Chubb Limited — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. Chubb is a global insurer and reinsurer operating in 54 countries and territories, across six segments spanning commercial and personal property and casualty (P&C), agriculture, overseas insurance, reinsurance, and life insurance.
Financial performance
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total revenue | $34.2 billion | $32.7 billion | +4.5% |
| Net premiums written | $32.3 billion | $30.6 billion | +5.5%; +7.0% constant currency |
| Net premiums earned | $31.3 billion | $30.1 billion | +4.1% |
| Net investment income | $3.43 billion | $3.31 billion | +3.6% |
| Net income | $4.45 billion | $3.96 billion | +12.4% |
| Diluted EPS | $9.71 | $8.49 | +14.4% |
| Operating cash flow | $6.34 billion | $5.48 billion | +$862 million |
| P&C combined ratio | 90.6% | 90.6% | Unchanged |
The P&C combined ratio remained below 100%, indicating underwriting profit. The current accident-year ratio excluding catastrophe losses was 89.2%, compared with 88.0% in 2018. Net favorable prior-period development was $792 million, versus $896 million a year earlier.
At year-end, total assets were $176.9 billion, shareholders’ equity was $55.3 billion, and book value per share was $122.42. Carrying-value investments totaled $109.2 billion. Cash and restricted cash were $1.65 billion. Financial debt was $14.86 billion, up from $12.60 billion; debt to total capitalization was 21.1%, compared with 19.9%. Repurchase agreements of $1.42 billion are reported separately from financial debt.
Material changes and segment performance
- North America Commercial P&C underwriting income rose 15.5% to $1.86 billion; premiums written increased 7.1% and the combined ratio improved to 85.6% from 87.0%.
- North America Personal P&C returned to stronger underwriting results: income increased to $417 million from $156 million, and the combined ratio improved to 91.1% from 96.6%, mainly reflecting lower catastrophe losses and better prior-period development.
- Agricultural Insurance was the principal earnings setback. Its combined ratio rose to 95.1% from 75.5%, underwriting income fell to $89 million from $385 million, and segment income declined to $90 million. Wet weather, preventive planting claims, and crop-yield shortfalls drove reserve and margin revisions.
- Overseas General combined ratio increased to 91.6% from 90.4%; segment income declined 9.2% to $1.27 billion, despite premium growth.
- Global Reinsurance improved to an 85.0% combined ratio from 101.8%; underwriting income was $98 million versus a $12 million loss, while segment income increased 35.7% to $376 million.
- Lower catastrophe losses helped results: pre-tax catastrophe losses, including reinstatement premiums, were $1.19 billion versus $1.63 billion. Favorable prior-period development also declined year over year.
Outlook, risks, and unusual items
- Management said pricing and underwriting conditions had improved across more lines and territories and intended to pursue growth in 2020. It forecast quarterly 2020 pre-tax net investment income of $852–$862 million, or adjusted net investment income of $885–$895 million excluding acquired-investment fair-value amortization. The filing provides no overall earnings or premium-growth guidance.
- Chubb increased its Huatai Group ownership to 30.9% in 2019 and agreed to buy another 22.4%, subject to Chinese regulatory approvals and other conditions. The additional purchases were expected to be completed by the end of 2021; majority ownership and consolidation were expected after the 7.1% purchase. Chubb paid $1.55 billion in collateralized deposits in January 2020.
- Reserve estimates are a major uncertainty. Net unpaid losses and loss expenses were $48.5 billion; management considered reserves adequate, but noted that adverse revisions could materially affect results. Gross asbestos and environmental liabilities were approximately 3.2% of gross loss reserves; 2019 included $116 million of adverse development on these legacy exposures.
- Other key exposures include natural and man-made catastrophes, climate-related changes to catastrophe risk, social and claims inflation, reinsurance collectability, investment and interest-rate risk, currency movements, cyber and privacy risks, regulation, and Brexit-related uncertainty. The filing reports that the U.K. left the EU on January 31, 2020 and identifies transition-period and market-access uncertainty.
- Net realized losses were $530 million, while investment-related unrealized gains contributed to a substantial recovery in accumulated other comprehensive income. Falling interest rates increased the fair value of fixed maturities; a hypothetical 100-basis-point rate increase would reduce their value by about $3.9 billion. The remaining variable-annuity guarantee reinsurance book also creates market- and policyholder-behavior-driven earnings volatility.
- Chubb repurchased $1.53 billion of shares and paid $2.98 per share in dividends in 2019. The company reported effective disclosure controls and an unqualified audit opinion on its financial statements and internal control over financial reporting.
Investor verification priorities
- Review the composition and sensitivity of the $48.5 billion net loss reserve, including long-tail casualty, crop, asbestos, and environmental exposures, and assess the extent to which favorable prior-period development supports reported underwriting results.
- Track agricultural underwriting and crop-year estimates after the 2019 weather-related deterioration.
- Confirm approvals, timing, funding, and consolidation accounting for the pending Huatai purchases and the related $1.55 billion deposits.
- Assess reinsurance counterparty quality and collectability: recoverables on losses were $15.2 billion net on the balance sheet, with a $316 million provision for uncollectible reinsurance.
- Monitor debt maturities, liquidity, investment portfolio duration and credit quality, and the effect of interest-rate or market changes on equity and earnings.
- Compare 2020 investment-income performance with management’s stated quarterly range; no broader earnings guidance was provided.