Aspen Insurance Holdings Limited 10K/A 2003 Annual report (amended)

Aspen Insurance Holdings Limited (AHL-PE) 10-K/A2003 FY Annual report (amended)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K/A

(Amendment No. 1)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003,

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 001-31909

ASPEN INSURANCE HOLDINGS LIMITED

(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code: (441) 295-8201

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 an accelerated filer (as defined in Rule 12b-2 of the Act). Yes No

The aggregate market value of the ordinary shares held by non-affiliates of the registrant, as of December, 31, 2003, was $710,784,245 based on the closing sale 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, Credit Suisse First Boston Private Equity, Wellington Underwriting plc, Montpelier Reinsurance Ltd. 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 as of December 31, 2003. The aggregate market value of voting and non-voting ordinary shares held by non-affiliates of the Registrant on June 30, 2003 is not applicable as the Registrant was not publicly traded as of June 30, 2003.

As of March 1, 2004, 69,179,303 ordinary shares were outstanding.

ASPEN INSURANCE HOLDINGS LIMITED

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A is filed solely to amend the Auditor's Reports contained on pages F-2 and S-2 of the Annual Report on Form 10-K filed on March 26, 2004. The prior Auditor's Report to the Consolidated Financial Statements of Aspen Insurance Holdings Limited (the "Company") on page F-2 of the Annual Report on Form 10-K inadvertently omitted to state that the audit included the balance sheets of the Company as of December 31, 2002 and the related consolidated statements of operations, shareholders' equity, comprehensive income, and cash flows for the period from incorporation on May 23, 2002 to December 31, 2002. Similarly, the Auditor's Report to the Schedules to the Company's Consolidated Financial Statements on Page S-2 of the Annual Report on Form 10-K also inadvertently omitted to state that the audit included the period from incorporation on May 23, 2002 to December 31, 2002 and the balance sheet at December 31, 2002. The Auditor's Report to the Schedules to the Company's Consolidated Financial Statements also inadvertently omitted to state that the audit included "Financial Schedule V – Valuation and Qualifying Accounts" on page S-8.

Even though we are solely amending the Auditor's Reports as stated above, we have included Item 15, as amended, in this Form 10-K/A in its entirety, pursuant to Rule 12b-15 of the Securities Exchange Act of 1934.

PART IV.

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K


1.	Financial Statements: The Consolidated Financial Statements of Aspen Insurance Holdings Limited and related Notes thereto are listed in the accompanying Index to Consolidated Financial Statements on page F-1 and are filed as part of this report.


	The Financial Statements of Syndicates 2020 and 3030 are listed in the accompanying Index to Syndicates 2020 and 3030 Financial Statements on page P-1 and are filed as part of this report. The accompanying Management's Discussion and Analysis of Financial Condition and Underwriting Results of Syndicates 2020 and 3030 is also filed as part of this report.


2.	Financial Statement Schedules: The Schedules to the Consolidated Financial Statements of Aspen Insurance Holdings Limited are listed in the accompanying Index to Schedules to Consolidated Financial Statements on page S-1 and are filed as part of this report.


3.	Exhibits:



	Exhibit Number				Description
	3.1				Certificate of Incorporation and Memorandum of Association (incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form F-1 (Registration No. 333- 110435)).
	3.2				Amended and Restated Bye-laws (incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form F-1 (Registration No. 333- 110435)).
	4.1				Specimen Ordinary Share Certificate (incorporated herein by reference to Exhibit 4.1 to the Company's Registration Statement on Form F-1 (Registration No. 333- 110435)).



	Exhibit Number				Description
	4.2				Amended and Restated Instrument Constituting Options to Subscribe for Shares in Aspen Insurance Holdings Limited (incorporated herein by reference to Exhibit 4.2 to the Company's Registration Statement on Form F-1 (Registration No. 333- 110435)).
	10.1				Amended and Restated Shareholders' Agreement, dated as of September 30, 2003 among the Company and each of the persons listed on Schedule A thereto (incorporated herein by reference to Exhibit 10.1 to the Company's Registration Statement on Form F-1 (Registration No. 333- 110435)).
	10.2				Third Amended and Restated Registration Rights Agreement dated as of November 14, 2003 among the Company and each of the persons listed on Schedule 1 thereto (incorporated herein by reference to Exhibit 10.2 to the Company's Registration Statement on Form F-1 (Registration No. 333- 110435)).
	10.3				Service Agreement dated June 21, 2002 between Christopher O'Kane and Aspen Insurance U.K. Services Limited (incorporated herein by reference to Exhibit 10.3 to the Company's Registration Statement on Form F-1 (Registration No. 333- 110435)).
	10.4				Service Agreement dated June 21, 2002 between Julian Cusack and the Company Limited (incorporated herein by reference to Exhibit 10.4 to the Company's Registration Statement on Form F-1 (Registration No. 333- 110435)).
	10.5				Service Agreement dated June 21, 2002 between Sarah Davies and Aspen Insurance UK Services Limited (incorporated herein by reference to Exhibit 10.5 to the Company's Registration Statement on Form F-1 (Registration No. 333- 110435)).
	10.6				Service Agreement dated June 21, 2002 between David May and Aspen Insurance UK Services Limited (incorporated herein by reference to Exhibit 10.6 to the Company's Registration Statement on Form F-1 (Registration No. 333- 110435)).
	10.7				Aspen Insurance Holdings Limited 2003 Share Incentive Plan (incorporated herein by reference to Exhibit 10.7 to the Company's Registration Statement on Form F-1 (Registration No. 333- 110435)).
	10.8				Three-Year Credit Agreement dated as of August 26, 2003 among the Company, Barclays Bank plc and the Lenders named therein (incorporated herein by reference to Exhibit 10.8 to the Company's Registration Statement on Form F-1 (Registration No. 333- 110435)).
	10.9				364-Day Credit Agreement dated as of August 26, 2003 among the Company, Barclays Bank plc and the Lenders named therein (incorporated herein by reference to Exhibit 10.9 to the Company's Registration Statement on Form F-1 (Registration No. 333- 110435)).
	10.10				Quota Share Agreement between Syndicate 3030 and Aspen Insurance UK Limited, dated October 21, 2003 reflecting the slip agreement entered into on June 12, 2002 therein (incorporated herein by reference to Exhibit 10.10 to the Company's Registration Statement on Form F-1 (Registration No. 333- 110435)).



	Exhibit Number				Description
	10.11				Slip agreement for quota share entered into June 6, 2002 between National Indemnity Company and Aspen Insurance UK Limited (incorporated herein by reference to Exhibit 10.11 to the Company's Registration Statement on Form F-1 (Registration No. 333- 110435)).
	10.12				Qualifying Quota Share Agreement between Wellington Underwriting, Syndicate 2020 and Aspen Insurance UK Limited dated April 15, 2003 (incorporated herein by reference to Exhibit 10.12 to the Company's Registration Statement on Form F-1 (Registration No. 333- 110435)).
	10.13				Slip Agreement for Property Risk Excess of Loss Reinsurance Quota Share Treaty between Aspen Insurance UK Limited and Montpelier Reinsurance Ltd., dated June 20, 2002 (incorporated herein by reference to Exhibit 10.13 to the Company's Registration Statement on Form F-1 (Registration No. 333- 110435)).
	10.14				Slip Agreement for Quota Share Treaty of Wellington Underwriting Inc. Property Business between Aspen Insurance UK Limited and Montpelier Reinsurance Ltd., dated June 20, 2002 (incorporated herein by reference to Exhibit 10.14 to the Company's Registration Statement on Form F-1 (Registration No. 333- 110435)).
	10.15				Slip Agreement for Quota Share Treaty of Wellington Underwriting Inc. Auto Liability Business between Aspen Insurance UK Limited and Montpelier Reinsurance Ltd., dated June 20, 2002 (incorporated herein by reference to Exhibit 10.15 to the Company's Registration Statement on Form F-1 (Registration No. 333- 110435)).
	10.16				Service Agreement dated June 21, 2003 between Peter Coghlan and Aspen Insurance U.S. Services Inc. (incorporated herein by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended December 31, 2003).
	21.1				Subsidiaries of the Company (incorporated herein by reference to Exhibit 21.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2003).
	31.1				Officer Certification of Christopher O'Kane, Chief Executive Officer of Aspen Insurance Holdings Limited, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed with this report.
	31.2				Officer Certification of Julian Cusack, Chief Financial Officer of Aspen Insurance Holdings Limited, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed with this report.
	32.1				Officer Certification of Christopher O'Kane, Chief Executive Officer of Aspen Insurance Holdings Limited, and Julian Cusack, Chief Financial Officer of Aspen Insurance Holdings Limited, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, submitted with this report.

(b) Reports on Form 8-K. The Company has not filed any reports on Form 8-K during the last quarter of the period covered by this Report.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ASPEN INSURANCE HOLDINGS LIMITED


Date: April 13, 2004	By:	/s/ Christopher O'Kane
		Name: Christopher O'Kane Title: Chief Executive Officer

ASPEN INSURANCE HOLDINGS LIMITED

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


	Page
Audited Consolidated Financial Statements for the Twelve Months ended December 31, 2003 and for the Period from Incorporation on May 23, 2002 to December 31, 2002
Independent Auditor's Report		F-2
Consolidated Statement of Operations for the Twelve Months ended December 31, 2003 and for the Period from incorporation on May 23, 2002 to December 31, 2002.		F-3
Consolidated Balance Sheet as at December 31, 2003 and 2002		F-4
Consolidated Statement of Shareholders' Equity for the Twelve Months ended December 31, 2003 and for the period from incorporation on May 23, 2002 to December 31, 2002		F-5
Consolidated Statement of Comprehensive Income for the Twelve Months ended December 31, 2003 and for the Period from incorporation on May 23, 2002 to December 31, 2002		F-6
Consolidated Statement of Cash Flows for the Twelve Months ended December 31, 2003 and for the Period from incorporation on May 23, 2002 to December 31, 2002		F-7
Notes to the Consolidated Financial Statements for the Twelve Months ended December 31, 2003 and for the Period from incorporation on May 23, 2002 December 31, 2002		F-8

F-1

ASPEN INSURANCE HOLDINGS LIMITED

AUDITOR'S REPORT

The Board of Directors and Shareholders of Aspen Insurance Holdings Limited:

We have audited the accompanying consolidated balance sheets of Aspen Insurance Holdings Limited and its subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of operations, shareholders' equity, comprehensive income, and cash flows for the year ended December 31, 2003 and the period from incorporation on May 23, 2002 to December 31, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, 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 statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Aspen Insurance Holdings Limited and its subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for the year ended December 31, 2003 and for the period from incorporation on May 23, 2002 to December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.

KPMG Audit Plc
Chartered Accountants

London, United Kingdom

March 26, 2004

F-2

ASPEN INSURANCE HOLDINGS LIMITED

CONSOLIDATED STATEMENT OF OPERATIONS
For The Twelve Months Ended December 31, 2003 And
For The Period From Incorporation On May 23, 2002 To December 31, 2002


	Notes	Twelve months ended December 31, 2003			Period from incorporation on May 23, 2002 to December 31, 2002
		($ in millions, except per share amounts)
Revenues
Net premiums earned (includes $126.1 million in 2003 and $74.3 million in 2002) from related parties)	15	$	812.3		$	120.3
Net investment income (includes $3.5 million in 2003 and $0.0 million in 2002) from related parties)	5		29.6			8.5
Realized investment (losses)			(2.4	)		(0.1	)
Realized exchange gain	6		1.5			12.7
Other			—			0.4
Total Revenues			841.0			141.8
Expenses
Insurance losses and loss adjustment expenses (includes $86.6 million in 2003 and $51.7 million in 2002 from related parties)	7, 15		(428.4	)		(76.9	)
Policy acquisition expenses (includes $24.4 million in 2003 and $14.1 million in 2002 from related parties)			(152.3	)		(21.1	)
Operating and administration expenses (includes $6.6 million in 2003 and $2.6 million in 2002 from related parties)			(53.3	)		(8.7	)
Interest on long term loans			(0.4	)		—
Total expenses			(634.4	)		(106.7	)
Income from operations before income tax			206.6			35.1
Income tax expense	8		(54.5	)		(6.5	)
Net Income		$	152.1		$	28.6
Per share data
Weighted average number of ordinary share and share equivalents
Basic			57,751,852			32,424,100
Diluted			59,491,760			32,424,100
Basic earnings per ordinary share	3	$	2.63		$	0.89
Diluted earnings per ordinary share	3	$	2.56		$	0.89

See accompanying notes to the consolidated financial statements

F-3

ASPEN INSURANCE HOLDINGS LIMITED

CONSOLIDATED BALANCE SHEET
As at December 31, 2003 and 2002


	Notes	As at December 31, 2003			As at December 31, 2002
		($ in millions, except share amounts)
ASSETS
Investments
Fixed Maturities		$	1,048.1		$	87.3
Short-term investments			568.2			835.1
Total Investments	4		1,616.3			922.4
Cash and cash equivalents			230.8			9.6
Reinsurance Recoverables
Unpaid losses (includes $26.9 million in 2003 and $10.4 million in 2002 from related parties)	7		43.6			12.5
Ceded unearned premiums (includes $36.1 million in 2003 and $12.8 million in 2002 from related parties)			48.9			18.9
Receivables
Underwriting premiums (includes $221.9 million in 2003 and $151.4 million in 2002 from related parties)			496.5			214.5
Other (includes $18.8 million in 2003 and $0.0 million in 2002 from related parties)			40.8			0.8
Deferred policy acquisition costs (includes $11.8 million in 2003 and $13.9 million in 2002 from related parties)			94.6			31.0
Office properties and equipment			0.4			0.1
Intangible assets	13		6.6			2.0
Total Assets		$	2,578.5		$	1,211.8
LIABILITIES
Insurance Reserves
Losses and loss adjustment expenses (includes $146.3 million in 2003 and $62.2 million in 2002) from related parties)	7	$	525.8		$	93.9
Unearned premiums (includes $74.7 million in 2003 and $104.6 million in 2002 from related parties)			572.4			215.7
Total insurance reserves			1,098.2			309.6
Payables
Reinsurance premiums (includes $49.3 million in 2003 and $0.0 million in 2002 from related parties)			59.9			2.1
Deferred income taxes	8		17.0			4.6
Accrued expenses and other payables (includes $12.0 million in 2003 and $1.5 million in 2002 from related parties)			64.7			17.4
Long term loan			40.0			—
Total liabilities		$	1,279.8		$	333.7
SHAREHOLDERS' EQUITY
Ordinary Shares—69,179,303 ordinary shares of 0.15144558¢ each (2002—56,876,360)	9		1,090.8			836.9
Retained earnings			180.7			28.6
Accumulated other comprehensive income, net of taxes
Unrealized (depreciation)/appreciation on investments	17		(0.6	)		0.6
Gains on foreign currency translation	17		27.8			12.0
Total ordinary shareholders' equity			1,298.7			878.1
Total liabilities and shareholders' equity		$	2,578.5		$	1,211.8

See accompanying notes to the consolidated financial statements

F-4

ASPEN INSURANCE HOLDINGS LIMITED

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For The Twelve Months Ended December 31, 2003 And
For The Period From Incorporation On May 23, 2002 To December 31, 2002


	Notes		Twelve months ended December 31, 2003			Period from incorporation on May 23, 2002 to December 31, 2002
			($ in millions)
Shareholders' Equity
Ordinary Shares:
Beginning of period			$	836.9		$	—
Shares issued:
New shares issued				246.4			836.9
Share-based compensation				7.5			—
End of Period		9		1,090.8			836.9
Retained earnings:
Beginning of period				28.6			—
Net income for the period				152.1			28.6
End of Period				180.7			28.6
Cumulative foreign currency translation adjustments:
Beginning of period				12.0			—
Change for the period				15.8			12.0
End of Period		17		27.8			12.0
Unrealized appreciation on investments:
Beginning of period				0.6			—
Change for the period				(1.2	)		0.6
End of Period		17		(0.6	)		0.6
Total accumulated other comprehensive income				27.2			12.6
Total Shareholders' Equity			$	1,298.7		$	878.1

See accompanying notes to the consolidated financial statements

F-5

ASPEN INSURANCE HOLDINGS LIMITED

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For The Twelve Months Ended December 31, 2003 And
For The Period From Incorporation On May 23, 2002 To December 31, 2002


	Twelve months ended December 31, 2003			Period from incorporation on May 23, 2002 to December 31, 2002
	($ in millions)
Net income	$	152.1		$	28.6
Other comprehensive income, net of taxes
Change in unrealized gains/(losses) on investments		(1.2	)		0.6
Change in gains on foreign currency translation		15.8			12.0
Other comprehensive income		14.6			12.6
Comprehensive income	$	166.7		$	41.2

