PMIC Penn Millers Holding Corp. (MM)

ACE Limited (ACE) closed the acquisition of Penn Millers Holding Corporation (PMIC) for a cash consideration of $107 million. The company had entered into an agreement in September to acquire Penn Millers.

Wilkes-Barre, Pennsylvania based Penn Millers Holding Corporation, through its subsidiaries, provides various property and casualty insurance products for agricultural and small commercial business customers. As such, the acquisition enhances ACE Limited’s product offering in the agricultural market.

Further, the acquisition, in the upcoming quarters, will also help the company to write higher premiums, which showed an impressive growth of 17.9% in the third quarter.

ACE Limited expects the acquisition to be accretive to its earnings, return on equity and book value per share.

Earlier, in September 2010, ACE Limited acquired Johnston, Iowa, Rain and Hail Insurance Service $1.1 billion in cash to expand its offering in the agricultural market. ACE Limited, since 1980, continues to be one of the leading crop insurance writers in the U.S.

ACE Limited posted a strong third quarter with operating income of $2.22 per share, surpassing the Zacks Consensus Estimate as well as year ago results. Better-than-expected results stemmed from higher premiums and investment income. The quarter experienced solid current accident year underwriting results benefiting from both underwriting discipline and risk management. Acquisitions also contributed to the better results.

In its third quarter earnings conference call, ACE Limited announced that it expects to deliver earnings in the band of $6.00 - $6.20 per share in 2011. Acquisitions have played an important role in posting solid results by the company. We expect the Penn Millers buy also to support ACE Limited to achieve its guided numbers.

The Zacks Consensus Estimate for fourth-quarter 2011 is $1.93 per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $6.92 per share and $7.50 per share.

We maintain our Neutral recommendation on ACE Limited. The quantitative Zacks #2 Rank (short-term Buy rating) for the company indicates upward pressure on the shares over the near term.

Headquartered in Zurich, Switzerland, ACE Limited, through its subsidiaries, provides a range of insurance and reinsurance products to commercial and individual customers worldwide. The company competes with American International Group Inc. (AIG) and The Travelers Companies Inc. (TRV).

 
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