years of
                                                 experience and expertise in the US reinsurance
                         Brian Boornazian        market, heads a team of Connecticut based
                         President and Chief     property reinsurance specialists. The team
                         Underwriting Officer,   joined Aspen in January 2004 to establish
                         US Reinsurance          domestic property reinsurance capabilities
                                                 writing treaty and facultative business under the
                                                 Aspen Re America name.




casualty                                         David May,
                                                 Chief Casualty Officer
                                                 David May is Chief Casualty Officer at Aspen Re.
                                                 He moved to Aspen from the Wellington
                                                 Syndicate at Lloyd’s, where he served as
                                                 Underwriting Director, Casualty Reinsurance and
                                                 Professional Indemnity, determining
                                                 underwriting policy, outwards retrocession
                                                 strategy and marketing strategy. Previously he
                                                 held positions as a Liability Underwriter,
                                                 ultimately becoming Senior Manager at Munich
                                                 Re, which he joined in 1986. He has extensive
David May,                                       experience of all international casualty business.
Chief Casualty Officer



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                                                                   Aspen Insurance Holdings Limited
                                                                       Annual Report & Accounts 2004




insurance                                              Ian Beaton
                                                       Head of Insurance
                                                       Ian Beaton was appointed Head of Insurance in
                                                       January 2005, having previously served as Head
                                                       of Corporate Development between April 2003
                                                       and January 2005. He manages our portfolio of
                                                       insurance businesses, including UK Commercial
                                                       Property, UK & Irish Liability, Worldwide Direct &
                                                       Facultative Property in London, and Excess &
                                                       Surplus lines insurance in the US. Before joining
                                                       us, Ian was Associate Principal at McKinsey &
                                                       Company, which he joined in 1993.
Ian Beaton
Head of Insurance
                                                       Chris Maciejewski
                                                       President, Aspen Specialty
                                                       Chris Maciejewski began his insurance career
                                                       over 30 years ago with management experience
                                                       in underwriting and marketing. His underwriting
                                                       experience has been focused primarily on
                                                       casualty lines of business, including primary and
                          Chris Maciejewski            excess liability and E&O coverage. He spent
                          President, Aspen Specialty   some 20 years at First State Management where
                                                       he held a number of casualty positions, and was
                                                       subsequently appointed Senior Vice President.
                                                       Prior to 2003, he was a Product Line Manager
                                                       with Lexington Insurance Company, and Senior
                                                       Vice President of First State Management
                                                       Company.




specialty                                              Nick Bonnar
                                                       Head of Specialty Lines
                                                       Nick Bonnar was appointed Head of Specialty
                                                       Lines in November 2004, having joined Aspen Re
                                                       as a senior underwriter in December 2002.
                                                       Our specialty team writes a broad range of
                                                       reinsurance interests on both a proportional
                                                       and non-proportional treaty basis. Nick is
                                                       also responsible for the Aviation and Marine
                                                       insurance teams in London. Previously, Nick
                                                       was an underwriter at XL London Markets
                                                       where he was appointed Director and
Nick Bonnar                                            active Underwriter of Syndicate 588.
Head of Specialty Lines



                                                                                                       17
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




18
                              Aspen Insurance Holdings Limited
                                  Annual Report & Accounts 2004




confident
    in our abilities
    We are proud to have created a company that our
    clients and shareholders recognize as consistently
    offering the highest standards in technical expertise.
    We have people strategically located in our major
    markets, working together to bring both global and
    local knowledge to our decision making. By bringing
    all these diverse skills together, in one harmonious
    group, we keep Aspen center stage. We stand out
    from the crowd for our confidence in our abilities
    and our commitment to excellence.




                                                             19
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Review of Financial Operations

                                   Dear Shareholders:                        We recorded underwriting profits for
                                                                             all our lines of business. Property
                                   2004 was Aspen’s first full year as a     reinsurance remains the largest and
                                   publicly traded company following         most volatile of our lines with a
                                   the listing of our shares on the New      combined ratio of 86% in 2004, up
                                   York Stock Exchange in December           from 70% in 2003 which was a
                                   2003. Since our IPO, we have              relatively loss free year.
                                   continued to build our franchise
                                   through the introduction of new           In casualty reinsurance we target
                                   business lines and the expansion of       and have attained combined ratios
                                   our operations in the US and              in the low 90s during the past two
                                   Bermuda.                                  years. The volatility here, if there is
                                                                             any, relates to changes in the loss
                                   2004 results                              development pattern which can
                                                                             take years to unfold. In the
                                   For 2004 we reported net income
                                                                             meantime, we continue to build
                                   after tax of US$195.1 million, an
                                                                             reserves and invested assets which
                                   increase of 28% over 2003. On a
                                                                             should contribute meaningfully to
                                   diluted per share basis we earned
                                                                             earnings as our casualty account
                                   US$2.74 in 2004 compared to
                                                                             continues to mature.
                                   US$2.56 in the prior year. Return on
                                   Average Equity was 14%, a pleasing
                                                                             Our smaller insurance and specialty
                                   result in light of the losses resulting
                                                                             businesses have performed well, and
                                   from the third quarter storms.
                                                                             we anticipate that these lines will
                                   Further, we are pleased with the
                                                                             make up a greater portion of our
                                   continued growth in our book value
                                                                             overall business mix in 2005 and
                                   which, since the end of 2002, has
                                                                             beyond.
                                   increased at a compound annual
                                   growth rate of 16%.
                                                                             Investment income grew by 127%
                                                                             between 2003 and 2004 and we
                                   We reported an excellent
                                                                             expect this to continue to be an
                                   underwriting result for 2004 with a
                                                                             important source of earnings
                                   combined ratio of 84% despite the
                                                                             growth. We manage our investment
                                   impact of abnormally high
                                                                             portfolio for total return and
                                   catastrophe losses in the third
                                                                             therefore have been sensitive to
                                   quarter and taking into account
                                                                             interest rate risk in a rising rate
                                   favorable reserve development.
                                                                             environment. We have also been
                                                                             cautious on credit risk and we
                                   Gross written premiums increased to
                                                                             maintained AAA average ratings
                                   US$1.6 billion in 2004, up 21% when
                                                                             quality throughout 2004, but will
                                   compared to 2003.




20
                                                                                  Aspen Insurance Holdings Limited
                                                                                      Annual Report & Accounts 2004




                                                                                 Review of Financial Operations

consider adding yield through            favorable operating environment
greater credit exposure if and when      that Bermuda offers for property
the market makes this more               reinsurance underwriting.
attractive.
                                         Outlook
Capital management
                                         As we move into 2005 we expect
It is not part of our strategy to hold   growth in gross written premiums to
capital in excess of what we can         moderate as rating levels, while
reasonably invest in profitable          remaining at attractive levels, begin
underwriting opportunities. At the       to move downwards in most lines of
same time, we believe that our           business. Growth is most likely to
strong balance sheet and ratings         come from our newer lines,
represent a critical competitive         particularly marine and aviation, but
strength. Unlike many of Aspen’s         we will continue to monitor and, if
peers, we were not formed with           necessary, change the business mix
excess capital and to date we have       in response to conditions in the
not generated capital that we could      markets in which we operate. We
not deploy in the business.              expect a lower average tax rate and
However, we expect this position to      an increasing contribution from
change as both the insurance cycle       investment returns reflecting
and our business mature and we           ongoing growth in invested assets
anticipate that during 2005 and 2006     from operating cash flow and rising
an excess capital position may           investment yields.
develop. As a signal of our intent to
manage capital actively we have          Sincerely,
increased the quarterly dividend in
2005 from US$0.03 per ordinary
share to US$0.15 per share.

We raised US$249 million in debt
capital in the third quarter of 2004.    Julian Cusack
This took the form of an issuance of     Chief Financial Officer
10 year Senior Notes and brings our      Aspen Insurance Holdings Limited
financial leverage to 14.4% which we
consider to be well within
manageable limits. The proceeds
from this issue were used to
enhance the capital of our Bermuda
operating company to enable us to
take greater advantage of the




                                                                                                                21
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Consolidated Statement of Operations

For the 12 months ended December 31, 2004, and 2003
                                                               12 months ended       12 months ended
                                                              December 31, 2004     December 31, 2003
Revenues                                              Notes              US$m                  US$m

Net premiums earned
(includes US$96.0 million in 2004
(2003 - US$126.1 million) from related parties)          17              1,232.8                812.3
Net investment income
(includes US$0.9 million in 2004
(2003 - US$3.5 million) from related parties)             5                 68.3                 29.6
Realized investment losses                                                  (3.5)                (2.4)
Other                                                                          -                    -
Total revenues                                                          1,297.6                 839.5

Expenses

Insurance losses and loss adjustment expenses
(includes US$43.1 million in 2004
(2003 - US$86.6 million) from related parties)         7,17               (723.6)              (428.4)
Policy acquisition expenses
(includes US$28.7 million in 2004
(2003 - US$24.4 million) from related parties)                            (212.0)              (152.3)
Operating and administration expenses
(includes US$7.1 million in 2004
(2003 - US$6.6 million) from related parties)                              (93.0)               (53.3)
Interest on long term loans                                                 (6.9)                (0.4)
Realized exchange gains                                                      5.1                  1.5
Other expenses                                                              (4.0)                   -
Total expenses                                                          (1,034.4)              (632.9)
Income from operations before income tax                                   263.2                206.6
Income tax expense                                        8                (68.1)               (54.5)

Net income                                                                195.1                 152.1

Per share data

Weighted average number of ordinary share and
share equivalents
Basic                                                                 69,204,658           57,751,852
Diluted                                                               71,121,568           59,491,760
Basic earnings per ordinary share                         3                 2.82                 2.63
Diluted earnings per ordinary share                       3                 2.74                 2.56

All income was derived from continuing operations

See notes to consolidated financial statements




22
                                                                                  Aspen Insurance Holdings Limited
                                                                                      Annual Report & Accounts 2004




                                                                                    Consolidated Balance Sheet

As of December 31, 2004 and 2003
                                                                         December 31, 2004       December 31, 2003
Assets                                                        Notes                 US$m                    US$m

Investments
   Fixed maturities                                                                 2,207.2                 1,048.1
   Short term investments                                                             528.7                   568.2

Total investments                                                    4             2,735.9                  1,616.3

Cash and cash equivalents                                                            284.9                    230.8
Reinsurance recoverables
   Unpaid losses (includes US$30.8 million in 2004
   (2003 - US$26.9 million) from related parties)            7                       197.7                     43.6
   Ceded unearned premiums (includes US$21.6 million in 2004
   (2003 - US$36.1 million) from related parties)                                     40.4                     48.9
Receivables
    Underwriting premiums (includes US$153.0 million in 2004
    (2003 - US$221.9 million) from related parties)                                  494.2                    496.5
    Other (includes US$5.7 million in 2004
    (2003 - US$18.8 million) from related parties)                                    39.2                     40.8
Deferred policy acquisition costs (includes US$4.1 million in 2004
(2003 - US$11.9 million) from related parties)                                       115.6                     94.6
Derivatives at fair value                                                             23.6                        -
Office properties and equipment                                                        5.0                      0.4
Intangible assets                                                                      6.6                      6.6

Total assets                                                                       3,943.1                  2,578.5

See notes to consolidated financial statements




                                                                                                                23
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Consolidated Balance Sheet

As of December 31, 2004 and 2003
                                                                     December 31, 2004    December 31, 2003
Liabilities                                                 Notes               US$m                 US$m

Insurance reserves
    Losses and loss adjustment expenses
    (includes US$78.8 million in 2004
    (2003 - US$146.3 million) from related parties)             7               1,277.9               525.8
    Unearned premiums (includes US$2.8 million in 2004
    (2003 - US$74.7 million) from related parties)                               714.0                572.4

Total insurance reserves                                                       1,991.9              1,098.2

Payables
    Reinsurance premiums (includes US$41.2 million in 2004
    (2003 - US$49.3 million) from related parties)                                54.2                 59.9
Deferred income taxes                                            9                27.0                 17.0
Current income taxes                                                              30.7                 20.7
    Accrued expenses and other payables (includes US$3.1 million
    in 2004 (2003 - US$12.0 million) from related parties)                        84.3                 44.0
Liabilities under derivative contracts                                            24.2                    -
Bank debt                                                                            -                 40.0
Total payables                                                                   220.4                181.6
Long term debt                                                                   249.3                    -

Total liabilities                                                              2,461.6              1,279.8
See notes to consolidated financial statements




24
                                                                        Aspen Insurance Holdings Limited
                                                                            Annual Report & Accounts 2004




                                                                          Consolidated Balance Sheet

As of December 31, 2004, and 2003
                                                               December 31, 2004       December 31, 2003
Shareholders’ equity                                                      US$m                    US$m

Ordinary Shares - 69,315,099 ordinary shares
of 0.15144558 cents each (2003 - 69,179,303)                              1,096.1                 1,090.8
Retained earnings                                                           367.5                   180.7
Accumulated other comprehensive income, net of taxes
    Unrealized gains/(losses) on investments                                (7.8)                    (0.6)
    Loss on derivatives                                                     (2.2)                       -
    Gains on foreign currency translation                                   27.9                     27.8
Total ordinary shareholders’ equity                                       1,481.5                 1,298.7

Total liabilities and shareholders’ equity                               3,943.1                  2,578.5




                                                       Consolidated Statement of Shareholders' Equity

Shareholders’ equity

Ordinary shares
Beginning of period                                                       1,090.8                   836.9
Shares issued
   New shares issued                                                          0.1                   246.4
   Share-based compensation                                                   5.2                     7.5
End of period                                                            1,096.1                  1,090.8

Retained earnings
   Beginning of period                                                     180.7                     28.6
   Net income for the period                                               195.1                    152.1
   Dividends paid                                                           (8.3)                       -
End of period                                                              367.5                   180.7

See notes to consolidated financial statements




                                                                                                      25
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Consolidated Statement of Shareholders' Equity

For the 12 months ended December 31, 2004, and 2003

                                                               12 months ended       12 months ended
                                                              December 31, 2004     December 31, 2003
Cumulative other comprehensive income                                    US$m                  US$m

Cumulative foreign currency translation adjustments
  Beginning of period                                                      27.8                  12.0
  Change for the period                                                     0.1                  15.8
End of period                                                              27.9                  27.8

Gain/(loss) on derivatives
   Beginning of period                                                         -                    -
   Loss on derivatives                                                      (2.3)                   -
   Reclassification to interest payable                                      0.1                    -
End of period                                                              (2.2)                    -

Unrealized gains/(losses) on investments, net of taxes
   Beginning of period                                                      (0.6)                 0.6
   Change for the period                                                    (7.8)                (1.2)
   Reclassification to net realised gains/losses                             0.6                    -
End of period                                                              (7.8)                 (0.6)

Total accumulated other comprehensive income                               17.9                  27.2

Total shareholders’ equity                                              1,481.5               1,298.7

See notes to consolidated financial statements




Consolidated Statement of Comprehensive Income

                                                               12 months ended       12 months ended
                                                              December 31, 2004     December 31, 2003
                                                                         US$m                  US$m

Net income                                                                195.1                 152.1
Other comprehensive income, net of taxes
   Reclassification adjustment for net realized
   (gains)/losses included in net income                                     0.6                    -
   Change in unrealized gains/(losses) on investments                       (7.8)                (1.2)
   Loss on derivatives                                                      (2.2)                   -
   Change in gains/(losses) on foreign currency translation                  0.1                 15.8
   Other comprehensive income                                               (9.3)                14.6

Comprehensive income                                                      185.8                 166.7

See notes to consolidated financial statements




26
                                                                                  Aspen Insurance Holdings Limited
                                                                                      Annual Report & Accounts 2004




                                                                         Consolidated Statement of Cash Flows

For the 12 months ended December 31, 2004, and 2003
                                                                          12 months ended         12 months ended
                                                                         December 31, 2004       December 31, 2003
Operating activities                                                                US$m                    US$m

Net income                                                                           195.1                    152.1
Adjustments
   Depreciation and amortization of premium or discount on investments                12.2                      5.0
   Share-based compensation expense                                                    5.2                      7.5

Changes in insurance reserves
   Losses and loss adjustment expenses
   (includes US$67.5 million in 2004
   (2003 - US$84.1 million) from related parties)                                    709.7                    443.8
   Unearned premiums
   (includes US$71.9 million in 2004
   (2003 - US$(29.9) million) from related parties)                                  116.8                    319.0

Changes in reinsurance balances
   Reinsurance recoverables
   (includes US$(3.9) million in 2004
    (2003 - US$16.5 million) from related parties)                                  (150.4)                   (15.4)
   Ceded unearned premiums
   (includes US$14.5 million in 2004,
   (2003 - US$23.3 million) from related parties)                                       9.6                   (38.5)

Changes in accrued investment income and other receivables                              2.2                   (40.0)
Changes in deferred policy acquisition costs
(includes US$7.7 million in 2004
(2003 - US$(2.1) million) from related parties)                                       (17.3)                  (50.7)
Changes in reinsurance premiums payable
(includes US$(8.1) million in 2004
(2003 - US$49.3 million) from related parties)                                         (6.8)                   56.1
Changes in premiums receivable
(includes US$(68.9) million in 2004
(2003 - US$70.5 million) from related parties)                                        23.2                   (261.2)
Changes in accrued expenses and other payable
(includes US$(8.9) million in 2004
(2003 - US$10.5 million) from related parties)                                        61.8                     58.9
Other                                                                                     -                       -

Net cash from operating activities                                                   961.3                   636.6

See notes to consolidated financial statements




                                                                                                                27
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Consolidated Statement of Cash Flows

For the 12 months ended December 31, 2004, and 2003
                                                          12 months ended       12 months ended
                                                         December 31, 2004     December 31, 2003
Investing activities                                                US$m                  US$m

Purchases of fixed maturities                                      (5,220.4)             (1,903.3)
Proceeds from sales and maturities of fixed maturities              4,060.6                943.5
Net (purchases)/sales of short term investments                        55.5                263.4
Purchase of equipment                                                  (4.6)                 (0.3)
Payments for acquisition net of cash acquired                             -                  (6.6)

Net cash used investing activities                                 (1,108.9)              (703.3)


Financing activities

Proceeds from the issuance of ordinary shares,
net of issuance costs                                                   0.1                246.4
Dividends paid                                                         (8.3)                    -
Loss on derivative contracts                                           (2.3)                    -
Proceeds from long term loan                                         249.3                  90.0
Repayment of long term loan                                           (40.0)                (50.0)
Net cash from financing activities                                   198.8                 286.4
Effect of exchange rate movements on cash
and cash equivalents                                                    2.9                   1.5

Increase in cash and cash equivalents                                  54.1                221.2
Cash and cash equivalents at beginning of period                     230.8                    9.6

Cash and cash equivalents at end of period                           284.9                 230.8


Supplemental disclosure of cash flow information:
cash paid during the period for income taxes                           47.9                 24.8

See notes to consolidated financial statements




28
                                       Aspen Insurance Holdings Limited
                                           Annual Report & Accounts 2004




                  Notes to the Consolidated Financial Statements

1 Basis of presentation and               employer of the directors and
  summary of significant                  staff of Aspen Re. On September
  accounting policies                     5, 2003, Aspen US Holdings
   Basis of presentation and              acquired Dakota Specialty
   consolidation                          Insurance Company (‘Dakota’).
                                          Dakota was renamed Aspen
   Aspen Insurance Holdings               Specialty Insurance Company
   Limited (‘Aspen Holdings’) was         (‘Aspen Specialty’) and
   incorporated under the name            commenced underwriting on
   of Exali Reinsurance Holdings          September 25, 2003.
   Limited (‘Exali’) on May 23, 2002
   to hold the subsidiaries that          The Consolidated Financial
   provide insurance and                  Statements of Aspen Holdings
   reinsurance on a worldwide             are prepared in accordance with
   basis. Exali subsequently              United States Generally Accepted
   changed its name to Aspen              Accounting Principles (‘US
   Insurance Holdings Limited on          GAAP’). The financial statements
   November 20, 2002. On June 21,         are presented on a consolidated
   2002, Aspen Holdings acquired          basis including the transactions
   the entire issued share capital        of all operating subsidiaries.
   of The City Fire Insurance             Transactions between Aspen
   Company Limited (‘City Fire’).         Holdings and its subsidiaries
   City Fire was renamed                  are eliminated within the
   Wellington Reinsurance Limited         consolidated financial statements.
   (‘Wellington Re’) and
   commenced underwriting on              Use of estimates
   June 23, 2002. On March 4, 2003,
   Wellington Re was renamed              Estimates and assumptions
   Aspen Insurance UK Limited             are made by the directors
   (‘Aspen Re’). Aspen Insurance          that have an effect on the
   Limited (‘Aspen Bermuda’) was          amount reported within
   established on November 6,             these consolidated financial
   2002 as Exali Insurance Limited        statements. The most significant
   and changed its name to Aspen          estimates relate to the reserves
   Insurance Limited on November          for property and liability losses.
   22, 2002. Aspen Insurance UK           These estimates are continually
   Services Limited (‘Aspen UK            reviewed and adjustments made
   Services’) provides services to        as necessary, but actual results
   Aspen Holdings and its                 could turn out significantly
   subsidiaries (collectively, the        different from those expected
   ‘Company’) in its capacity as the      when the estimates were made.




                                                                         29
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Notes to the Consolidated Financial Statements

     Accounting for                          Company estimates commissions,        expensed using the same ratio
     underwriting operations                 losses and loss adjustment            as the underlying premiums on
     Premiums earned                         expenses on these premiums.           a daily pro rata basis.

     Premiums are recognized as              Reinstatement premiums and            Insurance losses and loss
     revenues proportionately over           additional premiums are accrued       adjustment expenses
     the coverage period. Premiums           as provided for in the provisions
     earned are recorded in the                                                    Losses represent the amount
                                             of assumed reinsurance contracts,     paid or expected to be paid to
     statement of operations, net            based on experience under such
     of the cost of purchased                                                      claimants in respect of events
                                             contracts. Reinstatement              that have occurred on or before
     reinsurance. Premiums not yet           premiums are the premiums
     recognized as revenue are                                                     the balance sheet date. The costs
                                             charged for the restoration of        of investigating, resolving and
     recorded in the consolidated            the reinsurance limit of an excess
     balance sheet as unearned                                                     processing these claims are
                                             of loss contract to its full amount   known as loss adjustment
     premiums, gross of any ceded            after payment by the reinsurer
     unearned premiums. Written                                                    expenses (‘LAE’). The statement
                                             of losses as a result of an           of operations records these
     and earned premiums, and the            occurrence. These premiums
     related costs, which have not yet                                             losses net of reinsurance,
                                             relate to the future coverage         meaning that gross losses and
     been reported to the Company            obtained during the remainder
     are estimated and accrued. Due                                                loss adjustment expenses
                                             of the initial policy term and are    incurred are reduced by the
     to the time lag inherent in             earned over the remaining policy
     reporting of premiums by                                                      amounts recovered or expected
                                             term. Additional premiums are         to be recovered under
     cedents, such estimated                 premiums charged after coverage
     premiums written and earned,                                                  reinsurance contracts.
                                             has expired, related to experience
     as well as related costs, may be        during the policy term, which
     significant. Differences between                                              Reinsurance
                                             are earned immediately. An
     such estimates and actual               allowance for uncollectible           Written premiums earned and
     amounts will be recorded in             premiums is established for           incurred claims and LAE all
     the period in which the actual          possible non-payment of such          reflect the net effect of
     amounts are determined.                 amounts due, as deemed                assumed and ceded
                                             necessary.                            reinsurance transactions.
     Premiums on proportional treaty                                               Assumed reinsurance refers
     type contracts are generally not        Outward reinsurance premiums          to the Company’s acceptance
     reported to the Company until           are accounted for in the same         of certain insurance risks that
     after the reinsurance coverage is       accounting period as the              other insurance companies
     in force. As a result, an estimate of   premiums for the related direct       have underwritten. Ceded
     these ‘pipeline’ premiums is            insurance or inwards reinsurance      reinsurance means other
     recorded. The Company                   business. Reinsurance contracts       insurance companies have
     estimates pipeline premiums             that operate on a ‘losses             agreed to share certain risks
     based on estimates of ultimate          occurring during’ basis are           with this Company.
     premium, calculated unearned            accounted for in full over the        Reinsurance accounting is
     premium and premiums reported           period of coverage whilst ‘risk       followed when risk transfer
     from ceding companies. The              attaching during’ policies are        requirements have been met.




