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Executive Summary: When Mark Cloutier took the helm of Aspen to return the company to profitability, he knew a vital first step would begin with its group of talented people. There were cultural challenges that needed addressing along with the reunderwriting of its portfolio. People are at the heart of a corporate turnaround.

The turnaround at Aspen Å˽ðÁ«´«Ã½Ó³»­ Holdings—the result of a multipronged, multiyear effort—is bearing fruit with a return to consistent profits. Mark Cloutier, executive chairman and CEO, attributed Aspen’s turn of fortune to a focus on its people and hard work to reunderwrite its book.

When Cloutier joined Aspen in 2019, he knew that he and his team had to get on top of challenges including level of volatility in the company’s results, its lackluster return on equity and its lagging performance across market cycles.

“We also recognized that there were…people and cultural challenges within the business. That’s not to say there wasn’t a terrific group of people in the business,” he emphasized during an interview with Carrier Management. In fact, he recalled that when he told people in the industry that he was soon to join Aspen, he heard a common message: “We really like the people. The company has struggled, but man, you’ve got a bunch of good, talented people there.”

Still, morale had gotten low. Cloutier noted that there had been a hostile takeover attempt (by Endurance Specialty Holdings in 2014), which proved to be divisive within the management team. Then a sales process, which ultimately resulted in Apollo Global Management acquiring the business in February 2019, “was difficult and challenging,” he said.

People Key to Performance

“All of that led to a pretty dispirited group of really nice, really good people, and so we recognized we needed to put a lot of effort into our people. If we were going to turn the performance around, you can only do that through people.”

Cloutier said he took close to 50 senior leaders to an offsite meeting where they wrote a new set of six values and behaviors: 1) One Aspen team creating value; 2) Open minded; 3) Do the right thing; 4) In it together; 5) Own it; 6) Innovate.

These values provided a vision for the business—a description of how Aspen was going to achieve that vision and how people should conduct themselves on a day-to-day basis. Cloutier acknowledged that people were somewhat cynical about whether “this new guy” and the management team would live the values and behaviors. “So, we set out to prove that we meant what we said. We got our people engaged,” he said.

Steps to Profitability

“We had a lot of hard work to do on the turnaround and the performance improvements. So, we went in and looked at the entire portfolio—all lines and classes of business for both insurance and reinsurance.”

The team took three major steps designed to improve performance, reduce volatility and provide Aspen with a more stable business to manage through the cycle, he noted.

“First, we identified business that had produced poor results but where we had strong trading relationships and good results in other classes and lines,” Cloutier recalled.

“We made the decision to go to those partners and say we’re making a commitment to stay and grow in some classes across the cycle but needed [their] help on the underperforming business to either improve performance through rate, terms, etc., or help us exit. As a result, while we exited a fair amount of business, we were able to grow in our core classes with many of our key trading partners.”

At the end of step 1 of the reunderwriting process, Aspen closed down 17 lines of business and disposed of close to $1 billion of annual gross written premium. At the same time, however, it grew year over year “in the lines and classes of business that we wanted to [continue writing].”

Step 2 of the underwriting turnaround was to reduce the size of limits being offered. “Aspen historically had put out limits, line sizes, that were, in my view, way too large for the size of the balance sheet,” Cloutier said.

“So, we did a complete revision and compressed the limits profile of the business where they were previously putting out a $30 million net line and now we’re putting out a maximum of $5 million, just as an example,” he continued. “This took the volatility down, made the individual risk positions smaller with more spread in the portfolio. While we’ve continued to grow the premium base, we’re putting out smaller pieces.”

A third step in the turnaround was to build up the company’s existing capital markets business—Aspen Capital Partners—which was small “but doing a great job for the investors that had supported it inside the business,” Cloutier said.

“We believed we could make that sort of a third pillar to the business [along with insurance and reinsurance]. So, we started to explore ways to expand the deployment of capital markets capacity into more than just property cat,” he explained.

