A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of A+ (Superior) and the issuer credit rating of “aa” of ACE European Group Limited (AEGL) (United Kingdom). The outlook for both ratings is stable.
The ratings reflect AEGL’s excellent stand alone risk-adjusted capitalisation, solid operating performance and excellent business profile. The ratings also reflect the implicit support provided to AEGL by its parent company, ACE Limited (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.
AEGL is expected to maintain excellent stand-alone risk-adjusted capitalisation in 2012, supported by solid retained earnings. In both 2010 and 2011, shareholders’ funds increased by over 6% in spite of dividends paid following the company’s strong operating performance in the previous year.
Market conditions continue to be challenging, and AEGL is currently expecting to report a lower technical result in 2012 than the GBP 56.2 million underwriting profit achieved in 2011, which benefitted from significant favourable prior year reserve development. In 2011, AEGL maintained its gross written premiums at the 2010 level of GBP 2.2 billion in spite of generally difficult market conditions. Reductions in the London market and European retail businesses were offset by growth in the UK retail, accident and health and reinsurance lines. AEGL’s travel, accident and health and specialty personal lines divisions achieved growth through new products and increased market penetration. A strong operating performance in 2011 resulted in a profit before tax of GBP 199 million (2010: GBP 195 million). Losses from the year’s natural catastrophes, including floods in Australia and Thailand, earthquakes in New Zealand and Japan and U.S. storms, were restricted by reinsurance to only GBP 12.2 million. Assuming a more normal catastrophe experience in 2012, a solid operating performance is anticipated, supported by good investment earnings.
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 three well established brands: ACE Europe, ACE Global Markets and ACE Tempest Re International.
Positive rating actions 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. Key criteria utilised include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Understanding Universal BCAR”; and “Rating Members of Insurance Groups”. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.