Share-based compensation

6 Months Ended

Jun. 30, 2012

Share-based compensation

8. Share-based compensation

The ACE Limited 2004 Long-Term Incentive Plan (the 2004 LTIP) provides for grants of both incentive and non-qualified stock options principally at an option price per share equal to the fair value of ACE’s Common Shares on the date of grant. Stock options are generally granted with a 3-year vesting period and a 10-year term. The stock options vest in equal annual installments over the respective vesting period, which is also the requisite service period. On February 23, 2012, ACE granted 1,452,605 stock options with a weighted-average grant date fair value of $15.58 each. The fair value of the options issued is estimated on the date of grant using the Black-Scholes option pricing model.

The 2004 LTIP also provides for grants of restricted stock and restricted stock units. ACE generally grants restricted stock and restricted stock units with a 4-year vesting period, based on a graded vesting schedule. The restricted stock is granted at market close price on the day of grant. On February 23, 2012, ACE granted 1,462,230 restricted stock awards and 255,850 restricted stock units to employees and officers of ACE and its subsidiaries with a grant date fair value of $73.35 each. Each restricted stock unit represents our obligation to deliver to the holder one Common Share upon vesting.