Chubb Limited — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; this is an annual report, not a standalone fourth-quarter filing. Chubb is a global insurer and reinsurer operating in 54 countries and territories across property and casualty, accident and health, reinsurance, and life insurance.
Financial results and position
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Total revenue | $32.243 billion | $31.469 billion | +2.5% |
| Net premiums written | $29.244 billion | $28.145 billion | +3.9% |
| Net premiums earned | $29.034 billion | $28.749 billion | +1.0% |
| Net investment income | $3.125 billion | $2.865 billion | +9.1% |
| Net income | $3.861 billion | $4.135 billion | -6.6% |
| Diluted earnings per share | $8.19 | $8.87 | -7.7% |
| Operating cash flow | $4.503 billion | $5.292 billion | Lower |
- Underwriting and margins: P&C combined ratio was 94.7%, versus 88.3% in 2016. Catastrophe losses added 10.2 percentage points; the current-accident-year combined ratio excluding catastrophe losses was 87.6%, versus 89.0%. Favorable prior-period development was $829 million, down from $1.135 billion.
- Balance sheet and debt: Total assets were $167.0 billion and shareholders’ equity $51.2 billion. Book value per share was $110.32, up from $103.60. Financial debt was $12.569 billion; financial debt to total capitalization was 19.6%, compared with 21.3%.
- Investments and liquidity: Investments totaled $102.4 billion, primarily fixed-income securities; cash was $728 million. Operating cash flow declined mainly because of higher claims paid after catastrophe events. Management said operating cash flows should cover most near-term loss scenarios and cited liquid investments, credit facilities, and reinsurance as additional liquidity sources. Year-end repurchase agreements were $1.408 billion.
Material changes and unusual items
- 2017 catastrophe losses were $2.746 billion before tax and $2.171 billion after tax, including Hurricanes Harvey, Irma, and Maria, California wildfires, and other events. In 2016, catastrophe losses were $1.060 billion after tax.
- Net income included a provisional $450 million tax benefit from the 2017 U.S. Tax Cuts and Jobs Act; the company stated its tax assessment was incomplete. The reported effective tax rate was negative 3.7%.
- Chubb recorded $310 million of acquisition-integration expenses, down from $492 million. It reported $766 million of integration savings realized through 2017 and an $875 million annualized run rate by year-end.
- Segment results were uneven: North America Personal P&C had a 100.7% combined ratio and $29 million underwriting loss; Global Reinsurance had a 111.2% combined ratio and $78 million underwriting loss. North America Commercial P&C, Overseas General, and Agriculture remained profitable on underwriting.
- Chubb repurchased $830 million of shares in 2017 and paid $2.82 per share in dividends. The board authorized a further $1.0 billion repurchase program through December 31, 2018.
Comparability: Chubb acquired The Chubb Corporation on January 14, 2016, so 2016 includes only post-acquisition results and omits the first 14 days of that year. Management also presents comparative-basis measures to adjust for this and purchase-accounting effects; headline year-over-year changes are therefore not fully like-for-like.
Outlook, commentary, and risks
- Management was optimistic about 2018, citing stronger economies, improving pricing in some markets, and the reduced impact of merger-related underwriting actions. It expected commercial P&C growth, improving U.S. middle-market and small-commercial growth, and continued growth in global A&H and personal lines.
- Quarterly investment income was expected to be $865–$875 million, excluding amortization of the acquired-investment fair-value adjustment, with improvement expected during the year. Management also expected benefits from the lower U.S. corporate tax rate.
- Management said 2018 integration savings would be weighted more toward claims expense, while growth investment in marketing, technology, digitization, and partnerships would partly offset savings. Expected purchased-intangible amortization was $338 million in 2018.
- Key risks include catastrophe frequency and severity, uncertain loss reserves and claims inflation, reinsurance availability and collectability, investment and interest-rate exposure, and volatility in legacy variable-annuity guarantees. Net reinsurance recoverables were $15.2 billion; the filing notes Chubb remains liable to policyholders if reinsurers fail to pay.
- Other notable exposures include asbestos and environmental run-off liabilities, Brexit-related regulatory uncertainty, and new privacy and cybersecurity requirements. Gross A&E liabilities were about 3.5% of loss reserves; management reported adverse 2017 development in asbestos, environmental, and other run-off liabilities.
Important facts for investors to verify
- Whether catastrophe losses, especially 2017 U.S. hurricane and wildfire claims, develop beyond current estimates and how much reinsurance is ultimately collected.
- Whether reserve adequacy and favorable prior-period development persist, particularly for long-tail casualty and A&E liabilities.
- Whether underlying underwriting trends improve: the consolidated ratio excluding catastrophe losses was favorable, but Personal P&C and Global Reinsurance reported underwriting losses.
- How much of 2017 earnings depended on the provisional $450 million tax benefit, and whether subsequent tax guidance changes that estimate.
- Whether management delivers its 2018 growth, pricing, investment-income, and integration-savings expectations without materially weakening underwriting discipline or liquidity.