Ace’s Greenberg Says Takeover Spree Beats Share Buybacks

Ace Ltd. investors are better off because the insurer spent $4.6 billion on takeovers in the past five years than they would have been if those funds were used to buy back stock, Chief Executive Officer Evan Greenberg said.

The internal rate of return on the deals completed from 2008 to 2012 was 17 percent, compared with the 11 percent a similar amount of share repurchases would have generated, he wrote in his annual letter to shareholders posted yesterday on the Zurich-based company’s website.

Greenberg, 58, is highlighting a strategy that has increased Ace’s presence in Asia and Latin America while helping his company’s shares return 80 percent in the last five years. Rival property-casualty insurers Travelers Cos. and Chubb Corp. have used buybacks more than Greenberg’s firm to boost returns on their stock by about 100 percent in that period.

“We are not single-mindedly opposed to more-aggressive capital management,” he wrote in the letter. “We treat it seriously and review our position regularly. If we determine that we cannot put our surplus capital to work productively over a reasonable period of time, we will consider more-aggressive strategies to return capital to our shareholders, and that includes repurchasing our shares.”

Ace completed its purchase of Asuransi Jaya Proteksi PT in Indonesia last year, making it the country’s seventh-largest property-casualty insurer. In the fourth quarter, Greenberg agreed to buy Mexico’s Fianzas Monterrey SA and ABA Seguros SA for a combined $1.2 billion. The deals show how Ace uses capital to boost its presence in “fast-growing countries of the world with good long-term potential,” he wrote.

Large Democracies

“Both Indonesia and Mexico are large democracies that have embraced a greater degree of market-oriented economic principles, and both have significant natural resources and young populations,” Greenberg said. “Over the next three, five and 10 years, wealth creation in Indonesia and Mexico should be strong with an emerging middle class and a growing large and small business community.”

Mexico’s gross domestic product will expand by 3.6 percent this year and Indonesia’s by 6.25 percent, according to the average estimates of economists surveyed by Bloomberg. In the U.S., where Ace gets the largest portion of its premium revenue, the economy is projected to grow by 2 percent this year.

Greenberg, who said in his letter last year that businesses faced a regulatory “assault” from the U.S., faulted the government for failing to reach an accord on fixing the national debt. President Barack Obama sent a $3.8 trillion budget to Congress yesterday that calls for more tax revenue and slower growth for Social Security benefits in a political gamble to revive budget-deficit talks.

“While I think the deficit will ultimately get addressed, I fear it will happen in a very inefficient and wrong-headed way,” Greenberg wrote. “Until the country solves its fiscal problem and targets support toward areas that improve competitiveness, the U.S. economy will continue to underperform, unemployment will remain relatively high and continued financial market volatility will remain a possibility.”