Chubb Reports 4Q Profit Surge a Year After Sandy

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Chubb Corp., the insurer of corporate boards and high-end homes, said profit surged as margins improved a year after Superstorm Sandy.

Fourth-quarter net income rose to $569 million, or $2.24 a share, from $102 million, or 38 cents, a year earlier, the Warren, New Jersey-based company said today in a statement. Operating profit, which excludes some investment results, was $2.07 a share, beating the $2.04 average estimate of 20 analysts in a Bloomberg survey.

Chief Executive Officer John Finnegan has been increasing rates for commercial clients to cushion higher expenses from catastrophes including Sandy, which cost the company $882 million before tax in the fourth quarter of 2012. Property/casualty insurers increased year-over-year commercial rates by 3 percent in December, compared with about 4 percent in each of the prior two months and 5 percent in September, according to U.S. MarketScout data compiled by Bloomberg.

“It’s a little less friendly of an environment, but Chubb is a company that’s proven it can handle that,” Meyer Shields, an analyst at Keefe Bruyette & Woods Inc., said in a telephone interview before the earnings report. “Rates industrywide are still rising, but they’re rising by a little less.”

Chubb said that 2014 operating profit will probably be in the range of $7.10 to $7.40 a share, compared with the average estimate of $7.55 in a Bloomberg survey of 21 analysts. The forecast includes losses related to freezing weather from U.S. storms Jan. 3 through Jan. 8.

Full-year profit for 2013 jumped 52 percent to $2.35 billion from $1.55 billion in 2012. Book value, a measure of assets minus liabilities, rose to $64.83 a share from $62.04 at the end of September.

Chubb has advanced 7.8 percent in the past year to $86.76 at 4:01 p.m. in New York, compared with the 33 percent gain in the 24-company KBW Insurance Index. Results were released after the close of regular trading.

Chubb also announced a plan to buy back as much as $1.5 billion worth of stock. The insurer repurchased $1.3 billion of shares in 2013.

Fourth-quarter premium revenue gained 3.9 percent to $3.04 billion. The company projected policy sales will increase 2 percent to 4 percent in 2014.

Combined Ratio

Chubb spend 85.5 cents on claims and expenses for every dollar in premiums for the quarter, compared with a cost of $1.11 in the fourth quarter of 2012 when Sandy struck the U.S. East Coast.

Travelers Companies, the property/casualty insurer in the Dow Jones Industrial Average, said Jan. 21 that fourth-quarter profit more than tripled as claims costs from natural disasters fell. The stock posted the second-biggest decline in the Dow that day after saying the pace of rate increases was slowing.

Finnegan’s term was extended in October until the end of 2016 after the board waived its policy on retirement age citing its “high level of satisfaction with the CEO.” Finnegan, who led the company since 2002, turns 65 tomorrow.

Chubb’s fourth-quarter investment income fell to $349 million from $365 million a year earlier.

Chubb said its first quarter 2014 results will reflect losses from the severe winter weather during January in the U.S. To date, that weather has resulted in two declared catastrophes related to the freezing and winter storms that occurred between January 3rd and 8th in 19 states. The insurer forecast a cost from the events of $150 million to $200 million before tax, or 39 cents to 52 cents per share after tax. This estimate does not include an estimate for any other January weather related losses. Many of the claims were tied to frozen pipes that burst, Dino Robusto, executive vice president, told Bloomberg.

The following are full year and fourth quarter results as reported by Chubb.

Full Year Results

For the year ended December 31, 2013, net income was $2.3 billion or a record $9.04 per share, compared to $1.5 billion or $5.69 per share for the year ended December 31, 2012. Operating income totaled $2.1 billion in 2013 and $1.4 billion in 2012. Operating income per share increased to a record $8.03 in 2013 from $5.23 in 2012.

Net written premiums increased 3% to $12.2 billion in 2013 from $11.9 billion in 2012. Foreign currency translation and Storm Sandy reinsurance reinstatement premiums had an insignificant effect on premium growth for the year. Premiums were up 4% in the U.S. and were flat outside the U.S. (up 2% in local currencies).

The combined ratio in 2013 was 86.1%, compared to 95.3% in 2012. The impact of catastrophes accounted for 3.4 percentage points of the combined ratio in 2013 and 9.6 points in 2012. Excluding the impact of catastrophes, the combined ratio was 82.7% in 2013 and 85.7% in 2012.

The expense ratio for the year was 31.9% in 2013 and 31.7% in 2012.

Property and casualty investment income after taxes in 2013 declined 5% to $1.1 billion in 2013 from $1.2 billion in 2012.

