<PAGE>
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 June 30, 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 August 8, 1996 was 58,902,190.
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ACE LIMITED
INDEX TO FORM 10-Q
Part I. FINANCIAL INFORMATION
- -------------------------------
Page No.
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets
June 30, 1996 (Unaudited) and September 30, 1995 1
Consolidated Statements of Operations (Unaudited)
Three Months Ended June 30, 1996 and June 30, 1995
Nine Months Ended June 30, 1996 and June 30, 1995 2
Consolidated Statements of Shareholders' Equity (Unaudited)
Nine Months Ended June 30, 1996 and June 30, 1995 3
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended June 30, 1996 and June 30, 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
Part II. OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a vote of Security Holders 22
Item 5. Other information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
<CAPTION>
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and September 30, 1995
June 30 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 - $2,856,318 and $2,325,959) $2,839,966 $2,377,510
Equity securities, at fair value (cost - $249,496
and $224,020) 316,971 267,163
Short-term investments 344,222 458,145
Other investments, at cost 12,453 12,453
Cash 40,301 16,929
---------- ----------
Total investments and cash 3,553,913 3,132,200
========== ==========
Accrued investment income 35,740 29,574
Deferred acquisition costs 33,425 34,428
Insurance balances receivable 83,362 20,993
Other assets 38,149 15,557
---------- ----------
Total assets $3,744,589 $3,232,752
========== ==========
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Liabilities
Unpaid losses and loss expenses $1,704,732 $1,437,930
Unearned premiums 368,827 305,568
Premiums received in advance 52,264 23,876
Accounts payable and other liabilities 29,210 16,259
Dividend payable 8,299 6,456
---------- ----------
Total liabilities 2,163,332 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 (1,235) (1,796)
Net unrealized appreciation on investments 51,123 94,694
Cumulative translation adjustments 186 --
Retained earnings 976,979 795,488
---------- ----------
Total shareholders' equity 1,581,257 1,442,663
---------- ----------
Total liabilities and shareholders' equity $3,744,589 $3,232,752
========== ==========
See accompanying notes to interim consolidated financial statements
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ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Nine Months Ended June 30, 1996 and 1995
(Unaudited)
Three Months Ended Nine Months Ended
June 30 June 30
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 $ 165,131 $ 105,597 $ 471,461 $ 318,964
Change in unearned premiums (19,234) 1,878 (63,187) (856)
---------- ---------- ----------- ----------
Net premiums earned 145,897 107,475 408,274 318,108
Net investment income 50,641 46,520 146,079 134,784
Net realized gains (losses)
on investments (1,633) 49,885 48,230 10,217
---------- ---------- ----------- ----------
Total revenues 194,905 203,880 602,583 463,109
---------- ---------- ----------- ----------
Expenses
Losses and loss expenses 120,438 87,895 334,438 260,268
Acquisition costs 12,287 11,378 36,950 35,008
Administrative expenses 9,704 7,182 28,380 17,112
---------- ---------- ----------- ----------
Total expenses 142,429 106,455 399,768 312,388
---------- ---------- ----------- ----------
Net income $ 52,476 $ 97,425 $ 202,815 $ 150,721
========== ========== =========== ==========
Earnings per share $1.13 $2.08 $4.36 $3.19
========== ========== =========== ==========
Weighted average shares
outstanding 46,479,694 46,872,672 46,468,832 47,230,973
========== ========== =========== ==========
See accompanying notes to interim consolidated financial statements
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ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Nine Months Ended June 30, 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) (154)
-------- ---------
Balance - end of period 5,763 5,774
-------- ---------
Additional paid-in capital
Balance - beginning of period 548,513 564,198
Exercise of stock options -- 8
Repurchase of Ordinary shares (72) (14,636)
-------- ---------
Balance - end of period 548,441 549,570
-------- ---------
Unearned stock grant compensation
Balance - beginning of period (1,796) (412)
Stock grants awarded (272) (2,412)
Stock grants forfeited 60 --
Amortization 773 777
--------- ---------
Balance - end of period (1,235) (2,047)
<PAGE>
Net unrealized appreciation (depreciation) on investments
Balance - beginning of period 94,694 (79,685)
Net appreciation (depreciation) during period (43,571) 162,303
---------- ----------
Balance - end of period 51,123 82,618
---------- ----------
Cumulative translation adjustments
Balance - beginning of period -- --
Net adjustment for period 186 --
---------- ----------
Balance - end of period 186 --
---------- ----------
Retained earnings
Balance - beginning of period 795,488 598,716
Net income 202,815 150,721
Dividends declared (21,228) (16,841)
Repurchase of Ordinary shares (96) (15,742)
---------- ----------
Balance - end of period 976,979 716,854
========== ==========
Total shareholders' equity $1,581,257 $1,352,769
========== ==========
See accompanying notes to interim consolidated financial statements
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<CAPTION>
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30, 1996 and 1995
(Unaudited)
1996 1995
---- ----
(in thousands of
U.S. Dollars)
<S> <C> <C>
Cash flows from operating
activities
Net income $202,815 $150,721
Adjustments to reconcile
net income to net cash provided
by operating activities
Unearned premiums 63,259 856
Unpaid losses and loss expenses 266,802 212,466
Net realized (gains) losses
on investments (48,230) (10,217)
Amortization of premium/
discount (4,412) (10,064)
Deferred acquisition costs 1,003 (116)
Insurance balances receivable (62,369) (3,394)
Premiums received in advance 28,388 18,300
Accounts payable and other
liabilities 5,847 844
Accrued investment income (6,166) 3,063
Other (3,429) (3,557)
-------- --------
Net cash flows from operating
activities 443,508 358,902
-------- --------
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Cash flows from investing activities
Purchases of fixed maturities (7,027,445) (5,425,771)
Purchases of equity securities (170,081) (282,866)
Sales of fixed maturities 6,576,371 5,308,625
Sales of equity securities 162,777 71,024
Maturities of fixed maturities 50,830 34,392
Net realized gains on financial
futures and option contracts 18,519 26,075
Acquisitions of subsidiaries, net
of cash acquired (11,572) (25,794)
Other -- (1,470)
--------- ----------
Net cash used in investing
activities (400,601) (295,785)
--------- ----------
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Cash flows from financing
activities
Repurchase of Ordinary Shares (169) (30,532)
Proceeds from exercise of
options for shares -- 8
Dividends paid (19,366) (15,597)
------- --------
Net cash used for
financing activities (19,535) (46,121)
------- --------
Net increase in cash 23,372 16,996
Cash - beginning of period 16,929 14,421
------- --------
Cash-end of period $40,301 $31,417
======= ========
See accompanying notes to
interim consolidated financial statements
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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
Underwriting Limited (formerly 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 June 30, 1996 approximately 75 percent of the Company's written
premiums came from North America with approximately 20 percent coming
from the United Kingdom and continental Europe and approximately 5
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").
