Document/Exhibit Description Pages Size
1: 10-K Annual Report 44 271K
2: EX-10.59 First Amendment to Ace Stock Purchase Plan 2 11K
3: EX-10.60 Amendment to Ace Retirement Plan 1 8K
4: EX-10.61 Amendment and Restatement Agreement 123 371K
5: EX-13.1 Excerpts of the Annual Report of Shareholders 63 380K
6: EX-21.1 Subsidiaries of the Company 4 34K
7: EX-23.1 Consent of Pricewaterhousecoopers LLP 1 8K
EX-13.1 — Excerpts of the Annual Report of Shareholders
Exhibit Table of Contents
Exhibit 13.1
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ACE LTD
Selected Financial Data
December 31, 2000
For the years For the Three For the years ended September 30
ended Months ended
December 31 December 31
2000 1999 1998 1998 1997 1996
(in thousands of U.S. dollars,
except share and per share
data and selected data)
Operations data:
Net premiums written $ 4,879,354 $ 2,495,348 $ 154,103 $ 880,973 $ 789,773 $ 781,884
============ ============ ============ =========== ============ ============
Net premiums earned 4,534,763 2,485,737 218,007 894,303 805,372 755,840
Net investment income 770,855 493,337 85,095 324,254 253,440 213,701
Net realized gains (losses)
on investments (38,961) 37,916 130,154 188,385 127,702 55,229
Losses and loss expenses 2,936,065 1,639,543 111,169 516,892 486,140 520,277
Policy acquisition costs and
administrative expenses 1,393,432 833,312 69,030 271,566 153,486 138,343
Amortization of goodwill 78,820 45,350 4,435 12,834 7,325 1,507
Interest expense 221,450 105,138 4,741 25,459 11,657 10,481
Income tax expense 93,908 28,684 5,342 20,040 25,181 26,543
------------ ------------ ------------ ----------- ------------ ------------
Net income $ 542,982 $ 364,963 $ 238,539 $ 560,151 $ 502,725 $ 327,619
============ ============ ============ =========== ============ ============
Dividends on FELINE PRIDES $ 18,391 $ - $ - $ - $ - $ -
------------ ------------ ------------ ----------- ------------ ------------
Net income available to holders
of Ordinary Shares $ 524,591 $ 364,963 $ 238,539 $ 560,151 $ 502,725 $ 327,619
============ ============ ============ =========== ============ ============
Diluted earnings per share $ 2.31 $ 1.85 $ 1.21 $ 2.96 $ 2.69 $ 2.00
============ ============ ============ =========== ============ ============
Balance sheet data (at end of period)
Total investments and cash 13,762,324 $ 12,875,535 $ 6 ,214,900 $ 6,201,074 $ 4,787,916 $ 4,342,781
Total assets 31,689,526 30,122,888 8 ,834,305 8,788,753 5,647,596 5,077,780
Net unpaid losses and loss expenses 9,330,950 8,908,817 2 ,577,805 2,678,341 2,006,873 1,892,302
Mezzanine equity 311,050 - - - - -
Shareholders' equity 5,420,211 4,450,560 3,909,577 3,714,270 2,785,155 2,367,003
Diluted book value per share $ 23.25 $ 20.28 $ 20.19 $ 19.14 $ 15.40 $ 12.46
Selected data
Loss and loss expense ratio 64.7% 66.0% 51.0% 57.8% 60.4% 68.8%
Underwriting and administrative
expense ratio 30.8% 33.5% 31.7% 30.4% 19.0% 18.3%
------------ ------------ ------------ ----------- ------------ ------------
Combined ratio 95.5% 99.5% 82.7% 88.2% 79.4% 87.1%
============ ============ ============ =========== ============ ============
Net loss reserves to capital and
surplus ratio 172.2% 200.2% 65.9% 72.1% 72.1% 79.9%
Ratio of net premiums written
to capital and surplus 0.90:1 0.56:1 n/a 0.24:1 0.28:1 0.33:1
Weighted average shares outstanding
- diluted 227,418,430 197,626,354 197,349,356 189,281,175 186,809,023 $163,768,894
Cash dividends per share $ 0.50 $ 0.42 $ 0.09 $ 0.34 $ 0.27 $ 0.21
Net operating earnings per share(1) $ 2.48 $ 1.67 $ 0.55 $ 2.21 $ 2.04 $ 1.69
============ ============ ============ =========== ============ ============
The above table sets forth selected consolidated financial data of the Company
as of and for the years ended December 31, 2000 and 1999, the three months
ended December 31, 1998, and for each of the years in the three-year period
ended September 30, 1998. These selected financial and other data should be read
in conjunction with the consolidated financial statements and related notes and
with "Management's Discussion and Analysis of Results of Operations and
Financial Condition," presented on pages 51 to 93 and 32 to 50 respectively, of
this annual report. On July 2, 1999, the Company changed its fiscal year end
from September 30 to December 31. This change was implemented retroactively to
December 31, 1998, so that the 1999 fiscal year is for the twelve-month period
ended December 31, 1999.
(1) Operating earnings is comprised of net income available to holders of
Ordinary Shares and excludes net realized gains (losses) on investments and non-
recurring expenses.
3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following is a discussion of the Company's results of operations, financial
condition and liquidity and capital resources. This discussion should be read in
conjunction with the consolidated financial statements, and related notes
thereto, presented on pages 51 to 93 of this annual report.
Safe Harbor Disclosure
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Any written or oral statements made by
or on behalf of the Company may include forward-looking statements which reflect
the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain
uncertainties and other factors that could cause actual results to differ
materially from such statements. These uncertainties and other factors (which
are described in more detail elsewhere herein and in documents filed by the
Company with the Securities and Exchange Commission) include, but are not
limited to, (i) uncertainties relating to government and regulatory policies
(such as subjecting the Company to new insurance regulation or taxation in
additional jurisdictions or amending or revoking or enacting any laws,
regulations or treaties affecting the Company's current operations), (ii) the
occurrence of catastrophic events or other insured or reinsured events with a
frequency or severity exceeding the Company's estimates, (iii) legal,
regulatory, and legislative developments, (iv) the uncertainties of the loss
reserving process including the difficulties associated with assessing
environmental and latent injuries, (v) the actual amount of new and renewal
business and market acceptance of the Company's products, (vi) loss of the
services of any of the Company's executive officers, (vii) changing rates of
inflation and other economic conditions, (viii) losses due to foreign currency
exchange rate fluctuations, (ix) the ability to collect reinsurance
recoverables, (x) the competitive environment in which the Company operates,
related trends and associated pricing pressures, market perception, and
developments, (xi) the impact of mergers and acquisitions and new initiatives,
including the ability to successfully integrate acquired, new or expanded
businesses and achieve cost savings, reduce volatility of earnings, competing
demands for ACE's capital and the risk of undisclosed liabilities, (xii)
developments in global financial markets, including interest rate changes which
could affect the Company's investment portfolio and financing plans, (xiii)
risks associated with the introduction of new products and services, (xiv) the
ability of technology to perform as anticipated, and (xv) the amount of
dividends received from subsidiaries. The words "believe", "anticipate",
"estimate", "project", "plan", "expect", "intend", "hope", "will likely result"
or "will continue" and variations thereof and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of their dates. The
Company undertakes no obligation to publicly update or revise any forward-
looking statements, whether as a result of new information, future events or
otherwise.
General
On July 2, 1999, ACE Limited ("ACE" or "the Company") changed its fiscal year-
end from September 30 to December 31. This change was implemented retroactively
to December 31, 1998, so that the 1999 fiscal year was the twelve-month period
ended December 31, 1999. For purposes of this analysis of the Company's results
of operations, the Company's December 31, 2000 and 1999, fiscal years have been
compared to the year ended September 30, 1998, the next most recently audited
fiscal year.
The Company, through its various subsidiaries, provides a broad range of
insurance and reinsurance products to insureds in the United States and almost
50 other countries. In addition, ACE, through ACE Global Markets, provides funds
at Lloyd's, primarily in the form of letters of credit, to support underwriting
capacity for Lloyd's syndicates managed by Lloyd's managing agencies, which are
wholly owned subsidiaries of ACE. ACE operates through six business segments:
ACE Bermuda, ACE Global Markets, ACE Global Reinsurance, ACE USA, ACE
International and ACE Financial Services.
32
On January 2, 1998, the Company acquired Westchester Specialty Group, Inc.
("WSG"), through a newly-created U.S. holding company, ACE US Holdings, Inc.
Under the terms of the acquisition agreement, the Company purchased all of the
outstanding capital stock of WSG for aggregate cash consideration of $338
million.
On April 1, 1998, the Company acquired CAT Limited ("CAT"), a privately held,
Bermuda-based property catastrophe reinsurer. Under the terms of the acquisition
agreement, the Company purchased all of the outstanding capital stock of CAT,
for cash consideration of approximately $641 million. On January 1, 1999, CAT
was fully merged into ACE Tempest Re.
On July 9, 1998, the Company acquired Tarquin Limited ("Tarquin"), a UK-based
holding company which owned Lloyd's managing agency Charman Underwriting
Agencies Ltd. ("CUAL") and Tarquin Underwriting Limited, its corporate capital
provider. Under the terms of the acquisition agreement, the Company issued
approximately 14.3 million ACE Ordinary Shares to the shareholders of Tarquin.
On July 2, 1999, the Company, through a U.S. holding company, ACE INA Holdings,
Inc. ("ACE INA"), acquired CIGNA Corporation's ("CIGNA") 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 businesses written through those companies for
$3.45 billion in cash (the "ACE INA Acquisition").
On December 30, 1999, the Company acquired Capital Re Corporation, which is
engaged in the financial guaranty reinsurance business. Following the
acquisition, Capital Re Corporation was renamed ACE Financial Services. Under
the terms of the acquisition agreement, the Company paid aggregate consideration
of $110.3 million in cash and issued approximately 20.8 million ACE Ordinary
Shares.
The Company expects to continue evaluating potential new product lines and other
opportunities in the insurance and reinsurance markets. In addition, the Company
evaluates potential acquisitions of other companies and businesses and holds
discussions with potential acquisition candidates. As a general rule, the
Company publicly announces such acquisitions only after a definitive agreement
has been reached.
Results of Operations - Years ending December 31, 2000 and 1999, and year ending
September 30, 1998
As noted, during 1999 and 1998, the Company made four substantial acquisitions
that were accounted for under the purchase method of accounting, which requires
that income from the acquired company only be included in the results of the
Company from the date of acquisition. This makes it difficult to compare the
financial results as presented. ACE US Holdings' results are included from
January 2, 1998, CAT's results are included from April 1, 1998, and ACE INA's
results are included from July 2, 1999. As ACE Financial Services was acquired
on December 30, 1999, its results had no effect on the fiscal 1999 year.
In addition, the Company increased its percentage of participation in its
Lloyd's syndicates in both 2000 and 1999. On October 11, 2000, the final Lloyd's
auction for 2001 year of account capacity concluded. As a result, ACE increased
its share of the capacity of syndicate 2488 to approximately 90 percent in the
syndicate's 2001 year of account compared to 84 percent in 2000.
Where possible, we have discussed year on year comparisons for premiums, which
includes information prior to the dates of acquisitions. For items that by their
nature are based upon estimates or require judgments, such as losses incurred
and income, we do not generally discuss information prior to the dates of
acquisitions.
33
From time to time, the Company writes loss portfolio transfer contracts
("LPTs"), primarily in ACE Bermuda and ACE USA. 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. These contracts, when written,
can cause significant variances in gross premiums written, net premiums written,
net premiums earned, net incurred losses as well as the loss and loss expense
ratio and underwriting and administrative expense ratio.
Net Income
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Year Ended Year Ended Year Ended
December 31 December 31 September 30
2000 1999 1998
---- ---- ----
(in millions of U.S. dollars)
Income excluding net realized gains (losses) on $ 582 $ 330 $ 418
investments and non-recurring expenses
Net realized gains (losses) on investments (net of taxes) (39) 42 188
Non-recurring expenses (net of taxes) - (7) (46)
----- ----- -----
Net income $ 543 $ 365 $ 560
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Income excluding net realized gains (losses) on investments and non-recurring
expenses increased by 76 percent to $582 million for the year ended December 31,
2000, compared with $330 million for the year ended December 31, 1999. Of this
increase, approximately $100 million results primarily from the inclusion of ACE
INA because their results are included for a full year in 2000 compared with six
months of results in 1999 and they also reported better results in 2000 compared
with 1999. The 2000 year also includes $82 million of income excluding net
realized gains (losses) on investments and non-recurring expenses from ACE
Financial Services which was acquired on December 30, 1999. An additional $78
million increase results primarily from ACE Global Reinsurance as there was a
lower level of catastrophe losses in 2000 compared with 1999.
The increase in net income to $543 million in 2000 compared with $365 million in
1999 is a result of the increase in income excluding net realized gains (losses)
on investments and non-recurring expenses discussed in the preceding paragraph,
offset by net realized losses of $39 million in 2000. In 1999, the Company had
net realized gains on investments of $42 million resulting in an $81 million
decrease in net income from 1999 to 2000.
Income excluding net realized gains (losses) on investments and non-recurring
expenses was $330 million in 1999 compared with $418 million in 1998, a decrease
of $88 million or 21 percent. This decline was primarily due to the impact of
property catastrophe losses, which are discussed further in underwriting
results.
The decline in net income of $195 million from 1998 to 1999 is due in part to
the $88 million decline in income excluding net realized gains (losses) and non-
recurring expenses explained above. In addition, the Company had net realized
gains on investments of $42 million in 1999 compared with $188 million in 1998.
This contributed $146 million to the decline and is explained further
in the discussion of net realized gains (losses) on investments. The Company
incurred non-recurring expenses (net of taxes) of $7 million in 1999 with
respect to the ACE INA Acquisition compared with $46 million in 1998 with
respect to the acquisition of Tarquin, accounting for the remaining difference
between 1999 and 1998.
34
Premiums
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Year Ended Year Ended Year Ended
December 31 Percentage December 31 Percentage September 30
2000 Change 1999 Change 1998
(in millions of U.S. dollars)
Gross premiums written:
ACE Bermuda $ 598 8% $ 553 6% $ 520
ACE Global Markets 1,064 68 635 45 438
ACE Global Reinsurance 191 5 182 47 124
ACE USA 3,380 116 1,567 878 160
ACE International 2,027 117 932 - -
ACE Financial Services 327 - - - -
------ --- ------ --- ------
Consolidated $7,587 96% $3,869 212% $1,242
====== === ====== === ======
Net premiums written:
ACE Bermuda $ 512 19% $ 429 9% $ 395
ACE Global Markets 772 76 439 39 314
ACE Global Reinsurance 157 8 145 56 94
ACE USA 1,708 114 797 915 78
ACE International 1,419 107 685 - -
ACE Financial Services 311 - - - -
------ --- ------ --- ------
Consolidated $4,879 96% $2,495 183% $ 881
====== === ====== === ======
Net premiums earned:
ACE Bermuda $ 487 (5)% $ 510 31% $ 389
ACE Global Markets 619 70 364 29 279
ACE Global Reinsurance 141 1 140 (10) 155
ACE USA 1,619 116 749 957 71
ACE International 1,386 92 723 - -
ACE Financial Services 283 - - - -
------ --- ------ --- ------
Consolidated $4,535 82% $2,486 178% $ 894
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During 2000, the insurance and reinsurance markets began to experience an upturn
in the business cycle compared to 1999 and 1998 when most insurance markets
faced significant competitive pressures as a result of excess capital in the
market and the resulting price pressures. In addition, the Company experienced
market acceptance of the ACE brand, successfully cross marketed between
segments, and recognized price improvements which resulted in an increase in the
acceptance rate of business submissions.
Premiums: Gross premiums written for the year ended December 31, 2000, increased
by $3.7 billion to $7.6 billion compared to $3.9 billion for the year ended
December 31, 1999. These increases result from several factors, including those
discussed in the preceding paragraph. However, the primary reasons for the
increase are the inclusion of ACE INA premiums for a full year in 2000 compared
with six months in 1999, the increase in the Company's participation at Lloyd's
and the inclusion of ACE Financial Services in 2000. Gross premiums written for
the year ended December 31, 1999, increased by $2.7 billion to $3.9 billion
compared to $1.2 billion for the year ended September 30, 1998, primarily due to
the inclusion of ACE INA since July 2, 1999. All segments, however, reported
increases in gross and net premiums written in 1999 compared with 1998.
35
ACE Bermuda: Gross premiums written for the year ended December 31, 2000,
increased by $45 million to $598 million compared to $553 million for the year
ended December 31, 1999, primarily due to growth in the professional lines
division. During the third quarter, the professional lines division bound a
retrospective professional lines program that resulted in $50 million of gross,
net and earned premiums in the quarter. Premium production in the other
divisions was mixed for 2000. The excess property division experienced growth as
property rates increased during the year and submission activity increased. This
growth was offset by declines in excess liability and financial solutions
(formerly the tailored risk solutions division). ACE Bermuda has not experienced
rate increases in the excess liability area and continues to decline business
that is not adequately priced. Premiums from financial solutions decreased as a
large program written in 1999 was not available for renewal in 2000. However,
part of this decrease was offset by new business written. As of August 1, 2000,
the aviation department of ACE Bermuda ceased underwriting new business and
renewals were transferred to ACE Global Markets. Also during the year, certain
satellite business was transferred to the U.S. Both resulted in a decrease in
premiums during the year. Gross premiums written for the year ended December 31,
1999, increased by $33 million to $553 million compared to $520 million for the
year ended September 30, 1998. The increase was primarily the result of
significant increases in business in financial solutions and in new political
risk products. This new business was offset by decreases in satellite, excess
liability and professional lines divisions due to market pressures.
Net premiums written for the year ended December 31, 2000, increased by $83
million to $512 million compared to $429 million for the year ended December 31,
1999. This increase is primarily due to the professional lines $50 million
transaction discussed above. Changes to the underlying mix of business in the
satellite division and new business written in the professional lines and
property divisions also contributed to the growth.
Net premiums earned for the year ended December 31, 2000, decreased by $23
million to $487 million compared to $510 million for the year ended December 31,
1999. This decrease is primarily due to a significant LPT transaction in 1999
that was earned when written. The decrease in net premiums earned was partially
offset by the aforementioned $50 million professional lines retrospective
premium.
ACE Global Markets: Gross premiums written for the year ended December 31, 2000,
increased by $429 million to $1.1 billion compared to $635 million for the year
ended December 31, 1999. This increase is primarily due to ACE's increased
participation in the Lloyd's syndicates in 2000 versus 1999 as already
discussed. The rate reduction pressures, excess capacity and industry
consolidations which combined to create difficult market conditions in 1999 and
prior years have eased during 2000 and the Company has seen a hardening of
premium rates and the development of new business opportunities. It is
anticipated that gross premiums written will continue to increase in 2001 as the
Company has increased it's capacity at Lloyd's, assuming the market continues to
improve. Gross premiums written for the year ended December 31, 1999, increased
by $197 million to $635 million compared to $438 million for the year ended
September 30, 1998, as a result of the Company's increased participation in its
syndicates.
Net premiums written for the year ended December 31, 2000, increased by $333
million to $772 million compared to $439 million for the year ended December 31,
1999. This increase is consistent with the increase in gross premiums written
discussed above. Net premiums written for the year ended December 31, 1999,
increased by $125 million to $439 million compared to $314 million for the year
ended September 30, 1998, due to ACE's increased participation in its Lloyd's
syndicates.
Net premiums earned for the year ended December 31, 2000, increased by $255
million to $619 million compared to $364 million for the year ended December 31,
1999. This increase is primarily due to the increased syndicate participation
over 1999. Net premiums earned for the year ended December 31, 1999, increased
by $85 million to $364 million due to the increased participation in its
syndicates.
36
ACE Global Reinsurance: Gross premiums written for the year ended December 31,
2000, increased by $9 million to $191 million compared to $182 million for the
year ended December 31, 1999. This increase is primarily due to increasing rates
in the property catastrophe market place and new business opportunities. Pricing
and demand increased in the international sector following significant
catastrophe losses in 1999. Gross premiums written for the year ended December
31, 1999, increased by $58 million to $182 million compared to $124 million for
the year ended September 30, 1998. The Company acquired CAT in April 1998 and
therefore, 1999 includes a full year of CAT results whereas 1998 only includes
six months of results from the CAT business.
As with gross premiums written, net premiums written for the year ended December
31, 2000, increased by $12 million to $157 million compared to $145 million for
the year ended December 31, 1999. Net premiums written for the year ended
December 31, 1999, increased by $51 million to $145 million compared to $94
million for the year ended September 30, 1998. This increase is primarily due to
the inclusion of the CAT results for a full year in 1999 and only six months in
1998.
Net premiums earned were constant between 2000 and 1999, because of ACE Tempest
Re's purchase of additional retrocessional coverage in the first half of 2000.
Net premiums earned for the year ended December 31, 1999, decreased by $15
million to $140 million compared to $155 million for the year ended September
30, 1998, primarily due to an increase in the use of reinsurance.
