Exhibit 99.1
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF ACE
On January 11, 1999, ACE agreed to purchase the international and domestic
property and casualty businesses of CIGNA Corporation for $3.45 billion in cash
(the "Acquisition"). Under the terms of the agreement, ACE will acquire CIGNA's
domestic property and casualty insurance operations and also its international
property and casualty insurance companies and branches, including most of the
accident and health business written through those companies. National
Indemnity Company, a subsidiary of Berkshire Hathaway Inc., will provide $1.25
billion of reinsurance against additional liabilities with respect to insurance
losses and adjustment expense reserves of the acquired businesses. The
acquisition, which is subject to receipt of regulatory approvals and other
customary closing conditions, is expected to be completed on or about July 1,
1999. ACE expects to finance this transaction with a combination of available
cash and bank financing, and intends to refinance with newly issued equity,
debt and preferred and mandatorily convertible securities.
The following unaudited pro forma condensed consolidated balance sheet as of
December 31, 1998 gives effect to the Acquisition as if it had occurred on
December 31, 1998. The unaudited pro forma condensed consolidated statements of
operations for the twelve months ended September 30, 1998 and for the three
months ended December 31, 1998 present operating results of ACE as if the
Acquisition had occurred on October 1, 1997.
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,
1998, the unaudited consolidated financial statements of ACE included in the
Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1998
and the audited consolidated financial statements of CIGNA Corporation Property
and Casualty Businesses (CIGNA P&C) for the year ended December 31, 1998 filed
with this report. The pro forma adjustments are based on preliminary estimates,
information currently available and certain assumptions that management
believes are reasonable under the circumstances. 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 CIGNA P&C acquisition had occurred at the dates
indicated or of the consolidated results of future operations or of future
financial position. Certain reclassifications have been made to the historical
financial statements to conform with the pro forma presentation.
The Acquisition has been accounted for as a purchase in accordance with
generally accepted accounting principles. Under purchase accounting, the total
purchase price is allocated to the acquired assets and liabilities based on
their fair values.
1
Unaudited Pro Forma Condensed Consolidated Balance Sheet
At December 31, 1998
---------------------------------------------------
(In millions)
Pro forma
CIGNA Pro forma combined for CIGNA
ACE P&C Adjustments Notes P&C Acquisition
------ ------- ----------- ----- ------------------
Total investments and
cash..................... $6,215 $10,073 (3,500) (1)
$ 2,800 (2)
(1,250) (3) $14,338
Reinsurance recoverables.. 1,159 6,470 1,250 (3) 8,879
Premiums receivable....... 348 2,343 -- 2,691
Other assets.............. 577 2,580 118 (4) 3,275
Goodwill.................. 535 405 1,161 (5) 2,101
------ ------- ------- -------
Total assets.............. $8,834 $21,871 $ 579 $31,284
====== ======= ======= =======
Unpaid losses and loss
expenses................. $3,678 $14,836 -- $18,514
Unearned premiums......... 706 1,401 -- 2,107
Bank debt................. 250 -- $ 2,800 (2) 3,050
Other liabilities......... 291 3,643 (230) (4) 3,704
------ ------- ------- -------
Total liabilities......... 4,925 19,880 2,570 27,375
------ ------- ------- -------
Total shareholders'
equity................... 3,909 1,991 230 (4)
118 (4)
(2,339) (6)
3,909
------ ------- ------- -------
Total liabilities and
shareholders equity...... $8,834 $21,871 $ 579 $31,284
====== ======= ======= =======
- --------
(1) Under the Terms of the Acquisition Agreement by and among CIGNA
Corporation, CIGNA Holdings, Inc and ACE Limited dated January 11, 1999,
ACE will pay a total purchase price of approximately $3.5 billion, which
includes $50 million of estimated transaction related expenses.
(2) ACE currently expects to fund the purchase price with approximately $700
million of cash on hand and $2.8 billion through the issuance of (i)
ordinary shares of ACE; (ii) preferred securities that are mandatorily
convertible into ordinary shares of ACE; (iii) capital securities; and (iv)
senior debt (together the "permanent financing"). Each of these items have
been described in detail elsewhere in this registration statement. ACE will
issue each of the permanent financing instruments either before or after
the closing of the transaction at the time when ACE considers market
conditions to be most favorable for issuance. Accordingly, ACE has secured
interim bank financing in a total amount of $2.8 billion. For purposes of
these pro forma financial statements, it has been assumed that the
transaction is financed with the interim bank financing.
(3) Under the terms of the Acquisition Agreement, CIGNA Corporation agreed to
provide a guarantee to ACE to indemnify against unanticipated increases in
recorded reserves for losses and loss adjustment expenses of certain
subsidiaries being acquired by ACE. CIGNA Corporation has the option to
replace its guarantee with reinsurance obtained from a mutually agreed upon
third party reinsurer. It is expected that, contemporaneous with and
contingent upon the consummation of the acquisition, CIGNA Corporation will
exercise its option and replace its guarantee with reinsurance by directing
certain subsidiaries being acquired to transfer $1.25 billion of
investments to a reinsurer for aggregate coverage of $2.5 billion. Such
coverage is expected to attach at an amount equal to the net recorded
reserves of the certain subsidiaries acquired, on the closing date, minus
$1.25 billion.
