Rating Agencies Positive on ACE, Aon, Munich Re Deal for Combined, Sterling

December 18, 2007

The rating agencies have generally been positive about ACE’s acquisition of Aon’s Combined Life Insurance Company and Munich Re’s purchase of Sterling Life. The specific reactions were as follows:

A.M. Best Co. revised the implications of Aon’s life/health subsidiaries, “under review status” to positive from negative on their ‘A’ (Excellent) financial strength rating and “a” (Excellent) issuer credit ratings (ICR). The change affected Combined Insurance Company of America and Combined Life Insurance Company of New York, as well as Sterling Life, which Best rates with an FSR of ‘A-‘ (Excellent) and an ICR of “a-“.

Best also commented on ACE INA Holdings Inc., indicating that it had recently affirmed ACE Limited’s financial strength (FSR), issuer credit (ICR) and debt ratings, and that the “ratings are unchanged by the proposed transaction.”

Standard & Poor’s Ratings Services placed its ‘A-‘ counterparty credit and financial strength ratings on Combined Insurance Co. of America and Combined Life Insurance Co. of N.Y. on CreditWatch with positive implications. S&P also indicated that “upon closure of this merger, which requires regulatory approval, we expect to raise the counterparty credit and financial strength ratings one notch, reflecting the strategic importance of these affiliates to ACE (ACE; A-/Stable/A-2). ACE’s operating companies currently have a financial strength rating of A+/Stable/A-1. In the unlikely event that the merger was not to be completed, the ratings and outlook on Combined would be reassessed, although it is likely that the ratings would remain at the current level.”

In a separate bulletin S&P indicated that it would “take no rating action” in response to Aon Corp.’s announcement of the deal to sell Combined and Sterling Life Insurance Co. S&P also noted that “Aon recorded strong performance in its remaining Risk and Insurance Brokerage and Consulting segments through the first nine months of 2007, with pretax operating performance improving to $885 million, compared with $716 million in the prior-year period. The $169 million improvement nearly offsets $189 million contributed by the discontinued Insurance Underwriting segment for the nine months ended Sept. 30, 2007.”

Fitch Ratings likewise placed the ratings of Combined Insurance Company of America (CICA) and its New York subsidiary Combined Life Insurance Company of New York (CLIC) on Rating Watch Positive following the announcement.

Sources: A.M. Best, S&P, Fitch – www.ambest.com; www.standardandpoors.com; www.fitchratings.com

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