Search the web
Welcome, Guest
[Sign Out, My Account]

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
ACE > SEC Filings for ACE > Form 10-Q on 1-May-2013All Recent SEC Filings

Show all filings for ACE LTD | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for ACE LTD


Quarterly Report

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion of our results of operations, financial condition, and liquidity and capital resources as of and for the three months ended March 31, 2013.

All comparisons in this discussion are to the corresponding prior year periods unless otherwise indicated.

Our results of operations and cash flows for any interim period are not necessarily indicative of our results for the full year. This discussion should be read in conjunction with our consolidated financial statements and related notes and our Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2012 (2012 Form 10-K).

Effective first quarter 2013, the Insurance - North American segment is presented in two distinct reportable segments: Insurance - North American P&C and Insurance - North American Agriculture. Prior year amounts contained in this report have been adjusted to conform to the new segment presentation.

Other Information
We routinely post important information for investors on our website ( under the Investor Information section. We use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations under Securities and Exchange Commission (SEC) Regulation FD (Fair Disclosure). Accordingly, investors should monitor the Investor Information portion of our website, in addition to following our press releases, SEC filings, and public conference calls and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this report.
MD&A Index Page Forward-Looking Statements 38 Overview 40 Financial Highlights 41 Consolidated Operating Results 41 Prior Period Development 43 Segment Operating Results 47 Other (Income) and Expense Items 54 Net Investment Income 55 Net Realized and Unrealized Gains (Losses) 55 Investments 57 Critical Accounting Estimates 62 Reinsurance Recoverable on Ceded Reinsurance 62 Unpaid Losses and Loss Expenses 63 Asbestos and Environmental (A&E) and Other Run-off Liabilities 63 Fair Value Measurements 63 Guaranteed Living Benefits (GLB) Derivatives 64 Catastrophe Management 68 Natural Catastrophe Property Reinsurance Program 68 Crop Insurance 68 Liquidity 69 Capital Resources 71 Recent Accounting Pronouncements 72

Table of Contents

Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Any written or oral statements made by us or on our behalf may include forward-looking statements that reflect our current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks, uncertainties, and other factors that could, should potential events occur, cause actual results to differ materially from such statements. These risks, uncertainties, and other factors, which are described in more detail elsewhere herein and in other documents we file with the U.S. Securities and Exchange Commission (SEC), include but are not limited to:
developments in global financial markets, including changes in interest rates, stock markets, and other financial markets, increased government involvement or intervention in the financial services industry, the cost and availability of financing, and foreign currency exchange rate fluctuations (which we refer to in this report as foreign exchange and foreign currency exchange), which could affect our statement of operations, investment portfolio, financial condition, and financing plans;

general economic and business conditions resulting from volatility in the stock and credit markets and the depth and duration of recession;

losses arising out of natural or man-made catastrophes such as hurricanes, typhoons, earthquakes, floods, climate change (including effects on weather patterns, greenhouse gases, sea, land and air temperatures, sea levels, rain and snow), nuclear accidents or terrorism which could be affected by:

the number of insureds and ceding companies affected;

the amount and timing of losses actually incurred and reported by insureds;

the impact of these losses on our reinsurers and the amount and timing of reinsurance recoverable actually received;

the cost of building materials and labor to reconstruct properties or to perform environmental remediation following a catastrophic event; and

complex coverage and regulatory issues such as whether losses occurred from storm surge or flooding and related lawsuits;

actions that rating agencies may take from time to time, such as financial strength or credit ratings downgrades or placing these ratings on credit watch negative or the equivalent;

global political conditions, the occurrence of any terrorist attacks, including any nuclear, radiological, biological, or chemical events, or the outbreak and effects of war, and possible business disruption or economic contraction that may result from such events;

the ability to collect reinsurance recoverable, credit developments of reinsurers, and any delays with respect thereto and changes in the cost, quality, or availability of reinsurance;

actual loss experience from insured or reinsured events and the timing of claim payments;

the uncertainties of the loss-reserving and claims-settlement processes, including the difficulties associated with assessing environmental damage and asbestos-related latent injuries, the impact of aggregate-policy-coverage limits, and the impact of bankruptcy protection sought by various asbestos producers and other related businesses and the timing of loss payments;

changes to our assessment as to whether it is more likely than not that we will be required to sell, or have the intent to sell, available for sale fixed maturity investments before their anticipated recovery;

infection rates and severity of pandemics and their effects on our business operations and claims activity;

judicial decisions and rulings, new theories of liability, legal tactics, and settlement terms;

the effects of public company bankruptcies and/or accounting restatements, as well as disclosures by and investigations of public companies relating to possible accounting irregularities, and other corporate governance issues, including the effects of such events on:

the capital markets;

the markets for directors and officers (D&O) and errors and omissions (E&O) insurance; and

claims and litigation arising out of such disclosures or practices by other companies;

