ACE Q4 Earnings Hit by $302 Million Reserve Charge; Full Year Net Down 20%

February 3, 2005

Bermuda’s ACE Limited confirmed earlier earnings announcements when it posted net income for the fourth quarter ended Dec. 31, 2004 of $282 million or 94 cents per common share after payment of preferred dividends, compared with net income of $444 million or $1.53 per share for the same quarter last year.

Operating income, which excludes capital gains and losses, for the fourth quarter was $166 million, or $0.54 per share, compared with $328 million or $1.12 per share in Q4, 2003. “The asbestos, environmental and other run-off (A&E) losses resulted in an after-tax charge of $302 million for the quarter or $1.06 per share,” said the company bulletin. “The combined ratio for the quarter was 104 percent. Excluding A&E losses, the combined ratio would be 87.7 percent, a 4.2 point improvement over the comparable quarter in 2003.”

For the full year net income decreased 20 percent to $1.1 billion or $3.83 per share, compared with $1.4 billion or $5.01 per share in 2003. For 2004, income excluding net realized gains (losses) decreased 17 percent to $1.0 billion or $3.30 per share, compared with $1.2 billion or $4.21 per share in 2003. ACE also noted: “Record industry catastrophe losses resulted in an after-tax net loss of $437 million or $1.53 per share, compared with $105 million or $0.38 per share in 2003. The combined ratio for the year was 96.6 percent.

Most of the reserving relates to liabilities assumed by ACE when it purchased Cigna’s P/C business in 1999 and Westchester Specialty from Talegen in 1998. These units have been combined primarily in ACE’s Brandywine Holdings division and to a lesser extent in its Westchester Specialty unit. ACE took a $279 million charge at Brandywine and a $19 million charge at Westchester.

President and CEO Evan Greenberg commented: “The strength of our organization was demonstrated in 2004. Despite record natural catastrophes around the world, and a fourth quarter reserve charge to our run-off operations, we produced a combined ratio of 96.6 percent. Our P&C premium growth exceeded 20 percent, and our investment income and book value grew to record levels while we substantially added to our loss reserve position. We are entering 2005 with a strong balance sheet, and we are well positioned throughout the world to continue our growth in earnings and book value.”

ACE listed “Other 2004 operating highlights” as follows:
— P&C net premiums written increased 22.3 percent for the year
— The combined ratio was 96.6 percent for the year compared with 91.5 percent a year ago
— Operating cash flow amounted to a record $4.8 billion for the year
— Cash and invested assets increased by $5 billion in 2004
— Net investment income increased 16 percent for the year to $1 billion
— Shareholders’ equity increased 11.3 percent for the year to $9.8 billion
— Tangible equity rose to $7.2 billion, a gain of 18 percent from year-end 2003
— Debt to total capital ratio improved to 16.3 percent from 16.9 percent at year-end 2003
— Return on equity for 2004 was 10.7 percent); excluding FAS 115, it was 11.6 percent
— Book value per share as of Dec. 31, 2004 increased 10 percent in 2004 to $32.48

ACE also listed the following “key items” by business segment:
— Insurance-North American: Net premiums written increased 27 percent for the year and the combined ratio was 90.4 percent excluding the A&E and catastrophe losses.
— Insurance-Overseas General: Net premiums written increased 17 percent for the year. The segment’s combined ratio improved to 87.5 percent.
— Global Reinsurance: Net premiums written were up 24 percent for the year. This segment had a combined ratio of 93.7 percent. Adjusted for catastrophes the combined ratio was 72.4 percent compared to 68.2 percent for 2003.
— Financial Services: Income excluding net realized gains (losses) decreased 9 percent for the year.

ACE will host its fourth quarter year-end earnings conference call and webcast on Thursday, Feb. 3, 2005 beginning at 8:30 a.m. EST. The call is available via live and archived webcast at: Refer to “Investor Information, Calendar of Events” on the company’s Web site for details.

A replay of the call will be available from approximately 11:30 a.m. EST on Thursday, Feb. 3, 2005 until Thursday, March 3, 2005. To listen to the replay, dial: 1-877-519-4471 (in the United States) or 1-973-341-3080 (international); passcode 5527078.

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