ACE LTD (Form: 10-Q, Received: 05/05/2006 15:27:30)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2006

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to


Commission File No. 1-11778		I.R.S. Employer Identification No. 98-0091805

ACE LIMITED

(Incorporated in the Cayman Islands)

ACE Global Headquarters

17 Woodbourne Avenue

Hamilton HM 08

Bermuda

Telephone 441-295-5200

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES x NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large

accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

YES ¨ NO x

The number of registrant’s Ordinary Shares ($0.041666667 par value) outstanding as of May 3, 2006 was 325,185,770

ACE LIMITED

INDEX TO FORM 10-Q


		Page No.
Part I. FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Consolidated Balance Sheets
	March 31, 2006 (Unaudited) and December 31, 2005	3

	Consolidated Statements of Operations and Comprehensive Income (Unaudited)
	Three Months Ended March 31, 2006 and 2005	4

	Consolidated Statements of Shareholders’ Equity (Unaudited)
	Three Months Ended March 31, 2006 and 2005	5

	Consolidated Statements of Cash Flows (Unaudited)
	Three Months Ended March 31, 2006 and 2005	7

	Notes to the Interim Consolidated Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	64

Item 4.	Controls and Procedures	64

Part II. OTHER INFORMATION

Item 1.	Legal Proceedings	65

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65

Item 6.	Exhibits	66

ACE LIMITED

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

ACE LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	March 31 2006			December 31 2005
	(Unaudited)
	(in millions of U.S. dollars, except share and per share data)
Assets
Investments
Fixed maturities available for sale, at fair value (amortized cost - $25,591 and $24,273 )	$	25,411		$	24,285
Fixed maturities held to maturity, at amortized cost (fair value -$3,045 and $3,055)		3,107			3,076
Equity securities, at fair value (cost - $1,325 and $1,280)		1,600			1,507
Short-term investments, at fair value (amortized cost - $2,452 and $2,299)		2,452			2,299
Other investments (cost - $590 and $592)		687			675

Total investments		33,257			31,842
Cash		398			512
Securities lending collateral		1,782			1,723
Accrued investment income		341			338
Insurance and reinsurance balances receivable		3,742			3,343
Accounts and notes receivable		172			197
Reinsurance recoverable		15,569			15,463
Deferred policy acquisition costs		1,032			930
Prepaid reinsurance premiums		1,505			1,346
Funds withheld		277			276
Value of reinsurance business assumed		229			235
Goodwill		2,703			2,703
Deferred tax assets		1,271			1,314
Investments in partially-owned insurance companies (cost-$829 and $818)		885			876
Other assets		1,684			1,342

Total assets	$	64,847		$	62,440

Liabilities
Unpaid losses and loss expenses	$	35,508		$	35,055
Unearned premiums		6,554			5,884
Future policy benefits for life and annuity contracts		519			521
Funds withheld		194			93
Insurance and reinsurance balances payable		2,346			2,405
Deposit liabilities		318			350
Securities lending payable		1,782			1,723
Payable for securities purchased		1,588			701
Accounts payable, accrued expenses and other liabilities		1,206			1,228
Income taxes payable		179			174
Dividends payable		75			74
Short-term debt		300			300
Long-term debt		1,812			1,811
Trust preferred securities		309			309

Total liabilities		52,690			50,628

Commitments and contingencies
Shareholders’ equity
Preferred Shares ($1.00 par value, 2,300,000 shares authorized, issued and outstanding)		2			2
Ordinary Shares ($0.041666667 par value, 500,000,000 shares authorized; 325,143,060 and 323,322,586 shares issued and outstanding)		13			13
Additional paid-in capital		6,523			6,569
Unearned stock grant compensation		—			(69	)
Retained earnings		5,369			4,965
Deferred compensation obligation		6			6
Accumulated other comprehensive income		250			332
Ordinary Shares issued to employee trust		(6	)		(6	)

Total shareholders’ equity		12,157			11,812

Total liabilities and shareholders’ equity	$	64,847		$	62,440

See accompanying notes to the interim consolidated financial statements

ACE LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

For the three months ended March 31, 2006 and 2005

(Unaudited)


	Three Months Ended March 31
	2006			2005
	(in millions of U.S. dollars, except per share data)
Revenues
Gross premiums written	$	4,511		$	4,543
Reinsurance premiums ceded		(1,201	)		(1,177	)

Net premiums written		3,310			3,366
Change in unearned premiums		(505	)		(489	)

Net premiums earned		2,805			2,877
Net investment income		369			285
Net realized gains (losses)		7			(14	)

Total revenues		3,181			3,148

Expenses
Losses and loss expenses		1,680			1,789
Life and annuity benefits		28			35
Policy acquisition costs		421			388
Administrative expenses		398			336
Interest expense		43			42
Other (income) expense		(8	)		(5	)

Total expenses		2,562			2,585

Income before income tax and cumulative effect of a change in accounting principle		619			563
Income tax expense		134			126

Income before cumulative effect of a change in accounting principle		485			437
Cumulative effect of a change in accounting principle		4			—

Net income	$	489		$	437

Other comprehensive income (loss)
Unrealized appreciation (depreciation) arising during the period		(117	)		(301	)
Reclassification adjustment for net realized (gains) losses included in net income		(15	)		(48	)
Amortization of net unrealized (gains) losses related to transferred securities		(1	)		—

		(133	)		(349	)
Change in:
Minimum pension liability		(1	)		2
Cumulative translation adjustment		24			(11	)

Other comprehensive income (loss), before income tax		(110	)		(358	)
Income tax benefit (expense) related to other comprehensive income items		28			72

Other comprehensive income (loss)		(82	)		(286	)

Comprehensive income	$	407		$	151

Basic earnings per share before cumulative effect of a change in accounting principle	$	1.48		$	1.50
Cumulative effect of a change in accounting principle		0.01			—

Basic earnings per share	$	1.49		$	1.50

Diluted earnings per share before cumulative effect of a change in accounting principle	$	1.45		$	1.48
Cumulative effect of a change in accounting principle		0.01			—

Diluted earnings per share	$	1.46		$	1.48

See accompanying notes to the interim consolidated financial statements

ACE LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the three months ended March 31, 2006 and 2005

(Unaudited)


	2006			2005
	(in millions of U.S. dollars)
Preferred Shares
Balance – beginning and end of period	$	2		$	2

Ordinary Shares
Balance – beginning and end of period		13			12

Additional paid-in capital
Balance – beginning of period		6,569			4,905
Reclassification of unearned stock grant compensation		(69	)		—
Net shares issued under employee stock-based compensation plans		(18	)		60
Exercise of stock options		23			39
Ordinary Shares issued under Employee Stock Purchase Plan (ESPP)		3			4
Cumulative effect of a change in accounting principle		(5	)		—
Stock-based compensation expense		20			—

Balance – end of period		6,523			5,008

Unearned stock grant compensation
Balance – beginning of period		(69	)		(57	)
Reclassification of unearned stock grant compensation		69			—
Net issuance of restricted stock under employee stock- based compensation plans		—			(71	)
Amortization		—			13

Balance – end of period		—			(115	)

Retained earnings
Balance – beginning of period		4,965			4,249
Net income		489			437
Dividends declared on Ordinary Shares		(74	)		(60	)
Dividends declared on Preferred Shares		(11	)		(11	)

Balance – end of period		5,369			4,615

Deferred compensation obligation
Balance – beginning and end of period	$	6		$	12

See accompanying notes to the interim consolidated financial statements

ACE LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (cont’d)

For the three months ended March 31, 2006 and 2005

(Unaudited)


	2006			2005
	(in millions of U.S. dollars)
Accumulated other comprehensive income
Net unrealized appreciation (depreciation) on investments
Balance – beginning of period	$	317		$	634
Change in period		(133	)		(349	)
Income tax benefit		35			68

Balance – end of period		219			353

Minimum pension liability
Balance – beginning of period		(58	)		(64	)
Change in period		(1	)		2

Balance – end of period		(59	)		(62	)

Cumulative translation adjustment
Balance – beginning of period		73			164
Change in period		24			(11	)
Income tax (expense) benefit		(7	)		4

Balance – end of period		90			157

Accumulated other comprehensive income		250			448

Ordinary Shares issued to employee trust
Balance – beginning and end of period		(6	)		(12	)

Total shareholders’ equity	$	12,157		$	9,970

See accompanying notes to the interim consolidated financial statements

ACE LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended March 31, 2006 and 2005

(Unaudited)


	2006			2005
	(in millions of U.S. dollars)
Cash flows from operating activities
Net income	$	489		$	437
Adjustments to reconcile net income to net cash flows from operating activities:
Net realized (gains) losses		(7	)		14
Amortization of premium/discounts on fixed maturities		16			31
Deferred income taxes		71			62
Unpaid losses and loss expenses		437			584
Unearned premiums		654			587
Future policy benefits for life and annuity contracts		(2	)		(2	)
Insurance and reinsurance balances payable		(64	)		(40	)
Accounts payable, accrued expenses and other liabilities		(24	)		27
Income taxes payable		6			11
Insurance and reinsurance balances receivable		(387	)		(470	)
Reinsurance recoverable		(91	)		(10	)
Deferred policy acquisition costs		(98	)		(57	)
Prepaid reinsurance premiums		(148	)		(93	)
Funds withheld, net		100			30
Value of reinsurance business assumed		6			(1	)
Other		128			103

Net cash flows from operating activities		1,086			1,213

Cash flows used for investing activities
Purchases of fixed maturities available for sale		(10,591	)		(6,030	)
Purchases of fixed maturities held to maturity		(129	)		—
Purchases of equity securities		(168	)		(180	)
Sales and maturities of fixed maturities available for sale		9,545			5,049
Sales of equity securities		166			85
Maturities and redemptions of fixed maturities held to maturity		93			—
Net proceeds from the settlement of investment derivatives		11			—
Other		(73	)		(30	)

Net cash flows used for investing activities		(1,146	)		(1,106	)

Cash flows used for financing activities
Dividends paid on Ordinary Shares		(73	)		(60	)
Dividends paid on Preferred Shares		(11	)		(11	)
Proceeds from exercise of options for Ordinary Shares		23			39
Proceeds from Ordinary Shares issued under ESPP		3			4
Net proceeds from short-term debt		—			1

Net cash flows used for financing activities		(58	)		(27	)

Effect of foreign currency rate changes on cash and cash equivalents		4			(4	)

Net (decrease) increase in cash		(114	)		76
Cash – beginning of period		512			498

Cash – end of period	$	398		$	574

See accompanying notes to the interim consolidated financial statements

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 corporate business office in Bermuda. The Company, through its various subsidiaries, provides a broad range of insurance and reinsurance products to insureds worldwide. ACE operates through the following business segments: Insurance – North American, Insurance – Overseas General, Global Reinsurance, Financial Services and Life Insurance and Reinsurance. These segments are described in Note 14.

The interim unaudited consolidated financial statements, which include the accounts of the Company and its subsidiaries, have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and, in the opinion of management, reflect all adjustments (consisting of normally recurring accruals) necessary for a fair presentation of the results for such periods. All significant intercompany accounts and transactions have been eliminated. Certain items in the prior year financial statements have been reclassified to conform to the current year presentation. The results of operations and cash flows for any interim period are not necessarily indicative of the results for the full year. These financial statements should be read in conjunction with the consolidated financial statements, and related notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

2. Significant accounting policies

a) Direct response marketing costs

Advertising costs are expensed as incurred except for direct response campaigns, principally related to personal accident business produced by the Overseas General segment, which are deferred and recognized over the expected future benefit period in accordance with Statement of Position 93-7, Reporting on Advertising Cost. For individual direct-response marketing campaigns that the Company can demonstrate have specifically resulted in incremental sales to customers and such sales have probable future economic benefits, incremental costs directly related to the marketing campaigns are capitalized. Deferred marketing costs are reviewed regularly for recoverability and amortized over the expected economic future benefit period. The expected future benefit period is evaluated periodically based on historical results and adjusted prospectively. The amount of deferred marketing costs reported in deferred policy acquisition costs was $152 million and $126 million at March 31, 2006 and December 31, 2005, respectively. The amount of expense amortized into earnings was $9 million and $13 million for the three months ended March 31, 2006 and 2005, respectively. In the first quarter of 2006, the Company completed a study of revenues derived from historical direct-response marketing campaigns. Beginning January 1, 2006, the Company revised the amortization for deferred costs arising from direct-response marketing campaigns to be consistent with the findings of the study. As a result of this change in estimate, the average amortization period has been lengthened from 3 to 5 years. For the three months ended March 31, 2006, with respect to direct response marketing campaigns completed prior to January 1, 2006, the lengthening of the average amortization period resulted in a reduction of amortization expense of approximately $11 million relative to previous amortization schedules.

b) Call options in debt instruments

In 2005, the Financial Accounting Standards Board (FASB) issued Statement 133 Implementation Issue No. B38, Embedded Derivatives: Evaluation of Net Settlement with Respect to the Settlement of a Debt Instrument through Exercise of an Embedded Put Option or Call Option (Issue B38), which clarifies that the potential settlement of a debtor’s obligation to the creditor that would occur upon exercise of the put option or call option meets the net settlement criterion in paragraph (9a) of Financial Accounting Standard (FAS) No. 133, Accounting for Derivatives Instruments and Hedging Activities (FAS 133). Issue B38 became effective in the first quarter of 2006. In adopting Issue B38, the Company determined that call options within three debt instruments were embedded derivatives and must be reported at fair value. Accordingly, at March 31, 2006, the Company recognized a net liability of $3 million with a corresponding loss in net realized gains (losses).

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. Stock-Based Compensation

The Company has share-based compensation plans which currently provide for awards of stock options, restricted stock and restricted stock units to its employees and members of the Board of Directors. In December 2004, the FASB issued FAS 123 (Revised) “Share-Based Payment” (FAS 123R) which is a revision of FAS 123 that supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). This statement requires all companies to measure and record compensation cost for all share-based payment awards (including employee stock options) at grant-date fair value. The Company adopted FAS 123R effective January 1, 2006. Prior to the adoption of FAS 123R the Company accounted for its share-based compensation plans in accordance with APB 25. In accordance with APB 25, the Company did not recognize compensation expense for employee stock options in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying Ordinary Shares on the date of the grant. In addition, the Company did not recognize expenses related to its employee stock purchase plan (ESPP). Upon adopting FAS 123R on January 1, 2006, the Company was required to expense employee stock options and expenses related to its ESPP. FAS 123R also requires that the tax benefits of deductions resulting from the exercise of stock options be classified as cash flows from financing activities. Prior to the adoption of FAS 123R, the Company presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows.

In adopting FAS 123R, the Company applied the modified prospective method and accordingly, prior period amounts have not been restated. Under this method, the Company recognized compensation expense for all share-based payments granted, modified, or settled after January 1, 2006, as well as for any awards that were granted prior to January 1, 2006 for which the requisite service had not been provided as of January 1, 2006 (i.e., unvested awards). Unvested awards are to be expensed consistent with the valuation used in previous disclosures of the pro forma effect of FAS 123. The Company uses the Black-Scholes option-pricing model to disclose the pro forma effect of FAS 123. With respect to awards granted after the adoption of FAS 123R, the Company is using the Black-Scholes option-pricing model to determine the fair value of stock compensation.

The Company principally issues restricted stock grants and stock options on a graded vesting schedule. Prior to the adoption of FAS 123R, the Company recognized compensation cost for restricted stock grants with only service conditions that have a graded vesting schedule on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. Upon adopting FAS 123R, the Company recognizes compensation costs for both restricted stock grants and stock options on this basis. Further, prior to the adoption of FAS 123R, forfeitures were recognized as they occurred. Upon adopting FAS 123R, an estimate of future forfeitures is incorporated into the determination of compensation cost for both restricted stock grants and stock options. At January 1, 2006, the cumulative effect of this change in accounting principle is $4 million, net of income tax. This effect relates to the recognition of expected forfeitures on restricted stock grants that are not vested as of January 1, 2006.

The following table outlines the Company’s net income available to holders of Ordinary Shares and diluted earnings per share for the three months ended March 31, 2005 had the compensation cost been determined in accordance with the fair value method recommended in FAS 123. The reported and pro forma net income and earnings per share for the three months ended March 31, 2006 are the same since share-based compensation expense is calculated under the provisions of FAS 123R. The amounts for the three months ended March 31, 2006 are included in the table below only to provide the detail for a comparative presentation to the three months ended March 31, 2005.

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Three Months Ended March 31
	2006		2005
	(in millions of U.S. dollars, except per share data)
Net income available to holders of Ordinary Shares:
As reported	$	478	$	426
Add: Stock-based compensation expense included in reported net income, net of income tax		16		9
Deduct: Compensation expense, net of income tax		16		12

Pro forma net income	$	478	$	423

Basic earnings per share:
As reported	$	1.49	$	1.50

Pro forma	$	1.49	$	1.49

Diluted earnings per share:
As reported	$	1.46	$	1.48

Pro forma	$	1.46	$	1.47

In the three months ended March 31, 2006, the adoption of FAS 123R resulted in incremental stock-based compensation expense for the cost of stock options and shares issued under ESPP of $4 million, before and after tax, ($0.01 per basic and diluted share) that would not have otherwise been recognized. Prior to the adoption of FAS 123R stock-based compensation expense for restricted stock was recognized in net income. For the three months ended March 31, 2006, the expense for the restricted stock was $16 million ($12 million after tax).

Under the ACE Limited 2004 Long-Term Incentive Plan (the 2004 LTIP) a total of 15,000,000 Ordinary Shares of the Company are authorized to be issued pursuant to awards made as stock options, stock appreciation rights, stock units, performance shares, performance units, restricted stock and restricted stock units. The maximum number of shares that may be delivered to Participants and their beneficiaries under the 2004 LTIP shall be equal to the sum of: (i) 15,000,000 shares; and (ii) any shares that are represented by awards granted under the ACE Limited 1995 Long-Term Incentive Plan, the ACE Limited 1995 Outside Directors Plan, the ACE Limited 1998 Long-Term Incentive Plan, and the ACE Limited 1999 Replacement Long-Term Incentive Plan (the Prior Plans) that are forfeited, expired or are canceled after the effective date of the 2004 LTIP of February 25th, 2004, without delivery of shares or which result in the forfeiture of the shares back to the Company to the extent that such shares would have been added back to the reserve under the terms of the applicable Prior Plan. As of March 31, 2006, a total of 11,160,000 shares remain available for future issuance under this plan.

A proposal will be presented at the Annual General Meeting, scheduled to be held on May 18, 2006, to approve the Second Amendment to the ACE Limited ESPP. The Second Amendment of the ESPP, if approved by shareholders, will increase the number of Ordinary Shares available for issuance under the ESPP by 1,500,000 shares (Additional Shares), which shares shall be in addition to the 1,500,000 (as adjusted to effect to the stock split in March, 1998) Ordinary Shares previously reserved under the ESPP. As of March 31, 2006, no Ordinary Shares remained available for issuance under the Plan. The approval of the Second Amendment will bring the total number of Ordinary Shares remaining available for issuance under the ESPP to 1,500,000 shares.

Stock Options

The Company’s 2004 LTIP provides for grants of both incentive and non-qualified stock options principally at an option price per share of 100 percent of the fair market value of the Company’s Ordinary Shares on the date of grant. Stock options are generally granted with a 3-year vesting period and a 10-year term. The stock options vest in equal annual installments over the respective vesting period, which is also the requisite service period. Included in the beginning of period balance are 5-year cliff vest options of 100,000, 150,000 and 25,000 issued in 2002, 2003 and 2004. There were 150,000 5-year cliff vest options granted in February 2006.

Included in the Company’s stock-based compensation expense in the three months ended March 31, 2006 is the cost related to the unvested portion of the 2005, 2004 and 2003 stock option grants. The fair value of the stock options was estimated on the date of grant using a Black-Scholes option valuation model that uses the assumptions noted in the following table. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected life (estimated period of time

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

from grant to exercise date) was estimated using the historical exercise behavior of employees. For 2005 and prior options expected volatility was based on historical volatility for a period equal to the stock option’s expected life, ending on the date of grant, and calculated on a monthly basis. For 2006 options, expected volatility was calculated as a blend of (a) historical volatility based on daily closing prices over a period equal to the expected life assumption, (b) long-term historical volatility based on daily closing prices over the period from ACE’s initial public trading date through the most recent quarter; and (c) implied volatility derived from ACE’s publicly traded options. 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 for the periods indicated:


	Three Months Ended March 31
	2006		2005
Dividend yield	1.63	%	1.89	%
Expected volatility	31.65	%	22.36	%
Risk free interest rate	4.59	%	3.87	%
Forfeiture rate	7.5	%	5	%
Expected life	6 years		4 years

Changes in the Company’s stock options for the three months ended March 31, 2006 were as follows:


	Number of Options	Weighted Average Exercise Price
Options outstanding, beginning of period	12,643,761	$	36.53
Granted	1,457,065	$	56.37
Exercised	637,864	$	36.04
Forfeited	142,710	$	38.37

Options outstanding, end of period	13,320,252	$	38.70

Options exercisable, end of period	9,649,386	$	35.37

The weighted average remaining contractual term was 6.6 years for the stock options outstanding and 5.7 years for the stock options exercisable at March 31, 2006. The total intrinsic value was approximately $184 million for stock options outstanding and $161 million for stock options exercisable at March 31, 2006. The total intrinsic value for stock options exercised during the three months ended March 31, 2006 was approximately $12 million. The weighted-average fair values for the stock options granted for the three months ended March 31, 2006 was $18.35.

The amount of cash received from the exercise of stock options was $23 million.

Restricted Stock

The Company’s 2004 LTIP also provides for grants of restricted stock. The Company generally grants restricted stock with a 4-year vesting period, based on a graded vesting schedule. The restricted stock is granted at market close price on the date of grant. Included in the Company’s stock-based compensation expense in the three months ended March 31, 2006 is a portion of the cost related to the unvested restricted stock granted in the years 2002 to 2006.

Changes in the Company’s restricted stock for the three months ended March 31, 2006 were as follows:


	Number of Restricted Stock	Weighted Average Grant-Date Fair Value
Unvested restricted stock , beginning of period	3,488,668	$	41.26
Granted	1,510,770	$	56.35
Vested and issued	1,078,204	$	39.98
Forfeited	143,744	$	39.93

Unvested restricted stock, end of period	3,777,490	$	47.71

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Included in the above table are 96,200 performance-based restricted shares issued to executive officers, consisting of 50,200 target awards issued in 2006 and 46,000 target awards issued prior to 2006. With respect to the 2006 target awards, the performance goal is based on the achievement by ACE Limited of growth in GAAP book value exceeding the median growth of a specified peer group, according to a designated financial measure listed in the ACE Limited 2004 Long-Term Incentive Plan. The target awards are based on a graded vesting schedule over a 4-year period. If an installment does not vest because the initial one-year performance goal is missed, a re-measurement feature provides additional vesting opportunities based on cumulative performance over a series of extended measurement periods within the 4-year performance period. If performance measures are not achieved by the end of the 4-year performance period, related shares are forfeited. Excluded from the above table are premium awards granted in 2006 that provide the same executive officers an opportunity to earn up to an additional 50,200 shares based on the Company’s performance. The premium awards have similar vesting provisions as the target awards and performance is also measured based on the Company’s growth in GAAP book value relative to is peers. With respect to the 2006 premium awards, if cumulative performance is less than the peer group’s 65 ^th percentile, no premium award will be earned. For performance between the 65 ^th and 75 ^th percentile, the premium will be interpolated between 50 percent and 100 percent of the number of actual shares earned from the target award. With respect to target awards granted prior to 2006, the performance measurement and vesting period is comparable to the 2006 target awards. The Company recognizes expense related to performance-based restricted shares based on an estimate of the restricted shares that will ultimately be earned. For the three months ended March 31, 2006, compensation expense was amortized for the 96,200 target awards but not the premium awards.

Under the provisions of FAS 123R, the recognition of deferred compensation, a contra-equity account representing the amount of unrecognized restricted stock expense that is reduced as expense is recognized, at the date restricted stock is granted is no longer permitted. Therefore, the amount of deferred compensation that had been in “Unearned stock grant compensation” was reversed to zero through “Additional paid-in capital” in the Company’s Consolidated Balance Sheet.

Restricted Stock Units

The Company’s 2004 LTIP also provides for grants of other awards, including restricted stock units. In 2006, the Company granted restricted stock units with a 4-year vesting period. Each restricted stock unit represents the Company’s obligation to deliver to the holder one share of Ordinary Shares upon vesting. Restricted stock units vest at the end of the nominal vesting period or the substantive vesting period, whichever is applicable. On February 22, 2006, the Company granted 80,120 restricted stock units with a weighted average grant date fair value of $56.40.

ESPP

The ESPP gives participating employees the right to purchase Ordinary Shares through payroll deductions during consecutive “Subscription Periods.” The ESPP has two six-month Subscription Periods that begin on January 1 and July 1 of each year. The amounts that have been deducted from participants’ during a Subscription Period are used on the “Exercise Date” to purchase full shares of Ordinary Shares. An Exercise Date is generally the last trading day of a Subscription Period. The number of shares purchased is equal to the total amount, as of the Exercise Date, that has been collected from the participants through payroll deductions for that Subscription Period, divided by the Purchase Price, rounded down to the next full share. The “Purchase Price” is 85 percent of the lower of (1) the fair market value of an Ordinary Share on the first day of the Subscription Period, or (2) the fair market value of an Ordinary Share on the Exercise Date. Participants may withdraw from an offering before the exercise date and obtain a refund of the amounts withheld through payroll deductions. Included in the Company’s stock-based compensation expense in the three months ended March 31, 2006 is a portion of the cost related to the estimated July 2006 ESPP offering.

The fair value of the July 2006 ESPP offering was estimated using a Black-Scholes option valuation model that uses the assumptions noted in the following table. The risk-free rate is based on the U.S. Treasury yield curve. Expected volatility was based on an average of historical and implied volatility.

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	July 2006
Dividend yield	1.69	%
Expected volatility	25	%
Risk free interest rate	4.2	%
Forfeiture rate	0	%
Expected life	6 months

The weighted-average fair value for the Company’s ESPP rights was $12.21 for the estimated July 2006 ESPP offering.

As of March 31, 2006, unrecognized compensation expense related to the unvested portion of the Company’s Employee Stock-Based Awards was approximately $165 million and is expected to be recognized over a weighted-average period of approximately 2.56 years.

The Company generally issues shares for the exercise of stock options, for restricted stock and shares under the ESPP from un-issued reserved shares.

4. Investments

a) Gross unrealized loss

The following table summarizes, for all securities in an unrealized loss position at March 31, 2006 (including securities on loan), the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position.


	0 - 12 Months					Over 12 Months					Total
	Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss
	(in millions of U.S. dollars)
U.S. Treasury and agency	$	3,324	$	(50.9	)	$	20	$	(0.3	)	$	3,344	$	(51.2	)
Foreign		3,946		(54.1	)		16		(0.3	)		3,962		(54.4	)
Corporate securities		8,001		(127.2	)		17		(0.5	)		8,018		(127.7	)
Mortgage-backed securities		8,236		(141.7	)		43		(0.7	)		8,279		(142.4	)
States, municipalities and political subdivisions		404		(4.7	)		—		—			404		(4.7	)

Total fixed maturities		23,911		(378.6	)		96		(1.8	)		24,007		(380.4	)
Equities		499		(14.9	)		—		—			499		(14.9	)
Other investments		5		(2.1	)		—		—			5		(2.1	)

Total	$	24,415	$	(395.6	)	$	96	$	(1.8	)	$	24,511	$	(397.4	)

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

b) Other- than- temporary impairments

The following table shows, for the periods indicated, the losses included in net realized gains (losses) as a result of conditions which caused the Company to conclude the decline in fair value of certain investments was “other-than-temporary”:


	Three Months Ended March 31
	2006		2005
	(in millions of U.S. dollars)
Fixed maturities	$	24	$	20
Equity securities		2		1
Other investments		5		—

Total	$	31	$	21

5. Goodwill

During the three months ended March 31, 2006, there were no significant movements in goodwill. The following table details the opening and ending balances in goodwill by segment for the three months ended March 31, 2006.


	Insurance – North American		Insurance – Overseas General		Global Reinsurance		ACE Consolidated
	(in millions of U.S. dollars)
Goodwill at beginning and end of period	$	1,168	$	1,170	$	365	$	2,703

6. Unpaid losses and loss expenses

Property and casualty

The Company establishes reserves for the estimated unpaid ultimate liability for losses and loss expenses under the terms of its policies and agreements. These reserves include estimates for both claims that have been reported and for IBNR, and include estimates of expenses associated with processing and settling these claims. The process of establishing reserves for property and casualty (P&C) claims can be complex and is subject to considerable variability as it requires 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. 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 believes that its reserves for unpaid losses and loss expenses at March 31, 2006 are adequate, new information or trends may lead to future developments in ultimate losses and loss expenses significantly greater or less than the reserves provided. 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.

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The reconciliation of unpaid losses and loss expenses for the periods indicated is as follows:


	Three Months Ended March 31
	2006			2005
	(in millions of U.S. dollars)
Gross unpaid losses and loss expenses at beginning of period	$	35,055		$	31,483
Reinsurance recoverable on unpaid losses		(14,597	)		(13,966	)

Net unpaid losses and loss expenses at beginning of period		20,458			17,517

Net losses and loss expenses incurred in respect of losses occurring in:
Current year		1,712			1,759
Prior year		(32	)		30

Total		1,680			1,789

Net losses and loss expenses paid in respect of losses occurring in:
Current year		181			216
Prior year		1,002			1,019

Total		1,183			1,235

Foreign currency revaluation and other		1			—

Net unpaid losses and loss expenses at end of period		20,954			18,071
Reinsurance recoverable on unpaid losses		14,554			13,355

Gross unpaid losses and loss expenses at end of period	$	35,508		$	31,426

Net losses and loss expenses incurred for the three months ended March 31, 2006 and 2005 were $1.7 billion and $1.8 billion, respectively. Net losses and loss expenses incurred include $32 million of net favorable prior period development for the three months ended March 31, 2006 and $30 million of net adverse prior period development for the same period in 2005. The net favorable prior period development in the current period was the net result of several underlying favorable and adverse movements. The Insurance—North American and Insurance—Overseas General segments incurred favorable prior period development of $2 million and $39 million respectively which was partially offset by adverse development for the Global Reinsurance and Financial Services segments of $3 million and $6 million respectively.

Insurance – North American incurred $2 million of net favorable prior period development in the three months ended March 31, 2006, compared with net adverse development of $22 million for the same period in 2005. The prior period development for the three months ended March 31, 2006, was the net result of underlying adverse and favorable movements. The largest adverse movement was related to catastrophes from the 2005 accident year of $46 million. The most significant favorable prior period development offsetting this was $46 million due to booking of the final settlement in the quarter ended March 31, 2006, on 2005 crop year results. The prior period development for the three months ended March 31, 2005, was the net result of several

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

underlying favorable and adverse movements, the most significant of which was $19 million of adverse prior period development impacting the 2002 and 2001 accident years relating to changes in the legal and claim positions on an account that provided financial guarantee insurance to a now bankrupt facility that ran leasing pools.

Insurance – Overseas General incurred $39 million of net favorable prior period development in the three months ended March 31, 2006, compared with net adverse development of $7 million for the same period in 2005. The net prior period development for the three months ended March 31, 2006, was the net result of several underlying favorable and adverse movements, the most significant of which were:

•

Favorable prior period development of $60 million on property lines due to the favorable emergence of actual claims relative to expectations used to establish the reserves, principally related to the 2004 and 2005 accident years.

•

Adverse prior period development of $20 million on long-tail business predominantly driven by unfavorable large loss emergence in the three months ended March 31, 2006. Approximately $13 million of this movement related to ACE Global Markets business from accident years 1999 and prior, and was mainly derived from portfolios that are now in run-off.

The net prior period development for the three months ended March 31, 2005, was the net result of several underlying favorable and adverse movements. The adverse prior period development related primarily to a $41 million movement on U.S. workers compensation business across the 1995-1999 underwriting years following a review of updated bordereaux information. This was largely offset by favorable prior period development of $35 million on short-tail property and energy lines impacting the 2003 and 2004 accident years.

Global Reinsurance incurred $3 million of net adverse prior period development in the three months ended March 31, 2006 compared with no net prior development for the same period in 2005. The net prior period development for the current period was the net result of several underlying favorable and adverse movements. The largest adverse movement was related to catastrophes from the 2004 and 2005 accident years of $17 million. Favorable prior period development included $18 million on other short-tail exposures due to lower than anticipated loss emergence in the current period.

Financial Services incurred $6 million of net adverse prior period development in the three months ended March 31, 2006, compared with net adverse development of $1 million for the same period in 2005. The prior period development for the three months ended March 31, 2006 was driven by an increase in the estimate of losses arising from 2005 catastrophes on two multi-year contracts. The adverse prior period development of $6 million was the net impact of a $17 million increase in ultimate losses being partially offset by a simultaneous $11 million accrual of future deposit premiums to align premium recognition with the portion of risk already expired on these contracts.

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

7. Reinsurance

a) Consolidated 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 consolidated statements of operations are net of reinsurance. Direct, assumed and ceded amounts for these items for the periods indicated are as follows:


	Three Months Ended March 31
	2006			2005
	(in millions of U.S. dollars)
Premiums written
Direct	$	3,443		$	3,322
Assumed		1,068			1,221
Ceded		(1,201	)		(1,177	)

Net	$	3,310		$	3,366

Premiums earned
Direct	$	3,103		$	2,959
Assumed		736			959
Ceded		(1,034	)		(1,041	)

Net	$	2,805		$	2,877

b) Reinsurance recoverable on ceded reinsurance

The composition of the Company’s reinsurance recoverable at March 31, 2006 and December 31, 2005, is as follows:


	March 31 2006			December 31 2005
	(in millions of U.S. dollars)
Reinsurance recoverable on paid losses and loss expenses	$	1,331		$	1,191
Provision for uncollectible reinsurance on paid losses and loss expenses		(326	)		(336	)
Reinsurance recoverable on future policy benefits		10			11
Reinsurance recoverable on unpaid losses and loss expenses		14,981			15,048
Provision for uncollectible reinsurance on unpaid losses and loss expenses		(427	)		(451	)

Net reinsurance recoverable	$	15,569		$	15,463

The Company evaluates the financial condition of its reinsurers and potential reinsurers on a regular basis and also monitors concentrations of credit risk with reinsurers. The provision for uncollectible reinsurance is required principally due to the failure of reinsurers to indemnify ACE, primarily because of disputes under reinsurance contracts and insolvencies. Provisions have been established for amounts estimated to be uncollectible.

