Financials_ACE_Buy_10_31_2014

BABSON
College Fund
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
! ! ! ! 1!!
!
Financials!Sector!Team!October!22/2014!
!
Rating: BUY ACE Limited. (NYSE:ACE)
Price Target: $135.93 Industry: Insurance
Close: 10/31/2014
Price: $108.85
52 Wk. High: $92-$108.62
Shares Out (mm): 335.7
Mkt. Cap (mm): $35,819.1
Source: Capital IQ, Value Line,
Bloomberg
Source: Capital IQ, Bloomberg, Morgan Stanley Research, BCF Analysis (all values are USD)
Investment Action & Thesis
The Financials team is initiating our coverage of ACE Limited with a BUY rating and a
target price of $135.93 representing a potential upside of 25%. ACE’s strengths lie in its: 1)
Strong underwriting disciplines as shown by their historically low combined ratio, 2)
Global footprint offers opportunity for faster growth across P&C cycle with a large
exposure to the major P&C segments 3) A strong Balance sheet that offers the ability to
deploy capital and capture additional returns 4) Recent M&A that continues to contribute
to top line growth and 5) Lower than average tax rate.
Key Investment Highlights:
We have an overall positive stance towards the P&C insurance space in the medium term.
Even tough the industry has low barriers of entry and the competitive landscape is highly
concentrated (top 10 insurance firms account for 51% of total premiums written),
companies such as ACE with global footprint, a diversified portfolio of products and a
strong underwriting discipline focused on efficiency will stand apart from competition and
will outperform the market.
Because of their increased efficiency (combined ratio) they have the ability to compete
better and grow, even in environments such ass todays where we see some downward
pressure in insurance prices. Additional tailwinds could come when interest rates rise, and
demand for insurance increases as the business landscape improves. Looking at the drivers
behind our thesis we find that:
Excellent Underwriting Discipline and Combine Ratio. This is a key metric of the industry;
it equals the sum of the loss ratio, the expense ratio, and the dividend ratio. A combined
ratio below 100% indicates an underwriting profit; one above 100% means an insurer has
incurred an underwriting loss. ACE’s current combined ratio has been amongst the lowest
of the industry historically, and stands today as one of the lowest amongst comparable
company’s in the space.
Global footprint offers opportunity for faster growth across P&C cycle. ACE has a large
exposure to the major P&C segments (US, international, specialty lines, reinsurance), a
sizeable footprint in fast growing non-P&C insurance markets such as A&H and crop and
an emerging growth presence in Personal lines, Commercial lines, and Asian life.
Basic Information
Beta: 0.85
Cash& Srt. T. Invst. (bn): $3.5
Total Debt (bn): $7.66
Dividend Yield: 2.4%
P/E (2015): 13.71
P/B (2015): 1.38
P/TBV: 1.47
P/B (Ex AOCI): 1.31
Comb. Ratio: 86.3%
Cash F/Share: 12.68
Source: Capital IQ, Value Line,
Bloomberg
Company Overview
ACE Limited, through its
subsidiaries, provides a range of
insurance and reinsurance products
to clients worldwide. The company
operates through five segments:
Insurance – North American P&C,
Insurance – North American
Agriculture, Insurance – Overseas
General, Global Reinsurance, and
Life.
The company offers the following
products: Property Insurance, A&H,
Agriculture, Personal Lines, , Life
Insurance and Casualty.
Source: Capital IQ, Investor
Relations
Analysts
BCF Industrials Team:
Alfredo Leon
Ryan Diplock
Paul Ramey
2012 2013 2014 2015 2016
Total Revenue 17,936 19,261 19,502 21,223 21,630
EBITDA 3,208 4,043 3,376 3,687 3,751
Net Income 2,706 3,217 3,243 3,192 3,244
EPS 7.90 9.35 9.57 9.71 10.15
EPS Consensus 7.90 9.35 9.28 9.42 9.85
Combine Ratio 87.10% 87.70% 89.80% 90.30%
Premium Growth -4.80% 6.60% 7.70% 4.60%

BABSON
College Fund
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
! ! ! ! 2!!
!
!
A Strong balance sheet offers the ability to deploy capital an increase earnings. With an estimated $8b in excess capital or
27% of equity, ACE is well positioned to offer more return to shareholders from a variety of sources: organic growth, M&A
and buybacks/dividends. To put this under perspective if we assume ACE is able to earn a 10-15% return on this excess
capital there is upside of ~$2/share to EPS (~200bps to ROE). Furthermore the company repurchased $4.3m shares for
$450m in 3Q, the largest quarterly share buyback in the company's history, and could repurchase up to another $450m in
4Q.
Recent M&A Activity will contribute to earnings, and could generate further growth. Although management has
expressed that they prefer to grow organically they are not shy to pull the trigger if a good opportunity presents. The
company will finalized the acquisition of Banco Itaú of Brazil for $685 million at approximately 4 times the unit’s book
value. The deal will close October 31st and the premiums added are immediately accretive to earnings. Earlier this year
ACE also acquired a 93.03% stake in Thailand’s Siam Commercial Insurer Samagi.
A lower tax rate is a plus. ACE’s tax rate has a declining pattern; the company has been able to shrink the amount of net
income retained in taxes in a somewhat consistent matter over the years. Final tax rate for year-end 2013 was only 11.33%,
versus the 24.58% tax rate of 2011.
The past is not always the best predictor of the future, but the track record is impressive. Consider Modern Graham
theory as a component of valuation. Under the defensive investors principals ACE clears all the hurdles: Adequate Size of
Enterprise: Market capitalization of at least $2 billion – PASS, Earnings Stability: Positive earnings per share for at least 10
straight years – PASS, Dividend Record: Has paid a dividend for at least 10 straight years – PASS, Earnings Growth: Earnings
per share have increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period –
PASS, Moderate PEmg ratio: PEmg is less than 20 – PASS, Moderate Price to Assets: PB ratio is less than 2.5 or PB x PEmg is
less than 50 – PASS.
Investment Risks:
Risk of Natural Catastrophes: ACE’s business model relies on their ability to make underwriting profits; this ability is
threatened if large Natural Catastrophes were to occur more frequently or on a larger scale than anticipated.
Liquidity Risk: Liquidity is an important factor for any a P/C insurer, because of the insurer’s need to pay claims
promptly. Because of the somewhat unpredictable nature of the P/C insurance business, cash flow from underwriting
activities is probably the most volatile element of an insurer’s total cash flow and it is essential to maintain this variable in
equilibrium to be able to keep running the business efficiently.
Pricing and Competitive Landscape: Theoretically, insurance prices should move in the opposite direction of interest
rates, given the fact that higher interest rates translates in to higher investment yields on Bond Portfolios (which are a large
portion of the earning assets of insurance companies).
However, during a period of historically low interest rates, insurance pricing remained competitive. This is largely
attributable to an oversupply of underwriting capacity (or capital) in the insurance marketplace.
Possible Downside: International expansion. We expect the company’s international expansion to prove additive to
growth in the longer run. However, not obtaining meaningful growth and synergies from its investments overseas, could
result in downward pressure for the stock. This is especially true for recent acquisitions: a 93.03% stake in Thailand’s Siam
Commercial Insurer Samagi and Brazil’s Itau Unibanco.
General Market Risks: ACE as any other insurance company is subject to risks relating to geopolitical instability, data
security breaches, consumer and business expending habits, competition, among others.

