ACE LTD, 10-Q, 1996-05-15

ACE LTD
10-Q, 1996-05-15
FIRE, MARINE & CASUALTY INSURANCE

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the Quarter Ended March 31, 1996
OR

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _____________ to ____________

Commission File No. 1-11778
I.R.S. Employer Identification No. N/A

ACE LIMITED
(Incorporated in the Cayman Islands)
The ACE Building
30 Woodbourne Avenue
Hamilton HM 08
Bermuda

Telephone 441-295-5200

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

YES ____x________ NO _________

The number of registrant's Ordinary Shares ($0.125 par value)
outstanding as of May 10, 1996 was 46,105,108.

ACE LIMITED
INDEX TO FORM 10-Q

Part I. FINANCIAL INFORMATION
- -------------------------------
Page No.
<S> <C> <C>
Item 1. Financial Statements:

Consolidated Balance Sheets
March 31, 1996 (Unaudited) and September 30, 1995 1

Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31, 1996 and March 31, 1995
Six Months Ended March 31, 1996 and March 31, 1995 2

Consolidated Statements of Shareholders' Equity
(Unaudited)
Six Months Ended March 31, 1996 and March 31,
1995 3

Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended March 31, 1996 and March 31,
1995 4

Notes to Interim Consolidated Financial Statements
(Unaudited) 5

Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 8

<PAGE>
Part II. OTHER INFORMATION
- ----------------------------

Item 5. Other information 22

Item 6. Exhibits and Reports on Form 8-K 22

Signatures 23

<PAGE>
<CAPTION>
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and September 30, 1995

March 31 September 30
1996 1995
---------------------------------
(unaudited)
(in thousands of U.S. Dollars,
except share and per share data)

<S> <C> <C>
ASSETS
Investments and cash
Fixed maturities, at fair value
(amortized cost - $2,828,141 and $2,325,959) $2,818,959 $2,377,510
Equity securities, at fair value (cost - $235,267 and $224,020) 298,794 267,163
Short-term investments 266,568 458,145
Other investments, at cost 12,453 12,453
Cash 36,244 16,929
------------- -------------
Total investments and cash 3,433,018 3,132,200

Accrued investment income 35,975 29,574
Deferred acquisition costs 34,226 34,428
Insurance balances receivable 32,772 20,993
Other assets 37,177 15,557
------------- -------------

Total assets $3,573,168 $3,232,752
============= ============
LIABILITIES
Unpaid losses and loss expenses $1,611,366 $1,437,930
Unearned premiums 349,521 305,568
Premiums received in advance 36,516 23,876
Accounts payable and other liabilities 29,659 16,259
Dividend payable 6,455 6,456
-------------- --------------
Total liabilities 2,033,517 1,790,089
----------- -----------

Commitments and contingencies

SHAREHOLDERS' EQUITY
Ordinary Shares ($0.125 par value, 100,000,000 shares authorized;
46,105,108 and 46,111,185 shares issued and outstanding) 5,763 5,764
Additional paid-in capital 548,441 548,513
Unearned stock grant compensation (1,520) (1,796)
Net unrealized appreciation on investments 54,345 94,694
Cumulative translation adjustments (180) -
Retained earnings 932,802 795,488
------------- -------------

Total shareholders' equity 1,539,651 1,442,663
----------- -----------

Total liabilities and shareholders' equity $3,573,168 $3,232,752
=========== ===========

See accompanying notes to interim consolidated financial statements

ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Six Months Ended March 31, 1996 and 1995
(Unaudited)

Three Months Ended Six Months Ended
March 31 March 31
1996 1995 1996 1995
------- ------ ------ ------
(in thousands of U.S. Dollars, except share and per share data)

<S> <C> <C> <C> <C>
REVENUES
Net premiums written $ 177,535 $ 102,481 $ 306,330 $ 213,367
Change in unearned premiums (31,142) 4,075 (43,953) (2,734)
------------ ----------- ------------ ------------

Net premiums earned 146,393 106,556 262,377 210,633
Net investment income 48,312 44,947 95,438 88,264
Net realized gains (losses) on investments 5,261 5,086 49,863 (39,668)
-------------- ------------- ---------- ----------

Total revenues 199,966 156,589 407,678 259,229
------------ ------------- ----------- ---------

EXPENSES
Losses and loss expenses 121,076 87,140 214,000 172,373
Acquisition costs 12,549 11,879 24,663 23,630
Administrative expenses 9,538 5,644 18,676 9,930
------------- ------------- ------------ ---------
Total expenses 143,163 104,663 257,339 205,933
----------- -------------- ------------ ----------

<PAGE>
NET INCOME $ 56,803 $ 51,926 $ 150,339 $ 53,296
============ ============== ========== ============

Earnings per share $ 1.22 $ 1.10 $ 3.24 $ 1.13
============ ============== =========== ============

Weighted average shares outstanding 46,459,621 47,244,021 46,462,323 47,343,124
============ ============== =========== ============

See accompanying notes to interim consolidated financial statements

<PAGE>
<CAPTION>
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Six Months Ended March 31, 1996 and 1995
(Unaudited)

1996 1995
-------- ------
(in thousands of U.S. Dollars)

<S> <C> <C>
Ordinary shares
Balance - beginning of period $ 5,764 $ 5,928
Exercise of stock options (aggregate par value less than $1) -- --
Repurchase of Ordinary shares (1) (46)
----------------- ----------------
Balance - end of period 5,763 5,882
--------------- --------------

Additional paid-in capital
Balance - beginning of period 548,513 564,198
Exercise of stock options -- 8
Repurchase of Ordinary shares (72) (4,411)
------------- --------------
Balance - end of period 548,441 559,795
------------- --------------

Unearned stock grant compensation
Balance - beginning of period (1,796) (412)
Stock grants awarded (272) (2,350)
Stock grants forfeited 60 --
Amortization 488 512
---------------- ----------------
Balance - end of period (1,520) (2,250)
--------------- --------------

<PAGE>
Net unrealized appreciation (depreciation) on investments
Balance - beginning of period 94,694 (79,685)
Net appreciation (depreciation) during period (40,349) 92,589
---------------- -------------
Balance - end of period 54,345 12,904
-------------- --------------

Cumulative translation adjustments
Balance - beginning of period -- --
Net adjustment for period (180) --
-------------- --------------
Balance - end of period (180) --
--------------- ---------------

Retained earnings
Balance - beginning of period 795,488 598,716
Net income 150,339 53,296
Dividends declared (12,929) (10,374)
Repurchase of Ordinary shares (96) (4,068)
---------------- ---------------
Balance - end of period 932,802 637,570
---------------- ---------------

TOTAL SHAREHOLDERS' EQUITY $1,539,651 $1,213,901
================ ===============

See accompanying notes to interim consolidated financial statements

ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 1996 and 1995
(Unaudited)

1996 1995
-------- ------
(in thousands of U.S. Dollars)

<S> <C> <C>
Cash flows from operating activities
Net income $ 150,339 $ 53,296
Adjustments to reconcile net income to net cash provided by
operating activities
Unearned premiums 43,953 2,734
Unpaid losses and loss expenses 173,436 130,607
Net realized (gains) losses on investments (49,863) 39,668
Amortization of premium/discount (2,713) (7,837)
Deferred acquisition costs 202 519
Insurance balances receivable (11,779) (2,944)
Premiums received in advance 12,640 1,274
Accounts payable and other liabilities 6,296 (1,900)
Accrued investment income (6,401) (1,990)
Other (2,868) (4,252)
----------- -----------
Net cash flows from operating activities 313,242 209,175
------------- ------------

Cash flows from investing activities
Purchases of fixed maturities (5,179,119) (3,476,009)
Purchases of equity securities (108,692) (237,453)
Sales of fixed maturities 4,870,057 3,480,645
Sales of equity securities 101,492 32,799
Maturities of fixed maturities 32,580 32,392
Net realized gains on financial futures contracts 14,407 7,005
Acquisitions of subsidiaries, net of cash acquired (11,572) (25,794)
------------- -------------
Net cash used in investing activities (280,847) (186,415)
------------ -----------
<PAGE>
Cash flows from financing activities
Repurchase of Ordinary Shares (169) (8,525)
Proceeds from exercise of options for shares 8
Dividends paid (12,911) (10,416)
------------- --------------
Net cash used for financing activities (13,080) (18,933)
------------- --------------

Net increase in cash 19,315 3,827
Cash - beginning of period 16,929 14,421
------------- ------------
Cash - end of period $ 36,244 $ 18,248
============= ============

See accompanying notes to interim consolidated financial statements

</TABLE>

<PAGE>
ACE LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. General

The interim consolidated financial statements, which include the
accounts of the Company and its subsidiaries, have been prepared
on the basis of accounting principles generally accepted in the
United States of America and, in the opinion of management,
reflect all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of results for such periods.
The results of operations and cash flows for any interim period
are not necessarily indicative of results for the full year.
These financial statements should be read in conjunction with the
consolidated financial statements, and related notes thereto,
included in the Company's 1995 Annual Report on Form 10-K.

On March 27, 1996, the Company, through a corporate subsidiary,
ACE UK Limited ("ACE UK"), completed the acquisition of a
51 percent interest in Methuen Group Limited ("Methuen") the
holding company for Methuen (Lloyd's Underwriting Agents)
Limited, a leading Lloyd's of London managing agency. The
Company may acquire the remaining 49 percent interest in Methuen
during the years 1999 and 2000 through various put and call
arrangements. The acquisition has been recorded using the
purchase method of accounting.

At March 31, 1996 approximately 76 percent of the Company's written
premiums came from North America with approximately 22 percent
coming
from the United Kingdom and continental Europe and approximately
2 percent from other countries.

2. Accounting Policies

Translation of Foreign Currencies

Financial statements of subsidiaries expressed in foreign
currencies are translated into U.S. dollars in accordance with
Statement of Financial Accounting Standards No. 52 "Foreign
Currency Translation" (FASB 52). Under FASB 52, functional
currency assets and liabilities are translated into U.S. dollars
generally using period end rates of exchange and the related
translation adjustments are recorded as a separate component of
shareholders equity. Functional currencies are generally the
currencies of the local operating environment. Income statement
amounts expressed in functional currencies are translated using
average exchange rates. Exchange gains and losses resulting from
foreign currency transactions are also recorded in income
currently.

Financial Lines

Financial lines policies are generally multi-year in structure.
In the majority of the cases, due to the ability of the
insured/reinsured to commute or cancel coverage within the
multi-year term, only the annual premium is included as written
at contract inception. The remaining annual premiums will be
included as written at each successive anniversary date within
the multi-year term. All premiums are earned in accordance with
the expiration of the risk within the year written.

Losses and loss expenses on financial lines contracts includes
provision for experience refunds on those contracts that contain
such features and where the estimated incidence of losses on the
contract is expected to generate such a balance due to the
insured/reinsured.

3. Commitments and Contingencies

A number of the Company's insureds have given notice of claims
relating to breast implants or components or raw material thereof
that had been produced and/or sold by such insureds. Lawsuits,
including class actions, involving thousands of implant
recipients have been filed in both state and federal courts
throughout the United States. Most of the federal cases have
been consolidated pursuant to the rules for Multidistrict
Litigation ("MDL") to a Federal District Court in Alabama.

On April 1, 1994 the judge presiding over the MDL proceeding gave
preliminary approval to a global settlement agreement in the
approximate amount of $4.2 billion and conditional certification
to a settlement class ("Global I").

