Chubb - Earnings Call - Q4 2020
February 3, 2021
Transcript
Speaker 0
Good day and welcome to the Chubb Limited Fourth Quarter Year End twenty twenty Earnings Call. Today's conference is being recorded. And now for opening remarks and introductions, I would like to turn the call over to Ms. Karen Beyer, Senior Vice President of Investor Relations. Please go ahead.
Speaker 1
Thank you. Welcome everyone to our December 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 and economic market conditions, which are subject to risks 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 it's my pleasure to introduce our speakers. First, we have Evan Greenberg, Chairman and Chief Executive company's financial results. We're pleased that And we're we're pleased report the Evan.
Speaker 2
Good morning. As you saw from the numbers, we had a very strong finish to the year with excellent financial results headlined by rapid premium revenue growth and underwriting margin improvement across our Commercial Lines portfolio in both The U. S. And internationally, a trend we are confident will continue. We produced very good earnings and our balance sheet is in excellent shape.
Our fourth quarter results were in context of the historic and unprecedented time we live in nationally and globally. We continue to face the health, economic, political and social impact of the COVID nineteen pandemic globally, which might now be more accurately viewed as an endemic and which despite the efficacy of vaccines and therapeutics will likely be with us for years to come. Before I go further with the quarter, I wanna make a few comments about recent events in our country. We all witnessed shocking display of demagoguery and insurrection by a group of our own citizens in our nation's capital in early January. We witnessed a scene in our capital building never before viewed in our country's two hundred year history, including the totally unacceptable display of symbols of hate, bigotry, violence, and antisemitism in the halls of congress.
The incident has left our country shaken and our international image tarnished. Some members of congress attempting to subvert the will of the people and stand in the way of what is largely a ceremonial affirmation of the electoral college vote was also unacceptable. At the end of the day, the facts are the facts. All of
Speaker 3
the
Speaker 2
independent institutions we charge with overseeing our election process, including the Department of Justice, the new federal cyber watchdog agency, state and federal courts, and state election officials investigated, opined, and confirmed there was no widespread election fraud. Just because you don't like the political outcome doesn't give you the right to make up your own facts or attempt to subvert our democracy and the rule of law. This isn't going away, and there's a wake up call to all of us who care about and love our country. Now returning to our fourth quarter results. We recorded core operating income of $3.18 per share, up nearly 40% from prior year, and net income of 2,400,000,000.0 or $5.34 per share, up over a 100%, which by the way was a record.
We produced strong premium revenue growth in the quarter with global p and c net premiums written, which exclude agriculture, up 6%. Our P and C combined ratio of eighty seven six along with very good net earned premium growth produced P and C underwriting income of 969,000,000, up 82%. While our current accident year underwriting results, excluding cats, were even better, supported by continued underwriting margin improvement and excellent revenue growth in our commercial P and C businesses globally as we continue to capitalize on more favorable underwriting conditions. The current accident year combined ratio excluding cats was eighty six four compared to 90% prior year. The 3.6 percentage points of improvement included 2.8 points of loss ratio related improvement, which was broad based.
And let me give you a better sense of this. Agriculture improved 27 points. And then excluding agriculture, the global PNC commercial lines loss ratio improved about one and a half percentage points, virtually all as a result of earned rate exceeding loss cost trend. The loss ratio for global PNC consumer lines, which is global ANH and global personal lines, improved 1.2 percentage points. The vast majority of which was indirect COVID benefit related.
Phil will discuss the expense ratio improvement in the quarter. To very briefly recap the year, though we had an entire quarter of earnings loss to our effort to reserve COVID to ultimate and a very active year for natural catastrophes, we produced 3,300,000,000.0 of core operating earnings. The full year published P and C combined ratio was 96.1 compared to 90.6 in '19. The full year P and C current accident year combined ratio excluding cats was eighty six seven compared to eighty nine two, which speaks to our underlying health. And our full year premium revenue growth is about 5.5% in constant dollar with commercial lines growth of 9.3%.
