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 Quarterly Period Ended March 31, 1999
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. 98-0091805
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 ($0.041666667 par value)
outstanding as of May 12, 1999 was 193,914,702.
<PAGE>
ACE LIMITED
INDEX TO FORM 10-Q
Part I. FINANCIAL INFORMATION
- ------------------------------
Page
Item 1. Financial Statements: No.
Consolidated Balance Sheets
March 31, 1999 (Unaudited) and September 30, 1998 1
Consolidated Statements of Operations (Unaudited)
Three Months and Six Months Ended March 31, 1999 and 1998 2
Consolidated Statements of Shareholders' Equity (Unaudited)
Six Months Ended March 31, 1999 and 1998 3
Consolidated Statements of Comprehensive Income (Unaudited)
Six Months Ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended March 31, 1999 and 1998 5
Notes to Interim Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 13
Part II. OTHER INFORMATION
- ---------------------------
Item 5. Other Information 28
Item 6. Exhibits and Reports on Form 8-K 28
<PAGE>
<TABLE>
<CAPTION>
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31 September 30
1999 1998
-------- ------------
(unaudited)
(in thousands of U.S. Dollars,
except share and per share data)
<S> <C> <C>
Assets
Investments and cash
Fixed maturities available for sale, at fair value
(amortized cost - $4,910,571 and $4,910,792) $ 4,922,333 $ 5,056,807
Equity securities, at fair value
(cost - $206,973 and $198,447) 232,498 189,717
Short-term investments, at fair value
(amortized cost - $502,038 and $480,236) 502,038 480,190
Other investments, at fair value
(amortized cost - $146,434 and $156,758) 147,549 156,646
Cash 266,018 317,714
------------- -------------
Total investments and cash 6,070,436 6,201,074
Goodwill 538,244 540,355
Premiums and insurance balances receivable 425,853 377,307
Reinsurance recoverable 1,234,068 1,116,753
Accrued investment income 64,424 57,153
Deferred acquisition costs 69,399 76,445
Prepaid reinsurance premiums 184,562 205,022
Deferred income taxes 43,648 25,264
Other assets 245,755 189,380
------------- -------------
Total assets $ 8,876,389 $ 8,788,753
============= =============
Liabilities
Unpaid losses and loss expenses $ 3,609,515 $ 3,737,869
Unearned premiums 738,161 773,702
Premiums received in advance 53,912 53,794
Insurance and reinsurance balances payable 109,709 75,898
Accounts payable and accrued liabilities 141,159 165,527
Dividend payable 17,717 17,693
Bank debt 250,000 250,000
------------- ------------
Total liabilities 4,920,173 5,074,483
============= ============
Commitments and Contingencies
Shareholders' equity
Ordinary Shares ($0.041666667 par value,
300,000,000 shares authorized; 193,864,482 and
193,592,519 shares issued and outstanding) 8,078 8,066
Additional paid-in capital 1,770,224 1,765,261
Unearned stock grant compensation (13,616) (6,181)
Retained earnings 2,152,237 1,819,554
Accumulated other comprehensive income 39,293 127,570
------------- -------------
Total shareholders' equity 3,956,216 3,714,270
============= ============
Total liabilities and shareholders' equity $ 8,876,389 $ 8,788,753
============= ============
See accompanying notes to interim consolidated financial statements
1
<PAGE>
<CAPTION>
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Six Months Ended March 31, 1999 and 1998
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
1999 1998 1999 1998
---- ---- ---- ----
(in thousands of U.S. Dollars, except per share data)
<S> <C> <C> <C> <C>
Revenues
Gross premiums written $ 435,495 $ 263,337 $ 689,563 $ 470,793
Reinsurance premiums ceded (94,830) (34,700) (194,795) (89,007)
---------- ---------- ---------- --------
Net premiums written 340,665 228,637 494,768 381,786
Change in unearned premiums (55,398) (7,162) 8,506 45,019
---------- ---------- ---------- --------
Net premiums earned 285,267 221,475 503,274 426,805
Net investment income 86,484 78,283 171,580 141,955
Net realized gains on investments 17,254 145,616 147,408 173,109
---------- ---------- ---------- --------
Total Revenues 389,005 445,374 822,262 741,869
---------- ---------- ---------- --------
Expenses
Losses and loss expenses 156,881 129,780 268,050 252,035
Acquisition costs 34,353 27,225 62,165 52,053
Administrative expenses 54,650 23,872 95,869 43,674
Amortization of goodwill 4,420 1,974 8,855 4,245
Interest expense 4,530 5,192 9,271 6,553
---------- ---------- ---------- --------
Total expenses 254,834 188,043 444,210 358,560
---------- ---------- ---------- --------
Income before taxes 134,171 257,331 378,052 383,309
Income taxes (5,152) (9,430) (10,494) (13,198)
---------- ---------- ---------- --------
Net income $ 129,019 $ 247,901 $ 367,558 $ 370,111
========= ========== =========== ==========
Basic earnings per share $ 0.67 1.40 1.90 2.08
========= ========== =========== ==========
Diluted earnings per share $ 0.65 1.37 1.86 2.03
========= ========== =========== ==========
See accompanying notes to interim consolidated financial statements
2
<PAGE>
<CAPTION>
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Six Months Ended March 31, 1999 and 1998
(Unaudited)
March 31, March 31,
1999 1998
--------- ----------
(in thousands of U.S. dollars)
<S> <C> <C>
Ordinary Shares
Balance at beginning of period $ 8,066 $ 7,508
Exercise of stock options 12 12
Repurchase of Ordinary Shares - (147)
--------- ---------
Balance at end of period 8,078 7,373
--------- ---------
Additional paid-in capital
Balance at beginning of period 1,765,261 1,177,954
Exercise of options 4,963 2,649
Repurchase of Ordinary Shares - (23,083)
--------- ---------
Balance at end of period 1,770,224 1,157,520
--------- ---------
Unearned stock grant compensation
Balance at beginning of period (6,181) (1,993)
Stock grants awarded (10,732) (8,113)
Amortization 3,297 2,044
--------- ---------
Balance at end of period (13,616) (8,062)
--------- ---------
Retained earnings
Balance at beginning of period 1,819,554 1,403,643
Net income 367,558 370,111
Dividends declared (34,875) (26,095)
Repurchase of Ordinary Shares - (84,414)
--------- ---------
Balance at end of period 2,152,237 1,663,245
--------- ---------
Accumulated other comprehensive income
Net unrealized appreciation (depreciation) on investments
Balance at beginning of period 127,845 196,655
Change in period, net of taxation (90,933) (50,114)
--------- ---------
Balance at end of period 36,912 146,541
--------- ---------
Cumulative translation adjustments
Balance at beginning of period (275) 1,568
Change in period 2,656 (38)
--------- ---------
Balance at end of period 2,381 1,530
--------- ---------
Accumulated other comprehensive income 39,293 148,071
--------- ---------
Total shareholders' equity $ 3,956,216 $ 2,968,147
========== ==========
See accompanying notes to interim consolidated financial statements
3
<PAGE>
<CAPTION>
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Six Months Ended March 31, 1999 and 1998
(Unaudited)
March 31, March 31,
1999 1998
---------- ----------
(in thousands of U.S. dollars)
<S> <C> <C>
Net income $ 367,558 $ 370,111
Other comprehensive income (loss)
Unrealized appreciation (depreciation) on investments
Unrealized appreciation (depreciation) on investments (45,667) 68,562
Less: reclassification adjustment for realized gains
included in net income (53,058) (118,593)
--------- ---------
(98,725) (50,031)
Cumulative translation adjustments 2,656 (38)
--------- ---------
Other comprehensive income (loss), before income taxes (96,069) (50,069)
Income taxes related to other comprehensive income items 7,792 (83)
--------- ---------
Other comprehensive income (loss) (88,277) (50,152)
--------- ---------
Comprehensive income $ 279,281 $ 319,959
======== ========
See accompanying notes to interim consolidated financial statements
4
<PAGE>
<CAPTION>
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 1999 and 1998
(Unaudited)
March 31 March 31
1999 1998
-------- --------
(in thousands of U.S. dollars)
<S> <C> <C>
Cash flows from operating activities
Net income $ 367,558 $ 370,111
Adjustments to reconcile net income to net cash provided by
operating activities
Unearned premiums (35,541) (59,138)
Unpaid losses and loss expenses, net of reinsurance recoverable (245,669) 13,731
Prepaid reinsurance premiums 20,460 (1,029)
Net realized gains on investments (147,408) (173,109)
Amortization of premium/discounts on fixed maturities (7,851) (5,333)
Amortization of goodwill 8,855 4,245
Deferred acquisition costs 7,046 32,205
Premiums and insurance balances receivable (48,546) 44,977
Deferred income taxes (18,384) 17,938
Premiums received in advance 118 16,612
Insurance and reinsurance balances payable 33,811 8,737
Accounts payable and accrued liabilities (39,550) (1,344)
Other (43,083) (13,977)
--------- --------
Net cash flows (used for) from operating activities (148,184) 254,626
