-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FnwuwX7FGvFNzv/4epxMOt/8Icd4SOoVY6YR905yqa5oQgOtWaB7vXWetvScwyyl YWGJI40YdJGbpynB4AOkyA== /in/edgar/work/0000902561-00-000459/0000902561-00-000459.txt : 20001115 0000902561-00-000459.hdr.sgml : 20001115 ACCESSION NUMBER: 0000902561-00-000459 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACE LTD CENTRAL INDEX KEY: 0000896159 STANDARD INDUSTRIAL CLASSIFICATION: [6331 ] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11778 FILM NUMBER: 766858 BUSINESS ADDRESS: STREET 1: ACE BLDG STREET 2: 30 WOODBOURNE AVE CITY: HAMILTON HM 08 BERMU STATE: D0 BUSINESS PHONE: 8092955200 MAIL ADDRESS: STREET 1: P O BOX HM 1015 CITY: HAMITON BERMUDA STATE: D0 10-Q 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2000 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ________________ to ________________ Commission File No. 1-11778 I.R.S. Employer Identification No. 98-0091805 ACE LIMITED (Incorporated in the Cayman Islands) The ACE Building 30 Woodbourne Avenue Hamilton HM 08 Bermuda Telephone 441-295-5200 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ___X___ NO ________ The number of registrant's Ordinary Shares ($0.041666667 par value) outstanding as of November 10, 2000 was 232,047,180.
ACE LIMITED INDEX TO FORM 10-Q Part I. FINANCIAL INFORMATION - ------------------------------ Page No. ------- Item 1. Financial Statements: Consolidated Balance Sheets September 30, 2000 (Unaudited) and December 31, 1999 3 Consolidated Statements of Operations (Unaudited) Three Months and Nine Months Ended September 30, 2000 and 1999 4 Consolidated Statements of Shareholders' Equity (Unaudited) Nine Months Ended September 30, 2000 and 1999 5 Consolidated Statements of Comprehensive Income (Unaudited) Nine Months Ended September 30, 2000 and 1999 6 Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 2000 and 1999 7 Notes to Interim Consolidated Financial Statements (Unaudited) 8 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 17 Part II. OTHER INFORMATION - --------------------------- Item 6. Exhibits and Reports on Form 8-K 36 2 ACE LIMITED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30 December 31 2000 1999 ---- ---- (Unaudited) (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 - $10,754,918 and $10,080,402) $ 10,661,968 $ 9,849,803 Equity securities, at fair value (cost - $559,541 and $780,558) 637,400 933,314 Short-term investments, at fair value (amortized cost - $1,362,712 and $1,194,956) 1,362,712 1,192,875 Other investments, at fair value (cost - $474,699 and $303,714) 484,880 300,311 Cash 616,971 599,232 ----------------- ---------------- Total investments and cash 13,763,931 12,875,535 Accrued investment income 182,801 170,755 Insurance and reinsurance balances receivable 2,159,443 2,018,788 Accounts and notes receivable 514,560 533,863 Reinsurance recoverable 8,704,161 8,840,081 Deferred policy acquisition costs 567,161 514,425 Prepaid reinsurance premiums 891,056 580,244 Goodwill 2,857,528 2,822,718 Deferred tax assets 1,090,709 916,184 Other assets 800,750 850,295 ----------------- ---------------- Total assets $ 31,532,100 $ 30,122,888 ================= ================ Liabilities Unpaid losses and loss expenses $ 17,401,981 $ 16,460,247 Unearned premiums 3,132,914 2,428,828 Premiums received in advance 59,867 63,759 Insurance and reinsurance balances payable 1,155,487 1,735,956 Contract holder deposit funds 143,693 201,079 Accounts payable, accrued expenses and other liabilities 1,376,746 1,684,725 Dividend payable 33,163 23,921 Short-term debt 377,466 1,074,585 Long-term debt 1,424,228 1,424,228 Trust preferred securities 875,000 575,000 ----------------- ---------------- Total liabilities 25,980,545 25,672,328 ----------------- ---------------- Commitments and contingencies Mezzanine Equity FELINE PRIDES 311,050 - ----------------- ---------------- Shareholders' Equity Ordinary Shares ($0.041666667 par value, 300,000,000 shares authorized; 231,844,741 and 217,460,515 shares issued and outstanding) 9,660 9,061 Additional paid-in capital 2,629,108 2,214,989 Unearned stock grant compensation (31,712) (28,908) Retained earnings 2,656,608 2,321,570 Accumulated other comprehensive loss (23,159) (66,152) ----------------- ---------------- Total shareholders' equity 5,240,505 4,450,560 ----------------- ---------------- Total liabilities, mezzanine equity and shareholders' equity $ 31,532,100 $30,122,888 ================= ================ See accompanying notes to interim consolidated financial statements 3 ACE LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months and Nine Months Ended September 30, 2000 and 1999 (Unaudited) Three Months Ended Nine Months Ended September 30 September 30 2000 1999 2000 1999 ------------------------------------------------------------------------------- (in thousands of U.S. dollars, except per share data) Revenues Gross premiums written $ 1,999,816 $ 1,544,458 $ 5,946,843 $ 2,488,952 Reinsurance premiums ceded (803,012) (633,554) (2,079,132) (845,114) ------------- ------------- ------------- ------------- Net premiums written 1,196,804 910,904 3,867,711 1,643,838 Change in unearned premiums (22,022) 42,047 (420,287) (105,349) ------------- ------------- ------------- ------------- Net premiums earned 1,174,782 952,951 3,447,424 1,538,489 Net investment income 197,584 163,060 561,548 334,338 Net realized gains (losses) on investments (12,797) (58,493) 13,899 (15,932) ------------- ------------- ------------- ------------- Total revenues 1,359,569 1,057,518 4,022,871 1,856,895 ------------- ------------- ------------- ------------- Expenses Losses and loss expenses 772,887 632,910 2,256,481 1,045,262 Policy acquisition costs 168,258 137,681 482,628 203,505 Administrative expenses 177,912 204,264 554,784 300,063 Amortization of goodwill 19,919 17,474 58,889 26,408 Interest expense 55,408 44,068 166,544 52,745 ------------- ------------- ------------- ------------- Total expenses 1,194,384 1,036,397 3,519,326 1,627,983 ------------- ------------- ------------- ------------- Income before income taxes 165,185 21,121 503,545 228,912 Income tax expense 24,432 6,328 74,351 15,978 ------------- ------------- ------------- ------------- Net income $ 140,753 $ 14,793 $ 429,194 $ 212,934 ============= ============= ============ ============= Basic earnings per share $ 0.60 $ 0.08 $ 1.92 $ 1.10 ============= ============= ============ ============= Diluted earnings per share $ 0.58 $ 0.08 $ 1.88 $ 1.08 ============= ============= ============ ============= See accompanying notes to interim consolidated financial statements 4 ACE LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Nine Months Ended September 30, 2000 and 1999 (Unaudited) Nine Months Ended September 30 2000 1999 ------------- ------------- (in thousands of U.S. Dollars) Ordinary Shares Balance at beginning of period $ 9,061 $ 8,070 Ordinary Shares issued 584 - Cancellation of Ordinary Shares (28) - Exercise of stock options 41 15 Issued under Employee Stock Purchase Plan (ESPP) 2 1 ------------- ------------- Balance at end of period 9,660 8,086 ------------- ------------- Additional paid-in capital Balance at beginning of period 2,214,989 1,767,188 Ordinary Shares issued 434,178 - Cancellation of Ordinary Shares (19,074) - Exercise of stock options 14,863 5,588 Issued under ESPP 1,232 1,420 Equity Offering expenses (7,196) - FELINE PRIDES issuance costs (9,884) - Cancellation of restricted stock awards - (371) ------------- ------------- Balance at end of period 2,629,108 1,773,825 ------------- ------------- Unearned stock grant compensation Balance at beginning of period (28,908) (15,087) Stock grants awarded (9,845) (1,922) Stock grants forfeited - 312 Amortization 7,041 5,808 ------------- ------------- Balance at end of period (31,712) (10,889) ------------- ------------- Retained earnings Balance at beginning of period 2,321,570 2,040,664 Net income 429,194 212,934 Dividends declared on Ordinary Shares (82,294) (60,137) Dividends declared on FELINE PRIDES (11,862) - ------------- ------------- Balance at end of period 2,656,608 2,193,461 ------------- ------------- Accumulated other comprehensive loss Net unrealized appreciation (depreciation) on investments Balance at beginning of period (83,327) 102,271 Change in period, net of tax 70,907 (208,482) -------------- -------------- Balance at end of period (12,420) (106,211) -------------- -------------- Cumulative translation adjustments Balance at beginning of period 17,175 6,471 Net adjustments during period (27,914) (374) -------------- -------------- Balance at end of period (10,739) 6,097 -------------- -------------- Accumulated other comprehensive loss (23,159) (100,114) -------------- -------------- Total Shareholders' Equity $5,240,505 $3,864,369 ============== ============== See accompanying notes to interim consolidated financial statements 5 ACE LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Nine Months Ended September 30, 2000 and 1999 (Unaudited) Nine Months Ended September 30 2000 1999 ---- ---- (in thousands of U.S. Dollars) Net income $ 429,194 $ 212,934 Other comprehensive income (loss) Net unrealized appreciation (depreciation) on investments Unrealized appreciation (depreciation) on investments 115,880 (190,344) Less: reclassification adjustment for net realized gains included in net income (37,463) (54,308) ---------------- --------------- 78,417 (244,652) Cumulative translation adjustments (34,825) (374) ---------------- --------------- Other comprehensive income (loss), before income taxes 43,592 (245,026) Income tax benefit (expense) related to other comprehensive income items (599) 36,170 ---------------- --------------- Other comprehensive income (loss) 42,993 (208,856) ---------------- --------------- ---------------- --------------- Comprehensive income $ 472,187 $ 4,078 ================ =============== See accompanying notes to interim consolidated financial statements 6 ACE LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 2000 and 1999 (Unaudited) Nine Months Ended September 30 2000 1999 ---- ---- (in thousands of U.S. Dollars) Cash flows from operating activities Net income $ 429,194 $ 212,934 Adjustments to reconcile net income to net cash used for operating activities: Unearned premiums 673,258 165,294 Unpaid losses and loss expenses, net of reinsurance recoverable (45,631) (304,304) Prepaid reinsurance premiums (289,812) (99,254) Deferred tax assets 23,062 9,515 Net realized gains (losses) on investments (13,899) 15,932 Amortization of premium/discounts on fixed maturities (5,384) (6,009) Amortization of goodwill 58,889 26,408 Deferred policy acquisition costs (43,838) (18,280) Insurance and reinsurance balances receivable (233,286) (384,759) Premiums received in advance (3,892) 5,185 Insurance and reinsurance balances payable (582,177) 230,301 Accounts payable, accrued expenses and other liabilities (332,680) (38,885) Net change in contract holder deposit funds (49,932) (1,591) Other 41,610 (97,858) ---------------- --------------- Net cash flows used for operating activities (374,518) (285,371) ---------------- --------------- Cash flows from investing activities Purchases of fixed maturities (8,231,880) (14,522,815) Purchases of equity securities (321,340) (226,511) Sales of fixed maturities 8,151,291 15,185,241 Sales of equity securities 689,415 298,773 Maturities of fixed maturities 48,890 425,163 Net realized losses on financial futures contracts (8,751) (16,568) Other investments (170,985) (200,490) Acquisition of subsidiaries, net of cash acquired - (2,592,632) ---------------- --------------- Net cash flows from (used for) investing activities 156,640 (1,649,839) ---------------- --------------- Cash flows from financing activities Dividends paid on Ordinary Shares (76,075) (56,219) Dividends paid on FELINE PRIDES (8,839) - Repayment of short-term debt (1,011,742) (198,816) Proceeds from long-term debt - 998,697 Proceeds from short-term debt 314,623 1,280,118 Proceeds from issuance of trust preferred securities 300,000 400,000 Proceeds from issuance of FELINE PRIDES 311,050 - Issuance costs of FELINE PRIDES (9,884) - Proceeds from exercise of options for Ordinary Shares 14,904 5,603 Net proceeds from issuance of Ordinary Shares 400,346 - Proceeds from shares issued under ESPP 1,234 1,051 ---------------- --------------- Net cash flows from financing activities 235,617 2,430,434 ---------------- --------------- Net increase in cash 17,739 495,224 Cash at beginning of period 599,232 240,556 ---------------- --------------- Cash at end of period $ 616,971 $ 735,780 ================ =============== See accompanying notes to interim consolidated financial statements
7 ACE LIMITED AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. General The interim unaudited consolidated financial statements, include the accounts of the Company and its subsidiaries, and in the opinion of management, reflect all adjustments (consisting of normally recurring accruals) necessary for a fair presentation of results for such periods. The results of operations and cash flows for any interim period are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the consolidated financial statements, and related notes thereto, included in the Company's 1999 Annual Report on Form 10-K. 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 provides property and casualty insurance and reinsurance for a diverse group of customers worldwide. ACE International also provides accident and health insurance products that are designed to meet the insurance needs of individuals and groups outside of the U.S. insurance markets. In addition, through ACE Global Markets, the Company provides funds at Lloyd's to support underwriting by Lloyd's syndicates managed by Lloyd's managing agencies, which are indirect 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. On July 2, 1999, the Company completed the ACE INA acquisition. This acquisition was recorded using the purchase method of accounting and, accordingly, the consolidated financial statements of the Company include the results of ACE INA and its subsidiaries from July 2, 1999, the date of the acquisition. ACE INA is the holding company for ACE USA and ACE International operating segments. On December 30, 1999, the Company acquired ACE Financial Services (previously Capital Re Corporation). This acquisition was recorded using the purchase method of accounting and, accordingly, the consolidated financial statements of the Company include the results of operations of ACE Financial Services and its subsidiaries from December 30, 1999, the date of the acquisition. The analysis of gross premiums written by geographic region is as follows: - ------------------------------------------------------------------------------- Nine Months ended September 30 2000 1999 ---- ---- North America 61% 60% Europe 19 16 Australia and New Zealand 6 6 Latin America 3 3 Asia Pacific 5 3 Other 6 12 --------------- -------------- 100% 100% --------------- -------------- - ------------------------------------------------------------------------------- 2. Significant Accounting Policies New accounting pronouncements In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Deriative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS 133 is effective beginning in the first quarter of fiscal 2001. To prepare for the effective date, the Company has developed an implementation plan. As part of this plan, the Company is in the process of completing a comprehensive inventory of all derivative instruments and transactions to which it is a party. The Company is currently in the process of determining appropriate valuation methodologies and resulting values. The Company's involvement with derivative instruments and transactions is primarily to offer protection to others or to mitigate its own risks and is not 8 speculative in nature. The effect of adopting this statement on its financial position and operating results, has not yet been determined. 3. Commitments and Contingencies The Company has considered asbestos and environmental claims and claims expenses in establishing the liability for unpaid losses and loss expenses. The estimation of ultimate losses arising from asbestos and environmental exposures has presented a challenge because traditional actuarial reserving methods, which primarily rely on historical experience, are inadequate for such estimation. The problem of estimating reserves for asbestos and environmental exposures resulted in the development of reserving methods which incorporate new sources of data with historical experience. The Company believes that the reserves carried for these claims are adequate based on known facts and current law. 4. Restricted Stock Awards Under the Company's long-term incentive plans, 344,590 Restricted Ordinary Shares were awarded during the nine months ended September 30, 2000, to officers of the Company and its subsidiaries. These shares vest at various dates through September 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. 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. 5. 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. 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. The net liability included all balance sheet accounts that pertained specifically to CIS and the estimated operating results for the twelve months from July 2, 1999 to July 1, 2000. Since the CIS operations were not sold within one year from acquisition, the Company was required, as of July 2, 2000, to reconsolidate the net liability into the appropriate balance sheet captions and to record the results of operations in the consolidated statement of operations beginning July 2, 2000. This reclassification had no impact on the Company's results of operations or financial position. The results of the CIS operations for the quarter ended September 30, 2000 and the total assets as of that date are included in the ACE USA segment. 6. Shareholders' Equity ACE Limited Public Share Offering On September 12, 2000, the Company completed a public offering of 12,250,000 Ordinary Shares (which included exercise of the overallotment option of 1,250,000 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 Bank 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 will be 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 was reduced to LIBOR plus 87.5 basis points. 9 7. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share.
- ------------------------------------------------------------------------------------------------------------------------------ Three Months Ended Nine Months Ended September 30 September 30 2000 1999 2000 1999 ---- ---- ---- ---- (In thousands of U.S. dollars except share and per share data) Numerator Net Income $ 140,753 $ 14,793 $ 429,194 $ 212,934 FELINE PRIDES dividend (6,537) - (11,862) - -------------- -------------- -------------- ------------ Net income available to the holders of Ordinary Shares $ 134,216 $ 14,793 $ 417,332 $ 212,934 ============== ============== ============== ============ Denominator Denominator for basic earnings per share - Weighted average shares outstanding 222,042,432 194,061,171 217,615,849 193,935,790 Dilutive effect of FELINE PRIDES 2,663,691 - - - Effect of other dilutive securities 6,679,576 2,011,481 4,431,705 2,981,338 --------------- --------------- ---------------- ------------- Denominator for diluted earnings per share - Adjusted weighted average shares outstanding and assumed conversions 231,385,699 196,072,652 222,047,554 196,917,128 --------------- --------------- ---------------- ------------- Basic earnings per share $ 0.60 $ 0.08 $ 1.92 $ 1.10 =============== =============== ================ ============= Diluted earnings per share $ 0.58 $ 0.08 $ 1.88 $ 1.08 =============== =============== ================ ============= - ------------------------------------------------------------------------------------------------------------------------------ 8. Debt - ------------------------------------------------------------------------------- Coupon September 30 December 31 Rates 2000 1999 ----- ---- ---- (in millions of U.S. Dollars) Short-term debt ACE INA commercial paper Various $ 352 $ 625 ACE Financial Services Note Various 25 25 ACE Limited commercial paper Various - 425 -------- ------- $ 377 1,075 ======== ======= Long-term debt ACE INA Notes due 2004 8.20% $ 400 400 ACE INA Notes due 2006 8.30% 299 299 ACE US Holdings Senior Notes due 2008 6.47% 250 250 ACE INA Subordinated Notes due 2009 8.41% 300 300 ACE INA Debentures due 2029 8.875% 100 100 ACE Financial Services Debentures due 2002 7.75% 75 75 ------- ------- $ 1,424 $ 1,424 ======= ======= Trust Preferred Securities ACE INA RHINO Preferred Securities due 2002 Libor + 1.25% $ 400 $ 400 ACE Financial Services Monthly Income Preferred Securities due 2044 7.65% 75 75 ACE INA Trust Preferred Securities due 2029 8.875% 100 100 ACE INA Capital Securities due 2030 9.70% 300 - ------- ------- $ 875 $ 575 ======= ======= - --------------------------------------------------------------------------------
10 ACE INA Capital Securities On March 31, 2000, ACE Capital Trust II, a Delaware statutory business trust ("ACE Capital Trust II") issued and sold in a public offering $300 million of 9.70 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. The Capital Securities mature on April 1, 2030, which may not be extended. Distributions on the Capital Securities are payable semi-annually at a rate of 9.70 percent, 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). The sole assets of ACE Capital Trust II consist of $309,280,000 principal amount of 9.70 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 at a rate of 9.70 percent, 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 .50 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 (the "Guarantees"). The 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 FELINE PRIDES The Company issued 6,000,000 FELINE PRIDES on April 12, 2000 and an additional 221,000 FELINE PRIDES on May 8, 2000, pursuant to a public offering, for aggregate net proceeds of approximately $311 million. Each FELINE PRIDES initially consists of a unit referred to as an Income PRIDES. Each Income PRIDES 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 PRIDES 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 PRIDES 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 PRIDES, and the preferred shares would be a separate security. A holder of a Growth PRIDES can convert it back into an Income PRIDES 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. 11 The settlement rate is the number of ordinary shares that the Company is obligated to sell and the holders of the FELINE PRIDES are obligated to purchase (for a purchase price of $50 per FELINE PRIDES) on May 16, 2003. The settlement rate will be equal to $50 divided by the average closing price of the ordinary shares for the 20 consecutive trading days ending on the third trading day prior to May 16, 2003, but in no event will it be less than 1.8991 ordinary shares per FELINE PRIDES (or an aggregate of 11.8 million ordinary shares) nor greater than 2.6376 ordinary shares per FELINE PRIDES (or an aggregate of 16.4 million ordinary shares). The settlement rate is subject to anti-dilution adjustments. 10. Reinsurance The Company purchases reinsurance to manage various exposures including catastrophic 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 three months and nine months ended September 30, 2000 and 1999 are as follows: - -------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30 September 30 2000 1999 2000 1999 ---- ---- ---- ---- (in thousands of U.S. dollars except share and per share data) Premiums Premiums written Direct $1,739,116 1,074,833 4,788,872 1,604,255 Assumed 260,700 469,625 1,157,971 884,697 Ceded (803,012) (633,554) (2,079,132) (845,114) ----------- ------------ ----------- ----------- Net premiums written $1,196,804 $ 910,904 $3,867,711 $1,643,838 ============ ============ ============ =========== Premiums earned Direct 1,645,052 $ 969,987 4,279,020 1,443,493 Assumed 234,095 520,872 982,914 829,891 Ceded (704,365) (537,908) (1,814,510) (734,895) ------------- ----------- ------------- ----------- Net premiums earned $1,174,782 $ 952,951 3,447,424 $1,538,489 ============= ============ ============= =========== - -------------------------------------------------------------------------------- The Company's provision for reinsurance recoverable at September 30, 2000 and December 31, 1999 is as follows: - -------------------------------------------------------------------------------- September 30 December 31 2000 1999 ---- ---- (in thousands of U.S. dollars) Reinsurance recoverable on paid losses and loss expenses $ 938,152 $ 1,288,651 Reinsurance recoverable on unpaid losses and loss expenses 8,480,795 8,309,014 Provision for uncollectible balances (714,786) (757,584) --------------- -------------- Total reinsurance recoverable $ 8,704,161 $ 8,840,081 =============== ============== ------------------------------------------------------------------------------- 11. 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 such taxes being imposed, the Company will be exempt until March 2016. 12 Income from the Company's operations at Lloyd's are subject to United Kingdom (UK) 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 three months and nine months ended September 30, 2000 and 1999 is as follows: - -------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30 September 30 2000 1999 2000 1999 ---- ---- ---- ---- (in thousands of U.S. dollars) Current tax expense $ 29,254 $ 7,812 $ 51,289 $ 11,496 Deferred tax expense (4,822) (1,484) 23,062 4,482 -------------- ---------- --------- --------- Provision for income taxes $ 24,432 $ 6,328 $ 74,351 $ 15,978 ============== ========== ========= ========= - -------------------------------------------------------------------------------- The components of the net deferred tax asset as of September 30, 2000 and December 31, 1999 are as follows: - -------------------------------------------------------------------------------- September 30 December 31 2000 1999 ---- ---- (in thousands of U.S. dollars) Deferred tax assets Loss reserve discount $ 771,854 $ 677,459 Foreign tax credits 133,437 116,829 Uncollectible reinsurance 13,177 24,413 Net operating loss carry forward 289,177 164,993 Other 146,276 305,647 Unrealized depreciation on investments - 12,557 ---------------- ------------- Total deferred tax assets $ 1,353,921 $ 1,301,898 ---------------- ------------- Deferred tax liabilities Deferred policy acquisition costs 72,533 87,691 Unrealized appreciation on investments 3,762 - Other 44,093 164,699 ----------------- ------------ Total deferred tax liabilities 120,388 252,390 ----------------- ------------ Valuation allowance 142,824 133,324 ----------------- ------------ Net deferred tax asset $ 1,090,709 $ 916,184 ================= ============ - -------------------------------------------------------------------------------- The 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 statutory tax rate for the nine months ended September 30, 2000 is provided below. 13 - ------------------------------------------------------------------------------- Nine Months Ended September 30 2000 1999 (in thousands of U.S. dollars) Expected tax provision at statutory rate $ 64,697 $ 13,545 Permanent differences Tax-exempt interest (16,278) (4,685) Goodwill 16,778 5,680 Other 932 (64) Net withholding taxes 8,222 1,502 ---------------- ------------- Total provision for income taxes $ 74,351 $ 15,978 ================ ============= ------------------------------------------------------------------------------- 12. Summarized financial information The following is consolidated summarized financial information for ACE INA and ACE Financial Services, both wholly owned subsidiaries of the Company. - -------------------------------------------------------------------------------- Selected Financial Data: ACE INA Three Months Ended Nine Months Ended September 30 September 30 2000 2000 ---- ---- (in thousands of U.S. Dollars) Selected Statement of Operations Data Total revenue $ 864,002 $ 2,615,139 Net income $ 7,665 $ 257,734 Selected Balance Sheet Data Total investments and cash $ 7,550,739 Total assets 22,705,542 Unpaid losses and loss expenses 14,148,478 Total shareholders' equity $ 1,355,400 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Selected Financial Data: ACE Financial Services Three Months Ended Nine Months Ended September 30 September 30 2000 2000 ---- ---- (in thousands of U.S. Dollars) Selected Statement of Operation Data Total revenue $ 67,112 $ 318,148 Net income $ 22,543 $ 65,599 Selected Balance Sheet Data Total investments and cash $ 1,896,685 Total assets 2,289,005 Unpaid losses and loss expenses 548,850 Total shareholders' equity $ 1,037,390 - -------------------------------------------------------------------------------- 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 the holders of ACE INA and ACE Financial Services debt securities. 14 13. Segment information The following tables summarize the operations by segment for the three months and nine months ended September 30, 2000 and 1999. Net realized gains (losses) have been presented net of related taxes.
