LONDON--(BUSINESS WIRE)--A.M. Best Europe – Rating Services Limited has revised the outlook to positive from stable and affirmed the financial strength rating of A+ (Superior) and the issuer credit rating of “aa” of ACE European Group Limited (AEGL) (United Kingdom).
The ratings reflect AEGL’s excellent stand-alone risk-adjusted capitalisation, strong operating performance and excellent business profile. The ratings also reflect the implicit support provided to AEGL by its parent company, ACE Limited (ACE) (Zurich) [NYSE: ACE], and AEGL’s importance within the ACE group, which benefits from a diversified global operation and a consistently favourable 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.
The positive outlook for the ratings reflects ACE group management’s consistent focus on underwriting profitability generated by effective risk selection and pricing standards and on maintenance of appropriate policy limits and exposure to catastrophes, including the use of reinsurance to manage net retentions. A strong enterprise risk management (ERM) programme, embedded throughout the ACE group, relies on close collaboration of executives and operating departments to identify, assess and control enterprise risk and accumulations. The effectiveness of the ERM program is demonstrated by risk-adjusted capital levels and overall earnings that have remained strong through soft market conditions, the global financial crisis and the increase in global catastrophe and weather-related events.
AEGL is expected to maintain excellent stand-alone risk-adjusted capitalisation in 2013, supported by retained earnings and by capital contributions received during 2012 in consideration of the transfer to AEGL from elsewhere in the ACE group of the business of Combined Insurance Company of Europe and of the German and UK branches of Combined Insurance Company of America. Shareholders’ funds increased in both 2011 and 2012, in spite of dividend payments of GBP 80 million and GBP 140 million, respectively, in these years.
Although market conditions were generally difficult throughout 2012, AEGL reported a 3% increase in its gross written premiums to over GBP 2.2 billion. Higher premium income from ACE Europe’s retail, accident and health and specialty personal lines businesses and from reinsurance lines offset lower premiums in the London market business. AEGL’s travel, accident and health and specialty personal lines divisions achieved growth through new products and increased market penetration. A strong operating performance resulted in a profit before tax of GBP 184 million (2011: GBP 199 million), in spite of losses from the year’s natural catastrophes, including Hurricane Isaac, Superstorm Sandy and other weather events. With market conditions remaining challenging, AEGL is expected to achieve a weaker technical result in 2013 than in 2012, although the final result is likely to be supported by favourable prior year reserve development, albeit at a lower level than previously.
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 brands: ACE Europe, ACE Global Markets, ACE Tempest Re International and Combined Insurance.
A positive rating action 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.
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.
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