Ace turns over good Q1 results

ACE reported Q1 net income grew 50% with premium income rising by 9% and its operating income of $699m beat analysts’ expectations.

First Quarter highlights

• Net income $567m ($377m) up 50%
• Net realised losses net of tax $102m ($348m)
• Income excluding net realised gains (losses), net of tax $669m ($725m) down 8%
• Net realised and unrealised losses after tax were $291m due to the mark-to-market pricing impact caused by continued widening of credit spreads and the decline in global equity markets
• Realised losses due to credit impairment were $27m
• Net premiums written and earned increased 9%. Excluding the impact of foreign exchange, net premiums written and earned increased 15% and 16%, respectively
• Net P&C premiums written and earned, which include international accident and health (A&H), increased 1%. Excluding the impact of foreign exchange, net P&C premiums written and earned increased 7%
• P&C combined ratio was 87.5% compared with 84.6%
• P&C pre-tax underwriting income decreased 19% to $357m compared with $439m
• P&C expense ratio decreased by 1.2 percentage points. Excluding A&H, the P&C expense ratio decreased 2 percentage points
• Operating cash flow was $562m, down 45%, due to large claim payment activity
• Net loss reserves increased $103m, excluding foreign exchange revaluation
• Net investment income increased 3% to $502m
• Net realised and unrealised losses after tax from investment portfolio totalled $305m. This includes $203m of unrealised losses and $102m of realised losses. Net realised gains from derivative accounting related to the guaranteed minimum income benefits (GMIBs) of the life reinsurance business were approximately $24m

Key segment items include:

• Insurance-North American: Net premiums written increased 2.5%. The combined ratio was 88.2% compared with 86.0%
• Insurance-Overseas General: Net premiums written decreased 1%. Adjusting for the impact of foreign exchange, they increased 10% on a constant-dollar basis. The combined ratio was 88.7% compared with 82.7%
• Global Reinsurance: Net premiums written increased 4%. Adjusting for the impact of foreign exchange, they increased 11% on a constant-dollar basis. The combined ratio was 63.0% compared with 70.8%
• Life: Net premiums written increased $241 million; excluding the results of Combined Insurance’s North American business, net premiums written increased 4%. Adjusting for the impact of foreign exchange, they increased 6% on a constant-dollar basis. Income excluding net realized gains (losses) was $53 million

Evan Greenberg, chairman and chief executive said: “ACE had a good first quarter, marked by strong operating and net income, with all divisions of the company making a positive contribution to results.

“The strong U.S. dollar had a substantial and negative impact on our P&C premium revenue, which grew 7% in the quarter after adjusting for foreign exchange. We benefited from a generally firming market, particularly in our P&C reinsurance and global retail P&C insurance businesses. We also continued to benefit from the consolidation of Combined Insurance Company in our results.

“As the year goes on, I expect revenue growth to remain under pressure due to global recessionary conditions and foreign exchange. While many of our customers’ exposures are down due to reduced business activity, and many companies are in search of more affordable insurance alternatives, the quality of our portfolio of risks continues to improve given the firming pricing environment and the client flight to capability of a company like ACE.”