ACE's Finite Probe To Wrap Up In A Month

By Michael Ha

NU Online News Service, April 27, 4:28 p.m.EST?ACE Limited Chief Executive Evan Greenberg said hiscompany's comprehensive internal probe into use of finitereinsurance products should be completed in about a month,emphasizing that the investigation so far has failed to uncover anymajor misconduct.[@@]

"To date what we are seeing is that [ACE finite reinsurance]transactions generally were structured in a way intended to provideappropriate risk transfers and were accounted for properly," Mr.Greenberg said.

"We are looking at all of the documentations, including alle-mail correspondents, etc. that might surround any of thesetransactions. So we are looking at every fricking corner."

ACE will continue to discuss these matters with variousregulators whose investigations are still ongoing, he noted. Mr.Greenberg offered his comments today during an analyst conferencecall to discuss ACE 2005 first-quarter results.

The ACE chief executive also defended his company's sale offinite products. The Bermuda-headquartered global insurer continuesto offer them to clients through its U.S. and Bermuda officesdespite the heightened scrutiny by investigators.

Such products have drawn a focus because, when they are notstructured to properly transfer risk they are in violation of FASBrules and can provide an improper picture of company finances.

"We are still writing finite. It continues to generate incomeand revenue. But it's very slow as you can imagine," Mr. Greenbergsaid. "We continue to believe these products will have anappropriate place in managing risks."

Regarding ACE quarterly results, Mr. Greenberg praised hiscompany's latest figures. "As you can see we had a very goodquarter," he told analysts.

The Hamilton, Bermuda-headquartered ACE, one of the largestglobal property-casualty insurers, posted $433 million in netincome, down from $447 million one year. ago. But the insurer saidit reached a new record level on an operating-income basis, whichexcludes net realized gains and losses. The first-quarter operatingincome was $441 million, up from $411 million one year ago. ACE'sunderwriting income fell a little but the loss was made up byhigher investment income.

"Our North American operations experienced good growth in thequarter, primarily driven by our risk management, crop insurance,workers comp, medical malpractice, and international riskbusinesses," Mr. Greenberg said. Most other classes, however,particularly excess casualty, directors-and-officers coverage, andproperty, were flat to down.

The overall underwriting income for the quarter fell to $311million, down from $336 million one year ago. The p-c combinedratio for the quarter was 89.2, deteriorating slightly from 88.4.The results also included some $30 million of investigation-relatedexpenses, Mr. Greenberg said.

Net written premiums came in at $3.365 billion, increasing from$3.238 billion one year ago but the insurer observed that writtenpremium growth has been slowing in line with softening prices.Among business segments, only North American insurance units sawits net premiums written grow, to $1.425 billion from $1.212billion. Other segments--overseas general insurance, globalreinsurance and financial services--also saw their net premiumswritten decline.

"Earned premium growth was strong while net premium growthslowed in line with market conditions. The market continues tosoften," Mr. Greenberg told analysts. "Premium revenues in a numberof our businesses were flat to down. We simply refuse to chaseunder-priced business."

Ace said net investment income improved to $284 million, up from$238 million last year. However, ACE suffered $4 million netrealized losses, in contrast to $57 million gain last year, whichhurt ACE's net income figure this year.

Commenting on current prices, Mr. Greenberg said that globallyproperty insurance rates continue to fall an average of 10-to-20percent. Casualty pricing, including directors-and-officers anderrors-and-omissions, is off between zero and 10 percent on anexposure-adjusted basis, with greater rate pressures in U.K. andEurope.

Brian Meredith, insurance analyst at Banc of America Securities,said ACE operating results were in line with his estimate. Mr.Meredith observed that while ACE's underwriting margins remainedstrong, top-line growth fell below expectations. "Competition iscontinuing and new business growth is challenging," he said.