1267395--2/26/2010--ASPEN_INSURANCE_HOLDINGS

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{loss, insurance, financial}

{regulation, change, law}

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{acquisition, growth, future}

{financial, litigation, operation}

{provision, law, control}

{stock, price, share}

{condition, economic, financial}

{operation, international, foreign}

{interest, director, officer}

{operation, natural, condition}

{debt, indebtedness, cash}

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{capital, credit, financial}

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The nature and level of catastrophes in any period cannot be predicted, and the frequency and severity of such loss activity has recently fluctuated greatly and industry models may not adequately predict such losses. We may not be able to adequately price and reserve for the increased frequency and severity of catastrophes due to environmental factors such as global climate change, which may have a material adverse effect on our financial condition. We could face unanticipated losses from war, terrorism and political instability, and these or other unanticipated losses could have a material adverse effect on our financial condition and results of operations. The effects of emerging claim and coverage issues on our business are uncertain, particularly under current adverse market conditions. The insurance and reinsurance business is historically cyclical and we expect to experience periods with excess underwriting capacity and unfavorable premium rates and policy terms and conditions. If actual renewals of our existing contracts do not meet expectations, our premiums written in future years and our future results of operations could be materially adversely affected. We could be materially adversely affected to the extent that managing general agents, general agents and other producers exceed their underwriting authorities or otherwise breach obligations owed to us. The aggregated risks associated with reinsurance underwriting could adversely affect us. If actual claims exceed our loss reserves, our financial results could be significantly adversely affected. The failure of any risk management and loss limitation methods including risk transfer tools we employ could have a material adverse effect on our financial condition and our results of operations. Our risk management policies and procedures may leave us exposed to unidentified or unanticipated risk, which could negatively affect our business. The reinsurance that we purchase may not be available on favorable terms or we may choose to retain a higher proportion of particular risks than in previous years. Risks Related to the Recent Business and Market Environment The ongoing financial crisis has resulted in unprecedented levels of financial market volatility and reduced availability of credit, which may have a material adverse affect on our business and results of operations. Profitability may be adversely impacted by inflated costs of settling claims. We may be adversely affected by foreign currency fluctuations. We operate in a highly competitive environment, and substantial new capital inflows into the insurance and reinsurance industry may increase competition. Recent events may result in political, regulatory and industry initiatives which could adversely affect our business. Our Insurance Subsidiaries are rated, and our Lloyd s business benefits from a rating by one or more of A.M. Best, S P and Moody s, and a decline in any of these ratings could affect our standing among brokers and customers and cause our premiums and earnings to decrease. If we fail to develop the necessary infrastructure as we grow, our future financial results may be adversely affected. Acquisitions or strategic investments that we may make could turn out to be unsuccessful. We may fail to execute our strategy in new lines of business and territories, which would impair our future financial results. We may require additional capital in the future, which may not be available or may only be available on unfavorable terms. We may be unable to enter into sufficient reinsurance security arrangements and the cost of these arrangements may materially impact our margins. We may be adversely affected by interest rate changes. Deterioration in the public debt and equity markets could lead to investment losses, which could affect our financial results and ability to conduct business. Unexpected volatility or illiquidity associated with some of our investments could significantly and negatively affect our financial results and ability to conduct business. Our investment portfolio includes below investment-grade or unrated securities that have a higher degree of credit or default risk which could adversely affect our results of operations and financial condition. The regulatory system under which we operate, and potential changes thereto, could have a material adverse effect on our business. Material changes in voting rights and connected party transactions may require regulatory approval or oversight by the FSA. Aspen U.K. may be required to hold additional capital in order to meet the FSA s solvency requirements. Changes at the EU level may also affect Aspen U.K. The EU Directive on Solvency II may affect the way in which Aspen U.K. manages its business. The activities of Aspen U.K. may be subject to review by other insurance regulators. The Bermudian regulatory system and potential changes thereto, could have a material adverse effect on our business. The insurance laws or regulations of other jurisdictions could have a material adverse effect on our business. The Council of Lloyd s and the Lloyd s Franchise Board have