ACE USA: Gross premiums written increased by $1.8 billion to $3.4 billion for
the year ended December 31, 2000, compared to $1.6 billion for the year ended
December 31, 1999. Gross premiums written include premiums from both ACE US
Holdings and the U.S. operations of ACE INA which for 1999 are included from
July 2, 1999, the date of acquisition. On a comparable basis, including twelve
months of 1999 premiums for the U.S. operations of ACE INA, gross premiums
increased by more than 30 percent in 2000, despite a $158 million reduction in
gross premiums written due to the curtailment of certain unprofitable business.
In 2000, ACE USA had strong production from several business units including
financial solutions, special risks, property, aerospace and U.S. international.
Market conditions were favorable for most of 2000 with price increases,
increases in submission levels and strong account retention. For 1998, gross
premiums written of $160 million represents nine months of premiums from ACE US
Holdings (acquired January 2, 1998). Prior to January 2, 1998, the Company had
no U.S.-based operations.
Net premiums written for the year ended December 31, 2000, increased by $911
million to $1.7 billion compared to $797 million for the year ended December 31,
1999. The increase is primarily due to the inclusion of a full year of results
for the ACE INA business in 2000, which for 1999 are only included from July 2,
1999. On a comparable basis, net premiums written increased by $346 million,
primarily due to the results of the financial solutions and the special risks
divisions. For 1998, net premiums written of $78 million represents nine months
of premiums from ACE US Holdings.
Net premiums earned for the year ended December 31, 2000, increased by $870
million to $1.6 billion compared to $749 million for the year ended December 31,
1999. The increase is due to the inclusion of the results of ACE INA from July
2, 1999. For 1998, net premiums earned of $71 million represents nine months of
premiums from ACE US Holdings.
ACE International: Gross premiums written for the year ended December 31, 2000,
increased by $1.1 billion to $2 billion compared to $932 million for the year
ended December 31, 1999. The increase is primarily due to the inclusion of a
full year of results for the ACE INA business in 2000, which for 1999 are only
included from July 2, 1999. On a comparable basis, gross premiums written
increased by 6 percent in 2000 compared with 1999. The increase in 2000 reflects
growth in fronted and multi-national programs, and in underlying property and
casualty lines. This growth was offset by the adverse effect of the devaluation
of European currencies during 2000. In addition, ACE International discontinued
37
approximately $60 million of certain non-strategic or unprofitable business
during 2000. Growth in business operations, excluding the non-strategic or
unprofitable business, was approximately 11 percent on a constant dollar basis.
Net premiums written and net premiums earned increased for the same reasons. ACE
International was acquired on July 2, 1999; therefore, there are no comparatives
for 1998.
ACE Financial Services: Gross premiums written for the year ended December 31,
2000, were $327 million. As ACE Financial Services was acquired on December 30,
1999, this is the first year in which results from ACE Financial Services are
reflected in the financial results of ACE. On a comparable basis, gross premiums
written were $98 million higher than in 1999 due to an LPT contract of $105
million which was earned when written. During 2000, the rising interest rate
environment reduced financial guaranty reinsurance premiums. However, rising
interest rates also lead to greater persistency in the mortgage guaranty
business, thereby partially offsetting the downturn in financial guaranty. In
addition, ACE Financial Services experienced strong premium volume in other
business lines, particularly in residual value and credit default swaps. Net
premiums written and net premiums earned increased for the same reasons.
Underwriting Results
The underwriting results of a property and casualty insurer are discussed
frequently by reference to its combined ratio, loss and loss expense ratio and
underwriting and administrative expense ratio. Each ratio is derived by dividing
the relevant expense amounts by net premiums earned. The combined ratio is the
sum of the loss and loss expense ratio and the underwriting and the
administrative expense ratio. A combined ratio under 100 percent indicates
underwriting income and a combined ratio exceeding 100 percent indicates
underwriting losses.
38
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Year Ended Year Ended Year Ended
December 31 December 31 September 30
2000 1999 1998
Loss and loss expense ratio
ACE Bermuda 74.3% 76.5% 75.9%
ACE Global Markets 57.2 56.6 51.8
ACE Global Reinsurance 12.7 69.2 22.0
ACE USA 73.7 71.2 60.4
ACE International 59.6 57.1 -
ACE Financial Services 64.8 - -
---- ---- ----
Consolidated 64.7% 66.0% 57.8%
---- ---- ----
Underwriting and administrative expense ratio
ACE Bermuda 10.4% 10.4% 14.9%
ACE Global Markets 37.8 40.9 42.8
ACE Global Reinsurance 25.1 23.4 17.5
ACE USA 25.6 33.6 33.5
ACE International 37.6 40.9 -
ACE Financial Services 27.0 - -
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Consolidated 30.8% 33.5% 30.4%
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Combined ratio
ACE Bermuda 84.7% 86.9% 90.8%
ACE Global Markets 95.0 97.5 94.6
ACE Global Reinsurance 37.8 92.6 39.5
ACE USA 99.3 104.8 93.9
ACE International 97.2 98.0 -
ACE Financial Services 91.8 - -
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Consolidated 95.5% 99.5% 88.2%
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Loss and Loss Expense Ratios
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 becomes 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.
In addition, catastrophe losses may have a significant effect on the insurance
and reinsurance industry. ACE Global Reinsurance and other segments of the group
have exposure to windstorm, hail, earthquake and other catastrophic events, all
of which are managed using measures including underwriting controls, occurrence
caps as well as modeling, monitoring and managing its accumulations of potential
losses across the group. The Company uses its retrocessional programs to limit
its net losses from catastrophes. However, property catastrophe loss experience
is generally characterized as low frequency but high severity short-tail claims
which may result in volatility in financial results.
39
During the year ended December 31, 2000, there were relatively few major
catastrophe losses compared with 1999 where there were a significant number of
catastrophes that impacted the results of the Company including: a hailstorm in
New South Wales, Australia in April 1999; tornadoes in the U.S. midwest in May
1999; in the period from July to September 1999 there were major earthquakes in
Taiwan, Turkey, Greece and Mexico, a typhoon in Japan and Hurricane Floyd in the
U.S.; and in December 1999 there were several severe windstorms in Europe.
During 2000, the loss and loss expense ratio declined to 64.7 percent compared
with 66.0 percent in 1999, primarily due to ACE Global Reinsurance, which is
discussed below. The loss and loss expense ratio increase from 57.8 percent in
1998 to 66.0 percent in 1999 was primarily due to the inclusion of losses and
loss expenses for the ACE INA domestic segment for six months plus the large
number of 1999 catastrophes.
ACE Bermuda: The loss and loss expense ratio decreased from 76.5 percent in 1999
to 74.3 percent in 2000. This change is primarily the result of a change in the
mix of business written, primarily because fewer LPT accounts were written in
2000 compared with 1999. LPTs put upwards pressure on loss and loss expense
ratios as they are reserved at higher loss ratios. The loss and loss expense
ratio for 1999 did not change substantially from 1998.
ACE Global Markets: The loss and loss expense ratio did not substantially change
in 2000 compared with 1999. The loss and loss expense ratio increased from 51.8
percent in 1998 to 56.6 percent in 1999. This increase is primarily the result
of the increased amount of non-Tarquin business written in the syndicates
managed by the Company during 1999, which historically had a higher loss ratio.
ACE Global Reinsurance: The loss and loss expense ratio decreased from 69.2
percent in 1999 to 12.7 percent in 2000. This significant decrease is the result
of the relatively small number of catastrophes in 2000. During 1999, there were
a significant number of catastrophes that impacted the results of the Company as
discussed above. In 1998, the loss ratio was 22.0 percent due to the relatively
small number of catastrophes.
ACE USA: The loss and loss expense ratio increased from 71.2 percent in 1999 to
73.7 percent in 2000. The loss and loss expense ratio of the ACE INA domestic
segment has historically been in excess of ACE US Holdings. On a comparative
basis, including twelve months of 1999 operating results for ACE INA, the loss
ratio in 2000 declined by over 8 percentage points. The reinsuring of loss
reserve development for the business covered under the National Indemnity
Company agreement, helped reduce the combined operations loss and loss expense
ratio in 2000. In addition, the curtailment of certain business that did not
meet the Company's underwriting standards and more favorable catastrophe
experience in 2000 over 1999 contributed to the improvement. The 1998 loss and
loss expense ratio of 60.4 percent represents nine months of activity for ACE US
Holdings (acquired January 2, 1998).
ACE International: The loss and loss expense ratio increased from 57.1 percent
in 1999 to 59.6 percent in 2000. This change is primarily the result of
additional loss activity in 2000, primarily in the property division. ACE
International was acquired on July 2, 1999; therefore, there are no comparatives
for 1998.
ACE Financial Services: The loss and loss expense ratio for the segment during
2000 was 64.8 percent. There were no unexpected losses incurred during the
year. ACE Financial Services was acquired December 30, 1999; therefore, there
are no comparatives for 1999 or 1998.
40
Underwriting and Administrative Expense Ratios
Underwriting and administrative expenses are comprised of the amortization of
deferred policy acquisition costs, which include commissions, premium taxes,
underwriting and other costs that vary with and are primarily related to the
production of premium, and administrative expenses which include all other
operating costs. As with losses and loss expenses, total underwriting and
administrative expenses increased significantly from $833 million in 1999 to
$1.4 billion in 2000 primarily due to the inclusion of ACE INA for a full year
in 2000 and the inclusion of ACE Financial Services. The underwriting and
administrative expense ratio decreased to 30.8 percent in 2000 compared with
33.5 percent in 1999 primarily due to cost reduction measures by ACE INA. The
underwriting and administrative expense ratio increased from 30.4 percent in
1998 to 33.5 percent in 1999 due to the inclusion of ACE INA effective July 2,
1999.
ACE Bermuda: The underwriting and administrative expense ratio was 10.4 percent
at both December 31, 1999, and December 31, 2000. The underwriting and
administrative expense ratio decreased from 14.9 percent in 1998 to 10.4 percent
in 1999 due primarily to ceding commissions generated on expanded reinsurance
programs in 1999.
ACE Global Markets: The underwriting and administrative expense ratio decreased
from 42.8 percent in 1998 to 40.9 percent in 1999 and down to 37.8 percent in
2000. These changes are primarily the result of relatively stable
administrative expenses over a higher earned premium base.
ACE Global Reinsurance: The underwriting and administrative expense ratio
increased from 23.4 percent in 1999 to 25.1 percent in 2000 primarily due to the
expansion activities in 2000. The underwriting and administrative expense ratio
increased from 17.5 percent in 1998 to 23.4 percent in 1999 primarily due to a
decline in net premiums earned together with an increase in administrative
expenses primarily due to the inclusion of CAT for a full year in 1999, which
historically had a higher expense ratio than ACE Tempest Re.
ACE USA: The underwriting and administrative expense ratio decreased from 33.6
percent in 1999 to 25.6 percent in 2000. The decline is primarily the result of
several cost reduction initiatives implemented at ACE USA subsequent to the
acquisition of ACE INA. These included staff reductions, the outsourcing of
certain IT operations and the consolidation of numerous field offices. The ratio
was also favorably influenced by LPTs written during the year. The 1998
underwriting and administrative expense ratio of 33.5 percent represents nine
months of activity for ACE US Holdings (acquired January 2, 1998).
ACE International: The underwriting and administrative expense ratio decreased
from 40.9 percent in 1999 to 37.6 percent in 2000. This change is primarily due
to savings achieved as a result of restructuring and other spending reduction
initiatives. There are no comparative figures for 1998.
ACE Financial Services: The underwriting and administrative expense ratio was
27.0 percent for the year ended December 31, 2000. ACE Financial Services was
acquired on December 30, 1999; therefore, there are no comparative figures for
1999 and 1998.
41
Net Investment Income
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Year Ended Year Ended Year Ended
December 31 Percentage December 31 Percentage September 30
2000 Change 1999 Change 1998
------------- ------------ ------------- ----------- --------------
(in millions of U.S. dollars)
ACE Bermuda $ 150 (14)% $ 174 (18)% $ 211
ACE Global Markets 37 29 28 47 19
ACE Global Reinsurance 60 - 60 13 53
ACE USA 341 81 189 373 40
ACE International 92 127 41 - -
ACE Financial Services 97 - - - -
Other (6) - 1 - 1
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Total net investment income $ 771 56% $ 493 52% $ 324
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Net investment income increased for the year ended December 31, 2000, by $278
million to $771 million compared to $493 million for the year ended December 31,
1999. The primary reason for this increase was an increase in the size of the
investable asset base resulting from the ACE INA Acquisition on July 2, 1999,
and the ACE Financial Services acquisition on December 30, 1999. Net investment
income for the year ended December 31, 1999, includes six months of ACE INA
results, whereas the net investment income for the year ended December 31, 2000,
includes twelve months of both ACE INA and ACE Financial Services.
ACE Bermuda: Net investment income decreased to $150 million in 2000 from $174
million in 1999 and $211 million in 1998. These decreases are primarily the
result of a higher investable asset base in 1998 and the first half of 1999,
before ACE Bermuda paid dividends to ACE Limited for the purchase of ACE INA.
ACE Bermuda also provided funding for the ACE Financial Services acquisition in
December 1999.
ACE Global Markets: Net investment income was $37 million in 2000 compared with
$28 million in 1999 and $19 million in 1998. These increases are a result of the
Company's increased participation in the Lloyd's syndicates it manages, in both
2000 and 1999, resulting in an increasing asset base.
ACE Global Reinsurance: Net investment income was unchanged for 2000 compared
with 1999 at $60 million, which increased from $53 million in 1998. The
investable asset base of ACE Tempest Re declined in 1999 as ACE Tempest Re paid
$316 million of dividends to ACE Limited and paid claims related to the 1999
catastrophes. However, 1999 also included a full year of income on the CAT
investment portfolio compared with six months of investment income in 1998,
which partially offset the decline in the asset base.
ACE USA: Net investment income increased by 81 percent to $341 million in 2000
from $189 million in 1999 and $40 million in 1998. The increase in 2000 is due
to the inclusion of twelve months of results for ACE INA, while 1999 includes
the six months of ACE INA results from the July 2, 1999, date of acquisition.
The 1998 results represent nine months of net investment income for ACE US
Holdings, which was acquired on January 2, 1998.
ACE International: Net investment income increased by 127 percent to $92 million
in 2000 from $41 million in 1999. This increase is primarily due to the
inclusion of twelve months of results for ACE INA, while 1999 includes the six
months of ACE INA results from the July 2, 1999, date of acquisition. There are
no comparative figures for 1998.
ACE Financial Services: Net investment income was $97 million for the year ended
December 31, 2000. The Company completed the acquisition of ACE Financial
Services on December 30, 1999, and the investment income for the year ended
December 31, 2000, represents a full year of income generated by the investment
portfolio. There are no comparative figures for 1999 or 1998.
42
Net Realized Gains (Losses) on Investments
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Year Ended Year Ended Year Ended
December 31 December 31 September 30
2000 1999 1998
--------------- ------------- ---------------
(in millions of U.S. dollars)
Fixed maturities and short-term investments $ (82) $ (82) $ 58
Equity securities 114 47 168
Financial futures and option contracts (48) 68 (9)
Other investments (12) 9 -
Currency (11) (4) (29)
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Total net realized gains (losses) on investments $ (39) $ 38 $ 188
=========== ========== ===========
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The Company's investment strategy takes a long-term view and the portfolio is
actively managed to maximize total return within certain specific guidelines,
which minimize risk. The portfolio is reported at fair value. The effect of
market movements on the investment portfolio will directly impact net realized
gains (losses) on investments when securities are sold. Changes in unrealized
gains and losses, which result from the revaluation of securities held, are
reported as a separate component of accumulated other comprehensive income.
The Company uses foreign currency forward and option contracts to minimize the
effect of fluctuating foreign currencies on the value of non-U.S. dollar
holdings currently held in the portfolio not specifically targeted to match the
currency of liabilities. The contracts used are not designated as specific
hedges and therefore, realized and unrealized gains and losses recognized on
these contracts are recorded as a component of net realized gains (losses) in
the period in which the fluctuations occur, together with net foreign currency
gains (losses) recognized when non-U.S. dollar securities are sold.
Sales proceeds for fixed maturity securities were generally lower than their
amortized cost during the year. This resulted in net realized losses of $82
million being recognized on fixed maturities and short-term investments for the
year ended December 31, 2000, compared with net realized losses of $82 million
for the year ended December 31, 1999, and net realized gains of $58 million for
the year ended September 30, 1998.
The liquidation of certain equity portfolios contributed to net realized gains
from equity securities of $114 million in fiscal 2000, $47 million in fiscal
1999, and $168 million for the year ended September 30, 1998.
Certain of the Company's external managers of fixed income securities use fixed
income futures contracts to manage duration exposure, losses of $4 million were
recognized on these for the year ended December 31, 2000. Net realized losses
generated by the Company's equity index futures contracts amounted to $44
million for the year. Total net realized losses attributable to the financial
futures and option contracts amounted to $48 million, compared with gains of $68
million for the year ended December 31, 1999, and losses of $9 million for the
year ended September 30, 1998.
Other Expenses
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Year Ended Percentage Year Ended Percentage Year Ended
December 31 Change December 31 Change September 30
2000 1999 1998
(in millions of U.S. dollars)
Amortization of goodwill $ 79 76% $ 45 253% $ 13
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Interest expense $ 221 111% $ 105 313% $ 25
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Income tax expense $ 94 227% $ 29 43% $ 20
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43
The amortization of goodwill increased by $34 million in 2000 compared with
1999. Of this increase, $30 million relates to the difference in ACE INA
goodwill amortization as 2000 has a full year of amortization compared with six
months in 1999. The remaining increase relates to the amortization of goodwill
generated by the acquisition of ACE Financial Services in December 1999. The
increase of $32 million in 1999 compared with 1998 primarily relates to the
amortization of goodwill from the ACE INA Acquisition for six months and a full
year of amortization of goodwill from the CAT acquisition in 1999 compared with
six months of amortization from the CAT acquisition in 1998.
The increase in interest expense in 2000 is a result of the Company incurring a
full year of interest with respect to debt acquired in connection with the ACE
INA Acquisition. For further information on the Company's outstanding debt, see
Note 8 of the Consolidated Financial Statements.
The increase in income tax expense from $20 million at September 30, 1998, to
$29 million at December 31, 1999, and $94 million at December 31, 2000, is
primarily due to the inclusion of ACE INA for six months in 1999 and a full year
in 2000. For further information on taxation, see Note 13 of the Consolidated
Financial Statements.
CONSOLIDATED FINANCIAL POSITION
At December 31, 2000, total assets were $31.7 billion compared with $30.1
billion at December 31, 1999. The $1.6 billion increase is primarily due to the
reconsolidation of the Commercial Insurance Services ("CIS") balance sheet into
each of its constituent parts. The Company planned, as part of its July 2, 1999,
ACE INA Acquisition, to dispose of the CIS operations. In accordance with EITF
87-11, the Company recorded a net liability that included all of the balance
sheet accounts that pertained specifically to CIS. Because the CIS business was
not sold one year from acquisition, the Company was required, as of July 2,
2000, to record the CIS balance sheet into its constituent parts in the
consolidated balance sheet and to record any resulting income or loss from that
book of business in its statement of operations prospectively from July 2, 2000.
At December 31, 1999, the CIS division balance sheet was recorded as a net
liability. Of the total CIS assets of $1.3 billion, approximately $950 million
were cash and investments.
At December 31, 2000, total investments and cash amounted to $13.8 billion,
compared with $12.9 billion at December 31, 1999. This increase is primarily a
result of the reconsolidation of the CIS balance sheet as previously noted, as
well as proceeds from the sale of ACE Ordinary Shares in September 2000. These
two items added $950 million and $400 million, respectively, to total
investments and cash. In addition, the change in market value of investments
added $186 million to total investments and cash. These items were offset as the
Company used $100 million of internal funds to repay short-term debt and had
negative cash flows from operations of $427 million, due primarily to the run
off of loss reserves acquired in the ACE INA Acquisition. The Company's
investment portfolio is structured to provide a high level of liquidity to meet
insurance related or other obligations. The consolidated investment portfolio is
externally managed by independent professional investment managers and is
invested primarily in high quality investment grade marketable fixed income and
equity securities, the majority of which trade in active, liquid markets.
The Company maintains reserves for the estimated unpaid ultimate liability for
losses and loss expenses under the terms of its policies and agreements. The
reserve for unpaid losses and loss expenses was $17.4 billion at December 31,
2000, compared with $16.5 billion at December 31, 1999, and includes $10.3
billion of case and loss expense reserves. The increase is primarily due to the
reconsolidation of the CIS balance sheet as previously noted which added
approximately $1.2 billion to the reserve for unpaid losses and loss expenses.
While the Company believes that its reserve for unpaid losses and loss expenses
at December 31, 2000, is adequate, future developments may result in ultimate
losses and loss expenses significantly greater or less than the reserve
provided.
