Chubb Q3 2022 Earnings Results & Report

Chubb EPS Results

• Actual EPS: $3.17
• Consensus EPS: $3.02
• Beat/Miss: Beat by +$0.15
• One Year Ago EPS: $2.64
• EPS Beat Rate: 8 of last 8 quarters

Chubb Revenue Results

• Actual Revenue: $10.75 billion
• Expected Revenue: $10.71 billion
• Beat/Miss: Beat by +$32.33 million
• YoY Revenue Growth: +8.50%

Chubb (NYSE:CB) is a global insurance company that provides property and casualty, accident and health, life, and reinsurance products and services. Its offerings include commercial and personal property and casualty insurance, liability coverage, workers’ compensation, specialty insurance, travel insurance, and coverage for high-net-worth individuals.

The company serves businesses, individuals, and institutional customers through a network spanning North America, Latin America, Europe, Asia-Pacific, and other international markets. Chubb distributes its products through brokers, agents, banks, and other distribution partners, as well as through direct and digital channels in selected markets.

Chubb’s history includes the 2016 acquisition of The Chubb Corporation by ACE Limited, after which ACE adopted the Chubb name and branding. The company is headquartered in Zurich, Switzerland, and is led by Evan G. Greenberg, who serves as chairman and chief executive officer.

Chubb Q3 2022 Earnings Call Transcript

Key Takeaways

• Strong Q3 results with a published combined ratio of 93.1% and core operating income of $1.3 billion, up 20% year-over-year.
• Hurricane Ian caused $1.2 billion of pretax catastrophe losses ($975 million net), prompting Chubb to warn that property catastrophe pricing remains inadequate.
• Record quarterly investment income of $1.1 billion (up 12%) driven by higher reinvestment rates averaging 5.8% against a 3.4% portfolio yield.
• P&C net written premiums grew 8.5% (11.2% in constant dollars) with double-digit growth in both commercial and consumer segments globally.
• The Cigna Asia acquisition closed in Q3, immediately accretive to Life segment revenue and earnings, and on track to deliver expected integration synergies.

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Chubb Third Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question at that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. It's now my pleasure to turn today's call over to Ms. Karen Beyer, Senior Vice President of Investor Relations. Please go ahead.

[Karen Beyer, SVP of Investor Relations at Chubb]

Thank you, everyone, and welcome to our September 30, 2022 third quarter earnings conference call. Our report today will contain forward-looking statements, including statements relating to company performance, pricing, and business mix, growth opportunities, and economic and market conditions, which are subject to risks and uncertainties, and actual results may differ materially. Please see our recent SEC filings, earnings release, and financial supplement, which are available on our website @investors.Chubb.com for more information on factors that could affect these matters. We will also refer today to non-GAAP financial measures, reconciliations of which to the most direct comparable GAAP measures and related details are provided in our earnings press release and financial supplement. Now I'd like to introduce our speakers this morning. First, we have Evan Greenberg, Chairman and Chief Executive Officer, followed by Peter Enns, our Chief Financial Officer.

[Karen Beyer, SVP of Investor Relations at Chubb]

Then we'll take your questions. Also with us to assist with your questions this morning are several members of our management team. Now it's my pleasure to turn the call over to Evan.

[Evan Greenberg, Chairman and CEO at Chubb]

Good morning. As you saw from the numbers, we had an excellent quarter in spite of cat losses with terrific underwriting results, including outstanding combined ratios, record net investment income, double-digit constant dollar P&C premium growth, well-balanced between commercial and consumer, and finally, surging life division revenue growth with the addition of Cigna's Asia business. Commercial P&C pricing was strong and exceeded loss costs in aggregate and in most individual lines of business. Core operating income in the quarter was $1.3 billion, or 3.17 per share, up 20% over prior. In the quarter, we produced $710 million of underwriting income, up 15%, with a published combined ratio of 93.1. Pre-tax catastrophe losses were $1.2 billion, of which $975 million was Ian.

[Evan Greenberg, Chairman and CEO at Chubb]

For the year, record underwriting income of $3.4 billion was up more than 40% or $1 billion, leading to an 87.5 combined ratio, an improvement of nearly three points over prior year. Underpinning the published combined ratio was the ex-cat current accident year combined ratio, which was 84% for the quarter, adding to a record 83.7 for the year. Simply stunning. Hurricane Ian was a large event distinguished by its size, wind speed, and amount of water, both surge and flood. The models we use contemplate a Cat 3 or greater event striking Florida about every 3 years. We are fully prepared to take cat risk and the associated volatility. After all, it's what we do for a living as long as we are adequately compensated and the concentration of exposure is within our balance sheet wherewithal.

[Evan Greenberg, Chairman and CEO at Chubb]

In my judgment, current pricing for Cat is inadequate in many portfolios, and property pricing should continue to adjust to the realities of the net cat environment as well as the increased cost for reinsurance protection and potential lack of availability. Returning to the quarter, investment income was a record $1.1 billion, up over 12% from prior year, topping $1 billion for the first time. As I noted on our recent calls, with rising interest rates and widening spreads, investment income is and will continue to rise. Our reinvestment rate is now averaging 5.8% against a portfolio yield of 3.4%. During the quarter, we continued to accelerate the turnover of our portfolio in a targeted way so that we could put cash to work more quickly at higher yields.

