Chubb [CB] Conference call transcript for 2022 q1
2022-04-27 11:34:12
Fiscal: 2022 q1
Operator: Good day, and welcome to the Chubb Limited First Quarter 2022 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions] Now for opening remarks and introductions, I would like to turn the call over to Karen Beyer, Senior Vice President, Investor Relations. Please go ahead.
Karen Beyer: Thank you, and welcome to our March 31, 2022, first quarter earnings conference call. Our report today will contain forward-looking statements, including statements relating to company performance, pricing and business mix, growth opportunities and economic and market conditions, which are subject to risks and uncertainties, and actual results may differ materially. Please see our recent SEC filings, earnings release and financial supplement, which are available on our website at investors.chubb.com for more information on factors that could affect these matters. We will also refer today to non-GAAP financial measures, reconciliations of which to the most direct comparable GAAP measures and related details are provided in our earnings press release and financial supplement. Now I'd like to introduce our speakers. First, we have Evan Greenberg, Chairman and Chief Executive Officer; followed by Peter Enns, our Chief Financial Officer; and then we'll take your questions. Also with us to assist with your questions this morning are several members of our management team. And now it's my pleasure to turn the call over to Evan.
Evan Greenberg: Good morning. We had an excellent start to the year with record per share operating earnings and underwriting results, double-digit global P&C commercial lines premium growth, accompanied by rate increases in excess of loss cost, and improving growth in our consumer business globally. Core operating income in the quarter was $1.64 billion or a record $3.82 per share, up 52% on a per share basis over prior year. In the quarter, we produced simply outstanding underwriting results. $1.28 billion of underwriting income was more than double prior year with a combined ratio of 84.3%, both records. Our P&C current accident year combined ratio, excluding catastrophes, was 83.5%, a 1.7 point improvement over prior year, with about 1 point from loss ratio improvement and the balance, expense driven. On the investment income side, adjusted net investment income was circa $900 million for the quarter. We are predominantly a buy-and-hold fixed income investor. And given rising interest rates and widening spreads, we expect investment income to increase from here. Every 100 basis points increase in interest rates for us is worth, on an annualized basis, about $1.2 billion in pretax investment income. We have a portfolio duration of about 4 years. So a rise in rates begins to earn in reasonably quickly. Peter will have more to say about other financial items. Let me say a few words about the Russian-Ukraine war. The events unfolding before our eyes are a human tragedy of epic proportions with profound geopolitical implications. Our actual incurred losses to date from the event are de minimis. And from all we know today, while additional losses may develop over time, this will not represent a meaningful event for Chubb. Integration planning around the Cigna transaction is quite active and remains on track. We expect to receive regulatory approvals leading to a close during the second quarter. There are no changes of substance to the guidance we gave you, and any changes are modestly positive. We will update you after closing. Now turning to growth. The rate environment and inflation, global P&C premiums, which exclude agriculture, increased 8.8% in the quarter on a published basis or 10.7% in constant dollars, with commercial up 12% and consumer up 8%. Growth in the quarter was broad-based with contributions from virtually all commercial businesses globally. From large corporate to middle market to small, from traditional to specialty in most all regions of the world, commercial P&C premiums, excluding agriculture for North America were up 10.5%, while in overseas general, they grew 13 in constant dollars, but we then had 5 points of FX impact to the published results. Agriculture premiums were down in the quarter because of a return of premium to the government. It's based on our level of profitability for the '21 crop year. This is a favorable and expected development. You will recall that crop insurance is a business where revenue and losses are shared with the government. For the '22 crop year, we will have a substantial increase in premium revenue over last year, given commodity prices and other factors. Most of this will be recognized in the third quarter. Returning to commercial P&C. In terms of rate, the level of rate increase remains strong, and as I have said before, is naturally moderating as individual portfolios achieve adequacy and additional rate is then required to keep pace with loss costs. The rate environment is reasonably orderly. And in aggregate, rate increases remain in excess of observed and projected loss costs. In the quarter, in North America, total P&C premiums, excluding agriculture, grew 9.6%, again, with commercial up 10.5%. Growth this quarter in commercial Lines was led by our middle market and small commercial business with premiums up almost 12%, followed by