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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
for the fiscal year ended December 31, 2007
or
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Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
COMMISSION FILE NUMBER: 001-31909
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ASPEN INSURANCE HOLDINGS LIMITED
(Exact name of registrant as specified in its charter)
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| Bermuda |
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Not Applicable |
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(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification Number) |
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Maxwell Roberts Building
1 Church Street Hamilton, Bermuda |
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HM 11 |
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(Zip Code) |
Registrant’s telephone number, including area code: (441) 295-8201
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Securities registered pursuant to Section 12(b) of the Exchange Act:
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| Title of each class |
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Name of exchange on which registered |
| Ordinary Shares, 0.15144558¢ par value |
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New York Stock Exchange, Inc. |
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5.625% Perpetual Preferred Income Equity
Replacement Securities |
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New York Stock Exchange, Inc. |
| 7.401% Perpetual Non-Cumulative Preference Shares |
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New York Stock Exchange, Inc. |
Securities registered pursuant to Section 12(g) of the Exchange Act: None.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes
No
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer
Accelerated filer
Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the ordinary shares held by non-affiliates of the registrant, as of June 30, 2007, was approximately $2.26 billion based on the closing price of the ordinary shares on the New York Stock Exchange on that date, assuming solely for the purpose of this calculation that The Blackstone Group and Credit Suisse (as at such date) and all directors and employees of the registrant were ‘‘affiliates.’’ The determination of affiliate status is not necessarily a conclusive determination for other purposes and such status may have changed since June 30, 2007.
As of February 1, 2008, 85,526,086 ordinary shares were outstanding.
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ASPEN INSURANCE HOLDINGS LIMITED
INDEX TO FORM 10-K
TABLE OF CONTENTS
Table of Contents
Unless the context otherwise requires, references in this Annual Report to the ‘‘Company,’’ ‘‘we,’’ ‘‘us’’ or ‘‘our’’ refer to Aspen Insurance Holdings Limited (‘‘Aspen Holdings’’) or Aspen Holdings and its wholly-owned subsidiaries Aspen Insurance UK Limited (‘‘Aspen U.K.’’), Aspen (UK) Holdings Limited (‘‘Aspen U.K. Holdings’’), Aspen Insurance UK Services Limited (‘‘Aspen UK Services’’), AIUK Trustees Limited (‘‘AIUK Trustees’’), Aspen Insurance Limited (‘‘Aspen Bermuda’’), Aspen U.S. Holdings, Inc. (‘‘Aspen U.S. Holdings’’), Aspen Specialty Insurance Company (‘‘Aspen Specialty’’), Aspen Specialty Insurance Management Inc. (‘‘Aspen Management’’), Aspen Re America, Inc. (‘‘Aspen Re America’’), Aspen Insurance U.S. Services Inc. (‘‘Aspen U.S. Services’’) Aspen Re America California, LLC (‘‘ARA – CA’’), Aspen Specialty Insurance Solutions LLC (‘‘ASIS’’) and any other direct or indirect subsidiary collectively, as the context requires. Aspen U.K., Aspen Bermuda and Aspen Specialty are each referred to herein as an ‘‘Insurance Subsidiary,’’ and collectively referred to as the ‘‘Insurance Subsidiaries.’’ References in this report to ‘‘U.S. Dollars,’’ ‘‘dollars,’’ ‘‘$’’ or ‘‘¢’’ are to the lawful currency of the United States of America, references to ‘‘British Pounds,’’ ‘‘pounds’’ or ‘‘£’’ are to the lawful currency of the United Kingdom, and references to ‘‘euros’’ or ‘‘€’’ are to the lawful currency adopted by certain member states of the European Union (the ‘‘E.U.’’), unless the context otherwise requires.
Forward-Looking Statements
This Form 10-K contains, and the Company may from time to time make other verbal or written, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the ‘‘Securities Act’’), and Section 21E of the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’) that involve risks and uncertainties, including statements regarding our capital needs, business strategy, expectations and intentions. Statements that use the terms ‘‘believe,’’ ‘‘do not believe,’’ ‘‘anticipate,’’ ‘‘expect,’’ ‘‘plan,’’ ‘‘estimate,’’ ‘‘project,’’ ‘‘seek,’’ ‘‘will,’’ ‘‘may,’’ ‘‘continue,’’ ‘‘intend,’’ ‘‘guidance’’ and similar expressions are intended to identify forward-looking statements. These statements reflect our current views with respect to future events and because our business is subject to numerous risks, uncertainties and other factors, our actual results could differ materially from those anticipated in the forward-looking statements, including those set forth below under Item 1, ‘‘Business,’’ Part II, Item 7, ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and elsewhere in this report and the differences could be significant. The risks, uncertainties and other factors set forth below under Item 1A, ‘‘Risk Factors’’ and other cautionary statements made in this report should be read and understood as being applicable to all related forward-looking statements wherever they appear in this report.
