Ace Limited (ACE)

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ACE Limited (ACE)

Q2 2011 Earnings Call

July 27, 2011 8:30 am ET

Executives

Helen M. Wilson – Investor Relations

Evan G. Greenberg – Chairman and Chief Executive Officer

Philip V. Bancroft – Chief Financial Officer

Brian E. Dowd – Office of the Chairman

Analysts

Keith Walsh – Citigroup

Jay Gelb – Barclays Capital

Michael Nannizzi – Goldman Sachs

Larry Greenberg – Langen McAlenney

Gregory Locraft – Morgan Stanley, Smith Barney

Vinay Misquith – Evercore Partners

Jay Cohen – Bank of America/Merrill Lynch

Matthew Heimermann – JPMorgan

Scott Frost – Bank of America/Merrill Lynch

Thomas Mitchell – Miller Tabak

Ian Gutterman – Adage Capital

Brian Meredith – UBS

Mark Dwelle – RBC Capital Markets

Presentation

Operator

Good day, and welcome to ACE Limited Second Quarter 2011 Earnings Conference Call. Today's call is being recorded. At the conclusion of today’s prepared remarks, we will have a question-and-answer session. (Operator Instructions)

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

Helen M. Wilson

Thank you and welcome to the ACE Limited June 30, 2011 second quarter earnings conference call.

Our report today will contain forward-looking statements. These include statements relating to Company performance and guidance, recent corporate developments and acquisitions, ACE’s business mix, economic outlook and insurance market conditions, 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 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'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'll 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. As you saw from the numbers, ACE had an excellent second quarter, in fact, for the first six months, given the extraordinary number in size of natural catastrophes, the competitive insurance market and sluggish economic conditions in developed markets are persistent and long-term strategy to build the global diversified company. And our use of capital have distinguished our results in terms of revenue growth, earnings, and risk management.

After-tax operating income for the quarter was $686 million or $2.01 people share. All divisions of the company made a positive contribution to the quarter's results. For the quarter, per share book value grew 3% and now stands at $71.36 and our ROE was about 12.5%.

The source in balance of our earnings in our judgment was simply outstanding. Underwriting income of $245 million contributed 36% in net operating income with balance contributions from both the current accident year and favorable reserve development.

Net investment income was up 10% in the quarter, reflecting both growth in our portfolio and a number of other favorable dynamics, which Phil will discuss. Our high-quality, conservatively managed investment portfolio continues to perform well and is generating substantial investment income.

Our P&C combined ratio was 92.6%, which included net catastrophe losses of just over $100 million, the vast majority of which came from the U.S. tornadoes and Mississippi flooding. We also had a reserve takedown from the first quarter cat estimates based on an updated view of those events. Our overall cat impact was reasonably modest given the severity of the U.S. cats in the quarter and again is a direct results of our global spread of business, lack of over concentration in any one business region or product line.

Our balance sheet is in great shape, with the capital position now exceeding $29 billion; vested assets have increased 7% during the year to more than $56 billion, which again speaks to future earning power.

I want to make a few comments about revenue growth, pricing, and the general insurance market environment. Total company P&C net premiums were up 15% in the quarter, with premiums up 21% in North America and up 14% in Overseas General. We benefitted in the quarter from a combination of our recent acquisitions, growth in our A&H and personal lines businesses globally and modestly improving exposure growth and better pricing in commercial P&C, particularly in a number of property and energy lines and certain causality classes.

Our long-term and patience strategy to pursue product and geographic diversification and invest for growth both organically and through acquisition is paying us back in terms of revenue growth and earnings.

This is clearly visible in the substantial contributions to our growth and net premiums written from areas such as crop insurance, which was up 400%, personal lines globally, which was up 42%, and internationally A&H up 20%, as well as, P&C in Asia and Latin America, which were up 27% and 13% respectively.

Foreign exchange benefited our overseas business by 5% to 10% depending on the currency where the business is located.

Our Life business also the beneficiary of recent investments experienced double-digit revenue growth, as well as growth and earnings. All of these businesses were major contributors to revenue and earnings in the quarter. We also saw positive exposure growth as a result, it gradually improving with sluggish economic growth in both the U.S. and Europe. Payroll, sales, and inventories are all growing though anemically. This contributed to our revenue growth as well.

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