See accompanying notes to the consolidated financial statements

F-6

ASPEN INSURANCE HOLDINGS LIMITED

CONSOLIDATED STATEMENT OF CASH FLOWS
For The Twelve Months Ended December 31, 2003 And
For The Period From Incorporation On May 23, 2002 To December 31, 2002


	Twelve months ended December 31, 2003			Period from incorporation on May 23, 2002 to December 31, 2002
	($ in millions)
Operating Activities:
Net income	$	152.1		$	28.6
Adjustments:
Amortisation of premium or discount on investments		5.0			—
Share-based compensation expense		7.5			—
Changes in insurance reserves:
Losses and loss adjustment expenses (includes $84.1 million in 2003 and $62.2 million in 2002 from related parties)		443.8			86.0
Unearned premiums (includes $(29.9) million in 2003 and $104.6 million in 2002 from related parties)		319.0			210.6
Changes in reinsurance balances:
Reinsurance recoverables (includes $16.5 million in 2003 and $10.4 million in 2002 from related parties)		(15.4	)		(10.5	)
Ceded unearned premiums (includes $23.3 million in 2003 and $12.8 million in 2002 from related parties)		(38.5	)		(18.4	)
Changes in accrued investment income and other receivables		(40.0	)		(0.8	)
Changes in deferred policy acquisition costs (includes $(2.1) million in 2003 and $13.9 million in 2002 from related parties)		(50.7	)		(30.0	)
Changes in reinsurance premiums payable		56.1			2.1
Changes in premiums receivable (includes $70.5 million in 2003 and $151.4 million in 2002 from related parties)		(261.2	)		(209.7	)
Changes in accrued expenses and other payable (includes $10.5 million in 2003 and $1.5 million in 2002 from related parties)		58.9			16.4
Other		—			3.8
Net Cash from Operating Activities		636.6			78.1
Investing Activities:
Purchases of fixed maturities		(1,903.3	)		(129.1	)
Proceeds from sales and maturities of fixed maturities		943.5			63.5
Net (purchases)/sales of short-term investments		263.4			(834.1	)
Purchase of equipment		(0.3	)		—
Payments for acquisition net of cash acquired		(6.6	)		(17.7	)
Net cash used investing activities		(703.3	)		(917.4	)
Financing Activities:
Proceeds from the issuance of Ordinary Shares, net of issuance costs		246.4			836.9
Proceeds from long term loan		90.0			—
Repayment of long term loan..		(50.0	)		—
Net cash from financing activities		286.4			836.9
Effect of exchange rate movements on cash and cash equivalents		1.5			12.0
Increase in cash and cash equivalents		221.2			9.6
Cash and cash equivalents at beginning of period		9.6			—
Cash and cash equivalents at end of period		230.8			9.6
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes		24.8			3.2

See accompanying notes to the consolidated financial statements

F-7

ASPEN INSURANCE HOLDINGS LIMITED

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Twelve Months Ended December 31, 2003 And
For The Period From Incorporation On May 23, 2002 To December 31, 2002
($ in millions, except share and per share amounts)

1. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Consolidation. Aspen Insurance Holdings Limited ("Aspen Holdings") was incorporated under the name of Exali Reinsurance Holdings Limited ("Exali") on May 23, 2002 to hold the subsidiaries that provide insurance and reinsurance on a worldwide basis. Exali subsequently changed its name to Aspen Insurance Holdings Limited on November 20, 2002. On June 21, 2002, Aspen Holdings acquired the entire issued share capital of The City Fire Insurance Company Limited ("City Fire"). City Fire was renamed Wellington Reinsurance Limited ("Wellington Re") and commenced underwriting on June 23, 2002. On March 4, 2003, Wellington Re was renamed Aspen Insurance UK Limited ("Aspen Re"). Aspen Insurance Limited ("Aspen Bermuda") was established on November 6, 2002 as Exali Insurance Limited and changed its name to Aspen Insurance Limited on November 22, 2002. Aspen Insurance UK Services Limited ("Aspen U.K. Services") provides services to Aspen Holdings and its subsidiaries (collectively, the "Company") in its capacity as the employer of the directors and staff of Aspen Re. On September 5, 2003, Aspen US Holdings acquired Dakota Specialty Insurance Company ("Dakota"). Dakota was renamed Aspen Specialty Insurance Company on September 25, 2003.

The Consolidated Financial Statements of Aspen Holdings are prepared in accordance with United States Generally Accepted Accounting Principles ("U.S. GAAP"). The financial statements are presented on a consolidated basis including the transactions of all operating subsidiaries. Transactions between Aspen Holdings and its subsidiaries are eliminated within the consolidated financial statements.

Use of Estimates. Estimates and assumptions are made by the directors that have an effect on the amount reported within these consolidated financial statements. The most significant estimates relate to the reserves for property and liability losses. These estimates are continually reviewed and adjustments made as necessary, but actual results could turn out significantly different from those expected when the estimates were made.

Accounting for Underwriting Operations

Premiums Earned. Assumed premiums are recognized as revenues proportionately over the coverage period. Premiums earned are recorded in the statement of operations, net of the cost of purchased reinsurance. Premiums not yet recognized as revenue are recorded in the consolidated balance sheet as unearned premiums, gross of any ceded unearned premiums. Written and earned premiums, and the related costs, which have not yet been reported to the Company are estimated and accrued. Due to the time lag inherent in reporting of premiums by cedents, such estimated premiums written and earned, as well as related costs, may be significant. Differences between such estimates and actual amounts will be recorded in the period in which the actual amounts are determined.

Premiums on proportional treaty type contracts are generally not reported to the Company until after the reinsurance coverage is in force and the syndicates are at risk. As a result, an estimate of these "pipeline" premiums is recorded. The Company estimates pipeline premiums based on estimates of ultimate premium, calculated unearned premium and premiums reported from ceding companies. The Company estimates commissions, losses and loss adjustment expenses on these premiums.

F-8

ASPEN INSURANCE HOLDINGS LIMITED

NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS — (continued)
For the Twelve Months Ended December 31, 2003 And
For The Period From Incorporation On May 23, 2002 To December 31, 2002
($ in millions, except share and per share amounts)

relate to the future coverage obtained during the remainder of the initial policy term and are earned over the remaining policy term. Additional premiums are premiums charged after coverage has expired, related to experience during the policy term, which are earned immediately. An allowance for uncollectible premiums is established for possible non-payment of such amounts due, as deemed necessary.

Outward reinsurance premiums are accounted for in the same accounting period as the premiums for the related direct insurance or inwards reinsurance business. Reinsurance contracts that operate on a "losses occurring during" basis are accounted for in full over the period of coverage whilst "risk attaching during" policies are expensed using the same ratio as the underlying premiums on a daily pro rata basis.

Insurance Losses and Loss Adjustment Expenses. Losses represent the amount paid or expected to be paid to claimants in respect of events that have occurred on or before the balance sheet date. The costs of investigating, resolving and processing these claims are known as loss adjustment expenses ("LAE"). The statement of operations records these losses net of reinsurance, meaning that gross losses and loss adjustment expenses incurred are reduced by the amounts recovered or expected to be recovered under reinsurance contracts.

Reinsurance. Written premiums earned and incurred claims and LAE all reflect the net effect of assumed and ceded reinsurance transactions. Assumed reinsurance refers to the Company's acceptance of certain insurance risks that other insurance companies have underwritten. Ceded reinsurance means other insurance companies have agreed to share certain risks with this Company.

Reinsurance accounting is followed when risk transfer requirements have been met.

Reinsurance does not isolate the Company from its obligations to policyholders. In the event a reinsurer fails to meet their obligations the Company's obligations remain.

The Company regularly evaluates the financial condition of its reinsurers and monitors the concentration of credit risk to minimize its exposure to financial loss from reinsurers' insolvency. Where it is considered required, appropriate provision is made for balances deemed irrecoverable from reinsurers.

Insurance Reserves. Insurance reserves are established for the total unpaid cost of claims and LAE, which cover events that have occurred by the balance sheet date. These reserves reflect the Company's estimates of the total cost of claims incurred but not yet reported to it ("IBNR"). Claim reserves are reduced for estimated amounts of salvage and subrogation recoveries. Estimated amounts recoverable from reinsurers on unpaid losses and LAE are reflected as assets.

For reported claims, reserves are established on a case-by-case basis within the parameters of coverage provided in the insurance policy or reinsurance agreement. For IBNR claims, reserves are estimated using established actuarial methods. Both case and IBNR reserve estimates consider such variables as past loss experience, changes in legislative conditions, changes in judicial interpretation of legal liability policy coverages, and inflation.

Because many of the coverages underwritten involve claims that may not be ultimately settled for many years after they are incurred, subjective judgments as to the ultimate exposure to losses are an integral and necessary component of the loss reserving process. Reserves are established by the selection of a best estimate' from within a range of estimates. The Company continually reviews its reserves, using a variety of statistical and actuarial techniques to analyze current claims costs, frequency and severity data, and prevailing economic, social and legal factors. Reserves established in prior periods are adjusted as claim experience develops and new information becomes available.

F-9

ASPEN INSURANCE HOLDINGS LIMITED

Adjustments to previously estimated reserves are reflected in the financial results of the period in which the adjustments are made.

Whilst the reported reserves make a reasonable provision for unpaid claim and LAE obligations, it should be noted that the process of estimating required reserves does, by its very nature, involve uncertainty. The level of uncertainty can be influenced by factors such as the existence of coverage with long duration payment patterns and changes in claims handling practices, as well as the factors noted above. Ultimate actual payments for claims and LAE could turn out to be significantly different from our estimates.

Policy Acquisition Expenses. The costs directly related to writing an insurance policy are referred to as policy acquisition expenses and consist of commissions, premium taxes and other direct underwriting expenses, primarily underwriters' salaries. Although these expenses are incurred when a policy is issued they are deferred and amortized over the same period as the corresponding premiums are recorded as revenues.

On a regular basis a recoverability analysis is performed of the deferred policy acquisition costs in relation to the expected recognition of revenues, including anticipated investment income, and reflect adjustments, if any, as period costs. Should the analysis indicate that the acquisition costs are unrecoverable, further analyses are performed to determine if a reserve is required to provide for losses which may exceed the related unearned premium.

Accounting for Investments

Fixed Maturities. The fixed maturity portfolio is composed primarily of high-quality, U.S. and U.K. government securities. The entire fixed maturity investment portfolio is classified as available for sale. Accordingly, that portfolio is carried on the consolidated balance sheet at estimated fair value. Fair values are based on quoted market prices from a third party pricing service.

Short-term Investments. Short-term investments include highly liquid debt instruments and commercial paper and are held as part of the investment portfolio of the Company.

Realized Investment Gains and Losses. The cost of each individual investment is recorded so that when an investment is sold the resulting gain or loss can be identified and recorded in the statement of operations.

The difference between the cost and the estimated fair market value of all investments is monitored. If we determine that any investment has experienced a decline in value that is believed to be other than temporary, we consider the current facts and circumstances, including the financial position and future prospects of the entity that issued the investment security, and make a decision to either record a write-down in the carrying value of the security or sell the security; in either case a realized loss is recorded in the statement of operations.

Unrealized Gains or Losses on Investments. For investments carried at estimated fair value, the difference between amortized cost and fair value, net of deferred taxes, is recorded as part of shareholders' equity. This difference is referred to as unrealized gains or losses on investments. The change in unrealized gains or losses, net of taxes, during the year is a component of other comprehensive income.

Investment Income. Investment income is recognized when earned and includes income together with amortization of premium and accretion of discount on fixed maturity investments.

Cash and Cash Equivalents. Cash and cash equivalents include cash in hand and with banks.

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ASPEN INSURANCE HOLDINGS LIMITED

Derivative Financial Instruments

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," all derivatives are recorded on the consolidated balance sheet at fair value. The accounting for the gain or loss due to the changes in the fair value of these instruments is dependent on whether the derivative qualifies as a hedge. If the derivative does not qualify as a hedge, the gains or losses are reported in earnings when they occur. If the derivative does qualify as a hedge, the accounting varies based on the type of risk being hedged. The Company has not entered into any derivative contracts qualifying as hedges during the reporting period.

Intangible Assets

Acquired insurance licenses are held in the consolidated balance sheet at cost. This intangible asset is not currently being amortized as the directors believe that these will have an indefinite life. The directors test for impairment annually or when events or changes in circumstances indicate that the asset might be impaired.

Office Properties and Equipment

Office equipment is carried at depreciated cost. These assets are depreciated on a straight-line basis over the estimated useful lives of the assets of four years.

Foreign Currency Translation

The reporting currency of the Company is the U.S. Dollar. The functional currencies of the Company's operations are U.S. Dollars for the reinsurance operations segment and British Pounds for the U.K. insurance operations segment. Transactions in currencies other than the functional currency of an operations segment are measured in the functional currency of that operations segment at the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in non-functional currencies are remeasured at the exchange rate prevailing at the balance sheet date. Any resulting foreign exchange gains or losses are reflected in the statement of operations.

Assets and liabilities of the Company's British Pound functional currency operations segment are then translated into U.S. Dollars at the exchange rate prevailing at the balance sheet date. Income and expenses of this operations segment are translated at the average exchange rate for the period. The unrealized gain or loss from this translation, net of tax, is recorded as part of shareholders' equity. The change in unrealized foreign currency translation gain or loss during the year, net of tax, is a component of other comprehensive income.

Earnings Per Share

Basic earnings per share is determined by dividing income/loss available to shareholders by the weighted average number of shares outstanding during the period. Diluted earnings per share reflects the effect on earnings and average number of shares outstanding associated with dilutive securities.

Income Tax

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and

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ASPEN INSURANCE HOLDINGS LIMITED

operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Stock Based Employee Compensation

In 2003 the Company launched an employee stock compensation plan. The Company has adopted the fair value recognition provisions of SFAS 123, "Accounting for Stock Based Compensation" for all awards granted to its employees. The cost of the options, based on their fair value at date of grant, is recognized over the period that the options vest.

Related Party Transactions

The following summarizes the related party transactions of the Company.

Wellington Underwriting plc

Wellington Underwriting plc ("Wellington") holds 16.2% of the ordinary shares of Aspen Holdings and is represented on the board of directors of Aspen Holdings. In addition, Wellington holds 3,781,120 options to subscribe for ordinary shares of Aspen Holdings, as noted below and in note 12.

The principal operating subsidiary of the Company, Aspen Re, has a number of arrangements with Wellington. These arrangements can be summarized as follows:

Quota Share Arrangements. For 2002, Wellington's managed Syndicate 2020 ("Syndicate 2020") has placed a qualifying quota share contract with a Berkshire Hathaway group company, National Indemnity Corporation of Omaha ("NICO"), and established a consortium Syndicate 3030 with another Berkshire Hathaway subsidiary. Aspen Re has accessed certain of its business through these arrangements.

On July 9, 2002, Aspen Re wrote two quota share contracts. Under the first, Aspen Re assumed a 34% share of NICO's qualifying quota share reinsurance of Syndicate 2020, subject to an overall premium limit of £63.8 million. Under the second, Aspen Re assumed a 70% reinsurance quota share of Syndicate 3030. Of the gross written premiums of $374.8 million for the period from May 23, 2002 to December 31, 2002, $98.2 million related to the Syndicate 2020 qualifying quota share and $118.0 million to the quota share of Syndicate 3030.

These arrangements were undertaken on a funds withheld basis whereby the premiums due to Aspen Re will be paid net of claims and expenses, along with interest due on the funds withheld, calculated at rates specified in the quota share agreements. For 2003, the Company has entered into a 7.5% quota share agreement directly with Syndicate 2020.The written premiums for 2003 under this contract were $78.4 milllion. The Company had an option, but no contractual obligation, to assume up to a 20% quota share of Syndicate 2020's business for subsequent years, while Syndicate 2020 had an option, but no contractual obligation, to assume up to a 20% quota share of Aspen Re's business for subsequent years. These options were not exercised in 2004. At December 31, 2003 the net amounts receivable from NICO, Syndicate 2020 and Syndicate 3030 under these contracts were $10.1 million, $4.8 million and $4.0 million respectively.

At December 31, 2002 the net amounts receivable from NICO and Syndicate 3030 under these contracts were $7.4 million and $0.4 million respectively.

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ASPEN INSURANCE HOLDINGS LIMITED

Option to Purchase Retrocession Agreement. The quota share arrangements for 2002 described above were entered into pursuant to an option agreement entered into on May 28, 2002, whereby Wellington and Aspen Holdings agreed to pay NICO $2.5 million and $2.0 million, respectively, to procure (i) the retrocession to a subsidiary of Aspen Holdings of the NICO qualifying quota share of Syndicate 2020 and (ii) the reinsurance of Syndicate 3030. On June 21, 2002, Aspen Holdings repaid Wellington $2.5 million for the amount that Wellington paid to NICO for the option, together with a fee of $275,000 for the risk borne by Wellington during the period from May 28, 2002 to June 21, 2002. Subsequently Aspen Holdings recharged the cost of the option to Aspen Re. The cost of these option agreements has been treated as a policy acquisition cost and is charged to the income statement in proportion to the premiums recognized under the contracts. At December 31, 2003 the cost has been fully charged to income.

