Insurer Ace Limited’s business opportunities have grown dramatically over the past month and a long slump in rate pricing appears to be over, CEO Evan Greenberg told investors.
Greenberg, speaking Wednesday on a conference call following the release of quarterly earnings on Tuesday, said the company is seeing opportunities from American International Group’s troubles. AIG had to accept an $85 billion federal bailout to avoid bankruptcy.
He declined to say if Ace was pouring over assets that AIG is putting up for sale to repay the government loan. “We have seen, so far in October, as many submissions as we saw all of the fourth quarter last year,” said Greenberg, a former AIG executive and a son of Maurice “Hank” Greenberg, who was AIG’s CEO for nearly four decades.
Greenberg said that over the last four weeks there had been a “dramatic slowdown” in rate declines, calling it the beginning of a “sea change in the market.”
Greenberg and others have made clear that AIG may have been cutting prices to hold on to business as customers spooked by the company’s troubles started to shop around.
Greenberg stressed that Ace was not going to cut its prices for existing customers or to capture new business.
An AIG spokesman said the company was not “sacrificing rates to retain market share” and added that AIG had actually been able to charge more for some commercial insurance coverage since mid-September, compared with the rest of 2008. “AIG’s market strength and customer relations have been built over many years and are not easily replicated,” said spokesman Peter Tulupman.
Insurers have to be careful about undercutting the rates at which they will sell coverage or risk losses wiping out earnings when claims are made.
Late on Tuesday Ace reported a 27 percent drop in third-quarter operating income as catastrophe losses increased, and net income was all but wiped out as investment losses rose.
The insurer — which earlier this year moved its headquarters to Switzerland from Bermuda — reported quarterly net profit of $54 million, or 16 cents a share, compared with $656 million, or $1.95 a share, in the year-ago quarter. Realized and unrealized investment losses totaled $1.1 billion.
Greenberg counted Ace among the insurers with the “financial wherewithal and franchise power” to profit in a tough market environment.
While higher insurance rates would be good news for the industry, only companies with excess capital will be able to fully take advantage, since regulatory capital requirements strictly limit how much business is written.
Ace ended the quarter with shareholder equity of $15.4 billion, down 8 percent from the end of 2007, better than many others in the sector.
Third-quarter catastrophe losses were $311 million, compared with $22 million in the year-ago quarter.
Net premiums written rose 18 percent to $3.3 billion. The largest increase was in life insurance and reinsurance, where policies written increased more than threefold.
Ace shares rose 14.5 percent to close at $56.54 Wednesday on the New York Stock Exchange.
(Reporting by Lilla Zuill; editing by John Wallace, Phil Berlowitz)
Topics Profit Loss AIG
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