Business context and reporting period
Chubb Limited 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. This unaudited Form 10-Q covers the three months ended March 31, 2023; comparisons are with Q1 2022, with prior-period figures adjusted for adoption of long-duration targeted improvements (LDTI) accounting.
Reported growth reflects the July 2022 acquisition of Cigna’s accident, supplemental health, and life businesses in Asia, as well as underlying premium growth. Chubb completed transactions increasing its Huatai Group ownership from 47.3% to approximately 64.2% in January 2023.
Financial results and key metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net premiums written | $10.710 billion | $9.189 billion | +16.6%; +18.3% in constant dollars |
| Net premiums earned | $10.142 billion | $8.737 billion | +16.1% |
| Net investment income | $1.107 billion | $822 million | +34.7% |
| Total revenues | $11.057 billion | $9.631 billion | +14.8% |
| Income before tax | $2.276 billion | $2.306 billion | -1.4% |
| Net income | $1.892 billion | $1.953 billion | -3.2% |
| Diluted EPS | $4.53 | $4.55 | -0.4% |
| Operating cash flow | $2.251 billion | $2.444 billion | Lower by $193 million |
Net realized losses were $77 million versus gains of $23 million a year earlier. Market risk benefits (MRB) produced a $115 million loss, versus a $49 million gain, primarily reflecting lower interest rates and higher volatility, partly offset by stronger equity markets. Management said net investment income reached a record, mainly due to higher fixed-maturity reinvestment rates.
The P&C combined ratio was 86.3%, compared with 84.3%. Catastrophe losses were $458 million, or 5.1 percentage points of the ratio, versus $333 million, or 4.0 points. Favorable prior-period development was $196 million, down from $240 million. The current accident-year combined ratio excluding catastrophes was 83.4%, broadly stable against 83.5%.
- Segments: Overseas General income rose 48.2% to $625 million, with an 84.0% combined ratio; North America Commercial P&C income rose 12.8% to $1.423 billion, although underwriting income declined. Life Insurance income rose 102.0% to $244 million, principally reflecting Cigna Asia. North America Personal P&C income fell 38.8% to $160 million as its combined ratio increased to 93.9%. Global Reinsurance income declined 16.8% to $111 million, largely alongside lower investment income.
- Balance sheet and capital: At March 31, total assets were $201.4 billion, shareholders’ equity was $53.0 billion, and investments were $115.6 billion. Long-term debt was $14.4 billion; short-term debt was zero after repayment of $475 million of notes. Repurchase agreements were $1.42 billion and trust preferred securities were $308 million. Financial debt to total capitalization was 21.2%, down from 22.6% at year-end.
- Liquidity and shareholder returns: Cash and restricted cash totaled $2.382 billion at quarter-end. Chubb had $4.0 billion of credit and letter-of-credit facilities, including $3.0 billion available for revolving credit; $1.4 billion was used for letters of credit. The company reported meeting its financial covenants. It returned $772 million to shareholders through $428 million of repurchases and $344 million of dividends.
- Investment portfolio: Fixed-income holdings had an average duration of 4.7 years and average credit quality of A/A. Management estimated a 100-basis-point rate increase would reduce fixed-income portfolio valuation by approximately $4.7 billion. Available-for-sale fixed maturities had $6.575 billion of gross unrealized depreciation at quarter-end, principally attributed to interest-rate increases since purchase.
Material changes versus the prior comparable period
- Premium growth was broad-based, with P&C net premiums written up 9.3% (11.0% in constant dollars). Cigna Asia contributed 8.3 percentage points to consolidated written-premium growth; therefore reported growth is not solely organic.
- Net income declined despite higher revenue, reflecting higher catastrophe losses, less favorable prior-period development, MRB losses rather than gains, and higher expenses. Higher investment income provided a substantial offset.
- Life Insurance grew significantly following the Cigna acquisition. Cigna’s business in Asia contributed $758 million to consolidated written premiums in the quarter; acquisition-related VOBA amortization was $78 million pre-tax.
- Shareholders’ equity increased $2.5 billion during the quarter, primarily from net income and $1.6 billion of after-tax net unrealized investment gains, partly offset by capital returned to shareholders.
- LDTI was adopted effective January 1, 2023. Prior-year figures in the filing are adjusted; management described the impact on 2022 results as immaterial.
Outlook, management commentary, risks, contingencies, and unusual items
- No specific earnings or premium-growth guidance is provided. Management expects operating cash flows to cover cash outflows under most near-term loss scenarios. It expects pre-tax interest expense of approximately $495 million for the remainder of 2023, or about $165 million per quarter, and said higher pension expense in certain North American P&C segments is expected to continue through 2023.
- The global property catastrophe reinsurance program renewed effective April 1, 2023, through March 31, 2024, with no material coverage changes. Management’s catastrophe probable-maximum-loss estimates are model-dependent and assume full collection of reinsurance recoverables; the filing cautions that actual losses may differ materially.
- Key risks include catastrophe severity and climate-related uncertainty; reserve-estimation and claims-settlement uncertainty; reinsurance collectability and availability; investment-market, interest-rate, credit, and foreign-exchange movements; inflation and recession; regulatory and litigation developments; and integration and execution risks related to acquisitions.
- MRB fair values are sensitive to interest rates, equity markets, volatility, credit spreads, and policyholder behavior. Chubb reported a $830 million MRB liability at quarter-end and disclosed that its economic hedge only partially offsets some market sensitivities.
- Chubb paid $200 million toward its Boy Scouts of America agreement in Q1 2023 and the remaining $300 million in April, bringing payments under the $800 million agreement to completion. Management reported no significant asbestos and environmental reserve activity in the quarter. Normal-course litigation and regulatory matters were not considered likely to be material to consolidated financial condition or results.
- Further Huatai purchases remain subject to closing conditions, including regulatory approval for part of the interests. Chubb had paid $567 million in deposits for approximately 22% of additional interests and estimated approximately $0.8 billion remained payable upon closing, based on then-current exchange rates.
- Management reported effective disclosure controls. Cigna Asia, representing approximately 7% of consolidated revenue and 3% of total assets, was still being incorporated into the company’s internal-control evaluation.
Important facts for investors to verify
- How much of premium and Life Insurance growth is attributable to Cigna Asia versus ongoing business growth, and how integration costs and acquired-book amortization evolve.
- Whether underwriting performance holds up as catastrophe losses, prior-period reserve releases, pricing, and loss-cost trends change; particularly monitor the 93.9% North America Personal P&C combined ratio.
- The sensitivity of investment values, net income, and equity to interest rates and credit conditions, alongside the portfolio’s unrealized losses and alternative-investment liquidity commitments.
- Reserve development, reinsurance recoverables and collectability, and the assumptions underlying catastrophe and MRB models.
- Completion terms, regulatory approvals, funding, and expected returns for remaining Huatai purchases; also confirm the status of Cigna Asia’s integration into internal controls.
- Debt, repurchase-agreement maturities, available credit capacity, and capital returns relative to operating cash generation.