Business context and reporting period
Chubb Limited’s unaudited Form 10-Q covers the three months ended March 31, 2022, compared with Q1 2021, and reports under U.S. GAAP. Chubb is a global insurance and reinsurance group operating across six segments. Unless stated otherwise, amounts are U.S. dollars.
Key financial results
| Metric | Q1 2022 | Q1 2021 or comparison |
|---|---|---|
| Net premiums written | $9.20 billion | $8.66 billion; up 6.2% (8.1% constant currency) |
| Net premiums earned | $8.75 billion | $8.22 billion; up 6.4% |
| Net investment income | $822 million | $863 million; down 4.8% |
| Net realized gains | $101 million | $887 million |
| Total revenues | $9.67 billion | $9.97 billion; down 3.0% |
| Income before tax | $2.33 billion | $2.64 billion |
| Net income / diluted EPS | $1.97 billion / $4.59 | $2.30 billion / $5.07 |
| Operating cash flow | $2.44 billion | $2.11 billion |
| P&C combined ratio | 84.3% | 91.8% |
The P&C combined ratio below 100% indicates underwriting profit. Its improvement reflected lower catastrophe losses, favorable prior-year reserve development, underlying loss-ratio improvement, and premium growth. Current-accident-year combined ratio excluding catastrophes was 83.5%, versus 85.2%.
At March 31, total assets were $197.99 billion, shareholders’ equity $56.70 billion, and total investments $118.25 billion. Gross unpaid losses and loss expenses were $73.84 billion; reinsurance recoverables on losses and loss expenses were $17.76 billion. Cash and restricted cash totaled $1.91 billion. Financial debt was $16.06 billion, and debt-to-total-capitalization was 22.0% (21.2% at year-end 2021).
Material changes versus the prior period
- Net income fell 14.2%, principally because prior-year realized investment gains were much larger. Management also cited lower year-over-year after-tax gains on equity securities and a smaller gain on variable-annuity reinsurance.
- Catastrophe losses declined to $333 million from $700 million; favorable prior-period development increased to $240 million from $192 million.
- Net premiums written grew across most commercial and consumer lines. Agriculture premiums written fell 65.9%, mainly because of a $161 million return of premium to the U.S. government under the crop-insurance profit-sharing agreement; excluding that return, the filing reports underlying growth.
- Rising interest rates drove $4.79 billion of unrealized depreciation on fixed maturities and an after-tax $3.8 billion reduction in shareholders’ equity from investment unrealized losses. Equity declined $3.0 billion during the quarter.
- Operating cash flow increased $335 million. Cash used in financing rose to $1.30 billion, including $1.00 billion of share repurchases and $341 million of dividends paid.
Outlook, management commentary, risks and contingencies
The filing gives no specific earnings or premium guidance. Management said operating cash flows should generally cover near-term cash needs under most loss scenarios. It attributed premium growth to new business, positive rate increases and strong renewal retention; it also noted that earned rates exceeded loss-cost trends. Results for an interim period are not necessarily indicative of full-year results.
- Investments and markets: Management estimated that a 100-basis-point increase in interest rates would reduce the fixed-income portfolio’s value by approximately $4.3 billion. A decline in investment income reflected lower reinvestment rates. Market movements also affect the fair value and earnings of variable-annuity guarantee reinsurance.
- Insurance and catastrophe exposure: Reserve estimates, claim severity and timing, natural and man-made catastrophes, climate-related uncertainty, inflation and reinsurance collection remain material risks. Chubb’s modeled 1-in-100-year worldwide aggregate catastrophe PML was $4.51 billion, net of reinsurance, assuming recoverables are collectible; the filing cautions that modeled outcomes are uncertain.
- Liquidity and capital: Chubb reported $3.7 billion of credit-facility capacity, including a $1.9 billion revolving sublimit, and $1.3 billion of letter-of-credit usage. It met facility covenants. Access depends partly on banks’ ability to fund commitments and on capital-market conditions.
- Commitments and transactions: Chubb expected to complete its approximately $5.72 billion cash acquisition of Cigna’s Asia-Pacific life and A&H businesses in 2022, subject to approvals and closing conditions. Additional Huatai ownership purchases remained conditional; Chubb held approximately 47.3% at quarter-end. Alternative investments had up to $7.21 billion of future funding commitments.
- Other matters: The filing reports impairment of assets related to Chubb’s Russian entities within realized investment losses, but the supplied text does not provide a clear separate amount. Management considered ordinary-course litigation unlikely to be material to consolidated financial condition or results. No material change in risk factors or critical accounting estimates was reported. A long-duration contract accounting standard is scheduled for adoption in Q1 2023; the effect was still being assessed.
Important facts for investors to verify
- How much of the underwriting improvement persists when catastrophe losses and favorable reserve development normalize.
- Whether premium-rate increases continue to exceed loss-cost inflation and support underwriting margins.
- The effect of further interest-rate or credit-market moves on investment income, unrealized losses, equity and capital ratios.
- Reserve adequacy, reinsurance recoverability, catastrophe exposures and the assumptions behind modeled PML estimates.
- Funding, regulatory approvals and closing conditions for the Cigna and Huatai transactions, and the scale and timing of alternative-investment commitments.
- Ongoing capital returns: the quarter’s $1.00 billion buyback, the remaining authorization through June 30, 2022, and their effect on liquidity and capitalization.