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Rating Action:

MOODY'S AFFIRMS DEBT RATINGS (SENIOR AT A3) OF ACE LIMITED AND CHANGES OUTLOOK TO NEGATIVE; REVIEWS FOR POSSIBLE DOWNGRADE THE FINANCIAL STRENGTH RATINGS OF ACE'S PRIMARY US OPERATIONS

06 Jan 2005
MOODY'S AFFIRMS DEBT RATINGS (SENIOR AT A3) OF ACE LIMITED AND CHANGES OUTLOOK TO NEGATIVE; REVIEWS FOR POSSIBLE DOWNGRADE THE FINANCIAL STRENGTH RATINGS OF ACE'S PRIMARY US OPERATIONS

Approximately $2 Billion in Securities Affected.

New York, January 06, 2005 -- Moody's Investors Service announced today that it has affirmed the long-term debt ratings of ACE Limited ("ACE" - senior unsecured debt at A3) and its indirect wholly owned subsidiary ACE INA Holdings Inc. ("ACE INA" -- guaranteed senior unsecured debt at A3). The outlook on the debt ratings was changed to negative from stable following the company's announcement yesterday that it would record a $298 million after-tax charge associated with the completion of its asbestos and environmental ("A&E") review. At the same time, Moody's placed the A2 insurance financial strength ratings (IFSR) of the ACE American pool companies and the Ba3 IFSR ratings of Century Indemnity Company and Century Reinsurance Company under review for possible downgrade. The Ba3 IFSR for ACE American Reinsurance Company has been placed on review with direction uncertain due to the announcement by ACE of the planned sale of the company along with two other runoff reinsurance companies to Randall & Quilter Investment Holdings Limited.

According to Moody's, the review for possible downgrade of the US insurance companies will focus on the prospective regulatory capital adequacy of both the ongoing and run-off operations considering the impact of the sale of three entities, the earnings capacity of the ongoing entities and the continued uncertainties about the adequacy of the A&E reserves. The rating agency will also consider the ongoing implicit support to the U.S. companies provided by ACE and the implicit and explicit support between U.S. companies, particularly given the historical split between the U.S. ongoing and run-off companies is subject to some amount of uncertainty. Further, the review will focus on the aggressive growth and operating leverage profile of the U.S. operations as well as uncertainty associated with the ongoing investigations by the New York Attorney General and other insurance regulators.

The affirmation of the debt ratings and the financial strength ratings of the ACE Westchester Specialty companies and the non U.S. insurance companies reflects the solid competitive positions in its principal business segments; its diversified spread of risk and good internal liquidity; and its sound capitalization on a consolidated basis. Moody's continues to believe that the Bermuda entities, where the majority of the capital is housed, will continue to support the US operations as well as the Lloyd's operations. On a standalone basis, the ratings of these entities would be lower without this support.

These fundamental strengths are tempered by challenges associated with managing an increasingly complex global operation, the intrinsic volatility of some of ACE's insurance and reinsurance businesses, its rapid growth in recent years, exposure to adverse claim trends, and its significant but substantially reduced, financial leverage relative to tangible capital.

Moody's has changed the outlook on the debt ratings to negative from stable. While the A&E charge is not materially above our expectations and remains within the intercompany excess of loss reinsurance when considering the sale of ACE American Reinsurance, Moody's believes that significant uncertainty remains around the ultimate liabilities for A&E reserves, particularly given that a broad range exists around the company's best estimate, disclosed as being below the external actuarial study's point estimate although within the external actuarial range. To the extent that A&E reserves were to further develop adversely, Moody's believes that this would represent a contingent liability to the overall group. The company also faces additional challenges stemming from its aggressive growth over the past several years, its high operating leverage, and the challenges associated with future operating performance given the moderation in the property and casualty pricing cycle. An additional driver of the outlook change is that the financial strength ratings of the ongoing US entities, which are a significant component of ACE, are being placed on review for possible downgrade.

The following ratings have been affirmed with a negative outlook:

ACE Limited -- senior unsecured debt at A3, prospective senior unsecured debt at (P)A3, subordinated debt at Baa1, prospective subordinated debt at (P)Baa1, prospective preferred stock at (P)Baa2, commercial paper at P-2;

ACE INA Holdings Inc. -- senior unsecured debt at A3, prospective senior unsecured debt at (P)A3, subordinated debt at Baa1, prospective subordinated debt at (P)Baa1, commercial paper at P-2;

ACE Capital Trust I -- backed preferred securities at Baa1;

ACE Capital Trust II -- backed preferred securities at Baa1;

ACE Capital Trust III -- backed preferred securities at (P)Baa1;

ACE Capital Trust IV -- backed preferred securities at (P)Baa1.

The following ratings have been placed on review for possible downgrade:

Allied Insurance Co. - insurance financial strength at A2;

ACE Employers Insurance Company - insurance financial strength at A2;

ACE Fire Underwriters Insurance Company - insurance financial strength at A2;

ACE Insurance Co. Ohio - insurance financial strength at A2;

ACE Insurance Co. Texas - insurance financial strength at A2;

ACE Property & Casualty Insurance Company - insurance financial strength at A2;

Indemnity Insurance Co. North America - insurance financial strength at A2;

Pacific Employers Insurance Co. - insurance financial strength at A2;

Atlantic Employers Insurance Co. - insurance financial strength at A2;

ACE Indemnity Insurance Company - insurance financial strength at A2;

ACE Insurance Co. Midwest - insurance financial strength at A2;

Bankers Standard Insurance Co. - insurance financial strength at A2;

Bankers Standard Fire & Marine Co. - insurance financial strength at A2;

Illinois Union Insurance Company - insurance financial strength at A2;

Insurance Co of North America - insurance financial strength at A2;

ACE American Lloyds Insurance Company - insurance financial strength at A2;

INA Surplus Insurance Company - insurance financial strength at A2;

ACE Insurance Co. Illinois - insurance financial strength at A2;

Century Indemnity Co. - insurance financial strength at Ba3;

Century Reinsurance Company - insurance financial strength at Ba3.

The following ratings have been placed on review with direction uncertain:

ACE American Reinsurance Company - insurance financial strength at Ba3.

The following ratings have been affirmed, with a stable outlook:

ACE Bermuda Insurance, Ltd - insurance financial strength at Aa3;

ACE Tempest Reinsurance, Ltd - insurance financial strength at Aa3;

Lloyd's Syndicate 2488 - insurance financial strength at Aa3;

Westchester Fire Insurance Co. - insurance financial strength at A3;

Westchester Surplus Lines Insurance Company - insurance financial strength at A3.

Cayman Islands domiciled and Bermuda-headquartered ACE Limited (NYSE: ACE) is engaged through its subsidiaries in providing insurance, reinsurance and financial products and services to corporate and insurance company clients on a global basis. For the nine months ended September 30, 2004, ACE Limited had total revenue of $9 billion and net income of $824 million. Total shareholders' equity at September 30, 2004 was $9.5 billion.

Moody's Insurance Financial Strength Ratings are opinions of the ability of insurance companies to repay punctually senior policyholder claims and obligations. For more information, visit our website at www.moodys.com/insurance.

New York
Jeffrey S. Berg
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Robert Riegel
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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