Ratings Recap: ACE Europe, Unipol

March 23, 2009

A.M. Best Co. has affirmed the financial strength rating of ‘A+’ (Superior) and issuer credit rating (ICR) of “aa-” of the UK-based ACE European Group Limited (AEGL) with stable outlooks. Best said that it expects “AEGL to maintain strong risk-adjusted capitalisation despite the impact of a significant anticipated investment loss at year-end 2008, after taking into account net unrealised losses.” Best also anticipates continued support from AEGL’s parent company, ACE Limited (See above), which maintains superior risk-adjusted capitalisation. Additionally, AEGL continues to benefit from reinsurance support from ACE group companies. Best also indicated that it “believes that rate deterioration in 2008 is likely to lead to an increase in AEGL’s combined ratio from 96 percent in 2007. The company is expected to benefit from some improvement in rating conditions in 2009, particularly for its catastrophe exposed lines of business. AEGL occupies a strong position in the UK and European insurance markets and continues to develop its profile for emerging market business. The company’s underwriting is well diversified geographically and by account type, with business written through three well established brands (ACE Europe, ACE Global Markets and ACE Tempest Re Europe).”

Standard & Poor’s Ratings Services has revised its outlook on Italian insurer Unipol Gruppo Finanziario SpA and its core entity, UGF Assicurazioni SpA, to stable from positive. IS&P also affirmed the ‘BBB’ counterparty credit rating on the two companies. “The outlook revision follows full-year 2008 results that were worse than expected and reflects our anticipation that results will be constrained over the medium term,” explained credit analyst Paola Del Curatolo.” S&P said that “as a result, we do not now expect UGF’s financial profile to support an upgrade of the insurer financial strength rating to ‘A’ over the coming two years.” Del Curatolo added: “The ratings on UGF group continue to reflect the group’s strong competitive position, strong capitalization, strong financial flexibility, and strong, albeit pressured, earnings.” S&P said the stable outlook “reflects our expectation that UGF group will maintain its strong competitive position in the Italian market and its strong operating performance. However, we expect pressure on earnings due to competitive pressure on motor rates in Italy and to the continuing financial market turmoil. We could revise the outlook to negative if we witnessed a further deterioration of earnings or capital, or if the bank is not successful in reversing its recent operating performance. A positive rating action in the short term is unlikely, given our expectations of deteriorating market conditions.”

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