ACE Limited Reports Record Second Quarter 2006 Net Income of $573 Million and Record Operating Income of $579 Million; P&C Underwriting Income and Investment Income Each Increased 28%.HAMILTON Hamilton, city, Bermuda Hamilton, city (1990 est. pop. 3,100), capital of Bermuda, on Bermuda Island. It is a port at the head of Great Sound, a huge lagoon and deepwater harbor protected by coral reefs. , Bermuda Bermuda (bûrmy  `də), British dependency (2005 est. pop. 65,400), 21 sq mi (53 sq km), comprising some 150 coral rocks, islets, and islands (of which some 20 are inhabited), in the -- ACE Limited (NYSE NYSESee: New York Stock Exchange :ACE) today reported net income for the second quarter ended June June: see month. 30, 2006 of $573 million or $1.72 per common share after payment of preferred dividends preferred dividend n. a payment of a corporation's profits to holders of preferred shares of stock. (See: preferred stock) , compared with net income of $467 million or $1.58 per share for the same quarter last year. Income excluding net realized gains Realized Gain A gain resulting from selling an asset at a price higher than the original purchase price. Notes: There may be tax consequences for a realized profit. (losses) for the second quarter was $579 million, or $1.74 per share, compared with $443 million or $1.50 per share for the same quarter a year ago.(1)
Second Quarter Summary
(in millions, except per share amounts)
(Unaudited)
(Per Share - Diluted)
2006 2005 Change 2006 2005 Change
----- ----- ------ ------ ------ ------
Net income $573 $467 23% $1.72 $1.58 9%
Net realized gains (losses),
net of tax (6) 24 - (0.02) 0.08 -
Income excluding net realized
gains, net of tax(1) $579 $443 31% $1.74 $1.50 16%
Net income for the first six months of 2006 was $1,062 million or $3.18 per share, compared with $904 million or $3.06 per share for the first six months of 2005. For the first six months of 2006, income excluding net realized gains and cumulative effect was $1,056 million or $3.17 per share, compared with $898 million or $3.04 per share for the same period of 2005.(1)
Six Months Summary
(in millions, except per share amounts)
(Unaudited)
(Per Share - Diluted)
2006 2005 Change 2006 2005 Change
------- ----- ------ ------ ------ ------
Net income $1,062 $904 17% $3.18 $3.06 4%
Net realized gains, net of
tax 2 6 - - 0.02 -
Cumulative effect, net of
tax(2) 4 - - 0.01 - -
Income excluding net
realized gains and
cumulative effect, net of
tax(1) $1,056 $898 18% $3.17 $3.04 4%
Evan Greenberg Green·berg , Joseph Harold Born 1915. American linguist. His influential works include Languages of Africa (1966) and Language Universals (1966). Noun 1. , President and Chief Executive Officer of ACE Limited, commented: "This was another excellent quarter for ACE, marked by both record net and operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. . The P&C combined ratio was 88%. Our premium growth in the quarter reflects current market conditions globally, which in all remain favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. but mixed. We have a broad geographic and product reach and take a balanced approach to our business -- capitalizing on opportunities when they make economic sense and walking away from business when it does not. For six months, our annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. ROE A fictitious surname used for an unknown or anonymous person or for a hypothetical person in an illustration. A lawsuit is generally named for the persons who are parties to it. was 18%, which reflects an efficient use of capital." Second quarter operating highlights were as follows: --P&C net premiums written increased 6% over the prior year quarter --P&C net premiums earned increased 1% over the prior year quarter --The P&C combined ratio was 87.8% for the quarter compared with 90.3% a year ago --P&C underwriting income Underwriting income For an insurance company, the difference between the premiums earned and the costs of settling claims. increased 28% over the prior year quarter --Operating cash flow amounted to $882 million for the quarter --Invested assets increased by $1.1 billion from March 31, 2006 --Net unpaid losses and loss expenses increased $439 million to $21.4 billion from March 31, 2006 --Net investment income increased 28% to $390 million over the prior year quarter --Shareholders' equity increased 3% to $12.5 billion from March 31, 2006 --Tangible equity(1) rose to $9.8 billion, an increase of 3% from March 31, 2006 --Debt to total