Back to GetFilings.com
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File No. 1-11778
----------------
ACE LIMITED
(Exact name of registrant as specified in its charter)
Cayman Islands 98-0091805
(Jurisdiction of Incorporation) (I.R.S. Employer Identification No.)
The ACE Building
30 Woodbourne Avenue
Hamilton HM 08
Bermuda
(441) 295-5200
(Address, including zip code, and telephone number,including area code, of
registrant's principal executive offices)
----------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Exchange
Title of Each Class on which Registered
------------------- -------------------
Ordinary Shares, par value $0.041666667 per share New York Stock Exchange
ACE Capital Trust I 8.875 percent Trust Originated
Preferred Securities mature 2029 New York Stock Exchange
Capital Re LLC 7.65 percent Trust Preferred
Securities mature 2044 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
----------------
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 periods 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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference into Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
As of March 23, 2000, there were 217,447,254 Ordinary Shares par value
$0.041666667 of the Registrant outstanding and the aggregate market value of
voting stock held by non-affiliates at such date was approximately $3.85
billion. For the purposes of this computation, shares held by directors (and
shares held by any entities in which they serve as officers) and officers of
the registrant have been excluded. Such exclusion is not intended, nor shall it
be deemed, to be an admission that such persons are affiliates of the
registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of registrant's definitive proxy statement relating to its
Annual General Meeting of Shareholders scheduled to be held on June 9, 2000,
are incorporated by reference into Part III of this report and certain portions
of the 1999 Annual Report to Shareholders are incorporated by reference into
Parts II and IV of this report.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ACE LIMITED
INDEX TO 10-K
Page
----
PART I
Item 1. Business...................................................... 1
Item 2. Properties.................................................... 24
Item 3. Legal Proceedings............................................. 24
Item 4. Submission of Matters to a Vote of Security Holders........... 24
PART II
Market for the Registrant's Ordinary Shares and Related
Item 5. Stockholder Matters........................................... 27
Item 6. Selected Financial Data....................................... 28
Management's Discussion and Analysis of Results of Operations
Item 7. and Financial Condition ...................................... 28
Item 7A Quantitative and Qualitative Disclosures about Market Risk.... 28
Item 8. Financial Statements and Supplementary Data .................. 28
Changes in and Disagreements with Accountants on Accounting
Item 9. and Financial Disclosure...................................... 28
PART III
Item 10. Directors and Executive Officers of the Registrant............ 29
Item 11. Executive Compensation........................................ 29
Security Ownership of Certain Beneficial Owners and
Item 12. Management.................................................... 29
Item 13. Certain Relationships and Related Transactions................ 29
PART IV
Exhibits, Financial Statements, Schedules and Reports on Form
Item 14. 8-K .......................................................... 30
PART I
Item 1. Business
Safe Harbor Disclosure
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Any written or oral statements made by
or on behalf of the Company may include forward-looking statements which
reflect the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain
uncertainties and other factors that could cause actual results to differ
materially from such statements. These uncertainties and other factors (which
are described in more detail elsewhere herein and in documents filed by the
Company with the Securities and Exchange Commission) include, but are not
limited to, (i) uncertainties relating to government and regulatory policies
(such as subjecting the Company to insurance regulation or taxation in
additional jurisdictions or amending or revoking or enacting any laws,
regulations or treaties affecting the Company's current operations), (ii) the
occurrence of catastrophic events or other insured or reinsured events with a
frequency or severity exceeding the Company's estimates, (iii) legal
developments, (iv) the uncertainties of the loss reserving process including
the difficulties associated with assessing environmental and latent injuries,
(v) the actual amount of new and renewal business and market acceptance of
expansion plans, (vi) loss of the services of any of the Company's executive
officers, (vii) changing rates of inflation and other economic conditions,
(viii) losses due to foreign currency exchange rate fluctuations, (ix) ability
to collect reinsurance recoverables, (x) the competitive environment in which
the Company operates, related trends and associated pricing pressures and
developments, (xi) the impact of mergers and acquisitions, including the
ability to successfully integrate acquired businesses and achieve cost savings,
competing demands for ACE's capital and the risk of undisclosed liabilities,
(xii) the impact of Year 2000 related issues, (xiii) developments in global
financial markets which could affect the Company's investment portfolio and
financing plans, and (xiv) risks associated with the introduction of new
products and services. The words "believe", "anticipate", "estimate",
"project", "plan", "expect", "intend", "hope", "will likely result" or "will
continue" and variations thereof and similar expressions identify forward-
looking statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
General
ACE Limited ("ACE") is a holding company incorporated with limited liability
under the Cayman Islands Companies Law. ACE maintains its business office in
Bermuda. ACE, through its various subsidiaries, provides a broad range of
insurance and reinsurance products to insureds in the United States and almost
50 other countries. In addition, ACE, through ACE Global Markets, provides
funds at Lloyd's, primarily in the form of letters of credit, to support
underwriting capacity for Lloyd's syndicates managed by Lloyd's managing
agencies which are indirect wholly owned subsidiaries of ACE. At December 31,
1999, the Company had total assets of $30.1 billion and shareholders' equity of
$4.5 billion. The Company derives its revenue principally from premiums, fees
and investment income. ACE operates through six main business segments: ACE
Bermuda, ACE Global Markets, ACE Global Reinsurance, ACE USA, ACE International
and ACE Financial Services. ACE USA principally includes the domestic U.S.
business of ACE INA which was acquired on July 2, 1999 and ACE US Holdings
which was acquired on January 2, 1998 ("ACE US Holdings"). Unless the context
otherwise indicates, the term "Company" refers to one or more of ACE and its
consolidated subsidiaries.
The Company's long-term business strategy focuses on achieving underwriting
profits and providing value to its clients and shareholders through the
utilization of its growing capital base within the insurance and reinsurance
markets. As part of this strategy, the Company has continued to review and
expand, where appropriate, its product portfolio. In addition, the Company has
made a number of strategic acquisitions and entered into strategic alliances to
diversify its product lines, both geographically and by product type.
1
Acquisitions
The Company acquired Corporate Officers & Directors Assurance ("CODA") in
1993 which provides professional lines insurance.
The Company continued its strategic diversification with the acquisition in
March 1996 of Methuen Group Limited ("Methuen"), the holding company for
Methuen Underwriting Limited, and in July 1996 of Tempest Reinsurance Company
Limited ("Tempest Re"), a leading Bermuda-based property catastrophe reinsurer.
The short-tail nature of the property catastrophe business and shorter loss
payout patterns complemented the generally longer-tail nature of the Company's
other product lines. Also in November 1996, the Company acquired Ockham
Worldwide Holdings plc which was renamed ACE London Holdings Limited ("ACE
London").
In March 1997, the Company, together with two other insurance companies,
formed Sovereign Risk Insurance Limited ("Sovereign"), a Bermuda-based managing
general agency, to provide underwriting services to the three organizations for
political risk insurance coverage. Sovereign issues subscription policies with
the Company assuming 50 percent of each risk underwritten. In 1999, ACE Bermuda
and one of the other investors bought out the third investor.
In January 1995, the Company formed ACE European Markets Reinsurance Limited
(formerly ACE Reinsurance Company Europe Limited) ("AEMRL"). In September 1997,
AEMRL formed ACE European Markets Insurance Limited (formerly ACE Insurance
Company Europe Limited) ("AEMIL"). Both companies operate in the International
Financial Services Centre in Dublin, Ireland. Additionally, AEMIL has an
insurance license to write all 18 classes of non-life insurance in all member
states of the European Union. Both companies provide flexibility mainly to
European corporations that wish to access the Company's products using
different structures.
On January 2, 1998, the Company, through a U.S. holding company, ACE US
Holdings, acquired the Westchester Specialty Group. In connection with the
acquisition, National Indemnity Company, a subsidiary of Berkshire Hathaway
Inc., provided $750 million (75 percent quota share of $1 billion) of
reinsurance protection to ACE US Holdings with respect to its loss reserves for
the 1996 and prior accident years.
On April 1, 1998, the Company acquired CAT Limited ("CAT"), a privately
held, Bermuda-based property catastrophe reinsurer. This acquisition increased
the Company's already significant participation in the international property
catastrophe reinsurance market.
On July 9, 1998, the Company acquired Tarquin Limited ("Tarquin"), a UK-
based holding company which owns Lloyd's managing agency Charman Underwriting
Agencies Ltd. ("CUAL") and Tarquin Underwriting Limited, its corporate capital
provider. The CUAL managed syndicates, 488 and 2488, are leading international
underwriters of short-tail marine, aviation, political risk and specialty
property-casualty insurance and reinsurance.
On July 2, 1999, the Company acquired the international and domestic
property and casualty businesses of CIGNA Corporation ("CIGNA"). Under the
terms of the agreement the Company, through a U.S. holding company, ACE INA
Holdings Inc. ("ACE INA"), acquired CIGNA's domestic property and casualty
insurance operations including its run-off business and also its international
property and casualty insurance companies and branches, including most of the
accident and health business written through those companies. In connection
with the acquisition CIGNA 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 had
the option to replace its guarantee with reinsurance obtained from a mutually
agreed upon third party reinsurer. CIGNA exercised this option and replaced its
guarantee with reinsurance by directing certain subsidiaries being acquired to
transfer $1.25 billion of investments to National Indemnity Company, a
subsidiary of Berkshire Hathaway Inc., for aggregate coverage of $2.5 billion.
2
On December 30, 1999, the Company completed the acquisition of Capital Re
Corporation. Following the acquisition, Capital Re Corporation was renamed ACE
Financial Services Inc. and is refered to herein as Capital Re or ACE Financial
Services. This transaction added significant depth and expertise to ACE's
financial reinsurance capabilities and represents a strategic complement to the
Company's diversified portfolio by fully establishing ACE as a key financial
guaranty reinsurer.
Information about Segments
Presentation The business segments presented in this document have been
determined under the Statement of Financial Accounting Standard No 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131") which was adopted by the Company as of December 31, 1999. SFAS 131
established new standards for defining how operating segments are determined.
Prior period information has been restated based on the new requirements.
Competition Competitive forces in the international property and casualty
insurance and reinsurance business are substantial. Results are a function of
underwriting and investment performance, direct costs associated with the
delivery of insurance products, including the costs of regulation, the
frequency and severity of both natural and man-made disasters, as well as
inflation (actual, social and judicial), which impact loss costs. Decisions
made by insurers concerning their mix of business (offering certain types of
coverage but declining to write other types), their methods of operations and
the quality and allocation of their assets (including any reinsurance
recoverable balances) will all affect their competitive position. The relative
size and reputation of insurers may influence purchasing decisions of present
and prospective customers and will contribute to both geographic and industrial
sector market penetration. Oversupply of available capital has historically had
the effect of encouraging competition and depressing prices. The Company's
competitive position in the property and casualty insurance industry is
influenced by all of these factors. Individual competitive information by
segment is presented in the segment presentations.
Ratings The Company and its subsidiaries are rated by internationally
recognized rating agencies. While the significance of individual ratings varies
among agencies, companies assigned ratings at the top end of the range have, in
the opinion of the rating agency, the strongest capacity for repayment of debt
or payment of claims, while companies at the bottom end of the range have the
weakest capacity.
Insurance ratings represent the opinions of the rating agencies on the
financial strength of a company and its capacity to meet the obligations of
insurance policies. These ratings are based upon factors relevant to
policyholders, agents and intermediaries and are not directed toward the
protection of investors. Such ratings are not recommendations to buy, sell or
hold securities. The individual segments insurance ratings are included in the
segment discussions.
Debt ratings include ratings for short-term and long-term debt as well as
preferred stock. These ratings are assessments of the likelihood that the
Company will make timely payments of principal and interest as well as
preferred stock dividends.
As of December 31, 1999, ACE's senior debt ratings included Moody's at "A2"
("Upper Medium Grade"), Standard and Poor's "A-" ("Strong") and A.M. Best at
"a" ("Strong"). ACE's commercial paper ratings included Moody's at "P-1"
("Superior"), Standard and Poor's at "A-2" ("Satisfactory") and Fitch IBCA at
"F-1" ("Highest Credit Quality"). ACE's preferred stock ratings included
Moody's at "a2" ("Upper Medium Grade"), Standard and Poor's at "BBB" ("Adequate
Capacity") and A.M. Best at "a-" ("Strong").
To reflect the acquisition of ACE Financial Services, on January 4, 2000 S&P
and Moody's lowered the debt ratings and the preferred stock ratings of ACE
Financial Services to mirror those of ACE. S&P lowered its senior debt rating
to "A-" from "A" and lowered its preferred stock rating from "BBB+" to "BBB".
Both S&P ratings were also removed from Credit Watch. Moody's lowered ACE
Financial Services senior debt rating from "A1" to "A2" and lowered its
preferred stock rating from "a1" to "a2". Both Moody's ratings were removed
from review for possible downgrade.
3
Segment Analysis of Gross Premiums Written--The following table sets forth
an analysis of gross premiums written by segment for the year ended December
31, 1999 and for each of the years ended September 30, 1998 and 1997:
For the Year Ended December 31, 1999 and the years
ended September 30, 1998 and 1997
----------------------------------------------------
December September September
1999 1998 1997
Gross Gross Gross
Premiums Premiums Premiums
Written Percent Written Percent Written Percent
-------- ------- --------- ------- --------- -------
(in millions of U.S. dollars)
ACE Bermuda.............. $ 553 14% $ 520 42% $527 55%
ACE Global Markets(1).... 635 16% 438 35% 316 33%
ACE Global
Reinsurance(2).......... 182 5% 124 10% 116 12%
ACE USA(3)............... 1,567 41% 160 13% - -
ACE International(4)..... 932 24% - - - -
------ --- ------ --- ---- ---
$3,869 100% $1,242 100% $959 100%
====== === ====== === ==== ===
- --------
(1) On July 9, 1998, the Company completed the acquisition of Tarquin. As the
transaction was accounted for on a pooling-of-interests basis, all amounts
included for ACE Global Markets for 1998 and 1997 were restated in 1998 to
reflect the gross premiums written for Tarquin.
(2) CAT was acquired on April 1, 1998 and thus gross premiums written for
Tempest Re in fiscal 1998 include gross premiums written for CAT for the
six month period since acquisition.
(3) ACE US Holdings was acquired on January 2, 1998 and thus gross premiums
written for ACE USA in fiscal 1998 only relate to the nine month period
since acquisition. Gross premiums written for fiscal 1999 include the ACE
US Holdings business and the results from the domestic operations of ACE
INA acquired on July 2, 1999.
(4) ACE International's gross premiums written reflect results since July 2,
1999, the date of acquisition.
(5) As ACE Financial Services was acquired on December 30, 1999, no statement
of operations information for ACE Financial Services is reflected in the
ACE results for the year ended December 31, 1999.
