CONTACTS:
FOR IMMEDIATE RELEASE
OLDWICK, N.J. - OCTOBER 16, 2006 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength ratings (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of "aa-" of ACE Group, which consists of ACE Bermuda Insurance Ltd. (ACE Bermuda), ACE Tempest Reinsurance Ltd. (ACE Tempest), ACE Tempest Life Reinsurance Ltd., ACE Westchester Specialty Group (New York) and ACE American Pool (Pennsylvania). A.M. Best has also affirmed the FSRs of A (Excellent) and the ICRs of "a" of ACE INA Insurance (Toronto, Canada) and ACE Life Insurance Company (Connecticut). In addition, A.M. Best has affirmed the FSRs of A (Excellent) and has assigned ICRs of "a+" to ACE Insurance Limited (Australia) and ACE Insurance Limited (New Zealand). The FSR of B- (Fair) and the ICR of "bb-" of Brandywine Group (Brandywine) (Pennsylvania) were affirmed on August 28, 2006.
Concurrently, A.M. Best has upgraded the FSR to A+ (Superior) from A (Excellent) and the ICR to "aa-" from "a+" of ACE European Group Limited (AEGL) (United Kingdom). (Please refer to the separate press release of October 16, 2006 regarding AEGL.)
Additionally, A.M. Best has affirmed the ICR and senior debt ratings of "a-"and the AMB-2 on the commercial paper of ACE Limited (ACE) [NYSE:ACE] and ACE INA Holdings Inc. (Delaware). In addition, A.M. Best has affirmed the debt ratings of "bbb" on preferred securities of ACE Capital Trust I and ACE Capital Trust II and the indicative ratings on securities to be issued under ACE's shelf registration. All the above companies are domiciled in the Cayman Islands, except where specified. The outlook for all ratings is stable. (See link below for a detailed list of the ratings.)
The affirmation of the ratings for ACE Group reflects an organization that is diversified by business segment and geographics, is well capitalized with a stable balance sheet, maintains a capacity to generate significant earnings and is operated by a credible and experienced management team. ACE Group's financial flexibility is considerable and has been positively tested. Earnings generating capability and stability are supported by an adequate core reserve position, robust cash flows, which cause an ever increasing investment base - and in A.M. Best's opinion - a company-wide culture and commitment to underwriting profitability. This underwriting commitment is imperative given that the ACE Group is by design an above average risk accepting company whose stability rests on the ability to properly understand and appropriately price its property and casualty exposures. A.M. Best believes that ACE Group's overall risk and catastrophe specific exposures are well managed through comprehensive company-wide risk assessment, catastrophe modeling and enterprise risk management and the use of appropriate policy limits. However, a fair degree of variability in earnings is inherent in the ratings to reflect the very nature of the risks and characteristics of ACE.
Negative rating factors include ACE's higher than industry average ceded reinsurance recoverable leverage and continued exposure to natural and man-made catastrophes. The recoverable leverage is a result of several unique characteristics including ACE's significant run-off book, agricultural and captive/cash flow programs and moderate retention ratios on specific business lines. Given a more competitive market for non-catastrophe exposed property and casualty business, both in the United States and in Europe, ACE maintains - along with the rest of the industry - execution risk despite its positive track record. Additionally, ACE's balance sheet remains exposed to potential negative asbestos and environmental reserve development in its Brandywine operations, which perpetuates the conundrum of providing additional capital directly to the runoff entities as was needed in 2004. On a consolidated basis, A.M. Best believes that ACE's earnings and balance sheet can absorb any necessary reserve increases. ACE has sizable annual debt maturing in each of the next three years, which A.M. Best expects to be rolled over into new securities, which should lengthen ACE's debt maturity profile. ACE may remain subject to additional scrutiny and fines associated with continuing inquiries from regulatory agencies. However, A.M. Best does not believe that the on-going businesses will be negatively affected, and any fines will be easily absorbed.
With regard to capital management, ACE maintains substantial capital levels in its Bermuda operations while capital levels in other operating subsidiaries are sufficient to meet A.M. Best's rating requirements. Operating subsidiary capital levels are protected by internal reinsurance arrangements with other ACE affiliates (primarily in Bermuda) to increase capacity, stabilize local underwriting, centralize risk management or finance expanding operations. A.M. Best has incorporated this capital management strategy and as a result provides rating enhancement to a number of major ACE operating subsidiaries.
ACE's debt-to-capital ratio at June 30, 2006 was a moderate 18.0% (including trust preferreds) and 21.8% adjusting for tangible capital. ACE continues to maintain approximately 32% of equity in intangible assets (goodwill and deferred taxes). ACE's financial leverage has precipitously declined over the past few years as a result of ever increasing levels of equity emanating from strong earnings and cash flow. ACE's annual holding company cash outflows in excess of $500 million creates some strain on the Bermuda subsidiaries' capital level since ACE Limited looks to ACE Bermuda and ACE Tempest to provide the majority of the cash requirement. Nonetheless, a future conflict between maintaining robust capital levels and the need to dividend is possible should there be an extraordinary negative earnings deflating event. Offsetting any immediate liquidity concern is the low level of dividend restrictions from ACE Bermuda and ACE Tempest, which are profitable (despite catastrophe losses) and serve as the depositories of significant capital.
For a complete listing of ACE Limited and ACE INA Holdings Inc.'s FSRs, ICRs and debt ratings, please visit ACE.
A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source.