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This call is being webcast live and will be available for replay for one month. All remarks made during the call are current at the time of the call and will not be updated to reflect subsequent material developments.Now, I’d like to introduce our speakers. First, we have Evan Greenberg, Chairman and Chief Executive Officer, followed by Phil Bancroft, our Chief Financial Officer. Then we’ll take your questions. Also, with us to assist with your questions are several members of our management team. Now, it’s my pleasure to turn the call over to Evan. Evan Greenberg Good morning. Ace produced outstanding operating results despite challenging financial market and economic conditions. We produced record after-tax operating income of $759 million or 2.22 per share. All divisions of the company made a positive contribution to the quarter’s operating results. The quality of our earnings was excellent with strong, balanced contributions for both underwriting and investments. Net operating income was up 10% over prior year with underwriting an investment income growing in the quarter by 11% and 9% respectively. Underwriting income of $391 million benefited from both favorable current-accident year results and positive prior period development which was flat with last year. Our operating ROE was over 13.5% bringing the year-to-date to over 10%. Net income and book value in the quarter were impacted by realized and unrealized losses of 838 million resulting from extreme financial market volatility and interest rates which fell to their lowest level in a century as well as equity and in foreign exchange markets. Approximately $706 million was attributed for realized fair value related mark associated with our variable annuity reinsurance business. We also had pricing related realized and unrealized losses of 87 million in our investment portfolio. Both of these marks we believe will be largely if not wholly transient and will be recovered overtime.
Concerning the VA mark we are required to mark-to-market these long-term liabilities using derivative accounting that we believe the mark is not a good representation of our company’s liabilities.For operating income purposes, we use traditional life insurance GAAP accounting. And in our judgment this is more representative of our ultimate liabilities since this is a traditional buy-and-hold long-term insurance portfolio and not a trading business. As I said we also believe while markets are unusually volatile and unpredictable at this time, majority of the mark will reverse overtime and accrete back benefiting book value and net income in the future. In fact, as a point of reference, as of Monday’s market close the market improved by approximately 200 million illustrating the transient and volatile nature. Phil will go into more detail and we have included additional disclosure in our supplement which we hope you will find helpful. Returning to the quarter’s operating performance, the P&C combined ratio was 90.3 which included pre-tax net cap losses of just over 120 million, the vast majority of which came from Hurricane Irene in the U.S. Our overall cat impact was quite modest and, again, reflects good risk management as well as our spread of business globally and lack of over concentration in any one business. Our earnings growth and balance of business both product and geography have been enhanced by the acquisitions we have made in the last year. All of which are on track and should achieve or exceed the current year targets we established at the time of each acquisition. In particular given its size and importance I want to say a few words about our crop insurance business. The crop insurance loss ratios – as they were a function of yield at the time of harvest and commodity prices. Our 2011 plan and calendar year-to-date book loss ratios contemplated an average to modestly worst than historical average loss ratio a year. At the same time, we wrote substantially more premium volume this year than we originally projected because of higher crop commodity prices.
Consequently from what we know now, our 2011 earnings from crop will be better than we originally projected when we acquired Rain & Hail. Financially Rain & Hail will produce an excellent return on investment to Ace.And because of our deep national presence and expertise in this business, we expect we will have superior results relative to most peer companies engaged in this business. As you know, we made a small specialty focused acquisition in the quarter that is complementary to our agricultural industry business strategy. Penn Millers is a good solid company that has served the agri-business market since 1887 and currently operates in 34 states. We expect the transaction to close in the first quarter of 2012. Read the rest of this transcript for free on seekingalpha.com