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Following is a breakdown of the Company’s reinsurance recoverable on paid losses at March 31, 2006 and December 31, 2005.


	March 31, 2006						December 31, 2005
Category	Amount		Provision		% of Total Reserve		Amount		Provision		% of Total Reserve
	(in millions of U.S. dollars)
General collections	$	794	$	31	3.9	%	$	698	$	41	5.9	%
Other		537		295	54.9	%		493		295	59.8	%

Total	$	1,331	$	326	24.5	%	$	1,191	$	336	28.2	%

General collections balances represent amounts in the process of collection in the normal course of business, for which the Company has no indication of dispute or credit-related issues.

The other category includes amounts recoverable that are in dispute, or are from companies who are in supervision, rehabilitation or liquidation for the Brandywine Group and active operations. The Company’s estimation of this reserve considers the merits of the underlying matter, the credit quality of the reinsurer and whether the Company has received collateral or other credit protections such as parental guarantees.

c) Assumed reinsurance programs involving minimum benefit guarantees under annuity contracts

The Company reinsures various death and living benefit guarantees associated with variable annuities issued primarily in the United States. Each reinsurance treaty covers variable annuities written during a limited period, typically not exceeding two years. The Company generally receives a monthly premium during the accumulation phase of the covered annuities (in-force) based on a percentage of the underlying accumulated account values. Depending on an annuitant’s age, the accumulation phase can last many years. To limit the Company’s exposure under these programs, all reinsurance treaties include aggregate claim limits and many include an aggregate deductible.

The guarantees which are payable on death, referred to as guaranteed minimum death benefits (GMDBs), principally cover shortfalls between accumulated account value at the time of an annuitant’s death and either i) an annuitant’s total deposits; ii) an annuitant’s total deposits plus a minimum annual return; or iii) the highest accumulated account value attained during any policy anniversary date. In addition, a death benefit may be based on a formula specified in the variable annuity contract that uses a percentage of the growth of the underlying contract value. Reinsurance programs covering GMDBs are accounted for pursuant to Statement of Position 03-1, “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts” (SOP 03-1).

Under reinsurance programs covering living benefit guarantees, the Company assumes the risk of guaranteed minimum income benefits (GMIBs) associated with variable annuity contracts. The GMIB risk is triggered if, at the time the contract holder elects to convert the accumulated account value to a periodic payment stream (annuitize), the accumulated account value is not sufficient to provide a guaranteed minimum level of monthly income. The Company’s GMIB reinsurance product meets the definition of a derivative for accounting purposes and is therefore carried at fair value with changes in fair value recognized in income in the period of the change pursuant to FAS 133 and classified as described below. As the assuming entity, the Company is obligated to provide coverage until the expiration of the underlying annuities. Premiums received under the reinsurance treaties are classified as premium. Expected losses allocated to premiums received are classified as life and annuity benefits and valued pursuant to SOP 03-1, similar to GMDB reinsurance. Other changes in fair value, principally arising from changes in expected losses allocated to expected future premiums, are classified as realized gains (losses). As fair value generally represents the cost to exit a business and thus includes a risk margin, the Company may recognize a loss for other changes in fair value during a given period due to adverse changes in the capital markets (e.g. declining interest rates and/or declining equity markets) even when the Company continues to expect the business to be profitable. Management believes this presentation provides the most meaningful disclosure of changes in the underlying risk within the GMIB reinsurance programs for a given reporting period.

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The presentation of income and expenses relating to GMDB and GMIB reinsurance for the periods indicated are as follows:


	Three Months Ended March 31
	2006		2005
	(in millions of U.S. dollars)
GMDB
Net premiums earned	$	21	$	18
Life and annuity benefits expense	$	11	$	8

GMIB
Net premiums earned	$	23	$	21
Life and annuity benefits expense	$	—	$	2
Realized gains (losses)	$	2	$	(21	)

Fair Value Components
Gain (loss) recognized in income	$	25	$	(2	)
Net cash received (disbursed)	$	23	$	21
Net (increase) decrease in liability	$	2	$	(23	)

At March 31, 2006, reported liabilities for GMDB and GMIB reinsurance were $69 million and $12 million, respectively, compared with $59 million and $14 million, respectively, at December 31, 2005. The reported liability for GMIB reinsurance at March 31, 2006, and December 31, 2005, is net of the fair value adjustment of $30 million and $28 million respectively. Reported liabilities for both GMDB and GMIB reinsurance are determined using internal valuation models. Such valuations require considerable judgment and are subject to significant uncertainty. The valuation of these products is subject to fluctuations arising from, among other factors, changes in interest rates, changes in the equity markets, and changes in the allocation of the investments underlying annuitant’s account value. These models and the related assumptions are continually reviewed by management and enhanced, as appropriate, based upon improvements in modeling techniques and availability of more timely information, such as market conditions and demographics of in-force annuities.

At March 31, 2006, the Company’s net amount at risk from its GMDB and GMIB reinsurance programs was $617 million and $12 million, respectively, compared with $484 million and $14 million, respectively at December 31, 2005. For the GMDB programs, the net amount at risk is defined as the excess, if any, of the current guaranteed value over the current account value. For the GMIB programs, the net amount at risk is defined as the excess, if any, of the present value of the minimum guaranteed annuity payments over the present value of the annuity payments assumed (under the terms of the reinsurance contract) to be available to each policyholder.

8. Commitments, contingencies and guarantees

a) Other investments

The Company invests in limited partnerships with a carrying value of $187 million included in other investments. In connection with these investments, the Company has commitments that may require funding of up to $176 million over the next several years.

b) Legal proceedings

(i) Claims and Other Litigation

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 P&C loss reserves 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,

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

employment claims, regulatory activity or disputes arising from business ventures. In the opinion of ACE’s management, ACE’s ultimate liability for these matters is not likely to have a material adverse effect on ACE’s consolidated financial condition, although it is possible that the effect could be material to ACE’s consolidated results of operations for an individual reporting period.

(ii) Subpoenas

On April 26, 2006, ACE reached a settlement, with the Attorneys General of New York, Illinois and Connecticut, and the New York Department of Insurance pursuant to which ACE will pay $80 million ($66 million after tax). Of that amount, $40 million will be placed in a trust for distribution to policyholders who execute a release of any claims they may have against ACE pertaining to allegations of antitrust and related legal violations. The remaining $40 million will be paid to the Attorneys General as a penalty. ACE has received an Assurance of Discontinuance from these authorities pursuant to which no litigation be filed against ACE by them. ACE has recorded a charge of $80 million in administrative expenses in its March 31, 2006 financial statements to reflect the effects of this settlement.

ACE, its subsidiaries and affiliates have received numerous subpoenas, interrogatories, and civil investigative demands in connection with the pending investigations of insurance industry practices. These inquiries have been issued by a number of attorneys general, state departments of insurance, and state and federal regulatory authorities, including the New York Attorney General (NYAG), the Pennsylvania Department of Insurance, and the Securities and Exchange Commission (SEC). These inquiries seek information concerning underwriting practices and non-traditional or loss mitigation insurance products. ACE is cooperating and will continue to cooperate with such inquiries.

ACE conducted its own investigation that encompassed the subjects raised by the NYAG, the other state attorneys general and the SEC. The investigation has been conducted by a team from the firm of Debevoise & Plimpton LLP. The team is headed by former United States Attorney Mary Jo White and has operated under the direction of the Audit Committee of the Board of Directors. ACE’s internal investigations pertaining to underwriting practices and non-traditional or loss mitigation insurance products are complete.

(iii) Business practice-related litigation

ACE, ACE INA Holdings, Inc. and ACE USA, along with a number of other insurers, were named in a series of federal putative nationwide class actions brought by insurance policyholders. The Judicial Panel on Multidistrict Litigation (JPML) consolidated these cases in the District of New Jersey. On August 1, 2005, plaintiffs in the New Jersey consolidated proceedings filed two consolidated amended complaints – one concerning commercial insurance and the other concerning employee benefit plans.

•

In the commercial insurance complaint, the plaintiffs named ACE Limited, ACE INA Holdings, Inc., ACE USA, Inc., ACE American Insurance Co., Illinois Union Insurance Co., and Indemnity Insurance Co. of North America. They allege that insurers, including certain ACE entities, and brokers conspired to increase premiums and allocate customers through the use of “B” quotes and contingent commissions. In addition, the complaints allege that the broker defendants received additional income by improperly placing their clients’ business with insurers through related wholesale entities that act as intermediaries between the broker and insurer. Plaintiffs also allege that broker defendants tied the purchase of primary insurance with the placement of such coverage with reinsurance carriers through the broker defendants’ reinsurance broker subsidiaries. In the commercial insurance consolidated complaint, plaintiffs assert the following causes of action against ACE: Federal Racketeer Influenced and Corrupt Organization Act (RICO), federal antitrust law, state antitrust law, aiding and abetting breach of fiduciary duty, and unjust enrichment.

•

In the employee benefits complaint, the plaintiffs named ACE Limited, ACE USA, and Insurance Company of North America. They allege that insurers, including certain ACE entities, and brokers conspired to increase premiums and allocate customers through the use of “B” quotes and contingent commissions. In addition, the complaints allege that the broker defendants received additional income by improperly placing their clients’ business with insurers through related wholesale entities that act as intermediaries between the broker and insurer. Plaintiffs also allege that defendants improperly charged communication fees, which plaintiffs claim are also known as “enrollment fees” or “service/administrative fees”. Plaintiffs also allege that insurers transferred their insureds’ business, with who they had direct contracts with and no broker involvement, to insurance brokers in exchange for

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

the insurance brokers steering additional business to the insurers. Plaintiffs also allege that broker defendants tied the purchase of primary insurance with the placement of such coverage with reinsurance carriers through the broker defendants’ reinsurance broker subsidiaries. In the employee benefits consolidated complaint, plaintiffs assert the following causes of action against ACE: Federal Racketeer Influenced and Corrupt Organization Act (RICO), federal antitrust law, state antitrust law, Employee Retirement Income Security Act (ERISA), aiding and abetting breach of fiduciary duty, and unjust enrichment.

In both cases, the plaintiffs have sought unspecified compensatory damages and reimbursement of expenses, including legal fees.

On November 29, 2005, ACE and other property and casualty insurer defendants filed motions to dismiss the commercial insurance complaint. In that motion, defendants argued that plaintiffs’ federal antitrust and RICO claims were barred by the McCarran-Ferguson Act, which limits antitrust and some other types of liability for insurance activities regulated by state law. Defendants also argued that plaintiffs had not adequately alleged proximate cause or conspiracy. Defendants argued that plaintiffs’ claims alleged fraud and were subject to heightened pleading standards which plaintiffs could not meet, and that plaintiffs had not adequately alleged the elements of a RICO claim, including the existence of an enterprise or a pattern of racketeering activity. Finally, defendants argued that plaintiffs’ state-law antitrust claims were deficient for many of the same reasons that the federal claims were alleged to be deficient, and that plaintiffs had not adequately alleged any state common-law claims. Plaintiffs have filed a response and the motion to dismiss remains pending. It is not possible to predict an outcome on this motion at this time.

On February 13, 2006, plaintiffs filed motions to certify a class in the Commercial and Employee Benefits MDL cases. ACE and other defendants soon will file a brief in opposition to these motions.

Illinois Union Insurance Company, an ACE subsidiary, has been named in a state court class action: Van Emden Management Corporation v. Marsh & McLennan Companies, Inc., et al. (Case No. 05-0066A; Superior Court of Massachusetts) (filed January 13, 2005). ACE American Insurance Co., an ACE subsidiary, has been named in a state court lawsuit in Florida: Office Depot, Inc. v. Marsh & McLennan Companies, Inc. et al. (Case No. 502005CA004396; Circuit Court of the 15th Judicial Circuit in Palm Beach County Florida) (filed June 22, 2005). The allegations in these cases are similar to the allegations in the federal class actions identified above. The Van Emden and Office Depot cases have been stayed pending resolution of the consolidated proceedings in the District of New Jersey or until further order of the Court. Plaintiffs in Office Depot have appealed the Court’s order staying the case.

ACE was named in four putative securities class action suits following the filing of the civil suit against Marsh by the NYAG on October 14, 2004. The suits were consolidated by the JPML in the Eastern District of Pennsylvania. The Court has appointed as lead plaintiffs Sheet Metal Workers’ National Pension Fund and Alaska Ironworkers Pension Trust. Lead plaintiffs filed a consolidated amended complaint on September 30, 2005, naming ACE Limited, Evan G. Greenberg, Brian Duperreault, and Philip V. Bancroft as defendants. Plaintiffs assert claims solely under Section 10(b) of the Securities Exchange Act of 1934 (the Exchange Act), Rule 10b-5 promulgated thereunder, and Section 20(a) of the Securities Act (control person liability). Plaintiffs allege that ACE’s public statements and securities filings should have revealed that insurers, including certain ACE entities and brokers, allegedly conspired to increase premiums and allocate customers through the use of “B” quotes and contingent commissions and that the ACE’s revenues and earnings were inflated by these practices.

On October 28, 2005, ACE Limited and the individual defendants filed a motion to dismiss the consolidated securities actions. Defendants argued that plaintiffs had not adequately alleged any actionable misrepresentations under the securities laws, and that defendants could not be held liable for any failures to disclose information. Defendants also argued that the individual defendants could not be held liable for statements they did not make; that plaintiffs had not adequately pled scienter; and that plaintiffs had not adequately pled loss causation. Plaintiffs have filed a response and the motion to dismiss remains pending. It is not possible to predict an outcome on this motion at this time.

ACE understands that it has been named as a defendant in a derivative suit filed in Delaware Chancery Court by shareholders of Marsh seeking to recover damages for Marsh and its subsidiary, Marsh, Inc., against officers and directors of Marsh, American International Group Inc. (AIG), AIG’s chief executive officer, and ACE. The suit alleges that the defendants damaged Marsh and Marsh, Inc. by participating in a bid rigging scheme and obtaining “kickbacks” in the form of contingent commissions. The suit alleges that ACE knowingly participated in the officers’ and directors’ breaches of fiduciary duty to Marsh, Inc. and Marsh. The plaintiff has sought unspecified compensatory damages and reimbursement of expenses, including legal fees. ACE has not been served in this action, though no assurance can be given that it will not be served.

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

ACE Limited and Evan Greenberg, as a former officer and director of AIG, have been named in two cases styled In re American International Group, Inc. (AIG) Derivative Litigation, both of which are shareholder derivative actions brought by AIG’s shareholders. The allegations against ACE concern the alleged bid rigging and contingent commission scheme as similarly alleged in the federal policyholder cases. Plaintiffs assert the following causes of action against ACE: breach of fiduciary duty and aiding and abetting breaches of fiduciary duties. Both of these cases are stayed until August 31, 2006.

All of these suits seek compensatory damages without specifying an amount. As a result, ACE cannot at this time estimate its potential costs related to these legal matters and accordingly no liability for compensatory damages has been established in the Consolidated Financial Statements. The three months ended March 31, 2006, includes approximately $2 million of investigation related legal expenses. As of March 31, 2006, ACE has incurred over $57 million for legal related fees since the investigation began.

9. Debt

The following table outlines the Company’s debt as of March 31, 2006 and December 31, 2005.


	March 31 2006		December 31 2005
	(in millions of U.S. dollars)
Short-term debt
ACE INA Notes due 2006	$	300	$	300

Long-term debt
ACE Limited Senior Notes due 2007	$	500	$	500
Australia Holdings due 2007		71		73
ACE US Holdings Senior Notes due 2008		250		250
ACE INA Subordinated Notes due 2009		203		200
ACE European Holdings due 2010		174		174
ACE INA Senior Notes due 2014		499		499
ACE INA Debentures due 2029		100		100
Other		15		15

	$	1,812	$	1,811

Trust preferred securities
ACE INA Capital Securities due 2030	$	309	$	309

a) Short-term debt

The Company has commercial paper programs that use revolving credit facilities as back-up facilities and provide for up to $600 million in commercial paper issuance for each of ACE Limited and ACE INA Holdings, Inc. (subject to the availability of back-up facilities, which currently total $600 million). At March 31, 2006, there was no commercial paper outstanding and short-term debt consisted of $300 million of 8.3 percent senior notes due August 2006.

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

10. Employee benefit plans

a) Defined benefit plans

The Company maintains non-contributory defined benefit plans that cover certain foreign employees, principally located in Europe and Asia. The Company does not provide any such plans to U.S.-based employees. The Company accounts for pension benefits using the accrual method, consistent with the requirements of FAS No. 87, “Employers’ Accounting for Pensions.” Benefits under these plans are based on employees’ years of service, and compensation during final years of service. All underlying defined benefit plans are subject to periodic actuarial valuation by qualified local actuarial firms using actuarial models in calculating the pension expense and liability for each plan. The Company funds the plans at the amount required by local tax and legal requirements of sponsoring a defined benefit retirement plan. For individual plans, an additional minimum liability is recognized to the extent the accumulated benefit obligation plus the reported prepaid asset or less the reported pension liability exceeds the fair value of plan assets.

The following table details the net periodic benefit costs recognized by component for the periods indicated.


	Three Months Ended March 31
	2006			2005
	(in millions of U.S. dollars)
Components of net periodic benefit cost
Service cost	$	2		$	2
Interest cost		4			5
Expected return on plan assets		(4	)		(3	)
Amortization of net actuarial loss		1			1

Net periodic benefit cost	$	3		$	5

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11. Earnings per share

The following table sets forth the computation of basic and diluted earnings per share for the periods indicated.


	Three Months Ended March 31
	2006			2005
	(in millions of U.S. dollars, except share and per share data)
Numerator:
Net income before cumulative effect of a change in accounting principle	$	485		$	437
Dividends on Preferred Shares		(11	)		(11	)

Net income available to holders of Ordinary Shares before cumulative effect of a change in accounting principle		474			426
Cumulative effect of a change in accounting principle		4			—

Net income available to holders of Ordinary Shares	$	478		$	426

Denominator:
Denominator for basic earnings per share:
Weighted average shares outstanding		321,090,179			283,179,820
Denominator for diluted earnings per share:
Effect of other dilutive securities		4,636,773			4,385,550

Adjusted weighted average shares outstanding and assumed conversions		325,726,952			287,565,370

Basic earnings per share:
Earnings per share before cumulative effect of a change in accounting principle	$	1.48		$	1.50
Cumulative effect of a change in accounting principle		0.01			—

Earnings per share	$	1.49		$	1.50

Diluted earnings per share:
Earnings per share before cumulative effect of a change in accounting principle	$	1.45		$	1.48
Cumulative effect of a change in accounting principle		0.01			—

Earnings per share	$	1.46		$	1.48

12. Taxation

Under current Cayman Islands law, ACE Limited is not required to pay any taxes on its income or capital gains. If a Cayman Islands law were to be enacted that would impose taxes on income or capital gains, ACE Limited has received an undertaking from the Acting Governor in Cabinet that would exempt it from such taxation until January 2026. Under current Bermuda law, ACE Limited and its Bermuda subsidiaries are not required to pay any taxes on its income or capital gains. If a Bermuda law were to be enacted that would impose taxes on income or capital gains, ACE Limited and the Bermuda subsidiaries have received an undertaking from the Minister of Finance in Bermuda that would exempt such companies from Bermudian taxation 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 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 LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

ACE Group Holdings and its respective subsidiaries are subject to income taxes imposed by U.S. authorities and file a consolidated U.S. tax return. Should ACE Group Holdings pay a dividend to the Company, withholding taxes would apply. Currently, however, no withholding taxes are accrued with respect to such un-remitted earnings as management has no intention of remitting these earnings. The cumulative amount that would be subject to withholding tax if distributed, as well as the determination of the associated tax liability are not practicable to compute, however, such amount would be material to the Company. 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 income 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 periods indicated is as follows:


	Three Months Ended March 31
	2006		2005
	(in millions of U.S. dollars)
Current tax expense	$	63	$	64
Deferred tax expense		71		62

Provision for income taxes	$	134	$	126

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 periods indicated is provided below.


	Three Months Ended March 31
	2006			2005
	(in millions of U.S. dollars)
Expected tax provision at weighted average rate	$	111		$	131
Permanent differences
Tax-exempt interest and DRD, net of proration		(2	)		(2	)
Fines and penalties		14			—
American Jobs Creation Act		—			(8	)
Other		4			3
Incentive stock options		1			—
Net withholding taxes		6			2

Total provision for income taxes	$	134		$	126

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The components of the net deferred tax asset for the periods indicated are as follows:


	March 31 2006		December 31 2005
	March 31 2006		December 31 2005
	(in millions of U.S. dollars)
Deferred tax assets
Loss reserve discount	$	746	$	734
Unearned premium reserve		143		135
Foreign tax credits		552		508
Investments		110		107
Provision for uncollectible balances		106		116
Loss carry-forwards		97		155
Other, net		77		86

Total deferred tax assets		1,831		1,841

Deferred tax liabilities
Deferred policy acquisition costs		133		117
Unrealized appreciation on investments		31		66
Un-remitted foreign earnings		309		257

Total deferred tax liabilities		473		440

Valuation allowance		87		87

Net deferred tax asset	$	1,271	$	1,314

The valuation allowance of $87 million at March 31, 2006 and December 31, 2005, reflects management’s assessment, based on available information, that it is more likely than not that a portion of the deferred tax asset will not be realized due to the inability of certain foreign subsidiaries to generate sufficient taxable income or the inability to utilize foreign tax credits. Adjustments to the valuation allowances are made when there is a change in management’s assessment of the amount of deferred tax asset that is realizable.

At March 31, 2006, the Company has net operating loss carry-forwards for U.S. federal income tax purposes of approximately $275 million. The net operating loss carry-forwards are available to offset future U.S. federal taxable income and, if unutilized, will expire in the year 2022. In addition, the Company has capital loss carry-forwards of $2 million which, if unutilized will expire in the year 2009, a foreign tax credit carry-forward in the amount of $80 million which, if unutilized, will expire in the years 2011-2016, and an alternative minimum tax credit carry-forward of $24 million which can be carried forward indefinitely.

The Internal Revenue Service has completed audits of the federal tax returns for the Company’s U.S. operations for taxable years through 2001. The outcome of the audits did not have a material effect on the financial condition or results of operations of the Company. The federal tax returns for 2002, 2003, and 2004 are currently under examination by the IRS. The Company regularly assesses the likelihood of additional assessments resulting from this examination and other tax-related matters for all open tax years. Tax reserves have been established which the Company believes to be adequate in relation to the potential for additional assessments. Once established, reserves are adjusted when there is more information available or when an event occurs necessitating a change to the reserves.

American Jobs Creation Act of 2004

The American Jobs Creation Act (the Act) was signed into law by the President of the United States on October 22, 2004. The Act provides for the election of a special one-time tax deduction of 85 percent of certain foreign earnings that are repatriated (as defined in the Act) under a Domestic Reinvestment Plan (DRP) to its United States parent corporation in either the parent’s last tax year that began before the enactment date, or the first tax year that begins during the one-year period beginning on the date of enactment. The Act was subsequently modified by several tax technical correction provisions included in the Gulf Opportunity Zone Act of 2005. The Company will apply the provisions of the Act (as modified) to certain of its subsidiaries for the 2005 tax year.

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company repatriated foreign earnings of $500 million during 2005 ($42 million during the three months ended March 31, 2005) subject to DRPs that qualify for preferential treatment under the Act. The tax benefit under the Act associated with these repatriations was $69 million in 2005 ($8 million for the three months ended March 31, 2005) and is a result of the reduction of the net deferred tax liability associated with these repatriated earnings.

13. Information provided in connection with outstanding debt of subsidiary

The following tables present condensed consolidating financial information at March 31, 2006 and December 31, 2005 and for the three months ended March 31, 2006 and 2005, for ACE Limited (the Parent Guarantor) and its “Subsidiary Issuer”, ACE INA Holdings, Inc. The Subsidiary Issuer is an indirect wholly-owned subsidiary of the Parent Guarantor. Investments in subsidiaries are accounted for by the Parent Guarantor under the equity method for purposes of the supplemental consolidating presentation. Earnings of subsidiaries are reflected in the Parent Guarantor’s investment accounts and earnings. The Parent Guarantor fully and unconditionally guarantees certain of the debt of the Subsidiary Issuer.

Condensed Consolidating Balance Sheet at March 31, 2006

(in millions of U.S. dollars)


	ACE Limited (Parent Co. Guarantor)		ACE INA Holdings, Inc. (Subsidiary Issuer)			Other ACE Limited Subsidiaries and Eliminations ⁽¹⁾		Consolidating Adjustments ⁽²⁾			ACE Limited Consolidated
Assets
Investments	$	63	$	17,044		$	16,150	$	—		$	33,257
Cash		31		75			292		—			398
Insurance and reinsurance balances receivable		—		2,913			829		—			3,742
Reinsurance recoverable		—		14,851			718		—			15,569
Goodwill		—		2,226			477		—			2,703
Investments in subsidiaries		12,258		—			—		(12,258	)		—
Due (to) from subsidiaries and affiliates, net		394		(245	)		245		(394	)		—
Other assets		26		5,688			3,464		—			9,178

Total assets	$	12,772	$	42,552		$	22,175	$	(12,652	)	$	64,847

Liabilities
Unpaid losses and loss expenses	$	—	$	26,155		$	9,353	$	—		$	35,508
Unearned premiums		—		5,026			1,528		—			6,554
Future policy benefits for life and annuity contracts		—		—			519		—			519
Short-term debt		—		300			—		—			300
Long-term debt		500		1,062			250		—			1,812
Trust preferred securities		—		309			—		—			309
Other liabilities		115		4,492			3,081		—			7,688

Total liabilities		615		37,344			14,731		—			52,690

Total shareholders’ equity		12,157		5,208			7,444		(12,652	)		12,157

Total liabilities and shareholders’ equity	$	12,772	$	42,557		$	22,175	$	(12,652	)	$	64,847

⁽¹⁾	Includes all other subsidiaries of ACE Limited and intercompany eliminations.

⁽²⁾	Includes ACE Limited parent company eliminations.

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Balance Sheet at December 31, 2005

(in millions of U.S. dollars)


	ACE Limited (Parent Co. Guarantor)		ACE INA Holdings, Inc. (Subsidiary Issuer)			Other ACE Limited Subsidiaries and Eliminations ⁽¹⁾		Consolidating Adjustments ⁽²⁾			ACE Limited Consolidated
Assets
Investments	$	100	$	16,448		$	15,294	$	—		$	31,842
Cash		20		276			216		—			512
Insurance and reinsurance balances receivable		—		2,521			822		—			3,343
Reinsurance recoverable		—		14,469			994		—			15,463
Goodwill		—		2,226			477		—			2,703
Investments in subsidiaries		11,977		—			—		(11,977	)		—
Due from subsidiaries and affiliates, net		389		(307	)		307		(389	)		—
Other assets		22		5,364			3,191		—			8,577

Total assets	$	12,508	$	40,997		$	21,301	$	(12,366	)	$	62,440

Liabilities
Unpaid losses and loss expenses	$	—	$	25,462		$	9,593	$	—		$	35,055
Unearned premiums		—		4,427			1,457		—			5,884
Future policy benefits for life and annuity contracts		—		—			521		—			521
Short-term debt		—		300			—		—			300
Long-term debt		500		1,061			250		—			1,811
Trust preferred securities		—		309			—		—			309
Other liabilities		196		4,302			2,250		—			6,748

Total liabilities		696		35,861			14,071		—			50,628

Total shareholders’ equity		11,812		5,136			7,230		(12,366	)		11,812

Total liabilities and shareholders’ equity	$	12,508	$	40,997		$	21,301	$	(12,366	)	$	62,440

⁽¹⁾	Includes all other subsidiaries of ACE Limited and intercompany eliminations.

⁽²⁾	Includes ACE Limited parent company eliminations.

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Statement of Operations

For the three months ended March 31, 2006

(in millions of U.S. dollars)


	ACE Limited (Parent Co. Guarantor)		ACE INA Holdings, Inc. (Subsidiary Issuer)		Other ACE Limited Subsidiaries and Eliminations ⁽¹⁾			Consolidating Adjustments ⁽²⁾			ACE Limited Consolidated
Net premiums written	$	—	$	1,813	$	1,497		$	—		$	3,310
Net premiums earned		—		1,574		1,231			—			2,805
Net investment income		1		189		179			—			369
Equity in earnings of subsidiaries		490		—		—			(490	)		—
Net realized gains (losses)		26		9		(28	)		—			7
Losses and loss expenses		—		961		719			—			1,680
Life and annuity benefits		—		2		26			—			28
Policy acquisition costs and administrative expenses		29		481		320			(11	)		819
Interest expense		1		38		(1	)		5			43
Other (income) expense		—		3		(11	)		—			(8	)
Income tax expense		2		117		15			—			134
Cumulative effect of a change in accounting principle		4		—		—			—			4

Net income	$	489	$	170	$	314		$	(484	)	$	489

Condensed Consolidating Statement of Operations

For the three months ended March 31, 2005

(in millions of U.S. dollars)


	ACE Limited (Parent Co. Guarantor)			ACE INA Holdings, Inc. (Subsidiary Issuer)		Other ACE Limited Subsidiaries and Eliminations ⁽¹⁾			Consolidating Adjustments ⁽²⁾			ACE Limited Consolidated
Net premiums written	$	—		$	1,992	$	1,374		$	—		$	3,366
Net premiums earned		—			1,678		1,199			—			2,877
Net investment income		—			142		143			—			285
Equity in earnings of subsidiaries		480			—		—			(480	)		—
Net realized gains (losses)		(4	)		17		(27	)		—			(14	)
Losses and loss expenses		—			1,073		716			—			1,789
Life and annuity benefits		—			—		35			—			35
Policy acquisition costs and administrative expenses		32			416		282			(6	)		724
Interest expense		7			32		5			(2	)		42
Other (income) expense		—			1		(6	)		—			(5	)
Income tax expense		—			104		22			—			126

Net income	$	437		$	211	$	261		$	(472	)	$	437

⁽¹⁾	Includes all other subsidiaries of ACE Limited and intercompany eliminations.

⁽²⁾	Includes ACE Limited parent company eliminations.

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Statement of Cash Flows

For the three months ended March 31, 2006

(in millions of U.S. dollars)


	ACE Limited (Parent Co. Guarantor)			ACE INA Holdings, Inc. (Subsidiary Issuer)			Other ACE Limited Subsidiaries and Eliminations ⁽¹⁾			ACE Limited Consolidated
Net cash flows from (used for) operating activities	$	(33	)	$	549		$	570		$	1,086

Cash flows used for investing activities
Purchases of fixed maturities available for sale		5			(3,394	)		(7,202	)		(10,591	)
Purchases of fixed maturities held to maturity		—			(129	)		—			(129	)
Purchases of equity securities		—			(85	)		(83	)		(168	)
Sales and maturities of fixed maturities available for sale		—			2,624			6,921			9,545
Sales of equity securities		—			119			47			166
Maturities and redemptions of fixed maturities held to maturity		—			85			8			93
Net proceeds from the settlement of investment derivatives		(1	)		—			12			11
Dividends received from subsidiaries		70			—			(70	)		—
Other		—			19			(92	)		(73	)

Net cash flows from (used for) investing activities	$	74		$	(761	)	$	(459	)	$	(1,146	)

Cash flows from (used for) financing activities
Dividends paid on Ordinary Shares		(73	)		—			—			(73	)
Dividends paid on Preferred Shares		(11	)		—			—			(11	)
Proceeds from exercise of options for Ordinary Shares		23			—			—			23
Proceeds from Ordinary Shares issued under ESPP		3			—			—			3
Advances (to) from affiliates		28			7			(35	)		—

Net cash flows from (used for) financing activities	$	(30	)	$	7		$	(35	)	$	(58	)

Effect of foreign currency rate changes on cash and cash equivalents	$	—		$	4		$	—		$	4

Net increase in cash		11			(201	)		76			(114	)
Cash – beginning of period		20			276			216			512

Cash – end of period	$	31		$	75		$	292		$	398

⁽¹⁾	Includes all other subsidiaries of ACE Limited and intercompany eliminations.

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Condensed Consolidating Statement of Cash Flows

For the three months ended March 31, 2005

(in millions of U.S. dollars)


	ACE Limited (Parent Co. Guarantor)			ACE INA Holdings, Inc. (Subsidiary Issuer)			Other ACE Limited Subsidiaries and Eliminations ⁽¹⁾			ACE Limited Consolidated
Net cash flows from (used for) operating activities	$	(12	)	$	715		$	510		$	1,213

Cash flows from (used for) investing
Purchases of fixed maturities - available for sale		24			(2,655	)		(3,399	)		(6,030	)
Purchases of equity securities		—			(102	)		(78	)		(180	)
Sales and maturities of fixed maturities – available for sale		—			1,919			3,130			5,049
Sales of equity securities		—			55			30			85
Net proceeds from (payments made on) the settlement of investment derivatives		(4	)		—			4			—
Capitalization of subsidiaries		(100	)		100			—			—
Dividends received from subsidiaries		275			—			(275	)		—
Other		—			1			(31	)		(30	)

Net cash flows from (used for) investing activities	$	195		$	(682	)	$	(619	)	$	(1,106	)

Cash flows from financing activities
Dividends paid on Ordinary Shares		(60	)		—			—			(60	)
Dividends paid on Mezzanine equity/Preferred Shares		(11	)		—			—			(11	)
Proceeds from short-term debt, net		—			—			1			1
Proceeds from exercise of options for Ordinary Shares		39			—			—			39
Proceeds from Ordinary Shares issued under ESPP		4			—			—			4
Advances to (from) affiliates		(127	)		(24	)		151			—

Net cash flows from (used for) financing activities	$	(155	)	$	(24	)	$	152		$	(27	)

Effect of foreign currency rate changes on cash and cash equivalents	$	—		$	(2	)	$	(2	)	$	(4	)

Net increase in cash		28			7			41			76
Cash – beginning of period		6			226			266			498

Cash – end of period	$	34		$	233		$	307		$	574

⁽¹⁾	Includes all other subsidiaries of ACE Limited and intercompany eliminations.

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

14. Segment information

The Company operates through the following business segments: Insurance – North American, Insurance – Overseas General, Global Reinsurance, Financial Services and Life Insurance and Reinsurance. These segments distribute their products through various forms of brokers and agencies. Insurance - North American, Insurance - Overseas General and Global Reinsurance utilize direct marketing programs to reach clients. Additionally, Insurance - North American has formed internet distribution channels for some of its products. Global Reinsurance, Financial Services and Life Reinsurance have established relationships with reinsurance intermediaries.

