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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1997
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 12, 1997 was 55,293,217.
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ACE LIMITED
INDEX TO FORM 10-Q
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Part I. FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets
June 30, 1997 (Unaudited) and September 30, 1996 1
Consolidated Statements of Operations (Unaudited)
Three Months Ended June 30, 1997 and June 30, 1996
Nine Months Ended June 30, 1997 and June 30, 1996 2
Consolidated Statements of Shareholders' Equity (Unaudited)
Nine Months Ended June 30, 1997 and June 30, 1996 3
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended June 30, 1997 and June 30, 1996 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 5. Other information 25
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
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ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and September 30, 1996
June 30 September 30
1997 1996
----------- ------------
(unaudited)
(in thousands of U.S. Dollars,
except share and per share data)
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ASSETS
Investments and cash
Fixed maturities, at fair value
(amortized cost - $3,215,068 and $3,394,437) $3,241,184 $3,389,762
Equity securities, at fair value (cost - $467,104 and $257,049) 575,635 323,005
Short-term investments, at fair value (amortized cost - $391,434 and $376,680) 391,527 376,680
Other investments, at cost 12,453 12,453
Cash 96,956 53,374
---------- ----------
Total investments and cash 4,317,755 4,155,274
========== ==========
Goodwill on Tempest acquisition 197,935 201,742
Accrued investment income 37,103 42,728
Deferred acquisition costs 29,116 34,546
Premiums and insurance balances receivable 164,337 85,033
Prepaid reinsurance premiums 16,527 15,421
Other assets 132,724 39,614
---------- ----------
Total assets $4,895,497 $4,574,358
========== ==========
LIABILITIES
Unpaid losses and loss expenses $1,921,237 $1,836,113
Unearned premiums 408,912 398,731
Premiums received in advance 34,762 26,381
Accounts payable and other liabilities 69,711 54,913
Dividend payable 12,435 10,471
Reinsurance balances payable 7,210 3,471
---------- ----------
Total liabilities 2,454,267 2,330,080
========== ==========
Commitments and contingencies
SHAREHOLDERS' EQUITY
Ordinary Shares ($0.125 par value, 100,000,000 shares authorized;
55,286,518 and 58,170,755 shares issued and outstanding) 6,910 7,271
Additional paid-in capital 1,102,626 1,156,194
Unearned stock grant compensation (2,656) (1,299)
Net unrealized appreciation on investments 134,740 61,281
Cumulative translation adjustment 669 131
Retained earnings 1,198,941 1,020,700
---------- ----------
Total shareholders' equity 2,441,230 2,244,278
========== ==========
Total liabilities and shareholders' equity $4,895,497 $4,574,358
========== ==========
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, 1997 and 1996
(Unaudited)
Three Months Ended Nine Months Ended
June 30 June 30
1997 1996 1997 1996
------------ ----------- ----------- ------------
(in thousands of U.S. Dollars, except share and per share data)
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REVENUES
Gross premiums written $ 223,390 $ 177,222 $ 559,235 $ 497,597
Reinsurance premiums ceded (27,937) (12,091) (64,580) (26,136)
---------- --------- ---------- ---------
Net premiums written 195,453 165,131 494,655 471,461
Change in unearned premiums (31,848) (19,234) (8,009) (63,187)
---------- --------- ---------- ---------
Net premiums earned 163,605 145,897 486,646 408,274
Net investment income 59,545 50,641 177,377 146,079
Net realized gains (losses) on investments 45,786 (1,633) 85,170 48,230
---------- --------- ---------- ---------
Total revenues 268,936 194,905 749,193 602,583
========== ========= ========== =========
EXPENSES
Losses and loss expenses 111,380 120,438 326,820 334,438
Acquisition costs 10,748 12,287 36,764 36,950
Administrative expenses 16,770 9,704 51,881 28,380
---------- --------- ---------- ---------
Total expenses 138,898 142,429 415,465 399,768
========== ========= ========== =========
NET INCOME $ 130,038 $ 52,476 $ 333,728 $ 202,815
========== ========= ========== =========
Earnings per share $ 2.30 $ 1.13 $ 5.77 $ 4.36
========== ========= ========== =========
Weighted average shares outstanding 56,519,841 46,479,694 57,811,366 46,468,832
========== ========== ========== ==========
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, 1997 and 1996
(Unaudited)
June 30 June 30
1997 1996
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(in thousands of U.S. Dollars)
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Ordinary Shares
Balance - beginning of period $ 7,271 $ 5,764
Exercise of stock options 8 --
Issued under Employee Stock Purchase Plan 1 --
Issued under Stock Appreciation Right Replacement Plan 8 --
Repurchase of shares (378) (1)
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Balance - end of period 6,910 5,763
============ ===========
Additional paid-in capital
Balance - beginning of period 1,156,194 548,513
Exercise of options for Ordinary Shares 1,984 --
Issued under Employee Stock Purchase Plan 228 --
Issued under Stock Appreciation Right Replacement Plan 3,919 --
Cancellation of awards (87) --
Repurchase of Ordinary Shares (59,612) (72)
------------ -----------
Balance - end of period 1,102,626 548,441
============ ===========
Unearned stock grant compensation
Balance - beginning of period (1,299) (1,796)
Stock grants awarded (3,225) (272)
Stock grants forfeited 79 60
Amortization 1,789 773
------------ -----------
Balance - end of period (2,656) (1,235)
============ ===========
Net unrealized appreciation (depreciation) on investments
Balance - beginning of period 61,281 94,694
Net appreciation (depreciation) during period 73,459 (43,571)
------------ -----------
Balance - end of period 134,740 51,123
============ ===========
Cumulative translation adjustments
Balance - beginning of period 131 --
Net adjustment for period 538 186
------------ -----------
Balance - end of period 669 186
============ ===========
Retained earnings
Balance - beginning of period 1,020,700 795,488
Net income 333,728 202,815
Dividends declared (32,828) (21,228)
Repurchase of Ordinary Shares (122,659) (96)
------------ -----------
Balance - end of period 1,198,941 976,979
============ ===========
TOTAL SHAREHOLDERS' EQUITY $2,441,230 $1,581,257
============ ===========
See accompanying notes to interim consolidated financial statements
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ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30, 1997 and 1996
(Unaudited)
June 30 June 30
1997 1996
--------- ----------
(in thousands of U.S. Dollars)
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Cash flows from operating activities
Net income $ 333,728 $ 202,815
Adjustments to reconcile net income to net cash provided by
operating activities
Unearned premiums 10,181 63,259
Unpaid losses and loss expenses 85,124 266,802
Prepaid reinsurance premiums (1,106) --
Net realized gains on investments (85,170) (48,230)
Amortization of premium/discount (4,333) (4,412)
Deferred acquisition costs 5,430 1,003
Premiums and insurance balances receivable (79,304) (62,369)
Premiums received in advance 8,381 28,388
Reinsurance balances payable 3,739 --
Accounts payable and other liabilities (25,381) 5,847
Accrued investment income 5,625 (6,166)
Other 477 (3,429)
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Net cash flows from operating activities 257,391 443,508
======== =========
Cash flows from investing activities
Purchases of fixed maturities (4,763,015) (7,027,445)
Purchases of equity securities (494,782) (170,081)
Sales of fixed maturities 4,955,457 6,576,371
Sales of equity securities 295,199 162,777
Maturities of fixed maturities 5,000 50,830
Net realized gains on financial futures contracts 46,204 18,519
Acquisitions of subsidiaries, net of cash acquired (30,416) (11,572)
Other (20,091) --
-------- ---------
Net cash used in investing activities (6,444) (400,601)
======== =========
Cash flows from financing activities
Repurchase of Ordinary Shares (182,649) (169)
Dividends paid (30,864) (19,366)
Proceeds from exercise of options for Ordinary Shares 1,992 --
Proceeds from shares issued under Stock Appreciation Right Replacement Plan 4,156 --
-------- ---------
Net cash used for financing activities (207,365) (19,535)
