Chubb Limited — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods. Chubb is a global insurance and reinsurance group reporting six business segments. Figures are in U.S. dollars unless stated otherwise.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net premiums written | $9.546B | $8.355B | $18.208B | $16.332B |
| Net premiums earned | $8.813B | $8.128B | $17.034B | $15.922B |
| Total revenues | $9.664B | $8.985B | $19.635B | $16.682B |
| Net investment income | $884M | $827M | $1.747B | $1.688B |
| Net realized gains (losses) | $(33)M | $30M | $854M | $(928)M |
| Net income (loss) | $2.265B | $(331)M | $4.565B | $(79)M |
| Diluted EPS | $5.06 | $(0.73) | $10.13 | $(0.17) |
| Operating cash flow | Not presented by quarter | $5.227B | $3.697B |
Premiums written rose 14.3% in Q2 and 11.5% for the first half (11.5% and 9.3%, respectively, on a constant-dollar basis). Management attributed growth primarily to new business, rate increases, and retention; Q2 P&C premiums written increased 15.5%. Net income also benefited from lower catastrophe losses, favorable reserve development, and income from partially owned companies. The first-half earnings comparison is affected by the prior-year catastrophe losses and investment losses.
Underwriting and material comparisons
- P&C combined ratio: 85.5% in Q2 versus 112.3% a year earlier; 88.6% for the first half versus 101.0%. Ratios below 100% indicate underwriting income.
- Underlying loss ratio: Current accident-year combined ratio excluding catastrophes was 85.4% in Q2 versus 87.4%, and 85.3% for the first half versus 87.5%.
- Catastrophe losses: $280M in Q2 versus $1.807B; $980M for the first half versus $2.044B. The 2020 comparison included substantial COVID-19 claims.
- Prior-period development: Favorable by $268M in Q2 and $460M in the first half, compared with adverse development of $75M in Q2 2020 and favorable development of $43M in first-half 2020. 2021 development included $68M of adverse development for molestation claims. Favorable development was concentrated in several P&C lines and regions.
- Segment results were mixed: Overseas General and North America Commercial P&C reported strong improvement, while Global Reinsurance’s combined ratio rose to 86.6% in Q2 from 76.6% and to 91.3% for the first half from 76.3%, reflecting higher loss ratios and, year to date, more catastrophe losses.
Financial position, cash flow, and capital
- At June 30, 2021, total assets were $197.174B, total liabilities $137.112B, and shareholders’ equity $60.062B, compared with $190.774B, $131.333B, and $59.441B at year-end 2020.
- Investments were $121.370B. Cash was $1.843B, plus $155M of restricted cash; cash and restricted cash totaled $1.998B.
- Long-term debt was $14.954B, trust preferred securities $308M, and repurchase agreements $1.405B. Financial debt was 19.9% of total capitalization; debt plus trust preferred securities was 20.3%.
- First-half operating cash flow was $5.227B. Investing activities used $2.025B, mainly reflecting net purchases of investments; financing activities used $3.022B, including $2.440B of share repurchases and $703M of dividends paid. Cash and restricted cash increased $162M.
- Credit facilities provided $3.7B of letter-of-credit capacity, including a $1.9B revolving-credit sublimit; $1.4B was used for letters of credit at quarter-end. Chubb reported compliance with facility covenants.
- Chubb repurchased $2.440B of shares in the first half. The Board approved an additional share repurchase authorization of up to $5B on July 19, 2021. Shareholders approved an annual dividend of up to $3.20 per share for the following year.
Outlook, risks, and unusual items
- The filing provides no quantitative full-year earnings or premium guidance. Management said operating cash flows should cover near-term cash needs under most loss scenarios and cited premium growth, rate increases, retention, and underwriting results in its commentary.
- First-half other income was $1.267B, principally reflecting equity in income and mark-to-market gains from partially owned entities. The filing also reports a $1.174B first-half mark-to-market gain on private equities. These items can be volatile and are not equivalent to recurring underwriting income.
- First-half fixed-maturity unrealized losses contributed to a $1.047B reduction in other comprehensive income. Management estimated that a 100-basis-point increase in interest rates would reduce the fixed-income portfolio’s valuation by approximately $4.5B.
- Alternative investments had a $8.253B fair value and $7.961B of maximum future funding commitments, versus $6.770B and $3.200B, respectively, at year-end. Some funds are illiquid and cannot be redeemed or transferred without restrictions.
- Chubb held an approximately 47.1% interest in Huatai Group. An agreement to acquire an additional 7.1% interest remains contingent on important conditions and regulatory approval; completion would be expected to give Chubb control.
- Key exposures include catastrophe and climate-related losses, COVID-19 claims and related legal or regulatory changes, reserve-estimation uncertainty, reinsurance collectibility, market and interest-rate movements, and policyholder behavior affecting variable-annuity guarantees. Catastrophe models are uncertain and assume reinsurance recoverables are collectible. Management stated that ordinary-course litigation and regulatory matters are not likely to be material to consolidated financial condition or results.
Important facts for investors to verify
- Whether premium growth and the improvement in the accident-year loss ratio excluding catastrophe losses persist, rather than relying on favorable catastrophe comparisons or prior-period reserve releases.
- How much reported earnings depend on volatile private-equity and other partially owned investment gains, and whether those gains convert to cash.
- Reserve adequacy, including commercial auto, cyber, molestation, and other long-tail claims, and the collectibility of reinsurance recoverables.
- The liquidity, funding demands, and valuation risk of alternative investments, as well as interest-rate sensitivity across the investment portfolio.
- Conditions, approvals, and timing for the proposed additional Huatai investment, and the pace and effect of the expanded share repurchase authorization.