Analysis of Gross Premiums Written by Geographic Region--The following table
sets forth an analysis of gross premiums written for the year ended December
31, 1999 and for the years ended September 30, 1998 and 1997:
North Australia & Asia/ Latin
America Europe New Zealand Pacific America Other Total
------- ------ ----------- ------- ------- ----- -----
1999................ 59.4% 17.6% 7.6% 5.0% 2.7% 7.7% 100.0%
1998................ 79.1% 8.9% 4.6% 4.0% -- 3.4% 100.0%
1997................ 68.4% 12.8% 6.3% 3.6% -- 8.9% 100.0%
ACE Bermuda
Principal Business
ACE Bermuda provides property and casualty insurance and reinsurance
coverage across a broad range of business including: excess liability,
professional lines, satellite, tailored risk solutions, aviation, excess
property and political risk. The nature of the coverage provided is generally
expected to result in low frequency but high severity of individual losses. The
reinsurance market is an integral part of the risk management strategy of ACE
Bermuda and coverage has been secured on all major lines of business.
ACE Bermuda's wholly-owned insurance subsidiaries include: CODA, AEMRL,
AEMIL and ACE Capital Re International Limited (formerly ACE Capital Re
Limited; "ACE Capital Re International"); CODA provides professional lines
insurance, while AEMRL and AEMIL provide a range of products similar to ACE
Bermuda.
Sovereign, a Bermuda-based managing general agency, issues subscription
policies for political risk insurance coverage, with ACE Bermuda assuming 50
percent of each risk underwritten with a 10 percent
4
retrocession. ACE Bermuda also participates, on a quota share basis, in two
other political risk programs; co-reinsurance of MIGA (the insurance arm of the
World Bank) and Exporter's Credit, which is reinsurance of trade credit risks.
In March 1998, ACE Bermuda formed two companies with Capital Re: ACE Capital
Re International and ACE Capital Re Managers Ltd. ACE Capital Re International,
a Bermuda-domiciled insurance company, writes both traditional and custom-
designed programs covering financial guaranty, mortgage guaranty and a broad
range of financial risks. Operations are underwritten and managed in Bermuda by
a managing agency, ACE Capital Re Managers Ltd. During the year ended December
31, 1999, ACE Bermuda purchased Capital Re's share of ACE Capital Re
International and provided further capital of $85 million. On December 30,
1999, ACE completed the acquisition of Capital Re.
In March 1999, ACE Bermuda, together with a major broker and a UK based
insurance company, formed a joint venture named Intrepid Re Limited. The joint
venture underwrites alternative risk business.
Marketing and Underwriting
ACE Bermuda markets its insurance products through Bermuda-based brokers and
seeks to maintain a competitive advantage by providing insurance coverages
which require utilization of technical skills to underwrite individual risks,
emphasizing quality rather than volume of business to obtain a suitable spread
of risk. This enables the company to operate with a relatively small number of
employees and, together with the reduced costs of operating in favorable
regulatory and tax environments, results in a significantly lower
administrative expense ratio relative to other companies in the industry.
The risk assessment process undertaken by ACE Bermuda involves a
comprehensive analysis of historical data and estimates of future value of
losses, which may not be evident in the historical data. The factors which ACE
Bermuda considers include the type of risk, the attachment point and coverage
limits, the type, size, complexity and location of the potential insured's
operations, financial data, the industry in which the potential insured
operates, details of the underlying insurance coverage provided, loss history
and future corporate plans.
Policyholders are generally obtained through non-U.S. insurance brokers who
typically receive a brokerage commission on any business accepted and bound by
the company. ACE Bermuda is not committed to accept any business from any
particular broker and brokers do not have the authority to bind the company.
All policy applications to ACE Bermuda (both for renewals and new policies) are
subject to underwriting and acceptance by ACE Bermuda in its Bermuda office. A
substantial number of policyholders meet with the company outside of the United
States each year to discuss their insurance coverage. ACE Bermuda believes that
conducting its operations through its offices in Bermuda has not materially or
adversely affected its underwriting and marketing activities to date.
ACE Bermuda receives business from approximately 100 non-U.S. brokers of
which three produced approximately 52 percent of the company's business in
1999. The following table sets forth the percentage of the company's insurance
business placed through each broker and its affiliates placing more than 10
percent of the company's business.
Year Ended
Year Ended September 30
December 31 ------------
Name 1999 1998 1997
---- ----------- ------ ------
J&H Marsh & McLennan, Incorporated(1)(3)....... 22% 39% 45%
Aon Corporation(2)(3).......................... 23% 19% 16%
- --------
(1) During 1997, Marsh & McLennan, Incorporated acquired Johnson & Higgins. In
1999 Marsh & McLennan, Incorporated acquired Sedgwick.
(2) During 1997, Aon Corporation acquired Alexander & Alexander Services, Inc.
(3) The percentages shown in the table for fiscal 1997 reflect the business
placed by the combined entities and their affiliates for the entire fiscal
1999, 1998, and 1997 years.
5
Competition
ACE Bermuda operates in a highly competitive worldwide market and competes
with most major U.S. and non-U.S. insurers, which may differ across product
lines. ACE Bermuda utilizes its experienced underwriting staff, its strong
capital base, its ability to market a number of insurance products to its
existing client and potential client bases and its ability to be flexible in
providing contracts which extend coverages for periods in excess of one year to
compete in the worldwide insurance markets.
Insurance Ratings
ACE Bermuda has received a rating of A+ from A.M. Best. This rating covers
ACE Bermuda and its operating subsidiaries, CODA, AEMRL and AEMIL. ACE Bermuda
and CODA have also received A+ claims paying ability ratings from S&P. ACE
Capital Re International is discussed under the ACE Financial Services segment.
Claims Administration
Claims arising under policies issued by ACE Bermuda are managed in Bermuda
by ACE Bermuda's claims department. This department maintains a claims database
into which all notices of loss are entered. If the claims department determines
that a loss is of sufficient severity, it makes a further inquiry of the facts
surrounding the loss and, if deemed necessary, retains outside claims counsel
to monitor claims. Based upon its evaluation of the claim, the claims
department may recommend that a case reserve in a specified amount is
established or that all or part of a claim is paid. The claims department
monitors all claims and, where appropriate, will recommend the establishment of
a new case reserve or the increase or decrease of an existing case reserve with
respect to a claim.
With the exception of certain aviation coverages, ACE Bermuda does not
undertake to defend its insureds. It has, in certain instances, provided advice
to insureds with respect to the management of claims. ACE Bermuda believes that
its experience in resolving large claims and its proactive approach to claims
management has contributed to the favourable resolution of several cases.
Because ACE Bermuda does not do business in the U.S., it must often rely on
U.S. counsel to assist it in evaluating liability and damages confronting its
insureds in the U.S. ACE Bermuda believes that the procedures it follows have
not materially or adversely affected its ability to identify, review or settle
claims.
ACE Global Markets
Principal Business
ACE Global Markets primarily encompasses the Company's operation in the
Lloyd's market. The Company owns five managing agencies at Lloyd's. These
managing agencies receive fees and profit commissions in respect of the
underwriting and administrative services they provide to the syndicates. For
the calendar 2000 year of account, these managing agencies will manage 2 active
syndicates with total capacity under management of approximately $1 billion. As
the Company's participation in the syndicates under management grows, the
amount of third party fees and profit commissions received by the managing
agencies will decrease.
The Company also provides funds at Lloyd's to support underwriting by
Lloyd's syndicates managed by the managing agencies discussed above. For the
1999 year of account, the Company, through four corporate members, participated
on all four of the ACE managed syndicates with an underwriting capacity of
approximately $725 million out of the total $1.05 billion of capacity. Included
in the four syndicates is Syndicate 2488, a dedicated corporate syndicate whose
capital is provided solely by the Company, and which underwrites in parallel
with Syndicate 488 comprising capacity provided by Names and other corporate
members. The syndicates on which the Company participates provide liability,
specialty marine, property, casualty and aviation insurance.
6
For the 2000 year of account, the ACE Global Markets operations (excluding
Capital Re's Lloyd's operations discussed below) have been merged so that only
Syndicate 2488 will underwrite in 2000. The capacity of this syndicate will be
approximately $990 million of which approximately 84 percent or $829 million
will be provided by three of the ACE corporate members referred to above.
On December 30, 1999, the Company acquired RGB Underwriting Agency Limited
("RGBUA") as part of the acquisition of Capital Re. Capital Re also owns a
corporate member at Lloyd's through which it participates on two syndicates
managed by RGBUA for the 1999 year of account. Prior to the acquisition by the
Company of Capital Re, one of the syndicates was ceased, such that for the 2000
year of account the Capital Re corporate member will participate in the
remaining active syndicate. During 2000, it is envisaged the Lloyd's operations
of Capital Re will transfer to ACE Global Markets.
Marketing and Underwriting
In the ordinary course of events, Lloyd's syndicates may only access
business through Lloyd's brokers. However, for certain lines of business, it is
possible to utilize a service company to access and service business from both
Lloyd's and non-Lloyd's brokers.
ACE Underwriting Services Limited ("AUS") was established in 1998 as such a
Lloyd's service company to market and service, on behalf of ACE managed
syndicates, a broad range of products in the small business, industrial and
commercial markets. AUS deals predominantly with Lloyd's brokers but also
accesses business from regional (non-Lloyd's) brokers.
RGB Services Limited, acquired as part of the Capital Re acquisition, acts
as a service company in relation to the RGBUA managed syndicates.
Lloyd's has commenced a consultation process on the likely future structure
of the Lloyd's distribution chain and in particular a widening of the Lloyd's
broker franchise.
Competition
There remains significant competition in all classes of business transacted
by the syndicates emanating from a number of different markets world-wide.
Depending on the class of business concerned, competition comes from the London
market, other Lloyd's syndicates and ILU Companies (Institute of London
Underwriters), major international insurers and reinsurers. On international
risks, competition also comes from the domestic insurers in the country of
origin of the insured. The syndicates are able to compete successfully by
developing and maintaining close, long term relationships with clients through
a high quality service and an ability to deliver innovative solutions tailored
to the client's needs. The establishment of AUS as described above is an
example of this.
Insurance Ratings
The Lloyd's market has received a rating of A from A.M. Best and a claims
paying ability rating of A+ from S&P.
Claims Administration
With respect to claims arising in Lloyd's syndicates, a claims database into
which all notices of loss are entered is maintained. These are primarily
notified by the Lloyd's Claims Office ("LCO") through a daily electronic data
interchange message. When a syndicate is a "leading" syndicate on a Lloyd's
policy, it acts through its underwriters and claims adjusters, on its own
behalf and with the LCO for the following market, in dealing with the broker
and/or insured for any particular claim. This may involve the appointment of
attorneys and/or loss adjusters. The LCO advises all syndicates participating
on the risk as to movements in case reserves.
7
All information received with respect to case reserves, whether on "lead
business" or on "following business", is monitored and recorded by the
syndicates. The syndicates' claims department can vary the case reserves
carried from those advised by the LCO and can carry reserves for claims not
processed by the LCO. Any such adjustments and entries are specifically
identifiable within the claims system.
ACE Global Reinsurance
Principal Business
The principal business of ACE Global Reinsurance is the operations of
Tempest Re which provides property catastrophe reinsurance worldwide to
insurers of commercial and personal property. Property catastrophe reinsurance
protects a ceding company against an accumulation of losses covered by the
insurance policies it has issued arising from a common event or "occurrence."
Tempest Re underwrites reinsurance principally on an excess of loss basis.
Other property reinsurance written by Tempest Re on a limited basis for select
clients, includes proportional property and per risk excess of loss treaty
reinsurance.
On April 1, 1998, the Company acquired CAT Limited, another Bermuda based
property catastrophe reinsurer. Underwriting operations were immediately
combined with those of Tempest Re, and on January 1, 1999 CAT Limited was
merged into Tempest Re.
In early 2000, Tempest Re initiated plans to expand its operations to become
a multiline global reinsurer. This expansion is expected to reduce volatility
and enable Tempest to diversify its business and offer integrated risk
solutions to satisfy client demand. Such an integrated approach is considered
vital to capturing an increasing share of the future reinsurance market.
Business growth will require expansion outside of Bermuda, with initial
emphasis on the major markets of the United States and the United Kingdom.
Further global expansion may be considered in a subsequent phase of this
strategy. Business development will be sought by combining the strengths of its
client relationship skills, underwriting expertise, rational pricing and
capital base. New lines of business will be added in accordance with the
strategy to offer risk protection across all lines of insurance and to be able
to package insurance risk with financial, investment and operational risk.
Marketing and Underwriting
Tempest Re markets its reinsurance products worldwide through reinsurance
brokers. Tempest Re's underwriting team builds relationships with key brokers
and clients by explaining Tempest Re's approach and demonstrating
responsiveness to customer needs. Tempest Re's approach to the business of
reinsurance takes a long-term perspective. Management believes that continual
strengthening of the relationships between Tempest Re, its producing brokers
and their clients will continue to contribute to a stable portfolio necessary
to achieve continuity.
Tempest Re receives business from approximately 26 brokers. The following
table sets forth the percentage of Tempest Re's business written through each
broker and its affiliates placing more than 10 percent of Tempest Re's
business:
Ten Months
Year Ended Year Ended Ended
December 31 September 30 September 30
1999 1998 1997
----------- ------------ ------------
J&H, Marsh & McLennan,
Incorporated(1).................... 37% 47% 42%
E.W. Blanch......................... 15% 16% 15%
Aon Corporation..................... 11% 8% 9%
- --------
(1) During 1997, Marsh & McLennan, Incorporated acquired Johnson & Higgins. The
percentage shown in the table for fiscal 1997 reflects the business placed
by the combined entity and its affiliates for the entire fiscal 1997 year.
During 1999, Marsh and McLennan, Incorporated acquired Sedgwick. The
percentages shown in the table reflect the business placed by the combined
entity and its affiliates for the entire fiscal 1999, 1998 and 1997 years.
8
Rates, limits, retention and other reinsurance terms and conditions are
generally established in a worldwide competitive market that evaluates exposure
and balances demand for property catastrophe coverage against the available
supply. Tempest Re believes it is perceived by the market as being a "lead"
reinsurer and is typically involved in the negotiation and quotation of the
terms and conditions of the majority of the contracts in which it participates.
Because Tempest Re underwrites property catastrophe reinsurance and has
large aggregate exposures to natural and man-made disasters, Tempest Re's
claims experience generally will involve infrequent events of great severity.
Tempest Re seeks to diversify its reinsurance portfolio to moderate the impact
of this severity. The principal means of diversification are by geographic
coverage and by varying attachment points and imposing coverage limits per
program. Tempest Re also establishes zonal accumulation limits to avoid
concentrations of risk within particular geographic areas.
Tempest Re applies an underwriting process based on models that use exposure
data submitted by prospective reinsureds in accordance with requirements set by
Tempest Re's underwriters. The client data is then analyzed using a selection
from several available catastrophe analysis tools, including externally
developed event based models licensed from leading vendors as well as
proprietary models developed in house.
The output from the catastrophe analysis tools is also used for portfolio
risk management, enabling Tempest Re to extensively simulate possible
combinations of events affecting the portfolio. This analysis also supports the
decision making with regard to purchasing retrocession. In 1999 and 1998,
Tempest Re significantly increased its use of retrocessional coverages.
Competition
The property catastrophe reinsurance industry is highly competitive. Tempest
Re competes worldwide with major U.S. and non-U.S. property catastrophe
reinsurers, including other Bermuda-based property catastrophe reinsurers as
well as reinsurance departments of numerous multi-line insurance organizations.
Tempest Re competes effectively because of its strong capital position, the
quality of service provided to customers, the leading role Tempest Re plays in
setting the terms, pricing and conditions in negotiating contracts and its
customized approach to risk selection.
