<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
RULE 13E-3 TRANSACTION STATEMENT
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
------------------------
Capital Re Corporation
(Name of the Issuer)
ACE Limited
(Name of Person(s) Filing Statement)
Common Stock
par value $0.01 per share
(Title of Class of Securities)
140432 105
(CUSIP Number of Class of Securities)
Peter N. Mear
General Counsel & Secretary
The ACE Building
30 Woodbourne Avenue
Hamilton HM 08, Bermuda
(441) 295-5200
with a copy to:
Edward S. Best
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
(312) 782-0600
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications on Behalf of Persons Filing Statement)
This statement is filed in connection with (check the appropriate box):
a. [_] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Act of 1934.
b. [X] The filing of a registration statement under the Securities Act of
1933.
c. [_] A tender offer.
d. [_] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [_]
Calculation of Filing Fee
<TABLE>
<CAPTION>
===============================================================================
Transaction Valuation* Amount of Filing Fee
- -------------------------------------------------------------------------------
<S> <C>
$455,342,940 $91,069
===============================================================================
</TABLE>
* Calculated in accordance with Rule 0-11 under The Securities Exchange Act
of 1934, as amended, based on the aggregate market value on November 11,
1999 of the 32,024,119 shares of Capital Re Corporation common stock that
may be cancelled in the Merger.
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: $117,628
Form or Registration Number: Form S-4
Filing Party: ACE Limited
Date Filed: September 3, 1999 and November 12, 1999.
<PAGE>
INTRODUCTION
This Rule 13e-3 Transaction Statement (the "Statement") is being filed by
ACE Limited ("Purchaser"), a public company whose stock is traded on the NYSE.
Purchaser holds approximately 12% of the outstanding shares of common stock, par
value $0.01 per share (the "Shares"), of Capital Re Corporation (the "Company").
This Statement relates to a proposed merger (the "Merger") in which the Company
would merge with and into a wholly owned subsidiary of Purchaser and the Shares
other than those Shares held by Purchaser would be converted into 0.65 of a
Purchaser ordinary share plus a cash payment equal to the difference between the
market value of 0.65 of a Purchaser ordinary share and $14.00. In no event will
the cash payment be less than $1.30, or more than $4.68, per Share.
The following cross reference sheet is being supplied pursuant to General
Instruction F to the Statement and shows the location in the Proxy Statement on
Form S-4 (the "Proxy Statement") filed by the Purchaser and the Company with the
Securities and Exchange Commission on September 3, 1999, of the information
required to be included in response to the items of this Statement. The
information set forth in the Proxy Statement, which is attached hereto as
Exhibit (d)(1), is hereby expressly incorporated herein by reference and the
responses to each item are qualified in their entirety by the provisions of the
Proxy Statement.
<TABLE>
<CAPTION>
CROSS REFERENCE SHEET
Item in Schedule 13E-3 Where Located in Proxy Statement
- ---------------------- --------------------------------
<S> <C>
Item 1(a)................................... "The Parties" in the Summary of
the Proxy Statement
"The Special Meeting -- Record
Date; Quorum; Vote Required"
Item 1(b)................................... "The Special Meeting -- Record
Date; Quorum; Vote Required"
Item 1(c)................................... "Comparative Market Price and
Dividend Information" in the
Summary of the Proxy Statement
Item 1(d)................................... "Dividends" in the Summary of
the Proxy Statement
Item 1(e)................................... *
Item 1(f)................................... "Special Factors -- Background
of the Merger"
Item 2(a)-(g)............................... *
Item 3(a)-(b)............................... "Special Factors -- Background
of the Merger"
Item 4(a)................................... "Special Factors" and "The
Merger Agreement"
Item 4(b)................................... "The Stockholder Support
Agreements"
Item 5(a)-(e)............................... "Special Factors -- ACE's
Reasons for the Merger" and
"Special Factors -- Plans or
Proposals"
Item 5(f)-(g)............................... "Special Factors -- Delisting
and Deregistration of Capital
Re Common Stock; Cessation of
Capital Re Periodic Reporting"
Item 6(a)-(d)............................... "Special Factors -- The Merger,"
"Special Factors -- Source and
Amount of Funds" and "Special
Factors -- Fees and Expenses"
Item 7(a)................................... "Special Factors -- ACE's
Reasons for the Merger,"
"Special Factors -- Capital Re's
Reasons for the Merger;
Recommendation of the Board of
Directors of Capital Re" and
"Special Factors -- Purpose,
Alternatives, Reasons and
Effects of the Merger"
Item 7(b)................................... "Special Factors -- Background
of the Merger"
Item 7(c)................................... "Special Factors -- Accounting
Treatment," "Special Factors --
Material United States Federal
Income Tax Consequences" and
"Special Factors -- Purpose,
Alternatives, Reasons and
Effects of the Merger"
Item 7(d)................................... "Special Factors"
Item 8(a)-(b)............................... "Special Factors -- Capital Re's
Reasons for the Merger;
Recommendation of Board of
Directors of Capital Re,"
"Special Factors -- Position of
ACE Regarding Fairness of the
Merger" and "Special Factors --
Background of the Merger"
Item 8(c)................................... "The Special Meeting -- Record
Date; Quorum; Vote Required"
Item 8(d)-(e)............................... "Special Factors -- Capital Re's
Reasons for the Merger; Recom-
mendation of the Board of
Directors of Capital Re"
Item 8(f)................................... "Special Factors -- Background
of the Merger"
Item 9(a)-(c)............................... "Special Factors -- Capital Re's
Reasons for the Merger;
Recommendation of the Board of
Directors of Capital Re" and
"The Proposed Merger --
Presentation of the Financial
Advisor to ACE"
Item 10(a).................................. "Information Regarding
Directors, Executive Officers
and Five Percent Stockholders"
and "The Stockholder Support
Agreements"
Item 10(b).................................. *
Item 11..................................... "The Merger Agreement," "The
Capital Support Agreement," "The
Stock Option Agreement" and "The
Stockholder Support Agreements"
Item 12(a)-(b).............................. "Special Factors -- Capital Re's
Reasons for the Merger;
Recommendation of the Board of
Directors of Capital Re" and
"The Special Meeting -- Record
Date; Quorum; Vote Required"
Item 13(a).................................. "Special Factors -- Dissenters'
Rights" and "Comparison of
Stockholders' Rights and
Description of the Share Capital
of ACE Following the Merger --
Appraisal Rights"
Item 13(b)-(c).............................. *
Item 14(a)-(b).............................. "Unaudited ProForma Condensed
Consolidated Financial
Information of ACE," "Unaudited
ProForma Condensed Consolidated
Balance Sheet," "ProForma
Balance Sheet Footnotes,"
Unaudited ProForma Condensed
Consolidated Statements of
Operations," "ProForma Footnotes
for the Nine Months Ended
September 30, 1998" and "Where
You Can Find More Information"
Item 15(a)-(b).............................. *
Item 16..................................... *
Item 17(a)-(e).............................. Separately included herewith
Item 17(f).................................. *
</TABLE>
- ----------------
* This information is provided only in this Schedule 13E-3.
