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Rating Action:

Moody's affirms Chubb's debt and insurance financial strength ratings

04 Feb 2009

$4 billion of debt securities affirmed.

New York, February 04, 2009 -- Moody's Investors Service has affirmed the ratings of The Chubb Corporation (NYSE: CB, "Chubb", A2 senior unsecured debt) and its U.S. operating companies (Aa2 insurance financial strength) with a stable outlook. The affirmation follows Chubb's recent release of full year results, which included $2.0 billion of net operating income.

According to Moody's, the Aa2 insurance financial strength ratings of Chubb's U.S. operating subsidiaries reflect their distinction as a leading underwriter, particularly for high-end homeowners' insurance and professional liability insurance.

"Chubb's franchise strength is corroborated by its strong underwriting margins," says Kevin Lee, a senior credit officer at Moody's. Since 2004, annual combined ratios have been 92.3% or better (notwithstanding natural catastrophes), reflecting adept risk selection and product customization for those who are willing to pay for superior service.

Overall, Moody's believes that Chubb's operating subsidiaries remain strongly capitalized on a risk-adjusted basis, notwithstanding potential D&O and E&O claims from the credit crisis, principally from financial institution clients. Moody's believes that these losses will be manageable relative to earnings. Since 2004, Chubb has shifted this segment from larger to smaller financial institutions and reduced average policy limits. Invested assets are conservative, although alternative investments (5% of cash and invested assets) remains an area of vigilance. Financial flexibility remains excellent.

These strengths are tempered by cyclical dynamics of the property/casualty industry, which has seen further rate declines for commercial insurance during the past year and which has affected Chubb's earnings. In particular, absent reserve releases from prior years' loss provisions (roughly $870 million pre-tax in 2008), operating returns would have been more modest. Moody's expects its analysis of Chubb's reserves to indicate a lower reserve margin at year-end 2008. Other aspects which temper the credit profile include significant catastrophe risk and lingering exposure to asbestos liabilities.

In evaluating insurance financial strength, Moody's has also developed sensitivity scenarios which include assumptions about bond defaults, declines in the equity market, and catastrophe losses (refer to Moody's special comment "Credit Uncertainties: Global Financial Institutions," dated January 14, 2009).

Chubb's A2 senior debt rating reflects Moody's view that the operating companies will continue to provide strong credit support. Strong operating income in recent years has also led to significant asset accumulation at the holding company. At December 31, 2008, the holding company maintained $2.9 billion of invested assets, of which $1.6 billion were cash and short-term investments -- compared to $4.0 billion of debt outstanding including $1 billion of hybrid capital securities.

Chubb has held a long-standing policy of maintaining $1 billion of liquidity at the holding company. While this liquidity enhances credit support, Moody's believes in general that holding company liquidity can be fungible, and is better viewed as contingent support for operations (i.e., as an enhancement to the insurance financial strength rating), as financial flexibility during times of duress, or as funds for other uses. That said, if the company were to commit to maintaining significantly more than $1 billion of holding company liquidity, it could put upward pressure on the debt ratings.

The following ratings have been affirmed with a stable outlook:

The Chubb Corporation - senior unsecured at A2, junior subordinate at A3, senior unsecured shelf at (P)A2, subordinate shelf at (P)A3; preferred stock shelf at (P)Baa1, commercial paper at P-1;

Chubb Capital Trusts I, II, III -- guaranteed trust preferred securities shelf at (P)A3;

Federal Insurance Company - insurance financial strength rating at Aa2;

Great Northern Insurance Company - insurance financial strength rating at Aa2;

Pacific Indemnity Company - insurance financial strength rating at Aa2;

Vigilant Insurance Company - insurance financial strength rating at Aa2;

Northwestern Pacific Indemnity Company - insurance financial strength rating at Aa2;

Chubb Insurance Company of New Jersey - insurance financial strength rating at Aa2;

Chubb Lloyds Insurance Company of Texas - insurance financial strength rating at Aa2;

Chubb Custom Insurance Company - insurance financial strength rating at Aa2;

Chubb Indemnity Insurance Company - insurance financial strength rating at Aa2;

Chubb National Insurance Company - insurance financial strength rating at Aa2;

Texas Pacific Indemnity Company - insurance financial strength rating at Aa2;

Executive Risk Indemnity, Inc. - insurance financial strength rating at Aa2;

Executive Risk Specialty Insurance Company - insurance financial strength rating at Aa2;

Chubb Atlantic Indemnity, Ltd. - insurance financial strength rating at Aa2.

The Chubb Corporation (NYSE: CB), based in Warren, New Jersey, USA, provides property and casualty insurance for personal and commercial customers worldwide through 8,500 independent agents and brokers. It is one of the largest property and casualty insurers in the United States. For 2008, Chubb reported net operating income of $2.0 billion on net premiums earned of $11.8 billion. Shareholders' equity as of December 31, 2008 was $13.4 billion.

The last rating action on The Chubb Corporation occurred on May 7, 2008 when Moody's rated $1.2 billion of senior notes, consisting of $600 million maturing in 2018 and $600 million maturing in 2038.

The principal methodology used in rating Chubb was Moody's Global Rating Methodology for Property and Casualty Insurers, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating Chubb can also be found in the Credit Policy & Methodologies directory.

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to pay punctually senior policyholder claims and obligations. For more information, visit our website at www.moodys.com/insurance.

New York
Kevin Lee
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Robert Riegel
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Chubb's debt and insurance financial strength ratings
No Related Data.
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