Fitch Ratings has affirmed the ratings of property and casualty insurer The Chubb Corporation (CB) 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.
Concurrently, Fitch reiterated the insurer financial strength of “AA” of Chubb's property/casualty insurance subsidiaries.
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 13th 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 1/4th 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 averaged 89.9% through first nine months of 2012. The company also managed to post a decent return on equity, averaging 14.1% during the same time period.
The rating agency however, expects the company’s fourth quarter earnings to be adversely affected by losses caused by hurricane Sandy. The company expects net pretax losses of $880 million or $570 million after tax. Notwithstanding the losses incurred on account of Sandy, Fitch expects the company to still report a significant operating profit in full year 2012.
Fitch also took into account the capital level and was comfortable with Chubb’s debt ratio of 20.2% as of Sep. 30, 2012. The possibility of the company defaulting on its creditors is very low with the company’s sufficient interest coverage ratio of 12.1x.
In terms of capital flexibility, the company is favorably poised with a cash balance of approximately $2.2 billion at September 30, 2012 along with significant amount of dividend expected from subsidiaries.
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.
Other insurers The Travelers Companies Inc. (TRV) and W.R. Berkley Corp. (WRB), Assurant Inc. (AIZ) also carry an investment grade rating from Fitch.
The stock currently retains a Zacks Rank, # 3. The company is expected to release fourth quarter earnings on Jan 31, 2013.