Property and casualty insurer, Chubb Corp. (CB) expects a loss in the range of $200 million to $240 million on account of catastrophes during the second quarter. On a per-share basis, the loss will come in the range of 48 cents to 57 cents after tax.
Severe hail and wind storms from 13 catastrophic events in the United States during the quarter are expected to result in the cat losses.
In the corresponding prior-year period, Chubb incurred $329 million of pre-tax or 72 cents per share in cat losses, primarily stemming from the winter storms in the U.S. Despite a record number of catastrophic events in the second quarter of 2011 in the U.S., Chubb continued to post excellent underwriting results, generating a combined ratio of 94.9%.
Compared with 2011, 2012 has been benign in terms of catastrophes, year to date. The year 2011 saw record cat losses and the property and casualty industry incurred approximately $20 billion of cat losses. Hurricane Irene, widespread tornadoes, wildfires in Texas and an autumn snowstorm in the Northeast all added up to it. Despite $1 billion of catastrophic losses, Chubb earned $1.7 billion in net income in 2011.
Chubb has a business mix, which continues to perform exceptionally well, protecting it from external factors like bad weather that pushed many of its peers into losses. We respect the company for its ability to maintain shareholders’ return by deploying excess capital for stock buybacks and dividend payments in a weak market environment over the past several years.
Given a superior franchise, the company is adequately poised to benefit from the expected turn in the insurance pricing cycle. The company has already started to witness growth in its Commercial and Personal lines. Its International business is on a growth track and we expect the segment to fuel long-term earnings growth.
We will get further insight into the company’s catastrophic losses during the second quarter earnings release, scheduled after the market closes on July, 26. The Zacks Consensus Estimate for second quarter earnings is pegged at $1.41 per share, reflecting a year-over-year growth of 11.2%.
Chubb currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on its shares. Its competitors W.R. Berkley Corp. (WRB),The Travelers Companies, Inc. (TRV) and Assurant Inc. (AIZ), all carry a Zacks #3 Rank and a long-term Neutral rating.
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