The Insurance – North American segment includes the operations of ACE USA, ACE Canada and ACE Bermuda, excluding the financial solutions business in both the U.S. and Bermuda, which are included in the Financial Services segment. These operations provide a broad range of property and casualty insurance and reinsurance products, including excess liability, excess property, professional lines, aerospace, accident and health coverages and claim and risk management products and services, to a diverse group of commercial and non-commercial enterprises and consumers. Subsequent to the IPO of Assured Guaranty, the title insurance business is included in the Insurance – North American segment. The operations of ACE USA also include the run-off operations, which include Brandywine, Commercial Insurance Services, residual market workers’ compensation business, pools and syndicates not attributable to a single business group, the run-off of open market facilities and the run-off results of various other smaller exited lines of business. Run-off operations do not actively sell insurance products, but are responsible for the management of existing policies and related claims.

The Insurance – Overseas General segment consists of ACE International (excluding its life insurance business) and the insurance operations of ACE Global Markets. ACE International includes ACE INA’s network of indigenous insurance operations, which were acquired in 1999. The segment has four regions of operations: ACE Asia Pacific, ACE Far East, ACE Latin America and the ACE European Group, (which comprises ACE Europe, ACE INA UK Limited and the insurance operations of ACE Global Markets). ACE Global Markets provides funds at Lloyd’s to support underwriting by the Lloyd’s syndicates managed by Lloyd’s managing agencies which are owned by the Company (including for segment purposes Lloyd’s operations owned by ACE Financial Services). The reinsurance operation of ACE Global Markets is included in the Global Reinsurance segment. Companies within the Insurance – Overseas General segment write a variety of insurance products including property, casualty, professional lines (D&O and E&O), marine, energy, aviation, political risk, consumer-oriented products and A&H – principally supplemental accident insurance.

The Global Reinsurance segment comprises ACE Tempest Re Bermuda, ACE Tempest Re USA and ACE Tempest Re Europe. These divisions provide property catastrophe, casualty and property reinsurance.

The Financial Services segment includes the financial solutions business in the U.S. and Bermuda and the Company’s share of Assured Guaranty’s earnings. The financial solutions business includes insurance and reinsurance solutions to complex risks that generally cannot be adequately addressed by the traditional insurance marketplace. It consists of securitization and risk trading, finite and structured risk products, and retroactive contracts in the form of loss portfolio transfers.

The Life Insurance and Reinsurance segment includes the operations of ACE Tempest Life Re and the life insurance operations of ACE International. The principal business of ACE Tempest Life Re is to provide reinsurance coverage to other life insurance companies.

Corporate and other includes ACE Limited and ACE INA Holdings, Inc. (Corporate) and intercompany eliminations. In addition, included in losses and loss expenses for the three months ended March 31, 2006 and 2005 are losses incurred in connection with the commutation of ceded reinsurance contracts that resulted from a differential between the consideration received from reinsurers and the related reduction of reinsurance recoverables, principally related to the time value of money. Due to the Company’s initiatives to reduce reinsurance recoverable balances and thereby encourage such commutations, losses recognized in connection with the commutation of ceded reinsurance contracts are generally not considered when assessing segment performance and accordingly, are directly allocated to Corporate. Accordingly, the effect of the related loss reserve development on net income is reported within Corporate.

For segment reporting purposes, certain items have been presented in a different manner than in the consolidated financial statements. The following tables summarize the operations by segment for the three months ended March 31, 2006 and 2005.

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Statement of Operations by Segment

For the three months ended March 31, 2006

(in millions of U.S. dollars)


	Insurance – North American			Insurance - Overseas General		Global Reinsurance			Financial Services			Life Insurance and Reinsurance			Corporate and Other			ACE Consolidated
Gross premiums written	$	2,212		$	1,584	$	604		$	50		$	61		$	—		$	4,511
Net premiums written		1,454			1,146		600			49			61			—			3,310
Net premiums earned		1,298			1,039		371			36			61			—			2,805
Losses and loss expenses		875			566		197			41			—			1			1,680
Life and annuity benefits		—			—		—			—			28			—			28
Policy acquisition costs		143			194		76			2			6			—			421
Administrative expenses		115			145		14			1			7			116			398

Underwriting income (loss)		165			134		84			(8	)		20			(117	)		278

Net investment income		168			85		48			35			10			23			369
Net realized gains (losses)		(6	)		4		(6	)		—			(8	)		23			7
Interest expense		5			—		—			—			—			38			43
Other (income) expense		(1	)		6		1			(14	)		—			—			(8	)
Income tax expense (benefit)		88			56		12			4			(1	)		(25	)		134
Cumulative effect of a change in accounting principle		—			—		—			—			—			4			4

Net income (loss)	$	235		$	161	$	113		$	37		$	23		$	(80	)	$	489

Statement of Operations by Segment

For the three months ended March 31, 2005

(in millions of U.S. dollars)


	Insurance – North American			Insurance - Overseas General		Global Reinsurance			Financial Services			Life Insurance and Reinsurance			Corporate and Other			ACE Consolidated
Gross premiums written	$	2,150		$	1,634	$	536		$	163		$	60		$	—		$	4,543
Net premiums written		1,425			1,193		527			161			60			—			3,366
Net premiums earned		1,285			1,086		356			90			60			—			2,877
Losses and loss expenses		892			610		205			83			—			(1	)		1,789
Life and annuity benefits		—			—		—			—			35			—			35
Policy acquisition costs		117			191		73			2			5			—			388
Administrative expenses		111			146		15			4			4			56			336

Underwriting income (loss)		165			139		63			1			16			(55	)		329

Net investment income		131			74		39			32			9			—			285
Net realized gains (losses)		(11	)		18		(6	)		6			(16	)		(5	)		(14	)
Interest expense		5			—		1			—			—			36			42
Other (income) expense		—			6		1			(12	)		—			—			(5	)
Income tax expense (benefit)		80			52		9			6			—			(21	)		126

Net income (loss)	$	200		$	173	$	85		$	45		$	9		$	(75	)	$	437

Underwriting assets for property and casualty and financial services are reviewed in total by management for purposes of decision-making. The Company does not allocate assets to its segments. Assets are specifically identified for the life reinsurance operations and corporate holding companies, including ACE Limited and ACE INA Holdings.

ACE LIMITED AND SUBSIDIARIES

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes the identifiable assets at March 31, 2006 and December 31, 2005.


	March 31		December 31
	2006		2005
	(in millions of U.S. dollars)
Life reinsurance	$	806	$	764
Corporate		2,150		2,172
All other		61,891		59,504

Total assets	$	64,847	$	62,440

The following tables summarize the net premiums earned of each segment by product offering for the periods indicated.



	Property & Casualty		Life & Personal Accident		Financial Solutions		ACE Consolidated
	(in millions of U.S. dollars)
Three Months Ended March 31, 2006
Insurance – North American	$	1,249	$	49	$	—	$	1,298
Insurance – Overseas General		752		287		—		1,039
Global Reinsurance		371		—		—		371
Financial Services		—		—		36		36
Life Insurance and Reinsurance		—		61		—		61

	$	2,372	$	397	$	36	$	2,805

Three Months Ended March 31, 2005
Insurance – North American	$	1,238	$	47	$	—	$	1,285
Insurance – Overseas General		834		252		—		1,086
Global Reinsurance		356		—		—		356
Financial Services		—		—		90		90
Life Insurance and Reinsurance		—		60		—		60

	$	2,428	$	359	$	90	$	2,877

The following table summarizes the Company’s gross premiums written by geographic region for the periods indicated. Allocations have been made on the basis of location of risk.


Three Months Ended	North America	Europe	Australia & New Zealand	Asia Pacific	Latin America
March 31, 2006	60%	27%	2%	7%	4%
March 31, 2005	58%	28%	2%	7%	5%

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion of our results of operations, financial condition, and liquidity and capital resources as of and for the three months ended March 31, 2006. Our results of operations and cash flows for any interim period are not necessarily indicative of our results for the full year. This discussion should be read in conjunction with our Consolidated Financial Statements and related notes and our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2005.

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Any written or oral statements made by us or on our behalf may include forward-looking statements that reflect our current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks, uncertainties and assumptions about our business that could cause actual results to differ materially from such statements. These risks, uncertainties and assumptions (which are described in more detail elsewhere herein and in other documents we file with the Securities and Exchange Commission (SEC)) include but are not limited to:

•

losses arising out of natural or man-made catastrophes such as hurricanes, typhoons, earthquakes, floods or terrorism which could be affected by:

•

the number of insureds and ceding companies affected,

•

the amount and timing of losses actually incurred and reported by insureds,

•

the impact of these losses on our reinsurers, and the amount and timing of reinsurance recoverables actually received,

•

the cost of building materials and labor to reconstruct properties following a catastrophic event, and

•

complex coverage and regulatory issues such as whether losses occurred from storm surge or flooding and related lawsuits;

•

actions that rating agencies may take from time to time, such as changes in our claims-paying ability, financial strength or credit ratings or placing these ratings on credit watch negative or the equivalent;

•

global political conditions, the occurrence of any terrorist attacks, including any nuclear, biological or chemical events, or the outbreak and effects of war, and possible business disruption or economic contraction that may result from such events;

•

the ability to collect reinsurance recoverables, credit developments of reinsurers, and any delays with respect thereto and changes in the cost, quality or availability of reinsurance;

•

the occurrence of catastrophic events or other insured or reinsured events with a frequency or severity exceeding our estimates;

•

actual loss experience from insured or reinsured events and the timing of claim payments;

•

the uncertainties of the loss-reserving and claims-settlement processes, including the difficulties associated with assessing environmental damage and asbestos-related latent injuries, the impact of aggregate-policy-coverage limits, and the impact of bankruptcy protection sought by various asbestos producers and other related businesses and the timing of loss payments;

•

judicial decisions and rulings, new theories of liability, legal tactics, and settlement terms;

•

the effects of public company bankruptcies and/or accounting restatements, as well as disclosures by and investigations of public companies relating to possible accounting irregularities, and other corporate governance issues, including the effects of such events on:

•

the capital markets;

•

the markets for directors and officers and errors and omissions insurance; and

•

claims and litigation arising out of such disclosures or practices by other companies;

•

uncertainties relating to governmental, legislative and regulatory policies, developments, actions, investigations and treaties, which, among other things, could subject us to insurance regulation or taxation in additional jurisdictions or affect our current operations;

•

the actual amount of new and renewal business, market acceptance of our products, and risks associated with the introduction of new products and services and entering new markets, including regulatory constraints on exit strategies;

•

the competitive environment in which we operate, including trends in pricing or in policy terms and conditions, which may differ from our projections and changes in market conditions that could render our business strategies ineffective or obsolete;

•

developments in global financial markets, including changes in interest rates, stock markets and other financial markets, and foreign currency exchange rate fluctuations, which could affect our statement of operations, investment portfolio and financing plans;

•

the potential impact from government-mandated insurance coverage for acts of terrorism;

•

the availability of borrowings and letters of credit under our credit facilities;

•

changes in the distribution or placement of risks due to increased consolidation of insurance and reinsurance brokers;

•

material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements;

•

the effects of investigations into market practices in the property and casualty (P&C) industry;

•

changing rates of inflation and other economic conditions;

•

the amount of dividends received from subsidiaries;

•

loss of the services of any of our executive officers without suitable replacements being recruited in a reasonable time frame;

•

the ability of technology to perform as anticipated; and

•

management’s response to these factors.

The words “believe”, “anticipate”, “estimate”, “project”, “should”, “plan”, “expect”, “intend”, “hope”, “will likely result” or “will continue”, and variations thereof and similar expressions, identify forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

ACE Limited (ACE) is the Bermuda-based holding company of the ACE Group of Companies incorporated with limited liability under the Cayman Islands Companies Law. We created our business office in Bermuda in 1985 when we initially incorporated the Company and we continue to maintain our business office in Bermuda. We provide a broad range of insurance and reinsurance products to insureds worldwide through operations in more than 50 countries around the world, and have the authority to conduct business in over 140 countries.

Our long-term business strategy focuses on sustained growth in book value achieved through a combination of underwriting and investment income. By doing so, we provide value to our clients and shareholders through the utilization of our substantial capital base in the insurance and reinsurance markets. ACE’s senior management is well-seasoned in the insurance industry and its attention to operational efficiency, maintaining balance sheet strength, and enforcing strong underwriting and financial discipline across the whole organization has laid the foundation for sustained earnings and book value growth.

As an insurance and reinsurance company, we generate gross revenues from two principal sources, premiums which are usually paid in advance of loss payments, and investment income. Cash flow is generated from premiums collected and investment income received less paid losses and loss expenses, policy acquisition costs and administrative expenses. Invested assets are generally held in liquid, investment grade fixed income securities of relatively short duration. We also invest a small portion of our assets in less liquid or higher risk assets in an attempt to achieve higher risk-adjusted returns. Claims payments in any short-term period are highly unpredictable due to the random nature of loss events and the timing of claims awards or settlements. The value of investments held to pay future claims is subject to market forces such as the level of interest rates, stock market volatility and credit events such as corporate defaults. The actual cost of claims is also volatile based on loss trends, inflation rates, court awards and catastrophes. We believe that our cash balances, our highly liquid investments, credit facilities and reinsurance protection provide sufficient liquidity to meet any unforeseen claim demands that might occur in the year ahead.

ACE is organized along a profit center structure that does not necessarily correspond to corporate legal entities. Profit centers can access various legal entities, subject to licensing and other regulatory rules. Profit centers are expected to generate an underwriting income and appropriate risk-adjusted returns. This corporate structure has facilitated the development of management talent by giving each profit center’s senior management team the necessary autonomy to make operating decisions and create products and coverages needed by its target customer base. ACE is an underwriting company and senior management is focused on delivering underwriting income on a consistent basis. We strive to achieve underwriting income by only writing policies which we believe adequately compensate us for the risk we accept. We do not believe in sacrificing underwriting income for growth. Distinction in service is an additional area of focus and a means to set ACE apart from its competition.

The insurance industry is highly competitive, with many companies including several new entrants, offering similar coverage. The rates, terms and conditions related to the products we offer have historically changed depending on the timing of the insurance cycle. During periods of excess underwriting capacity, as defined by availability of capital, competition can result in lower pricing and less favorable terms and conditions. During periods of reduced underwriting capacity, pricing and terms and conditions are generally more favorable.

Insurance Industry Investigations and Related Matters

On April 26, 2006, ACE reached a settlement, with the Attorneys General of New York, Illinois and Connecticut, and the New York Department of Insurance pursuant to which ACE will pay $80 million ($66 million after tax). Of that amount, $40 million will be placed in a trust for distribution to policyholders who execute a release of any claims they may have against ACE pertaining to allegations of antitrust and related legal violations. The remaining $40 million will be paid to the Attorneys General as a penalty. ACE has received an Assurance of Discontinuance from these authorities pursuant to which no litigation be filed against ACE by them. ACE has recorded a charge of $80 million in administrative expenses in its March 31, 2006, financial statements to reflect the effects of this settlement.

More information on the insurance industry investigations and related matters is set forth in Note 8 b) of our Consolidated Financial Statements.

Stock-Based Compensation

We have share-based compensation plans which currently provide for awards of stock options, restricted stock and restricted stock units to our employees and members of our Board of Directors. In December 2004, the FASB issued FAS 123 (Revised) Share-Based Payment (FAS 123R) which is a revision of FAS 123 that supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). FAS 123R requires all companies to measure and record compensation cost for all share-based payment awards (including employee stock options) at grant-date fair value. We adopted FAS 123R effective January 1, 2006. Prior to the adoption of FAS 123R, we accounted for our share-based compensation plans in accordance with APB 25. In accordance with APB 25, we did not recognize compensation expense for employee stock options in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying Ordinary Shares on the date of the grant. In addition, we did not recognize expenses related to our employee stock purchase plan (ESPP). Upon adopting FAS 123R on January 1, 2006, we were required to expense employee stock options and expenses related to our ESPP. Prior to the adoption of FAS 123R, forfeitures were recognized as they occurred. Upon adopting FAS 123R, an estimate of future forfeitures is incorporated into the determination of compensation cost for both restricted stock grants and stock options. At January 1, 2006, the cumulative effect of this change in accounting principle is $4 million net of tax. This effect relates to the recognition of expected forfeitures on restricted stock grants that are not vested as of January 1, 2006.

For the three months ended March 31, 2006, the adoption of FAS 123R resulted in incremental stock-based compensation expense, for the cost of stock options and the ESPP, of $4 million before and after tax ($0.01 per basic and diluted share) that would not have otherwise been recognized. Determining the fair value of stock-based awards at the grant date requires judgment, including estimating

the expected term of stock options and the expected volatility of our stock. In addition, judgment is required in estimating the amount of stock-based awards that are expected to be forfeited. See Note 3 of our Consolidated Financial Statements for additional information.

Critical Accounting Estimates

Our Consolidated Financial Statements include amounts that, either by their nature or due to requirements of accounting principles generally accepted in the U.S. (GAAP), are determined using best estimates and assumptions. While we believe that the amounts included in our Consolidated Financial Statements reflect our best judgment, actual amounts could ultimately materially differ from those currently presented in our Consolidated Financial Statements. We believe the items that require the most subjective and complex estimates are:

•

unpaid losses and loss expense reserves, including asbestos reserves;

•

reinsurance recoverable, including our provision for uncollectible reinsurance;

•

impairments to the carrying value of our investment portfolio;

•

the valuation of deferred tax assets;

•

the fair value of certain derivatives;

•

the valuation of goodwill; and

•

assessment of risk transfer for certain structured insurance and reinsurance contracts.

We believe our accounting policies for these items are of critical importance to our Consolidated Financial Statements. More information regarding our critical accounting estimates is included in the section entitled “Critical Accounting Estimates” in our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2005.

Results of Operations – Three Months Ended March 31, 2006 and 2005

The discussions that follow include tables, which show both our consolidated and segment operating results for the three months ended March 31, 2006 and 2005. In presenting our segment operating results, we have discussed our performance with reference to underwriting results, which is a non-GAAP measure. We consider this measure, which may be defined differently by other companies, to be important in understanding our overall results of operations. Underwriting results are calculated by subtracting losses and loss expenses, life and annuity benefits, policy acquisition costs and administrative expenses from net premiums earned. We use underwriting results and operating ratios to monitor the results of our operations without the impact of certain factors, including net investment income, other (income) expense, interest expense, income tax expense and net realized gains (losses). We believe the use of these measures enhances the understanding of our results of operations by highlighting the underlying profitability of our insurance business. Underwriting results should not be viewed as a substitute for measures determined in accordance with GAAP.

Consolidated Operating Results


	Three Months Ended March 31
	2006			2005
	(in millions of U.S. dollars)
Net premiums written	$	3,310		$	3,366
Net premiums earned		2,805			2,877
Net investment income		369			285
Net realized gains (losses)		7			(14	)

Total revenues	$	3,181		$	3,148

Losses and loss expenses		1,680			1,789
Life and annuity benefits		28			35
Policy acquisition costs		421			388
Administrative expenses		398			336
Interest expense		43			42
Other income		(8	)		(5	)

Total expenses	$	2,562		$	2,585

Income before income tax		619			563
Income tax expense		134			126
Cumulative effect of a change in accounting principle		4			—

Net income	$	489		$	437

Net premiums written, which reflect the premiums we retain after purchasing reinsurance protection, decreased two percent in the quarter ended March 31, 2006, compared with the same quarter in 2005. Our P&C business (which excludes our Life and Financial Services segments) increased two percent. This increase was primarily driven by strong production in the Global Reinsurance segment’s U.S. P&C reinsurance business, partially offset by a decline in net premiums written at ACE International.

ACE conducts business internationally and in most major foreign currencies. The following table summarizes the approximate effect of changes in foreign currency exchange rates on the growth of P&C net premiums written and earned for the period indicated.


	Three Months Ended March 31 2006
Net premiums written:
Growth in original currency	3.9	%
Foreign exchange effect	(2.2	)%

Growth as reported in U.S. dollars	1.7	%

Net premiums earned:
Growth in original currency	1.1	%
Foreign exchange effect	(1.8	)%

Growth as reported in U.S. dollars	(0.7	)%

The following table provides a consolidated breakdown of net premiums earned by line of business for the periods indicated.


	Three Months Ended March 31
	2006		% of total		2005		% of Total
	(in millions of U.S. dollars)
Property and all other	$	743	27	%	$	817	29	%
Casualty		1,629	58	%		1,611	56	%
Personal accident (A&H)		336	12	%		299	10	%

Total P&C		2,708	97	%		2,727	95	%
Life Insurance and Reinsurance		61	2	%		60	2	%
Financial Services		36	1	%		90	3	%

Net premiums earned	$	2,805	100	%	$	2,877	100	%

Net premiums earned reflect the portion of net premiums written that were recorded as revenues for the period as the exposure period expires. Our P&C business reported stable net premiums earned in the quarter ended March 31, 2006, compared with the same quarter in 2005. Our Financial Services business reported a decrease in net premiums earned of 60 percent in the quarter ended March 31, 2006, compared with the same quarter in 2005. This reflects a decrease in this segment’s underwriting opportunities in some lines of business and the non-renewal of certain accounts.

Net investment income increased 29 percent in the quarter ended March 31, 2006, compared with the same quarter in 2005. The increase in net investment income was primarily due to positive operating cash flows and proceeds from our public offering in October 2005, which have resulted in a higher overall average invested asset base.

In evaluating our P&C and Financial Services businesses, we use the combined ratio, the loss and loss expense ratio, the policy acquisition cost ratio and the administrative expense ratio. We calculate these ratios by dividing the respective expense amounts by net premiums earned. We do not calculate these ratios for the life business as we do not use these measures to monitor or manage that business. The combined ratio is determined by adding the loss and loss expense ratio, the policy acquisition cost ratio and the administrative expense ratio. A combined ratio under 100 percent indicates underwriting income, and a combined ratio exceeding 100 percent indicates underwriting losses.

The following table shows our consolidated loss and loss expense ratio, policy acquisition cost ratio, administrative expense ratio and combined ratio for the periods indicated.


	Three Months Ended March 31
	2006		2005
Loss and loss expense ratio	61.2	%	63.5	%
Policy acquisition cost ratio	15.2	%	13.6	%
Administrative expense ratio	14.2	%	11.8	%
Combined ratio	90.6	%	88.9	%

Our loss and loss expense ratio decreased in the quarter ended March 31, 2006, compared with the same quarter in 2005, primarily due to net favorable prior period development. The following table shows the impact of catastrophe losses and prior period development on our loss and loss expense ratio for the periods indicated.


	Three Months Ended March 31
	2006		2005
Loss and loss expense ratio, as reported	61.2	%	63.5	%
Catastrophe losses	(0.1	)%	(0.1	)%
Prior period development	1.2	%	(1.1	)%

Loss and loss expense ratio, adjusted	62.3	%	62.3	%

We experienced net catastrophe losses of $3 million in each of the quarters ended March 31, 2006 and 2005.

Prior period development arises from changes to loss estimates recognized in the current year that relate to loss reserves first reported in previous calendar years and excludes the effect of losses from the development of earned premium from previous accident years. For purposes of analysis and disclosure, management views prior period development to be changes in the nominal value of loss estimates from period to period and excludes changes in loss estimates that do not arise from the emergence of claims, such as those related to uncollectible reinsurance, interest, or foreign currency. Accordingly, specific items excluded from prior period development include the following: gains/losses related to foreign currency translation that affect both the valuation of unpaid losses and loss expenses and losses incurred; losses recognized from the early termination or commutation of reinsurance agreements that principally relate to the time value of money; changes in the value of reinsurance business assumed reflected in losses incurred but principally related to the time value of money and losses that arise from changes in estimates of earned premiums from prior accident years. We experienced $32 million of net favorable prior period development in the quarter ended March 31, 2006, compared with net adverse prior period development of $30 million in the same quarter in 2005. The favorable prior period development in the quarter ended March 31, 2006 was the net result of several underlying favorable and adverse movements. Amongst these movements was net adverse development of $64 million ($49 million after tax) on catastrophe losses primarily arising from 2005 hurricanes. Due to the magnitude and nature of these events, the process of estimating and reserving for the associated losses is centrally managed. In the following sections, the other prior period movements within each reporting segment are discussed in more detail.

Our policy acquisition costs include commissions, premium taxes, underwriting and other costs that vary with, and are primarily related to, the production of premium. Policy acquisition costs ratio increased primarily due to changes in business mix. Administrative expenses include all other operating costs. For the quarter ended March 31, 2006, administrative expenses include $80 million related to the settlement with certain governmental agencies from their investigations of various insurance industry business practices. Administrative expenses for the quarter ended March 31, 2006, also include $2 million of legal fees in connection with the investigations compared with $30 million in the same quarter for 2005. Our administrative expense ratio increased primarily as a result of the settlement.

Our effective tax rate on net income, which we calculate as income tax expense divided by income before income tax, was 21 percent in the quarter ended March 31, 2006 compared with 22 percent in the same quarter in 2005. A higher proportion of our net income for the quarter ended March 31, 2006, was earned in lower-tax paying jurisdictions while the quarter ended March 31, 2005, included an $8 million tax benefit related to the American Jobs Creation Act. Refer to “American Jobs Creation Act of 2004” for more information.

Segment Operating Results – Three Months Ended March 31, 2006 and 2005

Our business consists of five segments: Insurance - North American, Insurance - Overseas General, Global Reinsurance, Financial Services and Life Insurance and Reinsurance. Our Annual Report on Form 10-K for the year ended December 31, 2005, includes more information on each of our segments in the section entitled, “Segment Information”, under Item 1.

Insurance - North American

The Insurance – North American segment comprises our P&C operations in the U.S., Canada and Bermuda. This segment includes the operations of ACE USA (including ACE Canada), ACE Westchester Specialty and ACE Bermuda.

ACE USA operates through several insurance companies using a network of offices throughout the U.S. and Canada. These operations provide a broad range of P&C insurance and reinsurance products to a diverse group of commercial and non-commercial enterprises and consumers. These products include excess liability, excess property, workers’ compensation, general liability, automobile liability, professional lines (D&O and errors and omissions (E&O)), aerospace, accident and health (A&H) coverages as well as claims and risk management products and services. The operations of ACE USA also include run-off operations, which include Brandywine Holdings Corporation (Brandywine), Commercial Insurance Services (CIS), residual market workers’ compensation business, pools and syndicates not attributable to a single business group, the run-off of open market facilities and other smaller exited lines of business. Run-off operations do not actively sell insurance products, but are responsible for the management of existing policies and related claims. The Brandywine run-off operation was created in 1996 (prior to our acquisition of ACE INA) by the restructuring of ACE INA’s U.S. operations into two separate operations, ongoing and run-off. ACE Westchester Specialty and Brandywine contain substantially all of ACE’s asbestos and environmental (A&E) exposures, some of which has been assumed from affiliates through reinsurance. Brandywine also contains various other run-off insurance and reinsurance businesses. Refer to the section entitled “Asbestos and Environmental and Other Run-Off Liabilities” for more information.

ACE Westchester Specialty is U.S. based and specializes in the wholesale distribution of property, inland marine, and casualty products. ACE Westchester Specialty also provides coverage for agriculture business and specialty programs through its Program division, writing a variety of commercial coverages through program agents, including sports/leisure activities, farm and crop/hail insurance.

ACE Bermuda provides commercial insurance products to a global client base, covering risks that are generally low in frequency and high in severity. ACE Bermuda’s principal lines of business are excess liability, professional lines, excess property and political risk, the latter being written on a subscription basis by Sovereign Risk Insurance Ltd. (Sovereign), a managing agent. Effective February 1, 2006, ACE Bermuda assumed 100 percent of the political risk business written by Sovereign (previously we assumed 50 percent of this business) and purchased reinsurance protection to maintain our net exposure at previous levels.


	Three Months Ended March 31
	2006			2005
	(in millions of U.S. dollars)
Net premiums written	$	1,454		$	1,425
Net premiums earned		1,298			1,285
Losses and loss expenses		875			892
Policy acquisition costs		143			117
Administrative expenses		115			111

Underwriting income	$	165		$	165

Net investment income		168			131
Net realized gains (losses)		(6	)		(11	)
Interest expense		5			5
Other (income) expense		(1	)		—
Income tax expense		88			80

Net income	$	235		$	200

Loss and loss expense ratio		67.4	%		69.4	%
Policy acquisition cost ratio		11.0	%		9.1	%
Administrative expense ratio		8.9	%		8.6	%
Combined ratio		87.3	%		87.1	%

Net premiums written for the Insurance – North American segment increased two percent in the quarter ended March 31, 2006, compared with the same quarter in 2005. This increase was primarily driven by ACE USA’s risk management, commercial property and workers’ compensation businesses, partially offset by lower net premiums written for ACE Westchester Specialty and ACE Bermuda. ACE Westchester Specialty experienced lower production in its property and crop businesses, partially offset by growth in casualty, particularly professional risk business, and inland marine products. With respect to ACE Westchester Specialty’s crop business, during the first quarter of each year the previous crop-year is settled, based on actual experience - the increase to net premiums written was lower in 2006 compared with 2005. ACE Bermuda’s net premiums written decreased primarily due to a decline in production of excess liability and professional lines and lower retention of excess property gross premiums written.

The following two tables provide a line of business and entity/divisional breakdown of Insurance – North American’s net premiums earned for the periods indicated.


	Three Months Ended March 31
	2006		% of total		2005		% of total
	(in millions of U.S. dollars)
Property and all other	$	267	20	%	$	320	25	%
Casualty		982	76	%		918	71	%
Personal accident (A&H)		49	4	%		47	4	%

Net premiums earned	$	1,298	100	%	$	1,285	100	%


	Three Months Ended March 31
	2006		2005
	(in millions of U.S. dollars)
ACE USA	$	885	$	848
ACE Westchester Specialty		318		332
ACE Bermuda		95		105

Net premiums earned	$	1,298	$	1,285

ACE USA’s net premiums earned increased four percent in the quarter ended March 31, 2006, compared with the same quarter in 2005. The increase was primarily driven by its ACE Comp Group which has experienced several quarters of production growth in workers’ compensation coverage offered to small and middle market clients. ACE USA’s professional liability, medical liability and risk management businesses also contributed to the increase in net premiums earned. Partially offsetting these increases were declines at ACE International & Specialty which experienced lower net premiums earned in its aerospace, property and recreational marine lines.

ACE Westchester Specialty’s net premiums earned decreased four percent in the quarter ended March 31, 2006, compared with the same quarter in 2005, primarily due to the decrease in production in property and crop business, partially offset by growth in casualty business (primarily professional risk), particularly in the latter part of 2005.

ACE Bermuda’s net premiums earned decreased 10 percent in the quarter ended March 31, 2006, compared with the same quarter in 2005, primarily due to a decline in excess property and professional lines production. ACE Bermuda has been experiencing several quarters of unfavorable market conditions for excess property business and strong competition in the professional lines.

Insurance – North American’s loss and loss expense ratio decreased in the quarter ended March 31, 2006, compared with the same quarter in 2005. The following table shows the impact of prior period development on our loss and loss expense ratio for the periods indicated.


	Three Months Ended March 31
	2006		2005
Loss and loss expense ratio, as reported	67.4	%	69.4	%
Prior period development	0.1	%	(1.7	)%

Loss and loss expense ratio, adjusted	67.5	%	67.7	%

Insurance – North American experienced $2 million of net favorable prior period development in the quarter ended March 31, 2006, representing less than 0.1 percent of the segment’s net unpaid loss and loss expense reserves at January 1, 2006. This compares with net adverse development of $22 million for the same quarter in 2005, representing 0.2 percent of the segment’s net unpaid loss and loss expense reserves at January 1, 2005. The prior period development for the quarter ended March 31, 2006 was the net result of underlying adverse and favorable movements. The largest adverse movement was related to catastrophes from the 2005 accident year of $46 million. The most significant favorable prior period development offsetting

this was $46 million due to booking of the final settlement in the quarter ended March 31, 2006, on 2005 crop year results. The loss and loss expense ratio for the quarter ended March 31, 2005, was negatively impacted by net adverse prior period development of $22 million, representing 0.2 percent of the segment’s net unpaid loss and loss expense reserves at January 1, 2005. The prior period development for the quarter ended March 31, 2005, was the net result of several underlying favorable and adverse movements, the most significant of which was $19 million of adverse prior period development impacting the 2002 and 2001 accident years relating to changes in the legal and claim positions on an account that provided financial guarantee insurance to a now bankrupt facility that ran leasing pools.

Insurance – North American’s policy acquisition cost ratio increased in the quarter ended March 31, 2006, compared with the same quarter in 2005, primarily due to higher acquisition costs on ACE Westchester Specialty’s crop business, reflecting more profitable crop results which required a higher profit share commission expense. This was partially offset by lower commission costs on ACE Bermuda’s professional lines. Administrative expenses increased primarily as a result of higher costs to support business growth at ACE USA and increased expenses at ACE Bermuda, including costs associated with the consolidating of Sovereign into our financial statements for the first time. Increases in administrative expenses were partially offset by a decrease in incentive compensation at ACE USA and Westchester Specialty.

Insurance - Overseas General

The Insurance – Overseas General segment consists of ACE International, which comprises our network of indigenous insurance operations, and the insurance operations of ACE Global Markets. This segment has four regions of operations: ACE Asia Pacific, ACE Far East, ACE Latin America and the ACE European Group, which is comprised of ACE Europe and ACE Global Markets branded business.

ACE International provides insurance coverage on a worldwide basis with operations that are organized geographically along product lines to provide dedicated underwriting focus to customers. Its international organization offers capacity and technical expertise in underwriting and servicing clients from large and complex risks to general market customer segments as well as individual coverages in selected markets. 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 multi-national organizations. Through its professional lines, ACE International provides D&O and professional indemnity coverages for medium to large clients. Marine cargo and hull coverages are written in the London market as well as in marine markets throughout the world. The A&H 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, but are not limited to, accidental death, medical, and hospital indemnity and income protection coverages. ACE International’s personal lines operations provide specialty products and services designed to meet the needs of specific target markets and include, but are not limited to, warranty, auto, homeowners and personal liability.