Table of Contents

uncertainties relating to governmental, legislative and regulatory policies, developments, actions, investigations and treaties, which, among other things, could subject us to insurance regulation or taxation in additional jurisdictions or affect our current operations;

the actual amount of new and renewal business, market acceptance of our products, and risks associated with the introduction of new products and services and entering new markets, including regulatory constraints on exit strategies;

the competitive environment in which we operate, including trends in pricing or in policy terms and conditions, which may differ from our projections and changes in market conditions that could render our business strategies ineffective or obsolete;

acquisitions made by us performing differently than expected, our failure to realize anticipated expense-related efficiencies or growth from acquisitions, the impact of acquisitions on our pre-existing organization or announced acquisitions not closing;

risks associated with being a Swiss corporation, including reduced flexibility with respect to certain aspects of capital management and the potential for additional regulatory burdens;

the potential impact from government-mandated insurance coverage for acts of terrorism;

the availability of borrowings and letters of credit under our credit facilities;

the adequacy of collateral supporting funded high deductible programs;

changes in the distribution or placement of risks due to increased consolidation of insurance and reinsurance brokers;

material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements;

the effects of investigations into market practices in the property and casualty (P&C) industry;

changing rates of inflation and other economic conditions, for example, recession;

the amount of dividends received from subsidiaries;

loss of the services of any of our executive officers without suitable replacements being recruited in a reasonable time frame;

the ability of our technology resources to perform as anticipated; and

management's response to these factors and actual events (including, but not limited to, those described above).

The words "believe," "anticipate," "estimate," "project," "should," "plan," "expect," "intend," "hope," "feel," "foresee," "will likely result," or "will continue," and variations thereof and similar expressions, identify forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future events or otherwise.

Table of Contents

ACE Limited is the Swiss-incorporated holding company of the ACE Group of Companies. ACE opened its business office in Bermuda in 1985 and continues to maintain operations in Bermuda. ACE, which is headquartered in Zurich, Switzerland, and its direct and indirect subsidiaries, are a global insurance and reinsurance organization, serving the needs of a diverse group of clients around the world. We are predominantly a global P&C insurance company with both a commercial and specialty product orientation. We offer commercial insurance, specialty products and accident and health (A&H) solutions and are expanding our personal lines and international life insurance businesses. As we have grown, we have developed products and diversified our offerings to meet the needs of our customers. At March 31, 2013, we had total assets of $93 billion and shareholders' equity of $28 billion.

We operate through the following business segments: Insurance - North American P&C, Insurance - North American Agriculture, Insurance - Overseas General, Global Reinsurance, and Life.

The Insurance - North American P&C segment includes retail divisions ACE USA (including ACE Canada), ACE Commercial Risk Services and ACE Private Risk Services; our wholesale and specialty divisions ACE Westchester, and ACE Bermuda; and various run-off operations, including Brandywine Holdings Corporation (Brandywine). Our retail products range from commercial lines with service offerings such as risk management, loss control and engineering programs, and specialty commercial P&C and A&H coverages to personal lines homeowners, automobile, liability, valuables and marine coverages. Our wholesale and specialty products include excess and surplus property, D&O, professional liability, inland marine, specialty casualty, environmental, and political risk.

The Insurance - North American Agriculture segment provides coverage for agriculture business, writing a variety of commercial coverages including comprehensive Multiple Peril Crop Insurance (MPCI), crop-hail and farm P&C insurance protection to customers in the U.S. and Canada through Rain and Hail Insurance Service, Inc. (Rain and Hail) as well as specialty P&C insurance coverages offered by ACE Agribusiness to companies that manufacture, process and distribute agriculture products. The MPCI program is offered in conjunction with the U.S. Department of Agriculture (USDA). The USDA's Risk Management Agency (RMA) sets the policy terms and conditions, rates and forms, and is also responsible for setting compliance standards. As a participating company, we report all details of policies underwritten to the RMA and are party to a Standard Reinsurance Agreement (SRA). The SRA sets out the relationship between private insurance companies and the Federal Crop Insurance Corporation (FCIC) concerning the terms and conditions regarding the risks each will bear including the pro-rata and state stop-loss provisions which allows companies to limit the exposure of any one state or group of states on their underwriting results. In addition to the pro-rata and excess of loss reinsurance protections inherent in the SRA, we also purchase third party proportional and stop-loss reinsurance for our MPCI business to reduce our exposure.

