AM Best Co. has assigned a financial strength rating of A+ (Superior) and an issuer credit rating (ICR) of "aa-" to ACE Tempest Life Reinsurance Ltd. The outlook for both ratings is stable.

ACE Tempest Life Re is a wholly owned subsidiary of Bermuda-based ACE Limited and operates primarily in the variable annuity reinsurance marketplace.

The company is also the immediate parent of ACE Tempest Reinsurance Ltd., a worldwide provider of catastrophe reinsurance.

The rating assignment were said to consider a number of factors, including the importance of global reinsurance to the ultimate parent, ACE Tempest Life Re's strong capitalisation and favourable operating performance.

Although the vast majority of ACE Tempest Life Re's reinsurance activity and earnings is generated by its property and casualty subsidiary, life and annuity reinsurance represents a growing business segment where the demand for variable annuity secondary guarantees is strong.

Accordingly, AM Best believes variable annuity reinsurance should provide increasing product and risk diversification for ACE Tempest Life Re over the medium term.

Moreover, the company is looking to expand into the Japanese variable annuity market, an area with strong growth potential.

ACE Tempest Life Re's capitalisation on both a nominal basis and risk-adjusted basis is considered very strong and primarily reflects the capital at its property and casualty subsidiary.

In addition, ACE Tempest Life Re capital is supported by favourable operating results, with a reported return on equity for 2003 in excess of 15 percent.

Although the company's results are driven primarily from its large property and casualty business, life and annuity reinsurance is contributing favourably to the business mix.

Best said that positive rating factors were offset by uncertainty with regard to potential sharp equity market downturns and a relatively modest market profile.