I mentioned in the beginning a strong balance sheet. The strength of our loss reserves, which is the most important part of the balance sheet, improved throughout the year. Consistent with our practices, we continue to recognize bad news early and any potential good news late. On the one hand, there have been no changes to our PNC COVID nineteen incurred loss charge, which we consider adequate to absorb COVID losses that may emerge. The vast majority of the charge remains IBNR.
On the other hand, we have recognized only a modest degree the reduction in losses, mostly frequency due to the economic shutdowns. Beyond COVID related, we have also purposely strengthened reserves. Increasing the strength of our reserves is the prudent thing to do given the uncertainty in the environment. Book and tangible book value per share were up 7.712.2% respectively for the year. Phil will have more to say about investment income, book value, cats, and prior period development.
Turning to growth and the rate environment. As I said, global and P and C premium revenue in the quarter, which excludes agriculture, grew 6%, comprising 11.3% growth in commercial P and C and 3.9% decline in consumer lines. The consumer lines result included negative growth in global ANH and international personal lines and positive growth in North America personal lines. In the quarter, we continued to experience a strong and continuously improving commercial PNC pricing environment globally. In fact, the level of rate and rate of increase was the strongest since this part of the underwriting cycle began approximately three years ago.
I expect the favorable underwriting conditions to continue. In North America commercial p and c, net premiums grew 10%, And that actually includes a reduction in growth of three points due to reduced exposures from the decline in economic activity. New business was up nearly 12%, and renewal retention remained strong at over 95% on a premium basis. In our North America major accounts and specialty business, net premiums written grew over 11 and a half percent, while our middle market and small commercial business grew nearly 8%. Overall rates increased in North America commercial p and c by 16 and a half percent with a loss cost trend of approximately 5%, though it varies up or down depending upon line of business.
Let me give you a better sense of the rate movement. In major accounts, risk management related primary casualty up 7%, while general casualty rates were up over 36% and varied by category of casualty. Property rates were up over 30, and financial lines rates were up over 26%. In our e and s wholesale business, the Westchester, property rates were up over 23%. Casualty rates were up nearly 29, and financial lines rates were up over 26%.
In our middle market business, rates for property were up over 15%. Casualty rates were up nearly 12% excluding workers' comp, with workers' comp rates up about a half a percent, and financial lines rates were up over 20%. In our international general insurance operations, commercial P and C net written premiums grew 14% in the quarter. Our international retail commercial business grew 9%, and our London wholesale business grew over 32%. Retail commercial P and C growth varied by region with net written premiums up 17 and a half in The UK, about 16 and a half in the continent, and over 16% in Asia Pacific, while Latin America shrank 14% as a combination of insurance market and economic conditions weigh on Latin America.
Internationally, like in The US, in those markets where we grew, we continued to achieve improved rate to exposure across our commercial portfolio. In overseas gen, rates were up 18 and a half percent overall with a loss cost trend of 3%. Rates were up 17% in international retail and 26% in London wholesale. Consumer lines growth globally in the quarter continues to be impacted by the pandemic's effects on consumer related activities. Our international personal lines business and our global a and h business together shrank 8%.
We expect growth to return and to begin to return in these businesses as the year goes along. Our North America high net worth personal lines business, what we call personal risk services, however, remains an exception with net premiums up two and a half percent in the quarter. We continue to experience flight to safety and quality in our high net worth segment. New business was up six and a half percent and retention remained strong at about 92.3, while we continued to achieve rate increases of four and a half percent. Our global re business grew its net premiums written about 14.5%.
And lastly, in our Asia focused international life insurance business, net written premiums were up 25% in the quarter. In sum, we are in a continuing hard or firming market for commercial PNC in most all parts of the world. The rate environment, in my judgment, is a rational and necessary response to years of underpricing of risk and a more uncertain risk environment today. Given our years of data and analytics capabilities and underwriting know how, we know what rate we need in order to achieve an adequate risk adjusted rate of return from underwriting, and that is the objective. Some lines are there while others have a way to go.
Virtually all of our commercial PNC lines of business throughout the year have been achieving rates that exceed loss cost, and so margins continue to improve. Looking forward, we are off to a very good start to the year in the first quarter. Both growth and the level of rate increase we are achieving look a lot like the fourth quarter. Based on everything we see, the current commercial market condition has legs. My colleagues and I are confident in our ability to grow our business and continue to expand margins.
