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Fitch Ratings has affirmed the ratings of ACE Limited and its
subsidiaries (collectively, ACE). The Rating Outlook is revised to
Positive from Stable. A complete list of ratings follows at the end of
Fitch's rating actions reflect ACE's continued strong operating
performance, solid 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
Fitch views ACE's operating performance as 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 2011 combined ratio was 94.6%, despite
experiencing $899 million of pre-tax catastrophe losses including
reinstatements (6.6% of earned premium) versus $401 million (3.4%) in
ACE reported net income of $1.6 billion and operating income of $2.4
billion for the year ended Dec. 31, 2011, down from $3.1 billion and
$2.7 billion, respectively, in 2010. The reduction in net income was
largely due to 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 47% since
year-end 2007 to $24.5 billion at Dec. 31, 2011. 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.
ACE maintains a relatively conservative investment portfolio allocation
and has the ability to withstand potential near-term volatility and
investment losses without a material impact on the company's
capitalization. The portfolio primarily consists of investment grade
fixed income securities.
Fitch's rating on ACE's indirect subsidiary, Century Indemnity Co.
(Century), reflects Fitch's view that the company's importance to ACE is
limited due to Century's run-off status and thin capitalization. The
company maintains inactive operations largely consisting of asbestos and
environmental (A&E) reserves that are in run-off. Fitch views Century's
potential A&E exposure as an increasingly smaller component of ACE's
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. Fitch also expects ACE's retention
ratio (net premium written to gross premium written) to increase over
time to be more in line with higher-rated peers.
Fitch notes that an upgrade may be more applicable to ACE's insurer
financial strength ratings (IFS) rather than the senior debt ratings as
Fitch evaluates the impact of Solvency II and possible regulatory
changes on Bermuda's insurance regime. ACE's debt ratings currently
benefit from narrow notching as a result of Bermuda's moderate
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
ACE Capital Trust II--$300 million capital securities due 2030 at
ACE American Insurance CompanyACE Bermuda Insurance LimitedACE
Fire Underwriters Ins. CompanyACE Insurance Company of the MidwestACE
Property and Casualty Insurance CompanyACE Tempest Reinsurance
LimitedAgri General Insurance CompanyAtlantic Employers
Insurance CompanyBankers Standard Fire & Marine CompanyBankers
Standard Insurance CompanyCombined Insurance Company of AmericaCombined
Life Insurance Company of New YorkIllinois Union Insurance CompanyIndemnity
Insurance Company of North AmericaInsurance Company of North
AmericaPacific Employers Insurance CompanyWestchester Fire
Insurance CompanyWestchester Surplus Lines Insurance Company--IFS
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:--'Insurance Rating
Methodology' (Sept. 22, 2011).
Applicable Criteria and Related Research:Insurance Rating
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Fitch RatingsPrimary Analyst:Gretchen Roetzer,
+1-312-606-2327DirectorFitch, Inc.70 W. Madison StreetChicago,
IL 60602orSecondary Analyst:James B. Auden, CFA,
Chairperson:Keith M. Buckley, CFA, +1-312-368-3211Managing
DirectororMedia Relations:Brian Bertsch,
Source: Fitch Ratings