Business context and reporting period
Chubb Limited is a Switzerland-incorporated global insurance and reinsurance holding company operating in 54 countries and territories. Its six segments cover North American commercial, personal and agricultural property and casualty (P&C), Overseas General Insurance, Global Reinsurance and Life Insurance. This is the Form 10-K for the fiscal year ended December 31, 2021; comparisons below are primarily with fiscal 2020.
Financial performance and position
| Metric | 2021 | 2020 | Change or context |
|---|---|---|---|
| Net premiums written | $37.9bn | $33.8bn | Up 12.0% (10.5% in constant dollars) |
| Net premiums earned | $36.4bn | $33.1bn | Up 9.8% |
| Total revenues | $41.0bn | $36.0bn | Up 13.8% |
| Net investment income | $3.5bn | $3.4bn | Up 2.4%; a record |
| Income before tax | $9.8bn | $4.2bn | Up 135.9% |
| Net income / diluted EPS | $8.5bn / $19.27 | $3.5bn / $7.79 | Net income up 141.7%; record year |
| P&C combined ratio | 89.1% | 96.1% | Lower ratio indicates improved underwriting profitability |
| Operating cash flow | $11.1bn | $9.8bn | Record; higher premiums collected |
| Total assets / shareholders’ equity | $200.1bn / $59.7bn | $190.8bn / $59.4bn | Equity increased $273m |
| Debt and trust preferred securities | $16.5bn | $15.3bn | Includes $1.0bn short-term debt; financial debt-to-capitalization was 21.2%, versus 20.0% |
The 2021 P&C combined ratio benefited from a lower catastrophe burden and favorable prior-year reserve development. The current accident-year combined ratio excluding catastrophes was 84.8%, compared with 86.7% in 2020. Catastrophe losses were $2.4bn before tax, down from $3.3bn. Favorable prior-period development was $926m before tax, including $430m favorable COVID-related development; this was partly offset by $443m of adverse molestation-claim development.
Investment performance included $1.152bn of net realized gains, while rising interest rates contributed to $2.9bn of pre-tax unrealized losses on fixed maturities and a $2.519bn after-tax loss in other comprehensive income. Other income included $2.433bn of equity-method income from partially owned entities, including private-equity investments. The filing reports $1.659bn of cash and $152m of restricted cash at year-end. Available credit facilities totaled $3.7bn, with $1.4bn used for letters of credit. Chubb returned $6.3bn to shareholders in 2021: $4.9bn in share repurchases and $1.4bn in dividends.
Material changes versus 2020
- Commercial growth drove the increase in premiums: total commercial lines grew 17.7%, while consumer lines grew 1.5%. Net premiums written increased in most commercial lines; personal automobile premiums declined.
- Reported underwriting results improved substantially, with the consolidated P&C combined ratio falling to 89.1% from 96.1%. Lower catastrophe losses, improved underlying loss ratios and stronger favorable reserve development contributed.
- Global Reinsurance weakened: its combined ratio rose to 108.7% from 92.5%, primarily reflecting higher catastrophe losses; segment underwriting moved to a $69m loss from $52m of income.
- Net income rose sharply, but included significant investment-related and equity-method income. Net unrealized investment losses reduced the benefit to comprehensive income and largely offset the year’s net-income contribution to equity.
- Chubb issued $1.6bn of long-dated senior notes in November 2021. Share repurchases increased to $4.9bn from $516m in 2020.
Outlook, risks and unusual items
Management said 2022 was off to a “very good start” and expected continued growth and margin improvement, particularly in global commercial P&C, with rates expected to exceed loss-cost trends for some time. It anticipated consumer-line growth as the pandemic eased, while noting uncertainty. Management also expected investment income to rise as interest rates and spreads increased. These statements are forward-looking, not guaranteed results.
Material risks include catastrophe and climate exposure, COVID-19 effects, uncertain long-tail loss reserves and social inflation, reinsurance availability and collectability, investment-market and interest-rate volatility, cyber and operational disruption, regulatory and tax changes, and competition. At year-end, gross unpaid losses and loss expenses were $72.9bn and net reserves were $56.8bn; management considered reserves adequate but cautioned that actual outcomes may differ materially. The auditor identified reserve valuation and Level 3 investment valuation as critical audit matters.
A December 2021 agreement-in-principle relating to Boy Scouts of America bankruptcy claims contemplated $800m of payments by Chubb entities, subject to conditions and court approvals. The liability was included in reserves; the filing states gross of reinsurance recoverable and previously carried reserves, collectively, of $425m. Chubb also disclosed $1.8bn of intercompany reinsurance recoverables from run-off company Century Indemnity and a $55m remaining statutory limit under the related XOL agreement. Pending transactions include the approximately $5.75bn acquisition of Cigna’s life and A&H business in Asia-Pacific and approximately $2.2bn of agreed purchases of additional Huatai Group interests, both subject to conditions and approvals.
Management reported effective disclosure controls and internal control over financial reporting. The independent auditor issued an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- How much of 2021’s record earnings is repeatable underwriting and investment income, versus favorable prior-year reserve development and private-equity-related income?
- Whether reserve adequacy remains supportable, especially for long-tail casualty, molestation and asbestos/environmental claims; review the BSA settlement conditions and Century recoverability exposure.
- Whether catastrophe losses, including climate-sensitive exposures, and Global Reinsurance underwriting performance remain within management’s risk and pricing assumptions.
- The completion, final price and financing implications of the Cigna and Huatai transactions, and any resulting changes in ownership accounting or capital needs.
- How interest-rate and credit-market movements affect investment values, investment income, liquidity and capital; the filing estimates a 100-basis-point rate increase would reduce fixed-income portfolio fair value by about $4.4bn.
- How much capital is distributable from regulated subsidiaries and available at the holding company, given debt service, acquisition commitments, collateral needs and the share-repurchase program.