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 September 30, 2000
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 November 10, 2000 was 232,047,180.
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ACE LIMITED
INDEX TO FORM 10-Q
Part I. FINANCIAL INFORMATION
------------------------------
Page No.
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Item 1. Financial Statements:
Consolidated Balance Sheets
September 30, 2000 (Unaudited) and December 31, 1999 3
Consolidated Statements of Operations (Unaudited)
Three Months and Nine Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Shareholders' Equity (Unaudited)
Nine Months Ended September 30, 2000 and 1999 5
Consolidated Statements of Comprehensive Income (Unaudited)
Nine Months Ended September 30, 2000 and 1999 6
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2000 and 1999 7
Notes to Interim Consolidated Financial Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 17
Part II. OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K 36
2
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<CAPTION>
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30 December 31
2000 1999
---- ----
(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 - $10,754,918 and $10,080,402) $ 10,661,968 $ 9,849,803
Equity securities, at fair value (cost - $559,541 and $780,558) 637,400 933,314
Short-term investments, at fair value
(amortized cost - $1,362,712 and $1,194,956) 1,362,712 1,192,875
Other investments, at fair value (cost - $474,699 and $303,714) 484,880 300,311
Cash 616,971 599,232
----------------- ----------------
Total investments and cash 13,763,931 12,875,535
Accrued investment income 182,801 170,755
Insurance and reinsurance balances receivable 2,159,443 2,018,788
Accounts and notes receivable 514,560 533,863
Reinsurance recoverable 8,704,161 8,840,081
Deferred policy acquisition costs 567,161 514,425
Prepaid reinsurance premiums 891,056 580,244
Goodwill 2,857,528 2,822,718
Deferred tax assets 1,090,709 916,184
Other assets 800,750 850,295
----------------- ----------------
Total assets $ 31,532,100 $ 30,122,888
================= ================
Liabilities
Unpaid losses and loss expenses $ 17,401,981 $ 16,460,247
Unearned premiums 3,132,914 2,428,828
Premiums received in advance 59,867 63,759
Insurance and reinsurance balances payable 1,155,487 1,735,956
Contract holder deposit funds 143,693 201,079
Accounts payable, accrued expenses and other liabilities 1,376,746 1,684,725
Dividend payable 33,163 23,921
Short-term debt 377,466 1,074,585
Long-term debt 1,424,228 1,424,228
Trust preferred securities 875,000 575,000
----------------- ----------------
Total liabilities 25,980,545 25,672,328
----------------- ----------------
Commitments and contingencies
Mezzanine Equity
FELINE PRIDES 311,050 -
----------------- ----------------
Shareholders' Equity
Ordinary Shares ($0.041666667 par value, 300,000,000 shares authorized;
231,844,741 and 217,460,515 shares issued and outstanding) 9,660 9,061
Additional paid-in capital 2,629,108 2,214,989
Unearned stock grant compensation (31,712) (28,908)
Retained earnings 2,656,608 2,321,570
Accumulated other comprehensive loss (23,159) (66,152)
----------------- ----------------
Total shareholders' equity 5,240,505 4,450,560
----------------- ----------------
Total liabilities, mezzanine equity and shareholders' equity $ 31,532,100 $30,122,888
================= ================
See accompanying notes to interim consolidated financial statements
3
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<CAPTION>
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Nine Months Ended September 30, 2000 and 1999
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
-------------------------------------------------------------------------------
(in thousands of U.S. dollars, except per share data)
<S> <C> <C> <C> <C>
Revenues
Gross premiums written $ 1,999,816 $ 1,544,458 $ 5,946,843 $ 2,488,952
Reinsurance premiums ceded (803,012) (633,554) (2,079,132) (845,114)
------------- ------------- ------------- -------------
Net premiums written 1,196,804 910,904 3,867,711 1,643,838
Change in unearned premiums (22,022) 42,047 (420,287) (105,349)
------------- ------------- ------------- -------------
Net premiums earned 1,174,782 952,951 3,447,424 1,538,489
Net investment income 197,584 163,060 561,548 334,338
Net realized gains (losses) on
investments (12,797) (58,493) 13,899 (15,932)
------------- ------------- ------------- -------------
Total revenues 1,359,569 1,057,518 4,022,871 1,856,895
------------- ------------- ------------- -------------
Expenses
Losses and loss expenses 772,887 632,910 2,256,481 1,045,262
Policy acquisition costs 168,258 137,681 482,628 203,505
Administrative expenses 177,912 204,264 554,784 300,063
Amortization of goodwill 19,919 17,474 58,889 26,408
Interest expense 55,408 44,068 166,544 52,745
------------- ------------- ------------- -------------
Total expenses 1,194,384 1,036,397 3,519,326 1,627,983
------------- ------------- ------------- -------------
Income before income taxes 165,185 21,121 503,545 228,912
Income tax expense 24,432 6,328 74,351 15,978
------------- ------------- ------------- -------------
Net income $ 140,753 $ 14,793 $ 429,194 $ 212,934
============= ============= ============ =============
Basic earnings per share $ 0.60 $ 0.08 $ 1.92 $ 1.10
============= ============= ============ =============
Diluted earnings per share $ 0.58 $ 0.08 $ 1.88 $ 1.08
============= ============= ============ =============
See accompanying notes to interim consolidated financial statements
4
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<CAPTION>
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
Nine Months Ended
September 30
2000 1999
------------- -------------
(in thousands of U.S. Dollars)
<S> <C> <C>
Ordinary Shares
Balance at beginning of period $ 9,061 $ 8,070
Ordinary Shares issued 584 -
Cancellation of Ordinary Shares (28) -
Exercise of stock options 41 15
Issued under Employee Stock Purchase Plan (ESPP) 2 1
------------- -------------
Balance at end of period 9,660 8,086
------------- -------------
Additional paid-in capital
Balance at beginning of period 2,214,989 1,767,188
Ordinary Shares issued 434,178 -
Cancellation of Ordinary Shares (19,074) -
Exercise of stock options 14,863 5,588
Issued under ESPP 1,232 1,420
Equity Offering expenses (7,196) -
FELINE PRIDES issuance costs (9,884) -
Cancellation of restricted stock awards - (371)
------------- -------------
Balance at end of period 2,629,108 1,773,825
------------- -------------
Unearned stock grant compensation
Balance at beginning of period (28,908) (15,087)
Stock grants awarded (9,845) (1,922)
Stock grants forfeited - 312
Amortization 7,041 5,808
------------- -------------
Balance at end of period (31,712) (10,889)
------------- -------------
Retained earnings
Balance at beginning of period 2,321,570 2,040,664
Net income 429,194 212,934
Dividends declared on Ordinary Shares (82,294) (60,137)
Dividends declared on FELINE PRIDES (11,862) -
------------- -------------
Balance at end of period 2,656,608 2,193,461
------------- -------------
Accumulated other comprehensive loss
Net unrealized appreciation (depreciation) on investments
Balance at beginning of period (83,327) 102,271
Change in period, net of tax 70,907 (208,482)
-------------- --------------
Balance at end of period (12,420) (106,211)
-------------- --------------
Cumulative translation adjustments
Balance at beginning of period 17,175 6,471
Net adjustments during period (27,914) (374)
-------------- --------------
Balance at end of period (10,739) 6,097
-------------- --------------
Accumulated other comprehensive loss (23,159) (100,114)
-------------- --------------
Total Shareholders' Equity $5,240,505 $3,864,369
============== ==============
See accompanying notes to interim consolidated financial statements
5
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<CAPTION>
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
Nine Months Ended
September 30
2000 1999
---- ----
(in thousands of U.S. Dollars)
<S> <C> <C>
Net income $ 429,194 $ 212,934
Other comprehensive income (loss)
Net unrealized appreciation (depreciation) on investments
Unrealized appreciation (depreciation) on investments 115,880 (190,344)
Less: reclassification adjustment for net realized gains
included in net income (37,463) (54,308)
---------------- ---------------
78,417 (244,652)
Cumulative translation adjustments (34,825) (374)
---------------- ---------------
Other comprehensive income (loss), before income taxes 43,592 (245,026)
Income tax benefit (expense) related to other comprehensive income items (599) 36,170
---------------- ---------------
Other comprehensive income (loss) 42,993 (208,856)
---------------- ---------------
---------------- ---------------
Comprehensive income $ 472,187 $ 4,078
================ ===============
See accompanying notes to interim consolidated financial statements
6
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<CAPTION>
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
Nine Months Ended
September 30
2000 1999
---- ----
(in thousands of U.S. Dollars)
<S> <C> <C>
Cash flows from operating activities
Net income $ 429,194 $ 212,934
Adjustments to reconcile net income to net cash used for
operating activities:
Unearned premiums 673,258 165,294
Unpaid losses and loss expenses, net of reinsurance recoverable (45,631) (304,304)
Prepaid reinsurance premiums (289,812) (99,254)
Deferred tax assets 23,062 9,515
Net realized gains (losses) on investments (13,899) 15,932
Amortization of premium/discounts on fixed maturities (5,384) (6,009)
Amortization of goodwill 58,889 26,408
Deferred policy acquisition costs (43,838) (18,280)
Insurance and reinsurance balances receivable (233,286) (384,759)
Premiums received in advance (3,892) 5,185
Insurance and reinsurance balances payable (582,177) 230,301
Accounts payable, accrued expenses and other liabilities (332,680) (38,885)
Net change in contract holder deposit funds (49,932) (1,591)
Other 41,610 (97,858)
---------------- ---------------
Net cash flows used for operating activities (374,518) (285,371)
---------------- ---------------
Cash flows from investing activities
Purchases of fixed maturities (8,231,880) (14,522,815)
Purchases of equity securities (321,340) (226,511)
Sales of fixed maturities 8,151,291 15,185,241
Sales of equity securities 689,415 298,773
Maturities of fixed maturities 48,890 425,163
Net realized losses on financial futures contracts (8,751) (16,568)
Other investments (170,985) (200,490)
Acquisition of subsidiaries, net of cash acquired - (2,592,632)
---------------- ---------------
Net cash flows from (used for) investing activities 156,640 (1,649,839)
---------------- ---------------
Cash flows from financing activities
Dividends paid on Ordinary Shares (76,075) (56,219)
Dividends paid on FELINE PRIDES (8,839) -
Repayment of short-term debt (1,011,742) (198,816)
Proceeds from long-term debt - 998,697
Proceeds from short-term debt 314,623 1,280,118
Proceeds from issuance of trust preferred securities 300,000 400,000
Proceeds from issuance of FELINE PRIDES 311,050 -
Issuance costs of FELINE PRIDES (9,884) -
Proceeds from exercise of options for Ordinary Shares 14,904 5,603
Net proceeds from issuance of Ordinary Shares 400,346 -
Proceeds from shares issued under ESPP 1,234 1,051
---------------- ---------------
Net cash flows from financing activities 235,617 2,430,434
---------------- ---------------
Net increase in cash 17,739 495,224
Cash at beginning of period 599,232 240,556
---------------- ---------------
Cash at end of period $ 616,971 $ 735,780
================ ===============
See accompanying notes to interim consolidated financial statements
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7
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ACE LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
The interim unaudited consolidated financial statements, include the
accounts of the Company and its subsidiaries, and in the opinion of
management, reflect all adjustments (consisting of normally 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 1999
Annual Report on Form 10-K.
ACE Limited ("ACE" or "the Company") is a holding company incorporated with
limited liability under the Cayman Islands Companies Law and maintains its
business office in Bermuda. The Company provides property and casualty
insurance and reinsurance for a diverse group of customers worldwide. ACE
International also provides accident and health insurance products that are
designed to meet the insurance needs of individuals and groups outside of
the U.S. insurance markets. In addition, through ACE Global Markets, the
Company provides funds at Lloyd's to support underwriting by Lloyd's
syndicates managed by Lloyd's managing agencies, which are indirect wholly
owned subsidiaries of ACE. ACE operates through six business segments: ACE
Bermuda, ACE Global Markets, ACE Global Reinsurance, ACE USA, ACE
International and ACE Financial Services.
