01—Abstract
Summary
Summary of the 10-K filed March 15, 2004. Cited figures are marked; the original filing is the authoritative source.
ACE Limited, the Bermuda-based holding company of the ACE Group of Companies, reported net income of $1.42 billiona for 2003, compared with $76.5 million in 2002, on net premiums earned of $9.60 billion.
Total assets were $49.55 billionb and shareholders' equity was $8.83 billion at December 31, 2003. Gross premiums written rose 14% to $14.64 billion, with the Property and Casualty segments growing 21% while Financial Services gross premiums written fell 32%. The combined ratio improved to 91.5% from 101.7% in 2002, helped by lower catastrophe losses and the absence of the 2002 A&E reserve strengthening of $516 million.
The company is also planning to reduce its role in financial guaranty. It is taking Assured Guaranty Ltd. through an initial public offering and expects to retain 25-35 percent of its interest afterward, which management believes will free more capital for the P&C business. Management expects Financial Services income excluding realized gains to fall 15-20%c in 2004 after the IPO closes.
Management also announced that Evan G. Greenberg will become Chief Executive Officer effective May 27, 2004, while Brian Duperreault remains Chairman. Investors should weigh the reserve risk the filing highlights.
Net unpaid losses and loss expenses reached $13.96 billiond, and the company reports a cumulative deficiency of $4.4 billion on 1999 and prior reserves, mostly in U.S. liabilities including asbestos and environmental exposures. Reinsurance recoverable stood at $14.08 billion net, and the filing notes that a one-notch downgrade of rated reinsurers could raise the bad debt provision by as much as 15 percent.
02—Key points
Key Highlights
- Net income of $1.42 billion in 2003 versus $76.5 million in 2002; diluted EPS of $5.01 versus $0.19
- Gross premiums written of $14.64 billion, up 14%; P&C gross premiums written up 21%, Financial Services down 32%
- Combined ratio of 91.5% in 2003 versus 101.7% in 2002, with catastrophe losses of $112 million versus $156 million
- Net realized gains of $252 million in 2003 versus net realized losses of $489 million in 2002
- Planned IPO of Assured Guaranty Ltd., with ACE expecting to retain 25-35 percent; Financial Services income expected to fall 15-20% in 2004
- Net unpaid losses and loss expenses of $13.96 billion; cumulative deficiency of $4.4 billion on 1999 and prior reserves
- Evan G. Greenberg to become CEO effective May 27, 2004, with Brian Duperreault remaining Chairman
03—Questions
Frequently Asked Questions
How did ACE's profitability change in 2003?
Net income rose to $1.42 billion from $76.5 million in 2002. The improvement came from higher underwriting income, with net premiums earned up to $9.60 billion from $6.83 billion, and from net realized gains of $252 million compared with net realized losses of $489 million the prior year. The 2002 results had included $516 million of A&E reserve strengthening.
What is the Assured Guaranty IPO and why does it matter?
Assured Guaranty Ltd., formerly AGC Holdings, is a wholly owned subsidiary that will become the holding company for ACE Guaranty Corp. and ACE Capital Re International. ACE expects to retain 25-35 percent of its interest depending on market conditions. Management believes the transaction will let ACE allocate more capital to its P&C business and strengthen its balance sheet.
How significant are ACE's reserve risks?
The filing states that gross unpaid losses and loss expenses were $27.15 billion at year-end 2003 and that the company identified a cumulative gross deficiency of $4.4 billion for 1999 and prior years, mainly in U.S. liabilities including asbestos and environmental exposures. Management states it believes reserves are adequate, but notes that ultimate losses could differ materially from current estimates.
What is the exposure to reinsurer credit risk?
Net reinsurance recoverable was $14.08 billion at December 31, 2003, with bad debt reserves of $960 million. The filing estimates that a one-notch downgrade of all rated reinsurers could increase the bad debt provision by as much as 15 percent.
What leadership changes were announced?
The Board elected Evan G. Greenberg, President of ACE Limited, as Chief Executive Officer effective May 27, 2004. Brian Duperreault, Chairman and CEO since 1994, will remain Chairman of ACE Limited.
04—Continue