Subprime concerns for ACE have been reduced to just $137 million and the company has declared it has zero collateralised debt or loan obligations.

In response to anxieties across financial markets about who has dodgy risk investments tucked away in their portfolio, ACE has issued details of where it stands and, as a result, gives a picture that appears to support its belief that shareholders can expect to see a more than 10 percent return on share earnings during next year.

Even factoring into the equation a hypothetical $400 million of pre-tax losses from any catastrophes that occur, ACE expects its shares to return earnings of between $7 and $7.50 over the course of 2008. Currently, they are trading at around $60 per share.

The company has also taken into account its projection that premiums for property and casualty business will fall somewhere between three and five percent as the market continues to soften.

Presenting earnings guidance for the coming year, ACE revealed it now only has exposure to $137 million of subprime asset-backed holdings after reducing its subprime related holdings from $257 million with no significant gain or loss.

The Bermuda-headquartered insurer and reinsurer, the biggest on the Island, also has no collateralised debt or collateralised loan obligations, it said in a statement yesterday.

"Due to the extraordinary conditions in the global credit markets, we are providing this additional disclosure to our investors to increase overall transparency," said ACE's chief financial officer Philip Bancroft.

"As we believe the facts demonstrate, our investment portfolio is conservatively managed with a high average credit quality of 'AA' and a duration of 3.6 years. Quarter-to-date, the overall marked-to-market effect on our fixed income portfolio is positive."

One thing missing from the guidance is the impact of ACE's pending purchase of AON's Combined Insurance Company of America - a $2.4 billion deal announced earlier this week.

A breakdown of ACE's mortgage-backed and asset-backed fixed income portfolio shows the majority of its $15 billion investments are "AAA", this includes $2 billion with Freddie Mac, the Federal Home Loan Mortgage Corporation that announced earlier this month it is facing a $12 billion credit hit as a result of the subprime mortgage situation in the States.

ACE's own statement reveals that, as of the end of September, it had only $98 million of mortgage-backed or asset-backed securities that were below "AAA."

The company has also pointed out that its relationship with its spin-off Assured Guaranty - which suffered a $115 million loss in the third quarter as credit crunch concerns heightened - is limited to an equity investment valued at $445 million as of the end of September.

ACE said: "The company conducts no financial guaranty business directly or with Assured Guaranty and retains no financial guaranty exposures with AGO."