Insurance Ratings
Tempest Re has received a rating of A from A.M. Best and a claims paying
ability rating of A+ from S&P.
Claims Administration
Claims arising under contracts written by Tempest Re are managed in Bermuda
by Tempest Re. Tempest Re also maintains a claims database into which all
notices of loss are entered. Loss notices are received from brokers. They are
reviewed and case reserves are established for Tempest Re's portion of the
loss. Case reserves are then adjusted based on receipt of further notifications
from brokers.
ACE USA
Principal Business
The principal business of ACE USA is the combined business of ACE US
Holdings, which was acquired by the Company in 1998 and the domestic operations
of ACE INA acquired on July 2, 1999. The domestic operations of ACE INA include
ongoing domestic operations as well as the run-off operations of Brandywine
Holdings, Inc. ("Brandywine"), which does not write new policies. The ongoing
operations provide specialty property and casualty products and services
including: aerospace, diversified products, marine, professional risk
9
services, property, special risk, U.S. international, warranty, Westchester
Specialty and "other" operations. The other operations include all remaining
insurance operations of ACE USA and selected insurance related operations
including residual market workers' compensation business, pools and syndicates
not attributable to a single business unit and the runoff of open market
facilities business. Insurance related operations include those of ESIS Inc.
("ESIS"), the Company's in-house third party claims administrator and Recovery
Services International ("RSI"), which sells salvage, subrogation, and premium
collection services.
All renewal rights to Commercial Insurance Services ("CIS"), formerly a
business unit of ACE USA acquired as part of the ACE INA acquisition, were sold
during 1999 under two separate agreements. On October 11, 1999, ACE USA reached
an agreement with Wausau Commercial Insurance, to sell the renewal rights to
the CIS middle market, commercial business as well as non-California workers'
compensation business. On November 1, 1999, ACE USA reached an agreement with
Superior National Insurance Group to sell the renewal rights to the CIS
California worker's compensation business. The Company has not yet sold the
existing insurance reserves for the CIS book.
The Brandywine run-off operation, was created in 1995 by the restructuring
of ACE INA's domestic operations into two separate operations into two separate
operations, ongoing and run-off. Brandywine contains substantially all of ACE
INA's asbestos and environmental exposures as well as various run-off insurance
and reinsurance businesses. The run-off operations do not actively sell
insurance products, but are responsible for the management of run-off policies
and related claims including those for asbestos-related and environmental
pollution exposures. Certain competitors and policy holders of CIGNA have
challenged the regulatory approvals resulting in the creation of Brandywine. In
July 1999, the Pennsylvania Supreme Court upheld the action of the Pennsylvania
Insurance Commissioner in granting such approvals.
Marketing and Underwriting
ACE USA primarily distributes its insurance products through a limited group
of brokers and wholesale brokers with whom long-term relationships have been
forged. ACE USA's management believes the match between its expertise and that
of its brokers is one of the key reasons brokers place business with it. The
majority of premium volume is currently derived from a limited number of
brokers with whom ACE USA has established mutually significant relationships.
Certain products are also distributed through general agents, independent
agents and financial institutions. The following table sets forth the
percentage of ACE USA's business written through brokers placing more than 10
percent of ACE USA's business:
Year ended Nine months ended
December 31, September 30,
Name 1999 1998
---- ------------ -----------------
Rain & Hail Insurance Services(1)(2).......... 14% --
Aon Corporation(2)............................ 4% 18%
- --------
(1) Rain & Hail Insurance Services is a managing agency that specializes in
crop insurance, most of which is federally reinsured.
(2) The calculation for determining business provided to ACE USA by outside
brokers includes premiums from both ACE US Holdings and the U.S. operations
of ACE INA which are included from July 2, 1999, the date of acquisition.
Operating in a market in which capacity and price adequacy for its products
can change dramatically, ACE USA's underwriting strategy is to employ
consistent, disciplined pricing and risk selection in order to maintain an
attractive book of business. Management's priority is to ensure that criteria
for risk selection are closely adhered to by its underwriting professionals and
to maintain sufficient experience and expertise in its underwriting staff.
ACE USA has the ability to write business on an admitted basis using forms
and rates as filed with state insurance regulators and on a non-admitted, or
surplus lines basis using flexible forms and rates not filed with state
insurance regulators. Having access to a non-admitted carrier provides the
flexibility to write non-standard coverage.
10
Competition
ACE USA operates in a highly competitive industry and faces competition from
both domestic and foreign insurers. Competition in the U.S. property and
casualty market is based on many factors including financial strength of the
insurer, ratings assigned by rating companies, premiums charged, policy terms
and conditions, reputation, services offered and broker commissions. The
markets in which ACE USA competes are subject to significant cycles of
fluctuating capacity and wide disparities in price adequacy. ACE USA's strategy
in its competitive environment has been to grow when conditions are favorable
for a particular product line and to reduce writings and preserve capital when
competitive pricing prevents adequate returns.
The domestic operations pursue a specialist strategy and focus on those
market segments where they can compete effectively based on service levels and
product design and achieve an adequate level of profitability. They offer
experienced claims handling, loss control and risk management staffs with
proven expertise in specialty fields, including large-risk property and
casualty, recreational and ocean marine, aviation, and worker's compensation. A
competitive strength of all the domestic units, especially special risk
facilities, is the ability to deliver global products and coverages to
customers in concert with the international property and casualty operations.
Insurance Ratings
ACE USA's active and inactive operating subsidiaries have received ratings
from A.M. Best of A and B+, respectively. These companies have claims paying
ability ratings from S&P of A+ and BBB, respectively.
Claims Administration
The claims organization supports both ACE USA national accounts (Special
Risk) and specialty insurance businesses with a national network of experts in
claims and risk management services.
A dedicated team of seasoned claim and risk control professionals support
each specialty insurance with the unique expertise needed to effectively manage
loss costs for the risk exposures underwritten by businesses of ACE USA.
Specialized loss cost containment programs have been designed for marine risk,
aerospace risk, global property risk, warranty programs, excess risk, inland
marine risk, diversified products and professional risk services.
The Special Risk Business is supported by ESIS. ESIS markets loss control,
risk information and claims services to large corporate customers on a fee-for-
service basis.
ACE International
Principal Business
ACE International's operations provide insurance coverage and services on a
worldwide basis excluding the United States. The principal business operations
are property & casualty and accident & health. Operating management is carried
out through four regional teams: Europe, Far East, Asia/ Pacific and Latin
America.
The international property and casualty operations are conducted through a
specialist insurance organization offering capacity and technical expertise in
the underwriting of large and unique risks for targeted commercial customer
segments, as well as individual coverages in selected markets. Its property
insurance products include traditional commercial fire coverage as well as
energy industry-related and other technical coverages. Principal casualty
products are commercial general liability and liability coverage for
multinational organizations. Marine cargo and hull coverages are written in the
London market as well as in marine markets throughout the world. The operations
also design and implement risk-financing alternatives for customers whose
approach to risk management includes some form of self-insurance.
The international accident and health insurance operations provide products
that are designed to meet the insurance needs of individuals and groups outside
of U.S. insurance markets. These products include accidental death, medical,
hospital indemnity and income protection coverages.
11
ACE International reduces its exposure to economic loss arising from foreign
exchange by maintaining invested assets abroad in the same currency as the
related liabilities.
Marketing and Underwriting
ACE International maintain a sales or operational presence in major
insurance markets around the world. Its property and casualty business is
generally written, on both a direct and assumed basis, through major
international and local brokers. Accident and health and other personal lines
products are distributed through agents, financial institutions and various
direct marketing channels.
ACE International's operations are diversified by line of business and
geographic spread of risk. A global approach to risk management allows each
local operation to underwrite and accept large insurance accounts. Centrally
controlled internal reinsurance mechanisms facilitate appropriate risk transfer
and efficient, cost-effective use of external reinsurance markets
No one broker placed more than 10 percent of ACE International's business in
1999.
Competition
The principal competitive factors that affect the international operations
are underwriting and pricing, relative operating efficiency, product
differentiation, producer relations and the quality of claims and policyholder
services. A competitive strength of the international operations is its global
network and breadth of insurance programs, which assist individuals and
business organizations to meet their risk management objectives.
Across all lines of business, the operations' primary competitors include
U.S.-based companies with global operations, as well as other, non-U.S. global
carriers and indigenous companies in regional and local markets. For the
accident and health lines of business, locally based competitors include
financial institutions and bank-owned insurance subsidiaries.
Insurance Ratings
ACE Europe has received a rating of A from A.M. Best and a claims paying
ability rating of A+ from S&P. The company's operations in Canada, Puerto Rico,
Asia Pacific and New Zealand have all received ratings of A from A.M. Best. The
company's Argentina operations have received a claims paying ability rating of
AAA- from S&P.
Claims Administration
The claims handling process is essentially decentralized with the management
of most aspects occurring at an individual country level. The claims
organization structure in each country is driven by the composition of the
portfolio of the business. Outsourcing of certain functions may occur if
appropriate and if it makes business sense to do so.
ACE Financial Services
Principal Business
The ACE Financial Services segment is primarily comprised of the companies
acquired in the Capital Re acquisition on December 30, 1999 and from January 1,
2000 ACE Capital Re International, a subsidiary of ACE Bermuda. Following the
acquisition Capital Re was renamed ACE Financial Services Inc. The companies in
the ACE Financial Services segment provide value-added insurance and
reinsurance products in several specialty insurance markets which emphasize
protection from credit or financial risks through financial guaranty coverages
and financial risk coverages. The financial guaranty business is composed of
municipal and non-municipal financial guaranty reinsurance and credit default
swaps. The financial risks business is composed of mortgage guaranty
reinsurance, trade credit reinsurance, title reinsurance and financial
solutions.
12
The ACE Financial Services segment primarily carries out its business lines
through six insurance companies. They are: ACE Guaranty Re Company (formerly
Capital Reinsurance Company; "ACE Guaranty"), ACE Capital Re International Ltd.
(formerly ACE Capital Re Limited; "ACRI"), Capital Mortgage Reinsurance Company
(formerly Capital Mortgage Reinsurance Company; "ACE Capital Mortgage"), ACE
Capital Re Bermuda Ltd. (formerly KRE Reinsurance Ltd.; "ACE Capital Re
Bermuda") and ACE Capital Title Reinsurance Company (formerly Capital Title
Reinsurance Company; "ACE Capital Title").
ACE Financial Services' financial guaranty division conducts its business
primarily through ACE Guaranty. ACE Guaranty is a professional reinsurance
company dedicated to serving the U.S. domestic and international financial
guaranty insurance markets and has established itself as a leading specialty
reinsurer (by market share) of financial guaranties of investment grade debt
obligations, principally municipal and non-municipal debt obligations.
Financial guaranty insurance is a type of credit enhancement in the form of
a surety or insurance which is regulated under the insurance laws of various
jurisdictions. The insurance provides an unconditional and irrevocable guaranty
which indemnifies the insured against nonpayment of principal and interest when
due by an obligor on an insured debt obligation. Additionally, the financial
guaranty business sells municipal and non-municipal credit risk protection on a
facultative basis to a wide variety of counterparties through credit default
swap transactions. Although structured as financial derivatives, credit default
swaps are functionally equivalent to financial guaranty insurance.
The financial risk solutions business which is principally carried out by
ACRI and ACE Capital Re Bermuda is focused on providing highly structured
solutions to problems of financial and risk management through reinsurance,
including credit enhancement, excess of loss and surplus management covers.
The financial risk solutions business includes the reinsurance of mortgage
guaranty insurance, trade credit reinsurance, and title insurance. Mortgage
guaranty insurance is a specialized class of credit insurance, providing
protection to mortgage lending institutions against the default of borrowers on
mortgage loans which at the time of the advance had a loan-to-value ("LTV")
ratio in excess of 80 percent. Trade credit insurance protects sellers of goods
and services from the risk of non-payment of trade receivables and is a large,
well-established specialty insurance product, particularly in Western Europe.
Policyholders are generally covered for short-term exposures (generally less
than 180 days and averaging 60-90 days) to insolvency or payment defaults by
domestic and/or foreign buyers. Some export credit policies also cover
political events which can disrupt either the flow of goods and services or
payment for goods and services. Title insurance essentially provides the
acquirer or the mortgagee of real property with two forms of coverage: the
first assures that the search and examination of the real estate records upon
which the acquirer or mortgagee is relying for good and clean title was
properly performed, and the second form of coverage assures that all previously
existing mortgages and liens will be paid off from the proceeds of the sale or
refinancing of the property.
Marketing and Underwriting
The majority of ACE Financial Services' business is derived from
relationships it has established and maintains with the major U.S. primary
financial guaranty, mortgage guaranty and title insurers. European trade credit
insurers, U.S. title insurers, United Kingdom mortgage guaranty insurers and
Australian mortgage guaranty insurers also provide a significant portion of ACE
Financial Services' business.
The principle target market for the financial guaranty market is life,
accident and health insurers and reinsurers, although specialty property and
casualty markets also provide opportunities. The financial risks market derives
its mortgage guaranty reinsurance business principally through direct
relationships with primary mortgage guaranty insurance companies. Reinsurance
intermediaries and brokers are used in accessing reinsurance opportunities in
the United Kingdom and the international market. Trade credit reinsurance
business opportunities have been developed principally through reinsurance
brokers and intermediaries. ACE
13
Capital Title has developed substantially all of its business opportunities
through direct contacts with primary title insurers. The financial solutions
line of business has developed its opportunities through both direct contact
with life and health and property-casualty insurers and through reinsurance
intermediaries.
The underwriting process for financial guaranty reinsurance business is
premised on the ACE Capital Re's policy of reinsuring investment grade
obligations. ACE Guaranty underwrites risks on a "zero loss" basis, meaning
that each reinsured policy obligation has been evaluated by ACE Guaranty under
a standard of no loss expectation. ACE Guaranty has organized its underwriting
procedures to provide for multiple levels of credit review and analysis.
The underwriting process used in the financial solutions line places
significant emphasis on actuarial analysis. Transactions are either
underwritten on a risk remote basis or are subject to an aggregate limit of
liability for the reinsurer, standards that are compatible with the groups
"zero loss" financial guaranty underwriting standard. Moreover, many financial
solutions transactions provide for the payment of additional premium to the
reinsurer in the event of poor loss experience on the reinsured business and
for the payment of a profit commission to the reinsured in the event of
favorable loss experience.
Unlike the "zero loss" standard applied in financial guaranty insurance
underwriting, mortgage guaranty insurance is underwritten with the expectation
of loss. Under normal economic conditions and in a stable interest rate
environment, loss ratios in this line of business are generally in the 15
percent to 40 percent range and are associated with frictional unemployment,
divorce and other social factors. By avoiding geographic concentrations and
employing prudent underwriting, mortgage insurers are better able to manage
their risk.
Trade credit reinsurance underwriters manage risk by modifying the terms of
coverage, by diversifying exposures to control aggregations of risks to
particular buyers, industries, or territories, and by developing sophisticated
databases of credit and political information.
Similar to the "zero loss" standard applied in financial guaranty insurance
underwriting, title reinsurance is underwritten without the expectation of any
significant loss.
