UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549

FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2000
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File No. 1-11778

ACE LIMITED
 (Exact name of registrant as specified in its charter)

         Cayman Islands                          98-0091805
(Jurisdiction of Incorporation)     (I.R.S. Employer Identification No.)

                             The ACE Building
                           30 Woodbourne Avenue
                              Hamilton HM 08
                                 Bermuda
                              (441) 295-5200	

(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

                                                         Name of Exchange
         Title of Each Class                            on which Registered
         -------------------                            -------------------
Ordinary Shares, par value $0.041666667 per share     New York Stock Exchange
ACE Capital Trust I 8.875 percent Trust Originated
Preferred Securities mature 2029                      New York Stock Exchange
Capital Re LLC 7.65 percent Trust Preferred
Securities of Subsidiary Trust (and registrant's
guaranty with respect thereto) mature 2044            New York Stock Exchange
ACE Limited 8.25 percent FELINE PRIDES mature 2003    New York Stock Exchange	

Securities registered pursuant to Section 12(g) of the Act:
 None

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 periods 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference into Part III of this Form 10-K or any amendment to this Form 10-K. [_]
As of March 15, 2001, there were 232,513,623 Ordinary Shares par value $0.041666667 of the Registrant outstanding and the aggregate market value of voting stock held by non-affiliates at such date was approximately $8.5 billion. For the purposes of this computation, shares held by directors (and shares held by any entities in which they serve as officers) and officers of the registrant have been excluded. Such exclusion is not intended, nor shall it be deemed, to be an admission that such persons are affiliates of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of registrant's definitive proxy statement relating to its Annual General Meeting of Shareholders scheduled to be held on May 11, 2001, are incorporated by reference into Part III of this report and certain portions of the 2000 Annual Report to Shareholders are incorporated by reference into Parts II and IV of this report.

ACE LIMITED
INDEX TO 10-K

                                                                         Page
                                                                         ----

                                    PART I

Item 1.  Business......................................................    1

Item 2.  Properties....................................................   22

Item 3.  Legal Proceedings.............................................   23

Item 4.  Submission of Matters to a Vote of Security Holders...........   23

                                   PART II

Item 5.  Market for the Registrant's Ordinary Shares and Related
         Stockholder Matters...........................................   27

Item 6.  Selected Financial Data.......................................   27

Item 7.  Management's Discussion and Analysis of Results of Operations
         and Financial Condition.......................................   28

Item 7A  Quantitative and Qualitative Disclosures about Market Risk....   28

Item 8.  Financial Statements and Supplementary Data...................   28

Item 9.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure......................................   28

                                   PART III

Item 10. Directors and Executive Officers of the Registrant............   29

Item 11. Executive Compensation........................................   29

Item 12. Security Ownership of Certain Beneficial Owners and
         Management....................................................   29

Item 13. Certain Relationships and Related Transactions................   29

                                   PART IV

Item 14. Exhibits, Financial Statements, Schedules and Reports on Form
         8-K...........................................................   30	

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PART I
Item 1. Business
Safe Harbor Disclosure
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Any written or oral statements made by or on behalf of the Company may include forward-looking statements which reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from such statements. These uncertainties and other factors (which are described in more detail elsewhere herein and in documents filed by the Company with the Securities and Exchange Commission) include, but are not limited to, (i) uncertainties relating to government and regulatory policies (such as subjecting the Company to new insurance regulation or taxation in additional jurisdictions or amending or revoking or enacting any laws, regulations or treaties affecting the Company's current operations), (ii) the occurrence of catastrophic events or other insured or reinsured events with a frequency or severity exceeding the Company's estimates, (iii) legal, regulatory, and legislative developments, (iv) the uncertainties of the loss reserving process including the difficulties associated with assessing environmental and latent injuries, (v) the actual amount of new and renewal business and market acceptance of the Company's products, (vi) loss of the services of any of the Company's executive officers, (vii) changing rates of inflation and other economic conditions, (viii) losses due to foreign currency exchange rate fluctuations, (ix) the ability to collect reinsurance recoverables, (x) the competitive environment in which the Company operates, related trends and associated pricing pressures, market perception, and developments, (xi) the impact of mergers and acquisitions and new initiatives, including the ability to successfully integrate acquired, new or expanded businesses and achieve cost savings, reduce volatility of earnings, competing demands for ACE's capital and the risk of undisclosed liabilities, (xii) developments in global financial markets, including interest rate changes which could affect the Company's investment portfolio and financing plans, (xiii) risks associated with the introduction of new products and services, (xiv) the ability of technology to perform as anticipated, and (xv) the amount of dividends received from subsidiaries. The words "believe", "anticipate", "estimate", "project", "plan", "expect", "intend", "hope", "will likely result" or "will continue" and variations thereof and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. 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.
General
ACE Limited ("ACE") is a holding company incorporated with limited liability under the Cayman Islands Companies Law. ACE maintains its business office in Bermuda. ACE, through its various subsidiaries, provides a broad range of insurance and reinsurance products to insureds in the United States and almost 50 other countries. In addition, ACE, through ACE Global Markets, provides funds at Lloyd's, primarily in the form of letters of credit, to support underwriting capacity for Lloyd's syndicates managed by Lloyd's managing agencies which are wholly owned subsidiaries of ACE. At December 31, 2000, the Company had total assets of $31.7 billion and shareholders' equity of $5.4 billion. The Company derives its revenue principally from premiums, fees and investment income. ACE operates through six business segments: ACE Bermuda, ACE Global Markets, ACE Global Reinsurance, ACE USA, ACE International and ACE Financial Services. Unless the context otherwise indicates, the term "Company" refers to one or more of ACE and its consolidated subsidiaries.
The Company's long-term business strategy focuses on achieving underwriting profits and providing value to its clients and shareholders through the utilization of its substantial capital base within the insurance and reinsurance markets. As part of this strategy, the Company has continued to review and expand, where appropriate, its product portfolio. In addition, the Company has made a number of strategic acquisitions and entered into strategic alliances to diversify its product lines, both geographically and by product type.
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Acquisitions
The Company acquired Corporate Officers & Directors Assurance ("CODA") in 1993 which provides professional lines insurance.
The Company continued its strategic diversification with the acquisition in March 1996 of Methuen Group Limited ("Methuen"), and in July 1996 of Tempest Reinsurance Company Limited ("ACE Tempest Re"), a leading Bermuda-based property catastrophe reinsurer. Also in November 1996, the Company acquired Ockham Worldwide Holdings plc which was renamed ACE London Holdings Limited. Both Methuen and ACE London were holding companies that owned Lloyd's managing agencies.
In March 1997, the Company, together with two other insurance companies, formed Sovereign Risk Insurance Limited ("Sovereign"), a Bermuda-based managing general agency, to provide underwriting services to the three organizations for political risk insurance coverage. Sovereign issues subscription policies with the Company assuming 50 percent of each risk underwritten. In 1999, ACE Bermuda and one of the other investors bought out the third investor.
In January 1995, the Company formed ACE European Markets Reinsurance Limited ("AEMRL"). In September 1997, AEMRL formed ACE European Markets Insurance Limited ("AEMIL"). Both companies operate in the International Financial Services Centre in Dublin, Ireland. Additionally, AEMIL has an insurance license to write all 18 classes of non-life insurance in all member states of the European Union. Both companies provide flexibility mainly to European corporations that wish to access the Company's products using different structures.
On January 2, 1998, the Company, through a U.S. holding company, ACE US Holdings, acquired the Westchester Specialty Group. In connection with the acquisition, National Indemnity Company, a subsidiary of Berkshire Hathaway Inc., provided $750 million (75 percent quota share of $1 billion) of reinsurance protection to ACE US Holdings with respect to its loss reserves for the 1996 and prior accident years.
On April 1, 1998, the Company acquired CAT Limited ("CAT"), a privately held, Bermuda-based property catastrophe reinsurer. This acquisition increased the Company's already significant participation in the international property catastrophe reinsurance market. On January 1, 1999 CAT was merged into ACE Tempest Re.
On July 9, 1998, the Company acquired Tarquin Limited ("Tarquin"), a UK- based holding company which owned Lloyd's managing agency Charman Underwriting Agencies Ltd. ("CUAL") and Tarquin Underwriting Limited, its corporate capital provider. CUAL managed syndicates 488 and 2488.
On July 2, 1999, the Company acquired the international and domestic property and casualty businesses of CIGNA Corporation ("CIGNA"). Under the terms of the agreement the Company, through a U.S. holding company, ACE INA Holdings Inc. ("ACE INA"), acquired CIGNA's domestic property and casualty insurance operations including its run-off business and also its international property and casualty insurance companies and branches, including most of the accident and health business written through those companies. In connection with the acquisition CIGNA agreed to provide a guarantee to ACE to indemnify against unanticipated increases in recorded reserves for losses and loss adjustment expenses of certain subsidiaries being acquired by ACE. CIGNA had the option to replace its guarantee with reinsurance obtained from a mutually agreed upon third party reinsurer. CIGNA exercised this option and replaced its guarantee with reinsurance by directing certain subsidiaries being acquired to transfer $1.25 billion of investments to National Indemnity Company, a subsidiary of Berkshire Hathaway Inc., for aggregate coverage of $2.5 billion.
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On December 30, 1999, the Company acquired Capital Re Corporation. Following the acquisition, Capital Re Corporation was renamed ACE Financial Services. This transaction added significant depth and expertise to ACE's financial reinsurance capabilities and represents a strategic complement to the Company's diversified portfolio by fully establishing ACE as a key financial guaranty reinsurer.
Information About Segments
Presentation: The business segments presented in this document have been determined under the Statement of Financial Accounting Standard No 131, "Disclosures about Segments of an Enterprise and Related Information" ("FAS 131") which was adopted by the Company as of December 31, 1999. FAS 131 established new standards for defining how operating segments are determined. Prior period information has been restated based on the new requirements.
Competition: Competitive forces in the international property and casualty insurance and reinsurance business are substantial. Results are a function of underwriting and investment performance, direct costs associated with the delivery of insurance products, including the costs of regulation, the frequency and severity of both natural and man-made disasters, as well as inflation (actual, social and judicial), which impact loss costs. Decisions made by insurers concerning their mix of business (offering certain types of coverage but declining to write other types), their methods of operations and the quality and allocation of their assets (including any reinsurance recoverable balances) will all affect their competitive position. The relative size and reputation of insurers may influence purchasing decisions of present and prospective customers and will contribute to both geographic and industrial sector market penetration. Oversupply of available capital has historically had the effect of encouraging competition and depressing prices. The Company's competitive position in the property and casualty insurance industry is influenced by all of these factors. Individual competitive information by segment is presented in the segment presentations.
Segment Analysis of Gross Premiums Written: The following table sets forth an analysis of gross premiums written by segment for the years ended December 31, 2000 and 1999, and for the year ended September 30, 1998:

                           Year ended             Year ended             Year ended
                          December 31,           December 31,          September 30,
                              2000                   1999                   1998
                         Gross Premiums         Gross Premiums         Gross Premiums
                            Written     Percent    Written     Percent    Written     Percent
                         -------------- ------- -------------- ------- -------------- -------
                                            (in millions of U.S. dollars)
ACE Bermuda.............     $  598         8%      $  553        14%      $  520        42%
ACE Global Markets(1)...      1,064        14%         635        16%         438        35%
ACE Global
 Reinsurance(2).........        191         2%         182         5%         124        10%
ACE USA(3)..............      3,380        45%       1,567        41%         160        13%
ACE International(4)....      2,027        27%         932        24%         --        --
ACE Financial
 Services(5)............        327         4%         --        --           --        --
                             ------       ---       ------       ---       ------       ---
                             $7,587       100%      $3,869       100%      $1,242       100%
                             ======       ===       ======       ===       ======       ===	

(1) On July 9, 1998, the Company completed the acquisition of Tarquin. As the transaction was accounted for on a pooling-of-interests basis, all amounts included for ACE Global Markets for 1998 were restated to reflect the gross premiums written for Tarquin.
(2) CAT was acquired on April 1, 1998, and thus gross premiums written for ACE Tempest Re in fiscal 1998 include gross premiums written for CAT for the six month period since acquisition.
(3) ACE US Holdings was acquired on January 2, 1998, and thus gross premiums written for ACE USA in fiscal 1998 only relate to the nine month period since acquisition. Gross premiums written for fiscal 1999 include premiums from ACE US Holdings and six months of premium from the domestic operations of ACE INA acquired on July 2, 1999.
(4) ACE International's gross premiums written for 1999 reflect premiums from July 2, 1999, the date of acquisition.
(5) As ACE Financial Services was acquired on December 30, 1999, no statement of operations information for ACE Financial Services is reflected in the ACE results for the year ended December 31, 1999.

3
Analysis of Gross Premiums Written by Geographic Region: The following table sets forth an analysis of gross premiums written by geographic region for the years ended December 31, 2000 and 1999, and for the year ended September 30, 1998:

                       North         Australia &  Asia    Latin
                      America Europe New Zealand Pacific America Other Total
                      ------- ------ ----------- ------- ------- ----- -----
2000.................    60%    18%        2%        9%      4%     7%  100%
1999.................    59%    18%        4%        9%      3%     7%  100%
1998.................    79%     9%        5%        4%     --      3%  100%	

ACE Bermuda
Principal Business
ACE Bermuda provides property and casualty insurance and reinsurance coverage across a broad range of business including: excess liability, professional lines, financial lines, satellite, excess property and political risk. The nature of coverage provided by these lines is generally expected to result in low frequency but high severity of individual losses. The reinsurance market is an integral part of the risk management strategy of ACE Bermuda and coverage has been secured on most major lines of business.
ACE Bermuda, the first insurance company in the ACE Group, was formed to focus on excess liability and directors and officers insurance. As these insurance markets became more competitive in the early 1990's, ACE Bermuda diversified its product offering to include financial lines, satellite, excess property and aviation while reducing its exposure to the excess liability and director and officers markets.
Since its inception in 1995, the financial lines division has continued to increase in significance and at December 31, 2000 accounted for almost 50 percent of ACE Bermuda's gross premiums written. Now known as ACE Financial Solutions International, Ltd. ("ACE FSI"), this group provides a variety of non-traditional insurance and finance-related solutions that conventional insurance does not address. These solutions are individually tailored to meet the needs of the insured and have the following common characteristics: multi- year contract terms; broad coverage that includes stable capacity and pricing for the insured; insured participation in the results of their own loss experience; and aggregate limits.
ACE Bermuda enters into loss portfolio transfer contracts from time to time. These contracts, which meet the established criteria for reinsurance accounting, are recorded in the statement of operations when written and generally result in large one-time written and earned premiums with comparable incurred losses.
As the ACE Group evolves, the Company continues to evaluate its business operations to ensure it operates in the most efficient and effective way. As a result, in August 2000, ACE Bermuda ceased underwriting aviation business in Bermuda. Aviation renewals are now being written by ACE Global Markets, a recognized leader in the worldwide aviation insurance market. In addition, during 2000, ACE Bermuda transferred certain satellite business to ACE USA.
Sovereign Risk Insurance Ltd., ACE Bermuda's joint venture in the political risk arena, provides insurance to financial institutions and major corporations, and reinsurance to multilateral development banks and national export agencies.
Marketing and Underwriting
ACE Bermuda emphasizes quality of underwriting rather than volume of business to obtain a suitable spread of risk. This enables the company to operate with a relatively small number of employees and, together with the reduced costs of operating in favorable regulatory and tax environments, results in a significantly lower administrative expense ratio relative to other companies in the industry.
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Policyholders are generally obtained through non-U.S. insurance brokers who typically receive a brokerage commission on any business accepted and bound by the company. All policy applications to ACE Bermuda (both for renewals and new policies) are subject to underwriting and acceptance by ACE Bermuda in its Bermuda office. A substantial number of policyholders meet with the company outside of the United States each year to discuss their insurance coverage. ACE Bermuda believes that conducting its operations through its offices in Bermuda has not materially or adversely affected its underwriting and marketing activities to date.
ACE Bermuda receives business from approximately 43 non-U.S. brokers of which 2 produced approximately 59 percent of the company's business in 2000. The following table sets forth the percentage of the company's insurance business placed through each broker and its affiliates placing more than 10 percent of the company's business.

                                                 Years Ended     Year Ended
                                                December 31,    September 30,
                                                --------------  -------------
Name                                             2000    1999       1998
----                                            ------  ------  -------------
Marsh and McLennan Companies, Inc.(1)..........    26%     22%       39%
Aon Corporation................................    33%     23%       19%	

(1) In 1999, Marsh and McLennan Companies, Inc. acquired Sedgwick. The percentages shown in the table reflect the business placed by the combined entities and their affiliates.
Competition
ACE Bermuda operates in a highly competitive worldwide market and competes with most major U.S. and non-U.S. insurers, which may differ across product lines. ACE Bermuda's key marketing advantage is its experienced underwriting staff, its strong capital base, and its ability to market a number of insurance products to its existing and potential client base. The ability to be flexible in providing contracts, which extend coverages for periods in excess of one year, also enhances its ability to compete in worldwide insurance markets.
Claims Administration
Claims arising under policies issued by ACE Bermuda are managed in Bermuda by ACE Bermuda's claims department. This department maintains a claims database into which all notices of loss are entered. If the claims department determines that a loss is of sufficient severity, it makes a further inquiry of the facts surrounding the loss and, if deemed necessary, retains outside claims counsel to monitor claims. Based upon its evaluation of the claim, the claims department may recommend that a case reserve in a specified amount is established or that all or part of a claim is paid. The claims department monitors all claims and, where appropriate, will recommend the establishment of a new case reserve or the increase or decrease of an existing case reserve with respect to a claim.
With the exception of certain aviation coverages bound before August 1, 2000, ACE Bermuda does not undertake to defend its insureds. It has, in certain instances, provided advice to insureds with respect to the management of claims. ACE Bermuda believes that its experience in resolving large claims and its proactive approach to claims management has contributed to the favorable resolution of several cases. Because ACE Bermuda does not do business in the U.S., it must often rely on U.S. counsel to assist it in evaluating liability and damages confronting its insureds in the U.S. ACE Bermuda believes that the procedures it follows have not materially or adversely affected its ability to identify, review or settle claims.
ACE Global Markets
Principal Business
ACE Global Markets primarily encompasses the Company's operation in the Lloyd's market, including for segment purposes, the Lloyd's operations owned by ACE Financial Services. ACE Global Markets provides
5
funds at Lloyd's to support underwriting by the ACE managed Lloyd's syndicates. For the 2000 year of account, the Company's participation in the underwriting capacity of the ACE managed syndicates was approximately $765 million out of the total $915 million of capacity. Following the mergers of the ACE managed syndicates for the 2000 year of account, these syndicates comprised Syndicate 2488, the largest syndicate in Lloyd's, and Syndicate 1171, a life syndicate acquired as part of the ACE Financial Services acquisition. Syndicate 1171 ceased underwriting as of December 31, 2000.
As the market continued to consolidate in 2000, the Company believed that the timing was right to expand its business and increased the capacity of syndicate 2488 by 20 percent to $1 billion for 2001. In addition, for the 2001 year of account ACE will provide approximately 90 percent, or $979 million, of the capacity of syndicate 2488 compared to 84 percent in 2000.
Syndicate 2488, provides property and casualty insurance and reinsurance as well as accident & health coverage on a worldwide basis through the Lloyd's worldwide licenses. The property and casualty business includes: liability, marine, property, casualty, inward reinsurance, aviation and specialty.
The 2488 syndicate is a lead underwriter on a high proportion of the business it transacts in the Lloyd's market. A lead underwriter is involved in setting the terms and conditions of the policies written. ACE Global Markets is an established lead underwriter in the aviation, marine and specialty product lines.
All syndicates at Lloyd's are managed by managing agencies that receive fees and profit commissions in respect of the underwriting and administrative services they provide to the syndicates. The Company currently owns five managing agencies. As the Company's participation in the syndicates under management has grown, the amount of third party fees and profit commissions received by the Company's managing agencies has decreased substantially.
Marketing and Underwriting
ACE Global Markets differentiates itself in the Lloyd's market by developing and maintaining close, long term relationships with clients. The ability of ACE Global Markets to obtain an Aa2 rate from Moody's has also had a positive impact on the Company's ability to attract new business.
Ordinarily Lloyd's syndicates access business through Lloyd's brokers. For certain lines of business, however, it is possible to utilize a service company to access and service business from both Lloyd's and non-Lloyd's brokers. During 2000, Lloyd's began widening the access to the Lloyd's market to accredited insurance intermediaries of all types. The Company's syndicate already accesses business from non-Lloyd's brokers through its service company, ACE Underwriting Services Limited ("AUS"). For 2001, the Company plans for AUS to develop similar underwriting initiatives worldwide. In conjunction with this investment, ACE Global Markets is developing an internet platform to complement AUS's developing distribution channels.
Competition
Not withstanding the improvement in market conditions seen in 2000, there remains significant competition in all lines of business written by the syndicates. Depending on the line of business, competition comes from the London market, other Lloyd's syndicates and ILU Companies (Institute of London Underwriters), and major international insurers and reinsurers. On international risks, competition also comes from the domestic insurers in the country of origin of the insured.
Claims Administration
With respect to claims arising in Lloyd's syndicates, a claims database is maintained into which all notices of loss are entered. The Lloyd's Claims Office ("LCO"), through a daily electronic data interchange message, notifies the syndicate of claims activity. When a syndicate is a "leading" syndicate on a Lloyd's policy, it acts
6
through its underwriters and claims adjusters, on its own behalf and in conjunction with the LCO, in dealing with the broker and/or insured for any particular claim. This may involve the appointment of attorneys and/or loss adjusters. The LCO advises all syndicates participating on the risk as to movements in case reserves.
All information received with respect to case reserves, whether on "lead business" or on "following business", is monitored and recorded by the syndicates. The syndicates' claims department can vary the case reserves carried from those advised by the LCO and can carry reserves for claims not processed by the LCO. Any such adjustments and entries are specifically identifiable within the claims system.
ACE Global Reinsurance
Principal Business
The principal business of the ACE Global Reinsurance segment is the operations of ACE Tempest Re, which primarily includes property catastrophe reinsurance provided worldwide to insurers of commercial and personal property. Property catastrophe reinsurance protects a ceding company against an accumulation of losses covered by the insurance policies it has issued arising from a common event or "occurrence." ACE Tempest Re underwrites reinsurance principally on an excess of loss basis. Other property reinsurance written by ACE Tempest Re on a limited basis for select clients, includes proportional property and per risk excess of loss treaty reinsurance.
In early 2000, ACE Tempest Re initiated plans to expand its operations to become a multiline global reinsurer. This expansion is expected to reduce volatility and enable ACE Tempest Re to diversify its business and offer a broad range of products to satisfy client demand. An expanded product offering is considered vital to capturing an increasing share of the future reinsurance market. In April 2000, ACE Tempest Re U.S.A. Inc. ("ACE Tempest U.S.") was established in the U.S. ACE Tempest U.S. is wholly owned by ACE INA and acts as an underwriting agency on behalf of two of the U.S. companies in the ACE Group. Its initial focus has been on writing property per risk and casualty reinsurance. In October 2000, ACE Tempest Life Reinsurance Ltd. ("ATLR") was incorporated in Bermuda. ATLR has a license to write life reinsurance and will focus on non-traditional solutions for life and annuity reinsurance.
ACE Tempest Re is currently seeking regulatory authorization to underwrite property and casualty reinsurance through a London branch of ACE Tempest Re. The London branch plans to focus on expansion into Europe and Asia Pacific.
Marketing and Underwriting
ACE Tempest Re markets its reinsurance products worldwide through reinsurance brokers. The underwriting teams build relationships with key brokers and clients by explaining their approach and demonstrating responsiveness to customer needs.
ACE Tempest Re will leverage the strengths of its client relationships, underwriting expertise, rational pricing and capital base in developing its new lines of business which it expects to add in accordance with its strategy to offer risk protection across all lines of reinsurance.
ACE Tempest Re receives business from approximately 26 brokers. The following table sets forth the percentage of ACE Tempest Re's business written through each broker and its affiliates that placed more than 10 percent of ACE Tempest Re's business:

                                    Year Ended   Year Ended   Year Ended
                                   December 31, December 31, September 30,
                                       2000         1999         1998
                                   ------------ ------------ -------------
Marsh and McLennan Companies,
 Inc.(1)..........................     38%          37%           47%
E.W. Blanch.......................     19%          15%           16%
Aon Corporation...................      8%          11%            8%	

(1) In 1999, Marsh and McLennan Companies Inc., acquired Sedgwick. The percentages shown in the table reflect the business placed by the combined entities and their affiliates.

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Rates, limits, retention and other reinsurance terms and conditions are generally established in a worldwide competitive market that evaluates exposure and balances demand for property catastrophe coverage against the available supply. ACE Tempest Re believes it is perceived by the market as being a "lead" reinsurer and is typically involved in the negotiation and quotation of the terms and conditions of the majority of the contracts in which it participates.
Because ACE Tempest Re underwrites property catastrophe reinsurance and has large aggregate exposures to natural and man-made disasters, ACE Tempest Re's claims experience generally will involve infrequent events of considerable severity. ACE Tempest Re seeks to diversify its property catastrophe reinsurance portfolio to moderate the impact of this severity. The principal means of diversification are by geographic coverage and by varying attachment points and imposing coverage limits per program. ACE Tempest Re also establishes zonal accumulation limits to avoid concentrations of risk within particular geographic areas.
ACE Tempest Re applies an underwriting process for property catastrophe risks based on models that use exposure data submitted by prospective reinsureds in accordance with requirements set by ACE Tempest Re's underwriters. The client data is then analyzed using a selection from several available catastrophe analysis tools, including externally developed event based models licensed from leading vendors as well as proprietary models developed in house.
The output from the catastrophe analysis tools is also used for portfolio risk management, enabling ACE Tempest Re to extensively simulate possible combinations of events affecting the portfolio. This analysis also supports the decision making with regard to purchasing retrocessional coverages.
Competition
ACE Tempest Re competes worldwide with major U.S. and non-U.S. reinsurers as well as reinsurance departments of numerous multi-line insurance organizations. The Company also competes with other Bermuda based property catastrophe reinsurers. ACE Global Reinsurance competes effectively because of the strong capital position of the ACE Group; the quality of service provided to customers; the leading role it plays in setting the terms, pricing and conditions in negotiating contracts; and its customized approach to risk selection.
Claims Administration
Claims arising under contracts written by ACE Tempest Re are maintained in a claims database into which all notices of loss are entered. Those claims are then reviewed and case reserves are established for ACE Tempest Re's portion of the loss. Case reserves are adjusted based on receipt of further notifications from brokers.
Claims handling activities for the new lines of business will be managed by the division where the contract is written. Loss notices are received directly from brokers.
ACE USA
Principal Business
The principal business of ACE USA is the combined business of ACE US Holdings, which was acquired by the Company January 2, 1998, and the domestic operations of ACE INA acquired on July 2, 1999. The operations of ACE USA include ongoing domestic operations as well as the run-off operations of Brandywine Holdings, Inc. ("Brandywine"), which does not write new policies. The ongoing operations provide specialty property and casualty products and services and are comprised of the following operating divisions: aerospace,
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diversified products, financial products, marine, professional risk services, property, special risk, U.S. international, warranty, westchester specialty and "other" operations. The "other" operations include all remaining insurance operations of ACE US Holdings and selected insurance related operations including the run-off of Commercial Insurance Services ("CIS"), residual market worker's compensation business, pools and syndicates not attributable to a single business unit and the runoff of open market facilities business. Insurance related operations include those of ESIS Inc. ("ESIS"), the Company's in-house third party claims administrator and Recovery Services International ("RSI"), which sells salvage, subrogation, and premium collection services.
Following the acquisition of the domestic operations of ACE USA on July 2, 1999, the Company made substantial structural and operational changes to enhance profitability and operating controls in the segment. These changes included restructuring the operating divisions from three large groups to the business divisions discussed above. These operational changes were made to enhance the Company's ability to better focus on profitable underwriting and market its products. ACE USA also closed 63 offices throughout the US, outsourced the IT function, and reduced staff by approximately 2,000 people. These cost reduction efforts had a positive impact on both the expense ratio and the loss ratio, due to a reduction in unallocated loss adjustment expenses.
As part of the restructuring of the operating divisions, ACE USA critically evaluated all lines of business and has exited contracts and lines of business that did not have a long-term strategic fit. During the year ended December 31, 2000, this amounted to a reduction of gross premiums written of $158 million. This focus on profitable business together with the cost reduction efforts enabled ACE USA to operate at a combined ratio under 100 percent.
In addition to the exited business discussed above, ACE USA sold the renewal rights for all of its CIS business in 1999 and planned to sell the assets and liabilities pertaining to the historical book of business as well as the in- force book of business which it still owned. As of December 31, 2000, the remaining business of CIS continues to run-off and has not been sold.
The Brandywine run-off operation, was created in 1995 by the restructuring of ACE INA's domestic operations into two separate operations, ongoing and run- off. Brandywine contains substantially all of ACE INA's asbestos and environmental exposures as well as various run-off insurance and reinsurance businesses. The run-off operations do not actively sell insurance products, but are responsible for the management of run-off policies and related claims including those for asbestos-related and environmental pollution exposures. Certain competitors and policyholders of CIGNA have challenged the regulatory approvals resulting in the creation of Brandywine. In July 1999, the Pennsylvania Supreme Court upheld the action of the Pennsylvania Insurance Commissioner in granting such approvals. In May 2000, the Superior Court of the State of California found that there was no legal basis for a lawsuit with regard to the aforementioned restructuring. The California trial court decision has been appealed. That appeal has been briefed and is awaiting a hearing.
Marketing and Underwriting
ACE USA plans to seek out and capitalize on emerging market opportunities and primarily distributes its insurance products through a limited group of brokers and wholesale brokers with whom long-term relationships have been forged. ACE USA's management believes the match between its expertise and that of its brokers is one of the key reasons brokers place business with it. Certain products are also distributed through alternative distribution channels such as general agents, independent agents and direct marketing operations. Additionally, e-commerce distribution opportunities are in the process of development. ACE USA seeks out and capitalizes on emerging market opportunities.
9
The following table sets forth the percentage of ACE USA's business written through brokers placing more than 10 percent of ACE USA's business:

                                                     Year ended   Year ended
                                                    December 31, December 31,
Name                                                    2000         1999
----                                                ------------ ------------
Rain & Hail Insurance Services(1)..................      11%          14%	

(1) Rain & Hail Insurance Services is a managing agency that specializes in crop insurance, most of which is federally reinsured.
Operating in a market in which capacity and price adequacy for its products can change dramatically, ACE USA's underwriting strategy is to employ consistent, disciplined pricing and risk selection in order to maintain an attractive book of business. Management's priority is to ensure that criteria for risk selection are closely adhered to by its underwriting professionals through maintaining high levels of experience and expertise in its underwriting staff. In addition, ACE USA has established a business review structure that ensures control of risk quality and conservative use of policy limits, terms and conditions.
ACE USA has the ability to write business on an admitted basis using forms and rates as filed with state insurance regulators and on a non-admitted, or surplus lines basis using flexible forms and rates not filed with state insurance regulators. Having access to non-admitted carriers provides the flexibility to write non-standard coverage.
An integral part of the ACE USA operating strategy is to maximize the efficiency and effectiveness of its operations while reducing operating costs. Critical to the success of this strategy, ACE USA is in the process of investing in technology which is expected to replace various existing information systems in order to allow greater access to information and increased effectiveness in underwriting and processing operations.
Competition
ACE USA operates in a highly competitive industry and faces competition from both domestic and foreign insurers. The markets in which ACE USA competes are subject to significant cycles of fluctuating capacity and wide disparities in price adequacy. The domestic operations pursue a specialist strategy and focus on market opportunities where they can compete effectively based on service levels and product design while achieving an adequate level of profitability. ACE USA offers experienced claims handling, loss control and risk management staffs with proven expertise in specialty fields, including large-risk property and casualty, recreational and ocean marine, aviation, and worker's compensation. A competitive strength of all the domestic units, especially special risk facilities, is the ability to deliver global products and coverages to customers in concert with the ACE International property and casualty operations.
Claims Administration
ACE USA's claims organization supports both the national accounts (Special Risk) and the specialty insurance businesses with a national network of claims and risk management services. The Brandywine claim professionals have the unique expertise and experience to manage specialized coverage and coordination issues that arise in asbestos, environmental and other latent exposure claims.
A team of risk control professionals supports each business line to effectively manage loss costs for the risk exposures underwritten by the businesses of ACE USA. Specialized loss cost containment programs have been designed for marine risk, aerospace risk, global property risk, warranty programs, excess risk, inland marine risk, diversified products and professional risk services.
The Special Risk Business is supported by ESIS, ACE USA's in-house third party claims administrator. ESIS markets loss control, risk information and claims services to large corporate customers on a fee-for-service basis.
10
ACE International
Principal Business
ACE International is a global franchise with a presence in nearly 50 countries. The franchise was created through the merger of the Insurance Company of North America ("INA"), which started its international franchise over 100 years ago and the AFIA, which also had developed a strong international presence.
ACE International's operations provide insurance coverage on a worldwide basis excluding the United States. The principal business operations are property and casualty and accident and health. Operating management is carried out through four regional teams: Europe, Far East, Asia Pacific and Latin America.
The international property and casualty operations are conducted through a specialist insurance organization offering capacity and technical expertise in the underwriting of large and unique risks for targeted commercial customer segments, as well as individual coverages in selected markets. Its property insurance products include traditional commercial fire coverage as well as energy industry-related and other technical coverages. Principal casualty products are commercial general liability and liability coverage for multinational organizations. Marine cargo and hull coverages are written in the London market as well as in marine markets throughout the world. The operations also design and implement risk-financing alternatives for customers whose approach to risk management includes some form of self-insurance.
The international accident and health insurance operations provide products that are designed to meet the insurance needs of individuals and groups outside of U.S. insurance markets. These products include accidental death, medical, hospital indemnity and income protection coverages. For the year ended December 31, 2000, gross premiums written from accident & health accounted for 28 percent of ACE International's premiums.
In conducting its non-U.S. business, ACE International reduces the risks relating to currency fluctuations by maintaining investments in those foreign currencies in which the division transacts business, with characteristics of those investments similar to the related liabilities in those currencies. The net asset or liability exposure to the various foreign currencies is regularly reviewed.
Marketing and Underwriting
ACE International maintains a sales or operational presence in major insurance markets around the world. Its property and casualty business is generally written, on both a direct and assumed basis, through major international and local brokers. Accident and health and other personal lines products are distributed through agents, financial institutions and various direct marketing channels including e-commerce.
ACE International's operations are diversified by line of business and geographic spread of risk. A global approach to risk management allows each local operation to underwrite and accept large insurance accounts. Centrally controlled internal reinsurance mechanisms facilitate appropriate risk transfer and efficient, cost-effective use of external reinsurance markets.
Competition
ACE International's primary competitors include U.S.-based companies with global operations, as well as other, non-U.S. global carriers and indigenous companies in regional and local markets. For the accident and health lines of business, locally based competitors include financial institutions and bank- owned insurance subsidiaries.
The principal competitive factors that affect the international operations are underwriting and pricing, relative operating efficiency, product differentiation, producer relations and the quality of claims and policyholder services. A competitive strength of the international operations is its global network and breadth
11
of insurance programs, which assist individuals and business organizations to meet their risk management objectives.
Claims Administration
ACE International's claims service operations are decentralized, with management of most aspects of claim administration occurring at an individual country level. The claims organization structure in each country is driven by the composition of the business portfolio. The outsourcing of claims settlement, adjusting services, or other claims functions may occur when appropriate.
ACE Financial Services
Principal Business
The companies in the ACE Financial Services segment offer value-added insurance, reinsurance and financial derivative products to the insurance and capital markets, which provide protection from credit or financial risks. ACE Financial Services writes municipal and non-municipal financial guaranty reinsurance and credit default swaps, mortgage guaranty reinsurance, trade credit reinsurance, title reinsurance, life & annuity reinsurance and residual value reinsurance.
The ACE Financial Services segment primarily carries out its business through the following legal vehicles: ACE Guaranty Re Inc. ("AGR"), ACE Capital Re International Ltd. ("ACRI"), ACE Capital Mortgage Reinsurance Company ("ACMR"), ACE Capital Re Overseas Ltd. ("ACRO") and ACE Capital Title Reinsurance Company ("ACTR").
ACE Financial Services' financial guaranty business is conducted primarily through AGR. AGR serves the U.S. domestic and international financial guaranty reinsurance markets. It is a leading reinsurer (by market share) of financial guaranties of investment grade debt obligations--principally of municipal and non-municipal obligors. ACRI and ACRO are primarily focused on providing highly structured solutions to problems of financial and risk management through reinsurance and other forms of credit enhancement. ACMR and ACTR are New York regulated monoline reinsurance companies providing mortgage guaranty reinsurance and title reinsurance respectively.
Financial guaranty reinsurance is a type of credit enhancement, similar to a surety, which is regulated under the insurance laws of various jurisdictions. Financial guaranty insurance provides an unconditional and irrevocable guaranty that indemnifies the insured against nonpayment of principal and interest on an insured debt obligation when due. Additionally, ACE Financial Services financial guaranty business provides municipal and non-municipal credit risk protection on a facultative basis to a wide variety of counterparties through credit default swap transactions. Although structured as financial derivatives, credit default swaps are functionally equivalent to financial guaranty reinsurance.
Mortgage guaranty insurance is a specialized class of credit insurance, providing protection to mortgage lending institutions against the default of borrowers on mortgage loans. Title insurance essentially provides the acquirer or the mortgagee of real property with two forms of coverage. The first assures that the search and examination of the real estate records, upon which the acquirer or mortgagee is relying for good and clean title, was properly performed. The second form of coverage assures that all previously existing mortgages and liens will be paid off from the proceeds of the sale or refinancing of the property. Trade credit insurance protects sellers of goods and services from the risk of non-payment of trade receivables and is a large, well-established specialty insurance product, particularly in Western Europe. Policyholders are generally covered for short-term exposures (generally less than 180 days and averaging 60-90 days) to insolvency or payment defaults by domestic and/or foreign buyers. Some export credit policies also cover political events, which can disrupt either the flow of goods and services or payment for goods and services. Life & annuity reinsurance provides long- duration funded reinsurance for portfolios of lives where the reinsured seeks capital or balance sheet relief by
12
the transfer of the mortality or morbidity risks in the portfolios. Residual value reinsurance is generally provided to the captives of motor vehicle manufacturers or lessors, whereby the coverage effectively guarantees the residual value of portfolios of leased vehicles at the termination of the lease term.
Marketing and Underwriting
ACE Financial Services has established and maintains relationships with the major U.S. primary financial guaranty insurers, mortgage guaranty insurers and title insurers, major European trade credit insurers and primary mortgage guaranty insurers in the U.K. and Australia. Large life and disability insurers form the main customer base for the life & annuity reinsurance business, while major U.S. and European investment banks act as counterparties on credit default swaps.
A portion of ACE Financial Services' reinsurance business is developed through relationships with brokers and reinsurance intermediaries. The title reinsurance business has developed substantially all of its business opportunities through direct contacts with primary title insurers, while the financial guaranty business has been developed through direct contacts with U.S. primary companies and major investment banks in the U.S. and Europe.
For the majority of ACE Financial Services' business the underwriting process is premised on reinsuring investment grade credit risks and risk remote or finite financial risks. The underwriting process is based on multiple levels of credit review, actuarial analysis, stress-based modeling and legal review. Underwriters minimize correlation and aggregation through diversification of exposures by geography, industry sector, credit enhancement/attachment point and rating category of underlying credits.
Competition
ACE Financial Services faces direct and indirect competition from equivalently rated financial institutions on all lines of business. Differentiating factors include pricing, customer service, market perception and historical performance.
In its financial guaranty business, ACE Financial Services faces competition indirectly from other highly rated financial institutions that provide capital substitutes to the primary financial guaranty insurance companies. Competition is also a function of the ease with which primary insurers can raise capital in the private or public equity markets. Increased primary capital increases the ability of insurers to retain risk and the need for reinsurance in general is diminished.
For mortgage reinsurance business, competition comes from some non-U.S. mortgage reinsurers and, in a minor way, from U.S. multiline insurers. In the title business, the large title insurers have traditionally provided reinsurance capacity.
In its trade credit and life & annuity businesses, the Company faces a high degree of competition from traditional participants in these markets, including large multiline insurers and reinsurers.
Claims Administration
ACE Financial Services operates an internal claims management, administration and payment function. Use of external actuarial and legal consultants is made where this is deemed prudent by management.
Unpaid Losses And Loss Expenses
The Company establishes reserves for unpaid losses and loss expenses, which are estimates of future payments of reported and unreported claims for losses and related expenses, with respect to insured events that have occurred. The process of establishing reserves for property and casualty claims continues to be a complex and imprecise process, requiring the use of informed estimates and judgments. The Company's estimates and judgments may be revised as additional experience and other data become available and are reviewed, as new or improved methodologies are developed or as current laws change. Any such revisions could result in future changes in estimates of losses or reinsurance recoverables, and would be reflected in the Company's results of operations in the period in which the estimates are changed.
13
The Company has considered asbestos and environmental claims and claims expenses in establishing the liability for unpaid losses and loss expenses. The Company has developed reserving methods which incorporate new sources of data with historical experience to estimate the ultimate losses arising from asbestos and environmental exposures. The reserves for asbestos and environmental claims and claims expenses represent management's best estimate of future loss and loss expense payments and recoveries which are expected to develop over the next several decades. The Company continuously monitors evolving case law and its effect on environmental and latent injury claims. While reserving for these claims is inherently uncertain, the Company believes that the reserves carried for these claims are adequate based on known facts and current law.
The Company continually evaluates its estimates of reserves in light of developing information and in light of discussions and negotiations with its insureds. While the Company is unable at this time to determine whether additional reserves, (which could have a material adverse effect upon the financial condition, results of operations and cash flows of the Company) may be necessary in the future, the Company believes that its reserve for unpaid losses and loss expenses are adequate as of December 31, 2000.
The Company engages independent actuarial firms to review the methods and assumptions used by the Company in estimating the unpaid losses and loss expenses. As stated in its actuarial review, the firm believes that the methods and assumptions used by the Company are reasonable and appropriate for use in setting loss reserves at December 31, 2000.
Losses and loss expenses are charged to income as incurred. The reserve for unpaid losses and loss expenses represents the estimated ultimate losses and loss expenses less paid losses and loss expenses and is comprised of case reserves, loss expense reserves and IBNR loss reserves. During the loss settlement period, which can be many years in duration, additional facts regarding individual claims and trends often will become known. As these become apparent, case reserves may be adjusted by allocation from the IBNR loss reserve without any change in the overall reserve. In addition, application of statistical and actuarial methods may require the adjustment of the overall reserves upward or downward from time to time. The final liability, nonetheless, may be significantly greater than or less than the prior estimates.
The "Analysis of Losses and Loss Expenses Development" shown below presents the subsequent development of the estimated year-end liability for unpaid losses and loss expenses at the end of each of the years in the nine year period ended September 30, 1998 as well as for the fifteen month period ended December 31, 1999 and the year ended December 31, 2000. Prior to December 31, 1999, the unpaid losses and loss expenses are in respect of annual periods ending on September 30 of each year. The top line of the table shows the estimated liability for unpaid losses and loss expenses recorded at the balance sheet date for each of the indicated periods. This liability represents the estimated amount of losses and loss expenses for claims arising from all prior years' policies and agreements that were unpaid at the balance sheet date, including IBNR loss reserves. The upper (paid) portion of the table presents the amounts paid as of subsequent periods on those claims for which reserves were carried as of each balance sheet date. The lower portion of the table shows the re-estimated amount of the previously recorded liability as of the end of each succeeding period. Several aspects of the Company's operations, including the low frequency and high severity of losses in the high excess layers in which the Company provides insurance, complicate the actuarial reserving techniques utilized by the Company. Accordingly, the Company expects that ultimate losses and loss expenses attributable to any single underwriting year will be either more or less than the incremental changes in the lower portion of the following table.
Management believes, however, that the losses and loss expenses which have been recorded through December 31, 2000, are adequate to cover the ultimate cost of losses and loss expenses incurred through December 31, 2000, under the terms of the Company's policies and agreements. Since such provisions are necessarily based on estimates, the ultimate losses and loss expenses may be significantly greater or less than such amounts.
14
 
Analysis of Losses and Loss Expenses Development

                                                       Years ended September 30th
                   --------------------------------------------------------------------------------------------------------
                     1990        1991        1992         1993        1994        1995        1996       1997       1998
                   ---------  ----------  -----------  ----------  ----------  ----------  ---------- ---------- ----------
                                                                (in thousands of U.S. dollars)
Unpaid...........  $ 319,230  $  470,832  $   813,849  $  766,402  $1,176,215  $1,489,293  $1,892,302 $2,006,873 $2,678,341
Paid (Cumulative)
 As Of:
 1 year later....    181,525     149,493      340,836     126,566      66,888      80,080     358,713    337,422  1,017,822
 2 years later...    207,587     490,116      465,074     183,439     121,628     414,419     663,087    925,361  1,480,173
 3 years later...    531,502     590,847      517,366     228,638     451,746     696,470   1,247,652  1,066,253
 4 years later...    601,811     611,133      551,887     558,625     725,799   1,259,344   1,372,345
 5 years later...    622,097     627,691      881,198     837,515   1,285,599   1,379,586
 6 years later...    631,371     764,607    1,150,628   1,398,270   1,368,664
 7 years later...    641,060     843,283    1,672,772   1,481,328
 8 years later...    664,896     988,087    1,755,791
 9 years later...    727,175   1,067,055
 10 years later..    737,689
                    Fifteen
                     Month
                     period   Year ended
                   ended Dec. December 31
                    31 1999      2000
                   ---------- -----------
Unpaid...........  $8,908,817 $9,330,950
Paid (Cumulative)
 As Of:
 1 year later....   2,631,171
 2 years later...
 3 years later...
 4 years later...
 5 years later...
 6 years later...
 7 years later...
 8 years later...
 9 years later...
 10 years later..	

                                                       Years ended September 30th
                   --------------------------------------------------------------------------------------------------------
                     1990        1991        1992         1993        1994        1995        1996       1997       1998
                   ---------  ----------  -----------  ----------  ----------  ----------  ---------- ---------- ----------
                                                                (in thousands of U.S. dollars)
Liability Re-
 estimated
 As Of:
 End of year.....  $ 319,230  $  470,832  $   813,849  $  766,402  $1,176,215  $1,489,293  $1,892,302 $2,006,873 $2,678,341
 1 year later....    475,647     706,960      813,849     966,402   1,177,292   1,489,293   1,892,302  1,989,744  2,753,017
 2 years later...    665,533     706,960    1,085,012   1,067,987   1,227,538   1,489,293   1,881,403  1,914,936  2,748,013
 3 years later...    665,533     874,368    1,234,462   1,211,424   1,386,571   1,480,426   1,824,449  1,878,656
 4 years later...    663,480     888,387    1,412,495   1,429,990   1,401,329   1,495,443   1,852,466
 5 years later...    680,119     940,513    1,666,770   1,442,523   1,472,394   1,588,975
 6 years later...    711,671   1,113,662    1,703,103   1,580,022   1,530,195
 7 years later...    768,935   1,099,102    1,852,125   1,642,465
 8 years later...    771,018   1,142,511    1,916,405
 9 years later...    808,239   1,207,260
 10 years later..    870,040
Cumulative
 Redundancy
 /(deficiency)...   (550,810)   (736,428)  (1,102,556)   (876,063)   (353,980)    (99,682)     39,836    128,217    (69,672)
                    Fifteen
                     Month
                     period   Year ended
                   ended Dec. December 31
                    31 1999      2000
                   ---------- -----------
Liability Re-
 estimated
 As Of:
 End of year.....   8,908,817  9,330,950
 1 year later....   8,848,453
 2 years later...
 3 years later...
 4 years later...
 5 years later...
 6 years later...
 7 years later...
 8 years later...
 9 years later...
 10 years later..
Cumulative
 Redundancy
 /(deficiency)...      60,364         --	

Net unpaid loss and loss expenses.................................. $ 9,330,950
Reinsurance recoverable on unpaid losses........................... $ 8,057,444
                                                                    -----------
Gross unpaid loss and loss expenses................................ $17,388,394
                                                                    ===========	

Notes to Analysis of Losses and Loss Expenses
(1) On July 2, 1999, the Company changed its fiscal year-end from September 30 to December 31. As a result, the information provided above for the 1999 year is actually for the 15 month period from October 1, 1998, through December 31, 1999. All prior periods represent years ending on September 30.
(2) The Company does not consider it appropriate to extrapolate future deficiencies or redundancies based upon the above tables, as conditions and trends that have affected development of the liability in the past may not necessarily occur in the future.
(3) In 1994, the Company recorded an additional reserve of $200 million, related primarily to developments in breast implant litigation, in respect of years prior to 1994.
(4) In 1992, the Company began applying actuarial and statistical methods to estimate ultimate expected losses and loss expenses for all of the Company's business since inception. At September 30, 1994, the Company changed its method of allocating IBNR to accident and balance sheet years. This allocation assigns IBNR to years based upon various risk factors including immaturity of year, amount of premium earned in that year, and development of known claims. As the Company's loss experience is characterized as low frequency, and high severity, IBNR is considered a bulk reserve, and is therefore available for loss development from whichever year it may arise. Prior to 1994, the allocation of IBNR to accident and balance sheet years was based upon a loss distribution indicated by the expected loss method employed by the Company. Losses paid for the year ending September 30, 1998, include an amount of $26 million, which is expected to be recovered from an insured.
(5) On November 1, 1993, the Company acquired CODA, on July 1, 1996, the Company acquired ACE Tempest Re and on July 9, 1998, the Company acquired Tarquin. The table has been restated to include CODA, ACE Tempest Re and Tarquin's loss experience as if each of these companies had been wholly owned subsidiaries of the Company from their inception. On January 2, 1998, the Company acquired ACE US Holdings, on April 1, 1998, the Company acquired CAT Limited and on July 2, 1999, the Company acquired ACE INA. The unpaid loss information for ACE US Holdings, CAT Limited and ACE INA has been included in the table commencing in the year of acquisition. As a result, 1999 includes net reserves of $6.8 billion related to ACE INA at the date of acquisition and subsequent development thereon.
(6) The "cumulative redundancy/deficiency" shown in the table represents the aggregate change in the reserve estimates over all subsequent years. The amounts noted are cumulative in nature; that is, an increase in loss estimate for prior year losses generates a deficiency in each intermediate year. For instance, a deficiency recognized in 1994 relating to losses incurred during the year ending September 30, 1992, would be included in the cumulative deficiency amount for each year from September 30, 1992, to the year the loss was recognized (1994), yet the deficiency would be reflected in operating results only in 1994. An analysis of the changes in aggregate reserves for losses and loss expenses under GAAP is presented below. Since reserves are necessarily based upon estimates, the ultimate net costs may vary from the original estimates. As adjustments to these estimates become necessary, they are reflected in current operations.

15
 
Reconciliation of Unpaid Losses and Loss Expenses

                                                     Three Months
                           Year Ended   Year Ended      Ended      Year Ended
                            December     December    December 31, September 30,
                            31, 2000     31, 1999        1998         1998
                           -----------  -----------  ------------ -------------
                                     (in thousands of U.S. dollars)
Gross unpaid losses and
 loss expenses at
 beginning of period.....  $16,460,247  $ 3,678,269   $3,737,869   $2,111,670
Reinsurance recoverable
 on unpaid losses........   (7,551,430)  (1,100,464)  (1,059,528)    (104,797)
                           -----------  -----------   ----------   ----------
Net unpaid losses and
 loss expenses at
 beginning of period.....    8,908,817    2,577,805    2,678,341    2,006,873
Unpaid losses and loss
 expenses in respect of
 formerly discontinued
 operations..............    1,269,914           --           --           --
Unpaid losses and loss
 expenses assumed in
 respect of reinsurance
 business acquired.......      169,537      183,774           --        6,403
Unpaid losses and loss
 expenses assumed in
 respect of acquired
 companies (net of
 reinsurance recoverable
 of $6,345,679 in 1999
 and $761,618 in 1998)...           --    6,940,593           --      731,949
                           -----------  -----------   ----------   ----------
    Total................   10,348,268    9,702,172    2,678,341    2,745,225
                           ===========  ===========   ==========   ==========
Net losses and loss
 expenses incurred in
 respect of losses
 occurring in:
  Current period.........    2,996,429    1,601,278      126,139      534,021
  Prior periods..........      (60,364)      38,265      (14,970)     (17,129)
                           -----------  -----------   ----------   ----------
    Total................    2,936,065    1,639,543      111,169      516,892
                           ===========  ===========   ==========   ==========
Net losses and loss
 expenses paid in respect
 of losses occurring in:
  Current period.........    1,205,110      916,848       24,977      243,753
  Prior periods..........    2,631,171    1,509,638      191,473      337,422
                           -----------  -----------   ----------   ----------
    Total................    3,836,281    2,426,486      216,450      581,175
                           ===========  ===========   ==========   ==========
Foreign currency
 revaluation.............     (117,102)      (6,412)       4,745       (2,601)
                           ===========  ===========   ==========   ==========
Net unpaid losses and
 loss expenses at end of
 period..................    9,330,950    8,908,817    2,577,805    2,678,341
Reinsurance recoverable
 on unpaid losses........    8,057,444    7,551,430    1,100,464    1,059,528
                           -----------  -----------   ----------   ----------
Gross unpaid losses and
 loss expenses at end of
 period..................  $17,388,394  $16,460,247   $3,678,269   $3,737,869
                           ===========  ===========   ==========   ==========	

Losses and loss expenses for 1999 include incurred losses for ACE INA from July 2, 1999, the date of acquisition. With respect to the analysis of incurred and paid losses for ACE INA for the 1999 period, all losses incurred and paid, on losses occurring in the period January 1, 1999, through December 31, 1999, have been included as current year activity in 1999.
Incurred losses for the year ended December 31, 2000, were impacted by favorable development of reserves from prior periods primarily from ACE Tempest Re, ACE USA and ACE Bermuda partially offset by unfavorable development in ACE Financial Services.
16
Investments
The Company's principal investment objective is to ensure that funds will be available to meet its primary insurance and reinsurance obligations. Within this broad liquidity constraint, the investment portfolio's structure will seek to maximize return subject to specifically approved guidelines of overall asset classes, credit quality, liquidity, and volatility of expected returns. As such, the Company's investment portfolio is invested primarily in fixed income securities of the highest credit quality.
In June of 2000, the Company formed ACE Asset Management Inc., an operating group replacing the more traditional role of Chief Investment Officer. The formation of this group underscores the importance the Company places on the growth and complexity of ACE's international investment activity. ACE Asset Management operates principally to guide and direct the investment process of the ACE Group of Companies. In this regard, the Asset Management Group:
. Conducts formal asset allocation modeling for each of the ACE subsidiaries, providing formal recommendations for the portfolio's structure
. Establishes recommended investment guidelines that are appropriate to the prescribed asset allocation targets
. Provides the analysis, evaluation, and selection of outside investment advisors to the ACE Group
. Establishes and develops investment related analytics to enhance portfolio engineering and risk control
. Monitors and aggregates the correlated risk of the overall investment portfolio
. Provides governance over the investment process for each of the ACE operating companies to ensure consistency of approach and adherence to investment guidelines
For the investment portfolio, the Company determines allowable targeted asset allocation and ranges for each of the operating segments. These asset allocation targets are derived from sophisticated asset and liability modeling that measures correlated histories of returns and volatilities of returns. Allowable investment classes are further refined through analysis of the Company's operating environment, including expected volatility of cash flows, overall capital position, regulatory and rating agency considerations.
The Finance Committee of the Board of Directors reviews the Company's investment policy to ensure that it is consistent with the Company's overall goals, strategies and objectives. Overall investment guidelines are approved by the Finance Committee to ensure appropriate levels of portfolio liquidity, credit quality, diversification, and volatility are maintained. In addition, the Finance Committee systematically reviews the portfolio's exposures to capture any potential violations of investment guidelines.
Within the guidelines and asset allocation parameters established by the Company, individual investment committees of the operating segments determine tactical asset allocation. Additionally, these committees review all investment related activity that effects their operating company, including the selection of outside investment advisors, proposed asset allocations changes, and the systematic review of investment guidelines.
For additional information regarding the investment portfolio, including breakdowns of the sector and maturity distributions, see Note 4 of the Consolidated Financial Statements included in the 2000 Annual Report to Shareholders.
Regulation
ACE Limited's insurance and reinsurance subsidiaries are subject to regulation and supervision by the local authority in the countries or states in which they do business. The extent of such regulation most commonly has its source in statutes which delegate regulatory, supervisory and administrative power to a department of insurance.
17
Bermuda Operations
In Bermuda, the Company's insurance subsidiaries are regulated by the Insurance Act 1978 (as amended by the Insurance Amendment Act 1995) and related regulations (the "Act"). The Act imposes on Bermuda insurance companies solvency and liquidity standards; auditing and reporting requirements; and grants the Minister of Finance powers to supervise, investigate and intervene in the affairs of insurance companies. Significant requirements include the appointment of an independent auditor and the appointment of a loss reserve specialist.
United Kingdom and Lloyd's Regulation
The Company, certain of its UK subsidiaries and some staff employed within the Lloyd's operations are currently subject to the regulatory jurisdiction of the Council of Lloyd's (the "Council"). This jurisdiction arises by virtue of the Company being a controller of each of the Lloyd's managing agencies and the Corporate Members in which it has an interest. Certain other subsidiaries have also been approved as controllers, and are similarly subject to Lloyd's jurisdiction.
Under English law, there are restrictions on the interests Lloyd's brokers or parties connected to Lloyd's brokers may have in Lloyd's managing agents or certain of their related entities. In July 2000, responsibility for the regulatory oversight of Lloyd's brokers passed to the General Insurance Standards Council ("GISC"). Lloyd's has also introduced an accreditation scheme with effect from 1 January 2001, for brokers which effectively opens up the Lloyd's broker franchise. Lloyd's will continue to maintain a register of Lloyd's brokers and the restrictions outlined above will pertain for the foreseeable future. However, relaxation of the requirement to use Lloyd's brokers to place substantially all classes of business is being considered. It is likely that from 2001 the current requirement in relation to outwards reinsurance will be relaxed.
Under legislation enacted during 2000, the Financial Services Authority ("FSA") will become the single UK statutory regulator to supervise securities, banking and insurance business, including Lloyd's. The FSA will have wide powers to make rules, and it is envisaged these will replace the existing statutory and self regulatory arrangements relevant to these areas. Lloyd's will retain certain self regulatory responsibilities but the exact division of such responsibilities as between Lloyd's and the FSA is still in the process of being finalised. It is envisaged that the effective date for the transfer of general regulatory responsibility to the FSA will be in the fall of 2001. The Company and its subsidiaries will seek any necessary authorizations and permissions in relation to its Lloyd's operations as may be required under any new regulatory framework.
Regulation of Lloyd's Entities in the United States
Direct business can be written on either a licensed or a non-admitted (which includes surplus lines) basis. Licensed insurers are subject to regulation of both solvency margin and business practices such as premium rate and policy form control. Non-admitted insurers are not subject to rate and form control in most states, but regulators manage the entry to the surplus lines market by imposing minimum solvency and trust requirements for insurers wishing to be deemed "eligible" surplus lines insurers.
Insurer licensing requirements do not apply to reinsurers and as a result both licensed and non-admitted reinsurers may write reinsurance in the U.S.
The trading status of underwriters at Lloyd's in the U.S. is supported by a unique trust fund structure. The trust funds were reviewed and restructured in August 1995 in consultation with the New York Insurance Department, which acts as the domiciliary commissioner for Lloyd's U.S. trust funds held in the state of New York.
Prior to August 1995, all U.S. dollar premiums were deposited and held in the Lloyd's American Trust Fund ("LATF"), regardless of the actual situs of the risk. The LATF continues to support risks for U.S. business incepting prior to August 1995, but the trust fund and accounting arrangements have changed for U.S. dollar business incepting after August 1, 1995. These include the creation of a Lloyd's Dollar Trust Fund in the
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UK and a series of deposit trust funds in the U.S. There are additional trust fund arrangements in certain U.S. states. Lloyd's and the US regulators continue to review the basis of Lloyd's syndicate US trading arrangements.
ACE International
The extent of insurance regulation varies significantly among the countries in which ACE International conducts its operations. While all such countries impose requirements for licensing, solvency, auditing and financial reporting, such requirements in these and other areas can differ substantially. For example:
. In some jurisdictions insurers are required to prepare and file quarterly financial reports, and in others only annual reports;
. Some jurisdictions require broker or agent involvement in the sales of insurance products, whereas in others such involvement is optional;
. Restrictions on use of foreign reinsurers vary;
. In some jurisdictions policy forms and rates are regulated and must be filed for certain lines of business, whereas in others they are unregulated;
. Some jurisdictions require periodic on-site examinations by insurance authorities, whereas others do not; and
. The ability to remit dividends is restricted more in some jurisdictions than in others.
Significant variations can also be found in the size, structure and resources of the local regulatory departments that oversee insurance activities. There can also be notable differences among similar departments in the rigor of regulatory enforcement.
ACE International operates through both subsidiaries and branches, the latter of which generally have reduced local capital requirements, and certain ACE International companies are jointly owned due to legal requirements for local ownership. Regardless of the corporate structure, ACE International companies can face greater restrictions than their domestic competitors, due to multinational application of U.S. laws and otherwise. Operational challenges can include discretionary licensing procedures, compulsory cessions of reinsurance, local retention of funds and records, and foreign exchange controls.
The complex regulatory environments in which ACE International operates are subject to change and are regularly monitored.
Operations in the United States of America
Although at the present time there is limited federal regulation of the insurance business in the U.S., the U.S. insurance subsidiaries are subject to extensive regulation in the states in which they do business. The laws of the various states establish supervisory agencies with broad authority to regulate, among other things: licenses to transact business, soliciting business, advertising, rates for certain business, policy language, underwriting and claims practices, transactions with affiliates, reserve adequacy, dividends, and insurer solvency. In addition, the U.S. insurance subsidiaries are subject to judicial decisions that define the risks and benefits for which insurance is sought and provided. These include judicial interpretations of the nature of the insured risk in such areas as product liability and environmental coverages.
Regulation varies from state to state but generally requires that each primary insurance company obtain a license from the department of insurance of a state to conduct business in that state. Regulations generally require insurance and reinsurance companies to furnish information concerning activities which may materially affect the operations, management or financial condition and solvency of the company. A reinsurance company does not generally need an insurance license to reinsure a U.S. ceding company. However, for a U.S. ceding
19
company to obtain financial statement credit for reinsurance ceded, the reinsurer must obtain an insurance license or accredited status from the cedent's state of domicile or must post collateral to support the liabilities ceded. In addition, regulations for reinsurers vary somewhat from primary insurers in that reinsurers are typically not subject to regulator approval of insurance policy forms or the rates agreed to between ceding insurers and their reinsurers.
The U.S. insurance subsidiaries are required to file detailed annual and quarterly reports with state insurance regulators in each of the states in which they do business. Such annual and quarterly reports are required to be prepared on a calendar year basis. In addition, the U.S. insurance subsidiaries' operations and accounts are subject to examination at regular intervals by state regulators. The respective reports filed in accordance with applicable insurance regulations with respect to the most recent periodic examinations of the U.S. insurance subsidiaries contained no material adverse findings.
Statutory surplus is an important measure utilized by the regulators and rating agencies to assess the Company's U.S. insurance subsidiaries' ability to support business operations and provide dividend capacity. The Company's U.S. insurance subsidiaries are subject to various state statutory and regulatory restrictions that limit the amount of dividends that may be paid without prior approval from regulatory authorities. These restrictions differ by state, but are generally based on calculations incorporating statutory surplus, statutory net income, and/or investment income.
State insurance regulators have adopted Risk Based Capital ("RBC") requirements that are applicable to the U.S. insurance subsidiaries. These RBC requirements are designed to monitor capital adequacy and to raise the level of protection that statutory surplus provides for policyholders. The RBC formula provides a mechanism for the calculation of an insurance company's Authorized Control Level ("ACL") RBC amount. The initial RBC level which triggers regulatory action is known as the Company Action Level. Failure to achieve this level of RBC, which occurs if policyholders' surplus falls below 200 percent of the ACL, requires the insurance company to submit a plan of corrective action to the relevant insurance commissioner. Based on the RBC formula, at December 31, 1999, the policyholders' surplus of each of the ongoing U.S. insurance subsidiaries was higher than the Company Action Level.
There are several additional progressive RBC failure levels, which trigger more stringent regulatory action. An insurance commissioner may allow a property and casualty company at or below the mandatory control level that is writing no business and is running off its existing business to continue its run-off. The Company's Brandywine subsidiary is running off their liabilities consistent with the terms of an Order by the Commissioner of Pennsylvania which includes periodic reporting obligations to the Pennsylvania Insurance Department, as the Commission has determined that these subsidiaries have sufficient assets to meet their obligations.
In November 1999, the U.S. Congress passed the Gramm-Leach-Bliley Act ("GLBA"), financial modernization legislation that reshapes the regulation of the financial services industry in the United States. GLBA repeals provisions of the Glass-Steagall Act and Bank Holding Company Act that had prevented affiliation between banks, broker-dealers and insurers. This legislation defines regulatory supervisory responsibility for newly created Financial Holding Companies. The law purports largely to preserve functional regulation of insurance companies and agents by state insurance departments. However, until a number of Federal agencies finish issuing regulations implementing their new regulatory authority over Financial Holding Companies, it is not possible to predict the exact magnitude of the impact of GLBA on ACE. Further, until the full extent of the integration of banking, securities and insurance businesses is known, it is impossible to predict the impact of this law on competition in the markets in which ACE operates.
Regulations regarding Non-U.S. Operations in the United States
The Company and its non-U.S. insurance subsidiaries, excluding its Lloyd's operations, are not admitted to do business as insurers in any jurisdiction in the U.S. Each state in the U.S. licenses insurers and prohibits, with some exceptions, the sale of insurance by non-admitted insurers within its jurisdictions.
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Many states impose a premium tax (typically 2 percent to 4 percent of gross premiums) on insureds obtaining insurance from non-admitted foreign insurers, such as ACE Bermuda. The premiums charged by the non-U.S. insurer do not include any U.S. state premium tax. Each insured is responsible for determining whether it is subject to any such tax and for paying such tax as may be due.
The U.S. Internal Revenue Code also imposes on policyholders an excise tax on insurance and reinsurance premiums paid to foreign insurers or reinsurers with respect to risks located in the United States. The rates of tax applicable to premiums paid to Bermuda domiciled companies are 4 percent for insurance premiums and 1 percent for reinsurance premiums.
There can be no assurance that new or additional legislation in the U.S. will not be proposed and enacted that has the effect of subjecting the Company's non-U.S. insurance subsidiaries, including its Lloyd's operations to regulation in the U.S.
Tax Matters
Corporate Income Tax
ACE Limited is a Cayman Islands corporation that operates as a holding company with offices only in Bermuda and does not pay U.S. corporate income taxes (other than withholding taxes on dividends or on intercompany interest income) on the basis that it is not engaged in a trade or business in the U.S. However, there can be no assurance that the Internal Revenue Service ("IRS") will not contend to the contrary. If ACE Limited were subject to U.S. income tax, there could be a material adverse effect on the Company's shareholders' equity and earnings. ACE Limited and its Bermuda-based insurance and reinsurance subsidiaries do not file U.S. income tax returns reporting income subject to U.S. income tax since they do not conduct business within the U.S. However, ACE Limited and its Bermuda-based insurance and reinsurance subsidiaries have filed protective tax returns reporting no U.S. income to preserve their ability to deduct their ordinary and necessary business expenses should the IRS successfully challenge their contention that none of their income is subject to a net income tax in the U.S.
Under current Cayman Islands law, ACE Limited is not required to pay any taxes on its income or capital gains. ACE Limited has received an undertaking that, in the event of any taxes being imposed, ACE Limited will be exempted from taxation in the Cayman Islands until the year 2013.
Under current Bermuda law, ACE Limited and its Bermuda subsidiaries are not required to pay any taxes on its income or capital gains. ACE Limited and the Bermuda subsidiaries have received an undertaking from the Minister of Finance in Bermuda that, in the event of any taxes being imposed, the Company will be exempt from taxation in Bermuda until March 2016.
Income from the Company's operations at Lloyd's is subject to United Kingdom corporation taxes. Lloyd's is required to pay U.S. income tax on U.S. connected income ("U.S. income") written by Lloyd's syndicates. Lloyd's has a closing agreement with the IRS whereby the amount of tax due on this business is calculated by Lloyd's and remitted directly to the IRS. These amounts are then charged to the personal accounts of the Names/Corporate Members in proportion to their participation in the relevant syndicates. The Company's Corporate Members are subject to this arrangement but, as U.K. domiciled companies, will receive U.K. corporation tax credits for any U.S. income tax incurred up to the value of the equivalent U.K. corporation income tax charge on the U.S. income.
ACE INA, ACE US Holdings and ACE Financial Services are subject to income taxes imposed by U.S. authorities and file U.S. tax returns. Certain international operations of the Company are also subject to income taxes imposed by the jurisdictions in which they operate.
21
Related Person Insurance Income
Each U.S. person who beneficially owns Ordinary Shares of the Company (directly or through foreign entities) on the last day of a non-U.S. insurance company subsidiary's fiscal year will have to include in such person's gross income for U.S. tax purposes a proportionate share (determined as described herein) of the related person insurance income ("RPII") of such insurance company subsidiary if the RPII of such insurance company subsidiary, determined on a gross basis, is 20 percent or more of that insurance company subsidiary's gross insurance income in such fiscal year. RPII is income attributable to insurance policies where the direct or indirect insureds are U.S. shareholders or are related to U.S. shareholders of the Company. RPII may be includible in a U.S. shareholder's gross income for U.S. tax purposes regardless of whether or not such shareholder is an insured.
For the calendar year ended December 31, 2000, the Company believes that gross RPII of each of its insurance company subsidiaries was below 20 percent for the year. Although no assurances can be given, the Company anticipates that gross RPII of each of its non-U.S. insurance company subsidiaries will be less than 20 percent of each such subsidiary's gross insurance income for subsequent years and the Company will endeavor to take such steps as it determines to be reasonable to cause its gross RPII to remain below such level.
The RPII provisions of the Internal Revenue Code of 1986, as amended (the "Code"), have never been interpreted by the courts. Regulations interpreting the RPII provisions of the Code exist only in proposed form, having been proposed on April 16, 1991. It is not certain whether these regulations will be adopted in their proposed form or what changes or clarifications might ultimately be made thereto or whether any such changes, as well as any interpretation or application of RPII by the IRS, the courts, or otherwise, might have retroactive effect.
Employees
At December 31, 2000, the Company employed a total of 7,933 persons. Approximately 915 of the Company's employees are represented by various collective bargaining agreements, all of whom are outside the U.S., United Kingdom and Bermuda. Of these employees 298 are employed in the Far East and 565 in Europe. The remaining employees are in various countries in Latin America and Asia Pacific.