Provision of Services. In 2002 the Company entered into a contract for the provision of services by a subsidiary company of Wellington to the Company.

These services include accounting, actuarial, operations, risk management and technical support. This agreement was perpetual but could be terminated by either party upon the occurrence of certain circumstances, such as the inability to pay debts or upon an Initial Public Offering, and, after an initial period of 3 years, may be terminated by either party upon 18 months' prior notice. The Company can also terminate specific services if it undertakes those services itself and does not contract those services to a third party. During 2003 the company took over responsibility for accounting, actuarial, operations and risk management services. The provision of services under the service agreement has therefore reduced to purely IT technical support for 2004. The provision of these services is covered by a detailed service level agreement and is priced on an actual cost basis. The cost of these services in 2003 was $6.6 million, and the amount due to Wellington at December 31, 2003 was $6.9 million.

Wellington Options. As disclosed in note 12, the Company granted options to subscribe to its shares to Wellington and to a trust established for the benefit of the unaligned members of Syndicate 2020 in consideration for the transfer of an underwriting team from Wellington, the right to seek to renew certain business written by Syndicate 2020, an agreement in which Wellington agrees not to compete with Aspen Re through March 31, 2004, the use of the Wellington name and logo and the provision of certain outsourced services to the Company. These options have been recorded at a value of nil, equal to the transferor's historical cost basis of the assets transferred to the Company.

Shares Issued to Employees. Shares in Aspen Holdings have been issued to the employees of Aspen Holdings and its subsidiaries in the period. These amounts and the consideration received by the Company are disclosed in note 9.

Montpelier Re Holdings Limited

A subsidiary operation of Aspen Holdings entered into four proportional reinsurance contracts with effect from January 1, 2003 with a subsidiary of Montpelier Re Holdings Limited ("Montpelier Re"). Reinsurance premiums ceded under the contracts in the twelve months ended December 31, 2003 were $66.0 million. The amount payable by the Company in respect of these transactions as at December 31, 2003 was $49.3 million.

Montpelier Re owns approximately 6% of the issued share capital of Aspen Holdings.

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ASPEN INSURANCE HOLDINGS LIMITED

2. Acquisition of Dakota Specialty Insurance Company

On September 5, 2003, Aspen U.S. Holdings acquired Dakota Specialty Insurance Company for cash consideration of $20.9 million. The name of Dakota Specialty was subsequently changed to Aspen Specialty Insurance Company. The directors of Aspen Holdings have assessed the fair value of the net tangible and financial assets acquired at $16.3 million. An amount of $4.6 million is the estimated fair value of that company's insurance licenses that are treated as an intangible asset.

3. Earnings Per Ordinary Share


	Twelve Months Ended December 31, 2003		Period from Incorporation on May 23, 2002 to December 31, 2002
	($ in millions)
Earnings
Basic
Net income as reported and available to ordinary shareholders	$	152.1	$	28.6
Diluted
Net income as reported and available to ordinary shareholders		152.1		28.6
Ordinary shares
Basic
Weighted average ordinary shares		57,751,852		32,424,100
Diluted
Weighted average ordinary shares		57,751,852		32,424,100
Weighted average effect of dilutive securities		1,739,908		—
Total		59,491,760		32,424,100
Earnings per ordinary share
Basic	$	2.63	$	0.89
Diluted	$	2.56	$	0.89

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ASPEN INSURANCE HOLDINGS LIMITED

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 at December 31, 2003
	($ in millions)
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Investments (excluding cash)
US government and agencies	$	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 maturities		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


	As at December 31, 2002
	($ in millions)
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Investments
Corporate securities	$	30.6		0.2		(0.1	)	$	30.7
Foreign government		56.9		1.1		(1.4	)		56.6
Total fixed maturities		87.5		1.3		(1.5	)		87.3
Short-term investments		834.1		1.7		(0.7	)		835.1
Total	$	921.6		3.0		(2.2	)	$	922.4

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ASPEN INSURANCE HOLDINGS LIMITED

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 at December 31, 2003				As at December 31, 2002
	($ in millions)
	Amortized Cost		Fair Market Value		Amortized Cost		Fair Market Value
Maturity and Ratings (excluding cash)
Due in one year or less	$	103.4	$	103.1	$	30.6	$	30.7
Due after one year through five years		738.7		738.1		56.9		56.6
Due after five years through ten years		4.3		4.3
Subtotal		846.4		845.5		87.5		87.3
Mortgage- and Asset-Backed Securities		202.4		202.6		—		—
Short-Term Investments		568.1		568.2		834.1		835.1
Total	$	1,616.9	$	1,616.3	$	921.6	$	922.4

5. Investment Transactions

The following table sets out an analysis of investment purchases sales and maturities:


	Twelve Months Ended December 31, 2003			Period from Incorporation on May 23, 2002 to December 31, 2002
	($ in millions)
Purchases of Fixed Maturity Investments	$	1,903.3		$	129.1
Proceeds from sales and maturities of fixed maturity investments		(943.5	)		(63.5	)
Net purchases/(sales) of short-term investments		(263.4	)		834.1
Net purchases	$	696.4		$	899.7

The following is a summary of investment income:


	Twelve Months Ended December 31, 2003		Period from Incorporation on May 23, 2002 to December 31, 2002
	($ in millions)
Fixed Maturities	$	16.7	$	1.5
Short-term investments		12.9		7.0
Net investment income	$	29.6	$	8.5

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ASPEN INSURANCE HOLDINGS LIMITED

The following table summarizes the pretax realized investment gains and losses, and the change in unrealized gains of investments recorded in shareholders' equity and in comprehensive income.


	Twelve Months Ended December 31, 2003			Period from Incorporation on May 23, 2002 to December 31, 2002
	($ in millions)
Pretax realized investment gains and losses
Short-term investments and fixed maturities
Gross realized gains	$	0.6		$	0.1
Gross realized losses		(3.0	)		(0.2	)
Total pretax realized investment gains and losses		(2.4	)		(0.1	)
Change in unrealized gains
Fixed maturities		(0.5	)		(0.2	)
Short-term investments		(0.9	)		1.0
Total change in pretax unrealized gains		(1.4	)		0.8
Change in taxes		(0.2	)		(0.2	)
Total change in unrealized gains, net of tax	$	(1.2	)	$	0.6

6. Derivative Financial Instruments

Derivative financial instruments include futures, forward, swap and option contracts and other financial instruments with similar characteristics. The Company has very limited involvement with these instruments, primarily for the purpose of protecting against fluctuations in foreign currency exchange rates. The Company has not had any instruments that qualify as hedges under SFAS 133 during the reporting period. There were no derivatives outstanding at the end of the period.

Non-Hedge Derivatives – During the period ended December 31, 2002, the Company sold forward, under a contract which matured before December 31, 2002, £230 million at a fixed exchange rate. A gain of $12.7 million was realized under the contract.

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ASPEN INSURANCE HOLDINGS LIMITED

7. Reserves for Losses and Adjustment Expenses

The following table represents a reconciliation of beginning and ending consolidated loss and loss adjustment expenses ("LAE") reserves:

Reserves for Losses and Loss Adjustment Expenses


	As at December 31, 2003			As at December 31, 2002
	($ in millions)
Provision for losses and LAE at start of year/date of incorporation	$	93.9		$	—
Less reinsurance recoverable		(12.5	)		—
Net loss and LAE at start of year		81.4			—
Loss and LAE reserves of subsidiary at date of acquisition		22.4			6.1
Less reinsurance recoverable		(15.9	)		(1.6	)
Net loss and LAE reserves of subsidiary at date of acquisition		6.5			4.5
Provision for losses and LAE for claims incurred
Current year		438.0			76.2
Prior years		(9.6	)		0.7
Total incurred		428.4			76.9
Losses and LAE payments for claims incurred
Current year		(44.9	)		(0.7	)
Prior years		(9.0	)		(3.0	)
Total paid		(53.9	)		(3.7	)
Foreign exchange		19.8			3.7
Net losses and LAE reserves at year end		482.2			81.4
Plus reinsurance recoverables on unpaid losses at end of year		43.6			12.5
Loss and LAE reserves at December 31, 2003	$	525.8		$	93.9

8. Income Taxes

Aspen Holdings and Aspen Bermuda are incorporated under the laws of Bermuda. Under current Bermudan 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 U.S. operating companies are subject to United States corporate tax at a rate of the 34 percent. Under current United Kingdom law, Aspen Re is taxed at the U.K. corporate tax rate of 30 percent.

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ASPEN INSURANCE HOLDINGS LIMITED

Total income tax for the twelve months to December 31, 2003 and for the period from incorporation on May 23, 2002 to December 31, 2002 is allocated as follows:


	Twelve Months Ended December 31, 2003		Period from Incorporation on May 23, 2002 to December 31, 2002
Income from operations	$	54.5	$	6.5
Other comprehensive income		3.3		0.2
Total income tax	$	57.8	$	6.7

Income from operations before tax and income tax expense attributable to that income consists of:


	Twelve Months Ended December 31, 2003
	Income before tax			Current income taxes		Deferred income taxes			Total income taxes
	($ in millions)
U.S.	$	(2.1	)	$	—	$	(0.7	)	$	(0.7	)
Non U.S.		208.7			42.8		12.4			55.2
Total	$	206.6		$	42.8	$	11.7		$	54.5


	Period from Incorporation on May 23, 2002 to December 31, 2002
	Income before tax		Current income taxes		Deferred income taxes		Total income taxes
	($ in millions)
U.S.	$	—	$	—	$	—	$	—
Non U.S.		35.1		2.5		4.0		6.5
Total	$	35.1	$	2.5	$	4.0	$	6.5

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ASPEN INSURANCE HOLDINGS LIMITED

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:


	Twelve Months Ended December 31, 2003			Period from Incorporation on May 23, 2002 to December 31, 2002
	($ in millions)
Income Tax Reconcilation
Expected tax provision at weighted average rate	$	56.5		$	10.2
Effect of exchange gains exempt from U.K. taxation		—			(3.6	)
Prior year adjustment		(0.3	)		—
Other		(1.7	)		(0.1	)
Total income tax expense	$	54.5		$	6.5

The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities are presented in the following table:


	As at December 31, 2003		As at to December 31, 2002
	($ in millions)
Deferred tax liabilities	$		$
Insurance reserves		16.4		4.0
Intangible assets		0.6		0.6
Deferred tax liabilities	$	17.0	$	4.6
Deferred tax assets
Operating loss carryforward		0.7		—
Deferred tax assets	$	0.7		—

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, the Company will need to generate future taxable income of approximately $2.0 million prior to the expiration of the $0.7 million of net operating loss carryforwards. Based upon projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at December 31, 2003. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.

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ASPEN INSURANCE HOLDINGS LIMITED

9. Capital Structure

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


	Number		U.S. $000
Authorized Share Capital
Ordinary Shares 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 Ordinary Shares of 0.15144558¢ per share		69,179,303		105
Share Premium account		—		1,083,153
Issued Ordinary Shares		69,179,303		1,083,258
Share Based Compensation				7,500
				1,090,758

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 $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 $67,461.

On December 9 and 17, 2003, the Company issued 126,706 and 25,877 ordinary shares respectively to Harrington Trust Limited in connection with the exercise of share options. The total consideration for these shares was $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 $244.0 million, net of $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.

10. Statutory Requirements and Dividends Restrictions

As a holding company, Aspen Holdings relies on dividends from its insurance subsidiaries to provide cash flow to meet ongoing cash requirements, including any future debt service payments and other expenses, and to pay dividends, if any, to our shareholders. The Company's insurance subsidiaries are subject to insurance laws and regulations in the jurisdictions in which they operate, including Bermuda, the United Kingdom and the United States, and are subject to significant regulatory restrictions limiting their ability to declare and pay dividends.

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ASPEN INSURANCE HOLDINGS LIMITED

Aspen Bermuda's ability to pay dividends and make capital distributions is subject to certain regulatory restrictions based principally on the amount of Aspen Bermuda's premiums written and net reserves for losses and loss expenses.

Under the jurisdiction of the Financial Services Authority ("FSA"), Aspen Re must maintain a margin of solvency at all times, which is determined based on the type and amount of insurance business written. The U.K. regulatory requirements impose no explicit restrictions on Aspen Re's ability to pay a dividend, but Aspen Re would have to notify the FSA 28 days prior to any proposed dividend payment.

Aspen Specialty is subject to regulation by the State of North Dakota Insurance Department regarding payment of dividends and capital distributions.

Statutory capital and surplus as reported to the relevant regulatory authorities for the principal operating subsidiaries of the Company as of December 31, 2003 is as follows:


	U.S.		Bermuda		U.K.
	($ in millions)
Required statutory capital and surplus	$	1.4	$	100.0	$	192.3
Actual statutory capital and surplus	$	101.4	$	357.5	$	754.0

As of December 31, 2003, 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.

11. 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 $1.4 million in the 12 months ended December 31, 2003 and $0.3 million in the period from May 23, 2002 to December 31, 2002.

12. Share Options

The Company has issued options under two schemes: investor options and employee options. The investor options were issued on June 21, 2002 in consideration for the transfer of an underwriting team from Wellington, the right to seek to renew certain business written by Syndicate 2020, an agreement in which Wellington agrees not to compete with Aspen Re through March 31, 2004, the use of the Wellington name and logo and the provision of certain outsourced services to the Company, and confer the option to subscribe for up to 6,787,880 ordinary shares of Aspen Holdings to Wellington and the members of Syndicate 2020 who are not corporate members of Wellington. The subscription price payable under the options is initially £10 and increases by 5% per annum, less any dividends paid. Option holders are not entitled to participate in any dividends prior to exercise and would not rank as a creditor in the event of liquidation. The options were exercisable on the initial public offering of the ordinary shares in the United States or the first listing of the ordinary shares on a stock exchange (a "Listing") or a sale of all or substantially all of the business, assets or undertakings of Aspen Holdings and its subsidiaries or a sale of 50% or more of the ordinary shares of Aspen Holdings (a "Sale") or, if no Listing or Sale had occurred prior to June 21, 2007, at any time within the five business days following June 21, 2007. If not exercised, the options will expire after a period of ten years.

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ASPEN INSURANCE HOLDINGS LIMITED

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. The Names' Trustee currently holds 2,566,616 Names' Options.

The following table summarizes information about investor options outstanding at December 31, 2003 and December 31, 2002 to purchase ordinary shares:


	For the Twelve Months Ended December 31, 2003				For the Period From May 23, 2002 to December 31, 2002
	Options				Options
Option Holder	Outstanding		Exercisable		Outstanding		Exercisable		Exercise Price(1)		Expirations
Wellington Underwriting plc		3,781,120		3,781,120		3,781,120		—	£	10		June 21, 2012
Names' Trustee (Harrington Trust Limited)		2,566,616		2,566,616		3,006,760		—	£	10		June 21, 2012
		6,347,736		6,347,736		6,787,880		—


(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.

On August 20, 2003 the Company granted 3,884,030 options to employees under the Aspen Insurance Holdings Limited 2003 Share Incentive Plan. The initial grant options have a term of ten years and an exercise price of $16.20 per share. Sixty-five percent of the initial grant options are subject to time-based vesting with 20% vesting upon grant and 20% vesting on each December 31 of the calendar years 2003, 2004, 2005 and 2006. The remaining 35% of the initial grant options are subject to performance-based vesting. In addition to the initial grant of 3,884,030 options, 1,840,540 options are reserved for additional grants following the completion of the Company's initial public offering.

The following table summarizes information about employee options outstanding to purchase ordinary shares at December 31, 2003:


	Options						Weighted Average Fair Value at Grant Date
Option Holder	Outstanding		Exercisable		Exercise Price		Weighted Average Fair Value at Grant Date
Employees		3,884,030		1,417,670	$	16.20	$	5.31

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

F-23

ASPEN INSURANCE HOLDINGS LIMITED

13. Intangible Assets


Intangible Assets	As at December 31, 2003		As at December 31, 2002
	($ in millions)
Insurance Licenses
Beginning of period	$	2.0	$	—
Cost in period		4.6		2.0
End of period		6.6		2.0
Impairments
Beginning of period		—		—
Charge in period		—		—
End of period		—		—
Net book value
Beginning of period		2.0		—
Movement in period		4.6		2.0
End of period	$	6.6	$	2.0

14. Commitments and Contingencies

In the normal course of business, letters of credit are issued as collateral on behalf of the business, as required within our reinsurance operations. As of December 31, 2003 and as of December 31, 2002, letters of credit with an aggregate amount of $24.6 million and £47.4 million were outstanding respectively. As of December 31, 2003 the Company had funds on deposit of $30.0 million as collateral for the letters of credit.

