Summary
ACE Limited (ACE), formerly known as Chubb Ltd, has filed an 8-K report announcing a restatement of its financial results for the years 2000 through 2004, and for the first quarters of 2003, 2004, and 2005. This restatement is primarily necessitated by the incorrect accounting treatment of eight "non-traditional" or "finite risk" reinsurance agreements. These agreements failed to meet the required risk transfer criteria under FAS 113, with seven incorrectly recorded as deposits and one involving an improperly eliminated inter-company agreement. The investigation, conducted by the Audit Committee, did not uncover misconduct by senior management or the Board. The cumulative impact of these restatements is a modest increase in total shareholders' equity of approximately $1.0 million through the first quarter of 2005. This net change is the result of an increase of $13 million from the finite risk contract corrections and a decrease of $12 million from other unrelated immaterial adjustments, such as those related to deferred compensation plans. ACE is committed to enhancing internal controls regarding finite risk contracts.
Key Highlights
- 1ACE Limited is restating financial results from 2000-2004 and Q1 2003-2005 due to accounting errors in finite risk reinsurance contracts.
- 2Eight specific finite risk reinsurance transactions were identified as being incorrectly accounted for, primarily failing risk transfer requirements (FAS 113).
- 3The restatement is expected to result in a net increase of approximately $1.0 million in total shareholders' equity as of Q1 2005.
- 4The finite risk contract corrections are expected to increase equity by $13 million, while other unrelated errors will decrease equity by $12 million.
- 5The company's independent investigation, overseen by the Audit Committee, found no evidence of inappropriate conduct by current senior management or the Board of Directors.
- 6ACE will file amended 10-K and 10-Q filings to reflect these restatements, meaning previously issued financial statements and audit reports for these periods should no longer be relied upon.
- 7Internal controls have been strengthened, including prohibitions on certain buy-side finite risk contracts without CEO approval and enhanced guidelines for sell-side contracts.