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The Collaborative Clearinghouse for Lawsuits and Other Claims Against ACE Group Insurance Companies

2002 ACE Limited (NYSE: ACE) 10-K

ATTENTION: It is possible that this information may no longer be current and therefore may be inaccurate. The index contains both open and closed cases and is not a complete list of cases in which an ACE Insurance Group company is involved. This information is provided to give interested persons an idea of the issues disputed in the indexed cases. For a full understanding of a case, one should read the rest of the court file, including the response. For the most up-to-date and complete information on a case, visit www.pacer.gov or contact the clerk of the relevant court.

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<DOCUMENT> <TYPE>10-K <SEQUENCE>1 <FILENAME>d10k.txt <DESCRIPTION>FORM 10-K <TEXT> <PAGE> ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 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 (Jurisdiction of Incorporation) 98-0091805 (I.R.S. Employer Identification No.)
ACE Global Headquarters 17 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: Title of Each Class ------------------Ordinary Shares, par value $0.041666667 per share ACE Capital Trust I 8.875 percent Trust Originated Preferred Securities mature 2029 Capital Re LLC 7.65 percent Trust Preferred Securities of Subsidiary Trust (and registrant's guaranty with respect thereto) mature 2044 ACE Limited 8.25 percent FELINE PRIDES mature 2003 Name of Exchange on which Registered ----------------------New York Stock Exchange New York Stock Exchange New York Stock Exchange 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 February 28, 2002, there were 260,988,375 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 $11.4 billion. For the purposes of this computation, shares held by directors 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
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Annual General Meeting of Shareholders scheduled to be held on May 16, 2002, are incorporated by reference to Part III of this report and certain portions of the 2001 Annual Report to Shareholders are incorporated by reference into Parts II and IV of this report. ================================================================================ <PAGE> ACE LIMITED INDEX TO 10-K <TABLE> <CAPTION> <C> Item 1. Item 2. Item 3. Item 4. <S> PART I Business............................................................................. Properties........................................................................... Legal Proceedings.................................................................... Submission of Matters to a Vote of Security Holders.................................. PART II Item 5. Item 6. Item 7. Item 7A Item 8. Item 9. Market for the Registrant's Ordinary Shares and Related Stockholder Matters.......... Selected Financial Data.............................................................. Management's Discussion and Analysis of Results of Operations and Financial Condition Quantitative and Qualitative Disclosures about Market Risk........................... Financial Statements and Supplementary Data.......................................... Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. PART III Item 10. Directors and Executive Officers of the Registrant................................... Item 11. Executive Compensation............................................................... Item 12. Security Ownership of Certain Beneficial Owners and Management....................... Item 13. Certain Relationships and Related Transactions....................................... PART IV Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.................... </TABLE> <PAGE> PART I Item 1. Business 31 30 30 30 30 28 29 29 29 29 29 1 25 25 26 Page ---<C>
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 other documents filed by the Company with the Securities and Exchange Commission) include, but are not limited to: (i) the impact of the September 11th tragedy and its aftermath on ACE's insureds and reinsureds, on the insurance and reinsurance industry and on the economy in general and uncertainties relating to governmental responses to the tragedy,
(ii) the ability to collect reinsurance recoverables and any delays with respect thereto, (iii) the occurrence of catastrophic events or other insured or reinsured events with a frequency or severity exceeding the Company's estimates, (iv) the uncertainties of the loss reserving process, including the
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difficulties associated with assessing environmental damage and latent injuries, (v) uncertainties relating to government and regulatory policies such as subjecting the Company to insurance regulation or taxation in additional jurisdictions or amending, revoking or enacting any laws, regulations or treaties affecting the Company's current operations and other legal, regulatory and legislative developments,
(vi) the actual amount of new and renewal business and market acceptance of the Company's products, (vii) risks associated with the introduction of new products and services, (viii) the competitive environment in which the Company operates, related trends and associated pricing pressures, market perception, and developments, (ix) actions that rating agencies may take from time to time, (x) developments in global financial markets, which could affect the Company's investment portfolio and financing plans,
(xi) changing rates of inflation and other economic conditions, (xii) losses due to foreign currency exchange rate fluctuations, (xiii) loss of the services of any of the Company's executive officers, without suitable replacements being recruited in a reasonable time frame, (xiv) the ability of technology to perform as anticipated, (xv) the amount of dividends received from subsidiaries, and, (xvi) management's response to these factors. The words "believe", "anticipate", "estimate", "project", "should", "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 review any forward-looking statements, whether as a result of new information, future events or otherwise. 1 <PAGE> 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 worldwide through operations 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 wholly owned subsidiaries of ACE. At December 31, 2001, the Company had total assets of $37.1 billion and shareholders' equity of $6.1 billion. The Company derives its revenue principally from premiums, fees and investment income. ACE operates through six business segments: ACE Bermuda, ACE Global Markets, ACE Global Reinsurance (includes both property and casualty reinsurance business and life reinsurance business), ACE USA, ACE International and ACE Financial Services. 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 substantial 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. 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
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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. On December 30, 1999, the Company acquired Capital Re Corporation. Following the acquisition, Capital Re Corporation was renamed 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 ("FAS") No 131, "Disclosures about Segments of an Enterprise and Related Information" ("FAS 131"). These segments are structured on a geographic basis. Following recent management changes, the Company is reassessing the manner in which it presents its segments. 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 2 <PAGE> 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 penetrations. 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. Segment Analysis of Gross Premiums Written: The following table sets forth an analysis of gross premiums written by segment for the years ended December 31, 2001, 2000 and 1999: <TABLE> <CAPTION> Years ended December 31 ------------------------------------------------------------------2001 2000 1999 Gross Premiums Gross Premiums Gross Premiums Written Percent Written Percent Written Percent -------------- ------- -------------- ------- -------------- ------(in millions of U.S. dollars) <C> <C> <C> <C> <C> <C> $ 1,145 11% $ 598 8% $ 553 14% 1,300 13% 1,064 14% 635 16% 740 7% 191 2% 182 5% 4,428 44% 3,380 45% 1,567 41% 2,260 22% 2,027 27% 932 24% 292 3% 327 4% ------------------------$10,165 100% $7,587 100% $3,869 100% ======= === ====== === ====== ===
<S> ACE ACE ACE ACE ACE ACE
Bermuda.................. Global Markets........... Global Reinsurance....... USA(1)................... International(2)......... Financial Services(3)....
</TABLE> -------(1) Gross premiums written for fiscal 1999 include premiums from ACE US Holdings and six months of premium from the domestic operations of ACE INA acquired on July 2, 1999. (2) ACE International's gross premiums written for 1999 reflect premiums from July 2, 1999, the date of acquisition. (3) 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 by geographic region for the years ended December 31, 2001, 2000 and 1999: <TABLE> <CAPTION> Australia North & New Asia Latin America Europe Zealand Pacific America Other Total ------- ------ --------- ------- ------- ----- -----
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<S> <C> 2001......................... 63% 2000......................... 63% 1999......................... 59% </TABLE> ACE Bermuda Principal Business
<C> 21% 20% 18%
<C> 2% 7% 4%
<C> 9% 5% 9%
<C> 5% 4% 3%
<C> -1% 7%
<C> 100% 100% 100%
ACE Bermuda provides property and casualty insurance and reinsurance coverage including: excess liability, professional lines, financial solutions, satellite, excess property and political risk. The nature of coverage provided by these lines 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 most major lines of business. The financial solutions division, ACE Financial Solutions, ("ACE FSI") at December 31, 2001 accounted for approximately 75 percent of ACE Bermuda's gross premiums written. This group provides a variety of non-traditional insurance and finance-related solutions that conventional insurance does not address. These solutions are individually tailored to meet the needs of the insured and have the following common characteristics: multi3 <PAGE> year contract terms; broad coverage that includes stable capacity and pricing for the insured; insured participation in the results of their own loss experience; and aggregate limits. ACE FSI also enters into loss portfolio transfer contracts from time to time. These contracts, which meet the established criteria for reinsurance accounting, are recorded in the statement of operations when written and generally result in large one-time written and earned premiums with comparable incurred losses. Sovereign Risk Insurance Ltd., ACE Bermuda's joint venture in the political risk area, provides insurance to financial institutions and major corporations, and reinsurance to multilateral development banks and national export agencies. Marketing and Underwriting ACE Bermuda emphasizes quality of underwriting 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. 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. 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 38 brokers of which 2 produced approximately 41 percent of the company's business in 2001. 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. <TABLE> <CAPTION> Years Ended December 31 ------------Name 2001 2000 1999 ------- ---- ---<S> <C> <C> <C> Benfield Group Plc(1)............................ 22% 4% 1% Aon Corporation.................................. 19% 33% 23% Marsh and McLennan Companies, Inc.(2)............ 8% 26% 22% </TABLE> -------(1) During the year, the Benfield Group acquired EW Blanch. The percentages shown in the table reflect the business placed by the combined entities and their affiliates. (2) In 1999, Marsh and McLennan Companies, Inc. acquired Sedgwick. The percentages shown in the table reflect the business placed by the combined entities and their affiliates.
