The insurance sector has largely outperformed the S&P 500 over the past year, but that doesn't mean that there still aren't some stocks worth considering as buys today. Among the more interesting names is ACE Limited (NYSE:ACE). Not only is ACE leveraged to hardening markets, but the company's less cyclical mix of business, strong underwriting reputation, good international exposure and strong capital position make this name a good balance of quality and value at today's prices.

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Pricing Has Been Good and Seems to Be Getting Better
When ACE reported first quarter earnings back in April, net written premium growth was a little less than 3%. That wasn't so great compared to names like XL Group (NYSE:XL), Arch Capital (Nasdaq:ACGL), or Renaissance (NYSE:RNR), but it was more or less in line with other insurers like Chubb (NYSE:CB) and Travelers (NYSE:TRV).

Some of this performance had to do with how the company approached its business lines. While reinsurance has been pretty strong in general (as seen in names like Arch Capital and Renaissance), this category was down 17% at ACE. Likewise, the company is shrinking its workers' compensation book at a time when other insurers are like Chubb are building it.

On the flip side, the company saw solid low-to-mid single-digit pricing growth and management seems confident that pricing will continue to firm up. At the same time, management is using its significant global footprint to offset weak conditions in Europe by writing more business in healthier markets in Latin America and Asia.

SEE: Cyclical Versus Non-Cyclical Stocks

Will the Losses Stay under Control?
Arguably the biggest unknown with any P&C or reinsurance company is the magnitude and frequency of future losses. ACE has been doing well of late with respect to these losses. Some of this can be chalked up to the company's diverse and balanced business model. Although the company does underwrite a lot of crop insurance and accident and health business, these exposures don't tend to be concentrated or correlated - hail in Nebraska doesn't mean there was hail in Illinois and so on.

The company still does underwrite reinsurance for variable annuities, and that could bite the company again if the financial markets experience another significant downturn. Likewise, there seems to be more scrutiny regarding the payments that the government makes to crop insurance providers like ACE and Wells Fargo (NYSE:WFC) and changes in the subsidy programs could be a risk factor.

What to Do with All That Capital?
Relative to its equity, ACE seems to have a lot of surplus capital. Combined with the company's less cyclical business model, that gives management an array of attractive options.

ACE has been relatively acquisitive, but there are still ample opportunities to acquire businesses here and there around the world. At the same time, if rates continue to develop favorably, management could harness that capital and write more business. Last and not least, management can elect to return more of that capital to shareholders - they recently hiked the dividend, but further moves could be an option if management can't identify better uses for that capital.

SEE: The Power Of Dividend Growth

The Bottom Line
ACE has a solid double-digit long-term average return on equity. While the low rate environment is hurting the company's ability to earn good returns from its investment portfolio, I do believe that the company's global mix of business should continue to produce very attractive rates of return. What's more, while property reinsurance companies like Renaissance or PartnerRe (NYSE:PRE) offer more leverage to hardening markets today, ACE doesn't appear to have the same sort of accident/catastrophe loss risk.

If ACE can earn a long-term ROE of 11%, an excess returns model suggests a fair value in the mid-$80s. Coupled with a nearly 3% dividend yield, that argues that ACE Limited shares are still very much worth consideration today.

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At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

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