Chubb Limited — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Comparisons are with the corresponding 2022 periods; prior-year figures are presented as adjusted for adoption of long-duration contract accounting guidance (LDTI). Amounts are in U.S. dollars.
Business context
Chubb is a global insurance and reinsurance group operating through six segments across property and casualty (P&C), agriculture, reinsurance, and life insurance. On July 1, 2023, Chubb increased its ownership of China’s Huatai Group to approximately 69.6% and began consolidating 100% of its results and assets, with the remaining ownership reflected as noncontrolling interests.
Financial results and key metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net premiums written | $13.104bn | $12.012bn | $35.765bn | $31.494bn |
| Net premiums earned | $12.674bn | $11.530bn | $33.815bn | $29.816bn |
| Net investment income | $1.314bn | $979m | $3.566bn | $2.689bn |
| Net income attributable to Chubb | $2.043bn | $792m | $5.728bn | $3.935bn |
| Diluted EPS | $4.95 | $1.89 | $13.79 | $9.26 |
| P&C combined ratio | 88.4% | 93.1% | 86.8% | 87.5% |
- Premiums written grew 9.1% in Q3 and 13.6% year to date; constant-dollar growth was 8.4% and 14.0%, respectively. Huatai consolidation contributed to reported growth.
- Q3 income growth reflected stronger underwriting, record quarterly investment income, lower catastrophe losses, and improved investment-market results versus the prior-year quarter. The quarter also included a one-time after-tax gain of approximately $744 million from remeasuring Chubb’s previously held Huatai interest, partly offset by a related $17 million after-tax loss; the net one-time gain was approximately $727 million.
- Q3 catastrophe losses were $670 million, versus $1.158 billion a year earlier; nine-month losses were $1.528 billion versus $1.782 billion. Favorable prior-period development was $200 million in Q3 and $596 million year to date, compared with $222 million and $709 million, respectively, in 2022.
- The Q3 P&C current-accident-year combined ratio excluding catastrophe losses was 84.3%, versus 84.0%. The nine-month measure was 83.7% in both years. Thus, the lower reported combined ratios mainly reflected lower catastrophe losses, not an improvement in the Q3 underlying ratio.
- Operating cash flow was $9.446 billion for the first nine months, versus $8.600 billion. Investing activities used $5.434 billion and financing activities used $3.325 billion. Management separately reported record Q3 operating cash flow of $4.7 billion, versus $3.4 billion.
- At September 30, total assets were $222.748 billion, Chubb shareholders’ equity was $52.373 billion, and cash and restricted cash totaled $2.778 billion. AOCI was a loss of $11.518 billion, including significant unrealized investment depreciation.
- Financial debt was $14.436 billion, comprising $700 million short-term and $13.736 billion long-term debt; debt-to-total-capitalization was 21.5%, down from 22.6% at year-end 2022. Repurchase agreements of $2.617 billion were reported separately.
Material changes and notable items
- Huatai’s consolidation added substantial assets and liabilities, including $3.394 billion of goodwill and $1.655 billion of other intangible assets. Its reported Q3 revenue was $389 million and net loss was $11 million. Chubb had agreements to acquire further Huatai interests, subject to closing conditions and, for part of the interests, regulatory approval.
- Chubb transferred its entire held-to-maturity portfolio to available-for-sale securities in June after determining it no longer intended to hold the securities to maturity. The transfer created a $428 million after-tax increase in unrealized depreciation in OCI and did not affect cash flows.
- Interest-rate-driven unrealized losses remained material: at September 30, available-for-sale fixed maturities had gross unrealized depreciation of $9.741 billion. Chubb estimated that a 100-basis-point rise in interest rates would reduce fixed-income portfolio value by approximately $5 billion.
- Q3 market-risk-benefit results included a $92 million increase in fair value loss following updated variable-annuity policyholder behavior assumptions, principally annuitization assumptions.
- Chubb repurchased $1.758 billion of shares in the first nine months and paid $1.044 billion in dividends. A new $5 billion repurchase authorization became effective July 1, 2023, with no expiration date; $4.398 billion remained at quarter-end.
Outlook, liquidity, risks, and contingencies
- The filing provides no specific earnings or premium-growth guidance. Management said operating cash flows should cover cash needs under most near-term loss scenarios, but cautioned that interim results are not necessarily indicative of full-year results.
- Chubb had $4.0 billion of credit and letter-of-credit facilities, including $3.0 billion available for revolving credit; usage was $1.0 billion in letters of credit. The company reported compliance with all financial covenants. Its $2.617 billion of repurchase agreements had maturities over the following eight months.
- Key exposures include catastrophe losses, inflation and changing claims costs, reserve-estimation uncertainty, investment-market and interest-rate movements, foreign exchange, reinsurer collectability, and regulatory or legal developments. Modeled 1-in-100 annual aggregate net PML was $5.082 billion worldwide, $3.238 billion for U.S. hurricane, and $1.424 billion for California earthquake; these estimates assume reinsurance is fully collectible and are not forecasts.
- Chubb increased environmental reserves for Brandywine-managed operations by $50 million during the first nine months. Management said other business litigation and regulatory matters were not likely to be material to consolidated financial condition or results, while acknowledging ultimate liabilities could be material.
- A proposed Bermuda corporate income tax of up to 15% for tax years beginning in 2025 was under consultation; enactment and applicability remained uncertain. Chubb also noted potential U.S. tax exposure for non-U.S. entities if authorities successfully assert they conduct business in the United States.
- Management reported disclosure controls were effective. Huatai was not yet included in the company’s evaluation of internal controls over financial reporting, and Chubb was working to incorporate it.
Important facts for investors to verify
- Separate underlying earnings from the approximately $727 million after-tax Huatai remeasurement gain and other investment-market effects.
- Track P&C loss trends, particularly the Q3 current-accident-year ratio excluding catastrophe losses, and the level and sources of favorable reserve development.
- Assess Huatai’s contribution to growth, profitability, goodwill and intangible assets, noncontrolling interests, and the cost and approvals for planned additional ownership purchases.
- Monitor investment portfolio valuation, interest-rate sensitivity, credit quality, and the effect of AOCI losses on reported equity.
- Review catastrophe exposure, reserve development, reinsurance recoverables, liquidity and refinancing needs, and developments in Bermuda tax policy.