S&P Affirms ACE Ratings; Off CreditWatch

Standard & Poor’s Ratings Services announced that it has removed from CreditWatch and affirmed its “A+” counterparty credit and financial strength ratings on ACE Ltd.’s active operating insurance companies as well as its “BBB+” counterparty credit rating on ACE. The outlook, however, remains negative.

S&P also announced it has removed from CreditWatch its counterparty credit and financial strength ratings on Century Indemnity Co. and lowered them to “CCC+” from “B+” with a stable outlook.

“The ratings on ACE reflect its competitive position as a global and diversified property/casualty company as well as its strong financial flexibility and operating performance,” noted S&P credit analyst Damien Magarelli. S&P said that while it views ACE’s capitalization as strong, the “incorporation of Standard & Poor’s $700 million net after-tax reserve charge (related to the runoff operations of Brandywine), the capital adequacy ratio was less than previously expected. Standard & Poor’s reserve charge of $700 million includes ACE’s asbestos and environmental loss charge in the fourth quarter of 2004 of $302 million, for an incremental asbestos and environmental reserve charge of roughly $400 million.”

S&P indicated that to some extent the amount of reinsurance recoverables and the amount of runoff reserves and intangibles were additional considerations. As far as Century Indemnity is concerned, S&P noted that it is “the lead entity within the statutory legal entity of Brandywine Holdings. Brandywine Holdings also includes Century Reinsurance Co. and ACE American Reinsurance Co. The ratings on Century Indemnity reflect the deterioration in reserve adequacy and the company’s stand-alone characteristics.”

Concerning the negative outlook, S&P stated it “reflects ACE’s pricing strategy through more competitive rates, investigations by various attorneys general, and the company’s high amount of recoverables and intangibles. Furthermore, ACE’s combined ratio must be considered in light of a relatively modest level of accident-year reserve bookings.

“Standard & Poor’s views ACE’s pricing and accident-year reserving strategy as potentially leading to earnings below that of its peer group, which supports the negative outlook. Although these developments might not significantly affect reported operating results for roughly 12 months, they could result in the ratings on ACE eventually being lowered by a notch.

“Standard & Poor’s expects that ACE will improve capital adequacy in 2005. The expectation of capital adequacy includes modest non-asbestos and non-environmental reserve deficiencies and prospective premium growth expectations of less than 10 percent in 2005.”