Chubb Limited — Q3 2022 Form 10-Q
Reporting period: Quarter ended September 30, 2022; comparisons are with Q3 2021 unless noted. Chubb is a global insurance and reinsurance group with six reporting segments. Figures are in U.S. dollars unless stated otherwise.
Financial performance and condition
| Metric | Q3 2022 | Nine months 2022 | Comparison |
|---|---|---|---|
| Net premiums written | $12.02 billion | $31.52 billion | Up 14.4% and 9.8%, respectively; constant-dollar growth was 17.3% and 12.1%. |
| Net premiums earned | $11.54 billion | $29.84 billion | Up 15.3% and 10.4%. |
| Net investment income | $979 million | $2.69 billion | Up 13.1% and 2.9%. |
| Net realized gains (losses) | $(384) million | $(787) million | Compared with $(21) million and $833 million. |
| Net income | $812 million | $4.00 billion | Down 55.7% and 37.5%; diluted EPS was $1.94 and $9.41. |
| Operating cash flow | $3.4 billion | $8.59 billion | Quarterly figure compares with $3.3 billion; YTD figure compares with $8.55 billion. |
| P&C combined ratio | 93.1% | 87.5% | Compared with 93.4% and 90.4%. Below 100% indicates underwriting profit. |
Net income was supported by underwriting growth and investment income, but reduced by volatile investment results. Q3 included after-tax private-equity mark-to-market losses of $231 million, versus gains of $705 million a year earlier. For the first nine months, net realized losses were $787 million versus gains of $833 million, while unrealized investment losses were recorded principally in other comprehensive income.
Q3 catastrophe losses were $1.16 billion pre-tax, including $975 million from Hurricane Ian; nine-month catastrophe losses were $1.78 billion. Favorable prior-period reserve development was $222 million for Q3 and $709 million year to date. Q3 P&C current-accident-year combined ratio excluding catastrophes was 84.0%, versus 84.8% a year earlier.
At September 30, total assets were $198.1 billion, shareholders’ equity $47.6 billion, and AOCI was a loss of $12.18 billion. Equity fell from $59.7 billion at year-end 2021, principally reflecting investment valuation declines and foreign-currency translation. Financial debt was $15.52 billion; debt-to-total-capitalization was 24.5%, up from 21.2% at year-end. Cash and restricted cash totaled $2.26 billion. The company reported $3.7 billion of credit-facility letter-of-credit capacity, including a $2.0 billion revolving-credit sublimit; $1.4 billion was used for letters of credit, and covenants were met.
Material changes versus the prior comparable period
- Premium growth reflected broad-based rate, exposure, new-business and retention gains, as well as the acquisition of Cigna’s Asian accident, health and life business, completed July 1, 2022. The acquired business contributed $681 million of revenue and $21 million of net income after closing; its contribution to Q3 written-premium growth was 7.1 percentage points.
- Q3 net income declined despite higher premiums and investment income, largely because private-equity results reversed from gains to losses and realized investment losses increased.
- Investment portfolio fair value fell substantially amid rising interest rates. Available-for-sale fixed maturities had $9.55 billion of gross unrealized depreciation at September 30, versus $591 million at December 31, 2021. Management attributed the decline principally to higher rates.
- Q3 P&C combined ratio improved slightly, while nine-month ratio improved more meaningfully. Global Reinsurance had a Q3 combined ratio of 148.4%, primarily reflecting catastrophe losses; its nine-month ratio was 108.2%.
- Chubb paid $5.36 billion cash for the Cigna business, financed through available cash and repurchase agreements. At September 30, $1.0 billion of the acquisition-related repurchase agreements remained outstanding; total repurchase agreements were $2.4 billion.
Outlook, commentary and risks
- The filing provides no specific quantitative earnings or revenue guidance. Management stated that operating cash flows should cover near-term cash outflows under most loss scenarios; results for an interim period are not necessarily indicative of full-year results.
- Management cited positive rate increases, new business and strong renewal retention as premium-growth drivers. Higher reinvestment rates on fixed maturities contributed to increased investment income.
- The Cigna transaction’s purchase-price allocation remains preliminary. Chubb expects approximately $100 million of pre-tax VOBA amortization in Q4 2022; future amortization estimates will be affected by adoption of long-duration contract accounting in 2023.
- The Boy Scouts of America settlement agreement received bankruptcy-court approval in Q3, subject to further district-court approval. Chubb paid $200 million and expected to pay the remaining $600 million liability within the next 12 months.
- Key exposures include natural catastrophes, reserve uncertainty, inflation and claim severity, interest-rate and equity-market movements, foreign exchange, reinsurance collectability, legal and regulatory developments, and execution of acquisitions. Management’s modeled 1-in-100 annual aggregate net PML was $4.52 billion worldwide and $2.87 billion for U.S. hurricanes; the filing cautions that modeled losses are uncertain and assume full reinsurance recoverability.
- In October 2022, after quarter-end, Chubb entered a new $3.0 billion syndicated credit facility through 2027, replacing facilities with $2.7 billion of capacity. Management reported no material changes to the risk factors in the 2021 Form 10-K.
Most important facts for investors to verify
- Whether underwriting margins and premium growth remain resilient as catastrophe losses, inflation and claim severity evolve.
- How much investment valuation pressure is temporary versus credit-related, and the effect of rates and markets on earnings, AOCI and capital.
- The final Cigna purchase-price allocation, integration costs, acquired-business performance and ongoing VOBA amortization.
- Developments in the BSA settlement, environmental and other legacy claims, and reserve development by line.
- Repurchase-agreement refinancing and liquidity needs, future shareholder returns, and the impact of capital requirements on subsidiary dividends.