We are reiterating our Neutral recommendation on Chubb Corp. (CB), following the fourth quarter earnings release. Chubb reported a solid fourth quarter which included a 134.8% positive earnings surprise. Though the company performed reasonably well in its property and casualty lines of business, strong and persistent growth across the board was lacking.
Quarterly premium growth at Chubb Commercial Insurance was flat. The segment was, however, able to produce underwriting profitability due to disciplined risk selection and the compounding effect of overall rate increases.
Chubb Personal Insurance is also witnessing a gradual market improvement. The segment has been witnessing an increase in net premium written from the past several quarters, led by strong premium increases from international business.
However, Chubb Specialty Insurance business has been suffering from rate reductions over the past several years. We believe earnings from this segment to remain under pressure over the near term.
The company also remains substantially exposed to catastrophe loss due to its business concentration in the Northeast. The fourth quarter earnings also suffered from Sandy which was the largest catastrophe in the company’s history, both in terms of the number of claims and the cost on net reinsurance basis.
Nevertheless, this Zacks Rank # 2 (Buy) property and casualty insurer is maintaining a strong capital position, as evidenced by the new share repurchase program announced during the fourth quarter earnings release.
Following the earnings release over the last 30 days, 12 of 16 estimates moved north pushing the Zacks Consensus Estimate for the first quarter 2013 by 6.4% to $1.67. For full year 2013, 14 of 19 estimates were revised upward over the same time frame. The Zacks Consensus Estimate for 2013 moved up by 4.8% to $6.56, within the company guidance of $6.40 -$6.80per share.
Cincinnati Financial Corp. (CINF), First American Financial Corp. (FNF) and RLI Corp. (RLI), among other property and casualty insurer, are, carrying Zacks Rank #1 (Strong Buy) and are worth considering.
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