Following the revision of Brazil's global rating
rating outlook to stable from positive by Moody's the
rating agency took rating action on the Brazilian subsidiary of
The insurance financial strength (IFS) rating of Chubb do
Brasil, based in São Paulo, was affirmed at Baa1. The rating
outlook on the company however, was changed to stable from
Moody's rating action on Chubb do Brasil ratings is moving in
sync with the country ratings.
Earlier Chubb do Brasil carried a stable outlook when the
country's sovereign rating of Baa2 also carried a positive
outlook. A rating upgrade was in the cards for the company by
Moody's provided the country's sovereign rating was pulled up and
also provided the company performed at sustainable level of
Now since Brazil's sovereign rating has been reaffirmed at the
current levels and the outlook has been downgraded, the rating
agency views any positive rating action on Chubb do Brasil in the
near future as unlikely.
The rating affirmation takes into account consistent operating
profitability, a diversified product portfolio, maintenance of
superior risk-adjusted capital and a lower operating leverage for
Chubb do Brasil. Consistent capital support from the parent
company which also carries strong debt ratings is another
positive. The company has also been able to strengthen its
capital position with the help of reinsurance agreement with
Federal Insurance Company, another company of Chubb.
However, Chubb do Brasil's modest penetration in the insurance
market and exposure to Brazilian sovereign bonds offsets the
above positives to some extent. Also the company's operations
results for the first half of 2013 have weakened compared to the
same period in the previous year.
Rating affirmations or upgrades from credit rating agencies
play an important part in retaining investor confidence on the
stock as well as maintaining credit worthiness in the market.
Rating downgrades, therefore, adversely affect the business,
apart from increasing the costs of future debt issuances. We
believe that strong ratings will help the company retain investor
confidence and help it write more businesses going forward,
thereby boosting results.
Going forward rating upgradation can be made if Brazil's
rating is upgraded, company's profitability improves signified by
return on capital increasing above 12%, combined ratio stays
below 95% and there is continued capital support from the
A rating downgrade is likely if the return on capital dwindles
below 10%, parent company of the country's ratings suffers a
downgrade and underwriting ratio increases to above 5 times of
Chubb currently retains a Zacks Rank # 2 (Buy). Other insurers
Selective Insurance Group Inc.
Montpelier Re Holdings Ltd.
) all with Zacks rank #1 (Strong Buy) are worth investing in.
CHUBB CORP (CB): Free Stock Analysis Report
MONTPELIER RE (MRH): Free Stock Analysis
SELECT INS GRP (SIGI): Free Stock Analysis
ALLEGHANY CORP (Y): Free Stock Analysis
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