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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 markets.
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
ACE reported net income of
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
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,
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
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:
--Issuer Default Rating (IDR) at 'A+'.
--IDR at 'A+';
ACE Capital Trust II
ACE Fire Underwriters Ins. Company
ACE Insurance Company of the Midwest
ACE Property and Casualty Insurance Company
ACE Tempest Reinsurance Limited
Atlantic Employers Insurance Company
Bankers Standard Fire &
Combined Life Insurance Company of
Illinois Union Insurance Company
Indemnity Insurance Company of
Pacific Employers Insurance Company
Westchester Surplus Lines Insurance Company
--IFS at 'AA-'.
--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.
--'Insurance Rating Methodology' (
Insurance Rating Methodology
James B. Auden, CFA, +1-312-368-3146
Source: Fitch Ratings
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