Fitch Expects to Rate ACE INA Holdings $700MM Sr. Debt Issue 'A+'

CHICAGO--()--Fitch Ratings expects to assign an 'A+' rating to the $700 million senior unsecured 10-year note issuance planned by ACE INA Holdings Inc., a subsidiary of ACE Limited (ACE). The new notes will be fully and unconditionally guaranteed by ACE and are therefore based on ACE's 'AA-' Issuer Default Rating (IDR). Fitch expects that the net proceeds from this new senior debt issuance will refinance $700 million of existing debt maturing in 2015.

On Dec. 10, 2013, Fitch affirmed all of ACE's ratings as well as the ratings for its subsidiaries. The Rating Outlook is Stable. A complete list of ratings follows at the end of this release.

KEY RATING DRIVERS

The anticipated rating action reflects ACE's continued strong operating performance despite competitive market conditions, strong balance sheet position and financial flexibility with moderate leverage, and diverse sources of revenues and earnings. ACE's operating performance is consistently strong, characterized by low combined ratios with manageable catastrophe losses and consistent favorable loss reserve development and stable investment income. The company has reported a combined ratio under 100% for 10+ consecutive years.

Fitch views the debt issuance favorably since the debt will likely be issued at a similar interest rate versus the existing debt, and the maturity will be extended, eliminating near-term refinancing risk.

Following the completion of ACE's financing plans, the company's pro forma March 31, 2014 financial leverage ratio (total debt to capital excluding FAS 115 unrealized gains and losses) will temporarily increase to roughly 19% from 17.5%. Fitch notes that in 2013, ACE prefunded $950 million of senior debt due in 2014 and 2015, of which $500 million matures in June 2014. Following the repayment of this debt next month, pro forma financial leverage will decrease to roughly 18%. Fitch views this as a reasonable amount of leverage for a company with ACE's cash flow and earnings profile. Operating earnings-based interest coverage has been strong at 14.6x in 2013 and 12.6x in both 2012 and 2011, years with large weather-related losses. Fitch's expectation is that interest coverage will continue to be favorable in the near term.

RATING SENSITIVITIES

Key rating triggers that may lead to an upgrade include very strong operating performance with a combined ratio consistently under 85%, material stockholders' equity growth, and maintaining a track record of successful acquisition execution while managing financial leverage to under 20% and run-rate leverage at or under 15%. Fitch expects operating earnings-based interest and preferred dividend coverage to remain at or above 15x, and for ACE's retention ratio (net premium written to gross premium written) to increase over time to be more in line with highly-rated peers. Future rating upgrades may also be constrained by sovereign rating considerations.

Key rating triggers that may lead to a downgrade include a sustained material deterioration in operating performance such that the combined ratio is consistently less profitable at over 95%, a significant 15% - 20% reduction in stockholders' equity that is not recovered in the near term, and financial leverage consistently over 25%. Potential for future acquisitions and the associated integration risks and company profile changes could lead to pressure on the ratings, upward or downward, depending on the nature and size of the acquisition and corresponding integration risks.

Additionally, a Fitch downgrade of Bermuda's long-term foreign currency IDR to more than four notches below ACE's IFS rating, may promote consideration of a downgrade in ACE's ratings. Fitch notes that ACE's debt ratings currently benefit from narrower notching relative to the insurance company financial strength ratings as a result of Bermuda's moderate regulatory environment. This narrower notching may be revised in the future as Fitch evaluates the impact of Solvency II and other possible regulatory changes on Bermuda's insurance regime.

Fitch expects to assign the following ratings:

ACE INA Holdings Inc.

--$700 million senior notes due 2024 'A+'.

Fitch currently rates the ACE Limited companies as follows:

ACE Limited

--Issuer Default Rating (IDR) 'AA-'.

ACE INA Holdings Inc.

--IDR 'AA-';

--$500 million senior notes due 2014 'A+';

--$450 million senior notes due 2015 'A+';

--$700 million senior notes due 2015 'A+';

--$500 million senior notes due 2017 'A+';

--$300 million senior notes due 2018 'A+';

--$500 million senior notes due 2019 'A+';

--$475 million senior notes due 2023 'A+';

--$100 million senior debentures due 2029 'A+';

--$300 million senior notes due 2036 'A+';

--$475 million senior notes due 2043 'A+'.

ACE Capital Trust II

--$300 million capital securities due 2030 'A-'.

ACE American Insurance Company

ACE Bermuda Insurance Limited

ACE Fire Underwriters Ins. Company

ACE INA Overseas Insurance Company Ltd.

ACE Insurance Company of the Midwest

ACE Property and Casualty Insurance Company

ACE Tempest Reinsurance Limited

Agri General Insurance Company

Atlantic Employers Insurance Company

Bankers Standard Fire & Marine Company

Bankers Standard Insurance Company

Illinois Union Insurance Company

Indemnity Insurance Company of North America

Insurance Company of North America

Pacific Employers Insurance Company

Westchester Fire Insurance Company

Westchester Surplus Lines Insurance Company

--IFS 'AA'.

ACE Reinsurance (Switzerland) Limited

--IFS 'AA-'.

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Nov. 13, 2013);

--'Fitch: Insurer Ratings Not Strongly Linked to Bermuda Sovereign' (June 24, 2013);

--'Fitch Downgrades Bermuda's IDR to 'AA-'; Outlook Negative' (June 7, 2013).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=831134

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Contacts

Fitch Ratings
Primary Analyst
Gretchen Roetzer
Director
+1-312-606-2327
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
James B. Auden, CFA
Managing Director
+1-312-368-3146
or
Committee Chairperson
Keith M. Buckley, CFA
Managing Director
+1-312-368-3211
or
Media Relations
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Gretchen Roetzer
Director
+1-312-606-2327
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
James B. Auden, CFA
Managing Director
+1-312-368-3146
or
Committee Chairperson
Keith M. Buckley, CFA
Managing Director
+1-312-368-3211
or
Media Relations
Brian Bertsch, New York, +1 212-908-0549
brian.bertsch@fitchratings.com