44
One of the ways the Company manages its loss exposure is through the use of
reinsurance. While reinsurance arrangements are designed to limit losses from
large exposures and to permit recovery of a portion of direct losses,
reinsurance does not relieve the Company of its liability to its insureds.
Accordingly, the Company's loss reserves represent total gross losses, and
reinsurance recoverable represents anticipated recoveries of a portion of those
losses as well as amounts recoverable from reinsurers with respect to claims
which have already been paid by the Company. The Company's reinsurance
recoverable was approximately $9.0 billion and $8.8 billion at December 31,
2000 and 1999, net of allowances for unrecoverable reinsurance of $710 million
and $758 million, respectively.
The allowance for unrecoverable reinsurance is required principally due to the
failure of reinsurers to indemnify the Company, primarily because of disputes
under reinsurance contracts and insolvencies. Reinsurance disputes continue to
be significant, particularly on larger and more complex claims, such as those
related to asbestos and environmental pollution (discussed in more detail below)
and London reinsurance market exposures. Allowances have been established for
amounts estimated to be uncollectible.
Included in the Company's liabilities for losses and loss expenses are
liabilities for asbestos, environmental and latent injury damage claims and
expenses ("A&E exposures"). These claims are principally related to claims
arising from remediation costs associated with hazardous waste sites and bodily
injury claims related to asbestos products and environmental hazards. These
amounts include provision for both reported and IBNR claims. The table below
presents loss reserve details for A&E exposures as of December 31, 2000 and
1999.
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2000 1999
Gross Net Gross Net
----------- ---------- ------------- ----------
(in millions of U.S. dollars)
Asbestos $1,073 $212 $ 897 $291
Environmental and Other 1,156 540 1,287(1) 676
--------- -------- ----------- -------
Total $2,229 $752 $2,184 $967
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(1) Reflects a correction to reduce the amount reported in 1999 by $910 million
The Company continuously evaluates its estimates of liabilities and related
reinsurance recoverable for A&E exposures. While most of these liabilities for
such claims arise from exposures in North America, the Company has also provided
for international A&E exposures.
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.
At December 31, 2000, the total of the Company's short and long term debt,
including trust preferred securities was $2.7 billion compared with $3.1 billion
at December 31, 1999. The decrease of $410 million is primarily due to the
issuance of $311 million of FELINE PRIDES, the proceeds from which were used to
repay commercial paper issued in connection with the ACE INA Acquisition. Short
term debt decreased by $710 million as the commercial paper used in the ACE INA
Acquisition was replaced with permanent financing, including $300 million of
trust preferred securities and the FELINE PRIDES previously discussed.
45
The following table analyzes the movements in shareholders' equity for the years
ended December 31, 2000 and 1999, the three months ended December 31, 1998, and
the year ended September 30, 1998:
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Year Ended Year Ended Three Months Ended Year Ended
December 31, December 31, December 31, September 30,
2000 1999 1998 1998
(in millions of U.S. dollars)
Balance, beginning of period $4,451 $3,910 $3,714 $2,785
Net income 543 365 239 560
Change in net unrealized appreciation (depreciation) on investments 186 (186) (26) (69)
Dividends declared - Ordinary Shares (113) (84) (17) (60)
Dividends declared - FELINE PRIDES (18) - - -
Ordinary Shares issued in share offering 400 - - 606
Other movements, net (29) 6 - -
Ordinary Shares issued in ACE Financial Services transaction - 367 - -
Ordinary Shares issued in ACE INA transaction - 73 - -
Repurchase of Ordinary Shares - - - (108)
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Balance, end of period $5,420 $4,451 $3,910 $3,714
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Fully diluted book value per share was $23.25 at December 31, 2000, compared
with $20.28 at December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As a holding company, ACE's assets consist primarily of the stock of its
subsidiaries as well as other investments. In addition to investment income, its
cash flows currently depend primarily on dividends or other statutorily
permissible payments from its Bermuda-based operating subsidiaries (the "Bermuda
subsidiaries"). There are currently no legal restrictions on the payment of
dividends from retained earnings by the Bermuda subsidiaries, as the minimum
statutory capital and surplus requirements are satisfied by the share capital
and additional paid-in capital of each of the Bermuda subsidiaries. However, the
payment of dividends or other statutorily permissible distributions by the
Bermuda subsidiaries is subject to the need to maintain shareholders' equity at
a level adequate to support the level of insurance and reinsurance operations.
During the year ended December 31, 2000, ACE Bermuda declared dividends of $81
million and ACE Tempest Re declared dividends of $20 million. During the year
ended December 31, 1999, ACE Bermuda and ACE Tempest Re declared dividends of
$726 million and $316 million, respectively, which were used to partially
finance the ACE INA Acquisition.
The payment of any dividends from ACE Global Markets or its subsidiaries would
be subject to applicable United Kingdom insurance law including those
promulgated by the Society of Lloyd's. No dividends were received from ACE
Global Markets during fiscal 1999 or 2000 and the Company does not anticipate
receiving dividends from ACE Global Markets during 2001.
ACE INA has issued debt to provide partial financing for the ACE INA Acquisition
and for other operating needs. Cash flow requirements to service this debt are
expected to be met primarily by upstreaming dividend payments from ACE INA's
insurance subsidiaries. During the year ended December 31, 2000, ACE INA
Holdings received dividends of $97 million from its subsidiaries. Under various
46
U.S. insurance laws to which ACE INA's U.S. insurance subsidiaries are subject,
ACE INA's U.S. insurance subsidiaries may pay a dividend only from earned
surplus subject to the maintenance of a minimum capital requirement, without
prior regulatory approval. ACE INA's international subsidiaries are also subject
to various insurance laws and regulations in the countries in which they
operate. These regulations include restrictions that limit the amount of
dividends that can be paid without prior approval of the insurance regulatory
authorities. No dividends have been received by ACE Limited from ACE INA during
the year ended December 31, 2000, and the Company does not anticipate receiving
dividends from ACE INA during 2001.
ACE Financial Services' U.S. insurance subsidiaries are also subject to various
U.S. insurance laws under which subsidiaries may pay a dividend only from earned
surplus subject to the maintenance of a minimum capital requirement, without
prior regulatory approval. No dividends have been received from ACE Financial
Services during fiscal 2000 and the Company does not anticipate receiving
dividends from ACE Financial Services during 2001.
The Company's consolidated sources of funds consist primarily of net premiums
written, investment income, and proceeds from sales and maturities of
investments. Funds are used primarily to pay claims, operating expenses and
dividends and for the purchase of investments.
The Company's insurance and reinsurance operations provide liquidity in that
premiums are normally received substantially in advance of the time claims are
paid. The Company's consolidated net cash flow from operating activities was
$(427) million for the year ended December 31, 2000, compared with $(461)
million for the year ended December 31, 1999. Cash flows are affected by claim
payments which, due to the nature of the Company's operations, may comprise
large loss payments on a limited number of claims and therefore can fluctuate
significantly from year to year. The irregular timing of these loss payments,
for which the source of cash can be from operations, available net credit
facilities or routine sales of investments, can create significant variations in
cash flows from operations between periods. The Company's cash flows from
operations are currently impacted by a large book of loss reserves from
businesses in run-off. Although the Company's ongoing operations continue to
generate positive cash flows from operations, the run-off operations generate
negative cash flows. The run-off book of business continues to require cash to
meet its liabilities and cash flows are very dependent on the timing of claim
settlements. Net loss and loss expense payments amounted to $3.8 billion, $2.4
billion and $581 million for the years ended December 31, 2000 and 1999, and for
the year ended September 30, 1998, respectively. The substantial increase in
loss and loss expense payments is a result of the inclusion of paid losses from
ACE INA for a full year in 2000 compared with six months in 1999.
On July 2, 1999, the Company completed the ACE INA Acquisition for $3.45 billion
in cash. The Company partially financed the transaction with commercial paper
issuance with an annualized cost in the range of 6.5 to 7.0 percent. The
commercial paper offerings are backed by line of credit facilities, which were
originally arranged in connection with the ACE INA Acquisition. Since the
acquisition, the commercial paper outstanding has been paid down to the current
level of $340 million primarily as a result of various public and private market
senior debt, trust preferred, capital securities and hybrid equity issuances.
These capital market instruments are more fully described within the table under
Note 8 of the Consolidated Financial Statements. The capital market issuance
activities related to the acquisition are now complete.
On December 30, 1999, the Company completed the acquisition of ACE Financial
Services for aggregate consideration of $110 million in cash and approximately
20.8 million ACE Ordinary Shares. The cash used to finance the acquisition was
obtained from internal sources.
47
On September 12, 2000, the Company completed the sale of 12.25 million ACE
Ordinary Shares for net proceeds of approximately $400 million. The proceeds of
the offering, which have been placed in a custodial account and are being
invested primarily in investment-grade marketable securities, are used to
support the Company's guarantee of the $412 million principal amount of Auction
Rate Reset Subordinated Notes Series A issued by ACE INA to the ACE RHINOS
Trust.
On January 14, 2000, and April 14, 2000, the Company paid quarterly dividends of
11 cents per share to shareholders of record on December 31, 1999, and March 31,
2000, respectively. On July 14, 2000, October 13, 2000, and January 12, 2001,
the Company paid quarterly dividends of 13 cents per share to shareholders of
record on June 30, 2000, September 30, 2000, and December 29, 2000,
respectively. The declaration and payment of future dividends is at the
discretion of the Board of Directors and will be dependent upon the profits and
financial requirements of the Company and other factors, including legal
restrictions on the payment of dividends and such other factors as the Board of
Directors deems relevant.
Both internal and external forces influence the Company's financial condition,
results of operations and cash flows. Claim settlements, premium levels and
investment returns may be impacted by changing rates of inflation and other
economic conditions. In many cases, significant periods of time, ranging up to
several years or more, may lapse between the occurrence of an insured loss, the
reporting of the loss to the Company and the settlement of the Company's
liability for that loss. The Company believes that its cash balances, cash flow
from operations, routine sales of investments and the liquidity provided by its
credit facilities (discussed below) are adequate to meet the Company's expected
cash requirements.
Credit facilities
In May 2000, the Company renewed certain syndicated credit facilities. Each
facility requires that the Company and/or certain of its subsidiaries maintain
specific covenants, including a consolidated tangible net worth covenant and a
maximum leverage covenant. The facilities provide:
An $800 million, 364-day revolving credit facility with ACE Limited and
various subsidiaries as borrowers and guarantors. This facility is for
general corporate purposes.
A $250 million, five-year revolving credit facility with ACE Limited and
various subsidiaries as borrowers and guarantors. This facility is for
general corporate purposes and permits both loans and letters of credit.
Each of the above facilities may be used as commercial paper recourse facilities
(see Note 8 of the Consolidated Financial Statements).
ACE Tempest Re also maintains an uncollateralized, syndicated revolving credit
facility in the amount of $72.5 million, which is guaranteed by the Company. At
December 31, 2000, no amounts have been drawn down under this facility. The
facility requires that ACE Tempest Re maintain specific covenants, including a
consolidated tangible net worth covenant and a maximum leverage covenant.
As of December 31, 2000, ACE Financial Services was party to a credit facility
with a syndicate of banks pursuant to which the syndicate provides up to $150
million specifically designed to provide rating agency qualified capital to
further support ACE Financial Services claims-paying resources. The facility was
increased from $100 million during the year and expires in January 2006. ACE
Financial Services has not borrowed under this credit facility.
In August 1996, ACE Financial Services entered into a credit agreement for the
provision of a $25 million loan, which was available for general corporate
purposes. As of September 30, 2000, this facility had been cancelled and
replaced with a $25 million loan under the group's five-year syndicated credit
facility as described above. At December 31, 2000 and 1999, $25 million was
outstanding under these facilities.
48
In November 1998, to fulfill the requirements of Lloyd's for open years of
account, the Company arranged a syndicated, partially collateralized, five-year
letter of credit ("LOC") facility in the amount of (Pounds)270 million
(approximately $437 million). On June 30, 1999, certain terms of this LOC
facility were renegotiated and the facility is now uncollateralized. The
facility was renewed in November 1999 and again in November 2000 at increased
amounts of (Pounds)290 million ($470 million) and (Pounds)390 million ($585
million), respectively. This LOC facility requires that the Company and/or
certain of its subsidiaries continue to maintain certain covenants, including a
minimum consolidated tangible net worth covenant and a maximum leverage
covenant.
ACE Financial Services had also maintained a (Pounds)48 million (approximately
$72 million) uncollateralized LOC facility with a bank to fulfill a subsidiary's
requirements at Lloyd's. In November 2000, this facility was cancelled and
replaced with LOCs under the Company's LOC facility described in the previous
paragraph.
In September 2000, the Company, along with ACE Bermuda and ACE Tempest Re as
Account Parties and Guarantors, renewed a syndicated, one-year LOC facility in
the amount of $430 million for general business purposes, including the issuance
of insurance and reinsurance letters of credit. This facility was originally
arranged in September 1999. This LOC facility requires that the Company and/or
certain of its subsidiaries continue to maintain certain covenants, including a
minimum consolidated tangible net worth covenant and a maximum leverage
covenant. Usage under this facility was $123 million as of December 31, 2000.
The Company also maintains various LOC facilities, both collateralized and
uncollateralized, for general corporate purposes. At December 31, 2000, the
aggregate exposure under these facilities was $379 million and usage was $353
million.
Market Sensitive Instruments and Risk Management
In accordance with the Securities and Exchange Commission's Financial Reporting
Release No. 48, the following analysis presents hypothetical losses in cash
flows, earnings and fair values of derivative instruments and other market
sensitive instruments used in the Company's portfolio as of December 31, 2000.
The Company uses investment derivative instruments such as futures, options and
foreign currency forward and option contracts for duration management and
management of foreign currency exposures. These instruments are sensitive to
changes in interest rates and foreign currency exchange rates. The portfolio
includes other market sensitive instruments which are subject to changes in
market values, with changes in interest rates.
Duration Management and Market Exposure Management
The Company utilizes financial futures and option contracts and foreign currency
forward and option contracts for the purpose of managing certain investment
portfolio exposures. These instruments are not recognized as assets or
liabilities in the accompanying consolidated financial statements and changes in
49
market value are included in net realized gains or losses on investments in the
consolidated statements of operations. The market value of mortgage-backed
securities, another category of market sensitive instruments, was $1.7 billion,
or approximately 13 percent of the total investment portfolio, compared with
$2.1 billion or 16 percent at December 31,1999. Mortgage-backed securities
include pass through mortgage bonds and collateralized mortgage obligations.
The aggregate hypothetical loss generated by the fixed income portfolio from an
adverse parallel shift in the treasury yield curve of 100 basis points would be
a decrease in total return of 3.8 percent in 2000 compared with 4.3 percent in
1999. This equates to a decrease in market value of approximately $450 million
on a fixed income portfolio valued at $12 billion at December 31, 2000, and $490
million on a fixed income portfolio valued at $11 billion at December 31, 1999.
An immediate time horizon was used as this presents the worse case scenario.
Accounting For Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the consolidated balance
sheet and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as a fair value, cash flow or
foreign currency hedge. The accounting for changes in the fair value of a
derivative (that is, gains and losses) depends on the intended use of the
derivative and the resulting designation. Upon initial application of FAS 133,
hedging relationships must be designated anew and documented pursuant to the
provisions of this statement. The Company has adopted FAS 133, as amended, as of
January 1, 2001. The Company has completed an implementation plan which included
identifying all derivatives, evaluating risk management hedging strategies and
determining appropriate valuation methodologies required to assess the impact
that adoption of this statement will have on its financial position and results
of operations.
The Company maintains investments in derivative instruments such as futures,
option contracts and foreign currency forward contracts of which the primary
purposes are to manage duration and foreign currency exposure, yield enhancement
or to obtain an exposure to a particular financial market. The Company currently
records the changes in market value of these investments as realized gains
(losses) in the consolidated statement of operations and, accordingly, has
estimated that FAS 133, as amended, will not have a significant impact on the
results of operations, financial condition or liquidity in future periods as it
relates to these instruments.
Certain products (principally credit protection oriented) issued by the Company
have been determined to meet the definition of a derivative under FAS 133. These
products consist primarily of credit default swaps, index-based instruments and
certain financial guarantee coverages. Upon adoption of FAS 133, the Company
will record these products at their fair value.
The Company will record a net-of-tax cumulative expense of $23 million as of
January 1, 2001, to reflect the adoption of FAS 133. Prospectively, the Company
expects some level of gains and losses resulting from changes in market value of
derivatives to be recorded in the statement of operations. The level of such
gains and losses will be dependent upon a number of factors including changes in
interest rates, credit spreads and other market factors. The Company's
involvement with derivative instruments and transactions is primarily to offer
protection to others or to mitigate its own risk and is not considered
speculative in nature.
50
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation, integrity and objectivity of the
consolidated financial statements and other financial information presented in
this annual report. The accompanying consolidated financial statements were
prepared in accordance with accounting principles generally accepted in the
United States, applying certain estimates and judgments as required.
The Company's internal controls are designed to provide reasonable assurance as
to the integrity and reliability of the financial statements and to adequately
safeguard, verify and maintain accountability of assets. Such controls are based
on established policies and procedures and are implemented by trained, skilled
personnel with an appropriate segregation of duties. The Company's internal
audit department performs independent audits on the Company's internal controls.
The Company's policies and procedures prescribe that the Company and all its
employees are to maintain the highest ethical standards and that its business
practices are to be conducted in a manner which is above reproach.
PricewaterhouseCoopers LLP, independent accountants, are retained to audit the
Company's financial statements. Their accompanying report is based on audits
conducted in accordance with auditing standards generally accepted in the
United States which includes the consideration of the Company's internal
controls to establish a basis for reliance thereon in determining the nature,
timing and extent of audit tests to be applied.
The Board of Directors exercises its responsibility for these financial
statements through its Audit Committee, which consists entirely of independent
non-management Board members. The Audit Committee meets periodically with the
independent accountants, both privately and with management present, to review
accounting, auditing, internal controls and financial reporting matters.
