Fitch Affirms The Chubb Corporation's Ratings

CHICAGO--()--Fitch Ratings today affirmed 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.

KEY RATING DRIVERS

Fitch's affirmation of the current ratings 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's operations are segmented into personal, commercial and specialty operations, each of which has a track record of consistent, strong underwriting profitability.

The company's consolidated GAAP operating income for the first nine months of 2014 was just over $1.3 billion an approximate 16% decline over the first nine months of 2013. The deterioration was due to higher accident year loss ratios and to a lesser extent both lower favorable reserve development and net investment income.

Chubb reported a consolidated GAAP underwriting combined ratio of 89.6% for the first nine months of 2014 compared to 86.4% for the first nine months of 2013. On a segment basis both personal lines and commercial lines underwriting results deteriorated the most in the first nine months of 2014 by approximately 5 percentage points. In particular, homeowners experienced higher fire and non-weather related catastrophe losses that led to an almost 8 point increase in the segment combined ratio year-over-year. Similarly, in the commercial segment, commercial property and marine experienced a 26 percentage point increase in the segment combined ratio year-over-year due in part to a higher impact of large fire losses and non-catastrophe related losses during the second quarter of 2014. In spite of the elevated claims all major segments produced a significant underwriting profit and CB generated a solid return on average equity of 13.3% for the first nine months of 2014.

The company's financial leverage ratio was 17.7% at Sept. 30, 2014 equivalent to the year-end 2013 level. Operating interest coverage remained strong at 12.1x for the first nine months of 2014. Chubb has significant resources available for debt servicing needs as the parent holding company held approximately $1.8 billion of cash and other liquid assets at Sept. 30, 2014. Chubb's insurance subsidiary capital adequacy as measured by risk based capital, traditional operating leverage metrics, and the score from 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 ratings are sensitive to future increases in financial leverage or reductions in debt servicing capacity.

RATING SENSITIVITIES

Factors that could lead to consideration of a downgrade of Chubb's debt and IDR include:

--Reduction in holding company liquid investments to less than $1 billion, sustained reductions in statutory fixed charge coverage below 5x-6x, or a sustained decline in GAAP interest coverage below 9x.

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 either a deterioration in reserve or asset quality.

Factors that could lead to an upgrade include:

--A material increase in capital strength such that GAAP operating leverage was 0.7x or lower accompanied by a Prism score of 'Extremely Strong'. However, given publicly traded companies' sensitivity around managing capital, this level of capitalization is unlikely.

Fitch has affirmed the following ratings with a Stable Outlook:

The Chubb Corporation

--IDR at 'AA-';

--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:

--Chubb Atlantic Indemnity Ltd.;

--Chubb Custom Insurance Co;

--Chubb Indemnity Insurance Co.;

--Chubb Insurance Company of Australia Ltd.;

--Chubb Insurance Company of Canada;

--Chubb Insurance Company of Europe, S.E.;

--Chubb Insurance Company of New Jersey;

--Chubb Lloyds Insurance Company of Texas;

--Chubb National Insurance Co.;

--Federal Insurance Company;

--Great Northern Insurance Co.;

--Pacific Indemnity Co.;

--Executive Risk Indemnity, Inc.;

--Executive Risk Specialty Insurance Co.;

--Texas Pacific Indemnity Company;

--Vigilant Insurance Co.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Sept. 4, 2014).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756650

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=976455

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Contacts

Fitch Ratings
Primary Analyst
Gerald B. Glombicki, CPA
Director
+1-312-606-2354
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Gretchen Roetzer
Director
+1-312-606-2327
or
Committee Chairperson
Keith M. Buckley, CFA
Group Managing Director
+1-312-368-3211
or
Media Relations:
Alyssa Castelli, New York, +1 212-908-0540
Email: alyssa.castelli@fitchratings.com
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Gerald B. Glombicki, CPA
Director
+1-312-606-2354
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Gretchen Roetzer
Director
+1-312-606-2327
or
Committee Chairperson
Keith M. Buckley, CFA
Group Managing Director
+1-312-368-3211
or
Media Relations:
Alyssa Castelli, New York, +1 212-908-0540
Email: alyssa.castelli@fitchratings.com
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com