ACE Limited (ACE) delivered a positive earnings surprise yet again in fourth-quarter 2014. Operating earnings of $2.47 per share outperformed the Zacks Consensus Estimate by about 9%. Earnings improved 3.3% year over year.
Including net realized gains, net of tax, of 51 cents per share, ACE Limited reported net income of $1.66 per share, down 42.8% year over year.
For full-year 2014, ACE Limited delivered operating earnings of $9.79 per share, surpassing the Zacks Consensus Estimate by about 2% and improving by about 5%.
Including net realized losses, net of tax, of $1.37 per share, ACE Limited reported net income of $8.42 per share in 2014, down 23% year over year.
Solid underwriting performances coupled with improved investment results drove the better-than-expected results.
Shares gained about 0.4% in the after-market trading hours reflecting the outperformance.
Operational Performance
Gross premiums written by ACE Limited were $5.7 billion, up 5.2% year over year. Net premiums earned inched up 0.2% year over year to $4.4 billion.
Net investment income was a record $577 million, up 5% year over year.
Underwriting income at ACE Limited was $444 million, up 7% year over year on the back of a strong current accident year performance. Combined ratio improved 80 basis points (bps) year over year to 88.5%.
Segment Update
Insurance-North American P&C: The segment recorded 3.2% year-over-year growth in net earned premium in the quarter. Operating income decreased 7.5% year over year to $372 million.
Combined ratio deteriorated 400 bps to 90.2%.
Insurance-North American Agriculture: Net earned premium declined 9.8% year over year to $766 million. Operating income was $45 million, reversing the loss of $20 million incurred in the year-ago quarter.
Combined ratio improved 2,340 bps to 81.8%.
Insurance-Overseas General: Net premium earned in the quarter improved 3.4% year over year. Operating income was $294 million, up 5.4% year over year.
Combined ratio was 86.3%, reflecting an improvement of 180 bps year over year.
Global Reinsurance: Net premium decreased nearly 7.8% year over year. Operating income of $127 million declined 12.4% on a year-over-year basis.
Combined ratio deteriorated 810 bps to 76.5%.
Life: Net premium earned increased 3.7% from the year-ago quarter. Operating income declined 12% year over year to $76 million.
Balance Sheet
ACE Limited exited 2014 with cash of $655 million, up 13.1% from the 2013-end level.
Book value per share, as of Dec 31, 2014, was $90.028, up 6.1% from $84.83 as of Dec 31, 2013.
Operating cash flow was $4.5 billion in 2014. Operating return on equity was 12%.
Share Repurchase Update
ACE Limited spent $430 million to buy back 3.8 million shares in the quarter. The company has spent about $1.5 billion to repurchase 14.5 million shares since the inception of the share repurchase authorization in Nov 2013 through Dec 31, 2014.
Our Take
Solid underwriting along with improved investment results despite a low interest rate environment helps ACE Limited to sustain its surprise momentum.
Its inorganic story also looks good with continued acquisitions. In the last quarter, ACE closed the buyout of ItauSeguros SA, the P&C insurance unit of ItaúUnibanco S.A., (ITUB). The acquisition made ACE Limited the largest commercial P&C insurer in Brazil.
In addition, the company remains committed to returning value to its shareholders. Regular buybacks consistently boost the bottom line
ACE Limited currently carries a Zacks Rank #3 (Hold).
Performance by Other P&Cs Insurers
Bottom lines at RLI Corporation (RLI) and The Travelers Companies Inc. (TRV) have also outperformed their respective Zacks Consensus Estimate in the fourth quarter.
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