Chubb Limited (NYSE:CB) Q4 2023 Earnings Call Transcript
Chubb Limited (NYSE:CB) Q4 2023 Earnings Call Transcript January 31, 2024
Chubb Limited isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Chubb Limited Fourth Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Karen Beyer, Senior Vice President, Investor Relations. Please go ahead.
Karen Beyer: Thank you, and welcome everyone to our December 31, 2023 fourth quarter and year-end earnings conference call. Our report today will contain forward-looking statements, including statements relating to company performance, pricing and business mix, growth opportunities, and economic and market conditions, which are subject to risk and uncertainties, and actual results may differ materially. Please see our recent SEC filings, earnings release, and financial supplement, which are available on our website at investors.chubb.com for more information on factors that could affect these matters. We will also refer today to non-GAAP financial measures, reconciliations of which to the most direct comparable GAAP measures and related details are provided in our earnings press release and financial supplement.
Now I'd like to introduce our speakers. First, we have Evan Greenberg, Chairman and Chief Executive Officer, followed by Peter Enns, our Chief Financial Officer. And then, we'll take your questions. Also with us to assist with your questions are several members of our management team. And now it's my pleasure to turn the call over to Evan.
Evan Greenberg: Good morning. We had an outstanding quarter and finish to the year, in fact a record year. Our quarter’s results included double digit premium growth, record P&C underwriting and investment income and strong life operating income, all leading to exceptional operating earnings on both the per share and dollar basis. Our results, both earnings and book value related were also positively impacted in a significant way, by a one-time deferred tax benefit related to Bermuda’s new income tax law. While the quarters results are impressive and important, the full year results that really matters most. All things being equal, one quarter hardly tells a story. Our full year results were simply stunning. Core operating income top $9.3 billion, up 45% or $8.2 billion, excluding the tax benefit, up 28%.
P&C underwriting income was a record $5.5 billion, with a combined ratio of 86.5% and investment income was up 33% and top $5.3 billion. As you can see, the balance between underwriting income and investment income was about 50-50, a very healthy balance. Life income was over $1 billion, while consolidated premium revenue growth was 13.5% for the year. For the year, our core operating ROE was 15.4%. And our return on tangible was 24.2%. Tax benefit contributed, so excluding that our core operating ROE was 13.6%, and our tangible ROE was 21.6%. Excellent numbers. Finally, for the year, per share of book intangible book value each group by over 20%. All divisions of the company in major geographies contributed to these outstanding results last year.
And I want to congratulate and thank my colleagues around the globe. Our results speak to the global nature of this organization, which is one of the things that distinguishes Chubb. Our fundamentals are very strong, in the quarter itself was simply a continuation of the year. For the quarter for operating income was $2.3 billion, excluding the tax benefit, or $5.54 per share, up 36% and 39% respectively. The one-time tax benefit then added $1.1 billion or $2.76 a share. Our underwriting performance in the quarter was a result of stronger earned premium growth, excellent underwriting margins with the published combined ratio of 85.5% and a current action at year of 84.3%. We had strong prior period reserve developments in both North America and Overseas General and relatively light CAT losses.
P&C underwriting income for the quarter was $1.5 billion. Our prior year reserve development in the quarter and for the year was $177 million and $773 million, respectively, which speaks to the consistent strength of our loss reserves. At year end, our loss reserves were in an exceptionally strong position, as strong as they have ever been. On the invested asset side, record adjusted net investment income of $1.5 billion was up $369 million, with 33% over prior year. Our portfolio yield at the end of the year was 4.3% versus 3.6% a year ago, and our reinvestment rate is currently averaging 5.3%. We have very strong liquidity and our investment income run rate continues to grow, as we reinvest our cash flow at higher rates. Peter will have more to say about financial items.
Now turning to growth, pricing and the rate environment. Consolidated net written premiums for the company increased over 13% in the quarter, with P&C up 12.5% and life up 20%. Of the P&C 12.5%, consumer loan lines were up 20% and commercial P&C was up 10%, which is in fact stronger than the full year average of 8.6%. Our premium revenue growth in the quarter was well spread globally. And from a broader perspective, for the full year, growth was 13.5%, with P&C uptown and life up 52%. Again Chubb is a globally diversified company. And our growth last year demonstrates the broad base nature of our operations. North America, commercial P&C, a very large and important business, representing 40% of the company, grew 7.5%. The balance of the company, the other 60% grew 18%.