Competition
Competition in the financial guaranty reinsurance business is based upon
many factors, including overall financial strength, pricing, service and
evaluation of claims-paying ability by the major rating agencies. ACE Guaranty
also faces competition indirectly from other triple-A rated financial
institutions which provide capital substitutes to the primary financial
guaranty insurance companies. Competition is also a function of the ease with
which primary insurers can raise capital in the private or public equity
markets. Increased primary capital increases the ability of insurers to retain
risk and the need for reinsurance in general is diminished.
The Company is not aware of any other U.S. professional reinsurer which
specializes in mortgage guaranty reinsurance, however, several non-US
reinsurers do compete directly with ACE Capital Mortgage in several product
areas. Some U.S. multiline reinsurers offer capacity to the mortgage guaranty
market but their participation has been limited. Federal banks are now
permitted to establish operating subsidiaries, known as lender-owned captives,
to reinsure a portion of the mortgage insurance issued on loans originated or
purchased by the bank or its lending affiliates. The growing use of lender-
owned captives that assume risk from the primary mortgage insurers has
materially altered mortgage guaranty insurance industry in that the primary
insurers now cede a significant percentage of premium to lender-owned captives
leaving less premiums available to purchase reinsurance from third parties.
Competition is also a function of the ease with which primary insurers can
raise capital in the private or public equity markets. Increased primary
capital increases the ability of insurers to retain risk and reduces the need
for reinsurance in general.
The trade credit reinsurance market is led by several large traditional
multiline insurers and reinsurers, who have been able to maintain their
dominant market position in part through their ownership interests in
14
many of the leading primary companies. In addition to the market leaders, there
are a large number of mainly European and U.S. reinsurers that compete for the
business. Reciprocal reinsurance arrangements between primary companies are
widespread, thus adding to the degree of competition in the industry.
ACE Capital Title is the only U.S. professional reinsurer which specializes
in third-party title reinsurance. To date, substantially all title reinsurance
has been provided by the large title insurance companies, except for some minor
excess coverage.
The financial solutions line of business is generally highly competitive,
with many life and health and property-casualty reinsurers offering products
similar to, or in direct competition with, those offered by the group.
Insurance Ratings
The financial strength of ACE Guaranty is rated AAA by S&P and Aa2 by
Moody's. In addition, ACE Guaranty's claims paying ability is rated AAA by
Fitch IBCA. S&P and Moody's, assign the financial strength rating of a
financial guaranty insurance company to the obligations insured by that
company. Because all of the major U.S. primary financial guaranty insurance
companies have triple-A financial strength ratings from these rating agencies,
payment obligations insured by those companies are rated triple-A. The
financial strength rating of a reinsurer is particularly important in the area
of financial guaranty reinsurance, because that rating affects the amount of
capital credit the rating agencies will allow to a ceding company in connection
with a cession to that reinsurer. S&P will permit a AAA rated ceding company
100 percent credit for a cession only if the reinsurer is also triple A rated.
Moody's does not have published standards for determining the amount of credit
a Aaa rated ceding company will be permitted for a cession to an Aa2 rated
reinsurer; however, the rating of the reinsurer is an important element in
Moody's determination of the amount of permitted credit. ACE Capital Re
International's financial strength is rated AA by S&P and its claims-paying
ability is rated AA+ by Duff & Phelps. The financial strength of ACE Capital Re
Bermuda, ACE Capital Mortgage and ACE Capital Title is rated AA by S&P, and
each of those companies' claims paying ability is rated AA+ by Duff & Phelps.
Unpaid Losses and Loss Expenses
The Company is required to make provisions in its financial statements for
the estimated unpaid liability for losses and loss expenses for claims made
against it under the terms of its policies and agreements. Estimating the
ultimate liability for losses and loss expenses is an imprecise science subject
to variables that are influenced by both internal and external factors. This is
true because claim settlements to be made in the future may be impacted by
changing rates of inflation and other economic conditions, changing
legislative, judicial and social environments and changes in the Company's
claims handling procedures. In many liability 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.
After a claim is reported to the Company, a case reserve is established for
the estimated ultimate losses and loss expenses, if any, with respect to the
reported claim. The amount and timing of the reserve reflects the judgement of
the claims personnel based upon general corporate reserving practices and on
the experience and knowledge of the claims personnel (including, where
appropriate, outside counsel and claim consultants) regarding the nature and
value of the specific type of claim.
The Company's reserves for asbestos-related and environmental pollution
claims are a reasonable estimate of its liability for these claims, based upon
currently known facts, current law, and reasonable assumptions and
methodologies.
The Company continually evaluates its reserves in light of developing
information and in light of discussions and negotiations with its insureds.
While the Company is unable at this time to determine whether
15
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, the Company believes that its reserve for unpaid
losses and loss expenses are adequate as of December 31, 1999.
The Company engages an independent actuarial firm to review the methods and
assumptions used by the Company in estimating the unpaid losses and loss
expenses. As stated in its actuarial review, the firm believes that the methods
and assumptions used by the Company are reasonable and appropriate for use in
setting loss reserves at December 31, 1999.
Losses and loss expenses are charged to income as incurred. The reserve for
unpaid losses and loss expenses represents the estimated ultimate losses and
loss expenses less paid losses and loss expenses and is composed of case
reserves, loss expense reserves and IBNR loss reserves. During the loss
settlement period, which can be many years in duration, additional facts
regarding individual claims and trends often will become known. As these become
apparent, case reserves may be adjusted by allocation from the IBNR loss
reserve without any change in the overall reserve. In addition, application of
statistical and actuarial methods may require the adjustment of the overall
reserves upward or downward from time to time. The final liability nonetheless
may be significantly greater than or less than the prior estimates.
The "Analysis of Losses and Loss Expenses Development" shown below presents
the subsequent development of the estimated year-end liability for unpaid
losses and loss expenses at the end of each of the years in the ten year period
ended September 30, 1998 as well as for the fifteen month period ended
December 31, 1999. Prior to December 31, 1999, the unpaid losses and loss
expenses are in respect of annual periods ending on September 30 of each year.
The top line of the table shows the estimated liability for unpaid losses and
loss expenses recorded at the balance sheet date for each of the indicated
periods. This liability represents the estimated amount of losses and loss
expenses for claims arising from all prior years' policies and agreements that
were unpaid at the balance sheet date, including IBNR loss reserves. The upper
(paid) portion of the table presents the amounts paid as of subsequent periods
on those claims for which reserves were carried as of each balance sheet date.
The lower portion of the table shows the re-estimated amount of the previously
recorded liability as of the end of each succeeding period. 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.
Accordingly, the Company expects that ultimate losses and loss expenses
attributable to any single underwriting year will be either more or less than
the incremental changes in the lower portion of the following table.
Management believes, however, that the losses and loss expenses which have
been recorded through December 31, 1999, are adequate to cover the ultimate
cost of losses and loss expenses incurred through December 31, 1999 under the
terms of the company's policies and agreements. Since such provisions are
necessarily based on estimates, the ultimate losses and loss expenses may be
significantly greater or less than such amounts.
16
Analysis of Losses and Loss Expenses Development
Years ended September 30, except for 1999 information which is for
the fifteen month period ended December 31, 1999
---------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995
--------- -------- ---------- ----------- ---------- ---------- ----------
(in thousands of U.S. dollars)
Unpaid $ 78,009 $319,230 $ 470,832 $ 813,849 $ 766,402 $1,176,215 $1,489,293
Paid (Cumulative)
As Of:
1 year later.... 26,190 181,525 149,493 340,836 126,566 66,888 80,080
2 years later... 82,715 207,587 490,116 465,074 183,439 121,628 414,419
3 years later... 108,689 531,502 590,847 517,366 228,638 451,746 696,470
4 years later... 432,541 601,811 611,133 551,887 558,625 725,799 1,259,344
5 years later... 459,183 622,097 627,691 881,198 837,515 1,285,599
6 years later... 476,570 631,371 764,607 1,150,628 1,398,270
7 years later... 484,549 641,060 843,283 1,672,772
8 years later... 493,326 664,896 988,087
9 years later... 505,976 727,175
10 years later.. 525,950
Liability Re-
estimated
As Of:
End of year..... $ 78,009 $319,230 $ 470,832 $ 813,849 $ 766,402 $1,176,215 $1,489,293
1 year later.... 267,674 475,647 706,960 813,849 966,402 1,177,292 1,489,293
2 years later... 346,022 665,533 706,960 1,085,012 1,067,987 1,227,538 1,489,293
3 years later... 516,783 665,533 874,368 1,234,462 1,211,424 1,386,571 1,480,426
4 years later... 516,783 663,480 888,387 1,412,495 1,429,990 1,401,329 1,495,443
5 years later... 487,911 680,119 940,513 1,666,770 1,442,523 1,472,394
6 years later... 489,556 711,671 1,113,662 1,703,103 1,580,022
7 years later... 479,306 768,935 1,099,102 1,852,125
8 years later... 484,041 771,018 1,142,511
9 years later... 488,646 808,239
10 years later.. 508,981
Cumulative
Redundancy
/(deficiency)... (430,972) (489,009) (671,679) (1,038,276) (813,620) (296,179) (6,150)
Years ended September 30, except for 1999
information which is for the fifteen month
period ended December 31, 1999
--------------------------------------------
1996 1997 1998 1999
---------- ---------- ---------- ----------
Unpaid $1,892,302 $2,006,873 $2,678,341 $8,908,817
Paid (Cumulative)
As Of:
1 year later.... 358,713 337,422 1,017,822
2 years later... 663,087 925,361
3 years later... 1,247,652
4 years later...
5 years later...
6 years later...
7 years later...
8 years later...
9 years later...
10 years later..
Liability Re-
estimated
As Of:
End of year..... $1,892,302 $2,006,873 $2,678,341 8,908,817
1 year later.... 1,892,302 1,989,744 2,753,017
2 years later... 1,881,403 1,914,936
3 years later... 1,824,449
4 years later...
5 years later...
6 years later...
7 years later...
8 years later...
9 years later...
10 years later..
Cumulative
Redundancy
/(deficiency)... 67,853 91,937 (74,676) --
Net unpaid losses and loss expenses................................ $ 8,908,817
Reinsurance recoverable on unpaid losses........................... $ 7,551,430
-----------
Gross unpaid losses and loss expenses.............................. $16,460,247
===========
Notes to Analysis of Losses and Loss Expenses
- ------
(1) On July 2, 1999, the Company changed its fiscal year-end from September 30
to December 31. As a result, the information provided above for the 1999
year is actually for the 15 month period from October 1, 1998 through
December 31, 1999. All prior periods represent years ending on September
30.
(2) The Company does not consider it appropriate to extrapolate future
deficiencies or redundancies based upon the above tables, as conditions and
trends that have affected development of liability in the past may not
necessarily occur in the future.
(3) In 1994, the Company recorded an additional reserve of $200 million,
related primarily to developments in breast implant litigation, in respect
of years prior to 1994.
(4) In 1992, the Company began applying actuarial and statistical methods to
estimate ultimate expected losses and loss expenses for all of the
Company's business since inception. At September 30, 1994 the Company
changed its method of allocating IBNR to accident and balance sheet years.
This allocation assigns IBNR to years based upon various risk factors
including immaturity of year, amount of earned premium in that year, and
development of known claims. As the Company's loss experience is
characterized as low frequency, and high severity, IBNR is considered a
bulk reserve, and is therefore available for loss development from
whichever year it may arise. Prior to 1994, the allocation of IBNR to
accident and balance sheet years was based upon a loss distribution
indicated by the expected loss method employed by the Company. Losses paid
for the year ending September 30, 1998 include an amount of $26.0 million,
which is expected to be recovered from an insured.
(5) On November 1, 1993, the Company acquired CODA, on July 1, 1996, the
Company acquired Tempest Re and on July 9, 1998, the Company acquired
Tarquin. The table has been restated to include CODA's, Tempest Re and
Tarquin's loss experience as if each of these companies had been wholly
owned subsidiaries of the Company from their inception. On January 2, 1998,
the Company acquired ACE US Holdings, on April 1, 1998, the Company
acquired CAT Limited and on July 2, 1999, the Company acquired ACE INA. The
unpaid loss information for ACE US Holdings, CAT Limited and ACE INA has
been included in the table commencing in the year of acquisition. As a
result, 1999 includes net reserves of $6.8 billion related to ACE INA at
the date of acquisition and subsequent development thereon.
(6) The "cumulative redundancy/deficiency" shown in the table represents the
aggregate change in the reserve estimates over all subsequent years. The
amounts noted are cumulative in nature; that is, an increase in loss
estimate for prior year losses generates a deficiency in each intermediate
year. For instance, a deficiency recognized in 1994 relating to losses
incurred during the year ending September 30, 1992 would be included in the
cumulative deficiency amount for each year from September 30, 1992 to the
year the loss was recognized (1994), yet the deficiency would be reflected
in operating results only in 1994. An analysis of the changes in aggregate
reserves for losses and loss expenses under GAAP is presented below. Since
reserves are necessarily based upon estimates, the ultimate net costs may
vary from the original estimates. As adjustments to these estimates become
necessary, they are reflected in current operations.
17
Reconciliation of Unpaid Losses and Loss Expenses
Three Months
Year Ended Ended Year Ended Year Ended
December 31 December 31 September 30 September 30
1999 1998 1998 1997
----------- ------------ ------------ ------------
(in thousands of U.S. dollars)
Gross unpaid losses and
loss expenses at
beginning of period...... $ 3,678,269 $3,737,869 $2,111,670 $1,977,680
Reinsurance recoverable... (1,100,464) (1,059,528) (104,797) (85,378)
----------- ---------- ---------- ----------
Net unpaid losses and loss
expenses at beginning of
period................... 2,577,805 2,678,341 2,006,873 1,892,302
Unpaid losses and loss
expenses assumed in
respect of acquired
companies (net of
reinsurance recoverables
of $6,345,679 in 1999 and
$761,618 in 1998)........ 6,940,593 -- 731,949 --
Unpaid losses and loss
expenses assumed in
respect of reinsurance
business acquired........ 183,774 -- 6,403 50,326
----------- ---------- ---------- ----------
Total................. 9,702,172 2,678,341 2,745,225 1,942,628
=========== ========== ========== ==========
Net losses and loss
expenses incurred in
respect of losses
occurring in:
Current period.......... 1,601,278 126,139 534,021 486,140
Prior periods........... 38,265 (14,970) (17,129) --
----------- ---------- ---------- ----------
Total................. 1,639,543 111,169 516,892 486,140
=========== ========== ========== ==========
Net losses and loss
expenses paid in respect
of losses occurring in:
Current period.......... 916,848 24,977 246,354 63,182
Prior periods........... 1,516,050 186,728 337,422 358,713
----------- ---------- ---------- ----------
Total................. 2,432,898 211,705 583,776 421,895
=========== ========== ========== ==========
Net unpaid losses and loss
expenses at end of
period................... 8,908,817 2,577,805 2,678,341 2,006,873
Reinsurance recoverable on
unpaid losses............ 7,551,430 1,100,464 1,059,528 104,797
----------- ---------- ---------- ----------
Gross unpaid losses and
loss expenses at end of
period................... $16,460,247 $3,678,269 $3,737,869 $2,111,670
=========== ========== ========== ==========
Losses and loss expenses for 1999 include incurred losses for ACE INA from
July 2, 1999, the date of acquisition. With respect to the analysis of incurred
and paid losses for ACE INA for the 1999 period, all losses incurred and paid,
on losses occurring in the period January 1, 1999 through December 31, 1999
have been included as current period activity.
