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We have retained our Neutral recommendation on ACE Limited (ACE - Analyst Report). The low interest rate environment, rising operating expenses and high exposure to weather related losses will likely offset the positive impact of the acquisitions made by ACE. The excess liability insurance provider currently carries a Zacks Rank #3 (Hold).
 
Why Reiterate?

ACE has been witnessing higher operating expenses over the past few years owing to increasing policy benefits, and losses and loss expenses. This has affected operating margin adversely. Also, lower interest rates and the adverse impact of foreign exchange has hurt net investment income for some time. Moreover ACE’s huge exposure to catastrophe losses always remains a matter of concern for the company. It incurred a loss of $393 million from superstorm Sandy in 2012, exceeding its estimate of $380 million.

Counting on the positives, ACE Limited continues to expand its global footprint through acquisitions in Indonesia and Mexico. To expand its Surety business, recently it completed acquisition of Fianzas Monterrey from New York Life Insurance Company for a cash consideration of $293 million. The company deployed $1.25 billion for acquisitions in growth regions. ACE Limited expects the acquisitions to meet or exceed its long-term return on equity (ROE) goal of 15% within 2-3 years. Extensive acquisitions have helped the company write more premiums and deliver better numbers.

ACE continues to increase shareholders’ value. The Board in Aug 2011 authorized a $303 million worth of share buyback in addition to the $197 million remaining under its previous authorization. As of Feb 27, 2013, the company is left with $312 million under its authorization. ACE also has a record of increasing its dividend every year. The last dividend hike was 4.25% in May 2012. Management also intends to propose a dividend hike of 4% at the May 16, 2013 general meeting. The company also scores strongly with the credit rating agencies.
 
ACE is scheduled to release its first quarter 2013 results on Apr 22, after the closing bell. The Zacks Consensus Estimate for the first quarter of 2013 is currently pegged at $1.87 representing a year-over-year decline of 8.9%.

Over the last 30 days two out of 11 estimates moved upwards, keeping the Zacks Consensus Estimate for full year 2013 at $7.71, translating into a year-over-year improvement of 0.7%.

Other Stocks to Consider

Among others from the industry, Cincinnati Financial Corporation (CINF - Analyst Report), Arch Capital Group Limited (ACGL - Snapshot Report) and AXIS Capital Holdings Limited (AXS - Analyst Report) carry a favorable Zacks Rank #1 (Strong Buy) and are worth considering.

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