With respect to the property reinsurance segment, the U.S. is still seeing better increases than the international account, due to the much greater loss burden carried by the U.S. in the last couple of hurricane seasons. Japanese renewals were only moderately successful with price increases of about 5%, although these did come on top of increases of 10% last year. Even though the reinsurance pricing achievable in Japan is not particularly appealing, it is sufficient to cover more than the cost of expected claims, and since it supplies an element of diversification, we are content to have about 7% of our total property reinsurance premium emanating from Japan. Most of the rest of the activity regarding April 1 renewals relates to U.S. renewals and we have seen a much firmer April market than in January.

Our specialty insurance and reinsurance segment is showing good to excellent rate increases with terms and conditions stable or improving. Within the marine liability account, we are seeing effective increases in the period up to March 31, 2006 in the order of 26% consisting of approximately 14% more premium per unit of risk and 12% for the value of deductible and condition changes. For our marine hull account, the rates are hard and rate increases as a whole are running around mid-single digits with more substantial upwards movement for loss affected business. The offshore energy insurance physical damage component is showing the highest level of increase, in particular for the Gulf of Mexico exposures. Risks without 2005 hurricane losses in the Gulf of Mexico are likely to see increases of about 150%, while increases for loss affected risks are likely to be in the order of 200-400%. The second quarter is the major renewal period for Gulf of Mexico risks and we expect to see a continuation of this improving market especially as capacity gets shorter in supply. On top of these price movements, coverage has been tightened for business interruption and contingent business interruption. Sub-limits are also being applied for named Gulf of Mexico windstorms. In areas other than the Gulf of Mexico, increases continue at the level of 20-25%.

The aviation insurance part of our specialty insurance and reinsurance segment had a successful quarter both in terms of business generation and benign loss experience. We also write some specialty reinsurance, and in this sector conditions are strong. Many clients with inception dates later in the year have been trying to move their programs forward in what we interpret as an attempt to avoid capacity shortages and rate increases that they expect to occur later in the year. However, the effect has been different in that the increases and capacity shortages are simply being experienced earlier. Most clients have reduced their budgets for catastrophe exposed underwriting and are spending a significantly larger proportion of their premium to achieve perhaps one-third of the expiring amount of reinsurance capacity.

Within our casualty reinsurance segment, rates remain satisfactory but much more stable. Market conditions are good and on those rare occasions where we see a weakening of primary rates, we are able to compensate for this in our reinsurance pricing. Rate levels across the entire U.S. portfolio have seen modest nominal increases, but will probably be flat after the effect of casualty claims inflation is factored in. In general, primary rates on medical malpractice insurance have stabilized, with just a few companies in certain states still obtaining rate increases. Our workers’ compensation catastrophe accounts are also showing stable ratings, whereas on working covers we have been able to increase reinsurance terms for certain contracts such that the effects of occasional primary rate reductions have been neutralised.

Within our insurance segment, the U.K. property insurance market is soft, and while the liability market is a bit firmer, conditions are softening rapidly. We estimate that the property market is routinely offering reductions of 20-30%, while the liability market is seeing reductions of about 20%. In the U.S., our surplus lines casualty operation continues to perform well, and although there are signs of modest competition, rate levels continue to be acceptable. The U.S. surplus lines property operation is benefiting from improved conditions after the hurricanes of 2004 and 2005, as well as from catastrophe pricing model changes altering the market’s perception of wind risk. We are taking advantage of these conditions to rebalance our account, seeking greater spread of risk from Texas to Maine, while avoiding a ‘‘spike’’ in Florida, as well as targeting non-coastal exposures. The key challenge for the property operation is not finding good rates, but dealing with a much tougher environment for the reinsurance we purchase.

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With respect to our capital structure, we continue to explore further ways in which to optimize our capital structure in pursuit of our return on equity objectives on which management is incentivized, and in the interest of our shareholders.

Recent Developments

As previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005, we have now implemented a reduction in our overall catastrophe exposure in our business model as a result of lessons learned from the 2004 and 2005 hurricanes, an improved understanding of the potential for damage to commercial risks, and a revised understanding of demand surge.

With respect to our losses from Hurricanes Katrina, Rita and Wilma, there has been a small deterioration on our losses in the quarter of $16.6 million before tax ($11.8 million net of tax), of which $13.9 million relates to adverse claims development and $2.6 million to net additional outwards reinstatement premiums. Of the $13.9 million net claims deterioration, $8.9 million is in relation to Hurricane Katrina, $0.8 million to Hurricane Rita and $4.2 million to Hurricane Wilma.

In recognizing the long term benefits of asset portfolio diversification, on April 1, 2006, we invested $150 million, or 2.2% of our total assets, into two low-volatility, diversified hedge fund of funds.

With respect to our own reinsurance, the market for retrocessional capacity in particular has hardened immensely. Most of our program incepts on January 1 which was largely completed on plan. Our marine reinsurance program which renews in late February proved to be a more expensive purchase than planned but nonetheless a satisfactory program. We now have up to $655 million of cover available for a single U.S. earthquake event which covers property, casualty and marine losses, or $573 million for a U.S. wind event which touches Florida calculated on a similar basis affecting all three lines. For a property-only loss, we have a maximum potential recovery of $575 million for a U.S. earthquake event or $493 million for a U.S. wind event if it affects Florida. The amount of loss we would have to retain before recovering is greater than in 2005, amounting to $149 million for a combined loss, but $139 million for a property-only loss. These retentions are stated prior to the effects of inwards and outwards reinstatement premiums and prior to taxation.

