Chubb CEO: Momentum on Rates, Including Personal Lines, Continues to Build

Chubb Corp. said it's raising rates in both commercial and personal lines, including seeing the first increase in professional liability since 2009.

"We continued to see sustained momentum in the standard commercial rate increases that we've been discussing for the last few quarters...we've also obtained rate increases in personal lines," John D. Finnegan, chairman and chief executive officer, said during the company's fourth-quarter earnings call.

Chubb posted a 27% drop in fourth-quarter net income, which fell to $452 million from $620 million for the fourth quarter of 2010.

Chubb, the 12th-largest U.S. property/casualty writer, said renewals rates for its standard commercial insurance lines increased by 6% in the fourth quarter.

"Rate momentum continues to build as evidenced by the fact that the fourth quarter's 6% compares to the 4% we reported in the third quarter, 2% in the second quarter and flat in the first quarter," Paul J. Krump, executive vice president and president of commercial and specialty lines, said during the call.

Krump said he was encouraged the company saw rate increases in every line of its standard commercial business in the fourth quarter.

"Monoline property rates increased the most, reaching the double-digit mark, followed in order by general liability, workers' compensation, excess umbrella, package, commercial automobile, boiler and marine," Krump said.

About 70% of the renewed business in the fourth quarter saw higher rates, up from just 30% for the fourth quarter a year earlier, he said.

In the company's specialty lines, Krump said he was pleased to see a 1% increase in rates for the company's U.S. professional liability lines. That compares to a 1% decline in the third quarter, a 2% decline in the second quarter and a 3% decline in the first quarter.

"The last time we obtained positive rate increases in the United States for professional liability was 2009, when there was a fair amount of market disruption in the wake of the financial crisis," he said. "Prior to that, rates had not increased since the first quarter of 2004."

Net written premiums for the fourth quarter rose 4% to $3 billion from $2.9 billion. Premiums increased 3% in the United States and 6% outside the United States. The fourth-quarter combined ratio was 89.9 in 2011 up from 87 in 2010.

Chubb Group's property/casualty insurance business is about 24% specialty insurance, 42% commercial insurance and 34% personal insurance, according to BestLink. About 90% of the group's specialty insurance lines writings are professional liability business, including directors and officers and errors and omissions coverage. The balance is surety, according to BestLink.

Due to both heavy catastrophe losses and noncatastrophe-related losses, Chubb is filing for 5% to 6% rate increases in U.S. homeowners, Dino E. Robusto, executive vice president and president of personal lines, said during the call.

In 2011, the company's homeowners rates were increasing by 3% to 4%, he said.

"We anticipate filing more rate increases as needed," Robusto said. "Given the widespread rate taking in the general market, we do not think this will have a significant impact on our retention or our ability to attract new customers."

Chubb is the eighth-largest homeowners writer, according to BestLink.

For the fourth-quarter 2011, Chubb said it had the eighth-consecutive quarterly increase in policy retention, ending the year with a U.S. homeowners rate of 91%, which was nearly a point higher than the same quarter in 2010. New business was also up 8% for the year, Robusto said.

Retention for commercial lines was 85%—down from 89% in the third quarter 2011, Krump said.

"We believe that the trade-off in retention for rate was a good one, made even better as we carefully culled our least-attractive business," Krump said.

In the United States, Chubb Group is represented by about 5,000 independent agents and accepts business on a regular basis from approximately 500 insurance brokers. The group offers products through approximately 3,000 insurance brokers outside of the United States, according to BestLink.

Last October, Chubb Corp. reported a 47.9% drop in third-quarter net income, as results were hurt by catastrophe losses, but like the fourth-quarter, Chubb said it was getting rate increases, especially in its U.S. commercial business (Best's News Service, Oct. 21, 2011).

Midday on Jan. 27, shares of Chubb (NYSE: CB) were trading at $67.54, down 3.99% from the previous close.

Chubb Group of Insurance Cos. currently has a Best's Financial Strength Rating of A++ (Superior).

(By Meg Green, senior associate editor, BestWeek: Meg.Green@ambest.com)