ACE full-year profit halves as cat losses hit

Global (re)insurance group ACE made a net profit of $1.6bn (£1bn) in 2011, down 49% on the $3.1bn it made in 2010.

This was despite a 7% increase in gross written premium to $20.8bn (2010: $19.5bn).

Return on equity fell to 6.7% (2010: 14.6%).

The company was hit with a natural catastrophe bill of $899m during the year (2010: $401m), as well as net realised investment losses of $795m (2010: net realised gains of $432m).

These charges were partially offset by net reserve releases from old years of $556m (2010: $503m).

Despite the heavy catastrophe burden, ACE reported a profitable combined ratio of 94.6%, only 4.4 percentage points higher than 2010’s 90.2%.

In the fourth quarter of 2011 alone, ACE made a net profit of $750m, down 25% on the $1bn it made in the fourth quarter of 2010. The company incurred $155m of catastrophe losses in the quarter (Q4 2010: $50m), and had to strengthen reserves at its run-off operations, including Brandywine, by $80m.

Despite this, the company’s net reserve release for the quarter was $123m (Q4 2010: $57m).

ACE’s fourth quarter 2011 combined ratio was 92.9% (Q4 2010: 90.3%).

Despite the profit reduction, ACE chief executive Evan Greenberg praised the company’s performance. “ACE had a very good fourth quarter and year given the record natural catastrophe losses the industry incurred globally,” he said in a statement. “The financial results once again demonstrated our conservative approach to risk management and underwriting as well as the benefits of a well-diversified global spread of business.”

Greenberg was also sanguine about rate rises, saying that ACE’s commercial property/casualty insurance book benefited from rising rates in the USA and selected overseas markets in the third and fourth quarters of 2011 as well as January this year.

“Rates strengthened in most property and casualty classes in the USA, with greater increases taking hold in classes where combined ratios are under significant industry stress,” he said.

ACE is expecting to make an operating profit of between $6.65 and $7.05 a share in 2012. The estimate includes pre-tax catastrophe losses of $475m.