In addition, any estimates relating to loss events involve the exercise of considerable judgment and reflect a combination of ground-up evaluations, information available to date from brokers and cedants, market intelligence, initial tentative loss reports and other sources. Due to the complexity of factors contributing to the losses and the preliminary nature of the information used to prepare estimates, there can be no assurance that our ultimate losses will remain within the stated amounts.
All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to, those set forth under ‘‘Risk Factors’’ in Item 1A, and the following:
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| • | the impact of the deteriorating credit environment created by the sub-prime crisis; |
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| • | a decline in the value of our investment portfolio or a ratings downgrade of the securities in our portfolio; |
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| • | changes in the total industry losses resulting from Hurricanes Katrina, Rita and Wilma and any other events, and the actual number of our insureds incurring losses from these storms; |
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| • | with respect to events such as Hurricanes Katrina, Rita and Wilma, the Company’s reliance on loss reports received from cedants and loss adjustors, our reliance on industry loss estimates and those generated by modeling techniques, the impact of these storms on our reinsurers, changes in assumptions on flood damage exclusions as a result of prevailing lawsuits and case law, any changes in our reinsurers’ credit quality, and the amount and timing of reinsurance recoverables and reimbursements actually received by us from our reinsurers and the overall level of competition; |
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| • | the impact that our future operating results, capital position and rating agency and other considerations have on the execution of any capital management initiatives; |
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| • | the impact of any capital management initiatives on our financial condition; |
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| • | the impact of acts of terrorism and related legislation and acts of war; |
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| • | the possibility of greater frequency or severity of claims and loss activity, including as a result of natural or man-made catastrophic events, than our underwriting, reserving, reinsurance purchasing or investment practices have anticipated; |
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| • | evolving interpretive issues with respect to coverage as a result of Hurricanes Katrina, Rita and Wilma and any other events; |
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| • | the level of inflation in repair costs due to limited availability of labor and materials after catastrophes; |
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| • | the effectiveness of our loss limitation methods; |
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| • | changes in the availability, cost or quality of reinsurance or retrocessional coverage; |
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| • | the reliability of, and changes in assumptions to, catastrophe pricing, accumulation and estimated loss models; |
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| • | loss of key personnel; |
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| • | a decline in our operating subsidiaries’ ratings with Standard & Poor’s (‘‘S&P’’), A.M. Best or Moody’s Investors Service; |
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| • | changes in general economic conditions, including inflation, foreign currency exchange rates, interest rates and other factors that could affect our investment portfolio; |
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| • | increased competition on the basis of pricing, capacity, coverage terms or other factors and the related demand and supply dynamics as contracts come up for renewal; |
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| • | decreased demand for our insurance or reinsurance products and cyclical downturn of the industry; |
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| • | changes in governmental regulations or tax laws in jurisdictions where we conduct business; |
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| • | Aspen Holdings or Aspen Bermuda becoming subject to income taxes in the United States or the United Kingdom; and |
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| • | the effect on insurance markets, business practices and relationships of ongoing litigation, investigations and regulatory activity by the various U.S. State Attorney General’s offices and other authorities concerning finite and structured reinsurance, contingent commission arrangements with brokers and bid solicitation activities. |
The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise or disclose any difference between our actual results and those reflected in such statements.
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If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Any forward-looking statements you read in this report reflect our current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety by the points made above. You should specifically consider the factors identified in this report which could cause actual results to differ before making an investment decision.
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PART I
Item 1. Business
General
We are a Bermuda holding company, which was incorporated on May 23, 2002, and we conduct insurance and reinsurance business through our wholly-owned subsidiaries in three major jurisdictions: Aspen U.K. (United Kingdom), Aspen Bermuda (Bermuda) and Aspen Specialty (United States). Aspen U.K. has branches in Paris, France, Zurich, Switzerland, Dublin, Ireland and Canada.