Incurred losses for the 15 month period ended December 31, 1999 were
affected by adverse development on property catastrophe losses occurring prior
to September 30, 1998 resulting from additional information with respect to the
total value of certain losses becoming available to the market. In addition,
ACE Bermuda had adverse development on certain excess liability and satellite
claims. This development was somewhat offset by favorable development in the
tailored risk solutions division, primarily the result of earnings generated by
a large multi-year contract that expired and was not renewed during the period.
Incurred losses during the period were also impacted by favorable development
on ACE INA's prior period loss reserves.
Investments
The Company's primary investment objectives are to ensure that funds will be
available to meet its insurance and reinsurance obligations and then, to
maximize its rate of return on invested funds within
18
specifically approved constraints as to credit quality, liquidity and
volatility. Accordingly, the Company's investment portfolio is invested
primarily in fixed income instruments of high credit quality.
The Finance Committee of the Board of Directors is responsible for the
establishment of the Company's investment policy consistent with the company's
strategies, goals and objectives. The investment policy is reviewed with, and
approved by, the Board of Directors. Written investment guidelines, approved by
the Finance Committee, document standards to ensure portfolio liquidity and
diversification, maintain credit quality, and limit volatility within approved
asset allocation guidelines. The use of financial futures, forwards and options
contracts, as well as certain mortgage derivative securities which do not
provide a planned stable structure of principal and interest payments, require
prior approval from the Finance Committee.
The consolidated investment portfolio is divided into three segments. Assets
which are required to match and offset certain specifically identified
liabilities are segregated in an asset-liability management ("ALM") segment.
The second segment, the core portfolio, supports the current general insurance
exposures and is structured to have low to moderate investment risk. The
remainder of the portfolio, the discretionary segment, is invested to enhance
total return and return on equity by taking on additional investment risks
within prudent limits. The core and discretionary portfolios are managed by
professional outside managers whose performance is measured against certain
recognized broad market indices.
Funds are invested primarily in both U.S. and non-U.S. dollar denominated
high-quality fixed maturity and equity securities and short-term investments.
Fixed maturity investments include government bonds, preferred shares, publicly
traded and privately placed corporate bonds, mortgage-backed securities and
asset-backed securities. The majority of the non-U.S. dollar denominated fixed
income securities are government-backed. At December 31, 1999, the consolidated
investment portfolio was comprised of 89 percent fixed income securities and 11
percent equity. The Company's investment guidelines limit investments in high
yield and convertible bonds rated B or better to 5 percent each of the
consolidated investment portfolio. To ensure diversity and limit concentrations
of credit risk, no more than 5 percent of the portfolio may be invested in the
obligations of any one issuer (other than the U.S. government). An allocation
has been made to alternative investments with the expectation that it will
improve the overall risk/return profile of the portfolio. At December 31, this
investment amounted to less than one percent of the consolidated investment
portfolio.
For additional information regarding the investment portfolio, including
breakdowns of the sector and maturity distributions, see note 4 to the
consolidated financial statements included in the 1999 Annual Report to
Shareholders.
Regulation
ACE Limited's subsidiaries, in common with other insurers, are subject to
regulation and supervision by the U.S. states and international jurisdictions
in which they do business. The extent of such regulation most commonly has its
source in statutes which delegate regulatory, supervisory and administrative
power to a department of insurance. In the United States, regulation varies
from state to state but generally requires that each insurance company register
with the department of insurance of a state in order to transact business in
that state. Regulations generally require reinsurance companies to furnish
information concerning the operations of the company which may materially
affect the operations, management or financial condition and solvency of the
company. Regulations for reinsurers vary somewhat from primary insurers in that
reinsurers are typically not subject to regulator approval of insurance policy
forms or the rates agreed to between ceding insurers and their reinsurers. In
general, insurance regulation is for the protection of the policyholders rather
than shareholders.
The extent of insurance regulation on business outside of the United States
varies significantly among the countries in which the Company operates. Some
countries have minimal regulation while other countries have very stringent
regulatory requirements. In certain countries, foreign insurers face greater
regulatory restrictions than their domestic competitors. Trade barriers include
discriminatory licensing procedures, compulsory cessions of reinsurance,
required localization of records and funds, higher premium and income taxes,
and requirements for local participation in an insurer's ownership.
19
Bermuda
In Bermuda, the Company's insurance subsidiaries are regulated by the
Insurance Act 1978 (as amended by the Insurance Amendment Act 1995) and related
regulations (the "Act"). The Act imposes on Bermuda insurance companies
solvency and liquidity standards and auditing and reporting requirements and
grants the Minister of Finance (the "Minister") powers to supervise,
investigate and intervene in the affairs of insurance companies. Each
registered insurer must appoint an independent auditor to audit and report on
the Statutory Financial Statements and Statutory Financial Return on an annual
basis. Each company must also appoint a loss reserve specialist to review and
report on the loss reserves of the insurer on an annual basis.
United Kingdom
United Kingdom and Lloyd's Regulation
The Company, certain of its UK subsidiaries and some staff employed within
the Lloyd's operations are currently subject to the regulatory jurisdiction of
the Council of Lloyd's (the "Council"). This jurisdiction arises by virtue of
the Company being a controller of each of the Lloyd's managing agencies and the
Corporate Members in which it has an interest. Certain other subsidiaries have
also been approved as controllers, and are similarly subject to Lloyd's
jurisdiction.
Under English law, there are restrictions on the interests Lloyd's brokers
or parties connected to Lloyd's brokers may have in Lloyd's managing agents or
certain of their related entities. This position may change dependant upon the
outcome of the consultation process in relation to brokers referred to below.
Under legislation expected to be passed during 2000, the Financial Services
Authority ("FSA") will become the single UK statutory regulator to supervise
securities, banking and insurance business, including Lloyd's. The FSA will
have wide powers to make rules, and it is envisaged these will replace the
existing statutory and self regulatory arrangements relevant to these areas. A
consultation process has commenced in relation to the Lloyd's regulatory
framework. The Company and its subsidiaries will seek any necessary
authorizations and permissions in relation to its Lloyd's operations as may be
required under any new regulatory framework.
Regulation of Lloyd's Entities in the United States
Direct business can be written on either a licensed or a non-admitted (which
includes surplus lines) basis. Licensed insurers are subject to regulation of
both solvency margin and business practices such as premium rate and policy
form control. Non-admitted insurers are not subject to rate and form control in
most states, but regulators manage the entry to the surplus lines market by
imposing minimum solvency and trust requirements for insurers wishing to be
deemed "eligible" surplus lines insurers.
Insurer licensing requirements do not apply to reinsurers and as a result
both licensed and non-admitted reinsurers may write reinsurance in the U.S.
The trading status of underwriters at Lloyd's in the U.S. is supported by a
unique trust fund structure. The trust funds were reviewed and restructured in
August 1995 in consultation with the New York Insurance Department, which acts
as the domiciliary commissioner for Lloyd's U.S. trust funds held in the state
of New York.
Prior to August 1995, all U.S. dollar premiums were deposited and held in
the Lloyd's American Trust Fund (LATF), regardless of the actual situs of the
risk. The LATF continues to support risks for U.S. business incepting prior to
August 1995, but the trust fund and accounting arrangements have changed for
U.S. dollar business incepting after August 1, 1995. These include the creation
of a Lloyd's Dollar Trust Fund in the UK and a series of deposit trust funds in
the U.S. There are additional trust fund arrangements in certain U.S. states.
20
ACE International
The extent of insurance regulation varies significantly among the countries
in which ACE conducts its international operations. As a foreign insurer, ACE
is, in many countries, faced with greater restrictions than domestic
competitors. Trade barriers include discriminatory licensing procedures,
compulsory cessions of reinsurance, required localization of records and funds,
higher premium and income taxes, and requirements for local participation in an
insurer's ownership. Where appropriate, ACE operates through local insurance
subsidiaries to improve its position.
United States of America
U.S. Operations
Although at the present time there is limited federal regulation of the
insurance business in the U.S., the U.S. insurance subsidiaries are subject to
extensive regulation in the states in which they do business. The laws of the
various states establish supervisory agencies with broad authority to regulate,
among other things, licenses to transact business, rates for certain business,
policy language, underwriting and claims practices, transactions with
affiliates, reserve adequacy, dividends and insurer solvency. In addition, the
U.S. insurance subsidiaries are subject to legislative measures and judicial
decisions that define the risks and benefits for which insurance is sought and
provided. These include redefinitions of insured risk in such areas as product
liability and environmental coverages.
The U.S. insurance subsidiaries are required to file detailed annual reports
with state insurance regulators in each of the states in which they do
business. Such annual reports are required to be prepared on a calendar year
basis. In addition, the U.S. insurance subsidiaries' operations and accounts
are subject to examination at regular intervals by state regulators. The
respective reports filed by the insurance regulations with respect to the most
recent periodic examinations of the U.S. insurance subsidiaries, contained no
material adverse findings.
Statutory surplus is an important measure utilized by the regulators and
rating agencies to assess the Company's U.S. insurance subsidiaries' ability to
support business operations and provide dividend capacity. The Company's U.S.
insurance subsidiaries are subject to various state statutory and regulatory
restrictions that limit the amount of dividends that may be paid without prior
approval from regulatory authorities. These restrictions differ by state, but
are generally based on calculations incorporating statutory surplus, statutory
net income, and/or investment income.
State insurance regulators have adopted Risk Based Capital ("RBC")
requirements that are applicable to the U.S. insurance subsidiaries. These RBC
requirements are designed to monitor capital adequacy and to raise the level of
protection that statutory surplus provides for policyholders. The RBC formula
provides a mechanism for the calculation of an insurance company's Authorized
Control Level (the "ACL") RBC amount. The initial RBC level which triggers
regulatory action is known as the Company Action Level. Failure to achieve this
level of RBC, which occurs if policyholders' surplus falls below 200 percent of
the ACL, requires the insurance company to submit a plan of corrective action
to the relevant insurance commissioner. There are several additional
progressive RBC failure levels, which trigger more stringent regulatory action.
An insurance commissioner may allow a property and casualty company at or below
the mandatory control level that is writing no business and is running off its
existing business to continue its run-off. Based on the RBC formula, at
December 31, 1998, the policyholders' surplus of each of the ongoing U.S.
insurance subsidiaries was higher than the Company Action Level. The
subsidiaries in the run-off operations are running off their liabilities
consistent with the terms of an Order by the Commissioner of Pennsylvania which
includes periodic reporting obligations to the Pennsylvania Insurance
Department, as the Commissioner has determined that these subsidiaries have
sufficient assets to meet their obligations.
In November 1999, the U.S. Congress passed the Gramm-Leach-Bliley Act
(GLBA), financial modernization legislation that reshapes the regulation of the
financial services industry in the United States.
21
GLBA repeals provisions of the Glass-Steagall Act and Bank Holding Company Act
that had prevented affiliation between banks, broker-dealers and insurers. This
legislation defines regulatory supervisory responsibility for newly created
Financial Holding Companies. The law purports largely to preserve functional
regulation of insurance companies and agents by state insurance departments.
However, until the Federal Reserve issues regulations implementing its new
regulatory authority over Financial Holding Companies, it is not possible to
predict the exact magnitude of the impact of GLBA on ACE. Further, until the
full extent of the integration of banking, securities and insurance businesses
is known, it is impossible to predict the impact of this law on competition in
the markets in which ACE operates.
Non-U.S. Operations
The Company and its non-U.S. insurance subsidiaries, excluding its Lloyd's
operations, are not admitted to do business as insurers in any jurisdiction in
the U.S. Each state in the U.S. licenses insurers and prohibits, with some
exceptions, the sale of insurance by non-admitted insurers within its
jurisdictions.
Many states impose a premium tax (typically 2 percent to 4 percent of gross
premiums) on insureds obtaining insurance from non-admitted foreign insurers,
such as ACE Bermuda. The premiums charged by the Company do not include any
U.S. state premium tax. Each insured is responsible for determining whether it
is subject to any such tax and for paying such tax as may be due.
The U.S. Internal Revenue Code also imposes on policyholders an excise tax
on insurance and reinsurance premiums paid to foreign insurers or reinsurers
with respect to risks located in the United States. The rates of tax applicable
to premiums paid to ACE Bermuda are 4 percent for insurance premiums and 1
percent for reinsurance premiums.
There can be no assurance that new or additional legislation in the U.S.
will not be proposed and enacted that has the effect of subjecting the
Company's non-U.S. insurance subsidiaries; excluding its Lloyd's operations to
regulation in the U.S.
Tax Matters
Corporate Income Tax
ACE Limited is a Cayman Islands corporation that operates as a holding
company with offices only in Bermuda and does not pay U.S. corporate income
taxes (other than withholding taxes on dividends or on intercompany interest
income) on the basis that it is not engaged in a trade or business in the U.S.
However, there can be no assurance that the Internal Revenue Service ("IRS")
will not contend to the contrary. If ACE Limited were subject to U.S. income
tax, there could be a material adverse effect on the Company's shareholders'
equity and earnings. ACE Limited and its Bermuda-based insurance and
reinsurance subsidiaries do not file U.S. income tax returns reporting income
subject to U.S. income tax since they do not conduct business within the U.S.
However, ACE Limited and its Bermuda-based insurance and reinsurance
subsidiaries have filed protective tax returns reporting no U.S. income to
preserve their ability to deduct their ordinary and necessary business expenses
should the IRS successfully challenge their contention that none of their
income is subject to a net income tax in the U.S.
ACE has become aware of efforts by four U.S.-based insurance companies to
introduce legislation that would impute taxable investment income to U.S.
affiliates of Bermuda insurance companies. ACE does not believe that the
putative legislation, as currently proposed, would have a material adverse
effect on its results of operations. There can be no assurance that such
legislation, or other legislation that could increase ACE's U.S. tax
obligations, will not be enacted.
Under current Cayman Islands law, ACE Limited is not required to pay any
taxes on its income or capital gains. ACE Limited has received an undertaking
that, in the event of any taxes being imposed, ACE Limited will be exempted
from taxation in the Cayman Islands until the year 2013.
22
Under current Bermuda law, ACE Limited and its Bermuda subsidiaries are not
required to pay any taxes on its income or capital gains. ACE Limited and the
Bermuda subsidiaries have received an undertaking from the Minister of Finance
in Bermuda that, in the event of any taxes being imposed, the Company will be
exempt from taxation in Bermuda until March 2016.
Income from the Company's operations at Lloyd's are subject to United
Kingdom corporation taxes. Lloyd's is required to pay U.S. income tax on U.S.
connected income ("U.S. income") written by Lloyd's syndicates. Lloyd's has a
closing agreement with the IRS whereby the amount of tax due on this business
is calculated by Lloyd's and remitted directly to the IRS. These amounts are
then charged to the personal accounts of the Names/Corporate Members in
proportion to their participation in the relevant syndicates. The Company's
Corporate Members are subject to this arrangement but, as UK domiciled
companies, will receive UK corporation tax credits for any U.S. income tax
incurred up to the value of the equivalent UK corporation income tax charge on
the U.S. income.