U.S. high net-worth personal lines grew 11%. International consumer P&C grew 18%, international commercial P&C grew over 11%, and life grew 52%. In terms of the commercial P&C rate environment, the pattern was the same, as we have experienced all year, price increases in the quarter, and property and casualty lines exceeded loss costs in both North America and our International division. While globally, rates and prices continued to decrease in financial lines led by D&O. Getting to the detail for the quarter and beginning with North America. Premiums were up 9.4% or 6.2%, excluding agriculture. Consisted of growth of 12.1% in personal insurance, and 4.4% in commercial insurance. Within the 4.4% P&C lines were up 6.3% and financial lines were down 2.1%.
Unpacking the 4.4%, which was obviously slower than previous quarters, first, our middle market division had another strong quarter, with P&C premiums up 9.8%, while financial lines were essentially flat. Our E&S business had a strong quarter with growth of 16% in our wholesale brokerage lives. On the other hand, our divisions which serves large corporates, major accounts grew only 1.4%. Growth in Major was adversely impacted by about 7.5 points, or $125 million of premium from underwriting actions, we plan for and took in a segment of our primary and excess casualty business. One-half of the reduction in premium was the result of increased client retentions, with the balance due to loss business. For clarity, these actions in fact, contribute to future growth in underwriting income.
Regarding future, North America commercial growth, as we said in the press release, given current market conditions and our capabilities across all segments of commercial P&C, including large accounts. E&S and middle market, we fully expect to return to more robust growth, beginning with the first quarter. Overall pricing for total North America commercial increased 7.3%, including rate of 5.1%. An exposure change that acts like rate of 2.1%. Let me provide a bit more color around rates and pricing. Pricing for commercial property and casualty was strong. Up 12.4%, property pricing was up 17.3, with rates up 12.9 and exposure change of 3.9. Casualty pricing in North America was up 12.4%, with rates of 10.8% and exposure of 1.4%. And workers comp, which includes both primary and large account risk management, pricing was up 4.6%, with rates of 1.1% and exposure up 3.5%.
We are trending loss costs in North America at 6.6%, with short tail classes at 5.5% and long tail excluding comp at 7.3%. We are trending our first dollar workers comp book at 4.6%. For financial lines, the underwriting environment remains aggressive, particularly Indiana, and rates continue to decline. We know this business extremely well, at our trading growth for underwriting margin, at income, where we need to. In the quarter rates and pricing from North America financial lines in aggregate were down 6.1% and 5.5% respectively. We are trending financial lines loss costs at 5.1%. For our agriculture business, late season, drought related developments in crop insurance, resulted in an elevated combined ratio for the quarter in the year. For context, we published a 95.4% combined ratio for the year and earned an underwriting profit of $146 million.
Similar to the previous year’s result. Crop insurance is a CAT like business, by its nature vulnerable to weather volatility, but with very good risk reward dynamics if managed well. Crop insurance has been a great business for Chubb. Rain and Hail is an amazing company, and since acquiring them in 2010, for about $1.1 billion, we burned almost $2 billion in operating profit with an IRR of 26%. On the consumer side of North America, our high net-worth personal lines business had a simply outstanding quarter and year. In the quarter, premiums were up over 12% and new business growth was up 34%. There is a continued flight through our product, service and capability. We are the gold standard period. Again for the year the business grew almost 11% and published a combined ratio of 89.7% or 80.1% on a current accident year ex-cat basis.
In our homeowner’s business, we achieved pricing of 17% in the quarter, while our selected loss costs trend remains steady, 10.5%. Turning to our international general insurance operations, which had an outstanding quarter. Net premiums were 19.3% and the combined ratio was 85.9%. Our international commercial business grew 13.2%, while consumer was up 29.5%. For the year, Overseas General grew 14%. And our international business growth this quarter was broad base, with all major regions producing double digit growth, again, illustrating the global nature of the company. Asia led the way with premiums up 37%, made up of commercial lines growth of 21% and consumer up 56%. Europe and Latin America had very strong quarters as well, with growth of 15.5% above for both.
