ACE Limited (ACE, Financial)Â last month reported net income for the quarter ended June 30, 2014, of $2.28 per share, compared with $2.59 per share for the same quarter last year. Operating income was $2.42 per share, compared with $2.29 per share for the same quarter last year. Book value and tangible book value per share increased 3.8% and 3.9%, respectively, from March 31, 2014. Book value and tangible book value per share now stand at $90.19 and $73.77, respectively. Operating return on equity for the quarter was 11.8%. The property and casualty combined ratio for the quarter was 87.5%.
Management comments
Evan G. Greenberg, chairman and chief executive officer of ACE Limited, commented, “ACE’s excellent second-quarter results were marked by strong earnings, very good premium revenue growth globally and continued expansion of our business in the majority of markets in which we operate – both developed and developing. After-tax operating income of $825 million was driven by strong growth in underwriting and good investment income results, which together produced an operating ROE of about 12%. Per share book value increased nearly 4% in the quarter and over 6% for the year.
“P&C underwriting income was up 10% with a combined ratio of 87.5%. The growth in underwriting was driven by current accident year underwriting income before catastrophe losses, which was up nearly 12% as a result of global P&C net earned premium growth of 8.5%, as well as margin improvement in our international business. On the investment side, net investment income was up over 4% –Â a very good result in this environment which benefited from our strong growth in invested assets.
“P&C net premiums written, excluding agriculture, were up 7% in constant dollars. This premium growth was well distributed across the company by territory, product line and customer segment with double-digit contributions from Asia and Latin America and solid single-digit growth in North America and the continent of Europe. Our ability to generate sustained premium revenue growth reflects our deepening presence and capabilities in important long-term growth markets of the world. In two of these, Thailand and Brazil, we either completed or announced acquisitions in the quarter that meaningfully advance our company strategically. With the addition of Samaggi Insurance, ACE is now the largest foreign-owned P&C insurer in Thailand. Similarly, the combination of our existing business in Brazil and Itaú Seguros’s corporate P&C business, which we plan to acquire early next year, will make ACE the largest commercial P&C insurer in that country.”
Operating and financial highlights from the quarter
- P&C net premiums earned increased 7.1%, or 7.4% on a constant-dollar basis. Global P&C net premiums earned increased 8.5%, or 8.8% on a constant-dollar basis.
- The P&C expense ratio for the quarter was 29.3% compared with 29.2% last year. The Global P&C expense ratio, which excludes Agriculture, was 31.4% compared with 31.7% last year.
- Total pre-tax and after-tax catastrophe losses including reinstatement premiums were $80 million (2.1 percentage points of the combined ratio) and $67 million, respectively, compared with $81 million (2.3 percentage points of the combined ratio) and $66 million, respectively, last year. Favorable prior period development pre-tax and after-tax for the quarter were $126 million (3.3 percentage points of the combined ratio) and $106 million, respectively, compared with $128 million (3.6 percentage points of the combined ratio) and $109 million, respectively, last year.
- Operating cash flow was $846 million for the quarter. Net loss reserves increased $298 million in the quarter and the net paid-to-incurred ratio was 90% for the quarter. Net investment income for the quarter increased 4.2% to $556 million.
- Net realized and unrealized gains pre-tax totaled $523 million for the quarter, which included net realized losses of $45 million and net unrealized gains of $568 million. Operating return on equity was 11.8% for the quarter and 11.5% year-to-date. Return on equity computed using net income was 10.4% for the quarter and 10.2% year-to-date.
- Share repurchases totaled $237 million, or approximately 2.3 million shares, during the quarter. Since the inception of the November 2013 share repurchase authorization, the company has repurchased approximately 7.1 million shares for $699 million through July 21, 2014. Book value per share increased 3.8% to $90.19 from $86.90 at March 31, 2014, and increased 6.3% from $84.83 at December 31, 2013. Tangible book value per share increased 3.9% to $73.77 from $70.97 at March 31, 2014, and increased 7.0% from $68.93 at December 31, 2013.
Other results
Details of financial results by business segment are available in the ACE Limited Financial Supplement. Key segment items for the quarter ended June 30, 2014, include:
- Insurance –Â North American P&C: Net premiums written increased 6.9%. The combined ratio was 87.1% compared with 87.6%. The current accident year combined ratio excluding catastrophe losses was 87.3%, unchanged from last year.
- Insurance –Â North American Agriculture: Net premiums written decreased 14.2% driven by lower commodity prices. The combined ratio was 91.8% compared with 89.9%. The current accident year combined ratio excluding catastrophe losses was 89.1%, unchanged from last year.
- Insurance –Â Overseas General: Net premiums written increased 8.0%, or 8.8% on a constant-dollar basis. The combined ratio was 87.1% compared with 88.2%. The current accident year combined ratio excluding catastrophe losses was 89.3% compared with 90.5%.
- Global Reinsurance: Net premiums written decreased 4.9% for the quarter. The combined ratio was 69.9% compared with 62.2%. The current accident year combined ratio excluding catastrophe losses was 75.4% compared with 70.0%.
- Life segment: Operating income was $72 million compared with $76 million. Net premiums written and deposits collected, excluding life reinsurance, increased 14.2% on a constant-dollar basis. International life net premiums written increased 17.9% on a constant-dollar basis.