                                       Australia
             North                       & New          Asia          Latin
Bermuda     America       Europe        Zealand        Pacific       America       Total
-------     -------       ------       ---------       -------       -------       -----
  234        4,533        1,445           186           1,058          477         7,933	

Item 2. Properties
The Company operates from offices in almost 50 countries around the world. In Bermuda, the Company leases its principal offices from a joint venture company in which the Company has a 40 percent interest and there is an agreement with the joint venture partner which ensures the Company's ability to occupy a portion of the building until 2011. The Company is currently building a new corporate headquarters in Bermuda that will house the majority of its Bermuda-based operations. This facility will be available during 2001. As part of the Company's acquisition of ACE INA, ACE assumed the lease of Two Liberty Place, in Philadelphia, which consists of approximately 1.25 million total square feet, and various other leases and properties in the U.S. and other countries. The majority of all office facilities throughout the world, that are occupied by the Company and its subsidiaries, are leased. The Company is not dependent on its facilities to conduct business.
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Item 3. Legal Proceedings
The Company's insurance subsidiaries are subject to claims litigation involving disputed interpretations of policy coverages and in some jurisdictions, direct actions by allegedly injured persons seeking damages from policyholders. These lawsuits involving claims on policies issued by the Company's subsidiaries which are typical to the insurance industry in general and in the normal course of business, are considered in the Company's loss and loss expense reserves which are discussed in the unpaid losses and loss expenses discussion. In addition to claims litigation, the Company and its subsidiaries are subject to lawsuits and regulatory actions in the normal course of business that do not arise from or directly relate to claims on insurance policies. This category of business litigation typically involves, inter alia, allegations of underwriting errors or misconduct, employment claims, regulatory activity or disputes arising from the Company's business ventures. While the outcomes of the business litigation involving ACE cannot be predicted with certainty at this point, ACE is disputing and will continue to dispute allegations against it that are without merit and believes that the ultimate outcomes of matters in this category of business litigation will not have a material adverse effect on its financial condition, future operating results or liquidity.
Item 4. Submission Of Matters To A Vote Of Security Holders
No matters were submitted to a vote of stockholders during the fourth quarter of the fiscal year covered by this report.
23
 
EXECUTIVE OFFICERS OF THE COMPANY
The table below sets forth the names, ages, positions and business experience of the executive officers of the Company.

Name                      Age Position
----                      --- --------
Brian Duperreault........  53 Chairman, Chief Executive Officer & Director

Donald Kramer............  63 Vice Chairman and Director

Dominic J. Frederico.....  47 Group President and Chief Executive Officer,
                              U.S. and Bermuda Group and President and Chief
                              Operating Officer, ACE Limited

John Engestrom...........  58 President and Chief Executive Officer, ACE
                              Tempest Reinsurance Company Limited

Mark Herman..............  42 President and Chief Executive Officer, ACE
                              Bermuda Insurance Ltd.

Jerome F. Jurschak.......  53 President and Chief Executive Officer, ACE
                              Financial Services

Dennis B. Reding.........  52 President and Chief Executive Officer, ACE USA

Pierre Samson............  36 President and Chief Executive Officer, ACE
                              Financial Solutions International, Ltd.

Gary Schmalzriedt........  54 President and Chief Executive Officer, ACE
                              Europe and ACE Global Markets

B. Kingsley Schubert.....  54 Executive Vice President, Global Life Insurance,
                              ACE INA Holdings, Inc.

Christopher Z. Marshall..  44 Chief Financial Officer

Peter N. Mear............  56 General Counsel & Secretary

Keith P. White...........  57 Chief Administration Officer

Robert A. Blee...........  38 Chief Accounting Officer

John C. Burville.........  53 Chief Actuary

Timothy A. Boroughs......  51 President and Chief Executive Officer, ACE Asset
                              Management, Inc.

Elizabeth Murphy.........  47 Treasurer	

Brian Duperreault has been a director of ACE since October 1994. Mr. Duperreault has served as Chairman and Chief Executive Officer of ACE since November 1999 and as Chairman, President and Chief Executive Officer of ACE from October 1994 through November 1999. Prior to joining ACE, Mr. Duperreault had been employed with American International Group ("AIG") since 1973 and served in various senior executive positions with AIG and its affiliates from 1978 until September 1994, most recently as Executive Vice President, Foreign General Insurance and, concurrently, as Chairman and Chief Executive Officer of American International Underwriters Inc., a subsidiary of AIG, from April 1994 to September 1994. Mr. Duperreault was President of American International Underwriters Inc. from 1991 to April 1994, and Chief Executive Officer of AIG affiliates in Japan and Korea from 1989 until 1991.
Donald Kramer has been a director and Vice Chairman of ACE since July 1996, following the acquisition of ACE Tempest Re. Mr. Kramer served as Chairman or Co-Chairman of the Board of Tempest from its formation in September 1993 until July 1996 and was President of ACE Tempest Re from July 1996 until 1999. ACE Tempest Re was acquired by the Company on July 1, 1996. Prior to the formation of ACE Tempest Re, he was President of Kramer Capital Corporation (venture capital investments) from March to September 1993, President of Carteret Federal Savings Bank (banking) from August 1991 to March 1993, Chairman of the Board of NAC Re Corporation (reinsurance) from June 1985 to June 1993, Chairman of the Board and
24
Chief Executive Officer of KCP Holding Company (insurance) from July 1986 to August 1991 and of its affiliates, KCC Capital Managers (insurance investments) and Kramer Capital Consultants, Inc. (insurance investments), as well as Chairman of the Board of its subsidiary, National American Insurance Company of California (insurance) from September 1988 to August 1991.
Dominic J. Frederico has served as President and Chief Operating Officer of ACE and Chairman of ACE INA since November 1999. On February 1, 2001, Mr. Frederico broadened his responsibilities by becoming Group President & Chief Executive Officer of the U.S. and Bermuda Group. Mr. Frederico has also served as Chairman, President and Chief Executive Officer of ACE INA from May 1999 through November 1999. Mr. Frederico previously served as President of ACE Bermuda since July 1997, Executive Vice President, Underwriting since December 1996, and as Executive Vice President, Financial Lines from January 1995 to December 1996. Mr. Frederico served in various capacities at AIG in Europe and the U.S. from 1982 to January 1995, most recently as Senior Vice President and Chief Financial Officer of an AIG subsidiary, with multi-regional general management responsibilities.
John Engestrom has served as President and Chief Executive Officer of ACE Tempest Re since May 1999. From 1997 to May 1999, Mr. Engestrom served as Chief Executive Officer of Liberty Re in London. From 1992 to 1997, Mr. Engestrom served as Group Chief Executive of Mercantile and General Reinsurance Company. Mr. Engestrom began his reinsurance career at Skandia where he held various positions including Chief Operating Officer Treaty division Europe, Chief Underwriting Officer North America and finally head of Reinsurance Skandia Group worldwide.
Mark Herman was appointed President and Chief Executive Officer of ACE Bermuda on February 1, 2001. Mr. Herman joined ACE in 1995 as Senior Vice President Underwriting Manager. In 1999, Mr. Herman was appointed head of the ACE Bermuda Professional Lines and Casualty Divisions. Prior to joining ACE, Mr. Herman served as Vice President and Overseas Operations Manager of Chubb & Son, Inc.
Jerome F. Jurschak joined ACE in December 1999 as President and Chief Executive Officer of ACE Financial Services when ACE acquired Capital Re. Mr. Jurschak previously served as Chief Executive Officer and President of Capital Re from 1998 to 1999. Mr. Jurschak joined Capital Re in 1987 and served as its Chief Underwriting Officer from 1987 to 1998. Prior to joining Capital Re, Mr. Jurschak was Senior Vice President and Chief Underwriting Officer of financial guaranty reinsurance for Guaranty Holdings Corporation, a subsidiary of the Old Republic Insurance Company.
Dennis B. Reding joined ACE in 1998 as President and Chief Executive Officer of ACE USA when the Company acquired Westchester Specialty Group Inc. ("WSG"). In July 1999, his role as President and Chief Executive Officer of ACE USA expanded to include the domestic operations of ACE INA. Mr. Reding previously served as President and Chief Executive Officer of WSG, a position he held since July 1993. Prior to joining WSG, Mr. Reding served in various senior positions at Fireman's Fund Insurance Company.
Pierre Samson serves as President and Chief Executive Officer of ACE Financial Solutions International, Ltd. ("ACE FSI"). ACE FSI is a subsidiary of the ACE Group of Companies that provides non-traditional insurance and finance- related solutions to international companies facing complex risk management issues. Mr. Samson joined ACE in early 1995, when a new alternative risk division was created at ACE Bermuda. Mr. Samson headed this division from 1997 until the recent creation of ACE FSI. Prior to joining ACE, Mr. Samson worked for Tillinghast, a leading firm of consulting actuaries in Bermuda and London.
Gary Schmalzriedt was appointed President and Chief Executive Officer of ACE Europe & ACE Global Markets on February 1, 2001. Previously Mr. Schmalzriedt was President and Chief Executive Officer of ACE Bermuda from July 1999 until February 2001. From 1991 to 1999, Mr. Schmalzriedt served in several senior capacities with CIGNA, most recently, in 1998, serving as Chairman and Chief Executive Officer of CIGNA Europe. Mr. Schmalzriedt originally joined CIGNA as Senior Vice President, Property Underwriting and later became responsible for managing CIGNA International's property and casualty related businesses. Prior to
25
joining CIGNA, Mr. Schmalzriedt spent nearly 20 years in various positions of increasing responsibility with AIG, including assignments in the U.K. and South Africa and most recently, Senior Vice President and Senior Underwriting Officer of American International Underwriters, where he managed AIG's foreign operations.
B. Kingsley Schubert was appointed Executive Vice President, Global Life Insurance of ACE INA Holdings, Inc on February 1, 2001. He previously served as President and Chief Executive Officer of ACE International from July 1999 until February 2001. Mr. Schubert served as President of CIGNA International Property and Casualty from January 1999 to July 1999, and as President of CIGNA International from February 1996 to January 1999. Mr. Schubert served as Senior Vice President of CIGNA International (Asia-Pacific) from March 1995 to February 1996, and as President of CIGNA Insurance Company in Japan from June 1992 to February 1996.
Christopher Z. Marshall joined ACE in 1986 and has held a number of senior positions at ACE, most recently as Chief Financial Officer since November 1992. On February 21, 2001, it was announced that Mr. Marshall would be appointed Assistant to the Chairman, Strategic Initiatives, once a successor can be named to replace him as Chief Financial Officer. Mr. Marshall previously served as Senior Vice President, Finance from January 1990 to November 1992.
Peter N. Mear has served as General Counsel and Secretary of ACE since April 1996. Mr. Mear served as Vice President and Claims Counsel of Aetna Casualty and Surety Company from February 1991 to April 1996 and Counsel and Litigation
Section Head of Aetna Life & Casualty from September 1977 to February 1991.
Keith P. White has served as Chief Administration Officer of ACE Limited since July 1, 1997. Mr. White previously served as Senior Vice President, Administration of ACE Bermuda since January 1990.
Robert A. Blee has served as Chief Accounting Officer of ACE since October 1998. Mr. Blee served as Group Controller of ACE from January 1997 to October 1998, Vice President, Finance of ACE from July 1996 to January 1997, Assistant Vice President and Assistant Controller from October 1994 to July 1996 and Chief Accountant from August 1993 to October 1994.
John C. Burville has served as Chief Actuary of ACE since January 1992. Mr. Burville served as Managing Actuarial Consultant with Tillinghast, Nelson & Warren (Bermuda) Ltd. (management consulting and actuaries) from March 1986 to December 1991.
Timothy A. Boroughs joined ACE in June 2000 as President and Chief Executive Officer of ACE Asset Management, Inc. Mr. Boroughs previously served as the Director of Fixed Income at Tudor Investment Corporation from 1997 until June 2000. From 1976 to 1997, Mr. Boroughs held several positions at Fisher, Frances Trees & Watts, as U.S. based institutional investor advisor, most recently as Managing Partner and Director, Global Leverage of Investment Activity.
Elizabeth Murphy was appointed Treasurer in January 2001. Mrs. Murphy joined ACE Tempest Re at its formation in 1993 as Vice President and Controller. From October 1995 to December 2000, Mrs. Murphy served as Senior Vice President and Chief Financial Officer of ACE Tempest Re.
26
 
PART II
Item 5. Market for the Registrant's Ordinary Shares and Related Stockholder Matters
(a) The Company's Ordinary Shares, par value $0.041666667 per share, have been listed on the New York Stock Exchange since March 25, 1993, under the symbol ACL. The symbol is being changed to ACE from ACL on March 30, 2001. On November 13, 1997, the Company declared a three-for-one split of the Company's stock. The stock split was voted on and approved by the shareholders of the company on February 6, 1998. The record date for determining those shareholders entitled to receive certificates representing additional shares pursuant to the stock split was as of close of business on February 17, 1998. Certificates representing the additional shares of stock were mailed on March 2, 1998.
The following table sets forth the high and low closing sales prices of the Company's Ordinary Shares per fiscal quarters, as reported on the New York Stock Exchange Composite Tape for the periods indicated:

                                               2000               1999
                                        ------------------ ------------------
                                          High      Low      High      Low
                                        -------- --------- -------- ---------
Quarter ending March................... $ 22 7/8 $14 11/16 $33 5/8  $25 15/16
Quarter ending June....................  30 7/16  20 1/2    34 7/8   27 3/8
Quarter ending September...............  39 3/4   27 9/16   28 7/16  16 9/16
Quarter ending December................  43 9/16  33 9/16   21 9/16  15 1/2	

The last reported sale price of the Ordinary Shares on the New York Stock Exchange Composite Tape on March 15, 2001 was $38.00.
(b) The approximate number of record holders of Ordinary Shares as of March 15, 2001 was 2,189.
(c) The following table represents dividends paid per share to shareholders of record on each of the following dates.

                                                              2000  1999
                                                              ----- -----
Shareholders of Record as of:
March 31..................................................... $0.11 $0.09
June 30...................................................... $0.13 $0.11
September 30................................................. $0.13 $0.11
December 31.................................................. $0.13 $0.11	

On April 14, 1998, the Company sold 16.5 million Ordinary Shares for net proceeds of approximately $606 million. On September 12, 2000, the Company completed the sale of 12.25 million Ordinary Shares for net proceeds of approximately $400 million.
ACE is a holding company whose principal source of income is investment income and dividends from its operating subsidiaries. The ability of the operating subsidiaries to pay dividends to ACE and the Company's ability to pay dividends to its shareholders are each subject to legal and regulatory restrictions. The declaration and payment of future dividends will be at the discretion of the Board of Directors and will be dependent upon the profits and financial requirements of the Company and other factors, including legal restrictions on the payment of dividends and such other factors as the Board of Directors deems relevant. See "Management's Discussion and Analysis of Results of Operations and Financial Condition Liquidity and Capital Resources" in the 2000 Annual Report to Shareholders filed with this Form 10-K.
Item 6. Selected Financial Data
Selected financial data for the two years ended December 31, 2000 and 1999, the three month period ended December 31, 1998, and the three years ended September 30, 1998, is incorporated by reference to page 3 of the 2000 Annual Report to Shareholders filed in Exhibit 13.1 filed with this Form 10-K.
27
 
Item 7. Management's Discussion and Analysis of Results of Operations And Financial Condition
This item is incorporated by reference to pages 32 through 50 of the 2000 Annual Report to Shareholders filed in Exhibit 13.1 filed with this Form 10-K.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
This item is incorporated by reference to page 49 of the 2000 Annual Report to Shareholders filed in Exhibit 13.1 filed with this Form 10-K.
Item 8. Financial Statements and Supplementary Data
This item is incorporated by reference to pages 51 through 93 of the 2000 Annual Report to Shareholders filed in Exhibit 13.1 filed with this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There have been no changes in nor any disagreements with accountants on accounting and financial disclosure within the two years ended December 31, 2000.
28
 
PART III
Item 10. Directors and Executive Officers of the Registrant
This item is incorporated by reference to the sections entitled "Election of Directors-Nominees for Election to Terms Expiring in 2004" and "Election of Directors-Directors Whose Terms of Office Will Continue After This Meeting" of the definitive proxy statement for the Annual General Meeting of Shareholders to be held on May 11, 2001, which involves the election of directors and will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year pursuant to regulation 14A.
Item 11. Executive Compensation
This item is incorporated by reference to the section entitled "'Executive Compensation" of the definitive proxy statement for the Annual General Meeting of Shareholders to be held on May 11, 2001, which will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year pursuant to regulation 14A.
Item 12. Security Ownership and Certain Beneficial Owners and Management
This item is incorporated by reference to the section entitled "Beneficial Ownership of Ordinary Shares" of the definitive proxy statement for the Annual General Meeting of Shareholders to be held on May 11, 2001, which will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year pursuant to regulation 14A.
Item 13. Certain Relationships and Related Transactions
This item is incorporated by reference to the section entitled "Election of Directors-Certain Business Relationships" of the definitive proxy statement for the Annual General Meeting of Shareholders to be held on May 11, 2001, which will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year pursuant to regulation 14A.
29
 
PART IV
Item 14. Exhibits, Financial Statements, Schedules And Reports On Form-8-K
(a) Financial Statements, Schedules and Exhibits
1. Financial Statements
The following is a list of financial statements filed as part of this Report, all of which have been incorporated by reference to the material in the 2000 Annual Report to Shareholders as described under Item 8 of this Report
-- Report of Independent Accountants
-- Consolidated Balance Sheets at December 31, 2000 and 1999 -- Consolidated Statements of Operations for the years ended December 31, 2000 and 1999, the three months ended December 31, 1998, and the year ended September 30, 1998
-- Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000 and 1999, the three months ended December 31, 1998, and the year ended September 30, 1998 -- Consolidated Statements of Comprehensive Income for the years ended December 31, 2000 and 1999, the three months ended December 31, 1998, and the year ended September 30, 1998 -- Consolidated Statements of Cash Flows for the years ended December 31, 2000 and 1999, the three months ended December 31, 1998, and the year ended September 30, 1998
-- Notes to Consolidated Financial Statements.
2. Financial Statement Schedules
Included in Part IV of this report.

                                                              Schedule
                                                               Number  Page
                                                              -------- ----
-- Report of Independent Accountants on financial statement
   schedules included in Form 10-K...........................           35
-- Summary of Investments....................................     I     36
-- Condensed financial information of the Registrant as of
   December 31, 2000 and 1999, and for the years ended
   December 31, 2000 and 1999, the three months ended
   December 31, 1998, and the year ended September 30, 1998..    II     37
-- Supplemental information concerning Property/Casualty
   Insurance Operations......................................    VI     40	

Other schedules have been omitted as they are not applicable to the Company, or the required information has been included in the financial statements and related notes.
3. Exhibits

2.1 Amended and Restated Agreement and Plan of Merger, dated as of October
    26, 1999, among Capital Re Corporation, ACE Limited and CapRe
    Acquisition Corp. (Incorporated by reference to Exhibit 2.1 to
    Registration Statement on Form S-4 (No. 333-90927))
2.2 First Amendment to Amended and Restated Agreement and Plan of Merger,
    dated as of November 29, 1999, among Capital Re Corporation, ACE Limited
    and CapRe Acquisition Corp. (Incorporated by reference to Exhibit 2.5 to
    Registration Statement on Form S-4 (No. 33-90927))
2.3 Acquisition Agreement, dated as of January 11, 1999, among CIGNA
    Corporation, CIGNA Holdings, Inc. and ACE Limited (Incorporated by
    reference to Exhibit 2.1 of the Form 8-K current report (Date of
    earliest event reported: July 2, 1999)	

30

 2.4   Amendment No. 1 to Acquisition Agreement, dated as of July 2, 1999,
       CIGNA Corporation, CIGNA Holdings, Inc. and ACE Limited (Incorporated
       by reference to Exhibit 2.2 of the Form 8-K current report (Date of
       earliest event reported: July 2, 1999))
 2.5   Amendment No. 2 to Acquisition Agreement, dated as of July 2, 1999,
       CIGNA Corporation, CIGNA Holdings, Inc. and ACE Limited (Incorporated
       by reference to Exhibit 2.3 of the Form 8-K current report (Date of
       earliest event reported: July 2, 1999))
 3.1   Memorandum of Association of the Company (Incorporated by reference to
       Exhibit 3.1 to Form 10-K for the year ended September 30, 1998)
 3.2   Articles of Association of the Company (Incorporated by reference to
       Exhibit 3.2 to Form 10-K for the year ended September 30, 1998)
 4.1   Memorandum of Association of the Company (see Exhibit 3.1)
 4.2   Articles of Association of the Company (see Exhibit 3.2)
 4.3   Specimen certificate representing Ordinary Shares (Incorporated by
       reference to Exhibit 3.1 to the Registration Statement on Form S-1 of
       the Company (No. 33-57206))
 4.4   Form of the Declaration of Terms of Capital Re LLC 7.65% Cumulative
       Monthly Income Preferred Shares, Series A, January 24, 1994
       (Incorporated by reference to Exhibit 4.2 to Capital Re's Registration
       Statement on Form S-3 (Reg. No. 33-72090))
 4.5   Form of Liability Assumption Agreement dated as of January 24, 1994,
       between Capital Re Corporation and Capital Re LLC (Incorporated by
       reference to Exhibit 99.2 to Capital Re's Registration Statement on
       Form S-3 (Reg. No. 33-72090))
 4.6   Form of Loan Agreement dated as of January 24, 1994, between Capital Re
       Corporation and Capital Re LLC (Incorporated by reference to Exhibit
       99.1 to Capital Re's Registration Statement on Form S-3 (Reg. NO. 33-
       72090))
 4.7   Form of Payment and Guarantee Agreement dated as of January 24, 1999,
       by Capital Re Corporation and Capital Re LLC (Incorporated by reference
       to Exhibit 4.1 to Capital Re's Registration Statement on Form S-3 (Reg.
       No. 33-72090))
10.1*  ACE Limited Annual Performance Incentive Plan (Incorporated by
       reference to Exhibit 10.13 to the Registration Statement on Form S-1 of
       the Company (No. 33-57206))
10.2*  ACE Limited Equity Linked Incentive Plan (Incorporated by reference to
       Exhibit 10.14 to the Registration Statement on Form S-1 of the Company
       (No. 33-57206))
10.3*  Amendment to ACE Limited Equity Linked Incentive Plan (Incorporated by
       reference to Exhibit 10.15 to the Registration Statement on Form S-1 of
       the Company (No. 33-57206))
10.4*  ACE Limited Employee Retirement Plan, as amended through January 1,
       1999 (Incorporated by reference to Exhibit 10.4 to Form 10-K of the
       Company for the year ended December 31, 1999)
10.5*  ACE Limited Supplement Retirement Plan (Incorporated by reference to
       Exhibit 10.25 to the Registration Statement on Form S-1 of the Company
       (No. 33-57206))
10.6*  First Amendment to ACE Limited Supplement Retirement Plan (Incorporated
       by reference to Exhibit 10.26 to the Registration Statement on Form S-1
       of the Company (No. 33-57206))
10.7*  Second Amendment to ACE Limited Supplement Retirement Plan
       (Incorporated by reference to Exhibit 10.27 to the Registration
       Statement on Form S-1 of the Company (No. 33-57206))
10.8*  Form of restricted stock award dated August 24, 1993, to ACE Limited
       Directors (Incorporated by reference to Exhibit 10.39 to Form 10-K of
       the Company for the year ended September 30, 1993)
10.9*  Employment Agreement, dated October 1, 1994, between ACE Limited and
       Brian Duperreault (Incorporated by reference to Exhibit 10.42 to Form
       10-K of the Company for the year ended September 30, 1994)
10.10* Employment Agreement, dated January 9, 1995, between ACE Limited and
       Dominic J. Frederico (Incorporated by reference to Exhibit 10.45 to
       Form 10-K of the Company for the year ended September 30, 1995)
10.11* Second amendment to ACE Limited Equity Linked Incentive Plan
       (Incorporated by reference to Exhibit 10.45 to Form 10-K of the Company
       for the year ended September 30, 1995)
10.12* ACE Limited 1995 Long Term Incentive Plan (Incorporated by reference to
       Exhibit 10.35 to Form 10-Q of the Company for the quarter ended March
       31, 1996)
10.13* Employee Stock Purchase Plan (Incorporated by reference to Exhibit
       10.36 to Form 10-Q of the Company for the quarter ended March 31, 1996)
10.14* 1995 Outside Directors Plan (Incorporated by reference to Exhibit 10.37
       to Form 10-Q of the Company for the quarter ended March 31, 1996)	

31

10.15* ACE Limited 1996 Tempest Replacement Option Plan (Incorporated by
       reference to Exhibit 10.24 to Form 10-K of the Company for the year
       ended September 30, 1996)
10.16* First Amendment of ACE Limited 1995 Long Term Incentive Plan
       (Incorporated by reference to Exhibit 10.27 to Form 10-K of the Company
       for the year ended September 30, 1996)
10.17* Third Amendment to Equity Linked Incentive Plan-Stock Appreciation
       Right Plan (Incorporated by reference to Exhibit 10.28 to Form 10-Q of
       the Company for the quarter ended March 31,1997)
10.18* First Amendment of ACE Limited 1995 Outstanding Directors Plan
       (Incorporated by reference to Exhibit 10.29 to Form 10-Q of the Company
       for the quarter ended June 30, 1997)
10.19* ACE Limited Elective Deferred Compensation Plan (Incorporated by
       reference to Exhibit 10.1 to Form 10-Q of the Company for the quarter
       ended December 31, 1997)
10.20* ACE Limited Rules of the Approved U.K. Stock Option Program
       (Incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company
       for the quarter ended December 31, 1997)
10.21  ACE US Holdings, Inc. Credit Sensitive Senior Notes due 2008 Indenture
       dated as of October 27, 1998 (Incorporated by reference to Exhibit
       10.37 of Form 10-K of the Company for the year ended September 30,
       1998)
10.22* ACE Limited 1998 Long-Term Incentive Plan (as amended through the first
       amendment) (Incorporated by reference to Exhibit 10.1 to the Form 10-Q
       of the Company for the quarter ended December 31, 1998)
10.23* ACE Limited Rules of the Approved U.K. Stock Option Program
       (Incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company
       for the quarter ended December 31, 1997)
10.24  Information Technology Services Agreement, dated as of June 29, 1999,
       among ACE INA Holdings Inc. and International Business Machines
       Corporation (Incorporated by reference to Exhibit 99.1 of the Form 8-K
       current report (Date of earliest event reported: July 2, 1999))
10.25  Remarketing and Contingent Purchase Agreement, dated June 30, 1999,
       among ACE Limited, ACE INA Holdings Inc., ACE RHINOS Trust and Banc of
       America Securities LLC (Incorporated by reference to Exhibit 99.2 of
       the Form 8-K current report (Date of earliest event reported: July 2,
       1999))
10.26  Indenture, dated as of June 15, 1999, between ACE RHINOS Trust,
       Holdings and The First National Bank of Chicago, as Trustee
       (Incorporated by reference to Exhibit 99.4 of the Form 8-K current
       report (Date of earliest event reported: July 2, 1999))
10.27  Supplemental Indenture, dated as of June 30, 1999, between ACE RHINOS
       Trust, Holdings and The First National Bank of Chicago, as Trustee
       (Incorporated by reference to Exhibit 99.5 of the Form 8-K current
       report (Date of earliest event reported: July 2, 1999)
10.28* Second Amendment of the ACE Limited 1995 Outside Directors Plan
       (Incorporated by reference to Exhibit 10.1 to the Form 10-Q of the
       Company for the quarter ended June 30, 1999)
10.29* Third Amendment of the ACE Limited 1995 Outside Directors Plan
       (Incorporated by reference to Exhibit 10.2 to the Form 10-Q of the
       Company for the quarter ended June 30, 1999)
10.30  Senior Indenture, dated as of August 1, 1999, among ACE INA Holdings,
       Inc., ACE Limited and Bank One, NA (formerly The First National Bank of
       Chicago), as trustee (Incorporated by reference to Exhibit 4.5 to
       registration statement on Form S-1 of the Company (No. 333-78841))
10.31* ACE Limited 1999 Replacement Long Term Incentive Plan (Incorporated by
       reference to Exhibit 10.1 to the Form 10-Q of the Company for the
       quarter ended September 30, 1999)
10.32  Indenture, dated as of November 30, 1999, among ACE INA Holdings, Inc.
       and Bank One Trust Company, N.A., as trustee (Incorporated by reference
       to Exhibit 10.38 to Form 10-K of the Company for the year ended
       December 31, 1999)
10.33  Supplemental Indenture No. 1, dated as of December 6, 1999, among ACE
       INA Holdings, Inc. and Bank One Trust Company, N.A., as trustee
       (Incorporated by reference to Exhibit 10.39 to Form 10-K of the Company
       for the year ended December 31, 1999)
10.34  Amended and Restated Trust Agreement, dated December 20, 1999, among
       ACE INA Holdings, Inc., Bank One Trust Company, National Association,
       as property trustee, Bank One Delaware Inc., as Delaware trustee and
       the administrative trustees named therein (Incorporated by reference to
       Exhibit 10.40 to Form 10-K of the Company for the year ended December
       31, 1999)
10.35  Indenture, dated as of December 1, 1999, among ACE INA Holdings, Inc.,
       ACE Limited and Bank One Trust Company, National Association
       (Incorporated by reference to Exhibit 10.41 to Form 10-K of the Company
       for the year ended December 31, 1999)	

32

10.36  Common Securities Guarantee Agreement, dated as of December 20, 1999
       (Incorporated by reference to Exhibit 10.42 to Form 10-K of the Company
       for the year ended December 31, 1999)
10.37  Preferred Securities Guarantee Agreement, dated as of December 20, 1999
       (Incorporated by reference to Exhibit 10.43 to Form 10-K of the Company
       for the year ended December 31, 1999)
10.38* Service Agreement between ACE London Services Limited and John Robert
       Charman dated July 9, 1998 (Incorporated by reference to Exhibit 10.44
       to Form 10-K of the Company for the year ended December 31, 1999)
10.39* Deed of Covenant dated July 9, 1998, between John Robert Charman and
       Tarquin Limited (Incorporated by reference to Exhibit 10.45 to Form 10-
       K of the Company for the year ended December 31, 1999)
10.40* Consulting Agreement dated as of January 1, 2000, between Kramer
       Capital Corp. and the Company (Incorporated by reference to Exhibit
       10.46 to Form 10-K of the Company for the year ended December 31, 1999)
10.41* Promissory note from Dominic Frederico (Incorporated by reference to
       Exhibit 10.47 to Form 10-K of the Company for the year ended December
       31, 1999)
10.42  $75 million Credit Facility (subsequently amended to $100 million)
       between Capital Re Company, Various Banks and Deutsche Bank AG, as
       Agent (Incorporated by reference to Exhibit 4.09 to the Annual Report
       on Form 10-K for Capital Re Corporation for the fiscal year ended
       December 31, 1994 (Comm. File No. 1-10995))
10.43  Reimbursement Agreement dated as of September 8, 1999, among ACE
       Limited, ACE Bermuda Insurance Ltd., ACE Tempest Reinsurance Ltd.,
       (formerly known as Tempest Reinsurance Company Limited), as account
       parties, various banks, financial institutions and other institutional
       lenders, Mellon Bank, N.A., as issuing bank, Deutsche Bank of AG, New
       York and/or Cayman Islands Branches and Fleet National Bank as
       documentation agents, and Mellon Bank, N.A. as administrative agent
       (Incorporated by reference to Exhibit 10.52 to Form 10-K of the Company
       for the year ended December 31, 1999)
10.44* ACE Limited 1999 Replacement Stock Plan (Incorporated by reference to
       Exhibit 10.54 to Form 10-K of the Company for the year ended December
       31, 1999)
10.45  Amendment dated as of January 27, 1998, to $100 Million Credit Facility
       between Capital Reinsurance Company, Various Banks and Deutsche Bank
       AG, as Agent (Incorporated by reference to Exhibit 4.11 to Form 10-K
       for the year ended December 31, 1997 for Capital Re Corporation (Comm.
       File No. 1-10995))
10.46  Amendment dated as of March 22, 1999, to $100 Million Credit Facility
       between Capital Reinsurance Company, Various Banks and Deutsche Bank
       AG, as Agent (Incorporated by reference to Exhibit 4.11 to Form 10-K
       for the year ended December 31, 1998 for Capital Re Corporation (Comm.
       File No. 1-10995))
10.47  Purchase Contract Agreement, dated as of April 12, 2000, between ACE
       Limited and The Bank of New York, acting as purchase contract agent for
       the Holders of Securities (Incorporated by reference to Exhibit 10.2 to
       Form 10-Q of the Company for the quarter ended March 31, 2000)
10.48  Remarketing Agreement, dated as of April 12, 2000, among ACE Limited,
       The Bank of New York and Merrill Lynch & Co., Merrill Lynch, Pierce,
       Fenner & Smith Incorporated (Incorporated by reference to Exhibit 10.3
       to Form 10-Q of the Company for the quarter ended March 31, 2000)
10.49  Pledge Agreement, dated as of April 12, 2000, among ACE Limited; The
       Bank of New York, as Collateral Agent, Custodial Agent and Securities
       Intermediary; and The Bank of New York, as Purchase Contract Agent
       (Incorporated by reference to Exhibit 10.4 to Form 10-Q of the Company
       for the quarter ended March 31, 2000)
10.50* ACE USA Officer Deferred Compensation Plan (as amended through January
       1, 2000) (Incorporated by reference to Exhibit 10.5 to Form 10-Q of the
       Company for the quarter ended March 31, 2000)
10.51* ACE USA Supplemental Employee Retirement Savings Plan (Incorporated by
       reference to Exhibit 10.6 to Form 10-Q of the Company for the quarter
       ended March 31, 2000)
10.52  Amendment to Reimbursement Agreement dated as of March 15, 2000, among
       ACE Limited, ACE Bermuda Insurance Ltd., ACE Tempest Reinsurance Ltd.
       (formerly known as Tempest Reinsurance Company Limited), Deutsche Bank
       AG, New York and/or Cayman Islands Branches and Fleet National Bank as
       Documentation Agents, and Mellon Bank, as Issuing Bank and
       Administrative Agent. (Incorporated by reference to Exhibit 10.9 to
       Form 10-Q of the Company for the quarter ended March 31, 2000)
10.53  Amended and Restated Five Year Credit Agreement among ACE Limited, ACE
       Bermuda Insurance Company Ltd., ACE INA Holdings, Inc. and ACE
       Financial Services, Inc., Mellon Bank, N.A., Bank of America, N.A. and
       The Chase Manhattan Bank, dated May 8, 2000 (Incorporated by reference
       to Exhibit 10.1 to Form 10-Q of the Company for the quarter ended June
       30, 2000)	

33

10.54  Amended and Restated 364 Day Credit Agreement among ACE Limited, ACE
       Bermuda Insurance Ltd., ACE Tempest Reinsurance Ltd. (formerly known as
       Tempest Reinsurance Company Limited), ACE INA Holdings Inc., ACE
       Guaranty Re Inc., Bank of America, N.A., The Chase Manhattan Bank and
       Morgan Guaranty Trust Company of New York dated May 8, 2000
       (Incorporated by reference to Exhibit 10.2 to Form 10-Q of the Company
       for the quarter ended June 30, 2000)
10.55  Third Amendment to Reimbursement Agreement amends the Reimbursement
       Agreement, dated as of September 8, 1999, and amended as of November
       30, 1999 and as of March 15, 2000, among ACE Limited, ACE Bermuda
       Insurance Ltd., ACE Tempest Reinsurance Ltd. (formerly known as Tempest
       Reinsurance Company Limited), Deutsche Bank AG, New York and/or Cayman
       Islands Branches and Fleet National Bank, as Documentation Agents, and
       Mellon Bank, N.A dated September 1, 2000 (Incorporated by reference to
       Exhibit 10.2 to Form 10-Q of the Company for the quarter ended
       September 30, 2000)
10.56  Fourth Amendment to Reimbursement Agreement which amends the
       Reimbursement Agreement, dated as of September 8, 1999, and amended as
       of November 30, 1999, as of March 15, 2000 and as of September 1, 2000,
       among ACE Limited, ACE Bermuda Insurance Ltd. ACE Tempest Reinsurance
       Ltd. (formerly known as Tempest Reinsurance Company Limited), Deutsche
       Bank AG, New York and/or Cayman Islands Branches and Fleet National
       Bank, as Documentation Agents, and Mellon Bank, N.A., as Issuing Bank
       and Administrative Agent dated as of October 5, 2000 (Incorporated by
       reference to Exhibit 10.3 to Form 10-Q of the Company for the quarter
       ended September 30, 2000)
10.57  The first amendment which amends the Amended and Restated Five Year
       Credit Agreement dated as of May 8, 2000, among ACE Limited, ACE
       Bermuda Insurance Ltd. ACE Tempest Reinsurance Ltd., (formerly known as
       Tempest Reinsurance Company Limited), ACE INA Holdings Inc. and ACE
       Financial Services, Inc., various financial institutions, and Morgan
       Guaranty Trust Company of New York, as administrative agent dated as of
       October 23, 2000 (Incorporated by reference to Exhibit 10.4 to Form 10-
       Q of the Company for the quarter ended September 30, 2000)
10.58  The first amendment which amends the Amended and Restated 364-Day
       Credit Agreement dated as of May 8, 2000, among ACE Limited, ACE
       Bermuda Insurance Ltd., ACE Tempest Reinsurance Ltd., (formerly known
       as Tempest Reinsurance Company Limited), ACE INA Holdings Inc. and ACE
       Guaranty Re Inc., various financial institutions and Morgan Guaranty
       Trust Company of New York ("MGT"), as administrative agent dated as of
       October 23, 2000 (Incorporated by reference to Exhibit 10.5 to Form 10-
       Q of the Company for the quarter ended September 30, 2000)
10.59* First Amendment to ACE Limited Employee Stock Purchase Plan
10.60* Amendment to ACE Limited Employee Retirement Plan effective as of
       January 1, 2000.
10.61  Amendment and Restatement Agreement relating to a Letter of Credit
       Facility Agreement dated November 17, 2000 among ACE Limited, ACE
       Bermuda Insurance Ltd., Citibank, N.A., as arranger, Barclays Bank plc
       and ING Barings, as co-arrangers and Citibank International plc, as
       agent
13.1   Pages 3 and 32 through 93 of the 2000 Annual Report to Shareholders
21.1   Subsidiaries of the Company
23.1   Consent of PricewaterhouseCoopers LLP	

* Management Contract or Compensation Plan
(b) Reports on Form 8-K
The Company filed a Form 8-K current report (date of earliest event reported: December 12, 2000), pertaining to legal action initiated against CIGNA Corporation for breach of contract arising from ACE's $3.45 billion acquisition of CIGNA's property and casualty business.
34
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT
SCHEDULES INCLUDED IN FORM 10-K
Our report on the consolidated financial statements of ACE LIMITED AND SUBSIDIARIES has been incorporated by reference in this Form 10-K from page 52 of the 2000 Annual Report to Shareholders of ACE Limited. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed in item 14 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as whole, present fairly, in all material respects, the information required to be included therein.
PricewaterhouseCoopers LLP
New York, New York
February 14, 2001
35
 
SCHEDULE I
SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES
ACE LIMITED AND SUBSIDIARIES
 December 31, 2000

                                        Cost or                    Amount
                                       Amortized              at which shown in
                                         Cost     Fair Value  the balance sheet
                                      ----------- ----------- -----------------
                                           (in thousands of U.S. dollars)
Fixed maturities:
Bonds:
  U.S. Treasury and agency........... $ 1,179,018 $ 1,216,544    $ 1,216,544
  Non-U.S. governments...............     277,536     284,921        284,921
  Corporate securities...............   5,450,681   5,378,203      5,378,203
  Mortgage-backed securities.........   1,689,849   1,712,949      1,712,949
  States, municipalities and
   political subdivision.............   2,043,853   2,128,692      2,128,692
                                      ----------- -----------    -----------
    Total fixed maturities...........  10,640,937  10,721,309     10,721,309
                                      =========== ===========    ===========
Equity securities:
Common stock:
  Public utilities...................      41,479      48,239         48,239
  Banks, trust and insurance
   companies.........................      53,979      72,042         72,042
  Industrial, miscellaneous and all
   other.............................     396,839     409,808        409,808
Non redeemable preferred stock.......       2,752       1,957          1,957
                                      ----------- -----------    -----------
    Total equity securities..........     495,049     532,046        532,046
                                      ----------- -----------    -----------
Other investments....................     518,130     531,116        531,116
                                      ----------- -----------    -----------
Short-term investments and cash......   1,977,853   1,977,853      1,977,853
                                      ----------- -----------    -----------
    Total investments and cash....... $13,631,969 $13,762,324    $13,762,324
                                      =========== ===========    ===========	

36
 
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ACE LIMITED AND SUBSIDIARIES
BALANCE SHEETS (Parent Company Only)
December 31, 2000 and 1999

                                                        2000         1999
                                                     -----------  -----------
                                                      (in thousands of U.S.
                                                            dollars)
Assets
Investments and cash
  Investments in subsidiaries and affiliate on
   equity basis..................................... $ 4,975,663  $ 4,438,895
  Fixed maturities..................................     402,491      201,596
  Short-term investments............................       3,247       27,503
  Other investments, at cost........................      27,715       27,850
  Cash..............................................      46,516       15,457
                                                     -----------  -----------
    Total investments and cash......................   5,455,632    4,711,301
Due from subsidiaries and affiliates, net...........     318,806      201,548
Other assets........................................      27,404       29,497
                                                     -----------  -----------
    Total assets.................................... $ 5,801,842  $ 4,942,346
                                                     ===========  ===========
Liabilities
Accounts payable and accrued liabilities............ $    37,454  $    42,979
Dividends payable...................................      33,127       23,921
Short-term debt.....................................         --       424,886
                                                     -----------  -----------
    Total liabilities...............................      70,581      491,786
                                                     -----------  -----------
Mezzanine equity....................................     311,050          --
                                                     -----------  -----------
Shareholders' equity
Ordinary Shares.....................................       9,681        9,061
Additional paid-in capital..........................   2,637,085    2,214,989
Unearned stock grant compensation...................     (29,642)     (28,908)
Retained earnings...................................   2,733,633    2,321,570
Accumulated other comprehensive income (loss).......      69,454      (66,152)
                                                     -----------  -----------
    Total shareholders' equity......................   5,420,211    4,450,560
                                                     -----------  -----------
Total liabilities, mezzanine equity and
 shareholders' equity............................... $ 5,801,842  $ 4,942,346
                                                     ===========  ===========	

37
 
SCHEDULE II (Cont'd.)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ACE LIMITED AND SUBSIDIARIES
STATEMENTS OF OPERATIONS (Parent Company Only) For the years ended December 31, 2000 and 1999, the three months ended December 31, 1998, and the year ended September 30, 1998

                                                     Three Months
                            Year Ended   Year Ended     Ended      Year Ended
                           December 31, December 31, December 31, September 30,
                               2000         1999         1998         1998
                           ------------ ------------ ------------ -------------
                                      (in thousands of U.S. dollars)
Revenues
  Investment income,
   including
   intercompany interest
   income.................   $ 36,841     $ 33,877     $  2,951     $ (12,514)
  Equity in net income of
   subsidiaries
   and affiliate..........    575,032      400,623      245,619       616,658
  Net realized gains
   (losses) on
   investments............     (1,623)      (9,354)          (4)           (6)
                             --------     --------     --------     ---------
                              610,250      425,146      248,566       604,138
Expenses
  Administrative and other
   expenses...............    (67,268)     (60,183)     (10,027)      (43,987)
                             --------     --------     --------     ---------
    Net income............   $542,982     $364,963     $238,539     $ 560,151
                             ========     ========     ========     =========	

38
 
SCHEDULE II (Cont'd.)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ACE LIMITED AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS (Parent Company Only) For the years ended December 31, 2000 and 1999, the three months ended December 31, 1998, and the year ended September 30, 1998

                                                         Three
                           Year Ended   Year Ended    Months Ended  Year Ended
                          December 31, December 31,  December 31,  September 30,
                              2000         1999          1998          1998
                          ------------ ------------  ------------- -------------
                                     (in thousands of U.S. Dollars)
Cash flows from
 operating activities
 Net income.............   $ 542,982   $   364,963     $ 238,539     $ 560,151
 Adjustments to
  reconcile net income
  to net cash provided
  by operating
  activities
  Equity in net income
   of subsidiaries and
   affiliate............    (575,032)     (400,623)     (245,619)     (616,658)
  Net realized gains
   (losses) on
   investments..........       1,623         9,354             4             6
  Amortization of
   premium/discounts on
   fixed maturities.....       (764)       (3,176)           --            --
  Amounts due to
   subsidiaries and
   affiliate, net.......      (6,914)     (113,634)       49,463       (42,585)
  Accounts payable and
   accrued liabilities..      (5,525)       37,808        (1,606)          (33)
  Accrued interest on
   advances from
   affiliate............     (14,831)      (15,353)          --        (18,250)
  Other.................       9,437       (19,430)      (10,919)        2,403
                           ---------   -----------     ---------     ---------
    Net cash flows (used
     for) from operating
     activities.........     (49,024)     (140,091)       29,862      (114,966)
                           ---------   -----------     ---------     ---------
Cash flow from investing
 activities
  Purchases of fixed
   maturities...........    (618,049)     (402,079)     (305,423)          --
  Sales of fixed
   maturities...........     449,766       467,010           --            --
  Other investments.....         135        (6,837)       12,453          (314)
  Dividends received
   from subsidiaries....     101,147       966,000       300,000       365,000
  Capitalization of
   subsidiaries.........     (27,103)   (1,160,351)          --       (856,477)
  Advances to
   affiliate............    (157,435)     (400,000)          --            --
  Repayment of advances
   to (from) affiliate..     307,435       (20,039)          --            --
  Intercompany sale of
   subsidiaries.........      82,244           --            --            --
                           ---------   -----------     ---------     ---------
    Net cash from (used
     for) investing
     activities.........     138,140      (556,296)        7,030      (491,791)
                           ---------   -----------     ---------     ---------
Cash flows from
 financing activities
  Dividends paid on
   Ordinary Shares......    (106,459)      (77,836)      (17,422)      (54,389)
  Dividends paid on
   FELINE PRIDES........     (15,254)
  Proceeds from bank
   debt.................     289,008       424,886           --        635,000
  Proceeds from exercise
   of options for
   shares...............      31,335         5,672         1,931         4,243
  Repayment of bank
   debt.................    (713,894)          --            --       (385,000)
  Proceeds from shares
   issued under ESPP....       1,234         1,151           --            955
  Advances from
   affiliates...........     125,000       330,513           --        504,600
  Proceeds from issuance
   of FELINE PRIDES.....     311,050           --            --            --
  Net proceeds from
   issuance of Ordinary
   Shares...............     400,320           --            --        605,899
  Loan repayments.......    (370,513)          --            --       (608,620)
  Issuance costs of
   FELINE PRIDES........      (9,884)          --            --            --
  Repurchase of Ordinary
   Shares...............         --            --            --       (107,644)
                           ---------   -----------     ---------     ---------
    Net cash (used for)
     from financing
     activities.........     (58,057)      684,386       (15,491)      595,044
                           ---------   -----------     ---------     ---------
  Net increase
   (decrease) in cash...      31,059       (12,001)       21,401       (11,713)
  Cash-beginning of
   period...............      15,457        27,458         6,057        17,770
                           ---------   -----------     ---------     ---------
  Cash end of period....   $  46,516   $    15,457     $  27,458     $   6,057
                           =========   ===========     =========     =========	

39
 
SCHEDULE VI
ACE LIMITED AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION CONCERNING PROPERTY/CASUALTY OPERATIONS

                                 Net                                        Losses and Loss
                               Reserves                                    Expenses Incurred   Amortization
                   Deferred   for Unpaid                                      Related to       of Deferred     Paid
                    Policy    Losses and               Net        Net     -------------------     Policy    Losses and    Net
                  Acquisition    Loss     Unearned   Premiums  Investment  Current    Prior    Acquisition     Loss     Premiums
                     Costs     Expenses   Premium     Earned     Income      Year      Year       Costs      Expenses   Written
                  ----------- ---------- ---------- ---------- ---------- ---------- --------  ------------ ---------- ----------
                                                          (in thousands of U.S. dollars)
Dec. 31, 2000...   $572,757   $9,330,950 $3,035,288 $4,534,763  $770,855  $2,996,429 $(60,364)   $650,741   $3,836,281 $4,879,354
Dec. 31, 1999...   $514,425   $8,908,817 $2,428,828 $2,485,737  $493,337  $1,601,278 $ 38,265    $338,076   $2,426,486 $2,495,348
Dec. 31, 1998
 (3 months).....   $ 67,502   $2,577,805 $  705,712 $  218,007  $ 85,095  $  126,139 $(14,970)   $ 27,812   $  216,450 $  154,103
Sept. 30, 1998..   $ 76,445   $2,678,341 $  773,702 $  894,303  $324,254  $  534,021 $(17,129)   $105,654   $  581,175 $  880,973	

40
 
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ACE Limited

                                              /s/ Christopher Z. Marshall
                                          By: _________________________________
                                                  Christopher Z. Marshall
                                                  Chief Financial Officer

March 26, 2001	

POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

              Signature                          Title                   Date
              ---------                          -----                   ----

      /s/ Brian Duperreault            Chairman, Chief Executive    March 26, 2001
______________________________________ Officer; Director
          Brian Duperreault

   /s/ Christopher Z. Marshall         Chief Financial Officer      March 26, 2001
______________________________________ (Principal Financial
       Christopher Z. Marshall         Officer)

        /s/ Robert A. Blee             Chief Accounting Officer     March 26, 2001
______________________________________ (Principal Accounting
            Robert A. Blee             Officer)

        /s/ Donald Kramer              Vice Chairman; Director      March 26, 2001
______________________________________
            Donald Kramer

       /s/ Michael G. Atieh            Director                     March 26, 2001
______________________________________
           Michael G. Atieh

      /s/ Bruce L. Crockett            Director                     March 26, 2001
______________________________________
          Bruce L. Crockett

      /s/ Roberto G. Mendoza           Director                     March 26, 2001
______________________________________
          Roberto G. Mendoza

      /s/ Meryl D. Hartzband           Director                     March 26, 2001
______________________________________
          Meryl D. Hartzband

     /s/ Robert M. Hernandez           Director                     March 26, 2001
______________________________________
         Robert M. Hernandez

        /s/ Peter Menikoff             Director                     March 26, 2001
______________________________________
            Peter Menikoff

        /s/ Thomas J. Neff             Director                     March 26, 2001
______________________________________
            Thomas J. Neff	

41

       /s/ Glen M. Renfrew             Director                     March 26, 2001
______________________________________
           Glen M. Renfrew

         /s/ Robert Ripp               Director                     March 26, 2001
______________________________________
             Robert Ripp

       /s/ Walter A. Scott             Director                     March 26, 2001
______________________________________
           Walter A. Scott

      /s/ Dermot F. Smurfit            Director                     March 26, 2001
______________________________________
          Dermot F. Smurfit

       /s/ Robert W. Staley            Director                     March 26, 2001
______________________________________
           Robert W. Staley

        /s/ Gary M. Stuart             Director                     March 26, 2001
______________________________________
            Gary M. Stuart

       /s/ Sidney F. Wentz             Director                     March 26, 2001
______________________________________
           Sidney F. Wentz	

42
 
Exhibit 10.59
FIRST AMENDMENT
OF
 ACE LIMITED EMPLOYEE STOCK PURCHASE PLAN
RESOLVED, that, by virtue and in exercise of the amending power reserved to ACE Limited ("ACE") under the ACE Limited Employee Stock Purchase Plan (the "Plan"), the Plan be and is hereby amended in the following particulars, to be effective as of the first day of the first Subscription Period beginning after June 9, 2000:
1. By deleting subsection 2.2 in its entirety and replacing it with the following new subsection 2.2:
"2.2 Participation Election. The Committee shall establish `Subscription Periods' of not longer than one year for the accumulation of funds necessary for payment of the Purchase Price (as defined in subsection 2.3) of Stock under the Plan. For any Subscription Period, an eligible employee shall become a Plan `Participant' by filing, with the Committee, a written payroll deduction authorization with respect to Compensation otherwise payable to the Participant during the period. Such payroll deductions shall be any full percentage of the Compensation of the Participant, or any specified whole dollar amount, up to but not more than 10% of his Compensation in either case. After the beginning of the Subscription Period, and except as otherwise provided in subsection 2.4, a Participant may not alter the rate of his payroll deductions for that period. Subject to the limitations of subsection 2.3, each eligible employee who has elected to become a Participant for a Subscription Period in accordance with the foregoing provisions of this subsection 2.2 shall be granted on the first day of such Subscription Period an option to purchase (at the applicable Purchase Price) on the Exercise Date (as defined in subsection 2.3) for such Subscription Period up to a number of whole shares of Stock determined by dividing such Participant's accumulated payroll deductions as of such Exercise Date by the applicable Purchase Price. Exercise of the option shall occur as provided in subsection 2.3, unless the Participant has terminated participation in the Plan prior to the Exercise Date as provided in subsection 2.4 or the Participant elects not to exercise the option as provided in subsection 2.3(b). The option shall expire on the last day of the Subscription Period."
2. By deleting Section 2.3 in its entirety and replacing it with the following new Section 2.3:
"2.3 Purchase of Stock. On the last day of each Subscription Period (the `Exercise Date'), a Participant shall become eligible to exercise his option to purchase the number of whole shares of Stock as his accumulated payroll deductions for the Subscription Period will purchase, subject to the following:
(a) The `Purchase Price' per share shall be equal to 85% of the lesser of (i) the fair market value of Stock on the first day of the Subscription Period; or (ii) the fair market value of Stock on the Exercise Date; provided, however, that in no event shall the purchase price be less than the par value of the Stock.
(b) A Participant shall be deemed to have elected to purchase the shares of Stock which he became entitled to purchase on the Exercise Date unless he shall notify the Committee within seven days following the Exercise Date, or such shorter period as the Committee may establish, that he elects not to make such purchase.
(c) Any accumulated payroll deductions that are not used to purchase full shares of Stock under the Plan shall be paid to the Participant without interest.
(d) No employee shall have the right to purchase more than $25,000 in value of Stock under the Plan (and any other employee stock purchase plan described in Code section 423 and maintained by the Company or any Related Company) in any calendar year, such value being based on the fair market value of Stock as of the date on which the option to purchase the Stock is granted, as determined in accordance with subsection 2.2 of the Plan."
FURTHER RESOLVED, that the executive officers of ACE Limited be, and they hereby are, authorized and directed to take all such actions as they deem necessary or desirable to implement the foregoing resolution.
FURTHER RESOLVED, that whenever it is provided in the foregoing resolutions that an executive officer may take any action as such officer may deem necessary or desirable, the taking of such action by any such executive officer shall be conclusive evidence that such officer deems such action to be necessary or
desirable.
 
Exhibit 10.60
AMENDMENT
TO
 ACE LIMITED EMPLOYEE RETIREMENT PLAN
WHEREAS, ACE Limited (the "Company") maintains the ACE Limited Employee Retirement Plan (the "Plan"); and
WHEREAS, the Company wishes to amend the Plan in order to equalize benefits provided to employees.
NOW THEREFORE, by virtue and in exercise of the amending power reserved to the Company under the Plan and delegated to the undersigned officer of the Company, the Plan shall be, and hereby is, amended effective as of January 1, 2000 by substituting the following for the first sentence of Section 2.1 of the Plan:
"Subject to Section 4.2, the Company shall make a contribution for each Plan Year in an amount equal to fifteen percent (15%) of the Compensation of each Participant who is actively employed by the Company anytime during the Plan Year; provided, however, that the contribution by the Company to the Plan on behalf of a Participant under this Section 2.1 shall be reduced by the amount of the contribution made by the Company on behalf of such Participant with respect to such Compensation to any retirement plan maintained by the Company to comply with the requirements of the Bermuda National Pension Scheme (Occupational Pensions) Act 1998; as amended, any successor thereto, or any other relevant Bermuda pension legislation; and provided further, that such reduction under this Section 2.1 shall be limited to the extent necessary to comply with the requirements of Code section 401(a)(4)."
IN WITNESS WHEREOF, ACE Limited has caused this amendment to be signed by its duly authorized officer this 27th day of December, 2000.
ACE Limited
By:_____________________
Keith White
Chief Administration Officer
 
C L I F F O R D LIMITED LIABILITY PARTNERSHIP
C H A N C E
EXECUTION COPY
EXHIBIT 10.61
ACE LIMITED
as Account Party
ACE BERMUDA INSURANCE LTD.
as Guarantor
CITIBANK, N.A.
as Arranger
BARCLAYS BANK PLC
and
ING BARINGS
as Co-Arrangers
CITIBANK INTERNATIONAL PLC
as Agent and Security Trustee
and
OTHERS

AMENDMENT AND RESTATEMENT AGREEMENT
RELATING TO
 A LETTER OF CREDIT FACILITY AGREEMENT
CONTENTS

Clause                                                                      Page
1.   Interpretation......................................................      1

2.   Acceding Bank And Changes In Commitments............................      2

3.   Amendment And Restatement Of The Facility Agreement.................      2

4.   Agreement Supplemental..............................................      2

5.   Representations.....................................................      2

6.   Costs And Expenses..................................................      2

7.   Governing Law.......................................................      3

8.   Incorporation Of Terms..............................................      3

9.   Counterparts........................................................      3	

THIS AMENDMENT AGREEMENT is made the seventeenth day of November 2000
BETWEEN
(1) ACE LIMITED (the "Account Party");
(2) ACE BERMUDA INSURANCE LTD. (the "Guarantor");
(3) CITIBANK, N.A. (the "Arranger");
(4) BARCLAYS BANK PLC and ING BARINGS (the "Co-Arrangers");
(5) CITIBANK INTERNATIONAL plc (the "Agent" and "Security Trustee"); and
(6) THE FINANCIAL INSTITUTIONS named in the Schedule (the "Banks").
WHEREAS
(A) By a letter of credit facility agreement dated 19 November 1999 (the "Facility Agreement") made between (1) Account Party, (2) the Guarantor,
(3) the Arranger, (4) the Co-Arrangers, (5) the Agent and (6) the Banks named in Part One of the Schedule, such Banks granted to the Borrower a letter of credit facility in an aggregate amount of (Pounds)290,000,000.
(B) The parties hereto wish to increase the amount of the Facility to (Pounds)390,000,000 and to amend the Facility Agreement upon the terms and subject to the conditions set out below.
NOW IT IS AGREED as follows:
1. INTERPRETATION
1.1 Terms defined in the Facility Agreement and not otherwise defined herein shall have the same meaning in this Agreement. Any reference to a Clause, an Exhibit or a Schedule shall be construed as references to a Clause hereof or an Exhibit or a Schedule hereto unless the contrary is expressed.
1.2 In this agreement:
"Acceding Bank" means the bank set out in Part Two of the Schedule hereto;
"Amended Agreement" means the Facility Agreement as amended by this Agreement;
"Commencement Date" means the date which is the later of 17 November 2000 and the date on which the Agent confirms in writing to the Obligors and the Banks that it has received in form and substance satisfactory to it each of the documents and other items specified in the Third Schedule of the Exhibit hereto.
-1-
2. ACCEDING BANK AND CHANGES IN COMMITMENTS
2.1 With effect from the Commencement Date the Acceding Bank shall become a Bank with a Commitment as set out alongside its name in the First Schedule of the Exhibit hereto (a "New Commitment").
2.2 The Acceding Bank undertakes with each of the other parties to the Facility Agreement that, as of the Commencement Date, it will acquire the same rights and assume the same obligations under the Facility Agreement (as amended, varied, novated or supplemented from time to time) as it would have acquired and assumed had such Acceding Bank been an original party thereto as a Bank with its New Commitment.
3. AMENDMENT AND RESTATEMENT OF THE FACILITY AGREEMENT
With effect from the Commencement Date the Facility Agreement shall be amended so that it shall be read and construed for all purposes as set forth in the Exhibit hereto.
4. AGREEMENT SUPPLEMENTAL
This Agreement is and shall be construed as supplemental to the Facility Agreement and the Facility Agreement and every clause thereof shall continue to be in full force and effect and binding on the parties thereto save as expressly amended and supplemented by this Agreement.
5. REPRESENTATIONS
The Obligors make the Representations set out in Clause 14 (Representations) of the Amended Agreement as if each reference in those Representations to "this Agreement" includes a reference to (a) this Agreement and (b) the Amended Agreement.
6. COSTS AND EXPENSES
6.1 Transaction Expenses
The Account Party shall promptly on demand pay the Banks the amount of all costs and expenses (including legal fees) reasonably incurred by the Banks in connection with the negotiation, preparation, printing and execution of this Agreement and any other documents referred to in this Agreement.
6.2 Enforcement Costs
The Account Party shall, within three Business Days of demand, pay to each Bank the amount of all costs and expenses (including legal fees) incurred by that Bank in connection with the enforcement of, or the preservation of any rights under this Agreement.
6.3 Stamp Taxes
The Account Party shall pay and, within three Business Days of demand, indemnify each Bank against any costs, loss or liability that each such Bank incurs in relation to
-2-
all stamp duty, registration and other similar taxes payable in respect of this Agreement.
7. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with English law.
8. INCORPORATION OF TERMS
The provisions of Clause 30.2 (Partial Invalidity) and Clause 35 (Jurisdiction) of the Facility Agreement shall apply, mutatis mutandis, hereto.
9. COUNTERPARTS
This Agreement may be executed in any number of counterparts and by different parties hereto on separate counterparts each of which, when executed and delivered shall constitute an original, but all the counterparts together shall constitute but one and the same Agreement.
AS WITNESS the hands of the duly authorised representatives of the parties hereto the day and year first before written.
-3-
THE SCHEDULE
The Banks
Part One
Citibank, N.A.
Barclays Bank PLC
ING Bank N.V., London Branch
ABN AMRO Bank N.V., London Branch
National Westminster Bank PLC
Credit Lyonnais New York Branch
Acceding Banks
Part Two
Lloyds TSB Bank plc
-4-
 
The Account Party
ACE LIMITED

By:

Address:    The Ace Building
            30 Woodbourne Avenue
            Hamilton HM08
            Bermuda

Telefax:    +1 441 296 0087	

The Guarantor
ACE BERMUDA INSURANCE LTD.

