Chubb Limited — Q2 2022 Form 10-Q
Business context and reporting period. Chubb is a global insurer and reinsurer operating through six segments. This unaudited filing covers the quarter and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods unless stated otherwise. Amounts are U.S. dollars.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net premiums written | $10.302B | $9.546B | $19.501B | $18.208B |
| Net premiums earned | $9.557B | $8.813B | $18.303B | $17.034B |
| Net investment income | $888M | $884M | $1.710B | $1.747B |
| Net realized gains (losses) | $(504)M | $(33)M | $(403)M | $854M |
| Net income | $1.215B | $2.265B | $3.189B | $4.565B |
| Diluted EPS | $2.86 | $5.06 | $7.46 | $10.13 |
| P&C combined ratio | 84.0% | 85.5% | 84.2% | 88.6% |
- Quarterly net income fell 46% despite premium growth and improved underwriting. Chubb attributed the decline principally to after-tax mark-to-market losses on public and private equities and higher fixed-income portfolio losses versus the prior-year quarter.
- Q2 premiums written increased 7.9% (10.0% in constant dollars); premiums earned rose 8.4%. Growth was led by commercial lines. Management cited new business, renewal retention, rate increases and exposure growth.
- The Q2 P&C current accident-year combined ratio excluding catastrophe losses improved to 83.5% from 85.4%. Management cited earned rate increases exceeding loss-cost trends and expense-ratio benefit from premium growth.
- Q2 catastrophe losses were $291M pre-tax, versus $280M; six-month catastrophe losses were $624M, versus $980M. Favorable prior-period development was $247M in Q2 and $487M for the half-year, including $155M of adverse development for molestation claims.
Cash flow, balance sheet and capital
- Six-month operating cash flow was $5.160B, versus $5.227B. Investing activities provided $1.125B, compared with $2.025B used in the prior-year period; financing activities used $719M, versus $3.022B used.
- At June 30, total assets were $195.651B, total shareholders’ equity $51.667B, cash $7.122B, and total investments $109.849B. Equity declined from $59.714B at year-end 2021, principally reflecting investment-related unrealized losses and foreign-currency translation, as well as shareholder returns.
- Investment-related other comprehensive loss was $8.996B pre-tax for the first half, principally from rising interest rates. A 100-basis-point rate increase was estimated to reduce fixed-income portfolio value by approximately $4.1B. The filing reports a $485M valuation allowance that reduced the tax benefit on certain unrealized investment losses.
- Financial debt was $15.785B, including $1.474B short-term and $14.311B long-term debt; repurchase agreements of $3.411B are reported separately. Financial debt to total capitalization was 23.3%, compared with 21.2% at year-end. The increase in leverage ratios primarily reflected lower shareholders’ equity.
- Management said operating cash flows should cover outflows under most loss scenarios in the near term. Credit facilities had $3.7B of letter-of-credit capacity, including a $2.0B revolving sublimit; $1.3B was used for letters of credit, and the company met its financial covenants.
Outlook, material events and risks
- On July 1, 2022, after quarter-end, Chubb completed its $5.36B cash acquisition of Cigna’s life and non-life insurance operations in six Asia-Pacific markets. The company expected a full quarter of acquired earnings in Q3 2022. It projected approximately $100M of pre-tax annual run-rate expense synergies and total pre-tax integration costs of $170M over the next three years.
- Chubb entered into additional repurchase agreements during Q2 to help finance the acquisition; $3.4B was outstanding at June 30, with maturities over the following six months. Cash at June 30 included funds used for the acquisition payment the next day.
- The 2022 annual dividend approved by shareholders was up to $3.32 per share, subject to Board determination. Chubb repurchased $2.130B of shares in the first half; $2.5B of authorization remained at June 30.
- Key exposures include catastrophe losses, climate-related uncertainty in catastrophe modeling, inflation and changing loss costs, reserve-estimation uncertainty, investment-market and interest-rate volatility, foreign exchange, and reinsurance collectability. Management reported no material change in risk factors from the 2021 Form 10-K and no material change in critical accounting estimates.
- Management described ordinary-course insurance and business litigation as not likely to be material, while noting that ultimate outcomes remain uncertain. The filing also identifies adverse development in molestation claims and increased costs in certain reinsurance property lines.
- No specific full-year earnings guidance is provided in the filing. Management’s stated forward-looking outlook includes the Cigna synergies and integration costs above; interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether underwriting improvement and premium growth continue, particularly after accounting for catastrophe losses and favorable reserve development.
- How investment losses, interest-rate changes and further market volatility affect reported earnings, accumulated other comprehensive income and capital.
- Actual Cigna acquisition earnings, realized synergies, integration spending and the cost and repayment timing of acquisition-related funding.
- Developments in molestation and other claims reserves, catastrophe exposure, and the collectability of reinsurance recoverables.
- Debt and liquidity trends, including repurchase-agreement maturities, credit-facility access and share repurchases relative to capital needs.