ACE Acquires CICA: What About the Investment Portfolio?

Ace Limited (ACE) announced that it will be buying Combined Insurance Company of America (CICA) from AON Corporation (AOC) for $2.3 billion in cash. Closing expected in Q2 of 08. AON also takes a parting gift of a $325 million dollar dividend.

A.M. Best also commented on the transaction several hours later essentially stating "ACE’s financial strength [FSR], issuer credit [ICR] and debt ratings were affirmed on November 26, 2007. The ratings are unchanged by the proposed transaction."

In comparing the two press releases ACE placed a great deal of emphasis on how good the deal is for them. They was very little financial detail given. In the A.M. Best press release you found more financial information that had some substance to it. After reading about the dividend that AON will get they slip in the following phrase as an add on "and a restructuring of the investment portfolio to meet ACE’s asset quality requirements." Then everyone starts to look at other issues and no further elaboration is offered.Asset quality issues!

In today's environment, especially for financial institutions who as an industry are struggling with asset quality issues, just throwing out that comment is completely unsatisfactory.If the assets do not meet ACE's requirements why were they good enough for AON? Or is AON going to slip some stuff out through the cracks?

In reading the press release it was not clear who would bear the financial brunt of adjusting the quality requirement. Will there be the usual closing adjustments or will AON experience some losses? One would hope that A.M.Best has figured this out but their press release did not shed light on this question. What is the role of a rating agency as they communicate with the market place?