Chubb Limited — Q1 2021 Form 10-Q
Business context and period: Global insurance and reinsurance group; unaudited results for the three months ended March 31, 2021, compared with Q1 2020. Amounts are U.S. dollars unless noted. Interim results are not necessarily indicative of full-year performance.
Key financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net premiums written | $8.662 billion | $7.977 billion |
| Net premiums earned | $8.221 billion | $7.794 billion |
| Total revenues | $9.971 billion | $7.697 billion |
| Net investment income | $863 million | $861 million |
| Net realized gains (losses) | $887 million | $(958) million |
| Net income | $2.300 billion | $252 million |
| Diluted EPS | $5.07 | $0.55 |
| Operating cash flow | $2.105 billion | $1.712 billion |
| P&C combined ratio | 91.8% | 89.1% |
| Current accident-year P&C combined ratio, excluding catastrophe losses | 85.2% | 87.5% |
Net premiums written grew 8.6% (7.0% in constant dollars); P&C premiums written grew 9.7% (8.1% in constant dollars). Commercial P&C growth was strong, while consumer P&C premiums declined 2.5%. Net income’s substantial year-over-year increase reflects large swings in realized investment and derivative gains and losses, as well as higher income from partially owned entities; it should not be read as a comparable increase in underlying underwriting earnings.
Financial position and liquidity
- At March 31, total assets were $191.977 billion, shareholders’ equity $59.076 billion, and total liabilities $132.901 billion. Equity declined from $59.441 billion at year-end, including a $1.911 billion quarterly other comprehensive loss, mainly from unrealized investment depreciation.
- Balance-sheet investments were $118.979 billion; the company separately reported total investment fair value of $119.599 billion, reflecting held-to-maturity securities at fair value rather than carrying value. Cash was $1.684 billion and restricted cash $157 million.
- Long-term debt was $14.879 billion, down from $14.948 billion; trust preferred securities were $308 million. Financial debt was 20.0% of total capitalization, unchanged from year-end. Repurchase agreements totaled $1.405 billion.
- Operating cash flow increased to $2.105 billion. Investing activities used $1.252 billion, and financing activities used $812 million. Cash and restricted cash ended at $1.841 billion.
- Credit facilities provided $3.7 billion of letter-of-credit capacity, including a $1.9 billion revolving-credit sublimit; $1.4 billion of letters of credit were in use. Chubb said it met all financial covenants and had not experienced difficulty accessing the facilities.
Material changes and operating drivers
- Pre-tax P&C catastrophe losses rose to $700 million from $237 million; $657 million of Q1 2021 catastrophe losses related to U.S. winter storms. Favorable prior-period development was $192 million versus $118 million.
- The P&C combined ratio worsened 2.7 percentage points, primarily because catastrophe losses increased. Excluding catastrophes, the current accident-year ratio improved 2.3 points, which management attributed to earned rate increases exceeding loss-cost trends.
- Commercial P&C premiums written increased 15.6%; consumer lines declined 2.5%. Management cited rate increases and new business in commercial lines, while COVID-19-related exposure reductions and lower travel activity weighed on selected workers’ compensation, auto, and accident-and-health lines.
- Overseas General segment income increased to $409 million from $278 million, with a lower combined ratio. North America Personal P&C segment income fell to $119 million from $265 million, mainly amid higher catastrophe losses. Global Reinsurance segment income fell to $77 million from $113 million, also affected by catastrophe losses.
- Net realized gains were $887 million versus losses of $958 million a year earlier. Q1 2021 included $367 million of equity-security gains, $319 million from a decrease in the fair-value liability for guaranteed living benefits (GLB), and other investment and derivative results. Net income also included $497 million of equity in net income of partially owned entities, versus $29 million a year earlier; the filing identifies $49 million and $18 million, respectively, as attributable to Huatai.
- The effective tax rate was 12.8%, compared with 46.0%, reflecting realized gains in lower-tax jurisdictions and a higher discrete tax benefit on employee benefit programs.
Outlook, risks and unusual items
- The filing gives no specific earnings, premium-growth, or combined-ratio guidance. Management said operating cash flows should generally cover near-term cash needs under most loss scenarios; it also noted reliance on investment sales, financing, credit access, and regulated subsidiary distributions as liquidity sources.
- Chubb renewed its global property catastrophe reinsurance program effective April 1, 2021, adding $100 million of limit for international loss occurrences. Modeled net pre-tax 1-in-100 annual aggregate PML was $3.988 billion worldwide and $2.707 billion for U.S. hurricanes; management cautioned that models are uncertain and assume reinsurance recoverables are collectible.
- Key stated risks include catastrophe and climate-related losses, reserve-estimation uncertainty, COVID-19 claim developments and related legal or regulatory actions, reinsurance collectability, investment-market and interest-rate movements, foreign exchange, and policyholder behavior affecting variable-annuity guarantees. A 100-basis-point rise in interest rates was estimated to reduce fixed-income portfolio valuation by approximately $4.6 billion.
- At March 31, the company had up to $3.1 billion of potential funding commitments for alternative investments and $591 million of commitments to purchase fixed-income securities. An additional 7.1% Huatai Group interest remained subject to important conditions and regulatory approval; completion would be expected to give Chubb control.
- Management said ordinary-course insurance litigation and other business litigation were not likely to be material to consolidated financial condition or results. No material change to the risk factors in the 2020 Form 10-K was reported. The company repurchased $519 million of shares in the quarter and had $1.982 billion remaining under its authorization at March 31.
Important facts for investors to verify
- How much of the reported earnings increase is repeatable underwriting performance versus investment marks, derivative valuation changes, and income from partially owned entities.
- Whether the elevated catastrophe losses and the improvement in the ex-catastrophe current accident-year ratio persist in subsequent quarters.
- Reserve development, including the durability of favorable prior-period development and continued adverse emergence in excess and umbrella and first-party cyber lines.
- Investment portfolio sensitivity to interest rates, credit spreads, equity markets, and private-equity valuation and liquidity; also monitor restricted assets and alternative-investment commitments.
- Progress and conditions for the additional Huatai acquisition, and the effect of share repurchases and dividends on capital and liquidity.