capital ratio increased to 15.9% from 14.5% at March 31, 2006 --Return on average equity for the quarter was 19.3%(3) --Book value per share as of June 30, 2006 was $36.60(4) Details of our financial results for our P&C business segments are available in the financial supplement. Key items include: --Insurance-North American American, river, 30 mi (48 km) long, rising in N central Calif. in the Sierra Nevada and flowing SW into the Sacramento River at Sacramento. The discovery of gold at Sutter's Mill (see Sutter, John Augustus) along the river in 1848 led to the California gold rush of : Net premiums written increased 6% for the quarter. The combined ratio was 87.9%. --Insurance-Overseas General: Net premiums written increased 2% for the quarter. The segment's combined ratio was 88.0%. --Global Reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. : Net premiums written increased 14% for the quarter. This segment had a combined ratio of 77.3%. --Financial Services: Income excluding net realized gains (losses) decreased 18% to $40 million for the quarter. --Life Insurance and Reinsurance: Net premiums written increased 10% for the quarter. Income excluding net realized gains (losses) increased 16% to $29 million for the quarter. The following is updated guidance for the full year 2006: Property & Casualty net premiums earned are expected to grow between 2% and 3% for the full year. The Property & Casualty combined ratio is expected to range between 88% and 90%. We expect to be at the high end of the range including the regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. settlement of $80 million announced in the first quarter. This accounts for approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. seven-tenths of a percentage point on the combined ratio. Financial Services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. operating income is expected to increase approximately 0 to 5% over prior year. Total investment income is expected to range between $1.5 billion and $1.55 billion. The Company's expectation is based upon estimated positive operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. of approximately $4.0 billion and an expected increase in average portfolio yield to approximately 5.1% over the course of the year. The effective tax rate is expected to be between 20% and 22%. Please refer to the ACE Financial Supplement June 30, 2006, which is posted on the Company's website, for more detailed information on individual segment performance, together with additional disclosure on reinsurance recoverable, loss reserves, investment portfolio and capital structure. ACE's website reference (url) is http://media.corporate-ir.net/media_files/nys/ace/reports/fin_supp_ june_30_2006.xls. (Due to the length of this URL, it may be necessary to copy and paste To copy files from one location to another or to copy text and images from one document to another. All modern operating systems and applications have a copy and paste capability that is typically selected from an Edit menu. See cut and paste and Win Copy between windows. this hyperlink A predefined linkage between one object and another. See hypertext. hyperlink - anchor into your Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the browser's URL address field.) ACE will host its second quarter 2006, quarter-end earnings conference call and webcast on Wednesday Wednesday: see week. , July July: see month. 26, 2006 beginning at 8:30 a.m. EDT EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York EDT . The earnings conference call will be available via live and archived webcast at http://www.acelimited.com or by dialing 800-289-0572 (within the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. ) or 913-981-5543 (international); conference ID 4680900. Please refer to the ACE Limited website in the Investor Information section under Calendar of Events for details. A replay of the call will be available from approximately 11:30 a.m. EDT on Wednesday, July 26, 2006 until Friday Friday: see Sabbath; week. Friday young Indian rescued by Crusoe and kept as servant and companion. [Br. Lit.: Robinson Crusoe] See : Servant , August 25, 2006. To listen to the replay, dial: 888-203-1112 (in the United States) or 719-457-0820 (international); passcode 4680900 (#). The ACE Group of Companies is a global leader in insurance and reinsurance serving a diverse group of clients. Headed by ACE Limited, a component of the Standard & Poor's 500 stock index, the ACE Group conducts its business on a worldwide