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Morningstar | Chubb is Steady in 2Q, Pricing Picture Remains Positive

Chubb’s second-quarter results were good and management remains positive on the direction of pricing. Annualized core tangible return on equity was 15% for the quarter, a level that is roughly in line with recent results and supports our narrow-moat rating for the franchise. We maintain our $140 fair value estimate.

Net written premiums in the P&C business were up 6% year over year, excluding currency effects. Management said pricing continues to improve, and the increases have spread out into more lines and internationally. These types of positive comments on pricing were largely unanimous among management teams in the first quarter, and so far in the second quarter, the commentary has remained quite bullish. This augurs well for underwriting results in the future.

Underwriting profitability did slip slightly, with the combined ratio in P&C operations coming in at 90.1% for the quarter, compared with 88.4% last quarter. On an underlying basis (excluding catastrophe losses and reserve development) the combined ratio increased 80 basis points year over year, and the trend was largely consistent across its segments. On this basis, underwriting margins have fallen steadily over the past four quarters, but the trend has been modest and getting some more rate could reverse this trend. Further, when it comes to underwriting profitability, Chubb remains best in class.