/s/ Brian Duperreault /s/ Christopher Z. Marshall
---------------------------------------- ----------------------------------
Brian Duperreault Christopher Z. Marshall
Chairman and Chief Executive Officer Chief Financial Officer
51
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Shareholders of ACE Limited
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity, comprehensive
income and cash flows present fairly, in all material respects, the financial
position of ACE Limited and its subsidiaries at December 31, 2000 and 1999, and
the results of their operations and their cash flows for the years ended
December 31, 2000 and 1999, the three months ended December 31, 1998, and the
year ended September 30, 1998, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 14, 2001
52
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
[Enlarge/Download Table]
2000 1999
(in thousands of U.S. dollars
except share and per share data)
Assets
Investments and cash
Fixed maturities available for sale, at fair value
(amortized cost - $10,640,937 and $10,080,402) $ 10,721,309 $ 9,849,803
Equity securities, at fair value (cost - $495,049 and $780,558) 532,046 933,314
Short-term investments, at fair value
(amortized cost - $1,369,784 and $1,194,956) 1,369,784 1,192,875
Other investments, at fair value (cost - $518,130 and $303,714) 531,116 300,311
Cash 608,069 599,232
-------------- --------------
Total investments and cash 13,762,324 12,875,535
Accrued investment income 183,011 170,755
Insurance and reinsurance balances receivable 2,095,573 2,018,788
Accounts and notes receivable 388,996 533,863
Reinsurance recoverable 8,994,940 8,840,081
Deferred policy acquisition costs 572,757 514,425
Prepaid reinsurance premiums 857,745 580,244
Goodwill 2,846,709 2,822,718
Deferred tax assets 1,144,261 916,184
Other assets 843,210 850,295
-------------- --------------
Total assets $ 31,689,526 $ 30,122,888
============== ==============
Liabilities
Unpaid losses and loss expenses $ 17,388,394 $ 16,460,247
Unearned premiums 3,035,288 2,428,828
Premiums received in advance 63,123 63,759
Insurance and reinsurance balances payable 1,319,091 1,735,956
Contract holder deposit funds 139,056 201,079
Accounts payable, accrued expenses and other liabilities 1,316,449 1,684,725
Dividends payable 33,127 23,921
Short-term debt 364,509 1,074,585
Long-term debt 1,424,228 1,424,228
Trust preferred securities 875,000 575,000
-------------- --------------
Total liabilities 25,958,265 25,672,328
-------------- --------------
Commitments and contingencies
Mezzanine equity 311,050 -
-------------- --------------
Shareholders' equity
Ordinary Shares ($0.041666667 par value, 300,000,000 shares authorized;
232,346,579 and 217,460,515 shares issued and outstanding) 9,681 9,061
Additional paid-in capital 2,637,085 2,214,989
Unearned stock grant compensation (29,642) (28,908)
Retained earnings 2,733,633 2,321,570
Accumulated other comprehensive income (loss) 69,454 (66,152)
-------------- --------------
Total shareholders' equity 5,420,211 4,450,560
-------------- --------------
Total liabilities, mezzanine equity and shareholders' equity $ 31,689,526 $ 30,122,888
============== ==============
See accompanying notes to consolidated financial statements
53
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
[Enlarge/Download Table]
Year Ended Year Ended Three Months Ended Year Ended
December 31 December 31 December 31 September 30
2000 1999 1998 1998
--------------------------------------------------------------------------------
(in thousands of U.S. dollars, except per share data)
Revenues
Gross premiums written $ 7,586,771 $ 3,869,157 $ 254,068 $ 1,242,159
Reinsurance premiums ceded (2,707,417) (1,373,809) (99,965) (361,186)
----------- ----------- -------- -----------
Net premiums written 4,879,354 2,495,348 154,103 880,973
Change in unearned premiums (344,591) (9,611) 63,904 13,330
----------- ----------- -------- -----------
Net premiums earned 4,534,763 2,485,737 218,007 894,303
Net investment income 770,855 493,337 85,095 324,254
Net realized gains (losses) on
investments (38,961) 37,916 130,154 188,385
----------- ----------- -------- -----------
Total revenues 5,266,657 3,016,990 433,256 1,406,942
----------- ----------- -------- -----------
Expenses
Losses and loss expenses 2,936,065 1,639,543 111,169 516,892
Policy acquisition costs 650,741 338,076 27,812 105,654
Administrative expenses 742,691 495,236 41,218 165,912
Amortization of goodwill 78,820 45,350 4,435 12,834
Interest expense 221,450 105,138 4,741 25,459
----------- ----------- -------- -----------
Total expenses 4,629,767 2,623,343 189,375 826,751
----------- ----------- -------- -----------
Income before income taxes 636,890 393,647 243,881 580,191
Income tax expense 93,908 28,684 5,342 20,040
----------- ----------- -------- -----------
Net income $ 542,982 $ 364,963 $ 238,539 $ 560,151
=========== =========== ======== ===========
Basic earnings per share $ 2.37 $ 1.88 $ 1.23 $ 3.03
=========== =========== ======== ===========
Diluted earnings per share $ 2.31 $ 1.85 $ 1.21 $ 2.96
=========== =========== ======== ===========
See accompanying notes to consolidated financial statements
54
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
[Enlarge/Download Table]
Year Ended Year Ended Three Months Ended Year Ended
December 31 December 31 December 31 September 30
2000 1999 1998 1998
-----------------------------------------------------------------------
(in thousands of U.S. dollars)
Ordinary Shares
Balance - beginning of period $ 9,061 $ 8,070 $ 8,066 $ 7,508
Shares issued 542 - - 688
Exercise of stock options 76 15 4 16
Issued under Employee Stock Purchase Plan (ESPP) 2 1 - 1
Shares issued in ACE Financial Services
transaction - 867 - -
Shares issued in ACE INA transaction - 108 - -
Repurchase of Shares - - - (147)
----------- ----------- ----------- -----------
Balance - end of period 9,681 9,061 8,070 8,066
----------- ----------- ----------- -----------
Aditional paid-in capital
Balance - beginning of period 2,214,989 1,767,188 1,765,261 1,177,954
Ordinary Shares issued 406,561 - - 605,211
Exercise of stock options 31,259 5,658 1,927 4,225
Ordinary Shares issued under ESPP 1,232 1,150 - 954
FELINE PRIDES issuance cost (9,884) - - -
Equity offering expenses (7,072) - - -
Ordinary Shares issued in ACE Financial
Services transaction - 366,009 - -
Ordinary Shares issued in ACE INA transaction - 72,484 - -
Options issued in ACE Financial Services
transaction - 2,500 - -
Repurchase of Ordinary Shares - - - (23,083)
----------- ----------- ----------- -----------
Balance - end of period 2,637,085 2,214,989 1,767,188 1,765,261
----------- ----------- ----------- -----------
Unearned stock grant compensation
Balance - beginning of period (28,908) (15,087) (6,181) (1,993)
Stock grants awarded (10,346) (21,706) (9,924) (8,551)
Stock grants forfeited - 312 - -
Amortization 9,612 7,573 1,018 4,363
----------- ----------- ----------- -----------
Balance - end of period (29,642) (28,908) (15,087) (6,181)
----------- ----------- ----------- -----------
Retained earnings
Balance - beginning of period 2,321,570 2,040,664 1,819,554 1,403,463
Net income 542,982 364,963 238,539 560,151
Dividends declared on Ordinary Shares (112,528) (84,057) (17,429) (59,646)
Dividends declared on FELINE PRIDES (18,391) - - -
Repurchase of Ordinary Shares - - - (84,414)
----------- ----------- ----------- -----------
Balance - end of period 2,733,633 2,321,570 2,040,664 1,819,554
----------- ----------- ----------- -----------
Accumulated other comprehensive income
Net unrealized appreciation (depreciation) on
investments
Balance - beginning of period (83,327) 102,271 127,845 196,655
Change in period, net of tax 185,662 (185,598) (25,574) (68,810)
----------- ----------- ----------- -----------
Balance - end of period 102,335 (83,327) 102,271 127,845
----------- ----------- ----------- -----------
Cumulative translation adjustments
Balance - beginning of period 17,175 6,471 (275) 1,568
Net adjustment for period, net of tax (50,056) 10,704 6,746 (1,843)
----------- ----------- ----------- -----------
Balance - end of period (32,881) 17,175 6,471 (275)
----------- ----------- ----------- -----------
Accumulated other comprehensive income 69,454 (66,152) 108,742 127,570
----------- ----------- ----------- -----------
Total shareholders' equity $ 5,420,211 $ 4,450,560 $ 3,909,577 $ 3,714,270
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements
55
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
[Enlarge/Download Table]
Year Ended Year Ended Three Months Ended Year Ended
December 31 December 31 December 31 September 30
2000 1999 1998 1998
-------------------------------------------------------------------
(in thousands of U.S. dollars)
Net income $ 542,982 $ 364,963 $ 238,539 $ 560,151
Other comprehensive income (loss)
Net unrealized appreciation (depreciation) on investments
Unrealized appreciation (depreciation) on investments 220,901 (130,832) (4,158) 257,292
Less: reclassification adjustment for net realized gains
included in net income (7,219) (60,145) (25,319) (316,820)
------------- ------------- ------------- -------------
213,682 (190,977) (29,477) (59,528)
Cumulative translation adjustments (70,448) 18,008 6,746 (1,843)
------------- ------------- ------------- -------------
Other comprehensive income (loss), before income taxes 143,234 (172,969) (22,731) (61,371)
Income tax recovery (expense) related to other
comprehensive income items (7,628) (1,925) 3,903 (9,282)
------------- ------------- ------------- -------------
Other comprehensive income (loss) 135,606 (174,894) (18,828) (70,653)
------------- ------------- ------------- -------------
Comprehensive income $ 678,588 $ 190,069 $ 219,711 $ 489,498
============= ============= ============= =============
See accompanying notes to consolidated financial statements
56
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Enlarge/Download Table]
Year Ended Year Ended Three Months Ended Year Ended
December 31 December 31 December 31 September 30
2000 1999 1998 1998
-----------------------------------------------------------------
(in thousands of U.S. dollars)
Cash flows from operating activities
Net income $ 542,982 $ 364,963 $ 238,539 $ 560,151
Adjustments to reconcile net income to net cash provided by
operating activities:
Unearned premiums 574,244 71,658 (67,990) 18,168
Unpaid losses and loss expenses, net of reinsurance
recoverable (329,072) (1,098,795) (102,117) (96,361)
Prepaid reinsurance premiums (256,501) (65,068) 3,493 (111,188)
Deferred income taxes 33,827 (46,853) (17,532) 52,240
Net realized (gains) losses on investments 38,961 (37,916) (130,154) (188,385)
Amortization of premium/discounts on fixed maturities (7,377) (8,712) (1,958) (22,530)
Amortization of goodwill 78,820 45,350 4,435 12,834
Deferred policy acquisition costs (50,626) (7,282) 8,943 (8,025)
Insurance and reinsurance balances receivable (175,809) (41,199) 29,497 (52,709)
Premiums received in advance (636) 1,088 8,877 28,823
Insurance and reinsurance balances payable (415,310) 440,607 (2,905) 62,153
Accounts payable, accrued expenses and other liabilities (373,733) (89,171) (28,144) (145,872)
Net change in contract holder deposit funds (49,825) (3,814) - -
Other (37,117) 14,292 (14,375) (42,529)
----------- ----------- ----------- -----------
Net cash flows from (used for) operating activities $ (427,172) $ (460,852) $ (71,391) $ 66,770
----------- ----------- ----------- -----------
Cash flows from investing activities
Purchases of fixed maturities (11,476,638) (17,853,323) (3,169,088) (7,865,794)
Purchases of equity securities (411,022) (368,923) (29,015) (221,952)
Sales of fixed maturities 11,521,678 18,553,593 3,032,461 7,625,861
Sales of equity securities 793,499 421,365 25,338 688,261
Maturities of fixed maturities 68,869 437,665 4,310 147,093
Net realized gains (losses) on financial future contracts (48,227) 68,311 121,542 (9,287)
Other investments (214,416) (139,034) 26,103 (60,735)
Acquisitions of subsidiaries, net of cash acquired - (2,679,216) - (967,758)
----------- ----------- ----------- -----------
Net cash from (used for) investing activities $ 233,743 $(1,559,562) $ 11,651 $ (664,311)
----------- ----------- ----------- -----------
Cash flows from financing activities
Dividends paid on Ordinary Shares $ (106,459) $ (77,836) $ (17,422) $ (54,389)
Dividends paid on FELINE PRIDES (15,254) - - -
Repayment of bank debt (1,024,699) (198,816) (250,000) (385,000)
Proceeds from short-term debt 314,623 1,049,585 - 385,000
Proceeds from issuance of trust preferred securities 300,000 500,000 - -
Proceeds from issuance of FELINE PRIDES 311,050 - - -
Net proceeds from issuance of Ordinary Shares 400,320 - - 605,899
Proceeds from exercise of options for Ordinary Shares 31,335 5,672 4 4,243
Proceeds from shares issued under Employee Stock Purchase
Plan 1,234 1,151 - 955
Issuance costs of FELINE PRIDES (9,884) - - -
Proceeds from long-term debt - 1,099,334 250,000 250,000
Repurchase of Ordinary Shares - - - (107,644)
----------- ----------- ----------- -----------
Net cash from (used for) financing activities $ 202,266 $ 2,379,090 $ (17,418) $ 699,064
----------- ----------- ----------- -----------
Net increase (decrease) in cash 8,837 358,676 (77,158) 101,523
Cash -- beginning of period 599,232 240,556 317,714 216,191
----------- ----------- ----------- -----------
Cash -- end of period $ 608,069 $ 599,232 $ 240,556 $ 317,714
=========== =========== =========== ===========
Supplemental cash flow information
Taxes paid (received) $ 38,817 $ 29,532 $ 168 $ (48,848)
Interest paid $ 224,787 $ 73,021 $ 3,073 $ 41,513
See accompanying notes to consolidated financial statements
57
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
ACE Limited ("ACE" or "the Company") is a holding company incorporated with
limited liability under the Cayman Islands Companies Law and maintains its
business office in Bermuda. The Company, through its various subsidiaries,
provides a broad range of insurance and reinsurance products to insureds in the
United States and almost 50 other countries. In addition, ACE, through ACE
Global Markets, provides funds at Lloyd's, primarily in the form of letters of
credit, to support underwriting capacity for Lloyd's syndicates managed by
Lloyd's managing agencies, which are wholly owned subsidiaries of ACE. ACE
operates through six business segments: ACE Bermuda, ACE Global Markets, ACE
Global Reinsurance, ACE USA, ACE International and ACE Financial Services. These
segments are described in Note 17.
On July 2, 1999, the Company changed its fiscal year-end from September 30 to
December 31. This change was implemented retroactively to December 31, 1998.
2. Significant accounting policies
a) Basis of presentation
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
and include the accounts of the Company and its subsidiaries. The Company
records its proportionate share of the results of the Lloyd's syndicates in
which it participates. All significant intercompany accounts and transactions
have been eliminated. Certain items in the prior year financial statements have
been reclassified to conform with the current year presentation.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The Company's principal estimates include loss and loss
expense reserves and estimated premiums for situations where the Company has not
received ceding company reports. Actual results may differ from these estimates.
b) Investments
The Company's investments are considered to be "available for sale" under the
definition included in the Financial Accounting Standard Board's ("FASB")
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Except for certain "other
investments" where there is no quoted market value, the Company's investment
portfolio is reported at fair value, being the quoted market price of these
securities provided by either independent pricing services, or when such prices
are not available, by reference to broker or underwriter bid indications.
Realized gains or losses on sales of investments are determined on a first-in,
first-out basis and include adjustments to the net realizable value of
investments for declines in value that are considered to be other than
temporary. Unrealized appreciation (depreciation) on investments is included as
other comprehensive income in shareholders' equity.
Short-term investments comprise securities due to mature within one year of date
of issue. Short-term investments include certain cash and cash equivalents,
which are part of investment portfolios under the management of external
investment managers.
A portion of the other investments comprise investments in entities for which
there is no quoted market value. In such cases, the investments are carried at
the lower of estimated fair value or original cost.
58
The Company utilizes financial futures and option contracts and foreign currency
forward and option contracts for the purpose of managing certain investment
portfolio exposures (see Note 7 for additional discussion of the objectives and
strategies employed). These instruments are not recognized as assets or
liabilities in the accompanying consolidated financial statements and changes in
market value are included in net realized gains or losses on investments in the
consolidated statements of operations.
Collateral held by brokers equal to a percentage of the total value of open
futures contracts is included in short-term investments.
Net investment income includes interest and dividend income together with
amortization of market premiums and discounts and is net of investment
management and custody fees. For mortgage-backed securities, and any other
holdings for which there is a prepayment risk, prepayment assumptions are
evaluated and revised as necessary. Any adjustments required due to the
resultant change in effective yields and maturities are recognized in current
income.
c) Premiums
Premiums are generally recognized as written upon inception of the policy. For
multi-year policies written which are payable in annual installments, due to the
ability of the insured/reinsured to commute or cancel coverage within the term
of the policy, only the annual premium is included as written at policy
inception. The remaining annual premiums are included as written at each
successive anniversary date within the multi-year term.
Premiums written are primarily earned on a daily pro rata basis over the terms
of the policies to which they relate. Accordingly, unearned premiums represent
the portion of premiums written which is applicable to the unexpired portion of
the policies in force. Premium estimates for retrospectively rated policies are
recognized within the periods in which the related losses are incurred.
The Company underwrites loss portfolio transfer contracts. 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. The contracts, when
written, can cause significant variances in gross premiums written, net premiums
written, net premiums earned, net incurred losses as well as the loss and loss
expense ratio and underwriting and administrative expense ratio.
Reinsurance premiums assumed are estimated based on information provided by
ceding companies. The information used in establishing these estimates is
reviewed and subsequent adjustments are recorded in the period in which they are
determined. These premiums are earned over the terms of the related reinsurance
contracts.
d) Earnings per share
Basic earnings per share is calculated utilizing the weighted average shares
outstanding. All potentially dilutive securities including FELINE PRIDES, stock
options, warrants and convertible securities are excluded from the basic
earnings per share calculation. In calculating diluted earnings per share, the
weighted average shares outstanding is increased to include all potentially
dilutive securities. Basic and diluted earnings per share are calculated by
dividing income available to ordinary shareholders by the applicable weighted
average number of shares outstanding during the year.
59
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
e) Policy acquisition costs
Policy acquisition costs consist of commissions, premium taxes, underwriting and
other costs that vary with and are primarily related to the production of
premium. Acquisition costs are deferred and amortized over the period in which
the related premiums are earned. Deferred policy acquisition costs are reviewed
to determine if they are recoverable from future income, including investment
income. If such costs are estimated to be unrecoverable, they are expensed.
f) Unpaid losses and loss expenses
A liability is established for the estimated unpaid losses and loss expenses of
the Company under the terms of, and with respect to, its policies and
agreements. The methods of determining such estimates and establishing the
resulting reserve are reviewed continuously and any adjustments are reflected in
operations in the period in which they become known. Future developments may
result in losses and loss expenses significantly greater or less than the
reserve provided.
In accordance with industry standards, the financial guaranty unpaid losses and
loss expenses have been discounted using an average rate of 6 percent in both
2000 and 1999.
g) Contract holder deposit funds
Contract holder deposit funds represent a liability for an investment contract
sold that does not meet the definition of an insurance contract under Statement
of Financial Accounting Standards No. 97, "Accounting and Reporting by Insurance
Enterprises for Certain Long-Duration Contracts". The investment contracts are
sold with a guaranteed rate of return. The proceeds are then invested with the
intent of realizing a greater return than is called for in the investment
contract.
h) Goodwill
Goodwill represents the excess of the cost of acquisitions over the tangible net
assets acquired. The Company amortizes goodwill recorded in connection with its
business combinations on a straight-line basis over the estimated useful lives
which range from twenty-five to forty years.
i) Reinsurance
In the ordinary course of business, the Company's insurance subsidiaries assume
and cede reinsurance with other insurance companies. These arrangements provide
greater diversification of business and minimize the net loss potential arising
from large risks. Ceded reinsurance contracts do not relieve the Company of its
obligation to its insureds.
Reinsurance recoverable includes the balances due from reinsurance companies for
paid and unpaid losses and loss expenses that will be recovered from reinsurers,
based on contracts in force. A reserve for uncollectible reinsurance has been
determined based upon a review of the financial condition of the reinsurers and
an assessment of other available information.
Prepaid reinsurance premiums represent the portion of premiums ceded to
reinsurers applicable to the unexpired terms of the reinsurance contracts in
force.
j) Translation of foreign currencies
Financial statements of subsidiaries expressed in foreign currencies are
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation" ("FAS 52"). Under
FAS 52, functional currency assets and liabilities are translated into U.S.
dollars generally using period end rates of exchange and the related translation
adjustments are recorded as a separate component of accumulated other
60
comprehensive income. Functional currencies are generally the currencies of the
local operating environment. Statement of operations amounts expressed in
functional currencies are translated using average exchange rates. Gains and
losses resulting from foreign currency transactions are recorded in current
income.
k) Income taxes
Income taxes have been provided in accordance with the provisions of FAS No.
109, "Accounting for Income Taxes" on those operations which are subject to
income taxes (see Note 13). Deferred tax assets and liabilities result from
temporary differences between the amounts recorded in the consolidated financial
statements and the tax basis of the Company's assets and liabilities. Such
temporary differences are primarily due to the tax basis discount on unpaid
losses, adjustment for unearned premiums, uncollectible reinsurance, and tax
benefits of net operating loss carryforwards. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. A valuation allowance against deferred tax
assets is recorded if it is more likely than not, that all or some portion of
the benefits related to deferred tax assets will not be realized.
l) Stock split
On March 2, 1998, the Company effected a three for one split of the Company's
Ordinary Shares. The par value of the Company's Ordinary Shares and all per
share data presented in the consolidated financial statements and the notes
thereto have been retroactively adjusted to reflect the effects of the stock
split.
m) Cash flow information
Purchases and sales or maturities of short-term investments are recorded net for
purposes of the statements of cash flows and are included with fixed maturities.
n) New accounting pronouncement
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133").
FAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the consolidated balance sheet and measure those instruments at
fair value. If certain conditions are met, a derivative may be specifically
designated as a fair value, cash flow or foreign currency hedge. The accounting
for changes in the fair value of a derivative (that is, gains and losses)
depends on the intended use of the derivative and the resulting designation.
Upon initial application of FAS 133, hedging relationships must be designated
anew and documented pursuant to the provisions of this statement. The Company
has adopted FAS 133, as amended, as of January 1, 2001. The Company has
completed an implementation plan which included identifying all derivatives,
evaluating risk management hedging strategies and determining appropriate
valuation methodologies required to assess the impact that adoption of this
statement will have on its financial position and results of operations.
The Company maintains investments in derivative instruments such as futures,
option contracts and foreign currency forward contracts for which the primary
purposes are to manage duration and foreign currency exposure, yield enhancement
or to obtain an exposure to a particular financial market. The Company currently
records the changes in market value of these instruments as realized gains or
losses in the consolidated statements of operations and, accordingly, has
estimated that FAS 133, as amended, will not have a significant impact on the
results of operations, financial condition or liquidity in future periods as it
relates to these instruments.
61
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
Certain products (principally credit protection oriented) issued by the Company
have been determined to meet the definition of a derivative under FAS 133. These
products consist primarily of credit default swaps, index-based instruments and
certain financial guarantee coverages. Upon adoption of FAS 133, the Company
will record these products at their fair value.
The Company will record a net-of-tax cumulative expense of $23 million as of
January 1, 2001, to reflect the adoption of FAS 133. Prospectively, the Company
expects some level of gains and losses resulting from changes in market values
of derivatives to be recorded in the statement of operations. The level of such
gains and losses will be dependent upon a number of factors including changes in
interest rates, credit spreads and other market factors. The Company's
involvement with derivative instruments and transactions is primarily to offer
protection to others or to mitigate its own risk and is not considered
speculative in nature.
