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TMCNet:  Fitch Affirms ACE Limited's Ratings; Outlook Stable

[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 15%.

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 2014.

RATING SENSITIVITIES

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 highly-rated peers;

--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 regime.

Fitch has affirmed the following ratings with a Stable Outlook:

ACE Limited

--Issuer Default Rating (IDR) 'AA-'.

ACE INA Holdings Inc.

--IDR 'AA-';

--$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

--IFS 'AA'.

ACE Reinsurance (Switzerland) Limited

--IFS 'AA-'.

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, 2014);

--'Fitch: Insurer Ratings Not Strongly Linked to Bermuda Sovereign' (June 24, 2013).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=861254

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.


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