======== =========
Net increase in cash 43,582 23,372
Cash - beginning of period 53,374 16,929
-------- ---------
Cash - end of period $ 96,956 $ 40,301
======== =========
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
1996 Annual Report on Form 10-K.
On November 26, 1996, the Company, through its wholly-owned subsidiary ACE
UK Limited, acquired ACE London Holdings Ltd. ("ACE London"), a wholly-
owned subsidiary of Ockham Holdings PLC. ACE London owns two Lloyd's of
London ("Lloyd's") managing agencies, ACE London Aviation Limited ("ALA")
and ACE London Underwriting Limited ("ALU"). Together these two agencies
manage six syndicates with total underwriting capacity for the 1997 year of
account of 361 million pounds (approximately $601 million). ACE London also
owns a Lloyd's corporate member which provides funds at Lloyd's to support
underwriting on these syndicates. The Company is providing funds at Lloyd's
of approximately 7.5 million pounds (approximately $12 million), which is
primarily in the form of a letter of credit, supporting approximately
15 million pounds (approximately $25 million) of premium writing capacity
to the syndicates managed by ALA and ALU for the 1997 year of account. The
acquisition has been recorded using the purchase method of accounting.
On November 26, 1996, the Company, through ACE UK Limited, also acquired
the remaining 49 percent interest in Methuen Group Limited ("Methuen"), the
holding company for Methuen Underwriting Limited ("MUL"), which it did not
already own. The Company had originally acquired a 51 percent interest in
Methuen on March 27, 1996. The acquisition of the remaining 49 percent
interest has been recorded using the purchase method of accounting.
Following the acquisition of ACE London in November 1996, the Company has
three managing agencies at Lloyd's. The Company is in the process of
merging these three agencies into two, with MUL becoming dormant, and has
established one central management and support team servicing both agencies
and all the syndicates. It is also proposed to merge specific syndicates to
create larger underwriting units with the size and competitive potential
appropriate to the changing marketplace.
In March 1997, the Company, together with two other insurance companies,
formed a managing general agency in Bermuda to provide underwriting
services to the three organizations for political risk insurance coverage.
The new company, Sovereign Risk Insurance Limited ("Sovereign") will issue
subscription policies on behalf of the three participants with the Company
underwriting 45 percent of each risk. Sovereign will initially offer limits
of up to $50 million per project and $100 million per country.
At June 30, 1997 approximately 64 percent of the Company's written premiums
came from insureds based in North America with approximately 26 percent
coming from the United Kingdom and continental Europe and approximately 10
percent from other countries.
2. 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").
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ACE LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
On May 15, 1995, the Dow Corning Corporation, a significant participant in
the Global I settlement, filed for protection under Chapter 11 of the U.S.
Bankruptcy Code.
As of June 1, 1995, over 440,000 registrations were received by the Global
I Claims Administrator. Approximately 248,500 of these were filed by
domestic class members by the September 16, 1994 deadline for making claims
under the Current Disease Compensation Program. Based on an analysis of
about 3,000 of these registrations, the judge concluded that a severe
racheting (or reduction) of the settlement amounts shown in the notice of
settlement would occur if current claims were evaluated under the existing
criteria and if funding of the Current Disease Compensation Program
remained at the $1.2 billion level.
Because of the anticipated racheting of benefit amounts and the defendants'
right to withdraw under the Global I settlement, the judge entered an order
on October 9, 1995 declaring that class members had new opt-out rights and
that, in general, class members and their attorneys should not expect to
receive any benefits under Global I.
On October 1, 1995, negotiators for three of the major defendants agreed on
the essential elements of a revised individual settlement plan for domestic
class members with at least one implant from any of those manufacturers
("Settlement II"). In general, under Settlement II, the amounts payable to
individual participants, and the manufacturers' obligations to make those
payments, would not be affected by the number of class members electing to
opt out from the new plan. Also, in general, the compensation would be
fixed rather than subject to potential further racheting, and the
manufacturers would not have a right to walk away because of the amount of
claims payable. Finally, each defendant agreed to be responsible only for
cases in which its implant was identified, and not for a percentage of all
claims.
By November 13, 1995, Settlement II was approved by the three major
defendants. In addition, two other defendants became part of Settlement II,
although certain of their settlement terms are different and more
restricted than the plan offered by the original three defendants.
On December 22, 1995, the judge approved Settlement II and the materials
for giving notice to claimants although an appeal concerning Settlement II
is pending 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 Claims Administrator continues to send out notifications
of status and advance payments to claimants who submitted implant
manufacturer proof. Although option one closed on December 16, 1996,
information on the estimated total cost of Settlement II and the number of
opt-out is not presently available.
Although the Company has underwritten the coverage for a number of the
defendant companies including four of the companies involved in the revised
Settlement II described above, the Company anticipates that insurance
coverage issued prior to the time the Company issued policies will be
available for a portion of the defendants' liability. In addition, the
Company's policies only apply when the underlying liability insurance
policies or per occurrence retentions are exhausted.
At June 30, 1994, 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 was based on information
made available in conjunction with Global I (including information relating
to opt-outs) and information made available from the Company's insureds and
was predicated upon an allocation between coverage provided before and
after the end of 1985 (when the Company commenced underwriting operations).
No additional reserves relating to breast implant claims have been added
since June 30, 1994.
<PAGE>
ACE LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The Company continually evaluates its reserves in light of developing
information and in light of discussions and negotiations with its insureds.
In August 1996, the Company reached a settlement resolving all issues with
one of its policyholders, for a sum of money to be paid out over a number
of years. The first payment was made in December 1996. The settlement is
consistent with the Company's belief that its reserves are adequate. In
April 1997, the Company made a payment to another policyholder in the
amount of $100 million. Additional limits remain for this insured. This
payment was expected by the Company and was included in previous reserves.
A settlement resolving all issues was reached in 1997 with an additional
insured and a payment in excess of $100 million was made to the insured.
Significant uncertainties continue to exist with regard to the ultimate
outcome and cost of Settlement II and the number and value of the opt-out
claims. While 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, the Company believes that its experience to
date continues to support its belief that its reserves for unpaid losses
and loss expenses including those arising from breast implant claims are
adequate as at June 30, 1997.
3. Shares Issued and Outstanding
On May 9, 1997, the Board of Directors terminated the then existing share
repurchase program and authorized a new program for up to $300 million of
the Company's Ordinary Shares. During the nine month period ended June 30,
1997, the Company repurchased 3,031,000 Ordinary Shares under the share
repurchase programs for an aggregate cost of $182.6 million. As at June 30,
1997, approximately $268 million of the May 9, 1997 Board authorization had
not been utilized.
4. Restricted Stock Awards
During fiscal 1997, 49,725 restricted Ordinary Shares were awarded to
officers of the Company and its subsidiaries. These shares vest at various
dates through November 1999. In addition, 5,028 restricted Ordinary Shares
were awarded to outside directors of the Company under the terms of the
1995 Outside Directors Plan. These shares vest in February 1998. Also
during fiscal 1997, 2,500 restricted Ordinary Shares were forfeited due to
resignations by officers of the Company and its subsidiaries.
