Ratings Roundup: TokioMarine/Nichido, Zurich Australia, ACE

December 18, 2007

Standard & Poor’s Ratings Services has indicated that there will be “no impact on its ratings on Tokio Marine & Nichido Fire Insurance Co. Ltd. (AA/Stable/A-1+) following the company’s announcement that it had reached a basic agreement to acquire U.K. insurer Kiln Ltd. for about ¥106 billion (£442 million).” S&P also noted that Tokio/Nichido is the core subsidiary of Millea Holdings. The Group has been “pursuing an expansion strategy in emerging markets, as well as in the U.S. and Europe,” as the prospects for growth in the Japanese P/C market are limited. “The planned purchase of Kiln is in line with this strategy, and the potential impact of the expansion of its overseas insurance operations through acquisitions has already been incorporated into the current ratings.”

Standard & Poor’s Ratings Services has raised its ratings on life insurer Zurich Australia Ltd. (ZAL) and general insurer Zurich Australian Insurance Ltd. (ZAIL) to ‘A+’ from ‘A’, reflecting the successful strategic and operational restructure of Zurich Insurance Co.’s (ZIC; AA-Stable) Australian operations over recent years. The outlook on both companies is stable. “The Zurich Australian companies have divested non-core businesses, and ZAL has effectively been separated from the general insurance business ZAIL without any loss of previous synergies,” explained S&P credit analyst Thomas Cherian. “The change in legal structure has benefited the companies in terms of capital allocation, accounting, reporting, and other regulatory and compliance requirements. In addition, the management team is stable with substantial and in-depth experience.”

Standard & Poor’s Ratings Services said today that it has affirmed its ‘A+’ counterparty credit and financial strength ratings on ACE Ltd.’s active operating insurance companies. S&P also affirmed its ‘A-‘ counterparty credit rating on ACE. The outlook on all these companies is stable. S&P took the action following ACE’s announcement that it has concluded a deal with Aon to acquire Combined Insurance Co. of America for $2.4 billion. The deal is expected to close in second quarter 2008. S&P credit analyst Damien Magarelli noted that it “will be funded through ACE’s existing asset balance in the amount of $1.65 billion and an issuance of unsecured senior notes of $750 million.” ACE’s capital adequacy ratio (CAR) is strong and consistent with the rating. Debt leverage figures will increase accordingly to 15 percent in 2008 from 12 percent in third-quarter 2007 and are still considered a strength to the rating and support nonstandard holding company notching.” S&P added that “Combined’s purchase is expected to provide ACE access to customers in the U.S. that were not previously part of its existing client base, while internationally expanding ACE’s existing personal accident platform. The result is a modest improvement in ACE’s distribution capabilities and market presence within personal accident and the ability to target and capture new clients.”

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