Filed Pursuant to Rule 424(b)(3)
                                                      Registration No. 333-90927

PROSPECTUS

                                  ACE Limited

                           8,374,783 Ordinary Shares

   We have prepared this prospectus to allow some of our stockholders to sell
up to 8,374,783 shares of our ordinary shares.

   Our ordinary shares are listed on the New York Stock Exchange under the
symbol "ACL." On January 25, 2000, the closing price of our ordinary shares was
$19 9/16.

   Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

             The date of this prospectus is January 26, 2000.


   FOR NORTH CAROLINA INVESTORS: THE OFFERED SECURITIES HAVE NOT BEEN APPROVED
BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA, NOR HAS THE
COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY OR THE ADEQUACY OF THIS
DOCUMENT. THE BUYER IN NORTH CAROLINA UNDERSTANDS THAT NEITHER THE COMPANY NOR
ITS SUBSIDIARIES ARE LICENSED IN NORTH CAROLINA PURSUANT TO CHAPTER 58 OF THE
NORTH CAROLINA GENERAL STATUTES, NOR COULD THEY MEET THE BASIC ADMISSIONS
REQUIREMENTS IMPOSED BY SUCH CHAPTER AT THE PRESENT TIME.

                               ----------------

   NO OFFERED SECURITIES MAY BE OFFERED OR SOLD IN THE CAYMAN ISLANDS. PERSONS
RESIDENT IN BERMUDA FOR BERMUDA EXCHANGE CONTROL PURPOSES MAY REQUIRE THE PRIOR
APPROVAL OF THE BERMUDA MONETARY AUTHORITY IN ORDER TO ACQUIRE ANY OFFERED
SECURITIES.

                               ----------------

                     ENFORCEMENT OF CIVIL LIABILITIES UNDER
                     UNITED STATES FEDERAL SECURITIES LAWS

   ACE is a Cayman Islands company. In addition, some of its officers and
directors, as well as some of the experts named in this prospectus, reside
outside the United States, and all or much of its assets and their assets are
or may be located in jurisdictions outside the United States. Therefore,
investors may have difficulty effecting service of process within the United
States upon those persons or recovering against ACE or them on judgments of
U.S. courts, including judgments based upon the civil liability provisions of
the U.S. Federal securities laws. However, investors may serve ACE with process
in the United States with respect to actions against it arising out of or in
connection with violations of U.S. Federal securities laws relating to offers
and sales of the securities covered by this prospectus by serving CT
Corporation System, 1633 Broadway, New York, New York 10019, its United States
agent irrevocably appointed for that purpose.

   ACE has been advised by Maples and Calder, its Cayman Islands counsel, that
there is doubt as to whether the courts of the Cayman Islands would enforce (i)
judgments of U.S. courts based upon the civil liability provisions of the U.S.
Federal securities laws obtained in actions against it or its directors and
officers, as well as experts named in this prospectus, who reside outside the
United States or (ii) original actions brought in the Cayman Islands against
such persons or ACE predicated solely upon U.S. Federal securities laws. ACE
has also been advised by Maples and Calder that there is no treaty in effect
between the United States and the Cayman Islands providing for such
enforcement, and there are grounds upon which Cayman Islands courts may not
enforce judgments of United States courts. Certain remedies available under the
laws of United States jurisdictions, including certain remedies available under
the U.S. Federal securities laws, would not be allowed in Cayman Islands courts
as contrary to that nations's public policy.

Where You Can Find More Information

   ACE files annual, quarterly and special reports, proxy statements and other
information with the SEC. ACE's SEC filings are available to the public over
the Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document ACE files with the SEC at its public reference facilities in
Washington, D.C., New York, New York or Chicago, Illinois. You can also obtain
copies of the documents at prescribed rates by writing to the Public Reference
Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
public reference facilities. ACE's SEC filings are also available at the office
of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. For
further information on obtaining copies of ACE's public filings at the NYSE,
you should call (212) 656-5060.

