Excluding the asbestos charge, ACE forecast an operating income of 92 cents per share for its fourth-quarter, three cents higher than Wall Street estimates.

The Bermuda-based ACE--which picked up old asbestos liabilities when it bought Cigna Corp.'s property-casualty business three years ago--is the latest insurer to hike its reserves to help pay for asbestos claims. Other carriers that have recently increased their reserves include Hartford, Conn.-based Travelers Property Casualty Corp., Chubb Corp. in Warren, N.J., and St. Paul Companies in St. Paul, Minn.

"ACE's total asbestos reserves are now at the high end of the range calculated by our internal analysis and are consistent with the actuarial consulting firm's best estimate," said Brian Duperreault, chairman and chief executive officer at ACE, in a statement.

ACE management believes there are favorable trends in the judicial environment regarding the company's asbestos liabilities, Mr. Duperreault added, but the reserve strengthening reflects a more conservative view and assumes that there will be no such future improvements.

Dominic J. Frederico, president and chief operating officer at ACE, stated during today's conference call that the reserve increase was prompted by the findings of an internal task force, which performed an extensive review of the company's asbestos reserving process.

The task force, he explained, reviewed the policyholder files representing more than 70 percent of the direct asbestos unpaid liabilities on known accounts as of September 2002.

The review process also included an examination of the pending claim inventory and the projection of future filings, the characterization of injury types and the projected future distribution by injury type, the total coverage profile for the account and ACE's share of that coverage profile, as well as the products and non-products exposures.

ACE's internal study also coincided with a third-party actuarial reserve review required by the Pennsylvania Insurance Department as part of the acquisition of CIGNA's p-c operations.

"Today's announcement is the culmination of ACE's review of both of these studies," Mr. Frederico said. "Given the uncertainty in the asbestos environment and the variability of future projections, senior management felt it prudent to take a more conservative reserving approach," he said.

ACE's announcement has initially prompted a mixed review from industry experts. Morgan Stanley in New York, for instance, argued in its report that ACE shares, which are traded on the New York Stock Exchange, will generally react favorably because the cost may be less than what the market has been expecting since much of the charge will be covered by reinsurance.

ACE's guidance for fourth-quarter earnings, excluding the charge, of 92 cents a share for operating earnings is above the Wall Street consensus of 89 cents per share and Morgan Stanley's 85 cents-a-share estimate, which assumed the possibility of weather and/or ocean marine losses. The company said it reserved to its actuarial firm's best estimate and the high end of its own range of estimates.

Still, Standard & Poor's Ratings Services in New York said it placed its counterparty credit rating on ACE on CreditWatch with negative implications.

S&P also placed on CreditWatch negative its "A-plus" counterparty credit and financial strength ratings on various members of the ACE Group and its "triple-B" counterparty credit and financial strength ratings on the members of the Brandywine Group, which houses the majority of ACE's asbestos and environmental run-off exposures.

S&P's credit analyst Frederick Loeloff voiced his concern in a statement that "the reserve strengthening uses ACE's remaining $533 million of adverse development reinsurance protection from National Indemnity Co. and leaves the group exposed to potential prospective additional adverse development on the asbestos exposures."

"Although uncertainty with the adequacy of these reserves has historically been factored into the financial strength rating on the group, the magnitude of such a reserve strengthening was not," Mr. Loeloff added.

S&P stated it is in the process of reviewing ACE's overall operations and will continue to separately monitor each operating segment's financial strength, capital adequacy, and ability to reduce exposure to prospective adverse loss development and credit risk.