BABSON
College Fund
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
! ! ! ! 3!!
!
!
Business Overview:
ACE Limited, through its subsidiaries, operates as an insurance and reinsurance company worldwide. The company offers
commercial insurance products and service offerings, such as risk management programs, loss control and engineering
and complex claims management. It provides specialized insurance products ranging from Directors & Officers (D&O)
and professional liability to various specialty-casualty and umbrella and excess casualty lines to niche areas, such as
aviation and energy. It also offers personal lines insurance coverage, including homeowners, automobile, valuables,
umbrella liability, and recreational marine products.
In addition, the company supplies personal accident, supplemental health, and life insurance to individuals in select
countries. During 2013, the company acquired Finanzas Monterrey, a surety lines company in Mexico offering
administrative performance bonds primarily to clients in the construction and industrial sectors; and ABA Seguros, a
property and casualty insurer in Mexico that provides automobile, homeowners, and small business coverages. These
businesses operate under its Insurance – Overseas General segment. More recently the company acquired a 93.03% stake in
Thailand’s Siam Commercial Insurer Samagi and Brazil’s Itau Unibanco in accordance to their strategy of acquisition to
expand internationally. Segments include:
Insurance – Overseas General
Comprises ACE International, the company’s retail broker-distributed business outside of North America, and ACE Global
Markets, a London-based wholesale market business that includes a syndicate on the Lloyd’s trading floor. These
businesses write a variety of coverages, including property, casualty, professional lines, marine, energy, aviation, political
risk, construction risk, A&H and specialty consumer-oriented products. The segment also includes the international
operations of Combined Insurance, which provides specialty accident and supplemental health insurance products to
middle-income consumers in Europe, Latin America and Asia Pacific.
Insurance — North American P&C:
North American P&C segment serve clients ranging from the largest multinationals to mid-size and small businesses to
high net worth individuals. ACE USA, which distributes coverage through retail brokers, provides a broad array of
specialty property, casualty, and A&H insurance products and risk management services to corporate clients across the
U.S. and Canada.
ACE Westchester specializes in excess and surplus lines specialty products, including property, inland marine, casualty,
professional lines, and environmental liability products distributed through wholesale brokers. ACE Bermuda writes high-
level excess liability, property, political risk and directors and officers insurance worldwide. ACE Private Risk Services
provides high net worth individuals and families with homeowners, automobile, valuables, umbrella and recreational
marine insurance. ACE Commercial Risk Services offers specialty insurance products and solutions for small businesses
through several distribution channels.
Insurance — North American Agriculture:
Insurance – North American Agriculture comprises Rain and Hail, which provides comprehensive multiple peril crop and
crop-hail insurance distributed through a nationwide network of specialized agents; and ACE Agribusiness, which offers
farm and ranch property as well as specialty P&C coverages distributed through brokers and agents for companies that
manufacture, process and distribute agriculture products.
Global Reinsurance
Marketing its coverage worldwide under the ACE Tempest Re brand, the businesses of the Global Reinsurance segment
provide a broad range of property and casualty reinsurance products to a diverse array of primary insurers. Business units
include ACE Tempest Re Bermuda, ACE Tempest Re USA, ACE Tempest Re Canada, and ACE Tempest Re International,
which encompasses P&C reinsurance operations based in London, São Paulo and Zurich. ACE Tempest Re also has
operations in China and Brazil through Lloyd’s.

BABSON
College Fund
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
! ! ! ! 4!!
!
!
Life
ACE Life provides traditional life insurance protection and savings products to meet the needs of individuals and groups
in Asia, Latin America and the Middle East. The North American operations of Combined Insurance, which distributes
specialty individual accident and supplemental health insurance products through captive agents to middle-income
consumers in the U.S. and Canada, is also included in this segment’s results. ACE Tempest Life Re provides specialty life
reinsurance products to life insurers.
Source: Company Annual Report 2013, Capital IQ
Product Segments and Premium Growth:
Here we can see a breakdown of ACE’S insurance products by segment and by geography:
Source: Company’s year end Presentation 2013
Moreover obtaining net written premiums growth while minimizing risk exposure is the insurance company’s long-term objective. We
can se how the company has evolved in this front from the graph bellow:

BABSON
College Fund
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
! ! ! ! 5!!
!
!
Recent results have been positive in spite a more competitive landscape: Global P&C premiums grew +4% YoY including
+2.7% growth in North America, +9.4% in Overseas, offset by -21.2% decline in Global Re largely due the non-renewal of a
large workers comp treaty.
Management cited stronger competition and ACE's underwriting discipline in recent quarter. ACE saw 3Q P&C pricing
similar to recent quarters: US casualty lines flat to up +4% while property lines down -4- 5%; International casualties down
-2-3% while property was down -6%. Although management expects to see stronger premium growth in 4Q, they did not
establish any specific range in the recent conference call. We expect ACE’s global footprint to drive further growth
especially internationally where the insurance market is less penetrated.
A discipline for Underwriting and a Focus towards Efficiency:
Good insurance companies have strong underwriting discipline to maximize written premiums while minimizing their
exposure to risk. History is usual a good indicator of how the company manages this risk between expanding (writing
more premiums at the right price) and enduring losses. The bellow graph shows ACE’s combined ratio and reserve
deployment over a 5-year time spam:

BABSON
College Fund
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
! ! ! ! 6!!
!
!
We can appreciate how the company has historically been able to earn enough premiums to repay expenses of their
ongoing operations, and how the combine ratio is also trending down. Moreover it is worth noting the somewhat cyclical
pattern in the release of reserves that tends to peak each 3Q. This speaks to the level of discipline the company has in not
being overly optimistic and releasing reserves early to boost earnings.
Investment Income:
Investment income comprises 65% of pre-tax income for ACE and is an under-appreciated recurring income stream by
investors, in our view. The current low interest rate environment has been a huge headwind for the profitability of the
float. Given persistently low reinvestment rates and portfolio duration of 4.1 years we see limited improvement in this key
profit driver for the rest of 2014. However as stated before any increase in rates will have a substantial positive impact on
earnings.
Source: Company Data, Morgan Stanley Research
To put things a bit under perspective, ACE net investment income for 3Q 2014 of $566m represents an increased of 8.5% YoY.
Management guided to a $550m quarterly investment income run rate but have exceeded expectations in recent quarters.
Excess Capital Ready to Deploy:
ACE’s management has long favored growing the business (organic or acquisitions) over shareholder returns. Since 2007-
2013, ACE has repurchased 10.5m shares (~3.2% outstanding, not enough to offset share issuance) while P&C peers have
been more aggressive buying back shares. ACE has about $8b of excess capital that management can redeploy to spur both
growth and shareholder returns. In November 2013, ACE board authorized a $1.5b repurchase program to be completed
through 2014.

BABSON
College Fund
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
! ! ! ! 7!!
!
!
As we can see in the bellow graph (an estimate of around $8b of excess capital) offers meaningful returns to shareholders
via dividends and buybacks while retaining enough to fuel further organic or M&A derived growth. ACE has recently
repurchased $4.3m shares for $450m in 3Q, the largest quarterly share buyback in the company's history, and could
repurchase up to another $450m in 4Q.
Based on this, looking forward we forecast $2.2b in annual shareholder returns (about $900m dividends and $1.3b
buybacks) close to a 70% total payout in 2014-16e.

BABSON
College Fund
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
! ! ! ! 8!!
!
!
How the industry Operates:
When looking at the insurance industry cash flow and liquidity are very determinant factors. Insurers need to make sure
they are liquid enough to face the potential loss of the premiums collected. The following table walks us trough the cash
flow cycle of most insurance company’s:
!!!!!!!!!!!!!!!!!!!!!!!!!
Source: Insurance Information Institute

BABSON
College Fund
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
! ! ! ! 9!!
!
!
Industry Profile:!
Industry market share remains concentrated among a handful of firms: The US property-casualty (P/C) industry
comprises thousands of companies, each vying for a share of the multibillion-dollar market for personal and commercial
lines insurance coverage. However, a small group o companies dominates the market. We can see this concentration trend
in the summary table below:!
Current Trends:
Industry Premium Rates have Firmed: The property-casualty
insurance industry has emerged from the credit crisis and the “Great
Recession” relatively unscathed—both financially and from a
regulatory standpoint—especially when compared with other financial
institutions.
Moreover, following several years of heavy storm and catastrophe
losses in 2011–2012, industry premium rates have firmed, although
they may have weakened a bit as of the first quarter of 2014. The
degree to which the industry will be able to grow its premium base
will largely depend on the demand for insurance. An economic
recovery in the US (even a modest one) should help the demand curve
for insurance.
Volume and Direction of Written Premiums show Positive Outlook for Earnings: The net written premiums further
propelled in the first quarter of 2014, as growth was sustained during this period and rose 3.6%, year to year, to $121.4
billion from $117.2 billion.
Personal lines: The industry’s largest sector, personal lines, accounts for 43.1% of the total industry written premiums for
the first quarter of 2014. During this period, the personal lines sector advanced 5.2%, compared with a 5.0% growth rate in
the same quarter of 2013.
Commercial lines: The commercial lines sector accounts for 33.9% of total industry written premiums, and increased to
3.3% in the first quarter of 2014 versus a 5.3% growth in the prior-year period.
Balanced lines: Balanced lines underwriters, who write a combination of personal and commercial lines coverage,
accounted for the 23% of total industry written premiums in the first quarter of 2014. This group posted a 3.7% year-over-
year increase during the first-quarter 2014.
Investment Results have been mixed, but Outlook remains favorable:!Investment income is an important revenue source
for insurers, often accounting for 15%–20% or more of an insurer’s total revenues historically. During the past several
years, investment results have been mixed, as persistent low investment yields pressured investment income.
Realized investment gains saw a 100% increase during the first quarter of 2014, rising to $2.9 billion from $1.4 billion in the
same period in 2013 for the industry as a whole. However, unrealized investment gains and net investment income
declined 90.1% and 1.8%, respectively for the same period.
Going forward a continuous recovery of the economy, a favorable outlook for businesses and an eventual increase in rates
should favor returns derived form investments that trickle down to the bottom line.
Loss Trends are Improving: The largest expense item facing an insurer is often loss costs and related expenses, which are
commonly referred to as loss adjustment expenses. A change in the direction of these expenses can dramatically affect
bottom-line results. The summary table bellow depicts the improving conditions of the industry:

BABSON
College Fund
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
! ! ! ! 10!!
!
!
- In 2013, underwriting rebounded to a $15.5 billion gain after a
$13.3 billion loss in 2012. This momentum continued in the first
quarter of 2014 when underwriting registered a net gain.
Combined Ratio as Measure to Gauge Performance: It is the sum
of the loss ratio, the expense ratio, and (where applicable) the
dividend ratio. A combined ratio under 100% indicates an
underwriting profit, while one in excess of 100% means there is
an underwriting loss. For 2013, insurers in the ISO study
reported a combined ratio of 96.1%, a decline from 102.9% in
2012. In the first quarter of 2014, the combined ratio improved to
97.3% from 94.9% in the same period in 2013.
Surplus Remains Abundant: Also referred to ass net worth is
the: the amount by which an insurer’s assets exceed its liabilities.
The combined surplus continued to increase in the first quarter
of 2014. As of March 31, 2014, insurers had a combined surplus
of $662.0 billion, up 1.3% from $609.8 billion in the same period in 2013. The ratio of net written premiums to surplus stood
at 0.18-to-1 on March 31, 2014. In other words, in the first quarter of 2014, insurers wrote $0.18 worth of premiums for
every $1 of surplus. If we assume a “typical” rate of leverage of 2-to-1 (which is what regulators usually allow), the
industry had approximately $601.3 billion of “excess” surpluses on March 31, 2014.
Us Catastrophe Losses Slightly Increase In Q12014: For the second half of 2014, the catastrophe loss outlook is likely to be
mixed. The first quarter of 2014 revealed underwriting results for many insurers that were negatively affected by claims
from a series of winter storms from January 1 to February 21. However, outlook could turn positive given the forecast of a
below- average hurricane season toward the second half of 2014. Storm forecasters attribute this to the formation of El
Nino, a weather pattern that tends to suppress the development of hurricanes.
Congress Reforms Crop Insurance: The market leader in this space is indeed ACE, with an estimated market share of
18.7%. After several years of enduring losses the insurance companies see the signature of a new law (The Agriculture Act
of 2014) by president Obama in February as a favorable driver. The most significant factor being that the new act repeals
he old system of direct payments to farmers regardless of how much they actually plant or the price for which they sell
their crops. Instead, farmers would buy into an insurance policy that covers lost revenue due to drops in prices or
increases in feed costs.
Final Thoughts and Outlook:
Most insurance company’s in the industry are generating premium rates for many lines of business that are adequate to
offset claim costs and still provide an underwriting profit. We believe in a positive fundamental outlook on the property-
casualty insurance industry, largely because we think the fundamentals remain fairly healthy.
Moreover, most segments have emerged from the credit crisis relatively unscathed, from both a financial and a regulatory
standpoint. Although they now have a degree of federal regulatory oversight, most insurers have seen little to no change
in their business models.
Finally, while this period of prolonged low interest rates has crimped investment income growth for all insurers, we note
that the property-casualty industry has a better “match” between their assets and liabilities since they are able to re-price
their policies every six to 12 months.
We expect underwriting results for most insurers in in the space to be relatively healthy for the remainder of 2014. We
think the focus will be on insurers’ top-line results, specifically the degree to which both premium and investment
revenues rise. In these order of ideas companies with good combined ratios, a diversified product mix that reduces
exposure and a strong underwriting discipline to capitalize the abundant surplus will outperform.
Source: S&P Net Advantage

