ace is based in bermuda; it's the holding company of the ace group of companies - a global provider of insurance and reinsurance. it was initially established in 1985 by a consortium of 34 Fortune 500 companies to provide hard-to-find excess liability coverage. now the group of companies serves commercial and individual customers in more than 140 countries and jurisdictions. the group offers insurance products in areas like accident, health, workers' compensation, environmental liability and political risk, and extends reinsurance to a large array of corporate business lines.
earlier this month, ace reported Q4 earnings, post preferred dividends, of $1.69 per share, versus $1.99 in the same quarter of last year. income excluding net realized gains and losses for the quarter was $2.05 per share, compared with $1.92 for the same quarter of 2006. while the insurer had after-tax Q4 net realized and unrealized losses of $15 million, it actually saw the overall mark-to-market impact on its investment portfolio add a pre-tax gain of $106 million for the full-year 2007. net income for the year came in at $7.66 per share, an increase of 11% over fiscal 2006. further, income excluding net realized gains and losses and the cumulative effect of an accounting change was $8.07 per share, compared with $7.05 for 2006. in addition, during 2007, the company’s tangible book value increased 21% and return on equity for the year was 17.9%.
the company provided recent comments provided a review of 2007 and look into the company’s future. all areas of the company performed well, and the financial markets crisis had a relatively modest impact on their results. for the year, the company achieved record net income and net operating income.....in december 2 acquisitions were announced that will further diversify and contribute to ace's future earnings (referring to the purchase of the combined insurance company of america and the atlantic companies). looking ahead, the company seems particularly well positioned to manage through an increasingly difficult environment marked by continuing volatility in the financial markets, deteriorating economic fundamentals and a softening property and casualty market…..ending the year with a positive mark to market position was no accident, as the company takes substantial risk on the liability side of the balance sheet and in that regard the company will always manage the asset side conservatively. it is believed that the company will have the opportunity to take increased risk at attractive returns; and in that regard the company believes it is entering a period of greater opportunity, which will likely last for some time to come.
it is worth noting that in 12/07, ace said it reduced its subprime asset-backed holdings to $137 million from $257 million. the company also said its high-yield corporate bond holdings amount to $2.6 billion, or 6.5% of the total fixed income portfolio. in addition, it does not invest in CDOs; and, of the $1.8 billion in municipal bonds the company holds, approximately $850 million is insured by the financial guarantee companies, however, without the AAA insurance guarantees, the overall municipal bond portfolio’s rating would only fall to AA from AA plus.
while the lack of big catastrophes and an increase in competition is restricting premiums and constricting operating margins, ace is still predicting 2008 earnings to come in between $7.00 and $7.50 per share. u.s. economic fundamentals may continue to deteriorate, but the company should continue to realize stability because of its global business footprint and unique insurance offerings. trading for 7.6 times forward earnings estimates, i would strongly recommend being buyers of ace up to 60, as i think it could eventually trade to between 100 and 120 (but be a big boy and do your own darn DD, etc., etc.).