Business context and reporting period
Chubb Limited is a Swiss-domiciled global insurer and reinsurer operating in 54 countries and territories across six segments: North America Commercial P&C, North America Personal P&C, North America Agricultural, Overseas General, Global Reinsurance, and Life Insurance. This 10-K covers the fiscal year ended December 31, 2020; it is an annual report, not a standalone fourth-quarter report.
Financial performance and position
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Net premiums written | $33.8 billion | $32.3 billion | +4.8% |
| Net premiums earned | $33.1 billion | $31.3 billion | +5.8% |
| Total revenues | $36.0 billion | $34.2 billion | +5.3% |
| Net income | $3.5 billion | $4.5 billion | -20.7% |
| Diluted earnings per share | $7.79 | $9.71 | Down |
| Operating cash flow | $9.8 billion | $6.3 billion | Up $3.4 billion |
- P&C combined ratio was 96.1%, versus 90.6% in 2019. The current-accident-year ratio excluding catastrophe losses improved to 86.7% from 89.2%.
- Catastrophe losses, including reinstatement-premium effects, were $3.3 billion pretax and $2.8 billion after tax, compared with $1.2 billion pretax and $966 million after tax in 2019. COVID-19 accounted for a $1.396 billion pretax charge and added 4.5 percentage points to the P&C combined ratio.
- Favorable prior-period development was $395 million pretax, down from $792 million in 2019. This included adverse development for U.S. child-molestation claims and legacy asbestos and environmental liabilities.
- Net investment income was $3.375 billion, down 1.5%; yield on average invested assets fell to 3.1% from 3.3%. Shareholders’ equity rose 7.4% to $59.4 billion; total assets were $190.8 billion.
- At year-end, total investments were $118.7 billion, cash was $1.7 billion, and short-term investments were $4.3 billion. Financial debt was $14.9 billion; financial debt to total capitalization was 20.0%, versus 21.1% in 2019. The company reported $1.4 billion of repurchase agreements outstanding.
- Net unpaid losses and loss expenses were $53.2 billion; gross reserves were $67.8 billion. Reinsurance recoverables on losses and loss expenses were $15.6 billion, net of a $314 million valuation allowance.
Material changes versus the prior year
- Commercial P&C premiums grew, supported by new business, rate increases, and renewal retention; net premiums written in commercial P&C increased 9.5%. Consumer lines were affected by the pandemic, with global A&H premiums down 10.6% and consumer-line premiums written down 0.9%.
- Higher catastrophe losses and lower favorable reserve development drove the combined ratio higher and net income lower, despite improvement in the underlying current-year loss ratio excluding catastrophes.
- Operating cash flow increased, primarily reflecting higher premiums collected and reduced payment activity during the pandemic-related slowdown. Cash used for investing rose to $7.5 billion, including $1.6 billion paid, including a deposit, for additional Huatai ownership.
- Chubb’s Huatai Group ownership reached 47.1% at year-end, accounted for under the equity method. A further 7.1% purchase remained contingent; completion would give Chubb majority ownership and is expected to lead to consolidation accounting.
- Financial debt was broadly stable overall; Chubb INA issued $1.0 billion of 1.375% senior notes due 2030 and repaid $1.3 billion of notes due 2020.
Outlook, commentary, risks, and unusual items
- Management said first-quarter 2021 commercial P&C growth and rate increases were tracking near fourth-quarter conditions, and expected favorable commercial-market conditions to support revenue growth and wider underwriting margins. It expected international personal lines and global A&H growth to recover as 2021 progressed. These are qualitative expectations, not quantified earnings guidance.
- The pandemic affected claims, exposures, consumer activity, travel-related A&H, investment markets, and operations. Management cited the possibility of further claims and premium impacts depending on the pandemic’s course and government responses.
- Key risks include catastrophe and climate-related losses, reserve uncertainty and social inflation, reinsurance availability and collectability, investment-market and interest-rate sensitivity, variable-annuity guarantee liabilities, cyber and privacy risks, regulatory changes, and currency movements.
- Reserve estimates are judgmental: management identified a one-percentage-point workers’ compensation tail-factor change as potentially changing net reserves by about $910 million; other disclosed reserving sensitivities also indicate material estimation exposure. The company states reserves are adequate but cautions that future adverse development could materially affect results.
- Gross asbestos and environmental liabilities were approximately 2.8% of gross loss reserves. The filing also reports $254 million of adverse development for U.S. child-molestation claims, predominantly related to state reviver legislation, and $106 million adverse development on legacy asbestos and environmental liabilities.
- The company adopted expected-credit-loss accounting in 2020, reducing beginning retained earnings by $72 million after tax. It reported no goodwill impairment. Share repurchases were suspended in April and resumed in October; the Board increased the 2021 authorization to $2.5 billion in February 2021.
- Liquidity is supported by operating cash flow, liquid investments, and credit facilities. The $4.0 billion facilities had $1.7 billion of letters of credit outstanding at year-end; management reported all financial covenants were met and expected operating cash flows to cover near-term needs under most loss scenarios.
Important facts for investors to verify
- Whether pandemic-related claims, exposure adjustments, and recovery disputes develop beyond the amounts recognized in 2020, and how this affects reserves and future premiums.
- Reserve adequacy, especially long-tail casualty, child-molestation, asbestos and environmental, and variable-annuity guarantee exposures; review the filing’s sensitivity analyses and reserve-development tables.
- Collectability and concentration of the $15.6 billion net reinsurance recoverable, including the $1.6 billion intercompany balance due from Century and the associated run-off risks.
- Whether the contingent Huatai 7.1% acquisition closes, its funding and regulatory conditions, and the consequences of moving from equity-method to consolidated reporting.
- Investment portfolio credit quality, liquidity and interest-rate exposure, including the estimated $4.3 billion pretax fair-value decline under an immediate 100-basis-point rate increase.
- Availability of subsidiary dividends to the Swiss holding company, regulatory capital constraints, debt and repurchase commitments, and the execution of the expanded share-repurchase authorization.