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Looking at a 10% Total Return on This Insurer

I continue on the ‘hunt’ for some decent total returns with good levels of safety and have found one that I believe could return 10-17% with decent safety.

Aspen Insurance Holdings which is now owned by Apollo Global (APO) has 3 preferred outstanding at this moment–2 of them are 5.625% issues trading just over $20/share for current yields in the 7% area–the AHL-D issue is here and AHL-E issue is here. This one is favorable for a 10-17% return in the next year–predicated by a continuation in 10 year treasuries moving lower somewhat. While I have said I think rates move higher in the fall–for now they are moving lower and the economy is finally showing some signs of softening and my predications are certainly no better than a ‘coin toss’.

NOTE that the company has a 5.95% fixed to floating issue (AHL-C) now trading at $25.60. Because of the change from Libor to SOFR the company fixed this coupon at 9.59%–this is able to be bought, although there is ‘call risk’ and one shouldn’t pay over $25.60. It just went ex-dividend and can only be redeemed on a dividend payment date (1/1, 4/1, 7/1, 10/1). So if one believes this will remain outstanding for the next year this is a nice return. Little chance for a capital gain with this issue.

To achieve my target we need to see a $2/share move higher in the next year–of course by then we will have a clearer vision of rates ahead of us.

I have reviewed the recent earnings from Aspen and they are solid, although slightly lower than a year ago. These insurance companies have lots of moving parts–underwriting income and investment income and have dealt with lots of adversary in the couple years with the rising interest rates–but now they are seeing increased underwriting income and gains on portfolio holdings. These positive forces should continue as/if rates move lower.

While Aspen is owned by APO they continue to post their financials as if independent on their website. The latest data is here.

Since I have cash in my pocket I will buy one of the 5.625% issues on Monday–which one I am not certain.

These issues are rated BB+ by S&P (reaffirmed 4/12/2024) and Ba1 by Moodys–both a notch below investment grade.

11 thoughts on “Looking at a 10% Total Return on This Insurer”

  1. I cannot find any decision being made on AHL-D or AHL-E concerning the LIBOR transition. Do I trust that the language is the same and that they cannot convert to a fixed rate? No. Do I trust Apollo? No.

    However, as rates drop, the 5.625% should gravitate back to $25 even if it is not called.

    I own a tiny amount of AHL-C. I am 92% in investment grade preferred. This is one of my few exceptions.

    I am passing on D and E for now but will monitor. This could be worth the risk.

    1. Steve, thanks for your take on Apollo.

      I think AHL-D and -E are fixed. AHL-C was the only one of the three that floated.

  2. AHL-E down 1.75% on heavy volume (almost 20K shs already).

    Bid/ask = 19.63 / 19.92
    I calculate
    19.63 = 7.17% stripped yield.
    19.92 = 7.06%

    AHL-D bid/ask = 20.10 / 20.15
    I calculate
    20.10 = 7.00% stripped yield.
    20.15 = 6.98%

  3. Good summation Charles M!

    I have about 100 positions, including Apollo aspen athene well represented. With apollo’s size….you’d think Aspen and ATH would trade better! But I’m OK w that seeing I’m a rate whr and the fields are narrowing.

    SO which one to buy tim? High fixed APOS is like 26.5 w strong current yield, but no upside. Coupon protection. Then there’s the floaters ATH C and AHL (is it the C?). Here’s where I feel safest…….And then the 5s at big discounts. There is the most chance for appreciation here, but real interest rate risk.

