ACE reports Q2 net income of $677 million, up 27 percent

ACE Limited has reported net income for the quarter ended June 30, 2010, of $1.98 per share, compared with $1.58 per share for the same quarter last year.  Income excluding net realized gains (losses) was $2.01 per share, compared with $2.09 per share for the same quarter last year. Book value increased $774 million during the quarter, up 4% from March 31, 2010. Book value per share now stands at $63.20. Annualized operating return on average equity for the quarter was 13.8%. The property and casualty (P&C) combined ratio for the quarter was 89.7%.

Net income for the six months ended June 30, 2010, was $4.21 per share, compared with $3.27 per share for 2009. For the six months ended June 30, 2010, income excluding net realized gains (losses) was $3.72 per share, compared with $4.08 per share for 2009. Book value increased $1.7 billion, up 9% during the six months ended June 30, 2010. The P&C combined ratio for the six months ended June 30, 2010, was 91.2%.

In a press release, Evan G. Greenberg, Chairman and Chief Executive Officer of ACE Limited, commented: “ACE had an excellent second quarter and first half. In the quarter, we produced operating income of $688 million and grew book value per share by almost 4%, and 8% year to date. Our operating ROE for the quarter was 13.8%.

“For the industry, this was an active quarter for natural catastrophes in the U.S., and for ACE, our total catastrophe losses were double the amount from the prior year. I believe our combined ratio of 89.7% speaks to our risk management, balance of operations, overall reserve strength and underlying underwriting performance.

“Slow economic recovery in the major developed economies of the United States, Europe and Japan and competitive global insurance markets impacted total premium growth, and I expect these conditions will be with us for some time. However, we continue to identify and realize opportunities for profitable growth as a result of our on-the-ground local presence globally and a broad specialty-oriented product capability.

Operating highlights for the quarter ended June 30, 2010, were as follows:

• Net premiums written were flat and net premiums earned decreased 1%. Excluding the impact of foreign exchange, net premiums written decreased 2% while net premiums earned decreased 3%. Adjusting for a large loss portfolio transaction written in 2009 and lower crop written premium than in 2009, the growth rate in constant dollars was 2%.
• Total catastrophe losses were $81 million including reinstatement premiums compared with $31 million for the second quarter of 2009. Net after-tax catastrophe losses were $62 million compared with $24 million for the second quarter of 2009.
• Favorable prior period development pre-tax was $149 million, compared with $158 million in 2009.
• The P&C combined ratio was 89.7% compared with 87.7% last year.
• P&C underwriting income was $294 million compared with $355 million in 2009.
• Operating cash flow was $868 million.
• Net loss reserves decreased $286 million. Excluding foreign exchange valuation, net loss reserves decreased $33 million.
• Net investment income increased 2% to $518 million.
• Annualized operating return on average equity was 13.8%.⁽³⁾
• Book value per share⁽⁴⁾ increased 4% from $60.94 at March 31, 2010, to $63.20, and increased 8% from $58.44 at December 31, 2009.
• Tangible book value per share⁽⁴⁾ increased 5% from $49.48 at March 31, 2010, to $51.88, and increased 11% from $46.76 at December 31, 2009.
• Net realized and unrealized gains after tax from our investment portfolio totaled approximately $426 million. Net realized losses from derivative accounting related to the guaranteed minimum income benefits (GMIBs) of our life reinsurance business, net of associated hedges, were approximately $160 million due to the increase in fair value liability of the variable annuity business, driven by decreases in interest rates and equity markets.

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