1
<PAGE>
Item 1. Issuer and Class of Security Subject to the Transaction.
(a) The information set forth in "The Parties" in the Summary of the
Proxy Statement and in "The Special Meeting -- Record Date; Quorum; Vote
Required" of the Proxy Statement is incorporated herein by reference.
(b) The information set forth in "The Special Meeting -- Record Date;
Quorum; Vote Required" of the Proxy Statement is incorporated herein by
reference.
(c) The information set forth in "Comparative Market Price and Dividend
Information" in the Summary of the Proxy Statement is incorporated herein by
reference.
(d) The information set forth in "Dividends" in the Summary of the
Proxy Statement is incorporated herein by reference.
(e) In a registered underwritten public offering on April 14, 1998,
Purchaser sold 16.5 million of its ordinary shares for $36.75 per share for net
proceeds of approximately $606 million.
(f) The information set forth in "Special Factors -- Background of
the Merger" of the Proxy Statement is incorporated herein by reference.
Item 2. Identity and Background.
(a)-(g) The information set forth in Schedule I of the Proxy Statement is
incorporated herein by reference.
Item 3. Past Contacts, Transactions or Negotiations.
(a)-(b) The information set forth in "Special Factors -- Background of
the Merger" of the Proxy Statement is incorporated herein by reference.
Item 4. Terms of the Transaction.
(a) The information set forth in "Special Factors" and "The Merger
Agreement" of the Proxy Statement is incorporated herein by reference.
(b) The information set forth in "The Stockholder Support Agreements"
of the Proxy Statement is incorporated herein by reference.
Item 5. Plans or Proposals of the Issuer or Affiliate.
(a)-(e) The information set forth in "Special Factors -- ACE's
Reasons for the Merger" and "Special Factors -- Plans or Proposals" of the
Proxy Statement is incorporated herein by reference.
(f)-(g) The information set forth in "Special Factors -- Delisting and
Deregistration of Capital Re Common Stock; Cessation of Capital Re Periodic
Reporting" of the Proxy Statement is incorporated herein by reference.
Item 6. Source and Amounts of Funds or Other Consideration.
(a)-(d) The information set forth in "Special Factors -- The Merger,"
"Special Factors -- Source and Amount of Funds" and "Special Factors --
Fees and Expenses" of the Proxy Statement is incorporated herein by reference.
2
<PAGE>
Item 7. Purpose(s), Alternatives, Reasons and Effects.
(a) The information set forth in "Special Factors -- ACE's Reasons for
the Merger," "Special Factors -- Capital Re's Reasons for the Merger;
Recommendation of the Board of Directors of Capital Re" and "Special Factors
- -- Purpose, Alternatives, Reasons and Effects of the Merger" of the Proxy
Statement is incorporated herein by reference.
(b) The information set forth in "Special Factors -- Background of
the Merger" of the Proxy Statement is incorporated herein by reference.
(c) The information set forth in "Special Factors -- Accounting
Treatment," "Special Factors -- Background of the Merger," "Special Factors
- -- Material United States Federal Income Tax Consequences" and "Special Factors
- -- Purpose, Alternatives, Reasons and Effects of the Merger" of the Proxy
Statement is incorporated herein by reference.
(d) The information set forth in "Special Factors" of the Proxy
Statement is incorporated herein by reference.
Item 8. Fairness of the Transaction.
(a)-(b) The information set forth in "Special Factors -- Position of
ACE Regarding Fairness of the Merger," "Special Factors -- Capital Re's
Reasons for the Merger; Recommendation of the Board of Directors of Capital Re"
and "Special Factors -- Background of the Merger" of the Proxy Statement is
incorporated herein by reference.
(c) The information set forth in "The Special Meeting -- Record Date;
Quorum; Vote Required" of the Proxy Statement is incorporated herein by
reference.
(d)-(e) The information set forth in "Special Factors -- Capital Re's
Reasons for the Merger; Recommendation of the Board of Directors of Capital Re"
of the Proxy Statement is incorporated herein by reference.
(f) The information set forth in "Special Factors -- Background of
the Merger" of the Proxy Statement is incorporated herein by reference.
Item 9. Reports, Opinions, Appraisals and Certain Negotiations.
