MOODY'S DOWNGRADES CHUBB CORPORATION RATINGS
Moody's has lowered its rating on The Chubb Corporation's senior debt to Aa3 from Aa2. In addition, the financial strength ratings of Chubb's lead insurance operating companies were lowered to Aa1 from Aaa. These actions conclude a review for possible downgrade initiated on December 30, 1999. At that time, Moody's P-1 rating on Chubb's commercial paper was confirmed, and was not subject to this review.
In its rationale for downgrade, Moody's cited Chubb's declining core earnings due to soft market conditions in commercial insurance, its concentration of exposure and earnings in two specialized markets, and its meaningful exposure to natural catastrophes. While recognizing the impact of these incremental risks, Moody's stated that Chubb's disciplined financial management, acknowleged underwriting leadership and strong franchise in executive protection coverage and high-end personal lines are characteristic of the excellent financial strength rating (Aa1), which places Chubb above most of its peer companies.
Elaborating on its rationale, Moody's noted Chubb's lack of earnings growth in recent years, due to poor results in the company's standard commercial lines book. Declining rates have resulted in a combined ratio for this segment in excess of 120% in 1999, effectively eliminating underwriting profits in personal lines and executive protection coverages. While Chubb has taken aggressive steps to improve results in this segment, years of intense price competition has driven rates well below adequate levels and Moody's believes that a return to profitability is unlikely in the near term.
In addition, the rating agency noted the degree of Chubb's business diversification as an important factor in its decision to lower Chubb's ratings. In Moody's opinion, increased concentration in two specialty markets - executive protection and high-end personal lines - exposes the company to increased volatility in earnings due to exogenous factors such as natural catastrophes, evolving case law, and changing market conditions. While Chubb has established itself as a leader in these markets, they are limited in scope and do not offer the potential for broader leadership in either the commercial lines or personal lines insurance markets. In this regard, Moody's noted that global leadership in broadly defined businesses and substantial business diversification are often characteristics that differentiate the most highly rated corporations. Finally, Chubb's aggregate exposure to natural catastrophes remains meaningful.
While strong capitalization at the holding company level is a positive credit consideration, creating substantial on-balance sheet and off-balance sheet equity, Moody's notes that pressures for property and casualty insurance companies to deploy perceived excess capital have grown perceptibly over time as shareholders have become more vocal about optimizing deployment of capital funds. Although Chubb's commitment to maintaining substantial capitalization has not diminished, Moody's expects shareholder pressures to continue to grow.
Financial strength ratings have been extended to several members of the Chubb Group of Insurance Companies that participate in a intragroup reinsurance pool. In addition, Moody's has assigned a financial strength rating of Aa1 to Chubb Atlantic Indemnity Ltd., a Bermuda based subsidiary of The Chubb Corporation, based on the implied financial support of the parent company. The debt ratings of Executive Risk, Inc. remain on review for possible upgrade, reflecting the potential for its eventual guarantee by The Chubb Corporation.
The following ratings have been lowered:
The Chubb Corporation senior long-term debt from Aa2 to Aa3, preferred stock shelf registration from (P)"aa3" to (P)"a1";
Chubb Capital Corporation -- guaranteed senior debt from Aa2 to Aa3, subordinated long-term debt shelf registration from (P)Aa3 to (P)A1;
Federal Insurance Company: Insurance Financial Strength from Aaa to Aa1;
Great Northern Insurance Company: Insurance Financial Strength from Aaa to Aa1;
Pacific Indemnity Company: Insurance Financial Strength from Aaa to Aa1;
Vigilant Insurance Company: Insurance Financial Strength from Aaa to Aa1.
The following ratings have been assigned:
Chubb Custom Insurance Company: Insurance Financial Strength at Aa1;
Chubb Indemnity Insurance Company: Insurance Financial Strength at Aa1;
Chubb National Insurance Company: Insurance Financial Strength at Aa1;
Texas Pacific Indemnity Company: Insurance Financial Strength at Aa1;
Chubb Lloyds Insurance Company of Texas: Insurance Financial Strength at Aa1;
Chubb Insurance Company of New Jersey: Insurance Financial Strength at Aa1;
Northwest Pacific Indemnity Company: Insurance Financial Strength at Aa1.
Ratings remaining under review for possible upgrade are as follows:
Executive Risk, Inc. - senior unsecured long-term debt, at A2; junior subordinated long-term debt at A3;
Executive Risk Capital Trust - guaranteed capital securities at "a2".
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 1999, Chubb reported year to date written premiums of $5.7 billion, net income of $621.1 million, and shareholders' equity of $6.3 billion.
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