01—Abstract
Summary
Summary of the 10-K filed February 28, 2013. Cited figures are marked; the original filing is the authoritative source.
This 10-K for fiscal 2012 (filed February 28, 2013) is from ACE Limited, the Swiss-incorporated holding company of the ACE Group, which is headquartered in Zurich and operates a global commercial P&C, specialty, accident and health, and life insurance and reinsurance business.
The company reported total assets of $93 billiona and shareholders' equity of $28 billion at year-end 2012. Net income rose 75.6 percent to $2.7 billion, driven by a lower effective tax rate, improved investment-related results, and a P&C combined ratio that improved to 93.9 percent from 94.7 percent. Total net premiums earned were $15.7 billion, up 1.9 percent, with Insurance-North American at 45 percent, Insurance-Overseas General at 37 percent, Life at 12 percent, and Global Reinsurance at 6 percent.
Catastrophe losses were $638 millionb pre-tax, including $502 million from Superstorm Sandy, and prior period reserve development was favorable by $479 million. The filing also shows several areas investors should weigh. Net reserves for unpaid losses rose to $26.5 billion, and management notes that A&E liabilities and the run-off Brandywine and Westchester operations produced adverse development.
The company carries a variable annuity guarantee reinsurance book (GMDB and GLB) that generates volatile realized gains and losses and depends heavily on interest rate and equity market movements, and that book is no longer being written. Shareholder capital returns were substantial, with dividends of $2.06c per share for 2012 and continuing share repurchases. Pending acquisitions in Mexico (Fianzas Monterrey and ABA Seguros, roughly $1.15 billion combined) and the 2012 Indonesian acquisition of JaPro were also disclosed.
The filing also highlights structural considerations, including Swiss withholding tax on dividends (generally 35 percent, with par value reduction strategies used to avoid it), a Bermuda tax undertaking that runs through March 2035, and a Solvency II transition expected to take effect in 2016. Investment portfolio credit quality is strong overall, with fixed income averaging A/Aa and about 14 percent below investment grade, and the company reports a debt-to-capitalization ratio of 14.6 percent.
02—Key points
Key Highlights
- Net income increased 75.6 percent to $2.7 billion in 2012, versus $1.5 billion in 2011, aided by a reduced effective tax rate of 9.1 percent.
- P&C combined ratio improved to 93.9 percent from 94.7 percent, with favorable prior period development of $479 million (3.5 points of the ratio).
- Net premiums earned rose 1.9 percent to $15.7 billion, led by Insurance-North American (45 percent) and Insurance-Overseas General (37 percent).
- Catastrophe losses totaled $638 million pre-tax in 2012, including $502 million from Superstorm Sandy, compared with $899 million in 2011.
- Shareholders' equity grew to $27.5 billion and book value per share reached $80.90, up from $72.22 a year earlier.
- Net unpaid losses and loss expenses reached $26.5 billion, with A&E liabilities and run-off operations (Brandywine, Westchester) continuing to create adverse development risk.
- Dividends of $2.06 per share were paid in 2012, and pending Mexican acquisitions (Fianzas Monterrey and ABA Seguros) are expected to close in the first half of 2013.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed February 28, 2013Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $17.94B$16.83B | +6.5% |
| Interest Expense | $250.00M$250.00M | 0.0% |
| Net Income | $2.71B$1.54B | +75.7% |
| EPS (Basic) | $7.96$4.55 | +74.9% |
| EPS (Diluted) | $7.89$4.52 | +74.6% |
| Shares Outstanding (Basic) | 339.84M338.16M | +0.5% |
| Shares Outstanding (Diluted) | 342.75M340.78M | +0.6% |
05—Questions
Frequently Asked Questions
How did ACE perform financially in 2012?
ACE reported net income of $2.7 billion, up 75.6 percent from $1.5 billion in 2011. Operating cash flow was $4.0 billion, and the P&C combined ratio improved to 93.9 percent. Results benefited from a lower effective tax rate, favorable prior year reserve development, and stronger investment-related gains, partly offset by Superstorm Sandy and other catastrophe losses.
What are the main risks in ACE's reserves and variable annuity business?
Unpaid losses are estimates that could develop adversely, and A&E and run-off liabilities (Brandywine and Westchester) have produced adverse development in the past. The variable annuity guarantee reinsurance book, which ACE stopped writing in 2007, exposes net income to equity market, interest rate, and policyholder behavior assumptions, and it produced large realized losses in 2011.
How much does ACE return to shareholders, and what limits its dividends?
ACE paid $815 million in dividends on common shares in 2012 and repurchased $7 million of shares, with $461 million of authorizations remaining through December 2013. Dividends are generally paid through Swiss par value reductions to avoid Swiss withholding tax, and the holding company depends on dividends from regulated insurance subsidiaries, which face statutory restrictions.
What acquisitions did ACE complete or announce?
ACE acquired 80 percent of PT Asuransi Jaya Proteksi (JaPro) in Indonesia in September 2012, with the local partner acquiring the remaining 20 percent in January 2013. ACE also agreed to buy Fianzas Monterrey (about $285 million) and ABA Seguros (about $865 million) in Mexico, expected to close in the first half of 2013 subject to regulatory approval.
How concentrated is ACE's broker and investment exposure?
Marsh, Inc. generated about 11 percent of gross premiums written in 2012, the largest single broker concentration. The investment portfolio is primarily investment grade with an average credit quality of A/Aa, but about 14 percent of fixed income holdings were below investment grade, and the largest single corporate exposures were to JP Morgan Chase, General Electric, and Goldman Sachs.
06—Continue