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Rating Action:

Moody's affirms ratings of ACE Group (ACE INA Holdings senior at A3); outlook stable

11 Jul 2013

Also affirms ratings of principal insurance and reinsurance subsidiaries.

New York, July 11, 2013 -- Moody's Investors Service has affirmed the A3 senior debt rating of ACE INA Holdings Inc. (ACE INA) -- whose debt is unconditionally guaranteed by the group parent company ACE Limited (NYSE: ACE). The insurance financial strength (IFS) ratings of ACE's principal Bermuda-based operating subsidiaries -- ACE Bermuda Insurance Ltd. and ACE Tempest Reinsurance Ltd (Bermuda) have been affirmed at Aa3, and ratings on members of the ACE USA's property & casualty group have been affirmed at A1. The outlook for the ratings is stable.

RATINGS RATIONALE

According to Moody's, the parent company's ratings reflect ACE Limited's solid competitive position in its principal business segments, its diversified international spread of risk and good internal liquidity, and its sound capitalization and financial flexibility on a consolidated basis. These fundamental strengths are tempered by challenges associated with managing and maintaining underwriting discipline across a complex global operation, the intrinsic volatility of some of ACE's insurance and reinsurance businesses, and exposure to natural catastrophes and adverse claim trends.

According to Alan Murray, lead analyst for ACE Limited, "ACE is one of the leading global property/casualty insurers and has demonstrated a consistent franchise-building strategy in the US, Europe and diverse international markets. Additionally, the group has maintained balance sheet and operational discipline, as well as consistently strong capital flexibility and attention to enterprise risk management."

The affirmation of ACE Bermuda Insurance Ltd.'s rating reflects its leadership position in large accounts professional liability, excess liability and political risk insurance as well as strong operating returns on average. These strengths are balanced against business line characteristics that pose unique challenges for pricing and reserving, specifically long claim settlement periods and low frequency/high severity nature of losses. The affirmation of ACE Tempest Reinsurance Ltd. (Bermuda)'s rating 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 being very well capitalized.

The affirmation of ACE USA's ratings reflect the group's firmly established presence in commercial and specialty insurance (through ACE American and affiliates) and excess and surplus lines (through Westchester) in the US property and casualty insurance market, as well as its leadership in the agricultural insurance sector through its Rain and Hail operations. The rating agency noted that weakened calendar year underwriting margins over the past several years, in part reflecting elevated claim losses in 2012 associated with Superstorm Sandy and Midwestern droughts, have lead to weakened returns on capital for the group. However, ongoing rate level improvement excluding catastrophe losses should support internal capital generation. Moody's also views ACE USA's gross underwriting leverage as a constraint on its credit profile, which is largely offset by rating uplift resulting from substantial reinsurance support provided by ACE Tempest Reinsurance Ltd. (Bermuda) and ACE Reinsurance (Switzerland) Ltd. This is consistent with ACE Limited's capital management strategy of maintaining significant capital in its Bermuda subsidiaries to support operating flexibility and capital around the world, as 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 capital strength.

A combination of some of the following could result in a ratings' upgrade: 1) meaningful improvement in the credit profile of one or more of the group's principal subsidiaries; 2) sustained adjusted financial leverage in the mid-teen percentage range, and/or earnings coverage of interest and preferred dividends consistently above 10x; 3) sustained gross underwriting leverage less than 4x; 4) full extrication from risk of further A&E adverse development. One or more of the following could result in a rating downgrade: 1) a downgrade of one or more of the group's principal subsidiary operations (e.g. US, Bermuda); 2) weakness in earnings (return on capital over the cycle below 5%); 3) a decline in shareholders' equity capitalization by more than 5% as a result of operating or investment losses over the course of a year; 4) adverse reserve development of core reserves in excess of 5% of carried and/or meaningful adverse A&E developments; 5) adjusted financial leverage rising above 30% and/or earnings coverage of interest and preferred dividends consistently below 6x.

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 constitutes standard notching for insurer's whose capital and operations are significant in more highly regulated jurisdictions, such as the U.S. and much of Europe. In ACE's case, more than half of the group's capital is located outside of Bermuda in jurisdictions that have more restrictive dividend rules than Bermuda.

The following ratings have been affirmed with a stable outlook:

ACE INA Holdings Inc. - senior unsecured debt to at A3, 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.

ACE Bermuda Insurance Ltd - insurance financial strength at Aa3;

ACE Tempest Reinsurance Ltd - insurance financial strength at Aa3.

Members of the ACE USA Group:

ACE American Insurance Company - insurance financial strength at A1;

ACE Fire Underwriters Insurance Company - insurance financial strength at A1;

ACE Property & Casualty Insurance Company - insurance financial strength at A1;

Indemnity Insurance Co. North America - insurance financial strength at A1;

Pacific Employers Insurance Co. - insurance financial strength at A1;

Atlantic Employers Insurance Co. - insurance financial strength at A1;

ACE Insurance Co. Midwest - insurance financial strength at A1;

Bankers Standard Insurance Co. - insurance financial strength at A1;

Bankers Standard Fire & Marine Co. - insurance financial strength at A1;

Illinois Union Insurance Company - insurance financial strength at A1;

Insurance Co of North America - insurance financial strength at A1;

Westchester Fire Insurance Co. - insurance financial strength at A1;

Westchester Surplus Lines Insurance Company - insurance financial strength at A1.

Member of the Brandywine Group: Century Indemnity Company - insurance financial strength at Ba3.

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 2012, ACE Limited reported gross premiums written of $21.6 billion, net income of $2.7 billion, and as of December 31, 2012 reported total assets of $92.5 billion, and shareholders' equity of $27.5 billion.

The principal methodologies used in these ratings were Moody's Global Rating Methodology for Property and Casualty Insurers, published in May 2010, and Moody's Global Rating Methodology for Reinsurers, published in December 2011. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Alan Murray
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert Riegel
MD - Insurance
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms ratings of ACE Group (ACE INA Holdings senior at A3); outlook stable
No Related Data.
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