We retain our Neutral recommendation on
ACE Limited
(
ACE
), following its second quarter performance.
Operating earnings in the second quarter outperformed the Zacks
Consensus Estimate and the year-ago earnings, benefiting largely
from solid current accident year underwriting results as well as
lower catastrophe losses.
ACE Limited continues with it acquisitions that help it improve its
top line inorganically. Acquisitions have created a turnaround in
premium writings. With considerable balance sheet strength, we
expect ACE to grow both organically and inorganically. The company
expects premium growth to gain momentum in each quarter, averaging
in the mid to upper single digits in 2012. It also estimates
agriculture premium to be lower by $250 million from the year-ago
level. Its latest move to acquire PT Asuransi Jaya Proteksi in
Indonesia for $130 million will aid the company to diversify its
business there.
ACE boasts of a strong capital position, which helps it enhance its
shareholders value. It has a record of increasing its dividend
every year; the last dividend hike was 4.25%. Its dividend yield is
2.69%, above
Allstate Corp.
's (
ALL
) 2.06% and
Progressive Corp.
's (
PGR
) 2.2% yield. It is also left with share repurchase worth $461
million under its authorization. Furthermore, the company does not
have direct exposure to sovereign debt in Europe. Its exposure to
Euro zone financial institutions totaled $1.1 billion or less than
2% of the portfolio and is concentrated in Northern Europe.
ACE's earnings generating capability and stability supported by its
conservative reserving philosophy and commitment to underwrite
profitability provide a solid base for its enterprise risk
management program. As such, the company strongly scores with the
credit rating agencies.
Nevertheless, these positives are dwarfed by substantial exposure
to catastrophe losses. Though the entire industry benefited from
lower cat loss, exposure to cat activities will always remain a
concern as natural disasters can affect the results adversely. The
company also stated that the drought conditions in the U.S. will
weigh on its profitability in the later half of 2012.
Low interest rate environment continues to weigh on net investment
income and the recent quarter was no exception to it. Net
investment income in the second quarter suffered a dip largely due
to lower new money rates and the adverse impact of foreign
exchange, partially offset by higher distributions from private
equity funds.
The quantitative Zacks Rank for ACE Limited is currently "3",
indicating no clear directional pressure on the shares over the
near term.
ACE LIMITED (ACE): Free Stock Analysis Report
ALLSTATE CORP (ALL): Free Stock Analysis Report
PROGRESSIVE COR (PGR): Free Stock Analysis
Report
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