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Chubb Q2 Earnings Miss on Elevated Claims, Guidance Trimmed

Zacks Equity Research

Chubb Corp.’s (CB) second-quarter 2014 earnings came in at $1.70 per share, significantly behind the Zacks Consensus Estimate of $1.90. Earnings also declined 4% year over year.

Chubb’s second-quarter results were affected by catastrophe and non-catastrophe losses related to severe weather in the United States. An unusually high level of Homeowners' and Commercial fire losses added to the company’s woes.

The Chubb Corporation - Earnings Surprise | FindTheBest

Net written premium for the reported quarter was up 4% year over year at $3.2 billion. While the company registered 5% growth in premium from its U.S. business, only 1% premium growth was seen in its international business.

Property and casualty investment income after tax was down 4% year over year to $275 million.

Chubb’s underwriting income of $278 million suffered a 12% decline during the quarter, due to higher loss and operating cost.

Catastrophe losses amounted to $146 million, down 38.4% year over year.

Combined ratio for the quarter deteriorated by 120 basis points (bps) year over year to 90.0% reflecting loss incurred from catastrophes and high fire-related claims in Homeowners and Commercial lines.

Book value per share, a measure of net worth was $68.60, up 13.0% year over year.

Segment Update

At Chubb Commercial Insurance segment, net written premium increased 3% year over year to $1.4 billion during the reported quarter. The combined ratio deteriorated by 340 bps year over year to 93.3% due to cat loss.

Chubb Specialty Insurance’s net written premiums increased 5% year over year to $655 million attributable to 8% increase in surety insurance and 4% increase in professional liability insurance. The combined ratio improved 730 bps year over year to 78.7%.

Chubb Personal Insurance segment’s net written premiums rose 5% year over year to $1.2 billion, primarily driven by higher premium in Personal lines and Homeowners’ insurance. Combined ratio deteriorated 310 bps year over year to 92.7%.

Capital Management

During the quarter, Chubb repurchased 4.0 million shares of its common stock at a total cost of $375 million.

Lowered 2014 Guidance

Following the review of results over the past six months, Chubb has lowered its 2014 earnings guidance. It now expects earnings in the range of $6.75 to $6.95, considerably down from the earlier projection of $7.10 to $7.40. Chubb expects to see 2% to 4% premium growth, combined ratio in the range of 90% to 91% and a 4% to 6% decline in net investment income. Moreover, cat losses might create a 5.3% adverse impact on 2014 combined ratio, more than 1% higher than the 2013 impact.

Our Take

Though the quarter’s results reflect the burden of high claims, we expect the company to perform favorably over the long term.

Chubb’s Commercial Insurance has been witnessing a low single-digit increase in average renewal rates for the past several quarters. Retention ratio stands at a stable level.

Chubb’s Personal Insurance is also witnessing a gradual market improvement. Net premium written in this segment has been increasing over several quarters, led by strong premium increases from international business.

The strength in Chubb’s international business is in fact its arsenal for its future growth.

Strong capital management witnessed by regular share repurchases will also aid its bottom line.

Other Stocks

Other players that missed second-quarter earnings include The Travelers Companies, Inc. (TRV), Allied World Assurance Company Holdings, AG (AWH), and Everest Re Group Ltd. (RE).

Read the Full Research Report on TRV
Read the Full Research Report on CB
Read the Full Research Report on RE
Read the Full Research Report on AWH

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