[Evan Greenberg, Chairman and CEO at Chubb]

Investment income will make up a growing percentage of our company's earnings as we look forward. Obviously, rising rates have produced a sizable negative mark on our invested assets. As a reminder, we are a buy and hold fixed income investor, and the market is transitory. To put a point on that, our portfolio credit quality is high, and we expect about half of the mark will accrete back to book value over about a two-year period. As you saw, the addition of Cigna's business in Asia, which we closed in the quarter, is making an immediate contribution to revenue and earnings in line with what we expected. It is accretive to our consolidated results, including operating income and ROE. Peter will provide more information around the financial items. Turning to growth and the rate environment.

[Evan Greenberg, Chairman and CEO at Chubb]

Total P&C net written premiums globally increased 8.5% in the quarter on a published basis or 11.2 in constant dollars, with commercial up 11.7% and consumer up over 9.5%. Consolidated net premiums for the company, which include our life insurance segment, increased 17.3% in constant dollars, reflecting the consolidation of the Cigna Asia business. P&C premium growth and earnings in the quarter were again balanced and broad-based, with contributions from virtually all our commercial businesses globally. Total North America premiums were up over 10.5%, with commercial up 11.4% or 8.1% excluding agriculture, and our high net worth personal lines business up over 7% in the quarter. Overseas General grew 11.7 in constant dollars, but only 2% after FX, with commercial up 11% and consumer up 12.7%.

[Evan Greenberg, Chairman and CEO at Chubb]

With the strongest U.S. dollar in 20 years, the negative impact of FX masks the real strength of our business. Agriculture premiums were up nearly 22% in the quarter, driven overwhelmingly by crop insurance growth. As a result of commodity price increases and market share gains, we produced near record underwriting income off the back of what we project to be a decent growing season. In terms of the commercial P&C rate environment, market conditions remain quite favorable for most lines of business. The vast majority of our portfolio is achieving favorable risk-adjusted returns, so additional rate is required primarily to keep pace with loss costs, which as I have been saying, are hardly benign in both long-tail and short-tail lines.

[Evan Greenberg, Chairman and CEO at Chubb]

The market is reasonably disciplined, but given loss cost inflation and what will be slowing growth and exposure in the future, given economic conditions, casualty rates in most classes will need to rise at an accelerated rate or else the industry will fail to keep pace. In North America, growth this quarter in commercial lines was led by our major accounts and specialty division, which grew 9.7%, followed by our middle market and small commercial business, which grew 5.7%. In our middle market division, P&C lines grew almost 9%, while financial lines declined about 5.5%, primarily due to a lack of IPOs, M&A activity and new business. Renewal retention for our retail commercial business was virtually 100% on a premium basis.

[Evan Greenberg, Chairman and CEO at Chubb]

Overall rates in North America commercial lines excluding comp were up 5%, while total pricing, which includes rate and exposure, increased 8.5%. We are staying on top of inflation in terms of pricing and reserving. In North America commercial lines, we assume loss cost trends of 6.5%, the same as the second quarter. In major accounts, which serves the largest companies in America, rates increased 5.3% with pricing up 8.6%. General casualty rates were up 8.7%. Property rates were up 9.7%%, and financial lines rates were up 4.3. In our ENS wholesale business, rates increased 9% with pricing up nearly 13%. Property rates were up about 11.5%. Casualty rates were up 8.5%, and financial lines rates were up almost 9%.

[Evan Greenberg, Chairman and CEO at Chubb]

In our middle market business, rates increased 4.2% excluding comp with pricing up about 6.5%. Rates for property were up over 6% and pricing was up double-digit. Casualty rates were up 6.5% with pricing up over 8%, and comp rates were down 3.8%. However, comp pricing was up 6.5%. Financial lines rates were up just over 1% with pricing up about 2%. Our North America high net worth personal lines business had a very good quarter with net premiums up over 7% driven by strong new business activity. Our true high net worth client segment grew 12.5%, while overall retention was very strong at over 98%.

[Evan Greenberg, Chairman and CEO at Chubb]

In our homeowners business, we achieved pricing of about 11%, while the homeowners loss cost trend is running about 10.5%. Turning to our international general insurance operations. In constant dollars, if you haven't noticed, 2022 is the best organic growth we have experienced in nearly a decade. In the quarter, retail commercial P&C premiums grew 12.3%, while London wholesale grew over 9.5%. Retail commercial growth was led by Latin America with premiums up 23.5%, followed by growth of nearly 15.5% in Asia Pacific and over 10% in our UK and Europe division. Internationally, like in the US, we continued to achieve improved rate to exposure across our commercial portfolio. In our international retail business, rates increased in the quarter 9%, while we estimate pricing was up about 12%.

[Evan Greenberg, Chairman and CEO at Chubb]

Rates varied by class and by region as well as country within region. Outside North America, we are currently trending loss costs at about 6.5%. Again, similar to the Q2, though that varies by class of business and country. Like in North America, these trend factors are contemplated in both our reserving and in our accident year loss picks. International consumer lines growth in the quarter picked up considerable momentum, with premiums up over 13%, though FX scrubbed about 11.5 points off the growth. Our international A&H division had an exceptionally strong quarter. Premiums grew over 22.5% in constant dollar, with Asia Pac up over 34%, the UK up over 26%, and Latin America up 17%.