--------- --------
Cash flows from investing activities
Purchases of fixed maturities (7,688,043) (3,378,322)
Purchases of equity securities (128,099) (168,308)
Sales of fixed maturities 7,286,639 3,244,932
Sales of equity securities 127,393 427,338
Maturities of fixed maturities 402,185 13,000
Net realized gains (losses) on financial futures contracts 125,077 59,225
Other investments 10,212 (11,934)
Acquisition of subsidiaries, net of cash acquired (9,000) (338,000)
--------- --------
Net cash from (used for) investing activities 126,364 (152,069)
--------- --------
Cash flows from financing activities
Dividends paid (34,851) (25,249)
Repayment of bank debt (250,000) -
Proceeds from bank debt 250,000 250,000
Proceeds from exercise of options for Ordinary Shares 4,975 2,661
Repurchase of Ordinary Shares - (107,644)
--------- --------
Net cash (used for) from financing activities (29,876) 119,768
--------- --------
Net (decrease) increase in cash (51,696) 222,325
Cash - beginning of period 317,714 165,865
--------- --------
Cash - end of period $ 266,018 $ 388,190
=========== ==========
See accompanying notes to interim consolidated financial statements
</TABLE>
5
<PAGE>
ACE LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
The interim consolidated financial statements, which include the accounts of
the Company and its subsidiaries, have been prepared on the basis of
accounting principles generally accepted in the United States of America and,
in the opinion of management, reflect all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of results for such
periods. The results of operations and cash flows for any interim period are
not necessarily indicative of results for the full year. These financial
statements should be read in conjunction with the consolidated financial
statements, and related notes thereto, included in the Company's 1998 Annual
Report on Form 10-K.
On January 12, 1999, the Company announced that it had agreed to acquire the
international and domestic property and casualty businesses of CIGNA
Corporation for $3.45 billion in cash. Under the terms of the agreement the
Company, through a newly created U.S. holding company, ACE INA Holdings Inc.
(ACE INA), will acquire CIGNA's domestic property and casualty insurance
operations including its run-off business and also its international property
and casualty insurance companies and branches, including most of the accident
and health business written through those companies. In connection with the
acquisition, National Indemnity, a subsidiary of Berkshire Hathaway, will
provide $1.25 billion of protection against adverse development with respect
to the loss and loss adjustment expense reserves of the operations to be
acquired. The acquisition, which is subject to receipt of necessary
regulatory approvals and other customary closing conditions, is expected to
be completed by July 1, 1999. The Company expects to finance this transaction
with a combination of available cash, interim financing provided by a
syndicate of banks and permanent financing consisting of newly issued equity,
debt and preferred and mandatorily convertible securities (see "Management's
Discussion and Analysis - Liquidity and Capital Resources").
For the six months ended March 31, 1999, approximately 54 percent of the
Company's written premiums came from companies headquartered in North
America with approximately 25 percent coming from companies headquartered
in the United Kingdom and continental Europe and approximately 21 percent
from companies headquartered in other countries.
2. Significant Accounting Policies
a) Comprehensive Income
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income"
("SFAS 130"), which is effective for fiscal years beginning after December
15, 1997. SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. As of October 1, 1998, the Company adopted SFAS 130;
however, the adoption of this statement had no impact on the Company's net
income or shareholders' equity. SFAS 130 requires unrealized gains or
losses on the Company's available-for-sale securities and cumulative
translation adjustments, which prior to adoption were reported separately
in shareholders' equity, to be included in other comprehensive income.
Prior year financial statements have been reclassified to conform to the
requirements of SFAS 130.
b) New accounting pronouncements
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), which is effective for
years beginning after December 15, 1997. SFAS 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about
6
<PAGE>
ACE LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
b) New accounting pronouncements (continued)
products and services, geographic areas, and major customers. Because SFAS
131 is not required to be applied to interim financial statements in the
initial year of adoption, the Company is not required to disclose segment
information in accordance with SFAS 131 until its September 1999 annual
report. In the Company's first quarter 2000 report, and in subsequent
quarters, it will present the interim disclosures required by SFAS 131 for
both 1999 and 2000.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS 133 is effective beginning in the first
quarter of fiscal 2000. The Company is currently assessing the effect of
adopting this statement on its financial position and operating results,
which as yet, has not been determined.
3. Commitments and Contingencies
A number of the Company's insureds have given notice of claims relating to
breast implants or related components or raw material thereof that had been
produced and/or sold by such insureds. The Company has made payments to
date of approximately $610 million with respect to breast implant claims,
which include payments of $240 million made during the six months ended
March 31, 1999. These payments are made pursuant to agreements reached with
most of the Company's significant breast implant insureds. Those agreements
have the effect of limiting the Company's exposure to breast implant claims
related to those insureds to amounts which were anticipated in the
Company's reserves. Although uncertainties concerning the ultimate amount
of the Company's financial exposure to breast implant claims continue to
exist, the Company believes that the possibility of a material financial
impact in the future as a result of breast implant claims is unlikely.
The Company has considered asbestos and environmental claims and claims
expenses in establishing the liability for unpaid losses and loss expenses.
The estimation of ultimate losses arising from asbestos and environmental
exposures has presented a challenge because traditional actuarial reserving
methods, which primarily rely on historical experience, are inadequate for
such estimation. The problem of estimating reserves for asbestos and
environmental exposures resulted in the development of reserving methods
which incorporate new sources of data with historical experience. The
Company believes that the reserves carried for these claims are adequate
based on known facts and current law.
4. Restricted Stock Awards
Under the terms of the 1995 Long-Term Incentive Plan, 344,750 restricted
Ordinary Shares were awarded during the six months ended March 31, 1999, to
officers of the Company and its subsidiaries. These shares vest at various
dates through November 2003. In addition, during the period, 18,228
restricted Ordinary Shares were awarded to outside directors under the terms
of the 1995 Outside Directors Plan. These shares vest in February 2000.
At the time of grant the market value of the shares awarded under these
grants is recorded as unearned stock grant compensation and is presented as
a separate component of shareholders' equity. The unearned compensation is
charged to operations over the vesting period.
7
<PAGE>
ACE LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
March 31 March 31
1999 1998 1999 1998
---- ---- ---- ----
(in thousands of U.S. dollars, except share and per share data)
<S> <C> <C> <C> <C>
Numerator:
Net Income $ 129,019 $ 247,901 $ 367,558 $ 370,111
========== ============= ============= =============
Denominator:
Denominator for basic earning per share -
Weighted average shares outstanding 193,758,050 177,188,338 193,678,770 178,093,744
Effect of dilutive securities 3,422,737 4,124,388 3,532,940 4,012,446
----------- ----------- ----------- -----------
Denominator for diluted earnings per share -
Adjusted weighted average shares outstanding
and assumed conversions 197,180,787 181,312,726 197,211,710 182,106,190
=========== =========== =========== ===========
Basic earnings per share $ 0.67 $ 1.40 $ 1.90 $ 2.08
Diluted earnings per share $ 0.65 $ 1.37 $ 1.86 $ 2.03
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
6. Credit Facilities
In December 1997, the Company arranged certain syndicated credit facilities.
