ACE’s U.S. Subsidiaries Upgraded

A.M. Best Co. upgraded the financial strength ratings to “A+” (superior) from “A” (excellent) and assigned issuer credit ratings of “aa-” to ACE Westchester Specialty Group, headquartered in New York, and ACE American Pool of Pennsylvania.

The upgrades represent rating enhancements to the level of ACE Group based in the Cayman Islands from the stand-alone ratings of ACE American and ACE Westchester. The FSRs of “B-” (fair) and the ICRs of “bb-” of Brandywine Group of Pennsylvania remain under review with negative implications pending regulatory approval of the sale of three affiliated subsidiaries. Concurrently, Best upgraded the debt ratings to “a-” from “bbb+” of ACE Limited’s senior debt, returning to standard notching.

Best also affirmed the FSRs of “A+” (superior) and assigned ICRs of “aa-” to ACE Bermuda Insurance Ltd., ACE Tempest Life Reinsurance Limited and ACE Tempest Reinsurance Ltd.

Additionally, Best affirmed the FSRs of “A” (excellent) and assigned ICRs of “a” and “a+”, respectively, to ACE INA Insurance of Canada and ACE European Group Limited of the United Kingdom. All ratings (with the exception of Brandywine) have a stable outlook.

The rating affirmations of the Bermudian, Canadian and European subsidiaries and the rating lifts afforded to the U.S. subsidiaries to the level of ACE are based on ACE’s strong capitalization, excellent earnings generating capability, disciplined underwriting culture focused on profitability, global market profile and consistent management strategies.

Best views ACE Limited’s announcement of its decision to re-state its financials as providing considerable closure to the finite reinsurance cloud that has hung over the company in recent months. Best views the $1 million net effect of the GAAP re-statements as less than material; however, the need to re-state reveals a failure in measuring up to standards expected of a highly-rated company.

St. Paul Travelers Subs Under Review

A.M. Best Co. placed the financial strength ratings of “A+” (superior) and issuer credit ratings of “aa-” of GeoVera Ins. Co., USF&G Specialty Ins. Co., both domiciled in Hunt Valley, Md., under review with negative implications, as well as Pacific Select Property Ins. Co. of Fairfield, Calif.

These rating actions follow the announcement by The St. Paul Travelers Companies Inc. regarding the signing of a definitive agreement to sell its CATRisk business operation, which consists of the three above entities, to affiliates of private equity investors, Friedman Fleischer & Lowe LLC and Hellman & Friedman LLC.

The three companies’ current ratings of “A+” (superior) are a result of their affiliation with St. Paul Travelers Insurance Co. of St. Paul, Minn., and their inter-company reinsurance agreements. This affiliation will continue until the transaction is finalized. Upon completion of the transaction, anticipated to occur in the fourth quarter 2005, a newly formed group including these three companies will be assigned a rating separate from St. Paul Travelers Insurance Co. The negative implications indicate the ratings will likely be downgraded as the above companies will no longer be affiliated with St. Paul. Based upon a review of the proposed business plan, it is anticipated that the ratings will be downgraded two notches.

The newly formed group will focus on underwriting catastrophe exposed residential property risks, primarily in California, Florida and Texas. Also, the group will consist of a Bermuda domiciled holding company and reinsurance operating company, which will assume fifty-percent of the business produced from the three U.S.-based entities.

Zenith National Affirmed

Standard & Poor’s Ratings Services affirmed its “BB+” counterparty credit rating and “B+”‘ preferred stock rating on Zenith National Insurance Corp. S&P also affirmed its “BBB+” counterparty credit and financial strength ratings on Zenith’s rated operating companies Zenith Insurance Co. and ZNAT Insurance Co. At the same time, S&P revised its outlook on all the ratings to positive from stable.

The positive outlook is driven by two recent favorable developments and the company’s exceeding expectations for earnings and capitalization, according to S&P. The main development is the emerging benefits from California workers’ compensation reforms. The second development is the conversion of $80 million of debt into equity in the second quarter of 2005, driving debt-to-capital down from 26 percent at year-end 2004 to 14 percent as of June 30, 2005.

Zenith’s strengths include its very strong earnings, favorable conditions in its core markets, strong and improved capitalization, decreased financial leverage, strong competitive position in California workers’ comp, and record of outperforming the California workers’ comp industry throughout the cycle.

Partially offsetting weaknesses are the company’s geographic and line of business concentrations, and its exposure to property/catastrophe volatility from the smaller assumed reinsurance segment. S&P expects underwriting results to remain very strong with a combined ratio of about 85-86 percent for the remainder of 2005. Workers’ comp results should be very strong in Zenith’s largest markets-California and Florida.

Topics California USA Workers' Compensation Reinsurance