On July 2, 1999, the Company completed the ACE INA acquisition. This
acquisition was recorded using the purchase method of accounting and,
accordingly, the consolidated financial statements of the Company include
the results of ACE INA and its subsidiaries from July 2, 1999, the date of
the acquisition. ACE INA is the holding company for ACE USA and ACE
International operating segments.
On December 30, 1999, the Company acquired ACE Financial Services
(previously Capital Re Corporation). This acquisition was recorded using
the purchase method of accounting and, accordingly, the consolidated
financial statements of the Company include the results of operations of
ACE Financial Services and its subsidiaries from December 30, 1999, the
date of the acquisition.
The analysis of gross premiums written by geographic region is as follows:
-------------------------------------------------------------------------------
Nine Months ended September 30
2000 1999
---- ----
North America 61% 60%
Europe 19 16
Australia and New Zealand 6 6
Latin America 3 3
Asia Pacific 5 3
Other 6 12
--------------- --------------
100% 100%
--------------- --------------
-------------------------------------------------------------------------------
2. Significant Accounting Policies
New accounting pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Deriative 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 2001. To prepare for
the effective date, the Company has developed an implementation plan. As
part of this plan, the Company is in the process of completing a
comprehensive inventory of all derivative instruments and transactions to
which it is a party. The Company is currently in the process of determining
appropriate valuation methodologies and resulting values. The Company's
involvement with derivative instruments and transactions is primarily to
offer protection to others or to mitigate its own risks and is not
8
<PAGE>
speculative in nature. The effect of adopting this statement on its
financial position and operating results, has not yet been determined.
3. Commitments and Contingencies
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 Company's long-term incentive plans, 344,590 Restricted Ordinary
Shares were awarded during the nine months ended September 30, 2000, to
officers of the Company and its subsidiaries. These shares vest at various
dates through September 2004. In addition, during the period, 17,200
restricted Ordinary Shares were awarded to outside directors under the
terms of the 1995 Outside Director Plan. These shares vest in May 2001.
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 income over the vesting period.
5. Discontinued Operations
In accordance with Emerging Issues Task Force ("EITF") 87-11 "Allocation of
Purchase Price to Assets to Be Sold," and EITF 90-6, "Accounting for
Certain Events Not Addressed in Issue No. 87-11 Relating to an Acquired
Operating Unit to Be Sold," The Company had presented Commercial Insurance
Services ("CIS"), a division of ACE INA, as a discontinued operation. The
Company planned, as part of its July 2, 1999 ACE INA acquisition, to
dispose of the CIS operations. Following the July 2, 1999 acquisition, the
Company sold the renewal rights for all of its CIS business going forward
and planned to sell the assets and liabilities pertaining to the historical
book of business as well as the in-force book of business which it still
owned.
In accordance with EITF 87-11, the Company recorded a net liability as of
July 2, 1999 of approximately $170 million which was recorded in accounts
payable, accrued expenses and other liabilities. The net liability included
all balance sheet accounts that pertained specifically to CIS and the
estimated operating results for the twelve months from July 2, 1999 to
July 1, 2000.
Since the CIS operations were not sold within one year from acquisition, the
Company was required, as of July 2, 2000, to reconsolidate the net liability
into the appropriate balance sheet captions and to record the results of
operations in the consolidated statement of operations beginning July 2,
2000. This reclassification had no impact on the Company's results of
operations or financial position. The results of the CIS operations for the
quarter ended September 30, 2000 and the total assets as of that date are
included in the ACE USA segment.
6. Shareholders' Equity
ACE Limited Public Share Offering
On September 12, 2000, the Company completed a public offering of
12,250,000 Ordinary Shares (which included exercise of the overallotment
option of 1,250,000 shares) in which it raised aggregate net proceeds of
approximately $400 million. The offering was made in satisfaction of a June
29, 1999 agreement with Bank of America Securities LLC entered into in
connection with the private placement of $400 million Auction Rate Reset
Preferred Securities (the "RHINOS") of ACE RHINOS Trust (the "RHINOS
Trust"). The proceeds of the Ordinary Share offering will be used to
support the Company's guarantee of the $412 million principal amount of
Auction Rate Reset Subordinated Notes Series A issued by ACE INA to the
RHINOS Trust. Effective October 27, 2000, the interest rate on the
subordinated notes and the distribution rate on the RHINOS was reduced to
LIBOR plus 87.5 basis points.
9
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7. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share.
<TABLE>
<CAPTION>
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Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
---- ---- ---- ----
(In thousands of U.S. dollars except share and per share data)
<S> <C> <C> <C> <C>
Numerator
Net Income $ 140,753 $ 14,793 $ 429,194 $ 212,934
FELINE PRIDES dividend (6,537) - (11,862) -
-------------- -------------- -------------- ------------
Net income available to the holders of Ordinary Shares $ 134,216 $ 14,793 $ 417,332 $ 212,934
============== ============== ============== ============
Denominator
Denominator for basic earnings per share -
Weighted average shares outstanding 222,042,432 194,061,171 217,615,849 193,935,790
Dilutive effect of FELINE PRIDES 2,663,691 - - -
Effect of other dilutive securities 6,679,576 2,011,481 4,431,705 2,981,338
--------------- --------------- ---------------- -------------
Denominator for diluted earnings per share -
Adjusted weighted average shares outstanding
and assumed conversions 231,385,699 196,072,652 222,047,554 196,917,128
--------------- --------------- ---------------- -------------
Basic earnings per share $ 0.60 $ 0.08 $ 1.92 $ 1.10
=============== =============== ================ =============
Diluted earnings per share $ 0.58 $ 0.08 $ 1.88 $ 1.08
=============== =============== ================ =============
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8. Debt
<CAPTION>
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Coupon September 30 December 31
Rates 2000 1999
----- ---- ----
(in millions of U.S. Dollars)
<S> <C> <C> <C>
Short-term debt
ACE INA commercial paper Various $ 352 $ 625
ACE Financial Services Note Various 25 25
ACE Limited commercial paper Various - 425
-------- -------
$ 377 1,075
======== =======
Long-term debt
ACE INA Notes due 2004 8.20% $ 400 400
ACE INA Notes due 2006 8.30% 299 299
ACE US Holdings Senior Notes due 2008 6.47% 250 250
ACE INA Subordinated Notes due 2009 8.41% 300 300
ACE INA Debentures due 2029 8.875% 100 100
ACE Financial Services Debentures due 2002 7.75% 75 75
------- -------
$ 1,424 $ 1,424
======= =======
Trust Preferred Securities
ACE INA RHINO Preferred Securities
due 2002 Libor + 1.25% $ 400 $ 400
ACE Financial Services Monthly Income
Preferred Securities due 2044 7.65% 75 75
ACE INA Trust Preferred Securities
due 2029 8.875% 100 100
ACE INA Capital Securities due 2030 9.70% 300 -
------- -------
$ 875 $ 575
======= =======
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10
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ACE INA Capital Securities
On March 31, 2000, ACE Capital Trust II, a Delaware statutory business
trust ("ACE Capital Trust II") issued and sold in a public offering $300
million of 9.70 percent Capital Securities (the "Capital Securities"). All
of the common securities of ACE Capital Trust II (the "ACE Capital Trust II
Common Securities") are owned by ACE INA.
The Capital Securities mature on April 1, 2030, which may not be extended.
Distributions on the Capital Securities are payable semi-annually at a rate
of 9.70 percent, however, ACE Capital Trust II may defer these payments for
up to 10 consecutive semi-annual periods (but no later than April 1, 2030).
Any deferred payments would accrue interest semi-annually on a compounded
basis if ACE INA defers interest on the Subordinated Debentures due 2030
(as defined below).
The sole assets of ACE Capital Trust II consist of $309,280,000 principal
amount of 9.70 percent Junior Subordinated Deferrable Interest Debentures
(the "Subordinated Debentures due 2030") issued by ACE INA. The
Subordinated Debentures due 2030 mature on April 1, 2030. Interest on the
Subordinated Debentures due 2030 is payable semi-annually at a rate of 9.70
percent, however, ACE INA may defer such interest payments (but no later
than April 1, 2030), with such deferred payments accruing interest
compounded semi-annually. ACE INA may redeem the Subordinated Debentures
due 2030 in the event certain changes in tax or investment company law
occur at a redemption price equal to accrued and unpaid interest to the
redemption date plus the greater of (i) 100 percent of the principal amount
thereof, or (ii) the sum of the present value of scheduled payments of
principal and interest on the debentures from the redemption date to April
1, 2030, discounted to the redemption date on a semi-annual basis at a
discount rate equal to the applicable treasury rate plus 3.1 percent, in
the first year after issuance, and the applicable treasury rate plus .50
percent thereafter. The Capital Securities and the ACE Capital Trust II
Common Securities will be redeemed upon repayment of the Subordinated
Debentures due 2030.
The Company has guaranteed, on a subordinated basis, ACE INA's obligations
under the Subordinated Debentures due 2030, and distributions and other
payments due on the Capital Securities (the "Guarantees"). The Guarantees,
when taken together with the Company's obligations under expense agreements
entered into with ACE Capital Trust II, provide a full and unconditional
guarantee of amounts due on the Capital Securities.
9. Mezzanine Equity
FELINE PRIDES
The Company issued 6,000,000 FELINE PRIDES on April 12, 2000 and an
additional 221,000 FELINE PRIDES on May 8, 2000, pursuant to a public
offering, for aggregate net proceeds of approximately $311 million. Each
FELINE PRIDES initially consists of a unit referred to as an Income PRIDES.
Each Income PRIDES consists of (i) one 8.25 percent Cumulative Redeemable
Preferred Share, Series A, liquidation preference $50 per share, of the
Company, and (ii) a purchase contract pursuant to which the holder of the
Income PRIDES agrees to purchase from the Company, on May 16, 2003,
ordinary shares at the applicable settlement rate. Each preferred share is
pledged to the Company to secure the holders obligations under the purchase
contract. A holder of an Income PRIDES can obtain the release of the
preferred share by substituting certain zero-coupon treasury securities as
security for performance under the purchase contract. The resulting unit
consisting of the zero-coupon treasury security and the purchase contract
is a Growth PRIDES, and the preferred shares would be a separate security.
A holder of a Growth PRIDES can convert it back into an Income PRIDES by
depositing preferred shares as security for performance under the purchase
contract and thereby obtain the release of the zero-coupon treasury
securities.
The aggregate liquidation preference of the 8.25 percent Cumulative
Redeemable Preferred Shares is $311 million. Unless deferred by the
Company, the preferred shares pay dividends quarterly at a rate of 8.25
percent per year to May 16, 2003, and thereafter at the reset rate
established pursuant to a remarketing procedure. If the Company elects to
defer dividend payments on the preferred shares, the dividends will
continue to accrue and the Company will be restricted from paying dividends
on its ordinary shares and taking certain other actions. The preferred
shares are not redeemable prior to June 16, 2003, on which date they must
be redeemed by the Company in whole.
11
<PAGE>
The settlement rate is the number of ordinary shares that the Company is
obligated to sell and the holders of the FELINE PRIDES are obligated to
purchase (for a purchase price of $50 per FELINE PRIDES) on May 16, 2003.
The settlement rate will be equal to $50 divided by the average closing
price of the ordinary shares for the 20 consecutive trading days ending on
the third trading day prior to May 16, 2003, but in no event will it be
less than 1.8991 ordinary shares per FELINE PRIDES (or an aggregate of 11.8
million ordinary shares) nor greater than 2.6376 ordinary shares per FELINE
PRIDES (or an aggregate of 16.4 million ordinary shares). The settlement
rate is subject to anti-dilution adjustments.