And as I said, I expect as the year progresses, our sizable consumer business will return to growth. By almost any measure, our company performed admirably and distinguished itself during the past year. And I applaud and am so grateful to our more than 31,000 Chubb colleagues around the globe whose resilience, determination, and dedication have produced distinguishing results for our clients and shareholders in spite of work from home conditions. I also wanna recognize our global management team who lead and reinforce our culture and discipline, a wellhead of our performance every single day. In closing, our company finished the year with a strong performance and momentum that continues.
We are leaning into the current favorable underwriting conditions and capitalizing wherever we can get paid adequately to assume risk and volatility. We are in fact growing exposure. Our people are energized, and we have all of the capabilities in place to grow our company profitably and increase shareholder value. With that, I'll turn the call over to Phil, and then we're going to come back and take your questions. Thank you, Evan.
We completed an eventful year with solid financial results and continued to build on our balance sheet strength, including substantial capital of almost 75,000,000,000 actions, our double rated rated portfolio of cash and invested assets grew almost $10,000,000,000 for the year and now exceeds $120,000,000,000 Our excellent underlying underwriting and investment performance produced very strong operating cash flow of €2,500,000,000 for the quarter and a record €9,800,000,000 for the year. Among the capital related actions in the quarter, we returned $542,000,000 shareholders, including $352,000,000 in dividends and $190,000,000 in share repurchases. For the year, we returned 1,900,000,000 to shareholders or 58% of earnings, including $1,400,000,000 in dividends and $516,000,000 in share repurchases. Adjusted pretax net investment income for the quarter was $924,000,000 and $3,600,000,000 for the year. Investment income in the quarter was higher than our estimated range and benefited from increased corporate bond call activities and greater private equity distributions.
While there were a number factors that impacted variability in investment income, we now expect our quarterly run rate to be in the range of eight ninety million to $900,000,000 Separately, our policy has always been to record the change in the fair value mark on our private equity funds outside of core operating income as realized gains and losses instead of net investment income as other companies do. The gain from the fair value mark, if included in investment income, would have increased adjusted net investment income by $485,000,000 for the quarter and $714,000,000 for the year. Our annualized core core operating return on tangible equity were 10.717.1% respectively for the quarter. If we had included the fair value mark on our private equity portfolio in our core operating income, core operating ROE would have been higher by 3.5 percentage points for the quarter. During the past few quarters, since S and P Global Ratings published a ratings update on Chubb, management has had discussions with S and P regarding Chubb's track record of strong and diverse underwriting results and operating performance.
This has resulted in the company updating its capital management policy to calibrate its estimate of capital adequacy from S and P's AAA level to S and P's AA level. We believe this is sufficient to maintain our AA rating. Our capital management policy remains consistent. We hold surplus capital for both risk and opportunity. Our undeployed capital on a run rate basis dilutes our core operating ROE by around 200 basis points.
We are also announcing today that our Board has increased the authorization to repurchase shares by $1,000,000,000 Our total repurchase program now allows for up to €2,500,000,000 between January 1 and 12/31/2021. Book and tangible book value increased 5.4 respectively, for the quarter and 7.411.9%, respectively, for the year. Book and tangible book value were favorably impacted by after tax net realized and unrealized gains of $2,000,000,000 for the quarter and $2,500,000,000 for the year. The gains were principally in our investment portfolio, primarily from a narrowing of credit spreads in our corporate bond portfolio, a decline in interest rates and the fair value mark on private equities. At December 31, our investment portfolio was in an unrealized gain position of €4,700,000,000 after tax.
Our net catastrophe losses for the quarter were $314,000,000 pretax or $271,000,000 after tax. The P and C catastrophe losses of $296,000,000 were primarily from a series of severe weather related events globally. There were no changes to the previously reported estimate of our P and C COVID incurred loss charge from June 30. We had favorable prior period development in the quarter of $2.00 6,000,000 pretax or 189,000,000 after tax. This included 94,000,000 pretax adverse development from our legacy runoff exposures principally related to asbestos.