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
reduction, 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 in the MDL proceeding 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 has started to remand or transfer
opt-out cases to the originating or other courts for further pretrial
proceedings and trial. Notifications of Status to certain claimants
(who have submitted implant manufacturer proof) were sent out by the
Claims Administrator starting in 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
originally based on information made available in conjunction with
Global I (including information relating to opt-outs) and is
continually reviewed on the basis of additional information made
available from the Company's insureds. The increase 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 June 30, 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 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 June 30, 1996, approximately $45 million of the
Board authorization had not been utilized. Between July 1, 1996 and
August 8, 1996, 536,200 ordinary shares were repurchased by the
Company under the February 3, 1995 authorization for a total cost of
$23.6 million. On August 9, 1996, the Board of Directors authorized a
new share repurchase program in an aggregate amount not to exceed $100
million. This program supercedes and replaces the balance of the
February 3, 1995 authorization.
5. Restricted Stock Awards
During fiscal 1996, 6,734 restricted Ordinary Shares were awarded to
outside directors of the Company under the terms of the 1995 Outside
Directors Plan which was approved by the shareholders of the Company
on February 9, 1996. These shares vest in February 1997. All
unvested restricted Ordinary Shares issued to directors prior to
approval of the Plan were cancelled upon approval of the Plan.
6. Reclassification
Certain items in the prior period financial statements have been
reclassified to conform with the current period presentation.
7. Subsequent Event
On July 1, 1996, the Company completed the acquisition of Tempest
Reinsurance Company Limited ("Tempest"), a Bermuda-based property
catastrophe reinsurer. Under the terms of the Agreement and Plan of
Amalgamation, Tempest shares outstanding at the time of acquisition
were cancelled and converted into approximately 13.3 million Ordinary
Shares of the Company. The acquisition will be recorded using the
purchase method of accounting. Under purchase accounting, the total
purchase price is allocated to the acquired assets and liabilities
based on their values. The excess of the cost of the transaction over
the fair value of the net assets acquired will be recorded as goodwill
and amortized on a straight line basis over a 40-year period. (For
further discussions, see "Management's Discussion and Analysis -
Liquidity and Capital Resources").
<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 nine months ended June 30, 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 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
acquired a controlling interest in Methuen Group Limited ("Methuen"),
the holding company for Methuen Underwriting Limited ("Methuen
Underwriting") (formerly 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.
On July 1, 1996 the Company completed the acquisition of Tempest
Reinsurance Company Limited ("Tempest"), a leading Bermuda-based
property catastrophe reinsurer. (For further discussion, see
"Liquidity and Capital Resources").
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 chanreduction, 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.
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.
Methuen Underwriting manages six syndicates with total underwriting
capacity of 367 million pounds (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
(approximately $18 million) which was substantially in the form of a
letter of credit supporting 24.5 million pounds (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 (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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Results of Operations - Three Months ended June 30, 1996
- --------------------------------------------------------------------
Net Income Three Months ended % Change
June 30 from
1996 1995 prior year
---- ---- --------------
(in millions)
Income excluding net
realized gains (losses)
on investments $54.1 $47.5 13.9%
Net realized gains (losses)
on investments (1.6) 49.9 N.M.
----- ----- -----
Net income $52.5 $97.4 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
(losses) on investments for the third quarter of fiscal 1996, compared
with the corresponding 1995 quarter. These increases were partially
offset by an increase in general and administrative expenses.
<PAGE>
- --------------------------------------------------------------------
Premiums Three Months ended
June 30 % Change
1996 1995 from prior year
---- ---- ---------------
(in millions)
Net premiums written:
Excess liability $58.1 $63.6 (8.8)%
Directors and officers
liability 27.7 26.8 3.4
Satellite 21.4 11.8 81.4
First Line 1.4 0.3 N.M.
Aviation 8.5 1.6 N.M.
Excess property 3.2 1.5 N.M.
Financial lines 38.6 -- N.M.
Lloyd's syndicates 6.1 -- N.M.
Other 0.1 -- N.M.
------ ------ -----
$165.1 $105.6 56.3%
====== ====== =====
Net premiums earned:
Excess liability $57.9 $65.1 (11.1)%
Directors and officers
liability 25.7 27.1 (5.2)
Satellite 19.6 11.9 64.7
First Line 2.9 2.9 --
Aviation 5.5 0.3 N.M.
Excess property 3.5 0.1 N.M.
Financial lines 29.8 -- N.M.
Lloyd's syndicates 0.8 -- N.M.
Other 0.2 0.1 N.M.
------ ------ -----
$145.9 $107.5 35.7%
====== ====== =====
N.M. Not meaningful
- --------------------------------------------------------------------
Net premiums written increased by 56.3% in the three months ended
June 30, 1996 to $165.1 million compared to $105.6 million for the
third quarter 1995. This growth is a result of a very strong quarter
for the Company's financial lines, satellite and aviation insurance
businesses together with the inclusion of premiums from our
participation in the Lloyd's syndicates managed by Methuen. The
decline in excess liability premiums was primarily a result of
continuing competitive pressures in this market which resulted in a
net loss of accounts as well as a lower level of premiums generated
from accounts which renewed coverage at lower limits and/or higher
attachment points. The directors and officers liability market
remains competitive with corresponding pressure on prices. However,
premiums increased in the quarter as a result of several new
multi-year policies.
For the quarter ended June 30, 1996, net premiums earned increased by
$38.4 million to $145.9 million compared to $107.5 million in 1995.
This incease was the result of contributions from the new lines of
business, particularly financial lines together with the increase in
satellite premiums earned, primarily from launch insurance, offset by a
decline in excess liability and directors and officers liability
premiums earned in the quarter.
