Chubb Limited — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited consolidated results are prepared under U.S. GAAP. Amounts below are U.S. dollars.
Business context and financial performance
Chubb 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.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net premiums written | $10.510B (+15.8%) | $9.078B | $28.718B (+13.0%) | $25.410B |
| Net premiums earned | $10.000B (+14.1%) | $8.765B | $27.034B (+9.5%) | $24.687B |
| Total revenues | $10.845B (+14.6%) | $9.464B | $30.480B (+16.6%) | $26.146B |
| Net investment income | $866M (+3.1%) | $840M | $2.613B (+3.4%) | $2.528B |
| Net income | $1.833B (+53.5%) | $1.194B | $6.398B | $1.115B |
| Diluted EPS | $4.18 | $2.63 | $14.33 | $2.46 |
| P&C combined ratio | 93.4% | 95.2% | 90.4% | 98.9% |
The reported P&C combined ratio improved year over year. For Q3, the current accident-year combined ratio excluding catastrophe losses was 84.8%, versus 85.7%; for the first nine months it was 85.1%, versus 86.8%. Favorable prior-period reserve development and lower catastrophe losses helped the year-to-date comparison; underlying loss-ratio improvement also contributed. A combined ratio below 100% indicates underwriting income.
Cash flow, balance sheet and capital
- Operating cash flow: $8.549B for the first nine months, versus $7.241B in 2020, reflecting higher premium collections, partly offset by higher taxes paid. Investing activities used $3.751B; financing activities used $4.805B, mainly reflecting share repurchases and dividends. Cash and restricted cash ended at $1.796B.
- September 30, 2021 balance sheet: Total assets were $199.054B; total shareholders’ equity was $59.318B. Investments were $122.129B, cash was $1.620B, and restricted cash was $176M.
- Debt and capitalization: Long-term debt was $14.823B and trust preferred securities were $308M. Financial debt was 19.9% of total capitalization; debt plus trust preferred securities was 20.3%. Repurchase agreements of $1.406B were separately reported and collateralized.
- Liquidity access: Chubb reported $3.7B of credit facilities, including a $1.9B revolving-credit sublimit; $1.4B was used for letters of credit. The company said it met all facility covenants and expected operating cash flows to cover near-term outflows under most loss scenarios.
- Shareholder returns: Chubb repurchased $3.956B of shares and paid $1.056B of dividends in the first nine months. The approved annual dividend was up to $3.20 per share, and $3.551B of repurchase authorization remained at September 30.
Material changes versus the prior period
- Premium growth was broad-based, with commercial P&C written premiums up 22.0% in Q3 and consumer lines up 3.1%. Agricultural premiums rose sharply, partly due to higher commodity prices, pricing factors, acreage and policy-count growth. Personal auto remained weaker, partly due to return premiums and reduced exposure.
- Q3 catastrophe losses were $1.146B, including $806M from Hurricane Ida; Q3 2020 catastrophe losses were $925M. Nine-month catastrophe losses fell to $2.126B from $2.969B, as the prior-year period included substantial COVID-19 claims.
- Favorable prior-period development was $321M in Q3 and $781M year to date, compared with $146M favorable and $189M favorable, respectively, in 2020. Development included adverse legacy environmental and molestation-related amounts.
- Nine-month net income benefited from a swing in net realized investment results to an $833M gain from a $1.069B loss in 2020. Other income was also substantially higher, principally reflecting income and mark-to-market results from partially owned entities and private equity investments. These items make the net-income comparison less representative of underwriting trends alone.
- Unrealized investment losses reduced other comprehensive income: nine-month OCI was a loss of $1.891B, primarily associated with investment valuation movements. Shareholders’ equity was nearly flat versus year-end 2020, at $59.318B compared with $59.441B.
Outlook, commentary and risks
- The filing provides no specific earnings or premium-growth guidance. Management cited positive rate increases, new business, increased exposure and strong renewal retention as growth drivers, while noting lower reinvestment yields and pandemic-related disruption in some businesses.
- On October 7, 2021, after quarter-end, Chubb agreed to acquire Cigna’s life and A&H businesses in seven Asia-Pacific markets and its interest in a Turkish joint venture for $5.75B cash. Completion was expected in 2022, subject to regulatory approvals and customary closing conditions.
- Chubb held an approximately 47.1% interest in Huatai Group and had signed an agreement of intent to buy an additional 6.4%; completion remained subject to important conditions and regulatory considerations.
- Key exposures include natural and man-made catastrophes, COVID-19 claims, reserve-estimation uncertainty, reinsurance collectability, investment-market and interest-rate movements, foreign exchange, litigation and regulation, and policyholder behavior in variable-annuity guarantee reinsurance. Management cautioned that catastrophe models are uncertain and assume reinsurance recoverables are fully collectible.
- Management reported no material change to critical accounting estimates or to the risk factors in the 2020 Form 10-K. It concluded disclosure controls were effective and reported no materially affecting change in internal control over financial reporting during the quarter. Routine litigation was considered unlikely to be material, although outcomes remain uncertain.
Important facts for investors to verify
- Whether premium growth and underlying underwriting performance persist after separating rate, exposure, mix, catastrophe losses and reserve development.
- The sustainability of earnings excluding volatile private-equity marks, realized investment gains and losses, and other non-underwriting items.
- Further development of catastrophe and legacy reserves, including Hurricane Ida, environmental exposures, molestation claims and commercial auto or excess-liability portfolios.
- Investment-portfolio sensitivity to interest rates: Chubb estimated a 100-basis-point rate increase would reduce fixed-income portfolio valuation by approximately $4.4B.
- Funding, regulatory approvals and integration risks for the proposed $5.75B Cigna acquisition, and the conditions around any additional Huatai investment.
- Availability and collectability of reinsurance, liquidity under credit facilities, and the scale of remaining share repurchases and dividend distributions.