We retain our Neutral recommendation on
) following the second quarter earnings results. The property and
casualty insurer carries a Zacks Rank #3 (Hold).
ACE LIMITED (ACE): Free Stock Analysis Report
GLOBAL INDEMNTY (GBLI): Free Stock Analysis
EVEREST RE LTD (RE): Free Stock Analysis
ALLEGHANY CORP (Y): Free Stock Analysis
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Why the Reiteration?
ACE Limited has been experiencing rising expenses over the last
few years. Expenses increased 2.8% in 2010, accelerated by 19.6%
in 2011, and by 1.1% in 2012. In the first half of 2013, expenses
increased 5.8% year over year. The increases can be primarily
attributed to the rise in losses and loss-related expenses,
policy acquisition costs, and administrative expenses. If
expenses continue to increase, it might take a toll on the
company's operating margin expansion.
Additionally, low interest rate environment continues to weigh on
net investment income.
To add to its woes, ACE Limited also faces substantial exposure
to losses resulting from natural disasters, man-made
catastrophes, and other catastrophic events. Management expects
catastrophe loss of $260 million for the remainder of the year.
Counting on the positives, the second quarter delivered a
positive earnings surprise of 19.3%. This marked the fourth
straight earnings beat with an impressive average of 12.4%. The
long-term expected earnings growth rate for this stock is 7.3%.
ACE Limited's inorganic growth story also looks impressive with
the ongoing acquisitions.
ACE Limited also remains focused toward enhancing its shareholder
value. In the first half of 2013, the company repurchased 2.5
million shares for $212 million and is left with $249 million
under its buyback program. It has also approved a 4% hike in its
quarterly dividend, currently yielding 2.3%. Given its strong
capital, which exceeds $33.3 billion, and a solid liquidity
position, we expect to see more such initiatives going forward.
ACE Limited's earnings generating capability and stability,
supported by its conservative reserving philosophy and commitment
to underwrite profitability provide a solid base for its
enterprise risk management program. As such, the company strongly
scores with the credit rating agencies.
Other stocks to Consider
Property and casualty insurers
Everest Re Group Ltd.
Global Indemnity plc
) with a favorable Zacks Rank #1 (Strong Buy) are worth