[Evan Greenberg, Chairman and CEO at Chubb]

Our international personal lines business grew more modestly in the quarter, with premiums up 4.5% in constant dollar. Premiums in Chubb Life were up 17.5%, 117% in constant dollars and impacted heavily by the Cigna acquisition. Cigna's operation contributed about $740 million in net premiums written and $160 million in income to the life segment this quarter. We have hit the ground running in terms of integration and execution of our growth strategies in Asia. To sum it all up, all of our businesses across the globe contributed to growth and earnings in the quarter. We are firing on all cylinders. We are operating in a challenging economic environment, given inflation, the specter of recession, and financial market volatility, as well as the geopolitical environment and the evolving risks from climate change.

[Evan Greenberg, Chairman and CEO at Chubb]

Despite all of that, looking forward, we are quite bullish on the future, given our growth and exceptional underwriting margins in our commercial and consumer P&C businesses, the strong trajectory for investment income, and the contributions from the Cigna acquisition to our growing Asia Life business. We expect EPS to continue to grow at a healthy rate into the future. I'll turn the call over to Peter, and then we're going to come back and take your questions.

[Peter Enns, EVP and CFO at Chubb]

Thank you, Evan. Good morning. Our strong underlying business performance continued in the Q3, producing operating cash flow of $3.4 billion and contributing to a record $8.6 billion through nine months. We remain in a position of exceptional financial strength with over $63 billion in total capital and strong liquidity with cash and short-term investments of $6.7 billion at quarter end. This is after paying the $5.4 billion cash for the Cigna business on July 1st. Among the capital-related actions in the quarter, we returned $1 billion to shareholders, including $685 million in share repurchases at an average price of $186.22 and $346 million in dividends.

[Peter Enns, EVP and CFO at Chubb]

Tangible book value per share decreased 15.2% since June, reflecting changes in AOCI, which includes realized and unrealized losses of $3.6 billion after tax resulting from rising interest rates on our fixed income portfolio and foreign currency translation losses of $466 million. Additionally, the increased goodwill and intangibles of $1.5 billion related to the Cigna acquisition represented 370 basis points of the decrease. Excluding AOCI and Cigna, the tangible book value per share increased 0.4% since last quarter. We continue to expect to recover the Cigna dilution within six months, as we said when we announced the acquisition. Book value per share declined 7% for the quarter, reflecting those same AOCI factors.

[Peter Enns, EVP and CFO at Chubb]

As you saw, the addition of Cigna's A&H and life businesses in Asia are making an immediate contribution in line with what we expected. For the quarter, the acquisition contributed 7% accretion to operating EPS, 50 basis points to our annualized core operating ROE of 9.4%, and 110 basis points to our tangible ROE of 14.4%. Our integration efforts are progressing well, and we are on track with expected expense synergies and net integration costs as we previously announced. Almost all of Cigna's businesses are part of our life segment, and going forward, we will not report on a standalone basis. We remain consistent and conservative in our investment strategy, with 82% of our fixed income portfolio rated investment grade and do not contemplate any major change to our current asset allocation.

[Peter Enns, EVP and CFO at Chubb]

The Cigna portfolio of approximately $4.3 billion is also of high quality, with an average credit rating of A+ and 96% of the fixed income portfolio rated investment grade. As Evan noted, as rates continue to rise, our portfolio's reinvestment rate has increased from 2.3% in December to 5.8% on September 30th, while our current book yield is 3.4% versus 3.2% in the Q2. With market rates above our book yield, we have tactically taken advantage of opportunities to increase the portfolio's yield. We have been selectively utilizing gains from equity-related investments and interest rate hedges to fund turning over parts of the fixed income portfolio in this higher rate environment.

[Peter Enns, EVP and CFO at Chubb]

This, along with the normal turnover of our portfolio, the addition of Cigna's investments, as well as certain other items, contributed to adjusted net investment income of $1.05 billion in the quarter. Updating our quarterly guidance, we now expect adjusted net investment income to be in the range of $1.04-$1.06 billion. Relative to Hurricane Ian, approximately 77% of the pre-tax catastrophe losses were incurred in the commercial lines, 23% in personal lines. We had favorable prior period development in the quarter of $222 million pre-tax or $162 million after-tax. This is net of $73 million pre-tax adverse development from our legacy runoff exposures, principally environmental related.

[Peter Enns, EVP and CFO at Chubb]

The remaining favorable development of $295 million is split approximately 11% long-tail lines, principally from accident years 2018 and prior, and 89% in short tail lines. Our paid to incurred ratio for the quarter was 75% or 79% after adjusting for CATS and PPD. Our core operating effective tax rate for the quarter was 19.3%, which is above the high end of our previously announced annual range of 16.5-18.5. This is primarily due to the Cigna acquisition and catastrophe losses in lower tax paying jurisdictions in the quarter. We expect our annual core operating effective tax rate for the full year 2022 to be in the range of 17.5-18%. I'll now turn the call back over to Karen.

[Karen Beyer, SVP of Investor Relations at Chubb]

Thank you. At this point, we'll be happy to take your questions.

[Operator]

At this time, I would like to remind everyone, in order to ask a question, press star followed by the number one on your telephone keypad. In the interest of time, we request that you limit yourself to one question and one follow-up question. Your first question comes from the line of Michael Phillips with Morgan Stanley. Your line is open.