In early 1995, the judge directed the parties to conduct further
expedited negotiations with the objective of exploring ways to
minimize potential reductions due to the large number of current
claimants, such as by reallocating funds already committed to the
global settlement or perhaps by obtaining additional
contributions to the settlement from the settling defendants or
others.

On May 15, 1995, the Dow Corning Corporation, a significant
participant in the global settlement, filed for protection under
Chapter 11 of the U.S. Bankruptcy Code.

On October 1, 1995 negotiators for three of the major defendants
agreed on the essential elements of a revised individual
settlement plan for domestic class members with at least one
implant from any of those manufacturers ("Settlement II").

In general, under Settlement II, the amounts payable to
individual participants, and the manufacturers' obligations to
make those payments, would not be affected by the number of class
members electing to opt out from the new plan. Also, in general,
the compensation would be fixed rather than subject to potential
further racheting, and the manufacturers would not have a right
to walk away because of the amount of claims payable. Finally,
each settling defendant agreed to be responsible only for cases
in which its implant was identified, and not for a percentage of
all cases.

By November 13, 1995 Settlement II was approved by the boards of
directors of the three defendants subject to finalizing certain
details. In addition, two other defendants became part of
Settlement II, although certain of their settlement terms are
different and more restricted than the plan offered by the
original three defendants.

On December 22, 1995, the judge approved Settlement II and the
materials for giving notice to claimants. On December 29, 1995,
the judge also approved for distribution, as part of the notice,
a "Question and Answer Booklet" about Settlement II. Several
appeals concerning Settlement II have been lodged with the
Eleventh Circuit Court of Appeals. In mid-January 1996, the
three major defendants each made a payment of $125 million to a
court-established fund as an initial reserve for payments to be
made under Settlement II. The judge in the MDL proceeding has
started to remand or transfer opt-out cases to the originating or
other courts for further pretrial proceedings and trial. The
Claims Administrator has announced that she contemplates
beginning to send out Notifications of Status to certain
claimants (who have submitted implant manufacturer proof) by late
May 1996. At the present time, it cannot be determined how many
claimants will accept and qualify under the terms of Settlement
II; similarly, the number of opt-outs cannot be estimated. (For
further discussion, see Management's Discussion and Analysis -
"Breast Implant Litigation").

At June 30, 1994, following the announcement of Global I, the
Company increased its then existing reserves relating to breast
implant claims. Although the reserve increase was partially
satisfied by an allocation from existing IBNR, it also required
an increase in the Company's total reserve for unpaid losses and
loss expenses at June 30, 1994 of $200 million.

The increase in reserves relating to breast implant claims was
based on information made available in conjunction with Global I
(including information relating to opt-outs) and information made
available from the Company's insureds and was predicated upon an
allocation between coverage provided before and after the end of
1985 (when the Company commenced underwriting operations). No
additional reserves relating to breast implant claims have been
added since June 30, 1994.

The Company believes that its reserves for unpaid losses and loss
expenses including those arising from breast implant claims is
adequate as of March 31, 1996. The Company continually evaluates
its reserves in light of developing information. However,
significant uncertainties continue to exist, especially with
regard to the ultimate outcome and cost of Settlement II and the
number and value of the opt out claims. The Company is unable at
this time to determine whether additional reserves, which could
have a material adverse effect upon the financial condition,
results of operations and cash flows of the Company, may be
necessary in the future.

4. Shares Issued and Outstanding

On February 3, 1995, the Board of Directors authorized a new
share repurchase program in an aggregate amount not to exceed $75
million. This program superseded and replaced the balance of the
previous authorization. As at March 31, 1996, approximately $45
million of the Board authorization had not been utilized.

5. Restricted Stock Awards

During the current quarter, 6,734 restricted Ordinary Shares were
awarded to outside directors of the Company under the terms of
the 1995 Outside Dirctors Plan which was approved by the
shareholders of the Company on February 9, 1996. These shares
vest in February 1997.

6. Reclassification

Certain items in the prior period financial statements have been
reclassified to conform with the current period presentation.
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------

General

The following is a discussion of the Company's financial
condition, results of operations, liquidity and capital resources
as of and for the three and six months ended March 31, 1996. The
results of operations and cash flows for any interim period are
not necessarily indicative of results for the full year. This
discussion should be read in conjunction with the consolidated
financial statements, related notes thereto and the Management's
Discussion and Analysis of Results of Operations and Financial
Condition included in the Company's 1995 Annual Report on
Form 10-K.

ACE Limited is a holding company which through its principal
operating subsidiaries, A.C.E. Insurance Company, Ltd. ("ACE
Insurance") and Corporate Officers & Directors Assurance Ltd.
("CODA") provides high level excess liability insurance,
directors and officers liability insurance, satellite insurance,
aviation insurance, excess property insurance, financial lines
products and certain financial guarantee reinsurance. In
addition, on March 27, 1996, the Company has acquired a
controlling interest in Methuen Group Limited ("Methuen"), the
holding company for Methuen (Lloyd's Underwriting Agents)
Limited, a leading Lloyd's of London managing agency.

The Company's excess liability insurance policy generally
provides limits of up to a maximum of $200 million per occurrence
and annual aggregate, with a minimum attachment point generally
of $100 million. For all new and renewal business, effective on
or after December 15, 1994, the Company has reduced the maximum
limits offered for integrated occurrences under the excess
liability policy form from $200 million to $100 million. This
change is intended to limit the Company's exposure to risk
resulting from integrated occurrence claims. The Company is
continuing planned price increases for accounts in the chemical,
energy, petrochemical and medical/pharmaceutical industries. The
continued selective price increases are consistent with the
Company's policy of offering coverage at a price which is
commensurate with the individual risk being underwritten.

The Company offers up to $75 million of limits in directors and
officers liability coverage.

The Company began satellite insurance operations in February
1994. Until February 1996, the Company offered separate limits
of up to $25 million per risk for launch insurance, including
ascent to orbit and initial operations, and up to $25 million per
risk for in-orbit insurance. This risk was fully retained by the
Company. Effective for all business written on or after February
15, 1996, the Company has entered into a surplus treaty
arrangement with X.L. Reinsurance Company Ltd., a Bermuda-based
reinsurer, which provides for up to $25 million of reinsurance
for each risk. This reinsurance arrangement has enabled the
Company to raise the gross limits offered for satellite insurance
to $50 million per risk.

During fiscal 1995, the Company entered the following four new
lines of business: aviation insurance, excess property
insurance, financial lines and First Line reinsurance.

Aviation insurance provides coverage for various aviation
products, including aircraft manufacturer's hull and liability,
as well as airport liability, aircraft refueling operations and
associated aircraft liability risks. The Company retains net
limits of up to approximately $50 million per insured for
aviation insurance.

The Company also offers global excess property "all risk"
insurance, providing limits of up to a maximum of $50 million per
occurrence with a minimum attachment point of $25 million.
Coverage includes such perils as windstorm, earthquake and fire,
as well as explosion. Consequential business interruption
coverage is also offered.

The Company's financial lines product group offers specifically
designed financial and insurance solutions to address complex
risk management problems.

The Company participates in the reinsurance of Stockton
Reinsurance Ltd. with respect to a program referred to as "First
Line" which provides financial guarantees required by the U.S.
Coast Guard to issue Certificates of Financial Responsibility,
under the Oil Pollution Act of 1990, to owners of vessels
operating in U.S. waters.

On March 27, 1996, a corporate subsidiary of the Company acquired
a 51 percent interest in Methuen, the holding company for
Methuen (Lloyd's Underwriting Agents) Limited, a leading Lloyd's
of London managing agency. The Company may acquire the remaining
49 percent interest in Methuen during the years 1999 and 2000
through various put and call arrangements.

Methuen manages six syndicates with total underwriting capacity
of 367 million pounds sterling (approximately $555 million) in
1996. For the 1996 year of account, the Company has, through a
newly formed corporate subsidiary, provided funds at Lloyd's of
12.25 million pounds sterling (approximately $18 million) which
was substantially in the form of a letter of credit supporting
24.5 million pounds sterling (approximately $37 million) of
underwriting capacity on Methuen syndicates. The Company has
agreed, subject to certain conditions, to provide funds at
Lloyd's of 50 million pounds sterling (approximately $76 million)
to support underwriting by Methuen syndicates in 1997 and
subsequent years.

The Company has purchased or may purchase reinsurance for certain
of its product lines.

The Company will continue to evaluate potential new product
lines.

On March 14, 1996 the Company executed a definitive agreement for
the acquisition of Tempest Reinsurance Company Limited ("Tempest
Re") by the Company. Tempest Re is a leading Bermuda-based
property catastrophe reinsurer. The acquisition is subject to,
among other matters, certain approvals of the Company's and
Tempest Re's shareholders, termination rights and other customary
closing conditions. It is expected that the shareholder meetings
will be scheduled during the last half of June 1996, with
completion of the acquisition occurring promptly thereafter
assuming the requisite shareholder approvals are obtained. (For
further discussion, see Management's Discussion and Analysis -
"Liquidity and Capital Resources").

Results of Operations - Three Months ended March 31, 1996
- -----------------------------------------------------------------
Net Income Three Months ended % Change
March 31 from
1996 1995 prior year
------ ------ ----------
(in millions)

Income excluding net realized
gains (losses) on
investments $51.5 $46.8 10.0%
Net realized gains
on investments 5.3 5.1 N.M.
------ ------- ------
Net income $56.8 $51.9 N.M.
====== ======= ======
(N.M.-Not meaningful)
- -----------------------------------------------------------------

Higher net investment income and income from insurance operations
contributed to the increase in income excluding net realized
gains on investments for the second quarter of fiscal 1996,
compared with the corresponding 19956 quarter. These increases
were partially offset by an increase in general and
administrative expenses.

<PAGE>
- -----------------------------------------------------------------
Premiums Three Months ended % Change
March 31 from
1996 1995 prior year
----- ----- ----------
(in millions)
Net premiums written:
Excess liability $ 53.1 $59.9 (11.5)%
Directors and officers
liability 16.7 19.1 (12.5)
Satellite 20.1 10.4 92.0
First Line 1.8 12.9 N.M.
Aviation 6.5 -- N.M.
Excess property 5.1 -- N.M.
Financial lines 73.6 -- N.M.
Other 0.6 0.2 N.M.
-------- -------- --------
$177.5 $102.5 73.2%
======== ========= ========

Net premiums earned:
Excess liability $59.8 $65.2 (8.3)%
Directors and officers
liability 26.7 27.0 (1.2)
Satellite 19.1 11.2 69.7
First Line 2.4 2.9 (16.1)
Aviation 4.3 -- N.M.
Excess property 2.8 -- N.M.
Financial lines 31.1 -- N.M.
Other 0.2 0.2 N.M.
-------- -------- -------
$146.4 $106.5 37.4%
======== ========= ========
- ----------------------------------------------------------------

Net premiums written increased by 73.2% in the three months ended
March 31, 1996 to $177.5 million compared to $102.5 million for
the second quarter 1995. This growth is a result of a very
strong quarter for the Company's financial lines and satellite
insurance business, together with the continuing contribution of
the Company's other new product lines. The decline in excess
liability and directors and officers liability premiums was
primarily a result of timing differences due to changes in
anniversary dates of several policies. Continuing competitive
pressures in these markets and a lower level of premiums
generated from multi-year policies also contributed to the
decline. The decrease in First Line premiums is due mainly to
timing differences in the recording of premiums between the first
and second quarters in 1996 versus 1995.

