ACE Limited (NYSE: ACE) reported net income for the quarter ended December 31, 2012, of $2.22 per share, compared with $2.15 per share for the same quarter last year. Income excluding net realized gains (losses) was $1.43 per share, compared with $1.90 per share for the same quarter last year.(2) After-tax catastrophe losses for the fourth quarter 2012 were $400 million, net of reinsurance and including reinstatement premiums, or $1.16 per share, compared with $137 million, or $0.40 per share, for the same quarter last year. Book value and tangible book value increased 2.1% and 2.7%, respectively, from September 30, 2012. Book value and tangible book value per share now stand at $80.90 and $66.28, respectively. Operating return on equity (ROE) for the quarter was 8.0%.(2) The property and casualty (P&C) combined ratio for the quarter was 105.5%, which includes net pre-tax losses from Superstorm Sandy of $502 million ($393 million after-tax) and a pre-tax charge for asbestos and environmental and other run-off business of $140 million ($90 million after-tax). Operating income includes a tax benefit of $121 million from the favorable resolution of prior years' tax matters. Fourth Quarter Summary (in millions, except per share amounts) (Unaudited)
(Per Share - Diluted) 2012
2011
Change 2012
2011
Change
Net income $ 765 $ 735 4 % $ 2.22 $ 2.15 3 % Net realized gains (losses), net of tax 273
87
214 % 0.79
0.25
216 % Income excluding net realized gains (losses), net of tax (2) $ 492 $ 648 (24 )% $ 1.43 $ 1.90 (25 )%
For the year ended December 31, 2012, net income was $7.89 per share, compared with $4.52 per share for 2011. Income excluding net realized gains (losses) was $7.65 per share, compared with $6.84 per share for 2011. Book value increased $3.2 billion, up 13.1% from December 31, 2011, and tangible book value increased $3.0 billion, up 15.5%. The P&C combined ratio for the year was 93.9%. Full Year Summary (in millions, except per share amounts) (Unaudited)
(Per Share - Diluted) 2012
2011
Change 2012
2011
Change
Net income $ 2,706 $ 1,540 76 % $ 7.89 $ 4.52 75 % Net realized gains (losses), net of tax 82
(791 )
NM 0.24
(2.32 )
NM Income excluding net realized gains (losses), net of tax $ 2,624
$ 2,331
13 % $ 7.65
$ 6.84
12 %
Evan G. Greenberg, Chairman and Chief Executive Officer of ACE Limited, commented: “ACE had a good fourth quarter, which contributed to an excellent year. Even with the impact of Superstorm Sandy, we produced over $490 million of operating income and increased book value per share 2%. These results continue to demonstrate the strength of our underwriting culture and balance sheet, and the benefits of our globally diversified business. “For the year, after-tax operating income was $2.6 billion, up 13% from 2011. We produced $1.2 billion in underwriting income – an increase of 11% over prior year – and a combined ratio of 93.9%. This is an excellent underwriting result, particularly given the worst drought conditions in the U.S. in 25 years as well as the losses from Sandy. We also produced strong investment results, with investment income down less than 3% – a good performance considering record low interest rates. Our operating ROE was 11% and per share book value grew 12% for the year, bringing three-year and five-year compounded annual book value per share growth to 11.4% and 10.7%, respectively. “Net premiums globally grew 6% for the year and in constant dollars – 9% excluding our crop insurance business. Our premium revenue growth is benefitting from an improved price environment in the U.S., our large and growing business presence around the world in Asia, Latin America and Europe, and our unique and balanced portfolio of insurance products including commercial, specialty and personal P&C, personal accident and life. Insurance pricing in the U.S. continues to improve and price increases are spreading to more product classes – a trend that has continued into the first quarter. With low interest rates pressuring industry returns, we expect this orderly and rational trend of price increases to continue. For our company, a continued focus on underwriting discipline, enhanced through the use of portfolio management and data analytics, is contributing significantly to both our premium growth and underwriting profitability, and we expect this discipline will continue to make a notable difference in our results going forward." Operating highlights for the quarter and full year ended December 31, 2012, were as follows: For the quarter, P&C net premiums written increased 0.3%, and 0.7% on a constant-dollar basis. Excluding the company's crop insurance business, P&C net premiums written increased 7.2%, and 7.8% on a constant-dollar basis. For the year, P&C net premiums written increased 4.7%, and 6.3% on a constant-dollar basis. Excluding the crop insurance business, P&C net premiums written for the year increased 8.0%, and 9.9% on a constant-dollar basis. Total pre-tax and after-tax catastrophe losses including reinstatement premiums for the quarter were $511 million, and $400 million, respectively, which included Superstorm Sandy losses of $502 million and $393 million pre-tax and after-tax, respectively. Total pre-tax and after-tax catastrophe losses for the same quarter in 2011 were $155 million and $137 million, respectively. The P&C combined ratio for the quarter was 105.5%, which includes losses