                                       2


   ACE is allowed to "incorporate by reference" the information it files with
the SEC, which means that ACE can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that ACE files
subsequently with the SEC will automatically update and supersede the
information included and/or incorporated by reference in this prospectus. ACE
incorporates by reference the documents listed below and any future filings
made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, after the initial filing of the registration
statement that contains this prospectus and prior to the time that the selling
shareholders sell all of the ordinary shares offered by this prospectus:

  .  ACE's Annual Report on Form 10-K for the fiscal year ended September 30,
     1998;

  .  ACE's Annual Report on Form 10-K/A for the fiscal year ended September
     30, 1998;

  .  ACE's Quarterly Report on Form 10-Q for the fiscal quarter ended
     December 31, 1998;

  .  ACE's Quarterly Report on Form 10-Q for the fiscal quarter ended March
     31, 1999;

  .  ACE's Quarterly Report on Form 10-Q for the fiscal quarter ended June
     30, 1999;

  .  ACE's Quarterly Report on Form 10-Q for the fiscal quarter ended
     September 30, 1999;

  .  ACE's Current Report on Form 8-K filed December 23, 1998;

  .  ACE's Current Report on Form 8-K filed January 14, 1999;

  .  ACE's Current Report on Form 8-K/A filed January 14, 1999;

  .  ACE's Current Report on Form 8-K filed May 10, 1999;

  .  ACE's Current Report on Form 8-K filed May 19, 1999;

  .  ACE's Current Report on Form 8-K filed July 19, 1999;

  .  ACE's Current Report on Form 8-K/A filed September 16, 1999;

  .  Description of ACE ordinary shares on Form 8-A, as amended, filed on
     March 2, 1993; and

  .  Description of Series A Junior Participating Preference Shares on Form
     8-A filed on May 7, 1999.

   You may request a copy of these filings (other than exhibits, unless that
exhibit is specifically incorporated by reference into that filing) at no cost,
by writing or telephoning ACE at the following address:

     Investor Relations
     ACE Limited
     The ACE Building
     30 Woodbourne Avenue
     Hamilton, HM 08, Bermuda
     Telephone: (441) 299-9283

   You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. Neither we nor the
selling shareholders have authorized anyone else to provide you with different
information. Neither we nor the selling shareholders are making an offer of
these securities in any state where the state does not permit an offer. You
should not assume that the information in this prospectus is accurate as of any
date other than the date on the front of the prospectus.

                                  ACE LIMITED

   We provide a broad range of specialty property and casualty insurance and
reinsurance products to a diverse group of clients worldwide. Our long-term
business strategy focuses on achieving underwriting profits and providing value
to our clients and shareholders through the utilization of our growing capital
base within

                                       3


the insurance and reinsurance markets. To date, we have achieved this objective
through a combination of product and geographic diversification as well as
through a number of strategic acquisitions.

   ACE Limited is a holding company incorporated with limited liability in the
Cayman Islands which maintains its principal business office in Bermuda. Our
address is The ACE Building, 30 Woodbourne Avenue, Hamilton, HM 08, Bermuda,
(441) 295-5200 and our Internet address is http://www.acelimited.com.

                                USE OF PROCEEDS

   We will not receive any proceeds from the sale of the ordinary shares by the
selling shareholders.

                              SELLING SHAREHOLDERS

   This prospectus relates to the offering by the selling shareholders for
resale of up to 8,374,783 ordinary shares of ACE. Throughout this prospectus,
we may refer to these shareholders and their pledgees, donees, transferees or
other successors in interest who receive shares after the date of this
prospectus from a selling shareholder as a gift, pledge or other non-sale
related transfer, as the "selling shareholders." If they sell all of these
shares in this offering, the selling shareholders will beneficially own no ACE
ordinary shares. The selling shareholders acquired their ordinary shares as of
December 30, 1999 from us in our acquisition of Capital Re Corporation, of
which they were stockholders.

                                       4


   The following table sets forth the following information with respect to
each selling shareholder as of December 30, 1999: (i) name and nature of any
position or other relationship with ACE within the past three years; (ii) the
number and percentage of total outstanding ACE ordinary shares each selling
shareholder beneficially owns before this offering; and (iii) the number of ACE
ordinary shares the selling shareholder is offering.




                                           Number of
                                            ordinary                 Number of
                                             shares                  ordinary
                                          beneficially                shares
                                          owned before Percentage of  offered
Name and address of selling shareholder   the offering  outstanding   hereby
- ---------------------------------------   ------------ ------------- ---------
                                                            
MP Investments, Inc......................  4,732,312        2.2%     4,732,312
c/o Minnesota Power, Inc.
30 West Superior Street
Duluth, MN 55802

Constellation Investments, Inc...........  3,239,821        1.5%     3,239,821
250 West Pratt Street
23rd floor
Baltimore, MD 21201-2423

Jerome F. Jurschak (1)...................    165,250          *        165,250
Chief Executive Officer
Capital Re Corporation

Joseph W. Swain III (1)..................     33,105          *         33,105
President
Capital Re Corporation