The Insurance - Overseas General segment comprises ACE International, our retail business serving territories outside the U.S., Bermuda, and Canada; the international A&H business of Combined Insurance (Combined); and the wholesale insurance business of ACE Global Markets (AGM). ACE International has a presence in major developed markets and growing economies serving multinational clients and local customers. A significant amount of our global business is with local companies, offering traditional and specialty P&C products including D&O and professional liability, specialty personal lines, and energy products. Our international A&H business primarily focuses on personal accident and supplemental medical. AGM offers specialty products including aviation, marine, financial lines, energy, and political risk.

The Global Reinsurance segment represents our reinsurance operations, comprising ACE Tempest Re Bermuda, ACE Tempest Re USA, ACE Tempest Re International, ACE Tempest Re Canada, and the reinsurance operation of AGM. Global Reinsurance provides solutions for customers ranging from small commercial insureds to multinational ceding companies. Global Reinsurance offers products such as property and workers' compensation catastrophe, D&O, professional liability, specialty casualty and specialty property.

The Life segment includes our international life operations (ACE Life), ACE Tempest Life Re (ACE Life Re), and the North American supplemental A&H and life business of Combined Insurance.

For more information on each of our segments refer to "Segment Information" in our 2012 Form 10-K.

Table of Contents

Financial Highlights for the Three Months Ended March 31, 2013

Net income was $953 million compared with $973 million in the prior year period.

Total company net premiums written increased 6.3 percent.

Total pre-tax and after-tax catastrophe losses including reinstatement premiums were $32 million and $28 million, respectively, compared with $19 million and $14 million, respectively, in the prior year period.

The P&C combined ratio was 88.2 percent compared with 89.2 percent in the prior year period.

Favorable prior period development pre-tax was $70 million, representing 2.2 percentage points of the combined ratio, compared with $93 million in the prior year period.

The P&C expense ratio improved to 31.1 percent compared with 32.3 percent, and benefited by 0.6 percentage point related to two one-time items: a $29 million legal settlement benefit partially offset by a $10 million expense adjustment.

Operating cash flow was $913 million for the quarter.

Net investment income decreased 2.4 percent to $531 million due primarily to lower reinvestment rates offset by higher distributions from private equity funds.

Net realized gains from derivative accounting related to variable annuity reinsurance were $119 million.

Share repurchases totaled $154 million, or approximately 1.8 million shares, during the quarter.

Consolidated Operating Results - Three Months Ended March 31, 2013 and 2012
                                                              Three Months Ended
                                                                        March 31     % Change
                                                                                     Q-13 vs.
(in millions of U.S. dollars, except for percentages)          2013         2012         Q-12
Net premiums written                                     $    3,798      $ 3,572          6.3  %
Net premiums earned                                           3,573        3,381          5.7  %
Net investment income                                           531          544         (2.4 )%
Net realized gains (losses)                                     206          260        (20.8 )%
Total revenues                                                4,310        4,185          3.0  %
Losses and loss expenses                                      1,926        1,804          6.8  %
Policy benefits                                                 131          147        (10.9 )%
Policy acquisition costs                                        614          582          5.5  %
Administrative expenses                                         514          510          0.8  %
Interest expense                                                 60           62         (3.2 )%
Other (income) expense                                          (10 )         (3 )         NM
Total expenses                                                3,235        3,102          4.3  %
Income before income tax                                      1,075        1,083         (0.7 )%
Income tax expense                                              122          110         10.9  %
Net income                                               $      953      $   973         (2.0 )%
NM - not meaningful

Table of Contents

The following table presents the approximate effect of changes in foreign currency exchange rates on the growth of net premiums written and earned for the periods indicated:

                                   Three Months Ended
                                       March 31, 2013
Net premiums written:
Growth in original currency                       6.3  %
Foreign exchange effect                             -
Growth as reported in U.S. dollars                6.3  %
Net premiums earned:
Growth in original currency                       5.9  %
Foreign exchange effect                          (0.2 )%
Growth as reported in U.S. dollars                5.7  %

Net premiums written reflect the premiums we retain after purchasing reinsurance protection. Net premiums written increased for the three months ended March 31, 2013 in our Insurance - North American P&C segment retail division reflecting strong renewal retention and new business primarily in our specialty casualty, property and professional risk lines, as well as higher production in our risk management and personal lines businesses. Our wholesale and specialty division contributed to the increase in net premiums written from higher production. Net premiums written increased in our Insurance - Overseas General segment primarily from new business writings in our retail operations in all of our major product lines - P&C, A&H, and personal lines. Net premiums written increased in our Global Reinsurance segment primarily due to strong renewal retention and new business. Net premiums written increased in our Life segment primarily due to growth in our Asian markets and growth in certain A&H program business, which more than offset the decrease in our Life reinsurance business as no new Life reinsurance business is currently being written.

