Bermuda-headquartered Ace Ltd. last night announced its net income fell 46 percent after it suffered investment losses.

Profits plunged to $377 million, or $1.10 per share, compared to $701 million last year, or $2.10 per share during the same period last year.

Excluding losses from investments, Ace earned $2.16 a share, beating the $1.92 estimate of analysts. And the insurer's operating income climbed 9.5 percent to a record $725 million.

In its earnings statement released after the markets closed yesterday, Ace said the first quarter had been "marked by unprecedented financial market volatility in both the credit and equity markets, which impacted net income and book value".

The company said net realised and unrealised loss totalled $650 million after tax, which included $480 million from Ace's investment portfolio as fixed income and equity investments fell, as well as $183 million attributed to derivatives, particularly those tied to the company's life reinsurance business.

Early first-quarter results from the Bermuda insurance market have shown a trend of falling profits, squeezed by lower investment income and the effects of the "soft" market, in which increased competition puts a downward pressure on rates.

Rates for commercial coverage industry-wide dropped 14 percent in the first three months of this year, according to a survey by Council of Insurance Agents and Brokers.

Ace announced during the first quarter that it intends to redomesticate its holding company from the Cayman Islands to Switzerland in July. The company has stated that its Bermuda operations will be unaffected by the move.

Ace chairman and chief executive officer Evan Greenberg said: "It was a busy and very good quarter for Ace. We closed two acquisitions — Combined Insurance and the Atlantic Companies' personal lines business — and we announced our intention to re-domesticate our holding company to Zurich, Switzerland. These moves speak to the medium- and long-term strategic positioning of our company.

"We had a strong quarter in terms of operating performance, with net operating income up 9.5 percent. Net income, which was down, and book value growth, which was essentially flat, were negatively impacted by the unprecedented volatility experienced in the debt and equity markets during the quarter.

"The business climate has grown more difficult globally, including the broad economy and financial markets. Ironically, the P&C market continues to grow more competitive. Our balance sheet and income statement are strong, and in the face of these realities, we are well positioned to seek out and capitalise upon opportunities on both the asset and liability sides of our balance sheet."

The company put out an improved outlook for the rest of the rest of the year, reflecting the acquisition of Combined Insurance Company of America. Estimated full-year operating income for 2008 is put in the range of $7.40 and $7.90 per share. The previous estimate was $7 to $7.50.

Ace's underwriting income in the first quarter benefited from positive prior period development of $137 million, compared to $18 million in the first quarter of last year. This was 90 percent short-tail-related, predominantly crop insurance and property.

Ace's net insurance premiums written in North America fell by 10 percent, while those elsewhere dropped 13 percent and its global reinsurance net premiums written dropped 28 percent.

Ace's share price has fallen 5.6 percent this year in New York Stock Exchange composite trading after annual gains ranging from 41 percent in 2003 to 2 percent last year.

Return on average equity was 17.7 percent for the quarter and book value per share declined through the January to March period to $48.65 from $48.89.