For the quarter ended March 31, 1996, net premiums earned
increased by $39.8 million to $146.4 million compared to $106.5
million in 1995. The increase in satellite premiums earned,
primarily from launch insurance, and contributions from the new
lines of business, particularly financial lines, more than offset
the decline in excess liability and directors and officers
liability premiums earned.

- ----------------------------------------------------------------
Net Investment Income Three Months ended % Change
March 31 from
1996 1995 prior year
------ ------ ----------
(in millions)
Net investment income $48.3 $44.9 7.5%
====== ====== ======
- -----------------------------------------------------------------

The increase in net investment income in the current quarter, as
compared to 1995, is primarily attributable to a larger
investable asset base, despite a lower yield generated by the
portfolio as a result of general market conditions during the
period. The larger investable asset base is due primarily to
positive cash flows from insurance operations and the
reinvestment of funds generated by the portfolio.

- -----------------------------------------------------------------
Net Realized Gains (Losses)
on Investments Three Months ended
March 31
1996 1995
----- -----
(in millions)
Fixed maturities and short-
term investments $ 6.5 $(1.4)
Financial futures contracts (0.4) 15.2
Equity securities 0.2 (0.5)
Currency (1.0) (8.2)
------ ------
$ 5.3 $ 5.1
====== ======
- -----------------------------------------------------------------

The Company's investment strategy takes a long-term view and the
portfolio is actively managed to maximize total return within
certain specific guidelines which minimize risk. The Company's
investment guidelines during the quarter ended March 31, 1996
target an equity exposure of 15 percent of the externally managed
investment portfolio. On May 10, 1996, the Board resolved to
increase the targeted equity exposure to 20 percent. The
remainder of the portfolio is composed of fixed maturity
securities. The portfolio is reported at fair value. Changes in
unrealized gains and losses, which result from the revaluation of
securities held, are reported as a separate component of
shareholders' equity. The effect of market movements on the
investment portfolio will directly impact net realized gains
(losses) when securities are sold.

Despite a steady decline in U.S. bond market prices during the
second quarter, sales proceeds for fixed maturity securities were
generally higher than their amortized cost which resulted in net
realized gains of $6.5 million being recognized on fixed
maturities and short-term investments compared to net realized
losses of $1.4 million for the same period in 1995.

Gains and losses on financial futures contracts are the result of
fixed maturity and equity security market movements. The
increase in interest rates during the three month period resulted
in a market decline for fixed maturity securities, and realized
losses from U.S. Treasury futures contracts. There was a 5.4
percent rise in the S&P 500 stock index during the period and
hence realized gains on the S&P 500 index futures contracts in
the synthetic equity fund. Realized losses from U.S. Treasury
futures exceeded gains from the S&P 500 index futures, resulting
in a net realized loss on financial future contracts of $0.4
million. In the same period in 1995, increases in the Treasury
and equity markets resulted in realized gains of $15.2 million.

During 1995, as part of the change in the asset allocation,
non-U.S. dollar fixed maturity and equity securities were
purchased in the portfolio. The Company uses foreign currency
forward and option contracts to minimize the effect of
fluctuating foreign currencies on the value of non-U.S. dollar
holdings. The contracts used are not designated as specific
hedges and therefore, realized and unrealized gains and losses
recognized on these contracts are recorded as a component of net
realized gains (losses) in the period in which the fluctuations
occur, together with net foreign currency gains (losses)
recognized when non-U.S. dollar securities are sold.

- --------------------------------------------------------------

Combined Ratio Three Months ended
March 31
1996 1995
------ ------

Losses and loss expense ratio 82.7% 81.8%
Underwriting expense ratio 8.6 11.1
Administrative expense ratio 6.5 5.3
------ ------
Combined ratio 97.8% 98.2%
- ---------------------------------------------------------------

The underwriting results of a property and casualty insurer are
discussed frequently by reference to its losses and loss expense
ratio, underwriting expense ratio, administrative expense ratio
and combined ratio. Each ratio is derived by dividing the
relevant expense amounts by net premiums earned. The combined
ratio is the sum of the losses and loss expense ratio, the
underwriting expense ratio and administrative expense ratio. A
combined ratio under 100 percent indicates underwriting profits
and a combined ratio exceeding 100 percent indicates underwriting
losses.

For the three months ended March 31, 1996, the losses and loss
expense ratio was 82.7 percent compared to 81.8 percent for the
second quarter of 1995 primarily as a result of a change in the
mix of business during the quarter. Several aspects of the
Company's operations, including the low frequency and high
severity of losses in the high excess layers in which the Company
provides insurance, complicate the actuarial reserving techniques
utilized by the Company. Management believes, however, that the
Company's reserves for unpaid losses and loss expenses, including
those arising from breast implant litigation, are adequate to
cover the ultimate cost of losses and loss expenses incurred
through March 31, 1996. Since such provisions are necessarily
based on estimates, future developments may result in ultimate
losses and loss expenses significantly greater or less than such
amounts (see "Breast Implant Litigation").

Although underwriting expenses increased by $0.7 million in the
quarter, the underwriting expense ratio actually decreased
significantly due primarily to the change in the mix of business
written in the quarter. General and administrative expenses
increased $3.9 million in the current quarter compared to the
second quarter of 1995. These additional expenses are
partially due to the increased cost base associated with the
implementation of the new insurance products during the latter
half of 1995 including the impact of hiring additional staff.
In addition, the increase in the market value of the Company's
shares during the quarter resulted in total expenses related to
the employee stock appreciation rights of $1.7 million compared
with $0.1 million in the second quarter of fiscal 1995.

Results of operations - Six Months ended March 31, 1996
- -----------------------------------------------------------------
Net Income Six Months ended % Change
March 31 from
1996 1995 prior year
------ ------ ----------
(in millions)

Income excluding net realized
gains (losses) on
investments $100.4 $ 93.0 8.1%
Net realized gains (losses)
on investments 49.9 (39.7) N.M.
------ ------- ------
Net income $150.3 $ 53.3 N.M.
====== ======= ======
- -----------------------------------------------------------------

The increase in income excluding net realized gains (losses) on
investments for the six months ended March 31, 1996 compared with
1995 resulted primarily from increased investment income of $7.2
million. Earned premiums increased by $51.7 million in 1996 as
compared with 1995, however as the Company operated at a 98.1%
combined ratio (97.8% for the same period in 1995), the net
impact of increases in earned premiums on net income was minimal.

The six month net income comparison was impacted significantly by
the net realized gains on investments for 1996, compared with a
loss for 1995. In first quarter fiscal 1995, the Company
implemented a revised investment strategy. The net realized
losses on investments for the period were primarily a result of
the security sales required to reposition the portfolio in
accordance with these changes.
<PAGE>
- -----------------------------------------------------------------
Premiums Three Months ended % Change
March 31 from
1996 1995 prior year
----- ----- ----------
(in millions)
Net premiums written:
Excess liability $ 109.4 $124.9 (12.4)%
Directors and officers
liability 51.4 56.4 (8.9)
Satellite 43.5 18.9 129.9
First Line 8.5 12.9 (33.5)
Aviation 8.9 -- N.M.
Excess property 10.4 -- N.M.
Financial lines 73.6 -- N.M.
Other 0.6 0.3 N.M.
-------- -------- --------
$306.3 $213.4 43.6%
======== ========= ========

Net premiums earned:
Excess liability $121.5 $133.6 (9.0)%
Directors and officers
liability 53.8 56.0 (4.1)
Satellite 37.3 17.8 108.9
First Line 6.1 2.9 N.M.
Aviation 6.4 -- N.M.
Excess property 4.1 -- N.M.
Financial lines 33.0 -- N.M.
Other 0.2 0.3 N.M.
-------- -------- -------
$262.4 $210.6 24.6%
======== ========= ========
- ----------------------------------------------------------------

The addition of financial lines premiums of $73.6 million and the
increase in satellite premiums of $24.6 million were the main
contributors to the increase in net premiums written for the six
months ended March 31, 1996, compared to 1995. These were offset
by decreases in excess liability and directors and officers
liability premiums written. Limit reductions, some of which
resulted from reduced integrated occurrence coverage, increases
to higher attachment points on some business written and timing
differences arising from changes in anniversary dates of several
policies contributed to a $15.5 million decrease in excess
liability premiums. The decline in directors and officers
liability can be attributed mainly to a lower level of premiums
generated from multi-year policies. Continuing competitive
pressures in both the excess liability and directors and officers
liability markets also contributed to the declines.

Net premiums earned increased by $51.8 million to $262.4 million
for the six months ended March 31, 1996 compared to 1995. This
increase is primarily attributable to financial lines, satellite
insurance and contributions from the other new lines of business,
which more than offset the declines in excess liability and
directors and officers liability premiums earned.

- -----------------------------------------------------------------
Net Investment Income
Six Months ended % Change
March 31 from
1996 1995 prior year
----- ----- ----------
(in millions)

Net investment income $95.4 $88.3 8.1%
====== ===== =====

- -----------------------------------------------------------------

The increase of $7.1 million in net investment income for the six
months ended March 31, 1996, as compared to 1995 was attributable
to a larger investable asset base despite a lower yield generated
by the portfolio as a result of general market conditions during
the period. The larger investable asset base is due primarily to
positive cash flows from insurance operations and the
reinvestment of funds generated by the portfolio.

- -----------------------------------------------------------------
Net realized gains (losses) on Investments
Six Months ended
March 31
1996 1995
----- -----
(in millions)

Fixed maturities and short-
term investments $32.4 $(37.7)
Financial futures contracts 14.4 7.0
Equity securities 3.0 (0.6)
Currency 0.1 (8.4)
------ ------
$49.9 $(39.7)
====== =======
- -----------------------------------------------------------------

Sales proceeds for fixed maturity securities were generally
higher then their amortized costs during the period which
resulted in net realized gains on investments for the six month
period of $49.9 million compared to $39.7 million of net realized
losses during the same period in 1995. The 1995 losses were the
result of the repositioning of the portfolio for the revised
investment strategy that had been implemented.

The realized gains on financial futures contracts were generated
from U.S. Treasury futures contracts and from the equity index
futures contracts held in the synthetic equity fund. Gains and
losses on these instruments are closely linked to fluctuations in
the U.S. Treasury and equity markets and therefore, realized
gains would be expected during periods of broad market
improvements while losses are realized during periods of market
declines.

Realized currency gains for the six months ended March 31, 1996
were $0.1 million compared to a loss of $8.4 million for the same
period of 1995. Unrealized currency losses of $5 million on
securities held in the portfolio as at March 31, 1996 are
reflected in net unrealized appreciation on investments in
shareholders' equity. At March 31, 1995 there was an unrealized
currency gain of $12.9 million in net unrealized appreciation on
investments in shareholders' equity.

- -----------------------------------------------------------------
Combined Ratio
Six Months ended
March 31
1996 1995
----- -----

Losses and loss expense ratio 81.6% 81.8%
Underwriting expense ratio 9.4 11.2
Administration expense ratio 7.1 4.8
------ ------
Combined Ratio 98.1% 97.8%
====== =======
- -----------------------------------------------------------------

Losses and loss expense as a percentage of net premiums earned
was 81.6% for the six months ended March 31, 1996 as compared
with 81.8% for 1995.