- ------------------------------------------------------------------------------------------------------------------------------------ Three months ended September 30, 2000 ACE ACE ACE ACE Global Global ACE ACE Financial ACE Bermuda Markets Reinsurance USA International Services Other(1) Consolidated ------- ----------- ----------- -------- ------------- ---------- ---------- ------------ (in thousands of U.S. Dollars) Operations Data Gross premiums written $ 199,741 $ 239,484 $ 30,750 $ 974,862 $ 496,953 $ 58,026 - 1,999,816 Net premiums written 181,573 176,672 12,811 450,518 324,779 50,451 - 1,196,804 Net premiums earned 170,292 174,266 37,707 410,472 339,101 42,944 - 1,174,782 Losses and loss expenses 132,701 102,503 5,813 307,692 205,976 18,202 - 772,887 Policy acquisition costs 7,565 44,844 6,631 40,430 58,888 9,900 - 168,258 Administrative expenses 7,494 18,499 3,122 58,631 68,552 7,665 13,949 177,912 ----------- ----------- ----------- ------------ ----------- ------------ ----------- ------------ Underwriting income (loss) 22,532 8,420 22,141 3,719 5,685 7,177 (13,949) 55,725 Net investment income 38,906 7,932 15,056 89,599 24,612 24,168 (2,689) 197,584 Amortization of goodwill (225) 965 3,503 135 - 1,051 14,490 19,919 Interest expense 908 1,897 - 11,404 - 3,378 37,821 55,408 Income tax expense (benefit) 655 5,623 - 26,238 4,400 6,403 (15,890) 27,429 ----------- ----------- ----------- ------------ ----------- ------------ ----------- ------------ Income (loss) excluding net realized gains (losses) 60,100 7,867 33,694 55,541 25,897 20,513 (53,059) 150,553 Net realized gains (losses) (net of income tax) 7,135 (1,245) (12,433) (5,989) 492 2,030 210 (9,800) ----------- ----------- ----------- ------------ ----------- ------------ ----------- ------------ Net income (loss) $ 67,235 $ 6,622 $ 21,261 $ 49,552 $ 26,389 $ 22,543 $ (52,849) $ 140,753 ----------- ----------- ----------- ------------ ----------- ------------ ----------- ------------ Total Assets $3,044,189 $1,842,913 $1,360,806 $16,454,908 $3,804,099 $ 2,289,005 $2,736,180 $31,532,100 =========== =========== =========== ============ =========== ============ =========== ============ - ------------------------------------------------------------------------------------------------------------------------------------ (1)Includes ACE Limited, ACE INA Holdings and intercompany eliminations - ------------------------------------------------------------------------------------------------------------------------------------ Three months ended September 30, 1999 ACE ACE ACE Global Global ACE ACE ACE Bermuda Markets Reinsurance USA International Other(1) Consolidated ------- ----------- ------------- ----- ------------ ----- ------------- (in thousands of U.S. Dollars) Operations Data Gross premiums written $ 130,478 $ 183,570 $ 24,234 $ 744,161 $ 462,015 $ - $ 1,544,458 Net premiums written 106,686 110,594 (8,482) 370,338 331,768 - 910,904 Net premiums earned 125,825 98,907 35,317 342,698 350,204 - 952,951 Losses and loss expenses 105,290 60,218 17,388 251,380 198,634 - 632,910 Policy acquisition costs 4,183 25,158 5,846 35,739 66,755 - 137,681 Administrative expenses 9,615 12,146 3,598 87,516 76,399 14,990 204,264 ------------- ----------- -------------- ------------ -------------- ----------- ------------ Underwriting income (loss) 6,737 1,385 8,485 (31,937) 8,416 (14,990) (21,904) Net investment income 37,341 8,095 13,531 84,138 17,968 1,987 163,060 Amortization of goodwill (210) 1,056 3,503 - - 13,125 17,474 Interest expense (2,679) 812 - 9,992 - 35,943 44,068 Income tax expense (benefit) 546 3,037 - 9,836 9,314 (11,684) 11,049 ------------- ----------- -------------- ------------ -------------- ----------- ------------ Income (loss) excluding net realized gains (losses) 46,421 4,575 18,513 32,373 17,070 (50,387) 68,565 Net realized gains (losses) (net of income tax) (34,483) (1,474) (10,626) (2,966) (2,976) (1,247) (53,772) ------------- ----------- -------------- ------------ -------------- ----------- ------------ Net income (loss) $ 11,938 $ 3,101 $ 7,887 $ 29,407 $ 14,094 $ (51,634) $ 14,793 ------------- ----------- -------------- ------------ -------------- ----------- ------------ Total Assets $3,052,732 $1,496,539 $ 1,404,452 $17,035,007 $3,716,000 $2,639,453 $29,344,183 ============= =========== ============== ============ ============== =========== ============ - ------------------------------------------------------------------------------------------------------------------------------------ (1)Includes ACE Limited, ACE INA Holdings and intercompany eliminations 15 ACE LIMITED AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - ------------------------------------------------------------------------------------------------------------------------------------ Nine months ended September 30, 2000 ACE ACE ACE ACE Global Global ACE ACE Financial ACE Bermuda Markets Reinsurance USA International Services Other(1) Consolidated ------- ---------- ----------- ----- ------------- --------- -------- ------------ (in thousands of U.S. Dollars) Operations Data Gross premiums written $ 510,788 $ 752,791 $ 178,223 $ 2,662,542 $1,553,853 $ 288,646 $ - $ 5,946,843 Net premiums written 446,297 551,140 146,265 1,369,785 1,080,317 273,907 - 3,867,711 Net premiums earned 356,164 454,599 96,061 1,256,043 1,037,411 247,146 - 3,447,424 Losses and loss expenses 265,001 258,271 17,476 938,782 613,942 163,009 - 2,256,481 Policy acquisition costs 14,648 119,577 18,328 118,498 173,011 38,566 - 482,628 Administrative expenses 22,278 54,069 7,971 188,552 211,589 23,705 46,620 554,784 ----------- ----------- ----------- ------------ ----------- ------------ ------------ ---------- Underwriting income (loss) 54,237 22,682 52,286 10,211 38,869 21,866 (46,620) 153,531 Net investment income 111,240 23,420 44,839 251,542 69,498 71,002 (9,993) 561,548 Amortization of goodwill (658) 2,990 10,508 405 - 3,154 42,490 58,889 Interest expense 1,598 4,080 - 28,009 - 10,016 122,841 166,544 Income tax expense (benefit) 1,920 11,068 (173) 72,992 19,235 15,664 (48,725) 71,981 ----------- ----------- ----------- ------------ ----------- ------------ ------------ ---------- Income (loss) excluding net realized gains (losses) 162,617 27,964 86,790 160,347 89,132 64,034 (173,219) 417,665 Net realized gains (losses) (net of income tax) 31,432 (2,194) (20,378) (16,834) 19,779 1,565 (1,841) 11,529 ----------- ----------- ----------- ------------ ----------- ------------ ------------ ---------- Net income (loss) $ 194,049 $ 25,770 $ 66,412 $ 143,513 $ 108,911 $ 65,599 $(175,060) $ 429,194 ----------- ------------ ---------- ----------- ----------- ------------ ----------- ---------- Total Assets $3,044,189 $1,842,913 $1,360,806 $16,454,908 $3,804,099 $ 2,289,005 $2,736,180 $31,532,100 =========== =========== =========== ============ =========== ============ =========== =========== - ------------------------------------------------------------------------------------------------------------------------------------ (1)Includes ACE Limited, ACE INA Holdings and intercompany eliminations - ----------------------------------------------------------------------------------------------------------------------------------- Nine Months ended September 30, 1999 ACE ACE ACE Global Global ACE ACE ACE Bermuda Markets Reinsurance USA International Other(1) Consolidated ------- ---------- ------------ ---- ------------- -------- ------------ Operations Data Gross premiums written 432,748 530,137 184,667 879,385 462,015 - 2,488,952 Net premiums written 346,081 376,856 149,903 439,230 331,768 - 1,643,838 Net premiums earned 397,748 288,374 109,303 392,860 350,204 - 1,538,489 Losses and loss expenses 302,203 168,170 93,646 282,609 198,634 - 1,045,262 Policy acquisition costs 11,034 75,838 15,442 34,436 66,755 - 203,505 Administrative expenses 31,052 37,003 9,607 106,032 76,399 39,970 300,063 ------------- ----------- -------------- ----------- -------------- ----------- ------------ Underwriting income (loss) 53,459 7,363 (9,392) (30,217) 8,416 (39,970) (10,341) Net investment income 134,653 20,723 45,498 108,926 17,968 6,570 334,338 Amortization of goodwill (626) 3,155 10,508 246 - 13,125 26,408 Interest expense 4,705 3,037 - 23,974 - 21,029 52,745 Income tax expense (benefit) 1,502 7,344 - 14,223 9,314 (11,684) 20,699 ------------- ----------- -------------- ----------- -------------- ----------- ------------ Income (loss) excluding net realized gains (losses) 182,531 14,550 25,598 40,266 17,070 (55,870) 224,145 Net realized gains (losses) (net of income tax) 22,389 (3,410) (15,070) (2,946) (2,976) (9,198) (11,211) ------------- ----------- -------------- ----------- -------------- ----------- ------------ Net income (loss) 204,920 11,140 10,528 37,320 14,094 (65,068) 212,934 ------------- ----------- -------------- ----------- -------------- ----------- ------------ Total Assets $3,052,732 $1,496,539 $1,404,452 $17,035,007 $3,716,000 $2,639,453 $29,344,183 ============= =========== ============== =========== ============== =========== ============ - -----------------------------------------------------------------------------------------------------------------------------------
(1)Includes ACE Limited, ACE INA Holdings and intercompany eliminations 14. Reclassification Certain items in the prior period financial statements have been reclassified to conform with the current period 16 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, liquidity and capital resources as of and for the three months and nine months ended September 30, 2000. The results of operations and cash flows for any interim period are not necessarily indicative of results for the full year. This discussion should be read in conjunction with the consolidated financial statements, related notes thereto and the Management's Discussion and Analysis of Results of Operations and Financial Condition included in the Company's 1999 Annual Report on Form 10-K. Safe Harbor Disclosure The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Any written or oral statements made by or on behalf of the Company may include forward-looking statements which reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from such statements. These uncertainties and other factors (which are described in more detail elsewhere herein and in documents filed by the Company with the Securities and Exchange Commission) include, but are not limited to, (i) uncertainties relating to government and regulatory policies (such as subjecting the Company to insurance regulation or taxation in additional jurisdictions or amending or revoking or enacting any laws, regulations or treaties affecting the Company's current operations), (ii) the occurrence of catastrophic events or other insured or reinsured events with a frequency or severity exceeding the Company's estimates, (iii) legal, 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) ability to collect reinsurance recoverables, (x) the competitive environment in which the Company operates, related trends and associated pricing pressures and developments, (xi) the impact of mergers and acquisitions, including the ability to successfully integrate acquired businesses and achieve cost savings, competing demands for ACE's capital and the risk of undisclosed liabilities, (xii) developments in global financial markets which could affect the Company's investment portfolio and financing plans, (xiii) risks associated with the introduction of new products and services, and (xiv) 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 ACE Limited ("ACE" or "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 indirect wholly owned subsidiaries of ACE. ACE operates through six main business segments: ACE Bermuda, ACE Global Markets, ACE Global Reinsurance, ACE USA, ACE International and ACE Financial Services. On July 2, 1999, the Company completed the ACE INA acquisition. This acquisition was recorded using the purchase method of accounting and, accordingly, the consolidated financial statements of the Company include the results of ACE INA and its subsidiaries from July 2, 1999, the date of the acquisition. ACE INA is the holding company for ACE USA and ACE International operating segments. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION On December 30, 1999, the Company acquired ACE Financial Services (previously Capital Re Corporation). This acquisition was recorded using the purchase method of accounting and, accordingly, the consolidated financial statements of the Company include the results of operations of ACE Financial Services and its subsidiaries from December 30, 1999, the date of the acquisition. 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. As noted, during 1999, the Company made two 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 INA's results are included from July 2, 1999 and, ACE Financial Services from December 30, 1999. In addition, the Company has historically recorded its results of operations from its Lloyd's syndicates one quarter in arrears. Commencing January 1, 2000, the Company now records the results from the Lloyd's 2000 underwriting year on a current basis. Prior year underwriting results are still reported one quarter in arrears but underwriting results should run off over the next few quarters. The Company has also increased its percentage of participation in the Lloyd's syndicates it manages in 2000 versus 1999. On October 11, 2000 the final Lloyd's auction for 2001 year of account capacity concluded. As a result, ACE will increase its share of the capacity of syndicate 2488 to 89.7 percent in the Syndicate's 2001 year of account compared to 84 percent in 2000. Results of Operations - Three Months ended September 30, 2000 - ------------------------------------------------------------------------------- Net Income Three Months Ended September 30 2000 1999 ---- ---- (in millions of U.S. Dollars) Income excluding net realized losses on investments $ 151 $ 69 Net realized losses on investments (net of taxes) (10) (54) --------- ---------- Net income $ 141 $ 15 ========= ========== - ------------------------------------------------------------------------------- Income excluding net realized losses on investments was $151 million for the quarter ended September 2000 compared with $69 million for the quarter ended September 1999, an increase of 188 percent. The significant increase this quarter is due to several factors: the inclusion of the results of ACE Financial Services which was acquired on December 30, 1999 and contributed $20 million to income excluding realized losses; a low level of catastrophe losses in the quarter; a change in the mix of business whereby ACE has removed marginal business from its portfolio; the successful cross-marketing of business within the organization; and a general strengthening of the insurance market which has led to price improvements and increased acceptance rates of business submissions in several lines of business. The quarter ended September 1999 was impacted by a large number of catastrophic events that negatively affected income after tax by $34 million for the September 1999 quarter. Excluding these events, income excluding realized losses for the third quarter 2000 increased 47 percent over the third quarter 1999. Net realized losses on investments (net of taxes) were $10 million for the September 2000 quarter compared with net realized losses of $54 million for the September 1999 quarter. Net realized losses were impacted primarily by losses at ACE Tempest Re and ACE INA. Net income for the current quarter was $141 million compared with $15 million for the quarter ended September 1999. The increase in net income was due primarily to the factors discussed above. 18 - -------------------------------------------------------------------------------- Premiums Three months ended % Change September 30 from 2000 1999 Prior Year ---- ---- --------------- (in millions of U.S. Dollars) Gross premiums written: ACE Bermuda $ 200 $ 130 53% ACE Global Markets 239 184 30% ACE Global Reinsurance 31 24 27% ACE USA 975 744 31% ACE International 497 462 8% ACE Financial Services 58 - N.M. ------------- -------------- --------------- $ 2,000 $ 1,544 29% ============= ============== =============== Net premiums written: ACE Bermuda $ 182 $ 107 70% ACE Global Markets 177 110 60% ACE Global Reinsurance 13 (8) N.M. ACE USA 450 370 22% ACE International 325 332 (2)% ACE Financial Services 50 - N.M. -------------- -------------- --------------- $ 1,197 $ 911 31% ============== ============== =============== Net premiums earned: ACE Bermuda $ 170 $ 126 35% ACE Global Markets 174 99 76% ACE Global Reinsurance 38 35 7% ACE USA 411 343 20% ACE International 339 350 (3)% ACE Financial Services 43 - N.M. --------------- ------------- --------------- $ 1,175 $ 953 23% =============== ============= =============== N.M. not meaningful - -------------------------------------------------------------------------------- For the quarter ended September 2000, gross premiums written increased by $456 million to $2.0 billion compared with $1.5 billion for the quarter ended September 1999. The increase is primarily the result of the growing acceptance of the ACE brand, successful cross-marketing of business within the organization and the strengthening of the insurance market, where price improvements have led to an increased acceptance rate on submissions in several lines of business. ACE Financial Services (which was acquired on December 30, 1999) also added to the increase by contributing $58 million to gross premiums written this quarter. Net premiums written as well as net premiums earned benefited from the same factors that lead to the increase in gross premiums written. Net premiums written increased by $286 million or 31 percent and net premiums earned increased by $222 million or 23 percent. ACE Bermuda: Gross premiums written for the third quarter 2000 increased by 53 percent over the third quarter 1999 to $200 million. This growth was led by the professional lines business, which bound a one time premium of $50 million on a retroactive program that was fully written and earned during the quarter and ACE Financial Solutions International (AFSI), previously known as Tailored Risk Solutions, which wrote several new contracts and also experienced increased premiums on certain existing accounts. Net premiums written and net premiums earned increased 70 percent and 35 percent respectively. As with gross premiums written, the increases were primarily generated by professional lines and AFSI. As of August 1, 2000, the aviation department ceased to write new business and this business was transferred to ACE Global Markets. ACE believes that ACE Global Markets, which is already a lead underwriter in London for aviation business, is better suited to manage this business going forward. 19 ACE Global Markets: Gross premiums written for ACE Global Markets increased by 30 percent from $184 million written for the third quarter of fiscal 1999 to $239 million for the third quarter of fiscal 2000. As previously reported, the Company now records the results of the Lloyd's 2000 underwriting year on a current basis and the results for September 2000 are for business concluded in the September 2000 quarter. Prior year underwriting results are still recorded one quarter in arrears but should run off over the next several quarters. On a comparable basis, gross premiums written increased by approximately $135 million in 2000 compared with 1999. This increase is primarily the result of ACE's increased capacity in 2000. Net premiums written and net premiums earned increased 60 percent and 76 percent respectively. As a result of substantial losses being reported in the Lloyd's market, various insurers exiting product lines and the restructuring of reinsurance programs by the reinsurance market, all areas of ACE Global Markets underwriting activity is now benefiting from increased rates and more favorable terms. ACE Global Reinsurance: Gross premiums written increased by 27 percent to $31 million for the quarter ending September 2000 compared with gross premiums written of $24 million for the same quarter last year. Growth in this segment is due to both increased rates and new business opportunities. Net premiums written for the quarter were positive in contrast to the third quarter 1999 when retrocessional coverage exceeded gross premiums written. Net premiums earned increased 7 percent over the September 1999 quarter to $38 million. Looking forward, it is anticipated the favorable market trends will continue as capacity is withdrawn from the retrocessional markets and reinsurers continue to seek rate increases. ACE USA: Gross premiums written increased 31 percent to $975 million for the quarter ended September 2000, a $231 million increase over September 1999. All business units had strong production this quarter with the large account, special risk, and US International units showing particularly strong growth. Net premiums written and net premiums earned increased 22 percent and 20 percent respectively during the third quarter 2000 as compared to the third quarter 1999. ACE USA has continued to focus on strengthening the quality of its portfolio and as a result, approximately $50 million of business was eliminated this quarter because it did not meet ACE's standards. Market conditions continued to be favorable as evidenced by price increases, substantial increases in submission levels, and strong account retention during the quarter. ACE International: Gross premiums written increased 8 percent from $462 million for the September 1999 quarter to $497 million for the September 2000 quarter. On a constant dollar basis gross premiums written were up 10 percent. Net premiums written and net premiums earned declined 2 percent and 3 percent respectively. On a constant dollar basis net premiums written were flat. The relatively modest growth rate of gross premiums written was due in part to the elimination of certain marginal business during the quarter. ACE International, however, continues to see strong growth momentum in Europe, Latin America and Asia Pacific. There are indications that reinsurance costs are starting to rise and that capacity is tightening in the international market. ACE International expects this to lead to an acceleration of rate increases moving forward. The exception is Japan where deregulation has led to rate reductions across all lines of business as local companies continue to battle for market share. ACE Financial Services: Gross premiums written for ACE Financial Services were $58 million for the quarter. This is the third quarter in which the Company's financial results reflect the acquisition of ACE Financial Services. Net premiums written were $51 million and net premiums earned were $43 million. As ACE Financial Services was acquired on December 30, 1999; there are no comparative figures for the quarter. The municipal bond reinsurance business continues to be impacted by higher interest rates, however, this weakness is being offset by strengthening in the asset-backed and derivatives markets. 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. 20 - ------------------------------------------------------------------------------- Three Months Ended September 30 2000 1999 ---- ---- Loss and loss expense ratio ACE Bermuda 77.9% 83.7% ACE Global Markets 58.8% 60.9% ACE Global Reinsurance 15.4% 49.2% ACE USA 75.0% 73.4% ACE International 60.7% 56.7% ACE Financial Services 42.4% - Consolidated 65.8% 66.4% Underwriting and administrative expense ratio ACE Bermuda 8.9% 10.9% ACE Global Markets 36.3% 37.7% ACE Global Reinsurance 24.3% 26.8% ACE USA 24.1% 34.9% ACE International 37.8% 40.2% ACE Financial Services 40.9% - Consolidated 29.4% 35.2% Combined Ratio ACE Bermuda 86.8% 94.6% ACE Global Markets 95.1% 98.6% ACE Global Reinsurance 39.7% 76.0% ACE USA 99.1% 108.3% ACE International 98.5% 96.9% ACE Financial Services 83.3% - Consolidated 95.3% 101.6% - ------------------------------------------------------------------------------- The process of establishing reserves for property and casualty claims continues to be a complex and uncertain 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. 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. Underwriting results for all segments for the September 2000 quarter are consistent with the Company's operating objective of achieving an underwriting profit. Following the acquisition of ACE INA, the Company initiated several cost reduction initiatives at ACE INA with a primary focus on ACE USA. These initiatives have assisted ACE USA in again achieving a combined ratio under 100 percent for the quarter. Loss and loss expenses for the third quarter 2000 increased to $773 million from $633 million in the third quarter 1999 as a result of an increase in earned premiums and the inclusion of ACE Financial Services. However, the overall loss ratio declined slightly. 