The remaining favorable development of $300,000,000 is split 70% from long tail lines, principally from accident years 2015 and prior and 30% from short tail lines. For the year, our net loss reserves increased €4,300,000,000 in constant dollars and our paid to incurred ratio was 80%. The P and C expense ratio was 28% in the quarter with a 70 basis point improvement over the prior year. About half of the improvement is from the health related shutdown and the balance is principally from operating efficiencies. Our core operating effective tax rate was 15.2% for the quarter and 15.8% for the year.
For 2021, we expect our annual core operating effective tax rate to be in the range of 15% to 17%. I'll turn the call back to Karen.
Speaker 1
Thank you. At this point, we're happy to take your questions.
Speaker 0
And we will take our first question from Michael Phillips with Morgan Stanley. Please go ahead.
Speaker 3
You and good Good morning, everyone. Thanks for everything. Can you talk about your ability in times like this with rates so much higher than loan loss trend? Can you talk about your ability programs you have in place, I guess, to keep your business sticky and your retention time?
Speaker 2
I'm having a very hard time hearing you. Can you get closer to your microphone or something?
Speaker 3
Sorry. Is this better, Evan?
Speaker 2
Yes. That's better. Please go ahead. In times like this,
Speaker 3
with rates so much higher than loss, I think, you're able to get. Can you just talk about programs you have in place to keep your business sticky and keep your retentions high?
Speaker 2
Keeping retentions high? Yes, sir. The program I'm sorry. Are you saying the programs we have in place to keep our retentions high?
Speaker 3
That's correct. Keep keep your business sticky and not moving elsewhere.
Speaker 2
Yeah. You know, we it's very basic blocking and tackling every single day. This is a customer and client focused company. And, frankly, our communication begins early and is continuous with all of our clients and customers. The we we endeavor not to surprise.
We explain very clearly to our customers and clients the reason for need for rate increase, how we're running today, the kind of transparency we give you, we give them a lot
Speaker 3
of
Speaker 2
transparency around the loss cost environment, around our return hurdles, around our appetite for risk. The consistency of the company has, by itself, distinguished itself. And and and we've stood out and and given and therefore garnered a lot more credibility and confidence from our clients. Chuck has been consistent in its approach about underwriting and its need for rate throughout the years, particularly when we were shrinking and know when we couldn't achieve what we required, to earn an adequate return. And at the same time, given the rate environment changing, our appetite consistent.
We continue to promote and and on the same basis, our appetite for the amount of risk we'll take, the classes of business that we will serve, where we will serve them. All of that is a well understood story about us. And finally, what I'd say is we don't serve them in one line of business or two lines of business. We serve them broadly across virtually all of their needs. And the secret, we do it on a local basis.
It isn't simply that we operate from two or three hubs. We're where they do business and where they need to to work with us and see us every single day. There is no magic sauce about this. It's a it's a day to day, year in and year out effort of a consistent approach to how we do business. And right now, it serves us quite well.
Speaker 3
Thanks, Evan. I guess on the COVID losses, we're almost a year out now. And at the early stages, you were wrong, there were numbers that said it's going to be the worst event ever. Some are still saying that, but there's many that have put the industry loss as a lot lower than what the industry had said. I guess, where do you stand on that?
And do you think there's any upside to bringing your current numbers that you put up last year down as time progresses?
Speaker 2
I'm right where you left me standing. I think the loss to the industry, you know, we had pegged that loss somewhere in the the the underwriting loss somewhere in that 70,000,000,000, 80,000,000,000 range, and I think it's ultimately gonna play out there. Right now, it's around 35 to 40,000,000,000, and and that number is gonna continue to climb. And so far, you've really focused on BI that you've seen. And BI, I don't think has run its course, but beyond that, there are a lot more casualty to come.
From d and o, the employment practices liability, etcetera, and credit related. And then the other side of the balance sheet as well over time. So far, we have had a a a recession that has been relatively credit loss proof brought to you by central banks around the world and and government policies, that's not gonna last forever. And there is there you know, just look at how the banks have handled reserves. There's more to come.
Speaker 3
Okay. Great. Thanks, Evan.
Speaker 2
You got it.
