UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____________ to ____________
Commission File No. 1-11778
I.R.S. Employer Identification No. N/A
ACE LIMITED
(Incorporated in the Cayman Islands)
The ACE Building
30 Woodbourne Avenue
Hamilton HM 08
Bermuda
Telephone 441-295-5200
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES ____x________ NO _________
The number of registrant's Ordinary Shares ($0.125 par value)
outstanding as of May 10, 1996 was 46,105,108.
ACE LIMITED
INDEX TO FORM 10-Q
Part I. FINANCIAL INFORMATION
- -------------------------------
Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets
March 31, 1996 (Unaudited) and September 30, 1995 1
Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31, 1996 and March 31, 1995
Six Months Ended March 31, 1996 and March 31, 1995 2
Consolidated Statements of Shareholders' Equity
(Unaudited)
Six Months Ended March 31, 1996 and March 31,
1995 3
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended March 31, 1996 and March 31,
1995 4
Notes to Interim Consolidated Financial Statements
(Unaudited) 5
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 8
Part II. OTHER INFORMATION
- ----------------------------
Item 5. Other information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and September 30, 1995
March 31 September 30
1996 1995
---------------------------------
(unaudited)
(in thousands of U.S. Dollars,
except share and per share data)
ASSETS
Investments and cash
Fixed maturities, at fair value
(amortized cost - $2,828,141 and $2,325,959) $2,818,959 $2,377,510
Equity securities, at fair value (cost - $235,267 and $224,020) 298,794 267,163
Short-term investments 266,568 458,145
Other investments, at cost 12,453 12,453
Cash 36,244 16,929
------------- -------------
Total investments and cash 3,433,018 3,132,200
Accrued investment income 35,975 29,574
Deferred acquisition costs 34,226 34,428
Insurance balances receivable 32,772 20,993
Other assets 37,177 15,557
------------- -------------
Total assets $3,573,168 $3,232,752
============= ============
LIABILITIES
Unpaid losses and loss expenses $1,611,366 $1,437,930
Unearned premiums 349,521 305,568
Premiums received in advance 36,516 23,876
Accounts payable and other liabilities 29,659 16,259
Dividend payable 6,455 6,456
-------------- --------------
Total liabilities 2,033,517 1,790,089
----------- -----------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Ordinary Shares ($0.125 par value, 100,000,000 shares authorized;
46,105,108 and 46,111,185 shares issued and outstanding) 5,763 5,764
Additional paid-in capital 548,441 548,513
Unearned stock grant compensation (1,520) (1,796)
Net unrealized appreciation on investments 54,345 94,694
Cumulative translation adjustments (180) -
Retained earnings 932,802 795,488
------------- -------------
Total shareholders' equity 1,539,651 1,442,663
----------- -----------
Total liabilities and shareholders' equity $3,573,168 $3,232,752
=========== ===========
See accompanying notes to interim consolidated financial statements
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Six Months Ended March 31, 1996 and 1995
(Unaudited)
Three Months Ended Six Months Ended
March 31 March 31
1996 1995 1996 1995
------- ------ ------ ------
(in thousands of U.S. Dollars, except share and per share data)
REVENUES
Net premiums written $ 177,535 $ 102,481 $ 306,330 $ 213,367
Change in unearned premiums (31,142) 4,075 (43,953) (2,734)
------------ ----------- ------------ ------------
Net premiums earned 146,393 106,556 262,377 210,633
Net investment income 48,312 44,947 95,438 88,264
Net realized gains (losses) on investments 5,261 5,086 49,863 (39,668)
-------------- ------------- ---------- ----------
Total revenues 199,966 156,589 407,678 259,229
------------ ------------- ----------- ---------
EXPENSES
Losses and loss expenses 121,076 87,140 214,000 172,373
Acquisition costs 12,549 11,879 24,663 23,630
Administrative expenses 9,538 5,644 18,676 9,930
------------- ------------- ------------ ---------
Total expenses 143,163 104,663 257,339 205,933
----------- -------------- ------------ ----------
NET INCOME $ 56,803 $ 51,926 $ 150,339 $ 53,296
============ ============== ========== ============
Earnings per share $ 1.22 $ 1.10 $ 3.24 $ 1.13
============ ============== =========== ============
Weighted average shares outstanding 46,459,621 47,244,021 46,462,323 47,343,124
============ ============== =========== ============
See accompanying notes to interim consolidated financial statements
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Six Months Ended March 31, 1996 and 1995
(Unaudited)
1996 1995
-------- ------
(in thousands of U.S. Dollars)
Ordinary shares
Balance - beginning of period $ 5,764 $ 5,928
Exercise of stock options (aggregate par value less than $1) -- --
Repurchase of Ordinary shares (1) (46)
----------------- ----------------
Balance - end of period 5,763 5,882
--------------- --------------
Additional paid-in capital
Balance - beginning of period 548,513 564,198
Exercise of stock options -- 8
Repurchase of Ordinary shares (72) (4,411)
------------- --------------
Balance - end of period 548,441 559,795
------------- --------------
Unearned stock grant compensation
Balance - beginning of period (1,796) (412)
Stock grants awarded (272) (2,350)
Stock grants forfeited 60 --
Amortization 488 512
---------------- ----------------
Balance - end of period (1,520) (2,250)
--------------- --------------
Net unrealized appreciation (depreciation) on investments
Balance - beginning of period 94,694 (79,685)
Net appreciation (depreciation) during period (40,349) 92,589
---------------- -------------
Balance - end of period 54,345 12,904
-------------- --------------
Cumulative translation adjustments
Balance - beginning of period -- --
Net adjustment for period (180) --
-------------- --------------
Balance - end of period (180) --
--------------- ---------------
Retained earnings
Balance - beginning of period 795,488 598,716
Net income 150,339 53,296
Dividends declared (12,929) (10,374)
Repurchase of Ordinary shares (96) (4,068)
---------------- ---------------
Balance - end of period 932,802 637,570
---------------- ---------------
TOTAL SHAREHOLDERS' EQUITY $1,539,651 $1,213,901
================ ===============
See accompanying notes to interim consolidated financial statements
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 1996 and 1995
(Unaudited)
1996 1995
-------- ------
(in thousands of U.S. Dollars)
Cash flows from operating activities
Net income $ 150,339 $ 53,296
Adjustments to reconcile net income to net cash provided by
operating activities
Unearned premiums 43,953 2,734
Unpaid losses and loss expenses 173,436 130,607
Net realized (gains) losses on investments (49,863) 39,668
Amortization of premium/discount (2,713) (7,837)
Deferred acquisition costs 202 519
Insurance balances receivable (11,779) (2,944)
Premiums received in advance 12,640 1,274
Accounts payable and other liabilities 6,296 (1,900)
Accrued investment income (6,401) (1,990)
Other (2,868) (4,252)
----------- -----------
Net cash flows from operating activities 313,242 209,175
------------- ------------
Cash flows from investing activities
Purchases of fixed maturities (5,179,119) (3,476,009)
Purchases of equity securities (108,692) (237,453)
Sales of fixed maturities 4,870,057 3,480,645
Sales of equity securities 101,492 32,799
Maturities of fixed maturities 32,580 32,392
Net realized gains on financial futures contracts 14,407 7,005
Acquisitions of subsidiaries, net of cash acquired (11,572) (25,794)
------------- -------------
Net cash used in investing activities (280,847) (186,415)
------------ -----------
Cash flows from financing activities
Repurchase of Ordinary Shares (169) (8,525)
Proceeds from exercise of options for shares 8
Dividends paid (12,911) (10,416)
------------- --------------
Net cash used for financing activities (13,080) (18,933)
------------- --------------
Net increase in cash 19,315 3,827
Cash - beginning of period 16,929 14,421
------------- ------------
Cash - end of period $ 36,244 $ 18,248
============= ============
See accompanying notes to interim consolidated financial statements
ACE LIMITED AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
The interim consolidated financial statements, which include the
accounts of the Company and its subsidiaries, have been prepared
on the basis of accounting principles generally accepted in the
United States of America and, in the opinion of management,
reflect all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of results for such periods.