21 ACE Bermuda: ACE Bermuda's loss ratio for the third quarter 2000 declined to 77.9 percent from 83.7 percent for the quarter ended September 1999. Decreases in the loss ratios of political risks, excess property, and AFSI are primarily responsible for the decreases in ACE Bermuda's loss ratio. ACE Global Markets: The loss ratio for ACE Global Markets decreased slightly compared to the third quarter 1999 primarily due to a change in business mix. ACE Global Reinsurance: ACE Tempest Re's loss ratio decreased from 49.2 percent for the quarter ended September 1999 to 15.4 percent for the quarter ended September 2000. This significant decline is the result of lower catastrophes in 2000 than in 1999. During the September 1999 quarter, the insurance and reinsurance markets sustained a large number of catastrophe losses including major earthquakes in Taiwan, Turkey, Greece and Mexico, Typhoon Bart in Japan and Hurricane Floyd in the U.S. ACE Tempest Re's losses for the September 2000 quarter were modest, resulting largely from localized catastrophes affecting its US regional accounts. ACE USA: The loss ratio for ACE USA increased slightly from 73.4 percent in 1999 to 75.0 percent for the quarter ended September 2000, primarily as a result of a change in the business mix. ACE USA has concentrated on both loss ratio and expense ratio improvements even at the risk of losing business, or in some cases, actively eliminating business that does not meet the Company's underwriting standards. During the quarter, improvements in the loss ratio are not apparent because of the change in business mix. ACE International: The loss ratio for ACE International increased from 56.7 percent for the September 1999 quarter to 60.7 percent for 2000. ACE International's loss ratio was impacted by losses related to rain storms in Nagoya Japan, which resulted in significant flood losses and the largest single automobile loss in Japanese history. ACE Financial Services: The loss ratio for ACE Financial Services was 42.4 percent for the quarter ended September 2000. As ACE Financial Services was acquired on December 30, 1999; there are no comparative figures for the quarter. Underwriting and administrative expenses Underwriting and administrative expenses are comprised of the amortization of deferred 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. Total underwriting and administrative expenses increased from $335 million for the September 1999 quarter to $346 million for the September 2000 quarter. The underwriting and administrative expense ratio decreased quarter on quarter to 29.4 percent from 35.2 percent in 1999. ACE Bermuda: The underwriting and administrative expense ratio for ACE Bermuda decreased from 10.9 percent for the September 1999 quarter to 8.8 percent for the September 2000 quarter, primarily the result of a decline in the administrative expense ratio. This ratio was influenced by the large professional lines contract earned in the quarter. ACE Global Markets: ACE Global Markets underwriting and administrative ratio fell from 37.7 percent for the September quarter 1999 quarter to 36.3 percent for the September 2000 quarter. The improvement is primarily the result of a lower administrative cost ratio due to increasing earned premiums. ACE Global Reinsurance: The underwriting and acquisition cost ratio decreased from 26.8 percent for 1999 to 24.3 percent for 2000. This decrease is primarily due to a decrease in administrative expenses and an increase in earned premiums. 22 ACE USA: The underwriting and administrative expense ratio decreased from 34.9 percent for the quarter ended September 1999 to 24.1 percent for the quarter ended September 2000. This decrease was mainly the result of a decrease in the administrative expense ratio from 24.5 percent in 1999 to 14.3 percent in 2000 driven primarily by the reduction of administrative expenses at ACE USA resulting from the cost reduction initiatives at ACE INA following the acquisition. The ratio was also affected by a change in business mix in 2000 compared with 1999. ACE International: ACE International's underwriting and administrative expense ratio decreased from 40.2 percent for the third quarter 1999 to 37.8 percent for the third quarter 2000, due mainly to a drop in policy acquisition costs. ACE Financial Services: The underwriting and administrative expense ratio for ACE Financial Services was 40.9 percent. ACE Financial Services was acquired on December 30, 1999; therefore, there are no comparative figures for this quarter. - ------------------------------------------------------------------------------- Net Investment Income Three Months Ended Percentage September 30 Change From Prior 2000 1999 Year ---- ---- (in millions of U.S. Dollars) ACE Bermuda $ 39 $ 37 5% ACE Global Markets 8 8 - ACE Global Reinsurance 15 14 8% ACE USA 90 84 7% ACE International 25 18 39% ACE Financial Services 24 - N.M. Other (3) 2 N.M. ---------- ---------- ---------- Total investment income $ 198 $ 163 21% ========== ========== ========== N.M. - not meaningful - -------------------------------------------------------------------------------- Net investment income increased by $35 million for the quarter ended September 2000 compared with the quarter ended September 1999. The primary reasons for this are an increase in the size of investment assets resulting from the ACE Financial Services acquisition during 1999 and the inclusion of the CIS results not previously reflected in the statement of operations. ACE Bermuda: Net investment income increased by 5 percent to $39 million for the September 2000 quarter compared with $37 million for 1999. The increase is due to a larger investable asset base. ACE Global Markets: Net investment income was unchanged at $8 million compared to the 1999 quarter. ACE Global Reinsurance: Net investment income increased by 8 percent to $15 million during the current quarter compared with $14 million for 1999. This is attributed primarily to a larger investable asset base. 23 ACE USA: Net investment income increased to $90 million for the September 2000 quarter compared with $84 million for 1999. The investment asset base of ACE USA was higher during the quarter ended September 30, 2000 than during the quarter ended September 1999 due to the inclusion of the CIS results not previously reflected in the statement of operations. ACE International: Net investment income increased to $25 million for the September 2000 quarter compared with $18 million for 1999. This is primarily due to an increased allocation to fixed maturities. ACE Financial Services: Net investment income of $24 million represents the net investment income of ACE Financial Services which was acquired on December 30, 1999; therefore, there is no prior period comparison. - ------------------------------------------------------------------------------- Net Realized Gains (Losses) on Investments Three Months Ended September 30 2000 1999 ---- ---- (in millions of U.S. Dollars) Fixed maturities and short-term investments $ (16) $ (34) Equity securities 7 7 Financial futures and option contracts (2) (33) Other (3) 1 Currency 1 - ---------- ---------- Net realized losses $ (13) $ (59) ========== ========== - ------------------------------------------------------------------------------- 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 quarter. This resulted in net realized losses of $16 million being recognized on fixed maturities and short-term investments during the quarter ended September 2000 compared to net realized losses of $34 million for the quarter ended September 1999. Sales proceeds for equity securities were generally higher than their cost during the quarter, resulting in net realized gains of $7 million being recognized during both the current quarter and for the quarter ended September 1999. 24 Total net realized losses attributable to the financial futures and option contracts amounted to $2 million during the current quarter, compared to losses of $33 million for the three months ended September 1999. Certain of the Company's external managers of fixed income securities use fixed income futures contracts to manage duration exposure, and losses of $2 million were recognized on these during the quarter ended September 2000. There were no net realized gains or losses generated by the Company's equity index futures contracts during the quarter ended September 2000. - ------------------------------------------------------------------------------- Other Expenses Three Months Ended September 30 2000 1999 ---- ---- (in millions of U.S. Dollars) Goodwill $ 20 $ 17 =============== =============== Interest expense $ 55 $ 44 =============== =============== - ------------------------------------------------------------------------------- The increase in goodwill amortization for the September 2000 quarter is primarily the result of the amortization of goodwill with respect to the ACE Financial Services acquisition, which is approximately $1 million per quarter, and amortization of additional goodwill with respect to the ACE INA acquisition. ACE Financial Services was acquired December 30, 1999; therefore, goodwill amortization related to this acquisition is not included in the comparative amounts. The increase in interest expense for the September 2000 quarter compared with the September 1999 quarter is due to the replacement of commercial paper, which was used to finance the acquisition of ACE INA, with higher interest bearing debt and securities. At September 30, 1999, the Company had $1.28 billion of commercial paper outstanding. At September 30, 2000, this amount has been reduced to $352 million. Note 8 to the September 30, 2000 financial statements details the outstanding debt at September 30, 2000. Results of Operations - Nine Months ended September 30, 2000 - ------------------------------------------------------------------------------- Net Income Nine Months Ended September 30 2000 1999 ---- ---- (in millions of U.S. Dollars) Income excluding net realized gains (losses) on investments $ 418 $ 224 Net realized gains (losses) on investments 11 (11) (net of taxes) -------- --------- Net Income $ 429 $ 213 ======== ========= - ------------------------------------------------------------------------------- Income excluding net realized gains (losses) on investments for the first nine months of fiscal 2000 increased 87 percent to $418 million compared to $224 million for the same period in 1999. Most segments had significant increases in income excluding net realized gains (losses) on investments. The increase is due primarily to the inclusion of the results of ACE INA and ACE Financial Services for the full nine months of fiscal 2000. The increase was also due to better operating results in the ACE Global Reinsurance segment as a result of minimal catastrophe activity in the nine months ended September 2000 versus the nine months ended September 1999 where these were a large number of insured catastrophes that impacted the results of the ACE Global Reinsurance segment. Net realized gains on investments (net of taxes) were $11 million for the nine months ended September 2000 compared to net realized losses of $11 million for the nine months ended September 1999. The increases were primarily due to gains realized by ACE Bermuda and ACE International. 25 Net income for the nine months ended September 2000 was $429 million compared with $213 for the nine months ended September 1999. Increases were driven by the same factors that were explained in the discussion of income excluding net realized gains (losses). - ------------------------------------------------------------------------------- Premiums Nine months ended % Change September 30 from 2000 1999 Prior Year ---- ---- ----------- (in millions of U.S. Dollars) Gross premiums written: ACE Bermuda $ 511 $ 433 18% ACE Global Markets 753 530 42% ACE Global Reinsurance 178 185 (3)% ACE USA 2,662 879 N.M. ACE International 1,554 462 N.M. ACE Financial Services 289 - N.M. ----------- ---------- ------- $ 5,947 $ 2,489 139% =========== ========== ======= Net premiums written: ACE Bermuda $ 446 $ 346 29% ACE Global Markets 551 377 46% ACE Global Reinsurance 146 150 (2)% ACE USA 1,371 439 N.M. ACE International 1,080 332 N.M. ACE Financial Services 274 - N.M. ---------- ---------- ------- $ 3,868 $ 1,644 135% ========== ========== ======= Net premiums earned: ACE Bermuda $ 356 $ 398 (10)% ACE Global Markets 455 288 58% ACE Global Reinsurance 96 109 (12)% ACE USA 1,256 393 N.M. ACE International 1,037 350 N.M. ACE Financial Services 247 - N.M. ---------- ---------- -------- $ 3,447 $ 1,538 124% ========== ========== ======== - ------------------------------------------------------------------------------- Gross premiums written for the nine months ended September 2000 increased by 139 percent to $5.9 billion from $2.5 billion reported for the nine months ended September 1999. This increase is primarily due to the inclusion of ACE INA and ACE Financial Services for the full nine months of 2000. ACE INA was acquired July 2, 1999 and therefore only three months of results are reflected in the fiscal 1999 results. ACE Financial Services was acquired on December 30, 1999 and consequently there are no comparatives for September 1999. Net premiums written increased by 135 percent to $3.9 billion and net premiums earned increased by 124 percent to $3.4 billion. Increases in net premiums written and net premiums earned are also primarily the result of the inclusion of the ACE INA business and ACE Financial Services. 26 ACE Bermuda: Gross premiums written for the nine months ended September 2000 increased $78 million to $511 million from $433 million for the nine months ended September 1999. This growth was led by new business in excess property and AFSI and the binding of a one time premium of $50 million on a retroactive program in the professional lines business which was fully written and earned in the third quarter 2000. Net premiums written increased $100 million in the first three quarters of 2000 to $446 million while net premiums earned decreased $42 million to $356 million primarily as a result of a change in the mix of business in the AFSI operation. ACE Global Markets: Gross premiums written by ACE Global Markets increased by 42 percent from $530 million in fiscal 1999 to $753 million in fiscal 2000. As previously reported, the Company now records the results of the Lloyd's 2000 underwriting year on a current basis and the results for September 2000 are for business concluded for the nine months ended September 2000. Prior year underwriting results are still recorded one quarter in arrears but should run off over the next several quarters. On a comparable basis, gross premiums written increased by approximately $257 million in 2000 compared with 1999. This increase is the result of ACE's increased capacity in 2000. Net premiums written increased by 46 percent for the nine months to $551 million and net premiums earned increased by 58 percent to $455 million. ACE Global Reinsurance: Gross premiums written decreased slightly from $185 million in the first nine months of fiscal 1999 to $178 million for the first nine months of fiscal 2000. The decrease is due predominantly to a number of program restructuring and non-renewals, offset by new business premiums. Net premiums written decreased by 2 percent to $146 million and net premiums earned decreased by 12 percent to $96 million. ACE USA: Gross premiums for the first nine months of 2000 were $2.7 billion compared to $879 million for the first nine months of 1999. Net premiums written increased from $439 million to $1.4 billion primarily due to the inclusion of ACE INA for the full nine months of 2000 compared to the inclusion of results from ACE INA from July 2, 1999, the date of acquisition. Net premiums earned increased to $1.3 billion compared with $393 million in 1999. As with gross premiums written, net premiums written and net premiums earned increased primarily because of the inclusion of the ACE INA book of business. ACE International: Gross premiums for the nine months ended September 2000 were $1.6 billion compared with $462 million for the nine months ended September 1999 and net premiums written increased from $332 million in 1999 to $1.1 billion in 2000. As with ACE USA the increase is primarily due to the inclusion of ACE INA for the full nine months of 2000 compared to the inclusion of results from ACE INA from July 2, 1999, the date of acquisition, in the nine month figures of 1999. Net premiums earned increased to $1.0 billion in 2000 from $350 million in 1999 also because of the inclusion of the ACE INA book of business for the full nine months of 2000. ACE Financial Services: Gross premiums for the nine months ended September 2000 amounted to $289 million. Net premiums written and net premiums earned were $274 million and $247 million respectively. Because this is the first year in which results from ACE Financial Services are reflected in the financials results there are no comparatives for the nine months ended September 1999. 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. 27 - ------------------------------------------------------------------------------- Nine Months Ended September 30 2000 1999 ---- ---- Loss and loss expense ratio ACE Bermuda 74.4% 76.0% ACE Global Markets 56.8% 58.3% ACE Global Reinsurance 18.2% 85.7% ACE USA 74.8% 71.9% ACE International 59.2% 56.7% ACE Financial Services 66.0% - Consolidated 65.5% 67.9% Underwriting and administrative expense ratio ACE Bermuda 10.4% 10.6% ACE Global Markets 38.2% 39.1% ACE Global Reinsurance 26.8% 22.9% ACE USA 24.6% 34.9% ACE International 37.1% 40.2% ACE Financial Services 25.2% - Consolidated 30.1% 32.3% Combined Ratio ACE Bermuda 84.8% 86.6% ACE Global Markets 95.0% 97.4% ACE Global Reinsurance 45.0% 108.6% ACE USA 99.2% 106.8% ACE International 96.3% 96.9% ACE Financial Services 91.2% - Consolidated 95.6% 100.2% - ------------------------------------------------------------------------------- For the nine months ended September 2000, the Company had a combined ratio of 95.6 percent compared to 100.2 percent for the nine months ended September 1999. Even with the Company's premium growth in the nine months of fiscal 2000, underwriting results for all segments for the nine months ended September 30, 2000 are consistent with the Company's operating objective of achieving an underwriting profit. Loss and loss expenses increased to $2.3 billion for the first nine months of 2000 compared to $1.5 billion for the same period in 1999. This increase is primarily due to the inclusion of results from ACE INA for the full nine months of 2000 compared to inclusion from July 2, 1999, the date of acquisition in 1999 and the inclusion of ACE Financial Services. The Company's loss and loss expense ratio decreased from 67.9 percent in 1999 to 65.5 percent in 2000. The primary cause of this decrease is the reduced number of catastrophic events in 2000 compared with 1999. ACE Bermuda: The loss ratio for ACE Bermuda for the nine months ended September 2000 remained relatively flat at 74.4 percent for 2000 compared to 76.0 percent for 1999. ACE Global Markets: For the first nine months of 2000, ACE Global Markets loss ratio decreased slightly to 56.8 percent compared with 58.3 percent for the first nine months of 1999, primarily due to a change in business mix. ACE Global Reinsurance: ACE Tempest Re's loss and loss expense ratio declined significantly from 85.7 percent for the nine months ended September 1999 to 18.2 percent for the nine months ending September 2000. There have been very few catastrophic events during 2000 as compared to the significant number of catastrophes that were experienced in the nine months ended September 1999. 28 ACE USA: The loss ratio for the nine months ended September 2000 increased to 74.8 percent compared to 71.9 percent in 1999. The primary reason for this increase is that the domestic business of ACE INA has a loss ratio in excess of the historic loss ratio for ACE US Holdings. The first six months of 1999 related solely to the ACE US Holdings group which had a loss ratio for the six months of 62.3 percent. ACE International: ACE International had a loss ratio of 59.2 percent for the first nine months of 2000 as compared to 56.7 percent for the same period in 1999. The increase is driven by losses in Europe. ACE Financial Services: The loss ratio for the nine months ended September 2000 for ACE Financial Services was 66.0 percent. ACE Financial Services was acquired on December 30, 1999; therefore, there are no comparative figures for this quarter. Underwriting and administrative expenses Total underwriting and administrative expenses increased significantly for the nine months ended September 2000 to $1.0 billion from $498 million in 1999. This increase, as with premiums and incurred losses, is due to the inclusion of ACE INA for the full nine months in 2000 compared to 1999 which included ACE INA from July 2, 1999, the date of acquisition and the inclusion of ACE Financial Services. The underwriting and administrative ratio for the Company declined to 30.1 percent for 2000 compared to 32.3 percent for 1999. ACE Bermuda: The underwriting and administrative expense ratio for the first nine months of 2000 remained relatively flat at 10.4 percent compared with 10.6 percent for 1999. ACE Global Markets: ACE Global Markets underwriting and administrative expenses for the nine months ended September 2000 decreased slightly from 39.1 percent in 1999 to 38.2 percent in 2000. This is due primarily to a decline in the administrative expense ratio caused by an increase in earned premiums. ACE Global Reinsurance: The underwriting and administrative expense ratio increased from 22.9 percent in 1999 to 26.8 percent in 2000 primarily because of an increase in the policy acquisition cost ratio. The increase in the policy acquisition ratio is due to the company entering into more contracts that have higher ceding commissions. ACE USA: For the first nine months of 2000 ACE USA had an underwriting and administrative expense ratio of 24.6 percent compared to 34.9 percent in 1999. The decrease resulted from a decline in the administrative expense ratio in 2000, primarily resulting from cost cutting efforts in ACE USA following the ACE INA acquisition. The decrease is also partly due to a change in the mix of business. ACE International: The underwriting and administrative expense ratio for the first nine months of 2000 declined from 40.2 percent in 1999 to 37.1 percent in 2000. Both the policy acquisition cost ratio and the administrative expense ratio decreased. The decrease in expenses is the result of the cost cutting measures taken in this segment, primarily in Japan. ACE Financial Services: ACE Financial Services had an underwriting and administrative ratio of 25.2 percent for the first nine months of 2000. As ACE Financial Services was acquired on December 30, 1999, there are no comparative figures for this period in 1999. 29 - ------------------------------------------------------------------------------- Net Investment Income Nine Months Ended September 30 Percentage 2000 1999 Change ---- ---- From Prior (in millions of U.S. Dollars) Year ACE Bermuda $ 111 $ 135 (18)% ACE Global Markets 23 21 9% ACE Global Reinsurance 45 45 - ACE USA 252 109 131% ACE International 69 18 N.M. ACE Financial Services 71 - N.M. Other (9) 6 N.M. ------------ --------------- ----------- Total investment income $ 562 $ 334 68% ============ =============== =========== N.M.-not- meaningful - ------------------------------------------------------------------------------- Net investment income increased by $228 million for the nine months ended September 2000 compared with the nine months ended September 1999. The primary reason for this is an increase in the size of investment assets resulting from the ACE INA and ACE Financial Services acquisitions during 1999. Rising interest rates had a positive impact on investment income during the nine months ended September 2000. ACE Bermuda: Net investment income decreased by 18 percent to $111 million in 2000 compared with $135 million in 1999. This decrease is primarily due to a reduction in investable asset base due to dividends paid at the end of December 1999. ACE Global Markets: Net investment income increased by 9 percent to $23 million compared with $21 million for 1999 as a result of the Company's increased participation in the Lloyd's syndicates it manages. ACE Global Reinsurance: Net investment income was unchanged for the nine months ended September 2000, at $45 million. ACE USA: Net investment income increased to $252 million in 2000 compared with $109 million in 1999. The investment asset base of ACE USA was higher during the nine months ended September 2000 than during the nine months ended September 1999 due to the ACE INA acquisition. Net investment income for the current year includes both ACE US Holdings and the US operations of ACE INA which was acquired on July 2, 1999. Net investment income for 1999 reflects the net investment income of ACE US Holdings for the entire period and the US operations of ACE INA for the three month period from July 2, 1999. ACE International: Net investment income of $69 million represents the net investment income of the international operations of ACE INA for the nine months ended September 30, 2000. The 1999 net investment income reflects the three month period from the date of acquisition; July 2, 1999, to September 30, 1999. ACE Financial Services: Net investment income of $71 million represents the net investment income of ACE Financial Services which was acquired on December 30, 1999; therefore, there is no prior period comparison. 30 - ------------------------------------------------------------------------------- Net Realized Gains (Losses) on Investments Nine Months Ended September 30 2000 1999 ---- ---- (in millions of U.S. Dollars) Fixed maturities and short-term investments $ (74) $ (65) Equity securities 100 36 Financial futures and option contracts (10) 17 Other 4 1 Currency (6) (5) ----------- --------------- Net realized gains (losses) $ 14 $ (16) =========== =============== - -------------------------------------------------------------------------------- Sales proceeds for fixed maturity securities were generally lower than their amortized cost during the nine months ended September 2000. This resulted in net realized losses of $74 million being recognized on fixed maturities and short-term investments during the nine months ended September 2000 compared to net realized losses of $65 million for the nine months ended September 1999. Sales proceeds for equity securities were generally higher than their cost during the nine months ended September 2000, resulting in net realized gains of $100 million being recognized during the period compared to $36 million for the nine months ended September 1999. Total net realized losses attributable to the financial futures and option contracts amounted to $10 million during the nine months ended September 30, 2000, compared to gains of $17 million for the nine months ended September 1999. Certain of the Company's external managers of fixed income securities use fixed income futures contracts to manage duration exposure, and losses of $4 million were recognized on these during the nine months ended September 2000. Net realized losses generated by the Company's equity index futures contracts amounted to $6 million during the nine months ended September 2000. - -------------------------------------------------------------------------------- Other Expenses Nine Months Ended September 30 2000 1999 ---- ---- (in millions of U.S. Dollars) Goodwill $ 59 $ 26 ============== ============ Interest expense $ 167 $ 53 =============== ============ - -------------------------------------------------------------------------------- 31 The increase in goodwill amortization for the nine months ended September 2000 is primarily the result of the amortization of goodwill with respect to the ACE INA and ACE Financial Services acquisitions. ACE INA was acquired July 2, 1999 and ACE Financial Services was acquired December 30, 1999, therefore, goodwill amortization related to these acquisitions are not included for the full nine months in the comparative amounts. The increase in interest expense for the nine months ended September 2000 is a result of the additional debt incurred by the Company in connection with the acquisition of ACE INA on July 2, 1999. CONSOLIDATED FINANCIAL POSITION Total assets at September 30, 2000 increased to $31.5 billion compared with $30.1 billion at December 31, 1999. The primary reason for the increase was the expansion of the CIS balance sheet items out of a net liability and into their component parts. Approximately $950 million of the total CIS assets of $1.3 billion, were cash and investments. At September 30, 2000, total investments and cash increased to $13.8 billion, from $12.9 billion at December 31, 1999. This increase is primarily a result of the expansion of the CIS balance sheet as previously noted, as well as the 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 fixed maturity securities added $78 million to total cash and investments. These items were partly offset as the Company used approximately $100 million of internal funds to repay short-term debt and had negative cash flow from operations of approximately $375 million. The Company's investment portfolio is structured to provide a high level of liquidity to meet insurance related or other obligations and at September 30, 2000 had an average duration of 4.0 years. 