Property and casualty insurer ACE Limited (ACE) inked a deal to acquire 100% of Jerneh Insurance Berhad in Malaysia, for $200 million, thereby expanding its footprint in Asia. The transaction is expected to close during the fourth quarter of 2010, subject to approval at Jerneh Insurance and other customary closing conditions.
The majority of Jerneh Insurance Berhad is owned by Jerneh Asia Berhad, which has an 80% stake, while Paramount Corp. owns the balance.
The company expects the Jerneh Insurance Berhad acquisition to be accretive to earnings and book value per share as well as return on capital.
ACE reported solid second-quarter earnings primarily driven by 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 Malaysian unit will add to the company’s burgeoning business in Asia.
In September, the company also agreed to acquire the remaining 80% stake in Rain and Hail Insurance Service Inc. for $1.1 billion in cash. The transaction is expected to close by the end of 2010 subject to regulatory approvals, Rain and Hail shareholders’ approval and other customary conditions. ACE presently owns a 20% stake in Rain and Hail Insurance.
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 $1.72 per share and $1.86 per share, respectively. For full years 2010 and 2011, the Zacks Consensus Estimates are, respectively, $7.28 per share and $7.39 per share.
The company’s premium growth has been far from impressive. Gross premiums written dropped 0.7% to $5.2 billion in second-quarter 2010 while net premiums written, at $3.42 billion, remained unchanged from the prior year. We expect the acquisitions to turn around premium writings. Also, with considerable balance sheet strength, we expect ACE to be able to grow organically as well as inorganically.
We maintain our “Neutral” recommendation on ACE Group. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.
Based in Malaysia, Jerneh Insurance offers a range of general insurance products including Fire, Marine, Aviation, Motor, Engineering, Household and Accident & Health Insurance.
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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