J.P. Morgan Securities, Inc. and Mellon Bank N.A. acted as co-arrangers in
the arranging, structuring and syndication of these credit facilities. Each
facility requires that the Company and/or certain of its subsidiaries
maintain specific covenants, including a consolidated tangible net worth
covenant and a maximum leverage covenant. The facilities provide:
o A $200 million 364 day revolving credit facility and a $200 million five
year revolving credit facility which together make up a combined $400
million committed, unsecured syndicated revolving credit facility. In
December 1998, the expiry date of the 364-day revolving credit
facility was extended to March 31, 1999, at which time it expired. A
new multi-year core liquidity facility is being arranged as an
additional part of the CIGNA interim bank financing (see "Management's
Discussion and Analysis-Liquidity and Capital Resources"). At March
31, 1999, the five-year revolving credit facility had a $150 million
letter of credit ("LOC") sub-limit (increased from $50 million during
September 1998).
o A syndicated fully secured five year LOC facility totaling approximately
(pound)154 million ($262 million) which was used to fulfill the
requirements of Lloyd's to support underwriting capacity on Lloyd's
syndicates in which the Company participates. As discussed below, this
facility was replaced on November 27, 1998.
8
<PAGE>
ACE LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Credit Facilities (continued)
o A syndicated $250 million seven year amortizing term loan facility,
which was used on January 2, 1998 to partially finance the acquisition
of ACE USA. The interest rate on the term loan was LIBOR plus an
applicable spread. As discussed below, this term loan was refinanced
on October 27, 1998.
On October 27, 1998, ACE US Holdings, Inc. ("ACE US") refinanced the
outstanding $250 million term loan with the proceeds from the issuance of
$250 million in aggregate principal amount of unsecured credit sensitive
senior notes maturing in October 2008. Interest payments, based on the
initial fixed rate coupon on these notes of 8.63 percent, are due
semi-annually in arrears. Total interest expense to be recorded by ACE US
including amortized fees and hedging costs will initially be $23.3 million
per year. The indenture related to these notes includes certain events of
default for ACE US. The senior notes are callable subject to certain breakage
costs, however, ACE US has no current intention of calling the debt.
Simultaneously, the Company has entered into a notional $250 million credit
default swap transaction that has the economic effect of reducing the cost
of debt to the consolidated group, excluding fees and expenses, to 6.47
percent for 10 years.
Certain assets totaling approximately $90 million are pledged as collateral
in connection with the swap transaction. In the event that the Company
terminates the credit default swap prematurely, the Company would be liable
for certain transaction costs. However, the Company has no current
intention of terminating the swap. The swap counter-party is a major
financial institution with a long- term S&P Senior Debt Rating of AA- and
the Company does not anticipate non-performance.
On November 27, 1998, the Company arranged a new syndicated partially
secured five year LOC facility in the amount of (pound)270 million
(approximately $450 million) to fulfill the requirements of Lloyd's for the
1999 year of account. This new facility was arranged by Citibank N.A., with
ING Barings and Barclays Bank PLC acting as co-arrangers, and replaced the
facility arranged in December 1997. This new LOC facility requires that the
Company continue to maintain certain covenants, including a minimum
consolidated tangible net worth covenant and a maximum leverage covenant.
Certain assets totaling approximately $201 million are pledged as partial
security for this facility, replacing the security pledged in connection
with the December 1997 facility.
Tempest Re also maintains an unsecured, syndicated revolving credit facility
in the amount of $72.5 million. At March 31, 1999, no amounts have been drawn
down under this facility. The facility requires that Tempest Re comply with
specific covenants.
9
<PAGE>
ACE LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. Reinsurance
The Company purchases reinsurance to manage various exposures including
catastrophic risks. Although reinsurance agreements contractually obligate
the Company's reinsurers to reimburse it for the agreed upon portion of its
gross paid losses, they do not discharge the primary liability of the
Company. The amounts for net premiums written and net premiums earned in
the statements of operations are net of reinsurance. Direct, assumed and
ceded amounts for these items for the three months and six months ended
March 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
March 31 March 31
1999 1998 1999 1998
---- ---- ---- ----
(in thousands of U.S. dollars)
<S> <C> <C> <C> <C>
Premiums written
Direct $ 218,461 $ 151,445 $ 426,962 $ 336,430
Assumed 217,034 111,892 262,601 134,363
Ceded (94,830) (34,700) (194,795) ( 89,007)
--------- --------- --------- ----------
Net premiums written $ 340,665 $ 228,637 $ 494,768 $ 381,786
======= ======= ======= =======
Premiums earned
Direct $ 252,215 $ 193,356 $ 485,782 $ 405,341
Assumed 129,560 104,463 227,410 151,085
Ceded (96,508) (76,344) (209,918) (129,621)
--------- --------- --------- ----------
Net premiums earned $ 285,267 $ 221,475 $ 503,274 $ 426,805
======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------
The Company's provision for reinsurance recoverable at March 31, 1999 and September 30, 1998 is as follows:
<CAPTION>
- ------------------------------------------------------------------------------------------
March 31, September 30,
1999 1998
---- ----
(in thousands of U.S. dollars)
<S> <C> <C>
Reinsurance recoverable on paid
losses and loss expenses $ 97,109 $ 57,225
Reinsurance recoverable on unpaid
losses and loss expenses 1,218,888 1,143,121
Provision for uncollectible balances on
unpaid losses and loss expenses (81,929) (83,593)
----------- ------------
Total reinsurance recoverable $ 1,234,068 $ 1,116,753
=========== =============
- ------------------------------------------------------------------------------------------
</TABLE>
8. Taxation
Under current Cayman Islands law, the Company is not required to pay any
taxes on its income or capital gains. The Company has received an
undertaking that, in the event of any taxes being imposed, the Company will
be exempted from taxation in the Cayman Islands until the year 2013. Under
current Bermuda law, the Company and its Bermuda subsidiaries are not
10
<PAGE>
ACE LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
8. Taxation (continued)
required to pay any taxes on their income or capital gains. In the event of
these taxes being imposed, the Company and its Bermuda subsidiaries will be
exempt from taxation in Bermuda until March 2016.
Income from the Company's operations at Lloyd's are subject to United
Kingdom corporation taxes. ACE USA is subject to income taxes imposed by
U.S. authorities.
The Company currently conducts its business so as not to be subject to
taxation in the United States or elsewhere, other than as stated above.
There can be no assurance that there will not be changes in applicable
laws, regulations or treaties which might require the Company to change the
way it operates or become subject to taxation.
The provision for income taxes detailed below represents the Company's
estimate of tax liability in respect of the Company's operations at Lloyd's
and at ACE USA and is calculated at rates equal to the statutory income tax
rate in each jurisdiction.