Application of Critical Accounting Estimates

Our consolidated financial statements are based on the application of significant accounting policies and include significant accounting estimates which require management to make significant assumptions. We believe that some of the more critical judgments in the areas of accounting estimates and assumptions that affect our financial condition and results of operations are related to the recognition of premiums written and ceded and reserves for losses and loss adjustment expenses. For a detailed discussion of our critical accounting estimates please refer to our 2005 Annual Report on Form 10-K filed with the Securities and Exchange Commission. There were no material changes in the application of our critical accounting estimates subsequent to that report. We have discussed the application of these critical accounting estimates with our Board of Directors and the Audit Committee.

Results of Operations

The following is a discussion and analysis of the Company's consolidated results of operations for the three months ended March 31, 2006 and 2005.

Gross premiums written.    For the three months ended March 31, 2006, gross premiums written decreased by 15.6% from the $804.1 million written for the comparative period in 2005. The decrease was entirely due to the property reinsurance segment in which we wrote $162.9 million, representing a reduction of 46.6% in business written in that segment compared to the corresponding quarter of 2005. The gross premiums written in the other segments have increased by $16.7 million, or 3.2%, over the comparative period in 2005.

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Reinsurance ceded.    Reinsurance premiums ceded for the three months ended March 31, 2006 increased by $55.1 million in the quarter compared to the respective period in 2005. The increase was mainly due to a new $20.0 million whole account cover being purchased in the quarter, an additional $17.2 million covering risks relating to our marine and aviation lines of business, and a $10.8 million increase covering risks relating to our property reinsurance segment with the balance being two additional specific protections.

Net premiums written.    Net premiums written for the three months ended March 31, 2006 decreased by 28.5% over the equivalent period in 2005, which was due to the decrease in gross premiums from our property reinsurance segment and the increased cost of our reinsurance.

Gross premiums earned.    Gross premiums earned for the three months ended March 31, 2006 represented 72.7% of gross premiums written, and for the three months ended March 31, 2005 represented 53.9% of gross premiums written. The $59.8 million increase in earned premiums reflected the growth in the overall volume of business written. The increase in the earned to written premium ratio was due to the significant increase in premiums written in 2005 compared to 2004 now being reflected in earned premiums.

Net premiums earned.    Net premiums earned for the three months ended March 31, 2006 represented 89.1% of net premiums written. Net premiums earned for the three months ended March 31, 2005 represented 59.9% of net premiums written. The $23.9 million increase was due to the significant increase in premiums written in 2005 compared to 2004 now being reflected in earned premiums.

Insurance losses and loss adjustment expenses.    Insurance losses and loss adjustment expenses for the three months ended March 31, 2006 increased by 12.1% compared to the three months ended March 31, 2005. Paid claims in the period were $222.5 million. Of the total gross reserves for unpaid losses of $3,045.5 million, at the balance sheet date of March 31, 2006, a total of $1,424.9 million, or 46.8%, represented IBNR claims. The charge for the period has been reduced by $17.5 million due to a reduction in prior year loss provisions.

The loss ratios take into account any changes in our assessments of reserves for unpaid claims and loss adjustment expenses arising from earlier years. In each of the three months ended March 31, 2006 and 2005, we recorded a reduction in the level of reserves for prior years. The amount of these reductions and their effect on the loss ratio in each year is shown in the following table:

				For the three months ended March 31, 2006				For the three months ended March 31, 2005
				($ in millions, except for percentages)
Reserve releases				$	17.5			$	12.5
% of net premiums earned					4.3	%			3.3	%

Policy acquisition expenses.    Policy acquisition expenses for the quarter represented 23.2% of net premiums earned, and for the three months ended March 31, 2005 represented 18.5% of net premiums earned. The $23.1 million increase in policy acquisition expenses compared to the prior comparative period was due to higher costs of reinsurance we have purchased as a proportion of gross premiums written, which reduces the denominator of the ratio calculation; changes in business mix, where a greater proportion of U.S. casualty business has been written, which typically incurs higher commission rates; and commission adjustments being recognized in the period in relation to prior property reinsurance and casualty reinsurance business.

Operating and administrative expenses.    Operating and administrative expenses for the period increased by 29.9% compared to the comparative prior period, which principally related to increased investments in support functions as we have expanded our operations and higher staffing levels associated with our newer lines of business. The increase in the ratio of operating and administrative expenses to net premiums earned was adversely affected by the earning of increased outward reinsurance costs which suppressed the denominator of the calculation.

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We monitor the ratio of expenses to net earned premium (the ‘‘expense ratio’’) as a measure of the cost effectiveness of our business acquisition, operating and administrative processes. The table below presents the contribution of the policy acquisition expenses and operating and administrative expenses to the expense ratio and the total expense ratios for each of the three months ended March 31, 2006 and 2005:

				Expense Ratios
				For the three months ended March 31, 2006				For the three months ended March 31, 2005
Policy acquisition expenses					23.2	%			18.5	%
Operating and administrative expenses					9.5	%			7.8	%
Expense ratio					32.7	%			26.3	%

Net investment income.    Net investment income increased by 74.5% over the comparative quarter in 2005. The increase has been driven by rising interest rates and a 40.8% increase in our total cash and investments from $3,177.1 million as at March 31, 2005 to $4,474.9 as at March 31, 2006.

