A.M. Best Assigns "a-" to New Trust Preferred Offering by ACE Capital Trust I; Existing Ratings of ACE Unaffected.

OLDWICK, N.J.--(BUSINESS WIRE)--Dec. 16, 1999--

A.M. Best Co. today assigned an "a-" rating to $100 million of trust preferred securities issued by ACE Capital Trust I. The trust preferred offering was drawn down from a shelf registration that will repay a portion of the commercial paper used as mezzanine financing to acquire CIGNA's property/casualty operations for approximately $3.5 billion.

Subsequent to the close of the transaction on July 2, 1999, CIGNA's P&C operations were renamed ACE INA Holdings Inc. (ACE INA). In addition to the current trust preferred offering, the remainder of the acquisition cost has been financed by $1 billion of cash and an issuance of $800 million of senior debt and $400 million of privately placed trust preferred securities whose ratings are unchanged, at "a" and "a-", respectively. A.M. Best rated the shelf registration, as well as the senior debt and trust preferred securities related to the CIGNA acquisition, on Aug. 13, 1999.

The rating agency noted that the commercial paper that remains outstanding after the most recent trust preferred offering will be refinanced with a more permanent capital structure, through the issuance of additional securities that remain available under the shelf that includes senior and subordinated debt, along with preferred and common stock.

Concurrently, A.M. Best said its financial strength ratings for ACE Bermuda Insurance Ltd., are unaffected at A+ (Superior), as are the ratings of many of its affiliated companies in Bermuda. In addition, the ratings of ACE INA's active domestic property/casualty operations, the INA Pool, are unaffected at A (Excellent), and the ratings for Brandywine Group, its run-off operations, also are unchanged at B+ (Very Good).

The newly issued trust preferred securities are backed by junior subordinated debt issued by ACE INA Holdings Inc.--ACE's newly formed U.S.-based intermediate holding company--that are guaranteed by ACE Ltd., its financially strong Bermuda-based parent. However, A.M. Best stated that the policyholder obligations of ACE INA'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.

Having limited debt prior to the purchase of CIGNA P&C, coverage ratios will be 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 the expected improvement in profitability of the ACE INA operation.

In the near term, A.M. Best expects that ACE will issue common stock as part of the permanent acquisition financing, which will considerably lower 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 enhance its balance sheet over the near to intermediate term.

Operationally, A.M. Best believes this transaction strengthens 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 believes that ACE INA's operations will improve through a domestic restructuring that will include a realignment of profit centers, enhanced claims methods and processing, along with reductions in office sites and staff. The rating agency also acknowledges the potential cross-selling opportunities and stable earnings benefit from the merger. While ACE is a leading provider of excess liability and specialty coverages to Fortune 1000 and multinational corporate clients, CIGNA P&C offered 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. While ACE's losses were primarily characterized by severity claims, which could cause earnings volatility, ACE INA's book of business is characterized more by frequency of claims than severity. A.M. Best expects the new business mix to generate more stable and predictable earnings for ACE.

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 was 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. Mitigating these risk factors is the fact that, at the outset of the acquisition, ACE adopted a strategy whereby any underperforming units of CIGNA P&C would be re-evaluated and possibly sold.

Since A.M. Best released its initial ratings in August 1999, just after the close of the CIGNA acquisition, management executed this strategy--with the exception of its California workers' compensation accounts--through its agreement on Oct. 11, 1999, to sell the renewal rights of its middle-market business to Wausau Commercial Insurance, a unit of Liberty Mutual Group. On Nov. 1, 1999, ACE announced its divestiture of the remaining segment of its middle-market accounts through its agreement to sell the renewal rights of its California workers' compensation book of business to Superior National.

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 claims development through the reinsurance agreement with Berkshire Hathaway's National Indemnity unit, which provides $1.25 billion of unfavorable claims development above carried reserves prior to the sale. Finally, there has been a material amount of goodwill created as a result of the merger that has reduced the tangible net worth of the organization. -0-

     The following security rating was assigned:

New security:

--   ACE INA Holdings Inc.--"a-" rating on new trust preferred
     security backed by junior subordinated debt that is guaranteed by
     ACE Ltd.

         The following security ratings are unaffected:

Debt securities:

--   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 financial strength ratings for the ACE group of companies, which include ACE INA, are unaffected.

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 $29.3 billion and shareholders equity of $3.9 billion as of Sept. 30, 1999.

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