The Chubb Corp.’s (CB) first quarter 2011 operating earnings of $1.35 per share were significantly ahead of the Zacks Consensus Estimate of $1.13. Earnings increased 18% from $1.14 in the prior year quarter. Operating income for the quarter was $405 million, improving 6% from $381 million reported in first-quarter 2010.
The better-than-expected results were driven by higher premiums earned.
Including net realized investment gains of $105 million or 35 cents per share, the company reported net income of $509 million or $1.70 per share, compared with $465 million or $1.39 per share in the first quarter of 2010. The prior-year quarter included net realized investment gains of $83 million or 25 cents per share.
Operational Detail
Net premiums written in the quarter under review rose 3% year over year for the second straight quarter to $2.9 billion, driven by strong overseas growth and positive growth in the United States.
Property and casualty investment income after tax declined 1% year over year at $310 million.
Combined ratio deteriorated 290 basis points to 84.2%. Including the catastrophe loss of $270 million, combined ratio deteriorated 10 basis points year over year to 93.7%.
Favorable underwriting and investment results led to an increase in quarter-end book value per share to $53.26, up 11% over the year.
Segments Details
Net premium at Chubb Personal Insurance increased 2% year over year to $894 million on the heels of 11% growth in Automobile premium and 3% growth in Homeowner’s insurance, partially offset by a 6% decline of Other Personal lines. Overall, the segment’s premium growth reflects a multi-pronged initiative to retain and expand business.
The combined ratio deteriorated 440 basis points to 86%, primarily due to higher catastrophe losses.
Chubb Commercial Insurance witnessed an increase of 7% in net premium written to $1.3 billion. Combined ratio deteriorated 210 basis points year over year to 84.5%. Including the effect of catastrophe losses the ratio deteriorated by 690 points.
Chubb Specialty Insurance net written premiums dropped 1% year over year to $639 million. Combined ratio deteriorated 150 basis points year over year to 82.4%.
In the quarter under review, Chubb spent $387 million to buy back 6.6 million shares at an average price of $58.91.
Peer Comparison
The Travelers Companies Inc. (TRV), which competes with Chubb, reported operating earnings of $1.89 per share in the first quarter, surpassing the Zacks Consensus Estimate of $1.55. Results were also ahead of $1.22 earned in the prior year quarter. Operating income was $826 million, up 31% from $631 million in the first quarter of 2010.
Higher underwriting gains, favorable resolution of prior-year tax matters, lower catastrophe losses and lower outstanding shares helped the company to post improved results.
Our Take
We expect the company to benefit from positive movement in new business in its Personal Insurance segment and recovery in renewal rates at the Commercial Insurance segment. Chubb also remains focused on returning value to its shareholders via dividend increase and share buyback.
We maintain our Neutral rating on Chubb Corp. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.
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