Fitch Ratings affirms all ratings for The Chubb Corporation (NYSE: CB) (Chubb), including the 'AA-' Issuer Default Rating (IDR) and 'A+' senior debt rating. Fitch has also affirmed the 'AA' Insurer Financial Strength ratings (IFS) of Chubb's property/casualty insurance subsidiaries, which are led by Federal Insurance Company (Federal). A full rating list is shown below. The Rating Outlook is Stable.
The ratings continue to reflect Chubb's market position as a leading property/casualty insurer, history of favorable underwriting performance, strong capital position at both the insurance subsidiary and parent holding company levels, and conservative investment portfolio. Chubb is the 12th largest writer in the U.S. based on 2011 net written premiums. The company has significant international operations as approximately 27% of 2011 revenues were generated outside of the U.S. Operations are segmented into personal, commercial and specialty operations, each of which has a track record of consistent strong underwriting profitability.
Chubb has generated favorable profitability over the last five years as demonstrated by an average annual combined ratio of 88.4% from 2007-2011, and an average operating return on equity of 13.9% for the same period. The company's net earnings in the first quarter of 2012 were level relative to the prior year first quarter, though underwriting results improved due largely to lower catastrophe losses. The company reported a consolidated GAAP underwriting combined ratio of 90.2% for the period. Net income of $506 million corresponded with a return on equity of 13.1%.
The company's reported debt-to-total capital ratio was 18.8% at March 31, 2012. Financial leverage declined recently as $400 million of outstanding debt matured in November 2011, while shareholders equity has been relatively stable, as the bulk of recent earnings has funded share repurchase activity. Operating interest coverage (excluding realized investment gains) remains highly favorable at 12.3x for the first quarter of 2012, following 8.8x coverage recorded in 2011.
Chubb has significant resources available for debt servicing needs as the parent holding company held approximately $2 billion of cash and other liquid assets at March 31, 2012. The company's insurance subsidiaries can dividend approximately $1.8 billion to the parent holding company for debt servicing and other purposes in 2012 without prior regulatory approval.
Statutory capital at Chubb's global insurance subsidiaries was approximately $14.3 billion at March 31, 2012, approximately 2% higher relative to year-end 2011. Chubb's insurance subsidiary capital adequacy as measured by risk based capital and traditional operating leverage metrics remains very strong.
Chubb's debt ratings currently benefit from narrower notching from the IFS rating due to lower leverage and strong interest coverage. The existing debt rating is sensitive to future increases in financial leverage or reductions in debt servicing capacity. Significant reductions in holding company liquid investments, declines in statutory maximum dividend coverage below 5x-6x, or a fall in interest coverage consistently below 9x would lead to more traditional notching in Chubb's ratings, with the debt ratings moving down by one notch.
Other factors that could lead to consideration of a ratings downgrade include:
--A significant level of near-term earnings volatility which is outside the historical average;
--A material weakening of operating company capital quality, through a deterioration in either reserve or asset quality.
Chubb's rating could be considered for an upgrade under the following circumstances:
--A material improvement in the company's catastrophe risk profile;
--Sustained stronger profitability, especially relative to peers at the current rating level and the industry aggregate, over the business cycle;
--A significant change towards additional conservatism within the company's overall risk management, liquidity and capitalization, at both the holding company and operating company.
Fitch has affirmed the following with a Stable Outlook:
The Chubb Corporation
--IDR at 'AA-';
--5.2% notes due April 2013 at 'A+';
--5.75% senior notes due May 2018 at 'A+';
--6.6% notes due August 2018 at 'A+';
--6.8% debentures due November 2031 at 'A+';
--6.0% senior notes due 2037 at 'A+';
--6.5% senior notes due May 2038 at 'A+';
--6.375% junior subordinated debentures due 2067 at 'A-';
--Short-term IDR at 'F1+';
--Commercial paper at 'F1+'.
Fitch has affirmed the following IFS ratings at 'AA' with a Stable Outlook:
Chubb's Property/Casualty Insurance subsidiaries:
--Federal Insurance Company;
--Chubb Custom Insurance Co;
--Chubb Indemnity Insurance Co.;
--Chubb National Insurance Co.;
--Great Northern Insurance Co.;
--Pacific Indemnity Co.;
--Vigilant Insurance Co.;
--Executive Risk Indemnity, Inc.;
--Executive Risk Specialty Insurance Co.;
--Chubb Insurance Company of Europe, S.E.;
--Chubb Insurance Company of Canada;
--Chubb Insurance Company of Australia Ltd.;
--Chubb Atlantic Indemnity Ltd.;
--Texas Pacific Indemnity Company;
--Northwestern Pacific Indemnity Company;
--Chubb Insurance Company of New Jersey;
--Chubb Lloyds Insurance Company of Texas.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Sept. 22, 2011);
--'Rating Hybrid Securities' (July 28, 2011).
James B. Auden, CFA, +1-312-368-3146
70 West Madison Street
Chicago, IL 60602
Gerald B. Glombicki, CPA, +1-312-606-2354
Keith M. Buckley, CFA, +1-312-368-3211
Group Managing Director
Sandro Scenga, +1-212-908-0278