ACE Global Markets comprises our insurance operations within ACE European Group Limited (AEGL) and at Lloyd’s via Syndicate 2488. ACE provides funds at Lloyd’s to support underwriting by Syndicate 2488, which is managed by ACE Underwriting Agencies Limited. ACE Global Markets is an established lead underwriter on a significant portion of the risks underwritten, particularly within the aviation and marine lines of business, and hence is able to set the policy terms and conditions of many of the policies written. Its main lines of business include aviation, property, energy, professional lines, marine, political risk and A&H.


	Three Months Ended March 31
	2006			2005
	(in millions of U.S. dollars)
Net premiums written	$	1,146		$	1,193
Net premiums earned		1,039			1,086
Losses and loss expenses		566			610
Policy acquisition costs		194			191
Administrative expenses		145			146

Underwriting income	$	134		$	139

Net investment income		85			74
Net realized gains (losses)		4			18
Other (income) expense		6			6
Income tax expense		56			52

Net income	$	161		$	173

Loss and loss expense ratio		54.5	%		56.2	%
Policy acquisition cost ratio		18.7	%		17.6	%
Administrative expense ratio		13.9	%		13.4	%
Combined ratio		87.1	%		87.2	%

Insurance – Overseas General’s net premiums written decreased four percent in the quarter ended March 31, 2006, compared with the same quarter in 2005. This decrease was primarily due to the strengthening of the U.S. dollar against major currencies, which offset modest gains in production.

The following two tables provide a line of business and entity/divisional breakdown of Insurance – Overseas General’s net premiums earned for the periods indicated.


	Three Months Ended March 31
	2006		% of total		2005		% of total
	(in millions of U.S. dollars)
Property and all other	$	304	29	%	$	344	32	%
Casualty		448	43	%		490	45	%
Personal accident (A&H)		287	28	%		252	23	%

Net premiums earned	$	1,039	100	%	$	1,086	100	%


	Three Months Ended March 31
	2006		2005
	(in millions of U.S. dollars)
ACE Europe	$	420	$	475
ACE Asia Pacific		148		132
ACE Far East		91		99
ACE Latin America		124		102

ACE International		783		808
ACE Global Markets		256		278

Net premiums earned	$	1,039	$	1,086

Insurance – Overseas General reported a four percent decrease in net premiums earned in the quarter ended March 31, 2006, compared with the same quarter in 2005. This decrease was primarily related to a decline in 2005 gross premiums written and retained at ACE Global Markets combined with the unfavorable foreign exchange impact on the segment.

ACE International’s net premiums earned decreased three percent in the quarter ended March 31, 2006, compared with the same quarter in 2005. Generally, in the U.K. and Europe, rates for P&C business decreased slightly in the current quarter while A&H was generally stable. Rates, terms and conditions have yet to gain any significant upward momentum in Europe. A&H continued to provide ACE International with growth opportunities during the quarter as ACE Asia Pacific and ACE Latin America both reported growth in this business driven by the continued success of unique and innovative distribution channels. ACE Far East reported modest increases in P&C and A&H net premiums earned, offset by the unfavorable foreign exchange impact. ACE Global Markets net premiums earned decreased eight percent in the quarter ended March 31, 2006, compared with the same quarter in 2005.

Insurance – Overseas General conducts business internationally and in most major foreign currencies. The following table summarizes the approximate effect of changes in foreign currency exchange rates on the growth of net premiums written and earned for the period indicated.


	Three Months Ended March 31 2006
Net premiums written:
Growth in original currency	1.7	%
Foreign exchange effect	(5.6	)%

Growth as reported in U.S. dollars	(3.9	)%

Net premiums earned:
Growth in original currency	0.1	%
Foreign exchange effect	(4.3	)%

Growth as reported in U.S. dollars	(4.2	)%

Insurance – Overseas General’s loss and loss expense ratio decreased in the quarter ended March 31, 2006, compared with the same quarter in 2005. The following table shows the impact of prior period development on our loss and loss expense ratio for the periods indicated.


	Three Months Ended March 31
	2006		2005
Loss and loss expense ratio, as reported	54.5	%	56.2	%
Prior period development	3.8	%	(0.6	)%

Loss and loss expense ratio, adjusted	58.3	%	55.6	%

Insurance – Overseas General experienced $39 million of net favorable prior period development in the quarter ended March 31, 2006, representing 0.8 percent of the segment’s net unpaid loss and loss expense reserves at January 1, 2006. This compares with net adverse development of $7 million for the same quarter in 2005, representing 0.1 percent of the segment’s net unpaid loss and loss expense reserves at January 1, 2005. The remaining increase in the loss and loss expense ratio was primarily due to unfavorable current accident year experience at ACE Global Markets in the quarter ended March 31, 2006, compared with the same quarter in 2005. The net prior period development for the quarter ended March 31, 2006, was the net result of several underlying favorable and adverse movements, the most significant of which were:

•

Adverse prior period development of $20 million on long-tail business predominantly driven by unfavorable large loss emergence in the quarter. Approximately $13 million of this movement related to ACE Global Markets business from accident years 1999 and prior, and was mainly derived from portfolios that are now in run-off.

The net prior period development for the quarter ended March 31, 2005, was the net result of several underlying favorable and adverse movements. The adverse prior period development related primarily to a $41 million movement on U.S. workers’ compensation business across the 1995-1999 underwriting years following a review of updated bordereaux information. This was largely offset by favorable prior period development of $35 million on short-tail property and energy lines impacting the 2003 and 2004 accident years.

Insurance – Overseas General’s policy acquisition cost ratio increased in the quarter ended March 31, 2006, compared with the same quarter in 2005, primarily due to changes in business mix at ACE International (increase in A&H, which typically attracts higher commission rates than other business, particularly in Latin America). This increasing impact on the segment’s policy acquisition cost ratio was partially offset by changes in business mix at ACE Global Markets (increased aviation writings which typically attract lower commission rates than other business) and the impact of a change in estimate relating to deferred costs. During the first quarter of 2006, Insurance - Overseas General completed a study of revenues derived from historical direct-response marketing campaigns related to personal accident business. Beginning January 1, 2006, we revised the amortization schedule for deferred costs arising from direct-response marketing campaigns to be consistent with the findings of the study. As a result of this change in estimate, the average amortization period has been lengthened from 3 years to 5 years. For the quarter ended March 31, 2006, with respect to marketing campaigns that had been completed prior to January 1, 2006, the lengthening of the average amortization period resulted in a reduction of amortization expense of approximately $11 million relative to previous amortization schedules. A similar benefit is anticipated for each of the next three quarters of 2006.

Insurance – Overseas General’s administrative expense ratio increased in the quarter ended March 31, 2006, compared with the same quarter in 2005, due to the decrease in net premiums earned. Administrative expenses decreased as ACE International’s increases in costs associated with staff additions and infrastructure enhancements were offset by a decline in Lloyd’s costs as a result of our reduced capacity (and associated levies) through Syndicate 2488 and the favorable impact of a relatively stronger U.S. dollar.

Global Reinsurance

The Global Reinsurance segment represents ACE’s reinsurance operations comprising ACE Tempest Re Bermuda, ACE Tempest Re USA, and ACE Tempest Re Europe. Global Reinsurance markets its reinsurance products worldwide under the ACE Tempest Re brand name and provides a broad range of coverages to a diverse array of primary P&C companies.

ACE Tempest Re Bermuda principally provides property catastrophe reinsurance globally to insurers of commercial and personal property. ACE Tempest Re Bermuda underwrites reinsurance principally on an excess of loss basis, meaning that its exposure only arises after the ceding company’s accumulated losses have exceeded the attachment point of the reinsurance policy. ACE Tempest Re Bermuda also writes other types of reinsurance on a limited basis for selected clients. Examples include proportional property (reinsurer shares a proportional part of the premiums and losses of the ceding company) and per risk excess of loss treaty reinsurance (coverage applies on a per risk basis rather than per event or aggregate basis), together with specialty lines (catastrophe workers’ compensation and terrorism).

ACE Tempest Re USA writes all lines of traditional and specialty P&C business for the North American market, with a focus on writing property per risk and casualty reinsurance, including medical malpractice, marine, general aviation, and surety, principally on a treaty basis, with a weighting towards casualty.

ACE Tempest Re Europe provides treaty reinsurance of P&C business of insurance companies worldwide, with emphasis on non-U.S. and London market risks. ACE Tempest Re Europe offers clients coverage through three divisions: Lloyd’s Syndicate 2488 in London, ACE Tempest Re Europe (London), and ACE Tempest Re Europe (Zurich, formerly Dublin). These divisions write all lines of traditional and specialty property, casualty, marine, aviation, and medical malpractice reinsurance.


	Three Months Ended March 31
	2006			2005
	(in millions of U.S. dollars)
Net premiums written	$	600		$	527
Net premiums earned		371			356
Losses and loss expenses		197			205
Policy acquisition costs		76			73
Administrative expenses		14			15

Underwriting income (loss)	$	84		$	63

Net investment income		48			39
Net realized gains (losses)		(6	)		(6	)
Interest expense		—			1
Other (income) expense		1			1
Income tax expense		12			9

Net income	$	113		$	85

Loss and loss expense ratio		53.0	%		57.6	%
Policy acquisition cost ratio		20.4	%		20.5	%
Administrative expense ratio		3.9	%		4.3	%
Combined ratio		77.3	%		82.4	%

Global Reinsurance’s net premiums written increased 14 percent in the quarter ended March 31, 2006, compared with the same quarter in 2005, primarily driven by rate increases on property catastrophe business at ACE Tempest Re Bermuda and growth in net premiums written at ACE Tempest Re USA. With respect to ACE Tempest Re USA, the increased net premiums written were primarily related to higher estimated premium accruals on quota share business for the first quarter of 2006 relative to the first quarter of 2005. Pursuant to an internal study that analyzed and compared the timing of actual reported premiums to related accruals, the actual proportion of quota share premiums related to policies attaching in the first quarter of an effective period is higher than previous estimates.

The following two tables provide a line of business and entity/divisional breakdown of Global Reinsurance’s net premiums earned for the periods indicated.


	Three Months Ended March 31
	2006		% of total		2005		% of total
	(in millions of U.S. dollars)
Property and all other	$	87	23	%	$	86	24	%
Casualty		199	54	%		203	57	%
Property catastrophe		85	23	%		67	19	%

Net premiums earned	$	371	100	%	$	356	100	%


	Three Months Ended March 31
	2006		2005
	(in millions of U.S. dollars)
ACE Tempest Re Europe	$	70	$	76
ACE Tempest Re USA		215		212
ACE Tempest Re Bermuda		86		68

Net premiums earned	$	371	$	356

Global Reinsurance’s net premiums earned increased four percent in the quarter ended March 31, 2006, compared with the same quarter in 2005. ACE Tempest Re Europe reported an eight percent decrease in net premiums earned primarily due to lower property catastrophe and casualty production. ACE Tempest Re USA’s net premiums earned increased one percent primarily due to increased earnings on property business. ACE Tempest Re Bermuda reported a 26 percent increase in net premiums earned primarily due to improved market conditions for property catastrophe business.

The loss and loss expense ratio decreased in the quarter ended March 31, 2006, compared with the same quarter in 2005. The following table shows the impact of catastrophe losses and prior period development on our loss and loss expense ratio for the periods indicated.


	Three Months Ended March 31
	2006		2005
Loss and loss expense ratio, as reported	53.0	%	57.6	%
Catastrophe losses	(0.8	)%	(0.8	)%
Prior period development	(0.8	)%	—

Loss and loss expense ratio, adjusted	51.4	%	56.8	%

Global Reinsurance recorded $3 million in net catastrophe losses in each of the quarters ended March 31, 2006 and 2005. Global Reinsurance experienced $3 million of net adverse prior period development in the quarter ended March 31, 2006, representing less than one percent of the segment’s unpaid loss and loss expense reserves at January 1, 2006. This compares with no net prior period development for the same quarter in 2005. The net prior period development for the quarter ended March 31, 2006, was the net result of several underlying favorable and adverse movements. The largest adverse movement was related to catastrophes from the 2004 and 2005 accident years of $17 million. Favorable prior period development included $18 million on other short-tail exposures due to lower than anticipated loss emergence in the quarter. The loss and loss expense ratio for the quarter ended March 31, 2005, was higher than the current quarter primarily due to mix of business factors, including a greater proportion of property and property catastrophe net premiums earned in 2006 and a greater proportion of pro-rata business at ACE Tempest Re USA in 2006, which generally carries a lower loss ratio than excess business.

The administrative expense ratio declined primarily due to the increase in net premiums earned.

Financial Services

The Financial Services segment consists of our financial solutions business and approximately 35 percent of the earnings of Assured Guaranty Ltd. (Assured Guaranty). We sold approximately 65 percent of Assured Guaranty through an initial public offering in April 2004.

The financial solutions operations provide customized insurance and reinsurance solutions to clients with unique or complex risks which are not adequately addressed in the traditional insurance market. Each financial solutions contract is structured to meet the needs of each client. Some of these customized contracts provide coverage for multiple exposure lines, may include profit-sharing features and often insure events over a multi-year period, including loss sensitive multi-year retrocessional catastrophe contracts. Some of these products that do not meet established criteria for insurance or reinsurance accounting under GAAP are recorded using the deposit method of accounting (deposit accounting). Deposit accounting requires that consideration received be recorded in the balance sheet as opposed to gross premiums written in the income statement.

Assured Guaranty provides credit enhancement products to the municipal finance, structured finance and mortgage markets. Our proportionate share of Assured Guaranty’s earnings is reflected in “Other (income) expense” in our consolidated statement of operations. The equity in net income recorded from Assured Guaranty in the quarter ended March 31, 2006, was $13 million, compared with $12 million in the same quarter of 2005.

Certain products (principally credit protection oriented) issued by the Financial Services segment have been determined to meet the definition of a derivative under FAS 133. For more information see the section entitled “Critical Accounting Estimates - Derivatives”, under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2005.


	Three Months Ended March 31
	2006			2005
	(in millions of U.S. dollars)
Net premiums written	$	49		$	161
Net premiums earned		36			90
Losses and loss expenses		41			83
Policy acquisition costs		2			2
Administrative expenses		1			4

Underwriting income (loss)	$	(8	)	$	1

Net investment income		35			32
Net realized gains		—			6
Other income		(14	)		(12	)
Income tax expense		4			6

Net income	$	37		$	45

Loss and loss expense ratio		113.8	%		92.2	%
Policy acquisition cost ratio		6.4	%		2.2	%
Administrative expense ratio		4.1	%		4.6	%
Combined ratio		124.3	%		99.0	%

Financial Services’ net premiums written decreased 70 percent in the quarter ended March 31, 2006, compared with the same quarter in 2005, which reflects the decrease in underwriting opportunities in some lines of business and the non-renewal of certain accounts. We have discontinued writing new structured property CAT retro business in 2006. Premium volume in the financial solutions business can vary significantly from period to period and therefore premiums written in any one period are not indicative of premiums to be written in future periods.

Financial Services reported an underwriting loss in the quarter ended March 31, 2006, primarily due to an increase in net adverse prior period development compared with the same quarter in 2005. Administrative expenses decreased primarily due to reductions in staff and the recording of non-refundable fees.

Financial Services experienced $6 million of net adverse prior period development in the quarter ended March 31, 2006, representing 0.4 percent of the segment’s net unpaid loss and loss expense reserves at January 1, 2006. This compares with net adverse development of $1 million for the same quarter in 2005, representing less than 0.1 percent of the segment’s net unpaid loss and loss expense reserves at January 1, 2005. The prior period development for the quarter ended March 31, 2006 was driven by an increase in the estimate of losses arising from 2005 catastrophes on two multi-year contracts. The adverse prior period development of $6 million was the net impact of a $17 million increase in ultimate losses being partially offset by a simultaneous $11 million accrual of future deposit premiums to align premium recognition with the portion of risk already expired on these contracts.

Life Insurance and Reinsurance

Life Insurance and Reinsurance includes the operations of ACE Tempest Life Re (ACE Life Re) and ACE International Life (ACE Life). ACE Life Re principally provides reinsurance coverage to other life insurance companies, focusing on guarantees included in certain fixed and variable annuity products. The reinsurance transactions ACE Life Re enters into typically help clients (ceding companies) manage mortality, morbidity, lapse and/or capital market risks embedded in their books of business. ACE Life provides life insurance protection, investment and savings products to individuals in several countries including Thailand, Vietnam, Taiwan, China and Egypt. We assess the performance of our life insurance and reinsurance business based on life underwriting income which includes net investment income.


	Three Months Ended March 31
	2006			2005
	(in millions of U.S. dollars)
Net premiums written	$	61		$	60
Net premiums earned		61			60
Life and annuity benefits		28			35
Policy acquisition costs		6			5
Administrative expenses		7			4
Net investment income		10			9

Life underwriting income		30			25
Net realized gains (losses)		(8	)		(16	)
Income tax expense (benefit)		(1	)		—

Net income	$	23		$	9

Life underwriting income increased in the quarter ended March 31, 2006, compared with the same quarter in 2005, due to the decrease in life and annuity benefits. Life and annuity benefits declined primarily due to a decrease in group long-term disability business, which typically incurs higher benefit ratios than other types of business. We discontinued writing new group long-term disability contracts in 2002. Existing contacts continue to produce premiums and losses. Net premiums earned benefited from growth in variable annuity business at ACE Life Re and ACE Life’s Thailand operations, partially offset by the continued decrease in production of long-term disability business. Life Insurance and Reinsurance’s administrative expenses increased in the quarter ended March 31, 2006, compared with the same quarter in 2005, primarily due to increased expenses at ACE Life to support business development opportunities. Net realized losses decreased in the quarter ended March 31, 2006, compared with the same quarter in 2005. Net realized losses consisted primarily of fair value adjustments on guaranteed minimum income benefits (GMIBs), which occur due to changes in the level and volatility of interest rates and equity markets.

Net Investment Income


	Three Months Ended March 31
	2006		2005
	(in millions of U.S. dollars)
Insurance – North American	$	168	$	131
Insurance – Overseas General		85		74
Global Reinsurance		48		39
Financial Services		35		32
Life Insurance and Reinsurance		10		9
Corporate and Other		23		—

Net investment income	$	369	$	285

Net investment income is influenced by a number of factors, including the amounts and timing of inward and outward cash flows, the level of interest rates and changes in overall asset allocation. Net investment income increased 29 percent in the quarter ended March 31, 2006, compared with the same quarter in 2005. The increase in net investment income is primarily due to several years of positive operating cash flows which have resulted in a higher overall average invested asset base. Additionally, the current quarter’s invested asset base was increased by the proceeds from our public offering in October 2005. The investment portfolio’s average market yield on fixed maturities was 5.4 percent at March 31, 2006, compared with 4.5 percent at March 31, 2005.

Net Realized Gains (Losses)

Our investment strategy takes a long-term view, and our investment portfolio is actively managed to maximize total return within certain specific guidelines, designed to minimize risk. The majority of our investment portfolio is available for sale and reported at fair value. During the first quarter of 2005, we transferred securities that we have the ability and intent to hold to maturity or redemption from the available for sale classification to the held to maturity classification. The transfer was made at the fair value at the date of transfer (refer to “Investments” for more information). Our held to maturity investment portfolio is reported at amortized cost.

The effect of market movements on our available for sale investment portfolio impacts net income (through net realized gains (losses)) when securities are sold or when “other-than-temporary” impairments are recorded on invested assets. Additionally, net income is impacted through the reporting of changes in the fair value of derivatives, including financial futures, options, swaps, GMIB reinsurance, and credit-default swaps. Changes in unrealized appreciation and depreciation on available for sale securities, which result from the revaluation of securities held, are reported as a separate component of accumulated other comprehensive income in shareholders’ equity.

The following table presents our pre-tax net realized gains (losses) for the periods indicated.


	Three Months Ended March 31
	2006			2005
	(in millions of U.S. dollars)
Fixed maturities and short-term investments	$	(44	)	$	(5	)
Equity securities		43			14
Other investments		(1	)		2
Currency		(4	)		(3	)

Subtotal non-derivatives		(6	)		8

Derivatives:
Financial futures, options, swaps		11			—
Fair value adjustment on insurance derivatives		2			(22	)

Subtotal derivatives		13			(22	)

Total net realized gains (losses)	$	7		$	(14	)

Subject to investment guidelines approved by our Finance and Investment Committee of the Board of Directors (relating to asset classes, credit quality, and liquidity), our investment managers generally have the ability to sell securities from our available for sale investment portfolio when they determine that an alternative security with comparable risks is likely to provide a higher investment return considering the realized gain or loss on sale and differential in future investment income. Often, sales of individual securities occur when investment managers conclude there are changes in the credit quality of a particular security or for other reasons, market value is apt to deteriorate. Further, we may sell securities when we conclude it is prudent to reduce a concentration in a particular issuer or industry. Therefore, sales volume may increase in a volatile credit market in which credit spreads and thus, the market value of fixed maturity investments are subject to significant changes in a short period of time. The interest rate environment will tend to have a limited effect on sales volume but extreme conditions could have an effect on the magnitude of realized gains or losses. For example, in a declining rate environment, the market value of securities increase resulting in a greater likelihood of net realized gains and we would therefore tend to reduce the average duration of our fixed maturity investment portfolio. An increasing rate environment would tend to have the opposite effect. The effect of a high level of realized losses or gains for a particular period will tend to be offset by increases or decreases in investment income, respectively, in subsequent periods. From a liquidity perspective, our greatest risk is that we could be forced to sell a large volume of securities at a loss (i.e., in a high interest rate environment) to meet operating needs and are thus unable to reinvest proceeds to recoup such losses with future investment income (refer to “Liquidity and Capital Resources” for more information).

FAS 133 requires us to recognize all derivatives as either assets or liabilities on our consolidated balance sheet and measure them at fair value. We record the gains and losses resulting from the fair value measurement of derivatives in net realized gains (losses). We participate in derivative instruments in two principal ways: i) to offer protection to others as the seller or writer of the derivative, such as our GMIB reinsurance contracts that are treated as derivatives for accounting purposes; and ii) to mitigate our own risk principally arising from investment holdings. We do not consider either type of transaction to be speculative.

In the quarter ended March 31, 2006, we recorded net realized gains of $13 million on derivative transactions, compared with net realized losses of $22 million for the same quarter in 2005. For a sensitivity discussion of the effect of changes in interest rates and equity indices on the fair value of derivatives and the resulting impact on our net income, refer to Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2005.

With respect to our GMIB reinsurance and credit derivatives, we record a portion of the change in fair value in future policy benefits for life and annuity contracts and unpaid loss and loss expenses, respectively, representing our best estimate of loss pay-outs related to fees or premiums earned and a portion in net realized gains (losses) representing other changes in fair value.

The fair value adjustments related to GMIB reinsurance and credit derivatives included in net realized gains (losses) in the quarter ended March 31, 2006 was net realized gains of $2 million compared with net realized losses of $22 million in the same quarter of 2005. The change in fair values related to GMIB reinsurance was realized gains of $2 million in the quarter ended March 31, 2006, compared with net realized losses of $21 million for the same quarter in 2005. The gain or loss created by the estimated fair value adjustment will rise or fall each period based on estimated market pricing and may not be an indication of ultimate claims. Fair value is defined as the amount at which an asset or liability could be bought or sold in a current transaction between willing parties. We generally plan to hold derivative financial instruments to maturity. Where we hold derivative financial instruments to maturity, these fair value adjustments would generally be expected to reverse resulting in no gain or loss over the entire term of the contract. However, in the event that we terminate a derivative contract prior to maturity as a result of a decision to exit a line of business or for risk management purposes, the difference between the final settlement of cash inflows and outflows and financial statement accruals for premiums and losses will be reflected as premiums earned and losses incurred, respectively. Additionally, at termination, any unrealized gain or loss previously classified as a realized gain or loss will be reversed and classified as a realized loss or gain, respectively. The changes in the fair value of GMIBs are determined using internal valuation models. Such valuations require considerable judgment and are subject to significant uncertainty. The valuation of these products is subject to fluctuations arising from, among other factors, changes in interest rates, changes in the equity markets, and changes in the allocation of the investments underlying annuitant’s account value. These models and the related assumptions are continually reviewed by management and enhanced, as appropriate, based upon improvements in modeling techniques and availability of more timely information such as market conditions and demographics of in-force annuities. For more information, refer to “Item 7 - Critical Accounting Estimates – Derivatives” of our Annual Report on Form 10-K for the year ended December 31, 2005.

The net realized gain of $11 million on financial futures, options, and swaps in the quarter ended March 31, 2006, was primarily driven by gains on derivative transactions structured to manage our investment portfolio’s credit and interest rate risks. We use foreign currency forward contracts to minimize the effect of fluctuating foreign currencies on certain non-U.S. dollar holdings in our portfolio that are not specifically matching foreign currency liabilities. These contracts are not designated as specific hedges and we record all realized and unrealized gains and losses on these contracts as net realized gains (losses) in the period in which the currency values change.

We regularly review our investment portfolio for possible impairment based on criteria including economic conditions, credit loss experience and issuer-specific developments. If there is a decline in a security’s net realizable value, we must determine whether that decline is temporary or “other-than-temporary”. If we believe a decline in the value of a particular investment is temporary, we record it as an unrealized loss in our shareholders’ equity. If we believe the decline is “other-than-temporary”, we write down the book value of the investment and record a net realized loss in our statement of operations. The decision to recognize a decline in the value of a security carried at fair value as “other-than-temporary” rather than temporary has no impact on our book value. Once a security is identified as having a potential “other-than-temporary” impairment, we determine whether or not cost will ultimately be recovered and whether we have the intent and ability to hold the security until an expected recovery period absent a significant change in facts that is expected to have a material adverse financial effect on the issuer.

The process of determining whether a decline in value is temporary or “other-than-temporary” requires considerable judgment and differs depending on whether or not the security is traded on a public market as well as by type of security. We review all of our fixed maturities and equity securities for potential impairment each quarter. Note 4 a) to the Consolidated Financial Statements includes a table which summarizes all of our securities in an unrealized loss position at March 31, 2006. Refer to Note 3 g) to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2005 for criteria we consider in assessing potential impairment.

Our net realized gains in the quarter ended March 31, 2006, included losses of $31 million, as a result of conditions which caused us to conclude that the decline in fair value was “other-than-temporary”. This compares with losses of $21 million for the quarter ended March 31, 2005. A breakdown of other-than-temporary impairments is included in Note 4 b) of the Consolidated Financial Statements.

Other Income and Expense Items


	Three Months Ended March 31
	2006			2005
	(in millions of U.S. dollars)
Equity in net income of partially-owned companies	$	(15	)	$	(11	)
Minority interest expense		5			5
Other		2			1

Other income	$	(8	)	$	(5	)

Other income in the quarters ended March 31, 2006 and 2005, primarily comprises our equity in net income of Assured Guaranty (included in equity in net income of partially-owned companies), and minority interest expense due to profitability associated with our consolidated joint ventures.

Investments

Our principal investment objective is to ensure that funds are available to meet our insurance and reinsurance obligations. Within this broad liquidity constraint, the purpose of our investment portfolio’s structure is to maximize total return subject to specifically approved guidelines of overall asset classes, credit quality, liquidity and volatility of expected returns. Our investment portfolio is invested primarily in fixed income securities with an average credit quality of AA, as rated by the independent investment rating service Standard and Poor’s (S&P). The portfolio is externally managed by independent, professional investment managers. The average duration of our fixed income securities, including the effect of options and swaps, increased to 3.1 years at March 31, 2006, compared with 2.9 years at December 31, 2005. We estimate that a 100 basis point increase in interest rates would reduce our book value by approximately $881 million. Our “other investments” principally comprise direct investments, investment funds and limited partnerships.

Our debt securities include fixed-maturity securities which are classified as either held to maturity or available for sale. Securities classified as held to maturity are securities that we have the ability and intent to hold to maturity or redemption and are carried at amortized cost. All other debt securities and our equity securities are classified as available for sale and are carried at fair value. The net unrealized appreciation (depreciation) on securities available for sale plus the unamortized unrealized appreciation (depreciation) on debt securities transferred to the held to maturity portfolio less related deferred income taxes are included in accumulated other comprehensive income.

The following table shows the fair value and cost/amortized cost of our invested assets at March 31, 2006 and December 31, 2005.


	March 31, 2006				December 31, 2005
	Fair Value		Cost/ Amortized Cost		Fair Value		Cost/ Amortized Cost
	(in millions of U.S. dollars)
Fixed maturities available for sale	$	25,411	$	25,591	$	24,285	$	24,273
Fixed maturities held to maturity		3,045		3,107		3,055		3,076
Short-term investments		2,452		2,452		2,299		2,299

		30,908		31,150		29,639		29,648
Equity securities		1,600		1,325		1,507		1,280
Other investments		687		590		675		592

Total investments	$	33,195	$	33,065	$	31,821	$	31,520

The fair value of our total investments increased $1.4 billion during the quarter ended March 31, 2006, primarily due to investment of positive cash flows from operations, partially offset by unrealized depreciation of $133 million, mainly on fixed maturities, due to an overall increase in U.S. interest rates during the period.

The following tables show the market value of our fixed maturities and short-term investments at March 31, 2006 and December 31, 2005. The first table lists investments according to type and the second according to S&P credit rating.


	March 31, 2006				December 31, 2005
	Market Value		Percentage of Total		Market Value		Percentage of Total
	(in millions of U.S. dollars)				(in millions of U.S. dollars)
Treasury	$	1,873	6	%	$	1,956	6	%
Agency		1,633	5	%		1,506	5	%
Corporate		7,530	24	%		7,646	26	%
Mortgage-backed securities		9,082	29	%		8,363	28	%
Asset-backed securities		2,349	8	%		1,981	7	%
Municipal		557	2	%		504	2	%
Non-US		5,432	18	%		5,384	18	%
Cash and cash equivalents		2,452	8	%		2,299	8	%

Total	$	30,908	100	%	$	29,639	100	%


	March 31, 2006				December 31, 2005
	Market Value		Percentage of Total		Market Value		Percentage of Total
	(in millions of U.S. dollars)				(in millions of U.S. dollars)
AAA	$	19,938	65	%	$	18,985	64	%
AA		2,556	8	%		2,108	7	%
A		4,317	14	%		4,350	15	%
BBB		2,076	7	%		2,083	7	%
BB		906	3	%		945	3	%
B		1,064	3	%		1,106	4	%
Other		51	—			62	—

Total	$	30,908	100	%	$	29,639	100	%

In accordance with our investment process, we invest in below-investment grade securities through dedicated investment portfolios managed by external investment managers that have investment professionals specifically dedicated to this asset class. At March 31, 2006, our fixed income investment portfolio included below-investment grade and non-rated securities which in total, comprised approximately seven percent of our fixed income portfolio. We define a security as being below-investment grade if it has an S&P credit rating of BB or less. Our below investment-grade and non-rated portfolio includes approximately 800 issues with the top 15 holdings making up approximately 12 percent of the $2.2 billion balance at March 31, 2006. The highest single exposure in this portfolio of securities is $21 million. Below-investment grade securities have different characteristics than investment grade corporate debt securities. Risk of loss from default by the borrower is greater with below-investment grade securities. Below-investment grade securities are generally unsecured and are often subordinated to other creditors of the issuer. Also, issuers of below-investment grade securities usually have higher levels of debt and are more sensitive to adverse economic conditions such as recession or increasing interest rates than are investment grade issuers. We reduce the overall risk in the below-investment grade portfolio, as in all investments, through careful credit analysis, the use of investment policy guidelines, and diversification by issuer and/or guarantor as well as by industry.

Unpaid Losses and Loss Expenses

We establish reserves for the estimated unpaid ultimate liability for losses and loss expenses under the terms of our policies and agreements. These reserves take into account estimates both for claims that have been reported and for incurred but not reported (IBNR) and include estimates of expenses associated with processing and settling claims. The table below presents a roll forward of our unpaid losses and loss expenses for the three months ended March 31, 2006.


	Gross Losses			Reinsurance Recoverable			Net Losses
	(in millions of U.S. dollars)
Balance at December 31, 2005	$	35,055		$	14,597		$	20,458
Losses and loss expenses incurred		2,130			450			1,680
Losses and loss expenses paid		(1,686	)		(503	)		(1,183	)
Other (including foreign exchange revaluation)		9			10			(1	)

Balance at March 31, 2006	$	35,508		$	14,554		$	20,954

The process of establishing reserves for claims can be complex and is subject to considerable variability as it requires the use of informed estimates and judgments. Our 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. The following table shows our total reserves segregated between case reserves and IBNR reserves.


	March 31, 2006						December 31, 2005
	Gross		Ceded		Net		Gross		Ceded		Net
	(in millions of U.S. dollars)
Case reserves	$	15,827	$	6,295	$	9,532	$	15,422	$	5,889	$	9,533
IBNR		19,681		8,259		11,422		19,633		8,708		10,925

Total	$	35,508	$	14,554	$	20,954	$	35,055	$	14,597	$	20,458

Assumed Reinsurance

At March 31, 2006, net unpaid losses and loss expenses for the Global Reinsurance segment aggregated to $2.4 billion consisting of $767 million of case reserves and $1.6 billion of IBNR.

On occasion, there will be differences between our carried loss reserves and unearned premium reserves and the amount of loss reserves and unearned premium reserves reported by the ceding companies. This is due to the fact that we only receive consistent and timely information from ceding companies with respect to case reserves. For IBNR, we use historical experience and other statistical information (depending on the type of business) to estimate the ultimate loss (see “Unpaid Losses and Loss Expenses” for more information). We estimate our unearned premium reserve by applying estimated earning patterns to net premiums written for each treaty based upon that treaty’s coverage basis (i.e. risks attaching or losses occurring). At March 31, 2006, the case reserves reported to us by our ceding companies were $745 million, compared with the $767 million we recorded. We do, on occasion, post additional case reserves in excess to the amounts reported by our cedants when our evaluation of the ultimate value of a reported claim is different than the evaluation of that claim by our cedant.

Within the Insurance – North American segment, we also have exposure to certain liability reinsurance lines that have been in run-off since 1994. Unpaid losses and loss expenses relating to this run-off reinsurance business resides within the Brandywine Division of our Insurance – North American segment. Most of the remaining unpaid losses and loss expense reserves for the run-off reinsurance business relate to asbestos and environmental claims. (Refer to “Asbestos and Environmental and Other Run-off Liabilities” for more information)

Asbestos and Environmental and Other Run-off Liabilities

Included in our liabilities for losses and loss expenses are amounts for A&E. These A&E liabilities principally relate to claims arising from bodily-injury claims related to asbestos products and remediation costs associated with hazardous waste sites. The estimation of these liabilities is particularly sensitive to changes in the legal, social and economic environment. We have not assumed any such changes in setting the value of our A&E reserves, which include provision for both reported and IBNR claims.

