Best Affirms Chubb Corp. and Subs ‘A++’ Ratings

April 23, 2012

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A++’ (Superior) and issuer credit ratings (ICR) of “aa+” of the Chubb Group of Insurance Companies and its property/casualty members.

Best also affirmed the ICR of “aa-“, senior debt ratings, junior subordinated debt, indicative ratings on securities and the AMB-1+ on the commercial paper of Chubb Group’s publicly traded holding company, The Chubb Corporation. In addition Best has affirmed the FSR of ‘A++’ (Superior) and ICR of “aa+” of Bermuda-based Chubb Atlantic Indemnity Ltd.

The outlook for all ratings is stable, except for the commercial paper, which does not have an outlook. All companies are headquartered in Warren, NJ, except where specified.

The ratings reflect Chubb Group’s “superior risk-adjusted capitalization, excellent underwriting and overall operating performance and the sustainable competitive advantages within its specialty and upscale personal insurance businesses,” said Best. They also recognize Chubb Group’s “comprehensive and proactive enterprise risk management, disciplined underwriting, strong franchise recognition and access to the capital markets through Chubb Corp.

“The group’s positive rating attributes are enhanced by its position as a leading insurer in the United States and its global presence in specialty markets. The strength of the group’s balance sheet is derived from its consistent generation of underwriting profits (although recent years have been impacted by catastrophes and competitive market conditions) and a well-diversified book of business, which has led to excellent risk-adjusted capitalization. Chubb Group’s results also benefit from an above-average total return on invested assets and strong operating cash flows.”

As partial offsetting factors, Best cited “Chubb Group’s challenging market conditions and catastrophe and weather-related losses, which have impacted underwriting performance in the most recent years.”

However, Best also noted that Chubb’s management “remains focused on limiting exposures through actively monitoring these risks and maintaining a prudent reinsurance program. In addition, the group has historically recognized adverse development of the loss reserves associated with its asbestos and environmental liabilities.

“Given Chubb Group’s leading market position, specialty niche underwriting focus, prudent balance sheet liquidity, strong operating cash flows and excellent risk-adjusted capitalization.” Best said it considers the group to be “favorably positioned and sufficiently capitalized to absorb these challenges and those posed by the continued competitive market.”

Best explained that Chubb Atlantic’s ratings “recognize its solid risk-adjusted capitalization and the implicit and explicit support provided by Chubb Corp. This financial support is evidenced by the capital contributions Chubb Corp. has made in recent years to support Chubb Atlantic’s operations, as well as the business of Chubb Atlantic’s subsidiary, Chubb do Brasil Companhia de Seguros. Furthermore, Chubb Atlantic is the beneficiary of sizable irrevocable letters of credit issued by banks on behalf of Chubb Corp.

“The ratings also acknowledge Chubb Atlantic’s strategic importance within the Chubb Group, including its quota share reinsurance assumed from affiliates.”

However the report did noted that the positive rating factors “are partially offset by Chubb Atlantic’s volatility in underwriting performance in prior years, largely due to adverse loss reserve development.

“Chubb Corp.’s debt-to-tangible capital ratio is maintained at a modest 20 percent as of December 31, 2011. Despite the company’s ongoing share repurchase program, liquid assets at the holding company are expected to be maintained at a level more than sufficient to cover annual holding company expenses.”

Best summarized the companies and other entities affected by its rating actions as follows:
The FSR of ‘A++’ (Superior) and ICRs of “aa+” have been affirmed for the Chubb Group of Insurance Companies and its following property/casualty
— Federal Insurance Company
— Chubb Custom Insurance Company
— Chubb Indemnity Insurance Company
— Chubb Insurance Company of Australia Limited
— Chubb Insurance Company of Europe SE
— Chubb Insurance Company of Canada
— Chubb National Insurance Company
— Executive Risk Indemnity Inc.
— Executive Risk Specialty Insurance Company
— Great Northern Insurance Company
— Pacific Indemnity Company
— Vigilant Insurance Company
— Chubb Insurance Company of New Jersey
— Chubb Lloyds Insurance Company of Texas
— Northwestern Pacific Indemnity Company
— Texas Pacific Indemnity Company

The following debt ratings have been affirmed:
The Chubb Corporation—
— “aa-” on $600 million 6.5 percent senior unsecured notes, due 2038
— “aa-” on $600 million 5.75 percent senior unsecured notes, due 2018
— “aa-” on $800 million 6.0 percent senior unsecured notes, due 2037
— “aa-” on $275 million 5.2 percent senior unsecured notes, due 2013
— “aa-” on $200 million 6.8 percent senior unsecured debentures, due 2031
— “aa-” on $100 million 6.6 percent senior unsecured debentures, due 2018
— “a” on $1 billion 6.375 percent junior subordinated debentures, due 2067
The Chubb Corporation—
AMB-1+ on commercial paper
The following indicative ratings have been affirmed for securities under the shelf registration:
The Chubb Corporation—
— “a+” on preferred securities
— “a” on preferred stock
— “a+” on subordinated debt
— “aa-” on senior unsecured debt

Source: A.M. Best

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