5. Credit Facilities
The Company has a committed line of credit provided by a syndicate of six
major international banks, led by Morgan Guaranty Trust Company of New York
("Morgan") which provides for unsecured borrowings up to an aggregate
amount of $50 million. The line of credit agreement requires the Company to
maintain consolidated tangible net worth of not less than $1.25 billion. At
June 30, 1997, there were no outstanding loans under this arrangement.
With effect from November 22, 1996, the same syndicate of banks has
also provided up to 70.3 million pounds (approximately $117 million) for a
five year, collateralized letter of credit ("LOC"), which is used to
provide funds at Lloyd's to support underwriting capacity on Lloyd's
syndicates in which the Company participates. Certain assets, amounting to
115 percent of the value of the LOC, have been pledged as collateral for
the LOC. At June 30, 1997 there were no drawdowns on the LOC.
6. Reclassification
Certain items in the prior period financial statements have been
reclassified to conform with the current period presentation.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
General
The following is a discussion of the Company's results of operations,
financial condition, liquidity and capital resources as of and for the
three and nine months ended June 30, 1997. The results of operations and
cash flows for any interim period are not necessarily indicative of results
for the full year. This discussion should be read in conjunction with the
consolidated financial statements, related notes thereto and the
Management's Discussion and Analysis of Results of Operations and Financial
Condition included in the Company's 1996 Annual Report on Form 10-K.
ACE Limited ("ACE") is a holding company which, through its Bermuda-based
operating subsidiaries, A.C.E. Insurance Company, Ltd. ("ACE Insurance"),
Corporate Officers & Directors Assurance Ltd. ("CODA") and Tempest
Reinsurance Company Limited ("Tempest"), provides insurance and reinsurance
for a diverse group of international clients. In addition, the Company
provides funds at Lloyd's of London ("Lloyd's") to support underwriting by
syndicates managed by Methuen Underwriting Limited ("MUL"), ACE London
Aviation Limited ("ALA") and ACE London Underwriting Limited ("ALU"), each
indirect wholly owned subsidiaries of ACE. The term "the Company" refers to
ACE and its subsidiaries, excluding Methuen (as defined below) and ACE
London (as defined below).
On July 1, 1996, the Company completed the acquisition of Tempest, a
leading Bermuda-based property catastrophe reinsurer. Tempest underwrites
property catastrophe reinsurance on a worldwide basis, emphasizing excess
layer coverages, and has large aggregate exposures to man-made and natural
disasters. Property catastrophe loss experience is generally characterized
by low frequency but high severity short-tail claims which may result in
significant volatility in financial results. With effective from June 30,
1997, Tempest has purchased a modest amount of retrocessional coverage .
On March 27, 1996, the Company acquired a controlling interest in Methuen
Group Limited ("Methuen"), the holding company for MUL, a leading Lloyd's
managing agency. On November 26, 1996, the Company acquired the remaining
49 percent interest in Methuen. MUL manages six syndicates with a total
underwriting capacity of 366 million pounds (approximately $555 million)
for the 1996 year of account and 384 million pounds (approximately $639
million) for the 1997 year of account. Total underwriting capacity is the
amount of gross premiums that a syndicate at Lloyd's can underwrite in a
given year of account. However, a syndicate is not required to fully
utilize all of the capacity and it is not unusual for capacity utilization
to be significantly lower than 100 percent. For the 1996 year of account,
the Company, through a corporate subsidiary, has participated in the
underwriting of these syndicates by providing funds at Lloyd's of 12.25
million pounds (approximately $18 million), which was primarily in the form
of a letter of credit, supporting 24.5 million pounds (approximately $37
million) of underwriting capacity. For the 1997 year of account, the
Company, through a corporate subsidiary, has provided funds at Lloyd's of
approximately 64 million pounds (approximately $106 million) to support up
to approximately 128 million pounds (approximately $213 million) of premium
writing capacity by syndicates managed by MUL. The syndicates managed by
MUL in which the Company participates underwrite aviation, marine and
non-marine risks.
On November 26, 1996, the Company acquired ACE London Holdings Ltd.
("ACE London"), a wholly owned subsidiary of Ockham Holdings PLC. ACE
London owns two Lloyd's managing agencies, ALA and ALU. Together, these two
agencies manage six syndicates with total underwriting capacity for the
1997 year of account of 361 million pounds (approximately $601 million).
ACE London also owns a Lloyd's corporate member which provides funds at
Lloyd's to support underwriting on these syndicates. For the 1997 year of
account, the Company, through a corporate subsidiary, is providing funds at
Lloyd's of approximately 7.5 million pounds (approximately $12 million),
which is primarily in the form of a letter of credit, supporting
approximately 15 million pounds (approximately $25 million) of premium
writing capacity to the syndicates managed by ALA and ALU. The syndicates
managed by ALA and ALU in which the Company participates underwrite
aviation and non-marine risks.
Following the acquisition of ACE London in November 1996, the Company has
three managing agencies at Lloyd's. The Company is in the process of
merging these three agencies into two, with MUL becoming dormant, and has
established one central management and support team servicing both agencies
and all the syndicates. It is also proposed to merge specific syndicates to
create larger underwriting units with the size and competitive potential
appropriate to the changing marketplace.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
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 December 15, 1994, the Company reduced the
maximum limits offered for integrated occurrences from $200 million to $100
million. The Company maintains excess of loss clash reinsurance to protect
it from losses arising from a single set of circumstances (occurrence)
covered by more than one excess liability insurance policy. The reinsurance
provides protection to a maximum of $150 million, and in the aggregate
excess of $225 million, for each and every loss occurrence involving three
or more insureds. Integrated occurrences are specifically excluded.
The Company offers up to $75 million of limits in directors and officers
liability coverage. The Company does not purchase reinsurance for its
directors and officers liability risks.
The Company began satellite insurance operations in February 1994. Until
February 15, 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 entered into a surplus treaty
arrangement which provides for up to $25 million of reinsurance for each
risk. This reinsurance arrangement 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 new lines of
business: aviation insurance, excess property insurance and financial
lines.
Aviation insurance provides coverage for various aviation products,
including aircraft manufacturers hull and liability, as well as airport
liability, aircraft refueling operations and associated aircraft and
spacecraft liability risks. Until July 1, 1997, the Company offered limits
of up to $100 million per insured, with no minimum attachment point.
Effective for all business written on or after July 1, 1997, the Company
has raised the gross limits offered for aviation insurance to $150 million
per insured. The Company maintains a maximum net exposure of $50 million
per insured with a dedicated reinsurance program.
The Company offers global excess property "all risk" insurance , providing
limits of up to a maximum of $50 million per occurrence with a minimum
attachment point generally of $25 million. Coverage includes such perils as
windstorm, earthquake and fire, as well as explosion. Consequential
business interruption coverage is also offered. In certain circumstances,
the Company uses reinsurance to establish the retained net limit per risk.
In addition, the Company has purchased catastrophe reinsurance to control
the possible effects of cumulative natural peril exposure.
The Company's financial lines product group offers specifically designed
financial, insurance and reinsurance solutions to address complex risk
management problems. The programs offered typically have the following
common characteristics: multi-year contract terms, broad coverage that
includes stable capacity and pricing for the insured, aggregate policy
limits and insured participation in the results of their own loss
experience. Each contract is unique because it is tailored to the insurance
or reinsurance needs, specific loss history and financial strength of the
insured. Premium volume, as well as the number of contracts written, can
vary significantly from period to period due to the nature of the contracts
being written. Profit margins may vary from contract to contract depending
on the amount of underwriting risk and investment risk assumed on each
contract.
