Bermuda-based ACE Ltd. said yesterday it is selling as much as 75 percent of its bond-insurance business in an initial public offering that will free up funds to expand property and casualty insurance.

ACE's financial units insured $85.8 billion of bonds and other securities as of September 30, making them the fifth-largest worldwide, Standard & Poor's analyst David Veno said. The company expects to complete the sale in the first half of 2004. “It allows them to still play in the financial guaranty business while being able to free up capital at the holding company,” Mr. Veno said.

The insurer, which announced the sale at an industry conference in Florida that was broadcast on the Internet, also said it expects to pay out next year a smaller proportion of property-casualty premium income on claims and expenses. That means 2004 earnings per share could be as much as 12 percent higher than Merrill Lynch & Co. analyst Jay Cohen had forecast, Cohen said.

The financial guaranty unit, which includes ACE Guaranty Corp. and ACE Capital Re International Ltd., sold $111 million, or 4.8 percent, of the company's policies in the third quarter. In the first nine months of the year, they sold $350 million, a 20 percent increase from the same period in 2002.

The division, which also includes financial products that aren't being spun off, earned $174 million, or 20 percent of the company's total operating income in the first nine months of 2003.

ACE, which doesn't break out the earnings of its financial guaranty business, didn't value the IPO and said details would be released in the registration statement it expects to file with the Securities and Exchange Commission this month. The IPO will reduce ACE's profit from its financial services division by 15 to 20 percent next year, excluding investment gains and losses, chief financial officer Philip Bancroft said at the Bermuda Angle conference in Boca Raton, Florida. The division, which also includes financial products that aren't being spun off, earned $174 million in the first nine months of this year. - Bloomberg News