Upgrades ACE USA to A1 IFS; affirms Bermuda subsidiaries at Aa3 IFS
New York, March 04, 2011 -- Moody's Investors Service has affirmed its provisional shelf ratings (senior
unsecured at (P)A3) of ACE Limited (NYSE: ACE) and its debt ratings
(senior unsecured debt at A3) of ACE INA Holdings Inc. (ACE INA),
which is unconditionally guaranteed by the group parent company ACE Limited.
The insurance financial strength (IFS) ratings of ACE's active US-based
property & casualty insurance operating subsidiaries have been upgraded
to A1 from A2. Additionally Moody's has affirmed the Aa3
IFS ratings of ACE's principal Bermuda-based operating subsidiaries,
namely ACE Bermuda Insurance Ltd. and ACE Tempest Reinsurance Ltd
(Bermuda). The outlook for all ratings is stable.
RATINGS RATIONALE
According to Alan Murray, lead analyst at Moody's for ACE Limited,
"ACE has over time demonstrated a consistent franchise-building
strategy in the USA, Europe and in many diverse international markets,
and has one of the leading global property/casualty insurance franchises.
Additionally, management has generally maintained a strong level
of organizational discipline with respect to the deleveraging of the balance
sheet over time, having adopted an enterprise risk management program,
which is critical for an organization with operations in such diverse
markets."
Moody's noted that ACE's ratings reflect its 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. 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,
and its exposure to natural catastrophes and adverse claim trends.
In addition, to the extent that U.S. asbestos and
environmental reserves were to further develop adversely by an amount
in excess of the remaining intercompany limit, this would represent
a contingent liability to ACE.
The affirmation of the Aa3 IFS rating of ACE Bermuda Insurance Ltd.
reflects its leadership position in large accounts professional liability,
excess liability and political risk insurance as well as stable operating
returns. The Aa3 IFS rating of ACE Tempest Reinsurance Ltd.
(Bermuda) reflects its reputation as a strong underwriting company in
the reinsurance market and consistent track record of being amongst the
most profitable reinsurers. Moody's views both companies
as having meaningful excess capital which could be used to support other
operations around the globe, which may maintain moderate levels
of capital adequacy.
According to Moody's, the upgrade of the ACE USA operations
reflects its continued strong profitability and financial fundamentals,
as well as the steady deleveraging of reinsurance recoverables and claim
liabilities relative to capital over the past several years. In
addition, the upgrade considers the incremental uplift resulting
from reinsurance coverage provided by ACE Tempest Reinsurance Ltd.
(Bermuda). Moody's noted that ACE Limited has a capital management
strategy of maintaining significant capital in its Bermuda subsidiaries
to support operating flexibility and capital around the world if needed.
Because Moody's considers ACE USA to be core and strategic to the
group's global operations, the rating agency attributes a
portion of the Bermuda operations' capital flexibility to ACE USA,
benefiting its effective capital strength.
The three-notch differential between ACE INA's A3 senior unsecured
debt rating (fully and unconditionally guaranteed by ACE) and the Aa3
insurance financial strength ratings of ACE's lead Bermuda insurance operating
companies reflects ACE's capital management strategy. Moody's believes
that targeted capital levels are set at a level not supportive of the
public ratings on those non-Bermuda based entities whose ratings
are enhanced by the Bermuda based entities. For example,
ACE's ongoing US operations are rated A1 for financial strength and represent
around a quarter of net premiums written. In addition, Moody's
notes that approximately half of ACE's capital is located outside of Bermuda
in jurisdictions that have more restrictive dividend rules than Bermuda.
The current ratings reflect Moody's expectation that ACE's return on capital
will exceed 10% over the cycle, consolidated operating leverage
will remain moderate, and adverse development including A&E
will be modest (less than 5% of carried reserves). In addition,
the ratings contemplate fully adjusted financial leverage will remain
less than 30% with earnings coverage of interest and preferred
dividends coverage of at least 8x.
The following ratings have been affirmed with a stable outlook:
ACE Limited -- senior unsecured shelf at (P)A3; subordinated
unsecured shelf at (P)Baa1;
ACE INA Holdings Inc. -- senior unsecured debt at
A3, subordinated debt at Baa1, senior unsecured shelf at (P)A3;
subordinated shelf at (P)Baa1;
ACE Capital Trust II -- backed preferred securities at Baa1
(hyb);
ACE Capital Trust III and IV -- backed preferred securities
shelf at (P)Baa1 (hyb).
ACE Bermuda Insurance, Ltd - insurance financial strength
at Aa3;
ACE Tempest Reinsurance, Ltd - insurance financial strength
at Aa3;
Member of the Brandywine Group: Century Indemnity Company -
insurance financial strength at Ba3.
The following ratings have been upgraded with a stable outlook:
Members of the ACE USA Group:
ACE American Insurance Company -- - insurance financial
strength to A1 from A2;
ACE Fire Underwriters Insurance Company - insurance financial strength
to A1 from A2;
ACE Property & Casualty Insurance Company - insurance financial
strength to A1 from A2;
Indemnity Insurance Co. North America - insurance financial
strength to A1 from A2;
Pacific Employers Insurance Co. - insurance financial strength
to A1 from A2;
Atlantic Employers Insurance Co. - insurance financial strength
to A1 from A2;
ACE Insurance Co. Midwest - insurance financial strength
to A1 from A2;
Bankers Standard Insurance Co. - insurance financial strength
to A1 from A2;
Bankers Standard Fire & Marine Co. - insurance financial
strength to A1 from A2;
Illinois Union Insurance Company - insurance financial strength
to A1 from A2;
Insurance Co of North America - insurance financial strength to
A1 from A2;
Westchester Fire Insurance Co. - insurance financial strength
to A1 from A2;
Westchester Surplus Lines Insurance Company - insurance financial
strength to A1 from A2.
The following rating has been upgraded and withdrawn due to merger with
a similarly-rated affiliate:
ACE Indemnity Insurance Company -- insurance financial strength to
A1 from A2
The following rating has been affirmed and will be withdrawn due to merger
with a similarly-rated affiliate:
Century Reinsurance Company -- insurance financial strength at Ba3.
The principal methodology used in this rating was Moody's Global Rating
Methodology for Property and Casualty Insurers, published in May
2010. Other methodologies considered in rating ACE Limited include
Moody's Global Life Insurance Methodology, published in May
2010 and Moody's Global Rating Methodology for Reinsurers,
published in July 2008.
Switzerland-domiciled ACE Limited is engaged through its subsidiaries
in providing insurance, reinsurance and financial services to corporate
and insurance company clients on a global basis. For the full year
2010, ACE Limited reported net premiums writen of $13.7
billion, net income of $3.1 billion, and as
of December 31, 2010 reported total assets of $83.4
billion, and shareholders' equity of $23.0 billion.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
Alan Murray
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Sarah Hibler
Senior Vice President
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
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JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's affirms ACE's senior debt at A3; outlook stable
