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Morningstar | Chubb Delivers Solid 1Q, Sounds Optimistic About the Future

Chubb delivered a solid first quarter, and management’s commentary suggests the operating environment is improving. The annualized core operating tangible ROE of 15.1% supports our narrow moat rating for the company. We will maintain our $140 fair value estimate.

Chubb saw growth pick up a bit in the quarter, with net written premiums up 5% year over year, excluding currency effects. Similar to commentary we’ve heard from peers, management stated that it is seeing solid pricing increases across lines, and presumably the company is seeing an expanding opportunity set. Further, management sounded optimistic that this trend should have some legs. In our view, Chubb historically has been a very disciplined underwriter, so a more adequate pricing environment should be a spur to growth, although the company’s size puts something of a cap on its long-term growth potential.

Underwriting results improved on a reported basis, with the combined ratio declining to 89.2% from 90.1% last year. However, the improvement was largely driven by lower catastrophe losses. The underlying combined ratio (which excludes catastrophe losses and reserve development) increased modestly to 88.5% from 87.6% last year. This increase was seen across lines but was most pronounced in domestic personal lines. However, management noted that it has been able to push through strong price increases in homeowners and maintained good retention. This should have a positive impact on underwriting margins going forward.