Ace: ‘Strong Finish To Excellent Year’
Despite what its chairman called “a challenging operating environment”. Bermuda headquartered Ace Ltd. posted a billion dollar profit for the fourth quarter of 2010, up five percent from a year ago .
In a statement issued yesterday [Feb. 2] Zurich-based Ace reported net income for the quarter ended December 31, 2010, of $2.92 per share, compared with $2.81 per share for the same quarter last year. Income excluding net realised gains (losses) was $2.05 per share, compared with $2.01 per share for the same quarter last year.
Book value increased $129 million during the quarter. Book value per share was up two percent from September 30, 2010, and tangible book value per share decreased two percent in the quarter due to the Rain and Hail transaction. Book value and tangible book value per share now stand at $68.59 and $54.63, respectively. Annualised operating return on average equity for the quarter was 13.2 percent. The property and casualty (P&C) combined ratio for the quarter was 90.3 percent.
Net income for the year ended December 31, 2010, was $9.11 per share, compared with $7.55 per share for 2009. For the year ended December 31, 2010, income excluding net realised gains (losses) was $7.79 per share, compared with $8.17 per share for 2009. Book value increased $3.3 billion, up 17 percent during the year ended December 31, 2010, while tangible book value increased $2.6 billion, up 16 percent. Annualised operating return on equity for the year was 13.1 percent. The P&C combined ratio for the year ended December 31, 2010, was 90.2 percent.
Evan G. Greenberg, Bermuda-based chairman and CEO of ACE Limited, commented: “ACE had a very good fourth quarter and a strong finish to an excellent year, both financially and operationally. During the year, we made important strides to better position our company for the future.
“Our after-tax operating income for the year was nearly $2.7 billion, with strong contributions from both underwriting and investment income, and our book value continued its track record of growth, closing up 17 percent for the year. Over the last five years, we have grown our per-share book and tangible book value at a compound annual rate of 14.5 percent and 15.8 percent, respectively. Our P&C combined ratio for 2010 was 90.2 percent, which speaks to our strong underwriting culture and cycle management. I believe these standout financial results, which produced an operating return on equity of 13.1 percent, demonstrate the power of our well-diversified global balance of businesses.
“During the year we added to our executive management ranks, increased the rigour of our underwriting discipline and completed a number of acquisitions that will pay us dividends immediately and, more importantly, over the longer-term. During the quarter, S&P upgraded the financial strength rating of our core operating insurance companies to AA-, acknowledging the strength of our balance sheet and our distinct global franchise. Without a doubt, we ended the year stronger and better positioned to capitalise upon opportunity in 2011 and beyond.
“While the operating environment remains challenging, both economically and competitively, we are optimistic and confident in our ability to continue delivering superior results.”
Operating highlights for the quarter ended December 31, 2010, were as follows:
•Net premiums written and earned increased four percent and five percent, respectively.
•Total pre-tax catastrophe losses including reinstatement premiums were $50 million, of which approximately $30 million related to IBNR accrual for the Australian floods. This compares with $23 million of pre-tax catastrophe losses for the fourth quarter of 2009. For the year, total pre-tax catastrophe losses including reinstatement premiums were $401 million compared with $136 million in 2009.
•There were several items in the quarter that had somewhat of an offsetting effect – one related to the prior period and a number related to the current accident year. Favourable prior period development pre-tax was $57 million, compared with $147 million in 2009, and included a reserve charge for our run-off business of $89 million, of which $45 million was a pre-tax addition to asbestos and environmental reserves. The current accident year benefited from a crop insurance adjustment of $32 million pre-tax and certain one-time premium-related adjustments totaling $80 million. Excluding these items, the current accident year combined ratio was flat compared with prior year. Line by line, the P&C loss ratio is up as would be expected, however, the company’s mix of business is changing from higher loss ratio lines to lower loss ratio business.
•The P&C combined ratio was 90.3 percent compared with 89.6 percent last year. The P&C combined ratio for the year was 90.2 percent compared with 88.3 percent in 2009.
•P&C underwriting income was $310 million compared with $313 million in 2009. For the year, P&C underwriting income was $1.2 billion compared with $1.4 billion in 2009.
•Operating cash flow was $771 million for the quarter and $3.5 billion for the year.
•Net loss reserves increased $253 million. For the year, net loss reserves increased $332 million.
•Net investment income increased four percent to $532 million. For the year, net investment income increased two percent to approximately $2.1 billion.
•Annualised operating return on average equity was 13.2 percent for the quarter and 13.1 percent for the year.
•Book value per share increased two percent from $67.34 at September 30, 2010, to $68.59, and increased 17% from $58.44 at December 31, 2009.
•Tangible book value per share decreased two percent from $55.83 at September 30, 2010, to $54.63, and increased 17% from $46.76 at December 31, 2009. Adjusting for acquisitions, principally Rain and Hail, the tangible book value per share increased 1.5 percent for the quarter and 21 percent for the year.
•Net realised and unrealised losses after tax from our investment portfolio totaled approximately $310 million.
Key segment items for the quarter ended December 31, 2010, include:
•Insurance-North American: Net premiums written increased seven percent. The combined ratio was 90.1 percent compared with 89.5 percent.
•Insurance-Overseas General: Net premiums written remained flat. Adjusting for the impact of foreign exchange, they increased one percent. The combined ratio was unchanged at 90.3 percent.
•Global Reinsurance: Net premiums written decreased one percent. The combined ratio was 71.7 percent compared with 67.1 percent.
•Life: Life revenues increased five percent. Operating income was $78 million compared with $90 million.
The company also issued 2011 guidance. Operating income is expected to range between $6.10 and $6.50 per share. Catastrophe losses included in the estimate are $370 million pre-tax ($300 million after-tax). The operating income projections included in this guidance are for current accident year results only and by definition do not include any estimate for prior period reserve development. For 2010, the comparable operating income per share excluding prior period reserve development and including $0.99 of after-tax catastrophe losses was $6.48.
Celebrating 25 years of insuring progress, the ACE Group is a global leader in insurance and reinsurance serving a diverse group of clients. Headed by ACE Limited, the ACE Group conducts its business on a worldwide basis with operating subsidiaries in more than 50 countries.