Income before tax.    Income before tax for the three months ended March 31, 2006 was $77.3 million, including underwriting income of $38.7 million, investment returns including gains and losses of $44.4 million, interest expense on loans of $3.9 million and exchange gains and other expenses of $1.9 million. The $12.6 million reduction in income before tax for the period was mainly due to the increase in the combined ratio in the three months ended March 31, 2006 compared to the three months ended March 31, 2005, partially offset by the increase in net investment income. The increase in combined ratio was mainly due to the reductions in property reinsurance premiums, the increased cost of reinsurance purchased and an increase in the property insurance loss ratio.

Income tax expense.    Income tax expense for the three months ended March 31, 2006 was $15.5 million. Our consolidated tax rate for the three months ended March 31, 2006 was 20.1% (2005 — 22.0%). The reduction in the tax rate reported for the three months ended March 31, 2006 was due to a greater proportion of the Company's profit emanating from our Bermudian operations.

Net income.    Net income for the three months ended March 31, 2006 was $61.8 million, equivalent to $0.61 earnings per basic ordinary share adjusted for the $3.9 million preference share dividend and $0.59 fully diluted adjusted earnings per ordinary share adjusted for the preference share dividend on the basis of the weighted average number of ordinary shares in issue during the three months ended March 31, 2006. Net income after tax for the three months ended March 31, 2005 was $70.1 million. The 11.8% decrease in net income over the comparative period was mainly due to our reduction in gross premiums written in our property reinsurance segment in the quarter and the increase in costs of our reinsurance following the 2005 hurricanes.

Underwriting Results by Operating Segments

Our business segments are based on how we monitor the performance of our underwriting operations. Our four segments are property reinsurance, casualty reinsurance, specialty insurance and reinsurance and property and casualty insurance. Management measures segmental results on the basis of the combined ratio, which is obtained by dividing the sum of the losses and loss expenses, acquisition expenses and general and administrative expenses by net premiums earned. Our historical combined ratio may not be indicative of future underwriting performance. We do not manage our assets by segment; accordingly, investment income and total assets are not allocated to the individual segments. General and administrative expenses are allocated to segments based on each segment's proportional share of gross premiums written. The loss ratio is calculated by dividing losses and loss expenses by net premiums earned. The expense ratio is calculated by dividing policy acquisition, operating and administrative expenses by net premiums earned. The combined ratio is the sum of the loss ratio and expense ratio.

Refer to the tables in Note 5 in our unaudited financial statements on pages 11 and 12 of this report for a summary of gross and net written and earned premiums, underwriting results and combined ratios and reserves for each of our four business segments for the three months ended March 31, 2006 and 2005.

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For the Three Months Ended March 31, 2006 and the Three Months Ended March 31, 2005

Property Reinsurance

Our property reinsurance segment is generally written on a treaty basis and includes catastrophe, risk excess and pro rata. We have written no retrocession business in this quarter. A small proportion of facultative business is written by Aspen Re America.

Gross premiums written.    Gross premiums written for our property reinsurance segment decreased by 46.6% compared to the three months ended March 31, 2005. This decrease was principally due to our decision to reduce our peak exposures in this business class following the 2004 and 2005 hurricanes. The increase in property facultative business was a result of additional facultative and multi-line business being written by Aspen Re America.

The table below shows our gross premiums written for each line of business for each of the three months ended March 31, 2006 and 2005, and the percentage increase/decrease in gross premiums written for each such line:

				Gross Premiums Written
Lines of Business				For the three months ended March 31, 2006								For the three months ended March 31, 2005
				($ in millions)				% increase/(decrease)				($ in millions)
Treaty catastrophe				$	90.0			(45.1)%				$	163.9
Treaty risk excess					39.5			(61.7)%					103.2
Treaty pro rata					29.9			(19.6)%					37.2
Property facultative					3.5			400.0%					0.7
Total				$	162.9			(46.6)%				$	305.0

Losses and loss adjustment expenses.    Losses and loss adjustment expenses represented 44.5% of net earned premiums for the three months ended March 31, 2006. This compares to a 41.8% loss ratio in 2005. The 2.7 percentage point increase in the loss ratio over the comparative period in 2005 was due to the effect of the higher reinsurance costs as a percentage of written premium and the prior period loss strengthening of $8.5 million due to adverse development on 2005 hurricane losses as opposed to the $0.7 million reserve release in the comparative period.

Policy acquisition, operating and administrative expenses.    Total expenses were $49.4 million for the three months ended March 31, 2006 equivalent to 46.1% of net premiums earned. The increase of $2.5 million in expenses over the comparative period reflected the increase in the proportion of administrative expenses allocated to the property reinsurance segment which better reflects the costs for actuarial and risk management staff to reserve, model and price the business and the costs incurred in retaining Bermudian underwriting staff.