The results of operations and cash flows for any interim period
are not necessarily indicative of results for the full year.
These financial statements should be read in conjunction with the
consolidated financial statements, and related notes thereto,
included in the Company's 1995 Annual Report on Form 10-K.
On March 27, 1996, the Company, through a corporate subsidiary,
ACE UK Limited ("ACE UK"), completed the acquisition of a
51 percent interest in Methuen Group Limited ("Methuen") the
holding company for Methuen (Lloyd's Underwriting Agents)
Limited, a leading Lloyd's of London managing agency. The
Company may acquire the remaining 49 percent interest in Methuen
during the years 1999 and 2000 through various put and call
arrangements. The acquisition has been recorded using the
purchase method of accounting.
On March 14, 1996 the Company executed a definitive agreement for
the acquisition of Tempest Reinsurance Company Limited ("Tempest
Re") by the Company. Tempest Re is a leading Bermuda-based
property catastrophe reinsurer. The acquisition is subject to,
among other matters, certain approvals of the Company's and
Tempest Re's shareholders, termination rights and other customary
closing conditions.(For further discussion, see Management's
Discussion and Analysis)
At March 31, 1996 approximately 76 percent of the Company's written
premiums came from North America with approximately 22 percent
coming
from the United Kingdom and continental Europe and approximately
2 percent from other countries.
2. Accounting Policies
Translation of Foreign Currencies
Financial statements of subsidiaries expressed in foreign
currencies are translated into U.S. dollars in accordance with
Statement of Financial Accounting Standards No. 52 "Foreign
Currency Translation" (FASB 52). Under FASB 52, functional
currency assets and liabilities are translated into U.S. dollars
generally using period end rates of exchange and the related
translation adjustments are recorded as a separate component of
shareholders equity. Functional currencies are generally the
currencies of the local operating environment. Income statement
amounts expressed in functional currencies are translated using
average exchange rates. Exchange gains and losses resulting from
foreign currency transactions are also recorded in income
currently.
Financial Lines
Financial lines policies are generally multi-year in structure.
In the majority of the cases, due to the ability of the
insured/reinsured to commute or cancel coverage within the
multi-year term, only the annual premium is included as written
at contract inception. The remaining annual premiums will be
included as written at each successive anniversary date within
the multi-year term. All premiums are earned in accordance with
the expiration of the risk within the year written.
Losses and loss expenses on financial lines contracts includes
provision for experience refunds on those contracts that contain
such features and where the estimated incidence of losses on the
contract is expected to generate such a balance due to the
insured/reinsured.
3. Commitments and Contingencies
A number of the Company's insureds have given notice of claims
relating to breast implants or components or raw material thereof
that had been produced and/or sold by such insureds. Lawsuits,
including class actions, involving thousands of implant
recipients have been filed in both state and federal courts
throughout the United States. Most of the federal cases have
been consolidated pursuant to the rules for Multidistrict
Litigation ("MDL") to a Federal District Court in Alabama.
On April 1, 1994 the judge presiding over the MDL proceeding gave
preliminary approval to a global settlement agreement in the
approximate amount of $4.2 billion and conditional certification
to a settlement class ("Global I").
In early 1995, the judge directed the parties to conduct further
expedited negotiations with the objective of exploring ways to
minimize potential reductions due to the large number of current
claimants, such as by reallocating funds already committed to the
global settlement or perhaps by obtaining additional
contributions to the settlement from the settling defendants or
others.
On May 15, 1995, the Dow Corning Corporation, a significant
participant in the global settlement, filed for protection under
Chapter 11 of the U.S. Bankruptcy Code.
On October 1, 1995 negotiators for three of the major defendants
agreed on the essential elements of a revised individual
settlement plan for domestic class members with at least one
implant from any of those manufacturers ("Settlement II").
In general, under Settlement II, the amounts payable to
individual participants, and the manufacturers' obligations to
make those payments, would not be affected by the number of class
members electing to opt out from the new plan. Also, in general,
the compensation would be fixed rather than subject to potential
further racheting, and the manufacturers would not have a right
to walk away because of the amount of claims payable. Finally,
each settling defendant agreed to be responsible only for cases
in which its implant was identified, and not for a percentage of
all cases.
By November 13, 1995 Settlement II was approved by the boards of
directors of the three defendants subject to finalizing certain
details. In addition, two other defendants became part of
Settlement II, although certain of their settlement terms are
different and more restricted than the plan offered by the
original three defendants.
