A.M. Best Assigns "a" Rating to New Debt Issued by ACE; ACE Affirmed, CIGNA P&C Rating Raised.

OLDWICK, N.J.--(BUSINESS WIRE)--Aug. 18, 1999--

A.M. Best Co. today assigned an "a" senior debt rating to $800 million of new unsecured senior debt obligations issued by ACE INA Holdings Inc., guaranteed by ACE Ltd., its corporate parent. The rating agency also assigned ratings to securities that remain available under ACE's shelf registration, including an "a" on senior debt and an "a-" on subordinated debt and preferred securities.

Concurrently, A.M. Best announced several insurance financial strength rating actions. A.M. Best affirmed the A+ (Superior) financial strength rating of ACE Insurance Co., Ltd. and many of its affiliates in Bermuda. In addition, A.M. Best raised the financial strength ratings of the former CIGNA's active domestic property//casualty operations, including the INA Pool, from A- (Excellent) to A and affirmed the B+ (Very Good) rating of CIGNA's P&C run-off operations, Brandywine Group.

These rating actions followed the recent completion of ACE's previously announced acquisition of CIGNA Corporation's domestic and international property/casualty business, including CIGNA's domestic run-off operations, for approximately $3.5 billion. Initially, the transaction was funded by a combination of $1 billion of existing cash, $400 million in privately placed hybrid trust preferred securities, and the remainder from the issuance of $2.1 billion of commercial paper. ACE is in the midst of replacing its outstanding commercial paper with more permanent financing. The net proceeds from this $800 million senior debt issuance will be used to repay commercial paper. ACE further plans to issue a combination of equity, as well as debt and/or trust preferred securities, by using portions of the remaining shelf registration capacity.

The rating agency noted, that although these debt securities are issued by ACE INA Holdings Inc.--ACE's newly formed U.S.-based intermediate holding company--they are guaranteed by ACE Ltd., its financially strong Bermuda-based parent. However, A.M. Best stated that the policyholder obligations of CIGNA P&C's operations would not be guaranteed by ACE Ltd.. As a result of the acquisition, ACE's consolidated financial leverage (total debt and preferred stock to capital) increased significantly, to approximately 40% at the close of the transaction, but is expected to drop to roughly 35% at year end.

Having limited debt prior to the purchase of CIGNA P&C, coverage ratios also have been negatively affected by the additional leverage used to finance the acquisition. However, A.M. Best believes interest and fixed-charge coverage will remain strong because of ACE's historically excellent financial results as a stand-alone operation and despite CIGNA P&C's limited, yet improved, profitability. In the near term, A.M. Best expects that ACE will issue common stock as part of the permanent acquisition financing, which will considerably improve the company's leverage position. In addition, absent future material acquisitions, A.M. Best believes ACE's future earnings and strong cash flow will significantly improve ACE's balance sheet over the near to intermediate term.

Operationally, A.M. Best believes this transaction improves ACE's market profile as a leading global property/casualty organization with a high degree of geographic, customer and product diversification. With its acquisition of CIGNA P&C, ACE gains access to one of the largest U.S.-based commercial insurers, along with its customers and distribution channels. ACE is now among the top global insurance enterprises operating in 47 countries.

A.M. Best also acknowledges the potential cross-selling opportunities resulting from the merger. For example, ACE is a leading provider of excess liability and specialty coverages to Fortune 1000 and multinational corporate clients and CIGNA P&C offers primary coverages and risk-management services to a similar core client base through a global service platform. In general, the combined entity will offer complementary products to a larger client base.

CIGNA P&C's operations also are expected to benefit from ACE's corporate culture, which emphasizes underwriting profit, strict expense control and accountability. Accordingly, plans are underway to reduce CIGNA P&C's corporate overhead in the near term and introduce new underwriting practices. In addition, ACE's losses are primarily characterized by severity claims, which cause potential earnings volatility, while CIGNA P&C's book of business is characterized more by frequency of claims than severity. A.M. Best expects that the new business mix will generate more stable and predictable earnings for ACE.

However, while CIGNA P&C's most recent results have improved, the effectiveness of management actions to improve the company's long-term performance has yet to be fully demonstrated. In addition, ACE has indicated that any under-performing units of CIGNA P&C will be reevaluated and possibly sold.

Despite the benefits of the acquisition, A.M. Best believes the integration of CIGNA P&C into ACE's operations will not be easily accomplished. CIGNA P&C is a significantly larger organization from a revenue and personnel perspective. Furthermore, CIGNA P&C's historical results have been adversely affected by its middle-market accounts and business that currently resides in its Brandywine run-off operations. Although the run-off operations have not recently reported any significant adverse development, ACE could be negatively affected by unforeseen losses in this business over the long term. However, ACE could withstand additional adverse development of $1.25 billion through its reinsurance agreement with Berkshire Hathaway's National Indemnity unit, which provides $1.25 billion of adverse development above carried reserves prior to the sale. Separately, the Pennsylvania Supreme Court has upheld the Insurance Department's original decision, allowing CIGNA P&C the legal right to form Brandywine as a run-off operation.