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 loss 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 of $17.4 billion at September 30, 2000 includes $10.1 billion of case and loss expense reserves. While the Company believes that its reserve for unpaid losses and loss expenses at September 30, 2000 is reasonable, future developments may result in ultimate losses and loss expenses significantly greater or less than the reserve provided. 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 recoverables were approximately $8.7 billion and $8.8 billion at September 30, 2000 and December 31, 1999, net of allowances for unrecoverable reinsurance of $715 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 below) and London reinsurance market exposures. Allowances have been established for amounts estimated to be uncollectible. 32 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 claims"). These liabilities include provision for both reported and IBNR claims. 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. 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 shareholder's equity at a level adequate to support the level of insurance and reinsurance operations. During the nine months ended September 30, 2000, ACE Bermuda declared dividends of $81 million. During the year ended December 31, 1999, ACE Bermuda and ACE Tempest Re declared dividends of $726 million and $316 million, respectively. 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 during the first nine months of fiscal 2000 and the Company does not anticipate receiving dividends from ACE Global Markets during the remainder of fiscal 2000. 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 nine months ended September 30, 2000, ACE INA Holdings received dividends of $94 million from its subsidiaries. Under various 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 are also subject to 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 nine months ended September 30, 2000. ACE Financial Services US insurance subsidiaries are also subject to various US 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 the nine months ended September 30, 2000. 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 $(375) million for the nine months ended September 30, 2000, compared with $(285) million for the nine months ended September 30, 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 reserves from business in run-off. 33 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 liabililities and cash flows are very dependent on the timing of claim settlements. Loss and loss expense payments amounted to $2.8 billion and $1.5 billion for the nine months ended September 30, 2000 and 1999, respectively. The substantial increase in loss and loss expense payments is a result of the inclusion of paid losses from ACE INA. For the year ended December 31, 1999 and fiscal years ended September 30, 1998 and 1997, net losses and loss expense payments amounted to $2.4 billion, $584 million and $422 million respectively. 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 $352 million 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 in the Notes to Interim 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 generated from internal sources. On September 12, 2000, the Company completed the sale of 12,250,000 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 being 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. The notes issued by ACE INA and the preferred shares issued by the RHINOS Trust mature in September 2002 and are redeemable at any time at ACE INA's option. Effective October 27, 2000, the interest rate on the notes and the distribution rate on the preferred securities was reduced to LIBOR plus 87.5 basis points. 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 and October 13, 2000, the Company paid quarterly dividends of 13 cents per share to shareholders of record on June 30, 2000 and September 30, 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. Fully diluted book value per share was $22.41 at September 30, 2000, compared with $20.28 at December 31, 1999. 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 elapse between the occurrence of an insured loss, the reporting of the loss to the Company and the settlement of the Company's liability for that loss. 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. 34 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: o 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. o 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 back-up facilities. 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 September 30, 2000, no amounts have been drawn down under this facility. As of September 30, 2000 ACE Financial Services was party to a credit facility with a syndicate of banks pursuant to which the syndicate provides up to $120 million specifically designed to provide rating agency qualified capital to further support ACE Financial Services claims-paying resources. The facility 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 5-year syndicated credit facility as described above. In November 1998, the Company arranged a syndicated, five-year LOC facility in the amount of (pound)270 million (approximately $392 million) to fulfill the requirements of Lloyd's for the 1999 year of account. 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. The facility was renewed in November 1999 at an increased amount of (pound)290 million (approximately $421 million) to fulfill the requirements of Lloyd's for the 2000 year of account. The Company is currently renewing this facility at an increased amount to fulfill the requirements of Lloyd's for the 2001 year of account. The facility is currently uncollateralized, but the Company has an obligation to provide collateral if the financial strength rating from S&P for the subsidiary guaranteeing this facility falls to BBB+ or below. ACE Financial Services also maintains a (pound)48 million (approximately $70 million) unsecured letter of credit facility with a bank to fulfill a subsidiary's requirements at Lloyd's. In September 2000, the Company along with ACE Bermuda and ACE Tempest Re as Account Parties and Guarantors renewed for one year a syndicated, one-year LOC facility in the amount of $430 million for general business purposes, including the issuance of (re)insurance 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. 35 ACE LIMITED PART II - OTHER INFORMATION --------------------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ----------------------------------------- 1. Exhibits. 10.1 Underwriting Agreement between ACE Limited and Banc of America Securities LLC with related terms agreements dated September 6, 2000 10.2 Third Amendment to Reimbursement Agreement amends the Reimbursement Agreement, dated as of September 8, 1999, and amended as of November 30, 1999 and as of March 15, 2000, among ACE Limited, ACE Bermuda Insurance Ltd. , Tempest Reinsurance Company Limited, Deutsche Bank AG, New York and/or Cayman Islands Branches and Fleet National Bank, as Documentation Agents, and Mellon Bank, N.A dated September 1, 2000. 10.3 Fourth Amendment to Reimbursement Agreement which amends the Reimbursement Agreement, dated as of September 8, 1999, and amended as of November 30, 1999, as of March 15, 2000 and as of September 1, 2000, among ACE Limited, ACE Bermuda Insurance Ltd. ACE Tempest Reinsurance Ltd., formerly Tempest Reinsurance Company Limited, Deutsche Bank AG, New York and/or Cayman Islands Branches and Fleet National Bank, as Documentation Agents, and Mellon Bank, N.A., as Issuing Bank and Administrative Agent dated as of October 5, 2000. 10.4 The first amendment which amends the Amended and Restated Five Year Credit Agreement dated as of May 8, 2000 among ACE Limited, ACE Bermuda Insurance Ltd. ACE Tempest Reinsurance Ltd., formerly known as Tempest Reinsurance Company Limited, ACE INA Holdings Inc. and ACE Financial Services, Inc., various financial institutions, and Morgan Guaranty Trust Company of New York, as administrative agent dated as of October 23, 2000 10.5 The first amendment which amends the Amended and Restated 364-Day Credit Agreement dated as of May 8, 2000 among ACE Limited, a Cayman Islands, ACE Bermuda Insurance Ltd., ACE Tempest Reinsurance Ltd., formerly known as Tempest Reinsurance Company Limited, ACE INA Holdings Inc. and ACE Guaranty Re Inc., various financial institutions and Morgan Guaranty Trust Company of New York ("MGT"), as administrative agent dated as of October 23, 2000 27. Financial Data Schedule 36 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ACE LIMITED ----------------------------------------- November 14, 2000 /s/ Brian Duperreault ------------------------------------------- Brian Duperreault Chairman and Chief Executive Officer November 14, 2000 /s/ Robert Blee -------------------------------------------- Robert A. Blee Chief Accounting Officer 37 EXHIBIT INDEX ------------- Exhibit Numbered Number Description Page - ------ ----------- ---- 10.1 Underwriting Agreement between ACE Limited and Banc of America Securities LLC with related terms agreements dated September 6, 2000 10.2 Third Amendment to Reimbursement Agreement amends the Reimbursement Agreement, dated as of September 8, 1999, and amended as of November 30, 1999 and as of March 15, 2000, among ACE Limited, ACE Bermuda Insurance Ltd. , Tempest Reinsurance Company Limited, Deutsche Bank AG, New York and/or Cayman Islands Branches and Fleet National Bank, as Documentation Agents, and Mellon Bank, N.A dated September 1, 2000. 10.3 Fourth Amendment to Reimbursement Agreement which amends the Reimbursement Agreement, dated as of September 8, 1999, and amended as of November 30, 1999, as of March 15, 2000 and as of September 1, 2000, among ACE Limited, ACE Bermuda Insurance Ltd. ACE Tempest Reinsurance Ltd., formerly Tempest Reinsurance Company Limited, Deutsche Bank AG, New York and/or Cayman Islands Branches and Fleet National Bank, as Documentation Agents, and Mellon Bank, N.A., as Issuing Bank and Administrative Agent dated as of October 5, 2000. 10.4 The first amendment which amends the Amended and Restated Five Year Credit Agreement dated as of May 8, 2000 among ACE Limited, ACE Bermuda Insurance Ltd. ACE Tempest Reinsurance Ltd., formerly known as Tempest Reinsurance Company Limited, ACE INA Holdings Inc. and ACE Financial Services, Inc., various financial institutions, and Morgan Guaranty Trust Company of New York, as administrative agent dated as of October 23, 2000 10.5 The first amendment which amends the Amended and Restated 364-Day Credit Agreement dated as of May 8, 2000 among ACE Limited, a Cayman Islands, ACE Bermuda Insurance Ltd., ACE Tempest Reinsurance Ltd., formerly known as Tempest Reinsurance Company Limited, ACE INA Holdings Inc. and ACE Guaranty Re Inc., various financial institutions and Morgan Guaranty Trust Company of New York ("MGT"), as administrative agent dated as of October 23, 2000 27. Financial Data Schedule 38 EX-10.1 2 0002.txt UNDERWRITING AGREEMENT ACE LIMITED (a Cayman Islands Company) 11,000,000 Ordinary Shares (Par Value $0.041666667 Per Share) UNDERWRITING AGREEMENT ---------------------- September 6, 2000 BANC OF AMERICA SECURITIES LLC 600 Montgomery Street San Francisco, California 91444 Ladies and Gentlemen: 1. Introductory. ACE Limited, a Cayman Islands company ("Company"), proposes to issue and sell from time to time 11,000,000 shares of its ordinary shares (par value $0.041666667) (the "Initial Ordinary Shares") and grant to the Underwriters (as defined below), acting severally and not jointly, an option to purchase up to an additional 1,250,000 shares of its ordinary shares (par value $0.041666667) (the "Option Ordinary Shares" and, together with the Initial Ordinary Shares, the "Offered Securities"). Particular offerings of the Offered Securities will be sold pursuant to a Terms Agreement referred to in Section 3, for resale in accordance with terms of offering determined at the time of sale. The firm or firms which agree to purchase the Offered Securities are hereinafter referred to as the "Underwriters" of such securities, and the representative or representatives of the Underwriters, if any, specified in a Terms Agreement referred to in Section 3 are hereinafter referred to as the "Representatives," provided, however, that if the Terms Agreement does not specify any representative of the Underwriters, the term "Representatives", as used in this Agreement (other than in Sections 2(a) and 6(c) and the second sentence of Section 3), shall mean the Underwriters. 2. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, the several Underwriters as of the date hereof and on the date of each Terms Agreement referred to in Section 3, as of the Closing Date (as defined below) and, if applicable, as of each Date of Delivery (as defined below) (in each case, a "Representation Date), that: (a) Compliance with Registration Requirements. A registration statement (No. 333-78841) relating to, among other things, the Offered Securities, including a form of prospectus, has been filed with the Securities and Exchange Commission ("Commission") and has become effective. Such registration statement, as amended at the time of any Terms Agreement referred to in Section 3, including all material incorporated by reference, is hereinafter referred to as the "Registration Statement," and the prospectus included in such Registration Statement, as supplemented as contemplated by Section 3 to reflect the terms of offering of the Offered Securities, as first filed with the Commission pursuant to and in accordance with Rule 424(b) ("Rule 424(b)") under the Securities Act of 1933, as amended (the "Securities Act"), including all material incorporated by reference therein, is hereinafter referred to as the "Prospectus." No stop order suspending the effectiveness of the Registration Statement has been issued under the Securities Act and no proceedings for that purpose have been instituted or are pending or, to the knowledge of the Company, are contemplated by the Commission, and any request on the part of the Commission for additional information with respect to the Registration Statement (or any document incorporated therein by reference pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act")) has been complied with. No document has been or will be prepared or distributed in reliance on Rule 434 under the Securities Act. 1 At the respective times the Registration Statement and any post-effective amendments thereto (including the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 1999 with the Commission) became effective and at each Representation Date, the Registration Statement and any amendments thereto complied and will comply in all material respects to the requirements of the Securities Act and the rules and regulations of the Commission ("Rules and Regulations") and did not include and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. At the date of the Prospectus and at each Representation Date, neither the Prospectus nor any amendments and supplements thereto included or will include an untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing, the representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement (or any amendment thereto) or the Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by any Underwriter through the Representatives, if any, expressly for use in the Registration Statement (or any amendment thereto) or the Prospectus (or any amendment or supplement thereto). (b) Incorporated Documents. The documents incorporated or deemed to be incorporated by reference in the Registration Statement and the Prospectus, at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder and, when read together with the other information in the Prospectus, at the date of the Prospectus and at each Representation Date, did not and will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (c) Independent Accountants. The accountants who certified or shall certify the financial statements and any supporting schedules thereto of the Company included in the Registration Statement and the Prospectus are independent public accountants with respect to the Company and its subsidiaries as required by the Securities Act and the Rules and Regulations (d) Financial Statements. The financial statements of the Company included in the Registration Statement and the Prospectus, together with the related schedules and notes, as well as those financial statements, schedules and notes of any other entity included therein, present fairly the financial position of the Company and its consolidated subsidiaries, or such other entity, as the case may be, at the dates indicated and the statement of operations, stockholders' equity and cash flows of the Company and its consolidated subsidiaries, or such other entity, as the case may be, for the periods specified. Such financial statements have been prepared in conformity with United States generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved, except as indicated therein or in the notes thereto. The supporting schedules, if any, included in the Registration Statement and the Prospectus present fairly in accordance with GAAP the information required to be stated therein. The selected financial data and the summary financial information, if any, included in the Prospectus present fairly the information shown therein and have been compiled on a basis consistent with that of the related audited financial statements included in the Registration Statement and the Prospectus. The pro forma financial statements of the Company and its subsidiaries and the related notes thereto included in the Registration Statement and the Prospectus present fairly the information shown therein, have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements and have been properly compiled on the basis described therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. 2 (e) No Material Adverse Change in Business. Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein (i) neither the Company nor any of its subsidiaries has sustained any material loss or material interference with its business from any action, notice, order or decree from an insurance regulatory authority and (ii) there has been (A) no material adverse change in case reserves or losses or loss expense of the Company and its consolidated subsidiaries and (B) no material adverse change, nor any development or event involving a prospective material adverse change, in the financial condition, business, or results of operations of the Company and its subsidiaries considered as one enterprise, in either case whether or not arising in the ordinary course of business (a "Material Adverse Change"). (f) Good Standing of the Company. The Company has been duly organized and is subsisting and in good standing under the laws of the Cayman Islands, with corporate power and authority to own, lease and operate its properties and conduct its business as described in the Prospectus; and the Company is duly qualified to transact business as a foreign corporation and is in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to so qualify or be in good standing would not reasonably be expected to result in a Material Adverse Change. (g) Good Standing of Corporate Subsidiaries. Each subsidiary of the Company, other than such subsidiaries as would not, individually or in the aggregate, constitute a "significant subsidiary" as such term is defined in Rule 1-02 of Regulation S-X promulgated under the Securities Act (each, a "Significant Subsidiary") which is a corporation has been duly incorporated or organized and is an existing corporation in good standing (with respect to jurisdictions which recognize such concept) under the laws of the jurisdiction of its incorporation, with corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus; and each such Significant Subsidiary of the Company is duly qualified to transact business as a foreign corporation and is in good standing (with respect to jurisdictions which recognize such concept) in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to so qualify or be in good standing would not reasonably be expected to result in a Material Adverse Change; all of the issued and outstanding capital stock of each such Significant Subsidiary of the Company has been duly authorized and validly issued and is fully paid and nonassessable; and all of the issued and outstanding capital stock of each such Significant Subsidiary is owned by the Company, directly or through subsidiaries, except for de minimis shareholdings as required to comply with applicable law, and such capital stock is owned free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity (except for restrictions on transferability of the shares of insurance subsidiaries under applicable law). (h) Good Standing of Partnership Subsidiaries. Each Significant Subsidiary of the Company which is a partnership has been duly formed and is an existing partnership in good standing (with respect to jurisdictions which recognize such concept) under the laws of the jurisdiction of its formation, with power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus; and each such Significant Subsidiary of the Company is duly qualified to transact business and is in good standing (with respect to jurisdictions which recognize such concept) in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to so qualify or be in good standing would not reasonably be expected to result in a Material Adverse Change; all of the outstanding equity interests of each such Significant Subsidiary of the Company have been duly authorized and validly issued; and all of the equity interests of each such Significant Subsidiary are owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity (other than immaterial amounts necessary to comply with applicable law). 3 (i) Capitalization. The authorized, issued and outstanding shares of capital stock of the Company are as set forth in the Prospectus in the column entitled "Actual" under the caption "Capitalization" (except for subsequent issuances thereof, if any, pursuant to reservations, agreements or employee benefit plans or pursuant to the exercise of convertible securities or options). Such shares of capital stock have been duly authorized and validly issued by the Company and are fully paid and non-assessable, and none of such shares of capital stock was issued in violation of preemptive or other similar rights of any securityholder of the Company. (j) Authorization and Description of the Offered Securities. The Offered Securities have been duly authorized and, when the Offered Securities have been delivered and paid for in accordance with the Terms Agreement on the Closing Date and each Date of Delivery, if any, such Offered Securities will have been, validly issued, fully paid and nonassessable and will conform to the description thereof contained in the Prospectus; and the stockholders of the Company have no preemptive rights with respect to the Offered Securities. (k) No Agreements to Register. There are no contracts, agreements or understandings between the Company and any person requiring the Company to include such securities in the securities registered pursuant to the Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Securities Act. (l) Listing. The Offered Securities have been approved for listing on the New York Stock Exchange Inc. subject to notice of issuance. (m) Absence of Further Requirements. No consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court, domestic or foreign, is required for the consummation of the transactions contemplated by the Terms Agreement in connection with the issuance, offering and sale of the Offered Securities by the Company, except such as have been obtained or made prior to the Closing Date, such as have been obtained and made under the Securities Act, such filing of the Prospectus as has been made with the Bermuda Registrar of Companies under the Companies Act 1981 of Bermuda and such as may be required under state securities laws. (n) Non-Taxation of Current Payments. Except as disclosed in the Prospectus, under current laws and regulations of the Cayman Islands and Bermuda and any political subdivision thereof, all dividends and other distributions declared and payable on the Offered Securities may be paid by the Company to the holder thereof in United States dollars and freely transferred out of the Cayman Islands or Bermuda and all such payments made to holders thereof or therein who are non-residents of the Cayman Islands or Bermuda will not be subject to income, withholding or other taxes under laws and regulations of the Cayman Islands or Bermuda or any political subdivision or taxing authority thereof or therein and will otherwise be free and clear of any other tax, duty, withholding or deduction in the Cayman Islands or Bermuda or any political subdivision or taxing authority thereof or therein and without the necessity of obtaining any governmental authorization in the Cayman Islands or Bermuda or any political subdivision or taxing authority thereof or therein. 