Fitch Assigns ‘AA’ to Chubb Offering

November 28, 2001

Fitch assigned a rating of ‘AA’ to The Chubb Corporation’s offering of $600 million of new senior debt securities.

The offering includes $400 million of 6.0 percent senior notes due 2011, and $200 million of 6.8 percent debentures due 2031. The ‘AA’ rating is also assigned to Chubb’s other outstanding senior debt, and Fitch assigned an ‘F1+’ rating to Chubb’s commercial paper program. Chubb’s senior debt rating and the ‘AAA’ insurer financial strength (IFS) ratings of Chubb’s insurance subsidiaries led by Federal Insurance Company are on Rating Watch Negative.

The ratings continue to be based on Chubb’s market position as a leading property/casualty insurer in several commercial and personal lines business segments, history of consistently favorable underwriting performance, strong capital position at both the insurance subsidiary and parent holding company levels, conservative investment portfolio, and experienced management team that has allowed Chubb to succeed under various market conditions in the longer term.

The ratings were placed on Rating Watch on Sept. 21, 2001, following the events of Sept. 11. Chubb’s reported costs for this event 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.

Losses for the events of Sept. 11 on a gross basis were particularly large relative to capital, which highlight significant concentrations of risk. The large reinsurance recoverables associated with this event leads to some uncertainty given Fitch’s general industry-wide concern that disputes or credit issues with reinsurers may arise due to the complexity and magnitude of claims. The ratings remain on Rating Watch as Fitch hopes to gain further comfort that losses related to the events of Sept. 11 have stabilized and no significant issues regarding reinsurance recoverables arise. Based on long-standing relationships with its reinsurers, Chubb management does not anticipate any collection difficulties.

Furthermore, Fitch believes that in the aftermath of these losses, significant changes will take place in insurance and reinsurance markets in terms of pricing, availability of coverage, and tighter policy terms and conditions, including terrorism exclusions. Based on the magnitude of Chubb’s gross losses from the Sept. 11 events, Fitch believes the company will be significantly impacted by changes in reinsurance costs and coverage restrictions, possibly requiring Chubb to adjust its approach to writing business in certain operating segments and perhaps pull back from some business lines. Fitch will monitor Chubb’s response to evolving market conditions to assess the company’s ability to return to prior profitability levels in this new environment, and that the company’s underwriting profile going forward is consistent with current ratings.

Chubb reported a GAAP net loss of $239.0 million in the third quarter of 2001. For the nine months ending Sept. 30, 2001, Chubb reported net income of $82.8 million compared with $546.2 million for the same period in 2000. Chubb’s GAAP combined ratio was 114.0 percent for the first three quarters of 2001, versus 99.9 percent in the prior year period.

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