Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF ACE LIMITED
On July 9, 1998, ACE Limited (the "Company" or "ACE") completed the
acquisition of Tarquin Limited (formerly Tarquin plc) ("Tarquin"), a UK-based
holding company which owns Lloyd's managing agency Charman Underwriting Agencies
Ltd and Tarquin Underwriting Limited. Under the terms of the agreement, the
Company acquired all of the outstanding capital stock of Tarquin in exchange for
approximately 14.3 million ACE shares (the "Tarquin Acquisition").
The unaudited pro forma condensed consolidated balance sheet presents the
combined financial position of ACE and Tarquin as of March 31, 1998, as if the
merger was consummated as of March 31, 1998. The unaudited pro forma condensed
balance sheet reflects (i) the acquisition of Tarquin applying the pooling-of
interests method of accounting, (ii) certain adjustments including estimated
non-recurring and transaction-related expenses, (iii) the acquisition of CAT
Limited which was completed on April 1, 1998 and (iv) the sale of 16.5 million
shares on April 17, 1998 as if such events had occurred as of March 31, 1998.
The unaudited pro forma condensed consolidated statements of operations for
the six months ended March 31, 1998 and for the year ended September 30, 1997
give effect to (i) the acquisition of Tarquin applying the pooling-of-interests
method of accounting (ii) the acquisition of CAT Limited which was completed
on April 1, 1998 and (iii) the sale of 16.5 million shares on April 17, 1998 as
if such events had occurred on October 1, 1996.
The unaudited pro forma condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements of ACE, included
in the Company's Annual Report on Form 10-K for the year ended September 30,
1997, the unaudited consolidated financial statements of ACE included in the
Company's Quarterly Report on Form 10-Q for the three and six month periods
ended March 31, 1998, the audited consolidated financial statements of Tarquin
for the year ended December 31, 1997 filed with this report, the Form 8-K/A
filed on March 3, 1998 by the Company with respect to the Company's acquisition
of ACE USA and the Form 8-K filed on April 14, 1998 by the Company with respect
to the Company's acquisition of CAT Limited. The unaudited pro forma condensed
consolidated financial information is not intended to be indicative of the
consolidated results of operations or financial position of ACE that would have
been reported if the acquisition had occurred at the dates indicated or of the
consolidated results of future operations or of future financial position.
On February 6, 1998, the Company announced a three-for-one stock split which
was effected on February 17, 1998. The earnings per share data for the periods
presented herein are computed after giving effect to the stock split.
Unaudited Pro forma Condensed Consolidated Balance Sheet
At March 31, 1998
(in thousands of U.S. dollars)
Pro forma Combined
for CAT Acquisition,
Sale of Tarquin Pro forma sale of shares and
ACE CAT Shares (7) Limited Adjustments Notes Tarquin Acquisition
Total investments
and cash 5,441,634 515,919 605,875 328,843 2,107 (1)
(1,643) (1)
385,000 (3)
(691,000) (4)
(385,000) (7) 6,201,735
Assets
Insurance and reinsurance
balances receivable 188,996 17,133 33,014 239,143
Reinsurance balances
recoverable 771,223 -- 144,363 915,586
Investment in Enterprise -- 72,597 -- (72,597) (2) --
Goodwill 194,128 -- -- 219,984 (5) 414,112
Other assets 397,423 12,482 227,361 3,143 (1) 640,409
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Total assets 6,993,404 618,131 605,875 733,581 8,410,985
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Liabilities and shareholders' equity
Liabilities
Unpaid losses and loss
expenses 3,324,869 36,862 305,419 -- 3,667,150
Unearned premiums 461,469 24,411 87,526 -- 573,406
Bank debt 250,000 -- 45,931 385,000 (3)
(385,000) (7) 295,931
Other liabilities 176,150 16,418 94,061 (6,173) (2)
3,607 (1)
3,000 (4)
60,000 (8) 347,063
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Total liabilities 4,212,488 77,691 -- 532,937 4,883,550
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Shareholders' equity 2,780,916 540,440 605,875 200,644 (66,424) (2)
(474,016) (6)
(60,000) (8) 3,527,435
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Liabilities and
shareholders' equity 6,993,404 618,131 605,875 733,581 8,410,985
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PRO FORMA FOOTNOTES WITH RESPECT TO THE CAT ACQUISITION
(1) Reflects the acquisition by CAT of Hamilton Services Limited for $1.6
million immediately prior to the CAT Acquisition. This acquisition was
accounted for under the purchase method of accounting.
