Chubb Insurance Singapore Ltd.

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1 Primary Credit Analyst: Trupti U Kulkarni, Singapore (65) ; trupti.kulkarni@spglobal.com Secondary Contact: Billy Teh, Singapore (65) ; billy.teh@spglobal.com Table Of Contents Major Rating Factor Rationale Outlook Related Criteria Related Research NOVEMBER 2,

2 Major Rating Factor Highly strategic subsidiary of the Chubb group. Rationale Operating Company Covered By This Report Financial Strength Rating Local Currency AA-/Stable/-- The issuer credit rating on Chubb Insurance Singapore Ltd. (Chubb Singapore) is based on our view of the insurer's highly strategic role to Chubb group (Chubb Ltd.; core operating subsidiaries rated AA/Stable/--). We rate highly strategic subsidiaries one notch lower than core operating subsidiaries. Following the completion of ACE Ltd.'s acquisition of Chubb Corp. in January 2016, Federal Insurance Co. (Singapore Branch) and ACE Insurance Ltd. (Singapore) merged to become Chubb Insurance Singapore Ltd. on May 1, In our opinion, Chubb Singapore remains integral to Chubb group's business strategy of developing its global presence. The company benefits from sharing the group's brand and strategy and cedes a portion of its premiums to a reinsurance subsidiary under the group. Therefore, we believe the group is unlikely to divest its stake in Chubb Singapore. The combined company's contribution to the group's capital and earnings is not significant--less than 5%--and limits the insurer's group status designation to highly strategic. Chubb Singapore has largely concluded its integration phase with the completion of portfolio transfer, implementation of new claims systems, and product harmonization for the merged entity. While benefits from synergies are emerging, the company continues to focus on strengthening cultural integration. Chubb Singapore is focusing on further diversifying its portfolio across segments, post inclusion of the financial lines book from Chubb before the merger, along with growth in its other segments (P&C and accident and health lines) excluding motor and treaty lines. The company also services the group's multinational clients in businesses covering fire, casualty, marine, and financial lines insurance. Chubb Singapore's integration with the group is reflected through its access to technical resources in actuarial, investment, risk management, and reinsurance. We consider Chubb Singapore's industry and country risk to be low, based on our view of the sector's low domestic industry risk and Singapore's very low country risk. Industry risk is based on our evaluation of five industry-related factors. We see profitability (measured by return on equity) as positive; barriers to entry, product risk, and market growth prospects as neutral; and the institutional framework as strong. The country risk is based on our view of the country's economic risk, political risk, financial system risk, payment culture, and rule of law. For 2016, Chubb Singapore ranked sixth with a market share of 4.2% in the competitive Singapore non-life insurance market and maintained stable underwriting results. We believe the 15-year regional distribution partnership that Chubb Singapore recently signed will gradually strengthen the company's market share because it will benefit from the banks' large customer base and sizable footprint in the region. However, we expect competitive position to remain adequate in the near term, because it is unlikely for Chubb Singapore to aggressively increase its market share due to its NOVEMBER 2,

3 consistent focus on maintaining underwriting profitability. We believe the company will continue to focus on property and casualty, financial lines, and accident and health. It does not focus on motor, hull, and bond insurance, and takes a cautious approach on workers' compensation. We have a positive view of Chubb Singapore's operating performance. Prior to the merger of ACE Insurance Ltd. (Singapore) and Federal Insurance Co. (Singapore Branch) to form Chubb Singapore the combined ratios were generally lower than that of domestic peers'. A lower ratio indicates higher underwriting profitability. We attribute Chubb Singapore's favorable operating performance to its focus on underwriting, which continues to produce strong profits. The above-average expense ratio of its legacy books was offset by its track record of loss ratios that were lower than the industry average. For 2016, Chubb Singapore's combined ratio benefited from merger-related cost efficiencies due to product, system and operations synergies. We expect Chubb Singapore to maintain a combined ratio of 80%-85%, reflecting its continued focus on underwriting and ability to maintain lower loss ratios similar to that before the merger. In our view, Chubb Singapore's capitalization has further strengthened post its merger with legacy Federal Insurance Co. (Singapore Branch). Nevertheless, Chubb Singapore's capital base of about 146 million Singapore dollars as of year-end 2016 moderates its extremely strong capital adequacy. In our base case, we expect Chubb Singapore to maintain a strong capital and earnings position over the next two years. We view Chubb Singapore's risk position as intermediate. We consider the insurer's investment leverage to be conservative as it invests primarily in cash and fixed-interest investments. As of Dec. 31, 2016, Chubb Singapore has total invested assets of S$286 million, consisting of fixed-income securities (about 92% of the portfolio) and cash and cash equivalents (about 8%). The insurer's investment in unrated financial assets has decreased moderately to 2.3% of invested assets in 2016, from 2.7% in 2015 and 5.7% in We consider Chubb Singapore's capital and earnings volatility to be moderate because the insurer manages its insurance risk at a conservative level through a significant use of intergroup reinsurance. Chubb Singapore has adequate financial flexibility, in our opinion. Chubb Singapore had not required fund-raising from the capital markets or bank facilities. We believe Chubb Singapore will be able to access group support or source external funding, given Chubb's global brand and reputation, and the operating strength of the local operations. The company does not have any debt outstanding. We therefore view its financial leverage and fixed-interest coverage as positive. Our strong combined assessment of Chubb Singapore's enterprise risk management (ERM) is supported by the insurer's strong ERM, which is in line with the group while being localized to meet regional requirements. We consider Chubb Singapore's management and governance as strong. Management has committed to following the group's strong management discipline and strategic objectives. The insurer has prudent strategic planning and strong execution, with a consistent product strategy, strong underwriting discipline, and emphasis on risk management. We regard Chubb Singapore's liquidity as strong, given its substantial holdings of liquid assets. We don't expect the company to face any liquidity constraints in meeting its obligations over the next two years because of its cash flows from premium income and its investment portfolio. NOVEMBER 2,

