Investing.com -- S&P Global Ratings has revised its outlook on Bermuda-based insurer Aspen Insurance Holdings Ltd. and its operating subsidiaries to positive from stable. The revision follows Aspen’s recent partial Initial Public Offering (IPO), which signals potential changes to its debt and shareholder structure. The ratings agency also affirmed its ’A-’ issuer credit and financial strength ratings on all core operating subsidiaries, as well as its ’BBB’ long-term issuer credit rating on Aspen Insurance Holdings.

The partial IPO could lead Aspen to repay its $540 million payment-in-kind loan, a private loan facility entered into by AP Holdings LP and AP Highlands Co-Invest LP. S&P Global Ratings includes the outstanding amount of this loan in its financial leverage and fixed-charge coverage calculations. The agency anticipates that Aspen’s leverage and fixed-charge coverage could align more with ’A’ rated peers’ over the next two years.

Aspen’s funding structure, currently moderately negative, is weaker than that of its peers, which constrains the rating. However, the company has taken steps to reduce its earnings volatility, including shrinking its natural catastrophe exposure, controlling lower line size, and entering a loss portfolio transfer reinsurance agreement with Enstar. As a result, Aspen’s catastrophe exposure is now more in line with that of less volatile reinsurer peers.

The insurer has also shown more stable results in recent years, with a lower impact from major events. In 2024, Aspen reported a net income of $486 million, a return on equity of 19.4%, a combined ratio of 86.8%, and a return on investment of 4.2%.

The positive outlook reflects the likelihood of an upgrade for Aspen, as changes to its debt and shareholding structure could strengthen the group’s funding structure over the next two years. S&P Global Ratings also anticipates that Aspen’s capital adequacy will exceed its 99.99% confidence level and that earnings and capital volatility will remain contained over the next two years.

The ratings could be raised by one notch within the next 24 months if the group reduces its financial leverage to below 40%, improves its fixed-charge coverage to at least 4.0x, and maintains its level of technical profitability at or above that of similarly rated peers.

However, the outlook could be revised to stable or the ratings could be lowered over the next 24 months if Aspen’s underwriting performance does not continue as expected, its capital adequacy falls sustainably below the 99.99% confidence level for a prolonged period, or if it fails to reduce its financial leverage to below 40% and doesn’t maintain its fixed-charge coverage above 4.0x. The ratings could also be affected by unexpected turnover in senior management, unexpected changes in Apollo’s involvement, or if Aspen experiences further control deficiencies.

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