3. Acquisitions
On January 2, 1998, the Company acquired Westchester Specialty Group, Inc.
("WSG"), through a U.S. holding company, ACE US Holdings, Inc. ("ACE US"), for
aggregate cash consideration of $338 million. The Company financed the
acquisition with $250 million of bank debt (see Note 8) and the remainder with
available cash. The acquisition was recorded using the purchase method of
accounting. Accordingly, the consolidated financial statements of the Company
include the results of ACE US and its subsidiaries from January 2, 1998, the
date of acquisition. No goodwill was generated in the transaction. In connection
with the acquisition, National Indemnity Company, a subsidiary of Berkshire
Hathaway Inc., has provided $750 million (75 percent quota share of $1 billion)
of reinsurance protection to ACE USA with respect to its loss reserves for the
1996 and prior accident years.
On April 1, 1998, the Company acquired CAT Limited ("CAT"), a privately held,
Bermuda-based property catastrophe reinsurer, for aggregate cash consideration
of approximately $641 million. The acquisition was financed with $385 million of
short-term bank debt and the remainder from available cash. The acquisition was
recorded using the purchase method of accounting. Accordingly, the consolidated
financial statements of the Company include the results of CAT from April 1,
1998, the date of acquisition. Approximately $224 million of goodwill was
generated as a result of the acquisition.
On July 9, 1998, the Company acquired Tarquin Limited ("Tarquin"), a UK-based
holding company which owned Lloyd's managing agency Charman Underwriting Ltd.
("Charman") and Tarquin Underwriting Limited, its corporate capital provider.
Under the terms of the acquisition, the Company issued approximately 14.3
million ACE Ordinary Shares to the shareholders of Tarquin. The acquisition was
accounted for on a pooling-of-interests basis. Accordingly, in 1998, all prior
period consolidated financial statements presented were restated to include the
combined results of operations, financial position and cash flows of Tarquin as
though it had always been a part of the Company.
On July 2, 1999, the Company, through a U.S. holding company, ACE INA Holdings,
Inc. ("ACE INA"), acquired CIGNA Corporation's ("CIGNA") 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 for
$3.45 billion in cash (the "ACE INA Acquisition"). The ACE INA Acquisition has
been recorded using the purchase method of accounting and accordingly, the
consolidated financial statements include the results of ACE INA and its
subsidiaries from July 2, 1999, the date of acquisition. Approximately $1.85
billion of goodwill was generated as a result of the acquisition.
Under the terms of the ACE INA Acquisition Agreement, 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
62
obtained from a mutually agreed upon third party reinsurer. Contemporaneous with
the consummation of the ACE INA Acquisition, CIGNA exercised its 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.
This coverage attaches at an amount equal to the net recorded reserves of the
certain subsidiaries acquired, on the closing date, minus $1.25 billion.
On December 30, 1999, the Company acquired Capital Re Corporation ("Capital Re")
which is engaged in the financial guaranty reinsurance business. Following the
acquisition the name of the company was changed to ACE Financial Services, Inc.
Under the terms of the acquisition agreement, the Company paid aggregate
consideration of $110.3 million in cash and issued approximately 20.8 million
ACE Ordinary Shares. These shares were capitalized at a value of $17.625 per
share, which was determined in accordance with the EITF 95-19 consensus that
deals with the value of equity securities issued to effect a purchase
combination. The total value of the acquisition amounted to $588 million, which
includes the value of stock options and restricted stock of Capital Re that were
converted into stock options and restricted stock of ACE and transaction costs.
The Capital Re acquisition has been recorded using the purchase method of
accounting and accordingly, the consolidated financial statements include the
results of Capital Re and its subsidiaries from December 30, 1999, the date of
acquisition. Approximately $105 million of goodwill was generated as a result of
the acquisition. As Capital Re was acquired on December 30, 1999, the Company
has not reflected any operations from this segment during 1999.
4. Investments
a) Fixed maturities
The fair values and amortized costs of fixed maturities at December 31, 2000 and
1999, are as follows:
[Enlarge/Download Table]
2000 1999
--------------------------- ---------------------------
Fair Amortized Fair Amortized
Value Cost Value Cost
------------ ------------ ------------ -----------
(in thousands of U.S. dollars)
U.S. Treasury and agency $ 1,216,544 $ 1,179,018 $ 982,417 $ 1,007,797
Non-U.S. governments 1,250,712 1,205,424 681,770 682,679
Corporate securities 5,378,203 5,450,681 4,688,341 4,829,052
Mortgage-backed securities 1,712,949 1,689,849 2,067,137 2,107,397
States, municipalities and political subdivisions 1,162,901 1,115,965 1,430,138 1,453,477
------------ ------------ ------------ -----------
Fixed maturities $ 10,721,309 $ 10,640,937 $ 9,849,803 $10,080,402
============ ============ ============ ===========
63
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
The gross unrealized appreciation (depreciation) related to fixed maturities at
December 31, 2000 and 1999, is as follows:
[Enlarge/Download Table]
2000 1999
------------------------------------ ------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
Appreciation Depreciation Appreciation Depreciation
-------------- -------------- -------------- --------------
(in thousands of U.S. dollars)
U.S. Treasury and agency $ 38,566 $ (1,040) $ 4,725 $ (30,156)
Non-U.S. governments 54,494 (9,206) 9,940 (10,849)
Corporate securities 70,868 (143,346) 27,041 (167,634)
Mortgage-backed securities 30,316 (7,216) 8,999 (49,325)
States, municipalities and
political subdivisions 48,213 (1,277) 6,270 (29,610)
-------------- -------------- -------------- --------------
$ 242,457 $ (162,085) $ 56,975 $ (287,574)
============== ============== ============== ==============
Mortgage-backed securities issued by U.S. government agencies are combined with
all other mortgage derivatives held and are included in the category "mortgage-
backed securities". Approximately 74 percent of the total mortgage holdings at
December 31, 2000, and 69 percent at December 31, 1999, are represented by
investments in GNMA, FNMA and FHLMC bonds. The remainder of the mortgage
exposure consists of CMOs (Collateralized Mortgage Obligations) and non-
government mortgage-backed securities, the majority of which provide a planned
structure for principal and interest payments and carry a "AAA" rating by the
major credit rating agencies. Fixed maturities at December 31, 2000, by
contractual maturity, are shown below. Expected maturities could differ from
contractual maturities because borrowers may have the right to call or prepay
obligations, with or without call or prepayment penalties.
64
[Download Table]
Fair Amortized
Value Cost
------------- -------------
(in thousands of U.S. dollars)
Maturity period
---------------
Less than 1 year $ 585,515 $ 582,867
1 - 5 years 3,763,786 3,753,540
5 - 10 years 2,965,287 2,961,384
Greater than 10 years 1,693,772 1,653,297
------------- -------------
$ 9,008,360 $ 8,951,088
Mortgage-backed securities 1,712,949 1,689,849
------------- -------------
Total fixed maturities $ 10,721,309 $ 10,640,937
============= =============
b) Equity securities
The gross unrealized appreciation (depreciation) on equity securities at
December 31, 2000 and 1999, is as follows:
[Download Table]
2000 1999
-------------- ---------------
(in thousands of U.S. dollars)
Equity securities-cost $ 495,049 $ 780,558
Gross unrealized appreciation 84,199 224,232
Gross unrealized depreciation (47,202) (71,476)
-------------- ---------------
Equity securities-fair value $ 532,046 $ 933,314
============== ===============
c) Net realized gains (losses) and change in net unrealized appreciation
(depreciation) on investments
The analysis of net realized gains (losses) on investments and the change in net
unrealized appreciation (depreciation) on investments for the years ended
December 31, 2000 and 1999, the three months ended December 31, 1998, and the
year ended September 30, 1998, is as follows:
65
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
[Enlarge/Download Table]
Year Ended Year Ended Three Months Ended Year Ended
December 31 December 31 December 31 September 30
2000 1999 1998 1998
-------------------------------------------------------------------------------------
(in thousands of U.S. dollars)
Fixed maturities
Gross realized gains $ 90,403 $ 113,129 $ 21,822 $ 78,825
Gross realized losses (172,009) (195,496) (7,274) (20,512)
------------ ----------- ----------- ----------
(81,606) (82,367) 14,548 58,313
Equity securities
Gross realized gains 170,243 59,384 4,705 210,512
Gross realized losses (56,199) (12,149) (2,658) (42,037)
------------ ----------- ----------- ----------
114,044 47,235 2,047 168,475
Other investments (12,114) 8,696 (7,374) -
Currency losses (11,058) (3,959) (363) (29,116)
Financial futures and option
contracts-net realized gains (losses) (48,227) 68,311 121,296 (9,287)
------------ ----------- ----------- ----------
Net realized gains (losses) on investments (38,961) 37,916 130,154 188,385
------------ ----------- ----------- ----------
Change in net unrealized appreciation (depreciation)
on investments
Fixed maturities 310,971 (311,614) (64,062) 81,944
Equity securities (115,759) 127,350 33,198 (141,434)
Short-term investments 2,081 (2,442) 62 74
Other investments 16,389 (4,271) 1,325 (112)
Deferred income taxes (28,020) 5,379 3,903 (9,282)
------------ ----------- ----------- ----------
Change in net unrealized appreciation
(depreciation) on investments 185,662 (185,598) (25,574) (68,810)
------------ ----------- ----------- ----------
Total net realized gains (losses) and change in net
unrealized appreciation (depreciation) on
investments $ 146,701 $ (147,682) $ 104,580 $ 119,575
============ =========== =========== ==========
66
d) Net investment income
Net investment income for the years ended December 31, 2000 and 1999, the three
months ended December 31, 1998, and the year ended September 30, 1998, was
derived from the following sources:
[Enlarge/Download Table]
Year Ended Year Ended Three Months Ended Year Ended
December 31 December 31 December 31 September 30
2000 1999 1998 1998
---------------------- ------------ ---------------------- ------------
(in thousands of U.S. dollars)
Fixed maturities and short-term
investments $ 766,312 $ 495,078 $ 82,778 $ 325,308
Equity securities 12,268 8,731 1,231 5,920
Other investments 39,783 22,481 4,027 2,954
Other - - - 1,853
------------ ------------ ----------- ------------
Gross investment income 818,363 526,290 88,036 336,035
Investment expenses (47,508) (32,953) (2,941) (11,781)
------------ ------------ ----------- ------------
Net investment income $ 770,855 $ 493,337 $ 85,095 $ 324,254
============ ============ =========== ============
e) Securities on deposit
Fixed maturity securities carried at fair value and cash totaling $1.4 billion
and $1.6 billion at December 31, 2000 and 1999, respectively, was on deposit
with various regulatory authorities to comply with various state (U.S.), Lloyd's
(UK) and other international requirements.
5. 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 recoverable and
would be reflected in the Company's results of operations in the period in which
the estimates are changed.
The reconciliation of unpaid losses and loss expenses for the years ended
December 31, 2000 and 1999, the three months ended December 31, 1998, and the
year ended September 30, 1998, is as follows:
67
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)
[Enlarge/Download Table]
Year Ended Year Ended Three Months Ended Year Ended
December 31 December 31 December 31 September 30
2000 1999 1998 1998
---------------------------------------------------------------------------
(in thousands of U.S. dollars)
Gross unpaid losses and
loss expenses at beginning of period $ 16,460,247 $ 3,678,269 $ 3,737,869 $ 2,111,670
Reinsurance recoverable on unpaid losses (7,551,430) (1,100,464) (1,059,528) (104,797)
------------ ------------- ------------- ----------
Net unpaid losses and loss
expenses at beginning of period 8,908,817 2,577,805 2,678,341 2,006,873
Unpaid losses and loss expenses in respect of
formerly discontinued operations 1,269,914 - - -
Unpaid losses and loss expenses assumed in
respect of reinsurance business acquired 169,537 183,774 - 6,403
Unpaid losses and loss expenses assumed in
respect of acquired companies (net of
reinsurance recoverable of
$6,345,679 in 1999 and $761,618 in 1998) - 6,940,593 - 731,949
------------ ------------- ------------- ----------
Total 10,348,268 9,702,172 2,678,341 2,745,225
------------ ------------- ------------- ----------
Net losses and loss expenses incurred in
respect of losses occurring in:
Current period 2,996,429 1,601,278 126,139 534,021
Prior periods (60,364) 38,265 (14,970) (17,129)
------------- ------------- ------------- ----------
Total 2,936,065 1,639,543 111,169 516,892
------------- ------------- ------------- ----------
Net losses and loss expenses paid in respect
of losses occurring in:
Current period 1,205,110 916,848 24,977 243,753
Prior periods 2,631,171 1,509,638 191,473 337,422
------------- ------------- ------------- ----------
Total 3,836,281 2,426,486 216,450 581,175
------------- ------------- ------------- ----------
Foreign currency revaluation (117,102) (6,412) 4,745 (2,601)
------------- ------------- ------------- ----------
Net unpaid losses and loss expenses at end
of period 9,330,950 8,908,817 2,577,805 2,678,341
Reinsurance recoverable on unpaid losses 8,057,444 7,551,430 1,100,464 1,059,528
------------- ------------- ------------- ----------
Gross unpaid losses and loss expenses at
end of period $ 17,388,394 $ 16,460,247 $ 3,678,269 $ 3,737,869
------------- ------------- ------------- ----------
Losses and loss expenses for 1999 include incurred losses for ACE INA from July
2, 1999, the date of acquisition. With respect to the analysis of incurred and
paid losses for ACE INA for the 1999 period, all losses incurred and paid, on
losses occurring in the period January 1, 1999, through December 31, 1999, have
been included as current year activity in 1999.
Incurred losses for the year ended December 31, 2000, were impacted by favorable
development of reserves from prior periods primarily from ACE Tempest Re, ACE
USA and ACE Bermuda partially offset by unfavorable development in ACE Financial
Services.
68
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 following table presents selected data on the unpaid losses and loss
expenses for asbestos, and environmental and other latent exposures as at
December 31, 2000 and 1999.
[Enlarge/Download Table]
2000 1999
---- ----
Gross Net Gross Net
----- --- ----- ---
(in millions of U.S. dollars)
Asbestos $ 1,073 $ 212 $ 897 $ 291
Environmental and other latent exposures 1,156 540 1,287(1) 676
--------------- --------------- ------------------ ---------------
$ 2,229 $ 752 $ 2,184 $ 967
=============== =============== ================== ===============
(1) Reflects a correction to reduce the amount reported in 1999 by $910 million.
During the years ended December 31, 2000 and 1999, the Company made payments of
$308.9 million and $186.4 million, respectively, with respect to latent claims.
At December 31, 2000 and 1999, the Company's reinsured financial guaranty
portfolio was broadly diversified by bond type, geographic location and maturity
schedule, with no single risk representing more than 1.4 percent and 1.9
percent, respectively, of the Company's net par in force. The Company limits
its exposure to losses from reinsured financial guarantees by underwriting
primarily investment grade obligations and retroceding a portion of its risks to
other insurance companies.
Net financial guaranty par in force was approximately $65.8 billion and $59.3
billion at December 31, 2000 and 1999, respectively. The composition at
December 31, 2000 and 1999, by type of issue and the range of final maturities,
was as follows:
[Enlarge/Download Table]
December 31
Type of Issue 2000 1999 Range of final maturities
----------------------------------------------------------------------------------------------------------------
(in billions of U.S. dollars)
Tax-backed $ 16.9 $ 16.3 1- 40 years
Utility 15.1 15.2 1- 40 years
Non-municipal 19.5 13.9 1- 35 years
Special revenue 6.9 6.3 1- 40 years
Health care 6.6 6.9 1- 40 years
Housing 0.8 0.7 1- 40 years
-----------------------------------------
Total $ 65.8 $ 59.3
-----------------------------------------
As part of its financial guaranty business, the Company participates in credit
default swap transactions whereby one counterparty pays a periodic fee in fixed
basis points on a notional amount in return for a contingent payment by the
other counterparty in the event one or more defined credit events occurs with
69
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
respect to one or more third party reference securities or loans. A credit
event is defined as a failure to pay, bankruptcy, cross acceleration (generally
accompanied by a failure to pay), repudiation, restructuring or similar
nonpayment event. The total notional amount of credit default swaps outstanding
at December 31, 2000 and 1999, included in the Company's financial guaranty
exposure above was $11.3 billion and $7.8 billion, respectively.
At December 31, 2000 and 1999, the Company's net mortgage guaranty insurance in
force (representing the current principal balance of all mortgage loans that
are currently reinsured) was approximately $6.9 billion and $7.7 billion,
respectively, and direct primary net risk in force was approximately $2.7
billion and $2.6 billion, respectively.
6. Reinsurance
The Company purchases reinsurance to manage various exposures including
catastrophe risks. Although reinsurance agreements contractually obligate the
Company's reinsurers to reimburse it for the agreed upon portion of its gross
paid losses, they do not discharge the primary liability of the Company. The
amounts for net premiums written and net premiums earned in the statements of
operations are net of reinsurance. Direct, assumed and ceded amounts for these
items for the years ended December 31, 2000 and 1999, the three months ended
December 31, 1998, and the year ended September 30, 1998, are as follows:
[Enlarge/Download Table]
Year Ended Year Ended Three Months Ended Year Ended
December 31 December 31 December 31 September 30
2000 1999 1998 1998
-----------------------------------------------------------------------------------------
(in thousands of U.S. dollars)
Premiums written
Direct $ 6,093,151 $ 3,015,176 $ 208,501 $ 864,529
Assumed 1,493,620 853,981 45,567 377,630
Ceded (2,707,417) (1,373,809) (99,965) (361,186)
----------------- ----------------- ----------------- -------------------
Net $ 4,879,354 $ 2,495,348 $ 154,103 $ 880,973
================= ================= ================= ===================
Premiums earned
Direct $ 5,612,988 $ 2,917,301 $ 233,567 $ 875,154
Assumed 1,361,254 835,966 97,850 303,586
Ceded (2,439,479) (1,267,530) (113,410) (284,437)
----------------- ----------------- ----------------- -------------------
Net $ 4,534,763 $ 2,485,737 $ 218,007 $ 894,303
================= ================= ================= ===================
The Company's provision for reinsurance recoverable at December 31, 2000 and
1999, is as follows:
[Enlarge/Download Table]
2000 1999
------------ ------------
(in thousands of U.S. dollars)
Reinsurance recoverable on paid losses and loss expenses $ 937,496 $ 1,288,651
Reinsurance recoverable on unpaid losses and loss expenses 8,767,111 8,309,014
Provision for uncollectible balances on reinsurance recoverable (709,667) (757,584)
--------------- ---------------
Reinsurance recoverable $ 8,994,940 $ 8,840,081
=============== ===============
70
7. Commitments and contingencies
a) Financial instruments with off-balance sheet risk
The Company maintains investments in derivative instruments such as futures,
option contracts and foreign currency forward contracts for which the primary
purposes are to manage duration and foreign currency exposure, yield enhancement
or to obtain an exposure to a particular financial market. The Company currently
records changes in market value of these instruments as realized gains or losses
in the consolidated statements of operations.
(i) Foreign currency exposure management
The Company uses foreign currency forward and option contracts to minimize
the effect of fluctuating foreign currencies. The forward currency
contracts purchased are not specifically identifiable against cash, any
single security or groups of securities denominated in those currencies,
and therefore, do not qualify as hedges for financial reporting purposes.
All contract gains and losses, realized and unrealized, are reflected
currently in the statements of operations. The contractual amount of the
foreign currency forward contracts at December 31, 2000, was $31 million,
the current fair value was $30 million and the unrealized loss was $1
million.
The credit risk associated with the above derivative financial instruments
relates to the potential for non-performance by counterparties. Non-
performance is not anticipated; however, in order to minimize the risk of
loss, management monitors the creditworthiness of its counterparties. For
forward contracts, the counterparties are principally banks, which must
meet certain criteria according to the Company's investment guidelines.
(ii) Duration management and market exposure
Futures
A portion of the Company's investment portfolio is managed as synthetic
equity funds, whereby equity index futures contracts are held in an amount
equal to the market value of an underlying portfolio comprised of short-
term investments and fixed maturities. This creates an equity market
exposure equal in value to the total amount of funds invested in this
strategy. In addition, exchange traded bond and note futures contracts may
be used in fixed maturity portfolios as substitutes for ownership of the
physical bonds and notes without significantly increasing the risk in the
portfolio. Investments in financial futures contracts may be made only to
the extent that there are assets under management, not otherwise committed.
Futures contracts give the holder the right and obligation to participate
in market movements, determined by the index or underlying security on
which the futures contract is based. Settlement is made daily in cash by an
amount equal to the change in value of the futures contract times a
multiplier that scales the size of the contract. At December 31, 2000, the
contract amount of $224 million reflects the net extent of involvement the
Company had in these financial instruments.