By:

Address:    The Ace Building
            30 Woodbourne Avenue
            Hamilton HM08
            Bermuda

Telefax:    +1 441 296 0087	

The Arranger
CITIBANK, N.A.
By:
The Co-Arrangers
BARCLAYS BANK PLC
By:
ING BARINGS
By:
-5-
 
The Agent and Security Trustee
CITIBANK INTERNATIONAL PLC

By:

Address:    Riverdale House
            3/rd/ Floor
            68 Molesworth Street
            London SE13 7EU

Telefax:    +44 20 7500 4482/3
Attention:  Loans Agency	

The Banks
ABN AMRO BANK N.V., LONDON BRANCH
By:
BARCLAYS BANK PLC
By:
CITIBANK, N.A.
By:
CREDIT LYONNAIS NEW YORK BRANCH
By:
ING BANK N.V., LONDON BRANCH
By:
LLOYDS TSB BANK PLC
By:
-6-
NATIONAL WESTMINSTER BANK PLC
By:
-7-
C L I F F O R D LIMITED LIABILITY PARTNERSHIP
C H A N C E
EXHIBIT
DATED 19 NOVEMBER 1999
(as amended and restated pursuant to an Amendment Agreement dated 17 November 2000)
ACE LIMITED
as Account Party
ACE BERMUDA INSURANCE LTD.
as Guarantor
CITIBANK, N.A.
as Arranger
BARCLAYS BANK PLC
 and
ING BARINGS
as Co-Arrangers
CITIBANK INTERNATIONAL plc
as Agent and Security Trustee
and
OTHERS

(pounds)390,000,000 
LETTER OF CREDIT FACILITY AGREEMENT

CONTENTS

Clause                                                                                                   Page
1.     Definitions And Interpretation.................................................................      1

2.     The Facility...................................................................................     16

3.     Utilisation Of The Facility....................................................................     17

4.     Extension Of Letters Of Credit.................................................................     19

5.     Increase Of The Facility.......................................................................     22

6.     Notification...................................................................................     23

7.     The Account Party's Liabilities In Relation To Letters Of Credit...............................     24

8.     Cancellation And Collateralisation.............................................................     25

9.     Taxes..........................................................................................     26

10.    Tax Receipts...................................................................................     27

11.    Increased Costs................................................................................     29

12.    Illegality.....................................................................................     29

13.    Mitigation.....................................................................................     30

14.    Representations................................................................................     30

15.    Covenants......................................................................................     34

16.    Events Of Default..............................................................................     41

17.    Commission And Fees............................................................................     45

18.    Costs And Expenses.............................................................................     46

19.    Default Interest And Break Costs...............................................................     47

20.    Indemnities....................................................................................     48

21.    Currency Of Account And Payment................................................................     49

22.    Payments.......................................................................................     50

23.    Set-Off........................................................................................     51

24.    Sharing........................................................................................     52

25.    The Agent, The Arranger And The Banks..........................................................     53

26.    Assignments And Transfers......................................................................     62

27.    Economic And Monetary Union....................................................................     64

28.    Calculations And Evidence Of Debt..............................................................     65

29.    Guarantee And Indemnity........................................................................     66

30.    Remedies And Waivers, Partial Invalidity.......................................................     69

31.    Notices........................................................................................     69	

32.    Counterparts....................................................................................    71

33.    Amendments......................................................................................    71

34.    Governing Law...................................................................................    72

35.    Jurisdiction....................................................................................    72

Schedule 1 The Banks...................................................................................    74

Schedule 2 Form Of Transfer Certificate................................................................    75

Schedule 3 Conditions Precedent........................................................................    77

Schedule 4 Utilisation Request.........................................................................    78

Schedule 5 Form Of Extension Request...................................................................    80

Schedule 6 Form Of Letter Of Credit....................................................................    83

Schedule 7 Mandatory Liquid Asset Costs Rate...........................................................    89

Schedule 8 Form Of Confidentiality Undertaking.........................................................    91

Schedule 9 Pricing Schedule............................................................................    94

Schedule 10 Existing Liens.............................................................................    95

Schedule 11 Form Of Charge Agreement...................................................................    96	

THIS AGREEMENT originally dated 19 November 1999 and amended and restated as of the Commencement Date referred to in the Amendment Agreement dated 17 November 2000
BETWEEN
(1) ACE LIMITED as the account party (the "Account Party");
(2) ACE BERMUDA INSURANCE LTD. as guarantor (the "Guarantor");
(3) CITIBANK, N.A. as arranger of the Facility (the "Arranger");
(4) BARCLAYS BANK PLC and ING BARINGS as co-arrangers of the Facility (the "Co- Arrangers");
(5) CITIBANK INTERNATIONAL plc as agent and trustee for the banks (when acting in such capacities the "Agent" and the "Security Trustee" respectively); and
(6) THE BANKS as defined below.
IT IS AGREED as follows.
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions In this Agreement:
"ACE INA" means ACE INA Holdings Inc., a Delaware company and its successors.
"ACE US" means ACE US Holdings, Inc., a Delaware company and its successors.
"Adjusted Consolidated Debt" means, at any time, an amount equal to (i) the then outstanding Consolidated Debt of the Account Party and its Subsidiaries plus (ii) to the extent exceeding an amount equal to 15% of Total Capitalisation, the then issued and outstanding amount of Preferred Securities (other than any Mandatorily Convertible Preferred Securities).
"Affiliate" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For the purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 5 per cent. or more of the Voting Interests of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Interests, by contract or otherwise.
"Amendment Agreement" means the agreement dated 17 November 2000 which amends and restates the Original Agreement.
"Applicant" means each of ACE Capital Limited, ACE Capital II Limited, ACE Capital III Limited, ACE Capital IV Limited, ACE Capital V Limited, ACE Capital VI
-1-
Limited and ACE Capital VII Limited and their successors and substitutes within the Group from time to time.
"Approved Credit Institution" means a credit institution within the meaning of the First Council Directive on the co-ordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions (No. 77/780/EEC) which has been approved by the Council of Lloyd's for the purpose of providing guarantees and issuing or confirming letters of credit comprising a member's Funds at Lloyd's.
"Approved Investment" means any Investment that was made by the Account Party or any of its Subsidiaries pursuant to investment guidelines set forth by the board of directors of the Account Party which guidelines are consistent with past practices.
"Authorised Signatory" means, in relation to an Obligor, any person who is duly authorised (in such manner as may be reasonably acceptable to the Agent) and in respect of whom the Agent has received a certificate signed by a director or another Authorised Signatory of such Obligor setting out the name and signature of such person and confirming such person's authority to act.
"Available Commitment" means, in relation to a Bank at any time and save as otherwise provided herein its Commitment less its share of the Sterling Amount of Outstandings at such time provided that such amount shall not be less than zero.
"Available Facility" means, at any time, the aggregate of the Available Commitments adjusted, in the case of a proposed utilisation pursuant to a Utilisation Request, so as to take into account:-
(a) any reduction in the Commitment of a Bank pursuant to the terms hereof; and
(b) any Letter of Credit which pursuant to any other Utilisation Request, is to be issued;
on or before the proposed Utilisation Date relating to such utilisation.
"Availability Period" means the period from the Commencement Date to 24 November 2000 (or such other date which Lloyd's may specify as the Funds Date for 2000) inclusive.
"Bank" means any financial institution:
(a) named in Schedule 1 (The Banks); or
(b) which has become a party hereto in accordance with Clause 26.4 (Assignments by Banks) or Clause 26.5 (Transfers by Banks),
and which has not ceased to be a party hereto in accordance with the terms hereof.
"Bermuda Companies Law" means The Companies Act 1981 of Bermuda, as amended, and the regulations promulgated thereunder.
-2-
"Bermuda Insurance Law" means The Insurance Act 1978 of Bermuda, as amended, and the regulations promulgated thereunder.
"Business Day" means a day (other than a Saturday or Sunday) on which banks generally are open for business in London and Bermuda and, in the case of payments to be made in dollars, New York.
"Capitalised Leases" means all leases that have been or should be, in accordance with GAAP, recorded as capitalised leases.
"Cash Collateral" means, in relation to any Bank's L/C Proportion of any Letter of Credit, a deposit in such interest-bearing account or accounts as such Bank or, as the case may be, the Agent may specify, such deposit and account to be secured in favour of, and on terms and conditions acceptable to, such Bank.
"Charge Agreement" means the charge agreement, in substantially the form set out in Schedule 11 (Form of Charge Agreement), that may be required to be entered into by the Account Party as chargor pursuant to sub-clause 17.1.2 of Clause 17.1 (Letter of Credit Commission) and pursuant to which the Account Party charges the Charged Portfolio in favour of the Security Trustee.
"Charged Portfolio" has the meaning ascribed to it in the Charge Agreement.
"Commencement Date" has the meaning given to it in the Amendment Agreement.
"Commitment" means, in relation to a Bank at any time and save as otherwise provided herein, the amount set opposite its name under the heading "Commitment" in Schedule 1 (The Banks).
"Consolidated" refers to the consolidation of accounts in accordance with 
GAAP.
"Consolidated Debt" means at any date the Debt of the Account Party and its Consolidated Subsidiaries, determined on a Consolidated basis as of such date.
"Consolidated Net Income" means, for any period, the net income of the Account Party and its Consolidated Subsidiaries, determined on a Consolidated basis for such period.
"Consolidated Subsidiary" means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Account Party in its consolidated financial statements if such statements were prepared as of such date.
"Consolidated Net Worth" means at any date the Consolidated stockholder's equity of the Account Party and its Consolidated Subsidiaries determined as of such date, provided that such determination for the purposes of Clause
15.7 (Adjusted Consolidated Debt to Total Capitalisation Ratio), Clause
15.8 (Consolidated Net Worth) and Clause 15.9 (Liens) shall be made without giving effect to adjustments pursuant to Statement No. 115 of the Financial Accounting Standards Board of the United States of America.
-3-
"Contingent Obligation" means, with respect to any Person, any obligation or arrangement of such Person to guarantee or indemnify or intended to guarantee or indemnify any Debt, leases, dividends or other payment obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, (a) the direct or indirect guarantee, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of a primary obligor, (b) the obligation to make take-or-pay or similar payments, if required, regardless of non-performance by any other party or parties to an agreement or (c) any obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (A) for the purchase or payment of any such primary obligation or (B) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, assets, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof; provided, however, that Contingent Obligations shall not include any obligations of any such Person arising under insurance contracts entered into in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such Person may be liable pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such person is required to perform thereunder), as determined by such Person in good faith.
"Custodian" means such entity or entities as may be agreed from time to time between the Account Party and the Security Trustee (each acting reasonably).
"Custodian's Undertaking" means the undertaking delivered to the Security Trustee by the Custodian in respect of the Charged Portfolio as contemplated by the Charge Agreement.
"Debenture" means debt securities issued by the Account Party or ACE INA to a Special Purpose Trust in exchange for proceeds of Preferred Securities and common securities of such Special Purpose Trust.
"Debt" of any Person means, without duplication for purposes of calculating financial ratios:
(a) all indebtedness of such Person for borrowed money:
(b) all obligations of such Person for the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of such Person's business);
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(c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments;
(d) all obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property);
(e) all obligations of such Person as lessee under Capitalised Leases (excluding imputed interest);
(f) all obligations of such Person under acceptance, letter of credit or similar facilities;
(g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interests (except for obligations to pay for Equity Interests within customary settlement periods) in such Person or any other Person or any warrants, rights or options to acquire such capital stock (excluding payments under a contract for the forward sale of ordinary shares of such Person issued in a public offering), valued, in the case of Redeemable Preferred Interests, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends;
(h) all Contingent Obligations of such Person in respect of Debt (of the types described above) of any other Person; and
(i) all indebtedness and other payment obligations referred to in clauses
(a) through (h) above of another Person secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness or other payment obligations;
provided, however, that the amount of Debt of such Person under clause (i) above shall, if such Person has not assumed or otherwise become liable for any such Debt, be limited to the lesser of the principal amount of such Debt or the fair market value of all property of such person securing such Debt; provided further that "Debt" shall not include obligations in respect of insurance or reinsurance contracts entered into in the ordinary course of business; provided further that, solely for the purposes of Clause 15.7 (Adjusted Consolidated Debt to Total Capitalisation Ratio) and Clause 15.8 (Consolidated Net Worth) and the definitions of "Adjusted Consolidated Debt" and "Total Capitalisation", "Debt" shall not include (x) any contingent obligations of any Person under or in connection with acceptance, letter of credit or similar facilities or (y) obligations of the Account Party or ACE INA under any Debentures or under any subordinated guarantee or any Preferred Securities or obligations of a Special Purpose Trust under any Preferred Securities.
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"Default" means an Event of Default or a Potential Event of Default.
"Derivatives Obligations" of any Person means all obligations of such Person in respect of any rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions.
"Effective Date" means, in respect of each Letter of Credit, 24 November 2000.
"Equity Interests" means, with respect to any Person, shares of capital stock of (or other ownership or profit interests in) such Person, warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other interests), and other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorised or otherwise existing on any date of determination.
"Event of Default" means any circumstance described as such in Clause 16 (Events of Default).
"Expiry Date" means, in relation to any Letter of Credit, the date on which the maximum aggregate liability thereunder is to be reduced to zero.
"Facility" means the sterling and dollar letter of credit facility granted to the Account Party in this Agreement.
"Facility Office" means, in relation to the Agent, the office identified with its signature below or such other office as it may select by notice and, in relation to any Bank, the office notified by it to the Agent in writing prior to the date hereof (or, in the case of a Transferee, at the end of the Transfer Certificate to which it is a party as Transferee) or such other office as it may from time to time select by notice to the Agent.
"Finance Documents" means this Agreement, any Security Document entered into pursuant to sub-clause 17.1.2 of Clause 17.1 (Letter of Credit Commission) and any other document or documents as may be agreed by the Agent and the Account Party.
"Finance Parties" means the Agent, the Security Trustee, the Arranger, the Co-Arrangers and the Banks.
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"Funds at Lloyd's" has the meaning given to it in paragraph 4 of the Membership Bylaw (No. 17 of 1993).
"Funds at Lloyd's Requirements" means, in respect of any member, the amount required to be maintained by that member as Funds at Lloyd's.
"Funds Date" means the date notified by Lloyd's each year as being the latest date in that year by which Funds at Lloyd's can be placed with Lloyd's in order to satisfy Funds at Lloyd's Requirements in respect of the immediately succeeding calendar year, such date notified by Lloyd's in respect of the 2000 calendar year being 24 November 2000, or such other date as may be advised by Lloyd's.
"GAAP" has the meaning specified in Clause 1.7 (Accounting Terms and Determinations).
"Group" means the Account Party and its Subsidiaries for the time being.
"Hedge Agreements" means interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts and other hedging agreements.
"Internal Revenue Code" means the Internal Revenue Code of 1986 of the United States of America, as amended, or any successor statute, and includes regulation promulgated and rulings issued thereunder.
"Investment" in any Person means any loan or advance to such Person, any purchase or other acquisition of any Equity Interests or Debt or the assets comprising a division or business unit or a substantial part or all of the business of such Person, any capital contribution to such Person or any other direct or indirect investment in such Person, including, without limitation, any acquisition by way of a merger or consolidation and any arrangement pursuant to which the investor incurs Debt of the types referred to in clause (h) or (i) of the definition of "Debt" in respect of such Person; provided, however, that any purchase by any US Facility Agreement Loan Party or any Subsidiary of any catastrophe-linked instruments which are (x) issued for the purpose of transferring traditional reinsurance risk to the capital markets and (y) purchased by such US Facility Agreement Loan Party or any Subsidiary in accordance with its customary reinsurance underwriting procedures, or the entry by any US Facility Agreement Loan Party or any Subsidiary into swap transactions relating to such instruments in accordance with such procedures, shall be deemed to be the entry by such Person into a reinsurance contract and shall not be deemed to be an Investment by such Person.
"L/C Commission Rate" means the rate per annum determined in accordance with Clause 17.1 (Letter of Credit Commission) or Schedule 9 (Pricing Schedule), as the case may be.
"L/C Proportion" means, in relation to a Bank in respect of any Letter of Credit and save as otherwise provided herein, the proportion (expressed as a percentage) borne by
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such Bank's Available Commitment to the Available Facility immediately prior to the issue of such Letter of Credit.
"L/C Valuation Date" means the first Business Day which falls six months after the Commencement Date and each day falling at six monthly intervals thereafter.
"Letter of Credit" means a letter of credit issued or to be issued pursuant to Clause 3 (Utilisation of the Facility) substantially in the form set out in Schedule 6 (Form of Letter of Credit) or in such other form requested by the Account Party which is approved by the Banks (such approval not to be unreasonably withheld or delayed).
"Letter of Credit Commission" means the letter of credit commission described in Clause 17.1 (Letter of Credit Commission).
"LIBOR" means, in relation to any Unpaid Sum on which interest for a given period is to accrue, the percentage rate per annum equal to the offered quotation which appears on the page of the Telerate Screen which displays an average British Bankers Association Interest Settlement Rate for the currency of the relevant amount (being currently "3740" or, as the case may be, "3750") for such period as of 11.00 a.m. on the Quotation Date for such period or, if such page or such service shall cease to be available, such other page or such other service for the purpose of displaying an average British Bankers Association Interest Settlement Rate for such currency as the Agent, after consultation with the Banks and the Account Party, shall select, acting reasonably.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest, in respect of such asset. For the purposes of this Agreement, the Account Party shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset.
"Lloyd's" means the society incorporated by Lloyd's Act 1871 by the name of Lloyd's.
"Mandatorily Convertible Preferred Securities" means units comprised of (i) Preferred Securities or preferred shares of the Account Party and (ii) a contract for the sale of ordinary shares of the Account Party (including "Feline PridesTM", "RhinosTM" or any substantially similar securities).
"Mandatory Liquid Asset Costs Rate" in relation to any Unpaid Sum shall bear the meaning given to it in Schedule 7 (Mandatory Liquid Asset Costs Rate).
"Majority Banks" means, save as otherwise provided herein:
(a) whilst there are no Outstandings, a Bank or Banks whose Commitments amount (or, if each Bank's Commitment has been reduced to zero, did
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immediately before such reduction to zero, amount) in aggregate to sixty-six and two thirds per cent. or more (or for the purposes of Clause 16.18 (Acceleration and Cancellation) to more than fifty per cent.) of the Total Commitments; and
(b) whilst there are Outstandings a Bank or Banks to whom in aggregate more than sixty-six and two thirds per cent. (or for the purposes of Clause 16.18 (Acceleration and Cancellation) more than fifty per cent.) of the Outstandings is owed,
provided that, in respect of a Letter of Credit issued by a Declining Bank pursuant to sub-clause 5.7.2 of Clause 5.7 (Replacement Letters of Credit), an amount equal to the amount of its Outstandings in respect thereof multiplied by the Reduction Percentage applicable at that time shall be excluded in determining the amount of Outstandings owed to such Bank for the purposes of this definition only.
"Material Debt" means Debt of the Account Party and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, in an aggregate principal or face amount exceeding US$25,000,000.
"Material Financial Obligations" means a principal amount of Debt and/or current payment obligations in respect of Derivatives Obligations of the Account Party and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, exceeding in the aggregate US$25,000,000.
"Material Subsidiary" means any Subsidiary having (i) assets (after inter company eliminations) in excess of 10 per cent. of the total assets of the Account Party and its Subsidiaries determined on a Consolidated basis, or (ii) annual net income constituting 10 per cent. or more of the total annual net income of the Account Party and its Subsidiaries on a Consolidated basis, in each case determined as of the end of the most recently ended fiscal year and in any event ACE UK Limited and Tempest Reinsurance Company Limited shall be construed as Material Subsidiaries.
"Notice of Charge" means the notice of charge of Charged Portfolio to be delivered by the Account Party to the Custodian pursuant to the terms of the Charge Agreement.
"Obligors" means the Account Party and the Guarantor.
"Original Agreement" means this Agreement prior to its amendment and restatement on the Commencement Date.
"Original Letters of Credit" means the letters of credit issued under the Original Agreement.
"Original Sterling Amount" means:
(a) in relation to a Letter of Credit denominated in sterling, the amount specified as the amount of the Letter of Credit in the Utilisation Request relating thereto; and
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(b) in relation to a Letter of Credit denominated in dollars, the amount of sterling which could be purchased with the dollar amount of such Letter of Credit at the spot rate of exchange quoted by the Agent at or about 11.00 am London time on the day falling three Business Days before the Utilisation Date for the purchase of sterling with dollars for delivery two business days thereafter.
"Outstandings" means, at any time the aggregate of the Sterling Amounts of the maximum actual and contingent liabilities of the Banks in respect of each outstanding Letter of Credit.
"Permitted Liens" means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced or which are being contested in good faith by appropriate proceedings: (a) Liens for taxes, assessments and governmental charges or levies not yet due and payable; (b) Liens imposed by law, such as materialsmen's, mechanics', carriers', workmen's and repairmen's Liens and other similar Liens arising in the ordinary course of business securing obligations that are not overdue for a period of more than 90 days; (c) pledges or deposits to secure obligations under workers' compensation laws or similar legislation or to secure public or statutory obligations; and (d) easements, rights of way and other encumbrances on title to real property that do not render title to the property encumbered thereby unmarketable or materially adversely affect the use of such property for its present purposes.
"Person" means an individual, a company, a corporation, a partnership, an association, a trust or any other entity or organisation, including a government or political subdivision or an agency or instrumentality thereof.
"Potential Event of Default" means any event which would reasonably be expected to become (with the passage of time, the giving of notice, the making of any determination hereunder or any combination thereof) an Event of Default.
"Preferred Interests" means, with respect to any Person, Equity Interests issued by such Person that are entitled to a preference or priority over any other Equity Interests issued by such Person upon any distribution of such Person's property and assets, whether by dividend or upon liquidation.
"Preferred Securities" means (i) preferred securities issued by the Special Purpose Trust which shall provide, among other things, that dividends shall be payable only out of proceeds of interest payments on the Debentures, or (ii) other instruments that may be treated in whole or in part as equity for rating agency purposes while being treated as debt for tax purposes.
"Proportion" means, in relation to a Bank the proportion borne by its Commitment to the Total Commitments (or, if the Total Commitments are then zero, by its Commitment to the Total Commitments immediately prior to their reduction to zero).
"Qualifying Bank" means an institution which is a bank as defined for the purposes of Section 349 of the Income and Corporation Taxes Act 1988 and such bank is within the
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charge to United Kingdom corporation tax as respects to interest which is (or which, if it were a Bank, would be) payable to it hereunder.
"Quotation Date" means, in relation to any period for which an interest rate is to be determined hereunder, the day on which quotations would ordinarily be given by prime banks in the London Interbank Market for deposits in the currency in relation to which such rate is to be determined for delivery on the first day of that period, provided that, if, for any such period, quotations would ordinarily be given on more than one date, the Quotation Date for that period shall be the last of those dates.
"Redeemable" means, with respect to any Equity Interest, any Debt or any other right or obligation, any such Equity Interest, Debt, right or obligation that (a) the issuer has undertaken to redeem at a fixed or determinable date or dates, whether by operation of a sinking fund or otherwise, or upon the occurrence of a condition not solely within the control of the issuer or (b) is redeemable at the option of the holder.
"Reduction Percentage" means 20 per cent. x (5 - a); where "a" equals the remaining number of years (and for such purposes any incomplete year shall be treated as one year) for which the relevant Letter of Credit is currently valid.
"Representations" means each of the representations set out in Clause 14 (Representations).
"Required Value" has the meaning ascribed to it in the Charge Agreement.
"Securitisation Transaction" means any sale, assignment or other transfer by the Account Party or any Subsidiary of any accounts receivable, premium finance loan receivables, lease receivables or other payment obligations owing to the Account Party or such Subsidiary or any interest in any of the foregoing, together in each case with any collections and other proceeds thereof, any collection or deposit accounts related thereto, and any collateral, guaranties or other property or claims in favour of the Account Party or such Subsidiary supporting or securing payment by the obligor thereon of, or otherwise related to, any such receivables.
"Security" means any security granted over the Charged Portfolio by the Account Party in favour of the Security Trustee pursuant to the Charge Agreement.
"Security Documents" means the Charge Agreement, the Custodian's Undertaking and the Notice of Charge.
"Special Purpose Trust" means a special purpose business trust established by the Account Party or ACE INA of which the Account Party or ACE INA will hold all the common securities, which will be the issuer of Preferred Securities, and which will loan to the Account Party or ACE INA (such loan being evidenced by the Debentures) the net proceeds of the issuance and sale of the Preferred Securities and common securities of such Special Purpose Trust.
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"Spot Rate" means the spot rate of exchange quoted by the Agent at or about 11.00 am London time on the day on which the relevant calculation is to be made for the purchase of sterling with dollars or any other relevant currency for delivery two business days thereafter.
"Sterling Amount" means:
(a) in relation to a Letter of Credit at any time:
(i) if such Letter of Credit is denominated in sterling, the maximum actual and contingent liability of the Banks thereunder or in respect thereof at such time; and
(ii) if such Letter of Credit is denominated in dollars, the equivalent in sterling of the maximum actual and contingent liability of the Banks thereunder at such time, calculated as at the later of the date which falls (1) two Business Days before its Utilisation Date or (2) the most recent L/C Valuation Date; and
(b) in relation to the Outstandings, the aggregate of the Sterling Amounts of each outstanding Letter of Credit.
"Subsidiary" means, as to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person; unless otherwise specified, "Subsidiary" means a Subsidiary of the Account Party.
"Term" means, save as otherwise provided herein:
(a) in relation to any Letter of Credit, the period from its Effective Date until its Expiry Date; and
(b) in relation to an Unpaid Sum, any of those periods mentioned in Clause 19 (Default Interest and Break Costs).
"Termination Date" means 31 December 2005.
"Total Capitalisation" means, at any time, an amount (without duplication) equal to (i) the then outstanding Consolidated Debt of the Account Party and its Subsidiaries plus (ii) Consolidated stockholders' equity of the Account Party and its Subsidiaries plus (without duplication) (iii) the then issued and outstanding amount of Preferred Securities (including Mandatorily Convertible Preferred Securities) and (without duplication) Debentures.
"Total Commitments" means, at any time, the aggregate of the Banks' Commitments.
"Transfer Certificate" means a certificate substantially in the form set out in Schedule 2 (Form of Transfer Certificate) signed by a Bank and a Transferee under which:
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(a) such Bank seeks to procure the transfer to such Transferee of all or a part of such Bank's rights, benefits and obligations under the Finance Documents upon and subject to the terms and conditions set out in Clause 26.3 (Assignments and Transfers by Banks); and
(b) such Transferee undertakes to perform the obligations it will assume as a result of delivery of such certificate to the Agent as contemplated in Clause 26.5 (Transfers by Banks).
"Transfer Date" means, in relation to any Transfer Certificate, the date for the making of the transfer as specified in such Transfer Certificate.
"Transferee" means a person to which a Bank seeks to transfer by novation all or part of such Bank's rights, benefits and obligations under the Finance Documents.
"Unpaid Sum" means the unpaid balance of any of the sums referred to in Clause 19.1 (Default Interest).
"US Facility Agreements" means each of:
(a) the US$800,000,000 364 day revolving credit facility agreement originally entered into on 11 June 1999 (as amended and restated on 8 May 2000) and made between, inter alia, ACE Limited and ACE INA as borrowers, the financial institutions named therein and others; and
(b) the US$250,000,000 revolving credit facility agreement originally entered into on 11 June 1999 (as amended and restated on 8 May 2000) and made between, inter alia, ACE Limited and ACE INA as borrowers, the financial institutions named therein and others (the "Five Year US Facility"),
in each case as the same may be further amended or restated from time to time.
"US Facility Agreement Loan Parties" means, at any time, any or all of the Account Party, ACE INA, ACE Financial Services Inc., ACE Guaranty Re Inc., ACE Bermuda Insurance Ltd. and Tempest Reinsurance Company Limited.
"US Fee Letter" means the fee letter dated 12 April 2000 and made between, inter alia, the Account Party, the arrangers of the US Facility Agreements, JP Morgan Securities Inc. and others.
"US Letter of Credit Agreements" means any and all letter of credit agreements entered into by any borrower pursuant to the Five Year US Facility.
"US Loan Documents" means (i) each US Facility Agreement, (ii) the US Notes, (iii) the US Fee Letter and (iv) each US Letter of Credit Agreement.
"US Notes" means each promissory note issued or to be issued pursuant to the terms of the US Facility Agreements.
"Utilisation Date" means the date on which a Letter of Credit is to be issued.
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"Utilisation Request" means a notice substantially in the form set out in Schedule 4 (Form of Utilisation Request).
"Voting Interests" means shares of capital stock issued by a corporation, or equivalent Equity Interest in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency.
"Wholly-Owned Consolidated Subsidiary" means any Consolidated Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by the Account Party.
1.2 Interpretation Any reference in this Agreement to:
the "Agent", "Security Trustee" or any "Bank" shall be construed so as to include its and any subsequent successors and permitted transferees in accordance with their respective interests;
"continuing", in the context of an Event of Default shall be construed as a reference to an Event of Default which has not been remedied or waived in accordance with the terms hereof and in relation to a Potential Event of Default, one which has not been remedied within the relevant grace period or waived in accordance with the terms hereof.
the "euro" means the single currency of participating member states of the European Union;
a "holding company" of a company or corporation shall be construed as a reference to any company or corporation of which the first-mentioned company or corporation is a Subsidiary;
a "law" shall be construed as any law (including common or customary law), statute, constitution, decree, judgment, treaty, regulation, directive, bye-law, order or any other legislative measure of any government, supranational, local government, statutory or regulatory body or court;
a "member" shall be construed (as the context may require) as a reference to an underwriting member of Lloyd's;
a "month" is a reference to a period starting on one day in a calendar month and ending on the numerically corresponding day in the next succeeding calendar month save that, where any such period would otherwise end on a day which is not a Business Day, it shall end on the next succeeding Business Day, unless that day falls in the calendar month succeeding that in which it would otherwise have ended, in which case it shall end on the immediately preceding Business Day, provided that, if a period starts on the last Business Day in a calendar month or if there is no numerically
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corresponding day in the month in which that period ends, that period shall end on the last Business Day in that later month (and references to "months" shall be construed accordingly);
a Bank's "participation", in relation to a Letter of Credit, shall be construed as a reference to the rights and obligations of such Bank in relation to such Letter of Credit as are expressly set out in this Agreement;
a "successor" shall be construed so as to include an assignee or successor in title of such party and any person who under the laws of its jurisdiction of incorporation or domicile has assumed the rights and obligations of such party under this Agreement or to which, under such laws, such rights and obligations have been transferred;
"tax" shall be construed so as to include any tax, levy, impost, duty or other charge of a similar nature (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same);
"VAT" shall be construed as a reference to value added tax including any similar tax which may be imposed in place thereof from time to time; and
the "winding-up", "dissolution" or "administration" of a company or corporation shall be construed so as to include any equivalent or analogous proceedings under the law of the jurisdiction in which such company or corporation is incorporated or any jurisdiction in which such company or corporation carries on business including the seeking of liquidation, winding-up, reorganisation, dissolution, administration, arrangement, adjustment, protection or relief of debtors.

1.3     Currency Symbols

        1.3.1    "(pounds)" and "sterling" denote lawful currency of the United
                 Kingdom for the time being.

        1.3.2    "US$" and "dollars" denote lawful currency of the United States
                 of America for the time being.	

1.4 Agreements and Statutes Any reference in this Agreement to:

        1.4.1    this Agreement or any other agreement or document shall be
                 construed as a reference to this Agreement or, as the case may
                 be, such other agreement or document as the same may have been,
                 or may from time to time be, amended, varied, novated or
                 supplemented;

        1.4.2    a statute or treaty shall be construed as a reference to such
                 statute or treaty as the same may have been, or may from time
                 to time be, amended or, in the case of a statute, re-enacted;
                 and

                                     -15-	

        1.4.3    a bylaw shall be construed as a reference to a bylaw made under
                 Lloyd's Acts 1871 to 1982 as the same may have been, or may
                 from time to time be, amended or replaced.

1.5     Headings	

Clause and Schedule headings are for ease of reference only.
1.6 Time Any reference in this Agreement to a time of day shall, unless a contrary indication appears, be a reference to London time.
1.7 Accounting Terms and Determinations Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time ("GAAP"), applied on a basis consistent (except for changes concurred in by the Account Party's independent public accountants) with the most recent audited consolidated financial statements of the Account Party and its Consolidated Subsidiaries delivered to the Banks; provided that, if the Account Party notifies the Agent that the Account Party wishes to amend any covenant in Clause 15 (Covenants) to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Agent notifies the Account Party that the Majority Banks wish to amend Clause 15 (Covenants) for such purpose), then the Account Party's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted account principals became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Account Party and the Majority Banks.
1.8 Third party rights A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement.
2. THE FACILITY
2.1 Grant of the Facility The Banks, upon the terms and subject to the conditions hereof, grant to the Account Party a dual currency letter of credit facility in an aggregate amount of (pounds)390,000,000.
2.2 Purpose and Application The Facility is intended to support Funds at Lloyd's, and, accordingly, the Account Party shall apply all Letters of Credit issued hereunder in or towards satisfaction of such purpose and none of the Finance Parties shall be obliged to concern themselves with such application.
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2.3 Conditions Precedent Save as the Banks may otherwise agree, the Account Party may not deliver any Utilisation Request unless the Agent has confirmed to the Account Party and the Banks that it has received all of the documents and other evidence listed in Schedule 3 (Conditions Precedent) and that each is, in form and substance, satisfactory to the Agent.
2.4 Several Obligations The obligations of each Bank are several and the failure by a Bank to perform its obligations hereunder and/or under any Letter of Credit issued hereunder shall not affect the obligations of either Obligor towards any other party hereto nor shall any other party be liable for the failure by such Bank to perform its obligations hereunder and/or under such Letter of Credit.
2.5 Several Rights The rights of each Finance Party are several and any debt arising hereunder at any time from an Obligor to any Finance Party shall be a separate and independent debt. Each such party shall be entitled to protect and enforce its individual rights arising out of this Agreement independently of any other party (so that it shall not be necessary for any party hereto to be joined as an additional party in any proceedings for this purpose).
2.6 Cancellation of Original Letters of Credit On and with effect from the Effective Date, all outstanding Original Letters of Credit shall be replaced by the Letters of Credit issued after the Commencement Date.
3. UTILISATION OF THE FACILITY
3.1 Utilisation Conditions for the Facility Save as otherwise provided herein, a Letter of Credit will be issued at the request of the Account Party on behalf of an Applicant if:

3.1.1     no later than 10.00 a.m. two Business Days before the proposed
          Utilisation Date, the Agent has received a duly completed
          Utilisation Request from the Account Party;

3.1.2     the proposed Utilisation Date is a Business Day falling within
          the Availability Period;

3.1.3     the proposed Original Sterling Amount of such Letter of Credit
          is less than or equal to the Available Facility;

3.1.4     the proposed Term of the Letter of Credit is a period ending
          on or before the Termination Date;

3.1.5     the Letter of Credit is substantially in the form set out in
          Schedule 6 (Form of Letter of Credit) or in such other form
          requested by the Account Party which is approved by the Banks
          (such approval not to be unreasonably withheld or delayed);

                             -17-	

3.1.6     the beneficiary of such Letter of Credit is Lloyd's;

3.1.7     on and as of the proposed Utilisation Date (a) no Event of
          Default or Potential Event of Default has occurred and is
          continuing and (b) the Representations are true in all
          material respects; and

3.1.8     (if the Charge Agreement is required to be executed and
          delivered by the Account Party pursuant to sub-clause 17.1.2
          of Clause 17.1 (Letter of Credit Commission)), the Agent has
          received evidence acceptable to it that the Charged Portfolio
          has been delivered to the Custodian and the amount of the
          Charged Portfolio is at least equal to the Required Value.	

3.2 Request for Letters of Credit The Account Party may request the issue by the Banks hereunder of one Letter of Credit only in respect of each Applicant (with the exception of ACE Capital IV Limited, ACE Capital V Limited and ACE Capital VII Limited in respect of each of whom two Letters of Credit may be issued). A single Utilisation Request may be issued in respect of more than one Letter of Credit.
3.3 Completion of Letters of Credit The Agent is authorised to arrange for the issue of any Letter of Credit pursuant to Clause 3.1 (Utilisation Conditions for the Facility) by:

3.3.1     completing the Effective Date and the proposed Expiry Date of
          such Letter of Credit;

3.3.2     completing the schedule to such Letter of Credit with the
          percentage participation of each Bank as allocated pursuant to
          the terms hereof; and

3.3.3     executing such Letter of Credit on behalf of each Bank and
          following such execution delivering such Letter of Credit to
          Lloyd's on the Utilisation Date,	

provided that the Agent shall not deliver any such Letter of Credit to Lloyd's unless the Agent is satisfied that (a) Lloyd's has cancelled (or will upon such delivery cancel) the Original Letters of Credit and (b) all amounts outstanding in respect of the Original Letters of Credit have been paid in full.
3.4 Dollar Option The Account Party may, in a Utilisation Request, request that such Letter of Credit be denominated in dollars in which event such Letter of Credit shall be denominated in dollars.
3.5 Amounts of Letters of Credit The amount of a Letter of Credit shall be:

3.5.1     the Original Sterling Amount of such Letter of Credit, if such
          Letter of Credit is to be denominated in sterling; and

                             -18-	

3.5.2     if such Letter of Credit is to be denominated in dollars, the
          amount specified in the Utilisation Request relating thereto.	

3.6 Each Bank's Participation in Letters of Credit Save as otherwise provided herein, each Bank will participate in each Letter of Credit issued pursuant to this Clause 3 in the proportion borne by its Available Commitment to the Available Facility immediately prior to the issue of such Letter of Credit.
3.7 Cancellation of Commitments
On the expiry of the Availability Period the Available Facility and each Bank's Available Commitment shall be reduced to zero.
4. EXTENSION OF LETTERS OF CREDIT
4.1 Bank Notification Each Bank acknowledges that the Account Party may request one or more extensions of a Letter of Credit hereunder, and that pursuant to the terms thereof each Letter of Credit shall be extended automatically for a further year each year unless Lloyd's receives notice to the contrary. Accordingly, each Bank undertakes to notify the Agent in writing as soon as reasonably practicable after it has determined that it will not agree to a requested extension, and in any event by no later than close of business on the date which falls ten weeks prior to the first date which Lloyd's notifies as being the Funds Date of such year and the Agent shall give notice thereof to the Account Party within two Business Days of notification from such Bank. Unless notice is given to the Agent as aforesaid each Bank will be deemed automatically to have agreed to such extension.
4.2 Request for Extension If the Account Party wishes to request the extension of a Letter of Credit, the Account Party shall give the Agent notice, by way of a Letter of Credit extension request in the form of Schedule 5 (Form of Extension Request) by the date which falls thirteen weeks prior to the Funds Date of such year, specifying that the Expiry Date of the applicable Letter of Credit is to be extended to 31 December of the year immediately succeeding the year in which the then current Expiry Date falls (such notice being a "Notice of Extension"). A single Notice of Extension may be delivered in respect of more than one Letter of Credit.
4.3 Non-Delivery of Notice of Extension If the Account Party does not deliver a Notice of Extension in accordance with the provisions of Clause 4.2 (Request for Extension), the Agent shall:

4.3.1     as soon as reasonably practicable after the date which falls
          ten weeks prior to the Funds Date of such year, notify the
          Account Party and then notify the Banks thereof; and

4.3.2     as soon as reasonably practicable after the date which falls
          ten weeks prior to the Funds Date of such year and in any
          event by no later than close of business on the Business Day
          immediately preceding the Funds Date of such

                             -19-	

          year, notify Lloyd's that the Term of the relevant Letter of
          Credit will not be extended beyond its then current Expiry
          Date.	

4.4 Notification to Banks Upon receipt of a Notice of Extension, the Agent shall promptly notify each Bank of the contents thereof and of the amount of such Bank's participation in the applicable Letter of Credit, together with notice of the applicable Funds Date for such year.

4.5     Extension of a Letter of Credit

        4.5.1     If all of the Banks agree (or are deemed to have agreed) to
                  the extension of the Letter of Credit in accordance with
                  Clause 4.1 (Bank Notification) the Agent shall notify the
                  Account Party and the Banks thereof and subject to the
                  provisions of Clause 4.8 (Extension Conditions Precedent), the
                  Letter of Credit shall be automatically extended in accordance
                  with the terms thereof.

        4.5.2     If a Bank gives notice in accordance with the provisions of
                  Clause 4.1 (Bank Notification) that it does not agree to a
                  requested extension of any Letter of Credit the Agent shall
                  notify the Account Party and Lloyd's accordingly within two
                  Business Days thereafter, and the succeeding provisions of
                  this Clause 4 shall apply.

4.6     Substitute Bank

        4.6.1     If any Bank (a "Declining Bank") gives notice in accordance
                  with the provisions of Clause 4.1 (Bank Notification) that it
                  does not agree to a requested extension, then the Account
                  Party may designate by the date which falls four weeks prior
                  to the Funds Date of such year an Approved Credit Institution
                  (the "Substitute Bank") which is willing to assume all of the
                  rights and obligations of the Declining Bank in respect of its
                  participation in the relevant Letter of Credit (the "Old
                  Letter of Credit").

        4.6.2     If the Account Party has found a Substitute Bank it shall
                  promptly notify the Agent and the Declining Bank thereof and
                  shall procure the release by Lloyd's of the Old Letter of
                  Credit from the Funds at Lloyd's of the relevant Applicant.

        4.6.3     The Declining Bank shall as soon as reasonably practicable and
                  in any event no later than the date which falls two weeks
                  prior to the Funds Date of such year transfer its rights and
                  obligations hereunder to the Substitute Bank in accordance
                  with the provisions of Clause 26.5 (Transfers by Banks).

        4.6.4     The Substitute Bank shall pay to the Declining Bank all
                  amounts then due and owing (and all fees accrued to but
                  excluding the date of such transfer) to the Declining Bank in
                  respect of its participation in the Old Letter of Credit.

4.7     Replacement Letters of Credit

        4.7.1     If a Substitute Bank has become party hereto pursuant to
                  Clause 4.6 (Substitute Bank), then subject to the provisions
                  of Clause 4.8 (Extension Conditions Precedent) the Banks who
                  have confirmed their agreement to the

                                     -20-	

                  extension of the Old Letter of Credit (the "Extending Banks")
                  shall, together with the Substitute Bank, participate in, and
                  issue by the Funds Date of such year, a new Letter of Credit
                  (the "New Letter of Credit") which shall (i) replace the Old
                  Letter of Credit, (ii) be in an amount equal to the Old Letter
                  of Credit and (iii) have an Expiry Date which corresponds with
                  the Expiry Date requested in the Notice of Extension.

        4.7.2     If a Substitute Bank has not been found then: (a) the Account
                  Party shall procure the release by Lloyd's of the Old Letter
                  of Credit from the Funds at Lloyd's of the relevant Applicant,
                  (b) subject to the provisions of Clause 4.8 (Extension
                  Conditions Precedent), the Extending Banks shall participate
                  in, and issue by the Funds Date of such year, a new Letter of
                  Credit (the "Reduced Letter of Credit") which shall (1)
                  replace their participation in the Old Letter of Credit, (2)
                  be in an amount equal to the Old Letter of Credit less the
                  amount of the Declining Bank's participation and (3) have an
                  Expiry Date which corresponds with the Expiry Date requested
                  in the Notice of Extension; and (c) the Declining Bank shall
                  participate in a separate Letter of Credit (a "Bilateral
                  Letter of Credit") which shall (1) replace its participation
                  in the Old Letter of Credit, (2) be in an amount equal to the
                  Declining Bank's participation in the Old Letter of Credit and
                  (3) have an Expiry Date which is the same as the Expiry Date
                  specified in the Old Letter of Credit (as the same may have
                  been extended from time to time with the consent of the
                  Declining Bank).

4.8     Extension Conditions Precedent

        4.8.1     On or prior to close of business on the Funds Date immediately
                  following the delivery of any Notice of Extension, the Account
                  Party shall promptly notify the Agent if:

                  (a)   an Event of Default or Potential Event of Default occurs
                        which is continuing;

                  (b)   any of the representations and warranties of the Account
                        Party contained in this Agreement or in the Charge
                        Agreement cease to be correct in all material respects,
                        or become misleading in any material respect; or

                  (c)   the Letter of Credit which is the subject of such Notice
                        of Extension ceases solely to be used to support the
                        relevant Applicant's underwriting business at Lloyd's
                        which has been provided in accordance with the
                        requirements of Lloyd's applicable to it.

        4.8.2     Subject to due notification to Lloyd's in accordance with the
                  provisions of the relevant Letter of Credit, the Banks shall
                  not be obliged to agree to any extension requested if the
                  Account Party fails to comply with its obligations under
                  Clause 4 (Extension of Letters of Credit) or if any of the
                  events specified in sub-clause 4.8.1 above occurs.	

-21-

4.9     Cancellation of Bilateral Letters of Credit
        At any time after the issue of a Bilateral Letter of Credit by a
        Declining Bank the Account Party may give the Agent and the Declining
        Bank not less than fourteen days' prior written notice of its intention
        to procure that the liability of the Declining Bank under such Letter of
        Credit is reduced to zero (whereupon it shall do so).

4.10    Mandatory Collateralisation
        If a Letter of Credit is automatically extended in accordance with the
        terms thereof and, on or prior to the time of such extension the Company
        had failed to comply with its obligations under Clause 4 (Extension of
        Letters of Credit) or any of the events specified in sub-clause 4.8.1
        thereof had occurred, the Agent may (and if so instructed by the
        Majority Banks participating in such Letter of Credit shall) require the
        Account Party to procure that the liabilities of each of the Banks under
        such Letter of Credit are reduced to zero and/or provide Cash Collateral
        for each Bank's L/C Proportion under such Letter of Credit.

4.11    Revised Letters of Credit
        In the event that the Funds at Lloyd's Requirements of an Applicant
        change at or around the time of any given Funds Date in terms of amount
        and/or the identity of the Applicant, subject to the approval of Lloyd's
        and subject to each Bank's Outstandings under the Letters of Credit
        issued hereunder not being increased other than in accordance with
        Clause 5 (Increase of the Facility), the Banks shall co-operate with the
        Account Party to ensure to the extent reasonably possible that the
        Letters of Credit provide for the revised Funds at Lloyd's Requirements
        of the Applicants.

5.      INCREASE OF THE FACILITY

5.1     Request for Increase
        In the event that the Funds at Lloyd's Requirements of an Applicant
        increases at or around the time of any given Funds Date and as a result
        of such increase the aggregate amount of the Funds at Lloyd's
        Requirements of the Applicants on such Funds Date would exceed the
        aggregate amount of the Banks' Outstandings under the Letters of Credit,
        the Account Party shall be entitled to request an increase of the amount
        of the Letter of Credit of such Applicant by giving notice to the Agent
        no later than thirteen weeks prior to the Funds Date of such year (the
        "Increase Request"). The Increase Request shall be made in writing and
        shall be unconditional and irrevocable and shall specify:

        5.1.1    which Letters of Credit and Applicants the Increase Request
                 relates to;

        5.1.2    the additional amount of commitments required by the Account
                 Party from the Banks; and

        5.1.3    any other information relevant to the Increase Request.

5.2     Notification of Increase Request
        The Agent shall forward a copy of the Increase Request to the Banks as
        soon as practicable, and in any event no later than two Business Days
        after receipt thereof

                                     -22-	

        together with notification of the amount of such Banks' pro rata
        participation in any such increased Letter of Credit.

5.3     Response to Increase Request
        If a Bank, in its sole discretion, agrees to the increase requested by
        the Account Party pursuant to the Increase Request, it shall give notice
        to the Agent (a "Notice of Increase") accordingly not less than ten
        weeks prior to the Increase Date. If a Bank does not give such Notice of
        Increase by such date, then such Bank shall be deemed to have refused
        such increase. Nothing shall oblige a Bank to agree to the Increase
        Request.

5.4     Notification of Response to Increase Request
        The Agent shall notify the Account Party in writing of each Bank's
        decision in relation to the Increase Request (specifying which Banks
        have given a Notice of Increase, which Banks have actually refused the
        Increase Request and which Banks are deemed to have refused the Increase
        Request) no less than eight weeks prior to the Increase Date.

5.5     Increase

        5.5.1     If one or more of the Banks does not give a Notice of Increase
                  (hereinafter referred to as "Refusing Banks"), then the
                  Refusing Banks shall not participate in any increase pursuant
                  to the Increase Request but shall continue to participate in
                  the Letters of Credit to the extent of their existing
                  participation.

        5.5.2     If one or more Banks agree to the Increase Request such Banks'
                  participation in the relevant Letter(s) of Credit shall,
                  subject to satisfaction of any conditions precedent which may
                  be specified in connection therewith, be increased in
                  accordance with the terms of the Increase Request.

        5.5.3     The Account Party shall co-operate with the Agent, the Banks
                  and Lloyd's with respect to the replacement of any Letters of
                  Credit required as a result of an Increase Request and all
                  parties shall agree on any necessary replacement Letters of
                  Credit in the context of any replacement Letters of Credit
                  required in accordance with Clause 4.7 (Replacement Letters of
                  Credit).

        5.5.4     The Facility, save as amended pursuant to the Increase
                  Request, shall continue to operate in accordance with its
                  terms.

6.      NOTIFICATION

6.1     Letters of Credit
        On or before each Utilisation Date the Agent shall notify each Bank of
        the Letter of Credit that is to be issued by the Agent on behalf of the
        Banks, the name of the Applicant in respect of whom the Letter of Credit
        is being issued, the proposed length of the relevant Term and the
        aggregate principal amount of the relevant Letter of Credit allocated to
        such Bank pursuant to this Agreement.

                                     -23-	

6.2     Demands under Letters of Credit
        If a demand is made by Lloyd's under a Letter of Credit the Agent shall
        promptly make demand upon the Account Party in accordance with this
        Agreement and notify the Banks.

7.      THE ACCOUNT PARTY'S LIABILITIES IN RELATION TO LETTERS OF CREDIT

7.1     The Account Party's Indemnity to Banks
        The Account Party shall irrevocably and unconditionally as a primary
        obligation indemnify (on demand by the Agent) each Bank against:

        7.1.1    any sum paid or due and payable by such Bank in accordance with
                 the terms of any Letter of Credit requested by the Account
                 Party; and

        7.1.2    all liabilities, costs (including, without limitation, any
                 costs incurred in funding any amount which falls due from such
                 Bank in connection with such Letter of Credit), claims, losses
                 and expenses which such Bank may at any time properly incur or
                 sustain in connection with any Letter of Credit.

7.2     Preservation of Rights
        Neither the obligations of the Account Party set out in this Clause 7
        nor the rights, powers and remedies conferred on any Bank by this
        Agreement or by law shall be discharged, impaired or otherwise affected
        by:

        7.2.1    the winding-up, dissolution, administration or re-organisation
                 of any Bank or any other person or any change in its status,
                 function, control or ownership;

        7.2.2    any of the obligations of any Bank or any other person
                 hereunder or under any Letter of Credit or under any other
                 security taken in respect of the Account Party's obligations
                 hereunder or otherwise in connection with any Letter of Credit
                 being or becoming illegal, invalid, unenforceable or
                 ineffective in any respect;

        7.2.3    time or other indulgence being granted or agreed to be granted
                 to any Bank or any other person in respect of its obligations
                 hereunder or under or in connection with any Letter of Credit
                 or under any such other security;

        7.2.4    any amendment to, or any variation, waiver or release of, any
                 obligation of any Bank or any other person under any Letter of
                 Credit or this Agreement; or

        7.2.5    any other act, event or omission which, but for this Clause 7,
                 might operate to discharge, impair or otherwise affect any of
                 the obligations of the Account Party set out in this Clause 7
                 or any of the rights, powers or remedies conferred upon any
                 Bank by this Agreement or by law.

        The obligations of the Account Party set out in this Clause 7 shall be
        in addition to and independent of every other security which any Bank
        may at any time hold in respect of the Account Party's obligations
        hereunder.

                                     -24-	

7.3     Settlement Conditional
        Any settlement or discharge between the Account Party and a Bank shall
        be conditional upon no security or payment to such Bank by the Account
        Party or any other person on behalf of the Account Party, being avoided
        or reduced by virtue of any laws relating to bankruptcy, insolvency,
        liquidation or similar laws of general application and, if any such
        security or payment is so avoided or reduced, such Bank shall be
        entitled to recover the value or amount of such security or payment from
        the Account Party subsequently as if such settlement or discharge had
        not occurred.

7.4     Right to make Payments under Letters of Credit
        Each Bank shall be entitled to make any payment in accordance with the
        terms of the relevant Letter of Credit without any reference to or
        further authority from the Account Party or any other investigation or
        enquiry. The Account Party irrevocably authorises each Bank to comply
        with any demand under a Letter of Credit which is valid on its face.

7.5     Revaluation of Outstandings
        On each L/C Valuation Date, the Agent shall calculate the amount of the
        Outstandings (having regard to changes in the Sterling Amounts of the
        Letters of Credit which may arise as a result of currency fluctuations),
        and the Agent shall notify the Account Party of the amount, if any (the
        "Excess Amount"), by which the Outstandings exceed 105 per cent. of the
        aggregate Commitments of the Banks on such date, and the Account Party
        shall secure such Excess Amount by providing Cash Collateral in an
        amount not less than the Excess Amount provided that if the Account
        Party provides Cash Collateral as aforesaid and, on any succeeding L/C
        Valuation Date the Excess Amount as determined on such date (the "New
        Excess Amount") is:

        7.5.1     less than the amount of the Cash Collateral provided at such
                  time, the Agent shall deliver to the Account Party an amount
                  equal to the difference between the amount of such Cash
                  Collateral and the New Excess Amount; or

        7.5.2     greater than the amount of Cash Collateral provided at such
                  time, the Account Party shall deliver to the Agent an amount
                  equal to the amount by which the New Excess Amount exceeds the
                  amount of such Cash Collateral.

8.      CANCELLATION AND COLLATERALISATION

8.1     Cancellation/Cash Collateralisation of Letters of Credit
        The Account Party may give the Agent not less than fourteen days' prior
        notice of its intention to procure that the liability of each Bank under
        a Letter of Credit requested by it is reduced to zero (whereupon it
        shall do so) or provide Cash Collateral for each Bank's L/C Proportion
        under such Letter of Credit (whereupon it shall do so).

8.2     Notice of Cancellation or Collateralisation
        Any notice of cancellation or collateralisation given by the Account
        Party pursuant to this Clause 8 shall be irrevocable, shall specify the
        date upon which such cancellation or collateralisation is to be made and
        the amount of such cancellation or

                                     -25-	

        collateralisation and shall oblige the Account Party to procure such
        cancellation or collateralisation on such date.

8.3     Notice of Removal of a Bank
        If:

        8.3.1    any sum payable to any Bank by the Account Party is required to
                 be increased pursuant to Clause 9.1 (Tax Gross-up); or

        8.3.2    any Bank claims indemnification from the Account Party under
                 Clause 9.2 (Tax Indemnity) or Clause 11.1 (Increased Costs),

        the Account Party may, whilst such circumstance continues, give the
        Agent at least ten Business Days' notice (which notice shall be
        irrevocable) of its intention to cancel, and/or provide Cash Collateral
        in respect of the Commitment of such Bank.

8.4     Removal of a Bank
        On the day the notice referred to in Clause 8.3 (Notice of Removal of a
        Bank) expires the Account Party shall procure either that such Bank's
        L/C Proportion of each relevant Letter of Credit be reduced to zero (by
        reduction of the amount of such Letter of Credit in an amount equal to
        such Bank's L/C Proportion) or that Cash Collateral be provided in an
        amount equal to such Bank's L/C Proportion of such Letter of Credit.

8.5     No Further Availability
        A Bank for whose account a repayment is to be made under Clause 8.3
        (Notice of Removal of a Bank) shall not be obliged to participate in the
        making of any Letter of Credit on or after the date upon which the Agent
        receives the Account Party's notice of its intention to procure the
        repayment of such Bank's share of the Outstandings, and such Bank's
        Available Commitment shall be reduced to zero.

8.6     No Other Repayments or Cancellation
        The Account Party shall not repay or cancel all or any part of the
        Outstandings except at the times and in the manner expressly provided
        for in this Agreement.

9.      TAXES

9.1     Tax Gross-up
        All payments to be made by an Obligor to any Finance Party hereunder
        shall be made free and clear of and without deduction for or on account
        of tax unless such Obligor is required to make such a payment subject to
        the deduction or withholding of tax, in which case the sum payable by
        such Obligor (in respect of which such deduction or withholding is
        required to be made) shall be increased to the extent necessary to
        ensure that such Finance Party receives a sum net of any deduction or
        withholding equal to the sum which it would have received had no such
        deduction or withholding been made or required to be made.

                                     -26-	

9.2     Tax Indemnity
        Without prejudice to Clause 9.1 (Tax Gross-up), if any Finance Party is
        required to make any payment of or on account of tax on or in relation
        to any sum received or receivable hereunder (including any sum deemed
        for purposes of tax to be received or receivable by such Finance Party
        whether or not actually received or receivable) or if any liability in
        respect of any such payment is asserted, imposed, levied or assessed
        against any Finance Party, the Account Party shall, upon demand of the
        Agent, promptly indemnify the Finance Party which suffers a loss or
        liability as a result against such payment or liability, together with
        any interest, penalties, costs and expenses payable or incurred in
        connection therewith, provided that this Clause 9.2 shall not apply to:

        9.2.1     any tax imposed on and calculated by reference to the net
                  income actually received or receivable by such Finance Party
                  by the jurisdiction in which such Finance Party is
                  incorporated; or

        9.2.2     any tax imposed on and calculated by reference to the net
                  income of the Facility Office of such Finance Party actually
                  received or receivable by such Finance Party by the
                  jurisdiction in which its Facility Office is located.

9.3     Banks' Tax Status Confirmation
        Each Bank confirms in favour of the Agent (on the date hereof or, in the
        case of a Bank which becomes a party hereto pursuant to a transfer or
        assignment, on the date on which the relevant transfer or assignment
        becomes effective) that either:

        9.3.1     it is a Qualifying Bank; or

        9.3.2     it is not resident for tax purposes in the United Kingdom and
                  is beneficially entitled to its share of the Outstandings and
                  any interest thereon.	

9.4 Claims by Banks A Bank intending to make a claim pursuant to Clause 9.2 (Tax Indemnity) shall notify the Agent of the event giving rise to the claim, whereupon the Agent shall notify the Account Party thereof.
10. TAX RECEIPTS

10.1    Notification of Requirement to Deduct Tax
        If, at any time, an Obligor is required by law to make any deduction or
        withholding from any sum payable by it hereunder (or if thereafter there
        is any change in the rates at which or the manner in which such
        deductions or withholdings are calculated), such Obligor shall promptly,
        upon becoming aware of the same, notify the Agent.

10.2    Evidence of Payment of Tax
        If an Obligor makes any payment hereunder in respect of which it is
        required to make any deduction or withholding, it shall pay the full
        amount required to be deducted or withheld to the relevant taxation or
        other authority within the time allowed for such payment under
        applicable law and shall deliver to the Agent for each Bank, within

                                     -27-	

        thirty days after it has made such payment to the applicable authority,
        an original receipt (or a certified copy thereof) issued by such
        authority evidencing the payment to such authority of all amounts so
        required to be deducted or withheld in respect of that Bank's share of
        such payment.

10.3    Tax Credit Payment
        If an additional payment is made under Clause 9 (Taxes) by an Obligor
        for the benefit of any Finance Party and such Finance Party, in its sole
        discretion, determines that it has obtained (and has derived full use
        and benefit from) a credit against, a relief or remission for, or
        repayment of, any tax, then, if and to the extent that such Finance
        Party, in its sole opinion, determines that:

        10.3.1    such credit, relief, remission or repayment is in respect of
                  or calculated with reference to the additional payment made
                  pursuant to Clause 9 (Taxes); and

        10.3.2    its tax affairs for its tax year in respect of which such
                  credit, relief, remission or repayment was obtained have been
                  finally settled,

        such Finance Party shall, to the extent that it can do so without
        prejudice to the retention of the amount of such credit, relief,
        remission or repayment, pay to such Obligor such amount as such Finance
        Party shall, in its sole opinion, determine to be the amount which will
        leave such Finance Party (after such payment) in no worse after-tax
        position than it would have been in had the additional payment in
        question not been required to be made by such Obligor.

10.4    Tax Credit Clawback
        If any Finance Party makes any payment to an Obligor pursuant to Clause
        10.3 (Tax Credit Payment) and such Finance Party subsequently
        determines, in its sole opinion, that the credit, relief, remission or
        repayment in respect of which such payment was made was not available or
        has been withdrawn or that it was unable to use such credit, relief,
        remission or repayment in full, the Obligor shall reimburse such Finance
        Party such amount as such Finance Party determines, in its sole opinion,
        is necessary to place it in the same after-tax position as it would have
        been in if such credit, relief, remission or repayment had been obtained
        and fully used and retained by such Finance Party.

10.5    Tax and Other Affairs
        No provision of this Agreement shall interfere with the right of any
        Finance Party to arrange its tax or any other affairs in whatever manner
        it thinks fit, oblige any Finance Party to claim any credit, relief,
        remission or repayment in respect of any payment under Clause 8.1 (Tax
        Gross-up) in priority to any other credit, relief, remission or
        repayment available to it nor oblige any Finance Party to disclose any
        information relating to its tax or other affairs or any computations in
        respect thereof.

11.     INCREASED COSTS

11.1    Increased Costs
        If, by reason of (a) any change in law or in its interpretation or
        administration and/or (b) compliance with any request or requirement
        relating to the maintenance of capital

                                     -28-	

     or any other request from or requirement of any central bank or other
     fiscal, monetary or other authority (being a request or requirement with
     which banks are accustomed to comply) and/or (c) the introduction of,
     changeover to or operation of the euro in any participating member state:

     11.1.1    a Bank or any holding company of such Bank is unable to obtain
               the rate of return on its capital which it would have been able
               to obtain but for such Bank's entering into or assuming or
               maintaining a commitment, issuing or performing its obligations
               under this Agreement or any Letter of Credit;

     11.1.2    a Bank or any holding company of such Bank incurs a cost as a
               result of such Bank's entering into or assuming or maintaining a
               commitment, issuing or performing its obligations under this
               Agreement or any Letter of Credit; or

     11.1.3    there is any increase in the cost to a Bank or any holding
               company of such Bank of funding or maintaining such Bank's share
               of any Unpaid Sum or any Letter of Credit,

     then the Account Party shall, from time to time on demand of the Agent,
     promptly pay to the Agent for the account of that Bank amounts sufficient
     to indemnify that Bank or to enable that Bank to indemnify its holding
     company from and against, as the case may be, (i) such reduction in the
     rate of return of capital, (ii) such cost or (iii) such increased cost.	

11.2 Increased Costs Claims
A Bank intending to make a claim pursuant to Clause 11.1 (Increased Costs) shall notify the Agent of the event giving rise to such claim and the amount of such claim and the basis for calculation of such amount in reasonable detail whereupon the Agent shall notify the Account Party thereof.
11.3 Exclusions
Notwithstanding the foregoing provisions of this Clause 11, no Bank shall be entitled to make any claim under this Clause 11 in respect of:

11.3.1    any cost, increased cost or liability as referred to in Clause
          11.1 (Increased Costs) to the extent the same is compensated by
          the Mandatory Liquid Asset Costs Rate; or

11.3.2    any cost, increased cost or liability compensated by Clause 9
          (Taxes).	

12. ILLEGALITY
If, at any time, it is or will become unlawful or prohibited pursuant to any request from or requirement of any central bank or other fiscal, monetary or other authority (being a request or requirement with which banks are accustomed to comply) for a Bank to fund, issue, participate in or allow to remain outstanding all or part of its share of the Letters of Credit, then that Bank shall, promptly after becoming aware of the same, deliver to the Account Party through the Agent a notice to that effect and:
-29-

12.1.1    such Bank shall not thereafter be obliged to participate in any
          Letter of Credit or issue any Letter of Credit (whichever shall
          be so affected) and the amount of its Available Commitment shall
          be immediately reduced to zero; and

12.1.2    if the Agent on behalf of such Bank so requires, the Account
          Party shall on such date as the Agent shall have specified ensure
          that the liabilities of such Bank under or in respect of each
          affected Letter of Credit are reduced to zero or otherwise
          secured by providing Cash Collateral in an amount equal to such
          Bank's L/C Proportion of such Letters of Credit or such Bank's
          maximum actual or contingent liabilities under such Letter of
          Credit.	

13. MITIGATION
If, in respect of any Bank, circumstances arise which would or would upon the giving of notice result in:

13.1.1    an increase in any sum payable to it or for its account pursuant
          to Clause 8.1 (Tax Gross-up);

13.1.2    a claim for indemnification pursuant to Clause 9.2 (Tax
          Indemnity) or Clause 11.1 (Increased Costs); or

13.1.3    the reduction of its Available Commitment to zero or any
          repayment to be made pursuant to Clause 12 (Illegality),	

then, without in any way limiting, reducing or otherwise qualifying the rights of such Bank or the obligations of the Obligors under any of the Clauses referred to in sub-clauses 13.1.1, 13.1.2 and 13.1.3 such Bank shall promptly upon becoming aware of such circumstances notify the Agent thereof and, in consultation with the Agent and the Account Party and to the extent that it can do so lawfully and without prejudice to its own position, take reasonable steps (including a change of location of its Facility Office or the transfer of its rights, benefits and obligations hereunder to another financial institution which is an Approved Credit Institution and which is acceptable to the Account Party and willing to participate in the Facility) to mitigate the effects of such circumstances, provided that such Bank shall be under no obligation to take any such action if, in the opinion of such Bank, to do so might have any adverse effect upon its business, operations or financial condition (other than any minor costs and expenses of an administrative nature).
14. REPRESENTATIONS
The Obligors jointly and severally represent and warrant on the Commencement Date that:
14.1 Corporate Existence and Power
The Account Party is a company limited by shares, and the Guarantor is a limited liability company, and in each case, is duly incorporated and validly existing under the laws of its jurisdiction of incorporation and the Account Party is in good standing under the laws of the Cayman Islands. Each of the Obligors has all corporate powers
-30-
and all material governmental licenses, authorisations, consents and approvals required to carry on its respective business as now conducted. The Guarantor is a Wholly-Owned Consolidated Subsidiary of the Account Party.
14.2 Corporate and Governmental Authorisation; No Contravention
The execution, delivery and performance by each Obligor of this Agreement and the other Finance Documents to which it is a party are within its corporate powers, have been duly authorised by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the memorandum of association, articles of association or bye-laws (or any comparable document) of any Obligor or of any agreement, judgment, injunction, order, decree or other instrument binding upon any Obligor or any of their respective Subsidiaries or result in the creation or imposition of any Lien (excluding the provision of Security pursuant to this Agreement) on any asset of any Obligor or any of their respective Subsidiaries.
14.3 Binding Effect
Each of this Agreement and the other Finance Documents to which any Obligor is a party constitutes a valid and binding agreement of each Obligor enforceable in accordance with its terms, subject to bankruptcy, insolvency or other laws of general application affecting the enforcement of creditors rights, the application of equitable principles and the non-availability of the equitable remedies of specific performance or injunctive relief.
14.4 Financial Information

14.4.1    The consolidated balance sheet of the Account Party and its
          Consolidated Subsidiaries as of 31 December 1999 and the related
          consolidated statements of operations and of cash flows for the
          fiscal year then ended, reported on by PricewaterhouseCoopers
          LLP, copies of which have been delivered to each of the Banks,
          fairly present, in all material respects, in conformity with
          GAAP, the consolidated financial position of the Account Party
          and its Consolidated Subsidiaries as of such date and their
          consolidated results of operations and cash flows for such fiscal
          year.

