Chubb Limited (CB) Earnings & Analysis

Latest quarter

Chubb reported adjusted earnings of $7.66 per share, above the consensus of $6.53. Revenue as counted by the consensus was $16.8 billion, above the $16.7 billion estimate. On the company’s reported revenue measure, quarterly revenue was $16.2 billion, compared with $16.1 billion a year earlier.

Chubb’s diluted earnings per share rose to $7.30 from $6.99. Its filing attributed the increase in net income partly to higher investment income and gains on private equity investments, offset in part by lower property and casualty underwriting income as catastrophe losses rose. The filing said higher invested assets and interest rates supported investment income.

The filing said consumer insurance premiums grew, while commercial insurance growth was affected by changes in large-account property and financial-lines exposure, including additional reinsurance. Gross margin fell to 27.5% from 32.6%, and operating margin declined to 22.3% from 25.3%. Chubb reported free cash flow of $6.1 billion, up from $3.6 billion a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Evan Greenberg said Chubb’s consumer and commercial businesses grew across major overseas regions, while North American personal insurance and agriculture also expanded. North America commercial premiums fell as Chubb reduced large-account and excess-and-surplus property and financial-lines exposure, including by declining to renew some business and buying additional reinsurance.

Greenberg said commercial insurance markets were becoming more competitive, particularly in the United States and London. Competition was spreading beyond property into casualty, he said, where “pricing in numerous areas is failing to keep pace with loss costs.” Asked about the additional reinsurance, Greenberg said it let Chubb maintain customer relationships and coverage while spreading risk.

On profitability, Greenberg said the global property and casualty combined ratio excluding catastrophe losses was essentially flat with the prior year. He said lower loss and administrative ratios were offset by a higher acquisition ratio. CFO Peter Enns said catastrophe losses came principally from weather events around the world and an earthquake in Latin America.

Greenberg said higher rates supported investment income, although rising rates also produced realized and unrealized losses in the quarter. He said Chubb had maintained moderate duration and a conservative approach to credit quality. Asked about investment income, Enns said fixed-income returns benefited from the reinvestment environment, while private-equity results were below what might be normal; he expected the fixed-income portion to continue growing.

Analysts also asked about emerging risks and growth opportunities. Greenberg described AI liability as an exposure that insurers need to understand and manage, potentially through coverage clarifications, exclusions and separate policies. He said Chubb was active in data-center construction insurance and related marine and surety business, with some projects delayed by permitting, energy, labor and supply-chain issues.

Looking ahead, Greenberg expected North America commercial growth to improve in future quarters. Asked about margins, he expressed confidence in their sustainability but declined to provide a margin forecast.

Guidance

CFO Peter Enns said Chubb was not providing specific investment-income guidance, though he expected fixed-income investment income to continue growing. CEO Evan Greenberg also declined to give margin guidance.