Leading Bermuda-based insurer ACE Ltd. narrowed its third quarter loss, but failed to report a net profit as a result of after-tax losses from August's European floods and $205 million in after-tax net realised losses.

ACE reported a third-quarter net loss of $57 million, or 24 cents a share, compared with a loss of $442 million, or $1.95 cents a share, in 2001, caused by large World Trade Center claims.

Excluding realised investments and other one-time items, the firm reported 57 cents a share operating profit, compared with a loss of $1.72 a share last year. On that basis, Wall Street expected ACE to post profits of 57 cents a share, on average, according to market research firm Thomson First Call.

The company reported net operating income of $158 million for the three months to September 30 compared with a net operating loss of $390 million for the same quarter in 2001.

"This quarter and our year to date have been characterised by exceptional premium growth. This has helped produce positive cash flow in excess of $1 billion for the quarter," said ACE chairman and chief executive officer Brian Duperreault.

"Operating earnings and unrealised gains from our fixed income portfolio more than offset realised losses this quarter, resulting in an increase in book value per share."

ACE said gross premiums written during the September 30, 2002 quarter increased by 41 percent to $3.5 billion, compared with $2.5 billion for the comparable quarter in 2001 as the company benefited from rising rates.

Net premiums written increased by 70 percent to $2.2 billion and net premiums earned increased by 37 percent to $1.9 billion.

"Underwriting results improved in the current quarter with a consolidated combined ratio of 97.7 percent compared with 142.5 percent in the prior year quarter," the company said. "The current quarter includes $90 million after tax losses related to the European floods as previously announced."

Net investment income was $199 million for the quarter compared with $192 million in 2001. The average market yield on ACE's portfolio declined to 4.7 percent compared to 5.2 percent at year-end.

"Volatile securities markets produced realised losses in our equity and derivatives portfolios but produced offsetting unrealised gains in our fixed income portfolio, the company said.

Total shareholder's equity rose to $6.4 billion, an increase of 5.5 percent over December 31, 2001.

ACE shares closed at $33.40 yesterday on the New York Stock Exchange.