The income tax provision for the three and six months ended March 31, 1999
and 1998 is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
March 31 March 31
1999 1998 1999 1998
---- ---- ---- ----
(in thousands of U.S. dollars)
<S> <C> <C> <C> <C>
Current tax expense $ 1,220 $ 2,320 $ 744 $ 4,382
Deferred tax expense 3,932 7,110 9,750 8,816
----- ------ ----- -------
Provision for income taxes $ 5,152 $ 9,430 $ 10,494 $ 13,198
===== ===== ====== ======
- -----------------------------------------------------------------------------------------------
11
<PAGE>
ACE LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
The components of the net deferred tax asset as of March 31, 1999 and September 30, 1998 is as follows:
<CAPTION>
- -------------------------------------------------------------------------------------------------------
March 31, September 30,
1999 1998
---- ----
(in thousands of U.S. dollars)
<S> <C> <C>
Deferred tax assets
Loss reserve discount $ 46,476 $ 50,581
Unearned premium adjustment 3,793 3,874
Uncollectible reinsurance 6,645 5,185
Other 71,340 49,646
---------- ----------
Total deferred tax assets $ 128,254 $ 109,286
---------- ----------
Deferred tax liabilities
Deferred policy acquisition costs 3,827 3,741
Unrealized appreciation on investments 1,490 9,282
Other 51,563 43,696
--------- ----------
Total deferred tax liabilities 56,880 56,719
--------- ----------
Valuation allowance 27,726 27,303
---------- ----------
Net deferred tax asset $ 43,648 $ 25,264
========== ==========
- -------------------------------------------------------------------------------------------------------
</TABLE>
9. Reclassification
Certain items in the prior period financial statements have been
reclassified to conform with the current period presentation.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Safe Harbor Disclosure
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Any written or oral statements made
by or on behalf of the Company may include forward-looking statements which
reflect the Company's current views with respect to future events and
financial performance. These forward-looking statements are subject to
certain uncertainties and other factors that could cause actual results to
differ materially from such statements. These uncertainties and other
factors (which are described in more detail elsewhere in documents filed by
the Company with the Securities and Exchange Commission) include, but are
not limited to, (i) uncertainties relating to government and regulatory
policies (such as subjecting the Company to insurance regulation or
taxation in additional jurisdictions or amending or revoking any laws,
regulations or treaties affecting the Company's current operations), (ii)
the occurrence of catastrophic events with a frequency or severity
exceeding the Company's estimates, (iii) the legal environment, (iv) the
uncertainties of the reserving process, (v) loss of the services of any of
the Company's executive officers, (vi) changing rates of inflation and
other economic conditions, (vii) losses due to foreign currency exchange
rate fluctuations, (viii) ability to collect reinsurance recoverables, (ix)
the competitive environment in which the Company operates, (x) the impact
of mergers and acquisitions, (xi) the impact of Year 2000 related issues,
(xii) developments in global financial markets which could affect the
Company's investment portfolio, (xiii) risks associated with the global
financial markets which could affect the Company's investment portfolio,
and (xiv) risks associated with the introduction of new products and
services. The words "believe", "anticipate", "project", "plan", "expect",
"intend", "will likely result" or "will continue" and similar expressions
identify forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of
their dates. The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
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 six months ended March 31, 1999. 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 1998 Annual Report on Form 10-K.
ACE Limited ("ACE") is a holding company which, through its Bermuda-based
operating subsidiaries, ACE Bermuda Insurance Ltd. (formerly A.C.E.
Insurance Company, Ltd.) ("ACE Bermuda"), Corporate Officers & Directors
Assurance Ltd. ("CODA") and Tempest Reinsurance Company Limited ("Tempest
Re") and its Dublin, Ireland based subsidiaries, ACE Insurance Company
Europe Limited and ACE Reinsurance Company Europe Limited provides a broad
range of insurance and reinsurance products to a diverse group of
international clients. Following the acquisition of CAT Limited ("CAT"),
the CAT business was integrated into the Tempest Re book of business and
effective January 1, 1999 CAT was actually merged into Tempest Re. Through
its U.S. based subsidiary, ACE USA, Inc. ("ACE USA"), the Company provides
insurance products to a broad range of clients in the United States. In
addition, since 1996 the Company has provided funds at Lloyd's, primarily
in the form of letters of credit, to support underwriting capacity for
Lloyd's syndicates managed by Lloyd's managing agencies which are indirect
wholly owned subsidiaries of ACE. Underwriting capacity is the maximum
amount of gross premiums that a syndicate at Lloyd's can underwrite in a
given year of account. Unless the context otherwise indicates, the term
"Company" refers to one or more of ACE and its consolidated subsidiaries.
The operations of the Company in the Lloyd's market are collectively
referred to herein as "ACE Global Markets".
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
General (cont'd)
On January 12, 1999, the Company announced that it had agreed to acquire
the international and domestic property and casualty businesses of CIGNA
Corporation for $3.45 billion in cash. Under the terms of the agreement the
Company, through a newly created U.S. holding company, ACE INA Holdings
Inc. (ACE INA), will acquire CIGNA's domestic property and casualty
insurance operations and also its international property and casualty
insurance companies and branches, including most of the accident and health
business written through those companies. In connection with the
acquisition, National Indemnity, a subsidiary of Berkshire Hathaway, will
provide $1.25 billion of protection against adverse development with
respect to the loss and loss adjustment expense reserves of the operations
to be acquired. The acquisition, which is subject to receipt of necessary
regulatory approvals and other customary closing conditions is expected to
be completed by July 1, 1999. The Company expects to finance this
transaction with a combination of available cash, interim financing
provided by a syndicate of banks and permanent financing consisting of
newly issued equity, debt and preferred and mandatorily convertible
securities (see "Liquidity and Capital Resources").
The Company will continue to evaluate potential new product lines and other
opportunities in the insurance and reinsurance markets. In addition, the
Company regularly evaluates potential acquisitions of other companies and
businesses and holds discussions with potential acquisition candidates. As
a general rule, the Company publicly announces such acquisitions only after
a definitive agreement has been reached.
<TABLE>
<CAPTION>
Results of Operations - Three Months ended March 31, 1999
- --------------------------------------------------------------------------------------------------
Premiums Three Months ended % Change
March 31 from
1999 1998 Prior year
------ ------ ----------
(in millions)
<S> <C> <C> <C>
Gross premiums written:
ACE Bermuda $ 129.8 $ 98.4 32.0%
ACE Global Markets 139.9 74.4 88.1%
Tempest Re 115.6 51.8 123.1%
ACE USA 50.2 38.7 29.6%
------- ------- -------
$ 435.5 $ 263.3 65.4%
======== ======= =======
Net premiums written:
ACE Bermuda $ 97.8 $ 83.8 16.7%
ACE Global Markets 104.9 76.6 36.9%
Tempest Re 115.6 47.6 142.9%
ACE USA 22.4 20.6 8.7%
------- ------- -------
$ 340.7 $ 228.6 49.0%
========= ======== =======
Net premiums earned:
ACE Bermuda $ 115.1 $ 105.9 8.7%
ACE Global Markets 108.2 69.7 55.3%
Tempest Re 38.3 21.1 81.4%
ACE USA 23.7 24.8 (4.5)%
------- ------- -------
$ 285.3 $ 221.5 28.8%
========= ======== ======
- ----------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Results of Operations - Three Months ended March 31, 1999 (continued)
Most insurance markets continued to face significant competitive pressures
as a result of relatively low loss activity over the past several years and
excess capital in these markets. Despite continuing price pressure on most
insurance and reinsurance lines, gross premiums written increased by $172.2
million to $435.5 million in the second quarter of fiscal 1999 compared to
$263.3 million in the quarter ended March 31, 1998, an increase of 65.4
percent. ACE Bermuda had an increase in gross premiums written of 32.0
percent this quarter compared to the second quarter of fiscal 1998. This
growth at ACE Bermuda is due primarily to new business in financial lines
and an increase in ACE Bermuda's participation in United Kingdom nuclear
pools for excess property insurance. This growth more than offset the
declines in the excess liability division and the professional lines
(previously called directors and officers) liability division, which both
continue to face difficult markets. The Company continues to increase its
participation in the Lloyd's syndicates managed by ACE Global Markets,
resulting in an increase of $65.5 million in gross premiums written with
respect to ACE Global Markets. However, ACE Global Markets continues to
experience competitive conditions in the Lloyd's market. This affects the
writing of new business as well as certain renewal business where prices or
policy terms are not considered adequate. The majority of premiums written
for Tempest Re occur in January of each year. The gross premiums written
for Tempest Re was $115.6 million for the quarter ended March 31, 1999
(which includes the CAT portfolio) compared with gross premiums written of
$51.8 million for Tempest only in the quarter ended March 31, 1998.
However, the gross premiums written for the combined Tempest Re operation for
the three months ended March 31, 1999, were 21 percent lower than the 1998
combined pro forma total of $145 million, as market conditions remain very
competitive in the property catastrophe reinsurance business. Several
mergers among Tempest Re's larger clients and several non-renewals of
contracts due to the pressure on pricing contributed to this decline. Gross
premiums written at ACE USA during the current quarter increased by $11.5
million to $50.2 million from $38.7 million in the comparative quarter.