[Michael Phillips, Executive Director Equity Research at Morgan Stanley]

Thank you. Good morning, Evan. Good morning, everybody. Evan, wanted to drill down on your comments on the loss trends in North America, the 6.5%, your pricing and reserving above that. You talked about in the second quarter that what you're actually seeing in the market is somewhat below that. I still assume that's still the case, but I wonder if that's narrowed a bit in this quarter.

[Evan Greenberg, Chairman and CEO at Chubb]

It's similar.

[Michael Phillips, Executive Director Equity Research at Morgan Stanley]

Similar. Okay, great. Industry level kind of question. I'm just curious your thoughts here. With all that's going on in the property cat reinsurance market, does that extend to other areas? Does that extend to primary casualty? Will that help kind of lengthen the hard market and help out in primary markets there?

[Evan Greenberg, Chairman and CEO at Chubb]

No, I don't see it that way. It's not a capital question for the reinsurance industry. It's a risk question. Do you want to deploy your capital against it? In casualty to the reinsurance industry, it's a different question, and that is, they too, their ability to recognize that on the casualty side of the business, loss cost trends are hardly benign for all the reasons that we know, and that pricing and rate needs to keep pace with that so the industry stays on top of it. Reinsurers lag in their recognition of loss cost exposure, and that's at their own peril if they're not careful. They need to recognize the environment. I believe we're beginning to do that in terms of the terms and conditions they provide insurers.

[Evan Greenberg, Chairman and CEO at Chubb]

That's more the response I see from the reinsurance industry in terms of casualty, versus, property. They both have their own dynamics.

[Michael Phillips, Executive Director Equity Research at Morgan Stanley]

Yep. Okay. Great. Thank you, Evan, for your thoughts.

[Evan Greenberg, Chairman and CEO at Chubb]

You're welcome.

[Operator]

Your next question is from the line of David Motemaden with Evercore ISI. Your line is open.

[Evan Greenberg, Chairman and CEO at Chubb]

David Motemaden, nice to hear from you.

[David Motemaden, Senior Managing Director at Evercore ISI]

You know, I've heard a lot of pronunciations over the years, so never ceases to amaze me. Evan, thank you.

[Evan Greenberg, Chairman and CEO at Chubb]

I get the same about Evan once in a while, too, by the way. I get strange pronunciations.

[David Motemaden, Senior Managing Director at Evercore ISI]

Both tough ones, you know. Was hoping just to get an update on the growth prospects for Chubb in the property market. You mentioned you have the capacity to grow here as long as you're compensated, but you know, some pricing still needs to accelerate from here. I guess, how should we think about the runway you have to capitalize on this? You know, I think, you know, I think it's around 16% of your book right now if I look across the P&C business, if I just thought about property as a percentage of total. Is there a ceiling that you think about in terms of, you know, introducing too much nat cat risk into the earnings?

[David Motemaden, Senior Managing Director at Evercore ISI]

Yeah, I guess just wondering how you're thinking about, you know, how much, how big you want that to get.

[Evan Greenberg, Chairman and CEO at Chubb]

David, the 16% is a global number, and I think that's first of all the right way to think about it. We're a global company, so when we think about property and growing property, it's a global opportunity to us. In that respect, absolutely. It remains and is a growth area for us. What you then balance it against is we have a finite balance sheet, so we can only take so much concentration in any one geographic area, when you imagine that the PML or the loss that concentration will produce over certain return periods, against your capital. Then it's simply the question, are we paid adequately for the risk and for the volatility we take?

[Evan Greenberg, Chairman and CEO at Chubb]

The last item is reinsurance, and not just the cost of it, but availability because that's renting additional capital and our ability to do that. That is what impacts certain territories, and that's not new. That's standard in how you shape your portfolio and think about concentration of exposure. We're playing a global opportunity here.

[David Motemaden, Senior Managing Director at Evercore ISI]

Got it. That's helpful. Maybe if I could just follow up on the casualty rates. You know, you mentioned that you think that rates need to increase at an accelerated pace or else the industry will fail to keep pace with trend. I guess, you know, could you just talk about what you're seeing across the various lines? It looks like FinPro or professional lines, financial lines might be taking a step down. It looks like you guys are remaining disciplined just based on your premiums growth in financial lines. Maybe just talk a little bit about that and how you think, you know, the market's placed, and competitiveness in that line.

[Evan Greenberg, Chairman and CEO at Chubb]

I gave you kind of a breakdown in long-tail lines and I won't give a further breakdown that way. Two or three points. One, when it comes to Fin lines, experience has been quite good. Overall, when I look at our pricing, it produces favorable risk-adjusted returns. Market competitiveness has been in response to the absolute pricing levels and to experience, but there's plenty of risk out there. While it's become competitive and is reasonably rational, it can't continue this way into the future, or else, frankly, it becomes irrational and would be naive. We have remained disciplined, and we are disciplined. There are certain pockets where we deem pricing and it's on the margin to be irrational, and therefore we walk away.

[Evan Greenberg, Chairman and CEO at Chubb]

On the other hand, what is impacting growth, and I reiterate it, remember you're coming off of a very hot market last year. Interest rates were low. Equity markets were, you know, elevated. There was so much money around. There was a ton of M&A and IPO and that produced more exposure. We're in a different world today, and so that exposure has shrunk, and that does impact growth as well.

[David Motemaden, Senior Managing Director at Evercore ISI]

Got it. That makes sense. Thank you.

[Evan Greenberg, Chairman and CEO at Chubb]

You're welcome.