Casualty Reinsurance

Our casualty reinsurance segment is written mainly on a treaty basis with a small proportion of facultative risks. The casualty treaty reinsurance is primarily written on an excess of loss basis and includes coverage for claims arising from automobile accidents, employers' liability, professional indemnity and other third party liabilities. It is written in respect of cedents located mainly in the United States, the United Kingdom, Europe and Australia.

Gross premiums written.    Gross premiums written for our casualty reinsurance segment increased by 1.1% compared to the three months ended March 31, 2005 and are in line with the prior year’s gross premiums written. The increase in U.S. treaty business reflects our decision to expand our U.S. casualty account and the increase in casualty facultative business was as a result of additional business being written by Aspen Re America.

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The table below shows our gross premiums written for each line of business for each of the three months ended March 31, 2006 and 2005, and the percentage increase/decrease in gross premiums written for each such line:

				Gross Premiums Written
Lines of Business				For the three months ended March 31, 2006								For the three months ended March 31, 2005
				($ in millions)				% increase/(decrease)				($ in millions)
U.S. treaty				$	163.1			13.2%				$	144.1
Non-U.S. treaty					105.8			(15.0)%					124.5
Casualty facultative					6.5			71.1%					3.8
Total				$	275.4			1.1%				$	272.4

Losses and loss adjustment expenses.    Losses and loss adjustment expenses increased by 14.4% over the three months ended March 31, 2005. The $11.0 million increase was due to establishing loss reserves for earned premium in 2006 and the increase in the proportion of U.S. casualty business written, which is reserved at a higher loss ratio, offset by a $7.6 million prior period release in the period compared to the $0.4 million release in the comparative period.

Policy acquisition, operating and administrative expenses.    Total expenses increased by 63.6% over the three months ended March 31, 2005 and were equivalent to 28.0% of net earned premiums. The increase in expense ratio reflected the higher acquisitions costs associated with the U.S. casualty business and greater allocation of general and administrative expenses to this segment as the proportion of casualty reinsurance to total gross earned premium has increased.

Specialty Insurance and Reinsurance

Our specialty insurance segment includes marine and energy and aviation insurance written by Aspen Re. Our specialty reinsurance lines of business include aviation, marine and other specialty reinsurance.

The following table summarizes gross and net written and earned premiums, underwriting results and combined ratios for the principal lines of business within our specialty insurance and reinsurance segment for the three months ended March 31, 2006 and 2005:

				Three Months Ended March 31, 2006
				Specialty Insurance				Specialty Reinsurance				Total
				($ in millions, except percentages)
Gross premiums written				$	112.0			$	42.2			$	154.2
Net premiums written					69.8				35.8				105.6
Gross premiums earned					89.8				23.1				112.9
Net premiums earned					74.4				21.4				95.8
Losses and loss adjustment expenses					(39.0	)			(5.5	)			(44.5	)
Policy acquisition, operating and administrative expenses					(22.3	)			(6.1	)			(28.4	)
Underwriting profit				$	13.1			$	9.8			$	22.9
Ratios
Loss ratio					52.4	%			25.7	%			46.5	%
Expense ratio					30.0	%			28.5	%			29.6	%
Combined ratio					82.4	%			54.2	%			76.1	%

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				Three Months Ended March 31, 2005
				Specialty Insurance				Specialty Reinsurance				Total
				($ in millions, except percentages)
Gross premiums written				$	109.8			$	39.6			$	149.4
Net premiums written					97.8				38.8				136.6
Gross premiums earned					22.8				24.9				47.7
Net premiums earned					18.9				27.1				46.0
Losses and loss adjustment expenses					(12.9	)			(8.3	)			(21.2	)
Policy acquisition, operating and administrative expenses					(5.3	)			(5.3	)			(10.6	)
Underwriting profit				$	0.7			$	13.5			$	14.2
Ratios
Loss ratio					68.3	%			30.6	%			46.1	%
Expense ratio					28.0	%			19.6	%			23.0	%
Combined ratio					96.3	%			50.2	%			69.1	%

Gross premiums written.    Gross premiums written increased by 3.2% compared to the three months ended March 31, 2005. The modest increase reflects a $27.6 million increase in aviation premiums written in 2006 when compared to the comparative period offset by a $26.5 million reduction in marine and specialty liability business. The increase in aviation business was due to the fact that our aviation team was only established in early 2005 and did not commence underwriting in significant volumes until after March 31, 2005. The reduction in marine and specialty liability business was the result of a number of multi-year policies having been written in the first quarter of 2005 which will not be renewed until 2007.

The table below shows our gross premiums written for each line of business for each of the three months ended March 31, 2006 and 2005, and the percentage increase/decrease in gross premiums written for each line:

				Gross Premiums Written
Lines of Business				For the three months ended March 31, 2006								For the three months ended March 31, 2005
				($ in millions)				% increase/(decrease)				($ in millions)
Marine and specialty liability insurance				$	47.1				(36.0	)%		$	73.6
Marine and energy property insurance					34.3				3.3	%			33.2
Aviation insurance					30.6				920.0	%			3.0
Specialty reinsurance					42.2				6.6	%			39.6
Total				$	154.2				3.2	%		$	149.4

Losses and loss adjustment expenses.    Losses and loss adjustment expenses represented 46.5% of net premiums earned for the three months ended March 31, 2006. The $23.3 million increase over the comparative period in 2005 was due to the establishment of loss reserves for the 108.3% increase in net premiums earned. In addition, we experienced a marine loss in the quarter of $5.0 million following the grounding of a Canadian ferry. However, this loss was offset by an $8.7 million prior period release due to favorable claims development on our specialty reinsurance account.

