Yet again, ACE Limited (ACE) delivered a healthy positive surprise, with its first-quarter 2014 earnings surpassing the Zacks Consensus Estimate by 6.6%. Operating earnings of $2.27 per share also improved 4.5% year over year.
Including net realized losses, net of tax, of 13 cents per share, ACE Limited reported net income of $2.14 per share, down 22.7% year over year.
Solid underwriting performances coupled with improved investment results aided the better-than-expected results. Premium revenue witnessed improvement globally, witnessing double-digit growth.
Operational Performance
Gross premiums written by ACE Limited in the first quarter were $5.37 billion, up 8.3% year over year. Net premiums earned improved 11.1% year over year to $3.97 billion in the quarter.
Net investment income in the quarter totaled $553 million, up 5.3% year over year.
Underwriting income at ACE Limited was $390 million, up 7% year over year on the back of solid current accident year underwriting income. However, P&C combined ratio deteriorated 60 basis points (bps) year over year to 88.8%.
Segment Update
Insurance-North American P&C: The segment recorded 11.1% year-over-year growth in net earned premiums in the quarter.
Operating income rose 13.9% to $411 million.
Combined ratio improved 100 bps to 84.7% in the quarter under review.
Insurance-North American Agriculture: Net earned premium nearly doubled to $103 million.
Operating loss of $25 million compared unfavorably with an income of $7 million earned in the year-ago quarter.
Combined ratio deteriorated 5100 bps to 130.3% in the quarter.
Insurance-Overseas General: Net premiums earned in the quarter improved 10.5% year over year.
Operating income was $239 million, flat year over year.
Combined ratio was 90.1%, improving 50 bps year over year.
Global Reinsurance: Net premiums increased nearly 15% year over year.
Operating income of nearly $144 million was flat on a year-over-year basis.
Combined ratio deteriorated 560 bps to 72.9% in the quarter.
Life: Net premiums earned increased 1.5% from the year-ago quarter.
Operating income escalated 10% year over year to $77 million.
Balance Sheet
ACE Limited exited the quarter with cash of $847 million, up 46.3% from the 2013-end level.
Book value per share, as of Mar 31, 2014, was $86.90, up 2.4% from $84.43 as of Dec 31, 2013.
Operating cash flow was $1.25 billion in the reported quarter.
Return on equity was 11.2%.
Share Repurchase Update
ACE Limited spent $332 million to buy back 3.5 million shares in the quarter. The company has spent about $436 million to repurchase 4.5 million shares since the inception of share repurchase authorization in Nov 2013, through Apr 28, 2014.
Performance of Other Property and Casualty Insurers
RLI Corporation (RLI) posted first-quarter 2014 operating earnings of 57 cents per share, exceeding the Zacks Consensus Estimate by 5.6% and the year-ago quarter’s earnings by 9.6%.
The Travelers Companies Inc.’s (TRV) first-quarter net income of $2.95 per share outperformed the Zacks Consensus Estimate by 38% and improved 28% year over year.
W.R. Berkley Corp. (WRB) reported first-quarter 2014 core operating earnings of $1.00 per share, handily beating the Zacks Consensus Estimate of 79 cents. Earnings also surged 35.1% year over year.
Our Take
ACE Limited has kept up its trend of delivering impressive quarterly earnings.
The company continues to benefit from better commercial P&C pricing environment in the U.S., enjoying another quarter of rate increase.
Its inorganic story also seems impressive with continued acquisitions. The company acquired a 60.9% stake in The Siam Commercial Samaggi Insurance PCL, a general insurance company in Thailand, from Siam Commercial Bank to consolidate its foothold in Thailand – the second-largest economy in Southeast Asia.
In addition, the company remains committed toward returning value to its shareholders. The board intends to increase its quarterly dividend by 3%. ACE Limited has $2 billion worth of share repurchase authorization through Dec 31, 2014. It intends to buy back $1.5 billion worth of shares by 2014-end.
The company also scores strongly with credit rating agencies.
Currently, ACE Limited is retaining its focus on launching products to strengthen its portfolio. We are optimistic that all these efforts taken together will strengthen the company’s position going forward.
ACE Limited currently carries a Zacks Rank #2 (Buy).
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment