Ace Limited Analysis – August 2015 Update $ACE

In the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period.  Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn’t be considered when evaluating the company’s prospects, but doing so would involve speculation.  We don’t know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.  By continuing to require the same standards for the historical period, Intelligent Investors are able to whittle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment.  In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Ace Limited (ACE) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): ACE Limited is a holding company. The Company is a global insurance and reinsurance company. 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 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, it supplies personal accident, supplemental health and life insurance to individuals in select countries. The Company’s segments include Insurance – North American P&C, Insurance – North American Agriculture, Insurance – Overseas General, Global Reinsurance and Life.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of ACE – August 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Pass
5. Moderate PEmg Ratio PEmg < 20 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg 8.84
MG Growth Estimate 5.64%
MG Value $174.88
Opinion Undervalued
MG Value based on 3% Growth $128.17
MG Value based on 0% Growth $75.13
Market Implied Growth Rate 1.96%
Current Price $109.84
% of Intrinsic Value 62.81%

Ace Limited qualifies for both the Defensive Investor and the Enterprising Investor.  The company passes all of the requirements of both investor types, an accomplishment indicative of the company’s strong financial position.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $6.42 in 2011 to an estimated $8.84 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.96% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Ace Limited (ACE)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

ACE charts August 2015

PEmg 12.42
PB Ratio 1.22
Dividend Yield 2.98%
Number of Consecutive Years of Dividend Growth 2



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Most Recent Balance Sheet Figures

Long-Term Debt $4,157,000,000
Total Assets $99,840,000,000
Intangible Assets $5,969,000,000
Total Liabilities $70,285,000,000
Shares Outstanding (Diluted Average) 328,686,000

Earnings Per Share History

Next Fiscal Year Estimate $9.17
Dec14 $8.42
Dec13 $10.92
Dec12 $7.89
Dec11 $4.52
Dec10 $9.11
Dec09 $7.55
Dec08 $3.50
Dec07 $7.66
Dec06 $6.91
Dec05 $3.31
Dec04 $3.88
Dec03 $5.25
Dec02 $0.27
Dec01 -$0.78
Dec00 $2.31
Dec99 $1.85
Sep98 $2.96
Sep97 $2.69
Sep96 $2.69
Sep95 $2.00

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $8.84
Dec14 $8.51
Dec13 $8.37
Dec12 $6.90
Dec11 $6.42
Dec10 $7.23
Dec09 $6.12
Dec08 $5.29
Dec07 $5.93
Dec06 $4.68
Dec05 $3.17
Dec04 $2.80
Dec03 $2.10
Dec02 $0.79
Dec01 $1.30
Dec00 $2.39
Dec99 $2.44

Recommended Reading:

Other ModernGraham posts about the company

10 Companies Benjamin Graham Would Invest In Today – June 2015
The Best Companies of the Insurance Industry – June 2015
5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – June 2015
5 Low PEmg Stocks for the Defensive Investor – May 2015
30 Companies in the Spotlight This Week – 5/23/15

Other ModernGraham posts about related companies

Travelers Companies Analysis – August 2015 Update $TRV
Lincoln National Corporation Analysis – August 2015 Update $LNC
Unum Group Analysis – August 2015 Update $UNM
Principal Financial Group Analysis – August 2015 Update $PFG
Assurant Inc. Analysis – August 2015 Update $AIZ
Arthur J Gallagher & Company Analysis – Initial Coverage $AJG
American International Group Inc. Analysis – August 2015 Update $AIG
Aspen Insurance Holdings Limited Analysis – Initial Coverage $AHL
Cincinnati Financial Corporation Analysis – August 2015 Update $CINF
American Financial Group Inc. Analysis – Initial Coverage $AFG


The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.

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