A.M. Best Lowers Debt Ratings of Chubb; Assigns Rating to Equity Units.Business Editors OLDWICK, N.J.--(BUSINESS WIRE)--Nov. 27, 2002 A.M. Best Co. has lowered the senior debt ratings of The Chubb Corporation (NYSE NYSE See: New York Stock Exchange :CB) (Warren, NJ) Chubb Capital Corporation and Chubb Executive Risk Inc. to "aa-" from "aa". The debt issued by Chubb Capital and Chubb Executive Risk is guaranteed by The Chubb Corporation. The commercial paper rating of AMB AMB Ambient AMB Ambassador AMB Amber AMB Ambulance AMB Associação Médica Brasileira (Brazil) AMB Ambulatory AMB Advanced Memory Buffer (FBDIMM control unit on DRAM) 1+ of Chubb Capital Corporation has been affirmed. The financial strength ratings of A++ (Superior) of Chubb's property/casualty subsidiaries were affirmed on October 16, 2002, and remain unaffected. The outlooks for the ratings remain stable. A.M. Best has assigned an indicative "aa-" senior debt rating to the $525 million of equity units ($600 million if the over-allotment is exercised) to be issued by Chubb under its $1 billion shelf registration. Proceeds from the equity units will be used for general corporate purposes, including capital contributions to the property/casualty subsidiaries. Historically, Chubb has conservatively managed its capital structure and financial leverage. Although higher than historical levels, Chubb's financial leverage as measured by debt and capital securities to total capital is still a moderate 16% at the end of the third quarter 2002. The addition of the mandatory convertible Mandatory Convertible A type of convertible bond that has a required conversion or redemption feature. Either on or before a contractual conversion date, the holder must convert the mandatory convertible into the underlying common stock. securities--given its pre-funded feature--does not materially change financial leverage. More importantly, the level of the holding company's cash requirements has increased commensurately com·men·su·rate adj. 1. Of the same size, extent, or duration as another. 2. Corresponding in size or degree; proportionate: a salary commensurate with my performance. 3. over the years, elevating Chubb's cash needs-- including interest expense and shareholder dividends--to more than $370 million for 2003. The ability to accumulate capital at the subsidiary level remains somewhat constrained con·strain tr.v. con·strained, con·strain·ing, con·strains 1. To compel by physical, moral, or circumstantial force; oblige: felt constrained to object. See Synonyms at force. 2. by the dividends to be up-streamed to meet holding company obligations and concerns regarding future capital formation. The latter concern is further heightened by the potential for continued earnings variability earnings variability Fluctuations in a corporation's net income or earnings per share during a given period. Past earnings variability is generally considered undesirable because it makes investors less certain of future earnings per share and dividends. as it relates to Chubb's sizable siz·a·ble also size·a·ble adj. Of considerable size; fairly large. siz  a·ble·ness n. loss exposure to gas
forward purchase surety contracts (similar to those it issued on behalf
of Enron Corp.) and the future emergence of losses from classes of
business such as directors and officers liability. Finally, there
remains uncertainty relating to relating to relate prep → concernantrelating to relate prep → bezüglich +gen, mit Bezug auf +acc Chubb's reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. coverage limits and actual reinsurance recoverables associated with the tragic event of September 11. These rating changes consider the potential variability of earnings and the conflict between holding company liquidity and surplus accumulation at the subsidiary level. Nevertheless, Chubb's financial strength ratings assume that capitalization at the property/casualty subsidiaries will be maintained at a level consistent with the group's Superior rating. While the property/casualty subsidiaries continue to provide sufficient dividend capability, Chubb's debt ratings previously benefited from the exceptional liquidity at Chubb Corporation and its four subsidiary holding companies. A.M. Best believes the majority of existing assets, along with the additional $525 million raised through the equity units, will be utilized for capital contributions to Chubb's operating subsidiaries An operating subsidiary is a business term frequently used within the United States railroad industry. In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity and rolling stock. . Consequently, a lower holding company liquidity level was a major factor in the rating actions. For a complete list of financial strength and debt ratings of The Chubb Corporation, please visit http://www.ambest.com/press/Chubb4.pdf. For a list of all A.M. Best's current debt ratings, please visit www.ambest.com/ratings/debtrating/companies.html. A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com. |
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