Chubb Limited First Quarter 2024 Earnings Transcirpt
REFINITIV STREETEVENTS
EDITED TRANSCRIPT
CB.N - Q1 2024 Chubb Ltd Earnings Call
EVENT DATE/TIME:
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Company Summary
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C O R P O R A T E P A R T I C I P A N T S
C O N F E R E N C E C A L L P A R T I C I P A N T S
Jamminder Singh Bhullar JPMorgan Chase & Co, Research Division - Senior Analyst
P R E S E N T A T I O N
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 First Quarter 2024 Earnings Call. (Operator Instructions) I would now like to tuthe call over to
Good morning everyone, and welcome to our
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. I'd like to introduce our speakers this morning. First, we have
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Good morning. We had an excellent start to the year. Core operating income was up double-digit, driven by all 3 sources of income. P&C underwriting income was up over 15% with a published combined ratio of 86%; investment income was up more than 23%; and life insurance income was up almost 10%. We produced double-digit premium revenue growth from across the globe with strong results in our commercial and consumer P&C and international life businesses. Core operating income was up over 20% to
Again, our P&C underwriting income was up over 15% to
Turning to growth, pricing, and the rate environment, consolidated net premiums for the company increased over 14%. For Global P&C, which excludes agriculture, net premiums increased 13.3% in the quarter, with commercial up over 11% and consumer up over 19%. P&C premium growth in the quarter, again, was balanced and broad-based globally between areas of the globe and commercial versus consumer, reflecting favorable underwriting and market conditions overall. Life insurance premiums and deposits were up over 39%, driven by our business in
In terms of the commercial P&C rate environment, overall conditions were quite favorable in both property and casualty, and price increases exceeded loss costs while rate decreases in Financial lines slowed.
So, starting with
By the way, that large structured transaction negatively impacted North America Commercial's combined ratio by over 0.5 point, with the loss ratio impacted by over 1 point. Excluding this impact, unmasks the current accident year combined ratio run-rate.
Supporting North America P&C growth was record new business of over
Premiums in our Major Accounts and Specialty division increased 12% with our large account retail business up 12% and our E&S business up about 10.5%. Premiums in our Middle Market division increased about 7% with P&C lines up 10.6% and Financial lines down 6.5%.
Again, the P&C market environment in
From our very large Middle Market business to Small Commercial to Personal lines, and driven by both property and casualty, we saw the best rates in pricing overall that we've seen in the last 4 to 5 quarters. It was one of the best quarters for large casualty pricing. In our
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Loss costs in
For Financial lines, the underwriting environment and a number of classes, in a word, is simply dumb. Rates continue to decline, albeit at a slower pace. We are, of course, trading growth for underwriting margin and income where we need to. In the quarter, rates and pricing for North America Financial lines in aggregate were down 3% and 2.7%, respectively. We are trending Financial lines loss costs at just over 5%.
On the consumer side of
- over
$5.5 billion in premium last year, and it grew over 12% in the quarter with new business growth of nearly 35%. It speaks to a franchise in a class of its own in terms of service and capability. Premium growth for our true high-net-worth Premier and Signature segments, the group that demands the most underwriting and servicing, grew 16.5%. In our homeowners business, we achieved pricing of 17% in the quarter, while our selected loss cost trend remained steady at 10.5%. While a small quarter, our agriculture business had a very good underwriting result as the '23 crop year turned out a bit better than we projected.
Turning to our international general insurance operations, net premiums were up 17.5%, or 16.7% in constant dollars. Our international commercial business grew 11.4%, while our consumer was up over 26%. Growth this quarter was geographically diverse with all major regions contributing, which again illustrates the true global nature of the company.
Loss-cost inflation across our international retail commercial portfolio is trending at 5.8%, with P&C lines trending 6.1% and Financial lines trending 4.8%. Within our international consumer P&C business, our Personal Lines division had an exceptional quarter, with constant dollar growth of 47%, led by
In our international life insurance business, which is overwhelmingly
In summary, we had an excellent quarter and start to the year. We remain well positioned to continue producing outstanding results through the balance of the year and beyond. We remain confident in our ability to continue growing operating earnings at a rapid pace through P&C revenue growth and underwriting margins, investment income, and life income.
