Ace Second-Quarter Profit Falls 28% on Investments (Update2)

By Jamie McGee
Bloomberg News
July 27, 2009

July 27 (Bloomberg) -- Ace Ltd., the Zurich-based insurer and reinsurer with operations in more than 50 countries, said profit fell 28 percent on investment declines.

Second-quarter net income dropped to $535 million, or $1.58 a share, from $746 million, or $2.18, in the year-earlier period, the insurer said today in a statement distributed by Business Wire. Operating income, which excludes some investment results, was $2.09 a share, beating the $1.96 average estimate of 15 analysts surveyed by Bloomberg.

Chief Executive Officer Evan Greenberg suspended new investments in subprime-linked securities in 2007, credit-card and auto-loan bonds in 2008 and commercial mortgage-backed holdings this year after borrower defaults reduced the value of such assets. Insurers have posted more than $200 billion in writedowns and unrealized losses tied to the collapse of the U.S. housing market since the beginning of 2007.

"We remain cautious given current economic and financial market conditions," Greenberg said in the statement.

Ace, which moved its headquarters to Zurich from Bermuda, has fallen less than 1 percent in New York Stock Exchange composite trading in the past year compared with the 22 percent drop of the 77-company Bloomberg World Insurance Index.

Corporate Debt

Ace's net income includes a $171 million loss on the value of holdings including stocks and high-yield corporate debt. That compares with an $8 million investment gain a year earlier. Ace's book value, a measure of assets minus liabilities, climbed 12 percent from the first quarter to $49.27 as other holdings posted gains that didn't count toward earnings.

About 90 percent of the insurer's $43 billion investment portfolio is in fixed income holdings including securities backed by residential and commercial mortgages and debt issued by General Electric Co., JPMorgan Chase & Co. and Bank of America Corp.

Premium revenue slipped 4.8 percent from the year earlier period to $3.27 billion on declines in primary coverage outside the U.S. and reinsurance.

Policy sales for property and casualty insurers have fallen as consumers reduce purchases amid the recession and prices have dropped as insurers compete for market position. U.S. commercial insurance rates dropped 4.9 percent in the three months ended June 30 and have fallen in every quarter since 2004, the Council of Insurance Agents and Brokers said last week.

Cyclical Market

"Property-casualty insurance prices, a historically cyclical market, are currently falling as competition continues to be strong," Paul Newsome, an analyst at Sandler O'Neill & Partners LP, wrote in a July 2 note to investors. "Should the property-casualty insurance market become materially more competitive than expected, Ace's underwriting profitability could come under pressure."

Ace is competing for market share with XL Capital Ltd. and Chubb Corp., which posted its first profit increase in seven quarters from investment gains and lower catastrophe costs. Second-quarter net income rose 17 percent to $551 million, or $1.54 a share, Warren, New Jersey-based Chubb reported last week. XL is schedule to post results tomorrow.

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