ACE INA, ACE US Holdings, and ACE Financial Services are subject to income
taxes imposed by U.S. authorities and will file U.S. tax returns. Certain
international operations of the Company are also subject to income taxes
imposed by the jurisdictions in which they operate.
Related Person Insurance Income
Each U.S. person who beneficially owns Ordinary Shares of the Company
(directly or through foreign entities) on the last day of a non-U.S. insurance
company subsidiary's fiscal year will have to include in such person's gross
income for U.S. tax purposes a proportionate share (determined as described
herein) of the related person insurance income ("RPII") of such insurance
company subsidiary if the RPII of such insurance company subsidiary, determined
on a gross basis, is 20 percent or more of that insurance company subsidiary's
gross insurance income in such fiscal year. RPII is income attributable to
insurance policies where the direct or indirect insureds are U.S. shareholders
or are related to U.S. shareholders of the Company. RPII may be includible in a
U.S. shareholder's gross income for U.S. tax purposes regardless of whether or
not such shareholder is an insured.
For the fiscal year ended December 31, 1999, the Company believes that gross
RPII of each of its insurance company subsidiaries was below 20 percent for the
year. Although no assurances can be given, the Company anticipates that gross
RPII of each of its non-U.S. insurance company subsidiaries will be less than
20 percent of each such subsidiary's gross insurance income for subsequent
years and the Company will endeavor to take such steps as it determines to be
reasonable to cause its gross RPII to remain below such level.
The RPII provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), have never been interpreted by the courts. Regulations interpreting
the RPII provisions of the Code exist only in proposed form, having been
proposed on April 16, 1991. It is not certain whether these regulations will be
adopted in their proposed form or what changes or clarifications might
ultimately be made thereto or whether any such changes, as well as any
interpretation or application of RPII by the IRS, the courts, or otherwise,
might have retroactive effect.
Employees
At December 31, 1999, the Company employed a total of 8,023 persons.
Approximately 700 of the Company's employees are represented by various
collective bargaining agreements, all of whom are outside the U.S., United
Kingdom, and Bermuda. Of these employees 350 are employed in Japan and 142 in
Italy. The remaining employees are in various countries in South America and
Asia Pacific.
North Australia/ Asia Latin
Bermuda America UK Europe New Zealand Pacific America
- ------- ------- --- ------ ----------- ------- -------
209 5,070 658 625 169 920 372
23
Item 2. Properties
The Company operates from offices in almost 50 countries around the world.
In Bermuda, the Company leases its principal offices from a joint venture
company in which the Company has a 40 percent interest and there is an
agreement with the joint venture partner which ensures the Company's ability to
occupy a portion of the building until 2011. The Company is currently building
new corporate headquarters in Bermuda that will house its Bermuda-based
operations. It is expected that this facility will be available early in 2001.
As part of the Company's acquisition of ACE INA, ACE assumed the lease of Two
Liberty Place, in Philadelphia, which consists of approximately 1.25 million
total square feet, and various other leases and properties in the US and other
countries. The majority of all office facilities throughout the world, that are
occupied by the Company and its subsidiaries, are leased.
Item 3. Legal Proceedings
The Company's insurance subsidiaries are subject to claims litigation
involving disputed interpretations of policy coverages and in some
jurisdictions, direct actions by allegedly injured persons seeking damages from
policyholders. These lawsuits involving claims on policies issued by the
Company's subsidiaries which are
typical to the insurance industry in general and in the nmormal course of
business, are considered in the Company's loss and loss expense reserves which
are discussed in the unpaid losses and loss expenses discussion. In addition to
claims litigation, the Company and its subsidiaries are subject to lawsuits and
regulatory actions in the normal course of business that do not arise from or
directly relate to claims on insurance policies. This category of business
litigation typically involves, inter alia, allegations of underwriting errors
or misconduct, employment claims, regulatory activity or disputes arising from
the Company's business ventures. While the outcomes of the business litigation
involving ACE cannot be predicted with certainty at this point, ACE is
disputing and will continue to dispute allegations against it that are without
merit and believes that the ultimate outcomes of matters in this category of
business litigation will not have a material adverse effect on its financial
condition, future operating results or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of stockholders during the fourth
quarter of the fiscal year covered by this report.
24
EXECUTIVE OFFICERS OF THE COMPANY
The table below sets forth the names, ages, positions and business
experience of the executive officers of the Company.
Name Age Position
---- --- --------
Brian Duperreault........ 52 Chairman, Chief Executive Officer & Director
Donald Kramer............ 62 Vice Chairman and Director
Dominic J. Frederico..... 46 President and Chief Operating Officer.
John Charman............. 47 Chief Executive Officer of ACE Global Markets
John Engestrom........... 57 President and Chief Executive Officer, Tempest
Reinsurance Company Limited
Jerome F. Jurschak....... 52 President and Chief Executive Officer, ACE
Financial Services
Dennis B. Reding......... 51 President and Chief Executive Officer of ACE USA
Gary Schmalzriedt........ 53 President and Chief Executive Officer of ACE
Bermuda Insurance, Ltd.
B. Kingsley Schubert..... 53 President and Chief Executive Officer of ACE
International
Christopher Z. Marshall.. 43 Chief Financial Officer
Peter N. Mear............ 55 General Counsel & Secretary
Keith P. White........... 56 Chief Administration Officer
Robert Blee.............. 37 Chief Accounting Officer
John C. Burville......... 52 Chief Actuary
Robin J.W. Masters....... 44 Chief Investment Officer (resigned effective May
31, 2000)
Brian Duperreault has been a director of ACE since October 1994. Mr.
Duperreault has served as Chairman and Chief Executive Officer of ACE since
November 1999 and as Chairman, President and Chief Executive Officer of ACE
from October 1994 through November 1999. Prior to joining ACE, Mr. Duperreault
had been employed with American International Group ("AIG") since 1973 and
served in various senior executive positions with AIG and its affiliates from
1978 until September 1994, most recently as Executive Vice President, Foreign
General Insurance and, concurrently, as Chairman and Chief Executive Officer of
American International Underwriters Inc., a subsidiary of AIG, from April 1994
to September 1994. Mr. Duperreault was President of American International
Underwriters Inc. from 1991 to April 1994, and Chief Executive Officer of AIG
affiliates in Japan and Korea from 1989 until 1991.
Donald Kramer has been a director and Vice Chairman of ACE since July 1996
following the acquisition of Tempest. Mr. Kramer served as Chairman or Co-
Chairman of the Board of Tempest from its formation in September 1993 until
July 1996 and was President of Tempest from July 1996 until 1999. Tempest was
acquired by the Company on July 1, 1996. Prior to the formation of Tempest, he
was President of Kramer Capital Corporation (venture capital investments) from
March to September 1993, President of Carteret Federal Savings Bank (banking)
from August 1991 to March 1993, Chairman of the Board of NAC Re Corporation
(reinsurance) from June 1985 to June 1993, Chairman of the Board and Chief
Executive Officer of KCP Holding Company (insurance) from July 1986 to August
1991 and of its affiliates, KCC Capital Managers (insurance investments) and
Kramer Capital Consultants, Inc. (insurance investments), as well as Chairman
of the Board of its subsidiary, National American Insurance Company of
California (insurance) from September 1988 to August 1991.
Dominic J. Frederico has served as President and Chief Operating Officer of
ACE and non-executive Chairman of ACE INA since November 1999. Mr. Frederico
has also served as Chairman, President and Chief Executive Officer of ACE INA
from May 1999 through November 1999. Mr. Frederico previously served as
25
President of ACE Bermuda since July 1997, Executive Vice President,
Underwriting since December 1996, and as Executive Vice President, Financial
Lines from January 1995 to December 1996. Mr. Frederico served in various
capacities at AIG in Europe and the U.S. from 1982 to January 1995, most
recently as Senior Vice President and Chief Financial Officer of an AIG
subsidiary, with multi-regional general management responsibilities.
John Charman has served as Chief Executive Officer of ACE Global Markets
since July 1998, and continues to act as Active Underwriter to Lloyd's
Syndicate 488/2488. Mr. Charman has been the Active Underwriter of Syndicate
488 since July 1986. Mr. Charman previously served as Managing Director of
Charman Underwriting Agencies Limited, and since 1994, as Chief Executive of
Tarquin Underwriters Limited, the corporate capital provider of Syndicate 2488.
John Engestrom has served as President and Chief Executive Officer of
Tempest Re since May 1999. From 1997 to May 1999, Mr. Engestrom served as Chief
Executive Officer of Liberty Re in London. From 1992 to 1997, Mr. Engestrom
served as Group Chief Executive of Mercantile and General Reinsurance Company.
Mr. Engestrom began his reinsurance career at Skandia where he held various
positions including Chief Operating Officer Treaty division Europe, Chief
Underwriting Officer North America and finally head of Reinsurance Skandia
Group worldwide.
Jerome F. Jurschak joined ACE in December 1999 as President and Chief
Executive Officer of ACE Financial Services when ACE acquired Capital Re. Mr.
Jurschak previously served as Chief Executive Officer and President of Capital
Re from 1998 to 1999. Mr. Jurschak joined Capital Re in 1987 and served as its
Chief Underwriting Officer from 1987 to 1998. Prior to joining Capital Re, Mr
Jurschak was Senior Vice President and Chief Underwriting Officer of financial
guaranty reinsurance for Guaranty Holdings Corporation, a subsidiary of the Old
Republic Insurance Company.
Dennis B. Reding joined ACE in 1998 as President and CEO of ACE USA when the
Company acquired Westchester Specialty Group Inc. ("WSG"). In July 1999 his
role as President and CEO of ACE USA expanded to include the domestic
operations of ACE INA. Mr. Reding previously served as President and Chief
Executive Officer of WSG, a position he held since July 1993. Prior to joining
WSG, Mr. Reding served in various senior positions at Fireman's Fund Insurance
Company.
Gary Schmalzriedt has been President and Chief Executive Officer of ACE
Bermuda since July 1999. Since 1991, Mr. Schmalzriedt has served in several
senior capacities with CIGNA, most recently, since 1998, serving as Chairman
and Chief Executive Officer of CIGNA Europe. Mr. Schmalzriedt originally joined
CIGNA as Senior Vice President, Property Underwriting and later became
responsible for managing CIGNA International's property and casualty related
businesses. Prior to joining CIGNA, Mr. Schmalzriedt spent nearly 20 years in
various positions of increasing responsibility with AIG, including assignments
in the U.K. and South Africa and most recently, Senior Vice President and
Senior Underwriting Officer of American International Underwriters, where he
managed AIG's foreign operations.
B. Kingsley Schubert has served as President and Chief Executive Officer of
ACE International since July 1999. Mr. Schubert previously served as President
of CIGNA International Property and Casualty since January 1999, and as
President of CIGNA International from February 1996 to January 1999. Mr.
Schubert served as Senior Vice President of CIGNA International (Asia-Pacific)
from March 1995 to February 1996, and as President of CIGNA Insurance Company
in Japan from June 1992 to February 1996.
Christopher Z. Marshall joined ACE in 1986 and has held a number of senior
positions at ACE, most recently as Chief Financial Officer of ACE (since
November 1992) and as Senior Vice President, Finance from January 1990 to
November 1992.
Peter N. Mear has served as General Counsel and Secretary of ACE since April
1996. Mr. Mear served as Vice President and Claims Counsel of Aetna Casualty
and Surety Company from February 1991 to April 1996 and Counsel and Litigation
Section Head of Aetna Life & Casualty from September 1977 to February 1991.
26
Keith P. White has served as Chief Administration Officer of ACE since July
1, 1997. Mr. White previously served as Senior Vice President, Administration
of ACE since January 1990.
Robert A. Blee has served as Chief Accounting Officer of ACE since October
1998. Mr. Blee served as Group Controller of ACE from January 1997 to October
1998, Vice President-Finance of ACE from July 1996 to January 1997, Assistant
Vice President and Assistant Controller from October 1994 to July 1996 and
Chief Accountant from August 1993 to October 1994.
John C. Burville has served as Chief Actuary of ACE since January 1992. Mr.
Burville served as Managing Actuarial Consultant with Tillinghast, Nelson &
Warren (Bermuda) Ltd. (management consulting and actuaries) from March 1986 to
December 1991.
Robin J. W. Masters has served as Chief Investment Officer of ACE since July
1, 1997. Ms. Masters previously served as Senior Vice President since February
1995 and as Treasurer of the Company since October 1992. Mrs. Masters has
resigned from ACE effective May 31, 2000.
PART II
Item 5. Market for the Registrant's Ordinary Shares and Related Stockholder
Matters
(a) The Company's Ordinary Shares, par value $0.041666667 per share, have
been listed on the New York Stock Exchange since March 25, 1993, under the
symbol ACL. On November 13, 1997, the Company declared a three-for-one split of
the Company's stock. The stock split was voted on and approved by the
shareholders of the company on February 6, 1998. The record date for
determining those shareholders entitled to receive certificates representing
additional shares pursuant to the stock split was as of close of business on
February 17, 1998. Certificates representing the additional shares of stock
were mailed on March 2, 1998.
The following table sets forth the high and low closing sales prices of the
Company's Ordinary Shares per fiscal quarters, as reported on the New York
Stock Exchange Composite Tape for the periods indicated:
1999 1998
------------------ -------------------
High Low High Low
-------- --------- --------- ---------
Quarter ending March.................. $33 5/8 $25 15/16 $40 15/16 $30 27/64
Quarter ending June................... 34 7/8 27 3/8 40 5/16 34 7/16
Quarter ending September.............. 28 7/16 16 9/16 42 1/8 26 15/16
Quarter ending December............... 21 9/16 15 1/2 34 13/16 25 7/16
The last reported sale price of the Ordinary Shares on the New York Stock
Exchange Composite Tape on March 23, 2000 was $18 11/16.
(b) The approximate number of record holders of Ordinary Shares as of March
23, 2000 was 2,608.
(c) The following table represents dividends paid per share to shareholders
of record on each of the following dates.
1999 1998
----- -----
Shareholders of Record as of:
March 31..................................................... $0.09 $0.08
June 30...................................................... $0.11 $0.09
September 30................................................. $0.11 $0.09
December 31(1)............................................... $0.11 $0.09
- --------
(1) The December 31, 1999 figure represents dividends declared on November 19,
1999 and paid on January 14, 2000.
On April 14, 1998, the Company sold 16.5 million Ordinary Shares for net
proceeds of approximately $606 million.
27
ACE is a holding company whose principal source of income is investment
income and dividends from its operating subsidiaries. The ability of the
operating subsidiaries to pay dividends to ACE and the Company's ability to pay
dividends to its shareholders are each subject to legal and regulatory
restrictions. The declaration and payment of future dividends will be 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. See "Management's Discussion and Analysis of Results
of Operations and Financial Condition, Liquidity and Capital Resources" in the
1999 Annual Report to Shareholders filed with this Form 10-K.
Item 6. Selected Financial Data
Selected financial data for the year ended December 31, 1999, the three
month period ended December 31, 1998 and the four years ended September 30,
1998 is incorporated by reference to page 1 of exhibit 13.1 filed with this
Form 10-K.
