Bermuda insurance giant ACE Limited has posted its best ever quarterly results with a record $236 million in net operating income.

ACE said its net operating income for the period ended June 30, 2002 compared with $115 million for the same quarter in 2001. But investment losses reduced the company's net income for the quarter to just above $100 million. ACE chairman and CEO Brian Duperreault tied the company's results during the quarter to business growth in the current hard market where insurance and reinsurance is in short supply and high demand.

“Evidence of a strong upturn in our business and a more durable hard market continues to mount.

“We enjoyed significant growth in our property and casualty business, recorded our highest quarterly operating income ever, produced a gain in book value per share against the backdrop of falling equity markets and achieved a 14.6 percent annualised return on average equity for the period,” he said.

During the quarter, ACE's gross premiums written increased by 22 percent to $2.9 billion, compared with $2.4 billion for the same quarter in 2001. Net income for the quarter was $104 million compared with $131 million reflecting net realised losses of $125 million and debt prepayment expense of $7 million in the second quarter, compared with net realised gains of $20 million and a non-recurring expense of $4 million, in the same quarter in 2001. Overall, the company saw a marginal gain in net investment income over the same period last year with $201 million netted during the second quarter compared with $196 million for fiscal 2001 second quarter.

ACE said its investment income was earned in a volatile market: “It was an active quarter for investment markets. Interest rates dropped by 100 basis points in the quarter and credit concerns and problems with individual issuers caused sectors of the fixed income markets, particularly high yield, to lose value. “Equity markets faced large declines, with the Standard & Poor's (S&P) 500 Index dropping nearly 15 percent while international equity markets also declined.

ACE incurred net realised losses on investments of $125 million, but had an increase in net unrealised appreciation of $107 million,” a company press statement said.

Net realised losses for the quarter included $50 million of equity losses, principally from a decrease in the value of synthetic S&P indexed derivatives. ACE also recognised a $30 million loss on the interest rate swaps that are used to manage the duration of the fixed income portfolio.