Owing to the limited top line improvement, pressure on investment yields, competitive pressures restricting improvements in pricing and huge exposure catastrophe losses, we retain our Neutral rating on ACE Limited (ACE).
Counting on the positives, 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.
In the third quarter of 2010, the company acquired the majority shares of ProClaim America and Rain and Hail Insurance Service Inc. In the fourth quarter, ACE Limited acquired New York Life’s Hong Kong and Korea life insurance operations and 100% of Jerneh Insurance Berhad in Malaysia thereby expanding its footprint in Asia.
ACE Limited continues to remain focused on enhancing shareholder value. In February 2011, the board of directors of ACE Limited announced its intention to propose a 6.1% increase in the quarterly dividend. The increase of dividend will be proposed at the Annual General Meeting scheduled on May 18, 2011. ACE, if approved, will now pay a quarterly dividend of $0.35 per share.
However, these positives are weighed upon by substantial exposure to losses resulting from natural disasters, man-made catastrophes and other catastrophic events. In fiscal 2010, total catastrophe losses were $401 million compared with $136 million in 2009.
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.
ACE Ltd’s fourth quarter operating earnings were well ahead of the Zacks Consensus Estimate, primarily driven by better-than-expected top-line growth coupled with lower expenses. In its fourth quarter conference call, ACE Limited guided operating income to a range of $6.10 and $6.50 per share. Catastrophe losses of $300 million are included in the estimate.
Over the last 7 days period, none of the analyst covering the stock revised their estimates for the first quarter of 2011 as well as full year 2011. Only 1 out of 20 analysts covering the stock raised the estimate upward for 2012.
Over the last 30 days, 12 out of 18 analysts covering the stock nudged the estimate downward for first quarter of 2011 and full year 2011. Over the same period, 3 out of 20 analysts covering the stock lowered the estimate for 2012.
The Zacks Consensus Estimate for first-quarter 2011 is 81 cents per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $6.36 per share and $7.29 per share.
The quantitative Zacks #4 Rank (short term Sell rating) for the company indicates downward pressure on the stock 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).
ACE LIMITED (ACE): Free Stock Analysis Report
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TRAVELERS COS (TRV): Free Stock Analysis Report
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