We continue to achieve improved rate to exposure across our international commercial portfolio. With pricing in our retail business up over 7%, Property and casualty line pricing was up over 10%, while financial lines pricing was down about 2%. Loss cost inflation across our international retail commercial portfolio is trending at 5.8%. The P&C lines trending 6% and financial lines trending 4.9%. Within our international consumer P&C business, our A&H and personal lines divisions, both had strong quarters, and for the year, their growth was 14.4% and 21.4%, respectively. Growth again was led by Asia. In our international life insurance business, which is basically Asia, premiums were up 26%. For the year, we reported life income of just over $1 billion or about $950 million, adjusting for some non-recurring items.
So in summary, we had a simply outstanding quarter, contributing to another record setting year and we are well positioned, to continue producing outstanding results going forward. Underwriting conditions overall are favorable, though they vary by business and geography. It’s an underwriters market, and that's what we are. We have hit the ground running in ’24, and while we are in the risk business, and volatility is a feature of that, we are confident in our ability to continue growing operating earnings at a double digit pace, through P&C revenue growth and underwriting margins, investment income, life income. Now I’ll turning the call over to Peter, and then we're going to come back, to take your questions.
Peter Enns: Good morning. As you've just heard from Evan, our strong performance continued into the fourth quarter. And we ended the year with record results in all three sources of earnings. P&C underwriting income, investment, income, and life income. Additionally, our book value of nearly $60 billion and book value per share of $146.83 were both all-time highs. Before I go into further detail on our results, I want to touch on the $1.14 billion, onetime deferred tax benefit recognized in the quarter. This tax benefit is a result of the Bermuda corporate income tax law enacted in December, which requires a one-time step up of the tax basis for assets in Bermuda to fair value. This one-time benefit represents a permanent increase to book value and tangible book value, and will be realized over a 10-year period starting in 2025.
Please refer to Page 1b in the financial supplement for the impact of this benefit on our key metrics. During the quarter per share book and tangible book value increased 12.2% and 20.2%, excluding the tax benefit. This increase reflects strong operating results and net realized and unrealized gains of $4.9 billion in our investment portfolio due to declining interest rates, partially offset by $1.1 billion of dividends and share repurchases. For the full year book and tangible book value per share increased 18.2% and 17.5%, excluding the tax benefit. The increase also included the diluted impact on the tangible equity related to Huatai consolidation on July 1, which has since been fully recovered. Turning to investments our portfolio grew over 20% since last year, reaching $137 billion at year end and benefiting from record full year adjusted operating cash flows of $12.2 billion and the addition of the Huatai portfolio of approximately $7 billion net to Chubb.
In addition, we experienced unrealized gains on our portfolio during the year of $3.1 million which again highlights the transient nature of these mark-to-market movements for a high-quality fixed income portfolio. This year, we continue to take advantage of an attractive interest rate environment, raising our portfolio yield to 4.3%, our highest since the third quarter of 2011. Our adjusted net investment income of $1.49 billion in the quarter included approximately $55 million of higher-than-normal dividend income and private equity distributions. Looking at, we expect our quarterly adjusted net investment income to have a run rate of approximately $1.45 billion and to go up from there. Turning to our underwriting business. For the quarter, we had pretax catastrophe losses of $300 million, principally from weather-related events, split 54% in the U.S. and 46% internationally.
Prior period development in the quarter in our active businesses was a favorable $323 million pretax, with 81% in short tail lines predominantly from property and 19% in long tail lines. Our corporate runoff lines had adverse development of $146 million pretax, including $99 million asbestos related. Our paid-to-incurred ratio for the year was 87%. Our reported effective tax rate was favorably impacted by the Bermuda deferred tax benefit mentioned earlier. Excluding the tax benefit, our core operating effective tax rate would have been 17% for the quarter and 18.2% for the year, slightly below our guided range, reflecting higher income in some low tax jurisdictions as well as the impact of certain employee-related benefits due to rising equity markets.
We expect our annual core operating effective tax rate for calendar 2024 to be in the range of 18.75% to 19.25%. I'll now turn the call back over to Karen.
Karen Beyer : Thank you. At this point, we're happy to take your questions.
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