30
                                                                          Aspen Insurance Holdings Limited
                                                                              Annual Report & Accounts 2004




                                                    Notes to the Consolidated Financial Statements

Reinsurance does not isolate the     Both case and IBNR reserve              that the process of estimating
Company from its obligations to      estimates consider such                 required reserves does, by its very
policyholders. In the event a        variables as past loss experience,      nature, involve uncertainty.
reinsurer fails to meet their        changes in legislative                  The level of uncertainty can be
obligations the Company’s            conditions, changes in judicial         influenced by factors such as the
obligations remain.                  interpretation of legal liability       existence of coverage with long
                                     policy coverages, and inflation.        duration payment patterns and
The Company regularly evaluates                                              changes in claims handling
the financial condition of its       Because much of the coverage            practices, as well as the factors
reinsurers and monitors the          underwritten involve claims that        noted above. Ultimate actual
concentration of credit risk to      may not be ultimately settled for       payments for claims and LAE
minimize its exposure to financial   many years after they are               could turn out to be significantly
loss from reinsurers’ insolvency.    incurred, subjective judgments          different from our estimates.
Where it is considered required,     as to the ultimate exposure to
appropriate provision is made for    losses are an integral and              Policy acquisition expenses
balances deemed irrecoverable        necessary component of the              The costs directly related to writing
from reinsurers.                     loss reserving process. Reserves        an insurance policy are referred to
                                     are established by the selection        as policy acquisition expenses and
Insurance reserves                   of a ‘best estimate’ from within a      consist of commissions, premium
Insurance reserves are               range of estimates. The                 taxes and other direct underwriting
established for the total unpaid     Company continually reviews its         expenses, primarily underwriters’
cost of claims and LAE, which        reserves, using a variety of            salaries. Although these expenses
cover events that have occurred      statistical and actuarial               are incurred when a policy is
by the balance sheet date. These     techniques to analyze current           issued they are deferred and
reserves reflect the Company’s       claims costs, frequency and             amortized over the same period as
estimates of the total cost of       severity data, and prevailing           the corresponding premiums are
claims incurred but not yet          economic, social and legal              recorded as revenues.
reported to it (‘IBNR’). Claim       factors. Reserves established in
reserves are reduced for             prior periods are adjusted as           On a regular basis a recoverability
estimated amounts of salvage         claim experience develops and           analysis is performed of the
and subrogation recoveries.          new information becomes                 deferred policy acquisition costs
Estimated amounts recoverable        available.                              in relation to the expected
from reinsurers on unpaid losses                                             recognition of revenues, including
and LAE are reflected as assets.     Adjustments to previously               anticipated investment income,
                                     estimated reserves are reflected        and reflect adjustments, if any, as
For reported claims, reserves are    in the financial results of the         period costs. Should the analysis
established on a case by case        period in which the adjustments         indicate that the acquisition costs
basis within the parameters of       are made.                               are unrecoverable, further analyses
coverage provided in the                                                     are performed to determine if a
insurance policy or reinsurance      Whilst the reported reserves            reserve is required to provide for
agreement. For IBNR claims,          make a reasonable provision             losses which may exceed the
reserves are estimated using         for unpaid claim and LAE                related unearned premium.
established actuarial methods.       obligations, it should be noted




                                                                                                               31
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Notes to the Consolidated Financial Statements

     Accounting for investments             and future prospects of the            investment is written down and
     Fixed maturities                       entity that issued the                 the loss taken to the income
                                            investment security, and make          statement.
     The fixed maturity portfolio is        a decision to either record a
     composed primarily of high             write-down in the carrying             Investment income
     quality, US and UK government          value of the security or sell the
     securities. The entire fixed                                                  Investment income is recognized
                                            security; in either case a realized    when earned and includes
     maturity investment portfolio          loss is recorded in the statement
     is classified as available for sale.                                          income together with
                                            of operations.                         amortization of premium and
     Accordingly, that portfolio is
     carried on the consolidated                                                   accretion of discount on fixed
                                            Unrealized gains or losses on          maturity invesments.
     balance sheet at estimated fair        investments
     value. Fair values are based on
     quoted market prices from a            For investments carried at             Cash and cash equivalents
     third party pricing service.           estimated fair value, the difference   Cash and cash equivalents include
                                            between amortized cost and fair        cash in hand and with banks.
     Short term investments                 value, net of deferred taxes, is
                                            recorded as part of shareholders’      Derivative financial
     Short term investments include         equity.This difference is referred
     highly liquid debt instruments                                                instruments
                                            to as unrealized gains or losses on
     and commercial paper and are           investments.The change in              In accordance with Statement
     held as part of the investment         unrealized gains or losses, net of     of Financial Accounting
     portfolio of the Company.              taxes, during the year is a            Standards (‘SFAS’) No. 133,
                                            component of other                     ‘Accounting for Derivative
     Realized investment gains              comprehensive income.                  Instruments and Hedging
     and losses                                                                    Activities,’ all derivatives are
     The cost of each individual            Other than temporary                   recorded on the consolidated
     investment is recorded so that         impairment of investments              balance sheet at fair value. The
     when an investment is sold the                                                accounting for the gain or loss
                                            The Company assesses the fair          due to the changes in the fair
     resulting gain or loss can be          value of investments which have
     identified and recorded in the                                                value of these instruments is
                                            been impaired to determine if          dependent on whether the
     statement of operations.               the impairment is other than           derivative qualifies as a hedge.
                                            temporary. This assessment             If the derivative does not qualify
     The difference between the cost        considers factors such as the
     and the estimated fair market                                                 as a hedge, the gains or losses
                                            period during which there has          are reported in earnings when
     value of all investments is            been a decline in value, the type
     monitored. If we determine that                                               they occur. If the derivative does
                                            of investment, the period over         qualify as a hedge, the
     any investment has experienced         which the investment will be
     a decline in value that is                                                    accounting varies based on the
                                            held and the potential for the         type of risk being hedged (as
     believed to be other than              investment value to recover. If
     temporary, we consider the                                                    described in note 6). The
                                            the Company determines that            Company has entered into two
     current facts and circumstances,       the impairment is other than
     including the financial position                                              derivative contracts during
                                            temporary the value of the             the reporting period.




32
                                                                             Aspen Insurance Holdings Limited
                                                                                 Annual Report & Accounts 2004




                                                      Notes to the Consolidated Financial Statements

Intangible assets                     currency of that operations               outstanding associated with
Acquired insurance licenses are       segment at the exchange rate              dilutive securities.
held in the consolidated balance      prevailing at the date of the
sheet at cost.This intangible asset   transaction. Monetary assets and          Income tax
is not currently being amortized      liabilities denominated in                Income taxes are accounted for
as the directors believe that these   non-functional currencies are             under the asset and liability
will have an indefinite life.The      re-measured at the exchange               method. Deferred tax assets and
directors test for impairment         rate prevailing at the balance            liabilities are recognized for the
annually or when events or            sheet date. Any resulting foreign         future tax consequences
changes in circumstances indicate     exchange gains or losses are              attributable to differences
that the asset might be impaired.     reflected in the statement of             between the financial statement
                                      operations.                               carrying amounts of existing
Office properties and                                                           assets and liabilities and their
equipment                             Assets and liabilities of the             respective tax bases and
                                      Company’s British Pound                   operating loss and tax credit
Office equipment is carried at        functional currency operations
depreciated cost. These assets are                                              carryforwards. Deferred tax assets
                                      segment are then translated into          and liabilities are measured using
depreciated on a straight line        US Dollars at the exchange rate
basis over the estimated useful                                                 enacted tax rates expected to
                                      prevailing at the balance sheet           apply to taxable income in the
lives of the assets. Computer         date. Income and expenses of
equipment and software is                                                       years in which those temporary
                                      this operations segment are               differences are expected to be
depreciated over three years with     translated at the average
depreciation for software                                                       recovered or settled. The effect
                                      exchange rate for the period.             on deferred tax assets and
commencing on the date the            The unrealized gain or loss from
software is brought into use.                                                   liabilities of a change in tax rates
                                      this translation, net of tax, is          is recognized in income in the
Leasehold improvements,               recorded as part of shareholders’
furniture and fittings are                                                      period that includes the
                                      equity. The change in unrealized          enactment date.
depreciated over four years.          foreign currency translation gain
                                      or loss during the year, net of tax,      Stock based employee
Foreign currency translation          is a component of other                   compensation
The reporting currency of the         comprehensive income.
Company is the US Dollar. The                                                   The company operates a share
functional currencies of the          Earnings per share                        and option based employee
Company’s operations are US                                                     compensation plan, the terms
                                      Basic earnings per share is               and conditions of which are
Dollars for the reinsurance           determined by dividing
operations segment and British                                                  documented in note 13. The
                                      income/loss available to                  Company has adopted the fair
Pounds for the UK insurance           shareholders by the weighted
operations segment. Transactions                                                value recognition provisions of
                                      average number of shares                  SFAS 123, ‘Accounting for Stock
in currencies other than the          outstanding during the period.
functional currency of an                                                       Based Compensation’ for all
                                      Diluted earnings per share                awards granted to its
operations segment are                reflects the effect on earnings
measured in the functional                                                      employees.
                                      and average number of shares




                                                                                                                 33
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Notes to the Consolidated Financial Statements

     The cost of the options, based       On July 9, 2002, Aspen Re wrote     quota share of Aspen Re’s
     on their fair value at date of       two quota share contracts.          business for subsequent years.
     grant, is recognized over the        Under the first, Aspen Re           These options were not exercised
     period that the options vest.        assumed a 34% share of NICO’s       in 2004.
                                          qualifying quota share
     Related party transactions           reinsurance of Syndicate 2020,      Option to purchase retrocession
     The following summarizes the         subject to an overall premium       agreement
     related party transactions of the    limit of £63.8 million. Under the   The quota share arrangements
     Company.                             second, Aspen Re assumed a          for 2002 described above were
                                          70% reinsurance quota share of      entered into pursuant to an
     Wellington Underwriting plc          Syndicate 3030. Of the gross        option agreement entered into
                                          written premiums of US$374.8        on May 28, 2002, whereby
     Wellington Underwriting plc          million for the period from May
     (‘Wellington’) holds 16.2% of the                                        Wellington and Aspen Holdings
                                          23, 2002 to December 31, 2002,      agreed to pay NICO US$2.5
     ordinary shares of Aspen Holdings    US$98.2 million related to the
     and is represented on the Board of                                       million and US$2.0 million,
                                          Syndicate 2020 qualifying quota     respectively, to procure (i) the
     Directors of Aspen Holdings. In      share and US$118.0 million to
     addition, Wellington holds                                               retrocession to a subsidiary of
                                          the quota share of Syndicate        Aspen Holdings of the NICO
     3,781,120 options to subscribe for   3030.
     ordinary shares of Aspen Holdings.                                       qualifying quota share of
                                                                              Syndicate 2020 and (ii) the
                                          These arrangements were             reinsurance of Syndicate 3030.
     The principal operating              undertaken on a funds withheld
     subsidiary of the Company,           basis whereby the premiums due
     Aspen Re, has a number of                                                On June 21, 2002, Aspen
                                          to Aspen Re will be paid net of     Holdings repaid Wellington
     arrangements with Wellington.        claims and expenses, along with
     These arrangements can be                                                US$2.5 million for the amount
                                          interest due on the funds           that Wellington paid to NICO
     summarized as follows:               withheld, calculated at rates       for the option, together with
                                          specified in the quota share        a fee of US$275,000 for the risk
     Quota share arrangements             agreements. For 2003, the           borne by Wellington during
     For 2002, Wellington’s managed       Company has entered into a 7.5%     the period from May 28, 2002
     Syndicate 2020 (‘Syndicate 2020’)    quota share agreement directly      to June 21, 2002. Subsequently
     has placed a qualifying quota        with Syndicate 2020.                Aspen Holdings recharged
     share contract with a Berkshire      The written premiums for 2003       the cost of the option to
     Hathaway group company,              under this contract were US$78.4    Aspen Re. The cost of these
     National Indemnity Corporation       million.The Company had an          option agreements has been
     of Omaha (‘NICO’), and               option, but no contractual          treated as a policy acquisition
     established a consortium             obligation, to assume up to a 20%   cost and is charged to the
     Syndicate 3030 with another          quota share of Syndicate 2020’s     income statement in proportion
     Berkshire Hathaway subsidiary.       business for subsequent years,      to the premiums recognized
     Aspen Re has accessed certain        while Syndicate 2020 had an         under the contracts. At
     of its business through these        option, but no contractual          December 31, 2003 the cost has
     arrangements.                        obligation, to assume up to a 20%   been fully charged to income.




34
                                                                              Aspen Insurance Holdings Limited
                                                                                  Annual Report & Accounts 2004




                                                        Notes to the Consolidated Financial Statements

Provision of services                    Wellington options                      Limited (‘Montpelier Re’).
In 2002 the Company entered              The Company granted options             Reinsurance premiums ceded
into a contract for the provision        to subscribe to its shares to           under the contracts in the 12
of services by a subsidiary              Wellington and to a trust               months ended December 31,
company of Wellington to the             established for the benefit of the      2004 were US$36.9 million
Company.                                 unaligned members of                    (December 31, 2003 - US$66.0
                                         Syndicate 2020 in consideration         million). The amount payable by
These services include                   for the transfer of an                  the Company in respect of
accounting, actuarial, operations,       underwriting team from                  these transactions was US$41.2
risk management and technical            Wellington, the right to seek to        million as of December 31,
support. This agreement was              renew certain business written          2004 (December 31, 2003 -
perpetual but could be                   by Syndicate 2020, an                   US$49.3 million).
terminated by either party upon          agreement in which Wellington
the occurrence of certain                agrees not to compete with              Montpelier Re owned
circumstances, such as the               Aspen Re through March 31,              approximately 6% and 3.6% of
inability to pay debts or upon an        2004, the use of the Wellington         the issued share capital of Aspen
initial public offering, and, after an   name and logo and the                   Holdings as of December 31,
initial period of three years, may       provision of certain outsourced         2004 and March 1, 2005,
be terminated by either party            services to the Company. These          respectively.
upon 18 months’ prior notice.            options have been recorded at
The Company can also terminate           a value of nil, equal to the         2 Acquisition of Dakota
specific services if it undertakes       transferor’s historical cost basis     Specialty Insurance Company
those services itself and does not       of the assets transferred to the        On September 5, 2003,
contract those services to a third       Company.                                Aspen US Holdings acquired
party. During 2003 the Company                                                   Dakota Specialty Insurance
took over responsibility for             Shares issued to employees              Company for cash consideration
accounting, actuarial, operations        Shares in Aspen Holdings have           of US$20.9 million. The name
and risk management services.            been issued to the employees of         of Dakota Specialty was
                                         Aspen Holdings and its                  subsequently changed to
 The provision of services under         subsidiaries in the period. These       Aspen Specialty Insurance
the service agreement has                amounts and the consideration           Company (‘Aspen Specialty’).
therefore reduced to purely IT           received by the Company are             The directors of Aspen Holdings
technical support for 2004. The          disclosed in note 10.                   have assessed the fair value of
provision of these services is                                                   the net tangible and financial
covered by a detailed service level      Montpelier Re Holdings Limited          assets acquired at US$16.3
agreement and is priced on an                                                    million. An amount of US$4.6
actual cost basis.The cost of these      A subsidiary operation of Aspen         million is the estimated fair value
services in 2004 was US$7.1 million      Holdings entered into four              of that company’s insurance
(2003 - US$6.6 million), and the         proportional reinsurance                licenses that are treated as an
amount due to Wellington at              contracts with effect from              intangible asset.
December 31, 2004 was US$2.1             January 1, 2003 with a subsidiary
million (2003 - US$6.9 million).         of Montpelier Re Holdings




                                                                                                                 35
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Notes to the Consolidated Financial Statements

3 Earnings per ordinary share
     For the 12 months ended December 31, 2004, and 2003
                                                            12 months ended      12 months ended
                                                           December 31, 2004    December 31, 2003
     Earnings                                                         US$m                 US$m

     Basic
        Net income as reported and
        available to ordinary shareholders                             195.1                152.1

     Diluted
         Net income as reported and
         available to ordinary shareholders                            195.1                152.1

     Ordinary shares

     Basic
        Weighted average ordinary shares                           69,204,658          57,751,852

     Diluted
         Weighted average ordinary shares                          69,204,658          57,751,852
         Weighted average effect of dilutive securities             1,916,910           1,739,908

     Total                                                        71,121,568           59,491,760


     Earnings per ordinary share                                         US$                 US$

     Basic                                                               2.82                2.63

     Diluted                                                             2.74                2.56




36
                                                                                   Aspen Insurance Holdings Limited
                                                                                       Annual Report & Accounts 2004




                                                              Notes to the Consolidated Financial Statements

4 Investments
  The following presents the cost, gross unrealized gains and losses, and estimated fair value of investments in fixed
  maturities and other investments.

  As of December 31, 2004
                                                   Cost or                Gross                Gross                Fair
                                            amortized cost     unrealized gains    unrealized losses       market value
  Investment (excluding cash)                       US$m                 US$m                 US$m               US$m

  Type of investment
     US Government and agency securities            1,017.5                  0.7                 (5.9)           1012.3
     Corporate securities                             551.6                  0.7                 (3.1)             549.2
     Foreign government                               233.0                  1.5                 (0.3)             234.2
     Municipals                                         3.6                    -                    -                3.6
     Asset backed securities                          225.0                    -                 (2.1)             222.9
     Mortgage backed securities                       185.5                  0.1                 (0.7)             185.0
  Total fixed income                                2,216.2                  3.0                (12.1)           2,207.2
     Short term investments                           528.5                  0.8                 (0.6)             528.7

  Total                                             2,744.7                  3.8               (12.7)            2,735.9


  As of December 31, 2003
                                                   Cost or                 Gross               Gross                Fair
                                            amortized cost      unrealized gains   unrealized losses       market value
  Investment (excluding cash)                       US$m                  US$m                US$m               US$m

  Fixed income investments
      US Government and agency securities             636.9                  1.1                 (0.1)             637.9
      Corporate securities                             71.2                  0.2                 (0.1)              71.3
      Foreign government                              136.3                    -                 (2.0)             134.3
      Municipals                                        2.0                    -                    -                2.0
      Asset backed securities                         135.9                  0.1                 (0.6)             135.4
      Mortgage backed securities                       66.5                  0.8                 (0.1)              67.2
  Total fixed income                                1,048.8                  2.2                 (2.9)           1,048.1
      Short term investments                          568.1                  0.1                    -              568.2

  Total                                             1,616.9                  2.3                 (2.9)           1,616.3




                                                                                                                         37
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Notes to the Consolidated Financial Statements

4 Investments continued
     The following table summarizes, for all securities in an unrealized loss position at December 31, 2004, the aggregate
     fair value and gross unrealized loss by length of time the security has been in an unrealized loss position.

                                                  0-12 months                 Over 12 months                     Total

                                                           Gross                        Gross                      Gross
                                                Fair   unrealized              Fair unrealized            Fair unrealized
                                              value           loss           value         loss         value         loss

     US Government and agency securities      785.9           (5.9)            1.3            -          787.2            (5.9)
     Corporate securities                     372.4           (2.9)            9.0         (0.1)         381.4            (3.0)
     Mortgage and asset backed securities     250.7           (2.1)           34.4         (0.8)         285.1            (2.9)
     Foreign government                        75.6           (0.3)              -            -           75.6            (0.3)

     Total                                  1,484.6          (11.2)           44.7         (0.9)      1,529.3            (12.1)

     The Company believes that the gross unrealized losses are the result of interest rate movements. The Company has
     not recorded any other-than-temporary impairments in 2004 and 2003.


     The following table presents the breakdown of investment maturities by year to stated maturity. Actual maturities
     may differ from those stated as a result of calls and prepayments.

                                              As of December 31, 2004                      As of December 31, 2003

                                        Amortized Fair market           Average      Amortized     Fair market     Average
                                             cost       value         ratings by          cost           value   ratings by
     Maturity and ratings (excluding cash) US$m         US$m            maturity        US$m             US$m      maturity

     Due in one year or less                 107.3          106.9          AAA            103.4         103.1            AAA
     Due after one year through five years 1,662.8        1,656.6          AAA            738.7         738.1            AAA
     Due after five year through ten years    35.6           35.8          AA+              4.3           4.3            AAA
     Subtotal                               1,805.7       1,799.3                         846.4         845.5
     Mortgage and asset backed securities     410.5         407.9          AAA            202.4         202.6            AAA
     Short term investments                   528.5         528.7          AAA            568.1         568.2            AA+

     Total                                  2,744.7       2,735.9                       1,616.9       1,616.3




38
                                                                                     Aspen Insurance Holdings Limited
                                                                                         Annual Report & Accounts 2004




                                                             Notes to the Consolidated Financial Statements

5 Investment transactions
  The following table sets out an analysis of investment purchases sales and maturities.
                                                                          12 months ended            12 months ended
                                                                         December 31, 2004          December 31, 2003
                                                                                    US$m                       US$m

  Purchases of fixed maturity investments                                              5,220.4                 1,903.3
  Proceeds from sales and maturities of fixed
  maturity investments                                                                 (4,060.6)                (943.5)
  Net purchases/(sales) of
  short term investments                                                                   (55.5)               (263.4)

  Net purchases                                                                        1,104.3                  696.4


  The following is a summary of investment income.
                                                                          12 months ended            12 months ended
                                                                         December 31, 2004          December 31, 2003
                                                                                    US$m                       US$m

  Fixed maturities                                                                         46.0                   16.7
  Short term investments                                                                   22.3                   12.9

  Net investment income                                                                    68.3                  29.6


  Included in net investment income are investment management fees of US$1.8 million for the 12 months ended
  December 31, 2004 and US$0.3 million for the 12 months ended December 31, 2003.