10. 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 nine months ended
September 30, 2000 and 1999 are as follows:
--------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
---- ---- ---- ----
(in thousands of U.S. dollars except share and per share data)
Premiums
Premiums written
Direct $1,739,116 1,074,833 4,788,872 1,604,255
Assumed 260,700 469,625 1,157,971 884,697
Ceded (803,012) (633,554) (2,079,132) (845,114)
----------- ------------ ----------- -----------
Net premiums written $1,196,804 $ 910,904 $3,867,711 $1,643,838
============ ============ ============ ===========
Premiums earned
Direct 1,645,052 $ 969,987 4,279,020 1,443,493
Assumed 234,095 520,872 982,914 829,891
Ceded (704,365) (537,908) (1,814,510) (734,895)
------------- ----------- ------------- -----------
Net premiums earned $1,174,782 $ 952,951 3,447,424 $1,538,489
============= ============ ============= ===========
--------------------------------------------------------------------------------
The Company's provision for reinsurance recoverable at September 30, 2000
and December 31, 1999 is as follows:
--------------------------------------------------------------------------------
September 30 December 31
2000 1999
---- ----
(in thousands of U.S. dollars)
Reinsurance recoverable on paid
losses and loss expenses $ 938,152 $ 1,288,651
Reinsurance recoverable on unpaid losses
and loss expenses 8,480,795 8,309,014
Provision for uncollectible balances (714,786) (757,584)
--------------- --------------
Total reinsurance recoverable $ 8,704,161 $ 8,840,081
=============== ==============
-------------------------------------------------------------------------------
11. Taxation
Under current Cayman Islands law, the Company is not required to pay any
taxes in the Cayman Islands 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 required to pay any taxes in Bermuda on its income or capital
gains. The Company has received an undertaking from the Minister of Finance
in Bermuda, that in the event of any such taxes being imposed, the Company
will be exempt until March 2016.
12
<PAGE>
Income from the Company's operations at Lloyd's are subject to United
Kingdom (UK) corporation taxes. Lloyd's is required to pay U.S. income tax
on U.S. connected income ("U.S. income") written by Lloyd's syndicates.
Lloyd's has a closing agreement with the IRS whereby the amount of tax due
on this business is calculated by Lloyd's and remitted directly to the IRS.
These amounts are then charged to the personal accounts of the
Names/Corporate Members in proportion to their participation in the
relevant syndicates. The Company's Corporate Members are subject to this
arrangement but, as UK domiciled companies, will receive UK corporation tax
credits for any U.S. income tax incurred up to the value of the equivalent
UK corporation income tax charge on the U.S. income.
ACE INA, ACE US Holdings and ACE Financial Services are subject to income
taxes imposed by U.S. authorities and file U.S. tax returns. Certain
international operations of the Company are also subject to income taxes
imposed by the jurisdictions in which they operate.
The Company is not subject to taxation 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 income tax provision for the three months and nine months ended
September 30, 2000 and 1999 is as follows:
--------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
---- ---- ---- ----
(in thousands of U.S. dollars)
Current tax expense $ 29,254 $ 7,812 $ 51,289 $ 11,496
Deferred tax expense (4,822) (1,484) 23,062 4,482
-------------- ---------- --------- ---------
Provision for income taxes $ 24,432 $ 6,328 $ 74,351 $ 15,978
============== ========== ========= =========
--------------------------------------------------------------------------------
The components of the net deferred tax asset as of September 30, 2000 and
December 31, 1999 are as follows:
--------------------------------------------------------------------------------
September 30 December 31
2000 1999
---- ----
(in thousands of U.S. dollars)
Deferred tax assets
Loss reserve discount $ 771,854 $ 677,459
Foreign tax credits 133,437 116,829
Uncollectible reinsurance 13,177 24,413
Net operating loss carry forward 289,177 164,993
Other 146,276 305,647
Unrealized depreciation on investments - 12,557
---------------- -------------
Total deferred tax assets $ 1,353,921 $ 1,301,898
---------------- -------------
Deferred tax liabilities
Deferred policy acquisition costs 72,533 87,691
Unrealized appreciation on investments 3,762 -
Other 44,093 164,699
----------------- ------------
Total deferred tax liabilities 120,388 252,390
----------------- ------------
Valuation allowance 142,824 133,324
----------------- ------------
Net deferred tax asset $ 1,090,709 $ 916,184
================= ============
--------------------------------------------------------------------------------
The expected tax provision has been calculated using pre-tax accounting
income (loss) in each jurisdiction multiplied by that jurisdiction's
applicable statutory tax rate. A reconciliation of the difference between
the provision for income taxes and the expected tax provision at the
statutory tax rate for the nine months ended September 30, 2000 is provided
below.
13
<PAGE>
-------------------------------------------------------------------------------
Nine Months Ended
September 30
2000 1999
(in thousands of U.S. dollars)
Expected tax provision at statutory rate $ 64,697 $ 13,545
Permanent differences
Tax-exempt interest (16,278) (4,685)
Goodwill 16,778 5,680
Other 932 (64)
Net withholding taxes 8,222 1,502
---------------- -------------
Total provision for income taxes $ 74,351 $ 15,978
================ =============
-------------------------------------------------------------------------------
12. Summarized financial information
The following is consolidated summarized financial information for ACE INA
and ACE Financial Services, both wholly owned subsidiaries of the Company.
--------------------------------------------------------------------------------
Selected Financial Data: ACE INA
Three Months Ended Nine Months Ended
September 30 September 30
2000 2000
---- ----
(in thousands of U.S. Dollars)
Selected Statement of Operations Data
Total revenue $ 864,002 $ 2,615,139
Net income $ 7,665 $ 257,734
Selected Balance Sheet Data
Total investments and cash $ 7,550,739
Total assets 22,705,542
Unpaid losses and loss expenses 14,148,478
Total shareholders' equity $ 1,355,400
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Selected Financial Data: ACE Financial Services
Three Months Ended Nine Months Ended
September 30 September 30
2000 2000
---- ----
(in thousands of U.S. Dollars)
Selected Statement of Operation Data
Total revenue $ 67,112 $ 318,148
Net income $ 22,543 $ 65,599
Selected Balance Sheet Data
Total investments and cash $ 1,896,685
Total assets 2,289,005
Unpaid losses and loss expenses 548,850
Total shareholders' equity $ 1,037,390
--------------------------------------------------------------------------------
Separate financial statements of ACE INA and ACE Financial Services have
not been presented as management has determined that such information is
not material to the holders of ACE INA and ACE Financial Services debt
securities.
14
<PAGE>
13. Segment information
The following tables summarize the operations by segment for the three
months and nine months ended September 30, 2000 and 1999. Net realized
gains (losses) have been presented net of related taxes.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Three months ended September 30, 2000
ACE ACE
ACE ACE Global Global ACE ACE Financial ACE
Bermuda Markets Reinsurance USA International Services Other(1) Consolidated
------- ----------- ----------- -------- ------------- ---------- ---------- ------------
(in thousands of U.S. Dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations Data
Gross premiums written $ 199,741 $ 239,484 $ 30,750 $ 974,862 $ 496,953 $ 58,026 - 1,999,816
Net premiums written 181,573 176,672 12,811 450,518 324,779 50,451 - 1,196,804
Net premiums earned 170,292 174,266 37,707 410,472 339,101 42,944 - 1,174,782
Losses and loss expenses 132,701 102,503 5,813 307,692 205,976 18,202 - 772,887
Policy acquisition costs 7,565 44,844 6,631 40,430 58,888 9,900 - 168,258
Administrative expenses 7,494 18,499 3,122 58,631 68,552 7,665 13,949 177,912
----------- ----------- ----------- ------------ ----------- ------------ ----------- ------------
Underwriting income (loss) 22,532 8,420 22,141 3,719 5,685 7,177 (13,949) 55,725
Net investment income 38,906 7,932 15,056 89,599 24,612 24,168 (2,689) 197,584
Amortization of goodwill (225) 965 3,503 135 - 1,051 14,490 19,919
Interest expense 908 1,897 - 11,404 - 3,378 37,821 55,408
Income tax expense (benefit) 655 5,623 - 26,238 4,400 6,403 (15,890) 27,429
----------- ----------- ----------- ------------ ----------- ------------ ----------- ------------
Income (loss) excluding net
realized gains (losses) 60,100 7,867 33,694 55,541 25,897 20,513 (53,059) 150,553
Net realized gains (losses)
(net of income tax) 7,135 (1,245) (12,433) (5,989) 492 2,030 210 (9,800)
----------- ----------- ----------- ------------ ----------- ------------ ----------- ------------
Net income (loss) $ 67,235 $ 6,622 $ 21,261 $ 49,552 $ 26,389 $ 22,543 $ (52,849) $ 140,753
----------- ----------- ----------- ------------ ----------- ------------ ----------- ------------
Total Assets $3,044,189 $1,842,913 $1,360,806 $16,454,908 $3,804,099 $ 2,289,005 $2,736,180 $31,532,100
=========== =========== =========== ============ =========== ============ =========== ============
------------------------------------------------------------------------------------------------------------------------------------
(1)Includes ACE Limited, ACE INA Holdings and intercompany eliminations
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Three months ended September 30, 1999
ACE ACE
ACE Global Global ACE ACE ACE
Bermuda Markets Reinsurance USA International Other(1) Consolidated
------- ----------- ------------- ----- ------------ ----- -------------
(in thousands of U.S. Dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Operations Data
Gross premiums written $ 130,478 $ 183,570 $ 24,234 $ 744,161 $ 462,015 $ - $ 1,544,458
Net premiums written 106,686 110,594 (8,482) 370,338 331,768 - 910,904
Net premiums earned 125,825 98,907 35,317 342,698 350,204 - 952,951
Losses and loss expenses 105,290 60,218 17,388 251,380 198,634 - 632,910
Policy acquisition costs 4,183 25,158 5,846 35,739 66,755 - 137,681
Administrative expenses 9,615 12,146 3,598 87,516 76,399 14,990 204,264
------------- ----------- -------------- ------------ -------------- ----------- ------------
Underwriting income (loss) 6,737 1,385 8,485 (31,937) 8,416 (14,990) (21,904)
Net investment income 37,341 8,095 13,531 84,138 17,968 1,987 163,060
Amortization of goodwill (210) 1,056 3,503 - - 13,125 17,474
Interest expense (2,679) 812 - 9,992 - 35,943 44,068
Income tax expense (benefit) 546 3,037 - 9,836 9,314 (11,684) 11,049
------------- ----------- -------------- ------------ -------------- ----------- ------------
Income (loss) excluding net
realized gains (losses) 46,421 4,575 18,513 32,373 17,070 (50,387) 68,565
Net realized gains (losses)
(net of income tax) (34,483) (1,474) (10,626) (2,966) (2,976) (1,247) (53,772)
------------- ----------- -------------- ------------ -------------- ----------- ------------
Net income (loss) $ 11,938 $ 3,101 $ 7,887 $ 29,407 $ 14,094 $ (51,634) $ 14,793
------------- ----------- -------------- ------------ -------------- ----------- ------------
Total Assets $3,052,732 $1,496,539 $ 1,404,452 $17,035,007 $3,716,000 $2,639,453 $29,344,183
============= =========== ============== ============ ============== =========== ============
------------------------------------------------------------------------------------------------------------------------------------
(1)Includes ACE Limited, ACE INA Holdings and intercompany eliminations
15
<PAGE>
ACE LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Nine months ended September 30, 2000
ACE ACE
ACE ACE Global Global ACE ACE Financial ACE
Bermuda Markets Reinsurance USA International Services Other(1) Consolidated
------- ---------- ----------- ----- ------------- --------- -------- ------------
(in thousands of U.S. Dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations Data
Gross premiums written $ 510,788 $ 752,791 $ 178,223 $ 2,662,542 $1,553,853 $ 288,646 $ - $ 5,946,843
Net premiums written 446,297 551,140 146,265 1,369,785 1,080,317 273,907 - 3,867,711
Net premiums earned 356,164 454,599 96,061 1,256,043 1,037,411 247,146 - 3,447,424
Losses and loss expenses 265,001 258,271 17,476 938,782 613,942 163,009 - 2,256,481