4 (o) Absence of Defaults and Conflicts. None of the Company or any subsidiary thereof is in violation of its charter or by-laws, partnership agreement or other constitutive documents or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any subsidiary thereof is a party or by which it or any of them may be bound, or to which any of the assets, properties or operations of the Company or any subsidiary thereof is subject (collectively, "Agreements and Instruments"), except for such defaults that would not reasonably be expected to result in a Material Adverse Change. The execution, delivery and performance of the Terms Agreement (including the provisions of this Agreement), the issuance and sale of the Offered Securities as contemplated herein and in the Prospectus, the consummation of the transaction contemplated herein and in the Registration Statement and the Prospectus (including, without limitation, the issuance and sale of the Offered Securities, and the use of the proceeds from the sale of the Offered Securities as described under the caption "Use of Proceeds") and compliance by the Company with its obligations hereunder and thereunder do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any assets, properties or operations of the Company or any subsidiary thereof pursuant to, any Agreements and Instruments (except for such conflicts, breaches, defaults or Repayment Events or liens, charges or encumbrances that would not reasonably be expected to result in a Material Adverse Change); provided, however, that (i) the use of the proceeds for purposes other than the repayment of the Auction Rate Reset Preferred Securities (the "RHINOS") issued by ACE RHINOS Trust within 90 days after the Closing Date would, unless waived, constitute a violation of the instruments governing the RHINOS and the underlying subordinated notes, and (ii) the pledge of securities in support of the Company's guaranty of the subordinated notes underlying the RHINOS would, unless waived, constitute a violation of covenants under the Company's bank credit facilities; nor will such action result in any violation of the provisions of the charter or by-laws, partnership agreement or other constitutive documents of the Company or any subsidiary thereof or, to the best knowledge of the Company, any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any subsidiary thereof or over any of their assets, properties or operations, except for such violations under any applicable law, statute, rule, regulation, judgement, order, writ or decree as would not reasonably be expected to result in a Material Adverse Change. As used herein, a "Repayment Event" means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any subsidiary thereof. (p) Authorization of the Terms Agreement. The Terms Agreement (including the provisions of this Agreement) has been duly authorized, executed and delivered by the Company. (q) Possession of Licenses and Permits. The Company and its subsidiaries possess such permits, licenses, approvals, consents and other authorizations (collectively, "Governmental Licenses") issued by the appropriate federal, state, local or foreign regulatory agencies or bodies necessary to conduct the business now operated by them, except where the failure to so possess any such Governmental Licenses would not, singly or in aggregate, reasonably be expected to result in a Material Adverse Change. The Company and its subsidiaries are in compliance with the terms and conditions of all such Governmental Licenses, except where the failure so to comply would not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Change. Neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would reasonably be expected to result in a Material Adverse Change. 5 (r) Insurance Laws. Each of the Company and its insurance subsidiaries (including insurance holding companies) is duly registered, licensed or admitted as an insurer or an insurance holding company (as applicable) in each jurisdiction where it is required to be so licensed or admitted to conduct its business as presently conducted, except where the failure to be so registered, licensed or admitted would not reasonably be expected to result in a Material Adverse Change; each of the Company and its insurance subsidiaries has all other necessary authorizations, approvals, orders, certificates and permits, of and from, and has made all declarations and filings with, all insurance authorities, commissions or other insurance regulatory bodies to conduct their respective businesses as described in the Prospectus, except for where the failure to have such authorizations, approvals, orders, certificates and permits, or to make such declarations and filings, would not have a Material Adverse Change; all of such authorizations, approvals, orders, certificates and permits are in full force and effect, except where the failure to be in full force and effect would not have a Material Adverse Change; and neither the Company nor its insurance subsidiaries has received any notification from any insurance authority, commission or other insurance regulatory body to the effect that any additional authorization, approval, order, license, certificate or permit from such authority, commission or body is needed to be obtained by any of the Company or its insurance subsidiaries, except for any authorization, approval, order, license, certificate or permit from any such authority, commission or body the failure of which to obtain, singly or in the aggregate, would not have a Material Adverse Change. Each of the Company and its insurance subsidiaries is in compliance with all applicable insurance statutes and regulations and has filed all reports, documents or other information required to be filed under such statutes and regulations, except where the failure to comply or file would not have a Material Adverse Change; and each of the Company and its insurance subsidiaries is in compliance with the insurance laws and regulations of other jurisdictions which are applicable to the Company and its insurance subsidiaries (as the case may be), except where the failure to comply would not have a Material Adverse Change. (s) Governmental Authorization. Except as set forth in the Registration Statement and the Prospectus, no authorization, approval or consent of any governmental authority agency is required (other than any license as an insurer or insurance holding company and other than those which have already been obtained) under the laws of any jurisdiction in which the Company or any of its subsidiaries conduct their respective businesses in connection with the ownership, directly or indirectly, by the Company of equity interests in any subsidiary or the repatriation of any amount from or to the Company or any of its subsidiaries, except to the extent that the failure to obtain such authorization, approval or consent would not reasonably be expected to result in a Material Adverse Change. (t) Absence of Proceedings. Except as disclosed in the Prospectus, there are no pending actions, suits or proceedings against or affecting the Company, any of its subsidiaries or any of their respective properties that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Change, or would materially and adversely affect the ability of the Company to perform its obligations under the Terms Agreement (including the provisions of this Agreement) or which are otherwise material in the context of the sale of the Offered Securities; and no such actions, suits or proceedings are, to the Company's knowledge, threatened or contemplated. 6 (u) Accuracy of Exhibits. There are no contracts or documents which are required to be described in the Registration Statement, the Prospectus or the documents incorporated by reference therein or to be filed as exhibits thereto which have not been so described and filed as required. (v) Reserves. The description of the Company's reserves and reserving methodology and assumptions described in the Prospectus is accurate and fairly presents the information set forth therein in all material respects and, since December 31, 1999, no loss experience has developed which would require or make it appropriate for the Company to alter or modify such methodology. (w) Investment Company Act. The Company is not and, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Prospectus, will not be an "investment company" within the meaning of the Investment Company Act of 1940, as amended (the "1940 Act"). 3. Purchase, Sale and Delivery of Offered Securities. (a) Initial Ordinary Shares. The obligation of the Underwriters to purchase the Initial Ordinary Shares will be evidenced by an agreement or exchange of other written communications (the "Terms Agreement") at the time the Company determines to sell the Initial Ordinary Shares. The Terms Agreement will incorporate by reference the provisions of this Agreement, except as otherwise provided therein, and will specify the firm or firms which will be Underwriters, the names of any Representatives, the number of shares to be purchased by each Underwriter and the purchase price to be paid by the Underwriters. The Terms Agreement will also specify the time and date of delivery and payment (such time and date, or such other time not later than seven full business days thereafter as the Underwriter first named in the Terms Agreement (the "Lead Underwriter") and the Company agree as the time for payment and delivery, being herein and in the Terms Agreement referred to as the "Closing Date"), the place of delivery and payment and any details of the terms of offering that should be reflected in the prospectus supplement relating to the offering of the Initial Ordinary Shares. For purposes of Rule l5c6-1 under the Exchange Act, the Closing Date (if later than the otherwise applicable settlement date) shall be the date for payment of funds and delivery of securities for all the Initial Ordinary Shares sold pursuant to the offering. The obligations of the Underwriters to purchase the Initial Ordinary Shares will be several and not joint. It is understood that the Underwriters propose to offer the Initial Ordinary Shares for sale as set forth in the Prospectus. (b) Option Ordinary Shares. On the basis of the representations, warranties and agreements herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriters, severally and not jointly, to purchase at their election up to an additional 1,250,000 Option Ordinary Shares, at the price per Option Ordinary Shares set forth in the Terms Agreement. The option will expire automatically at the close of business on the 30th calendar day after the date of the Terms Agreement and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial Ordinary Shares upon notice by the Underwriters to the Company setting forth the aggregate number of additional Option Ordinary Shares as to which the several Underwriters are then exercising the option and the time, date and place of payment and delivery for such Option Ordinary Shares. Any such time and date of payment and delivery (a "Date of Delivery") shall be determined by the Underwriters and the Company, but shall not be later than seven full business days after the exercise of said options, nor in any event prior to the Closing Date, unless otherwise agreed upon by the Underwriters and the Company. If the option is exercised as to all or any portion of the Option Ordinary Shares, each of the Underwriters, severally and not jointly, will purchase that proportion of the total number of Option Ordinary Shares then being purchased which the number of Initial Ordinary Shares each such Underwriter has severally agreed to purchase bears to the total number of Initial Ordinary Shares, subject to such adjustments as the Underwriters in their discretion shall make to eliminate any sales or purchases of a fractional number of Option Ordinary Shares. 7 (c) Payment. Payment of the purchase price for, and delivery of, the Initial Ordinary Shares shall be made at the offices of Brown & Wood LLP, One World Trade Center, New York, New York, or at such other place as shall be agreed upon by the Underwriters and the Company and set forth in the Terms Agreement. In addition, in the event that the Underwriters have exercised their option to purchase any or all of the Option Ordinary Shares, payment of the purchase price for, and delivery of such Option Ordinary Shares, shall be made at the above-mentioned offices of Brown & Wood LLP, or at such other place as shall be agreed upon by the Underwriters and the Company, on the relevant Date of Delivery as specified in the notice from the Underwriters to the Company. Payment shall be made to the Company by wire transfer of immediately available funds to a bank account designated by the Company, against delivery to the Underwriters for the respective accounts of the Underwriters of the Offered Securities to be purchased by them. It is understood that each Underwriter has authorized Banc of America Securities LLC, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Offered Securities which it has severally agreed to purchase. Banc of America Securities LLC, individually and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial Ordinary Shares or the Option Ordinary Shares, if any, to be purchased by any Underwriter whose funds have not been received by the Closing Date or the relevant Date of Delivery, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder. (d) Denominations; Registration. The Offered Securities and certificates for the Offered Securities shall be in such denominations and registered in such names as the Lead Underwriter may request in writing at least one full business day prior to the Closing Date or the relevant Date of Delivery, as the case may be. The Offered Securities and certificates for the Offered Securities will be made available for examination and packaging by the Underwriters in The City of New York not later than 10:00 A.M. (Eastern time) on the business day prior to the Closing Date or the relevant Date of Delivery, as the case may be. 4. Offering by Underwriters. It is understood that the several Underwriters propose to offer the Offered Securities for sale to the public as set forth in the Prospectus. 5. Certain Agreements of the Company. The Company agrees with the several Underwriters that: (a) Compliance with Securities Regulations. The Company will file the Prospectus with the Commission pursuant to and in accordance with subparagraph (2) (or, if applicable, subparagraph (5)) of Rule 424(b) not later than the second business day following the execution and delivery of the Terms Agreement. (b) Filing of Amendments. The Company will advise the Lead Underwriter promptly of any proposal to amend or supplement the Registration Statement or the Prospectus and will afford the Lead Underwriter a reasonable opportunity to review and comment upon such proposed amendment or supplement; and the Company will also advise the Lead Underwriter promptly of the filing of any such amendment or supplement and of the institution by the Commission of any stop order proceedings in respect of a Registration Statement and will use its reasonable best efforts to prevent the issuance of any such stop order and to obtain as soon as possible its lifting, if issued. (c) Continued Compliance with Securities Laws. If, at any time when a prospectus relating to the Offered Securities is required to be delivered under the Securities Act in connection with sales by any Underwriter or dealer, any event occurs as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus to comply with the Securities Act, the Company will promptly notify the Lead Underwriter of such event and will promptly prepare and file with the Commission, at its own expense, an amendment or supplement which will correct such statement or omission or an amendment which will effect such compliance. Neither the Lead Underwriter's consent to, nor the Underwriters' delivery of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 6. 8 (d) Earnings Statement. As soon as practicable, but not later than 16 months, after the date of each Terms Agreement, the Company will make generally available to its securityholders an earnings statement covering a period of at least 12 months beginning after the later of (i) the effective date of the registration statement relating to the Offered Securities, (ii) the effective date of the most recent post-effective amendment to the Registration Statement to become effective prior to the date of such Terms Agreement and (iii) the date of the Company's most recent Annual Report on Form 10K filed with the Commission prior to the date of such Terms Agreement, which will satisfy the provisions of Section 11(a) of the Securities Act. (e) Delivery of Registration Statement and Prospectuses. The Company will furnish to the Representatives copies of the Registration Statement (two of which will be signed and will include all exhibits), any related preliminary prospectus, any related preliminary prospectus supplement, the Prospectus and all amendments and supplements to such documents, in each case in such quantities as the Lead Underwriter requests. The Prospectus shall be so furnished on or prior to 3:00 P.M., New York time, on the business day following the later of the execution and delivery of the Terms Agreement. All other documents shall be so furnished as soon as available. The Company will pay the expenses of printing and distributing to the Underwriters all such documents. (f) Blue Sky Qualification. The Company will arrange for the qualification of the Offered Securities for sale under the laws of such jurisdictions as the Lead Underwriter designates and will continue such qualifications in effect so long as required for the distribution provided that the Company shall not be required to qualify as a foreign corporation or to consent to the service of process under the laws of any such state (except service of process with respect to the offering and sale of the Offered Securities) or subject itself to any taxation in respect of doing business. (g) Delivery of Annual Report. During the period of two years after the date of any Terms Agreement, the Company will furnish to the Representatives and, upon request, to each of the other Underwriters, as soon as practicable after the end of each fiscal year, a copy of its annual report to stockholders for such year; and the Company will furnish to the Representatives as soon as available, a copy of each report and any definitive proxy statement of the Company filed with the Commission under the Exchange Act or mailed to stockholders. (h) Payment of Expenses. The Company will pay all expenses incident to the performance of its obligations under the Terms Agreement (including the provisions of this Agreement), for any filing fees and other expenses (including fees and disbursements of counsel) incurred in connection with qualification of the Offered Securities for sale under the laws of such jurisdictions as the Lead Underwriter designates and the printing of memoranda relating thereto, for the filing fee incident to, and the reasonable fees and disbursements of counsel to the Underwriters in connection with, the review by the National Association of Securities Dealers, Inc. of the Offered Securities, for any travel expenses of the Company's officers and employees and any other expenses of the Company in connection with attending or hosting meetings with prospective purchasers of the Offered Securities and for expenses incurred in distributing preliminary prospectuses and the Prospectus (including any amendments and supplements thereto) to the Underwriters. (i) Documentary, Stamp or Similar Issue Taxes. The Company will indemnify and hold harmless the Underwriters against any documentary, stamp or similar issue tax, including any interest and penalties, on the creation, issue and sale of the Offered Securities and on the execution and delivery of the Terms Agreement (including the provisions of this Agreement). All payments to be made by the Company hereunder shall be made without withholding or deduction for or on account of any present or future taxes, duties or governmental charges whatsoever unless the Company is compelled by law to deduct or withhold such taxes, duties or charges. In that event, the Company shall pay such additional amounts as may be necessary in order that the net amounts received after such withholding or deduction shall equal the amounts that would have been received if no withholding or deduction had been made. 9 (j) Restriction on Sale of Securities. For a period of 90 days after the date of the initial public offering of any Offered Securities, the Company will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Commission a registration statement under the Securities Act relating to, any additional Ordinary Shares or securities convertible into or exchangeable or exercisable for any Ordinary Shares, or publicly disclose the intention to make any such offer, sale, pledge, disposition or filing, without the prior written consent of the Lead Underwriter, other than (x) issuances of Ordinary Shares, options, or other securities or rights pursuant to any employee or director compensation, options, savings, benefit or other plan of the company, (y) any issuance upon exercise, conversion or exchange of any securities or obligations outstanding on the date hereof and (z) any issuances of equity securities as consideration for an acquisition. (k) Delivery of Tax Information to Shareholders. The Company will use its best efforts to provide to shareholders the information required by shareholders to complete their U.S. income tax returns in the manner specified in the Prospectus and, to that end, to (i) send a letter shortly after the end of each fiscal year asking each corporate policyholder to represent whether the insured or any director or officer of the insured was a U.S. shareholder of the Company, within the meaning of Section 953(c)(1)(A) of the Internal Revenue Code of 1986 (the "Code"), or related to a U.S. shareholder of the Company at any time during the preceding 12 months or to use another method which the Company reasonably believes will elicit similar information; (ii) if the gross "related person insurance income" ("RPII") of any of its insurance subsidiaries for any fiscal year is 20% or more of such insurance subsidiary's gross insurance income within the meaning of Section 953(c)(3)(B) of the Code, send a letter shortly after the end of such fiscal year to all record owners (other than The Depository Trust Company ("DTC") and DTC participants) asking them to notify the Company's transfer agent (on a form attached to the letter) within 30 days of the percentage of shares held by them that are beneficially owned by U.S. persons, the percentage that are beneficially owned by non-U.S. persons, and the percentage for which beneficial ownership is not known; and (iii) if the gross RPII of any of its insurance subsidiaries for any fiscal year is 20% or more of such insurance subsidiary's gross insurance income within the meaning of Section 953(c)(3)(B) of the Code, (A) prepare IRS Form 5471 (or any successor form) with all insurance subsidiary information and (B) as soon as practicable after the end of such fiscal year, send copies of Form 5471 and a letter instructing U.S. shareholders how to complete Form 5471 to all record owners (other than DTC and DTC participants). 6. Conditions of the Obligations of the Underwriters. The obligations of the several Underwriters to purchase and pay for the Offered Securities will be subject to the accuracy in all material respects of the representations and warranties on the part of the Company herein, to the accuracy of the statements of Company officers made pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder in all material respects and to the following additional conditions precedent: (a) On or prior to the date of the Terms Agreement, the Representatives shall have received a letter, dated the date of delivery thereof of PricewaterhouseCoopers LLP confirming that they are independent public accountants within the meaning of the Securities Act and the applicable published Rules and Regulations thereunder and stating to the effect that: (i) in their opinion the financial statements and schedules examined by them and included in the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the related published Rules and Regulations; 10 (ii) they have performed the procedures specified by the American Institute of Certified Public Accountants for a review of interim financial information as described in Statement of Auditing Standards No. 71, Interim Financial Information, on any unaudited financial statements included in the Registration Statement; (iii) on the basis of the review referred to in clause (ii) above, a reading of the latest available interim financial statements of the Company, inquiries of officials of the Company who have responsibility for financial and accounting matters and other specified procedures, nothing came to their attention that caused them to believe that: (A) the unaudited financial statements included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the related published Rules and Regulations or any material modifications should be made to such unaudited financial statements for them to be in conformity with generally accepted accounting principles; (B) at the date of the latest available balance sheet read by such accountants, or at a subsequent specified date not more than three business days prior to the date of the Terms Agreement, there was any change in the capital stock or any increase in short-term indebtedness or long-term debt of the Company and its consolidated subsidiaries or, at the date of the latest available balance sheet read by such accountants, there was any decrease in consolidated net assets, as compared with amounts shown on the latest balance sheet included in the Prospectus; or (C) for the period from the closing date of the latest income statement included in the Prospectus to the closing date of the latest available income statement read by such accountants there were any dereases, as compared with the corresponding period of the previous year, in consolidated net sales, net operating income or in the total or per share amounts of consolidated net income, except in all cases set forth in clauses (B) and (C) above for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (iv) they have compared specified dollar amounts (or percentages derived from such dollar amounts) and other financial information contained in the Registration Statement (in each case to the extent that such dollar amounts, percentages and other financial information are derived from the general accounting records of the Company and its subsidiaries subject to the internal controls of the Company's accounting system or are derived directly from such records by analysis or computation) with the results obtained from inquiries, a reading of such general accounting records and other procedures specified in such letter and have found such dollar amounts, percentages and other financial information to be in agreement with such results, except as otherwise specified in such letter. All financial statements and schedules included in material incorporated by reference into the Prospectus shall be deemed included in the Registration Statements for purposes of this subsection. (b) The Prospectus shall have been filed with the Commission in accordance with the Rules and Regulations and Section 5(a) of this Agreement prior to the Closing Date, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or, to the knowledge of the Company or the Representatives, shall be contemplated by the Commission. 