ACE Increases Asbestos Reserves; $354M Net After-tax Charge to 4thQ Earnings

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ACE Limited announced that it will incur a net after-tax charge to earnings of $354 million ($1.32 per share) in the fourth quarter of 2002, as a result of the need to strengthen reserves due to increased asbestos and environmental claims.

“This decision follows an extensive internal review of its asbestos and environmental reserves, as well as a regular biennial reserve review by an internationally-known actuarial consulting firm required by the Pennsylvania Insurance Department as part of the acquisition of CIGNA’s property and casualty operations in 1999,” said the bulletin.

ACE explained that the “gross reserve increase of $2.178 billion is offset by $1.860 billion of reinsurance, including $533 million from the reinsurance agreement from National Indemnity Company, a subsidiary of Berkshire Hathaway.” It indicated that the net figure was calculated by including “an addition to our bad debt provision of $145 million, ten percent participation in the National Indemnity reinsurance cover, and a tax benefit of $162 million.”

“ACE’s total asbestos reserves are now at the high end of the range calculated by our internal analysis and are consistent with the actuarial consulting firm’s best estimate,” chairman and CEO Brian Duperreault said. “While we believe that there are favorable trends in the judicial environment regarding our asbestos liabilities, the reserve strengthening reflects a more conservative view and assumes that there will be no such future improvements.”

The company also gave the following guidelines for its fourth quarter earnings report which it will make on February 5. Excluding the above charge, ACE expects to report:
— Estimated operating income of $0.92 per share
— Estimated net income of $0.67 per share
— Unrealized gains in the fourth quarter of approximately $150 million (after-tax)
— Estimated shareholder equity as of 12/31/02 — $6.7 billion
— Estimated operating cash flow in the fourth quarter in excess of $800 million.

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