ACE Wraps Up Rain and Hail Buy - Analyst Blog

ACE Limited (ACE) completed the acquisition of Rain and Hail Insurance Service, Inc. for approximately $1.1 billion in cash.

During the third quarter, ACE Limited inked the deal to acquire 80% of the outstanding Rain and Hail Insurance Service, Inc. for a cash consideration of $1.1 billion. ACE Limited was already holding a 20% stake in Rain and Hail. With the acquisition, ACE Limited now has full ownership of Rain and Hail Insurance.

ACE Ltd. is on an acquisition spree. In the quarter till date, the company also acquired New York Life's Hong Kong and Korea life insurance operations for a cash consideration of $425 million and 100% of Jerneh Insurance Berhad in Malaysia, for $200 million, thereby expanding its footprint in Asia. ACE Limited expects the acquisitions to be accretive to earnings, book value per share and return on capital.

We expect the acquisitions to create a turnaround in premium writings, which suffered a decline in the third quarter when compared with the year-ago results. Also, with considerable balance sheet strength, we expect ACE to be able to grow organically as well as inorganically.

During the third quarter conference call, management raised its operating income guidance to a range of $7.20–$7.40 per share from the previously guided range of $6.25–$6.75 for full year 2010.

The Zacks Consensus Estimate for fourth-quarter 2010 is $1.84 per share. For full years 2010 and 2011, the Zacks Consensus Estimates are, respectively, $7.56 per share and $7.49 per share.

We maintain our Neutral recommendation on ACE Limited. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.

Headquartered in Johnston, Iowa, Rain and Hail is the second largest crop insurance underwriter, providing comprehensive multiple peril crop and crop-hail insurance protection to customers in the U.S. and Canada.

Headquartered in Zurich, Switzerland, ACE Limited, through its subsidiaries, provides a range of insurance and reinsurance products to commercial and individual customers worldwide. Its major competitors are American International Group, Inc. (AIG) and The Travelers Companies, Inc. (TRV).

 
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