On December 22, 1995, the judge approved Settlement II and the
materials for giving notice to claimants. On December 29, 1995,
the judge also approved for distribution, as part of the notice,
a "Question and Answer Booklet" about Settlement II. Several
appeals concerning Settlement II have been lodged with the
Eleventh Circuit Court of Appeals. In mid-January 1996, the
three major defendants each made a payment of $125 million to a
court-established fund as an initial reserve for payments to be
made under Settlement II. The judge in the MDL proceeding has
started to remand or transfer opt-out cases to the originating or
other courts for further pretrial proceedings and trial. The
Claims Administrator has announced that she contemplates
beginning to send out Notifications of Status to certain
claimants (who have submitted implant manufacturer proof) by late
May 1996. At the present time, it cannot be determined how many
claimants will accept and qualify under the terms of Settlement
II; similarly, the number of opt-outs cannot be estimated. (For
further discussion, see Management's Discussion and Analysis -
"Breast Implant Litigation").
At June 30, 1994, following the announcement of Global I, the
Company increased its then existing reserves relating to breast
implant claims. Although the reserve increase was partially
satisfied by an allocation from existing IBNR, it also required
an increase in the Company's total reserve for unpaid losses and
loss expenses at June 30, 1994 of $200 million.
The increase in reserves relating to breast implant claims was
based on information made available in conjunction with Global I
(including information relating to opt-outs) and information made
available from the Company's insureds and was predicated upon an
allocation between coverage provided before and after the end of
1985 (when the Company commenced underwriting operations). No
additional reserves relating to breast implant claims have been
added since June 30, 1994.
The Company believes that its reserves for unpaid losses and loss
expenses including those arising from breast implant claims is
adequate as of March 31, 1996. The Company continually evaluates
its reserves in light of developing information. However,
significant uncertainties continue to exist, especially with
regard to the ultimate outcome and cost of Settlement II and the
number and value of the opt out claims. The Company is unable at
this time to determine whether additional reserves, which could
have a material adverse effect upon the financial condition,
results of operations and cash flows of the Company, may be
necessary in the future.
4. Shares Issued and Outstanding
On February 3, 1995, the Board of Directors authorized a new
share repurchase program in an aggregate amount not to exceed $75
million. This program superseded and replaced the balance of the
previous authorization. As at March 31, 1996, approximately $45
million of the Board authorization had not been utilized.
5. Restricted Stock Awards
During the current quarter, 6,734 restricted Ordinary Shares were
awarded to outside directors of the Company under the terms of
the 1995 Outside Dirctors Plan which was approved by the
shareholders of the Company on February 9, 1996. These shares
vest in February 1997.
6. Reclassification
Certain items in the prior period financial statements have been
reclassified to conform with the current period presentation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
General
The following is a discussion of the Company's financial
condition, results of operations, liquidity and capital resources
as of and for the three and six months ended March 31, 1996. The
results of operations and cash flows for any interim period are
not necessarily indicative of results for the full year. This
discussion should be read in conjunction with the consolidated
financial statements, related notes thereto and the Management's
Discussion and Analysis of Results of Operations and Financial
Condition included in the Company's 1995 Annual Report on
Form 10-K.
ACE Limited is a holding company which through its principal
operating subsidiaries, A.C.E. Insurance Company, Ltd. ("ACE
Insurance") and Corporate Officers & Directors Assurance Ltd.
("CODA") provides high level excess liability insurance,
directors and officers liability insurance, satellite insurance,
aviation insurance, excess property insurance, financial lines
products and certain financial guarantee reinsurance. In
addition, on March 27, 1996, the Company has acquired a
controlling interest in Methuen Group Limited ("Methuen"), the
holding company for Methuen (Lloyd's Underwriting Agents)
Limited, a leading Lloyd's of London managing agency.
The Company's excess liability insurance policy generally
provides limits of up to a maximum of $200 million per occurrence
and annual aggregate, with a minimum attachment point generally
of $100 million. For all new and renewal business, effective on
or after December 15, 1994, the Company has reduced the maximum
limits offered for integrated occurrences under the excess
liability policy form from $200 million to $100 million. This
change is intended to limit the Company's exposure to risk
resulting from integrated occurrence claims. The Company is
continuing planned price increases for accounts in the chemical,
energy, petrochemical and medical/pharmaceutical industries. The
continued selective price increases are consistent with the
Company's policy of offering coverage at a price which is
commensurate with the individual risk being underwritten.
The Company offers up to $75 million of limits in directors and
officers liability coverage.
The Company began satellite insurance operations in February
1994. Until February 1996, the Company offered separate limits
of up to $25 million per risk for launch insurance, including
ascent to orbit and initial operations, and up to $25 million per
risk for in-orbit insurance. This risk was fully retained by the
Company. Effective for all business written on or after February
15, 1996, the Company has entered into a surplus treaty
arrangement with X.L. Reinsurance Company Ltd., a Bermuda-based
reinsurer, which provides for up to $25 million of reinsurance
for each risk. This reinsurance arrangement has enabled the
Company to raise the gross limits offered for satellite insurance
to $50 million per risk.
During fiscal 1995, the Company entered the following four new
lines of business: aviation insurance, excess property
insurance, financial lines and First Line reinsurance.
Aviation insurance provides coverage for various aviation
products, including aircraft manufacturer's hull and liability,
as well as airport liability, aircraft refueling operations and
associated aircraft liability risks. The Company retains net
limits of up to approximately $50 million per insured for
aviation insurance.
The Company also offers global excess property "all risk"
insurance, providing limits of up to a maximum of $50 million per
occurrence with a minimum attachment point of $25 million.
Coverage includes such perils as windstorm, earthquake and fire,
as well as explosion. Consequential business interruption
coverage is also offered.
The Company's financial lines product group offers specifically
designed financial and insurance solutions to address complex
risk management problems.
The Company participates in the reinsurance of Stockton
Reinsurance Ltd. with respect to a program referred to as "First
Line" which provides financial guarantees required by the U.S.
Coast Guard to issue Certificates of Financial Responsibility,
under the Oil Pollution Act of 1990, to owners of vessels
operating in U.S. waters.
On March 27, 1996, a corporate subsidiary of the Company acquired
a 51 percent interest in Methuen, the holding company for
Methuen (Lloyd's Underwriting Agents) Limited, a leading Lloyd's
of London managing agency. The Company may acquire the remaining
49 percent interest in Methuen during the years 1999 and 2000
through various put and call arrangements.
Methuen manages six syndicates with total underwriting capacity
of 367 million pounds sterling (approximately $555 million) in
1996. For the 1996 year of account, the Company has, through a
newly formed corporate subsidiary, provided funds at Lloyd's of
12.25 million pounds sterling (approximately $18 million) which
was substantially in the form of a letter of credit supporting
24.5 million pounds sterling (approximately $37 million) of
underwriting capacity on Methuen syndicates. The Company has
agreed, subject to certain conditions, to provide funds at
Lloyd's of 50 million pounds sterling (approximately $76 million)
to support underwriting by Methuen syndicates in 1997 and
subsequent years.