[Operator]

Your next question is from the line of Yaron Kinar with Jefferies. Your line is open.

[Yaron Kinar, Managing Director and Senior Equity Research Analyst at Jefferies]

Thank you. Good morning, everybody. Maybe following up on a couple of the previous questions. With the reinsurance market hardening, what is the opportunity set that you see for Chubb as a result of this hardening? And are you gonna lean further into reinsurance? Are you gonna take more net on the primary side? How are you thinking about the dynamics there?

[Evan Greenberg, Chairman and CEO at Chubb]

Well, I'm hardly gonna read my playbook to you, or broadcast it out there. In that regard, just stay tuned. Beyond that, property cat is not a growth area for Chubb. Property cat re is not a growth area. Not of any significance.

[Yaron Kinar, Managing Director and Senior Equity Research Analyst at Jefferies]

Okay. Maybe changing direction a little bit here. Was curious as to your stated thoughts on China and the opportunity set there, especially with Huatai, in the face of the political and economic changes there.

[Evan Greenberg, Chairman and CEO at Chubb]

Yeah. First of all, we expect to announce the Huatai approval from the China regulator of the Huatai transaction imminently. That will be shortly. Secondly, you know, look, I see China as a long-term, medium and long-term opportunity for Chubb, and you got to be patient. Of course, I'll say it right up front, the trajectory of China from a geopolitical perspective, Leninist, authoritarian political system, United States and Europe, so the Western world, democratic, individual rights-oriented, and the geopolitical aspirations of China versus the U.S. If we don't find a way to coexist, we're on a path towards conflict. That risk is out there and you know that. The party and with now the full consolidation of power under Xi, that's not a surprise.

[Evan Greenberg, Chairman and CEO at Chubb]

It's just the curtain was pulled back on it, and it was crisply displayed over the last week and a half. That's not a surprise. The consolidation of party control over the economy and industrial policy, and the notion of ideology and security over economic growth as a priority, in my judgment, will ultimately be against China's own interest. Xi has an ambitious agenda, and to fulfill that and address financial market and economic weakness, you got to have economic growth. The pie has to grow. My own view is over a reasonable period of time, I don't know, is it one year? Is it three years? They will be forced to moderate their approach to economic policy.

[Evan Greenberg, Chairman and CEO at Chubb]

Not their ideology, but their approach to economic policy, practically in their own interest because they need economic growth. When it comes to Huatai, in the short term, we face those economic headwinds there without a doubt. We had a sense of that. In time and over the medium and longer term, if we don't get in a shooting war, we're optimistic about the long-term bet we're making. It is the second-largest economy in the world, and the need for insurance will continue to grow. That we control, we're the first foreigner to control a financial services holding company in China, I think, is a long-term asset for the company, and we're stewards of long-term capability for this organization. I'm balancing the risk and the reward.

[Evan Greenberg, Chairman and CEO at Chubb]

In the short term, I don't expect it to be a major contributor to Chubb's growth and earnings. In the longer term, I do. Finally, on a micro level, I'd say this. Our ability to operate in China, Chubb as a foreigner, we have a good reputation, and I see that we won't face any more regulatory issues or discrimination, from all I can see than Chinese companies themselves will face. In that regard, I see us on a level playing field.

[Yaron Kinar, Managing Director and Senior Equity Research Analyst at Jefferies]

Thanks for that comprehensive answer and looking forward for things to come.

[Evan Greenberg, Chairman and CEO at Chubb]

You're welcome.

[Operator]

Your next question is from the line of Elyse Greenspan with Wells Fargo. Your line is open.

[Elyse Greenspan, Managing Director and Senior Equity Analyst at Wells Fargo]

Hi. Thanks. Good morning, Evan. My first question, you know, in your prepared remarks, you pointed to, you know, casualty rates needing to go up, you know, because you said that there could be slowing exposure. You also seem positive on pricing following the hurricane. I know you give us a lot of color on North America commercial pricing. Is the overall view that 5% rate, which I know excludes exposure, that's, you know, going to start to trend up in the Q4?

[Evan Greenberg, Chairman and CEO at Chubb]

Elyse, you're too pinned to quarter to quarter on data point. I'm giving a I pick my head up and try to give an overall landscape longer-term view without, you know, without pinning to this period or that period precisely. I think it misses the point. That's the best I can give you. The fact is inflation and loss cost trend is there. The fact is, you know, I don't know what quarter, but exposure growth, the industry lags. Exposure growth is likely to come down because economic growth is shrinking, and that's just gonna equal exposure growth shrinking. If you look out in the future, not necessarily the Q4, I'm not prognosticating quarter to quarter.

[Evan Greenberg, Chairman and CEO at Chubb]

The rate itself is going to have to rise if the industry is gonna stay on top of loss costs. I guarantee you one thing, Chubb is gonna stay on top of loss costs.

[Elyse Greenspan, Managing Director and Senior Equity Analyst at Wells Fargo]

That's helpful. You know, my second question, you guys completed the Cigna deal. Evan, it sounds like you're close to announcing approval for the Huatai acquisition, you know, increase in stake in Huatai. You know, can you just give us an update on, you know, the M&A pipeline, and you know how that's kind of, I guess, changed over the past year?