BABSON
College Fund
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
! ! ! ! 11!!
!
!
Management:
ACE’s management team is well known for their conservative steady growth approach and diligent focus towards strong
underwriting premium discipline. This is reflected in the company’s consistent track record in terms of premiums written,
earnings per share, earnings growth and dividend record that goes back more than 10 years. And for this, we expect
management to continue to outperform in the future. Key leaders in ACE’s team include:
Evan G. Greenberg, Chairman and Chief Executive Officer of ACE Limited and ACE Group. Mr. Greenberg joined ACE
Group in November 2001 as Vice Chairman. He was elected President and Chief Executive Officer in May 2004 and
Chairman of the Board of Directors in May 2007. Over the course of more than 40 years in the insurance industry, Mr.
Greenberg has held various underwriting and management positions and gained significant insight in the global property,
casualty and life insurance sectors. Prior to joining ACE, Mr. Greenberg spent 25 years at American International Group,
where he served as President and Chief Operating Officer from 1997 to 2000.
John Lupica, Vice Chairman of ACE Limited and Chairman, Insurance – North America, a position he has held since July
2011. He is responsible for the company’s property and casualty (P&C) and accident and health (A&H) insurance
businesses in the United States, Bermuda and Canada. Mr. Lupica was appointed Vice Chairman of ACE Limited in
November 2013 and Vice Chairman, ACE Group, in March 2014.
John Keogh,Vice Chairman and Chief Operating Officer of ACE Limited. He is responsible for the company’s property
and casualty (P&C) and accident and health (A&H) insurance operations globally. Mr. Keogh also serves as Chairman,
Insurance – Overseas General, a position he has held since joining the company in 2006. He was named Vice Chairman of
ACE Limited in August 2010 and Chief Operating Officer in July 2011. Mr. Keogh was appointed Vice Chairman, ACE
Group, in March 2014.
Philip Bancroft is Chief Financial Officer of ACE Limited, a position he has held since joining the company in 2002. He is
responsible for all aspects of ACE’s financial organization, including transactional finance and decision-support activities
such as performance management, budgeting, reporting, profit and cost management, and shareholder value. Mr.
Bancroft was appointed Executive Vice President, ACE Group, in March 2014.
Source: Company Website
Shareholder Structure:
ACE’S main shareholders are comprised of Institutions. Main institutional investors include:
Source: Capital IQ

BABSON
College Fund
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
! ! ! ! 12!!
!
!
Stock Performance:
ACE’s stock price in the last 5 years shows some degree of correlation to SSFINL (S&P Financial Index). However in this
period the stock has outperform both the S&P Financial Index and the broader S&P 500 index, with a 5Y return of
111.72%% vs 75.03% and 84.79% respectively. The performance of the stocks summarized in the chart bellow:
Source: Bloomberg
Consensus Recommendations:
Analyst consensus recommendations imply 5.8% return potential to ACE’s stock, with a price target of $114.51. Recent
recommendations range from overweigh/buy to hold.

BABSON
College Fund
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
! ! ! ! 13!!
!
!
In addition to using Bloomberg for analyst consensus, we contacted Gloria Vogel Equity Research Analyst for Drexel
Hamilton. Amongst the mots relevant insights discussed we have the following:
• Summary of Drivers: According to the analyst, growth of both the top and bottom line drive the price of the
stock. Organic growth in not so penetrated and oversupplied markets, and M & A activity (such ass the recent
acquisition in Brazil, Thailand and Mexico) will support the price of the stock going forward.
• Investment Income: The analyst noted ACES’s investment income as a big source of pretax income. She likes the
company’s conservative approach of investing the float and also noted the above average return earned on
much smaller portion of the portfolio (around 5%) focused on alternative investments (private equity, hedge
funds, CMBS related instruments).
• Competition heating up: Given the level of supplied insurance products, competition as noted by the company
in the recent conference call is increasing. The analyst noted however that ACE would outperform peers in these
kinds of conditions given their product mix, market exposure and low combined ratios.
• Challenges/Risks Going Forward: Going forward important potential headwinds that could counter our thesis
are: potential catastrophes, a more competitive landscape, and the possibility that the company cold not be
generating meaningful growth and synergies from recent acquisitions.
Furthermore we contacted Helen Willson, Senior Vice President of Investor Relations to form some guidance in terms of
the future of the company. Several key points were discussed including:
• Growth Rate of Premiums Going Forward; In terms of premium growth Mrs. Wilson did not offer any specific
guidance as to what to expect going forward, as she pointed out she did not wanted to establish any range and
that create any false expectations. She did highlight however and I think this is worth noting that the company
is very disciplined when underwriting premiums, and will not be looking for growth if it means increasing risk
beyond the appropriate levels of risk.
• In terms of Insurance Rates; she noted that ACE has enjoyed around 2-3 years of improvement in terms of
pricing and it would be foolish to expect that this trend will last forever, she anticipates that rates will become a
bit lower towards more normal levels.
• In terms of competition she stated that when rates start to push down it’s expected that the combined ratio will
also go down with them. But, she noted that the company’s focus on efficiency makes them a better candidate to
compete in a space with these characteristics.
• Investment Income: She noted that the float generated by the premiums written will be invested based on ACE’s
same conservative philosophy and that a yield close to 3.5% should be expected going forward. She also noted
that an eventual rise in interest rates could have a substantial impact in profits, being that investment income
accounts for a big portion of pretax income.
• We also discussed how the management team plans to deploy the excess capital; she noted that the board
would meet in November to determine planes regarding further repurchasing programs. On the M&A front,
she does not see any potential transactions in the shorter term but explained that management is not shy of
using this vehicle to peruse growth if the right price is paid. Moreover, she clarified that their priority is to
return the excess capital to shareholders whether it be be buy buying back shares or perusing opportunity’s that
offer good ROE and grow the business.

BABSON
College Fund
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
! ! ! ! 14!!
!
!
Benchmarking and Valuation
To get and idea of how ACE’s measures against its peers in the space we can observe the company’s performance in the
following graphs:
Relative Valuation:
Source: Data from Bloomberg, Graphs (Tableu Software)
Performance:
Source: Data from Bloomberg, Graphs (Tableu Software)

BABSON
College Fund
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
! ! ! ! 15!!
!
!
Yield Benchmark
Summery of Findings:
• Undervalued when considering P/b vs ROE
• Very efficient when considering combined ratio
• Competitive Yield in line with peers
We projected ACE’s fair share price to be $135.93 per share, implying a potential upside 24.9%. We approached the
valuation by using three methodologies.
First, a blended comparable company analysis using P/B and P/E. Second, we applied an additional technique we felt
was relevant to incorporate given the consistent track record the stock has.
This method, that first appeared in Bejamin’s Graham book the Intelligent Investor uses the following formula to derive
the price target, (also known as intrinsic value). Where: Value = Current (Normal) Earnings X (8.5 plus twice the
expected annual growth rate). In order to modernize to some extent the method uses a weighted average of the diluted
earnings per share more weighted towards recent earnings.
The 8.5 factor comes form Grahams understanding that a required rate of return in perpetuity for an investment of $8.5
is $1. This also yields a discount factor of 11%, which is a fairly appropriate discount rate. The bellow table summarizes
our three different valuation methods:

