ACE Ltd. and its group companies were yesterday placed on rating watch negative by insurance ratings agency Fitch in the wake of its decision to record a $2.2 billion gross charge as the result of its asbestos reserve review.

ACE announced on Monday that the pre-tax effect of the charge after reinsurance to third parties will be $516 million and the after-tax effect would be $354 million.

Fitch's decision follows similar announcements by ratings agencies Standard & Poor's and Moody's and was expected by ACE.

"Fitch has also placed the 'A+' insurer financial strength ratings of the members of INA Holdings on Rating Watch Negative," the agency said in a statement. "Additionally, Fitch downgraded the insurer financial strength ratings of Brandywine Holdings and its principle operating company, Century Indemnity, to 'BBB-' from 'BBB'. The Rating Outlook for Brandywine Holdings is Stable."

INA Holdings and Brandywine Holdings together comprise the US domestic operations of ACE INA and represent the domestic property/casualty insurance operation that ACE purchased from CIGNA in 1999.

INA Holdings owns the 19 insurance companies that represent the group's active insurance operations. Brandywine Holdings represents the inactive, runoff operation that houses the group's asbestos and environmental claims. The two groups were separated in a 1996 restructuring, Fitch said.

Fitch said the reserving "relates entirely to Brandywine Holdings".

Fitch noted that due to internal guaranties and reinsurance INA Holdings and ACE Bermuda Insurance Company will share the net effect of the charge, which it said exhausts the $1.25 billion excess reinsurance cover ACE purchased from National Indemnity Company at the time of the ACE INA acquisition.

"Positively, the charge improves the adequacy of Brandywine Holding's reserves. ACE intends to replenish the capital consumed by charge through a $300 million trust preferred stock or senior debt offering. Therefore, Fitch expects no change in the capital adequacy of either INA Holdings or ACE Bermuda.

"The new debt issue modestly increases ACE's financial leverage and temporarily interrupts ACE's plan to reduce leverage. Financial leverage is at the high end of ACE's tolerance for the rating category," Fitch said.

On Tuesday, Moody's said it was putting ACE on review for a possible review, saying it was prompted by the magnitude of the charge.

But it added that if ACE was downgraded, it would only be by one notch.

S&P said it was placing ACE on CreditWatch Negative, but said it had been assured by ACE that the company would take the necessary steps to maintain its ratings.