[Evan Greenberg, Chairman and CEO at Chubb]

Elyse, as you know, I don't talk about what we're looking at or not looking at. What I can tell you is right now Chubb is at rest. M&A is not something that's on my immediate radar. Building our balance sheet, having flexibility of capital, is on my radar. I believe we're in a period where weakness will show over time in the future given economic and financial market and conditions and as I look out into the future. We are quite patient people.

[Elyse Greenspan, Managing Director and Senior Equity Analyst at Wells Fargo]

Thanks, Evan.

[Evan Greenberg, Chairman and CEO at Chubb]

You're so welcome.

[Operator]

Your next question is from the line of Greg Peters with Raymond James. Your line is open.

[Greg Peters, Managing Director at Raymond James]

Good morning, Evan and Peter and several members of the management team. Evan, in your previous answer on China, maybe you can pivot to other areas of the globe, Europe and other areas. I guess what I'm trying to think about or understand how you're thinking about growth, especially when there's things, you know, this emerging energy availability crisis, supply chain issues, food security. You know, you've posted some substantial growth numbers this year. Just trying to think about how to frame it for next year with all these headwinds.

[Evan Greenberg, Chairman and CEO at Chubb]

Yeah, you know, it's not a clear picture, and every area of the world is behaving a bit differently. You see the idiosyncratic nature of the U.S. economy that relative to other places, it's got a lot of resilience to it. Employment continues to grow. The economy is intrinsically strong on a broad-based basis. Consumers, you know, thanks to the U.S. government, have a lot of money in their pocket. That part will be transient. With the Fed's actions, which I think are the right actions, and I believe the Fed is going to be patient, and stay high for longer. I think they know the lessons, and they're gonna make sure inflation is wrung out of this. The U.S. economy will slow down, no doubt. You already see it.

[Evan Greenberg, Chairman and CEO at Chubb]

Whether we go into recession or not is a question mark. My own belief is if we do, it'll be relatively mild. You go to Europe, and Europe is a different picture. They were not experiencing strong economic growth prior to Ukraine. They have the war in Ukraine and energy availability. What that is doing is they start to ration energy, what it's doing to industry and to growth. At the same time, for the insurance industry in certain areas, the risk environment has changed. That benefits pricing and rate environment. I think it benefits opportunity for us, even in the face of all of that.

[Evan Greenberg, Chairman and CEO at Chubb]

I turn to the Lloyd's market that is so heavily reinsurance levered and with reinsurance market contraction and our balance sheet capability, and it's another window to look on the world. I see opportunities as we go forward. I move to Asia, where recession has not bitten in most of Asia. You don't see that. You see inflation picking up. What the future looks like really varies by country. Overall, Asia growth is pretty good. What I see for our business is a lot of opportunity to continue to grow. It's very balanced business, Chubb's business in Asia between consumer and commercial, between accident and health, whether it's in life or non-life. Our consumer businesses there versus P&C and middle market versus large commercial, it's actually our most balanced business in Chubb around the world.

[Evan Greenberg, Chairman and CEO at Chubb]

The opportunities there I see, you know, and whether there's a short-term impact here or there based on economic activity, I can't see that yet. Whether there is or not is transient to me, and I see through that. I see a lot of growth opportunity. You know, when I add it all up on balance and given the broad nature of our business, I'm pretty bullish on growth as we go forward. Though, of course, I'm cautious as I'm aware about the external environment and the recessionary conditions and inflation, which, you know, no one has a perfect handle on.

[Greg Peters, Managing Director at Raymond James]

Yeah, that makes sense. Thanks. I guess I'll pivot.

[Evan Greenberg, Chairman and CEO at Chubb]

You got a number. That's your job, not my job. I got mine.

[Greg Peters, Managing Director at Raymond James]

Well, I'm, you know, when

[Evan Greenberg, Chairman and CEO at Chubb]

I feel really optimistic about the company.

[Greg Peters, Managing Director at Raymond James]

When you're growing your gross premium written at 11%+, it's not a bad stat to throw out there, at least for this year so far. I'd like to, as I've asked in previous calls, you know, the expense ratio improvement, and if I just look at the year-to-date, just not the quarter number, but the year-to-date number, I assume some of that's, you know, a reflection of the growth and the leverage you have off the top line that you're generating. Can you give us a sense of what's transient and relates to growth, and then what's actually permanent in terms of, you know, true improvements in efficiencies? Maybe give us some color on what's actually driving that improvement.

[Evan Greenberg, Chairman and CEO at Chubb]

I'm not going to answer it that way for you. I'm going to try to give you a little more color around it. Let's see if I can frame this, though, for you, which is what you really need is a framing of how we think about it. Aside from the business mix and seasonality, which impacts the ratio, you know, a little bit quarter to quarter, the company and OpEx portion in particular, is going to continue to improve over time. I think about that as over a longer period of time. We already run a world-class ratio of efficiency. Let's just start with that.

[Evan Greenberg, Chairman and CEO at Chubb]

You know, it's like interest rates dropping, you know, percentages, you know, that they turn out to be smaller and smaller basis points over time. You know, success can be your enemy a little bit. It's in our culture and operating guidelines that we and this has always been true. We grow revenue faster than expense. Now, I balance that, though, on the other side, it's balanced against adding investments in our business to constantly improve our capabilities and efficiencies for future periods. On one hand, the discipline is we grow expense.