14.4.2    The unaudited consolidated balance sheet of the Account Party and
          its Consolidated Subsidiaries as of 30 June 2000 and the related
          unaudited consolidated statements of operations and of cash flows
          for the six months then ended, copies of which have been
          delivered to each of the Banks, fairly present, in all material
          respects, in conformity with GAAP (except for the absence of
          footnotes) applied on a basis consistent with the financial
          statements referred to in sub-clause 14.4.1 of Clause 14.4
          (Financial Information), the consolidated financial position of
          the Account Party and its Consolidated Subsidiaries as of such
          date and their consolidated results of operations and cash flows
          for such six month period (subject to normal year-end
          adjustments).

                                -31-	

14.4.3    Since 30 June 2000 there has been no material adverse change in
          the business, financial position or results of operations of the
          Account Party and its Consolidated Subsidiaries, considered as a
          whole.

14.4.4    The consolidated balance sheet of the Guarantor and its
          Consolidated Subsidiaries as of 31 December 1999 and the related
          consolidated statements of operations and retained earnings and
          of cash flows for the fiscal year then ended, all reported on by
          PricewaterhouseCoopers LLP, copies of which have been delivered
          to each of the Banks, fairly present, in all material respects in
          conformity with GAAP, the consolidated financial position of the
          Guarantor and its Consolidated Subsidiaries as of such date and
          their consolidated results of operations and retained earnings
          and cash flows for such fiscal year.

14.4.5    Since 31 December 1999 there has been no material adverse change
          in the business, financial position or results of operations of
          the Guarantor and its Consolidated Subsidiaries, considered as a
          whole.	

14.5 Litigation
Except as disclosed in the notes to the financial statements referred to in Clause 14.4.1 (Financial Information) and except for insurance claims made in the context of the ordinary course of business of the Group, there is no action, suit or proceeding pending against, or to the knowledge of the Account Party threatened against or affecting, the Account Party or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable likelihood of an adverse decision which could materially adversely affect the business, consolidated financial position or consolidated results of operations of the Account Party and its Consolidated Subsidiaries, considered as a whole, or which in any manner draws into question the validity or enforceability of this Agreement or any other Finance Document.
14.6 Taxes
The Account Party and its Subsidiaries have filed all material income tax returns and all other material tax returns which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Account Party or any Subsidiary. The charges, accruals and reserves on the books of the Account Party and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Account Party, adequate.
14.7 Written Information
All written information supplied by any member of the Group which is factual, is true, complete and accurate in all material respects as at the date it was given and is not misleading in any material respect and all financial projections so supplied have been prepared on the basis of recent historical information and on the basis of reasonable assumptions.
-32-

14.8  Compliance with Laws

      The Account Party and each Subsidiary are in compliance, in all material
      respects, with all applicable laws, ordinances, rules, regulations,
      guidelines and other requirements of governmental authorities except where
      the necessity of compliance therewith is contested in good faith by
      appropriate proceedings and any reserves required under generally accepted
      accounting principles with respect thereto have been established and
      except where any such failure could not reasonably be expected to
      materially adversely affect the business, consolidated financial position
      or consolidated results of operations of the Account Party and its
      Consolidated Subsidiaries, considered as a whole.

14.9  Lien

      14.9.1   Upon delivery of the Security to the Custodian as provided in the
               Charge Agreement, the Account Party will have good and marketable
               title in and to the Security free and clear of all Liens (except
               the Lien created under the Finance Documents and subject to the
               interest of the Custodian under the Finance Documents).

      14.9.2   Upon delivery of the Security to the Custodian as provided in the
               Charge Agreement, the Charge Agreement will create in favour of
               the Security Trustee for the benefit of the Banks a valid and
               enforceable first priority Lien on all of the Security, subject
               to the interest of the Custodian under the Finance Documents.

      14.9.3   Upon delivery of the Security to the Custodian as provided in the
               Charge Agreement, the Account Party will not have outstanding,
               nor will it be contractually bound to create, any Lien on or with
               respect to any of the Security, subject to the interest of the
               Custodian under the Finance Documents.

      14.9.4   The Account Party is not subject to any agreement, judgment,
               injunction, order, decree or other instrument or any law or
               regulation which would prevent or otherwise interfere with the
               Account Party's obligations to deliver Security in the amounts,
               at the times and as otherwise provided in the Charge Agreement,
               subject to the interest of the Custodian under the Finance
               Documents.

      The representations contained in this Clause 14.9 shall only be made on
      each day commencing on the date on which the Account Party may be required
      to grant Security pursuant to sub-clause 17.1.2 of Clause 17.1 (Letter of
      Credit Commission) and for so long as such Security is required to remain
      in place.	

14.10 Validity and Admissibility in Evidence
All acts, conditions and things required to be done, fulfilled and performed in order (a) to enable each Obligor lawfully to enter into, exercise its rights under and perform and comply with the obligations expressed to be assumed by it in the Finance Documents to which it is a party, (b) to ensure that the obligations expressed to be assumed by it in
-33-
the Finance Documents to which it is a party are legal, valid, binding and enforceable and (c) to make the Finance Documents to which it is a party admissible in evidence in its jurisdiction of incorporation have been done, fulfilled and performed (subject to any exception contained in the legal opinions provided as conditions precedent).
14.11 Claims Pari Passu
Under the laws of its jurisdiction of incorporation in force at the date of this Agreement, the claims of the Finance Parties against each Obligor under this Agreement will rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors save those claims which are preferred solely by any bankruptcy, insolvency, liquidation or other similar laws of general application or are mandatorily preferred by law applying to insurance companies generally.
14.12 No Filing or Stamp Taxes
Under the laws of the jurisdiction of incorporation of each Obligor in force at the date of this Agreement, it is not necessary that the Finance Documents to which it is party be filed, recorded or enrolled with any court or other authority in such jurisdiction or that any stamp, registration or similar tax be paid on or in relation to the Finance Documents to which it is party.
14.13 No Winding-up
No Obligor or Material Subsidiary has taken any corporate action nor have any other steps been taken or legal proceedings been started or (to the best of its knowledge and belief) threatened against any Obligor or Material Subsidiary for its winding-up, dissolution, administration or re- organisation (whether by voluntary arrangement, scheme of arrangement or otherwise) or for the appointment of a receiver, administrator, administrative receiver, conservator, custodian, trustee or similar officer of it or of any or all of its assets or revenues.
14.14 No Default
No Default has occurred and is continuing.
15. COVENANTS

      The Account Party agrees that, so long as any Original Letter of Credit or
      any Letter of Credit is in effect or any Outstandings remain unpaid:

15.1  Information

      The Account Party will deliver to the Agent in sufficient copies for the
      Banks:

      15.1.1   as soon as available and in any event within 90 days after the
               end of each fiscal year of the Account Party, a consolidated
               balance sheet of the Account Party and its Consolidated
               Subsidiaries as of the end of such fiscal year and the related
               consolidated statements of operations and of cash flows for such
               fiscal year, setting forth in each case in comparative form the
               figures for the previous fiscal year, all reported on in a manner
               acceptable to the Securities and Exchange Commission of the
               United States of America or otherwise	

-34-

               reasonably acceptable to the Majority Banks by
               PricewaterhouseCoopers LLP or other independent public
               accountants of internationally recognised standing;

      15.1.2   as soon as available and in any event within 45 days after the
               end of each of the first three quarters of each fiscal year of
               the Account Party, a consolidated balance sheet of the Account
               Party and its Consolidated Subsidiaries as of the end of such
               quarter and the related consolidated statements of operations and
               of cash flows for such quarter and for the portion of the Account
               Party's fiscal year ended at the end of such quarter, setting
               forth in the case of such statements of operations and cash flows
               in comparative form the figures for the corresponding quarter and
               the corresponding portion of the Account Party's previous fiscal
               year, all certified (subject to normal year-end adjustments) as
               to fairness of presentation, generally accepted accounting
               principles and consistency by the chief financial officer or the
               chief accounting officer of the Account Party;

      15.1.3   simultaneously with the delivery of each set of financial
               statements referred to in sub-clauses 15.1.1 and 15.1.2 of this
               Clause 15.1, a certificate of the chief financial officer or the
               chief accounting officer of the Account Party (a) setting forth
               in reasonable detail the calculations required to establish
               whether the Account Party was in compliance with the requirements
               of Clauses 15.7 (Adjusted Consolidated Debt to Total
               Capitalisation Ratio) to 15.9 (Liens), inclusive, on the date of
               such financial statements and (b) stating whether any Default
               exists on the date of such certificate and, if any Default then
               exists, setting forth the details thereof and the action which
               the Account Party is taking or proposes to take with respect
               thereto;

      15.1.4   within five days after any executive officer of the Account Party
               obtains knowledge of any Default, if such Default is then
               continuing, a certificate of the chief financial officer or the
               chief accounting officer of the Account Party setting forth the
               details thereof and the action which the Account Party is taking
               or proposes to take with respect thereto;

      15.1.5   promptly upon the mailing thereof to the shareholders of the
               Account Party generally, copies of all financial statements,
               reports and proxy statements so mailed;

      15.1.6   promptly upon the filing thereof, copies of all registration
               statements (other than the exhibits thereto and any registration
               statements on Form S-8 or its equivalent) and reports on Forms
               10-K, 10-Q and 8-K (or their equivalents) which the Account Party
               shall have filed with the Securities and Exchange Commission of
               the United States of America;

      15.1.7   as soon as available and in any event within 20 days after
               submission, each statutory statement of the Guarantor in the form
               submitted to The Insurance Division of the Office of Registrar of
               Companies of Bermuda;

                                     -35-	

      15.1.8   as soon as available and in any event within 120 days after the
               end of each fiscal year of the Guarantor, a consolidated balance
               sheet of the Guarantor and its Consolidated Subsidiaries as of
               the end of such fiscal year and the related statements of income
               and changes in financial position for such fiscal year, setting
               forth in each case in comparative form the figures for the
               previous fiscal year, all reported on by the independent public
               accountants which reported on the financial statements referred
               to in sub-clause 15.1.1 of this Clause 15.1;

      15.1.9   promptly after any executive officer of the Account Party obtains
               knowledge thereof, (a) a copy of any notice from the Minister of
               Finance or the Registrar of Companies or any other Person of the
               revocation, the suspension or the placing of any restriction or
               condition on the registration as an insurer of the Guarantor
               under the Bermuda Insurance Law or of the institution of any
               proceeding or investigation which could result in any such
               revocation, suspension or placing of such a restriction or
               condition, (b) copies of any correspondence by, to or concerning
               the Guarantor relating to an investigation conducted by the
               Minister of Finance, whether pursuant to Section 132 of the
               Bermuda Companies Law or otherwise and (c) a copy of any notice
               of or requesting or otherwise relating to the winding up or any
               similar proceeding of or with respect to the Guarantor; and

      15.1.10  from time to time such additional information regarding the
               financial position, results of operations or business of the
               Account Party or any of its Subsidiaries as the Agent, at the
               request of any Bank, may reasonably request from time to time.

15.2  Payment of Obligations

      The Account Party will pay and discharge, and will cause each Subsidiary
      to pay and discharge, at or before maturity, all their respective material
      obligations and liabilities, including, without limitation, tax
      liabilities, except where the same may be contested in good faith by
      appropriate proceedings, and will maintain, and will cause each Subsidiary
      to maintain, in accordance with generally accepted accounting principles,
      appropriate reserves for the accrual of any of the same.

15.3  Maintenance of Property; Insurance.

      15.3.1   The Account Party will keep, and will cause each Subsidiary to
               keep, all property useful and necessary in its business in good
               working order and condition, ordinary wear and tear excepted.

      15.3.2   The Account Party will maintain, and will cause each Subsidiary
               to maintain, physical damage insurance on all real and personal
               property on an all risks basis (including the perils of flood and
               quake), covering the repair and replacement cost of all such
               property and consequential loss coverage for business
               interruption and extra expense (but, for the avoidance of doubt,
               the foregoing shall not apply to maintenance of reinsurance or
               similar matters

                                     -36-	

               which shall be solely within the reasonable business judgement of
               the Account Party and its Subsidiaries). The Account Party will
               deliver to the Banks upon request of any Bank through the Agent
               from time to time, full information as to the insurance carried.

15.4  Conduct of Business and Maintenance of Existence

      The Account Party will continue, and will cause each Subsidiary to
      continue, to engage in business of the same general type as now conducted
      by the Account Party and its Subsidiaries, and will preserve, renew and
      keep in full force and effect, and will cause each Subsidiary to preserve,
      renew and keep in full force and effect, their respective existence and
      their respective rights, privileges and franchises necessary or desirable
      in the normal conduct of business; provided that nothing in this Clause
      15.4 shall prohibit (i) the merger of a Subsidiary (other than the
      Guarantor) into the Account Party or the merger or consolidation of a
      Subsidiary (other than the Guarantor) with or into another Person if the
      corporation surviving such consolidation or merger is a Subsidiary and if,
      in each case, after giving effect thereto, no Default shall have occurred
      and be continuing, (ii) any merger of any Obligor permitted by Clause
      15.10 (Consolidations, Mergers and Sale of Assets) or (iii) the
      termination of (x) the corporate existence or (y) any rights, privileges
      and franchises of any Subsidiary (other than the Guarantor) if the Account
      Party in good faith determines that such termination is in the best
      interest of the Account Party and is not materially disadvantageous to the
      Banks.

15.5  Compliance with Laws

      The Account Party will comply, and cause each Subsidiary to comply, in all
      material respects with all applicable laws, ordinances, rules,
      regulations, guidelines and other requirements of governmental authorities
      except where the necessity of compliance therewith is contested in good
      faith by appropriate proceedings and any reserves required under generally
      accepted accounting principles with respect thereto have been established
      and except where any such failure to comply could not reasonably be
      expected to materially adversely affect the business, consolidated
      financial position or consolidated results of operations of the Account
      Party and its Consolidated Subsidiaries, considered as a whole.

15.6  Inspection of Property, Books and Records

      The Account Party will keep, and will cause each Subsidiary to keep,
      proper books of records and account in accordance with generally accepted
      accounting principles in which full, true and correct entries shall be
      made of all dealings and transactions in relation to its business and
      activities; and will permit, and will cause each Subsidiary to permit,
      representatives of any Bank at such Bank's expense to visit and inspect
      any of their respective properties, to examine and make abstracts from any
      of their respective books and records and to discuss their respective
      affairs, finances and accounts with their respective officers, employees
      and independent public accountants, all at such reasonable times on
      reasonable notice and as often as may reasonably be desired.

                                     -37-	

15.7  Adjusted Consolidated Debt to Total Capitalisation Ratio

      The Account Party shall maintain at all times a ratio of Adjusted
      Consolidated Debt to Total Capitalisation of not more than 0.35 to 1.

15.8  Consolidated Net Worth

      The Account Party shall maintain at all times Consolidated Net Worth in an
      amount at least equal to the sum of (i) US$3,600,000,000 plus (ii) 25 per
      cent. of Consolidated Net Income for each fiscal quarter of the Account
      Party ending on and after 31 March 2000 for which such Consolidated Net
      Income is positive.

15.9  Liens

      Neither the Account Party nor any Subsidiary will create, incur, assume or
      suffer to exist, or permit any of its Subsidiaries to create, incur,
      assume or suffer to exist, any Lien on or with respect to any of its
      properties of any character (including, without limitation, accounts)
      whether now owned or hereafter acquired, or assign, or permit any of its
      Subsidiaries to assign, any accounts or other right to receive income,
      except:

      15.9.1   Liens created under the US Loan Documents;

      15.9.2   Permitted Liens;

      15.9.3   Liens described in Schedule 10 (Existing Liens);

      15.9.4   purchase money Liens upon or in real property or equipment
               acquired or held by the Account Party or any of its Subsidiaries
               in the ordinary course of business to secure the purchase price
               of such property or equipment or to secure Debt incurred solely
               for the purpose of financing the acquisition, construction or
               improvement of any such property or equipment to be subject to
               such Liens, or Liens existing on any such property or equipment
               at the time of acquisition or within 180 days following such
               acquisition (other than any such Liens created in contemplation
               of such acquisition that do not secure the purchase price), or
               extensions, renewals or replacements or any of the foregoing for
               the same or a lesser amount; provided, however, that no such Lien
               shall extend to or cover any property other than the property or
               equipment being acquired, constructed or improved, and no such
               extension, renewal or replacement shall extend to or cover any
               property not theretofore subject to the Lien being extended,
               renewed or replaced;

      15.9.5   Liens arising in connection with Capitalised Leases; provided
               that no such Lien shall extend to or cover any assets other than
               the assets subject to such Capitalised Leases;

      15.9.6   (A) any Lien existing on any asset of any Person at the time such
               Person becomes a Subsidiary and not created in contemplation of
               such event, (B) any Lien on any asset of any Person existing at
               the time such Person is merged or consolidated with or into the
               Account Party or any of its Subsidiaries in accordance with
               Clause 15.10 (Consolidations, Mergers and Sales of Assets) and
               not created in contemplation of such event and (C) any Lien
               existing on

                                     -38-	

               any asset prior to the acquisition thereof by the Account Party
               or any of its Subsidiaries and not created in contemplation of
               such acquisition;

     15.9.7    Liens securing obligations under credit default swap transactions
               determined by reference to, or Contingent Obligations in respect
               of, Debt issued by the Account Party or one of its Subsidiaries;
               such Debt not to exceed an aggregate principal amount of
               US$550,000,000;

     15.9.8    Liens arising in the ordinary course of its business which (A) do
               not secure Debt and (B) do not in the aggregate materially
               detract from the value of its assets or materially impair the use
               thereof in the operation of its business;

     15.9.9    Liens on cash and Approved Investments securing Hedge Agreements
               arising in the ordinary course of business;

     15.9.10   other Liens securing Debt or other obligations outstanding in an
               aggregate principal or face amount not to exceed at any time 5
               per cent. of Consolidated Net Worth;

     15.9.11   Liens consisting of deposits made by the Account Party or any
               insurance Subsidiary with any insurance regulatory authority or
               other statutory Liens or Liens or claims imposed or required by
               applicable insurance law or regulation against the assets of the
               Account Party or any insurance Subsidiary, in each case in favour
               of policyholders of the Account Party or such insurance
               Subsidiary or an insurance regulatory authority and in the
               ordinary course of the Account Party's or such insurance
               Subsidiary's business;

     15.9.12   Liens on Investments and cash balances of the Account Party or
               any insurance Subsidiary (other than capital stock of any
               Subsidiary) securing obligations of the Account Party or any
               insurance Subsidiary in respect of (i) letters of credit obtained
               in the ordinary course of business and/or (ii) trust arrangements
               formed in the ordinary course of business for the benefit of
               cedents to secure reinsurance recoverables owed to them by the
               Account Party or any insurance Subsidiary;

     15.9.13   the replacement, extension or renewal of any Lien permitted by
               sub-clause 15.9.2 or 15.9.5 of this Clause 15.9 upon or in the
               same property theretofore subject thereto or the replacement,
               extension or renewal (without increase in the amount (other than
               in respect of fees, expenses and premiums, if any) or change in
               any direct or contingent obligor) of the Debt secured thereby;

     15.9.14   Liens securing obligations owed by the Account Party to any
               Subsidiary or by any Subsidiary to the Account Party or any other
               Subsidiary;

     15.9.15   Liens incurred in the ordinary course of business in favour of
               financial intermediaries and clearing agents pending clearance of
               payments for investment or in the nature of set-off, banker's
               lien or similar rights as to deposit accounts or other funds;

                                     -39-	

     15.9.16   judgement or judicial attachment Liens, provided that the
               enforcement of such Liens is effectively stayed;

     15.9.17   Liens on any assets of the Account Party created pursuant to the
               Finance Documents;

     15.9.18   Liens arising in connection with certain equity proceeds received
               on or about 12 September 2000 (plus interest accrued thereon)
               placed in a segregated account in support of (or pledged as
               collateral for) the Account Party's guarantee of the
               US$412,372,000 principal amount of Auction Rate Reset
               Subordinated Notes Series A issued by ACE INA to ACE RHINOS Trust
               on 30 June 1999; and

     15.9.19   Liens arising in connection with Securitisation Transactions,
               provided that the aggregate principal amount of the investment or
               claim held at any time by all purchasers, assignees or other
               transferees of (or of interests in) receivables and other rights
               to payment in all Securitisation Transactions shall not exceed
               US$250,000,000.

15.10    Consolidations, Mergers and Sales of Assets
         15.10.1  No Obligor will consolidate with or merge into any other
                  Person, provided that if both immediately before and after
                  giving effect thereto no Default shall have occurred and be
                  continuing, then:

                  (a)   the Guarantor may merge or consolidate with any other
                        Person so long as the surviving entity is the Guarantor
                        or a Wholly-Owned Consolidated Subsidiary of the Account
                        Party and, if the Guarantor is not the surviving entity,
                        such surviving entity shall have assumed the obligations
                        of the Guarantor hereunder pursuant to an instrument in
                        form and substance reasonably satisfactory to the
                        Majority Banks and shall have delivered such opinions of
                        counsel with respect thereto as the Agent may reasonably
                        request; and

                  (b)   the Account Party may merge with another Person so long
                        as the Account Party is the surviving entity.

         15.10.2  No Obligor will sell, lease or otherwise transfer, directly or
                  indirectly, all or any substantial part of its assets to any
                  other Person (excluding sales of investment securities in the
                  ordinary course of business).

15.11   No Amendments
        The Account Party shall not amend or waive, or utilise or rely on any
        waiver of, any provision of any Security Document that may be entered
        into without the written consent of the Agent, the Security Trustee and
        the Majority Banks.

15.12   Maintenance of Legal Validity
        Each Obligor shall obtain, comply with the terms of and do all that is
        necessary to maintain in full force and effect all authorisations,
        approvals, licences and consents

                                     -40-	

        required in or by the laws of its jurisdiction of incorporation to
        enable it lawfully to enter into and perform its obligations under the
        Finance Documents to which it is a party and to ensure the legality,
        validity, enforceability or admissibility in evidence in its
        jurisdiction of incorporation of the Finance Documents to which it is a
        party.

15.13   Claims Pari Passu
        Each Obligor shall ensure that at all times the claims of the Finance
        Parties against it under this Agreement ranks at least pari passu with
        the claims of all its other unsecured and unsubordinated creditors save
        those claims which are preferred by any bankruptcy, insolvency,
        liquidation or other similar laws of general application or are
        mandatorily preferred by law applying to insurance companies generally.

16.     EVENTS OF DEFAULT

        Each of Clause 16.1 (Failure to Pay) to Clause 16.17 (Custodian's
        Undertaking) describes circumstances which constitute an Event of
        Default for the purposes of this Agreement.

16.1    Failure to Pay
        The Account Party shall fail to reimburse any drawing under any Letter
        of Credit when required hereunder or shall fail to pay within five
        Business Days of the due date thereof any interest or fees or other
        amounts payable hereunder or under any other Finance Document or the
        Guarantor shall fail to pay when due any such reimbursement obligations,
        interest, fees or other amounts payable hereunder provided that, for the
        purposes of this Clause 16.1, no such payment default by the Account
        Party shall be continuing if the Guarantor pays the amount thereof at
        the time and otherwise in the manner provided in Clause 29 (Guarantee
        and Indemnity).

16.2    Specific Covenants
        The Account Party shall fail to observe or perform any covenant (a)
        contained in Clauses 15.7 (Adjusted Consolidated Debt to Total
        Capitalisation Ratio) to Clause 15.10 (Consolidations, Mergers and Sale
        of Assets) inclusive or (b) contained in Clause 17.1 (Letter of Credit
        Commission).

16.3    Other Obligations
        Any Obligor shall fail to observe or perform any covenant or agreement
        contained in this Agreement or in any other Finance Document (other than
        those covered by Clause 16.1 or Clause 16.2 above) and such failure, if,
        in the reasonable opinion of the Majority Banks, it is capable of
        remedy, is not remedied within 30 days after notice thereof has been
        given to the Account Party by the Agent at the request of any Bank.

16.4    Misrepresentation
        Any representation, warranty, certification or statement made by any
        Obligor in this Agreement or in any other Finance Document or in any
        certificate, financial statement or other document delivered pursuant to
        this Agreement or any other Finance Document shall prove to have been
        incorrect in any material respect when made (or deemed made).

                                     -41-	

16.5    Cross-default
        The Account Party or any Subsidiary shall fail to make any payment in
        respect of any Material Financial Obligations when due or within any
        applicable grace period.

16.6    Cross-Acceleration
        Any event or condition shall occur which results in the acceleration of
        the maturity of any Material Debt or enables (or, with the giving of
        notice or lapse of time or both, would enable) the holder of such
        Material Debt or any Person acting on such holder's behalf to accelerate
        the maturity thereof.

16.7    Winding-up of the Account Party or the Guarantor
        16.7.1    A resolution or other similar action is passed authorising the
                  voluntary winding up of the Account Party or any other similar
                  action with respect to the Account Party or a petition is
                  filed for the winding up of the Account Party or the taking of
                  any other similar action with respect to the Account Party in
                  the Grand Court of the Cayman Islands (except in the case of
                  any frivolous or vexatious steps or proceedings started by any
                  Person who is not a member of the Group where such steps or
                  proceedings are dismissed within 30 days); or

     16.7.2       any corporate action is taken authorising the winding up, the
                  liquidation, any arrangement or the taking of any other
                  similar action of or with respect to the Guarantor or
                  authorising any corporate action to be taken to facilitate any
                  such winding up, liquidation, arrangement or other similar
                  action or any petition shall be filed seeking the winding up,
                  the liquidation, any arrangement or the taking of any other
                  similar action of or with respect to the Guarantor by the
                  Registrar of Companies in Bermuda, one or more holders of
                  insurance policies or reinsurance certificates issued by the
                  Guarantor or by any other Person or Persons or any petition
                  shall be presented for the winding up of the Guarantor to a
                  court of Bermuda as provided under the Bermuda Companies Law
                  and in either such case such petition shall remain undismissed
                  and unstayed for a period of 60 days or any creditors' or
                  members' voluntary winding up of the Guarantor as provided
                  under the Bermuda Companies Law shall be commenced or any
                  receiver shall be appointed by a creditor of the Guarantor or
                  by a court of Bermuda on the application of a creditor of the
                  Guarantor as provided under any instrument giving rights for
                  the appointment of a receiver.

16.8    Execution or Distress
        A proceeding shall be commenced by any Person seeking execution or
        distress over or possession of the assets of either Obligor or any
        substantial part thereof or any similar remedy and such proceedings
        shall remain undismissed and unstayed for a period of 60 days.

16.9    Insolvency and Rescheduling
        An Obligor or Material Subsidiary shall commence a voluntary case or
        other proceeding seeking liquidation, reorganisation or other relief
        with respect to itself or its debts under any bankruptcy, insolvency or
        other similar law now or hereafter in effect or seeking the appointment
        of a trustee, receiver, liquidator, custodian or other similar

                                     -42-	

        official of it or any substantial part of its property, or shall consent
        to any such relief or to the appointment of or taking possession by any
        such official in an involuntary case or other proceeding commenced
        against it or shall make a general assignment for the benefit of
        creditors, or shall fail generally to pay its debts as they become due,
        or shall take any corporate action to authorise any of the foregoing; or
        an involuntary case or other proceeding shall be commenced against an
        Obligor or Material Subsidiary seeking liquidation, reorganisation or
        other relief with respect to it or its debts under any bankruptcy,
        insolvency or other similar law now or hereafter in effect or seeking
        the appointment of a trustee, receiver, liquidator, custodian or other
        similar official of it or any substantial part of its property, and such
        involuntary case or other proceeding shall remain undismissed and
        unstayed for a period of 60 days; or an order for relief shall be
        entered against an Obligor or Material Subsidiary under the United
        States federal bankruptcy laws as now or hereafter in effect.

16.10   Analogous Proceedings
        There occurs, in relation to an Obligor or Material Subsidiary in any
        country or territory in which any of them carries on business or in any
        jurisdiction where any part of their assets is subject, any event which
        corresponds in that country or territory with any of those mentioned in
        Clause 16.7 (Winding-up of the Account Party or the Guarantor) to Clause
        16.9 (Insolvency and Rescheduling) above.

16.11   Failure to comply with Judgment
        A final judgment or order for the payment of money in excess of
        US$100,000,000 shall be rendered against an Obligor or Material
        Subsidiary and such judgment or order shall continue unsatisfied and
        unstayed for a period of 30 days.

16.12    Ownership of the Account Party and the Guarantor

          16.12.1   Any Person or two or more Persons acting in concert shall
                    have acquired beneficial ownership (within the meaning of
                    Rule 13d-3 of the Securities and Exchange Commission under
                    the Securities Exchange Act of 1934 of the United States of
                    America, as amended), directly or indirectly, of Voting
                    Interests of the Account Party (or other securities
                    convertible into such Voting Interests) representing 30 per
                    cent. or more of the combined voting power of all Voting
                    Interests of the Account Party; or

          16.12.2   during any period of 12 consecutive calendar months,
                    individuals who were directors of the Account Party on the
                    first day of such period shall cease to constitute a
                    majority of the board of directors of the Account Party; or

          16.12.3   any Person or two or more Persons acting in concert shall
                    have acquired, by contract or otherwise, or shall have
                    entered into a contract or arrangement that results in its
                    or their acquisition of the power to exercise, directly or
                    indirectly, a controlling influence over the management or
                    policies of the Account Party; or

          16.12.4  the Guarantor ceases to be a Wholly-Owned Consolidated
                   Subsidiary of the Account Party.	

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16.13    Illegality
         At any time it is or becomes unlawful for either Obligor to
         perform or comply with any or all of its obligations
         hereunder or under any of the Finance Documents or any court
         or arbitrator or any governmental body, agency or official
         which has jurisdiction in the matter shall decide, rule or
         order that any provision of any of the Finance Documents is
         invalid or unenforceable in any material respect, or either
         Obligor shall so assert in writing.

16.14    Revocation of Registration
         The registration of the Guarantor as an insurer shall be
         revoked, suspended or otherwise have restrictions or
         conditions placed upon it unless, in the case of the placing
         of any such restrictions or conditions, such restrictions or
         conditions could not have a material adverse effect on the
         interests of the Finance Parties under the Finance Documents.

16.15    Security
         If the Account Party is required to grant security pursuant
         to sub-clause 17.1.2 of Clause 17.1 (Letter of Credit
         Commission), the Account Party fails to deliver Security at
         the times, in the amounts or as otherwise specified in the
         Finance Documents or the Lien created pursuant thereto on the
         Security shall at any time or for any reason cease to be a
         valid, enforceable and first priority Lien on any of the
         Security or the Account Party shall fail to observe or
         perform any covenant relating to the delivery of the Security
         and the perfection of the first priority charge and security
         interest created therein contained in any other Finance
         Document, provided that if the market value of the Charged
         Portfolio falls below the Required Value or the Charged
         Portfolio fails to satisfy the Security Trustee's
         Requirements (as defined in the Charge Agreement), such
         circumstances shall not constitute an Event of Default if the
         market value of the Charged Portfolio is restored to the
         Required Value and/or, as the case may be, the Security
         Trustee's Requirements are satisfied in each case within five
         Business Days of notification by the Security Trustee on
         behalf of the Banks of the breach of Clause 4 of the Charge
         Agreement or, if earlier, within five Business Days of the
         Account Party becoming aware of such breach.

16.16    Finance Documents
         Any provision of any Finance Document is repudiated,
         terminated, amended or waived by any party thereto without
         the written consent of the Agent, the Security Trustee and
         the Majority Banks.

16.17    Custodian's Undertaking
         In the event that the Account Party is required to grant
         Security pursuant to sub-clause 17.1.2 of Clause 17.1 (Letter
         of Credit Commission), the Custodian fails to observe or
         perform any material provision of the Custodian's Undertaking
         and such failure, if in the reasonable opinion of the
         Majority Banks it is capable of remedy, is not remedied
         within 30 days after notice thereof has been given to the
         Custodian by the Account Party or by the Agent at the request
         of any Bank.	

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16.18    Acceleration and Cancellation
         Upon the occurrence of an Event of Default at any time thereafter
         while that Event of Default is continuing, the Agent may (and, if
         so instructed by the Majority Banks shall) by notice to the
         Account Party:

         16.18.1  require the Account Party to procure that the
                  liabilities of each of the Banks under each Letter of
                  Credit are promptly reduced to zero and/or provide Cash
                  Collateral for each Letter of Credit in an amount
                  specified by the Agent (whereupon the Account Party shall
                  do so); and/or

         16.18.2  declare that any unutilised portion of the Facility shall
                  be cancelled, whereupon the same shall be cancelled and
                  the Available Commitment of each Bank shall be reduced to
                  zero; and

         16.18.3  (in the event that the Account Party has granted Security
                  pursuant to sub-clause 17.1.2 of Clause 17.1 (Letter of
                  Credit Commission), direct the Security Trustee to
                  exercise all rights and remedies of a mortgagee or a
                  secured party at such time including, without limitation,
                  the right to take possession of any or all of the assets
                  subject to the Security Documents and the books and
                  records relating thereto, with or without judicial
                  process. For the purposes of the preceding sentence, the
                  Security Trustee may enter upon any or all of the
                  premises where any of the assets subject to the Security
                  Documents, such other security or books or records may
                  be situated and take possession and remove the same
                  therefrom.

   17.   COMMISSION AND FEES

   17.1  Letter of Credit Commission

         17.1.1   The Account Party shall, in respect of each Letter of
                  Credit requested by it, pay to the Agent for the account
                  of each Bank (for distribution in proportion to each
                  Bank's L/C Proportion of such Letter of Credit) a letter
                  of credit commission in sterling at the L/C Commission
                  Rate on the maximum actual and contingent liabilities of
                  the Banks under the relevant Letter of Credit. Such
                  Letter of Credit Commission shall be paid quarterly in
                  arrear in respect of each successive period of three
                  months (or such shorter period as shall end on the
                  relevant Expiry Date) which begins during the Term of the
                  relevant Letter of Credit, commencing from the Effective
                  Date of such Letter of Credit, and payable on the first
                  day of each such period thereafter.

         17.1.2   If the Pricing Level reaches Level V (each as defined in
                  Schedule 9 (Pricing Schedule)), the Account Party shall
                  execute and deliver a Charge Agreement and grant Security
                  in favour of the Security Trustee in accordance with the
                  terms thereof with a Required Value equal to the
                  aggregate amount of the Letters of Credit issued
                  hereunder or such other amount as may be required by the
                  Security Trustee, and the Account Party shall promptly
                  (and in any event within five Business Days) perform its
                  obligations under Clause 4 of the Charge Agreement. Upon
                  the Security Trustee being satisfied that the Account

                                -45-	

                  Party has performed its obligations under Clause 4 of the
                  Charge Agreement, and having received legal opinions in
                  form and substance satisfactory to the Security Trustee
                  (acting reasonably) opining that the Charge Agreement has
                  been executed with the necessary power and authorisation
                  and creates in favour of the Security Trustee on behalf
                  of the Banks a valid and enforceable first priority Lien
                  on all of the Security in respect of the Security
                  (subject to such qualifications and assumptions as are
                  customarily made by leading firms of solicitors in giving
                  legal opinions of that nature), the L/C Commission Rate
                  shall become 0.15 per cent. and the Security Trustee
                  shall notify all parties hereto accordingly.

         17.1.3   Any change to the L/C Commission Rate shall take effect
                  on the day on which the event giving rise to such change
                  occurs (whether pursuant to Schedule 9 (Pricing Schedule)
                  or pursuant to Clause 17.1.2).

         17.1.4   Any unpaid Letter of Credit Commission payable in respect
                  of each Original Letter of Credit shall be paid in full
                  by the Account Party by no later than the Effective Date.

  17.2   Arrangement Fees
         The Account Party shall pay to the Arranger the fees specified in
         the letter dated 12 September 2000 from the Arranger to the
         Account Party at the times, and in the amounts, specified in such
         letter.

  17.3   Agency Fee
         The Account Party shall pay to the Agent for its own account the
         agency fees specified in the letter dated 12 September 2000 from
         the Arranger to the Account Party at the times, and in the
         amounts, specified in such letter.

  17.4   Participation Fees
         The Account Party shall pay to the Arranger the participation fees
         specified in the letter dated 12 September 2000 from the Arranger
         to the Account Party at the times, and in the amounts, specified
         in such letter. These fees shall be distributed by the Arranger
         among certain of the Banks in accordance with the arrangements
         agreed by the Arranger with such Banks prior to the date of this
         Agreement.

  18.    COSTS AND EXPENSES

  18.1   Transaction Expenses
         The Account Party shall, from time to time within thirty days of
         demand of the Agent, reimburse the Agent and the Arranger for all
         reasonable costs and expenses (including legal fees) together with
         any VAT thereon incurred by them in connection with the
         negotiation, preparation and execution of the Finance Documents,
         any other document referred to in the Finance Documents and the
         completion of the transactions therein contemplated.

                                -46-	

  18.2  Preservation and Enforcement of Rights

        18.2.1   The Account Party shall, from time to time on demand of
                 the Agent, reimburse the Finance Parties for all costs and
                 expenses (including legal fees) properly incurred on a
                 full indemnity basis together with any VAT thereon
                 incurred in or in connection with the preservation and/or
                 enforcement of any of the rights of the Finance Parties
                 under the Finance Documents and any document referred to
                 in the Finance Documents (including, without limitation,
                 any costs and expenses relating to any investigation as to
                 whether or not an Event of Default might have occurred or
                 is likely to occur or any steps necessary or desirable in
                 connection with any proposal for remedying or otherwise
                 resolving a Default).

        18.2.2   In the event that the Account Party has granted Security
                 pursuant to sub-clause 17.1.2 of Clause 17.1 (Letter of
                 Credit Commission) and if, by reason of a subsequent
                 breach of Clause 4 of the Charge Agreement by the Account
                 Party, any Bank incurs a capital cost or is unable to
                 continue to obtain the rate of return obtained by it
                 hereunder at the date the Security is granted or at the
                 date it becomes party hereto as a Bank, the Account Party
                 shall on demand of the Agent, promptly pay to the Agent
                 for the account of the Bank amounts sufficient to
                 indemnify that Bank from and against such cost or loss in
                 return.

  18.3   Stamp Taxes
         The Account Party shall pay all stamp, registration and other
         taxes to which the Finance Documents, any other document referred
         to in the Finance Documents or any judgment given in connection
         therewith is or at any time may be subject and to which it is a
         party and shall, from time to time on demand of the Agent,
         indemnify the Finance Parties against any liabilities, costs,
         claims and expenses resulting from any failure to pay or any delay
         in paying any such tax.

  18.4   Amendment Costs
         If an Obligor requests any amendment, waiver or consent to any
         Finance Document then the Account Party shall, within thirty days
         of demand by the Agent, reimburse the Finance Parties for all
         reasonable costs and expenses (including legal fees) together with
         any VAT thereon incurred by such persons in responding to or
         complying with such request.

  18.5   Banks' Liabilities for Costs
         If the Account Party fails to perform any of its obligations under
         this Clause 18, each Bank shall, in its Proportion, indemnify each
         of the Agent and the Arranger against any loss incurred by any of
         them as a result of such failure.

 19.     DEFAULT INTEREST AND BREAK COSTS

 19.1    Default Interest
         If any sum due and payable by an Obligor hereunder is not paid on
         the due date therefor in accordance with Clause 22 (Payments) or
         if any sum due and payable by an Obligor under any judgment of any
         court in connection herewith is not paid on the date

                                -47-	

         of such judgment, the period beginning on such due date or, as the
         case may be, the date of such judgment and ending on the date upon
         which the obligation of such Obligor to pay such sum is discharged
         shall be divided into successive periods, each of which (other
         than the first) shall start on the last day of the preceding such
         period and the duration of each of which shall (except as
         otherwise provided in this Clause 19) be selected by the Agent.

  19.2   Default Interest Rate
         An Unpaid Sum shall bear interest during each Term in respect
         thereof at the rate per annum which is the sum from time to time
         of two per cent. and LIBOR on the Quotation Date therefor.

  19.3   Payment of Default Interest
         Any interest which shall have accrued under Clause 19.2 (Default
         Interest) in respect of an Unpaid Sum shall be due and payable and
         shall be paid by the relevant Obligor, together with any Mandatory
         Liquid Asset Costs Rate in respect thereof on the last day of each
         Term in respect thereof or on such other dates as the Agent may
         specify by notice to the relevant Obligor.

  19.4   Break Costs
         If any Bank or the Agent on its behalf receives or recovers all or
         any part of an Unpaid Sum otherwise than on the last day of a Term
         relating thereto, the Account Party shall pay to the Agent on
         demand for the account of such Bank an amount equal to the amount
         (if any) by which (a) the additional interest which would have
         been payable on the amount so received or recovered had it been
         received or recovered on the last day of that Term exceeds (b) the
         amount of interest which in the opinion of the Agent (acting
         reasonably) would have been payable to the Agent on the last day
         of that Term in respect of a deposit in the currency of the amount
         so received or recovered equal to the amount so received or
         recovered placed by it with a prime bank in London for a period
         starting on the first Business Day following the date of such
         receipt or recovery and ending on the last day of that Term.

  20.    INDEMNITIES

  20.1   Company's Indemnity	

The Account Party undertakes to indemnify:
20.1.1 each Finance Party against any reasonable cost, claim, loss, expense (including legal fees) or liability together with any VAT thereon, whether or not reasonably foreseeable, which it may sustain or incur as a consequence of the occurrence of any Event of Default or any default by an Obligor in the performance of any of the obligations expressed to be assumed by it in the Finance Documents;
20.1.2 the Agent against any reasonable cost or loss it may suffer or incur as a result of its entering into, or performing, any foreign exchange contract for the purposes of Clause 22 (Payments);
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20.1.3    each Bank against any reasonable cost or loss it may suffer under
          Clause 18.5 (Banks' Liabilities for Costs) or Clause 25.5
          (Indemnification); and

20.1.4    each Bank against any reasonable cost or loss it may suffer or
          incur as a result of its issuing or making arrangements to issue
          a Letter of Credit requested by the Account Party hereunder but
          not issued by reason of the operation of any one or more of the
          provisions hereof.	

20.2 Currency Indemnity If any sum (a "Sum") due from an Obligor under the Finance Documents or any order or judgment given or made in relation thereto has to be converted from the currency (the "First Currency") in which such Sum is payable into another currency (the "Second Currency") for the purpose of:

20.2.1    making or filing a claim or proof against such Obligor;

20.2.2    obtaining an order or judgment in any court or other tribunal; or

20.2.3    enforcing any order or judgment given or made in relation
          thereto,	

the Account Party shall indemnify each person to whom such Sum is due from and against any loss suffered or incurred as a result of any discrepancy between (a) the rate of exchange used for such purpose to convert such Sum from the First Currency into the Second Currency and (b) the rate or rates of exchange available to such person at its prevailing spot rate at the time of receipt of such Sum.
21. CURRENCY OF ACCOUNT AND PAYMENT
21.1 Currency of Account Sterling is the currency of account and payment for each and every sum at any time due from an Obligor hereunder, provided that:

     21.1.1    each sum falling due by an Obligor hereunder in relation to any
               demand made under a Letter of Credit or in relation to any
               reimbursement of the Banks pursuant to a demand made under a
               Letter of Credit shall be made in the currency of the demand;

     21.1.2    each payment of interest shall be made in the currency in which
               the sum in respect of which such interest is payable is
               denominated;

     21.1.3    each payment in respect of costs and expenses shall be made in
               the currency in which the same were incurred;

     21.1.4    each payment pursuant to Clause 9.2 (Tax Indemnity) or Clause
               11.1 (Increased Costs) shall be made in the currency specified by
               the party claiming thereunder; and

     21.1.5    any amount expressed to be payable in a currency other than
               sterling shall be paid in that other currency.

                                     -49-	

22.    PAYMENTS

22.1   Payments to the Agent
       On each date on which this Agreement requires an amount to be paid by an
       Obligor, such Obligor shall make the same available to the Agent for
       value on the due date at such time and in such funds and to such account
       with such bank as the Agent shall specify from time to time upon
       reasonable advance notice to such Obligor.

22.2   Payments by the Agent
       Save as otherwise provided herein, each payment received by the Agent
       pursuant to Clause 22.1 (Payments to the Agent) shall be made available
       by the Agent to the person entitled to receive such payment in accordance
       with this Agreement (in the case of a Bank, for the account of its
       Facility Office) for value the same day by transfer to such account of
       such person with such bank in the principal financial centre of the
       country of the currency of such payment as such person shall have
       previously notified to the Agent.

22.3   No Set-off
       All payments required to be made by an Obligor hereunder shall be
       calculated without reference to any set-off or counterclaim and shall be
       made free and clear of and without any deduction for or on account of any
       set-off or counterclaim.

22.4   Clawback
       Where a sum is to be paid hereunder to the Agent for account of another
       person, the Agent shall not be obliged to make the same available to that
       other person or to enter into or perform any exchange contract in
       connection therewith until it has been able to establish to its
       satisfaction that it has actually received such sum, but if it does so
       and it proves to be the case that it had not actually received such sum,
       then the person to whom such sum or the proceeds of such exchange
       contract was so made available shall on request refund the same to the
       Agent together with an amount sufficient to indemnify the Agent against
       any cost or loss it may have suffered or incurred by reason of its having
       paid out such sum or the proceeds of such exchange contract prior to its
       having received such sum.

22.5   Partial Payments
       If and whenever a payment is made by an Obligor hereunder and the Agent
       receives an amount less than the due amount of such payment the Agent may
       apply the amount received towards the obligations of the Obligors under
       this Agreement in the following order:

       22.5.1    first, in or towards payment of any unpaid costs and expenses
                 of each of the Agent and the Arranger;

       22.5.2    second, in or towards payment pro rata of any accrued interest,
                 Letter of Credit Commission or fees payable to any Bank
                 hereunder due but unpaid;

       22.5.3    third, in or towards payment pro rata of any Outstandings due
                 but unpaid; and	

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22.5.4 fourth, in or towards payment pro rata of any other sum due

                    but unpaid.

22.6      Variation of Partial Payments
          The order of partial payments set out in Clause 22.5 (Partial
          Payments) shall override any appropriation made by the Obligors to
          which the partial payment relates but the order set out in sub-clauses
          22.5.2, 22.5.3 and 22.5.4 of Clause 22.5 (Partial Payments) may be
          varied if agreed by all the Banks.

22.7      Appropriations of proceeds of enforcement of Security
          If the Agent recovers any moneys from the enforcement of any Finance
          Document in its capacity as Agent or Security Trustee thereunder, it
          shall apply the money recovered in the following order:

          22.7.1    first, in payment of all costs, charges, expenses and
                    liabilities (and all interest thereon as provided in the
                    Finance Documents) incurred by or on behalf of the Agent and
                    the Security Trustee and any receiver, attorney or agent in
                    connection with the due performance of its duties and
                    exercise of its powers and discretions under the Finance
                    Documents and the remuneration of the Agent, the Security
                    Trustee and every receiver under the Finance Documents;

          22.7.2    secondly, in or towards payment pro rata of any due but
                    unpaid costs and expenses of the Agent, the Arranger and the
                    Banks under the Finance Documents;

          22.7.3    thirdly, in or towards payment pro rata of any accrued
                    interest, Letter of Credit Commission or fees due but unpaid
                    under this Agreement;

          22.7.4    fourthly, in or towards payment pro rata of any Outstandings
                    due but unpaid under this Agreement;

          22.7.5    fifthly, in or towards payment pro rata of any other sum due
                    but unpaid under the Finance Documents; and

          22.7.6    sixthly, in payment of the surplus (if any) to the Account
                    Party or any other person entitled thereto.

          The order of application of money recovered in this Clause may only be
          varied with the consent of all the Banks.

23.       SET-OFF

23.1      Contractual Set-off
          Each Obligor authorises each Bank at any time after an Event of
          Default has occurred which is continuing to apply any credit balance
          to which such Obligor is entitled on any account of such Obligor with
          such Bank in satisfaction of any sum due and payable from such Obligor
          to such Bank hereunder (whether by way of collateralisation or
          otherwise) but unpaid. For this purpose, each Bank is authorised to
          purchase with the moneys standing to the credit of any such account
          such other currencies as may be necessary to effect such application.

                                     -51-	

23.2      Set-off not Mandatory
          No Bank shall be obliged to exercise any right given to it by Clause
          23.1 (Contractual Set-off).

24.       SHARING

24.1      Payments to Banks
          If a Bank (a "Recovering Bank") applies any receipt or recovery from
          an Obligor to a payment due under this Agreement and such amount is
          received or recovered other than in accordance with Clause 22
          (Payments), then such Recovering Bank shall:

          24.1.1    notify the Agent of such receipt or recovery;

          24.1.2    at the request of the Agent, promptly pay to the Agent an
                    amount (the "Sharing Payment") equal to such receipt or
                    recovery less any amount which the Agent determines may be
                    retained by such Recovering Bank as its share of any payment
                    to be made in accordance with Clause 22.5 (Partial
                    Payments).

24.2      Redistribution of Payments
          The Agent shall treat the Sharing Payment as if it had been paid by
          the relevant Obligor and distribute it between the Finance Parties
          (other than the Recovering Bank) in accordance with Clause 22.5
          (Partial Payments).

24.3      Recovering Bank's Rights
          The Recovering Bank will be subrogated to the rights of the parties
          which have shared in a redistribution pursuant to Clause 24.2
          (Redistribution of Payments) in respect of the Sharing Payment (and
          the relevant Obligor shall be liable to the Recovering Bank in an
          amount equal to the Sharing Payment) in place of any corresponding
          liability to the parties which have shared in the redistribution.

24.4      Repayable Recoveries
          If any part of the Sharing Payment received or recovered by a
          Recovering Bank becomes repayable and is repaid by such Recovering
          Bank, then:

          24.4.1    each party which has received a share of such Sharing
                    Payment pursuant to Clause 24.2 (Redistribution of Payments)
                    shall, upon request of the Agent, pay to the Agent for
                    account of such Recovering Bank an amount equal to its share
                    of such Sharing Payment; and

          24.4.2    such Recovering Bank's rights of subrogation in respect of
                    any reimbursement shall be cancelled and the relevant
                    Obligor will be liable to the reimbursing party for the
                    amount so reimbursed.

24.5      Exception
          This Clause 24 shall not apply if the Recovering Bank would not, after
          making any payment pursuant hereto, have a valid and enforceable claim
          against the relevant Obligor.

                                     -52-	

24.6    Recoveries Through Legal Proceedings
        If any Bank intends to commence any action in any court it shall give
        prior notice to the Agent and the other Banks. If any Bank shall
        commence any action in any court to enforce its rights hereunder and, as
        a result thereof or in connection therewith, receives any amount, then
        such Bank shall not be required to share any portion of such amount with
        any Bank which has the legal right to, but does not, join in such action
        or commence and diligently prosecute a separate action to enforce its
        rights in another court.

25.     THE AGENT, THE ARRANGER AND THE BANKS

25.1    Appointment of the Agent
        The Arranger and each of the Banks hereby appoints the Agent to act as
        its agent in connection herewith and authorises the Agent to exercise
        such rights, powers, authorities and discretions as are specifically
        delegated to the Agent by the terms hereof together with all such
        rights, powers, authorities and discretions as are reasonably incidental
        thereto.

25.2    Agent's Discretions
        The Agent may:

        25.2.1    assume, unless it has, in its capacity as agent for the Banks,
                  received notice to the contrary from any other party hereto,
                  that (a) any representation made or deemed to be made by an
                  Obligor in connection with the Finance Documents is true, (b)
                  no Event of Default or Potential Event of Default has
                  occurred, (c) no Obligor is in breach of or default under its
                  obligations under the Finance Documents and (d) any right,
                  power, authority or discretion vested therein upon the
                  Majority Banks, the Banks or any other person or group of
                  persons has not been exercised;

        25.2.2    assume that the Facility Office of each Bank is that notified
                  to it by such Bank in writing prior to the date hereof (or, in
                  the case of a Transferee, at the end of the Transfer
                  Certificate to which it is a party as Transferee) until it has
                  received from such Bank a notice designating some other office
                  of such Bank to replace its Facility Office and act upon any
                  such notice until the same is superseded by a further such
                  notice;

        25.2.3    engage and pay for the advice or services of any lawyers,
                  accountants, surveyors or other experts whose advice or
                  services may to it seem necessary, expedient or desirable and
                  rely upon any advice so obtained;

        25.2.4    rely as to any matters of fact which might reasonably be
                  expected to be within the knowledge of an Obligor upon a
                  certificate signed by or on behalf of such Obligor;

        25.2.5    rely upon any communication or document believed by it to be
                  genuine;	

-53-

          25.2.6    refrain from exercising any right, power or discretion
                    vested in it as agent hereunder unless and until instructed
                    by the Majority Banks as to whether or not such right, power
                    or discretion is to be exercised and, if it is to be
                    exercised, as to the manner in which it should be exercised;

          25.2.7    refrain from acting in accordance with any instructions of
                    the Majority Banks to begin any legal action or proceeding
                    arising out of or in connection with the Finance Documents
                    until it shall have received such security as it may require
                    (whether by way of payment in advance or otherwise) for all
                    costs, claims, losses, expenses (including legal fees) and
                    liabilities together with any VAT thereon which it will or
                    may expend or incur in complying with such instructions; and

          25.2.8    assume (unless it has specific notice to the contrary) that
                    any notice or request made by the Account Party is made on
                    behalf of both Obligors.

25.3      Agent's Obligations
          The Agent shall:

          25.3.1    promptly inform each Bank of the contents of any notice or
                    document received by it in its capacity as Agent from an
                    Obligor under the Finance Documents and shall promptly
                    deliver to each Bank a copy of each Letter of Credit
                    delivered to Lloyd's pursuant to Clause 3.3 (Completion of
                    Letters of Credit);

          25.3.2    promptly notify each Bank of the occurrence of any Event of
                    Default or any default by an Obligor in the due performance
                    of or compliance with its obligations under the Finance
                    Documents of which the Agent has notice from any other party
                    hereto;

          25.3.3    save as otherwise provided herein, act as agent under the
                    Finance Documents in accordance with any instructions given
                    to it by an Majority Banks, which instructions shall be
                    binding on the Arranger and the Banks; and

          25.3.4    if so instructed by the Majority Banks, refrain from
                    exercising any right, power or discretion vested in it as
                    agent under the Finance Documents.

          The Agent's duties under the Finance Documents are solely mechanical
          and administrative in nature.

25.4      Excluded Obligations
          Notwithstanding anything to the contrary expressed or implied herein,
          neither the Agent nor the Arranger shall:

          25.4.1    be bound to enquire as to (a) whether or not any
                    representation made or deemed to be made by an Obligor in
                    connection with the Finance Documents is true, (b) the
                    occurrence or otherwise of any Default, (c) the performance
                    by an Obligor of its obligations under the Finance Documents
                    or (d) any breach

                                     -54-	

                    of or default by an Obligor of or under its obligations
                    under the Finance Documents;

          25.4.2    be bound to account to any Bank for any sum or the profit
                    element of any sum received by it for its own account;

          25.4.3    be bound to disclose to any other person any information
                    relating to any member of the Group if (a) such person, on
                    providing such information, expressly stated to the Agent
                    or, as the case may be, the Arranger, that such information
                    was confidential or (b) such disclosure would or might in
                    its opinion constitute a breach of any law or be otherwise
                    actionable at the suit of any person;

          25.4.4    be under any obligations other than those for which express
                    provision is made herein; or

          25.4.5    be or be deemed to be a fiduciary for any other party
                    hereto.

25.5      Indemnification
          Each Bank shall, in its Proportion, from time to time on demand by the
          Agent, indemnify the Agent against any and all costs, claims, losses,
          expenses (including legal fees) and liabilities together with any VAT
          thereon which the Agent may incur, otherwise than by reason of its own
          gross negligence or wilful misconduct, in acting in its capacity as
          agent hereunder (other than any which have been reimbursed by the
          Account Party pursuant to Clause 20.1 (Company's Indemnity).

25.6      Exclusion of Liabilities
          Except in the case of gross negligence or wilful default, neither the
          Agent nor the Arranger accepts any responsibility:

          25.6.1    for the adequacy, accuracy and/or completeness of any
                    information supplied by the Agent or the Arranger, by an
                    Obligor or by any other person in connection with the
                    Finance Documents or any other agreement, arrangement or
                    document entered into, made or executed in anticipation of,
                    pursuant to or in connection with the Finance Documents;

          25.6.2    for the legality, validity, effectiveness, adequacy or
                    enforceability of the Finance Documents or any other
                    agreement, arrangement or document entered into, made or
                    executed in anticipation of, pursuant to or in connection
                    with the Finance Documents; or

          25.6.3    for the exercise of, or the failure to exercise, any
                    judgement, discretion or power given to any of them by or in
                    connection with the Finance Documents or any other
                    agreement, arrangement or document entered into, made or
                    executed in anticipation of, pursuant to or in connection
                    with the Finance Documents.

                                     -55-	

        Accordingly, neither the Agent nor the Arranger shall be under any
        liability (whether in negligence or otherwise) in respect of such
        matters, save in the case of gross negligence or wilful misconduct.

25.7    No Actions
        Each of the Banks agree that it will not assert or seek to assert
        against any director, officer or employee of the Agent or the Arranger
        any claim it might have against any of them in respect of the matters
        referred to in Clause 25.6 (Exclusion of Liabilities).

25.8    Business with the Group
        The Agent and the Arranger may accept deposits from, lend money to and
        generally engage in any kind of banking or other business with any
        member of the Group.

25.9    Resignation
        The Agent may resign its appointment hereunder at any time without
        assigning any reason therefor by giving not less than thirty days' prior
        notice to that effect to each of the other parties hereto, provided that
        no such resignation shall be effective until a successor for the Agent
        is appointed in accordance with the succeeding provisions of this Clause
        25.

25.10   Removal of Agent
        The Majority Banks may remove the Agent from its role as agent hereunder
        after consultation with the Account Party by giving notice to that
        effect to each of the other parties hereto. Such removal shall take
        effect only when a successor to the Agent is appointed in accordance
        with the terms hereof.

25.11   Successor Agent
        If the Agent gives notice of its resignation pursuant to Clause 25.9
        (Resignation) or it is removed pursuant to Clause 25.10 (Removal of
        Agent) then any reputable and experienced bank or other financial
        institution may be appointed as a successor to the Agent by the Majority
        Banks (after consultation with the Account Party if the successor is a
        Bank or otherwise with the Account Party's prior written consent) during
        the period of such notice (with the co-operation of the Agent), subject
        to such entity executing and delivering a confidentiality undertaking
        substantially in the form set out in Schedule 8 (Form of Confidentiality
        Undertaking) but, if no such successor is so appointed, the Agent may
        appoint such a successor itself.

25.12   Rights and Obligations
        If a successor to the Agent is appointed under the provisions of Clause
        25.11 (Successor Agent), then (a) the retiring Agent shall be discharged
        from any further obligation hereunder but shall remain entitled to the
        benefit of the provisions of this Clause 25 and (b) its successor and
        each of the other parties hereto shall have the same rights and
        obligations amongst themselves as they would have had if such successor
        had been a party hereto.

                                     -56-	

25.13   Own Responsibility
        It is understood and agreed by each Bank that at all times it has itself
        been, and will continue to be, solely responsible for making its own
        independent appraisal of and investigation into all risks arising under
        or in connection with this Agreement including, but not limited to:

        25.13.1   the financial condition, creditworthiness, condition, affairs,
                  status and nature of each member of the Group;

        25.13.2   the legality, validity, effectiveness, adequacy and
                  enforceability of the Finance Documents and any other
                  agreement, arrangement or document entered into, made or
                  executed in anticipation of, pursuant to or in connection with
                  the Finance Documents;

        25.13.3   whether such Bank has recourse, and the nature and extent of
                  that recourse, against an Obligor or any other person or any
                  of its assets under or in connection with the Finance
                  Documents, the transactions therein contemplated or any other
                  agreement, arrangement or document entered into, made or
                  executed in anticipation of, pursuant to or in connection with
                  the Finance Documents; and

        25.13.4   the adequacy, accuracy and/or completeness of any information
                  provided by the Agent or the Arranger, an Obligor or by any
                  other person in connection with the Finance Documents, the
                  transactions contemplated therein or any other agreement,
                  arrangement or document entered into, made or executed in
                  anticipation of, pursuant to or in connection with the Finance
                  Documents.

        Accordingly, each Bank acknowledges to the Agent and the Arranger that
        it has not relied on and will not hereafter rely on the Agent and the
        Arranger or either of them in respect of any of these matters.

25.14   Agency Division Separate
        In acting as agent hereunder for the Banks, the Agent shall be regarded
        as acting through its agency division which shall be treated as a
        separate entity from any other of its divisions or departments and,
        notwithstanding the foregoing provisions of this Clause 25, any
        information received by some other division or department of the Agent
        may be treated as confidential and shall not be regarded as having been
        given to the Agent's agency division.

25.15   Declaration of Agent as Security Trustee
        The Agent hereby declares that it shall hold:

        25.15.1   all rights, titles and interests that may hereafter be
                  mortgaged, charged, assigned or otherwise secured in favour of
                  the Agent by or pursuant to the Finance Documents;

        25.15.2   the benefit of all representations, covenants, guarantees,
                  indemnities and other contractual provisions given in favour
                  of the Agent (other than any such

                                     -57-	

                  benefits given to the Agent solely for its own benefit) by or
                  pursuant to the Finance Documents (other than this Agreement);
                  and

        25.15.3   all proceeds of the security referred to in sub-clause 25.15.1
                  above and of the enforcement of the benefits referred to in
                  25.15.2 above,

        on trust for itself and the other Finance Parties from time to time.

        Such declaration shall remain valid notwithstanding that the Agent may
        on the date hereof or at any other time be the sole Finance Party; for
        the avoidance of doubt, however, such declaration shall, in such case,
        be deemed repeated on each date on which the Agent ceases to be the sole
        Finance Party.

        Each of the parties hereto agrees that the obligations, rights and
        benefits vested or to be vested in the Agent as trustee as aforesaid by
        the Finance Documents or any document entered into pursuant thereto
        shall (as well before as after enforcement) be performed and (as the
        case may be) exercised by the Agent in accordance with the provisions of
        this Clause 25.

25.16   Powers and Discretions
        The Agent shall have all the powers and discretions conferred upon
        trustees by the Trustee Act 1925 (to the extent not inconsistent
        herewith) and by way of supplement it is expressly declared as follows:

        25.16.1   the Agent shall be at liberty to place any of the Finance
                  Documents and any other instruments, documents or deeds
                  delivered to it pursuant thereto or in connection therewith
                  for the time being in its possession in any safe deposit, safe
                  or receptacle selected by the Agent or with any bank, any
                  company whose business includes undertaking the safe custody
                  of documents or any firm of lawyers of good repute;

        25.16.2   the Agent may, whenever it thinks fit, delegate by power of
                  attorney or otherwise to any person or persons or fluctuating
                  body of persons all or any of the rights, trusts, powers,
                  authorities and discretions vested in it by any of the Finance
                  Documents and such delegation may be made upon such terms and
                  subject to such conditions (including the power to
                  sub-delegate) and subject to such regulations as the Agent may
                  think fit and the Agent shall not be bound to supervise, or be
                  in any way responsible for any loss incurred by reason of any
                  misconduct or default on the part of, any such delegate (or
                  sub-delegate);

        25.16.3   notwithstanding anything else herein contained, the Agent may
                  refrain from doing anything which would or might in its
                  opinion be contrary to any law of any jurisdiction or any
                  directive or regulation of any agency of any state or which
                  would or might otherwise render it liable to any person and
                  may do anything which is, in its opinion, necessary to comply
                  with any such law, directive or regulation;	

-58-

25.16.4   save in the case of gross negligence or wilful misconduct, the
          Agent and every attorney, agent, delegate, sub-delegate and any
          other person appointed by any of them under any of the Finance
          Documents may indemnify itself or himself out of the security
          held by the Agent against all liabilities, costs, fees, charges,
          losses and expenses incurred by any of them in relation to or
          arising out of the taking or holding of any of the security
          constituted by, or any of the benefits provided by, any of the
          Finance Documents, in the exercise or purported exercise of the
          rights, trusts, powers and discretions vested in any of them or
          in respect of any other matter or thing done or omitted to be
          done in any way relating to any of the Finance Documents or
          pursuant to any law or regulation; and

25.16.5   without prejudice to the provisions of any of the Finance
          Documents, the Agent shall not be under any obligation to insure
          any property or to require any other person to maintain any such
          insurance and shall not be responsible for any loss which may be
          suffered by any person as a result of the lack of or inadequacy
          or insufficiency of any such insurance.	

25.17 Liability The Agent shall not be liable for any failure:

25.17.1   to require the deposit with it of any deed or document
          certifying, representing or constituting the title of the Account
          Party to any of the property mortgaged, charged, assigned or
          otherwise encumbered by or pursuant to any of the Finance
          Documents;

25.17.2   to obtain any licence, consent or other authority for the
          execution, delivery, validity, legality, adequacy, performance,
          enforceability or admissibility in evidence of any of the Finance
          Documents;

25.17.3   to register or notify any deed or document mentioned at sub-
          clause 25.17.1 in accordance with the provisions of any of the
          documents of title of the Account Party;

25.17.4   to effect or procure registration of or otherwise protect any of
          the security created by any of the Finance Documents by
          registering the same under any applicable registration laws in
          any territory or otherwise by registering any notice, caution or
          other entry prescribed by or pursuant to the provisions of the
          said Act or laws;

25.17.5   to take or to require the Account Party to take any steps to
          render the security without limitation, any floating charge)
          created or purported to be created by or pursuant to any of the
          Finance Documents effective or to secure the creation of any
          ancillary charge under the laws of any jurisdiction; or

25.17.6   to require any further assurances in relation to any of the
          Finance Documents.	

-59-

25.18   Title to Security etc.
        The Agent may accept without enquiry, requisition or objection such
        right and title as the Account Party may have to the property belonging
        (or purportedly belonging) to it (or any part thereof) which is the
        subject matter of any of the Finance Documents and shall not be bound or
        concerned to investigate or make any enquiry into the right or title of
        the Account Party to such property (or any part thereof) or, without
        prejudice to the foregoing, to require the Account Party to remedy any
        defect in the Account Party's right or title as aforesaid.

25.19   New Security Trustee
        The Agent may at any time appoint any person (whether or not a trust
        corporation) to act either as a separate trustee or as a co-trustee
        jointly with the Agent:

        25.19.1 if the Agent considers such appointment to be in the interests
                of the Banks; or

        25.19.2 for the purposes of conforming to any legal requirements,
                restrictions or conditions which the Agent deems relevant for
                the purposes of the Finance Documents and the Agent shall give
                prior notice to the Account Party and the Banks of any such
                appointment.