(a)-(c) The information set forth in "Special Factors -- Capital Re's
Reasons for the Merger; Recommendation of the Board of Directors of Capital Re"
and "Special Factors -- Presentation of the Financial Advisor to ACE" of the
Proxy Statement is incorporated herein by reference.
Item 10. Interest in Securities of the Issuer.
(a) The information set forth in "Information Regarding Directors,
Executive Officers and Five Percent Stockholders" and "The Stockholder Support
Agreements" of the Proxy Statement is incorporated herein by reference.
(b) None.
Item 11. Contracts, Arrangements or Understandings with Respect to the
Issuer's Securities.
The information set forth in "The Merger Agreement," "The Capital Support
Agreement," "The Stock Option Agreement" and "The Stockholder Support
Agreements" of the Proxy Statement is incorporated herein by reference.
Item 12. Present Intention and Recommendation of Certain Persons with Regard
to the Transaction.
3
<PAGE>
(a)-(b) The information set forth in "Special Factors -- Capital Re's
Reasons for the Merger; Recommendation of the Board of Directors of Capital Re",
"The Special Meeting -- Record Date; Quorum; Vote Required" and "The
Stockholder Support Agreements" of the Proxy Statement is incorporated herein by
reference.
Item 13. Other Provisions of the Transaction.
(a) The information set forth in "Special Factors -- Dissenters'
Rights" and "Comparison of Stockholders' Rights and Description of the Share
Capital of ACE Following the Merger -- Appraisal Rights" of the Proxy Statement
is incorporated herein by reference.
(b)-(c) Not applicable.
Item 14. Financial Information.
(a)-(b) The information set forth in "Unaudited ProForma Condensed
Consolidated Financial Information of ACE," "Unaudited ProForma Condensed
Consolidated Balance Sheet," "ProForma Balance Sheet Footnotes," "Unaudited
ProForma Condensed Consolidated Statements of Operations," "ProForma Footnotes
for the Nine Months ended June 30, 1999" and "ProForma Footnotes for the Year
Ended September 30, 1998" of the Proxy Statement, "Ratio of Earnings to Fixed
Charges and Preferred Share Dividends of ACE" of the Purchaser's Prospectus
dated August 17, 1999, the Company's Annual Report on Form 10-K for the year
ended December 31, 1998, and the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998, is incorporated herein by reference.
Item 15. Persons and Assets Employed, Retained or Utilized.
(a)-(b) Not applicable.
Item 16. Additional Information.
Additional information concerning the Merger is set forth in the Proxy
Statement and the entirety of the Proxy Statement is incorporated herein by
reference.
Item 17. Material to be Filed as Exhibits.
(a)-(e) The Exhibit Index attached to this Transaction Statement is
incorporated herein by reference.
(f) Not applicable.
4
<PAGE>
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: November 12, 1999. ACE LIMITED
By /s/ Peter Mear
Name: Peter Mear
Title: General Counsel and Secretary
5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------- -------------
<C> <S> <C>
(a) Not Applicable
(b)(1) Opinion of Goldman, Sachs & Co. (attached
as Appendix C to the Proxy Statement/Prospectus
(b)(2) Written Presentation Materials of Credit Suisse
First Boston Corporation
(c)(1) Stock Option Agreement (attached as Appendix B to the
Proxy Statement/Prospectus
(c)(2) Capital Support Agreement (to be filed by amendment)
(c)(3) Agreement and Plan of Merger (attached as Appendix A
to the Proxy Statement/Prospectus
(c)(4) Stockholder Support Agreements (to be filed by amendment)
(d) Proxy Statement/Prospectus
(e) Appraisal Rights under Delaware General Corporate Law (attached as
Appendix D to the Proxy Statement/Prospectus)
</TABLE>
<PAGE>
[LOGO APPEARS HERE]
Materials Prepared for the Board of Directors
October 13, 1999
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
Outline
- --------------------------------------------------------------------------------
. Overview
. Major Terms and Conditions
. Merger Consequences
Appendices
. Valuation
. Strategic Rationale
. Capital Re Update
. ACE Involvement with Capital Re
. Impact of Combination
. Calculation of Goodwill
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
ACE Involvement with Capital Re
- --------------------------------------------------------------------------------
. Ongoing Bermuda-based joint venture with ACE
. In the spring and summer of 1998, ACE and KRE negotiate a possible ACE
acquisition of KRE and ACE conducts extensive due diligence of KRE
culminating in a Board meeting to approve a range of acquisition values on
August 6, 1998
. ACE and KRE ultimately terminate discussions without reaching an agreement
. In early 1999, KRE approaches ACE regarding a possible $75 million equity
investment in KRE
. In June 1999, ACE invests $75 million in KRE at $16.95 per KRE share (12.3%
ownership of KRE)
. The discussions regarding ACE's equity investment lead eventually to a
Merger Agreement at a price of 0.6 ACE shares per KRE share ($18.43 per KRE
share at time of Merger Agreement)
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
Capital Re's Intrinsic Book Value
- --------------------------------------------------------------------------------
. Financial guaranty insurers/reinsurers use a measure called "intrinsic book
value" which represents the sum of reported book value and the discounted
present value of installment premiums and deferred premium revenue, net of
expenses
Book Value per Share vs. Intrinsic Book Value per Share
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Book Intrinsic
Value % Chg Book Value % Chg
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1992 $ 9.36 NA $11.71 NA
1993 10.83 15.8 % 14.65 25.2 %
1994 11.01 1.7 % 15.15 3.4 %
1995 13.91 26.3 % 18.88 24.6 %
1996 15.43 10.9 % 20.16 6.8 %
1997 17.88 15.8 % 23.84 18.3 %
1998 19.13 7.0 % 26.97 13.1 %
Reported 6/30/99 15.19 (20.6)% 22.28 (17.4)%
Estimated 9/30/99 13.56 (10.7)% 20.65 (7.3)%
</TABLE>
_________________________________________________________________________
Source: Company reports, CSFB estimates.
