TEXT-Fitch affirms ACE Limited ratings, outlook remains positive

Tue Nov 13, 2012 12:16pm EST

Nov 13 - Following Fitch Ratings' standard review process, Fitch has
affirmed the ratings of ACE Limited and its subsidiaries (collectively,
ACE). The Rating Outlook is Positive. A complete list of ratings follows at the
end of this release.

The rating actions reflect ACE's continued strong operating performance, balance
sheet and financial flexibility, and diverse sources of revenues and earnings.
Partially offsetting these positives is the effect of modestly rising
accident-year combined ratios and the effect of continued significant
competition in the company's chosen markets.

Fitch expects that ACE's insurance and reinsurance losses from Hurricane Sandy
will be more of an earnings event rather than a capital event. While the amount
of loss is uncertain at this early stage, Fitch anticipates the level to be
manageable given the company's diverse global book of business, strong
capitalization and operating performance with below average catastrophe losses
through the first nine months of 2012, and conservative risk management.

ACE's operating performance is consistently strong, characterized by low
combined ratios with manageable catastrophe losses and consistent favorable loss
reserve development and stable investment income. The company has reported a
combined ratio under 100% for nine consecutive years.

The year-to-date combined ratio was 90.2% at Sept. 30, 2012 despite experiencing
$147 million of pre-tax crop insurance losses in the third quarter and $127
million of pre-tax catastrophe losses including reinstatements through nine
months ending 2012. ACE reported a higher combined ratio of 95.3% for the same
period in 2011 due to $744 million of catastrophe losses.

ACE reported net income of $1.94 billion and operating income of $2.1 billion
for the first nine months of 2012, up from $805 million and $1.7 billion,
respectively, for the same period in 2011. The increase in net income was
largely due to reduced catastrophe losses and a shift in realized investment
losses primarily related to mark to market accounting in ACE's life reinsurance
segment.

ACE has steadily grown its ordinary shareholders' equity with solid earnings. As
a result, shareholders' equity has increased by over 50% since year-end 2007 and
11% since year-end 2011 to $27 billion through Sept. 30, 2012. Tangible equity
has grown in conjunction with the growth in shareholders' equity and has more
than tripled since 2001. Fitch also notes that ACE, unlike many of its peers,
has not repurchased a material amount of shares during the current soft market
other than to partially offset potential dilution related to share-based
compensation plans. No shares were repurchased during the third quarter of 2012.

Additionally, Fitch has affirmed and withdrawn Century Indemnity Company's
(Century) Insurer Financial Strength (IFS) rating. The rating of the ACE
subsidiary is no longer considered by Fitch to be relevant to the agency's
coverage. Fitch's rating on Century reflects Fitch's view that the company's
importance to ACE is limited due to its run-off status and thin capitalization.
Century maintains inactive operations largely consisting of asbestos and
environmental (A&E) reserves that are in run-off.

Key rating triggers that may lead to an upgrade include continued strong
operating performance with a combined ratio consistently under 95%, continued
stockholders' equity growth, and maintaining a track record of successful
acquisition execution while managing financial leverage to under 25% total debt
to capital and run-rate leverage at or under 20%. Fitch expects operating
earnings-based interest and preferred dividend coverage to remain at or above
10x, and for ACE's retention ratio (net premium written to gross premium
written) to increase over time to be more in line with higher-rated peers.

Key rating triggers that may lead to a downgrade include a sustained material
deterioration in operating performance such that the combined ratio is
consistently unprofitable at over 100%, a significant reduction in stockholders'
equity that is not recovered in the near term, and financial leverage
consistently over 30%.

Potential for future acquisitions and the associated integration risks and
company profile changes could lead to pressure on the ratings, depending on the
acquisition details.

Fitch has affirmed the following ratings:

ACE Limited
--Issuer Default Rating (IDR) at 'A+'.

ACE INA Holdings Inc.
--IDR at 'A+';
--$500 million senior notes due 2014 at 'A';
--$450 million senior notes due 2015 at 'A';
--$700 million senior notes due 2015 at 'A';
--$500 million senior notes due 2017 at 'A';
--$300 million senior notes due 2018 at 'A';
--$500 million senior notes due 2019 at 'A';
--$100 million senior debentures due 2029 at 'A';
--$300 million senior notes due 2036 at 'A'.

ACE Capital Trust II
--$300 million capital securities due 2030 at 'BBB+'.

ACE American Insurance Company
ACE Bermuda Insurance Limited
ACE Fire Underwriters Ins. Company
ACE Insurance Company of the Midwest
ACE Property and Casualty Insurance Company
ACE Tempest Reinsurance Limited
Agri General Insurance Company
Atlantic Employers Insurance Company
Bankers Standard Fire & Marine Company
Bankers Standard Insurance Company
Combined Insurance Company of America
Combined Life Insurance Company of New York
Illinois Union Insurance Company
Indemnity Insurance Company of North America
Insurance Company of North America
Pacific Employers Insurance Company
Westchester Fire Insurance Company
Westchester Surplus Lines Insurance Company
--IFS at 'AA-'.

Fitch has affirmed and withdrawn the following rating:
Century Indemnity Company
--IFS at 'B-'.

The Rating Outlook is Positive.


Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--'Hurricane Sandy: Sensitivity Analysis of Insured Loss Scenarios Special
Report' (Nov. 8, 2012);
--'Reinsurers Well Positioned to Withstand Hit from Sandy' Fitch Wire (Nov. 5,
2012);
--'Insurance Rating Methodology' (Oct. 18, 2012).

Applicable Criteria and Related Research:
Hurricane Sandy - Sensitivity Analysis of Insured Loss Scenarios
Insurance Rating Methodology - Amended
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.