Chubb Downgraded
Fitch Ratings downgraded several ratings of The Chubb Corporation (Chubb) and removed them from rating watch negative. The actions include lowering Chubb's senior debt rating to "AA-" from "AA" and the insurer financial strength (IFS) ratings of Chubb's insurance subsidiaries, which are led by Federal Insurance Company, to "AA+" from "AAA." Fitch's "F1+" rating for Chubb's commercial paper program remains unchanged. The rating outlook is stable.
The action follows a combination of adverse events that occurred in the past year, including a deterioration in operating results in 2001 due to losses from the September 11 event, followed by a large fourth quarter after-tax charge of $143 million from surety exposures related to Enron. The ratings were originally placed on watch on Sept. 21, 2001. Chubb's most recently reported 9/11 costs were $3.0 billion gross, $645 million pretax and net of reinsurance, and $420 million net of taxes and reinsurance. A large portion of the loss was from property and business interruption claims in the company's financial institution segment.
The ratings reflect Chubb's market position as a leading property/casualty insurer in several commercial and personal lines business segments—it was the nation's 13th largest property/casualty insurer based on 2000 net written premium, as well as its history of favorable underwriting performance. Strong capital position at both the insurance subsidiary and parent holding company levels, conservative investment portfolio and the company's experienced management team were also factors.
S&P Lowers Farmers Insurance Exchange
Standard & Poor's lowered its counterparty credit and financial strength ratings on Farmers Insurance Exchange group to "A" from "AA-." The outlook is stable. S&P also lowered its subordinated debt ratings on Farmers' surplus notes to "BBB+" from "A-." The ratings were removed from CreditWatch, where they were placed August 2001.
The actions reflect continued weakening operating performance in the personal lines sector, reduced though adequate level of capitalization, and limited financial flexibility. Partially offsetting these weaknesses are Farmers' solid business position and its strategic importance to Zurich Financial Services (Zurich) as demonstrated by its investment in deeply subordinated surplus notes and major reinsurance support.
Continued underwriting losses are expected to offset the initiatives taken in late 2001 to improve capital levels, such as a capital infusion of $500 million and an enhanced reinsurance program, but operating performance is expected to improve in 2002 with capital adequacy in the 105 percent to 110 percent range.
Lloyd's Still on 'Watch Negative'
S&P announced that its "A" insurer financial strength rating on the Lloyd's insurance market will remain on CreditWatch with negative implications, but expects the placement to be resolved by the end of April 2002.
Due to losses arising from the terrorist attacks on Sept. 11, 2001, along with cash calls and the preliminary estimates for Lloyd's Central Fund drawdowns, or payments, uncertainty remains as to the ultimate impact of open-year losses on Lloyd's.
Concerned with the effects the drawdowns from Central Fund, which assures claims payments when an individual underwriting syndicate is unable to do so, will have on Lloyd's overall financial condition, S&P stressed there were too many unknown factors to remove the market from CreditWatch.