The Company has purchased or may purchase reinsurance for certain
of its product lines.
The Company will continue to evaluate potential new product
lines.
On March 14, 1996 the Company executed a definitive agreement for
the acquisition of Tempest Reinsurance Company Limited ("Tempest
Re") by the Company. Tempest Re is a leading Bermuda-based
property catastrophe reinsurer. The acquisition is subject to,
among other matters, certain approvals of the Company's and
Tempest Re's shareholders, termination rights and other customary
closing conditions. It is expected that the shareholder meetings
will be scheduled during the last half of June 1996, with
completion of the acquisition occurring promptly thereafter
assuming the requisite shareholder approvals are obtained. (For
further discussion, see Management's Discussion and Analysis -
"Liquidity and Capital Resources").
Results of Operations - Three Months ended March 31, 1996
- -----------------------------------------------------------------
Net Income Three Months ended % Change
March 31 from
1996 1995 prior year
------ ------ ----------
(in millions)
Income excluding net realized
gains (losses) on
investments $51.5 $46.8 10.0%
Net realized gains
on investments 5.3 5.1 N.M.
------ ------- ------
Net income $56.8 $51.9 N.M.
====== ======= ======
(N.M.-Not meaningful)
- -----------------------------------------------------------------
Higher net investment income and income from insurance operations
contributed to the increase in income excluding net realized
gains on investments for the second quarter of fiscal 1996,
compared with the corresponding 19956 quarter. These increases
were partially offset by an increase in general and
administrative expenses.
- -----------------------------------------------------------------
Premiums Three Months ended % Change
March 31 from
1996 1995 prior year
----- ----- ----------
(in millions)
Net premiums written:
Excess liability $ 53.1 $59.9 (11.5)%
Directors and officers
liability 16.7 19.1 (12.5)
Satellite 20.1 10.4 92.0
First Line 1.8 12.9 N.M.
Aviation 6.5 -- N.M.
Excess property 5.1 -- N.M.
Financial lines 73.6 -- N.M.
Other 0.6 0.2 N.M.
-------- -------- --------
$177.5 $102.5 73.2%
======== ========= ========
Net premiums earned:
Excess liability $59.8 $65.2 (8.3)%
Directors and officers
liability 26.7 27.0 (1.2)
Satellite 19.1 11.2 69.7
First Line 2.4 2.9 (16.1)
Aviation 4.3 -- N.M.
Excess property 2.8 -- N.M.
Financial lines 31.1 -- N.M.
Other 0.2 0.2 N.M.
-------- -------- -------
$146.4 $106.5 37.4%
======== ========= ========
- ----------------------------------------------------------------
Net premiums written increased by 73.2% in the three months ended
March 31, 1996 to $177.5 million compared to $102.5 million for
the second quarter 1995. This growth is a result of a very
strong quarter for the Company's financial lines and satellite
insurance business, together with the continuing contribution of
the Company's other new product lines. The decline in excess
liability and directors and officers liability premiums was
primarily a result of timing differences due to changes in
anniversary dates of several policies. Continuing competitive
pressures in these markets and a lower level of premiums
generated from multi-year policies also contributed to the
decline. The decrease in First Line premiums is due mainly to
timing differences in the recording of premiums between the first
and second quarters in 1996 versus 1995.
For the quarter ended March 31, 1996, net premiums earned
increased by $39.8 million to $146.4 million compared to $106.5
million in 1995. The increase in satellite premiums earned,
primarily from launch insurance, and contributions from the new
lines of business, particularly financial lines, more than offset
the decline in excess liability and directors and officers
liability premiums earned.
- ----------------------------------------------------------------
Net Investment Income Three Months ended % Change
March 31 from
1996 1995 prior year
------ ------ ----------
(in millions)
Net investment income $48.3 $44.9 7.5%
====== ====== ======
- -----------------------------------------------------------------
The increase in net investment income in the current quarter, as
compared to 1995, is primarily attributable to a larger
investable asset base, despite a lower yield generated by the
portfolio as a result of general market conditions during the
period. The larger investable asset base is due primarily to
positive cash flows from insurance operations and the
reinvestment of funds generated by the portfolio.
- -----------------------------------------------------------------
Net Realized Gains (Losses)
on Investments Three Months ended
March 31
1996 1995
----- -----
(in millions)
Fixed maturities and short-
term investments $ 6.5 $(1.4)
Financial futures contracts (0.4) 15.2
Equity securities 0.2 (0.5)
Currency (1.0) (8.2)
------ ------
$ 5.3 $ 5.1
====== ======
- -----------------------------------------------------------------
The Company's investment strategy takes a long-term view and the
portfolio is actively managed to maximize total return within
certain specific guidelines which minimize risk. The Company's
investment guidelines during the quarter ended March 31, 1996
target an equity exposure of 15 percent of the externally managed
investment portfolio. On May 10, 1996, the Board resolved to
increase the targeted equity exposure to 20 percent. The
remainder of the portfolio is composed of fixed maturity
securities. The portfolio is reported at fair value. Changes in
unrealized gains and losses, which result from the revaluation of
securities held, are reported as a separate component of
shareholders' equity. The effect of market movements on the
investment portfolio will directly impact net realized gains
(losses) when securities are sold.
Despite a steady decline in U.S. bond market prices during the
second quarter, sales proceeds for fixed maturity securities were
generally higher than their amortized cost which resulted in net
realized gains of $6.5 million being recognized on fixed
maturities and short-term investments compared to net realized
losses of $1.4 million for the same period in 1995.
Gains and losses on financial futures contracts are the result of
fixed maturity and equity security market movements. The
increase in interest rates during the three month period resulted
in a market decline for fixed maturity securities, and realized
losses from U.S. Treasury futures contracts. There was a 5.4
percent rise in the S&P 500 stock index during the period and
hence realized gains on the S&P 500 index futures contracts in
the synthetic equity fund. Realized losses from U.S. Treasury
futures exceeded gains from the S&P 500 index futures, resulting
in a net realized loss on financial future contracts of $0.4
million. In the same period in 1995, increases in the Treasury
and equity markets resulted in realized gains of $15.2 million.