        Any person so appointed shall (subject to the provisions of the Finance
        Documents) have such powers, authorities and discretions and such duties
        and obligations as shall be conferred or imposed or such person by the
        instrument of appointment and shall have the same benefits under this
        Clause 25 as the Agent.

        The Agent shall have power in like manner to remove any person so
        appointed.

        Such reasonable remuneration as the Agent may pay to any person so
        appointed, and any costs, charges and expenses incurred by such person
        in performing its functions pursuant to such appointment, shall for the
        purposes hereof be treated as costs, charges and expenses incurred by
        the Agent under the Finance Documents.

25.20   Perpetuity Period
        The perpetuity period under the rule against perpetuities if applicable
        to the trusts constituted in this Clause 25 and the other Finance
        Documents shall be the period of eighty years from the date of this
        Agreement and, subject thereto, if the Agent determines that all of the
        obligations of the Account Party under any of the Finance Documents have
        been fully and unconditionally discharged, such trusts shall be wound
        up.

25.21   Security

        25.21.1 In the event that the Account Party grants Security pursuant to
                sub-clause 17.1.2. of Clause 17.1 (Letter of Credit Commission),
                as soon as reasonably practicable after each delivery to the
                Security Trustee of the statement(s) of the Charged Portfolio by
                the Custodian pursuant to paragraph 3 of the Custodian's
                Undertaking and in any event within seven Business Days of such
                delivery, the Security Trustee and the Account Party shall
                adjust the Required

                                     -60-	

               Value to the extent necessary to ensure that the Required Value
               of the Charged Portfolio is of an amount equal to the aggregate
               of:

               A + (A x Y per cent.) + B + (B x Y per cent.) +C + (C x Y per
               cent.)

               where:

               A  represents the amount of the Charged Portfolio denominated
                  in sterling

               B  represents the amount of the Charged Portfolio denominated in
                  dollars (converted into sterling at the Spot Rate)

               C  represents the amount of the Charged Portfolio denominated in
                  any currency other than sterling or dollars (converted into
                  sterling at the Spot Rate)

               Y per cent. means:

               (a)  10 per cent. in respect of any portion of the Charged
                    Portfolio denominated in sterling;

               (b)  10 per cent. in respect of any portion of the Charged
                    Portfolio denominated in dollars; and

               (c)  15 per cent. in respect of any portion of the Charged
                    Portfolio denominated in any currency other than dollars or
                    sterling

               and shall notify the Custodian of any such adjustments.

      25.21.2  The Security Trustee shall not amend the Security Trustee's
               Requirements without the consent of the Banks.

      25.21.3  In the event that the Pricing Level reverts from Level V to level
               IV or above (each as defined in Schedule 9 (Pricing Schedule),
               the Security Trustee will release the Security granted to it
               pursuant to sub-clause 17.1.2 of Clause 17.1 (Letter of Credit
               Commission) except for a portion of such Security which has a
               Required Value of US$100. For the avoidance of doubt, if,
               following any such release, further Security is again required to
               be granted pursuant to sub-clause 17.1.2 of Clause 17.1 (Letter
               of Credit Commission), the Required Value of the Security charged
               pursuant to the Charge Agreement shall be increased to the extent
               required pursuant to sub-clause 17.1.2 of Clause 17.1 (Letter of
               Credit Commission).	

25.22 Bank Representations Each Bank represents to the Agent on the date of issue of each Letter of Credit that:

      25.22.1  the execution and delivery of each Letter of Credit by the Agent
               on the Bank's behalf has been duly authorised by all necessary
               action on the part of the Bank; and

                                     -61-	

        25.22.2  the obligations of the Bank under each Letter of Credit
               constitute its legal, valid and binding obligations.

25.23   Letters of Credit

        Each Bank shall in its Proportion, indemnify the Agent against any and
        all liabilities, costs and expenses which the Agent may incur (in its
        capacity as Agent) as a result of the execution and delivery of any
        Letter of Credit and any documents executed and delivered by the Agent
        in connection therewith.

26.     ASSIGNMENTS AND TRANSFERS

26.1    Binding Agreement
        The Finance Documents shall be binding upon and enure to the benefit of
        each party hereto and its or any subsequent successors and Transferees.

26.2    No Assignments and Transfers by the Obligors
        No Obligor shall be entitled to assign or transfer all or any of its
        rights, benefits and obligations under the Finance Documents without the
        prior written consent of all the Banks.

26.3    Assignments and Transfers by Banks

        Subject to obtaining the prior written consent of the Account Party
        (such consent not to be unreasonably withheld or delayed), any Bank may,
        at any time, assign all or any of its rights and benefits under the
        Finance Documents or transfer in accordance with Clause 26.5 (Transfers
        by Banks) all or any of its rights, benefits and obligations under the
        Finance Documents to a bank or financial institution, provided that:

        26.3.1  no such assignment or transfer of the whole or any part of the
                Commitment may be made unless it is to an Approved Credit
                Institution; and

        26.3.2  the Account Party's consent is not required if such assignment
                or transfer is:

                (a)  to any subsidiary or holding company, or to any subsidiary
                     of any holding company, of such Bank; or

                (b)  to any other Bank.

26.4    Assignments by Banks
        If any Bank assigns all or any of its rights and benefits under the
        Finance Documents in accordance with Clause 26.3 (Assignments and
        Transfers by Banks), then, unless and until the assignee has delivered a
        notice to the Agent confirming in favour of the Agent, the Arranger and
        the Banks that it shall be under the same obligations towards each of
        them as it would have been under if it had been an original party hereto
        as a Bank (whereupon such assignee shall become a party hereto as a
        "Bank"), the Agent, the Arranger, and the Banks shall not be obliged to
        recognise such assignee as having the rights against each of them which
        it would have had if it had been such a party hereto.

                                     -62-	

26.5    Transfers by Banks
        If any Bank wishes to transfer all or any of its rights, benefits and/or
        obligations under the Finance Documents as contemplated in Clause 26.3
        (Assignments and Transfers by Banks), then such transfer may be effected
        by the delivery to the Agent of a duly completed Transfer Certificate
        executed by such Bank and the relevant Transferee in which event, on the
        later of the Transfer Date specified in such Transfer Certificate and
        the fifth Business Day after (or such earlier Business Day endorsed by
        the Agent on such Transfer Certificate falling on or after) the date of
        delivery of such Transfer Certificate to the Agent:

        26.5.1  to the extent that in such Transfer Certificate the Bank party
                thereto seeks to transfer by novation its rights, benefits and
                obligations under the Finance Documents, each of the Obligors
                and such Bank shall be released from further obligations towards
                one another under the Finance Documents and their respective
                rights against one another shall be cancelled (such rights and
                obligations being referred to in this Clause 26.5 as "discharged
                rights and obligations");

        26.5.2  each of the Obligors and the Transferee party thereto shall
                assume obligations towards one another and/or acquire rights
                against one another which differ from such discharged rights and
                obligations only insofar as such Obligor and such Transferee
                have assumed and/or acquired the same in place of such Obligor
                and such Bank;

        26.5.3  the Agent, the Arranger, the Security Trustee, the Co-Arrangers,
                such Transferee and the other Banks shall acquire the same
                rights and benefits and assume the same obligations between
                themselves as they would have acquired and assumed had such
                Transferee been an original party hereto as a Bank with the
                rights, benefits and/or obligations acquired or assumed by it as
                a result of such transfer and to that extent the Agent, the
                Arranger and the relevant Bank shall each be released from
                further obligations to each other under the Finance Documents;
                and

        26.5.4  such Transferee shall become a party hereto as a "Bank".

26.6    Replacement of Letter of Credit
        On any transfer pursuant to Clause 26.5 (Transfers by Banks) other than
        such a transfer upon the designation of a Substitute Bank in accordance
        with the provisions of Clause 4.6.1 (Substitute Bank) the Bank
        transferring all or any of its rights, benefits and/or obligations under
        the Finance Documents shall ensure that the Account Party will procure
        the release by Lloyd's of each Letter of Credit (an "Old Letter of
        Credit") with respect to which the transfer is to have effect and its
        replacement by a new Letter of Credit to be issued by the Transferee and
        all the other Banks in an amount equal to that of the Old Letter of
        Credit and having an Expiry Date which corresponds with the Expiry Date
        thereof.

                                     -63-	

26.7    Transfer Fees

        On the date upon which a transfer takes effect pursuant to Clause 26.5
        (Transfers by Banks) the relevant Transferee shall pay to the Agent for
        its own account a fee of (pounds)1,000.

26.8    Disclosure of Information
        Any Bank may disclose to any person:

        26.8.1  to (or through) whom such Bank assigns or transfers (or may
                potentially assign or transfer) all or any of its rights,
                benefits and obligations under the Finance Documents;

        26.8.2  with (or through) whom such Bank enters into (or may potentially
                enter into) any sub-participation in relation to, or any other
                transaction under which payments are to be made by reference to,
                this Agreement or any Obligor; or

        26.8.3   to whom information may be required to be disclosed by any
                applicable law,

        such information about any Obligor or the Group and the Finance
        Documents as such Bank shall consider appropriate and in the case of (i)
        and (ii) above, subject to requiring and receiving a confidentiality
        undertaking substantially in the form set out in Schedule 8 (Form of
        Confidentiality Agreement).

26.9    Partial Transfers/Assignments
        Any assignment or transfer by a Bank of part of its Commitment or
        Outstandings shall be in a minimum amount of (pound)10,000,000.

27.     ECONOMIC AND MONETARY UNION

27.1    Alternative Currencies during Transition Period
        On and from the date on which the United Kingdom becomes a Participating
        Member State, if and to the extent that any EMU Legislation provides
        that an amount denominated either in the euro or in sterling and payable
        within that Participating Member State by crediting an account of the
        creditor can be paid by the debtor either in the euro unit or in
        sterling, the Borrower shall be entitled to pay or repay any such amount
        payable hereunder either in the euro unit or in sterling.

27.2    Business Days
        With effect on and from the date on which the United Kingdom becomes a
        Participating Member State, the definition of Business Day in Clause 1.1
        (Definitions) shall be amended by the addition thereto (at the end) of
        the following:

            "and if such reference relates to a date for the payment or purchase
            of a sum denominated in the euro or in sterling, a day (other than a
            Saturday or Sunday) on which (a) such clearing or settlement system
            as is determined by the Agent to be suitable for clearing or
            settlement of the euro is open for business and (b) banks are
            generally open for business in London.".

                                     -64-	

27.3    Rounding and Other Consequential Changes
        With effect on and from the date on which the United Kingdom becomes a
        Participating Member State:

        27.3.1 without prejudice and in addition to any method of conversion or
               rounding prescribed by any EMU Legislation, each reference in
               this Agreement to a fixed amount or fixed amounts in a national
               currency unit to be paid to or by the Agent shall be replaced by
               a reference to such comparable and convenient fixed amount or
               fixed amounts in the euro unit as the Agent may from time to time
               specify; and

        27.3.2 save as expressly provided in this Clause 27, the Finance
               Documents shall be subject to such changes of construction or
               interpretation as the Agent and the Security Trustee may from
               time to time specify to be necessary to reflect the changeover to
               the euro in the United Kingdom and to put the parties in the same
               position, so far as possible, that they would have been in if no
               change in currency had occurred.

28.     CALCULATIONS AND EVIDENCE OF DEBT

28.1    Basis of Accrual
        Interest and Letter of Credit Commission shall accrue from day to day
        and shall be calculated on the basis of a year of 365 days (or in the
        case of any such amounts denominated in dollars, 360 days) and the
        actual number of days elapsed.

28.2    Proportionate Reductions
        Any collateralisation of Outstandings denominated in dollars shall
        reduce the amount of such Outstandings by the amount of dollars
        collateralised and shall reduce the Sterling Amount of such Outstandings
        proportionately.

28.3    Evidence of Debt
        Each Bank shall maintain in accordance with its usual practice accounts
        evidencing the face amount of its participations in Letters of Credit
        and the amounts from time to time owing to it hereunder.

28.4    Control Accounts
        The Agent shall maintain on its books a control account or accounts in
        which shall be recorded (a) the amount of any Unpaid Sum and the face
        amount of any Letter of Credit issued and each Bank's share therein, (b)
        the amount of all fees, interest and other sums due or to become due
        from an Obligor and each Bank's share therein and (c) the amount of any
        sum received or recovered by the Agent hereunder and each Bank's share
        therein.

28.5    Prima Facie Evidence
        In any legal action or proceeding arising out of or in connection with
        this Agreement, the entries made in the accounts maintained pursuant to
        Clause 28.3 (Evidence of Debt) and Clause 28.4 (Control Accounts) shall
        be prima facie evidence of the existence and amounts of the specified
        obligations of the Obligors.

                                     -65-	

28.6    Certificates of Banks
        A certificate of a Bank as to (a) the amount by which a sum payable to
        it hereunder is to be increased under Clause 9.1 (Tax Gross-up), (b) the
        amount for the time being required to indemnify it against any such
        cost, payment or liability as is mentioned in Clause 9.2 (Tax Indemnity)
        or Clause 11.1 (Increased Costs) or (c) the amount of any credit,
        relief, remission or repayment as is mentioned in Clause 10.3 (Tax
        Credit Payment) or Clause 10.4 (Tax Credit Clawback) shall, in the
        absence of manifest error, be prima facie evidence of the existence and
        amounts of the specified obligations of the Obligors.

28.7    Agent's Certificates
        A certificate of the Agent as to the amount at any time due from the
        Account Party hereunder or the amount which, but for any of the
        obligations of the Account Party hereunder being or becoming void,
        voidable, unenforceable or ineffective, at any time would have been due
        from the Account Party hereunder shall, in the absence of manifest
        error, be conclusive for the purposes of Clause 29 (Guarantee and
        Indemnity).

28.8    Letters of Credit
        A certificate of a Bank as to the amount paid out by such Bank in
        respect of any Letter of Credit shall, save for manifest error, be prima
        facie evidence of the payment of such amounts in any legal action or
        proceedings arising in connection therewith.

29.     GUARANTEE AND INDEMNITY

29.1    Guarantee and Indemnity

        The Guarantor irrevocably and unconditionally:

        29.1.1  guarantees to each Finance Party the due and punctual observance
                and performance of all the terms, conditions and covenants on
                the part of the Account Party contained in the Finance Documents
                and agrees to pay from time to time on demand any and every sum
                or sums of money which the Account Party is at any time liable
                to pay to any Finance Party under or pursuant to the Finance
                Documents and which has become due and payable but has not been
                paid at the time such demand is made; and

        29.1.2  agrees as a primary obligation to indemnify each Finance Party
                from time to time on demand from and against any loss incurred
                by any Finance Party as a result of any of the obligations of
                the Account Party under or pursuant to the Finance Documents
                being or becoming void, voidable, unenforceable or ineffective
                as against the Account Party for any reason whatsoever, whether
                or not known to any Finance Party or any other person, the
                amount of such loss being the amount which the person or persons
                suffering it would otherwise have been entitled to recover from
                the Account Party.

                                     -66-	

29.2    Additional Security
        The obligations of the Guarantor herein contained shall be in addition
        to and independent of every other security which any Finance Party may
        at any time hold in respect of any of the Account Party's obligations
        under the Finance Documents.

29.3    Continuing Obligations
        The obligations of the Guarantor herein contained shall constitute and
        be continuing obligations notwithstanding any settlement of account or
        other matter or thing whatsoever and shall not be considered satisfied
        by any intermediate payment or satisfaction of all or any of the
        obligations of the Account Party under the Finance Documents and shall
        continue in full force and effect until final payment in full of all
        amounts owing by the Account Party under the Finance Documents and total
        satisfaction of all the Account Party's actual and contingent
        obligations under the Finance Documents.

29.4    Obligations not Discharged
        Neither the obligations of the Guarantor herein contained nor the
        rights, powers and remedies conferred in respect of the Guarantor upon
        any Finance Party by the Finance Documents or by law shall be
        discharged, impaired or otherwise affected by:

        29.4.1  the winding-up, dissolution, administration or re-organisation
                of the Account Party or any other person or any change in its
                status, function, control or ownership;

        29.4.2  any of the obligations of the Account Party or any other person
                under the Finance Documents or under any other security taken in
                respect of any of its obligations under the Finance Documents
                being or becoming illegal, invalid, unenforceable or ineffective
                in any respect;

        29.4.3  time or other indulgence being granted or agreed to be granted
                to the Account Party in respect of its obligations under the
                Finance Documents or under any such other security;

        29.4.4  any amendment to, or any variation, waiver or release of, any
                obligation of the Account Party under the Finance Documents or
                under any such other security;

        29.4.5  any failure to take, or fully to take, any security contemplated
                hereby or otherwise agreed to be taken in respect of the Account
                Party's obligations under the Finance Documents;

        29.4.6  any failure to realise or fully to realise the value of, or any
                release, discharge, exchange or substitution of, any security
                taken in respect of the Account Party's obligations under the
                Finance Documents; or

        29.4.7  any other act, event or omission which, but for this Clause
                29.4, might operate to discharge, impair or otherwise affect any
                of the obligations of the

                                     -67-	

                Guarantor herein contained or any of the rights, powers or
                remedies conferred upon any of the Finance Parties by the
                Finance Documents or by law.

29.5    Settlement Conditional
        Any settlement or discharge between the Account Party and any of the
        Finance Parties shall be conditional upon no security or payment to any
        Finance Party by the Account Party or any other person on behalf of the
        Account Party being avoided or reduced by virtue of any laws relating to
        bankruptcy, insolvency, liquidation or similar laws of general
        application and, if any such security or payment is so avoided or
        reduced, each Finance Party shall be entitled to recover the value or
        amount of such security or payment from the Account Party subsequently
        as if such settlement or discharge had not occurred.

29.6    Exercise of Rights
        No Finance Party shall be obliged before exercising any of the rights,
        powers or remedies conferred upon them in respect of the Guarantor by
        the Finance Documents or by law to:

        29.6.1  make any demand of the Account Party;

        29.6.2  take any action or obtain judgment in any court against the
                Account Party;

        29.6.3  make or file any claim or proof in a winding-up or dissolution
                of the Account Party; or

        29.6.4  enforce or seek to enforce any other security taken in respect
                of any of the obligations of the Account Party under the Finance
                Documents.

29.7    Deferral of Guarantor's Rights
        The Guarantor agrees that, so long as any amounts are or may be owed by
        the Account Party under the Finance Documents or the Account Party is
        under any actual or contingent obligations under the Finance Documents,
        it shall not exercise any rights which it may at any time have by reason
        of performance by it of its obligations under the Finance Documents:

        29.7.1  to be indemnified by the Account Party; and/or

        29.7.2  to claim any contribution from any other guarantor of the
                Account Party's obligations under the Finance Documents; and/or

        29.7.3  to take the benefit (in whole or in part and whether by way of
                subrogation or otherwise) of any rights of the Finance Parties
                under the Finance Documents or of any other security taken
                pursuant to, or in connection with, the Finance Documents by all
                or any of the Finance Parties.

29.8    Suspense Accounts
        All moneys received, recovered or realised by a Bank by virtue of Clause
        29.1 (Guarantee and Indemnity) may, in that Bank's discretion, be
        credited to an interest bearing suspense or impersonal account and may
        be held in such account for so long as

                                     -68-	

          such Bank thinks fit pending the application from time to time (as
          such Bank may think fit) of such moneys in or towards the payment and
          discharge of any amounts owing by the Account Party to such Bank under
          the Finance Documents.

30.       REMEDIES AND WAIVERS, PARTIAL INVALIDITY

30.1      Remedies and Waivers
          No failure to exercise, nor any delay in exercising, on the part of
          any Finance Party, any right or remedy hereunder shall operate as a
          waiver thereof, nor shall any single or partial exercise of any right
          or remedy prevent any further or other exercise thereof or the
          exercise of any other right or remedy. The rights and remedies herein
          provided are cumulative and not exclusive of any rights or remedies
          provided by law.

30.2      Partial Invalidity
          If, at any time, any provision of the Finance Documents is or becomes
          illegal, invalid or unenforceable in any respect under the law of any
          jurisdiction, neither the legality, validity or enforceability of the
          remaining provisions thereof nor the legality, validity or
          enforceability of such provision under the law of any other
          jurisdiction shall in any way be affected or impaired thereby.

31.       NOTICES

31.1      Communications in writing
          31.1.1    Any communication to be made under or in connection with the
                    Finance Documents shall be made in writing and, unless
                    otherwise stated, may be made by fax, letter or telex or (to
                    the extent that the relevant party hereto has specified such
                    address pursuant to Clause 31.2 (Addresses)) by e-mail.

          31.1.2    The Agent may additionally (if the parties hereto agree and
                    the Account Party has specifically approved in writing), in
                    the case of any document to be forwarded by the Agent
                    pursuant to this Agreement where such document has been
                    supplied to such Agent pursuant to Clause 15.1
                    (Information), refer the relevant party or parties hereto
                    (by fax, letter, telex or (if so specified) e-mail) to a web
                    site considered by the Account Party as secure and
                    confidential and to the location of the relevant information
                    on such web site in discharge of such notification or
                    delivery obligation.

31.2      Addresses
          The address, fax number, e-mail address, telex number and, where
          appropriate, web site (and the department or officer, if any, for
          whose attention the communication is to be made) of each party hereto
          for any communication or document to be made or delivered under or in
          connection with the Finance Documents is:

          31.2.1    in the case of an Obligor, that identified with its name
                    below;

          31.2.2    in the case of each Bank, that notified in writing to the
                    Agent on or prior to the date on which it becomes a party
                    hereto; and

          31.2.3    in the case of the Agent, that identified with its name
                    below,

                                     -69-	

          or any substitute address, fax number, e-mail address, telex number,
          web site, department or officer as the party hereto may notify to the
          Agent (or the Agent may notify to the other parties hereto, if a
          change is made by the Agent or a web site carrying relevant
          information has been set up by the Agent) by not less than five
          Business Days' notice.

31.3      Delivery
          31.3.1    Any communication or document made or delivered by one
                    person to another under or in connection with the Finance
                    Documents will only be effective:

                    (a)  if by way of fax, when received in legible form; or

                    (b)  if by way of letter, when it has been left at the
                         relevant address or five Business Days after being
                         deposited in the post postage prepaid in an envelope
                         addressed to it at that address; or

                    (c)  if by way of telex, when dispatched, but only if, at
                         the time of transmission, the correct answerback
                         appears at the start and at the end of the sender's
                         copy of the notice; or

                    (d)  if by way of e-mail, when sent in legible form, but
                         only if, following transmission, the sender does not
                         receive a non-delivery message; or

                    (e)  where reference in such communication is to a web site,
                         when the delivery of the letter, fax, telex or, as the
                         case may be, e-mail referring the addressee to such web
                         site is effective,

                    and, if a particular department or officer is specified as
                    part of its address details provided under Clause 31.2
                    (Addresses), if addressed to that department or officer.

          31.3.2    Any communication or document to be made or delivered to the
                    Agent will be effective only when actually received by the
                    Agent and then only if it is expressly marked for the
                    attention of the department or officer identified with the
                    Agent's signature below (or any substitute department or
                    officer as the agent shall specify for this purpose).

          31.3.3    All notices from or to any Obligor shall be sent through the
                    Agent.

31.4      Notification of address, fax number and telex number
          Promptly upon receipt of notification of an address, fax number, telex
          number or e-mail address or change of such pursuant to Clause 31.2
          (Addresses) or changing its own address, fax number, telex number or
          e-mail address, the Agent shall notify the other parties hereto.

31.5      English language
          31.5.1    Any notice given under or in connection with any Finance
                    Document must be in English.	

-70-

          31.5.2    All other documents provided under or in connection with any
                    Finance Document must be:

                    (a)  in English; or

                    (b)  if not in English, accompanied by an English
                         translation thereof certified (by an officer of the
                         person making or delivering the same) as being a true
                         and accurate translation thereof.

31.6      Deemed receipt by the Obligors
          Any communication or document made or delivered to the Account Party
          in accordance with Clause 31.3 (Delivery) shall be deemed to have been
          made or delivered to both Obligors.

32.       COUNTERPARTS

          This Agreement may be executed in any number of counterparts, all of
          which taken together shall constitute one and the same instrument.

33.       AMENDMENTS

33.1      Amendments

          The Agent, if it has the prior consent of the Majority Banks, and the
          Obligors may from time to time agree in writing to amend this
          Agreement or to waive, prospectively or retrospectively, any of the
          requirements of this Agreement and any amendments or waivers so agreed
          shall be binding on all the Finance Parties, provided that no such
          waiver or amendment shall subject any Finance Party hereto to any new
          or additional obligations without the consent of such Finance Party.

33.2      Amendments Requiring the Consent of all the Banks
          An amendment or waiver which relates to:

          33.2.1    Clause 24 (Sharing) or this Clause 33;

          33.2.2    a change in the currency or amount of any Letter of Credit;

          33.2.3    a change in the Letter of Credit Commission, or the amount
                    or currency of any payment of interest, fees or any other
                    amount payable hereunder to any Finance Party or deferral of
                    the date for payment thereof;

          33.2.4    a release of the Guarantor from any of its obligations set
                    out in Clause 29 (Guarantee and Indemnity);

          33.2.5    Clause 15.7 (Adjusted Consolidated Debt to Total
                    Capitalisation Ratio), Clause 15.8 (Consolidated Net Worth)
                    and Clause 15.9 (Liens);

          33.2.6    the definition of Majority Banks;

          33.2.7    any provision which contemplates the need for the consent or
                    approval of all the Banks; or

                                     -71-	

          33.2.8    the Security Documents (if any),

          shall not be made without the prior consent of all the Banks.

33.3      Exceptions
          Notwithstanding any other provisions hereof, the Agent shall not be
          obliged to agree to any such amendment or waiver if the same would:

          33.3.1    amend or waive this Clause 33, Clause 18 (Costs and
                    Expenses) or Clause 25 (The Agent, the Arranger and the
                    Banks); or

          33.3.2    otherwise amend or waive any of the Agent's rights hereunder
                    or subject the Agent or the Arranger to any additional
                    obligations hereunder.

34.       GOVERNING LAW

          This Agreement is governed by English law.

35.       JURISDICTION

35.1      English Courts
          Each of the parties hereto irrevocably agrees for the benefit of each
          of the Agent, the Arranger and the Banks that the courts of England
          shall have jurisdiction to hear and determine any suit, action or
          proceeding, and to settle any disputes, which may arise out of or in
          connection with this Agreement and the other Finance Documents and,
          for such purposes, irrevocably submits to the jurisdiction of such
          courts.

35.2      Convenient Forum
          The Obligors irrevocably waive any objection which either of them
          might now or hereafter have to the courts referred to in Clause 35.1
          being nominated as the forum to hear and determine any suit, action or
          proceeding, and to settle any disputes, which may arise out of or in
          connection with this Agreement and agree not to claim that any such
          court is not a convenient or appropriate forum.

35.3      Service of Process
          Each Obligor agrees that the process by which any suit, action or
          proceeding is begun may be served on it by being delivered in
          connection with any suit, action or proceeding in England, to ACE UK
          Limited at Crosby Court, 38 Bishopsgate, London EC2N 4AJ or its other
          principal place of business for the time being.

35.4      Non-Exclusive Jurisdiction

          The submission to the jurisdiction of the courts referred to in Clause
          35.1 shall not (and shall not be construed so as to) limit the right
          of the Agent, the Arranger, the Co-Arrangers and the Banks or any of
          them to take proceedings against the Account Party in any other court
          of competent jurisdiction nor shall the taking of proceedings in any
          one or more jurisdictions preclude the taking of proceedings in any
          other jurisdiction, whether concurrently or not.	

-72-
AS WITNESS the hands of the duly authorised representatives of the parties hereto the day and year first before written.
-73-
 
SCHEDULE 1

                                   The Banks

Bank                                                    Commitment
                                                          (pound)

Citibank, N.A.                                         81,666,666.68
Barclays Bank PLC                                      81,666,666.66
ING Bank N.V., London Branch                           81,666,666.66
National Westminster Bank PLC                          50,000,000.00
Lloyds TSB Bank plc                                    35,000,000.00
ABN Amro Bank N.V., London Branch                      30,000,000.00
Credit Lyonnais New York Branch                        30,000,000.00

                                                       -------------

Total                                                   390,000,000

                                                       -------------	

-74-
SCHEDULE 2
Form of Transfer Certificate
To: Citibank International plc
TRANSFER CERTIFICATE
relating to the agreement (as from time to time amended, varied, novated or supplemented, the "Credit Agreement") originally dated 19 November 1999 whereby following an amendment agreement dated 17 November 2000 a (pound)390,000,000 letter of credit facility was made available to ACE Limited by a group of banks on whose behalf Citibank International plc acted as agent in connection therewith.
1. Terms defined in the Credit Agreement shall, subject to any contrary indication, have the same meanings herein. The terms Bank, Transferee and Portion Transferred are defined in the schedule hereto.
2. The Bank (a) confirms that the details in the schedule hereto under the heading "Letters of Credit" accurately summarises its participation in the Credit Agreement and the Term of any existing Letters of Credit and (b) requests the Transferee to accept and procure the transfer by novation to the Transferee of the Portion Transferred (specified in the schedule hereto) of its Commitment and/or its participation in such Letters of Credit by counter-signing and delivering this Transfer Certificate to the Agent at its address for the service of notices specified in the Credit Agreement.
3. The Transferee hereby requests the Agent to accept this Transfer Certificate as being delivered to the Agent pursuant to and for the purposes of Clause 26.5 (Transfers by Banks) of the Credit Agreement so as to take effect in accordance with the terms thereof on the Transfer Date or on such later date as may be determined in accordance with the terms thereof.
4. The Transferee confirms that it has received a copy of the Credit Agreement together with such other information as it has required in connection with this transaction and that it has not relied and will not hereafter rely on the Bank to check or enquire on its behalf into the legality, validity, effectiveness, adequacy, accuracy or completeness of any such information and further agrees that it has not relied and will not rely on the Bank to assess or keep under review on its behalf the financial condition, creditworthiness, condition, affairs, status or nature of the Obligors.
5. The Transferee hereby undertakes with the Bank and each of the other parties to the Credit Agreement that it will perform in accordance with their terms all those obligations which by the terms of the Finance Documents will be assumed by it after delivery of this Transfer Certificate to the Agent and satisfaction of the conditions (if any) subject to which this Transfer Certificate is expressed to take effect.
6. The Bank makes no representation or warranty and assumes no responsibility with respect to the legality, validity, effectiveness, adequacy or enforceability of the Finance
-75-
Documents or any document relating thereto and assumes no responsibility for the financial condition of the Obligors or for the performance and observance by the Obligors of any of their respective obligations under the Finance Documents or any document relating thereto and any and all such conditions and warranties, whether express or implied by law or otherwise, are hereby excluded.
7. The Bank hereby gives notice that nothing herein or in the Finance Documents (or any document relating thereto) shall oblige the Bank to (a) accept a re-transfer from the Transferee of the whole or any part of its rights, benefits and/or obligations under the Finance Documents transferred pursuant hereto or (b) support any losses directly or indirectly sustained or incurred by the Transferee for any reason whatsoever including the non- performance by an Obligor or any other party to the Finance Documents (or any document relating thereto) of its obligations under any such document. The Transferee hereby acknowledges the absence of any such obligation as is referred to in (a) or (b) above.
8. This Transfer Certificate and the rights, benefits and obligations of the parties hereunder shall be governed by and construed in accordance with English law.
THE SCHEDULE

1.   Bank:

2.   Transferee:

3.   Transfer Date:

4.   Bank's Commitment                                       Portion Transferred

5.   Letter(s) of Credit               Term and              Portion Transferred
     Bank's L/C Participation          Expiry Date

     [Transferor Bank]                 [Transferee Bank]

By:                                    By:

Date:                                  Date:	

ADMINISTRATIVE DETAILS OF TRANSFEREE
Address
Contact Name:
Account for Payments
in sterling:
Fax:
Telephone:
-76-
SCHEDULE 3
Conditions Precedent
1. In relation to each Obligor:
(i) confirmation by an Authorised Signatory of such Obligor that there have been no changes to the constitutional documents of such Obligor since 19 November 1999;
(ii) a copy, certified as at the date of the Amendment Agreement a true and up-to-date copy by an Authorised Signatory of such Obligor, of a board resolution of such Obligor approving the execution, delivery and performance of the Amendment Agreement and the terms and conditions thereof and authorising a named person or persons to sign the Amendment Agreement and any documents to be delivered by such Obligor pursuant thereto;
(iii) a certificate of an Authorised Signatory of such Obligor setting out the names and signatures of the persons authorised to sign, on behalf of such Obligor, the Amendment Agreement and any documents to be delivered by such Obligor pursuant thereto.
2. Opinion of Clifford Chance, solicitors to the Agent.
3. An opinion of Maples and Calder, Cayman Islands counsel to the Account Party addressed to the Finance Parties.
4. An opinion of Conyers, Dill and Pearman, Bermudian counsel to the Account Party addressed to the Finance Parties.
5. A copy, certified a true copy by an Authorised Signatory of the Account Party, of the financial statements of the Account Party referred to in Clauses 14.4.1 and 14.4.2 (Financial Information).
6. Evidence satisfactory to the Agent that Lloyd's agrees to accept deeds of substitution in respect of transfers by Banks.
7. Evidence satisfactory to the Agent that all Original Letters of Credit will be cancelled by Lloyd's upon the issue of the Letters of Credit issued hereunder after the Commencement Date.
8. Evidence that ACE UK Limited of Crosby Court, 38 Bishopsgate, London EC2N 4AJ has agreed to act as the agent of each Obligor for the service of process in England in respect of the Amendment Agreement.
-77-
SCHEDULE 4
Utilisation Request
From: ACE Limited
To: Citibank International plc
Dated:
Dear Sirs,
1. We refer to the (pound)390,000,000 letter of credit agreement (the "Credit Agreement") originally dated 19 November 1999 (as amended and restated pursuant to an Amendment Agreement dated 17 November 2000) and made between inter alia, ACE Limited as account party, Citibank International plc as agent and the financial institutions named therein as Banks. Terms defined in the Credit Agreement shall have the same meaning in this notice. This notice is irrevocable.
2. We hereby give you notice that, pursuant to the Credit Agreement we wish the Banks to issue the following Letters of Credit:

===============================================================================================================
Amount                Effective Date          Expiry Date            Beneficiary              Applicant
---------------------------------------------------------------------------------------------------------------
(pound)/US$/1/        24 November 2000        31 December 2005       Society of Lloyd's
---------------------------------------------------------------------------------------------------------------
(pound)/US$/1/        24 November 2000        31 December 2005       Society of Lloyd's
---------------------------------------------------------------------------------------------------------------
(pound)/US$/1/        24 November 2000        31 December 2005       Society of Lloyd's
---------------------------------------------------------------------------------------------------------------
(pound)/US$/1/        24 November 2000        31 December 2005       Society of Lloyd's
---------------------------------------------------------------------------------------------------------------
(pound)/US$/1/        24 November 2000        31 December 2005       Society of Lloyd's
---------------------------------------------------------------------------------------------------------------
(pound)/US$/1/        24 November 2000        31 December 2005       Society of Lloyd's
---------------------------------------------------------------------------------------------------------------
(pound)/US$/1/        24 November 2000        31 December 2005       Society of Lloyd's
===============================================================================================================	

3. Utilisation Date: [ ].
/1/ Delete where appropriate.
-78-
4. We confirm that, at the date hereof, the Representations are true in all material respects and no Default is continuing.
The Letters of Credit should be issued in the form attached and delivered to the recipient at [address of recipient]. The purpose of their issue is to support Funds at Lloyd's in respect of the Applicants.
Yours faithfully
.............................
Authorised Signatory
for and on behalf of
ACE LIMITED
-79-
SCHEDULE 5
FORM OF EXTENSION REQUEST
From: ACE Limited
To: Citibank International plc
Dated:
Re: [Applicant 1]
[Applicant 2]
Dear Sirs
We refer to the (pound)390,000,000 letter of credit agreement originally dated 19 November 1999, (as amended and restated pursuant to an Amendment Agreement dated 17 November 2000, the "Agreement") between, inter alia, ACE Limited (the "Company"), the financial institutions named therein as Banks and Citibank International plc as Agent.
Terms defined in the Agreement shall have the same meanings herein.
1. Pursuant to Clause 4 (Extension of Letters of Credit) of the Agreement, the Account Party, on behalf of [ ] (the "Applicant[s]") hereby requests that the Banks extend the Letter[s] of Credit in accordance with the information annexed hereto as Annex A.
2. The Account Party hereby certifies that on the date hereof and on the date of extension set forth in Annex A, in each case both before and after giving effect to the extension requested hereby:
(i) no Event of Default or Potential Event of Default has occurred and is continuing;
(ii) each of the representations and warranties of the Account Party contained in the Agreement and each other Finance Document is correct in all material respects on the date hereof, except representations and warranties which expressly refer to an earlier date in which case the same shall be true on and as of such earlier date;
(iii) after giving effect to the extension requested hereby, the aggregate Sterling Amount of the Outstandings will not exceed the Total Commitments; and
(iv) the Letter[s] of Credit requested hereby [is/are] being extended solely as security to support the underwriting business of the Applicant[s] at Lloyd's which has been provided in accordance with the requirements of Lloyd's applicable to [it/them].
-80-
IN WITNESS WHEREOF, the Account Party has caused this Certificate to be executed by its duly authorised officer as of the date and year first written above.
ACE LIMITED
By:............................
Name:..........................
Title:.........................
-81-
Annex A
Letter of Credit Information/2/
1. Name of Beneficiary:
......................................................
2. Letter of Credit Number:
......................................................
3. Maximum amount available under Letter of Credit: (pound)/US$.......
4. Effective Expiry Date: 31 December...../3/
/2/ A Separate "Letter of Credit Information" should be completed for each Letter of Credit covered by the Extension Request.
/3/ Insert immediately succeeding year in which the then current Expiry Date falls.
-82-
SCHEDULE 6
Form of Letter of Credit
Letter of Credit to be issued by the Agent on behalf of the Banks
To: The Council of Lloyd's
One Lime Street
London EC3M 7HA
Dear Sirs
Irrevocable Standby Letter of Credit No. [ ] Re: [name of corporate member of Lloyd's] (the "Applicant")
This Clean Irrevocable Standby Letter of Credit (the "Credit") is issued by the banks whose names are set out in Schedule 1 hereto (the "Issuing Banks", and each an "Issuing Bank") in favour of the Society of Lloyd's ("Lloyd's") on the following terms:
1. Subject to the terms hereof, the Issuing Banks shall make payments within two business days of demand on Citibank International plc (the "Agent") in accordance with paragraph 4 below.
2. Upon a demand being made by Lloyd's pursuant to paragraph 4 below each Issuing Bank shall pay that proportion of the amount demanded which is equal to the proportion which its Commitment set out in Schedule 1 hereto bears to the aggregate Commitments of all the Issuing Banks set out in Schedule 1 hereto, provided that the obligations of the Issuing Banks under this Credit shall be several and no Issuing Bank shall be required to pay an amount exceeding its Commitment set out in Schedule 1 hereto and the Issuing Banks shall not be obliged to make payments hereunder in aggregate exceeding a maximum amount of [amount in approved currency]. Any payment by an Issuing Bank hereunder shall be made in [approved currency] to Lloyd's account specified in the demand made by Lloyd's pursuant to paragraph 4 below.
3. The initial expiry date of this Credit shall be 31 December 2005. This Credit will be extended automatically for a further year, without written amendment, on the first day of January of every future year after 1 January 2001, so that it is always valid for a minimum period of four years unless at least thirty days prior to 31 December of the first year of the then current validity period, notice is given in writing, sent by registered mail for the attention of the Manager, Members' Funds Department, at the above address, that this Credit will not be extended beyond the then current expiry date.
4. Subject to paragraph 3 above, the Issuing Banks shall pay to Lloyd's under this Credit upon presentation of a demand by Lloyd's on Citibank International plc at P.O. Box 449, Riverdale House, 68 Molesworth Street, Lewisham, London SE13 7EU marked for the attention of Cliff Posner, Loans Agency (and, in copy, at P.O. Box 200, Cottons Centre, Hays Lane, London SE1 2QT marked for the attention of Jon Pasquill,
-83-
Global Cash and Trade) in the form set out in Schedule 2 hereto the amount specified therein (which amount shall not, when aggregated with all other amounts paid by the Issuing Banks to Lloyd's under this Credit, exceed the maximum amount referred to in paragraph 2 above).
5. The Agent has signed this Credit as agent for disclosed principals and accordingly shall be under no obligation to Lloyd's hereunder other than in its capacity as an Issuing Bank.
6. All charges are for the Applicant's account.
7. Subject to any contrary indication herein, this Credit is subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision) International Chamber of Commerce Publication No. 500.
8. This Credit shall be governed by and interpreted in accordance with English law and the Issuing Banks hereby irrevocably submit to the jurisdiction of the High Court of Justice in England.
9. Each of the Issuing Banks engages with Lloyd's that demands made under and in compliance with the terms and conditions of this Credit shall be duly honoured on presentation.
Yours faithfully
CITIBANK INTERNATIONAL plc
for and on behalf of
[Names of all Issuing Banks]
-84-
APPENDIX 1
Issuing Banks' Commitments
Name and Address of Issuing Bank Commitment
-85-
APPENDIX 2
Form of Demand (Sterling)
[on Lloyd's letterhead]
Dear Sir/Madam
THE SOCIETY OF LLOYD'S
TRUSTEE OF
LETTER OF CREDIT NO.
With reference to the above, we enclose for your attention a Bill of Exchange, together with the respective Credit. Payment should be made by way of CHAPS. The

account details are as follows:-

National Westminster Bank Plc                       Sort Code 60-00-01
City of London Office                               Account 140-00-04026268
P.O. Box 12258
1 Princes Street
London EC2R 8AP

Please quote Member Code:

Yours faithfully

for Manager
Members' Funds Department
Members' Services Unit

                                     -86-	

Your ref:
Our ref:  MEM/   /   /   /C911f	

Extn:
BILL OF EXCHANGE
The Society of Lloyd's
Trustee of
Letter of Credit No.
Please pay in accordance with the terms of the Credit to our order the amount of (pound) .
For and on behalf of
Authorised Signatory Membership Department
To: Citibank International plc
as Agent
-87-
APPENDIX 2 (CONT.)
Form of Demand (Approved Currency)
[Lloyd's to supply]
-88-
SCHEDULE 7
Mandatory Liquid Asset Costs Rate
1. For the purposes of this Agreement, the cost of compliance with existing requirements of the Bank of England and/or the Financial Services Authority will be calculated by the Agent in relation to each Unpaid Sum on the basis of rates supplied by the Agent (or such Bank(s) as it may from time to time determine) by reference to the circumstances existing on the first day of each Term in respect of such Unpaid Sum and, if any such Term of such Unpaid Sum exceeds three months, at three calendar monthly intervals from the first day of such Term during its duration in accordance with the following formula:

(a)       in relation to Unpaid Sums denominated in Sterling:

               AB + C(B - D) + E x 0.01              per cent. per annum
               ------------------------
                    100 - (A + ^ C)

(b)       in relation to Unpaid Sums denominated in dollars:

                         E x 0.01             per cent. per annum
                         --------                       ---
                            300	

Where:
A is the percentage of eligible liabilities (assuming these to be in excess of any stated minimum) which the Agent (or such Bank as it may determine) is from time to time required to maintain as an interest free cash ratio deposit with the Bank of England to comply with cash ratio requirements.
B is the percentage rate per annum at which sterling deposits are offered by the Agent (or such Bank as it may determine) in accordance with its normal practice, for a period equal to (a) the relevant Term (or, as the case may be, remainder of such Term) in respect of the relevant Unpaid Sum or (b) three months, whichever is the shorter, to a leading bank in the London Interbank Market as of 11.00 a.m. in a sum approximately equal to the amount of such Unpaid Sum.
C is the percentage of eligible liabilities which the Agent (or such Bank as it may determine) is required from time to time to maintain as interest bearing special deposits with the Bank of England.
D is the percentage rate per annum payable by the Bank of England to the Agent (or such Bank as it may determine) on interest bearing special deposits.
E is the rate payable by the Agent (or such Bank as it may determine) to the Financial Services Authority pursuant to the Fees Regulations (but, for this purpose, ignoring any minimum fee required pursuant to the
-89-
Fees Regulations) and expressed in pounds per
(pound)1,000,000 of the Fee Base of the Agent (or such Bank as it may determine).
2. For the purposes of this Schedule:
(i) "eligible liabilities" and "special deposits" shall bear the meanings ascribed to them from time to time under or pursuant to the Bank of England Act 1998 or (as may be appropriate) by the Bank of England;
(ii) "Fee Regulations" means the Banking Supervision (Fees) Regulations 2000 or such other regulation as may be in force from time to time in respect of the payment of fees for banking supervision; and
(iii) "Fee Base" shall bear the meaning ascribed to it, and shall be calculated in accordance with, the Fees Regulations.
3. The percentages used in A and C above shall be those required to be maintained on the first day of the relevant period as determined in accordance with B above.
4. In application of the above formula, A, B, C and D will be included in the formula as figures and not as percentages e.g. if A is 0.5 per cent. and B is 12 per cent., AB will be calculated as 0.5 x 12 and not as 0.5 per cent. x 12 per cent.
5. Calculations will be made on the basis of a 365 day year (or, if market practice differs, in accordance with market practice).
6. A negative result obtained by subtracting D from B shall be taken as zero.
7. The resulting figures shall be rounded to four decimal places.
8. Additional amounts calculated in accordance with this Schedule are payable on the last day of the Term to which they relate.
9. The determination of the Mandatory Liquid Asset Costs Rate by the Agent in relation to any period shall, in the absence of manifest error, be conclusive and binding on all of the parties hereto.
10. The Agent may from time to time, after consultation with the Account Party and the Banks, determine and notify to all parties any amendments or variations which are required to be made to the formula set out above in order to comply with any requirements from time to time imposed by the Bank of England or the Financial Services Authority in relation to any Unpaid Sum and any such determination shall, in the absence of manifest error, be conclusive and binding on all the parties hereto.
-90-
SCHEDULE 8
Form of Confidentiality Undertaking
[Letterhead of Transferor]
[Date]
To: [Transferee]
Dear Sirs,
ACE Limited - (pound)390,000,000 Letter of Credit Facility Agreement originally dated 19 November 1999 (as amended and restated pursuant to an Amendment Agreement dated 17 November 2000)
Confidentiality Agreement
In connection with your possible interest in becoming a bank in the above-captioned facility (the "Transaction") for ACE Limited (the "Company"), we will be providing you with information that is not in the public domain but that is confidential or proprietary in nature. Such information and any other information concerning the Company or the Transaction furnished to you by
[Transferor], or by or on behalf of the Company (whether before, on or after the date of this Agreement), together with analyses, compilations or other materials prepared by you or your directors, officers, employees or advisors (collectively, "Representatives") which contain or otherwise reflect such information, are hereinafter collectively referred to as the "Information". In consideration of your receipt of the Information, you agree that:
1. Except as otherwise expressly provided herein, you will not (i) use the Information except in connection with the Transaction or (ii) disclose to any person any terms or conditions of the Transaction or any portion of the Information.
2. Notwithstanding the foregoing, you may disclose the Information: (i) to your Representatives who need to know the Information for purposes of evaluating the Transaction and who are informed by you of the confidential nature of the Information and who agree to be bound by the terms of this Agreement; (ii) as may be required by applicable law or at the request of any regulatory or supervisory authority having jurisdiction over you or at the request of any rating agency for purposes of establishing or maintaining your debt ratings, provided that you request confidential treatment thereof to the extent permitted by law; or (iii) with the prior written consent of the Company and
[Transferor].
3. The reference to the term "Information" contained in paragraphs 1 and 2 shall not include such portions thereof which (i) are or become available to the public through no fault or action by you or your Representatives or (ii) are or hereafter become available to you on a non-confidential basis from a source other than the Company,
[Transferor] or their respective Representatives, which source, to the best of your
-91-
knowledge, is not prohibited from disclosing such Information to you by a contractual, legal or fiduciary obligation to the Company or
[Transferor].
4. In the event that you or any of your Representatives becomes legally compelled to disclose any of the Information or the existence of the Transaction, you will, to the extent permitted by law provide the Company and [Transferor] with prompt notice so that they may seek a protective order or other appropriate remedy. In the event that such protective order or remedy is not obtained, you shall furnish only that portion of the Information that is legally required and shall disclose such Information in a manner reasonably designed to preserve its confidential nature.
5. In the event that discussions with you concerning the Transaction are discontinued or your participation in the Transaction is otherwise terminated, you shall redeliver to [Transferor] any Information that was furnished to you by or on behalf of the Company or the Transferor or shall certify to the Company and [Transferor] that you have destroyed all such Information.
6. You agree to be responsible for any breach of this Agreement by you or your Representatives.
7. You acknowledge that money damages and other remedies at law may be inadequate to protect against breach of this Agreement and you hereby agree to the granting of injunctive or other equitable relief without proof of actual damages.
8. It is further understood and agreed that no failure or delay by the Company or [Transferor] in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof.
9. This Agreement shall be governed by and construed in accordance with the laws of England and Wales.
If you are prepared to accept the Information on the foregoing terms, please countersign this Agreement in the space provided below and deliver it via telecopier (with the executed original to follow by next-day courier) to:
[Transferor]
[address]
Attention:
Telecopier:
Your acceptance of this Agreement shall be effective upon our receipt of such fax from you.
Yours faithfully,
-92-
[TRANSFEROR]
By: [ ] [ACCEPTED AND AGREED]
 Title: [ ] As at the date hereof
[Name of Transferee]
By: [ ]
Title: [ ]
-93-
 
SCHEDULE 9
Pricing Schedule
"L/C Commission Rate" means, for any date, the rates set forth below in the row opposite such term and in the column corresponding to the Pricing Level that applies at such date:

===============================================================================================================
                                Level I         Level II        Level III       Level IV         Level V
---------------------------------------------------------------------------------------------------------------
L/C Commission Rate             0.50 per cent.  0.55 per cent.  0.60 per cent.  0.625 per cent.  0.65 per cent.

===============================================================================================================	

For purposes of this Schedule 9, the following Pricing Levels have the following meanings:
"Level I" applies at any date if, at such date, the Guarantor's Financial Strength Rating is rated AA- or higher by S&P.
"Level II" applies at any date if, at such date, the Guarantor's Financial Strength Rating is rated A+ by S&P.
"Level III" applies at any date if, at such date, the Guarantor's Financial Strength Rating is rated A by S&P.
"Level IV" applies at any date if, at such date, the Guarantor's Financial Strength Rating is rated A- by S&P.
"Level V" applies at any date if, at such date, the Guarantor's Financial Strength Rating is rated BBB+ or less by S&P.
"Financial Strength Rating" means the financial strength rating of a company determined by the method used by S&P.
"Pricing Level" refers to the determination of which of Level I, Level II, Level III, Level IV or Level V applies at any date.
"S&P" means Standard & Poor's Rating Services (a division of The McGraw-Hill Companies, Inc.).
The credit ratings to be utilised for the purposes of this Schedule 9 are those ratings assigned to the Financial Strength Rating of the Guarantor. The rating in effect at any date is that in effect at the close of business on such date.
-94-
SCHEDULE 10
Existing Liens
1. Liens securing letters of credit issued by Citibank, N.A. for the account of Cigna Europe in an aggregate stated amount not exceeding US$16,000,000 (subject to currency fluctuations).
2. Liens securing letters of credit issued by Citibank, N.A. for the account of INA (UK) in an aggregate stated amount not exceeding US$8,000,000.
3. US$70,000,000 of Cigna Overseas Insurance Company investments are pledged to Domestic Pool companies under a Regulation 114 trust.
4. Lien arising under a Subordination Agreement dated as of 27 October 1998 among ACE US Holdings, Inc., ACE Limited and The Chase Manhattan Bank encumbering ACE US Holdings, Inc.'s rights under the Subordinated Loan Agreement dated as of 27 October 1998 among ACE US Holdings, Inc., ACE Bermuda Insurance Ltd. and United States Trust Company of New York, as trustee under the Indenture dated 17 October 1998 of ACE US Holdings, Inc.
-95-
SCHEDULE 11
Form of Charge Agreement

Name of Chargor and address of its registered or principal office:
ACE Limited
The ACE Building
30 Woodbourne Avenue
Hamilton HM08
Bermuda
Facsimile no: +441 296 0087 (the "Chargor")

Name of Custodian and address of its registered or principal office:
[ ]
Facsimile no: [ ] (the "Custodian")

--------------------------------------------------------------------------------
Date:    [Date]

--------------------------------------------------------------------------------

To:      CITIBANK INTERNATIONAL plc (the "Security Trustee")
         336 Strand
         London WC2R 1HB

         The terms used in this Charge Agreement are defined in Clause 21.

1.       PAYMENT AND DISCHARGE

         We shall pay and discharge in full all of the Obligations at the times
         and in the manner provided for in the Agreements.

2.       CHARGE

2.1      We, acting in the Due Capacity, hereby charge, by way of first charge,
         in your favour all of the Charged Portfolio for the payment to you and
         the discharge of all of the Obligations.

                                     -96-	

2.2     Notwithstanding any provision of the Agreement to the contrary, the
        Security Trustee's entitlement and recourse against the Charged
        Portfolio under this Charge Agreement shall not in any circumstances
        exceed an amount equal to the Required Value.

2.3     We shall deliver, transfer and assign all of the Charged Portfolio to
        the Custodian by means acceptable to you.

3.      CUSTODIAN'S UNDERTAKING

        We undertake to deliver (or procure the delivery of) the Custodian's
        Undertaking to you forthwith upon the execution of this Charge
        Agreement.

4.      REQUIRED VALUE

        We undertake to ensure that with effect from the date of this Charge
        Agreement and at all times thereafter until the Obligations are
        discharged in full:

4.1     the market value of the Charged Portfolio shall not be less than the
        Required Value and without limitation from time to time to pay or
        transfer to the Custodian (by way of increment to the Charged Portfolio)
        money and/or securities so that such value shall not be less than the
        Required Value; and

4.2     each component part of the Charged Portfolio shall satisfy the Security
        Trustee's Requirements applicable thereto.

5.      FURTHER ASSURANCE

5.1     We undertake forthwith upon notice to that effect by you to execute and
        sign in your favour or your nominees' and to deliver to you all such
        transfers (or, if you shall so require, partially completed instruments
        of transfer with the name of the transferee, date and consideration left
        blank), assignments and notices (including without limitation the notice
        in the form set out in the First Schedule), and to make all such
        payments, as you may specify in such notice for the purpose of
        perfecting your title to all or any part of the Charged Portfolio or for
        enabling you (as you shall be entitled at any time to do) to vest the
        same in your name or in the name(s) of your nominees or agents or any
        purchaser.

5.2     We further undertake forthwith upon notice to that effect by you to
        execute in your favour or your nominees' or agents' and to deliver to
        you such legal or other mortgages of the Charged Portfolio or any part
        thereof for the purpose of securing or further securing the Obligations
        and being in such form as you shall require (provided that the
        Obligations are not thereby increased).

6.      REPRESENTATIONS AND WARRANTIES

        We hereby represent and warrant to you and undertake that:

6.1     we are and will, at all times during the subsistence of the security
        hereby constituted, be the sole beneficial owner of all of the Charged
        Portfolio free from mortgages or charges in accordance with our
        undertaking contained in Clause 7 hereof;

                                     -97-	

6.2     subject to paragraph 5 of the Custodian's Undertaking, we have not sold
        or agreed to sell or otherwise disposed of or agreed to dispose of the
        benefit of the Charged Portfolio or any part thereof;

6.3     we have and will at all times have the necessary power to enable us to
        enter into and perform the obligations expressed to be assumed by us
        under this Charge Agreement;

6.4     this Charge Agreement constitutes our legal, valid, binding and
        enforceable obligation (subject to bankruptcy, insolvency or other laws
        of general application affecting the enforcement of creditors' rights,
        the application of equitable principles and the non-availability of the
        equitable remedies of specific performance or injunctive relief) and is
        a security over the Charged Portfolio and every part thereof effective
        in accordance with its terms; and

6.5     all necessary authorisations to enable or entitle us to enter into this
        Charge Agreement have been obtained and are in full force and effect and
        will remain in such force and effect at all times during the subsistence
        of the security hereby constituted.

7.      NEGATIVE PLEDGE

        We hereby undertake with you that at no time during the subsistence of
        the security hereby constituted will we, otherwise than:

7.1     in your favour, or

7.2     with your prior written consent and in accordance with and subject to
        any conditions which you may attach to such consent,

        create, grant, extend or permit to subsist any mortgage or other fixed
        security or any floating charge on or over the Charged Portfolio or any
        part thereof. The foregoing prohibition shall apply not only to
        mortgages, other fixed securities and floating charges which rank or
        purport to rank in point of security in priority to the security hereby
        constituted but also to any mortgages, securities or floating charges
        which rank or purport to rank pari passu therewith or thereafter.

8.      POWER OF SALE

8.1     Upon the occurrence of an Event of Default which is continuing and which
        has not been remedied or waived under the Agreement, you shall have and
        be entitled without prior notice to us to exercise the power to sell or
        otherwise dispose of, for any consideration (whether payable immediately
        or by instalments) as you shall think fit, the whole or any part of the
        Charged Portfolio and may (without prejudice to any right which you may
        have under any other provision hereof) treat such part of the Charged
        Portfolio as consists of money as if it were the proceeds of such sale
        or other disposal. You shall be entitled to apply the proceeds of such
        sale or other disposal in paying the costs of such sale or other
        disposal and (subject to the rights or claims of any person entitled in
        priority to you) in or towards the discharge of the Obligations, the
        balance (if any) to be paid to us or other persons entitled thereto.
        Such power of sale or other

                                     -98-	

        disposal shall operate as a variation and extension of the statutory
        power of sale under Section 101 of the Law of Property Act 1925.

8.2     The restriction contained in Section 103 of the Law of Property Act 1925
        on the exercise of the statutory power of sale shall not apply to any
        exercise by you of your power of sale or other disposal which shall
        arise, as shall the statutory power under the said Section 101 of
        appointing a receiver of the Charged Portfolio or the income thereof,
        immediately upon the occurrence of an Event of Default which is
        continuing and which has not been remedied or waived as is referred to
        in Clause 8.1. In favour of a purchaser of all or any part of the
        Charged Portfolio, a certificate in writing by your officer or agent
        that either or both of such powers has arisen and is exercisable shall
        be conclusive evidence of that fact.

8.3     Without limitation to the generality of your rights and remedies as set
        forth in Clause 8.1, you may at any time without prior notice to us:-

        8.3.1     after an Event of Default has occurred which is continuing and
                  which has not been remedied or waived, exercise any or all of
                  your rights under or pursuant to the Custodian's Undertaking;
                  and

        8.3.2     if any or all of the component parts of the Charged Portfolio
                  (the "Ineligible Property") delivered, transferred or assigned
                  to you under or pursuant to the Custodian's Undertaking do not
                  satisfy the Security Trustee's Requirements,

        then you may (but shall not be obliged to):

        (a)       convert for our account and at our sole risk all or any part
                  of the Ineligible Property into property which does satisfy
                  all or any of the Security Trustee's Requirements in such
                  manner as you in your sole discretion (acting reasonably) may
                  determine to be appropriate; and/or

        (b)       sell for our account and at our sole risk all or any part of
                  the Ineligible Property in return for payment of such currency
                  or currencies as you in your sole discretion (acting
                  reasonably) determine to be appropriate and pay the same to an
                  account or accounts opened or maintained by you for that
                  purpose pursuant to Clause 13.2.

9.      POWER OF ATTORNEY

        We hereby by way of security for the performance of our obligations
        hereunder irrevocably (within the meaning of Section 4 of the Powers of
        Attorney Act 1971) appoint you to be our attorney and in our name and on
        our behalf and as our act and deed after an Event of Default has
        occurred which is continuing and which has not been remedied or waived,
        to sign, seal, execute, deliver, perfect and do all deeds, instruments,
        mortgages and things as may be, or as you may consider to be, requisite
        for carrying out any obligations imposed on us under Clause 5, or for
        enabling you to exercise your power(s) of sale or other disposal or
        conversion referred to in Clause 8 or for carrying into effect any such
        sale or other disposal or conversion made under

                                     -99-	

        such power(s) by executing instruments of transfer (or completing
        partially completed instruments executed by us), assignments or notices,
        or exercising any of the rights and powers from time to time attaching
        to any part of the Charged Portfolio. We hereby undertake to ratify and
        confirm all things done and documents executed by you in the exercise of
        the power of attorney conferred by this Clause.

10.     CONSOLIDATION OF SECURITIES

        Subsection (1) of Section 93 of the Law of Property Act 1925 shall not
        apply to this Charge Agreement.

11.     EFFECTIVENESS OF SECURITY

11.1    This Charge Agreement shall be in addition to and shall be independent
        of every other security which you may at any time hold for any of the
        Obligations. No prior security held by you over the whole or any part of
        the Charged Portfolio shall merge in the security hereby constituted.

11.2    This Charge Agreement shall remain in full force and effect as a
        continuing security unless and until you discharge it.

11.3    Nothing contained in this Charge Agreement is intended to, or shall
        operate so as to, prejudice or affect any bill, note, guarantee,
        mortgage, pledge, charge or other security of any kind whatsoever which
        you may have for the Obligations or any of them or any right, remedy or
        privilege of yours thereunder.

12.     REMEDIES, TIME OR INDULGENCE

12.1    The rights, powers and remedies provided by this Charge Agreement are
        cumulative and are not, nor are they to be construed as, exclusive of
        any right of set-off or other rights, powers and remedies provided by
        law.

12.2    No failure on your part to exercise, or delay on your part in
        exercising, any of the rights, powers and remedies provided by this
        Charge Agreement or by law (each a "Security Trustee Right") shall
        operate as a waiver thereof, nor shall any single or partial waiver of a
        Security Trustee Right preclude any further or other exercise of that
        Security Trustee Right or the exercise of any other Security Trustee
        Right.

12.3    You may in your discretion grant time or other indulgence or make any
        other arrangement, variation or release with any person(s) not party
        hereto (irrespective of whether such person(s) is/are jointly liable
        with us) in respect of the Obligations or in any way affecting or
        concerning them or any of them or in respect of any security for the
        Obligations or any of them, without in any such case prejudicing,
        affecting or impairing the security hereby constituted, or any Security
        Trustee Right or the exercise of the same, or any indebtedness or other
        liability owed by us to you.

13.     ACCOUNTS

                                     -100-	

13.1    If you shall at any time receive notice of any subsequent mortgage,
        assignment, charge or other interest affecting all or any part of the
        Charged Portfolio you may open a new account or accounts for us in your
        books. If you do not do so, then (unless you give to us express written
        notice to the contrary) as from the time of receipt of such notice by
        you, all payments made by us to you shall in the absence of any express
        appropriation by you to the contrary be treated as having been credited
        to a new account of ours and not as having been applied in reduction of
        the Obligations at the time when you received the notice.

13.2    All monies received, recovered or realised by you under this Charge
        Agreement (including the proceeds of any conversion of currency) may in
        your discretion be credited to any suspense or impersonal account and
        may be held in such account for so long as you shall think fit (with
        interest accruing thereon at such rate, if any, as you may deem fit)
        pending their application from time to time (as you shall be entitled to
        do in your discretion) in or towards the discharge of any of the
        Obligations.

13.3    In case you shall have more than one account for us in your books you
        may at any time after making any demand for payment or other discharge
        of any of the Obligations, and for so long as all the Obligations remain
        unpaid, or after you shall have received notice of any subsequent charge
        or other interest affecting all or any part of the Charged Portfolio,
        and without prior notice in that behalf, forthwith transfer all or any
        part of any balance standing to the credit of any such account to any
        other such account which may be in debit.

14.     CURRENCY

14.1    For the purpose of or pending the discharge of any of the Obligations
        you may convert any monies received, recovered or realised or subject to
        application by you under this Charge Agreement (including the proceeds
        of any previous conversion under this Clause) from their existing
        currency of denomination into the currency of denomination of such
        Obligations as you may think fit, and any such conversion shall be
        effected at your then prevailing spot rate of exchange for obtaining
        such other currency with the existing currency.

14.2    References herein to any currency extend to any funds of that currency
        and for the avoidance of doubt funds of one currency may be converted
        into different funds of the same currency.

15.     COSTS, CHARGES AND EXPENSES

        All your reasonable costs, charges and expenses incurred in the exercise
        of any Security Trustee Right, or in connection with the execution of or
        otherwise in relation to this Charge Agreement and all your costs,
        charges and expenses incurred in connection with the perfection or
        enforcement of the security hereby constituted or any other security
        held by you for the Obligations or any guarantee to you in respect
        thereof, shall be reimbursed to you by us on demand on a full indemnity
        basis together with interest from the date of the same having been
        incurred (or from the date of

                                     -101-	

        demand if such demand is made after unreasonable delay) to the date of
        payment at such rate or rates as you may determine in relation to the
        currency involved.

16.     LAW AND JURISDICTION

        This Charge Agreement shall be governed by English law and for your
        benefit we hereby irrevocably submit to the jurisdiction of the English
        courts.

17.     PROVISIONS SEVERABLE

        Each of the provisions contained in this Charge Agreement shall be
        severable and distinct from one another and if at any time any one or
        more of such provisions is or becomes invalid, illegal or unenforceable,
        the validity, legality and enforceability of each of the remaining
        provisions of this Charge Agreement shall not in any way be affected,
        prejudiced or impaired thereby.

18.     NOTICES

18.1    Any notice or demand required to be served on us by you hereunder may be
        served:-

        18.1.1  on any of our officers personally,

        18.1.2  by letter addressed to us or to any of our officers and left at
                our registered office or at any one of our principal places of
                business,

        18.1.3  by posting the same by letter addressed in any such manner as
                aforesaid to such registered office or any such principal place
                of business or

        18.1.4  by telex or facsimile addressed in any such manner as aforesaid
                to any then published telex or facsimile number of ours.

18.2    Any notice or demand:

        18.2.1  sent by post in accordance with Clause 18.1 to an address in the
                United Kingdom shall be deemed to have been served on us at
                10.00 a.m. (London time) on the second business day next
                following the date of posting or, in the case of an address
                outside the United Kingdom, shall be deemed to have been served
                on us at 10.00 a.m. (London time) on the fifth business day next
                following and exclusive of the date of posting; or

        18.2.2  sent by telex or facsimile in accordance with Clause 18.1 shall
                be deemed to have been served on us when despatched, provided
                that an activity report indicates that the document has been so
                transmitted.

18.3    In proving such service by post it shall be sufficient to show that the
        letter containing the notice or demand was properly addressed and posted
        and such proof of service shall be effective notwithstanding that the
        letter was in fact not delivered or was returned undelivered.

19.     THE SECURITY TRUSTEE'S DISCRETIONS

                                     -102-	

        Any liberty or power which may be exercised or any determination which
        may be made hereunder by you may be exercised or made in your absolute
        and unfettered discretion and you shall not be under any obligation to
        give reasons therefor, provided that the Security Trustee will so act in
        good faith and in accordance with Clause 25 of the Agreement).