  The following table summarizes the pre-tax realized investment gains and losses, and the change in unrealized gains
  of investments recorded in shareholders’ equity and in comprehensive income.

                                                                          12 months ended            12 months ended
  Pre-tax realized investment gains and losses                           December 31, 2004          December 31, 2003

  Short term investments and fixed maturities
     Gross realized gains                                                                    2.8                   0.6
     Gross realized losses                                                                  (6.3)                 (3.0)

  Total pre-tax realized investment gains and losses                                        (3.5)                 (2.4)

  Change in unrealized gains and losses

  Fixed maturities                                                                          (8.4)                 (0.5)
  Short term investments                                                                     0.1                  (0.9)
  Total change in pre-tax unrealized gains/(losses)                                         (8.3)                 (1.4)
  Change in taxes                                                                            1.1                  (0.2)

  Total change in unrealized gains/(losses), net of tax                                     (7.2)                 (1.2)



                                                                                                                   39
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Notes to the Consolidated Financial Statements

6 Derivative financial instruments        ‘Accounting for Derivative             proposed debt issuance which
     Derivative financial instruments     Instruments and Hedging                was completed in August 2004.
     include futures, forward, swap       Activities’, as amended (‘SFAS
     and option contracts and other       133’) and is therefore measured        The swap falls under the
     financial instruments with similar   in the balance sheet at fair value     requirements of SFAS 133 and
     characteristics. The Company has     with any changes in the fair value     was measured at fair value with
     limited involvement with these       shown on the consolidated              changes to fair value being
     instruments, but did enter into      statement of operations.               included in other comprehensive
     the following transactions during                                           income as hedge accounting
     the reporting period. On August      As there is no quoted market           was appropriate and there was
     17, 2004, Aspen Bermuda entered      value available for this derivative,   no ineffective portion.
     into a risk transfer swap (‘cat      the fair value is determined by
     swap’) with a non-insurance          management using internal              The swap was unwound as the
     counterparty. The cat swap is for    models taking into account             Company issued the 10-year
     a 3-year term during which           changes in the cat swap market.        notes in August 2004. The
     Aspen Bermuda will pay               The amount recognized could be         realized loss of US$2.3 million
     ‘quarterly premiums’ or spread,      materially different from the          recorded in other comprehensive
     applied to a notional amount         amount realized in an actual sale.     income will be reclassified to
     (US$100,000,000). In return Aspen                                           earnings as interest expense
     Bermuda will receive a portion or    On July 7, 2004 the Company            using the level yield method
     the entire notional amount only      entered into a forward starting        over the term of the debt. In the
     in instances where industry          interest rate swap (‘swap’). The       12 months ended December 31,
     losses on Florida hurricanes or      swap was designated as a cash          2004, US$0.1 million was
     California earthquakes exceed        flow hedge of a forecast               reclassified to earnings and we
     pre-agreed amounts.                  transaction as it was intended to      estimate that an additional
                                          hedge against the variability of       US$0.2 million of the realized loss
     This cat swap falls under the        the Company’s interest payments        will be reclassified into earnings
     requirement of SFAS 133              under the Company’s then               within the next 12 months.




40
                                                                                 Aspen Insurance Holdings Limited
                                                                                     Annual Report & Accounts 2004




                                                             Notes to the Consolidated Financial Statements

7 Reserves for losses and loss adjustment expenses
   The following table represents a reconciliation of beginning and ending consolidated loss and loss adjustment
   expenses ('LAE') reserves as of December 31, 2004 and 2003.

                                                                      December 31, 2004           December 31, 2003
   Reserves for losses and loss adjustment expenses                              US$m                         US$m

   Provision for losses and LAE at start of year                                     525.8                          93.9
   Less reinsurance recoverable                                                      (43.6)                        (12.5)
   Net loss and LAE at start of year                                                482.2                           81.4

   Losses and LAE reserves of subsidiary at date of acquisition                          -                          22.4
   Less reinsurance recoverable                                                          -                         (15.9)
   Net loss and LAE reserves of subsidiary at date of acquisition                        -                           6.5

   Provision for losses and LAE for claims incurred
      Current year                                                                   785.6                         438.0
      Prior year                                                                     (62.0)                         (9.6)
   Total incurred                                                                   723.6                          428.4

   Losses and LAE payments for claims incurred
      Current year                                                                   (76.6)                        (44.9)
      Prior year                                                                     (88.0)                         (9.0)
   Total paid                                                                       (164.6)                        (53.9)

   Foreign exchange                                                                   39.0                          19.8
   Net losses and LAE reserves at year end                                         1,080.2                         482.2
   Plus reinsurance recoverables on
   unpaid losses at end of year                                                      197.7                          43.6

   Loss and LAE reserves at December 31, 2004 and 2003                             1,277.9                         525.8




                                                                                                                     41
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Notes to the Consolidated Financial Statements

8 Income taxes
     Aspen Holdings and Aspen Bermuda are incorporated under the laws of Bermuda. Under current Bermudian law,
     they are not taxed on any Bermuda income or capital gains taxes and they have received an undertaking from the
     Bermuda Minister of Finance that, in the event of any Bermuda income or capital gains being imposed, they will be
     exempt from those taxes until 2016. The Company’s US operating companies are subject to US corporate tax at a
     rate of 35%. Under current UK law, Aspen Re is taxed at the UK corporate tax rate of 30%.

     Total income tax for the 12 months ended December 31, 2004 and December 31, 2003 is allocated as follows:
                                                                         12 months ended             12 months ended
                                                                        December 31, 2004           December 31, 2003
                                                                                   US$m                        US$m

     Income from operations                                                             68.1                       54.5
     Other comprehensive income                                                         (4.6)                       3.3

     Total income tax                                                                  63.5                        57.8


     Income from operations before tax and income tax expense attributable to that income consists of:
                                                                                12 months ended December 31, 2004
                           Income                      Current                    Deferred                      Total
                         before tax               income taxes                income taxes               income taxes
                             US$m                       US$m                        US$m                       US$m

     US                         (5.9)                          -                        (1.3)                      (1.3)
     Non US                    269.1                        61.6                         7.8                       69.4

     Total                    263.2                         61.6                         6.5                       68.1


                                                                                  12 months ended December 31, 2003
                           Income                       Current                    Deferred                      Total
                         before tax                income taxes                income taxes               income taxes
                             US$m                        US$m                        US$m                       US$m

     US                         (2.1)                          -                        (0.7)                      (0.7)
     Non US                    208.7                        42.8                        12.4                       55.2

     Total                    206.6                         42.8                       11.7                        54.5




42
                                                                                      Aspen Insurance Holdings Limited
                                                                                          Annual Report & Accounts 2004




                                                             Notes to the Consolidated Financial Statements

  The weighted average expected tax provision has been calculated using the pre-tax accounting income/loss in each
  jurisdiction multiplied by that jurisdiction’s applicable statutory tax rate. The reconciliation between the provision for
  income taxes and the expected tax at the weighted average rate provision is provided below.

                                                                           12 months ended              12 months ended
                                                                          December 31, 2004            December 31, 2003
  Income tax reconciliation                                                          US$m                         US$m

  Expected tax provision at weighted average rate                                         62.6                         56.5
  Effect of exchange gains exempt from UK taxation                                           -                            -
  Prior year adjustment                                                                    3.6                         (0.3)
  Other                                                                                    1.9                         (1.7)

  Total income tax expense                                                                68.1                         54.5


9 Deferred taxation
  The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities are presented
  in the following table.
                                                                         December 31, 2004             December 31, 2003
  Deferred tax liabilities                                                             US$m                           US$m

  Insurance reserves                                                                      29.1                         16.4
  Intangible assets                                                                        0.6                          0.6
  Deferred policy acquisition costs                                                        2.6                            -

  Total deferred tax liabilities                                                          32.3                         17.0


  Deferred tax assets

  Share options                                                                            2.7                            -
  Operating loss carry forward                                                             2.0                          0.7
  Insurance reserves                                                                       2.6                            -

  Deferred tax assets                                                                      7.3                          0.7

  Net deferred tax liabilities               of deferred tax assets is                   income, if any, and expire in the
  represent the tax effect of                dependent upon the generation               years 2023 and 2024. Based upon
  temporary differences between              of future taxable income during             projections for future taxable
  the value of assets and liabilities        the periods in which those                  income over the periods in which
  for financial statement purposes           temporary differences and                   the deferred tax assets are
  and such values as measured by             operating losses become                     deductible, management believes
  UK tax laws and regulations. Net           deductible. Management                      it is more likely than not that the
  deferred tax assets represent              considers the scheduled reversal            Company will realize the benefits
  differences as measured by US tax          of deferred tax liabilities, projected      of these deductible differences,
  laws and regulations.                      future taxable income, and tax              net of the existing valuation
                                             planning strategies in making this          allowances at December 31, 2004.
  In assessing the realizability of          assessment. At December 31, 2004,           The amount of the deferred tax
  deferred tax assets, management            the Company has net operating               asset considered realizable,
  considers whether it is more likely        loss carryforwards for US Federal           however, could be reduced in the
  than not that some portion or all          income tax purposes of US$5.7               near term if estimates of future
  of the deferred tax assets will not        million which are available to              taxable income during the
  be realized.The ultimate realization       offset future US Federal taxable            carryforward period are reduced.

                                                                                                                         43
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Notes to the Consolidated Financial Statements

10 Capital structure
     Aspen Holdings was formed on               £0.001. On August 20, 2003, the              purchased by Aspen Holdings
     May 23, 2002 with the issue of             denomination of the share capital            and made available for reissue,
     120,000 nil paid shares with a par         was changed from British Pounds              extinguishing the liability of the
     value of US$0.1 to members of              to US Dollars and the par value              original shareholders for the
     management of the Company. On              of the shares changed to                     amounts unpaid on those shares.
     June 18, 2002 the denomination             0.15144558¢. Following the                   The following table summarizes
     of the share capital was changed           funding of Aspen Holdings by the             the capital structure.
     to British Pounds and the par              accredited investors on June 21,
     value of the shares changed to             2002 the nil paid shares were

     Authorized share capital                                                                  No.                       US$000

     Authorized share capital
        Ordinary shares of 0.15144558¢ per share                                      969,629,030                           1,469
        Non-voting shares 0.15144558¢ per share                                         6,787,880                              10
        Preference shares 0.15144558¢ per share                                       100,000,000                             152

     Issued share capital of 0.15144558¢ per share                                      69,315,099                           105
     Share premium account                                                                       -                     1,083,221

     Issued ordinary shares                                                            69,315,099                     1,083,326

     Share based compensation                                                                     -                       12,772

                                                                                                                      1,096,098

        During 2003, the Company issued 12,302,943 ordinary shares. On February 11, 2003, 43,420 ordinary shares were
        issued to employees of the Company and its subsidiaries for a total consideration of US$707,746.

        On August 13, 2003, the Company issued 4,340 ordinary shares to employees of the Company and its subsidiaries
        for a total consideration of US$67,461.

        On December 9 and 17, 2003, the Company issued 126,706 and 25,877 ordinary shares respectively to Appleby
        Trust (Bermuda) Limited, formerly Harrington Trust Limited (the Names’ Trustee) in connection with the exercise of
        share options. The total consideration for these shares was US$1,622,591.

        On December 12, 2003, the Company completed an initial public offering of 12,102,600 ordinary shares for an
        aggregate consideration of US$244.0 million, net of US$28.3 million issuing expenses. The net proceeds of the
        offering were used to provide initial or additional capital to our subsidiaries and to repay a portion of our revolving
        credit facility.

        On March 11, 2004, we repurchased 5,000 ordinary shares from one of our previous employees.

        On October 15, 2004 we issued 135,321 ordinary shares to the Names’ Trustee in connection with the
        exercise of Investor Options.

        On October 31, 2004 we issued 5,475 ordinary shares to a previous employee who exercised his vested options.




44
                                                                                       Aspen Insurance Holdings Limited
                                                                                           Annual Report & Accounts 2004




                                                              Notes to the Consolidated Financial Statements

11 Statutory requirements and                 regulatory restrictions limiting              which is determined based on
   dividend restrictions                      their ability to declare and pay              the type and amount of
   As a holding company, Aspen                dividends.                                    insurance business written.
   Holdings relies on dividends                                                             The UK regulatory requirements
   from its insurance subsidiaries to         Aspen Bermuda’s ability to pay                impose no explicit restrictions
   provide cash flow to meet                  dividends and make capital                    on Aspen Re’s ability to pay a
   ongoing cash requirements,                 distributions is subject to certain           dividend, but Aspen Re would
   including any future debt service          regulatory restrictions based                 have to notify the FSA 28 days
   payments and other expenses,               principally on the amount of                  prior to any proposed dividend
   and to pay dividends, if any, to           Aspen Bermuda’s premiums                      payment.
   our shareholders. The Company’s            written and net reserves for
   insurance subsidiaries are                 losses and loss expenses.                     Aspen Specialty is subject to
   subject to insurance laws and                                                            regulation by the State of North
   regulations in the jurisdictions in        Under the jurisdiction of the                 Dakota Insurance Department
   which they operate, including              Financial Services Authority                  regarding payment of dividends
   Bermuda, the UK and the US,                (‘FSA’), Aspen Re must maintain               and capital distributions.
   and are subject to significant             a margin of solvency at all times,


   Statutory capital and surplus as reported to the relevant regulatory authorities for the principal operating subsidiaries
   of the Company as of December 31, 2004 is as follows:

                                                                                      US          Bermuda               UK
                                                                                    US$m             US$m             US$m

   Required statutory capital and surplus                                             5.4             143.9            208.9
   Actual statutory capital and surplus                                             113.9             632.7            870.9

   As of December 31, 2004, there are no statutory restrictions on the payment of dividends from retained earnings by
   the Company as the minimum statutory capital and surplus requirements are satisfied by the share capital and
   additional paid-in capital of the Company in all jurisdictions.




                                                                                                                          45
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Notes to the Consolidated Financial Statements

12 Retirement plans
     The Company operates a defined contribution retirement plan for the majority of its employees at varying rates of
     their salaries, up to a maximum of 20%. Total contributions by the Company to the retirement plan were US$2.2
     million in the 12 months ended December 31, 2004 and US$1.4 million in the 12 months ended December 31, 2003.



13 Share options                                                agrees not to compete with                                  and increases by 5% per annum,
     The Company has issued options                             Aspen Re through March 31, 2004,                            less any dividends paid. Option
     under two schemes: investor                                the use of the Wellington name                              holders are not entitled to
     options and employee options.                              and logo and the provision of                               participate in any dividends
                                                                certain outsourced services to the                          prior to exercise and would not
     The investor options were issued                           Company, and confer the option                              rank as a creditor in the event of
     on June 21, 2002 in consideration                          to subscribe for up to 6,787,880                            liquidation. The options were
     for the transfer of an underwriting                        ordinary shares of Aspen Holdings                           exercisable on the initial public
     team from Wellington, the right to                         to Wellington and the members of                            offering of the ordinary shares in
     seek to renew certain business                             Syndicate 2020 who are not                                  the US on December 3, 2003.
     written by Syndicate 2020, an                              corporate members of Wellington.                            If not exercised, the options will
     agreement in which Wellington                              The subscription price payable                              expire after a period of 10 years.
                                                                under the options is initially £10

     In connection with our initial public offering, the Names’ Trustee exercised 440,144 Names’ Options on both a cash
     and cashless basis, pursuant to which 152,583 ordinary shares were issued. On October 15, 2004, the Names’ Trustee
     exercised 856,218 Names’ Options on both a cash and cashless basis pursuant to which 135,321 ordinary shares were
     issued. The Names’ Trustee currently holds 1,710,398 Names’ Options.

     The following table summarizes information about investor options outstanding at December 31, 2004, and 2003
     to purchase ordinary shares.
                                                                                    Options                                                    12 months ended
                                                                                                                                              December 31, 2004

     Option holder                                                Outstanding                  Exercisable                           Price(1)        Expirations

     Wellington Underwriting plc                    3,781,120                                      3,781,120                               £10      June 21, 2012
     Names’ Trustee (Appleby Trust Bermuda Limited) 1,710,398                                      1,710,398                               £10      June 21, 2012

                                                                      5,491,518                   5,491,518


                                                                                    Options
                                                                                                                                                12 months ended
                                                                                                                                               December 31, 2003

     Option holder                                                 Outstanding                  Exercisable                           Price(1)        Expirations

     Wellington Underwriting plc                                       3,781,120                   3,781,120                               £10      June 21, 2012
     Names’ Trustee (Harrington Trust)                                 2,566,616                   2,566,616                               £10      June 21, 2012

                                                                      6,347,736                   6,347,736

     (1) To be increased by 5% per annum from June 21, 2002 to date of exercise, less the amount of any prior dividend or distribution per share.




46
                                                                              Aspen Insurance Holdings Limited
                                                                                  Annual Report & Accounts 2004




                                                       Notes to the Consolidated Financial Statements

On August 20, 2003 the Company          A total of 95,850 restricted share       entitled to receive dividend
granted 3,884,030 options to            units were granted in 2004,              equivalents with respect to their
employees under the Aspen               37,666 share units vest, subject to      units. Dividend equivalents will be
Insurance Holdings Limited 2003         the participants continued               denominated in cash and paid in
Share Incentive Plan (the ‘Share        employment, in tranches with             cash if and when the underlying
Incentive Plan’). The initial grant     one-third of the units vesting on        units vest. Participants will be
options have a term of ten years        each of December 31, 2004,               paid one ordinary share for each
and an exercise price of US$16.20       December 31, 2005 and                    unit that vests as soon as
per share. 65% of the initial grant     December 31, 2006. The                   practicable following the vesting
options are subject to time-based       remaining 58,184 units vest in           date. Participants may, however,
vesting with 20% vesting upon           tranches with one-third vesting          elect to defer the receipt of any
grant and 20% vesting on each           on the anniversary of the grant in       ordinary shares upon the vesting
December 31 of the calendar             2005, 2006 and 2007. Vesting of a        of units, in which case payment
years 2003, 2004, 2005 and 2006.        participant’s units may be               will not be made until such time
The remaining 35% of the initial        accelerated, however, if the             or times as the participant may
grant options are subject to            participant’s employment with            elect. Payment of deferred share
performance-based vesting. Of           the Company and its subsidiaries         units would be in ordinary shares
the initial grant options, 84,982       is terminated without cause (as          with any cash dividend
were forfeited by employees who         defined in such participants’            equivalents credited with respect
left the company and 5,475 were         award agreement), or, with               to such deferred share units paid
converted to ordinary shares. In        respect to one of the participants,      in cash.
addition to the initial grant of        by the participant with good
3,884,030 options, 500,113              reason (as defined in such               The 150,074 performance shares
options, 95,850 restricted share        participants’ award agreement).          were granted on December 22,
units and 150,074 performance           Compensation cost charged                2004 under the Share Incentive
share awards were granted               against income was US$0.5                Plan. The grant of shares is based
during the course of 2004. The          million for the 12 months ended          on the achievement of company
2004 options vest over a three          December 2004.                           targets. As of December 31,
year period with vesting subject                                                 2004, all targets had not been
to the achievement of company           Participants generally will not be       met and 24,267 share grants
performance targets. The options        entitled to any rights of a holder       were cancelled. Compensation
lapse if the criteria are not met. As   of ordinary shares, including the        cost charged against income was
of December 31, 2004 not all            right to vote, unless and until          US$1.0 million for the 12 months
performance targets were met            their units vest and ordinary            ended December 31, 2004.
and 242,626 options were                shares are issued; provided,
cancelled.                              however, that participants will be




                                                                                                               47
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Notes to the Consolidated Financial Statements

     The following table summarizes information about employee options outstanding to purchase ordinary shares at
     December 31, 2004.
                                                       Options
                                                                                                           Weighted
     Option holder                      Outstanding              Exercisable                Price   average fair value

     Employees - 2003 options              3,793,573               2,076,741           US$16.20               US$5.31
     Employees - 2004 option grants          257,487                  85,829           US$24.44               US$5.74

     The Company follows Statement of Financial Accounting Standards No. 123,‘Accounting for Stock-based
     Compensation,’ which establishes a fair value-based method of accounting for share-based compensation plans.

     Compensation cost charged               interest rate of 4.70%; dividend        grants was US$0.5 million for the
     against income for 2003                 yield of 0.6%; expected life of 7       12 months ended December 31,
     employee options was US$3.2             years; share price volatility of zero   2004. The per share weighted
     million for the 12 months ended         (as the minimum value method            average fair value at grant date of
     December 31, 2004 (2003 -               was utilized because the                the share options granted under
     US$7.5 million). The per share          Company was unlisted on the             the Share Incentive Plan is
     weighted average fair value at          date that the options were              US$5.74. This amount was
     grant date of the share options         issued); and foreign currency           estimated on the date of the
     granted under the Share                 volatility of 9.40% (as the exercise    grant using a modified Black-
     Incentive Plan is US$5.31. This         price was in British Pounds and         Scholes option pricing model
     amount was estimated on the             the share price of the Company is       under the following assumptions:
     date of the grant using a               in US Dollars).                         risk-free interest rate of 3.57%;
     modified Black-Scholes option                                                   dividend yield of 0.5%; expected
     pricing model under the                 Compensation cost charged               life of 5 years; and share price
     following assumptions: risk-free        against income for 2004 option          volatility of 19.68%.


14 Intangible assets

                                                                  As of December 31, 2004     As of December 31, 2003
     Insurance licences                                                            US$m                        US$m

     Beginning of period                                                              6.6                           2.0
     Cost in period                                                                     -                           4.6

     End of period                                                                    6.6                           6.6

     Impairments

     Beginning of period                                                                -                             -
     Charge in period                                                                   -                             -

     End of period                                                                      -                             -

     Net book value

     Beginning of period                                                              2.0                           2.0
     Movement in period                                                               4.6                           4.6

     End of period                                                                    6.6                           6.6


48
                                                                                             Aspen Insurance Holdings Limited
                                                                                                 Annual Report & Accounts 2004




Notes to the Consolidated Financial Statements

15 Commitments and                              For its US reinsurance activities,              balance held in the trust at
  contingencies                                 Aspen Re has established and                    December 31, 2004 was US$5.5
                                                must retain a multi-beneficiary US              million with US$5.4 million held at
  In the normal course of business,
                                                trust fund for the benefit of its US            December 31, 2003. Aspen Re has
  letters of credit are issued as
                                                cedents so that they are able to                established a Canadian trust fund
  collateral on behalf of the business,
                                                take financial statement credit                 with a Canadian bank to secure a
  as required within our reinsurance
                                                without the need to post cedent-                Canadian insurance license.The
  operations. As of December 31,
                                                specific security.The minimum                   initial minimum trust fund
  2004, December 31, 2003 and
                                                trust fund amount is US$20 million              amount and balance at
  December 31, 2002, letters of credit
                                                plus an amount equal to 100% of                 December 31, 2003 was CAN$25.0
  with an aggregate amount of
                                                Aspen Re’s US reinsurance                       million. As of December 31, 2004
  US$48.4 million, US$24.6 million
                                                liabilities, which were US$385.6                the balance held in trust was
  and £47.4 million were
                                                million at December 31, 2004 and                CAN$55.0 million. Aspen Specialty
  outstanding respectively. As of
                                                US$25.6 million at December 31,                 has a total of US$7.4 million
  December 31, 2004 the Company
                                                2003. Aspen Re has established a                (December 31, 2003 - US$4.7
  had funds on deposit of US$54.5
                                                US surplus lines trust fund with a              million) on deposit with seven US
  million and £52.1 million
                                                US bank to secure US surplus lines              States in order to satisfy state
  (December 31, 2003 - US$30
                                                policies.The initial minimum trust              regulations for writing business
  million and £47.4 million) as
                                                fund amount is US$5.4 million.The               there.
  collateral for the letters of credit.

