Rating Action at The Chubb Corporation - Analyst Blog

A.M. Best Co. has upgraded the outlook of the issuer credit ratings (ICR) of all property and casualty subsidiaries of The Chubb Corporation CB to positive from stable. Additionally, A.M. Best reiterated the financial strength ratings FSR of these subsidiaries at “A++” and ICRs at “aa+.” The outlook for FSR remains stable.

Alongside, A.M. Best reiterated ICRs on The Chubb Corporation at “aa-“ and also affirmed AMB-1+ on The Chubb Corporation's commercial paper. The outlook for ICR was updated to positive from stable. Apart from these rating affirmations, A.M. Best maintained FSR of “A++” and CSR of “aa+” on Chubb Atlantic Indemnity Ltd.

The rating affirmations and upgraded outlook are validated by The Chubb Corporation's strong underwriting and operating performances. The company has solid risk-based capitalization.

Moreover, The Chubb Corporation has consistently outperformed its industry peers in specialty and upscale personal insurance businesses, which gives it a unique competitive edge. The Chubb Corporation's positive rating outlooks are also driven by its leading position as an insurer in the United States and its worldwide presence in the specialty markets.

The Chubb Corporation reported fourth-quarter 2013 operating earnings of $2.07 per share, 4 cents ahead of the Zacks Consensus Estimate, and up 13 times year over year. Underwriting income jumped to $430 million from underwriting loss of $332 million.

The Chubb Corporation's underwriting results remained strong despite the recent impacts from catastrophes and the challenges of a competitive market. Moreover, the company's well diversified book of business has resulted in risk-adjusted capitalization. It also benefited from higher total returns from invested assets and higher operating and underwriting cash flows.

However, The Chubb Corporation's strong underwriting results have been consistently limited by catastrophe losses and tough market competition. Anticipating catastrophe losses, Chubb Corporation has lowered its 2014 earnings per share guidance, which is expected to hover around $7.10 and $7.40.

The Chubb Corporation's strong operating as well as underwriting performance may result in further positive ratings for the company. However, if operating performance or risk-adjusted capitalization fails to reach A.M. Best's expectations, the rating affirmations could be affected.

Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence in the stock along with maintaining credit worthiness in the market. Therefore, rating downgrades adversely affect the business, apart from increasing the costs of future debt issuances. We believe that strong ratings will help The Chubb Corporation retain investor confidence and help it write more businesses going forward.

The Chubb Corporation presently carries a Zacks Rank #3 (Hold). Other firms worth mentioning in the same space include Alleghany Corp. Y, AmTrust Financial Services, Inc. AFSI and Fidelity National Financial, Inc. FNF. All these stocks sport a Zacks Rank #1 (Strong Buy).