- ---------------------------------------------------------------------
Net Investment Income Three Months ended % Change
June 30 from
1996 1995 prior year
---- ---- -----------
(in millions)
Net Investment income $50.6 $46.5 8.8%
===== ===== ====
- ---------------------------------------------------------------------
The increase in net investment income in the current quarter, as
compared to 1995, is 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) Three Months ended
on Investments June 30
1996 1995
---- ----
(in millions)
Fixed maturities and short-term investments $(17.4) $30.0
Financial futures contracts 4.1 19.1
Equity securities 13.8 (1.2)
Currency (2.1) 2.0
------ ------
$ (1.6) $49.9
====== ======
- ---------------------------------------------------------------------
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. Prior to May 10, 1996 the
Company's investment guidelines targeted 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. When securities are sold, the effect of market movements on
the investment portfolio will directly impact net realized gains
(losses) on investments.
U.S. bond market prices continued to decline during the third quarter
and thus sales proceeds for fixed maturity securities were generally
lower than their amortized cost which resulted in net realized losses
of $17.4 million being recognized on fixed maturities and short-term
investments compared to net realized gains of $30.0 million for the
same period in 1995.
With strong equity markets, net realized gains for the three month
period ended June 30, 1996 were $13.8 million compared to net realized
losses of $1.2 million in 1995. Common stocks were introduced into
the portfolio in December 1994 and the realized losses generated in
the third quarter of 1995 were primarily due to routine sales by the
equity managers during the period.
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 3.9 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
gains from S&P 500 index futures exceeded losses from the U.S.
Treasury futures, resulting in a net realized gain on financial
futures contracts of $4.1 million. In the same period in 1995,
increases in the Treasury and equity markets resulted in realized
gains of $19.1 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
June 30
1996 1995
---- ----
Losses and loss expense ratio 82.6% 81.8%
Underwriting expense ratio 8.4 10.6
Administrative expense ratio 6.6 6.7
---- ----
Combined ratio 97.6% 99.1%
===== =====
- --------------------------------------------------------------------
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 June 30, 1996, the losses and loss expense
ratio was 82.6 percent compared to 81.8 percent for the third quarter
of 1995 primarily as a result of a change in the mix of business
during the current quarter compared with 1995. 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 June 30, 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 $0.9 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 compared to 1995. General and administrative
expenses increased $2.5 million in the current quarter compared to the
third quarter of 1995. These additional expenses are mainly due to
the increased cost base associated with the new insurance products
introduced during the latter half of 1995. The administrative expense
ratio decreased as a result of growth in earned premium.
Results of operations - Nine Months ended June 30, 1996
- ------------------------------------------------------------------
Net Income Nine Months ended % Change
June 30 from
1996 1995 prior year
------ ------ ----------
(in millions)
Income excluding net realized
gains (losses) on investments $154.6 $140.5 10.0%
Net realized gains (losses)
on investments 48.2 10.2 N.M.
------- ------ -----
Net income $202.8 $150.7 N.M.
------- ------ -----
(N.M. - Not meaningful)
- --------------------------------------------------------------------
<PAGE>
The increase in income excluding net realized gains (losses) on
investments for the nine months ended June 30, 1996 compared with
1995 resulted primarily from increased investment income of
$11.3 million. Earned premiums increased by $90.2 million in
1996 as compared with 1995, however as the Company operated at
a 97.9% combined ratio (98.2% for the same period in 1995), the
net impact of increases in earned premiums on net income was minimal.
- --------------------------------------------------------------------------
Premiums Nine Months ended % Change
June 30 from
1996 1995 prior year
---- ---- ----------
(in millions)
Net Premiums written:
Excess liability $167.5 $188.5 (11.1)%
Directors and officers liability 79.1 83.2 (4.9)
Satellite 64.9 30.7 111.7
First Line 10.0 13.2 (24.2)
Aviation 17.3 1.6 N.M.
Excess Property 13.6 1.5 N.M.
Financial lines 112.3 -- N.M.
Lloyd's syndicates 6.1 -- N.M.
Other 0.7 0.3 N.M.
------ ------ ------
$471.5 $319.0 47.8%
====== ====== ======
<PAGE>
Net premiums earned:
Excess liability $179.4 $198.7 (9.7)%
Directors and officers liability 79.5 83.1 (4.3)
Satellite 56.9 29.7 91.6
First Line 9.1 5.8 56.9
Aviation 11.8 0.3 N.M.
Excess Property 7.6 0.1 N.M.
Financial lines 62.8 -- N.M.
Lloyd's syndicates 0.8 -- N.M.
Other 0.4 0.4 N.M.
------- ------ ------
$408.3 $318.1 28.4%
======= ====== =====
(N.M. - not meaningful)
- ----------------------------------------------------------------------------
<PAGE>
The addition of financial lines premiums of $112.3 million, the
increase in satellite premiums of $34.3 million and the contributions
from aviation and property were the main contributors to the increase
in net premiums written for the nine months ended June 30, 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 $21.0 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 with corresponding pressure on prices also contributed to the
declines.
Net premiums earned increased by $90.2 million to $408.3 million for
the nine months ended June 30, 1996 compared to 1995. This increase
was a result of contributions from the new lines of business,
particularly financial lines, together with the increase in satellite
premiums earned, primarily from launch insurance, offset by declines
in excess liability and directors and officers liability premiums
earned in the period.
- -------------------------------------------------------------------
Net Investment Income Nine months ended % Change
June 30 from
1996 1995 prior year
---- ---- ----------
(in millions)
Net investment income $146.1 $134.8 8.4%
====== ====== ===
- ----------------------------------------------------------------------
The increase of $11.3 million in net investment income for the nine
months ended June 30, 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 Nine Months ended
June 30
1996 1995
---- ----
(in millions)
Fixed maturities and short-term
investments $14.9 $ (7.7)
Financial futures contracts 18.5 26.1
Equity securities 16.8 (1.8)
Currency (2.0) (6.4)
----- ------
$48.2 $ 10.2
====== =======
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.
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 nine month period of $14.9
million compared to $7.7 million of net realized losses during the
same period in 1995. The 1995 losses were the result of the
repositioning of the portfolio as part of the implementation of the
revised investment strategy during a period when sales proceeds were
lower than amortized costs.
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.
There were realized currency losses for the nine months ended June 30,
1996 of $2.0 million compared to a loss of $6.4 million for the same
period of 1995. Unrealized currency losses of $6.5 million on
securities held in the portfolio as at June 30, 1996 are reflected in
net unrealized appreciation on investments in shareholders' equity.
At June 30, 1995 there was an unrealized currency gain of $10.7
million in net unrealized appreciation on investments in shareholders'
equity.
