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 June 30, 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 x NO ¨
Indicate by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES x NO ¨
The number of registrant’s Ordinary Shares ($0.041666667 par value) outstanding as of August 4, 2004 was 284,018,700.
INDEX TO FORM 10-Q
2
PART I FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
| June 30 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 - $18,226,520 and $18,006,405) |
$ | 18,348,288 | $ | 18,645,267 | ||||
| Equity securities, at fair value (cost - $846,220 and $401,237) |
952,979 | 543,811 | ||||||
| Securities on loan, at fair value (amortized cost/cost - $1,487,879 and $650,160) |
1,514,734 | 684,629 | ||||||
| Short-term investments, at fair value |
4,039,566 | 2,927,407 | ||||||
| Other investments (cost - $1,143,488 and $602,176) |
1,216,259 | 645,085 | ||||||
| Cash |
663,240 | 561,650 | ||||||
| Total investments and cash |
26,735,066 | 24,007,849 | ||||||
| Accrued investment income |
260,906 | 258,379 | ||||||
| Insurance and reinsurance balances receivable |
3,566,647 | 2,836,616 | ||||||
| Accounts and notes receivable |
195,129 | 191,519 | ||||||
| Reinsurance recoverable |
14,374,339 | 14,080,716 | ||||||
| Deferred policy acquisition costs |
968,602 | 1,004,753 | ||||||
| Prepaid reinsurance premiums |
1,652,426 | 1,372,568 | ||||||
| Funds withheld |
347,407 | 255,587 | ||||||
| Value of reinsurance business assumed |
310,363 | 346,365 | ||||||
| Goodwill |
2,614,107 | 2,710,830 | ||||||
| Deferred tax assets |
1,114,559 | 1,089,805 | ||||||
| Other assets |
1,511,605 | 1,397,806 | ||||||
| Total assets |
$ | 53,651,156 | $ | 49,552,793 | ||||
| Liabilities | ||||||||
| Unpaid losses and loss expenses |
$ | 28,224,265 | $ | 27,154,838 | ||||
| Unearned premiums |
6,555,437 | 6,050,788 | ||||||
| Future policy benefits for life and annuity contracts |
505,298 | 491,837 | ||||||
| Funds withheld |
200,773 | 208,728 | ||||||
| Insurance and reinsurance balances payable |
2,279,573 | 1,902,622 | ||||||
| Contract holder deposit funds |
221,308 | 212,335 | ||||||
| Securities lending collateral |
1,541,684 | 698,587 | ||||||
| Payable for securities purchased |
726,081 | 369,105 | ||||||
| Accounts payable, accrued expenses and other liabilities |
1,234,827 | 1,206,046 | ||||||
| Dividends payable |
59,557 | 53,182 | ||||||
| Short-term debt |
545,740 | 545,727 | ||||||
| Long-term debt |
1,848,767 | 1,349,202 | ||||||
| Trust preferred securities |
487,373 | 475,000 | ||||||
| Total liabilities |
44,430,683 | 40,717,997 | ||||||
| Commitments and contingencies |
||||||||
| 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; 283,604,445 and 279,897,193 shares issued and outstanding) |
11,817 | 11,662 | ||||||
| Additional paid-in capital |
4,879,892 | 4,765,355 | ||||||
| Unearned stock grant compensation |
(83,828 | ) | (44,912 | ) | ||||
| Retained earnings |
4,104,754 | 3,380,619 | ||||||
| Deferred compensation obligation |
12,988 | 16,687 | ||||||
| Accumulated other comprehensive income |
305,538 | 719,772 | ||||||
| Ordinary Shares issued to employee trust |
(12,988 | ) | (16,687 | ) | ||||
| Total shareholders’ equity |
9,220,473 | 8,834,796 | ||||||
| Total liabilities and shareholders’ equity |
$ | 53,651,156 | $ | 49,552,793 | ||||
