S&P Raises Chubb’s Ratings to ‘A+’

December 16, 2008

Standard & Poor’s Ratings Services announced that it has raised its counterparty credit rating on Warren, N.J.-based Chubb Corp. to ‘A+’ from ‘A’, “to reflect reduced notching between the operating group and the holding company.” S&P also affirmed its ‘AA’ counterparty credit and financial strength ratings on Chubb Corp.’s insurance operating companies. The outlook on all of these companies remains stable.

“The upgrade on Chubb Corp. follows reduced notching to two from three between the operating group and the holding company,” said S&P.

“These rating actions reflect our recognition of management’s sustained track record of maintaining substantial liquidity and marketable assets at the parent company level since 2003, as well as the company’s well-capitalized operating units, and consolidated financial leverage of 20 percent-25 percent, in-line with the rating structure,” added credit analyst Tracy Dolin.

S&P said: “The insurer financial strength ratings on Core operating companies have not changed. The parent company held $2.7 billion of cash or cash equivalents as of Sept. 30, 2008. We believe the parent company will continue to maintain at least $1 billion of liquid assets serving as an additional source of capital for $237 million of fixed charges, annual shareholders dividends of $451 million and other general corporate needs (based on 2007 financials).”

In addition S&P said it also “recognizes Chubb’s geographic diversity given that international operations constituted 22 percent of total premiums in 2007.

“The affirmation on the operating companies reflects Chubb’s outstanding reputation globally for product innovation and service, disciplined underwriting, strong underwriting profit, and very strong capitalization.”

S&P described Chubb’s enterprise risk management framework and practices as “strong and supportive of the group rating structure. Chubb reported record consolidated pretax income of $3.9 billion for full-year 2007 and total shareholders’ equity of $14.5 billion at year end. For the first nine months of 2008, Chubb reported consolidated pretax income of about $2 billion. Chubb’s strong fixed-charge coverage of 11.1x and conservative financial leverage of 23.9 percent for the same period commensurate with its rating level.

“The company remains exposed to natural catastrophes, terrorist events, and cyclical pricing pressures. However, in recent years, management has been successful in further optimizing its risk selections, building capital, and increasing financial flexibility on the parent’s balance sheet.”

Looking to 2009, S&P said it expects “flat net premiums written growth,” and that “Chubb’s combined loss and expense ratio will be in the low 90 percent range, depending on 2009 catastrophe losses.

“Operating performance should remain very strong in 2009, though Chubb is susceptible to current soft property/casualty market conditions for some product lines and the possibility of higher reinsurance costs for property lines.

“In addition, we expect Chubb may take advantage of opportunities arising from marketplace dislocation, as long as these opportunities fit within the company’s disciplined underwriting strategy.”

S&P also indicated that it “expects Chubb to maintain excellent capital strength at a level that supports modeled risks including natural and man-made catastrophe losses. We also expect Chubb to maintain at least $1 billion of cash or cash equivalents on the parent company balance sheet. We expect debt plus hybrids to capital financial leverage and debt-to-capital to be less than 25 percent and 20 percent, respectively, for 2009. We also expect fixed-charge coverage to be very strong at 10x or better for 2009.”

Source: Standard & Poor’s – www.standardandpoors.com

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