With effect from November 20, 1996, the Company participates in the
reinsurance of Shipowners Insurance and Guaranty Company Ltd. ("SIGCo"), a
Bermuda-based company approved by the United States Coast Guard to provide
financial guarantees required by the United States Coast Guard to allow
them to issue Certificates of Financial Responsibility under the Oil
Pollution Act of 1990 to owners of vessels operating in U.S. waters. SIGCo
underwrites the risks previously written by the "First Line" program in
which the Company has participated since December 1994.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
In March 1997, the Company, together with two other insurance companies,
formed a managing general agency in Bermuda to provide underwriting
services to the three organizations for political risk insurance coverage.
The new company, Sovereign Risk Insurance Limited ("Sovereign"), will issue
subscription policies on behalf of the three participants with the Company
underwriting 45 percent of each risk. Sovereign will initially offer limits
of up to $50 million per project and $100 million per country.
On April 23, 1997 the Company announced that it had signed a quota share
treaty reinsurance agreement with the Multilateral Investment Guarantee
Agency ("MIGA"), part of the World Bank Group. MIGA provides coverage for
foreign investments in developing countries. The agreement allows MIGA to
provide private investors and developing countries additional capacity to
support developmentally sound investment projects. The coverages offered
will be the same as those offered by MIGA's guarantee program, namely,
transfer restriction, expropriation, war and civil disturbance and breach
of contract. The quota share treaty offers limits of up to $25 million per
contract with an aggregate of $100 million per country.
In addition to the treaty arrangement and other reinsurance arrangements
mentioned previously, the Company periodically buys facultative
reinsurance.
The Company will continue to evaluate potential new product lines and other
opportunities in the insurance and reinsurance markets.
<TABLE>
<CAPTION>
Results of Operations - Three Months ended June 30, 1997
Net Income Three Months ended % Change
June 30 from
1997 1996 prior year
------ ------ ----------
(in millions)
<S> <C> <C> <C>
Income excluding net realized gains (losses) on investments $ 84.2 $54.1 55.7%
Net realized gains (losses) on investments 45.8 (1.6) N.M.
----- ---- ----
Net income $130.0 $52.5 N.M.
===== ==== =====
(N.M. - Not meaningful)
</TABLE>
Higher net investment income and income from insurance operations were the
main contributors to the 55.7 percent increase in income excluding net
realized gains (losses) on investments for the third quarter of fiscal
1997, compared with the corresponding fiscal 1996 quarter. The increase in
investment income and income from insurance operations was primarily
attributable to the inclusion of the results of Tempest in the current
quarter. Tempest contributed $9.3 million to net investment income and
$30.5 million to income excluding net realized gains (losses) on
investments. These increases were partially offset by an increase in
general and administrative expenses.
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Results of Operations - Three Months ended June 30, 1997
Premiums Three Months ended % Change
June 30 from
1997 1996 prior year
------- ------ ----------
(in millions)
<S> <C> <C> <C>
Gross premiums written:
Excess liability $ 41.8 $ 58.0 (28.0)%
Directors and officers liability 18.9 27.7 (31.8)
Satellite 30.5 24.6 24.0
Aviation 9.0 10.2 (11.2)
Excess property 5.6 4.1 36.7
Financial lines 61.3 38.6 58.5
Lloyd's syndicates 33.9 12.3 N.M.
Property catastrophe (Tempest) 20.4 -- N.M.
Other 2.0 1.7 20.7
------- ------ ----
$223.4 $177.2 26.1%
======= ====== ====
Net premiums written:
Excess liability $ 41.8 $ 58.1 (28.0)%
Directors and officers liability 18.9 27.7 (31.8)
Satellite 18.2 21.4 (15.1)
Aviation 7.0 8.5 (17.3)
Excess property 5.3 3.2 66.1
Financial lines 61.3 38.6 58.5
Lloyd's syndicates 25.0 6.1 N.M.
Property catastrophe (Tempest) 16.0 -- N.M.
Other 2.0 1.5 28.2
------- ------ -----
$195.5 $165.1 18.4%
======= ====== ====
Net premiums earned:
Excess liability $ 43.8 $ 57.9 (24.4)%
Directors and officers liability 21.7 25.7 (15.5)
Satellite 18.0 19.6 (8.2)
Aviation 6.4 5.5 18.0
Excess property 6.0 3.5 72.8
Financial lines 26.2 29.8 (12.0)
Lloyd's syndicates 7.8 0.8 N.M.
Property catastrophe (Tempest) 30.9 -- N.M.
Other 2.8 3.1 (10.6)
------- ------ -----
$163.6 $145.9 12.1%
======= ====== ====
(N.M. - Not meaningful)
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Results of Operations - Three Months ended June 30, 1997 (continued)
For the three months ended June 30, 1997, gross premiums written increased
by 26.1 percent from $177.2 million to $223.4 million despite continuing
competitive pressures in most insurance markets. The growth in gross
premiums written is mainly attributable to the inclusion of Tempest
premiums in the third quarter of fiscal 1997, the increase in financial
lines premiums and the increase in participation in the Lloyd's syndicates
managed by MUL. As Tempest was purchased on July 1, 1996, there are no
Tempest premiums in the comparable fiscal 1996 quarter. Tempest's gross
premiums written during the quarter were down approximately 13 percent over
last year. This decrease was a result of real rate reduction, increasing
attachments and some cancellations due to pricing which was offset somewhat
by several new policies written in the quarter. The growth in financial
lines premiums is mostly attributable to new business and increased premium
in certain renewal programs. The increase in gross premiums written with
respect to the Company's participation in the Lloyd's syndicates is due to
this quarter being the first quarter to reflect the underwriting results
for the 1997 year of account as the Company records the results of
operations on its Lloyds participation one quarter in arrears. Growth in
satellite premiums and excess property premiums also contributed to the
increase. These factors together accounted for a $70.6 million increase in
gross written premiums in the quarter. This increase was offset mainly by
declines in excess liability and directors and officers liability premiums.
The decline in excess liability premiums of $16.2 million was mainly the
result of continuing competitive pressures in that market which have
adversely effected the pricing of the excess liability business but have
also led to a reduction in the Company's exposure and an improved risk
profile. Directors and officers liability premiums decreased by $8.8
million or 31.8 percent as this line still faces an extremely competitive
environment with its corresponding pressures on prices. The effects of
multi-year policies and changes in anniversary dates on renewal business
also negatively impacted directors and officers liability premiums this
quarter.
Net premiums written increased by 18.4 percent to $195.5 million for the
three months ended June 30, 1997, compared with $165.1 million for the
third quarter of fiscal 1996. As with gross premiums written, the increase
in net premiums written is primarily the result of the inclusion of Tempest
premiums in the third quarter of fiscal 1997, the participation in the
Lloyd's syndicates managed by MUL and growth in financial lines premiums.
Growth in excess property premiums also contributed to the increase.
Tempest net premiums written were reduced somewhat as a result of the
purchase of the retrocessional cover on June 30, 1997. These increases were
offset somewhat by declines in excess liability and directors and officers
liability as well as satellite net premiums written as a result of an
increased usage of reinsurance on this line.
Net premiums earned increased by 12.1 percent to $163.6 million for the
quarter ended June 30, 1997 compared with $145.9 million for the quarter
ended June 30, 1996. The growth in net premiums earned was primarily the
result of the inclusion of earned premiums from Tempest for the quarter of
$30.9 million together with contributions from Lloyds syndicates and excess
property. These increases were offset somewhat by declines in excess
liability, directors and officers liability, satellite and financial lines
earned premiums.
