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Property and casualty insurer Chubb Corp. (CB - Analyst Report) reported the third-quarter operating earnings of $1.98 per share, significantly ahead of the Zacks Consensus Estimate of $1.51 per share. Earnings surged by a whopping 90% year over year. The quarter benefited from strong underwriting results as well as unusually low catastrophe losses.

Net written premium for the quarter inched up 1%, due to 3% and 2% growths in Chubb Personal and Chubb Commercial Insurance, respectively.

Combined ratio for the quarter was 86.3% compared with 102.6% last year. Excluding cat, the combined ratio was 85.7% in 2012, 2.5 basis points better than the 88.2% reported in the last-year quarter.

Property and casualty investment income after tax slumped 7% to $297 million in the quarter primarily attributable to lower reinvestment rates in both domestic and international fixed maturity portfolios.

Catastrophe losses were $17 million in the quarter, very low compared with $420 million in the prior-year quarter.

Adjusted book value per share, a measure of net worth, was $53.96 compared with $50.37 at December 2011, and $50.13 in the year-ago quarter.

Segment Update

At Chubb Commercial Insurance (CCI) segment, net written premiums climbed 2% year over year to $1.2 billion during the reported quarter, led by rate increase and strong retention levels.

Chubb Specialty Insurance’s (CSI) net written premiums went down 4% year over year to $640 million due to lower premiums written in the professional liability lines.

Chubb Personal Insurance (CPI) segment’s net written premiums hiked 3% year over year to $1.1 billion. This represented the eleventh consecutive quarter of growth.

Capital Management

During the quarter, Chubb repurchased around 4.1 million shares at a total cost of $301 million.

2012 Outlook

On the back of strong results achieved in the first nine months of 2012, Chubb raised its fiscal 2012 earnings guidance to the range of $6.70–$6.80 per share from the previously issued guidance range of $5.70–$5.95 per share.

Our Take

Chubb performed impressively in the first nine months 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 the results at Personal Insurance segment. 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 the opportunities to grow profitably. Moreover, Chubb’s superior underwriting, customer loyalty and conservative investment approach gives it a competitive edge over its peers, such as 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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