  Amounts outstanding under operating leases as of December 31, 2004 were:

                                   Due in          Due in        Due in        Due in            Due in         Later
                                    2005            2006          2007          2008              2009         years         Total
  Operating leases                 US$m            US$m          US$m          US$m              US$m          US$m         US$m

  Operating lease obligations             6.2          4.3            6.8              4.8           4.8         41.8         68.7


  Amounts outstanding under operating leases as of December 31, 2003 were:

                                    Due in         Due in         Due in        Due in           Due in         Later
                                     2004           2005           2006          2007             2008          years        Total
  Operating leases                  US$m           US$m           US$m          US$m             US$m          US$m         US$m

  Operating lease obligations             6.0          1.0            0.7              0.6           0.6           3.6        12.5


  On October 19, 2004, Aspen Re                 of approximately £0.5 million per               works. The basic annual rent for
  entered into a new lease for office           annum will be payable from this                 each of the leases will each be
  space in London of approximately              date, and are subject to increase.              subject to 5-year upwards-only
  49,500 square feet covering three             It is expected that we will begin               rent reviews. There are no
  floors. The term of the lease is 15           to pay the yearly basic rent of                 contractual provisions in any of
  years and commences soon after                approximately £2.7 million per                  the leases allowing us to
  the date of practical completion              annum 36 months after the                       terminate any of the leases prior
  of the landlord’s preliminary                 relevant date of practical                      to expiration of the 15-year
  fitting-out works. Service charges            completion of the landlord’s                    contractual terms.




                                                                                                                                49
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Notes to the Consolidated Financial Statements

16 Reinsurance ceded                         consolidated balance sheet,              of reinsurance recoverables and
     The primary purpose of the ceded        meaning that reinsurance                 0.0% of ceded unearned
     reinsurance program is to protect       recoverable on unpaid losses and         premiums.
     the Company from potential              ceded unearned premiums are
     losses in excess of what the            not deducted from insurance              The largest concentration of
     Company is prepared to accept. It       reserves but are recorded as             reinsurance recoverables as of
     is expected that the companies to       assets.                                  December 31, 2003, excluding
     which reinsurance has been                                                       related party quota share
     ceded will honor their obligations.     The largest concentration of             arrangements, was with
     In the event that these companies       reinsurance recoverables as of           Munchener Ruckversicherungs-
     are unable to honor their               December 31, 2004, excluding             Gesellschaft, Germany, which is
     obligations to the Company, the         related party quota share                rated A+ (Superior) by AM Best,
     Company will pay these amounts.         arrangements, was with                   the second highest of 15 rating
     Appropriate provision is made for       Renaissance Re which is rated A+         levels, and A+ by Standard &
     possible non-payment of                 (Superior) by AM Best, the second        Poor’s, the fifth highest of 21
     amounts due to the Company.             highest of 15 rating levels, and A+      rating levels for its financial
                                             by Standard & Poor’s, the fifth          strength. Balances with
     Balances pertaining to                  highest of 21 rating levels for its      Munchener Ruckversicherungs-
     reinsurance transactions are            financial strength. Balances with        Gesellschaft represented 3.6% of
     reported ‘gross’ on the                 Renaissance Re represented 9.6%          reinsurance recoverables.


     The effect of assumed and ceded reinsurance on premiums written, premiums earned and insurance losses and loss
     adjustment expenses is as follows:
                                                                         12 months ended            12 months ended
                                                                        December 31, 2004          December 31, 2003
     Premiums written                                                              US$m                       US$m

     Direct                                                                           408.5                      304.9
     Assumed                                                                        1,177.7                    1,001.9
     Ceded                                                                           (228.6)                    (214.0)

     Net premiums written                                                          1,357.6                    1,092.8

     Premiums earned

     Direct                                                                           358.4                      240.6
     Assumed                                                                        1,110.6                      747.2
     Ceded                                                                           (236.2)                    (175.5)

     Net premiums earned                                                           1,232.8                      812.3

     Insurance losses and loss adjustment expenses

     Direct                                                                           197.8                      126.1
     Assumed                                                                          677.2                      317.7
     Ceded                                                                           (151.4)                     (15.4)

     Total net insurance losses and loss adjustment expenses                         723.6                      428.4




50
                                                                                   Aspen Insurance Holdings Limited
                                                                                       Annual Report & Accounts 2004




                                                             Notes to the Consolidated Financial Statements

17 Segment information
  The Company has two reportable             business and the different services       Results are analyzed separately
  segments, reinsurance operations           provided by the segments.                 for each of our property liability
  and insurance operations.The               The accounting policies of both           segments. Property liability
  directors have determined these            segments are the same as those            underwriting assets are reviewed
  segments by reference to the               described in the summary of               in total by the directors for the
  organization structure of the              significant accounting policies.          purpose of decision making.


  Geographical areas
  The following summary presents financial data of the Company’s operations based on the location
  of our policyholders for the12 months ended December 31, 2004 and for 12 months ended December 31, 2003.
                                                                          12 months ended             12 months ended
                                                                         December 31, 2004           December 31, 2003
  Net premium earned                                                                US$m                        US$m

  UK                                                                                    368.6                       316.5
  US                                                                                    498.1                       299.1
  Non US or Non UK                                                                      366.1                       196.7

  Net premiums earned                                                                1,232.8                        812.3


  Segment information
  The summary below presents revenues and pre-tax income from operations for the reportable segments.

                               12 months ended December 31, 2004                   12 months ended December 31, 2003

                        Reinsurance         Insurance         Total          Reinsurance         Insurance          Total
  Financial results           US$m              US$m         US$m                  US$m              US$m          US$m

  Gross premiums written        1,177.7         408.5        1,586.2               1,001.9            304.9        1,306.8
  Net premiums written          1,009.1         348.5        1,357.6                 821.0            271.8        1,092.8
  Gross premiums earned         1,110.6         358.4        1,469.0                 747.2            240.6          987.8
  Net premiums earned             927.3         305.5        1,232.8                 596.6            215.7          812.3
  Losses and loss
  adjustment expenses            (553.1)        (170.5)      (723.6)                (303.0)           (125.4)       (428.4)
  Policy acquisition,
  operating and
  administrative expenses        (233.1)         (71.9)      (305.0)                (165.6)           (40.0)        (205.6)

  Underwriting profit before
  investment income              141.1           63.1         204.2                 128.0              50.3         178.3

  Investment return                                            68.3                                                   29.6
  Other income                                                 (6.9)                                                  (0.4)
  Other expenses                                               (4.0)                                                     -
  Realized investment
  and exchange gains                                             1.6                                                  (0.9)

  Income from operations
  before income tax                                           263.2                                                  206.6




                                                                                                                       51
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Notes to the Consolidated Financial Statements

18 Other comprehensive income
     Other comprehensive income is defined as any change in the Company's equity from transactions and other events
     originating from non-owner sources. These changes are comprised of our reported net income, changes in unrealized
     gains and losses on investments and changes in unrealized foreign currency adjustments, net of taxes.
     The following table sets out the components of the Company’s accumulated other comprehensive income,other than net income.

                                                                                                As of December 31, 2004

                                                                     Pre-tax       Income tax effect             After tax
     Accumulated other comprehensive income                           US$m                   US$m                   US$m

     Unrealized gains on investments                                     3.8                      (0.5 )               3.3
     Unrealized losses on investments                                  (12.7)                      1.6               (11.1)
     Loss on derivatives                                                (2.2)                        -                (2.2)
     Change in currency translation                                     27.9                         -                27.9

     Total other comprehensive income                                   16.8                      1.1                 17.9


                                                                                                 As of December 31, 2003

                                                                     Pre-tax        Income tax effect             After tax
     Accumulated other comprehensive income                           US$m                    US$m                  US$m

     Unrealized gains on investments                                     2.3                      (0.8 )               1.5
     Unrealized losses on investments                                   (2.9)                      0.8                (2.1)
     Net change in currency translation                                 31.3                      (3.5 )              27.8

     Total other comprehensive income                                   30.7                     (3.5 )               27.2




52
                                                                                Aspen Insurance Holdings Limited
                                                                                    Annual Report & Accounts 2004




                                                           Notes to the Consolidated Financial Statements

18 Other comprehensive income continued
The following table sets out the components of the Company’s other comprehensive income, for the following periods.

                                                                       For the 12 months ended December 31, 2004

                                                                 Pre-tax       Income tax effect            After tax
   Other comprehensive income                                     US$m                   US$m                  US$m

   Unrealized gains on investments                                    1.5                     0.3                 1.8
   Unrealized losses on investments                                  (9.8)                    0.8                (9.0)
   Loss on derivatives                                               (2.2)                      -                (2.2)
   Change in currency translation                                    (3.4)                    3.5                 0.1

   Total other comprehensive income                                (13.9)                    4.6                 (9.3)


                                                                         For the 12 months ended December 31, 2003

                                                                 Pre-tax       Income tax effect            After tax
   Other comprehensive income                                     US$m                   US$m                 US$m

   Unrealized gains on investments                                  (0.7)                     0.2               (0.5)
   Unrealized losses on investments                                 (0.7)                       -               (0.7)
   Change in currency translation                                   19.3                     (3.5)              15.8

   Total other comprehensive income                                 17.9                     (3.3)              14.6




                                                                                                                  53
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Notes to the Consolidated Financial Statements

19 Supplemental disclosure of cash flow information

     Non-cash investing and financing activities                                                                  US$m

     On September 5, 2003, the Company purchased all of the capital stock of Dakota Specialty Insurance Company for
     US$20.9 million. In conjunction with the acquisition, liabilities were assumed as follows:

     Fair value of assets acquired, including cash of US$14.3 million                                               43.1
     Cash paid for the capital stock                                                                               (20.9)
     Liabilities assumed                                                                                            22.2




20 Loan facility
     The Company has entered into a             three-year credit facility. Of these   On August 16, 2004, we closed our
     credit facility with a syndicate of        borrowings, US$83.9 million was        offering of US$250 million in
     commercial banks under which it            used to provide part of the initial    aggregate principal amount of
     may, subject to the terms of the           capital to Aspen Specialty and the     6.0% Senior Notes due 2014 (the
     credit agreements, borrow up to            balance was used to provide            ‘Senior Notes’) under Rule 144A
     US$150 million for periods of up           working capital to Aspen               and Regulation S under the
     to three years and a further US$50         Holdings. The initial interest rate    Securities Act of 1933.We have
     million for periods of up to one           is three-month LIBOR plus 42.5         also granted and agreed certain
     year. Credit Suisse First Boston, an       basis points. A facility fee,          customary exchange and shelf
     affiliate of Credit Suisse First           currently calculated at a rate of      registration rights (the ‘Notes
     Boston Private Equity, which is a          17.5 basis points on the average       Registration Rights Agreement’) to
     shareholder of the Company, is a           daily amount of the commitment         noteholders under the terms of the
     member of the syndicate on terms           of each lender, is paid to each        Senior Notes.The gross proceeds
     and conditions similar to other            lender quarterly in arrears. On        from the Senior Notes offering
     syndicate members.The collateral           December 15, 2003, US$50 million       were US$249.3 million. A portion
     for the loan is ‘the capital stock of      of the outstanding loan was            of the proceeds of the offering was
     material subsidiaries now owned            repaid following receipt of funds      used to repay US$40 million in
     or hereafter acquired’. The terms          from the initial public offering. We   principal amount of outstanding
     of the loan restrict the payment           repaid the US$40 million               borrowings under our existing
     of cash dividends during any fiscal        outstanding balance on October         credit facilities.The remainder of
     year to 50% of consolidated net            12, 2004 from the proceeds of our      the net proceeds has been
     income.                                    issuance on August 16, 2004 of         contributed to Aspen Bermuda in
                                                US$250 million in aggregate            order to increase its capital and
     On October 15, 2003, we drew               principal amount of 6.0% Senior        surplus, and consequently, their
     down US$90 million on the                  Notes due 2014.                        respective underwriting capacity.




54
                                                                                    Aspen Insurance Holdings Limited
                                                                                        Annual Report & Accounts 2004




                                                             Notes to the Consolidated Financial Statements

20 Loan facility continued
   Subject to certain exceptions, so          sell, assign, transfer or otherwise        Under the Notes Registration
   long as any of the Senior Notes            dispose of any shares of capital           Rights Agreement, we agreed to
   remain outstanding, we have                stock of any designated                    file a registration statement for
   agreed that neither we nor any             subsidiary. Certain events will            the Senior Notes within 150
   of our subsidiaries will (i) create        constitute an event of default             days after the issue date of the
   a lien on any shares of capital            under the Indenture, including             Senior Notes. The Senior Notes
   stock of any designated                    default in payment at maturity             were registered on January 10,
   subsidiary (currently Aspen Re             of any of our other                        2005.
   and Aspen Bermuda, as defined              indebtedness in excess of
   in the Indenture), or (ii) issue,          US$50 million.

   The following table summarizes our contractual obligations under long term debts as of December 31, 2004.

   Payments due
                                         Less than              1-3               3-4              4-5        More than
                                              year            years             years            years          5 years
   Contractual obligations                  US$m              US$m              US$m             US$m            US$m

   6.0% Senior notes due 2014                    -                  -                -                 -           250.0


   The long term debt obligation disclosed above does not include the US$15 million annual interest payable
   on the Senior Notes.

   The financial structure at December 31, 2004 was as follows:

                                                                                Commitment           In use/outstanding
   Facility                                                                          US$m                         US$m

   Debt
   365 day and 3 year revolver                                                            200                          -
   6.0% Senior notes due 2014                                                             250                        250
                                                                                          450                        250


   The financial structure at December 31, 2003 was as follows:

                                                                                Commitment            In use/outstanding
   Facility                                                                          US$m                          US$m

   Debt
   365 day and 3 year revolver                                                            200                         40




                                                                                                                      55
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Notes to the Consolidated Financial Statements

21 Unaudited quarterly financial data
     The following is a summary of the quarterly financial data for 12 months ended December 31, 2004.

                                                                                    12 months ended December 31, 2004

                                     Quarter ended    Quarter ended       Quarter ended       Quarter ended
                                     March 31, 2004    June 30, 2004 September 30, 2004   December 31, 2004    Full year
                                             US$m             US$m                US$m                US$m       US$m


     Gross written premium                  640.2            380.4              349.4                216.2     1,586.2
     Gross earned premium                   358.0            374.1              361.1                375.8     1,469.0
     Net earned premium                     305.8            327.0              293.4                306.6     1,232.8
     Losses and loss
     adjustment expenses                    (124.1)         (139.4)             (303.2)             (156.9)     (723.6)
     Policy acquisition, operating
     and administration expenses             (77.1)           (91.3)             (66.5)              (70.1)     (305.0)

     Underwriting income                    104.6             96.3               (76.3)               79.6      204.2


     Net investment income                    12.0            14.9                19.4                22.0        68.3
     Interest expense                         (0.4)           (0.1)               (2.7)               (3.7)       (6.9)
     Other income/(expense)                      -               -                (2.1)               (1.9)       (4.0)

     Total other operating revenue           11.6             14.8               14.6                 16.4        57.4

     Operating income before tax            116.2            111.1               (61.7)               96.0      261.6


     Net exchange gains/(losses)              (0.8)             0.1                1.4                 4.4          5.1
     Net realized investment
     gains/(losses)                           (0.3)           (4.0)                1.9                 (1.1)       (3.5)

     Income before tax                      115.1            107.2               (58.4)               99.3      263.2


     Income tax/credits                      (30.1)           (26.3)              15.4               (27.1)      (68.1)

     Net income after tax                    85.0             80.9               (43.0)               72.2      195.1




56
                                                                                     Aspen Insurance Holdings Limited
                                                                                         Annual Report & Accounts 2004




                                                           Notes to the Consolidated Financial Statements

21 Unaudited quarterly financial data continued
   The following is a summary of the quarterly financial data for 12 months ended December 31, 2003.

                                                                                     12 months ended December 31, 2003

                                   Quarter ended    Quarter ended         Quarter ended       Quarter ended
                                   March 31, 2003    June 30, 2003   September 30, 2003   December 31, 2003     Full year
                                           US$m             US$m                  US$m                US$m        US$m


   Gross written premium                  577.7            252.3                331.7                145.1     1,306.8
   Gross earned premium                   161.4            245.0                260.5                320.9       987.8
   Net earned premium                     121.6            210.7                206.7                273.3       812.3
   Losses and loss
   adjustment expenses                     (70.7)           (95.2)             (110.5)              (152.0)     (428.4)
   Policy acquisition, operating
   and administration expenses             (33.7)           (51.9)               (55.2)              (64.8)     (205.6)

   Underwriting income                     17.2             63.6                 41.0                 56.5       178.3


   Net investment income                     4.9              5.8                  6.0                12.9         29.6
   Interest expense                            -                -                    -                (0.4)        (0.4)
   Other income/(expense)                    0.2             (0.2)                 0.1                (0.1)           -

   Total other operating revenue             5.1              5.6                  6.1                12.4        29.2

   Operating income before tax             22.3             69.2                 47.1                 68.9       207.5


   Net exchange gains/(losses)                 -                -                    -                 1.5          1.5
   Net realized investment
   gains/(losses)                              -                -                 (1.8)                (0.6)       (2.4)

   Income before tax                       22.3             69.2                 45.3                 69.8       206.6


   Income tax/credits                       (7.1)           (19.3)               (12.8)              (15.3)       (54.5)

   Net income after tax                    15.2             49.9                 32.5                 54.5       152.1




                                                                                                                    57
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Notes to the Consolidated Financial Statements

21 Unaudited quarterly financial data continued
                                                                                    12 months ended December 31, 2004

                                    Quarter ended    Quarter ended       Quarter ended         Quarter ended
                                    March 31, 2004    June 30, 2004 September 30, 2004     December 31, 2004       Full year
     Ordinary shares                           No.              No.                No.                   No.             No.

     Basic
        Weighted average
        ordinary shares              69,178,203       69,174,303           69,174,303           69,291,191     69,204,658

     Diluted
         Weighted average
         ordinary shares             69,178,203       69,174,303           69,174,303           69,291,191     69,204,658
         Weighted average effect
         of dilutive securities        2,842,475        2,755,325                     -          1,954,553      1,916,910

     Total                           72,020,678      71,929,628           69,174,303           71,245,744      71,121,568


     Earnings per ordinary shares            US$             US$                   US$                 US$            US$

     Basic                                  1.23             1.17                (0.62)                1.04           2.82

     Diluted                                1.18             1.13                (0.62)                1.01           2.74



                                                                                      12 months ended December 31, 2003

                                    Quarter ended    Quarter ended         Quarter ended       Quarter ended
                                    March 31, 2003    June 30, 2003   September 30, 2003   December 31, 2003       Full year
     Ordinary shares                           No.              No.                  No.                 No.             No.

     Basic
        Weighted average
        ordinary shares              56,919,780       56,919,780           56,992,022           60,410,838     57,751,852

     Diluted
         Weighted average
         ordinary shares             56,919,780       56,919,780           56,922,022           60,410,838     57,751,852
         Weighted average effect
         of dilutive securities                 -                 -           358,680            1,640,010      1,739,908

     Total                           56,919,780      56,919,780           57,280,701           62,050,848      59,491,760


     Earnings per ordinary shares            US$              US$                  US$                 US$            US$

     Basic                                  0.27             0.88                 0.57                 0.90           2.63

     Diluted                                0.27             0.88                 0.57                 0.88           2.56




58
                                         Aspen Insurance Holdings Limited
                                             Annual Report & Accounts 2004




      Report of Independent Registered Public Accounting Firm

To the Board of Directors                In our opinion, the consolidated
and Shareholders of Aspen                financial statements referred to
Insurance Holdings Limited               above present fairly, in all material
We have audited the accompanying         respects, the financial position of
consolidated balance sheets of           Aspen Insurance Holdings Limited
Aspen Insurance Holdings Limited         and subsidiaries as of December 31,
and subsidiaries (the ‘Company’) as      2004 and 2003, and the results of
of December 31, 2004 and 2003, and       their operations and cash flows for
the related consolidated statements      each of the years in the two-year
of income, stockholders’ equity and      period ended December 31, 2004
comprehensive income, and cash           in conformity with US generally
flows for each of the years in the       accepted accounting principles.
two-year period ended December
31, 2004. These consolidated financial   We also have audited, in accordance
statements are the responsibility of     with the standards of the Public
the Company’s management. Our            Company Accounting Oversight
responsibility is to express an          Board (United States), the
opinion on these consolidated            effectiveness of Aspen Insurance
financial statements based on our        Holdings Limited’s internal control
audits.                                  over financial reporting as of
                                         December 31, 2004, based on the
We conducted our audits in               criteria established in Internal
accordance with the standards of         Control Integrated Framework issued
the Public Company Accounting            by the Committee of Sponsoring
Oversight Board (United States).         Organizations of the Treadway
Those standards require that we plan     Commission (COSO’), and our report
and perform the audit to obtain          dated March 11, 2005 expressed an
reasonable assurance about whether       unqualified opinion on
the financial statements are free of     management’s assessment of, and
material misstatement. An audit          the effective operation of, internal
includes examining, on a test basis,     control over financial reporting.
evidence supporting the amounts
and disclosures in the financial
statements. An audit also includes
assessing the accounting principles
used and significant estimates made
by management, as well as
evaluating the overall financial         KPMG Audit Plc
statement presentation. We believe       March 11, 2005
that our audits provide a reasonable     London
basis for our opinion.                   UK




                                                                            59
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Management's Responsibility for Financial Statements

Management’s report on internal        reporting as of December 31, 2004.
control over financial reporting       In making this assessment,
Management is responsible for          management used the criteria set
establishing and maintaining           forth by the Committee of
adequate internal control over         Sponsoring Organizations of the
financial reporting, as such term      Treadway Commission (COSO) in
is defined in Exchange Act Rules       Internal Control-Integrated
13a - 15(f ) and as contemplated       Framework. Based on our
by Section 404 of the Sarbanes Oxley   assessment in accordance with the
Act. Our internal control system was   criteria, we believe that our internal
designed to provide reasonable         control over financial reporting is
assurance regarding the reliability    effective as of December 31, 2004.
of financial reporting and the         Management’s assessment of the
preparation of financial statements    effectiveness of internal control over
for external purposes in accordance    financial reporting as of December
with generally accepted accounting     31, 2004 has been audited by KPMG
principles. All internal control       Audit Plc, an independent registered
systems, no matter how well            public accounting firm, who also
designed, have inherent limitations.   audited our consolidated financial
These limitations include the          statements. KPMG Audit Plc’s
possibility that judgments in          attestation report on management’s
decision-making can be faulty, and     assessment of internal control over
that breakdowns can occur because      financial reporting appears as
of error or mistake. Therefore, any    follows.
internal control system can provide
only reasonable assurance and may
not prevent or detect all
misstatements or omissions. In
addition, our evaluation of            Christopher O'Kane
effectiveness is as of a particular    Chief Executive Officer
point in time and there can be no
assurance that any system will
succeed in achieving its goals under
all future conditions.
                                       Julian Cusack
Management assessed the                Chief Financial Officer
effectiveness of the Company’s
internal control over financial        March 11, 2005




