Tickers in this Article: ACE, HIG, TRV, CNA, ALL
Property and casualty insurer Ace Limited (NYSE:ACE) reported decent insurance operating trends during its first quarter, but saw profits dented by catastrophe and investment losses. Despite the near-term hit to the bottom line, these losses are inherent in the industry and Ace's long-term track record suggests it a solid handle on consistently growing its sales and profits.

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First Quarter Recap
Total revenues declined 3.6% to $3.8 billion as modest insurance operation growth was offset by losses in the investment portfolio. Namely, net premiums earned rose 1% to account for 86.9% of the total top line, net investment income improved 7.9%, but net realized losses came in at $45 million after a $168 million gain in last year's first quarter. Management detailed that sales came in better than expected as renewals from existing clients was strong, though rate increases were harder to come by.

Ace did sustain a high level of catastrophe losses. Losses and loss expense jumped 17.8% to $2.3 billion and played a major part in lowering net income by 65.7% to $259 million, or 76 cents per diluted share. This sent the combined ratio to 105% and indicated an underwriting loss as the ratio came in above 100%. The company sustained $247 million in losses related to the Japanese earthquake and contributed to sending the reported quarterly return on equity (ROE) ratio to 4.9%.

For the full year, analysts currently project Ace to report revenue growth just over 4% and total revenues just over $14 billion. The current earnings projection is $6.19 per share, for a year-over-year decline of approximately 32% to higher catastrophe losses and lower gains from the investment portfolio.

Ace shares have appreciated steadily since the height of the financial crisis in March 2009 and are now more than double the $32.50 they sank to just over two years ago. They now trade at just below quarter-end book value of $69.33, and at about a 22% premium to tangible book value of $55.31.

The Bottom Line
Despite the run in the stock, this still represents a reasonable entry point given the company has managed to grow its insurance operations, book value and earnings at a double-digit rate on average each year over the past decade. This is a consistent feat that arch rivals, including Travelers (NYSE:TRV), Allstate (NYSE:ALL), Hartford Financial (NYSE:HIG) and CNA Financial (NYSE:CNA) have been unable to match, and the last three sustained pretty significant hits to their investment portfolios during the credit crisis.

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