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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's key marketing advantage is its experienced underwriting staff, its strong capital base, and its ability to market and cross market a number of insurance products to its existing and potential client base. The ability to be flexible in providing contracts, which extend coverages for periods in excess of one year, also enhances its ability to compete in worldwide insurance markets. 4 <PAGE> Claims Administration Claims arising under policies issued by ACE Bermuda are managed 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 bound before August 1, 2000, 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 favorable resolution of several cases. ACE Bermuda does not do business in the U.S., therefore 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, including for segment purposes, the Lloyd's operations owned by ACE Financial Services. ACE Global Markets provides funds at Lloyd's to support underwriting by the ACE managed Lloyd's syndicate. Following the mergers of the ACE managed syndicates for the 2000 year of account, these syndicates comprised Syndicate 2488, the largest syndicate in Lloyd's, and Syndicate 1171, a life syndicate acquired as part of the ACE Financial Services acquisition. Syndicate 1171 ceased underwriting as of December 31, 2000. Syndicate 2488, provides property and casualty insurance and reinsurance as well as accident and health coverage on a worldwide basis through the Lloyd's worldwide licenses. The property and casualty business includes aviation, marine, property, professional lines, inward reinsurance and political risk. The 2488 syndicate is a lead underwriter on a high proportion of the business it transacts in the Lloyd's market. A lead underwriter is involved in setting the terms and conditions of the policies written. ACE Global Markets is an established lead underwriter in the aviation and marine product lines. For the 2001 year of account, the Company's participation in the underwriting capacity of the ACE managed syndicate was approximately $943 million out of the total $1.1 billion of capacity. For the 2002 year of account, the Company increased the capacity of the syndicate by 24 percent to $1.3 billion. In addition, for the 2002 year of account ACE will provide 99.6 percent of the capacity of syndicate 2488 compared to 90 percent in 2001. All syndicates at Lloyd's are managed by managing agencies that receive fees and profit commissions in respect of the underwriting and administrative services they provide to the syndicates. The Company currently owns four managing agencies. As the Company's participation in the syndicates under management has grown, the amount of third party fees and profit commissions received by the Company's managing agencies has decreased substantially. Marketing and Underwriting ACE Global Markets differentiates itself in the Lloyd's market by developing and maintaining close, long-term relationships with clients. Lloyd's syndicates generally access business through Lloyd's brokers. For certain 5 <PAGE> lines of business, however, it is possible to utilize a service company to
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access and service business from both Lloyd's and non-Lloyd's brokers. The Company's service company, ACE Underwriting Services Limited ("AUS") continues to support and provide an underwriting platform to both syndicate 2488 and ACE Europe. Competition Not withstanding the improvement in market conditions seen in 2001, there remains significant competition in all lines of business written by the syndicates. Depending on the line of business, competition comes from the London market, other Lloyd's syndicates and Institute of London Underwriters ("ILU") Companies, and major international insurers and reinsurers. On international risks, competition also comes from the domestic insurers in the country of origin of the insured. Claims Administration With respect to claims arising in Lloyd's syndicates, a claims database is maintained into which all notices of loss are entered. The Lloyd's Claims Office ("LCO"), through a daily electronic data interchange message, notifies the syndicate of claims activity. 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 in conjunction with the LCO, 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. 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 The ACE Global Reinsurance segment includes both the property catastrophe and casualty reinsurance business and the life reinsurance business. The life reinsurance business completed its first full year of operations in 2001. Property and Casualty Principal Business The principal business of the ACE Global Reinsurance segment is the operations of ACE Tempest Re, which primarily includes property catastrophe reinsurance provided 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." ACE Tempest Re underwrites reinsurance principally on an excess of loss basis. Other property reinsurance written by ACE Tempest Re on a limited basis for select clients, includes proportional property and per risk excess of loss treaty reinsurance. In early 2000, ACE Tempest Re initiated plans to expand its operations to become a multiline global reinsurer. This expansion is expected to reduce volatility and enable ACE Tempest Re to diversify its business and offer a broad range of products to satisfy client demand. An expanded product offering is considered vital to capturing an increasing share of the future reinsurance market. In April 2000, ACE Tempest Re U.S.A. Inc. ("ACE Tempest U.S".) was established in the U.S. ACE Tempest U.S. is wholly owned by ACE INA and acts as an underwriting agency on behalf of two of the U.S. companies in the ACE Group. Its initial focus has been on writing property per risk and casualty reinsurance. 6 <PAGE> Marketing and Underwriting ACE Tempest Re markets its reinsurance products worldwide through reinsurance brokers. The underwriting teams build relationships with key brokers and clients by explaining their approach and demonstrating responsiveness to customer needs. ACE Tempest Re will leverage the strengths of its client relationships, underwriting expertise, rational pricing and capital base in developing its new lines of business which it expects to add in accordance with its strategy to offer risk protection across all lines of reinsurance. ACE Tempest Re receives business from approximately 28 brokers. The following table sets forth the percentage of ACE Tempest Re's business written through each broker and its affiliates that placed more than 10 percent of ACE Tempest Re's business: <TABLE> <CAPTION>
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Years Ended December 31 ------------2001 2000 1999 ---- ---- ---<S> <C> <C> <C> Marsh and McLennan Companies, Inc.(1)............ 36% 38% 37% Benfield Group plc(2)............................ 28% 26% 19% Aon Corporation.................................. 9% 8% 11% </TABLE> -------(1) In 1999, Marsh and McLennan Companies Inc., acquired Sedgwick. The percentages shown in the table reflect the business placed by the combined entities and their affiliates. (2) During the year, the Benfield Group acquired EW Blanch. The percentages shown in the table reflect the business placed by the combined entities and their affiliates. 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. ACE 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 ACE Tempest Re underwrites property catastrophe reinsurance and has large aggregate exposures to natural and man-made disasters, ACE Tempest Re's claims experience generally will involve infrequent events of considerable severity. ACE Tempest Re seeks to diversify its property catastrophe 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. ACE Tempest Re also establishes zonal accumulation limits to avoid concentrations of risk within particular geographic areas. ACE Tempest Re applies an underwriting process for property catastrophe risks based on models that use exposure data submitted by prospective reinsureds in accordance with requirements set by ACE 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 ACE Tempest Re to extensively simulate possible combinations of events affecting the portfolio. This analysis also supports the decision making with regard to purchasing retrocessional coverages. Competition ACE Tempest Re competes worldwide with major U.S. and non-U.S. reinsurers as well as reinsurance departments of numerous multi-line insurance organizations. The Company also competes with other Bermuda based property catastrophe reinsurers. ACE Global Reinsurance competes effectively because of the strong 7 <PAGE> capital position of the ACE Group; the quality of service provided to customers; the leading role it plays in setting the terms, pricing and conditions in negotiating contracts; and its customized approach to risk selection. Claims Administration Claims arising under contracts written by ACE Tempest Re are maintained in a claims database into which all notices of loss are entered. Those claims are then reviewed and case reserves are established for ACE Tempest Re's portion of the loss. Case reserves are adjusted based on receipt of further notifications from brokers. Claims handling activities for ACE Tempest Re USA will be managed by the division where the contract is written. Loss notices are received directly from brokers. Life Reinsurance Principal Business The principal business of the ACE Global Life Reinsurance division ("ACE Life Re") is to provide reinsurance coverage to other life insurance companies. These reinsurance transactions will typically help clients (ceding companies) to manage mortality, morbidity, and/or lapse risks embedded in their book of business. In addition to managing these risks and as a by-product, clients may also benefit by locking in and monetizing future profits, releasing capital and/or reduce earnings volatility. Calendar year 2001 represents the first full year of operations for ACE Life Re. The strategic focus of ACE Life Re is to
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differentiate itself as a niche player in its targeted lines of business: blocks of individual life insurance, annuities (fixed and variable) and group long-term disability. It does not intend to compete on a "traditional" basis for pure mortality business but, instead, it will seek to assist clients as a capital and strategic partner with customized solutions for the management of their risks. Marketing and Underwriting ACE Life Re markets its reinsurance products directly to clients as well as through reinsurance intermediaries. The marketing plan seeks to capitalize on the relationships developed by the company's executive officers and underwriters with members of the actuarial profession and executives at client companies. ACE Life Re targets potential ceding insurers that it believes would benefit from its reinsurance products based on analysis of publicly available information and other industry data. In addition, reinsurance transactions are often placed by reinsurance intermediaries and consultants. The company will work with such third party marketers in an effort to maintain a high degree of visibility in the reinsurance marketplace. ACE Life Re's strategy and business does not depend on a single client or a few clients. To date, it has entered into reinsurance agreements with over 20 clients. However, like most start-up operations, a single large transaction can account for a significant percentage of total revenue. It is anticipated that as business continues to grow, ACE Life Re will have a reasonably diversified source of revenue by number of clients, by revenue and by lines of business. ACE Life Re underwrites transactions on a qualitative and quantitative basis. Underwriting guidelines have been developed with the objective of controlling the risks of the reinsurance policies written as well as to determine appropriate pricing levels. The guidelines may be amended from time to time in response to changing industry conditions, market developments, changes in technology and other factors. In implementing the underwriting guidelines, an experienced underwriting team is utilized to select opportunities with acceptable risk/return profiles. Reinsurance business is assumed only after considering many factors, including the type of risks to be covered, actuarial evaluations, historical performance data for the client and the industry as a whole, the client's retention, the product to be reinsured, pricing assumptions, underwriting 8 <PAGE> standards, reputation and financial strength of the client, the likelihood of establishing a long term relationship with the client and the market share of the client. Pricing of reinsurance products is based on ACE Life Re's sophisticated actuarial and investment models which incorporate a number of factors including assumptions for mortality, morbidity, expenses, demographics, persistency and investment returns as well as certain macroeconomic factors, such as inflation, and certain regulatory factors, such as taxation and surplus requirements. Competition The reinsurance industry is highly competitive. Most of the reinsurance companies are well established, have significant operating histories, strong claims paying ability ratings, and have established long-standing client relationships through existing treaties with ceding companies. ACE Life Re's senior management believe primary competitors include major life reinsurers (e.g., Swiss Re and Hannover Re) and smaller specialty companies (e.g., Annuity and Life Re, Scottish Annuity & Life, and Max Re). ACE Life Re competes effectively by leveraging the strength of its client relationships, underwriting expertise, capacity, and the brand name and capital position of the ACE Group. ACE USA Principal Business The principal business of ACE USA is the combined business of ACE US Holdings, which was acquired by the Company January 2, 1998, and the domestic operations of ACE INA acquired on July 2, 1999. The operations of ACE USA include ongoing domestic operations as well as the run-off operations of Brandywine Holdings, Inc. ("Brandywine"), which does not write new policies and "other" operations. The "other" operations include the run-off of Commercial Insurance Services ("CIS"), residual market worker's compensation business, pools and syndicates not attributable to a single business group, the run-off of open market facilities and the run-off results of other various exited lines of business. During 2001 the ongoing insurance operations, which provide specialty property and casualty products, were organized into seven distinct business groups. The Westchester Specialty Group is comprised of the Westchester specialty business including property, inland marine, specialty casualty, excess casualty, and diversified products, which includes the agri-business and specialty programs. ACE USA's Specialty Property and Casualty ("P&C") Group
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serves the global property, energy, power products and commercial marine markets, in addition to offering international casualty products for U.S. based companies. The ACE Risk Management Group ("ARM"), which was formerly known as Special Risk Facilities, provides coverage solutions for national accounts casualty and excess business, as well as group casualty and wrap up programs which relate to general liability and worker's compensation coverage for large single or multi-location construction projects. The Professional Risk Group provides insurance policies that protect against management liability and professional liability as well as surety, aviation and satellite risks. The Financial Solutions Group develops non-traditional alternative risk products, which protect clients from financial, operational and enterprise risks. Solutions for these difficult to insure risks might include products that serve to stabilize a client's earnings, provide credit protection or resolve accounting or regulatory issues. During 2001, ACE USA launched the Consumer Solutions Group, which consolidated the existing consumer businesses including warranty, recreational marine and disaster mortgage protection, with the national call center and the direct specialist group to take better advantage of cross selling products, and concentrate marketing and sales efforts in the consumer marketplace. ACE USA will be looking at new opportunities to expand its product offerings in the consumer area. The Accident and Health ("A&H") Group was launched in 2001 to develop opportunities and expand into the U.S. specialty accident and health area. This newly established U.S. group will capitalize on the global accident and health market expertise developed over many years by the ACE International segment. ACE USA's on-going insurance related operations include those of ESIS Inc. ("ESIS"), the company's in-house third party claims administrator, which provides its clients with claim management and loss cost reduction 9 <PAGE> services including comprehensive medical managed care and pre-loss control and risk management services. Additional insurance related services are offered by Recovery Services International, which sells salvage and subrogation and health care recovery services. ACE USA also holds a majority ownership interest in several warranty administrators, who distribute warranty insurance products. During 2001 the Consumer Solutions Group acquired YouDecide.com, Inc., which provides client companies an Internet platform where their employees are offered a broad selection of non-employer sponsored financial products, including insurance. Following the acquisition of the domestic operations of ACE USA on July 2, 1999, the Company made substantial structural and operational changes to enhance profitability and operating controls in the segment. These changes included restructuring the operating divisions from three large groups to the business groups discussed above. These operational changes were made to enhance the Company's ability to better focus on profitable underwriting and cross-market its products between domestic operating groups and other ACE segments. The Company also consolidated locations and closed offices throughout the U.S., outsourced the IT function, and reduced staff by approximately 2,000 people. These cost reduction efforts had a positive impact in both 2001 and 2000 on both the expense ratio and the loss ratio, due to a reduction in unallocated loss adjustment expenses. As part of the restructuring of the operating divisions, ACE USA critically evaluated all lines of business and has exited contracts and lines of business that did not have a long-term strategic fit. This effort continued into 2001 with the sale of the Company's Financial Institution Specialists Division to SAFECO Corporation. During the year ended December 31, 2000, the culling of unprofitable and non-strategic business amounted to a reduction of gross premiums written of approximately $160 million. The focus on profitable business together with a commitment to continually promote cost reduction efforts enabled ACE USA to operate for the years ended December 31, 2001 and 2000 at a combined ratio under 100 percent. In addition to the exited business discussed above, ACE USA sold the renewal rights for all of its CIS business in 1999 and planned to sell the assets and liabilities pertaining to the historical book of business as well as the in-force book of business which it still owned. As of December 31, 2001, the remaining business of CIS continues to run-off and has not been sold. The Brandywine run-off operation, was created in 1995, before the acquisition by ACE, by the restructuring of ACE INA's domestic 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 policyholders 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. In December 1999, competitors of ACE filed an action in the Superior Court of California alleging that the restructuring did not meet the requirements of certain California statutes. The case is in the preliminary stages of litigation.
