ACE Limited (ACE) reported first-quarter 2012 operating income of $2.05 per share, breezing past the Zacks Consensus Estimate by 15 cents. Earnings exhibited a massive improvement of 170% from 76 cents earned in the year-ago quarter. Operating income was $701 million, which was nearly a fourfold increase from the year-ago quarter.
The quarter largely benefited from lower catastrophe activities and higher premiums. Pre-tax catastrophe losses, including reinstatement premiums, were $19 million, narrowing from $489 million in the prior year.
Including net realized gains, net of tax, of $272 million or 79 cents per share, ACE Limited reported a net income of $973 million or $2.84 per share compared with $250 million or 73 cents per share in the prior-year quarter. The company, in first-quarter 2011, registered net realized loss, net of tax, of $9 million or 3 cents per share.
Operational Performance
Gross premiums written by ACE Limited in the quarter under review were $4.8 billion, up 3.1% year over year.
Net premiums earned improved 2.2% year over year to $3.4 billion in the quarter.
Net investment income in the quarter totaled $544 million, flat with the year-ago level.
Underwriting profit at ACE Limited was $314 million in first-quarter 2012, reversing the year-ago loss of $149 million.
Property & Casualty combined ratio improved by a substantial 1600 basis points year over year to 89.2% in the quarter. A lower level of catastrophe activities aided the improvement.
Segment Update
Insurance-North American: The segment recorded a 4.4% year-over-year decline in net earned written in the quarter.
Operating income increased 27% year over year to $334 million in the quarter under review.
The combined ratio improved by 770 basis points to 87.3% in the quarter.
Insurance-Overseas General: Net premiums earned in the quarter increased 8.8% year over year.
Operating income was $214 million in the quarter, a whopping improvement from $9 million in the year-ago quarter.
The combined ratio was 91.2%, improving 1640 basis points over the prior-year quarter.
Global Reinsurance: Net premiums earned saw a decline of 11% year over year.
Operating income was $137 million, reversing the loss of $13 million in the year-ago period.
The combined ratio was 68.3% in the quarter, a significant improvement from 129.7% in the prior-year quarter.
Life: The segment’s net premiums earned increased 11.3% year over year.
Operating income increased 23.5% year over year.
Balance Sheet
ACE Limited exited the quarter with $715 million, up 16.4% from the 2011 end.
Book value per share as of March 31, 2012, was $75.09, up 4% from $72.22 as of December 31, 2011.
2012 Outlook Revised Upward
ACE Limited guided operating earnings to a band of $7.03-$7.43 per share, up from $6.65 – $7.05 per share guided earlier. The guidance includes catastrophe loss of $325 million.
Peer Comparison
The Travelers Companies (TRV), which competes with ACE Limited, reported operating earnings of $2.01 per share in the first quarter of 2012, outperforming the Zacks Consensus Estimate of $1.52 per share. Reported results compared favorably with $1.89 in the prior-year quarter.
Operating income in the reported quarter was $801 million, compared with $826 million in the first quarter of 2011. The year-over-year decline was primarily due to lower net investment income.
However, lower share count due to share repurchases during the quarter aided the bottom line.
Total revenue in the quarter under review was $6.4 billion, up 2% year over year, driven by the increase in premiums earned, partially offset by decrease in net investment income. Revenue surpassed the Zacks Consensus Estimate of $6.2 billion.
Our Take
The company remains well poised owing to its international presence, diversified product offering, risk management, conservative underwriting practice and strong reserves.
ACE Limited remains focused on enhancing its earnings, return on equity and book value per share.
In its concerted effort to enhance shareholders value, the Board of Directors will propose a 4.25% increase in the quarterly dividend at its Annual General Meeting scheduled on May 16, 2012.
Shares of ACE Limited increased 0.99% to close at $75.24 on Tuesday.
We maintain a Neutral recommendation on ACE Limited in the long term. The quantitative Zacks # 3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.
ACE LIMITED (ACE): Free Stock Analysis Report
TRAVELERS COS (TRV): Free Stock Analysis Report
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