Policy acquisition, operating and administrative expenses.    As the earned premium of this segment increases, and the segment represents a greater proportion of total earned premium, its share of central and administrative expenses will increase. The $17.8 million increase in expenses over the comparative period is mainly due to allocated expenses increasing as a result of the segment’s share of total gross earned premium increasing from 11.0% in the first quarter of 2005 to 22.9% in the first quarter of 2006. The expense ratio has also increased due to the additional reinsurance costs following the 2005 hurricanes reducing net earned premiums and reducing the denominator of the ratio calculation.

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Property and Casualty Insurance

We write both commercial property and commercial liability insurance. Our commercial property line of business is composed of U.K. commercial property insurance and U.S. excess and surplus lines property business written through Aspen Specialty. Towards the end of 2005, we repositioned our property insurance business by hiring an international property facultative team which writes U.K. and worldwide individual risks.

The commercial liability line of business consists of U.K. employers' and public liability insurance and U.S. casualty insurance written on a surplus lines basis by Aspen Specialty.

The following table summarizes gross and net written premiums and underwriting results for the property and casualty insurance businesses within this segment for the three months ended March 31, 2006 and 2005:

				Three Months Ended March 31, 2006
				Property Insurance				Casualty Insurance				Total
				($ in millions, except percentages)
Gross premiums written				$	28.6			$	57.6			$	86.2
Net premiums written					(5.1	)			49.6				44.5
Gross premiums earned					35.4				59.0				94.4
Net premiums earned					19.1				51.9				71.0
Losses and loss adjustment expenses					(23.5	)			(29.3	)			(52.8	)
Policy acquisition, operating and administrative expenses					(6.4	)			(11.3	)			(17.7	)
Underwriting profit/(loss)				$	(10.8	)		$	11.3			$	0.5
Ratios
Loss ratio					123.0	%			56.4	%			74.4	%
Expense ratio					33.5	%			21.8	%			24.9	%
Combined ratio					156.5	%			78.2	%			99.3	%

				Three Months Ended March 31, 2005
				Property Insurance				Casualty Insurance				Total
				($ in millions, except percentages)
Gross premiums written				$	24.0			$	53.3			$	77.3
Net premiums written					6.3				44.5				50.8
Gross premiums earned					27.8				66.1				93.9
Net premiums earned					21.2				58.5				79.7
Losses and loss adjustment expenses					(8.1	)			(40.4	)			(48.5	)
Policy acquisition, operating and administrative expenses					(6.4	)			(13.7	)			(20.1	)
Underwriting profit				$	6.7			$	4.4			$	11.1
Ratios
Loss ratio					38.2	%			69.1	%			60.9	%
Expense ratio					30.2	%			23.4	%			25.2	%
Combined ratio					68.4	%			92.5	%			86.1	%

Gross premiums written.    Gross premiums written in this segment for the three months ended March 31, 2006 increased by 11.5% from the comparative period in 2005. The increase was primarily attributable to increases in property premiums written in the U.K. and increases in our U.S. casualty business. In this quarter, though we have experienced increased competition with downward rate pressures, more business has been written in U.K. commercial property than in the comparative quarter. Casualty premiums have increased as Aspen Specialty becomes more established.

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The table below shows our gross premiums written for each line of business for each of the three months ended March 31, 2006 and 2005, and the percentage increase/decrease in gross premiums written for each such line:

				Gross Premiums Written
Lines of Business				For the three months ended March 31, 2006								For the three months ended March 31, 2005
				($ in millions)				% increase/decrease				($ in millions)
U.K. commercial property				$	9.6				269.2	%		$	2.6
U.S. commercial property					18.0				5.3	%			17.1
Worldwide property					1.0				(76.7	)%			4.3
U.K. commercial liability					35.2				3.2	%			34.1
U.S. commercial liability					22.4				16.7	%			19.2
Total				$	86.2				11.5	%		$	77.3

Losses and loss adjustment expenses.    The increase of $4.3 million in loss and loss adjustment expenses was due to a $10.0 million commercial property fire at a pet food manufacturer in the U.K. and increased loss ratios for U.S. commercial property business offset by a $1.5 million and an $8.2 million prior period release from our property and liability lines of business, respectively.

Policy acquisition, operating and administrative expenses.    Total expenses were $17.7 million for the three months ended March 31, 2006, equivalent to 24.9% of net premiums earned. The expenses represented an 11.9% decrease over the prior period in 2005. The reduction was due to the 10.9% reduction in net premiums earned (which has a commensurate reduction in acquisition expenses earned) and as a result of a reduction in the central and administrative costs allocated to this segment.

