Best Affirms Ratings of ACE European Group Limited

June 26, 2012

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of ‘A+’ (Superior) and the issuer credit rating of “aa” of UK-based ACE European Group Limited (AEGL), both with stable outlooks.

The ratings reflect AEGL’s excellent stand alone risk-adjusted capitalization, solid operating performance and excellent business profile,” said Best. The ratings also reflect the implicit support provided to AEGL by its parent company, Zurich-based ACE Limited and “AEGL’s importance within the ACE group, which 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.”

Best indicated that it expects AEGL “to maintain excellent stand-alone risk-adjusted capitalization in 2012, supported by solid retained earnings. In both 2010 and 2011, shareholders’ funds increased by over 6 percent in spite of dividends paid following the company’s strong operating performance in the previous year.”

However, Best also pointed out that “market conditions continue to be challenging, and AEGL is currently expecting to report a lower technical result in 2012 than the £56.2 million [$87.75 million] underwriting profit achieved in 2011, which benefitted from significant favorable prior year reserve development.

“In 2011, AEGL maintained its gross written premiums at the 2010 level of £2.2 billion [$3.436 billion] in spite of generally difficult market conditions. Reductions in the London market and European retail businesses were offset by growth in the UK retail, accident and health and reinsurance lines. AEGL’s travel, accident and health and specialty personal lines divisions achieved growth through new products and increased market penetration.

“A strong operating performance in 2011 resulted in a profit before tax of £199 million [$310 million] (2010: £195 million [$304.5 million]). Losses from the year’s natural catastrophes, including floods in Australia and Thailand, earthquakes in New Zealand and Japan and U.S. storms, were restricted by reinsurance to only £12.2 million [$19 million]. Assuming a more normal catastrophe experience in 2012, a solid operating performance is anticipated, supported by good investment earnings.”

In addition Best noted that AEGL “has an excellent business profile in its core UK and continental European markets, as an underwriter of a well-diversified portfolio of property/casualty, accident and health and specialty personal lines insurance. Business is underwritten through three well established brands: ACE Europe, ACE Global Markets and ACE Tempest Re International.”

Best said “positive rating actions 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

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