Policy acquisition costs 14,648 119,577 18,328 118,498 173,011 38,566 - 482,628
Administrative expenses 22,278 54,069 7,971 188,552 211,589 23,705 46,620 554,784
----------- ----------- ----------- ------------ ----------- ------------ ------------ ----------
Underwriting income (loss) 54,237 22,682 52,286 10,211 38,869 21,866 (46,620) 153,531
Net investment income 111,240 23,420 44,839 251,542 69,498 71,002 (9,993) 561,548
Amortization of goodwill (658) 2,990 10,508 405 - 3,154 42,490 58,889
Interest expense 1,598 4,080 - 28,009 - 10,016 122,841 166,544
Income tax expense (benefit) 1,920 11,068 (173) 72,992 19,235 15,664 (48,725) 71,981
----------- ----------- ----------- ------------ ----------- ------------ ------------ ----------
Income (loss) excluding net
realized gains (losses) 162,617 27,964 86,790 160,347 89,132 64,034 (173,219) 417,665
Net realized gains (losses)
(net of income tax) 31,432 (2,194) (20,378) (16,834) 19,779 1,565 (1,841) 11,529
----------- ----------- ----------- ------------ ----------- ------------ ------------ ----------
Net income (loss) $ 194,049 $ 25,770 $ 66,412 $ 143,513 $ 108,911 $ 65,599 $(175,060) $ 429,194
----------- ------------ ---------- ----------- ----------- ------------ ----------- ----------
Total Assets $3,044,189 $1,842,913 $1,360,806 $16,454,908 $3,804,099 $ 2,289,005 $2,736,180 $31,532,100
=========== =========== =========== ============ =========== ============ =========== ===========
------------------------------------------------------------------------------------------------------------------------------------
(1)Includes ACE Limited, ACE INA Holdings and intercompany eliminations
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Nine Months ended September 30, 1999
ACE
ACE ACE Global Global ACE ACE ACE
Bermuda Markets Reinsurance USA International Other(1) Consolidated
------- ---------- ------------ ---- ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations Data
Gross premiums written 432,748 530,137 184,667 879,385 462,015 - 2,488,952
Net premiums written 346,081 376,856 149,903 439,230 331,768 - 1,643,838
Net premiums earned 397,748 288,374 109,303 392,860 350,204 - 1,538,489
Losses and loss expenses 302,203 168,170 93,646 282,609 198,634 - 1,045,262
Policy acquisition costs 11,034 75,838 15,442 34,436 66,755 - 203,505
Administrative expenses 31,052 37,003 9,607 106,032 76,399 39,970 300,063
------------- ----------- -------------- ----------- -------------- ----------- ------------
Underwriting income (loss) 53,459 7,363 (9,392) (30,217) 8,416 (39,970) (10,341)
Net investment income 134,653 20,723 45,498 108,926 17,968 6,570 334,338
Amortization of goodwill (626) 3,155 10,508 246 - 13,125 26,408
Interest expense 4,705 3,037 - 23,974 - 21,029 52,745
Income tax expense (benefit) 1,502 7,344 - 14,223 9,314 (11,684) 20,699
------------- ----------- -------------- ----------- -------------- ----------- ------------
Income (loss) excluding net
realized gains (losses) 182,531 14,550 25,598 40,266 17,070 (55,870) 224,145
Net realized gains (losses)
(net of income tax) 22,389 (3,410) (15,070) (2,946) (2,976) (9,198) (11,211)
------------- ----------- -------------- ----------- -------------- ----------- ------------
Net income (loss) 204,920 11,140 10,528 37,320 14,094 (65,068) 212,934
------------- ----------- -------------- ----------- -------------- ----------- ------------
Total Assets $3,052,732 $1,496,539 $1,404,452 $17,035,007 $3,716,000 $2,639,453 $29,344,183
============= =========== ============== =========== ============== =========== ============
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Includes ACE Limited, ACE INA Holdings and intercompany eliminations
14. Reclassification
Certain items in the prior period financial statements have been
reclassified to conform with the current period
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following is a discussion of the Company's results of operations,
financial condition, liquidity and capital resources as of and for the
three months and nine months ended September 30, 2000. 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 1999 Annual
Report on Form 10-K.
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 herein and 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
or enacting any laws, regulations or treaties affecting the Company's
current operations), (ii) the occurrence of catastrophic events or other
insured or reinsured events with a frequency or severity exceeding the
Company's estimates, (iii) legal, regulatory, and legislative developments,
(iv) the uncertainties of the loss reserving process including the
difficulties associated with assessing environmental and latent injuries,
(v) the actual amount of new and renewal business and market acceptance of
the Company's products, (vi) loss of the services of any of the Company's
executive officers, (vii) changing rates of inflation and other economic
conditions, (viii) losses due to foreign currency exchange rate
fluctuations, (ix) ability to collect reinsurance recoverables, (x) the
competitive environment in which the Company operates, related trends and
associated pricing pressures and developments, (xi) the impact of mergers
and acquisitions, including the ability to successfully integrate acquired
businesses and achieve cost savings, competing demands for ACE's capital
and the risk of undisclosed liabilities, (xii) developments in global
financial markets which could affect the Company's investment portfolio and
financing plans, (xiii) risks associated with the introduction of new
products and services, and (xiv) the amount of dividends received from
subsidiaries. The words "believe", "anticipate", "estimate", "project",
"plan", "expect", "intend", "hope", "will likely result" or "will continue"
and variations thereof 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
ACE Limited ("ACE" or "the Company"), through its various
subsidiaries, provides a broad range of insurance and reinsurance products
to insureds in the United States and almost 50 other countries. In
addition, ACE, through ACE Global Markets, provides 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. ACE operates through six
main business segments: ACE Bermuda, ACE Global Markets, ACE Global
Reinsurance, ACE USA, ACE International and ACE Financial Services.
On July 2, 1999, the Company completed the ACE INA acquisition. This
acquisition was recorded using the purchase method of accounting and,
accordingly, the consolidated financial statements of the Company include
the results of ACE INA and its subsidiaries from July 2, 1999, the date of
the acquisition. ACE INA is the holding company for ACE USA and ACE
International operating segments.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On December 30, 1999, the Company acquired ACE Financial Services
(previously Capital Re Corporation). This acquisition was recorded using
the purchase method of accounting and, accordingly, the consolidated
financial statements of the Company include the results of operations of
ACE Financial Services and its subsidiaries from December 30, 1999, the
date of the acquisition.
The Company expects to continue evaluating potential new product lines
and other opportunities in the insurance and reinsurance markets. In
addition, the Company 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.
As noted, during 1999, the Company made two substantial acquisitions that
were accounted for under the purchase method of accounting, which requires
that income from the acquired company only be included in the results of
the Company from the date of acquisition. This makes it difficult to
compare the financial results as presented. ACE INA's results are included
from July 2, 1999 and, ACE Financial Services from December 30, 1999.
In addition, the Company has historically recorded its results of
operations from its Lloyd's syndicates one quarter in arrears. Commencing
January 1, 2000, the Company now records the results from the Lloyd's 2000
underwriting year on a current basis. Prior year underwriting results are
still reported one quarter in arrears but underwriting results should run
off over the next few quarters. The Company has also increased its
percentage of participation in the Lloyd's syndicates it manages in 2000
versus 1999. On October 11, 2000 the final Lloyd's auction for 2001 year of
account capacity concluded. As a result, ACE will increase its share of the
capacity of syndicate 2488 to 89.7 percent in the Syndicate's 2001 year of
account compared to 84 percent in 2000.
Results of Operations - Three Months ended September 30, 2000
-------------------------------------------------------------------------------
Net Income Three Months Ended
September 30
2000 1999
---- ----
(in millions of U.S. Dollars)
Income excluding net realized losses on investments $ 151 $ 69
Net realized losses on investments (net of taxes) (10) (54)
--------- ----------
Net income $ 141 $ 15
========= ==========
-------------------------------------------------------------------------------
Income excluding net realized losses on investments was $151 million for
the quarter ended September 2000 compared with $69 million for the quarter
ended September 1999, an increase of 188 percent. The significant increase
this quarter is due to several factors: the inclusion of the results of ACE
Financial Services which was acquired on December 30, 1999 and contributed
$20 million to income excluding realized losses; a low level of catastrophe
losses in the quarter; a change in the mix of business whereby ACE has
removed marginal business from its portfolio; the successful
cross-marketing of business within the organization; and a general
strengthening of the insurance market which has led to price improvements
and increased acceptance rates of business submissions in several lines of
business. The quarter ended September 1999 was impacted by a large number
of catastrophic events that negatively affected income after tax by $34
million for the September 1999 quarter. Excluding these events, income
excluding realized losses for the third quarter 2000 increased 47 percent
over the third quarter 1999.
Net realized losses on investments (net of taxes) were $10 million for the
September 2000 quarter compared with net realized losses of $54 million for
the September 1999 quarter. Net realized losses were impacted primarily by
losses at ACE Tempest Re and ACE INA.
Net income for the current quarter was $141 million compared with $15
million for the quarter ended September 1999. The increase in net income
was due primarily to the factors discussed above.
18
<PAGE>
--------------------------------------------------------------------------------
Premiums Three months ended % Change
September 30 from
2000 1999 Prior Year
---- ---- ---------------
(in millions of U.S. Dollars)
Gross premiums written:
ACE Bermuda $ 200 $ 130 53%
ACE Global Markets 239 184 30%
ACE Global Reinsurance 31 24 27%
ACE USA 975 744 31%
ACE International 497 462 8%
ACE Financial Services 58 - N.M.
------------- -------------- ---------------
$ 2,000 $ 1,544 29%
============= ============== ===============
Net premiums written:
ACE Bermuda $ 182 $ 107 70%
ACE Global Markets 177 110 60%
ACE Global Reinsurance 13 (8) N.M.
ACE USA 450 370 22%
ACE International 325 332 (2)%
ACE Financial Services 50 - N.M.
-------------- -------------- ---------------
$ 1,197 $ 911 31%
============== ============== ===============
Net premiums earned:
ACE Bermuda $ 170 $ 126 35%
ACE Global Markets 174 99 76%
ACE Global Reinsurance 38 35 7%
ACE USA 411 343 20%
ACE International 339 350 (3)%
ACE Financial Services 43 - N.M.
--------------- ------------- ---------------
$ 1,175 $ 953 23%
=============== ============= ===============
N.M. not meaningful
--------------------------------------------------------------------------------
For the quarter ended September 2000, gross premiums written increased by
$456 million to $2.0 billion compared with $1.5 billion for the quarter
ended September 1999. The increase is primarily the result of the growing
acceptance of the ACE brand, successful cross-marketing of business within
the organization and the strengthening of the insurance market, where price
improvements have led to an increased acceptance rate on submissions in
several lines of business. ACE Financial Services (which was acquired on
December 30, 1999) also added to the increase by contributing $58 million
to gross premiums written this quarter. Net premiums written as well as net
premiums earned benefited from the same factors that lead to the increase in
gross premiums written. Net premiums written increased by $286 million or
31 percent and net premiums earned increased by $222 million or 23 percent.
