In a concerted effort to increase shareholders’ wealth, The Chubb Corp. (CB) yesterday announced the increase in its share buyback authorization. The upward revision includes an addition of 14 million shares to the existing repurchase program. The existing program, approved by the board on December 3, 2009, authorized the repurchase of up to 25 million shares, of which 3,824,507 shares remain available for repurchase.
Though no expiration date has been set, management indicated that if the market conditions remain stable, the repurchase program will be completed by year-end 2010.
Earlier during the fourth quarter of 2009, Chubb’s earnings conference call stated its intentions to revise the share buyback plan, taking advantage of capital position, the prevailing insurance market environment, portfolio investment opportunity costs and other factors.
Chubb has been very active with respect to its share buyback program. Since December 2005, it has committed $6.9 billion of capital towards repurchasing 137.2 million shares. During the most recent quarter, it repurchased 7 million shares at an aggregate cost of $344 million. The average cost of repurchase was $49.47 per share.
Chubb has been very regular with its dividend payouts and has maintained its tradition of increasing dividends year over year. The most recent quarter saw a 6% increase in quarterly dividend to 37 cents or $1.48 on an annual basis. This marked the company’s 28th consecutive annual dividend increase, a continued indication of its financial strength and resilience in a cyclical industry.
Chubb continues to have excellent liquidity regardless of turbulence in the funding markets. The company generated over $15 billion in operating cash flow from 2005 to 2009. As of March 31, 2010, the holding company portfolio included $2.4 billion of investments including $868 million of short-term investments.
But top-line growth at Chubb has remained challenged for the past several years. The slowing top-line growth is an indication of the soft pricing environment and increasing competition. The company’s commercial and specialty insurance business has been suffering rate reductions over the past several years. Also its surety, professional liability and personal lines of business are expected to remain under some pressure as new business pricing remains negative or at low single digits. Combined with the continued discipline in underwriting, these challenges will continue to put pressure on premiums in the near term.
Although there have been some signs that an economic recovery may be underway, the when and how of it remain uncertain. Even if it does occur, premium growth will lag any recovery that takes place. We expect net written premiums, excluding the impact of currency fluctuation, to be modestly low in 2010 compared with 2009.
However, Chubb’s financial strength, conservative investment portfolio, strong credit rating, underwriting talent, producer relationships, efficient claim services and commitment to managing capital for its shareholders are true differentiators which we believe will enable it to continually provide superior returns to its investors.
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