ACE Q2 Net Drops, But Beats Analysts Expectations

By | July 28, 2009

Property-casualty insurer Ace Ltd. posted a second-quarter operating profit Monday that beat Wall Street expectations, sending its shares more than 2 percent higher.

Ace said net income fell about 27 percent, hurt by a decline in policy sales and realized investment losses. But operating earnings were better than analysts expected and book value, a valuation measure tracked closely by investors, rose strongly.

Ace’s quarter was “pretty much solid as expected,” David Havens, an analyst with Hexagon Securities, said in a research note.

Zurich-based Ace has largely skirted the toxic investments that weakened some of its competitors, including American International Group Inc, XL Capital Ltd and Swiss Re.

Operating earnings — or earnings before realized gains or losses — were $2.09 a share, compared with $2.16 in the same quarter a year earlier, and were 15 cents higher than analysts’ average expectation of $1.94, according to Reuters Estimates.

Analysts had forecast that insurers such as Ace would see a boost in the second quarter from a reversal of unrealized losses posted in the fourth quarter last year, and first quarter of this year, when asset values fell dramatically.

The insurer’s book value rose 12 percent to $16.6 billion, helped by $1.2 billion in unrealized gains on investments. In recent quarters, Ace has been trying to gain customers.

“We remain cautious given current economic and financial market conditions, but we are aggressively focused on execution,” Ace Chief Executive Evan Greenberg said in a statement.

He added that Ace was “well positioned to build market share as insurance markets improve and economic growth slowly recovers.”

Insurers have been mired in a soft market for several years. And while stronger insurers such as Ace and Travelers have attracted some business from hurt rivals, a slump in insurance pricing has continued to put pressure on revenue from policy sales.

Investors hope that may be about to change. Chubb Corp , which reported its quarterly results last week, said it has recently been able to charge higher insurance rates. And on Monday, Greenberg told investors on a post-earnings call that Ace was seeing a similar trend. “I think the market will continue to firm for us, but slowly,” he said.

Ace has stepped up its capacity to sell policies where prices are rising fastest, including U.S. property-catastrophe reinsurance, Greenberg added.

Ace’s second-quarter net policy sales fell nearly 5 percent to $3.26 billion, but it maintained underwriting profitability on par with a year ago.

“The combined ratio was remarkably stable,” Hexagon’s Havens said of Ace’s 87.7 percent combined ratio, the metric used to measure underwriting profitability. A combined ratio below 100 indicates an underwriting profit, and the lower the number the better. Ace shares rose $1.08, or 2.2 percent, from their close of $48.02 on the New York Stock Exchange.

The shares are nearly unchanged from a year ago, while the Standard & Poor’s insurance index has dropped about 40 percent in the same period.

(Reporting by Lilla Zuill; editing by Andre Grenon, Gary Hill)

Topics Profit Loss

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