OREANDA-NEWS. January 19, 2016. Fitch Ratings has affirmed all the ratings for ACE Limited and its subsidiaries (ACE) and the Insurer Financial Strength (IFS) ratings for The Chubb Corporation (Chubb) operating subsidiaries. Fitch has downgraded Chubb's Issuer Default Rating (IDR) to 'A+' from 'AA-' and downgraded all other holding company obligations one notch. The Rating Outlook for all ratings is Stable. A complete list of ratings follows at the end of this release.

KEY RATING DRIVERS

ACE's acquisition of Chubb for roughly \\$29.5 billion closed Jan. 14, 2016. The combined company is now known as Chubb Limited. On July 1, 2015, ACE announced that the company and Chubb had entered into a definitive agreement whereby ACE would purchase all outstanding shares of Chubb with a combination of cash, debt, and equity, or approximately a 30% premium relative to the prior day closing stock price for Chubb.

Fitch views the transaction favorably due to the increased size and scale of the combined entity which is estimated to write roughly \\$32 billion in global net premium with a historical five year average combined ratio of near 90%. ACE has demonstrated past success in executing successful acquisitions which mitigates integration risk; however, the size and complexity of the Chubb acquisition represents a unique challenge and it will take time to realize the anticipated cost savings from this acquisition.

The combined company's rating strengths include a strong balance sheet position and financial flexibility with moderate leverage and diverse sources of revenues and earnings with the advantages of increased global size and scale and strong management teams.

ACE's North America premium volume will increase to roughly 66% of total net premiums written from 56% as the acquisition adds Chubb's underwriting portfolio and expertise in several segments, including: professional liability, middle market commercial lines, and personal lines.

The rating downgrade of Chubb's holding company and debt ratings reflects technical consideration under Fitch's criteria as the former Chubb holding company received narrower notching due to larger committed holding company cash levels and higher operating interest coverage than the holding company of the newly combined companies. The ratings now align with the new parent and reflect Chubb's core status.

Both ACE and Chubb's operating performance consistently exceeds peers, characterized by low combined ratios with manageable catastrophe losses, consistent favorable loss reserve development and stable investment income from strong operating cash flow. For the five-year period 2010 - 2014, ACE's average GAAP combined ratio was 91% and the operating return on equity was 12%. Chubb's average combined ratio and return on equity was 91% and 13%, respectively.

To fund this transaction ACE raised \\$5.3 billion in debt and \\$15 billion in equity plus cash dividends. Fitch estimates the pro forma financial leverage ratio (FLR) (total debt to capital excluding FAS 115 unrealized gains and losses) at closing has increased to roughly 24%, primarily as a result of the increased debt (both newly issued and assumed from Chubb), which remains consistent with Fitch's median sector credit factors for the current rating category. Financial leverage is anticipated to decline over time due to near-term debt maturities and future retained earnings growth.

Operating interest coverage (excluding realized investment gains) was favorable and consistent at roughly 15x through nine months 2015 and in both 2014 and 2013. Post-acquisition, Fitch expects coverage to be lower in the high-single digits due to higher near-term debt levels and interest expense. The new combined entity is anticipated to have favorable debt servicing capacity from operating subsidiary dividend capacity, earnings, and other liquidity sources.

RATING SENSITIVITIES

Key current rating triggers that may lead to an upgrade include:

--Given increased market position size and scale, demonstration of continued strong operating performance consistent with the individual performance of the former ACE and Chubb entities;
--A reduction in financial leverage to a run-rate level of approximately 20%;
--Operating earnings-based interest and preferred dividend coverage approximating 15x;

Key rating triggers that may lead to a downgrade include:

--A material deterioration in operating performance such that the combined ratio is consistently less profitable at over 95%;
--A significant reduction in stockholders' equity that is not recovered in the near term;
--Increase in financial leverage ratio to a sustained level of over 27%;
--Failure to execute acquisition integration plans as expected resulting in material economic impact on the company.

Fitch has affirmed the following ratings with a Stable Outlook:

ACE Limited
--Issuer Default Rating (IDR) at 'A+'.

ACE INA Holdings Inc.
--IDR at 'A+';
--\\$500 million senior notes due 2017 at 'A';
--\\$300 million senior notes due 2018 at 'A';
--\\$500 million senior notes due 2019 at 'A';
--\\$1.3 billion senior notes due 2020 at 'A';
--\\$1.0 billion senior notes due 2022 at 'A';
--\\$475 million senior notes due 2023 at 'A';
--\\$700 million senior notes due 2024 at 'A';
--\\$800 million senior notes due 2025 at 'A';
--\\$1.5 billion senior notes due 2026 at 'A';
--\\$100 million senior debentures due 2029 at 'A';
--\\$300 million senior notes due 2036 at 'A';
--\\$475 million senior notes due 2043 at 'A';
--\\$1.5 billion senior notes due 2045 at 'A'.

ACE Capital Trust II
--\\$300 million capital securities due 2030 at 'BBB+'.

ACE American Insurance Company
ACE Bermuda Insurance Limited
ACE Fire Underwriters Ins. Company
ACE INA Overseas Insurance Company Ltd.
ACE Insurance Company of the Midwest
ACE Property and Casualty Insurance Company
ACE Reinsurance (Switzerland) Limited
ACE Tempest Reinsurance Limited
Agri General Insurance Company
Atlantic Employers Insurance Company
Bankers Standard Fire & Marine Company
Bankers Standard Insurance Company
Illinois Union Insurance Company
Indemnity Insurance Company of North America
Insurance Company of North America
Pacific Employers Insurance Company
Westchester Fire Insurance Company
Westchester Surplus Lines Insurance Company
Chubb Atlantic Indemnity Ltd.
Chubb Custom Insurance Co.
Chubb Indemnity Insurance Co.
Chubb Insurance Company of Australia Ltd.
Chubb Insurance Company of Canada
Chubb Insurance Company of Europe, S.E.
Chubb Insurance Company of New Jersey
Chubb Lloyds Insurance Company of Texas
Chubb National Insurance Co.
Federal Insurance Company
Great Northern Insurance Co.
Pacific Indemnity Co.
Executive Risk Indemnity, Inc.
Executive Risk Specialty Insurance Co.
Texas Pacific Indemnity Company
Vigilant Insurance Co.
--IFS at 'AA'.

Fitch has downgraded the following ratings and removed the ratings from Negative Watch:

The Chubb Corporation
--IDR to 'A+' from 'AA-';
--5.75% senior notes due May 2018 to 'A' from 'A+';
--6.6% notes due August 2018 to 'A' from 'A+';
--6.8% debentures due November 2031 to 'A' from 'A+';
--6.0% senior notes due 2037 to 'A' from 'A+';
--6.5% senior notes due May 2038 to 'A' from 'A+';
--6.375% junior subordinated debentures due 2067 to 'BBB+' from 'A-';
--Short-term IDR to 'F1' from 'F1+';
--Commercial paper to 'F1' from 'F1+'.

The Rating Outlook is Stable.