Underwriting expenses increased by $1.0 million to $24.7 million
for the six months ended March 31, 1996 compared with 1995,
however, the underwriting expense ratio decreased significantly
to 9.4% from 11.2% primarily due to the change in the mix of
business written in the period.

General and administrative expenses increased by $8.7 million
this year versus 1995. These additional expenses are partially
due to the increased cost base associated with the implementation
of the new insurance products during the latter half of 1995
including the impact of hiring additional staff. In addition,
the increase in the market value of the Company's shares during
1996 resulted in total expenses related to employee stock
appreciation rights of $3.1 million compared with no expense
in 1995.

LIQUIDITY AND CAPITAL RESOURCES

As a holding company, the Company's assets consist primarily of
the stock of its subsidiaries as well as other investments and,
in addition to investment income, its cash flows depend primarily
on dividends or other statutorily permissible payments from its
Bermuda insurance subsidiaries. There are currently no legal
restrictions on the payment of dividends from retained earnings
by the Company or its Bermuda insurance subsidiaries as the
minimum statutory capital and surplus requirements are satisfied
by the share capital and additional paid-in capital of each of
the Company's insurance subsidiaries. However, the payment of
dividends or other statutorily permissible distributions by ACE
Insurance or CODA is subject to the need to maintain
shareholders' equity adequate to support the level of insurance
operations.

The Company's consolidated sources of funds consist primarily of
net premiums written, investment income, and proceeds from sales
and redemptions of investments. Funds are used primarily to pay
claims, operating expenses and dividends and for the purchase of
investments.

For the six months ended March 31, 1996, the Company's
consolidated net cash flow from operating activities was $313.2
million, compared with $209.2 million for the six months ended
March 31, 1995. Cash flows are affected by claims payments,
which due to the nature of the insurance coverage provided by the
Company, may comprise large loss payments on a limited number of
claims and can therefore fluctuate significantly. The irregular
timing of these large loss payments, for which the source of cash
can be from operations, available credit facilities or routine
sales of investments, can create significant variations in cash
flow from operations between periods. For the six month periods
ended March_31, 1996 and 1995, loss and loss expense payments
amounted to $40.6 million and $41.8 million respectively. Total
loss and loss expense payments amounted to $73.1 million, $126.6
million and $285.8 million in fiscal years 1995, 1994 and 1993,
respectively.

At March 31, 1996, total investments and cash amounted to
approximately $3.4 billion, compared to $3.1 billion at September
30, 1995. The significant increase in investable assets can be
attributed mainly to strong cash flows from operating activities
as well as the reinvestment of funds generated by the portfolio.

The Company's investment portfolio is structured to provide a
high level of liquidity to meet insurance related or other
obligations. The consolidated investment portfolio is
externally managed by independent professional investment
managers and is invested in high quality investment grade
marketable fixed income and equity securities, the majority of
which trade in active, liquid markets. The Company believes
that its cash balances, cash flow from operations, routine sales
of investments and the liquidity provided under its committed
line of credit (discussed below) are adequate to allow the
Company to pay claims within the time periods required under its
polices.

The Company has a $150 million committed line of credit provided
by a syndicate of five major international banks, led by Morgan
Guaranty Trust Company of New York. In accordance with the
Company's cash management strategy, this facility is utilized
when it is determined that borrowing on a short-term basis is
advantageous to the Company. The line of credit agreement
requires the Company to maintain consolidated tangible net worth
of not less than $950 million. There were no draw-downs from the
line of credit during the six months ended March 31, 1996 and
there were no outstanding borrowings at March 31, 1996.

On November 1, 1993, the Company completed the acquisition of
CODA. In consideration of this acquisition, the Company paid
approximately $250 million in cash and agreed to pay on December
31, 1994 up to an additional $25 million in cash based upon
development of CODA's June 30, 1993 loss reserves as estimated on
September 30, 1994. The review of the loss reserves was
completed and the additional payment was made in December 1994.

The Board of Directors has authorized the repurchase from time to
time of the Company's Ordinary Shares in open market and private
purchase transactions. On February 3, 1995, the Board of
Directors terminated an existing share repurchase program and
authorized a new program for up to $75.0 million of the Company's
Ordinary Shares. At March 31, 1996, $45.0 million of the Board
authorization had not been utilized.

On October 19, 1995, January 18, 1996 and April 19, 1996, the
Company paid quarterly dividends of 14 cents per share to
shareholders of record on September 29, 1995, December 29, 1995,
(rather than December 31, 1995 as stated in the Form 10K) and
March 29, 1996 respectively. On May 10, 1996, the Board of
Directors declared a quarterly dividend of 18 cents per share
payable on July 19, 1996 to shareholders of record on June 14,
1996. The declaration and payment of future dividends is
at the discretion of the Board of Directors and will be
dependent upon the profits and financial requirements of the
Company and other factors, including legal restrictions on the
payment of dividends and such other factors as the Board of
Directors deems relevant.

Fully diluted net asset value per share was $33.29 at March 31,
1996, compared with $31.19 at September 30, 1995.

The Company maintains loss reserves for the estimated unpaid
ultimate liability for losses and loss expenses under the terms
of its policies and agreements. The reserve for unpaid losses
and loss expenses of $1.6 billion at March 31, 1996, includes
$906.3 million of case and loss expense reserves. The ultimate
liability is estimated using actuarial and statistical
projections. While the Company believes that its reserve for
unpaid losses and loss expenses at March 31, 1996 is adequate,
future developments may result in ultimate losses and loss
expenses significantly greater or less than the reserve provided
(see "Breast Implant Litigation").

A number of the Company's insureds have given notice of claims
relating to breast implants or components or raw material thereof
that had been produced and/or sold by such insureds. The Company
does not have adequate data upon which to anticipate any funding
schedule for the payment of these liabilities, although it
expects that the amount of time required to determine which
current claimants will select which of the two options may extend
well into 1996. Payments may be accelerated for some
policyholders, as a function of the resolution of opt-out cases,
and claim payments by the Company could begin during fiscal 1996
(see "Breast Implant Litigation").

On March 14, 1996, the Company executed a definitive agreement for
the acquisition of Tempest Reinsurance Company Limited by the
Company. Tempest Re is a leading Bermuda-based property
catastrophe reinsurer. General Re Corporation sponsored the
formation of Tempest Re in 1993, but will not have a continuing
affiliation with Tempest Re or the Company after completion of
the acquisition. Under the terms of the definitive agreement,
Tempest Re's shareholders at the time of the acquisition would
receive Ordinary Shares of the Company. The maximum number of
Ordinary Shares issuable in connection with the acquisition
(which would be based upon a closing price of $33 or lower) is
18,181,818 and the minimum number of Ordinary Shares issuable in
connection with the acquisition (which would be based upon a
closing price of $45 or higher) is 13,333,333. Tempest Re's net
assets at the time of closing are expected to be approximately
$500 million. The acquisition is subject to, among other matters,
certain approvals of the Company's and Tempest Re's shareholders,
termination rights and other customary closing conditions. It is
expected that the shareholder meetings will be scheduled during
the last half of June 1996 with completion of the acquisition
occurring promptly thereafter assuming the requisite shareholder
approvals are obtained.

The Company's financial condition, results of operations and cash
flow are influenced by both internal and external forces. Claims
settlements, premium levels and investment returns may be
impacted by changing rates of inflation and other economic
conditions. In many cases, significant periods of time, ranging
up to several years or more, may elapse between the occurrence of
an insured loss, the reporting of the loss to the Company and the
settlement of the Company's liability for that loss. The
liquidity of its investment portfolio, cash flows and the line of
credit are, in management's opinion, adequate to meet the
Company's expected cash requirements.
<PAGE>
Breast Implant Litigation

On May 15, 1995, the Dow Corning Corporation, a significant
participant in the global settlement, filed for protection under
Chapter 11 of the U.S. Bankruptcy Code.

In mid-June 1995, the judge authorized the Claims Administrator
to make available limited information about the status of
Global I. According to the Claims Administrator, as of June 1,
1995, the claims office had received over 440,000 registrations.
Approximately 248,500 were filed by domestic class members by the
September 6, 1994 deadline for making claims under the Current
Disease Compensation Program. Based on an analysis of about
3,000 of these registrations, the judge estimated that over
96,000 domestic registrants timely submitted a claim under the
Current Disease Compensation Program with some supporting medical
documentation. The judge concluded that a severe racheting (or
reduction) of the settlement amounts shown in the notice of
settlement would occur if current claims were evaluated under the
existing criteria and if funding of the Current Disease
Compensation Program remained at the $1.2 billion level.

Because of the anticipated severe "racheting" of benefit amounts
and the defendants' right to withdraw under the Global I
settlement, the judge entered an order on October 9, 1995
declaring that class members had new opt-out rights and that in
general class members and their attorneys should not expect to
receive any benefits under Global I.

Participants with implants from one or more of those three
defendants who had submitted timely claims under Global I would
have two options.

Option One: They can accept a fixed amount based on disease
criteria and severity levels in the Global I settlement. These
amounts - ranging from $10,000 to $100,000 - although
substantially less than the amounts shown in the initial notices
for Global I, are greater for many claimants than the amounts
that, after racheting, would have been offered under Global I
and are not subject to a "walkaway" by defendants because of such
opt-outs. Qualifying claimants who submit proof of rupture by
December 1996 would qualify for specified higher benefits but not
in excess of $100,000 in total.

Option Two: They could elect to receive potentially higher
benefits based on having or developing during a 15-year period
certain diseases that meet more restrictive criteria. The
compensation range for persons qualifying under this option is
from $75,000 to $250,000.

Each Current Claimant, regardless of the option selected, would
be paid an advance payment of $5,000 as soon as administratively
feasible, without regard to the status of any appeals.
Current Claimants would be given an extended period of time to
identify manufacturers of their implants, to correct any
deficiencies in the documentation supporting their prior claims
or to provide additional support for claims under the more
restrictive criteria.

Timely-registered class members with implants from one or more of
those defendants, who did not submit current claims, would
receive compensation, under Settlement II ranging from $75,000 to
$250,000 if, during the 15-year period, they have or develop, any
of the diseases defined under the more restrictive criteria.
They would also be eligible for an advance payment of $1,000
under certain circumstances. In general, the maximum total
obligation under this 15-year program allocated among the three
defendants plus the additional defendants referred to below is
$755 million.

Timely-registered class members with qualifying implants would
also be eligible for an additional payment of $3,000 to defray
the costs of explantation during that 15-year period should the
person choose to do so.

On December 22, 1995, the judge approved Settlement II and the
materials for giving notice to claimants. On December 29, 1995,
the judge also approved for distribution, as part of the notice,
a "Question and Answer Booklet" about Settlement II. Several
appeals concerning Settlement II have been lodged with the
Eleventh Circuit Court of Appeals. In mid-January 1996, the
three major defendants each made a payment of $125 million to a
court-established fund as an initial reserve for payments to be
made under Settlement II. The notice materials were sent out in
the second half of January 1996. In addition, a televised
program, regional meetings, and a national telephone meeting are
being implemented to explain the Settlement II plan and the
rights and options of implant recipients. The judge in the MDL
proceeding has started to remand or transfer opt-out cases to the
originating or other courts for further pretrial proceedings and
trail. The Claims Administrator has announced that she
contemplates beginning to send out Notifications of status to
certain claimants (who have submitted implant manufacturer proof)
by late May 1996. At the present time, it cannot be determined
how many claimants will accept and qualify under the terms of
Settlement II; similarly, the number of opt-outs cannot be
estimated.

