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Property and casualty insurer Chubb Corp. reported the fourth-quarter operating earnings of 16 cents per share, significantly ahead of the Zacks Consensus Estimate of a loss of 46 cents per share. Earnings were down substantially by 90% year over year. The quarter’s results suffered from $882 million before tax loss from superstorm Sandy.

FY12 operating income per share was $5.23 which is significantly higher than the Zacks Consensus Estimate $4.61. Earnings were also up 2% year over year.

Net written premium for the quarter was down 2% year over year to $2.9 billion.   

Property and casualty investment income after tax slumped 6% year over year to $296 million.

Combined ratio for the quarter was 111.2% compared with 89.9% last year. The deterioration in the combined ratio came from catastrophe loss

Adjusted book value per share, a measure of net worth, was $53.80 compared with $50.37 at Dec 2011.

Segment Update

At Chubb Commercial Insurance the segment net written premium was down by 2% year over year to $1.2 billion during the reported quarter.

Chubb Specialty Insurance’s net written premiums went down 7% year over year to $688 million due to lower premiums written in the professional liability lines.

Chubb Personal Insurance segment net written premiums was up by 2% year over year to $1.0 billion. The increase was driven by higher premium from Homeowners, Personal Automobile as well as Other Personal lines.

Capital Management

During the quarter Chubb repurchased 369,900 shares of its common stock at a total cost of $28 million. The company authorized new share repurchase program for up to $1.3 billion.

2013 Outlook

Management expects to earn $6.40 to $6.80 on a per share basis for full year 2013.

Our Take

Though the quarter results suffered due to effects of  Sandy, more closely watched, full-year results show that Chubb performed well overall.

Chubb is poised to perform better going forward 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.

However, exposure to significant catastrophic events remains a concern. Also, the prevailing low interest rate environment acts as a headwind.

Nevertheless, in our view, Chubb’s strong capital management policy 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 other property and casualty insurance players such as RLI Corp. , The Travelers Companies, Inc. , The Allstate Corp. to name a few.

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