Chubb Limited Fourth Quarter 2023 Earnings Transcript
REFINITIV STREETEVENTS
EDITED TRANSCRIPT
CB.N - Q4 2023 Chubb Ltd Earnings Call
EVENT DATE/TIME:
OVERVIEW:
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
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 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).
I would now like to tuthe call over to
Thank you, and welcome, everyone, to our
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 risks and uncertainties, and actual results may differ materially. Please see our recent
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
And now it's my pleasure to tuthe call over to Evan.
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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 a 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
While the quarter's results are impressive and important, it's the full year result that really matters most. All things being equal, one quarter hardly tells a story. Our full year results were simply stunning. Core operating income topped
As you can see, the balance between underwriting income and investment income was about 50/50, a very healthy balance. Life income was over
Finally, for the year, per share book and tangible book value each grew 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 and the quarter itself was simply a continuation of the year. For the quarter, core operating income was
We had strong prior period reserve development in both
On the invested asset side, record adjusted net investment income of
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 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 up 10% and Life up 52%.
Again, Chubb is a globally diversified company, and our growth last year demonstrates the broad-based 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%.
In terms of the commercial P&C rate environment, the pattewas the same as we have experienced all year. Price increases in the quarter in property and casualty lines exceeded loss costs in both
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Getting to the detail for the quarter and beginning with
Growth in Major was adversely impacted by about 7.5 points or
Regarding future
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
For financial lines, the underwriting environment remains aggressive, particularly in D&O and rates continue to decline. We know this business extremely well and are trading growth for underwriting margin and income where we need to. In the quarter, rates and pricing from
For our Agriculture business, late-seasondrought-related developments in crop insurance resulted in an elevated combined ratio for the quarter and the year. For context, we published a 95.4% combined ratio for the year and earned an underwriting profit of
On the consumer side of
Turning to our international general insurance operations, which had an outstanding quarter. Net premiums were up 19.3%. 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%. In our international business growth this quarter was broad-based with all major regions producing double-digit growth, again, illustrating the global nature of the company.
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%, with 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.
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Growth again was led by
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, although they vary by business and geography. It's an underwriter's 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, and Life income. Now turning the call over to Peter, and then will come back to take your questions.
Good morning. As you've just heard from Evan, our strong performance continued into the fourth quarter and we ended the year with a record results in all 3 sources of earnings: P&C underwriting income, investment income and Life income. Additionally, our book value of nearly
Before I go into further detail on our results, I want to touch on the
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
Turning to investments. Our portfolio grew over 20% since last year, reaching
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
Turning to our underwriting business. For the quarter, we had pretax catastrophe losses of
Our reported effective tax rate was favorably impacted by the
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Thank you. At this point, we're happy to take your questions.
Q U E S T I O N S A N D A N S W E R S
Operator
Thank you. (Operator Instructions). Your first question comes from the line of
Maybe a first question on loss cost trend. We always appreciate all the granular color you gave. So in
But just curious, the underwriting result is excellent. Very clear that you feel like this is a good underwriting environment. What gives you comfort that if the long-tail loss inflation continues kind of inching higher that this is still a great underwriting environment in the year to come?
Well look, there's no certainty guaranteed but our loss cost trend in casualty when I look at it, has been reasonably steady over the year. And you'll say it inched up really more on mix of business than anything else when I look at the individual cohorts. That's the vast majority, and it's not a material change. And we have a lot of visibility on loss cost. There are some pockets that have been more elevated over the last number of years. It's nothing new.
We have spoken about it continuously. But overall, I think casualty loss cost trends while they are elevated due to the external environment, as we understand it to be, is reasonably steady while elevated. And so that's what gives me a lot of confidence about it.
Okay. That's helpful color. Lastly, my follow-up, with great earnings levels, maybe Peter or Evan, you can update us on the drag from excess capital and whether we should be just kind of continuing to deploy a mix of it into buybacks and then hoarding some for opportunistic M&A, if there's really no change to that.