Although the Company has underwritten the coverage for a number
of the defendant companies including four of the companies
involved in the revised Settlement II described above, the
Company anticipates that insurance coverage issued prior to the
time the Company issued policies will be available for a portion
of the defendants liability. In addition, the Company's policies
only apply when the underlying liability insurance policies or
per occurrence retentions are exhausted.

Declaratory judgment lawsuits, involving four of the Company's
insureds, have been filed seeking guidance on the appropriate
trigger for their insurance coverage. None of the insureds have
named the Company in such lawsuits, although other insurers and
third parties are trying to involve the Company in those
lawsuits. To date, one court has stayed any lawsuit against the
Company by other insurers; a second court has dismissed the
claims by other insurers against the Company. Another court in
Texas has ruled against the Company's arguments that the court
should dismiss the claims by other insurers and certain doctors
in Texas who have attempted to bring the Company into coverage
litigation there involving one of the insured. On appeal in the
Texas lawsuit, the appellate court has affirmed the lower court's
order refusing to dismiss the claims against the Company by other
insurers; further appellate review in the Texas Supreme Court
will be sought. In addition, further efforts are contemplated to
stay or dismiss the doctor's claims against the Company in the
Texas lawsuit. The remaining case is presently stayed; if it is
activated, the Company will resist involvement on jurisdictional
and other grounds.

<PAGE>

ACE LIMITED

PART II - OTHER INFORMATION
---------------------------

ITEM 5. OTHER INFORMATION
- --------------------------

1) On May 10, 1996 the Company declared a divided of $0.18 per
Ordinary Share payable on July 19, 1996 to shareholders of
record on June 14, 1996.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------

a) Exhibit 10.35 - 1995 Long Term Incentive Plan

Exhibit 10.36 - Employee Stock Purchase Plan

Exhibit 10.37 - 1995 Outside Directors Plan

Exhibit 11.1 - Statement regarding computation of
earnings per Share.

b) The Company filed a Form 8-K current report dated March 15,
1996 pertaining to the Registrant's press release relating
to the proposed acquisition of Tempest.
<PAGE>

SIGNATURES
------------

Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.

ACE LIMITED
_____________________________

May 14, 1996 /s/ Brian Duperreault
-----------------------------
Brian Duperreault
Chairman, President and Chief
Executive Officer

May 14, 1996 /s/ Christopher Z. Marshall
------------------------------
Christopher Z. Marshall
Executive Vice President and Chief
Financial Officer

<PAGE>

EXHIBIT INDEX
- --------------

Exhibit
Number Description Numbered Page
- ------- ------------ -------------

10.35 1995 Long Term Incentive Plan

10.36 Employee Stock Purchase Plan

10.37 1995 Outside Directors Plan

11.1 Computation of earnings per share

February 15, 1996

ACE LIMITED 1995
LONG-TERM INCENTIVE PLAN

<PAGE>
TABLE OF CONTENTS

SECTION 1. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Purpose . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Participation . . . . . . . . . . . . . . . . . . . 1
1.3. Operation and Administration. . . . . . . . . . . . 1

SECTION 2. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1. Definitions . . . . . . . . . . . . . . . . . . . . 1
2.2. Eligibility . . . . . . . . . . . . . . . . . . . . 2
2.3. Price . . . . . . . . . . . . . . . . . . . . . . . 2
2.4. Exercise. . . . . . . . . . . . . . . . . . . . . . 2
2.5. Post-Exercise Limitations . . . . . . . . . . . . . 2
2.6. Expiration Date . . . . . . . . . . . . . . . . . . 2
2.7. Restoration Option. . . . . . . . . . . . . . . . . 3
2.8. Limited Stock Appreciation Rights . . . . . . . . . 3

SECTION 3. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
STOCK APPRECIATION RIGHTS . . . . . . . . . . . . . . . . 3
3.1. Definition. . . . . . . . . . . . . . . . . . . . . 3
3.2. Eligibility . . . . . . . . . . . . . . . . . . . . 3
3.3. Exercise. . . . . . . . . . . . . . . . . . . . . . 4
3.4. Settlement of Award . . . . . . . . . . . . . . . . 4
3.5. Post-Exercise Limitations . . . . . . . . . . . . . 4
3.6. Expiration Date . . . . . . . . . . . . . . . . . . 4

SECTION 4. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
RESTRICTED STOCK. . . . . . . . . . . . . . . . . . . . . 5
4.1. Definition. . . . . . . . . . . . . . . . . . . . . 5
4.2. Eligibility . . . . . . . . . . . . . . . . . . . . 5
4.3. Terms and Conditions of Awards. . . . . . . . . . . 5

SECTION 5. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
STOCK PURCHASE PROGRAM. . . . . . . . . . . . . . . . . . 5
5.1. Purchase of Stock . . . . . . . . . . . . . . . . . 5
5.2. Matching Shares . . . . . . . . . . . . . . . . . . 6
5.3. Restrictions on Shares. . . . . . . . . . . . . . . 6

SECTION 6. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
OPERATION AND ADMINISTRATION. . . . . . . . . . . . . . . 6
6.1. Effective Date. . . . . . . . . . . . . . . . . . . 6
6.2. Shares Subject to Plan. . . . . . . . . . . . . . . 6
6.3. Adjustments to Shares . . . . . . . . . . . . . . . 7
6.4. Limit on Distribution . . . . . . . . . . . . . . . 8
6.5. Liability for Cash Payments . . . . . . . . . . . . 9
6.6. Withholding . . . . . . . . . . . . . . . . . . . . 9
6.7. Distributions to Disabled Persons . . . . . . . . . 9
6.8. Transferability . . . . . . . . . . . . . . . . . . 9
6.9. Administration. . . . . . . . . . . . . . . . . . . 9
6.10. Notices. . . . . . . . . . . . . . . . . . . . . . 9
6.11. Form and Time of Elections . . . . . . . . . . . . 9
6.12. Agreement With Company . . . . . . . . . . . . . . 9
6.13. Limitation of Implied Rights . . . . . . . . . . . 10
6.14. Benefits Under Qualified Retirement Plans. . . . . 10
6.15. Evidence . . . . . . . . . . . . . . . . . . . . . 10
6.16. Action by Employers. . . . . . . . . . . . . . . . 10
6.17. Gender and Number. . . . . . . . . . . . . . . . . 10

SECTION 7. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
CHANGE IN CONTROL . . . . . . . . . . . . . . . . . . . . 10

SECTION 8. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . 11
8.1. Selection of Committee. . . . . . . . . . . . . . . 11
8.2. Powers of Committee . . . . . . . . . . . . . . . . 11
8.3. Delegation by Committee . . . . . . . . . . . . . . 11
8.4. Information to be Furnished to Committee. . . . . . 11
8.5. Liability and Indemnification of Committee. . . . . 12

SECTION 9. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
AMENDMENT AND TERMINATION . . . . . . . . . . . . . . . . 12

SECTION 10 . . . . . . . . . . . . . . . . . . . . . . . . . . 12
DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . 12
Award . . . . . . . . . . . . . . . . . . . . . . . . . 12
Board . . . . . . . . . . . . . . . . . . . . . . . . . 12
Change in Control . . . . . . . . . . . . . . . . . . . 12
Code. . . . . . . . . . . . . . . . . . . . . . . . . . 13
Date of Termination . . . . . . . . . . . . . . . . . . 13
Disability. . . . . . . . . . . . . . . . . . . . . . . 13
Dollars . . . . . . . . . . . . . . . . . . . . . . . . 13
Effective Date. . . . . . . . . . . . . . . . . . . . . 13
Employer. . . . . . . . . . . . . . . . . . . . . . . . 13
Fair Market Value . . . . . . . . . . . . . . . . . . . 13
Option. . . . . . . . . . . . . . . . . . . . . . . . . 13
Qualified Retirement Plan . . . . . . . . . . . . . . . 14
Related Companies . . . . . . . . . . . . . . . . . . . 14
Retirement. . . . . . . . . . . . . . . . . . . . . . . 14
SEC . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Stock . . . . . . . . . . . . . . . . . . . . . . . . . 14

<PAGE>
ACE LIMITED 1995
LONG-TERM INCENTIVE PLAN

SECTION 1

GENERAL

1.1. Purpose. The ACE Limited 1995 Long-Term Incentive
Plan (the "Plan") has been established by ACE Limited (the
"Company") to:

(a) attract and retain employees of the Company and Related
Companies;

(b) motivate participating employees, by means of appropriate
incentives, to achieve long-range goals;

(d) further identify Participants' interests with those of the
Company's other shareholders through compensation that is
based on the Company's common stock;

and thereby promote the long-term financial interest of the
Company and the Related Companies, including the growth in value
of the Company's equity and enhancement of long-term shareholder
return.

1.2. Participation. Subject to the terms and conditions of
the Plan, the Committee shall determine and designate, from time
to time, from among the employees of the Employers those persons
who will be granted one or more Awards under the Plan, and
thereby become "Participants" in the Plan. In the discretion of
the Committee, and subject to the terms of the Plan, a
Participant may be granted any Award permitted under the
provisions of the Plan, and more than one Award may be granted to
a Participant. Except as otherwise agreed by the Committee and
the Participant, or except as otherwise provided in the Plan, an
Award under the Plan shall not affect any previous Award under
the Plan or an award under any other plan maintained by the
Company or the Related Companies.

1.3. Operation and Administration. The operation and
administration of the Plan, including the Awards made under the
Plan, shall be subject to the provisions of Section 6.
Capitalized terms in the Plan shall be defined as set forth in
Section 10 or elsewhere in the Plan.

SECTION 2

OPTIONS

2.1. Definitions. The grant of an Option under this
Section 2 entitles the Participant to purchase shares of Stock at
a price fixed at the time the Option is granted, or at a price
determined under a method established at the time the Option is
granted, subject to the terms of this Section 2. Options granted
under this Section 2 may be either Incentive Stock Options or
Non-Qualified Stock Options, as determined in the discretion of
the Committee. An "Incentive Stock Option" is an Option that is
intended to satisfy the requirements applicable to an "incentive
stock option" described in section 422(b) of the Code. A "Non-
Qualified Option" is an Option that is not intended to be an
"incentive stock option" as that term is described in section
422(b) of the Code.

2.2. Eligibility. The Committee shall designate the
Participants to whom Options are to be granted under this Section
2 and shall determine the number of shares of Stock to be subject
to each such Option. To the extent that the aggregate fair
market value of Stock with respect to which Incentive Stock
Options are exercisable for the first time by any individual
during any calendar year (under all plans of the Company and all
Related Companies) exceeds $100,000, such options shall be
treated as Non-Qualified Stock Options, to the extent required by
section 422 of the Code.

2.3. Price. The determination and payment of the purchase
price of a share of Stock under each Option granted under this
Section 2 shall be subject to the following:

(a) The purchase price shall be established by the Committee or
shall be determined by a method established by the Committee
at the time the Option is granted; provided, however, that
in no event shall such price be less than the greater of (i)
100% of the Fair Market Value of a share of Stock as of the
date on which the Option is granted; or (ii) the par value
of a share of Stock on such date.