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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. Certain products are also distributed through alternative distribution channels such as general agents, independent agents and direct marketing operations. Internet distribution channels have been established for certain product offerings. Through its acquisition of YouDecide.com, Inc, the Consumer Solutions Group is in the process of developing additional e-commerce distribution opportunities. 10 <PAGE> 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: <TABLE> <CAPTION> Years ended December 31 ------------Name 2001 2000 1999 ------- ---- ---<S> <C> <C> <C> Rain & Hail Insurance Services(1)................ 16% 11% 14% Marsh and McLennan Companies, Inc.(2)............ 14% 14% -Aon Corporation.................................. 10% --</TABLE> -------(1) Rain & Hail Insurance Services is a managing agency that specializes in crop insurance, most of which is federally reinsured. (2) In 1999, Marsh and McLennan Companies, Inc. acquired Sedgwick. The percentage shown in the table reflects the business placed by the combined entities and their affiliates. 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 through maintaining high levels of experience and expertise in its underwriting staff. In addition, ACE USA has established a business review structure that ensures control of risk quality and conservative use of policy limits, terms and conditions. Additionally, ACE USA employs sophisticated catastrophe loss and risk modeling techniques to ensure that risks are well distributed and that loss potentials are well within the company's financial capacity. In this regard, ACE USA is also a sophisticated purchaser of reinsurance, which provides the means for greater diversification of risk and serves to further limit the net loss potential of catastrophes and large or unusually hazardous risks. Reinsurers utilized by ACE USA must meet certain financial and experience requirements and are put through a stringent financial review process in order to be pre-approved by a Reinsurance Security Committee, comprised of senior management. As a result of these controls, reinsurance is placed with what ACE USA believes is a select group of only the most financially secure and experienced companies in the reinsurance industry. 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 non-admitted carriers provides the flexibility to write non-standard coverage. An integral part of the ACE USA operating strategy is to maximize the efficiency and effectiveness of its operations while reducing operating costs. As part of this strategy, ACE USA is in the process of investing in technology, which will replace numerous existing policy issuance and claims systems with an integrated product currently being utilized by other ACE segments. This action is expected to further facilitate the streamlining of ACE USA's underwriting and claims processing operations. Competition ACE USA operates in a highly competitive industry and faces competition from both domestic and foreign insurers. The markets in which ACE USA competes are subject to significant cycles of fluctuating capacity and wide disparities in price adequacy. The domestic operations pursue a specialist strategy and focus on market opportunities where they can compete effectively based on service levels and product design, while still achieving an adequate level of profitability. ACE USA offers experienced claims handling, loss control and risk management staff with proven expertise in specialty fields, including large-risk property and casualty, recreational and ocean marine, aviation, professional risk and workers' compensation. A competitive advantage is also achieved through ACE USA's innovative product offerings such as Risk Management Group bundled business, which combines tailored coverage solutions for large
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insureds with expert claim management and loss reduction functions provided by ESIS, a nationally recognized leader in the third party claims management field. An additional competitive strength of all the domestic commercial units is the ability to deliver global products and coverages to customers in concert with other ACE Group segments. ACE USA has only just started to leverage cross marketing opportunities with other members of the ACE Group and take advantage of the ACE organization's global presence. 11 <PAGE> Claims Administration ACE USA's claims organization supports both the national accounts (Risk Management Group) and the specialty insurance businesses with a national network of claims and risk management services. The Brandywine claim professionals have the unique expertise and experience to manage specialized coverage and coordination issues that arise in asbestos, environmental and other latent exposure claims. A team of risk control professionals supports each business line to effectively manage loss costs for the risk exposures underwritten by the businesses of ACE USA. Specialized loss cost containment programs are in place for marine risk, aerospace risk, global property risk, warranty programs, excess risk, inland marine risk, diversified products and professional risk services. The Risk Management Group is supported by ESIS, ACE USA's in-house third party claims administrator. ESIS markets loss control, risk and loss data information management, claims settlement and loss cost reduction services to large corporate customers on a fee-for-service basis. ACE International Principal Business ACE International is a global franchise with a presence in nearly 50 countries. This franchise was created in 1984 through the merger of the Insurance Company of North America ("INA"), which started its international operations over 100 years ago, and the American Foreign Insurance Association ("AFIA"). ACE International's operations provide insurance coverage on a worldwide basis excluding the United States. The principal business operations are focused on property and casualty, accident and health, and consumer-oriented products. 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 and servicing of large and unique risks for targeted commercial customer segments, as well as individual coverages in selected markets. 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. The consumer products segment provides specialty products and services designed to meet the needs of specific target markets, and is distributed through non-traditional distribution channels. These products include warranty, auto, homeowners, motor homes, real estate-related services, personal umbrella, recreational marine and other coverages specific to personal risk exposures. For the year ended December 31, 2001, gross premiums written from accident and health and consumer products accounted for 27 percent of ACE International's premiums. In conducting its non-U.S. business, ACE International reduces the risks relating to currency fluctuations by maintaining investments in those foreign currencies in which the operation transacts business, with 12 <PAGE> characteristics of those investments similar to the related liabilities in those currencies. The net asset or liability exposure to the various foreign currencies is regularly reviewed.
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Marketing and Underwriting ACE International maintains 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, regional and local brokers. Accident and health and other consumer lines products are distributed through brokers, agents, financial institutions and various direct marketing channels including e-commerce. 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 coordinated reinsurance mechanisms facilitate appropriate risk transfer and efficient, cost-effective use of external reinsurance markets. Competition ACE International's 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. 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. Claims Administration ACE International's claims service operations are decentralized, with management of most aspects of claim administration occurring at an individual country level. The claims organization structure in each country is driven by the composition of the business portfolio. The outsourcing of claims settlement, adjusting services, or other claims functions may occur if and when appropriate. ACE Financial Services Principal Business The companies in the ACE Financial Services segment offer value-added insurance, reinsurance and financial derivative products to the insurance and capital markets, which provide protection from credit or financial risks. ACE Financial Services writes municipal and non-municipal financial guaranty reinsurance, single-name and portfolio credit default swaps, mortgage guaranty reinsurance, trade credit reinsurance, title reinsurance and residual value reinsurance. The ACE Financial Services segment primarily carries out its business through the following legal vehicles: ACE Guaranty Re Inc. ("AGR"), ACE Capital Re International Ltd. ("ACRI"), ACE Capital Mortgage Reinsurance Company ("ACMR"), ACE Capital Re Overseas Ltd. ("ACRO"), ACE Financial Overseas Ltd. ("AFOL") and ACE Capital Title Reinsurance Company ("ACTR"). ACE Financial Services' financial guaranty business is conducted primarily through AGR. AGR serves the U.S. domestic and international financial guaranty reinsurance markets. It is a leading reinsurer (by market share) 13 <PAGE> of financial guaranties of investment grade debt obligations-principally of municipal and non-municipal obligors. ACRI and ACRO are primarily focused on providing highly structured solutions to problems of financial and risk management through reinsurance and other forms of credit enhancement. ACMR and ACTR are New York regulated monoline reinsurance companies providing mortgage guaranty reinsurance and title reinsurance respectively. AFOL is a company organized under the laws of the United Kingdom, and is registered as a "Category D" company with the UK Financial Services Authority arranging transactions in credit derivatives and other financial swaps. Financial guaranty insurance is a type of credit enhancement, similar to a surety, which is regulated under the insurance laws of various jurisdictions. Financial guaranty insurance provides an unconditional and irrevocable guaranty that indemnifies the insured against nonpayment of principal and interest on an insured debt obligation when due. Additionally, ACE Financial Services' financial guaranty business provides municipal and non-municipal credit risk protection on a facultative basis to a wide variety of counterparties through both single-name and portfolio credit default swap transactions. Mortgage guaranty insurance is a specialized class of credit insurance, providing protection to mortgage lending institutions against the default of borrowers on mortgage loans. Title insurance essentially provides the acquirer
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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. 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. 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. Residual value reinsurance is generally provided to the captives of motor vehicle manufacturers or lessors, whereby the coverage effectively guarantees the residual value of portfolios of leased vehicles at the termination of the lease term. Marketing and Underwriting ACE Financial Services has established and maintains relationships with the major U.S. primary financial guaranty insurers, mortgage guaranty insurers and title insurers, major European trade credit insurers and primary mortgage guaranty insurers in the U.K. and Australia. Major U.S. and European investment banks act as counterparties on credit default swaps. A portion of ACE Financial Services' reinsurance business is developed through relationships with brokers and reinsurance intermediaries. The title reinsurance business has developed substantially all of its business opportunities through direct contacts with primary title insurers, while the financial guaranty business has been developed through direct contacts with U.S. primary companies and major investment banks in the U.S. and Europe. For the majority of ACE Financial Services' business the underwriting process is premised on reinsuring investment grade credit risks and risk remote or finite financial risks. The underwriting process is based on multiple levels of credit review, actuarial analysis, stress-based modeling and legal review. Underwriters minimize correlation and aggregation through diversification of exposures by geography, industry sector, credit enhancement/attachment point and rating category of underlying credits. Competition ACE Financial Services faces direct and indirect competition from equivalently rated financial institutions on all lines of business. Differentiating factors include pricing, customer service, market perception and historical performance. 14 <PAGE> In its financial guaranty business, ACE Financial Services faces competition indirectly from other highly rated financial institutions that 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. For mortgage reinsurance business, competition comes from some non-U.S. mortgage reinsurers and, in a minor way, from U.S. multiline insurers. In the title business, the large title insurers have traditionally provided reinsurance capacity. In its trade credit business, the segment faces a high degree of competition from traditional participants in these markets, including large multiline insurers and reinsurers. Claims Administration ACE Financial Services operates an internal claims management, administration and payment function. Use of external actuarial and legal consultants is made where this is deemed prudent by management. Unpaid Losses and Loss Expenses The Company establishes reserves for unpaid losses and loss expenses, which are estimates of future payments of reported and unreported claims for losses and related expenses, with respect to insured events that have occurred. The process of establishing reserves for property and casualty claims continues to be a complex and imprecise process, requiring the use of informed estimates and judgments. The Company's estimates and judgments may be revised as additional experience and other data become available and are reviewed, as new or improved methodologies are developed or as current laws change. Any such revisions could result in future changes in estimates of losses or reinsurance recoverables, and would be reflected in the Company's results of operations in the period in which the estimates are changed.
