Global Credit Ratings has accorded the above credit rating(s) on ACE Insurance Limited (“ACE SA”) based on the following key criteria:
ACE SA’s rating derives significant upliftment from the support framework in place at Group level. In this regard, implied financial support is provided by ACE INA Holdings Inc. (“AIH”; rated AA-), by way of a letter of comfort (to meet obligations should ACE SA be unable to do so), while the demonstrated capital support by ACE INA International Holdings Limited (“AIIH”) is positively viewed. The strategic benefit of ACE SA to the broader ACE Group is evidenced by the insurer’s strong gross profitability.
The level of reinsurance support provides ACE SA with significant capacity relative to the size of its balance sheet, while also displaying a strong level of integration of the insurer into the Group’s international structure. While the majority of cessions are placed within the group (increasing counterparty concentration risk), note is taken of the reinsurer’s strong credit rating and the letter of credit to meet reinsurance obligations. Capital support is further enhanced by the insurer’s conservative investment policy, which mitigates capital risk in the event of market volatility, while also translating into comfortable liquidity metrics.
ACE SA’s stand-alone credit profile is dependent on the successful execution of its medium term growth strategy, coupled with the maintenance of the strong underwriting disciplines that have supported the healthy gross underwriting profit track-record. Note is further taken of the expanded earned premium base that is expected to be sustained going forward, providing a degree of critical mass in the key property line. In this regard, ACE SA has made good progress in increasing diversification within its property book. Note is taken, however, of the need to manage the inherent risk posed by the persistent soft property rates evidenced at an industry level, given the portfolio’s high net premium base weighting. Medium term strategic growth is expected to emanate from specialty classes such as energy, casualty and financial lines, which may allow for enhanced diversification benefits going forward.
Upward movement of the rating or outlook could develop should ACE SA’s strategic status within the Group strengthen. Furthermore, a material development of the insurer’s market share, that strengthens competitive positioning while providing diversification benefits, may impact positively on the stand-alone credit profile. A downgrade may arise if the letter of credit provided is withdrawn or amended, or if the strategic importance of the insurer to the Group were to weaken. Furthermore, a significant and sustained reduction in capitalisation and/or deterioration in ACE SA’s business position could exert negative ratings pressure.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Aug/2006)|
|Claims paying ability: A+(ZA)|
|Last rating (June/2012)|
|Claims paying ability: A+(ZA)|
|Regional Sector Head: Insurance|
|+27 11 784 1771|
|Sector Head: Insurance|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
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SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
ACE Insurance Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to ACE Insurance Limited with no contestation of the rating.
The information received from ACE Insurance Limited and other reliable third parties to accord the credit rating included the 2012 audited annual financial statements (plus four years of comparative numbers), latest internal and/or external report to management, full year detailed budgeted financial statements, unaudited year to date accounts to 30 June 2013, an overview of the current year reinsurance programme, ERM processes/framework, reserving methodologies, and capital management documentation.