David A. Buzen (1).......................     72,982          *         72,982
Executive Vice President and Chief
 Financial Officer
Capital Re Corporation

Laurence C.D. Donnelly (1)...............     68,510          *         68,510
Executive Vice President
Capital Re Corporation

Alan S. Roseman (1)......................     58,058          *         58,058
Executive Vice President and General
 Counsel
Capital Re Corporation

Harrison Conrad..........................        195          *            195
79 Dorchester Road
Darien, CT 06820

Richard L. Huber.........................        650          *            650
Aetna, Inc.
151 Farmington Avenue--RC4B
Hartford, CT 06156

Philip Robinson..........................      1,300          *          1,300
Stone Hall
Great Mongeham
Deal, Kent CT14 OHB
England


                                       5





                                             Number of                  Number
                                              ordinary                    of
                                               shares                  ordinary
                                            beneficially                shares
                                            owned before Percentage of offered
Name and address of selling shareholder     the offering  outstanding   hereby
- ---------------------------------------     ------------ ------------- --------
                                                              
Edwin Russell..............................    2,600           *        2,600
Minnesota Power, Inc.
30 West Superior Street
Duluth, MN 55802

- --------
*Less than one percent
(1) Capital Re Corporation is a wholly owned subsidiary of ACE. The address of
    each of these individuals is c/o Capital Re Corporation, 1325 Avenue of the
    Americas, New York, New York 10019.

                    TAXATION OF SHAREHOLDERS OF THE COMPANY

   The following summary of the taxation of shareholders of the Company is
based upon current law. Legislative, judicial or administrative changes may be
forthcoming that could affect this summary.

   Statements made below as to Cayman Islands law are based on the opinion of
Maples and Calder, Cayman Islands counsel to the Company. Statements made below
as to Bermuda law are based on the opinion of Conyers, Dill & Pearman, Bermuda
counsel to the Company. Statements made below as to United States law are based
upon the opinion of Mayer, Brown & Platt, United States counsel to the Company.

Cayman Islands Taxation

   Dividends paid by the Company are not subject to Cayman Islands withholding
tax.

Bermuda Taxation

   Currently, there is no Bermuda withholding tax on dividends paid by the
Company.

United States Taxation of U.S. and Non-U.S. Shareholders

 Summary

   The following summary is qualified in its entirety by the more detailed
discussions set forth below:

  .  In any fiscal year in which the gross related person insurance income
     ("RPII") of any foreign insurance company subsidiary of the Company is
     20 percent or more of such insurance company subsidiary's gross
     insurance income for such fiscal year, U.S. persons who own Ordinary
     Shares on the last day of such subsidiary's fiscal year may be required
     to include their pro rata share of such insurance company subsidiary's
     RPII, as described below, in their income for their taxable year which
     includes the last day of the subsidiary's fiscal year and report such
     amount on the U.S. income tax or information returns that they would
     normally file for that taxable year. They also would be required to
     attach to their returns Internal Revenue Service ("IRS") Form 5471,
     which shows the calculation of RPII and certain other information about
     the Company. Although no assurances can be given, the Company believes
     that RPII of each of its foreign insurance company subsidiaries will be
     less than 20 percent of gross insurance income for the current and
     future fiscal years.

                                       6


  .  If RPII reporting is required for a particular fiscal year, the Company
     will send to each shareholder who owned Ordinary Shares on the last day
     of such year a Form 5471 completed with all Company information
     (including the amount of RPII) and instructions for completing the
     shareholder information. Tax-exempt organizations may be required to
     report their share of RPII for any taxable year in which RPII reporting
     is required on the information return that such tax-exempt organizations
     would normally file for the year that includes the last day of such tax
     year and attach to that return Form 5471.

  .  Gain from the sale or exchange of Ordinary Shares that would otherwise
     be capital gain will not be treated as ordinary income pursuant to Code
     section 1248 of the U.S. Internal Revenue Code (the "Code"). It is
     possible, however, that the IRS might interpret regulations proposed by
     the U.S. Treasury Department, or that the Treasury Department might
     amend such regulations, to apply section 1248 and the requirement to
     file Form 5471 to dispositions of Ordinary Shares. If the IRS or
     Treasury Department were to take such action, the Company would notify
     shareholders that Section 1248 will apply to dispositions of Ordinary
     Shares. Under current law, U.S. persons (including tax-exempt
     organizations) who own less than 10 percent of the Ordinary Shares and
     sell or exchange Ordinary Shares will not be required to file Form 5471
     with respect to such dispositions.

