Ratings Recap: Electric, Clearwater, ACE INA (notes)

November 22, 2010

Standard & Poor’s Ratings Services has affirmed its ‘A’ counterparty credit and financial strength ratings and stable outlook on Electric Insurance Co. S&P also said it subsequently withdrew the ratings at the company’s request. “The ratings reflected Electric Insurance’s unique strategic importance to General Electric Co. (GE; AA+/Stable/A-1+) in that it serves both GE’s global commercial insurance needs and the personal insurance needs of GE’s employees,” S&P noted. “The ratings also reflected Electric Insurance’s stable commercial lines results and strong capital adequacy. Partially offsetting these positive factors are the company’s susceptibility to catastrophes and other weather-related losses, modest scale in personal lines compared with other personal lines carriers, and business concentration with GE (60 percent of its overall business is from GE’s commercial insurance).”

Standard & Poor’s Ratings Services has placed its ‘A-‘ counterparty credit and financial strength ratings on Clearwater Insurance Co. on CreditWatch with negative implications. Clearwater is a subsidiary of Odyssey America Reinsurance Corp. (A-/Stable/–), which is ultimately owned by Toronto-based Fairfax Financial Holdings Ltd. “We placed our ratings on Clearwater on CreditWatch with negative implications given that the company did not report any new premiums in the first nine months of 2010,” explained credit analyst Michael Gross. “The CreditWatch placement also reflects our questions about the insurer’s prospective strategic importance to Odyssey Re and Fairfax in the context of our group methodology rating criteria.” S&P noted that Clearwater “generated positive statutory net income of $4.1 million in 2009 and reported surplus of $696 million at year-end 2009. Statutory net income remained positive in the first nine months of 2010 at $5.9 million, and surplus increased to $739 million. We expect to resolve the CreditWatch status over the next 90 days. It is possible that we could lower the ratings to speculative grade.”

A.M. Best Co. has assigned a debt rating of “a-” to the $700 million 2.6 percent senior unsecured notes due 2015 of ACE INA Holdings, Inc. with a positive outlook. The rating agency also noted the senior notes are fully and unconditionally guaranteed by Zurich-based ACE Limited. “ACE’s debt-to-capital ratio, including trust preferreds, was a moderate 13.7 percent at September 30, 2010 and 16.1 percent adjusting for tangible capital,” best explained. Proceeds from the notes will be used to refinance existing and maturing indebtedness. “Consequently, financial leverage ratios are expected to remain relatively unchanged following the transaction,” which is well within Best’s guidelines for the rating level.”

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