wide discretionary powers to supervise members of Lloyd s. Changes in Lloyd s regulation or the Lloyd s market could make Syndicate 4711 less attractive. Along with our peers in the industry, we will continue to monitor such changes in existing laws and regulations and the possibility of a dual regulatory framework in the U.S. Changes in U.S. State insurance legislation and insurance department legislation may impact on liabilities assumed by our business. Our business could be adversely affected by Bermuda employment restrictions. From time to time, government authorities seek to more closely monitor and regulate the insurance industry, which may adversely affect our business. Recent investigations of certain reinsurance accounting practices could adversely affect our business. Current legal and regulatory activities relating to insurance brokers and agents, contingent commissions, and bidding practices could have a material adverse effect on our consolidated financial condition, future operating results and/or liquidity. The preparation of our financial statements requires us to make many estimates and judgments that are more difficult than those made in a more mature company because we have more limited historical information through December 31, 2009. The loss of underwriters or underwriting teams could adversely affect us. We could be adversely affected by the loss of one or more principal employees or by an inability to attract and retain senior staff. We rely on third-party service providers for some of our operations and systems. Our reliance on brokers subjects us to their credit risk. Since we depend on a few brokers for a large portion of our insurance and reinsurance revenues, loss of business provided by any one of them could adversely affect us. Our purchase of reinsurance subjects us to third-party credit risk. Certain of our policyholders and intermediaries may not pay premiums owed to us due to bankruptcy or other reasons. The impairment of financial institutions increases our counterparty risk. Our ability to pay dividends or to meet ongoing cash requirements may be constrained by our holding company structure. Certain regulatory and other constraints may limit our ability to pay dividends. Risks Related to Our Ordinary Shares Future sales of ordinary shares may affect their market price and the future exercise of options may result in immediate and substantial dilution. There are provisions in our charter documents which may reduce or increase the voting rights of our ordinary shares. There are provisions in our bye-laws which may restrict the ability to transfer ordinary shares and which may require shareholders to sell their ordinary shares. Laws and regulations of the jurisdictions where we conduct business could delay or deter a takeover attempt that shareholders might consider to be desirable and may make it more difficult to replace members of our Board of Directors and have the effect of entrenching management, and your ability to purchase more than 10% of our voting shares will be restricted. We cannot pay a dividend on our ordinary shares unless the full dividends for the most recently ended dividend period on all outstanding Perpetual PIERS, underlying perpetual preference shares and Perpetual Preference Shares have been declared and paid. Our ordinary shares rank junior to our Perpetual PIERS, underlying perpetual preference shares and Perpetual Preference Shares in the event of a liquidation, winding up or dissolution of the Company. U.S. persons who own our ordinary shares may have more difficulty in protecting their interests than U.S. persons who are shareholders of a U.S. corporation. Anti-takeover provisions in our bye-laws could impede an attempt to replace or remove our directors, which could diminish the value of our ordinary shares. We are a Bermuda company and it may be difficult to enforce judgments against us or our directors and executive officers. We may become subject to taxes in Bermuda after March 28, 2016, which may have a material adverse effect on our results of operations and your investment. Our non-U.S. companies (other than AUL) may be subject to U.S. tax and that may have a material adverse effect on our results of operations and your investment. Our non-U.K. companies may be subject to U.K. tax that may have a material adverse effect on our results of operations. Our U.K. operations may be affected by future changes in U.K. tax law. Our U.K. operations may be adversely affected by a transfer pricing adjustment in computing U.K. taxable profits. Holders of 10% or more of Aspen Holdings shares may be subject to U.S. income taxation under the controlled foreign corporation ( CFC ) rules. U.S. Persons who hold our shares may be subject to U.S. income taxation at ordinary income rates on their proportionate share of our related party insurance income ( RPII ). U.S. Persons who dispose of our shares may be subject to U.S. federal income taxation at the rates applicable to dividends on a portion of such disposition. U.S. Persons who hold our shares will be subject to adverse tax consequences if we are considered to be a passive foreign investment company ( PFIC ) for U.S. federal income tax purposes. U.S. tax-exempt organizations who own our shares may recognize unrelated business taxable income. Changes in U.S. federal income tax law could materially adversely affect an investment in our shares. The impact of Bermuda s letter of commitment to the Organization for Economic Cooperation and Development to eliminate harmful tax practices is uncertain and could adversely affect our tax status in Bermuda.

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1267395--2/26/2010--ASPEN_INSURANCE_HOLDINGS_LTD