ACE takes US$354 million asbestos charge

Bermuda-based ACE Ltd. says it will take a charge of US$354 million on fourth quarter 2002 earnings in order to bolster asbestos reserves.
Reserves will be increased by US$2.178 billion gross, with US$1.86 billion offset by reinsurance. US$533 million of this comes from a reinsurance agreement with Berkshire Hathaway’s National Indemnity Co. Also figured in are a bad debt provision of US$145 million, 10% participation in the National Indemnity reinsurance cover and a tax benefit of US$162 million, resulting in the US$354 million after-tax charge. The effect on earnings will be USS$1.32 per share.
“ACE’s total asbestos reserves are now at the high end of the range calculated by our internal analysis and are consistent with the actuarial consulting firm’s best estimate,” says ACE chairman and CEO Brian Duperreault. “While we believe that there are favorable trends in the judicial environment regarding our asbestos liabilities, the reserve strengthening reflects a more conservative view and assumes that there will be no such future improvements.”
ACE now estimates 2002 full-year net income of US$0.67 per share, and operating income of US$0.92 per share. Its full fourth quarter results will be released February 5.
As a result of the announcement, Standard & Poor’s has placed ACE Ltd.’s rating of A- on Creditwatch negative. This does not apply to subsidiary ACE Guaranty Corp. (rated AAA) or ACE Capital Re International Ltd. (rated AA) and it subsidiaries. Should the parent company’s ratings be lowered, S&P expects that the independence of the subsidiaries and a commitment by management should maintain their ratings. S&P is currently reviewing ACE Ltd.’s operations and expects to complete that review by the end of February 2003.