ACE Limited Forecasts 2013 Profit below Estimates; Shares Drop

By Ashutosh Pandey | January 30, 2013

Insurer ACE Limited reported a 24 percent fall in quarterly operating profit, hurt by losses related to Superstorm Sandy, and forecast a full-year profit below analysts’ estimates.

After-tax catastrophe losses tripled to $400 million in the fourth quarter from $137 million a year earlier. The insurer took a loss of $393 million resulting from Sandy, marginally higher than the $380 million it estimated in December.

ACE’s shares were down 5 percent in extended trading after closing at $84.94 on Tuesday on the New York Stock Exchange.

Operating income of $492 million included a tax benefit of $121 million from a favorable resolution of prior years’ tax matters, the company said.

ACE also took an after-tax charge of $90 million related to the strengthening of its asbestos and environmental and other run-off business reserves.

“There may be some concerns associated with the asbestos and environmental insurance business,” Stifel Nicolaus analyst Meyer Shields said, referring to the drop in the share price.

Shields said the charge overshadowed resolution of the tax matters.

The company forecast an operating profit of between $6.60 and $7.00 per share for 2013, below the average analyst forecast of $7.89 per share.

ACE projected catastrophe losses of $395 million after tax for 2013.

Net earnings rose to $765 million, or $2.22 per share, for the fourth quarter, from $735 million, or $2.15 per share, a year earlier.

On an operating basis, the Zurich-based property and casualty insurer and reinsurer earned $1.43 per share, compared with $1.90 a year earlier.

Analysts had expected an operating profit of $1.28 per share, according to Thomson Reuters I/B/E/S.

Net premiums written in North America fell 6.5 percent to $1.52 billion, primarily due to increased crop insurance premium payments to the U.S. government as a result of the government’s crop insurance profit and loss calculation formula, ACE said.

U.S. crop insurance payments on losses caused mainly due to the drought last year have crossed $12.3 billion so far. Some experts say indemnities could top $20 billion, nearly double the old record set in 2011.

The company’s property & casualty combined ratio, the percentage of premium revenue an insurer has to pay out in claims, rose to 105.5 percent from 93 percent.

Shares of ACE, which has a market value of about $29 billion, traded at life-highs earlier this month, and were up 15 percent in the six months to Tuesday’s close.

The Thomson Reuters United States Property & Casualty Insurance Index has also gained about 15 percent in the same period.

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