S&P Affirms ACE Ltd. ‘BBB+’ Ratings

June 7, 2004

Standard & Poor’s Ratings Services joined its contemporaries in affirming its ‘BBB+’ counterparty credit and senior debt ratings on ACE Ltd. (ACE) following the announcement that its U.S. subsidiary, ACE INA Holdings Inc., plans to sell $500 million of 5.875 percent senior notes (guaranteed by ACE) due June 15, 2014, from a $1.5 billion shelf filed in May 2002 (See IJ Web site June 3-4). The outlook is stable.

“Following this offering, the shelf will have $425 million of capacity remaining,” said S&P. “The net proceeds of this sale will be used to repay $400 million of ACE INA Holdings Inc. notes (8.20 percent) that mature on Aug. 15, 2004, and to redeem $75 million of subsidiary trust preferred securities. The roughly $25 million of incremental debt will be used for general corporate purposes.”

S&P said its “ratings on ACE are based on a strong competitive position as a global and diversified property/casualty company, strong capitalization, and strong financial flexibility. In addition, operating performance dramatically improved in 2003 and is a significant strength to the rating. In contrast, negative factors that will constrain the ratings on ACE over the long term are a high amount of reinsurance recoverables, a significant amount of runoff reserves, and a large amount of intangibles.”

The rating agency noted that the company’s “financial leverage (including hybrids) to tangible equity measured 33 percent through first-quarter 2004 and 37 percent on a pro forma basis after the additional debt of $500 million; however, financial leverage is expected to decline once ACE repays the $475 million in obligations.”

S&P said its stable outlook anticipates that earnings in 2004 will be very strong with a combined ratio between 88 and 90 percent, but it doesn’t expect ACE’s combined ratio “to improve further as the company is shifting its business profile to casualty and away from property.” S&P noted, however that it “expects the additional financial flexibility due to the IPO funds of Assured Guaranty Ltd. to strengthen ACE’s position in some international markets” on a limited basis.

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