The timing of the transaction also presents challenges to ACE's management because of extremely competitive market conditions that exist in large account business which is core to both ACE and CIGNA's franchise. Y2K risks related to this business could also be a significant future exposure. Finally, there will be a material amount of goodwill that will be created as a result of the merger that will effectively reduce the tangible net worth of the organization.

A recent announcement by Capital Re Corp.--a financial guarantee reinsurance company that ACE is in the process of acquiring--of an anticipated $92 million after-tax loss does not affect ACE's ratings. As A.M. Best noted in May, when ACE announced its intent to acquire Capital Re, the transaction is consistent with ACE's diversification strategy. Capital Re also announced that ACE has contributed $85 million in equity and participated in a $50 million stop-loss reinsurance arrangement through its existing joint venture, ACE Cap Re Ltd. A.M. Best believes this contribution indicates ACE's commitment to Capital Re's ongoing business. After the acquisition, which is expected to close in the second half of 1999, Capital Re is expected to maintain its operating autonomy.

The following security ratings were assigned:

New debt:

- ACE INA Holdings Inc. - "a" rating on new senior debt, guaranteed

by ACE Ltd., issued under three separate tranches as follows:

-- $400 million, 8.2% due 8/15/2004

-- $300 million, 8.3% due 8/15/2006

-- $100 million, 8.875% due 8/15/2029

Securities available under shelf registration:

- ACE Ltd. - "a" rating on senior debt; "a-" rating on subordinated

debt;"a-" rating on preferred stock. - ACE INA Holdings Inc. - "a" rating on senior debt; "a-" rating on

the subordinated debt. - ACE Capital Trust I, II, and III - "a-" rating on trust preferred

securities.

The following financial strength ratings were affirmed for the ACE Group of Cos.:

- ACE Bermuda Insurance Co. Ltd., at A+. - ACE Reinsurance Company of Europe Ltd., at A+. - ACE Insurance Company of Europe Ltd., at A+. - Corporate Officers & Directors Assurance, at A+. - Tempest Reinsurance Co. Ltd., at A. - ACE USA Group, at A; group members are Westchester Fire Insurance

Co., Westchester Surplus Lines Insurance Co., Industrial

Underwriters Insurance Co.

The following financial strength ratings were raised for the CIGNA P&C Group of Cos.:

- INA Pool from A- to A; pool members are Insurance Company of

North America; CIGNA Property & Casualty Insurance Co.; Pacific

Employers Insurance Co.; CIGNA Insurance Co.; Bankers Standard

Insurance Co.; Indemnity Insurance Company of North America;

Bankers Standard Fire & Marine; CIGNA Fire Underwriters Insurance

Co.; CIGNA Employers Insurance Co.; CIGNA Indemnity Insurance Co. - CIGNA Insurance Company of Canada from A- to A. - Allied Insurance Co. from A- to A. - Atlantic Employers Insurance Co. from A- to A. - CIGNA Insurance Company of the Midwest from A- to A. - CIGNA Insurance Company of Illinois from A- to A. - CIGNA Insurance Company of Ohio from A- to A. - CIGNA Insurance Company of Puerto Rico from A- to A. - CIGNA Insurance Company of Texas from A- to A. - CIGNA Lloyds Insurance Co. from A- to A. - Illinois Union Insurance Co. from A- to A. - INA Surplus Insurance Co. from A- to A.

The following financial strength ratings were affirmed for the CIGNA P&C Group of Cos.:

- Brandywine Group, at B+; group members are Century Indemnity Co.;

Century Reinsurance Co.; CIGNA Reinsurance Co.

- CIGNA Insurance Company of Europe, at A. - CIGNA Insurance Asia Pacific Ltd., at A. - CIGNA Insurance New Zealand Ltd., at A.

ACE Ltd., headquartered in Hamilton, Bermuda, is a publicly traded holding company that, through its operating subsidiaries, provides a broad range of specialty insurance and reinsurance products to a diverse group of international clients. Operations are conducted worldwide, including the United States, Bermuda, London, Continental Europe and Asia. The company is among the largest insurance organizations in the world with reported consolidated assets of $30.5 billion and shareholders equity of $4 billion as of June 30, 1999.

A.M. Best Co., established in 1899, is America's oldest and most widely recognized insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.