    I have no real way to evaluate Apollo other than hope its size gives us some safety. And seeing how PE/Alts have captured so much market share …and their common has gone way up….hope that the sector continues to perform. Have a LOT of exposure in these 3 names!! Hmm maybe I should get some rosary

    1. Apos is 26.35 for a 7 5/8
      Ath E is 25.60 for a 7 75

      Aht c is 24.65 for a 6 3/8 w one year float
      Ahl c 25.80 for9. 5+ float
      Aths is 25.40 for 7.25

      They are getting no respect. Must be something under the hood

      1. If you prefer, I typically dont very off the safe path, but I do reserve a spot for some shameless high yield. Tim, motivated me to do what I have been wanting to do (it dread it because it takes forever) but I topped my tank off with more Nassau Companies of NY (the old PFX Phoenix Cos delisted baby bond). Love that plus 10% yield and 13% plus YTM of 2032.
        Hard to believe it has been 8 years since it delisted and I first bought it. Held for years until a $20 tender from company came up and I accepted for a nice profit. Now buying them back a couple bucks cheaper and they have had a credit upgrade and a recent put on “positive” which means it may be in line for another upgrade.
        Constantly added equity parters, growing the company and asset base. And last I checked subsidiaries owned a third of the float themselves. This is one Im willing to step up to the plate on for the yield chase.

  4. Tim, On your Laundry list of preferred and exchange traded debt ( baby bonds) I see you’re up to 37 holdings. I think you have mentioned this is just one of your accounts. I see you have done multiple purchases of some of your holdings. You got out of the banking segment completely except for a long maturity BB from CUBI and the recent nibble of the new NEWTG I think you bought this for a short term hold to make a quick return.
    Looking at the sell dates on the bank holdings I see you held for about 6 months. I assume you took advantage of the panic and bought at the lows for these bank holdings then held to allow for recovery after the 2023 March panic and before the March 2024 borrow at the Fed’s window ended. You booked some nice profits for a short term hold. But 10 months later most of these banks have held up and if you hadn’t sold you would still have most of the gains plus the dividends. Not saying this can’t change, as the market isn’t static, but in 1yr. of time you could have rotated out of the weaker bank holdings into stronger ones. With the recent information coming out from different analyst studies and shared here by readers we are starting to see which of these banks have a greater risk with CRE loans. This also gives people opportunities to invest.
    Other segments of the market. These all have their risks and opportunities.
    Reits- falling commercial property values, trouble rolling over short term loans due to higher rates, vacant properties, falling rent rates, over building in some areas of the country of multi family. Still there is hidden gems
    BDC’s- risks in the quality of what they invest in. trouble with non-performing loans, especially if they reach 8 to 10% of holdings. The constant need to re-capitalize, which at some point they may have trouble enticing investors for their debt without paying higher rates. High management fees. My pet peeve, creative book keeping where they take troubled loans, throw other peoples good money after bad and refinance to show them performing again. Still, there is safety in the preferred and BB of some.
    Insurance- Yes they can hold investments longer than a bank hoping to recover, but they have their risks. losses on bad investments, losses due to claims, shrinking income due to pull out of certain markets or non renewal by policy holders, withdrawals of investments by individuals (me) and large institutions (pension funds ) causing them to sell assets.
    There are so many other segments of the market, utilities, energy, retail, industrial, etc. and they all have their risks and rewards.
    We all have different goals and risk tolerances. Everyone here is from different backgrounds. we are all at different stages of life.
    There are all different types of investing styles. Go with what you know and are comfortable with. A large portion of retirees are civil servants with a pension, self employed owners of businesses who worked hard for their money, the average Joe who saved his money in a 401k.
    You’re all a great group of people here who hang out or drop in once and a while and share what you know. I enjoy reading and learning from what others have to say. I like hearing about all the different styles of investing. Everything from investing in only the conservative IG stocks and bonds and CD’s and getting a 6% return. Those who concentrate their holdings in a core group to those with a diverse group of holdings hoping to spread the risk around. The in-depth study of an investment or the monkey throwing darts at a list on the wall. Even if I express my own opinion, I try not to disparage what anyone else adds to the conversation.
    Now off to father’s day with my wife and daughter for brunch and a day at the horse races.

  5. Tim—I can’t remember the exact circumstance, but the buyer of an insurance company hung the preferreds out to dry. Is that a potential problem with the AHL issues? Or am I completely off track?

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