Following its ratings report for the ACE Ltd. Group, A.M. Best Europe – Rating Services Limited has revised the outlook to positive from stable and affirmed the financial strength rating of ‘A+’ (Superior) and the issuer credit rating of “aa” of the UK-based ACE European Group Limited (AEGL).
Best said the ratings reflect AEGL’s “excellent stand-alone risk-adjusted capitalization, strong operating performance and excellent business profile. The ratings also reflect the implicit support provided to AEGL by its parent company, ACE Limited (ACE),” which is based in Zurich.
Best’s report also noted “AEGL’s importance within the ACE group,” indicating that the company “benefits from a diversified global operation and a consistently favorable record of generating strong earnings and cash flows. AEGL continues to be of strategic significance to ACE as its main underwriting operation in the United Kingdom and continental Europe. In addition, AEGL receives significant reinsurance support from ACE group affiliates.”
The report said the “positive outlook for the ratings reflects ACE group management’s consistent focus on underwriting profitability generated by effective risk selection and pricing standards and on maintenance of appropriate policy limits and exposure to catastrophes, including the use of reinsurance to manage net retentions.
“A strong enterprise risk management (ERM) program, embedded throughout the ACE group, relies on close collaboration of executives and operating departments to identify, assess and control enterprise risk and accumulations. The effectiveness of the ERM program is demonstrated by risk-adjusted capital levels and overall earnings that have remained strong through soft market conditions, the global financial crisis and the increase in global catastrophe and weather-related events.”
Best also said: “AEGL is expected to maintain excellent stand-alone risk-adjusted capitalization in 2013, supported by retained earnings and by capital contributions received during 2012 in consideration of the transfer to AEGL from elsewhere in the ACE group of the business of Combined Insurance Company of Europe and of the German and UK branches of Combined Insurance Company of America. Shareholders’ funds increased in both 2011 and 2012, in spite of dividend payments of £80 million [$125.75 million] and £140 million [$220 million], respectively, in these years.”
In addition Best explained that “although market conditions were generally difficult throughout 2012, AEGL reported a 3 percent increase in its gross written premiums to over £2.2 billion [$3.458 billion]. Higher premium income from ACE Europe’s retail, accident and health and specialty personal lines businesses and from reinsurance lines offset lower premiums in the London market business.
“AEGL’s travel, accident and health and specialty personal lines divisions achieved growth through new products and increased market penetration. A strong operating performance resulted in a profit before tax of £184 million [$289.2 million] (2011: £199 million [$312.78 million]), in spite of losses from the year’s natural catastrophes, including Hurricane Isaac, Superstorm Sandy and other weather events. With market conditions remaining challenging, AEGL is expected to achieve a weaker technical result in 2013 than in 2012, although the final result is likely to be supported by favorable prior year reserve development, albeit at a lower level than previously.”
The report also described AEGL’s business profile in its core UK and continental European markets as “excellent, as an underwriter of a well-diversified portfolio of property/casualty, accident and health and specialty personal lines insurance. Business is underwritten through four well-established brands: ACE Europe, ACE Global Markets, ACE Tempest Re International and Combined Insurance.
“A positive rating action could arise following positive action in respect of the ratings of other ACE group affiliates, whilst weaker than expected operating performance or a material reduction in AEGL’s contribution to the group could exert negative pressure on its ratings.”
Source: A.M Best Europe
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