So we had disclosed, I think, on the last call, the drag by showing the difference in reported ROE and I would say it's up somewhat from there, just reflecting a combination of new S&P models and some other factors. But it's somewhat modestly above what we reported last quarter.
Operator
Your next question comes from the line of
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I just had a question around some of the moving pieces on the reserve releases in
There was no connection in the reserve changes to the underwriting actions that I flagged in my commentary and that was in the press release. And by the way, there was another question so I've noticed -- was our loss ratio in the quarter impacted by those changes?
No. I'll remind everyone loss ratio is based on earned premium not written premium. And so any benefit we might see, which is very very modest, look at the size of our commercial business. We're talking about premium impact of
Right. Okay. That's helpful. And I appreciate that on the go-forward impact. And then I guess, just my follow-up question, just on the growth in
David, nice try. I don't give guidance as you know around any of that. The 7.5% is interesting. You look at the growth rate prior to the fourth quarter action, it was more robust than that. And our thinking starts from there. And then you think about -- when you said about the rate action, yes, casualty was better. Property on the short-tail classes were therefore down a little bit, but I got strong double-digit growth in the property-related lines, rate and pricing, which is keeping pace with values. That's what that exposure changes. It's about keeping pace with values.
And so it's a well-priced business and a well-priced book and you're getting rate on rate on rate. So of course, that's going to slow down but the underwriting environment for it. And the rate to exposure, the risk reward is quite good if you have the balance sheet and you have the ability to take on the exposure and the confidence as we do. I feel very good about
Operator
Your next question comes from the line of
In the press release and your comments, Evan you mentioned the fact that Chubb's loss reserves are as strong as they've ever been. So I'm curious what metrics you're looking at to make that determination. And the reason why I guess I'm asking is, I've kind of considered Chubb to always have strong reserves. So is there something that's changed inside your reserving philosophy or structure that gives you confidence that they're better now than they have been in previous years?
No, nothing has changed in that regard. You go through different underwriting environment. And the loss cost that is earned in over the years. I look at the mix of business, I look at our data and insight as the company has grown. And frankly, I just add all the loss reserve studies we do and
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then independently reviewed by external actuaries and by auditors and I look at the end result and the strength of it. And it's a very simple statement to make when I look back and track it over years that our reserves are as strong and as robust as we have ever seen.
Okay. And then another call out, you talked about the large account excess casualty business. And I know you provided some color on your comments. So just looking for a little bit more detail. There's obviously been noise in the market about casualty and maybe the excess casualty is one of the sensitive subjects that's hitting the marketplace but any additional color there would be helpful.
Sure, Greg. If you look back over time, some of the things that I have said, and I'm going to repeat them because I think they maybe to some degree for some people they go in one ear, out the other, and then there are moments where it really sticks. When you look at the external litigation environment, the target, first and foremost, is corporate America. Not small business, not mid-sized business, but larger business. There's a general attitude among segments of the population against corporations. Trial bar like
Number three, we know there has been a trend of increased frequency of severity, which hits both primary but excess casualty. Nothing new, I've been talking about it for quite some time. And then there's a lot of visibility that particularly acute in exposure that has wheels, anything with wheels. It could be logistics companies, trucking companies, anybody who's got fleets and the larger the vehicles in the fleets, the more of a target it is and has been.
That's what you're -- that story has continued and there's been inflation in both frequency and severity in that, nothing new. And that is the theme in large accounts. And it's pretty focused and directed. It doesn't mean balance of casualty doesn't have elevated loss costs which has been I just addressed which has had a lot of visibility and is steady but it has been more acute in isolated segments.
Operator
Your next question comes from the line of
Just I guess, following up with the large account space. So I guess I've always thought about that as a business where you guys had a competitive advantage, not a lot of players that can write the primary casualty, the primary D&O. But it's clearly been a place that's frustrated you more recently. I'm just curious, there's no risk here that any of the actions you're taking could somehow change the significance - the strategic significance of that franchise several years down the road? Is there?
