ACE Ltd. announced yesterday that it has increased its estimate of liability following the World Trade Centre attacks to more than half a billion dollars.

This renewed estimate prompted rating agency Standard and Poors to join Fitch rating agency in putting the company on "Rating Watch Negative".

In a statement yesterday, ACE said that as a result of additional information received, the company has increased its estimate of the impact from the September 11 tragedy from a $400 million to a $550 million reduction in third quarter net operating income, after tax.

The company said the increase was almost entirely related to reinsurance claims ceded to ACE from companies reinsured by ACE.

ACE said it has conducted an exhaustive review of its insurance and reinsurance portfolios on a policy by policy basis which included first party, third party, reinsurance, retrocessional, financial guaranty and life reinsurance exposures.

The ultimate incurred loss estimate is based on the most recent information available, but makes no provision for any loss mitigation arising from airline aid legislation or other government aid to victims or municipalities. On Saturday, President George W. Bush announced an airline aid package.

The majority of ACE's exposure to the tragedy is derived from claims incurred by insured clients of ACE, and as the direct insurer of these clients, ACE has individual policy and underwriting information with which to make its own evaluation of the losses.

Standard & Poor's yesterday placed its single-'A'-minus issuer credit, 'A-2' commercial paper, single-'A'-minus senior unsecured debt, and triple-'B' preferred stock ratings on ACE Ltd. on Credit Watch with negative implications.

At the same time, Standard & Poor's also placed its single-'A'-plus counterparty credit and financial strength ratings on ACE Bermuda Insurance Ltd., which is Ace Ltd.'s core subsidiary, on Credit Watch with negative implications.

These rating actions reflect Standard & Poor's review of potential effects on ACE Ltd.'s consolidated capital adequacy based on the company's recent announcement to increase its consolidated, after-tax loss estimate to $550 million (originally $400 million) because of catastrophic losses incurred from the World Trade Center.

Standard & Poor's expects to resolve the Credit Watch status of these ratings in the near term.

ACE said its estimates of claims based on policies it had directly insured remained essentially unchanged and were covered by significant amounts of reinsurance from high quality reinsurers.

Approximately 98 percent of all reinsurance purchased by ACE is with reinsurers rated A or better, including 38 percent with reinsurers rated AAA and 33 percent with AA rated reinsurers.

ACE's second principal area of exposure to the tragedy comes from assumed reinsurance ceded to ACE by other insurance or reinsurance companies, the company said.

With regard to reinsurance assumed by ACE, the Company purchases significantly less reinsurance or, as it is known in the industry, "retrocessional coverage", than it does on its primary business.

When ACE assumes reinsurance, it analyses underwriting information supplied by cedants and uses catastrophe models to measure its aggregate exposure to any specific event.

On Friday last week, Fitch ratings agency placed the ratings of ACE Ltd. and ACE INA Holdings (together ACE) on Rating Watch Negative.

Fitch said the rating actions reflect their concerns that losses from the terrorists attacks in the United States last week as a percent of capital may ultimately prove to be higher than is consistent with expectations for the current rating category.

Should ultimate losses remain consistent with ACE's current estimates of $400 million, the ratings will likely be affirmed and removed from Rating Watch.

If losses were to grow significantly higher than current estimates, Fitch may downgrade the insurer financial strength (IFS) and debt ratings by one notch (to `A' for the IFS ratings, `A-' for the long-term/senior debt ratings and `BBB+' for the preferred/trust preferred ratings), which still implies a strong ability to meet claim and debt obligations.

However, despite the increased estimates, a Fitch spokesman said yesterday: "We did have the anticipation that there would be some growth in company's initial loss estimates which would be normal. ACE has several positive factors such as very good earnings capacity, and they have had a very good year up to now, earning $250 million to June 30."