Speaker 0
If you find your question has been answered, you may remove yourself from the queue by pressing star two. We will now take our next question from David Motemaden with Evercore ISI. I
Speaker 3
had a question just on the international consumer lines. And I guess, pretty encouraging commentary that you expect that to come back as the year progresses, Evan. I guess one thing that I'm realizing is it feels like the mix shift away from those consumer lines has had has been somewhat of a headwind to the loss ratios and to margins overall over the course of 2020. So I guess I'm just wondering maybe if you could size that and then help us think about the positive margin benefit that may have as the mix shift moves a little bit back towards that as we get through the course of 2021.
Speaker 2
Yes. I'm not sure you're thinking about that completely right. The consumer lines depends on the line of business within consumer. You know, we're talking about accent health, and we're talking about automobile. But it, in general, runs a lower loss ratio, but it runs a higher expense ratio.
We're producing a current accident year in the eighties. And the consumer lines business runs in aggregate, in that kind of range. So it's a shift in loss ratio, expense ratio predominantly. Now that varies, which I'm not gonna get into with you, and then you're you're going down the rabbit hole. It varies by region of the world and international versus domestic, but you really spoke about the international in that regard.
So, you know, look, if as it comes back, it lifts growth and it lifts earnings. And it's less of a margin story.
Speaker 3
Got it. That that's helpful. That that that that helps. Thanks
Speaker 2
for clarifying that. Comparing that to I'm comparing that to current accident year x tax
Speaker 3
Right.
Speaker 2
On a public basis.
Speaker 3
So so it's On a published basis. Different. Base
Speaker 2
on a published basis, it will have some benefit. I'm not prepared to go into the detail on that.
Speaker 3
Okay. Okay. That's fair. And and then I guess just a a question on on North America commercial. So we're obviously seeing continued positive rate trend there, 16 and a half points in the fourth quarter.
I guess my question is, you know, if I look at the the current accident year loss ratio ex cat, about a 120 basis points improvement year over year, That compares to an average rate. I think that you guys have said over the last five quarters, it's been well above 10%, I think closer to 13%. So it sounds like it's, you know, I would say maybe eight points above trend roughly. I I guess I'm wondering what are the moving pieces here. I'm thinking maybe mix shifts, that would explain why we're not seeing, more more of the of the rate above trend come through in the loss ratio.
Speaker 2
If you listened to me in the commentary, I spoke about reserves. I also broke down this quarter's loss ratio margin improvement. And as you heard, there was a greater percentage of improvement for commercial p and c than there was for consumer lines within global p and c. And so you are seeing margin improvement. On the other hand, we are striving and will achieve an adequate risk adjusted return, which says that we're pegging ourselves to achieve a result like that.
We raise the bar in in a market like this where we're growing exposure and there is more loss cost and certainty certainty as we look forward, COVID and non COVID related, we are properly building reserve margin. And at the same time, through growth and margin improvement and not a small amount and a current estimate year combined ratio that is world class, we are delivering tremendous earnings. At the same time, we're building balance sheet strength. Absolutely the right thing to do. And I hope that answers your question.
And finally, don't be overly simplistic about it, and you weren't. You got an average loss cost trend. That varies by category of business and line of business. And we are also growing and in in areas that is to some degree changing our mix right now. Something else I'm that's proprietary, I'm not gonna go into.
So that does have an impact as well to some degree.
Speaker 3
Got it. Okay. Great. That that's helpful. Thanks for the color there, Adam.
Speaker 2
You're welcome.
Speaker 0
We will take our next question from Elyse Greenspan with Wells Fargo. Please go ahead.
Speaker 2
Good morning, Elyse.
Speaker 4
Hi, thanks. Hi, thanks, Evan. Good morning. My first question on you know, on prior calls, you've also mentioned the fact that we could see reinsurance rate increases. So January 1, we heard about a good amount of casualty reinsurance rate increases.
So have you do you see that, or do you expect to see that help with some of the pricing momentum that you've been talking about throughout the commercial line space?
Speaker 2
No. Not not really, Elise. The the reinsurance market in January was was firmed to a lesser degree than we anticipated. And it was a bit surprising to us both in casualty and short tail lines. Less of an impact.