Reserves for Losses and Loss Expenses

As of March 31, 2006, the Company had accrued losses and loss adjustment expense reserves of $3,045.5 million. This amount represented the Company's best estimate of the ultimate liability for payment of losses and loss adjustment expenses. Of the total gross reserves for unpaid losses, $1,424.9 million, or 46.8%, represented IBNR claims. The IBNR portion of our reserves decreased by five percentage points as at December 31, 2005, as a result of a larger portion of the 2005 hurricane losses being notified. During the three months ended March 31, 2006 the Company paid losses and loss adjustment expenses of $222.5 million.

				As at March 31, 2006
				Gross				Reinsurance Recoverable				Net
				($ in millions)
Property Reinsurance				$	1,132.7			$	(626.0	)		$	506.7
Casualty Reinsurance					768.3				(9.3	)			759.0
Specialty Insurance and Reinsurance					554.2				(323.7	)			230.5
Property and Casualty Insurance					590.3				(232.4	)			357.9
Total losses and loss expense reserves				$	3,045.5			$	(1,191.4	)		$	1,854.1

For the three months ended March 31, 2006, there was a reduction of our estimate of the ultimate claims to be paid in respect of 2005 and prior accident years. An analysis of this reduction by segment is as follows:

				As at March 31, 2006
				($ in millions)
Property Reinsurance				$	(8.5	)
Casualty Reinsurance					7.6
Specialty Insurance and Reinsurance					8.7
Property and Casualty Insurance					9.7
Total losses and loss expense reserves				$	17.5

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The key elements which gave rise to the adverse and favorable development during the three months ended March 31, 2006 were as follows:

Property Reinsurance: The $8.5 million reserve strengthening in this segment was due to the overall deterioration in estimated losses from the 2005 hurricanes.

Casualty Reinsurance: The $7.6 million reduction in the net reserves in our casualty reinsurance segment was due to better than expected claims development and the effect of commutations on 2003 and 2004 policies.

Specialty Insurance and Reinsurance: The $8.7 million reduction in the net reserves in our specialty insurance and reinsurance segment was due to favorable development on the Syndicate 2020/3030 quota shares in 2002 and 2003 and better than expected claims development on our specialty reinsurance.

Property and Casualty Insurance: Of the total release, $8.2 million was from the U.K. liability class due to much better than expected experience on 2004 accident year policies and $1.5 million was from the worldwide property account following a reduction in prior period premium estimates and their impact on ultimate claims.

For a more detailed description see ‘‘Management's Discussion and Analysis Critical Accounting Policies — Reserves for Losses and Loss Expenses,’’ included in our 2005 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Liquidity and Capital Resources

Aspen is a holding company that does not have any significant operations or assets other than its ownership of the shares of its direct and indirect subsidiaries, including Aspen Re, Aspen Bermuda and Aspen Specialty. Aspen relies primarily on dividends and other permitted distributions from these insurance subsidiaries to pay its operating expenses, interest on debt finance and dividends, if any, on its ordinary shares and preference shares. There are restrictions on the payment of dividends by Aspen Re, Aspen Bermuda and Aspen Specialty to Aspen, which are described in more detail in the ‘‘Business — Regulatory Matters’’ section of the 2005 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Our aggregate invested assets as of March 31, 2006 were $4.5 billion, compared to aggregate invested assets of $4.4 billion as of December 31, 2005. The increase in invested assets since December 31, 2005 resulted from collections of premiums on insurance policies and reinsurance contracts and investment income, offset by claims, policy acquisition expenses, reinsurance premiums and operating and administrative expenses paid.

Total net cash flow from operations from December 31, 2005 through March 31, 2006 was $64.4 million, a reduction from $210.6 million in the prior year period. The reduction was a result of significant claims having been paid in the period. For the three months ended March 31, 2006, our cash flow from operations provided us with sufficient liquidity to meet our operating requirements. On March 25, 2006, we paid a dividend of $0.15 per ordinary share to shareholders of record on March 15, 2006. On March 31, 2006, dividends totaling $3.9 million on our Perpetual Preferred Income Equity Replacement Securities (‘‘Perpetual PIERS’’) were paid to our dividend disbursing agent, for payment to our Perpetual PIERS holders on April 1, 2006.

On January 10, 2006, the over-allotment option on our Perpetual PIERS was exercised, pursuant to which we issued an additional 600,000 Perpetual PIERS and generated approximately $29 million in net proceeds. The proceeds from this offering were used for general corporate purposes, to support the operations of our insurance subsidiaries and to strengthen our balance sheet capital position.

Our contractual obligations other than our obligations to employees consist mainly of amounts outstanding under our senior notes, reserves relating to our insurance and reinsurance contracts and operating leases. Note 6 to the unaudited condensed consolidated financial statements summarizes amounts outstanding under our contractual obligations as of March 31, 2006.

For a more detailed description of our liquidity and capital resources, refer to our Annual Report on Form 10-K for the year ended December 31, 2005.

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Effects of Inflation

The effects of inflation could cause the severity of claims from catastrophes or other events to rise in the future. Our calculation of reserves for losses and loss adjustment expenses includes assumptions about future payments for settlement of claims and claims-handling expenses, such as medical treatments and litigation costs. We write casualty/liability business in the United States, the United Kingdom and Australia, where claims inflation has grown particularly strong in recent years. To the extent inflation causes these costs to increase above reserves established for these claims, we will be required to increase our loss reserves with a corresponding reduction in current period earnings.

