Ace Limited (ACE)

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ACE Limited (ACE)

Q2 2009 Earnings Call

July 27, 2009; 5:30 am ET


Evan Greenberg - Chairman & Chief Executive Officer

Philip Bancroft - Chief Financial Officer

Helen Wilson - Director of Investor Relations


Jay Gelb - Barclays Capital

Mark Lane - William Blair & Company

Matthew Heimermann – JP Morgan

Vinay Misquith - Credit Suisse

David Small - JP Morgan

Brian Meredith - UBS

Jay Cohen - Bank of America/Merrill Lynch

Ian Gutterman - Adage Capital



Good day everyone, and welcome to ACE Limited second quarter 2009 earnings conference call. Today’s call is being recorded. (Operator Instructions)

For opening remarks and introductions, I’d like to turn the call over to Helen Wilson, Investor Relations. Please go ahead.

Helen Wilson

Welcome to the ACE Limited June 30, 2009 second quarter earnings conference call. Our report today will contain forward-looking statements. These include statements relating to our financial outlook and guidance, business strategies and processes, competition, growth prospects, investment and use of capital, general economic and insurance industry conditions, pricing and exposures, losses and reserves all of which are subject to risks and uncertainty.

Actual results may defer maturely. Please refer to our most recent SEC filing, as well as or earnings press release and financial supplement which are available on our website for more information on factors that could affect these matters. This call is being webcast live and will be available for replay 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 would like to introduce our speakers: First, we have Evan Greenberg, Chairman and Chief Executive Officer; followed by Philip Bancroft our Chief Financial Officer; then will take your questions. Also with us to assist with your questions are several members of our management team.

Now it is my pleasure to turn the call over to Evan.

Evan Greenberg

Good afternoon. As you can see from the numbers we just released, ACE had a very good second quarter, which contributed to a strong first six months. After tax operating income in the quarter was $706 million or 209 per share and ROE was 18%. All divisions of the company made a reasonable contribution to earnings in the quarter.

Book value grew 12% benefiting significantly from the tightening of credit spreads, as treasury yields rose and the yields on corporate securities fell. Book value is now up 14% year-to-date. Our P&C combined ratio for the quarter was 87.7, current accident year results were good, and we also benefited from approximately $158 million in positive prior period development.

About $100 million was casualty and the balance was short tale related. CAD losses were $26 million after tax compared to 49 after tax in the second quarter of last year. Net investment income was down over prior year and essentially flat with last quarter. As we mentioned on our last call during the fourth and first quarters, given the extreme level of uncertainties and instability in the financial markets, we played more defense and built up a substantial cash position.

During the second quarter we deployed much of that cash and at the same time modestly rebalanced our portfolio away from equities and towards classes of fixed income where we judge more favorable risk reward profile. Our P&C net written premiums were down 5% on a reported basis, foreign exchange again had a significant impact on year-over-year growth, about six points.

Excluding foreign exchange, P&C net written premiums were up about 1.5% from prior year. Premium growth was also impacted by both recession and the general pricing environment. On that point, as we said last quarter pricing in general was better for reinsurance related risks than insurance, was better for risk coming through the retail market than the wholesale market.

Overall pricing for our business was modestly better in the second quarter than in the first. However, renewal retention rates were down from what we historically experienced due to both our resolved maintained discipline, a trade-off we accept and recession related reductions in exposure, consumer, business and employer related impacting both P&C and A&H.

In those areas of our business, generally casualty related were more than price matters where there is a customer or producer, flight to quality or capability, we are experiencing very good growth, particularly in the U.S. The same can be said about certain distress classes where rates are increasing more rapidly, where it is simply about price our premium volume is flat or down.

While it is somewhat simplistic and the marketplace is messy, I’d characterize the competition into three categories that broadly define the competitive landscape. First, troubled companies, some maintaining better underwriting discipline and therefore losing business and others trying to hold market share what seems to be almost any price.

Second category is large national and global companies that are exhibiting reasonable discipline. Although here again, there’s a spectrum and their appetite varies by company and market. The third category is a handful of smaller, newer companies driving for growth and continuing to cut price in order to obtain it. This is particularly visible in E&S and casualty related classes, excess property placements and certain marine classes.

So with all that as context, let me comment first on the reinsurance business. Global re-experienced excellent growth in the second quarter with net premiums up 22% over prior year. Similar to last quarter, growth was due to a combination of firming prices, particularly short tail, better signings on treaties given our rating, and companies purchasing additional reinsurance for capital relief.

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