ACE Limited Q3 Net Income Drops 92% to $54 Million

ACE Limited reported net income for the third quarter ended September 30, 2008, of $54 million, compared to $656 million in the same period of 2007, a 92 percent decrease. Earnings per share were $0.16, compared with $1.95 per share for the same quarter last year. Income excluding net realized gains (losses) for the third quarter was $1.51 per share, which exceeded analysts estimates, compared with $2.06 per share for the same quarter of last year.

ACE noted that the “quarter was marked by financial market volatility in both the credit and equity markets, which impacted net income and book value. The net realized and unrealized loss after tax was $1.3 billion during the quarter. Book value decreased $971 million for the quarter and the annualized return on average equity was 12.7 percent. (note) The combined ratio was 97.9 percent.”

Net income for the first nine months of 2008 was $3.46 per share, compared with $5.98 per share for the first nine months of 2007, a 42 percent decline. For the first nine months of 2008, income excluding net realized gains (losses) was $5.84 per share, compared with $6.02 per share for the same period of 2007, an extremely modest three percent drop.

Chairman and CEO Evan G. Greenberg stated: “ACE performed relatively well in a period marked by extraordinary financial market conditions and significant natural catastrophes. Our financial results demonstrated balance sheet stability and earnings strength,” said, Chief Executive Officer of ACE Limited.

“For the quarter, we recorded operating income of $504 million, generated a return on equity of 12.7 percent, and our combined ratio was 97.9 percent. Our book value in the quarter was impacted by the extreme movement in financial asset prices and declined 6 percent, while in the last 12 months, our book value has remained stable, down less than 1 percent.

“In my judgment, given both the rapid destruction and increased cost of capital, combined with the damage inflicted on a number of companies in our industry, the soft market for P&C insurance is essentially over, and rates will begin to firm. These challenging times will create opportunities for those companies with the financial wherewithal and franchise power to take advantage, and I’m confident ACE will be one of them.”

ACE listed other operating highlights as follows:
— Net premiums written and earned increased 17 percent and 15 percent, respectively, over the prior year quarter (4 percent and 3 percent, respectively, excluding Combined Insurance).
— The combined ratio for the quarter was 97.9 percent compared with 88.5 percent for the prior year quarter; year-to-date, the combined ratio was 90.4 percent compared with 87.8 percent for the prior year period.
— The combined ratio for the quarter excluding catastrophe losses was 85.2 percent compared with 87.8 percent for the prior year quarter; year-to-date, the combined ratio excluding catastrophe losses was 84.9 percent compared with 86.1 percent for the prior year period.
— Pre-tax underwriting income excluding the life segment decreased 81 percent over the prior year quarter to $66 million pre-tax due to catastrophe losses of $418 million offset by positive prior period development of $277 million compared to $70 million for the same quarter last year.
— The expense ratio reported in the quarter increased by 2.4 percentage points from last year’s third quarter. The addition of Combined Insurance contributed approximately 0.7 percent to this increase, while 0.4 percent was related to the change in our business mix to reflect growth in A&H and international P&C, which have higher expense ratios.
— Operating cash flow was $1 billion for the quarter.
— Reinsurance recoverables increased $386 million for the quarter due to catastrophe losses; year-to-date, reinsurance recoverables decreased $129 million.
— Net loss reserves increased $291 million during the quarter; year-to-date, net loss reserves increased $1.4 billion.
— Net investment income increased 6 percent over the prior year quarter to $520 million.
— Return on average equity for the third quarter was 12.7 percent and for the nine months of 2008 was 16.5 percent.
— Book value decreased $764 million from December 31, 2007, excluding the redemption of the preferred shares while book value per share decreased from $48.89 at December 31, 2007, to $46.06.
— Net realized and unrealized losses after tax from our investment portfolio totaled $1.1 billion. This includes $854 million of unrealized losses and $281 million of realized losses. Net realized losses from derivatives related to the guaranteed minimum income benefit (GMIB) liabilities of our life reinsurance business were approximately $161 million. Net realized and unrealized losses from the company’s share of partially-owned insurance companies were approximately $43 million.

The full report and supplemental information may be obtained on the Company’s web site at: www.acelimited.com.

ACE will host its third quarter earnings conference call and webcast today, Wednesday, October 29, 2008, beginning at 8:30 a.m. ET. The earnings conference call will be available via live and archived webcast on ACE’s web site, or by dialing 888-296-4305 (within the United States) or 719-457-2654 (international); passcode 8076874. Please refer to the ACE Limited web site in the Investor Information section under Calendar of Events for details.

A replay of the call will be available for approximately one month. To listen to the replay, dial: 888-203-1112 (in the United States) or 719-457-0820 (international); passcode 8076874.

Source: ACE Limited