[Evan Greenberg, Chairman and CEO at Chubb]

We start out growing expense slower, and I'm not going to give, I'm not going to disclose inside baseball, but we actually have ironclad, reasonably ironclad parameters around that, of how much we'll grow expense relative to revenue. Then we balance that against investments we also make to improve efficiencies for future periods. It's the point that while it's efficient, it'll continue to improve, and by the way, particularly in our COG operation. That's where I think there is real room for that. I'm looking right at Juan Luis, who feels the heat. There you go.

[Greg Peters, Managing Director at Raymond James]

I can use some of that, so thank you.

[Evan Greenberg, Chairman and CEO at Chubb]

Which part can you use?

[Greg Peters, Managing Director at Raymond James]

The heat for Juan Luis.

[Evan Greenberg, Chairman and CEO at Chubb]

Oh. Juan Luis, you want to add to that?

[Greg Peters, Managing Director at Raymond James]

Thanks.

[Operator]

Your next question comes from the line of Tracy Benguigui with Barclays. Your line is open.

[Evan Greenberg, Chairman and CEO at Chubb]

Hi, Tracy.

[Tracy Benguigui, Senior Equity Research Analyst at Barclays]

Thank you. Good morning. Hey, turning to investments, it looks like you've been slightly extending the duration of your assets in the last few quarters. It's now at 4.5 years. I think historically, it's been closer to four years. I'm wondering if you're still at or below the duration of your liabilities, or should we expect further extension of asset duration from here given the Cigna acquisition? I guess I'm just trying to get a sense of where you're seeing investment opportunities given the shape of the yield curve, which is less kind at the longer end than what we typically see.

[Evan Greenberg, Chairman and CEO at Chubb]

Tracy, our assets, our liabilities, the duration of our liabilities is greater than our asset duration right now, our invested asset duration, by actually a comfortable spread. No, we don't expect. At this moment, we don't see extending duration. We're not paid to extend duration, and we're not doing that. Mix of business and Cigna has impacted it, too. Peter, did you want to add?

[Peter Enns, EVP and CFO at Chubb]

Yeah. Tracy, the vast majority of the change you saw relates to two items. One is the Cigna assets coming on, which had a slightly longer duration, which reflects their underlying business. And secondly, mortgage-backed securities extending out just with the higher rate environment. There's nothing that we've done proactively or decisively to affect that ratio.

[Tracy Benguigui, Senior Equity Research Analyst at Barclays]

Perfect. Thank you for confirming that. On the Cigna earnings contribution of $160 million, that's tracking ahead of your $450 million annual run rate. Is $450 million still the right run rate, or are you more constructive you could earn more on a quarter basis?

[Peter Enns, EVP and CFO at Chubb]

What I said was we're consolidating this into our life segment going forward. We provided guidance on the initial announcement, and then we gave an update around the earnings accretion. We don't want to provide ongoing guidance around what that income is going to look like. We just wanted to give you comfort that we were hitting our numbers.

[Tracy Benguigui, Senior Equity Research Analyst at Barclays]

Got it. Thank you.

[Operator]

Your next question is from the line of Meyer Shields with KBW. Your line is open.

[Meyer Shields, Managing Director at KBW]

Great. Thanks. Two hopefully quick questions. First, in the life insurance segment, was there anything unusual in Cigna's results from seasonality or anything other that couldn't recur, or is this like a reasonable depiction of the earnings flow?

[Peter Enns, EVP and CFO at Chubb]

There was nothing unusual in their earnings. There was a slight increase on a relative basis for some COVID charges in the prior year in the other international businesses, not Cigna. The current, you know, is what it is.

[Meyer Shields, Managing Director at KBW]

Okay. Perfect. Thanks. Evan, I think this is a big picture question. You've talked about casualty rates needing to pick up some steam. Does the industry face sort of an irresistible momentum that will make that difficult or impossible, or am I too pessimistic on its agility as an industry?

[Evan Greenberg, Chairman and CEO at Chubb]

Can you say that again?

[Meyer Shields, Managing Director at KBW]

Yeah. I'm wondering. Right, so right now we're seeing some signs of competition emerging in some commercial casualty lines. Historically, obviously, this industry has been tremendously cyclical, which means things get a little worse, and then they get a little worse from that. I'm wondering whether your perception of the industry. I'm not worried about Chubb, but is it your perception of the industry that it has the agility to resist that momentum this time around?

[Evan Greenberg, Chairman and CEO at Chubb]

You know, look, I can't prognosticate the future. I think rationally, major players have the same kind of data that we do. They have experience, and they see the same trends on the casualty side. I'm not ringing an alarm bell, so that we keep perspective here. Pricing is staying ahead. I'm looking longer into the future and anticipating, not what we're seeing at the moment, and that it doesn't take a genius to imagine that exposure growth will not continue to benefit that. The industry will have to get more rate. We're in a loss cost environment where inflation, it's an inflationary environment. Inflation is running higher than it has in the past.

[Evan Greenberg, Chairman and CEO at Chubb]

It'll get away from the industry at a much more rapid pace at their peril if they don't get this, anticipate it, and operationalize it in a reasonable period of time so that rate responds. At the moment, I just play by the facts, and I am dead neutral about it. I think most. Look, I look where Chubb's combined ratios are, and then I look where others are. There's not a lot of room for forgiveness in most companies' combined ratios. I have to believe they will be rational.

[Meyer Shields, Managing Director at KBW]

Okay. That's very helpful. Thank you.

