Business context and reporting period
Chubb Limited is a global insurance and reinsurance group operating across six segments: North America Commercial P&C, North America Personal P&C, North America Agricultural, Overseas General, Global Reinsurance, and Life Insurance. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods unless noted. Amounts are U.S. dollars.
Results include Cigna’s Asian insurance business, acquired July 1, 2022, principally in Life Insurance. Its inclusion makes year-over-year comparisons less directly comparable, particularly in Life.
Financial results and condition
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net premiums written | $11.95bn | $10.29bn | $22.66bn | $19.48bn |
| Net premiums earned | $11.00bn | $9.55bn | $21.14bn | $18.29bn |
| Total revenues | $11.83bn | $9.90bn | $22.89bn | $19.53bn |
| Net investment income | $1.15bn | $0.89bn | $2.25bn | $1.71bn |
| Net income | $1.79bn | $1.19bn | $3.69bn | $3.14bn |
| Diluted earnings per share | $4.32 | $2.80 | $8.84 | $7.35 |
Year-over-year, Q2 revenue rose 19.5% and net income rose 50.7%; six-month revenue rose 17.2% and net income rose 17.2%. Management attributed growth to underwriting, higher investment income from reinvestment at higher rates, and the Cigna acquisition. Q2 also included after-tax mark-to-market gains on public and private equities of $52 million, versus losses of $489 million a year earlier.
Underwriting and margins: The P&C combined ratio was 85.4% in Q2 versus 84.0% and 85.8% for the six months versus 84.2%. A ratio below 100% indicates underwriting income. Q2’s deterioration primarily reflected higher catastrophe losses and lower favorable prior-period development. Q2 catastrophe losses were $400 million (4.1 percentage points of the combined ratio), versus $291 million; favorable prior-period development was $200 million, versus $247 million. The current-accident-year combined ratio excluding catastrophes was 83.3% versus 83.5% in Q2.
Cash flow and liquidity: Operating cash flow was $4.77bn for the six months, down from $5.17bn, mainly due to higher net losses and taxes paid, partly offset by higher premiums collected. Investing activities used $2.26bn (prior year: $1.13bn provided); financing activities used $2.31bn (prior year: $0.73bn used). Cash and restricted cash were $2.38bn at June 30. Total assets were $205.45bn and shareholders’ equity $52.88bn.
Debt and capital: Financial debt was $14.48bn, comprising $0.70bn short-term and $13.78bn long-term debt; debt-to-capitalization was 21.4%. Repurchase agreements were $1.52bn. Financial debt plus trust preferred securities equaled 21.9% of total capitalization. Chubb had $4.0bn of credit facilities, including $3.0bn available for revolving credit; $1.4bn was used for letters of credit, and the company reported meeting its financial covenants.
Investments and equity: Total investments were $116.64bn. Net investment income reached a quarterly record, which management attributed mainly to higher fixed-maturity reinvestment yields. The average fixed-income portfolio credit quality was A/A, and approximately 16% was below investment grade or unrated. A 100-basis-point increase in interest rates was estimated to reduce fixed-income portfolio value by approximately $4.6bn. Shareholders’ equity was essentially flat in Q2: net income and currency translation gains were offset in part by $1.2bn of investment unrealized losses. In June, Chubb transferred its entire $8.2bn held-to-maturity portfolio to available-for-sale; the transfer reduced OCI by $428 million after tax and did not affect cash flows.
Changes, outlook, and notable items
- Premium growth was broad-based: consolidated net premiums written increased 16.1% in Q2 (16.8% in constant dollars); P&C rose 9.8%, while Life rose 126.1%, substantially reflecting Cigna’s Asian business. Higher rates, exposure growth, retention, and new business supported growth across many lines.
- Investment income increased 28.9% in Q2 and 31.7% for the six months, primarily because of higher reinvestment rates. Net realized investment losses were $304 million in Q2 and $381 million for the six months.
- Q2 segment results were mixed: North America Commercial P&C underwriting income fell 17.9% to $805 million as its combined ratio rose to 82.5% from 76.9%; Overseas General segment income rose 2.9% to $661 million; and Life segment income rose to $254 million from $106 million, substantially reflecting Cigna. North America Personal P&C and Agriculture also reported higher catastrophe-related pressure in their combined ratios.
- Chubb expected pre-tax interest expense of approximately $342 million for the remainder of 2023, or about $171 million per quarter, reflecting existing fixed debt and projected variable expenses. The filing provides no broader numerical earnings or revenue guidance.
- Shareholders approved an annual dividend of up to $3.44 per share for the year following the May 2023 annual meeting, expected in quarterly installments of $0.86, subject to Board decisions. A new $5bn share-repurchase authorization became effective July 1, 2023, with no expiration date; $1.15bn was repurchased in the first half.
- On July 1, 2023, Chubb acquired an additional 5.4% interest in Huatai Group, taking ownership to approximately 69.6%; it expects to consolidate Huatai from Q3 2023. Agreements for another approximately 16.6% are pending closing conditions, including regulatory approval for part of the interest.
- Key risks include catastrophe severity and modeling uncertainty, climate-related exposure, reserve estimation and long-tail claims, reinsurance collectability, interest-rate and market movements, foreign exchange, and regulatory or legal developments. Management said routine legal matters were not likely to be material and reported no significant A&E reserve activity. The company noted that Cigna Asia was still being incorporated into its internal-controls evaluation.
- Effective January 1, 2023, Chubb adopted long-duration contract accounting guidance (LDTI); comparative periods were adjusted. The filing says the impact on 2022 results was immaterial.
Important facts for investors to verify
- Whether premium growth and underwriting performance persist, particularly given higher catastrophe losses and the change in prior-period reserve releases.
- How much earnings growth reflects the Cigna acquisition, investment-income tailwinds, and equity mark-to-market movements versus underlying operating trends.
- The evolution of unrealized investment losses, interest-rate sensitivity, credit quality, and the consequences of moving the former held-to-maturity portfolio to available-for-sale.
- Loss-reserve development, including commercial auto liability and molestation claims, and the collectability of reinsurance recoverables.
- Completion, financing, regulatory approvals, and accounting impact of the remaining planned Huatai ownership purchases and Q3 consolidation.
- Execution of the announced repurchase and dividend plans, while maintaining liquidity and subsidiary regulatory capital.