|[August 29, 2014]
Fitch Affirms ACE Limited's Ratings; Outlook Stable
CHICAGO --(Business Wire)--
Fitch Ratings has affirmed the ratings of ACE Limited and its
subsidiaries (ACE). The Rating Outlook is Stable. A complete list of
ratings follows at the end of this release.
KEY RATING DRIVERS
The ratings affirmation reflects ACE's continued strong operating
performance despite competitive market conditions, strong balance sheet
position and financial flexibility with moderate leverage, and diverse
sources of revenues and earnings with the advantages of global scale and
a strong management team.
ACE's operating performance consistently exceeds peers, characterized by
low combined ratios with manageable catastrophe losses, consistent
favorable loss reserve development and stable investment income. The
company has reported a combined ratio under 100% for 10+ consecutive
years. For the five-year period 2009-2013, the average consolidated GAAP
combined ratio was 91% and the operating return on equity was 12.5%.
ACE reported year-to-date 2014 after-tax operating income of $1.6
billion, up over 4% versus the same period last year from continued
underwriting income and premium growth, and margin expansion. This
result corresponds with an operating return on equity of 11.5%.
The underwriting combined ratio through the first six months of 2014 was
88.2% versus 88.1% for the same period in 2013, benefiting from
favorable pricing and underwriting results both in North America and
internationally. Expense ratios have trended slightly higher due in part
to increasing acquisitions costs in certain lines.
Shareholders' equity has more than doubled in the past five and a half
years to $30.3 billion at June 30, 2014. Until recently, ACE differed
from peers by not repurchasing a material amount of shares. The company
announced plans to target $1.5 billion in share repurchases in 2014 and
has repurchased a total of $626 million of shares since November 2013.
The company's financial leverage ratio was 17.7% at June 30, 2014, FAS
115 adjusted, which is consistent with Fitch's median sector credit
factors for the current rating category. Leverage includes an additional
$1.15 billion of pre-funded debt that will repay debt maturing in 2015.
Excluding this debt, financial leverage would decline to approximately
Operating interest coverage (excluding realized investment gains)
remains favorable at approximately 15x in both 2013 and through the
first half on 2014. ACE has ample resources available for debt servicing
needs with roughly $2.7 billion of cash and short-term investments at
June 30, 2014. Significant additional flexibility is provided by
insurance subsidiaries that can pay nearly another $3.8 billion of
dividends to the holding company without prior regulatory approval in
Key rating triggers that may lead to an upgrade include:
--Generating a combined ratio consistently under 85%;
--Maintained growth in stockholders' equity that corresponds with
premium and asset growth;
--A reduction in financial leverage to a run-rate level of 15% or lower;
--Operating earnings-based interest and preferred dividend coverage at
or above 15x;
--Movement in ACE's retention ratio (net premium written to gross
premium written to increase over time to be more in line with
--Continuing a track record of successful acquisition execution.
Key rating triggers that may lead to a downgrade include:
--A sustained material deterioration in operating performance such that
the combined ratio is consistently less profitable at over 95%;
--A significant reduction in stockholders' equity that is not recovered
in the near term;
--Increases in financial leverage to a sustained level of over 25%.
Any future acquisitions and the associated integration risks and company
profile changes could lead to pressure on the ratings, upward or
downward, depending on the nature and size of the acquisition and
corresponding integration risks.
Future rating action may also be constrained by sovereign rating
considerations. A Fitch downgrade of Bermuda's long-term foreign
currency IDR to more than four notches below ACE's IFS rating, may
promote consideration of a downgrade in ACE's ratings.
Fitch notes that ACE's debt ratings currently benefit from narrower
notching relative to the insurance company financial strength ratings as
a result of Bermuda's moderate regulatory environment. This narrower
notching may be revised in the future as Fitch evaluates the impact of
Solvency II and other possible regulatory changes on Bermuda's insurance
Fitch has affirmed the following ratings with a Stable Outlook:
--Issuer Default Rating (IDR) 'AA-'.
ACE INA Holdings Inc.
--$450 million senior notes due 2015 'A+';
--$700 million senior notes due 2015 'A+';
--$500 million senior notes due 2017 'A+';
--$300 million senior notes due 2018 'A+';
--$500 million senior notes due 2019 'A+';
--$475 million senior notes due 2023 'A+';
--$700 million senior notes due 2024 'A+';
--$100 million senior debentures due 2029 'A+';
--$300 million senior notes due 2036 'A+';
--$475 million senior notes due 2043 'A+'.
ACE Capital Trust II
--$300 million capital securities due 2030 'A-'.
ACE American Insurance Company
ACE Bermuda Insurance Limited
ACE Fire Underwriters Ins. Company
ACE INA Overseas Insurance Company Ltd.
ACE Insurance Company of the Midwest
ACE Property and Casualty Insurance Company
ACE Tempest (News - Alert) Reinsurance Limited
Agri General Insurance Company
Atlantic Employers Insurance Company
Bankers Standard Fire & Marine Company
Bankers Standard Insurance Company
Illinois Union Insurance Company
Indemnity Insurance Company of North America
Insurance Company of North America
Pacific Employers Insurance Company
Westchester Fire Insurance Company
Westchester Surplus Lines Insurance Company
ACE Reinsurance (Switzerland) Limited
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Nov. 13, 2013);
--'Fitch: Bermuda Sovereign Downgrade Does Not Impact Insurers' Ratings'
(June 2, 2014);
--'Fitch Downgrades Bermuda's Ratings to 'A+'; Outlook Stable' (May 30,
--'Fitch: Insurer Ratings Not Strongly Linked to Bermuda Sovereign'
(June 24, 2013).
Applicable Criteria and Related Research:
Insurance Rating Methodology
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