Speaker 4
Would you expect, you know, when we think about more retentions, obviously, that's moved by a lot of different reinsurance programs. But maybe if we're just thinking about North America commercial, would you expect any significant change in your, growth to net retentions in 2021?
Speaker 2
No. Not not significant change. Targeted in specific areas, we we already have changed our retentions. But it is it is it is on the margin. We're quite consistent.
Remember, we buy reinsurance both for capacity purposes where the amount of exposure we take is beyond what we wanna retain on the balance sheet, and we buy a certain amount for volatility protection. And, you know, that that that's pretty steady in how we manage, but there are targeted areas. Again, something I won't go into in any detail.
Speaker 4
Okay. And then one last for me on the market. You gave a lot of, you know, good double digit price increases, you know, in some instances, right, well into the double digits across many lines. And then you also said, you know, that there are some lines that have a way to go ways to go, I believe. So which lines and I'm assuming that some lines where, you know, loss cost is perhaps, you know, well above that 5% aggregate.
But when you think about your commercial book, what lines do you still think, you know, need a good amount of rate increase?
Speaker 2
Right. And remember, it's to we we translate combined ratio hurdles from what we consider to be an appropriate risk adjusted rate of return we should be earning in any line of business. And there are lines of business around the world that have a ways to go in achieving that. And there are lines that are approaching it or or have are are there, so it varies. I'm not gonna go into what's what.
That's that, as you can imagine, is clearly proprietary. I'm not gonna give a road map to the market.
Speaker 4
Okay. Thanks, Devin.
Speaker 2
I appreciate color. Nice try.
Speaker 4
Thank you.
Speaker 2
You're welcome. We
Speaker 0
will take our next question from Brian Meredith with UBS. Please go ahead.
Speaker 5
Yes. Thanks. Before I ask my question, just, I know we got you for another quarter, Phil, but I just want to congratulate you on your retirement. I'm actually surprised Evan is actually letting you go. But here's questions.
The first one, Evan, could you talk a little bit about the A and H business right now? And then what I want understand is how coincident is growth in that business with economic growth? And perhaps maybe you can kind of outline for us where is the growth more important globally to start seeing that growth come back in that line of business?
Speaker 2
Yeah. You know, I'm gonna give it to you in two very the simplest ways. And it's more complicated than this, but but I think we'll we'll help you conceptualize it. Credit and travel. It it's not so it's not simply economic.
It's
Speaker 3
Okay.
Speaker 2
It's the it's it's it's the the shutdown and and travel. And imagine, let's take it for a couple of ends. You would think of travel as simply, okay, retail travel insurance that you sell through through, travel agents, etcetera, or airlines. That's actually a small part of it. Employers.
An employer purchased insurance where it's really it's purchased not for employees sitting in the office. It's purchased because they have employees traveling all the time. Travel accident insurance, as an example. With travel down and then on top of it, economic the economic headwinds, that impacts overall a and h, a major part of a and h around the globe, whether it's in The United States, Europe, Asia, or Latin America. Credit related, we have a huge direct marketing book of business, and it is principally Asia and Latin America.
And with people taking less credit, on one hand, and secondly, not just tied to credit, but marketing to their customer bases, the middle income customer for for supplemental insurances, a and h, modest homeowners and householders related. Think on the credit side as well, mortgages. With economic activity down, that business slows down substantially. We are seeing signs of it, and it is beginning to pick back up. But it has a ways to go in Asia, in particular, and believe it or not, in parts of Latin America, like Chile, and to some degree in a place in places like Brazil.
So the business does start to and we're seeing it in the first quarter begin a bit, in different areas to pick up. And then of course, as you go further into the year beginning with second quarter, you start getting a year on year comparison.
Speaker 5
Great. Thank you. That's really helpful.
Speaker 2
By the way, the overall health of the business, very strong. And this is not like a lost forever thing. The clients remain in place. The distribution not only remains in place, but our people have spent a lot of time putting a lot of new distribution, channels in place and new partnerships across the board. And we are very optimistic that as time goes on and I just can't pick the time.
