The transaction is subject to, among other things, completion of due diligence, execution of definitive documentation, approval by Capital Re's shareholders and ACE Limited's Board of Directors, regulatory approvals and other customary closing conditions. Subject to these conditions, it is anticipated that the transaction will be completed during the second half of 1999. ACE's financial advisor in this transaction is Credit Suisse First Boston Corporation.
In March 1998, ACE and Capital Re formed a joint venture to write both traditional and custom-designed programs covering financial guaranty, mortgage guaranty and a broad range of financial risks. ACE has also reaffirmed its previously announced commitment to make a $75 million investment in Capital Re common stock to support Capital Re's ongoing business activity, which is expected to close in the near future.
Brian Duperreault, ACE's chairman, president and chief executive officer, stated: "This combination provides an attractive opportunity for ACE to expand its existing relationship with Capital Re. Through our existing joint venture, we have been favorably impressed with Capital Re's management and business. We believe that ACE's strong capital base and favorable location can enhance Capital Re's already profitable enterprise. We believe that this acquisition is another significant step towards our strategic goal of diversification and strengthens our appeal as a specialty property and casualty insurance company."
Jerome F. Jurschak, Capital Re's chief executive officer, commented, "Our already productive and growing business relationship with ACE over the past two years will immediately allow us to pursue a positive business environment for financial products with a broader product offering and a larger balance sheet."
Capital Re is a specialty reinsurance group providing innovative solutions to problems of financial risk and management. Capital Re's two principal divisions, financial guaranty and financial risks, are engaged in the business of municipal and non-municipal financial guaranty reinsurance, mortgage guaranty reinsurance, title reinsurance, trade credit reinsurance and financial solutions. At March 31, 1999, Capital Re had total assets of approximately $1.5 billion and stockholders' equity of approximately $615 million. For the three months ended March 31, 1999, Capital Re had revenues of approximately $61.7 million and net operating income of approximately $19.4 million (or $0.61 per share). For the year ended December 31, 1998, Capital Re had revenues of $234.9 million and net income of $41.5 million (or $1.30 per share).
Catastrophe Losses
ACE also provided information on two significant catastrophic events that have occurred in the current quarter. In April 1999, a hailstorm caused extensive damage in New South Wales, Australia. In early May 1999, several tornadoes struck the United States, resulting in significant loss of lives, as well as substantial property damage. At this point, ACE currently estimates that its net incurred losses for these two events will be approximately $40 million to $50 million.
Brian Duperreault commented: "It is the nature of our business to provide coverage for these types of catastrophic events, which serves to underscore the importance of our products and services provided to our insureds. Although it is not customary to comment on specific losses, in light of the pending transactions we felt it important to do so."
On January 12, 1999, ACE Limited announced it had agreed to acquire the international and domestic property and casualty insurance businesses of CIGNA Corporation for $3.45 billion in cash. The transaction, which is subject to receipt of necessary regulatory approval and other customary closing conditions, is expected to be completed by July 1, 1999.
The ACE Group of Companies provides insurance and reinsurance for a diverse group of international clients. Operating subsidiaries are based in Bermuda, the United States, the United Kingdom (Lloyd's), and the Republic of Ireland. At March 31, 1999, ACE Limited had approximately $8.9 billion in assets and $4.0 billion in shareholders' equity.
Application of the Safe Harbor of the Private Securities Litigation Reform Act of 1995:
Certain statements made in this press release, including those relating to projected amounts of losses are forward-looking statements, reflecting the Company's current views with respect to future events and financial performance and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties which may cause actual results to differ from those set forth in these statements. Among other things, the precise amount of the losses mentioned may vary as insureds tabulate the severity of their losses. In addition, the impact of mergers and acquisitions, the economic, competitive, regulatory, insurance and reinsurance business conditions and other factors identified in the Company's filings with the Securities and Exchange Commission could affect the forward-looking statements contained in this press release. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the dates on which they are made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
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