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Will Chubb's (CB) Cat Loss Estimates Affect Results in Q1?

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Chubb Limited (CB - Free Report) has recently released its preliminary net loss estimates, which is likely to impact its first-quarter 2018 results. The loss estimates are attributable to natural catastrophes including the California mudslides, which occurred this early January.

The property and casualty P&C insurer projects total catastrophe loss, stemming from the aforementioned cat events, at $380 million pretax or $305 million after tax. Losses resulting from the California mudslides are anticipated at $125 million pretax. This apart, the company has issued loss estimates pertaining to the northeast winter storms, which hit the East Coast on Jan 3 and Mar 1, 2018. Net loss from these storms is expected to be $115 million and $80 million, respectively, on a pre-tax basis.

Further, other net losses related to natural catastrophes to date globally in the first quarter, are projected at $60 million pretax.

It is important to mention here that these loss estimates are net of reinsurance including reinstatement premiums and are attributable to commercial and personal property plus casualty insurance operations as well as reinsurance activities.

Chubb’s status as a P&C insurer has significantly exposed it to loss from natural disasters, man-made catastrophes and other weather-oriented events, rendering volatility to its underwriting results. In fact, in 2017, the company’s underwriting income plummeted 58.7% from the tally of 2016.

Also last year, the company incurred after-tax catastrophe loss of $2.2 billion, primarily due to the unprecedented hurricane activity as well as two successive earthquakes in Mexico and the California wildfires. As a result, the company’s combined ratio came under pressure, having deteriorated 600 basis points (bps) in 2017 compared with the level in 2016.

However, we expect improving commercial property and casualty (P&C) pricing in the company’s numerous international businesses as well as premiums to lend it enough cushion for delivering overall desirable results.

The company is set to release its first-quarter 2018 results on Apr 24. The Zacks Consensus Estimate for earnings in the first quarter is pegged at $2.57 per share, improving 3.6% year over year. However, this estimate might change once the analysts start incorporating the catastrophe loss impact in the numbers.

Further, Chubb has an Earnings ESP of -0.20% and a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, a company needs a positive ESP to be confident about an earnings surprise. Thus, this combination leaves surprise prediction inconclusive.

Shares of the company have underperformed the industry in a year’s time. The stock has lost 1.2% versus the industry’s rally of 16.2%.



Additionally, the Zacks Consensus Estimate for the current year has moved 0.7% south while the same for 2019 has slipped 0.4% in the last 60 days. Calamities affecting underwriting results will possibly be a drag on the share price.

Stocks to Consider

Some better-ranked stocks from the insurance industry are Radian Group (RDN - Free Report) , CNO Financial Group (CNO - Free Report) and American Financial Group, Inc. (AFG - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.    
   
Radian Group offers mortgage and real-estate products and services in the United States. The company delivered positive surprises in three of the last four quarters with an average beat of 7.9%.

CNO Financial develops, markets and administers health insurance, annuity, individual life insurance and other insurance products for senior and middle-income markets in the United States. The company came up with positive surprises in the last four quarters with an average beat of 23.9%.
 
American Financial provides property and casualty insurance products in the United States. The company pulled off positive surprises in the trailing four quarters with an average beat of 26.3%.

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