Chubb Limited — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. Chubb is a global insurance and reinsurance group operating across six segments. Results include 100% of Huatai Group from its July 2023 consolidation; Chubb owned approximately 85.5% of Huatai at quarter-end, with the remaining earnings attributable to noncontrolling interests.
Financial performance
| Metric | Q1 2024 | Prior comparable period / change |
|---|---|---|
| Net premiums written | $12.221 billion | $10.710 billion; +14.1% (14.2% in constant dollars) |
| Net premiums earned | $11.583 billion | $10.142 billion; +14.2% |
| Total revenues | $12.894 billion | $11.057 billion; +16.6% |
| Net investment income | $1.391 billion | $1.107 billion; +25.7% |
| Net income | $2.294 billion | $1.892 billion; +21.3% |
| Net income attributable to Chubb | $2.143 billion | $1.892 billion; +13.3% |
| Diluted earnings per share | $5.23 | $4.53 |
| Operating cash flow | $3.220 billion | $2.251 billion |
| Investing cash flow | $(3.746) billion | $(570) million |
| Financing cash flow | $562 million | $(1.424) billion |
The P&C combined ratio was 86.0%, versus 86.3% in Q1 2023; below 100% indicates underwriting profitability. The current accident-year combined ratio excluding catastrophe losses was 83.7%, compared with 83.4%. Net catastrophe losses were $435 million, versus $458 million, and favorable prior-period development was $207 million, versus $196 million. The favorable development included $104 million of adverse development in long-tail lines, principally commercial excess and umbrella.
Financial position and liquidity
- Total assets were $234.867 billion at March 31, 2024, versus $230.682 billion at year-end 2023. Chubb shareholders’ equity was $60.535 billion, up from $59.507 billion; total shareholders’ equity, including noncontrolling interests, was $64.431 billion.
- Cash and restricted cash totaled $2.651 billion. Total investments were approximately $140.4 billion. Chubb reported $19.109 billion of reinsurance recoverables on losses and loss expenses, net of valuation allowance.
- Financial debt was $15.513 billion, comprising $2.265 billion of short-term and $13.248 billion of long-term debt; the financial-debt-to-total-capitalization ratio was 20.3%, versus 19.5% at year-end. Repurchase agreements of $3.022 billion are reported separately and are collateralized.
- Chubb issued $1.0 billion of 5.0% senior notes due 2034 in March. Management said operating cash flows should cover outflows under most loss scenarios in the near term. Credit facilities provide $4.0 billion of letter-of-credit capacity, including $3.0 billion available for revolving credit; $958 million was in use for letters of credit, and Chubb met its facility covenants.
- Operating cash flow rose year over year, while investing outflows increased primarily because of higher purchases of fixed maturities and equity securities. Quarter-end cash increased by $30 million.
Material changes and management commentary
- Premium growth was broad, but comparisons are affected by Huatai consolidation. Chubb reported that Huatai contributed $559 million, or 5.0 percentage points, to consolidated net-premium-written growth. Growth was strong in personal lines and commercial casualty; financial lines declined amid competition and lower retention. Agricultural premiums fell 15.0%, partly due to a crop-year premium return and lower commodity prices.
- Higher investment income reflected strong operating cash flow, higher reinvestment rates on fixed maturities, and Huatai consolidation. Chubb reported a pre-tax net investment income increase of 25.7%.
- Management attributed the lower P&C combined ratio mainly to lower catastrophe losses and increased favorable prior-period development. It also cited higher current-year loss trends in certain casualty lines and the effect of a large North American structured transaction.
- Chubb’s net income included a $55 million deferred tax benefit associated with Bermuda tax law and a $30 million contribution to the Chubb Charitable Foundation ($24 million after tax). The effective tax rate was 13.0%, compared with 16.9%.
- Chubb shareholders’ equity increased about $1.0 billion during the quarter. Net income and other movements were partly offset by $666 million returned to shareholders—$350 million of dividends and $316 million of share repurchases—and $648 million of net unrealized investment losses, principally reflecting fixed-income mark-to-market changes.
- Management expects pre-tax interest expense of approximately $561 million for the remainder of 2024, or $744 million for the full year, and expects a further $16 million benefit from amortization of the fair-value adjustment on acquired debt during the remainder of the year. The filing does not provide broader earnings or premium guidance.
Risks, contingencies, and unusual items
- Interest-rate and market movements are material: the fixed-income portfolio’s pre-tax unrealized losses were $677 million for the quarter. Chubb estimated that a 100-basis-point rate increase would reduce the portfolio’s value by approximately $5.9 billion at March 31, 2024. Management also noted that fair values and actual transaction prices can diverge, especially for less liquid securities.
- Loss-reserve estimates, catastrophe claims, inflation, changing loss trends, and the timing and severity of claims remain important uncertainties. Modeled catastrophe estimates are inherently uncertain and assume reinsurance recoverables are fully collectible; climate change may affect catastrophe exposure. Chubb reported no significant asbestos and environmental reserve activity in the quarter.
- Reinsurance collectability is a risk: the allowance for uncollectible reinsurance was $375 million at quarter-end. The company also has $5.9 billion of maximum future funding commitments to private-equity investments and $1.0 billion of commitments to purchase fixed-income securities.
- Ordinary-course insurance coverage litigation, business litigation, and regulatory matters are disclosed. Management believes non-claims business litigation and regulatory matters are not likely to be material to consolidated financial condition or results, though outcomes are uncertain.
- Chubb renewed its property catastrophe reinsurance program effective April 1, 2024. It reported increased North American retention of $500 million and increased limits of $1.7 billion. Management cautioned that modeled probable-maximum-loss estimates are not forecasts of annual losses and may differ materially from actual results.
- Management said disclosure controls were effective, but Huatai—about 5% of consolidated revenue and 7% of assets—was excluded from the current evaluation of internal controls over financial reporting while Chubb works to incorporate it. The filing reported no material changes to the previously disclosed risk factors.
Most important facts for investors to verify
- How much of premium and earnings growth reflects underlying business performance versus Huatai consolidation, foreign exchange, and the large structured transaction.
- Whether favorable prior-period reserve development and catastrophe losses remain consistent with longer-term underwriting trends, particularly in casualty lines.
- Investment portfolio sensitivity to interest rates, credit losses, and unrealized valuation changes, including the effect on equity and capital.
- Huatai integration, the remaining agreed purchase of approximately 0.6% of Huatai subject to closing conditions, and progress incorporating Huatai into internal-control evaluations.
- Actual catastrophe experience and reinsurance recoverability relative to the modeled exposures, renewed program structure, and stated assumptions.
- Execution of the expected 2024 interest expense, liquidity and capital plans, and the remaining share-repurchase authorization.