Options
Option contracts may be used in the portfolio as protection against
unexpected shifts in interest rates, which would thereby affect the
duration of the fixed maturity portfolio. By using options in the
portfolio, the overall interest rate sensitivity of the account can be
reduced. An option contract conveys to the holder the right, but not the
obligation, to purchase or sell a specified amount or value of an
underlying security at a fixed price. The price of an option is influenced
by the underlying security, expected volatility, time to expiration and
supply and demand.
71
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
For long option positions, the maximum loss is the premium paid for the
option. To minimize the risk of non-performance, all brokers and dealers
used as counterparties must be approved. Additional performance assurance
is required where deemed necessary. The maximum credit exposure is
represented by the fair value of the options held. For short option
positions, the potential loss is the same as having taken a position in the
underlying security. Short call options are backed in the portfolio with
the underlying, or highly correlated, securities and short put options are
backed by uncommitted cash for the in-the-money portion.
b) Concentrations of credit risk
The investment portfolio is managed following prudent standards of
diversification. Specific provisions limit the allowable holdings of a single
issue and issuers. The Company believes that there are no significant
concentrations of credit risk associated with its investments.
c) Credit facilities
In May 2000, the Company renewed certain syndicated credit facilities. Each
facility requires that the Company and/or certain of its subsidiaries maintain
specific covenants, including a consolidated tangible net worth covenant and a
maximum leverage covenant. The facilities provide:
. An $800 million, 364-day revolving credit facility with ACE Limited and
various subsidiaries as borrowers and guarantors. This facility is for
general corporate purposes.
. A $250 million, five-year revolving credit facility with ACE Limited and
various subsidiaries as borrowers and guarantors. This facility is for
general corporate purposes and permits both loans and letters of credit.
Each of the above facilities may be used as commercial paper recourse facilities
(see Note 8).
ACE Tempest Re also maintains an uncollateralized, syndicated revolving credit
facility in the amount of $72.5 million, which is guaranteed by the Company. At
December 31, 2000, no amounts have been drawn down under this facility. The
facility requires that ACE Tempest Re maintain specific covenants, including a
consolidated tangible net worth covenant and a maximum leverage covenant.
As of December 31, 2000, ACE Financial Services was party to a credit facility
with a syndicate of banks pursuant to which the syndicate provides up to $150
million specifically designed to provide rating agency qualified capital to
further support ACE Financial Services claims-paying resources. The facility was
increased from $100 million during the year and expires in January 2006. ACE
Financial Services has not borrowed under this credit facility.
In August 1996, ACE Financial Services entered into a credit agreement for the
provision of a $25 million loan, which was available for general corporate
purposes. As of September 30, 2000, this facility had been cancelled and
replaced with a $25 million loan under the group's five-year syndicated credit
facility as described above. At December 31, 2000 and 1999, $25 million remained
outstanding under these facilities.
d) Letters of Credit
In November 1998, to fulfill the requirements of Lloyd's for open years of
account, the Company arranged a syndicated, partially collateralized, five-year
letter of credit ("LOC") facility in the amount of (Pounds)270 million
(approximately $437 million). On June 30, 1999, certain terms of this LOC
72
facility were renegotiated and the facility is now uncollateralized. The
facility was renewed in November 1999 and again in November 2000 at increased
amounts of (Pounds)290 million ($470 million) and (Pounds)390 million ($585
million), respectively. This LOC facility requires that the Company and/or
certain of its subsidiaries continue to maintain certain covenants, including a
minimum consolidated tangible net worth covenant and a maximum leverage
covenant.
ACE Financial Services had also maintained a (Pounds)48 million (approximately
$72 million) uncollateralized LOC facility with a bank to fulfill a
subsidiary's requirements at Lloyd's. In November 2000, this facility was
cancelled and replaced with LOCs under the Company's LOC facility described in
the previous paragraph.
In September 2000, the Company, along with ACE Bermuda and ACE Tempest Re as
Account Parties and Guarantors, renewed a syndicated, one-year LOC facility in
the amount of $430 million for general business purposes, including the issuance
of insurance and reinsurance letters of credit. This facility was originally
arranged in September 1999. This LOC facility requires that the Company and/or
certain of its subsidiaries continue to maintain certain covenants, including a
minimum consolidated tangible net worth covenant and a maximum leverage
covenant. Usage under this facility was $123 million as of December 31, 2000.
The Company also maintains various LOC facilities, both collateralized and
uncollateralized, for general corporate purposes. At December 31, 2000, the
aggregate exposure under these facilities was $379 million and usage was $353
million.
e) Lease commitments
The Company and its subsidiaries lease office space in the countries in which
they operate under operating leases which expire at various dates through
January 2017. The Company renews and enters into new leases in the ordinary
course of business as required. Total rent expense with respect to these
operating leases for the years ended December 31, 2000 and 1999 and the year
ended September 30, 1998, were approximately $64 million, $63 million and $5
million, respectively.
Future minimum lease payments under the leases are expected to be as follows:
(in thousands of U.S. dollars)
Year ending December 31 2001 $ 64,300
2002 58,300
2003 54,600
2004 51,700
2005 47,200
Later years 71,500
------------
Total minimum future lease commitments $347,600
============
f) Legal proceedings
The Company is subject to legal proceedings and claims that have arisen in the
ordinary course of its business and have not been finally adjudicated. Although
there can be no assurance as to the ultimate disposition of these matters, it is
the opinion of the Company's management, based upon the information available at
this time, that the expected outcome of these matters, individually or in the
aggregate, will not have a material adverse effect on the results of operations
or financial condition of the Company.
73
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
8. Debt
[Enlarge/Download Table]
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December 31, 2000 December 31, 1999
----------------- -----------------
(in millions of U.S. dollars)
Short-term debt
ACE INA commercial paper $340 $ 625
ACE Financial Services note 25 25
ACE Limited commercial paper - 425
------ ------
$ 365 $1,075
====== ======
Long-term debt
ACE Financial Services Debentures due 2002 $ 75 $ 75
ACE INA Notes due 2004 400 400
ACE INA Notes due 2006 299 299
ACE US Holdings Senior Notes due 2008 250 250
ACE INA Subordinated Notes due 2009 300 300
ACE INA Debentures due 2029 100 100
------ ------
$1,424 $1,424
====== ======
Trust Preferred Securities
ACE INA RHINO Preferred Securities due 2002 $ 400 $ 400
Capital Re LLC Monthly Income
Preferred Securities due 2044 75 75
ACE INA Trust Preferred Securities due 2029 100 100
ACE INA Capital Securities due 2030 300 -
------ ------
$ 875 $ 575
====== ======
---------------------------------------------------------------------------------------------------------------------
a) Commercial paper and money market facilities
In June 1999, the Company arranged certain commercial paper programs. The
programs use revolving credit facilities as recourse facilities and provide for
up to $2.8 billion in commercial paper issuance (subject to the availability of
recourse facilities as outlined in Note 7) for ACE and for ACE INA. On July 2,
1999, $425 million and $1.65 billion were drawn down under these programs by ACE
and ACE INA, respectively, to partially finance the ACE INA Acquisition. During
fiscal 1999 and 2000 these amounts were repaid as a result of the
implementation of the permanent financing plan described below. At December 31,
2000, short-term debt consisted of $340 million of commercial paper issued by
ACE INA and $25 million in bank borrowings by ACE Financial Services. Commercial
paper rates during 2000 averaged 6.2 percent.
In June 1999, ACE and ACE INA arranged a short-term money market facility in the
amount of $225 million for general corporate purposes. In July 1999, a portion
of the facility was used to finance certain liabilities of an ACE INA
subsidiary. In November 1999, this facility was cancelled and repaid with
proceeds from the commercial paper programs described above.
b) ACE Financial Services debentures
In November 1992, ACE Financial Services issued $75 million in ten-year
debentures maturing in November 2002. The 7.75 percent coupon on these
debentures is payable in arrears on May 1 and November 1 of each year.
74
c) ACE INA notes and debentures
As part of the permanent financing plan for the ACE INA Acquisition, in August
1999, ACE INA issued $400 million of 8.2 percent notes due August 15, 2004, $300
million of 8.3 percent notes due August 15, 2006, and $100 million of 8.875
percent debentures due August 15, 2029. Proceeds of the senior debt issue were
used to repay commercial paper. Interest on the notes and debentures is payable
on February 15 and August 15 of each year beginning February 15, 2000. The notes
and debentures are not redeemable before maturity and do not have the benefit of
any sinking fund. These unsecured notes and debentures are guaranteed on a
senior basis by the Company and they rank equally with all of ACE INA's other
senior indebtedness.
d) ACE US Holdings senior notes
On October 27, 1998, ACE US Holdings refinanced an outstanding $250 million bank
term loan, with the proceeds from the issuance of $250 million in aggregate
principal amount of unsecured senior notes maturing in October 2008. Interest
payments, based on a floating rate which averaged 9 percent during fiscal 2000,
are due semi-annually in arrears. The indenture related to these notes includes
certain events of default for ACE US Holdings. The senior notes are callable
subject to certain call premiums; however, ACE US Holdings has no current
intention of calling the debt. Simultaneously, the Company entered into a
notional $250 million swap transaction that has the economic effect of reducing
the cost of debt to the consolidated group, excluding fees and expenses, to 6.47
percent for 10 years. Certain assets totaling approximately $90 million are
pledged as collateral in connection with the swap transaction. In the event that
the Company terminates the swap prematurely, the Company would be liable for
certain transaction costs. However, the Company has no current intention of
terminating the swap. The swap counter-party is a highly rated major financial
institution and the Company does not anticipate non-performance.
e) ACE INA subordinated notes
As part of the permanent financing plan for the ACE INA Acquisition, on December
6, 1999, ACE INA issued $300 million in aggregate principal amount of unsecured
subordinated notes maturing in December 2009. Proceeds of the issue were used to
repay commercial paper. Interest payments, based on the fixed rate coupon on
these notes of 11.2 percent, are due semi-annually in arrears. The indenture
related to these notes includes certain events of default for ACE INA. The
subordinated notes are callable subject to certain call premiums; however, ACE
INA has no current intention of calling the debt. Simultaneously, the Company
entered into a notional $300 million swap transaction that has the economic
effect of reducing the cost of debt to the consolidated group, excluding fees
and expenses, to 8.41 percent for 10 years. Certain assets totaling
approximately $105 million are pledged as collateral in connection with the swap
transaction. In the event that the Company terminates the swap prematurely, the
Company would be liable for certain transaction costs. However, the Company has
no current intention of terminating the swap. The swap counter-party is a highly
rated major financial institution and the Company does not anticipate non-
performance.
f) ACE INA RHINO preferred securities
As part of the permanent financing plan for the ACE INA Acquisition, on June 30,
1999, ACE RHINOS Trust, a Delaware statutory business trust (the "Trust"), sold
in a private placement $400 million of Auction Rate Reset Preferred Securities
(the "Rhino Preferred Securities"). All of the common securities of the Trust
are owned by ACE INA.
75
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
The Rhino Preferred Securities mature on September 30, 2002. Distributions on
the Rhino Preferred Securities are payable quarterly at LIBOR plus 125 basis
points, adjusted quarterly, provided that the Trust may defer such payments (but
no later than September 30, 2002, or, if there is a remarketing, the maturity
date of the remarketed securities), with such deferred payments accruing
interest compounded quarterly, if ACE INA defers interest on the Subordinated
Notes (as defined below). As described below, effective October 27, 2000, the
interest rate on the Rhino Preferred Securities was reduced to LIBOR plus 87.5
basis points. If the trading price of ACE's Ordinary Shares declines to 66-2/3
percent of the closing price of the Ordinary Shares on June 30, 1999, or
approximately $18.83 per Ordinary Share, the holders of a majority of the Rhino
Preferred Securities will have the option to require Banc of America Securities
LLC as the Remarketing Agent to remarket the Rhino Preferred Securities. If
remarketed, the maturity of the remarketed securities will be reset as the later
of September 30, 2001 or one year from the date on which the remarketed
securities are issued. The coupon will be reset pursuant to a bid process to
value the remarketed securities at 100.25 percent of the face amount thereof. If
Banc of America were unable to remarket the securities, the holders of a
majority of the Rhino Preferred Securities would have the right to require ACE
INA to repurchase them at a purchase price equal to the face amount of the
securities plus accrued and unpaid distributions, which obligations would be
guaranteed by ACE. ACE's Ordinary Shares have traded below the trigger price
described above during the year ended December 31, 2000, although the holders of
the Rhino Preferred Securities did not exercise their remarketing rights at that
time.
The sole assets of the Trust consist of $412,372,000 principal amount of Auction
Rate Reset Subordinated Notes Series A (the "Subordinated Notes") issued by ACE
INA. The Subordinated Notes mature on September 30, 2002. Interest on the
Subordinated Notes is payable quarterly at LIBOR plus 125 basis points, adjusted
quarterly, provided that ACE INA may defer such interest payments (but no later
than September 30, 2002, or, if there is a remarketing, the maturity date of the
remarketed securities), with such deferred payments accruing interest compounded
quarterly. As described below, effective October 27, 2000, the interest rate on
the Rhino Preferred Securities was reduced to LIBOR plus 87.5 basis points. If
under certain circumstances the Trust is dissolved and the holders of the Rhino
Preferred Securities directly hold the Subordinated Notes, then the remarketing
provisions described above will be applicable to the Subordinated Notes.
In connection with the issuance of the Rhino Preferred Securities, the Company
had agreed with Banc of America Securities to use its reasonable best efforts to
complete one or more firm commitment underwritings with an aggregate public
offering price of $400 million on or before June 30, 2002.
The September 12, 2000, public offering described in Note 10 satisfied the
Company's June 29, 1999 agreement with Banc of America Securities LLC entered
into in connection with the private placement of $400 million Auction Rate Reset
Preferred Securities (the "RHINOS") of ACE RHINOS Trust (the "RHINOS Trust").
The proceeds of the Ordinary Share offering were used to support the Company's
guarantee of the $412 million principal amount of Auction Rate Reset
Subordinated Notes Series A issued by ACE INA to the RHINOS Trust. Effective
October 27, 2000, the interest rate on the subordinated notes and the
distribution rate on the RHINOS were reduced from LIBOR plus 125 basis points to
LIBOR plus 87.5 basis points.
g) Capital Re LLC monthly income preferred securities
In January 1994, ACE Financial Services formed and capitalized, through the
purchase of common shares, Capital Re LLC. Capital Re LLC exists solely for the
purpose of issuing preferred and common shares and lending the proceeds of such
issuance to the Company to fund its business operations. In January 1994,
Capital Re LLC issued $75 million of company obligated mandatorily redeemable
preferred securities, the proceeds of which were loaned to ACE Financial
Services. ACE Financial Services has, among other undertakings, unconditionally
guaranteed all legally declared and unpaid dividends of Capital Re LLC.
76
The company obligated mandatorily redeemable preferred securities were issued at
$25 par value per share, pay monthly dividends at a rate of 7.65 percent per
annum, are callable as of January 1999 at par and are mandatorily redeemable in
January 2044. The Company added its guarantee to these securities in November
2000.
h) ACE INA trust preferred securities
As part of the permanent financing plan for the ACE INA Acquisition, on December
20, 1999, ACE Capital Trust I, a Delaware statutory business trust ("ACE Capital
Trust I") issued and sold in a public offering $100 million of 8.875 percent
Trust Originated Preferred Securities (the "Trust Preferred Securities"). All of
the common securities of ACE Capital Trust I (the "ACE Capital Trust I Common
Securities") are owned by ACE INA. Proceeds of the issue were used to repay
commercial paper.
The Trust Preferred Securities mature on December 31, 2029. The maturity date
may be extended for one or more periods but not later than December 31, 2048.
Distributions on the Trust Preferred Securities are payable quarterly at a rate
of 8.875 percent; however, ACE Capital Trust I may defer these payments for up
to 20 consecutive quarters (but no later than December 31, 2029, unless the
maturity date is extended). Any deferred payments would accrue interest
quarterly in a compounded basis if ACE INA defers interest on the subordinated
debentures (as defined below).
The sole assets of ACE Capital Trust I consist of $103,092,800 principal amount
of 8.875 percent Junior Subordinated Deferrable Interest Debentures (the
"Subordinated Debentures") issued by ACE INA. The Subordinated Debentures mature
on December 31, 2029. Interest on the Subordinated Debentures is payable
quarterly at a rate of 8.875 percent; however, ACE INA may defer such interest
payments (but no later than December 31, 2029, unless the maturity date is
extended), with such deferred payments accruing interest compounded quarterly.
ACE INA may redeem the Subordinated Debentures at 100 percent of the principal
amount thereof, plus accrued and unpaid interest to the redemption date, in
whole or in part at any time on or after December 31, 2004, and in whole but not
in part prior to December 31, 2004, in the event certain changes in tax or
investment company law occur. The Trust Preferred Securities and the ACE Capital
Trust I Common Securities will be redeemed upon repayment of the Subordinated
Debentures.
The Company has guaranteed, on a subordinated basis, ACE INA's obligations under
the Subordinated Debentures and distributions and other payments due on the
Trust Preferred Securities. These guarantees, when taken together with the
Company's obligations under an expense agreement entered into with ACE Capital
Trust I, provide a full and unconditional guarantee of amounts due on the Trust
Preferred Securities.
i) ACE INA capital securities
On March 31, 2000, as part of the permanent financing plan for the ACE INA
Acquisition, ACE Capital Trust II, a Delaware statutory business trust ("ACE
Capital Trust II"), issued and sold in a public offering $300 million of 9.7
percent Capital Securities (the "Capital Securities"). All of the common
securities of ACE Capital Trust II (the "ACE Capital Trust II Common
Securities") are owned by ACE INA. Proceeds of the issue were used to repay
commercial paper.
The Capital Securities mature on April 1, 2030, which may not be extended.
Distributions on the Capital Securities are payable semi-annually; however, ACE
Capital Trust II may defer these payments for up to 10 consecutive semi-annual
periods (but no later than April 1, 2030). Any deferred payments would accrue
interest semi-annually on a compounded basis if ACE INA defers interest on the
Subordinated Debentures due 2030 (as defined below).
77
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
The sole assets of ACE Capital Trust II consist of $309,280,000 principal amount
of 9.7 percent Junior Subordinated Deferrable Interest Debentures (the
"Subordinated Debentures due 2030") issued by ACE INA. The Subordinated
Debentures due 2030 mature on April 1, 2030. Interest on the Subordinated
Debentures due 2030 is payable semi-annually; however, ACE INA may defer such
interest payments (but no later than April 1, 2030), with such deferred payments
accruing interest compounded semi-annually. ACE INA may redeem the Subordinated
Debentures due 2030 in the event certain changes in tax or investment company
law occur at a redemption price equal to accrued and unpaid interest to the
redemption date plus the greater of (i) 100 percent of the principal amount
thereof, or (ii) the sum of the present value of scheduled payments of principal
and interest on the debentures from the redemption date to April 1, 2030,
discounted to the redemption date on a semi-annual basis at a discount rate
equal to the applicable treasury rate plus 3.1 percent, in the first year after
issuance, and the applicable treasury rate plus .5 percent thereafter. The
Capital Securities and the ACE Capital Trust II Common Securities will be
redeemed upon repayment of the Subordinated Debentures due 2030.
The Company has guaranteed, on a subordinated basis, ACE INA's obligations under
the Subordinated Debentures due 2030, and distributions and other payments due
on the Capital Securities. These guarantees, when taken together with the
Company's obligations under expense agreements entered into with ACE Capital
Trust II, provide a full and unconditional guarantee of amounts due on the
Capital Securities.
9. Mezzanine Equity
As part of the permanent financing plan for the ACE INA Acquisition, the Company
publicly offered and issued 6,000,000 FELINE PRIDES on April 12, 2000. On May 8,
2000, exercise of the over allotment option resulted in the issuance of an
additional 221,000 FELINE PRIDES, for aggregate net proceeds of approximately
$311 million. Proceeds of the issue were used to repay commercial paper. Each
FELINE PRIDE initially consists of a unit referred to as an Income PRIDE. Each
Income PRIDE consists of (i) one 8.25 percent Cumulative Redeemable Preferred
Share, Series A, liquidation preference $50 per share, of the Company, and (ii)
a purchase contract pursuant to which the holder of the Income PRIDE agrees to
purchase from the Company, on May 16, 2003, Ordinary Shares at the applicable
settlement rate. Each preferred share is pledged to the Company to secure the
holders obligations under the purchase contract. A holder of an Income PRIDE can
obtain the release of the preferred share by substituting certain zero-coupon
treasury securities as security for performance under the purchase contract. The
resulting unit consisting of the zero-coupon treasury security and the purchase
contract is a Growth PRIDE, and the preferred shares would be a separate
security. A holder of a Growth PRIDE can convert it back into an Income PRIDE by
depositing preferred shares as security for performance under the purchase
contract and thereby obtain the release of the zero-coupon treasury securities.
The aggregate liquidation preference of the 8.25 percent Cumulative Redeemable
Preferred Shares is $311 million. Unless deferred by the Company, the preferred
shares pay dividends quarterly at a rate of 8.25 percent per year to May 16,
2003, and thereafter at the reset rate established pursuant to a remarketing
procedure. If the Company elects to defer dividend payments on the preferred
shares, the dividends will continue to accrue and the Company will be restricted
from paying dividends on its Ordinary Shares and taking certain other actions.