4 Outlook The stable outlook on Chubb Singapore reflects the rating outlook on core entities of the Chubb group and our view that the insurer will remain a highly strategic subsidiary of the group. Downside scenario We may lower the rating on Chubb Singapore if we lower the ratings on the group or if the company's strategic relationship with the group weakens. This could be due to deterioration in Chubb Singapore's operating performance or a change in the group's strategic focus, which we view as unlikely over the next months. Upside scenario We may upgrade Chubb Singapore if we consider it to be core to the group, indicating a strengthening of the company's strategic relationship with the group. This strengthening could be reflected through a higher level of integration with the group in areas such as product development and strategy. Another indication of the strengthening is the company's growth in its share of the Singapore insurance market while maintaining underwriting profitability. Related Criteria General Criteria: Group Rating Methodology, Nov. 19, 2013 Criteria - Insurance - General: Enterprise Risk Management, May 7, 2013 Criteria - Insurance - General: Insurers: Rating Methodology, May 7, 2013 General Criteria: Methodology: Management And Governance Credit Factors For Corporate Entities And Insurers, Nov. 13, 2012 Criteria - Insurance - General: Refined Methodology And Assumptions For Analyzing Insurer Capital Adequacy Using The Risk-Based Insurance Capital Model, June 7, 2010 General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009 Related Research Research Update : Chubb Insurance Singapore Ltd. 'AA-'Rating Affirmed With Stable Outlook, Oct. 16, 2017 Chubb Ltd. And Operating Subsidiaries, May 17, 2017 Table 1 Chubb Insurance Singapore Ltd. Competitive Position (Mil. S$) Gross premiums written Change in Gross Premiums Written (%) Net premiums written Change in Net Premiums Written (%) 48.6 (2.4) 27.4 (1.3) 15.1 Net premiums earned NOVEMBER 2,

5 Table 1 Chubb Insurance Singapore Ltd. Competitive Position (cont.) (Mil. S$) P/C: reinsurance utilization - premiums written (%) S$--Singapore dollar. Table 2 Chubb Insurance Singapore Ltd. Capitalization Statistics Common shareholders' equity Change in common shareholders' equity (%) (6.6) 5.9 Total reported capital Change in total capital (reported) (%) (6.6) 5.9 Table 3 Chubb Insurance Singapore Ltd. Earnings Statistics Total revenue EBIT adjusted EBITDA adjusted Net income (attributable to all shareholders) Return on revenue (%) Return on shareholders' equity (reported) (%) P/C: net expense ratio (%) P/C: net loss ratio (%) P/C: net combined ratio (%) Table 4 Chubb Insurance Singapore Ltd. Risk Position Total invested assets Net investment income Net investment yield (%) Net investment yield including realized capital gains/(losses) (%) Portfolio composition (% of General account invested assets) Cash and short term investments (%) Bonds (%) Ratings Detail (As Of November 2, 2017) Operating Company Covered By This Report NOVEMBER 2,

6 Ratings Detail (As Of November 2, 2017) (cont.) Chubb Insurance Singapore Ltd. Financial Strength Rating Local Currency Counterparty Credit Rating Local Currency Domicile AA-/Stable/-- AA-/Stable/-- Singapore *Unless otherwise noted, all ratings in this report are global scale ratings. S&P Global Ratings credit ratings on the global scale are comparable across countries. S&P Global Ratings credit ratings on a national scale are relative to obligors or obligations within that specific country. Issue and debt ratings could include debt guaranteed by another entity, and rated debt that an entity guarantees. NOVEMBER 2,

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