Despite Downgrades, S&P Sees Growth For Chubb

By Michael Ha

NU Online News Service, March 26, 12:31 p.m. EST?Standard & Poor's Ratings Services has downgraded Chubb Corp.'s senior debt to "A" from "A-plus" and lowered its financial strength rating for Chubb's insurance subsidiaries to "double-A" from "double-A-plus" with a "stable" outlook.

But despite its downgrade action, S&P offered a positive 2003 forecast for the Warren, N.J.-based insurer, predicting some 20 percent growth in net written premiums and a strong overall operating performance.

Commenting on its action, the New York-based credit ratings agency said Chubb had suffered adverse loss experience across most of its business lines over the past three years, which is somewhat uncommon for a "double-A-plus"-rated company.

S&P also noted it does not believe the company's operating performance and capital strength support its former "A-plus" senior debt rating.

"Most recently, the company has been negatively affected by adverse loss experience in its specialty commercial lines--directors and officers liability, errors and omissions liability--and its U.S. homeowners line, which are lines of business that have historically been very profitable," said Michael Gross, a credit analyst at S&P.

He also warned that although these business lines' results are expected to improve this year, benefits would be somewhat offset by a number of factors, including competitive pricing and terms, as well as increased reinsurance costs.

S&P noted in its downgrade report that although Chubb's operating performance in 2003 is expected to be very strong, it believes that the company needs to continue rate increases across most business lines and more effectively manage its "relatively high expense structure."

The rating agency added that Chubb is more capital constrained in 2003 than in prior years because of charges over the past 18 months relating to 9/11 terrorism attacks, Enron-related surety losses, and asbestos reserve strengthening, as well as reserve strengthening for directors and officers liability exposure.

A.M. Best also expressed similar capital concerns earlier this month, when it assigned a "double-a-minus" senior debt rating for Chubb. The Oldwick, N.J.-based insurance rating firm noted that Chubb's interest expense and shareholder dividends would amount to some $400 million in 2003.

"The ability to accumulate capital at the subsidiary level, which is needed to support more rapid growth in the current hard property-casualty markets, remains constrained," A.M. Best said.

On a brighter note, S&P said Chubb is expected to boost capital strength by raising new equity. Additionally, Chubb continues to enjoy strong brand-name recognition globally and strong capitalization on a consolidated basis.

"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 stated.

S&P expects Chubb's total growth in net written premium to be about 20 percent in 2003 and expects very strong operating performance, thanks to a consolidated combined ratio of less than 100 percent, excluding catastrophic events.

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Despite Downgrades, S&P Sees Growth For Chubb

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