We operate in the global markets for property and casualty reinsurance and specialty insurance and reinsurance. We also provide commercial property and casualty insurance in the domestic markets of the United States and the United Kingdom.
For the year ended December 31, 2007, we wrote $1,818.5 million in gross premiums and at December 31, 2007 we had total capital employed, including long-term debt, of $3,067.1 million.
Our corporate organization and subsidiaries as of February 1, 2008 are as follows:
In 2007, we reorganized our reporting segments and now manage our business in four segments: property reinsurance, casualty reinsurance, international insurance and U.S. insurance.
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Until the end of 2003, our property and casualty reinsurance operations were primarily centered in London and this remains the principal location of our casualty reinsurance and international insurance operations. The London Market attracts customers from all over the world seeking flexible and innovative solutions for a wide variety of property, casualty and specialty risks. The London Market is also known for its high concentration of brokers and insurers, and for its highly developed infrastructure. Our operational base in London allows our management and underwriters to continue to access their long-standing broker and client relationships in this important market. We believe that our presence in the London Market also gives us the advantage of convenient access to extensive resources of underwriting and other professional services, such as actuarial analysis, claims adjustment and consulting services.
We started to write specialty reinsurance (mainly comprising aviation and marine risks) in 2003. During 2004, we began also to offer marine hull, energy and liability insurance. In 2005, we started to write aviation insurance. In 2007, we continued our entry into new lines of insurance business including non-marine and transportation liability, professional liability and excess casualty. In 2008, we plan to write political risk insurance and financial institutions insurance. All of these lines of business are conducted mainly by Aspen U.K. and together with our U.K. commercial property and liability accounts, comprise our international insurance segment.
In 2004, we decided to reduce our property reinsurance operations in London and substantially increase our property reinsurance underwriting capacity in Bermuda. This took effect for business incepting on or after November 1, 2004. This development reflects the prominence of Bermuda as a reinsurance market and allows us to take better advantage of the favorable regulatory and operating environment that Bermuda provides. In 2005, we hired a team of underwriters who specialize in international property facultative reinsurance with some incidental exposures in the U.S. They operate from our London office and from our Paris branch, opened in May 2006, that writes property facultative business in continental Europe.
Our insurance operations are conducted through Aspen U.K. and Aspen Specialty in the U.S. In the U.S. we write property and casualty insurance, predominantly through the U.S. wholesale surplus lines broker network. As of January 1, 2008, substantially all excess and surplus lines business previously written by Aspen Specialty will be written by Aspen U.K. through Aspen Management and ASIS, our U.S. brokerage companies. We do not currently conduct insurance business in Bermuda.
Aspen Re America and ARA-CA, wholly-owned subsidiaries of Aspen U.S. Holdings, function as reinsurance intermediaries with offices in Connecticut, Illinois, New York, Georgia and California. Aspen Re America focuses on property reinsurance and U.S. casualty treaty and facultative reinsurance (following the appointment of a team in July 2006), written exclusively on behalf of Aspen U.K.
Aspen Management is an insurance producer and management company with offices in Boston, Massachusetts, Atlanta, Georgia and Arizona, which provides underwriting, claims, and management services on behalf of Aspen Specialty and Aspen U.K. ASIS is a California broker placing surplus lines property and casualty business on behalf of Aspen Specialty and Aspen U.K.
Our Business Strategy
Our strategic financial objective is to deliver superior financial returns to our ordinary shareholders while at the same time reducing our earnings volatility relative to our experience in the first five years of our trading history. Over the past two years, we have reduced this volatility by further diversifying into new business lines and reducing exposure to catastrophic events. Our objective of reducing volatility implies a reduction in our exposure to natural catastrophe losses which in turn implies that in years such as 2006 and 2007 when there is limited insured natural catastrophe loss we may not report returns as high as some of our competitors whose business is more exposed to natural catastrophe risks.
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Our principal measure of financial return is Return On Average Equity (‘‘ROAE’’) which we calculate as income after tax and preference share dividends as a percentage of average monthly shareholders’ equity excluding accumulated comprehensive income and the aggregate of the liquidation preferences of our preference shares. The ROAE which we target for any one year will depend on our assessment of the state of the insurance and interest rate cycles to which we expect to be exposed.