BABSON
College Fund
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
! ! ! ! 16!!
!
!
Price to Tangible Book Per Share:
Source: Bloomberg
Compco Median P/B 2014 1.29$
ACE Book Value per Share 2014E 91.88$
Implied Price Per Share 118.94$
Weight of the P/B Multiple 25%
Compco Median P/E 2014 11.56$
ACE Earnings per Share 2014E 9.57$
Implied Price Per Share 110.62$
Weight of the P/E Multiple 25%
Modern Graham Valuation EPS
2014 9.57$
2013 9.35$
2012 7.90$
2011 4.65$
2010 9.11$
2009 7.55$
2008 3.53$
2007 7.66$
2006 6.90$
2005 3.31$
2004 3.83$
EPSmg 8.49$
Growth Rate (7-10 yrs): 5.00%
Intrinsic Value of te Stock 157.08
Weight of Intrinsic Value Calculation 50.00%
Final Implied Price Per Share 135.93
Current Price as of 10/30/2014 108.85
Potential Upside 25%
Blended COMPCO
Valuation Summary

BABSON
College Fund
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
! ! ! ! 17!!
!
!
Moreover, as we see in the above chart (as of 10/27/2014) ACE’s stock is now trading at a P/TB multiple of 1.48, bellow
the stocks average P/TB multiple of of 1.75 representing and additional discount of 17.44%. This serves as a cushion in
terms of valuation of ACE and supports our thesis for investing in this stock.

BABSON
College Fund
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
! ! ! ! 18!!
!
!
Appendix 1: ACE’s Financial Statements
Source: Bloomberg
ACE Ltd (ACE US) - StandardizedACE Ltd (ACE US) - Standardized
In Millions of USD except Per Share
12 Months Ending
+ Net Premium Earned (Non-Life & Life)
Growth (YoY)
+ Capital Gains (Losses)
Growth (YoY)
+ Total Investment Income
Growth (YoY)
+ Other Operating Income
Growth (YoY)
Revenue
Growth (YoY)
- Insurance Claims & Charges
Growth (YoY)
- Underwriting Costs
Growth (YoY)
- Other Operating Expenses
Growth (YoY)
Operating Income
Growth (YoY)
- Interest Expense
Growth (YoY)
- Net Non-Operating Losses (Gains)
Pretax Income
Growth (YoY)
- Income Tax Expense
Growth (YoY)
Income Before XO Items
Growth (YoY)
- Extraordinary Loss Net of Tax
- Minority Interest
Net Income
Growth (YoY)
- Total Cash Preferred Dividends
Growth (YoY)
- Other Adjustments
Net Income Available to Shareholders
Growth (YoY)
Abnormal loss (gain)
Growth (YoY)
Tax Effect on Abnormal Items
Growth (YoY)
Normalized Income
Growth (YoY)
Basic EPS Before Abnormal Items
Growth (YoY)
Basic EPS Before XO Items
Growth (YoY)
Basic EPS
Growth (YoY)
Basic Weighted Avg Shares
Growth (YoY)
Diluted EPS Before Abnormal Items
Growth (YoY)
Diluted EPS Before XO Items
Growth (YoY)
Diluted EPS
FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 Last 12M
2007-12-31 2008-12-31 2009-12-31 2010-12-31 2011-12-31 2012-12-31 2013-12-31 2014-09-30
12,297.0 13,203.0 13,240.0 13,504.0 15,387.0 15,677.0 16,613.0 17,419.0
4.0 7.4 0.3 2.0 13.9 1.9 6.0 8.2
-61.0 -1,633.0 -196.0 432.0 -795.0 78.0 504.0 -143.0
37.8 -2,577.0 88.0 -- -- -- 546.2
1,918.0 2,062.0 2,031.0 2,070.0 2,242.0 2,181.0 2,144.0 2,232.0
19.8 7.5 -1.5 1.9 8.3 -2.7 -1.7 3.6
0.0 66.0 -- -- -- -- --
-- -- -- -- -- -- --
14,154.0 13,698.0 15,075.0 16,006.0 16,834.0 17,936.0 19,261.0 19,569.0
5.7 -3.2 10.1 6.2 5.2 6.5 7.4 3.7
7,519.0 8,002.0 7,747.0 7,936.0 9,921.0 10,174.0 9,863.0 10,319.0
4.5 6.4 -3.2 2.4 25.0 2.6 -3.1 2.9
3,226.0 3,872.0 3,941.0 4,195.0 4,540.0 4,542.0 4,870.0 5,188.0
1.7 20.0 1.8 6.4 8.2 0.0 7.2 8.4
81.0 27.0 85.0 0.0 0.0 0.0 0.0 0.0
224.0 -66.7 214.8 -- -- -- --
3,328.0 1,797.0 3,302.0 3,875.0 2,373.0 3,220.0 4,528.0 4,062.0
11.0 -46.0 83.8 17.4 -38.8 35.7 40.6 0.0
175.0 230.0 225.0 224.0 250.0 250.0 275.0 283.0
-0.6 31.4 -2.2 -0.4 11.6 0.0 10.0 5.6
0.0 0.0 0.0 -16.0 81.0 -6.0 15.0
3,153.0 1,567.0 3,077.0 3,667.0 2,042.0 2,976.0 4,238.0 3,786.0
11.7 -50.3 96.4 19.2 -44.3 45.7 42.4 0.1
575.0 370.0 528.0 559.0 502.0 270.0 480.0 490.0
10.2 -35.7 42.7 5.9 -10.2 -46.2 77.8 90.7
2,578.0 1,197.0 2,549.0 3,108.0 1,540.0 2,706.0 3,758.0 3,296.0
12.0 -53.6 112.9 21.9 -50.5 75.7 38.9 -6.5
0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
2,578.0 1,197.0 2,549.0 3,108.0 1,540.0 2,706.0 3,758.0 3,296.0
11.8 -53.6 112.9 21.9 -50.5 75.7 38.9 -6.5
45.0 24.0 0.0 0.0 0.0 0.0 0.0 0.0
0.0 -46.7 -- -- -- -- --
-- -- 0.0 0.0 0.0 0.0 0.0 0.0
2,533.0 1,173.0 2,549.0 3,108.0 1,540.0 2,706.0 3,758.0 3,296.0
12.1 -53.7 117.3 21.9 -50.5 75.7 38.9 -6.5
0.0 0.0 196.0 -430.0 800.0 -67.0 -500.0 150.0
-- -- -- -- -- -- 646.3
0.0 0.0 14.0 -19.7 -5.8 -7.9 -38.4 -124.5
-- -- -- -- -70.8 36.5 389.2 553.3
2,533.0 1,173.0 2,759.0 2,658.3 2,334.3 2,631.2 3,219.6 3,321.6
9.1 -53.7 135.2 -3.6 -12.2 12.7 22.4 15.1
8.21 7.81 8.19 7.82 6.89 7.72 9.43 9.80
11.4 -4.9 4.9 -4.5 -11.9 12.0 22.2 16.0
7.79 3.57 7.57 9.15 4.55 7.96 11.02 9.74
11.1 -54.2 112.0 20.9 -50.3 74.9 38.4 -5.7
7.79 3.57 7.57 9.15 4.55 7.96 11.02 9.74
11.0 -54.2 112.0 20.9 -50.3 74.9 38.4 -5.7
324.9 328.6 336.7 339.7 338.2 339.8 340.9 334.5
1.0 1.1 2.5 0.9 -0.4 0.5 0.3
8.07 7.72 8.17 7.79 6.85 7.65 9.36 9.73
11.3 -4.3 5.8 -4.7 -12.1 11.7 22.3 16.1
7.66 3.53 7.55 9.11 4.52 7.89 10.92 9.64
11.0 -53.9 113.9 20.7 -50.4 74.6 38.4 -5.9
7.66 3.53 7.55 9.11 4.52 7.89 10.92 9.64

