CHICAGO--()--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 list of ratings follows at the end of this release.
The Rating Outlook is Stable.
RATING SENSITIVITY/KEY RATING DRIVERS
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 13th largest writer in the U.S. based on 2011 net written premiums. The company has significant international operations as approximately 26% through nine months of 2012 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 89.9% from 2008 through nine months of 2012, and an average operating return on equity of 14.1% for the same period. The company's net earnings for the first nine months of 2012 improved due largely to lower catastrophe losses. The company reported a consolidated GAAP underwriting combined ratio of 90.1% for the period with catastrophes accounting for 3.0 points to the combined ratio. This compares favorably to a 97.1% combined ratio for the first nine months of 2011 that had 11.7 points of catastrophes. Net income for the first nine months of 2012 was $1.4 billion which equates to a return on equity of 12.2%.
Fourth quarter 2012 results will be unfavorably affected by losses from Hurricane Sandy. Chubb previously announced estimated Sandy net pretax losses of $880 million or $570 million after tax which was approximately 3.6% of consolidated GAAP equity at Sept. 30, 2012. Despite the losses incurred from Sandy, the company is likely to still report a significant operating profit in full year 2012.
The company's reported debt-to-total capital ratio was 20.2% at Sept. 30, 2012. Operating interest coverage (excluding realized investment gains) remains highly favorable at 12.1x for the first nine months of 2012. Chubb has significant resources available for debt servicing needs as the parent holding company held approximately $2.2 billion of cash and other liquid assets at September 30, 2012. The company also has significant insurance subsidiary statutory dividend payment capacity to support parent holding company debt servicing obligations. Chubb's insurance subsidiary capital adequacy as measured by risk based capital, traditional operating leverage metrics, and Fitch's Prism capital model remains very strong.
Chubb's debt ratings currently benefit from narrower notching from the IFS rating due to lower leverage, strong interest coverage, and significant liquidity at the holding company. 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 adequacy, through operating losses, capital declines or a deterioration in reserve or asset quality.
Chubb's rating could be considered for an upgrade under the following circumstances:
--Sustained stronger profitability, especially relative to peers at the current rating level and the industry aggregate, over the business cycle;
--Sustained conservatism within the company's overall risk management, catastrophe profile, 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' (Jan. 11, 2013)
Applicable Criteria and Related Research:
Insurance Rating Methodology - Amended