For its U.S. reinsurance activities, Aspen Re has established and must retain a multi-beneficiary U.S. trust fund for the benefit of its U.S. cedents so that they are able to take financial statement credit without the need to post cedent-specific security. The minimum trust fund amount is $20 million plus an amount equal to 100% of Aspen Re's U.S. reinsurance liabilities, which was $25.6 million at December 31, 2003. Aspen Re has established a U.S. surplus lines trust fund with a U.S. bank to secure U.S. surplus lines policies. The initial minimum trust fund amount is $5.4 million. The balance held in the trust at December 31, 2003 was $5.4 million. Aspen Re has established a Canadian trust fund with a Canadian bank to secure a Canadian insurance license. The initial minimum trust fund amount and balance at December 31, 2003 was Can$25.0 million. Aspen Specialty has a total of $4.7 million on deposit with seven U.S. States in order to satisfy state regulations for writing business there.

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


	Due in
	Less than 1 year		1-2 years		3-4 years		4 years		5 years
Operating Lease Obligation		6.0		1.0		0.7		0.6		0.6

15. Reinsurance Ceded

The primary purpose of the ceded reinsurance program is to protect the Company from potential losses in excess of what the Company is prepared to accept. It is expected that the companies to

F-24

ASPEN INSURANCE HOLDINGS LIMITED

which reinsurance has been ceded will honor their obligations. In the event that these companies are unable to honor their obligations to the Company, the Company will pay these amounts. Appropriate provision is made for possible non-payment of amounts due to the Company.

Balances pertaining to reinsurance transactions are reported "gross" on the consolidated balance sheet, meaning that reinsurance recoverable on unpaid losses and ceded unearned premiums are not deducted from insurance reserves but are recorded as assets.

The largest concentration of reinsurance recoverables and ceded unearned premiums as at December 31, 2003, excluding related party quota share arrangements, was with Munchener Ruckversicherungs-Gesellschaft, Germany, which is rated A+ (Superior) by A.M. Best, the second highest of fifteen rating levels, and A+ by Standard & Poor's, the fifth highest of twenty-one rating levels for its financial strength. Balances with Munchener Ruckversicherungs-Gesellschaft represented 3.6% of reinsurance recoverables and 8.0% of ceded unearned premiums. As at December 31, 2002 the largest concentration of reinsurance recoverables excluding related party quota share arrangements, was with XL Re Limited (Bermuda), which is rated A+ by A.M. Best and AA by Standard & Poor's for its financial strength. The largest concentration of ceded unearned premiums as at December 31, 2002, excluding related party quota share arrangements, was with Everest Re (Bermuda) Limited, which is rated A+ (Superior) by A.M. Best, the second highest of fifteen rating levels, and AA– (Very Strong) by Standard & Poor's, the third highest of twenty-one rating levels for its financial strength. Balances with XL Re represented 29.3% of reinsurance recoverables and balances with Everest Re represented 23.6% of ceded unearned premiums.

The effect of assumed and ceded reinsurance on premiums written, premiums earned and insurance losses and loss adjustment expenses is as follows:


	Twelve Months Ended December 31, 2003			Period from Incorporation on May 23, 2002 to December 31, 2002
	($ in millions)
Premiums written:
Direct	$	304.9		$	86.6
Assumed		1,001.9			288.2
Ceded		(214.0	)		(62.2	)
Net premiums written		1,092.8			312.6
Premiums earned:
Direct	$	240.6		$	28.0
Assumed		747.2			135.8
Ceded		(175.5	)		(43.5	)
Net premiums earned		812.3			120.3
Insurance Losses and Loss Adjustment Expenses:
Direct	$	126.1		$	17.2
Assumed		317.7			69.8
Ceded		(15.4	)		(10.1	)
Net insurance losses and loss adjustment expenses	$	428.4		$	76.9

F-25

ASPEN INSURANCE HOLDINGS LIMITED

16. Segment Information

The Company has two reportable segments, reinsurance operations and insurance operations. The directors have determined these segments by reference to the organization structure of the business and the different services provided by the segments.

The accounting policies of both segments are the same as those described in the summary of significant accounting policies. Results are analyzed separately for each of our property-liability segments. Property-liability underwriting assets are reviewed in total by the directors for the purpose of decision-making.

Geographical Areas — The following summary presents financial data of the Company's operations based on their location.


	Twelve Months Ended December 31, 2003		Period from Incorporation on May 23, 2002 to December 31, 2002
	($ in millions)
Net Earned Premium
U.K.	$	316.5	$	32.2
U.S.		299.1		77.0
Non-U.S. or Non-U.K.		196.7		11.1
Net premiums earned	$	812.3	$	120.3

F-26

ASPEN INSURANCE HOLDINGS LIMITED

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


	Twelve Months Ended December 31, 2003			Period from Incorporation on May 23, 2002 to December 31, 2002
	($ in millions)
Revenues:
Underwriting
Total primary insurance operations	$	215.7		$	23.4
Total reinsurance operations		596.6			96.9
Total underwriting		812.3			120.3
Investment operations
Net investment income		29.6			8.5
Realised investment gains/(losses)		(2.4	)		(0.1	)
Total investment operations		27.2			8.4
Exchange gains and other		1.5			13.1
Total Revenues		841.0			141.8
Expenses:
Underwriting — Claims and expenses
Total primary insurance operations	$	(165.4	)	$	(21.4	)
Total reinsurance operations		(468.3	)		(85.2	)
Total underwriting — claims and expenses		(633.7	)		(106.6	)
Investment Operations
Investment and investment management expenses		(0.3	)		(0.1	)
Interest expense		(0.4	)		—
Total Expenses	$	(634.4	)	$	(106.7	)
Income from operations before income taxes:
Underwriting
Total primary insurance operations	$	50.3		$	2.0
Total reinsurance operations		128.0			11.6
Total underwriting		178.3			13.6
Interest expense		(0.4	)		—
Investment operations
Net investment income		29.6			8.5
Realized investment gains/(losses)		(2.4	)		(0.1	)
Total investment operations		27.2			8.4
Other income		1.5			13.1
Total Income before income taxes	$	206.6		$	35.1

F-27

ASPEN INSURANCE HOLDINGS LIMITED

17. 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 currency adjustments, net of taxes. The following table sets out the components of the Company's other comprehensive income, other than net income.


	Twelve months ended December 31, 2003
	Pre-tax			Income tax effect			After tax
	($ in millions)
Accumulated Other Comprehensive Income
Unrealized gains on investments	$	2.3		$	(0.8	)	$	1.5
Unrealized losses on investments		(2.9	)		0.8			(2.1	)
Change in currency translation		31.3			(3.5	)		27.8
Total other comprehensive income	$	30.7		$	(3.5	)	$	27.2


	Period from Incorporation on May 23, 2002 to December 31, 2002
	Pre-tax			Income tax effect			After tax
				($ in millions)
Other Comprehensive Income
Unrealized gains on investments	$	3.0		$	(1.0	)	$	2.0
Unrealized losses on investments		(2.2	)		0.8			(1.4	)
Net change in currency translation		12.0			—			12.0
Total other comprehensive income	$	12.8		$	(0.2	)	$	12.6

18. Supplemental disclosure of cash flow information

Non-Cash Investing And Financing Activities:

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



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

On June 21, 2002 the Company purchased all of the capital stock of City Fire Insurance Company Ltd for $24.2 million. In conjunction with the acquisition, liabilities were assumed as follows:



Fair value of assets acquired, including cash of $6.5 million	$	33.0
Cash paid for the capital stock		(24.2	)
Liabilities assumed	$	8.8

F-28

ASPEN INSURANCE HOLDINGS LIMITED

19. Loan Facility

The Company has entered into a credit facility with a syndicate of commercial banks under which it may, subject to the terms of the credit agreements, borrow up to $150 million for periods of up to three years and a further $50 million for periods of up to one year. Credit Suisse First Boston, an affiliate of Credit Suisse First Boston Private Equity, which is a shareholder of the Company, is a member of the syndicate on terms and conditions similar to other syndicate members.

On October 15, 2003, we drew down $90 million on the three-year credit facility. Of these borrowings, $83.9 million was used to provide part of the initial capital to Aspen U.S. and the balance was used to provide working capital to Aspen Holdings. The initial interest rate is three-month LIBOR plus 42.5 basis points. A facility fee, currently calculated at a rate of 17.5 basis points on the average daily amount of the commitment of each lender, is paid to each lender quarterly in arrears. On December 15, 2003, $50 million of the outstanding loan was repaid following receipt of funds from the initial public offering. The $40 million balance is due and payable by August 29, 2006. The collateral for the loan is "the capital stock of material subsidiaries now owned or hereafter acquired". The terms of the loan restrict the payment of cash dividends during any fiscal year to 50% of consolidated net income.

F-29

ASPEN INSURANCE HOLDINGS LIMITED

20. Unaudited Quarterly Financial Data

The following is a summary of the quarterly financial data for twelve months ended December 31, 2003 and for the period from incorporation on May 23, 2002 to December 31, 2002.


	Twelve Months Ended December 31, 2003
	Quarter Ended March 31, 2003			Quarter Ended June 30, 2003			Quarter Ended September 30, 2003			Quarter Ended December 31, 2003			Full Year
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 admin 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
Ordinary Shares
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
Basic		0.27			0.88			0.57			0.90			2.63
Diluted		0.27			0.88			0.57			0.88			2.56

F-30

ASPEN INSURANCE HOLDINGS LIMITED


	Period Ended December 31, 2002
	Quarter Ended September 30, 2002			Quarter Ended December 31, 2002			Full Year
Gross written premium	$	297.8		$	77.0		$	374.8
Gross earned premium		75.7			88.1			163.8
Net earned premium		51.7			68.6			120.3
Losses and loss adjustment expenses		(35.5	)		(41.4	)		(76.9	)
Policy acquisition, operating and admin expenses		(9.9	)		(19.9	)		(29.8	)
Underwriting income	$	6.3		$	7.3		$	13.6
Net investment income	$	3.2		$	5.3		$	8.5
Other income/(expense)		—			0.4			0.4
Total other operating revenue	$	3.2		$	5.7		$	8.9
Operating income before tax	$	9.5		$	13.0		$	22.5

Net exchange gains/(losses)		12.9			(0.2	)		12.7
Net realized investment gains/(losses)		(0.2	)		0.1			(0.1	)
Income before tax	$	22.2		$	12.9		$	35.1

Income tax/credits		(6.7	)		0.2			(6.5	)
Net income after tax	$	15.5		$	13.1		$	28.6
Ordinary Shares
Basic
Weighted average ordinary shares		24,859,590			38,886,645			32,424,100
Diluted
Weighted average ordinary shares		24,859,590			38,886,645			32,424,100
Weighted average effect of dilutive securities		—			—			—
Total		24,859,590			38,886,645			32,424,100
Earnings per ordinary shares
Basic		0.62			0.34			0.89
Diluted		0.62			0.34			0.89

F-31

ASPEN INSURANCE HOLDINGS LIMITED

INDEX OF FINANCIAL STATEMENT SCHEDULES


	Page
Independent Auditor's Report		S-2
Schedule II — Condensed Financial Information of Registrant		S-3
Schedule III — Supplementary Insurance Information		S-6
Schedule IV — Reinsurance		S-7
Schedule V — Valuation and Qualifying Accounts		S-8

S-1

ASPEN INSURANCE HOLDINGS LIMITED

INDEPENDENT AUDITOR'S REPORT

The Board of Directors and Shareholders of Aspen Insurance Holdings Limited:

Under date of March 26, 2004, we reported on the consolidated balance sheets of Aspen Insurance Holdings Limited and its subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of operations, shareholders' equity, comprehensive income, and cash flows for the year ended December 31, 2003 and the period from incorporation on May 23, 2002 to December 31, 2002, which are included in this Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedules appearing on pages S-3 through S-8 of the Form 10-K. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audit.

In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

KPMG Audit Plc
Chartered Accountants

London, United Kingdom

March 26, 2004

S-2

ASPEN INSURANCE HOLDINGS LIMITED

SCHEDULE II – CONDENSED FINANCIAL INFORMATION OF REGISTRANT

BALANCE SHEET
As at December 31, 2003 and 2002


	As at December 31, 2003			As at December 31, 2002
	($ in millions, except per share amounts)
ASSETS
Fixed Income Securities	$	32.1			—
Short-term investments		12.6		$	20.8
Cash and cash equivalents		20.6			0.2
Investments in subsidiaries		1,166.2			860.0
Other assets		3.5			—
Advance To Aspen US Holdings		108.8			—
Total Assets		1,343.8			881.0
LIABILITIES
Accrued expenses and other payables		5.0			2.1
Intercompany expenses payable		0.1			0.8
Long-Term Loan		40.0			—
Total Liabilities		45.1			2.9
SHAREHOLDERS' EQUITY
Ordinary shares; 69,179,303 ordinary shares (2002 – 56,876,360) of 0.15144558¢ each		1,090.8			836.9
Retained earnings		180.7			28.6

Accumulated other comprehensive income, net of taxes
Unrealized gains on investments		(0.6	)		0.6
Gains on foreign currency		27.8			12.0
Total accumulated other comprehensive income		27.2			12.6

Total Shareholders' Equity		1,298.7			878.1

Total Liabilities and Shareholders' Equity	$	1,343.8		$	881.0

S-3

ASPEN INSURANCE HOLDINGS LIMITED

SCHEDULE II – CONDENSED FINANCIAL INFORMATION OF REGISTRANT (cont'd)

STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
For the Twelve Months Ended December 31, 2003 And For the
Period From Incorporation On May 23, 2002 to December 31, 2002


	Twelve months ended December 31, 2003			Period from incorporation on May 23, 2002 to December 31, 2002
	($ in millions)
Operating Activities:
Equity in net earnings of subsidiaries	$	141.6		$	26.9
Net investment income		0.2			0.2
Dividend income		20.0			—
Realized gains/(loss)		(0.5	)		2.2
Total Revenues		161.3			29.3
Expenses:
Operating and administrative expenses		(8.6	)		(0.7	)
Interest expense		(0.6	)		—
Income from operations before income tax		152.1			28.6
Income taxes		—			—
Net income		152.1			28.6
Other comprehensive income, net of taxes
Change in unrealized gains on investments		(1.2	)		0.6
Change in unrealized gains on foreign currency translation		15.8			12.0
Other comprehensive income		14.6			12.6
Comprehensive income	$	166.7		$	41.2

S-4

ASPEN INSURANCE HOLDINGS LIMITED

SCHEDULE II – CONDENSED FINANCIAL INFORMATION OF REGISTRANT (cont'd)

STATEMENT OF CASH FLOWS
For the Twelve Months Ended December 31, 2003 And
For The Period From Incorporation On May 23, 2002 to December 31, 2002


	Twelve Months Ended December 31, 2003			Period from incorporation on May 23, 2002 to December 31, 2002
	($ in millions)
Operating Activities:
Net income (Parent Only)	$	10.5		$	1.7
Adjustments:
Share based compensation expenses		7.5			—
Change in other assets		(3.5	)		—
Change in accrued expenses and other payables		2.9			2.1
Change in intercompany activities		(0.7	)		0.8
Net Cash from operating activities		16.7			4.6
Investing Activities:
Investment in subsidiary		(150.0	)		(820.5	)
Advance to Aspen US Holdings		(108.8	)		—
Purchase of investments		(32.1	)		(20.8	)
Net (Purchase)/Sales of short-term investments		8.2			—
Net Cash used for investing activities		(282.7	)		(841.3	)
Financing Activities:
Proceeds from the issuance of ordinary shares, net of issuance costs		246.4			836.9
Proceeds from long term loan		40.0			—
Net cash from financing activities		286.4			836.9
Increase in cash and cash equivalents		20.4			0.2
Cash and cash equivalents – beginning of period		0.2			—
Cash and cash equivalents – end of period	$	20.6		$	0.2

S-5

ASPEN INSURANCE HOLDIGNS LIMITED

SCHEDULE III – SUPPLEMENTARY INSURANCE INFORMATION
For the Twelve Months Ended December 31, 2003 And For The Period From
Incorporation On May 23, 2002 to December 31, 2002

Premiums written:


	Direct		Assumed		Ceded			Net Amount
	($ in millions)
2003	$	304.9	$	1,001.9	$	(214.0	)	$	1,092.8
2002	$	86.6	$	288.2	$	(62.2	)	$	312.6

Supplementary information:


	Deferred policy acquisition costs		Net reserves for losses and loss adjustment expenses		Net reserves for unearned premiums		Net premiums written		Net investment income		Losses and loss expenses incurred related to current year			Losses and loss expenses incurred related to prior year			Operating and administrative expenses
	($ in millions)
2003	$	94.6	$	482.2	$	523.5	$	1,092.8	$	29.6	$	(438.0	)	$	(9.6	)	$	(53.9	)
2002	$	31.0	$	81.4	$	196.8	$	312.6	$	8.5	$	(76.2	)	$	0.7		$	(3.7	)

S-6

ASPEN INSURANCE HOLDINGS LIMITED

SCHEDULE IV – REINSURANCE
For the Twelve Months Ended December 31, 2003 And For The
Period From Incorporation On May 23, 2002 to December 31, 2002


	Gross amount		Ceded to other companies			Assumed from other companies		Net amount		Percentage of amount assumed to net
	($ in millions, except for percentages)
Insurance premium earned
2003	$	240.6	$	(175.5	)	$	747.2	$	812.3		92.0	%
2002	$	28.0	$	(43.5	)	$	135.8	$	120.3		112.9	%

S-7

ASPEN INSURANCE HOLDINGS LIMITED

SCHEDULE V – VALUATION AND QUALIFYING ACCOUNTS
For the Twelve Months Ended December 31, 2003 And For The
Period From Incorporation On May 23, 2002 to December 31, 2002


	Balance at beginning of year		Charged to costs and expenses		Charged to other accounts		Deductions		Balance at end of year
					($ in millions)
2003
Premiums receivable from underwriting activities		—		—		—		—		—
Reinsurance	$	0.2		—		—		—	$	0.2
2002
Premiums receivable from underwriting activities		—		—		—		—		—
Reinsurance		—		—	$	0.2		—	$	0.2

S-8

INDEX TO SYNDICATES 2020 AND 3030 FINANCIAL STATEMENTS

We included in our initial public offering prospectus the audited combined financial statements of Syndicate 2020 and Lloyd's Syndicate 3030 ("Syndicate 3030"; together with Syndicate 2020, the "Syndicates") for the years ended December 31, 2000, 2001 and 2002 (the "Syndicates Financial Statements") because a significant part of our management team at our inception came from Wellington and the Syndicates, while at the Syndicates this team developed the business which would become our Initial Lines of Business, and we participated in 2002 and, to a lesser extent, in 2003 in other business lines written by the Syndicates by way of a quota share arrangement. "Quota share" is a form of reinsurance in which premiums and losses are shared proportionately between the ceding company and the reinsurer. Under quota share arrangements, the same percentage of premiums and loss sharing applies to all reinsured policies in a given class of business. During that period the Syndicates wrote a diverse range of business (the "Syndicates Business"), including the Initial Lines of Business written by the Company as well as other lines of business which are not currently written directly by the Company. However, the Company has an interest in these other lines as a result of Aspen Re's participation in the quota share arrangements which comprised approximately 58% of our gross premiums written from our formation through December 31, 2002, but only accounted for approximately 6% of our gross premiums written for the twelve months ended December 31, 2003.

We consider the Syndicates Financial Statements as reflective of the performance of the Syndicates at a time when market conditions were very different from those currently prevailing due to a variety of reasons, including the impact of the unprecedented losses arising from the destruction of the World Trade Center. Moreover, the business mix of the Company is significantly different from the business mix of the Syndicates Business. The results of the Syndicates Business are not therefore necessarily indicative of the future results or performance of the Company.

The Company did not acquire or assume any assets, premiums or reserves of the Syndicates Business for any years prior to 2002.

The Syndicates Financial Statements have been included in this report following their inclusion in the registration statement relating to the Company's initial public offering in December 2003. The Company does not control the Syndicates and is not in a position to obtain audited U.S. GAAP Financial Statements for the Syndicates for the periods after December 31, 2002. Accordingly, neither the Syndicates Financial Statements, nor the Management's Discussion and Analysis of Financial Condition and Underwriting Results relating thereto, will be included in future annual reports on Form 10-K.


	Page
Independent Auditor's Report		P-2
Combined Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000		P-3
Combined Statements of Comprehensive Income/(Loss) for the Years Ended December 31, 2002, 2001 and 2000		P-3
Combined Balance Sheets as at December 31, 2002 and 2001		P-4
Combined Statements of Members' Deficit for the Years Ended December 31, 2002, 2001 and 2000		P-5
Combined Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000		P-6
Notes to Syndicates Financial Statements		P-7

P-1

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors of Wellington Underwriting Agencies Limited:

We have audited the accompanying combined balance sheets of Syndicates 2020 and 3030 as of December 31, 2002 and 2001 and the related combined statements of operations and comprehensive income/(loss), members' deficit, and cash flows for each of the years in the three year period ended December 31, 2002. These combined financial statements are the responsibility of Wellington Underwriting Agencies Limited. Our responsibility is to express an opinion on these combined financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined balance sheets of Syndicates 2020 and 3030 as of December 31, 2001 and December 31, 2002 and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

/s/ KPMG Audit Plc

London, United Kingdom
September 15, 2003

P-2

SYNDICATES 2020 AND 3030

COMBINED STATEMENTS OF OPERATIONS


	Twelve months ended December 31,
	2002			2001			2000
	($ in millions)
Revenues
Net premiums earned	$	863		$	562		$	466
Net investment income		31			35			35
Realized investment gains		4			17			1
Foreign exchange gains/(losses)		(14	)		(10	)		9
Total Revenues		884			604			511
Expenses
Insurance losses and loss adjustment expenses		(523	)		(605	)		(275	)
Policy acquisition expenses		(254	)		(189	)		(146	)
Operating and administration expenses		(36	)		(27	)		(26	)
Total Expenses		(813	)		(821	)		(447	)
Net income/(loss)	$	71		$	(217	)	$	64

COMBINED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)


	Twelve months ended December 31,
	2002		2001			2000
	($ in millions)
Net income/(loss)	$	71	$	(217	)	$	64
Other comprehensive income/(loss): Change in unrealized gains/(losses) on investments		9		3			8
Comprehensive income/(loss)	$	80	$	(214	)	$	72

See accompanying notes to the Syndicates financial statements

P-3

SYNDICATES 2020 AND 3030

COMBINED BALANCE SHEETS


	Year Ended December 31,
	2002			2001
	($ in millions)
Assets
Investments, at fair value
Fixed Maturities (amortized cost: 2002-$735 million, 2001-$710 million)	$	747		$	714
Short-term investments (amortized cost: 2002-$346 million, 2001-$103 million)		348			104
Total Investments		1,095			818
Cash and cash equivalents, at fair value		104			16
Overseas regulatory deposits — restricted cash		114			91
Reinsurance recoverables on unpaid losses (Including bad debt provision of 2002-$50 million; 2001-$32 million)		1,224			1,501
Reinsurance recoverables on paid losses		404			251
Ceded unearned premiums		282			154
Receivables
Underwriting premiums		676			285
Other		72			182
Deferred policy acquisition costs		144			118
Total Assets	$	4,115		$	3,416
Liabilities
Insurance Reserves
Losses and loss adjustment expenses	$	2,555		$	2,509
Unearned premiums		821			576
Total insurance reserves		3,376			3,085
Payables:
Reinsurance premiums		689			376
Accrued expenses and other payables		145			123
Commitments and contingencies (Note 7)		—			—
Total Liabilities	$	4,210		$	3,584
Members' Deficit
Retained earnings (accumulated deficit)	$	(64	)	$	(135	)
Net amounts paid to Syndicate members		(46	)		(39	)
Accumulated other comprehensive income
Unrealized gains on investments		15			6
Total Members' Deficit	$	(95	)	$	(168	)
Total Liabilities And Members' Deficit	$	4,115		$	3,416

See accompanying notes to the Syndicates financial statements

P-4

SYNDICATES 2020 AND 3030

COMBINED STATEMENTS OF MEMBERS' DEFICIT


	Year ended December 31,
	2002			2001			2000
	($ in millions)
Members' Deficit
Retained earnings (accumulated deficit):
Start of year	$	(135	)	$	82		$	18
Net income/(loss) for the year		71			(217	)		64
End of year		(64	)		(135	)		82
Net amounts paid to Syndicate members:
Start of year		(39	)		(88	)		(31	)
Amounts received from Syndicate members		—			74			—
Amounts paid to Syndicate members		(7	)		(25	)		(57	)
End of year		(46	)		(39	)		(88	)
Unrealized gains/(losses) on investments:
Start of year		6			3			(5	)
Change for the year		9			3			8
End of year		15			6			3
Total Members' Deficit	$	(95	)	$	(168	)	$	(3	)

See accompanying notes to the Syndicates financial statements

P-5

SYNDICATES 2020 AND 3030

COMBINED STATEMENTS OF CASH FLOWS


	Twelve months ended December 31,
	2002			2001			2000
	($ in millions)
Operating Activities
Net income/(loss)	$	71		$	(217	)	$	64
Adjustments
Change in property-liability insurance reserves:
Losses and loss adjustment expenses		(2	)		993			252
Unearned premiums		230			204			25
Change in reinsurance balances:
Reinsurance recoverables on paid losses		300			(712	)		(211	)
Ceded unearned premiums		(122	)		(56	)		(7	)
Change in deferred policy acquisition costs		(23	)		(51	)		(3	)
Change in reinsurance premiums payable		301			205			63
Change in reinsurance recoverables on paid losses		(153	)		(130	)		(110	)
Change in accounts receivable		(259	)		(91	)		59
Change in accrued expenses and other payables		19			106			(114	)
Other		4			(15	)		2
Net cash provided by operating activities		366			236			20
Investing Activities
Overseas regulatory deposits placed		(23	)		(9	)		(46	)
Purchase of investments		(2,996	)		(2,008	)		(752	)
Proceeds from the sales and maturities of investments		2,730			1,704			812
Net Cash (Used In) Provided By Investing Activities		(289	)		(313	)		14
Financing Activities
Amounts distributed to Syndicate members		(7	)		(25	)		(57	)
Amounts received from Syndicate members		—			74			—
Net Cash (Used In) Provided By Financing Activities		(7	)		49			(57	)
Effects Of Exchange Rate Movements On Cash And Cash Equivalents		18			7			(34	)
Increase (Decrease) In Cash And Cash Equivalents		88			(21	)		(57	)
Cash at beginning of the year		16			37			94
Cash at end of the year	$	104		$	16		$	37

See accompanying notes to the Syndicates financial statements

P-6

SYNDICATES 2020 AND 3030

NOTES TO SYNDICATES FINANCIAL STATEMENTS

1. Basis Of Presentation And Summary Of Significant Accounting Policies

Basis of Presentation

Status of Syndicate 2020 and Syndicate 3030 as Predecessor to the Company.

Aspen Insurance Holdings Limited ("Aspen Holdings") was formed in May 2002. The management of Aspen Holdings largely comprises the management team for the lines of business which were underwritten by Aspen Holdings' insurance subsidiaries after being developed by Syndicate 2020 and Syndicate 3030.

As a result, the predecessor to Aspen Holdings comprises the combined businesses of Syndicate 2020, and for the period that it conducted business, Syndicate 3030 (the "Syndicates"). The method by which Aspen Holdings assumed this business is described in detail in Note 10.

Constitution of the Syndicates

The Syndicates operate within Lloyd's which has a unique operating structure allowing individuals and corporations ("Members") to participate in the underwriting of insurance risks. Members of Lloyd's join together on an annual basis to form syndicates. These Members may be either individuals or corporate members.

As Lloyd's syndicates, the Syndicates operate as annual joint ventures between their Members that are fully accounted for and settled at the end of a 36-month period. The declared results are distributed to (or collected from) the Members who are responsible at an individual level for any of the tax liabilities thereon. The Members of these Syndicates pledge capital to support the syndicates for each underwriting year of account and a proportion of the capital pledged is deposited at Lloyd's. The Syndicates are allowed to underwrite up to a premium capacity based on the level of capital committed for each underwriting year of account.

Each Lloyd's syndicate is managed by a managing agent. Wellington Underwriting Agencies Limited ("WUAL") is the managing agent of the Syndicates. WUAL appoints and employs the staff of the Syndicates, including the Chief Underwriting Officer and, also provides the business infrastructure and support services. WUAL recharges the Syndicates for the cost of services provided and also charges fees and profit commission based on the Syndicates' capacity and profits respectively.

WUAL maintains the Syndicates' accounting records and prepares their annual reports in accordance with the Lloyd's Syndicate Accounting Bye-Law, which uses the Lloyd's three year funded basis of accounting. These annual reports include the results of underwriting, Syndicate operating expenses and investment income earned on insurance funds, but do not include details of the capital deposited by Members, the investment income earned thereon and the members' liability for tax on the results of the syndicate. This is because the capital supporting these Syndicates, investment income earned thereon and tax on Syndicates' results are the responsibility of the members of the Syndicates and not of the Syndicates themselves.

The financial statements of the Syndicates have been prepared for the purpose of the prospectus relating to our initial public offering in accordance with United States generally Accepted Accounting Principles ("U.S. GAAP"). The financial statements for the twelve months ended December 31, 2002 include the transactions of Syndicate 3030 which commenced business on June 1, 2002 and underwrote on a co-insurance basis with Syndicate 2020 for that year only. Transactions between Syndicate 2020 and Syndicate 3030 have been eliminated.

Use of Estimates

Estimates and assumptions are made by the directors of WUAL that have an effect on the amounts reported within these combined financial statements. The most significant estimates relate to

P-7

SYNDICATES 2020 AND 3030

NOTES TO SYNDICATES FINANCIAL STATEMENTS
(Continued)

the reserves for property and liability losses. These estimates are continually reviewed and adjustments made as necessary, but actual results could turn out significantly different from those expected when the estimates were made.

Accounting For Underwriting Operations

Premiums Earned

Assumed premiums are recognized as revenues proportionately over the coverage period. Premiums earned are recorded in the statement of operations, net of the cost of purchased reinsurance. Premiums not yet recognized as revenue are recorded in the balance sheet as unearned premiums, gross of any ceded unearned premiums. Written and earned premiums, and the related costs, which have not yet been reported to the Syndicates are estimated and accrued. Due to the time lag inherent in reporting of premiums by cedents, such estimated premiums written and earned, as well as related costs, may be significant. Differences between such estimates and actual amounts will be recorded in the period in which the actual amounts are determined.

Premiums on proportional treaty contracts are generally not reported to the Syndicates until after the reinsurance coverage is in force and the Syndicates are at risk. As a result an estimate of these "pipeline" premiums is recorded. The directors of WUAL estimate pipeline premiums based on estimates reported from ceding companies. The directors of WUAL estimate commissions, losses and loss adjustment expenses on these premiums.

Reinstatement premiums and additional premiums are accrued as provided for in the provisions of assumed reinsurance contracts, based on experience under such contracts. Reinstatement premiums are the premiums charged for the restoration of the reinsurance limit of a catastrophe contract to its full amount after payment by the reinsurer of losses as a result of an occurrence. These premiums relate to the future coverage obtained during the remainder of the initial policy term and are earned over the remaining policy term. Additional premiums are premiums charged after coverage has expired, related to experience during the policy term, which are earned immediately. An allowance for uncollectible premiums is established for possible non-payment of such amounts due, as deemed necessary.

Outward reinsurance premiums are accounted for in the same accounting period as the premiums for the related direct insurance or inwards reinsurance business. Reinsurance contracts that operate on a "losses occurring during" basis are accounted for in full over the period of coverage whilst "risks attaching during" policies are expensed using the same ratio as the underlying premiums on a daily pro rata basis.

Insurance Losses and Loss Adjustment Expenses

Losses represent the amount paid or expected to be paid to claimants in respect of events that have occurred on or before the balance sheet date. The costs of investigating, resolving and processing these claims are known as loss adjustment expenses ("LAE"). The statement of operations records these losses net of reinsurance, meaning that gross losses and loss adjustment expenses incurred are reduced by the amounts recovered or expected to be recovered under reinsurance contracts.

Reinsurance

Written premiums earned and incurred claims and LAE all reflect the net effect of assumed and ceded reinsurance transactions in the income statement. Assumed reinsurance refers to the Syndicates' acceptance of certain insurance risks that other insurance companies have underwritten. Ceded reinsurance means other insurance companies have agreed to share certain risks with the Syndicates. Reinsurance accounting is followed when risk transfer requirements have been met.

P-8

SYNDICATES 2020 AND 3030

NOTES TO SYNDICATES FINANCIAL STATEMENTS
(Continued)

WUAL regularly evaluates the financial condition of its reinsurers and monitors the concentration of credit risk to minimize the Syndicates' exposure to financial loss from reinsurers' insolvency. Where it is considered required, appropriate provision is made for balances deemed irrecoverable from reinsurers.

Insurance Reserves

Insurance reserves are established for the total unpaid cost of claims and LAE, which cover events that have occurred by the balance sheet date. These reserves reflect estimates by the directors of WUAL of the total cost of claims incurred but not yet reported to it ("IBNR"). Claim reserves are reduced for estimated amounts of salvage and subrogation recoveries. Estimated amounts recoverable from reinsurers on unpaid losses and LAE are reflected as assets.