Now I'm going to tuit over to Peter, and then we're going to come back, and we're going to take your questions.
Thank you, Evan. As you all just heard, we continue to build on the momentum of our record 2023 year with strong growth in top line and earnings per share this quarter. We continue to effectively manage our balance sheet and ended the quarter in a strong financial position, including book value that exceeded
There were two one-time earnings items this quarter that I would like to touch on. First, we recognized an incremental
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Second, there was a contribution made to the
During the quarter, book and tangible book value per share excluding AOCI increased 2.2% and 2.9%, respectively, from
Turning to investments, our A-rated portfolio produced adjusted net investment income of
Turning to underwriting results, the quarter included pretax catastrophe losses of
Prior period development in the quarter in our active companies was a positive
Our corporate runoff portfolio had unfavorable development of
I'll now tuthe call back over to Karen.
Thank you. At this point, we're happy to take the questions.
Q U E S T I O N S A N D A N S W E R S
Operator
(Operator Instructions)
Your first question comes from the line of
First question. Evan, I just wanted to maybe get a little bit more detail on the
Yes. Look, we recognized over
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large account excess casualty, auto related in areas we've discussed. Trucking, logistics companies, companies with large commercial fleets and it's the business we've been addressing in terms of rate and underwriting actions and in that case, think retentions.
And our loss picks that reflect our action. The -- in fact, when we talk about that we gave you color around that we had this large LPT that was larger than usual. And then we offset to a degree by the underwriting actions that we've been taking. You heard it all last quarter. It will run 2 or more -- maybe 2 more quarters. That's all related back to the same business as you know. So there's the mental model. The development was not a surprise because we continually track actual versus expected activity for all product lines. And we had continued to observe higher-than-expected loss activity for this business. So, we study it more deeply this quarter. And we took as we always will. We took the bad news and we are slow to recognize good news, no different than I said last quarter, our reserves are really strong.
Got it. That's helpful. And then I did notice that the commercial casualty net premium written growth accelerated during the quarter and you mentioned -- you also mentioned the rate increases accelerated a little bit in the quarter as well in commercial casualty. Could you just talk about how you're thinking about balancing all the elevated uncertainty in the environment with leaning into growth, which it seems like you guys are doing a little bit?
Well, the growth is coming. It wasn't a little bit. It was a step change in the rate we got exceeded loss costs, let alone pricing, which includes exposure change. And that is what contributed substantially to the growth. We grew exposure as well, particularly in our Middle Market long-tail business.
Though there was some growth in particular lines in large accounts as well where the pricing, you know the vast majority of our book is adequately priced in casualty, and we're getting rate that recognizes loss cost trend, and so we maintain the adequacy. And then the stress classes, which need rate to hit our target combined ratios. That's where rate has accelerated in the market, and we -- because the market is also reacting, we're able to achieve and grow the business to a degree. Otherwise, we get the rate, like the business. And there were 1 or 2 classes where that's occurring.
Operator
Your next question comes from the line of
On the topic of social inflation, I think, I'm assuming when we think about the social inflation that the main way to tackle it is risk selection and pricing, et cetera. But I recall in your shareholder letter, Evan, you talked about working or maybe you can elaborate, you and others have talked about kind of -- it sounds like a more concerted effort to lobby efforts or to maybe state by state see if there could be some reforms. And so just curious if you could elaborate if there's anything changing there in terms of what Chubb or the industry is doing to maybe tackle it from the back end or fix.
Yes. First of all, our loss picks reflect the reality of the environment around the inflation we observe and that includes any actions as we know them to be that might ameliorate it around tort reform. Tort reform is going to be a long-termnever-ending process. As you say, it's not going to be federal. State by state, it could be county by county, depending. And it depends on the class of business as to the kind of reform that's required to bend that curve and loss cost. The insurance industry can support tort reform and does. The insurance industry can't particularly lead it. We don't have the printing press. This is ultimately paid for by corporate America, and it's paid for by consumers, who buy the products and the services from corporate America. It's a tax on everybody. If you look at it in a clear eye way.