<TABLE>
<CAPTION>
Net Investment Income Three Months ended % Change
June 30 from
1997 1996 prior year
------ ------ ----------
(in millions)
<S> <C> <C> <C>
Net investment income $59.5 $ 50.6 17.5%
----- ----- ----
</TABLE>
The average yield earned on the investment portfolio was approximately the
same in the third quarter of fiscal 1997 as compared to the third quarter
of fiscal 1996 even with the change in the asset mix between periods.
During the quarter ended December 31, 1996, the Company increased the
equity exposure of the portfolio to 20 percent from 15 percent. The
remainder of the portfolio is comprised of fixed maturity securities. With
similar yields in each period, net investment income still increased by
$8.9 million or 17.5 percent in the current quarter, as compared with the
third quarter of fiscal 1996 primarily as a result of a larger investable
asset base due mainly to the inclusion of the Tempest portfolio in the
current quarter.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Results of Operations - Three Months ended June 30, 1997 (continued)
<TABLE>
<CAPTION>
Net Realized Gains (Losses)
on Investments Three Months ended
June 30
1997 1996
------ ------
(in millions)
<S> <C> <C>
Fixed maturities and short-term investments $ 8.1 $(17.4)
Equity securities 10.7 13.8
Financial futures and option contracts 37.0 4.1
Currency (10.0) (2.1)
------ ------
$ 45.8 $ (1.6)
====== ======
</TABLE>
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 portfolio is reported at fair value.
The effect of market movements on the investment portfolio will directly
impact net realized gains (losses) on investments when securities are sold.
Changes in unrealized gains and losses, which result from the revaluation
of securities held, are reported as a separate component of shareholders'
equity.
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.
Currency losses of $10.0 million in the third quarter of fiscal 1997 were
attributable to the strengthening of the U.S. dollar against most major
foreign currencies.
In the third quarter of fiscal 1997 the fair value of the Company's
investment portfolio was positively impacted by a general increase in
prices in the U.S. bond markets resulting from a decrease in interest rates
during the period. Sales proceeds for fixed maturity securities were
generally higher than their amortized cost during most of the quarter which
resulted in net realized gains of $8.1 million being recognized on fixed
maturities and short-term investments. In the third quarter of fiscal 1996,
net realized losses of $17.4 million were recognized on fixed maturities
and short-term investments.
The Company recognized net realized gains on sales of equity securities of
$10.7 million in the third quarter of fiscal 1997 compared with gains of
$13.8 million in the third quarter of fiscal 1996.
Gains and losses on financial futures and options contracts are the result
of fixed maturity and equity security market movements. Net realized gains
on financial futures and option contracts of $37.0 million recorded in the
third quarter of fiscal 1997 were primarily generated by futures contracts
in the synthetic equity fund. During the three-month period ended June 30,
1996, an increase in interest rates resulted in a market decline for fixed
maturity securities, and realized losses from U.S. Treasury futures
contracts. These losses were partially offset by realized gains on the S&P
500 index futures contracts in the synthetic equity fund as a result of a
rise in the S&P 500 stock index during the period.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Results of Operations - Three Months ended June 30, 1997 (continued)
<TABLE>
<CAPTION>
Combined Ratio Three Months ended
June 30
1997 1996
----- -----
<S> <C> <C>
Loss and loss expense ratio 68.1% 82.6%
Acquisition cost ratio 6.6 8.4
Administrative expense ratio 10.2 6.6
---- ----
Combined ratio 84.9% 97.6%
==== ====
</TABLE>
The underwriting results of a property and casualty insurer are discussed
frequently by reference to its loss and loss expense ratio, acquisition
cost 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 loss and loss expense ratio, the
acquisition cost ratio and the administrative expense ratio. A combined
ratio under 100 percent indicates underwriting profits and a combined ratio
exceeding 100 percent indicates underwriting losses. Property catastrophe
reinsurance companies generally expect to have overall lower combined
ratios as compared with other reinsurance companies with long-tail
exposures.
For the three months ended June 30, 1997, the loss and loss expense ratio
was 68.1 percent compared to 82.6 percent for the third quarter of fiscal
1996. The ratio for the current quarter is impacted by the inclusion of the
results of Tempest. Property catastrophe loss experience is generally
characterized by low frequency but high severity short-tail claims which
may result in significant volatility in results. For the current quarter,
Tempest's loss and loss expense ratio was 6.1 percent. Excluding Tempest,
the loss and loss expense ratio would have been 81.5 percent. Several
aspects of the Company's operations, including the low frequency and high
severity of losses in the high excess layers in certain lines of business
in which the Company provides insurance and reinsurance, 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, 1997. 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").
Acquisition costs decreased by $1.5 million and the acquisition cost ratio
decreased to 6.6 percent from 8.4 percent in the quarter compared to the
third quarter of fiscal 1996 due primarily to the continuing change in the
mix of business written by the Company. Administrative expenses increased
by $7.1 million in the current quarter compared to the third quarter of
fiscal 1996. These additional expenses are primarily due to the increased
cost base resulting from the strategic diversification by the Company over
the past two years, including the recent acquisitions of Tempest, Methuen
and ACE London as well as the development of the new insurance lines and
products.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
<TABLE>
<CAPTION>
Results of operations - Nine Months ended June 30, 1997
Net Income Nine Months ended % Change
June 30 from
1997 1996 prior year
------ ------ ----------
(in millions)
<S> <C> <C> <C>
Income excluding net realized gains (losses)
on investments $248.5 $ 154.6 60.7%
Net realized gains (losses) on investments 85.2 48.2 N.M.
------ ------ ----
Net income $333.7 $ 202.8 N.M.
====== ======= ====
(N.M. - Not meaningful)
</TABLE>
Higher net investment income and income from insurance operations were the
main contributors to the $93.9 million or 60.7 percent increase in income
excluding net realized gains (losses) on investments for the nine months
ended June 30, 1997 compared with the corresponding period of fiscal 1996.
The increase in investment income and income from insurance operations were
primarily attributable to the inclusion of the results of Tempest in the
current period. Tempest contributed $27.2 million to net investment income
and $91.9 million to income excluding net realized gains (losses) on
investments. These increases were partially offset by an increase in
general and administrative expenses.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Results of operations - Nine Months ended June 30, 1997
<TABLE>
<CAPTION>
Premiums Nine Months ended % Change
June 30 from
1997 1996 prior year
---- ---- ----------
(in millions)
<S> <C> <C> <C>
Gross premiums written:
Excess liability $ 116.9 $ 171.4 (31.8%)%
Directors and officers liability 68.7 79.1 (13.1)
Satellite 72.5 72.4 0.1
Aviation 22.6 21.3 6.1
Excess property 20.5 16.3 26.1
Financial lines 114.2 112.3 1.2
Lloyd's syndicates 44.4 12.3 N.M.
Property catastrophe (Tempest) 94.6 - N.M.
Other 4.8 12.5 (62.4)
------ ------ -------
$559.2 $497.6 12.4%
====== ====== =======
Net premiums written:
Excess liability $ 114.8 $167.5 (31.5)%
Directors and officers liability 68.7 79.1 (13.1)
Satellite 46.2 64.9 (28.9)
Aviation 17.6 17.3 1.3
Excess property 20.2 13.6 49.1
Financial lines 100.9 112.3 (10.2)
Lloyd's syndicates 31.5 6.1 N.M.
Property catastrophe (Tempest) 90.2 - N.M.