<PAGE>
ACE Involvement with Capital Re-
Recent Events
- --------------------------------------------------------------------------------
. On October 6, 1999, KRE received an unsolicited all cash offer of $12.50
per share from XL Capital (subsequently raised to $13.00 per share). As of
that date, ACE's existing offer valued KRE at $10.23 per share
. KRE postponed its October 7, 1999 shareholder meeting to vote on the ACE
acquisition
. KRE's Board of Directors met on October 10, 1999 to consider XL Capital's
revised all cash offer of $13.00 per share and concluded that such offer
was superior to the ACE proposal
. Under the terms of the Merger Agreement, KRE can terminate the transaction
if, within 5 business days following notice, ACE does not make an offer
that is "at least as favorable as the superior proposal" and KRE pays ACE
the $25 million break-up fee
. KRE Board meeting scheduled for October 15, 1999
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
- --------------------------------------------------------------------------------
Major Terms and Conditions
- --------------------------------------------------------------------------------
<PAGE>
Prior ACE Proposal
- --------------------------------------------------------------------------------
The key financial terms of ACE's prior proposal are as follows...
. ACE to acquire all outstanding common stock of Capital Re in a tax-free
merger and assume all existing KRE debt ($99.9 million as of 3/31/99)
. An exchange ratio of 0.6 ACE shares for each KRE share, subject to a maximum
payment of $22.00 per KRE share ($36.67 ACE share price)
. Equity Purchase Price of $676 million, $18.43 per KRE share, (based on a
5-day average ACE closing stock price ending June 1, 1999 of $30.71)
. Purchase accounting treatment
. No new debt incurred
. Transaction conditioned on, among other things, completing due diligence and
maintenance of specified financial strength ratings for principal insurance
subsidiaries
. Anticipated closing in 4th quarter of calendar year 1999
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
<TABLE>
<CAPTION>
Analysis of XL Proposal
- --------------------------------------------------------------------------------------------
. All cash offer for all of KRE's outstanding shares at $13.00 per share
(Dollars in Millions, except per share data)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$13.00 $15.00 $17.00
----------------------------------------------------------------------------------------
2000E XL Operating EPS $ 5.04/(1)/
5/31/99 XL FD Wtd Avg Shares Outstanding 113.0
-----
2000E XL Net Operating Income $569.4
2000E KRE Net Operating Income 74.5/(2)/
Pro Forma 2000E Earnings 643.9
Total Purchase Price $474.5 $547.5 $620.5
KRE Estimated 9/30/99 Book Value 494.9 494.9 494.9
------ ------ ------
Total Goodwill $(20.4) $ 52.6 $125.6
Pro Forma 2000E Earnings $643.9 $643.9 $643.9
Goodwill Amortization Expense (25 years) (0.8) 2.1 5.0
Total After-Tax Interest Expense at 4.55%/(3)/ 21.4 24.6 27.9
------ ------ ------
Pro Forma Net Income 623.4 617.2 611.0
2000E Pro Forma Operating EPS $ 5.52 $ 5.46 $ 5.41
---------------------------------------------------------------------------------------
Accretion/(Dilution) 9.5% 8.4% 7.3%
---------------------------------------------------------------------------------------
_______________________________________________________________________________________
</TABLE>
(1) Per First Call.
(2) Per ACE and CSFB projections.
(3) Assumes 100% financed by debt.
(4) Based on 36.5 KRE shares.
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
Revised ACE Proposal
- --------------------------------------------------------------------------------
The key financial terms of ACE's revised proposal are as follows...
. ACE to acquire all outstanding common stock of Capital Re in a tax-free
merger and assume all existing KRE debt ($99.9 million as of 6/30/99)
. A price in the range of $13.00 to $15.00 per KRE share (to be determined)
. Consideration comprised of 0.6 ACE shares for each KRE share with a cash
"top-up" to the purchase price
. Value of ACE stock for purpose of calculating top-up defined by averaging ACE
stock during 5-10 day period pre-closing
. Equity Purchase Price of up to $492 to $557 million (based on $13.00 to
$15.00 per KRE share and $75 million ACE investment)(compared to $676 million
original deal value)
. Purchase accounting treatment
. Other major transaction elements remain unchanged
. Anticipated closing in November 1999
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
<TABLE>
<CAPTION>
Overview of Components of Consideration
- ------------------------------------------------------------------------------------------------------------------
(Dollars in Millions, except per share amounts)
----------------------------------------------------------------------------------------------------------------
$13.00 $14.00 $15.00
------------------------ ----------------------- ------------------------
Exchange Share Exchange Share Exchange Share
Price per KRE Share Ratio Consideration Ratio Consideration Ratio Consideration
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Equity Purchase Price $ 492 $ 524 $ 557
Consideration to be Paid $ 417 $ 449 $ 482
Average Trading Value of ACE
$10.00 0.83x $ 8.33 0.93x $ 9.33 1.03x $10.33
$13.00 0.64 8.33 0.72 9.33 0.79 10.33
$15.00 0.60 9.00 0.62 9.33 0.69 10.33
$18.00 0.60 10.80 0.60 10.80 0.60 10.80
Cash Top-up
--------------------------------------------------------------------------------
$10.00 $ 150 $ 150 $ 150
$13.00 150 150 150
$15.00 128 150 150
$18.00 71 103 135
----------------------------------------------------------------------------------------------------------------
</TABLE>
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
Key Terms and Conditions
- --------------------------------------------------------------------------------
An exchange ratio of 0.60 plus a cash "top-up" to $13.00-$15.00 per KRE share
results in the following ratios:
(Dollars in Millions)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
KRE Range
----------------------
Data $13.00 $14.00 $15.00
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Equity Purchase Price Range/(1)/ $492 $524 $557
Equity Purchase Price Range as a Multiple of:
2000E Net Operating Income/(2)/ $ 74.5 6.6x 7.0x 7.5x
2001E Net Operating Income/(2)/ 86.1 5.7 6.1 6.5
6/30/99 Reported Book Value 554.8 0.9 0.9 1.0
9/30/99 Estimated Pro Forma Book Value/(3)/ 494.9 1.0 1.1 1.1
9/30/99 Estimated Intrinsic Book Value 753.7 0.7 0.7 0.7
</TABLE>
______________________________________________________________________________
(1) Based on 32.1 million fully diluted KRE shares outstanding. Price also
includes $75 million ACE investment.