Our exposure to A&E claims principally arises out of liabilities acquired when we purchased Westchester Specialty in 1998 and the P&C business of CIGNA in 1999, with the larger exposure contained within the liabilities acquired in the CIGNA transaction. In 1996, prior to our acquisition of the P&C business of CIGNA, the Pennsylvania Insurance Commissioner approved a plan to restructure INA Financial Corporation and its subsidiaries (the Restructuring) which included the division of Insurance Company of North America (INA) into two separate corporations: (1) an active insurance company that retained the INA name and continued to write P&C business and (2) an inactive run-off company, now called Century Indemnity Company (Century). As a result of the division, predominantly all A&E and certain other liabilities of INA were allocated to

Century and extinguished, as a matter of Pennsylvania law, as liabilities of INA. As part of the Restructuring, the A&E liabilities of various U.S. affiliates of INA were reinsured to Century, and Century and certain other run-off companies having A&E and other liabilities were contributed to Brandywine Holdings Corporation (Brandywine Holdings). As part of the 1999 acquisition of the P&C business of CIGNA, we acquired Brandywine Holdings and its various subsidiaries. See the “Brandywine Run-Off Entities” section below for additional information.

The table below presents a roll forward of our consolidated loss and allocated loss expense reserves for A&E exposures, excluding the provision for uncollectible reinsurance, for the period ended March 31, 2006.


	Asbestos						Environmental						Total
	Gross			Net			Gross			Net			Gross			Net
	(in millions of U.S. dollars)
Balance at December 31, 2005	$	3,641		$	1,751		$	624		$	518		$	4,265		$	2,269
Losses and allocated expenses incurred		3			(1	)		—			—			3			(1	)
Losses and allocated loss expenses paid		(44	)		(18	)		(18	)		(12	)		(62	)		(30	)
Foreign currency revaluation		(2	)		—			—			—			(2	)		—

Balance at March 31, 2006	$	3,598		$	1,732		$	606		$	506		$	4,204		$	2,238

The A&E net loss and allocated loss expense reserves at March 31, 2006 of $2.2 billion shown in the above table are composed of $1.8 billion in reserves held by Brandywine run-off companies, $210 million of reserves held by Westchester Specialty, and $238 million of reserves held by other ACE companies. The net figures in the above table reflect third party reinsurance other than reinsurance provided by National Indemnity Company (NICO) under three aggregate excess of loss contracts described below (collectively, the NICO contracts). With certain exceptions, the NICO contracts provide coverage for our net A&E incurred losses and allocated loss expenses within the limits of coverage and above the retention levels of the NICO contracts. These exceptions include losses arising from operations of ACE Overseas General and participations by ACE Bermuda as a co-reinsurer or retrocessionaire in the NICO contracts.

Impact of NICO Contracts

As part of the acquisition of the CIGNA P&C business, NICO provided $2.5 billion of reinsurance protection to Century on all Brandywine loss and loss adjustment expense reserves and on the A&E reserves of various ACE INA insurance subsidiaries reinsured by Century (in each case, including uncollectible reinsurance). The benefits of this NICO contract (the “Brandywine NICO Agreement”) flow to the other Brandywine companies and to the ACE INA insurance subsidiaries through reinsurance agreements between those companies and Century. The Brandywine NICO Agreement was exhausted on an incurred basis with the increase in the A&E reserves in the fourth quarter of 2002.

As part of the acquisition of Westchester Specialty in 1998, NICO provided a 75 percent pro-rata share of $1 billion of reinsurance protection on losses and loss adjustment expenses incurred on or before December 31, 1996 in excess of a retention of $721 million (the 1998 NICO Agreement). NICO has also provided an 85 percent pro-rata share of $150 million of reinsurance protection on losses and allocated loss adjustment expenses incurred on or before December 31, 1992 in excess of a retention of $755 million (the 1992 NICO Agreement). At December 31, 2005, the remaining unused incurred limit under the 1998 NICO Agreement was $489 million. The 1992 NICO Agreement was exhausted on an incurred basis.

Reserve Reviews

We performed a ground-up review of our consolidated A&E liabilities as of September 30, 2005. The comprehensive evaluation indicated a number of adjustments to particular account reserve balances but the overall result of the review indicated that no adjustment to total reserves was required. This internal review followed a review conducted in 2004 by a team of external actuaries who performed an evaluation as to the adequacy of the reserves of Century and its two U.S. insurance subsidiaries, ACE American Reinsurance Company (ACE American Re) and Century Reinsurance Company (Century Re), both Pennsylvania insurers. The external review was conducted in accordance with the Brandywine Restructuring Order, which requires that an external actuarial review of Century’s reserves be completed every two years. The studies were completed early in 2005 and adjustments consistent with the best estimate of the internal review were recorded as of December 31, 2004. Activity in the period since completing the studies has not indicated a need to further adjust ultimate A&E reserves as of March 31, 2006. Our A&E reserves are not discounted and do not reflect any anticipated changes in the legal, social or economic environment, or any benefit from future legislative reforms.

Reserving Considerations

For asbestos, we face claims relating to policies issued to manufacturers, distributors, installers and other parties in the chain of commerce for asbestos and products containing asbestos. Claims can be filed by individual claimants or group of claimants with the potential for hundreds of individual claimants at one time. Claimants will generally allege damages across an extended time period which may coincide with multiple policies for a single insured. Environmental claims present exposure for remediation and defense costs associated with property damage as a result of pollution. It is common, especially for larger defendants, to be named as a potentially responsible party (PRP) at multiple sites.

Brandywine Run-off Entities

In addition to housing a significant portion of our A&E exposure, the Brandywine operations include run-off liabilities related to various insurance and reinsurance businesses. The following companies comprise ACE’s Brandywine operations: Century, a Pennsylvania insurer, Century Re, ACE American Re, Brandywine Reinsurance Company S.A.-N.V., a Belgium insurer (Brandywine SANV), Century International Reinsurance Company Ltd., a Bermuda insurer (CIRC), and Brandywine Reinsurance Company (UK) Ltd., a U.K. insurer (BRUK). All of the Brandywine companies are direct or indirect subsidiaries of Brandywine Holdings except for BRUK, which is a direct subsidiary of ACE INA International Holdings, Ltd. (ACE INA International Holdings). BRUK’s liabilities have been ceded to Century through CIRC.

The U.S.-based ACE INA companies assumed two contractual obligations in respect of the Brandywine operations in connection with the Restructuring: a dividend retention fund obligation and a surplus maintenance obligation in the form of an aggregate excess of loss reinsurance agreement. In accordance with the Brandywine restructuring order, INA Financial Corporation established and funded a dividend retention fund (the “Dividend Retention Fund”) consisting of $50 million plus investment earnings. The full balance of the Dividend Retention Fund was contributed to Century as of December 31, 2002. To the extent future dividends are paid by INA Holdings Corporation to its parent, INA Financial Corporation, and to the extent INA Financial Corporation then pays such dividends to INA Corporation, a portion of those dividends must be withheld to replenish the principal of the Dividend Retention Fund to $50 million within five years. In the quarter ended March 31, 2006 and in 2005 and 2004, no such dividends were paid, and therefore no replenishment of the Dividend Retention Fund occurred. The obligation to maintain and to replenish the Dividend Retention Fund as necessary and to the extent dividends are paid is ongoing until ACE INA receives prior written approval from the Pennsylvania Insurance Commissioner to terminate the fund.

In addition, the ACE INA insurance subsidiaries are obligated to provide insurance coverage to Century in the amount of $800 million under an aggregate excess of loss reinsurance agreement (the “Aggregate Excess of Loss Agreement”) if the statutory capital and surplus of Century falls below $25 million or if Century lacks liquid assets with which to pay claims as they become due, after giving effect to the contribution of the balance, if any, of the Dividend Retention Fund. Coverage under the Aggregate Excess of Loss Agreement was triggered as of December 31, 2002 following contribution of the balance of the Dividend Retention Fund, because Century’s capital and surplus fell below $25 million at December 31, 2002.

Effective December 31, 2004, ACE INA Holdings contributed $100 million to Century in exchange for a surplus note. After giving effect to the contribution and issuance of the surplus note, the statutory surplus of Century at December 31, 2005 was $25 million and approximately $465 million in statutory-basis losses were ceded to the Aggregate Excess of Loss Agreement. Century reports the amount ceded under the Aggregate Excess of Loss Agreement in accordance with statutory accounting principles, which differ from GAAP by, among other things, allowing Century to discount its asbestos and environmental reserves. For GAAP reporting purposes, intercompany reinsurance recoverables related to the Aggregate Excess of Loss Agreement are eliminated in consolidation. To estimate ACE’s remaining claim exposure under the Aggregate Excess of Loss Agreement under GAAP, we adjust the statutory cession to exclude the discount embedded in statutory loss reserves. At December 31, 2005, approximately $793 million in GAAP basis losses were ceded under the Aggregate Excess of Loss Agreement, leaving a remaining limit of coverage under that agreement of approximately $7 million. While we believe ACE has no legal obligation to fund losses above the Aggregate Excess of Loss Agreement limit of coverage, ACE’s consolidated results would nevertheless continue to report any losses above the limit of coverage for so long as those Brandywine companies remain consolidated subsidiaries of ACE.

Uncertainties Relating to ACE’s Ultimate Brandywine Exposure

In addition to the Dividend Retention Fund and Aggregate Excess of Loss Agreement commitments described above, certain ACE entities are primarily liable for asbestos, environmental and other exposures that they have reinsured to Century. Accordingly, if Century were to become insolvent and ACE were to lose control of Century, some or all of the recoverables due to these ACE companies from Century could become uncollectible, yet those ACE entities would continue to be

responsible to pay claims to their insureds or reinsureds. Under such circumstances, ACE would recognize a loss in its consolidated statement of operations. As of March 31, 2006, the aggregate reinsurance balances ceded by the active ACE companies to Century were approximately $1.5 billion. At March 31, 2006, Century’s carried gross reserves (including reserves ceded by the active ACE companies to Century) were $4.4 billion. We believe the intercompany reinsurance recoverables, which relate to liabilities payable over many years (i.e., 25 years or more), are not impaired at this time. A substantial portion of the liabilities ceded to Century by its affiliates have in turn been ceded by Century to NICO and, as of March 31, 2006, approximately $1.8 billion of cover remains on a paid basis. The impact of the transaction described below would reduce the balance due from Century to active ACE Companies by $90 million. Should Century’s loss reserves experience adverse development in the future and should Century be placed into rehabilitation or liquidation, the reinsurance recoverables due to Century’s affiliates would be payable only after the payment in full of certain expense and liabilities, including administrative expenses and direct policy liabilities. Thus, the intercompany reinsurance recoverables would be at risk to the extent of the shortage of assets remaining to pay these recoverables. As of March 31, 2006, reserves ceded by Century to the active ACE companies and other amounts owed to Century by the ACE active companies were approximately $800 million in the aggregate.

In a lawsuit filed in California state court in December 1999 (AICCO, Inc v. Insurance Company of North America, et al.) certain competitors of ACE USA challenged the validity of the Restructuring under California’s Unfair Competition Law, Business and Professions Code Section 17200 (UCL). The lawsuit claims that the Restructuring is not applicable to California policyholders under the UCL because it constituted a transfer of liabilities without the consent of the policyholders. The suit also claims that the notice of the Restructuring was misleading. In November 2004, the voters of California approved Proposition 64 amending the UCL by, among other things, requiring that lawsuits brought under the UCL be brought by plaintiffs who have suffered actual injury as a result of the challenged business practice. In response to a motion to dismiss brought by ACE USA, the court ruled in February 2005 that the competitors/plaintiffs who brought this suit have not alleged actual injury as required by Proposition 64 and dismissed the suit. Plaintiffs filed a timely notice of appeal on May 5, 2005. Oral argument over plaintiffs’ appeal was held on April 19, 2006. The California Supreme Court has accepted review of another unrelated case that will ultimately decide the issue of whether Proposition 64 should be applied retroactively and which will be binding on this case.

Pending Sale of Certain Brandywine Companies

On January 5, 2005, Century and ACE INA International Holdings entered into a Stock Purchase Agreement with Randall & Quilter Investment Holdings Limited (“R&Q”), which provides for the sale of ACE American Re, BRUK and Brandywine SANV to R&Q. Closing of the sale is subject to the satisfaction of certain conditions, including without limitation the obtaining of all necessary consents and approvals from third parties, including the Pennsylvania Insurance Department and the Financial Services Authority of the United Kingdom, and the commutation of certain affiliate reinsurance agreements. In connection with certain of these commutations, Century’s assumed loss reserves would be reduced and an associated amount of coverage would become available under the Aggregate Excess of Loss Agreement. The Financial Services Authority of the United Kingdom granted approval for the transaction on February 27, 2006.

We are considering potential options for the disposition of other Brandywine entities, including a possible sale of Century. There can be no assurance that any such sale or other disposition will be consummated.

Legislative Initiatives

On May 26, 2005, the Senate Judiciary Committee passed out of committee legislation to move all U.S. asbestos bodily-injury claims to a federal trust for compensation in accordance with an established set of medical criteria and claim values. The trust would be funded by asbestos defendants and their insurers. As currently proposed, ACE would be one of the insurer participants. The full Senate began consideration of the bill in early February 2006. A budget point of order was raised asserting that the bill would cost the federal government more than $5 billion over a 10 year period in violation of a congressional limit on spending. On February 14, 2006, the Senate failed to obtain the 60 votes necessary to waive the budget point of order which has the effect of sending the bill back to the Senate Judiciary Committee. While a second vote on the budget point of order is possible, at this point, passage of the trust does not appear likely.

Reinsurance

One of the ways we manage our loss exposure is through the use of reinsurance. While reinsurance agreements are designed to limit our losses from large exposures and permit recovery of a portion of direct unpaid losses, reinsurance does not relieve us of our liability to our insureds. Accordingly, the losses and loss expense reserves on our balance sheet represent our total unpaid gross losses. The reinsurance recoverable represents anticipated recoveries of a portion of those gross unpaid losses as

well as amounts recoverable from reinsurers with respect to claims paid. The table below presents our net reinsurance recoverable at March 31, 2006 and December 31, 2005.


	March 31 2006			December 31 2005
	(in millions of U.S. dollars)
Reinsurance recoverable on paid losses and loss expenses	$	1,331		$	1,191
Provision for uncollectible reinsurance on paid losses and loss expenses		(326	)		(336	)
Reinsurance recoverable on future policy benefits		10			11
Reinsurance recoverable on unpaid losses and loss expenses		14,981			15,048
Provision for uncollectible reinsurance on unpaid losses and loss expenses		(427	)		(451	)

Net reinsurance recoverable	$	15,569		$	15,463

Liquidity

Liquidity is a measure of a company’s ability to generate cash flows sufficient to meet short-term and long-term cash requirements of its business operations. As a holding company, ACE Limited possesses assets that consist primarily of the stock of its subsidiaries, and of other investments. In addition to net investment income, our cash flows currently depend primarily on dividends or other statutorily permissible payments. Historically, these dividends and other payments have come from our Bermuda-based operating subsidiaries, which we refer to as our Bermuda subsidiaries.

As an insurance company, one of our principal responsibilities to our clients is to ensure that we have ready access to funds to settle large unforeseen claims. Given anticipated growth in premiums and a lengthening of the average duration of our claim liabilities due to a higher proportionate growth in long-tail relative to short-tail business, we expect that positive cash flow from operations (underwriting activities and investment income) will be sufficient to cover cash outflows under most loss scenarios through 2006. To further ensure the sufficiency of funds to settle unforeseen claims, we hold a certain amount of invested assets in cash and short-term investments and maintain available credit facilities (see section entitled, “Credit Facilities”, below). In addition, for certain insurance, reinsurance, or deposit contracts that tend to have relatively large and reasonably predictable cash outflows, such as loss portfolio contracts, we attempt to establish dedicated portfolios of assets that are duration-matched with the related liabilities. With respect to the duration of our overall investment portfolio, we manage asset durations to both maximize return given current market conditions and provide sufficient liquidity to cover future loss payments. In a low interest rate environment, the overall duration of our fixed maturity investments tends to be shorter and in a high interest rate environment, such durations tend to be longer.

Despite our safeguards, if paid losses accelerated beyond our ability to fund such paid losses from current operating cash flows, we might need to either liquidate a portion of our investment portfolio or arrange for financing. Potential events causing such a liquidity strain could be several significant catastrophes occurring in a relatively short period of time or large scale uncollectible reinsurance recoverables on paid losses (as a result of coverage disputes, reinsurers’ credit problems or decreases in the value of collateral supporting reinsurance recoverables). Additional strain on liquidity could occur if the investments sold to fund loss payments were sold at depressed prices. Because each subsidiary focuses on a more limited number of specific product lines than is collectively available from the ACE group of companies, the mix of business tends to be less diverse at the subsidiary level. As a result, the probability of a liquidity strain, as described above, may be greater for individual subsidiaries than when liquidity is assessed on a consolidated basis. If such a liquidity strain were to occur in a subsidiary, we could liquidate a portion of the portfolio as well as be required to contribute capital to the particular subsidiary and/or curtail dividends from the subsidiary to support holding company operations.

The payments of dividends or other statutorily permissible distributions from our operating companies are subject to the laws and regulations applicable to each jurisdiction, as well as the need to maintain capital levels adequate to support the insurance and reinsurance operations, including financial strength ratings issued by independent rating agencies, which are discussed below. During the three months ended March 31, 2006, we were able to meet all of our obligations, including the payment of dividends declared on our Ordinary Shares and Preferred Shares, with our net cash flow and dividends received. Should the need arise, we generally have access to the capital markets and other available credit facilities.

We assess which subsidiaries to draw dividends from based on a number of factors. Considerations such as regulatory and legal restrictions as well as the subsidiary’s financial condition are paramount to the dividend decision. The legal restrictions on the payment of dividends from retained earnings by our Bermuda subsidiaries are currently satisfied by the share capital and additional paid-in capital of each of the Bermuda subsidiaries. During the quarter ended March 31, 2006, ACE Bermuda

declared and paid dividends of $70 million. During the quarter ended March 31, 2005, ACE Bermuda and ACE Tempest Life Reinsurance Ltd declared and paid dividends of $243 million and $32 million, respectively. We expect that a majority of our cash inflows in 2006 will be from our Bermuda subsidiaries.

The payment of any dividends from ACE Global Markets or its subsidiaries is subject to applicable U.K. insurance laws and regulations. In addition, the release of funds by Syndicate 2488 to subsidiaries of ACE Global Markets is subject to regulations promulgated by the Society of Lloyd’s. ACE INA’s U.S. insurance subsidiaries may pay dividends, without prior regulatory approval, subject to restrictions set out in state law of the subsidiary’s domicile (or, if applicable, “commercial domicile”). Typically, restrictions state that dividends may only be paid from earned surplus (unassigned funds) and are subject to (i) certain limitations based upon the policyholder surplus and/or net income or investment income of the insurer (specific threshold set by state law of insurer’s domicile); (ii) total dividends paid during a twelve month period, and (iii) the maintenance of minimum capital requirements. ACE INA’s international subsidiaries are also subject to insurance laws and regulations particular to the countries in which the subsidiaries operate. These laws and regulations sometimes include restrictions that limit the amount of dividends payable without prior approval of regulatory insurance authorities.

ACE Limited did not receive any dividends from ACE Global Markets or ACE INA during the three months ended March 31, 2006 or 2005. The debt issued by ACE INA to provide partial financing for the ACE INA acquisition and for other operating needs is serviced by statutorily permissible distributions by ACE INA’s insurance subsidiaries to ACE INA as well as other group resources.

Our consolidated sources of funds consist primarily of net premiums written, net investment income and proceeds from sales and maturities of investments. Funds are used primarily to pay claims, operating expenses, dividends and for the purchase of investments. After satisfying our cash requirements, excess cash flows from these underwriting and investing activities are invested.

Our insurance and reinsurance operations provide liquidity in that premiums are received in advance, sometimes substantially in advance, of the time claims are paid. Generally cash flows are affected by claim payments that, due to the nature of our operations, may comprise large loss payments on a limited number of claims and which can fluctuate significantly from period to period. The irregular timing of these loss payments can create significant variations in cash flows from operations between periods.

Sources of liquidity include cash from operations, routine sales of investments and financing arrangements.

•

Our consolidated net cash flows from operating activities were $1.1 billion in the quarter ended March 31, 2006, compared with $1.2 billion in the same quarter in 2005. These amounts reflect net income for each period, adjusted for non-cash items and changes in working capital. Net income for the quarter ended March 31, 2006 was $489 million, compared with $437 million in the same quarter in 2005. For the current quarter significant adjustments included increases in unpaid losses and loss expenses and unearned premiums of $1.1 billion partially offset by increases in insurance and reinsurance balances receivable and reinsurance recoverable of $478 million.

•

Our consolidated net cash flows used for investing activities were $1.1 billion in each of the quarters ended March 31, 2006 and 2005. For the indicated periods, net investing activities related principally to purchases and sales of fixed maturities.

•

Our consolidated net cash flows used for financing activities were $58 million in the quarter ended March 31, 2006, compared with $27 million in the same quarter in 2005. The increase in usage for the current quarter was primarily related to higher dividends paid on Ordinary Shares and a decrease in proceeds from exercise of options for Ordinary Shares.

Although our ongoing operations continue to generate positive cash flows, our cash flows are currently impacted by a large book of loss reserves from businesses in run-off. The run-off operations generated negative operating cash flows of $36 million and $99 million in the three months ended March 31, 2006 and 2005, respectively.

Both internal and external forces influence our 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 us and the settlement of the liability for that loss. We believe that our cash balances, cash flow from operations, routine sales of investments and the liquidity provided by our credit facilities, as discussed below, are adequate to meet expected cash requirements.

ACE and its subsidiaries are assigned debt and financial strength (insurance) ratings from internationally recognized rating agencies, including S&P, A.M. Best, Moody’s Investors Service and Fitch IBCA. The ratings issued on our companies by these agencies are announced publicly and are available directly from the agencies. Our internet site, acelimited.com, also contains information about our ratings, which can be found in the Investor Information section.

Financial strength ratings represent the opinions of the rating agencies on the financial strength of a company and its capacity to meet the obligations of insurance policies. Independent ratings are one of the important factors that establish our competitive position in the insurance markets. The rating agencies consider many factors in determining the financial strength rating of an insurance company, including the relative level of statutory surplus necessary to support the business operations of the company. These ratings are based upon factors relevant to policyholders, agents and intermediaries and are not directed toward the protection of investors. Such ratings are not recommendations to buy, sell or hold securities.

Debt ratings apply to short-term and long-term debt as well as preferred stock. These ratings are assessments of the likelihood that we will make timely payments of principal and interest and preferred stock dividends.

It is possible that, in the future, one or more of the rating agencies may reduce our existing ratings. If one or more of our ratings were downgraded, we could incur higher borrowing costs and our ability to access the capital markets could be impacted. In addition, our insurance and reinsurance operations could be adversely impacted by a downgrade in our financial strength ratings, including a possible reduction in demand for our products in certain markets.

Capital Resources

Capital resources consist of funds deployed or available to be deployed to support our business operations. The following table summarizes the components of our capital resources at March 31, 2006 and December 31, 2005.


	March 31 2006			December 31 2005
	(in millions of U.S. dollars)
Short-term debt	$	300		$	300
Long-term debt		1,812			1,811

Total debt		2,112			2,111

Trust preferred securities		309			309

Preferred Shares		557			557
Ordinary shareholders’ equity		11,600			11,255

Total shareholders’ equity		12,157			11,812

Total capitalization	$	14,578		$	14,232

Ratio of debt to total capitalization		14.5	%		14.8	%
Ratio of debt plus trust preferreds to total capitalization		16.6	%		17.0	%

Short-term debt consists of $300 million, 8.3 percent senior notes due August 2006. In order to take advantage of the current favorable interest rate and credit spread environment, we expect to issue $300 million in debt during the second quarter of 2006. We intend to use the proceeds to repay the debt due in August of this year.

We believe our financial strength provides us with the flexibility and capacity to obtain funds externally through debt or equity financing on both a short-term and long-term basis. Our ability to access the capital markets is dependent on, among other things, market conditions and our perceived financial strength. We have accessed both the debt and equity markets from time to time.

Shareholders’ equity increased $345 million in the quarter ended March 31, 2006, primarily due to net income of $489 million, partially offset by unrealized depreciation on our investment portfolio and dividends declared.

On January 12, 2006, and April 13, 2006, we paid dividends of 23 cents per ordinary share to shareholders of record on December 30, 2005 and March 31, 2006, respectively. We have paid dividends each quarter since we became a public company in 1993. However, the declaration, payment and value of future dividends on ordinary shares is at the discretion of

our Board of Directors and will be dependent upon our profits, financial requirements and other factors including legal restrictions on the payment of dividends and such other factors as our Board of Directors deems relevant. Dividends on the preferred shares are payable quarterly when and if declared by our Boards of Directors, in arrears on March 1, June 1, September 1 and December 1 of each year. On March 1, 2006, we paid a dividend of $4.875 per preferred share to shareholders of record on February 28, 2006.

As part of our capital management program, in November 2001, our Board of Directors authorized the repurchase of any ACE issued debt or capital securities including Ordinary Shares up to $250 million. At March 31, 2006, this authorization had not been utilized. We generally maintain shelf capacity at all times in order to allow capital market access for refinancing as well as for unforeseen capital needs. Consistent with this policy, in 2005, we filed an unlimited shelf registration which expires in December 2008.

Credit Facilities

As our Bermuda subsidiaries are not admitted insurers and reinsurers in the U.S., the terms of certain U.S. insurance and reinsurance contracts require them to provide letters of credit (LOCs) to clients. In addition, ACE Global Markets is required to satisfy certain U.S. regulatory trust fund requirements which can be met by the issuance of LOCs. LOCs may also be used for general corporate purposes and for Funds at Lloyd’s.

The following table shows our credit facilities by credit line, usage, expiry date and purpose at March 31, 2006.


	Credit Line ¹		Usage		Expiry Date
	(in millions of U.S. dollars)
Unsecured Liquidity Facilities
ACE Limited ²	$	600	$	264	Dec. 2010
ACE Limited ³		50		—	March 2007
Secured Operational LOC Facilities
ACE Limited		500		435	July 2010
Other ⁴		79		79	Various
Unsecured Operational LOC Facilities
ACE Limited		1,000		930	July 2010
Unsecured Capital Facilities
ACE Limited ⁵		660		493	Dec. 2010

Total	$	2,889	$	2,201

⁽¹⁾	Certain facilities are guaranteed by operating subsidiaries and/or ACE Limited.

⁽²⁾	Commercial paper back-up facility may also be used for LOCs.

⁽³⁾	Cash pooling back-up facility.

⁽⁴⁾	These facilities are issued in the name of ACE European Group Limited, Lloyd’s Syndicate 2488 and Century Indemnity Reinsurance Company.

⁽⁵⁾	Supports ACE Global Markets 2006 underwriting capacity of £350 million (approximately $608 million) for Lloyd’s Syndicate 2488 - there is an expectation that this facility will be fully utilized during 2006.

With the exception of the LOC facilities noted under “Other”, the facilities noted above require that we maintain certain covenants, all of which have been met at March 31, 2006. These covenants include:

(i)

maintenance of a minimum consolidated net worth in an amount not less than the “Minimum Amount”. For the purpose of this calculation, the Minimum Amount is an amount equal to the sum of the base amount (currently $8 billion) plus 25 percent of consolidated net income for each fiscal quarter, ending after the date on which the current base amount became effective, plus 50 percent of any increase in consolidated net worth during the same period, attributable to the issuance of ordinary and preferred shares. The Minimum Amount is subject to an annual reset provision; and

(ii)

maintenance of a maximum debt to total capitalization ratio of not greater than 0.35 to 1. Under this covenant, debt does not include trust preferred securities or mezzanine equity, except where the ratio of the sum of trust preferred securities and mezzanine equity to total capitalization is greater than 15 percent. In this circumstance, the amount greater than 15 percent would be included in the debt to total capitalization ratio.

At March 31, 2006, the minimum consolidated net worth requirement under the covenant described in (i) above was $8.2 billion, our actual consolidated net worth as calculated under that covenant was $12 billion and our ratio of debt to total capitalization was 0.145 to 1.

In addition to these covenants, the ACE Global Markets capital facility requires that collateral be posted if the financial strength rating of ACE falls to S&P BBB+ or lower.

Our failure to comply with the covenants under any credit facility would, subject to grace periods in the case of certain covenants, result in an event of default. This could require us to repay any outstanding borrowings or to cash collateralize letters of credit under such facility. A failure by ACE Limited (or any of its subsidiaries) to pay an obligation due for an amount exceeding $50 million would result in an event of default under all of the facilities described above.

American Jobs Creation Act of 2004

On October 22, 2004, the American Jobs Creation Act (the Act) was signed into law by the President of the United States. The Act provides for the election of a special one-time tax deduction of 85 percent of certain foreign earnings that are repatriated (as defined in the Act) under a Domestic Reinvestment Plan (DRP) to its United States parent corporation in either the parent’s last tax year that began before the enactment date, or the first tax year that begins during the one-year period beginning on the date of enactment. The Act was subsequently modified by several tax technical correction provisions included in the Gulf Opportunity Zone Act of 2005. We will apply the provisions of the Act (as modified) to certain of our subsidiaries for the 2005 tax year.

During the year ended December 31, 2005, we repatriated foreign earnings of $500 million ($42 million during the quarter ended March 31, 2005) subject to DRPs that qualify for preferential treatment under the Act. For the year ended December 31, 2005, the tax benefit under the Act associated with these repatriations was $69 million ($8 million for the quarter ended March 31, 2005) and is a result of the reduction of the net deferred tax liability associated with these repatriated earnings.

Recent Accounting Pronouncements

See Note 2 and 3 to the Consolidated Financial Statements for a discussion of recent accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Refer to the Item 7A included in our Annual Report on Form 10-K for the year ended December 31, 2005.

Item 4. Controls and Procedures

As of the end of the period covered by this report, the Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rule 13a-15 under the Securities Exchange Act of 1934. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in allowing information required to be disclosed in reports filed under the Securities and Exchange Act of 1934 to be recorded, processed, summarized and reported within time periods specified in the rules and forms of the SEC.

During the quarter ended March 31, 2006, there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

ACE LIMITED

PART II OTHER INFORMATION

Item 1. Legal Proceedings

Our 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 our subsidiaries which are typical to the insurance industry in general and in the normal course of business, are considered in our loss and loss expense reserves which are discussed in the P&C loss reserves discussion. In addition to claims litigation, we and our 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 our business ventures.

While the outcomes of the business litigation involving us cannot be predicted with certainty at this point, we are disputing and will continue to dispute allegations against us that are without merit and believe that the ultimate outcomes of the matters in this category of business litigation will not have a material adverse effect on our financial condition, future operating results or liquidity, although an adverse resolution of a number of these items could have a material adverse effect on our results of operations in a particular quarter or fiscal year.

Information on the insurance industry investigations and related matters is set forth in Note 8 b) of our Consolidated Financial Statements.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

This table provides information with respect to purchases by the Company of its Ordinary Shares during the three months ended March 31, 2006.

Issuer’s Purchases of Equity Securities


Period	Total Number of Shares Purchased*	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan**	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan**
January 1, 2006 through January 31, 2006	2,066	$	55.52	—	$	250 million
February 1, 2006 through February 28, 2006	—		—	—	$	250 million
March 1, 2006 through March 31, 2006	302,790	$	56.52	—	$	250 million

Total	304,856

For the three months ended March 31, 2006, this column includes the surrender to the Company of 304,657 Ordinary Shares to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees and the surrender to the Company of 199 Ordinary Shares to satisfy the tax withholding obligations in connection with the exercise of employee stock options.

**	As part of ACE’s capital management program, in November 2001, the Company’s Board of Directors authorized the repurchase of any ACE issued debt or capital securities including Ordinary Shares, up to $250 million. At March 31, 2006, this authorization had not been utilized.

Item 6. Exhibits


Exhibits
10.1		ACE Limited Executive Severance Plan as adopted effective March 29, 2006.

10.2		Credit Agreement dated as of March 31, 2006 among ACE Limited, ACE Bermuda Insurance Ltd., ACE Tempest Reinsurance Ltd., and ING Bank, N.V., London Branch.

10.3		Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan, as updated through May 4, 2006.

12.1		Ratio of earnings to fixed charges and preferred share dividends calculation.

31.1		Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

31.2		Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

32.1		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

32.2		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

ACE LIMITED

SIGNATURES

Pursuant to the requirements 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

May 5 , 2006				/s/ Evan G. Greenberg
				Evan G. Greenberg
				President and Chief Executive Officer

May 5, 2006				/s/ Philip V. Bancroft
				Philip V. Bancroft
				Chief Financial Officer


Exhibit Number		Description
		Exhibits

10.1		ACE Limited Executive Severance Plan as adopted effective March 29, 2006.

10.2		Credit Agreement dated as of March 31, 2006 among ACE Limited, ACE Bermuda Insurance Ltd., ACE Tempest Reinsurance Ltd., and ING Bank, N.V., London Branch.

10.3		Form of Performance Based Restricted Stock Award Terms under the ACE Limited 2004 Long-Term Incentive Plan, as updated through May 4, 2006.

12.1		Ratio of earnings to fixed charges and preferred share dividends calculation.

31.1		Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

31.2		Certification Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.

32.1		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

32.2		Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

Exhibit 10.1

ACE LIMITED

EXECUTIVE SEVERANCE PLAN

As Adopted Effective March 29, 2006

ACE LIMITED

EXECUTIVE SEVERANCE PLAN

Table of Contents


Section 1	Definitions	2

Section 2	Purpose of Plan	6

Section 3	Eligibility and Participation	6

Section 4	Administration	7

Section 5	Separation Due to Death	8

Section 6	Separation Due to Disability	9

Section 7	Separation Due to Retirement	10

Section 8	Separation for Cause or Quit	10

Section 9	Separation without Cause	11

Section 10	Change in Control	13

Section 11	Participant Obligations	14

Section 12	Claims	16

Section 13	Taxes	17

Section 14	Term of Plan; Amendment and Termination of Plan	17

Section 15	Miscellaneous	18

ACE LIMITED

EXECUTIVE SEVERANCE PLAN

1.0	DEFINITIONS

The following terms shall have the following meanings unless the context indicates otherwise:

1.1	“Affiliate” of a person or other entity shall mean a person or other entity that directly or indirectly controls, is controlled by, or is under common control with the person or other entity specified.