2
(4) Under the terms of the agreement, CIGNA Corporation will:
(a) Forgive certain inter-company indebtedness amounting to approximately
$118 million.
(b) Retain certain net employment and post-employment related liabilities
amounting to approximately $230 million.
(5) Under purchase accounting, the total purchase price is allocated to the
acquired assets and liabilities assumed based on their fair values. Any
excess between the purchase price and the fair value of CIGNA P&C's net
tangible assets will be allocated to goodwill and other identifiable
intangible assets. While it is expected that a certain amount of purchase
price will ultimately be allocated to other identifiable intangible assets
and amortized over the estimated period of benefit, ACE has not completed
the process of identification and valuation of such intangibles. Therefore,
these pro forma financial statements reflect all of the excess purchase
price over net tangible assets as goodwill. Goodwill is expected to be
amortized over 40 years.
(6) To eliminate CIGNA P&C shareholder's equity.
3
Unaudited Pro Forma Condensed Consolidated Statements of Operations
Three Months Ended December 31, 1998
-----------------------------------------------------------
(In millions of U.S. dollars)
Pro forma
CIGNA Pro forma combined for CIGNA
ACE P&C (1) Adjustments Notes P&C Acquisition
----------- ------- ----------- ------ ------------------
Net Premiums Written.... $ 154 $ 740 $ 894
----------- ----- -----------
Net Premiums Earned..... 218 763 981
Net investment income... 85 145 $(30) (2),(3) 200
Other revenues.......... -- 77 77
Losses and loss
expenses............... (111) (625) 20 (3) (716)
Acquisition costs and
administrative
expenses............... (69) (394) (463)
Other expenses.......... (9) -- (49) (4),(5) (58)
Income tax.............. (5) 6 11 (6) 12
----------- ----- ---- -----------
Income excluding net
realized gains......... 109 (28) (48) 33
Net realized gains on
investments............ 130 20 150
----------- ----- ---- -----------
Net Income.............. $ 239 $ (8) $(48) $ 183
=========== ===== ==== ===========
Basic earnings per
share, excluding
realized gains......... $ 0.56 $ 0.17
=========== ===========
Basic earnings per
share.................. $ 1.23 $ 0.95
=========== ===========
Weighted average shares
outstanding............ 193,642,270 193,642,270
=========== ===========
Diluted earnings per
share, excluding
realized gains......... $ 0.55 $ 0.17
=========== ===========
Diluted earnings per
share.................. $ 1.21 $ 0.93
=========== ===========
Weighted average shares
outstanding............ 197,349,356 197,349,356
=========== ===========
- --------
(1) The CIGNA P&C consolidated statements of operations reflect its results of
operations for the three months ended December 31, 1998.
(2) ACE currently expects to fund part of the purchase price with approximately
$700 million of cash on hand. The estimated investment income on this $700
million of the purchase price has been eliminated (based on a yield of 5.8%
that approximates the yield on the ACE portfolio for the fiscal year ended
September 30, 1998).
(3) Under the terms of the Acquisition Agreement, CIGNA Corporation agreed to
provide a guarantee to ACE to indemnify against unanticipated increases in
recorded reserves for losses and loss adjustment expenses of certain
subsidiaries being acquired by ACE. CIGNA Corporation has the option to
replace its guarantee with reinsurance obtained from a mutually agreed upon
third party reinsurer. It is expected that, contemporaneous with and
contingent upon the consummation of the acquisition, CIGNA Corporation will
exercise its option and replace its guarantee with reinsurance by directing
certain subsidiaries being acquired to transfer $1.25 billion of
investments to a reinsurer for aggregate coverage of $2.5 billion. Such
coverage is expected to attach at an amount equal to the net recorded
reserves of the certain subsidiaries acquired, on the closing date, minus
$1.25 billion. The estimated investment income on this $1.25 billion has
been eliminated (based on a yield of 6.5% that approximates the yield on
the applicable portion of the CIGNA P&C portfolio for the fiscal year ended
December 31, 1998). The pro forma adjustment to losses and loss expenses
reflects the estimated historical adverse development recorded during the
period on the guaranteed reserves.
4
(4) In addition to the $700 million of cash on hand, ACE expects to fund part
of the purchase price with approximately $2.8 billion through the issuance
of (i) ordinary shares of ACE; (ii) preferred securities that are
mandatorily convertible into ordinary shares of ACE; (iii) capital
securities; and (iv) senior debt
(together the "permanent financing"). Each of these items have been
described in detail elsewhere in this registration statement. ACE will
issue each of the permanent financing instruments either before or after
the closing of the transaction at the time when ACE considers market
conditions to be most favorable for issuance. Accordingly, ACE has secured
interim bank financing in a total amount of $2.8 billion. Interest on the
$2.8 billion of bank borrowings which has been calculated at a rate of
approximately 6%.