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We reflect the inflation that we see, whether it comes from social inflation, so-called social inflation, or other causes in the prices and the rates we ultimately charge corporate America to the business. Tort reform comes and there's litigation finance where disclosure laws have to change around that and I mentioned that in the letter. And some states require it, most don't. And it's very simple because it puts in context how sympathetic is the plaintiff. And what are the motives? There's laws around who bears liability, the responsibility, what they call joint and several laws around it. You could be 1% liable, but you're the only one with any money, so they make you 100% responsible financially.
There are reasons that, that occurs, but that is also being gamed by the trial bar in how they target cases and how they target companies. It's those sorts of things. The insurance industry is hardly sympathetic. Corporate America needs to do more in this case, and we are all active. A number of companies are active in advocating for reforms, but it's not a magic, it's no silver magic bullet. It's going to take many years and it's going to require more effort than is currently being expended.
Great. Switching gears, maybe a quicker question on Personal Lines. If I look at kind of what Chubb has said about kind of loss cost inflation in Personal lines and appreciating you have a different book than I guess the average of your peers. But you got -- you all have been talking about kind of close to double digit or double-digit loss cost inflation for many years now. It feels like that's been -- some of your peers have caught up to you in terms of, I think, they were underestimating it. But just curious if you can provide any context. Is the loss cost inflation more so coming from weather inflation? Or is it just as much coming from wage inflation? Or just any context unpacking that kind of 10%, 10.5% loss inflation?
Yes, it comes from 3 sources -- or a couple of sources. It comes from frequency of loss and from various perils. It comes from -- and so there you could think weather-related. You can also think water-related and so the infrastructure impact to housing stock itself. It comes from wage inflation, and it comes from materials, which remember, we insure not the average homeowner, we're insuring those who are more affluent. And our product is a richer product in terms of how it responds to loss and the position it places you back in following loss. We try to duplicate exactly what you had before the loss, not sort of like it, but we duplicate it.
That has an inherent inflation to it as well. And we insure more complex properties, and we insure more complex and expensive content. So that may contribute to a degree to a greater amount of inflation than you might see generally across. But we stay on top of it. And we have. And we've stayed on top of it in terms of both pricing and the amount of coverage we give to our clients. So they don't fall behind, which for all our homeowners, in shorts, that shows up, yes, in your bill that you get once a year from us. Me included.
Operator
The next question comes from the line of
When I was looking through your results, I was particularly struck by the growth in the reinsurance lines, seems to have accelerated. And I'm just curious if there is a change in your perspective regarding leading into those market conditions.
Yes. Greg, keep in mind, percentages are a funny thing. It's not a big business. It's not a big book of business. We're not a large reinsurer. So, the percentage growth, which is very good to see, is off of a relatively small base. So in dollar terms, it's nice. Thank you very much to all our Global Re colleagues, but it's not a large amount. We allocated given the pricing environment and given structure and given underlying pricing and structure of cedent's portfolios. We allocated more, incrementally more, as I said in the opening, more CAT capacity with to Global Re, which means they're
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writing a bit more CAT excess and a bit more property proportional and excess per risk. And it's across the globe where they see favorable conditions. That's predominantly with the CAT results.
Okay. Fair enough. I know -- I got to preview this question knowing that I'm probably not going to get a great answer, but I feel like it's appropriate
to ask...
You can ask anyway, and you'll get a lousy answer, go ahead.
Well, the topic is M&A. I mean, you featured it. You talked about the 1 to 2 points of drag you get on holding excess capital. You mentioned that in your shareholder letter. You're generating great results. I feel like this is a time where we could see you get more active in the market. But maybe you can just talk to us broadly about what you're seeing in the market? Is there a pipeline out there? Or is it -- is there a lot of opportunities? Or give us some perspective if possible.
Greg, I'm at rest. And the results are terrific. We have excess capital for both risk and opportunity. It's earning. Putting money to work at over 6% right now. If you put the capital against our invested asset, it requires us earning a damn good ROE. The cash that we hold is accretive to shareholder returns. And look, we're a global company with a lot of global opportunity and our eyes are always open. But as I said, I'm at rest. Don't hold your breath.