basis with operating subsidiaries An operating subsidiary is a business term frequently used within the United States railroad industry. In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity and rolling stock. in more than 50 countries. Additional information can be found at: http://www.acelimited.com. (1) Non-GAAP Financial Measures: Operating Income or Income excluding net realized gains (losses) and cumulative effect, net of tax is a common performance measurement for insurance companies. We believe this presentation enhances the understanding of our results of operations by highlighting the underlying profitability of our insurance business. We exclude net realized gains (losses) because the amount of these gains (losses) is heavily influenced by, and fluctuates in part according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. , the availability of market opportunities. We exclude the cumulative effect of a change in accounting principle net of tax because this amount resulted in a one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. adjustment to income. Underwriting income is calculated by subtracting losses and loss expenses, life and annuity annuity: see insurance. annuity Payment made at a fixed interval. A common example is the payment received by retirees from their pension plan. There are two main classes of annuities: annuities certain and contingent annuities. benefits, policy acquisition costs and administrative expenses from net premiums earned. We use underwriting income and operating ratios Operating Ratio A ratio that shows the efficiency of management by comparing operating expense to net sales: to monitor the results of our operations without the impact of certain factors, including net investment income, other (income) expense, interest and income tax expense and net realized gains (losses). We believe the use of these measures enhances the understanding of our results of operations by highlighting the underlying profitability of our insurance business. Tangible shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. is shareholders' equity less goodwill. See reconciliation of Non-GAAP Financial Measures on page 23 in the financial supplement. These measures should not be viewed as a substitute for net income determined in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ). (2) The cumulative effect is a benefit resulting from the inclusion of a forfeiture The involuntary relinquishment of money or property without compensation as a consequence of a breach or nonperformance of some legal obligation or the commission of a crime. The loss of a corporate charter or franchise as a result of illegality, malfeasance, or Nonfeasance. rate on restricted stock in our stock compensation expense calculations, as required under Financial Accounting Standard (FAS) 123R. (3) Calculated using income excluding net realized gains (losses). (4) Book value per ordinary share is ordinary shareholders' equity divided by the shares outstanding. Cautionary Statement Regarding Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. : Any forward-looking statements made in this press release reflect the Company's current views with respect to future events and financial performance and are made pursuant to the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. Such statements involve risks and uncertainties, which may cause actual results to differ materially from those set forth in these statements. For example, the Company's forward-looking statements, such as its updated guidance, could be affected by competition, pricing and policy term trends, the levels of new and renewal business achieved, market acceptance, changes in demand, the frequency of unpredictable catastrophic events, actual loss experience, uncertainties in the reserving or settlement process, new theories of liability, judicial, legislative, regulatory and other governmental developments, litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. tactics and developments, investigation developments and actual settlement terms, the amount and timing of reinsurance recoverable, credit developments among reinsurers, actual market developments, rating agency action, possible terrorism or the outbreak outbreak see epidemic. and effects of war and economic, political, regulatory, insurance and reinsurance business conditions, as well as management's response to these factors, and other factors identified in the Company's filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the dates on which they are made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. (tables to follow)
