Morningstar DBRS Confirms Financial Strength Ratings on Chubb Limited’s Major Subsidiaries at AA with Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the Financial Strength Ratings at AA with Stable trends on four subsidiaries of Chubb Limited (Chubb or the Company): ACE American Insurance Company, Illinois Union Insurance Company, ACE Property and Casualty Insurance Company, and Federal Insurance Company.

KEY CREDIT RATING CONSIDERATIONS
The credit 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 has a long-standing and world-leading franchise as 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 as well as a diversified product mix. The acquisition of controlling ownership of Huatai Insurance Group Co. Ltd. (Huatai Group), a major Chinese insurance and asset management firm, since mid-2023, and the acquisition of other life insurance and accident and sickness Asian businesses from Cigna in 2022 has helped further diversify its business by product, distribution, and geography. Profitability has been strong with record net income, underwriting and investment income in 2023. Investments are generally liquid and of high quality; however, the Company also has significant holdings of BBB-rated fixed income assets and alternative investments that are more complex and less liquid, including private equities. The Chubb Subsidiaries’ exposures to natural catastrophes and systemic risks through various P&C products require sophisticated enterprisewide risk management capabilities, which are managed through reinsurance and via stricter underwriting terms and conditions. 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 the credit ratings in the context of the heightened market volatility.

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

CREDIT RATING RATIONALE
Franchise Strength Building Block Assessment: Very Strong
Morningstar DBRS views Chubb’s internationally recognized brand and its world-leading P&C market position with a diversified mix of products as key contributors to the franchise strength of the Chubb Subsidiaries. Access to very large insurance markets in the U.S. and Asia and focus on data-driven underwriting, AI and digital growth initiatives are helping support above-average growth in premiums. However, while recent expansion in several markets in Asia as part of Chubb’s strategic growth objectives comes with many opportunities for accelerated growth, it also presents some risks that are geopolitical and regulatory in nature.

Risk Profile Building Block Assessment: Strong/Good
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 enterprisewide risk management framework employing the three lines of defense model. Cyber risk is mitigated with policy limits, terms, and conditions as well as through reinsurance protection placed with highly rated counterparties.

Earnings Ability Building Block Assessment: Very Strong/Strong
Overall, Chubb’s combined operating subsidiaries have an exceptionally strong record of underwriting profitability, consistently outperforming peers over the past 10 years. Inflationary pressures, higher reinsurance prices, climate change trends, and persisting commercial insurance hard market conditions will continue to underpin premium growth. As a result of higher market yields, overall investment income has contributed substantially more to net income. Investment portfolio values are also higher following the consolidation of the Huatai Group.

Liquidity Building Block Assessment: Strong/Good
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 small but growing proportion of the overall investment portfolio. Private equities, private debt and other less-liquid investments also represent a sizable portion of the investment portfolio. However, cash balances, liquid investments, credit facilities, and reinsurance protection provide sufficient liquidity to meet the unpredictable cost of claims.

Capitalization Building Block Assessment: Strong
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 Company’s consolidated financial leverage is stable and consistent with the assigned credit ratings to its subsidiaries.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

ESG Considerations had a relevant effect on the credit analysis.

Environmental (E) Factors
Environmental concern regarding Climate and Weather Risks is relevant to the rating of Chubb Subsidiaries but it did not affect the assigned credit rating or trend. The Chubb Subsidiaries are exposed to weather-related losses from natural catastrophic events such as storms, wildfire, flooding and other extreme-weather events through their property and casualty insurance business. The Chubb Subsidiaries consider climate risk within their enterprise risk management framework and more specifically within their underwriting and investment risk appetite limits. The Chubb Subsidiaries use reinsurance to transfer catastrophe risk, and in certain high-risk regions they limit or do not offer insurance coverage. Morningstar DBRS considered this ESG factor as part of product risk when assessing the Chubb Subsidiaries’ risk profile.

There were no Social or Governance factor(s) that had a relevant or significant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024), https://dbrs.morningstar.com/research/427030

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 (July 14, 2023), https://dbrs.morningstar.com/research/417109. In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024), https://dbrs.morningstar.com/research/427030 in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

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 dbrs.morningstar.com.

The credit rating was not initiated at the request of the rated entity. The credit rating was initiated at the request of a third party.

The rated entity or its related entities did not participate in the credit rating process for this credit rating action.

Morningstar DBRS did not have access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit 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. Morningstar DBRS’ outlooks and credit ratings are under regular surveillance.

For more information on this credit or on this industry, visit dbrs.morningstar.com.

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