ACE Bermuda: Gross premiums written for the third quarter 2000 increased by
53 percent over the third quarter 1999 to $200 million. This growth was led
by the professional lines business, which bound a one time premium of $50
million on a retroactive program that was fully written and earned during
the quarter and ACE Financial Solutions International (AFSI), previously
known as Tailored Risk Solutions, which wrote several new contracts and
also experienced increased premiums on certain existing accounts. Net
premiums written and net premiums earned increased 70 percent and 35
percent respectively. As with gross premiums written, the increases were
primarily generated by professional lines and AFSI. As of August 1, 2000,
the aviation department ceased to write new business and this business was
transferred to ACE Global Markets. ACE believes that ACE Global Markets,
which is already a lead underwriter in London for aviation business, is
better suited to manage this business going forward.
19
<PAGE>
ACE Global Markets: Gross premiums written for ACE Global Markets increased
by 30 percent from $184 million written for the third quarter of fiscal
1999 to $239 million for the third quarter of fiscal 2000. As previously
reported, the Company now records the results of the Lloyd's 2000
underwriting year on a current basis and the results for September 2000 are
for business concluded in the September 2000 quarter. Prior year
underwriting results are still recorded one quarter in arrears but should
run off over the next several quarters. On a comparable basis, gross
premiums written increased by approximately $135 million in 2000 compared
with 1999. This increase is primarily the result of ACE's increased
capacity in 2000. Net premiums written and net premiums earned increased 60
percent and 76 percent respectively. As a result of substantial losses
being reported in the Lloyd's market, various insurers exiting product
lines and the restructuring of reinsurance programs by the reinsurance
market, all areas of ACE Global Markets underwriting activity is now
benefiting from increased rates and more favorable terms.
ACE Global Reinsurance: Gross premiums written increased by 27 percent to
$31 million for the quarter ending September 2000 compared with gross
premiums written of $24 million for the same quarter last year. Growth in
this segment is due to both increased rates and new business opportunities.
Net premiums written for the quarter were positive in contrast to the third
quarter 1999 when retrocessional coverage exceeded gross premiums written.
Net premiums earned increased 7 percent over the September 1999 quarter to
$38 million. Looking forward, it is anticipated the favorable market trends
will continue as capacity is withdrawn from the retrocessional markets and
reinsurers continue to seek rate increases.
ACE USA: Gross premiums written increased 31 percent to $975 million for
the quarter ended September 2000, a $231 million increase over September
1999. All business units had strong production this quarter with the large
account, special risk, and US International units showing particularly
strong growth. Net premiums written and net premiums earned increased 22
percent and 20 percent respectively during the third quarter 2000 as
compared to the third quarter 1999. ACE USA has continued to focus on
strengthening the quality of its portfolio and as a result, approximately
$50 million of business was eliminated this quarter because it did not meet
ACE's standards. Market conditions continued to be favorable as evidenced by
price increases, substantial increases in submission levels, and strong
account retention during the quarter.
ACE International: Gross premiums written increased 8 percent from $462
million for the September 1999 quarter to $497 million for the September
2000 quarter. On a constant dollar basis gross premiums written were up 10
percent. Net premiums written and net premiums earned declined 2 percent
and 3 percent respectively. On a constant dollar basis net premiums written
were flat. The relatively modest growth rate of gross premiums written was
due in part to the elimination of certain marginal business during the
quarter. ACE International, however, continues to see strong growth
momentum in Europe, Latin America and Asia Pacific. There are indications
that reinsurance costs are starting to rise and that capacity is tightening
in the international market. ACE International expects this to lead to an
acceleration of rate increases moving forward. The exception is Japan where
deregulation has led to rate reductions across all lines of business as
local companies continue to battle for market share.
ACE Financial Services: Gross premiums written for ACE Financial Services
were $58 million for the quarter. This is the third quarter in which the
Company's financial results reflect the acquisition of ACE Financial
Services. Net premiums written were $51 million and net premiums earned
were $43 million. As ACE Financial Services was acquired on December 30,
1999; there are no comparative figures for the quarter. The municipal bond
reinsurance business continues to be impacted by higher interest rates,
however, this weakness is being offset by strengthening in the asset-backed
and derivatives markets.
Underwriting Results
The underwriting results of a property and casualty insurer are discussed
frequently by reference to its combined ratio, loss and loss expense ratio
and underwriting and administrative expense 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.
20
<PAGE>
-------------------------------------------------------------------------------
Three Months Ended
September 30
2000 1999
---- ----
Loss and loss expense ratio
ACE Bermuda 77.9% 83.7%
ACE Global Markets 58.8% 60.9%
ACE Global Reinsurance 15.4% 49.2%
ACE USA 75.0% 73.4%
ACE International 60.7% 56.7%
ACE Financial Services 42.4% -
Consolidated 65.8% 66.4%
Underwriting and administrative expense ratio
ACE Bermuda 8.9% 10.9%
ACE Global Markets 36.3% 37.7%
ACE Global Reinsurance 24.3% 26.8%
ACE USA 24.1% 34.9%
ACE International 37.8% 40.2%
ACE Financial Services 40.9% -
Consolidated 29.4% 35.2%
Combined Ratio
ACE Bermuda 86.8% 94.6%
ACE Global Markets 95.1% 98.6%
ACE Global Reinsurance 39.7% 76.0%
ACE USA 99.1% 108.3%
ACE International 98.5% 96.9%
ACE Financial Services 83.3% -
Consolidated 95.3% 101.6%
-------------------------------------------------------------------------------
The process of establishing reserves for property and casualty claims
continues to be a complex and uncertain process, requiring the use of
informed estimates and judgments. The Company's estimates and judgments may
be revised as additional experience and other data becomes available and
are reviewed, as new or improved methodologies are developed or as current
laws change. Any such revisions could result in future changes in estimates
of losses or reinsurance recoverables, and would be reflected in the
Company's results of operations in the period in which the estimates are
changed.
In addition, catastrophe losses may have a significant effect on the
insurance and reinsurance industry. ACE Global Reinsurance and other
segments of the group have exposure to windstorm, hail, earthquake and
other catastrophic events, all of which are managed using measures
including underwriting controls, occurrence caps as well as modeling,
monitoring and managing its accumulations. The Company uses its
retrocessional programs to limit its net losses from catastrophes. However,
property catastrophe loss experience is generally characterized as low
frequency but high severity short-tail claims which may result in
volatility in financial results.
Underwriting results for all segments for the September 2000 quarter are
consistent with the Company's operating objective of achieving an
underwriting profit. Following the acquisition of ACE INA, the Company
initiated several cost reduction initiatives at ACE INA with a primary
focus on ACE USA. These initiatives have assisted ACE USA in again
achieving a combined ratio under 100 percent for the quarter.
Loss and loss expenses for the third quarter 2000 increased to $773 million
from $633 million in the third quarter 1999 as a result of an increase in
earned premiums and the inclusion of ACE Financial Services. However, the
overall loss ratio declined slightly.
21
<PAGE>
ACE Bermuda: ACE Bermuda's loss ratio for the third quarter 2000 declined
to 77.9 percent from 83.7 percent for the quarter ended September 1999.
Decreases in the loss ratios of political risks, excess property, and AFSI
are primarily responsible for the decreases in ACE Bermuda's loss ratio.
ACE Global Markets: The loss ratio for ACE Global Markets decreased
slightly compared to the third quarter 1999 primarily due to a change in
business mix.
ACE Global Reinsurance: ACE Tempest Re's loss ratio decreased from 49.2
percent for the quarter ended September 1999 to 15.4 percent for the
quarter ended September 2000. This significant decline is the result of
lower catastrophes in 2000 than in 1999. During the September 1999 quarter,
the insurance and reinsurance markets sustained a large number of
catastrophe losses including major earthquakes in Taiwan, Turkey, Greece
and Mexico, Typhoon Bart in Japan and Hurricane Floyd in the U.S. ACE
Tempest Re's losses for the September 2000 quarter were modest, resulting
largely from localized catastrophes affecting its US regional accounts.
ACE USA: The loss ratio for ACE USA increased slightly from 73.4 percent in
1999 to 75.0 percent for the quarter ended September 2000, primarily as a
result of a change in the business mix. ACE USA has concentrated on both
loss ratio and expense ratio improvements even at the risk of losing
business, or in some cases, actively eliminating business that does not
meet the Company's underwriting standards. During the quarter, improvements
in the loss ratio are not apparent because of the change in business mix.
ACE International: The loss ratio for ACE International increased from 56.7
percent for the September 1999 quarter to 60.7 percent for 2000. ACE
International's loss ratio was impacted by losses related to rain storms in
Nagoya Japan, which resulted in significant flood losses and the largest
single automobile loss in Japanese history.
ACE Financial Services: The loss ratio for ACE Financial Services was 42.4
percent for the quarter ended September 2000. As ACE Financial Services was
acquired on December 30, 1999; there are no comparative figures for the
quarter.
Underwriting and administrative expenses
Underwriting and administrative expenses are comprised of the amortization
of deferred acquisition costs, which include commissions, premium taxes,
underwriting and other costs that vary with and are primarily related to
the production of premium, and administrative expenses which include all
other operating costs. Total underwriting and administrative expenses
increased from $335 million for the September 1999 quarter to $346 million
for the September 2000 quarter. The underwriting and administrative expense
ratio decreased quarter on quarter to 29.4 percent from 35.2 percent in
1999.
ACE Bermuda: The underwriting and administrative expense ratio for ACE
Bermuda decreased from 10.9 percent for the September 1999 quarter to 8.8
percent for the September 2000 quarter, primarily the result of a decline in
the administrative expense ratio. This ratio was influenced by the large
professional lines contract earned in the quarter.
ACE Global Markets: ACE Global Markets underwriting and administrative
ratio fell from 37.7 percent for the September quarter 1999 quarter to 36.3
percent for the September 2000 quarter. The improvement is primarily the
result of a lower administrative cost ratio due to increasing earned
premiums.
ACE Global Reinsurance: The underwriting and acquisition cost ratio
decreased from 26.8 percent for 1999 to 24.3 percent for 2000. This
decrease is primarily due to a decrease in administrative expenses and an
increase in earned premiums.
22
<PAGE>
ACE USA: The underwriting and administrative expense ratio decreased from
34.9 percent for the quarter ended September 1999 to 24.1 percent for the
quarter ended September 2000. This decrease was mainly the result of a
decrease in the administrative expense ratio from 24.5 percent in 1999 to
14.3 percent in 2000 driven primarily by the reduction of administrative
expenses at ACE USA resulting from the cost reduction initiatives at ACE
INA following the acquisition. The ratio was also affected by a change in
business mix in 2000 compared with 1999.
ACE International: ACE International's underwriting and administrative
expense ratio decreased from 40.2 percent for the third quarter 1999 to
37.8 percent for the third quarter 2000, due mainly to a drop in policy
acquisition costs.
ACE Financial Services: The underwriting and administrative expense ratio
for ACE Financial Services was 40.9 percent. ACE Financial Services was
acquired on December 30, 1999; therefore, there are no comparative figures
for this quarter.
-------------------------------------------------------------------------------
Net Investment Income Three Months Ended Percentage
September 30 Change
From Prior
2000 1999 Year
---- ----
(in millions of U.S. Dollars)
ACE Bermuda $ 39 $ 37 5%
ACE Global Markets 8 8 -
ACE Global Reinsurance 15 14 8%
ACE USA 90 84 7%
ACE International 25 18 39%
ACE Financial Services 24 - N.M.
Other (3) 2 N.M.
---------- ---------- ----------
Total investment income $ 198 $ 163 21%
========== ========== ==========
N.M. - not meaningful
--------------------------------------------------------------------------------
Net investment income increased by $35 million for the quarter ended
September 2000 compared with the quarter ended September 1999. The primary
reasons for this are an increase in the size of investment assets resulting
from the ACE Financial Services acquisition during 1999 and the inclusion
of the CIS results not previously reflected in the statement of operations.