<PAGE>
- ----------------------------------------------------------------------
Combined Ratio
Nine Months ended
June 30
1996 1995
---- ----
Losses and loss expense ratio 81.9% 81.8%
Underwriting expense ratio 9.1 11.0
Administration expense ratio 6.9 5.4
---- ----
Combined ratio 97.9% 98.2%
==== ====
- ----------------------------------------------------------------------
Losses and loss expense as a percentage of net premiums earned was
81.9% for the nine months ended June 30, 1996 as compared with 81.8%
for 1995.
Underwriting expenses increased by $1.9 million to $36.9 million for
the nine months ended June 30, 1996 compared with 1995, however, the
underwriting expense ratio decreased significantly to 9.1% from 11.0%
primarily due to the change in the mix of business written in the
period.
General and administrative expenses increased by $11.3 million this
year compared to 1995. These additional expenses are partially due to
the increased cost base associated with the new insurance products
introduced during the latter half of 1995. 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 $4.0
million compared with $0.7 million 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 the Company's insurance subsidiaries 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 nine months ended June 30, 1996, the Company's consolidated
net cash flow from operating activities was $443.5 million, compared
with $358.9 million for the nine months ended June 30, 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 nine
month periods ended June 30, 1996 and 1995, loss and loss expense
payments amounted to $67.6 million and $47.8 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 June 30, 1996, total investments and cash amounted to approximately
$3.5 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 nine months
ended June 30, 1996 and there were no outstanding borrowings at June
30, 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 June 30,
1996, $45.0 million of the Board authorization had not been utilized.
Between July 1, 1996 and August 8, 1996, 536,200 Ordinary Shares were
repurchased by the Company under the February 3, 1995 authorization
for a total cost of $23.6 million. On August 9, 1996, the Board of
Directors authorized a new share repurchase program in an aggregate
amount not to exceed $100 million. This program supercedes and
replaces the balance of the February 3, 1995 authorization.
On July 19, 1996 the Company paid a quarterly dividend of 18 cents per
share to shareholders of record on June 14, 1996. 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 August 9, 1996,
the Board of Directors declared a quarterly dividend of 18 cents per
share payable on October 18, 1996 to shareholders of record on
September 30, 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 $34.18 at June 30, 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
$1.7 billion at June 30, 1996, includes $893.7 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 June 30, 1996
is adequate, future developments may result in ultimate losses and
loss expenses significantly greater or less than the reserve provided.
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 July 1, 1996, the Company completed the acquisition of Tempest.
Under the terms of the Agreement and Plan of Amalgamation, Tempest
shares outstanding at the time of acquisition were cancelled and converted
into approximately 13.3 million Ordinary Shares of the Company. The
acquisition will be recorded using the purchase method of accounting.
Under purchase accounting, the total purchase price is allocated to the
acquired assets and liabilities based on their values. The excess of
the cost of the transaction over the fair value of the net assets acquired
will be recorded as goodwill and amortized on a straight line basis over a
40-year period. After the amalgamation, Tempest will operate as a
wholly-owned subsidiary of the Company.
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.
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. 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"). But, because of
the anticipated reduction in benefit amounts as a result of the high
number of claim registrations 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.
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
reduction, 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.
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: 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 reduction, 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: Elect a potentially higher benefit 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.
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 in the MDL proceeding 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 has started to remand or transfer opt-out cases
to the originating or other courts for further pretrial proceedings
and trail. Notifications of status to certain claimants (who have
submitted implant manufacturer proof) were sent out by the Claims
Administrator starting in 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 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
insureds. 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 is being 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.
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
originally based on information made available in conjunction with
Global I (including information relating to opt-outs) and is
continually reviewed on the basis of additional information made
available from the Company's insureds. The increase 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 June 30, 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.
<PAGE>
ACE LIMITED
PART II - OTHER INFORMATION
----------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
An Extraordinary General Meeting was held on July 1, 1996 to consider
and vote upon a proposal to approve the issuance of Ordinary Shares,
par value $0.125 per share, of the Company pursuant to the terms of
the Agreement and Plan of Amalgamation between the Company and
Tempest. The holders of 35,511,787 shares voted in favor, 9,418
shares voted against and 620,557 shares abstained.
ITEM 5. OTHER INFORMATION
- --------------------------
1) On August 9, 1996 the Company declared a dividend of $0.18 per
Ordinary Share payable on October 18, 1996 to shareholders of
record on September 30, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
a) Exhibit 11.1 - Statement regarding computation of earnings per
share.
b) Exhibit 10.48 - Employment Agreement, dated April 1, 1996 between
ACE Limited and Peter N. Mear.
c) The Company filed the following Form 8-K current reports during
the quarter:
-Form 8-K dated June 4, 1996 pertaining to the Registrant's press
release related to the unsolicited offer by IPC Holdings, Ltd.
to acquire Tempest.
-Form 8-K dated June 8, 1996 pertaining to the Registrant's press
release announcing the Company's improved bid to acquire Tempest.
-Form 8-K dated June 19, 1996 pertaining to the Registrant's press
release announcing that the Company and Tempest had revised the
terms of the previously announced amalgamation.
-Form 8-K dated June 20, 1996 pertaining to the Registrant's press
release announcing that the Company and Tempest had supplemented
their joint Proxy Statement / Prospectus dated May 22, 1996.
<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
----------------------------
August 13, 1996 Brian Duperreault
----------------------------
Chairman, President and Chief
Executive Officer
August 13, 1996 Christopher Z. Marshall
------------------------------
Executive Vice President and Chief
Financial Officer
<PAGE>
EXHIBIT INDEX
- --------------
Exhibit
Number Description Numbered Page
- ------- ----------- --------------
11.1 Computation of earnings per share 25
10.48 Employment contract dated April 1, 1996
between ACE Limited and Peter N. Mear
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of the 1st day of
April, 1996 by and between ACE Limited, a Cayman Islands
corporation, A.C.E. Insurance Company, Ltd. ("ACE"), a Cayman
Islands corporation (with other subsidiaries and affiliates as
presently or hereafter constituted, collectively referred to as the
"Companies", and individually as a "Company") and Peter N. Mear
(the "Executive").
WHEREAS, each of the Companies desires to offer employment to
the Executive under the terms and conditions set forth below; and
WHEREAS. the Executive wishes to accept such employment under
such terms and conditions.
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable
consideration. the Companies and the Executive (the "Parties")
hereby agree as follows:
1. Employment
The Companies hereby employ the Executive, and the
Executive hereby accepts employment with the Companies, for the
term of this agreement as set forth in Section 2 below, in the
position and with the duties and responsibilities set forth in
Section 3 below, and upon such other terms and conditions as are
hereinafter stated.