This growth was the result of the diversification strategy initiated last
year, which saw the addition of six new divisions at ACE USA. In
particular, ACE USA experienced greater than expected growth in the
warranty division. These premium increases were partially offset by the
decrease in gross premiums written in the property division at ACE USA
during the quarter ended March 31, 1999.
Net premiums written increased by $112.1 million to $340.7 million for the
quarter ended March 31, 1999 compared with $228.6 million for the quarter
ended March 31, 1998. As with gross premiums written, the inclusion of the
results of CAT this quarter contributed significantly to the increase in
net premiums written for the three months ended March 31, 1999, compared to
the similar quarter last year. In addition the Company's increased
participation in the Lloyd's syndicates managed by ACE Global Markets
contributed to the increase in net premiums written for the quarter. ACE
Bermuda had an increase in net premiums written of 16.7 percent during the
current quarter due primarily to growth in the financial lines division.
ACE Bermuda continued its use of reinsurance during the quarter. In
particular, ACE Bermuda increased the excess liability quota share
reinsurance to 50 percent from 25 percent, effective January 1, 1999. Net
premiums written at ACE USA increased 8.7 percent during the quarter ended
March 31, 1999 compared with the quarter ended March 31, 1998 due primarily
to the growth experienced in the warranty division. The addition of the new
lines of businesses at ACE USA helped to offset the decrease in net
premiums written in the property division this quarter.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Results of Operations - Three Months ended March 31, 1999 (continued)
Net premiums earned increased by $63.8 million to $285.3 million in the
quarter ended March 31, 1999 from $221.5 million in the quarter ended
March 31, 1998, an increase of 28.8 percent. The increase in net premiums
earned this quarter compared to the corresponding fiscal 1998 quarter, is due
primarily to an increase in net premiums earned from the Company's increased
participation in the Lloyd's syndicates managed by ACE Global Markets, the
inclusion of the results of the CAT book of business during the current
quarter and the increase in premium growth at ACE Bermuda. During the current
quarter, net premiums earned in the financial lines division at ACE Bermuda
contributed significantly to the increase in net premiums earned due to the
commutation of a contract. Under the terms of that commutation, $25 million
of net premiums earned and $19 million of incurred losses was recognized
during the current quarter.
- -------------------------------------------------------------------------------
Net Investment Income
Three Months ended % Change
March 31 from
1999 1998 Prior year
---- ---- ----------
(in millions)
Net investment income $ 86.5 $ 78.3 10.5%
==== ==== =====
- -------------------------------------------------------------------------------
Net investment income increased during the quarter ended March 31, 1999, to
$86.5 million compared with $78.3 million in the quarter ended March 31,
1998. This increase is primarily a result of a larger investable asset
base, due to the inclusion of the CAT portfolio, compared to the same
quarter last year, and the reinvestment of funds generated by the
portfolio. The average yield on the investment portfolio remained
relatively unchanged in the quarter ended March 31, 1999 compared with the
quarter ended March 31, 1998.
- -------------------------------------------------------------------------------
Net Realized Gains on Investments
Three Months ended
March 31
1999 1998
---- ----
(in millions)
Fixed maturities and short - term investments $ 6.9 $ 12.1
Equity securities 7.3 87.5
Financial futures and option contracts 3.8 50.5
Currency (0.7) (4.5)
------ ------
$ 17.3 $ 145.6
==== =====
- -------------------------------------------------------------------------------
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Results of Operations - Three Months ended March 31, 1999 (continued)
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 other comprehensive income.
During the second quarter of fiscal 1999 the fair value of the Company's
investment portfolio was adversely impacted by a general decrease in prices
in the U.S. bond markets directly related to an increase in interest rates
during the period, resulting in a decline in net unrealized appreciation on
investments. However, sales proceeds for fixed maturity securities were
generally higher than their amortized cost during the quarter resulting in
net realized gains of $6.9 million being recognized on fixed maturities and
short-term investments. In the second quarter of fiscal 1998, net realized
gains of $12.1 million were recognized on fixed maturities and short-term
investments. Certain of the Company's fixed income investment portfolios
utilize fixed income futures contracts to manage duration exposure, and
losses of $9.4 million were recognized on these during the current quarter,
compared with gains of $1.6 million in the quarter ended March 31, 1998.
Positive equity markets contributed to net realized gains on the sale of
equity securities of $7.3 million in the second quarter of fiscal 1999. The
liquidation of two domestic stock portfolios during the second quarter of
fiscal 1998 contributed significantly to net realized gains of $87.5 million
during that period. In the second quarter of fiscal 1999 net realized gains
generated by the Company's equity index futures contacts amounted to $13.2
million, compared with gains of $48.9 million in the second quarter of fiscal
1998.
- -------------------------------------------------------------------------------
Combined Ratio
Three months ended
March 31
1999 1998
---- ----
Loss and loss expense ratio 55.0% 58.6%
Underwriting and administrative expense ratio 31.2% 23.1%
---- -----
Combined ratio 86.2% 81.7%
- -------------------------------------------------------------------------------
The underwriting results of a property and casualty insurer are discussed
frequently by reference to its loss and loss expense ratio, underwriting and
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 and the underwriting and
the administrative expense ratio. A combined ratio under 100 percent
indicates underwriting income 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. However, property catastrophe
loss experience is generally characterized by low frequency but high severity
short-tail claims, which may result in significant volatility in results.
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 are adequate to cover the ultimate cost of losses and loss expenses
incurred through March 31, 1999. 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.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Results of operations - Three Months ended March 31, 1999 (continued)
The loss and loss expense ratio decreased to 55.0 percent during the
current quarter compared with 58.6 percent for the quarter ended March 31,
1998. The changing mix of premiums written and earned by the Company,
contributed to the decrease in the loss and loss expense ratio this
quarter, as the loss ratios of CAT and ACE Global Markets are lower than
the Company's traditional book of business.
The underwriting and administrative expense ratio increased during the
current quarter compared to the same quarter last year. This was partially
due to the costs associated with the Company's increased participation in
the Lloyd's syndicates managed by ACE Global Markets. The underwriting and
administrative expense ratio of ACE Global Markets is generally higher than
the traditional book of business. The underwriting and administrative
expense ratio also increased as a result of the costs associated with the
continuing diversification and growth of the Company. This includes the
steps taken recently by the Company to establish the ACE brand on a global
basis through an integrated communications program.
<TABLE>
<CAPTION>
Results of Operations - Six Months ended March 31, 1999
- -----------------------------------------------------------------------------------------
Premiums
Six Months ended % Change
March 31 from
1999 1998 Prior year
------ ------ ----------
(in millions)
<S> <C> <C> <C>
Gross premiums written:
ACE Bermuda $ 255.4 $ 225.9 13.1%
ACE Global Markets 227.8 154.4 47.5%
Tempest Re 123.0 51.8 137.5%
ACE USA 83.4 38.7 115.5%
----- ----- ------
$ 689.6 $ 470.8 46.5%
===== ===== =====
Net premiums written:
ACE Bermuda 185.5 178.6 3.8%
ACE Global Markets 146.4 134.9 8.6%
Tempest Re 119.9 47.6 151.9%
ACE USA 43.0 20.6 108.9%
----- ----- ------
$ 494.8 $ 381.7 29.6%
===== ===== ------
Net premiums earned:
ACE Bermuda 197.7 219.2 (9.8)%
ACE Global Markets 173.3 133.3 30.0%
Tempest Re 86.7 49.5 75.2%
ACE USA 45.6 24.8 84.0%
----- ----- ------
$ 503.3 $ 426.8 17.9%
===== ===== =====
- ---------------------------------------------------------------------------------------------
</TABLE>
During the six months ended March 31, 1999, gross premiums written increased
by 46.5 percent to $689.6 million compared with $470.8 million in the six
month period ended March 31, 1998. ACE Bermuda saw an increase in gross
premiums written during the period of 13.1 percent. This is primarily a result
of several new contracts written in financial lines and increased activity in
the excess property and aviation lines during the current six month period.
