ACE to Spin-off Financial Guaranty Business; Raters React

December 3, 2003

Bermuda’s ACE Limited announced plans to spin-off several subsidiaries of its financial guaranty business, including ACE Guaranty Corp. and ACE Capital Re International Ltd., through an initial public share offering.

The new holding company; which will also be based in Bermuda “expects to file a registration statement with the U.S. Securities and Exchange Commission by year-end and complete the IPO in the first half of 2004, subject to market conditions and receipt of various regulatory approvals,” said the bulletin. ACE added that it expects to offer approximately 65 percent to 75 percent of its interest in the new company, and that the amount it will receive depends on market conditions and on other factors.

“While we are limited by regulatory requirements in what we can say at this time, the move to pursue an initial public offering is a result of both a strategic and capital allocation decision and not due to any change in our fundamental outlook for our operations,” stated Chairman and CEO Brian Duperreault. “We expect to retain the bulk of the proceeds to support incremental growth in our remaining operations and to further strengthen our already solid balance sheet.”

Fitch Ratings reacted to the news by affirming its ‘A-/F2’ ratings of ACE Ltd. The rating agency said it “generally views the transaction as positive for ACE’s debt ratings and the ratings of its U.S. property/casualty insurance subsidiaries, depending on the amount of proceeds from the IPO and the manner in which they are deployed.” Fitch sees the move as increasing ACE’s “tangible equity” and generating “cash which may be used to support the company’s insurance operations or reduce its financial leverage.”

Moody’s Investors Service reacted to the news by changing its rating outlooks on members of the ACE Guaranty and ACE Capital Re group of companies, to developing, from stable. Moody’s said it “currently maintains an Insurance Financial Strength Rating (IFSR) of Aa2 on ACE Guaranty Corp. and IFSRs of Aa3 on ACE Capital Re International Ltd., ACE Capital Re Overseas Ltd., ACE Capital Mortgage Reinsurance Company and ACE Capital Title Reinsurance Company (collectively, “ACE Capital Re Group”).”

The rating agency noted that ACE Guaranty and ACE Capital Re “would appear to comprise the core operations of the new company,” but indicated it was too “to conclude on the rating consequences for those ACE subsidiaries whose business would be contributed to the new company.” It added that it did not expect the transaction to “significantly alter the credit profile of ACE Limited and its other subsidiaries.”

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