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From the Survey: ACE Limited
ACE Limited (ACE) is the Swiss-incorporated holding company of the ACE Group of Companies. ACE opened its first business office in Bermuda in 1985 and continues to maintain operations in that country. The insurer, which is headquartered in Zurich, Switzerland, is a global insurance and reinsurance organization, serving the needs of customers in more than 170 countries. It offers commercial insurance products and service offerings, such as risk management programs, loss control and engineering, and complex claims management. The company also provides specialized insurance products ranging from Directors & Officers (D&O) and professional liability to various specialty-casualty and umbrella and excess casualty lines to niche areas like aviation and energy. In addition, ACE supplies personal accident, supplemental health, and life insurance to individuals in select countries.
It acquired New York Life’s Korea-based operations on February 1, 2011 and New York Life’s Hong Kong operations on April 1, 2011 for approximately $425 million in cash. The addition of these businesses expanded its presence in Asia and complements the life insurance line of products. These acquired businesses operate under the insurer’s Life segment.
During the final quarter of last year, ACE purchased Penn Millers Holding Corporation for approximately $107 million in cash. PMHC’s primary insurance subsidiary, Penn Millers Insurance Company, is a well-established underwriter within the agribusiness market (since 1887) and currently operates in 34 states. The company did not stop there, as it added Rio Guayas Compania de Seguros y Reaseguros (Rio Guayas), a general insurance company in Ecuador on December 28, 2011. Rio Guayas sells a range of insurance products, including auto, life, property, and accident and health (A&H). The acquisition of Rio ought to expand ACE’s capabilities in terms of geography, products, and distribution.
Competition in the insurance and reinsurance marketplace typically varies by type of business and geographic area. Competitors include other stock companies, mutual companies, alternative risk sharing groups (such as group captives and catastrophe pools), as well as other underwriting organizations. These companies sell through various distribution channels and business models, across a broad array of product lines, and with a high level of variation regarding geographic, marketing, and customer segmentation. ACE Limited competes for business not only on the basis of price, but also on the basis of availability of coverage desired by customers and quality of service. The insurer’s capacity to compete is dependent on a number of factors, particularly its ability to maintain the appropriate financial strength ratings as assigned by independent ratings agencies. ACE Limited’s broad market resources in commercial, specialty and A&H lines made available by its underwriting expertise, business infrastructure and global presence, defines the business’s competitive advantage. Too, its healthy balance sheet is attractive to businesses, such as ceding companies requiring security solutions. Furthermore, ACE’s strong capital position and global platform afford it opportunities for growth not available to smaller, less diversified insurance companies.
ACE Limited has performed well of late. Indeed, the insurer has benefited from higher income via its Accident & Health product lines. Moreover, positive reserve developments, lower catastrophe losses, and price hikes for a vast majority of its current policies should continue to drive results.
In order to bolster the bottom line, ACE has shed its worker’s compensation segment. Although the insurer has slowly raised premiums within this market, the class persistently runs at combined ratios north of 100%. Thus, the company’s underwriting profits are weighed down and it is exposed to greater levels of unwanted risk.
Looking ahead, it appears ACE Limited is well positioned for stout top- and bottom-line advances. Its pricing and renewal rates have been on the upswing. In addition, previously slumping policies such as property and inland marine, risk management casualty, life sciences, and foreign casualty have all regained momentum. What’s more, commercial lines have realized strengthening demand across the Asia/Pacific region and throughout Latin America. Also, better equity markets and zero exposure to debt distressed European nations have its investment portfolio registering greater returns.
For a more detailed look at ACE Limited’s prospects and the investment merits of the stock, subscribers should review our full-page report in The Value Line Investment Survey.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.