ACE To Take $298 Million Reserve ChargeCarrier also names new head of ACE USA after CEO announcesresignation

Bermuda-based insurer ACE Ltd. announced last week that after anintensive review, it will take a $298 million charge in 2004sfourth quarter to strengthen its asbestos, environmental and otherrunoff reserves.

The company also said it agreed to sell three runoff reinsuranceunits in the first half of 2005 to help resolve its asbestosexposures.

The $298 million charge will be divided across two ACEunitsBrandywine Holdings and ACE Westchester Specialty. The chargerelating to Brandywinewhich houses the majority of ACE's A&Erunoff exposuresamounts to $279 million and will result in areserve boost of $788 million gross, or $339 million net ofreinsurance and before tax. The charge for ACE WestchesterSpecialty amounts to $19 million, while the reserve boost is $200million gross and $25 million net of reinsurance and beforetax.

ACE said this latest reserve charge follows an extensive,ground-up internal review as well as a regular biennial review byan independent actuarial consulting firm for its Brandywineoperations, which is required by the Pennsylvania InsuranceDepartment as a condition of the 1996 Brandywine restructuringorder. ACE picked up old asbestos liabilities in 1999 with its$3.45 billion acquisition of Cigna Corp.'s global property-casualtyinsurance business.

“Our studies indicate that ultimate asbestos liabilities arehigher than they were a year ago when we last performed anextensive ground-up analysis. Therefore we are taking a netafter-tax charge of $298 million to account for them,” ACE Ltd.Chief Executive Officer Evan Greenberg explained to analysts duringa conference call.

The charge amount appeared to be much bigger than what someindustry observers had been expecting. Indeed, William Wilt, ananalyst at New York-based investment research firm Morgan Stanley,said it was $234 million higher than his firm's outlook. Accordingto Mr. Wilt, this charge bolsters his view that more insurers willbe forced to “top off” their A&E reserves down the road.

On its planned sale of runoff reinsurance units, ACE said it hasagreed to sell ACE American Reinsurance Company, BrandywineReinsurance Co. (UK) Ltd. and Brandywine Reinsurance Company tointernational insurance firm Randall & Quilter InvestmentHoldings for an undisclosed amount. The sale, subject to approvalby the Pennsylvania Insurance Department and the U.K. FinancialServices Authority, is expected to be completed in the first halfof 2005. Mr. Greenberg said the sale is an important step in thecompany's strategy to resolve asbestos exposures responsibly and toachieve exposure certainty.

Meanwhile, ACE Ltd. also announced a management shakeup at ACEUSA, the U.S.-based p-c retail brokerage division of the ACE Groupof Companies. The company said ACE USA CEO Susan Rivera hasresigned from her post.

Ms. Rivera's departure comes as the insurer continues itsinternal investigation into possible misconduct by some employees.ACE had already said in November that it dismissed two workers andsuspended three others for improper business practices.

The companys internal investigation started after New YorkAttorney General Eliot Spitzer filed a civil lawsuit against NewYork-based Marsh & McLennan Companies for alleged illegalbusiness activities, including bid-rigging. ACE Ltd. was one of theinsurers referred to in the lawsuit.

There is speculation that Ms. Rivera's sudden resignation isrelated to the company's ongoing probe. Morgan Stanley's Mr. Wiltsaid Ms. Rivera had been cited in some articles detailingcircumstances related to the alleged bid-rigging process.

ACE Ltd., however, didn't offer any reason for the departure ofMs. Rivera, who has been working at the company for the past threeyears. When asked during the analyst call whether her resignationhad anything to do with the Spitzer probe, Mr. Greenberg said: “Theannouncements we put out speak for themselves. I am not going tocomment any further about that.”

Ms. Rivera is replaced by Brian Dowd, who previously served aspresident and CEO of ACE Westchester Specialty.

ACE also said it appointed John Lupica as ACE USAs chiefoperating officer and Dennis Crosby as CEO of ACE WestchesterSpecialty, replacing Mr. Dowd. Mr. Lupica was president of ACEProfessional Risk and ACE USA Regional Operations, while Mr. Crosbywas ACE USA senior vice president and regional executive for theSoutheast region.

Reproduced from National Underwriter Edition, January 6, 2005.Copyright 2005 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.