(2) Under the terms of the Stock purchase Agreement, dated 25 March, 1998,
between ACE, CAT and the Shareholders of CAT (the "Stock Purchase
Agreement"), CAT's ownership in Enterprise Reinsurance Holdings Corporation
("Enterprise") was distributed to CAT's existing shareholders prior to the
acquisition of CAT by the Company in return for CAT shares. This adjustment
reflects the disposition of Enterprise for $69 million. The shares received
by CAT were retired.
(3) As part of the financing of the acquisition, ACE borrowed $385 million of
short-term bank borrowings from its undrawn credit facility established in
December 1997, and from cash on hand. The interest rate on the short-term
borrowing was approximately 6%.
(4) Under the terms of the Stock Purchase Agreement, ACE paid a total purchase
price of approximately $691 million (the total aggregate purchase of $711
million includes an estimate of CAT earnings for first quarter of calendar
1998 of $20 million). ACE also incurred direct transaction expenses of
approximately $3 million.
(5) Under purchase accounting, the total purchase price was allocated to the
acquired assets and liabilities assumed based on their fair values. The
difference between the cost of the transaction and the fair value of CAT
net assets acquired was recorded as goodwill. Based on the purchase price
paid, ACE recorded goodwill of approximately $217 millions from this
transaction. This goodwill is being amortized over 25 years.
(6) To eliminate CAT's shareholder's equity.
PRO FORMA FOOTNOTES WITH RESPECT TO THE SHARE OFFERING
(7) On April 14, 1998, the Company sold 16.5 million ordinary shares for net
proceeds of approximately $605.9 million. A portion of the proceeds was
used to repay the $385 million of short-term bank borrowings used to
finance the CAT Acquisition (see note 3 above).
PRO FORMA FOOTNOTES WITH RESPECT TO THE TARQUIN ACQUISITION
(8) This adjustment reflects the accrual of the costs related to the
acquisition and the related reduction of shareholders' equity.
Unaudited Pro Forma Condensed Consolidated Statements of Operations
Six months ended March 31, 1998
(in thousands of U.S. dollars)
Pro forma Pro forma combined
Pro forma combined for for CAT acquisition
Pro forma combined for CAT Share CAT acquisition share issue and
ACE CAT Adjustments Notes Acquisition Offering(4) and share issue Tarquin(5) Tarquin acquisition
Net Premiums
Written 323,626 90,656 414,282 414,282 107,953 522,235
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Net Premiums
Earned 352,567 71,063 423,630 423,630 111,597 535,227
Net investment
income 131,542 9,280 (8,816)(1) 132,006 17,570 149,576 9,918 159,494
Other income - - 6,697 6,697
Losses and
loss expenses (225,426) (17,803) (243,229) (243,229) (56,906) (300,135)
Acquisition
costs and
administrative
expenses (75,965) (18,996) (4,400)(2) (99,361) (99,361) (33,572) (132,933)
Interest expense (3,858) - (12,675)(3) (16,533) (16,533) (16,533)
Income tax (2,947) - (2,947) (2,947) (12,948) (15,895)
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Income excluding
net realized
gains 175,913 43,544 193,566 17,570 211,136 24,786 235,922
Net realized
gains on
investments 173,108 982 174,090 174,090 3 174,093
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Net Income 349,021 44,526 367,656 17,570 385,226 24,789 410,015
=================================================================================================================
Basic Earnings
per share,
excluding
realized gains $1.07 $1.18 $1.17 $1.21
Basic earnings
per share $2.13 $2.25 $2.14 $2.11
Weighted average
shares
outstanding -
Basic 163,765,734 163,765,734 16,500,000 180,265,734 14,328,010 194,593,744
=========== =========== ========== =========== ========== ===========
Diluted Earnings
per share,
excluding
realized gains $1.05 $1.15 $1.15 $1.19
Diluted earnings
per share $2.08 $2.19 $2.09 $2.06
Weighted average
shares
outstanding -
Diluted 167,778,180 167,778,180 16,500,000 184,278,180 14,328,010 198,606,190
=========== =========== ========== =========== ========== ===========
PRO FORMA FOOTNOTES WITH RESPECT TO THE CAT ACQUISITION
(1) To eliminate the estimated investment income on the cash portion of the
purchase cost funded by ACE (based on a yield of 5.8% which approximates
the yield on the ACE portfolio for the fiscal year ended September 30,
1997.
