Banking & Finance

Dividend Watch: Reinsurance/Insurance Managing Japan Risk Just Fine (ACE, RE, PRE, BRK-A)

It was just on May 4, 2011 that ACE Limited (NYSE: ACE) released its quarterly earnings and when it outlined its costs pertaining to that catastrophe in Japan.  It appears that despite some large charges from insurance and reinsurance, the dividend growth is not being wrecked here.  ACE Limited has now raised its dividend by more than 6% to $0.35 per quarter from the prior $0.33 quarterly payout.

Ace now has a dividend yield based after this hike and with shares up around $69.00 of just over 2.00%.  We would consider this more in the middle of the pack of insurance and reinsurance.  Everest Re Group Ltd. (NYSE: RE) pays about a 2.1% yield today and PartnerRe Ltd. (NYSE: PRE) has a yield of just above 3.00%.  Berkshire Hathaway Inc. (NYSE: BRK-A) recently gave its earnings and showed much larger losses from Japan, as you would expect on its size, due to Japan; Berkshire offers no dividend.

When ACE reported earnings it said that net income for the first quarter was $0.76 per share, versus $2.22 per share for the 2010 first quarter. Net income excluding net realized gains and losses was $0.79 per share versus $1.70 a year earlier. 

Net after-tax catastrophe losses for the first quarter of 2011 were $443 million, including reinstatement premiums, or $1.30 per share, compared with $149 million, or $0.44 per share, for the first quarter of 2010.  The company further noted that total pre-tax catastrophe losses including reinstatement premiums were $489 million, and about $247 million was related to the Japan earthquake.

Book value does matter here because ACE makes money.  That stated book value rose by $402 million, or 2%, during the quarter and that book value per share came in at $69.33 with a tangible book value per share of $55.31.  Tangible book value is of course far more important to investors, but Ace just hit a new all-time high of $69.13 today.

All-time high?  Something is working out just fine… Maybe the financial risks in Japan are not as severe as we have all recently expected.

JON C. OGG