1.2	“Beneficiary” shall mean a beneficiary designated in writing by a Participant to receive any Separation Benefits in accordance with Sections 5 through 10 below. If no beneficiary is designated by the Participant, then the Participant’s estate shall be deemed to be the Participant’s Beneficiary.

1.3	“Board” shall mean the Board of Directors of the Company.

1.4

“Bonus” shall mean the 3-year average of the annual bonuses paid or payable to the Participant with respect to the 3 most recently completed fiscal years immediately preceding the Separation Date, with such amount increased (if applicable) to take into account any elective or mandatory deferrals. For a Participant who has not been employed by the Company with respect to the 3 most recently completed fiscal years immediately preceding the Separation Date, the average annual bonus amount shall be calculated based on the number of full fiscal years of employment. For a Participant who has not been employed long enough to receive an annual bonus with respect to 1 completed fiscal year, the annual bonus amount shall be equal to the Participant’s annual target bonus.

1.5	“Cause” shall mean – unless otherwise defined in an employment agreement between the Participant and the Company or Subsidiary – the occurrence of any of the following:

(1)

a conviction of the Participant with respect to a (i) felony or (ii) a misdemeanor involving moral turpitude; or

(2)

willful misconduct or gross negligence by the Participant resulting, in either case, in harm to the Company or any Subsidiary; or

(3)

failure by the Participant to carry out the lawful and reasonable directions of the Board or the Participant’s immediate supervisor, as the case may be; or

(4)

refusal to cooperate or non-cooperation by the Participant with any governmental regulatory authority; or

(5)

fraud, embezzlement, theft or dishonesty by the Participant against the Company or any Subsidiary or a material violation by the Participant of a policy or procedure of the Company, resulting, in any case, in harm to the Company or any Subsidiary.

1.6	“CEO” shall mean the Executive serving as the chief executive officer of the Company at the relevant time.

1.7	“Change in Control” shall mean the occurrence of any of the following events:

(1)

any “person,” as such term is used in Sections 3(a)(9) and 13(d) of the Exchange Act, becomes a “beneficial owner,” as such term is used in Rule 13d-3 promulgated under the Exchange Act, of 50% or more of the Voting Stock (as defined below) of the Company; or

(2)

the majority of the Board consists of individuals other than Incumbent Directors; provided that any person becoming a director subsequent to the Effective Date whose election or nomination for election was supported by three-quarters of the directors who then comprised the Incumbent Directors shall be considered to be an Incumbent Director; or

(3)

the Company adopts any plan of liquidation providing for the distribution of all or substantially all of its assets; or

(4)

all or substantially all of the assets or business of the Company is disposed of pursuant to a merger, consolidation or other transaction (unless the shareholders of the Company immediately prior to such merger, consolidation or other transaction beneficially own, directly or indirectly, in substantially the same proportion as they owned the Voting Stock of the Company, all of the Voting Stock or other ownership interests of the entity or entities, if any, that succeed to the business of the Company); or

(5)

the Company combines with another company and is the surviving corporation but, immediately after the combination, the shareholders of the Company immediately prior to the combination hold, directly or indirectly, 50% or less of the Voting Stock of the combined company (there being excluded from the number of shares held by such shareholders, but not from the Voting Stock of the combined company, any shares received by Affiliates of such other company in exchange for stock of such other company).

1.8	“Change-in-Control Date” shall mean the date that a Change in Control first occurs.

1.9

“Change-in-Control Health Continuation Period” shall mean the period commencing on the Separation Date and continuing until the end of the applicable period as shown on Schedule A and which is to be used if the Participant’s Separation is without Cause or for Good Reason in connection with a Change in Control.

1.10

“Change-in-Control Non-competition Period” shall mean the period commencing on the date the Executive becomes a Participant and continuing until the end of the applicable period as shown on Schedule A and which is to be used if the Participant’s Separation is without Cause or for Good Reason in connection with a Change in Control.

1.11

“Change-in-Control Non-solicitation Period” shall mean the period commencing on the date the Executive becomes a Participant and continuing until the end of the applicable period as shown on Schedule A and which is to be used if the Participant’s Separation is without Cause or for Good Reason in connection with a Change in Control.

1.12

“Change-in-Control Severance Multiple” shall mean the multiplier that shall be used to determine cash Separation Benefits paid to a Participant as shown on Schedule A and which is to be used if the Participant’s Separation is without Cause or for Good Reason in connection with a Change in Control.

1.13	“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

1.14	“Committee” shall mean the Board’s Compensation Committee as constituted from time to time.

1.15	“Company” shall mean ACE Limited, a Cayman Islands corporation, including any successor entity or any successor to the assets of the Company that has assumed the Plan.

1.16

“ Competitive Activity ” shall mean the Participant’s engaging in an activity – whether as an employee, consultant, principal, member, agent, officer, director, partner or shareholder (except as a less than 1% shareholder of a publicly traded company) – that is competitive with any business of the Company or any Subsidiary conducted by the Company or such Subsidiary at any time during the Standard Non-competition Period or the Change-in-Control Non-competition Period (as applicable); provided, however , that the Participant may be employed by or otherwise associated with:

(i) a business of which a subsidiary, division, segment, unit, etc. is in competition with the Company or any Subsidiary but as to which such subsidiary, division, segment, unit, etc. the Participant has absolutely no direct or indirect responsibilities or involvement, or

(ii) a company where the Competitive Activity is:

(A)

from the perspective of such company, de minimis with respect to the business of such company and its affiliates, and

(B)

from the perspective of the Company or any Subsidiary, not in material competition with the Company or any Subsidiary.

1.17

“Disability” shall mean a disability as determined in accordance with the Company’s (or the applicable Subsidiary’s) long-term disability plan or program in effect on the date that the disability first occurs, or if no such plan or program is in effect on the date that the disability first occurs, then a disability as defined under Code Section 22(e)(3).

1.18	“Effective Date” shall mean the date the Board adopts the Plan.

1.19	“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.

1.20	“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.

1.21	“Executive” shall mean a regular full-time employee of the Company or any Subsidiary with executive, managerial or similar duties and responsibilities.

1.22	“Good Reason” shall mean – unless otherwise defined in an in-force employment agreement between the Participant and the Company or Subsidiary – the occurrence of any of the following within the 60-day period preceding a Separation Date without the Participant’s prior written consent:

(1)

a material adverse diminution of the Participant’s titles, authority, duties or responsibilities, or the assignment to the Participant of titles, authority, duties or responsibilities that are materially inconsistent with his or her titles, authority, duties and/or responsibilities in a manner materially adverse to the Participant; or

(2)

a reduction in the Participant’s base salary or annual bonus opportunity (other than any reduction applicable to all similarly situated Executives generally); or

(3)

a failure of the Company to obtain the assumption in writing of its obligations under the Plan by any successor to all or substantially all of the assets of the Company within 45 days after a merger, consolidation, sale or similar transaction that qualifies as a Change in Control.

1.23	“Incumbent Directors” shall mean the members of the Board as of the Effective Date.

1.24	“Participant” shall mean an Executive who has been designated to participate in the Plan in accordance with Section 3 below and who is participating in the Plan on the Separation Date.

1.25	“Plan” shall mean the ACE Limited Executive Severance Plan.

1.26	“Quit” shall mean termination of a Participant’s employment by the Participant other than due to death, Disability or Retirement.

1.27	“Retirement” shall mean that the Participant has retired and is or will be receiving benefits under the Company’s primary qualified pension plan.

1.28

“Salary” shall mean the highest annual base salary paid to the Participant during the 12-month period immediately preceding the earlier of (i) the Separation Date or (ii) the Change-in-Control Date, with such amount increased (if applicable) to take into account any elective or mandatory deferrals.

1.29	“Separated Participant” shall mean a Participant whose employment with the Company and/or any of its Subsidiaries has been terminated.

1.30	“Separation” shall mean a termination of the Participant’s employment:

(1)

due to the death of the Participant; or

(2)

by the Company or by the Participant due to Disability; or

(3)

by the Participant as a Retirement; or

(4)

by the Company for Cause or by the Participant without Good Reason; or

(5)

by the Company without Cause or by the Participant for Good Reason.

1.31	“Separation Benefits” shall mean the compensation and benefits payable or provided to a Separated Participant under the Plan.

1.32	“Separation Date” shall mean the date a Participant’s employment with the Company and/or a Subsidiary is terminated.

1.33	“Standard Health Continuation Period” shall mean the period commencing on the Separation Date and continuing until the end of the applicable period as shown on Schedule A and which is to be used if the Participant’s Separation is without Cause and is NOT in connection with a Change in Control.

1.34

“Standard Non-competition Period” shall mean the period commencing on the date the Executive becomes a Participant and continuing until the end of the applicable period as shown on Schedule A and which is to be used if the Participant’s Separation is without Cause and is NOT in connection with a Change in Control.

1.35

“Standard Non-solicitation Period” shall mean the period commencing on the date the Executive becomes a Participant and continuing until the end of the applicable period as shown on Schedule A and which is to be used if the Participant’s Separation is without Cause and is NOT in connection with a Change in Control.

1.36	“Standard Severance Multiple” shall mean the multiplier that shall be used to determine cash Separation Benefits paid to a Participant as shown on Schedule A and which is to be used if the Participant’s Separation is without Cause and is NOT in connection with a Change in Control.

1.37

“Standard Vesting Continuation Period” shall mean the period over which equity-based compensation will continue to vest/become exercisable commencing on the Separation Date and continuing until the end of the applicable period as shown on Schedule A and which is to be used if the Participant’s Separation is without Cause and is NOT in connection with a Change in Control.

1.38	“Subsidiary” shall mean a corporation of which the Company directly or indirectly owns more than 50 percent of the Voting Stock or any other business entity in which the Company directly or indirectly has an ownership interest of more than 50 percent.

1.39	“ Voting Stock” shall mean capital stock of any class or classes having general voting power under ordinary circumstances, in the absence of contingencies, to elect the directors of a corporation.

2.0	PURPOSE OF PLAN

2.1	Purpose . The purpose of the Plan is:

(a)

to provide the terms and conditions relating to an Executive’s separation from service from the Company and/or any of its Subsidiaries; and

(b)

to retain certain highly qualified individuals as Executives; and

(c)

to maintain the focus of such Executives on the business of the Company and to mitigate the distractions caused by the possibility that the Executive’s employment may be terminated or that the Company may be the target of an acquisition.

The Plan is intended to qualify as an “employee benefit plan” (as such term is defined under ERISA Section 3(3)) and, accordingly, the Plan is intended to be subject to ERISA. In addition, the Plan is intended to qualify as a “top-hat” plan (as such term is commonly used under the ERISA regulations promulgated by the U.S. Department of Labor) since it provides benefits only to a select group of management or highly compensated employees of the Company.

The Plan is NOT intended to provide “nonqualified deferred compensation” as such term is defined and used under Code Section 409A; accordingly, the Plan is NOT intended to be subject to Code Section 409A.

3.0	ELIGIBILITY AND PARTICIPATION

3.1	Eligibility . All Executives of the Company shall be eligible to participate in the Plan.

3.2

Participation . Participants shall consist of the CEO and those Executives designated by the CEO in his or her sole discretion to participate in the Plan; provided, however , that the CEO shall not designate an Executive as a new Participant following a Change-in-Control Date. An Executive who becomes a Participant shall remain a Participant until the termination of the Plan in accordance with Section 14 below.

3.3

Committee Approval; Participant Agreement . Notwithstanding anything contained in the Plan to the contrary, all Participants designated by the CEO in accordance with Section 3.2 above shall not become Participants until such designation has been approved in writing by the Committee and such Executive has agreed in writing to be a Participant.

4.0	ADMINISTRATION

4.1	Responsibility . The Committee shall have the responsibility, in its sole discretion, to control, operate, manage and administer the Plan in accordance with its terms.

4.2	Authority of the Committee . The Committee shall have the maximum discretionary authority permitted by law that may be necessary to enable it to discharge its responsibilities with respect to the Plan, including but not limited to the following:

(a)

to determine eligibility for participation in the Plan;

(b)

to approve Participants designated by the CEO;

(c)

to determine or calculate a Participant’s Separation Benefits;

(d)

to correct any defect, supply any omission, or reconcile any inconsistency in the Plan in such manner and to such extent as it shall deem appropriate in its sole discretion to carry the same into effect;

(e)

to issue administrative guidelines as an aid to administer the Plan and make changes in such guidelines as it from time to time deems proper;

(f)

to make rules for carrying out and administering the Plan and make changes in such rules as it from time to time deems proper;

(g)

to the extent permitted under the Plan, grant waivers of Plan terms, conditions, restrictions, and limitations;

(h)

to make reasonable determinations as to a Participant’s eligibility for benefits under the Plan, including determinations as to Cause and Good Reason; and

(i)

to take any and all other actions it deems necessary or advisable for the proper operation or administration of the Plan.

4.3

Action by the Committee . The Committee may act only by a majority of its members. Any determination of the Committee may be made, without a meeting, by a writing or writings signed by all of the members of the Committee. In addition, the Committee may authorize any one or more of its members to execute and deliver documents on behalf of the Committee.

4.4

Delegation of Authority . The Committee may delegate to one or more of its members, or to one or more agents, such administrative duties as it may deem advisable; provided, however , that any such delegation shall be in writing. In addition, the Committee, or any person to whom it has delegated duties as aforesaid, may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. The Committee may employ such legal or other counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion or computation received from any such counsel, consultant or agent. Expenses incurred by the Committee in the engagement of such counsel, consultant or agent shall be paid by the Company, or the Subsidiary whose employees have benefited from the Plan, as determined by the Committee.

4.5	Determinations and Interpretations by the Committee . All determinations and interpretations made by the Committee shall be binding and conclusive to the maximum extent permitted by law on all Participants and their heirs, successors, and legal representatives.

4.6	Information . The Company shall furnish to the Committee in writing all information the Committee may deem appropriate for the exercise of its powers and duties in the administration of the Plan.

Such information may include, but shall not be limited to, the full names of all Participants, their earnings and their dates of birth, employment, retirement or death. Such information shall be conclusive for all purposes of the Plan, and the Committee shall be entitled to rely thereon without any investigation thereof.

4.7

Liability . No member of the Board, no member of the Committee and no employee of the Company shall be liable for any act or failure to act hereunder, except in circumstances involving his or her bad faith, gross negligence or willful misconduct, or for any act or failure to act hereunder by any other member or employee or by any agent to whom duties in connection with the administration of the Plan have been delegated.

4.8

Indemnification . The Company shall indemnify members of the Committee and any agent of the Committee who is an employee of the Company, against any and all liabilities or expenses to which they may be subjected by reason of any act or failure to act with respect to their duties on behalf of the Plan, except in circumstances involving such person’s bad faith, gross negligence or willful misconduct.

5.0	SEPARATION DUE TO DEATH

5.1	Separation Event . The Participant’s employment with the Company and/or any of its Subsidiaries shall terminate on the date of the Participant’s death, and the Separated Participant shall be entitled to receive the Separation Benefits provided under this Section 5.

5.2

Accrued Obligations . Unless otherwise provided in any written plan, program, agreement or arrangement between the Company and a Participant, the Company shall pay to the Separated Participant during the 30-day period immediately following the Separation Date, a lump sum cash payment equal to the Participant’s earned but unpaid Salary, plus earned but unpaid bonus for prior years’ service, plus unreimbursed expenses, plus any and all other Company obligations that are accrued and due and owing to the Separated Participant.

5.3	Cash Separation Benefits . Unless otherwise provided in any written plan, program, agreement or arrangement between the Company and the Participant, the Company shall have no obligation to pay to the Separated Participant any cash Separation Benefits.

5.4

Long-Term Incentive Compensation. Unless otherwise provided in any written plan, program, agreement or arrangement between the Company and a Participant, any and all long-term incentive arrangements shall vest, be exercisable and/or become payable in accordance with the terms and conditions of the long-term incentive compensation plan and award agreement.

5.5

Pension-Benefit Arrangements . Unless otherwise provided in any written plan, program, agreement or arrangement between the Company and a Participant, all benefits under all pension-benefit arrangements, including deferred compensation arrangements, shall be paid in accordance with the terms and conditions of the applicable plan, program, agreement or arrangement. Notwithstanding the preceding sentence, the Committee may accelerate such payment, in its sole discretion, after having received advice from the Company’s tax counsel that such acceleration would not violate Code Section 409A or any other provision of the Code.

5.6

Welfare-Benefit Arrangements . Unless otherwise provided in any written plan, program, agreement or arrangement between the Company and a Participant, the dependents of the deceased Separated Participant shall be entitled to receive continued health coverage in accordance with rules and provisions under the Consolidated Omnibus Budget Reconciliation Act of 1985. Unless otherwise provided for in any written agreement between the Company and a Separated Participant, or as otherwise agreed to by the Committee in its sole discretion, all other welfare benefits shall cease as of the Separation Date.

5.7	Payment of Separation Benefits to Beneficiaries . Unless otherwise provided in any written plan, program, agreement or arrangement between the Company and a Participant, all Separation Benefits under this Section 5 shall be paid to the Separated Participant’s Beneficiary.

5.8	Other Benefits. Notwithstanding anything contained in the Plan to the contrary, the Company or the Committee may, in its sole discretion, provide benefits in addition to the benefits described under this Section 5.

6.0	SEPARATION DUE TO DISABILITY

6.1

Separation Event . The Participant’s employment with the Company and/or any of its Subsidiaries shall terminate on the date the Participant or the Company (and/or any of its Subsidiaries) terminates such employment due to a Disability, and the Separated Participant shall be entitled to receive the Separation Benefits provided under this Section 6.

6.2

6.3	Cash Separation Benefits . Unless otherwise provided in any written plan, program, agreement or arrangement between the Company and the Participant, the Company shall have no obligation to pay to the Separated Participant any cash Separation Benefits.

6.4

6.5

6.6

Welfare-Benefit Arrangements . Unless otherwise provided in any written plan, program, agreement or arrangement between the Company and a Participant, the Separated Participant and his or her dependents shall be entitled to receive continued health coverage in accordance with rules and provisions under the Consolidated Omnibus Budget Reconciliation Act of 1985. Unless otherwise provided for in any written plan, program, agreement or arrangement between the Company and a Separated Participant, or as otherwise agreed to by the Committee in its sole discretion, all other welfare benefits shall cease as of the Separation Date due to Disability.

6.7

Payment of Separation Benefits to Beneficiaries . Unless otherwise provided in any written plan, program, agreement or arrangement between the Company and a Participant, in the event of the Separated Participant’s death, all Separation Benefits that would have been paid to the Separated Participant under this Section 6 but for his or her death, shall be paid to the Separated Participant’s Beneficiary.

6.8	Other Benefits. Notwithstanding anything contained in the Plan to the contrary, the Company or the Committee may, in its sole discretion, provide benefits in addition to the benefits described under this Section 6.

7.0	SEPARATION DUE TO RETIREMENT

7.1

Separation Event . The Participant’s employment with the Company and/or any of its Subsidiaries shall terminate on the date the Participant terminates his or her employment with the Company and/or any of its Subsidiaries due to a Retirement, and the Separated Participant shall be entitled to receive the Separation Benefits provided under this Section 7.

7.2

Accrued Obligations . Unless otherwise provided in any written plan, program, agreement or arrangement between the Company and the Participant, the Company shall pay to the Separated Participant during the 30-day period immediately following the Separation Date, a lump sum cash payment equal to the Participant’s earned but unpaid Salary, plus earned but unpaid bonus for prior years’ service, plus un-reimbursed expenses, plus any and all other Company obligations that are accrued and due and owing to the Separated Participant.

7.3	Cash Separation Benefits . Unless otherwise provided in any written plan, program, agreement or arrangement between the Company and the Participant, the Company shall have no obligation to pay to the Separated Participant any cash Separation Benefits.

7.4

7.5

7.6

7.7

Payment of Separation Benefits to Beneficiaries . Unless otherwise provided in any written plan, program, agreement or arrangement between the Company and a Participant, in the event of the Separated Participant’s death, all Separation Benefits that would have been paid to the Separated Participant under this Section 7 but for his or her death, shall be paid to the Separated Participant’s Beneficiary.

7.8	Other Benefits. Notwithstanding anything contained in the Plan to the contrary, the Company or the Committee may, in its sole discretion, provide benefits in addition to the benefits described under this Section 7.

8.0	SEPARATION FOR CAUSE OR QUIT

8.1	Separation Event . The Participant’s employment with the Company and/or any of its Subsidiaries shall terminate on the date that:

(a)

the Company and/or any of its Subsidiaries terminate(s) the Participant’s employment for Cause; or

(b)

the Participant Quits;

and the Separated Participant shall be entitled to receive the Separation Benefits provided under this Section 8. If the Participant’s Quits, then such Participant shall notify the Company in writing at least 30 days prior to the Separation Date.

8.2

Accrued Obligations . Unless otherwise provided in any written plan, program, agreement or arrangement between the Company and the Participant, the Company shall pay to the Separated Participant during the 30-day period immediately following the Separation Date, a lump sum cash payment equal to the Participant’s earned but unpaid Salary, plus unreimbursed expenses, plus any and all other Company obligations that are accrued and due and owing to the Separated Participant.

8.3	Cash Separation Benefits . Unless otherwise provided in any written plan, program, agreement or arrangement between the Company and the Participant, the Company shall have no obligation to pay to the Separated Participant any cash Separation Benefits.

8.4	Long-Term Incentive Compensation. Unless otherwise provided in any written plan, program, agreement or arrangement between the Company and a Participant, any and all long-term incentive arrangements shall immediately be forfeited as of the Separation Date.

8.5

8.6

8.7

Payment of Separation Benefits to Beneficiaries . Unless otherwise provided in any written plan, program, agreement or arrangement between the Company and a Participant, in the event of the Separated Participant’s death, all Separation Benefits that would have been paid to the Separated Participant under this Section 8 but for his or her death, shall be paid to the Separated Participant’s Beneficiary.

8.8	Other Benefits. Notwithstanding anything contained in the Plan to the contrary, the Company or the Committee may, in its sole discretion, provide benefits in addition to the benefits described under this Section 8.

9.0	SEPARATION WITHOUT CAUSE

9.1

9.2

Accrued Obligations . Unless otherwise provided in any written plan, program, agreement or arrangement between the Company and the Participant, the Company shall pay to the Separated Participant during the 30-day period immediately following the Separation Date, a lump sum cash payment equal to the Participant’s earned but unpaid Salary, plus earned but unpaid bonus for prior years’ service, plus unreimbursed expenses, plus any and all other Company obligations that are accrued and due and owing to the Separated Participant.

9.3

Cash Separation Benefits . Unless otherwise provided in any written plan, program, agreement or arrangement between the Company and the Participant, the Company shall pay to the Separated Participant during the 30-day period immediately following the Separation Date, a lump sum cash payment equal to the sum of:

(a)

a pro rata annual bonus with respect to the year in which the Separation Date occurs, plus

(b)

the product of (x) the Standard Severance Multiple times (y) the sum of the Separated Participant’s (A) Salary plus (B) Bonus.

9.4	Equity-Based Compensation . Notwithstanding anything contained in any written plan, program, agreement or arrangement between the Company and the Participant:

(a)

any and all unvested shares of restricted stock or restricted stock units (whether time-based or performance-based) held by the Participant on the Separation Date shall continue to vest over the Standard Vesting Continuation Period, and

(b)

any and all unvested stock options (whether incentive stock options or nonqualified stock options, whether time-based or performance-based) shall continue to vest/become exercisable over the Standard Vesting Continuation Period, and any and all stock options held by the Participant on the Separation Date (including those stock options that vest/become exercisable under this Section 9.4) shall remain exercisable until the earlier of (i) the 3rd anniversary of the Separation Date or (ii) the stock option’s originally scheduled expiration date.

9.5

Long-Term Incentive Compensation. Unless otherwise provided in any written plan, program, agreement or arrangement between the Company and a Participant, all long-term incentive arrangements (other than equity-based compensation) shall forfeit, vest and/or be paid in accordance with the terms and conditions of the applicable plan, program, agreement or arrangement. Notwithstanding the preceding sentence, the Committee may accelerate such payment, in its sole discretion, after having received advice from the Company’s tax counsel that such acceleration would not violate Code Section 409A or any other provision of the Code.

9.6

9.7

Welfare-Benefit Arrangements . Unless otherwise provided in any written plan, program, agreement or arrangement between the Company and a Participant, the Company shall provide a Separated Participant with continued health coverage during the Standard Health Continuation Period. Unless otherwise provided for in any written plan, program, agreement or arrangement between the Company and a Separated Participant, or as otherwise agreed to by the Committee in its sole discretion, all other welfare benefits shall cease as of the Separation Date. Following the end of the applicable Standard Heath Continuation Period, the Separated Participant and his or her dependents shall be entitled to receive continued health coverage in accordance with rules and provisions under the Consolidated Omnibus Budget Reconciliation Act of 1985.

9.8

Payment of Separation Benefits to Beneficiaries . Unless otherwise provided in any written plan, program, agreement or arrangement between the Company and a Participant, in the event of the Separated Participant’s death, all Separation Benefits that would have been paid to the Separated Participant under this Section 9 but for his or her death, shall be paid to the Separated Participant’s Beneficiary.

9.9	Other Benefits. Notwithstanding anything contained in the Plan to the contrary, the Company or the Committee may, in its sole discretion, provide benefits in addition to the benefits described under this Section 9.

10.0	CHANGE IN CONTROL

10.1

Separation Event. The Participant’s employment with the Company and/or any of its Subsidiaries shall terminate on the date that the Company and/or any of its Subsidiaries terminate(s) the Participant’s employment with the Company and/or any of its Subsidiaries without Cause (other than due to death, a Disability or a Retirement) or on the date that the Participant terminates his or her employment for Good Reason during the period commencing on the 180th day immediately preceding a Change-in-Control Date and ending on the 2nd anniversary of such Change-in-Control Date; and the Separated Participant shall be entitled to receive the Separation Benefits provided under this Section 10.

10.2

Accrued Obligations . Unless otherwise provided in any written plan, program, agreement or arrangement between the Company and the Participant, the Company shall pay to the Separated Participant during the 30-day period immediately following the Separation Date, a lump sum cash payment equal to the Participant’s earned but unpaid Salary, plus earned but unpaid bonus for prior years’ service, plus unreimbursed expenses, plus any and all other Company obligations that are accrued and due and owing to the Separated Participant.

10.3

(a)

a pro rata annual bonus with respect to the year in which the Separation Date occurs, plus

(b)

the product of (x) the Change-in-Control Severance Multiple times (y) the sum of the Separated Participant’s (A) Salary plus (B) Bonus.

10.4	Equity-Based Compensation . Notwithstanding anything contained in any written plan, program, agreement or arrangement between the Company and the Participant:

(a)

any and all unvested shares of restricted stock or restricted stock units (whether time-based or performance-based) held by the Participant (or, if the Separation Date had occurred within the 180-day period immediately preceding the Change-in-Control Date, held by the Separated Participant) on the Change-in-Control Date shall immediately vest on the Change-in-Control Date, and

(b)

any and all unvested stock options (whether incentive stock options or nonqualified stock options, whether time-based or performance-based) held by the Participant (or, if the Separation Date had occurred within the 180-day period immediately preceding the Change-in-Control Date, held by the Separated Participant) on the Change-in-Control Date shall immediately vest/become exercisable on the Change-in-Control Date, and any and all

stock options held by the Participant on the Separation Date (including those stock options that vest/become exercisable under this Section 10.4) shall remain exercisable until the earlier of (i) the 3rd anniversary of the Separation Date or (ii) the stock option’s originally scheduled expiration date.

10.5

10.6

10.7

Welfare-Benefit Arrangements . Unless otherwise provided in any written plan, program, agreement or arrangement between the Company and a Participant, the Company shall provide a Separated Participant with continued health coverage during the Change-in-Control Health Continuation Period. Unless otherwise provided for in any written plan, program, agreement or arrangement between the Company and a Separated Participant, or as otherwise agreed to by the Committee in its sole discretion, all other welfare benefits shall cease as of the Separation Date. Following the end of the applicable Change-in-Control Heath Continuation Period, the Separated Participant and his or her dependents shall be entitled to receive continued health coverage in accordance with rules and provisions under the Consolidated Omnibus Budget Reconciliation Act of 1985.

10.8

Payment of Separation Benefits to Beneficiaries . Unless otherwise provided in any written plan, program, agreement or arrangement between the Company and a Participant, in the event of the Separated Participant’s death, all Separation Benefits that would have been paid to the Separated Participant under this Section 10 but for his or her death, shall be paid to the Separated Participant’s Beneficiary.

10.9	Other Benefits. Notwithstanding anything contained in the Plan to the contrary, the Company or the Committee may, in its sole discretion, provide benefits in addition to the benefits described under this Section 10.

10.10

Right of Company to Cure . If the Separation is by the Participant for Good Reason under this Section 10, then the Company and/or any of its Subsidiaries shall be given a reasonable period of time to cure the event that constitutes Good Reason (if curable) before the Separation Date.

11.0	PARTICIPANT OBLIGATIONS

11.1	Waiver and Release . As a condition precedent for receiving the Separation Benefits provided under Section 9 or Section 10 above, a Separated Participant shall execute a waiver and release substantially in the form attached to the Plan as Exhibit A.

11.2

Non-competition. If a Participant’s Separation is (i) without Cause or (ii) without Cause or for Good Reason in connection with a Change in Control, then during the Standard Non-competition Period or the Change-in-Control Non-competition Period, as applicable, a Separated Participant shall not at any time, directly or indirectly, engage in a Competitive Activity.

11.3

Non-solicitation . If a Participant’s Separation is (i) without Cause or (ii) without Cause or for Good Reason in connection with a Change in Control, then during the Standard Non-solicitation Period or Change-in-Control Non-solicitation Period, as applicable, a Separated Participant shall not at any time, directly or indirectly, whether on behalf of himself or herself or any other person or entity (x) solicit any client and/or customer of the Company or any Subsidiary with respect to a Competitive Activity or (y) solicit or employ any employee of the Company or any Subsidiary for the purpose of causing such employee to terminate his or her employment with the Company or such Subsidiary.

11.4

Confidentiality . At all times prior to and following the Separation Date, a Participant shall not disclose to anyone or make use of any trade secret or proprietary or confidential information of the Company, including such trade secret or proprietary or confidential information of any customer or client or other entity to which the Company owes an obligation not to disclose such information, which he or she acquires during his or her employment with the Company, including but not limited to records kept in the ordinary course of business, except:

(a)

as such disclosure or use may be required or appropriate in connection with his or her work as an employee of the Company;

(b)

when required to do so by a court of law, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction to order him or her to divulge, disclose or make accessible such information;

(c)

as to such confidential information that becomes generally known to the public or trade without his or her violation of this Section 11.4; or

(d)

to the Participant’s spouse and/or his or her personal tax and financial advisors as reasonably necessary or appropriate to advance the Participant’s tax, financial and other personal planning (each an “Exempt Person”), provided, however , that any disclosure or use of any trade secret or proprietary or confidential information of the Company by an Exempt Person shall be deemed to be a breach of this Section 11.4 by the Participant.

11.5	Non-Disparagement . At all times prior to and following the Separation Date, a Participant shall not make any statements or express any views that disparage the business reputation or goodwill of the Company and/or any of its Subsidiaries.

11.6

Resignation as Officer and Director . On or before the Separation Date, the Separated Participant shall submit to the Company in writing his or her resignation (as applicable) as (i) an officer of the Company and of all Subsidiaries and (ii) a member of the Board and of the board of directors of all Subsidiaries.

11.7

Return of Company Property . Immediately following the Separation Date, a Participant shall immediately return all Company property in his or her possession, including but not limited to all computer equipment (hardware and software), telephones, facsimile machines, palm pilots and other communication devices, credit cards, office keys, security access cards, badges, identification cards and all copies (including drafts) of any documentation or information (however stored) relating to the business of the Company, its customers and clients or its prospective customers and clients.

11.8

Cooperation . Following the Separation Date, a Participant shall give his or her assistance and cooperation willingly, upon reasonable advance notice with due consideration for his or her other business or personal commitments, in any matter relating to his or her position with the Company, or his or her expertise or experience as the Company may reasonably request, including his or

her attendance and truthful testimony where deemed appropriate by the Company, with respect to any investigation or the Company’s defense or prosecution of any existing or future claims or litigations or other proceeding relating to matters in which he or she was involved or potentially had knowledge by virtue of his or her employment with the Company. In no event shall his or her cooperation materially interfere with his or her services for a subsequent employer or other similar service recipient. The Company agrees that (i) it shall promptly reimburse the Separated Participant for his or her reasonable and documented expenses in connection with his or her rendering assistance and/or cooperation under this Section 11.8, upon his or her presentation of documentation for such expenses and (ii) the Separated Participant shall be reasonably compensated for any continued material services as required under this Section 11.8.

11.9

Enforcement of Section 11. If a Separated Participant materially violates any provision of this Section 11, he or she shall immediately forfeit any right, title and interest to any Separation Benefits that have not yet been paid or provided and shall be required to repay to the Company a cash amount equal to the value of the Separation Benefits that he or she has already received.

11.10

Enforcement of Non-competition, Non-solicitation and Confidentiality Covenants. In addition to Section 11.9 above, if a Separated Participant violates or threatens to violate Section 11.2, Section 11.3, and/or Section 11.4 above, the Company shall not have an adequate remedy at law. Accordingly, the Company shall be entitled to such equitable and injunctive relief as may be available to restrain the Separated Participant and any business, firm, partnership, individual, corporation or entity participating in the breach or threatened breach from the violation of the provisions of Section 11.2, Section 11.3, and/or Section 11.4 above. Nothing in the Plan shall be construed as prohibiting the Company from pursuing any other remedies available at law or in equity for breach or threatened breach of Section 11.2, Section 11.3, and/or Section 11.4 above, including the recovery of damages.

12.0	CLAIMS

12.1

Claims Procedure . If any Participant or Beneficiary, or his or her legal representative, has a claim for benefits under the Plan which is not being paid, such claimant may file a written claim with the Committee setting forth the amount and nature of the claim, supporting facts, and the claimant’s address. Written notice of the disposition of a claim by the Committee shall be furnished to the claimant within 90 days after the claim is filed. In the event of special circumstances, the Committee may extend the period for determination for up to an additional 90 days, in which case it shall so advise the claimant. If the claim is denied, the reasons for the denial shall be specifically set forth in writing, pertinent provisions of the Plan shall be cited, including an explanation of the Plan’s claim review procedure, and, if the claim is perfectible, an explanation as to how the claimant can perfect the claim shall be provided.

