The following is a discussion and analysis of the results of our operations for the twelve months ended December 31, 2012, 2011 and 2010 and of our financial condition as at December 31, 2012. This discussion and analysis should be read in conjunction with our audited consolidated financial statements and accompanying Notes included in this report. This discussion contains forward-looking statements that involve risks and uncertainties and that are not historical facts, including statements about our beliefs and expectations. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and particularly under the headings "Risk Factors," "Business" and "Forward-Looking Statements" contained in Item 1A, Item 1, and Part I of this report, respectively.

Aspen's Year in Review

In 2012, Aspen celebrated its 10-year anniversary. Our success over the last 10 years reflects the support of our clients, with whom we have built strong relationships, the hard work and skill of all our people, and the diversified Reinsurance and Insurance platforms that we have built together. We made strong progress in 2012 against our strategic objectives and continued to execute our strategy to increase the size and diversity of our insurance segment. This was the first full year of contributions from a number of our U.S.-based teams and was the most significant driver for our growth in gross written premiums. We experienced a significant reduction in catastrophe-related claims compared to 2011, with Superstorm Sandy being the only event to generate significant claims in 2012 as well as the sinking of the Costa Concordia cruise liner, which was a large loss. We continued to execute our strategy to grow our business, protect our balance sheet, preserve shareholder value and position our business for future growth. For 2012, we reported a net profit of $3.38 per diluted ordinary share and return on equity of 8.5% and increased our diluted book value per share by $2.44, an increase of 6.4% from year end 2011.

Insurance. In 2012, our insurance segment experienced losses from Superstorm Sandy and the sinking of the Costa Concordia cruise liner. Nevertheless, we achieved an underwriting profit of $6.3 million for 2012 and a combined ratio of 99.3%, compared with an underwriting profit of $30.2 million and a combined ratio of 96.1% for 2011. Gross written premiums for the segment increased by 32.8% reflecting significant growth in the U.S. but also an improvement across a number of international lines. The premium growth in the U.S. was achieved following the successful application and approval of admitted licenses in 50 U.S. states and the District of Columbia. We also continued to build out management expertise and infrastructure to support growth and development.

Reinsurance. Our reinsurance segment had a successful year notwithstanding pre-tax losses of $129.5 million, net of reinsurance and reinstatement premiums, from Superstorm Sandy. We had good performance in each of our principal lines of business - property, casualty and specialty reinsurance. We achieved an underwriting profit of $165.4 million for 2012 and a combined ratio of 85.4%, compared with an underwriting loss of $284.5 million and a combined ratio of 125.6% for 2011. Premium production was broadly consistent with the prior year as we maintained rates for casualty business and benefited from rate increases on catastrophe-exposed accounts. Catastrophe losses in 2012 were significantly lower than in 2011 with limited losses in the first nine months of 2012 and Superstorm Sandy in the fourth quarter.

Capital management. During 2012, we continued to execute our strategy to return excess capital to shareholders. In the second quarter, we increased our quarterly dividend from $0.15 to $0.17 per

ordinary share and we returned additional funds to shareholders through the repurchase of ordinary shares. In total during 2012 we repurchased 2,168,080 ordinary shares, for a total consideration of $62.7 million. On October 24, 2012, our Board approved a new share repurchase authorization for up to $400.0 million of outstanding ordinary shares, which was recently increased to $500.0 million. See "Recent Developments," below. The share repurchase authorization permits us to effect the repurchases from time to time through a combination of transactions, including open market repurchases, privately negotiated transactions and accelerated share repurchase transactions.

Financial Overview

The following overview of our 2012, 2011 and 2010 operating results and financial condition is intended to identify important themes and should be read in conjunction with the more detailed discussion further below.

Operating highlights

• Annualized net income return on average equity of 8.5% for 2012 compared with (4.8)% in 2011 and 11.2% in 2010.

• Gross written premiums of $2,583.3 million in 2012, an increase of 17.0% compared to 2011 and 24.4% compared to 2010, principally in the insurance segment.

• Combined ratio for 2012 of 94.3%, including $205.0 million, or 10.8 percentage points of pre-tax catastrophe losses, net of reinsurance and reinstatements, compared with 115.9% for 2011, which included 31.5 percentage points of pre-tax catastrophe losses, net of reinsurance and reinstatements and 96.7% for 2010, which included 9.0 percentage points of pre-tax catastrophe losses, net of reinsurance and reinstatements.