Other 4.6 10.7 (57.1)
------ ------ ------
$494.7 $471.5 4.9%
====== ====== ======
Net premiums earned:
Excess liability $ 143.6 $179.4 (20.0)%
Directors and officers liability 69.8 79.5 (12.1)
Satellite 48.1 56.9 (15.5)
Aviation 19.1 11.8 61.7
Excess property 15.2 7.6 101.3
Financial lines 69.6 62.8 10.9
Lloyd's syndicates 14.7 0.8 N.M.
Property catastrophe (Tempest) 97.9 - N.M.
Other 8.6 9.5 (10.3)
------ ------ ------
$486.6 $408.3 19.2%
====== ====== ======
(N.M. - Not meaningful)
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Results of operations - Nine Months ended June 30, 1997
Gross premiums written increased by 12.4 percent from $497.6 million to
$559.2 million despite continuing competitive pressures in most insurance
markets. The growth in gross premiums written is mainly attributable to the
inclusion of Tempest premiums of $94.6 million during the current nine
month period and the increased participation in the Lloyds syndicates
managed by MUL. As Tempest was purchased on July 1, 1996, there are no
Tempest premiums in the comparable fiscal 1996 period. Growth in excess
property, financial lines and aviation premiums also contributed to the
increase. These factors together accounted for a $134.1 million increase in
gross premiums written. This increase was offset mainly by declines of
$54.5 million in excess liability gross premiums written and declines of
$10.4 million in directors and officers liability gross premiums written as
a result of continuing competitive pressures in those markets.
Net premiums written increased by 4.9 percent to $494.7 million for the
nine months ended June 30, 1997, compared with $471.5 million for the same
period of fiscal 1996. The inclusion of Tempest premiums in fiscal 1997
together with growth in excess property premiums and our participation in
the Lloyd's syndicates managed by MUL partially offset declines in excess
liability, directors and officers liability and satellite premiums as
discussed above for gross written premiums. A portion of the decline in net
premiums written is also a result of the Company's decision to purchase
reinsurance for the financial lines and satellite product lines. Tempest
net premiums written were reduced as a result of the purchase of the
retrocessional cover on June 30, 1997.
Net premiums earned increased by $78.3 million or 19.2 percent to $486.6
million for the nine months ended June 30, 1997 compared with $408.3
million for the nine months ended June 30, 1996. The growth in net premiums
earned was primarily the result of the inclusion of $97.9 million of earned
premiums from Tempest for the period together with contributions from
financial lines, aviation, excess property and the participation in the
Lloyd's syndicates managed by MUL. These increases were again offset
somewhat by declines in excess liability, directors and officers liability
and satellite earned premiums.
<TABLE>
<CAPTION>
Net Investment Income
Nine Months ended % Change
June 30 from
1997 1996 prior year
------ ------ ----------
(in millions)
<S> <C> <C> <C>
Net investment income $177.4 $146.1 21.4%
====== ====== ====
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Results of operations - Nine Months ended June 30, 1997
The average yield earned on the investment portfolio was approximately the
same in the nine month period ended June 30, 1997 as compared to the nine
month period ended June 30, 1996 even with the change in the asset mix
between periods. During the quarter ended December 31, 1996, the Company
increased the equity exposure of the portfolio to 20 percent from 15
percent. The remainder of the portfolio is comprised of fixed maturity
securities. With similar yields in each period, net investment income still
increased by $31.3 million or 21.4 percent in the current period, as
compared with the similar period of fiscal 1996 primarily as a result of a
larger investable asset base due to the inclusion of the Tempest portfolio
in the current period as well as positive cash flows from operations.
<TABLE>
<CAPTION>
Net Realized Gains (Losses)
on Investments Nine Months ended
June 30
1997 1996
------ ------
(in millions)
<S> <C> <C>
Fixed maturities and short-term investments $ 40.4 $ 14.9
Equity securities 20.2 16.8
Financial futures and option contracts 46.2 18.5
Currency (21.6) (2.0)
------ ------
$ 85.2 $ 48.2
====== ======
</TABLE>
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 portfolio is reported at fair value.
The effect of market movements on the investment portfolio will directly
impact net realized gains (losses) on investments when securities are sold.
Changes in unrealized gains and losses, which result from the revaluation
of securities held, are reported as a separate component of
shareholders' equity.
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.
Sales proceeds for fixed maturity securities were generally higher than
their amortized cost during most of the period which resulted in net
realized gains of $40.4 million being recognized on fixed maturities and
short-term investments compared to net realized gains of $14.9 million for
the same period last year.
With strong equity markets, net realized gains on sales of equity
securities were $20.2 million in the first nine months of fiscal 1997
compared with gains of $16.8 million in the first nine months of fiscal
1996.
Net realized gains on financial futures and option contracts of $46.2
million recorded in the nine months ended June 30, 1997 were primarily
generated by the equity index futures contracts held, as a result of a rise
in the S&P 500 Stock Index during the period. For the nine month period
ended June 30, 1996, the realized gains of $18.5 million on financial
futures and option contracts were generated from U.S. Treasury futures
contracts and from the equity index futures contracts held in the synthetic
equity fund as a result of broad market improvements during the period.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Results of operations - Nine Months ended June 30, 1997
<TABLE>
<CAPTION>
Combined Ratio
Nine Months ended
June 30
1997 1996
------ ------
<S> <C> <C>
Loss and loss expense ratio 67.2% 81.9%
Acquisition cost ratio 7.5 9.1
Administration expense ratio 10.7 6.9
----- -----
Combined Ratio 85.4% 97.9%
===== =====
</TABLE>
For the nine months ended June 30, 1997, the loss and loss expense ratio
was 67.2 percent compared to 81.9 percent for the nine months ended June
30, 1996. The ratio for the current period is impacted by the inclusion of
the results of Tempest. Property catastrophe loss experience is generally
characterized by low frequency but high severity short-tail claims which
may result in significant volatility in results. For the current nine month
period, Tempest's loss and loss expense ratio was 9.7 percent. Excluding
Tempest, the loss and loss expense ratio would have been 80.8 percent.
Several aspects of the Company's operations, including the low frequency
and high severity of losses in the high excess layers in certain lines of
business in which the Company provides insurance and reinsurance,
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, 1997. 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").
The acquisition cost ratio decreased from 9.1 percent to 7.5 percent in the
current period compared to the same period of fiscal 1996 due primarily to
the continuing change in the mix of business written by the Company.
Administrative expenses increased by $23.5 million in the current period
compared to the nine month period ended June 30, 1996. These additional
expenses are primarily due to the increased cost base resulting from the
strategic diversification by the Company over the past two years, including
the recent acquisitions of Tempest, Methuen and ACE London, which account
for $12.6 million of the increase, as well as the development of the new
insurance lines and products. In addition, during the period, as a result
of the increase in the market value of the Company's stock, the Company
again recorded expenses related to stock appreciation rights. However,
during the period, all remaining stock appreciation rights were exercised
in return for options and cash and/or shares of the Company. In addition,
certain stock appreciation rights were forfeited in return for cash during
the period. Total expenses incurred in the nine month period ended June 30,
1997 relating to these transactions amounted to $5.5 million compared with
$4.0 million for the nine month period ended June 30, 1996. There were no
stock appreciation rights outstanding at June 30, 1997.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Liquidity and Capital Resources
As a holding company, ACE's assets consist primarily of the stock of its
subsidiaries as well as other investments. In addition to investment
income, its cash flows depend primarily on dividends or other statutorily
permissible payments from its Bermuda-based insurance and reinsurance
subsidiaries (the "Bermuda subsidiaries"). There are currently no legal
restrictions on the payment of dividends from retained earnings by the
Bermuda subsidiaries as the minimum statutory capital and surplus
requirements are satisfied by the share capital and additional paid-in
capital of each of the Bermuda subsidiaries. However, the payment of
dividends or other statutorily permissible distributions by the Bermuda
subsidiaries is subject to the need to maintain shareholder's equity at a
level adequate to support the levels of insurance and reinsurance
operations.
