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Rating Action:

Moody's affirms Chubb's ratings (senior debt at A2); outlook stable

13 Aug 2014

Leading US multi-line and specialty P&C insurer.

New York, August 13, 2014 -- Moody's Investors Service has affirmed the A2 senior debt and Prime-1 commercial paper ratings of The Chubb Corporation (NYSE: CB) and the Aa2 insurance financial strength (IFS) ratings of its operating subsidiaries. The outlook for all ratings remains stable.

Rating Rationale

According to Moody's, the affirmation of Chubb's ratings reflect the company's strong brand in its chosen lines of business, its demonstrated commitment to underwriting discipline, its strong customer service capabilities, and its excellent financial profile. The group maintains strong risk-adjusted capitalization, conservative reserves and investment portfolios, and moderate financial leverage with a robust liquidity profile. These strengths are tempered somewhat by the insurer's underwriting exposures to catastrophe losses and to potentially volatile claim and litigation trends in its professional liability and other long-tail casualty businesses. Notwithstanding what Moody's considers to be a somewhat above-average risk profile in the group's personal lines and professional liability segments, Chubb has long maintained a better-than-average record of underwriting performance, risk-adjusted capital strength, and strategic focus, relative to most of its industry peers. Moody's believes that Chubb's capitalization remains strong, given the company's relatively modest exposure growth trend and sustained favorable operating results, and notwithstanding its active share repurchase program.

"Chubb's franchise strength is derived from its expertise and focus in its chosen markets -- especially the high-end personal lines, management liability and specialty commercial lines -- and by its consistently strong underwriting margins," said Alan Murray, Moody's lead analyst for Chubb. "Chubb's annual combined ratios have consistently remained better than peers, reflecting adept risk selection and product customization for those who are willing to pay for superior service. "Chubb reported consolidated operating income of $792 million for the first six months of 2014, lower than $1.03 billion in the same period a year ago, largely reflecting higher catastrophes, non-catastrophe weather-related losses and large fire losses. Assuming a normalized level of catastrophe loss activity, Moody's expects Chubb to sustain healthy underwriting and operating margins, even as the property-casualty underwriting environment becomes more competitive.

The spread between Chubb's A2 senior debt rating and the Aa2 insurance financial strength ratings of its subsidiaries is three notches, which is consistent with Moody's typical notching practices for U.S. insurance holding company structures. Chubb maintains strong liquidity (about $1.98 billion of cash and high-quality securities as of June 30, 2014) at the holding company, providing contingent capital and the flexibility to support its insurance subsidiaries. The company also has an active share repurchase program, which Moody's expects will be managed consistent with expectations for maintaining strong coverage metrics, as well as a low financial leverage position for the holding company, and a strong risk-adjusted capital position for the operating subsidiaries.

The group's principal operating subsidiaries remain strongly capitalized on a risk-adjusted basis, notwithstanding substantial share repurchases in recent years that have approximated net income, while still allowing total capital to grow.

Commenting on factors that could lead to a rating upgrade include the following: 1) sustained reduction in the group's financial leverage profile (e.g. below 15%); 2) significant reduction in intrinsic volatility related to the group's catastrophe-exposed homeowners and litigation sensitive executive liability segments; 3) sustained earnings coverage in excess of 10x and cash-flow coverage in excess of 6x; 4) continued conservative reserving profile, together with significant reduction in risk of adverse development from asbestos and environmental liabilities. Conversely, factors that could lead to a rating downgrade include the following: 1) sustained adjusted financial leverage in excess of 25%; 2) sustained earnings and cash-flow coverage (exclusive of cash and liquid investments at the holding company) below 8x and 5x, respectively; 3) decline in shareholders' equity capitalization by more than 5% as a result of operating or (realized) investment losses; 4) consistent adverse reserve development in excess of 1% of reserves annually; 5) gross underwriting leverage at 4x or greater.

The following ratings have been affirmed with a stable outlook:

The Chubb Corporation - senior unsecured at A2, junior subordinated debt at A3(hyb), commercial paper at P-1;

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;

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 principal methodology used in these ratings was Global Property and Casualty Insurers published in December 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

The Chubb Corporation (NYSE: CB), based in Warren, New Jersey, USA, provides property and casualty insurance for personal and commercial customers worldwide through independent agents and brokers. It is one of the largest property and casualty insurers in the United States. For the first six months of 2014, Chubb reported net income of $948 million on net premiums written of $6.3 billion. Shareholders' equity as of June 30, 2013 was $16.5 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Alan Murray
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert Riegel
MD - Insurance
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Chubb's ratings (senior debt at A2); outlook stable
No Related Data.
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