After his company reported an 8 percent rise in second-quarter income today ACE Limited's chief executive said he is worried about a marketplace with irresponsible competitors and concerned about defects in asbestos injury trust fund legislation he supports.
"As expected, revenue growth has slowed in line with market conditions," said ACE CEO Evan Greenberg. He referred to the fact that net premiums for ACE in the quarter grew only 1.7 percent to $2.9 billion.
"Much of our focus…was on preservation of renewals," he said. "New business was hard to come by, and business that went to market was often lost to competition for great price reductions," he added, citing reductions that could be as high as 30-to-50 percent.
"There are a number of incumbent companies trying to hold what they have and maintain discipline….There are also a number of competitors trying to grow in an…irresponsible fashion," he said.
During the call, Mr. Greenberg singled out short-tail business as the most competitive type of business and the London market as the most competitive major market geographically. The continent of Europe is the most stable, and the United States falls somewhere between London and continental Europe, he said.
As for asbestos reform, Mr. Greenberg said that while a number of companies don't support the concept of an asbestos injury trust fund to replace civil litigation, "they do not speak for the entire industry."
Noting that ACE is among those who support the idea of a trust fund, he warned that the measure currently being discussed by Congress is crafted in a way that is unacceptable and problems need to be worked out.
Mr. Greenberg explained that he has particular concerns about possible leakage of cases into the court system during the start-up phase of implementation of any trust fund solution. "The worst of both worlds is that you have a trust fund and you'd still have a lot of cases in the courts," he said.
As for the question of how the proposed $46 billion of insurer money in the trust fund would be assessed among insurers, he said, "That's something that's up to insurers to decide. That's something we shouldn't grouse about."
"We should get together as an industry and agree on something reasonable, and they [lawmakers] will put that in the legislation."
With respect to earnings, a 26 percent jump in investment income was the biggest percent gain on ACE's second-quarter report, fueling a 10 percent increase in net income overall.
ACE reported second-quarter net income of $467 million, or $1.58 per share, compared with net income of $423 million, or $1.44 per share, for the same quarter last year.
Through six months, net income grew 3.0 percent to $904 million, or $3.06 per share, compared with $877 million, or $3.00 per share, for the first six months of 2004.
Mr. Greenberg highlighted a milestone for the firm, noting that shareholders' equity passed the $10 billion mark, and said that property-casualty underwriting income and investment income has contributed equally to the quarter's operating earnings.
Net investment income was $305 million in the quarter, and underwriting income was $295 million. The underwriting income figure, however, was 5 percent lower than the $312 amount recorded in last year's second quarter. Investment income (from interest and dividends), on the other hand, rose $62 million from $243 million.
The overall p-c combined ratio was 90.4 in the quarter, compared to 89.1 for second-quarter 2004.
In the earnings report delivered yesterday, figures for the second quarter and first half of 2004 were restated from prior reports, reflecting a correction of accounting errors that the firm announced last week. The correction principally relates to the fact that eight finite reinsurance deals had been improperly accounting for in previous periods.
Among ACE's various business segments, North American insurance showed the only premium increase–with premium volume rising 6 percent to $1.4 billion.
Net premiums for overseas insurance fell 3 percent to roughly $1.1 billion, while global reinsurance premiums remained essentially flat at $420 million for the quarter.
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