ACE To Take $298M Reserve Charge After Review

By Michael Ha

NU Online News Service, Jan. 6, 12:28 p.m. EST?Bermuda-based insurer ACE Ltd. announced today that after intensive review it will take a $298 million charge in the 2004 fourth quarter to strengthen its asbestos, environmental and other runoff reserves.[@@]

The company said it agreed to sell three runoff reinsurance units in the first half of 2005 to help resolve its asbestos exposures. ACE also announced an organizational shakeup at ACE USA, the U.S.-based p-c retail brokerage division of the ACE Group of Companies.

The $298 million asbestos charge will be divided across two ACE units: Brandywine Holdings and ACE Westchester Specialty. The charge relating to Brandywine?which houses the majority of ACE's asbestos and environmental claim runoff exposures?amounts to $279 million and will result in a reserve boost of $788 million gross, or $339 million net of reinsurance and before tax. For ACE Westchester Specialty, the reserve boost is $200 million gross and $25 million net of reinsurance and before tax.

ACE said this latest reserve charge follows an extensive, ground-up internal review as well as a regular biennial review by an independent actuarial consulting firm for its Brandywine operations, which is required by the Pennsylvania Insurance Department as a condition of a 1996 Brandywine restructuring order.

ACE picked up old asbestos liabilities in 1999 with the $3.45 billion acquisition of Cigna Corp.'s global property-casualty insurance business.

"Our studies indicate that ultimate asbestos liabilities are higher than they were a year ago when we last performed an extensive ground-up analysis. Therefore we are taking a net after-tax charge of $298 million to account for them," ACE Ltd. Chief Executive Officer Evan Greenberg explained to analysts during a conference call.

The charge amount appeared to be much higher than what some industry observers had been expecting. William Wilt, an analyst at New York-based investment research firm Morgan Stanley, said it was $234 million higher than his firm's estimate.

According to Mr. Wilt, this charge bolsters his view that more insurers will be forced to "top off" their A&E reserves down the road.

On its planned sale of runoff reinsurance units, ACE said it has agreed to sell ACE American Reinsurance Company, Brandywine Reinsurance Co. (UK) Ltd. and Brandywine Reinsurance Company to international insurance firm Randall & Quilter Investment Holdings for an undisclosed amount.

The sale is subject to approval by the Pennsylvania Insurance Department and the U.K. Financial Services Authority. It is expected to be completed in the first half of this year.

Mr. Greenberg said the sale is an important step in the company's strategy to resolve asbestos exposures responsibly and to achieve certainty.

Meanwhile, ACE Ltd. also announced management changes at ACE USA. The company said ACE USA Chief Executive Officer Susan Rivera has resigned from her post. Ms. Rivera's departure comes as the insurer continues its internal investigation into possible misconduct by some employees related to price-fixing activity with Marsh Inc. brokerage.

ACE had already said in November that it dismissed two workers and suspended three others for improper business practices.

The company's internal investigation started after New York Attorney General Eliot Spitzer filed a civil lawsuit against New York-based Marsh & McLennan Cos. for alleged bid-rigging and price-fixing by its Marsh unit. ACE Ltd. was one of the insurers named as part of the alleged scheme.

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

ACE Ltd., however, didn't offer any reason for the departure of Ms. Rivera, who has been working at the company for the past three years. When asked during the analyst call whether her resignation had anything to do with the Spitzer probe, Mr. Greenberg said, "The announcements we put out speak for themselves. I am not going to comment any further about that."

Ms. Rivera is replaced by Brian Dowd, who previously served as president and chief executive officer of ACE Westchester Specialty.

ACE also said it appointed John Lupica as ACE USA's chief operating officer and Dennis Crosby as chief executive officer of ACE Westchester Specialty, replacing Mr. Dowd. Mr. Lupica was president of ACE Professional Risk and ACE USA Regional Operations, and Mr. Crosby was ACE USA senior vice president and regional executive for the Southeast region.

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ACE To Take $298M Reserve Charge After Review

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