2. Term and Place of Performance
(a) The term of the Agreement shall commence as of the
date first above written (the "Commencement Date"), and shall
continue through the close of business on March 31st, 1999, subject
to the terms and conditions of this Agreement. This Agreement
shall automatically renew for a one-year term effective as of April
1st, 1999 and each succeeding April 1st, thereafter, unless the
Board of Directors of each of the Companies (collectively, the
"Boards") notifies the Executive in writing at least thirty days
prior to any such April 1st of its intention not to renew the
Agreement.
(b) Except for travel required from time to time in the
conduct of the Companies' business, the Executive's services under
this Agreement shall be performed in Bermuda. The obligations of
the Companies under this Agreement shall be contingent upon the
issuance of a work permit by the Government of Bermuda and the
maintenance of such work permit throughout the term of this
Agreement. If, despite the Executive's best efforts to maintain
the work permit, it is terminated or revoked by the Government of
Bermuda, then the Executive shall be entitled to the benefits
provided for Termination without Cause under Section 10(d).
3. Positions, Duties, and Time Devoted to the Companies
(a) During the term of the Agreement, the Executive
shall be employed as the Executive Vice President and General
Counsel of each of the Companies, with such powers and duties
normally attendant to such offices and, subject to the terms of
this Agreement, shall answer to and be subject to the direction of
the Chief Executive of the Companies.
(b) The Executive agrees to remain in the employ of the
Companies during the term of this Agreement, to devote his full
business time exclusively to the business affairs of the Companies,
and to perform his duties faithfully and efficiently. Subject to
the demands of his positions with the Companies, the Executive
shall be permitted to:
(i) serve as a director or member of any committee of
any organization involving no conflict of Interest with the
Companies;
(ii) deliver lectures and fulfill speaking engagements;
and
(iii) engage in charitable and community activities;
provided, however, that any expenses, such as for travel, incurred
by the Executive in connection with such activities shall be for
the personal account of the Executive and shall not be reimbursed
by the Companies.
4. Salary
(a) For services rendered by the Executive to the
Company and its affiliates during the term of this Agreement, the
Executive shall be paid a minimum annual base salary of $230,000.
The annual base salary shall be payable on a monthly basis by the
Company.
(b) Following September 30th, 1996 and thereafter at
annual intervals, the Compensation Committee of the Company shall
review the annual base salary of the Executive and shall determine
in its sole discretion whether such annual base salary should be
increased, taking into account such factors as the performance of
the Executive, the performance of the Company and its affiliates
and general business conditions.
5. Initial Cash Incentive Payment
On or before May 1st, 1996, and again on or before
October 1st, 1996, ACE shall make a payment to the Executive in the
amount of $70,000. These lump sum payments shall be made only once
during the term of this Agreement.
6. Annual Incentive Bonus
For the period beginning April 1st, 1996 and ending
September 30th, 1996, and annually as of each September 30th
thereafter, the Executive shall be eligible for an Annual Incentive
Bonus in such amount, if any, as may be determined by the
Compensation Committee taking into amount such factors as the
performance of the Executive, the performance of the Company, and
general business conditions. After any Annual Incentive Bonus
including the initial Annual Incentive Bonus is awarded, it shall
be paid in December of the year in which it was awarded.
7. Stock Options
Subject to the approval by the Company's Board of
Directors, the Company shall issue to Executive options to purchase
15,000 shares of the Company's stock at the market price in effect
at the close of trading an April 1st, 1996. If issued, said
options shall be subject to all the terms and conditions set forth
in the Company's Equity Linked Incentive Plan.
<PAGE>
8. Employee Benefits
(a) During the term of his employment, the Executive
shall be entitled to participate in the Companies' retirement plan,
supplemental retirement plan, hospitalization plan, major medical
plan, dental plan, group-term life insurance plan, accidental death
and dismemberment plan, and such other employee benefit programs of
the Companies as in effect from time to time in which the
Companies' senior executives may participate, subject to
satisfaction of all eligibility requirements of general
applicability.
(b) For the period beginning on the Commencement Date
and ending on March 31st, 1997, and for each successive one-year
period commencing on and after April 1st, 1997, during the term of
the Executives employment, the Executive shall be entitled to four
weeks of vacation. Unused vacation days shall expire as of the
last day of each one year period and may not be accumulated,
carried forward or reclaimed for other compensation.
9. Business Expense Reimbursement, Automobile, Other
Perquisites and Indemnification
(a) During the term of his employment, the Executive
shall be entitled to be reimbursed by ACE for all reasonable out-
of-pocket travel and entertainment expenses incurred by him in
performing services under this Agreement, provided that the
Executive submits reasonable documentation with respect to such
expenses.
(b) During the term of the Executive's employment, ACE
shall provide the services of a qualified public accounting firm to
assist the Executive in the preparation of his personal United
States income tax returns.
(c) During the term of his employment, the Executive
shall be entitled to receive reimbursement by the Company for the
initiation fees and membership dues for one club of Executive's
choice in Bermuda.
(d) During the term of his employment, ACE shall
reimburse the Executive for actual housing expenses not to exceed
$8,000 per month.
(e) For the period beginning on the Commencement Date
and ending on March 31st, 1997 and for each successive one-year
period commencing on and after April 1st, 1997 during the term of
the Executive's employment, ACE shall provide to the Executive (or
shall reimburse the Executive for the cost of) a total of ten
round-trip economy class airline tickets between the United States
and Bermuda to be used by the Executive or any members of his
immediate family.
(f) During the term of the Executive's employment, ACE
shall provide him with an automobile on the same terms and
conditions generally applicable to its other senior executives.
(g) ACE shall reimburse the Executive for the reasonable
expenses actually incurred by him in moving his household goods and
possessions from his home in Connecticut to his home in Bermuda.
(h) ACE shall reimburse the Executive for the reasonable
closing costs not to exceed a total of $20,000 actually incurred by
him in connection with the sale of his home at 87 Walbridge Road,
West Hartford, Connecticut, including real estate commissions and
attorneys' fees.
(i) In the event the Executive demonstrates to ACE's
satisfaction that he has incurred any liability under the Internal
Revenue Code as a result of any payments to him pursuant to Section
9(g) or 9(h) (other than as a result of reimbursements to the
Executive of his mortgage expenses), ACE shall reimburse the
Executive for the actual amount of such liability.