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
This item is incorporated by reference to pages 18 through 36 of the 1999
Annual Report to Shareholders filed with this Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
This item is incorporated by reference to page 34 of the 1999 Annual Report
to Shareholders filed with this Form 10-K.
Item 8. Financial Statements and Supplementary Data
This item is incorporated by reference to pages 37 through 79 of the 1999
Annual Report to Shareholders filed with this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no changes in nor any disagreements with accountants on
accounting and financial disclosure within the 27 months ended December 31,
1999.
28
PART III
Item 10. Directors and Executive Officers of the Registrant
This item is incorporated by reference to the sections entitled "Election of
Directors--Nominees for Election to Terms Expiring in 2000," "Election of
Directors--Nominees for Election to Terms Expiring in 2001" and "Election of
Directors--Directors Whose Terms of Office Will Continue After This Meeting" of
the definitive proxy statement for the Annual General Meeting of Shareholders
to be held on June 9, 2000, which involves the election of directors and will
be filed with the Securities and Exchange Commission not later than 120 days
after the close of the fiscal year pursuant to regulation 14A.
Item 11. Executive Compensation
This item is incorporated by reference to the section entitled "'Executive
Compensation" of the definitive proxy statement for the Annual General Meeting
of Shareholders to be held on June 9, 2000, which will be filed with the
Securities and Exchange Commission not later than 120 days after the close of
the fiscal year pursuant to regulation 14A.
Item 12. Security Ownership and Certain Beneficial Owners and Management
This item is incorporated by reference to the section entitled "Beneficial
Ownership of Ordinary Shares" of the definitive proxy statement for the Annual
General Meeting of Shareholders to be held on June 9, 2000, which will be filed
with the Securities and Exchange Commission not later than 120 days after the
close of the fiscal year pursuant to regulation 14A.
Item 13. Certain Relationships and Related Transactions
This item is incorporated by reference to the section entitled "Election of
Directors-Certain Business Relationships" of the definitive proxy statement for
the Annual General Meeting of Shareholders to be held on June 9, 2000, which
will be filed with the Securities and Exchange Commission not later than 120
days after the close of the fiscal year pursuant to regulation 14A.
29
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
(a) Financial Statements, Schedules and Exhibits
1. Financial Statements
The following is a list of financial statements filed as part of this
Report, all of which have been incorporated by reference to the material in the
1999 Annual Report to Shareholders as described under item 8 of this Report
-- Report of Independent Accountants
-- Consolidated Balance Sheets at December 31, 1999 and 1998
-- Consolidated Statements of Operations for the year ended December 31,
1999, the three months ended December 31, 1998 and the years ended
September 30, 1998 and 1997
-- Consolidated Statements of Shareholders' Equity for the year ended
December 31, 1999, the three months ended December 31, 1998 and the years
ended September 30, 1998 and 1997
-- Consolidated Statements of Cash Flows for the year ended December 31,
1999, the three months ended December 31, 1998 and the years ended
September 30, 1998 and 1997
-- Notes to Consolidated Financial Statements.
2. Financial Statement Schedules
Included in Part IV of this report.
Schedule
Number Page
-------- ----
-- Report of Independent Accountants on financial statement
schedules included in Form 10-K........................... 34
-- Summary of Investments.................................... I 35
-- Condensed financial information of the Registrant as of
December 31, 1999 and 1998 and for the year ended December
31, 1999, the three months ended December 31, 1998 and the
years ended September 30, 1998 and 1997................... II 36
-- Supplemental information concerning Property/Casualty
Insurance Operations........................................ VI 39
Other schedules have been omitted as they are not applicable to the Company,
or the required information has been included in the financial statements and
related notes.
3. Exhibits
2.1 Amended and Restated Agreement and Plan of Merger, dated as of October
26, 1999 among Capital Re Corporation, ACE Limited and CapRe Acquisition
Corp. (incorporated by reference to Exhibit 2.1 to Registration Statement
on Form S-4 (No. 333-90927)
2.2 First Amendment to Amended and Restated Agreement and Plan of Merger,
dated as of November 29, 1999, among Capital Re Corporation, ACE Limited
and CapRe Acquisition Corp. (incorporated by reference to Exhibit 2.5 to
Registration Statement on Form S-4 (No. 333-90927)
2.3 Acquisition Agreement, dated as of January 11, 1999, among CIGNA
Corporation, CIGNA Holdings, Inc. and ACE Limited (incorporated by
reference to Exhibit 2.1 of Form 8-K current report (Date of earliest
event reported: July 2, 1999))
2.4 Amendment No. 1 to Acquisition Agreement, dated as of July 2, 1999, CIGNA
Corporation, CIGNA Holdings, Inc. and ACE Limited (incorporated by
reference to Exhibit 2.2 of Form 8-K current report (Date of earliest
event reported: July 2, 1999))
2.5 Amendment No. 2 to Acquisition Agreement, dated as of July 2, 1999, CIGNA
Corporation, CIGNA Holdings, Inc. and ACE Limited (incorporated by
reference to Exhibit 2.3 of Form 8-K current report (Date of earliest
event reported: July 2, 1999))
3.1 Memorandum of Association of the Company (incorporated by reference to
Exhibit 3.1 to Form 10-K for the year ended September 30, 1998).
3.2 Articles of Association of the Company (incorporated by reference to
Exhibit 3.2 to Form 10-K for the year ended September 30, 1998).
4.1 Memorandum of Association of the Company (see Exhibit 3.1).
4.2 Articles of Association of the Company (see Exhibit 3.2).
30
4.3 Specimen certificate representing Ordinary Shares, (incorporated by
reference to Exhibit 3.1 to the Registration Statement on Form S-1 of
the Company (No. 33-57206)).
4.4 Form of the Declaration of Terms of Capital Re LLC 7.65% Cumulative
Monthly Income Preferred Shares, Series A, January 24, 1994
(incorporated by reference to Exhibit 4.2 to Capital Re's Registration
Statement on Form S-3 (Reg. No. 33-72090)).
4.5 Form of Liability Assumption Agreement dated as of January 24, 1994
between Capital Re Corporation and Capital Re LLC (incorporated by
reference to Exhibit 99.2 to Capital Re's Registration Statement on
Form S-3 (Reg. No. 33-72090)).
4.6 Form of Loan Agreement dated as of January 24, 1994, between Capital Re
Corporation and Capital Re LLC (incorporated by reference to Exhibit
99.1 to Capital Re's Registration Statement on Form S-3 (Reg. No. 33-
72090)).
4.7 Form of Payment and Guarantee Agreement dated as of January 24, 1994 by
Capital Re Corporation and Capital Re LLC (incorporated by reference to
Exhibit 4.1 to Capital Re's Registration Statement on Form S-3 (Reg.
No. 33-72090)).
10.1* ACE Limited Annual Performance Incentive Plan, (incorporated by
reference to Exhibit 10.13 to the Registration Statement on Form S-1 of
the Company (No. 33-57206)).
10.2* ACE Limited Equity Linked Incentive Plan, (incorporated by reference to
Exhibit 10.14 to the Registration Statement on Form S-1 of the Company
(No. 33-57206)).
10.3* Amendment to ACE Limited Equity Linked Incentive Plan, (incorporated by
reference to Exhibit 10.15 to the Registration Statement on Form S-1 of
the Company (No. 33-57206)).
10.4* ACE Limited Employee Retirement Plan, as amended through January 1,
1999
10.5* ACE Limited Supplement Retirement Plan, (incorporated by reference to
Exhibit 10.25 to the Registration Statement on Form S-1 of the Company
(No. 33-57206)).
10.6* First Amendment to ACE Limited Supplement Retirement Plan,
(incorporated by reference to Exhibit 10.26 to the Registration
Statement on Form S-1 of the Company (No. 33-57206)).
10.7* Second Amendment to ACE Limited Supplement Retirement Plan,
(incorporated by reference to Exhibit 10.27 to the Registration
Statement on Form S-1 of the Company (No. 33-57206)).
10.8* Form of restricted stock award dated August 24, 1993 to ACE Limited
Directors, (incorporated by reference to Exhibit 10.39 to Form 10-K of
the Company for the year ended September 30, 1993).
10.9* Employment Agreement, dated October 1, 1994, between ACE Limited and
Brian Duperreault, (incorporated by reference to Exhibit 10.42 to Form
10-K of the Company for the year ended September 30, 1994).
10.10* Option and Restricted Share Agreement, dated October 1, 1994, between
ACE Limited and Brian Duperreault, (incorporated by reference to
Exhibit 10.43 to Form 10-K of the Company for the year ended September
30, 1994).
10.11* Employment Agreement, dated January 9, 1995, between ACE Limited and
Dominic J. Frederico, (incorporated by reference to Exhibit 10.45 to
Form 10-K of the Company for the year ended September 30, 1995).
10.12* Second amendment to ACE Limited Equity Linked Incentive Plan,
(incorporated by reference to Exhibit 10.45 to Form 10-K of the Company
for the year ended September 30, 1995).
10.13* ACE Limited 1995 Long Term Incentive Plan (incorporated by reference to
Exhibit 10.35 to Form 10-Q of the Company for the quarter ended March
31, 1996).
10.14* Employee Stock Purchase Plan (incorporated by reference to Exhibit
10.36 to Form 10-Q of the Company for the quarter ended March 31,
1996).
10.15* 1995 Outside Directors Plan (incorporated by reference to Exhibit 10.37
to Form 10-Q of the Company for the quarter ended March 31, 1996).
10.16* ACE Limited 1996 Tempest Replacement Option Plan (incorporated by
reference to Exhibit 10.24 to Form 10-K of the Company for the year
ended September 30, 1996).
10.17* First Amendment of ACE Limited 1995 Long Term Incentive Plan
(incorporated by reference to Exhibit 10.27 to Form 10-K of the Company
for the year ended September 30, 1996).
10.18* Third Amendment to Equity Linked Incentive Plan--Stock Appreciation
Right Plan (incorporated by reference to Exhibit 10.28 to Form 10-Q of
the Company for the quarter ended March 31, 1997).
10.19* First Amendment of ACE Limited 1995 Outstanding Directors Plan
(incorporated by reference to Exhibit 10.29 to Form 10-Q of the Company
for the quarter ended June 30, 1997).
10.20 364 day Credit Agreement dated as of December 11, 1997 among ACE
Limited, A.C.E. Insurance Company Ltd., Corporate Officers & Directors
Assurance Ltd. and Tempest Reinsurance Company Limited, the Banks
listed on the signature pages hereof and Morgan Guaranty Trust Company
of New York, as Administrative Agent (incorporated by reference to
Exhibit 10.30 to Form 10-Q of the Company for the quarter ended June
30, 1997).
10.21 Five year Credit Agreement dated as of December 11, 1997 among ACE
Limited, A.C.E. Insurance Company Ltd., Corporate Officers & Directors
Assurance Ltd. and Tempest Reinsurance Company Limited, the Banks
listed on the signature pages hereof and Morgan Guaranty Trust Company
of New York, as Administrative Agent (incorporated by reference to
exhibit 10.31 to Form 10-K of the Company for the year ended September
30, 1997).
31
10.22 Amended and Restated Reimbursement Agreement dated as of December 11,
1997 among A.C.E. Insurance Company Ltd., the Banks listed on the
signature pages hereof and Morgan Guaranty Trust Company of New York,
as Issuing Bank and Administrative Agent, (incorporated by reference to
exhibit 10.32 to Form 10-K of the Company for the year ended September
30, 1997).
10.23 Term Loan Agreement dated as of December 11, 1997 among ACE US
Holdings, Inc., ACE Limited, the Banks listed on the signature pages
hereof and Morgan Guaranty Trust Company of New York, as Administrative
Agent, (incorporated by reference to exhibit 10.33 to Form 10-K of the
Company for the year ended September 30, 1997).
10.24* ACE Limited Elective Deferred Compensation Plan (incorporated by
reference to Exhibit 10.1 to Form 10-Q of the Company for the quarter
ended December 31, 1997).
10.25* ACE Limited Rules of the Approved U.K. Stock Option Program,
(incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company
for the quarter ended December 31, 1997).
10.26 ACE US Holdings, Inc. Credit Sensitive Senior Notes due 2008 Indenture
dated as of October 27, 1998 (incorporated by reference to Exhibit
10.37 of Form 10-K of the Company for the year ended September 30,
1998).
10.27* ACE Limited 1998 Long-Term Incentive Plan (as amended through the first
amendment) (incorporated by reference to Exhibit 10.1 to Form 10-Q of
the Company for the quarter ended December 31, 1998)
10.28* ACE Limited Shareholder Rights Plan, dated as of May 7, 1999
(incorporated by reference to Exhibit 99.1 of the Form 8-K current
report (date of earliest event reported: May 7, 1999).
10.29 Information Technology Services Agreement, dated as of June 29, 1999,
among ACE INA Holdings Inc. and International Business Machines
Corporation (incorporated by reference to Exhibit 99.1 of Form 8-K
current report (Date of earliest event reported: July 2, 1999))
10.30 Remarketing and Contingent Purchase Agreement, dated June 30, 1999,
among ACE Limited, ACE INA Holdings Inc., ACE RHINOS Trust and Banc of
America Securities LLC (incorporated by reference to Exhibit 99.2 of
Form 8-K current report (Date of earliest event reported: July 2,
1999))
10.31 Letter agreement, dated as of June 29, 1999, between Bank of America
Securities LLC and ACE Limited (incorporated by reference to Exhibit
99.3 of Form 8-K current report (Date of earliest event reported: July
2, 1999))
10.32 Indenture, dated as of June 15, 1999, between ACE RHINOS Trust,
Holdings and The First National Bank of Chicago, as Trustee
(incorporated by reference to Exhibit 99.4 of Form 8-K current report
(Date of earliest event reported: July 2, 1999))
10.33 Supplemental Indenture, dated as of June 30, 1999, between ACE RHINOS
Trust, Holdings and The First National Bank of Chicago, as Trustee
(incorporated by reference to Exhibit 99.5 of Form 8-K current report
(Date of earliest event reported: July 2, 1999))
10.34* Second Amendment of the ACE Limited 1995 Outside Directors Plan
(incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company
for the quarter ended June 30, 1999).
10.35* Third Amendment of the ACE Limited 1995 Outside Directors Plan
(incorporated by reference to Exhibit 10.2 to Form 10-Q of the Company
for the quarter ended June 30, 1999).
10.36 Senior Indenture, dated as of August 1, 1999, among ACE INA Holdings,
Inc., ACE Limited and The First National Bank of Chicago, as trustee
(incorporated by reference to exhibit 4.5 to registration statement on
Form S-1 of the Company
(No. 333-78841)).
10.37* ACE Limited 1999 Replacement Long Term Incentive Plan (incorporated by
reference to Exhibit 10.1 to Form 10-Q of the Company for the quarter
ended September 30, 1999).
