Best Upgrades Ratings of ACE European Group

October 17, 2006

A.M. Best Co. has upgraded the financial strength rating to “A+” (Superior) from “A” (Excellent) and the issuer credit rating (ICR) to “aa-” from “a+” on ACE European Group Limited (AEGL) (United Kingdom). The outlook for both ratings is stable.

The rating upgrades reflect Best’s expectation that AEGL will maintain strong stand-alone risk-adjusted capitalisation between 2006 and 2008. In addition, the upgrades reflect the importance of AEGL to the ACE Group (Cayman Islands). Best believes that financial support is likely to be available in the future from AEGL’s ultimate parent, ACE Limited (Cayman Islands) should the need arise — in 2004 there were two capital injections for a total of GBP 56.2 million.

Reinsurance support is also provided, with over 25 percent of gross written premiums in 2006 likely to be ceded to ACE affiliates. AEGL is ACE Limited’s principal underwriting operation in the European market with approximately GBP 2 billion (USD 3.74 billion) gross written premium anticipated in 2006, which represents over 22 percent of the group’s overall anticipated gross premiums.

Best believes that AEGL is likely to achieve a good profit before tax in 2006, although significantly less than the very strong earnings of GBP 242 million (USD 453 million) achieved in 2005, which exceeded A.M. Best’s expectations. In 2007, Best believes a solid combined ratio in the mid-90s is likely to be achieved. This anticipated decline in underwriting performance reflects softening market conditions in the company’s main classes.

In Best’s opinion, AEGL has a robust market profile in the United Kingdom and across continental Europe. The account is well diversified, with business written across three main divisions — ACE Europe, ACE Global Markets and ACE Tempest Re Europe — and continues to benefit from the transfer of business from Lloyd’s Syndicate 2488, managed by ACE Underwriting Agencies Limited. AEGL’s expansion into emerging markets is also enhanced by its common branding with Ace Limited.

Source: A.M. Best Co.

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