20.     ASSIGNMENT

        You shall have a full and unfettered right to assign the whole or any
        part of the benefit of this Charge Agreement to any Person who is
        appointed as your successor pursuant to Clause 25 of the Agreement and
        the words "you" and "your" and the expression "the Security Trustee"
        wherever used herein shall be deemed to include your assignees and other
        successors, whether immediate or derivative, who shall be entitled to
        enforce and proceed upon this Charge Agreement in the same manner as if
        named herein. You shall be entitled to impart any information concerning
        us to any such assignee or other successor or any participant or
        proposed assignee, successor or participant subject to such person
        executing and delivering a confidentiality undertaking substantially in
        the form set out in Schedule 8 of the Agreement.

21.     INTERPRETATION

21.1    Terms not otherwise defined herein shall bear the meaning ascribed to
        them in the Agreement.

        In this Charge Agreement:

        "Agreement" means the (pound)390,000,000 letter of credit facility
        agreement originally dated 19 November 1999 (as amended and restated
        pursuant to an Amendment Agreement dated 17 November 2000) and made
        between ACE Limited as account party, ACE Bermuda Insurance Ltd. as
        guarantor, Citibank, N.A. as arranger, Barclays Bank PLC and ING Barings
        as co-arrangers, Citibank International plc as agent and security
        trustee and the financial institutions defined therein as banks;

        "Charged Portfolio" means at any time all of the Chargor's right, title
        and interest in and to:

        (a)    all securities which are held by, to the order, for the account
               or under the control or direction of, the Custodian;

        (b)    all securities which are held by any clearance system on behalf
               of, for the account of or to the order of the Custodian;

        (c)    all rights, benefits and proceeds attaching to or arising from or
               in respect of any of the securities referred to in (a) and (b)
               above;

        (d)    all sums of money standing to the credit of any account opened or
               maintained by the Custodian for the Chargor;	

-103-
(e) all sums of money standing to the credit of any account opened or maintained by any clearance system for the Chargor and under the direction or control of the Custodian;
(f) all sums of money standing to the credit of any account opened or maintained by any clearance system for the Custodian; and
(g) any of the foregoing at any time delivered, transferred or assigned by the Custodian to the Security Trustee;
but in each case only to the extent that the same are entered or evidenced in one or more accounts identified in the Custodian's records by express reference to ACE Limited and the Security Trustee (which accounts are, at the date hereof, account number [ ]), and to the extent that the same meets the Security Trustee's Requirements;
"Custodian" means the above-mentioned Custodian or such other person as the Chargor and the Security Trustee may agree to in writing from time to time;
"Custodian's Undertaking" means an undertaking in the form set out in the Second Schedule duly executed by the Custodian as the same may be amended or substituted with the prior written consent of the Security Trustee from time to time;
"Due Capacity" means capacity as beneficial owner;
"Obligations" means any and all of the present or future, actual or contingent, obligations of the Chargor to the Finance Parties hereunder or under the Agreement;
"Required Value" means the amount stated in Part A of the Schedule to the Custodian's Undertaking or such other amount determined in accordance with the Agreement as may be notified from time to time by the Security Trustee to the Custodian; and
"Security Trustee's Requirements" means the Security Trustee's requirements in respect of the component parts of the Charged Portfolio all as set forth in Part B of the Schedule to the Custodian's Undertaking or as may be agreed from time to time by the Security Trustee and the Chargor and notified to the Custodian (provided that the Security Trustee's Requirements may be adjusted by the Security Trustee without the agreement of the Chargor (but after consultation in good faith with the Chargor) where an adjustment is necessary to ensure that the Banks continue to receive the same regulatory treatment in respect of their Outstandings as they receive at the date hereof and Provided further that, in the event that the "financial strength rating" of the Chargor as determined by Standard and Poor's Rating Services reaches BBB+ or less, the Security Trustee's Requirements shall be amended without the prior agreement of the Chargor by the additional requirement that any fixed income securities comprising the Charged Portfolio issued by or fully and explicitly guaranteed by the central government of an OECD (Organisation for Economic Co-operation and Development)
-104-

        country shall only satisfy the Security Trustee's Requirements if such
        country is rated AA by Standard and Poor's Rating Services or AA
        equivalent or better).

21.2    Any reference in this Charge Agreement to:-

        a "business day" shall be construed as a reference to a day (other than
        a Saturday or Sunday) on which banks are generally open for business in
        London, Bermuda and the jurisdiction in which the Custodian's principal
        or head office is located;

        a "clearance system" means Clearstream, the Euro-Clear System, the First
        Chicago Clearing Centre, The Depository Trust Company and such other
        clearance system as may from time to time be used in connection with
        transactions relating to any securities, and any depository for any of
        the foregoing;

        a "Clause" is, unless otherwise stated, a reference to a Clause hereof;

        a "person" shall be construed as a reference to any person, firm,
        company, corporation, government, state or agency of a state or any
        association or partnership (whether or not having separate legal
        personality) of two or more of the foregoing;

        a "Schedule" is, unless otherwise stated, a reference to a schedule
        hereto; and

        "securities" shall be construed as a reference to bonds, debentures,
        notes, stocks, shares or other securities and all moneys, rights or
        property which may at any time accrue or be offered (whether by way of
        bonus, redemption, preference, option or otherwise) in respect of any of
        the foregoing (and without limitation, shall include any of the
        foregoing not constituted, evidenced or represented by a certificate or
        other document but by an entry in the books or other permanent records
        of the issuer, a trustee or other fiduciary thereof, or a clearance
        system).

21.3    Any reference in this Charge Agreement to another agreement, arrangement
        or undertaking shall be construed as a reference to such other
        agreement, arrangement or undertaking as the same may have been, or may
        from time to time be, amended, varied, novated or supplemented.

21.4    Clause and Schedule headings are for ease of reference only.	

-105-
THE FIRST SCHEDULE
NOTICE OF CHARGE OF CHARGED PORTFOLIO
To: [ ]
* ___________________
(*Contact name at the Custodian)
We refer to the Charge Agreement (the "Charge Agreement") dated [ ] entered into by us in favour of Citibank International plc of 336 Strand, London WC2R 1HB (the "Security Trustee"), a copy of which is annexed hereto. Terms defined in the Charge Agreement shall have the same meanings herein.
Notice is hereby given by us to you that, by and pursuant to the Charge Agreement, we have charged in favour of the Security Trustee all of the Charged Portfolio.
Yours faithfully,
For and on behalf of
ACE Limited

(Signature(s))
Dated ____________________
-106-
THE SECOND SCHEDULE
Custodian's Undertaking

Name of Custodian and address of its registered or principal office:
[ ]
Attn: [ ]
facsimile no: [ ] (the "Custodian")

Name of Chargor and address of its registered or principal office:
ACE Limited
The ACE Building
30 Woodbourne Avenue
Hamilton HM08
Bermuda
facsimile no: +441 296 0087 (the "Chargor")

Date of Charge Agreement: [Date]

To: Citibank International plc (the "Security Trustee")
336 Strand
London WC2R 1HB
We, the Custodian, refer to the above-mentioned Charge Agreement (the "Charge Agreement") between the Chargor and the Security Trustee. Save where the context otherwise requires, terms defined in the Charge Agreement shall have the same meanings herein.
In consideration of the Security Trustee and the other Finance Parties entering into the Agreement and issuing Letters of Credit thereunder and pursuant to instructions received by the Custodian from the Chargor, the Custodian hereby represents and irrevocably undertakes and agrees to and with the Security Trustee as follows:
1. The Custodian will hold the Charged Portfolio to the Security Trustee's order.
-107-
2. The Custodian will deliver to the Security Trustee within three business days of the Security Trustee's request therefor an up-to-date statement or statements of the Charged Portfolio, each component thereof and the aggregate value thereof.
3. The Custodian will in any event deliver to the Security Trustee not later than the tenth business day of each calendar month a statement or statements, made up as at the close of business on the last business day of the preceding calendar month, of the Charged Portfolio, each component thereof and the aggregate value thereof.
4. If trades of, or any transactions relating to, a component part of the Charged Portfolio are processed by the Custodian on any Business Day, the Custodian shall notify the Security Trustee as soon as possible (and in any event within one Business Day of such day) of the trades and transactions processed.
5. The Custodian shall be entitled to process trades as it may be directed to do so under the terms of its custodial agreement with the Chargor only to the extent such trades comprise a disposal to a third party in the market of a component part of the Charged Portfolio and the substitution therefor of other securities save that transfers can be made (i) to the Security Trustee in accordance with the terms of this undertaking or (ii) to any person with the Security Trustee's prior written consent or (iii) in respect of any part of the Charged Portfolio representing an excess over the Required Value, to the Chargor or as it may direct, which excess will be determined by the Security Trustee on the date of the request from the Chargor.
6. The Custodian shall deliver, transfer or assign to the Security Trustee on the Security Trustee's first written demand securities and monies in the Charged Portfolio up to the Required Value as directed by the Security Trustee and all certificates and other instruments evidencing title thereto or necessary or desirable in order for the Security Trustee to acquire good and marketable title thereto. The Security Trustee shall indicate the identity of the securities and monies it wishes to receive and the Custodian shall have no discretion in this matter and shall be fully protected in relying upon any direction received from the Security Trustee.
7. All rights and interests of the Custodian in or towards the Charged Portfolio or any part thereof are and shall be subordinated and postponed to the Security Trustee's rights and interests therein under and pursuant to the Charge Agreement, save that the Custodian shall be entitled to debit any account of the Chargor with the Custodian with any reasonable fees or commissions due and owing by the Chargor to the Custodian in respect of the Charged Portfolio or part thereof or to settle any reasonable bank charges due and owing by the Chargor to the Custodian and incurred in the ordinary course of business for the purchase of securities and/or foreign exchange or contracts for foreign exchange.
-108-
8. Any notice, demand or other communication required to be served on us by you hereunder may be served by letter properly addressed and deposited with a recognised air express courier or transmitted by facsimile if (a) a telephone call is placed to the officer noted for address purposes on page 1 of this Custodian's Undertaking notifying such officer of the facsimile transmission and (b) the original is properly addressed and mailed. Any notice, demand or other communication shall be deemed to have been served on us on the third business day following if sent by recognised air express courier and when dispatched if sent in accordance with the facsimile procedures.
9. This undertaking shall be governed by, and construed in accordance with, English law. The Custodian and the Security Trustee agree that a proper forum for any dispute would be either the English courts or the federal courts within the United States of America.
10. Save as expressly provided herein, the Custodian shall have no further obligations or liabilities to the Security Trustee in relation to the Charged Portfolio and specifically shall have no liability or responsibility for monitoring or determining the compliance by any party with any other agreement including, without limitation, the Charge Agreement.
-109-
THE SCHEDULE
PART A
The initial Required Value is:-
(pound)[ ] (amount in words)
(or such other amount as may be agreed between the Security Trustee and the Chargor and notified to the Custodian by the Security Trustee from time to time).
PART B
The initial Security Trustee's Requirements are:-
To the extent of an aggregate amount not less than the Required Value, the Charged Portfolio shall at all times be comprised of fixed income securities issued by or fully and explicitly guaranteed by the central government of an OECD (Organisation for Economic Co-Operation and Development) country, and fixed income securities issued by US government agencies (whose debt obligations are fully and explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the US Government) as used in Appendix A, Section III (C), Category I to Regulation H as promulgated by the Board of Governors of the Federal Reserve System and the same are either (i) uncertificated and governed by the provisions of 31 C.F.R. Part 357 or such similar provisions of the Code of Federal Regulations, applicable to United States agency securities as are acceptable to the Security Trustee; or (ii) certificated.

(Authorised Signatory)
for and on behalf of the Custodian
[Date]
-110-
The COMMON or CORPORATE SEAL of
the CHARGOR was hereto affixed
to this DEED in the presence of:
Director
Secretary/Director
-111-
  
Exhibit 13.1

ACE LTD
Selected Financial Data
December 31, 2000

                                                      For the years         For the Three       For the years ended September 30
                                                          ended             Months ended
                                                       December 31           December 31

                                                   2000           1999          1998            1998         1997          1996
(in thousands of U.S. dollars,
except share and per share
data and selected data)

Operations data:

    Net premiums written                       $  4,879,354   $  2,495,348  $    154,103    $   880,973  $    789,773  $    781,884
                                               ============   ============  ============    ===========  ============  ============
    Net premiums earned                           4,534,763      2,485,737       218,007        894,303       805,372       755,840
    Net investment income                           770,855        493,337        85,095        324,254       253,440       213,701
    Net realized gains (losses)
      on investments                                (38,961)        37,916       130,154        188,385       127,702        55,229
    Losses and loss expenses                      2,936,065      1,639,543       111,169        516,892       486,140       520,277
    Policy acquisition costs and
      administrative expenses                     1,393,432        833,312        69,030        271,566       153,486       138,343
    Amortization of goodwill                         78,820         45,350         4,435         12,834         7,325         1,507
    Interest expense                                221,450        105,138         4,741         25,459        11,657        10,481
    Income tax expense                               93,908         28,684         5,342         20,040        25,181        26,543
                                               ------------   ------------  ------------    -----------  ------------  ------------
    Net income                                 $    542,982   $    364,963  $    238,539    $   560,151  $    502,725  $    327,619
                                               ============   ============  ============    ===========  ============  ============

    Dividends on FELINE PRIDES                 $     18,391   $          -  $          -    $         -  $          -  $          -
                                               ------------   ------------  ------------    -----------  ------------  ------------
    Net income available to holders
      of Ordinary Shares                       $    524,591   $    364,963  $    238,539    $   560,151  $    502,725  $    327,619
                                               ============   ============  ============    ===========  ============  ============

    Diluted earnings per share                 $       2.31   $       1.85  $       1.21    $      2.96  $       2.69  $       2.00
                                               ============   ============  ============    ===========  ============  ============

Balance sheet data (at end of period)

    Total investments and cash                   13,762,324   $ 12,875,535  $ 6 ,214,900    $ 6,201,074  $  4,787,916  $  4,342,781
    Total assets                                 31,689,526     30,122,888    8 ,834,305      8,788,753     5,647,596     5,077,780
    Net unpaid losses and loss expenses           9,330,950      8,908,817    2 ,577,805      2,678,341     2,006,873     1,892,302
    Mezzanine equity                                311,050              -             -              -             -             -
    Shareholders' equity                          5,420,211      4,450,560     3,909,577      3,714,270     2,785,155     2,367,003
    Diluted book value per share               $      23.25   $      20.28  $      20.19    $     19.14  $      15.40  $      12.46

Selected data

    Loss and loss expense ratio                        64.7%          66.0%         51.0%          57.8%         60.4%         68.8%
    Underwriting and administrative
      expense ratio                                    30.8%          33.5%         31.7%          30.4%         19.0%         18.3%
                                               ------------   ------------  ------------    -----------  ------------  ------------
    Combined ratio                                     95.5%          99.5%         82.7%          88.2%         79.4%         87.1%
                                               ============   ============  ============    ===========  ============  ============

    Net loss reserves to capital and
      surplus ratio                                   172.2%         200.2%         65.9%          72.1%         72.1%         79.9%
    Ratio of net premiums written
      to capital and surplus                         0.90:1         0.56:1           n/a         0.24:1        0.28:1        0.33:1

    Weighted average shares outstanding
      - diluted                                 227,418,430    197,626,354   197,349,356    189,281,175   186,809,023  $163,768,894
    Cash dividends per share                   $       0.50   $       0.42  $       0.09    $      0.34  $       0.27  $       0.21
    Net operating earnings per share(1)        $       2.48   $       1.67  $       0.55    $      2.21  $       2.04  $       1.69
                                               ============   ============  ============    ===========  ============  ============	

The above table sets forth selected consolidated financial data of the Company as of and for the years ended December 31, 2000 and 1999, the three months ended December 31, 1998, and for each of the years in the three-year period ended September 30, 1998. These selected financial and other data should be read in conjunction with the consolidated financial statements and related notes and with "Management's Discussion and Analysis of Results of Operations and Financial Condition," presented on pages 51 to 93 and 32 to 50 respectively, of this annual report. On July 2, 1999, the Company changed its fiscal year end from September 30 to December 31. This change was implemented retroactively to December 31, 1998, so that the 1999 fiscal year is for the twelve-month period ended December 31, 1999.
(1) Operating earnings is comprised of net income available to holders of Ordinary Shares and excludes net realized gains (losses) on investments and non- recurring expenses.
3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following is a discussion of the Company's results of operations, financial condition and liquidity and capital resources. This discussion should be read in conjunction with the consolidated financial statements, and related notes thereto, presented on pages 51 to 93 of this annual report.
Safe Harbor Disclosure
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Any written or oral statements made by or on behalf of the Company may include forward-looking statements which reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from such statements. These uncertainties and other factors (which are described in more detail elsewhere herein and in documents filed by the Company with the Securities and Exchange Commission) include, but are not limited to, (i) uncertainties relating to government and regulatory policies (such as subjecting the Company to new insurance regulation or taxation in additional jurisdictions or amending or revoking or enacting any laws, regulations or treaties affecting the Company's current operations), (ii) the occurrence of catastrophic events or other insured or reinsured events with a frequency or severity exceeding the Company's estimates, (iii) legal, regulatory, and legislative developments, (iv) the uncertainties of the loss reserving process including the difficulties associated with assessing environmental and latent injuries, (v) the actual amount of new and renewal business and market acceptance of the Company's products, (vi) loss of the services of any of the Company's executive officers, (vii) changing rates of inflation and other economic conditions, (viii) losses due to foreign currency exchange rate fluctuations, (ix) the ability to collect reinsurance recoverables, (x) the competitive environment in which the Company operates, related trends and associated pricing pressures, market perception, and developments, (xi) the impact of mergers and acquisitions and new initiatives, including the ability to successfully integrate acquired, new or expanded businesses and achieve cost savings, reduce volatility of earnings, competing demands for ACE's capital and the risk of undisclosed liabilities, (xii) developments in global financial markets, including interest rate changes which could affect the Company's investment portfolio and financing plans, (xiii) risks associated with the introduction of new products and services, (xiv) the ability of technology to perform as anticipated, and (xv) the amount of dividends received from subsidiaries. The words "believe", "anticipate", "estimate", "project", "plan", "expect", "intend", "hope", "will likely result" or "will continue" and variations thereof and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. 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.
General
On July 2, 1999, ACE Limited ("ACE" or "the Company") changed its fiscal year- end from September 30 to December 31. This change was implemented retroactively to December 31, 1998, so that the 1999 fiscal year was the twelve-month period ended December 31, 1999. For purposes of this analysis of the Company's results of operations, the Company's December 31, 2000 and 1999, fiscal years have been compared to the year ended September 30, 1998, the next most recently audited fiscal year.
The Company, through its various subsidiaries, provides a broad range of insurance and reinsurance products to insureds in the United States and almost 50 other countries. In addition, ACE, through ACE Global Markets, provides funds at Lloyd's, primarily in the form of letters of credit, to support underwriting capacity for Lloyd's syndicates managed by Lloyd's managing agencies, which are wholly owned subsidiaries of ACE. ACE operates through six business segments:
ACE Bermuda, ACE Global Markets, ACE Global Reinsurance, ACE USA, ACE International and ACE Financial Services.
32
On January 2, 1998, the Company acquired Westchester Specialty Group, Inc. ("WSG"), through a newly-created U.S. holding company, ACE US Holdings, Inc. Under the terms of the acquisition agreement, the Company purchased all of the outstanding capital stock of WSG for aggregate cash consideration of $338 million.
On April 1, 1998, the Company acquired CAT Limited ("CAT"), a privately held, Bermuda-based property catastrophe reinsurer. Under the terms of the acquisition agreement, the Company purchased all of the outstanding capital stock of CAT, for cash consideration of approximately $641 million. On January 1, 1999, CAT was fully merged into ACE Tempest Re.
On July 9, 1998, the Company acquired Tarquin Limited ("Tarquin"), a UK-based holding company which owned Lloyd's managing agency Charman Underwriting Agencies Ltd. ("CUAL") and Tarquin Underwriting Limited, its corporate capital provider. Under the terms of the acquisition agreement, the Company issued approximately 14.3 million ACE Ordinary Shares to the shareholders of Tarquin.
On July 2, 1999, the Company, through a U.S. holding company, ACE INA Holdings, Inc. ("ACE INA"), acquired CIGNA Corporation's ("CIGNA") domestic property and casualty insurance operations including its run-off business and also its international property and casualty insurance companies and branches, including most of the accident and health businesses written through those companies for $3.45 billion in cash (the "ACE INA Acquisition").
On December 30, 1999, the Company acquired Capital Re Corporation, which is engaged in the financial guaranty reinsurance business. Following the acquisition, Capital Re Corporation was renamed ACE Financial Services. Under the terms of the acquisition agreement, the Company paid aggregate consideration of $110.3 million in cash and issued approximately 20.8 million ACE Ordinary Shares.
The Company expects to continue evaluating potential new product lines and other opportunities in the insurance and reinsurance markets. In addition, the Company evaluates potential acquisitions of other companies and businesses and holds discussions with potential acquisition candidates. As a general rule, the Company publicly announces such acquisitions only after a definitive agreement has been reached.
Results of Operations - Years ending December 31, 2000 and 1999, and year ending September 30, 1998
As noted, during 1999 and 1998, the Company made four substantial acquisitions that were accounted for under the purchase method of accounting, which requires that income from the acquired company only be included in the results of the Company from the date of acquisition. This makes it difficult to compare the financial results as presented. ACE US Holdings' results are included from January 2, 1998, CAT's results are included from April 1, 1998, and ACE INA's results are included from July 2, 1999. As ACE Financial Services was acquired on December 30, 1999, its results had no effect on the fiscal 1999 year.
In addition, the Company increased its percentage of participation in its Lloyd's syndicates in both 2000 and 1999. On October 11, 2000, the final Lloyd's auction for 2001 year of account capacity concluded. As a result, ACE increased its share of the capacity of syndicate 2488 to approximately 90 percent in the syndicate's 2001 year of account compared to 84 percent in 2000.
Where possible, we have discussed year on year comparisons for premiums, which includes information prior to the dates of acquisitions. For items that by their nature are based upon estimates or require judgments, such as losses incurred and income, we do not generally discuss information prior to the dates of acquisitions.
33
From time to time, the Company writes loss portfolio transfer contracts ("LPTs"), primarily in ACE Bermuda and ACE USA. These contracts, which meet the established criteria for reinsurance accounting, are recorded in the statement of operations when written and generally result in large one-time written and earned premiums with comparable incurred losses. These contracts, when written, can cause significant variances in gross premiums written, net premiums written, net premiums earned, net incurred losses as well as the loss and loss expense ratio and underwriting and administrative expense ratio.
Net Income

--------------------------------------------------------------------------------------------------------------
                                                                 Year Ended     Year Ended     Year Ended
                                                                December 31    December 31    September 30
                                                                    2000           1999           1998
                                                                    ----           ----           ----
                                                                       (in millions of U.S. dollars)
  Income excluding net realized gains (losses) on                  $ 582         $ 330           $ 418
    investments and non-recurring expenses
  Net realized gains (losses) on investments (net of taxes)          (39)           42             188
  Non-recurring expenses (net of taxes)                                -            (7)            (46)
                                                                   -----         -----           -----
  Net income                                                       $ 543         $ 365           $ 560
                                                                   =====         =====           =====

--------------------------------------------------------------------------------------------------------------	

Income excluding net realized gains (losses) on investments and non-recurring expenses increased by 76 percent to $582 million for the year ended December 31, 2000, compared with $330 million for the year ended December 31, 1999. Of this increase, approximately $100 million results primarily from the inclusion of ACE INA because their results are included for a full year in 2000 compared with six months of results in 1999 and they also reported better results in 2000 compared with 1999. The 2000 year also includes $82 million of income excluding net realized gains (losses) on investments and non-recurring expenses from ACE Financial Services which was acquired on December 30, 1999. An additional $78 million increase results primarily from ACE Global Reinsurance as there was a lower level of catastrophe losses in 2000 compared with 1999.
The increase in net income to $543 million in 2000 compared with $365 million in 1999 is a result of the increase in income excluding net realized gains (losses) on investments and non-recurring expenses discussed in the preceding paragraph, offset by net realized losses of $39 million in 2000. In 1999, the Company had net realized gains on investments of $42 million resulting in an $81 million decrease in net income from 1999 to 2000.
Income excluding net realized gains (losses) on investments and non-recurring expenses was $330 million in 1999 compared with $418 million in 1998, a decrease of $88 million or 21 percent. This decline was primarily due to the impact of property catastrophe losses, which are discussed further in underwriting results.
The decline in net income of $195 million from 1998 to 1999 is due in part to the $88 million decline in income excluding net realized gains (losses) and non- recurring expenses explained above. In addition, the Company had net realized gains on investments of $42 million in 1999 compared with $188 million in 1998. This contributed $146 million to the decline and is explained further in the discussion of net realized gains (losses) on investments. The Company incurred non-recurring expenses (net of taxes) of $7 million in 1999 with respect to the ACE INA Acquisition compared with $46 million in 1998 with respect to the acquisition of Tarquin, accounting for the remaining difference between 1999 and 1998.
34
 
Premiums

---------------------------------------------------------------------------------------------------------------
                                      Year Ended                  Year Ended                    Year Ended
                                     December 31    Percentage   December 31    Percentage     September 30
                                         2000         Change         1999         Change           1998
                                                          (in millions of U.S. dollars)
  Gross premiums written:
     ACE Bermuda                        $  598           8%         $  553            6%          $  520
     ACE Global Markets                  1,064          68             635           45              438
     ACE Global Reinsurance                191           5             182           47              124
     ACE USA                             3,380         116           1,567          878              160
     ACE International                   2,027         117             932            -                -
     ACE Financial Services                327           -               -            -                -
                                        ------         ---          ------          ---           ------
         Consolidated                   $7,587          96%         $3,869          212%          $1,242
                                        ======         ===          ======          ===           ======

  Net premiums written:
     ACE Bermuda                        $  512          19%         $  429            9%          $  395
     ACE Global Markets                    772          76             439           39              314
     ACE Global Reinsurance                157           8             145           56               94
     ACE USA                             1,708         114             797          915               78
     ACE International                   1,419         107             685            -                -
     ACE Financial Services                311           -               -            -                -
                                        ------         ---          ------          ---           ------
         Consolidated                   $4,879          96%         $2,495          183%          $  881
                                        ======         ===          ======          ===           ======

  Net premiums earned:
     ACE Bermuda                        $  487          (5)%        $  510           31%          $  389
     ACE Global Markets                    619          70             364           29              279
     ACE Global Reinsurance                141           1             140          (10)             155
     ACE USA                             1,619         116             749          957               71
     ACE International                   1,386          92             723            -                -
     ACE Financial Services                283           -               -            -                -
                                        ------         ---          ------          ---           ------
         Consolidated                   $4,535          82%         $2,486          178%          $  894
                                        ======         ===          ======          ===           ======
---------------------------------------------------------------------------------------------------------------	

During 2000, the insurance and reinsurance markets began to experience an upturn in the business cycle compared to 1999 and 1998 when most insurance markets faced significant competitive pressures as a result of excess capital in the market and the resulting price pressures. In addition, the Company experienced market acceptance of the ACE brand, successfully cross marketed between segments, and recognized price improvements which resulted in an increase in the acceptance rate of business submissions.
Premiums: Gross premiums written for the year ended December 31, 2000, increased by $3.7 billion to $7.6 billion compared to $3.9 billion for the year ended December 31, 1999. These increases result from several factors, including those discussed in the preceding paragraph. However, the primary reasons for the increase are the inclusion of ACE INA premiums for a full year in 2000 compared with six months in 1999, the increase in the Company's participation at Lloyd's and the inclusion of ACE Financial Services in 2000. Gross premiums written for the year ended December 31, 1999, increased by $2.7 billion to $3.9 billion compared to $1.2 billion for the year ended September 30, 1998, primarily due to the inclusion of ACE INA since July 2, 1999. All segments, however, reported increases in gross and net premiums written in 1999 compared with 1998.
35
ACE Bermuda: Gross premiums written for the year ended December 31, 2000, increased by $45 million to $598 million compared to $553 million for the year ended December 31, 1999, primarily due to growth in the professional lines division. During the third quarter, the professional lines division bound a retrospective professional lines program that resulted in $50 million of gross, net and earned premiums in the quarter. Premium production in the other divisions was mixed for 2000. The excess property division experienced growth as property rates increased during the year and submission activity increased. This growth was offset by declines in excess liability and financial solutions (formerly the tailored risk solutions division). ACE Bermuda has not experienced rate increases in the excess liability area and continues to decline business that is not adequately priced. Premiums from financial solutions decreased as a large program written in 1999 was not available for renewal in 2000. However, part of this decrease was offset by new business written. As of August 1, 2000, the aviation department of ACE Bermuda ceased underwriting new business and renewals were transferred to ACE Global Markets. Also during the year, certain satellite business was transferred to the U.S. Both resulted in a decrease in premiums during the year. Gross premiums written for the year ended December 31, 1999, increased by $33 million to $553 million compared to $520 million for the year ended September 30, 1998. The increase was primarily the result of significant increases in business in financial solutions and in new political risk products. This new business was offset by decreases in satellite, excess liability and professional lines divisions due to market pressures.
Net premiums written for the year ended December 31, 2000, increased by $83 million to $512 million compared to $429 million for the year ended December 31, 1999. This increase is primarily due to the professional lines $50 million transaction discussed above. Changes to the underlying mix of business in the satellite division and new business written in the professional lines and property divisions also contributed to the growth.
Net premiums earned for the year ended December 31, 2000, decreased by $23 million to $487 million compared to $510 million for the year ended December 31, 1999. This decrease is primarily due to a significant LPT transaction in 1999 that was earned when written. The decrease in net premiums earned was partially offset by the aforementioned $50 million professional lines retrospective premium.
ACE Global Markets: Gross premiums written for the year ended December 31, 2000, increased by $429 million to $1.1 billion compared to $635 million for the year ended December 31, 1999. This increase is primarily due to ACE's increased participation in the Lloyd's syndicates in 2000 versus 1999 as already discussed. The rate reduction pressures, excess capacity and industry consolidations which combined to create difficult market conditions in 1999 and prior years have eased during 2000 and the Company has seen a hardening of premium rates and the development of new business opportunities. It is anticipated that gross premiums written will continue to increase in 2001 as the Company has increased it's capacity at Lloyd's, assuming the market continues to improve. Gross premiums written for the year ended December 31, 1999, increased by $197 million to $635 million compared to $438 million for the year ended September 30, 1998, as a result of the Company's increased participation in its syndicates.
Net premiums written for the year ended December 31, 2000, increased by $333 million to $772 million compared to $439 million for the year ended December 31, 1999. This increase is consistent with the increase in gross premiums written discussed above. Net premiums written for the year ended December 31, 1999, increased by $125 million to $439 million compared to $314 million for the year ended September 30, 1998, due to ACE's increased participation in its Lloyd's syndicates.
Net premiums earned for the year ended December 31, 2000, increased by $255 million to $619 million compared to $364 million for the year ended December 31, 1999. This increase is primarily due to the increased syndicate participation over 1999. Net premiums earned for the year ended December 31, 1999, increased by $85 million to $364 million due to the increased participation in its syndicates.
36
ACE Global Reinsurance: Gross premiums written for the year ended December 31, 2000, increased by $9 million to $191 million compared to $182 million for the year ended December 31, 1999. This increase is primarily due to increasing rates in the property catastrophe market place and new business opportunities. Pricing and demand increased in the international sector following significant catastrophe losses in 1999. Gross premiums written for the year ended December 31, 1999, increased by $58 million to $182 million compared to $124 million for the year ended September 30, 1998. The Company acquired CAT in April 1998 and therefore, 1999 includes a full year of CAT results whereas 1998 only includes six months of results from the CAT business.
As with gross premiums written, net premiums written for the year ended December 31, 2000, increased by $12 million to $157 million compared to $145 million for the year ended December 31, 1999. Net premiums written for the year ended December 31, 1999, increased by $51 million to $145 million compared to $94 million for the year ended September 30, 1998. This increase is primarily due to the inclusion of the CAT results for a full year in 1999 and only six months in 1998.
Net premiums earned were constant between 2000 and 1999, because of ACE Tempest Re's purchase of additional retrocessional coverage in the first half of 2000. Net premiums earned for the year ended December 31, 1999, decreased by $15 million to $140 million compared to $155 million for the year ended September 30, 1998, primarily due to an increase in the use of reinsurance.
ACE USA: Gross premiums written increased by $1.8 billion to $3.4 billion for the year ended December 31, 2000, compared to $1.6 billion for the year ended December 31, 1999. Gross premiums written include premiums from both ACE US Holdings and the U.S. operations of ACE INA which for 1999 are included from July 2, 1999, the date of acquisition. On a comparable basis, including twelve months of 1999 premiums for the U.S. operations of ACE INA, gross premiums increased by more than 30 percent in 2000, despite a $158 million reduction in gross premiums written due to the curtailment of certain unprofitable business. In 2000, ACE USA had strong production from several business units including financial solutions, special risks, property, aerospace and U.S. international. Market conditions were favorable for most of 2000 with price increases, increases in submission levels and strong account retention. For 1998, gross premiums written of $160 million represents nine months of premiums from ACE US Holdings (acquired January 2, 1998). Prior to January 2, 1998, the Company had no U.S.-based operations.
Net premiums written for the year ended December 31, 2000, increased by $911 million to $1.7 billion compared to $797 million for the year ended December 31, 1999. The increase is primarily due to the inclusion of a full year of results for the ACE INA business in 2000, which for 1999 are only included from July 2, 1999. On a comparable basis, net premiums written increased by $346 million, primarily due to the results of the financial solutions and the special risks divisions. For 1998, net premiums written of $78 million represents nine months of premiums from ACE US Holdings.
Net premiums earned for the year ended December 31, 2000, increased by $870 million to $1.6 billion compared to $749 million for the year ended December 31, 1999. The increase is due to the inclusion of the results of ACE INA from July 2, 1999. For 1998, net premiums earned of $71 million represents nine months of premiums from ACE US Holdings.
ACE International: Gross premiums written for the year ended December 31, 2000, increased by $1.1 billion to $2 billion compared to $932 million for the year ended December 31, 1999. The increase is primarily due to the inclusion of a full year of results for the ACE INA business in 2000, which for 1999 are only included from July 2, 1999. On a comparable basis, gross premiums written increased by 6 percent in 2000 compared with 1999. The increase in 2000 reflects growth in fronted and multi-national programs, and in underlying property and casualty lines. This growth was offset by the adverse effect of the devaluation of European currencies during 2000. In addition, ACE International discontinued
37
approximately $60 million of certain non-strategic or unprofitable business during 2000. Growth in business operations, excluding the non-strategic or unprofitable business, was approximately 11 percent on a constant dollar basis. Net premiums written and net premiums earned increased for the same reasons. ACE International was acquired on July 2, 1999; therefore, there are no comparatives for 1998.
ACE Financial Services: Gross premiums written for the year ended December 31, 2000, were $327 million. As ACE Financial Services was acquired on December 30, 1999, this is the first year in which results from ACE Financial Services are reflected in the financial results of ACE. On a comparable basis, gross premiums written were $98 million higher than in 1999 due to an LPT contract of $105 million which was earned when written. During 2000, the rising interest rate environment reduced financial guaranty reinsurance premiums. However, rising interest rates also lead to greater persistency in the mortgage guaranty business, thereby partially offsetting the downturn in financial guaranty. In addition, ACE Financial Services experienced strong premium volume in other business lines, particularly in residual value and credit default swaps. Net premiums written and net premiums earned increased for the same reasons.
Underwriting Results
The underwriting results of a property and casualty insurer are discussed frequently by reference to its combined ratio, loss and loss expense ratio and underwriting and administrative expense ratio. Each ratio is derived by dividing the relevant expense amounts by net premiums earned. The combined ratio is the sum of the loss and loss expense ratio and the underwriting and the administrative expense ratio. A combined ratio under 100 percent indicates underwriting income and a combined ratio exceeding 100 percent indicates underwriting losses.
38

------------------------------------------------------------------------------------------------------------------
                                                              Year Ended    Year Ended        Year Ended
                                                             December 31   December 31      September 30
                                                                 2000          1999             1998
  Loss and loss expense ratio
   ACE Bermuda                                                   74.3%         76.5%            75.9%
   ACE Global Markets                                            57.2          56.6             51.8
   ACE Global Reinsurance                                        12.7          69.2             22.0
   ACE USA                                                       73.7          71.2             60.4
   ACE International                                             59.6          57.1                -
   ACE Financial Services                                        64.8             -                -
                                                                 ----          ----             ----
     Consolidated                                                64.7%         66.0%            57.8%
                                                                 ----          ----             ----

  Underwriting and administrative expense ratio
   ACE Bermuda                                                   10.4%         10.4%            14.9%
   ACE Global Markets                                            37.8          40.9             42.8
   ACE Global Reinsurance                                        25.1          23.4             17.5
   ACE USA                                                       25.6          33.6             33.5
   ACE International                                             37.6          40.9                -
   ACE Financial Services                                        27.0             -                -
                                                                 ----          ----             ----
     Consolidated                                                30.8%         33.5%            30.4%
                                                                 ----          ----             ----

  Combined ratio
   ACE Bermuda                                                   84.7%         86.9%            90.8%
   ACE Global Markets                                            95.0          97.5             94.6
   ACE Global Reinsurance                                        37.8          92.6             39.5
   ACE USA                                                       99.3         104.8             93.9
   ACE International                                             97.2          98.0                -
   ACE Financial Services                                        91.8             -                -
                                                                 ----          ----             ----
     Consolidated                                                95.5%         99.5%            88.2%
                                                                 ----          ----             ----
------------------------------------------------------------------------------------------------------------------	

Loss and Loss Expense Ratios
The Company establishes reserves for unpaid losses and loss expenses, which are estimates of future payments of reported and unreported claims for losses and related expenses, with respect to insured events that have occurred. The process of establishing reserves for property and casualty claims continues to be a complex and imprecise process, requiring the use of informed estimates and judgments. The Company's estimates and judgments may be revised as additional experience and other data becomes available and are reviewed, as new or improved methodologies are developed or as current laws change. Any such revisions could result in future changes in estimates of losses or reinsurance recoverables, and would be reflected in the Company's results of operations in the period in which the estimates are changed.
In addition, catastrophe losses may have a significant effect on the insurance and reinsurance industry. ACE Global Reinsurance and other segments of the group have exposure to windstorm, hail, earthquake and other catastrophic events, all of which are managed using measures including underwriting controls, occurrence caps as well as modeling, monitoring and managing its accumulations of potential losses across the group. The Company uses its retrocessional programs to limit its net losses from catastrophes. However, property catastrophe loss experience is generally characterized as low frequency but high severity short-tail claims which may result in volatility in financial results.
39
During the year ended December 31, 2000, there were relatively few major catastrophe losses compared with 1999 where there were a significant number of catastrophes that impacted the results of the Company including: a hailstorm in New South Wales, Australia in April 1999; tornadoes in the U.S. midwest in May 1999; in the period from July to September 1999 there were major earthquakes in Taiwan, Turkey, Greece and Mexico, a typhoon in Japan and Hurricane Floyd in the U.S.; and in December 1999 there were several severe windstorms in Europe.
During 2000, the loss and loss expense ratio declined to 64.7 percent compared with 66.0 percent in 1999, primarily due to ACE Global Reinsurance, which is discussed below. The loss and loss expense ratio increase from 57.8 percent in 1998 to 66.0 percent in 1999 was primarily due to the inclusion of losses and loss expenses for the ACE INA domestic segment for six months plus the large number of 1999 catastrophes.
ACE Bermuda: The loss and loss expense ratio decreased from 76.5 percent in 1999 to 74.3 percent in 2000. This change is primarily the result of a change in the mix of business written, primarily because fewer LPT accounts were written in 2000 compared with 1999. LPTs put upwards pressure on loss and loss expense ratios as they are reserved at higher loss ratios. The loss and loss expense ratio for 1999 did not change substantially from 1998.
ACE Global Markets: The loss and loss expense ratio did not substantially change in 2000 compared with 1999. The loss and loss expense ratio increased from 51.8 percent in 1998 to 56.6 percent in 1999. This increase is primarily the result of the increased amount of non-Tarquin business written in the syndicates managed by the Company during 1999, which historically had a higher loss ratio.
ACE Global Reinsurance: The loss and loss expense ratio decreased from 69.2 percent in 1999 to 12.7 percent in 2000. This significant decrease is the result of the relatively small number of catastrophes in 2000. During 1999, there were a significant number of catastrophes that impacted the results of the Company as discussed above. In 1998, the loss ratio was 22.0 percent due to the relatively small number of catastrophes.
ACE USA: The loss and loss expense ratio increased from 71.2 percent in 1999 to 73.7 percent in 2000. The loss and loss expense ratio of the ACE INA domestic segment has historically been in excess of ACE US Holdings. On a comparative basis, including twelve months of 1999 operating results for ACE INA, the loss ratio in 2000 declined by over 8 percentage points. The reinsuring of loss reserve development for the business covered under the National Indemnity Company agreement, helped reduce the combined operations loss and loss expense ratio in 2000. In addition, the curtailment of certain business that did not meet the Company's underwriting standards and more favorable catastrophe experience in 2000 over 1999 contributed to the improvement. The 1998 loss and loss expense ratio of 60.4 percent represents nine months of activity for ACE US Holdings (acquired January 2, 1998).
ACE International: The loss and loss expense ratio increased from 57.1 percent in 1999 to 59.6 percent in 2000. This change is primarily the result of additional loss activity in 2000, primarily in the property division. ACE International was acquired on July 2, 1999; therefore, there are no comparatives for 1998.
ACE Financial Services: The loss and loss expense ratio for the segment during 2000 was 64.8 percent. There were no unexpected losses incurred during the year. ACE Financial Services was acquired December 30, 1999; therefore, there are no comparatives for 1999 or 1998.
40
Underwriting and Administrative Expense Ratios
Underwriting and administrative expenses are comprised of the amortization of deferred policy acquisition costs, which include commissions, premium taxes, underwriting and other costs that vary with and are primarily related to the production of premium, and administrative expenses which include all other operating costs. As with losses and loss expenses, total underwriting and administrative expenses increased significantly from $833 million in 1999 to $1.4 billion in 2000 primarily due to the inclusion of ACE INA for a full year in 2000 and the inclusion of ACE Financial Services. The underwriting and administrative expense ratio decreased to 30.8 percent in 2000 compared with 33.5 percent in 1999 primarily due to cost reduction measures by ACE INA. The underwriting and administrative expense ratio increased from 30.4 percent in 1998 to 33.5 percent in 1999 due to the inclusion of ACE INA effective July 2, 1999.
ACE Bermuda: The underwriting and administrative expense ratio was 10.4 percent at both December 31, 1999, and December 31, 2000. The underwriting and administrative expense ratio decreased from 14.9 percent in 1998 to 10.4 percent in 1999 due primarily to ceding commissions generated on expanded reinsurance programs in 1999.
ACE Global Markets: The underwriting and administrative expense ratio decreased from 42.8 percent in 1998 to 40.9 percent in 1999 and down to 37.8 percent in 2000. These changes are primarily the result of relatively stable administrative expenses over a higher earned premium base.
ACE Global Reinsurance: The underwriting and administrative expense ratio increased from 23.4 percent in 1999 to 25.1 percent in 2000 primarily due to the expansion activities in 2000. The underwriting and administrative expense ratio increased from 17.5 percent in 1998 to 23.4 percent in 1999 primarily due to a decline in net premiums earned together with an increase in administrative expenses primarily due to the inclusion of CAT for a full year in 1999, which historically had a higher expense ratio than ACE Tempest Re.
ACE USA: The underwriting and administrative expense ratio decreased from 33.6 percent in 1999 to 25.6 percent in 2000. The decline is primarily the result of several cost reduction initiatives implemented at ACE USA subsequent to the acquisition of ACE INA. These included staff reductions, the outsourcing of certain IT operations and the consolidation of numerous field offices. The ratio was also favorably influenced by LPTs written during the year. The 1998 underwriting and administrative expense ratio of 33.5 percent represents nine months of activity for ACE US Holdings (acquired January 2, 1998).
ACE International: The underwriting and administrative expense ratio decreased from 40.9 percent in 1999 to 37.6 percent in 2000. This change is primarily due to savings achieved as a result of restructuring and other spending reduction initiatives. There are no comparative figures for 1998.
ACE Financial Services: The underwriting and administrative expense ratio was 27.0 percent for the year ended December 31, 2000. ACE Financial Services was acquired on December 30, 1999; therefore, there are no comparative figures for 1999 and 1998.
41
 
Net Investment Income

--------------------------------------------------------------------------------------------------------------------------
                                   Year Ended                            Year Ended                          Year Ended
                                   December 31       Percentage          December 31     Percentage         September 30
                                      2000             Change               1999           Change               1998
                                  -------------     ------------        -------------   -----------        --------------
                                                               (in millions of U.S. dollars)
     ACE Bermuda                     $ 150              (14)%              $ 174            (18)%               $ 211
     ACE Global Markets                 37                29                  28              47                   19
     ACE Global Reinsurance             60                 -                  60              13                   53
     ACE USA                           341                81                 189             373                   40
     ACE International                  92               127                  41               -                    -
     ACE Financial Services             97                 -                   -               -                    -
     Other                              (6)                -                   1               -                    1
                                  --------          --------            --------        --------           ----------
     Total net investment income     $ 771                56%              $ 493              52%               $ 324
                                  ========          ========            ========        ========           ==========

--------------------------------------------------------------------------------------------------------------------------	

Net investment income increased for the year ended December 31, 2000, by $278 million to $771 million compared to $493 million for the year ended December 31, 1999. The primary reason for this increase was an increase in the size of the investable asset base resulting from the ACE INA Acquisition on July 2, 1999, and the ACE Financial Services acquisition on December 30, 1999. Net investment income for the year ended December 31, 1999, includes six months of ACE INA results, whereas the net investment income for the year ended December 31, 2000, includes twelve months of both ACE INA and ACE Financial Services.
ACE Bermuda: Net investment income decreased to $150 million in 2000 from $174 million in 1999 and $211 million in 1998. These decreases are primarily the result of a higher investable asset base in 1998 and the first half of 1999, before ACE Bermuda paid dividends to ACE Limited for the purchase of ACE INA. ACE Bermuda also provided funding for the ACE Financial Services acquisition in December 1999.
ACE Global Markets: Net investment income was $37 million in 2000 compared with $28 million in 1999 and $19 million in 1998. These increases are a result of the Company's increased participation in the Lloyd's syndicates it manages, in both 2000 and 1999, resulting in an increasing asset base.
ACE Global Reinsurance: Net investment income was unchanged for 2000 compared with 1999 at $60 million, which increased from $53 million in 1998. The investable asset base of ACE Tempest Re declined in 1999 as ACE Tempest Re paid $316 million of dividends to ACE Limited and paid claims related to the 1999 catastrophes. However, 1999 also included a full year of income on the CAT investment portfolio compared with six months of investment income in 1998, which partially offset the decline in the asset base.
ACE USA: Net investment income increased by 81 percent to $341 million in 2000 from $189 million in 1999 and $40 million in 1998. The increase in 2000 is due to the inclusion of twelve months of results for ACE INA, while 1999 includes the six months of ACE INA results from the July 2, 1999, date of acquisition. The 1998 results represent nine months of net investment income for ACE US Holdings, which was acquired on January 2, 1998.
ACE International: Net investment income increased by 127 percent to $92 million in 2000 from $41 million in 1999. This increase is primarily due to the inclusion of twelve months of results for ACE INA, while 1999 includes the six months of ACE INA results from the July 2, 1999, date of acquisition. There are no comparative figures for 1998.
ACE Financial Services: Net investment income was $97 million for the year ended December 31, 2000. The Company completed the acquisition of ACE Financial Services on December 30, 1999, and the investment income for the year ended December 31, 2000, represents a full year of income generated by the investment portfolio. There are no comparative figures for 1999 or 1998.
42
 
Net Realized Gains (Losses) on Investments

--------------------------------------------------------------------------------------------------------------------------
                                                                  Year Ended            Year Ended           Year Ended
                                                                 December 31           December 31          September 30
                                                                     2000                  1999                 1998
                                                                ---------------        -------------       ---------------
                                                                               (in millions of U.S. dollars)

    Fixed maturities and short-term investments                      $  (82)               $  (82)               $  58
    Equity securities                                                   114                    47                  168
    Financial futures and option contracts                              (48)                   68                   (9)
    Other investments                                                   (12)                    9                    -
    Currency                                                            (11)                   (4)                 (29)
                                                                -----------            ----------          -----------
    Total net realized gains (losses) on investments                 $  (39)               $   38                $ 188
                                                                ===========            ==========          ===========

--------------------------------------------------------------------------------------------------------------------------	

The Company's investment strategy takes a long-term view and the portfolio is actively managed to maximize total return within certain specific guidelines, which minimize risk. The portfolio is reported at fair value. The effect of market movements on the investment portfolio will directly impact net realized gains (losses) on investments when securities are sold. Changes in unrealized gains and losses, which result from the revaluation of securities held, are reported as a separate component of accumulated other comprehensive income.
The Company uses foreign currency forward and option contracts to minimize the effect of fluctuating foreign currencies on the value of non-U.S. dollar holdings currently held in the portfolio not specifically targeted to match the currency of liabilities. The contracts used are not designated as specific hedges and therefore, realized and unrealized gains and losses recognized on these contracts are recorded as a component of net realized gains (losses) in the period in which the fluctuations occur, together with net foreign currency gains (losses) recognized when non-U.S. dollar securities are sold.
Sales proceeds for fixed maturity securities were generally lower than their amortized cost during the year. This resulted in net realized losses of $82 million being recognized on fixed maturities and short-term investments for the year ended December 31, 2000, compared with net realized losses of $82 million for the year ended December 31, 1999, and net realized gains of $58 million for the year ended September 30, 1998.
The liquidation of certain equity portfolios contributed to net realized gains from equity securities of $114 million in fiscal 2000, $47 million in fiscal 1999, and $168 million for the year ended September 30, 1998.
Certain of the Company's external managers of fixed income securities use fixed income futures contracts to manage duration exposure, losses of $4 million were recognized on these for the year ended December 31, 2000. Net realized losses generated by the Company's equity index futures contracts amounted to $44 million for the year. Total net realized losses attributable to the financial futures and option contracts amounted to $48 million, compared with gains of $68 million for the year ended December 31, 1999, and losses of $9 million for the year ended September 30, 1998.
Other Expenses

--------------------------------------------------------------------------------------------------------------------------
                                   Year Ended        Percentage        Year Ended        Percentage        Year Ended
                                  December 31          Change          December 31         Change         September 30
                                      2000                                1999                                1998
                                                              (in millions of U.S. dollars)
     Amortization of goodwill        $  79               76%              $  45             253%             $  13
                                  ========                             ========                           ========

     Interest expense                $ 221              111%              $ 105             313%             $  25
                                  ========                             ========                           ========

     Income tax expense              $  94              227%              $  29              43%             $  20
                                  ========                             ========                           ========

--------------------------------------------------------------------------------------------------------------------------	

43
The amortization of goodwill increased by $34 million in 2000 compared with 1999. Of this increase, $30 million relates to the difference in ACE INA goodwill amortization as 2000 has a full year of amortization compared with six months in 1999. The remaining increase relates to the amortization of goodwill generated by the acquisition of ACE Financial Services in December 1999. The increase of $32 million in 1999 compared with 1998 primarily relates to the amortization of goodwill from the ACE INA Acquisition for six months and a full year of amortization of goodwill from the CAT acquisition in 1999 compared with six months of amortization from the CAT acquisition in 1998.
The increase in interest expense in 2000 is a result of the Company incurring a full year of interest with respect to debt acquired in connection with the ACE INA Acquisition. For further information on the Company's outstanding debt, see Note 8 of the Consolidated Financial Statements.
The increase in income tax expense from $20 million at September 30, 1998, to $29 million at December 31, 1999, and $94 million at December 31, 2000, is primarily due to the inclusion of ACE INA for six months in 1999 and a full year in 2000. For further information on taxation, see Note 13 of the Consolidated Financial Statements.
CONSOLIDATED FINANCIAL POSITION
At December 31, 2000, total assets were $31.7 billion compared with $30.1 billion at December 31, 1999. The $1.6 billion increase is primarily due to the reconsolidation of the Commercial Insurance Services ("CIS") balance sheet into each of its constituent parts. The Company planned, as part of its July 2, 1999, ACE INA Acquisition, to dispose of the CIS operations. In accordance with EITF 87-11, the Company recorded a net liability that included all of the balance sheet accounts that pertained specifically to CIS. Because the CIS business was not sold one year from acquisition, the Company was required, as of July 2, 2000, to record the CIS balance sheet into its constituent parts in the consolidated balance sheet and to record any resulting income or loss from that book of business in its statement of operations prospectively from July 2, 2000. At December 31, 1999, the CIS division balance sheet was recorded as a net liability. Of the total CIS assets of $1.3 billion, approximately $950 million were cash and investments.
At December 31, 2000, total investments and cash amounted to $13.8 billion, compared with $12.9 billion at December 31, 1999. This increase is primarily a result of the reconsolidation of the CIS balance sheet as previously noted, as well as proceeds from the sale of ACE Ordinary Shares in September 2000. These two items added $950 million and $400 million, respectively, to total investments and cash. In addition, the change in market value of investments added $186 million to total investments and cash. These items were offset as the Company used $100 million of internal funds to repay short-term debt and had negative cash flows from operations of $427 million, due primarily to the run off of loss reserves acquired in the ACE INA Acquisition. The Company's investment portfolio is structured to provide a high level of liquidity to meet insurance related or other obligations. The consolidated investment portfolio is externally managed by independent professional investment managers and is invested primarily in high quality investment grade marketable fixed income and equity securities, the majority of which trade in active, liquid markets.
The Company maintains reserves for the estimated unpaid ultimate liability for losses and loss expenses under the terms of its policies and agreements. The reserve for unpaid losses and loss expenses was $17.4 billion at December 31, 2000, compared with $16.5 billion at December 31, 1999, and includes $10.3 billion of case and loss expense reserves. The increase is primarily due to the reconsolidation of the CIS balance sheet as previously noted which added approximately $1.2 billion to the reserve for unpaid losses and loss expenses. While the Company believes that its reserve for unpaid losses and loss expenses at December 31, 2000, is adequate, future developments may result in ultimate losses and loss expenses significantly greater or less than the reserve provided.
44
One of the ways the Company manages its loss exposure is through the use of reinsurance. While reinsurance arrangements are designed to limit losses from large exposures and to permit recovery of a portion of direct losses, reinsurance does not relieve the Company of its liability to its insureds. Accordingly, the Company's loss reserves represent total gross losses, and reinsurance recoverable represents anticipated recoveries of a portion of those losses as well as amounts recoverable from reinsurers with respect to claims which have already been paid by the Company. The Company's reinsurance recoverable was approximately $9.0 billion and $8.8 billion at December 31, 2000 and 1999, net of allowances for unrecoverable reinsurance of $710 million and $758 million, respectively.
The allowance for unrecoverable reinsurance is required principally due to the failure of reinsurers to indemnify the Company, primarily because of disputes under reinsurance contracts and insolvencies. Reinsurance disputes continue to be significant, particularly on larger and more complex claims, such as those related to asbestos and environmental pollution (discussed in more detail below) and London reinsurance market exposures. Allowances have been established for amounts estimated to be uncollectible.
Included in the Company's liabilities for losses and loss expenses are liabilities for asbestos, environmental and latent injury damage claims and expenses ("A&E exposures"). These claims are principally related to claims arising from remediation costs associated with hazardous waste sites and bodily injury claims related to asbestos products and environmental hazards. These amounts include provision for both reported and IBNR claims. The table below presents loss reserve details for A&E exposures as of December 31, 2000 and 1999.

--------------------------------------------------------------------------------------------------------------------------
                                                  2000                                         1999
                                     Gross                     Net                Gross                Net
                                  -----------              ----------         -------------         ----------
                                                       (in millions of U.S. dollars)
 Asbestos                            $1,073                    $212                $  897              $291
 Environmental and Other              1,156                     540                 1,287(1)            676
                                  ---------                --------           -----------           -------
 Total                               $2,229                    $752                $2,184              $967
                                  =========                ========           ===========           =======

--------------------------------------------------------------------------------------------------------------------------	

(1) Reflects a correction to reduce the amount reported in 1999 by $910 million
The Company continuously evaluates its estimates of liabilities and related reinsurance recoverable for A&E exposures. While most of these liabilities for such claims arise from exposures in North America, the Company has also provided for international A&E exposures.
The Company has considered asbestos and environmental claims and claims expenses in establishing the liability for unpaid losses and loss expenses. The Company has developed reserving methods, which incorporate new sources of data with historical experience to estimate the ultimate losses arising from asbestos and environmental exposures. The reserves for asbestos and environmental claims and claims expenses represent management's best estimate of future loss and loss expense payments and recoveries which are expected to develop over the next several decades. The Company continuously monitors evolving case law and its effect on environmental and latent injury claims. While reserving for these claims is inherently uncertain, the Company believes that the reserves carried for these claims are adequate based on known facts and current law.
At December 31, 2000, the total of the Company's short and long term debt, including trust preferred securities was $2.7 billion compared with $3.1 billion at December 31, 1999. The decrease of $410 million is primarily due to the issuance of $311 million of FELINE PRIDES, the proceeds from which were used to repay commercial paper issued in connection with the ACE INA Acquisition. Short term debt decreased by $710 million as the commercial paper used in the ACE INA Acquisition was replaced with permanent financing, including $300 million of trust preferred securities and the FELINE PRIDES previously discussed.
45
The following table analyzes the movements in shareholders' equity for the years ended December 31, 2000 and 1999, the three months ended December 31, 1998, and the year ended September 30, 1998:

------------------------------------------------------------------------------------------------------------------------------------
                                                                           Year Ended  Year Ended   Three Months Ended   Year Ended
                                                                          December 31, December 31,    December 31,    September 30,
                                                                              2000         1999            1998            1998
                                                                                           (in millions of U.S. dollars)
 Balance, beginning of period                                                $4,451       $3,910          $3,714           $2,785
 Net income                                                                     543          365             239              560
 Change in net unrealized appreciation (depreciation) on investments            186         (186)            (26)             (69)
 Dividends declared - Ordinary Shares                                          (113)         (84)            (17)             (60)
 Dividends declared - FELINE PRIDES                                             (18)           -               -                -
 Ordinary Shares issued in share offering                                       400            -               -              606
 Other movements, net                                                           (29)           6               -                -
 Ordinary Shares issued in ACE Financial Services transaction                     -          367               -                -
 Ordinary Shares issued in ACE INA transaction                                    -           73               -                -
 Repurchase of Ordinary Shares                                                    -            -               -             (108)
                                                                             ------       ------          ------           ------
 Balance, end of period                                                      $5,420       $4,451          $3,910           $3,714
                                                                             ======       ======          ======           ======
------------------------------------------------------------------------------------------------------------------------------------	

Fully diluted book value per share was $23.25 at December 31, 2000, compared with $20.28 at December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As a holding company, ACE's assets consist primarily of the stock of its subsidiaries as well as other investments. In addition to investment income, its cash flows currently depend primarily on dividends or other statutorily permissible payments from its Bermuda-based operating subsidiaries (the "Bermuda subsidiaries"). There are currently no legal restrictions on the payment of dividends from retained earnings by the Bermuda subsidiaries, as the minimum statutory capital and surplus requirements are satisfied by the share capital and additional paid-in capital of each of the Bermuda subsidiaries. However, the payment of dividends or other statutorily permissible distributions by the Bermuda subsidiaries is subject to the need to maintain shareholders' equity at a level adequate to support the level of insurance and reinsurance operations. During the year ended December 31, 2000, ACE Bermuda declared dividends of $81 million and ACE Tempest Re declared dividends of $20 million. During the year ended December 31, 1999, ACE Bermuda and ACE Tempest Re declared dividends of $726 million and $316 million, respectively, which were used to partially finance the ACE INA Acquisition.
The payment of any dividends from ACE Global Markets or its subsidiaries would be subject to applicable United Kingdom insurance law including those promulgated by the Society of Lloyd's. No dividends were received from ACE Global Markets during fiscal 1999 or 2000 and the Company does not anticipate receiving dividends from ACE Global Markets during 2001.
ACE INA has issued debt to provide partial financing for the ACE INA Acquisition and for other operating needs. Cash flow requirements to service this debt are expected to be met primarily by upstreaming dividend payments from ACE INA's insurance subsidiaries. During the year ended December 31, 2000, ACE INA Holdings received dividends of $97 million from its subsidiaries. Under various
46
U.S. insurance laws to which ACE INA's U.S. insurance subsidiaries are subject, ACE INA's U.S. insurance subsidiaries may pay a dividend only from earned surplus subject to the maintenance of a minimum capital requirement, without prior regulatory approval. ACE INA's international subsidiaries are also subject to various insurance laws and regulations in the countries in which they operate. These regulations include restrictions that limit the amount of dividends that can be paid without prior approval of the insurance regulatory authorities. No dividends have been received by ACE Limited from ACE INA during the year ended December 31, 2000, and the Company does not anticipate receiving dividends from ACE INA during 2001.
ACE Financial Services' U.S. insurance subsidiaries are also subject to various U.S. insurance laws under which subsidiaries may pay a dividend only from earned surplus subject to the maintenance of a minimum capital requirement, without prior regulatory approval. No dividends have been received from ACE Financial Services during fiscal 2000 and the Company does not anticipate receiving dividends from ACE Financial Services during 2001.
The Company's consolidated sources of funds consist primarily of net premiums written, investment income, and proceeds from sales and maturities of investments. Funds are used primarily to pay claims, operating expenses and dividends and for the purchase of investments.
The Company's insurance and reinsurance operations provide liquidity in that premiums are normally received substantially in advance of the time claims are paid. The Company's consolidated net cash flow from operating activities was $(427) million for the year ended December 31, 2000, compared with $(461) million for the year ended December 31, 1999. Cash flows are affected by claim payments which, due to the nature of the Company's operations, may comprise large loss payments on a limited number of claims and therefore can fluctuate significantly from year to year. The irregular timing of these loss payments, for which the source of cash can be from operations, available net credit facilities or routine sales of investments, can create significant variations in cash flows from operations between periods. The Company's cash flows from operations are currently impacted by a large book of loss reserves from businesses in run-off. Although the Company's ongoing operations continue to generate positive cash flows from operations, the run-off operations generate negative cash flows. The run-off book of business continues to require cash to meet its liabilities and cash flows are very dependent on the timing of claim settlements. Net loss and loss expense payments amounted to $3.8 billion, $2.4 billion and $581 million for the years ended December 31, 2000 and 1999, and for the year ended September 30, 1998, respectively. The substantial increase in loss and loss expense payments is a result of the inclusion of paid losses from ACE INA for a full year in 2000 compared with six months in 1999.
On July 2, 1999, the Company completed the ACE INA Acquisition for $3.45 billion in cash. The Company partially financed the transaction with commercial paper issuance with an annualized cost in the range of 6.5 to 7.0 percent. The commercial paper offerings are backed by line of credit facilities, which were originally arranged in connection with the ACE INA Acquisition. Since the acquisition, the commercial paper outstanding has been paid down to the current level of $340 million primarily as a result of various public and private market senior debt, trust preferred, capital securities and hybrid equity issuances. These capital market instruments are more fully described within the table under Note 8 of the Consolidated Financial Statements. The capital market issuance activities related to the acquisition are now complete.
On December 30, 1999, the Company completed the acquisition of ACE Financial Services for aggregate consideration of $110 million in cash and approximately 20.8 million ACE Ordinary Shares. The cash used to finance the acquisition was obtained from internal sources.
47
On September 12, 2000, the Company completed the sale of 12.25 million ACE Ordinary Shares for net proceeds of approximately $400 million. The proceeds of the offering, which have been placed in a custodial account and are being invested primarily in investment-grade marketable securities, are used to support the Company's guarantee of the $412 million principal amount of Auction Rate Reset Subordinated Notes Series A issued by ACE INA to the ACE RHINOS Trust.
On January 14, 2000, and April 14, 2000, the Company paid quarterly dividends of 11 cents per share to shareholders of record on December 31, 1999, and March 31, 2000, respectively. On July 14, 2000, October 13, 2000, and January 12, 2001, the Company paid quarterly dividends of 13 cents per share to shareholders of record on June 30, 2000, September 30, 2000, and December 29, 2000, respectively. The declaration and payment of future dividends is at the discretion of the Board of Directors and will be dependent upon the profits and financial requirements of the Company and other factors, including legal restrictions on the payment of dividends and such other factors as the Board of Directors deems relevant.
Both internal and external forces influence the Company's financial condition, results of operations and cash flows. Claim settlements, premium levels and investment returns may be impacted by changing rates of inflation and other economic conditions. In many cases, significant periods of time, ranging up to several years or more, may lapse between the occurrence of an insured loss, the reporting of the loss to the Company and the settlement of the Company's liability for that loss. The Company believes that its cash balances, cash flow from operations, routine sales of investments and the liquidity provided by its credit facilities (discussed below) are adequate to meet the Company's expected cash requirements.
Credit facilities
In May 2000, the Company renewed certain syndicated credit facilities. Each facility requires that the Company and/or certain of its subsidiaries maintain specific covenants, including a consolidated tangible net worth covenant and a maximum leverage covenant. The facilities provide:
An $800 million, 364-day revolving credit facility with ACE Limited and various subsidiaries as borrowers and guarantors. This facility is for general corporate purposes.
A $250 million, five-year revolving credit facility with ACE Limited and various subsidiaries as borrowers and guarantors. This facility is for general corporate purposes and permits both loans and letters of credit.
Each of the above facilities may be used as commercial paper recourse facilities (see Note 8 of the Consolidated Financial Statements).
ACE Tempest Re also maintains an uncollateralized, syndicated revolving credit facility in the amount of $72.5 million, which is guaranteed by the Company. At December 31, 2000, no amounts have been drawn down under this facility. The facility requires that ACE Tempest Re maintain specific covenants, including a consolidated tangible net worth covenant and a maximum leverage covenant.
As of December 31, 2000, ACE Financial Services was party to a credit facility with a syndicate of banks pursuant to which the syndicate provides up to $150 million specifically designed to provide rating agency qualified capital to further support ACE Financial Services claims-paying resources. The facility was increased from $100 million during the year and expires in January 2006. ACE Financial Services has not borrowed under this credit facility.
In August 1996, ACE Financial Services entered into a credit agreement for the provision of a $25 million loan, which was available for general corporate purposes. As of September 30, 2000, this facility had been cancelled and replaced with a $25 million loan under the group's five-year syndicated credit facility as described above. At December 31, 2000 and 1999, $25 million was outstanding under these facilities.
48
In November 1998, to fulfill the requirements of Lloyd's for open years of account, the Company arranged a syndicated, partially collateralized, five-year letter of credit ("LOC") facility in the amount of (Pounds)270 million (approximately $437 million). On June 30, 1999, certain terms of this LOC facility were renegotiated and the facility is now uncollateralized. The facility was renewed in November 1999 and again in November 2000 at increased amounts of (Pounds)290 million ($470 million) and (Pounds)390 million ($585 million), respectively. This LOC facility requires that the Company and/or certain of its subsidiaries continue to maintain certain covenants, including a minimum consolidated tangible net worth covenant and a maximum leverage covenant.
ACE Financial Services had also maintained a (Pounds)48 million (approximately $72 million) uncollateralized LOC facility with a bank to fulfill a subsidiary's requirements at Lloyd's. In November 2000, this facility was cancelled and replaced with LOCs under the Company's LOC facility described in the previous paragraph.
In September 2000, the Company, along with ACE Bermuda and ACE Tempest Re as Account Parties and Guarantors, renewed a syndicated, one-year LOC facility in the amount of $430 million for general business purposes, including the issuance of insurance and reinsurance letters of credit. This facility was originally arranged in September 1999. This LOC facility requires that the Company and/or certain of its subsidiaries continue to maintain certain covenants, including a minimum consolidated tangible net worth covenant and a maximum leverage covenant. Usage under this facility was $123 million as of December 31, 2000.
The Company also maintains various LOC facilities, both collateralized and uncollateralized, for general corporate purposes. At December 31, 2000, the aggregate exposure under these facilities was $379 million and usage was $353 million.
Market Sensitive Instruments and Risk Management
In accordance with the Securities and Exchange Commission's Financial Reporting Release No. 48, the following analysis presents hypothetical losses in cash flows, earnings and fair values of derivative instruments and other market sensitive instruments used in the Company's portfolio as of December 31, 2000. The Company uses investment derivative instruments such as futures, options and foreign currency forward and option contracts for duration management and management of foreign currency exposures. These instruments are sensitive to changes in interest rates and foreign currency exchange rates. The portfolio includes other market sensitive instruments which are subject to changes in market values, with changes in interest rates.
Duration Management and Market Exposure Management
The Company utilizes financial futures and option contracts and foreign currency forward and option contracts for the purpose of managing certain investment portfolio exposures. These instruments are not recognized as assets or liabilities in the accompanying consolidated financial statements and changes in
49
market value are included in net realized gains or losses on investments in the consolidated statements of operations. The market value of mortgage-backed securities, another category of market sensitive instruments, was $1.7 billion, or approximately 13 percent of the total investment portfolio, compared with $2.1 billion or 16 percent at December 31,1999. Mortgage-backed securities include pass through mortgage bonds and collateralized mortgage obligations.
The aggregate hypothetical loss generated by the fixed income portfolio from an adverse parallel shift in the treasury yield curve of 100 basis points would be a decrease in total return of 3.8 percent in 2000 compared with 4.3 percent in 1999. This equates to a decrease in market value of approximately $450 million on a fixed income portfolio valued at $12 billion at December 31, 2000, and $490 million on a fixed income portfolio valued at $11 billion at December 31, 1999. An immediate time horizon was used as this presents the worse case scenario.
Accounting For Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the consolidated balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as a fair value, cash flow or foreign currency hedge. The accounting for changes in the fair value of a derivative (that is, gains and losses) depends on the intended use of the derivative and the resulting designation. Upon initial application of FAS 133, hedging relationships must be designated anew and documented pursuant to the provisions of this statement. The Company has adopted FAS 133, as amended, as of January 1, 2001. The Company has completed an implementation plan which included identifying all derivatives, evaluating risk management hedging strategies and determining appropriate valuation methodologies required to assess the impact that adoption of this statement will have on its financial position and results of operations.
The Company maintains investments in derivative instruments such as futures, option contracts and foreign currency forward contracts of which the primary purposes are to manage duration and foreign currency exposure, yield enhancement or to obtain an exposure to a particular financial market. The Company currently records the changes in market value of these investments as realized gains (losses) in the consolidated statement of operations and, accordingly, has estimated that FAS 133, as amended, will not have a significant impact on the results of operations, financial condition or liquidity in future periods as it relates to these instruments.
Certain products (principally credit protection oriented) issued by the Company have been determined to meet the definition of a derivative under FAS 133. These products consist primarily of credit default swaps, index-based instruments and certain financial guarantee coverages. Upon adoption of FAS 133, the Company will record these products at their fair value.
The Company will record a net-of-tax cumulative expense of $23 million as of January 1, 2001, to reflect the adoption of FAS 133. Prospectively, the Company expects some level of gains and losses resulting from changes in market value of derivatives to be recorded in the statement of operations. The level of such gains and losses will be dependent upon a number of factors including changes in interest rates, credit spreads and other market factors. The Company's involvement with derivative instruments and transactions is primarily to offer protection to others or to mitigate its own risk and is not considered speculative in nature.
50
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation, integrity and objectivity of the consolidated financial statements and other financial information presented in this annual report. The accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States, applying certain estimates and judgments as required.
The Company's internal controls are designed to provide reasonable assurance as to the integrity and reliability of the financial statements and to adequately safeguard, verify and maintain accountability of assets. Such controls are based on established policies and procedures and are implemented by trained, skilled personnel with an appropriate segregation of duties. The Company's internal audit department performs independent audits on the Company's internal controls. The Company's policies and procedures prescribe that the Company and all its employees are to maintain the highest ethical standards and that its business practices are to be conducted in a manner which is above reproach.
PricewaterhouseCoopers LLP, independent accountants, are retained to audit the Company's financial statements. Their accompanying report is based on audits conducted in accordance with auditing standards generally accepted in the United States which includes the consideration of the Company's internal controls to establish a basis for reliance thereon in determining the nature, timing and extent of audit tests to be applied.
The Board of Directors exercises its responsibility for these financial statements through its Audit Committee, which consists entirely of independent non-management Board members. The Audit Committee meets periodically with the independent accountants, both privately and with management present, to review accounting, auditing, internal controls and financial reporting matters.