As a result, the vast majority of Aspen’s capital markets income comes from areas other than property-catastrophe business, such as casualty and cyber.

“So, those were the three main steps that we took in terms of performance improvement. Underlying all of that, we brought in additional underwriting controls and discipline, and we upskilled in areas of the business where we felt we needed stronger skillsets.”

(Editor’s Note: The company also arranged for a loss portfolio transfer with Enstar in 2022, a point that Cloutier didn’t touch upon during the Carrier Management interview. Under the terms of the LPT agreement, Enstar for losses incurred on or prior to Dec. 31, 2019, on Aspen’s diverse mix of property, liability and specialty lines across the US, UK and other jurisdictions.)

All these efforts have worked for Aspen, which, after five years of losses, returned to profits in 2021 and 2022. The company’s 2022 combined ratio improved to 93.0 from 101.2 in 2021, while operating return on average equity was 11.9% in full-year 2022, compared with 2.4% in 2021. Further, the positive trends have continued this year with net income increasing by 352% to $219 million during the first half, compared to $48 million in first-half 2022. Aspen reported a first-half 2023 combined ratio of 83.8, an improvement from 88.2 in first-half 2022. (Combined ratios below 100 indicate an underwriting profit.)

(Editor’s note: Aspen’s net income for full-year 2023 was $485 million, with a combined ratio of 87.5% (FY 2022: 93.0%). These figures were added in April to the original article, which .)

Of course, the hard market seen during the past few years has helped the company with its reunderwriting efforts. After all, Aspen wasn’t alone. Many reinsurers, for example, were feeling the profit pinch and needed to raise rates, reduce line sizes and lift attachment points for their ceding company clients.

“Our business is about taking uncertainty. That is our role, and we’re happy to do it. The question isn’t whether or not we’re willing to do it. The question is whether we think we’re adequately paid to onboard the uncertainty people are asking us to onboard.”

The insurance and reinsurance sector should be making ROE of mid-to-high teens cross the cycle, which the sector is far from achieving, he said. The sector hasn’t “made an adequate return across the cycle for our investors, and they are tired of that.”

He said with a chuckle that there is currently a lot of excitement about U.S. excess and surplus lines property business. They’re getting lots of rate, he said, but they’re also getting greater exposure to secondary perils.

“If you think about the old tornado alley, from west Texas up through Oklahoma into Kansas, there were storms in April and May and then it was over, and later came back a little bit in November. Now, it’s the whole southern half of the United States, and it’s February through August and then it comes back again in November.”

He questioned what the right amount of rate is for an insurer onboarding exposure to this type of attritional catastrophe loss activity. He then quoted, with a laugh, the singer Cher: “The trouble with some women is that they get all excited about nothing, and then marry him.”

The industry has a broad recognition that it faces several key areas of uncertainty—from climate change and social inflation, he said.

“The level of uncertainty across our portfolios arising out of those two things suggests to me that in order to be adequately compensated to take all that uncertainty, my investors should be receiving a mid-to-high teens return for the risk that they’re onboarding across a long period of time. So, that means maybe a 20% [ROE] in a mild cat year and a 12% like we did last year in a heavy cat year.”

(Editor’s Note: After this article was first published in at the end of November, Aspen Å˽ðÁ«´«Ã½Ó³»­ Holdings announced on Dec. 8 that , subject to satisfactory market conditions.)

Team Effort

Cloutier emphasized that the improved results “are the result of a great team effort” and a now healthy culture.

Cloutier himself has learned a thing or two about restructuring companies from his previous career experiences. He joined Brit Group in 2011 after it was acquired by Apollo Global Management. During his tenure at Brit, he led a major reorganization of the company’s global business, a listing on the London stock exchange and an initial public offering in 2014 as well as the 2015 acquisition of the business by Fairfax Financial Holdings.

At Aspen, one of Cloutier’s early tasks was to build a new executive committee via a combination of new hires and promotions from within. Cloutier estimated that the team comprises 50% new people and 50% people who were promoted from the business. “Some of those are the good people that everybody was talking about.”

