Our target price of $43 implies multiples of 8X blended 2026/2027 EPS and 1.3X F12M book and represents a modest discount to our estimate of intrinsic value. We value the company by discounting capital-adjusted earnings assuming a cost of equity of 10% and terminal growth rate of ~3% (vs. the 10% and 4% implied by industry multiples over the past 20 years). The company has traded at 8X F12M EPS and 1.0X last reported book value versus industry averages of 11-12X and 1.3-1.4X, respectively, over the past 20 years.

Given revaluation opportunities are essentially “show-me” stories, the company will need to deliver on investor expectations with respect to financial performance. The creates both performance risk (what is valued) as well as timing risk (when it is valued). Significant deterioration in casualty pricing or declines in reinvestment rates would top the list of potential disruptors of performance.

Adverse development would not only impact sentiment, but potentially knock onto forward margins. Liability reserves – even the early 2020s, of which the company has exposure – remain in flux. While the company is covered by its LPT for 2019 and prior years, it is not fully insulated from any emergence of negative trends in more recent or current accident years.

Aspen has a highly optimized capital structure (both alternative capital and financial leverage). Its debt plus hybrids to capital ratio is at the high end of the normal range for peers (and its aspirational rating). While reasonable relative to diminished volatility of returns and “dry” third-party capital from existing investors, it leaves the company exposed to more expensive forms of capital in a tail-event scenario.

We believe Aspen’s former private equity owner and current largest public shareholder will ultimately reduce their stake in the company further. Only ~15% of the stock was sold in the IPO (excluding the underwriters’ over-allotment). Low liquidity and future stock shares could hinder the performance of the stock even if fundamentals remain constructive.