Chubb Limited

Chubb reported core operating earnings of $2.8 billion, or $7.26 per share, up 14.6% and 18.2% from the prior year. P&C underwriting income was more than $1.9 billion, up almost 19%, with a combined ratio of 83.8% and a current accident year combined ratio of 82.2% excluding CATs. Adjusted net investment income was a record $1.88 billion, up more than 11%; life income was $332 million, up 9%. Tangible book value per share rose 17.1% year over year, annualized core operating ROTE was 21.2%, and core operating ROE was 14.5%. The company ended with book value of $75 billion, or $195.45 per share, and invested assets of $175 billion. For catastrophe and reserve items, pre-tax CAT losses were $475 million, favorable prior-period development in active companies was $441 million, and the corporate runoff portfolio had adverse development of $158 million. Management said full-year core operating effective tax rate should be 19.5%-20%.

Evan Greenberg described the quarter as very strong and emphasized Chubb’s diversification, disciplined underwriting, and balance sheet strength as the reasons it can keep compounding even in a softer market. He said the company is intentionally walking away from inadequate property and casualty business in some areas, especially U.S. large account and E&S property, while still growing in most other lines and geographies. He was upbeat on the franchise’s ability to continue generating double-digit tangible book value growth and strong EPS growth over time, while warning that casualty pricing is not keeping pace with loss costs.

Peter Enns highlighted the financial strength of the quarter, pointing to $3.5 billion of adjusted operating cash flows, $175 billion of invested assets, and $2.2 billion of debt issued at a 4.2% weighted average cost and about 7.5 years average term. He said the board authorized a new $7.5 billion share repurchase program effective July 1, and that Chubb returned $1.4 billion to shareholders in the quarter through $979 million of buybacks and $395 million of dividends. He also noted pre-tax CAT losses of $475 million, favorable prior-period development of $441 million in active companies, adverse runoff development of $158 million, and a full-year core operating tax rate expectation of 19.5%-20%.

Analysts focused on regulatory changes in Singapore and Hong Kong, casualty pricing and loss-cost trends, reinsurance spending, personal lines durability, and the impact of technology costs. Management said the Singapore and Hong Kong developments had no material impact on Chubb, and that the Hong Kong issue reflected an overreaction to actions aimed at bad actors. On market conditions, Greenberg repeatedly said casualty pricing is not keeping up with steady 6%-7% primary casualty loss-cost inflation and 9.5%-12% excess loss-cost inflation, while also saying Chubb’s diversification and mix give it room to keep outperforming. He also said technology spending is economically manageable and that any token costs are a small fraction of the efficiency gains and underwriting benefits.