S&P’s Takes Chubb Ratings Off Watch, Lowers Them

March 26, 2003

Standard & Poor’s has removed from CreditWatch its long-term counterparty credit and senior debt ratings on Chubb Corp. and lowered them to ‘A’ from ‘A+’ because it does not believe that Chubb’s operating performance and capital strength support the former ratings.

Standard & Poor’s also said that it removed from CreditWatch its
counterparty credit and financial strength ratings on Chubb’s operating insurance companies and lowered them to ‘AA’ from ‘AA+’. The outlook on all these companies is stable.

“In terms of operating performance, Chubb has had adverse loss experience across most of its business lines over the past three years (excluding Sept. 11, 2001-related terrorism losses), which is somewhat uncommon for a company rated ‘AA+’,” noted Standard & Poor’s credit analyst Michael Gross. “Most recently, the company has been negatively affected by adverse loss experience in its specialty commercial lines (directors and officers liability/errors and omissions liability) and its U.S. homeowners line, which are lines of business that have historically been very profitable and that have differentiated Chubb’s business profile.”

Although these business lines’ results are expected to improve, Standard & Poor’s believes that the consolidated benefit of Chubb’s business and earnings diversity has been eroded somewhat by competitive pricing and terms, legal trends, and increased reinsurance costs.

Although operating performance in 2003 is expected to be very strong, Standard & Poor’s believes that Chubb needs to continue rate increases through 2003 across most business lines as well as more effectively manage its relatively high expense structure.

Regarding capital strength, Standard & Poor’s believes that Chubb is more capital constrained today than in prior years and that it will likely remain so into 2004. The company’s capital position has been negatively affected by a number of charges over the past 18 months relating to the Sept. 11, 2001, terrorism attacks, Enron-related surety losses, asbestos reserve strengthening, and reserve strengthening for directors and officers liability exposure. Standard & Poor’s does not view Chubb’s reserves as redundant as it had in the past, although reserves are adequate. At the same time, prospective
strong growth in reserves and invested assets will require additional capital.

Although Chubb’s consolidated capital strength is somewhat below average for the new rating, it is secure, and Standard & Poor’s expects the company to increase capital strength by raising new equity and retaining earnings.

The very strong financial strength ratings on Federal Insurance Co. and its intercompany pool members are based on the group’s leadership position in a range of specialty insurance lines in both commercial and personal segments of the property/casualty industry.

In addition, the group enjoys very strong brand-name recognition globally and strong capitalization on a consolidated basis. Although Chubb’s rated foreign subsidiaries – including Chubb Insurance Co. of Australia, Chubb Insurance Co. of Canada, and Chubb Insurance Co. of Europe – are smaller and have select operating issues, they are viewed as core and integral units of the Chubb organization and are rated the same as Federal Insurance Co.

Chubb continues to distinguish itself from the competition through innovative bundled and unbundled niche product development, exceptional global service capability, and a respected brand name reinforced by Chubb’s underwriting discipline.

Standard & Poor’s expects Chubb’s total growth in net written premium to be about 20 percent in 2003 and expects very strong operating performance, in part reflected by a consolidated combined ratio of less than 100 percent, excluding catastrophic events.

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