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Article Excerpt
Original Source: FD (FAIR DISCLOSURE) WIRE
TODD BAULT, ANALYST, SANFORD BERNSTEIN: Good morning, everyone, and welcome to the Bernstein Strategic Decisions conference. I'm Todd Bault, Bernstein's nonlife insurance analyst. You know all the rules now. The cards on your chairs are for writing questions. Please write down questions during the presentation and hand it to the attendant. I will read them from the podium and we'll read as many questions as we have time for.
I am looking forward to this presentation now. I always enjoy conversations about risk with the people at ACE. They are some of the best practitioners of thinking about risk as it applies to the insurance industry. They can be contrary in. We were just having a discussion about a couple points we do not necessarily agree on, so I am happy to have evident hope about these things in front of you and maybe we can have a little conversation. So CEO, Chairman and CEO, Evan Greenberg.
EVAN GREENBERG, CHAIRMAN, CEO, ACE LIMITED: Good morning, everybody. I have to go through the normal song and dance for a moment, so you have to bear with me. Before I begin, I want to remind you that my presentation today discusses ACE's business prospects and contains forward-looking statements that are subject to a number of risks and uncertainties. Actual results may differ materially. Please refer to our SEC filings for more information on factors which could affect our results.
Okay, I am going to cover three subjects today. A few comments about ACE, our first quarter, recent first-quarter results, and long-term track record we are building; current market conditions around the world as we see them; and given our global franchise and breath of products, I hope you'll get a sense of our strategy in light of current market conditions. Following that, I will take your questions.
As all of you know, ACE and the industry for that matter had an excellent first quarter, a very good start to the year. We had net income that topped $700 million and that was a first for our company. After-tax operating income was over $660 million, or about $1.98 a share, and that was a 39% increase over prior year. Last year, we did have investigation-related charges related to the Spitzer-related investigation, the settlement charges. We would have been up 22% of the normalizer that. Investment income was up about 22% with operating cash flow continuing very strong at about $1.2 billion, all contributing to invested assets that now stands at about $40 billion. I think that speaks to future earning power and current earning power of the Company.
Tangible book value per share growth was up 6% in the quarter and our are we about 18.5%. We have been north of 18% through '06 into '07, but I think that speaks to an efficient use of capital. The first quarter continues our momentum in building what we think is an excellent track record of long-term sustainable performance. Tangible book value is the one measure of shareholder wealth that we keep our eye on. We think it is the most appropriate and we have been building a pretty good track record of that over the last three and five years, tangible book value has grown at a compound annual rate of between 20 and 23%. The last three and five years has been about 13%, not bad given the events that we have sustained or the industry house of the last few years.
We say we are an underwriting company and I think many companies will make that claim. The proof is in the results and cumulatively since the founding of this company 21 years ago, we have a combined ratio of below 100%. It is 96.5% on a cumulative basis, so I think we are an underwriting company and the proof is in those results.
The financial strength of the Company, the balance sheet continues to get stronger. It is stronger than it has been at any point in our history. Our capital is over $17 billion and our equity now stands at north of $15 billion. Over the last five quarters, we have added more than $2 billion to our net loss reserves, which now stands at more than $22 billion. That is the most important part, as all of you know.
Of an insurance company on the balance sheet is those loss reserves. Again, as I said before, in the last five years we have more than doubled our invested assets to almost 40 billion and again, I think that speaks to continued earning power. So it is impressive growth record, in our judgment. I believe we are building a solid track record the continuing to the future.
There is a lingering misconception among some in the investment community that because of our Bermuda location, we are primarily a reinsurer or wholesale company. I would like to take a few minutes and talk about that, because I do not think anything could be further from the truth. The facts are we are global insurance company that happens to be Bermuda based. We operate on the grounds locally, conducting retail insurance business in more than 50 countries around the world. Only 8% of the business we do today originates in Bermuda. Over half of our business is based in the United States, about $6.5 billion of premium. 40% of our business is generated in international operations. Those other 49 countries around the world and that is about $4.5 billion in premium. Reinsurance, what is important part of our company and has been a tremendous contributor to the growth in book value of the organization, represents about 15% of the business of the Company. We like that balance. It makes sense to us and we can explain that later.
ACE's diversified global property casualty insurance company, so a unique franchise. It is one of the few global integrated PNC companies in the world and again about half of the business is outside the United States. I believe over the past three to for years ACE has distinguished itself and it shows in the results. We have the people. We have the balance sheet. We have the culture. We have the business franchises and the strategy to continue long-term sustainable performance and to us that means superior growth, again, in book value and are we over the cycle because it is a cyclical business and if you do not recognize that and you try to do with a straight line, well, I think the graveyard is full of those who pursued a strategy such as batch. We have built substantial critical mass in the last five years in terms of geographic presence and product capability.
Speaking a little more about that, geographic presence, in the U.S. we are now a national carrier. We are throughout the United States in all the principal cities underwriting the business with product line capability brought locally to where the clients and the brokers are throughout the country, in all the major and many...
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