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Chubb (CB) & its Subsidiaries See Rating Action by A.M. Best

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A.M. Best reiterated the financial strength rating of A++ (Superior) of most subsidiaries of Chubb Limited (CB - Free Report) . With this, the rating agency removed the subsidiaries from under review with negative implications. Concurrently, the rating giant downgraded the issuer credit rating (ICR) to “aa+” from “aaa” of the former property/casualty subsidiaries of Chubb as it removed those from under review with negative implications.

At the same time, A.M. Best restated the ICR of “aa+” for most of the remaining Chubb subsidiaries, including ACE European Group Limited. All the ratings carry a stable outlook.

The rating action came in the wake of the closure of Chubb’s acquisitions by ACE Limited. Also, the ratings account for Chubb’s prudent enterprise risk management, disciplined underwriting, global franchise recognition, sturdy risk-adjusted capitalization, sustained underwriting profitability and seasoned management team.

The rating agency expects Chubb’s capital to improve on favorable underwriting and operating performance. A.M. Best also expects the new entity to maintain the streak of profitability by focusing on prudent risk selection and pricing, suitable policy limits, and arranging reinsurance to manage net retained exposures at a level appropriate for the group’s risk appetite.

However, A.M. Best noted that financial leverage is high, though it is within the rating agency’s guidelines. Low risk-adjusted capital levels also somewhat weigh on the positives. Competitive environment, exposure to catastrophe, asbestos and environmental (A&E) liabilities and higher risk investments are also dampeners. Nonetheless, Chubb maintains a decent interest coverage.

Rating affirmations or upgrades from credit rating agencies play an important role in retaining investor confidence as well as in maintaining credit worthiness in the market. On the other hand, rating downgrades damage business, apart from increasing the cost of future debt issuances. We believe the ratings will help Chubb Limited to retain investor confidence and help it in writing more businesses, going forward.

Zacks Rank and Stocks to Consider

Chubb carries a Zacks Rank #3 (Hold). Some better-ranked property and casualty insurers are Cincinnati Financial Corp (CINF - Free Report) , Markel Corp. (MKL - Free Report) and National General Holdings Corp. . Each of these stocks sports a Zacks Rank #1 (Strong Buy).

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