Q4 underwriting income up 7.1%, net income down 44.4% for ACE

ACE Limited’s unaudited net income for 2014 Q4 decreased 44.4% from the same quarter in 2013 – US$555 million compared to US$998 million – but officials remain confident in the company’s strategy.

Operating income (net of tax) for the quarter ended December 31, 2014 amounted to US$827 million, up 0.4% from US$824 million in the same quarter of 2013, notes a statement issued Tuesday by ACE Group, one of the world’s largest multi-line property and casualty insurers, with operations in 54 countries.

ACE reports in the statement that net income in 2014 was negatively impacted relative to 2013 for both the quarter and year as a result of the mark-to-market accounting associated with the company’s variable annuity reinsurance business. The relative difference is primarily due to interest rates, which fell during 2014 after rising during 2013, the statement adds.

Broken down, Insurance – North American P&C had operating income of US$372 million in the fourth quarter of 2014 compared with US$402 million in the same quarter of 2013; Insurance – North American Agriculture had operating income of US$45 million compared with a loss of US$20 million; Insurance – Overseas General had operating income of US$294 million compared with US$279 million; Global Reinsurance had operating income of US$127 million compared with US$145 million; and Life had operating income of US$76 million compared with US$86 million.

“ACE had excellent operating results for the fourth quarter which contributed to another record year,” Evan G. Greenberg, chairman and CEO of ACE Limited, says in the statement. “Quarterly and annual results were driven by growth in both underwriting and investment income. Record full-year after-tax operating income of US$3.3 billion was up 4.7% per share with a strong operating ROE (return on equity) of 12%,” Greenberg continues.

With regard to Property and Casualty, ACE’s net premiums written (NPW) in 2014 Q4 was US$3.803 billion, up 2.4% from US$3.712 billion in 2013 Q4.

The underwriting income over that same timeframe was US$444 million compared with US$416 million, up 7.1%, while the current accident year underwriting income (excluding catastrophe losses) was US$406 million, up 23.3% from US$330 million in the fourth quarter of 2013, the statement adds.

Global P&C (excluding Agriculture) had NWP of US$3.559 billion in 2014 Q4, a 3.0% increase over the US$3.456 billion in 2013 Q4. The underwriting income was US$385 million, down 12% from US$438 million, and current accident year underwriting income (excluding catastrophe losses) was US$347 million compared with US$350 million.

“In the quarter, unfavourable foreign currency movement negatively impacted book value by US$596 million and reduced Global P&C net premiums written growth by 2.8 percentage points,” the ACE statement points out.

Looking specifically at North American P&C (excluding Agriculture), NPW increased 4.2% for 2014 Q4 compared with the same quarter in 2013, the combined ratio was 90.2% compared with 86.2%, and the current accident year combined ratio (excluding catastrophe losses) was 89.1% compared with 87.2%.

With regard to Overseas General, NWP increased 3.0% for the fourth quarter of 2014 compared with the same quarter in 2013, the combined ratio was 86.3% compared with 88.1%, and the current accident year combined ratio (excluding catastrophe losses) was 89.4% compared with 91.6%.

As for Global Reinsurance, NPW decreased 9.4% for 2014 Q4 compared with 2013 Q4, the combined ratio was 76.5% compared with 68.4%, and the current accident year combined ratio (excluding catastrophe losses) was 76.2% compared with 73.6%.

In terms of P&C net premiums earned (NPE), ACE reports in the statement that these increased 2.1% in 2014 Q4 compared to the same quarter in 2013. Specifically, Insurance – North American P&C had NPE of US$1.560 billion in the fourth quarter of 2014 compared with US$1.511 billion in the same quarter in 2013; Insurance – North American Agriculture had NPE of US$327 million compared with US$426 million; Insurance – Overseas General had NPE of US$1.758 billion compared with US$1.7 billion; Global Reinsurance had NPE of US$226 million compared with US$245 million; and Life had NPE of US$499 million compared with US$481 million.

The statement notes that total P&C pre-tax and after-tax catastrophe losses, including reinstatement premiums for the fourth quarter of 2014, were US$69 million (1.7 percentage points of the combined ratio) and US$64 million, respectively, compared with US$36 million (1.0 percentage point of the combined ratio) and US$31 million, respectively, last year.

Other financial results for 2014 Q4 compared with 2013 Q4 include as follows:

* net income of US$1.66 per share compared with US$2.90 per share;

* operating income of US$2.47 per share compared with US$2.39 per share;

* operating ROE of 11.8%; and

* p&c combined ratio of 88.5%.

ACE’s full-year summary for 2014 shows that net income was down 24.1% to US$2.853 billion (from US$3.758 billion in 2013), while operating income, net of tax, was US$3.32 billion in 2014, up 3.2% from US$3.217 billion in 2013.

Comparing 2014 and 2013, financial results also include the following:

* net income of US$8.42 per share compared with US$10.92 per share;

* operating income of US$9.79 per share compared with US$9.35 per share;

* operating ROE of 12%; and

* p&c combined ratio of 87.7%.

“Excluding foreign currency movement, book value per share grew 8.8% for the year. There has been a rapid investor flight to the dollar in search of safety, driven by the decline in oil prices, economic uncertainty in many countries and regions, and geopolitical tensions,” Greenberg says.

With regard to ACE’s recent acquisitions, the company stated: “Goodwill and intangibles relating to the acquisitions of the large corporate P&C business of Itaú Seguros, S.A., and The Siam Commecial Samaggi Insurance PCL had an additional negative impact of 2.7%. Excluding the impact of both unfavourable foreign currency movement and the acquisitions, tangible book value per share increased 11.3% for the year.”

Looking forward, Greenberg notes that during the fourth quarter of 2014, ACE closed its acquisition of the large corporate P&C business of Brazil’s Itaú Seguros and announced its intention to purchase the U.S. high net worth personal lines business of Fireman’s Fund.

“These are just two of many investments we made last year in the future of our company that will strengthen our presence and capabilities and increase our ability to produce sustainable outperformance,” he says. “We are off to a good start in January and we remain confident in our strategy and are relentless in our drive to execute with excellence.”