These increases were offset by continuing declines in the excess liability
division and the professional lines (previously called directors and officers)
liability division which both continue to face difficult markets. These
divisions continue to decline accounts where pricing is not commensurate
with risk.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Results of operations - Six Months ended March 31, 1999 (continued)
The Company recorded an increase of 47.5 percent in gross premiums written
with respect to the Company's participation in the Lloyd's syndicates
managed by ACE Global Markets. This growth is a result of the Company's
increased participation in the syndicates under management. However, ACE
Global Markets continues to experience competitive conditions in the
Lloyd's market. This affects the writing of new business as well as certain
renewal business where prices or policy terms are not considered adequate.
The combined Tempest Re and CAT operations recorded gross premiums written
of $123.0 million for the six months ended March 31, 1999, compared with
$51.8 million for Tempest Re alone last year. Tempest Re renewals primarily
occur in January and July of each year and therefore premium transactions
were minimal during the first fiscal quarter. However, gross premiums
written for the combined Tempest Re operation were lower compared to the
combined proforma operations for the comparative prior period as market
conditions remain very competitive in the property catastrophe reinsurance
business. This decrease was due in part to several mergers among Tempest Re's
larger clients and the continued decline in pricing which resulted in
non-renewals on several of Tempest Re's contracts. Gross premiums written by
ACE USA increased during the six months ended March 31, 1999 compared to
the prior comparative period due to the inclusion of results of ACE USA for
six months in fiscal 1999 compared to three months in fiscal 1998 as ACE
USA was purchased in January 1998. In addition, the diversification
strategy at ACE USA resulted in six new divisions at ACE USA with the
warranty division in particular and the directors and officers and errors
and omissions divisions showing increased activity.
Net premiums written increased by $113.1 million, or 29.6 percent, to
$494.8 million for the six month period ended March 31, 1999 compared with
$381.7 million for the first six months of fiscal 1998. This increase was
due primarily to the increase in net premiums written by Tempest Re, as
discussed for gross premiums written and the contribution of ACE USA for
six months this period, compared with three months in the prior year to
date. Net premiums written by ACE Bermuda had a slight increase of 3.8
percent as a result of the increased use of reinsurance. Several
reinsurance programs were renewed and others restructured by ACE Bermuda
during the current period, with the excess liability division increasing
its quota share program from 25 percent to 50 percent.
Net premiums earned increased to $503.3 million compared to $426.8 million
last year, an increase of 17.9 percent. This increase is a result of the
contributions of CAT and ACE USA during the current six months and an
increase in net premiums earned at ACE Global Markets due to the Company's
increased Lloyd's syndicate participation. This increase was partially
offset by declines in earned premiums in ACE Bermuda.
- -------------------------------------------------------------------------------
Net Investment Income
Six Months ended % Change
March 31 from
1999 1998 Prior year
------ ------ ----------
(in millions)
Net investment income $ 171.6 $ 142.0 20.9%
===== ===== =====
- --------------------------------------------------------------------------------
Net investment income increased by $29.6 million in the current period, as
compared with the similar period of fiscal 1998. This is as a result of a
larger investable asset base due to the inclusion of the ACE USA and CAT
portfolio's in the current period.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Results of operations - Six Months ended March 31, 1999 (continued)
- -------------------------------------------------------------------------------
Net Realized Gains on Investments
Six Months ended
March 31
1999 1998
------ -----
(in millions)
Fixed maturities and short-term investments $ 21.4 $ 33.5
Equity securities 9.3 94.8
Financial futures and option contracts 125.1 59.2
Other investments (7.4) -
Currency (1.0) (14.4)
===== ======
$ 147.4 $ 173.1
===== ======
- -------------------------------------------------------------------------------
The Company's investment strategy takes a long-term view and the portfolio
is actively managed to maximize total return within certain specific
guidelines, which minimize risk. The 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.
In the six month period ended March 31, 1999 the fair value of the
Company's investment portfolio was adversely impacted by a general decrease
in prices in the U.S. bond markets directly related to an increase in interest
rates during the period. However, sales proceeds for fixed maturity
securities were generally higher than their amortized cost during the
period resulting in net realized gains of $21.4 million being recognized on
fixed maturities and short-term investments. In the six month period ended
March 31, 1998, net realized gains of $33.5 million were recognized on
fixed maturities and short-term investments. Certain of the Company's fixed
income investment portfolios utilize fixed income futures contracts to
manage duration exposure, and losses of $13.2 million were recognized on
these during the six months ended March 31, 1999, compared with gains of
$6.3 million in the six months ended March 31, 1998.
Positive returns in the equity markets contributed to net realized gains on
the sale of equity securities of $9.3 million in the first six months of
fiscal 1999, compared with gains of $94.8 million in the first six months
of fiscal 1998. In the six month period ended March 31, 1999 net realized
gains generated by the Company's equity index futures contacts amounted to
$138.3 million, compared with gains of $52.9 million in the six month
period ended March 31, 1998.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
Results of operations - Six Months ended March 31, 1999 (continued)
The Company sold a private investment held by CAT during the period, which
resulted in a realized loss of $7.4 million.
- -------------------------------------------------------------------------------
Combined Ratio
Six Months ended
March 31
1999 1998
------ -----
Loss and loss expense ratio 53.3% 59.1%
Underwriting and administrative expense ratio 31.4% 22.4%
----- -----
Combined Ratio 84.7% 81.5%
===== =====
- -------------------------------------------------------------------------------
The underwriting results of a property and casualty insurer are discussed
frequently by reference to its loss and loss expense ratio, underwriting and
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 and the underwriting and
the administrative expense ratio. A combined ratio under 100 percent
indicates underwriting income 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. However, property catastrophe
loss experience is generally characterized by low frequency but high severity
short-tail claims, which may result in significant volatility in results.
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 are adequate to cover the ultimate cost of losses and
loss expenses incurred through March 31, 1999. 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.
For the six months ended March 31, 1999, the loss and loss expense ratio
decreased to 53.3 percent compared to 59.1 percent for the six months ended
March 31, 1998. This decrease in the loss ratio is partly a result of the
continuing change in the mix of business written and earned. The decrease
is also partly due to favorable loss and loss expenses in ACE Bermuda,
primarily the result of a large multi-year financial lines contract written
by ACE Bermuda, where the original policy term ended in 1998. The policy
was not renewed and the program generated significant earnings during the
first quarter of fiscal 1999. The impact of these loss ration developments
were somewhat offset by significant property catastrophe losses experienced
by Tempest Re, primarily in the first quarter.
The underwriting and administrative expense ratio increased during the
current period due in part to the increased cost base resulting from the
strategic diversification by the Company, as well as the development of the
Company's insurance lines and products. The Company's increased
participation in the Lloyd's market also contributed to the increase in the
underwriting and administrative expenses. The underwriting and
administrative expense ratio increased to 31.4 percent during the current
six month period compared to 22.4 percent in fiscal 1998. As with ACE USA ,
the underwriting and administrative expense ratio at ACE Global Markets is
generally higher then the Company's traditional book of business. The
Company's increased participation in the Lloyd's syndicates under
management contributed to the increase in the underwriting and
administrative expense ratio.
21
<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 currently depend primarily on dividends or other
statutorily permissible payments from its Bermuda-based operating
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 level of insurance and reinsurance
operations. During the six months ended March 31, 1999, ACE Bermuda and
Tempest Re declared dividends of $700 million and $150 million,
respectively, of which $355 million has been received from ACE Bermuda and
$85 million from Tempest Re.
The payment of any dividends from the Company's UK subsidiaries would be
subject to applicable United Kingdom insurance law including those
promulgated by the Society of Lloyd's. Under various U.S. insurance laws to
which ACE US's insurance subsidiaries are subject, ACE US's insurance
subsidiaries may pay a dividend only from earned surplus subject to the
maintenance of a minimum capital requirement, without prior regulatory
approval. No dividends were received from ACE US or ACE Global Markets
during fiscal 1998 and the Company does not anticipate receiving dividends
from ACE US or ACE Global Markets during fiscal 1999.
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.