Net premiums earned for short-duration contracts, typically P&C contracts, generally reflect the portion of net premiums written that were recorded as revenues for the period as the exposure periods expire. Net premiums earned for long-duration contracts, typically traditional life contracts, generally are recognized as earned when due from policyholders. Net premiums earned increased for the three months ended March 31, 2013 in the Insurance - North American P&C segment primarily due to the increase in net premiums written as described above. Net premiums earned increased in our Insurance - Overseas General segment driven by strong performances in all product lines. Net premiums earned increased in our Global Reinsurance segment reflecting higher premiums written in the current and prior years, primarily from U.S. property and property catastrophe treaties. Net premiums earned increased in our Life segment primarily due to growth in our Asian markets.

In evaluating our segments excluding Life, we use the combined ratio, the loss and loss expense ratio, the policy acquisition cost ratio, and the administrative expense ratio. We calculate these ratios by dividing the respective expense amounts by net premiums earned. We do not calculate these ratios for the Life segment as we do not use these measures to monitor or manage that segment. The combined ratio is determined by adding the loss and loss expense ratio, the policy acquisition cost ratio, and the administrative expense ratio. A combined ratio under 100 percent indicates underwriting income and a combined ratio exceeding 100 percent indicates underwriting loss.

The following table presents our consolidated loss and loss expense ratio, policy acquisition cost ratio, administrative expense ratio, and combined ratio for the periods indicated:

                                   Three Months Ended
                                             March 31
                                  2013           2012
Loss and loss expense ratio       57.1 %         56.9 %
Policy acquisition cost ratio     17.2 %         17.4 %
Administrative expense ratio      13.9 %         14.9 %
Combined ratio                    88.2 %         89.2 %

Table of Contents

The following table presents the impact of catastrophe losses and related reinstatement premiums and the impact of prior period reserve development on our consolidated loss and loss expense ratio for the periods indicated:

                                                           Three Months Ended
                                                                     March 31
                                                         2013            2012
Loss and loss expense ratio, as reported                 57.1  %         56.9  %
Catastrophe losses and related reinstatement premiums    (1.0 )%         (0.6 )%
Prior period development                                  2.2  %          3.2  %
Loss and loss expense ratio, adjusted                    58.3  %         59.5  %

Total net pre-tax catastrophe losses, excluding related reinstatement premiums, were $32 million for the three months ended March 31, 2013, compared with $19 million in the prior year period. Catastrophe losses for the three months ended March 31, 2013 were primarily related to flooding in Australia and severe storms in the U.S. Catastrophe losses in the prior year period were primarily related to severe storms in the U.S. The adjusted loss and loss expense ratio decreased for the three months ended March 31, 2013 primarily due to the reduction of current accident year losses across several lines of business in several regions.

Prior period development arises from changes to loss estimates recognized in the current year that relate to loss reserves first reported in previous calendar years and excludes the effect of losses from the development of earned premium from previous accident years. We experienced net favorable prior period development of $70 million and $93 million for the three months ended March 31, 2013 and 2012, respectively. Refer to "Prior Period Development" for additional information.

Net investment income for the three months ended March 31, 2013 was $531 million compared with $544 million for the prior year period. Refer to "Net Investment Income" and "Investments" for additional information.

Policy acquisition costs consist of commissions, premium taxes, and certain underwriting costs related directly to the successful acquisition of a new or renewal insurance contract. Our policy acquisition cost ratio decreased for the three months ended March 31, 2013 primarily due to a favorable change in the mix of business and lower A&H costs.

Our administrative expense ratio decreased for the three months ended March 31, 2013 primarily due to the favorable impact of a legal settlement in the current year period and regulatory fees paid in the prior year period.

Our effective income tax rate, which we calculate as income tax expense divided by income before income tax, is dependent upon the mix of earnings from different jurisdictions with various tax rates. A change in the geographic mix of earnings would change the effective income tax rate. Our effective income tax rate was 11 percent for the three months ended March 31, 2013, compared with 10 percent for the prior year period, respectively.

Prior Period Development
The favorable prior period development (PPD) of $70 million and $93 million during the three months ended March 31, 2013 and 2012, respectively, was the net result of several underlying favorable and adverse movements. In the sections following the tables below, significant prior period movements within each reporting segment are discussed in more detail. Long-tail lines include lines such as workers' compensation, general liability, and professional liability; while short-tail lines include lines such as most property lines, energy, personal accident, aviation, marine (including associated liability-related . . .

  Add ACE to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for ACE - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now

Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.