[Operator]

Your next question is from the line of Brian Meredith with UBS. Your line is open.

[Brian Meredith, Managing Director and Senior Equity Research Analyst at UBS]

Hey, thanks. Morning, Evan. A couple questions for you. First one, Combined U.S., it's been kind of trending downward here all year. I know you've got a recession coming up, which probably is tough from a growth perspective, but what's going on there, and are there any kind of fixes going on?

[Evan Greenberg, Chairman and CEO at Chubb]

Yeah. You know, it's a great question. I'm glad you actually asked that question. Combined Insurance is actually, I'm quite optimistic about it. Here's the deal. COVID really impacted it because of two things. Its individual agency sales business going small business by small business or individual by individual, and they pay you monthly premiums. Agency sales during COVID just dried up. Then it's work site sales, work site benefits, voluntary benefits to small and medium-sized businesses in particular, and during COVID dramatically hit. Again, that's monthly pay business. We're actually investing, and I'm actually investing money in Combined retooling both agency and work site, which we've done in a very dramatic way, and we're seeing the improvement begin to show to us in new business sales.

[Evan Greenberg, Chairman and CEO at Chubb]

Now, frankly, it's gonna take through 2023 before it really shows where before new business and the monthly volume of that and how it turns into renewal business to really show against the total base that has a natural lapse rate in it. I see Combined as a growth business, and for myself, where it'll really show to you is 2024 onwards.

[Brian Meredith, Managing Director and Senior Equity Research Analyst at UBS]

Great. That's helpful. Second question, Evan, hoping-

[Evan Greenberg, Chairman and CEO at Chubb]

We're patient, and that's the boiler room facts around it.

[Brian Meredith, Managing Director and Senior Equity Research Analyst at UBS]

Gotcha. That makes sense. Second question, Evan, can you remind us how much of your commercial business is called ENS or non-admitted? Do you ascribe to the theory that the ENS markets or the non-admitted markets will continue to grow at a faster rate than the admitted markets here, just given the complexity of risks?

[Evan Greenberg, Chairman and CEO at Chubb]

Well, it's gonna vary by line of business. You know, if you're gonna get it property cat exposed, yes. Though, I think the ENS market is gonna have pressure because of reinsurance availability and capital that uses ENS to front for it. I think that problem is in front of the ENS market overall. Rate, while that may impact its overall exposure growth, I think rate is gonna overwhelm it. On the other side of the coin, I think on the casualty side, the admitted market is, which gave up a lot of volume to the ENS side of the house. I see that actually probably growing faster on the admitted side than the ENS side as we go forward.

[Brian Meredith, Managing Director and Senior Equity Research Analyst at UBS]

Interesting. Thank you.

[Evan Greenberg, Chairman and CEO at Chubb]

I can only be wrong.

[Brian Meredith, Managing Director and Senior Equity Research Analyst at UBS]

And your final

[Evan Greenberg, Chairman and CEO at Chubb]

Doesn't matter. From my point of view, I'm playing both tables aggressively, where I see opportunity and rationally. You know, whoever wins the race wins the race.

[Operator]

Your final question comes from the line of Alex Scott with Goldman Sachs. Your line is open.

[Taylor Alexander Scott, Analyst at Goldman Sachs]

Hi, good morning. I had a follow-up on the reinsurance cost potentially going up, and you talked a lot about the opportunities. I just thought I'd ask about, you know, Chubb as a buyer of reinsurance. You know, could you provide any information on the cost of your current catastrophe reinsurance programs and anything you might add that help us think about, you know, how those prices may go up at the end of the year?

[Evan Greenberg, Chairman and CEO at Chubb]

No, I'm not answering that question. The only thing I'm gonna answer is we're not a January one. We don't renew our catastrophe reinsurance January one. Thank you very much.

[Taylor Alexander Scott, Analyst at Goldman Sachs]

Okay. Maybe just one quick one on the life insurance business. I mean, do you anticipate any kinda change to the run rate of earnings from the accounting changes that are going into effect at the end of the year?

[Evan Greenberg, Chairman and CEO at Chubb]

Nothing we can disclose at this time.

[Taylor Alexander Scott, Analyst at Goldman Sachs]

Okay. All right. Thank you.

[Operator]

I would now like to turn today's call back over to Ms. Karen Beyer.

[Karen Beyer, SVP of Investor Relations at Chubb]

Thank you everyone for joining us today. If you have any follow-up questions, we'll be around to take your calls. Enjoy the day. Thank you.

[Operator]

Ladies and gentlemen, thank you for participating. This concludes today's conference call. You may now disconnect.

Participants

Executives

• Evan Greenberg, Chairman and CEO
• Karen Beyer, SVP of Investor Relations
• Peter Enns, EVP and CFO

Analysts

• Brian Meredith, Managing Director and Senior Equity Research Analyst at UBS
• David Motemaden, Senior Managing Director at Evercore ISI
• Elyse Greenspan, Managing Director and Senior Equity Analyst at Wells Fargo
• Greg Peters, Managing Director at Raymond James
• Meyer Shields, Managing Director at KBW
• Michael Phillips, Executive Director Equity Research at Morgan Stanley
• Taylor Alexander Scott, Analyst at Goldman Sachs
• Tracy Benguigui, Senior Equity Research Analyst at Barclays
• Yaron Kinar, Managing Director and Senior Equity Research Analyst at Jefferies