11 (c) Subsequent to the execution and delivery of the Terms Agreement, there shall not have occurred (i) any change, or any development or event involving a prospective change, in the financial condition, business or results of operations of the Company or its subsidiaries which, in the judgment of a majority in interest of the Underwriters including the Representatives, is material and adverse and makes it impractical or inadvisable to proceed with completion of the public offering or the sale of and payment for the Offered Securities; (ii) any downgrading in the rating of any debt securities of the Company by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Securities Act), or any public announcement that any such organization has under surveillance or review its rating of any debt securities of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating); (iii) any suspension or limitation of trading in securities generally on the New York Stock Exchange, or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of the Company on any exchange or in the over-the-counter market; (iv) any banking moratorium declared by U.S. federal, New York or Bermuda authorities; or (v) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the judgment of a majority in interest of the Underwriters including the Representatives, the effect of any such outbreak, escalation, declaration, calamity or emergency makes it impractical or inadvisable to proceed with completion of the public offering or the sale of and payment for the Offered Securities. (d) The Representatives shall have received on the Closing Date a signed opinion of Maples and Calder, Cayman Islands counsel for the Company, dated the Closing Date, to the effect that: (i) the Company has been duly incorporated and is validly existing and in good standing as an exempted company, under the laws of the Cayman Islands, and has the corporate power and corporate authority to own, lease and operate its property, and to conduct its business, as described in the Registration Statement and the Prospectus, and to enter into and perform its obligations under, or as contemplated under, the Terms Agreement, including the provisions of this Agreement; (ii) the authorized share capital of the Company, as set out in its Memorandum and Articles of Association, conforms as to legal matters to the description thereof contained in the Registration Statement and the Prospectus. All of the Company's Ordinary Shares have been duly and validly authorized and issued by the Company and are registered in the books of the Company as fully paid. On the basis that the contractual subscription price of all such Ordinary Shares is fully paid in cash (or equivalent consideration approved by the Directors), such Ordinary Shares issued may properly be credited as fully paid under Cayman Islands law and, as the Company has been established on the basis that the liability of its shareholders is limited to the amount, if any, unpaid on their shares (see Clause 5 of the Memorandum and Articles of Association), there is no rule of Cayman Islands law that would impose any further liability on persons holding Ordinary Shares in the Company, merely by reason of such shareholding. So far as Cayman Islands law is concerned, the registered holders have good and valid title to their respective Ordinary Shares on the assumption that they have not entered into any liens, encumbrances, equities or claims which could give rise to any equitable interest on the part of any third party in respect of such Ordinary Shares. The holders of Ordinary Shares are not subject to any pre-emptive rights under the laws of the Cayman Islands or the Company's Memorandum and Articles of Association; (iii) the Terms Agreement, including the provisions of this Agreement, have been duly authorized, executed and delivered by the Company; 12 (iv) the execution and delivery by the Company of, and the performance by the Company of its obligations under, the Terms Agreement, including the provisions of this Agreement, and the consummation by the Company, of the transactions contemplated by the Terms Agreement, including the provisions of this Agreement, do not and will not (A) violate any provision of the Memorandum and Articles of Association of the Company; (B) contravene any provision of any law, public rule or regulation of the Cayman Islands applicable to the Company; (C) to the best of such counsel's knowledge, contravene any existing published order or decree of the courts of the Cayman Islands by which the Company is bound or by which its properties or assets may be affected; or (D) require any consent, approval or authorization or order of, or qualification with, any Cayman Islands governmental agency in connection with the offer and sale of the Offered Securities; (v) to the best of such counsel's knowledge, but based only upon a search of the cause list at the offices of the Grand Courts of the Cayman Islands, there was no action, suit or proceeding to which the Company is a party or to which the assets, properties or operations of the Company is subject, before the courts of the Cayman Islands at the close of business on a recent date to be specified in such opinion; (vi) all statements made in the Prospectus with regard to statutes, regulations, rules, treaties and other laws of the Cayman Islands (including, but not limited to, insurance, regulatory and tax matters and the Companies Law (2000 Revision) of the Cayman Islands) and enforcement of judgments in the Cayman Islands are accurate; (vii) pursuant to this Agreement, and to the extent that the laws of the Cayman Islands are relevant, the Company has legally, validly, effectively and irrevocably submitted to the jurisdiction of the United States Federal and New York State courts sitting in the Borough of Manhattan in The City of New York, State of New York, and has legally, validly and effectively appointed ACE USA, Inc. as the authorized agent of the Company for the purposes described in Section 14 of this Agreement assuming this to be the case as a matter of the applicable United States Federal and New York State laws; (viii) the choice of the laws of the State of New York, United States of America as the governing law of the Terms Agreement, including the provisions of this Agreement, is a valid and effective choice of law and in an action brought before a court of competent jurisdiction in the Cayman Islands, the laws of the State of New York would, to the extent specifically pleaded and proved as a fact by expert evidence, be recognized and applied by such court to all issues concerning the formal and essential validity of the Terms Agreement, including the provisions of this Agreement, and the interpretation thereof, except that in any such action such court will apply those laws of the Cayman Islands as such court characterizes as procedural and will not apply those laws of New York as such court characterizes as procedural; (ix) although there is no statutory enforcement in the Cayman islands of a judgment obtained in New York, the courts of the Cayman Islands will recognize and enforce a foreign judgment of a court of competent jurisdiction, based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided such judgment is final, for a liquidated sum, not in respect of taxes or a fine or penalty, and was not obtained in a manner and is not of a kind the enforcement of which is contrary to the public policy of the Cayman Islands. A Cayman Islands court may stay proceedings if concurrent proceedings are being brought elsewhere. For the purposes of enforcement of a judgment granted against the Company in respect of the Terms Agreement, including the provisions of this Agreement, a court in the Cayman Islands would recognize the jurisdiction of the applicable federal or state court to the jurisdiction of which the Company has submitted rendering such judgment if service of process on the Company is effected pursuant to and in accordance with the provisions of this Agreement; and 13 (x) on the basis that the Company carries on its business as set forth in the Prospectus, there is no requirement that it be licensed under the Insurance Law, 1979, as amended of the Cayman Islands. (e) The Representatives shall have received on the Closing Date a signed opinion of Conyers Dill & Pearman, Bermuda counsel for the Company, dated the Closing Date, to the effect that: (i) each of ACE Bermuda Insurance Ltd., Corporate Officers and Directors Assurance Ltd. and Tempest Reinsurance Company Limited (collectively, the "Bermuda Insurance Subsidiaries") (A) is validly existing under the laws of Bermuda as a company with limited liability and is in good standing under the laws of Bermuda (meaning that such company has not failed to make any filing with any Bermuda government authority or to pay any Bermuda government fee or tax, the failure of which would make such company immediately liable to be struck off the Register of Companies and thereby cease to exist under the laws of Bermuda) and (B) the corporate objects and powers contained in the Memorandum of Association of each of the Bermuda Insurance Subsidiaries are sufficient to allow them to carry on their business and to own, lease and operate its properties as both are described in the Prospectus; (ii) the Company is validly registered under the Companies Act 1981 as a Permit Company and is in good standing under the laws of Bermuda (meaning that such company has not failed to make any filing with any Bermuda government authority or to pay any Bermuda government fee or tax which is required to be paid in respect of Permit Companies in Bermuda); (iii) based solely upon a certified copy of the Register of Members for each of the Bermuda Insurance Subsidiaries, and without further inquiry, (A) all of the issued shares in the share capital of each of the Bermuda Insurance Subsidiaries have been duly and validly authorized and issued and are fully paid and nonassessable (meaning that no further sums are required to be paid by the holders thereof in connection with the issue of such shares); and (B) the Company is the registered holder of all the issued shares of each of the Bermuda Insurance Subsidiaries; (iv) each of the Bermuda Insurance Subsidiaries is duly registered as an insurer under the Insurance Act of 1978 (Bermuda) and the regulations promulgated thereunder (together, the "Insurance Act") and, as so registered, each Bermuda Insurance Subsidiary may conduct the insurance business as described in the Prospectus; and based solely on the Certificates of Compliance and without independent inquiry, each of the Bermuda Insurance Subsidiaries has filed with the appropriate Bermuda governmental authority all reports, documents or other information required to be filed under the Insurance Act; (v) the Company is not registered as an insurer under the Insurance Act and is therefore not required to comply with the requirements of the Insurance Act applicable to registered insurers; (vi) the execution and delivery by the Company of, and the performance by the Company of its obligations under, the Terms Agreement, including the provisions of this Agreement and the consummation by the Company of the transactions contemplated by the Terms Agreement, including the provisions of this Agreement, do not and will not (A) violate any provision of the Memorandum of Association or By-laws of any of the Bermuda Insurance Subsidiaries or any applicable law, regulation, order or decree in Bermuda; (B) based solely upon the Cause Book, contravene any judgment, order or decree by the Bermuda Supreme Court against the Company or the Bermuda Insurance Subsidiaries; or (C) require any consent, approval or authorization or order of, or qualification with, any Bermuda governmental agency; 14 (vii) based solely upon the Cause Book and without further inquiry, there is no action, suit or proceeding now pending before the Bermuda Supreme Court against the Company or the Bermuda Insurance Subsidiaries or any of their respective properties; and (viii) all statements made in the Prospectus with respect to statutes, regulations, rules, treaties and other laws of Bermuda (including, but not limited to, statements made with respect to the Insurance Act and Bermuda tax matters) fairly and accurately present the information set forth therein and such counsel's opinion as to such matters. (ix) The choice of the Foreign Laws as the governing law of the Terms Agreement, including the provisions of this Agreement, is a valid choice of law and would be recognized and given effect to in any action brought before a court of competent jurisdiction in Bermuda, except for those laws (A) which such courts considers to be procedural in nature, (B) which are revenue or penal laws or (C) the application of which would be inconsistent with public policy, as such term is interpreted under the laws of Bermuda. The submission in the Terms Agreement, including the provisions of this Agreement, to the non-exclusive jurisdiction of the Foreign Courts is valid and binding upon the Company. (f) The Representatives shall have received on the Closing Date a signed opinion of Peter N. Mear, Esq., General Counsel of the Company, dated the Closing Date, to the effect that: (i) the Company is qualified to do business, and is in good standing, as a foreign corporation, under the laws of each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or to be in good standing, would not singly or in the aggregate have a Material Adverse Change; (ii) each of ACE Bermuda Insurance Ltd., Tempest Reinsurance Company Limited, ACE USA, Inc. and ACE INA Holdings Inc. is qualified to transact business and is in good standing (with respect to jurisdictions which recognize such concept) in each jurisdiction in which it owns or leases real property or in which the conduct of its business requires such qualification, except where the failure to be so qualified or to be in good standing (with respect to jurisdictions which recognize such concept) would not singly or in the aggregate result in a Material Adverse Change; 15 (iii) except as set forth in the Registration Statement and the Prospectus, such counsel does not know of any outstanding (A) securities or obligations of the Company convertible into or exchangeable for any shares of capital stock of the Company or any of its subsidiaries; (B) rights, warrants or options to acquire or purchase from the Company any shares of capital stock of the Company or any such convertible or exchangeable securities or obligations; or (C) obligations or understandings of the Company to issue or sell any shares of capital stock of the Company or any of its subsidiaries, any such convertible or exchangeable securities or obligations, or any such warrants, rights or obligations; and (iv) to the best of such counsel's knowledge, and other than as disclosed in the Prospectus, there are no threatened legal proceedings against the Company or any of its subsidiaries which, if determined adversely to the Company or such subsidiary, would result in a Material Adverse Change. (g) The Representatives shall have received on the Closing Date a signed opinion of Mayer, Brown & Platt, United States counsel for the Company, dated the Closing Date, to the effect that: (i) each of ACE INA Holdings Inc. and ACE USA, Inc. is duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware; (ii) the execution and delivery by the Company of, and the performance by the Company of its respective obligations under, the Terms Agreement, including the provisions of this Agreement, and any other agreement or instrument entered into or issued or to be entered into or issued by the Company in connection with the transactions contemplated by the Registration Statement and the Prospectus and the consummation by the Company of the transactions contemplated by the Terms Agreement, including the provisions of this Agreement, do not and will not (A) contravene any provision of any United States federal or New York State law, rule or regulation, in each case which, in such counsel's opinion, based on such counsel's experience, are normally applicable to transactions of the type contemplated by this Agreement ("United States Applicable Laws"), except that such counsel need not express any opinion in this paragraph with respect to state securities laws; (B) contravene any judgment, order or decree known to such counsel without independent inquiry of any United States federal or New York State court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or by which the Company or any of its subsidiaries is bound or by which their properties or assets may be affected; (C) conflict with, result in any breach of or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, or give rise to any right to accelerate the maturity or require the prepayment of any indebtedness or the purchase of any capital stock under, or result in the creation or imposition of any lien, charge or encumbrance upon any properties or assets of the Company or any of its subsidiaries, pursuant to the terms of any agreement or instrument filed as an exhibit to the Company's Annual Report on Form 10K for the fiscal year ended December 31, 1999 or any agreement or instrument otherwise known to such counsel to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the assets, properties or operations of the Company or any of its subsidiaries is subject, or the certificate of incorporation or by-laws of ACE INA Holdings Inc. or ACE USA, Inc., except for such conflicts, breaches, violations, defaults, accelerations, repayments, repurchases, liens, charges or encumbrances that would not singly or in the aggregate result in a Material Adverse Change; provided, however, that (i) the use of the proceeds for purposes other than the repayment of the Auction Rate Reset Preferred Securities (the "RHINOS") issued by ACE RHINOS Trust within 90 days after the Closing Date would, unless waived, constitute a violation of the instruments governing the RHINOS and the underlying subordinated notes, and (ii) the pledge of securities in support of the Company's guaranty of the subordinated notes underlying the RHINOS would, unless waived, constitute a violation of covenants under the Company's bank credit facilities; or (D) based upon such counsel's review of the United States Applicable Laws, require any consent, approval or authorization or order of, or qualification with, any United States federal or state governmental agency or authority or court, except such as have been obtained under the Securities Act and such as may be required under state securities or blue sky laws or state insurance laws in connection with the offer and sale of the Offered Securities; 16 (iii) this Agreement and the Terms Agreement have been duly authorized, executed and delivered by the Company; (iv) the Offered Securities and this Agreement conform in all material respects to the statements relating thereto contained in the Prospectus and are in substantially the form filed or incorporated by reference, as the case may be, as an exhibit to the Registration Statement; (v) such counsel does not know, after inquiry of Company officers and based solely on such inquiry, of any action, suit or proceeding before or by any United States federal or state government, governmental instrumentality or court now pending or threatened against or affecting the Company or any of its subsidiaries or any of their respective properties that is required to be described in the Registration Statement or the Prospectus and is not so described or of any contract or other document that is required to be described in the Registration Statement or the Prospectus, or to be filed as an exhibit to the Registration Statement, that is not described or filed, as required; (vi) the Registration Statement and the Prospectus, excluding the documents incorporated by reference therein, and each amendment or supplement to the Registration Statement and Prospectus, excluding the documents incorporated by reference therein, as of their respective effective or issue dates (other than the financial statements and supporting schedules and other financial data included therein or omitted therefrom, as to which such counsel need express no opinion) complied as to form in all material respects with the requirements of the Securities Act and the Rules and Regulations of the Commission thereunder; (vii) the documents incorporated by reference in the Prospectus (other than the financial statements and supporting schedules and other financial data included therein or omitted therefrom, as to which such counsel need express no opinion), when they became effective or were filed with the Commission, as the case may be, complied as to form in all material respects with the requirements of the Securities Act or the Exchange Act , as applicable, and the Rules and Regulations of the Commission thereunder; (vii) the statements in the Registration Statement and the prospectus insofar as they are descriptions of contracts, agreements, instruments or proceedings, or constitute statements or summaries of United States federal or New York State laws or legal conclusions with respect thereto, are accurate and present fairly the information required to be shown; and (viii) the Company is not, and upon the issuance and sale of the Offered Securities as contemplated in this Agreement and the application of the net proceeds therefrom as described in the Prospectus will not be, an "investment company" within the meaning of the 1940 Act. 17 Such counsel shall also state that it has been advised by the Commission that the Registration Statement became effective under the Securities Act; that any required filings of the Prospectus pursuant to Rule 424(b) have been made in the manner and within the time period required by Rule 424(b); and that, based solely on conversations with the Commission, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for the purpose have been instituted, are pending or, to such counsel's knowledge, are contemplated under the Securities Act. Such counsel shall also state that they have examined various documents and participated in conferences with representatives of the Company and its accountants and with representatives of the Underwriter and its counsel at which times the contents of the Registration Statement and the Prospectus and related matters were discussed, and that, although they are not passing upon and assume no responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus or making any representation that they have independently verified or checked the accuracy, completeness or fairness of such statements, except as set forth above, no facts have come to such counsel's attention that cause such counsel to believe that the Registration Statement or any post-effective amendment thereto, at the time the Registration Statement or any post-effective amendment thereto (including the filing of the Company's Annual Report on Form 10-K with the Commission) became effective or as of the date of this Agreement, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; or that the Prospectus or any amendment or supplement thereto, at the date of the Prospectus, at the date of any such amendment or supplement or at the Closing Date, included or includes any untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (such counsel need not express a belief with respect to the financial statements and supporting schedules and other financial data included in or omitted from the Registration Statement or any post-effective amendment thereto or the Prospectus or any amendment or supplement thereto). (h) The Representatives shall have received from Brown & Wood LLP, counsel for the Underwriters, such opinion or opinions, dated such Closing Date, with respect to the Registration Statements and the Prospectus and other related matters as the Representatives may require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. (i) The Representatives shall have received a certificate, dated such Closing Date, of the Chairman, President and Chief Executive Officer or General Counsel and Secretary of the Company and of the Chief Financial Officer; chief accounting officer or chief investment officer of the Company in which such officers, to the best of their knowledge after reasonable investigation, shall state that: (i) there has not been, since the date of this Agreement or since the respective dates as of which information is given in the Prospectus, any material adverse change, or any development or event involving a prospective material adverse change, in the financial condition, business or results of operations of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, (ii) the representations and warranties of the Company in Section 2 are true and correct with the same force and effect as though expressly made at and as of the Closing Date, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Date, and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted, are pending or, to the best of such officers' knowledge, are threatened by the Commission. 