our major accounts in specialty division, which grew 9.5%. Total exposure change was a positive 1 point in the quarter, a combination of an increase in economic exposure of about 3.2% due to higher payroll, sales and other economically sensitive activity, and on the other hand, a decline in exposure due to underwriting changes, such as increased attachment points, and higher deductibles, which is a good thing. Renewal retention for our retail commercial businesses is 100% on a premium basis, very strong. Overall rates increased in North America commercial lines 8.7%. Major accounts, which serves the largest companies in America, rates increased 9.3%. General casualty rates were up over 15.5% and varied by class of casualty, while risk management-related primary comp and casualty rates were up 3.7%. Property rates were up 9.1%, and financial lines rates were up 13.9% and varied by subcategory. In our E&S wholesale business, rates increased by more than 11%. Rates were up 13.3% in casualty, about 10% -- sorry, in property. Casualty was up 10%, and financial lines rates were up 15.4%. And in our middle-market business, rates increased 7.7% or 9.5% excluding comp. Rates for property were up over 8%. Casualty rates, excluding comp, were up 8.5%, and comp rates were down 1.5%. The comp pricing, which is rate plus exposure was up over 9%. And finally, financial lines in middle market were up 17%. We are trending loss costs at 6%, and it varies by line. In general, we're trending loss costs in the rates we charge for short-tail classes just over 6.5%, though the actual is running lower. In long-tail, excluding workers' comp, we continue to trend at a 6% rate overall. And our first dollar workers' comp book is trending between 4% and 4.5% In short-tail classes, we are actively monitoring property valuations, loss costs as they develop and the real-time drivers of cost or changes in inflation, labor, parts and supplies as well as the delays caused by supply chain disruptions given the length of time to repair or replace. This can add additional pressure on costs. In long-tail lines, we actively monitor and study both frequency and severity of each class. Turning to our international general insurance operations. Retail commercial P&C premiums grew 15.5% in constant dollars, while our London wholesale business grew just over 5.5%. Retail and commercial growth varied by region, with premiums up 18.5% in Latin America, followed by growth of about 16.5% in our U.K. and Europe division, and Asia-Pac was up 14.5%. Internationally, like in the U.S. We continued to achieve improved rate to exposure across our commercial portfolio. In our international retail business, rates increased in the quarter, 10%. While in our London wholesale business, rates increased 9%, both varied by class and by region as well as country within region. Outside North America, loss costs are currently trending about 4%, though that varies by class of business in country. In general, loss costs for short-tail classes are running just under 4%. And we anticipate this to increase. In long-tail, we are trending at about a 4.5% rate. International consumer lines growth in the quarter continued to recover from the pandemic's impact on consumer-related activity, and premiums increased about 9.5%, though FX then scrubs 6 points off the growth rate. Premiums in our International A&H business grew 8.6% in constant dollars. Our international personal lines business grew over 10%. Latin America led the way with A&H and Personal Lines growth of over 18% and 17.5%, respectively, while Asia-Pac's growth for these two product lines was over 6% and 24.5%, respectively. Net premiums in our North America high net worth personal lines business were up about 7.5%. Last year's reinsurance reinstatement premiums, due to cat losses, had a negative impact on growth. Adjusted for that was other onetime items, our underlying growth was about 5.5% in the quarter. Our true high net worth client segment, the heart of our business, grew over 13% in the quarter, driven by a flight to quality of competitors leaving certain markets, while overall retention was very strong at nearly 99%. In our homeowners business, we achieved pricing, which includes rate and exposure of 12.3%, while homeowners loss costs are running in the 11% range. In our Asia-focused international life insurance business, net premiums plus deposits were flat in constant dollar, but will increase in future quarters. While net premiums in our Global Re business were up 22%. In sum, we had an outstanding quarter all around, and we are off to a great start to the year. As I look ahead, I remain optimistic and confident in the things we can control by way of naturally growing more cautious given the world around us. Economic growth, general inflation and central bank actions and the war come to mind. We will continue to capitalize unfavorable underwriting conditions for our commercial P&C businesses globally. Consumer lines growth should continue to recover. As interest rates rise, our investment income will as well. And as I stated last quarter, our strategic investments, including the acquisition of Cigna, and likely later in the year, Huatai, will provide us with greater revenue and earnings growth opportunities. I'll now turn the call over to Peter, and then we'll be back to take your questions.