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The Company has considered asbestos and environmental claims and claims expenses in establishing the liability for unpaid losses and loss expenses. The Company has developed reserving methods, which incorporate new sources of data with historical experience to estimate the ultimate losses arising from asbestos and environmental exposures. The reserves for asbestos and environmental claims and claims expenses represent management's best estimate of future loss and loss expense payments and recoveries which are expected to develop over the next several decades. The Company continuously monitors evolving case law and its effect on environmental and latent injury claims. While reserving for these claims is inherently uncertain, the Company believes that the reserves carried for these claims are adequate based on known facts and current law. The Company continually evaluates its estimates of 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 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, 2001. The Company engages independent actuarial firms to review the methods and assumptions used by the Company in estimating the unpaid losses and loss expenses. As stated in their actuarial reviews, the firms believe that the methods and assumptions used by the Company are reasonable and appropriate for use in setting loss reserves at December 31, 2001. 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 comprised of case reserves, loss expense reserves and IBNR loss reserves. During the loss settlement period, which can be 15 <PAGE> 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 terrorist attacks on September 11, 2001 ("the September 11th tragedy") resulted in the largest insured loss in history and had a substantial impact on the results of the Company. The Company recorded losses of $650 million relating to the September 11th tragedy. The Company believes that its current estimate for September 11, 2001 claims are reasonable and accurate based on information currently available. The Company continues to evaluate its total potential liability based upon individual insurance and reinsurance policy language, legal and factual developments in underlying matters involving its insureds as well as legislative developments in the U.S. involving the terrorist attack. If the Company's current assessments of future developments are proved wrong, the financial impact of any of them, singularly or in the aggregate, could be material. For example, business interruption insurance claims could materialize in the future with greater frequency than the Company anticipated or provided for in its estimates; or, insureds that the Company expects will not be held responsible for injuries resulting from the attack, are ultimately found to be responsible at a financial level that impacts its insurance or reinsurance policies. The "Analysis of Losses and Loss Expenses Development" shown below presents the subsequent development of the estimated year-end liability for net unpaid losses and loss expenses at the end of each of the years in the eight year period ended September 30, 1998 as well as for the fifteen month period ended December 31, 1999 and the two years ended December 31, 2001 and 2000. Prior to December 31, 1999, the net unpaid losses and loss expenses are in respect of annual periods ending on September 30 of each year. The table also presents as of December 31, 2001, the cumulative development of the estimated year-end liability for gross unpaid losses and loss expenses for the years 1994 through 2000. The top lines of the table shows the estimated liability for gross and net 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 net 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 net liability as of the end of each succeeding period. The bottom lines of the table show the re-estimated amount of previously recorded gross liability at December 31, 2001 together with the change in reinsurance recoverable. 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
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year will be either more or less than the incremental changes in the lower portion of the following table. The "cumulative redundancy/deficiency" shown in the table below 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. 16 <PAGE> Analysis of Losses and Loss Expenses Development <TABLE> <CAPTION> Years ended September 30th -------------------------------------------------------------------------------------------1991 1992 1993 1994 1995 1996 1997 1998 ---------- ----------- ---------- ---------- ---------- ---------- ---------- -------(in thousands of U.S. dollars) <S> <C> <C> <C> <C> <C> <C> <C> <C> Gross unpaid..................... $1,176,215 $1,492,336 $1,977,620 $2,111,670 $3,737,8 Net unpaid....................... $ 470,832 $ 813,849 $ 766,402 $1,176,215 $1,489,293 $1,892,302 $2,006,873 $2,678,3 Net paid (Cumulative) As Of: 1 year later.................... 149,493 340,836 126,566 66,888 80,080 358,713 337,422 1,017,8 2 years later................... 490,116 465,074 183,439 121,628 414,419 663,087 925,361 1,480,1 3 years later................... 590,847 517,366 228,638 451,746 696,470 1,247,652 1,066,253 1,655,9 4 years later................... 611,133 551,887 558,625 725,799 1,259,344 1,372,345 1,171,247 5 years later................... 627,691 881,198 837,515 1,285,599 1,379,586 1,465,149 6 years later................... 764,607 1,150,628 1,398,270 1,368,664 1,467,519 7 years later................... 843,283 1,672,772 1,481,328 1,449,762 8 years later................... 988,087 1,755,791 1,562,344 9 years later................... 1,067,055 1,836,807 10 years later.................. 1,140,570 </TABLE> <TABLE> <CAPTION> Fifteen Month Years ended Period ended December 31st December 31st -----------------------1999 2000 2001 ------------- ----------- ----------<S> <C> Gross unpaid..................... $16,460,247 Net unpaid....................... $ 8,908,817 Net paid (Cumulative) As Of: 1 year later.................... 2,445,490 2 years later................... 3,810,768 3 years later................... 4 years later................... 5 years later................... 6 years later................... 7 years later................... 8 years later................... 9 years later................... 10 years later.................. </TABLE> <C> $17,388,394 $ 9,330,950 2,430,655 <C> $20,728,122 $10,339,014
<TABLE> <CAPTION> <S> <C> <C> <C> <C> <C> <C> <C> <C> Net Liability Re-estimated As Of: End of year..................... $ 470,832 $ 813,849 $ 766,402 $1,176,215 $1,489,293 $1,892,302 $2,006,873 $2,678,3 1 year later.................... 706,960 813,849 966,402 1,177,292 1,489,293 1,892,302 1,989,744 2,753,0 2 years later................... 706,960 1,085,012 1,067,987 1,227,538 1,489,293 1,881,403 1,914,936 2,746,6 3 years later................... 874,368 1,234,462 1,211,424 1,386,571 1,480,426 1,824,449 1,853,078 2,721,7 4 years later................... 888,387 1,412,495 1,429,990 1,401,329 1,495,443 1,852,466 1,833,312 5 years later................... 940,513 1,666,770 1,442,523 1,472,394 1,588,975 1,931,845 6 years later................... 1,113,662 1,703,103 1,580,022 1,530,195 1,678,535 7 years later................... 1,099,102 1,852,125 1,642,465 1,606,416 8 years later................... 1,142,511 1,916,405 1,712,654 9 years later................... 1,207,260 1,986,594 10 years later.................. 1,274,153 Cumulative redundancy/ (deficiency).................... (803,321) (1,172,745) (946,252) (430,201) (189,242) (39,543) 173,561 (43,3 </TABLE> <TABLE> <CAPTION> <S> <C> <C> Net Liability Re-estimated As Of: End of year..................... $ 8,908,817 $ 9,330,950
<C> 10,339,014
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1 year later.................... 2 years later................... 3 years later................... 4 years later................... 5 years later................... 6 years later................... 7 years later................... 8 years later................... 9 years later................... 10 years later.................. Cumulative redundancy/ (deficiency).................... </TABLE>
8,848,453 8,850,879
9,425,420
57,938
(94,470)
<TABLE> <CAPTION> <S> <C> <C> <C> <C> <C> Gross unpaid losses and loss expenses end of year..................... 1,176,215 1,492,336 1,977,620 2,111,670 3,737,8 Reinsurance recoverable on unpaid losses.............................. -3,043 85,318 104,797 1,059,5 ---------- ---------- ---------- ---------- -------Net unpaid losses and loss expenses................................... 1,176,215 1,489,293 1,892,302 2,006,873 2,678,3 ---------- ---------- ---------- ---------- -------Gross liability re-estimated.......................................... 1,606,416 1,681,578 2,029,465 1,937,100 3,897,5 Reinsurance recoverable on unpaid losses.............................. -3,043 97,620 103,788 1,175,8 ---------- ---------- ---------- ---------- -------Net liability re-estimated............................................ 1,606,416 1,678,535 1,931,847 1,833,312 2,721,7 ---------- ---------- ---------- ---------- -------Cumulative redundancy/(deficiency) on gross unpaid.................... (430,201) (189,242) (51,845) 174,570 (159,7 </TABLE> <TABLE> <CAPTION> <S> <C> <C> <C> Gross unpaid losses and loss expenses end of year..................... 16,460,247 17,388,394 20,728,122 Reinsurance recoverable on unpaid losses.............................. 7,551,430 8,057,444 10,389,108 ----------- ----------- ----------Net unpaid losses and loss expenses................................... 8,908,817 9,330,950 10,339,014 ----------- ----------- ----------Gross liability re-estimated.......................................... 17,596,917 18,018,757 Reinsurance recoverable on unpaid losses.............................. 8,746,039 8,593,337 ----------- ----------Net liability re-estimated............................................ 8,850,879 9,425,420 ----------- ----------Cumulative redundancy/(deficiency) on gross unpaid.................... (1,136,670) (630,363) </TABLE> 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 the liability in the past may not necessarily occur in the future. (3) 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. This methodology was applied retroactively to all prior years. (4) On November 1, 1993, the Company acquired CODA, on July 1, 1996, the Company acquired ACE Tempest Re and on July 9, 1998, the Company acquired Tarquin. The table has been restated to include CODA, ACE 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. 17 <PAGE> The cumulative gross redundancy (deficiency) is the difference between the gross loss reserves originally recorded and the re-estimated liability at December 31, 2001. The Company utilized little or no reinsurance for the 1997 and prior years. In 1999, ACE INA acquired the CIGNA property and casualty insurance operations and the acquired loss reserves for 1999 and prior years were included in the table commencing in 1999. As of December 31, 2001, the cumulative deficiency for 1999 is $1.13 billion. This relates primarily to U.S. liabilities including asbestos and environmental liabilities for 1995 and prior that are included in the run-off division of ACE INA. A significant portion of this business had been reinsured on a facultative basis prior to the acquisition by ACE INA and reinsurance coverage on the net reserves for the run-off division as of the acquisition date was purchased from National
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Indemnity Company ("NICO"). These reinsurance coverages have the effect of substantially reducing the net loss as follows. Of the total $1.13 billion of cumulative deficiency for the 1999 and prior years, approximately $500 million was covered by reinsurance placed when the risks were originally written and the remaining liability of $600 million has been ceded to NICO. Of the cumulative deficiency of $1.13 billion noted for 1999, approximately $500 million was identified and recorded in fiscal 2000 and the remaining $630 million was identified and recorded in fiscal 2001. Net loss and loss expenses for the year ended December 31, 2001 were impacted by $94 million of prior year development principally in the ACE International segment. This development was reflected during the fourth quarter of 2001 when the Company recorded additional reserves to strengthen its casualty loss reserves. Reconciliation of Unpaid Losses and Loss Expenses <TABLE> <CAPTION> Year Ended Year Ended December 31 December 31 2001 2000 ----------- ----------(in thousands of U.S. <S> <C> <C> Gross unpaid losses and loss expenses at beginning of period........ $17,388,394 $16,460,247 Reinsurance recoverable on unpaid losses............................ (8,057,444) (7,551,430) ----------- ----------Net unpaid losses and loss expenses at beginning of period.......... 9,330,950 8,908,817 Unpaid losses and loss expenses assumed in respect of reinsurance business acquired................................................. 300,204 169,537 Unpaid losses and loss expenses in respect of formerly discontinued operations........................................................ -1,269,914 Unpaid losses and loss expenses assumed in respect of acquired companies (net of reinsurance recoverable of $6,345,679 in 1999).. ------------ ----------Total........................................................ 9,631,154 10,348,268 =========== =========== Net losses and loss expenses incurred in respect of losses occurring in: Current period................................................... 4,457,986 Prior periods.................................................... 94,470 ----------Total........................................................ 4,552,456 =========== Net losses and loss expenses paid in respect of losses occurring in: Current period................................................... Prior periods.................................................... Total........................................................ Foreign currency revaluation........................................ Net unpaid losses and loss expenses at end of period................ Reinsurance recoverable on unpaid losses............................ Gross unpaid losses and loss expenses at end of period.............. </TABLE> 18 <PAGE> As discussed above, net loss and loss expenses for the year ended December 31, 2001 were impacted by $94 million of prior year development principally in the ACE International segment. During the fourth quarter of 2001, the Company recorded additional reserves to strengthen its casualty loss reserves. Net loss impacted by ACE Tempest development and loss expenses for the year ended December 31, 2000, were favorable development of reserves from prior periods primarily from Re, ACE USA and ACE Bermuda partially offset by unfavorable in ACE Financial Services. 1,345,699 2,430,655 ----------3,776,354 =========== (68,242) =========== 10,339,014 10,389,108 ----------$20,728,122 =========== Year Ended December 31 1999 ----------dollars) <C> $ 3,678,269 (1,100,464) ----------2,577,805 183,774 -6,940,593 ----------9,702,172 ===========
2,996,429 1,601,278 (60,364) 38,265 ----------- ----------2,936,065 1,639,543 =========== =========== 1,205,110 2,631,171 ----------3,836,281 =========== (117,102) =========== 9,330,950 8,057,444 ----------$17,388,394 =========== 916,848 1,509,638 ----------2,426,486 =========== (6,412) =========== 8,908,817 7,551,430 ----------$16,460,247 ===========
Net losses and loss expenses for the year ended December 31, 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 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 year activity in 1999. Investments The Company's principal investment objective is to ensure that funds will be available to meet its primary insurance and reinsurance obligations. Within this broad liquidity constraint, the investment portfolio's structure seeks to maximize return subject to specifically approved guidelines of overall asset classes, credit quality, liquidity, and volatility of expected returns. As
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such, the Company's investment portfolio is invested primarily in fixed income securities of the highest credit quality. In June of 2000, the Company formed ACE Asset Management Inc., an operating group replacing the more traditional role of Chief Investment Officer. The formation of this group underscores the importance the Company places on the growth and complexity of ACE's international investment activity. ACE Asset Management operates principally to guide and direct the investment process of the ACE Group of Companies. In this regard, the Asset Management Group: . Conducts formal asset allocation modeling for each of the ACE subsidiaries, providing formal recommendations for the portfolio's structure Establishes recommended investment guidelines that are appropriate to the prescribed asset allocation targets Provides the analysis, evaluation, and selection of external investment advisors to the ACE Group Establishes and develops investment related analytics to enhance portfolio engineering and risk control Monitors and aggregates the correlated risk of the overall investment portfolio Provides governance over the investment process for each of the ACE operating companies to ensure consistency of approach and adherence to investment guidelines
. . . . .
