ACE Announces Preliminary Q3 Earnings; $1.5 Billion Capital Loss
ACE Limited has made a pre-earnings announcement of its third quarter financial results from is headquarters in Zurich. “Given the extraordinary market conditions and questions of investor confidence in financial institutions generally, we have decided to provide an estimate of our third quarter results in an effort to give greater clarity and certainty about our company, whose financial performance and balance sheet remain strong,” explained Chairman and CEO Evan G. Greenberg.
He indicated that “ACE has a strong capital position and our financial results for the third quarter were quite good. ACE is well positioned to take advantage of weaknesses and opportunities within our industry as they emerge.”
ACE estimates its operating income, which excludes capital gains/losses, for the third quarter ended September 30, 2008, to be between $1.44 and $1.48 per common share. However, when the capital losses are added in, ACE said it “will report net realized and unrealized losses of approximately $1.5 billion and expects a decrease in book value per share of 7.5 percent year-to-date.”
The company reiterated that despite the losses and writedowns, its capital position remains strong and is “firmly in the range of the capital required by all principal rating agencies for our ratings.”
As previously announced, ACE said it “did not and does not invest in CDOs [collateralized debt obligations], CLOs [collateralized loan obligations], or complex credit structures and does not employ leverage, and as such, has no transactions that require the posting of collateral.”
ACE added that its “fixed income portfolio is conservatively constructed, has an average credit quality of ‘AA,’ is well diversified and has an average duration of approximately four years. Of the estimated $1.5 billion in realized and unrealized losses, approximately $1.3 billion relates to the fixed income and equity portfolios and is largely due to the widening of credit spreads in our high quality corporate bond portfolio.
“Approximately $220 million of the company’s estimated net realized losses for the third quarter relate to the guaranteed minimum income benefit (GMIB) liabilities of the company’s variable annuity reinsurance book. These losses resulted from an increase in the fair market value of the liabilities related to these annuities. This does not present any liquidity exposures. Cash flow in this business is positive and is within our original expectations.
As of September 30, 2008, ACE has entered into securities lending agreements approximating $2 billion. The proceeds from these agreements are invested in prime short-term money market funds. ACE does not issue commercial paper or any other short-term securities to finance its operations.”
ACE also indicated that it “expects operating cash flow to be in the range of $800 million to $1 billion for the third quarter.”
The company will issue its third quarter earnings release and financial supplement as scheduled after the market closes on Tuesday, October 28, 2008.
Source: ACE Group -: www.acelimited.com