Best Affirms ACENZ ‘A’ Rating

November 14, 2005

A.M. Best Co. announced that it has affirmed the financial strength rating of “A” (Excellent) of ACE Insurance Limited (ACENZ), ACE Limited’s New Zealand subsidiary, with a stable outlook.

“The rating reflects ACENZ’s operating profitability, good underwriting performance and moderate risk-adjusted capitalization,” said Best. The rating agency also indicated that it “believes that ACENZ’s underwriting discipline and relatively conservative investment strategy will contribute to the company’s financial stability. The rating also considers the comprehensive reinsurance support from the ACE group and its related entities.

“ACE’s New Zealand operation generated net income after tax of NZD 22.2 million (USD 15.9 million) in 2004, an increase of 32 percent. This was due primarily to an exceptionally low claims year. As a result, the loss ratio was 8.1 percent in 2004, compared to 34.3 percent in 2003. Despite the strong operating result, ACENZ’s risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio, improved moderately in 2004. This was due predominantly to a dividend payout of 102.1 percent during the year.

“ACENZ had a liquid and relatively conservative investment portfolio in 2004, with 10 percent of assets invested in cash and 55 percent invested in government or other fixed interest securities. Investment yield for the year was 5.4 percent, slightly lower than the five-year average yield of 6.5 percent.”

Best also noted that “partially offsetting these positive factors is ACENZ’s exposure to catastrophic perils, softening premium rates and intense market competition. The New Zealand general insurance industry is highly concentrated, with the top five insurers generating over 80 percent of total market premiums. Existing capacity in the market has led to softening premium rates. ACENZ will face increasing challenges in maintaining its recent strong performance.

“As with other general insurers in New Zealand, ACENZ is exposed to catastrophic perils such as flooding. However, the company is reasonably well protected by its reinsurance programs.”

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