Ace Limited (ACE)

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ACE Limited (ACE)

Q4 2012 Earnings Call

January 30, 2013 8:30 am ET

Executives

Helen Wilson

Evan G. Greenberg - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Philip V. Bancroft - Chief Financial Officer

Sean Ringsted - Chief Actuary and Chief Risk Officer

Brian E. Dowd - Former Member of The Office of The Chairman and Vice Chairman

John J. Lupica - Chairman of Insurance for North America, Chief Operating Officer of Insurance - North America, Chief Executive Officer of Ace Usa and President of Ace Usa

John W. Keogh - Former Chief Executive Officer

Analysts

Jay Gelb - Barclays Capital, Research Division

Michael Zaremski - Crédit Suisse AG, Research Division

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

Gregory Locraft - Morgan Stanley, Research Division

Joshua D. Shanker - Deutsche Bank AG, Research Division

Meyer Shields - Stifel, Nicolaus & Co., Inc., Research Division

Matthew G. Heimermann - JP Morgan Chase & Co, Research Division

J. Paul Newsome - Sandler O'Neill + Partners, L.P., Research Division

Jay Adam Cohen - BofA Merrill Lynch, Research Division

Thomas Spikes Mitchell - Miller Tabak + Co., LLC, Research Division

Brian Meredith - UBS Investment Bank, Research Division

Vinay Misquith - Evercore Partners Inc., Research Division

Ian Gutterman - Adage Capital Management, L.P.

Larry Greenberg - Langen McAlenney

Presentation

Operator

Good day, and welcome to the ACE Limited Fourth Quarter Year End 2012 Earnings Conference Call. Today's call is being recorded. There will be a question-and-answer session after the presentation. [Operator Instructions] For opening remarks and introductions, I would like to turn the call over to Helen Wilson, Investor Relations. Please go ahead, ma'am.

Helen Wilson

Thank you, and welcome to the ACE Limited December 31, 2012 Fourth Quarter and Year End Earnings Conference Call. Our report today will contain forward-looking statements. These include statements relating to company performance, guidance, premium growth and product mix, pricing and insurance market condition and acquisitions that have yet to close, all of which are subject to risks and uncertainties. Actual results may differ materially.

Please refer to our most recent SEC filings, as well as our earnings press release and financial supplements, which are available on our website for information on factors that could affect these matters.

This call is being webcast live, and the webcast replay will be available for one month. All remarks made during the call are current at the time of the call and will not be updated to reflect subsequent material developments.

Now I'd like to introduce our speakers. First, we have Evan Greenberg, Chairman and Chief Executive Officer; followed by Phil Bancroft, our Chief Financial Officer. Then, we will take your questions. Also with us to assist with your questions are several members of our management team.

Now it's my pleasure to turn the call over to Evan.

Evan G. Greenberg

Good morning. ACE had a strong fourth quarter, which contributed to a very good year for the company. After-tax operating income for the year was $2.6 billion. It was up 13% from 2011, and per share book value grew 12% to almost $81. We finished the year with a very strong balance sheet, with total capital at $32.6 billion at December 31, and shareholder equity of $27.5 billion, both up over $3 billion for the year.

I'm going to return to the full year in a moment, but let's first talk about the quarter. Even with the impact of Superstorm Sandy, the underlying strength and vitality of our business was evident in the quarter, as we produced good earnings, good premium revenue growth and an increase in book value per share.

After-tax operating income was $492 million or $1.43 per share. Combined ratio for the quarter was 105.5%, which included $400 million in after-tax catastrophe losses, essentially all from Sandy and the reserve charge for Brandywine.

The x cat [excluding catastrophe] accident year combined ratio was 91.4%, about 0.5 point improvement over prior year. And if you exclude crop insurance, which broke even in the quarter as expected, the x cat current accident year combined ratio was a 2-point improvement over prior year.

Net premiums in the quarter on a constant-dollar basis grew only 1%. Excluding crop, net premiums grew over 7%, with growth once again coming predominantly from the U.S., Asia and Latin America. For example, net premiums in the quarter in our retail insurance business in the U.S. and internationally grew 9% and 11%, respectively, while on the wholesale E&S side, North America was up 7.5% while ACE Global Markets in London was essentially flat.

Book value per share grew about 2%, and our operating ROE for the quarter was 8%, not bad, all considered. As I said, we took a reserve charge related to A&E and other run-off business of $140 million pretax, which netted against our positive prior period reserve development.

In the quarter, we also had a reduction to our tax liability reserve, which reduced a positive impact to operating income of $120 million. Phil will provide more details on these items.

Returning to our full year performance, which I think is more meaningful than one quarter's results, net operating income for the year included strong contributions from both underwriting and investment income. For the year, we produced $1.2 billion in underwriting income, an increase of 11% over prior year and a very strong underwriting performance.

Combined ratio was 93.9%, down almost 1 point from prior year, and yet, this included the worst drought conditions in the U.S. in 25 years and Superstorm Sandy.

Our x cat current accident year combined ratio was 92.7%. The excellent underlying underwriting performance of the company reflects an improved price environment in the U.S.; our large and growing business around the globe, in Asia, Latin America and Europe; our unique and balanced product spread between commercial P&C, specialty P&C, A&H, personal lines and life; and finally, a continuing focus on improved portfolio management and data analytics that complement a strong underwriting culture.

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