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We are reiterating our Neutral recommendation on the shares of Chubb Corp. (CB - Analyst Report), following its third-quarter earnings release. The quarter benefited from strong underwriting results as well as unusually low catastrophe losses, enabling the insurer to significantly beat the Zacks Consensus estimate. Earnings also grew by a whopping 90% year over year. 

However, catastrophe loss form Hurricane Sandy, the ongoing soft property and casualty market, along with the competitive market pressures, keeps us on the sidelines.

Though Chubb faced sluggish top-line growth in the past several years, it has recently witnessed a slowly improving market. Its Commercial segment has been reporting a reversal of trend or stabilization after declining continuously since the fourth quarter of 2008.  The segment has also been witnessing low-single-digits increases in average renewal rates since the second quarter of 2011.

Chubb’s Personal Insurance segment is also enjoying a gradual market improvement. In the third quarter, the segment recorded a 3% hike in net premium written. This represented the twelfth consecutive quarter of growth, primarily led by strong premium increases from the international business.

Chubb also has significant international operations. Approximately 27% of its revenues in 2011 were generated from operations outside the U.S. The company's international business benefits from better pricing conditions compared to its domestic operations. We believe that Chubb’s strategy to expand internationally will position it comfortably for long-term growth.

However, Chubb’s Specialty insurance business has been suffering from rate reductions over the past several years. The company’s surety, professional liability and personal lines of businesses are also expected to experience some pressure.

Chubb has been reporting favorable loss reserves since 2004, which have formed a significant component of earnings. However going forward, the pace of reserve release is expected to decline, eroding the benefits it added to the earnings.

Nevertheless, Chubb remains well capitalized at the insurance company level, in reference to the minimum risk-based capital requirement. Its debt-to-total capitalization ratio also stands low at 20.1%. Moreover, Chubb is known as a dividend aristocrat due to its policy to continuously increase dividend payments.

Based in Warren, New Jersey, Chubb closely competes with The Travelers Companies Inc. (TRV - Analyst Report) and W.R. Berkley Corp.(WRB - Analyst Report). The stock currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

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