During 1995, as part of the change in the asset allocation,
non-U.S. dollar fixed maturity and equity securities were
purchased in the portfolio. The Company uses foreign currency
forward and option contracts to minimize the effect of
fluctuating foreign currencies on the value of non-U.S. dollar
holdings. The contracts used are not designated as specific
hedges and therefore, realized and unrealized gains and losses
recognized on these contracts are recorded as a component of net
realized gains (losses) in the period in which the fluctuations
occur, together with net foreign currency gains (losses)
recognized when non-U.S. dollar securities are sold.
- --------------------------------------------------------------
Combined Ratio Three Months ended
March 31
1996 1995
------ ------
Losses and loss expense ratio 82.7% 81.8%
Underwriting expense ratio 8.6 11.1
Administrative expense ratio 6.5 5.3
------ ------
Combined ratio 97.8% 98.2%
- ---------------------------------------------------------------
The underwriting results of a property and casualty insurer are
discussed frequently by reference to its losses and loss expense
ratio, underwriting expense ratio, administrative expense ratio
and combined ratio. Each ratio is derived by dividing the
relevant expense amounts by net premiums earned. The combined
ratio is the sum of the losses and loss expense ratio, the
underwriting expense ratio and administrative expense ratio. A
combined ratio under 100 percent indicates underwriting profits
and a combined ratio exceeding 100 percent indicates underwriting
losses.
For the three months ended March 31, 1996, the losses and loss
expense ratio was 82.7 percent compared to 81.8 percent for the
second quarter of 1995 primarily as a result of a change in the
mix of business during the quarter. Several aspects of the
Company's operations, including the low frequency and high
severity of losses in the high excess layers in which the Company
provides insurance, complicate the actuarial reserving techniques
utilized by the Company. Management believes, however, that the
Company's reserves for unpaid losses and loss expenses, including
those arising from breast implant litigation, are adequate to
cover the ultimate cost of losses and loss expenses incurred
through March 31, 1996. Since such provisions are necessarily
based on estimates, future developments may result in ultimate
losses and loss expenses significantly greater or less than such
amounts (see "Breast Implant Litigation").
Although underwriting expenses increased by $0.7 million in the
quarter, the underwriting expense ratio actually decreased
significantly due primarily to the change in the mix of business
written in the quarter. General and administrative expenses
increased $3.9 million in the current quarter compared to the
second quarter of 1995. These additional expenses are
partially due to the increased cost base associated with the
implementation of the new insurance products during the latter
half of 1995 including the impact of hiring additional staff.
In addition, the increase in the market value of the Company's
shares during the quarter resulted in total expenses related to
the employee stock appreciation rights of $1.7 million compared
with $0.1 million in the second quarter of fiscal 1995.
Results of operations - Six Months ended March 31, 1996
- -----------------------------------------------------------------
Net Income Six Months ended % Change
March 31 from
1996 1995 prior year
------ ------ ----------
(in millions)
Income excluding net realized
gains (losses) on
investments $100.4 $ 93.0 8.1%
Net realized gains (losses)
on investments 49.9 (39.7) N.M.
------ ------- ------
Net income $150.3 $ 53.3 N.M.
====== ======= ======
- -----------------------------------------------------------------
The increase in income excluding net realized gains (losses) on
investments for the six months ended March 31, 1996 compared with
1995 resulted primarily from increased investment income of $7.2
million. Earned premiums increased by $51.7 million in 1996 as
compared with 1995, however as the Company operated at a 98.1%
combined ratio (97.8% for the same period in 1995), the net
impact of increases in earned premiums on net income was minimal.
The six month net income comparison was impacted significantly by
the net realized gains on investments for 1996, compared with a
loss for 1995. In first quarter fiscal 1995, the Company
implemented a revised investment strategy. The net realized
losses on investments for the period were primarily a result of
the security sales required to reposition the portfolio in
accordance with these changes.
- -----------------------------------------------------------------
Premiums Three Months ended % Change
March 31 from
1996 1995 prior year
----- ----- ----------
(in millions)
Net premiums written:
Excess liability $ 109.4 $124.9 (12.4)%
Directors and officers
liability 51.4 56.4 (8.9)
Satellite 43.5 18.9 129.9
First Line 8.5 12.9 (33.5)
Aviation 8.9 -- N.M.
Excess property 10.4 -- N.M.
Financial lines 73.6 -- N.M.
Other 0.6 0.3 N.M.
-------- -------- --------
$306.3 $213.4 43.6%
======== ========= ========
Net premiums earned:
Excess liability $121.5 $133.6 (9.0)%
Directors and officers
liability 53.8 56.0 (4.1)
Satellite 37.3 17.8 108.9
First Line 6.1 2.9 N.M.
Aviation 6.4 -- N.M.
Excess property 4.1 -- N.M.
Financial lines 33.0 -- N.M.
Other 0.2 0.3 N.M.
-------- -------- -------
$262.4 $210.6 24.6%
======== ========= ========
- ----------------------------------------------------------------
The addition of financial lines premiums of $73.6 million and the
increase in satellite premiums of $24.6 million were the main
contributors to the increase in net premiums written for the six
months ended March 31, 1996, compared to 1995. These were offset
by decreases in excess liability and directors and officers
liability premiums written. Limit reductions, some of which
resulted from reduced integrated occurrence coverage, increases
to higher attachment points on some business written and timing
differences arising from changes in anniversary dates of several
policies contributed to a $15.5 million decrease in excess
liability premiums. The decline in directors and officers
liability can be attributed mainly to a lower level of premiums
generated from multi-year policies. Continuing competitive
pressures in both the excess liability and directors and officers
liability markets also contributed to the declines.
Net premiums earned increased by $51.8 million to $262.4 million
for the six months ended March 31, 1996 compared to 1995. This
increase is primarily attributable to financial lines, satellite
insurance and contributions from the other new lines of business,
which more than offset the declines in excess liability and
directors and officers liability premiums earned.
- -----------------------------------------------------------------
Net Investment Income
Six Months ended % Change
March 31 from
1996 1995 prior year
----- ----- ----------
(in millions)
Net investment income $95.4 $88.3 8.1%
====== ===== =====
- -----------------------------------------------------------------
The increase of $7.1 million in net investment income for the six
months ended March 31, 1996, as compared to 1995 was attributable
to a larger investable asset base despite a lower yield generated
by the portfolio as a result of general market conditions during
the period. The larger investable asset base is due primarily to
positive cash flows from insurance operations and the
reinvestment of funds generated by the portfolio.