 RPII

   The following discussion generally is applicable only if the RPII of any of
the Company's foreign insurance company subsidiaries, determined on a gross
basis, is 20 percent or more of that insurance company subsidiary's gross
insurance income for the taxable year. For the Company's most recent fiscal
year ended December 31, 1999, the Company believes gross RPII of each of its
foreign insurance company subsidiaries was below 20 percent for the year.
Although no assurances can be given, the Company anticipates that gross RPII of
each of its foreign insurance company subsidiaries will be less than 20 percent
of each such subsidiary's gross insurance income for subsequent years and will
endeavor to take such steps as it determines to be reasonable to cause its
gross RPII to remain below such level.

 Classification of the Company as a Controlled Foreign Corporation

   Under section 951(a) of the Code, each "United States shareholder" of a
"controlled foreign corporation" ("CFC") must include in its gross income for
United States federal income tax purposes its pro rata share of the CFC's
"subpart F income," even if the subpart F income is not distributed. Under Code
section 951(b), any U.S. corporation, citizen, resident or other U.S. person
who owns, directly or indirectly through foreign persons, or is considered to
own (by application of the rules of constructive ownership set forth in Code
section 958(b), generally applying to family members, partnerships, estates,
trusts or controlled corporations) 10 percent or more of the total combined
voting power of all classes of stock of the foreign corporation will be
considered to be a "United States shareholder." In general, a foreign
corporation is treated as a CFC only if such "United States shareholders"
collectively own more than 50 percent (more than 25 percent for certain
insurance companies) of the total combined voting power or total value of the
corporation's stock for an uninterrupted period of 30 days or more during any
tax year. The Company believes that because of the wide dispersion of its share
ownership and because under its Articles of Association no single shareholder
is permitted to hold as much as 10 percent of its total combined voting power,
it is not a CFC under the foregoing general rules.

 RPII Companies

   Different definitions of "United States shareholders" and "controlled
foreign corporation" are applicable in the case of a foreign corporation which
earns RPII. RPII is defined in Code section 953(c) (2) as any "insurance
income" attributable to policies of insurance or reinsurance with respect to
which the person (directly or indirectly) insured is a "United States
shareholder" or a "related person" to such a shareholder. The proposed
regulations provide that, in general, "insurance income is income (including
premium and

                                       7


investment income) attributable to the issuing or reinsuring of any insurance
or annuity contract in connection with risks located in a country . . . other
than the country under the laws of which the controlled foreign corporation is
created or organized and which would be taxed under [the portions of the Code
relating to insurance companies] if the income were the income of a domestic
insurance company."

   Generally, the term "related person" for this purpose means someone who
controls or is controlled by the U.S. shareholder or someone who is controlled
by the same person or persons which control the U.S. shareholder. Control is
measured by either more than 50 percent in value or more than 50 percent in
voting power of stock applying constructive ownership principles similar to the
rules of section 958 of the Code. A corporation's pension plan is ordinarily
not a "related person" with respect to the corporation unless the pension plan
owns, directly or indirectly through the application of constructive ownership
rules similar to those contained in section 958, more than 50 percent measured
by vote or value, of the stock of the corporation. For purposes of inclusion of
the Company's insurance company subsidiaries' RPII in the income of United
States shareholders, unless an exception applies, the term "United States
shareholder" includes all U.S. persons who beneficially own any amount (rather
than 10 percent or more) of the Company's stock. An insurance company
subsidiary of the Company will be treated as a CFC if such U.S. persons are
treated as owning 25 percent or more of the stock of the insurance company
subsidiary.

   In determining the "United States shareholders" of the Company's foreign
insurance company subsidiaries, stock of the Company's foreign insurance
company subsidiaries held indirectly by U.S. persons through the Company or any
other non-U.S. entity is treated as held by United States shareholders.