Oh my God, no. You're overthinking. No. And this is - you look at the actions that we just flagged, half of it is exposure change and half of it is additional written premium that we lost. Since then, by the way, the market is beginning to catch up to similar actions and no impact to the franchise. t's not like we're wholesale re-underwriting our book of business. It's a very large, very healthy book of business.
And then I guess my follow-up is just on the -- I'm sorry.
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I'm sorry, Ryan.
Sorry, go ahead. Go ahead. Sorry about that.
No, I just editorialized that that's why I gave you an amount of money and told you how it was, it's just a fraction.
Understood. And then my follow-up is just on the property side, and I'm thinking more wholesale like Westchester type CAT-exposed property, (inaudible) in '23. How are you thinking about the rate adequacy in our business after that huge rate haul we got last year?
I think it is -- rate adequacy is strong, quite strong. I'm not going to go into any more detail other than to say that and we triangulate it numerous ways, but it's quite strong. From everything we know, all the models and the balance of input and our analysis of the portfolio, types of occupancies, geographies it's in, perils it's exposed to, you add it all up, we feel very good about that book of business. If you want to know more, you're going to have to join the company. That was a joke, Ryan.
Operator
The next question comes from the line of
Within North American personal, I was hoping we could get an update as to how much of the business that Chubb wanted to move to E&S is actually now on E&S paper? And how much opportunity there is for that shift in 2024?
Yes. I'm not going to give you a dollar amount or a data point that way, except that directionally, we are writing more business on E&S. It is growing at a rapid clip. It will continue to. Our preference is always to offer our customer first admitted, but where the states and regulation don't allow us to tailor coverage for those who were exposed in a more outsized way to catastrophes. Remember, affluent people want to live in beautiful places that are right on the edge of civilization in nature, and it's more CAT-exposed and where we can't tailor coverage in line with exposure, we'll use it and price it adequately, we'll use E&S, and that's what we're doing.
But again, I think that, and I wish that there was more flexibility within regulation, within jurisdictions so that we could serve this customer base on an admitted basis versus be forced to E&S to give them what they need and that they want to buy.
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Okay. Understood. That's very helpful. Second question is sort of the same theme. Within agriculture, at least on the crop side, can you talk about how you can manage through climate change risks where you don't have flexibility in pricing or policy language?
Ah, but there's a difference. In agriculture, we have a ton of data. We have a couple of very fundamental advantages. Number one, we can select risk. And so we can determine -- we have to take all comers. So we can determine what risk to retain and which risk to share with the government. And that's what helps you with the selection is what helps you in managing to price adequacy. And the second thing, we have scale. And you only get reimbursed so much of their expenses out of the government program but because of our scale and our technology and automation, we operate efficiently. So we limit any expense-related exposure to the company. And that allows us to operate on a favorable risk-reward.
Operator
Your next question comes from the line of
Evan, I wanted to follow up on your previous answer with regards to the E&S market and high net worth. And I think you said you would like to have the flexibility of continuing to offer the product in the admitted market. What's the difference from your perspective? Why would you like the admitted market over E&S?
Well, it's customer friendly. And I think just from a customer point of view, they just feel it's easier to place with us. You don't go through -- you have to go through more administrative process to place it on E&S. Remember, you can't just jump to E&S. You have to be able to leap through admitted market hurdles to get to E&S and it's simpler. And I think for them, from their own point of view, it's more comfortable.
Now to keep it in perspective, the vast, vast majority of our portfolio is admitted. And then it's on the margin right now that it is not admitted. But my point is I don't like the trend. More will go on non-admitted, climate change continues, and states take the wrong action to try to cover up price and deflect price signals and ability to risk share with people who have the wealth and choose to live in places that are more exposed. And I think there ought to be more flexibility and recognition of that consumer base and their needs and their desires and not force them to go through all they have to go through to place on a non-admitted.
Makes sense. I appreciate the answer. And then if I could shift gears to
Yes. First of all, let's not think of it as book. It's an asset management business, that
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