Accounting & Tax

ACE Restates over Finite-Risk Accounting

The restatements cover the five years ending in 2004, as well as each of the quarters in 2003 and 2004 and the first quarter of 2005.
Stephen TaubJuly 21, 2005

ACE Ltd. announced that it will restate more than five years of results to correct the accounting treatment for eight transactions related to its finite risk insurance.

The restatements — which cover the five years ending in 2004, as well as each of the quarters in 2003 and 2004 and the first quarter of 2005 — will boost shareholders’ equity by about $1 million, according to ACE. The company added that it will include in the restatement correction of certain unrelated errors “of an immaterial nature.”

The Bermuda-based property and casualty insurer stated that its decision was based on the results of an independent investigation of more than 100 transactions involving non-traditional or loss-mitigation insurance products, also called finite-risk insurance. “We have found accounting problems on a number of transactions, and we regret that,” said president and chief executive officer Evan Greenberg, in a statement. “We are fixing those problems. We have also put in place strict procedures to assure that this does not happen again.”

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ACE and its subsidiaries have received a number of subpoenas and other requests for information from federal and state regulators in connection with the industrywide investigations of insurance business practices. The company stated that it will continue to respond to all such inquiries.

According to ACE, its own investigation found eight finite-risk contracts that were not correctly accounted for. Seven did not meet the applicable risk transfer requirements of FAS 113, Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts, and should have been recorded as deposits. The eighth was an intercompany agreement that was not properly eliminated in consolidation.

All eight contracts originated prior to 2002; two of them remain in effect. Of the eight contracts, three involved ACE as the buyer, three involved ACE as the seller, and two were between wholly owned subsidiaries of ACE Ltd.