ZURICH (Bloomberg)—ACE Ltd., the insurer added to the Standard & Poor's 500 Index last year, said fourth-quarter profit rose 5% on improved returns from investments and a rise in premium revenue.
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However, shares declined in extended trading after ACE said earnings in 2011 may slip from last year.
Net income advanced to $1 billion, or $2.92 a share, from $953 million, or $2.81, a year earlier, the Zurich-based company said Wednesday in a statement. Operating income, which excludes some investment results, was $2.05 a share, beating the $1.84 average estimate of 19 analysts surveyed by Bloomberg.
ACE, which has offices in more than 50 countries, remained profitable during a global economic decline that has crimped demand for coverage. Chief Executive Officer Evan Greenberg, 56, expanded beyond commercial property/casualty insurance through acquisitions, adding life and general insurance companies in Asia and purchasing a majority stake in a U.S. crop insurer.
“They're building a very good, high-quality portfolio of noncorrelated products, as well as businesses that are geographically diverse,” said Michael Paisan, an analyst at Stifel Nicolaus & Co., before the earnings were announced. “It's kind of the like the conglomerate theory, where you're not at the whims of any single market.” Mr. Paisan has a “buy” rating on the stock.
ACE's forecast
Operating earnings may decline in 2011 to a range of $6.10 to $6.50 a share, ACE said. That would miss $7.46, the average estimate of 19 analysts surveyed by Bloomberg. Full-year 2010 operating income was $6.48 a share.
ACE shares fell 5% to $59.30 at 5 p.m. New York time Wednesday in extended trading following the announcement. They have climbed 26% in the past year compared with an 18% gain in the S&P 500 Index.
Fourth-quarter premium revenue increased 5.5% to $3.57 billion from $3.39 billion a year earlier. The insurer earned 9.7 cents for every premium dollar in the fourth quarter, compared with 10.4 cents. ACE posted a $532 million in investment income, up from $512 million a year earlier.
Book value, a measure of assets minus liabilities, rose to $68.59 a share from $67.34 on Sept. 30. Securities rated AAA make up about half of ACE's fixed-income portfolio, according to a regulatory filing. Long-term AAA corporate debt lost 5.4% in the fourth quarter, a Bank of America Merrill Lynch index shows. That compares with a gain of 10.2% for the S&P 500.
Avoiding risk
“They’re very conservative, they don’t take a lot of outsized risk in the portfolio,” said Clifford Gallant, an analyst with Keffe Bruyette & Woods Inc. before earnings were released. “There’s not a lot of hedge fund investment there. They’re trying to build value through the underwriting.” Gallant owns ACE shares and rates the stock “outperform.”
Catastrophe losses were $50 million before tax compared with $23 million a year earlier. ACE said $30 million of the fourth-quarter catastrophe loss was from flooding in Australia.
The Queensland floods, which have killed at least 26 people and hit an area larger than Texas and California combined, may cost insurers and reinsurers $4 billion to $6 billion, according to catastrophe modeler AIR Worldwide. Claims at the higher end of that range would rank the disaster as Australia’s most expensive for at least 30 years, based on a list compiled by Munich Reinsurance Co.
In 2010, ACE agreed to pay about $1.1 billion for a majority stake in Rain & Hail Insurance Service Inc., $425 million for New York Life Insurance Co.’s Hong Kong and South Korean life units and $210 million for Malaysia-based Jerneh Insurance Bhd.
Copyright 2011 Bloomberg
