Yesterday, ACE Ltd. (ACE) issued its earnings guidance for full fiscal 2010, which was well below the Zacks Consensus Estimate. The company expects earnings per share to range between $6.25 and $6.75 for 2010. This compares with the Zacks Consensus Estimate of $7.63 per share.
 
ACE’s earnings guidance, however, includes $390 million in pretax catastrophe losses ($317 million after-tax). The guidance excludes any estimate for prior-period reserve development.
 
ACE is expected to report its fourth quarter and full year 2009 earnings after the market closes on Feb 2, 2009. According to the Zacks Consensus Estimate, the company will report earnings of $1.91 per share for fourth quarter and $8.10 per share for full fiscal 2009.
 
In the third quarter of 2009, ACE reported operating earnings of $2.07 per share, which was well ahead of the Zacks Consensus Estimate. The company had posted operating earnings of $1.50 per share a year earlier.
 
Results were driven by underwriting gains stemming from lower catastrophe losses and reserve releases from the prior years, though policy sales were down and investment income deteriorated in the quarter.
 
Including net realized losses, the company reported a GAAP net income of $494 million or $1.46 per share compared with $54 million or 16 cents a share in the year-ago quarter.
 
However, premium writings remain restricted in the quarter as the challenged economic environment coupled with the strengthened U.S. dollar amid a competitive insurance market continue to impact the company’s premium writings.
 
ACE is well capitalized, adhering to conservative underwriting practices, and has a strong rating from the rating agencies. However, given the reduced exposure due to the current recession which is also impacting the clients’ insurance budgets, we do not expect robust improvement in the top-line any time soon. Competitive pressures are also restricting improvements in rates. Additionally, we expect investment yields to remain under pressure going forward. Therefore, we have a Neutral recommendation on the shares.
Read the full analyst report on “ACE”
Zacks Investment Research