Because many of the coverages underwritten involve claims that may not be ultimately settled for many years after they are incurred, subjective judgments as to the ultimate exposure to losses are an integral and necessary component of the loss reserving process. Reserves are established by the selection of a "best estimate" from within a range of estimates. The directors of WUAL continually review the Syndicates' reserves, using a variety of statistical and actuarial techniques to analyze current claims costs, frequency and severity data, and prevailing economic, social and legal factors. Reserves established in prior periods are adjusted as claim experience develops and new information becomes available. Adjustments to previously estimated reserves are reflected in the financial results of the period in which the adjustments are made.

While the directors of WUAL believe that the reported reserves make a reasonable provision for unpaid claim and LAE obligations, it should be noted that the process of estimating required reserves does, by its very nature, involve uncertainty. The level of uncertainty can be influenced by factors such as the existence of coverage with long duration payment patterns and changes in claims handling practices, as well as the factors noted above. Ultimate actual payments for claims and LAE could turn out to be significantly different from estimates made.

Policy Acquisition Expenses

The costs directly related to writing an insurance policy are referred to as policy acquisition expenses and consist of commissions, premium taxes and other direct underwriting expenses. Although these expenses are incurred when a policy is issued they are deferred and amortized over the same period as the corresponding premiums are recorded as revenues.

On a regular basis a recoverability analysis is performed of the deferred policy acquisition costs in relation to the expected recognition of revenues, including anticipated investment income, and reflects adjustments, if any, as period costs. Should the analysis indicate that the acquisition costs are unrecoverable, further analyses are performed to determine if a reserve is required to provide for losses which may exceed the related unearned premium.

Accounting For Investments

Fixed Maturities

The fixed maturity portfolio is composed primarily of high quality, U.S. and U.K. government securities. The entire fixed maturity investment portfolio is classified as available for sale. Accordingly,

P-9

SYNDICATES 2020 AND 3030

NOTES TO SYNDICATES FINANCIAL STATEMENTS
(Continued)

that portfolio is carried on the balance sheet at estimated fair value. Fair values are based on quoted market prices from a third party pricing service.

Short-term investments

Short-term investments include highly liquid debt instruments and commercial paper. The investments are classified as available for sale and are therefore carried on the balance sheet at estimated fair value.

Overseas Regulatory Deposits

Overseas Regulatory Deposits are restricted in use as they are required to enable the Syndicates to write business in the relevant territories.

Realized Investment Gains and Losses

When an investment is sold the resulting gain or loss is recorded in the combined statement of operations.

If the Directors of WUAL determine that any investment has experienced a decline in value that is believed to be other than temporary, the directors of WUAL will consider the current facts and circumstances, including the financial position and future prospects of the entity that issued the investment security, and make a decision to either record a write-down in the carrying value of the security to its fair value, thereby establishing a new cost basis for the security, or sell the security; in either case a realized loss is recorded in the statement of operations.

Unrealized Gains or Losses on Investments

For investments carried at estimated fair value, the difference between amortized cost and fair value is recorded as part of members' interests. This difference is referred to as unrealized gains or losses on investments. The change in unrealized gains or losses, during the year is a component of other comprehensive income.

Cash and cash equivalents

Cash and cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash, and that are so near maturity that they present insignificant risk of changes in value because of changes in interest rates.

Derivative Financial Instruments

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities", all derivatives are recorded on the balance sheet at fair value. The accounting for the gain or loss due to the changes in the fair value of these instruments is dependent on whether the derivative qualifies as a hedge. If the derivative does not qualify as a hedge, the gains or losses are reported in earnings when they occur. If the derivative does qualify as a hedge, the accounting varies based on the type of risk being hedged.

Foreign Currency Translation

The functional and reporting currency of the Syndicates' operations is U.S. Dollars. Transactions in currencies other than the functional currency are measured at the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in non-functional currencies are re-measured at the exchange rate prevailing at the balance sheet date. Any resulting foreign exchange gains or losses are reflected in the combined statement of operations.

P-10

SYNDICATES 2020 AND 3030

NOTES TO SYNDICATES FINANCIAL STATEMENTS
(Continued)

2. 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, 2002
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	($ in millions)
Fixed maturities
Foreign Governments	$	235	$	3		—		$	238
Corporate Securities		500		9		—			509
Total Fixed maturities		735		12		—			747
Short-Term Investments		346		2		—			348
Total	$	1,081	$	14		—		$	1,095
	As of December 31, 2001
	($ in millions)
Fixed maturities
Foreign Governments	$	353	$	1	$	(1	)	$	353
Corporate Securities		357		4		—			361
Total Fixed maturities		710		5		(1	)		714
Short-Term Investments		103		1		—			104
Total	$	813	$	6	$	(1	)	$	818

The following table presents the breakdown of investments as at December 31, 2002 to stated maturity. Actual maturities may differ from those stated as a result of calls and prepayments:


	As of December 31, 2002
	Amortized Cost		Estimated Fair Value
	($ in millions)
Fixed maturities:
One year or less	$	314	$	317
Over one year through five years		365		377
Over five years		56		53
		735		747
Short-term investments:
One year or less		346		348
Over one year through five years		—		—
Over five years		—		—
Total	$	1,081	$	1,095

P-11

SYNDICATES 2020 AND 3030

NOTES TO SYNDICATES FINANCIAL STATEMENTS
(Continued)

3. Investment Transactions

The following is a summary of investment income:


	Year Ended
	2002			2001			2000
	($ in millions)
Fixed maturities:	$	24		$	32		$	21
Short-term Investments		10			5			16
Investment Expenses		(3	)		(2	)		(2	)
Net investment income	$	31		$	35		$	35

The following table summarizes the realized investment gains and losses, and the change in unrealized gains on investments recorded in shareholders' equity and in comprehensive income:


	Year Ended
	2002			2001			2000
	($ in millions)
Short-term investments
Realized investment gains	$	1		$	10			—
Fixed maturities:
Gross realized gains		5			9			3
Gross realized losses		(2	)		(2	)		(2	)
Realized investment gains/(losses)		3			7			1
Total realized investment gains/(losses)		4			17			1
Change in unrealized gains
Fixed maturities		8			(1	)		13
Short-term investments		1			4			(5	)
Total change in unrealized gains	$	9		$	3		$	8

P-12

SYNDICATES 2020 AND 3030

NOTES TO SYNDICATES FINANCIAL STATEMENTS
(Continued)

4. September 11, 2001 Terrorist Attack

The estimates of the ultimate gross and net losses at December 31, 2002 and 2001 arising from the terrorist attacks in the United States of America on September 11, 2001 are set out below:


	As of December 31, 2002			Movement for the year ended December 31, 2002			As of December 31, 2001
	($ in millions)
Total estimated gross loss	$	886		$	(32	)	$	918
Estimated reinstatement premiums receivable		(32	)		1			(33	)
Estimated reinsurance recoverable*		(719	)		27			(746	)
Estimated reinstatement premiums payable		98			(2	)		100
Total estimated net loss	$	233		$	(6	)	$	239

*	net of provision for bad debts of $11.3 million

A loss of $239 million was recorded in the Income Statement for the twelve months ended December 31, 2001. A profit of $6 million has been recognized in the Income Statement for the twelve months ended December 31, 2002.

Movements of the individual components and the resulting balances at December 31, 2002 comprise the following:


	Paid		Outstanding and IBNR Claims Reserve			Reinstatements			Estimated Ultimate Net Loss
January 1, 2002	$	2	$	170		$	67		$	239
Movement		12		(17	)		(1	)		(6	)
December 31, 2002	$	14	$	153		$	66		$	233

The method used in assessing the ultimate losses at December 31, 2002 is consistent with the approach taken at December 31, 2001. Specific provisions have been made based on notification of losses incurred received from policyholders, intermediaries and loss adjustors and in the light of other information available. Amongst other things, these specific provisions are sensitive to assumptions about the quantum of property damage. Additionally, estimates for business interruption claims, for which notifications are based upon policyholders' computation of their own losses will change as forensic claims investigations determine a more realistic amount of loss. Additional provisions (incurred but not reported reserves) continue to be held at December 31, 2002 to provide for additional claims which have been incurred but not reported, or increases in the estimates already reported by policyholders. Independent actuaries have reviewed such estimates.

Uncertainties continue to exist as to whether the destruction of the twin towers of the World Trade Center ("WTC") constitutes one event or two for the purposes of aggregation of losses under insurance and reinsurance policies. Based on legal advice, the directors of WUAL continue to consider that a one event basis is the correct interpretation of the policies, which is a matter in current

P-13

SYNDICATES 2020 AND 3030

NOTES TO SYNDICATES FINANCIAL STATEMENTS
(Continued)

litigation among insurers (including Syndicate 2020) and those holding property interests in the WTC. If a two event loss basis were to be applied, it is estimated that the loss to the Syndicates from direct and reinsurance policies would increase by approximately $141 million gross and $13 million net of reinsurance. Estimated reinsurance recoveries on ultimate losses (net of provisions for bad debt) total $719 million of which $277 million had been received at December 31, 2002. A further $326 million is supported by outstanding claims advances or letters of credit received from reinsurers as security for the amount which will become due and payable when the underlying claims are settled. Of the uncollateralized amount, 98.2% is associated with reinsurers with a rating of A or better.

The directors of WUAL consider that the WTC loss estimate continues to be the best estimate that can be made on the basis of information currently available. The directors are, however, aware that this estimate is subject to uncertainties, the outcome of which could have a positive or a negative impact on such an estimate. As further information becomes available and as claims in dispute are eventually resolved, the estimate of ultimate losses will be revised. It may take some time to resolve such uncertainties.

5. Derivative Financial Instruments

Derivative financial instruments include futures, forward, swap and option contracts and other financial instruments with similar characteristics. The Syndicates have no involvement with these instruments, other than with respect to certain forward contracts entered into primarily for the purpose of protecting against fluctuations in foreign currency exchange rates and which did not qualify as hedges under SFAS No. 133 during the reporting period.

Non-hedge Derivatives — During the twelve months ended December 31, 2002, the Syndicates entered into foreign exchange contracts which matured after the year end for the purchase of £37.9 million at a fixed exchange rate. Similar contracts were outstanding at the end of 2001 and 2000 for the purchase of £51.4 million and £23.7 million, respectively. A gain of $7.1 million (2001: loss of $2.1 million); (2000: gain of $0.3 million) was realized under these contracts. These contracts were taken out to protect the Syndicates from exchange rate fluctuations.

P-14

SYNDICATES 2020 AND 3030

NOTES TO SYNDICATES FINANCIAL STATEMENTS
(Continued)

6. Reserves For Losses And Loss Adjustment Expenses

The following table represents a reconciliation of beginning and ending property — liability insurance loss and LAE reserves.


	Year ended December 31,
	2002			2001			2000
	($ in millions)
Provision for losses and LAE at start of year	$	2,509		$	1,501		$	1,289
Less reinsurance recoverable		(1,501	)		(781	)		(590	)
Net loss and LAE reserves at start of year		1,008			720			699
Provision for losses and LAE for claims incurred
Current year		570			579			260
Prior years		(47	)		26			15
Total incurred		523			605			275
Losses and LAE payments for claims incurred
Current year		(81	)		(116	)		(80	)
Prior years		(151	)		(196	)		(167	)
Total paid		(232	)		(312	)		(247	)
Foreign Exchange gains/(losses)		32			(5	)		(7	)
Net loss and LAE reserves at year end		1,331			1,008			720
Plus reinsurance recoverables on unpaid losses at end of year		1,224			1,501			781
Loss and LAE reserves at end of year	$	2,555		$	2,509		$	1,501

The Syndicates have no material exposures to environmental or asbestos liabilities. There are no exposures arising on policies incepting before January 1, 1993 as all policies for that period have been reinsured into Equitas, the run-off reinsurer established by Lloyd's of London. Policies since then were normally written with specific exclusions for asbestos and environmental liabilities.

The $47 million prior year reduction in the provision for losses and LAE for claims incurred recognized in the 2002 calendar year represents a redundancy on the opening reserves of approximately 5%. The redundancy arises from the business written in 2001 where the reserves established were primarily based upon historical trends due to the delay in claims being reported. Subsequent to the year end, the level of claims development was below historical trends which has resulted in a reassessment of the reserves held at December 31, 2001 and the reported redundancy.

7. Commitments And Contingencies

In the normal course of business letters of credit are issued as collateral on behalf of the business, as required within our reinsurance operations. As of December 31, 2002, letters of credit with an aggregate amount of $114 million were outstanding (December 31, 2001: $91 million; December 31, 2000: $82 million). No amounts have been drawn down on these letters of credit.

Legal matters

In the ordinary courses of conducting business, the Syndicates have been named as defendants in various lawsuits. Some of these lawsuits attempt to establish liability under reinsurance contracts

P-15

SYNDICATES 2020 AND 3030

NOTES TO SYNDICATES FINANCIAL STATEMENTS
(Continued)

issued by the Syndicates' underwriting operations. Plaintiffs in these lawsuits are asking for money damages or to have the court direct the activities of the Syndicates' operations in certain ways. It is possible that the settlement of these lawsuits may be material to the Syndicates' results of operations and liquidity in the period in which they occur. However, the Directors of WUAL believe the total amounts that the Syndicates will ultimately have to pay in these matters will have no material effect on the Syndicates' overall financial position.

Citibank, N.A.

Certain members of Lloyd's ("Names") have commenced legal proceedings against Citibank, N.A. ("Citibank"), as trustee of the Lloyd's American Trust Funds ("LATFs"), regarding the operation of the LATFs. Lloyd's is not a party to the proceedings. This action was brought prior to the completion of Reconstruction And Renewal. The Names in these proceedings allege that Citibank breached its duties as the trustee of the LATFs by, inter alia: (1) engaging in a pattern of transferring money from the trust funds of solvent Names to trust funds of insolvent Names in order to meet the latter's obligations; (2) engaging in unauthorized commingling of the assets from the different trust funds; and (3) failing to maintain appropriate and necessary records with respect to each trust fund. The Court has certified the proceedings as a class action, the class being of all those names who have not settled with Citibank through the 1996 Reconstruction & Renewal settlement offer or otherwise.

At the beginning of 1997, on the application of Citibank, the U.S. District Court dismissed a number of the Names' claims. The Court held, however, that the plaintiffs may continue to bring their claim for damages for breach of fiduciary duty by Citibank in U.S. courts. These initial findings were on preliminary motion, and are not findings on the merits of the claims.

Citibank strongly denies the allegations made by the Names and will vigorously defend the proceedings if pursued. Under the terms of the Lloyd's American Trust Deed ("LATD"), Citibank has a right to reimbursement from the LATFs of expenses (including legal fees) properly incurred by Citibank in its capacity as trustee and in certain circumstances a preferred lien for up to 1% of the LATFs' principal and income in order to cover reimbursable expenses and liabilities. At this time Citibank is not seeking to recover its fees and expenses from the LATFs.

E.C. Aviation Inquiry

The E.C. competition directorate is currently investigating certain agreements in the market for aviation and hull war insurance within the European Community which followed the events of September 11, 2001.

We believe that the industry response to the events in question was the least restrictive means of ensuring the continued availability of insurance cover to airlines. We are advised, however, that there is a risk that the European Commission may consider imposing fines should they establish an infringement of Article 81(1) of the E.C. Treaty (which prohibits any arrangement which restricts competition in a market and which affects E.U. trade).

8. Reinsurance Ceded

The primary purpose of the ceded reinsurance program is to protect the Syndicates from potential losses in excess of what the Syndicates are prepared to accept. It is expected that the companies to which reinsurance has been ceded will honor their obligations. In the event that these companies are unable to honor their obligations to the Syndicates, the Syndicates will pay these amounts. Appropriate provision is made for possible non-payment of amounts due to the Syndicates.

Balances pertaining to reinsurance transactions are reported "gross" on the combined balance sheet, meaning that reinsurance recoverable on unpaid losses and ceded unearned premiums are not deducted from insurance reserves but are recorded as assets.

P-16

SYNDICATES 2020 AND 3030

NOTES TO SYNDICATES FINANCIAL STATEMENTS
(Continued)

Excluding related party quota share arrangements, there was no exposure with any reinsurer of more than 10% of unearned premiums. The largest concentration of reinsurance recoverables as at December 31, 2002, excluding related party quota share arrangements, was with Munich Re which represented 12% of total recoverables.