- -----------------------------------------------------------------
Net realized gains (losses) on Investments
Six Months ended
March 31
1996 1995
----- -----
(in millions)
Fixed maturities and short-
term investments $32.4 $(37.7)
Financial futures contracts 14.4 7.0
Equity securities 3.0 (0.6)
Currency 0.1 (8.4)
------ ------
$49.9 $(39.7)
====== =======
- -----------------------------------------------------------------
The Company's investment strategy takes a long-term view and the
portfolio is actively managed to maximize total return within
certain specific guidelines which minimize risk. The Company's
investment guidelines during the quarter ended March 31, 1996
target an equity exposure of 15 percent of the externally managed
investment portfolio. On May 10, 1996, the Board resolved to
increase the targeted equity exposure to 20 percent. The
remainder of the portfolio is composed of fixed maturity
securities. The portfolio is reported at fair value. Changes in
unrealized gains and losses, which result from the revaluation of
securities held, are reported as a separate component of
shareholders' equity. The effect of market movements on the
investment portfolio will directly impact net realized gains
(losses) when securities are sold.
Sales proceeds for fixed maturity securities were generally
higher then their amortized costs during the period which
resulted in net realized gains on investments for the six month
period of $49.9 million compared to $39.7 million of net realized
losses during the same period in 1995. The 1995 losses were the
result of the repositioning of the portfolio for the revised
investment strategy that had been implemented.
The realized gains on financial futures contracts were generated
from U.S. Treasury futures contracts and from the equity index
futures contracts held in the synthetic equity fund. Gains and
losses on these instruments are closely linked to fluctuations in
the U.S. Treasury and equity markets and therefore, realized
gains would be expected during periods of broad market
improvements while losses are realized during periods of market
declines.
Realized currency gains for the six months ended March 31, 1996
were $0.1 million compared to a loss of $8.4 million for the same
period of 1995. Unrealized currency losses of $5 million on
securities held in the portfolio as at March 31, 1996 are
reflected in net unrealized appreciation on investments in
shareholders' equity. At March 31, 1995 there was an unrealized
currency gain of $12.9 million in net unrealized appreciation on
investments in shareholders' equity.
- -----------------------------------------------------------------
Combined Ratio
Six Months ended
March 31
1996 1995
----- -----
Losses and loss expense ratio 81.6% 81.8%
Underwriting expense ratio 9.4 11.2
Administration expense ratio 7.1 4.8
------ ------
Combined Ratio 98.1% 97.8%
====== =======
- -----------------------------------------------------------------
Losses and loss expense as a percentage of net premiums earned
was 81.6% for the six months ended March 31, 1996 as compared
with 81.8% for 1995.
Underwriting expenses increased by $1.0 million to $24.7 million
for the six months ended March 31, 1996 compared with 1995,
however, the underwriting expense ratio decreased significantly
to 9.4% from 11.2% primarily due to the change in the mix of
business written in the period.
General and administrative expenses increased by $8.7 million
this year versus 1995. These additional expenses are partially
due to the increased cost base associated with the implementation
of the new insurance products during the latter half of 1995
including the impact of hiring additional staff. In addition,
the increase in the market value of the Company's shares during
1996 resulted in total expenses related to employee stock
appreciation rights of $3.1 million compared with no expense
in 1995.
LIQUIDITY AND CAPITAL RESOURCES
As a holding company, the Company's assets consist primarily of
the stock of its subsidiaries as well as other investments and,
in addition to investment income, its cash flows depend primarily
on dividends or other statutorily permissible payments from its
Bermuda insurance subsidiaries. There are currently no legal
restrictions on the payment of dividends from retained earnings
by the Company or its Bermuda insurance subsidiaries as the
minimum statutory capital and surplus requirements are satisfied
by the share capital and additional paid-in capital of each of
the Company's insurance subsidiaries. However, the payment of
dividends or other statutorily permissible distributions by ACE
Insurance or CODA is subject to the need to maintain
shareholders' equity adequate to support the level of insurance
operations.
The Company's consolidated sources of funds consist primarily of
net premiums written, investment income, and proceeds from sales
and redemptions of investments. Funds are used primarily to pay
claims, operating expenses and dividends and for the purchase of
investments.
For the six months ended March 31, 1996, the Company's
consolidated net cash flow from operating activities was $313.2
million, compared with $209.2 million for the six months ended
March 31, 1995. Cash flows are affected by claims payments,
which due to the nature of the insurance coverage provided by the
Company, may comprise large loss payments on a limited number of
claims and can therefore fluctuate significantly. The irregular
timing of these large loss payments, for which the source of cash
can be from operations, available credit facilities or routine
sales of investments, can create significant variations in cash
flow from operations between periods. For the six month periods
ended March_31, 1996 and 1995, loss and loss expense payments
amounted to $40.6 million and $41.8 million respectively. Total
loss and loss expense payments amounted to $73.1 million, $126.6
million and $285.8 million in fiscal years 1995, 1994 and 1993,
respectively.
At March 31, 1996, total investments and cash amounted to
approximately $3.4 billion, compared to $3.1 billion at September
30, 1995. The significant increase in investable assets can be
attributed mainly to strong cash flows from operating activities
as well as the reinvestment of funds generated by the portfolio.
The Company's investment portfolio is structured to provide a
high level of liquidity to meet insurance related or other
obligations. The consolidated investment portfolio is
externally managed by independent professional investment
managers and is invested in high quality investment grade
marketable fixed income and equity securities, the majority of
which trade in active, liquid markets. The Company believes
that its cash balances, cash flow from operations, routine sales
of investments and the liquidity provided under its committed
line of credit (discussed below) are adequate to allow the
Company to pay claims within the time periods required under its
polices.
The Company has a $150 million committed line of credit provided
by a syndicate of five major international banks, led by Morgan
Guaranty Trust Company of New York. In accordance with the
Company's cash management strategy, this facility is utilized
when it is determined that borrowing on a short-term basis is
advantageous to the Company. The line of credit agreement
requires the Company to maintain consolidated tangible net worth
of not less than $950 million. There were no draw-downs from the
line of credit during the six months ended March 31, 1996 and
there were no outstanding borrowings at March 31, 1996.
On November 1, 1993, the Company completed the acquisition of
CODA. In consideration of this acquisition, the Company paid
approximately $250 million in cash and agreed to pay on December
31, 1994 up to an additional $25 million in cash based upon
development of CODA's June 30, 1993 loss reserves as estimated on
September 30, 1994. The review of the loss reserves was
completed and the additional payment was made in December 1994.
The Board of Directors has authorized the repurchase from time to
time of the Company's Ordinary Shares in open market and private
purchase transactions. On February 3, 1995, the Board of
Directors terminated an existing share repurchase program and
authorized a new program for up to $75.0 million of the Company's
Ordinary Shares. At March 31, 1996, $45.0 million of the Board
authorization had not been utilized.
