KEY RATING DRIVERS
The ratings affirmation reflects ACE's continued strong operating performance despite competitive market conditions, strong balance sheet position and financial flexibility with moderate leverage, and diverse sources of revenues and earnings with the advantages of global scale and a strong management team.
ACE's operating performance consistently exceeds peers, characterized by low combined ratios with manageable catastrophe losses, consistent favorable loss reserve development and stable investment income. The company has reported a combined ratio under 100% for 10+ consecutive years. For the five-year period 2009-2013, the average consolidated GAAP combined ratio was 91% and the operating return on equity was 12.5%.
ACE reported year-to-date 2014 after-tax operating income of
The underwriting combined ratio through the first six months of 2014 was 88.2% versus 88.1% for the same period in 2013, benefiting from favorable pricing and underwriting results both in
Shareholders' equity has more than doubled in the past five and a half years to
The company's financial leverage ratio was 17.7% at
Operating interest coverage (excluding realized investment gains) remains favorable at approximately 15x in both 2013 and through the first half on 2014. ACE has ample resources available for debt servicing needs with roughly
Key rating triggers that may lead to an upgrade include:
--Generating a combined ratio consistently under 85%;
--Maintained growth in stockholders' equity that corresponds with premium and asset growth;
--A reduction in financial leverage to a run-rate level of 15% or lower;
--Operating earnings-based interest and preferred dividend coverage at or above 15x;
--Movement in ACE's retention ratio (net premium written to gross premium written) to increase over time to be more in line with highly-rated peers;
--Continuing a track record of successful acquisition execution.
Key rating triggers that may lead to a downgrade include:
--A sustained material deterioration in operating performance such that the combined ratio is consistently less profitable at over 95%;
--A significant reduction in stockholders' equity that is not recovered in the near term;
--Increases in financial leverage to a sustained level of over 25%.
Any future acquisitions and the associated integration risks and company profile changes could lead to pressure on the ratings, upward or downward, depending on the nature and size of the acquisition and corresponding integration risks.
Future rating action may also be constrained by sovereign rating considerations. A Fitch downgrade of
Fitch notes that ACE's debt ratings currently benefit from narrower notching relative to the insurance company financial strength ratings as a result of
Fitch has affirmed the following ratings with a Stable Outlook:
--Issuer Default Rating (IDR) 'AA-'.
ACE Capital Trust II
ACE Fire Underwriters Ins. Company
Indemnity Insurance Company of
Insurance Company of
Additional information is available at 'www.fitchratings.com'.
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Insurance Rating Methodology
Tel: +1 212-908-0549
James B. Auden, CFA
Source: Fitch Ratings
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