60
                                                                                 Aspen Insurance Holdings Limited
                                                                                     Annual Report & Accounts 2004




                                  Attestation Report of Independent Registered Public Accounting Firm

To the Board of Directors and            A company’s internal control over       In our opinion, management’s
Shareholders of Aspen Insurance          financial reporting is a process        assessment that the Company
Holdings Limited:                        designed to provide reasonable          maintained effective internal control
We have audited management’s             assurance regarding the reliability     over financial reporting as of
assessment, that Aspen Insurance         of financial reporting and the          December 31, 2004, is fairly stated, in
Holdings Limited maintained              preparation of financial statements     all material respects, based on the
effective internal control over          for external purposes in accordance     criteria established in Internal
financial reporting as of December       with generally accepted                 Control Integrated Framework issued
31, 2004, based on the criteria          accounting principles. A company’s      by the Committee of Sponsoring
established in Internal Control          internal control over financial         Organizations of the Treadway
Integrated Framework issued by the       reporting includes those policies       Commission (COSO). Also, in our
Committee of Sponsoring                  and procedures that (1) pertain to      opinion, the Company maintained, in
Organizations of the Treadway            the maintenance of records that,        all material respects, effective
Commission (COSO).The Company’s          in reasonable detail, accurately and    internal control over financial
management is responsible for            fairly reflect the transactions and     reporting as of December 31, 2004,
maintaining effective internal control   dispositions of the assets of the       based on the criteria established in
over financial reporting and for its     Company; (2) provide reasonable         Internal Control Integrated
assessment of the effectiveness of       assurance that transactions are         Framework issued by the Committee
internal control over financial          recorded as necessary to permit         of Sponsoring Organizations of the
reporting. Our responsibility is to      preparation of financial statements     Treadway Commission (COSO).
express an opinion on management’s       in accordance with generally            We also have audited, in accordance
assessment and an opinion on the         accepted accounting principles,         with the standards of the Public
effectiveness of the Company’s           and that receipts and expenditures      Company Accounting Oversight
internal control over financial          of the Company are being made           Board (United States), the
reporting based on our audit.            only in accordance with                 consolidated balance sheets of the
                                         authorizations of management and        Company and subsidiaries as of
We conducted our audit in                directors of the Company; and (3)       December 31, 2004 and 2003, and
accordance with the standards of         provide reasonable assurance            the related consolidated statements
the Public Company Accounting            regarding prevention or timely          of operations, stockholders’ equity
Oversight Board (United States).         detection of unauthorized               and comprehensive income, and
Those standards require that we plan     acquisition, use, or disposition of     cash flows for each of the years in
and perform the audit to obtain          the Company’s assets that could         the two-year period ended
reasonable assurance about whether       have a material effect on the           December 31, 2004 and our report
effective internal control over          financial statements.                   dated March 11, 2005 expressed an
financial reporting was maintained                                               unqualified opinion on those
in all material respects. Our audit      Because of its inherent limitations,    consolidated financial statements.
included obtaining an                    internal control over financial
understanding of internal control        reporting may not prevent or
over financial reporting, evaluating     detect misstatements. Also,
management’s assessment, testing         projections of any evaluation
and evaluating the design and            of effectiveness to future periods
operating effectiveness of internal      are subject to the risk that controls
control, and performing such other       may become inadequate because
procedures as we considered              of changes in conditions, or that       KPMG Audit Plc
necessary in the circumstances. We       the degree of compliance with           March 11, 2005
believe that our audit provides a        the policies or procedures may          London
reasonable basis for our opinion.        deteriorate.                            UK




                                                                                                                     61
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Management’s Summary Discussion and Analysis of Financial Condition and Results of Operations

The following is a summary discussion      The amount of net premiums                are held as marketable securities
and analysis of our financial condition    included as revenue in any                available for sale. These securities are
and results of operations for the 12       reporting period depends on:              carried at fair market value and any
months ended December 31, 2004,                                                      resulting unrealized gains and losses
and 2003.The following also includes a        the amount and type of                 are not included as revenue in our
discussion of our financial condition at      contracts written and the              statement of operations but are
December 31, 2004.This summary                premiums we are able to charge         included in comprehensive income as
discussion and analysis should be             to policyholders which are             a separate component of shareholders’
read in conjunction with the entire           influenced by multiple factors,        equity.
Management’s Discussion and                   including prevailing market prices;
Analysis of Financial Condition and                                                  Expenses
Results of Operations contained in our        the amount and type of                 Our expenses are classified under
Annual Report on Form 10-K for the            reinsurance ceded and the              four headings as set out below.
fiscal year ended December 31, 2004           reinsurance premiums payable;
and our audited consolidated financial                                               Losses and loss adjustment
statements and accompanying notes             the distribution of the renewal        expenses
included in this report.This report           dates of the business we write
contains forward-looking statements           which are fairly evenly                These expenses include claims paid
that involve risks and uncertainties          distributed through the year for       and payable under our insurance and
that are not historical facts, including      our insurance business but are         reinsurance contracts and the internal
statements about the Company’s                concentrated at the beginning          and external costs of settling these
beliefs and expectations. Our actual          of quarters (particularly January 1)   claims (‘loss adjustment expenses’).
results could differ materially from          for our reinsurance business; and,
those anticipated in these forward-                                                  The amount of these expenses is a
looking statements as a result of             the length of time over which          function of the amount and type of
various factors, including those              the premiums receivable are            insurance and reinsurance contracts
discussed below and particularly              earned and reinsurance                 we write and, with respect to
under the heading 'Forward-Looking            premiums are expensed.                 reinsurance contracts, of the loss
Statements'.                                                                         experience of the clients we reinsure.
                                                                                     The amount of the expense is reduced
                                           Other revenues
                                                                                     to the extent that we can make
Revenues from insurance and                Revenues also include investment          recoveries from our reinsurers.
reinsurance contracts                      income and realized investment gains
We derive our revenues primarily           offset by realized investment losses.     The amount reported under this
from our insurance and reinsurance         Investment income is derived from         heading in any period includes
contracts. These revenues are              holdings of cash and money market         payments in the period plus the
included in our statement of               deposits and from fixed income            change in the value of the reserves for
operations after taking into               investments. Realized investment gains    unpaid losses and loss adjustment
account amounts payable to                 and losses are derived from the sale of   expenses between the beginning and
our reinsurers.                            fixed income investments all of which     the end of the period.




62
                                                                                Aspen Insurance Holdings Limited
                                                                                    Annual Report & Accounts 2004




Management’s Summary Discussion and Analysis of Financial Condition and Results of Operations

Our method for setting the reserves    Critical accounting policies             entered into in the reporting period
for unpaid losses and loss             Our consolidated financial               except in the case of proportional
adjustment expenses at the end of      statements contain certain amounts       reinsurance contracts where written
any period is discussed below under    that are inherently subjective in        premium relates only to our
‘Critical accounting policies’.        nature and have required                 proportional share of premiums due
                                       management to make assumptions           on contracts entered into by the
Policy acquisition expenses            and best estimates to determine the      ceding company prior to the end
                                       reported values. If actual events        of the reporting period.
Policy acquisition expenses consist
principally of commissions and         differ significantly from                Premiums written and ceded include
similar charges payable to brokers,    management’s underlying                  estimates based on information
other intermediaries and ceding        assumptions or estimates, there          received from brokers, ceding
companies, many of which represent     could be a material adverse effect       companies and insureds. As actual
a percentage of premiums               on our results of operations and         premiums are reported by the ceding
receivable by us together with staff   financial condition and liquidity.       companies, management evaluates
costs directly attributable to                                                  the appropriateness of the premium
underwriting.                          We believe that the following critical   estimate and any adjustment to this
                                       accounting policies affect the more      estimate is recorded in the period in
The amount of expenses varies          significant estimates used in the        which it becomes known. Premiums
according to the amount and types      preparation of our consolidated          on our excess of loss and proportional
of contracts written.                  financial statements. The                reinsurance contracts are estimated
                                       descriptions below are summarized        by management when the business
Operating and                          and have been simplified for clarity.    is underwritten. For excess of loss
administrative expenses                A more detailed description of the       contracts, the minimum and deposit
                                       significant accounting policies we       premium, as defined in the contract,
These expenses consist primarily       use to prepare our financial
of staff compensation, payroll                                                  is generally considered to be the best
                                       statements is included in the notes      estimate of the contract’s written
taxes, accommodation costs,            to the consolidated financial
information technology and                                                      premium at inception. Accordingly,
                                       statements. If factors such as those     this is the amount we generally record
other operating expenses and           described elsewhere in this report
professional fees. This heading                                                 as written premium in the period the
                                       cause actual events to differ from       underlying risks incept. Estimates of
also includes depreciation of          the assumptions used in applying
tangible assets. Staff                                                          premiums assumed under
                                       the accounting policy and                proportional contracts are recorded
compensation includes salaries,        calculating financial results, there
bonuses, stock options and                                                      in the period in which the underlying
                                       could be a material adverse effect       risks are expected to incept and are
benefits such as medical insurance     on our results of operations and
and pension contributions.                                                      based on information provided by
                                       financial condition and liquidity.       brokers and ceding companies and
                                                                                estimates of the underlying economic
Income tax expense                     Premiums                                 conditions at the time the risk is
This expense represents corporation    Written premiums comprise the            underwritten. Adjustments to original
tax paid or payable by our UK          estimated premiums on contracts          premium estimates could be material
operating company.                     of insurance and reinsurance             and these adjustments may directly




                                                                                                                   63
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Management’s Summary Discussion and Analysis of Financial Condition and Results of Operations

and significantly impact earnings in     as amounts due less any required          As required under US GAAP, no
the period they are determined           provision for doubtful accounts.          provision is made for our exposure to
because the subject premium may                                                    natural or man-made catastrophes
be fully or substantially earned.        Reserve for losses and                    other than for events occurring
                                         loss expenses                             before the balance sheet date.
Premiums are recognized as earned        Provision is made at the year end for
evenly over the policy periods using     the estimated cost of claims incurred     We take all reasonable steps to ensure
the daily pro rata method.               but not settled at the balance sheet      that we have appropriate information
                                         date, including the cost of IBNR claims   regarding our claims exposures.
The proportion of the premium            to the Company. The estimated cost of     However, given the uncertainty in
related to the unexpired portion of      claims includes expenses to be            establishing claims liabilities, it is likely
each policy at the end of the            incurred in settling claims and a         that the final outcome will prove to
reporting period is included in the                                                be different from the original
                                         deduction for the expected value of
balance sheet as unearned premiums.                                                provision established.
                                         salvage and other recoveries.
Premiums receivable are recorded

The following presents our loss reserves by business segment as of December 31, 2004 and 2003.

                                                     As of December 31, 2004                      As of December 31, 2003

                                                     Reinsurance                                  Reinsurance
                                           Gross     recoverable           Net        Gross       recoverable             Net
                                           US$m            US$m          US$m         US$m              US$m            US$m

Property Reinsurance                        341.2           (118.3)       222.9        107.7               (12.4)         95.3
Casualty Reinsurance                        377.8             (4.6)       373.2        137.2               (11.6)        125.6
Specialty Reinsurance                       168.8            (27.4)       141.4        107.7               (13.7)         94.0
Total Reinsurance                           887.8           (150.3)       737.5        352.6              (37.7)         314.9

Commercial Property                          77.3             (13.7)       63.6         40.5                   -          40.5
Commercial Liability                        294.5             (31.9)      262.6        132.7                (5.9)        126.8
Marine & Aviation                            18.3              (1.8)       16.5            -                   -             -
Total Insurance                             390.1            (47.4)       342.7        173.2                (5.9)        167.3

Total losses and loss expense reserves    1,277.9           (197.7)     1,080.2        525.8              (43.6)         482.2




64
                                                                                         Aspen Insurance Holdings Limited
                                                                                             Annual Report & Accounts 2004




Management’s Summary Discussion and Analysis of Financial Condition and Results of Operations

In establishing the reserves set by the      experience to date on our portfolio, (b)    provide management with a range
Company, the Company’s actuary               market benchmark data, (c) a contract       from which it is reasonable to select
employs a number of techniques to            by contract analysis, and (d) an analysis   a single best estimate for inclusion in
establish a ‘range of estimates.’The         of a portfolio of similar business          the financial statements taking into
insurance reserves are established for       written by Syndicate 2020, as available,    account the impact that all the
the total unpaid cost of claims and          adjusted by an index reflecting how         factors affecting the reserves may
loss adjustment expenses, which              insurance rates, terms and conditions       have. The net actuarial range for
cover events that have occurred              have changed. This initial expected         reserves for losses and loss expenses
before the balance sheet date.               loss and loss expense ratio is then         established as of December 31, 2004
These reserves reflect the Company’s         modified in light of the actual             was between US$926.8 million and
estimates of the total cost of IBNR          experience to date measured against         US$1,092.9 million. The actual net
claims to it. Estimated amounts              the expected experience.                    reserves established as of December
recoverable from reinsurers on                                                           31, 2004 were US$1,080.2 million. The
unpaid losses and loss adjustment            Loss reserves for known catastrophic        net actuarial range for reserves for
expenses are calculated to arrive at a       events are based upon a detailed            losses and loss expenses established
net claims reserve.                          analysis of our reported losses and         as of December 31, 2003 was
                                             potential exposures conducted in            between US$407.7 million and
For reported claims, reserves are            conjunction with our underwriters.          US$491.3 million. The actual net
established on a case by case basis                                                      reserves established as of that date
within the parameters of coverage            Because many of the coverages               were US$482.2 million.
provided in the insurance policy or          underwritten involve claims that
reinsurance agreement. In estimating         may not be ultimately settled for           In selecting our best estimates of
the cost of these claims, we consider        many years after they are incurred,         the reserves for each line of business
circumstances related to the claims as       subjective judgments as to the              we take into account all of the
reported, any information available          ultimate exposure to losses are an          factors set out above, and in
from loss adjusters and information          integral and necessary component            particular the quality of the historical
on the cost of settling claims with          of the loss reserving process.              information the Company has on
similar characteristics in previous          Reserves are established by the             which to establish its reserves and
periods. For IBNR claims, reserves are       selection of a best estimate from           the degree of estimation where
estimated using established actuarial        within a range of estimates. The            information is received from cedents
methods. Both case and IBNR reserve          Company continually reviews its             on an underwriting year basis and
estimates consider such variables as         reserves, using a variety of statistical    needs to be converted to an
past loss experience, changes in             and actuarial techniques to analyze         accident year basis. In addition,
legislative conditions and changes in        current claims costs, frequency and         consideration is given to the point
judicial interpretation of legal liability   severity data, and prevailing               estimate produced by our
policy coverages and inflation.              economic, social and legal factors.         independent consulting actuaries
                                             Reserves established in prior periods       which was towards the upper end
For classes of business which are not        are adjusted as claims experience           of the range for the year ended
related to catastrophe, and where            develops and new information                December 31, 2004.
early claims experience may not              becomes available.
provide a sound statistical basis to                                                     Loss reserves presented on an
estimate the loss reserves, our              The range of estimates established          ‘underwriting year’ basis represent
approach is to establish an initial          by the actuary is not intended to           claims related to all policies incepting
expected loss and loss expense ratio.        include the minimum or maximum              in a given year. In contrast,‘accident
This is based upon a combination of          amount that the claims may                  year’ loss reserves represent claims for
(a) an analysis of our own claims            ultimately be, but is designed to           events that occurred during a given




                                                                                                                              65
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Management’s Summary Discussion and Analysis of Financial Condition and Results of Operations

calendar year, regardless of when        mature than accident year data.        existence of coverage with long
the policy was written. Loss reserves    While the reported reserves make       duration payment patterns and
on an underwriting year basis may        a reasonable provision for unpaid      changes in claims handling
include claims from different            loss and loss adjustment expense       practices, as well as the factors
accident years. For example, a policy    obligations, it should be noted        noted above. Ultimate actual
written during 2002 may have losses      that the process of estimating         payments for losses and loss
in accident year 2002 and in             required reserves does, by its         adjustment expenses could turn
accident year 2003. Therefore,           very nature, involve uncertainty.      out to be significantly different
underwriting year data as of a           The level of uncertainty can be        from our estimates.
particular evaluation date is less       influenced by such factors as the

Prior year loss reserves
In the 12 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:

                                                                      12 months ended             12 months ended
                                                                     December 31, 2004           December 31, 2003
                                                                                US$m                        US$m

Property Reinsurance                                                                 17.1                        3.8
Casualty Reinsurance                                                                 (0.6)                       0.4
Specialty Reinsurance                                                                18.1                        4.2

Total Reinsurance                                                                    34.6                        8.4

Commercial Property                                                                  13.8                        1.2
Commercial Liability                                                                 13.6                          -
Total Insurance                                                                      27.4                        1.2

Total reduction in prior year loss reserves                                          62.0                        9.6




66
                                                                                Aspen Insurance Holdings Limited
                                                                                    Annual Report & Accounts 2004




Management’s Summary Discussion and Analysis of Financial Condition and Results of Operations

For the 12 months ended                  resulted in a small increase in        enabled the Company to refine its
December 31, 2004                        the projected loss ratio for this      accident year assessment. This has
The analysis of the favorable            class of business giving rise to a     given rise to a release in net
development by each line of              strengthening of reserves of           reserves of US$13.8 million.
business is as follows:                  US$0.6 million.
                                                                                Commercial Liability
Property Reinsurance                     Specialty Reinsurance                  The net reserves of the commercial
The net reserves of the property         The net reserves of the specialty      liability line of business as of
reinsurance line of business as of       reinsurance line of business as        December 31, 2003 were US$126.8
December 31, 2003 were US$95.3           of December 31, 2003 were              million. During 2004, development
million, which included specific case    US$94.0 million, largely derived       of incurred claims has been slower
reserves in relation to brush fires in   through the Wellington quota           than previously expected resulting
the United States, Hurricanes Fabian     share arrangements. Premium and        in a reduction in the projected loss
and Isabel and a Phillips factory loss   claims information received from       ratio suggested by the actuarial
in Normandy, France. Further claims      the cedent during the 12 months        projection at December 31, 2004.
information received during the 12       ended December 31, 2004 has            This has resulted in a release in net
months to December 31, 2004              enabled the Company to refine its      reserves of US$13.6 million in the
highlighted a lower severity             accident year assessment. Further      period.
of these reported claims than was        information received concerning
originally anticipated and has given     the development of reserves            For the 12 months ended
rise to a US$17.1 million reduction in   acquired by the acquisition of City    December 31, 2003
reserves in the period.                  Fire has also contributed to the       The analysis of the favorable
                                         overall release in reserves of         development on a line of business
Casualty Reinsurance                     US$18.1 million.                       basis is as follows:
The net reserves of the casualty         Commercial Property
reinsurance line of business as of                                              Property Reinsurance
December 31, 2003 were US$125.6          The net reserves of the commercial     The net reserves of the property
million. We do not receive notice of     property line of business as of        reinsurance line of business as of
most of the claims in this line of       December 31, 2003 were US$40.5         December 31, 2002 were US$24
business until a considerable time       million. Better than expected          million, of which US$9 million
has passed, however incurred claims      development in incurred claims         related to the Wellington quota
development in the 12 months             during 2004 and the short tail         share arrangements. Premiums and
ended December 31, 2004 has              nature of this class of business has   claims information received from




                                                                                                                  67
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Management’s Summary Discussion and Analysis of Financial Condition and Results of Operations

the Syndicates and other cedents        Specialty Reinsurance                     particular to the settlement of one
during the 12 months ended              The net reserves of the specialty         claim significantly below its case
December 31, 2003 has indicated         reinsurance line of business as of        reserve. This improvement enabled
both a reduction in the 2002            December 31, 2002 were US$30.9            us to reassess the likely level of IBNR
underwriting year loss ratio and        million. All of the specialty business    claims in respect of the 2002
also an improvement in the              as of December 31, 2002 was derived       accident year, resulting in a
accident year loss ratio for 2002.      through the Wellington quota share        reduction in reserves of US$1.2
                                        arrangements. The reserves                million.
This results from a lower               established as of December 31, 2002
development of the severity of          were based upon the cedents’              Other than the matters described
reported claims than is often           underwriting year estimates.              above, the Company did not make
observed in this line of business       Management assessed these                 any significant changes in
and gave rise to a US$3.8 million       estimates and, with the data              assumptions used in our reserving
reduction in reserves.                  provided, determined the accident         process. However, because the
                                        year loss ratio. Premiums and claims      period of time we have been in
Casualty Reinsurance                    information received from the             operation is short, our loss
The net reserves of the casualty        cedent during the 12 months ended         experience is limited and reliable
reinsurance line of business as of      December 31, 2003 has enabled the         evidence of changes in trends of
December 31, 2002 were US$10            Company to refine its accident year       numbers of claims incurred, average
million. Although we do not receive     assessment. This has resulted in a        settlement amounts, numbers of
notice of most of the claims in this    release in reserves of US$4.2 million.    claims outstanding and average
line of business until a considerable                                             losses per claim will necessarily
time has passed, some claims have a     Commercial Property                       take years to develop.
shorter notification period due to                                                Estimates of IBNR are generally
                                        The net reserves of the property          subject to a greater degree of
some of the more catastrophic           insurance line of business as of
elements of the business. The                                                     uncertainty than estimates of the
                                        December 31, 2002 were US$2.4             cost of settling claims already
development of incurred losses in       million. This account had only two
the 12 months subsequent to                                                       notified to the Company, where
                                        years of Syndicates history prior to it   more information about the claim
December 31, 2002 has enabled a         being written by the Company. The
small reduction in the projected loss                                             event is generally available. IBNR
                                        reserves established as of December       claims often may not be apparent
ratio for this business from that       31, 2002 were partly based upon the
suggested by the actuarial                                                        to the insured until many years
                                        historical performance experienced        after the event giving rise to the
projection at December 31, 2002,        in those two years. During the
giving rise to the reduction in                                                   claims has happened. Lines of
                                        course of 2003, the historical            business where the IBNR
reserves of US$0.4 million.             information improved due in




68
                                                                                  Aspen Insurance Holdings Limited
                                                                                      Annual Report & Accounts 2004




Management’s Summary Discussion and Analysis of Financial Condition and Results of Operations

proportion of the total reserve is        As of December 31, 2003, a 5%           of assumed reinsurance contracts,
high, such as liability insurance, will   change in the reserve for net IBNR      based on experience under such
typically display greater variations      losses would equate to a change of      contracts. Reinstatement premiums
between initial estimates and final       approximately US$16.0 million in loss   are the premiums charged for the
outcomes because of the greater           reserves which would represent          restoration of the reinsurance limit
degree of difficulty of estimating        7.8% of income from operations          of a catastrophe contract to its full
these reserves. Lines of business         before income tax for the 12 months     amount after payment by the
where claims are typically reported       ended December 31, 2003.                reinsurer of losses as a result of an
relatively quickly after the claim                                                occurrence. These premiums relate
event tend to display lower levels        As of December 31, 2004, a 5%           to the future coverage obtained
of volatility between initial             change in the reserve net for IBNR      during the remainder of the initial
estimates and final outcomes.             losses would equate to a change of      policy term and are earned over the
Allowance is made, however, for           approximately US$30.6 million in loss   remaining policy term. Additional
changes or uncertainties which            reserves which would represent          premiums are premiums charged
may create distortions in the             11.6% of income from operations         after coverage has expired, related
underlying statistics or which might      before income tax for the 12 months     to experience during the policy
cause the cost of unsettled claims        ended December 31, 2004.                term, which are earned immediately.
to increase or reduce when                                                        An allowance for uncollectible
compared with the cost of                 Reinsurance recoveries in respect of    premiums is established for possible
previously settled claims including:      estimated IBNR claims are assumed       non-payment of such amounts due,
                                          to be consistent with the historical    as deemed necessary.
   changes in our processes which         pattern of such recoveries, adjusted
   might accelerate or slow down          to reflect changes in the nature and    Results of operations
   the development and/or                 extent of our reinsurance program       Aspen Insurance Holdings Limited
   recording of paid or incurred          over time. An assessment is also        (‘Aspen Holdings’) was formed on
   claims;                                made of the collectability of           May 23, 2002 and acquired The City
                                          reinsurance recoveries taking into      Fire Insurance Company Limited
   changes in the legal                   account market data on the              (‘City Fire’) on June 21, 2002. City Fire
   environment;                           financial strength of each of the       was subsequently renamed as
                                          reinsurance companies.                  Wellington Reinsurance Limited
   the effects of inflation;                                                      (‘Wellington Re’) and then as Aspen
                                          Reinstatement premiums                  Insurance UK Limited (‘Aspen Re’).
   changes in the mix of business;        Reinstatement premiums and              Aspen Re commenced underwriting
   and                                    additional premiums are accrued         on June 21, 2002. Aspen Insurance
                                          as provided for in the provisions       Limited (‘Aspen Bermuda’) was
   the impact of large losses.




