Standard & Poor?s on Friday put a negative outlook on ACE Ltd.?s A+ financial strength ratings, citing the investigation of the insurance industry by New York Attorney General Eliot Spitzer and concerns about ACE?s ability to compete with larger competitors.

ACE was named in a lawsuit by Mr. Spitzer last month which accused insurance broker Marsh of rigging bids and steering business to preferred insurers.

Also on Friday, S&P put a negative outlook on American International Group?s ? also named in the suit ? AAA rating.

S&P said of ACE: ?The recent developments leading to the negative outlook include the company?s execution of an aggressive growth strategy that has led ACE to compete directly with some larger companies; this has been done through more competitive rates.

?However, without the capital base or market presence of these larger competitors, it will be difficult for ACE to maintain this competitive posture. Moreover, ACE?s good combined ratio must be considered in light of a relatively modest level of accident-year reserve bookings.

?Another recent development that is a factor in the negative outlook is the ongoing investigation of the insurance and brokerage industry by the State of New York with regard to various pricing practices. Given the scope of the investigations, ACE has the potential to draw greater scrutiny than other companies in the industry.?

S&P said it was concerned that reinsurance recoverables were equal to 27 percent of total assets.

?Additionally, goodwill equals approximately 5 percent of total assets and 28 percent of shareholders? equity. Finally, Standard & Poor?s believes that the overall net reserves of the group remain modestly deficient.?

Nevertheless, Standard & Poor?s expects that ACE will maintain risk-based capital of 150% or better going forward and show a combined ratio for 2004 of approximately 93 percent, despite losses from the Florida hurricanes.

S&P revised the outlook on AIG from stable, citing Spitzer?s investigation as well as separate probes by the US Justice Department and the Securities and Exchange Commission.

Two executives at American International?s American Home Assurance unit, pleaded guilty on October 14 to Spitzer?s charges that they colluded with Marsh. Patricia Abrams, an executive at Ace, has also pleaded guilty.