Property and casualty insurer, ACE Limited (ACE) wrapped up the acquisition of New York Life’s Hong Kong operations for $350 million in cash.
Initially, in October 2010, ACE Limited inked a deal to acquire New York Life’s Hong Kong and Korea life insurance operations for a cash consideration of $425 million. The agreement, was however, amended to facilitate separate closings for the Korea and Hong Kong operations.
On February 1, 2011, ACE Limited closed the acquisition of New York Life’s Korea for $75 million in cash.
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.
We expect ACE Limited’s acquisition 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. ACE limited continues to remain focused on enhancing shareholder value. In its fourth quarter conference call, ACE Limited guided operating income to a range of $6.10 and $6.50 per share for 2011.
However, these positives are weighed down by substantial exposure to losses resulting from natural disasters, man-made catastrophes and other catastrophic events. Recently ACE Limited guided first quarter 2011 preliminary net after-tax losses from natural catastrophes to be $210 million attributable to the New Zealand earthquake, Australian floods and Cyclone Yasi and the U.S. winter storms.
Besides, the company also estimates net after-tax losses from the recent Japanese earthquake to range between $200 million and $250 million.
The Zacks Consensus Estimate for first-quarter 2011 is 70 cents per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $6.30 per share and $7.27 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. The company competes with American International Group Inc. (AIG) and The Travelers Companies Inc. (TRV).
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