                                                                                                                        69
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Management’s Summary Discussion and Analysis of Financial Condition and Results of Operations

formed on November 6, 2002 and           most of the classes written by the      Reinsurance ceded
commenced insurance operations           Syndicate from that date. The 2003      Reinsurance premiums ceded for
on December 9, 2002. Aspen               quota share arrangement with            the 12 months ended December
Specialty Insurance Company,             Syndicate 2020 is a much less           31, 2004 were US$228.6 million
Inc (‘Aspen Specialty’) was acquired     significant part of our business than   including reinstatement premiums
on September 5, 2003. Our fiscal year    were the Wellington 2002 quota          of US$21.3 million. Reinsurance
ends on December 31. Our financial       share arrangements. In 2004, we did     premiums ceded for the 12 months
statements are prepared                  not enter into a quota share            ended December 31, 2003 were
in accordance with US GAAP. The          arrangement with Syndicate 2020.        US$214.0 million. The increase
following is a discussion and analysis                                           related to reinstatement premiums
of our consolidated results of           For the 12 months ended                 payable in respect of the windstorm
operations for the 12 months ended       December 31, 2004 and 12                losses in the Southeastern United
December 31, 2004 and 2003 and           months ended December 31, 2003          States and Typhoon Songda in the
the 12 months ended December 31,         Gross premiums written                  third quarter of 2004.
2004 and 2003.
                                         In the 12 months ended December
                                         31, 2004 gross premiums written         Net premiums written
In 2002, we derived a significant
proportion of our premiums from          were US$1,586.2 million compared        Net premiums written for the 12
two quota share contracts under          to US$1,306.8 million for the 12        months ended December 31, 2004
which we reinsured part of the           months ended December 31, 2003,         were US$1,357.6 million compared
portfolio of risks written by the        an increase of 21.3%. The increases     to US$1,092.8 million in 2003
Syndicates and managed by WUAL           included US$154.5 million from net      reflecting the increased gross
(the ‘Wellington 2002 quota share        new business and rate increases in      premiums written during the year.
arrangements’). With effect from         casualty reinsurance, US$47.1
January 1, 2003 we renewed               million from new property               Gross premiums earned
reinsurance business and UK              reinsurance business written            Gross premiums earned for the
insurance business previously            through Aspen Re America, US$43.6       12 months ended December 31,
written by the Syndicates within our     million from our new marine lines       2004 were US$1,469.0 million, which
own UK subsidiary. We did however        of business and US$60.3 million of      represented 92.6% of gross
continue to assume risks in respect      new business written by Aspen           premiums written for such period,
of other lines of business written by    Specialty and reported under            compared to gross premiums
Syndicate 2020 from January 1,           property insurance (US$30.0             earned of US$987.8 million for the
2003 under a quota share contract        million) and liability insurance        12 months ended December 31,
under which we accepted 7.5% of          (US$30.3 million).                      2003, which represented 75.6% of




70
                                                                                     Aspen Insurance Holdings Limited
                                                                                         Annual Report & Accounts 2004




Management’s Summary Discussion and Analysis of Financial Condition and Results of Operations

gross premiums written. This               US$1,277.9 million at the balance sheet   Net investment income
reflects the stabilization of earnings     date, 63% represented IBNR claims         Net investment income for the 12
following the initial growth phase         compared to 71% of IBNR for the 12        months ended December 31, 2004
of earning.                                months ended December 31, 2003.           was US$68.3 million compared with
                                                                                     US$29.6 million for the 12 months
Net premiums earned                        Policy acquisition expenses               ended December 31, 2003, an
Net premiums earned for the 12             Policy acquisition expenses for the       increase of US$38.7 million. The
months ended December 31, 2004             12 months ended December 31, 2004         increase results from a 69% rise in
were US$1,232.8 million,                   were US$212.0 million, representing       investment balances together with
representing 90.8% of net premiums         17.2% of net premiums earned,             rising interest rates and incremental
written for such period, compared to       compared to US$152.3 million              extension during the year of
net premiums earned of US$812.3            representing 18.7% of net premiums        portfolio duration from 1.14 years at
million for the 12 months ended            earned for the 12 months ended            December 31, 2003 to 1.76 years at
December 31, 2003, representing            December 31, 2003.                        December 31, 2004. The increase in
74.3% of net premiums written.                                                       duration results in greater exposure
                                           Operating and administrative              to interest rate risk as discussed
Insurance losses and loss                  expenses                                  below. Investment returns also
adjustment expenses                        Operating and administrative              increased from 2.0% in 2003 to 2.6%
Insurance losses and loss adjustment       expense for the 12 months ended           in 2004. Net investment income
expenses for the 12 months ended           December 31, 2004 were US$93.0            consisted primarily of interest on
December 31, 2004 were US$723.6            million, compared to US$53.3 million      fixed income securities, which were
million including paid claims of           for the 12 months ended December          partially offset by expenses relating
US$164.6 million, compared to              31, 2003. The operating and               to management of our investments.
US$428.4 million including paid            administrative expenses include
claims of US$53.9 million for the 12       provisions for fixed and performance      Income before tax
months ended December 31, 2003.            related staff compensations. This         Income before tax for the 12 months
The increase of US$295.2 million in        increase represents higher staffing       ended December 31, 2004 was
insurance losses and loss adjustment       levels as new business lines have         US$263.2 million, consisting of
expenses was primarily due to losses       been introduced, and full year costs      underwriting income of US$204.2
from a series of windstorms in the         for Aspen Specialty and Aspen Re          million, net investment income of
Southeastern United States and             America. Operating and                    US$68.3 million and other realized
Typhoon Songda, totalling US$196.1         administrative expenses as a              gains of US$1.6 million, less interest
million net of reinsurance. Of the total   percentage of net earned premiums         on loans of US$6.9 million,
gross reserves for unpaid losses of        were 7.5% in 2004 and 6.6% in 2003.       compared to US$206.6 million for




                                                                                                                        71
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Management’s Summary Discussion and Analysis of Financial Condition and Results of Operations

the 12 months ended December 31,         equivalent to US$2.63 earnings per
2003, which consisted of                 basic share and US$2.56 fully diluted
underwriting income of US$178.3          earnings per share on the basis of
million and investment returns of        the weighted average number of
US$28.7 million less interest on loans   shares in issue during the period.
of US$0.4 million.
                                         Underwriting results by operating
Income tax expense                       segments
Income tax expense for the 12            Our business segments are based
months ended December 31, 2004           on how we monitor the
was US$68.1 million compared to          performance of our underwriting
US$54.4 million for the 12 months        operations. Management measures
ended December 31, 2003.                 segment results on the basis of the
Our consolidated tax rate for 2004       combined ratio, which is obtained
was 25.5%, whereas in 2003 it was        by dividing the sum of the losses
26.4%. The tax rate decreased due        and loss expenses, acquisition
to a greater proportion of the           expenses and general and
Company’s profit which emanated          administrative expenses by net
from our Bermudian operations.           premiums earned. As a newly
                                         formed company, our historical
Net income                               combined ratio may not be
Net income for the 12 months             indicative of future underwriting
ended December 31, 2004 was              performance. We do not manage
US$195.1 million, equivalent to          our assets by segment; accordingly,
US$2.82 earnings per basic share         investment income and total assets
and US$2.74 fully diluted earnings       are not allocated to the individual
per share on the basis of the            segments. General and
weighted average number of shares        administrative expenses are
in issue during the period, compared     allocated to segments based on
to US$152.1 million for the 12           each segment’s proportional share
months ended December 31, 2003,          of gross premiums written.




72
                                                                                Aspen Insurance Holdings Limited
                                                                                    Annual Report & Accounts 2004




Management’s Summary Discussion and Analysis of Financial Condition and Results of Operations

The following table summarizes gross and net written premium, underwriting results, and combined ratios and reserves
for each of our two business segments for the 12 months ended December 31, 2004 and 2003.


                               12 months ended December 31, 2004               12 months ended December 31, 2003

                          Reinsurance       Insurance      Total          Reinsurance        Insurance         Total
Financial results               US$m            US$m      US$m                  US$m             US$m         US$m

Gross premiums written          1,177.7         408.5     1,586.2              1,001.9            304 .9      1,306.8
Net premiums written            1,009.1         348.5     1,357.6                821.0            271.8       1,092.8
Gross premiums earned           1,110.6         358.4     1,469.0                747.2            240.6         987.8
Net premiums earned               927.3         305.5     1,232.8                596.6            215.7         812.3
Losses and loss
adjustment expenses              (553.1)        (170.5)    (723.6)              (303.0)           (125.4)      (428.4)
Policy acquisition,
operating and
administrative expenses          (233.1)         (71.9)    (305.0)              (165.6)            (40.0)      (205.6)
Underwriting profit
before investment income         141.1           63.1       204.2                128.0             50.3        178.3

Investment return                                            68.3                                               29.6
Other income                                                 (6.9)                                              (0.4)
Other expenses                                               (4.0)                                                 -
Realized investment and exchange gains                        1.6                                               (0.9)

Operating income before income tax                         263.2                                               206.6

Net reserves for loss
and loss adjustment expenses
as of December 31, 2004
and 2003                         737.5          342.7     1,080.2                314.9            167.3        482.2

Ratios

Loss ratio                        60%            56%        59%                   51%              58%          53%
Expense ratio                     25%            24%        25%                   28%              19%          25%
Combined ratio                    85%            80%        84%                   79%              77%          78%




                                                                                                                  73
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Management’s Summary Discussion and Analysis of Financial Condition and Results of Operations

Reinsurance                                 Syndicate 3030. Our quota share         31, 2004 were US$553.1 million
We write reinsurance for both               reinsurance of Syndicate 2020 did       compared to US$303.0 million for
property, casualty and specialty risks.     not continue into 2004 and the          the 12 months ended December
In 2004 our property reinsurance line       quota share of Syndicate 3030 did       31, 2003. The increase by US$250.1
of business was all written on a            not continue after 2002.                million in losses and loss
treaty basis. The property treaty                                                   adjustment expenses was primarily
reinsurance we write includes               For the 12 months ended                 due to material claims incurred
catastrophe, risk excess and pro rata,      December 31, 2004 and the 12            during 2004 from Hurricanes
including retrocession. In 2003 we          months ended December 31, 2003          Charley, Frances, Ivan and Jeanne
also wrote a limited amount of                                                      and Typhoon Songda totaling
property facultative reinsurance.           Premiums                                US$190.2 million. The loss ratio for
                                            Gross premiums written for the 12       the 12 months ended December
In 2004 our casualty reinsurance line       months ended December 31, 2004          31, 2004 was 59.6% compared to
of business was written mainly on a         were US$1,177.7 million, compared       50.8% for the 12 months ended
treaty basis with a small proportion        to US$1,001.9 million for 2003, an      December 31, 2003.
of facultative risks. The casualty treaty   increase of US$175.8 million. The
reinsurance is primarily on an excess       increases included US$47.1 million      However, the year also benefited
of loss basis and includes coverage         from new property reinsurance           from a release of US$34.6 million of
for claims arising from automobile          business written through Aspen Re       prior year releases as discussed
accidents, employers’ liability,            America, which consisted mostly of      above under ‘Critical Accounting
professional indemnity and other            risk excess, treaty catastrophe and     Policies Prior Year Loss Reserves.’
third party liabilities. It is written in   treaty pro rata. Casualty saw an
respect of cedents located mainly           increase of US$154.4 million largely    Policy acquisition, operating and
in the United States, the United            due to increases in US casualty         administration expenses
Kingdom, Europe and Australia. The          although US auto liability business     Total expenses for the 12 months
casualty facultative business covers        written through WU Inc. in 2003 was     ended December 31, 2004 were
US umbrella, workers’ compensation          discontinued in 2004 and we are no      US$233.1 million compared to
and general liability business.             longer writing automobile               US$165.6 million for the 12 months
                                            reinsurance of this type. Premiums      ended December 31, 2003, an
Our specialty reinsurance line of           within our specialty line of business   increase of US$67.5 million. The
business includes aviation and              decreased by US$69.7 million as we      expense ratio for the 12 months
marine reinsurance. In 2002 we also         did not continue into 2004 our          ended December 31, 2004 was 25%
included under this heading our             quota share reinsurance of Syndicate    compared to 28% for the 12
quota share reinsurances of                 2020 which accounted for US$78.4        months ended December 31,2003.
Syndicates 2020 and 3030 in respect         million in 2003.
of the lines of business that we did                                                As a percentage of gross premiums
not write under our own name,               Losses and loss adjustment              earned, the level of expenses was
including marine, energy, accident          expenses                                21% for the 12 months ended
and health and aviation risks. For          Losses and loss adjustment expenses     December 31, 2004 compared to
2003 we reinsured Syndicate 2020            for the 12 months ended December        22.1% for the 12 months ended
for all its lines of business but not                                               December 31, 2003.




74
                                                                                 Aspen Insurance Holdings Limited
                                                                                     Annual Report & Accounts 2004




Management’s Summary Discussion and Analysis of Financial Condition and Results of Operations

The following table summarizes gross and net written premiums and underwriting results for each of the lines of
business within our reinsurance segment for the 12 months ended December 31, 2004 and 2003.

                                                                                12 months ended December 31, 2004

                                                                   Property       Casualty     Specialty           Total
                                                                      US$m          US$m         US$m             US$m

Gross premiums written                                                 649.3         446.7          81.7          1,177.7
Net premiums written                                                   499.9         436.7          72.5          1,009.1
Gross premiums earned                                                  630.1         363.3         117.2          1,110.6
Net premiums earned                                                    469.6         353.1         104.6            927.3
Losses and loss adjustment expenses                                   (262.5)       (252.2)        (38.4)          (553.1)
Policy acquisition, operating and administration expenses             (142.2)        (70.9)        (20.0)          (233.1)

Underwriting profit before investment income                            64.9          30.0          46.2           141.1

Ratios

Loss ratio                                                              56%           72%           37%             60%
Expense ratio                                                           30%           20%           19%             25%
Combined ratio                                                          86%           92%           56%             85%



                                                                                 12 months ended December 31, 2003

                                                                    Property      Casualty     Specialty            Total
                                                                      US$m          US$m         US$m              US$m

Gross premiums written                                                 558.2         292.3         151.4          1,001.9
Net premiums written                                                   400.0         280.3         140.7            821.0
Gross premiums earned                                                  437.2         168.0         142.0            747.2
Net premiums earned                                                    309.1         158.8         128.7            596.6
Losses and loss adjustment expenses                                   (106.7)       (115.8)        (80.5)          (303.0)
Policy acquisition, operating and administration expenses             (110.3)        (31.9)        (23.4)          (165.6)

Underwriting profit before investment income                            92.1          11.1          24.8           128.0

Ratios

Loss ratio                                                              35%           73%           63%             51%
Expense ratio                                                           35%           20%           18%             28%
Combined ratio                                                          70%           93%           81%             79%




                                                                                                                      75
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Management’s Summary Discussion and Analysis of Financial Condition and Results of Operations

Insurance                              increase of US$103.6 million. This        further described above under
We write both commercial property      increase was primarily due to our         ‘Critical Accounting Policies Prior
and commercial liability insurance.    marine and aviation lines of business     Year Loss Reserves.’
Our commercial property line of        which were established in the third
business is primarily composed of      quarter of 2004 and the first full year   Policy acquisition, operating and
UK commercial property insurance,      of premiums from Aspen Specialty          administration expenses
US excess and surplus lines business   which wrote both property and             Total expenses were US$71.9 million
written through Aspen Specialty and    casualty insurance in the US. Our         for the 12 months ended December
worldwide property insurance           gross written premiums in                 31, 2004 compared to US$40.0
focusing on providing coverage to      commercial property increased by          million for the 12 months ended
major commercial and industrial        US$40.4 million primarily as a result     December 31, 2003, an increase of
companies on a global basis.           of increased property insurance           US$31.9 million. The increase over
                                       written by Aspen Specialty.               the comparative period is due to
The commercial liability line of                                                 the set up costs associated with
business consists of UK employers'     Losses and loss adjustment                the establishment of our US
and public liability insurance and     expenses                                  insurance operations, Aspen
casualty insurance in the US on a      Losses and loss adjustment expenses       Specialty, and the relatively low
surplus lines basis.                   were US$170.5 million for the 12          contribution to earned premiums
                                       months ended December 31, 2004            from these operations during this
In 2004, we also began to write        compared to US$125.4 million for          early stage of development.
marine insurance. Our marine team      the 12 months ended December 31,          Additionally, the worldwide property
writes hull, liability and energy      2003, an increase of US$45.1 million.     team’s costs were recorded in 2004.
business. We began writing aviation    The only material claim incurred          Neither of these had costs in 2003.
insurance in 2005.                     during 2004 arose from a factory fire     The expense ratio for the 12 months
                                       (US$14.4m) in Suffolk, UK. The loss       ended December 31, 2004 was
For the 12 months ended                ratio for the 12 months ended             24% compared to 19% for the
December 31, 2004 and the 12           December 31, 2004 was 55.8%               12 months ended December 31,
months ended December 31, 2003         compared to 58.1% for the 12              2003.
                                       months ended December 31, 2003.
Premiums                                                                         The increase in the expense ratio
Gross premiums written for the 12      However, the year also benefitted         was due to a greater proportion of
months ended December 31, 2004         from a release of US$27.4 million of      commercial property business,
were US$408.5 million compared to      prior year reserves in the period         which attracts higher brokerage
US$304.9 million for the 12 months     largely due to slower than expected       rates, being written in 2004 when
ended December 31, 2003, an            development of incurred claims, as        compared with 2003.




76
                                                                                 Aspen Insurance Holdings Limited
                                                                                     Annual Report & Accounts 2004




Management’s Summary Discussion and Analysis of Financial Condition and Results of Operations

The following table summarizes gross and net written premiums and underwriting results for each of the lines of
business within our insurance segment for the 12 months ended December 31, 2004 and 2003.