(2) Per ACE and CSFB projections.
(3) Estimated Book Value adjusted for additional losses and charges.
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
6/30/99 Adjusted Pro Forma Book Value
- ---------------------------------------------------------
Calculation of KRE 9/30/99 Adjusted Pro Forma Book Value
(Dollars in Millions, except per share data)
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Aggregate Per Share /(1)/
- ----------------------------------------------------------------------
<S> <C> <C>
Reported 6/30/99 Book Value $554.8 $15.20
After-tax Losses & Charges:
3Q Dividend 1.4 0.04
3Q Change in FAS 115 Adj. to
Fair Market Value 12.5 0.34
Additional Lloyd's Losses
& Write-down 60.0 1.64
------ ------
Total Losses & Charges (73.9) (2.02)
Operating Income 14.0 0.38
------ ------
9/30/99 Estimated Pro Forma Book Value $494.9 $13.56
- ----------------------------------------------------------------------
</TABLE>
(1) Based on 36.5 million fully diluted KRE shares outstanding.
<PAGE>
- --------------------------------------------------------------------------------
Merger Consequences
- --------------------------------------------------------------------------------
<PAGE>
Merger Consequences Methodology
- --------------------------------------------------------------------------------
. Prepared estimate of Capital Re earnings with necessary adjustments for the
acquisition
. Analyzed impact on ACE projected earnings per share from addition of Capital
Re projected earnings
. Major Assumptions
. Purchase Accounting
. Goodwill is amortized over 25 years
. ACE 1999-2000 earnings per ACE projections and 2001 earnings based on
12% ACE EPS growth
. ACE Expected is based on ACE's and CSFB's projection of Capital Re 2000E
earnings of $74.5 million and 2001E earnings of $86.1MM
. ACE Downside is based on ACE's and CSFB's projection of Capital Re 2000E
earnings of $64.5 million and 2001E earnings of $76.1MM
. Cash top-up limited to $150MM
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
<TABLE>
<CAPTION>
Merger Consequences Summary - 2000
- --------------------------------------------------------------------------------
(Dollars in Millions)
------------------------------------------------------------------------------
ACE EXPECTED ACE DOWNSIDE
ACQUISITION PRICE ACQUISITION PRICE
------------------------------------------------------------------------------
$13.00 $14.00 $15.00 $13.00 $14.00 $15.00
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$12.00 $2.48 $2.44 $2.41 $2.43 $2.40 $2.36
$14.00 2.51 2.48 2.45 2.47 2.44 2.41
$16.00 2.52 2.51 2.48 2.48 2.46 2.44
$18.00 2.53 2.52 2.50 2.49 2.47 2.46
$20.00 2.54 2.53 2.52 2.50 2.48 2.47
------------------------------------------------------------------------------
------------------------------------------------------------------------------
ACE EXPECTED ACE DOWNSIDE
ACQUISITION PRICE ACQUISITION PRICE
------------------------------------------------------------------------------
$13.00 $14.00 $15.00 $13.00 $14.00 $15.00
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$12.00 2.0% 0.5% (0.9)% 0.1% (1.3)% (2.7)%
$14.00 3.4% 2.1% 0.8% 1.5% 0.3% (1.0)%
$16.00 3.8% 3.2% 2.2% 2.0% 1.4% 0.3%
$18.00 4.3% 3.7% 3.1% 2.4% 1.8% 1.2%
$20.00 4.7% 4.1% 3.5% 2.8% 2.2% 1.6%
______________________________________________________________________________
</TABLE>
Note: + 10MM of earnings results in $0.04 - $0.05 of accretion/dilution.
-
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
<TABLE>
<CAPTION>
Merger Consequences Summary - 2001
- --------------------------------------------------------------------------------
(Dollars in Millions)
--------------------------------------------------------------------------------
ACE EXPECTED ACE DOWNSIDE
ACQUISITION PRICE ACQUISITION PRICE
--------------------------------------------------------------------------------
$13.00 $14.00 $15.00 $13.00 $14.00 $15.00
-------- -------- -------- -------- -------- --------
$12.00 $ 2.79 $ 2.75 $ 2.72 $ 2.75 $ 2.71 $ 2.67
$14.00 2.83 2.80 2.76 2.79 2.75 2.72
$16.00 2.84 2.83 2.80 2.80 2.78 2.76
$18.00 2.85 2.84 2.82 2.81 2.79 2.78
$20.00 2.86 2.85 2.83 2.82 2.80 2.79
--------------------------------------------------------------------------------
<CAPTION>
--------------------------------------------------------------------------------
ACE EXPECTED ACE DOWNSIDE
ACQUISITION PRICE ACQUISITION PRICE
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$13.00 $14.00 $15.00 $13.00 $14.00 $15.00
-------- -------- -------- -------- -------- --------
$12.00 2.6% 1.2% (0.2)% 0.9% (0.5)% (1.9)%
$14.00 4.0% 2.8% 1.5% 2.4% 1.1% (0.1)%
$16.00 4.4% 3.9% 2.9% 2.8% 2.2% 1.2%
$18.00 4.8% 4.3% 3.7% 3.1% 2.6% 2.1%
$20.00 5.2% 4.7% 4.1% 3.5% 3.0% 2.5%
________________________________________________________________________________
</TABLE>
Note: +10MM of earnings results in $0.04 - $0.05 of accretion/dilution.
