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Fitch Ratings has affirmed the ratings of property and casualty insurer The Chubb Corporation ( CB - Analyst Report ) with a stable outlook. As a part of the yearly rating action, the agency reiterated the “AA-“ issuer default rating and “A+” senior debt ratings of the company.
Fitch’s recent rating action comes on the back of Chubb’s consistent operating profitability, maintenance of superior risk-adjusted capital and a conservative investment portfolio.
The rating agency acknowledges Chubb’s 12th position (on the basis of net premiums written in 2011) in the property and casualty market in the U.S. It also views the company’s international operations to be a significant contributor to overall earnings over the long term. Currently, its international operations comprise approximately 27% of the company’s revenue.
Combined ratio, which measures profitability of an insurance company, also signals underwriting profitability for Chubb. Over the past five years, Chubb’s combined ratio averages 88.4% through 2011. The company also managed to post a decent return on equity, averaging 13.9% during the same time period.
The rating agency also views favorably the performance of the company during the recently reported first quarter earnings, which benefited from benign cat loss compared with substantial cat loss in the year-ago quarter.
Fitch also took into account the capital level and was comfortable with Chubb’s debt ratio of 18.8% as of March 31, 2012. The moderation in leverage within the capital structure came on the back of a discharge of $400 million of debt recently. The possibility of the company defaulting on its creditors is nil with the company’s interest coverage ratio at 12.3x, considerably higher than 8.8x in the prior-year period.
In terms of capital flexibility, the company is favorably poised with a cash balance of approximately $2 billion along with $1.8 billion of expected dividend to be received from subsidiaries.
Earlier, in April 2012, another rating agency A.M. Best affirmed the ICR of “aa-“and “AMB-1+” on commercial paper of Chubb, with a stable outlook. The rating agency also acknowledged Chubb’s superior operating performance, disciplined underwriting, strong brand name, solid capital position, diversified business profile, a conservative investment portfolio and a strong cash generation capability.
Going forward, sustained solid operating performance, strong risk-adjusted capitalization and reduced catastrophe exposure might translate into positive ratings for Chubb. On the contrary, if revenue, profitability and capital levels are hurt, Chubb might face rating downgrades.
Based in Warren, New Jersey, Chubb closely competes with The Travelers Companies Inc. ( TRV - Analyst Report ) and W.R. Berkley Corp. ( WRB - Analyst Report ) . The stock currently retains a Zacks # 3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are also maintaining our long-term Neutral recommendation on the shares.
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