You know, you're trying to pick the timing of the health crisis right now. And when does it when are we able to, around the world, resume travel, economies open up, people leave their homes and get back to work? That's you know, good luck predicting that. You you can't. But what we know is it will over time heal itself.
And if it does, that very vital part of our franchise is a is an excellent franchise in place, and we'll get a lot more joy for the effort we got today.
Speaker 5
Great. Thanks. Second question, I'm just curious. Phil mentioned the 200 basis points of drag from your excess capital position right now. I'm just curious, do you think you'll be able to use that excess capital organically over the next couple of years?
Or do you think you'll need to do some inorganic stuff in order to utilize that excess capital? Or do you anticipate utilizing it?
Speaker 2
I anticipate over the next number of years, next few years you know I'm a pretty patient guy. And I expect over the next medium term to put that capital to work, either organically or inorganically.
Speaker 5
Got you. Is is the market conditions good enough to use organically?
Speaker 2
Chubb remains a growth company, and and and that's how we see ourselves. And it is predominantly you begin with the most fundamental shareholder wealth creation indicator tangible book value. And by tangible book and book over any medium term period of time, we will continue to grow this company. And our share of the global insurance market, we view it globally, is is is almost a rounding error. And so there is a lot of scope to grow for this company.
And it is both organic and inorganic. And the inorganic things we will do are things that will complement what we are already doing organically and will produce what we think are superior or very favorable return to shareholders. So we will use the capital wisely. And to the degree we build surplus capital in excess of what we require, we will return that to shareholders. Great.
Thank You noticed you noticed Mhmm. We're returning another billion.
Speaker 6
Definitely.
Speaker 2
Just announced. Right? Going from a billion and a half to 2 and a half. I know we live in worlds of trillions, but I gotta say, you know, that's not an amount to sneeze at, bud.
Speaker 0
We will take our next question from Tracey Binagwai with Barclays. Please go ahead.
Speaker 4
Good morning. Maybe just piggybacking off the inorganic growth discussion, can you comment if Chubb had exercised its option to purchase an additional 7.1% stake in Huatai, which would make Chubb a majority owner? I mean, seems certain conditions had to be met, but the intent previously expressed was to do so by year end 2021? And if so, how will reaching the majority ownership milestone change your strategic priorities in China and APAC more broadly?
Speaker 2
Could you repeat? And what is the essence of your question?
Speaker 4
On the inorganic growth? Yes. On the topic of inorganic growth,
Speaker 2
direct to nine What what yes. What insurance.
Speaker 4
Right. Have you exercised that 7.1% option? No. We have not exercised
Speaker 2
it. No. We have not exercised the 7.1. When we do, when it occurs, we will announce it to the market. Of course, we will.
And and you will know when and if we achieve the majority control, control, which we anticipate we expect to do.
Speaker 4
Okay. Alright. So I'll just move on from there. Maybe just to cyber. Congrats to Mike Kessler on his new cyber leadership role.
With a new set of eyes, is Chubb refreshing its view of cyber risk, or is there secular trends like 2020 ransomware that is prompting you to revisit limits and impose self insured retention? And if you wanna just add anything more broadly on terms and conditions.
Speaker 2
Yeah. Mike, who's an outstanding executive and has been with us a long time, he wasn't appointed based on market conditions or what we see as the general underwriting environment. Mike was appointed because he's a great executive. It's a it's an important line of business to us. It has it's complex it's a very complex line of business.
And Mike brings the skills and the capabilities to manage on a global basis a business like that. Great opportunity for him and, a great opportunity for Chubb. Beyond that, the cyber itself is in a is in a state of change, and the product is evolving and will evolve. It's a lot beyond pricing. Pricing is the easy part of it.
It's that the loss environment, which I've been speaking about for numerous quarters consistently, is changing. And so I'll just remind everyone, frequency of loss has been increasing as the world has digitized and we gave it a huge shot during COVID and work remotely conditions, the world is more cyber and digitally integrated. And that raises both exposure in terms of frequency of loss, but it also raises and continues to raise the the the catastrophe nature of the product because of the interconnectedness of everyone globally. I have said for a number of quarters that the next pandemic, the exposure that looks like a virus is cyber related because it has no geographic or time boundary. We've seen a number of events over the recent years that give a glimmer of that.