On October 19, 1995, January 18, 1996 and April 19, 1996, the
Company paid quarterly dividends of 14 cents per share to
shareholders of record on September 29, 1995, December 29, 1995,
(rather than December 31, 1995 as stated in the Form 10K) and
March 29, 1996 respectively. On May 10, 1996, the Board of
Directors declared a quarterly dividend of 18 cents per share
payable on July 19, 1996 to shareholders of record on June 14,
1996. The declaration and payment of future dividends is
at the discretion of the Board of Directors and will be
dependent upon the profits and financial requirements of the
Company and other factors, including legal restrictions on the
payment of dividends and such other factors as the Board of
Directors deems relevant.
Fully diluted net asset value per share was $33.29 at March 31,
1996, compared with $31.19 at September 30, 1995.
The Company maintains loss reserves for the estimated unpaid
ultimate liability for losses and loss expenses under the terms
of its policies and agreements. The reserve for unpaid losses
and loss expenses of $1.6 billion at March 31, 1996, includes
$906.3 million of case and loss expense reserves. The ultimate
liability is estimated using actuarial and statistical
projections. While the Company believes that its reserve for
unpaid losses and loss expenses at March 31, 1996 is adequate,
future developments may result in ultimate losses and loss
expenses significantly greater or less than the reserve provided
(see "Breast Implant Litigation").
A number of the Company's insureds have given notice of claims
relating to breast implants or components or raw material thereof
that had been produced and/or sold by such insureds. The Company
does not have adequate data upon which to anticipate any funding
schedule for the payment of these liabilities, although it
expects that the amount of time required to determine which
current claimants will select which of the two options may extend
well into 1996. Payments may be accelerated for some
policyholders, as a function of the resolution of opt-out cases,
and claim payments by the Company could begin during fiscal 1996
(see "Breast Implant Litigation").
On March 14, 1996, the Company executed a definitive agreement for
the acquisition of Tempest Reinsurance Company Limited by the
Company. Tempest Re is a leading Bermuda-based property
catastrophe reinsurer. General Re Corporation sponsored the
formation of Tempest Re in 1993, but will not have a continuing
affiliation with Tempest Re or the Company after completion of
the acquisition. Under the terms of the definitive agreement,
Tempest Re's shareholders at the time of the acquisition would
receive Ordinary Shares of the Company. The maximum number of
Ordinary Shares issuable in connection with the acquisition
(which would be based upon a closing price of $33 or lower) is
18,181,818 and the minimum number of Ordinary Shares issuable in
connection with the acquisition (which would be based upon a
closing price of $45 or higher) is 13,333,333. Tempest Re's net
assets at the time of closing are expected to be approximately
$500 million. The acquisition is subject to, among other matters,
certain approvals of the Company's and Tempest Re's shareholders,
termination rights and other customary closing conditions. It is
expected that the shareholder meetings will be scheduled during
the last half of June 1996 with completion of the acquisition
occurring promptly thereafter assuming the requisite shareholder
approvals are obtained.
The Company's financial condition, results of operations and cash
flow are influenced by both internal and external forces. Claims
settlements, premium levels and investment returns may be
impacted by changing rates of inflation and other economic
conditions. In many cases, significant periods of time, ranging
up to several years or more, may elapse between the occurrence of
an insured loss, the reporting of the loss to the Company and the
settlement of the Company's liability for that loss. The
liquidity of its investment portfolio, cash flows and the line of
credit are, in management's opinion, adequate to meet the
Company's expected cash requirements.
Breast Implant Litigation
A number of the Company's insureds have given notice of claims
relating to breast implants or components or raw material thereof
that had been produced and/or sold by such insureds. Lawsuits,
including class actions, involving thousands of implant
recipients have been filed in both state and federal courts
throughout the United States. Most of the federal cases have
been consolidated pursuant to the rules for Multidistrict
Litigation ("MDL") to a Federal District Court in Alabama.
On April 1, 1994 the judge presiding over the MDL proceeding gave
preliminary approval to a global settlement agreement in the
approximate amount of $4.2 billion and conditional
certification to a settlement class ("Global I").
In early 1995, the judge directed the parties to conduct further
expedited negotiations with the objective of exploring ways to
minimize potential reductions due to the large number of current
claimants, such as by reallocating funds already committed to the
global settlement or perhaps by obtaining additional
contributions to the settlement from the settling defendants or
others.
On May 15, 1995, the Dow Corning Corporation, a significant
participant in the global settlement, filed for protection under
Chapter 11 of the U.S. Bankruptcy Code.
In mid-June 1995, the judge authorized the Claims Administrator
to make available limited information about the status of
Global I. According to the Claims Administrator, as of June 1,
1995, the claims office had received over 440,000 registrations.
Approximately 248,500 were filed by domestic class members by the
September 6, 1994 deadline for making claims under the Current
Disease Compensation Program. Based on an analysis of about
3,000 of these registrations, the judge estimated that over
96,000 domestic registrants timely submitted a claim under the
Current Disease Compensation Program with some supporting medical
documentation. The judge concluded that a severe racheting (or
reduction) of the settlement amounts shown in the notice of
settlement would occur if current claims were evaluated under the
existing criteria and if funding of the Current Disease
Compensation Program remained at the $1.2 billion level.
Because of the anticipated severe "racheting" of benefit amounts
and the defendants' right to withdraw under the Global I
settlement, the judge entered an order on October 9, 1995
declaring that class members had new opt-out rights and that in
general class members and their attorneys should not expect to
receive any benefits under Global I.
On October 1, 1995 negotiators for three of the major defendants
agreed on the essential elements of a revised individual
settlement plan for domestic class members with at least one
implant from any of those manufacturers ("Settlement II").
In general, under Settlement II, the amounts payable to
individual participants, and the manufacturers' obligations to
make those payments, would not be affected by the number of class
members electing to opt out from the new plan. Also, in general,
the compensation would be fixed rather than subject to potential
further racheting, and the manufacturers would not have a right
to walk away because of the amount of claims payable. Finally,
each settling defendant agreed to be responsible only for cases
in which its implant was identified, and not for a percentage of
all cases.
Participants with implants from one or more of those three
defendants who had submitted timely claims under Global I would
have two options.