(5) Any excess between the purchase price and the fair value of CIGNA P&C's
net tangible assets will be allocated to goodwill and other identifiable
intangible assets. While it is expected that a certain amount of purchase
price will ultimately be allocated to other identifiable intangible assets
and amortized over the estimated period of benefit, ACE has not completed
the process of identification and valuation of such intangibles.
Therefore, these pro forma financial statements reflect all of the excess
purchase price over net tangible assets as goodwill. This entry reflects
the amortization of goodwill for the period.
(6) The estimated income tax saving is based on the estimated reduction in net
income before tax as a result of interest expense on the bank debt.
5
Unaudited Pro Forma Condensed Consolidated Statements of Operations
Year Ended September 30, 1998
------------------------------------------------------------
(In millions of U.S. dollars)
Pro forma
CIGNA Pro forma combined for CIGNA
ACE P&C Adjustments Notes P&C Acquisition
----------- ------- ----------- ------ ------------------
Net Premiums Written.... $ 881 $ 2,990 $ 3,871
----------- ------- -----------
Net Premiums Earned..... 894 2,957 3,851
Net investment income... 324 590 $(122) (2),(3) 792
Other revenues.......... -- 282 282
Losses and loss
expenses............... (517) (2,247) 81 (3) (2,683)
Acquisition costs and
administrative
expenses............... (271) (1,500) (1,771)
Other expenses.......... (38) -- (197) (4),(5) (235)
Income tax.............. (20) (30) 44 (6) (6)
----------- ------- ----- -----------
Income excluding net
realized gains......... 372 52 (194) 230
Net realized gains on
investments............ 188 22 210
----------- ------- ----- -----------
Net Income.............. $ 560 $ 74 $(194) $ 440
=========== ======= ===== ===========
Basic earnings per
share, excluding
realized gains......... $ 2.01 $ 1.24
=========== ===========
Basic earnings per
share.................. $ 3.02 $ 2.38
=========== ===========
Weighted average shares
outstanding............ 185,130,479 185,130,479
=========== ===========
Diluted earnings per
share, excluding
realized gains......... $ 1.97 $ 1.22
=========== ===========
Diluted earnings per
share.................. $ 2.96 $ 2.32
=========== ===========
Weighted average shares
outstanding............ 189,281,175 189,281,175
=========== ===========
- --------
(1) The CIGNA P&C consolidated statements of operations reflect its results of
operations for the twelve months ended December 31, 1998.
(2) ACE currently expects to fund part of the purchase price with approximately
$700 million of cash on hand. The estimated investment income on this $700
million of the purchase price has been eliminated (based on a yield of 5.8%
that approximates the yield on the ACE portfolio for the fiscal year ended
September 30, 1998).
(3) Under the terms of the Acquisition Agreement, CIGNA Corporation agreed to
provide a guarantee to ACE to indemnify against unanticipated increases in
recorded reserves for losses and loss adjustment expenses of certain
subsidiaries being acquired by ACE. CIGNA Corporation has the option to
replace its guarantee with reinsurance obtained from a mutually agreed upon
third party reinsurer. It is expected that, contemporaneous with and
contingent upon the consummation of the acquisition, CIGNA Corporation will
exercise its option and replace its guarantee with reinsurance by directing
certain subsidiaries being acquired to transfer $1.25 billion of
investments to a reinsurer for aggregate coverage of $2.5 billion. Such
coverage is expected to attach at an amount equal to the net recorded
reserves of the certain subsidiaries acquired, on the closing date, minus
$1.25 billion. The estimated investment income on this $1.25 billion has
been eliminated (based on a yield of 6.5% that approximates the yield on
the applicable portion of the CIGNA P&C portfolio for the fiscal year ended
December 31, 1998). The pro forma adjustment to losses and loss expenses
reflects the estimated historical adverse development recorded during the
period on the guaranteed reserves.
6
(4) In addition to the $700 million of cash on hand, ACE expects to fund part
of the purchase price with approximately $2.8 billion through the issuance
of (i) ordinary shares of ACE; (ii) preferred securities that are
mandatorily convertible into ordinary shares of ACE; (iii) capital
securities; and (iv) senior debt (together the "permanent financing"). Each
of these items have been described in detail elsewhere in this registration
statement. ACE will issue each of the permanent financing instruments
either before or after the closing of the transaction at the time when ACE
considers market conditions to be most favorable for issuance. Accordingly,
ACE has secured interim bank financing in a total amount of $2.8 billion.
Interest on the $2.8 billion of bank borrowings which has been calculated
at a rate of approximately 6%.
(5) Any excess between the purchase price and the fair value of CIGNA P&C's net
tangible assets will be allocated to goodwill and other identifiable
intangible assets. While it is expected that a certain amount of purchase
price will ultimately be allocated to other identifiable intangible assets
and amortized over the estimated period of benefit, ACE has not completed
the process of identification and valuation of such intangibles. Therefore,
these pro forma financial statements reflect all of the excess purchase
price over net tangible assets as goodwill. This entry reflects the
amortization of goodwill for the period.
(6) The estimated income tax saving is based on the estimated reduction in net
income before tax as a result of interest expense on the bank debt.
7