Operator
Your next question comes from the line of
I guess first question, just on Financial lines. I think you said that it's quite frankly, dumb. Now that's obviously like a pretty broad set of various lines within Financials. I think I heard you say that you're shrinking in Mid-market, too. And my perception is that, it was a little bit more disciplined than some of the Major Accounts. So just curious if you could just take us within Financial lines, whether it's account size or D&O excess whatever, like where are folks acting more or less irrationally?
Yes, look, the way to think about this -- don't just think, it behaves differently to a degree in Major Account than it does in Middle Market in the cohorts that show up where market competition is irrational. I'm not going to unpack each one of those. But what I'll break down for you is this: you have publicly traded D&O and whether it's in Middle Market or it's in Large Account, there is dumb behavior depending on the cohort. I'm not going to unpack which one of them it is that much transparency, but you see it in Large Accounts and you see it in publicly traded D&O. There is not-for-profit D&O. We write it in both Major Accounts and we write it in Middle Market.
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And by the way, we write it in E&S. And there are cohorts where market, we know, because we're the largest writers of this business. We know what the experience is, what the real exposures are, where losses are coming from, market and pockets of that important pockets irrational, dumb. Employment practices liability. Again, I'm going to say which cohorts, but market is -- many are very naive and don't understand the trends and the exposures that are driving EPLI and where it's being driven, what states, where law has changed. Is it around? It's not simply wage an hour, now technology impacts it. There are those who have no idea what's catching up to them.
And then you have legal changes that are occurring at the federal level that are impacting Financial lines. You can see it and it's coming. So, the good news about the business is its claims made reveals its secrets pretty quickly, that will occur. And it is a big company, we got a lot of opportunity in a lot of places. And in some of those areas, we're just not going to follow people off the cliff. It doesn't matter.
Got you. And a follow-up, just shifting gears. Just curious about priorities in
Well, key sets of priorities, good question. On one hand, we can continue pushing the envelope and we're impatient about it. On the -- how we define the services and coverages that a customer in our space are to expect from a great carrier. The kind of resiliency services and engineering services, the kinds of technology that we can use to interface with our customers, give them a better experience. How we can use technology and claims and manage a better and more seamless outcome for them. All of that is wrapped up in how we think about that part of the business.
Our clients are CAT exposed. They were in a world where they choose to live where they live, and know and make the choice to live where they're more CAT exposed. They will share more risk with us, but we can help them manage that risk and the portion that they share and as well reduce the exposure to loss on the portion we take. It also is allowing us, as we're doing that both through admitted and non-admitted to, in a sense, manufacture more CAT capacity, which is really part of the ability, our fuel to take on more exposure. We have a finite balance sheet. We can't take infinite risk. So we think about it in that regard.
Our pricing and the rate against exposure from perils continues to improve. We can keep pushing the envelope on how granular we become in terms of risk rating, more cohorts of risk to apply rate and price against. And we're continuing to do that, but we're restless about that. We can be even better at it. That allows us to provide more coverage in areas, think about it, like flood, where we have areas where we're actually leaning in to offer more protection to clients, but be able to manage the portfolio. Maybe that gives you a few.
Operator
Your next question comes from the line of
Evan, just curious, and I'm sure there's some moving parts here, but can you help me kind of square in
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Yes. I'm going to let
Yes, Brian, as Evan had noted, we had in that large structured transaction this quarter that produced net written premium with no gross written premium. In addition, we had exited 2 large MGAs or fronted programs that historically produced a lot of gross with very little net. When you adjust for those 3 items, the gross and net are virtually identical.
That's really...
That's the same answer on the net to gross ratio.
It's really transactional, not fundamental.
Got you. No change in reinsurance buying habits, that makes sense.
I just see...
Okay. Excellent. And then, Evan, I may have missed this, but you provided a lot of great kind of pricing rate and trend exposure commentary. But did you give us what the kind of total
I did give it to you. Are you asking me to go back and do it again? Do you actually want me to look -- I'll give it to you if you want me to take my notes and do it. Listen,
Got you. And trend?
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