Cautionary Statement Regarding Forward-Looking Statements

This Form 10-Q contains, and the Company may from time to time make other verbal or written, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the ‘‘Securities Act’’), and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties, including statements regarding our capital needs, business strategy, expectations and intentions. Statements that use the terms ‘‘believe’’, ‘‘do not believe’’, ‘‘anticipate’’, ‘‘expect’’, ‘‘plan’’, ‘‘estimate’’, ‘‘intend’’ and similar expressions are intended to identify forward-looking statements. These statements reflect our current views with respect to future events and because our business is subject to numerous risks, uncertainties and other factors, our actual results could differ materially from those anticipated in the forward-looking statements. The risks, uncertainties and other factors set forth in the Company's 2005 Annual Report on Form 10-K filed with the Securities and Exchange Commission and other cautionary statements made in this report, as well as the following factors, should be read and understood as being applicable to all related forward-looking statements wherever they appear in this report.

All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to, the following:

	•	the impact of acts of terrorism and related legislation and acts of war;

	•	the possibility of greater frequency or severity of claims and loss activity, including as a result of natural or man-made catastrophic events such as Hurricanes Katrina, Rita and Wilma, than our underwriting, reserving, reinsurance purchasing or investment practices have anticipated;

	•	evolving interpretive issues with respect to coverage as a result of Hurricanes Katrina, Rita and Wilma;

	•	the level of inflation in repair costs due to limited availability of labor and materials after catastrophes;

	•	the effectiveness of our loss limitation methods;

	•	changes in the availability, cost or quality of reinsurance or retrocessional coverage;

	•	the reliability of, and changes in assumptions to, catastrophe pricing, accumulation and estimated loss models;

	•	loss of key personnel;

	•	a decline in our operating subsidiaries’ ratings with Standard & Poor's, A.M. Best Company (‘‘A.M. Best’’) or Moody's Investors Service;

	•	changes in general economic conditions, including inflation, foreign currency exchange rates, interest rates and other factors that could affect our investment portfolio;

	•	increased competition on the basis of pricing, capacity, coverage terms or other factors;

	•	decreased demand for our insurance or reinsurance products and cyclical downturn of the industry;

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	•	changes in governmental regulations or tax laws in jurisdictions where we conduct business;

	•	Aspen Holdings or Aspen Bermuda becoming subject to income taxes in the United States or the United Kingdom;

	•	the effect on insurance markets, business practices and relationships of ongoing litigation, investigations and regulatory activity by the New York State Attorney General's office and other authorities concerning contingent commission arrangements with brokers and bid solicitation activities;

	•	the total industry losses resulting from Hurricanes Katrina, Rita and Wilma, and the actual number of our insureds incurring losses from these storms; and

	•	with respect to Hurricanes Katrina, Rita and Wilma, the limited actual loss reports received from our insureds to date, the preliminary nature of possible loss information received by brokers to date on behalf of cedants, our reliance on industry loss estimates and those generated by modeling techniques, the impact of these storms on our reinsurers, any changes in our reinsurers' credit quality, the amount and timing of reinsurance recoverables and reimbursements actually received by us from our reinsurers and the overall level of competition, and the related demand and supply dynamics as contracts come up for renewal.

The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise or disclose any difference between our actual results and those reflected in such statements.

If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Any forward-looking statements you read in this report reflect our current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety by the points made above. You should specifically consider the factors identified in this report which could cause actual results to differ before making an investment decision.

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

Interest rate risk.    Our investment portfolio consists primarily of fixed income securities. Accordingly, our primary market risk exposure is to changes in interest rates. Fluctuations in interest rates have a direct impact on the market valuation of these securities. As interest rates rise, the market value of our fixed-income portfolio falls, and the converse is also true. We expect to manage interest rate risk by selecting investments with characteristics such as duration, yield, currency and liquidity, taking into account the anticipated cash outflow characteristics of Aspen Re's, Aspen Bermuda's and Aspen Specialty's insurance and reinsurance liabilities.

Our strategy for managing interest rate risk also includes maintaining a high quality portfolio with a relatively short duration to reduce the effect of interest rate changes on book value. The portfolio is actively managed and trades are made to balance our exposure to interest rates.

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As at March 31, 2006, our fixed income portfolio had an approximate duration of 2.91 years. The table below depicts interest rate change scenarios and the effect on our interest-rate sensitive invested assets:

Effect of changes in interest rates on portfolio given a parallel shift in the yield curve
Movement in rates in basis points				-100				-50				0				50				100
				($ in thousands, except percentages)
Market value $ in thousands				$	4,154,817			$	4,100,141			$	4,045,900			$	3,992,327			$	3,939,609
Gain/(loss) $ in thousands				$	108,917			$	54,241			$	0			$	(53,573	)		$	(106,291	)
Percentage of portfolio					2.69	%			1.34	%			0.00	%			(1.32	)%			(2.63	)%