The effect of assumed and ceded reinsurance on premiums written, premiums earned and insurance losses and loss adjustment expenses is as follows:


	Year ended December 31,
	2002			2001			2000
	($ in millions)
Premiums Written
Direct	$	1,091		$	518		$	372
Assumed		758			744			385
Ceded		(865	)		(574	)		(262	)
Net premiums written		984			688			495
Premiums Earned
Direct		926			430			359
Assumed		687			618			370
Ceded		(750	)		(486	)		(263	)
Net premiums earned		863			562			466
Insurance Losses and Loss Adjustment Expenses
Direct		483			663			535
Assumed		359			951			553
Ceded		(319	)		(1,009	)		(813	)
Total net insurance losses and loss adjustment expenses	$	523		$	605		$	275

9. Other Comprehensive Income

Other comprehensive income is defined as any change in the Syndicates members' interests from transactions and other events originating from non-member sources. These changes are comprised of the Syndicates' reported net income and changes in unrealized gains and losses on investments. The following table sets out the components of the Syndicates' comprehensive income, other than net income.


	Year ended December 31,
	2002		2001			2000
	($ in millions)
Unrealized gains on investments	$	9	$	4		$	13
Unrealized losses on investments		—		(1	)		(5	)
Total other comprehensive income	$	9	$	3		$	8

P-17

SYNDICATES 2020 AND 3030

NOTES TO SYNDICATES FINANCIAL STATEMENTS
(Continued)

10. Related Party Transactions

The following summarizes the related party transactions of the Syndicates:

WELLINGTON UNDERWRITING PLC ("Wellington")

Wellington is the holding company of WUAL and of certain corporate Members of Lloyd's which are Members of Syndicate 2020.

Management fees paid to WUAL in respect of the Syndicates in 2002 were $6.0 million (2001: $4.3 million; 2000: $3.1 million). There were no payments outstanding at the year end (2001: nil; 2000: nil).

WELLINGTON SYNDICATE SERVICES LIMITED ("WSS")

WSS is a wholly owned subsidiary of Wellington.

Activities

WSS introduces terrorism, cargo, political risk, commercial lines, accident and health, hull, and war marine liability business to Syndicate 2020 and commercial lines business to Syndicate 3030. All business is introduced by WSS to the participating Syndicates by means of registered binding authorities.

Premium Income

The percentage of total net written premium income introduced by WSS to Syndicate 2020 during 2002 was 10% (2001 and 2000 — 3.3%). The percentage of total net written premium income introduced to Syndicate 3030 was 4.5% for 2002. WSS does not charge income or commission to Syndicate 2020 or Syndicate 3030.

WELLINGTON UNDERWRITING INC ("WU Inc.")

WU Inc. is a wholly owned subsidiary of Wellington.

Activities

WU Inc., which is a company incorporated in Delaware in the USA, introduces US property and casualty facultative reinsurance business to Syndicate 2020 by way of a registered binding authority.

Premium Income

All premium income introduced by WU Inc. to WUAL in the years 2000, 2001 and 2002 was underwritten by Syndicate 2020. The percentage to total net premium income introduced to WU Inc. to Syndicate 2020 during 2002 was 10.7% (2001 — 5.6%; 2000 — 1.4%). WU Inc. charged binder commission of $18.2 million (2001: $10.5 million; 2000: $6.5 million) in respect of business introduced to Syndicate 2020.

WU Inc. also charged Syndicate 2020 a profit commission of $0.9 million (2001: $0.5 million; 2000: $0.6 million).

SWISS RE

Syndicate 2020 has entered into various reinsurance contracts with Swiss Re which currently owns 9.5% of the share capital of Wellington. Prior to July 17, 2001, it owned more than 10.0% of the share capital of Wellington. The terms of these contracts are similar to those that are available to non-related cedents. Premium payable under these contracts amount to approximately 1.6% of the reinsurance premiums payable for 2002 (2001: 23%; 2000: 3%).

P-18

SYNDICATES 2020 AND 3030

NOTES TO SYNDICATES FINANCIAL STATEMENTS
(Continued)

ASPEN HOLDINGS AND ASPEN INSURANCE UK LIMITED ("Aspen Re")

Aspen Re is an insurance company based in London which is authorized by the FSA. Following approval by the underwriting members of Syndicate 2020, on June 20, 2002 Lloyd's granted all necessary consents for WUAL to transfer the Casualty and Property Reinsurance, UK Liability and UK Commercial Lines business written by Syndicate 2020 to Aspen Re. Aspen Re is a wholly owned subsidiary of Aspen Holdings.

The management of Aspen Holdings comprise the management which were previously involved in the management of Syndicate 2020. Between October 16, 2002 and November 29, 2002, following FSA approval, Wellington acquired a total of 12,055,230 shares in Aspen Holdings, the holding company of Aspen Re. This holding was subsequently reduced in January 2003, to 11,262,680 (19.8%) following a sale of shares to non-aligned Members of Syndicate 2020.

Aspen Holdings issued options to subscribe for up to 6,787,880 of its ordinary shares of £0.01 each to Wellington Holdings (3,781,120 options) and the non-aligned Members of Syndicate 2020 (3,006,760 options). The subscription price payable under the options is initially £10 and increases by 5% per annum, less any dividends paid. Option holders are not entitled to participate in any dividends and would not rank as creditors in the event of liquidation. The options are exercisable on the first registered public offering of the ordinary shares in the United States or the first listing of the ordinary shares on a stock exchange (a "Listing") or a sale of all or substantially all of the business, assets or undertakings of Aspen Holdings and its subsidiaries or a sale of 50% or more of the ordinary shares of Aspen Holdings (a "Sale") or, if no Listing or Sale has occurred prior to June 21, 2007, at any time within the five business days following June 21, 2007. If not exercised, the options will expire after five years but if a Listing occurs within those five years the term is automatically extended to a period of ten years.

REINSURANCE ARRANGEMENTS BETWEEN SYNDICATE 2020 AND SYNDICATE 3030 AND ASPEN RE

Prior to the formation of Aspen Holdings in May 2002, Syndicate 2020 entered into two arrangements with Berkshire Hathaway Inc. group companies that increased the premium income capacity of Syndicate 2020 for the 2002 year of account, to enable Syndicate 2020 to meet its premium income target for the year. Those arrangements comprised:

•

A quota share reinsurance contract with National Indemnity Corporation of Omaha ("NICO"), a Berkshire Hathaway Inc. group company, under which Syndicate 2020 ceded 35.7% of all business, other than U.S. Surplus Lines Business, incepting between January 1, 2002 and May 31, 2002, plus all U.S. Surplus Lines business written between June 1, 2002 and June 30, 2002. NICO subsequently ceded 34% of these risks to Aspen Re.

•

A consortium underwriting arrangement with Syndicate 3030. Syndicate 3030 was formed in May 2002 and, like Syndicate 2020, is managed by WUAL. All of its capital is provided by Tonicstar Limited, a wholly-owned subsidiary of Berkshire Hathaway Inc. Under the terms of the consortium agreement, Syndicates 2020 and 3030 shared all business written by Syndicate 2020 between June 1, 2002 and December 31, 2002, other than US Surplus Lines Business written between June 1 and June 30, 2002 in the proportion of 64.3% to Syndicate 2020 and 35.7% to Syndicate 3030. The consortium arrangement was Syndicate 3030's sole source of income in 2002. Syndicate 3030 entered into a quota share reinsurance contract to cede 70% of these risks to Aspen Re.

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SYNDICATES 2020 AND 3030

NOTES TO SYNDICATES FINANCIAL STATEMENTS
(Continued)

The total net earned premium ceded by the Syndicates to Aspen Re under the quota share arrangements outlined above was $74.3 million for the twelve months ended December 31, 2002. Policy acquisition expenses for the twelve months ended December 31, 2002 included $14.1 million of ceded commissions received from Aspen Re in respect of the quota share arrangements.

At December 31, 2002 the net amounts receivable from NICO and payable to Aspen Re under these contracts were $22.0 million and $1.0 million respectively analyzed as follows:


	NICO			Aspen Re			Total
	($ in millions)
Assets:
Reinsurance recoverable	$	19		$	4		$	23
Ceded unearned premiums		7			10			17
Underwriting premium receivables		289			118			407
Other receivables		—			—			—
Total Assets		315			132			447
Liabilities:
Losses and loss adjustment expenses		(110	)		(25	)		(135	)
Unearned premiums		(88	)		(75	)		(163	)
Reinsurance premiums payables		(72	)		(26	)		(98	)
Accrued expenses and other payables		(23	)		(7	)		(30	)
Total Liabilities		(293	)		(133	)		(426	)
	$	22		$	(1	)	$	21

ARRANGEMENTS BETWEEN ASPEN HOLDINGS AND WELLINGTON

Under the framework agreement entered into by and among Aspen Holdings, Aspen Insurance U.K. Services Limited ("Aspen U.K. Services"), Wellington, WUAL, WUSL and WU Inc. on May 28, 2002, Aspen Holdings agreed to cause Aspen Re to offer Syndicate 2020, for 2003 and each subsequent year of account, a 20% quota share of Aspen Re's business (comprising the lines of business previously underwritten by Syndicate 2020) during such year. WUAL agreed, on behalf of Syndicate 2020, to offer to Aspen Re for 2003 and each subsequent year of account, a 20% quota share of all business (other than Aspen Re lines) allocated to that year of account of Syndicate 2020's business. For 2003, Aspen Re has elected to take up a 7.5% quota share of Syndicate 2020 lines, and WUAL, on behalf of Syndicate 2020, has elected not to accept any quota share reinsurance of Aspen Re. Neither Aspen Re nor WUAL on behalf of Syndicate 2020 will be obligated to offer a quota share to the other after the 2005 year of account should an initial public offering by Aspen Holdings be completed prior to December 21, 2005.

Under the framework agreement, Wellington, WUAL, WUSL and WU Inc. also agree, until March 31, 2004, not to, subject to exceptions, compete with Aspen Re or engage in activities that will directly or indirectly foster competition with Aspen Re in the property reinsurance, U.S. and non-U.S. casualty reinsurance and U.K. commercial insurance lines of business that were previously written by Syndicate 2020 and currently written by Aspen Re.

Aspen U.K. Services has entered into a run-off services agreement with WUAL as of May 20, 2003 to handle the run-off of the claims for Syndicate 2020, Syndicate 3030 and their predecessors for the lines of business that were written by Aspen Holdings. Under the agreement, Aspen Holdings acts as guarantor of the services to be performed by Aspen U.K. Services. The commencement period is as of June 21, 2002, and the agreement may be terminated by either party on 3 months' notice. Under

P-20

SYNDICATES 2020 AND 3030

NOTES TO SYNDICATES FINANCIAL STATEMENTS
(Continued)

certain circumstances, including regulatory requirements and change of control, the agreement may be terminated immediately by either party. Services are charged on an at-cost basis.

Aspen Holdings and its subsidiaries (collectively, the "Company") entered into a contract for the provision of services by a subsidiary company of Wellington. These services include accounting, actuarial, operations and technical support. This agreement is for an indefinite period but may be terminated by either party upon the occurrence of certain specified circumstances, such as the inability to pay debts, on an initial public offering, and, after an initial period of 3 years, may be terminated by either party on 18 months' prior notice. The Company may also terminate specific services if it undertakes those services itself and does not contract those services to a third party. The provision of these services is covered by a detailed service level agreement and is priced on an actual cost basis. The cost of these services in 2002 was $2.6 million, and the amount due to Wellington at December 31, 2002 was $1.5 million.

P-21

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND UNDERWRITING RESULTS OF SYNDICATES 2020 AND 3030

The following discussion and analysis should be read in conjunction with the audited Syndicates Financial Statements and accompanying notes which appear elsewhere in this report.

For the purpose of this report, we have prepared the audited financial statements of Syndicate 2020 and Syndicate 3030 (the "Syndicates") due to the following:


•	the reinsurance and commercial lines teams of Syndicate 2020 joined the Company between June 21, 2002 and December 31, 2002;


•	the Company participated by way of quota share arrangements in the business written by Syndicate 2020 during 2002, continues to participate as quota share reinsurer, to a much lesser extent, during 2003;


•	although the Company did not acquire the renewal rights to any of the business written by Syndicate 2020, it has since January 1, 2003 been able to renew the majority of the risks within those classes of business that Syndicate 2020 had agreed would be underwritten by the Company; and


•	Wellington agreed that it would not compete with the Company in respect of those classes from January 1, 2003 through March 31, 2004 and that in the period from June 21, 2002 through December 31, 2002 it would only seek to write risks within those classes to the extent needed to complete its 2002 business plan. By mutual agreement, this non-compete arrangement came to an end in December 2003.

The Company's management believes that the financial results of our business will be materially different from financial results of the Syndicates for the following reasons:


•	The following discussion and analysis relate to the results of Syndicate 2020 for the years ended December 31, 2002, 2001 and 2000. The financial statements of Syndicate 2020 for 2002 include the transactions of Syndicate 3030 which wrote on a co-insurance basis with Syndicate 2020 for that year only; and


•	The Company did not acquire any rights to the assets of the Syndicates or assume any obligations in respect of the liabilities of the Syndicates and consequently is not exposed to any risks relating to any diminution in value of the assets of the Syndicates or increases in their liabilities and would not benefit from any increases in value of these assets or decreases in these liabilities.

In addition, the Company does not control the Syndicates and is not in a position to obtain audited U.S. GAAP Financial Statements for the Syndicates for periods after December 31, 2002. Accordingly, we have not updated the Syndicates Financial Statements, or this discussion, for 2003.

Basis Of Preparation

We have prepared the financial statements of the Syndicates from the Annual Accounting Returns of the Syndicates and made such adjustments as were required to present the financial statements on a U.S. GAAP basis. The Annual Accounting Returns are financial statements in a prescribed form filed with Lloyd's by WUAL as managing agent of the Syndicates and which are used by Lloyd's to prepare consolidated financial statements for the Lloyd's market as if it were a single insurance operation. They include insurance and reinsurance transactions reported under U.K. GAAP except that there is no requirement for the establishment of equalization reserves (a normal requirement of U.K. GAAP for general insurers). The basis on which insurance reserves are assessed and premiums reported within these returns is similar to the basis required under U.S. GAAP.

The principal adjustments required to restate the financial statements under U.S. GAAP are the conversion of transactions and balances in British Pounds into U.S. dollars and the transfer of unrealized gains and losses on investments from operating income to other comprehensive income.

M-1

The financial statements do not deal with the capital underlying the business or with taxation for the reasons set out in the "Basis of Preparation and Summary of Significant Accounting Policies" beginning on page P-7.

Critical Accounting Policies

We consider that the critical accounting policies relevant to the Syndicate Financial Statements are those related to premium recognition and the establishment of loss reserves as set out in "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Company's results discussed elsewhere in this report. This should be read in conjunction with the "Basis of Preparation and Summary of Significant Accounting Policies" beginning on page P-7.

Results Of Operations

The following is a discussion and analysis of the underwriting results of the Syndicates for the years 2000, 2001 and 2002.

Overview.

This period was a time of major change in the property and casualty market following a period of very poor results at the end of the 1990s. Rates were beginning to improve from their low point in 1999 during 2000 and the first part of 2001. The industry then suffered a massive upheaval following the events of September 11, 2001 and the pace of rate hardening accelerated rapidly. During this period the capacity of Syndicate 2020 was increased from $641 million (£430 million) in 2000 to $730 million (£500 million) in 2001 and $1,006 million (£625 million) in 2002. In accordance with the regulatory arrangements at Lloyd's each $1 million of capacity was supported by approximately $0.5 million of capital pledged by members of the Syndicates. Consistent with this relatively high level of operating leverage it was the practice of the management of Syndicate 2020 to purchase significant levels of reinsurance protection. This proved materially beneficial during 2001 although it was not sufficient to avoid an overall underwriting loss for that year.

Provisions net of reinsurance totaling $239 million for claims arising from the destruction of the World Trade Center and related losses were established at the end of 2001 and maintained at around that level (subject to reductions for payments) through 2002. Uncertainties continue to exist as to the final amounts payable by Syndicate 2020 (and many other insurers and reinsurers) and the estimate of ultimate losses will be revised as more information becomes available. Our company does not have any exposure to claims arising from business written before January 1, 2002 and will therefore not be affected by any change in the ultimate cost to Syndicate 2020 of these events.

The combined ratios for the three years 2000, 2001 and 2002 for the Syndicates were 96%, 146% and 94% respectively. These combined ratios include those lines of business that are not currently written by the Company. Excluding the World Trade Center and related claims, the combined ratio for 2001 would have been 104% and the simple average for the three years would have been 98%.

Year Ended December 31, 2002 vs. Year Ended December 31, 2001

Gross premiums written. Gross premiums written increased by 46.5% from $1,262 million to $1,849 million. This increase was mainly attributable to increases in premium rates which were estimated by Wellington Underwriting plc to have increased by an average of 42%. Capital support for the increase came from an increase in capacity and capital pledged by the Members of Syndicate 2020, a quota share reinsurance of Syndicate 2020 by the National Indemnity Company (a subsidiary of Berkshire Hathaway) and the establishment of Syndicate 3030 to write in parallel with Syndicate 2020 with capital provided by another subsidiary of Berkshire Hathaway.