We aim to deliver our financial objective by pursuing the following key aspects of business strategy:
Diversification. We plan to continue to diversify our insurance and reinsurance operations by offering new products within our existing lines of business, and we may selectively increase our exposure in parts of the world or in lines of business where we are currently under-represented. In this regard, we opened a branch office in Zurich, Switzerland in 2007 to develop our continental European reinsurance business. We also recently established a Dublin branch to write excess casualty insurance business. We intend to accomplish this diversification by building on our established underwriting expertise and analytical skills. We anticipate continuing to diversify our business away from property reinsurance in keeping with the reduction in our risk tolerances and emphasize our evolving franchise in our international and U.S. insurance segments. In 2007, we established new underwriting units in professional liability, non-marine and transportation liability and excess casualty insurance. We also plan to write financial institutions insurance and political risk insurance in 2008.
Enterprise Risk Management. We aim to achieve our objective of reduced volatility by a holistic approach to risk management which emphasizes not only the improved management of known risks but also seeks to identify and mitigate new and emerging risks. We have invested and will continue to invest both in skills and technology in support of this objective and aim to establish superior risk management practices across our entire operation.
As part of our risk management approach we manage our net exposure to large individual risk losses in our insurance business lines by selectively purchasing reinsurance. Our reliance on outwards reinsurance has diminished since 2006 as we have reshaped our risk profile and strengthened our balance sheet.
Capital Management. We strive to maintain an optimal level of capital relative to our business plan. To do this, we employ Dynamic Financial Analysis (‘‘DFA’’) statistical modeling techniques to assess the risk of loss to our capital base based upon the portfolio of risks we underwrite and on our asset and operational risk profiles. We use this together with rating agency models and marketing considerations to make an informed judgment as to the minimum amount of capital that we need to hold.
We also set targets for financial leverage which we believe provide an appropriate balance between improving returns to our ordinary shareholders while maintaining the levels of financial strength expected by our customers and by the rating agencies. For this purpose we define financial leverage as the ratio of long-term debt and ‘hybrid’ capital to total capital. The term ‘hybrid’ refers to securities, such as our preference shares, which have characteristics of both debt and equity.
We strive to maintain access to the capital markets by seeking to ensure that all our issued securities are fairly priced at issuance and by targeting a variety of different investor markets.
Performance Management. We also use DFA to determine the risk-adjusted capital amounts that we notionally allocate to each of our lines of business and to set maximum combined ratios and maximum volatility targets. Combined ratio is the ratio of losses and expenses to net earned premium and therefore returns are higher for lower values of combined ratio and vice versa. Volatility targets are set based on statistical assessments of the ratio of the standard deviation of combined ratio to the mean expected combined ratio and are higher for lines of business with significant exposure to catastrophe risk.
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Cycle Management. By anticipating changing market conditions, we seek as far as possible to access different lines of business with complementary risk/return characteristics and to deploy capital appropriately. We monitor relative and absolute rate adequacy and movements and we adjust the composition of our risk portfolio based on market conditions and underwriting opportunities. We are prepared to adjust our underwriting and capital management objectives in order to respond in a timely manner to the changing market environment for all or some of our lines of business. This may include reducing our gross written premiums for a business line, or for our overall writings, should conditions warrant.
Investment Management. We manage our investment portfolio, subject to defined risk parameters, with a view to maximizing its contribution to ROAE in the form of net investment income while also targeting superior total returns. We employ an active fixed income investment strategy that focuses on the outlook for interest rates, yield curve and credit spreads. In addition, we manage the duration of our fixed income portfolio having regard to the average liability duration of our reinsurance and insurance risks. In 2007, we continued to execute our strategy of diversifying our investment portfolio away from 100% fixed income securities (including cash) by increasing our allocation to funds of hedge funds from 3% to 9% of total assets as at December 31, 2007.
Effective operational management and cost control. We believe that we will not succeed in meeting our financial objectives without highly effective information systems and other technical support services to our underwriting teams. We strive to meet this objective while managing costs by investing in information technology and by continuous process improvements.
Business Segments
As a result of a shift in our operating structure and the implementation of a number of strategic initiatives in 2007, we changed the composition of our business segments to reflect the manner in which the business is managed. We are currently organized into four business segments: property reinsurance, casualty reinsurance, international insurance and U.S. insurance. These segments form the basis of how we monitor the performance of our operations.
