The Chubb Corp.’s (CB) second quarter operating earnings of $1.41 per share came in a penny ahead of the Zacks Consensus Estimate of $1.40. Results were, however, lower than $1.49 earned in the prior-year quarter. The year-over-year decline was primarily due to higher catastrophe losses. Total revenue of $3.2 billion was in line with the Zacks Consensus Estimate.
Net income declined 5.9% year over year to $518 million. However, on a per-share basis, net income increased 3.2% year over year to $1.59 due to a reduction of share count following share repurchases.
Net premiums written increased 1% year over year to $2.9 billion. However, excluding the effect of currency fluctuation, premiums were flat. Management continues to emphasize on underwriting discipline in a market environment that remains competitive.
Catastrophe activity remained at elevated levels compared with the same period a year ago. During May, hailstorms in Oklahoma and other storms throughout the Midwest increased catastrophe related losses more than fourfold to $193 million.
Property and casualty investment income remained unchanged at $311 million relative to the prior-year quarter.
Consolidated combined ratio deteriorated 450 basis points year over year to 90.4%, primarily due to high catastrophe losses. Excluding these losses, combined ratio improved 90 basis points to 83.5%.
Favorable underwriting and investment results led to an increase in book value per share to $49.39 from $47.09 as of June 30, 2009. Operating return on equity (ROE) moderated to 12.7% compared with 15.3% in the prior-year quarter.
Segments Results
Net premium at Chubb Personal Insurance increased 5.0% year over year to $1.0 billion due to a 14.3% year over year increase in Automobile premiums, a modest increase (1.6%) in Homeowners’ insurance and a 9% increase in Other Personal lines.
Combined ratio deteriorated to 92.9% versus 84.2% in the prior-year period, primarily due to higher catastrophe losses. Excluding the effect of catastrophe loss, combined ratio improved 190 basis points to 81 from 79.1 in the prior-year quarter.
The quarter witnessed a reversal in trend in net written premiums at Chubb Commercial Insurance, which reported an unchanged premium at $1.2 billion, after declining since the first quarter of 2008. The effect of a decline in Multiple Peril, Workers’ Compensation and Casualty lines of business was completely negated by an increase in premium from Property and Marine, thus resulting in flat premiums. Though combined ratio deteriorated 370 basis points year over year to 92.9%, excluding the effect of catastrophe losses, it improved 70 basis points.
The Chubb Specialty Insurance did not report any change in net written premiums relative to the prior-year quarter. Combined ratio, however, improved 140 basis points year over year to 82.5%.
Share Repurchase Update
During the quarter, Chubb repurchased 12.4 million shares at a total cost of $636 million (an average of $51.14 per share). As of June 30, 2010, there were 16.8 million shares of common stock remaining under the current repurchase authorization, including the 14 million share increase in the authorization announced in June.
2010 Guidance
Management at Chubb reiterated the 2010 full-year EPS expectation range of $5.15 to $5.55 per share.
The EPS impact includes a flat net written premium for full-year 2010 (the January expectation was flat to down 2%), a combined ratio in the range of 90% to 92% (unchanged from January guidance), a higher catastrophe loss of 7 percentage points (previously expected at 3 percentage points), property investment income after tax to be down 1% (January guidance assumed investment income to remain flat), and a higher share repurchase causing average diluted shares expectation to be at 321 million shares (previous assumption was 328 million).
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