(NYSE: ACE) announced today that, as a result of additional information that it has received, it is increasing its estimate of the impact from the September 11th tragedy ("the tragedy") from a
previously disclosed $400 million to a $550 million reduction in third quarter net operating income, after tax. The increase is almost
entirely related to reinsurance claims ceded to ACE from companies reinsured by ACE.
ACE conducted an exhaustive review of its insurance and reinsurance portfolios on a policy by policy basis. This included first party, third party, reinsurance, retrocessional, financial
guaranty and life reinsurance exposures. The ultimate incurred loss estimate is based on the most recent information available, but makes
no provision for any loss mitigation arising from airline aid legislation or other government aid to victims or municipalities.
Insurance Exposure
The majority of ACE's exposure to the tragedy is derived from claims incurred by insured clients of ACE. As the direct insurer of these clients, ACE has individual policy and underwriting information with which to make its own evaluation of the losses. Insofar as ACE's prior disclosure included a provision for losses related to direct
insurance claims, ACE's original estimate of net insurance incurred losses remains essentially unchanged.
Gross insured claims incurred by ACE with respect to the tragedy are covered by significant amounts of reinsurance from high quality reinsurers. Approximately 98% of all reinsurance purchased by ACE is with reinsurers rated A or better, including 38% with reinsurers rated AAA and 33% with AA rated reinsurers, as rated by Standard & Poor's.
Reinsurance Exposure
ACE's second principal area of exposure to the tragedy comes from assumed reinsurance ceded to ACE by other insurance or reinsurance
companies. With regard to reinsurance assumed by ACE, the Company purchases significantly less reinsurance, or as it is known in the
industry "retrocessional coverage", than it does on its primary business. When ACE assumes reinsurance, it analyzes underwriting
information supplied by cedants and uses catastrophe models to measure its aggregate exposure to any specific event. Following an event, specific claims information is supplied to ACE by the ceding companies, often on a delayed basis. Companies ceding to ACE have
supplied additional information leading ACE to conclude that an increase in its incurred loss estimate is warranted.
ACE's net incurred reinsurance loss is net of cessions to reinsurance carriers (retrocessionaires). The credit quality of ACE's
retrocessionaires for its expected retrocessional recoveries is at principally the same level of high quality as ACE's direct reinsurers.
ACE has ample liquidity to deal with the current situation. The Company maintains a very high quality investment portfolio with approximately 4% of its assets exposed to the sharply falling equity market.
Brian Duperreault, chairman and chief executive officer of ACE Limited, said, "With our financial strength intact, ACE continues to provide valuable capacity to its clients in this redefined business environment."
The ACE Group of Companies provides insurance and reinsurance for a diverse group of clients. The ACE Group conducts its business on a
global basis with operating subsidiaries in nearly 50 countries. Additional information can be found at: www.acelimited.com.
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