12.2

Claims Review Procedure . If a claimant whose claim has been denied wishes further consideration of his or her claim, he or she may request the Committee to review his or her claim in a written statement of the claimant’s position filed with the Committee no later than 60 days after receipt of the written notification provided for in Section 12.1 above. The Committee shall fully and fairly review the matter and shall promptly advise the claimant, in writing, of its decision within the next 60 days. Due to special circumstances, the Committee may extend the period for determination for up to an additional 60 days.

12.3

Dispute Resolution . Any disputes arising under or in connection with the Plan (other than disputes arising under or in connection with Sections 11.2, 11.3 and/or 11.4 above) shall be resolved by binding arbitration, to be held in Bermuda or in any other location mutually agreed to by the Company and the Participant in accordance with the rules and procedures of the American Arbitration Association. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.

12.4

Reimbursement of Expenses . If there is any dispute between the Company and a Participant with respect to a claim under the Plan, the Company shall reimburse such Participant for all reasonable fees, costs and expenses incurred by such Participant with respect to such disputed claim; provided, however , that (i) such Participant is the prevailing party with respect to such disputed claim or (ii) the disputed claim is settled in the Participant’s favor.

13.0

TAXES

13.1

Withholding Taxes . The Company shall be entitled to withhold from any and all payments made to a Participant under the Plan all federal, state, local and/or other taxes or imposts which the Company determines are required to be so withheld from such payments or by reason of any other payments made to or on behalf of the Participant or for his or her benefit hereunder.

13.2

Golden Parachute Excise Tax Reduction . If a Participant becomes subject to the excise tax imposed by Code Section 4999, then the Company and the Participant agree that the aggregate “parachute payment” (as such term is used under Code Section 280G) shall be reduced to 299.99% of the Participant’s “base amount” (as such term is used under Code Section 280G) if such reduction would result in the Participant retaining on an after-tax basis an amount equal to or greater than the amount that the Participant would have retained on an after-tax basis had such reduction not occurred. If such reduction occurs under this Section 13.2, the Participant may select in his or her own discretion what portion of the parachute payments will be so reduced.

13.3

Code Section 409A . The Plan is not intended to be subject to Code Section 409A. Notwithstanding anything contained in the Plan to the contrary, the Committee shall have full authority to operate the Plan and to override any provision in the Plan in order for the Plan to be fully compliant – both in form and in operation – with Code Section 409A.

13.4

No Guarantee of Tax Consequences . No person connected with the Plan in any capacity, including, but not limited to, the Company and any Subsidiary and their directors, officers, agents and employees makes any representation, commitment, or guarantee that any tax treatment, including, but not limited to, federal, state and local income, estate and gift tax treatment, will be applicable with respect to amounts payable or provided under the Plan, or paid to or for the benefit of a Participant under the Plan, or that such tax treatment will apply to or be available to a Participant on account of participation in the Plan.

14.0	TERM OF PLAN; AMENDMENT AND TERMINATION OF PLAN

14.1	Term of Plan . The Plan shall be effective as of the Effective Date and shall remain in effect until the Board terminates the Plan.

14.2

Amendment of Plan . The Plan may be amended by the Board at any time with or without prior notice; provided, however , that the Plan shall not be amended during the period commencing on the 180th day immediately preceding a Change-in-Control Date and ending on the 2nd anniversary of such Change-in-Control Date without the written consent of each Participant.

14.3

Termination of Plan . The Plan may be terminated or suspended by the Board at any time with or without prior notice; provided, however , that the Plan shall not be terminated or suspended during the period commencing on the 180th day immediately preceding a Change-in-Control Date and ending on the 2nd anniversary of such Change-in-Control Date without the written consent of each Participant.

14.4	No Adverse Effect . If the Plan is amended, terminated, or suspended in accordance with Sections 14.2 or 14.3 above, such action shall not adversely affect the benefits of anyone who was a Participant (including a Separated Participant) prior to the date of amendment, termination or suspension.

15.0	MISCELLANEOUS

15.1	No Mitigation . A Separated Participant shall be under no obligation to seek other employment following the Separation Date and there shall be no offset against amounts due the Separated Participant under the Plan on account of any compensation attributable to any subsequent employment.

15.2

Offset . Separation Benefits shall be reduced by any payment or benefit made or provided by the Company or any Subsidiary to the Participant pursuant to (i) any severance plan, program, policy or arrangement of the Company or any Subsidiary not otherwise referred to in the Plan, (ii) the termination-of-employment provisions of any employment agreement between the Company or any Subsidiary and the Participant, and (iii) any federal, state or local statute, rule, regulation or ordinance.

15.3

No Right, Title, or Interest in Company Assets . Participants shall have no right, title, or interest whatsoever in or to any assets of the Company or any investments which the Company may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any Participant, Beneficiary, legal representative or any other person. To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. Subject to this Section 15.3, all payments to be made hereunder shall be paid from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts; provided, however , that the Company may establish a grantor trust to provide for the payment of the benefits under the Plan of which the Company is the grantor within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Code and under which the assets held by such trust will be subject to the claims of the Company’s general creditors under federal and state law in the event of the Company’s insolvency.

15.4

No Right to Continued Employment. The Participant’s rights, if any, to continue to serve the Company as an employee shall not be enlarged or otherwise affected by his or her designation as a Participant under the Plan, and the Company or the applicable Subsidiary reserves the right to terminate the employment of any employee at any time. The adoption of the Plan shall not be deemed to give any employee, or any other individual any right to be selected as a Participant or to continued employment with the Company or any Subsidiary.

15.5

Indemnification. During the Participation Period and – if the Participant becomes a Separated Participant – following the Separation Date, the Company shall indemnify the Participant or the Separated Participant, as the case may be, and hold him or her harmless, to the fullest extent permitted by, and subject to the limitations of Bermuda law, for all claims against him or her by third parties by reason of his or her employment with the Company and/or any of its Subsidiaries, including without limitation, all costs, charges and expenses (including attorneys’ fees) whatsoever incurred or sustained by the Participant or Separated Participant, as the case may be, in connection with any action, suit or proceeding (other than any action, suit or proceeding brought by or in the name of the Company against the Participant or Separated Participant, as the case may be) to which he or she may be made a party by reason of being or having been a director, officer or employee of the Company and/or any of its Subsidiaries or his or her serving or having served any other enterprise as a director, officer or employee at the request of the Company.

15.6	Other Rights. The Plan shall not affect or impair the rights or obligations of the Company or a Participant under any other written plan, contract, arrangement, or pension, profit sharing or other compensation plan.

15.7	Governing Law. The Plan shall be governed by and construed in accordance with the laws of Bermuda without reference to principles of conflict of laws, except as superseded by ERISA and other applicable federal law.

15.8

Severability. If any term or condition of the Plan shall be invalid or unenforceable to any extent or in any application, then the remainder of the Plan, with the exception of such invalid or unenforceable provision, shall not be affected thereby and shall continue in effect and application to its fullest extent.

15.9

Incapacity. If the Committee determines that a Participant or a Beneficiary is unable to care for his or her affairs because of illness or accident or because he or she is a minor, any benefit due the Participant or Beneficiary may be paid to the Participant’s spouse or to any other person deemed by the Committee to have incurred expense for such Participant (including a duly appointed guardian, committee or other legal representative), and any such payment shall be a complete discharge of the Company’s obligation hereunder.

15.10

Transferability of Rights. The Company shall have the unrestricted right to transfer its obligations under the Plan with respect to one or more Participants to any person, including, but not limited to, any purchaser of all or any part of the Company’s business. No Participant or Beneficiary shall have any right to commute, encumber, transfer or otherwise dispose of or alienate any present or future right or expectancy which the Participant or Beneficiary may have at any time to receive payments of benefits hereunder, which benefits and the right thereto are expressly declared to be non-assignable and nontransferable, except to the extent required by law. Any attempt to transfer or assign a benefit, or any rights granted hereunder, by a Participant or the spouse of a Participant shall, in the sole discretion of the Committee (after consideration of such facts as it deems pertinent), be grounds for terminating any rights of the Participant or Beneficiary to any portion of the Plan benefits not previously paid.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

SCHEDULE A

NON-CHANGE-IN-CONTROL SEPARATION BENEFITS

Participant

Standard
Severance
Multiple

Standard Vesting
Continuation
Period

Standard Option Extended
Exercise Period

Standard Health
Continuation
Period

Standard Non-

Competition
Period

Standard

Non-Solicitation Period

Clients/
Customers

Employees

CEO

24 months

Earlier of:

• 3rd anniversary of the Separation Date, or

• option’s originally scheduled expiration date

24 months

12 months

24 months

Other Executives

12 months

Earlier of:

• 3rd anniversary of the Separation Date, or

• option’s originally scheduled expiration date

12 months

CHANGE-IN-CONTROL SEPARATION BENEFITS

Participant

Change-

in-Control
Severance
Multiple

Change-in-

Control Vesting

Continuation
Period

Change-in-Control
Option Extended
Exercise Period

Change-in-

Control Health

Continuation
Period

Change-in-

Control Non-

Competition
Period

Change-in-Control
Non-Solicitation Period

Clients/
Customers

Employees

CEO

2.99x

Not Applicable

(vests on Change

in Control)

Earlier of:

• 3rd anniversary of the Separation Date, or

• option’s originally scheduled expiration date

36 months

12 months

24 months

Other Executives

Not Applicable

(vests on Change

in Control)

Earlier of:

• 3rd anniversary of the Separation Date, or

• option’s originally scheduled expiration date

24 months

12 months

24 months

EXHIBIT A

RELEASE

This RELEASE (“Release”) dated as of this day of , 20 between ACE Limited, a Cayman Islands corporation (the “Company”), and (the “Employee”).

WHEREAS, the Employee is a participant in the Company’s Executive Severance Plan (the “Plan”); and

WHEREAS, the Employee’s employment with the Company (has been) (will be) terminated effective ; and

WHEREAS, pursuant to Section of the Plan, the Employee is entitled to certain compensation and benefits upon such termination, contingent upon the execution of this Release;

NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein and in the Plan, the Company and the Employee agree as follows:

1. The Employee, on [his/her] own behalf and on behalf of [his/her] heirs, estate and beneficiaries, does hereby release the Company, and any of its Subsidiaries or affiliates, and each past or present officer, director, agent, employee, shareholder, and insurer of any such entities, from any and all claims made, to be made, or which might have been made of whatever nature, whether known or unknown, from the beginning of time, including those that arose as a consequence of [his/her] employment with the Company, or arising out of the severance of such employment relationship, or arising out of any act committed or omitted during or after the existence of such employment relationship, all up through and including the date on which this Release is executed, including, but not limited to, those which were, could have been or could be the subject of an administrative or judicial proceeding filed by the Employee or on [his/her] behalf under federal, state or local law, whether by statute, regulation, in contract or tort, and including, but not limited to, every claim for front pay, back pay, wages, bonus, fringe benefit, any form of discrimination (including but not limited to, every claim of race, color, sex, religion, national origin, disability or age discrimination), wrongful termination, emotional distress, pain and suffering, breach of contract, compensatory or punitive damages, interest, attorneys’ fees, reinstatement or reemployment. If any court rules that such waiver of rights to file, or have filed on [his/her] behalf, any administrative or judicial charges or complaints is ineffective, the Employee agrees not to seek or accept any money damages or any other relief upon the filing of any such administrative or judicial charges or complaints. The Employee relinquishes any right to future employment with the Company and the Company shall have the right to refuse to re-employ the Employee without liability. The Employee acknowledges and agrees that even though claims and facts in addition to those now known or believed by [him/her] to exist may subsequently be discovered, it is [his/her] intention to fully settle and release all claims [he/she] may have against the Company and the persons and entities described above, whether known, unknown or suspected.

2. The Employee acknowledges that [he/she] has been provided at least 21 days to review the Release and has been advised to review it with an attorney of [his/her] choice. In the event the Employee elects to sign this Release prior to the end of this 21-day period, [he/she] agrees that it is a knowing and voluntary waiver of [his/her] right to wait the full 21 days. The Employee further understands that [he/she] has 7 days after the signing hereof to revoke it by so notifying the Company in writing, such notice to be received by within the 7-day period. The Employee further acknowledges that [he/she] has carefully read this Release, and knows and understands its contents and its binding legal effect. The Employee acknowledges that by signing this Release, [he/she] does so of [his/her] own free will and act and that it is [his/her] intention that [he/she] be legally bound by its terms.

IN WITNESS WHEREOF, the parties have executed this Release on the date first above written.


ACE LIMITED

By:
Name:
Title:


[Employee’s Name]

Exhibit 10.2

CREDIT AGREEMENT

This Credit Agreement dated as of March 31, 2006 is among ACE Limited, a Cayman Islands company (the “ Borrower ”), ACE Bermuda Insurance Ltd., a Bermuda company (“ ACE Bermuda ”), ACE Tempest Reinsurance Ltd., a Bermuda company (“ACE Tempest”), and ING Bank, N.V., London Branch (the “ Bank ”). The parties hereto agree as follows:

1. DEFINITIONS AND INTERPRETATION .

1.1 Definitions . In addition to terms defined in the introductory paragraph, (a) capitalized terms used but not defined herein have the respective meanings set forth in the Syndicated Agreement (as defined below) and (b) the following terms have the following meanings:

Agreement means this credit agreement, as amended or otherwise modified from time to time.

Applicable Margin - see Schedule I .

Business Day means any day other than a Saturday, Sunday or other day on which commercial banks in New York, New York, or London, England, are authorized or required by law to close.

Commitment means the commitment of the Bank to make Loans hereunder.

Commitment Amount means $50,000,000, as adjusted from time to time pursuant hereto, or such other amount as may be agreed to in writing by the Borrower and the Bank.

Continuation Request – see Section 2.3 .

Default means any event described in Section 7.1 .

Drawdown Request - see Section 2.2 .

Effective Date - see Section 4.1 .

Facility Fee Rate - see Section 2.8 .

Guarantor means each of ACE Bermuda and ACE Tempest.

Interest Period means, for any Loan, the period commencing on the date such Loan is borrowed or the last day of the preceding Interest Period therefor and ending on a date not more than thirty (30) days after the date such Loan was made, as the Borrower shall specify pursuant to Section 2.2 or 2.3 ; provided that (i) the Borrower may not select an Interest Period if, after giving effect to such selection, one or more Loans would be outstanding for more than 30 consecutive days; and (ii) no Interest Period for any Loan shall extend beyond the scheduled Termination Date.

LIBO Rate means with respect to any Interest Period for any Loan:

(a) if such Interest Period is seven days or longer,

(i) the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Bank from time to time) as of approximately 11:00 a.m., London time, on the first day of such Interest Period for a period comparable to such Interest Period;

(ii) if such rate does not otherwise appear on said Page 3750 (or such successor), the offered rate for deposits in Dollars with a maturity comparable to such Interest Period appearing on the display designated page “LIBO” on the Reuter Monitor Money Rates Service (or on any successor or substitute page of such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Bank from time to time) as of approximately 11:00 a.m., London time, on the first day of such Interest Period; and

(iii) if neither of the rates referred to in the foregoing clauses (i) and (ii) is available at such time for any reason, an interest rate per annum equal to the average of the rates per annum at which deposits in Dollars are offered by four major money center banks in London, England selected by the Bank from time to time, to prime banks in the London interbank market as of approximately 11:00 a.m. (London time) on the first day of such Interest Period in the amount of such Loan if such amount were to be deposited for a period comparable to such Interest Period, adjusted to the nearest one-quarter of one percent (0.25%) or, if there is no nearest one-quarter of one percent (0.25%), then the next higher one-quarter of one percent (0.25%); and

(b) if such Interest Period is shorter than seven days, the rate available to prime banks for deposits in Dollars in an amount comparable to such Loan for a period comparable to such Interest Period in the London interbank market as determined by the Bank as of approximately the time the Bank receives the relevant Drawdown Request or Continuation Request.

Loan - see Section 2.1 .

Loan Party means the Borrower and each Guarantor, individually; and Loan Parties means the Borrower and the Guarantors.

Syndicated Agreement means the Amended and Restated Credit Agreement dated as December 15, 2005 among the Borrower, various affiliates thereof, various financial institutions and JPMorgan Chase Bank, N.A., as administrative agent, as such Credit Agreement is in effect on the date hereof, without giving effect to (a) any subsequent amendment thereof or waiver or consent thereunder unless the Bank is a signatory, or otherwise consents, thereto or (b) any termination thereof, a copy of which is attached hereto as Exhibit E . Whenever a portion of the Syndicated Agreement is incorporated herein by reference, each reference in the incorporated provision to the “Administrative Agent,” an “Agent,” a “Lender”, the Required Lenders” or a similar term shall be deemed to be a reference to the Bank.

Termination Date means the earliest to occur of (a) March 29, 2007, (b) the date on which the Commitment Amount is reduced to zero pursuant to Section 2.4 or (c) the date on which all obligations of the Borrower hereunder become due and payable pursuant to Section 7.2 .

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Unmatured Default means an event which but for the lapse of time or the giving of notice, or both, would, unless cured or waived, constitute a Default.

1.2 Interpretation . Sections 1.02 and 1.03 of the Syndicated Agreement are incorporated herein by reference as if such Sections were set forth in full herein, mutatis mutandis . Unless otherwise specified, references herein to a Section , an Exhibit or a Schedule shall mean a Section hereof or an Exhibit or Schedule hereto. As used herein, the term “including” means “including without limitation”.

2. THE CREDIT.

2.1 Availability . The Bank agrees to make loans (each a “ Loan ” and collectively the “ Loans ”) to the Borrower from time to time before the Termination Date; provided that the aggregate principal amount of all Loans shall not at any time exceed the Commitment Amount.

2.2 Loan Procedures . Each Loan shall be made on prior written request (a “ Drawdown Request ”) from the Borrower received by the Bank not later than 2:30 p.m. (London time) on the requested date of such Loan. Each Drawdown Request shall be substantially in the form of Exhibit A and shall specify (i) the borrowing date, which shall be a Business Day, (ii) the amount of the requested Loan and (iii) the length of the initial Interest Period therefor. Each Loan shall be in the amount of $100,000 or a higher integral multiple thereof.

2.3 Continuation of Loans . Subject to Section 2.12(b) , the Borrower may from time to time, on prior written notice (a “ Continuation Request ”) received by the Bank not later than 2:30 p.m. (London time) on the last day of the Interest Period for any Loan, continue all or any part of such Loan for a new Interest Period; provided (i) that after giving effect to any such continuation, each outstanding Loan shall be in the amount of $100,000 or a higher integral multiple thereof and (ii) if any Default or Unmatured Default shall have occurred and be continuing at the time of such continuation, such Loan shall bear interest at a rate per annum as determined in accordance with the proviso to the first sentence of Section 2.7 . Each Continuation Request shall be substantially in the form of Exhibit B and shall specify (i) the continuation date, (ii) the amount of the Loan to be continued and (iii) the length of the new Interest Period for such Loan. Any portion of a Loan that is not continued on the last day of an Interest Period therefor shall be paid in full on such date, together with accrued and unpaid interest on such portion of such Loan.

2.4 Adjustment of the Commitment Amount . (a) The Borrower may from time to time, upon two Business Days’ notice to the Bank, reduce the Commitment Amount to an amount that is not less than the aggregate principal amount of all Loans. Any such reduction shall be in the amount of $5,000,000 or a higher integral multiple thereof. Concurrently with any reduction of the Commitment Amount to zero, the Borrower shall pay all accrued and unpaid commitment fees and all other amounts then payable by the Borrower hereunder.

(b) Following written request of the Borrower, the Bank in its sole discretion may elect to increase the Commitment Amount to an amount not exceeding $100,000,000, subject to such conditions as the Bank may require.

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2.5 Repayment of Loans .

(a) Unless the Borrower has provided a Continuation Request to the Bank with respect to a Loan, such Loan shall be repaid at the end of the Interest Period applicable thereto; provided , if not previously prepaid, the Borrower shall repay such Loan on the 30 ^th day after such Loan is made (or, if such day is not a Business Day, the immediately preceding Business Day), together with all accrued and unpaid interest thereon.

(b) The Borrower shall repay all outstanding Loans on the Termination Date.

2.6 Prepayments . The Borrower may from time to time prepay any Loan in whole or in part; provided that each partial prepayment shall be in the amount of $100,000 or a higher integral multiple thereof. Any prepayment of a Loan shall include accrued and unpaid interest on the principal amount prepaid and shall be subject to the provisions of Section 3.4 .

2.7 Interest . The unpaid principal amount of each Loan shall bear interest at a rate per annum equal to the LIBO Rate for each applicable Interest Period plus the Applicable Margin as in effect from time to time; provided that upon the occurrence and during the continuance of a Default under Section 7.1(a) or an “Event of Default” under and as defined in Section 6.01(g) of the Syndicated Agreement, each outstanding Loan shall bear interest at a rate per annum equal to the rate otherwise applicable thereto plus 2%. Accrued and unpaid interest on each Loan shall be payable on the date such Loan becomes due (by acceleration or otherwise), on the date of any prepayment of such Loan (on the principal amount prepaid) and on the Termination Date.

2.8 Facility Fee . The Borrower agrees to pay the Bank, for the period beginning on the date hereof and continuing to the Termination Date, a facility fee at 0.10% per annum on the Commitment Amount regardless of usage (or, after the Termination Date, on the aggregate principal amount of all outstanding Loans). Such facility fee shall be payable in arrears on the last day of each calendar quarter and on the Termination Date (and thereafter on demand).

2.9 Arrangement Fee . The Borrower agrees to pay the Bank an arrangement fee of $25,000 on the date this Agreement is signed by the parties hereto.

2.10 Computation of Interest and Fees . All computations of interest and fees shall be made on the basis of a year of 360 days. Each determination of an interest rate by the Bank shall be conclusive and binding on the Borrower in the absence of manifest error.

2.11 Payments . All payments to the Bank shall be made in immediately available funds at its principal office in London, England (or at such other office as the Bank may reasonably specify) not later than 3:30 p.m., London, England time, on the date due (and funds received after that hour shall be deemed received on the next Business Day). Such funds shall be sent by wire transfer pursuant to the instructions set forth on the signature page hereof or such other instructions as the Bank shall provide to the Borrower pursuant to written notice.

2.12 Clean-Up . Notwithstanding anything to the contrary contained herein:

(a) If amounts are outstanding with respect to one or more Loans for thirty (30) consecutive days, upon repayment in full of such Loans, the Borrower shall not request a Loan for a period of at least three days following such repayment.

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(b) The Borrower may not request a Loan while one or more other Loans is outstanding if, at any time during the period consisting of the day prior to the Interest Period for the requested Loan and the last day of such Interest Period, amounts would be outstanding with respect to one or more of Loans (including such requested Loan) for more than thirty (30) consecutive days.

3. INCREASED COSTS; ADDITIONAL PROVISIONS RELATING TO LOANS.

3.1 Increased Costs . The Borrower agrees to reimburse the Bank for any increase in the cost to the Bank of, or any reduction in the amount of any sum receivable by the Bank in respect of, making or maintaining any Loan in accordance with the terms of Section 2.11(a) of the Syndicated Agreement as if such Section were set forth in full herein mutatis mutandis .

3.2 Illegality . If the Bank makes any determination of the type described in Section 2.11(d) of the Syndicated Agreement with respect to any Loan, the Borrower and the Bank shall negotiate in good faith to agree upon another basis for determining the interest rate applicable to such Loan hereunder (and, in the absence of agreement on another basis, the Borrower shall repay each Loan at the end of the current Interest Period therefor (or on such earlier date as shall be required by any applicable law, rule or regulation)) and the obligation of the Bank to make Loans shall be suspended until the circumstances giving rise to such determination no longer exist.

3.3 Capital Adequacy . The Borrower agrees to pay, or reimburse the Bank for, all increased capital costs of the type described in Section 2.11(b) of the Syndicated Agreement as if such Section were set forth in full herein mutatis mutandis .

3.4 Funding Losses . The Borrower will indemnify the Bank upon demand against any loss or expense which the Bank may sustain or incur (including any loss or expense sustained or incurred in obtaining, liquidating or employing deposits or other funds acquired to fund or maintain any Loan) as a consequence of (a) any failure of the Borrower to borrow or continue a Loan on a date specified therefor in a notice thereof or (b) any payment (including any payment upon the Bank’s acceleration of the Loans) or prepayment of a Loan on a day other than the last day of an Interest Period therefor.

3.5 Taxes . Each Loan Party agrees that all payments by such Loan Party hereunder shall be made free and clear of and without deduction for any Taxes or, if any such deduction is required, that such Loan Party will pay such additional amount as shall be necessary so that the Bank receives an amount equal to the sum it would have received had no such deduction been made, all on the same basis, and subject to the same limitations, as set forth in Section 2.13 of the Syndicated Agreement as if such Section were set forth in full herein mutatis mutandis .

4. CONDITIONS PRECEDENT.

4.1 Effectiveness . This Agreement shall become effective, and the Bank shall be obligated (subject to Section 4.2 ) to make Loans hereunder, on the date (the “ Effective Date ”) that the Bank shall have received an arrangement fee of $25,000 and all of the following, each duly executed and in form and substance (and dated a date) satisfactory to the Bank:

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(a) A certificate of the Secretary or an Assistant Secretary of each Loan Party attaching (i) resolutions of the Board of Directors of such Loan Party authorizing the execution, delivery and performance of the Loan Documents to which it is a party; (ii) an incumbency certificate that identifies by name and title and bears the signatures of the officers of such Loan Party that are authorized to sign the Loan Documents to which it is a party, upon which certificate the Bank shall be entitled to rely until informed of any change in writing by such Loan Party.

(b) A certificate of the Secretary or an Assistant Secretary of the Borrower attaching an incumbency certificate that identifies by name and title and bears the signatures of the officers of the Borrower that are authorized to sign Drawdown Requests and Continuation Requests, upon which certificate the Bank shall be entitled to rely until informed of any change in writing by the Borrower.

(c) A certificate signed by the chief financial officer, principal accounting officer or treasurer of the Borrower stating that (i) the representations and warranties contained in Section 5 are true and correct as of the Effective Date, as though made on and as of such date; and (ii) no Default or Unmatured Default has occurred and is continuing or will result from such Loan.

(d) Opinions of (i) Maples and Calder, Cayman Islands counsel for the Borrower, substantially in the form of Exhibit C , (ii) Mayer, Brown, Rowe & Maw LLP, New York counsel for the Loan Parties, substantially in the form of Exhibit D , and (iii) Conyers Dill & Pearman, Bermuda counsel for the Guarantors, substantially in the form of Exhibit E .

(e) Such other approvals and documents as the Bank may reasonably request.

4.2 Each Loan . The obligation of the Bank to make any Loan shall be subject to the conditions precedent that (a) the Effective Date shall have occurred, (b) all of the representations and warranties set forth in Section 5 shall be true and correct as if made on and as of the date of such Loan; (b) the Bank shall have received (by facsimile or otherwise) a properly completed and executed Drawdown Request in accordance with Section 2.2 ; and (d) no Default or Unmatured Default shall have occurred and be continuing or would result from the making of such Loan. Each request for a Loan shall be deemed a representation by the Borrower that the conditions precedent set forth in this Section 4.2 have been satisfied.

5. REPRESENTATIONS AND WARRANTIES. Each Loan Party (or, in the case of Section 5.5 , the second sentence of Section 5.6 and Section 5.7 , the Borrower) represents and warrants to the Bank that:

5.1 Organization . Such Loan Party is duly organized or formed, validly existing and, to the extent such concept applies, in good standing under the laws of the jurisdiction of its incorporation or formation.

5.2 Authorization; No Conflict . The execution, delivery and performance by such Loan Party of this Agreement are within such Loan Party’s powers, have been duly authorized by all necessary corporate action on the part of such Loan Party, and do not and will not

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contravene (i) such Loan Party’s constitutional documents, (ii) violate any law, rule, regulation (including Regulation X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award, (iii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting such Loan Party, any of its Subsidiaries or any of their properties or (iv) result in or require the creation or imposition of any Lien upon or with respect to any of the properties of such Loan Party or any of its Subsidiaries .

5.3 Governmental Approvals . No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for (a) the due execution, delivery, recordation, filing or performance by such Loan Party of this Agreement or the consummation of the transactions contemplated hereby or thereby or (b) the exercise by the Bank of its rights hereunder, except for authorizations, approvals, actions, notices and filings which have been duly obtained, taken, given or made and are in full force and effect.

5.4 Enforceability . This Agreement has been duly executed and delivered by, and is a legal, valid and binding obligation of, such Loan Party, enforceable against such Loan Party in accordance with its terms, subject to bankruptcy, insolvency and similar laws of general application relating to creditors’ rights and to general principles of equity.

5.5 Regulation U . Following application of the proceeds of each Loan, Margin Stock will constitute less than 25% of the value of those assets of the Borrower that are subject to any limitation on sale, pledge or other disposition hereunder.

5.6 Investment Company Act . Neither such Loan Party nor any of its Subsidiaries is an “investment company”, or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company”, as such terms are defined in the Investment Company Act of 1940, as amended. Neither the making of any Loan nor the application of the proceeds or repayment thereof by the Borrower will violate any provision of such Act or any rule, regulation or order of the Securities and Exchange Commission thereunder.

5.7 USFCA . No proceeds of any Loan will be used, directly or indirectly, for any payment to any governmental official or employee, political party, official of a political party or candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.

5.8 Representations and Warranties in Syndicated Agreement . Each representation and warranty of such Loan Party set forth in Sections 4.01(b), (f), (g), (h), (k), (l), (m) and (n) and the last sentence of Section 4.01(c) of the Syndicated Agreement is true and correct as if such representation and warranty and all related definitions were set forth in full herein, mutatis mutandis .

5.9 Syndicated Agreement . The copy of the Syndicated Agreement attached hereto as Exhibit F is a true, correct and complete copy of the Syndicated Agreement as in effect as of the date hereof. As of the date of this Agreement, the Syndicated Agreement has not been amended or otherwise modified since the execution and delivery thereof.

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6. COVENANTS. Each Loan Party (or, in the case of Section 6.2 , the Borrower) agrees that, so long as the Commitment has not been terminated or any obligation of any Loan Party hereunder remains unpaid, such Loan Party will:

6.1 Pari Passu Ranking . Procure that its obligations hereunder will rank at least pari passu with all of its other present and future unsecured and unsubordinated obligations, except for obligations that are mandatorily preferred by law applying to insurance companies generally.

6.2 Use of Proceeds . Use the proceeds of each Loan solely to cover short-term aggregate net debit positions across the notional cash pooling accounts of the Borrower and its Subsidiaries held with Bank Mendes Gans.

6.3 Syndicated Agreement Covenants . Observe and perform each applicable covenant set forth in Article 5 of the Syndicated Agreement as if such covenant (and all related definitions) were set forth herein, mutatis mutandis .

6.4 Notices; Changes to Syndicated Agreement . Promptly deliver to the Bank any amendment of, or consent or waiver under, the Syndicated Agreement.

7. EVENTS OF DEFAULT; REMEDIES .

7.1 Events of Default . The occurrence and continuance of any one or more of the following events shall constitute a Default:

(a) The Borrower shall fail to pay (i) any principal of any Loan within two Business Days after the same becomes due and payable; or (ii) any interest on any Loan, or any fee or other amount payable by the Borrower under this Agreement within five Business Days after the same becomes due and payable.

(b) Any representation or warranty made by any Loan Party herein or by any Loan Party (or any of its officers) pursuant to the terms of this Agreement shall prove to have been incorrect or misleading in any material respect when made.

(c) Any Loan Party shall fail to perform or observe any term, covenant or agreement contained in Section 5.01(d)(i) (solely with respect to the existence of such Loan Party), Section 5.02, Section 5.03(a) or Section 5.04 of the Syndicated Agreement as incorporated herein by reference or Section 6.2 hereof;

(d) Any Loan Party shall fail to perform or observe any term, covenant or agreement contained in Section 5.01(e) of the Syndicated Agreement if such failure shall remain unremedied for five (5) Business Days after written notice thereof shall have been given to such Loan Party by the Bank.

(e) Any Loan Party shall fail to perform or observe any other term, covenant or agreement contained in Article 5 of the Syndicated Agreement as incorporated herein

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by reference or any other term, covenant or agreement contained in this Agreement if the failure to perform or observe such covenant or agreement shall remain unremedied for 30 days after the earlier of the date on which (i) a Responsible Officer becomes aware of such failure or (ii) written notice thereof shall have been given to the Borrower by the Bank.

(f) Any “Event of Default” under and as defined in the Syndicated Agreement shall occur and be continuing under Section 6.01(f), (g), (h), (i), (k), (l) or (m) of the Syndicated Agreement.

(g) Any provision in Section 8 of this Agreement shall for any reason cease to be valid and binding on or enforceable against either Guarantor (other than as a result of a transaction permitted hereunder), or either Guarantor shall so state in writing.

7.2 Remedies . Upon the occurrence of a Default resulting from an “Event of Default” under Section 6.01(g) of the Syndicated Agreement with respect to any Loan Party, the Commitment shall be terminated and all obligations hereunder shall become immediately due and payable in full; and upon the occurrence of any other Default, the Commitment may be terminated by the Bank and/or the Bank may declare the principal of and accrued interest on each Loan, and all other amounts payable hereunder, to be forthwith due and payable in full, whereupon such principal, interest and other amounts shall immediately become due and payable in full, without further presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives.

8. GUARANTY

8.1 The Guaranty . (a) Each Guarantor hereby jointly and severally, unconditionally, absolutely and irrevocably guarantees the full and punctual payment (whether at stated maturity, upon acceleration or otherwise) of all amounts payable by the Borrower under this Agreement, including the principal of and interest (including, to the greatest extent permitted by law, post-petition interest) on each Loan and all fees, expenses, indemnities and other obligations of the Borrower hereunder, whether now existing or hereafter incurred, created or arising and whether direct or indirect, absolute or contingent, or due or to become due. Upon failure by the Borrower to pay punctually any such amount, each Guarantor agrees to pay forthwith on demand the amount not so paid at the place and in the manner specified in this Agreement.

(b) The Guarantors and the Bank confirm that it is their intention that the obligations of each Guarantor hereunder not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar foreign, federal or state law applicable hereto. To effectuate the foregoing intention, the Guarantors and the Bank irrevocably agree that the obligations of each Guarantor under this Section 8 at any time shall be limited to the maximum amount as will result in the obligations of such Guarantor hereunder not constituting a fraudulent transfer or conveyance.