Option One: They can accept a fixed amount based on disease
criteria and severity levels in the Global I settlement. These
amounts - ranging from $10,000 to $100,000 - although
substantially less than the amounts shown in the initial notices
for Global I, are greater for many claimants than the amounts
that, after racheting, would have been offered under Global I
and are not subject to a "walkaway" by defendants because of such
opt-outs. Qualifying claimants who submit proof of rupture by
December 1996 would qualify for specified higher benefits but not
in excess of $100,000 in total.
Option Two: They could elect to receive potentially higher
benefits based on having or developing during a 15-year period
certain diseases that meet more restrictive criteria. The
compensation range for persons qualifying under this option is
from $75,000 to $250,000.
Each Current Claimant, regardless of the option selected, would
be paid an advance payment of $5,000 as soon as administratively
feasible, without regard to the status of any appeals.
Current Claimants would be given an extended period of time to
identify manufacturers of their implants, to correct any
deficiencies in the documentation supporting their prior claims
or to provide additional support for claims under the more
restrictive criteria.
Timely-registered class members with implants from one or more of
those defendants, who did not submit current claims, would
receive compensation, under Settlement II ranging from $75,000 to
$250,000 if, during the 15-year period, they have or develop, any
of the diseases defined under the more restrictive criteria.
They would also be eligible for an advance payment of $1,000
under certain circumstances. In general, the maximum total
obligation under this 15-year program allocated among the three
defendants plus the additional defendants referred to below is
$755 million.
Timely-registered class members with qualifying implants would
also be eligible for an additional payment of $3,000 to defray
the costs of explantation during that 15-year period should the
person choose to do so.
By November 13, 1995 Settlement II was approved by the boards of
directors of the three defendants subject to finalizing certain
details. In addition, two other defendants became part of
Settlement II, although certain of their settlement terms are
different and more restricted than the plan offered by the
original three defendants.
On December 22, 1995, the judge approved Settlement II and the
materials for giving notice to claimants. On December 29, 1995,
the judge also approved for distribution, as part of the notice,
a "Question and Answer Booklet" about Settlement II. Several
appeals concerning Settlement II have been lodged with the
Eleventh Circuit Court of Appeals. In mid-January 1996, the
three major defendants each made a payment of $125 million to a
court-established fund as an initial reserve for payments to be
made under Settlement II. The notice materials were sent out in
the second half of January 1996. In addition, a televised
program, regional meetings, and a national telephone meeting are
being implemented to explain the Settlement II plan and the
rights and options of implant recipients. The judge in the MDL
proceeding has started to remand or transfer opt-out cases to the
originating or other courts for further pretrial proceedings and
trail. The Claims Administrator has announced that she
contemplates beginning to send out Notifications of status to
certain claimants (who have submitted implant manufacturer proof)
by late May 1996. At the present time, it cannot be determined
how many claimants will accept and qualify under the terms of
Settlement II; similarly, the number of opt-outs cannot be
estimated.
Although the Company has underwritten the coverage for a number
of the defendant companies including four of the companies
involved in the revised Settlement II described above, the
Company anticipates that insurance coverage issued prior to the
time the Company issued policies will be available for a portion
of the defendants liability. In addition, the Company's policies
only apply when the underlying liability insurance policies or
per occurrence retentions are exhausted.
Declaratory judgment lawsuits, involving four of the Company's
insureds, have been filed seeking guidance on the appropriate
trigger for their insurance coverage. None of the insureds have
named the Company in such lawsuits, although other insurers and
third parties are trying to involve the Company in those
lawsuits. To date, one court has stayed any lawsuit against the
Company by other insurers; a second court has dismissed the
claims by other insurers against the Company. Another court in
Texas has ruled against the Company's arguments that the court
should dismiss the claims by other insurers and certain doctors
in Texas who have attempted to bring the Company into coverage
litigation there involving one of the insured. On appeal in the
Texas lawsuit, the appellate court has affirmed the lower court's
order refusing to dismiss the claims against the Company by other
insurers; further appellate review in the Texas Supreme Court
will be sought. In addition, further efforts are contemplated to
stay or dismiss the doctor's claims against the Company in the
Texas lawsuit. The remaining case is presently stayed; if it is
activated, the Company will resist involvement on jurisdictional
and other grounds.
At June 30, 1994, following the announcement of Global I, the
Company increased its then existing reserves relating to breast
implant claims. Although the reserve increase was partially
satisfied by an allocation from existing IBNR, it also required
an increase in the Company's total reserve for unpaid losses and
loss expenses at June 30, 1994 of $200 million.
The increase in reserves relating to breast implant claims was
based on information made available in conjunction with Global I
(including information relating to opt-outs) and information made
available from the Company's insureds and was predicated upon an
allocation between coverage provided before and after the end of
1985 (when the Company commenced underwriting operations). No
additional reserves relating to breast implant claims have been
added since June 30, 1994.
The Company believes that its reserves for unpaid losses and loss
expenses including those arising from breast implant claims is
adequate as of March 31, 1996. The Company continually evaluates
its reserves in light of developing information. However,
significant uncertainties continue to exist, especially with
regard to the ultimate outcome and cost of Settlement II and the
number and value of the opt out claims. The Company is unable at
this time to determine whether additional reserves, which could
have a material adverse effect upon the financial condition,
results of operations and cash flows of the Company, may be
necessary in the future.
ACE LIMITED
PART II - OTHER INFORMATION
---------------------------
ITEM 5. OTHER INFORMATION
- --------------------------
1) On May 10, 1996 the Company declared a divided of $0.18 per
Ordinary Share payable on July 19, 1996 to shareholders of
record on June 14, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
a) Exhibit 10.35 - 1995 Long Term Incentive Plan
Exhibit 10.36 - Employee Stock Purchase Plan
Exhibit 10.37 - 1995 Outside Directors Plan
Exhibit 11.1 - Statement regarding computation of
earnings per Share.
b) The Company filed a Form 8-K current report dated March 15,
1996 pertaining to the Registrant's press release relating
to the proposed acquisition of Tempest.
SIGNATURES
------------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ACE LIMITED
_____________________________
May 14, 1996 /s/ Brian Duperreault
-----------------------------
Brian Duperreault
Chairman, President and Chief
Executive Officer
May 14, 1996 /s/ Christopher Z. Marshall
------------------------------
Christopher Z. Marshall
Executive Vice President and Chief
Financial Officer
EXHIBIT INDEX
- --------------
Exhibit
Number Description Numbered Page
- ------- ------------ -------------
10.35 1995 Long Term Incentive Plan
10.36 Employee Stock Purchase Plan
10.37 1995 Outside Directors Plan
11.1 Computation of earnings per share