(b) Subject to the following provisions of this subsection 2.3,
the full purchase price of each share of Stock purchased
upon the exercise of any Option shall be paid at the time of
such exercise and, as soon as practicable thereafter, a
certificate representing the shares so purchased shall be
delivered to the person entitled thereto.

(c) The purchase price shall be payable in cash or in shares of
Stock (valued at Fair Market Value as of the day of
exercise), or in any combination thereof, as determined by
the Committee.

(d) A Participant may elect to pay the purchase price upon the
exercise of an Option through a cashless exercise
arrangement as may be established by the Committee.

2.4. Exercise. Except as otherwise expressly provided in
the Plan, an Option granted under this Section 2 shall be
exercisable in accordance with the following terms of this
subsection 2.4:

(a) The terms and conditions relating to exercise of an Option
shall be established by the Committee, and may include,
without limitation, conditions relating to completion of a
specified period of service, achievement of performance
standards, or achievement of Stock ownership objectives by
the Participant.

(b) No Option may be exercised by a Participant: (i) prior to
the date on which the Participant completes one continuous
year of employment with the Company or any Related Company
after the date as of which the Option is granted (provided,
however, that the Committee may permit earlier exercise
following the termination of the Participant's Date of
Termination by reason of death or Disability); or (ii) after
the Expiration Date applicable to that Option.

(c) The exercise of an Option will result in the surrender of
the corresponding rights under a tandem Stock Appreciation
Right, if any.

2.5. Post-Exercise Limitations. The Committee, in its
discretion, may impose such restrictions on shares of Stock
acquired pursuant to the exercise of an Option (including stock
acquired pursuant to the exercise of a tandem Stock Appreciation
Right) as it determines to be desirable, including, without
limitation, restrictions relating to disposition of the shares
and forfeiture restrictions based on service, performance, Stock
ownership by the Participant, and such other factors as the
Committee determines to be appropriate.

2.6. Expiration Date. The "Expiration Date" with respect
to an Option means the date established as the Expiration Date by
the Committee at the time of the grant; provided, however, that
the Expiration Date with respect to any Option shall not be later
than the earliest to occur of:

(a) the ten-year anniversary of the date on which the Option is
granted;

(b) if the Participant's Date of Termination occurs by reason of
death or Disability, the one-year anniversary of such Date
of Termination; or

(c) if the Participant's Date of Termination occurs by reason of
Retirement, the date on which the Expiration Date would
expire if the Participant's Date of Termination occurred on
the ten-year anniversary of such date on which the Option is
granted or, if earlier, the date of the Participant's death;
or

(d) if the Participant's Date of Termination occurs for reasons
other than Retirement, death or Disability, the three-month
anniversary of such Date of Termination.

2.7. Restoration Option. In the event the Participant
exercises an Option and pays all or a portion of the purchase
price in Common Stock, in the manner permitted by subsection 2.3,
such Participant may, in the Committee's discretion, be issued a
new Option to purchase additional shares of Stock equal to the
number of shares of Stock surrendered to the Company in such
payment plus the number of shares surrendered to satisfy the
Participant's tax liability. Such new Option shall have an
exercise price equal to the Fair Market Value per share on the
date such new Option is granted, shall first be exercisable not
less than six months from the date of grant of the new Option and
shall have an Expiration Date that is the same as the Expiration
Date of the original Option so exercised by payment of the
purchase price in shares of Stock.

2.8. Limited Stock Appreciation Rights. The Committee may
award Limited Stock Appreciation Rights in tandem with an Option,
regardless of whether the Option is in tandem with a Stock
Appreciation Right. An award of Limited Stock Appreciation
Rights entitles the Participant to receive, in connection with a
Change in Control, a cash payment in cancellation of the tandem
Options (and any Stock Appreciation Rights in tandem with such
Options) which are outstanding on the date the Change in Control
occurs (regardless of whether such Options are then presently
exercisable). The payment amount shall be equal to the
difference between the exercise price per share of any Stock
covered by the tandem Option and the "Market Price" of a share of
Stock. For purposes of this subsection 2.8, the term "Market
Price" shall mean the greater of (a) the highest price per share
of Stock paid in connection with the Change in Control and (b)
the highest price per share of Stock as reported on the Composite
Transaction Reporting System on the New York Stock Exchange
(which includes other participating exchanges and over-the-
counter markets) during the 30-day period ending on the date of
the Change in Control.

SECTION 3

STOCK APPRECIATION RIGHTS

3.1. Definition. Subject to the terms of this Section 3, a
Stock Appreciation Right granted under the Plan entitles the
Participant to receive, in cash or Stock (as determined in
accordance with subsection 3.4), value equal to all or a portion
of the excess of: (a) the Fair Market Value of a specified number
of shares of Stock at the time of exercise; over (b) a specified
price which shall not be less than 100% of the Fair Market Value
of the Stock at the time the Stock Appreciation Right is granted,
or, if granted in tandem with an Option, the exercise price with
respect to shares under the tandem Option.

3.2. Eligibility. Subject to the provisions of the Plan,
the Committee shall designate the Participants to whom Stock
Appreciation Rights are to be granted under the Plan, shall
determine the exercise price or a method by which the price shall
be established with respect to each such Stock Appreciation
Right, and shall determine the number of shares of Stock on which
each Stock Appreciation Right is based. A Stock Appreciation
Right may be granted in connection with all or any portion of a
previously or contemporaneously granted Option or not in
connection with an Option. If a Stock Appreciation Right is
granted in connection with an Option, then, in the discretion of
the Committee, the Stock Appreciation Right may, but need not be
granted in tandem with the Option.

3.3. Exercise. The exercise of Stock Appreciation Rights
shall be subject to the following:

(a) The terms and conditions relating to exercise of a Stock
Appreciation Right shall be established by the Committee,
and may include, without limitation, conditions relating to
completion of a specified period of service, achievement of
performance standards, or achievement of Stock ownership
objectives by the Participant.

(b) If a Stock Appreciation Right is not in tandem with an
Option, then the Stock Appreciation Right shall be
exercisable in accordance with the terms established by the
Committee in connection with such rights; provided, however,
that except as otherwise expressly provided in the Plan, no
Stock Appreciation Right may be exercised by a Participant
(i) prior to the date on which he completes one continuous
year of employment with the Company or any Related Company
after the date as of which the Stock Appreciation Right is
granted; or (ii) after the Expiration Date applicable to
that Stock Appreciation Right.

(c) If a Stock Appreciation Right is in tandem with an Option,
then the Stock Appreciation Right shall be exercisable at
the time the tandem Option is exercisable. The exercise of
a Stock Appreciation Right will result in the surrender of
the corresponding rights under the tandem Option.

3.4. Settlement of Award. Upon the exercise of a Stock
Appreciation Right, the value to be distributed to the
Participant, in accordance with subsection 3.1, shall be
distributed in shares of Stock (valued at their Fair Market Value
at the time of exercise), in cash, or in a combination thereof,
in the discretion of the Committee.

3.5. Post-Exercise Limitations. The Committee, in its
discretion, may impose such restrictions on shares of Stock
acquired pursuant to the exercise of a Stock Appreciation Right
as it determines to be desirable, including, without limitation,
restrictions relating to disposition of the shares and forfeiture
restrictions based on service, performance, ownership of Stock by
the Participant, and such other factors as the Committee
determines to be appropriate.

3.6. Expiration Date. If a Stock Appreciation Right is in
tandem with an Option, then the "Expiration Date" for the Stock
Appreciation Right shall be the Expiration Date for the related
Option. If a Stock Appreciation Right is not in tandem with an
Option, then the "Expiration Date" for the Stock Appreciation
Right shall be the date established as the Expiration Date by the
Committee; provided, however, that subject to the following
provisions of this subsection 3.6, the Expiration Date with
respect to any Stock Appreciation Right shall not be later than
the earliest to occur of:

(a) the ten-year anniversary of the date on which the Stock
Appreciation Right is granted;

(b) if the Participant's Date of Termination occurs by reason of
death or Disability, the one-year anniversary of such Date
of Termination; or

(c) if the Participant's Date of Termination occurs by reason of
Retirement, the three-year anniversary of such Date of
Termination; or

(d) if the Participant's Date of Termination occurs for reasons
other than Retirement, death or Disability, the three-month
anniversary of such Date of Termination.

SECTION 4

RESTRICTED STOCK

4.1. Definition. Subject to the terms of this Section 4,
Restricted Stock Awards under the Plan are grants of Stock to
Participants, the vesting of which is subject to such conditions
as may be established by the Committee, with some or all of those
conditions relating to performance or events occurring after the
date of grant.

4.2. Eligibility. The Committee shall designate the
Participants to whom Restricted Stock is to be granted, and the
number of shares of Stock that are subject to each such Award.
The Award of shares under this Section 4 may, but need not be
made in conjunction with a cash-based incentive compensation
program maintained by the Company, and may, but need not, be in
lieu of cash otherwise awardable under such program.

4.3. Terms and Conditions of Awards. Shares of Restricted
Stock granted to Participants under the Plan shall be subject to
the following terms and conditions:

(a) Restricted Stock granted to Participants may not be sold,
assigned, transferred, pledged or otherwise encumbered,
except as hereinafter provided, for a period of not less
than one year after the time of the grant of such Stock (the
"Restricted Period"). Except for such restrictions, the
Participant as owner of such shares shall have all the
rights of a shareholder, including but not limited to the
right to vote such shares and, except as otherwise provided
by the Committee, the right to receive all dividends paid on
such shares.

(b) Except as otherwise determined by the Committee, a
Participant whose Date of Termination occurs prior to the
end of the Restricted Period for any reason shall forfeit
all shares of Restricted Stock remaining subject to any
outstanding Restricted Stock Award.

(c) The Committee may, in its discretion, condition the vesting
of shares of Restricted Stock on the achievement of
performance goals.

(d) Each certificate issued in respect of such Stock shall be
registered in the name of the Participant and deposited in a
bank designated by the Committee. Each such certificate
shall bear the following (or a similar) legend:

"The transferability of this certificate and the shares
of stock represented hereby are subject to the terms
and conditions (including forfeiture) contained in the
ACE Limited 1995 Long-Term Incentive Plan and an
agreement entered into between the registered owner and
ACE Limited. A copy of such plan and agreement is on
file in the office of the General Counsel of ACE
Limited, The ACE Building, 30 Woodbourne Avenue,
Hamilton HM 08, Bermuda."

(e) Subject to the limitations of the Plan and the Award of
Restricted Stock, at the end of the Restricted Period for
Restricted Stock, such Restricted Stock will be transferred
free of all restrictions to a Participant (or his or her
legal representative, beneficiary or heir).

SECTION 5

STOCK PURCHASE PROGRAM

5.1. Purchase of Stock. The Committee may, from time to
time, establish one or more programs under which Participants
will be permitted to purchase shares of Stock under the Plan on a
periodic basis, and shall designate the Participants eligible to
participate under such Stock purchase programs. The purchase
price for shares of Stock available under such programs, and
other terms and conditions of such programs, shall be established
by the Committee. The purchase price may not be less than the
Fair Market Value of the Stock at the time of purchase (or, in
the Committee's discretion, the value of the Stock based on the
average Fair Market Value for a number of days determined by the
Committee); provided, however, that with respect to shares of
Stock purchased under a program that do not result in an award of
matching shares (as provided in subsection 5.2), the purchase
price may not be less than 50% of the Fair Market Value of the
Stock at the time of purchase (or, in the Committee's discretion,
the value of the Stock based on the average Fair Market Value for
a number of days determined by the Committee).

