ACE Posts Higher Profit

Another factor that helped the company's profit increase, management said, was the $85 million in one-time gains from selling its investments. In contrast, ACE had recorded a $125 million loss for the period a year ago. Overall, the investment income rose five percent to $211 million, compared with $201 million recorded in the 2002 second quarter.

"Premium increases we have had and the underwriting profit that we make on those premiums made up a substantial portion of our profit increase," commented Brian Duperreault, chief executive officer at ACE, during an interview with National Underwriter.

"We have seen opportunities for us to write new business in all parts of the world in almost every line of business, and that's a big reason for our growth rate. In addition, we had an excellent cash flow and a positive increase in our investment income."

Mr. Duperreault noted an increasing divergence between rates for casualty and property lines. "The changes that are occurring in the marketplace really boil down to this," he said. "The property rates, particularly those in the United States that were still seeing increases, have basically slowed to zero. They are good rates but there is more competition on the property side."

In the casualty insurance business, where the United States has a larger share, "very substantial rate increases" continue, he added. As an example, he pointed to ACE's rates for directors and officers in North America, which grew upwards of 60 percent.

"Therefore, we as a writer of this business are gravitating more to casualty because we like the risk reward and the competitive environment that exists," Mr. Duperreault said. "That's actually true not just in the United States but also around the world. The higher rates in casualty are attracting our attention."

If there is a downside to ACE's increasing focus on casualty, it's the minor adverse effect on the company's combined ratio. "The casualty business tends to run a higher combined ratio. And the reason is that there is a substantially larger portion of investment income," Mr. Duperreault explained. "When you look at the return on equity, more return on equity occurs from investment and less from underwriting in casualty, and therefore combined ratios tend to be a little higher."

Commenting further on the current high-priced market, he pointed out that the hard market continues across the world. "It continues to be hard in almost every area of the world. That's remarkable, considering that we are into maybe the third year of this. It's surprising–it really has legs," he remarked.

He also observed that there are now fewer global players–those with the capability to provide insurance across the world: "There are just fewer of those in the mix now. That's the kind of competition one sees out there."

Mr. Duperreault, commenting on proposed Senate legislation to deal with asbestos illness claims litigation, said a reform bill is still very possible, "but the current version has a number of issues we don't like."

"One is the fact that the allocation to the insurance industry [for a fund to handle claims] is too high. And it's not a closed system–there are too many proposed amendments that would put people back in the tort system. In order for this to work, it has to be a closed system. If these [issues] could be corrected, then maybe we would support it. But for now, we are opposed to it," Mr. Duperreault said.

And as for ACE, the company has reserves which anticipate no change in the system, he noted: "So we feel very comfortable with the level of reserves we are carrying."