UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from to
Commission File No. 1-11778
I.R.S. Employer Identification No. 98-0091805
ACE LIMITED
(Incorporated in the Cayman Islands)
ACE Global Headquarters
17 Woodbourne Avenue
Hamilton HM 08
Bermuda
Telephone 441-295-5200
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES þ NO ¨
Indicate by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
YES þ NO ¨
The number of registrant’s Ordinary Shares ($0.041666667 par value) outstanding as of May 5, 2004 was 283,143,342.
1
ACE LIMITED
| Page No. | ||||
| Part I. FINANCIAL INFORMATION |
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| Item 1. |
Financial Statements: |
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|
Consolidated Balance Sheets |
3 | |||
|
Consolidated Statements of Operations (Unaudited) |
4 | |||
| 5 | ||||
| 7 | ||||
|
Consolidated Statements of Cash Flows (Unaudited) |
8 | |||
| Notes to Interim Consolidated Financial Statements (Unaudited) |
9 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
29 | ||
| Item 3. |
50 | |||
| Item 4. |
51 | |||
| Part II. OTHER INFORMATION |
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| Item 1. |
52 | |||
| Item 5. |
52 | |||
| Item 6. |
52 | |||
2
ACE LIMITED
PART I FINANCIAL INFORMATION
| Item 1. | Financial Statements |
ACE LIMITED AND SUBSIDIARIES
| March 31 2004 |
December 31 2003 |
|||||||
| (Unaudited) | ||||||||
| (in thousands of U.S. dollars, except share and per share data) |
||||||||
| Assets |
||||||||
| Investments and cash |
||||||||
| Fixed maturities, at fair value (amortized cost - $19,128,774 and $18,006,405) |
$ | 19,919,523 | $ | 18,645,267 | ||||
| Equity securities, at fair value (cost - $413,635 and $401,237) |
538,861 | 543,811 | ||||||
| Securities on loan, at fair value (amortized cost/cost - $1,112,667 and $650,160) |
1,183,380 | 684,629 | ||||||
| Short-term investments, at fair value |
3,290,342 | 2,927,407 | ||||||
| Other investments (cost - $595,557 and $602,176) |
642,511 | 645,085 | ||||||
| Cash |
613,886 | 561,650 | ||||||
| Total investments and cash |
26,188,503 | 24,007,849 | ||||||
| Accrued investment income |
275,888 | 258,379 | ||||||
| Insurance and reinsurance balances receivable |
3,492,535 | 2,836,616 | ||||||
| Accounts and notes receivable |
170,083 | 191,519 | ||||||
| Reinsurance recoverable |
14,062,255 | 14,080,716 | ||||||
| Deferred policy acquisition costs |
1,108,456 | 1,004,753 | ||||||
| Prepaid reinsurance premiums |
1,578,228 | 1,372,568 | ||||||
| Funds withheld |
238,833 | 255,587 | ||||||
| Value of reinsurance business assumed |
328,039 | 346,365 | ||||||
| Goodwill |
2,699,525 | 2,710,830 | ||||||
| Deferred tax assets |
997,034 | 1,089,805 | ||||||
| Other assets |
1,339,170 | 1,397,806 | ||||||
| Total assets |
$ | 52,478,549 | $ | 49,552,793 | ||||
| Liabilities |
||||||||
| Unpaid losses and loss expenses |
$ | 27,696,872 | $ | 27,154,838 | ||||
| Unearned premiums |
6,929,562 | 6,050,788 | ||||||
| Future policy benefits for life and annuity contracts |
495,780 | 491,837 | ||||||
| Funds withheld |
188,275 | 208,728 | ||||||
| Insurance and reinsurance balances payable |
2,145,287 | 1,902,622 | ||||||
| Deposit liabilities |
217,443 | 212,335 | ||||||
| Securities lending collateral |
1,207,953 | 698,587 | ||||||
| Payable for securities purchased |
569,861 | 369,105 | ||||||
| Accounts payable, accrued expenses and other liabilities |
1,194,625 | 1,206,046 | ||||||
| Dividends payable |
53,717 | 53,182 | ||||||
| Short-term debt |
545,713 | 545,727 | ||||||
| Long-term debt |
1,349,268 | 1,349,202 | ||||||
| Trust preferred securities |
487,373 | 475,000 | ||||||
| Total liabilities |
43,081,729 | 40,717,997 | ||||||
| Commitments and contingencies |
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| Shareholders’ equity |
||||||||
| Preferred Shares ($1.00 par value, 2,300,000 shares authorized, issued and outstanding) |
2,300 | 2,300 | ||||||
| Ordinary Shares ($0.041666667 par value, 500,000,000 shares authorized; 282,714,909 and 279,897,193 shares issued and outstanding) |
11,781 | 11,662 | ||||||
| Additional paid-in capital |
4,863,868 | 4,765,355 | ||||||
| Unearned stock grant compensation |
(97,888 | ) | (44,912 | ) | ||||
| Retained earnings |
3,762,514 | 3,380,619 | ||||||
| Deferred compensation obligation |
16,648 | 16,687 | ||||||
| Accumulated other comprehensive income |
854,245 | 719,772 | ||||||
| Ordinary Shares issued to employee trust |
(16,648 | ) | (16,687 | ) | ||||
| Total shareholders’ equity |
9,396,820 | 8,834,796 | ||||||
| Total liabilities and shareholders’ equity |
$ | 52,478,549 | $ | 49,552,793 | ||||
See accompanying notes to the interim consolidated financial statements.