 RPII Exceptions

   The special RPII rules do not apply if (A) direct and indirect insureds and
persons related to such insureds, whether or not U.S. persons, are treated as
owning less than 20 percent of the voting power and less than 20 percent of the
value of the stock of the Company's insurance company subsidiaries (which
exception is not anticipated to apply to the Company and its subsidiaries), (B)
the RPII of each of the Company's foreign insurance company subsidiaries,
determined on a gross basis, is less than 20 percent of each such subsidiary's
gross insurance income for the taxable year, (C) a foreign insurance company
subsidiary of the Company elects to be taxed on its RPII as if the RPII were
effectively connected with the conduct of a United States trade or business, or
(D) a foreign insurance company subsidiary of the Company elects to be treated
as a United States corporation. Where none of these exceptions applies, each
United States person owning or treated as owning stock in the Company (and
therefore, indirectly, in a foreign insurance company subsidiary of the
Company) on the last day of an insurance company subsidiary's fiscal year will
be required to include in its gross income for United States federal income tax
purposes its share of the RPII for the entire taxable year, determined as if
all such RPII were distributed proportionately only to such United States
shareholders at that date, but limited by the insurance company subsidiaries'
current-year earnings and profits and by the U.S. shareholder's share, if any,
of prior-year deficits in earnings and profits.

 Computation of RPII

   In order to determine how much RPII the Company has earned in each fiscal
year, the Company obtains and relies upon information from its insureds to
determine whether any of the insureds or persons related to such insureds own
shares of the Company and are U.S. persons. The Company currently sends, and
intends to continue to send, a letter after each fiscal year to each person who
was an insured during the year asking the insured to represent whether it was a
U.S. shareholder of the Company or related to a U.S. shareholder during the
year. For any year in which gross RPII is 20 percent or more of a foreign
insurance company subsidiary's gross insurance income for the year, the Company
may also seek information from its shareholders as to whether beneficial owners
of Ordinary Shares at the end of the year are United States persons so that the
RPII may be determined and apportioned among such persons. The Company will
inform all shareholders of RPII per share and U.S. shareholders are obligated
to file a return reporting such amounts. To the extent the

                                       8


Company is unable to determine whether a beneficial owner of shares is a U.S.
person the Company may assume that such owner is not a U.S. person for the
purpose of allocating RPII, thereby increasing the per share RPII amount for
all U.S. shareholders.

   If, as anticipated, RPII of each of the Company's foreign insurance company
subsidiaries is less than 20 percent of gross insurance income for the current
and subsequent fiscal years, U.S. shareholders will not be required to include
RPII in their taxable income for such years. The Company's estimate of its
insurance company subsidiaries' gross insurance income constituting RPII is
based on information provided to the Company by insureds of those insurance
company subsidiaries concerning whether the insureds are "United States
shareholders" or "related persons" thereto. The amount of RPII includible in
the income of a U.S. shareholder is based upon the net RPII income for the year
after deducting related expenses such as losses, loss reserves and operating
expenses.

 Apportionment of RPII to U.S. Shareholders

   Every U.S. person who owns Ordinary Shares on the last day of any fiscal
year of foreign insurance company subsidiary in which such insurance company
subsidiary's gross insurance income constituting RPII for that year equals or
exceeds 20 percent of that insurance company subsidiary's gross insurance
income should expect that for such year it will be required to include in gross
income its share of that insurance company subsidiary's RPII for the entire
year, whether or not distributed, even though it may not have owned the shares
for the entire year. A U.S. person who owns Ordinary Shares during such fiscal
year but not on the last day of the fiscal year, which would normally be
December 31, is not required to include in gross income any part of the
Company's insurance company subsidiaries' RPII.

   The tax consequences of RPII will not be applicable in any future fiscal
year in which the gross insurance income attributable to U.S. shareholders is
less than 20 percent of the gross insurance income of any of the Company's
insurance subsidiaries. See "Taxation of Shareholders of the Company--United
States Taxation of U.S. and Non-U.S. Shareholders--RPII." The Company expects
that the gross insurance income of its foreign insurance company subsidiaries
attributable to U.S. shareholders for its current and subsequent fiscal years
will be below 20 percent of the gross insurance income of each such insurance
company subsidiary.

 Information Reporting

   Each U.S. person who is a shareholder of the Company on the last day of a
fiscal year of a foreign insurance company subsidiary in which such foreign
insurance company subsidiary's gross RPII constitutes 20 percent or more of
that foreign insurance company subsidiary's gross insurance income must attach
to the income tax or information return it would normally file for the period
which includes that date a Form 5471 with respect to the Company. This filing
requirement applies if the Company is a CFC for any thirty-day period during
its fiscal year whether or not any net RPII income is required to be reported.
The foreign insurance company subsidiaries of the Company will not be
considered to be CFC's for this purpose and, therefore, Form 5471 will not be
required, for any fiscal year in which each such foreign insurance company
subsidiary's gross RPII constitutes less than 20 percent of its gross insurance
income. U.S. persons who at any time own 10 percent or more of the shares of
the Company may be required in certain circumstances to file Form 5471
regardless of the amount of RPII received by the insurance company
subsidiaries. For any year in which any of the Company's foreign insurance
company subsidiaries' gross RPII constitutes 20 percent or more of their
respective gross insurance incomes, the Company intends to mail to all
shareholders of record, and will make available at the transfer agent with
respect to the Ordinary Shares, Form 5471 (completed with Company information)
for attachment to the returns of shareholders. The amounts of the RPII
inclusions may be subject to adjustment based upon subsequent IRS examination.
A tax-exempt organization will be required to attach Form 5471 to its
information return in the circumstances described above. Failure to file Form
5471 may result in penalties.

