ACE Limited
(
ACE
) reported second quarter 2012 operating income of $2.17 per share,
breezing past the Zacks Consensus Estimate by 24 cents. Earnings
improved 10% from $1.97 earned in the year-ago quarter. Operating
income was $743 million, 10% higher than $673 million in the
prior-year quarter.
The quarter largely benefited from solid current accident year
underwriting results as well as lower catastrophe losses.
Including net realized loss, net of tax, of $415 million or $1.21
per share, ACE Limited reported net income of $328 million or 96
cents per share compared with $594 million or $1.74 per share in
the prior-year quarter. The company, in second quarter 2011,
registered net realized loss, net of tax, of $79 million or 23
cents per share.
Operational Performance
Gross premiums written by ACE Limited in the quarter under review
were $5.6 billion, up 4.2% year over year.
Net premiums earned inched up 0.7% year over year to $3.8 billion
in the quarter.
Net investment income in the quarter totaled $537 million, down
5.6% year over year. The decline was largely due to lower new money
rates and the adverse impact of foreign exchange, partially offset
by higher distributions from private equity funds.
Underwriting profit at ACE Limited was $429 million in second
quarter 2012, up 46% year over year.
Property & Casualty combined ratio improved by 400 basis points
year over year to 88.7% in the quarter. A lower level of
catastrophe activities aided the improvement. Total after-tax
catastrophe losses including reinstatement premiums were $41
million, compared with $101 million in the year-ago quarter.
Segment Update
Insurance-North American:
The segment recorded a 3% year-over-year growth in net earned
written in the quarter.
Operating income increased 18.8% year over year to $335 million in
the quarter under review.
The combined ratio improved by 590 basis points to 89.2% in the
quarter.
Insurance-Overseas General:
Net premiums earned in the quarter inched up 0.4% year over year.
Operating income was $232 million in the quarter, an improvement of
5% from $221 million in the year-ago quarter.
The combined ratio was 91.2%, improving 230 basis points over the
prior-year quarter.
Global Reinsurance:
Net premiums earned saw a decline of 6.7% year over year to $237
million.
Operating income was $149 million, up 3.5% from $144 million in the
year-ago period.
The combined ratio improved 180 basis points to 66.1% in the
quarter.
Life:
The segment's net premiums earned decreased 2.1% year over year.
Operating income decreased 10.2% year over year to $79 million.
Balance Sheet
ACE Limited exited the quarter with cash of $617 million, inching
up 0.5% from the 2011 level end.
Book value per share as of June 30, 2012, was $75.98, up 1.3% from
$75.09 as of March 31, 2012.
2012 Outlook Revised Upward
ACE Limited raised its full year expectation. It now guided
operating earnings to a band of $7.20-$7.60 per share, up from
$7.03-$7.43 per share guided earlier. The guidance includes
catastrophe loss of $270 million for the remainder of the year.
The upward revision came on the back of positive prior-period
reserve development and lower-than-planned catastrophe losses of 74
cents in the first half of 2012 and a reduction of 19 cents per
share reflecting a projected third quarter increase in the
year-to-date crop insurance loss ratio.
Peer Comparison
The Travelers Companies
(
TRV
), which competes with ACE Limited, reported earnings of $1.26 per
share in the second quarter of 2012, lagging the Zacks Consensus
Estimate of $1.38 per share. Travelers missed the expectation due
to catastrophe losses. Cat loss incurred by the company totaled
$357 million or 90 cents per share arising from wind and hail
storms in several regions of the United States.
However, it rebounded from the loss of 88 cents incurred in the
year-ago quarter, fueled by underwriting margin improvement across
all segments. Lower share count due to share repurchases
during the quarter aided the bottom line.
Total revenue in the quarter under review was $6.4 billion, flat
with the year-ago quarter, driven by the increase in premiums
earned, partially offset by decrease in net investment income.
Revenue surpassed the Zacks Consensus Estimate of $6.3 billion.
Our Take
The company remains well poised owing to its international
presence, diversified product offering, risk management,
conservative underwriting practice, strong reserves and improving
P&C pricing environment.
ACE Limited remains focused on enhancing its earnings, return on
equity and book value per share.
Also, to enhance shareholders value, the Board of Directors
approved a 4.25% increase in the quarterly dividend.
We maintain a Neutral recommendation on ACE Limited in the long
term. The quantitative Zacks # 3 Rank (short-term Hold rating) for
the company indicates no clear directional pressure on the stock
over the near term.
ACE LIMITED (ACE): Free Stock Analysis Report
TRAVELERS COS (TRV): Free Stock Analysis Report
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