Foreign currency risk.    Our reporting currency is the U.S. Dollar. The functional currencies of our segments are U.S. Dollars and British Pounds. As of March 31, 2006, approximately 78% of our cash and investments are held in U.S. Dollars, approximately 15% are in British Pounds and approximately 7% are in currencies other than the U.S. Dollar and the British Pound. For the three months ended March 31, 2006, 15% of our gross premiums were written in currencies other than the U.S. Dollar and the British Pound and we expect that a similar proportion will be written in currencies other than the U.S. Dollar and the British Pound in 2006. Other foreign currency amounts are remeasured to the appropriate functional currency and the resulting foreign exchange gains or losses are reflected in the statement of operations. Functional currency amounts of assets and liabilities are then translated into U.S. Dollars. 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 comprehensive income. Both the remeasurement and translation are calculated using current exchange rates for the balance sheets and average exchange rates for the statement of operations. We may experience exchange losses to the extent our foreign currency exposure is not properly managed or otherwise hedged, which in turn would adversely affect our results of operations and financial condition. Management estimates that a 10% change in the exchange rate between British Pounds and U.S. Dollars as at March 31, 2006, would have impacted reported net comprehensive income by approximately $13.0 million for the three months ended March 31, 2006.

We attempt to manage our foreign currency risk by seeking to match our liabilities under insurance and reinsurance policies that are payable in foreign currencies with investments that are denominated in these currencies. Although in the past we have entered into forward foreign currency exchange contracts, we had no outstanding forward contracts as at March 31, 2006.

Credit risk.    We have exposure to credit risk primarily as a holder of fixed income securities. Our risk management strategy and investment policy is to invest in debt instruments of high credit quality issuers and to limit the amount of credit exposure with respect to particular ratings categories and any one issuer. Under our policy, no more than 5% of the fixed-income securities in our investment portfolio may be rated below ‘‘A−’’. As at March 31, 2006, the average rate of fixed income securities in our investment portfolio was ‘‘AAA’’. In addition, we are exposed to the credit risk of our insurance and reinsurance brokers to whom we make claims payments for insureds and our reinsureds, as well as to the credit risk of our reinsurers and retrocessionaires who assume business from us. Other than fully collateralized reinsurance, the substantial majority of our reinsurers have a rating of ‘‘A’’ (Excellent), the third highest of fifteen rating levels, or better by A.M. Best and the minimum rating of any of our material reinsurers is ‘‘A−’’ (Excellent), the fourth highest of fifteen rating levels, by A.M. Best.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

During the fourth quarter of 2005, we successfully transitioned to a new financial reporting ledger system. We are in the process of finalizing the implementation of a new underwriting system that is expected to be complete during 2006. Later in 2006, the new underwriting system will automatically interface with the new financial reporting ledger. The introduction of the new systems is the final stage of the process to improve functionality and transition away for the IT facilities and services previously provided by Wellington.

The Company, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the design and operation of the Company's disclosure controls and procedures as of the end of the period of this report. Our management does not expect that our disclosure controls or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. As a result of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons or by collusion of two or more people. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. As a result of the inherent limitations in a cost-effective control system, misstatement due to error or fraud may occur and not be detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the disclosure controls and procedures are met. Based on the evaluation of the disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective in ensuring that information required to be disclosed by the Company in this report is recorded, processed, summarized and reported in a timely fashion.

Changes in internal control over financial reporting

The Company's management has performed an evaluation, with the participation of the Company's Chief Executive Officer and the Company's Chief Financial Officer, of changes in the Company's internal control over financial reporting that occurred during the quarter ended March 31, 2006. Based upon that evaluation, the Company's management is not aware of any change in its internal control over financial reporting that occurred during quarter ended March 31, 2006 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II
OTHER INFORMATION

Item 1.    Legal Proceedings

Similar to the rest of the insurance and reinsurance industry, we are subject to litigation and arbitration in the ordinary course of business. We are not currently involved in any material pending litigation or arbitration proceedings.

Item 1A.    Risk Factors

There have been no significant changes in the Company’s risk factors as discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

In connection with the options held by the Names’ Trustee as described further in Note 4 to our financial statements, the Names’ Trustee may exercise the options on a monthly basis. The options were exercised on both a cash and cashless basis at the exercise price as described in Note 4 to our financial statements. As a result, we issued the following unregistered shares to the Names’ Trustee and its beneficiaries as described below.

Date Issued				Number of Shares Issued
January 17, 2006					993
February 15, 2006					537
March 15, 2006					312

None of the transactions involved any underwriters, underwriting discounts or commissions, or any public offering and we believe that each transaction, if deemed to be a sale of a security, was exempt from the registration requirements of the Securities Act by virtue of Section 4(2) thereof or Regulation S for offerings of securities outside the United States. Such securities were restricted as to transfers and appropriate legends were affixed to the share certificates and instruments in such transactions.

Item 3.    Defaults Upon Senior Securities

None.

Item 4.    Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of the Company's shareholders during the first quarter of 2006.

Item 5.    Other Information

None.

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Item 6. Exhibits

The following sets forth those exhibits filed pursuant to Item 601 of Regulation S-K:

Exhibit Number				Description
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.

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SIGNATURES

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

								ASPEN INSURANCE HOLDINGS LIMITED (Registrant)
Date: May 9, 2006				By:				/s/ Christopher O’Kane
								Christopher O’Kane Chief Executive Officer
Date: May 9, 2006				By:				/s/ Julian Cusack
								Julian Cusack Chief Financial Officer

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