• Net favorable development on prior year loss reserves of $137.4 million, or 6.6 combined ratio points, for the year compared with $92.3 million, or 4.9 combined ratio points, for 2011 and $21.4 million, or 1.1 combined ratio points, for 2010.

Gross written premiums. The changes in our segments' gross written premiums for the twelve months ended December 31, 2012, 2011 and 2010 are as follows:

                                      Gross Written Premiums for the Twelve Months Ended December  31,
Business Segment                   2012                                       2011                            2010
                    ($ in millions)         % increase          ($ in millions)        % increase        ($ in millions)
Reinsurance                 $1,227.9                3.4 %               $1,187.5               2.2 %             $1,162.2
Insurance                    1,355.4               32.8 %                1,020.3              11.6 %                914.6

Total                       $2,583.3               17.0 %               $2,207.8               6.3 %             $2,076.8

Gross written premiums increased by 17.0% in 2012 compared to 2011 due predominantly to the continued development of our U.S. insurance platform. The increase in gross written premiums in the insurance segment was across all lines, but is mainly attributable to our property and programs business. Increases in gross written premiums in our marine, energy and transportation insurance lines were mainly due to increased premiums for marine, energy and liability business which achieved significant rate increases following a series of industry losses in the past year. The increase in gross

written premiums in the reinsurance segment arose from other property and casualty reinsurance business. The increase in other property is due to strong production from our proportional treaty and facultative business as we benefited from positive pricing momentum in catastrophe-exposed accounts while casualty benefited from favorable prior year premium adjustments. In 2012, we recognized $9.9 million of reinstatement premiums associated with Superstorm Sandy. In 2011, we recognized $32.5 million of reinstatement premiums associated with the New Zealand earthquakes, the Australian floods, the Japanese earthquake, the Thai floods, the U.S. storms, and other natural catastrophe events, mainly included in property catastrophe. In 2011, the principal growth in premiums was in our insurance segment, mainly from our U.S. insurance lines as we started benefiting from our investment in 2010 in the U.S.

Combined ratio. We monitor the ratio of losses and expenses to net earned premium (the "combined ratio") as a measure of relative performance where a lower ratio represents a better result than a higher ratio. The combined ratios for our two business segments for the twelve months ended December 31, 2012, 2011 and 2010 were as follows:

                                         Combined Ratios for  the
                                            Twelve Months Ended
                                               December 31,
                  Business Segment    2012         2011         2010
                  Reinsurance           85.4 %      125.6 %       88.2 %
                  Insurance             99.3 %       96.1 %      103.1 %
                  Total                 94.3 %      115.9 %       96.7 %

The combined ratio for 2012 decreased by 21.6 percentage points compared to 2011. The decrease was primarily due to a reduction in pre-tax catastrophe losses, net of reinsurance and reinstatements, of $329.3 million of net losses from major natural catastrophes from $534.3 million in 2011 to $205.0 million in 2012 but was partially offset by an increase in the expense ratio.

In each of the years ended December 31, 2012, 2011 and 2010, we recorded a reduction in the level of reserves for prior years. In 2012, we reported net favorable development on prior year loss reserves of $137.4 million, or 6.6 combined ratio points, compared with $92.3 million, or 4.9 combined ratio points, for 2011 and $21.4 million, or 1.1 combined ratio points, for 2010.

Reserve releases increased by $45.1 million in 2012 due to a net reserve release in our reinsurance segment of $102.2 million compared to $72.3 million in 2011. The insurance segment had a $35.2 million reserve release in 2012 compared to a $20.0 million reserve release in 2011.

Reserve releases increased by $70.9 million in 2011 due mainly to a net reserve release of $20.0 million for our insurance segment compared to a $44.2 million reserve strengthening in 2010. Reserve releases were $64.2 million lower in 2010 due to less favorable developments impacting our insurance segment, particularly our casualty insurance and financial and professional lines.

Further information relating to the release of reserves can be found below under "- Reserves for Loss and Loss Adjustment Expenses - Prior Year Loss Reserves".

