The Chubb Corporation (CB) reported third-quarter operating income of $2.17 per share, which surpassed the Zacks Consensus Estimate by 11.3% and improved 5% year over year.
The solid results came on the back of strong underwriting performance across all the business segments of Chubb, along with low catastrophe (CAT) losses.
Net income per share in the third quarter increased 18% to $2.47 from $2.10 a year ago.
Net written premium for the reported quarter rose 5% year over year to $3.2 billion. While the company registered a 5% rise in premium from its U.S. business, only 4% premium growth was seen in its international business.
Property and casualty investment income after taxes came in at $270 million, down 4% year over year.
Chubb’s underwriting income of $439 million dropped 0.9% year over year due to the rise in the loss and operating costs expenses.
CAT losses amounted to $74 million, down 19.6% year over year.
Combined ratio for the quarter deteriorated marginally by 10 basis points (bps) year over year to 85.8%, reflecting low CAT losses.
Book value per share, which is a measure of net worth, was $70.0, up almost 8.0% year over year.
Segment Update
At Chubb’s Personal Insurance segment, net written premium increased 6% year over year to $1.2 billion during the reported quarter. The combined ratio improved by 240 bps year over year to 85.9% due to low CAT loss.
Net written premiums for Homeowners, Personal Automobile and Other Personal lines increased 4%, 3% and 13%, respectively.
The Commercial Insurance segment’s net written premiums rose 4% year over year to $1.3 billion, primarily driven by higher premium in Multiple Peril, Casualty and Property and Marine insurance. Combined ratio deteriorated 430 bps year over year to 89.5%.
Specialty Insurance’s net written premiums increased 5% from the year-earlier quarter to $701 million, primarily attributable to 6% rise in Professional Liability insurance. The combined ratio improved 400 bps year over year to 78.3%.
Capital Management
During the reported quarter, Chubb repurchased 4.7 million shares of its common stock for $425 million.
2014 Guidance Raised
Based on the solid performance in the third quarter, Chubb has revised its 2014 earnings guidance. It now expects operating income in the range of $7.35 to $7.45 per share, considerably high than the earlier projection of $6.75 to $6.95. This rise in the guidance was prompted by the quarterly results that surpassed the company’s expectations. The Zacks Consensus Estimate of $7.20 is lower than the company’s guidance.
The property and casualty insurer anticipates minimal impact from CAT losses, which is expected to reduce the combined ratio by 200 bps and 390 bps for the fourth quarter and full year, respectively.
According to the revised guidance, Chubb expects 243 million diluted shares outstanding for 2014.
Our Take
The solid performance and low CAT losses in the quarter reflect the company’s improved performance, which compelled it to raise its guidance as well. We expect Chubb to continue this improvement, going forward.
The company’s Personal Insurance is also witnessing a gradual market improvement. Net premium written in this segment has been increasing over several quarters, led by strong premium increases from Homeowners, Personal Automobile and Other Personal lines businesses.
Chubb’s Commercial Insurance achieved mid single-digit increase in the U.S. rate change metrics. Retention level was also high in all the business segments.
Strong capital management witnessed by regular share repurchases will also aid its bottom line.
Currently, Chubb holds a Zacks Rank #2 (Buy).
Other Stocks to Consider
Investors interested in the same sector could consider stocks like Alleghany Corporation (Y), Allied World Assurance Company Holdings, AG (AWH) and AmTrust Financial Services, Inc. (AFSI). All of these have a Zacks Rank #1 (Strong Buy).
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