                                                                                12 months ended December 31, 2004

                                                               Commercial Commercial          Marine and
                                                                 Property    Liability          Aviation           Total
                                                                    US$m       US$m                US$m           US$m

Gross premiums written                                                122.1          242.8          43.6           408.5
Net premiums written                                                   93.0          219.0          36.5           348.5
Gross premiums earned                                                  98.0          249.6          10.8           358.4
Net premiums earned                                                    73.8          222.7           9.0           305.5
Losses and loss expenses                                              (38.5)        (124.9)         (7.1)         (170.5)
Policy acquisition, operating and administration expenses             (22.1)         (47.5)         (2.3)          (71.9)

Underwriting profit before investment income                           13.2          50.3           (0.4)          63.1

Ratios

Loss ratio                                                             52%           56%            79%            56%
Expense ratio                                                          30%           21%            26%            24%
Combined ratio                                                         82%           77%           105%            80%


                                                                                 12 months ended December 31, 2003

                                                               Commercial Commercial          Marine and
                                                                 Property    Liability          Aviation           Total
                                                                   US$m        US$m                US$m           US$m

Gross premiums written                                                  81.7        223.2              -           304.9
Net premiums written                                                    75.7        196.1              -           271.8
Gross premiums earned                                                   72.0        168.6              -           240.6
Net premiums earned                                                     61.9        153.8              -           215.7
Losses and loss expenses                                               (26.8)       (98.6)             -          (125.4)
Policy acquisition, operating and administration expenses              (15.7)       (24.3)             -           (40.0)

Underwriting profit before investment income                           19.4          30.9              -           50.3

Ratios

Loss ratio                                                             43%           64%               -           58%
Expense ratio                                                          26%           16%               -           19%
Combined ratio                                                         69%           80%               -           77%




                                                                                                                     77
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Management’s Summary Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and capital resources            payment of dividends or                    US$19.9 and US$52.7 million,
At December 31, 2004, Aspen                distributions. As of December 31,          respectively, in cash and fixed
Holdings had cash and cash                 2004, Aspen Bermuda could pay a            interest securities and nil and
equivalents of US$19.9 million that        dividend or make a distribution out        US$12.6 million, respectively, in
are available to pay its operating         of contributed surplus totaling            short term investments which
expenses and liabilities. We did not       approximately US$126.2 million             management considers sufficient to
pay any dividends to shareholders in       without prior regulatory approval          provide us liquidity at this time.
2003 but in 2004 our Board of              based upon the Bermuda Insurance
Directors authorized a quarterly           Act and the Bermuda Companies              As of December 31, 2004, the
dividend payment of US$0.03 per            Act regulations.                           insurance subsidiaries held
ordinary share per fiscal quarter. On                                                 approximately US$793.7 million in
March 3, 2005, our Board of Directors      Aspen Re and Aspen Specialty are           cash and short term investments
authorized an increase in dividends        also subject to regulatory restrictions    that are readily realizable securities.
to US$0.15 from US$0.03 per                limiting their ability to pay dividends.   Operating cash flow, borrowing and
ordinary share. The dividend will be       As of December 31, 2004, Aspen Re          the issuance of additional ordinary
paid on March 25, 2005 for                 could pay a dividend totaling              shares for cash increased the total
shareholders of record on March 15,        approximately US$38.4 million              cash and cash equivalents held by
2005.                                      without prior regulatory approval          the Company by US$54.1 million
                                           based upon the FSA and the                 during the 12 months ended
As of January 1, 2004, the maximum         Companies Act regulations. Aspen           December 31, 2004. Management
amount that our insurance                  Specialty could pay a dividend             monitors the value, currency and
subsidiaries could have paid to            without regulatory approval of             duration of the cash and
us under applicable laws and               approximately US$10.1 million.             investments held by its insurance
regulations without prior regulatory                                                  subsidiaries to ensure that they are
approval was approximately US$60.0         In 2003, Aspen Re paid a total of          able to meet their insurance and
million. This amount increased to          US$20 million in dividends to the          other liabilities as they become due
approximately US$174.7 million as of       Company. On August 3, 2004, Aspen          and was satisfied that there was a
December 31, 2004.                         Re paid the Company a dividend of          comfortable margin of liquidity as of
                                           US$15 million. On December 9, 2004         December 31, 2004 and for the
The ability of Aspen Bermuda to pay        an additional dividend of US$20            foreseeable future.
dividends is dependent on its ability      million was paid.
to meet the requirements of                                                           Our aggregate invested assets as of
applicable Bermuda law and                 Management monitors the liquidity          December 31, 2004 totaled US$2.74
regulations. Under Bermuda law,            of Aspen Holdings and of each of its       billion compared to aggregate
Aspen Bermuda may not declare or           insurance subsidiaries. In relation to     invested assets of US$1.62 billion as
pay a dividend if there are                Aspen Holdings, we monitor its             of December 31, 2003. The increase
reasonable grounds for believing           ability to service debt, to finance        in invested assets since December
that Aspen Bermuda is, or would            dividend payments to shareholders          31, 2003 resulted from the issuance
after the payment, be unable to pay        and to provide financial support to        of our Senior Notes, collections of
its liabilities as they become due, or     the insurance subsidiaries. During         premiums on insurance policies and
the realizable value of Aspen              2003, the cash position of Aspen           reinsurance contracts and
Bermuda’s assets would thereby             Holdings was significantly enhanced        investment income, offset by
be less than the aggregate of its          by the payment of US$20.0 million in       policy acquisition expenses paid,
liabilities and its issued share capital   dividends by Aspen Re to Aspen             reinsurance premiums paid,
and share premium accounts.                Holdings and by the retention within       payment of losses and loss
Further, Aspen Bermuda, as a               Aspen Holdings of part of the              adjustment expenses, operating
regulated insurance company in             proceeds from our initial public           and administrative expenses paid
Bermuda, is subject to additional          offering. As of December 31, 2004          and repayment of short term
regulatory restrictions on the             and 2003, Aspen Holdings held              borrowings.




78
                                                                                      Aspen Insurance Holdings Limited
                                                                                          Annual Report & Accounts 2004




Management’s Summary Discussion and Analysis of Financial Condition and Results of Operations

Cash flows for the 12 months              Cash is used primarily to pay               solvency requirements. Aspen Re has
ended December 31, 2004                   reinsurance premiums, losses and loss       maintained the required margin of
Total net cash flow from operating        adjustment expenses, brokerage              solvency throughout 2003 and 2004
activities in the 12 months ended         commissions, general and                    and the value of its shareholders’
December 31, 2004 was                     administrative expenses and taxes           equity as of December 31, 2003 and
approximately US$961.3 million, an        and to purchase new investments.            2004 was US$754.0 million and
increase of US$324.7 million from the     We may also use cash to pay for any         US$870.9 million respectively.
12 months ended December 31, 2003.        authorized share repurchases and
For the 12 months ended December          dividends.                                  Aspen Specialty is regulated by the
31, 2004, our cash flows from                                                         North Dakota insurance laws and is
operations provided us with sufficient    Our cash flows from operations              subject to risk-based capital
liquidity to meet our operating           represent the difference between            regulations.We are obliged by the
requirements.We paid net claims of        premiums collected and the losses           terms of our contractual obligations
US$164.6 million in the 12 months         and loss adjustment expenses paid,          to US policyholders and by
ended December 31, 2004.We made           underwriting and other expenses             undertakings to certain US regulatory
net investments in the amount of          paid.The potential for a large claim        authorities to facilitate the issue of
US$1,104.3 million in market securities   under one of our reinsurance                letters of credit or maintain certain
during the period.We paid dividends       contracts means that substantial            balances in trust funds for the benefit
of US$8.3 million, and raised US$249.3    and unpredictable payments may              of policyholders. Our current
million from our Senior Notes offering.   need to be made within relatively           arrangements with our bankers for
At December 31, 2004, we had a cash       short periods of time.                      the issue of letters of credit require us
balance of US$284.9 million.                                                          to provide cash collateral for the full
                                          We intend to manage these risks by          amount of all undrawn letters of
Cash flows for the 12 months              maintaining a substantial proportion        credit that are outstanding.We
ended December 31, 2003                   of our invested assets in securities        monitor the proportion of our
                                          having durations less than the              otherwise liquid assets that are
In the 12 months ended December           durations of our liabilities even           committed to trust funds or to the
31, 2003 we generated net cash from       though this may over time reduce            collateralization of letters of credit.
operating activities of US$636.6          the yield on our investments below          As of December 31, 2003, these funds
million, primarily relating to premiums   that which might be obtained if our         amounted to 10% of the US$1.8
and investment income received            asset durations were perfectly              billion of cash and investments held
offset by reinsurance premiums            matched to our liability durations.         by the Company. As of December 31,
payable.We paid claims of US$53.9         Notwithstanding this policy, if our         2004, these funds amounted to 20%
million in the period.We made net         calculations with respect to these          of US$3.02 billion of cash and
investments in the amount of              liabilities are incorrect, we could be      investments held by the Company.
US$696.4 million in market securities     forced to liquidate investments prior       We do not consider that this unduly
during the period. Cash and cash          to maturity, potentially at a significant   restricts our liquidity at this time.
equivalents increased from US$9.6         loss.
million at the beginning of the period                                                For these purposes, we have
to US$230.8 million at the end of the     Aspen Bermuda is subject to the             specifically established a facility for the
period.                                   solvency requirements of the                issuance of letters of credit in the
                                          Insurance Act. Aspen Bermuda’s              amount of US$50 million with
Liquidity                                 fully paid up share capital was             Citibank, NA. As of December 31, 2004
Our liquidity depends on operating,       US$1.0 million and statutory capital        and December 31, 2003, letters of
investing and financing cash flows,       and surplus was US$357.5 million at         credit totaling US$48.4 million and
described as follows. On an ongoing       December 31, 2003 and US$632.7              US$24.6 million, respectively, had been
basis, our insurance subsidiaries’        million at December 31, 2004.               issued by Citibank. In addition, in 2002,
sources of funds primarily consist of                                                 Barclays Bank plc issued letters of
premiums written, investment income       Aspen Re is regulated by the FSA and        credit totaling £47.4 million to
and proceeds from sales and               is subject to the FSA’s Handbook of         policyholders of the Company.The
redemptions of investments.               Rules and Guidance with respect to          letters of credit were in place for the




                                                                                                                              79
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Management’s Summary Discussion and Analysis of Financial Condition and Results of Operations

entire 12 months ended December           Credit Facilities. The terms and          net assets of such subsidiary exceed
31, 2004. The Company has provided        conditions of the Credit Facilities are   US$100 million at the end of the
collateral to Citibank and Barclays       substantially identical.                  most recently completed fiscal
Bank plc for the full value of the                                                  quarter of the Company for which
letters of credit issued on its behalf.   The terms of the credit agreements        financial statements should have
On June 23, 2003 we established a         entered into in connection with the       been delivered to the lenders
trust fund at the Bank of New York        Credit Facilities (as amended to the      pursuant to the Credit Agreements.
which will be used as an alternative      date of this report, the ‘Credit          Accordingly, Aspen Re, Aspen
to letters of credit to satisfy our       Agreements’) provide for customary        Bermuda and Aspen Specialty are
obligations to provide security to        covenants, as well as covenants           currently Material Subsidiaries.
certain US-domiciled cedents. As of       which require the Company to (i)
December 31, 2004 and December            maintain a ratio of consolidated debt     Other covenants include restrictions
31, 2003, the balance on this fund        to consolidated debt plus                 on the types and amounts of
was US$405.6 million and US$45.6          consolidated tangible net worth of        indebtedness the Company and
million, respectively. On July 16, 2003   no greater than 30% as of the last        any subsidiary may create or incur,
we established an additional trust        day of any period of four                 prohibitions on the disposition of
fund at the Bank of New York, with a      consecutive fiscal quarters of the        property by the Company and any
balance of US$5.4 million, which will     Company; (ii) maintain consolidated       subsidiary and restrictions on
serve a similar purpose with respect      tangible net worth at all times of no     investments, loans and advances
to certain US insurance clients of        less than the sum of (a) US$700           by the Company and any subsidiary.
Aspen Re for whom we provide              million, (b) 100% of the first US$200     The Company and its subsidiaries
surplus lines insurance. As of            million of net cash proceeds of the       are also prohibited from paying any
December 31, 2004 the balance in          issuance by the Company of                dividends or making any payments
the trust was US$5.5 million.             ordinary shares after the closing date    on account of a sinking or other
                                          of the Credit Facilities and (c) 50% of   analogous fund for the purchase,
Aspen Re has established a Canadian       the net cash proceeds of all other        redemption or other acquisition of
trust fund with a Canadian bank to        issuances by the Company of               any share capital or capital stock of
secure a Canadian insurance license.      ordinary shares after the closing         the Company or any subsidiary;
The initial minimum trust fund            date; and (iii) maintain a solvency       provided, however, that any such
amount was CAN$25 million and the         ratio (as defined in the Credit           payments may be made by any
balance at December 31, 2004 was          Agreements) for each of the               subsidiary to the Company or
CAN$55.0 million. In addition, Aspen      Company and any insurance                 another subsidiary (other than an
Specialty has a total of US$7.4           subsidiary which is a Material            insurance subsidiary) and so long as
million (US$4.7 million - December        Subsidiary (as defined below) on          no default or event of default exists
31, 2003) on deposit with US States       the last day of any period of four        under the Credit Agreements or
in order to satisfy state regulations     consecutive fiscal quarters of no         would result from such payment, the
for writing business there.               more than 135%. A subsidiary is a         Company may during any fiscal year
                                          Material Subsidiary if (i) the total      pay cash dividends in an aggregate
Capital resources                         consolidated assets or total              amount not to exceed 50% of its
On August 29, 2003, the Company           consolidated revenues of it and its       consolidated net income for such
entered into a 364-day revolving          subsidiaries exceed 10% of the total      fiscal year.
credit facility in the aggregate          assets or gross revenues of the
principal amount of US$50 million         Company and its subsidiaries on a         The terms of the Credit Agreements
and a three-year revolving credit         consolidated basis at the end of or       provide for customary events of
facility in the aggregate principal       for, respectively, the most recently      default, as well as an event of default
amount of US$150 million (together,       completed fiscal quarter of the           if the rating of any relevant
the ‘Credit Facilities’) to provide       Company for which financial               subsidiary falls below an AM Best
additional liquidity for our              statements should have been               financial strength rating of B++
operations. Barclays Bank plc is the      delivered to the lenders pursuant to      and/or an S&P financial strength
administrative agent under both           the Credit Agreements, or (ii) if the     rating of A-. A subsidiary is a ‘relevant




80
                                                                                      Aspen Insurance Holdings Limited
                                                                                          Annual Report & Accounts 2004




Management’s Summary Discussion and Analysis of Financial Condition and Results of Operations

subsidiary’ if the total consolidated     customary exchange and shelf                the Company and rank equally with
assets or total consolidated revenues     registration rights to noteholders          all of our other senior unsecured
of it and its subsidiaries exceed 10%     under the terms of the Senior Notes.        indebtedness from time to time
of the total consolidated assets or       The gross proceeds from the Senior          outstanding. The Senior Notes are
gross consolidated revenues,              Notes offering were US$249.3                not guaranteed by any of our
respectively, of the Company and its      million. A portion of the proceeds of       subsidiaries and are effectively
subsidiaries on a consolidated basis      the offering was used to repay              subordinated to all existing and
at the end or for the most recently       US$40 million in principal amount of        future indebtedness and other
completed fiscal quarter of the           outstanding borrowings under our            liabilities of our subsidiaries.
Company for which financial               existing credit facilities. Subsequently,
statements should have been               in November 2004, we contributed a          The Senior Notes outstanding were
delivered to the lenders pursuant to      further US$250 million to Aspen             the only material debt that we had
the Credit Agreements. Accordingly,       Bermuda, which was partly funded            outstanding at December 31, 2004.
Aspen Re and Aspen Bermuda are            from the proceeds of the Senior             Management monitors the ratio of
currently relevant subsidiaries.          Notes offering.                             debt to total capital, with total capital
                                                                                      being defined as shareholders’ equity
On October 15, 2003 we made a             Subject to certain exceptions, so           plus outstanding debt. At December
drawdown of US$90 million on the          long as any of the Senior Notes             31, 2004 this ratio was 14.4%
three-year credit facility. Of this       remain outstanding, we have agreed          (December 31, 2003 - 3%).
borrowing, US$83.9 million was used       that neither we nor any of our              Management considers this to be
to provide part of the initial capital    subsidiaries will (i) create a lien on      well under the level at which it
to Aspen Specialty and the balance        any shares of capital stock of any          would expect rating agencies or
was used to provide working capital       designated subsidiary (currently            customers to be concerned about
to Aspen Holdings. The interest rate      Aspen Re and Aspen Bermuda, as              excessive financial leverage.
is three-month LIBOR plus 42.5 basis      defined in the Indenture), or (ii) issue,
points. A facility fee, currently         sell, assign, transfer or otherwise         On February 4, 2005, we filed a
calculated at a rate of 17.5 basis        dispose of any shares of capital stock      universal shelf registration statement
points on the average daily amount        of any designated subsidiary. Certain       on Form F-3 with the SEC for the
of the commitment of each lender, is      events will constitute an event of          issuance and sale of up to US$500
paid to each lender quarterly in          default under the Indenture,                million of debt and/or equity
arrears.                                  including default in payment at             securities from time to time. The
                                          maturity of any of our other                registration statement was declared
On December 15, 2003, US$50               indebtedness in excess of US$50             effective on March 3, 2005 and is
million of the loan was repaid            million.                                    expected to allow us access to the
following receipt of funds from our                                                   public capital markets to the extent
initial public offering. We have repaid   Under the Notes Registration Rights         the need arises. Also included in the
the remaining US$40 million in            Agreement, we agreed to file a              registration statement were
principal amount due with a portion       registration statement for the Senior       52,998,036 ordinary shares which
of the net proceeds from the              Notes and cause its effectiveness           may be offered for sale by our
offering of US$250,000,000 in             within prescribed periods, and              shareholders. We will not receive
aggregate principal amount of our         consummate the exchange offer               any proceeds from sales by our
Senior Notes due 2014.                    within 45 days after the date the           shareholders but may have to pay
                                          registration statement becomes              related expenses.
On August 16, 2004, we closed our         effective. We filed the registration
offering of the Senior Notes under        statement and caused its                    In 2005, we expect to have capital
Rule 144A and Regulation S under          effectiveness within those prescribed       expenditures in respect of our
the Securities Act. The Senior Notes      periods. The exchange offer                 information technology systems and
are due in 2014 and have an interest      commenced on March 3, 2005.                 our future premises in London and
rate of 6.00% per annum. We also          The Senior Notes are senior                 Bermuda.
have granted and agreed certain           unsecured general obligations of




                                                                                                                            81
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Management’s Summary Discussion and Analysis of Financial Condition and Results of Operations

Contractual obligations and commitments

The following table summarizes our contractual obligations under long term debt, operating leases and reserves relating to
insurance and reinsurance contracts, other than our obligations to employees as of December 31, 2004.


Payments due by period
                                                                                 Less than                       1-3                  3-5    More than
                                                              Total                 1 year                     years                years      5 years
Contractual obligations                                      US$m                   US$m                       US$m                 US$m        US$m

Long term debt obligations (1)                                250.0                         -                        -                  -          250.0
Operating lease obligations                                    68.7                       6.2                     11.1                9.6           41.8

Reserves for losses
and loss adjustment expenses                                1,277.9                    545.7                    356.9               266.8          108.5

(1) The long term debt obligation disclosed above does not include the US$15 million annual interest payable on the Senior Notes.




In estimating the time intervals into                     On October 19, 2004, Aspen Re                             please see the notes to our audited
which payments of our reserves for                        entered into a new lease for office                       financial statements for the 12
losses and loss adjustment expenses                       space in London of approximately                          months ended December 31, 2004
fall, as set out above, we have utilized                  a total of 49,500 square feet covering                    included elsewhere in this report.
actuarially assessed payment                              three floors. The term of each lease
patterns. By the nature of the                            for each floor commenced in                               Off-balance sheet arrangements
insurance and reinsurance contracts                       November 2004 and runs for 15                             We are not party to any transaction,
under which these liabilities are                         years. Service charges of                                 agreement or other contractual
assumed, there can be no certainty                        approximately £0.5 million per                            arrangement to which an affiliated
that actual payments will fall in the                     annum are payable from this date,                         entity unconsolidated with us is a
periods shown and there could be a                        and are subject to increase. It is                        party that management believes is
material acceleration or deceleration                     expected that we will begin to pay                        reasonably likely to have a current
of claims payments depending on                           the yearly basic rent of approximately                    or future effect on our financial
factors outside our control. This                         £2.7 million per annum 36 months                          condition, revenues or expenses,
uncertainty is heightened by the                          after the relevant date of practical                      results of operations, liquidity,
short time in which we have                               completion of the landlord’s works.                       capital expenditures or capital
operated, thereby providing limited                       The basic annual rent for each of the                     resources that is material to
Company-specific claims loss                              leases will each be subject to 5-yearly                   investors.
payment patterns. The total amount                        upwards-only rent reviews. There are
of payments in respect of our                             no contractual provisions in any of                       Quantitative and qualitative
reserves, as well as the timing of such                   the leases allowing us to terminate                       disclosures about market risk
payments, may differ materially from                      any of the leases prior to expiration
our current estimates for the reasons                     of the 15-year contractual terms.                         We believe that we are principally
set out above under ‘Critical                                                                                       exposed to three types of market
Accounting Policies - Reserves for                        For a discussion of derivative                            risk: interest rate risk, foreign
Losses and Loss Expenses’.                                instruments we have entered into,                         currency risk and credit risk.




82
                                                                                          Aspen Insurance Holdings Limited
                                                                                              Annual Report & Accounts 2004




Management’s Summary Discussion and Analysis of Financial Condition and Results of Operations

Interest rate risk                          currency and liquidity taking into            each year, allowing for reinvestment
Our investment portfolio consists of        account the anticipated cash                  at current market rates. The portfolio
fixed income securities. Accordingly,       outflow characteristics of Aspen Re’s,        is actively managed and trades are
our primary market risk exposure is         Aspen Bermuda’s and Aspen                     made to balance our exposure to
to changes in interest rates.               Specialty’s insurance and reinsurance         interest rates.
Fluctuations in interest rates have a       liabilities.
direct impact on the market                                                               As of December 31, 2004 our
valuation of these securities. As           Our strategy for managing interest            portfolio had an approximate
interest rates rise, the market value of    rate risk also includes maintaining a         duration of 1.76 years.
our fixed-income portfolio falls, and       high quality portfolio with a
the converse is also true. We expect        relatively short duration to reduce           The table below depicts interest rate
to manage interest rate risk by             the effect of interest rate changes on        change scenarios and the effect on
selecting investments with                  book value. A significant portion of          our interest-rate sensitive invested
characteristics such as duration, yield,    the investment portfolio matures              assets.


Effect of changes in interest rates on portfolio given a parallel shift in yield curve.

Movement in rates in basis points               -100                 -50                  0                 50              100

Market value (US$ thousands)               2,788,429          2,762,218          2,735,900           2,709,418        2,682,826
Gains/losses (US$ thousands)                  52,529             26,318                  -             (26,482)         (53,074)
Percentage of portfolio                       1.92%              0.96%               0.0%               0.97%            1.94%



Foreign currency risk                       than the US Dollar and the British            rates for the balance sheets and
Our reporting currency is the US            Pound in 2005. Other foreign                  average exchange rates for the
Dollar. The functional currencies of        currency amounts are remeasured to            statement of operations. We may
our reinsurance and insurance               the appropriate functional currency           experience exchange losses to the
segments are US Dollars and British         and the resulting foreign exchange            extent our foreign currency
Pounds. As of December 31, 2004             gains or losses are reflected in the          exposure is not properly managed or
approximately 71% of our                    statement of operations. Functional           otherwise hedged, which in turn
investments are held in US Dollars,         currency amounts of assets and                would adversely affect our results of
approximately 21% are in British            liabilities are then translated into US       operations and financial condition.
Pounds and approximately 8% are in          Dollars. The unrealized gain or loss          Management estimates that a 10%
currencies other than the US Dollar         from this translation, net of tax, is         change in the exchange rate
and the British Pound. For the 12           recorded as part of ordinary                  between British Pounds and US
months ended December 31, 2004,             shareholders’ equity. The change in           Dollars as of December 31, 2004,
13% of our gross premiums were              unrealized foreign currency                   would have impacted reported net
written in currencies other than the        translation gain or loss during the           comprehensive income by
US Dollar and the British Pound and         year, net of tax, is a component of           approximately US$14.3 million for
we expect that a similar proportion         comprehensive income. Both the                the 12 months ended December 31,
will be written in currencies other         remeasurement and translation are             2004.
                                            calculated using current exchange




                                                                                                                              83
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Management’s Summary Discussion and Analysis of Financial Condition and Results of Operations

We will attempt to manage our             management strategy and                  pressures in a local economy as the
foreign currency risk by seeking to       investment policy is to invest in        demand for services such as
match our liabilities under insurance     debt instruments of high credit          construction typically surges.
and reinsurance policies that are         quality issuers and to limit the         Our calculation of reserves for
payable in foreign currencies with        amount of credit exposure with           losses and loss expenses includes
investments that are denominated          respect to particular ratings            assumptions about future payments
in these currencies. During 2002, we      categories and any one issuer. No        for settlement of claims and
entered into a significant forward        more than 5% of the fixed-income         claims-handling expenses, such as
exchange contract for the sale of         securities in our investment             medical treatments and litigation
British Pounds into US dollars in         portfolio may be rated below ‘A-’.       costs. We write liability business in
anticipation of the receipt in            As of December 31, 2004, the             the United States, the United
November 2002 of the second               average rate of fixed income             Kingdom and Australia, where
tranche of our initial capital. A         securities in our investment             claims inflation has been
forward foreign currency exchange         portfolio was ‘AA+’. In addition, we     particularly strong in recent years.
contract involves an obligation to        are exposed to the credit risk of our    To the extent inflation causes these
purchase or sell a specified currency     insurance and reinsurance brokers        costs to increase above reserves
at a future date at a price set at the    to whom we make claims payments          established for these claims, we will
time of the contract. Foreign             for insureds and our reinsureds, as      be required to increase our loss
currency exchange contracts will not      well as to the credit risk of our        reserves with a corresponding
eliminate fluctuations in the value of    reinsurers and retrocessionaires         reduction in retained earnings. The
our assets and liabilities                who assume business from us.             actual effects of inflation on our
denominated in foreign currencies         Other than fully collateralized          results cannot be accurately known
but rather allow us to establish a rate   reinsurance the substantial majority     until claims are ultimately settled.
of exchange for a future point in         of our reinsurers have a rating of ‘A’
time. We do not expect going              (Excellent), the third highest of 15     In addition to general price inflation
forward that we will enter into these     rating levels, or better by AM Best      we are exposed to a persisting long
contracts with respect to a material      and the minimum rating of any of         term upwards trend in the cost of
amount of our assets. All realized        our material reinsurers is ‘A-’          judicial awards for damages. We
gains and losses and unrealized           (Excellent), the fourth highest of       take this into account in our pricing
gains and losses on foreign currency      15 rating levels, by AM Best.            and reserving of casualty business.
forward contracts are recognized in
the statement of operations. There        Effects of inflation                     Changes in and disagreements
were no outstanding forward               We do not believe that inflation has     with accountants
contracts as of December 31, 2004.        had a material effect on our             There have been no changes in or
                                          consolidated results of operations,      disagreements with accountants
Credit risk                               except insofar as inflation may          regarding accounting and financial
We have exposure to credit risk           affect interest rates. The potential     disclosure for the period since the
primarily as a holder of fixed            exists, after a catastrophe loss, for    Company’s formation on May 23,
income securities. Our risk               the development of inflationary          2002 until the date of this filing.




