Rating agencies yesterday moved ratings down, or revised their outlook, on certain ACE Group ratings after the company announced it was taking a charge on fourth quarter earnings to boost reserves for asbestos claims.

Fitch Ratings said it had downgraded the insurer financial strength (IFS) ratings of the insurance subsidiaries of Brandywine Holdings (run-off companies) to ?B-? from ?B+?. These IFS ratings remain on rating watch negative, indicating they could change.

But at the same time, Fitch affirmed the ?A+? IFS ratings of insurance subsidiaries of INA Holdings (the active companies) and the debt ratings of ACE Limited (ACE) and ACE INA Holdings (ACE INA) and gave those ratings a stable outlook.

The rating actions follow ACE?s announcement that the 2004 review of the run-off companies? reserves would result in a net $298 million after-tax charge.

Concurrent with the charge, ACE announced the planned sale of Brandywine Holdings insurance subsidiary, ACE American Reinsurance Company (AARC) along with a commutation of reinsurance contracts between Century Indemnity Company and AARC.

Fitch said in a Press statement: ?The magnitude of the charge would have consumed the remainder of the stop loss agreement if the sale and commutation had not been initiated. Approximately $60 million of available cover under the stop loss agreement remains available upon completion of this transaction.?

Looking forward, Fitch said: ?If ACE successfully consummates the AARC transaction as planned, Fitch expects to remove the run-off companies? insurance ratings from Rating Watch Negative and affirm them at ?B-? with a Negative Rating Outlook. If ACE is unable to successfully complete the transaction, Fitch may further downgrade the run-off companies? insurance ratings.?

Fitch also noted that ACE?s active companies reported much improved operating earnings in 2003 and 2004, the result of an underwriting profit (versus an underwriting loss reported in 2002) and improved investment income. However, Fitch said asbestos and environmental liabilities at the company ?will continue to be a drag on ACE?s earnings in the near future and ACE?s exposure to reinsurance recoverables remains high?.

Meanwhile, A.M. Best Co. downgraded the financial strength rating to B- (Fair) from B+ (Very Good) of Brandywine Group (Brandywine) and has placed the rating under review with negative implications pending regulatory approvals. The Brandywine Group consists of Century Indemnity Company (Century Indemnity) and its two wholly-owned subsidiaries, Century Reinsurance Company and ACE American Reinsurance Company. These companies are in runoff and constitute the majority of the asbestos and environmental liabilities held by ACE.At the same time, A.M. Best has affirmed the financial strength ratings of A+ (Superior) and A (Excellent) of ACE and ACE American Pool, respectively, which takes into consideration the announced change in management. These ratings have a stable outlook. The debt and financial strength ratings of the remaining subsidiaries remain unaffected. The Brandywine rating downgrade is based on A.M. Best?s increase in its estimate of Brandywine?s ultimate asbestos liabilities as well as the significantly reduced protection available under the $800 million reinsurance protection from the ACE American Pool.

The downgrade follows ACE?s announcement of the charge to boost reserves, which includes an addition of approximately $95 million to its bad debt reserve within the Brandywine companies.

A.M. Best said the charge causes a negative capital position at Century Indemnity which ACE intends to address with an immediate $100 million surplus note. The capital will be provided by ACE INA Holdings, Inc. (Pennsylvania), allowing the surplus position to remain positive.