(j) The Executive shall be indemnified by the Companies
in accordance with their Articles of Incorporation.
10. Termination of Employment
(a) Termination Due to Death In the event of the
Executive's death during the term of his employment hereunder, the
estate or other legal representative of the Executive shall be
entitled to:
(i) continuation of the Executive's annual base
salary provided in Section 4 above through the last day of the
month in which the Executive dies;
(ii) a substituted Short-Term Bonus, payable in
accordance with Section 6, equal to the following amount: (1) if
the Executive's death occurs during the period commencing on the
Commencement Date and ending on September 30th, 1997, an amount
equal to 40 percent of the annual base salary payable to the
Executive for the period beginning on the Commencement Date and
ending on the last day of the month in which his death occurs, or
(2) if the Executive's death occurs on or after October 1st, 1997
an amount equal to a percentage of the annual base salary payable
to the Executive for the period beginning on the October 1st
coincident with or immediately preceding his death through the last
day of the month in which his death occurs, which percentage shall
be the applicable percentage, if any, applicable to his Short-Term
Bonus for that period, determined in accordance with Section 6;
(iii) any rights and benefits available under any
employee benefit plans, policies, and practices or the Companies.
determined in accordance with the applicable terms and provisions
of such plans, policies, and practices as in affect on the date of
the Executive's death.
(b) Termination Due to Disability In the event the
Executive's employment by the Companies is terminated because he is
adjudged by the Compensation Committee to be disabled within the
meaning of the Companies' long-term disability plan, the Executive
shall be entitled to:
(i) continuation of the annual base salary provided
in Section 4 above through the last day of the month in which the
Executives employment with the Companies terminates due to
disability;
(ii) a substituted Short-Term Bonus, payable in
accordance with Section 6, equal to the following amount: (1) if
the Executive's employment is terminated due to disability during
the period commencing on the Commencement Date and ending on
September 30th, 1997, an amount equal to 40 percent of the annual
base salary payable to the Executive for the period beginning on
the Commencement Date and ending on that last day of the month in
which his employment is terminated due to disability, or (2) if the
Executive's employment is terminated due to disability on or after
October 1st, 1997 an amount equal to a percentage of the annual
base salary payable to the Executive for the period beginning on
the October 1st, 1997 coincident with or immediately preceding his
death and ending on the last day of the month in which his
termination of employment occurs, which percentage shall be the
applicable percentage, if any, applicable to his Short-Term Bonus
for that period, determined in accordance with Section 6;
(iii) any rights and benefits available under any
employee benefit plans. policies, and practices of the Companies,
determined in accordance with the applicable terms and provisions
of such plans, policies, and practices as in effect on the date of
the Executive's termination of employment.
(c) Termination by the Companies for Cause
(i) The employment of the Executive under this Agreement
may be terminated by the Companies for Cause. For purposes of this
Agreement, "Cause" shall mean:
(A) commission by the Executive of a felony
involving moral turpitude;
(B) violations of Section 11 or 12 of this
Agreement; or
(C) the Executive, in carrying out his duties, has
been guilty of (1) gross neglect, or (2) gross misconduct;
provided, however, that any act, or failure to act, by the
Executive shall not constitute Cause for purposes of this Section
10(c)(1)(C) if such act or failure to act, was committed, or
omitted, by the Executive in good faith and in a manner he
reasonably believed to be in the beat interests of the Companies.
(ii) In the event of a termination of the Executive's
employment for Cause under Section 10(c)(1) above, the Executive
shall be entitled only to:
(A) continuation of the annual base salary provided
in Section 4 above through the date on which termination for Cause
occurs: and
(B) any other rights and benefits, if any,
available under employee benefit plans, policies, and practices of
the Companies, determined in accordance with the applicable terms
and provisions of such plans, policies, and practices, as in effect
on the date of his termination of employment.
(d) Termination Without Cause
(i) Anything in this Agreement to the contrary
notwithstanding, the Executive's employment may be terminated
without Cause as provided in this Section 10(d). Termination
without Cause shall mean a termination of the Executive's
employment by either of the Companies, other than a termination due
to disability as described in Section 10(b) above, or a Termination
for Cause as described in Section 10(c) above.
(ii) In the event there is a termination without Cause
of the Executive's employment, the Executive shall be entitled to:
(A) continuation of the annual base salary provided
in Section 4 above until the date which is twenty-four months after
the last day of the month in which such termination occurs;
provided, however, that payments pursuant to this Section
10(d)(ii)(A) are subject to the provisions of Section 13;
(B) any Short-Term Bonus for a completed fiscal
year which has not yet been paid to the Executive, which Short-Term
Bonus shall be paid in accordance with Section 6:
(C) continuation of coverage under the employee
benefit plans of the Companies in which the Executive was
participating at the time of his termination of employment for the
period of salary continuation under Section 10(d)(A) above;
provided, however, that (1) except as required by applicable law,
any such continued coverage shall terminate upon the subsequent
full-time employment of the Executive, and (2) if the Companies are
unable to continue such coverage, then they shall provide the
Executive with economically equivalent employee benefits to the
extent such benefits are reasonably available; and
(D) any other rights and benefits available under
employee benefit plans, policies, and practices of the Companies,
determined in accordance with the applicable terms and provisions
of such plans, policies, and practices, as in effect on the date of
his termination of employment.
(iii) At the discretion of the Compensation Committee,
the present value of any amounts payable to the Executive in
accordance with Section 10(d)(ii)(A) above may be paid to the
Executive in a lump sum. The interest rate used in determining the
present value shall be the interest rate on one-year United States
Treasury Bills at the auction of such instruments nearest in time
to the date of the Executive's termination of employment under this
Section 10(d). Any such lump sum payment by the Companies to the
Executive shall not affect the obligation of the Companies as
otherwise provided in Section 10(d)(ii)(D) above to provide
continuation coverage under the employee benefit plans.
