A.C.E. Insurance's Outlk Revised to Stable by S&P.NEW YORK--(BUSINESS WIRE)--June 4, 1998--Standard & Poor's CreditWire 6/4/98--Standard & Poor's today affirmed af·firm v. af·firmed, af·firm·ing, af·firms v.tr. 1. To declare positively or firmly; maintain to be true. 2. To support or uphold the validity of; confirm. v.intr. its single-'A'-plus financial strength rating on ACE Limited's subsidiaries, and revised the outlook to stable from negative. The outlook revision reflects the company's excellent operating performance and strong capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. . This is offset by an aggressive acquisition strategy, characterized by the speed at which new entities have been added, the substantial size of its targets, and the geographical spread of its reach. ACE group insurers rated by Standard & Poor's include A.C.E. Insurance Co. Ltd. (A.C.E.) and Corporate Officers and Directors Assurance Ltd., A.C.E.'s wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. ; Tempest Reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. Co. Ltd.; Westchester Fire Insurance Co., and Westchester Surplus Lines Insurance Co. Since its 1985 inception, ACE has primarily been a low-frequency, high severity casualty underwriter underwriter n. a company or person which/who underwrites an insurance policy, issue of corporate securities, business, or project. (See: underwrite) UNDERWRITER, insurances. One who signs a policy of insurance, by which he becomes an insurer. , and until 1994, high layer excess liability and directors and officers liability insurance Directors and Officers Liability Insurance is insurance payable to the directors and officers of a company to cover damages or defence costs in the event they are sued for wrongful acts while they were with that company. represented more than 90% of ACE writings. Since that time, the company's rapid diversification efforts (through acquisition and internal growth) have resulted in significant contributions from satellite, property catastrophe, and financial lines. ACE has high levels of client retention, and wide geographical dispersion dispersion, in chemistry dispersion, in chemistry, mixture in which fine particles of one substance are scattered throughout another substance. A dispersion is classed as a suspension, colloid, or solution. of risk, offset by declining premium rates. During 1996, ACE acquired Tempest Reinsurance Ltd., a Bermuda domiciled dom·i·cile n. 1. A residence; a home. 2. One's legal residence. v. dom·i·ciled, dom·i·cil·ing, dom·i·ciles v.tr. 1. property catastrophe writer, and three Lloyds managing agencies, which syndicates thereof have become a significant source of revenues to A.C.E. Insurance, with capacity purchases growing from pounds sterling24.8 million in 1996 to pounds sterling301.8 million for the 1998 year of account. ACE has become the second largest corporate contributor of capacity at Lloyds, and syndicates under its management control the second largest source of capacity in that market. On Jan. 2, 1998, ACE acquired Westchester Specialty Group (formerly part of Talegen Holdings, now renamed ACE USA), which companies include a property casualty primary carrier licensed in all 50 states. On April 1, 1998, ACE acquired CAT Ltd., a Bermuda domiciled property catastrophe writer which is managed as an integral part of Tempest, and will be merged into Tempest by the beginning of 1999. ACE Group of Cos. has very strong capital in relation to its operations. Major rating factors include: Operating Performance: Over the past five years earnings have been very good and excellent during the past 10 years. Return on revenues over the past 5 years, adjusted for ACE's mix of business, has been excellent, averaging 30%. Market position: ACE enjoys a solid presence in most of the segments in which it operates, including property-catastrophe, satellite, high layer excess liability, and director's and officer's insurance. Capital: The rated entities collectively maintain a very strong capital position, and adequate levels of capital are maintained at each rated entity. Capital adequacy is at 171% on the Standard & Poor's property-casualty capital model. Liquidity: ACE has had very strong underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. cash flow during this period of low losses, maintaining sufficient liquidity within its investment portfolio and through other sources of funds. Prudent use of reinsurance: ACE uses good quality reinsurers to mitigate its risks, and has increased its use of reinsurance as it enters new businesses and as markets have become more competitive. Acquisition risk: ACE's intention to grow rapidly in different business lines exposes its capital base to greater risk (business integration, management fallout fallout, minute particles of radioactive material produced by nuclear explosions (see atomic bomb; hydrogen bomb; Chernobyl) or by discharge from nuclear-power or atomic installations and scattered throughout the earth's atmosphere by winds and convection currents. , errors and omissions errors and omissions n. short-hand for malpractice insurance which gives physicians, attorneys, architects, accountants and other professionals coverage for claims by patients and clients for alleged professional errors and omissions which amount to negligence. ) than with a more stable operating strategy. Volatility of results: The low-frequency, high-severity nature of most of ACE's specialty business exposes it to a relatively wide range of results. ACE has broadened its investment guidelines guidelines, n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. to reduce the component of higher quality fixed income assets, with more high yield bonds, equity exposure, and otherwise higher risk investments. This strategy may continue to support high returns but Standard & Poor's expects it to add to the volatility of results. EXPECTATIONS: STABLE Standard & Poor's believes: -- ACE will grow primarily through the acquisition of businesses and intellectual capital, with average return on revenues of more than 20% over the medium term horizon, -- The company will allow revenues to continue to fall rather than risk less profitable growth, and ACE will continue to invest in new ventures, with a resulting shift in contribution from its various lines of business over time, -- The insurer will continue to use debt and equity financing Equity Financing The act of raising money for company activities by selling common or preferred stock to individual or institutional investors. In return for the money paid, shareholders receive ownership interests in the corporation. to achieve its growth objectives and take advantage of market opportunities (including acquisitions). ACE will assume financial leverage of up to 20%-25% in order to achieve its goals. Standard & Poor's believes ACE's capitalization is conservative relative to its rating. -- CreditWire
CONTACT: Karole Dill Barkley, New York 212\208-5674 Mark
Puccia, New York 212\208-1901
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