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Property and casualty insurer Chubb Corp. (CB - Analyst Report) reported second quarter operating earnings of $1.37 per share, significantly ahead of the Zacks Consensus Estimate of $1.15 per share.

Better-than-expected earnings stemmed primarily from lower catastrophe losses coupled with modestly higher premiums written and a lower share count, partly offset by higher operating costs. Earnings also compared favorably with $1.27 per share reported during the prior-year quarter.

The insurer reported net written premiums of $3.1 billion, up 1% year over year.

Second-quarter combined ratio (a measure of an insurer’s profitability, the lower the better) improved 110 basis points year over year to 93.8%. Excluding catastrophe losses, combined ratio was 86.3% compared with 83.6% in the year-ago quarter.

Property and casualty investment income after tax was down 5.0% year over year to $303 million.

Catastrophe losses were $223 million in the quarter compared with $329 million in the prior-year quarter.

Adjusted book value per share, a measure of net worth, increased 3.9% year over year to $52.34 as of June 30, 2012.

Segment Update


At Chubb Commercial Insurance (CCI) segment, net written premiums climbed 3% 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 were down 6% year over year to $638 million due to lower premiums written in the professional liability and surety lines.

Chubb Personal Insurance (CPI) segment’s net written premiums went up 4% year over year to $1.1 billion. This represented the tenth consecutive quarter of growth.

Capital Management

During the quarter, Chubb repurchased around 4.3 million shares at a total cost of $305 million.

2012 Outlook

On the back of strong results achieved in the first half of 2012, Chubb upped its fiscal 2012 earnings guidance to the range of $5.70–$5.95 per share from the previously issued guidance range of $5.30–$5.70 per share.

The company expects net premium to increase by 1%–3% while investment income is likely to decline 4%–6%. The company also expects a combined ratio of 93%–94% along with 271 million shares outstanding.

Our Take

Chubb has registered an impressive performance in the first half of 2012 by posting better-than-expected earnings.

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, Inc. (TRV - Analyst Report), XL Group Plc. (XL - Analyst Report), The Allstate Corp. (ALL - Analyst Report), W.R. Berkley Corp. (WRB - Analyst Report) and others to generate solid returns for its shareholders.

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