                                       9


 Tax-Exempt Shareholders

   U.S. tax-exempt shareholders to which RPII is allocated are required to
treat such RPII as unrelated business taxable income within the meaning of Code
section 512, except to the extent that RPII is due to insurance or reinsurance
of that tax-exempt shareholder or its affiliates.

 Basis Adjustments

   A U.S. shareholder's tax basis in its Ordinary Shares will be increased by
the amount of any RPII that the shareholder includes in income. The shareholder
may exclude from income the amount of any distributions by the Company to the
extent of the RPII included in income for the year in which the distribution
was paid or for any prior year. The U.S. shareholder's tax basis in its
Ordinary Shares will be reduced by the amount of such distributions that are
excluded from income. In general, a U.S. shareholder will not be able to
exclude from income distributions with respect to RPII that a prior shareholder
included in income.

 Dispositions of Ordinary Shares

   Code section 1248 provides that if a U.S. person owns 10 percent or more of
the voting shares of a corporation that is a CFC, any gain from the sale or
exchange of the shares may be treated as ordinary income to the extent of the
CFC's earnings and profits during the period that the shareholder held the
shares (with certain adjustments). Code section 953(c)(7) generally provides
that section 1248 also will apply to the sale or exchange of shares in a
foreign corporation that earns RPII if the foreign corporation would be taxed
as an insurance company if it were a domestic corporation, regardless of
whether the shareholder is a 10 percent shareholder or whether RPII constitutes
20 percent or more of the corporation's gross insurance income. Existing
Treasury Department regulations do not address whether Code Section 1248 would
apply when the foreign corporation (such as the Company) is not a CFC but the
foreign corporation has a subsidiary that is a CFC or that would be taxed as an
insurance company if it were a domestic corporation.

   The Company believes, based on the advice of counsel, that Code Section 1248
will not apply to dispositions of Ordinary Shares because the Company does not
have any 10 percent shareholders and the Company is not directly engaged in the
insurance business. There can be no assurance, however, that the IRS will
interpret proposed regulations under Code section 953 in this manner or that
the Treasury Department will not amend the proposed regulations under Code
section 953 or other regulations to provide that Code Section 1248 will apply
to dispositions of shares in a corporation such as the Company which is engaged
in the insurance business directly or indirectly through its subsidiaries. If
the IRS or Treasury Department were to take such action, the Company would
notify shareholders that Code section 1248 will apply to dispositions of
Ordinary Shares.

   A shareholder of the Company who at no time owns 10 percent or more of the
Ordinary Shares is not required to file IRS Form 5471 with respect to a
disposition of Ordinary Shares. A 10 percent U.S. shareholder of the Company
may in certain circumstances be required to report a disposition of Ordinary
Shares by attaching Form 5471 to the U.S. income tax or information return that
it would normally file for the taxable year in which the disposition occurs.

 Foreign Tax Credit

   Because U.S. shareholders own a majority of the Company's shares and because
a substantial part of the Company's foreign insurance company subsidiaries'
business includes the insurance of U.S. risks, only a portion of the RPII and
dividends paid by the Company (including any gain from the sale of Ordinary
Shares that is treated as a dividend under Section 1248 of the Code) will be
treated as foreign source of income for purposes of computing a shareholder's
U.S. foreign tax credit limitation. It is likely that substantially all of the
RPII and dividends that are foreign source income will constitute either
"passive" or "financial services" income for foreign tax credit limitation
purposes. Thus, it may not be possible for certain U.S. shareholders to utilize
excess foreign tax credits to reduce U.S. tax on such income.