Policy acquisition expenses reduced in 2012 compared to 2011 due mainly to adjustments in profit-related commission accruals and increased in 2011 from 2010 mainly due to an increase in profit-related commissions in the insurance segment. General, administrative and corporate expenses have increased to $345.1 million in 2012 from $284.5 million in 2011 and $258.6 million in 2010. The

increase in 2012 is due to an increase in performance-related accruals and the continued build out of our U.S. insurance and U.K. regional platforms. General, administrative and corporate expense increased in 2011 compared to 2010 due to increases in costs associated mainly with growth in our insurance business.

Net investment income. In 2012, we generated net investment income of $204.9 million, a decrease of 9.2% on the prior year (2011 - $225.6 million; 2010 - $232.0 million). Net investment income has steadily declined over the years from 2010 to 2012, due to the continuing decline in our reinvestment rate reflecting lower yields on investment grade fixed income securities. Relative to 2010, in 2011, lower reinvestment rates and declining book yields from fixed income securities were partially offset by $6.1 million of dividend income from global equity securities.

Taxes. We recognized a tax expense in 2012 of $15.0 million (2011 - $37.2 million credit; 2010 - $27.6 million expense), equivalent to a consolidated rate on income before tax of 5.1% in 2012 compared to 25.3% tax credit in 2011 and 8.1% in 2010. The tax in each of the years is representative of the geographic spread of our business between taxable and non-taxable jurisdictions in such years. The tax credit in 2011 was due to a greater proportion of losses having been incurred by Operating Subsidiaries in tax paying jurisdictions, adjustments to prior years' tax provisions as well as reductions in the U.K. corporation tax rates.

Net income. For 2012, we reported income after taxes of $280.4 million, compared to a loss after taxes of $110.1 million in 2011, and income after taxes of $312.7 million in 2010. The increase in net income in 2012 over 2011 was due to primarily to the $417.7 million increase in underwriting income including corporate expenses which more than offset the $20.7 million reduction in investment income. The significant decrease in net income from 2011 compared to 2010 was due to total net losses after tax of $485.4 million from natural disasters in 2011 which included $223.7 million from the Japanese earthquake and tsunami, $93.8 million from the U.S. storms, $53.5 million from the Thai floods, $60.1 million from the 2011 New Zealand earthquake, $18.1 million from the Australian floods and $36.2 million from other natural catastrophes.

Dividends. In April 2012, the Board approved an increase in the quarterly dividend on our ordinary shares from $0.15 per ordinary share to $0.17 per ordinary share (2011 - $0.15 quarterly dividend; 2010 - $0.15 quarterly dividend). Dividends paid on the preference shares in 2012 were $31.1 million (2011 - $22.8 million; 2010 - $22.8 million). The increase was due to issuance in April 2012 of additional $160.0 million of preference shares.

Shareholders' equity and financial leverage. Total shareholders' equity increased from $3,156.0 million as at December 31, 2011 to $3,488.4 million as at December 31, 2012. The most significant movements were:

• the issue of 6,400,000 7.25% perpetual non-cumulative preference shares for net proceeds of $154.5 million;

• a $280.6 million increase in retained earnings for the period;

• cash repurchases of 2,168,080 ordinary shares for $62.7 million; and

• dividends paid on ordinary and preference shares of $47.0 million and $31.1 million, respectively.

As at December 31, 2012, our total shareholders' equity included preference shares with a total value as measured by their respective liquidation preferences of $523.2 million (2011 - $363.2 million) less issue costs of $15.1 million (2011 - $9.6 million).

Our Senior Notes were the only material debt that we had issued as of December 31, 2012 and 2011 of $499.1 million and $499.0 million, respectively. Management monitors the ratio of debt to total capital, with total capital being defined as shareholders' equity plus outstanding debt. At December 31, 2012, this ratio was 12.5% (2011 - 13.7%).

Our preference shares are classified in our balance sheet as equity but may receive a different treatment in some cases under the capital adequacy assessments made by certain rating agencies. We also monitor the ratio of the total of debt and the liquidation preference of our preference shares to total capital which was 25.3% as of December 31, 2012 (2011 - 23.3%).

Diluted book value per ordinary share at December 31, 2012 was $40.65, an increase of 6.4% compared to $38.21 at December 31, 2011.

Book value per ordinary share is based on total shareholders' equity, less preference shares (liquidation preference less issue expenses), divided by the number of ordinary shares in issue at the end of the period.

