New York: Standard & Poor's (S&P) ratings services has removed from CreditWatch its long-term counter-party credit and senior debt ratings on Chubb Corporation and lowered them to A from A+ because it does not believe that Chubb's operating performance and capital strength support the former ratings.
The rating agency also said that it removed from CreditWatch its counter-party credit and financial strength ratings on Chubb's operating insurance companies and lowered them to AA from AA+. The outlook on all these companies is stable.
''In terms of operating performance, Chubb has had adverse loss experience across most of its business lines over the past three years (excluding 11 September 2001-related terrorism losses), which is somewhat uncommon for a company rated AA+,'' notes S&P credit analyst Michael Gross.
''Most recently, the company has been negatively affected by adverse loss experience in its speciality commercial lines (directors and officers liability, and errors and omissions liability) and its US homeowners line, which are lines of business that have historically been very profitable and that have differentiated Chubb's business profile,'' he adds.
Although these business lines' results are expected to improve, S&P believes that the consolidated benefit of Chubb's business and earnings diversity has been eroded somewhat by competitive pricing and terms, legal trends, and increased reinsurance costs.
Although operating performance in 2003 is expected to be very strong, S&P believes that Chubb needs to continue rate increases through 2003 across most business lines as well as more effectively manage its relatively high expense structure.
Regarding capital strength, S&P believes that Chubb is more capital constrained today than in prior years and that it will likely remain so into 2004. The company's capital position has been negatively affected by a number of charges over the past 18 months relating to the 11 September 2001 terrorism attacks, Enron-related surety losses, asbestos reserve strengthening, and reserve strengthening for directors and officers liability exposure.
S&P does not view Chubb's reserves as redundant as it had in the past, although reserves are adequate. At the same time, prospective strong growth in reserves and invested assets will require additional capital.
Although Chubb's consolidated capital strength is somewhat below average for the new rating, it is secure, and S&P expects the company to increase capital strength by raising new equity and retaining earnings.
The very strong financial strength ratings on Federal Insurance Company and its inter-company pool members are based on the group's leadership position in a range of speciality insurance lines in both commercial and personal segments of the property and casualty industry. In addition, the group enjoys very strong brand-name recognition globally and strong capitalisation on a consolidated basis.
Although Chubb's rated foreign subsidiaries including the ones in Australia, Canada and Europe are smaller and have select operating issues, they are viewed as core and integral units of the Chubb organisation and are rated the same as Federal Insurance Company.
Chubb continues to distinguish itself from the competition through innovative bundled and unbundled niche product development, exceptional global service capability, and a respected brand name reinforced by Chubb's underwriting discipline.
S&P expects Chubb's total growth in net written premium to be about 20 per cent in 2003 and expects very strong operating performance, in part reflected by a consolidated combined ratio of less than 100 per cent, excluding catastrophic events.