Bermuda-based insurance giant ACE Limited yesterday said fourth quarter earnings would be hit by a $298 million after-tax charge, as the company moved for the second time in less than two years to shore up its reserves for future asbestos claims.

Broken down per share, ACE said it expected earnings to be reduced in the fourth quarter by $1.05 per share.

The news follows ACE's earnings in the third quarter being hit by exposure to unprecedented storm activity in the Atlantic. In October the company was cast under a different type of cloud when it was caught up in damning allegations against the insurance industry after New York Attorney General Eliot Spitzer launched a lawsuit against leading broker Marsh & McLennan that implicated an ACE unit as participating in a bid-rigging process designed to create the sham appearance of competition.

The development also comes less than two years after ACE boosted those same reserves by taking a $354 million charge to add the gross total of $2.178 billion to the pot.

At the time, ACE said reserve levels had been set conservatively to cover the 'worst case scenario'. In effect, the company said topping up its reserves by some $2 billion should be sufficient to put the issue behind the company.

Yesterday, investment analysts speaking with management in an after-announcement conference call grilled the executives on why they had not topped up the fund by more, after admitting the estimates reached by an outside investigation had been higher.

CEO Evan Greenberg said: "Our total reserves, gross and net, are well within the range identified by the consultants as reasonable, although that firm's selected estimate was somewhat larger than our own."

Chris Winans, an analyst with Lehman Brothers, quizzed CFO Phil Bancroft on whether or not ACE's number and the outside firm's estimate would be at odds by about $500 million at the gross level. Mr. Bancroft allowed that was the "ballpark".

Mr. Winans said: "That is a big difference. I'm curious as to how you can characterise that as not a big difference." Mr. Bancroft said: "In my view, it is not that significant... we concluded that our analysis was correct."

Mr. Greenberg told analysts: "It is like you are saying why don't you guys just do a practical, expedient thing like take the outside actuary's number. I don't buy that. We always use our best estimate. That is our policy, that is how we run the company.

"We review both the analysis of the outside actuary and our internal numbers. There was a lot of dialogue… it was a rigorous process. The number is the number... we think our number properly reflects what anyone knows today about what is a many, many year issue.

"This is very long-tail. There are so many moving parts and pieces, and changing landscapes."

At the same time as taking the charge to boost reserves, the company announced the sale of several pre-existing subsidiary companies in run off, or no longer writing business but still honouring claims. UK-based firm, Randall & Quilter, which Mr. Greenberg said specialises in taking on companies in run-off, has agreed to buy ACE American Reinsurance Company, Brandywine Reinsurance Co. (UK) Ltd. and Brandywine Reinsurance Company S.A.-N.V. The transactions are expected to close in the first half of the year.

However, this still leaves ACE with Century Indemnity - another subsidiary company under Brandywine - and significant asbestos liabilities. ACE said it was exploring a variety of options for a final disposition, or sale, of Century Indemnity itself, but said it would be premature to speak in specifics.

Mr. Greenberg said: "This sale is an important step in our strategy to resolve our asbestos exposures responsibly and to achieve the certainty intended by the 1996 reorganisation." This was said in reference to a plan agreed between Cigna - from whom ACE inherited most of its asbestos liabilities at the time of its $3.45 billion purchase of Cigna's property and casualty business in 1999 - and the Pennsylvania Insurance Commissioner to separate out old asbestos liabilities from active business.

Although investment analysts were this week questioning whether ACE could walk away from asbestos after this - with the company coming very close to reaching a limit on its $800 million contractual obligation agreed when it took on the Cigna business - Mr. Greenberg said six months of intense work had been done to ensure ACE could eventually put the issue behind it while still "honouring our responsibilities".

"The sales action is part of our strategy and a step in our determination to achieve the finality intended in the 1996 reorganisation," he said.

When asked by an investment analyst why not walk away from the Brandywine companies once ACE reached the ceiling on its obligation, Mr. Greenberg said: "That would be irresponsible on my part. We are a good corporate citizen... we will consider all constituents."

ACE's move to again boost its reserves comes after the US legislative environment has continued to be flooded with claims - with lawsuit settlements and awards escalating into the region of $100 million and more per case - from those exposed to the once commonly-used fire retardant since shown to be a cancer-causing agent.

Although insurers have been pushing for legislative reforms, ACE reaffirmed yesterday that its reserves do not anticipate any federal reform.

Mr. Greenberg told analysts on the conference call that there was hope on the legislative front: "It is not dead, but it is anybody's guess where it goes."

Investors reacted favourably to the news from ACE yesterday, pushing up its shares on the New York Stock Exchange by 47 cents to close at $42.66.