Bermuda-based ACE Capital Re International (ACRI).

The rating outlook is positive for the wholly owned subsidiary of ACE Ltd which provides structured credit enhancements for several specialty insurance sectors.

The company was recently formed out of the merger of Capital Re Corporation (Capital Re) and ACE Ltd. and was capitalised by the two companies, primarily ACE Limited, with equity of $400 million.

ACRI will guarantee all of the obligations of its subsidiary ACE Capital Re Overseas, which in turn will guarantee the obligations of its subsidiaries, ACE Capital Mortgage Reinsurance Company and ACE Capital Title Reinsurance Company.

As a result, ACRI will effectively be providing guarantees for a broad range of credit-related insurance.

The rating reflects the consolidated risk exposure of ACRI and the guaranteed affiliates, and potential uses of ACRI's capital to fund guarantee-related payments.

It is by virtue of these guarantees that the operating subsidiaries of ACRI, ACE Capital Re Overseas, ACE Capital Mortgage Reinsurance Company and ACE Capital Title Reinsurance Company would be considered commensurate with the rating of ACRI.

DCR has an actual public rating of ACE Capital Title Reinsurance of AAminus that it would expect to upgrade to AA upon formal execution of the guarantee from ACRI, which is expected shortly.

It is expected that the approximate business mix, by projected underwriting profit, will be 35 percent mortgage reinsurance, 25 percent financial guarantee reinsurance, 15 percent life financial, ten percent title Reinsurance and the remainder trade credit Reinsurance.

Within each line of business, the company engages in quota share and excess-of-loss formats.

Much of ACRI's business is carefully structured to a high probability of zero-loss, low loss or underwriting profit expectancy.

The high rating for ACRI incorporates a number of key strengths, including the following: The company's claims-paying capital is significant in relation to its current and projected guaranteed exposure. The capital is invested very conservatively according to several guidelines with regard to high credit ratings, proper sector and single risk diversification, and low duration; The extensive array of credit-related product offerings and its strong market presence in each product line will help the company capture a broad range of business opportunities over time; ACRI has a strong underwriting staff which will be expected to maintain a low loss, zero-loss, or underwriting profit expectation for new transactions.

DCR has reviewed the company's underwriting process and written reviews for each transaction and believes that its reviews are thorough and are cognizant of all the risks undertaken; and The company has a knowledgeable and experienced management team which is expected to maintain an appropriate degree of risk diversification within each line of business.

The rating of AA does not consider potential benefits that may exist from ACRI's relationship to its parent company ACE Ltd.

ACE Ltd. is committed to developing a competitive presence in the credit enhancement lines of business that ACRI offers and ACE Ltd.'s significant commitment of capital to the creation of ACRI evidences this goal.

Part of DCR's review of ACRI consists of a stress test, which models the company's total current and projected capital resources against its current and projected insured exposure in a protracted worst-case economic scenario.