(c) The Guarantors confirm that (i) they will obtain substantial indirect benefits from the Borrower’s notional cash pooling accounts held with Bank Mendes

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Gans, (ii) the Bank’s agreement to make Loans under this Agreement is a requirement for the Borrower’s continued maintenance of such accounts and (iii) the Bank is relying on the guaranty of the Guarantors pursuant to this Section 8 in entering into this Agreement.

8.2 Guaranty Unconditional . The obligations of each Guarantor under this Section 8 shall be unconditional, absolute and irrevocable and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by:

(a) any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of any other obligor under this Agreement, by operation of law or otherwise;

(b) any modification or amendment of or supplement to this Agreement;

(c) any release, non-perfection or invalidity of any direct or indirect security for any obligation of any other obligor hereunder;

(d) any release, termination or modification of any obligation of any other guarantor, surety or indemnitor for the obligations of the Borrower hereunder;

(e) any change in the corporate existence, structure or ownership of any obligor, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting any other obligor or its assets or any resulting release or discharge of any obligation of any other obligor herein;

(f) the existence of any claim, set-off or other right that any obligor may have at any time against any other obligor, the Bank or any other Person, whether in connection with this Agreement or any unrelated transaction, provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim;

(g) any invalidity or unenforceability relating to or against any other obligor for any reason of this Agreement, or any provision of applicable law or regulation purporting to prohibit the payment by any amount payable hereunder;

(h) any law, regulation or order of any jurisdiction, or any other event, affecting any term of any obligation hereunder or the Bank’s rights with respect thereto; or

(i) any other act or omission to act or delay of any kind by any other obligor, the Bank or any other Person or any other circumstance whatsoever that might, but for the provisions of this paragraph, constitute a legal or equitable discharge of or defense to such Guarantor’s obligations under this Section 8 .

8.3 Discharge only upon Payment in Full; Reinstatement in Certain Circumstances . Each Guarantor’s obligations under this Section 8 shall remain in full force and effect until the Commitment has terminated and the principal of and interest on the Loans and all other amounts payable by the other Loan Parties hereunder shall have been paid in full. If at any time any

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payment of the principal of or interest on any Loan or any other amount payable by a Loan Party hereunder is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of such Loan Party or otherwise, each Guarantor’s obligations under this Section 8 with respect to such payment shall be reinstated as though such payment had been due but not made at such time.

8.4 Waiver by the Guarantors . Each Guarantor irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against any other obligor or any other Person.

8.5 Subrogation . Each Guarantor hereby unconditionally and irrevocably agrees not to exercise any right that it may now have or hereafter acquire against any other Loan Party or any other insider guarantor that arises from the existence, payment, performance or enforcement of such Guarantor’s obligations under or in respect of this Agreement, including any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of the Bank against any other Loan Party or any other insider guarantor or any collateral, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including the right to take or receive from any other Loan Party or any other insider guarantor, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim, remedy or right, unless and until all amounts payable hereunder shall have been paid in full in cash and the Commitment shall have terminated. If any amount shall be paid to either Guarantor in violation of the immediately preceding sentence at any time prior to the payment in full in cash of all amounts payable under this Section 8 and the termination or expiration of the Commitment, such amount shall be received and held in trust for the benefit of the Bank, shall be segregated from other property and funds of such Guarantor and shall forthwith be paid or delivered to the Bank in the same form as so received (with any necessary endorsement or assignment) to be credited and applied to all amounts payable hereunder, whether matured or unmatured, in accordance with the terms hereof, or to be held as collateral for any amount payable hereunder thereafter arising. If (i) either Guarantor shall make payment to the Bank of all or any amounts payable hereunder, (ii) all amounts payable hereunder shall have been paid in full in cash and (iii) the Commitment shall have expired or terminated, the Bank will, at such Guarantor’s request and expense, execute and deliver to such Guarantor appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to such Guarantor of an interest in the obligations resulting from such payment made by such Guarantor pursuant hereto.

8.6 Stay of Acceleration . If acceleration of the time for payment of any amount payable by the Borrower hereunder is stayed upon the insolvency, bankruptcy or reorganization of the Borrower, all such amounts otherwise subject to acceleration under the terms of this Agreement shall nonetheless by payable by each Guarantor under this Section 8 forthwith on demand by the Bank.

8.7 Continuing Guaranty; Assignments . The guaranty set forth in this Section 8 is a continuing guaranty and shall (a) remain in full force and effect until the latest of (i) the payment in full in cash of all amounts payable hereunder and (ii) the termination or expiration of the Commitment; (b) be binding upon each Guarantor, its successors and assigns and (c) inure to the benefit of and be enforceable by the Bank and its successors, transferees and assigns. Without

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limiting the generality of clause (c) of the immediately preceding sentence, the Bank may, subject to Section 9.8 , assign or otherwise transfer all or any portion of its rights and obligations under this Agreement (including all or any portion of the Commitment and the Loans) to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to the Bank herein or otherwise.

9. GENERAL.

9.1 Amendments and Waivers . No amendment or waiver of any provision of this Agreement, and no consent with respect to any departure by the Borrower therefrom, shall be effective unless the same shall be in writing and signed by the Borrower and the Bank.

9.2 Severability; No Waiver; Remedies . The illegality or unenforceability of any provision of this Agreement shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement. No failure on the part of the Bank to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

9.3 Costs and Expenses . The Borrower shall pay all reasonable costs and expenses of the Bank (including reasonable attorneys’ fees and charges) arising out of, or in connection with, (a) the negotiation, preparation, execution and delivery of this Agreement and any amendment, waiver, consent or modification with respect hereto or thereto and (b) the protection or enforcement of any rights hereunder.

9.4 Indemnification . The Borrower agrees to indemnify and hold harmless the Bank and its Affiliates and their respective officers, directors, employees, agents and advisors (each an “ Indemnified Party ”) from and against any and all claims, damages, losses, liabilities and expenses (including reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith) this Agreement, the actual or proposed use of the proceeds of any Loan or any of the transactions contemplated thereby, including any acquisition or proposed acquisition by the Borrower or any of its Subsidiaries or Affiliates, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from an Indemnified Party’s gross negligence or willful misconduct. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 9.4 applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by the Borrower, its directors, shareholders or creditors or an Indemnified Party or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated by the Loan Documents are consummated. The Borrower also agrees not to assert any claim against any Indemnified Party, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to the credit facility provided hereunder, the actual or proposed use of the proceeds of the Loans or any of the transactions contemplated by hereby.

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9.5 Notices . Except as otherwise provided herein, all notices, and other communications hereunder shall be in writing, shall be directed to the applicable party at its address on the applicable signature page hereto (or such other address as it shall have specified by notice to the other party) and shall be deemed received in accordance with the provisions of Section 9.02 of the Syndicated Agreement.

9.6 Survival . The obligations of the Borrower under Section 3 and Sections 9.3, 9.4, 9.8(a), 9.10, 9.11 and 9.12 shall survive repayment of the Loans and the termination of this Agreement.

9.7 Counterparts . This Agreement may be executed in any number of separate counterparts, each of which when so executed and delivered shall be an original, and all such counterparts shall together constitute one and the same instrument. Delivery of a counterpart hereof, or a signature page hereto, by facsimile shall be effective as delivery of a manually-signed counterpart hereof.

9.8 Successors and Assigns .

(a) The Borrower may not assign any of its rights or obligations hereunder without the prior written consent of the Bank.

(b) The provisions of Section 9.06(b) through (e) of the Syndicated Agreement are incorporated herein by reference.

9.9 Right of Set-Off . Upon the occurrence and during the continuance of a Default, the Bank and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and otherwise apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Bank or such Affiliate to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing hereunder, irrespective of whether the Bank shall have made any demand hereunder and although such obligations may be unmatured. The Bank agrees to promptly notify the Borrower after any such set-off and application; provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Bank and its Affiliates under this Section are in addition to other rights and remedies (including other rights of set-off) that the Bank and its Affiliates may have.

9.10 GOVERNING LAW . THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

9.11 CONSENT TO JURISDICTION; CERTAIN WAIVERS . (a) THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW

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OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE BANK TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.

(b) The Borrower irrevocably appoints CT Corporation System, with offices on the date hereof at 111 Eighth Avenue, New York, New York, 10011, USA, as its agent to receive, accept and acknowledge for and on its behalf service of any and all legal process, summons, notices and documents which may be served in any action or proceeding referred to in Section 9.10(a) . If for any reason such agent shall cease to be available to act as such, the Borrower agrees to promptly designate a new agent reasonable satisfactory to the Bank in the Borough of Manhattan, The City of New York to receive, accept and acknowledge for and on its behalf service of any and all legal process, summons, notices and documents which may be served in any such action or proceeding. If the Borrower shall fail to designate such new agent, service of process in any such action or proceeding may be made on the Borrower by the mailing of copies thereof by express or overnight mail or overnight courier, postage prepaid, to the Borrower at its address set forth below its signature hereto.

9.12 WAIVER OF JURY TRIAL . EACH OF THE LOAN PARTIES AND THE BANK WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY HERETO, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. EACH OF THE LOAN PARTIES AND THE BANK AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY ARE WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY PROVISION HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT

9.13 “Know your customer” checks . If, as a result of (a) the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation made after the date of this Agreement or (b) any change in the status of a Loan Party or the composition of the shareholders of a Loan Party after the date of this Agreement, the Bank is required to comply with “know your customer” or similar identification procedures in circumstances where the necessary information is not already available to the Bank, than each Loan Party shall promptly upon the request of the Bank supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Bank in order for the Bank to carry out and be satisfied with the results of all necessary “know your customer” or similar checks under all applicable laws and regulations in connection with the transactions contemplated hereby.

[Signature pages follow]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers as of the date first written above.

ING BANK, N.V., London Branch


By:
Name:
Title:

By:
Name:
Title:

Address for notices :

ING Bank, N.V., London Branch

60 London Wall

London EC2M 5TQ

United Kingdom

Attention: Nick Marchant

Telephone: +44 20 7767 5902

Facsimile: +44 20 7767 7507

Address for Loan Requests and Continuation Requests :

ING Bank, N.V., London Branch, Loan Administration Dept.

60 London Wall

London EC2M 5TQ

United Kingdom

Attention: Joanne O’Keefe and/or Edel Hogan

Telephone: +44 20 7767 5934 (O’Keefe) or 5912 (Hogan)

Facsimile: +44 20 7767 7324

With a copy to :

ING Bank, N.V., London Branch

60 London Wall

London EC2M 5TQ

United Kingdom

Attention: Nick Marchant

Telephone: +44 20 7767 5902

Facsimile: +44 20 7767 7507

Instructions for payments :

JPMorgan Chase Bank, New York

Swift Code: CHASUS33

ABA 021 000 021

for the account of ING Bank, N.V., London Branch

Account number 001-1-938123; Ref: ACE Ltd.

ACE LIMITED

P.O. Box HM 1015

Hamilton HM DX

Bermuda

Telephone: +1 (441) 295-5200

Fax: +1 (441) 295-5221

The Common Seal of ACE Limited was

hereunto affixed in the presence of:

ACE BERMUDA INSURANCE LTD.

P.O. Box HM 1015

Hamilton HM DX

Bermuda

Telephone: +1 (441) 295-5200

Fax: +1 (441) 296-7802

The Common Seal of ACE Bermuda

Insurance Ltd. was hereunto affixed in the

presence of:

ACE TEMPEST REINSURANCE LTD.

P.O. Box HM 2702

Hamilton HM KX

Bermuda

Telephone: +1 (441) 292-2603

Fax: +1 (441) 29202395

The Common Seal of ACE Tempest

Reinsurance Ltd. was hereunto affixed in

the presence of:

SCHEDULE I

The “ Applicable Margin ” means, for any day, the rate per annum set forth below in the row opposite the relevant Usage and in the column corresponding to the Pricing Level that apply on such day:


Applicable Margin	Level I		Level II		Level III		Level IV		Level V
Usage < 50%	0.275	%	0.300	%	0.350	%	0.450		0.550	%
Usage ³ 50%	0.375	%	0.400	%	0.450	%	0.550	%	0.650	%

For purposes of this Schedule, the following terms have the following meanings, subject to the last paragraph of this Schedule:

“ Level I Pricing ” applies on any day on which the Borrower’s long-term debt is rated A+ or higher by S&P or A1 or higher by Moody’s.

“ Level II Pricing ” applies on any day on which (i) the Borrower’s long-term debt is rated A or higher by S&P or A2 or higher by Moody’s and (ii) Level I Pricing does not apply.

“ Level III Pricing ” applies on any day on which (i) the Borrower’s long-term debt is rated A- or higher by S&P or A3 or higher by Moody’s and (ii) neither Level I Pricing nor Level II Pricing applies.

“ Level IV Pricing ” applies on any day on which (i) the Borrower’s long-term debt is rated BBB+ or higher by S&P or Baa1 or higher by Moody’s and (ii) none of Level I Pricing, Level II Pricing and Level III Pricing applies.

“ Level V Pricing ” applies on any day if no other Pricing Level applies on such day.

“ Moody’s ” means Moody’s Investors Service, Inc.

“ Pricing Level ” refers to the determination of which of Level I, Level II, Level III, Level IV or Level V Pricing applies on any day.

“ S&P ” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc.

The “ Usage ” applicable to any date is the percentage equivalent of a fraction, the numerator of which is the aggregate outstanding principal amount of all Loans at such date and the denominator of which is the Commitment Amount at such date. If for any reason any Loan remains outstanding following the termination of the Commitment, Usage will be deemed to be 100%.

The credit ratings to be utilized for purposes of this Schedule are those assigned to the senior unsecured long-term debt securities of the Borrower without third-party credit enhancement, and any rating assigned to any other debt security of the Borrower shall be disregarded. The ratings in effect for any day are those in effect at the close of business on such day.

In the case of split ratings from S&P and Moody’s, the rating to be used to determine the applicable Pricing Level is the higher of the two (e.g., A/A3 results in Level I Pricing); provided that if the split is more than one full rating category, the intermediate rating (or the higher of the two intermediate ratings) will be used (e.g. A/Baa1 results in Level II Pricing and AA-/Baa1 results in Level I Pricing).

Exhibit 10.3

Performance Based Restricted Stock Award Terms

under the

ACE Limited 2004 Long-Term Incentive Plan

The Participant has been granted a Performance Based Restricted Stock Award by ACE Limited (the “Company”) under the ACE Limited 2004 Long-Term Incentive Plan (the “Plan”). The Performance Based Restricted Stock Award for which the Grant Date occurs in 2006 and any associated Premium Award shall be subject to the following Performance Based Restricted Stock Award Terms:

1. Terms of Award . The following words and phrases used in these Performance Based Restricted Stock Award Terms shall have the meanings set forth in this paragraph 1:

(a)	The “Participant” is , who is the individual recipient of the Performance Based Restricted Stock Award on the specified Grant Date.

(b)	The “Grant Date” is [Insert Date] .

(c)	The “Commencement Date” is January 1, 2006.

(d)

The number of “Covered Performance Shares” is , which is 25% of that portion of the Participant’s annual Long-Term Incentive Award which is granted in the form of restricted shares for the year in which the Grant Date occurs, as reflected in the corporate records and shown in the Record-Keeping System in the Participant’s individual account records.

Other words and phrases used in these Performance Based Restricted Stock Award Terms are defined pursuant to paragraph 10 or elsewhere in these Performance Based Restricted Stock Award Terms.

2. Restricted Period . Subject to the limitations of these Performance Based Restricted Stock Award Terms, the “Restricted Period” for each Installment of Covered Performance Shares of the Performance Based Restricted Stock Award shall begin on the Grant Date and end as described below (but only if the Date of Termination has not occurred before the end of the Restricted Period):

(a)

The Restricted Period shall end with respect to one quarter (1/4) of the Covered Performance Shares (the “First Installment”) on the later of the applicable Certification Date (as defined below) or the one-year anniversary of the Grant Date, if the Performance Goal has been satisfied for the measurement period beginning on the Commencement Date and ending on the one-year anniversary of the Commencement Date (the “First Installment Primary Performance Measurement Period”). If the Performance Goal with respect to the First Installment Primary Performance Measurement Period has not been satisfied on the one-year anniversary of the Commencement Date, then the Restricted Period for the First Installment shall end on the earliest of the two-year, three-year, or four-year anniversary of the Grant Date (or, if later than the anniversary of the Grant Date, on the applicable Certification Date) on which the Performance Goal has been satisfied for the measurement period beginning on the Commencement Date and ending on the two-year, three-year, or four-year anniversary of the Commencement Date, as applicable (each, a “First Installment Secondary Performance Measurement Period”).

(b)

The Restricted Period shall end with respect to one quarter (1/4) of the Covered Performance Shares (the “Second Installment”) on the later of the applicable Certification Date or the two-year anniversary of the Grant Date, if the Performance Goal has been satisfied for the measurement period beginning on the one-year anniversary of the Commencement Date and ending on the two-year anniversary of the Commencement Date (the “Second Installment Primary Performance Measurement Period”). If the Performance Goal with respect to the Second Installment Primary Performance Measurement Period has not been satisfied on the two-year anniversary of the Commencement Date, then the Restricted Period for the Second Installment shall end on the earlier of the three-year anniversary or the four-year anniversary of the Grant Date (or, if later than the anniversary of the Grant Date, on the applicable Certification Date) on which the Performance Goal has been satisfied for the measurement period beginning on the one-year anniversary of the Commencement Date and ending on the three-year or four-year anniversary date of the Commencement Date, as applicable (each, a “Second Installment Secondary Performance Measurement Period”).

(c)

The Restricted Period shall end with respect to one quarter (1/4) of the Covered Performance Shares (the “Third Installment”) on the later of the applicable Certification Date or the three-year anniversary of the Grant Date, if the Performance Goal has been satisfied for the measurement period beginning on the two-year anniversary of the Commencement Date and ending on the three-year anniversary of the Commencement Date (the “Third Installment Primary Performance Measurement Period”). If the Performance Goal with respect to the Third Installment Primary Performance Measurement Period has not been satisfied on the three-year anniversary of the Commencement Date, then the Restricted Period for the Third Installment shall end on the four-year anniversary of the Grant Date (or, if later than the anniversary of the Grant Date, on the applicable Certification Date) if the Performance Goal has been satisfied for the measurement period beginning on the two-year anniversary of the Commencement Date and ending on the four-year anniversary of the Commencement Date (the “Third Installment Secondary Performance Measurement Period”).

(d)

The Restricted Period shall end with respect to one quarter (1/4) of the Covered Performance Shares (the “Fourth Installment”) on the later of the applicable Certification Date or the four-year anniversary of the Grant Date, if the Performance Goal has been satisfied for the measurement period beginning on the three-year anniversary of the Commencement Date and ending on the four-year anniversary of the Commencement Date (which measurement period shall be both the “Fourth Installment Primary Performance Measurement Period” and the “Fourth Installment Secondary Performance Measurement Period”).

For the avoidance of doubt, the Restricted Period with respect to any Installment shall end only upon the Committee’s certification that the Performance Goal with respect to such Installment for the applicable Performance Measurement Period has been satisfied (which date of certification with respect to any Installment is the “Certification Date” applicable to such

Installment). Notwithstanding the foregoing provisions of this paragraph 2, if a Change in Control occurs both (i) on or before the Date of Termination and (ii) when the Restricted Period for one or more Installments of Covered Performance Shares has not yet ended, the Restricted Period for such Installments shall end upon the Change in Control.

3. Transfer and Forfeiture of Shares . The transfer and forfeiture of Installments of the Covered Performance Shares shall be subject to the following:

(a)

Except as otherwise determined by the Committee in its sole discretion, the Participant shall forfeit any Installment of the Covered Performance Shares as of the Participant’s Date of Termination, if such Date of Termination occurs prior to the end of the Restricted Period which applies to such Installment.

(b)

The Participant shall forfeit on the four-year anniversary of the Grant Date each Installment of the Covered Performance Shares for which the Restricted Period has not ended on or prior to such four-year anniversary date, as a result of the Performance Goals not having been met during any Performance Measurement Period applicable to such Installment or otherwise.

(c)

If the Participant’s Date of Termination has not occurred prior to the last day of the Restricted Period with respect to any Installment of the Covered Performance Shares, then, at the end of such Restricted Period, that Installment of Covered Performance Shares shall be transferred to the Participant free of all restrictions.

4. Premium Award . If the Cumulative Performance of ACE Limited during the period beginning on the Commencement Date and ending on the four-year anniversary of the Commencement Date (the “Premium Award Performance Measurement Period”) satisfies the criteria described below, then the Participant shall be entitled to a “Premium Award” on the later of the Premium Certification Date (as defined below) or the four-year anniversary of the Grant Date, which Premium Award shall be separate from the associated Performance Based Restricted Stock Award and shall consist of the number of additional shares of Stock described below:

(a)

If the Cumulative Performance of ACE Limited exceeds the 75th percentile of the Cumulative Performance of the Peer Companies during the Premium Award Performance Measurement Period, then the Participant shall be entitled to additional shares of Stock equal to 100% of that number of Covered Performance Shares for which the Restricted Period ended on or before the four-year anniversary of the Grant Date (or applicable Certification Date, if later).

(b)

If the Cumulative Performance of ACE Limited exceeds the 65th percentile of the Cumulative Performance of the Peer Companies during the Premium Award Performance Measurement Period, then the Participant shall be entitled to additional shares of Stock equal to 50% of that number of Covered Performance Shares for which the Restricted Period ended on or before the four-year anniversary of the Grant Date (or applicable Certification Date, if later).

(c)	If the Cumulative Performance of ACE Limited exceeds the 65th percentile but is less than the 75th percentile of the Cumulative Performance of the Peer Companies during the

Premium Award Performance Measurement Period, then the Participant shall be entitled to additional shares of Stock equal to a percentage of the Covered Performance Shares for which the Restricted Period ended on or before the four-year anniversary of the Grant Date (or applicable Certification Date, if later); which percentage shall be between 50% and 100%, based on an interpolation of the ACE Limited Cumulative Performance falling between the 65th percentile and 75th percentile of the Cumulative Performance of the Peer Companies during the Premium Award Performance Measurement Period.

(d)	If the Cumulative Performance of ACE Limited is equal to or below the 65th percentile of the Cumulative Performance of the Peer Companies during the Premium Award Performance Measurement Period, then the Participant shall be entitled to no additional shares of Stock under this paragraph 4.

Notwithstanding the foregoing provisions of this paragraph 4, a Participant shall be entitled to a Premium Award only upon the Committee’s certification that the requisite Cumulative Performance has been achieved during the applicable Premium Award Performance Measurement Period (which date of certification is the “Premium Certification Date”). Shares of Stock awarded as a Premium Award, if any, shall be transferred to the Participant as soon as practicable following the Premium Certification Date. Notwithstanding any provision of this Agreement or the Plan to the contrary, the Participant shall have no right with respect to shares of Stock which may be awarded as a Premium Award under this paragraph 4 until such shares are actually delivered to the Participant.

5. Withholding . All deliveries and distributions under these Performance Based Restricted Stock Award Terms are subject to withholding of all applicable taxes. At the election of the Participant, and subject to such rules and limitations as may be established by the Committee from time to time, such withholding obligations may be satisfied through the surrender of shares of Stock which the Participant already owns, or to which the Participant is otherwise entitled under the Plan; provided, however, that such shares may be used to satisfy not more than the Company’s minimum statutory withholding obligation (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income).

6. Transferability . Except as otherwise provided by the Committee, the Performance Based Restricted Stock Award may not be sold, assigned, transferred, pledge or otherwise encumbered during the Restricted Period.

7. Dividends . The Participant shall not be prevented from receiving dividends and distributions paid on the Covered Performance Shares of Performance Based Restricted Stock merely because those shares are subject to the restrictions imposed by these Performance Based Restricted Stock Award Terms and the Plan; provided, however that no dividends or distributions shall be payable to or for the benefit of the Participant with respect to record dates for such dividends or distributions for any Covered Performance Shares occurring on or after the date, if any, on which the Participant has forfeited those shares; nor shall any dividends or distributions be paid to or for the benefit of the Participant with respect to any shares of Stock awarded as a Premium Award if the record date for such dividends or distributions occurs prior to the date on which such shares of Stock are transferred to the Participant as a Premium Award.

8. Voting . The Participant shall not be prevented from voting the Performance Based Restricted Stock Award merely because those shares are subject to the restrictions imposed by these Performance Based Restricted Stock Award Terms and the Plan; provided, however, that the Participant shall not be entitled to vote Covered Performance Shares with respect to record dates for any Covered Performance Shares occurring on or after the date, if any, on which the Participant has forfeited those shares; nor shall the Participant be entitled to vote any shares of Stock which may be awarded as a Premium Award if the record date for entitlement to voting occurs prior to the date on which such shares of Stock are transferred to the Participant as a Premium Award.

9. Deposit of Performance Based Restricted Stock Award . Each certificate issued in respect of the Covered Performance Shares awarded under these Performance Based Restricted Stock Award Terms shall be registered in the name of the Participant and shall be deposited in a bank designated by the Committee.

10. Definitions . For purposes of these Performance Based Restricted Stock Award Terms, words and phrases shall be defined as follows:

(a)	Change in Control . The term “Change in Control” shall be defined as set forth in the Plan.

(b)

Cumulative Performance . The term “Cumulative Performance” means, as to ACE Limited or the Peer Companies, the growth in tangible book value per common shares outstanding as reported under GAAP for ACE Limited or the Peer Companies during the Premium Award Performance Measurement Period beginning on the Commencement Date and ending on the fourth anniversary of the Commencement Date. The determination of the Cumulative Performance and its parameters is subject to rules established by the Committee within 90 days of the beginning of the Premium Award Performance Measurement Period. The Committee, in its discretion, may adjust the reported tangible book value for ACE Limited or the Peer Companies for any Premium Award Performance Measurement Period; provided, however, that no such adjustment may result in an increase in the number of shares awarded as a Premium Award (as described in paragraph 4) over the number of shares of Stock that would have been awarded as a Premium Award had the reported tangible book value for either ACE Limited or the Peer Companies not been adjusted.

(c)

Date of Termination . A Participant’s “Date of Termination” means, with respect to an employee, the date on which the Participant’s employment with the Company and the Subsidiaries terminates for any reason, and with respect to a Director, the date immediately following the last day on which the Participant serves as a Director; provided that a Date of Termination shall not be deemed to occur by reason of a Participant’s transfer of employment between the Company and a Subsidiary or between two Subsidiaries; further provided that a Date of Termination shall not be deemed to occur by reason of a Participant’s cessation of service as a Director if immediately following such cessation of service the Participant becomes or continues to be employed by the Company or a Subsidiary, nor by reason of a Participant’s termination of employment with the Company or a Subsidiary if immediately following such

termination of employment the Participant becomes or continues to be a Director; and further provided that a Participant’s employment shall not be considered terminated while the Participant is on a leave of absence from the Company or a Subsidiary approved by the Participant’s employer.

(d)	Director . The term “Director” means a member of the Board, who may or may not be an employee of the Company or a Subsidiary.

(e)	Peer Companies . The term “Peer Companies” means those companies listed in the S&P 500 Property Casualty Index (excluding ACE Limited) on the last day of a Performance Measurement Period for which financial information is available for all year(s) in such Performance Measurement Period.

(f)

Performance Goal . The term “Performance Goal” for any Primary Performance Measurement Period or Secondary Performance Measurement Period means the achievement by ACE Limited of growth in tangible book value per common shares outstanding as reported under GAAP during such Performance Measurement Period, which growth exceeds the median growth in tangible book value per common shares outstanding as reported under GAAP during the same Performance Measurement Period by the Peer Companies. The determination of the Performance Goal and its parameters is subject to rules established by the Committee within 90 days of the beginning of the applicable Performance Measurement Period. The Committee, in its discretion, may adjust the reported tangible book value for ACE Limited or the Peer Companies for any Primary Performance Measurement Period or Secondary Performance Measurement Period; provided, however, that no such adjustment may result in an increase in the number of Covered Performance Shares which are earned and vested at the end of any such Performance Measurement Period over the number of Covered Performance Shares that would have been earned and vested had the reported tangible book value for either ACE Limited or the Peer Companies not been adjusted.

(g)

Performance Measurement Period . The term “Performance Measurement Period” shall mean the Primary Performance Measurement Period or the Secondary Performance Measurement Period, as applicable, with respect to an Installment of Covered Performance Shares; and shall mean the Premium Award Performance Measurement Period with respect to a Premium Award.

11. Plan Definitions . Except where the context clearly implies or indicates the contrary, a word, term, or phrase used in the Plan is similarly used in these Performance Based Restricted Stock Award Terms.

12. Heirs and Successors . These Performance Based Restricted Stock Terms shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company’s assets and business. If any benefits deliverable to the Participant under these Performance Based Restricted Stock Terms have not been delivered at the time of the Participant’s death, such benefits shall be delivered to the Designated Beneficiary, in accordance with the provisions of these Performance Based Restricted Stock Terms and the

Plan. The “Designated Beneficiary” shall be the beneficiary or beneficiaries designated by the Participant in a writing filed with the Committee in such form and at such time as the Committee shall require. If a deceased Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive the Participant, any rights that would have been exercisable by the Participant and any benefits distributable to the Participant shall be distributed to the legal representative of the estate of the Participant. If a deceased Participant designates a beneficiary and the Designated Beneficiary survives the Participant but dies before the complete distribution of benefits to the Designated Beneficiary under these Performance Based Restricted Stock Terms, then any benefits distributable to the Designated Beneficiary shall be distributed to the legal representative of the estate of the Designated Beneficiary.

13. Administration . The authority to manage and control the operation and administration of these Performance Based Restricted Stock Award Terms shall be vested in the Committee, and the Committee shall have all powers with respect to these Performance Based Restricted Stock Award Terms as it has with respect to the Plan. Any interpretation of these Performance Based Restricted Stock Award Terms by the Committee and any decision made by it with respect to these Performance Based Restricted Stock Award Terms are final and binding on all persons.

14. Plan and Corporate Records Govern . Notwithstanding anything in these Performance Based Restricted Stock Award Terms to the contrary, these Performance Based Restricted Stock Award Terms shall be subject to the terms of the Plan, a copy of which may be obtained by the Participant from the office of the Secretary of the Company; and these Performance Based Restricted Stock Award Terms are subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan. Notwithstanding anything in the Performance Based Restricted Stock Terms to the contrary, in the event of any discrepancies between the corporate records regarding this award and the Record-Keeping System, the corporate records shall control.

15. Not An Employment Contract . The Performance Based Restricted Stock Award will not confer on the Participant any right with respect to continuance of employment or other service with the Company or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate or modify the terms of such Participant’s employment or other service at any time.

16. Notices . Any written notices provided for in these Performance Based Restricted Stock Award Terms or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be directed, if to the Participant, at the Participant’s address indicated by the Company’s records, or if to the Company, at the Company’s principal executive office.

17. Fractional Shares . In lieu of issuing a fraction of a share, resulting from an adjustment of the Performance Based Restricted Stock Award pursuant to paragraph 5.2(f) of the Plan or otherwise, the Company will be entitled to pay to the Participant an amount equal to the fair market value of such fractional share.

18. Amendment . These Performance Based Restricted Stock Award Terms may be amended in accordance with the provisions of the Plan, and may otherwise be amended by written agreement of the Participant and the Company without the consent of any other person.

IN WITNESS WHEREOF, the Company has caused these presents to be executed in its name and on its behalf, all as of the Grant Date.


ACE LIMITED

By:
Its:

Exhibit 12.1

Computation of Ratio of Earnings to Fixed Charges and Preferred Share Dividends


					Fiscal year ended December 31
	Three months to March 31, 2006		Three months to March 31, 2005		2005		2004		2003		2002			2001
	(in thousands of U.S. dollars, except for ratios)
Earnings per Financial Statements	$	488,632	$	436,575	$	1,028,241	$	1,152,686	$	1,482,923	$	99,882		$	(180,819	)
Add (deduct):
Provision for income taxes		135,220		125,910		272,557		286,443		310,707		(111,542	)		(100,831	)
Fixed charges		47,953		49,643		201,885		211,035		205,758		215,161			219,849

Earnings for Computation	$	671,805	$	612,128	$	1,502,683	$	1,650,164	$	1,999,388	$	203,501		$	(61,801	)

Fixed Charges
Interest Expense	$	43,097	$	42,679	$	174,029	$	182,984	$	177,425	$	193,494		$	199,182
One third of payments under operating leases		4,856		6,964		27,856		28,051		28,333		21,667			20,667

Total Fixed Charges	$	47,953	$	49,643	$	201,885	$	211,035	$	205,758	$	215,161		$	219,849

Ratio of Earnings to Fixed Charges		14.0		12.3		7.4		7.8		9.7		⁽¹	⁾		⁽²	⁾

Preferred Share Dividends	$	11,213	$	11,336	$	44,850	$	44,972	$	36,009	$	25,662		$	25,594

Total Fixed Charges and Preferred Share Dividends	$	59,166	$	60,979	$	246,735	$	256,007	$	241,767	$	240,823		$	245,443

Ratio of Earnings to Fixed Charges and Preferred Share Dividends		11.4		10.0		6.1		6.4		8.3		⁽¹	⁾		⁽²	⁾

⁽¹⁾	Earnings for the year ended December 31, 2002 were insufficient to cover fixed charges by $12 million and combined fixed charges and preferred share dividends by $37 million.

⁽²⁾	Earnings for the year ended December 31, 2001 were insufficient to cover fixed charges by $282 million and combined fixed charges and preferred share dividends by $307 million.

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Evan G. Greenberg, certify that:

I have reviewed this quarterly report on Form 10-Q of ACE Limited;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date May 5, 2006

/s/ Evan G. Greenberg

Evan G. Greenberg

President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Philip V. Bancroft, certify that:

I have reviewed this quarterly report on Form 10-Q of ACE Limited;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date May 5, 2006

/s/ Philip V. Bancroft

Philip V. Bancroft

Chief Financial Officer

Exhibit 32.1

CERTIFICATIONS PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned officer of ACE Limited (the “Corporation”) hereby certifies that the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, fully complies with the applicable reporting requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a)) and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of ACE Limited.

Dated: May 5, 2006

/s/ Evan G. Greenberg

Evan G. Greenberg

President and Chief Executive Officer

Exhibit 32.2

CERTIFICATIONS PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Dated: May 5, 2006

/s/ Philip V. Bancroft

Philip V. Bancroft

Chief Financial Officer