Catastrophe losses in the second quarter adversely impacted financial results for The Chubb Corp., which reported net income in the second quarter of 2008 fell $213 million over the same time period in 2007, or $469 million or $1.27 per share in 2008, compared to $709 million or $1.75 per share in the second quarter of 2007.
“In an otherwise excellent quarter, our results were adversely impacted by unusually high catastrophe losses and by one large Surety loss,” said John D. Finnegan, chairman, president and CEO. The catastrophe losses were primarily related to storms in the Midwest United States that mostly affected Chubb’s commercial Property & Marine insurance line.
Total net written premiums for the second quarter were flat at $3.0 billion. Premiums were down 3 percent in the U.S. and up 11 percent outside the U.S. (3 percent in local currencies), Chubb reported.
The second quarter combined loss and expense ratio was 88.5 percent in 2008, compared to 82.7 percent in 2007. Catastrophe losses for the second quarter of 2008 accounted for 5.4 percentage points of the combined ratio. In the second quarter of 2007, catastrophe losses accounted for 3.9 points of the combined ratio. The expense ratio for the second quarter was 29.8 percent in 2008 and 29.6 percent in 2007.
Operating income, which the company defines as net income excluding after-tax realized investment gains and losses, declined to $518 million from $648 million in the second quarter of 2007. Operating income per share declined 13 percent. to $1.40 from $1.60.
Property and casualty investment income after taxes for the second quarter increased 4 percent to $327 million in 2008 from $313 million in 2007.
Second Quarter Operations Review
Chubb Personal Insurance (CPI) net written premiums grew 4 percent in the second quarter to $1.0 billion. CPI’s combined ratio for the quarter was 81.9 percent, compared to 85.3 percent in the second quarter of 2007. Catastrophe losses for the quarter accounted for 4.5 percentage points in 2008 and 8.1 points in 2007.
Net written premiums for Homeowners grew 3 percent, and the combined ratio was 75.1 percent. Personal Automobile net written premiums declined 2 percent, and the combined ratio was 86.7 percent. Other Personal lines grew 15 percent and had a combined ratio of 101.5 percent.
Chubb Commercial Insurance (CCI) net written premiums declined 1 percent in the second quarter to $1.3 billion. The combined ratio for the quarter was 93.7 percent in 2008 and 85.4 percent in 2007. Catastrophe losses accounted for 9.2 percentage points in the second quarter of 2008 and 3.3 percentage points in the second quarter of 2007.
Average second quarter renewal rates in the U.S. were down 6 percent for CCI, which retained 85 percent of the U.S. premiums that came up for renewal. In the U.S., the ratio of new to lost business was 1.1 to 1.
Chubb Specialty Insurance (CSI) net written premiums declined 4 percent in the second quarter to $711 million. The combined ratio was 89.3 percent, compared to 75.6 percent in the second quarter of 2007.
Professional Liability (PL) net written premiums declined 4 percent, and the business had a combined ratio of 84.0 percent. Average second quarter renewal rates in the U.S. were down 3 percent for PL, which retained 88 percent of the U.S. premiums that came up for renewal. In the U.S., the ratio of new to lost business was 1.2 to 1.
Surety net written premiums were down 10 percent, and the combined ratio was 128.4 percent due to one large loss.
Six-Month Results
For the first six months of 2008, net income was $1.1 billion or $3.04 per share, compared with $1.4 billion or $3.46 per share for the first half of 2007. Operating income for the first half of 2008 totaled $1.1 billion or $3.05 per share, compared with $1.3 billion or $3.13 per share for the first half of 2007.
Total net written premiums for the first six months increased 1 percent to $6.0 billion. Premiums declined 2 percent in the U.S. and increased 13 percent outside the U.S. (4 percent in local currencies).
The combined loss and expense ratio for the first six months was 86.2 percent in 2008, compared to 83.1 percent in 2007. Catastrophe losses in the first half of 2008 accounted for 3.6 percentage points of the combined ratio. In the first half of 2007, catastrophe losses accounted for 3.2 points of the combined ratio. The expense ratio for the first six months was 30.1 percent in 2008 and 30.0 percent in 2007.
Property and casualty investment income after taxes for the first six months increased 6 percent to $654 million in 2008 from $618 million in 2007.
Outlook for 2008
“Since our catastrophe losses in the first six months were higher than expected and we’re now in the midst of the hurricane season,” said Finnegan, “we have increased our catastrophe loss assumption for the full year from 3 points to 4 points. Nevertheless, in light of the strong underlying performance of our businesses in the first half and the outlook for the second half, we are affirming the guidance we provided last January for full-year 2008 operating income per share of $5.70 to $6.10.” The impact of each point of catastrophe losses on operating income per share for the year is approximately $0.20.
The updated operating income guidance also assumes:
— Flat to modestly lower net written premiums for the full year;
— A combined ratio between 86 percent and 88 percent for the year, based on combined ratios of 85 percent to 87 percent for Chubb Personal Insurance, 90 percent to 92 percent for Chubb Commercial Insurance and 82% to 84% for Chubb Specialty Insurance;
— Growth of property and casualty investment income after taxes of 3 percent to 5 percent for the year; and
Source: Chubb,
www.chubb.com
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