5.2. Matching Shares. Except as otherwise provided in
subsection 5.1, any Stock purchase program established by the
Committee under this Section 5 may provide for the award of
matching shares of Stock, except that in no event shall the
matching rate exceed one share for each one share purchased by
the Participant.

5.3. Restrictions on Shares. The Committee may impose such
restrictions with respect to shares purchased under subsection
5.1, or matching shares awarded pursuant to subsection 5.2, as
the Committee determines to be appropriate. Such restrictions
may include, without limitation, restrictions of the type that
may be imposed with respect to Restricted Stock under Section 4.
<PAGE>
SECTION 6

OPERATION AND ADMINISTRATION

6.1. Effective Date. Subject to the approval of the
shareholders of the Company at the Company's 1996 annual meeting
of its shareholders, the Plan shall be effective as of the date
on which it is adopted by the Board; provided, however, that to
the extent that Awards are made under the Plan prior to its
approval by shareholders, they shall be contingent on approval of
the Plan by the shareholders of the Company. The Plan shall be
unlimited in duration and, in the event of Plan termination,
shall remain in effect as long as any Awards under it are
outstanding; provided, however, that no new Awards shall be made
under the Plan after the tenth anniversary of the Effective Date.

6.2. Shares Subject to Plan. The shares of Stock with
respect to which Awards may be made under the Plan shall be
currently authorized but unissued shares, or shares purchased in
the open market by a direct or indirect wholly owned subsidiary
of the Company (as determined by the Chairman or any Executive
Vice President of the Company). The Company may contribute to
the subsidiary an amount sufficient to accomplish the purchase in
the open market of the shares of Stock to be so acquired (as
determined by the Chairman or any Executive Vice President of the
Company). The number of shares of Stock available for Awards
under the Plan during any fiscal year of the Company shall equal:

(a) 5% of the adjusted average of the outstanding Stock, as that
number is determined by the Company to calculate fully
diluted earnings per share for the preceding fiscal year;

REDUCED BY

(b) any shares of Stock granted pursuant to Awards under the
Plan, and any shares of Stock subject to any outstanding
award under the Plan;

provided, however, that no reduction shall be made in the number
of shares otherwise available under paragraph 6.2(a) for any
shares of Stock subject to an Award under the Plan to the extent
that such shares are not issued by reason of a lapse, forfeiture,
expiration or termination of the Award for any reason without
issuance of shares (whether or not cash or other consideration is
paid to a Participant in respect of such shares); and further
provided that no more than 2,300,000 shares of Common Stock shall
be cumulatively available for issuance under the Plan for the
Award of Incentive Stock Options.

6.3. Adjustments to Shares.

(a) If the Company shall effect any subdivision or consolidation
of shares of Stock or other capital readjustment, payment of
stock dividend, stock split, combination of shares or
recapitalization or other increase or reduction of the
number of shares of Stock outstanding without receiving
compensation therefor in money, services or property, then
the Committee shall adjust (i) the number of shares of Stock
available under the Plan; (ii) the number of shares
available under any limits; (iii) the number of shares of
Stock subject to outstanding Awards; and (iv) the per-share
price under any outstanding Award to the extent that the
Participant is required to pay a purchase price per share
with respect to the Award.

(b) If the Company is reorganized, merged or consolidated or is
party to a plan of exchange with another corporation,
pursuant to which reorganization, merger, consolidation or
plan of exchange the shareholders of the Company receive any
shares of stock or other securities or property, or the
Company shall distribute securities of another corporation
to its shareholders, there shall be substituted for the
shares subject to outstanding Awards an appropriate number
of shares of each class of stock or amount of other
securities or property which were distributed to the
shareholders of the Company in respect of such shares,
subject to the following:

(i) If the Committee determines that the substitution
described in accordance with the foregoing provisions of
this paragraph (b) would not be fully consistent with the
purposes of the Plan or the purposes of the outstanding
Awards under the Plan, the Committee may make such other
adjustments to the Awards to the extent that the Committee
determines such adjustments are consistent with the purposes
of the Plan and of the affected Awards.

(ii) All or any of the Awards may be cancelled by the
Committee on or immediately prior to the effective date of
the applicable transaction, but only if the Committee gives
reasonable advance notice of the cancellation to each
affected Participant, and only if either: (A) the
Participant is permitted to exercise the Award for a
reasonable period prior to the effective date of the
cancellation; or (B) the Participant receives payment or
other benefits that the Committee determines to be
reasonable compensation for the value of the cancelled
Awards.

(iii) Upon the occurrence of a reorganization of the
Company or any other event described in this paragraph (b),
any successor to the Company shall be substituted for the
Company to the extent that the Company and the successor
agree to such substitution.

(c) Upon (or, in the discretion of the Committee, immediately
prior to) the sale to (or exchange with) a third party
unrelated to the Company of all or substantially all of the
assets of the Company, all Awards shall be cancelled. If
Awards are cancelled under this paragraph (c), then, with
respect to any affected Participant, either:

(i) the Participant shall be provided with reasonable
advance notice of the cancellation, and the Participant
shall be permitted to exercise the Award for a reasonable
period prior to the effective date of the cancellation; or

(ii) the Participant shall receive payment or other
benefits that the Committee determines to be reasonable
compensation for the value of the cancelled Awards.

The foregoing provisions of this paragraph (c) shall also
apply to the sale of all or substantially all of the assets
of the Company to a related party, if the Committee
determines such application is appropriate.

(d) In determining what action, if any, is necessary or
appropriate under the foregoing provisions of this
subsection 6.3, the Committee shall act in a manner that it
determines to be consistent with the purposes of the Plan
and of the affected Awards and, where applicable or
otherwise appropriate, in a manner that it determines to be
necessary to preserve the benefits and potential benefits of
the affected Awards for the Participants and the Employers.

(e) The existence of this Plan and the Awards granted hereunder
shall not affect in any way the right or power of the
Company or its shareholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business,
any merger or consolidation of the Company, any issue of
bonds, debentures, preferred or prior preference stocks
ahead of or affecting the Company's Stock or the rights
thereof, the dissolution or liquidation of the Company, any
sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether
of a similar character or otherwise.

(f) Except as expressly provided by the terms of this Plan, the
issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class,
for cash or property or for labor or services, either upon
direct sale, upon the exercise of rights or warrants to
subscribe therefor or upon conversion of shares or
obligations of the Company convertible into such shares or
other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to Awards then
outstanding hereunder.

(g) Awards under the Plan are subject to adjustment under this
subsection 6.3 only during the period in which they are
considered to be outstanding under the Plan. For purposes
of this subsection 6.3, an Award is considered "outstanding"
on any date if the Participant's ability to obtain all
benefits with respect to the Award is subject to limits
imposed by the Plan (including any limits imposed by the
Agreement reflecting the Award). The determination of
whether an Award is outstanding shall be made by the
Committee.

6.4. Limit on Distribution. Distribution of shares of
Stock or other amounts under the Plan shall be subject to the
following:

(a) Notwithstanding any other provision of the Plan, the Company
shall have no liability to issue any shares of Stock under
the Plan or make any other distribution of benefits under
the Plan unless such delivery or distribution would comply
with all applicable laws and the applicable requirements of
any securities exchange or similar entity.

(b) In the case of a Participant who is subject to Section 16(a)
and 16(b) of the Securities Exchange Act of 1934, the
Committee may, at any time, add such conditions and
limitations to any Award to such Participant, or any feature
of any such Award, as the Committee, in its sole discretion,
deems necessary or desirable to comply with Section 16(a) or
16(b) and the rules and regulations thereunder or to obtain
any exemption therefrom.

(c) To the extent that the Plan provides for issuance of
certificates to reflect the transfer of shares of Stock, the
transfer of such shares may, at the direction of the
Committee, be effected on a non-certificated basis, to the
extent not prohibited by the provisions of Rule 16b-3,
applicable local law, the applicable rules of any stock
exchange, or any other applicable rules.

6.5. Liability for Cash Payments. Subject to the
provisions of this Section 6, an Employer shall be liable for
payment of cash due under the Plan with respect to any
Participant to the extent that such benefits are attributable to
the services rendered for that Employer by the Participant. Any
disputes relating to liability of Employers for cash payments
shall be resolved by the Committee.

6.6. Withholding. All Awards and other payments under the
Plan are subject to withholding of all applicable taxes, which
withholding obligations may be satisfied, with the consent of the
Committee, through the surrender of shares of Stock which the
Participant already owns, or to which a Participant is otherwise
entitled under the Plan.

6.7. Distributions to Disabled Persons. Notwithstanding
any other provision of the Plan, if, in the Committee's opinion,
a Participant or other person entitled to benefits under the Plan
is under a legal disability or is in any way incapacitated so as
to be unable to manage his financial affairs, the Committee may
direct that payment be made to a relative or friend of such
person for his benefit until claim is made by a conservator or
other person legally charged with the care of his person or his
estate, and such payment or distribution shall be in lieu of any
such payment to such Participant or other person. Thereafter,
any benefits under the Plan to which such Participant or other
person is entitled shall be paid to such conservator or other
person legally charged with the care of his person or his estate.

6.8. Transferability. Awards under the Plan are not
transferable except as designated by the Participant by will or
by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code, Title
I of the Employee Retirement Income Security Act, or the rules
thereunder (a "QDRO"). To the extent that the Participant who
receives an Award under the Plan has the right to exercise such
Award, the Award may be exercised during the lifetime of the
Participant only by the Participant. Notwithstanding the
foregoing provisions of this subsection 6.8, the Committee may
permit Awards under the Plan to be transferred to or for the
benefit of the Participant's family (including, without
limitation, to a trust for the benefit of a Participant's
family), subject to such limits as the Committee may establish.
In no event shall an Incentive Stock Option be transferable to
the extent that such transferability would violate the
requirements applicable to such option under Code section 422.

6.9. Administration. The authority to control and manage
the operation and administration of the Plan shall be vested in a
committee (the "Committee") in accordance with Section 8.

6.10. Notices. Any notice or document required to be filed
with the Committee under the Plan will be properly filed if
delivered or mailed by registered mail, postage prepaid, to the
Committee, in care of the Company, at its principal executive
offices. The Committee may, by advance written notice to
affected persons, revise such notice procedure from time to time.
Any notice required under the Plan (other than a notice of
election) may be waived by the person entitled to notice.

6.11. Form and Time of Elections. Unless otherwise
specified herein, each election required or permitted to be made
by any Participant or other person entitled to benefits under the
Plan, and any permitted modification or revocation thereof, shall
be in writing filed with the Committee at such times, in such
form, and subject to such restrictions and limitations, not
inconsistent with the terms of the Plan, as the Committee shall
require.

6.12. Agreement With Company. At the time of an Award to a
Participant under the Plan, the Committee will require a
Participant to enter into an agreement with the Company in a form
specified by the Committee, agreeing to the terms and conditions
of the Plan and to such additional terms and conditions, not
inconsistent with the Plan, as the Committee may, in its sole
discretion, prescribe.