/s/ Brian Duperreault                         /s/ Christopher Z. Marshall
----------------------------------------      ----------------------------------
Brian Duperreault                             Christopher Z. Marshall
Chairman and Chief Executive Officer          Chief Financial Officer	

51
 
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Shareholders of ACE Limited
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, shareholders' equity, comprehensive income and cash flows present fairly, in all material respects, the financial position of ACE Limited and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for the years ended December 31, 2000 and 1999, the three months ended December 31, 1998, and the year ended September 30, 1998, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 14, 2001
52
 
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999

                                                                                     2000                 1999
                                                                                  (in thousands of U.S. dollars
                                                                                  except share and per share data)
Assets
Investments and cash
     Fixed maturities available for sale, at fair value
        (amortized cost - $10,640,937 and $10,080,402)                       $    10,721,309      $     9,849,803
     Equity securities, at fair value (cost - $495,049 and $780,558)                 532,046              933,314
     Short-term investments, at fair value
        (amortized cost - $1,369,784 and $1,194,956)                               1,369,784            1,192,875
     Other investments, at fair value (cost - $518,130 and $303,714)                 531,116              300,311
     Cash                                                                            608,069              599,232
                                                                                --------------       --------------
           Total investments and cash                                             13,762,324           12,875,535

Accrued investment income                                                            183,011              170,755
Insurance and reinsurance balances receivable                                      2,095,573            2,018,788
Accounts and notes receivable                                                        388,996              533,863
Reinsurance recoverable                                                            8,994,940            8,840,081
Deferred policy acquisition costs                                                    572,757              514,425
Prepaid reinsurance premiums                                                         857,745              580,244
Goodwill                                                                           2,846,709            2,822,718
Deferred tax assets                                                                1,144,261              916,184
Other assets                                                                         843,210              850,295
                                                                                --------------       --------------

           Total assets                                                      $    31,689,526      $    30,122,888
                                                                                ==============       ==============

Liabilities
Unpaid losses and loss expenses                                              $    17,388,394      $    16,460,247
Unearned premiums                                                                  3,035,288            2,428,828
Premiums received in advance                                                          63,123               63,759
Insurance and reinsurance balances payable                                         1,319,091            1,735,956
Contract holder deposit funds                                                        139,056              201,079
Accounts payable, accrued expenses and other liabilities                           1,316,449            1,684,725
Dividends payable                                                                     33,127               23,921
Short-term debt                                                                      364,509            1,074,585
Long-term debt                                                                     1,424,228            1,424,228
Trust preferred securities                                                           875,000              575,000
                                                                                --------------       --------------

           Total liabilities                                                      25,958,265           25,672,328
                                                                                --------------       --------------
Commitments and contingencies

Mezzanine equity                                                                     311,050                    -
                                                                                --------------       --------------
Shareholders' equity
Ordinary Shares ($0.041666667 par value, 300,000,000 shares authorized;
     232,346,579 and 217,460,515 shares issued and outstanding)                        9,681                9,061
Additional paid-in capital                                                         2,637,085            2,214,989
Unearned stock grant compensation                                                    (29,642)             (28,908)
Retained earnings                                                                  2,733,633            2,321,570
Accumulated other comprehensive income (loss)                                         69,454              (66,152)
                                                                                --------------       --------------

           Total shareholders' equity                                              5,420,211            4,450,560
                                                                                --------------       --------------

           Total liabilities, mezzanine equity and shareholders' equity      $    31,689,526      $    30,122,888
                                                                                ==============       ==============	

See accompanying notes to consolidated financial statements
53
 
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

                                              Year Ended        Year Ended         Three Months Ended         Year Ended
                                             December 31        December 31           December 31            September 30
                                                 2000              1999                   1998                   1998
                                           --------------------------------------------------------------------------------
                                                       (in thousands of U.S. dollars, except per share data)
Revenues
     Gross premiums written                $      7,586,771      $     3,869,157        $      254,068      $     1,242,159
     Reinsurance premiums ceded                  (2,707,417)          (1,373,809)              (99,965)            (361,186)
                                                -----------          -----------              --------          -----------

     Net premiums written                         4,879,354            2,495,348               154,103              880,973
     Change in unearned premiums                   (344,591)              (9,611)               63,904               13,330
                                                -----------          -----------              --------          -----------

     Net premiums earned                          4,534,763            2,485,737               218,007              894,303
     Net investment income                          770,855              493,337                85,095              324,254
     Net realized gains (losses) on
     investments                                    (38,961)              37,916               130,154              188,385
                                                -----------          -----------              --------          -----------

Total revenues                                    5,266,657            3,016,990               433,256            1,406,942
                                                -----------          -----------              --------          -----------

Expenses
     Losses and loss expenses                     2,936,065            1,639,543               111,169              516,892
     Policy acquisition costs                       650,741              338,076                27,812              105,654
     Administrative expenses                        742,691              495,236                41,218              165,912
     Amortization of goodwill                        78,820               45,350                 4,435               12,834
     Interest expense                               221,450              105,138                 4,741               25,459
                                                -----------          -----------              --------          -----------

Total expenses                                    4,629,767            2,623,343               189,375              826,751
                                                -----------          -----------              --------          -----------

Income before income taxes                          636,890              393,647               243,881              580,191
Income tax expense                                   93,908               28,684                 5,342               20,040
                                                -----------          -----------              --------          -----------

Net income                                 $        542,982      $       364,963        $      238,539      $       560,151
                                                ===========          ===========              ========          ===========

Basic earnings per share                   $           2.37      $          1.88        $         1.23      $          3.03
                                                ===========          ===========              ========          ===========

Diluted earnings per share                 $           2.31      $          1.85        $         1.21      $          2.96
                                                ===========          ===========              ========          ===========	

See accompanying notes to consolidated financial statements
54
 
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                                          Year Ended       Year Ended     Three Months Ended      Year Ended
                                                         December 31      December 31         December 31        September 30
                                                             2000             1999               1998                1998
                                                       -----------------------------------------------------------------------
                                                                             (in thousands of U.S. dollars)
Ordinary Shares
     Balance - beginning of period                     $         9,061     $        8,070      $        8,066  $         7,508
     Shares issued                                                 542                  -                   -              688
     Exercise of stock options                                      76                 15                   4               16
     Issued under Employee Stock Purchase Plan (ESPP)                2                  1                   -                1
     Shares issued in ACE Financial Services
        transaction                                                  -                867                   -                -
     Shares issued in ACE INA transaction                            -                108                   -                -
     Repurchase of Shares                                            -                  -                   -             (147)
                                                           -----------        -----------         -----------      -----------
        Balance - end of period                                  9,681              9,061               8,070            8,066
                                                           -----------        -----------         -----------      -----------
Aditional paid-in capital
     Balance - beginning of period                           2,214,989          1,767,188           1,765,261        1,177,954
     Ordinary Shares issued                                    406,561                  -                   -          605,211
     Exercise of stock options                                  31,259              5,658               1,927            4,225
     Ordinary Shares issued under ESPP                           1,232              1,150                   -              954
     FELINE PRIDES issuance cost                                (9,884)                 -                   -                -
     Equity offering expenses                                   (7,072)                 -                   -                -
     Ordinary Shares issued in ACE Financial
       Services transaction                                          -            366,009                   -                -
     Ordinary Shares issued in ACE INA transaction                   -             72,484                   -                -
     Options issued in ACE Financial Services
        transaction                                                  -              2,500                   -                -
     Repurchase of Ordinary Shares                                   -                  -                   -          (23,083)
                                                           -----------        -----------         -----------      -----------
        Balance - end of period                              2,637,085          2,214,989           1,767,188        1,765,261
                                                           -----------        -----------         -----------      -----------
Unearned stock grant compensation
     Balance - beginning of period                             (28,908)           (15,087)             (6,181)          (1,993)
     Stock grants awarded                                      (10,346)           (21,706)             (9,924)          (8,551)
     Stock grants forfeited                                          -                312                   -                -
     Amortization                                                9,612              7,573               1,018            4,363
                                                           -----------        -----------         -----------      -----------
        Balance - end of period                                (29,642)           (28,908)            (15,087)          (6,181)
                                                           -----------        -----------         -----------      -----------
Retained earnings
    Balance - beginning of period                            2,321,570          2,040,664           1,819,554        1,403,463
    Net income                                                 542,982            364,963             238,539          560,151
    Dividends declared on Ordinary Shares                     (112,528)           (84,057)            (17,429)         (59,646)
    Dividends declared on FELINE PRIDES                        (18,391)                 -                   -                -
    Repurchase of Ordinary Shares                                    -                  -                   -          (84,414)
                                                           -----------        -----------         -----------      -----------
      Balance - end of period                                2,733,633          2,321,570           2,040,664        1,819,554
                                                           -----------        -----------         -----------      -----------
Accumulated other comprehensive income
    Net unrealized appreciation (depreciation) on
      investments
    Balance - beginning of period                              (83,327)           102,271             127,845          196,655
    Change in period, net of tax                               185,662           (185,598)            (25,574)         (68,810)
                                                           -----------        -----------         -----------      -----------
      Balance - end of period                                  102,335            (83,327)            102,271          127,845
                                                           -----------        -----------         -----------      -----------
    Cumulative translation adjustments
    Balance - beginning of period                               17,175              6,471                (275)           1,568
    Net adjustment for period, net of tax                      (50,056)            10,704               6,746           (1,843)
                                                           -----------        -----------         -----------      -----------
      Balance - end of period                                  (32,881)            17,175               6,471             (275)
                                                           -----------        -----------         -----------      -----------
    Accumulated other comprehensive income                      69,454            (66,152)            108,742          127,570
                                                           -----------        -----------         -----------      -----------
           Total shareholders' equity                  $     5,420,211     $    4,450,560      $    3,909,577  $     3,714,270
                                                           ===========        ===========         ===========      ===========	

See accompanying notes to consolidated financial statements
55
 
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                                                               Year Ended     Year Ended     Three Months Ended    Year Ended
                                                              December 31     December 31       December 31       September 30
                                                                  2000           1999               1998              1998
                                                             -------------------------------------------------------------------
                                                                                (in thousands of U.S. dollars)
Net income                                                      $  542,982        $ 364,963       $  238,539       $  560,151

Other comprehensive income (loss)
Net unrealized appreciation (depreciation) on investments
    Unrealized appreciation (depreciation) on investments          220,901         (130,832)         (4,158)         257,292
    Less: reclassification adjustment for net realized gains
          included in net income                                    (7,219)         (60,145)        (25,319)        (316,820)
                                                                -------------    -------------   -------------    -------------
                                                                   213,682         (190,977)        (29,477)         (59,528)

Cumulative translation adjustments                                 (70,448)          18,008           6,746           (1,843)

                                                                -------------    -------------   -------------    -------------
Other comprehensive income (loss), before income taxes             143,234         (172,969)        (22,731)         (61,371)

Income tax recovery (expense) related to other
    comprehensive income items                                      (7,628)          (1,925)          3,903           (9,282)

                                                                -------------    -------------   -------------    -------------
Other comprehensive income (loss)                                  135,606         (174,894)        (18,828)         (70,653)
                                                                -------------    -------------   -------------    -------------

Comprehensive income                                            $  678,588       $  190,069      $  219,711       $  489,498
                                                                =============    =============   =============    =============	

See accompanying notes to consolidated financial statements
56
 
ACE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                   Year Ended      Year Ended   Three Months Ended   Year Ended
                                                                   December 31     December 31      December 31     September 30
                                                                       2000           1999              1998            1998
                                                                -----------------------------------------------------------------
                                                                                      (in thousands of U.S. dollars)
Cash flows from operating activities
Net income                                                         $   542,982     $   364,963     $   238,539      $   560,151
Adjustments to reconcile net income to net cash provided by
 operating activities:
   Unearned premiums                                                   574,244          71,658         (67,990)          18,168
   Unpaid losses and loss expenses, net of reinsurance
     recoverable                                                      (329,072)     (1,098,795)       (102,117)         (96,361)
   Prepaid reinsurance premiums                                       (256,501)        (65,068)          3,493         (111,188)
   Deferred income taxes                                                33,827         (46,853)        (17,532)          52,240
   Net realized (gains) losses on investments                           38,961         (37,916)       (130,154)        (188,385)
   Amortization of premium/discounts on fixed maturities                (7,377)         (8,712)         (1,958)         (22,530)
   Amortization of goodwill                                             78,820          45,350           4,435           12,834
   Deferred policy acquisition costs                                   (50,626)         (7,282)          8,943           (8,025)
   Insurance and reinsurance balances receivable                      (175,809)        (41,199)         29,497          (52,709)
   Premiums received in advance                                           (636)          1,088           8,877           28,823
   Insurance and reinsurance balances payable                         (415,310)        440,607          (2,905)          62,153
   Accounts payable, accrued expenses and other liabilities           (373,733)        (89,171)        (28,144)        (145,872)
   Net change in contract holder deposit funds                         (49,825)         (3,814)              -                -
   Other                                                               (37,117)         14,292         (14,375)         (42,529)
                                                                   -----------     -----------     -----------      -----------
      Net cash flows from (used for) operating activities          $  (427,172)    $  (460,852)    $   (71,391)     $    66,770
                                                                   -----------     -----------     -----------      -----------

Cash flows from investing activities
   Purchases of fixed maturities                                   (11,476,638)    (17,853,323)     (3,169,088)      (7,865,794)
   Purchases of equity securities                                     (411,022)       (368,923)        (29,015)        (221,952)
   Sales of fixed maturities                                        11,521,678      18,553,593       3,032,461        7,625,861
   Sales of equity securities                                          793,499         421,365          25,338          688,261
   Maturities of fixed maturities                                       68,869         437,665           4,310          147,093
   Net realized gains (losses) on financial future contracts           (48,227)         68,311         121,542           (9,287)
   Other investments                                                  (214,416)       (139,034)         26,103          (60,735)
   Acquisitions of subsidiaries, net of cash acquired                        -      (2,679,216)              -         (967,758)
                                                                   -----------     -----------     -----------      -----------
      Net cash from (used for) investing activities                $   233,743     $(1,559,562)    $    11,651      $  (664,311)
                                                                   -----------     -----------     -----------      -----------

Cash flows from financing activities
   Dividends paid on Ordinary Shares                               $  (106,459)    $   (77,836)    $   (17,422)     $   (54,389)
   Dividends paid on FELINE PRIDES                                     (15,254)              -               -                -
   Repayment of bank debt                                           (1,024,699)       (198,816)       (250,000)        (385,000)
   Proceeds from short-term debt                                       314,623       1,049,585               -          385,000
   Proceeds from issuance of trust preferred securities                300,000         500,000               -                -
   Proceeds from issuance of FELINE PRIDES                             311,050               -               -                -
   Net proceeds from issuance of Ordinary Shares                       400,320               -               -          605,899
   Proceeds from exercise of options for Ordinary Shares                31,335           5,672               4            4,243
   Proceeds from shares issued under Employee Stock Purchase
     Plan                                                                1,234           1,151               -              955
   Issuance costs of FELINE PRIDES                                      (9,884)              -               -                -
   Proceeds from long-term debt                                              -       1,099,334         250,000          250,000
   Repurchase of Ordinary Shares                                             -               -               -         (107,644)
                                                                   -----------     -----------     -----------      -----------
      Net cash from (used for) financing activities                $   202,266     $ 2,379,090     $   (17,418)     $   699,064
                                                                   -----------     -----------     -----------      -----------

Net increase (decrease) in cash                                          8,837         358,676         (77,158)         101,523

Cash -- beginning of period                                            599,232         240,556         317,714          216,191
                                                                   -----------     -----------     -----------      -----------
Cash -- end of period                                              $   608,069     $   599,232     $   240,556      $   317,714
                                                                   ===========     ===========     ===========      ===========

Supplemental cash flow information
Taxes paid (received)                                              $    38,817     $    29,532     $       168      $   (48,848)
Interest paid                                                      $   224,787     $    73,021     $     3,073      $    41,513	

See accompanying notes to consolidated financial statements
57
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
ACE Limited ("ACE" or "the Company") is a holding company incorporated with limited liability under the Cayman Islands Companies Law and maintains its business office in Bermuda. The Company, through its various subsidiaries, provides a broad range of insurance and reinsurance products to insureds in the United States and almost 50 other countries. In addition, ACE, through ACE Global Markets, provides funds at Lloyd's, primarily in the form of letters of credit, to support underwriting capacity for Lloyd's syndicates managed by Lloyd's managing agencies, which are wholly owned subsidiaries of ACE. ACE operates through six business segments: ACE Bermuda, ACE Global Markets, ACE Global Reinsurance, ACE USA, ACE International and ACE Financial Services. These segments are described in Note 17.
On July 2, 1999, the Company changed its fiscal year-end from September 30 to December 31. This change was implemented retroactively to December 31, 1998.
2. Significant accounting policies
a) Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and include the accounts of the Company and its subsidiaries. The Company records its proportionate share of the results of the Lloyd's syndicates in which it participates. All significant intercompany accounts and transactions have been eliminated. Certain items in the prior year financial statements have been reclassified to conform with the current year presentation.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company's principal estimates include loss and loss expense reserves and estimated premiums for situations where the Company has not received ceding company reports. Actual results may differ from these estimates.
b) Investments
The Company's investments are considered to be "available for sale" under the definition included in the Financial Accounting Standard Board's ("FASB") Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities". Except for certain "other investments" where there is no quoted market value, the Company's investment portfolio is reported at fair value, being the quoted market price of these securities provided by either independent pricing services, or when such prices are not available, by reference to broker or underwriter bid indications. Realized gains or losses on sales of investments are determined on a first-in, first-out basis and include adjustments to the net realizable value of investments for declines in value that are considered to be other than temporary. Unrealized appreciation (depreciation) on investments is included as other comprehensive income in shareholders' equity.
Short-term investments comprise securities due to mature within one year of date of issue. Short-term investments include certain cash and cash equivalents, which are part of investment portfolios under the management of external investment managers.
A portion of the other investments comprise investments in entities for which there is no quoted market value. In such cases, the investments are carried at the lower of estimated fair value or original cost.
58
The Company utilizes financial futures and option contracts and foreign currency forward and option contracts for the purpose of managing certain investment portfolio exposures (see Note 7 for additional discussion of the objectives and strategies employed). These instruments are not recognized as assets or liabilities in the accompanying consolidated financial statements and changes in market value are included in net realized gains or losses on investments in the consolidated statements of operations.
Collateral held by brokers equal to a percentage of the total value of open futures contracts is included in short-term investments.
Net investment income includes interest and dividend income together with amortization of market premiums and discounts and is net of investment management and custody fees. For mortgage-backed securities, and any other holdings for which there is a prepayment risk, prepayment assumptions are evaluated and revised as necessary. Any adjustments required due to the resultant change in effective yields and maturities are recognized in current income.
c) Premiums
Premiums are generally recognized as written upon inception of the policy. For multi-year policies written which are payable in annual installments, due to the ability of the insured/reinsured to commute or cancel coverage within the term of the policy, only the annual premium is included as written at policy inception. The remaining annual premiums are included as written at each successive anniversary date within the multi-year term.
Premiums written are primarily earned on a daily pro rata basis over the terms of the policies to which they relate. Accordingly, unearned premiums represent the portion of premiums written which is applicable to the unexpired portion of the policies in force. Premium estimates for retrospectively rated policies are recognized within the periods in which the related losses are incurred.
The Company underwrites loss portfolio transfer contracts. These contracts, which meet the established criteria for reinsurance accounting, are recorded in the statement of operations when written and generally result in large one-time written and earned premiums with comparable incurred losses. The contracts, when written, can cause significant variances in gross premiums written, net premiums written, net premiums earned, net incurred losses as well as the loss and loss expense ratio and underwriting and administrative expense ratio.
Reinsurance premiums assumed are estimated based on information provided by ceding companies. The information used in establishing these estimates is reviewed and subsequent adjustments are recorded in the period in which they are determined. These premiums are earned over the terms of the related reinsurance contracts.
d) Earnings per share
Basic earnings per share is calculated utilizing the weighted average shares outstanding. All potentially dilutive securities including FELINE PRIDES, stock options, warrants and convertible securities are excluded from the basic earnings per share calculation. In calculating diluted earnings per share, the weighted average shares outstanding is increased to include all potentially dilutive securities. Basic and diluted earnings per share are calculated by dividing income available to ordinary shareholders by the applicable weighted average number of shares outstanding during the year.
59
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
e) Policy acquisition costs
Policy acquisition costs consist of commissions, premium taxes, underwriting and other costs that vary with and are primarily related to the production of premium. Acquisition costs are deferred and amortized over the period in which the related premiums are earned. Deferred policy acquisition costs are reviewed to determine if they are recoverable from future income, including investment income. If such costs are estimated to be unrecoverable, they are expensed.
f) Unpaid losses and loss expenses
A liability is established for the estimated unpaid losses and loss expenses of the Company under the terms of, and with respect to, its policies and agreements. The methods of determining such estimates and establishing the resulting reserve are reviewed continuously and any adjustments are reflected in operations in the period in which they become known. Future developments may result in losses and loss expenses significantly greater or less than the reserve provided.
In accordance with industry standards, the financial guaranty unpaid losses and loss expenses have been discounted using an average rate of 6 percent in both 2000 and 1999.
g) Contract holder deposit funds
Contract holder deposit funds represent a liability for an investment contract sold that does not meet the definition of an insurance contract under Statement of Financial Accounting Standards No. 97, "Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts". The investment contracts are sold with a guaranteed rate of return. The proceeds are then invested with the intent of realizing a greater return than is called for in the investment contract.
h) Goodwill
Goodwill represents the excess of the cost of acquisitions over the tangible net assets acquired. The Company amortizes goodwill recorded in connection with its business combinations on a straight-line basis over the estimated useful lives which range from twenty-five to forty years.
i) Reinsurance
In the ordinary course of business, the Company's insurance subsidiaries assume and cede reinsurance with other insurance companies. These arrangements provide greater diversification of business and minimize the net loss potential arising from large risks. Ceded reinsurance contracts do not relieve the Company of its obligation to its insureds.
Reinsurance recoverable includes the balances due from reinsurance companies for paid and unpaid losses and loss expenses that will be recovered from reinsurers, based on contracts in force. A reserve for uncollectible reinsurance has been determined based upon a review of the financial condition of the reinsurers and an assessment of other available information.
Prepaid reinsurance premiums represent the portion of premiums ceded to reinsurers applicable to the unexpired terms of the reinsurance contracts in force.
j) Translation of foreign currencies
Financial statements of subsidiaries expressed in foreign currencies are translated into U.S. dollars in accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation" ("FAS 52"). Under FAS 52, functional currency assets and liabilities are translated into U.S. dollars generally using period end rates of exchange and the related translation adjustments are recorded as a separate component of accumulated other
60
comprehensive income. Functional currencies are generally the currencies of the local operating environment. Statement of operations amounts expressed in functional currencies are translated using average exchange rates. Gains and losses resulting from foreign currency transactions are recorded in current income.
k) Income taxes
Income taxes have been provided in accordance with the provisions of FAS No. 109, "Accounting for Income Taxes" on those operations which are subject to income taxes (see Note 13). Deferred tax assets and liabilities result from temporary differences between the amounts recorded in the consolidated financial statements and the tax basis of the Company's assets and liabilities. Such temporary differences are primarily due to the tax basis discount on unpaid losses, adjustment for unearned premiums, uncollectible reinsurance, and tax benefits of net operating loss carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance against deferred tax assets is recorded if it is more likely than not, that all or some portion of the benefits related to deferred tax assets will not be realized.
l) Stock split
On March 2, 1998, the Company effected a three for one split of the Company's Ordinary Shares. The par value of the Company's Ordinary Shares and all per share data presented in the consolidated financial statements and the notes thereto have been retroactively adjusted to reflect the effects of the stock split.
m) Cash flow information
Purchases and sales or maturities of short-term investments are recorded net for purposes of the statements of cash flows and are included with fixed maturities.
n) New accounting pronouncement
In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the consolidated balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as a fair value, cash flow or foreign currency hedge. The accounting for changes in the fair value of a derivative (that is, gains and losses) depends on the intended use of the derivative and the resulting designation. Upon initial application of FAS 133, hedging relationships must be designated anew and documented pursuant to the provisions of this statement. The Company has adopted FAS 133, as amended, as of January 1, 2001. The Company has completed an implementation plan which included identifying all derivatives, evaluating risk management hedging strategies and determining appropriate valuation methodologies required to assess the impact that adoption of this statement will have on its financial position and results of operations.
The Company maintains investments in derivative instruments such as futures, option contracts and foreign currency forward contracts for which the primary purposes are to manage duration and foreign currency exposure, yield enhancement or to obtain an exposure to a particular financial market. The Company currently records the changes in market value of these instruments as realized gains or losses in the consolidated statements of operations and, accordingly, has estimated that FAS 133, as amended, will not have a significant impact on the results of operations, financial condition or liquidity in future periods as it relates to these instruments.
61
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
Certain products (principally credit protection oriented) issued by the Company have been determined to meet the definition of a derivative under FAS 133. These products consist primarily of credit default swaps, index-based instruments and certain financial guarantee coverages. Upon adoption of FAS 133, the Company will record these products at their fair value.
The Company will record a net-of-tax cumulative expense of $23 million as of January 1, 2001, to reflect the adoption of FAS 133. Prospectively, the Company expects some level of gains and losses resulting from changes in market values of derivatives to be recorded in the statement of operations. The level of such gains and losses will be dependent upon a number of factors including changes in interest rates, credit spreads and other market factors. The Company's involvement with derivative instruments and transactions is primarily to offer protection to others or to mitigate its own risk and is not considered speculative in nature.
3. Acquisitions
On January 2, 1998, the Company acquired Westchester Specialty Group, Inc. ("WSG"), through a U.S. holding company, ACE US Holdings, Inc. ("ACE US"), for aggregate cash consideration of $338 million. The Company financed the acquisition with $250 million of bank debt (see Note 8) and the remainder with available cash. The acquisition was recorded using the purchase method of accounting. Accordingly, the consolidated financial statements of the Company include the results of ACE US and its subsidiaries from January 2, 1998, the date of acquisition. No goodwill was generated in the transaction. In connection with the acquisition, National Indemnity Company, a subsidiary of Berkshire Hathaway Inc., has provided $750 million (75 percent quota share of $1 billion) of reinsurance protection to ACE USA with respect to its loss reserves for the 1996 and prior accident years.
On April 1, 1998, the Company acquired CAT Limited ("CAT"), a privately held, Bermuda-based property catastrophe reinsurer, for aggregate cash consideration of approximately $641 million. The acquisition was financed with $385 million of short-term bank debt and the remainder from available cash. The acquisition was recorded using the purchase method of accounting. Accordingly, the consolidated financial statements of the Company include the results of CAT from April 1, 1998, the date of acquisition. Approximately $224 million of goodwill was generated as a result of the acquisition.
On July 9, 1998, the Company acquired Tarquin Limited ("Tarquin"), a UK-based holding company which owned Lloyd's managing agency Charman Underwriting Ltd. ("Charman") and Tarquin Underwriting Limited, its corporate capital provider. Under the terms of the acquisition, the Company issued approximately 14.3 million ACE Ordinary Shares to the shareholders of Tarquin. The acquisition was accounted for on a pooling-of-interests basis. Accordingly, in 1998, all prior period consolidated financial statements presented were restated to include the combined results of operations, financial position and cash flows of Tarquin as though it had always been a part of the Company.
On July 2, 1999, the Company, through a U.S. holding company, ACE INA Holdings, Inc. ("ACE INA"), acquired CIGNA Corporation's ("CIGNA") domestic property and casualty insurance operations including its run-off business and also its international property and casualty insurance companies and branches, including most of the accident and health business written through those companies for $3.45 billion in cash (the "ACE INA Acquisition"). The ACE INA Acquisition has been recorded using the purchase method of accounting and accordingly, the consolidated financial statements include the results of ACE INA and its subsidiaries from July 2, 1999, the date of acquisition. Approximately $1.85 billion of goodwill was generated as a result of the acquisition.
Under the terms of the ACE INA Acquisition Agreement, CIGNA agreed to provide a guarantee to ACE to indemnify against unanticipated increases in recorded reserves for losses and loss adjustment expenses of certain subsidiaries being acquired by ACE. CIGNA had the option to replace its guarantee with reinsurance
62
obtained from a mutually agreed upon third party reinsurer. Contemporaneous with the consummation of the ACE INA Acquisition, CIGNA exercised its option and replaced its guarantee with reinsurance by directing certain subsidiaries being acquired to transfer $1.25 billion of investments to National Indemnity Company, a subsidiary of Berkshire Hathaway Inc., for aggregate coverage of $2.5 billion. This coverage attaches at an amount equal to the net recorded reserves of the certain subsidiaries acquired, on the closing date, minus $1.25 billion.
On December 30, 1999, the Company acquired Capital Re Corporation ("Capital Re") which is engaged in the financial guaranty reinsurance business. Following the acquisition the name of the company was changed to ACE Financial Services, Inc. Under the terms of the acquisition agreement, the Company paid aggregate consideration of $110.3 million in cash and issued approximately 20.8 million ACE Ordinary Shares. These shares were capitalized at a value of $17.625 per share, which was determined in accordance with the EITF 95-19 consensus that deals with the value of equity securities issued to effect a purchase combination. The total value of the acquisition amounted to $588 million, which includes the value of stock options and restricted stock of Capital Re that were converted into stock options and restricted stock of ACE and transaction costs. The Capital Re acquisition has been recorded using the purchase method of accounting and accordingly, the consolidated financial statements include the results of Capital Re and its subsidiaries from December 30, 1999, the date of acquisition. Approximately $105 million of goodwill was generated as a result of the acquisition. As Capital Re was acquired on December 30, 1999, the Company has not reflected any operations from this segment during 1999.
4. Investments
a) Fixed maturities
The fair values and amortized costs of fixed maturities at December 31, 2000 and 1999, are as follows:

                                                                    2000                           1999
                                                        ---------------------------    ---------------------------
                                                            Fair        Amortized          Fair         Amortized
                                                            Value          Cost            Value           Cost
                                                        ------------   ------------    ------------    -----------
                                                                       (in thousands of U.S. dollars)
U.S. Treasury and agency                                $  1,216,544   $  1,179,018    $    982,417    $ 1,007,797
Non-U.S. governments                                       1,250,712      1,205,424         681,770        682,679
Corporate securities                                       5,378,203      5,450,681       4,688,341      4,829,052
Mortgage-backed securities                                 1,712,949      1,689,849       2,067,137      2,107,397
States, municipalities and political subdivisions          1,162,901      1,115,965       1,430,138      1,453,477
                                                        ------------   ------------    ------------    -----------
   Fixed maturities                                     $ 10,721,309   $ 10,640,937    $  9,849,803    $10,080,402
                                                        ============   ============    ============    ===========	

63
 
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
The gross unrealized appreciation (depreciation) related to fixed maturities at December 31, 2000 and 1999, is as follows:

                                                        2000                                         1999
                                        ------------------------------------         ------------------------------------
                                             Gross                Gross                  Gross                  Gross
                                          Unrealized            Unrealized             Unrealized            Unrealized
                                         Appreciation          Depreciation           Appreciation          Depreciation
                                        --------------        --------------         --------------        --------------
                                                                  (in thousands of U.S. dollars)
U.S. Treasury and agency                $       38,566        $       (1,040)        $        4,725        $      (30,156)
Non-U.S. governments                            54,494                (9,206)                 9,940               (10,849)
Corporate securities                            70,868              (143,346)                27,041              (167,634)
Mortgage-backed securities                      30,316                (7,216)                 8,999               (49,325)
States, municipalities and
  political subdivisions                        48,213                (1,277)                 6,270               (29,610)
                                        --------------        --------------         --------------        --------------

                                        $      242,457        $     (162,085)        $       56,975        $     (287,574)
                                        ==============        ==============         ==============        ==============	

Mortgage-backed securities issued by U.S. government agencies are combined with all other mortgage derivatives held and are included in the category "mortgage- backed securities". Approximately 74 percent of the total mortgage holdings at December 31, 2000, and 69 percent at December 31, 1999, are represented by investments in GNMA, FNMA and FHLMC bonds. The remainder of the mortgage exposure consists of CMOs (Collateralized Mortgage Obligations) and non- government mortgage-backed securities, the majority of which provide a planned structure for principal and interest payments and carry a "AAA" rating by the major credit rating agencies. Fixed maturities at December 31, 2000, by contractual maturity, are shown below. Expected maturities could differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties.
64

                                                                       Fair               Amortized
                                                                       Value                 Cost
                                                                   -------------        -------------
                                                                      (in thousands of U.S. dollars)
Maturity period
---------------
Less than 1 year                                                   $     585,515        $     582,867
1 - 5 years                                                            3,763,786            3,753,540
5 - 10 years                                                           2,965,287            2,961,384
Greater than 10 years                                                  1,693,772            1,653,297
                                                                   -------------        -------------
                                                                   $   9,008,360        $   8,951,088
Mortgage-backed securities                                             1,712,949            1,689,849
                                                                   -------------        -------------
   Total fixed maturities                                          $  10,721,309        $  10,640,937
                                                                   =============        =============	

b) Equity securities
The gross unrealized appreciation (depreciation) on equity securities at December 31, 2000 and 1999, is as follows:

                                                                        2000                   1999
                                                                   --------------         ---------------
                                                                        (in thousands of U.S. dollars)
Equity securities-cost                                             $      495,049         $       780,558
Gross unrealized appreciation                                              84,199                 224,232
Gross unrealized depreciation                                             (47,202)                (71,476)
                                                                   --------------         ---------------

Equity securities-fair value                                       $      532,046         $       933,314
                                                                   ==============         ===============	

c) Net realized gains (losses) and change in net unrealized appreciation (depreciation) on investments
The analysis of net realized gains (losses) on investments and the change in net unrealized appreciation (depreciation) on investments for the years ended December 31, 2000 and 1999, the three months ended December 31, 1998, and the year ended September 30, 1998, is as follows:
65
 
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)

                                                       Year Ended         Year Ended           Three Months Ended    Year Ended
                                                       December 31        December 31               December 31     September 30
                                                          2000               1999                      1998              1998
                                             -------------------------------------------------------------------------------------
                                                                          (in thousands of U.S. dollars)
Fixed maturities
  Gross realized gains                                 $     90,403        $    113,129            $     21,822      $     78,825
  Gross realized losses                                    (172,009)           (195,496)                 (7,274)          (20,512)
                                                       ------------         -----------             -----------        ----------
                                                            (81,606)            (82,367)                 14,548            58,313
Equity securities
  Gross realized gains                                      170,243              59,384                   4,705           210,512
  Gross realized losses                                     (56,199)            (12,149)                 (2,658)          (42,037)
                                                       ------------         -----------             -----------        ----------
                                                            114,044              47,235                   2,047           168,475

Other investments                                           (12,114)              8,696                  (7,374)                -
Currency losses                                             (11,058)             (3,959)                   (363)          (29,116)
Financial futures and option
  contracts-net realized gains (losses)                     (48,227)             68,311                 121,296            (9,287)
                                                       ------------         -----------             -----------        ----------

Net realized gains (losses) on investments                  (38,961)             37,916                 130,154           188,385
                                                       ------------         -----------             -----------        ----------

Change in net unrealized appreciation (depreciation)
  on investments
     Fixed maturities                                       310,971            (311,614)                (64,062)           81,944
     Equity securities                                     (115,759)            127,350                  33,198          (141,434)
     Short-term investments                                   2,081              (2,442)                     62                74
     Other investments                                       16,389              (4,271)                  1,325              (112)
     Deferred income taxes                                  (28,020)              5,379                   3,903            (9,282)
                                                       ------------         -----------             -----------        ----------
Change in net unrealized appreciation
  (depreciation) on investments                             185,662            (185,598)                (25,574)          (68,810)
                                                       ------------         -----------             -----------        ----------
Total net realized gains (losses) and change in net
  unrealized appreciation (depreciation) on
  investments                                          $    146,701        $   (147,682)           $    104,580      $    119,575
                                                       ============         ===========             ===========        ==========	

66
d) Net investment income
Net investment income for the years ended December 31, 2000 and 1999, the three months ended December 31, 1998, and the year ended September 30, 1998, was derived from the following sources:

                                         Year Ended           Year Ended         Three Months Ended       Year Ended
                                         December 31          December 31           December 31           September 30
                                           2000                  1999                 1998                  1998
                                   ----------------------    ------------     ----------------------    ------------
                                                             (in thousands of U.S. dollars)
Fixed maturities and short-term
 investments                         $      766,312        $      495,078       $       82,778        $      325,308
Equity securities                            12,268                 8,731                1,231                 5,920
Other investments                            39,783                22,481                4,027                 2,954
Other                                             -                     -                    -                 1,853
                                       ------------          ------------          -----------          ------------
     Gross investment income                818,363               526,290               88,036               336,035
Investment expenses                         (47,508)              (32,953)              (2,941)              (11,781)
                                       ------------          ------------          -----------          ------------

     Net investment income           $      770,855        $      493,337       $       85,095        $      324,254
                                       ============          ============          ===========          ============	

e) Securities on deposit
Fixed maturity securities carried at fair value and cash totaling $1.4 billion and $1.6 billion at December 31, 2000 and 1999, respectively, was on deposit with various regulatory authorities to comply with various state (U.S.), Lloyd's (UK) and other international requirements.
5. Unpaid losses and loss expenses
The Company establishes reserves for unpaid losses and loss expenses, which are estimates of future payments of reported and unreported claims for losses and related expenses, with respect to insured events that have occurred. The process of establishing reserves for property and casualty claims continues to be a complex and imprecise process, requiring the use of informed estimates and judgments. The Company's estimates and judgments may be revised as additional experience and other data become available and are reviewed, as new or improved methodologies are developed or as current laws change. Any such revisions could result in future changes in estimates of losses or reinsurance recoverable and would be reflected in the Company's results of operations in the period in which the estimates are changed.
The reconciliation of unpaid losses and loss expenses for the years ended December 31, 2000 and 1999, the three months ended December 31, 1998, and the year ended September 30, 1998, is as follows:
67
 
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (con't.)

                                                       Year Ended      Year Ended        Three Months Ended         Year Ended
                                                       December 31     December 31          December 31            September 30
                                                         2000            1999                  1998                    1998
                                                    ---------------------------------------------------------------------------
                                                                          (in thousands of U.S. dollars)
Gross unpaid losses and
 loss expenses at beginning of period                $ 16,460,247    $   3,678,269           $    3,737,869        $  2,111,670
Reinsurance recoverable on unpaid losses               (7,551,430)      (1,100,464)              (1,059,528)           (104,797)
                                                     ------------    -------------            -------------          ----------
Net unpaid losses and loss
 expenses at beginning of period                        8,908,817        2,577,805                2,678,341           2,006,873
Unpaid losses and loss expenses in respect of
  formerly discontinued operations                      1,269,914                -                        -                   -
Unpaid losses and loss expenses assumed in
  respect of reinsurance business acquired                169,537          183,774                        -               6,403
Unpaid losses and loss expenses assumed in
  respect of acquired companies (net of
  reinsurance recoverable of
  $6,345,679 in 1999 and $761,618 in 1998)                      -        6,940,593                        -             731,949
                                                     ------------    -------------            -------------          ----------
Total                                                  10,348,268        9,702,172                2,678,341           2,745,225
                                                     ------------    -------------            -------------          ----------

Net losses and loss expenses incurred in
 respect of losses occurring in:
         Current period                                 2,996,429        1,601,278                  126,139             534,021
         Prior periods                                    (60,364)          38,265                  (14,970)            (17,129)
                                                    -------------    -------------            -------------          ----------
Total                                                   2,936,065        1,639,543                  111,169             516,892
                                                    -------------    -------------            -------------          ----------

Net losses and loss expenses paid in respect
   of losses occurring in:
         Current period                                 1,205,110          916,848                   24,977             243,753
         Prior periods                                  2,631,171        1,509,638                  191,473             337,422
                                                    -------------    -------------            -------------          ----------
Total                                                   3,836,281        2,426,486                  216,450             581,175
                                                    -------------    -------------            -------------          ----------

Foreign currency revaluation                             (117,102)          (6,412)                   4,745              (2,601)
                                                    -------------    -------------            -------------          ----------

Net unpaid losses and loss expenses at end
   of period                                            9,330,950        8,908,817                2,577,805           2,678,341
Reinsurance recoverable on unpaid losses                8,057,444        7,551,430                1,100,464           1,059,528
                                                    -------------    -------------            -------------          ----------
Gross unpaid losses and loss expenses at
    end of period                                    $ 17,388,394   $   16,460,247           $    3,678,269        $  3,737,869
                                                    -------------    -------------            -------------          ----------	

Losses and loss expenses for 1999 include incurred losses for ACE INA from July 2, 1999, the date of acquisition. With respect to the analysis of incurred and paid losses for ACE INA for the 1999 period, all losses incurred and paid, on losses occurring in the period January 1, 1999, through December 31, 1999, have been included as current year activity in 1999.
Incurred losses for the year ended December 31, 2000, were impacted by favorable development of reserves from prior periods primarily from ACE Tempest Re, ACE USA and ACE Bermuda partially offset by unfavorable development in ACE Financial Services.
68
The Company has considered asbestos and environmental claims and claims expenses in establishing the liability for unpaid losses and loss expenses. The Company has developed reserving methods, which incorporate new sources of data with historical experience to estimate the ultimate losses arising from asbestos and environmental exposures. The reserves for asbestos and environmental claims and claims expenses represent management's best estimate of future loss and loss expense payments and recoveries which are expected to develop over the next several decades. The Company continuously monitors evolving case law and its effect on environmental and latent injury claims. While reserving for these claims is inherently uncertain, the Company believes that the reserves carried for these claims are adequate based on known facts and current law.
The following table presents selected data on the unpaid losses and loss expenses for asbestos, and environmental and other latent exposures as at December 31, 2000 and 1999.

                                                                 2000                                1999
                                                                 ----                                ----
                                                      Gross                Net            Gross                 Net
                                                      -----                ---            -----                 ---
                                                                    (in millions of U.S. dollars)
Asbestos                                         $      1,073      $       212       $        897        $      291
Environmental and other latent exposures                1,156              540              1,287(1)            676
                                                 ---------------   ---------------   ------------------  ---------------
                                                 $      2,229      $       752       $      2,184        $      967
                                                 ===============   ===============   ==================  ===============	

(1) Reflects a correction to reduce the amount reported in 1999 by $910 million.
During the years ended December 31, 2000 and 1999, the Company made payments of $308.9 million and $186.4 million, respectively, with respect to latent claims.
At December 31, 2000 and 1999, the Company's reinsured financial guaranty portfolio was broadly diversified by bond type, geographic location and maturity schedule, with no single risk representing more than 1.4 percent and 1.9 percent, respectively, of the Company's net par in force. The Company limits its exposure to losses from reinsured financial guarantees by underwriting primarily investment grade obligations and retroceding a portion of its risks to other insurance companies.
Net financial guaranty par in force was approximately $65.8 billion and $59.3 billion at December 31, 2000 and 1999, respectively. The composition at December 31, 2000 and 1999, by type of issue and the range of final maturities, was as follows:

                                                         December 31
Type of Issue                                     2000                1999           Range of final maturities
----------------------------------------------------------------------------------------------------------------
                                               (in billions of U.S. dollars)
Tax-backed                                     $  16.9             $  16.3                  1- 40 years
Utility                                           15.1                15.2                  1- 40 years
Non-municipal                                     19.5                13.9                  1- 35 years
Special revenue                                    6.9                 6.3                  1- 40 years
Health care                                        6.6                 6.9                  1- 40 years
Housing                                            0.8                 0.7                  1- 40 years
                                       -----------------------------------------
Total                                          $  65.8             $  59.3
                                       -----------------------------------------	

As part of its financial guaranty business, the Company participates in credit default swap transactions whereby one counterparty pays a periodic fee in fixed basis points on a notional amount in return for a contingent payment by the other counterparty in the event one or more defined credit events occurs with
69
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
respect to one or more third party reference securities or loans. A credit event is defined as a failure to pay, bankruptcy, cross acceleration (generally accompanied by a failure to pay), repudiation, restructuring or similar nonpayment event. The total notional amount of credit default swaps outstanding at December 31, 2000 and 1999, included in the Company's financial guaranty exposure above was $11.3 billion and $7.8 billion, respectively.
At December 31, 2000 and 1999, the Company's net mortgage guaranty insurance in force (representing the current principal balance of all mortgage loans that are currently reinsured) was approximately $6.9 billion and $7.7 billion, respectively, and direct primary net risk in force was approximately $2.7 billion and $2.6 billion, respectively.
6. Reinsurance
The Company purchases reinsurance to manage various exposures including catastrophe risks. Although reinsurance agreements contractually obligate the Company's reinsurers to reimburse it for the agreed upon portion of its gross paid losses, they do not discharge the primary liability of the Company. The amounts for net premiums written and net premiums earned in the statements of operations are net of reinsurance. Direct, assumed and ceded amounts for these items for the years ended December 31, 2000 and 1999, the three months ended December 31, 1998, and the year ended September 30, 1998, are as follows:

                                 Year Ended         Year Ended          Three Months Ended         Year Ended
                                December 31         December 31             December 31           September 30
                                   2000                 1999                   1998                    1998
                          -----------------------------------------------------------------------------------------
                                                       (in thousands of U.S. dollars)
Premiums written
   Direct                 $       6,093,151       $       3,015,176      $         208,501     $           864,529
   Assumed                        1,493,620                 853,981                 45,567                 377,630
   Ceded                         (2,707,417)             (1,373,809)               (99,965)               (361,186)
                          -----------------       -----------------      -----------------     -------------------
   Net                    $       4,879,354       $       2,495,348      $         154,103     $           880,973
                          =================       =================      =================     ===================

Premiums earned
   Direct                 $       5,612,988       $       2,917,301      $         233,567     $           875,154
   Assumed                        1,361,254                 835,966                 97,850                 303,586
   Ceded                         (2,439,479)             (1,267,530)              (113,410)               (284,437)
                          -----------------       -----------------      -----------------     -------------------
   Net                    $       4,534,763       $       2,485,737      $         218,007     $           894,303
                          =================       =================      =================     ===================	

The Company's provision for reinsurance recoverable at December 31, 2000 and 1999, is as follows:

                                                                                       2000                  1999
                                                                                   ------------          ------------
                                                                                      (in thousands of U.S. dollars)
Reinsurance recoverable on paid losses and loss expenses                        $       937,496       $     1,288,651
Reinsurance recoverable on unpaid losses and loss expenses                            8,767,111             8,309,014
Provision for uncollectible balances on reinsurance recoverable                        (709,667)             (757,584)
                                                                                ---------------       ---------------
Reinsurance recoverable                                                         $     8,994,940       $     8,840,081
                                                                                ===============       ===============	

70
7. Commitments and contingencies
a) Financial instruments with off-balance sheet risk
The Company maintains investments in derivative instruments such as futures, option contracts and foreign currency forward contracts for which the primary purposes are to manage duration and foreign currency exposure, yield enhancement or to obtain an exposure to a particular financial market. The Company currently records changes in market value of these instruments as realized gains or losses in the consolidated statements of operations.
(i) Foreign currency exposure management
The Company uses foreign currency forward and option contracts to minimize the effect of fluctuating foreign currencies. The forward currency contracts purchased are not specifically identifiable against cash, any single security or groups of securities denominated in those currencies, and therefore, do not qualify as hedges for financial reporting purposes. All contract gains and losses, realized and unrealized, are reflected currently in the statements of operations. The contractual amount of the foreign currency forward contracts at December 31, 2000, was $31 million, the current fair value was $30 million and the unrealized loss was $1 million.
The credit risk associated with the above derivative financial instruments relates to the potential for non-performance by counterparties. Non- performance is not anticipated; however, in order to minimize the risk of loss, management monitors the creditworthiness of its counterparties. For forward contracts, the counterparties are principally banks, which must meet certain criteria according to the Company's investment guidelines.
(ii) Duration management and market exposure
Futures
A portion of the Company's investment portfolio is managed as synthetic equity funds, whereby equity index futures contracts are held in an amount equal to the market value of an underlying portfolio comprised of short- term investments and fixed maturities. This creates an equity market exposure equal in value to the total amount of funds invested in this strategy. In addition, exchange traded bond and note futures contracts may be used in fixed maturity portfolios as substitutes for ownership of the physical bonds and notes without significantly increasing the risk in the portfolio. Investments in financial futures contracts may be made only to the extent that there are assets under management, not otherwise committed.
Futures contracts give the holder the right and obligation to participate in market movements, determined by the index or underlying security on which the futures contract is based. Settlement is made daily in cash by an amount equal to the change in value of the futures contract times a multiplier that scales the size of the contract. At December 31, 2000, the contract amount of $224 million reflects the net extent of involvement the Company had in these financial instruments.
Options
Option contracts may be used in the portfolio as protection against unexpected shifts in interest rates, which would thereby affect the duration of the fixed maturity portfolio. By using options in the portfolio, the overall interest rate sensitivity of the account can be reduced. An option contract conveys to the holder the right, but not the obligation, to purchase or sell a specified amount or value of an underlying security at a fixed price. The price of an option is influenced by the underlying security, expected volatility, time to expiration and supply and demand.
71
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
For long option positions, the maximum loss is the premium paid for the option. To minimize the risk of non-performance, all brokers and dealers used as counterparties must be approved. Additional performance assurance is required where deemed necessary. The maximum credit exposure is represented by the fair value of the options held. For short option positions, the potential loss is the same as having taken a position in the underlying security. Short call options are backed in the portfolio with the underlying, or highly correlated, securities and short put options are backed by uncommitted cash for the in-the-money portion.
b) Concentrations of credit risk
The investment portfolio is managed following prudent standards of diversification. Specific provisions limit the allowable holdings of a single issue and issuers. The Company believes that there are no significant concentrations of credit risk associated with its investments.
c) Credit facilities
In May 2000, the Company renewed certain syndicated credit facilities. Each facility requires that the Company and/or certain of its subsidiaries maintain specific covenants, including a consolidated tangible net worth covenant and a maximum leverage covenant. The facilities provide:
. An $800 million, 364-day revolving credit facility with ACE Limited and various subsidiaries as borrowers and guarantors. This facility is for general corporate purposes.
. A $250 million, five-year revolving credit facility with ACE Limited and various subsidiaries as borrowers and guarantors. This facility is for general corporate purposes and permits both loans and letters of credit.
Each of the above facilities may be used as commercial paper recourse facilities (see Note 8).
ACE Tempest Re also maintains an uncollateralized, syndicated revolving credit facility in the amount of $72.5 million, which is guaranteed by the Company. At December 31, 2000, no amounts have been drawn down under this facility. The facility requires that ACE Tempest Re maintain specific covenants, including a consolidated tangible net worth covenant and a maximum leverage covenant.
As of December 31, 2000, ACE Financial Services was party to a credit facility with a syndicate of banks pursuant to which the syndicate provides up to $150 million specifically designed to provide rating agency qualified capital to further support ACE Financial Services claims-paying resources. The facility was increased from $100 million during the year and expires in January 2006. ACE Financial Services has not borrowed under this credit facility.
In August 1996, ACE Financial Services entered into a credit agreement for the provision of a $25 million loan, which was available for general corporate purposes. As of September 30, 2000, this facility had been cancelled and replaced with a $25 million loan under the group's five-year syndicated credit facility as described above. At December 31, 2000 and 1999, $25 million remained outstanding under these facilities.
d) Letters of Credit
In November 1998, to fulfill the requirements of Lloyd's for open years of account, the Company arranged a syndicated, partially collateralized, five-year letter of credit ("LOC") facility in the amount of (Pounds)270 million (approximately $437 million). On June 30, 1999, certain terms of this LOC
72
facility were renegotiated and the facility is now uncollateralized. The facility was renewed in November 1999 and again in November 2000 at increased amounts of (Pounds)290 million ($470 million) and (Pounds)390 million ($585 million), respectively. This LOC facility requires that the Company and/or certain of its subsidiaries continue to maintain certain covenants, including a minimum consolidated tangible net worth covenant and a maximum leverage covenant.
ACE Financial Services had also maintained a (Pounds)48 million (approximately $72 million) uncollateralized LOC facility with a bank to fulfill a subsidiary's requirements at Lloyd's. In November 2000, this facility was cancelled and replaced with LOCs under the Company's LOC facility described in the previous paragraph.
In September 2000, the Company, along with ACE Bermuda and ACE Tempest Re as Account Parties and Guarantors, renewed a syndicated, one-year LOC facility in the amount of $430 million for general business purposes, including the issuance of insurance and reinsurance letters of credit. This facility was originally arranged in September 1999. This LOC facility requires that the Company and/or certain of its subsidiaries continue to maintain certain covenants, including a minimum consolidated tangible net worth covenant and a maximum leverage covenant. Usage under this facility was $123 million as of December 31, 2000.
The Company also maintains various LOC facilities, both collateralized and uncollateralized, for general corporate purposes. At December 31, 2000, the aggregate exposure under these facilities was $379 million and usage was $353 million.
e) Lease commitments
The Company and its subsidiaries lease office space in the countries in which they operate under operating leases which expire at various dates through January 2017. The Company renews and enters into new leases in the ordinary course of business as required. Total rent expense with respect to these operating leases for the years ended December 31, 2000 and 1999 and the year ended September 30, 1998, were approximately $64 million, $63 million and $5 million, respectively.
Future minimum lease payments under the leases are expected to be as follows:
(in thousands of U.S. dollars)

          Year ending December 31  2001                  $ 64,300
                                   2002                    58,300
                                   2003                    54,600
                                   2004                    51,700
                                   2005                    47,200
          Later years                                      71,500
                                                     ------------

          Total minimum future lease commitments         $347,600
                                                     ============

f)  Legal proceedings	

The Company is subject to legal proceedings and claims that have arisen in the ordinary course of its business and have not been finally adjudicated. Although there can be no assurance as to the ultimate disposition of these matters, it is the opinion of the Company's management, based upon the information available at this time, that the expected outcome of these matters, individually or in the aggregate, will not have a material adverse effect on the results of operations or financial condition of the Company.
73
 
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
8. Debt

---------------------------------------------------------------------------------------------------------------------
                                                                  December 31, 2000             December 31, 1999
                                                                  -----------------             -----------------
                                                                           (in millions of U.S. dollars)
      Short-term debt
           ACE INA commercial paper                                           $340                     $  625
           ACE Financial Services note                                          25                         25
           ACE Limited commercial paper                                          -                        425
                                                                            ------                     ------
                                                                            $  365                     $1,075
                                                                            ======                     ======

      Long-term debt
         ACE Financial Services Debentures due 2002                         $   75                     $   75
         ACE INA Notes due 2004                                                400                        400
         ACE INA Notes due 2006                                                299                        299
         ACE US Holdings Senior Notes due 2008                                 250                        250
         ACE INA Subordinated Notes due 2009                                   300                        300
         ACE INA Debentures due 2029                                           100                        100
                                                                            ------                     ------
                                                                            $1,424                     $1,424
                                                                            ======                     ======