BABSON
College Fund
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
! ! ! ! 19!!
!
!
Source: Bloomberg
ACE Ltd (ACE US) - StandardizedACE Ltd (ACE US) - Standardized
In Millions of USD except Per Share
12 Months Ending
Assets
+ Total Investments
Growth (YoY)
+ Fixed Income-Trading/AFS & ST Inv
Growth (YoY)
+ Loans & Mortgages
+ Fixed Income Securities-HTM
Growth (YoY)
+ Equity Securities
Growth (YoY)
+ Real Estate Investments
+ Other Investments
Growth (YoY)
+ Cash & Near Cash Items
Growth (YoY)
+ Accounts & Notes Receivable
Growth (YoY)
+ Deferred Policy Acquisition Costs
Growth (YoY)
+ Other Assets
Growth (YoY)
Total Assets
Growth (YoY)
FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013
2007-12-31 2008-12-31 2009-12-31 2010-12-31 2011-12-31 2012-12-31 2013-12-31
41,779.0 39,715.0 46,515.0 51,407.0 55,676.0 60,264.0 60,928.0
14.1 -4.9 17.1 10.5 8.3 8.2 1.1
35,815.0 34,505.0 41,192.0 39,522.0 44,268.0 49,534.0 51,017.0
15.5 -3.7 19.4 -4.1 12.0 11.9 3.0
0.0 0.0 0.0 0.0 0.0 0.0 0.0
2,987.0 2,860.0 3,481.0 9,501.0 8,447.0 7,270.0 6,098.0
-2.0 -4.3 21.7 172.9 -11.1 -13.9 -16.1
1,837.0 988.0 467.0 692.0 647.0 744.0 837.0
7.2 -46.2 -52.7 48.2 -6.5 15.0 12.5
0.0 0.0 0.0 0.0 0.0 0.0 0.0
1,140.0 1,362.0 1,375.0 1,692.0 2,314.0 2,716.0 2,976.0
34.9 19.5 1.0 23.1 36.8 17.4 9.6
510.0 867.0 669.0 772.0 614.0 615.0 579.0
-9.7 70.0 -22.8 15.4 -20.5 0.2 -5.9
18,318.0 18,072.0 18,066.0 17,906.0 17,572.0 17,018.0 17,027.0
-1.0 -1.3 0.0 -0.9 -1.9 -3.2 0.1
1,121.0 1,214.0 1,445.0 1,641.0 1,548.0 1,873.0 2,313.0
4.1 8.3 19.0 13.6 -5.7 21.0 23.5
10,362.0 12,189.0 11,285.0 11,629.0 11,911.0 12,775.0 13,663.0
-0.2 17.6 -7.4 3.0 2.4 7.3 7.0
72,090.0 72,057.0 77,980.0 83,355.0 87,321.0 92,545.0 94,510.0
7.4 0.0 8.2 6.9 4.8 6.0 2.1
Liabilities & Shareholders' Equity
+ Reserve for Outstanding Claim & Loss
Growth (YoY)
+ Premium Reserve (Unearned)
Growth (YoY)
+ Life Policy Benefits
Growth (YoY)
+ Other Insurance Reserves
+ Total Insurance Reserves
Growth (YoY)
+ Short-Term Borrowings
Growth (YoY)
+ Other Short-Term Liabilities
Growth (YoY)
+ Long-Term Borrowings
Growth (YoY)
+ Other Long-Term Liabilities
Growth (YoY)
Total Liabilities
Growth (YoY)
+ Total Preferred Equity
Growth (YoY)
+ Minority Interest
+ Policyholders' Equity
+ Share Capital & APIC
Growth (YoY)
+ Retained Earnings & Other Equity
Growth (YoY)
Total Equity
Growth (YoY)
Total Liabilities & Equity
Growth (YoY)
37,112.0 37,176.0 37,783.0 37,391.0 37,477.0 37,946.0 37,443.0
4.5 0.2 1.6 -1.0 0.2 1.3 -1.3
6,227.0 5,950.0 6,067.0 6,330.0 6,334.0 6,864.0 7,539.0
-3.3 -4.4 2.0 4.3 0.1 8.4 9.8
545.0 2,904.0 3,008.0 3,106.0 4,274.0 4,470.0 4,615.0
5.2 432.8 3.6 3.3 37.6 4.6 3.2
0.0 0.0 0.0 0.0 0.0 0.0 0.0
43,884.0 46,030.0 46,858.0 46,827.0 48,085.0 49,280.0 49,597.0
3.3 4.9 1.8 -0.1 2.7 2.5 0.6
372.0 471.0 161.0 1,300.0 1,251.0 1,401.0 1,901.0
-35.6 26.6 -65.8 707.5 -3.8 12.0 35.7
9,037.0 7,995.0 7,827.0 8,587.0 9,984.0 10,664.0 10,071.0
13.8 -11.5 -2.1 9.7 16.3 6.8 -5.6
2,120.0 3,115.0 3,467.0 3,667.0 3,669.0 3,669.0 4,116.0
13.4 46.9 11.3 5.8 0.1 0.0 12.2
0.0 0.0 0.0 0.0 0.0 0.0 0.0
-- -- -- -- -- -- --
55,413.0 57,611.0 58,313.0 60,381.0 62,989.0 65,014.0 65,685.0
4.8 4.0 1.2 3.5 4.3 3.2 1.0
575.0 0.0 0.0 0.0 0.0 0.0 0.0
0.0 -- -- -- -- -- --
0.0 0.0 0.0 0.0 0.0 0.0 0.0
0.0 0.0 0.0 0.0 0.0 0.0 0.0
6,253.0 16,291.0 16,029.0 15,784.0 15,421.0 14,770.0 14,137.0
2.8 160.5 -1.6 -1.5 -2.3 -4.2 -4.3
9,849.0 -1,845.0 3,638.0 7,190.0 8,911.0 12,761.0 14,688.0
29.2 -- -- 97.6 23.9 43.2 15.1
16,677.0 14,446.0 19,667.0 22,974.0 24,332.0 27,531.0 28,825.0
16.8 -13.4 36.1 16.8 5.9 13.1 4.7
72,090.0 72,057.0 77,980.0 83,355.0 87,321.0 92,545.0 94,510.0
7.4 0.0 8.2 6.9 4.8 6.0 2.1