ACE Limited
Summary Consolidated Balance Sheets
(in millions of U.S. dollars, except per share data)
----------------------------------------------------------------------
June 30 December 31
2006 2005
------------ -----------
(Unaudited)
Assets
Total investments $ 34,363 $ 31,842
Cash 552 512
Insurance and reinsurance balances receivable 3,941 3,343
Reinsurance recoverable 15,270 15,463
Other assets 11,264 11,280
------------ -----------
Total assets $ 65,390 $ 62,440
============ ===========
Liabilities
Unpaid losses and loss expenses $ 35,564 $ 35,055
Unearned premiums 6,963 5,884
Other liabilities 10,397 9,689
------------ -----------
Total liabilities $ 52,924 $ 50,628
------------ -----------
Shareholders' equity
Total shareholders' equity $ 12,466 $ 11,812
------------ -----------
Total liabilities and shareholders'
equity $ 65,390 $ 62,440
============ ===========
Book value per ordinary share(4) $ 36.60 $ 34.81
ACE Limited
Summary Consolidated Financial Data
(in millions of U.S. dollars, except share,
per share data, and ratios)
(Unaudited)
----------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------- -------------------
2006 2005 2006 2005
---------- -------- --------- ---------
Gross premiums written $ 4,583 $ 4,213 $ 9,094 $ 8,756
Net premiums written 3,066 2,909 6,376 6,275
Net premiums earned 2,906 2,921 5,711 5,798
Losses and loss expenses 1,748 1,843 3,428 3,632
Life and annuity benefits 34 38 62 73
Policy acquisition costs 428 429 849 817
Administrative expenses 340 316 738 652
---------- -------- --------- ---------
Underwriting income(1) 356 295 634 624
Net investment income 390 305 759 590
Net realized gains (losses) (7) 32 - 18
Interest expense 45 43 88 85
Other (income) expense (13) (6) (21) (11)
Income tax expense (benefit) 134 128 268 254
Cumulative effect, net of tax - - 4 -
---------- -------- --------- ---------
Net income 573 467 1,062 904
Preference shares dividend (11) (11) (22) (22)
---------- -------- --------- ---------
Net income available to
holders of ordinary shares $ 562 $ 456 $ 1,040 $ 882
========== ======== ========= =========
Diluted earnings per share:
Income excluding net realized
gains (losses) and cumulative
effect(1) $1.74 $1.50 $3.17 $3.04
Net income $1.72 $1.58 $3.18 $3.06
Weighted average diluted
shares outstanding 326.1 288.5 326.2 288.2
Loss and loss expense ratio 61.6% 64.4% 61.4% 63.9%
Policy acquisition cost ratio 14.9% 14.8% 15.0% 14.2%
Administrative expense ratio 11.7% 10.9% 12.9% 11.4%
Combined ratio 88.2% 90.1% 89.3% 89.5%
Ratios exclude life insurance and reinsurance business
ACE Limited
Consolidated Supplemental Segment Information
(in millions of U.S. dollars)
(Unaudited)
----------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Gross Premiums Written
------------------------------
Insurance - North American $ 2,612 $ 2,344 $ 4,824 $ 4,494
Insurance - Overseas General 1,485 1,425 3,069 3,059
Global Reinsurance 417 369 1,021 905
Financial Services 3 15 53 178
Life Insurance and Reinsurance 66 60 127 120
--------- --------- --------- ---------
Total $ 4,583 $ 4,213 $ 9,094 $ 8,756
--------- --------- --------- ---------
Net Premiums Written
------------------------------
Insurance - North American $ 1,498 $ 1,412 $ 2,952 $ 2,837
Insurance - Overseas General 1,083 1,059 2,229 2,252
Global Reinsurance 415 363 1,015 890
Financial Services 4 15 53 176
Life Insurance and Reinsurance 66 60 127 120
--------- --------- --------- ---------
Total $ 3,066 $ 2,909 $ 6,376 $ 6,275
--------- --------- --------- ---------
Net Premiums Earned
------------------------------
Insurance - North American $ 1,336 $ 1,319 $ 2,634 $ 2,604
Insurance - Overseas General 1,086 1,078 2,125 2,164
Global Reinsurance 387 372 758 728
Financial Services 31 92 67 182
Life Insurance and Reinsurance 66 60 127 120
--------- --------- --------- ---------
Total $ 2,906 $ 2,921 $ 5,711 $ 5,798
--------- --------- --------- ---------
Income (Loss) Excluding Net
Realized Gains (Losses) and
Cumulative Effect(1)
------------------------------
Insurance - North American $ 237 $ 187 $ 476 $ 395
Insurance - Overseas General 182 146 341 306
Global Reinsurance 134 103 253 194
Financial Services 40 49 77 90
Life Insurance and Reinsurance 29 25 60 50
Corporate (43) (67) (151) (137)
--------- --------- --------- ---------
Total $ 579 $ 443 $ 1,056 $ 898
--------- --------- --------- ---------
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