) remains well poised owing to its international presence,
diversified product offering, risk management, conservative
underwriting practice and strong reserves. Alongside, it is focused
on enhancing its earnings, return on equity and book value per
Also, in its concerted effort to enhance shareholders value, the
Board intends to propose a dividend hike. It also scores strongly
with the rating agencies.
However, exposure to catastrophe losses and the continued low
interest rate environment dwarfs the positives. Thus, we retain our
After embarking on an acquisition spree in 2010 and 2011, the
company continues to make strategic acquisitions. Recently, the
company agreed to acquire PT Asuransi Jaya Proteksi in Indonesia
for $130 million in cash, thereby aiding the company to diversify
its business there.
Acquisitions have created a turnaround in premium writings and
in turn have helped the company deliver better numbers, which is
expected to continue, going forward. With considerable balance
sheet strength, we expect ACE to grow both organically and
The company expects premium growth to gain momentum in each
quarter averaging in mid- to-upper single digits in 2012. It also
estimates agriculture premium to be lower by $250 million from the
ACE is also focused on returning more value to its shareholders.
The Board of Directors authorized a 4.25% increase in its quarterly
dividend. The company has a record of increasing its dividend every
year. Its dividend yield is 2.68%, which is above the industry
yield of 2.08%.
In the first quarter of 2012, ACE bought back 0.1 million shares
for $7 million. As of March 31, the company is left with share
repurchases worth $461 million under its authorization. Given its
strong capital and liquidity position, and capital exceeding $30
billion, we expect to see further buyback spending from the
company, which will boost its bottom line.
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. A.M. Best reiterated the issuer credit
ratings ("ICR") and senior debt ratings of "a" of ACE Limited and
ACE INA Holdings Inc.
Concurrently, the rating agency reiterated the financial
strength ratings ("FSR") of A+ (Superior) and ICR of "aa" of the
North America property/casualty subsidiaries of ACE Limited, ACE
Bermuda Insurance Ltd., ACE Tempest Reinsurance Ltd, the members of
the ACE American Pool and ACE INA Insurance. The outlook remains
Furthermore, A.M. Best revised the FSR to A+ (Superior) from A
(Excellent) and ICR to "aa" from "a+'' of Penn Millers Insurance
Company with a stable outlook. We believe, the company's strong
ratings scores will help retain investor confidence and help it
write more business going forward.
Nevertheless, ACE has substantial exposure to losses resulting
from natural disasters, man-made catastrophes and other
catastrophic events. Though the entire industry benefited from
lower cat loss in the first quarter, exposure to cat activities
will always remain a concern as natural disasters can affect the
results adversely. The company's operating earnings include an
estimated cat loss of $325 million for the remainder of 2012.
Low interest rate environment continues to weigh on net
investment income and the recent quarter was no exception. Lower
yields on new investments coupled with lower private equity fund
distributions offset positive operating cash flows and a higher
overall average invested asset base from acquisitions, thereby
resulting in no momentum in investment income in the quarter.
The quantitative Zacks #3 Rank (short-term Hold rating) for the
company indicates no clear directional pressure on the shares over
the near term. The company competes with
American International Group Inc.
The Travelers Companies Inc.
ACE LIMITED (ACE): Free Stock Analysis Report
AMER INTL GRP (AIG): Free Stock Analysis Report
TRAVELERS COS (TRV): Free Stock Analysis Report
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