A.M. Best Co. has affirmed the financial strength ratings of A++ (Superior) of The Chubb Corporation’s property/casualty subsidiaries.
Additionally, A.M. Best has affirmed the “aa” senior debt ratings of The Chubb Corporation, Chubb Capital Corporation and Chubb Executive Risk Inc.; the “aa-” ratings of the capital securities of Executive Risk Capital Trust and the AMB-1+ rating on the commercial paper issued by Chubb Capital. Furthermore, A.M. Best has affirmed the indicative ratings assigned to securities to be issued under the $1 billion shelf registration filed by The Chubb Corporation and Chubb Capital. The outlook for the ratings is stable.
The ratings reflect Chubb’s superior operating performance, strong capitalization, conservative operating strategies, well-established franchise and sustainable competitive advantages within specialty insurance and upscale personal lines businesses. Moreover, the ratings acknowledge Chubb’s generally favorable loss ratios, sophisticated loss control expertise, disciplined underwriting and adherence to sound operating fundamentals, which includes its commitment to adequate loss reserving and pricing practices.
Chubb maintains a stable balance sheet with modest financial leverage of 19 percent. The quality of capital is excellent based on reserve adequacy, consistency of earnings and superior liquidity, including substantial cash at the holding company. Chubb’s level of profitability provides fixed charge coverage that supports the ratings. Significant unregulated invested assets held at Chubb and its intermediate holding companies are sufficient to repay a large portion of outstanding debt and provide flexibility in terms of subsidiary capital adequacy.
Partially offsetting the positive rating factors are the underwriting deterioration and greater volatility that have occurred within Chubb’s specialty insurance and personal lines operations over the past several years, particularly within segments of its executive protection, health care and homeowners’ operations. While Chubb maintains competitive advantages in these businesses, rapidly rising loss costs are necessitating aggressive re-underwriting and increased pricing initiatives to achieve historical profitability.
In this regard, the firming of property/casualty markets are proving highly beneficial to Chubb. However, in A.M. Best’s opinion, 2002 and 2003 appear likely to be transition years for the company before improved underwriting fundamentals are solidly manifested within these lines.
In addition, changes in Chubb’s senior management and the ongoing search for replacements in these key positions have resulted in some degree of uncertainty regarding corporate leadership, as well as strategic and operational changes.
A.M. Best’s favorable view of Chubb’s capitalization and reserve adequacy is somewhat tempered by ongoing exposure to asbestos and environmental (A&E) liabilities and the emergence of adverse loss reserve development on recent prior accident years.
A.M. Best believes Chubb’s A&E exposures may not be fully reserved and could cause modest drag on the group’s earnings until its A&E reserves are adequately strengthened. A.M. Best’s view of Chubb’s capital adequacy incorporates a sizable A&E reserve shortfall. Furthermore, being among the largest commercial insurers, Chubb has exposure to natural catastrophe losses as well as potential terrorist-related losses.
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