                                       10


 Uncertainty as to Application of RPII

   The RPII provisions of the Code have never been interpreted by the courts.
Regulations interpreting the RPII provisions of the Code exist only in proposed
form, having been proposed on April 16, 1991. It is not certain whether these
regulations will be adopted in their proposed form or what changes or
clarifications might ultimately be made thereto or whether any such changes, as
well as any interpretation or application of RPII by the IRS, the courts or
otherwise, might have retroactive effect. The description of RPII herein is
therefore qualified. Accordingly, the meaning of the RPII provisions and the
application thereof to the Company and its subsidiaries is uncertain. These
provisions include the grant of authority to the U.S. Treasury Department to
prescribe "such regulations as may be necessary to carry out the purpose of
this subsection including . . . regulations preventing the avoidance of this
subsection through cross insurance arrangements or otherwise." In addition,
there can be no assurance that the amounts of the RPII inclusions will not be
subject to adjustment based upon subsequent IRS examination. Each U.S. person
who is considering an investment in Ordinary Shares should consult his tax
advisor as to the effects of these uncertainties.

 Passive Foreign Investment Companies

   Sections 1291 through 1298 of the Code contain special rules applicable with
respect to foreign corporations that are "passive foreign investment companies"
("PFIC's"). In general, a foreign corporation will be a PFIC if 75 percent or
more of its income constitutes "passive income" or 50 percent or more of its
assets produce passive income. If the Company were to be characterized as a
PFIC, its United States shareholders would be subject to a penalty tax at the
time of their sale of (or receipt of an "excess distribution" with respect to)
its shares and a portion of the gain may be recharacterized as ordinary income.
In general, a shareholder receives an "excess distribution" if the amount of
the distribution is more than 125 percent of the average distribution with
respect to the stock during the three preceding taxable years (or shorter
period during which the taxpayer held the stock). In general, the penalty tax
is equivalent to an interest charge on taxes that are deemed due during the
period the United States shareholder owned the shares, computed by assuming
that the excess distribution or gain (in the case of a sale) with respect to
the shares was taxed in equal portions throughout the holder's period of
ownership at the highest marginal tax rate for ordinary income. The interest
charge is equal to the applicable rate imposed on underpayments of U.S. Federal
income tax for such period.

   The PFIC statutory provisions contain an express exception for income
"derived in the active conduct of an insurance business by a corporation which
is predominantly engaged in an insurance business . . . ." This exception is
intended to ensure that income derived by a bona fide insurance company is not
treated as passive income, except to the extent such income is attributable to
financial reserves in excess of the reasonable needs of the insurance business.
In the Company's view, the Company and its wholly-owned direct and indirect
subsidiaries are predominantly engaged in an insurance business and do not have
financial reserves in excess of the reasonable needs of their insurance
business. The PFIC statutory provisions contain a look-through rule that states
that, for purposes of determining whether a foreign corporation is a PFIC, such
foreign corporation shall be treated as if it received "directly its
proportionate share of the income . . ." and as if it "held its proportionate
share of the assets . . ." of any other corporation in which it owns at least
25 percent of the stock. Under the look-through rule the Company would be
deemed to own the assets and to have received the income of its insurance
subsidiaries directly for purposes of determining whether the Company qualifies
for the aforementioned insurance exception.

   However, no regulations interpreting the substantive PFIC provisions have
yet been issued. Therefore, substantial uncertainty exists with respect to
their application or their possible retroactivity. Each U.S. person who is
considering an investment in Ordinary Shares should consult his tax advisor as
to the effects of these rules.

 Other

   Dividends paid by the Company to U.S. corporate shareholders will not be
eligible for the dividends received deduction provided by section 243 of the
Code.

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   Except as discussed below with respect to backup withholding, dividends paid
by the Company will not be subject to a U.S. withholding tax.

   Nonresident alien individuals will not be subject to U.S. estate tax with
respect to Ordinary Shares of the Company.

   Information reporting to the IRS by paying agents and custodians located in
the U.S. will be required with respect to payments of dividends (if any) on the
Ordinary Shares to U.S. persons or to paying agents or custodians located in
the United States. In addition, a holder of Ordinary Shares may be subject to
backup withholding at the rate of 31 percent with respect to dividends paid by
such persons, unless such holder (a) is a corporation or comes within certain
other exempt categories and, when required, demonstrates this fact; or (b)
provides a taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules. The backup withholding tax is not an additional
tax and may be credited against a holder's regular Federal income tax
liability.

   Subject to certain exceptions, persons that are not U.S. persons will be
subject to United States Federal income tax on dividend distributions with
respect to, and gain realized from the sale or exchange of, Ordinary Shares
only if such dividends or gains are effectively connected with the conduct of a
trade or business within the United States.