The Company's consolidated sources of funds consist primarily of net
premiums written, investment income, and proceeds from sales and maturities
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, 1997, the Company's consolidated net
cash flow from operating activities was $257.4 million, compared with
$443.5 million for the nine months ended June 30, 1996. Cash flows are
affected by claims payments, which due to the nature of the insurance and
reinsurance 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, 1997 and 1996, loss and loss expense payments amounted to $240.9
million and $67.6 million respectively. However, positive cash flows from
operating activities as well as the reinvestment of funds generated by the
portfolio did increase the level of investable assets during the period.
This increase was offset by the outflow of funds with respect to the
Company's share repurchase program. In early August 1997 the Company made a
payment in excess of $100 million to an additional insured in respect of a
settlement reached with regard to the breast implant litigation. Total loss
and loss expense payments amounted to $101.4 million, $73.1 million and
$126.6 million in fiscal years 1996, 1995 and 1994, respectively.
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 policies.
The Company has a $50 million committed unsecured line of credit
provided by a syndicate of six major international banks, led by Morgan
Guaranty Trust Company of New York ("Morgan"). 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 $1.25 billion. There were
no draw-downs on the line of credit during the nine months ended June 30,
1997 and there were no outstanding borrowings at June 30, 1997. The
syndicate of banks has also provided up to 70.3 million pounds
(approximately $117 million) for a five year, collateralized letter of
credit ("LOC"), which is used to provide funds at Lloyd's to support
underwriting capacity on Lloyd's syndicates in which the Company
participates. Certain assets, amounting to 115 percent of the value of the
LOC, have been pledged as collateral for the LOC. Morgan has served as the
issuing bank for the letter of credit.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Liquidity and Capital Resources (continued)
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 May 9, 1997, the Board of Directors terminated the
existing share repurchase program and authorized a new program for up to
$300.0 million of the Company's Ordinary Shares. During the nine months
ended June 30, 1997, the Company repurchased 3,031,000 Ordinary Shares
under share repurchase programs for an aggregate cost of $182.6 million. As
at June 30, 1997, approximately $268.0 million of the May 9, 1997 Board
authorization had not been utilized.
On October 18, 1996, January 17, 1997 and April 18, 1997, the Company paid
quarterly dividends of 18 cents per share to shareholders of record on
September 30, 1996, December 29, 1996 and March 31, 1997. On July 18, 1997
the Board of Directors paid a quarterly dividend of 22 cents per share to
shareholders of record on June 30, 1997. 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 $44.05 at June 30, 1997,
compared with $38.31 at September 30, 1996.
Changes in shareholders' equity during the nine months ended June 30, 1997
were (in millions):
Balance at September 30, 1996 $ 2,244
Net Income for period 334
Repurchase of Ordinary Shares (183)
Change in net unrealized appreciation on investments 73
Dividends declared (33)
Other 6
--------
Balance at June 30, 1997 $ 2,441
========
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 ultimate liability is estimated using actuarial and
statistical projections. The reserve for unpaid losses and loss expenses of
$1.9 billion at June 30, 1997, includes $922.7 million of case and loss
expense reserves. While the Company believes that its reserve for unpaid
losses and loss expenses at June 30, 1997 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, and it expects that the
amount of time required to determine the financial impact of the options
selected by claimants may extend well into 1997 and beyond. Payments may be
accelerated for some policyholders in 1997 as a result of settlement of
opt-out cases and as additional payments are required to fund Settlement II
(see "Breast Implant Litigation").
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 or in certain lines
of business written by the Company, significant periods of time, ranging up
to several years or more, may elapse between the occurrence of an insured
loss, the reporting of the loss to the Company and the settlement of the
Company's liability for that loss. The liquidity of its investment
portfolio, cash flows and the line of credit are, in management's opinion,
adequate to meet the Company's expected cash requirements.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
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").
On May 15, 1995, the Dow Corning Corporation, a significant participant in
the Global I settlement, filed for protection under Chapter 11 of the U.S.
Bankruptcy Code.
As of June 1, 1995, over 440,000 registrations were received by the Global
I Claims Administrator. Approximately 248,500 of these were filed by
domestic class members by the September 16, 1994 deadline for making claims
under the Current Disease Compensation Program. Based on an analysis of
about 3,000 of these registrations, the judge concluded that a severe
racheting (or reduction) of the settlement amounts shown in the notice of
settlement would occur if current claims were evaluated under the existing
criteria and if funding of the Current Disease Compensation Program
remained at the $1.2 billion level.
Because of the anticipated racheting of benefit amounts and the defendants'
right to withdraw under the Global I settlement, the judge entered an order
on October 9, 1995 declaring that class members had new opt-out rights and
that in general class members and their attorneys should not expect to
receive any benefits under Global I.
On October 1, 1995, negotiators for three of the major defendants agreed on
the essential elements of a revised individual settlement plan for domestic
class members with at least one implant from any of those manufacturers
("Settlement II"). In general, under Settlement II, the amounts payable to
individual participants, and the manufacturers' obligations to make those
payments, would not be affected by the number of class members electing to
opt out from the new plan. Also, in general, the compensation would be
fixed rather than subject to potential further racheting, and the
manufacturers would not have a right to walk away because of the amount of
claims payable. Finally, each settling defendant agreed to be responsible
only for cases in which its implant was identified, and not for a
percentage of all cases.
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: An amount based on disease criteria and severity levels in the
Global I settlement ranging from $10,000 to $100,000. Although
substantially less than the amounts shown in the initial notices for Global
I settlement, they are greater for many claimants than the amounts that,
after racheting, would have been offered under Global I and are not subject
to a "walkaway" by defendants because of such opt-outs.
Option Two: 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. Qualifying claimants 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.
Each Current Claimant, regardless of the option selected, would be paid an
advance payment of $5,000 and 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 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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Breast Implant Litigation (continued)
By November 13, 1995, Settlement II was approved by the three major
defendants. In addition, two other defendants became part of Settlement II,
although certain of their settlement terms are different and more
restricted than the plan offered by the original three defendants.
On December 22, 1995, the judge approved Settlement II and the materials
for giving notice to claimants although an appeal concerning Settlement II
is pending 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 Claims Administrator continues to send out notifications
of status and advance payments to claimants who submitted implant
manufacturer proof. Although Option One closed on December 16, 1996,
information on the estimated total cost of Settlement II and the number of
opt-outs is not presently available.
Although the Company has underwritten the coverage for a number of the
defendant companies including four of the companies involved in the revised
Settlement II described above, the Company anticipates that insurance
coverage issued prior to the time the Company issued policies will be
available for a portion of the defendants' liability. In addition, the
Company's policies only apply when the underlying liability insurance
policies or per occurrence retentions are exhausted.
Declaratory judgment lawsuits, involving four of the Company's insureds,
have been filed seeking guidance on the appropriate trigger for their
insurance coverage. None of the insureds have named the Company in such
lawsuits, although other insurers and third parties have sought to involve
the Company in those lawsuits. To date, one court has stayed a lawsuit
against the Company by other insurers; two courts have dismissed actions 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 attempting to bring the Company into
coverage litigation there. On appeal in the Texas lawsuit, the appellate
court affirmed the lower court's order refusing to dismiss the claims
against the Company; further appellate review in the Texas Supreme Court is
pending. In addition, further efforts are contemplated to stay or dismiss
the doctors' claims against the Company in the Texas lawsuit.
