Chubb Reports Q2 Results

July 24, 2015

The Chubb Corp., which on June 30 agreed to be acquired by ACE Limited for $28 billion, reported net income in the second quarter of 2015 totaling $494 million, just a notch below the $499 million achieved in the second quarter of 2014.

Operating income was $481 million in the second quarter of 2015 compared to $418 million in the second quarter of 2014.

The impact of catastrophes in the second quarter was $148 million before in 2015 compared to $146 million before tax in 2014.

The second quarter combined loss and expense ratio was 85.5 in 2015 compared to 90.0 in 2014. The impact of catastrophes accounted for 4.7 percentage points of the combined ratio in the second quarter of 2015 compared to 4.8 points in the second quarter of 2014. Excluding the impact of catastrophes, the second quarter combined ratio improved to 80.8 in 2015 from 85.2 in 2014.

Second quarter favorable development before tax on prior-year reserves was approximately $185 million in 2015, compared to $165 million in 2014. The favorable impact of reserve development on the second quarter combined ratio was about 5.9 points in 2015 and 5.4 points in 2014. The impact on favorable development from prior-year catastrophes was insignificant in the second quarters of both years.

The expense ratio for the second quarter of 2015 was 30.8 compared to 31.3 in the corresponding year-earlier quarter.

Net written premiums for the second quarter of 2015 increased three percent to $3.3 billion. Premiums were up six percent in the U.S. and down nine percent outside the U.S.

Lower Investment Gains

Property and casualty investment income after taxes for the second quarter declined four percent to $263 million in 2015 from $275 million in 2014.

Net income for the second quarter of 2015 reflected net realized investment gains of $20 million before tax, compared to $125 million before tax in the second quarter of 2014. Second quarter net realized investment

Book value per share at June 30, 2015 was $70.12, unchanged from year-end 2014 and up from $68.60 on June 30, 2014.

Average diluted shares outstanding for the second quarter were 231.0 million in 2015 and 246.2 million in 2014.

During the second quarter of 2015, Chubb repurchased approximately 2.8 million shares of its common stock at a total cost of $278 million.

ACE has agreed to pay about $124.13 in cash and stock for each share of Chubb based on the buyer’s June 30 closing price, which is a 30 percent premium for Chubb. Completion of the transaction with ACE is subject obtaining shareholder and regulatory approvals. The transaction is expected to close in the first quarter of 2016.

Upon closing of the transaction, ACE shareholders will own 70 percent of the combined company, and Chubb shareholders will own 30 percent.

Earlier this week, ACE Ltd. reported its second-quarter results showing profit rose 21 percent as policy sales climbed. Net income increased to $942 million, the Zurich-based company said Tuesday in a statement.

Chubb said its results for the second quarter of 2015 included approximately $20 million before tax for transaction-related expenses incurred through June 30, 2015.

Nomura analyst Cliff Gallant in a research note on Chubb said results were better than expected; however, he cited the 103.1 combined ratio for auto, and questioned whether this could be a sign of increasing claims frequency.

Gallant views the ACE acquisition positively. “The combination is big, but in specialty areas where we think there is still significant long-term growth opportunity by line of business and by international geography. The balance sheet is strong and the diversification inherent in the business mix should lead to steady ROEs. Near-term, we also expect there to be material opportunity for cost-savings. Long-term, we think the company is positioned for industry-beating returns and growth rates,” he wrote.

Six-Month Results

For the first six months of 2015, net income was $869 million compared to $948 million in the first half of 2014.

Operating income for the first six months of 2015 was $848 million compared to $792 million in the first half of 2014.

The impact of catastrophes in the first six months of 2015 was $398 million before tax, compared to $345 million before tax in the first half of 2014.

The combined ratio for the first six months was 89.7 in 2015 compared to 91.6 in 2014. The impact of catastrophes in the first half accounted for 6.4 percentage points of the combined ratio in 2015 and 5.7 points in 2014. Excluding the impact of catastrophes, the combined ratio for the first half improved to 83.3 in 2015 from 85.9 in 2014.

Net written premiums for the first six months of 2015 increased two percent to $6.4 billion.

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