On Mar 12, 2013, shares of ACE Limited (ACE) hit a 52-week high of $88.52. Previously, the company had reported solid fourth-quarter results with an earnings surprise of 10%. This property & casualty insurer witnessed positive earnings surprises in all four quarters of 2012, with an average beat of 9.7%. Further, ACE Limited has been delivering positive earnings surprise over the last 16 quarters.
Recently, the board of directors of ACE Limited announced its intention to propose a 4% increase in the quarterly dividend at the extraordinary general meeting scheduled on May 16, 2013. If approved, ACE Limited will pay a quarterly dividend of 51 cents.
The company has also started underwriting energy risks through Syndicate 2488 at Lloyd’s of London.
On Jan 31, ACE Limited reported fourth-quarter 2012 operating income of $1.43 per share, up 14 cents from the Zacks Consensus Estimate.
Net premiums earned improved 0.4% year over year to $3.8 billion in the quarter. Net investment income in the quarter totaled $567 million, up 0.4% year over year.
The absence of any major catastrophe events in the first nine months of 2012 was beneficial to the underwriting results of the company. However, the occurrence of Hurricane Sandy in the fourth quarter altered the picture. Though its exposure to cat loss weighs on the results, prudent underwriting practices, international presence, diversified product offering, and a sturdy balance sheet managed to limit the adverse effect. Nevertheless, underwriting income improved 11% year over year to $1.2 billion in 2012. Combined ratio improved 80 basis points (bps) on a year-over-year basis to 93.9%.
During its earnings release, ACE Limited guided operating earnings to a band of $6.60–$7.00 per share. The guidance includes catastrophe loss of $450 million. The Zacks Consensus Estimate is above the company’s guidance. The estimate represents a year-over-year increase of 0.4%.
ACE Limited expects its acquisitions to meet or exceed its long-term return on equity (:ROE) goal of 15% within 2-3 years. The acquisitions help the company further expand its international footprint.
Valuation for ACE looks attractive. The shares are trading at a discount to the peer group average, both on a price-to-book basis and forward price-to-earnings basis, with return on equity remaining above the peer group average.
ACE Limited presently carries a Zacks Rank # 3 (Hold). Property and casualty insurers like XL Group plc (XL), Cincinnati Financial Corp. (CINF) and Arch Capital Group Ltd. (ACGL), among others, carry a favorable Zacks Rank # 1 (Strong Buy).
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