(e) Termination by the Executive Following a Change In
Control
(i) A Change in Control of either of the Companies shall
be deemed to have occurred if there is a change in the beneficial
ownership of such Company's voting stock, a change in the
composition of such Company's Board of Directors, or a sale of such
Company's assets as follows:
(A) any person, meaning an individual, a
partnership, or other group or association as defined in Section
13(d) and 14(d) of the Securities Exchanges Act of 1934 (other than
(1) a trustee or other fiduciary of securities held under an
employee benefit plan of the Company, (2) a corporation owned
directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of the
Company, or (3) any person in which the Executive has a substantial
equity interest) acquires 50 percent or more of the combined voting
power of the outstanding securities of either of the Companies
having a right to vote at the election of directors;
(B) there is a sale of all or substantially all of
the assets of such Company; or
(C) there shall cease to be a majority of the Board
of Directors of such Company whose members are either (1) previous
members of the Board of Directors, or (2) recommended for election
by a vote of at least two-thirds of the members of the Board of
Directors or a committee thereof. A Change in Control of either of
the Companies shall not be deemed to have occurred by reason of a
public offering of either of the Companies' shares.
(ii) If the Executive terminates his employment with the
Companies within six months following a Change in Control of either
of the Companies and after he makes a good faith determination that
a material reduction in the Executive's positions, duties and
responsibilities from those described in Section 3 has occurred and
notifies the appropriate Board in writing of this determination and
the basis for it, his termination shall not be deemed a voluntary
termination under Section 10(f) below and the Executive's
compensation and other benefits shall be determined on the same
basis as applicable to a Termination without Cause as described in
Section 10(d) above.
(iii) In the event of a termination of employment by the
Executive following a Change in Control, the Executive's
compensation and other benefits shall be determined on the same
basis as applicable to a Termination without Cause as described in
Section 10(d) above.
(f) Voluntary Termination by the Executive
The Executive may voluntarily terminate his employment
with the Companies at any time prior to the expiration of the term
of this Agreement. Such termination shall constitute a voluntary
termination and, in such event, the Executive shall be limited to
the same rights and benefits as applicable to a termination for
Cause, as described in Section 10(c) above.
11. Noncompetition
During the term of the Agreement and for a period of one
year following Executive's termination of employment other than due
to a Termination Without Cause or a Termination following a Change
in Control under Section 10(e)(ii) or 10(e)(iii), Executive shall
not become associated, whether as a principal, partner, employee,
consultant or shareholder (other than as a holder of not in excess
of 1% of the outstanding voting shares of any publicly traded
company), with any entity that is actively engaged in any
geographic area in any business which is in substantial and direct
competition with the business or businesses of the Companies for
which Executive provides substantial services or for which
Executive has substantial responsibility, provided that nothing in
this Section 11 shall preclude Executive from performing services
solely and exclusively for a division or subsidiary of such an
entity that is engaged in a non-competitive business.
Notwithstanding the foregoing, this Section 11 shall not be
enforceable in any manner that would be in violation of the rules
contained in the Code of Professional Responsibility with
responsibility applicable with respect to services as a lawyer.
12. Nondisclosure, Nonsolicitation and Cooperation
(a) Executive shall not (except to the extent required
by an order of a court having competent jurisdiction or under
subpoena from an appropriate government agency) disclose to any
third person, whether during or subsequent to the Executive's
employment with the Companies, any trade secrets; customer lists;
product development and related information; marketing plans and
related information; sales plans and related information; operating
policies and manuals; business plans; financial records; or other
financial, commercial, business or technical information related to
either of the Companies unless such information has been previously
disclosed to the public by such Company or has become public
knowledge other than by a breach of this Agreement; provided,
however, that this limitation shall not apply to any such
disclosure made while Executive is employed by the Companies, if
such disclosure is reasonably intended to benefit the Companies.
(b) During the term of the Agreement and for two years after
the termination of such Period, Executive shall not attempt,
directly or indirectly, to induce any employee of the Companies to
be employed or perform services elsewhere.
(c) During the term of the Agreement and for two years after
the termination of such Period, Executive shall not attempt,
directly or indirectly, to induce any insurance broker, broker-
dealer or supplier of either of the Companies, to cease providing
services to such Company.
(d) During the term of the Agreement and for two years after
the termination of such Period, Executive shall not attempt,
directly or indirectly, to solicit, on behalf of any person or
entity other than the Companies, the trade of any individual or
entity which, at the time of the solicitation, is a customer of
either of the Companies or which such Company, is undertaking to
procure as a customer at the time of or immediately preceding
termination of the term of the Agreement; provided, however, that
this limitation shall only apply to (x) any product or service
which is in competition with a product or service of such Company
and (y) with respect to any customer or prospective customer with
whom Executive has or had (by virtue of Executive's position or
otherwise) a personal relationship; and
(e) Following the termination of the term of the Agreement,
Executive shall provide assistance to and shall cooperate with the
Companies upon its reasonable request, with respect to matters
within the scope of Executive's duties and responsibilities during
the term of the Agreement. (The Company agrees and acknowledges
that it shall, to the maximum extent possible under the then
prevailing circumstances, coordinate any such request with
Executive's other commitments and responsibilities to minimize the
degree to which such request interferes with such commitments and
responsibilities). The Company agrees that it will reimburse
Executive for reasonable travel expenses (i.e., travel, meals,
lodging) that Executive may incur in providing assistance to the
Company hereunder.
13. Remedy for Violation of Noncompetition or Confidential
Information Provisions
Without intending to limit the remedies available to the
Companies for the breach of any of the Executive's covenants in
Sections 11 and 12, the Executive acknowledges and agrees that
damages at law are an insufficient remedy for the Companies and
that, accordingly, either of the Companies shall be entitled to
apply for and obtain injunctive relief in any court of competent
jurisdiction to restrain the breach or threatened breach, or
otherwise specifically enforce, any or all of said covenants. The
Parties acknowledge that each of the covenants contained in
Sections 11 and 12 is an essential element of this Agreement. If
any covenant or term of Section 11 or 12 or this Section 13, or any
portion thereof or hereof, is determined to be invalid or
unenforceable in any instance, such determination shall not prevent
the reassertion thereof with respect to any other breach or
violation. If, in any proceeding, a court (or other tribunal)
refuses to enforce the covenants contained in Section 11 or 12 or
this Section 13 because such covenants cover too extensive a
geographic area or too long a period of time, any such covenant
shall be deemed amended to the extent (but only to the extent)
required by law to permit its enforceability hereunder.
Notwithstanding anything contained in this Agreement to the
contrary, in the event that the Executive's employment is
Terminated without Cause (as defined in Section 10(d)(i)) and the
Companies reasonably determine that the Executive has violated
Section 11 or 12 of this Agreement, then the Companies shall be
entitled to discontinue any payments or benefits that would
otherwise be provided under Section 10(d) and the Executive shall
forfeit his rights to the same.