(2) Amortization of goodwill for the period.
(3) Interest on the $385 million short-term bank borrowing which has been
calculated at a rate of approximately 6%.
PRO FORMA FOOTNOTES WITH RESPECT TO THE SHARE OFFERING
(4) Estimated investment income on the net proceeds from the sale of 16.5
million ordinary shares based on a yield of 5.8% which approximates the
yield on the ACE portfolio for the fiscal year ended September 30, 1997.
PRO FORMA FOOTNOTES WITH RESPECT TO THE TARQUIN ACQUISITION
(5) There are no proforma adjustments with respect to the Tarquin acquisition.
Unaudited Pro Forma Condensed Consolidated Statements of Operations
Year ended September 30, 1997
(in thousands of U.S. dollars)
Pro forma Pro forma combined
Pro forma combined for for CAT acquisition
Pro forma combined for CAT Share CAT acquisition share issue and
ACE CAT(1) Adjustments Notes Acquisition Offering(5) and share issue Tarquin(6) Tarquin acquisition
Net Premiums
Written 728,311 137,050 865,361 865,361 198,420 1,063,781
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Net Premiums
Earned 749,129 144,397 893,526 893,526 206,364 1,099,890
Net investment
income 285,824 25,027 (17,632) (2) 293,219 34,535 327,754 14,868 342,622
Other income - - - - 15,729 15,729
Losses and
loss expenses (718,256) (29,721) (747,977) (747,977) (88,891) (836,868)
Acquisition
costs and
administrative
expenses (147,027) (25,732) (8,799) (3) (181,558) (181,558) (70,700) (252,258)
Interest expense (15,750) - (22,976) (4) (38,726) (38,726) (38,726)
Income tax 60,862 - 60,862 60,862 (27,409) 33,453
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Income excluding
net realized
gains 214,782 113,971 279,346 34,535 313,881 49,961 363,842
Net realized
gains (losses)
on investments 128,430 (356) 128,074 - 128,074 (139) 127,935
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Net income 343,212 113,615 407,420 34,535 441,955 49,822 491,777
=============================================================================================================
Basic Earnings
per share,
excluding
realized gains $1.26 $1.64 $1.68 $1.81
===== ===== ===== =====
Basic earnings
per share $2.02 $2.40 $2.37 $2.45
===== ===== ===== =====
Weighted average
shares
outstanding -
Basic 169,820,631 169,820,631 16,500,000 186,320,631 14,328,010 200,648,641
=========== =========== ========== =========== ========== ===========
Diluted Earnings
per share,
excluding
realized gains $1.25 $1.62 $1.66 $1.79
===== ===== ===== =====
Diluted earnings
per share $1.99 $2.36 $2.34 $2.42
===== ===== ===== =====
Weighted average
shares
outstanding -
Diluted 172,481,013 172,481,013 16,500,000 188,981,013 14,328,010 203,309,023
=========== =========== ========== =========== ========== ===========
(1) The CAT consolidated statement of operations has been compiled to reflect
its results of operations for the twelve months ended September 30, 1997.
(2) To eliminate the estimated investment income on the cash portion of the
purchase cost funded by ACE (based on a yield of 5.8% which approximates
the yield on the ACE portfolio for the fiscal year ended September 30,
1997).
(3) Amortization of goodwill for the period.
(4) Interest on the $385 million short-term bank borrowing which has been
calculated at a rate of approximately 6%.
PRO FORMA FOOTNOTES WITH RESPECT TO THE SHARE OFFERING
(5) Estimated investment income on the net proceeds from the sale of 16.5
million ordinary shares based on a yield of 5.8% which approximates the
yield on the ACE portfolio for the fiscal year ended September 30, 1997.
PRO FORMA FOOTNOTES WITH RESPECT TO THE TARQUIN ACQUISITION
(6) There are no proforma adjustments with respect to the Tarquin acquisition.