Ace Bermuda Insurance Ltd. and Ace Tempest Reinsurance Ltd. have been affirmed the financial strength ratings (FSR) of A+ (superior) and issuer credit ratings (ICR) of "aa-" by AM Best Co.

Additionally, Best has affirmed the FSRs of A+ (superior) and ICRs of "aa-" of Ace Westchester Specialty Group (New York), Ace American Pool (Pennsylvania), ACE Tempest Life Reinsurance Ltd., Ace INA Insurance (Canada) and Ace European Group Ltd. (UK).

Concurrently, the ratings agency has affirmed the FSRs of A (excellent) and ICRs of "a" of ACE Life Insurance Co. (Stamford, Connecticut) and Combined Insurance Company of America (Glenview, Illinois) and the FSR of B- (fair) and ICR of "bb-" of Brandywine Group (Pennsylvania).

Best also has affirmed the ICRs and senior debt ratings of "a-" of Ace Ltd. (Zurich, Switzerland) and Ace INA Holdings Inc. (Delaware).

In addition, Best has affirmed the debt ratings of "bbb" on the preferred securities of Ace Capital Trust II and the indicative ratings on securities to be issued under Ace's shelf registration programme. The outlook for all ratings is stable.

The affirmation of the ratings of Ace's subsidiaries reflects an organisation that is well diversified by business segment and geography and appropriately capitalised subsequent to significant realised and unrealised investment losses in 2008 and the $2.5 billion acquisition of Combined Insurance, said Best.

Furthermore, the company maintained the capacity to generate significant cash and earnings in its domestic and overseas markets given its underwriting acumen; manages its capital structure well with a reluctance to repurchase stock and little reliance on short-term debt; and maintains significant intellectual capital.

In addition, Ace's balance sheet remains stable through controlled financial leverage and consistently favourable loss reserves development. In 2009, said Best, Ace's earnings are expected to be able to absorb potential additional investment losses should they arise.

Best believes that Ace's overall risk and catastrophe-specific exposures are well managed through a comprehensive companywide risk assessment process that is continually evolving.

Negative rating factors, according to the ratings agency, include an approximate 13 percent decline in equity in 2008 to $14.4 billion, mainly related to realised and unrealised investment losses totaling $3.7 billion, higher catastrophe losses than 2007 and significantly higher intangible assets as a percentage of equity caused by the Combined Insurance acquisition. The lower equity level and higher debt levels caused increased financial leverage and collectively has led to decreased financial flexibility.

The realised investment losses partially emanated from non-cash exposure in Ace's variable annuity reinsurance business, while the bulk of losses were the result of price impairment and, to a much lesser extent, credit impairment.

Best believes that ACE's significant capital position at the beginning of 2008 was sufficient to absorb these losses, leaving Ace's subsidiaries appropriately capitalised with some room for additional controlled premium growth.