ACE Ltd. acquisition of Atlanta-based Westchester Specialty Insurance Group (WSIG) for $333 million in cash will give the company is a significant platform for the development of a major operation in the United States, according to company executives.

Westchester, an insurance unit of Talegen Holdings Inc., which is a subsidiary of Xerox Corp., had been hampered by asbestos claims and other liabilities which required reserving.

But the acquisition by ACE has enabled the company to clean up its blanace sheet and focus on the future.

The company is also seen as a staging ground that can be used to attract the talent it will need to build a major operation in the US.

There were indications last week that some of that future talent may have already been identified.

WSIG is licensed in all 50 states, providing immediate access to the US insurance market and new customers for ACE products.

WSIG, which in addition to three insurers also includes other insurance related business, has had its bottom line affected recently by the need to strengthen reserves. ACE was keen to fix the problems of the past right away and have the company put its focus on the future.

Berkshire Hathaway subsidiary, National Indemnity, is providing $750 million (75 percent quota share of $1 billion) of reinsurance protection to WSIG, with respect to WSIG's loss reserves for the 1996 and prior accident years. The remaining 25 percent is being retained by WSIG.

ACE executives are confident that that puts the US insurer's past behind it and will enable ACe touse the company to develop business in the US.

ACE chairman, president and CEO, Brian Duperreault commented: "The past is not an indication of the future for this company (WSIG). We solidified the balance sheet, and now it is going forward. This allows ACE to develop a major insurance company within the US.'' Vice chairman Donald Kramer added: "ACE has become a sufficiently large, world class financial institution. It has reached out to London, where it has a huge position, and now to the United States. So it has a European strategy and a US strategy, all emanating from Bermuda.'' Said Mr. Duperreault: "Their history has been tainted to some extent with the additional reserve requirements that they have been saddled with to shore up past activities in the liability umbrella business and some property.

"They are no different than other insurers in the US with respect to things like asbestos and other liability issues. They had to put the money aside for it. The past needed to be paid for.

"But today they have a good underwriting team and good reinsurance in place.

What we thought was that if they could take care of the reserves, which they were doing, we could take care of insuring against more adverse exposure that no-one could anticipate, and going forward it is a great balance sheet.

"We wanted to look forward, not back. So we have structured things so that we can look forward add new people and new lines of business.

"They were only writing two lines of business, umbrellas and property.

There's lots of things you can do in the US. But they were stuck with two lines of business for historical reasons, being involved in a large group.

"They will be no longer confined in that way, and being in the ACE family, they can expand their horizons. We're developing the plans now.

"They are licensed in 50 states. They have admitted and non-admitted capabilities. So there really is not anything we couldn't do, if we decided it was the right thing to do.'' WSIG employs some 210 people with its headquarters in Atlanta and branches in San Francisco and Los Angeles and had annual gross written premiums of $258 million and net written premiums of $125 million in the year to December 31, 1996.

ACE was attracted to the company for a number of reasons, including a strong management team, healthy investment portfolio, and a long term relationship with numerous US wholesale brokers.

WSIG's products are distributed through about 70 wholesale brokers, including many of the largest in the US.

Their products include specialised inland marine, fire and commercial multi-peril coverages in the catastrophe and non-catastrophe markets; umbrella and excess coverages for products and completed operations; and premises, automobile and employers' liability coverages.

The acquisition, which will partly be financed by debt, was months in the making and it will be the first time that ACE will have incurred debt on their balance sheet. The use of leverage in this case will provide tax advantages while enhancing ACE shareholder returns.

Brian Duperrault