So it is complicated. And the product has to evolve to recognize that kind of exposure both on the frequency side and the severity side. And we have a fabulous team of cyber experts who've been doing this for quite a while. You gotta at the same time be humble and know what you don't know and not over imagine. There's a lot of basis risk in it.
Even the cyber all the cyber experts are constantly surprised with new day zero events and and techniques that emerge. And so I can, on that, wrap it up by saying I can think of no one better to help lead along with our cyber experts than Mike Kessler. Thank you for the question, Tracy.
Speaker 4
Thank you.
Speaker 0
We will take our next question from Meyer Shields with KBW. Please go ahead.
Speaker 6
Great. Thanks. Good morning. Evan, I'm going to assume in this question that if the industry was putting up underwriting results like Chubb, we would be experiencing grade increases to the degree that we are. So was hoping you could talk a little bit about, maybe on the technology side, the proprietary differences that allow underperformance I'm sorry, Underwriting outperformance relative to peers and ambitions maybe over the next couple of years to expand that.
Speaker 2
You know, be careful of one thing, Meyer. Everybody has a different mix of business, business, a different book of business. Chubb, we have a balance between middle market and small in The United States and around the globe and large account We're very large E and S player. We're very large, maybe the global leader in major account business.
And then we're, you know, a top tier middle market company. All of that goes, and and I was pretty clear that the level of rate increase we're getting varies by the market area. And then, you know, beyond that, it varies by product area, and I gave you some sense of that. We have years and years of data. And it's not just data.
It's been turned into information. And it has taken us a long time to do that and to do it properly. And so the management information flow here is so well connected between the reserving process and the rate making process in a granular, real time way and updated based on loss and loss cost trends and actual in virtually real time without a lot of lag. And it is something that all of us at all levels have great transparency and availability to access. And that links back with then how we look at what business are we quoting, what business are we binding, and at what terms and conditions.
It doesn't mean that it's all perfect and we don't make mistakes. And given loss cost and real world about the loss environment, that we don't get surprised on the margin because things change swiftly here or there? Of course. But we react quickly. And finally, what I'd say to you is, you know, it's it's no different than this conversation that goes on about, well, how come you haven't produced more margin?
When we produce an outstanding margin and margin improvement, is that look at our reserving It's that we recognize bad news almost immediately. And we recognize good news over time. The commercial p and c business, particularly the casualty areas, are not for optimists. And I've said this many times. And by the way, the notion of prior period reserve development, well, that's a strength.
And, that's part of being prudent and recognizing slowly when you're conservative and cautious about a loss cost environment. So it's the data. It's the technology. It's the knowledge of the people, and it's the management policies and practices consistently that make the difference.
Speaker 6
Okay. That's very helpful. Thank you. We've placed the question again.
Speaker 2
Term. We're not trying to make some short term, you know, killing in our business, and that's not what it's about. And by the way, we run the company first for our customers, and we run it to deliver them a product at the right price, not take advantage of them in any way.
Speaker 6
No. That's clear. Thank you. Second question. I'm looking back.
After 09:11, I guess, the industry basically reassessed its expectation of terrorist domestically. Are some underwriters thinking differently about political risk in The United States? Is that a real real world issue from a underwriting standpoint?
Speaker 2
Well, you know, there isn't really a political risk insurance market in The United States. The United States, given rule of law and and given credit ratings, there has not been true political risk losses in The United States, and true political risk exposure from what we classically deliver as a product outside The United States in political risk. And God help us. I don't expect that to to change. Now, you know, you could ask the question on the investment side of the portfolio.
And do we see political risk? I think we see more credit related risk than we do at this time political risk.
Speaker 6
Okay. Understood. Thank you very much.
Speaker 0
That concludes today's question and answer session. Miss Beyer, at this time, I will turn the conference back to you for any additional or closing remarks.
Speaker 1
Thanks, everyone, for dialing in this morning. We look forward to speaking to you again next quarter. Thanks, and have a good day.
Speaker 0
This concludes today's call. Thank you for your participation. You may now
Speaker 2
disconnect.