A concentration of directors and officers exposure makes Chubb a riskier proposition than generally believed, according to a recent report from an independent research firm.
New York-based CreditSights Inc. said earlier this month that the Warren, N.J.-based carrier has about 25 percent of its net written premium attributable to directors and officers insurance.
"Going forward, we believe D&O margins will continue to deteriorate," the report said.
The report quotes the Tillinghast Towers Perrin 2005 D&O survey that showed the market continued to soften last year by 9 percent after a 10 percent dip the year before.
Widening federal investigations and an increase in shareholder lawsuits over alleged stock-option abuses have sparked new concerns about the D&O market. "The markets have largely ignored the issue, but we think investigations could turn out to be a big deal for D&O insurers," the report said.
Overall, Chubb's historically conservative underwriting philosophy has shielded the company from many of the pitfalls that have affected its peers, the report noted. "Don't get us wrong, we think Chubb is a great company," the report said. "Its operating performance and underwriting margins have been among the best in the industry."
Moreover, management has taken a number of steps to reduce risks such as exiting certain European operations. "While we believe that buy-and-hold investors should feel very safe with Chubb in their portfolios, we think that trading-oriented accounts should consider the risks associated with Chubb's concentration in the volatile professional liability market," the report said.
In addition, investors should also consider the carrier's significant commercial and personal lines exposure to potential catastrophe losses in the Northeast, the report noted.
In 2005, about 17 percent of Chubb's $12 billion in direct premiums were written in New York and New Jersey. "In our opinion, the possibility of a major hurricane hitting the New York region is much greater than most people think," the report said.
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