ACE Limited (ACE) beat the Zacks Consensus Estimate of earnings in the second quarter as expected, and maintained the positive surprise streak. The property & casualty (P&C) insurer delivered operating earnings of $2.42 per share, outperforming the expectation by 8% and improving 5.7% year over year.

Including net realized losses, net of tax, of 14 cents per share, ACE Limited reported net income of $2.28 per share, down 12% year¬ over¬ year.

Solid underwriting performances coupled with improved investment results aided the better-than-expected results. Premium revenue witnessed global improvement.

Operational Performance

Gross premiums written by ACE Limited in the second quarter were $6 billion, down 0.4% year over year. Net premiums earned improved 6.5% year over year to $4.3 billion.

Net investment income totaled $556 million, up 4.2% year over year driven by sturdy growth in invested assets.

Underwriting income at ACE Limited was $478 million, up 10% year over year on the back of solid current accident year underwriting income coupled with margin expansion in international business. Combined ratio improved 20 basis points (bps) year over year to 87.7%.

Segment Update

Insurance-North American P&C: The segment recorded 8% year-over-year growth in net earned premium in the quarter. Operating income rose 10.9% to $378 million.

Combined ratio improved 50 bps to 87.1%.

Insurance-North American Agriculture: Net earned premium declined 6% to $330 million. Operating income declined 27% to $19 million.

Combined ratio deteriorated 190 bps to 91.8%.

Insurance-Overseas General: Net premiums earned in the quarter improved 9.3% year over year. Operating income was $282 million, up 10% year over year.

Combined ratio was 87.1%, reflecting an improvement of 110 bps year over year.

Global Reinsurance: Net premiums increased nearly 6.5% year over year. Operating income of $146 million declined 6% on a yearly basis.

Combined ratio deteriorated 770 bps to 69.9%.

Life: Net premiums earned increased 2.1% from the year-ago quarter. Operating income declined 5.3% year over year to $72 million.

Balance Sheet

ACE Limited exited the quarter with cash of $594 million, up 2.6% from the 2013-end level.

Book value per share, as of Jun 30, 2014, was $90.19, up 6.3% from $84.43 as of Dec 31, 2013.

Operating cash flow was $846 million in the reported quarter. Operating return on equity was 11.8%.

Share Repurchase Update

ACE Limited spent $237 million to buy back 2.3 million shares in the quarter. The company has spent about $699 million to repurchase 7.1 million shares since the inception of the share repurchase authorization in Nov 2013 through Jul 21, 2014.

Our Take

ACE Limited has consistently impressed with its bottom-line numbers.

The company continues to benefit from an improving commercial P&C pricing environment in the U.S., enjoying another quarter of rate increase.

Its inorganic story also looks good with continued acquisitions. With majority stake in The Siam Commercial Samaggi Insurance PCL, a general insurance company in Thailand, it is now the largest foreign-owned P&C insurer there. It is also expanding in Brazil with the buyout of Itau Seguros SA, the P&C insurance unit of Itaú Unibanco S.A., (ITUB) one of the largest private banks in Brazil.

In addition, the company remains committed toward returning value to its shareholders. Aside from increasing its quarterly dividend by 3%, ACE Limited continues to buy back shares.

The company also scores strongly with the credit rating agencies.

ACE Limited currently carries a Zacks Rank #2 (Buy).

Performance by other P&Cs Insurers

RLI Corporation (RLI) posted operating earnings of 66 cents per share in the second quarter, in line with the Zacks Consensus Estimate. Earnings improved 4.8% year over year. The improvement came on the back of top-line growth driven by higher premiums and investment income.

Higher-than-expected catastrophe losses affected The Travelers Companies Inc.’s (TRV) operating earnings of $1.93 per share, which missed the Zacks Consensus Estimate by 13 cents and declined 9.4% year over year.

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Read the Full Research Report on TRV
Read the Full Research Report on ACE
Read the Full Research Report on ITUB


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