Q1 2024 Earnings Summary
- Chubb's North America P&C growth is supported by record new business of over $1.2 billion with a strong renewal retention rate of 84.7%, reflecting excellent operating performance and favorable market conditions.
- Their high net worth personal lines business grew over 12% in the quarter, with new business growth of nearly 35%, demonstrating Chubb's market-leading position and capabilities in serving high net worth clients.
- Strong pricing increases in property and casualty lines, with property pricing up 13% and casualty pricing up 13.1%, are exceeding loss cost trends and contributing to premium growth and underwriting margins.
- Chubb reported $95 million of unfavorable reserve development in North America commercial long-tail lines, particularly in large account excess casualty auto-related business, indicating potential underwriting challenges.
- The CEO expressed concern over the "dumb" underwriting environment in financial lines, with rates declining by 3% and pricing down 2.7%, which may impact profitability in that segment.
- Management was reluctant to provide growth guidance and mentioned ongoing "corrective underwriting actions" that are "continuing to wind down over the next few quarters," suggesting potential uncertainties in future growth.
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Reserve Development
Q: Explain the $95M unfavorable reserve development?
A: Chubb recognized over $200 million of reserve releases, including an adverse development of $95 million in North America commercial long-tail lines. This was spread across accident years from 2016 forward, mainly in large account excess casualty, auto-related exposures like trucking and logistics. The development wasn't a surprise due to continuous monitoring of loss activity. -
Financial Lines Competition
Q: Where is competition irrational in financial lines?
A: In certain cohorts within financial lines, particularly in publicly traded D&O, employment practices liability, and not-for-profit D&O, Chubb sees "dumb" market behavior. Competitors are being naive about exposures and loss trends, and Chubb is pulling back rather than following others off a cliff. -
Social Inflation and Tort Reform
Q: What's Chubb's stance on social inflation?
A: Social inflation impacts loss costs, and Chubb reflects this reality in its loss picks and pricing. While the industry supports tort reform, it's a long-term process requiring more effort from corporate America. Chubb continues to advocate for reforms but recognizes it's no quick fix. -
Personal Lines Loss Inflation
Q: What's causing the 10% loss cost inflation in personal lines?
A: The double-digit loss cost inflation comes from frequency of loss due to weather-related events, wage inflation, and higher material costs. Insuring more affluent clients with complex properties and expensive content contributes to higher inflation than the general market. Chubb stays on top of it through pricing and coverage adjustments. -
M&A Outlook
Q: Any changes in M&A activity plans?
A: Chubb has excess capital and is open to global opportunities, but there are no immediate plans for significant M&A activity. The company is "at rest" and does not foresee any major moves in the near term. -
Combined Ratio and Market Cycle
Q: When will rate and loss trend levels match?
A: It's difficult to predict when rates and loss trends will align exactly, as markets are inherently messy. Typically, when pricing exceeds what's required for reasonable returns, competition increases, leading to rates matching loss costs before potentially declining below loss trends. -
Tax Rate Changes
Q: Will Bermuda tax changes affect Chubb's tax rate?
A: It's too early to determine the impact of Bermuda's tax changes on Chubb's tax rate for next year and beyond, as it depends on how different countries adopt new regulations. Chubb is monitoring the situation closely. -
Casualty Reserves Outlook
Q: Any concerns about casualty reserves?
A: Chubb anticipated changes in loss cost patterns post-COVID and maintained its view throughout the pandemic. Current patterns are in line with expectations, and the company's pricing and loss picks reflect this. There are no unexpected issues with casualty reserves. -
Reinsurance Growth
Q: Is there a change in reinsurance growth strategy?
A: Chubb's reinsurance growth appears significant percentage-wise but is off a small base. The company allocated more CAT capacity to Global Re due to favorable conditions, writing more CAT excess and property proportional and excess per risk globally. -
Premium Growth Disparity
Q: Why are net premiums growing faster than gross premiums?
A: The disparity is due to transactional factors, including a large structured transaction producing net written premium without gross written premium, and exiting two large MGAs or fronted programs that produced a lot of gross with little net. Adjusted for these, gross and net growth are virtually identical.