The Company's insurance and reinsurance operations provide liquidity in
that premiums are normally received substantially in advance of the time
claims are paid. For the six months ended March 31, 1999, the Company's
consolidated net cash flow from operating activities was $(148.2) million,
compared with $254.6 million for the six months ended March 31, 1998. Cash
flows are affected by claim payments, which due to the nature of the
Company's operations, may comprise large loss payments on a limited number
of claims and therefore can fluctuate significantly from year to year. The
irregular timing of these loss payments, for which the source of cash can
be from operations, available net credit facilities or routine sales of
investments, can create significant variations in cash flows from
operations between periods. For the six month periods ended March 31, 1999
and 1998, loss and loss expense payments amounted to $473.8 million (of
which $240 million related to breast implant payments - see below) and
$228.9 million respectively. Total loss and loss expense payments amounted
to $583.8 million, $421.9 million and $115.0 million in fiscal 1998, 1997
and 1996, respectively, of which approximately $250 million and $120
million in fiscal 1998 and 1997, respectively, related to breast implant
payments.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
A number of the Company's insureds have given notice of claims relating to
breast implants or related components or raw material thereof that had been
produced and/or sold by such insureds. The Company has made payments to
date of approximately $610 million with respect to breast implant claims,
which include payments of $240 million made during the six months ended
March 31, 1999. These payments are made pursuant to agreements reached with
most of the Company's significant breast implant insureds. Those agreements
have the effect of limiting the Company's exposure to breast implant claims
related to those insureds to amounts which were anticipated in the
Company's reserves. Although uncertainties concerning the ultimate amount
of the Company's financial exposure to breast implant claims continue to
exist, the Company believes that the possibility of a material financial
impact in the future as a result of breast implant claims is unlikely.
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 $3.6 billion at
March 31, 1999 includes $1.4 billion of case and loss expense reserves. While
the Company believes that its reserve for unpaid losses and loss expenses at
March 31, 1999 is adequate, future developments may result in ultimate losses
and loss expenses significantly greater or less than the reserve provided.
At March 31, 1999, total investments and cash amounted to approximately
$6.1 billion, compared to $6.2 billion at September 30, 1998. 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 by its
credit facilities (discussed below) are adequate to allow the Company to
pay claims within the time periods required under its policies.
In December 1997, the Company arranged certain syndicated credit facilities.
J.P. Morgan Securities, Inc. and Mellon Bank N.A. acted as co-arrangers in the
arranging, structuring and syndication of these credit facilities. Each
facility requires that the Company and/or certain of its subsidiaries comply
with specific covenants, including a consolidated tangible net worth covenant
and a maximum leverage covenant. The facilities provide:
o A $200 million 364 day revolving credit facility and a $200 million five
year revolving credit facility which together make up a combined $400
million committed, unsecured syndicated revolving credit facility. In
December 1998, the expiry date of the 364-day revolving credit
facility was extended to March 31, 1999 at which time it expired. A
new multi-year core liquidity facility is being arranged as an
additional part of the CIGNA interim bank financing mentioned below.
At March 31, 1999, the five-year revolving credit facility had a $150
million letter of credit ("LOC") sub-limit (increased from $50 million
during September 1998). The Company drew down $385 million on the
revolving credit facilities to finance the acquisition of CAT
Limited on April 1, 1998. The debt was subsequently repaid from
a portion of the proceeds from the sale of 16.5 million new Ordinary
Shares of the Company.
o A syndicated fully secured five year LOC facility totaling approximately
(pound)154 million ($262 million) which was used to fulfill the
requirements of Lloyd's to support underwriting capacity on Lloyd's
syndicates in which the Company participates. As discussed below, this
facility was replaced on November 27, 1998.
o A syndicated $250 million seven year amortizing term loan facility,
which was used on January 2, 1998 to partially finance the acquisition
of ACE USA. The interest rate on the term loan was LIBOR plus an
applicable spread. As discussed below, this term loan was refinanced
on October 27, 1998.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
On October 27, 1998, ACE US refinanced the outstanding $250 million term loan
with the proceeds from the issuance of $250 million in aggregate principal
amount of unsecured credit sensitive senior notes maturing in October 2008.
Interest payments, based on the initial fixed rate coupon on these notes of
8.63 percent, are due semi-annually in arrears. Total interest expense to be
recorded by ACE US, including amortized fees and hedging costs, will
initially be $23.3 million per year. The indenture related to these notes
include certain restrictive covenants applicable to ACE US. The senior notes
are callable subject to certain breakage costs, however, ACE US has no
current intention of calling the debt. Simultaneously, the Company has
entered into a notional $250 million credit default swap transaction that has
the economic effect of reducing the cost of debt to the consolidated group,
excluding fees and expenses, to 6.47 percent for 10 years. Certain assets
totaling approximately $90 million are pledged as collateral in connection
with the swap transaction. In the event that the Company terminates the
credit default swap prematurely, the Company would be liable for certain
transaction costs. However, the Company has no current intention of
terminating the swap. The swap counter-party is a major financial institution
with a long-term S&P Senior Debt Rating of AA- and the Company does not
anticipate non-performance.
On November 27, 1998, the Company arranged a new syndicated partially
secured five year LOC facility in the amount of (pound)270 million
(approximately $450 million) to fulfill the requirements of Lloyd's for the
1999 year of account. This new facility was arranged by Citibank N.A., with
ING Barings and Barclays Bank PLC acting as co-arrangers, and replaced the
facility arranged in December 1997. This new LOC facility requires that the
Company continue to maintain certain covenants, including a minimum
consolidated tangible net worth covenant and a maximum leverage covenant.
Certain assets totaling approximately $201 million are pledged as partial
security for this facility, replacing the security pledged in connection
with the December 1997 facility.
Tempest Re also maintains an unsecured, syndicated revolving credit
facility in the amount of $72.5 million. At March 31, 1999, no amounts have
been drawn down under this facility. The facility requires that Tempest Re
comply with specific covenants.
As previously noted, on January 12, 1999, the Company announced that it had
agreed to acquire the international and domestic property and casualty
businesses of CIGNA Corporation for $3.45 billion in cash. The Company
expects to finance this transaction as follows:
(a) approximately $700 million to $1 billion of available cash,
which will be contributed to ACE INA,
(b) on an interim basis, through bank financing arranged with
a syndicate of banks; and
(c) on a permanent basis, through the issuance of; (i) Ordinary Shares
by the Company, the proceeds of which will also be contributed to ACE
INA; (ii) preferred securities by ACE INA that are mandatorily
convertible into Ordinary Shares of the Company; (iii) capital
securities (e.g., trust-preferred securities) by ACE INA; and (iv)
senior debt by ACE INA and together with the ACE Ordinary Shares, the
ACE INA Mandatorily Convertible Securities and the ACE INA
(collectively, the "Permanent Financing").
The Company or ACE INA will issue each of the Permanent Financing
instruments after the closing of the transaction at the time when the
Company considers market conditions to be most favorable for issuance.
On October 16, 1998, January 15, 1999, and April 16, 1999, the Company paid
quarterly dividends of 9 cents per share to shareholders of record on
September 30, 1998, December 15, 1998 and March 31, 1999. On May 7, 1999,
the Board of Directors declared a quarterly dividend of 11 cents per share
payable on July 16, 1999 to shareholders of record on June 30, 1999. The
declaration and payment of future dividends is at the discretion of the
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
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 $20.35 at March 31, 1999,
compared with $19.14 at September 30, 1998.
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 credit facilities are, in
management's opinion, adequate to meet the Company's expected cash
requirements.
IMPACT OF THE YEAR 2000 ISSUE
General
The management of ACE Limited, recognizing that the Year 2000 problem, if
left untreated, could have an adverse material effect on the Company's
business, results of operations or financial condition, has in progress a
project to address this issue. It is the expectation of ACE's management that
this project will reduce the impact of the Year 2000 problem to an immaterial
level, although not all risks can be eliminated.
The Year 2000 problem stems from the inability, in some cases, of computer
programs and embedded microchips to correctly process certain data. The
problem is most evident because dates which fall in the year 2000 and in
later years may not be properly distinguished from those which fell in the
corresponding years of the present century.