ACE Bermuda: Net investment income increased by 5 percent to $39 million
for the September 2000 quarter compared with $37 million for 1999. The
increase is due to a larger investable asset base.
ACE Global Markets: Net investment income was unchanged at $8 million
compared to the 1999 quarter.
ACE Global Reinsurance: Net investment income increased by 8 percent to $15
million during the current quarter compared with $14 million for 1999. This
is attributed primarily to a larger investable asset base.
23
<PAGE>
ACE USA: Net investment income increased to $90 million for the September
2000 quarter compared with $84 million for 1999. The investment asset base
of ACE USA was higher during the quarter ended September 30, 2000 than
during the quarter ended September 1999 due to the inclusion of the CIS
results not previously reflected in the statement of operations.
ACE International: Net investment income increased to $25 million for the
September 2000 quarter compared with $18 million for 1999. This is
primarily due to an increased allocation to fixed maturities.
ACE Financial Services: Net investment income of $24 million represents the
net investment income of ACE Financial Services which was acquired on
December 30, 1999; therefore, there is no prior period comparison.
-------------------------------------------------------------------------------
Net Realized Gains (Losses) on Investments Three Months Ended
September 30
2000 1999
---- ----
(in millions of U.S. Dollars)
Fixed maturities and short-term investments $ (16) $ (34)
Equity securities 7 7
Financial futures and option contracts (2) (33)
Other (3) 1
Currency 1 -
---------- ----------
Net realized losses $ (13) $ (59)
========== ==========
-------------------------------------------------------------------------------
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 accumulated
other comprehensive income.
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 currently held in the portfolio not specifically targeted
to match the currency of liabilities. 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 lower than
their amortized cost during the quarter. This resulted in net realized
losses of $16 million being recognized on fixed maturities and short-term
investments during the quarter ended September 2000 compared to net
realized losses of $34 million for the quarter ended September 1999.
Sales proceeds for equity securities were generally higher than their cost
during the quarter, resulting in net realized gains of $7 million being
recognized during both the current quarter and for the quarter ended
September 1999.
24
<PAGE>
Total net realized losses attributable to the financial futures and option
contracts amounted to $2 million during the current quarter, compared to
losses of $33 million for the three months ended September 1999. Certain of
the Company's external managers of fixed income securities use fixed income
futures contracts to manage duration exposure, and losses of $2 million
were recognized on these during the quarter ended September 2000. There
were no net realized gains or losses generated by the Company's equity
index futures contracts during the quarter ended September 2000.
-------------------------------------------------------------------------------
Other Expenses Three Months Ended
September 30
2000 1999
---- ----
(in millions of U.S. Dollars)
Goodwill $ 20 $ 17
=============== ===============
Interest expense $ 55 $ 44
=============== ===============
-------------------------------------------------------------------------------
The increase in goodwill amortization for the September 2000 quarter is
primarily the result of the amortization of goodwill with respect to the
ACE Financial Services acquisition, which is approximately $1 million per
quarter, and amortization of additional goodwill with respect to the ACE
INA acquisition. ACE Financial Services was acquired December 30, 1999;
therefore, goodwill amortization related to this acquisition is not
included in the comparative amounts.
The increase in interest expense for the September 2000 quarter compared
with the September 1999 quarter is due to the replacement of commercial
paper, which was used to finance the acquisition of ACE INA, with higher
interest bearing debt and securities. At September 30, 1999, the Company
had $1.28 billion of commercial paper outstanding. At September 30, 2000,
this amount has been reduced to $352 million. Note 8 to the September 30,
2000 financial statements details the outstanding debt at September 30,
2000.
Results of Operations - Nine Months ended September 30, 2000
-------------------------------------------------------------------------------
Net Income Nine Months Ended
September 30
2000 1999
---- ----
(in millions of U.S. Dollars)
Income excluding net realized gains
(losses) on investments $ 418 $ 224
Net realized gains (losses) on investments 11 (11)
(net of taxes) -------- ---------
Net Income $ 429 $ 213
======== =========
-------------------------------------------------------------------------------
Income excluding net realized gains (losses) on investments for the first
nine months of fiscal 2000 increased 87 percent to $418 million compared to
$224 million for the same period in 1999. Most segments had significant
increases in income excluding net realized gains (losses) on investments.
The increase is due primarily to the inclusion of the results of ACE INA
and ACE Financial Services for the full nine months of fiscal 2000. The
increase was also due to better operating results in the ACE Global
Reinsurance segment as a result of minimal catastrophe activity in the nine
months ended September 2000 versus the nine months ended September 1999
where these were a large number of insured catastrophes that impacted the
results of the ACE Global Reinsurance segment.
Net realized gains on investments (net of taxes) were $11 million for the
nine months ended September 2000 compared to net realized losses of $11
million for the nine months ended September 1999. The increases were
primarily due to gains realized by ACE Bermuda and ACE International.
25
<PAGE>
Net income for the nine months ended September 2000 was $429 million
compared with $213 for the nine months ended September 1999. Increases were
driven by the same factors that were explained in the discussion of income
excluding net realized gains (losses).
-------------------------------------------------------------------------------
Premiums Nine months ended % Change
September 30 from
2000 1999 Prior Year
---- ---- -----------
(in millions of U.S. Dollars)
Gross premiums written:
ACE Bermuda $ 511 $ 433 18%
ACE Global Markets 753 530 42%
ACE Global Reinsurance 178 185 (3)%
ACE USA 2,662 879 N.M.
ACE International 1,554 462 N.M.
ACE Financial Services 289 - N.M.
----------- ---------- -------
$ 5,947 $ 2,489 139%
=========== ========== =======
Net premiums written:
ACE Bermuda $ 446 $ 346 29%
ACE Global Markets 551 377 46%
ACE Global Reinsurance 146 150 (2)%
ACE USA 1,371 439 N.M.
ACE International 1,080 332 N.M.
ACE Financial Services 274 - N.M.
---------- ---------- -------
$ 3,868 $ 1,644 135%
========== ========== =======
Net premiums earned:
ACE Bermuda $ 356 $ 398 (10)%
ACE Global Markets 455 288 58%
ACE Global Reinsurance 96 109 (12)%
ACE USA 1,256 393 N.M.
ACE International 1,037 350 N.M.
ACE Financial Services 247 - N.M.
---------- ---------- --------
$ 3,447 $ 1,538 124%
========== ========== ========
-------------------------------------------------------------------------------
Gross premiums written for the nine months ended September 2000 increased
by 139 percent to $5.9 billion from $2.5 billion reported for the nine
months ended September 1999. This increase is primarily due to the
inclusion of ACE INA and ACE Financial Services for the full nine months of
2000. ACE INA was acquired July 2, 1999 and therefore only three months of
results are reflected in the fiscal 1999 results. ACE Financial Services
was acquired on December 30, 1999 and consequently there are no
comparatives for September 1999. Net premiums written increased by 135
percent to $3.9 billion and net premiums earned increased by 124 percent to
$3.4 billion. Increases in net premiums written and net premiums earned are
also primarily the result of the inclusion of the ACE INA business and ACE
Financial Services.
26
<PAGE>
ACE Bermuda: Gross premiums written for the nine months ended September
2000 increased $78 million to $511 million from $433 million for the nine
months ended September 1999. This growth was led by new business in excess
property and AFSI and the binding of a one time premium of $50 million on a
retroactive program in the professional lines business which was fully
written and earned in the third quarter 2000. Net premiums written
increased $100 million in the first three quarters of 2000 to $446 million
while net premiums earned decreased $42 million to $356 million primarily
as a result of a change in the mix of business in the AFSI operation.
ACE Global Markets: Gross premiums written by ACE Global Markets increased
by 42 percent from $530 million in fiscal 1999 to $753 million in fiscal
2000. As previously reported, the Company now records the results of the
Lloyd's 2000 underwriting year on a current basis and the results for
September 2000 are for business concluded for the nine months ended
September 2000. Prior year underwriting results are still recorded one
quarter in arrears but should run off over the next several quarters. On a
comparable basis, gross premiums written increased by approximately $257
million in 2000 compared with 1999. This increase is the result of ACE's
increased capacity in 2000. Net premiums written increased by 46 percent
for the nine months to $551 million and net premiums earned increased by 58
percent to $455 million.
ACE Global Reinsurance: Gross premiums written decreased slightly from $185
million in the first nine months of fiscal 1999 to $178 million for the
first nine months of fiscal 2000. The decrease is due predominantly to a
number of program restructuring and non-renewals, offset by new business
premiums. Net premiums written decreased by 2 percent to $146 million and
net premiums earned decreased by 12 percent to $96 million.
ACE USA: Gross premiums for the first nine months of 2000 were $2.7 billion
compared to $879 million for the first nine months of 1999. Net premiums
written increased from $439 million to $1.4 billion primarily due to the
inclusion of ACE INA for the full nine months of 2000 compared to the
inclusion of results from ACE INA from July 2, 1999, the date of acquisition.
Net premiums earned increased to $1.3 billion compared with $393
million in 1999. As with gross premiums written, net premiums written and net
premiums earned increased primarily because of the inclusion of the ACE INA
book of business.
ACE International: Gross premiums for the nine months ended September 2000
were $1.6 billion compared with $462 million for the nine months ended
September 1999 and net premiums written increased from $332 million in 1999
to $1.1 billion in 2000. As with ACE USA the increase is primarily due to
the inclusion of ACE INA for the full nine months of 2000 compared to the
inclusion of results from ACE INA from July 2, 1999, the date of acquisition,
in the nine month figures of 1999. Net premiums earned increased to $1.0
billion in 2000 from $350 million in 1999 also because of the inclusion of
the ACE INA book of business for the full nine months of 2000.
ACE Financial Services: Gross premiums for the nine months ended September
2000 amounted to $289 million. Net premiums written and net premiums earned
were $274 million and $247 million respectively. Because this is the first
year in which results from ACE Financial Services are reflected in the
financials results there are no comparatives for the nine months ended
September 1999.
Underwriting Results
The underwriting results of a property and casualty insurer are discussed
frequently by reference to its combined ratio, loss and loss expense ratio
and underwriting and administrative expense 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.
27
<PAGE>
-------------------------------------------------------------------------------
Nine Months Ended
September 30
2000 1999
---- ----
Loss and loss expense ratio
ACE Bermuda 74.4% 76.0%
ACE Global Markets 56.8% 58.3%
ACE Global Reinsurance 18.2% 85.7%
ACE USA 74.8% 71.9%
ACE International 59.2% 56.7%
ACE Financial Services 66.0% -
Consolidated 65.5% 67.9%
Underwriting and administrative expense ratio
ACE Bermuda 10.4% 10.6%
ACE Global Markets 38.2% 39.1%
ACE Global Reinsurance 26.8% 22.9%
ACE USA 24.6% 34.9%
ACE International 37.1% 40.2%
ACE Financial Services 25.2% -
Consolidated 30.1% 32.3%
Combined Ratio
ACE Bermuda 84.8% 86.6%
ACE Global Markets 95.0% 97.4%
ACE Global Reinsurance 45.0% 108.6%
ACE USA 99.2% 106.8%
ACE International 96.3% 96.9%
ACE Financial Services 91.2% -
Consolidated 95.6% 100.2%
-------------------------------------------------------------------------------
For the nine months ended September 2000, the Company had a combined ratio
of 95.6 percent compared to 100.2 percent for the nine months ended
September 1999. Even with the Company's premium growth in the nine months
of fiscal 2000, underwriting results for all segments for the nine months
ended September 30, 2000 are consistent with the Company's operating
objective of achieving an underwriting profit.
