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Rating Action:

Moody's aligns ratings following ACE/Chubb combination (senior at A3), stable outlook

15 Jan 2016

Multiple actions on debt and financial strength ratings

New York, January 15, 2016 -- Moody's Investors Service has taken multiple rating actions on debts, debt programs, and insurance financial strength ratings of members of the combined ACE and Chubb organizations following the closing of the transaction yesterday by Switzerland-based Chubb Limited (NYSE: CB, formerly named ACE Limited). The Chubb Corporation was merged into ACE INA Holdings, Inc., both of them being the primary debt-issuing entities of their respective groups, with ACE INA Holdings remaining as the surviving entity.

Moody's has affirmed the A3 senior debt rating of ACE INA Holdings, Inc. (ACE INA), and has downgraded the rating on senior debt originated by the former Chubb Corporation (now absorbed by ACE INA Holdings, Inc.) to A3 from A2. This action concludes the review initiated on 27 October 2015. All of the post-closing combined debt obligations and debt programs of ACE INA Holdings, Inc. are unconditionally and irrevocably guaranteed by Chubb Limited. In the same action, Moody's has confirmed the Aa3 insurance financial strength (IFS) ratings of ACE Bermuda Insurance, ACE Tempest Reinsurance, and ACE Capital Title Reinsurance, which completes the review for downgrade of these three entities initiated on 2 July 2015. Additionally Moody's has harmonized the IFS ratings of the ACE USA and legacy Chubb US-based Federal Insurance intercompany pools. Moody's has upgraded the IFS ratings for members of the ACE USA Group to Aa3 from A1 and downgraded the IFS ratings for Federal Insurance Company and members of its intercompany pool to Aa3 from Aa2. The outlook for the Chubb entities is stable.

Please refer to the complete list of rating actions below. Moody's will comment on the ratings and outlooks for the group's subsidiaries in the Latin America region (including in Brazil, Mexico, Colombia, Argentina and Chile) in separate press releases.

RATINGS RATIONALE

ACE INA Debt Ratings

According to Alan Murray, Moody's lead analyst for the new Chubb Limited, "The affirmation of ACE INA's debt ratings reflects the group's consolidated franchise strength and global leadership in property and casualty insurance, with a diversified international spread of risk and strong profitability. We view the addition of Chubb's robust US-based franchise as positioning the combined group with a market-leading platform across commercial, specialty and high-end personal lines operations, with exceptional product depth and breadth." Near-term, Moody's sees these benefits as somewhat counterbalanced by challenges associated with the integration of such a large global organization, and by the somewhat heightened financial leverage profile of the combined organization associated with the acquisition financing, given the significant new debt issuance and use of internal cash to fund the aggregate purchase price. Adjusted leverage measures are expected to remain elevated for a period of time.

Moody's downgrade of the debt issued by the legacy Chubb entity reflects the completion of the merger, and the now pari passu status of the debt obligations of the previously separate issuers.

Bermuda Insurance Subsidiaries

The confirmation of the ACE Bermuda-based subsidiaries' ratings reflect the fact that, to the extent these companies contributed to financing the Chubb acquisition, Moody's anticipates that their capital position will be replenished in the coming two years, consistent with their historically strong capitalization. ACE Bermuda's IFS rating also 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. ACE Tempest Re's IFS rating also reflects its reputation as a strong underwriting company in the reinsurance market and consistent track record of being amongst the most profitable reinsurers. The confirmation of ACE Capital Title Re primarily reflects its direct ownership by ACE Bermuda Insurance.

US Insurance Subsidiaries

The upgrade of the ACE USA companies' IFS ratings to Aa3 from A1 and the downgrade of the legacy Chubb US-based Federal Insurance Company group IFS ratings to Aa3 from Aa2 reflect Moody's assessment of their combined business and financial profiles and attendant integration risks. Although both operations are likely to continue to operate as separate legal entities and pooled groups near-term, the harmonization of the ratings reflects Moody's expectation that the underwriting, reserving, capital, and investment management for the groups will become unified over time, and that management will actively rationalize the legal structure and pool structure in the future.

Factors that could lead to an upgrade of Chubb include: 1) sustained adjusted financial leverage less than 20%, and/or earnings coverage of interest and preferred dividends consistently above 10x; and 2) sustained gross underwriting leverage less than 4x. Factors that could lead to a rating downgrade include: 1) weakness in earnings (return on capital over the cycle below 5%); 2) a decline in shareholders' equity capitalization by more than 5% as a result of operating or investment losses over the course of a year; 3) adverse reserve development of core reserves in excess of 5% of carried reserves; and/or 4) adjusted financial leverage rising above 30% and/or earnings coverage of interest and preferred dividends consistently below 6x.

