Fitch Ratings has affirmed the ratings of property and casualty insurer The Chubb Corporation (CB) with a stable outlook. The agency reiterated the “AA-“ issuer default rating and “A+” senior debt ratings of the company.
Concurrently, Fitch reiterated the insurer financial strength of “AA” of Chubb's property/casualty insurance subsidiaries which fall within the umbrella of Federal Insurance Company (Federal).
Fitch’s recent rating action comes on the back of Chubb’s consistent operating profitability, maintenance of superior risk-adjusted capital and a conservative investment portfolio.
The rating agency acknowledges Chubb’s superior operating profitability. During the first half of 2013, the company benefitted from improved accident year underwriting results, more favorable reserve development, partially offset by lower investment income. This led to an increase in operating income to $1.4 billion, up 21% year over year.
Combined ratio, which measures profitability of an insurance company, also signals underwriting profitability for Chubb. For the first half of 2013 the company reported a GAAP underwriting combined ratio of 86.7%, and excluding the catastrophes the combined ratio would have been 82.4%. The company also managed to post a decent return on equity, averaging 15.8% during the same time period.
Fitch also took into account the capital level and was comfortable with Chubb’s debt ratio of 18.5% as of Jun 30, 2013, down 170 basis points from year end 2012 levels. The possibility of the company defaulting on its creditors is very low with the company’s sufficient interest coverage ratio of 13.8x for first half of 2013.
In terms of capital flexibility, the company is favorably poised with a cash balance of approximately $2.0 billion at Jun 30, 2013 along with significant amount of dividend expected, of approximately $930 million from subsidiaries.
Fitch’s stable outlook reflects that Chubb is experiencing stable financial and market trends, and that therefore a rating change in the near term is unlikely.
Going forward, sustained solid operating performance, strong risk-adjusted capitalization and reduced catastrophe exposure might translate into ratings upgrades for Chubb. On the contrary, if revenue, profitability and capital levels are hurt, Chubb might face rating downgrades.
Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence on the stock as well as maintaining credit worthiness in the market. Rating downgrades, therefore, adversely affect the business, apart from increasing the costs of future debt issuances. We believe that strong ratings will help Chubb retain investor confidence and help it write more businesses going forward, thereby boosting results.
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