      Trust Preferred Securities
         ACE INA RHINO Preferred Securities due 2002                        $  400                     $  400
         Capital Re LLC Monthly Income
         Preferred Securities due 2044                                          75                         75
         ACE INA Trust Preferred Securities due 2029                           100                        100
         ACE INA Capital Securities due 2030                                   300                          -
                                                                            ------                     ------
                                                                            $  875                     $  575
                                                                            ======                     ======
---------------------------------------------------------------------------------------------------------------------	

a) Commercial paper and money market facilities
In June 1999, the Company arranged certain commercial paper programs. The programs use revolving credit facilities as recourse facilities and provide for up to $2.8 billion in commercial paper issuance (subject to the availability of recourse facilities as outlined in Note 7) for ACE and for ACE INA. On July 2, 1999, $425 million and $1.65 billion were drawn down under these programs by ACE and ACE INA, respectively, to partially finance the ACE INA Acquisition. During fiscal 1999 and 2000 these amounts were repaid as a result of the implementation of the permanent financing plan described below. At December 31, 2000, short-term debt consisted of $340 million of commercial paper issued by ACE INA and $25 million in bank borrowings by ACE Financial Services. Commercial paper rates during 2000 averaged 6.2 percent.
In June 1999, ACE and ACE INA arranged a short-term money market facility in the amount of $225 million for general corporate purposes. In July 1999, a portion of the facility was used to finance certain liabilities of an ACE INA subsidiary. In November 1999, this facility was cancelled and repaid with proceeds from the commercial paper programs described above.
b) ACE Financial Services debentures
In November 1992, ACE Financial Services issued $75 million in ten-year debentures maturing in November 2002. The 7.75 percent coupon on these debentures is payable in arrears on May 1 and November 1 of each year.
74
c) ACE INA notes and debentures
As part of the permanent financing plan for the ACE INA Acquisition, in August 1999, ACE INA issued $400 million of 8.2 percent notes due August 15, 2004, $300 million of 8.3 percent notes due August 15, 2006, and $100 million of 8.875 percent debentures due August 15, 2029. Proceeds of the senior debt issue were used to repay commercial paper. Interest on the notes and debentures is payable on February 15 and August 15 of each year beginning February 15, 2000. The notes and debentures are not redeemable before maturity and do not have the benefit of any sinking fund. These unsecured notes and debentures are guaranteed on a senior basis by the Company and they rank equally with all of ACE INA's other senior indebtedness.
d) ACE US Holdings senior notes
On October 27, 1998, ACE US Holdings refinanced an outstanding $250 million bank term loan, with the proceeds from the issuance of $250 million in aggregate principal amount of unsecured senior notes maturing in October 2008. Interest payments, based on a floating rate which averaged 9 percent during fiscal 2000, are due semi-annually in arrears. The indenture related to these notes includes certain events of default for ACE US Holdings. The senior notes are callable subject to certain call premiums; however, ACE US Holdings has no current intention of calling the debt. Simultaneously, the Company entered into a notional $250 million swap transaction that has the economic effect of reducing the cost of debt to the consolidated group, excluding fees and expenses, to 6.47 percent for 10 years. Certain assets totaling approximately $90 million are pledged as collateral in connection with the swap transaction. In the event that the Company terminates the swap prematurely, the Company would be liable for certain transaction costs. However, the Company has no current intention of terminating the swap. The swap counter-party is a highly rated major financial institution and the Company does not anticipate non-performance.
e) ACE INA subordinated notes
As part of the permanent financing plan for the ACE INA Acquisition, on December 6, 1999, ACE INA issued $300 million in aggregate principal amount of unsecured subordinated notes maturing in December 2009. Proceeds of the issue were used to repay commercial paper. Interest payments, based on the fixed rate coupon on these notes of 11.2 percent, are due semi-annually in arrears. The indenture related to these notes includes certain events of default for ACE INA. The subordinated notes are callable subject to certain call premiums; however, ACE INA has no current intention of calling the debt. Simultaneously, the Company entered into a notional $300 million swap transaction that has the economic effect of reducing the cost of debt to the consolidated group, excluding fees and expenses, to 8.41 percent for 10 years. Certain assets totaling approximately $105 million are pledged as collateral in connection with the swap transaction. In the event that the Company terminates the swap prematurely, the Company would be liable for certain transaction costs. However, the Company has no current intention of terminating the swap. The swap counter-party is a highly rated major financial institution and the Company does not anticipate non- performance.
f) ACE INA RHINO preferred securities
As part of the permanent financing plan for the ACE INA Acquisition, on June 30, 1999, ACE RHINOS Trust, a Delaware statutory business trust (the "Trust"), sold in a private placement $400 million of Auction Rate Reset Preferred Securities (the "Rhino Preferred Securities"). All of the common securities of the Trust are owned by ACE INA.
75
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
The Rhino Preferred Securities mature on September 30, 2002. Distributions on the Rhino Preferred Securities are payable quarterly at LIBOR plus 125 basis points, adjusted quarterly, provided that the Trust may defer such payments (but no later than September 30, 2002, or, if there is a remarketing, the maturity date of the remarketed securities), with such deferred payments accruing interest compounded quarterly, if ACE INA defers interest on the Subordinated Notes (as defined below). As described below, effective October 27, 2000, the interest rate on the Rhino Preferred Securities was reduced to LIBOR plus 87.5 basis points. If the trading price of ACE's Ordinary Shares declines to 66-2/3 percent of the closing price of the Ordinary Shares on June 30, 1999, or approximately $18.83 per Ordinary Share, the holders of a majority of the Rhino Preferred Securities will have the option to require Banc of America Securities LLC as the Remarketing Agent to remarket the Rhino Preferred Securities. If remarketed, the maturity of the remarketed securities will be reset as the later of September 30, 2001 or one year from the date on which the remarketed securities are issued. The coupon will be reset pursuant to a bid process to value the remarketed securities at 100.25 percent of the face amount thereof. If Banc of America were unable to remarket the securities, the holders of a majority of the Rhino Preferred Securities would have the right to require ACE INA to repurchase them at a purchase price equal to the face amount of the securities plus accrued and unpaid distributions, which obligations would be guaranteed by ACE. ACE's Ordinary Shares have traded below the trigger price described above during the year ended December 31, 2000, although the holders of the Rhino Preferred Securities did not exercise their remarketing rights at that time.
The sole assets of the Trust consist of $412,372,000 principal amount of Auction Rate Reset Subordinated Notes Series A (the "Subordinated Notes") issued by ACE INA. The Subordinated Notes mature on September 30, 2002. Interest on the Subordinated Notes is payable quarterly at LIBOR plus 125 basis points, adjusted quarterly, provided that ACE INA may defer such interest payments (but no later than September 30, 2002, or, if there is a remarketing, the maturity date of the remarketed securities), with such deferred payments accruing interest compounded quarterly. As described below, effective October 27, 2000, the interest rate on the Rhino Preferred Securities was reduced to LIBOR plus 87.5 basis points. If under certain circumstances the Trust is dissolved and the holders of the Rhino Preferred Securities directly hold the Subordinated Notes, then the remarketing provisions described above will be applicable to the Subordinated Notes.
In connection with the issuance of the Rhino Preferred Securities, the Company had agreed with Banc of America Securities to use its reasonable best efforts to complete one or more firm commitment underwritings with an aggregate public offering price of $400 million on or before June 30, 2002.
The September 12, 2000, public offering described in Note 10 satisfied the Company's June 29, 1999 agreement with Banc of America Securities LLC entered into in connection with the private placement of $400 million Auction Rate Reset Preferred Securities (the "RHINOS") of ACE RHINOS Trust (the "RHINOS Trust"). The proceeds of the Ordinary Share offering were used to support the Company's guarantee of the $412 million principal amount of Auction Rate Reset Subordinated Notes Series A issued by ACE INA to the RHINOS Trust. Effective October 27, 2000, the interest rate on the subordinated notes and the distribution rate on the RHINOS were reduced from LIBOR plus 125 basis points to LIBOR plus 87.5 basis points.
g) Capital Re LLC monthly income preferred securities
In January 1994, ACE Financial Services formed and capitalized, through the purchase of common shares, Capital Re LLC. Capital Re LLC exists solely for the purpose of issuing preferred and common shares and lending the proceeds of such issuance to the Company to fund its business operations. In January 1994, Capital Re LLC issued $75 million of company obligated mandatorily redeemable preferred securities, the proceeds of which were loaned to ACE Financial Services. ACE Financial Services has, among other undertakings, unconditionally guaranteed all legally declared and unpaid dividends of Capital Re LLC.
76
The company obligated mandatorily redeemable preferred securities were issued at $25 par value per share, pay monthly dividends at a rate of 7.65 percent per annum, are callable as of January 1999 at par and are mandatorily redeemable in January 2044. The Company added its guarantee to these securities in November 2000.
h) ACE INA trust preferred securities
As part of the permanent financing plan for the ACE INA Acquisition, on December 20, 1999, ACE Capital Trust I, a Delaware statutory business trust ("ACE Capital Trust I") issued and sold in a public offering $100 million of 8.875 percent Trust Originated Preferred Securities (the "Trust Preferred Securities"). All of the common securities of ACE Capital Trust I (the "ACE Capital Trust I Common Securities") are owned by ACE INA. Proceeds of the issue were used to repay commercial paper.
The Trust Preferred Securities mature on December 31, 2029. The maturity date may be extended for one or more periods but not later than December 31, 2048. Distributions on the Trust Preferred Securities are payable quarterly at a rate of 8.875 percent; however, ACE Capital Trust I may defer these payments for up to 20 consecutive quarters (but no later than December 31, 2029, unless the maturity date is extended). Any deferred payments would accrue interest quarterly in a compounded basis if ACE INA defers interest on the subordinated debentures (as defined below).
The sole assets of ACE Capital Trust I consist of $103,092,800 principal amount of 8.875 percent Junior Subordinated Deferrable Interest Debentures (the "Subordinated Debentures") issued by ACE INA. The Subordinated Debentures mature on December 31, 2029. Interest on the Subordinated Debentures is payable quarterly at a rate of 8.875 percent; however, ACE INA may defer such interest payments (but no later than December 31, 2029, unless the maturity date is extended), with such deferred payments accruing interest compounded quarterly. ACE INA may redeem the Subordinated Debentures at 100 percent of the principal amount thereof, plus accrued and unpaid interest to the redemption date, in whole or in part at any time on or after December 31, 2004, and in whole but not in part prior to December 31, 2004, in the event certain changes in tax or investment company law occur. The Trust Preferred Securities and the ACE Capital Trust I Common Securities will be redeemed upon repayment of the Subordinated Debentures.
The Company has guaranteed, on a subordinated basis, ACE INA's obligations under the Subordinated Debentures and distributions and other payments due on the Trust Preferred Securities. These guarantees, when taken together with the Company's obligations under an expense agreement entered into with ACE Capital Trust I, provide a full and unconditional guarantee of amounts due on the Trust Preferred Securities.
i) ACE INA capital securities
On March 31, 2000, as part of the permanent financing plan for the ACE INA Acquisition, ACE Capital Trust II, a Delaware statutory business trust ("ACE Capital Trust II"), issued and sold in a public offering $300 million of 9.7 percent Capital Securities (the "Capital Securities"). All of the common securities of ACE Capital Trust II (the "ACE Capital Trust II Common Securities") are owned by ACE INA. Proceeds of the issue were used to repay commercial paper.
The Capital Securities mature on April 1, 2030, which may not be extended. Distributions on the Capital Securities are payable semi-annually; however, ACE Capital Trust II may defer these payments for up to 10 consecutive semi-annual periods (but no later than April 1, 2030). Any deferred payments would accrue interest semi-annually on a compounded basis if ACE INA defers interest on the Subordinated Debentures due 2030 (as defined below).
77
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
The sole assets of ACE Capital Trust II consist of $309,280,000 principal amount of 9.7 percent Junior Subordinated Deferrable Interest Debentures (the "Subordinated Debentures due 2030") issued by ACE INA. The Subordinated Debentures due 2030 mature on April 1, 2030. Interest on the Subordinated Debentures due 2030 is payable semi-annually; however, ACE INA may defer such interest payments (but no later than April 1, 2030), with such deferred payments accruing interest compounded semi-annually. ACE INA may redeem the Subordinated Debentures due 2030 in the event certain changes in tax or investment company law occur at a redemption price equal to accrued and unpaid interest to the redemption date plus the greater of (i) 100 percent of the principal amount thereof, or (ii) the sum of the present value of scheduled payments of principal and interest on the debentures from the redemption date to April 1, 2030, discounted to the redemption date on a semi-annual basis at a discount rate equal to the applicable treasury rate plus 3.1 percent, in the first year after issuance, and the applicable treasury rate plus .5 percent thereafter. The Capital Securities and the ACE Capital Trust II Common Securities will be redeemed upon repayment of the Subordinated Debentures due 2030.
The Company has guaranteed, on a subordinated basis, ACE INA's obligations under the Subordinated Debentures due 2030, and distributions and other payments due on the Capital Securities. These guarantees, when taken together with the Company's obligations under expense agreements entered into with ACE Capital Trust II, provide a full and unconditional guarantee of amounts due on the Capital Securities.
9. Mezzanine Equity
As part of the permanent financing plan for the ACE INA Acquisition, the Company publicly offered and issued 6,000,000 FELINE PRIDES on April 12, 2000. On May 8, 2000, exercise of the over allotment option resulted in the issuance of an additional 221,000 FELINE PRIDES, for aggregate net proceeds of approximately $311 million. Proceeds of the issue were used to repay commercial paper. Each FELINE PRIDE initially consists of a unit referred to as an Income PRIDE. Each Income PRIDE consists of (i) one 8.25 percent Cumulative Redeemable Preferred Share, Series A, liquidation preference $50 per share, of the Company, and (ii) a purchase contract pursuant to which the holder of the Income PRIDE agrees to purchase from the Company, on May 16, 2003, Ordinary Shares at the applicable settlement rate. Each preferred share is pledged to the Company to secure the holders obligations under the purchase contract. A holder of an Income PRIDE can obtain the release of the preferred share by substituting certain zero-coupon treasury securities as security for performance under the purchase contract. The resulting unit consisting of the zero-coupon treasury security and the purchase contract is a Growth PRIDE, and the preferred shares would be a separate security. A holder of a Growth PRIDE can convert it back into an Income PRIDE by depositing preferred shares as security for performance under the purchase contract and thereby obtain the release of the zero-coupon treasury securities.
The aggregate liquidation preference of the 8.25 percent Cumulative Redeemable Preferred Shares is $311 million. Unless deferred by the Company, the preferred shares pay dividends quarterly at a rate of 8.25 percent per year to May 16, 2003, and thereafter at the reset rate established pursuant to a remarketing procedure. If the Company elects to defer dividend payments on the preferred shares, the dividends will continue to accrue and the Company will be restricted from paying dividends on its Ordinary Shares and taking certain other actions. The preferred shares are not redeemable prior to June 16, 2003, on which date they must be redeemed by the Company in whole.
10. Shareholders' equity
a) Shares issued and outstanding
Following is a table of changes in Ordinary Shares issued and outstanding for the years ended December 31, 2000 and 1999, the three months ended December 31, 1998, and the year ended September 30, 1998:
78

                                                           Year Ended           Year Ended     Three Months Ended      Year Ended
                                                          December 31          December 31         December 31        September 30
                                                              2000                 1999               1998                1998
                                                         -------------------------------------------------------------------------
Opening balance                                            217,460,515            193,687,126          193,592,519     180,207,664
Shares issued                                               13,008,419                      -                    -      16,500,000
Exercise of stock options                                    1,826,993                356,472               73,854         378,438
Shares issued under Employee Stock Purchase Plan                50,652                 25,697               20,753          27,517
Cancellation of non-vested restricted stock                          -                 (5,500)                   -               -
Shares issued in ACE Financial Services acquisition                  -             20,815,677                    -               -
Shares issued in ACE INA acquisition                                 -              2,581,043                    -               -
Repurchase of shares                                                 -                      -                    -      (3,521,100)
                                                       ---------------          -------------     ----------------    ------------
                                                           232,346,579            217,460,515          193,687,126     193,592,519
                                                       ===============          =============     ================    ============	

On September 12, 2000, the Company completed a public offering of 12.25 million Ordinary Shares (which included exercise of the overallotment option of 1.25 million shares) in which it raised aggregate net proceeds of approximately $400 million. The offering was made in satisfaction of a June 29, 1999, agreement with Banc of America Securities LLC as discussed in Note 8. In addition, the Company issued 758,419 restricted Ordinary Shares in connection with the Company's long term incentive plans.
On April 14, 1998, the Company sold 16.5 million Ordinary Shares for net proceeds of approximately $606 million.
b) ACE Limited securities repurchase authorization
On November 17, 2000, the Board of Directors authorized the repurchase of any ACE issued debt or capital securities, including ACE's Ordinary Shares, up to an aggregate total of $250 million. These purchases may take place from time to time in the open market or in private purchase transactions. During 2000, no securities were repurchased.
Prior to July 6, 1998, the Board of Directors had authorized the repurchase of the Company's Ordinary Shares in open market and private purchase transactions. On July 6, 1998, the Company rescinded all existing authorizations for the repurchase of the Company's Ordinary Shares. During the first two quarters of fiscal 1998, the Company repurchased 3.5 million Ordinary Shares under the share repurchase program for an aggregate cost of $107.6 million. No shares were repurchased after March 31, 1998.
c) General restrictions
The holders of the Ordinary Shares are entitled to receive dividends and are allowed one vote per share provided that, if the controlled shares of any shareholder constitute 10 percent or more of the outstanding Ordinary Shares of the Company, only a fraction of the vote will be allowed so as not to exceed 10 percent. Generally, the Company's directors have absolute discretion to decline to register any transfer of shares. All transfers are subject to the restriction that they may not increase to 10 percent or higher the proportion of issued Ordinary Shares owned by any shareholder.
d) Dividends declared
Dividends declared on Ordinary Shares amounted to $0.50, $0.42, $0.09 and $0.34 per Ordinary Share for the years ended December 31, 2000 and 1999, the three months ended December 31, 1998, and the year ended September 30, 1998.
79
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
Dividends declared on FELINE PRIDES amounted to $18.4 million for the year ended December 31, 2000.
11. Employee benefit plans
a) Pension plans
The Company provides pension benefits to eligible employees and agents, spouses and other eligible dependents through various plans sponsored by the Company. Pension benefits are provided through plans sponsored by ACE covering most U.S. and Bermuda based employees and by separate pension plans for various non-U.S. subsidiaries and employees. Pension expenses totaled $17 million, $11 million and $5 million for the years ended December 31, 2000 and 1999, and the year ended September 30, 1998.
b) Capital accumulation plans
ACE sponsors a capital accumulation plan in the U.S. in which employee contributions on a pre-tax basis (401(k)) are supplemented by ACE matching contributions. These contributions are invested, at the election of the employee, in one or more of several investment portfolios. In addition, ACE may provide additional matching contributions, depending on its annual financial performance. Expenses for the plan totaled $28 million and $19 million for the years ended December 31, 2000 and 1999, respectively.
c) Options and stock appreciation rights
In February 1996 and November 1998, shareholders of the Company approved the ACE Limited 1995 Long-Term Incentive Plan and the ACE Limited 1998 Long-Term Incentive Plan, respectively (the "Incentive Plans"), which incorporate stock options, stock appreciation rights, restricted stock awards and stock purchase programs. There are 3.6 million Ordinary Shares of the Company available for award under these Incentive Plans. Prior to the adoption of the Incentive Plans, the Company adopted the Equity Linked Incentive Plan, which incorporated both a Stock Appreciation Rights Plan and a Stock Option Plan ("Option Plan") which will continue to run off. Under the Option Plan, generally, options expire ten years after the award date and are subject to a vesting period of four years. Stock options granted under the Incentive Plan may be exercised for Ordinary Shares of the Company upon vesting. Under the Incentive Plans, generally, options expire ten years after the award date and vest in equal portions over three years.
During 1999, the Company established the ACE Limited 1999 Replacement Stock Plan. This plan was established to replace existing Capital Re employee benefits in connection with the Capital Re acquisition, as well as to permit additional grants to employees of the Company. At December 31, 2000, 2 million Ordinary Shares were available for grant under this plan.
d) Options
(i) Options outstanding
Following is a summary of options issued and outstanding for the years ended December 31, 2000 and 1999, the three months ended December 31, 1998, and the year ended September 30, 1998.
80

                                                 Year of        Average Exercise       Options for Ordinary
                                                Expiration            Price                 Shares
                                               -------------------------------------------------------------
Balance at September 30, 1997                                                                 7,134,423
     Options granted                            2007-2008              $31.64                 2,489,900
     Options exercised                          2003-2007              $11.21                  (378,438)
     Options forfeited                          2006-2008              $27.51                  (261,155)
                                                                                            -----------

Balance at September 30, 1998                                                                 8,984,730
     Options granted                                 2008              $29.62                 2,012,200
     Options exercised                          2004-2007              $17.11                   (73,854)
     Options forfeited                          2006-2008              $29.58                  (115,150)
                                                                                            -----------

Balance at December 31, 1998                                                                 10,807,926
     Options granted                                 2009              $27.86                 4,058,190
     Options exercised                          2005-2007              $15.91                  (356,472)
     Options forfeited                          2005-2008              $29.02                  (544,884)
                                                                                            -----------

Balance at December 31, 1999                                                                 13,964,760
     Options granted                                 2010              $25.26                 4,214,018
     Options exercised                          2003-2009              $35.71                (1,826,993)
     Options forfeited                          2006-2008              $25.30                  (454,985)
                                                                                            -----------
Balance at December 31, 2000                                                                 15,896,800
                                                                                           ============	

The following table summarizes the range of exercise prices for outstanding options at December 31, 2000:

                                      Weighted Average
  Range of Exercise     Options    Remaining Contractual   Weighted Average        Options     Weighted Average
       Prices         Outstanding           Life            Exercise Price       Exercisable    Exercise Price
---------------------------------------------------------------------------------------------------------------
   $ 7.45 - $15.00      3,649,405        4.41 years               $ 9.39          3,641,405          $ 9.38
   $15.00 - $30.00     10,336,828        8.12 years               $21.38          5,272,331          $21.85
   $30.00 - $41.00      1,910,567        7.10 years               $31.44          1,679,634          $30.98
                     ------------                                              ------------
                       15,896,800                                                10,593,370
                     ============                                              ============	

(ii) FAS 123 pro forma disclosures
In October 1995, FASB issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). FAS 123 establishes accounting and reporting standards for stock-based employee compensation plans, which include stock option and stock purchase plans. FAS 123 provides employers a choice: adopt FAS 123 accounting standards for all stock compensation arrangements which requires the recognition of compensation expense for the fair value of virtually all stock compensation awards; or continue to account for stock options and other forms of stock compensation under Accounting Principles Board Opinion No. 25 ("APB 25"), while also providing the disclosure required under FAS 123. The Company continues to account for stock-based compensation plans under APB 25.
The following table outlines the Company's net income available to holders of Ordinary Shares and diluted earnings per share had the compensation cost been determined in accordance with the fair value method recommended in FAS 123.
81
 
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)

                                                          December 31      December 31
                                                             2000             1999
                                                             ----             ----
                                                        (in thousands of U.S. dollars,
                                                           except per share data)
Net income available to holders of Ordinary Shares
   As reported                                          $       524,591    $   364,963
   Pro Forma                                            $       509,088    $   351,067
Diluted earnings per share
   As reported                                          $          2.31    $      1.85
   Pro Forma                                            $          2.24    $      1.78	

The fair value of the options issued is estimated on the date of grant using the Black-Scholes option-pricing model, with the following weighted-average assumptions used for grants in 2000 and 1999, respectively: dividend yield of 2.23 percent and 1.47 percent; expected volatility of 40.1 percent and 38.7 percent; risk free interest rate of 6.37 percent and 5.11 percent and an expected life of 4 years for both 2000 and 1999.
e) Employee stock purchase plan
The Company maintains an employee stock purchase plan. Participation in the plan is available to all eligible employees. Maximum annual purchases by participants are limited to the number of whole shares that can be purchased by an amount equal to 10 percent of the participant's compensation or $25,000, whichever is less. Participants may purchase shares at a purchase price equal to 85 percent of the lesser of (i) the fair market value of the stock on first day of the subscription period; or (ii) the fair market value of the stock on the last day of the subscription period. With respect to the years ending December 31, 2000 and 1999, the three months ended December 31, 1998, and the year ended September 30, 1998, the Company incurred expenses of $185,000, $156,000, $93,000 and $143,000, respectively.
f) Restricted stock awards
Under the Company's long-term incentive plans, 461,884 restricted Ordinary Shares were awarded during the year ended December 31, 2000, to officers of the Company and its subsidiaries. These shares vest at various dates through December 2004. In addition, during the period, 17,200 restricted Ordinary Shares were awarded to outside directors under the terms of the 1995 Outside Director Plan. These shares vest in May 2001.
Under the Company's long-term incentive plans, 1,084,175 restricted Ordinary Shares were awarded during the year ended December 31, 1999, to officers of the Company and its subsidiaries. These shares vest at various dates through November 2003. In addition, during the period, 23,618 restricted Ordinary Shares were awarded to outside directors under the terms of the 1995 Outside Directors Plan. These shares vested in June 2000.
During the three months ended December 31, 1998, 335,000 restricted Ordinary Shares were awarded to officers of the Company and its subsidiaries. These shares vest at various dates through November 2003. During 1998, 264,000 restricted Ordinary Shares were awarded to officers of the Company and its subsidiaries. These shares vest at various dates through November 2002. In addition, 14,952 restricted Ordinary Shares were awarded to outside directors of the Company under the terms of the 1995 Outside Directors Plan. These shares vested in February 1999.
At the time of grant the market value of the shares awarded under these grants is recorded as unearned stock grant compensation and is presented as a separate component of shareholders' equity. The unearned compensation is charged to income over the vesting period.
82
g) Shares issued in ACE INA acquisition
During 1999, the ACE Limited 1999 Replacement Long-Term Incentive Plan ("Replacement Plan") was established to award substitute restricted stock awards and substitute restricted stock unit awards in satisfaction of the Company's obligations under the ACE INA Acquisition Agreement and to provide selected individuals substitute restricted stock awards and substitute restricted stock unit awards in replacement of certain equity-based awards which terminated or expired in connection with the closing of the ACE INA transaction. During 1999, 2,581,043 restricted Ordinary Shares were granted in connection with the Replacement Plan. The costs associated with issuing these awards were included as a cost of the ACE INA Acquisition.
12. Earnings per share
The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2000 and 1999, the three months ended December 31, 1998, and the year ended September 30, 1998:

                                                          Year Ended        Year Ended      Three Months Ended       Year Ended
                                                          December 31       December 31         December 31         September 30
                                                              2000              1999                1998                1998
                                                       -----------------------------------------------------------------------------
                                                                 (in thousands of U.S. dollars, except share and per share data)
Numerator:
Net income                                              $      542,982     $      364,963     $       238,539      $       560,151
 Dividends on FELINE PRIDES                                    (18,391)                 -                   -                    -
                                                         -------------      -------------      --------------       --------------
 Net income available to holders of Ordinary Shares     $      524,591     $      364,963     $       238,539      $       560,151
                                                         =============      =============      ==============       ==============

Denominator:
Denominator for basic earnings per share:
   Weighted average shares outstanding                     221,082,961        194,028,374         193,642,270          185,130,479
   Dilutive effect of FELINE PRIDES                          1,099,226                  -                   -                    -
   Effect of other dilutive securities                       5,236,243          3,597,980           3,707,086            4,150,696
                                                         -------------      -------------      --------------       --------------

Denominator for diluted earnings per share:
   Adjusted weighted average shares outstanding
      and assumed conversions                              227,418,430        197,626,354         197,349,356          189,281,175
                                                         =============      =============      ==============       ==============
Basic earnings per share                                $         2.37     $         1.88     $          1.23      $          3.03
                                                         =============      =============      ==============       ==============
Diluted earnings per share                              $         2.31     $         1.85     $          1.21      $          2.96
                                                         =============      =============      ==============       ==============	

13. Taxation
Under current Cayman Islands law, the Company is not required to pay any taxes in the Cayman Islands on its income or capital gains. The Company has received an undertaking that, in the event of any taxes being imposed, the Company will be exempted from taxation in the Cayman Islands until the year 2013. Under current Bermuda law, the Company and its Bermuda subsidiaries are not required to pay any taxes in Bermuda on its income or capital gains. The Company has received an undertaking from the Minister of Finance in Bermuda that, in the event of any taxes being imposed, the Company will be exempt from taxation in Bermuda until March 2016.
83
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
Income from the Company's operations at Lloyd's are subject to United Kingdom corporation taxes. Lloyd's is required to pay U.S. income tax on U.S. connected income ("U.S. income") written by Lloyd's syndicates. Lloyd's has a closing agreement with the IRS whereby the amount of tax due on this business is calculated by Lloyd's and remitted directly to the IRS. These amounts are then charged to the personal accounts of the Names/Corporate Members in proportion to their participation in the relevant syndicates. The Company's Corporate Members are subject to this arrangement but, as UK domiciled companies, will receive UK corporation tax credits for any U.S. income tax incurred up to the value of the equivalent UK corporation income tax charge on the U.S. income.
ACE INA, ACE US Holdings and ACE Financial Services are subject to income taxes imposed by U.S. authorities and file U.S. tax returns. Certain international operations of the Company are also subject to income taxes imposed by the jurisdictions in which they operate.
The Company is not subject to taxation other than as stated above. There can be no assurance that there will not be changes in applicable laws, regulations or treaties, which might require the Company to change the way it operates or become subject to taxation.
The income tax provision for the years ended December 31, 2000 and 1999, the three months ended December 31, 1998, and the year ended September 30, 1998, is as follows:

                                         Year Ended        Year Ended     Three Months Ended     Year Ended
                                         December 31       December 31        December 31       September 30
                                             2000              1999               1998              1998
                                     --------------------------------------------------------------------------
                                                             (in thousands of U.S. dollars)
Current tax expense (benefit)         $    60,081       $      8,439       $      (476)       $      3,265
Deferred tax expense                       33,827             20,245             5,818              16,775
                                       --------------    --------------     --------------     --------------

Provision for income taxes            $    93,908       $     28,684       $     5,342        $     20,040
                                       ==============    ==============     ==============     ==============	

The weighted average expected tax provision has been calculated using pre-tax accounting income (loss) in each jurisdiction multiplied by that jurisdiction's applicable statutory tax rate. A reconciliation of the difference between the provision for income taxes and the expected tax provision at the weighted average tax rate for the years ended December 31, 2000 and 1999, is provided below. The provision for income taxes with respect to the three months ended December 31, 1998, and the year ended September 30, 1998, is calculated at rates equal to the statutory income tax rate in each jurisdiction.

                                                                  Year Ended                     Year Ended
                                                               December 31, 2000              December 31, 1999
                                                         ---------------------------------------------------------
                                                                     (in thousands of U.S. dollars)
Expected tax provision at weighted average rate                   $ 80,699                        $19,721
Permanent differences
  Tax-exempt interest                                              (21,716)                        (9,017)
  Goodwill                                                          22,875                          9,805
  Other                                                              1,182                            602
Net withholding taxes                                               10,868                          7,573
                                                         --------------------------     --------------------------

Total provision for income taxes                                  $ 93,908                        $28,684
                                                         ==========================     ==========================	

84
The components of the net deferred tax asset as of December 31, 2000 and 1999, are as follows:

                                                    2000                     1999
                                              -----------------        -----------------
                                                   (in thousands of U.S. dollars)
Deferred tax assets
    Loss reserve discount                     $         536,005        $         677,459
    Foreign tax credits                                 137,765                  116,829
    Uncollectible reinsurance                            28,297                   24,413
    Net operating loss carry forward                    500,916                  164,993
    Other                                               199,689                  305,647
    Unrealized depreciation on investments                    -                   12,557
                                              -----------------        -----------------

    Total deferred tax assets                        1,402,672                1,301,898
                                              -----------------        -----------------

Deferred tax liabilities
    Deferred policy acquisition costs                   62,080                   87,691
    Unrealized appreciation on investments              25,861                        -
    Other                                               32,064                  164,699
                                              -----------------        -----------------
    Total deferred tax liabilities                     120,005                  252,390
                                              -----------------        -----------------

Valuation allowance                                     138,406                  133,324
                                              -----------------        -----------------
Net deferred tax asset                        $       1,144,261        $         916,184
                                              =================        =================	

14. Statutory financial information
The Company's insurance and reinsurance subsidiaries are subject to insurance laws and regulations in the jurisdictions in which they operate. These regulations include restrictions that limit the amount of dividends or other distributions, such as loans or cash advances, available to shareholders without prior approval of the insurance regulatory authorities. Statutory capital and surplus of the Bermuda subsidiaries was $2.7 billion, $2.2 billion and $2.8 billion at December 31, 2000 and 1999, and September 30, 1998, and statutory net income was $364 million, $373 million and $592 million for the years ended December 31, 2000 and 1999, and the year ended September 30, 1998, respectively.
There are no statutory restrictions on the payment of dividends from retained earnings by any of the Bermuda subsidiaries as the minimum statutory capital and surplus requirements are satisfied by the share capital and additional paid-in capital of each of the Bermuda subsidiaries.
The Company's U.S. subsidiaries file financial statements prepared in accordance with statutory accounting practices prescribed or permitted by insurance regulators. Statutory accounting differs from generally accepted accounting policies in the reporting of certain reinsurance contracts, investments, subsidiaries, acquisition expenses, fixed assets, deferred income taxes and certain other items. Combined statutory surplus of the Company's U.S. subsidiaries was $1.9 billion, $2.2 billion and $252 million at December 31, 2000 and 1999, and September 30, 1998, respectively. The combined statutory net loss of these operations was $12 million, $277 million and $98 million for the years ended December 31, 2000 and 1999, and the nine months ended September 30, 1998, respectively.
The Company's international subsidiaries prepare statutory financial statements based on local laws and regulations. Some jurisdictions impose complex regulatory requirements on insurance companies while other jurisdictions impose fewer requirements. In some countries, the Company must obtain licenses issued by governmental authorities to conduct local insurance business. These licenses may be subject to reserves and minimum capital and solvency tests.
Jurisdictions may impose fines, censure, and/or criminal sanctions for violation of regulatory requirements.
85
ACE LIMITED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
In 1998, the National Association of Insurance Commissioners ("NAIC") adopted the Codification of Statutory Accounting Principles guidance, which replaces the current Accounting Practices and Procedures manual as the NAIC's primary guidance on statutory accounting as of January 1, 2001. The Codification provides guidance for areas where statutory accounting has been silent and changes current statutory accounting in some areas. All states and Puerto Rico have adopted the Codification guidance, effective January 1, 2001.
15. Condensed unaudited quarterly financial data

2000                               Quarter Ended              Quarter Ended           Quarter Ended            Quarter Ended
----
                                  March 31, 2000              June 30, 2000        September 30, 2000        December 31, 2000
                             ----------------------------------------------------------------------------------------------------
                                                     (in thousands of U.S. dollars, except per share data)
Net premiums earned            $          1,104,806       $          1,167,836    $          1,174,782     $          1,087,339
Net investment income                       182,935                    181,029                 197,584                  209,307
Net realized gains (losses)
 on investments                              56,740                    (30,044)                (12,797)                 (52,860)
                                  -----------------          -----------------       -----------------        -----------------

Total revenues                 $          1,344,481       $          1,318,821    $          1,359,569     $          1,243,786
                                  =================          =================       =================        =================

Losses and loss expenses       $            715,483       $            768,111    $            772,887     $            679,584
                                  =================          =================       =================        =================

Net income                     $            174,513       $            113,928    $            140,753     $            113,788
                                  =================          =================       =================        =================

Basic earnings per share       $               0.80       $               0.50    $               0.60     $               0.46
                                  =================          =================       =================        =================

Diluted earnings per share     $               0.80       $               0.49    $               0.58     $               0.44
                                  =================          =================       =================        =================	

1999                                Quarter Ended                Quarter Ended             Quarter Ended            Quarter Ended
----
                                   March 31, 1999                June 30, 1999           September 30, 1999       December 31, 1999
                             -------------------------------------------------------------------------------------------------------
                                                         (in thousands of U.S. dollars, except per share data)
Net premiums earned            $            285,267        $             300,271      $             952,951    $           947,248
Net investment income                        86,484                       84,794                    163,060                158,999
Net realized gains (losses)
   on investments                            17,254                       25,307                    (58,493)                53,848
                                 ------------------           ------------------          -----------------      -----------------

Total revenues                 $            389,005        $             410,372      $           1,057,518    $         1,160,095
                                 ==================           ==================          =================      =================

Losses and loss expenses       $            156,881        $             255,471      $             632,910    $           594,281
                                 ==================           ==================          =================      =================

Net income                     $            129,019        $              69,122      $              14,793     $          152,029
                                 ==================           ==================          =================      =================

Basic earnings per share       $               0.67        $                0.36      $                0.08     $             0.78
                                 ==================           ==================          =================      =================

Diluted earnings per share     $               0.65        $                0.35      $                0.08     $             0.78
                                 ==================           ==================          =================      =================	

86
16. Summarized financial information
The following is consolidated summarized financial information for ACE INA and ACE Financial Services, Inc., both wholly owned subsidiaries of the Company.

------------------------------------------------------------------------------------------------------------
                                          Selected Financial Data
                                                   ACE INA
                                       (in thousands of U.S. dollars)

------------------------------------------------------------------------------------------------------------
                                                                December 31               December 31
                                                                   2000                      1999
                                                                   ----                      ----
       Selected Statement of Operations Data(1)
           Total revenues                                       $ 2,985,457               $ 1,629,369
           Net income                                                50,878                    24,426
       Selected Balance Sheet Data
           Total investments and cash                           $ 7,267,343               $ 7,710,202
           Total assets                                          22,758,178                22,553,446
           Unpaid losses and loss expenses                       14,100,022                13,762,062
           Total shareholders' equity                             1,360,663                 1,142,520

       (1) 1999 balances reflect data since date of acquisition
------------------------------------------------------------------------------------------------------------	

------------------------------------------------------------------------------------------------------------
                                          Selected Financial Data
                                         ACE Financial Services,Inc.
                                       (in thousands of U.S. dollars)

------------------------------------------------------------------------------------------------------------
                                                                December 31               December 31
                                                                   2000                      1999
                                                                   ----                      ----
       Selected Statement of Operations Data
           Total revenues                                       $     78,153             $          -
           Net income (loss)                                            (261)                       -
       Selected Balance Sheet Data
           Total investments and cash                           $  1,071,181             $  1,158,243
           Total assets                                            1,414,311                1,483,781
           Unpaid losses and loss expenses                           246,174                  168,698
           Total shareholders' equity                                620,703                  588,389
------------------------------------------------------------------------------------------------------------	

Separate financial statements of ACE INA and ACE Financial Services have not been presented as management has determined that such information is not material to holders of ACE INA's or ACE Financial Services' debt securities.
17. Segment information
ACE's operations are organized into the following segments: ACE Bermuda, ACE Global Markets, ACE Global Reinsurance, ACE USA, ACE International, ACE Financial Services and other. Each of these segments operates as an autonomous unit and is managed by a Chief Executive Officer ("CEO") who reports to the CEO of ACE, the chief operating decision maker in the group.
ACE Bermuda, which primarily encompasses the ACE Bermuda Insurance group of companies, primarily provides property and casualty insurance coverage, including excess liability insurance, professional lines liability insurance, satellite insurance, aviation insurance, excess property insurance and financial lines products, to a diverse group of industrial, commercial and other enterprises.
ACE Global Markets primarily encompasses the Company's operations in the Lloyd's market. ACE Global Markets provides funds at Lloyd's to support underwriting by Lloyd's syndicates managed by Lloyd's managing agencies which are owned by the Company. These managing agencies receive fees and profit commissions in respect of the underwriting and administrative services they provide to the syndicates they manage.
87
ACE LIMITED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd.)
ACE Global Reinsurance, which primarily comprises operations of ACE Tempest Re, provides catastrophe reinsurance worldwide to insurers of commercial and personal property. ACE Tempest Re's property catastrophe reinsurance contracts cover unpredictable natural or man-made disasters, such as hurricanes, windstorms, hail storms, earthquakes, volcanic eruptions, conflagrations, freezes, floods, fires and explosions. The predominant exposure under such coverage is property damage.
ACE USA primarily comprises the domestic U.S. operations of ACE INA, which were acquired on July 2, 1999, and the operations of ACE US Holdings, which were acquired on January 2, 1998. These operations provide specialty property and casualty products and services including: aerospace, diversified products, marine, professional risk services, property, special risk, U.S. International, warranty, Westchester Specialty, Brandywine and "other" operations.
ACE International primarily comprises the international operations of ACE INA, which were acquired on July 2, 1999. ACE International provides property and casualty insurance to individuals, mid-sized firms and large commercial clients. In addition, ACE International provides customized and comprehensive insurance policies and services to multinational firms and their cross-boarder subsidiaries. Major lines of business underwritten by ACE International include accident and health, fire, marine, casualty, auto, energy and technology insurance. ACE International operates in almost 50 countries and is organized into four geographic locations: ACE Europe, ACE Far East, ACE Asia Pacific, and ACE Latin America. Each region reports to the CEO of ACE International.
ACE Financial Services is primarily comprised of the Capital Re companies acquired on December 30, 1999. ACE Financial Services provides value-added reinsurance products in several specialty insurance markets. ACE Financial Services has two principal divisions: financial guaranty and financial risks. The financial guaranty division is composed of municipal and non-municipal financial guaranty reinsurance and credit default swaps. Financial guaranty insurance is a type of credit enhancement, which is regulated under the insurance laws of various jurisdictions. The insurance provides an unconditional and irrevocable guaranty, which indemnifies the insured debt obligation. The financial risks division is composed of mortgage guaranty reinsurance, trade credit reinsurance, title reinsurance and financial solutions. As ACE Financial Services was acquired on December 30, 1999, the Company has not reflected any operations from this segment during 1999.
The "other" segment includes the operations of ACE Limited, certain unallocated amounts in ACE INA Holdings including interest income, interest expense and amortization of goodwill, and certain eliminations required to reconcile the segment data to the consolidated statement of operations.
a) The following tables summarize the operations by segment for the years ended December 31, 2000 and 1999, the three months ended December 31, 1998, and the year ended September 30, 1998.
b) For segment reporting purposes, certain items have been presented in a different manner than in the consolidated financial statements. For segment reporting purposes, items considered non-recurring in nature have been aggregated and shown separately net of related taxes, and net realized gains (losses) have been presented net of related taxes.
88

Supplemental Information by Segment For the year ended December 31, 2000

(in thousands of U.S. dollars)

                                                           ACE                                     ACE
                                  ACE     ACE Global      Global        ACE          ACE        Financial                    ACE
                                Bermuda     Markets    Reinsurance      USA     International   Services     Other(1)   Consolidated
                                -------     -------    -----------      ---     -------------   --------     --------   ------------
Operations Data:
Gross premiums written       $   597,865  $1,063,918   $  190,771   $ 3,380,343  $ 2,027,285  $   326,589  $        -   $ 7,586,771
Net premiums written             512,310     772,021      157,489     1,707,623    1,418,661      311,250           -     4,879,354
Net premiums earned              486,984     619,329      141,337     1,619,025    1,385,557      282,531           -     4,534,763
Losses and loss expenses         361,855     354,123       17,954     1,192,881      826,210      183,042           -     2,936,065
Policy acquisition costs          20,630     164,738       25,192       160,956      235,847       43,378           -       650,741
Administrative expenses           29,933      69,384       10,284       253,946      285,090       32,839      61,215       742,691
                             ------------------------------------------------------------------------------------------------------
Underwriting income (loss)        74,566      31,084       87,907        11,242       38,410       23,272     (61,215)      205,266
Net investment income            149,781      36,636       60,281       341,361       92,477       96,591      (6,272)      770,855
Amortization of goodwill            (883)      3,968       14,010           540            -        4,205      56,980        78,820
Interest expense                   1,643       4,980            -        38,333            -       13,361     163,133       221,450
Income tax expense (benefit)       2,459      17,481         (173)       98,288       20,067       20,626     (64,841)       93,907
                             ------------------------------------------------------------------------------------------------------
Income (loss) excluding net
  realized gains (losses)        221,128      41,291      134,351       215,442      110,820       81,671    (222,759)      581,944
Net realized gains (losses)
  (net of income tax)              1,344      (1,495)     (38,161)      (22,633)      18,221        5,440      (1,678)      (38,962)
                             ------------------------------------------------------------------------------------------------------
Net income (loss)            $   222,472  $   39,796   $   96,190   $   192,809  $   129,041  $    87,111  $ (224,437)  $   542,982
                             ------------------------------------------------------------------------------------------------------
Total Assets                 $ 3,133,117  $1,962,401   $1,324,641   $16,438,562  $ 3,846,345  $ 2,254,260  $2,730,200   $31,689,526
                             ------------------------------------------------------------------------------------------------------	

(1) ACE Limited, ACE INA Holdings and intercompany eliminations
89
 
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)

Supplemental Information by Segment For the year ended December 31, 1999

(in thousands of U.S. dollars)

                                                                       ACE
                                      ACE       ACE Global       Global         ACE           ACE                        ACE
                                    Bermuda       Markets     Reinsurance       USA      International    Other(1)   Consolidated
                                    -------       -------     -----------       ---      -------------    ------     ------------
Operations Data:
Gross premiums written             $  553,365    $  634,689   $  182,267     $ 1,566,584  $  932,252   $        -       $ 3,869,157
Net premiums written                  428,953       438,769      145,673         796,892     685,061            -         2,495,348
Net premiums earned                   510,013       363,887      140,094         748,635     723,108            -         2,485,737
Losses and loss expenses              390,385       205,811       96,935         533,275     413,137            -         1,639,543
Policy acquisition costs               14,862        94,419       20,809          68,993     138,993            -           338,076
Administrative expenses                38,233        54,636       11,927         176,524     152,165       51,071           484,556
                                  -------------------------------------------------------------------------------------------------
Underwriting income (loss)             66,533         9,021       10,423         (30,157)     18,813      (51,071)           23,562
Net investment income                 174,647        28,489       60,015         188,688      40,664          834           493,337
Amortization of goodwill                 (834)        4,204       14,011             469           -       27,500            45,350
Interest expense                        4,705         3,944            -          34,563           -       61,926           105,138
Income tax expense (benefit)            2,129         6,006            -          34,693      20,199      (26,403)           36,624
                                  -------------------------------------------------------------------------------------------------
Income (loss) excluding net
  realized gains (losses) and
  non-recurring expenses              235,180        23,356       56,427          88,806      39,278     (113,260)          329,787
Non-recurring expenses
  (net of income tax)                       -             -            -          (3,900)     (3,042)           -            (6,942)
                                  -------------------------------------------------------------------------------------------------
Income (loss) excluding
  net realized gains (losses)         235,180        23,356       56,427          84,906      36,236     (113,260)          322,845
Net realized gains (losses)
  (net of income tax)                  63,752        (4,373)      (3,771)         (3,529)       (608)      (9,353)           42,118
                                  -------------------------------------------------------------------------------------------------
Net income (loss)                  $  298,932    $   18,983   $   52,656     $    81,377  $   35,628   $ (122,613)      $   364,963
                                  =================================================================================================

Total Assets                       $2,867,138    $1,521,535   $1,328,687     $16,240,045  $3,904,755   $4,260,728(2)    $30,122,888
                                  =================================================================================================	

(1) ACE Limited, ACE INA Holdings and intercompany eliminations
(2) Includes ACE Financial Services assets of $1,483,781
90

-----------------------------------------------------------------------------------------------------------------------------------
                                                 Supplemental Information by Segment
                                            For the three months ended December 31, 1998
                                                   (in thousands of U.S. dollars)
-----------------------------------------------------------------------------------------------------------------------------------
                                                                       ACE
                                         ACE         ACE Global       Global          ACE(1)                            ACE
                                       Bermuda         Markets      Reinsurance        USA          Other(2)      Consolidated
                                       -------         -------      -----------        ---          -----         ------------
Operations Data:
Gross premiums written             $   124,836       $    87,891   $     6,425    $    34,916       $        -    $   254,068
Net premiums written                    89,525            39,723         3,318         21,537                -        154,103
Net premiums earned                     84,337            65,059        46,676         21,935                -        218,007
Losses and loss expenses                24,401            36,131        36,967         13,670                -        111,169
Policy acquisition costs                 4,462            18,266         5,549           (465)               -         27,812
Administrative expenses                  9,228             8,509         3,299          8,994           11,188         41,218
                                  -------------------------------------------------------------------------------------------------
Underwriting income (loss)              46,246             2,153           861           (264)         (11,188)        37,808
Net investment income                   47,920             7,291        15,762         13,270              852         85,095
Amortization of goodwill                  (209)            1,048         3,528             68                -          4,435
Interest expense (income)                  107             1,301             -          6,178           (2,845)         4,741
Income tax expense                         307             2,530             -          2,505                -          5,342
                                  -------------------------------------------------------------------------------------------------
Income (loss) excluding
  net realized gains (losses)           93,961             4,565        13,095          4,255           (7,491)       108,385

Net realized gains (losses)
  (net of income tax)                  130,483               432        (1,246)           489               (4)       130,154
                                  -------------------------------------------------------------------------------------------------
Net income (loss)                  $   224,444       $     4,997  $     11,849   $      4,744      $    (7,495)   $   238,539
                                  =================================================================================================
Total Assets                       $ 3,828,757       $ 1,144,402  $  1,634,776   $  1,822,439      $   403,931    $ 8,834,305
                                  =================================================================================================
===================================================================================================================================	

(1) Prior to acquisition of ACE INA
(2) ACE Limited and intercompany eliminations
91
 
ACE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)

Supplemental Information by Segment For the year ended September 30, 1998

(in thousands of U.S. dollars)

                                                                           ACE
                                              ACE        ACE Global       Global          ACE(1)                          ACE
                                            Bermuda        Markets     Reinsurance         USA          Other(2)      Consolidated
                                            -------        -------     -----------         ---          ------        ------------
Operations Data:
Gross premiums written                  $   520,018     $   437,809   $   124,129    $    160,203    $         -     $  1,242,159
Net premiums written                        395,331         315,832        93,583          78,529              -          883,275
Net premiums earned                         388,812         282,076       154,871          70,846              -          896,605
Losses and loss expenses                    294,963         144,991        34,146          42,792              -          516,892
Policy acquisition costs                     26,676          62,540        16,154             284              -          105,654
Administrative expenses                      31,263          24,043        11,012          23,419         28,603          118,340
                                        -------------------------------------------------------------------------------------------
Underwriting income (loss)                   35,910          50,502        93,559           4,351        (28,603)         155,719
Net investment income                       210,936          19,502        53,029          40,245            542          324,254
Amortization of goodwill                       (834)          4,042         9,538              88              -           12,834
Interest expense                              1,021           4,782             -          11,536              -           17,339
Income tax expense                              794          19,007             -          11,555              -           31,356
                                        -------------------------------------------------------------------------------------------
Income (loss) excluding net realized
  gains and non-recurring expenses          245,865          42,173       137,050          21,417        (28,061)         418,444
Non-recurring expenses (net of
  income tax)                                     -         (32,166)            -               -        (14,512)         (46,678)
                                        -------------------------------------------------------------------------------------------
Income (loss) excluding net realized
  gains                                     245,865          10,007       137,050          21,417        (42,573)         371,766
Net realized gains (net of income tax)      183,745           1,302         3,224             114              -          188,385
                                        -------------------------------------------------------------------------------------------
Net income  (loss)                      $   429,610     $    11,309   $   140,274    $     21,531    $   (42,573)    $    560,151
                                        ===========================================================================================

Total Assets                            $ 4,041,442     $ 1,142,758   $ 1,671,874    $  1,833,407    $    99,272     $  8,788,753
                                        ===========================================================================================	

(1) Prior to acquisition of ACE INA
(2) ACE Limited and intercompany eliminations
92
c. The following table summarizes the Company's gross premiums written by geographic region. Allocations have been made on the basis of location of risk.

-------------------------------------------------------------------------------------------------------------
      Year        North                    Australia &        Asia
     Ended       America       Europe      New Zealand       Pacific       Latin America         Other
-------------------------------------------------------------------------------------------------------------
     2000          60%          18%            2%              9%                4%                7%
-------------------------------------------------------------------------------------------------------------
     1999          59%          18%            4%              9%                3%                7%
-------------------------------------------------------------------------------------------------------------
     1998          79%           9%            5%              4%                -                 3%
-------------------------------------------------------------------------------------------------------------	

18. Discontinued Operations
In accordance with Emerging Issues Task Force ("EITF") 87-11, "Allocation of Purchase Price to Assets to Be Sold," and EITF 90-6, "Accounting for Certain Events Not Addressed in Issue No. 87-11 Relating to an Acquired Operating Unit to Be Sold," the Company had presented Commercial Insurance Services ("CIS"), a division of ACE INA, as a discontinued operation at December 31, 1999. The Company planned, as part of its July 2, 1999, ACE INA Acquisition, to dispose of the CIS operations. Following the July 2, 1999, acquisition, the Company sold the renewal rights for all of its CIS business going forward and planned to sell the assets and liabilities pertaining to the historical book of business as well as the in-force book of business which it still owned.
In accordance with EITF 87-11, the Company recorded a net liability as of July 2, 1999, of approximately $170 million, which was recorded in accounts payable, accrued expenses and other liabilities. At that time, the Company reduced the consolidated balance sheet for all items that pertained specifically to CIS, together with the estimated proceeds on sale and estimated operating results over the twelve months from July 2, 1999, through July 1, 2000, into the $170 million net liability.
As the CIS business was not sold within the allotted time period, the Company was required, as of July 2, 2000, to record the CIS balance sheet into its constituent parts in the balance sheet and to record any resulting income or loss from that book of business in its statement of operations prospectively from July 2, 2000. The results of the CIS operations during the six months ended December 31, 2000, and the component balance sheet accounts are reflected in the ACE USA segment.
93
  
Exhibit 21.1
Subsidiaries of the Registrant

                                                                                              Jurisdiction of         Percentage
Name                                                                                            Organization          Ownership
----                                                                                            ------------          ---------
ACE Limited                                                                                    Cayman Islands       Publicly Held
  ACE Bermuda Insurance Ltd.                                                                      Bermuda                100%
    Paget Reinsurance International Ltd.                                                          Bermuda                100%
    ACE Capital Re International Limited                                                          Bermuda                100%
      ACE KRE Holdings Limited                                                                    Barbados               100%
        ACE Capital Re USA Holdings Incorporated                                                  Delaware               100%
          ACE Capital Re Overseas Ltd. f/k/a KRE Reinsurance Ltd.                                 Bermuda                100%
              Lenders Residential Asset Company LLC                                               Delaware                50%
              ACE Capital Mortgage Reinsurance Company                                            New York               100%
              ACE Capital Title Reinsurance Company                                               New York               100%
              ACE Capital Re Inc.                                                                 New York               100%
    Oasis Investments Limited                                                                     Bermuda                 67%
    ACE Financial Solutions International, Ltd. f/k/a ACE Insurance Management Limited            Bermuda                100%
    ACE European Markets Reinsurance Ltd.                                                         Ireland                100%
      ACE European Markets Insurance Ltd.                                                         Ireland                100%
    Corporate Officers & Directors Assurance Ltd.                                                 Bermuda                100%
      Tripar Partnership                                                                          Bermuda                  2%
    Oasis Real Estate Company Limited                                                             Bermuda                100%
      Scarborough Property Holdings Limited                                                       Bermuda                 40%
    Sovereign Risk Insurance Limited                                                              Bermuda               40.5%
    Tripar Partnership                                                                            Bermuda                 98%
    ACE Realty Holdings Limited                                                                   Bermuda                100%
    Oasis Personnel Limited                                                                    Cayman Islands            100%
    Shipowners Insurance and Guaranty Co. Limited                                                 Bermuda           10% Series A
                                                                                                                     8% Series B
    Intrepid Re Holdings Limited                                                                  Bermuda                100%
      Intrepid Re Limited                                                                         Bermuda                100%
  ACE Global Markets Limited                                                                   United Kingdom            100%
    ACE Group Holdings Limited                                                                 United Kingdom            100%
      ACE Tarquin                                                                              United Kingdom            100%
        ACE Capital V Limited                                                                  United Kingdom            100%
        ACE (CG) Limited                                                                       United Kingdom            100%
          ACE Underwriting Agencies Limited                                                    United Kingdom            100%
            ACE Trustees Limited                                                               United Kingdom            100%
         ACE London Group Limited                                                              United Kingdom            100%
              ACE Capital Limited                                                              United Kingdom            100%
              ACE Capital III Limited                                                          United Kingdom            100%
              ACE Capital IV Limited                                                           United Kingdom            100%
              ACE London Holdings Limited                                                      United Kingdom            100%
                   ACE Capital II Limited                                                      United Kingdom            100%
                   ACE London Investments Limited                                              United Kingdom            100%
                           ACE London Aviation Limited                                         United Kingdom            100%
                           ACE London Underwriting Limited                                     United Kingdom            100%
                           ACE London Underwriting Services Limited                            United Kingdom            100%
                           AGM Underwriting Limited                                            United Kingdom            100%
                  ACE London Services Limited                                                  United Kingdom            100%
              ACE Capital VI Limited                                                           United Kingdom            100%
              ACE UK Limited                                                                   United Kingdom             77%
                  ACE UK Holdings Limited                                                      United Kingdom            100%
                        ACE (M) Limited                                                        United Kingdom            100%
                        ACE (ME) Limited                                                       United Kingdom            100%
                        ACE (MI) Limited                                                       United Kingdom            100%
                        ACE (MS) Limited                                                       United Kingdom            100%
                        ACESYS Limited                                                         United Kingdom            100%
                        ACE UK Underwriting Limited                                            United Kingdom            100%
                        Underwriting Systems Limited                                           United Kingdom            100%
              ACE (PM) Limited                                                                 United Kingdom            100%
                  ACE UK Limited                                                               United Kingdom             23%
  ACE Services Limited                                                                         Cayman Islands            100%
    ACE Holdings (Gibraltar) Limited                                                             Gibraltar               100%
      ACE (Gilbratar) Limited                                                                    Gibraltar               100%
      ACE-ii Limited                                                                          United Kingdom            100%
      ACE-ii (Gibraltar) Limited                                                                 Gibraltar               100%	

1

           ACE Underwriting Services (Gibraltar) Limited                                Gibraltar                   100%
           Arles Services Limited                                                       Gibraltar                   100%
ACE US Holdings Inc.                                                                 USA (Delaware)                 100%
     ACE Strategic Advisors Inc.                                                     USA (Delaware)                 100%
     ACE USA Inc.                                                                    USA (Delaware)                 100%
          CRC Creditor Resources Canada Limited                                      Canada (British                 60%
                                                                                        Columbia)
          Industrial Excess & Surplus Insurance Brokers                             USA (California)                100%
          Industrial Underwriters Insurance Co.                                        USA (Texas)                  100%
          Rhea International Marketing (L,) Inc.                                        Malaysia                     60%
          Westchester Fire Insurance Company                                         USA (New York)                 100%
          Blackthorn Reinsurance Services, Inc.                                      USA (Delaware)                  80%
          Westchester Surplus Lines Insurance Co                                      USA (Georgia)                 100%
          Westchester Specialty Services, Inc.                                        USA (Florida)                 100%
          Westchester Specialty Insurance Services Inc.                               USA (Nevada)                  100%
          SCS Net LLC                                                                USA (Delaware)                  60%
          Ameriguard Corporation                                                       USA (Ohio)                    80%
          WDH Corporation                                                              USA (Ohio)                    80%
          Dimension Services Corporation                                               USA (Ohio)                    80%
          Dimension Holdings Inc.                                                      USA (Ohio)                    80%
CGA Group Limited                                                                        Bermuda                   10.71%
          CGA Investment Management, Inc.                                            USA (Delaware)                 100%
          Commercial Guaranty Assurance Limited                                          Bermuda                    100%
Oasis Insurance Services Limited                                                         Bermuda                    100%
ACE Tempest Life Reinsurance Ltd.                                                        Bermuda                    100%
     ACE Tempest Reinsurance Ltd. f/k/a Tempest Reinsurance Company Limited              Bermuda                    100%
           Oasis Investments Limited                                                     Bermuda                     33%
Oasis US Inc.                                                                           Delaware                    100%
St George Holdings Limited                                                           Cayman Islands                10.71%
          St George Investments Limited                                              Cayman Islands                 100%
ACE INA Holdings Inc.                                                                USA (Delaware)                  20%
          ACE Rhino's Trust                                                          USA (Delaware)                 100%
          ACE Capital Trust I                                                        USA (Delaware)                 100%
          ACE Capital Trust II                                                       USA (Delaware)                 100%
ACE Prime Holdings Inc.                                                              USA (Delaware)                 100%
     ACE INA Holdings Inc.                                                           USA (Delaware)                  80%
           ACE Seguros S.A. (Argentina)                                                 Argentina                  99.9%
           ACE Seguradora S.A.                                                           Brazil                 99% (ACE INA
                                                                                                               Holdings Inc.)
                                                                                                               1% (ACE Prime
                                                                                                               Holdings Inc.)
          Servicios ACE INA S.A. de C.V.                                                 Mexico                 99% (ACE INA
                                                                                                               Holdings Inc.)
                                                                                                               1% (ACE Prime
                                                                                                               Holdings Inc.)
           ACE Tempest Re USA, Inc. fka Tempest Re USA, Inc.                        USA (Connecticut)               100%
           INA Corporation                                                         USA (Pennsylvania)               100%
                ACE INA Properties Inc.                                              USA (Delaware)                 100%
                     Conference Facilities, Inc.                                   USA (Pennsylvania)               100%
                INA Tax Benefits Reporting. Inc.                                     USA (Delaware)                 100%
                INA Financial Corporation                                            USA (Delaware)                 100%
                     Brandywine Holdings Corporation                                 USA (Delaware)                 100%
                          Brandywine Run-Off Services, Inc.                          USA (Delaware)                 100%
                          ASSUREX Development Corporation                              USA (Ohio)                 11.011%
                          International Surplus Adjusting Services                  USA (California)                100%
                          Western Agency Management, Inc.                           USA (California)                100%
                          Cravens, Dargan & Company, Pacific Coast                   USA (Delaware)                 100%
                               Cravens, Dargan & Company, Pacific
                               Coast of Illinois, Inc.                               USA (Illinois)                 100%
                          Century Indemnity Company                                USA (Pennsylvania)               100%
                               Century Reinsurance Company                         USA (Pennsylvania)               100%
                               ACE American Reinsurance Company                    USA (Pennsylvania)               100%
                                     Brandywine Reinsurance Company S.A - N.V.           Belgium                    100%
                                     The 1792 Company                                USA (Delaware)                 100%
                          Century International Reinsurance Company Ltd.                 Bermuda                    100%
                               Brandywine International Brokers Ltd.                     Bermuda                    100%
                     INA Holdings Corporation                                        USA (Delaware)                 100%	

2

          INA Trust, fsb                                               Chartered by Office of         100%
                                                                           Thrift Supervision
          PDCN Legal Management Company, Inc.                               USA (Delaware)            100%
          INA Reinsurance Company Ltd.                                         Bermuda                100%
          ACE INA Financial Institution Solutions, Inc.                     USA (Delaware)            100%
          ESIS, Inc.                                                       USA (California)           100%
          ACE INA Excess and Surplus Insurance Services, Inc. (GA)          USA (Georgia)             100%
          ACE INA Excess and Surplus Insurance Services, Inc. (PA)        USA (Pennsylvania)          100%
          NewMarkets Insurance Agency, Inc.                                 USA (Delaware)            100%
          ACE INA Excess and Surplus Insurance Services, Inc. (CA)         USA (California)           100%
          ACE INA Excess and Surplus Insurance Services, Inc. (IL)          USA (Illinois)            100%
          Excess and Surplus Insurance Services, Inc.                        USA (Texas)              100%
          INAC Corp.                                                        USA (Delaware)            100%
          INAC Corp. of California                                         USA (California)           100%
          Global Surety Network, Inc.                                       USA (Delaware)            100%
          Marketdyne International, Inc.                                    USA (Delaware)            100%
          ACE INA Railroad Insurance Brokers, Inc.                         USA (California)           100%
          Recovery Services International, Inc.                             USA (Delaware)            100%
               RSI Health Care Recovery Inc.                                USA (Delaware)            100%
          Indemnity Insurance Company of North America                    USA (Pennsylvania)          100%
               ACE Indemnity Insurance Company                            USA (Pennsylvania)          100%
               Allied Insurance Company                                    USA (California)           100%
          ACE American Insurance Company                                  USA (Pennsylvania)          100%
               Pacific Employers Insurance Company                        USA (Pennsylvania)          100%
                    ACE Insurance Company of Texas                           USA (Texas)              100%
                    Illinois Union Insurance Company                        USA (Illinois)            100%
          INAMAR Insurance Underwriting Agency, Inc.                       USA (New Jersey)           100%
               INAMAR Insurance Underwriting Agency
                 of Massachusetts                                        USA (Massachusetts)          100%
               INAMAR Insurance Underwriting Agency of Texas                 USA (Texas)              100%
               INAMAR Insurance Underwriting Agency of Ohio                   USA (Ohio)              100%
          Insurance Company of North America                              USA (Pennsylvania)          100%
          Bankers Standard Insurance Company                              USA (Pennsylvania)          100%
               Bankers Standard Fire and Marine Company                   USA (Pennsylvania)          100%
          ACE Property and Casualty Insurance Company                    USA (Pennsylvania))          100%
               ACE Employers Insurance Company                            USA (Pennsylvania)          100%
               ACE Insurance Company of Ohio                                  USA (Ohio)              100%
               INA Surplus Insurance Company                              USA (Pennsylvania)          100%

               ACE Fire Underwriters Insurance Company                    USA (Pennsylvania)          100%
               Atlantic Employers Insurance Company                        USA (New Jersey)           100%
                    Cover-All Technologies, Inc.                            USA (Delaware)              7.41%
               ALIC, Incorporated                                            USA (Texas)              100%
                    ACE American Lloyds Insurance Company                    USA (Texas)              100%
               ACE Insurance Company of Illinois                            USA (Illinois)            100%
               ACE Insurance Company of the Midwest                         USA (Indiana)             100%
          INAPRO, Inc.                                                      USA (Delaware)            100%
             Reinsurance Solutions International, LLC                       USA (Delaware)             50%
          American Adjustment Company, Inc.                                 USA (Delaware)            100%
             American Lenders Facilities, Inc.                             USA (California)           100%
ACE INA International Holdings, Ltd.                                        USA (Delaware)            100%
     ACE Synergy Insurance Berhad                                              Malaysia                51%
     ACE Seguradora S.A.                                                        Macau                 100%
     ACE Seguros S.A. (Chile)                                                   Chile                  99%
     ACE Seguros S.A. (Columbia)                                              Columbia                 99.7595%
     ACE Seguros S.A. (Ecuador)                                               Ecuador
     ACE Seguros S.A. (Mexico)                                                 Mexico                  99.9%
     Chilena Consolidata Seguros Generales, S.A.                               Chile                     .65%
     INACAN Holdings, Ltd.                                                     Canada                 100%
          ACE INA Insurance (Canada)                                           Canada                 100%
     ACE Insurance Limited (S. Africa)                                      South Africa              100%
     ACE Insurance Limited (New Zealand)                                    New Zealand               100%
     International Management Corporation (PA)                              Pennsylvania              100%
     Cover Direct, Inc.                                                    USA (Delaware)             100%
          Victoria Hall Company Ltd.                                          Bermuda                  20%
     ACE INA G.B. Holdings, Ltd.                                           USA (Delaware)             100%
          Brandywine Reinsurance Co. (UK) Ltd.                             United Kingdom             100%	

3

                    ACE INA Services UK Limited                                           United Kingdom            100%
                    ACE INA UK Retirement Savings Plan                                    United Kingdom            100%
                    Insurance Company of North America (UK) Ltd.                          United Kingdom            100%
               INACAP Sociedad Anonima                                                      Nicaragua               100%
                    INACAP Reaseguros, Sociedad Anonima                                     Nicaragua               100%
               Century Inversiones, SA                                                        Panama                100%
                    ACE INA de Venezuela Intermediaros de Reaseguros SA                     Venezuela               100%
               ARABIA ACE Insurance Co. Limited EC                                           Bahrain                 25%
               ACE Insurance Limited (Australia)                                            Australia               100%
                    ACE Insurance Limited (Singapore)                                       Singapore               100%
                    ACE INA Superannuation Pty. Limited                                     Australia               100%
               ACE INA Overseas Insurance Co. Ltd.                                           Bermuda                100%
                    ACE Insurance (Japan)                                                     Japan                 100%
                    ACE INA Marketing Group C.A.                                            Venezuela               100%
                    ACE INA Overseas Holdings Inc.                                        USA (Delaware)            100%
                         ACE Insurance S.A.-N.V.                                             Belgium                100%
               ACE Insurance Company (Puerto Rico)                                         Puerto Rico              100%
               ACE Insurance Ltd. (Hong Kong)                                               Hong Kong               100%
               ACE INA Bermuda Insurance Managers Ltd.                                       Bermuda                100%
               DELPANAMA S.A.                                                                 Panama                100%
               INAMEX S.A.                                                                    Mexico                100%
               Maritime General Ins Company Ltd.                                             Trinidad                 8.06%
               AFIA Finance Corporation                                                   USA (Delaware)            100%
                    AFIA Sociedad Anonima                                                     Mexico                100%
                    AFIA Venezolana C.A.                                                    Venezuela               100%
                    ACE ICNA-Italy Societa a Responsabilita Limitata                          Italy                 100%
                    ACE INA Thai Company Limited                                             Thailand                55%
                    ACE Servicios, S.A. (Argentina)                                         Argentina               100%
                    ESIS International Asesorias Limitada                                     Chile                 100%
                    Fire, Equity & General Ins Co. Ltd.                                      Nigeria                  6.25%
                    INDI Servicios C. Ltda.                                                  Ecuador                100%
                    Inversiones Continental S.A. de C.V.                                     Honduras                 1.29%
                    P.T. ACE INA Insurance (Indonesia)                                      Indonesia                53.51%
                    RIYAD Insurance Co. Ltd.                                                 Bermuda                 80%
                    Safire Private Ltd.                                                     Singapore               100%
               AFIA (INA) Corporation Limited                                             USA (Delaware)            100%
                    AFIA                                                                  Unincorporated
                                                                                           association               60%
               AFIA (ACE) Corporation Limited                                             USA (Delaware)            100%
                    AFIA                                                                  Unincorporated
                                                                                           association               40%
               Compania Anonima de Seguros "Avila"                                           Venezuela                5.6%
               ACE Seguros S.A. (Colombia)                                                   Colombia                85.763%
               INAVEN, C.A. "Venezuela"                                                     Venezuela               100%
               La Positiva Co Nacional de Seguros Sociedad Anonima                             Peru                  10.79%
               Seguros Azteca, S.A.                                                           Mexico                  1.36%
               Seguros Comercial America, S.A. de C.V.                                        Mexico                   .031%
               Reaseguradora Nuevo Mundo S.A.                                                 Panama                  3.7246%
               Amazonas Co. Anonima de Seguros                                               Ecuador                  1.423%
ACE (Barbados) Holdings Limited                                                              Barbados               100%
  ACE Financial Services Inc. f/k/a Capital Re Corporation                                   Delaware               100%
     AGR Financial Products Inc. f/k/a Capital Re Financial Products Corporation             Delaware               100%
     Capital Re LLC                                                                       Turks & Caicos            100%
     ACE (CR) Holdings f/k/a Capital Re (UK) Holdings                                     United Kingdom            100%
          ACE Capital VII Limited f/k/a CRC Capital, Limited                              United Kingdom            100%
          ACE (RGB) Holdings Limited f/k/a RGB Holdings Limited                           United Kingdom            100%
               ACE (CIDR) Limited f/k/a C.I. de Rougemont & Co. Ltd.                      United Kingdom            100%
               Global Life Services Limited f/k/a RGB Underwriting Services, Ltd.         United Kingdom            100%
               ACE (RGB) Agencies Limited f/k/a RGB Underwriting Agencies, Ltd.           United Kingdom            100%
     ACE Guaranty Re Inc.                                                                    Maryland               100%
        ACE Risk Assurance Company                                                           Maryland               100%
     ACE Financial Solutions, Inc.                                                           Delaware               100%
     ACE Asset Management Inc.                                                               Delaware               100%	

4
 
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of ACE Limited on Form S-3 (File Nos. 333-78841, 333-60985), Form S-4 (File No. 333-90927) and Form S-8 (File Nos. 33-86146, 333-1400, 333-1402, 333-1404, 33- 46301, 333-72299, 333-82175, 333-93867, 333-72301) of our reports dated February 14, 2001, on our audits of the consolidated financial statements and financial statement schedules of ACE Limited as of December 31, 2000 and 1999, and for the years ended December 31, 2000 and 1999, the three months ended December 31, 1998, and the year ended September 30, 1998, which reports are included and incorporated by reference in this Annual Report on Form 10-K.
New York, New York
March 26, 2001 PricewaterhouseCoopers LLP
44