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ACE Limited 11 July 2008

Update Report – 1Q 08 Results

Recent acquisitions to offset impact of soft P&C pricing, drive long term growth

NYSE BUY Fundamental research indicates a 31% upside in the NYSE common stock over the next 6-12 months.
Direct access to
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using a weighted average of target
Common prices obtained using DCF and comparative valuation methodologies. We continue to value the
Stock http://www.iirgroup.com/researchoracle/viewreport/show/20296
company over a 6-12 month investment horizon, as the reinsurance industry in which it operates is
highly cyclical and, therefore, trends can be captured more accurately with a shorter investment
horizon.
Ticker: ACE
Target price: US$69.34 We reiterate the NYSE common stock a BUY on fundamental grounds, with a 6-12 month target price
Current price: US$52.86 of US$69.34.

European BUY The European stock is expected to appreciate approximately 37% over the next 6-12 months, as the
31% fundamental upside and 7 percentage points’ further upside, attributable to the anticipated
Stock1 appreciation of the US dollar against the euro over our investment horizon, are partially offset by
approximately 1 percentage point’s downside attributable to the anticipated increase in the European
Ticker: ACEL.F stock discount2.
Target price: €45.71
Current price: €33.40 We reiterate the European stock a BUY, with a 6-12 month target price of €45.71.

Supervisor: Somnath Banerjee

Analyst: Poonam Jindal
Editor: Heloise Capon
Global Research Director:
Satish Betadpur, CFA
Investment horizon - short term actionable trading strategies
This report addresses the needs of strategic investors with a long term investment horizon of 6-12 months. If this
report is provided to you by your broker under the Global Settlement, you may now also access (free of charge) the
short term trading outlook that we publish from time to time for this issuer, looking at the coming 5-30 days for
readers with a shorter trading horizon. These are available online only at www.researchoracle.com

Next news due:

2Q 08 results, 29 July 2008
Report summary
ACE Limited’s (ACE) 1Q 08 total revenues and net income available to common shareholders were
below both our and market expectations. The weak bottom-line performance (-46.9% y-o-y) was
primarily attributable to higher net realized losses, softening of premium rates across the Property &
Casualty (P&C) sector and intense competition. Weakness in financial markets during the quarter also
had an adverse impact on average yields, which declined to 5.1% in 1Q 08 (5.3% in 1Q 07 and 4Q 07),
reflecting lower US interest rates and widening credit spreads. ACE’s combined ratio improved from
87.2% in 1Q 07 to 84.5% in 1Q 08, reflecting a fall in loss and loss expenses as well as favorable
reserve developments. Going forward, we remain concerned that softer P&C rates across the
company’s operating geographies will continue to adversely affect its financial performance. Moreover,
ongoing volatility in financial markets is likely to continue to limit net investment income growth.
However, we are optimistic that the company’s acquisition of Combined Insurance of America (CICA)
will enable ACE to broaden its international operations. Management has raised its FY 2008 guidance
in order to reflect the impact of the acquisition. In view of the decline in the stock price since our
previous update report, we feel that the company’s fundamental negatives have now been priced in.
Therefore, we view the NYSE common stock as attractive investment opportunity.

Currency impact on the European stock2

By itself, the impact of the anticipated currency movements on the European stock (now €33.40),
without considering changes in the share price, is broadly positive and is expected to be:
Over 6 months: €31.39
Over 12 months: €35.16

Page 1 Refer to page 5 for all footnotes