ACE Reports $891 Million Q2 Net Income; $1.844 Billion 1st Six Months

July 24, 2013

ACE Limited reported net income for the quarter ended June 30, 2013, of $2.59 per share, compared with $0.96 per share for the same quarter last year. Operating income was $2.29 per share, compared with $2.17 per share for the same quarter last year.

Total Q2 2013 net income was $891 million, compared to $328 million in Q2 2012. Total operating income was $790 million for the period, compared to $743 million in Q2 2012. The results were boosted by net realized capital gains of $328 million, compared to net capital losses of $143 million in Q2 2012.

For the first six months of 2013 ACE posted net income of $1.844 billion, compared to $1.301 billion for the first half of 2012. Operating income for the period was $1.536 billion, compared to $1.444 billion for the same period last year, a 6.4 percent gain.

ACE’s earning report also said: “Book value per share declined 2.3 percent from March 31, 2013, to $80.26 due to rising interest rates. Tangible book value per share decreased 4.9 percent to $64.40, primarily due to rising interest rates and the impact of goodwill and intangibles relating to acquisitions closed during the quarter. Operating return on equity for the quarter was 12.3 percent. The property and casualty (P&C) combined ratio for the quarter was 87.9 percent.”

Chairman and CEO Evan G. Greenberg commented: “ACE had record earnings in the quarter that were driven, in particular, by excellent current accident year underwriting results and strong investment income. We produced $790 million in after-tax operating income and our operating ROE was 12.3 percent. Book value declined 2.3 percent due to the rise in interest rates, which reduced unrealized gains in our investment portfolio. However, future investment income will benefit over time from the rise in interest rates.

“Our underwriting performance in the quarter, illustrated by a P&C combined ratio of 87.9 percent, benefited from margin improvement and premium growth globally. Total P&C net premiums were up over 8.5 percent on a constant dollar basis – with solid revenue growth in commercial P&C, accident and health, and personal lines. Growth was particularly strong from North America, Asia and Latin America, where our new acquisitions in Mexico are already contributing and added to the region’s strong results.

“The primary commercial P&C pricing environment in the U.S. remains favorable and, in fact, we experienced our strongest quarter yet for casualty-related rate increases in our retail business. At the same time, property rate increases are moderating. While economic conditions remain a mixed bag around the globe, we are firing on all cylinders and, as things stand now, expect continued strong results for the balance of the year.”

The earnings report also listed the following operating highlights for the quarter ended June 30, 2013:
• Total company net premiums written increased 6.3 percent, or 7.6 percent on a constant-dollar basis.
• P&C net premiums written increased 7.1 percent, or 8.6 percent on a constant-dollar basis.
• Total pre-tax and after-tax catastrophe losses including reinstatement premiums were $81 million (2.3 percentage points of the combined ratio) and $66 million, respectively, compared with $55 million and $41 million, respectively, in 2012.
• P&C underwriting income was $434 million compared with $374 million in 2012.
• P&C current accident year underwriting income excluding catastrophe losses increased 21.3 percent to $386 million.
• The P&C combined ratio was 87.9 percent compared with 88.7 percent last year.
• Favorable prior period development pre-tax was $128 million, representing 3.6 percentage points of the combined ratio, compared with $113 million last year.
• The current accident year combined ratio excluding catastrophe losses was 89.2 percent compared with 90.4 percent last year.
• The P&C expense ratio was 29.2 percent, unchanged from last year.
• Operating cash flow was $895 million.
• Net loss reserves increased $349 million in the quarter.
• Net investment income was $534 million compared to $537 million last year as lower reinvestment rates were offset by higher private equity and other distributions.
• Net realized and unrealized losses pre-tax totaled approximately $1.4 billion.
• Operating return on equity was 12.3 percent for the quarter and 12.1 percent year-to-date. Return on equity computed using net income was 12.9 percent for the quarter and 13.5 percent year-to-date.
• Acquisitions closed in the quarter include Fianzas Monterrey on April 1, 2013, for $293 million in cash and ABA Seguros on May 2, 2013, for $690 million in cash.
• Book value per share decreased 2.3 percent to $80.26 compared with $82.17 at March 31, 2013, and decreased 0.8 percent from $80.90 at December 31, 2012.
• Tangible book value per share decreased 4.9 percent to $64.40 from $67.74 at March 31, 2013, and decreased 2.8 percent from $66.28 at December 31, 2012, primarily due to rising interest rates and the impact of goodwill and intangibles relating to the acquisitions of Fianzas Monterrey and ABA Seguros. Excluding the impact of the acquisitions, the tangible book value per share decreased 2.7 percent for the quarter and 0.5 percent for the year.

ACE also said it has revised its guidance for full-year 2013 “to account for the first half positive prior period reserve development, lower-than-planned catastrophe losses realized in the first half, better first half current accident year results excluding catastrophe losses, and higher net investment income in the second quarter and expected for the second half of the year. The range is $7.65 to $8.05 per share in after-tax operating income for the year. This includes estimated catastrophe losses of $260 million after tax for the second half of the year. Guidance for the balance of the year is for the current accident year only.”

Source: ACE Limited

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