Chubb’s Chile Unit Gets Moody’s Ratings, Outlook Stable

U.S. property and casualty insurer, The Chubb Corp.’s (CB) Chile subsidiary has received a rating action from Moody’s Investors Service.

The rating agency affirmed the global local currency (“GLC”), global foreign currency (“GFC”) and insurance financial strength (“IFS”) ratings of Chubb de Chile at Baa1.

The rating agency acknowledges, Chubb de Chile’s strong capital position, reflected by its high quality investment portfolio wherein the investments are made in A or higher-rated bank term deposits. This strong investment portfolio provides a cover for capital in case the unit faces underwriting risk.

Other positives highlighted were a well-diversified underwriting portfolio and a conducive operating environment.

Moody’s believes that a combination of the unit’s superior quality investment portfolio and favorable insurance operating environment place the company ahead of other players in Latin America.

Moreover, the unit enjoys numerous direct and indirect advantages courtesy of being a subsidiary of Chubb which is a niche property and casualty player in the U.S.

Nonetheless, the rating agency is bothered by the units’ modest size, high administrative expenses and increased claim expenses which can mar its profitability. Then again, the rating agency is impressed with the efforts taken by the unit to reduce its claims by trimming the troubled lines of businesses such as heavy machinery and fire insurance.

The ratings carry a stable outlook implying there is no scope for rating revision in either direction (up/down) in the near term.

Last month, Moody’s reiterated the “A2” senior debt and Prime-1 commercial paper ratings of Chubb acknowledging its superior and trusted brand name in its niche market, high-end personal lines, management liability and specialty commercial lines and strong balance sheet.

Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence in the stock as well as maintaining credit worthiness in the market. Rating downgrades, therefore, affect the business, apart from increasing the cost of future debt issuances. We believe that strong ratings will help Chubb to retain investor confidence and help it to write more businesses going forward, thereby boosting results.

Chubb currently carries a Zacks Rank # 3 (Hold). Better-ranked insurers include – AmTrust Financial Services, Inc. (AFSI), Federated National Holding Company (FNHC) and Mercury General Corporation (MCY). Each of these stocks sports a Zacks Rank #1 (Strong Buy).