Reinsurance ceded. Premiums payable to reinsurers increased by 50.7% from $574 million to $865 million. In the aftermath of the terrorist attack on the World Trade Center, placing reinsurance proved extremely difficult and this was reflected in rising reinsurance costs. The management of the Syndicates considered that the most prudent move was to complete a full reinsurance program, with financially sound reinsurers, notwithstanding significant rate increases.

M-2

Gross premiums earned. Gross premiums earned were 87% and 83% of gross premiums written for 2002 and 2001, respectively. This is higher than for our initial trading period because there was relatively little change in business volumes between 2001 and 2002 whereas our business volume is increasing rapidly as it becomes established.

Net premiums earned. Net premiums earned increased by 53.6% from $562 million to $863 million.

Insurance losses and loss adjustment expenses. Loss and loss adjustment expenses dropped from 107.7% of "Net premiums earned" to 60.6% of "Net premiums earned", the ratio for 2001 being stated inclusive of the impact of the terrorist attack on the World Trade Center. Calendar year 2002 benefited from a low level of major catastrophe and property risk losses.

Policy acquisition costs. Policy acquisition costs increased from $189 million to $254 million but fell as a percentage of gross earned premiums from 18% to 15%.

Operating and administrative expenses. Operating and administration expenses increased from $27 million to $36 million which, together with policy acquisition costs and the increase in earned premiums, resulted in a fall in the expense ratio (based on net earned premiums) from 38.4% to 33.6%.

Year Ended December 31, 2001 vs. Year Ended December 31, 2000

Gross premiums written. Gross premiums written increased by 66.7% from $757 million to $1,262 million. This very significant increase includes the impact of rate increases (estimated at 31% overall). Capital support for the increase in business came from a 16% increase in the capacity of Syndicate 2020 and a quota share with a premium limit of £100 million placed by Syndicate 2020 with a subsidiary of Swiss Re.

Reinsurance ceded. Reinsurance ceded increased from $262 million (34.6% of gross premiums written) to $574 million (45.5% of gross premiums written). Most of the increase in the ceded percentage is attributable to the quota share referred to above. The amount reported for 2001 also includes $100 million in respect of reinstatement premiums payable following the losses of September 11, 2001.

Net premiums earned. Net premiums earned increased by 20.6% from $466 million to $562 million. This is lower than the reported 39.0% increase in net premiums written which reflects a disproportionate increase in the unearned premium reserve which is attributable mainly to the quickening pace of rate increases and new business written in the fourth quarter of 2001.

Insurance losses and loss adjustment expenses. Losses and loss adjustment expenses of $605 million for 2001 increased 120% from loss and loss adjustment expense of $275 million for 2000. Loss and loss adjustment expenses for 2001 include $172 million, net of reinsurance, arising from the events of September 11, 2001. Excluding these claims, the increase in losses and loss adjustment expenses from 2000 to 2001 would have been 57.5%. The Syndicates also reported net losses of $8.0 million in 2001 from Tropical Storm Allison whereas in 2000 there were no individually significant impacts from catastrophe losses. The loss ratio (based on net earned premiums) was 59% in 2000 and 108% in 2001. Excluding the impact of the World Trade Center loss the claims ratio in 2001 would have been 68.8%. Both years were adversely affected by losses in the non-marine energy and professional indemnity classes of business written by Syndicate 2020 including reserve strengthening in respect of prior years exposures in these classes. The losses in the non-marine energy account arose from an increase in the frequency of fire and explosion losses in power plants and other on-shore energy installations combined with a poor underwriting environment. In the case of professional indemnity, a significant proportion of the losses arose from an unanticipated frequency and severity of claims from U.S. law firms.

Policy acquisition costs. Policy acquisition expenses, mainly comprising brokerage, increased by 29.5% from $146 million to $189 million, representing a reduction from 20% of gross earned premiums in 2000 to 18% of gross earned premiums in 2001 as a result of changes in the mix of business towards lines of business such as treaty reinsurance, which carries lower levels of broker commission.

M-3

Operating and administrative expenses. Operating and administrative expenses increased marginally from $26 million to $27 million, which, taken together with the increase in policy acquisition costs, resulted in an increase in the expense ratio (based on net earned premiums) from 36.9% to 38.4%. Syndicate 2020 was able to support the increased level of business in 2001 compared to 2000 because although volumes of business had been reduced in 1999 and 2000 compared to previous years as the market softened, the Syndicate had not reduced its staffing levels and was therefore able to respond to the improving market opportunities in 2001 without needing to significantly increase operating expenditure.

Material Cash Flow Movements

Losses and loss adjustment expenses. The change in loss adjustment expenses between 2000 and 2001 was a direct result of the events of September 11. The losses from the terrorist attacks contributed $918 million during 2001 to the overall figure of $993 million. The reduction in loss provisions in 2002 resulted from the favorable underwriting conditions in 2002 giving rise to new incurred claims at a similar level to the value of claims paid in the year.

Unearned premiums. The movement in the unearned premium reserves in 2002 and 2001 was a direct result of the 46.5% and 66.7% increase in gross written premiums reported in 2002 and 2001 respectively. The small movement in 2000 was consistent with the 7.8% increase in syndicate capacity between 1999 and 2000.

Reinsurance recoverables. The movement in reinsurance recoverables between the 2001 and 2000 years was due to the $679 million of additional recoveries due following the events of September 11. The reduction in recoverables recorded in 2002 was due to the receipt of recoveries associated with September 11 losses.

Ceded unearned premium. The movement in ceded unearned premium reserves was consistent with increases in reinsurance premiums ceded following the growth in the Syndicates and due to increased reinsurance rates.

Changes in accrued expenses and other payables. The significant increase in accrued expenses in 2001 was due to the recognition of $96 million on account payments which were made by the Syndicate 2020's reinsurers to assist in meeting U.S. funding requirements post September 11.

Reserves For Losses And Loss Adjustment Expenses For The Syndicates Business

Historically the Syndicates prepared their financial statements in accordance with the requirements of Lloyd's of London under which the financial statements are required to include separate underwriting accounts for each successive underwriting year of account until such time (normally at the end of three years) when the account is closed and the profit or loss for that year of account determined. This reporting arrangement had the following implications for the setting of reserves:


•	Reserves for a new year of account were not included in the audited financial statements until the end of three years (for example at December 31, 2000 in respect of the 1998 year of account);

•

At that point, the reserves set related to all outstanding claims and LAE (including IBNR) attributable to business incepting in the year of account irrespective of the date of occurrence of the events giving rise to claims (such reserves together with paid claims referred to as "ultimate claims"). Thus, for example, the ultimate claims at December 31 2000 in respect of the 1998 year of account would have included unpaid claims in respect of business incepting in 1998 including claims arising from events in calendar years 1998, 1999 and 2000;


•	It was the practice of management to issue regular forecasts of the results of each year of account between the end of that year and the date two years later when it was closed. This led to management deploying its actuarial resources to estimate ultimate claims for each year of account as at the end of each calendar year. For example, management estimated the

M-4


	ultimate claims for the 1998 year of account at the end of 1998 and again at the end of 1999 even though those estimates were not included in the audited financial statements of Syndicate 2020;


•	Management monitored the effectiveness of the reserving process by comparing successive estimates of ultimate claims for each year of account;


•	The outstanding liabilities of each year of account were normally assumed by the following year of account at the point at which the account was closed. Thus at December 31, 2000 the outstanding liabilities of the 1998 account were assumed by the 1999 year of account;


•	Any change in the assessment of the ultimate claims for a year of account after it was closed was included in the financial statements of the following year of account; management continued to monitor the ultimate claims for each original year of account until run-off or reinsured to a third party;


•	Although the reserves at the end of the first and second year of each year of account were not included in the audited financial statements of Syndicate 2020, they were reflected, subject to statutory adjustments, in the solvency returns made to the regulator and in this context, the reserves were subject to audit;

•

As a result of these arrangements, reserves at the end of each year could be analyzed by year of account but would normally include estimates in respect of future claims arising from unexpired policies at that date irrespective of whether a deficit or surplus was projected in respect of unearned premium. This is in contrast to a calendar year-basis in which no provision is made for future claims unless such estimates exceed the unearned premium reserves; and


•	Reserves have been established by the selection of a "best estimate" from within a range of estimates.

The loss and LAE reserve development table in Table 1 illustrates the change over time of the loss and LAE reserves of Syndicate 2020 at the end of the years indicated. The reserves represent the estimated amount of gross loss and LAE for claims arising in the current and all prior accident years that are unpaid at the balance sheet date, including IBNR. Since Wellington Underwriting plc adopted annual accounting for the results of Syndicate 2020 in 1999, historical loss development data is available on an annual basis of accounting for the four years from 1999 to 2002 only.

The first section of each table shows gross reserves for loss and LAE as initially established at the end of each stated year. The second section, reading down, shows the cumulative amounts paid, gross, as of the end of the successive years with respect to the reserve initially established. The third section shows the retroactive re-estimation of the initially established gross reserves for loss and LAE as of the end of each successive year, which results primarily from expanded awareness of additional facts and circumstances that pertain to open claims. The last section compares the latest re-estimated gross reserves for loss and LAE to the gross reserves as initially established and indicates the cumulative development of the liability established gross reserves through December 31, 2002. For instance, the surplus (deficiency) shown in the table for each year represents the aggregate amount by which the original estimates of reserves at that year-end have changed in subsequent years. Accordingly, the cumulative surplus/(deficiency) for a year-end relates only to reserves at that year-end and such amounts are not additive.

Caution should be exercised in evaluating the information shown on Table 2, as each amount includes the effects of all changes in amounts for prior periods. Conditions and trends that have affected development of liability in the past may or may not necessarily indicative of development of such liability in the future.

In view of the fact that Aspen Holdings is unable to present a loss development table on an accident year basis for years prior to 1999, a supplementary underwriting year loss development table has been prepared. Table 2 shows the loss development table for Syndicate 2020 on an underwriting year basis. This table has been prepared for the 1993 to 2002 underwriting years of account. Loss

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reserves presented on an "underwriting year" basis represent claims related to all policies incepting in a given year. In contrast, "accident year" loss reserves represent claims for events that occurred during a given calendar year, regardless of when the policy was written. Loss reserves on an underwriting year basis may include claims from different accident years. For example, a policy written during 1999 may have losses in accident year 1999 and in accident year 2000. Therefore, underwriting year data as of a particular evaluation date is less mature than accident year data.

The first section of each table shows gross reserves for loss and LAE for each underwriting year as initially estimated at the end of each stated underwriting year. The second section, reading down, shows the cumulative amounts paid, gross, as of the end of the successive years with respect to the reserve initially estimated. The third section shows the retroactive re-estimation of the initially estimated gross reserves for loss and LAE as of the end of each successive year, which results primarily from expanded awareness of additional facts and circumstances that pertain to open claims. The last section compares the latest re-estimated gross reserves for loss and LAE to the gross reserves as initially estimated and indicates the cumulative development of the liability established for gross reserves through December 31, 2002. For instance, the surplus/(deficiency) shown in the table for each underwriting year represents the aggregate amount by which the original estimates of reserves for each underwriting year have changed in subsequent years. Accordingly, the cumulative surplus/(deficiency) for each underwriting year relates only to reserves for that underwriting year.

It should be noted that WUAL purchased reinsurance protection consisting of quota shares, excess of loss and facultative reinsurance during the years from 1993 through 2002. During softer market conditions in the late 1990s, WUAL actively managed the Syndicates' retentions to take advantage of lower reinsurance pricing and to protect its members from poor pricing conditions. Therefore, the results shown on a gross basis do not represent the ultimate net losses or gains the members of the Syndicates would have incurred during those years. Moreover, the net effect of the reinsurance protection was to cover entirely the cumulative deficiency for the 1998, 1999, 2000 and 2001 underwriting years.

Caution should be exercised in evaluating the information shown on Table 2, as each amount includes the effects of all changes in amounts for prior periods. Conditions and trends that have affected development of liability in the past may or may not necessarily be indicative of development of such liability in the future.

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As the establishment of reserves for the Syndicates Business is not within the Company's control, we are not in a position to monitor its reserve development on any basis after 2002. Accordingly, the tables below reflect claims development through 2002.

Table 1: FOUR YEAR CLAIMS DEVELOPMENT TABLE ON CALENDAR YEAR BASIS


	1999 and Prior			2000			2001			2002
	($ in millions)
Gross liability for unpaid claims and claims expenses		1,289			1,501			2,509			2,555
Gross re-estimated liability
One year later		1,359			1,521			2,557
Two years later		1,346			1,527
Three years later		1,348
Gross cumulative surplus/(deficiency)		(59	)		(26	)		(48	)
Gross cumulative surplus/(deficiency) – excluding foreign exchange		(69	)		(1	)		3
Cumulative amount of gross liability paid:
One year later		351			396			656
Two years later		592			641
Three years later		763

Table 2: TEN-YEAR CLAIMS DEVELOPMENT TABLE ON UNDERWRITING YEAR BASIS⁽¹⁾⁽²⁾


	1993		1994		1995		1996		1997			1998⁽³⁾			1999⁽⁴⁾			2000⁽⁵⁾			2001⁽⁶⁾			2002
	($ in millions)
Gross liability for unpaid claims and claims expenses		428		600		596		538		407			418			654			616			1,524			714
Gross re-estimated liability
One year later		345		486		517		403		443			576			747			704			1,568
Two years later		307		448		480		390		467			616			815			755
Three years later		303		449		471		383		456			655			844
Four years later		292		435		454		378		401			660
Five years later		277		417		433		389		411
Six years later		272		399		430		386
Seven years later		269		386		425
Eight years later		263		384
Nine years later		260
Gross cumulative surplus/(deficiency)		168		216		171		152		(4	)		(242	)		(190	)		(139	)		(44	)
Gross cumulative surplus/(deficiency) — excluding foreign exchange		175		220		171		147		(6	)		(246	)		(199	)		(132	)		(20	)
Cumulative amount of gross liability paid:
One year later		96		167		181		124		156			218			283			201			540
Two years later		138		223		257		188		253			358			449			341
Three years later		169		264		285		226		307			456			548
Four years later		189		290		317		254		304			513
Five years later		202		309		331		286		320
Six years later		218		321		350		317
Seven years later		229		333		360
Eight years later		235		343
Nine years later		237

(1)	Table 2 has been prepared for the 1993 to 2002 underwriting years of account. Loss reserves presented on an "underwriting year" basis represent claims related to all policies incepting in a

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given year. In contrast, "calendar year" loss reserves represent claims for events that occurred during a given calendar year, regardless of when the policy was written. Loss reserves on an underwriting year basis may include claims from different calendar years. For example, a policy written during 1999 may have losses in 1999 and 2000. Therefore, underwriting year data as of a particular evaluation date is less mature than calendar year data.

(2)	The net effect of the reinsurance protections was to cover entirely the gross deterioration for the 1998, 1999, 2000 and 2001 underwriting years.

(3)

The 1998 underwriting year was protected by reinsurance consisting of quota share, excess of loss and facultative reinsurance. In addition Syndicate 2020 purchased two stop loss policies which provided cover for 80% of applicable losses in excess of a 92.5% loss ratio and 100% of applicable losses in excess of a 90% loss ratio. Cumulative recoveries under the stop loss policies were:

December 31, 1998 $Nil

December 31, 1999 $5.6 million

December 31, 2000 $16.3 million

(4)

The 1999 underwriting year was protected by an extensive reinsurance program. In addition to specific protections, the year was protected by a whole account excess of loss program, excess $10 million, which provided significant recoveries. The final element of the reinsurance program was a whole account stop loss, the first layer of which provided cover for losses in excess of a 78% loss ratio and the second layer, for losses above an 80% loss ratio. Cumulative recoveries under the stop loss police were:

December 31, 1999 $37.0 million

December 31, 2000 $96.7 million

December 31, 2001 $98.6 million

December 31, 2002 $90.4 million

(5)

The 2000 underwriting year was protected by a similar program to that used in 1999. Specific protections were purchased and the whole account excess of loss program, excess $10 million, which was purchased in 1999 was renewed. The 1999 account stop loss was also renewed on the same terms and provided cumulative recoveries of:

December 31, 2000 $60.7 million

December 31, 2001 $75.6 million

December 31, 2002 $93.2 million

(6)

The 2001 underwriting year was protected by a similar program to the 1999 and 2000 years, including a large non-marine surplus treaty, two whole account excess of loss program and a variety of specific protections. Additionally, a qualifying quota share with a premium limit of £100 million was placed which absorbed a significant proportion of the gross deterioration.

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Bermuda

Not Applicable

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)

Victoria Hall
11 Victoria Street
Hamilton, Bermuda

(Address of principal executive offices)

(Zip Code)