14. Withholding
Anything in this Agreement to the contrary
notwithstanding, all payments required to be made by the Companies
hereunder to the Executive shall be subject to withholding of such
amounts relating to taxes as the Companies may reasonably determine
they are required to withhold pursuant to any applicable law or
regulation. In lieu of withholding such amounts, in whole or in
part, the Companies may, in their sole discretion, accept other
provision for payment of taxes as required by law, provided they
are satisfied that all requirements of law affecting their
responsibilities to withholding such taxes have been satisfied.
15. Arbitration of All Disputes
Any controversy or claim arising out of or relating to
this Agreement or the breach thereof shall be settled by
arbitration in the City of Hartford in accordance with the law of
the State of Connecticut, by three arbitrators appointed by the
Parties. It the Parties cannot agree on the appointment of the
arbitrators, one shall be appointed by the Companies and one by the
Executive and the third shall be appointed by the first two
arbitrators. If the first two arbitrators cannot agree on the
appointment of a third arbitrator, then the third arbitrator shall
be appointed by the Chief Judge of the United States Court of
Appeals for the Second Circuit. The arbitration shall be conducted
in accordance with the rules of the American Arbitration
Association, except with respect to the selection of the
arbitrators which shall be as provided in this Section 15.
Judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof.
16. Entire Agreement
This Agreement contains the entire agreement between the
Parties concerning the subject matter hereof and supercedes all
prior agreements, understandings, discussions, negotiations, and
undertakings, whether written or oral, between the Companies and
the Executive with respect thereto.
17. Assignability; Binding Nature
This Agreement shall be binding upon and inure to the
benefit of the Parties and their respective successors, heirs, and
assigns. No rights or obligations of the Executive under this
Agreement may be assigned or transferred by the Executive, other
than his rights to receive salary and bonuses hereunder which may
be transferred by will or operation of law subject to the
limitations of this Agreement. No rights or obligations of either
of the Companies under this Agreement may be assigned or
transferred by either of the Companies except that such rights or
obligations may be assigned or transferred pursuant to a merger or
consolidation in which either of the Companies is not the
continuing entity, or the sale or liquidation of all or
substantially all of the assets of either of the Companies,
provided that assignee or transferee is the successor to all or
substantially all of the assets of either of the Companies and such
assignee or transferee assumes the liabilities, obligations, and
duties of either of the Companies as contained in this Agreement,
either contractually or as a matter of law.
18. Amendment or Waiver
No provision in this Agreement may be amended or waived
unless such amendment or waiver is (1) agreed to in writing, and
(2) the agreement is signed by the Executive and by the Company's
Chief Executive. No waiver by any party hereto of any breach by
any other party of any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of a
similar or dissimilar condition or provision at the same or any
prior or subsequent time.
19. Notices
Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been
given when delivered personally or sent by certified or registered
mail, postage prepaid, return receipt requested, duly addressed to
the party concerned at the address indicated below or to such
changed address of which such party may subsequently by similar
process give notice:
If to the Companies or A.C.E. Insurance Company, Ltd.
the Compensation Committee: 30 Woodbourne Avenue
Hamilton HM 08, Bermuda
With a copy to: Robert A. Helman
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
It to the Executive: Peter Mear
C/O ACE United
30 Woodbourne Avenue
Hamilton HM 08, Bermuda
20. Severability
In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for
any reason, in whole or in part, the remaining provisions of this
Agreement shall be unaffected thereby and shall remain in full
force and effect to the fullest extent permitted by law.
21. Survivorship
The respective rights and obligations of the parties
shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and
obligations.
22. References
In the event of the Executive's death or a judicial
determination of his incompetence, reference in this Agreement to
the Executive shall be deemed, where appropriate, to refer to his
estate or other legal representative. All statements of or
references to dollar amounts in this Agreement shall mean lawful
money of the United States of America.
23. Governing Law
This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of Connecticut
without reference to the principles of conflict of laws.
24. Headings
The headings of paragraphs contained in this Agreement
are for convenience only and shall not be deemed to control or
affect the meaning or construction of any provision of this
Agreement.
25. Counterparts
This Agreement may be executed in one or more
counterparts.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first written above.
ACE Limited
By:
Its:
Peter N. Mear
Executive
<PAGE>
EXHIBIT - 11.1
- --------------
<TABLE>
<CAPTION>
ACE LIMITED AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended Nine Months Ended
June 30 June 30
1996 1995 1996 1995
---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Earnings per share - Primary
Weighted average shares outstanding 46,105,108 46,744,790 46,106,913 47,103,091
Average stock options outstanding (net of
repurchased shares under the treasury
stock method) 374,586 127,882 361,919 127,882
---------- --------- --------- ---------
Weighted average shares and share
equivalents outstanding 46,479,694 46,872,672 46,468,832 47,230,973
========== ========== ========== ==========
Net income $ 52,476 $ 97,425 $ 202,815 $ 150,721
========== ========== ========= ==========
Earnings per share $ 1.13 $ 2.08 $ 4.37 $ 3.19
========== ========== ========= ==========
<PAGE>
Earnings per share - Assuming full dilution
Weighted average shares outstanding 46,105,108 46,744,790 46,106,913 47,103,091
Average stock options outstanding (net
of repurchased shares under the
treasury stock method) 397,205 127,882 397,205 127,882
---------- ----------- ----------- ----------
Weighted average shares and share
equivalents outstanding 46,502,313 46,872,672 46,504,118 46,230,973
=========== ========== ========== ==========
Net income $ 52,476 $ 97,425 $ 202,815 $ 150,721
=========== ========== ========== ==========
Earnings per share $ 1.13 $ 2.08 $ 4.36 $ 3.19
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 2,839,966
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 316,971
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 3,513,612
<CASH> 40,301
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 33,425
<TOTAL-ASSETS> 3,744,589
<POLICY-LOSSES> 1,704,732
<UNEARNED-PREMIUMS> 368,827
<POLICY-OTHER> 52,264
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 5,763
<OTHER-SE> 1,575,494
<TOTAL-LIABILITY-AND-EQUITY> 3,744,589
408,274
<INVESTMENT-INCOME> 146,079
<INVESTMENT-GAINS> 48,230
<OTHER-INCOME> 0
<BENEFITS> 334,438
<UNDERWRITING-AMORTIZATION> 36,950
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 202,815
<INCOME-TAX> 0
<INCOME-CONTINUING> 202,815
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 202,815
<EPS-PRIMARY> 4.37
<EPS-DILUTED> 4.36
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