The preferred shares are not redeemable prior to June 16, 2003, on which date
they must be redeemed by the Company in whole.
10. Shareholders' equity
a) Shares issued and outstanding
Following is a table of changes in Ordinary Shares issued and outstanding for
the years ended December 31, 2000 and 1999, the three months ended December 31,
1998, and the year ended September 30, 1998:
78
[Enlarge/Download Table]
Year Ended Year Ended Three Months Ended Year Ended
December 31 December 31 December 31 September 30
2000 1999 1998 1998
-------------------------------------------------------------------------
Opening balance 217,460,515 193,687,126 193,592,519 180,207,664
Shares issued 13,008,419 - - 16,500,000
Exercise of stock options 1,826,993 356,472 73,854 378,438
Shares issued under Employee Stock Purchase Plan 50,652 25,697 20,753 27,517
Cancellation of non-vested restricted stock - (5,500) - -
Shares issued in ACE Financial Services acquisition - 20,815,677 - -
Shares issued in ACE INA acquisition - 2,581,043 - -
Repurchase of shares - - - (3,521,100)
--------------- ------------- ---------------- ------------
232,346,579 217,460,515 193,687,126 193,592,519
=============== ============= ================ ============
On September 12, 2000, the Company completed a public offering of 12.25 million
Ordinary Shares (which included exercise of the overallotment option of 1.25
million shares) in which it raised aggregate net proceeds of approximately $400
million. The offering was made in satisfaction of a June 29, 1999, agreement
with Banc of America Securities LLC as discussed in Note 8. In addition, the
Company issued 758,419 restricted Ordinary Shares in connection with the
Company's long term incentive plans.
On April 14, 1998, the Company sold 16.5 million Ordinary Shares for net
proceeds of approximately $606 million.
b) ACE Limited securities repurchase authorization
On November 17, 2000, the Board of Directors authorized the repurchase of any
ACE issued debt or capital securities, including ACE's Ordinary Shares, up to an
aggregate total of $250 million. These purchases may take place from time to
time in the open market or in private purchase transactions. During 2000, no
securities were repurchased.
Prior to July 6, 1998, the Board of Directors had authorized the repurchase of
the Company's Ordinary Shares in open market and private purchase transactions.
On July 6, 1998, the Company rescinded all existing authorizations for the
repurchase of the Company's Ordinary Shares. During the first two quarters of
fiscal 1998, the Company repurchased 3.5 million Ordinary Shares under the share
repurchase program for an aggregate cost of $107.6 million. No shares were
repurchased after March 31, 1998.
c) General restrictions
The holders of the Ordinary Shares are entitled to receive dividends and are
allowed one vote per share provided that, if the controlled shares of any
shareholder constitute 10 percent or more of the outstanding Ordinary Shares of
the Company, only a fraction of the vote will be allowed so as not to exceed 10
percent. Generally, the Company's directors have absolute discretion to decline
to register any transfer of shares. All transfers are subject to the
restriction that they may not increase to 10 percent or higher the proportion of
issued Ordinary Shares owned by any shareholder.
d) Dividends declared
Dividends declared on Ordinary Shares amounted to $0.50, $0.42, $0.09 and $0.34
per Ordinary Share for the years ended December 31, 2000 and 1999, the three
months ended December 31, 1998, and the year ended September 30, 1998.
79
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
Dividends declared on FELINE PRIDES amounted to $18.4 million for the year ended
December 31, 2000.
11. Employee benefit plans
a) Pension plans
The Company provides pension benefits to eligible employees and agents, spouses
and other eligible dependents through various plans sponsored by the Company.
Pension benefits are provided through plans sponsored by ACE covering most U.S.
and Bermuda based employees and by separate pension plans for various non-U.S.
subsidiaries and employees. Pension expenses totaled $17 million, $11 million
and $5 million for the years ended December 31, 2000 and 1999, and the year
ended September 30, 1998.
b) Capital accumulation plans
ACE sponsors a capital accumulation plan in the U.S. in which employee
contributions on a pre-tax basis (401(k)) are supplemented by ACE matching
contributions. These contributions are invested, at the election of the
employee, in one or more of several investment portfolios. In addition, ACE may
provide additional matching contributions, depending on its annual financial
performance. Expenses for the plan totaled $28 million and $19 million for the
years ended December 31, 2000 and 1999, respectively.
c) Options and stock appreciation rights
In February 1996 and November 1998, shareholders of the Company approved the ACE
Limited 1995 Long-Term Incentive Plan and the ACE Limited 1998 Long-Term
Incentive Plan, respectively (the "Incentive Plans"), which incorporate stock
options, stock appreciation rights, restricted stock awards and stock purchase
programs. There are 3.6 million Ordinary Shares of the Company available for
award under these Incentive Plans. Prior to the adoption of the Incentive Plans,
the Company adopted the Equity Linked Incentive Plan, which incorporated both a
Stock Appreciation Rights Plan and a Stock Option Plan ("Option Plan") which
will continue to run off. Under the Option Plan, generally, options expire ten
years after the award date and are subject to a vesting period of four years.
Stock options granted under the Incentive Plan may be exercised for Ordinary
Shares of the Company upon vesting. Under the Incentive Plans, generally,
options expire ten years after the award date and vest in equal portions over
three years.
During 1999, the Company established the ACE Limited 1999 Replacement Stock
Plan. This plan was established to replace existing Capital Re employee benefits
in connection with the Capital Re acquisition, as well as to permit additional
grants to employees of the Company. At December 31, 2000, 2 million Ordinary
Shares were available for grant under this plan.
d) Options
(i) Options outstanding
Following is a summary of options issued and outstanding for the years ended
December 31, 2000 and 1999, the three months ended December 31, 1998, and
the year ended September 30, 1998.
80
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Year of Average Exercise Options for Ordinary
Expiration Price Shares
-------------------------------------------------------------
Balance at September 30, 1997 7,134,423
Options granted 2007-2008 $31.64 2,489,900
Options exercised 2003-2007 $11.21 (378,438)
Options forfeited 2006-2008 $27.51 (261,155)
-----------
Balance at September 30, 1998 8,984,730
Options granted 2008 $29.62 2,012,200
Options exercised 2004-2007 $17.11 (73,854)
Options forfeited 2006-2008 $29.58 (115,150)
-----------
Balance at December 31, 1998 10,807,926
Options granted 2009 $27.86 4,058,190
Options exercised 2005-2007 $15.91 (356,472)
Options forfeited 2005-2008 $29.02 (544,884)
-----------
Balance at December 31, 1999 13,964,760
Options granted 2010 $25.26 4,214,018
Options exercised 2003-2009 $35.71 (1,826,993)
Options forfeited 2006-2008 $25.30 (454,985)
-----------
Balance at December 31, 2000 15,896,800
============
The following table summarizes the range of exercise prices for outstanding
options at December 31, 2000:
[Enlarge/Download Table]
Weighted Average
Range of Exercise Options Remaining Contractual Weighted Average Options Weighted Average
Prices Outstanding Life Exercise Price Exercisable Exercise Price
---------------------------------------------------------------------------------------------------------------
$ 7.45 - $15.00 3,649,405 4.41 years $ 9.39 3,641,405 $ 9.38
$15.00 - $30.00 10,336,828 8.12 years $21.38 5,272,331 $21.85
$30.00 - $41.00 1,910,567 7.10 years $31.44 1,679,634 $30.98
------------ ------------
15,896,800 10,593,370
============ ============
(ii) FAS 123 pro forma disclosures
In October 1995, FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). FAS 123
establishes accounting and reporting standards for stock-based employee
compensation plans, which include stock option and stock purchase plans.
FAS 123 provides employers a choice: adopt FAS 123 accounting standards for
all stock compensation arrangements which requires the recognition of
compensation expense for the fair value of virtually all stock compensation
awards; or continue to account for stock options and other forms of stock
compensation under Accounting Principles Board Opinion No. 25 ("APB 25"),
while also providing the disclosure required under FAS 123. The Company
continues to account for stock-based compensation plans under APB 25.
The following table outlines the Company's net income available to holders
of Ordinary Shares and diluted earnings per share had the compensation cost
been determined in accordance with the fair value method recommended in FAS
123.
81
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
[Download Table]
December 31 December 31
2000 1999
---- ----
(in thousands of U.S. dollars,
except per share data)
Net income available to holders of Ordinary Shares
As reported $ 524,591 $ 364,963
Pro Forma $ 509,088 $ 351,067
Diluted earnings per share
As reported $ 2.31 $ 1.85
Pro Forma $ 2.24 $ 1.78
The fair value of the options issued is estimated on the date of grant using the
Black-Scholes option-pricing model, with the following weighted-average
assumptions used for grants in 2000 and 1999, respectively: dividend yield of
2.23 percent and 1.47 percent; expected volatility of 40.1 percent and 38.7
percent; risk free interest rate of 6.37 percent and 5.11 percent and an
expected life of 4 years for both 2000 and 1999.
e) Employee stock purchase plan
The Company maintains an employee stock purchase plan. Participation in the
plan is available to all eligible employees. Maximum annual purchases by
participants are limited to the number of whole shares that can be purchased by
an amount equal to 10 percent of the participant's compensation or $25,000,
whichever is less. Participants may purchase shares at a purchase price equal
to 85 percent of the lesser of (i) the fair market value of the stock on first
day of the subscription period; or (ii) the fair market value of the stock on
the last day of the subscription period. With respect to the years ending
December 31, 2000 and 1999, the three months ended December 31, 1998, and the
year ended September 30, 1998, the Company incurred expenses of $185,000,
$156,000, $93,000 and $143,000, respectively.
f) Restricted stock awards
Under the Company's long-term incentive plans, 461,884 restricted Ordinary
Shares were awarded during the year ended December 31, 2000, to officers of the
Company and its subsidiaries. These shares vest at various dates through
December 2004. In addition, during the period, 17,200 restricted Ordinary
Shares were awarded to outside directors under the terms of the 1995 Outside
Director Plan. These shares vest in May 2001.
Under the Company's long-term incentive plans, 1,084,175 restricted Ordinary
Shares were awarded during the year ended December 31, 1999, to officers of the
Company and its subsidiaries. These shares vest at various dates through
November 2003. In addition, during the period, 23,618 restricted Ordinary
Shares were awarded to outside directors under the terms of the 1995 Outside
Directors Plan. These shares vested in June 2000.
During the three months ended December 31, 1998, 335,000 restricted Ordinary
Shares were awarded to officers of the Company and its subsidiaries. These
shares vest at various dates through November 2003. During 1998, 264,000
restricted Ordinary Shares were awarded to officers of the Company and its
subsidiaries. These shares vest at various dates through November 2002. In
addition, 14,952 restricted Ordinary Shares were awarded to outside directors of
the Company under the terms of the 1995 Outside Directors Plan. These shares
vested in February 1999.
At the time of grant the market value of the shares awarded under these grants
is recorded as unearned stock grant compensation and is presented as a separate
component of shareholders' equity. The unearned compensation is charged to
income over the vesting period.
82
g) Shares issued in ACE INA acquisition
During 1999, the ACE Limited 1999 Replacement Long-Term Incentive Plan
("Replacement Plan") was established to award substitute restricted stock awards
and substitute restricted stock unit awards in satisfaction of the Company's
obligations under the ACE INA Acquisition Agreement and to provide selected
individuals substitute restricted stock awards and substitute restricted stock
unit awards in replacement of certain equity-based awards which terminated or
expired in connection with the closing of the ACE INA transaction. During 1999,
2,581,043 restricted Ordinary Shares were granted in connection with the
Replacement Plan. The costs associated with issuing these awards were included
as a cost of the ACE INA Acquisition.
12. Earnings per share
The following table sets forth the computation of basic and diluted earnings per
share for the years ended December 31, 2000 and 1999, the three months ended
December 31, 1998, and the year ended September 30, 1998:
[Enlarge/Download Table]
Year Ended Year Ended Three Months Ended Year Ended
December 31 December 31 December 31 September 30
2000 1999 1998 1998
-----------------------------------------------------------------------------
(in thousands of U.S. dollars, except share and per share data)
Numerator:
Net income $ 542,982 $ 364,963 $ 238,539 $ 560,151
Dividends on FELINE PRIDES (18,391) - - -
------------- ------------- -------------- --------------
Net income available to holders of Ordinary Shares $ 524,591 $ 364,963 $ 238,539 $ 560,151
============= ============= ============== ==============
Denominator:
Denominator for basic earnings per share:
Weighted average shares outstanding 221,082,961 194,028,374 193,642,270 185,130,479
Dilutive effect of FELINE PRIDES 1,099,226 - - -
Effect of other dilutive securities 5,236,243 3,597,980 3,707,086 4,150,696
------------- ------------- -------------- --------------
Denominator for diluted earnings per share:
Adjusted weighted average shares outstanding
and assumed conversions 227,418,430 197,626,354 197,349,356 189,281,175
============= ============= ============== ==============
Basic earnings per share $ 2.37 $ 1.88 $ 1.23 $ 3.03
============= ============= ============== ==============
Diluted earnings per share $ 2.31 $ 1.85 $ 1.21 $ 2.96
============= ============= ============== ==============
13. Taxation
Under current Cayman Islands law, the Company is not required to pay any taxes
in the Cayman Islands on its income or capital gains. The Company has received
an undertaking that, in the event of any taxes being imposed, the Company will
be exempted from taxation in the Cayman Islands until the year 2013. Under
current Bermuda law, the Company and its Bermuda subsidiaries are not required
to pay any taxes in Bermuda on its income or capital gains. The Company has
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.
83
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
Income from the Company's operations at Lloyd's are subject to United Kingdom
corporation taxes. Lloyd's is required to pay U.S. income tax on U.S. connected
income ("U.S. income") written by Lloyd's syndicates. Lloyd's has a closing
agreement with the IRS whereby the amount of tax due on this business is
calculated by Lloyd's and remitted directly to the IRS. These amounts are then
charged to the personal accounts of the Names/Corporate Members in proportion to
their participation in the relevant syndicates. The Company's Corporate Members
are subject to this arrangement but, as UK domiciled companies, will receive UK
corporation tax credits for any U.S. income tax incurred up to the value of the
equivalent UK corporation income tax charge on the U.S. income.
ACE INA, ACE US Holdings and ACE Financial Services are subject to income taxes
imposed by U.S. authorities and 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.
The Company is not subject to taxation other than as stated above. There can be
no assurance that there will not be changes in applicable laws, regulations or
treaties, which might require the Company to change the way it operates or
become subject to taxation.
The income tax provision for the years ended December 31, 2000 and 1999, the
three months ended December 31, 1998, and the year ended September 30, 1998, is
as follows:
[Enlarge/Download Table]
Year Ended Year Ended Three Months Ended Year Ended
December 31 December 31 December 31 September 30
2000 1999 1998 1998
--------------------------------------------------------------------------
(in thousands of U.S. dollars)
Current tax expense (benefit) $ 60,081 $ 8,439 $ (476) $ 3,265
Deferred tax expense 33,827 20,245 5,818 16,775
-------------- -------------- -------------- --------------
Provision for income taxes $ 93,908 $ 28,684 $ 5,342 $ 20,040
============== ============== ============== ==============
The weighted average expected tax provision has been calculated using pre-tax
accounting income (loss) in each jurisdiction multiplied by that jurisdiction's
applicable statutory tax rate. A reconciliation of the difference between the
provision for income taxes and the expected tax provision at the weighted
average tax rate for the years ended December 31, 2000 and 1999, is provided
below. The provision for income taxes with respect to the three months ended
December 31, 1998, and the year ended September 30, 1998, is calculated at rates
equal to the statutory income tax rate in each jurisdiction.
[Enlarge/Download Table]
Year Ended Year Ended
December 31, 2000 December 31, 1999
---------------------------------------------------------
(in thousands of U.S. dollars)
Expected tax provision at weighted average rate $ 80,699 $19,721
Permanent differences
Tax-exempt interest (21,716) (9,017)
Goodwill 22,875 9,805
Other 1,182 602
Net withholding taxes 10,868 7,573
-------------------------- --------------------------
Total provision for income taxes $ 93,908 $28,684
========================== ==========================
84
The components of the net deferred tax asset as of December 31, 2000 and 1999,
are as follows:
[Enlarge/Download Table]
2000 1999
----------------- -----------------
(in thousands of U.S. dollars)
Deferred tax assets
Loss reserve discount $ 536,005 $ 677,459
Foreign tax credits 137,765 116,829
Uncollectible reinsurance 28,297 24,413
Net operating loss carry forward 500,916 164,993
Other 199,689 305,647
Unrealized depreciation on investments - 12,557
----------------- -----------------
Total deferred tax assets 1,402,672 1,301,898
----------------- -----------------
Deferred tax liabilities
Deferred policy acquisition costs 62,080 87,691
Unrealized appreciation on investments 25,861 -
Other 32,064 164,699
----------------- -----------------
Total deferred tax liabilities 120,005 252,390
----------------- -----------------
Valuation allowance 138,406 133,324
----------------- -----------------
Net deferred tax asset $ 1,144,261 $ 916,184
================= =================
14. Statutory financial information
The Company's insurance and reinsurance subsidiaries are subject to insurance
laws and regulations in the jurisdictions in which they operate. These
regulations include restrictions that limit the amount of dividends or other
distributions, such as loans or cash advances, available to shareholders without
prior approval of the insurance regulatory authorities. Statutory capital and
surplus of the Bermuda subsidiaries was $2.7 billion, $2.2 billion and $2.8
billion at December 31, 2000 and 1999, and September 30, 1998, and statutory net
income was $364 million, $373 million and $592 million for the years ended
December 31, 2000 and 1999, and the year ended September 30, 1998, respectively.
There are no statutory restrictions on the payment of dividends from retained
earnings by any of the Bermuda subsidiaries as the minimum statutory capital and
surplus requirements are satisfied by the share capital and additional paid-in
capital of each of the Bermuda subsidiaries.
The Company's U.S. subsidiaries file financial statements prepared in accordance
with statutory accounting practices prescribed or permitted by insurance
regulators. Statutory accounting differs from generally accepted accounting
policies in the reporting of certain reinsurance contracts, investments,
subsidiaries, acquisition expenses, fixed assets, deferred income taxes and
certain other items. Combined statutory surplus of the Company's U.S.
subsidiaries was $1.9 billion, $2.2 billion and $252 million at December 31,
2000 and 1999, and September 30, 1998, respectively. The combined statutory net
loss of these operations was $12 million, $277 million and $98 million for the
years ended December 31, 2000 and 1999, and the nine months ended September 30,
1998, respectively.
The Company's international subsidiaries prepare statutory financial statements
based on local laws and regulations. Some jurisdictions impose complex
regulatory requirements on insurance companies while other jurisdictions impose
fewer requirements. In some countries, the Company must obtain licenses issued
by governmental authorities to conduct local insurance business. These licenses
may be subject to reserves and minimum capital and solvency tests.
Jurisdictions may impose fines, censure, and/or criminal sanctions for violation
of regulatory requirements.
85
ACE LIMITED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
In 1998, the National Association of Insurance Commissioners ("NAIC") adopted
the Codification of Statutory Accounting Principles guidance, which replaces the
current Accounting Practices and Procedures manual as the NAIC's primary
guidance on statutory accounting as of January 1, 2001. The Codification
provides guidance for areas where statutory accounting has been silent and
changes current statutory accounting in some areas. All states and Puerto Rico
have adopted the Codification guidance, effective January 1, 2001.
15. Condensed unaudited quarterly financial data
[Enlarge/Download Table]
2000 Quarter Ended Quarter Ended Quarter Ended Quarter Ended
----
March 31, 2000 June 30, 2000 September 30, 2000 December 31, 2000
----------------------------------------------------------------------------------------------------
(in thousands of U.S. dollars, except per share data)
Net premiums earned $ 1,104,806 $ 1,167,836 $ 1,174,782 $ 1,087,339
Net investment income 182,935 181,029 197,584 209,307
Net realized gains (losses)
on investments 56,740 (30,044) (12,797) (52,860)
----------------- ----------------- ----------------- -----------------
Total revenues $ 1,344,481 $ 1,318,821 $ 1,359,569 $ 1,243,786
================= ================= ================= =================
Losses and loss expenses $ 715,483 $ 768,111 $ 772,887 $ 679,584
================= ================= ================= =================
Net income $ 174,513 $ 113,928 $ 140,753 $ 113,788
================= ================= ================= =================
Basic earnings per share $ 0.80 $ 0.50 $ 0.60 $ 0.46
================= ================= ================= =================
Diluted earnings per share $ 0.80 $ 0.49 $ 0.58 $ 0.44
================= ================= ================= =================
[Enlarge/Download Table]
1999 Quarter Ended Quarter Ended Quarter Ended Quarter Ended
----
March 31, 1999 June 30, 1999 September 30, 1999 December 31, 1999
-------------------------------------------------------------------------------------------------------
(in thousands of U.S. dollars, except per share data)
Net premiums earned $ 285,267 $ 300,271 $ 952,951 $ 947,248
Net investment income 86,484 84,794 163,060 158,999
Net realized gains (losses)
on investments 17,254 25,307 (58,493) 53,848
------------------ ------------------ ----------------- -----------------
Total revenues $ 389,005 $ 410,372 $ 1,057,518 $ 1,160,095
================== ================== ================= =================
Losses and loss expenses $ 156,881 $ 255,471 $ 632,910 $ 594,281
================== ================== ================= =================
Net income $ 129,019 $ 69,122 $ 14,793 $ 152,029
================== ================== ================= =================
Basic earnings per share $ 0.67 $ 0.36 $ 0.08 $ 0.78
================== ================== ================= =================
Diluted earnings per share $ 0.65 $ 0.35 $ 0.08 $ 0.78
================== ================== ================= =================
86
16. Summarized financial information
The following is consolidated summarized financial information for ACE INA and
ACE Financial Services, Inc., both wholly owned subsidiaries of the Company.