The following debt ratings have been affirmed:

ACE INA Holdings, Inc. - backed senior unsecured debt at A3, backed senior unsecured shelf at (P)A3; subordinated shelf at (P)Baa1; (all backed by ultimate parent, Chubb Limited);

ACE Capital Trust II - backed preferred securities at Baa1 (hyb); (backed by ultimate parent, Chubb Limited);

ACE Capital Trust III and IV - backed preferred securities shelf at (P)Baa1; (backed by ultimate parent, Chubb Limited).

The following debt ratings have been downgraded:

Debts issued by, and programs previously pertaining to, The Chubb Corporation (now merged into ACE INA Holdings, Inc.): senior unsecured to A3 from A2; junior subordinated to Baa1(hyb) from A3(hyb); rating for commercial paper to Prime-2 from Prime-1 (all backed by ultimate parent company, Chubb Limited).

The following insurance financial strength ratings have been confirmed:

ACE Bermuda Insurance Ltd - insurance financial strength Aa3;

ACE Tempest Reinsurance Ltd - insurance financial strength at Aa3;

ACE Capital Title Reinsurance Company - insurance financial strength at Aa3.

The following insurance financial strength ratings of Federal Insurance Company and its pooled or reinsured affiliates have been downgraded:

Federal Insurance Company - insurance financial strength rating to Aa3 from Aa2;

Great Northern Insurance Company - insurance financial strength rating to Aa3 from Aa2;

Pacific Indemnity Company - insurance financial strength rating to Aa3 from Aa2;

Vigilant Insurance Company - insurance financial strength rating to Aa3 from Aa2;

Chubb Insurance Company of New Jersey - insurance financial strength rating to Aa3 from Aa2;

Chubb Lloyds Insurance Company of Texas - insurance financial strength rating to Aa3 from Aa2;

Chubb Custom Insurance Company - insurance financial strength rating to Aa3 from Aa2;

Chubb Indemnity Insurance Company - insurance financial strength rating to Aa3 from Aa2;

Chubb National Insurance Company - insurance financial strength rating to Aa3 from Aa2;

Texas Pacific Indemnity Company - insurance financial strength rating to Aa3 from Aa2;

Executive Risk Indemnity, Inc. - insurance financial strength rating to Aa3 from Aa2;

Executive Risk Specialty Insurance Company - insurance financial strength rating to Aa3 from Aa2;

Chubb Atlantic Indemnity, Ltd. - insurance financial strength rating to Aa3 from Aa2.

The following insurance financial strength ratings of the ACE USA Group have been upgraded:

ACE American Insurance Company - insurance financial strength to Aa3 from A1;

ACE Fire Underwriters Insurance Company - insurance financial strength to Aa3 from A1;

ACE Property & Casualty Insurance Company - insurance financial strength to Aa3 from A1;

Indemnity Insurance Co. North America - insurance financial strength to Aa3 from A1;

Pacific Employers Insurance Co. - insurance financial strength to Aa3 from A1;

Atlantic Employers Insurance Co. - insurance financial strength to Aa3 from A1;

ACE Insurance Co. Midwest - insurance financial strength to Aa3 from A1;

Bankers Standard Insurance Co. - insurance financial strength to Aa3 from A1;

Bankers Standard Fire & Marine Co. - insurance financial strength to Aa3 from A1;

Illinois Union Insurance Company - insurance financial strength to Aa3 from A1;

Insurance Co of North America - insurance financial strength to Aa3 from A1;

Westchester Fire Insurance Co. - insurance financial strength to Aa3 from A1;

Westchester Surplus Lines Insurance Company - insurance financial strength to Aa3 from A1.

The outlook for all of the above entities is stable.

For the first nine months of 2015, ACE Limited, based in Zurich, Switzerland, reported gross premiums written of $18.2 billion and net income of $2.15 billion. As of September 30, 2015, ACE Limited reported total assets of $97.8 billion and shareholders' equity of $29.1 billion. On a pro forma basis, the combined company, which operates in 54 countries, has annual gross written premiums of $37 billion and total assets of approximately $150 billion.

The methodologies used in these ratings were Global Property and Casualty Insurers published in December 2015, and Global Reinsurers published in December 2015. 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.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

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 aligns ratings following ACE/Chubb combination (senior at A3), stable outlook
No Related Data.
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