Net income for 2013 included net realized investment gains of $402 million before tax ($1.01 per share after-tax). Net income for 2012 reflected net realized investment gains of $193 million before tax ($0.46 per share after-tax).

During 2013, Chubb repurchased 14.9 million shares of its common stock at a total cost of $1.3 billion, or an average cost of $87.33 per share.

Average diluted shares outstanding were 259.4 million in 2013 and 271.4 million in 2012.

2013 Operations Review

For the year ended December 31, 2013, Chubb Personal Insurance net written premiums increased 5% to $4.3 billion. Net written premiums were up 4% excluding reinsurance reinstatement premiums related to Storm Sandy. CPI’s combined ratio was 87.0% in 2013 and 94.4% in 2012. The impact of catastrophes accounted for 7.2 percentage points of the combined ratio in 2013 and 13.7 points in 2012. Excluding the impact of catastrophes, the combined ratio was 79.8% in 2013 and 80.7% in 2012.

Homeowners net written premiums increased 4% (increased 3% excluding Storm Sandy reinsurance reinstatement premiums), and the combined ratio was 82.3% (70.8% excluding the impact of catastrophes). Personal Automobile net written premiums were up 6%, and the combined ratio was 94.8%. Other Personal lines net written premiums increased 6%, and the combined ratio was 94.8%.

Chubb Commercial Insurance net written premiums for 2013 increased 2% to $5.3 billion. Net written premiums were up 1% excluding reinsurance reinstatement premiums related to Storm Sandy. The combined ratio was 86.5% in 2013 and 99.0% in 2012. The impact of catastrophes accounted for 2.1 percentage points of the combined ratio in 2013 and 11.4 points in 2012. Excluding the impact of catastrophes, the combined ratio was 84.4% in 2013 and 87.6% in 2012.

In the U.S., average CCI renewal rates were up 7%, renewal premium retention was 84% and the ratio of new to lost business was 0.8 to 1.

Chubb Specialty Insurance net written premiums for 2013 increased 3% to $2.6 billion. The combined ratio was 84.3% in 2013 and 91.3% in 2012.

Professional Liability’s net written premiums were up 2%. PL had a combined ratio of 89.3%. In the U.S., average 2013 renewal rates for PL were up 8%, renewal premium retention was 84% and the ratio of new to lost business was 0.8 to 1.

Surety net written premiums increased 6%, and the combined ratio was 47.2%.

Fourth Quarter

Chubb Personal Insurance (CPI) net written premiums increased 6% in the fourth quarter of 2013 to $1.1 billion. Net written premiums were up 3% excluding reinsurance reinstatement premiums related to storm Sandy. CPI’s combined ratio for the fourth quarter was 83.5% in 2013 and 117.9% in 2012. The impact of catastrophes on CPI’s combined ratio in the fourth quarter was 5.3 percentage points in 2013 and 40.1 points in 2012. Excluding the impact of catastrophes, the combined ratio for the fourth quarter was 78.2% in 2013 and 77.8% in 2012.

Homeowners net written premiums were up 6% (up 2% excluding Storm Sandy reinsurance reinstatement premiums), and the combined ratio was 75.8% (67.3% excluding the impact of catastrophes). Personal Automobile net written premiums increased 2%, and the combined ratio was 93.9%. Other Personal lines net written premiums were up 9%, and the combined ratio was 96.8%.

Chubb Commercial Insurance (CCI) net written premiums for the fourth quarter of 2013 increased 4% to $1.3 billion. Net written premiums were up 2% excluding reinsurance reinstatement premiums related to Storm Sandy. The combined ratio for the quarter was 89.0% in 2013 and 118.7% in 2012. The impact of catastrophes on CCI’s combined ratio in the fourth quarter accounted for 0.6 points in 2013 compared to an impact of 36.8 percentage points in 2012. Excluding the impact of catastrophes, the combined ratio for the fourth quarter was 88.4% in 2013 and 81.9% in 2012.

In the U.S., average fourth quarter CCI renewal rates were up 6%, renewal premium retention was 83% and the ratio of new to lost business was 0.7 to 1.

Chubb Specialty Insurance (CSI) net written premiums increased 2% in the fourth quarter to $705 million. The combined ratio was 81.9%, compared to 88.5% in the fourth quarter of 2012.

Professional Liability (PL) net written premiums increased 2%, and PL had a combined ratio of 85.9%. In the U.S., average PL renewal rates were up 8%, renewal premium retention was 84% and the ratio of new to lost business was 0.8 to 1.

Surety net written premiums were up 4%, and the combined ratio was 53.9%.