For the investment portfolio, the Company determines allowable targeted asset allocation and ranges for each of the operating segments. These asset allocation targets are derived from sophisticated asset and liability modeling that measures correlated histories of returns and volatility's of returns. Allowable investment classes are further refined through analysis of the Company's operating environment, including expected volatility of cash flows, overall capital position, regulatory and rating agency considerations. The Finance Committee of the Board of Directors approves asset allocation targets and reviews the Company's investment policy to ensure that it is consistent with the Company's overall goals, strategies and objectives. Overall investment guidelines are approved by the Finance Committee to ensure appropriate levels of portfolio liquidity, credit quality, diversification, and volatility are maintained. In addition, the Finance Committee systematically reviews the portfolio's exposures to capture any potential violations of investment guidelines. 19 <PAGE> Within the guidelines and asset allocation parameters established by the Company, individual investment committees of the operating segments determine tactical asset allocation. Additionally, these committees review all investment related activity that effects their operating company, including the selection of outside investment advisors, proposed asset allocations changes, and the systematic review of investment guidelines. For additional information regarding the investment portfolio, including breakdowns of the sector and maturity distributions, see Note 4 of the Consolidated Financial Statements included in the 2001 Annual Report to Shareholders. Regulation ACE Limited's insurance and reinsurance subsidiaries are subject to regulation and supervision by the local authority in the countries or states 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. Bermuda Operations 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; auditing and reporting requirements; and grants the Minister of Finance powers to supervise, investigate and intervene in the affairs of insurance companies. Significant requirements include the appointment of an independent auditor and the appointment of a loss reserve specialist. 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") and the Financial Services Authority ("FSA"). This jurisdiction arises by virtue of the Company being a controller
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of each of the Lloyd's managing agencies and the Corporate Members in which it has an interest and these entities themselves being subject to the UK regulatory regime. Certain other subsidiaries have also been approved as controllers, and are similarly subject to Lloyd's jurisdiction. On December 1, 2001, pursuant to the implementation of the Financial Services and Markets Act 2000, the FSA became the single UK statutory regulator to supervise securities, banking and insurance business. The FSA has wide powers to make rules, and these have largely replaced the existing statutory and self-regulatory arrangements relevant to these areas and certain changes to the financial reporting and solvency regime have already been introduced. Lloyd's (which has itself become a regulated entity under the FSA regime) has also been delegated certain self-regulatory responsibilities by the FSA under the terms of certain supervision and enforcement arrangements made between Lloyd's and the FSA. The Company and its subsidiaries will benefit from grandfathering provisions under transitional arrangements. Under English law, pursuant to the Lloyd's Act 1982 and certain bylaws promulgated by Lloyd's itself, there are restrictions on the ownership of or the holding of an interest in Lloyd's brokers or parties connected to Lloyd's brokers by Lloyd's Managing Agencies or certain of their related entities and vice versa. However, departures from this general principle may apply and can be implemented subject to their disclosure to Lloyd's and to Lloyd's non-objection to the structures proposed. Furthermore, in July 2000, responsibility for the regulatory oversight of Lloyd's brokers passed to the General Insurance Standards Council ("GISC"). In December 2001, the UK Government announced that the FSA will be the authority to carry out statutory regulation of insurance intermediaries. There will thus be a transition period (two years anticipated) whereby registered entities will be regulated by the GISC. This includes certain subsidiaries of ACE Limited additionally operating within the Lloyd's regulatory framework. Lloyd's has introduced an accreditation scheme for brokers with effect from January 1, 2001, which effectively opens up the 20 <PAGE> Lloyd's broker franchise. Lloyd's will continue to maintain a register of Lloyd's brokers and the restrictions outlined above will pertain for the foreseeable future. However, the requirement to use Lloyd's brokers to place substantially all classes of business has been relaxed such that, subject to certain criteria, the need to use Lloyd's brokers for the placement of outwards reinsurance may be eliminated. Regulation of Lloyd's Entities in the United States Generally direct insurance 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 still 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. Certain states also impose additional qualification criteria. In most states, surplus lines insurers undergo a vetting procedure and with respect to Lloyd's underwriters this is being made increasingly on a syndicate by syndicate basis. 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 unique August as the of New trading status of underwriters at Lloyd's in the U.S. is supported by a trust fund structure. The trust funds were reviewed and restructured in 1995 in consultation with the New York Insurance Department, which acts domiciliary commissioner for Lloyd's U.S. trust funds held in the state 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. to support U.S. surplus lines and U.S. reinsurance business. There are additional deposit trust fund arrangements in certain U.S. states. Lloyd's and the U.S. regulators continue to review the basis of Lloyd's syndicate U.S. trading arrangements. ACE International The extent of insurance regulation varies significantly among the countries in which ACE International conducts its operations. While all such countries impose requirements for licensing, solvency, auditing and financial reporting, such requirements in these and other areas can differ substantially. For example:
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. . . .
In some jurisdictions insurers are required to prepare and file quarterly financial reports, and in others only annual reports; Some jurisdictions require broker or agent involvement in the sales of insurance products, whereas in others such involvement is optional; Restrictions on use of foreign reinsurers vary; In some jurisdictions policy forms and rates are regulated and must be filed for certain lines of business, whereas in others they are unregulated; Some jurisdictions require periodic on-site examinations by insurance authorities, whereas others do not; and The ability to remit dividends is restricted more in some jurisdictions than in others. 21
. .
<PAGE> Significant variations can also be found in the size, structure and resources of the local regulatory departments that oversee insurance activities. There can also be notable differences among similar departments in the rigor of regulatory enforcement. ACE International operates through both subsidiaries and branches, the latter of which generally have reduced local capital requirements, and certain ACE International companies are jointly owned due to legal requirements for local ownership. Regardless of the corporate structure, ACE International companies can face greater restrictions than their domestic competitors, due to multinational application of U.S. laws and otherwise. Operational challenges can include discretionary licensing procedures, compulsory cessions of reinsurance, local retention of funds and records, and foreign exchange controls. The complex regulatory environments in which ACE International operates are subject to change and are regularly monitored. The largest insurance operations within ACE International are ACE Insurance S.A. - N.V. ("ACE Europe") and ACE Insurance in Japan ("ACE Japan"). ACE Europe conducts its insurance business in the European Economic Area ("EEA") under the laws and regulations of the EEA, in particular the local laws passed by EEA member states following the European Third (or "Framework") Non-Life Directive of 1992. The Framework Directive is the basis of the European single market in non-life insurance. It provides for the harmonization of technical reserves, matching and localization of assets, solvency margins and regulation and control of management. Under the Directive, ACE Europe has established operations in 14 EEA jurisdictions, and also conducts cross-border business on a freedom of service basis. ACE Europe's home member state regulatory authority is Belgium. ACE Japan is regulated by the Financial Services Agency ("FSA"). In accordance with the Insurance Business Law in Japan, the FSA focuses on protecting policyholders' interests by ensuring the sound management of insurance companies and their operations, including licensing, product filings and approval, distribution of insurance products, investment of insurance premiums and other assets, etc. FSA staff conduct on-site inspections when deemed necessary. Insurance companies must submit an annual business report regarding its operations and assets. Deregulation and liberalization of the Japanese non-life insurance market has placed more emphasis on insurers' independence of operation and compliance requirements. Operations in the United States of America 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, soliciting business, advertising, rates for certain business, policy language, underwriting and claims practices, transactions with affiliates, reserve adequacy, dividends, investments and insurer solvency. In addition, the U.S. insurance subsidiaries are subject to judicial decisions that define the risks and benefits for which insurance is sought and provided. These include judicial interpretations of the nature of the insured risk in such areas as product liability and environmental coverages. Regulation varies from state to state but generally requires that each primary insurance company obtain a certificate of authority from the department of insurance of a state to conduct business in that state. Regulations generally require insurance and reinsurance companies to furnish information concerning activities, which may materially affect the operations, management or financial condition and solvency of the company. For a U.S. ceding company to obtain financial statement credit for reinsurance ceded, the reinsurer must obtain an insurance license or accredited status from the cedent's state of domicile or must post collateral to support the liabilities ceded. In addition,
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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. 22 <PAGE> The U.S. insurance subsidiaries are required to file detailed annual and quarterly reports with state insurance regulators in each of the states in which they do business. Such annual and quarterly 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 in accordance with applicable 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 also 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 ("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. Based on the RBC formula, at December 31, 2000, the policyholders' surplus of each of the ongoing U.S. insurance subsidiaries was higher than the Company Action Level. There are 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. The Company's Brandywine subsidiary is running off its 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 Commission 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. 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 a number of Federal agencies finish issuing regulations implementing their 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. Regulations regarding Non-U.S. Operations in the United States Each state in the U.S. licenses insurers and prohibits, with some exceptions, the sale of insurance by non-admitted, non-U.S. insurers within its jurisdictions. The Company and its non-U.S. insurance subsidiaries, excluding its Lloyd's operations, are not licensed to do business as admitted insurers in any jurisdiction in the U.S. Many states impose a premium tax (typically 2 percent to 4 percent of gross premiums) on insureds who obtain insurance from non-admitted foreign insurers, such as ACE Bermuda. The premiums charged by the non-U.S. insurer 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. 23 <PAGE> 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 Bermuda domiciled companies are 4 percent for insurance premiums and 1 percent for reinsurance premiums.
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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, including 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 (except certain withholding taxes) 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. 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. 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 is 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 U.K. domiciled companies, will receive U.K. corporation tax credits for any U.S. income tax incurred up to the value of the equivalent U.K. corporation income tax charge on the U.S. income. ACE INA, ACE US Holdings and ACE Financial Services are subject to income taxes imposed by U.S. authorities and file U.S. tax returns. Certain international operations of the Company are also subject to income taxes imposed by the jurisdictions in which they operate. 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 24 <PAGE> 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 calendar year ended December 31, 2001, 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.
