Bermuda-based ACE Limited announced that it will strengthen its asbestos, environmental and other run-off reserves and incur a related net, after-tax charge to earnings of $298 million ($1.05 per share) in the fourth quarter of 2004. The company also announced major management changes in its U.S. operations (See related article in “National” section).
Ace said, “the charge comprises $279 million relating to the Brandywine operation and $19 million relating to the ACE Westchester Specialty unit. It includes a bad debt provision of $95 million and a tax benefit of $161 million.” The new charges will increase Brandywine’s reserves to $788 million gross and $339 million net of reinsurance and before tax.
“For Westchester, the reserve increase is $200 million gross and $25 million net of reinsurance and before tax,” said the announcement. It also indicated that the “majority of the Westchester gross losses are covered under a reinsurance agreement with National Indemnity Co.”
ACE also noted that this action “follows an extensive, ground-up internal review, as well as a regular biennial reserve review by an independent actuarial consulting firm of its Brandywine operations required by the Pennsylvania Insurance Department as a condition of the 1996 Brandywine restructuring order.”
President and CEO Evan G. Greenberg stated: “This reserve strengthening continues our practice of periodically reviewing our A&E reserves from the ground up. While our reserving policy does not assume any favorable development in the judicial or legislative environment regarding our asbestos liabilities, we continue to work with other companies inside and outside of the insurance industry on ways to resolve the asbestos crisis that plagues American businesses.”
ACE also announced today that it has agreed to sell ACE American Reinsurance Company, Brandywine Reinsurance Co. (UK) Ltd. and Brandywine Reinsurance Company S.A.-N.V. to Randall & Quilter Investment Holdings Limited, an international insurance firm. The sale, which is subject to approval by the Pennsylvania Insurance Department and the U.K. Financial Services Authority, is expected to close in the first half of 2005.
“This sale is an important step in our strategy to resolve our asbestos exposures responsibly and to achieve the certainty intended by the 1996 reorganization,” Greenberg continued.
The bulletin said the additional reserve charge would have a $1.05 impact on earnings per share, and that ACE has revised its guidance for the full year 2004 as follows:
— P&C net premiums earned growth of 24 percent
— P&C combined ratio of 96 to 98 percent
— Financial Services operating income decline of 5 to 10 percent
— Total investment income of $990 million
— Interest expense and preferred dividends of $230 million
— Our effective tax rate guidance is 20 to 22 percent
— Operating cash flow of approximately $4.7 billion
ACE also provided the following guidance for the full year 2005:
— P&C net premiums earned growth of 9 to 11 percent
— P&C combined ratio of 89 to 91 percent, including $100 million of CATs
— Financial Services operating income decline of 25 to 30 percent
— Total investment income of approximately $1.14 billion to $1.16 billion
— Interest expense and preferred dividends of $220 million
— Our effective tax rate guidance is 23 to 25 percent
— Operating cash flow of approximately $4 billion
ACE will host a conference call and webcast on Thursday, January 6, 2005 beginning at 8:30 a.m. Eastern Standard Time. The call will be available via live and archived webcast at www.acelimited.com or by dialing – 888-889-5602 (in the United States) or 973-582-2734 (international). Please refer to the company’s website – www.acelimited.com – in “Investor Information, Calendar of Events” for additional information regarding the results of the reserve review.
A replay of the conference call will be available from approximately 11:00 a.m. Eastern Standard Time on Thursday, January 6, 2005 until Tuesday, February 1, 2005. To listen to the replay, dial: 877-519-4471 (in the United States) or 973-341-3080 (international); passcode 5522144.
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