Although all ACE group companies had individually taken steps earlier
towards alleviating the Year 2000 problem, a formal group- wide project was
established in March 1998. At that time, a "Group Year 2000 coordinator"
was appointed for the ACE Group and an executive steering committee was
formed to oversee the project. This committee meets on a monthly basis to
review progress and take corrective action if necessary. In each of the ACE
subsidiary companies, a senior member of the management has been appointed
as Year 2000 coordinator. Each Year 2000 coordinator has responsibility for
that part of the Year 2000 plan relevant to its company. A detailed
quarterly report on the status of the Year 2000 project is delivered to the
audit committee of the Board of Directors.
A consultant who is an experienced project manager has been retained to
assist the Year 2000 coordinator. In addition, certain subsidiaries have
engaged external consultants to assist in monitoring their plans.
The Company's Year 2000 project is divided into four sections:
Underwriting; Information Technology; Trading Partners; and Physical Plant.
The project is generally on schedule, though some components have been
finished earlier than expected and some are taking more time than
originally estimated. The company expects that the project will be
substantially complete by September 30, 1999. Certain activities, notably
the monitoring of trading partners and the continuation of prudent
underwriting, will continue until December 31, 1999 and beyond.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
IMPACT OF THE YEAR 2000 ISSUE (continued)
Underwriting
Underwriting teams within each ACE Group subsidiary have considered the
risks with respect to the Year 2000 problem that might be associated with
underwriting their various lines of business and have developed internal
guidelines which seek to minimize these risks. Compliance with these
guidelines is the subject of internal audits and/or peer reviews. These
guidelines are under regular review. In some cases, exclusionary language
has been added to policies and in all cases there is a requirement for
underwriters to consider information about our clients and potential
clients that is relevant to the Year 2000 problem and, based on this, to
underwrite risks prudently or to decline them.
Information Technology
Each ACE subsidiary has a plan to ensure that all information technology
components such as hardware, software and network equipment that will be in
use in the Year 2000 (and beyond) for use by any business-critical function
will not suffer from the Year 2000 problem. Inventories have been prepared
of all such components, and appropriate action decided.
Most application software (such as insurance processing and accounting
systems) which is in use within the ACE Group has been supplied as packages
(often tailored to meet ACE's needs) from various vendors. Almost all
application software packages have already been replaced with Year 2000
compliant versions. Testing of these is complete in most cases and is
either in progress or scheduled for a small residual number. Remaining
software packages will be replaced, or, in a few cases, remedied to free
them of Year 2000 problems. At the end of 1998, all ACE Group companies
were running Year 2000 compliant versions of most of the IT systems that
are critical to the business. The replacement or remedy of the remaining
critical systems and some residual testing has continued during the first
and is extending into the second quarter of calendar year 1999. One
subsidiary (ACE USA) has one critical business area for which a Year 2000
compliant replacement system was originally scheduled to go live in August
1999. However, as a result of the pending acquisition of CIGNA P&C, this
project has been altered such that the legacy system will be made Year 2000
compliant and reinstalled by October 1999. The remedied system will then be
replaced sometime next year by a new system which is currently under
development at CIGNA. A contingency plan exists for this business area
should the CIGNA transaction or the remedied system be delayed
or the system be ineffective.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
IMPACT OF THE YEAR 2000 ISSUE (continued)
Testing of hardware and network components is virtually complete, although a
few minor items remain outstanding. Testing of other software, such as
operating systems and PC desktop applications is almost complete, though in a
few cases the Company is relying on assurances from established software
manufacturers that their systems will operate correctly.
Trading Partners and Physical Plant
The trading partners section of the project focuses on Year 2000 issues
relating to the Company's trading partners. Examples of the Company's trading
partners are: insurance brokers, banks, reinsurance companies, vendors and
service providers in information technology and general suppliers.
The physical plant section of the project focuses on items such as elevators,
fire suppression systems, security systems, building management systems
(which may control air-conditioning, heating and lighting systems) which may
be controlled by software programs or embedded chips, and may thus fail or
act unpredictably in, or after the year 2000. Furthermore, supply of
electrical power and telecommunications services are considered here.
All material trading partners and those vendors and service providers
connected with physical plant have been inventoried and questionnaires sent
to them soliciting information about their Year 2000 readiness. Responses
have not been provided in all cases, despite follow-up letters. ACE has made
significant progress in assessing those responses which have been
forthcoming. Some of these responses appear to give evidence of satisfactory
progress and others do not. In those cases where additional follow-up fails
to provide satisfactory responses, contingency plans are now being drawn up
to minimize the effect of potential failure of a trading partner.
Costs
The total cost of the Year 2000 project is not expected to be material to
the Company's financial position. The total estimated cost is approximately
$4 million. Total expenditure to date on the whole project is approximately
$1.3 million.
Risks
It is not feasible to assign probabilities to many of the events associated
with the Year 2000. The arrival of January 1, 2000 presents novel problems
about which there is no body of evidence upon which to base statistical
predictions. Furthermore, world infrastructure in areas such as
telecommunications, banking, law enforcement, energy production and
distribution, manufacturing, transportation and government and military
systems are inextricably linked in such a manner that a small failure in one
area could produce large and unexpected effects in others. Each business has
a dependence upon its customers and suppliers and through them (or directly)
upon many or all of the infrastructural areas noted above.
ACE management believes that the risks associated with its own information
technology project component are small. For reasons noted above, it is
impossible to quantify all risks associated with trading partners and
physical plant. The Company's management believes that the greatest risk
for the Company lies in the possibility of unpredictable events affecting
insureds producing a number of claims (valid or otherwise) which, if valid
and covered by ACE's insurance policies, are expensive to pay, or if not,
expensive in defense litigation costs.
The Company is in the process of preparing contingency plans to address
various identified risks associated with the Year 2000 and expects these
plans to be complete by June 30, 1999.
27
<PAGE>
ACE LIMITED
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
1) On May 7, 1999, the Company declared a dividend of $0.11 per Ordinary
Share payable on July 16, 1999 to shareholders of record on June 30,
1999.
2) On May 7, 1999, the Company declared a dividend of one preference share
purchase Right for each outstanding Ordinary Share to shareholders of
record on June 1, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1) Exhibits
10.38 ACE Limited Shareholder Rights Plan, dated as of May 7, 1999
(incorporated by reference to Exhibit 99.1 of the
Form 8-K current report (date of earliest event reported:
May 7, 1999).
27 Financial Data Schedule
2) Reports on Form 8-K
The Company filed a Form 8-K current report (date of earliest event
reported: January 12, 1999) pertaining to its agreement to acquire
the international and domestic property and casualty insurance
businesses of CIGNA Corporation for $3.45 billion in cash.
The company filed a Form 8-K current report (date of earliest
event reported: May 7, 1999) pertaining to its adoption of the
ACE Limited Shareholder Rights Plan.
28
<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
/s/ Brian Dupperreault
May 13, 1999 ----------------------------------
Brian Duperreault
Chairman, President and Chief
Executive Officer
/s/ Robert Blee
May 13, 1999 ---------------------------------
Robert Blee
Chief Accounting Officer
29
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Numbered Page
- ------- ----------- -------------
27 Financial Data Schedule
30
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<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 4,922,333
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 232,498
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 5,804,418
<CASH> 266,018
<RECOVER-REINSURE> 97,109
<DEFERRED-ACQUISITION> 69,399
<TOTAL-ASSETS> 8,876,389
<POLICY-LOSSES> 3,609,515
<UNEARNED-PREMIUMS> 738,161
<POLICY-OTHER> 163,621
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 8,078
<OTHER-SE> 3,948,138
<TOTAL-LIABILITY-AND-EQUITY> 8,876,389
503,274
<INVESTMENT-INCOME> 171,580
<INVESTMENT-GAINS> 147,408
<OTHER-INCOME> 0
<BENEFITS> 268,050
<UNDERWRITING-AMORTIZATION> 62,165
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 378,052
<INCOME-TAX> 10,494
<INCOME-CONTINUING> 367,558
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 367,558
<EPS-PRIMARY> 1.90
<EPS-DILUTED> 1.86
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
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</TABLE>
