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

March 14, 2013

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A++’ (Superior) and issuer credit ratings (ICR) of “aa+” of the property/casualty subsidiaries of The Chubb Corporation, also known as the Chubb Group of Insurance Companies.

Best has also affirmed the ICR of “aa-“, for all long-term debt and indicative ratings and the AMB-1+ on the commercial paper of Chubb Corp. In addition, Best affirmed the FSR of ‘A++’ (Superior) and ICR of “aa+” of Chubb Atlantic Indemnity Ltd., which is based in Bermuda.

The outlook for all ratings is stable, except for the commercial paper, which does not have an outlook. All of the companies are headquartered in Warren, New Jersey, except where specified (see below).

The ratings reflect the 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, which is demonstrated by its consistent outperformance of industry peers,” Best said.

“The ratings also recognize Chubb Group’s comprehensive and proactive enterprise risk management, disciplined underwriting practices, 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.”

Best also noted that the “strength of Chubb Group’s balance sheet is derived from its consistent generation of underwriting profits, despite the recent impact of 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 underwriting and operating cash flows.”

As partial offsetting factors best cited the “challenging market conditions and catastrophe and weather-related losses, which have impacted underwriting performance in each of the last three years.”

Best explained that catastrophe losses “added approximately six, nine and 10 points to the group’s combined ratios for 2010, 2011 and 2012, respectively; however, the report also noted that “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, although overall development of loss reserves has been favorable in recent accident and calendar years.

“Given Chubb Group’s leading market position, specialty niche underwriting focus, prudent balance sheet liquidity, strong 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 said 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, Best indicated that these positive rating factors “are partially offset by the volatility in Chubb Atlantic’s underwriting performance in prior years, largely due to adverse loss reserve development.”

In conclusion the report noted that “Chubb Corp.’s debt-to-tangible capital ratio is maintained at a modest 20 percent as of December 31, 2012. 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 affected by the ratings announcement as follows:
The FSR of ‘A++’ (Superior) and the ICRs of “aa+” have been affirmed for the following property/casualty subsidiaries of The Chubb Corporation:
•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
•Chubb Atlantic Indemnity Ltd.

The following debt ratings have also 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 following debt rating has been affirmed:
The Chubb Corporation—
— AMB-1+ on commercial paper

The following indicative ratings have been affirmed for securities under the shelf registration:
The Chubb Corporation—
— “aa-” on senior unsecured debt
— “a+” on subordinated debt
— “a+” on preferred securities
— “a” on preferred stock

Source: A.M. Best

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