Chubb Limited — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Chubb is a global insurance and reinsurance group with six operating segments. All amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Net premiums written | $8,355 | $8,343 | $16,332 | $15,656 |
| Net premiums earned | $8,128 | $7,891 | $15,922 | $15,028 |
| Total revenues | $8,985 | $8,527 | $16,682 | $16,403 |
| Net investment income | $827 | $859 | $1,688 | $1,695 |
| Net realized gains (losses) | $30 | $(223) | $(928) | $(320) |
| Net income (loss) | $(331) | $1,150 | $(79) | $2,190 |
| Diluted earnings (loss) per share | $(0.73) | $2.50 | $(0.17) | $4.75 |
Premium growth was 0.1% in Q2 and 4.3% year to date; on a constant-dollar basis, written premiums grew 1.9% and 5.5%, respectively. Q2 net income included $1.157 billion after tax of COVID-19 losses. Six-month realized losses were $928 million, including variable-annuity reinsurance and foreign-exchange losses, partially offset by investment gains.
- Underwriting: The P&C combined ratio was 112.3% in Q2 versus 90.1% a year earlier, and 101.0% for the first half versus 89.6%. Catastrophe losses contributed 23.9 percentage points to the quarterly ratio; the current-accident-year combined ratio excluding catastrophes was 87.4%.
- Loss development: Q2 prior-period development was unfavorable by $75 million, versus favorable development of $188 million in Q2 2019. First-half development was favorable by $43 million, versus $392 million favorable in 2019. The 2020 figures include $259 million of adverse development for U.S. child molestation claims, predominantly related to reviver statutes.
- Cash flow: Operating cash flow was $3.697 billion for the first half, up from $2.708 billion. Investing activities used $2.694 billion, including a $1.55 billion deposit for Huatai share purchases; financing activities used $898 million. Cash and restricted cash ended the period at $1.709 billion.
Financial position and liquidity
- Total assets were $181.474 billion at June 30, 2020, compared with $176.943 billion at December 31, 2019. Shareholders’ equity was $54.760 billion, down from $55.331 billion.
- Total investments were $110.877 billion; unpaid losses and loss expenses were $65.699 billion, up from $62.690 billion at year-end.
- Financial debt was $14.956 billion, comprising $1.300 billion short-term and $13.656 billion long-term debt. Debt was 21.4% of total capitalization, versus 21.1% at year-end. Repurchase agreements of $1.409 billion are reported separately; trust preferred securities were $308 million.
- Management said operating cash flows should cover cash needs under most near-term loss scenarios. Credit facilities provide $4.0 billion of letter-of-credit capacity, including a $1.9 billion revolving sublimit; $2.0 billion was in use as letters of credit at quarter-end. Chubb reported meeting its financial covenants.
Material changes, outlook, and risks
- Chubb recorded a $1.365 billion pretax COVID-19 catastrophe charge in Q2, spanning property interruption, travel and accident-and-health, liability, workers’ compensation, political-risk, and trade-credit claims. Total Q2 catastrophe losses were $1.787 billion before reinstatement premiums, including $312 million of natural catastrophe losses and $130 million of civil-unrest losses.
- COVID-19-related exposure adjustments and returned premiums reduced written premiums by $191 million in Q2. Management cited reduced exposures, travel activity, and business restrictions; lower investment yields also pressured investment income.
- Management described the COVID-19 reserve as its best estimate of losses incurred through June 30, 2020, but cautioned that actual claims, legislative or regulatory actions, and economic developments could change the estimate. The filing gives no formal earnings guidance and warns that pandemic effects may continue to affect premiums and investment income.
- On July 13, 2020, Chubb completed the purchase of a 15.3% additional interest in Huatai Group. A separate 7.1% purchase remains contingent on conditions expected to be completed by the end of 2021; completion is expected to give Chubb majority ownership and control.
- Share repurchases were suspended on April 22 to preserve capital; no open-market repurchases occurred in Q2. The May 2020 annual meeting approved dividends of up to $3.12 per share for the following year, subject to Board discretion.
- Key exposures include pandemic and catastrophe losses, uncertain reserve development, reinsurer collectability, investment credit and market movements, foreign exchange, and variable-annuity guarantee sensitivities. Management noted that modeled catastrophe losses are uncertain and assume reinsurance recoverables are collectible. It reported no material change in the risk factors from prior filings.
Important facts for investors to verify
- How COVID-19 claims develop against the $1.365 billion Q2 estimate, including the effects of coverage disputes, legislation, and economic conditions.
- Whether elevated catastrophe losses and adverse child-molestation claim development lead to further reserve strengthening.
- The drivers and potential reversals of the $928 million first-half realized loss, including foreign exchange and variable-annuity guarantee exposures.
- Progress, approvals, funding, and expected accounting effects of the Huatai acquisitions, particularly the contingent 7.1% purchase.
- Liquidity and capital needs under further stress, including restricted assets, credit-facility availability, reinsurance recoverability, and the decision on resuming share repurchases.