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Employees At December 31, 2001, the Company employed a total of 7,676 persons. Approximately 1,100 of the Company's employees are represented by various collective bargaining agreements, all of which are outside the U.S., United Kingdom and Bermuda. Of these employees 385 are employed in Asia Pacific and 560 in Europe. The remaining employees are in various countries in Latin America. <TABLE> <CAPTION> Australia North & New Asia Latin Bermuda America Europe Zealand Pacific America Total ------- ------- ------ --------- ------- ------- ----<S> <C> <C> <C> <C> <C> <C> 244 4,299 1,418 193 1,084 438 7,676 </TABLE> Item 2. Properties
The Company operates in the United States and in almost 50 countries around the world. During 2001, ACE Limited and ACE Bermuda moved into the new ACE Global Headquarters building in Hamilton, Bermuda. The Company continues to lease offices in Bermuda from a joint venture company in which the Company has a 40 percent interest. 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 U.S. and other countries. It is the Company's intention during 2002 to bring together all of the London-based staff of ACE Global Markets and ACE Europe in a new headquarters in London. The majority of all office facilities throughout the world that are occupied by the Company and its subsidiaries are leased. The Company is not dependent on its facilities to conduct business. 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 normal 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 25 <PAGE> 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. A proxy statement was mailed to stockholders in December 2001 with respect to an Extraordinary Meeting of Shareholders ("EGM"). The EGM was held on January 22, 2002 at which time the stockholders voted on the following matters: a) Proposal to increase the number of authorized Ordinary Shares of the Company from 300 million shares to 500 million shares. The holders of 213,465,370 shares voted in favour, 1,828,531 voted against and 87,957 abstained. b) Proposal to increase the number of authorized Other Shares of the Company from 10 million shares to 20 million shares. The holders of 156,032,346 shares voted in favour, 38,547,831 voted against and 94,659 abstained. EXECUTIVE OFFICERS OF THE COMPANY The table below sets forth the names, ages, positions and business experience of the executive officers of the Company.
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<TABLE> <CAPTION> Name ---<S>
Age Position --- -------<C> <C> Chairman, Chief Executive Officer & Director Vice Chairman and Director President, Chief Operating Officer & Director, ACE Limited, Chairman, ACE INA Vice Chairman, ACE Limited and Chief Executive Officer, ACE Tempest Reinsurance Company Limited Chief Financial Officer General Counsel & Secretary Chief Accounting Officer
Brian Duperreault............ 54 Donald Kramer................ 64 Dominic J. Frederico......... 48 Evan G. Greenberg............ 47 Philip V. Bancroft........... 41 Peter N. Mear................ 57 Robert A. Blee............... 39 </TABLE>
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. 26 <PAGE> Donald Kramer has been a director and Vice Chairman of ACE since July 1996, following the acquisition of ACE Tempest Re. 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 ACE Tempest Re from July 1996 until 1999. ACE Tempest Re was acquired by the Company on July 1, 1996. Prior to the formation of ACE Tempest Re, 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 Chairman of ACE INA since November 1999. On November 16, 2001, Mr. Frederico was appointed to the Board of Directors. 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 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. Evan G. Greenberg joined the ACE Group of Companies as Vice Chairman, ACE Limited, and Chief Executive Officer, ACE Tempest Re in November 2001. Mr. Greenberg was most recently President and Chief Operating Officer of AIG, a position he held from 1997 until 2000. From 1975 until 1997, Mr. Greenberg held a variety of senior management positions at AIG including Chief Operating Officer of AIU, AIG's Foreign General Insurance Organization, and President and Chief Executive Officer of AIU. Philip V. Bancroft was appointed to the position of Chief Financial Officer of ACE Limited in January 2002. For nearly 20 years, Mr. Bancroft worked for PricewaterhouseCoopers LLP. Most recently he served as partner-in-charge of the New York Regional Insurance Practice. Mr. Bancroft has been a Partner with PricewaterhouseCoopers LLP for 10 years. 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. Robert A. Blee has served as Chief Accounting Officer of ACE since October
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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. 27 <PAGE> PART II Item 5. Matters Market for the Registrant's Ordinary Shares and Related Stockholder
(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. The ticker symbol was changed to ACE from ACL on March 30, 2001. On January 22, 2002, the Company held an Extraordinary General Meeting whereby the shareholders of ACE Limited approved a proposal to increase the number of authorized Ordinary Shares from 300 million shares to 500 million shares. At the meeting, the shareholders also approved a proposal increasing the number of authorized Other Shares from 10 million shares to 20 million shares. The Other Shares may be issued in one or more classes or series with the terms, such as the dividend rates, voting rights, conversion rates, rights and terms of redemption and other rights, preferences and restrictions, established by the Board of Directors of the Company. 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: <TABLE> <CAPTION> 2001 ------------High Low ------ -----<C> <C> $41.25 $33.10 $39.89 $31.72 $38.71 $20.50 $40.27 $28.90 2000 ------------High Low ------ -----<C> <C> $22.88 $14.69 $30.44 $20.50 $39.75 $27.56 $43.56 $33.56
<S> Quarter Quarter Quarter Quarter </TABLE>
ending ending ending ending
March 31................ June 30................. September 30............ December 31.............
The last reported sale price of the Ordinary Shares on the New York Stock Exchange Composite Tape on February 28, 2002 was $43.90. (b) The approximate number of record holders of Ordinary Shares as of February 28, 2002 was 1,886. (c) The following table represents dividends paid per share to shareholders of record on each of the following dates: <TABLE> <CAPTION> Shareholders of Record as of: <S> March 30, 2001.......... June 29, 2001........... September 28, 2001...... December 31, 2001....... </TABLE>
Shareholders of Record as of: <C> <C> $0.13 March 31, 2000.......... $0.15 June 30, 2000........... $0.15 September 30, 2000...... $0.15 December 29, 2000.......
<C> $0.11 $0.13 $0.13 $0.13
On September 12, 2000, the Company completed the sale of 12.25 million Ordinary Shares for net proceeds of approximately $400 million. On October 25, 2001, the Company completed the sale of 32.89 million Ordinary Shares for net proceeds of approximately $1.1 billion. 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 2001 Annual Report to Shareholders filed with this Form 10-K. 28 <PAGE> Item 6. Selected Financial Data
Selected financial data for the three years ended December 31, 2001, 2000 and 1999, the three month period ended December 31, 1998, and the two years
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ended September 30, 1998 and 1997, is incorporated by reference to page 1 of the 2001 Annual Report to Shareholders filed in 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 30 through 51 of the 2001 Annual Report to Shareholders filed in Exhibit 13.1 filed with this Form 10-K. Item 7a. Quantitative and Qualitative Disclosures about Market Risk
This item is incorporated by reference to page 50 of the 2001 Annual Report to Shareholders filed in Exhibit 13.1 filed with this Form 10-K. Item 8. Financial Statements and Supplementary Data
This item is incorporated by reference to pages 52 through 100 of the 2001 Annual Report to Shareholders filed in Exhibit 13.1 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 two years ended December 31, 2001. 29 <PAGE> 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 2005" 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 May 16, 2002, 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 May 16, 2002, 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 May 16, 2002, 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 May 16, 2002, 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. 30 <PAGE> PART IV Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8
(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 2001 Annual Report to Shareholders as described under Item 8 of this Report -- Report of Independent Accountants -- Consolidated Balance Sheets at December 31, 2001 and 2000 -- Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999 -- Consolidated Statements of Shareholders' Equity for the years ended
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December 31, 2001, 2000 and 1999 -- Consolidated Statements of Comprehensive Income for the years ended December 31, 2001, 2000 and 1999 -- Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999 -- Notes to Consolidated Financial Statements. 2. Financial Statement Schedules Included in Part IV of this report. <TABLE> <CAPTION> Schedule Number Page -------- ---<C> <C> I II IV VI 37 38 39 42 43
<S> -- Report of Independent Accountants on financial statement schedules included in Form 10-K.......................................................................... -- Summary of Investments............................................................. -- Condensed financial information of the Registrant as of December 31, 2001 and 2000, and for the years ended December 31, 2001, 2000 and 1999................. -- Supplemental information concerning Reinsurance.................................... -- Supplemental information concerning Property/Casualty Operations................... </TABLE> 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
<TABLE> <C> <S> 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. 33-90927)) 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 the 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 the 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 the 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) </TABLE> 31 <PAGE> <TABLE> <C> <S> 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) 3.3 Special Resolutions adopted January 22, 2002 increasing the number of authorized Ordinary Shares and Other Shares 4.1 Memorandum of Association of the Company (see Exhibit 3.1) 4.2 Articles of Association of the Company (see Exhibit 3.2) 4.3 Specimen certificate representing Ordinary Shares 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, 1999, 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* Form of restricted stock award dated August 24, 1993, to ACE Limited Directors (Incorporated by reference to Exhibit 10 to Form 10-K of the Company for the year ended September 30, 1993) 10.5* 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) 10.6* 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) 10.7* 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) 10.8* Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.36 to Form 10-Q of the Company for the quarter
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ended March 31, 1996) 10.9* 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) 10.10* 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) 10.11* 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) 10.12* 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) 10.13 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) 10.14* 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) 10.15 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 the Form 8-K current report (Date of earlie event reported: July 2, 1999)) </TABLE> 32 <PAGE> <TABLE> <C> <S> 10.16 Remarketing and Contingent Purchase Agreement, dated June 30, 1999, among ACE Limited, ACE INA Holdings Inc., ACE RHINO Trust and Banc of America Securities LLC (Incorporated by reference to Exhibit 99.2 of the Form 8-K current report (Dat of earliest event reported: July 2, 1999)) 10.17 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 the Form 8-K current report (Date of earliest event reported: Jul 2, 1999)) 10.18 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 the Form 8-K current report (Date of earliest event reported: July 2, 1999)) 10.19 Senior Indenture, dated as of August 1, 1999, among ACE INA Holdings, Inc., ACE Limited and Bank One, NA (formerly 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)) 10.20* ACE Limited 1999 Replacement Long Term Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Form 10-Q of th Company for the quarter ended September 30, 1999) 10.21 Indenture, dated as of November 30, 1999, among ACE INA Holdings, Inc. and Bank One Trust Company, N.A., as trustee (Incorporated by reference to Exhibit 10.38 to Form 10-K of the Company for the year ended December 31, 1999) 10.22 Supplemental Indenture No. 1, dated as of December 6, 1999, among ACE INA Holdings, Inc. and Bank One Trust Company, N.A., as trustee (Incorporated by reference to Exhibit 10.39 to Form 10-K of the Company for the year ended December 31 1999) 10.23 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 (Incorporated by reference to Exhibit 10.40 to Form 10-K of the Company for the year ended December 31, 1999) 10.24 Indenture, dated as of December 1, 1999, among ACE INA Holdings, Inc., ACE Limited and Bank One Trust Company, National Association (Incorporated by reference to Exhibit 10.41 to Form 10-K of the Company for the year ended December 31, 199 10.25 Common Securities