6.13. Limitation of Implied Rights.

(a) Neither a Participant nor any other person shall, by reason
of the Plan, acquire any right in or title to any assets,
funds or property of the Employers whatsoever, including,
without limitation, any specific funds, assets, or other
property which the Employers, in their sole discretion, may
set aside in anticipation of a liability under the Plan. A
Participant shall have only a contractual right to the
amounts, if any, payable under the Plan, unsecured by any
assets of the Employers. Nothing contained in the Plan
shall constitute a guarantee by any of the Employers that
the assets of the Employers shall be sufficient to pay any
benefits to any person.

(b) The Plan does not constitute a contract of employment, and
selection as a Participant will not give any employee the
right to be retained in the employ of an Employer or any
Related Company, nor any right or claim to any benefit under
the Plan, unless such right or claim has specifically
accrued under the terms of the Plan. Except as otherwise
provided in the Plan, no Award under the Plan shall confer
upon the holder thereof any right as a shareholder of the
Company prior to the date on which he fulfills all service
requirements and other conditions for receipt of such
rights.

6.14. Benefits Under Qualified Retirement Plans. Awards to
a Participant (including the grant and the receipt of benefits)
under the Plan shall be disregarded for purposes of determining
the Participant's benefits under any Qualified Retirement Plan.

6.15. Evidence. Evidence required of anyone under the Plan
may be by certificate, affidavit, document or other information
which the person acting on it considers pertinent and reliable,
and signed, made or presented by the proper party or parties.

6.16. Action by Employers. Any action required or
permitted to be taken by any Employer shall be by resolution of
its board of directors, or by action of one or more members of
the board (including a committee of the board) who are duly
authorized to act for the board, or (except to the extent
prohibited by the provisions of Rule 16b-3, applicable local law,
the applicable rules of any stock exchange, or any other
applicable rules) by a duly authorized officer of the Employer.

6.17. Gender and Number. Where the context admits, words
in any gender shall include any other gender, words in the
singular shall include the plural and the plural shall include
the singular.

SECTION 7

CHANGE IN CONTROL

Subject to the provisions of subsection 6.3 (relating to the
adjustment of shares), and except as otherwise provided in the
Plan or the Agreement reflecting the applicable Award, upon the
occurrence of a Change in Control:

(a) All outstanding Options (regardless of whether in tandem
with Stock Appreciation Rights) shall become fully
exercisable, except to the extent that the right to exercise
the Option is subject to any restrictions established in
connection with a Limited Stock Appreciation Right that is
in tandem with the Option.

(b) All outstanding Stock Appreciation Rights (regardless of
whether in tandem with Options) shall become fully
exercisable, except that if Stock Appreciation Rights are in
tandem with an Option, and the Option is in tandem with a
Limited Stock Appreciation Right, the right to exercise the
Stock Appreciation Right shall be subject to any
restrictions established in connection with the Limited
Stock Appreciation Right.

(d) All vesting restrictions imposed under subsection 5.3
(relating to restrictions on shares purchased by the
Participants, and matching shares awarded to Participants)
shall cease to apply, and the Participant shall become fully
vested in those shares.

SECTION 8

COMMITTEE

8.1. Selection of Committee. The Committee shall be
selected by the Board, and shall consist of not less than two
members of the Board, or such greater number as may be required
for compliance with SEC Rule 16b-3.

8.2. Powers of Committee. The authority to manage and
control the operation and administration of the Plan shall be
vested in the Committee, subject to the following:

(a) Subject to the provisions of the Plan, the Committee will
have the authority and discretion to select employees to
receive Awards, to determine the time or times of receipt,
to determine the types of Awards and the number of shares
covered by the Awards, to establish the terms, conditions,
performance criteria, restrictions, and other provisions of
such Awards, and to cancel or suspend Awards. In making
such Award determinations, the Committee may take into
account the nature of services rendered by the respective
employee, his present and potential contribution to the
Company's success and such other factors as the Committee
deems relevant.

(b) The Committee will have the authority and discretion to
interpret the Plan, to establish, amend, and rescind any
rules and regulations relating to the Plan, to determine the
terms and provisions of any agreements made pursuant to the
Plan, and to make all other determinations that may be
necessary or advisable for the administration of the Plan.

(c) Any interpretation of the Plan by the Committee and any
decision made by it under the Plan is final and binding on
all persons.

(d) Except as otherwise expressly provided in the Plan, where
the Committee is authorized to make a determination with
respect to any Award, such determination shall be made at
the time the Award is made, except that the Committee may
reserve the authority to have such determination made by the
Committee in the future (but only if such reservation is
made at the time the Award is granted and is expressly
stated in the Agreement reflecting the Award).

8.3. Delegation by Committee. Except to the extent
prohibited by the provisions of Rule 16b-3, applicable local law,
the applicable rules of any stock exchange, or any other
applicable rules, the Committee may allocate all or any portion
of its responsibilities and powers to any one or more of its
members and may delegate all or any part of its responsibilities
and powers to any person or persons selected by it. Any such
allocation or delegation may be revoked by the Committee at any
time.

8.4. Information to be Furnished to Committee. The
Employers and Related Companies shall furnish the Committee with
such data and information as may be required for it to discharge
its duties. The records of the Employers and Related Companies
as to an employee's or Participant's employment, termination of
employment, leave of absence, reemployment and compensation shall
be conclusive on all persons unless determined to be incorrect.
Participants and other persons entitled to benefits under the
Plan must furnish the Committee such evidence, data or
information as the Committee considers desirable to carry out the
terms of the Plan.

8.5. Liability and Indemnification of Committee. No member
or authorized delegate of the Committee shall be liable to any
person for any action taken or omitted in connection with the
administration of the Plan unless attributable to his own fraud
or willful misconduct; nor shall the Employers be liable to any
person for any such action unless attributable to fraud or
willful misconduct on the part of a director or employee of the
Employers. The Committee, the individual members thereof, and
persons acting as the authorized delegates of the Committee under
the Plan, shall be indemnified by the Employers, to the fullest
extent permitted by law, against any and all liabilities, losses,
costs and expenses (including legal fees and expenses) of
whatsoever kind and nature which may be imposed on, incurred by
or asserted against the Committee or its members or authorized
delegates by reason of the performance of a Committee function if
the Committee or its members or authorized delegates did not act
dishonestly or in willful violation of the law or regulation
under which such liability, loss, cost or expense arises. This
indemnification shall not duplicate but may supplement any
coverage available under any applicable insurance.

SECTION 9

AMENDMENT AND TERMINATION

The Board may, at any time, amend or terminate the Plan,
provided that, subject to subsection 6.3 (relating to certain
adjustments to shares), no amendment or termination may adversely
affect the rights of any Participant or beneficiary under any
Award made under the Plan prior to the date such amendment is
adopted by the Board.

<PAGE>
SECTION 10

DEFINED TERMS

For purposes of the Plan, the terms listed below shall be
defined as follows:

(a) Award. The term "Award" shall mean any award or benefit
granted to any Participant under the Plan, including,
without limitation, the grant of Options, Stock Appreciation
Rights, Restricted Stock, or Stock acquired through purchase
or through matching allocations under Section 5.

(b) Board. The term "Board" shall mean the Board of Directors
of the Company.

(i) any "person," as such term is used in Sections 3(a)(9)
and 13(d) of the Securities Exchange Act of 1934, becomes a
"beneficial owner," as such term is used in Rule 13d-3
promulgated under that act, of 50% or more of the Voting
Stock (as defined below) of the Company;

(ii) the majority of the Board consists of individuals
other than Incumbent Directors, which term means the members
of the Board on the date of this Agreement; provided that
any person becoming a director subsequent to such date whose
election or nomination for election was supported by three-
quarters of the directors who then comprised the Incumbent
Directors shall be considered to be an Incumbent Director;

(iii) the Company adopts any plan of liquidation providing
for the distribution of all or substantially all of its
assets;

(iv) all or substantially all of the assets or business of
the Company is disposed of pursuant to a merger,
consolidation or other transaction (unless the shareholders
of the Company immediately prior to such merger,
consolidation or other transaction beneficially own,
directly or indirectly, in substantially the same proportion
as they owned the Voting Stock of the Company, all of the
Voting Stock or other ownership interests of the entity or
entities, if any, that succeed to the business of the
Company); or

(v) the Company combines with another company and is the
surviving corporation but, immediately after the
combination, the shareholders of the Company immediately
prior to the combination hold, directly or indirectly, 50%
or less of the Voting Stock of the combined company (there
being excluded from the number of shares held by such
shareholders, but not from the Voting Stock of the combined
company, any shares received by Affiliates (as defined
below) of such other company in exchange for stock of such
other company).

For the purpose of this definition of "Change in Control",
(I) an "Affiliate" of a person or other entity shall mean a
person or other entity that directly or indirectly controls,
is controlled by, or is under common control with the person
or other entity specified and (II) "Voting Stock" shall mean
capital stock of any class or classes having general voting
power under ordinary circumstances, in the absence of
contingencies, to elect the directors of a corporation.

(d) Code. The term "Code" means the Internal Revenue Code of
1986, as amended. A reference to any provision of the Code
shall include reference to any successor provision of the
Code.

(e) Date of Termination. A Participant's "Date of Termination"
shall be the date on which his employment with all Employers
and Related Companies terminates for any reason; provided
that a Date of Termination shall not be deemed to occur by
reason of a transfer of the Participant between the Company
and a Related Company (including an Employer) or between two
Related Companies (including Employers); and further
provided that a Participant's employment shall not be
considered terminated while the Participant is on a leave of
absence from an Employer or a Related Company approved by
the Participant's employer.

(f) Disability. A Participant shall be considered to have a
"Disability" during the period in which he is unable, by
reason of a medically determinable physical or mental
impairment, to engage in any substantial gainful activity,
which condition, in the opinion of a physician selected by
the Committee, is expected to have a duration of not less
than 120 days.

(g) Dollars. As used in the Plan, the term "dollars" or numbers
preceded by the symbol "$" shall mean amounts in United
States Dollars.

(h) Effective Date. The "Effective Date" shall be the date on
which the Plan is adopted by the Board.

(i) Employer. The Company and each Related Company which, with
the consent of the Company, adopts the Plan for the benefit
of its eligible employees are referred to collectively as
the "Employers" and individually as an "Employer".

(j) Fair Market Value. The "Fair Market Value" of a share of
Stock of the Company as of any date shall be the closing
market composite price for such Stock as reported for the
New York Stock Exchange - Composite Transactions on that
date or, if Stock is not traded on that date, on the next
preceding date on which Stock was traded.

(k) Option. The term "Option" shall mean any Incentive Stock
Option or Non-Qualified Stock Option granted under the Plan.

(l) Qualified Retirement Plan. The term "Qualified Retirement
Plan" means any plan of the Company or a Related Company
that is intended to be qualified under section 401(a) of the
Code.

(m) Related Companies. The term "Related Company" means any
company during any period in which it is a "subsidiary
corporation" (as that term is defined in Code section
424(f)) with respect to the Company.

(n) Retirement. "Retirement" of a Participant shall mean the
occurrence of a Participant's Date of Termination with the
consent of the Participant's employer after the Participant
is eligible for early retirement or normal retirement under
the ACE Limited Employee Retirement Plan (or any other
retirement plan maintained by the Company or the Related
Companies); provided, however, that the Committee may impose
such additional conditions or restrictions on Retirement as
it determines to be appropriate.

(o) SEC. "SEC" shall mean the Securities and Exchange
Commission.

(p) Stock. The term "Stock" shall mean shares of common stock
of the Company.