-
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
<TABLE>
<CAPTION>
ACE 2000 Income Statement @ $16.75 ACE
Share Price
- --------------------------------------------------------------------------------------------------
(Dollars in Millions, except per share data)
-----------------------------------------------------------------------------------------------
ORIGINAL ACE EXPECTED(5) ACE DOWNSIDE(6)
SCENARIOS DEAL ------------------------ ------------------------
ACQUISITION PRICE $18.43 $13.00 $14.00 $15.00 $13.00 $14.00 $15.00
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ACE Operating EPS(1) $2.43 $2.43 $2.43 $2.43 $2.43 $2.43 $2.43
ACE FD Shares Outstanding 200.1 200.1 200.1 200.1 200.1 200.1 200.1
------ ------ ------ ------ ------ ------ ------
ACE Net Operating Income $486.2 $486.2 $486.2 $486.2 $486.2 $486.2 $486.2
Pacer Net Operating Income(2) 74.5 74.5 74.5 74.5 64.5 64.5 64.5
Goodwill Amortization (7.7) (0.4) (1.7) (2.9) (0.4) (1.7) (2.9)
Reduction on Investment Income(3) (0.3) (6.0) (7.9) (9.9) (6.0) (7.9) (9.9)
------ ------ ------ ------ ------ ------ ------
Net Operating Income $552.7 $554.4 $551.1 $547.9 $544.4 $541.1 $537.9
Fully Diluted Shares(4) 219.4 219.4 219.4 219.4 219.4 219.4 219.4
Operating EPS $2.52 $2.53 $2.51 $2.50 $2.48 $2.47 $2.45
EPS Gain 3.7% 4.0% 3.4% 2.8% 2.1% 1.5% 0.9%
_______________________________________________________________________________________________
</TABLE>
(1) Per First Call estimates
(2) Per ACE projections
(3) Includes after-tax loss on investment income yield from additional
dividends
(4) Based on 200.1 million fully diluted shares outstanding and 19.3 million
shares issued in acquisition
(5) Based on ACE expected 2000E KRE earnings of $74.5 million
(6) Based on ACE downside KRE earnings of $64.5 million ($10MM reduction)
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
- --------------------------------------------------------------------------------
Valuation
- --------------------------------------------------------------------------------
<PAGE>
Summary of Valuation Methodology
- --------------------------------------------------------------------------------
. Comparable Companies Valuation
------------------------------
Compared financial data of Capital Re with comparable public companies data
. Relevant Acquisitions Valuation
-------------------------------
Compared terms of the ACE proposal with the most recent relevant financial
guaranty and specialty (non-catastrophe) insurance and reinsurance
combination terms
. Discounted Cash Flow ("DCF") Analysis
-------------------------------------
Discounted to present value the projected cash flows of Capital Re under
various assumptions developed with ACE senior management
. Analysis of Impact on ACE Shareholders -- Merger Consequences
-------------------------------------------------------------
Compared future financial results for the combined entity with future ACE
stand-alone results
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
Comparable Public Companies Analysis
Methodology
- --------------------------------------------------------------------------------
. Analyzed Price/Earnings and Price/Book multiples for public companies with
similar businesses to Capital Re
. Applied relevant multiples to forecasted Capital Re earnings to estimate
unaffected price range for Capital Re
. Added representative control premium to unaffected price range
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
<TABLE>
<CAPTION>
Comparable Financial Guaranty Companies
- --------------------------------------------------------------------------------
(Dollars in Millions)
------------------------------------------------------------------------------
10/11/99 P/E Multiples Price/Reported
-----------------------
Company Market Cap. LTM 1999E 2000E Book Value
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ambac Financial Grp. $3,377 12.7x 11.5x 10.2x 1.65
Enhance Financial Svcs. 693 8.4 7.5 6.5 1.02
Financial Security Assur. 1,551 13.2 12.3 10.9 1.43
MBIA Inc. 4,952 10.7 10.2 9.2 1.40
Capital Re Corp. 470 NM NM 5.5 0.85
---------------------------------------------------------------------------
High 13.2x 12.3x 10.9x 1.65x
Mean 11.3 10.4 8.4 1.27
Median 11.7 10.9 9.2 1.40
Low 8.4 7.5 5.5 0.85
---------------------------------------------------------------------------
</TABLE>
______________________________________________________________________________
Note: Summary multiples include KRE.
Estimates per First Call.
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
<TABLE>
<CAPTION>
Comparable Companies Valuation Analysis
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Millions, except per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
Relevant Implied Value
KRE Multiple Range Implied Value Per Share/(1)/
--------------------------- --------------------------- --------------------------
Data Low High Low High Low High
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
2000E Earnings/(2)/ $ 74.5 6.0x - 7.5x $447 - $559 $15.17 - $18.97
6/30/99 Reported Book Value 554.8 0.90 - 1.10 499 - 610 15.56 - 19.01
9/30/99 Estimated Book Value 494.9 0.90 - 1.10 445 - 554 13.86 - 16.96
-----------------------------------------------------------
Indicated Preliminary Value Range Before Control Premium of: $475 - $575 $14.86 - $17.79
-----------------------------------------------------------
Indicated Preliminary Value Range with Control Premium of:
-----------------------------------------------------------
10% 523 - 633 16.29 - 19.70
20% 570 - 690 17.76 - 21.50
30% 618 - 748 19.24 - 23.29
-----------------------------------------------------------
____________________________________________________________________________________________________________________________________
</TABLE>
(1) Assumes 32.1 million fully diluted KRE shares outstanding (excluding 4.4
million ACE shares).