The property and casualty insurance segment previously comprised U.S. property and casualty insurance business written on an excess and surplus lines basis, U.K. commercial property and liability insurance and international property facultative business. With the appointment of Nathan Warde, as Head of U.S. Insurance, and Matthew Yeldham, as Head of International Insurance, we have now redesignated U.S. insurance business as a separate segment, now called U.S. insurance. The U.K commercial property and liability insurance business now forms part of our international insurance segment which also consists of marine hull, energy, liability and aviation insurance, professional liability insurance, global excess casualty insurance, non-marine and transportation lines of business, political risk insurance, financial institutions insurance as well as specialty reinsurance. We have also re-allocated our international property facultative business to the property reinsurance segment, which was previously part of our property and casualty insurance segment.
Management measures segment results on the basis of the combined ratio, which is obtained by dividing the sum of the losses and loss expenses, acquisition expenses and operating and administrative expenses by net premiums earned. Indirect operating and administrative expenses are allocated to segments based on each segment’s proportional share of gross earned premiums. As a relatively new company, our historical combined ratio may not be indicative of future underwriting performance. We do not manage our assets by segment; accordingly, investment income and total assets are not allocated to the individual segments.
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The gross written premiums are set forth by business segment, for each of the twelve months ended December 31, 2007, 2006 and 2005:
For a review of our results by segment, see Part II, Item 7, ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and Note 5 of our financial statements.
Property Reinsurance
Our property reinsurance segment is written on both a treaty and facultative basis and consists of the following principal lines of business: treaty catastrophe, treaty risk excess, treaty pro rata and property facultative (U.S. and international). Treaty reinsurance contracts provide for automatic coverage of a type or category of risk underwritten by our ceding clients.
In January 2004, we expanded our U.S. property reinsurance underwriting through the establishment of our reinsurance intermediary, Aspen Re America, and in 2007 ARA-CA (for California business only), which focus on underwriting treaty pro rata, treaty risk excess reinsurance and property facultative on behalf of Aspen U.K. At the end of 2004, we increased our property reinsurance presence in Bermuda, with 2005 being the first full year of results reflecting this change. Our international property facultative business, written out of London and Paris, is reported as part of this segment beginning in the third quarter of 2007. The property reinsurance business we write can be analyzed by geographic region, reflecting the location of the assured, as follows for the twelve months ended December 31, 2007, 2006 and 2005:
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| (1) | ‘‘United States and Canada’’ comprises individual policies that insure risks specifically in the United States and/or Canada, but not elsewhere. |
| (2) | ‘‘Worldwide excluding the United States’’ comprises individual policies that insure risks wherever they may be across the world but specifically excludes the United States. |
| (3) | ‘‘Worldwide including the United States’’ comprises individual policies that insure risks wherever they may be across the world but specifically includes the United States. |
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Our gross written premiums by our principal lines of business within our property reinsurance segment for the twelve months ended December 31, 2007, 2006 and 2005 are as follows:
Treaty Catastrophe. Treaty catastrophe reinsurance contracts are typically ‘‘all risk’’ in nature, providing protection against losses from earthquakes and hurricanes, as well as other natural and man-made catastrophes such as floods, tornadoes, fires and storms. Coverage for other perils may be negotiated on a given treaty. The predominant exposures covered are losses stemming from property damage and business interruption resulting from a covered peril. Coverage can also be more limited by extending to only specified perils such as windstorm.
Property catastrophe reinsurance is generally written on an excess of loss basis. Excess of loss reinsurance provides coverage to primary insurance companies when aggregate claims and claim expenses from a single occurrence from a covered peril exceed a certain amount specified in a particular contract. Under these contracts, we provide protection to an insurer for a portion of the total losses in excess of a specified loss amount, up to a maximum amount per loss specified in the contract. In the event of a loss, most contracts provide for coverage of a second occurrence following the payment of a premium to reinstate the coverage under the contract, which is referred to as a reinstatement premium. A loss from a single occurrence is limited to the initial policy limit and would not include the policy limit available following the payment of a reinstatement premium. The coverage provided for under excess of loss reinsurance contracts may be on a worldwide basis or limited in scope to selected regions or geographical areas.
Treaty Risk Excess. We also write risk excess of loss property treaty reinsurance. This type of reinsurance provides coverage to a reinsured where it experiences a loss in excess of its retention level on a single ‘‘risk’’ basis, rather than to aggregate losses for all covered risks, as provided by catastrophe reinsurance. A ‘‘risk’’ in this context might mean the insurance coverage on one building or a group of buildings due to fire or explosion or the insurance coverage under a single policy which the reinsured treats as a single risk. This line of business is generally less exposed to accumulations of exposures and losses but can still be impacted by natural catastrophes, particularly earthquakes and hurricanes.