Loss and loss expenses increased to $2.3 billion for the first nine months
of 2000 compared to $1.5 billion for the same period in 1999. This increase
is primarily due to the inclusion of results from ACE INA for the full nine
months of 2000 compared to inclusion from July 2, 1999, the date of
acquisition in 1999 and the inclusion of ACE Financial Services. The
Company's loss and loss expense ratio decreased from 67.9 percent in 1999
to 65.5 percent in 2000. The primary cause of this decrease is the reduced
number of catastrophic events in 2000 compared with 1999.
ACE Bermuda: The loss ratio for ACE Bermuda for the nine months ended
September 2000 remained relatively flat at 74.4 percent for 2000 compared
to 76.0 percent for 1999.
ACE Global Markets: For the first nine months of 2000, ACE Global Markets
loss ratio decreased slightly to 56.8 percent compared with 58.3 percent
for the first nine months of 1999, primarily due to a change in business
mix.
ACE Global Reinsurance: ACE Tempest Re's loss and loss expense ratio
declined significantly from 85.7 percent for the nine months ended
September 1999 to 18.2 percent for the nine months ending September 2000.
There have been very few catastrophic events during 2000 as compared to the
significant number of catastrophes that were experienced in the nine months
ended September 1999.
28
<PAGE>
ACE USA: The loss ratio for the nine months ended September 2000 increased
to 74.8 percent compared to 71.9 percent in 1999. The primary reason for
this increase is that the domestic business of ACE INA has a loss ratio in
excess of the historic loss ratio for ACE US Holdings. The first six months
of 1999 related solely to the ACE US Holdings group which had a loss ratio
for the six months of 62.3 percent.
ACE International: ACE International had a loss ratio of 59.2 percent for
the first nine months of 2000 as compared to 56.7 percent for the same
period in 1999. The increase is driven by losses in Europe.
ACE Financial Services: The loss ratio for the nine months ended September
2000 for ACE Financial Services was 66.0 percent. ACE Financial Services
was acquired on December 30, 1999; therefore, there are no comparative
figures for this quarter.
Underwriting and administrative expenses
Total underwriting and administrative expenses increased significantly for
the nine months ended September 2000 to $1.0 billion from $498 million in
1999. This increase, as with premiums and incurred losses, is due to the
inclusion of ACE INA for the full nine months in 2000 compared to 1999
which included ACE INA from July 2, 1999, the date of acquisition and the
inclusion of ACE Financial Services. The underwriting and administrative
ratio for the Company declined to 30.1 percent for 2000 compared to 32.3
percent for 1999.
ACE Bermuda: The underwriting and administrative expense ratio for the
first nine months of 2000 remained relatively flat at 10.4 percent compared
with 10.6 percent for 1999.
ACE Global Markets: ACE Global Markets underwriting and administrative
expenses for the nine months ended September 2000 decreased slightly from
39.1 percent in 1999 to 38.2 percent in 2000. This is due primarily to a
decline in the administrative expense ratio caused by an increase in earned
premiums.
ACE Global Reinsurance: The underwriting and administrative expense ratio
increased from 22.9 percent in 1999 to 26.8 percent in 2000 primarily
because of an increase in the policy acquisition cost ratio. The increase
in the policy acquisition ratio is due to the company entering into more
contracts that have higher ceding commissions.
ACE USA: For the first nine months of 2000 ACE USA had an underwriting and
administrative expense ratio of 24.6 percent compared to 34.9 percent in
1999. The decrease resulted from a decline in the administrative expense
ratio in 2000, primarily resulting from cost cutting efforts in ACE USA
following the ACE INA acquisition. The decrease is also partly due to a
change in the mix of business.
ACE International: The underwriting and administrative expense ratio for
the first nine months of 2000 declined from 40.2 percent in 1999 to 37.1
percent in 2000. Both the policy acquisition cost ratio and the
administrative expense ratio decreased. The decrease in expenses is the
result of the cost cutting measures taken in this segment, primarily in
Japan.
ACE Financial Services: ACE Financial Services had an underwriting and
administrative ratio of 25.2 percent for the first nine months of 2000. As
ACE Financial Services was acquired on December 30, 1999, there are no
comparative figures for this period in 1999.
29
<PAGE>
-------------------------------------------------------------------------------
Net Investment Income Nine Months Ended
September 30 Percentage
2000 1999 Change
---- ---- From Prior
(in millions of U.S. Dollars) Year
ACE Bermuda $ 111 $ 135 (18)%
ACE Global Markets 23 21 9%
ACE Global Reinsurance 45 45 -
ACE USA 252 109 131%
ACE International 69 18 N.M.
ACE Financial Services 71 - N.M.
Other (9) 6 N.M.
------------ --------------- -----------
Total investment income $ 562 $ 334 68%
============ =============== ===========
N.M.-not- meaningful
-------------------------------------------------------------------------------
Net investment income increased by $228 million for the nine months ended
September 2000 compared with the nine months ended September 1999. The
primary reason for this is an increase in the size of investment assets
resulting from the ACE INA and ACE Financial Services acquisitions during
1999. Rising interest rates had a positive impact on investment income
during the nine months ended September 2000.
ACE Bermuda: Net investment income decreased by 18 percent to $111 million
in 2000 compared with $135 million in 1999. This decrease is primarily due
to a reduction in investable asset base due to dividends paid at the end of
December 1999.
ACE Global Markets: Net investment income increased by 9 percent to $23
million compared with $21 million for 1999 as a result of the Company's
increased participation in the Lloyd's syndicates it manages.
ACE Global Reinsurance: Net investment income was unchanged for the nine
months ended September 2000, at $45 million.
ACE USA: Net investment income increased to $252 million in 2000 compared
with $109 million in 1999. The investment asset base of ACE USA was higher
during the nine months ended September 2000 than during the nine months
ended September 1999 due to the ACE INA acquisition. Net investment income
for the current year includes both ACE US Holdings and the US operations of
ACE INA which was acquired on July 2, 1999. Net investment income for 1999
reflects the net investment income of ACE US Holdings for the entire period
and the US operations of ACE INA for the three month period from July 2,
1999.
ACE International: Net investment income of $69 million represents the net
investment income of the international operations of ACE INA for the nine
months ended September 30, 2000. The 1999 net investment income reflects
the three month period from the date of acquisition; July 2, 1999, to
September 30, 1999.
ACE Financial Services: Net investment income of $71 million represents the
net investment income of ACE Financial Services which was acquired on
December 30, 1999; therefore, there is no prior period comparison.
30
<PAGE>
-------------------------------------------------------------------------------
Net Realized Gains (Losses) on Investments Nine Months Ended
September 30
2000 1999
---- ----
(in millions of U.S. Dollars)
Fixed maturities and short-term investments $ (74) $ (65)
Equity securities 100 36
Financial futures and option contracts (10) 17
Other 4 1
Currency (6) (5)
----------- ---------------
Net realized gains (losses) $ 14 $ (16)
=========== ===============
--------------------------------------------------------------------------------
Sales proceeds for fixed maturity securities were generally lower than
their amortized cost during the nine months ended September 2000. This
resulted in net realized losses of $74 million being recognized on fixed
maturities and short-term investments during the nine months ended
September 2000 compared to net realized losses of $65 million for the nine
months ended September 1999.
Sales proceeds for equity securities were generally higher than their cost
during the nine months ended September 2000, resulting in net realized
gains of $100 million being recognized during the period compared to $36
million for the nine months ended September 1999.
Total net realized losses attributable to the financial futures and option
contracts amounted to $10 million during the nine months ended September
30, 2000, compared to gains of $17 million for the nine months ended
September 1999. Certain of the Company's external managers of fixed income
securities use fixed income futures contracts to manage duration exposure,
and losses of $4 million were recognized on these during the nine months
ended September 2000. Net realized losses generated by the Company's equity
index futures contracts amounted to $6 million during the nine months ended
September 2000.
--------------------------------------------------------------------------------
Other Expenses Nine Months Ended
September 30
2000 1999
---- ----
(in millions of U.S. Dollars)
Goodwill $ 59 $ 26
============== ============
Interest expense $ 167 $ 53
=============== ============
--------------------------------------------------------------------------------
31
<PAGE>
The increase in goodwill amortization for the nine months ended September
2000 is primarily the result of the amortization of goodwill with respect
to the ACE INA and ACE Financial Services acquisitions. ACE INA was
acquired July 2, 1999 and ACE Financial Services was acquired December 30,
1999, therefore, goodwill amortization related to these acquisitions are
not included for the full nine months in the comparative amounts.
The increase in interest expense for the nine months ended September 2000
is a result of the additional debt incurred by the Company in connection
with the acquisition of ACE INA on July 2, 1999.
CONSOLIDATED FINANCIAL POSITION
Total assets at September 30, 2000 increased to $31.5 billion compared with
$30.1 billion at December 31, 1999. The primary reason for the increase was
the expansion of the CIS balance sheet items out of a net liability and
into their component parts. Approximately $950 million of the total CIS
assets of $1.3 billion, were cash and investments.
At September 30, 2000, total investments and cash increased to $13.8
billion, from $12.9 billion at December 31, 1999. This increase is
primarily a result of the expansion of the CIS balance sheet as previously
noted, as well as the proceeds from the sale of ACE ordinary shares in
September 2000. These two items added $950 million and $400 million
respectively to total investments and cash. In addition, the change in
market value of fixed maturity securities added $78 million to total cash
and investments. These items were partly offset as the Company used
approximately $100 million of internal funds to repay short-term debt and
had negative cash flow from operations of approximately $375 million. The
Company's investment portfolio is structured to provide a high level of
liquidity to meet insurance related or other obligations and at September
30, 2000 had an average duration of 4.0 years. The consolidated investment
portfolio is externally managed by independent professional investment
managers and is invested primarily in high quality investment grade
marketable fixed income and equity securities, the majority of which trade
in active, liquid markets.
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 $17.4
billion at September 30, 2000 includes $10.1 billion of case and loss
expense reserves. While the Company believes that its reserve for unpaid
losses and loss expenses at September 30, 2000 is reasonable, future
developments may result in ultimate losses and loss expenses significantly
greater or less than the reserve provided.
One of the ways the Company manages its loss exposure is through the use of
reinsurance. While reinsurance arrangements are designed to limit losses
from large exposures and to permit recovery of a portion of direct losses,
reinsurance does not relieve the Company of its liability to its insureds.
Accordingly, the Company's loss reserves represent total gross losses and
reinsurance recoverable represents anticipated recoveries of a portion of
those losses as well as amounts recoverable from reinsurers with respect to
claims which have already been paid by the Company. The Company's
reinsurance recoverables were approximately $8.7 billion and $8.8 billion
at September 30, 2000 and December 31, 1999, net of allowances for
unrecoverable reinsurance of $715 million and $758 million, respectively.
The allowance for unrecoverable reinsurance is required principally due to
the failure of reinsurers to indemnify the Company, primarily because of
disputes under reinsurance contracts and insolvencies. Reinsurance disputes
continue to be significant, particularly on larger and more complex claims,
such as those related to asbestos and environmental pollution (discussed
below) and London reinsurance market exposures. Allowances have been
established for amounts estimated to be uncollectible.
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Included in the Company's liabilities for losses and loss expenses are
liabilities for asbestos environmental and latent injury damage claims and
expenses ("A&E claims"). These liabilities include provision for both
reported and IBNR claims. These claims are principally related to claims
arising from remediation costs associated with hazardous waste sites and
bodily injury claims related to asbestos products and environmental
hazards.
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 nine months ended September 30, 2000, ACE Bermuda
declared dividends of $81 million. During the year ended December 31, 1999,
ACE Bermuda and ACE Tempest Re declared dividends of $726 million and $316
million, respectively.