[Enlarge/Download Table]
------------------------------------------------------------------------------------------------------------
Selected Financial Data
ACE INA
(in thousands of U.S. dollars)
------------------------------------------------------------------------------------------------------------
December 31 December 31
2000 1999
---- ----
Selected Statement of Operations Data(1)
Total revenues $ 2,985,457 $ 1,629,369
Net income 50,878 24,426
Selected Balance Sheet Data
Total investments and cash $ 7,267,343 $ 7,710,202
Total assets 22,758,178 22,553,446
Unpaid losses and loss expenses 14,100,022 13,762,062
Total shareholders' equity 1,360,663 1,142,520
(1) 1999 balances reflect data since date of acquisition
------------------------------------------------------------------------------------------------------------
[Enlarge/Download Table]
------------------------------------------------------------------------------------------------------------
Selected Financial Data
ACE Financial Services,Inc.
(in thousands of U.S. dollars)
------------------------------------------------------------------------------------------------------------
December 31 December 31
2000 1999
---- ----
Selected Statement of Operations Data
Total revenues $ 78,153 $ -
Net income (loss) (261) -
Selected Balance Sheet Data
Total investments and cash $ 1,071,181 $ 1,158,243
Total assets 1,414,311 1,483,781
Unpaid losses and loss expenses 246,174 168,698
Total shareholders' equity 620,703 588,389
------------------------------------------------------------------------------------------------------------
Separate financial statements of ACE INA and ACE Financial Services have not
been presented as management has determined that such information is not
material to holders of ACE INA's or ACE Financial Services' debt securities.
17. Segment information
ACE's operations are organized into the following segments: ACE Bermuda,
ACE Global Markets, ACE Global Reinsurance, ACE USA, ACE International, ACE
Financial Services and other. Each of these segments operates as an autonomous
unit and is managed by a Chief Executive Officer ("CEO") who reports to the CEO
of ACE, the chief operating decision maker in the group.
ACE Bermuda, which primarily encompasses the ACE Bermuda Insurance group of
companies, primarily provides property and casualty insurance coverage,
including excess liability insurance, professional lines liability insurance,
satellite insurance, aviation insurance, excess property insurance and financial
lines products, to a diverse group of industrial, commercial and other
enterprises.
ACE Global Markets primarily encompasses the Company's operations in the Lloyd's
market. ACE Global Markets provides funds at Lloyd's to support underwriting by
Lloyd's syndicates managed by Lloyd's managing agencies which are owned by
the Company. These managing agencies receive fees and profit commissions in
respect of the underwriting and administrative services they provide to the
syndicates they manage.
87
ACE LIMITED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
ACE Global Reinsurance, which primarily comprises operations of ACE Tempest Re,
provides catastrophe reinsurance worldwide to insurers of commercial and
personal property. ACE Tempest Re's property catastrophe reinsurance contracts
cover unpredictable natural or man-made disasters, such as hurricanes,
windstorms, hail storms, earthquakes, volcanic eruptions, conflagrations,
freezes, floods, fires and explosions. The predominant exposure under such
coverage is property damage.
ACE USA primarily comprises the domestic U.S. operations of ACE INA, which were
acquired on July 2, 1999, and the operations of ACE US Holdings, which were
acquired on January 2, 1998. These operations provide specialty property and
casualty products and services including: aerospace, diversified products,
marine, professional risk services, property, special risk, U.S. International,
warranty, Westchester Specialty, Brandywine and "other" operations.
ACE International primarily comprises the international operations of ACE INA,
which were acquired on July 2, 1999. ACE International provides property and
casualty insurance to individuals, mid-sized firms and large commercial clients.
In addition, ACE International provides customized and comprehensive insurance
policies and services to multinational firms and their cross-boarder
subsidiaries. Major lines of business underwritten by ACE International include
accident and health, fire, marine, casualty, auto, energy and technology
insurance. ACE International operates in almost 50 countries and is organized
into four geographic locations: ACE Europe, ACE Far East, ACE Asia Pacific, and
ACE Latin America. Each region reports to the CEO of ACE International.
ACE Financial Services is primarily comprised of the Capital Re companies
acquired on December 30, 1999. ACE Financial Services provides value-added
reinsurance products in several specialty insurance markets. ACE Financial
Services has two principal divisions: financial guaranty and financial risks.
The financial guaranty division is composed of municipal and non-municipal
financial guaranty reinsurance and credit default swaps. Financial guaranty
insurance is a type of credit enhancement, which is regulated under the
insurance laws of various jurisdictions. The insurance provides an unconditional
and irrevocable guaranty, which indemnifies the insured debt obligation. The
financial risks division is composed of mortgage guaranty reinsurance, trade
credit reinsurance, title reinsurance and financial solutions. As ACE Financial
Services was acquired on December 30, 1999, the Company has not reflected any
operations from this segment during 1999.
The "other" segment includes the operations of ACE Limited, certain unallocated
amounts in ACE INA Holdings including interest income, interest expense and
amortization of goodwill, and certain eliminations required to reconcile the
segment data to the consolidated statement of operations.
a) The following tables summarize the operations by segment for the years
ended December 31, 2000 and 1999, the three months ended December 31, 1998,
and the year ended September 30, 1998.
b) For segment reporting purposes, certain items have been presented in a
different manner than in the consolidated financial statements. For segment
reporting purposes, items considered non-recurring in nature have been
aggregated and shown separately net of related taxes, and net realized
gains (losses) have been presented net of related taxes.
88
--------------------------------------------------------------------------------
Supplemental Information by Segment
For the year ended December 31, 2000
(in thousands of U.S. dollars)
--------------------------------------------------------------------------------
[Enlarge/Download Table]
ACE ACE
ACE ACE Global Global ACE ACE Financial ACE
Bermuda Markets Reinsurance USA International Services Other(1) Consolidated
------- ------- ----------- --- ------------- -------- -------- ------------
Operations Data:
Gross premiums written $ 597,865 $1,063,918 $ 190,771 $ 3,380,343 $ 2,027,285 $ 326,589 $ - $ 7,586,771
Net premiums written 512,310 772,021 157,489 1,707,623 1,418,661 311,250 - 4,879,354
Net premiums earned 486,984 619,329 141,337 1,619,025 1,385,557 282,531 - 4,534,763
Losses and loss expenses 361,855 354,123 17,954 1,192,881 826,210 183,042 - 2,936,065
Policy acquisition costs 20,630 164,738 25,192 160,956 235,847 43,378 - 650,741
Administrative expenses 29,933 69,384 10,284 253,946 285,090 32,839 61,215 742,691
------------------------------------------------------------------------------------------------------
Underwriting income (loss) 74,566 31,084 87,907 11,242 38,410 23,272 (61,215) 205,266
Net investment income 149,781 36,636 60,281 341,361 92,477 96,591 (6,272) 770,855
Amortization of goodwill (883) 3,968 14,010 540 - 4,205 56,980 78,820
Interest expense 1,643 4,980 - 38,333 - 13,361 163,133 221,450
Income tax expense (benefit) 2,459 17,481 (173) 98,288 20,067 20,626 (64,841) 93,907
------------------------------------------------------------------------------------------------------
Income (loss) excluding net
realized gains (losses) 221,128 41,291 134,351 215,442 110,820 81,671 (222,759) 581,944
Net realized gains (losses)
(net of income tax) 1,344 (1,495) (38,161) (22,633) 18,221 5,440 (1,678) (38,962)
------------------------------------------------------------------------------------------------------
Net income (loss) $ 222,472 $ 39,796 $ 96,190 $ 192,809 $ 129,041 $ 87,111 $ (224,437) $ 542,982
------------------------------------------------------------------------------------------------------
Total Assets $ 3,133,117 $1,962,401 $1,324,641 $16,438,562 $ 3,846,345 $ 2,254,260 $2,730,200 $31,689,526
------------------------------------------------------------------------------------------------------
================================================================================
(1) ACE Limited, ACE INA Holdings and intercompany eliminations
89
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
--------------------------------------------------------------------------------
Supplemental Information by Segment
For the year ended December 31, 1999
(in thousands of U.S. dollars)
--------------------------------------------------------------------------------
[Enlarge/Download Table]
ACE
ACE ACE Global Global ACE ACE ACE
Bermuda Markets Reinsurance USA International Other(1) Consolidated
------- ------- ----------- --- ------------- ------ ------------
Operations Data:
Gross premiums written $ 553,365 $ 634,689 $ 182,267 $ 1,566,584 $ 932,252 $ - $ 3,869,157
Net premiums written 428,953 438,769 145,673 796,892 685,061 - 2,495,348
Net premiums earned 510,013 363,887 140,094 748,635 723,108 - 2,485,737
Losses and loss expenses 390,385 205,811 96,935 533,275 413,137 - 1,639,543
Policy acquisition costs 14,862 94,419 20,809 68,993 138,993 - 338,076
Administrative expenses 38,233 54,636 11,927 176,524 152,165 51,071 484,556
-------------------------------------------------------------------------------------------------
Underwriting income (loss) 66,533 9,021 10,423 (30,157) 18,813 (51,071) 23,562
Net investment income 174,647 28,489 60,015 188,688 40,664 834 493,337
Amortization of goodwill (834) 4,204 14,011 469 - 27,500 45,350
Interest expense 4,705 3,944 - 34,563 - 61,926 105,138
Income tax expense (benefit) 2,129 6,006 - 34,693 20,199 (26,403) 36,624
-------------------------------------------------------------------------------------------------
Income (loss) excluding net
realized gains (losses) and
non-recurring expenses 235,180 23,356 56,427 88,806 39,278 (113,260) 329,787
Non-recurring expenses
(net of income tax) - - - (3,900) (3,042) - (6,942)
-------------------------------------------------------------------------------------------------
Income (loss) excluding
net realized gains (losses) 235,180 23,356 56,427 84,906 36,236 (113,260) 322,845
Net realized gains (losses)
(net of income tax) 63,752 (4,373) (3,771) (3,529) (608) (9,353) 42,118
-------------------------------------------------------------------------------------------------
Net income (loss) $ 298,932 $ 18,983 $ 52,656 $ 81,377 $ 35,628 $ (122,613) $ 364,963
=================================================================================================
Total Assets $2,867,138 $1,521,535 $1,328,687 $16,240,045 $3,904,755 $4,260,728(2) $30,122,888
=================================================================================================
================================================================================
(1) ACE Limited, ACE INA Holdings and intercompany eliminations
(2) Includes ACE Financial Services assets of $1,483,781
90
[Enlarge/Download Table]
-----------------------------------------------------------------------------------------------------------------------------------
Supplemental Information by Segment
For the three months ended December 31, 1998
(in thousands of U.S. dollars)
-----------------------------------------------------------------------------------------------------------------------------------
ACE
ACE ACE Global Global ACE(1) ACE
Bermuda Markets Reinsurance USA Other(2) Consolidated
------- ------- ----------- --- ----- ------------
Operations Data:
Gross premiums written $ 124,836 $ 87,891 $ 6,425 $ 34,916 $ - $ 254,068
Net premiums written 89,525 39,723 3,318 21,537 - 154,103
Net premiums earned 84,337 65,059 46,676 21,935 - 218,007
Losses and loss expenses 24,401 36,131 36,967 13,670 - 111,169
Policy acquisition costs 4,462 18,266 5,549 (465) - 27,812
Administrative expenses 9,228 8,509 3,299 8,994 11,188 41,218
-------------------------------------------------------------------------------------------------
Underwriting income (loss) 46,246 2,153 861 (264) (11,188) 37,808
Net investment income 47,920 7,291 15,762 13,270 852 85,095
Amortization of goodwill (209) 1,048 3,528 68 - 4,435
Interest expense (income) 107 1,301 - 6,178 (2,845) 4,741
Income tax expense 307 2,530 - 2,505 - 5,342
-------------------------------------------------------------------------------------------------
Income (loss) excluding
net realized gains (losses) 93,961 4,565 13,095 4,255 (7,491) 108,385
Net realized gains (losses)
(net of income tax) 130,483 432 (1,246) 489 (4) 130,154
-------------------------------------------------------------------------------------------------
Net income (loss) $ 224,444 $ 4,997 $ 11,849 $ 4,744 $ (7,495) $ 238,539
=================================================================================================
Total Assets $ 3,828,757 $ 1,144,402 $ 1,634,776 $ 1,822,439 $ 403,931 $ 8,834,305
=================================================================================================
===================================================================================================================================
(1) Prior to acquisition of ACE INA
(2) ACE Limited and intercompany eliminations
91
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
--------------------------------------------------------------------------------
Supplemental Information by Segment
For the year ended September 30, 1998
(in thousands of U.S. dollars)
--------------------------------------------------------------------------------
[Enlarge/Download Table]
ACE
ACE ACE Global Global ACE(1) ACE
Bermuda Markets Reinsurance USA Other(2) Consolidated
------- ------- ----------- --- ------ ------------
Operations Data:
Gross premiums written $ 520,018 $ 437,809 $ 124,129 $ 160,203 $ - $ 1,242,159
Net premiums written 395,331 315,832 93,583 78,529 - 883,275
Net premiums earned 388,812 282,076 154,871 70,846 - 896,605
Losses and loss expenses 294,963 144,991 34,146 42,792 - 516,892
Policy acquisition costs 26,676 62,540 16,154 284 - 105,654
Administrative expenses 31,263 24,043 11,012 23,419 28,603 118,340
-------------------------------------------------------------------------------------------
Underwriting income (loss) 35,910 50,502 93,559 4,351 (28,603) 155,719
Net investment income 210,936 19,502 53,029 40,245 542 324,254
Amortization of goodwill (834) 4,042 9,538 88 - 12,834
Interest expense 1,021 4,782 - 11,536 - 17,339
Income tax expense 794 19,007 - 11,555 - 31,356
-------------------------------------------------------------------------------------------
Income (loss) excluding net realized
gains and non-recurring expenses 245,865 42,173 137,050 21,417 (28,061) 418,444
Non-recurring expenses (net of
income tax) - (32,166) - - (14,512) (46,678)
-------------------------------------------------------------------------------------------
Income (loss) excluding net realized
gains 245,865 10,007 137,050 21,417 (42,573) 371,766
Net realized gains (net of income tax) 183,745 1,302 3,224 114 - 188,385
-------------------------------------------------------------------------------------------
Net income (loss) $ 429,610 $ 11,309 $ 140,274 $ 21,531 $ (42,573) $ 560,151
===========================================================================================
Total Assets $ 4,041,442 $ 1,142,758 $ 1,671,874 $ 1,833,407 $ 99,272 $ 8,788,753
===========================================================================================
================================================================================
(1) Prior to acquisition of ACE INA
(2) ACE Limited and intercompany eliminations
92
c. The following table summarizes the Company's gross premiums written by
geographic region. Allocations have been made on the basis of location of
risk.
[Enlarge/Download Table]
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Year North Australia & Asia
Ended America Europe New Zealand Pacific Latin America Other
-------------------------------------------------------------------------------------------------------------
2000 60% 18% 2% 9% 4% 7%
-------------------------------------------------------------------------------------------------------------
1999 59% 18% 4% 9% 3% 7%
-------------------------------------------------------------------------------------------------------------
1998 79% 9% 5% 4% - 3%
-------------------------------------------------------------------------------------------------------------
18. Discontinued Operations
In accordance with Emerging Issues Task Force ("EITF") 87-11, "Allocation of
Purchase Price to Assets to Be Sold," and EITF 90-6, "Accounting for Certain
Events Not Addressed in Issue No. 87-11 Relating to an Acquired Operating Unit
to Be Sold," the Company had presented Commercial Insurance Services ("CIS"), a
division of ACE INA, as a discontinued operation at December 31, 1999. The
Company planned, as part of its July 2, 1999, ACE INA Acquisition, to dispose of
the CIS operations. Following the July 2, 1999, acquisition, the Company sold
the renewal rights for all of its CIS business going forward 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.
In accordance with EITF 87-11, the Company recorded a net liability as of July
2, 1999, of approximately $170 million, which was recorded in accounts payable,
accrued expenses and other liabilities. At that time, the Company reduced the
consolidated balance sheet for all items that pertained specifically to CIS,
together with the estimated proceeds on sale and estimated operating results
over the twelve months from July 2, 1999, through July 1, 2000, into the $170
million net liability.
As the CIS business was not sold within the allotted time period, the Company
was required, as of July 2, 2000, to record the CIS balance sheet into its
constituent parts in the balance sheet and to record any resulting income or
loss from that book of business in its statement of operations prospectively
from July 2, 2000. The results of the CIS operations during the six months ended
December 31, 2000, and the component balance sheet accounts are reflected in the
ACE USA segment.
93
Dates Referenced Herein and Documents Incorporated by Reference
| Referenced-On Page |
|---|
| This ‘10-K’ Filing | | Date | | First | | Last | | | Other Filings |
|---|
| |  |
| | 4/1/30 | | 47 | | 48 |
| | 12/31/29 | | 47 |
| | 8/15/29 | | 45 |
| | 8/15/06 | | 45 |
| | 12/31/04 | | 47 | | | | | 10-K, 10-K/A, 3, 3/A |
| | 8/15/04 | | 45 |
| | 6/16/03 | | 48 |
| | 5/16/03 | | 48 | | | | | 4, 4/A |
| | 9/30/02 | | 46 | | | | | 10-Q |
| | 6/30/02 | | 46 | | | | | 10-Q |
| | 9/30/01 | | 46 | | | | | 10-Q, 4 |
| Filed on: | | 3/29/01 |
| | 2/14/01 | | 22 | | | | | SC 13G |
| | 1/12/01 | | 18 |
| | 1/1/01 | | 20 | | 56 |
| For Period End: | | 12/31/00 | | 1 | | 63 | | | 4, 5, 5/A |
| | 12/29/00 | | 18 |
| | 11/17/00 | | 49 |
| | 10/27/00 | | 46 |
| | 10/13/00 | | 18 |
| | 10/11/00 | | 3 |
| | 9/30/00 | | 18 | | 56 | | | 10-Q, 4 |
| | 9/12/00 | | 18 | | 49 |
| | 8/1/00 | | 6 |
| | 7/14/00 | | 18 |
| | 7/2/00 | | 14 | | 63 |
| | 7/1/00 | | 63 |
| | 6/30/00 | | 18 | | 56 | | | 10-Q, 4, 4/A |
| | 5/8/00 | | 48 |
| | 4/14/00 | | 18 |
| | 4/12/00 | | 48 |
| | 3/31/00 | | 18 | | 56 | | | 10-Q, 4, 424B5 |
| | 2/15/00 | | 45 |
| | 1/14/00 | | 18 | | | | | 8-K, POS AM |
| | 12/31/99 | | 1 | | 63 | | | 10-K, 4, 5, 5/A |
| | 12/30/99 | | 3 | | 58 | | | 8-K, S-8 |
| | 12/20/99 | | 47 | | | | | 8-A12B |
| | 12/6/99 | | 45 |
| | 9/30/99 | | 56 | | | | | 10-Q, 4 |
| | 7/2/99 | | 1 | | 63 | | | 8-K, 8-K/A, S-8 |
| | 6/30/99 | | 19 | | 56 | | | 10-Q |
| | 6/29/99 | | 46 | | 49 |
| | 3/31/99 | | 56 | | | | | 10-Q, 4, 4/A |
| | 1/1/99 | | 3 | | 38 |
| | 12/31/98 | | 1 | | 61 | | | 10-Q |
| | 10/27/98 | | 45 |
| | 9/30/98 | | 1 | | 62 | | | 10-K, 10-K/A, 5, 5/A |
| | 7/9/98 | | 3 | | 32 |
| | 7/6/98 | | 49 | | | | | 8-K |
| | 4/14/98 | | 49 | | | | | S-3/A |
| | 4/1/98 | | 3 | | 32 | | | 8-K |
| | 3/31/98 | | 49 | | | | | 10-Q, 8-K |
| | 3/2/98 | | 31 |
| | 1/2/98 | | 3 | | 58 | | | 8-K, 8-K/A |
| List all Filings |
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