Chubb Limited CB remains well-poised for growth, banking on increased scale, efficiencies and balance sheet size. This Zacks Rank #3 (Hold) company is a leading provider of property and casualty insurance across the globe.
Chubb’s return on equity — a profitability measure — is 9.7%, better than the industry average of 6.6%. This reflects the company’s efficiency in utilizing its shareholders’ funds.
The company has a stellar record of beating earnings expectations for the last nine straight quarters.
Chubb continues to benefit from its solid presence. It has a market capitalization of $55.4 billion. The company should continue to benefit from its expanded international and domestic presence and compelling product portfolio. U.S. small commercial business has gained momentum and Chubb expects this business to have an annual run rate in multi-billion dollar range in the next three to five years. The insurer also expects solid growth in Overseas General operations that include both commercial and consumer lines.
A strengthening economy has been supporting the Federal Reserve in consistently raising interest rates. Insurers are one of the beneficiaries of a rising rate environment and Chubb’s investment results reflect the same. Given Fed’s projection of two rate hikes in 2019, we expect the growth momentum in investment income to continue.
Given a solid capital position, the company has been pursuing initiatives to ramp up growth. Its inorganic story remains impressive and will help it to expand geographically as well as add capabilities.
However, exposure to catastrophe loss continues to weigh on underwriting profitability. The property and casualty insurance industry has been battered by a series of catastrophe events. Last month, Camp Fire in Butte County, CA, wreaked havoc. Chubb estimates $195 million, net of reinsurance including reinstatement premiums, stemming from California wildfires. The Zacks Consensus Estimate for earnings moved 1.4% south for 2018 in the last 30 days.
Shares of Chubb have lost 17.9% year to date, underperforming the industry’s decrease of 8.5%.
The company has a strong capital management policy in place. Its dividend has been increased for 25 straight years and doubled in a span of eight years. Chubb’s dividend currently yields 2.4%, better than the industry average of 0.5%. The insurer also had $203 million left under its existing share repurchase authorization as on Sep 30, 2018.
The Zacks Consensus Estimate for earnings reflects a year-over-year increase of 14.5% on nearly 4% higher revenues in 2019. The expected long-term earnings growth rate is pegged at 10%.
Stocks to Consider
Some better-ranked property and casualty insurers are Mercury General Corporation MCY, National General Holdings Corp. NGHC and State Auto Financial Corporation STFC, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Mercury General engages in writing personal automobile insurance in the United States. The company delivered positive surprise of 85.00% in the last reported quarter.
National General provides various insurance products and services in the United States. The company delivered positive surprise of 75.68% in the last reported quarter.
State Auto Financial engages in writing personal, business and specialty insurance products. The company pulled off a positive surprise of 62.96% in the last reported quarter.
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