The payment of any dividends from ACE Global Markets or its subsidiaries
would be subject to applicable United Kingdom insurance law including those
promulgated by the Society of Lloyd's. No dividends were received from ACE
Global Markets during fiscal 1999 or during the first nine months of fiscal
2000 and the Company does not anticipate receiving dividends from ACE
Global Markets during the remainder of fiscal 2000. ACE INA has issued debt
to provide partial financing for the ACE INA acquisition and for other
operating needs. Cash flow requirements to service this debt are expected
to be met primarily by upstreaming dividend payments from ACE INA's
insurance subsidiaries. During the nine months ended September 30, 2000,
ACE INA Holdings received dividends of $94 million from its subsidiaries.
Under various U.S. insurance laws to which ACE INA's U.S. insurance
subsidiaries are subject, ACE INA's U.S. insurance subsidiaries may pay a
dividend only from earned surplus subject to the maintenance of a minimum
capital requirement, without prior regulatory approval. ACE INA's
international subsidiaries are also subject to various insurance laws and
are also subject to regulations in the countries in which they operate.
These regulations include restrictions that limit the amount of dividends
that can be paid without prior approval of the insurance regulatory
authorities. No dividends have been received by ACE Limited from ACE INA
during the nine months ended September 30, 2000.
ACE Financial Services US insurance subsidiaries are also subject to
various US insurance laws under which subsidiaries may pay a dividend only
from earned surplus subject to the maintenance of a minimum capital
requirement, without prior regulatory approval. No dividends have been
received from ACE Financial Services during the nine months ended September
30, 2000.
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. The Company's consolidated net cash flow from operating
activities was $(375) million for the nine months ended September 30, 2000,
compared with $(285) million for the nine months ended September 30, 1999.
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. The Company's cash flows from operations are
currently impacted by a large book of reserves from business in run-off.
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Although the Company's ongoing operations continue to generate positive
cash flows from operations, the run-off operations generate negative cash
flows. The run-off book of business continues to require cash to meet its
liabililities and cash flows are very dependent on the timing of claim
settlements. Loss and loss expense payments amounted to $2.8 billion and
$1.5 billion for the nine months ended September 30, 2000 and 1999,
respectively. The substantial increase in loss and loss expense payments is
a result of the inclusion of paid losses from ACE INA. For the year ended
December 31, 1999 and fiscal years ended September 30, 1998 and 1997, net
losses and loss expense payments amounted to $2.4 billion, $584 million and
$422 million respectively.
On July 2, 1999, the Company completed the ACE INA acquisition for $3.45
billion in cash. The Company partially financed the transaction with
commercial paper issuance with an annualized cost in the range of 6.5 to
7.0 percent. The commercial paper offerings are backed by line of credit
facilities, which were originally arranged in connection with the ACE INA
acquisition. Since the acquisition, the commercial paper outstanding has
been paid down to the current level of $352 million as a result of
various public and private market senior debt, trust preferred, capital
securities and hybrid equity issuances. These capital market instruments
are more fully described within the table under Note 8 in the Notes to
Interim Consolidated Financial Statements. The capital market issuance
activities related to the acquisition are now complete.
On December 30, 1999, the Company completed the acquisition of ACE
Financial Services for aggregate consideration of $110 million in cash and
approximately 20.8 million ACE ordinary shares. The cash used to finance
the acquisition was generated from internal sources.
On September 12, 2000, the Company completed the sale of 12,250,000 ACE
Ordinary Shares for net proceeds of approximately $400 million. The
proceeds of the offering, which have been placed in a custodial account and
are being invested primarily in investment-grade marketable securities, are
being used to support the Company's guarantee of the $412 million
principal amount of Auction Rate Reset Subordinated Notes Series A issued
by ACE INA to the ACE RHINOS Trust. The notes issued by ACE INA and the
preferred shares issued by the RHINOS Trust mature in September 2002 and
are redeemable at any time at ACE INA's option. Effective October 27, 2000,
the interest rate on the notes and the distribution rate on the preferred
securities was reduced to LIBOR plus 87.5 basis points.
On January 14, 2000 and April 14, 2000 the Company paid quarterly dividends
of 11 cents per share to shareholders of record on December 31, 1999 and
March 31, 2000 respectively. On July 14, 2000 and October 13, 2000, the
Company paid quarterly dividends of 13 cents per share to shareholders of
record on June 30, 2000 and September 30, 2000, respectively. 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 book value per share was $22.41 at September 30, 2000,
compared with $20.28 at December 31, 1999.
Both internal and external forces influence the Company's financial
condition, results of operations and cash flows. Claim 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 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 meet the Company's expected cash
requirements.
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Credit facilities
In May 2000, the Company renewed certain syndicated 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 An $800 million, 364-day revolving credit facility with ACE
Limited and various subsidiaries as borrowers and guarantors. This
facility is for general corporate purposes.
o A $250 million, five-year revolving credit facility with ACE
Limited and various subsidiaries as borrowers and guarantors. This
facility is for general corporate purposes and permits both loans
and letters of credit.
Each of the above facilities may be used as commercial paper back-up
facilities.
ACE Tempest Re also maintains an uncollateralized, syndicated revolving
credit facility in the amount of $72.5 million, which is guaranteed by the
Company. At September 30, 2000, no amounts have been drawn down under this
facility.
As of September 30, 2000 ACE Financial Services was party to a credit
facility with a syndicate of banks pursuant to which the syndicate provides
up to $120 million specifically designed to provide rating agency qualified
capital to further support ACE Financial Services claims-paying resources.
The facility expires in January 2006. ACE Financial Services has not
borrowed under this credit facility.
In August 1996, ACE Financial Services entered into a credit agreement for
the provision of a $25 million loan, which was available for general
corporate purposes. As of September 30, 2000, this facility had been
cancelled and replaced with a $25 million loan under the group's 5-year
syndicated credit facility as described above.
In November 1998, the Company arranged a syndicated, five-year LOC facility
in the amount of (pound)270 million (approximately $392 million) to fulfill
the requirements of Lloyd's for the 1999 year of account. This LOC facility
requires that the Company and/or certain of its subsidiaries continue to
maintain certain covenants, including a minimum consolidated tangible net
worth covenant and a maximum leverage covenant. The facility was renewed in
November 1999 at an increased amount of (pound)290 million (approximately
$421 million) to fulfill the requirements of Lloyd's for the 2000 year of
account. The Company is currently renewing this facility at an increased
amount to fulfill the requirements of Lloyd's for the 2001 year of account.
The facility is currently uncollateralized, but the Company has an
obligation to provide collateral if the financial strength rating from S&P
for the subsidiary guaranteeing this facility falls to BBB+ or below. ACE
Financial Services also maintains a (pound)48 million (approximately $70
million) unsecured letter of credit facility with a bank to fulfill a
subsidiary's requirements at Lloyd's.
In September 2000, the Company along with ACE Bermuda and ACE Tempest Re as
Account Parties and Guarantors renewed for one year a syndicated, one-year
LOC facility in the amount of $430 million for general business purposes,
including the issuance of (re)insurance letters of credit. This facility
was originally arranged in September 1999. This LOC facility requires that
the Company and/or certain of its subsidiaries continue to maintain certain
covenants, including a minimum consolidated tangible net worth covenant and
a maximum leverage covenant.
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ACE LIMITED
PART II - OTHER INFORMATION
---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
1. Exhibits.
10.1 Underwriting Agreement between ACE Limited and Banc of
America Securities LLC with related terms agreements dated
September 6, 2000
10.2 Third Amendment to Reimbursement Agreement amends the
Reimbursement Agreement, dated as of September 8, 1999, and
amended as of November 30, 1999 and as of March 15, 2000,
among ACE Limited, ACE Bermuda Insurance Ltd. , Tempest
Reinsurance Company Limited, Deutsche Bank AG, New York
and/or Cayman Islands Branches and Fleet National Bank, as
Documentation Agents, and Mellon Bank, N.A dated September 1,
2000.
10.3 Fourth Amendment to Reimbursement Agreement which amends
the Reimbursement Agreement, dated as of September 8, 1999,
and amended as of November 30, 1999, as of March 15, 2000
and as of September 1, 2000, among ACE Limited, ACE Bermuda
Insurance Ltd. ACE Tempest Reinsurance Ltd., formerly
Tempest Reinsurance Company Limited, Deutsche Bank AG, New
York and/or Cayman Islands Branches and Fleet National
Bank, as Documentation Agents, and Mellon Bank, N.A., as
Issuing Bank and Administrative Agent dated as of October 5,
2000.
10.4 The first amendment which amends the Amended and Restated Five
Year Credit Agreement dated as of May 8, 2000 among ACE Limited,
ACE Bermuda Insurance Ltd. ACE Tempest Reinsurance Ltd.,
formerly known as Tempest Reinsurance Company Limited, ACE INA
Holdings Inc. and ACE Financial Services, Inc., various
financial institutions, and Morgan Guaranty Trust Company of
New York, as administrative agent dated as of October 23, 2000
10.5 The first amendment which amends the Amended and Restated
364-Day Credit Agreement dated as of May 8, 2000 among ACE
Limited, a Cayman Islands, ACE Bermuda Insurance Ltd., ACE
Tempest Reinsurance Ltd., formerly known as Tempest Reinsurance
Company Limited, ACE INA Holdings Inc. and ACE Guaranty Re
Inc., various financial institutions and Morgan Guaranty
Trust Company of New York ("MGT"), as administrative agent
dated as of October 23, 2000
27. Financial Data Schedule
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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
-----------------------------------------
November 14, 2000 /s/ Brian Duperreault
-------------------------------------------
Brian Duperreault
Chairman and Chief
Executive Officer
November 14, 2000 /s/ Robert Blee
--------------------------------------------
Robert A. Blee
Chief Accounting Officer
37
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EXHIBIT INDEX
-------------
Exhibit Numbered
Number Description Page
------ ----------- ----
10.1 Underwriting Agreement between ACE Limited and Banc of
America Securities LLC with related terms agreements dated
September 6, 2000
10.2 Third Amendment to Reimbursement Agreement amends the
Reimbursement Agreement, dated as of September 8, 1999, and
amended as of November 30, 1999 and as of March 15, 2000,
among ACE Limited, ACE Bermuda Insurance Ltd. , Tempest
Reinsurance Company Limited, Deutsche Bank AG, New York
and/or Cayman Islands Branches and Fleet National Bank, as
Documentation Agents, and Mellon Bank, N.A dated September 1,
2000.
10.3 Fourth Amendment to Reimbursement Agreement which amends
the Reimbursement Agreement, dated as of September 8, 1999,
and amended as of November 30, 1999, as of March 15, 2000
and as of September 1, 2000, among ACE Limited, ACE Bermuda
Insurance Ltd. ACE Tempest Reinsurance Ltd., formerly
Tempest Reinsurance Company Limited, Deutsche Bank AG, New
York and/or Cayman Islands Branches and Fleet National
Bank, as Documentation Agents, and Mellon Bank, N.A., as
Issuing Bank and Administrative Agent dated as of October 5,
2000.
10.4 The first amendment which amends the Amended and Restated Five
Year Credit Agreement dated as of May 8, 2000 among ACE Limited,
ACE Bermuda Insurance Ltd. ACE Tempest Reinsurance Ltd.,
formerly known as Tempest Reinsurance Company Limited, ACE INA
Holdings Inc. and ACE Financial Services, Inc., various
financial institutions, and Morgan Guaranty Trust Company of
New York, as administrative agent dated as of October 23, 2000
10.5 The first amendment which amends the Amended and Restated
364-Day Credit Agreement dated as of May 8, 2000 among ACE
Limited, a Cayman Islands, ACE Bermuda Insurance Ltd., ACE
Tempest Reinsurance Ltd., formerly known as Tempest Reinsurance
Company Limited, ACE INA Holdings Inc. and ACE Guaranty Re
Inc., various financial institutions and Morgan Guaranty
Trust Company of New York ("MGT"), as administrative agent
dated as of October 23, 2000
27. Financial Data Schedule
38
