S&P Upgrades Ratings on ACE - Analyst Blog

The financial strength and counterparty credit ratings of  ACE Limited's (ACE) core operating insurance companies have been upgraded to “AA-” (Very Strong) by Standard & Poor's Ratings Services (S&P). The outlook remains stable. The operating companies include those of core North America, Europe and Bermuda.

The rating upgrade by the agency is based on the company's continued strong operating performance, solid competitive position, positive management and corporate strategy, strong and improved capital adequacy as well as better enterprise risk management practices.

Also, given the company's strong liquidity and financial flexibility, the rating agency upgraded the issuer credit (senior debt) rating to “A” of ACE Limited.

The rating agency also upgraded the financial strength and counterparty credit ratings for ACE's Combined Insurance Company of America and Combined Life Insurance Company of New York to “AA-”.

Recently, the financial strength ratings (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a” of Travelers Auto Insurance Co. of New Jersey and Travelers of New Jersey Group, wholly owned subsidiaries ofThe Travelers Companies Inc. (TRV), the nearest peer of ACE Limited, have been withdrawn by another rating agency, A.M. Best Co.

ACE Limited posted a solid third quarter with net income of $2.01 per share, beating the Zacks Consensus Estimate by 17 cents. Results, however, lagged the year-ago quarter.

The results of ACE Limited were not affected despite frequent natural disasters that led to large catastrophe losses. The company is well poised on the strength of its international presence, diversified product offering, risk management, conservative underwriting practice and strong reserves.

On the earnings 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.

The company is on an aggressive acquisition spree. In September, and subsequent to the reported quarter, ACE Limited made as many as three acquisitions to expand its footprint in faster growing economies. We expect the acquisitions to turn around premium writings and help the company grow.

Also, the company remains focused on enhancing value for its shareholders. In mid November, the board of directors of the company authorized a share repurchase of up to $600 million of its common shares through December 31, 2012.

We maintain our Neutral recommendation on ACE Limited over the long term given a competitive economic environment and sluggish economic recovery. The quantitative Zacks #3 Rank (short term Hold rating) on the stock indicates no clear directional pressure on the shares over the near term.

Headquartered in Zurich, Switzerland, ACE Limited, through its subsidiaries, provides a range of insurance and reinsurance products to commercial and individual customers worldwide.

 
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