from Superstorm Sandy and a pre-tax charge for asbestos and environmental and other run-off business reserve strengthening of $140 million ($90 million after-tax). The P&C current accident year combined ratio for the quarter excluding catastrophe losses improved to 91.4% compared with 92.0% last year. Excluding crop insurance and catastrophe losses, the P&C current accident year combined ratio for the quarter was 90.9% compared with 92.9% last year. Favorable prior period development pre-tax for the quarter, including the charge for asbestos and environmental, was $37 million, representing 1.1 percentage points of the combined ratio. The quarter included a reserve charge for asbestos and environmental and other run-off business of $140 million of which $118 million was a pre-tax addition to our asbestos and environmental reserves. The P&C expense ratio for the quarter was 30.0% compared with 29.6% last year. For the year, the P&C expense ratio was 28.2% compared with 28.7% in 2011. Operating cash flow was $970 million for the quarter and $4.0 billion for the year. Net loss reserves increased $780 million for the year. The underwriting loss (2) for the quarter was $90 million. Underwriting income (2) for the year was up 11.2% to $1.24 billion compared with $1.12 billion in 2011. Net investment income for the quarter was $567 million compared with $565 million in 2011. The quarterly amount included $42 million of greater than expected private equity and other distributions and the income benefit of an insurance contract classified as a deposit. Net investment income for the year was $2.2 billion, down 2.8% compared to last year. The operating effective tax rate (2) for the quarter and year included a tax benefit of $121 million from the favorable resolution of prior years' tax matters. Net realized and unrealized gains pre-tax for the quarter totaled $189 million, which included net realized gains from derivative accounting related to variable annuity reinsurance of $173 million, including the effect of foreign exchange. Operating return on equity (2) was 8.0% for the quarter and 11.0% for the year. Return on equity computed using net income was 11.2% and 10.4% for the year. Book value per share (2) increased 1.9% to $80.90 from $79.36 at September 30, 2012, and increased 12.0% from $72.22 at December 31, 2011.(3) Tangible book value per share (2) increased 2.5% to $66.28 from $64.67 at September 30, 2012, and increased 14.3% from $57.97 at December 31, 2011. Details of financial results by business segment are available in the ACE Limited Financial Supplement. Key segment items for the quarter and full year ended December 31, 2012, include: Insurance-North American: Net premiums written decreased 6.5% for the quarter primarily due to increased crop insurance premium cessions to the U.S. government as a result of the government's crop insurance profit and loss calculation formula. Excluding the crop insurance business, net premiums written increased 6.9%. For the quarter, the combined ratio was 111.9% compared with 91.0%. For the quarter, the current accident year combined ratio excluding catastrophe losses was 90.0% compared with 90.3% last year, and excluding the crop insurance business it was 88.5%. For the year, the combined ratio was 97.1% compared with 93.8% last year. For the year, the current accident year combined ratio excluding catastrophe losses was 93.4% compared with 91.5% last year, and excluding the crop insurance business it was 90.1%. Insurance-Overseas General: Net premiums written increased 7.1% for the quarter, and 8.5% on a constant-dollar basis. The combined ratio was 95.4% compared with 94.5%. The current accident year combined ratio excluding catastrophe losses was 92.5% compared with 93.4% last year. For the year, the combined ratio was 89.7% compared with 94.5% last year. For the year, the current accident year combined ratio excluding catastrophe losses was 92.2% compared with 93.1% last year. Global Reinsurance: Net premiums written increased 12.0% for the quarter. The combined ratio was 101.7% compared with 77.1%. The current accident year combined ratio excluding catastrophe losses was 69.9% compared with 75.3% last year. For the year, the combined ratio was 77.5% compared with 85.6% last year. For the year, the current accident year combined ratio excluding catastrophe losses was 72.8% compared with 75.2% last year. Life: Operating income for the quarter was $74 million compared with $79 million last year. Excluding the life reinsurance business, operating income was up $5 million. Please refer to the ACE Limited Financial Supplement, dated December 31, 2012, which is posted on the company's website in the Investor Information section, and access Financial Reports for more detailed information on individual segment performance, together with additional disclosure on reinsurance recoverable, loss reserves, investment portfolio and capital structure. The company also issued 2013 guidance. Operating income is expected to range between $6.60 and $7.00 per share. Catastrophe losses included in the estimate are $475 million pre-tax ($395 million after-tax), which are in line with last year's catastrophe loss guidance. The operating income projections included in this guidance are for current accident year results only and by definition do not include any estimate for prior period reserve development.
