DBRS Morningstar Assigns Financial Strength Rating of AA to ACE American Insurance Company and Confirms Financial Strength Ratings on the Major Subsidiaries of Chubb Limited at AA with Stable Trends

DBRS Limited (DBRS Morningstar) assigned a Financial Strength Rating of AA with a Stable Trend to ACE American Insurance Company and confirmed the Financial Strength Ratings of AA with Stable Trends on three subsidiaries of Chubb Limited (Chubb or the Company): Illinois Union Insurance Company, ACE Property and Casualty Insurance Company, and Federal Insurance Company.

KEY RATING CONSIDERATIONS
The rating and Stable trend reflect the consolidated financial strength of ACE American Insurance Company, Illinois Union Insurance Company, ACE Property and Casualty Insurance Company, and Federal Insurance Company (together, the Chubb Subsidiaries). Chubb is a long-standing and internationally recognized global insurance company that is the largest underwriter of commercial risk in the U.S. and the largest publicly traded property and casualty (P&C) insurer in the world. The Chubb Subsidiaries have a robust distribution network and a diversified product mix that are helping support very strong underwriting earnings and above-average growth in premiums. Significant declines in the fair market value of fixed income assets and equities led to an overall decrease in the size of the investment portfolio and a decline in net income, compared with the prior year. However, higher reinvestment yields are generating more investment income, which is positive for earnings potential. The Chubb Subsidiaries’ exposures to natural catastrophes and systemic risks through various P&C products require sophisticated enterprisewide risk management capabilities, which they have implemented in various forms. Substantial capital flexibility, ample holdings of cash and short term investments, as well as access to additional sources of on-demand credit are providing additional support to ratings in the context of the heightened market volatility.

RATING DRIVERS
DBRS Morningstar would upgrade the ratings of the Chubb Subsidiaries if the Company’s combined operations showed a material and sustained improvement in its risk profile and overall profitability, while maintaining strong capitalization. Conversely, DBRS Morningstar would downgrade the ratings if there is a sustained deterioration in the Company’s overall profitability, capitalization, and market positioning .

RATING RATIONALE
DBRS Morningstar views Chubb’s internationally recognized brand and its leading P&C market position with a diversified mix of products as key contributors to the franchise strength of the Chubb Subsidiaries. Recent expansion in several markets in Asia as part of Chubb’s strategic growth objectives comes with many opportunities for accelerated growth as well as some risks that are geopolitical and regulatory in nature.

Chubb has a very large fixed income portfolio consisting of 83% investment-grade securities, and this composition has been relatively stable over time. Equities currently represent a very small proportion of the overall investment portfolio. As a result of higher market yields, overall investment income has contributed substantially more to net income. However, higher interest rates have also resulted in large marked-to-market unrealized losses thereby decreasing the value of the invested assets, including cash, to $115.5 billion in 2022 from $124.0 billion in 2021.

In terms of product risk, the Chubb Subsidiaries are exposed to catastrophic risk through their underwriting of traditional and specialty commercial insurance products. They manage exposures related to different types of catastrophic losses, including those arising from cyber risk, through an integrated enterprise-wide risk management framework employing the three lines of defence model. Cyber risk is mitigated with policy limits, terms, and conditions as well as through reinsurance protection placed with highly rated counterparties.

Overall, Chubb’s combined operating subsidiaries have a very strong record of underwriting profitability and better combined ratios relative to peers over the past 10 years. Inflationary pressures, higher reinsurance prices, climate change trends, and commercial insurance hard market conditions will continue to underpin premium increases.

As part of the largest publicly traded P&C insurer in the world, the Chubb Subsidiaries have good access to capital markets and capital flexibility. The very large and liquid investment portfolio and access to other forms of on-demand credit facilities at the holding company level provide ample liquidity. The Company’s consolidated financial leverage is stable and consistent with the assigned ratings to its subsidiaries.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) CONSIDERATIONS
DBRS Morningstar views the Climate and Weather Risk sub-factor as relevant to the rating of Chubb but it did not affect the rating or trend assigned to Chubb. Chubb is exposed to weather-related losses from natural catastrophic events such as storms, wildfire, flooding and other extreme weather through its property and casualty insurance business. These events can lead to earnings volatility and increased reinsurance cost. DBRS Morningstar considers this ESG factor as part of product risk when assessing the risk profile. The Company has adopted the processes of the Task Force on Climate-Related Financial Disclosures framework and is committed to reducing its greenhouse gas emissions. The Company recently announced that it would provide insurance coverage for oil and gas extraction projects only to clients with plans to reduce methane emissions.

There were no social or governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929 (May 17, 2022).

The Grid Summary Grades for Chubb are as follows: Franchise Strength – Very Strong; Risk Profile – Strong/Good; Earnings Ability – Strong; Liquidity – Strong/Good; Capitalization – Strong.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Insurance Companies and Insurance Organizations (August 31, 2022; https://www.dbrsmorningstar.com/research/402220). In addition, DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (May 17, 2022; https://www.dbrsmorningstar.com/research/396929) in its consideration of ESG factors.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at www.dbrsmorningstar.com.

This rating was not initiated at the request of the rated entity.

The rated entity or its related entities did not participate in the rating process for this rating action. DBRS Morningstar did not have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

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