(2) Per ACE projections.
CREDIT|FIRST
SUISSE|BOSTON
<PAGE>
<TABLE>
<CAPTION>
Changes in Comparable Companies
- --------------------------------------------------------------------------------
Percent Change in Multiples Since June 2, 1999 Board Meeting
-----------------------------------------------------------------------------
Price/ Price/Reported
Market Cap. 2000E Book Value
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Ambac Financial Group (19.5)% (19.5)% (17.4)%
Enhance Financial Services (3.6) (3.6) (4.5)
Financial Security Assurance (7.9) (7.9) (6.9)
MBIA Inc. (27.6) (27.6) (24.5)
Capital Re Corp. (33.1) (29.1) (16.6)
-----------------------------------------------------------------------------
Illustrative Price Decrease Since June 2, 1999 Board Meeting
-----------------------------------------------------------------------------
Percent Decrease from Previous Price
---------------------------------------------------
10% 20% 30%
-----------------------------------------------------------------------------
Previous Price $18.43 $16.59 $14.74 $12.90
-----------------------------------------------------------------------------
</TABLE>
CREDIT|FIRST
SUISSE|BOSTON
<PAGE>
Relevant Acquisitions Analysis Methodology
- --------------------------------------------------------------------------------
. Analyzed acquisitions of businesses similar to Capital Re
. Calculated aggregate transaction value and implied multiples of selected
financial data
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
<TABLE>
<CAPTION>
Relevant Acquisitions
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in Millions)
-------------------------------------------------------------------------------------------------------------------
Purchase GAAP LTM GAAP
Date Buyer Target Price/(1)/ Book Income/(2)/
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Guarantors
8/20/95 Financial Security Assurance Capital Guaranty Corp. $ 202 1.0x 13.8x
10/97 MBIA Inc. CapMAC Holdings 606 1.8 18.7
6/10/99 ACE Limited/(5)/ Capital Re 676 1.2/(3)/ 9.1
10/6/99 XL Capital Capital Re 475 1.0/(4)/ NM
Niche Reinsurers and Specialty Insurers
7/2/96 General Re National Re $ 940 2.5x 21.7x
3/31/97 PartnerRe SAFR 950 1.7 15.9
7/27/98 Swiss Re Life Re 1,642 2.7 32.2
11/23/98 CMAC Investment Corp. Amerin Corp. 646 1.6 13.4
2/8/99 Chubb Corp. Executive Risk Inc. 850 2.6 22.4
3/8/99 Fortis, Inc. American Bankers Insurance Group 2,583 2.4 23.2
------------------------------------------------------------------------------------------------------------
Mean Values 1.9x 20.2x
Median Values 1.7 20.2
-------------------------------------------------------------------------------------------------------------
___________________________________________________________________________________________________________________
</TABLE>
(1) Equity value.
(2) Excludes realized capital gains (losses).
(3) 6/30/99 Book Value
(4) Estimated 9/30/99 Book Value
(5) A maximum payment of $22 per KRE share would result in a purchase price
of $792 and a Price/Book multiple of 1.3x and Price/LTM Net Income of
10.7x.
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
<TABLE>
<CAPTION>
Relevant Acquisitions Valuation Analysis
- --------------------------------------------------------------------------------
(Dollars in Millions, except per share data)
- --------------------------------------------------------------------------------
Relevant Implied Implied Value
KRE Multiple Range Value Per Share/(1)/
---------------- ----------- -----------------
Data Low High Low High Low High
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Est. 9/30/99 Book Value $494.9 1.0x - 1.3x $495 - $643 $15.42 - $20.04
------------------------------
Indicated Preliminary Value Range $495 - $643 $15.42 - $20.04
------------------------------
________________________________________________________________________________
</TABLE>
(1) Assumes 32.1 million fully diluted KRE shares outstanding (excluding 4.4
million ACE shares).
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
Discounted Cash Flow Analysis
- --------------------------------------------------------------------------------
Major Assumptions
. In conjunction with ACE senior management, CSFB modified Capital Re's
projections by:
(i) recognizing $239 million (pre-tax) of special charges in
1999 ($119 million for IFS and CFS losses; $50 million non-
specific reserve increase; $70 million Lloyd's write-off);
(ii) increasing loss reserves by an additional $15 million (pre-
tax) per year beginning in 2000; and
(iii) on a prospective basis, reversing the deferral and
subsequent amortization of certain overhead expenses
. Since no interim cash flows are available to ACE, CSFB discounted a
terminal value at discount rates of 10%, 11% and 12% based on a weighted
average cost of capital ("WACC") analysis for the same companies used in
the comparable companies valuation, applying exit multiples of 8.0x-10.0x
2003E earnings and 1.00x-1.20x 12/31/03E GAAP book value
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
<TABLE>
<CAPTION>
DCF Valuation Summary
- ---------------------------------------------------------------------------------------------------------------------
(Dollars in Millions, except per share data)
- ---------------------------------------------------------------------------------------------------------------------
Implied Implied Value
KRE Multiples Range Value Per Share/(1)/
------------------- --------------------- -----------------------
Data Low High Low High Low High
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
2003 Terminal Book Value Multiple $ 868.1 1.0x - 1.2x $ 563 - $ 695 $ 15.42 - $ 19.04
2003 Terminal Earnings Multiple 108.5 8.0 - 10.0 436 - 651 11.94 - 17.84
-----------------------------------------------
Indicated Preliminary Value Range $ 500 - $ 675 $ 13.70 - $ 18.49
-----------------------------------------------
_________________________________________-___________________________________________________________________________
</TABLE>
1) Assumes 36.5 million fully diluted KRE shares outstanding (including 4.4
million ACE shares).
