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Chubb (CB) Estimates Q2 Catastrophe Loss of $1.8 Billion

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Chubb Limited (CB - Free Report) released its global net catastrophe loss estimate of $1.807 billion pretax or $1.15 billion after tax, net of reinsurance including reinstatement premiums. The loss can be attributed to the COVID-19 pandemic, severe weather-related events in the United States, as well as civil unrest-related losses in the United States.

While COVID-19 pandemic losses are expected to amount to $1.365 billion pre-tax ($1.157 billion after tax), natural catastrophe losses amount to $312 million pre-tax ($249 million after-tax). Civil unrest-related losses are expected to be $130 million pre-tax ($104 million after tax).

The Zacks Consensus Estimate for Chubb’s second-quarter earnings is currently pegged at $2.00, indicating a decline of 28.1% from the year-ago quarter reported figure.  We expect estimates to move further south once analysts start incorporating loss estimates into their numbers.

The losses stemming from the pandemic include short-tail losses of $605 million from entertainment and commercial property-related business interruption and accident and health products including travel insurance products apart from losses of $553 million related to liability insurance products, including professional liability (directors and officers, employment practices, professional liability), workers' compensation and other liability-related product. The loss estimate also includes $107 million related to insurance credit exposure including surety, political risk and trade credit.

North America Commercial P&C Insurance will account for about 71% of the COVID-19 estimated losses while the Overseas General Insurance segment will constitute 28%.

Given the operational challenges due to the coronavirus pandemic, Chubb estimates net written premiums to reduce by about $184 million due to exposure adjustments on its in-force policies.

Concurrently, as part of its second-quarter review of legacy exposures for molestation, Chubb expects to recognize unfavorable prior period development for U.S. child molestation including reviver statute-related claims of $259 million pre-tax, or $205 million after tax.

Being a property and casualty insurer, Chubb has a substantial exposure to loss from natural disasters, man-made catastrophes and other catastrophic events, which has been inducing volatility in its underwriting results. Catastrophe loss for the first quarter of 2020 was $199 million, lower than $201 million incurred in the year-ago quarter. In fact, first-quarter loss included $13 million pre-tax related to the COVID-19 pandemic. Chubb estimates the COVID 19 pandemic and its impact on economic growth to weigh on its operating income and revenues in the second quarter.

Shares of this Zacks Rank #3 (Hold) P&C insurer have lost 18.2% year to date compared with the industry’s decrease of 21%. Compelling product portfolio, underwriting excellence, strategic growth initiatives global presence, and effective capital deployment should help shares bounce back.


Stocks to Consider

Some better-ranked companies in the insurance industry are Old Republic International Corporation (ORI - Free Report) , Fidelity National Financial, Inc. (FNF - Free Report) and Horace Mann Educators Corporation (HMN - Free Report) ,

Old Republic engages in the insurance underwriting and related services business primarily in the United States and Canada. The company delivered average four-quarter positive surprise of 31.72%. It sports Zacks Rank #1 (Strong Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

Fidelity National provides various insurance products in the United States. The company delivered average four-quarter positive surprise of 10.93%. It sports a Zacks Rank #1.  

Horace Mann operates as a multiline insurance company in the United States. The company delivered average four-quarter positive surprise of 11.03%. It carries a Zacks Rank #2 (Buy).  

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