Treaty Pro Rata. Our treaty pro rata reinsurance product provides coverage based on the original risks written by the ceding client, rather than the loss incurred by that client. Under our pro rata reinsurance treaties, we share risks in the same proportion as our share of premium and policy amounts. Pro rata contracts can be particularly prone to accumulations of exposure and losses due to catastrophic events. We write pro rata contracts when we believe historical results and the quality of information provided by the reinsured justify the writing of such coverage.
We also provide retrocessional property coverage, which is reinsurance protection to other reinsurers or retrocedents. In 2007, 2006 and 2005, approximately 0.1%, 0.3% and 0.9%, respectively, of gross written premium in this segment was retrocessional coverage.
Property Facultative. For the U.S., the business is written on an excess of loss basis for U.S. primary insurance policyholders both in the United States and for their overseas interests. For our international property facultative account, the business is written on an excess of loss basis and the geographic area is essentially worldwide other than for a small volume of U.S. exposures. The account
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has dual distribution with business written both directly and through brokers. Business written directly in 2007 was developed mainly from European clients while the business developed through brokers has a more global territorial distribution. As at December 31, 2007, for the international property facultative business the key territory, both by risk count and by premium volume, was the U.K.
In facultative reinsurance, the reinsurer assumes all or part of a risk under a single insurance contract. Facultative reinsurance is negotiated separately for each contract. Facultative reinsurance is normally purchased by insurers where individual risks are not covered by their reinsurance treaties, for amounts in excess of the dollar limits of their reinsurance treaties or for unusual risks. There is typically a different type of underwriting expertise required in facultative underwriting as compared to treaty underwriting.
Structured Reinsurance. We also write a small number of structured property reinsurance contracts out of Aspen Bermuda. These contracts are tailored to the individual client circumstances and although written by a single team are accounted for within the business segment to which the contract most closely relates. In 2007, these contracts were accounted for in this segment, casualty reinsurance and international insurance Within the property reinsurance segment, these contracts generated gross written premiums in 2007 of $52.2 million.
A very high percentage of the reinsurance contracts that we write exclude coverage for losses arising from the peril of terrorism involving nuclear, biological or chemical attack outside the U.S. Within the U.S., our reinsurance contracts generally exclude or limit our liability to acts that are certified as ‘‘acts of terrorism’’ by the U.S. Treasury Department under the Terrorism Risk Insurance Act (‘‘TRIA’’), the Terrorism Risk Insurance Extension Act of 2005 (‘‘TRIEA’’) and now the Terrorism Risk Insurance Program Reauthorization Act of 2007 (‘‘TRIPRA’’). With respect to personal lines risks, losses arising from the peril of terrorism that do not involve nuclear, biological or chemical attack are usually covered by our reinsurance contracts. Such losses relating to commercial lines risks are generally covered on a limited basis; for example, where the covered risks fall below a stated insured value or into classes or categories we deem less likely to be targets of terrorism than others. We have written a limited number of reinsurance contracts, both on a pro rata and risk excess basis, covering the peril of terrorism. We have done so only in instances where we believe we are able to obtain pricing that is commensurate with our exposure. These contracts typically exclude coverage protecting against nuclear, biological or chemical attack.
In our property reinsurance segment, Factory Mutual and its affiliates accounted for approximately 8% of gross written premiums in this segment for the twelve months ended December 31, 2007. Capital Preferred accounted for approximately 5% and no other customer accounted for more than 5% of gross written premiums within this segment.
Casualty Reinsurance
Our casualty reinsurance segment is written on both a treaty and a facultative basis and consists of the following principal lines of business: U.S. treaty; non-U.S. treaty; and casualty facultative. The casualty treaty reinsurance we write includes excess of loss and pro rata reinsurance which are applied to portfolios of primary insurance policies. We also write U.S. casualty facultative reinsurance. Our excess of loss positions come most commonly from layered reinsurance structures with underlying ceding company retentions.
Casualty reinsurance is written by Aspen U.K. and our reinsurance intermediaries in the U.S., Aspen Re America and ARA-CA, on behalf of Aspen U.K. In 2007, we closed our offices in Marlton, New Jersey and all casualty facultative business is now written out of our Rocky Hill, Connecticut office.
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The casualty reinsurance business we write can be analyzed by geographic region, reflecting the location of the assured, as follows for the twelve months ended December 31, 2007, 2006 and 2005: