We have retained our Neutral recommendation on
).The exposure to catastrophe loss, low interest rate environment
and a soft crop business has overshadowed the positives of the
ACE has a substantial exposure to losses resulting from natural
disasters, man-made catastrophes and other catastrophic events.
Based on the occurrence of Superstorm Sandy, the company expects
to incur a loss of about $380 million. Concurrently, it lowered
the full-year earnings expectation to $7.43 - $7.53 per share
from $7.73-$8.03 per share, to accommodate the loss.
Further, the weakness in the crop business partially overshadowed
the solid performance of the company. The U.S. has experienced
severe drought conditions in 2012, the worst since 1988. The
third quarter had a negative impact of 28 cents per share on
operating income and ACE Limited expects the operating income for
this line of business to decrease by $195 million for full year
The continued low interest rate environment induced a 5.6%
year-over-year decline in net investment income.
However, counting on the positives, the company has always
considered acquisition as an efficient strategy to boost
inorganic growth and expand its global footprint. In order to
expand ACE's presence in the fast-growing South-Asian market, it
acquired PT Asuransi Jaya Proteksi in Indonesia. Further, the
company agreed to buy Fianzas Monterrey to expand its Surety
business. It also agreed to buy Mexico's sixth-largest P&C
insurer, ABA Seguros from Ally Financial Inc. for $865 million,
thereby strengthening its personal lines and agency businesses in
particular. ACE Limited expects these transactions to meet or
exceed its long term ROE goal of 15% within 2-3 years.
ACE Limited strongly scores with the credit rating agencies.
Rating affirmations or upgrades from credit rating agencies also
played an important part in retaining investor confidence in the
stock as well as maintaining creditworthiness in the market. We
believe that the company's strong score with the credit rating
agencies will help it write more business going forward.
Additionally, the company remains focused on returning value to
shareholders. It has a consistent track record of paying
regular quarterly dividends. Its dividend yield is 2.46%, higher
than the industry yield of 1.63%, as well as its nearest peers
) 2.18% and
) 1.92%. Also, it has shares worth $461 million remaining under
its buyback authorization.
Based on the company's solid performance in the first three
quarters, the full year Zacks Consensus Estimate is currently
pegged at $7.54 per share, representing a year-over-year increase
of 8.2%. It carries a Zacks #3 rank, translating into a short
term 'Hold' rating.
ACE LIMITED (ACE): Free Stock Analysis Report
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