Fitch Affirms Chubb's 'AA' IFS Ratings; Outlook Stable

CHICAGO--()--Fitch Ratings has affirmed the 'A+' Issuer Default Rating (IDR) of Chubb Limited and the 'AA' Insurer Financial Strength (IFS) rating of its insurance operating subsidiaries. The Rating Outlook for all ratings is Stable. A complete list of ratings follows at the end of this release.

KEY RATING DRIVERS

On Jan. 14, 2016 Chubb Limited was created when legacy ACE acquired legacy Chubb for approximately $29.5 billion, creating one of the largest non-life insurance companies in the world.

Fitch views the transaction favorably due to the increased size and scale of the combined entity which is estimated to write roughly $36 billion in global gross written premiums with a little over one-third coming from outside the United States. Legacy ACE demonstrated past success in executing successful acquisitions, but the size and complexity of the Chubb acquisition represents a unique challenge. However, the company recently raised its run rate integration savings estimate by $50 million to $800 million by the end of 2018.

The combined company's rating strengths include a strong balance sheet position and financial flexibility with moderate leverage and diverse sources of revenues and earnings with the advantages of increased global size and scale and strong management teams.

Both legacy ACE and legacy Chubb's operating performance consistently exceeded peers, characterized by low combined ratios with manageable catastrophe losses, consistent favorable loss reserve development and stable investment income from strong operating cash flow. However, past performance is no indication of future success.

For analytical purposes Fitch utilizes pro forma 2016 figures that treat the acquisition as if it took place on Jan. 1 instead of Jan. 14. With almost nine months of combined operations, net written premiums were $22 billion, down about 3% from prior year period on a constant dollar basis. The calendar year combined ratio YTD 2016 remains favorable at 88.2%, relatively flat compared to 87.6% for the prior year period.

To fund this transaction legacy ACE raised $5.3 billion in debt and about $15 billion in equity plus cash dividends. Stated financial leverage was 22% as of Sept. 30, 2016, which is consistent with rating tolerances.

Operating fixed charge coverage was 9.0 times (x) as of Sept. 30, 2016, which is lower than historical averages due to the higher debt load but still in line with rating expectations. The new combined entity is anticipated to have favorable debt servicing capacity from operating subsidiary dividend capacity, earnings, and other liquidity sources.

RATING SENSITIVITIES

Key current rating triggers that may lead to an upgrade include:

--Given increased market position size and scale, demonstration of continued strong operating performance consistent with the individual performance of legacy entities;

--A reduction in financial leverage to a run-rate level of approximately 20% or lower;

--Operating fixed charge coverage approximating 15x;

Key rating triggers that may lead to a downgrade include:

--A material deterioration in operating performance such that the combined ratio is consistently less profitable at over 95%;

--A significant reduction in stockholders' equity that is not recovered in the near term;

--Increase in financial leverage ratio to a sustained level of over 27%;

--Failure to execute acquisition integration plans as expected resulting in material economic impact on the company.

Fitch has affirmed the following ratings:

Chubb Limited

--Issuer Default Rating (IDR) at 'A+'.

Chubb INA Holdings Inc.

--IDR at 'A+';

--$500 million senior notes at 5.7% due 2017 at 'A';

--$300 million senior notes at 5.8% due 2018 at 'A';

--$500 million senior notes at 5.9% due 2019 at 'A';

--$1.3 billion senior notes at 2.3% due 2020 at 'A';

--$1 billion senior notes at 2.875% due 2022 at 'A';

--$475 million senior notes at 2.7% due 2023 at 'A';

--$700 million senior notes at 3.35% due 2024 at 'A';

--$800 million senior notes at due 3.15% 2025 at 'A';

--$1.5 billion senior notes at due 3.35% 2026 at 'A';

--$100 million senior debentures at 8.875% due 2029 at 'A';

--$300 million senior notes at 6.7% due 2036 at 'A';

--$475 million senior notes at 4.15% due 2043 at 'A';

--$1.5 billion senior notes at 4.35% due 2045 at 'A';

--$600 million senior notes at 5.75% due 2018 at 'A';

--$100 million senior notes at 6.6% due 2018 at 'A';

--$200 million senior notes at 6.8% due 2031 at 'A';

--$800 million senior notes at 6% due 2037 at 'A';

--$600 million senior notes at 6.5% due 2038 at 'A';

--$1 billion junior subordinated debentures at 6.375% due 2067 to 'BBB+'.

ACE Capital Trust II

--$300 million capital securities at 9.7% due 2030 at 'BBB+'.

ACE American Insurance Company

ACE Fire Underwriters Ins. Company

ACE INA Overseas Insurance Company Ltd.

ACE Insurance Company of the Midwest

ACE Property and Casualty Insurance Company

Agri General Insurance Company

Atlantic Employers Insurance Company

Bankers Standard Fire & Marine Company

Bankers Standard Insurance Company

Chubb Atlantic Indemnity Ltd.

Chubb Bermuda Insurance Limited

Chubb Custom Insurance Co.

Chubb Indemnity Insurance Co.

Chubb Insurance Company of Europe, S.E.

Chubb Insurance Company of New Jersey

Chubb Lloyds Insurance Company of Texas

Chubb National Insurance Co.

Chubb Reinsurance (Switzerland) Limited

Chubb Tempest Reinsurance Limited

Executive Risk Indemnity, Inc.

Executive Risk Specialty Insurance Co.

Federal Insurance Company

Great Northern Insurance Co.

Illinois Union Insurance Company

Indemnity Insurance Company of North America

Insurance Company of North America

Pacific Employers Insurance Company

Pacific Indemnity Co.

Texas Pacific Indemnity Company

Vigilant Insurance Co.

Westchester Fire Insurance Company

Westchester Surplus Lines Insurance Company

--IFS at 'AA'.

The Rating Outlook is Stable.

Fitch has withdrawn the 'AA' IFS Rating with a Stable Outlook for the following entities as they no longer exist:

Chubb Insurance Company of Australia Ltd.

Chubb Insurance Company of Canada

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

Applicable Criteria

Insurance Rating Methodology (pub. 15 Sep 2016)

https://www.fitchratings.com/site/re/887191

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1015509

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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1015509

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https://www.fitchratings.com/regulatory

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Contacts

Fitch Ratings
Primary Analyst
Gerald Glombicki, CPA
Director
+1-312-606-2354
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
James B. Auden, CFA
Managing Director
+1-312-368-3146
or
Committee Chairperson
Keith M. Buckley, CFA
Managing Director
+1-312-368-3211
or
Media Relations:
Hannah James, New York, + 1 646-582-4947
hannah.james@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Gerald Glombicki, CPA
Director
+1-312-606-2354
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
James B. Auden, CFA
Managing Director
+1-312-368-3146
or
Committee Chairperson
Keith M. Buckley, CFA
Managing Director
+1-312-368-3211
or
Media Relations:
Hannah James, New York, + 1 646-582-4947
hannah.james@fitchratings.com