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Analyst Blog

On May 14, 2013, shares of ACE Limited (ACE - Analyst Report) hit a 52-week high of $92.69. The momentum was driven by a strong first quarter, which included a 12.4% positive surprise, rating upgrade and successful closure of the acquisition of ABA Seguros.

ACE Limited reported first-quarter 2013 earnings on Apr 22. Net operating earnings came in at $2.17, up 5.8% year over year. Solid underwriting performances aided the better-than-expected results. Both the U.S. and international business operations experienced growth and better margins. ACE Limited also benefited from improved commercial property & casualty pricing environment.

Based on positive first-quarter prior period reserve development, lower-than-planned catastrophe losses realized in the first quarter and better-than-expected current accident year results excluding catastrophe losses, ACE Limited raised the operating earnings expectation to $7.10–$7.50 per share, up from $6.60–$7.00 per share for 2013. The Zacks Consensus Estimate of $8.10 is much above the company guided range.

With respect to earnings trend, ACE Limited delivered positive earnings surprise in all the past 4 quarters with an average of 10.9%

Recently, Fitch Ratings upgraded the ratings of ACE Limited and its subsidiaries. While senior debt ratings were upgraded to 'A+' from 'A', the Issuer Default Ratings (IDR) were revised higher to 'AA-' from 'A+', and the Insurer Financial Strength (IFS) ratings to 'AA' from 'AA-'. Outlook was revised to Stable from Positive.

ACE Limited also closed the acquisition of the fourth largest property and casualty (P&C) insurer in Mexico, ABA Seguros from Ally Financial Inc. for $865 million.

Additionally, valuation for ACE Limited looks attractive. The shares are trading at a discount to the peer group average both on a price-to-book basis and on a forward price-to-earnings basis with return on equity higher than the peer group average.

ACE Limited presently carries a Zacks Rank #2 (Buy). Property and casualty insurers like AXIS Capital Holdings Ltd. (AXS - Analyst Report), Montpelier Re Holdings Ltd. (MRH - Analyst Report) and Hilltop Holdings Inc. (HTH - Analyst Report), among others, carry a favorable Zacks Rank #1 (Strong Buy) and appear impressive.

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