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
<TABLE>
<CAPTION>
Summary Valuation
- -------------------------------------------------------------------------------------------------------------------------------
(Dollars in Millions, except per share data)
-------------------------------------------------------------------------------------------------------------------------------
Implied Implied Per Share
Valuation Valuation/(1)/
------------------------- ------------------------------------------
Low High Low High
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Comparable Companies Analysis
Without Takeover Premium $ 475 - $ 575 $ 14.86 - $ 17.79
With Takeover Premium of 10% 523 - 633 16.29 - 19.70
Relevant Acquisitions Analysis 495 - 643 15.42 - 20.04
Discounted Cash Flow Analysis/(2)/ 500 - 675 13.70/(2)/ - 18.49/(2)/
-------------------------------------------------------------------------------------------------------------------------------
Preliminary Equity Reference Range/(1)/ $ 500 - $ 650 $ 15.57 - $ 20.25
-------------------------------------------------------------------------------------------------------------------------------
_______________________________________________________________________________________________________________________________
</TABLE>
(1) Assumes 32.1 million fully diluted KRE shares outstanding (excluding 4.4
million ACE shares).
(2) Assumes 36.5 million fully diluted KRE shares outstanding (including 4.4
million ACE shares).
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
Strategic Rationale
- --------------------------------------------------------------------------------
The acquisition of Capital Re (KRE) is an excellent opportunity to further ACE's
strategic and financial objectives. The acquisition would:
. Constitute an integral part of ACE's strategic vision
. Enhance ACE's management resources in financial products
. Expand ACE's financial risks business
. Diversify ACE's risk portfolio
. Stabilize ACE's earnings
. Achieve accretion to ACE's EPS
. Increase ACE's profitability
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
- --------------------------------------------------------------------------------
Capital Re Update
- --------------------------------------------------------------------------------
<PAGE>
Capital Re Overview
- --------------------------------------------------------------------------------
Capital Re is an insurance holding company for a group of monoline reinsurance
companies in separate specialty insurance markets. Capital Re provides
reinsurance in four principal areas of specialization: i) financial guaranty
insurance; ii) mortgage guaranty insurance; iii) trade credit insurance; and
iv) title insurance. Highlights of the business include:
. Leading specialty reinsurance group
. Financial risk products that provide sustainable underwriting margins
. Highly predictable year to year earnings growth from core businesses
. Innovative and proven management team
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
History of Capital Re
- --------------------------------------------------------------------------------
. January 1988: Commenced operations reinsuring primarily municipal and
non-municipal bond obligations
. February 1990: Establishes Bermuda reinsurer of trade credit and political
risk
. February 1994: Establishes reinsurer of residential mortgage guaranty
obligations originating principally in the U.S. and U.K.
. March 1994: Establishes Bermuda reinsurer of financial guaranty,
mortgage guaranty and trade credit insurance as direct
reinsurer of third party exposures and retrocessionaire of
other KRE companies; also provides structured reinsurance
products
. March 1996: Establishes reinsurer of title insurance policies
. November 1996: Acquires Lloyd's managing agency (now known as "RGB") with
4 syndicates; RGB is currently being divested
. December 1996: Establishes joint venture with GCR Holdings specializing in
financial lines reinsurance; GCR subsequently acquired by
EXEL in 1997
. March 1998: ACE acquires joint venture from EXEL
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
Capital Re - Recent Events
- --------------------------------------------------------------------------------
In the past 18 months, Capital Re has experienced some significant losses and
other events:
. $10 million pre-tax reserve for Allegheny Health
. $90 million pre-tax reserve for Commercial Financial Services ("CFS")
. Resignation of founding Chairman and CEO
. Moody's financial strength ratings downgraded from "Aaa" to "Aa2"
. Potential $74 million pre-tax exposure for International Financial Services
Life Insurance Company ("IFS")
. $70 million in reserves and write-downs at Lloyd's operation
Despite these events, Capital Re's core franchise remains strong.
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
Impact of Combination
- --------------------------------------------------------------------------------
This merger is an excellent strategic and financial opportunity for ACE.
Acquiring Capital Re would allow ACE to:
. Gain a larger and stronger strategic position in the global reinsurance
market
. Increase Capital Re's profitability through the tax and business
flexibility of Bermuda domiciled parent
. Add high margin specialty lines businesses
. Add non-correlated consistent earnings stream to balance volatility in
other ACE businesses
CREDIT | FIRST
SUISSE | BOSTON
<PAGE>
<TABLE>
<CAPTION>
Calculation of Goodwill
- ------------------------------------------------------------------------------------------------------
(Dollars in Millions)
---------------------------------------------------------------------------------------------------
October 13, 1999
------------------------------------
June 2, 1999 $ 13.00 $ 14.00 $ 15.00
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchase Price $ 676 $ 492 $ 524 $ 557
Consideration to be paid 601 417 449 482
ACE Investment in KRE 75 75 75 75
Option/Restricted Stock and Expenses 12 12 12 12
------ ------ ------ ------
Equity Purchase Price $ 688 $ 504 $ 536 $ 569
9/30/99 Estimated Book Value 495 495 495 495
---- ------ ------ -------
Goodwill 193 $ 9 $ 41 $ 74
Goodwill Amortization per year (25 years) $ 7.7 $ 0.4 $ 1.6 $ 3.0
___________________________________________________________________________________________________
</TABLE>
Note: Based on ACE closing price on 10/11/99 of $16.75.
CREDIT | FIRST
SUISSE | BOSTON
