Bermuda-based ACE Ltd. yesterday reported strong first quarter results - the insurance group posted net earnings of $197.8 million compared with $108.4 million for the same period last year - but numbers were not as high as Wall Street analysts had anticipated.

Investment firm Morgan Stanley reported that although ACE posted operating profit of 77 per share, up 18.5 percent from a year earlier when it stood at 65 per share, this was still 6 shy of the firm's estimate and 5 lower than the Wall Street consensus.

Morgan Stanley added: "The difference reflects weaker-than-expected growth in net earned of 2.3 percent year on year as opposed to our estimate of 23.4 percent. The major driver in this difference was lower than expected growth of 14.5 percent in net written premium versus the 40 percent we had estimated for the quarter.

"Gross written premium actually grew a bit faster - 22 percent versus the 20 percent we had expected - pushing the net/gross ratio down to 64.5 percent from an expected 64.5 percent, which means ACE is ceding more premium to its reinsurers than we expected, despite the hardening reinsurance market," the firm said.

There was investor reaction yesterday to ACE posting results below analysts' expectations with the company's shares - it is traded on the New York Stock Exchange - falling more than eight percent to $39.95.

Excluding net realised investments and after deducting preferred dividends, ACE reported operating profits of $216 million for the quarter or 77 per share, compared with $164 million or 65 per share during the first quarter 2001.

Reuters reported that Wall Street analysts had forecast operating profit for the company of between 75 to 88 per share, with a consensus of 82, according to analysts polled by research firm Thomson Financial/First Call.

ACE CEO Brian Duperreault said: "This quarter was the most profitable period we have ever achieved from an operating point of view, even though we haven't fully deployed all of the capital - $1.15 billion - we raised in the fourth quarter of last year. Gross premiums rose 22 percent and net operating income, exclusive of the elimination of goodwill, increased by 17 percent."

The exclusion of amortisation of goodwill follows a change in the company's accounting procedures. It reported: "During the quarter ended March 31, 2002, the Company adopted Financial Accounting Standard No. 142 Goodwill and other Intangibles. As a result, the Company ceased amortising goodwill from January 1, 2002."

Mr. Duperreault added that ACE had also changed other elements of reporting: "This quarter we have changed our reporting segments to reflect the way we currently manage our business. I believe that it will provide greater transparency for investors for our individual lines of business."

During the quarter ended March 31, 2002, following recent changes in executive management responsibilities, the Company reassessed and changed its reporting segments from the individual operating units to lines of business: Insurance - North American Region, Overseas General, Global Reinsurance and Financial Products.

Net investment income, excluding net realised gains (losses) on investments, was $204 million for both fiscal 2002 and 2001 first quarter. During the quarter, ACE had net realised losses on investments, net of income tax, of $18 million, compared with net realised losses on investments of $23 million for the same quarter in 2001.