Guarantee Agreement, dated as of December 20, 1999 (Incorporated by reference to Exhibit 10.42 to For 10-K of the Company for the year ended December 31, 1999) 10.26 Preferred Securities Guarantee Agreement, dated as of December 20, 1999 (Incorporated by reference to Exhibit 10.43 to Form 10-K of the Company for the year ended December 31, 1999) 10.27* Consulting Agreement dated as of January 1, 2000, between Kramer Capital Corp. and the Company (Incorporated by referen to Exhibit 10.46 to Form 10-K of the Company for the year ended December 31, 1999) 10.28* Promissory note from Dominic Frederico (Incorporated by reference to Exhibit 10.47 to Form 10-K of the Company for the year ended December 31, 1999) 10.29 $75 million Credit Facility (subsequently amended to $100 million) between Capital Re Company, Various Banks and Deutsc Bank AG, as Agent (Incorporated by reference to Exhibit 4.09 to the Annual Report on Form 10-K for Capital Re Corporati for the fiscal year ended December 31, 1994 (Comm. File No. 1-10995)) 10.30 Reimbursement Agreement dated as of September 8, 1999, among ACE Limited, ACE Bermuda Insurance Ltd., ACE Tempest Reinsurance Ltd., (formerly known as Tempest Reinsurance Company Limited), as account parties, various banks, financial institutions and other institutional lenders, Mellon Bank, N.A., as issuing bank, Deutsche Bank of AG, New York and/or Cayman Islands Branches and Fleet National Bank as documentation agents, and Mellon Bank, N.A. as administrative agent (Incorporated by reference to Exhibit 10.52 to Form 10-K of the Company for the year ended December 31, 1999) 10.31* ACE Limited 1999 Replacement Stock Plan (Incorporated by reference to Exhibit 10.54 to Form 10-K of the Company for the year ended December 31, 1999) 10.32 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 Decembe 31, 1997 for Capital Re Corporation (Comm. File No. 1-10995)) 10.33 Amendment dated as of March 22, 1999, to $100 Million Credit Facility between Capital Reinsurance Company, Various Bank 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)) </TABLE> 33 <PAGE> <TABLE> <C> <S> 10.34 Purchase Contract Agreement, dated as of April 12, 2000, between ACE Limited and The Bank of New York, acting as purchase contract agent for the Holders of Securities (Incorporated by reference to Exhibit 10.2 to Form 10-Q of the Company for the quarter ended March 31, 2000) 10.35 Remarketing Agreement, dated as of April 12, 2000, among ACE Limited, The Bank of New York and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (Incorporated by reference to Exhibit 10.3 to Form 10-Q of the Compa for the quarter ended March 31, 2000) 10.36 Pledge Agreement, dated as of April 12, 2000, among ACE Limited; The Bank of New York, as Collateral Agent, Custodial
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Agent and Securities Intermediary; and The Bank of New York, as Purchase Contract Agent (Incorporated by reference to Exhibit 10.4 to Form 10-Q of the Company for the quarter ended March 31, 2000) 10.37* ACE USA Officer Deferred Compensation Plan (as amended through January 1, 2000) (Incorporated by reference to Exhibit 10.5 to Form 10-Q of the Company for the quarter ended March 31, 2000) 10.38* ACE USA Supplemental Employee Retirement Savings Plan (Incorporated by reference to Exhibit 10.6 to Form 10-Q of the Company for the quarter ended March 31, 2000) 10.39 Amendment to Reimbursement Agreement dated as of March 15, 2000, among ACE Limited, ACE Bermuda Insurance Ltd., ACE Tempest Reinsurance Ltd. (formerly known as Tempest Reinsurance Company Limited), Deutsche Bank AG, New York and/or Cayman Islands Branches and Fleet National Bank as Documentation Agents, and Mellon Bank, as Issuing Bank and Administrative Agent. (Incorporated by reference to Exhibit 10.9 to Form 10-Q of the Company for the quarter ended March 31, 2000) 10.40 Amended and Restated Five Year Credit Agreement among ACE Limited, ACE Bermuda Insurance Company Ltd., ACE INA Holdings, Inc. and ACE Financial Services, Inc., Mellon Bank, N.A., Bank of America, N.A. and The Chase Manhattan Bank, dated May 8, 2000 (Incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company for the quarter ended June 30, 2000) 10.41 Amended and Restated 364 Day Credit Agreement among ACE Limited, ACE Bermuda Insurance Ltd., ACE Tempest Reinsurance Ltd. (formerly known as Tempest Reinsurance Company Limited). ACE INA Holdings Inc., ACE Guaranty Re Inc., Bank of America, N.A., The Chase Manhattan Bank and Morgan Guaranty Trust Company of New York dated May 8, 2000 (Incorporated by reference to Exhibit 10.2 to Form 10-Q of the Company for the quarter ended June 30, 2000) 10.42 Third Amendment to Reimbursement Agreement amends the Reimbursement Agreement, dated as of September 8, 1999, and amended as of November 30, 1999 and as of March 15, 2000, among ACE Limited, ACE Bermuda Insurance Ltd., ACE Tempest Reinsurance Ltd. (formerly known as Tempest Reinsurance Company Limited), Deutsche Bank AG, New York and/ or Cayman Islands Branches and Fleet National Bank, as Documentation Agents, and Mellon Bank, N.A dated September 1, 2000 (Incorporated by reference to Exhibit 10.2 to Form 10-Q of the Company for the quarter ended September 30, 2000) 10.43 Fourth Amendment to Reimbursement Agreement which amends the Reimbursement Agreement, dated as of September 8, 1999, and amended as of November 30, 1999, as of March 15, 2000 and as of September 1, 2000, among ACE Limited, ACE Bermuda Insurance Ltd., ACE Tempest Reinsurance Ltd. (formerly known as Tempest Reinsurance Company Limited), Deutsche Bank AG, New York and/or Cayman Islands Branches and Fleet National Bank, as Documentation Agents, and Mellon Bank, N.A., as Issuing Bank and Administrative Agent dated as of October 5, 2000 (Incorporated by reference to Exhibit 10.3 to Form 10-Q of the Company for the quarter ended September 30, 2000) 10.44 The first amendment which amends the Amended and Restated Five Year Credit Agreement dated as of May 8, 2000, among ACE Limited, ACE Bermuda Insurance Ltd., ACE Tempest Reinsurance Ltd. (formerly known as Tempest Reinsurance Company Limited), ACE INA Holdings Inc. and ACE Financial Services, Inc., various financial institutions, and Morgan Guaranty Trust Company of New York, as administrative agent dated as of October 23, 2000 (Incorporated by reference to Exhibit 10.4 to Form 10-Q of the Company for the quarter ended September 30, 2000) 10.45 The first amendment which amends the Amended and Restated 364-Day Credit Agreement dated as of May 8, 2000, among ACE Limited, ACE Bermuda Insurance Ltd., ACE Tempest Reinsurance Ltd. (formerly known as Tempest Reinsurance Company Limited), ACE INA Holdings Inc. and ACE Guaranty Re Inc., various financial institutions and Morgan Guaranty Trust Company of New York ("MGT"), as administrative agent dated as of October 23, 2000 (Incorporated by reference to Exhibit 10.5 to Form 10-Q of the Company for the quarter ended September 30, 2000) 10.46* First Amendment to ACE Limited Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.59 to Form 10-K of the Company for the year ended December 31, 2000) 10.47 Amendment and Restatement Agreement relating to a Letter of Credit Facility Agreement dated November 17, 2000 among ACE Limited, ACE Bermuda Insurance Ltd., Citibank, N.A., as arranger, Barclays Bank plc and ING Barings, as co-arrangers and Citibank International plc, as agent (Incorporated by reference to Exhibit 10.61 to Form 10-K of the Company for the year ended December 31, 2000) </TABLE> 34 <PAGE> <TABLE> <C> <S> 10.48* Promissory Note dated January 9, 2001 from Dominic J. Frederico (Incorporated by reference to Exhibit 10.1 to Form 10-Q the Company for the quarter ended March 31, 2001) 10.49 Amended and Restated Credit Agreement dated as of April 6, 2001 among ACE Limited, ACE Bermuda Insurance Ltd., ACE Temp Reinsurance Ltd., ACE INA Holdings, Inc. and ACE Guaranty Re Inc., certain lenders, JP Morgan, a division of Chase Securities, Inc., as Lead Arranger and Bookrunner, Bank of America, N.A., Barclays Bank PLC and Fleet National Bank, as Co-Syndication Agents and Morgan Guaranty Company of New York, as Administrative Agent. (Incorporated by reference to Exhibit 10.2 to Form 10-Q of the Company for the quarter ended March 31, 2001) 10.50* ACE Limited 1998 Long-Term Incentive Plan (as amended through the Second Amendment) (Incorporated by reference to Exhib 10.3 to Form 10-Q of the Company for the quarter ended March 31, 2001) 10.51* The Compromise Agreement dated May 16, 2001 between ACE and John Charman (Incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company for the quarter ended June 30, 2001) 10.52* The ACE Limited 1995 Outside Directors Plan (as amended through the Fourth Amendment) (Incorporated by reference to Exhibit 10.2 to Form 10-Q of the Company for the quarter ended June 30, 2001) 10.53* The ACE Limited 1995 Long Term Incentive Plan (as amended through the Second Amendment) (Incorporated by reference to Exhibit 10.3 to Form 10-Q of the Company for the quarter ended June 30, 2001) 10.54* ACE Limited Supplemental Retirement Plan (as amended and restated effective July 1, 2001) (Incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company for the quarter ended September 30, 2001) 10.55 Reimbursement Agreement dated August 24, 2001 among ACE Limited, certain subsidiaries, various lenders and First Union National Bank (Incorporated by reference to Exhibit 10.2 to Form 10-Q of the Company for the quarter ended September 30 2001) 10.56 Second Amendment dated as of October 23, 2001, amending the Amended and Restated 364-day Credit Agreement dated as of M 8, 2000, as amended as of October 23, 2000 and amended and restated as of April 6, 2001 among ACE Limited, certain subsidiaries, various lenders and Morgan Guaranty Trust Company of New York (Incorporated by reference to Exhibit 10.3 Form 10-Q of the Company for the quarter ended September 30, 2001) 10.57 Second Amendment dated as of October 23, 2001, amending the Amended and Restated Five Year Credit Agreement dated as of May 8, 2000, and as amended as of October 23, 2000 among ACE Limited, certain subsidiaries, various lenders and Morgan Guaranty Trust Company of New York (Incorporated by reference to Exhibit 10.4 to Form 10-Q of the Company for the quart ended September 30, 2001) 10.58 First Amendment dated as of October 23, 2001 amending the Reimbursement Agreement dated as of August 24, 2001 among ACE Limited, certain subsidiaries, various lenders and First Union National Bank (Incorporated by reference to Exhibit 10.6 Form 10-Q of the Company for the quarter ended September 30, 2001) 10.59 Amended and Restated Rights Agreement between ACE Limited and Mellon Investor Services LLC, Rights Agent, dated as of December 20, 2001 10.60* First Amendment to ACE Ltd. Elective Deferred Compensation Plan, effective as of January 1, 2001
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10.61* ACE Limited Employee Retirement Plan, as amended and restated effective July 1, 2001 and further amended through Decemb 28, 2001 10.62 Second Amendment and Restatement dated as of November 21, 2001 amending and restating a letter of credit facility agreement dated as of November 19, 1999 and amended November 17, 2000 (and further amended as of October 23, 2001) amon ACE Limited, ACE Bermuda Insurance Ltd., Citibank, N.A. as arranger, Barclays Bank plc and ING Barings, as co-arrangers and Citibank International plc, as agent and trustee and certain financial institutions 10.63 Reimbursement Agreement for $500,000,000 Secured Letter of Credit Facility dated as of December 20, 2001 among ACE Limited, certain subsidiaries, various lenders and First Union National Bank 13.1 Pages 1 and 30 through 100 of the 2001 Annual Report to Shareholders 21.1 Subsidiaries of the Company 23.1 Consent of PricewaterhouseCoopers LLP </TABLE> * Management Contract or Compensation Plan 35 <PAGE> (b) Reports on Form 8-K The Company filed a Form 8-K current report (date of earliest event reported: December 20, 2001) pertaining to ACE Limited's announcement that it will change its transfer agent for Ordinary Shares from The Bank of New York to Mellon Investor Services LLC, effective as of the close of business on December 31, 2001. The Company filed a Form 8-K current report (date of earliest event reported: January 8, 2002) pertaining to the announcement of an earnings advisory on fourth quarter results and the appointment of Philip V. Bancroft as Chief Financial Officer of ACE Limited. 36 <PAGE> 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 53 of the 2001 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 13, 2002 37 <PAGE> SCHEDULE I SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES ACE LIMITED AND SUBSIDIARIES December 31, 2001 <TABLE> <CAPTION> Amount at Cost or which shown Amortized in the balance Cost Fair Value sheet ----------- ----------- -------------(in thousands of U.S. dollars) <C> <C> <C> $ 1,344,076 1,428,977 6,743,090 2,322,951 1,161,071 ----------13,000,165 =========== 163,931 48,094
<S> Fixed maturities: Bonds: U.S. Treasury and agency......................... $ 1,314,524 $ 1,344,076 Non-U.S. governments............................. 1,403,053 1,428,977 Corporate securities............................. 6,687,887 6,743,090 Mortgage-backed securities....................... 2,272,111 2,322,951 States, municipalities and political subdivision. 1,116,869 1,161,071 ----------- ----------Total fixed maturities....................... 12,794,444 13,000,165 =========== =========== Equity securities: Common stock: Public utilities................................. 164,108 163,931 Banks, trust and insurance companies............. 50,698 48,094
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Industrial, miscellaneous and all other.......... Non redeemable preferred stock......................