Peter Enns: Good morning, everyone. As you've just heard from Evan, we are starting the year with an exceptional quarter with strong top line growth and record P&C underwriting results that produced operating cash flow of $2.4 billion for the quarter. Turning to our balance sheet and capital management. Our financial position remains exceptionally strong with $73 billion in total capital. We continue to remain extremely liquid with cash and short-term investments of over $5 billion. I would note, S&P and Fitch both reaffirmed our AA ratings and stable outlook, reflecting our strong financial position. Among the capital-related actions in the quarter, we returned $1.3 billion or 82% of core earnings to shareholders, including $1 billion in share repurchases and $340 million in dividends. As of March 31, $1.6 billion of the $5 billion share repurchase authorization remains available through June 30. We plan to seek authorization from our Board for our annual share repurchase program prior to that date. During the quarter, rising interest rates caused a mark-to-market pretax unrealized loss of $4.7 billion or 4.5% of our fixed income portfolio. As a comparison, the Barclays Global Aggregate Bond Index declined by 6.2% for the quarter. This adverse mark-to-market movement of $3.8 billion after tax or 6.5% of our book value drove the decline in book and tangible book value per share of 4.4% and 6.8%, respectively. Excluding the unrealized mark-to-market in the investment portfolio, book and tangible book value per share increased by 2.1% and 2.9%, respectively. As noted in our supplement, the market rate on our fixed maturity portfolio was 3.4% for the quarter end, exceeding our book yield of 3%. As of last Friday, the market reinvestment rate had increased to 3.8%. Reflecting this rising rate environment, we now expect our adjusted investment income for the second quarter to be in the range of $915 million to $925 million, and then it will go up from there. Our reported ROE for the quarter was 13.6%, and our core operating return on tangible equity was 17.1%. Our core operating ROE was 11.3%. Pretax catastrophe losses for the quarter were $333 million, including $138 million for Australian storms, $65 million for wildfires in Colorado and $130 million for other global weather-related events. We had favorable prior period development of $240 million pretax, essentially all in short-tail lines of $228 million, principally in A&H, property and surety. Our paid-to-incurred ratio for the quarter was 91% or 80 in prior period development. Our core operating effective tax rate for the quarter was 16.9%, and we continue to expect our annual core operating effective tax rate for '22 to be in the range of 15.5% to 17.5%. Now to finish with a couple of discrete items. First, relative to our exposure in Russia. Our Russian entities have been separated operationally from Chubb and are managing their affairs independently and have been deconsolidated. During the quarter, we impaired the full carrying value these entities and have recognized a realized loss of $87 million. Relative to Cigna, we have amended our purchase agreement to remove the joint venture in Turkey. This amendment will have a de minimis impact on the transaction. As Evan mentioned, we will provide an update with more specifics on the acquisition during the second quarter earnings call. I'll now turn it back to Karen.
Karen Beyer: Thank you. At this point, we'll be happy to take your questions.
Operator: [Operator Instructions] We will begin with Yaron Kinar with Jefferies.
Operator: We'll now move to our next question, which will come from Michael Phillips with Morgan Stanley.
Operator: Now moving to Greg Peters with Raymond James.
Operator: We'll now hear from Elyse Greenspan with Wells Fargo.
Operator: Our next question will come from David Motemaden with Evercore ISI.
Operator: Moving on to Ryan Tunis with Autonomous Research.
Operator: Now moving to Paul Newsome with Piper Sandler.
Operator: Next question will come from Alex Scott with Goldman Sachs.
Operator: Next question is from Meyer Shields with KBW.
Operator: [Operator Instructions] We will now hear from Brian Meredith with UBS.
Operator: Ladies and gentlemen, this will conclude your question-and-answer session for today. I'll be happy to turn the call back over to Karen Beyer for any closing remarks.
Karen Beyer: Thank you, everyone, for joining us today. If you have any follow-up questions, we'll be around to take your call. Enjoy the day. Thank you.
Operator: With that, ladies and gentlemen, this does conclude your conference for today. We do thank you for your participation, and you may now disconnect.
