A.M. Best Places ACE, CIGNA Ratings Under Review on News of Planned Acquisition.

OLDWICK, N.J.--(BUSINESS WIRE)--Jan. 12, 1999--A.M. Best Co. today placed the "A+" (Superior) rating of Ace Ltd. under review with developing implications and also placed CIGNA's domestic property/casualty's active and run-off operations under review with positive implications. The action affects the ratings of CIGNA'S active operation, INA Pool, rated "A-" (Excellent), and its run-off operation, Brandywine Group, rated "B+" (Very Good).

These actions follow ACE Ltd.'s announcement that it has entered into a definitive agreement to acquire CIGNA's domestic and international property/casualty insurance businesses for $3.45 billion in cash, including CIGNA's domestic run-off operation. Initially, the purchase price is expected to be financed largely by short-term bank debt and excess capital held by ACE.

Following this transaction, ACE will significantly increase its financial leverage, which, before the acquisition, was very modest. A.M. Best expects most of the bank debt will be replaced with more permanent financing, including the issuance of common and equity-like preferred securities. Successful execution of its permanent financing plan will considerably improve the holding company's financial leverage and will likely result in ACE's "A+" rating being affirmed. However, ACE's rating will remain under review pending the close of the transaction and more detailed discussions with management regarding final capital-raising options, cash-flow analysis and future business plans.

A.M. Best views this transaction positively. This acquisition solidifies ACE's position as a leading global property/casualty organization with considerable geographic, customer and product diversification. ACE gains immediate access to one of the largest domestic commercial insurers, and one of the top international property/casualty franchises with a global customer base spread across 47 countries. A.M. Best also acknowledges the potential cross-selling opportunities, particularly to ACE's large multinational corporate customers, where it remains a lead provider of large program limits. ACE has a consistent record of profitable growth, superior underwriting results and strong client retention.

INA Pool's "A-" (Excellent) rating has been placed under review with positive implications, reflecting A.M. Best's expectations for sizable improvements to its stable operating results, maintenance of its excellent capitalization, ACE's complementary businesses, and advantages of being owned by a parent solely focused on the property/casualty business. In addition, the uncertainty of residual financial ties to CIGNA's run-off operation and asbestos and environmental liabilities, will be considerably reduced by an expected third-party aggregate reinsurance loss cover being afforded to Brandywine before the transaction closes. Lastly, A.M. Best expects INA's commercial specialty operation to be largely unaffected, with minimal integration issues and changes to CIGNA's management, strategy and operations.

A.M. Best believes INA's underwriting results will improve through reduced corporate overhead charges, strategic decisions on underperforming business lines and more cost-effective reinsurance protection. These factors are offset by soft commercial market conditions and the potential reactivation of dividend demands to service debt obligations.

A.M. Best also placed the "B+" (Very Good) rating of the Brandywine Group under review with positive implications. Brandywine Group represents CIGNA's inactive operations, led by Century Indemnity. Brandywine's positive under review status reflects the additional actuarial corroboration of the group's run-off margins, maintenance of its highly specialized run-off operation and the expectation of a substantial aggregate incurred loss cover that will provide additional reserve and reinsurance protection, particularly with regard to Brandywine's long-tail asbestos and environmental liabilities. These positive transaction features, combined with Brandywine's favorable claim-settlement trends and mitigation strategies over the past two years, further reduces the uncertainty associated with CIGNA's controversial liability-based restructuring (LBR), effected in 1996.

The acquisition is expected to close by the end of the second quarter and is subject to customary regulatory approvals domestically and abroad. Separately, Pennsylvania's insurance regulators are required to rehear CIGNA's LBR transaction. This regulatory matter may not be resolved before the ACE transaction closes.

Separately, A.M. Best affirmed the "A" (Excellent) rating of ACE USA Group, led by Westchester Fire Insurance Co. A.M. Best views ACE USA's excess property and excess casualty businesses as complementary to CIGNA's specialty operations, with modest business overlap. A.M. Best will monitor this unit's integration into CIGNA's domestic operation, which is not expected to be overly disruptive to its business and distribution.

A.M. Best also affirmed the "A+" (Superior) ratings of the following CIGNA life and health insurance affiliates: Connecticut General Life Insurance Co., Bloomfield, Conn.; CIGNA Life Insurance Co., Bloomfield; Life Insurance Company of North America, Philadelphia; and INA Life Insurance Company of New York.

The affirmations reflect CIGNA'S significant market presence in the group life and health, managed health-care and corporate pension markets, the excellent earnings performance of these core businesses and the company's strong financial and underwriting discipline. While the proposed disposition of the property/casualty business does somewhat diminish CIGNA's overall product and market diversification, it also significantly lowers the organization's risk profile while allowing the company to focus more closely on its core employee benefits lines.

The recently released ratings of CIGNA's health maintenance organization, subsidiaries of CIGNA HealthCare Inc., Hartford, Conn, are unaffected by this transaction.

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 http://www.ambest.com.