298,470 2,752 ----------Total equity securities...................... 516,028 ----------Other investments................................... 569,045 ----------Short-term investments and cash..................... 1,877,176 -----------
253,396 2,145 ----------467,566 ----------591,006 ----------1,877,176 -----------
253,396 2,145 ----------467,566 ----------591,006 ----------1,877,176 ----------$15,935,913 ===========
Total investments and cash................... $15,756,693 $15,935,913 =========== =========== </TABLE> 38 <PAGE> SCHEDULE II CONDENSED FINANCIAL INFORMATION OF REGISTRANT ACE LIMITED AND SUBSIDIARIES BALANCE SHEETS (Parent Company Only) December 31, 2001 and 2000 <TABLE> <CAPTION>
<S> Assets Investments and cash Investments in subsidiaries and affiliate on equity basis. $5,621,604 Fixed maturities.......................................... 335,909 Short-term investments.................................... 120,892 Other investments, at cost................................ 270 Cash...................................................... 32,525 ---------Total investments and cash............................ 6,111,200 Due from subsidiaries and affiliates, net.................... 348,372 Other assets................................................. 64,570 ---------Total assets.......................................... $6,524,142 ========== Liabilities Accounts payable and accrued liabilities..................... $ 64,341 Dividends payable............................................ 42,044 ---------Total liabilities..................................... 106,385 ---------Mezzanine equity............................................. 311,050 ---------Shareholders' equity Ordinary Shares.............................................. 10,828 Additional paid-in capital................................... 3,710,698 Unearned stock grant compensation............................ (37,994) Deferred compensation obligation............................. 16,497 Retained earnings............................................ 2,321,576 Accumulated other comprehensive income....................... 101,599 Ordinary shares issued to employee trust..................... (16,497) ---------Total shareholders' equity............................ 6,106,707 ---------Total liabilities, mezzanine equity and shareholders' equity. $6,524,142 ========== </TABLE> 39 <PAGE> SCHEDULE II (Cont'd.) CONDENSED FINANCIAL INFORMATION OF REGISTRANT ACE LIMITED AND SUBSIDIARIES STATEMENTS OF OPERATIONS (Parent Company Only) For the years ended December 31, 2001, 2000 and 1999 <TABLE> <CAPTION>
2001 2000 ------------------(in thousands of U.S. dollars) <C> <C> $4,975,663 402,491 3,247 27,715 46,516 ---------5,455,632 318,806 27,404 ---------$5,801,842 ========== $ 37,454 33,127 ---------70,581 ---------311,050 ---------9,681 2,637,085 (29,642) 14,597 2,733,633 69,454 (14,597) ---------5,420,211 ---------$5,801,842 ==========
2001 2000 1999 --------- -------- -------(in thousands of U.S. dollars)
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<S> <C> Revenues Investment income, including intercompany interest income. $ 70,075 Equity in net income of subsidiaries and affiliate........ (136,456) Net realized loss on investments.......................... (13,524) --------(79,905) Expenses Administrative and other expenses......................... (66,509) --------Net income (loss)..................................... $(146,414) ========= </TABLE> 40 <PAGE> SCHEDULE II (Cont'd.) CONDENSED FINANCIAL INFORMATION OF REGISTRANT ACE LIMITED AND SUBSIDIARIES STATEMENTS OF CASH FLOWS (Parent Company Only) For the years ended December 31, 2001, 2000 and 1999 <TABLE> <CAPTION>
<C>
<C>
$ 36,841 $ 33,877 575,032 400,623 (1,623) (9,354) -------- -------610,250 425,146 (67,268) (60,183) -------- -------$542,982 $364,963 ======== ========
<S> Cash flows from operating activities Net income (loss)................................................. $ (146,414) Adjustments to reconcile net income to net cash provided by operating activities Equity in net income of subsidiaries and affiliate............ 136,456 Net realized gains (losses) on investments.................... 13,524 Amortization of premium/discounts on fixed maturities......... (432) Amounts due to subsidiaries and affiliate, net................ 153,553 Accounts payable and accrued liabilities...................... 26,887 Accrued interest on advances from affiliate................... (31,846) Other......................................................... (38,300) ----------Net cash flows from (used for) operating activities........ 113,428 ----------Cash flow from investing activities Purchases of fixed maturities................................. (125,733) Sales of fixed maturities..................................... 94,689 Other investments............................................. (1,009) Dividends received from subsidiaries.......................... 338,873 Capitalization of subsidiaries................................ (1,101,000) Advances to affiliate......................................... (1,320,100) Repayment of advances to (from) affiliate..................... 625,000 Intercompany sale of subsidiaries............................. -----------Net cash from (used for) investing activities.............. (1,489,280) ----------Cash flows from financing activities Dividends paid on Ordinary Shares............................. (128,745) Dividends paid on FELINE PRIDES............................... (25,666) Proceeds from bank debt....................................... -Proceeds from exercise of options for shares.................. 32,666 Repayment of bank debt........................................ -Proceeds from shares issued under ESPP........................ 6,074 Advances from affiliates...................................... 945,100 Proceeds from issuance of FELINE PRIDES....................... -Net proceeds from issuance of Ordinary Shares................. 1,135,878 Loan repayments............................................... (424,000) Issuance costs of FELINE PRIDES............................... -Repurchase of Ordinary Shares................................. (179,446) ----------Net cash from (used for) financing activities.............. 1,361,861 ----------Net increase (decrease) in cash...................................... (13,991) Cash-beginning of year............................................... 46,516 ----------Cash-end of year..................................................... $ 32,525 =========== </TABLE> 41 <PAGE> SCHEDULE IV
2001 2000 1999 ----------- --------- ----------(in thousands of U.S. Dollars) <C> <C> <C> $ 542,982 $ 364,963
(575,032) (400,623) 1,623 9,354 (764) (3,176) (6,914) (113,634) (5,525) 37,808 (14,831) (15,353) 9,437 (19,430) --------- ----------(49,024) (140,091) --------- ----------(618,049) (402,079) 449,766 467,010 135 (6,837) 101,147 966,000 (27,103) (1,160,351) (157,435) (400,000) 307,435 (20,039) 82,244 ---------- ----------138,140 (556,296) --------- ----------(106,459) (15,254) 289,008 31,335 (713,894) 1,234 125,000 311,050 400,320 (370,513) (9,884) ---------(58,057) --------31,059 15,457 --------$ 46,516 ========= (77,836) 424,886 5,672 -1,151 330,513 ---------------684,386 ----------(12,001) 27,458 ----------$ 15,457 ===========
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ACE LIMITED AND SUBSIDIARIES SUPPLEMENTAL INFORMATION CONCERNING REINSURANCE For the years ended December 31, 2001, 2000 and 1999 (in thousands of U.S. dollars) <TABLE> <CAPTION> Premiums Written Ceded to other Assumed from Direct Amount companies other companies ------------- -------------- --------------<C> <C> <C> $7,629,233 $3,801,748 $2,536,129 $6,093,151 $2,707,417 $1,493,620 $3,015,176 $1,373,809 $ 853,981 42 <PAGE> SCHEDULE VI ACE LIMITED AND SUBSIDIARIES SUPPLEMENTARY INFORMATION CONCERNING PROPERTY/CASUALTY OPERATIONS For the years ended December 31, 2001, 2000 and 1999 (in thousands of U.S. dollars) <TABLE> <CAPTION> Net Reserves Deferred for Unpaid Policy Losses and Acquisition Loss Costs Expenses ----------- -----------<S> <C> <C> 2001....... $677,776 $10,339,014 2000....... $572,757 $ 9,330,950 1999....... $514,425 $ 8,908,817 </TABLE> Net Losses and Loss Expenses Incurred Related to Net Net ------------------Unearned Premiums Investment Current Prior Premium Earned Income Year Year ---------- ---------- ---------- ---------- -------<C> <C> <C> <C> <C> $3,852,019 $5,510,897 $776,461 $4,457,986 $ 94,470 $3,035,288 $4,534,763 $770,855 $2,996,429 $(60,364) $2,428,828 $2,485,737 $493,337 $1,601,278 $ 38,265 43 <PAGE> 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 By: /S/ PHILIP V. BANCROFT --------------------------------Philip V. Bancroft Chief Financial Officer March 15, 2002 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 ---March 15, 2002 Amortization of Deferred Policy Acquisition Costs -----------<C> $776,812 $650,741 $338,076 Net Paid Losses and Loss Expenses ---------<C> $3,776,354 $3,836,281 $2,426,486 Net Amount ---------<C> $6,363,614 $4,879,354 $2,495,348
<S> 2001 2000 1999 </TABLE>
Net Premiums Written ---------<C> $5,995,924 $4,879,354 $2,495,348
/S/ BRIAN DUPERREAULT Chairman, Chief Executive ----------------------------Officer; Director Brian Duperreault /S/ PHILIP V. BANCROFT Chief Financial Officer ----------------------------(Principal Financial Philip V. Bancroft Officer) /S/ ROBERT A. BLEE Chief Accounting Officer ----------------------------(Principal Accounting Robert A. Blee Officer) /S/ DONALD KRAMER Vice Chairman; Director ----------------------------Donald Kramer
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/S/ DOMINIC J. FREDERICO President, Chief Operating ----------------------------Officer; Director Dominic J. Frederico /S/ MICHAEL G. ATIEH Director ----------------------------Michael G. Atieh /S/ BRUCE L. CROCKETT Director ----------------------------Bruce L. Crockett /S/ ROBERT M. HERNANDEZ Director ----------------------------Robert M. Hernandez /S/ JOHN A. KROL Director ----------------------------John A. Krol /S/ ROBERTO G. MENDOZA Director ----------------------------Roberto G. Mendoza /S/ PETER MENIKOFF Director ----------------------------Peter Menikoff 44 <PAGE> Signature --------/S/ THOMAS J. NEFF Director ----------------------------Thomas J. Neff /S/ ROBERT RIPP Director ----------------------------Robert Ripp /S/ WALTER A. SCOTT Director ----------------------------Walter A. Scott /S/ DERMOT F. SMURFIT Director ----------------------------Dermot F. Smurfit /S/ ROBERT W. STALEY Director ----------------------------Robert W. Staley /S/ GARY M. STUART Director ----------------------------Gary M. Stuart /S/ SIDNEY F. WENTZ Director ----------------------------Sidney F. Wentz 45 </TEXT> </DOCUMENT> Title -----
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