18 (j) The Representatives shall have received a letter, dated such Closing Date, of PricewaterhouseCoopers LLP which meets the requirements of subsection (a) of this Section, except that the specified date referred to in such subsection will be a date not more than three days prior to such Closing Date for the purposes of this subsection. (k) In the event that the Underwriters exercise their option to purchase all or any portion of the Option Ordinary Shares, the representations and warranties of the Company contained herein and the statements in any certificates furnished by the Company or any of its subsidiaries hereunder shall be true and correct as of each Date of Delivery, and, at the relevant Date of Delivery the Underwriters shall have received: (i) The favorable opinions of Maples and Calder, Cayman Islands counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Ordinary Shares and otherwise to the same effect as the opinions required by Section 6(d) hereof. (ii) The favorable opinions of Conyers Dill & Pearman, Bermuda counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Ordinary Shares and otherwise to the same effect as the opinions required by Section 6(e) hereof. (iii) The favorable opinions of Peter N. Mear, Esq., General Counsel of the Company, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Ordinary Shares and otherwise to the same effect as the opinions required by Section 6(f) hereof. (iv) The favorable opinions of Mayer, Brown & Platt, United States counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Ordinary Shares and otherwise to the same effect as the opinions required by Section 6(g) hereof. (v) The favorable opinion of Brown & Wood LLP, counsel for the Underwriters, in form and substance reasonably satisfactory to the Underwriters, dated such Date of Delivery, relating to the Option Ordinary Shares and otherwise to the same effect as the opinion required by Section 6(h) hereof. (vi) A certificate, dated such Date of Delivery, of the Chairman, President and Chief Executive Officer or General Counsel and Secretary of the Company and of the Chief Financial Officer; chief accounting officer or chief investment officer of the Company, confirming that the certificate delivered at the Closing Date pursuant to Section 6(i) hereof remains true and correct as of such Date of Delivery. (vii) A letter from PricewaterhouseCoopers LLP, in form and substance satisfactory to the Underwriters and dated such Date of Delivery, substantially the same in form and substance as the letter furnished to the Underwriters pursuant to Section 6(j) hereof, except that the "specified date" on the letter furnished pursuant to this paragraph shall be a date not more than three business days prior to such Date of Delivery. 19 The Company will furnish the Representatives with such conformed copies of such opinions, certificates, letters and documents as the Representatives reasonably request. The Lead Underwriter may in its sole discretion waive on behalf of the Underwriters compliance with any conditions to the obligations of the Underwriters hereunder and under the Terms Agreement. 7. Indemnification and Contribution. (a) The Company will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, the Prospectus, or any amendment or supplement thereto, or any, related preliminary prospectus, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such underwriter in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in the Terms Agreement. (b) Each Underwriter will severally and not jointly indemnify and hold harmless the Company against any losses, claims, damages or liabilities to which the Company may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, the Prospectus, or any amendment or supplement thereto, or any related preliminary prospectus or preliminary prospectus supplement, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the company by such Underwriter through the Representatives specifically for use therein, and will reimburse any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in the Terms Agreement. 20 (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under subsection (a) or (b) above, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under subsection (a) or (b) above. In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action. (d) If the indemnification provided for in this Section is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Offered Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding the provisions of this subsection (d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Offered Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint. 21 (e) The obligations of the Company under this Section shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Securities Act; and the obligations of the Underwriters under this Section shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each director of the Company, to each officer of the Company who has signed a Registration Statement and to each person, if any, who controls the company within the meaning of the Securities Act. 8. Default of Underwriters. If any Underwriter or Underwriters default in their obligations to purchase Offered Securities under the Terms Agreement and the aggregate number of shares of Offered Securities that such defaulting Underwriter or Underwriters agreed but failed to purchase does not exceed 10% of the total number of shares of Offered Securities that the Underwriters are obligated to purchase on the Closing Date, the Lead Underwriter may make arrangements satisfactory to the Company for the purchase of such Offered Securities by other persons, including any of the Underwriters, but if no such arrangements are made by the Closing Date, the nondefaulting Underwriters shall be obligated severally, in proportion to their respective commitments under the Terms Agreement (including the provisions of this Agreement), to purchase the Offered Securities that such defaulting Underwriters agreed but failed to purchase on the Closing Date. If any Underwriter or Underwriters so default and the aggregate number of shares of Offered Securities with respect to which such default or defaults occur exceeds 10% of the total number of shares of Offered Securities that the Underwriters are obligated to purchase on the Closing Date and arrangements satisfactory to the Lead Underwriter and the Company for the purchase of such Offered Securities by other persons are not made within 36 hours after such default, the Terms Agreement will terminate without liability on the part of any non-defaulting Underwriter or the Company, except as provided in Section 9. As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section. Nothing herein will relieve a defaulting Underwriter from liability for its default. 9. Survival of Certain Representations and Obligations. The respective indemnities, agreements, representations, warranties and other statements of the Company or its officers and of the several Underwriters set forth in or made pursuant to the Terms Agreement (including the provisions of this Agreement) will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of any Underwriter, the Company or any of their respective representatives, officers or directors or any controlling person, and will survive delivery of and payment for the Offered Securities. If the Terms Agreement is terminated pursuant to Section 8 or if for any reason the purchase of the Offered Securities by the Underwriters is not consummated, the Company shall remain responsible for the expenses to be paid or reimbursed by it pursuant to Section 5 and the respective obligations of the Company and the Underwriters pursuant to Section 7 shall remain in effect, and if any Offered Securities have been purchased hereunder the representations and warranties in Section 2 and all obligations under Section 5 shall also remain in effect. If the purchase of the Offered Securities by the Underwriters is not consummated for any reason other than solely because of the termination of the Terms Agreement pursuant to Section 8 or the occurrence of any event specified in clause (iii), (iv) or (v) of Section 6(c), the Company will reimburse the Underwriters for all out-of-pocket expenses (including fees and disbursements of counsel) reasonably incurred by them in connection with the offering of the Offered Securities. 22 10. Notices. All communications hereunder will be in writing and, if sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed to them at their addresses furnished to the Company in the Terms Agreement, or, if sent to the Company, will be mailed, delivered or telegraphed and confirmed to it at The ACE Building, 30 Woodbourne Avenue, Hamilton HM 08 Bermuda, Attention: General Counsel and Secretary; provided, however, that any notice to an Underwriter pursuant to Section 7 will be mailed, delivered or telegraphed and confirmed to such Underwriter. 11. Successors. The Terms Agreement (including the provisions of this Agreement) will inure to the benefit of and be binding upon the Company and the Underwriters and their respective successors and the officers and directors and controlling persons referred to in Section 7, and no other person will have any right or obligation hereunder. 12. Representation of Underwriters. The Representatives will act for the several Underwriters in connection with the financing described in the Terms Agreement, and any action under the Terms Agreement (including the provisions of this Agreement) taken by the Representatives jointly or by the Lead Underwriter will be binding upon all the Underwriters. 13. Counterparts. The Terms Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement. 14. Applicable Law. This Agreement and the Terms Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to principles of conflicts of laws. The Company hereby submits to the non-exclusive jurisdiction of the Federal and state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to the Terms Agreement (including the provisions of this Agreement) or the transactions contemplated thereby. The Company irrevocably appoints ACE USA, Inc., 1133 Avenue of the Americas, 32nd Floor, New York, New York 10036 as its authorized agent in the Borough of Manhattan in The City of New York upon which process may be served in any such suit or proceeding, and agrees that service of process upon such agent, and written notice of said service to the Company by the person serving the same to the address provided in Section 10, shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding. The Company further agrees to take any and all action as may be necessary to maintain such designation and appointment of such agent in full force and effect for a period of seven years from the date of this Agreement. The obligation of the Company in respect of any sum due to any Underwriter shall, notwithstanding any judgment in a currency other than United States dollars, not be discharged until the first business day, following receipt by such Underwriter of any sum adjudged to be so due in such other currency, on which (and only to the extent that) such Underwriter may in accordance with normal banking procedures purchase United States dollars with such other currency; if the United States dollars so purchased are less than the sum originally due to such Underwriter hereunder, the Company agrees, as a separate obligation and notwithstanding any such judgment, to indemnify such Underwriter against such loss. If the United States dollars so purchased are greater than the sum originally due to such Underwriter hereunder, such Underwriter agrees to pay to the Company an amount equal to the excess of the dollars so purchased over the sum originally due to such Underwriter hereunder. 23 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this Underwriting Agreement, along with all counterparts, will become a binding agreement between the Underwriters and the Company in accordance with its terms. Very truly yours, ACE LIMITED By: ----------------------------------- Name: Christopher Z. Marshall Title: Chief Financial Officer CONFIRMED AND ACCEPTED, as of the date first above written: BANC OF AMERICA SECURITIES LLC By: ------------------------------- Authorized Signatory 24 ACE LIMITED (a Cayman Islands Company) 11,000,000 Ordinary Shares (Par Value $0.041666667 Per Share) TERMS AGREEMENT --------------- September 6, 2000 ACE LIMITED The ACE Building 30 Woodbourne Avenue Hamilton HM 08, Bermuda Ladies and Gentlemen: The undersigned underwriter (the "Underwriter") understands that ACE Limited, a Cayman Islands Company (the "Company"), proposes to issue and sell 12,250,000 shares of its ordinary shares, $0.041666667 par value per share (the "Offered Securities"). Subject to the terms and conditions set forth herein or incorporated by reference herein, the Underwriter offers to purchase 12,250,000 of Offered Securities at $32.685 per share on the Closing Date. The Offered Securities shall have the following terms: Number of Firm Securities to be issued: 12,250,000 Purchase price: $32.685 per share Closing Date: 9:00 A.M. (Eastern Time), September 12, 2000 Place of delivery and payment: Brown & Wood LLP One World Trade Center New York, New York 10048 Company account for wire transfer of payment: Boston Safe Deposit & Trust Account No.: 162299 ABA No.: 011001234/Boston Safe Lock-up pursuant to Section 5(j) of the Underwriting Agreement (as defined below): yes At the Closing Date, the Underwriter will pay the Company by wire transfer to the account specified above $400,391,250. The following information appearing in the Registration Statement on Form S-3 (No. 333-78841) (and the related Prospectus dated April 6, 2000 and Prospectus Supplement dated September 6, 2000 relating to the offering and sale of the Offered Securities, in the form in which the Prospectus and Prospectus Supplement were filed with the Securities and Exchange Commission pursuant to Rule 424(b) under the Securities Act of 1933, as amended), has been furnished by the Underwriter: 1. The first sentence of the second paragraph under the caption "Underwriting" on page S-19 of the Prospectus Supplement. 2. The information in the second paragraph under the caption "Underwriting--Short Positions" on pages S-19 and S-20 of the Prospectus Supplement. 3. The information in the third paragraph under the caption "Underwriting--Short Positions" on page S-20 of the Prospectus Supplement, but solely insofar as it concerns the Underwriter. No other information in the above mentioned Registration Statement (and the related Prospectus and Prospectus Supplement) has been furnished by the Underwriter. All the provisions contained in the Underwriting Agreement dated September 6, 2000 between the Company and the Underwriter (the "Underwriting Agreement") attached hereto as Annex A, are herein incorporated by reference in their entirety and shall be deemed to be a part of this Terms Agreement to the same extent as if such provisions had been set forth in full herein. Terms defined in such document are used herein as therein defined. Any notice by the Company to the Underwriter pursuant to this Terms Agreement shall be sufficient if given in accordance with Section 10 of the Underwriting Agreement addressed to: Banc of America Securities LLC, 9 West 57th Street, New York, New York 10019, Attention: Issac Osaki, Esq., which shall, for all purposes of this Agreement, be the "Representative." Very truly yours, BANC OF AMERICA SECURITIES LLC By: ________________________________ Authorized Signatory Accepted: ACE LIMITED By: ------------------------------------------------- Name: Christopher Z. Marshall Title: Chief Financial Officer Annex A [Underwriting Agreement] [See Tab 2] EX-10.2 3 0003.txt THIRD AMENDED REIMBURSEMENT AGREEMENT THIRD AMENDMENT TO REIMBURSEMENT AGREEMENT This Amendment, dated as of September 1, 2000, amends the Reimbursement Agreement, dated as of September 8, 1999, and amended as of November 30, 1999 and as of March 15, 2000, among ACE Limited ("Parent"), ACE Bermuda Insurance Ltd. ("ACE Bermuda"), Tempest Reinsurance Company Limited ("Tempest"), the Banks party thereto, Deutsche Bank AG, New York and/or Cayman Islands Branches and Fleet National Bank, as Documentation Agents, and Mellon Bank, N.A., as Issuing Bank and Administrative Agent (the "Agreement"). Parent, the Issuing Bank and the Required Banks (as defined in the Agreement) hereby agree that the Agreement shall be amended as follows: 1. The definition of the term "Adjusted Consolidated Debt" appearing in Section 1.01 of the Agreement is hereby amended by deleting clause (ii) in its entirety and replacing it as follows: "(ii) to the extent exceeding an amount equal to 15% of Total Capitalization, the then issued and outstanding amount of Preferred Securities (other than any Mandatorily Convertible Securities). 2. Section 1.01 of the Agreement is hereby amended by deleting the definition of the term "Consolidated Tangible Net Worth" appearing therein and inserting in lieu thereof the following definition: "Consolidated Net Worth" means at any date the Consolidated stockholders' equity of the Parent and its Consolidated Subsidiaries determined as of such date, provided that such determination for purposes of Section 5.04 shall be made without giving effect to adjustments pursuant to Statement No. 115 of the Financial Accounting Standards Board of the United States of America. 3. Each of the definitions of the respective terms "Debenture" and "Special Purpose Trust" appearing in Section 1.01 of the Agreement is hereby amended by inserting therein, immediately prior to the period at the end thereof, the phrase "and common securities of such Special Purpose Trust". 4. The definition of the term "Debt" appearing in Section 1.01 of the Agreement is hereby amended by inserting, immediately after the phrase "any Equity Interests" appearing therein, the parenthetical phrase "(except for obligations to pay for Equity Interests within customary settlement periods)". 5. The definition of the term "Equity Issuance" appearing in Section 1.01 of the Agreement shall be deleted in its entirety. 6. The definition of the term "Mandatorily Convertible Preferred Securities" appearing in Section 1.01 of the Agreement is hereby amended by deleting the definition in its entirety and replacing it as follows: "Mandatorily Convertible Preferred Securities" means units comprised of (i) Preferred Securities or preferred shares of Parent and (ii) a contract for the sale of ordinary shares of the Parent (including "Feline Prides(TM)", "Rhinos(TM)" or any substantially similar securities). 7. The definition of the term "Net Cash Proceeds" appearing in Section 1.01 of the Agreement shall be deleted in its entirety. 8. The definition of the term "Responsible Officer" appearing in Section 1.01 of the Agreement is hereby amended by inserting after the term "Chief Financial Officer," and before the term "Treasurer" the term "Chief Accounting Officer". 9. Section 1.01 of the Agreement is hereby amended by inserting the following definition: "Significant Subsidiary" means a Subsidiary of Parent that is a "significant subsidiary" of the Parent under Regulation S-X promulgated by the Securities and Exchange Commission. 10. The definition of the term "Total Capitalization" appearing in Section 1.01 of the Agreement is hereby amended by inserting therein, immediately after the phrase "Preferred Securities" appearing therein, the parenthetical phrase "(including Mandatorily Convertible Preferred Securities)". 1 11. Section 2.02(g) of the Agreement is hereby amended by deleting the phrase "prior to the tenth Business Day of each month" appearing therein and inserting in lieu thereof the phrase "prior to the tenth Business Day of each calendar quarter", by deleting the phrase "during the preceding month" appearing therein and inserting in lieu thereof the phrase "during the preceding calendar quarter" and by deleting the phrase "during such month" appearing therein and inserting in lieu thereof the phrase "during such calendar quarter". 12. Section 4.01(j) of the Agreement is hereby amended by deleting the provision in its entirety and replacing it with the following: "(j) Margin Stock will constitute less than 25% of the value of those assets of any Account Party which are subject to any limitation on sale, pledge or other disposition hereunder." 13. To correct a typographical error in the Agreement, the last sentence of Section 2.11(a) of the Agreement is hereby amended by changing the words "this subsection (b)" to "this subsection (a)" and by changing the words "in subsection (c)" to "in subsection (b)". 14. Section 5.01(i) of the Agreement is hereby amended by inserting after the phrase "applying to" and before the phrase "companies generally" the following: "insurance". 15. Section 5.02(d) of the Agreement is hereby amended by deleting it in its entirety and replacing it with the following: "(d) Sales, Etc., of Assets. Sell, lease, transfer or otherwise dispose of or permit any other Account Party to sell, lease, transfer or otherwise dispose of, all or substantially all of its assets (excluding sales of investment securities in the ordinary course of business)." To reflect the amendment made in the foregoing sentence, Section 5.02(c)(iii) of the Agreement is hereby amended to delete the words "(other than clause (ii) thereof)", which words referred to former clause (ii) of Section 5.02(d). 16. Section 5.02(a) of the Agreement is hereby further amended by deleting, in clause (ix) thereof, the phrase "10% of Consolidated Tangible Net Worth" and inserting in lieu thereof the phrase "5% of Consolidated Net Worth". 17. Section 5.04 of the Agreement is hereby amended by deleting paragraphs (a) and (b) appearing therein and inserting in lieu thereof the following: (a) Adjusted Consolidated Debt to Total Capitalization Ratio. Maintain at all times a ratio of Adjusted Consolidated Debt to Total Capitalization of not more than 0.35 to 1. (b) Consolidated Net Worth. Maintain at all times Consolidated Net Worth in an amount equal to the sum of (i) $3,600,000,000 plus (ii) 25% of Consolidated Net Income for each fiscal quarter of the Parent ending on or after March 31, 2000 for which such Consolidated Net Income is positive. 18. Section 6.01(e) of the Agreement shall be amended by deleting the term "Subsidiaries" each time it is used therein and replacing it with the term "Significant Subsidiaries" and by deleting the term "Subsidiary" each time it is used therein and replacing it with the term "Significant Subsidiary". 2 19. The entire Agreement shall be amended by deleting the word "the" each time it appears before the phrase "Special Purpose Trust" and replacing it with the word "a" or "such" as the context requires. 20. The definition of the term "Base Rate" in Section 1.01 of the Agreement is hereby amended by inserting at the end thereof the words "or, if higher on the day in question, 1/2 of 1% above the Federal Funds Rate". This Amendment shall become effective with respect to the Agreement on the date on which the Administrative Agent has received counterparts hereof (by facsimile or otherwise) signed by the Parent, the Issuing Bank and the Required Banks, except that the last sentence of the next succeeding paragraph hereof shall become effective upon execution of counterparts hereof by all of the Banks listed on the signature pages of this Amendment. Except as amended hereby, the Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. As contemplated by Section 2.17 of the Agreement, the Parent has requested the Banks to consent to the extension of the Expiration Date under the Agreement from September 6, 2000 to September 5, 2001. Each of the Banks other than Societe Generale has indicated its consent to such extension. As contemplated by Section 2.17 of the Agreement, the Parent has designated Royal Bank of Canada as a Replacement Bank for Societe Generale and, accordingly, upon execution of this Amendment by Royal Bank of Canada, Royal Bank of Canada shall become a Bank party to the Agreement for all purposes of the Agreement and Societe Generale shall cease to be a Bank party to the Agreement. In addition, Bank One, NA and the Parent desire that Bank One, NA become a Bank party to the Agreement and certain Banks desire that their respective LC Commitment Amounts be changed. Accordingly, upon its execution of a counterpart of this Amendment Bank One, NA shall become a Bank party to the Agreement for all purposes of the Agreement. The definition of the term "Bank" in the Agreement is deemed to be amended so that each of Bank One, NA and Royal Bank of Canada is a Bank under the Agreement, the Domestic Lending Office and address for notices for each such Bank being set forth on part 2 of Schedule I to this Amendment. Each of the Banks executing a counterpart of this Agreement agrees that its LC Commitment Amount shall be the amount set forth opposite its name on Schedule I to this Amendment, which Schedule I shall be deemed to amend Schedule I to the Agreement, and the respective Letter of Credit Participating Interests in outstanding Letters of Credit shall be adjusted accordingly. Each of the Banks executing this Agreement, by its execution hereof, hereby consents to the extension of the Expiration Date under the Agreement to September 5, 2001. The provisions of this paragraph shall be effective (including for purposes of calculating fees) as of September 6, 2000. This Amendment may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the date first above written. ACE LIMITED The Common Seal of ACE Limited was hereunto affixed in the presence of: _______________________________________ Chief Financial Officer _______________________________________ Secretary MELLON BANK, N.A., as Administrative Agent, Issuing Bank and Bank By: _______________________________________ Title:_____________________________________ DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES By:________________________________________ Title:_____________________________________ FLEET NATIONAL BANK By:________________________________________ Title:_____________________________________ 4 THE BANK OF BERMUDA, LIMITED By: _______________________________________ Title:_____________________________________ THE BANK OF NEW YORK By:________________________________________ Title:_____________________________________ BANQUE NATIONALE DE PARIS By:________________________________________ Title:_____________________________________ BANK ONE, NA (Main Office Chicago) By:________________________________________ Title:_____________________________________ ROYAL BANK OF CANADA By:________________________________________ Title:_____________________________________ 5 EX-10.3 4 0004.txt FOURTH AMENDED REIMBURSEMENT AGREEMENT FOURTH AMENDMENT TO REIMBURSEMENT AGREEMENT This Amendment, dated as of October 5, 2000, amends the Reimbursement Agreement, dated as of September 8, 1999, and amended as of November 30, 1999, as of March 15, 2000 and as of September 1, 2000, among ACE Limited ("Parent"), ACE Bermuda Insurance Ltd. ("ACE Bermuda"), ACE Tempest Reinsurance Ltd., formerly Tempest Reinsurance Company Limited ("Tempest", Parent, ACE Bermuda and Tempest being herein and in such Reimbursement Agreement referred to as the "Account Parties"), the Banks party thereto, Deutsche Bank AG, New York and/or Cayman Islands Branches and Fleet National Bank, as Documentation Agents, and Mellon Bank, N.A., as Issuing Bank and Administrative Agent (the "Agreement"). WHEREAS, Parent has requested that the Issuing Bank and the Required Banks (as defined in the Agreement) enter into certain amendments to the Agreement; and WHEREAS, the Issuing Bank and the Required Banks are willing to enter into such amendments; and WHEREAS, terms defined in the Agreement are used with the same definitions herein; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Amendment. Section 5.02(a) of the Agreement is hereby amended by (a) deleting the word "and" immediately after clause (xv) thereof, (b) replacing the period at the end of clause (xvi) with a semicolon followed by the word "and"; and (c) adding as a new clause (xvii) the following: (xvii) Liens arising in connection with certain equity proceeds received on or about September 12, 2000 (plus interest accrued thereon) placed in a segregated account in support of (or pledged as collateral for) Parent's guaranty of the $412,372,000 principal amount of Auction Rate Reset Subordinated Notes Series A issued by ACE INA to ACE RHINOS Trust on June 30, 1999. SECTION 2. Representations and Warranties. Each Account Party represents and warrants to the Issuing Bank, the Banks and the Agents that (a) each warranty set forth in Article IV of the Agreement is true and correct as of the date of the execution and delivery of this Amendment by the Account Parties, with the same effect as if made on such date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they were true and correct as of such earlier date), (b) the execution and delivery by each Account Party of this Amendment and the performance by each Account Party of its respective obligations under the Agreement, as amended hereby (as so amended, the "Amended Reimbursement Agreement") (i) are within the corporate power of such Account Party (ii) have been duly authorized by all necessary corporate action on the part of such Account Party, (iii) have received all necessary governmental and regulatory approval and (iv) do not and will not contravene or conflict with any provision of law or of the organizational documents of any Account Party or of any indenture, loan agreement or other contract, order or decree which is binding upon any Account Party and (c) the Amended Reimbursement Agreement is the legal, valid and binding obligation of each Account Party, enforceable against such Account Party in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors' rights or by general principles of equity limiting the availability of equitable remedies. SECTION 3. Effectiveness. The amendments set forth in Section 1 above shall become effective on such date as the Administrative Agent shall have received counterparts of this Fourth Amendment executed by the Account Parties, the Issuing Bank and the Required Banks. SECTION 4. Miscellaneous. ------------- 4.1 Continuing Effectiveness, etc. As herein amended, the Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. After the amendments set forth in Section 1 of this Fourth Amendment become effective, all references in the Agreement and the other Loan Documents to "Reimbursement Agreement", "Agreement" or similar terms shall refer to the Amended Reimbursement Agreement. 