3
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, 2004 and 2003
(Unaudited)
| Three Months Ended March 31 |
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| 2004 |
2003 |
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| (in thousands of U.S. dollars, except per share data) |
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| Revenues |
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| Gross premiums written |
$ | 4,415,475 | $ | 4,112,764 | ||||
| Reinsurance premiums ceded |
(1,177,309 | ) | (1,182,712 | ) | ||||
| Net premiums written |
3,238,166 | 2,930,052 | ||||||
| Change in unearned premiums |
(638,489 | ) | (858,520 | ) | ||||
| Net premiums earned |
2,599,677 | 2,071,532 | ||||||
| Net investment income |
237,920 | 206,412 | ||||||
| Net realized gains (losses) |
57,261 | (40,089 | ) | |||||
| Total revenues |
2,894,858 | 2,237,855 | ||||||
| Expenses |
||||||||
| Losses and loss expenses |
1,542,597 | 1,282,833 | ||||||
| Life and annuity benefits |
41,724 | 48,499 | ||||||
| Policy acquisition costs |
364,914 | 295,894 | ||||||
| Administrative expenses |
314,905 | 259,672 | ||||||
| Interest expense |
44,272 | 44,929 | ||||||
| Other (income) expense |
17,080 | 6,154 | ||||||
| Total expenses |
2,325,492 | 1,937,981 | ||||||
| Income before income tax |
569,366 | 299,874 | ||||||
| Income tax expense |
122,541 | 52,430 | ||||||
| Net income |
$ | 446,825 | $ | 247,444 | ||||
| Basic earnings per share |
$ | 1.56 | $ | 0.92 | ||||
| Diluted earnings per share |
$ | 1.53 | $ | 0.90 | ||||
See accompanying notes to the interim consolidated financial statements.
4
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the three months ended March 31, 2004 and 2003
(Unaudited)
| 2004 |
2003 |
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| (in thousands of U.S. dollars) | ||||||||
| Preferred Shares |
||||||||
| Balance – beginning of period |
$ | 2,300 | $ | — | ||||
| Shares issued |
— | — | ||||||
| Balance – end of period |
2,300 | — | ||||||
| Ordinary Shares |
||||||||
| Balance – beginning of period |
11,662 | 10,945 | ||||||
| Shares issued |
64 | 68 | ||||||
| Exercise of stock options |
60 | 7 | ||||||
| Issued under Employee Stock Purchase Plan (ESPP) |
5 | 6 | ||||||
| Cancellation of shares |
(10 | ) | (6 | ) | ||||
| Balance – end of period |
11,781 | 11,020 | ||||||
| Additional paid-in capital |
||||||||
| Balance – beginning of period |
4,765,355 | 3,781,112 | ||||||
| Ordinary Shares issued |
65,591 | 44,819 | ||||||
| Exercise of stock options |
34,346 | 3,134 | ||||||
| Ordinary Shares issued under ESPP |
3,678 | 3,381 | ||||||
| Cancellation of Ordinary Shares |
(10,531 | ) | (3,901 | ) | ||||
| Tax benefit on employee stock options |
5,429 | 11,109 | ||||||
| Balance – end of period |
4,863,868 | 3,839,654 | ||||||
| Unearned stock grant compensation |
||||||||
| Balance – beginning of period |
(44,912 | ) | (42,576 | ) | ||||
| Stock grants awarded |
(66,421 | ) | (44,882 | ) | ||||
| Stock grants forfeited |
1,736 | 650 | ||||||
| Amortization |
11,709 | 5,520 | ||||||
| Balance – end of period |
(97,888 | ) | (81,288 | ) | ||||
| Retained earnings |
||||||||
| Balance – beginning of period |
3,380,619 | 2,199,313 | ||||||
| Net income |
446,825 | 247,444 | ||||||
| Dividends declared on Ordinary Shares |
(53,717 | ) | (44,964 | ) | ||||
| Dividends declared on Preferred Shares |
(11,213 | ) | — | |||||
| Dividends declared on Mezzanine equity |
— | (6,415 | ) | |||||
| Balance – end of period |
3,762,514 | 2,395,378 | ||||||
| Deferred compensation obligation |
||||||||
| Balance – beginning of period |
16,687 | 18,361 | ||||||
| (Decrease) increase to obligation |
(39 | ) | (248 | ) | ||||
| Balance – end of period |
$ | 16,648 | $ | 18,113 | ||||
See accompanying notes to the interim consolidated financial statements.
5
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (cont’d)
For the three months ended March 31, 2004 and 2003
(Unaudited)
| 2004 |
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