Property and casualty insurer Chubb Corp. (CB) reported first quarter operating earnings of $1.70 per share, significantly ahead of the Zacks Consensus Estimate of $1.51 per share. The better-than-expected earnings stemmed from higher premiums written and a lower share count, partly offset by higher operating costs. Earnings also compared favorably with $1.35 per share reported during the prior-year quarter.
The insurer reported net written premiums of $2.9 billion, up 3% year over year, reflecting rate improvements in all three of its business lines – Personal, Commercial and Specialty Insurance.
First quarter combined ratio (a measure of an insurer’s profitability, the lower the better) improved 350 basis points year over year to 90.2%. Excluding cat losses, combined ratio was 89.4%, 520 basis points less year over year.
Property and casualty investment income after tax was down 0.7% year over year to $308 million.
Adjusted book value per share, a measure of net worth, increased 4.2% year over year to $51.58 as of March 31, 2012.
Debt-to-capital ratio dropped to 18.8%. Operating return on equity (ROE) increased 240 basis points year over year to 13.8%.
Segment Update
At Chubb Commercial Insurance (CCI) segment, net written premiums climbed 6% year over year to $1.4 billion during the reported quarter led by rate increase and strong retention levels.
Chubb Specialty Insurance (CSI) net written premiums was down modestly by 6% year over year to $602 million due to lower premiums written in the professional liability and surety lines.
Chubb Personal Insurance (CPI) segment’s net written premiums went up 5% year over year to $940 million. This represented the ninth consecutive quarter of growth.
Capital Management
During the quarter, Chubb repurchased around 4.4 million shares at an aggregate cost of $301 million. As of March 31, 2012, there was approximately $963 million available for share repurchases under the existing share buyback authorization.
2012 Outlook
Chubb did not provide any update on its 2012 guidance. In the absence of any disclosure from the management, the earlier earnings guidance range of $5.30 – $5.70 and the net written premium growth range of 2% – 4% stands good.
A day prior to the earnings release, Chubb also witnessed a favorable rating action. The leading rating agency, A.M. Best Co. affirmed Chubb’s financial strength ratings and issuer credit ratings of A++ and aa+, respectively.
Chubb was credited for its market reputation, solid capital position sound underwriting practice, consistent operating performance, and a well diversified business.
However, some of the factors negating the positives were the company’s exposure to catastrophes, adverse loss development in its environmental and asbestos related liabilities and a very competitive insurance market.
The rating agency has considerable confidence in Chubb, which is attested by the stable outlook accompanying the ratings. A stable outlook reflects that Chubb is experiencing stable financial and market trends and therefore a rating change in the near term is unlikely.
Our Take
Chubb has made an impressive start to fiscal year 2012, by posting better- than-expected earnings numbers.
Based on a high retention rate, pricing gains, positive renewal rate changes, favorable prior-year reserve development, prudent underwriting practice and a strong capital position, Chubb is poised to perform better going forward.
However, exposure to significant catastrophic events remains a concern as it impacted results at Personal Insurance. Also, the prevailing low interest rate environment acts as a headwind.
Nevertheless, in our view, Chubb’s strong capital position will enable it to return capital to shareholders and take advantage of opportunities to grow profitably. Moreover, Chubb’s superior underwriting, customer loyalty and conservative investment approach gives it a competitive edge over its peers, The Travelers Companies. (TRV), XL Group Plc. (XL), The Allstate Corp. (ALL), W.R. Berkley Corp. (WRB) and others to generate solid returns for its shareholders.
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