4.2 Counterparts. This Fourth Amendment may be executed in any number of counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original but all such counterparts shall together constitute one and the same Amendment. 4.3 Governing Law. This Fourth Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. [Remainder of page intentionally left blank] 2 IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment to be executed by their respective officers thereunto duly authorized as of the date first above written. ACE LIMITED The Common Seal of ACE Limited was hereunto affixed in the presence of: _____________________________________ Title: _____________________________________ Secretary ACE BERMUDA INSURANCE LTD. The Common Seal of ACE Bermuda Insurance Ltd. was hereunto affixed in the presence of: ______________________________________ Title: ______________________________________ Secretary ACE TEMPEST REINSURANCE LTD., formerly TEMPEST REINSURANCE COMPANY LIMITED The Common Seal of ACE Tempest Reinsurance Ltd., formerly Tempest Reinsurance Company Limited, was hereunto affixed in the presence of: ______________________________________ Title: ______________________________________ Secretary 3 MELLON BANK, N.A., as Administrative Agent, Issuing Bank and Bank ______________________________________ By: ______________________________________ Title: DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES ______________________________________ By: ______________________________________ Title: FLEET NATIONAL BANK ______________________________________ By: ______________________________________ Title: THE BANK OF BERMUDA, LIMITED ______________________________________ By: ______________________________________ Title: THE BANK OF NEW YORK ______________________________________ By: ______________________________________ Title: 4 BANQUE NATIONALE DE PARIS _______________________________________ By: _______________________________________ Title: BANK ONE, NA (Main Office Chicago) ________________________________________ By: ________________________________________ Title: ROYAL BANK OF CANADA ________________________________________ By: ________________________________________ Title: 5 EX-10.4 5 0005.txt AMENDED FIVE YEAR CREDIT AGREEMENT FIRST AMENDMENT THIS FIRST AMENDMENT dated as of October 23, 2000 (this "Amendment") amends the Amended and Restated Five Year Credit Agreement dated as of May 8, 2000 (the "Credit Agreement") among ACE Limited, a Cayman Islands company (the "Parent"), ACE Bermuda Insurance Ltd. ("ACE Bermuda"), ACE Tempest Reinsurance Ltd., formerly known as Tempest Reinsurance Company Limited ("Tempest"), ACE INA Holdings Inc. ("ACE INA") and ACE Financial Services, Inc. ("ACE Financial") (Ace Bermuda, Tempest, ACE INA and ACE Financial, together with the Parent, the "Borrowers"), various financial institutions (the "Lenders"), and Morgan Guaranty Trust Company of New York ("MGT"), as administrative agent (in such capacity, the "Agent"). Terms defined in the Credit Agreement are, unless otherwise defined herein or the context otherwise requires, used herein as defined therein. WHEREAS, the Borrowers, the Lenders and the Agent have entered into the Credit Agreement; and WHEREAS, the parties hereto desire to amend the Credit Agreement in certain respects as more fully set forth herein; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1 Amendment to Negative Covenants. Effective on (and subject to the occurrence of) the Amendment Effective Date (as defined below), Section 5.02 of the Credit Agreement shall be amended as set forth below: 1.1 Amendment to Section 5.02(a)(xvi). Section 5.02(a)(xvi) of the Credit Agreement shall be amended by deleting the word "and" immediately after the semi-colon at the end thereof. 1.2 Amendment to Section 5.02(a)(xvii). Section 5.02(a)(xvii) of the Credit Agreement shall be amended by deleting the period at the end thereof and adding a semi-colon and the word "and" at the end thereof. 1.3 Amendment to Section 5.02(a). Section 5.02(a) of the Credit Agreement shall be amended by adding the following immediately after the word "and" following the semi-colon at the end of subsection (xvii) thereof: (xviii) Liens arising in connection with certain equity proceeds received on or about September 12, 2000 (plus interest accrued thereon) placed in a segregated account in support of (or pledged as collateral for) Parent's guarantee of the $412,372,000 principal amount of Auction Rate Reset Subordinated Notes Series A issued by ACE INA to ACE RHINOS Trust on June 30, 1999. SECTION 2 Representations and Warranties. Each Borrower represents and warrants to the Agent and the Lenders that (a) each warranty set forth in Article IV of the Credit Agreement is true and correct as of the date of 1 the execution and delivery of this Amendment by the Parent, with the same effect as if made on such date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they were true and correct as of such earlier date), (b) the execution and delivery by the Parent of this Amendment and the performance by each Borrower of its respective obligations under the Credit Agreement, as amended hereby (as so amended, the "Amended Credit Agreement") (i) are within the corporate or limited liability company power, as applicable, of such Borrower (ii) have been duly authorized by all necessary corporate action, as applicable, on the part of such Borrower, (iii) have received all necessary governmental and regulatory approval and (iv) do not and will not contravene or conflict with any provision of law or of the organizational documents of any Borrower or of any indenture, loan agreement or other contract, order or decree which is binding upon any Borrower and (c) the Amended Credit Agreement is the legal, valid and binding obligation of each Borrower, enforceable against such Borrower in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors' rights or by general principles of equity limiting the availability of equitable remedies. SECTION 3 Effectiveness. The amendments set forth in Section 1 above shall become effective on such date (the "Amendment Effective Date") when the Agent shall have received each of the following documents, each in form and substance satisfactory to the Agent: 3.1 Executed Counterparts. Counterparts of this Amendment executed by the Parent and the Required Lenders. 3.2 Confirmation. A confirmation, substantially in the form of Annex I attached hereto, executed by each existing Guarantor. 3.3 Other Documents. Such other documents as the Agent or any Lender may reasonably request in connection with the authorization, execution and delivery of this Amendment. SECTION 4 Miscellaneous. 4.1 Continuing Effectiveness, etc. As herein amended, the Credit Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. After the Amendment Effective Date, all references in the Credit Agreement and the other Loan Documents to "Credit Agreement", "Agreement" or similar terms shall refer to the Amended Credit Agreement. 4.2 Counterparts. This Amendment may be executed in any number of counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original but all such counterparts shall together constitute one and the same Amendment. 4.3 Governing Law. This Amendment shall be a contract made under and governed by the laws of the State of New York applicable to contracts made and to be fully performed within such state. 4.4 Successors and Assigns. This Amendment shall be binding upon each Borrower, the Lenders and the Agent and their respective successors and assigns, and shall inure to the benefit of the Borrowers, the Lenders and the Agent and the respective successors and assigns of the Lenders and the Agent. 2 Delivered at Chicago, Illinois, as of the day and year first above written. ACE LIMITED By: /s/ Christopher Z. Marshall -------------------------------------------- Title: Chief Financial Officer MELLON BANK, N.A. By: /s/ Karla K. Maloof --------------------------------------------- Title: Vice President BANK OF AMERICA, N.A. By: /s/ Debra Basler -------------------------------------------- Title: Vice President THE CHASE MANHATTAN BANK By: -------------------------------------------- Title: S-1 REVOLVING COMMITMENT VEHICLE CORPORATION, as a Lender By: Morgan Guaranty Trust Company of New York, as Attorney-in-fact for Revolving Commitment Vehicle Corporation By: /s/ Robert Bottamedi --------------------------------------------- Title: Vice President ABN AMRO BANK N.V. By: /s/ D. Winchester --------------------------------------------- Title: Vice President By: /s/ Ray Catt --------------------------------------------- Title: Head of Insurance Banking THE BANK OF NEW YORK By: /s/ David Trick --------------------------------------------- Title: Assistant Vice President BANK ONE, NA By: /s/ Gretchen K. Roetzer --------------------------------------------- Title: Assistant Vice President S-2 BARCLAYS BANK PLC By: /s/ Neil Holmes --------------------------------------------- Title: Relationship Director CITIBANK, N.A. By: /s/ Michael Taylor --------------------------------------------- Title: Vice President DEUTSCHE BANK AG NEW YORK AND/OR CAYMAN ISLANDS BRANCHES By: /s/ Clinton M. Johnson --------------------------------------------- Title: Managing Director By: /s/ John S. McGill --------------------------------------------- Title: Director FIRST UNION NATIONAL BANK By: /s/ Daniel J. Norton --------------------------------------------- Title: Director S-3 FLEET NATIONAL BANK By: --------------------------------------------- Title: ROYAL BANK OF CANADA By: /s/ Alexander Birr --------------------------------------------- Title: Senior Manager THE BANK OF TOKYO-MITSUBISHI, LTD. NEW YORK BRANCH By: /s/ Jesse A. Reid, Jr. --------------------------------------------- Title: Attorney In Fact BNP PARIBAS By: /s/ Phil Truesdale -------------------------------------------- Title: Director By: /s/ Barry S. Feigenbaum --------------------------------------------- Title: Managing Director S-4 CREDIT LYONNAIS NEW YORK BRANCH By: /s/ Sebastian Rocco --------------------------------------------- Title: Senior Vice President LLOYDS TSB BANK PLC By: /s/ Michael J. Gilligan --------------------------------------------- Title: Director, Financial Institutions, USA By: /s/ David Rodway --------------------------------------------- Title: Assistant Director STATE STREET BANK AND TRUST COMPANY By: /s/ Edward M. Anderson -------------------------------------------- Title: Vice President S-5 Annex I CONFIRMATION Dated as of October 23, 2000 To: Morgan Guaranty Trust Company of New York, individually and as Agent, and the other financial institutions party to the Credit Agreement referred to below Please refer to: (a) the Amended and Restated Five Year Credit Agreement dated as of May 8, 2000 (the "Credit Agreement") among ACE Limited, ACE Bermuda Insurance Ltd., ACE Tempest Reinsurance Ltd., formerly known as Tempest Reinsurance Company Limited, ACE INA Holdings Inc. and ACE Financial Services, Inc. (Ace Bermuda, Tempest, ACE INA and ACE Financial, together with ACE Limited, the "Borrowers"), various financial institutions (the "Lenders"), and Morgan Guaranty Trust Company of New York ("MGT"), as administrative agent (in such capacity, the "Agent"); (b) the other "Loan Documents" (as defined in the Credit Agreement), including the Guaranty; and (c) the First Amendment dated as of October 23, 2000 to the Credit Agreement (the "First Amendment"). Each of the undersigned hereby confirms to the Agent and the Lenders that, after giving effect to the First Amendment and the transactions contemplated thereby, each Loan Document to which such undersigned is a party continues in full force and effect and is the legal, valid and binding obligation of such undersigned, enforceable against such undersigned in accordance with its terms. ACE LIMITED By: -------------------------------------------- Name Printed: ---------------------------------- Title: ----------------------------------------- ACE BERMUDA INSURANCE LTD. By: -------------------------------------------- Name Printed: ---------------------------------- Title: ----------------------------------------- 1 ACE TEMPEST REINSURANCE LTD., formerly known as TEMPEST REINSURANCE COMPANY LIMITED By: -------------------------------------------- Name Printed: ---------------------------------- Title: ----------------------------------------- ACE INA HOLDINGS INC. By: -------------------------------------------- Name Printed: ---------------------------------- Title: ----------------------------------------- 2 EX-10.5 6 0006.txt AMENDED 364-DAY CREDIT AGREEMENT FIRST AMENDMENT THIS FIRST AMENDMENT dated as of October 23, 2000 (this "Amendment") amends the Amended and Restated 364-Day Credit Agreement dated as of May 8, 2000 (the "Credit Agreement") among ACE Limited, a Cayman Islands company (the "Parent"), ACE Bermuda Insurance Ltd. ("ACE Bermuda"), ACE Tempest Reinsurance Ltd., formerly known as Tempest Reinsurance Company Limited ("Tempest"), ACE INA Holdings Inc. ("ACE INA") and ACE Guaranty Re Inc. ("ACE Guaranty") (Ace Bermuda, Tempest, ACE INA and ACE Guaranty, together with the Parent, the "Borrowers"), various financial institutions (the "Lenders"), and Morgan Guaranty Trust Company of New York ("MGT"), as administrative agent (in such capacity, the "Agent"). Terms defined in the Credit Agreement are, unless otherwise defined herein or the context otherwise requires, used herein as defined therein. WHEREAS, the Borrowers, the Lenders and the Agent have entered into the Credit Agreement; and WHEREAS, the parties hereto desire to amend the Credit Agreement in certain respects as more fully set forth herein; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1 Amendment to Negative Covenants. Effective on (and subject to the occurrence of) the Amendment Effective Date (as defined below), Section 5.02 of the Credit Agreement shall be amended as set forth below: 1.1 Amendment to Section 5.02(a)(xvi). Section 5.02(a)(xvi) of the Credit Agreement shall be amended by deleting the word "and" immediately after the semi-colon at the end thereof. 1.2 Amendment to Section 5.02(a)(xvii). Section 5.02(a)(xvii) of the Credit Agreement shall be amended by deleting the period at the end thereof and adding a semi-colon and the word "and" at the end thereof. 1.3 Amendment to Section 5.02(a). Section 5.02(a) of the Credit Agreement shall be amended by adding the following immediately after the word "and" following the semi-colon at the end of subsection (xvii) thereof: (xviii) Liens arising in connection with certain equity proceeds received on or about September 12, 2000 (plus interest accrued thereon) placed in a segregated account in support of (or pledged as collateral for) Parent's guarantee of the $412,372,000 principal amount of Auction Rate Reset Subordinated Notes Series A issued by ACE INA to ACE RHINOS Trust on June 30, 1999. 1 SECTION 2 Representations and Warranties. Each Borrower represents and warrants to the Agent and the Lenders that (a) each warranty set forth in Article IV of the Credit Agreement is true and correct as of the date of the execution and delivery of this Amendment by the Parent, with the same effect as if made on such date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they were true and correct as of such earlier date), (b) the execution and delivery by the Parent of this Amendment and the performance by each Borrower of its respective obligations under the Credit Agreement, as amended hereby (as so amended, the "Amended Credit Agreement") (i) are within the corporate or limited liability company power, as applicable, of such Borrower (ii) have been duly authorized by all necessary corporate action, as applicable, on the part of such Borrower, (iii) have received all necessary governmental and regulatory approval and (iv) do not and will not contravene or conflict with any provision of law or of the organizational documents of any Borrower or of any indenture, loan agreement or other contract, order or decree which is binding upon any Borrower and (c) the Amended Credit Agreement is the legal, valid and binding obligation of each Borrower, enforceable against such Borrower in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors' rights or by general principles of equity limiting the availability of equitable remedies. SECTION 3 Effectiveness. The amendments set forth in Section 1 above shall become effective on such date (the "Amendment Effective Date") when the Agent shall have received each of the following documents, each in form and substance satisfactory to the Agent: 3.1 Executed Counterparts. Counterparts of this Amendment executed by the Parent and the Required Lenders. 3.2 Confirmation. A confirmation, substantially in the form of Annex I attached hereto, executed by each existing Guarantor. 3.3 Other Documents. Such other documents as the Agent or any Lender may reasonably request in connection with the authorization, execution and delivery of this Amendment. SECTION 4 Miscellaneous. 4.1 Continuing Effectiveness, etc. As herein amended, the Credit Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. After the Amendment Effective Date, all references in the Credit Agreement and the other Loan Documents to "Credit Agreement", "Agreement" or similar terms shall refer to the Amended Credit Agreement. 2 4.2 Counterparts. This Amendment may be executed in any number of counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original but all such counterparts shall together constitute one and the same Amendment. 4.3 Governing Law. This Amendment shall be a contract made under and governed by the laws of the State of New York applicable to contracts made and to be fully performed within such state. 4.4 Successors and Assigns. This Amendment shall be binding upon each Borrower, the Lenders and the Agent and their respective successors and assigns, and shall inure to the benefit of the Borrowers, the Lenders and the Agent and the respective successors and assigns of the Lenders and the Agent. 3 Delivered at Chicago, Illinois, as of the day and year first above written. ACE LIMITED By: /s/ Christopher Z. Marshall ---------------------------- Title: Chief Financial Officer MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Maria H. Dell'Aquila -------------------------- Title: Vice President BANK OF AMERICA, N.A. By: /s/ Debra Basler -------------------------- Title: Vice President THE CHASE MANHATTAN BANK By: ----------------------------- Title: S-1 ABN AMRO BANK N.V. By: /s/ D. Winchester ----------------------------- Title: Vice President By: /s/ Ray Catt ---------------------------- Title: Head of Insurance Banking THE BANK OF NEW YORK By: /s/ David Trick ---------------------------- Title: Assistant Vice President BANK ONE, NA By: /s/ Gretchen K. Roetzer ---------------------------- Title: Assistant Vice President BARCLAYS BANK PLC By: /s/ Neil Holmes ---------------------------- Title: Relationship Director CITIBANK, N.A. By: /s/ Michael Taylor ------------------------------ Title: Vice President S-2 DEUTSCHE BANK AG NEW YORK AND/OR CAYMAN ISLANDS BRANCHES By: /s/ Clinton M. Johnson ------------------------------- Title: Managing Director By: /s/ John S. McGill ------------------------------- Title: Director FIRST UNION NATIONAL BANK By: /s/ Daniel J. Norton ------------------------------- Title: Director FLEET NATIONAL BANK By: ------------------------------- Title: MELLON BANK, N.A. By: /s/ Karla K. Maloof ------------------------------- Title: Vice President ROYAL BANK OF CANADA By: /s/ Alexander Birr ------------------------------- Title: Senior Manager S-3 THE BANK OF TOKYO-MITSUBISHI, LTD. NEW YORK BRANCH By: /s/ Jesse A. Reid, Jr. ------------------------------- Title: Attorney In Fact BNP PARIBAS By: /s/ Phil Truesdale ------------------------------- Title: Director By: /s/ Barry S. Feigenbaum ------------------------------- Title: Managing Director CREDIT LYONNAIS NEW YORK BRANCH By: /s/ Sebastian Rocco ------------------------------- Title: Senior Vice President LLOYDS TSB BANK PLC By: /s/ Michael J. Gilligan ------------------------------------------ Title: Director, Financial Institutions, USA By: /s/ David Rodway ------------------------------------ Title: Assistant Director STATE STREET BANK AND TRUST COMPANY By: /s/ Edward M. Anderson ------------------------------------ Title: Vice President S-4 Annex I CONFIRMATION ------------ Dated as of October 23, 2000 To: Morgan Guaranty Trust Company of New York, individually and as Agent, and the other financial institutions party to the Credit Agreement referred to below Please refer to: (a) the Amended and Restated 364-Day Credit Agreement dated as of May 8, 2000 (the "Credit Agreement") among ACE Limited, ACE Bermuda Insurance Ltd., ACE Tempest Reinsurance Ltd., formerly known as Tempest Reinsurance Company Limited , ACE INA Holdings Inc. and ACE Guaranty Services, Inc. (Ace Bermuda, Tempest, ACE INA and ACE Guaranty, together with ACE Limited, the "Borrowers"), various financial institutions (the "Lenders"), and Morgan Guaranty Trust Company of New York ("MGT"), as administrative agent (in such capacity, the "Agent"); (b) the other "Loan Documents" (as defined in the Credit Agreement), including the Guaranty; and (c) the First Amendment dated as of October 23, 2000 to the Credit Agreement (the "First Amendment"). Each of the undersigned hereby confirms to the Agent and the Lenders that, after giving effect to the First Amendment and the transactions contemplated thereby, each Loan Document to which such undersigned is a party continues in full force and effect and is the legal, valid and binding obligation of such undersigned, enforceable against such undersigned in accordance with its terms. ACE LIMITED By: ------------------------------------------ Name Printed: -------------------------------- Title: --------------------------------------- ACE BERMUDA INSURANCE LTD. By: ------------------------------------------ Name Printed: -------------------------------- Title: --------------------------------------- ACE TEMPEST REINSURANCE LTD., formerly known as TEMPEST REINSURANCE COMPANY LIMITED By: ------------------------------------------ Name Printed: -------------------------------- Title: --------------------------------------- ACE INA HOLDINGS INC. By: ------------------------------------------ Name Printed: -------------------------------- Title: --------------------------------------- 2 EX-27 7 0007.txt FINANCIAL DATA SCHEDULE
7 9-MOS DEC-31-2000 JUL-01-2000 SEP-30-2000 10,661,968 0 0 637,400 0 0 13,146,960 616,971 938,152 567,161 31,532,100 17,401,981 3,132,914 1,359,047 0 0 0 311,050 9,660 5,230,845 31,532,100 3,447,424 561,548 13,899 0 2,256,481 482,628 0 503,545 (74,351) 429,194 0 0 0 429,194 1.92 1.88 0 0 0 0 0 0 0 Includes mezzanine equity of $311,050
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