84
                                        Aspen Insurance Holdings Limited
                                            Annual Report & Accounts 2004




                                         NYSE Corporate Governance

Differences between NYSE                Corporate Governance Standards,
Corporate Governance Rules and          Mr. Avery would not be considered
Aspen’s Corporate Governance            an independent director.
Practices
                                        The NYSE Corporate Governance
Aspen Holdings currently qualifies as   Standards require chief executive
a foreign private issuer, and as such   officers of US domestic issuers to
we are not required to meet all of      certify to the NYSE that he or she
the NYSE Corporate Governance           is not aware of any violation by
Standards. The following discusses      the company of NYSE corporate
the differences between the NYSE        governance listing standards.
Corporate Governance Standards          Because as a foreign private issuer
applicable to US domestic issuers       we are not subject to the NYSE
and Aspen’s corporate governance        Corporate Governance Standards
practices.                              applicable to US domestic issuers,
                                        Aspen need not make such
The NYSE Corporate Governance           certification.
Standards require that all members
of compensation committees and          We have filed our certifications
nominating/corporate governance         under Section 302 of the Sarbanes-
committees be independent. All          Oxley Act of 2002, as an exhibit to
but one member of our                   our Annual Report on Form 10-K for
Compensation Committee and              the twelve months ended December
Nominating/Corporate Governance         31, 2004, which was filed with the
Committee are independent.              Securities and Exchange
Mr. Avery was, until September 20,      Commission on March 14, 2005.
2004, chief executive officer of
Wellington, and he remains an           As of March 1, 2005, there were 91
employee of Wellington. Through         holders of record of our ordinary
our agreements with Wellington,         shares, not including beneficial
we made payments to Wellington          owners of ordinary shares registered
in 2002, 2003 and 2004 which            in nominee or street name. Mellon
exceeded the threshold on               Investor Services LLC acts as our
independence of 2% of Wellington’s      transfer agent, registrar and dividend
consolidated gross revenues for such    disbursing agent for our ordinary
years. Accordingly, under the NYSE      shares.




                                                                              85
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Annual Report & Accounts 2004




Non-GAAP and GAAP Financial Measures

Operating income reconciliation           measures’, as such term is defined in   manner that allows for a more
and other non-GAAP and                    Regulation G. Management believes       complete understanding of the
GAAP financial measures                   that these non-GAAP measures, which     underlying trends in the Company’s
In presenting the Company’s results,      may be defined differently by other     business. However, these measures
management has included and               companies, better explain the           should not be viewed as a substitute
discussed certain ‘non-GAAP financial     Company’s results of operations in a    for those determined in accordance
                                                                                  with GAAP.
The reconciliation of such non-GAAP financial measures to their respective most directly comparable GAAP financial
measures in accordance with Regulation G is included below.
                                                                                Year ended             Period ended
                                                                            December 2004            December 2003
                                                                                     US$m                     US$m

Net income after tax                                                                 195.1                      152.1
Add (deduct) after tax income:
   Net realized losses on investments                                                   2.6                       1.7
   Net exchange gains                                                                  (5.1)                     (1.1)

Operating income                                                                     192.6                     152.7


Weighted average common shares outstanding                                          No.(m)                    No.(m)

Basic                                                                                 69.2                       57.8
Diluted                                                                               71.1                       59.5


Basic per share data                                                                US$m                       US$m

Net income                                                                            2.82                       2.63
Add (deduct) after tax income:
   Net realized gains/(losses) on investments                                          0.04                      0.03
   Net exchange gains                                                                 (0.07)                    (0.02)

Operating income per share                                                            2.79                      2.64


Diluted per share data                                                              US$m                       US$m

Net income                                                                            2.74                       2.56
Add (deduct) after tax income:
   Net realized gains/(losses) on investments                                          0.04                      0.03
   Net exchange gains                                                                 (0.07)                    (0.02)

Operating income per diluted share                                                    2.71                      2.57


Book value per share

Net assets (excluding intangible assets) (US$m)                                     1,474.9                   1,292.1
Number of shares in issue at the end of the period (number in millions)                69.3                      69.2
Diluted number of shares in issue at the end of the period (number in millions)        71.3                      71.5
Book value per share (US$)                                                            21.31                     18.77
Diluted book value per share (US$)                                                    20.72                     18.17



86
                                                                                      Aspen Insurance Holdings Limited
                                                                                          Annual Report & Accounts 2004




                                                                        Non-GAAP and GAAP Financial Measures

Operating income                           Unrealized appreciation                    issue multiplied by the share price
(a non-GAAP financial measure)             (depreciation) on investments is           of those shares on the New York
                                           primarily the result of interest rate      Stock Exchange on 19 February
Operating income is an internal
                                           movements and the resultant impact         2004.
performance measure used by the
                                           on fixed income securities, and
Company in the management of its
                                           unrealized gains (losses) are the result   Underwriting ratios
operations and represents after-tax
                                           of exchange rate movements                 (are GAAP financial measures)
operational results excluding, as
                                           between the US dollar and the British
applicable, after-tax net realized                                                    Aspen Insurance Holdings Limited,
                                           pound. Such gains (losses) are not
capital gains or losses and after-tax                                                 along with others in the industry,
                                           related to management actions or
net foreign exchange gains or losses.                                                 uses underwriting ratios as
                                           operational performance, nor is it
                                                                                      measures of performance. The loss
                                           likely to be realized. Therefore the
The Company excludes after tax net                                                    ratio is the ratio of net claims and
                                           Company believes that excluding
realized capital gains or losses and                                                  claims adjustment expense to net
                                           this unrealized gains (losses) provide
after-tax net foreign exchange gains                                                  earned premiums. The acquisition
                                           a more consistent and useful
or losses from its calculation of                                                     expense ratio is the ratio of
                                           measurement of operating
operating income because the                                                          underwriting expenses
                                           performance, which supplements
amount of these gains or losses is                                                    (commissions; premium taxes,
                                           GAAP information. Average equity is
heavily influenced by, and fluctuates                                                 licenses and fees; as well as other
                                           calculated as the arithmetic average
in part, according to the availability                                                underwriting expenses) to net
                                           on a monthly basis for the stated
of market opportunities. The                                                          earned premiums. The general and
                                           periods.
Company believes these amounts                                                        administrative expense ratio is the
are largely independent of its                                                        ratio of general and administrative
                                           The Company presents ROE as a
business and underwriting process                                                     expenses to net earned premiums.
                                           measure that it is commonly
and including them distorts the                                                       The combined ratio is the sum of
                                           recognized as a standard of
analysis of trends in its operations. In                                              the loss ratio, the acquisition
                                           performance by investors, analysts,
addition to presenting net income                                                     expense ratio and the general and
                                           rating agencies and other users of
determined in accordance with                                                         administrative expense ratio. These
                                           its financial information.
GAAP, the Company believes that                                                       ratios are relative measurements
showing operating income enables                                                      that describe for every US$100 of
investors, analysts, rating agencies       Book value per share                       net premiums earned or written,
and other users of its financial           Book value per share represents the        the cost of losses and expenses,
information to more easily analyze         net assets (excluding intangible           respectively. The combined ratio
the Company’s results of operations        assets) at the end of the period           presents the total cost per US$100
in a manner similar to how                 divided by the number of shares in         of earned premium. A combined
management analyzes the                    issue at the end of the period.            ratio below 100% demonstrates
Company’s underlying business                                                         underwriting profit; a combined
performance. Operating income              Diluted book value per share               ratio above 100% demonstrates
should not be viewed as a substitute       (a non-GAAP financial measure)             underwriting loss.
for GAAP net income.
                                           The Company has included diluted
                                                                                      GAAP combined ratios differ from
                                           book value per share because it
Operating Return on Equity (ROE)                                                      statutory combined ratios primarily
                                           takes into account the effect of
(a non-GAAP financial measure)                                                        due to the deferral of certain third
                                           dilutive securities; therefore, the
                                                                                      party acquisition expenses for GAAP
Operating Return on Equity is              Company believes it is a better
                                                                                      reporting purposes and the use of
calculated using 1) operating income,      measure of calculating shareholder
                                                                                      net premiums earned rather than
and 2) excludes from average equity,       returns than book value per share.
                                                                                      net premiums written in the
the average after tax unrealized
                                                                                      denominator when calculating
appreciation or depreciation on            Market value                               the acquisition expense and the
investments and the average after tax
                                           The market value of the Company            general and administrative expense
unrealized foreign exchange gains
                                           relates to the number of shares in         ratios.
or losses.




                                                                                                                        87
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Directors and Officers

Board of Directors

Class I with terms ending in 2005                            Position

Christopher O’Kane                                           Chief Executive Officer of Aspen Holdings
                                                             and Aspen Re and Chairman of
                                                             Aspen Bermuda

Heidi Hutter (1)(2)(3)                                       Director


Class II with terms ending in 2006                           Position

Paul Myners (3)                                              Chairman of Aspen Holdings
                                                             and Aspen Re

Julian Cusack (3)                                            Chief Financial Officer of Aspen Holdings and
                                                             Chief Executive Officer of Aspen Bermuda

Norman Rosenthal (1)(4)                                      Director


Class III with terms ending in 2007                          Position

Julian Avery (2)(4)                                          Director
Ian Cormack (1)                                              Director
Prakash Melwani (2)(3)(4)                                    Director
Kamil Salame (2)(3)                                          Director

(1)   Member of the Audit Committee
(2)   Member of the Compensation Committee
(3)   Member of the Investment Committee
(4)   Member of the Corporate Governance and Nominating Committee


Management Team                                              Position

Christopher O’Kane                                           Chief Executive Officer
Julian Cusack                                                Chief Financial Officer
Sarah Davies                                                 Chief Operating Officer
David May                                                    Chief Casualty Officer and Head of Casualty Reinsurance
James Few                                                    Chief Underwriting Officer of Aspen Bermuda
                                                             and Head of Property Reinsurance
Nick Bonnar                                                  Head of Specialty Lines
Ian Beaton                                                   Head of Insurance
David Curtin                                                 General Counsel, Aspen Re




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                                                                                  Aspen Insurance Holdings Limited
                                                                                      Annual Report & Accounts 2004




                                                                                            Directors and Officers

Audit Committee

Ian Cormack, Chairman
Norman Rosenthal
Heidi Hutter

The Audit Committee has general responsibility for the oversight and surveillance of our accounting, reporting and
financial control practices. The Audit Committee annually reviews the qualifications of the independent auditors, makes
recommendations to the Board of Directors as to their selection and reviews the plan, fees and results of their audit.


Compensation Committee

Prakash Melwani, Chairman
Julian Avery
Kamil Salame
Heidi Hutter

The Compensation Committee oversees our compensation and benefit policies and programs, including administration
of our annual bonus awards and long term incentive plans.


Investment Committee

Paul Myners, Chairman
Julian Cusack
Prakash Melwani
Kamil Salame
Heidi Hutter

The Investment Committee is an advisory committee to the Board of Directors which formulates our investment policy
and oversees all of our significant investing activities.


Corporate Governance and Nominating Committee

Norman Rosenthal, Chairman
Julian Avery
Prakash Melwani

The Corporate Governance and Nominating Committee, among other things, establishes the Board of Directors’ criteria
for selecting new directors and oversees the evaluation of the Board of Directors and management.




                                                                                                                    89
Aspen Insurance Holdings Limited
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Glossary of Selected Insurance and Reinsurance Terms

     Acquisition costs                    from acts of war or terrorism and      Exposure
     Expenses incurred by an              political instability.                 The possibility of loss. A unit
     insurer or reinsurer in the                                                 of measure of the amount
     process of writing new or            Cedent                                 of risk a company assumes.
     renewal business, including          A ceding insurer or reinsurer.
     commissions, administrative          A ceding insurer underwrites           Facultative reinsurance
     and other general costs              and issues an original, primary        The reinsurance of all or a
     attributable to underwriting         policy to an insured and               portion of the insurance
     operations.                          contractually transfers (cedes)        provided by a single policy.
                                          a portion of the risk to a             Each policy reinsured is
     Broker                               reinsurer. A ceding reinsurer          separately negotiated.
     An intermediary who negotiates       transfers (cedes) a portion of
     contracts of insurance or            the underlying reinsurance to          Fidelity business
     reinsurance on behalf of an          a retrocessionaire.
                                                                                 A type of insurance in which an
     insured party, receiving a                                                  employer is insured against loss
     commission from the insurer or       Combined ratio
                                                                                 arising from the dishonest acts
     reinsurer for placement and          The sum of the loss ratio and the      of his or her employees.
     other services provided.             expense ratio. A combined ratio
                                          under 100% generally indicates         Incurred but not reported
     Capacity                             an underwriting profit whereas         (‘IBNR’) reserves
     The percentage of surplus or         a ratio over 100% is indicative of
                                          a loss.                                Estimated losses and loss
     the dollar amount of exposure                                               expenses that have been
     that an insurer or reinsurer is                                             incurred but not yet reported
     willing to place at risk. Capacity   Employers’ liability
                                                                                 to the insurer or reinsurer.
     may apply to a single risk, a        Insurance of employers pursuant
     program, a line of business          to their obligations under the         Layer
     or an entire book of business.       UK’s Employers’ Liability Act 1969
                                          to obtain insurance in respect of      A horizontal segment of the
     Casualty insurance                   their liability to their employees     liability insured eg the second
     or reinsurance                       for bodily injury or disease arising   US$100,000 of a US$500,000
                                          out of and in the course of            liability is the first layer if the
     Primarily concerned with the                                                cedent retains US$100,000 but
     losses caused by injuries to third   their employment.
                                                                                 a higher layer if the cedent
     persons ie not the insured, or to                                           retains a lesser amount.
     property owned by third persons      Excess of loss
     and the legal liability imposed on   A form of reinsurance under            Lead reinsurer
     the insured resulting there from.    which recoveries are available
                                          when a given loss exceeds the          The reinsurer that negotiates the
     Catastrophe                          cedent’s retention defined in the      terms, conditions and premium
                                          agreement.                             rates and the first signatory
     A severe loss, typically involving                                          on the slip; reinsurers that
     multiple claimants. Common                                                  subsequently sign on to the slip
     perils include earthquakes,          Expense ratio
                                                                                 under those terms and conditions
     hurricanes, hailstorms, severe       Financial ratio calculated by          are considered following reinsurers.
     winter weather, floods, fires,       dividing acquisition expenses
     tornadoes, explosions and other      and general and administrative         Letter of credit
     natural or man-made disasters.       expenses by net premium
     Catastrophe losses may also arise    earned.                                A financial guaranty issued by a




90
                                                                           Aspen Insurance Holdings Limited
                                                                               Annual Report & Accounts 2004




                                             Glossary of Selected Insurance and Reinsurance Terms

bank that permits the party to       period is said to be unearned            Retention
which it is issued to draw funds     premium. Earned premium is               The amount of exposure a policy
from the bank in the event of a      income for the accounting period         holder retains on any one risk or
valid unpaid claim against the       while unearned premium will be           group of risks.
other party. They are often          income in a future accounting
required by US regulators for        period. Earned premiums are              Retrocessional coverage
so-called non-admitted or alien      recognized as revenues under
(overseas domiciled) insurers        US GAAP.                                 A transaction whereby a reinsurer
and reinsurers.                                                               cedes to another reinsurer, the
                                     Property insurance                       retrocessionaire, all or part of the
Liability insurance                  or reinsurance                           reinsurance that the first reinsurer
                                                                              assumed. The transfer is known as
A term commonly used in              Insurance or reinsurance that            a retrocession.
the UK for casualty insurance.       provides coverage to a person
                                     with an insurable interest in            Treaty or treaty reinsurance
Long tail liability                  tangible property for that
                                     person’s property loss, damage           The reinsurance of a specified
Refers to claims that do not                                                  type or category of risks defined
proceed to final settlement          or loss of use.
                                                                              in a reinsurance agreement (a
for some time (often 10 years or                                              ‘treaty’) between a primary
more) for example, asbestos          Proportional or
                                     pro rata reinsurance                     insurer or other reinsured and
liability where manifestation of                                              a reinsurer.
the disease and determination of     Reinsurance whereby the
the liability does not occur until   reinsurer shares losses in the           Underwriter
years later.                         same proportion as its shares of
                                     premiums and policy amounts.             An individual who examines the
Losses and loss adjustment                                                    acceptability of an insurance or
expense (LAE)                        Quota share                              reinsurance risk and determines
                                                                              the premium and specific terms
The expense of settling claims,      A form of proportional                   and conditions for that risk.
including legal and other fees,      reinsurance indemnifying the
and the portion of general           insurance company against a              US GAAP
expenses allocated to claim          fixed percentage of each and
settlement costs.                    every risk falling within its            United States Generally Accepted
                                     retention.                               Accounting Principles as defined
Loss ratio                                                                    by the American Institute of
                                     Rate                                     Certified Public Accountants or
The financial ratio calculated by                                             statement of the Financial
dividing net losses and loss         The amount charged per unit              Accounting Standards Board. US
expenses by net premiums             of insurance and reinsurance.            GAAP is the method used by the
earned.They can be calculated                                                 Company for reporting to
on an accident year, calendar year   Reserves                                 shareholders.
or underwriting year basis.          Liabilities established by insurers
                                     and reinsurers to reflect the            Worker’s compensation
Premium                              estimated cost of claim
(written/unearned/earned)                                                     A system (established under state
                                     payments and the related                 and federal laws) under which
Written premium is premium           expenses that the insurer or             employers provide insurance for
registered on the books of an        reinsurer will ultimately be             benefit payments to their
insurer or reinsurer at the time     required to pay in respect of            employees for work-related
a policy is issued and paid for.     insurance or reinsurance it has          injuries, deaths and diseases,
Premium for a future exposure        written.                                 regardless of fault.




                                                                                                                91
Aspen Insurance Holdings Limited
Annual Report & Accounts 2004




Contacts

Aspen Insurance Holdings Limited           Aspen Specialty                             The Maitland
Aspen Insurance Limited                    Insurance Company                           Consultancy Limited
Victoria Hall                              1125 Sanctuary Parkway                      Orion House
11 Victoria Street                         Suite 140                                   5 Upper St Martin’s Lane
Hamilton HM11                              Alpharetta                                  London WC2H 9EA
Bermuda                                    Georgia 30004                               UK
T +1 441 295 8201                          USA                                         T +44 (0)20 7379 5151
F +1 441 295 1829                          T +1 678 250 5400                           F +44 (0)20 7379 6161
E info@aspen.bm                            F +1 678 250 5410                           E info@maitland.co.uk
aspen.bm                                   E info@aspenspecialty.com                   maitland.co.uk
                                           aspenspecialty.com
Aspen Insurance UK Limited                                                             The Abernathy MacGregor
100 Leadenhall Street                      Aspen Re America                            Group, Inc.
London EC3A 3DD                            175 Capital Boulevard                       501 Madison Avenue
UK                                         Suite 300                                   13th Floor
T +44 (0)20 7929 4000                      Rocky Hill                                  New York
F +44 (0)20 7929 4111                      Connecticut 06067                           NY 10022
E info@aspen-re.com                        USA                                         USA
aspen-re.com                               T +1 860 258 3500                           T +1 212 371 5999
aspeninsurance.co.uk                       F +1 860 571 0520                           F +1 212 371 7097
                                           E info@aspenreamerica.com                   E cct@abmac.com
Aspen Specialty                            aspenreamerica.com                          abmac.com
Insurance Company
99 High Street                             Aspen Re America                            Noah Fields
Boston                                     5 Greentree Centre                          Head of Investor Relations
Massachusetts 02110                        Suite 216                                   Aspen Insurance Limited
USA                                        Marlton                                     Victoria Hall
T +1 617 531 5100                          New Jersey 08053                            11 Victoria Street
F +1 617 531 5114                          USA                                         Hamilton HM11
E info@aspenspecialty.com                  T +1 856 810 8880                           Bermuda
aspenspecialty.com                         F +1 856 810 8881                           T + 1 441 295 8201
                                           E info@aspenreamerica.com                   F + 1 441 295 1829
Aspen Specialty                            aspenreamerica.com                          E info@aspen.bm
Insurance Company                                                                      aspen.bm
Northsight Financial Center                Aspen Re America
14500 N Northsight Blvd                    Oakbrook Terrace Tower
Suite 208                                  One Tower Lane
Scottsdale                                 Suite 1700
Arizona 85260                              Oakbrook Terrace
USA                                        Illinois 60181
T +1 480 612 8800                          USA
F +1 480 612 8810                          T +1 630 928 3720
E info@aspenspecialty.com                  F +1 630 928 3722
aspenspecialty.com                         E info@aspenreamerica.com
                                           aspenreamerica.com


This annual report contains summary information from our annual report on Form 10-K for the 12 months ended December 31, 2004,
filed with the Securities and Exchange Commission on March 14, 2005. You may request a copy of our annual report on Form 10-K
by writing or telephoning us at our contact information listed above. You may also access our annual report on Form 10-K on our
website at aspen.bm/secfilings.html or on the website of the Securities and Exchange Commission at sec.gov


92
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Aspen Insurance Holdings Limited
Victoria Hall
11 Victoria Street
Hamilton HM11
Bermuda

T +1 441 295 8201
F +1 441 295 1829
E info@aspen.bm
aspen.bm