10.38 Indenture, dated as of November 30, 1999, among ACE INA Holdings, Inc.
and Bank One Trust Company, N.A., as trustee
10.39 Supplemental Indenture No. 1, dated as of December 6, 1999, among ACE
INA Holdings, Inc. and Bank One Trust Company, N.A., as trustee
10.40 Amended and Restated Trust Agreement, dated December 20, 1999, among
ACE INA Holdings, Inc., Bank One Trust Company, National Association,
as property trustee, Bank One Delaware Inc., as Delaware trustee and
the administrative trustees named therein
10.41 Indenture, dated as of December 1, 1999, among ACE INA Holdings, Inc.,
ACE Limited and Bank One Trust Company, National Association
10.42 Common Securities Guarantee Agreement, dated as of December 20, 1999
10.43 Preferred Securities Guarantee Agreement, dated as of December 20, 1999
10.44* Service Agreement between ACE London Services Limited and John Robert
Charman dated July 9, 1998
10.45* Deed of Covenant dated July 9, 1998 between John Robert Charman and
Tarquin Limited
10.46* Consulting Agreement dated as of January 1, 2000 between Kramer Capital
Corp. and the Company
10.47* Promissory note from Dominic Frederico.
10.48 $75 million Credit Facility (subsequently amended to $100 million)
between Capital Re Company, Various Banks and Deutsche Bank AG, as
Agent (incorporated by reference to Exhibit 4.09 to the Annual Report
on Form 10-K for Capital Re Corporation for the fiscal year ended
December 31, 1994 (Comm. File No. 1-10995))
10.49 $2.05 billion Credit Agreement dated as of June 11, 1999 among ACE INA
Holdings Inc., as borrower, and ACE Limited, ACE Bermuda Insurance
Ltd., and Tempest Reinsurance Company Limited as guarantors, various
lenders, Merrill Lynch, Pierce, Fenner & Smith Incorporated as Lead
Arranger and Syndication Agent and Morgan Guaranty Trust Company of New
York as Administrative Agent.
32
10.50 $250 million Credit Agreement dated as of June 11, 1999 with ACE
Limited, ACE INA Holdings Inc., ACE Bermuda Insurance Ltd., and Tempest
Reinsurance Company Limited as borrowers, various lenders, Merrill
Lynch, Pierce, Fenner & Smith Incorporated as Lead Arranger and
Syndication Agent and Morgan Guaranty Trust Company of New York as
Administrative Agent.
10.51 $750 million Credit Agreement dated as of June 11, 1999 with ACE
Limited, ACE INA Holdings Inc., ACE Bermuda Insurance Ltd., and Tempest
Reinsurance Company Limited as borrowers, various lenders, Merrill
Lynch, Pierce, Fenner & Smith Incorporated as Lead Arranger and
Syndication Agent and Morgan Guaranty Trust Company of New York as
Administrative Agent.
10.52 Reimbursement Agreement dated as of September 8, 1999 among ACE
Limited, ACE Bermuda Insurance Ltd., Tempest Reinsurance Company
Limited, as account parties, various banks, financial institutions and
other institutional lenders, Mellon Bank, N.A., as issuing bank,
Deutsche Bank AG, New York and/or Cayman Islands Branches and Fleet
National Bank as documentation agents, and Mellon Bank, N.A. as
administrative agent.
10.53 GBP 290 million Credit Agreement dated November 26, 1999 with Ace
Limited as borrower, Ace Insurance Company Ltd. as guarantor, various
lenders and Citibank N.A. as Arranger.
10.54* ACE Limited 1999 Replacement Stock Plan.
10.55 Amendment dated as of January 27, 1998 to $100 Million Credit Facility
between Capital Reinsurance Company, Various Banks and Deutsche Bank
AG, as Agent (Incorporated by reference to Exhibit 4.11 to Form 10-K
for the year ended December 31, 1997 for Capital Re Corporation (Comm.
File No. 1-10995))
10.56 Amendment dated as of March 22, 1999 to $100 Million Credit Facility
between Capital Reinsurance Company, Various Banks and Deutsche Bank
AG, as Agent (Incorporated by reference to Exhibit 4.11 to Form 10-K
for the year ended December 31, 1998 for Capital Re Corporation (Comm.
File No. 1-10995))
13.1 Pages 1 and 18 through 79 of the 1999 Annual Report to Shareholders.
21.1 Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers LLP.
27.1 Financial Data Schedule.
* Management Contract or Compensation Plan
(b) Reports on Form 8-K
The Company filed a Form 8-K current report (date of earlier event reported:
December 30, 1999) pertaining to its acquisition of Capital Reinsurance
Corporation.
33
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT
SCHEDULES INCLUDED IN FORM 10-K
Our report on the consolidated financial statements of ACE LIMITED AND
SUBSIDIARIES has been incorporated by reference in this Form 10-K from page 38
of the 1999 Annual Report to Shareholders of ACE Limited. In connection with
our audits of such financial statements, we have also audited the related
financial statement schedules listed in item 14 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as whole,
present fairly, in all material respects, the information required to be
included therein.
PricewaterhouseCoopers LLP
New York, New York
February 16, 2000
34
SCHEDULE I
SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES
ACE LIMITED AND SUBSIDIARIES
December 31, 1999
Cost or Amount
Amortized at which shown in
Cost Fair Value the balance sheet
----------- ----------- -----------------
(in thousands of U.S. dollars)
Fixed maturities:
Bonds:
U.S. Treasury and agency........... $ 1,007,797 $ 982,417 $ 982,417
Non-U.S. governments............... 682,679 681,770 681,770
Corporate securities............... 4,829,052 4,688,341 4,688,341
Mortgage-backed securities......... 2,107,397 2,067,137 2,067,137
States, municipalities and
political subdivision............. 1,453,477 1,430,138 1,430,138
----------- ----------- -----------
Total fixed maturities........... 10,080,402 9,849,803 9,849,803
=========== =========== ===========
Equity securities:
Common stock:
Public utilities................... 72,533 76,104 76,104
Banks, trust and insurance
companies......................... 105,119 113,314 113,314
Industrial, miscellaneous and all
other............................. 595,309 735,791 735,791
Non redeemable preferred stock....... 7,597 8,105 8,105
----------- ----------- -----------
Total equity securities.......... 780,558 933,314 933,314
----------- ----------- -----------
Other investments.................... 303,714 300,311 300,311
----------- ----------- -----------
Short-term investments and cash...... 1,794,188 1,792,107 1,792,107
----------- ----------- -----------
Total investments and cash....... $12,958,862 $12,875,535 $12,875,535
=========== =========== ===========
35
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ACE LIMITED AND SUBSIDIARIES
BALANCE SHEETS (Parent Company Only)
December 31, 1999 and 1998
1999 1998
---------- ----------
(in thousands of U.S.
dollars)
Assets
Investments and cash
Investments in subsidiaries and affiliate on equity
basis............................................... $4,438,895 $3,561,093
Fixed maturities..................................... 201,596 --
Short-term investments............................... 27,503 305,423
Other investments, at cost........................... 27,850 21,013
Cash................................................. 15,457 27,458
---------- ----------
Total investments and cash......................... 4,711,301 3,914,987
Due from subsidiaries and affiliates, net.............. 201,548 7,394
Other assets........................................... 29,497 10,067
---------- ----------
Total assets....................................... $4,942,346 $3,932,448
========== ==========
Liabilities
Accounts payable and accrued liabilities............... $ 42,979 $ 5,171
Dividend payable....................................... 23,921 17,700
Short-term debt........................................ 424,886 --
---------- ----------
Total liabilities.................................. 491,786 22,871
---------- ----------
Shareholders' equity
Ordinary Shares........................................ 9,061 8,070
Additional paid-in capital............................. 2,214,989 1,767,188
Unearned stock grant compensation...................... (28,908) (15,087)
Retained earnings...................................... 2,321,570 2,040,664
Accumulated other comprehensive income................. (66,152) 108,742
---------- ----------
Total shareholders' equity......................... 4,450,560 3,909,577
---------- ----------
Total liabilities and shareholders' equity............. $4,942,346 $3,932,448
========== ==========
36
SCHEDULE II (Cont'd.)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ACE LIMITED AND SUBSIDIARIES
STATEMENTS OF OPERATIONS (Parent Company Only)
For the year ended December 31, 1999, the three months ended December 31, 1998
and the years ended September 30, 1998 and 1997
Year Ended Three Months Ended Year Ended Year Ended
December 31 December 31 September 30 September 30
1999 1998 1998 1997
----------- ------------------ ------------ ------------
(in thousands of U.S. dollars)
Revenues
Investment income,
including
intercompany interest
income............... $ 33,877 $ 2,951 $(12,514) $(17,348)
Equity in net income
of subsidiaries and
affiliate............ 400,623 245,619 616,658 522,368
Net realized losses on
investments.......... (9,354) (4) (6) (16)
Management fees....... -- -- -- 26,601
-------- -------- -------- -------- ---
425,146 248,566 604,138 531,605
Expenses
Administrative
expenses............. (60,183) (10,027) (43,987) (28,880)
-------- -------- -------- -------- ---
Net income.......... $364,963 $238,539 $560,151 $502,725
======== ======== ======== ======== ===
37
SCHEDULE II (Cont'd.)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ACE LIMITED AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS (Parent Company Only)
For the year ended December 31, 1999, the three months ended December 31, 1998
and the years ended September 30, 1998 and 1997
Three
Year Ended Months Ended Year Ended Year Ended
December 31 December 31 September 30 September 30
1999 1998 1998 1997
----------- ------------ ------------ ------------
(in thousands of U.S. Dollars)
Cash flows from operating
activities
Net income............... $ 364,963 $ 238,539 $ 560,151 $ 502,725
Adjustments to reconcile
net income to net cash
provided by operating
activities
Equity in net income of
subsidiaries and
affiliate.............. (400,623) (245,619) (616,658) (522,368)
Realized losses on
investments............ 9,354 4 6 16
Amortization of
premium/discounts on
fixed maturities....... (3,176) -- -- --
Amounts due to
subsidiaries and
affiliate, net......... (113,634) 49,463 (41,585) (6,944)
Accounts payable and
accrued liabilities.... 37,808 (1,606) (33) (10,004)
Accrued interest on
advances from
affiliate.............. (15,353) -- (18,250) 3,978
Other................... (19,430) (10,919) 2,405 (6,804)
----------- --------- --------- ---------
Net cash flows from
(used for) operating
activities........... (140,091) 29,862 (114,966) (39,401)
----------- --------- --------- ---------
Cash flow from investing
activities
Purchases of fixed
maturities............. (402,079) (305,423) -- --
Sales of fixed
maturities............. 467,010 -- -- --
Other investments....... (6,837) 12,453 (314) --
Dividends received from
subsidiaries........... 966,000 300,000 365,000 190,000
Capitalization of
subsidiary............. (1,160,351) -- (856,477) --
Advances to affiliate... (400,000) -- -- (241,000)
Repayment of advances
from affiliate......... (20,039) -- -- (19,817)
----------- --------- --------- ---------
Net cash from (used
for) investing
activities........... (556,296) 7,030 (491,791) (70,817)
----------- --------- --------- ---------
Cash flows from financing
activities
Dividends paid.......... (77,836) (17,422) (54,389) (43,028)
Proceeds from short-term
debt................... 424,886 -- 635,000 --
Proceeds from exercise
of options for shares.. 5,672 1,931 4,243 2,191
Proceeds from shares
issued under ESPP...... 1,151 -- 955 --
Advances from
affiliate.............. 330,513 -- 504,600 525,020
Repayment of bank debt.. -- -- (385,000) --
Proceeds from shares
issued under SAR Plan.. -- -- -- 4,156
Net proceeds from
issuance of Ordinary
Shares................. -- -- 605,899 --
Repurchase of Ordinary
Shares................. -- -- (107,644) (182,648)
Loan Repayments......... -- -- (608,620) (180,000)
----------- --------- --------- ---------
Net cash from (used
for) financing
activities........... 648,386 (15,491) 595,044 125,691
----------- --------- --------- ---------
Net increase (decrease) in
cash..................... (12,001) 21,401 (11,713) 15,473
Cash-beginning of period.. 27,458 6,057 17,770 2,297
----------- --------- --------- ---------
Cash end of period........ $ 15,457 $ 27,458 $ 6,057 $ 17,770
=========== ========= ========= =========
38
SCHEDULE VI
ACE LIMITED AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION CONCERNING PROPERTY/CASUALTY OPERATIONS
Net
Reserves Amortization
for Unpaid of Deferred Paid
Deferred Losses and Net Losses and loss Policy Losses and Net
Acquisition Loss Unearned Earned Investment Expenses Incurred Acquisition Loss Premiums
Costs Expenses Premium Premium Income Related to Costs Expenses Written
----------- ---------- ---------- ---------- ---------- ------------------- ------------ ---------- ----------
Current Prior
Year Year
---------- --------
(in thousands of U.S. dollars)
Dec. 31, 1999... $514,425 $8,908,817 $2,428,828 $2,485,737 $493,337 $1,601,278 $ 38,265 $338,076 $2,432,898 $2,495,348
Dec. 31, 1998
(3 months)..... $ 67,502 $2,577,805 $ 705,712 $ 218,007 $ 85,095 $ 126,139 $(14,970) $ 27,812 $ 211,705 $ 154,103
Sept. 30, 1998.. $ 76,445 $2,678,341 $ 773,702 $ 894,303 $324,254 $ 534,021 $(17,129) $105,654 $ 583,776 $ 880,973
Sept. 30, 1997.. $ 51,191 $2,006,873 $ 510,231 $ 805,372 $253,440 $ 486,140 -- $ 85,762 $ 421,895 $ 789,773
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ACE Limited
/s/ Christopher Z. Marshall
By:__________________________________
Christopher Z. Marshall
Chief Financial Officer
March 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Brian Duperreault Chairman, Chief Executive March 28, 2000
______________________________________ Officer; Director
Brian Duperreault
/s/ Christopher Z. Marshall Chief Financial Officer March 28, 2000
______________________________________ (Principal Financial
Christopher Z. Marshall Officer)
/s/ Robert A. Blee Chief Accounting Officer March 28, 2000
______________________________________ (Principal Accounting
Robert A. Blee Officer)
/s/ Donald Kramer Vice Chairman; Director March 28, 2000
______________________________________
Donald Kramer
/s/ Michael G. Atieh Director March 28, 2000
______________________________________
Michael G. Atieh
/s/ Bruce L. Crockett Director March 28, 2000
______________________________________
Bruce L. Crockett
/s/ Roberto G. Mendoza Director March 28, 2000
______________________________________
Roberto G. Mendoza
/s/ Meryl D. Hartzband Director March 28, 2000
______________________________________
Meryl D. Hartzband
/s/ Robert M. Hernandez Director March 28, 2000
______________________________________
Robert M. Hernandez
/s/ Peter Menikoff Director March 28, 2000
______________________________________
Peter Menikoff
/s/ Thomas J. Neff Director March 28, 2000
:_____________________________________
Thomas J. Neff
40
Signature Title Date
--------- ----- ----
/s/ Glen M. Renfrew Director March 28, 2000
______________________________________
Glen M. Renfrew
/s/ Robert Ripp Director March 28, 2000
______________________________________
Robert Ripp
/s/ Walter A. Scott Director March 28, 2000
______________________________________
Walter A. Scott
/s/ Dermot F. Smurfit Director March 28, 2000
______________________________________
Dermot F. Smurfit
/s/ Robert W. Staley Director March 28, 2000
______________________________________
Robert W. Staley
/s/ Gary M. Stuart Director March 28, 2000
______________________________________
Gary M. Stuart
/s/ Sidney F. Wentz Director March 28, 2000
______________________________________
Sidney F. Wentz
41