LONDON--(BUSINESS WIRE)--A.M. Best has upgraded the financial strength rating (FSR) to A++ (Superior) from A+ (Superior) and the issuer credit rating (ICR) to “aa+” from “aa” of ACE European Group Limited (AEGL) (United Kingdom). The outlook for both ratings has been revised to stable from positive.
The ratings reflect AEGL’s excellent stand-alone risk-adjusted capitalisation, consistently strong operating performance and excellent business profile. The ratings also reflect the support provided to AEGL by its parent company, ACE Limited (ACE) (Switzerland) [NYSE: ACE], and AEGL’s importance within the ACE group.
The positive rating actions are driven by ACE group management’s consistent focus on underwriting profitability, through effective risk selection, and on maintenance of pricing standards, appropriate policy limits and exposure to catastrophes, including the use of reinsurance to manage net retentions. AEGL benefits from this focus, and has made a significant contribution to the group by consistently 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.
Embedded throughout the ACE group is a strong enterprise risk management (ERM) programme, which relies on close collaboration of executives and operating departments to identify, assess and control enterprise risk and accumulations. The effectiveness of the ERM programme is demonstrated by risk-adjusted capital levels and overall earnings that have remained strong through soft market conditions, the global financial crisis and global catastrophe and weather-related events.
AEGL continues to maintain excellent stand-alone risk-adjusted capitalisation, in spite of a small decrease in shareholders’ funds at year-end 2013, when unrealised losses on investments and adverse exchange movements reduced the post-tax operating profit below the amount of the interim dividend paid in the year. Nevertheless, the excellent level of risk-adjusted capitalisation reflects AEGL’s generally strong operating performances in recent years. In 2013, AEGL reported a profit before tax, but after transfer to equalisation reserve, of GBP 57.3 million (2012: GBP 184.2 million). Net catastrophe losses were just GBP 3.8 million (2012: GBP 8.9 million) and the underwriting result was supported by a substantial prior-year reserve release. In spite of generally difficult market conditions, AEGL achieved a 7% increase in its gross written premiums to nearly GBP 2.4 billion. With market conditions remaining challenging, AEGL is expected to achieve a lower technical result in 2014 than in 2013, although the final result is likely to be supported by favourable prior-year reserve development.
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 four well-established divisions: ACE Europe, ACE Global Markets, ACE Tempest Re International and Combined Insurance.
A positive rating action on AEGL could arise following further positive action on the ACE group’s ratings, although this is considered unlikely in the near term. Weaker than expected operating performance or a material reduction in AEGL’s contribution to the group could exert negative pressure on its ratings.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.
This rating announcement has been issued by A.M. Best Europe – Rating Services Limited, which is a subsidiary of A.M. Best Company. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
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