He described the composition of the team as a “great combination because it gives you the fresh perspective, but it also gives you the historical perspective—an institutional historical knowledge.”

“Blending those elements together gives you a pretty strong leadership team for what we were trying to achieve, which was a transformation of the business,” he continued.

Cloutier said Aspen has a relatively flat management structure, which helps with employee engagement. “We are trying to build a flat, non-hierarchical, friendly, I’m-just-one-member-of-the-team culture.”

The executive members spend a lot of time interacting with employees at all levels. “When I come to London, I always try to have three or four sessions with 15-20 people from all around the business. We sit down for a two-hour conversation and talk about what’s going on in the company, and I answer questions and ask them questions and get them talking about what’s going on in their part of the business,” Cloutier said.

Healthy Business, Healthy Culture

“Once the culture and people and the mood in the business started to improve, we began to work hard to embed the really powerful elements of Aspen being a community that is not just a great place to work but takes seriously its role in the broader communities that we live in, work in and play in.”

He said Aspen has pushed its diversity and inclusion commitments, its corporate social responsibility, and is working on its own environmental footprint—carbon offsetting where it isn’t possible to achieve net zero carbon emissions—thereby achieving the meaningful elements contained in the environmental social and governance (ESG) criteria.

“The net result of all these efforts is what you’re seeing today: a well-rounded, healthy business with a healthy culture.”

He emphasized that creating healthy culture is not just about producing strong financial returns. It’s about the overall health of the business and how it fits in society. “We also need to give it more sustainability. If all you’re doing is driving financial returns, in today’s world, that’s probably not a sustainable model any longer.”

There has been a big shift in generational attitudes, he affirmed. “Younger people want to work for companies that they believe in. And if the message to your folks is, ‘It’s just about returns,’ I think attitudes are so different today that you’re not going to be able to keep the best and the brightest.”

Maintaining the Progress

Cloutier said Aspen works hard to maintain its cultural mojo. “Much of our effort is about communication, but it’s not just telling people; we actually show people as well. It’s about constantly reinforcing that set of values and behaviors by example, and communicating those examples is critically important.”

He explained that Aspen demonstrates how an event is consistent with the company’s principles and values “and actually provides people with examples that are just not words on a piece of paper. We show them through live action, through example.”

He cited one example of how Aspen’s principles and values come to life with the company’s investment in Blue Marble, a New York City-based microinsurance business. Blue Marble provides parametric insurance for smallholder farmers in underserved populations and income protection safety nets for individuals and SMEs against health issues, business interruption and other threats.

“We’re a seed investor, we’re not making a return, and we’re absolutely committed to it.” He explained if a drought occurs or one growing season gets wiped out, “a whole family can be thrown into poverty because they have lost the proceeds of the one growing season to buy their seeds for next year.”

The people at Blue Marble are trying to solve those types of problems around the world, “and we believe that using our capital and our insurance knowledge and expertise to try to help are a good example of how our values can be put to work.” (Read more about it: Blue Marble was the subject of a Carrier Management fourth-quarter 2015 cover story, “)

Another area where the company is making a contribution is via various educational programs to attract young people in poorer communities to the insurance business. “They often have the ability, but they don’t have the means,” Cloutier said.

Historically, the company recruited from Oxford and all the top schools. “We’re now onboarding high school graduates from inner city communities. They’re brilliant young people with lots of energy, but they would never have found their way to us if we had hung onto that old set of values,” he said.

“Our values say, ‘Let’s go find the best and the brightest,’ and you don’t just find the best and the brightest at universities. You find them all over the place. So, that’s a big drive for us right now. We’ve gone to military vets; we’ve gone to school leavers; we’ve started an apprenticeship program. That’s another example of our values.”

Top photograph: The Wells Media Group design team created this teamwork photo using Midjourney software on October 25, 2023.

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