See accompanying notes to the interim consolidated financial statements
3
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended June 30, 2004 and 2003
(Unaudited)
| Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| (in thousands of U.S. dollars, except per share data) | ||||||||||||||||
| Revenues | ||||||||||||||||
| Gross premiums written |
$ | 4,040,857 | $ | 3,404,918 | $ | 8,456,332 | $ | 7,517,682 | ||||||||
| Reinsurance premiums ceded |
(1,173,926 | ) | (998,925 | ) | (2,351,235 | ) | (2,181,637 | ) | ||||||||
| Net premiums written |
2,866,931 | 2,405,993 | 6,105,097 | 5,336,045 | ||||||||||||
| Change in unearned premiums |
(78,253 | ) | (99,401 | ) | (716,742 | ) | (957,921 | ) | ||||||||
| Net premiums earned |
2,788,678 | 2,306,592 | 5,388,355 | 4,378,124 | ||||||||||||
| Net investment income |
237,060 | 211,947 | 474,980 | 418,359 | ||||||||||||
| Net realized gains |
42,202 | 106,561 | 99,463 | 66,472 | ||||||||||||
| Total revenues |
3,067,940 | 2,625,100 | 5,962,798 | 4,862,955 | ||||||||||||
| Expenses | ||||||||||||||||
| Losses and loss expenses |
1,724,276 | 1,459,379 | 3,266,873 | 2,742,212 | ||||||||||||
| Life and annuity benefits |
44,398 | 43,559 | 86,122 | 92,058 | ||||||||||||
| Policy acquisition costs |
395,775 | 333,282 | 760,689 | 629,176 | ||||||||||||
| Administrative expenses |
309,797 | 287,288 | 624,702 | 546,960 | ||||||||||||
| Interest expense |
46,399 | 43,681 | 90,671 | 88,610 | ||||||||||||
| Other (income) expense |
5,903 | (726 | ) | 22,983 | 5,428 | |||||||||||
| Total expenses |
2,526,548 | 2,166,463 | 4,852,040 | 4,104,444 | ||||||||||||
| Income before income tax |
541,392 | 458,637 | 1,110,758 | 758,511 | ||||||||||||
| Income tax expense |
128,383 | 88,169 | 250,924 | 140,599 | ||||||||||||
| Net income | $ | 413,009 | $ | 370,468 | $ | 859,834 | $ | 617,912 | ||||||||
| Basic earnings per share |
$ | 1.43 | $ | 1.35 | $ | 2.99 | $ | 2.28 | ||||||||
| Diluted earnings per share |
$ | 1.41 | $ | 1.32 | $ | 2.94 | $ | 2.23 | ||||||||
See accompanying notes to the interim consolidated financial statements
4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the six months ended June 30, 2004 and 2003
(Unaudited)
| 2004 |
2003 |
|||||||
| (in thousands of U.S. dollars) | ||||||||
| Preferred Shares | ||||||||
| Balance – beginning of period |
$ | 2,300 | $ | — | ||||
| Shares issued |
— | 2,300 | ||||||
| Balance – end of period |
2,300 | 2,300 | ||||||
| Ordinary Shares | ||||||||
| Balance – beginning of period |
11,662 | 10,945 | ||||||
| Shares issued |
64 | 561 | ||||||
| Exercise of stock options |
111 | 86 | ||||||
| Issued under Employee Stock Purchase Plan (ESPP) |
6 | 6 | ||||||
| Cancellation of shares |
(26 | ) | (25 | ) | ||||
| Balance – end of period |
11,817 | 11,573 | ||||||
| Additional paid-in capital | ||||||||
| Balance – beginning of period |
4,765,355 | 3,781,112 | ||||||
| Ordinary Shares issued |
67,148 | 46,076 | ||||||
| Exercise of stock options |
61,281 | 24,465 | ||||||
| Ordinary Shares issued under ESPP |
3,678 | 3,390 | ||||||
| Cancellation of Ordinary Shares |
(24,286 | ) | (20,319 | ) | ||||
| Other |
6,716 | 11,109 | ||||||
| Preferred Shares issued, net |
— | 554,587 | ||||||
| Conversion of Mezzanine equity, net |
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