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Rating Action:

MOODY'S CONFIRMS CHUBB CORPORATION RATINGS; REVIEWS EXECUTIVE RISK RATINGS FOR POSSIBLE UPGRADE; REITERATES CHUBB'S NEGATIVE OUTLOOK

08 Feb 1999
MOODY'S CONFIRMS CHUBB CORPORATION RATINGS; REVIEWS EXECUTIVE RISK RATINGS FOR POSSIBLE UPGRADE; REITERATES CHUBB'S NEGATIVE OUTLOOK Moody's Investors Service has confirmed the ratings of The Chubb Corporation (NYSE: CB, senior debt at Aa2) and its subsidiaries (insurance financial strength at Aaa, guaranteed senior debt at Aa2) and has placed the ratings of Executive Risk, Inc. ("ERI"; senior debt at Baa2) under review for possible upgrade, following today's announcement of a definitive agreement between Chubb and Executive Risk (NYSE: ER) enabling Chubb to acquire all of the outstanding common stock of ERI in a transaction valued at approximately $850 million. The acquisition, which has been approved by the companies' respective Boards of Directors, remains subject to regulatory and ERI shareholder approvals, and is expected to close by mid-year.

According to Moody's, the confirmation of Chubb's ratings is based on the combined companies' enhanced position in the executive protection insurance market, in which each firm is already among the market leaders, and on the modest impact of this acquisition on Chubb's aggregate business and earnings mix, capital structure, and underwriting risk profile, given the smaller size of Executive Risk, relative to Chubb.

The review of Executive Risk's ratings for possible upgrade is based on Moody's view that creditors of Executive Risk would benefit from the enhanced support available to them, both implicit and perhaps explicit, under Chubb ownership. Expanding on its rating decision, Moody's noted that contributing to Chubb's exceptional insurance financial strength are the insurer's highly profitable personal and specialty commercial property and casualty operations, its strong risk selection capabilities and customer service reputation, its market leadership in executive protection coverages and dominant presence in the high net worth personal lines market, its significant and growing international presence, and its solid financial profile. With respect to the executive protection business, Moody's noted that ERI's focus on products for the wholesale, specialty brokerage and program distribution markets, its balanced mix of for-profit and not-for-profit organizations in its commercial directors and officers segment, and its significant portfolios of professional liability (primarily lawyer's) and healthcare institution business should broaden Chubb's portfolio, which is focused more heavily in the retail market, with emphasis on larger for-profit organizations. Furthermore, Moody's noted that its review of the correlation of various sub-segments of the insurers' respective and combined portfolios suggests that the combination -- exclusive of potential future changes in risk retention -- could help to diversify risk and reduce volatility in this segment. The rating agency added that it considers the acquisition to be a compatible business fit, given both firms' focus on underwriting and pricing disipline, and their conservative reserving practices, the latter of which provides each with a margin of safety in the potentially volatile lines that they underwrite. Moody's also recognizes Chubb's financial flexibility, which is further enhanced by the company's maintenance of substantial unregulated capital at the holding company level.

Despite certain benefits accruing from transaction, however, Moody's said that its outlook for Chubb's ratings remains negative. Among the concerns cited are Chubb's substantial business and earnings concentration in executive protection lines, which have historically generated in excess of half of the company's operating earnings, and may contribute a higher percentage in 1998 and beyond. The rating agency also identified Chubb's substantial exposures to natural catastrophes that arise from its coastal personal and commercial property businesses, as well as the potential -- despite uncertain likelihood -- for significant exposure to Year 2000 related claims associated with its leading position in the directors' and officers' liability market. Another key rating issue is Chubb's above-average operating leverage at the property and casualty group, which is exacerbated by increased risk retentions within the company's commercial liability business in recent years.


Ratings confirmed, with a negative outlook, are as follows:


The Chubb Corporation senior long-term debt at Aa2, preferred stock shelf registration at (P)"aa3";

Chubb Capital Corporation -- guaranteed senior debt at Aa2, rating for guaranteed commercial paper at Prime-1, subordinated long-term debt shelf registration at (P)Aa3;

The Chubb Property & Casualty Intercompany Pool (Federal Insurance Company, Great Northern Insurance Company, Pacific Indemnity

Company, Vigilant Insurance Company): Insurance Financial Strength at Aaa.


Ratings placed under review for possible upgrade are as follows:


Executive Risk, Inc. - senior unsecured long-term debt at Baa2; junior subordinated long-term debt at Baa3;

Executive Risk Capital Trust - guaranteed capital securities at "baa3".


The Chubb Corporation (NYSE: CB), based in Warren, New Jersey, is engaged through its subsidiaries in property and casualty insurance in the USA and internationally. Chubb is a market leader in personal lines insurance among high net worth individuals, and in executive protection lines of business such as directors' and officers' liability and errors and omissions coverages. As of year-end 1998, Chubb reported annual written premiums of $5.5 billion, net income of $707 million, and shareholders' equity of $5.6 billion.

Executive Risk, Inc. (NYSE: ERI), based in Simsbury, Connecticut,is property and casualty insurer that specializes in underwriting executive protection coverages. As of year-end 1998, Executive Risk reported year-to-date net premiums written of $284 million, net income of $43 million, and shareholders' equity of $331 million.

No Related Data.
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