Rating agency A.M. Best has pulled up the ratings of property and casualty subsidiaries of The Chubb Corporation CB. The issuer credit ratings (ICR) were upped to “aaa” from “aa+” and the financial strength rating (FSR) was affirmed at A++ (Superior).
Concurrently, A.M. Best upgraded the ICR to “aa” from “aa-,” on all long-term debt and indicative ratings of Chubb. Also, the debt rating of the AMB-1+ on the commercial paper of Chubb Group was affirmed.
The outlook on all the ratings has been revised to stable from positive. A stable outlook indicates no expected near-term changes that might affect the company’s business. However, the commercial papers do not carry any rating outlook.
A.M. Best ‘s recent rating action comes on the back of Chubb’s consistent operating profitability, maintenance of superior risk-adjusted capital, a strong brand name, disciplined underwriting practices, a low debt level and a niche presence in its standard and specialty commercial and upscale personal insurance businesses. The company’s global presence in specialty markets is also viewed positively.
The rating agency noted that despite incurring catastrophe loss in 2010–2012, Chubb has managed to report consistent operating profitability, which reflects its well-cushioned business. Led by profitable operations, the company also churns out strong operating cash flows.
The company’s capital strength is demonstrated by its low debt to tangible capital ratio of 18% as of year-end Dec 2014. It also holds sufficient funds to cover annual holding company expenses.
Nevertheless, headwinds from competitive insurance markets and a threat of catastrophe losses persist. Exposure to catastrophe losses has always induced volatility to the company’s earnings. A significant portion of the company’s business lies in catastrophe prone areas. Cat losses had adversely affected the company’s combined ratio in four out of the past five years, thus impacting the company’s profitability.
As a remedial measure to protect itself from cat loss incidence the company actively uses catastrophe reinsurance program.
The rating agency is also concerned with adverse reserve development in the company’s asbestos and environmental liabilities lines. Nevertheless the company has been reporting favorable reserve releases. The rating agency believes that Chubb’s strong standing will enable it to counter the negatives.
A.M. Best also avowed the FSR of A++ and ICR of “aa+” for Chubb Atlantic Indemnity Ltd. (Chubb Atlantic) (Pembroke, Bermuda). The outlook for Chubb Atlantic’s ratings is stable. The rating action for the company’s unit came on the back of solid risk-adjusted capitalization and the direct and indirect capital support provided by the parent company.
Chubb Atlantic also holds a special place in the Chubb group of companies since it provides quota share reinsurance assumed from affiliates. Factors negating these positives are adverse loss reserve development in recent years that impart volatility to Chubb Atlantic’s underwriting performance.
Financial strength and credit ratings, which intend to measure a company’s ability to meet policyholder obligations, are important factors influencing public confidence and the creditworthiness of a company, and hence its competitiveness. Securing an investment grade debt rating with a stable outlook reflects optimism on the company.
Chubb currently carries a Zacks Rank #3 (Hold).
Other insurers The Travelers Companies Inc. TRV and W.R. Berkley Corp. WRB, Torchmark Corp. TMK also carry an investment grade rating from A.M. Best.
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