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Tickers in this Article: ACE, TRV, NYSE:BRK-A, ALL, HIG
With a market capitalization of approximately $18 billion, Ace Limited (NYSE: ACE) is one of the largest publicly traded property and casualty insurers. Ace has withstood extremely challenging operating conditions over the past couple of years. A favorable valuation coupled with a smoother business outlook could bode well for investors. IN PICTURES: Digging Out Of Debt In 8 Steps

Recent Business Trends

Ace reported fourth-quarter results in early February that saw both earned and written net premiums grow in the mid-single digits. Underwriting income improved nearly 7% to $373 million, though net investment income fell slightly. However, realized investment gains came in at $373 million after a negative $644 million in last year's very difficult Q4 period. The end result was a huge jump in reported net income to $953 million, or $2.81 diluted EPS. Excluding investment gains and losses, operating earnings grew a steady 8.1% to just over $2 per share. The combined ratio was 89.6%; any ratio below 100% signifies an underwriting profit. Return on equity came in at a very respectable 14.2%.

Full-year premium growth was minimal, but a large decline in investment losses more than doubled full-year net income to $2.5 billion, or $7.55 diluted EPS. The combined ratio was 88.3%, and tangible book value per share ended the year at $46.76 per share.

Outlook

Analysts expect Ace's top line to advance to be a minimal 0.5% and earnings of $7.11 per share for the coming year.

Bottom Line

Ace management boasted that it benefited "from customer and producer flight to quality and capability" during the financial crisis, and that its geographic diversity from operating in excess of 50 countries should allow it to continue to increase sales and profits going forward.

Ace's share price is still down slightly since the beginning of 2008, but it has far outpaced peers such as Hartford Financial (NYSE: HIG) and Allstate (NYSE: ALL). Travelers (NYSE: TRV) has been the best performer over this time frame, but Ace has about matched Berkshire Hathaway (NYSE: BRK.A), which is impressive given Berkshire's stellar reputation. Trading at just over book value and under eight times forward earnings, Ace is worth keeping an eye on going forward. (Learn more about the tenets of value investing in our article: The Value Investor's Handbook.)

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