The Chubb Corporation reported that net income in the second quarter of 2006 was $598 million, or $1.41 per share, compared to $495 million, or $1.23 per share, in the second quarter of 2005.
Operating income, which the company defines as net income excluding after- tax realized investment gains and losses, increased to $571 million from $461 million in the second quarter of 2005. Operating income per share increased 18% to $1.35 from $1.14.
The second quarter combined loss and expense ratio improved to 85.2% in 2006 from 88.3% in 2005. Catastrophe losses for the second quarter of 2006 were $80 million, accounting for 2.7 percentage points of the combined ratio. In the second quarter of 2005, catastrophe losses were $21 million and accounted for 0.7 points of the combined ratio. The expense ratio for the second quarter was 28.5% in 2006 and 28.0% in 2005.
“Chubb had another outstanding quarter,” said John D. Finnegan, chairman, president and chief executive officer. “Each of our three major business units contributed substantially to earnings, and the specialty business reached a milestone in its recovery by achieving a combined ratio below 90%. In addition to continued strong earnings, growth in our insurance business was up from the first quarter in what remains a generally stable market environment.”
Second quarter net written premiums for the insurance business increased 3% to $3.0 billion. Premiums for the reinsurance assumed business declined 51%, reflecting the impact of the Chubb Re.Harbor Point transaction completed in December 2005. Total net written premiums declined 1% to $3.1 billion.
Property and casualty investment income after taxes for the second quarter increased 10% to $288 million in 2006 from $261 million in 2005.
During the second quarter of 2006, Chubb repurchased 5.8 million shares of its common stock at a total cost of approximately $290 million.
Six Month Results
For the first six months of 2006, net income was $1.3 billion or $2.99 per share, compared with $965 million or $2.41 per share for the first half of 2005. Operating income for the first half of 2006 totaled $1.2 billion or a record $2.77 per share, compared with $902 million or $2.25 per share for the first half of 2005.
For the first six months of 2006, net written premiums for the insurance business grew 1% to $5.8 billion. Premiums for the reinsurance assumed business declined 48%. Total net written premiums declined 3% to $6.0 billion.
The combined ratio for the first half was 84.0% in 2006 and 88.9% in 2005. The impact of catastrophes for the first half of 2006 accounted for 1.4 percentage points of the combined ratio. In the first half of 2005, catastrophe losses represented 0.7 percentage points of the combined ratio. The expense ratio for the first half was 28.8% in 2006 and 28.4% in 2005.
Property and casualty investment income after taxes increased 11% to $567 million in the first half of 2006 from $513 million in the corresponding period a year earlier.
During the first half of 2006, Chubb repurchased 11 million shares of its common stock at a total cost of approximately $539 million.
Outlook for 2006
“In light of Chubb’s record earnings in the first six months and our positive outlook for the second half,” said Finnegan, “we are raising guidance for 2006 full year operating income per share to a range of $4.90 to $5.10.” The company’s previous guidance, provided in January, was $4.30 to $4.50 per share. “Because the magnitude and timing of catastrophe losses are difficult to forecast,” said Finnegan, “the revised operating income guidance continues to assume 4 percentage points of catastrophe losses for the full year.” The impact of each point of catastrophe losses on operating income per share for the year is approximately 18 cents.
The revised 2006 operating income guidance also assumes:
* Net written premium growth for the full year in the low single digits
for the insurance business;
* A combined ratio between 86% and 88% for the year, based on a combined ratio of 84% to 86% for Chubb Personal Insurance, 85% to 87% for Chubb Commercial Insurance and 89% to 91% for Chubb Specialty Insurance.
These combined ratio forecasts are based on the assumption of 4 points of catastrophe losses for the full year, which implies significantly higher catastrophe losses for CPI and CCI in the second half of the year than they experienced in the first half;
* Growth of property and casualty investment income after taxes of 9% to 11% for the year; and
* Average diluted shares outstanding of 423 million for the full year.
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