ACE's Greenberg Offers 'Bullish' Outlook; Questions Value of Offering Guidance

ACE Limited Chairman and CEO Evan Greenberg is optimistic about the pricing environment in the U.S. and prospects for growth in 2013.

But when analysts in a quarterly conference call yesterday tried to square that optimism with what they saw as ACE’s relatively conservative earnings per share guidance for 2013, Greenberg, when prompted, questioned the usefulness of offering guidance altogether.

Ian Gutterman, an analyst at Adage Capital Management, set Greenberg up for the comment by saying to the ACE executive, “...I kind of wonder if guidance has outlived its usefulness for you guys. It seems every year at this time, it causes confusion, or at least more years than not it does.”

Greenberg replied, “Everyone here is cheering, because we’ve said it to ourselves, too. It’s, ‘My God, why are we doing guidance?’”

Gutterman summed up the exchange, adding, “...it seems the theme of the call today should have been your optimism on the operating environment, and instead all the questions are about guidance and the stock reaction, which is frustrating.”

Earlier in the call, analysts had questioned ACE’s earnings per share guidance in light of Greenberg’s optimistic outlook on the market. Credit Suisse analyst Michael Zaremski, for example, said to Greenberg, “We’re clearly bullish on rate increases in the U.S....so you’re expecting higher underwriting margins. I’m just trying to figure out what I’m missing in terms of why the midpoint [of ACE’s earnings per share guidance] isn’t going higher.”

Greenberg explained in response, “Guidance is created in December as part of our budget process that we go through.” He said most of the data, particularly as it relates to pricing, is from third-quarter base data. “From what I know now,” Greenberg continued, “we’re biasing toward the upper end of the guidance range. That’s what I see. Pricing is better, growth looks good, and the acquisitions...may produce modestly better results.”

He added that it is still early in the year, but he is “more bullish than I have been in some time.”

On fourth-quarter pricing and expectations going into 2013, Greenberg said, “Our commercial [property and casualty] business in the U.S. continued to benefit in the quarter from an improving price environment where we are now achieving rate-on-rate increases for the second quarter in a row, and I firmly expect this to continue.”

He said North America pricing was up almost 4 percent in the fourth quarter, and added that rate increases were more broad-based than in previous quarters.

Property business, he said, was up 6 percent, directors and officers was up 7 percent, casualty risk management was up almost 4.5 percent, and excess casualty was up almost 5 percent.

Greenberg noted that price increases in the U.S. are being driven by the “larger and more sophisticated underwriters,” and added that he expects the trend to continue, with stressed casualty lines seeing steeper increases than other lines.

He predicted that property rates will likely flatten out as the year progresses, though, and he said there are still some lines where pricing is under pressure as companies seek market share.

For international business, Greenberg said pricing was flat in the fourth quarter compared to the third.

Answering a question from an analyst, Greenberg said he believes underwriting margins can improve going forward. “Pricing and underwriting selection have contributed to date to a modest expansion in margin. And the trend is...toward further margin expansion, and I think that will happen.”

ACE reported a fourth-quarter increase in net income, but a 24 percent drop in quarterly operating profit due mainly to Superstorm Sandy losses.

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