BABSON
College Fund
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
! ! ! ! 20!!
!
!
Appendix 2: SIVB’s Value Line Report
Source: Value Line!
160
120
100
80
60
50
40
30
20
15
Percent
shares
traded
18
12
6
Target Price Range
2017 2018 2019
ACE LTD.NYSE-ACE 106.63 11.0 11.1
8.5 0.60 2.4%
TIMELINESS 3 Raised11/1/13
SAFETY 2 Raised12/19/08
TECHNICAL 3 Lowered6/6/14
BETA .85 (1.00 =Market)
2017-19 PROJECTIONS
Ann’l Total
Price Gain Return
High 130 (+20%) 7%
Low 95 (-10%) Nil
Insider Decisions
O N D J F M A M J
to Buy 0 0 0 0 0 0 0 0 0
Options 0 0 2 1 0 0 0 1 1
to Sell 0 0 1 1 0 0 0 2 1
Institutional Decisions
4Q2013 1Q2014 2Q2014
to Buy 266 262 267
to Sell 253 261 258
Hld’s(000) 314185 308876 308732
High: 42.8 46.0 56.8 61.9 64.3 68.0 55.6 62.6 73.8 82.1 104.1 108.6
Low: 23.6 31.8 38.4 47.8 52.8 34.9 30.9 47.1 56.9 68.5 79.8 92.0
%TOT. RETURN8/14
THIS VLARITH.*
STOCK INDEX
1 yr. 24.2 21.5
3 yr. 76.3 72.7
5 yr. 128.4 129.0
CAPITAL STRUCTURE as of 6/30/14
Total Debt $5908 mill. Due in 5 Yrs $4033 mill.
LT Debt $4057 mill. LT Interest $272 mill.
(Includes $309 mill. of Trust Preferred Securities)
(12% of Cap’l)
Leases, Uncapitalized Annual rentals $106 mill.
Common Stock 335,698,995 shs.
MARKET CAP: $35.8 billion (Large Cap)
FINANCIAL POSITION 2012 2013 6/30/14
($MILL.)
Bonds 47306 49254 51601
Stocks 744 837 907
Other 44495 44419 44939
Total Assets 92545 94510 97447
Unearned Premium 6864 7539 8296
Reserves 37946 37443 37177
Other 20204 20703 21649
Total Liab’ties 65014 65685 67122
ANNUAL RATES Past Past Est’d ’11-’13
of change (per sh) 10 Yrs. 5 Yrs. to ’17-’19
Premium Inc 7.0% 4.0% 6.0%
Invest Income 7.5% 6.0% 2.5%
Earnings 20.5% 4.5% 9.5%
Dividends 10.5% 10.0% 7.5%
Book Value 12.5% 15.5% 6.0%
Cal- Full
endar Year
NET PREMIUMS EARNED
Mar.31 Jun.30 Sep.30 Dec.31
2011 3309 3757 4490 3831 15387
2012 3381 3783 4665 3848 15677
2013 3573 4067 4610 4363 16613
2014 3970 4332 4995 5053 18350
2015 4720 4665 4965 5150 19500
Cal- Full
endar Year
EARNINGS PER SHARE A
2011 .79 2.01 2.22 1.94 6.96
2012 2.05 2.17 2.01 1.43 7.66
2013 2.17 2.29 2.49 2.39 9.34
2014 2.27 2.42 2.47 2.34 9.50
2015 2.45 2.55 2.75 2.25 10.00
Cal- Full
endar Year
QUARTERLY DIVIDENDS PAID BE
2010 .31 .31 .33 .33 1.28
2011 .33 .33 .35 .35 1.36
2012 .47 .47 .49 .98 2.41
2013 - - .49 .51 .51 1.51
2014 .63 .63 .65
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
4.62 11.43 19.52 22.77 25.40 34.31 39.15 36.34 36.22 37.30 39.57 39.34 40.25 46.48
1.68 2.27 3.32 3.02 3.05 3.08 3.52 3.91 4.90 5.82 6.18 6.04 6.17 6.77
.55 .06 .88 d.96 d1.13 2.81 1.42 .32 4.48 4.71 3.98 4.61 5.16 4.13
2.96 1.85 2.31 d.63 1.78 4.28 3.28 3.05 7.05 8.07 7.72 8.17 7.79 6.96
.36 .42 .50 .58 .66 .74 .82 .90 .98 1.06 1.09 1.19 1.30 1.50
19.19 21.39 23.33 23.50 23.14 23.35 26.49 29.42 36.69 43.61 43.30 58.44 68.47 74.06
193.59 217.46 232.35 259.86 262.68 279.90 284.48 323.32 326.46 329.70 333.65 336.52 335.54 331.02
179% 117% 124% 153% 150% 142% 156% 157% 148% 136% 126% 80% 79% 88%
11.6 13.5 12.5 - - 19.5 7.7 12.6 15.2 7.7 7.4 7.1 5.7 6.9 9.3
.60 .77 .81 - - 1.07 .44 .67 .81 .42 .39 .43 .38 .44 .58
1.0% 1.7% 1.7% 1.6% 1.9% 2.2% 2.0% 1.9% 1.8% 1.8% 2.0% 2.6% 2.4% 2.3%
11136 11748 11825 12297 13203 13240 13504 15387
69.3% 74.2% 60.8% 61.1% 60.6% 58.5% 56.1% 61.9%
26.2% 24.9% 26.4% 26.9% 29.6% 29.6% 30.6% 29.3%
4.6% 1.0% 12.8% 11.9% 9.8% 11.9% 13.3% 8.9%
19.4% 22.3% 18.3% 17.9% 19.8% 15.7% 17.9% 17.8%
983.2 952.0 2351.0 2639.0 2567.0 2759.0 2657.0 2372.0
4.2% 4.0% 4.4% 4.9% 5.6% 4.7% 4.9% 4.7%
56342 62440 67135 72090 72057 77980 83355 87505
9835.8 11812 14278 16677 14446 19667 22974 24516
10.0% 8.1% 16.5% 15.8% 17.8% 14.0% 11.6% 9.7%
9.5% 6.9% 16.6% 15.7% 15.1% 12.1% 9.7% 7.8%
28% 31% 15% 15% 15% 14% 16% 19%
2012 2013 2014 2015 © VALUE LINE PUB. LLC 17-19
46.41 49.33 54.45 57.85 P/C Prem Earned per sh 68.10
6.13 6.05 6.25 6.50 Investment Inc per sh 7.50
4.41 5.18 5.15 5.50 Underwriting Inc per sh 6.45
7.66 9.34 9.50 10.00 Earnings per sh A 14.00
1.94 2.14 2.58 2.64 Div’ds Decl’d per sh BE 2.91
81.50 85.60 91.55 96.45 Book Value per sh C 114.55
337.81 336.76 337.00 337.00 Common Shs Outst’g D 323.00
92% 107% Bold figures are
Value Line
estimates
Price to Book Value 98%
9.7 9.8 Avg Ann’l P/E Ratio 8.0
.62 .55 Relative P/E Ratio .50
2.6% 2.3% Avg Ann’l Div’d Yield 2.6%
15677 16613 18350 19500 P/C Premiums Earned 22000
60.5% 60.5% 60.5% 60.5% Loss to Prem Earned 60.5%
30.0% 29.0% 30.0% 30.0% Expense to Prem Writ 30.0%
9.5% 10.5% 9.5% 9.5% Underwriting Margin 9.5%
18.0% 18.0% 18.0% 18.0% Income Tax Rate 18.0%
2706.0 3758.0 3250 3400 Net Profit ($mill) 4550
5.0% 5.0% 4.7% 4.8% Inv Inc/Total Inv 5.0%
92545 94510 97500 100000 Total Assets ($mill) 106000
27531 28825 30900 32500 Shr. Equity ($mill) 37000
9.8% 13.0% 10.5% 10.5% Return on Shr. Equity 12.5%
7.5% 10.5% 7.5% 7.5% Retained to Com Eq 10.0%
24% 19% 27% 26% All Div’ds to Net Prof 21%
Company’s Financial Strength A+
Stock’s Price Stability 95
Price Growth Persistence 90
Earnings Predictability 85
(A) Dil. egs. Op. egs. starting in 2002 (Excl.
cap. gains/losses): ’98, $2.06; ’99, $0.22; ’00,
($0.18); ’01, ($0.11); ’02, ($1.59); ’03, $0.75;
’04, $0.25; ’05, $0.26; ’06, ($0.14); ’07,
($0.18); ’08, ($4.19); ’09, ($0.61); ’10, $1.32;
’11, ($2.31). 2010 eps do not sum due to
change in shares. Next egs. rpt. late October.
(B) Div’ds paid in late Apr., July, Oct., and Jan.
Paid in Swiss Francs as of 7/08 and converted
to U.S. Dollars at pymt. date. (C) Incl. intang. In
2013: $5404 mill., $16.05/share. (D) In mill. (E)
Advanced dividend of $0.49 paid on 12/28/12.
BUSINESS: ACE Limited provides insurance and reinsurance for a
diverse group of international clients. Has clients in about 140 coun-
tries. Net premiums earned breakdown in 2013: North America
(45%), Overseas General (38%), Global Reinsurance (6%), Life In-
surance and Reinsurance (11%). Acquired CAT Limited and
Westchester Specialty Group in 1998; CIGNA’s property/casualty
book in 1999. Acquired Capital Re in 1999. Spun off 65% of AGC
Holdings LTD, 4/04. Officers & directors own less than 1.0% of
common shares; Capital World Investors, 7.5%; BlackRock, Inc.
8.0% (4/14 Proxy). Chairman, President, & CEO: Evan G. Green-
berg. Address: Barengasse 32, CH-8001 Zurich, Switzerland. Tele-
phone: +41 (0)43 456 76 00. Internet: www.acelimited.com.
ACE Lim ite d se e m s to be rollin g alon g
at a good clip. Net premiums earned
growth has gained steam overseas, while
overall profitability has taken advantage
of stronger underwriting results and high-
er investment income. Further, the compa-
ny’s adherence to stringent underwriting
criteria and new cost controls have bol-
stered the combined ratio. Also, positive
reserve development has been a boon to
earnings. Going forward, we believe a com-
bination of meaningful rate increases,
lower total risk exposure, and elevated
equity markets augur well for premiums
and profits.
Th e in su re r h as raise d its qu arte rly
cash divide n d. Indeed, it hiked the pay-
out by $0.02, or approximately 3%, to
$0.65 a share. Stockholders ought to ap-
plaud this action, in our view, as it reflects
a good balance sheet, solid business pros-
pects, and management’s willingness to re-
turn additional capital to shareholders. In-
vestors should note ACE’s dividend yield
hovers above the Value Line median.
Th e com pan y h as an n ou n ce d it is se t
to acqu ire Itau Un iban co. Although
little detail surrounding the acquisition is
known, the transaction is expected to cost
ACE about $685 million. The addition of
Itau ought to considerably strengthen the
insurer ’s property & casualty operations
throughout Brazil. The Brazilian outfit
specializes in mid-sized and large corpo-
rate P&C offerings, as well as delivering
accident & health products. This marriage
will create the largest commercial P&C
business in Brazil, replete with 19 office
locations and more than 600 brokers.
Th e se sh are s are ran ke d 3 (Ave rage )
for Tim e lin e ss. The stock presently
trades well-within our Target Price Range
to 2017-2019, limiting its capital appreci-
ation potential during that span. Further-
more, this good-quality issue appears fair-
ly valued on a P/E basis. ACE Limited’s
pursuit of Itau Unibanco and Samaggi In-
surance in Thailand ought to lift global
prospects. The company’s flexible balance
sheet, sturdy underwriting guidelines, and
ample reserves have it poised for
noteworthy top- and bottom-line advances
three to five years hence. Thus, a smooth
integration of ACE’s recent acquisitions
may prompt us to revisit our projections.
Kenneth DeFranco, J r. S eptem ber 12, 2014
LEGENDS
8.0 x Earnings p sh
.... Relative Price Strength
Options: Yes
Shaded area indicates recession
© 2014 Value Line Publishing LLC. All rights reserved. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind.
THE PUBLISHER IS NOT RESPONSIBLE FORANY ERRORS OR OMISSIONS HEREIN. This publication is strictly for subscriber’s own, non-commercial, internal use. No part
of it may be reproduced, resold, stored or transmitted in any printed, electronic or other form, or used for generating or marketing any printed or electronic publication, service or product.
To subscribe call 1-800-VALUELINE
RECENT
PRICE
P/E
RATIO
RELATIVE
P/E RATIO
DIV’D
YLD( )Trailing:
Median:
VALUE
LINE