At June 30, 1994, 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 was based on information
made available in conjunction with Global I (including information relating
to opt-outs) and information made available from the Company's insureds and
was predicated upon an allocation between coverage provided before and
after the end of 1985 (when the Company commenced underwriting operations).
No additional reserves relating to breast implant claims have been added
since June 30, 1994.
The Company continually evaluates its reserves in light of developing
information and in light of discussions and negotiations with its insureds.
In August 1996, the Company reached a settlement resolving all issues with
one of its insureds for a sum of money to be paid out over a number of
years. The first payment was made in December 1996. The settlement is
consistent with the Company's belief that its reserves are adequate. In
April 1997, the Company made a payment to another policyholder in the
amount of $100 million. Additional limits remain for this insured. These
payments were expected by the Company and are included in previous
reserves. A settlement resolving all issues was reached in August 1997 with
an additional insured and a payment in excess of $100 million was made to
the insured. Significant uncertainties continue to exist with regard to the
ultimate outcome and cost of Settlement II and the number and value of the
opt-out claims. While 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, the Company believes that its
reserves for unpaid losses and loss expenses including those arising from
breast implant claims are adequate as at June 30, 1997.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
New Accounting Pronouncements
In February 1997, the Financial Accounting Standard Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 "Earnings per Share"
("FAS 128"), effective for financial statements issued for periods ending
after December 15, 1997. This statement establishes standards for computing
and presenting earnings per share ("EPS"). This Statement simplifies the
standards for computing EPS previously found in APB Opinion No. 15,
Earnings per Share, and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with a presentation
of basic EPS. It also requires dual presentation of basic and diluted EPS
on the face of the income statement for all entities with complex capital
structures, which the Company is considered to have, and requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. This Statement requires restatement of all prior-period EPS
data presented. The Company anticipates presenting its EPS in compliance
with the dual presentation standards mandated by the Statement at December 31,
1997.
The Company has calculated basic and diluted EPS, as defined in FAS 128 and
interpreted by the Company based on information currently available, and
has determined that such amounts do not differ materially from primary EPS,
which is reflected in the Company's statement of operations, for the years
presented.
<PAGE>
ACE LIMITED
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
1) On August 8, 1997 the Company declared a dividend of $0.22 per Ordinary
Share payable on October 17, 1997 to shareholders of record on
September 30, 1997.
2) On August 8, 1997, Mr. Dermot F. Smurfit was appointed as a member of
the ACE Limited Board of Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 10.29 - First Amendment of Ace Limited 1995 Outside
Directors Plan
b) Exhibit 11.1 - Statement regarding computation of earnings per share.
c) There were no reports on Form 8-K filed during the quarter.
<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 12, 1997 Brian Duperreault
----------------------------------
Chairman, President and Chief
Executive Officer
August 12, 1997 Christopher Z. Marshall
----------------------------------
Executive Vice President and Chief
Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Numbered Page
10.29 First Amendment of Ace Limited 1995
Outside Directors Plan
11.1 Computation of earnings per share
27 Financial Data Schedule
FIRST AMENDMENT
OF
ACE LIMITED 1995 OUTSIDE DIRECTORS PLAN
WHEREAS, ACE Limited ("ACE") maintains the ACE Limited 1995
Outside Directors Plan (the "Plan"); and
WHEREAS, amendment of the Plan is now considered desirable;
NOW, THEREFORE, by virtue and in exercise of the amending power
reserved to ACE under the Plan and pursuant to the authority delegated to
the undersigned officer of ACE by a resolution adopted by its Board of
Directors, the Plan be and is hereby amended in the following particulars,
effective as of the first day of the Plan Year beginning in 1998:
1. By substituting the following for subsection 2.1:
"2.1 General.
(a) For each Plan Year, each Director who is an Eligible
Director on the first day of that Plan Year shall be
granted a 'Retainer Award' for the year, which shall be
in the form of shares of Stock having a Fair Market
Value of $35,000. Except as otherwise provided in this
subsection 2.1, the Retainer Award for any Plan Year
shall be made as of the first business day of that Plan
Year (the 'Award Date' for that Retainer Award), and
the Fair Market Value of the Stock so awarded shall be
determined as of that date.
(b) If a Director becomes an Eligible Director during a
Plan Year, on a date other than the first day of the
Plan Year, he shall be granted a Retainer Award for the
year, which shall be in the form of shares of Stock
having a Fair Market Value equal to $35,000, subject to
a pro-rata reduction to reflect the portion of the Plan
Year prior to the date on which he becomes an Eligible
Director. A Director's Retainer Award under this
paragraph (b) shall be made on the first business day
on which he is an Eligible Director (the 'Award Date'
for that Retainer Award), and the Fair Market Value of
the Stock so awarded shall be determined as of that
date.
(c) The shares awarded under this subsection 2.1 shall be
subject to the vesting provision set forth in subsection
2.3.
-1-
<PAGE>
(d) A Participant may elect to defer receipt of his
Retainer Awards in accordance with Supplement A of the
Plan."
* * *
In witness whereof, ACE Limited has caused this amendment to be
signed by its duly authorized officer as of this __th day of ________,
1997.
ACE Limited
By_______________________
Its____________________
-2-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT - 11.1
ACE LIMITED AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended Nine Months Ended
June 30 June 30
1997 1996 1997 1996
------ ------ ------ ------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Earnings per share - Primary
Weighted average shares outstanding 55,694,848 46,105,108 57,041,825 46,106,913
Average stock options outstanding (net of repurchased
shares under the treasury stock method) 824,993 374,586 769,541 361,919
---------- ---------- ---------- ----------
Weighted average shares and share equivalents
outstanding 56,519,841 46,479,694 57,811,366 46,468,832
========== ========== ========== ==========
Net income $ 130,038 $ 52,476 $ 333,728 $ 202,815
========== ========== ========== ==========
Earnings per share $ 2.30 $ 1.13 $ 5.77 $ 4.36
========== ========== ========== ==========
Earnings per share - Assuming full dilution
Weighted average shares outstanding 55,694,848 46,105,108 57,041,825 46,106,913
Average stock options outstanding (net of repurchased
shares under the treasury stock method) 1,039,966 397,205 1,039,966 397,205
---------- ---------- ---------- ----------
Weighted average shares and share equivalents
outstanding 56,734,814 46,502,313 58,081,791 46,504,118
========== ========== ========== ==========
Net income 130,038 52,476 333,728 202,815
========== ========== ========== ==========
Earnings per share 2.29 1.13 5.75 4.36
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 3,241,184
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 575,635
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 4,220,799
<CASH> 96,956
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 29,116
<TOTAL-ASSETS> 4,895,497
<POLICY-LOSSES> 1,921,237
<UNEARNED-PREMIUMS> 408,912
<POLICY-OTHER> 41,972
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 6,910
<OTHER-SE> 2,434,320
<TOTAL-LIABILITY-AND-EQUITY> 4,895,497
486,646
<INVESTMENT-INCOME> 177,377
<INVESTMENT-GAINS> 85,170
<OTHER-INCOME> 0
<BENEFITS> 326,820
<UNDERWRITING-AMORTIZATION> 36,764
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 333,728
<INCOME-TAX> 0
<INCOME-CONTINUING> 333,728
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 333,728
<EPS-PRIMARY> 5.77
<EPS-DILUTED> 5.75
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
