A.M. Best Affirms Ratings For ACE Subsidiaries

May 1, 2015

A.M. Best has affirmed the financial strength rating [FSR] of A++ [Superior] and the issuer credit ratings [ICR] of “aa+” of the North American property/casualty subsidiaries of ACE Limited [ACE] [Zurich, Switzerland], ACE Bermuda Insurance Ltd. [ACE Bermuda], ACE Tempest Reinsurance Ltd. [ACE Tempest Re] [both domiciled in Bermuda], the members of the ACE American Group, ACE INA Insurance [Canada] and ACE Tempest Re’s parent, ACE Tempest Life Reinsurance Ltd [ATLRE] [Bermuda].

A statement from the ratings agency said, “Additionally, A.M. Best has affirmed the ICR and senior debt ratings of “a+” of ACE and its wholly owned downstream holding company, ACE INA Holdings Inc., whose debt is fully guaranteed by ACE. The outlook for all the above ratings is stable.

“In addition, A.M. Best has affirmed the FSR of A+ [Superior] and the ICRs of “aa-” of Combined Insurance Company of America [Glenview, IL] and Combined Life Insurance Company of New York [Latham, NY] [together known as the Combined companies]. Additionally, A.M. Best has affirmed the FSR of A- [Excellent] and ICR of “a-” of ACE Life Insurance Company [Stamford, CT] and the FSR of A [Excellent] and the ICR of “a” of ACE Seguros S.A. [Panama]. The outlook for these ratings is stable. [Please see link below for a detailed listing of the companies and ratings.]

“The ratings for the core property/casualty subsidiaries of ACE, including ACE Bermuda, ACE Tempest Re and ACE American Group reflect their strong risk-adjusted capitalization, diversified operations, historically favorable record of generating strong underwriting earnings supported by consistently favorable loss reserve development in recent years, a relatively conservative investment portfolio that generates stable earnings and strong cash flows. ACE INA Insurance [Canada] and ACE Seguros, benefit from the adequate stand-alone levels of capital and the operational support received by these entities from affiliates.

“The positive rating factors are derived from management’s experience and consistent focus on underwriting profitability generated by effective risk selection and pricing standards, and maintenance of appropriate policy limits and exposure to catastrophes, including the use of reinsurance to manage net retentions. These subsidiaries further benefit from ACE’s controlled financial leverage and strong enterprise risk management [ERM] program, which relies on the close collaboration of executives and operating departments to identify, assess and control enterprise risk and accumulations. The effectiveness of the ERM program is demonstrated by the stability of its risk-adjusted capital levels and overall earnings that have remained strong and consistent through soft market conditions, the global economic challenges and the increase in global catastrophe and weather-related events.

“The increasing regulatory burden and continued competitive pricing in the market, combined with a lower level of reserve redundancies and investment returns, requires ACE to remain focused and diligent in developing improved business models and operations to support product and risk-selection capabilities, and manage exposure levels to generate and maintain pricing discipline to continue to generate positive underwriting results. Other offsetting rating factors include the group’s exposure to emerging asbestos and environmental claims and natural and man-made catastrophes and other non-catastrophe weather-related events. The property/casualty subsidiaries’ capital also is exposed to varying dividend demands and higher than industry average ceded reinsurance leverage, driven by the nature of their business, agricultural and captive/cash flow programs and recoverables relating to their run-off book.

“At first quarter of 2015, ACE’s adjusted debt-to-total-capital level was about 19.5%, which is within A.M. Best’s expectations for its current rating level. Interest coverage also remained favorable. Since ACE maintains substantial capital levels in its Bermuda-based operations, little cash and liquid securities are held at the ultimate holding company level. Therefore, holding company cash flows necessary to meet shareholder dividends and debt service requirements are principally met through dividends from the operating companies. Given the significant holding company cash flow requirements, there is a dependence on the property/casualty subsidiaries in multiple jurisdictions to provide sufficient dividend cash flow.

“The ratings of ATLRE reflect its ownership of ACE Tempest Re, which accounts for the majority of the company’s financial profile and the benefit of being part of the ACE organization. Partially offsetting these positive rating factors is the potential capital and operating volatility associated with ATLRE’s run-off variable annuity reinsurance business as well as its limited life reinsurance operations.

“Although it is a very limited contributor to the ACE group of companies, ACE Life Insurance Company’s ratings recognize its stable capitalization, along with a very conservative investment portfolio that offers adequate liquidity to support the run-off of its remaining U.S. life reinsurance business. Offsetting rating factors include its nominal scope of operations and business profile, which is currently in run off, and earnings volatility.

“The ratings for the Combined companies reflect the benefits it receives as members of the ACE organization, its trend of favorable earnings, operating profile, and its established niche in the middle-income market for supplemental individual accident and health products.

“A.M. Best believes the core group members are well-positioned at their current rating levels and positive rating movement is unlikely in the near term. Factors that could lead to negative rating actions include operating performance falling short of A.M. Best’s expectations and/or an erosion of surplus that causes a decline in risk-adjusted capital to a level no longer supporting the current ratings.

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