   The foregoing discussion (including and subject to the matters and
qualifications set forth in such summary) of certain tax considerations (i)
under "Taxation of Shareholders of the Company--Bermuda Taxation" is based upon
the advice of Conyers Dill & Pearman, Hamilton, Bermuda, (ii) under "Taxation
of Shareholders of the Company--Cayman Islands Taxation" is based upon the
advice of Maples and Calder, George Town, Grand Cayman, Cayman Islands, British
West Indies, and (iii) under "Taxation of Shareholders of the Company--United
States Taxation of U.S. and Non-U.S. Shareholders" is based upon the advice of
Mayer, Brown & Platt, Chicago, Illinois (the advice of such firms does not
include any factual accounting matters, determinations or conclusions such as
RPII amounts and computations and amounts of components thereof (for example,
amounts or computations of income or expense items or reserves entering into
RPII computations) or facts relating to the Company's business or activities,
all of which have been supplied by the Company). The summary is based upon
current law and is for general information only. The tax treatment of a holder
of Ordinary Shares, or of a person treated as a holder of Ordinary Shares for
United States Federal income, state, local or non-U.S. tax purposes, may vary
depending on the holder's particular tax situation. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could be
retroactive and could affect the tax consequences to holders of Ordinary
Shares. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES TO THEM OF
OWNING THE ORDINARY SHARES.

                              PLAN OF DISTRIBUTION

   The ordinary shares being offered by the selling shareholders may be sold in
transactions on the New York Stock Exchange, on another market on which the
ordinary shares may be trading, or in privately-negotiated transactions. The
sale price to the public may be the market price prevailing at the time of
sale, a price related to the prevailing market price or any other price the
selling shareholders may determine. The ordinary shares may also be sold under
SEC Rule 145 and not under this prospectus. The selling shareholders have the
discretion not to accept any purchase offer or make any sale of ordinary shares
if they deem the purchase price to be unsatisfactory at any particular time, or
for any reason.

   The selling shareholders may also sell the ordinary shares directly to
broker-dealers acting as principals and/or to broker-dealers acting as agents
for themselves or their customers. Brokers acting as agents for the selling
shareholders will receive usual and customary commissions for brokerage
transactions, and broker-dealers acting as principals will do so for their own
account at negotiated prices and at their own risk. It is

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possible that the selling shareholders will sell shares of common stock to
broker-dealers or other purchasers at a price per share which may be below the
then market price. In addition, the selling shareholders may enter into hedging
transactions with broker-dealers who may engage in short sales of common stock
in the course of hedging the positions they assume with a selling shareholder.
The selling shareholders also may sell shares short and deliver the shares to
close out their positions, and may loan or pledge their shares to a broker-
dealer who may have the right to sell the loaned or pledged shares on default
or otherwise. The selling shareholders and any brokers, dealers or agents, upon
effecting the sale of any of the common stock offered hereby, may be deemed
"underwriters" as that term is defined under the Securities Act or the Exchange
Act, or the rules and regulations thereunder.

   The selling shareholders and any other persons participating in the sale or
distribution of the common stock will be subject to applicable provisions of
the Exchange Act and its rules and regulations, which may limit the timing of
purchases and sales of any of the common stock by the selling shareholders or
other distribution participants. Furthermore, under Regulation M, persons
engaged in a distribution of securities are prohibited from simultaneously
engaging in market making and other activities with respect to such securities
for a specified period of time before the commencement of distributions subject
to specified exceptions or exemptions. This may affect the marketability of the
common stock.

                                 LEGAL MATTERS

   Certain legal matters with respect to Cayman Islands law and with respect to
the validity of the Shares offered hereby will be passed upon for the Company
by Maples and Calder, George Town, Grand Cayman, Cayman Islands, British West
Indies. Certain legal matters with respect to Bermuda law will be passed upon
for the Company by Conyers Dill & Pearman, Hamilton, Bermuda. Certain legal
matters with respect to United States law will be passed upon for the Company
by Mayer, Brown & Platt, Chicago, Illinois.

                                    EXPERTS

   The consolidated financial statements and financial statement schedules
incorporated in this Registration Statement by reference to ACE's Annual Report
on Form 10-K for the year ended September 30, 1998 have been so incorporated in
reliance on the reports of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in accounting and auditing.

   The CIGNA Corporation Property and Casualty Businesses Combined Financial
Statements incorporated in this Registration Statement by reference to ACE's
Form 8-K current report (date of earliest event reported: May 19, 1999) have
been so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.

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