Fitch Affirms Chubb’s ‘AA’ IFS Ratings

October 7, 2004

Fitch Ratings announced that it has affirmed the ratings of The Chubb Corporation, notably the “AA” insurer financial strength ratings (IFS) of Chubb’s P/C insurance subsidiaries.

Fitch noted that these are part of its U.S. intercompany pool, which is led by Federal Insurance Company. It also affirmed Chubb’s “A+” long-term issuer and senior debt rating, and “F1” commercial paper rating. The “AA” IFS rating also applies to the following Chubb international subsidiaries: Chubb Insurance Company of Europe, S.A., Chubb Insurance Company of Canada, Chubb Insurance Company of Australia Ltd., and Chubb Atlantic Indemnity Ltd. The Rating Outlook for all ratings is Stable.

“The ratings continue to reflect Chubb’s market position as a leading property/casualty insurer in its commercial and personal lines business segments, history of favorable underwriting performance, strong capital position at both the insurance subsidiary and parent holding company levels, conservative investment portfolio, and experienced management team,” said Fitch.

The rating agency also indicated that the “newly assigned ‘AA’ IFS international subsidiary ratings reflect the importance of the international insurance operations to Chubb’s global objectives, and the capital and operational support that Chubb has provided these entities throughout their history. Premium volume from Chubb’s international insurance operations represented approximately 17 percent of total premium for 2003.”

Fitch also presented the following as important considerations in determining the rating level:
— Significant improvements in earnings in 2003, with consolidated GAAP net income of $808.8 million, compared with $222.9 million in 2002. Net written premium increased by 22 percent in 2003 to $11.1 billion, reflecting a continued favorable P/C insurance market pricing environment, while the combined ratio improved to 98 percent from 106.7 percent in 2002. Earnings for 2003 were affected by a $250 million pretax increase in net asbestos loss reserves, following a $741 million pretax increase in net asbestos and environmental loss reserves for 2002.
— Operating performance improved further in the first half of 2004. Net written premium increased by 12 percent relative to the first half of 2003. The underwriting combined ratio fell to 92.7 percent from 95.3 percent in the prior year period. Net income increased by 50 percent in the period to $716.8 million compared with $476.7 million in the first half of 2003.
— Third quarter 2004 operating results will be affected by losses from the hurricanes that recently hit the Southeastern U.S. Thus far, Chubb has announced estimated losses totaling $85-$90 million from Hurricanes Charley and Frances.
– Chubb’s debt to total capital ratio, adjusted for equity credit given to Chubb’s mandatory convertible securities is approximately 16 percent at June 30, 2004, “which is within Fitch’s guidelines for the current rating. Fitch does not expect financial leverage to change materially in the near term. Fixed-charge coverage was 13.7 times (x) in the first half of 2004, compared with 7.5x for the full year 2003.
Statutory capital at Chubb’s insurance subsidiaries increased to approximately $7.0 billion at June 30, 2004 from $4.5 billion at year-end 2002 due to earnings growth and parent company capital contributions.”

Fitch also noted that The Chubb Corporation, based in Warren, NJ, “was the nation’s 10th largest property/casualty insurer based on 2003 net written premium. The company has consolidated estimated GAAP assets of $41.7 billion and shareholders’ equity of $8.9 billion at June 30, 2004.”

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