Property and casualty insurer ACE Limited (ACE) is on an acquisition spree. The company has inked a deal to acquire New York Life’s Hong Kong and Korea life insurance operations for a cash consideration of $425 million. The acquisition is expected to close during the first quarter of 2011, subject to regulatory approvals and other customary closing conditions.
The acquisition of the life insurance business in Hong Kong and Korea, two major Southeast Asian markets, would complement the company’s already existing property and casualty insurance operations representing approximately $330 million in incremental life insurance revenues, $2.15 billion in assets and over 2,400 captive agents.
The company expects the acquisition to be accretive to earnings, book value per share and return on capital.
ACE Limited reported solid second-quarter earnings, primarily driven by a better-than-expected top-line growth. The company continues to benefit from its Asia-Pacific business. Net premiums earned in the Asia-Pacific region in the second quarter were $192 million, up 3% year over year. The expansion in this region will add to the company’s burgeoning business in Asia going forward.
Earlier in October, ACE Limited added Jerneh Insurance Berhad of Malaysia for $200 million, thereby expanding its footprint in Asia while in September it agreed to acquire Rain and Hail Insurance Service Inc. for $1.1 billion in cash.
ACE Limited’s premium growth has been far from impressive. Gross premiums written dropped 0.7% to $5.2 billion in the second-quarter 2010 while net premiums written at $3.42 billion remained unchanged from the prior year. We expect the acquisitions to create a turnaround in premium writings. Also, with considerable balance sheet strength, we expect ACE to be able to grow organically as well as inorganically.
During the second quarter conference call, management reiterated its operating income guidance of $6.25–$6.75 per share for full year 2010 and also expects actual figures to come in at the top-end of the range.
The Zacks Consensus Estimates for third-quarter 2010 and fourth-quarter 2010 are $1.84 per share and $1.87 per share, respectively. For full years 2010 and 2011, the Zacks Consensus Estimates are $7.42 per share and $7.40 per share.
We maintain our “Neutral” recommendation on ACE Group over the long term. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.
Headquartered in Zurich, Switzerland, ACE Limited, through its subsidiaries, provides a range of insurance and reinsurance products to commercial and individual customers worldwide.
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