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ACE Limited (ACE)

Q3 2012 Earnings Call

October 24, 2012 8:30 a.m. ET


Evan Greenberg - Chairman & CEO

Philip Bancroft - CFO

Helen Wilson - SVP, Investor Relations

Brian Dowd - Chairman, Insurance – North America & Vice Chairman, ACE

John Lupica - Chairman, Insurance - North America, President, ACE USA


Matt Heimermann – JPMorgan

Jay Gelb - Barclays Capital

Mike Zaremski - Credit Suisse

Vinay Misquith - Evercore Partners

Gregory Locraft - Morgan Stanley

Josh Stirling - Sanford Bernstein

Michael Nannizzi - Goldman Sachs

Brian Meredith – UBS

Paul Newsome - Sandler O'Neill

Thomas Mitchell - Miller Tabak

Ian Gutterman - Adage Capital

Josh Shanker - Deutsche Bank



Good day and welcome to the ACE Limited Third Quarter 2012 Earnings Conference Call. (Operator Instructions). For opening remarks and introductions, I would like to turn the call over to Helen Wilson, Investor Relations. Please go ahead.

Helen Wilson

Thank you and welcome to the ACE Limited September 30, 2012 third quarter earnings conference call. Our report today will contain forward-looking statements. These include statements relating to company performance, guidance, premium growth, impact of catastrophes and droughts, pricing and insurance market conditions, 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 supplement, which are available on our website, for more 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'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 Greenberg

Good morning. As you could see from the numbers, ACE had a very good third quarter which contributed to an excellent nine-month result. In spite of a difficult crop season, we produced strong earnings with excellent contributions from underwriting and very good contributions from investment income.

Book value growth was outstanding. Strategically we closed on one acquisition and announced two others that will strengthen our presence and capabilities in two of the largest economies in the world. And our premium revenue growth continued to benefit from a favorable P&C pricing environment in North America. All in all, a good and exciting quarter for ACE.

After-tax operating income for the quarter was $688 million or $2.01 per share. The negative impact on our per share earnings from crop insurance is $0.28. Book value grew 4.7% in the quarter and is up nearly 11% for the year. Our operating ROE for the quarter was 11.5%.

We had strong underwriting results with positive contributions from all divisions, except agriculture, as demonstrated by a P&C combined ratio of 92%. We benefited from both good current accident year experience and strong positive prior period reserve development. The current accident year combined ratio was 97.7% and excluding the impact of crop insurance and catastrophe losses which relate this quarter is 90.5. The underlying underwriting strength of our business is simply excellent.

On the subject of crop insurance and the severe drought conditions experienced in the U.S. this year, the worst since 1988, we said last quarter that our estimated worst-case loss for the balance of the year was approximately $200 million after-tax, in addition to the $68 million we had estimated in the second quarter for a total potential impact of $268 million. With the ‘012 crop season moving towards a conclusion, we now estimate full-year operating income for this business to be reduced by $195 million. Phil will have more to say on crop insurance in his comments.

All in, on a nine-month basis, ACE has performed exceptionally well. Our year-to-date combined ratio is 90.2% versus 95.3% prior year, and we’ve earned $2.13 billion in after-tax operating income compared with $1.68 billion last year, up 27%.

In the quarter, we closed on one acquisition and announced two others. First, we completed the acquisition of 80% of Asuransi Jaya Proteksi in Indonesia, one of that country's top 10 general insurers and a leader in personal lines. We expect to own the balance of the company shortly.

Our P&C business in Indonesia was quite small. This acquisition provides us with a significant brand and physical presence in the country and expands our capability by adding personal lines and a network of about 30 branches. Our existing business, which is fundamentally commercial lines, is Jakarta-based. The addition of JaPro also complements our growing life presence of over 3000 agents and 12 offices.

Last month we announced that we will acquire Fianzas Monterrey, the second largest surety company in Mexico and the third largest in Latin America. With 25 branch offices and a network of 600 independent agents throughout Mexico, FM is recognized for its technical excellence. These are sophisticated surety underwriters with a long track record of excellent results, an impressive management team and modern systems. In addition to enhancing our global franchise in surety, FM adds significantly to ACE Seguros, our existing commercial lines and A&H business in Mexico, which currently writes about $215 million in premiums annually.

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