Balances as at December 31, 2012 and December 31, 2011 were:



                                                        As at                         As at
                                                  December 31, 2012             December 31, 2011
                                                    ($ in millions, except for share amounts)
Total shareholders' equity                      $             3,488.4          $           3,156.0
Preference shares less issue expenses                          (508.1 )                     (353.6 )

Net assets attributable to ordinary
shareholders                                    $             2,980.3          $           2,802.4

Issued ordinary shares                                     70,753,723                   70,655,698
Issued and potentially dilutive ordinary
shares                                                     73,312,340                   73,355,674

Market Conditions, Rate Trends and Developments in 2012 and Early 2013

Overall. For 2012 as a whole, we achieved an approximate average rate increase of 4% on renewals across our business with approximately 5% in reinsurance and approximately 3% in insurance. Currently, the U.S. primary insurance market is achieving the most promising rate increases across the greatest number of lines. These increases are now beginning to flow through to the reinsurance market.

In our insurance segment, in early 2013 we are seeing favorable rating conditions in marine, energy and construction liability and global excess and U.S. primary casualty and a perceptibly hardening market in financial institutions both in the U.S. and internationally as well as increased deal flow in our credit, political and terrorism team.

In our reinsurance segment, in early 2013 we are seeing good rating momentum in marine and U.S. property reinsurance with an improving market in parts of our casualty business. We are also benefiting from our regional network, where we are achieving favorable rate increases for many international accounts notwithstanding a tough trading environment in those geographic markets.

Reinsurance. January 1 is a significant renewal date in the reinsurance market. The renewal period is dominated by the U.S. and European markets. For 2012, the property catastrophe business achieved

a rate increase of approximately 11%. Prior to Superstorm Sandy, there were initial indications in the market that January 1 renewal rates would be flat or declining. The loss experience from Superstorm Sandy reversed that trajectory. We achieved significant rate increases in loss affected accounts, but accounts with no loss experience were mostly flat. We are experiencing a similar trend across most of our property treaty book. For specific lines and geographies where there has been meaningful loss activity we are seeing significant rate increases. The U.S. property facultative market has responded to Superstorm Sandy with significant increases for flood cover but fire rates remain flat. The tendency for cedants to retain more risk continued during the January renewal period.

In a largely benign year for losses outside the U.S., rates in international property markets are generally flat or showing a small decrease. It is encouraging that the markets are responding to the Asian catastrophe events of 2011 with event limits becoming the norm rather than the exception and markets willing to reduce limits for business interruption and Japanese interest abroad exposures.

Casualty reinsurance achieved a rate increase of approximately 1% for 2012. The rate environment continues to vary based on line and geography. The most meaningful rate increases were within our U.S. general and professional excess and surplus lines where we have seen increases of up to approximately 5%. This trend continued in our January renewals. Overall, we remain cautious about our growth opportunities in casualty reinsurance given the prolonged low interest rate environment. It is however important to note that we do not see any significant changes in loss cost trends for this line and the rates achieved in our current account are keeping in front of any inflationary indications.

In specialty reinsurance, rates declined approximately 2% on average in 2012, with the softest rates in credit and surety reinsurance following another profitable year. The rates for the January 1 renewals were mixed. Marine was dominated by the uncertainty over the Superstorm Sandy and Costa Concordia losses. Business affected by these events experienced rate increases of up to approximately 30% with increased client risk retention. Competition in credit and surety was high with plenty of capacity supplemented by a few new entrants to the market but both primary and reinsurance contract terms and conditions remain disciplined.

Insurance. January 1 is not a major renewal date for insurance overall. For our property insurance lines across the U.S. and the U.K. we achieved an approximate average rate increase of 5% and the U.S. property team achieved an approximate increase of 6% in 2012. We saw no major changes in the U.S. property insurance terms and conditions during the most recent quarter although we are anticipating approximate price increases at mid-year 2013 renewals in the 5% - 25% range in the loss-affected Northeast and 5% - 10% overall as the market responds to Superstorm Sandy losses.

We also expect terms and conditions for windstorm and flood to tighten in the Northeast. In our programs business, we achieved rate increases of approximately 3% for 2012 and anticipate rates increasing further in response to Superstorm Sandy losses. In our U.K. property business, the market remains very competitive but the rating environment appears to have stabilized and we continue to focus on our strict underwriting discipline.

