Chubb Limited — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Chubb is a global insurance and reinsurance group operating across six segments. Amounts are in U.S. dollars.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Net premiums written | $7.977 billion | $7.313 billion; up 9.1% |
| Net premiums earned | $7.794 billion | $7.137 billion; up 9.2% |
| Total revenues | $7.697 billion | $7.876 billion; down 2.3% |
| Net investment income | $861 million | $836 million |
| Net realized losses | $958 million pretax; $940 million after tax | $97 million pretax; $92 million after tax |
| Net income / diluted EPS | $252 million / $0.55 | $1.040 billion / $2.25 |
| Comprehensive income (loss) | $(2.460) billion | $2.718 billion |
| P&C combined ratio | 89.1% | 89.2% |
| P&C current accident-year combined ratio, excluding catastrophes | 87.5% | 88.5% |
| Operating cash flow | $1.712 billion | $1.322 billion |
| Total assets / shareholders’ equity | $173.1 billion / $52.2 billion | At December 31, 2019: $176.9 billion / $55.3 billion |
| Financial debt | $14.810 billion; debt-to-capitalization ratio 22.0% | Debt $14.858 billion; ratio 21.1% |
Business performance and changes
- Premium growth was broad-based, with consolidated net premiums written up 9.5% on a constant-currency basis. Commercial P&C grew 10.2%; Overseas General grew 9.7% on a constant-currency basis.
- Reported earnings fell sharply primarily because of pandemic-related financial-market volatility: the quarter included a $560 million net realized loss on variable-annuity reinsurance, $150 million of pretax expected credit-loss provisions, and $121 million of pretax impairment on securities Chubb intended to sell.
- Catastrophe losses were $237 million pretax, including $13 million attributed to COVID-19. Favorable prior-period development was $118 million, down from $204 million a year earlier.
- Segment results were mixed: North America Personal P&C income rose to $265 million from $159 million; North America Agricultural income declined to $16 million from $76 million, partly reflecting lower favorable crop-year reserve development; Overseas General income decreased to $278 million from $292 million.
- Investment-portfolio market value declined $3.9 billion during the quarter. Shareholders’ equity was affected by $2.2 billion of investment-portfolio losses, $896 million of unfavorable foreign exchange and the variable-annuity reinsurance loss.
Liquidity, capital and other material items
- Cash and restricted cash totaled $1.658 billion at March 31. Investing cash use was $1.010 billion, including a $1.550 billion collateralized deposit related to planned additional Huatai Group ownership. Financing cash use was $645 million, principally dividends and share repurchases.
- Chubb reported $1.408 billion of repurchase agreements, separately from financial debt. Its $1.0 billion Group Credit Facility had $289 million of letter-of-credit usage at quarter-end. Chubb said it increased letter-of-credit/revolver capacity outside that facility during March; April usage rose to $2.0 billion, including $1.3 billion related to variable-annuity reinsurance collateral.
- Quarterly dividends were $0.75 per share. Chubb repurchased $326 million of shares during Q1, but announced on April 22 that it had suspended repurchases to preserve capital.
- Chubb adopted the expected-credit-loss accounting standard (CECL) on January 1, 2020, reducing opening retained earnings by $63 million after tax.
- Chubb paid the $1.550 billion deposit toward agreements to acquire an additional 22.4% of Huatai Group. Purchases remain subject to Chinese regulatory approval and other conditions; completion was expected by the end of 2021. Chubb reported a 30.9% ownership interest at quarter-end.
Outlook, risks and contingencies
- Management said COVID-19 had not significantly affected Q1 premiums or losses but expected a meaningful effect on revenue and net income in Q2 and potentially later quarters, from pandemic claims and recessionary conditions. It expected claims in several P&C lines and continued investment-market volatility.
- Restrictions on face-to-face sales were expected to pressure written premiums in international Life and North American Combined Insurance until restrictions were lifted. Chubb said remote-work measures had maintained operations and controls, while noting reliance on IT and communications infrastructure.
- Management described the variable-annuity fair-value loss as fundamentally transient, while acknowledging that market movements and policyholder behavior can materially affect reported results and may require additional collateral.
- Risks include uncertain COVID-19 claims and coverage disputes, possible regulatory or judicial actions affecting policy terms, recession and investment-credit deterioration, reinsurance collectability, reserve-estimation uncertainty, catastrophe exposure and foreign-exchange movements. Management said ordinary-course business litigation was not likely to be material; no significant asbestos and environmental reserve activity was reported.
- No full-year earnings or premium guidance was provided in the filing. Management stated that interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- How COVID-19 claims, policy exclusions, litigation and any regulatory action affect loss reserves, premiums and subsequent-quarter results.
- Whether investment impairments and credit-loss allowances increase, and how portfolio values and credit quality respond to market conditions.
- Changes in variable-annuity guarantee liabilities, hedge effectiveness, collateral needs and the associated letter-of-credit capacity.
- Loss-reserve development, catastrophe losses and the sustainability of underwriting performance apart from catastrophe and prior-period effects.
- Huatai regulatory approvals, transaction conditions and the status of the $1.550 billion deposit.
- Capital, liquidity and dividend decisions following the suspension of share repurchases.