BABSON
College Fund
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
! ! ! ! 21!!
!
!
Important Disclosures
Babson College Fund
The Babson College Fund (BCF) is an academic program in which selected students manage a portion of the Babson
College endowment. The program seeks to provide a rich educational experience through the development of
investment research skills and the acquisition of equity analysis and portfolio management experience. Please visit
http://cutler.babson.edu for more information.
Analyst Contact Information
Alfredo Leon | 7347304664 | rdiplock1@babson.edu
Paul Ramey | 6032754515 | pramey1@babson.edu
Ryan Diplock| 4136956343| rdiplock1@babson.edu
Definition of Ratings
BUY: Expected to outperform the S&P500 producing above average returns.
HOLD: Expected to perform in line with the S&P500 producing average returns.
SELL: Expected to underperform the S&P500 producing below average returns.
References
Capital IQ
Thomson ONE
S&P Net Advantage
Bloomberg
Value Line
ACE Group Company Website
Analyst: Gloria Vogel Equity Research Analyst for Drexel Hamilton
Investor Relations: Helen Wilson Helen Wilson

BABSON
College Fund
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
! ! ! ! 22!!
!
!

Financials_ACE_Buy_10_31_2014

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (15)

Similar to Financials_ACE_Buy_10_31_2014

Similar to Financials_ACE_Buy_10_31_2014 (20)

Financials_ACE_Buy_10_31_2014