In casualty insurance, we continue to see positive momentum in the U.S. primary casualty market. We achieved average rate increases of approximately 8% for 2012 and the outlook continues to be favorable. The global casualty market achieved an approximate average rate increase of 4% in 2012.

In our marine, energy and transportation business we achieved an overall rate increase of approximately 2% for 2012. This increase was led by our marine, energy and construction liability accounts where the market continues to harden following significant loss activity. Terms remain strong

in this account and we achieved an increase of approximately 9% for 2012. The aviation market remains challenging with rate decreases of approximately 8% for 2012.

The rating environment in financial and professional lines is mixed, achieving an approximate average rate increase of 1%. Rate increases were led by the financial institutions account which increased by approximately 7% and U.S. management liability which increased by approximately 5% while rates in the U.K. remain pressured in areas such as U.K. management liability and professional indemnity accounts.

Investments. We recognize that the low interest rate environment is likely to remain for at least the immediate future. We have evaluated investment opportunities that will help us generate increased returns, while remaining within our risk tolerances. As a result, we are increasing the total allocation of our investment portfolio to equities and BB rated securities by $200.0 million in each sector. We completed our additional investment in equities on February 1, 2013. Our additional investment in BB securities will be predominantly in bank loans and we expect to complete this in the medium term.

Recent Developments

From January 1, 2013 to February 25, 2013, we repurchased 1,344,873 ordinary shares under its Rule 10b5-1 plan at an average price of $33.95 per share for a total cost of $45.7 million.

On February 1, 2013, we announced that Aspen U.K. and Aspen Bermuda entered into an amendment to the secured letter of credit facility agreement with Barclays Bank PLC dated as of October 6, 2009 and amended as of February 28, 2011. The amendment extends the maturity date of the credit facility to January 31, 2015.

On February 7, 2013, we announced the appointment of Mr. Gordon Ireland to our Board as a Class III director. In addition, Mr. Julian Cusack will resign as a director of the Company at the next Annual General Meeting scheduled for April 24, 2013. Mr. Cusack has stepped down from his role as Aspen's Chief Risk Officer with effect on February 7, 2013, but will remain with us in a strategic role and as Chairman of Aspen Bermuda. Further, Mr. Ian Cormack will not stand for re-election as a director of the Company at the next Annual General Meeting scheduled for April 24, 2013.

On February 7, 2013, we announced that our Board has replaced the existing share repurchase authorization of $400.0 million with a new authorization of $500.0 million. The total share repurchase authorization, which is effective immediately through February 7, 2015, permits us to effect the repurchases from time to time through a combination of transactions, including open market repurchases, privately negotiated transactions and accelerated share repurchase transactions.

On February 7, 2013, we announced that we would commence a significant and controlled reduction of our wind and earthquake exposure within our U.S. property insurance account. The decision to reduce our exposures was taken following a review of all business lines, after which we concluded that the earnings from our U.S. property insurance portfolio were excessively volatile as a result of inadequate original rates for catastrophe exposure and expensive reinsurance costs. We expect the reduction in wind and earthquake exposure to result in a release of capital over the next two years which we will utilize to repurchase shares unless other compelling opportunities emerge.

Critical Accounting Policies

Our consolidated financial statements contain certain amounts that are inherently subjective in nature and require management to make assumptions and best estimates to determine the reported

values. We believe that the following critical accounting policies affect the more significant estimates used in the preparation of our consolidated financial statements. A statement of all the significant accounting policies we use to prepare our financial statements is included in the Notes to the consolidated financial statements. If factors such as those described in Item 1A, "Risk Factors" cause actual events to differ from the assumptions used in applying the accounting policy and calculating financial results, there could be a material adverse effect on our operating results, financial condition and liquidity.

Written Premiums

Written premiums are comprised of the estimated premiums on contracts of insurance and reinsurance entered into in the reporting period, except in the case of proportional reinsurance contracts, where written premium relates only to our estimated proportional share of premiums due on contracts entered into by the ceding company prior to the end of the reporting period.

All premium estimates are reviewed regularly, comparing actual reported premiums to expected ultimate premiums along with a review of the collectability of premiums receivable. Based on management's review, the appropriateness of the premium estimates is evaluated, and any adjustments to these estimates are recorded in the periods in which they become known. Adjustments to original premium estimates could be material and these adjustments may directly and . . .