Chubb Q2 2023 Earnings Results & Report

Chubb EPS Results

• Actual EPS: $4.92
• Consensus EPS: $4.41
• Beat/Miss: Beat by +$0.51
• One Year Ago EPS: $4.20
• EPS Beat Rate: 8 of last 8 quarters

Chubb Revenue Results

• Actual Revenue: $10.68 billion
• Expected Revenue: $11.24 billion
• Beat/Miss: Missed by -$560.40 million
• YoY Revenue Growth: +9.80%

Chubb (NYSE:CB) is a global insurance company that provides property and casualty insurance, accident and health coverage, life insurance, and reinsurance. Its customers include individuals, businesses, and institutions, with products ranging from personal and commercial coverage to specialized insurance solutions.

The company serves customers across North America, Europe, Asia-Pacific, Latin America, and other markets. Its operations include underwriting, claims services, and risk management for a broad range of industries and personal insurance needs.

Chubb’s current corporate history dates to 2016, when ACE Limited acquired The Chubb Corporation and adopted the Chubb name. Evan G. Greenberg serves as the company’s chairman and chief executive officer.

Chubb Q2 2023 Earnings Call Transcript

Key Takeaways

• Chubb delivered a record second quarter with premium revenue up 16.8%, core operating income of $2.0 B (up 14%), and an 85.4% combined ratio reflecting world-class P&C underwriting.
• Net investment income rose 31% to $1.2 B, with portfolio yield at 4% and a reinvestment rate of 5.8%, and management expects further income growth as cash is reinvested at higher rates.
• Life segment earnings doubled to $254 M driven by strong supplemental accident & health business in Asia, while life premiums grew over 100% year-over-year.
• Underwriting results included $400 M pre-tax catastrophe losses and $260 M of favorable prior-period reserve development, offset by $60 M adverse development in corporate runoff primarily related to molestation claims.
• Chubb returned $1.1 B of capital to shareholders in the quarter, including $724 M in share repurchases at an average price of $197 and $354 M in dividends, while book value per share ex-AOCI rose 2.2%.

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by. My name is Brent. I will be your conference operator today. At this time, I would like to welcome everyone to the Chubb Limited Q2 2023 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 would like to ask a question at that time, simply press star followed by 1 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 and Director of Investor Relations. Please go ahead.

[Karen Beyer, SVP and Director of Investor Relations at Chubb]

Thank you. Welcome to our June 30, 2023 Q2 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 at 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. First, we have Evan Greenberg, Chairman and Chief Executive Officer, followed by Peter Enns, our Chief Financial Officer, and then we'll take your questions.

[Karen Beyer, SVP and Director of Investor Relations at Chubb]

Also with us to assist with your questions 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 I mentioned on our last call, I'm coming to you this quarter from Singapore, our regional headquarters for Asia Pacific. The outlook in Asia for growth across our businesses, commercial P&C, as well as consumer non-life and life, both short and long term, is significant. The region is simply energizing. We have a large organization of talented executives and a strong, diverse capability focused on the execution of a broad set of strategies throughout the region. As you saw in our press release, we had a simply outstanding quarter. In fact, another record quarter performance, with double-digit premium revenue and earnings growth as a result of world-class P&C underwriting results that produced an 85.4 combined ratio, record net investment income, and a doubling of our life earnings.

[Evan Greenberg, Chairman and CEO at Chubb]

Premium revenue growth was well spread and broad-based, driven by outstanding double-digit growth in our commercial and consumer P&C businesses in both North America and internationally, and over 100% growth in our Life business. Our annualized core operating ROE was 13.8, with a return on tangible equity of 21%. Core operating income topped $2 billion, up 14%, or 16.5 on a per-share basis. Both were record results. For the first six months, we produced operating earnings of $3.9 billion, or $9.32 per share, up 13% and 15.8%, respectively. Our underwriting performance resulted from a combination of strong premium growth, excellent current accident year margins, with a combined ratio of 83.3, and favorable prior period reserve development, particularly in North America.

[Evan Greenberg, Chairman and CEO at Chubb]

On the investment side, record adjusted net investment income of $1.2 billion was up $290 million, or 31% over prior year. Our portfolio yield is now 4% versus 3.2% a year ago, with our reinvestment rate averaging 5.8%. Our investment income run rate will continue to grow as we reinvest cash flow at higher rates and compound income without changing our risk profile. Life earnings doubled to $254 million, driven by our business in Asia, which is overwhelmingly supplemental A&H. Peter will have more to say about financial items, including CATs, prior period development, investment income, book value, and ROE. Turning to more color around growth, pricing, and the rate environment.

[Evan Greenberg, Chairman and CEO at Chubb]

Consolidated net written premiums for the company increased 16.1% in the quarter on a published basis, or 16.8% in constant dollars, made up of 10.5% growth in our P&C business globally and almost 130% in life premiums. Global P&C premium growth in the quarter was very well-balanced and broad-based. In fact, our strongest quarter for growth since the Q3 of 2021. North America, Asia PAC, and Europe all produced double-digit growth. It's worth noting, since 2019, we've grown our commercial P&C business by 50%. In terms of the commercial P&C rate environment, rates and price increases in property and casualty lines were strong in the quarter in both North America and internationally, while financial lines globally continued to soften.

[Evan Greenberg, Chairman and CEO at Chubb]

We have been diligent about staying on top of loss costs, and our positive prior year reserve development reflects a steady, conservative approach to reserving. Beginning with North America Commercial premiums, excluding AG, were up 10.5%. P&C growth was 14%, excluding financial lines, while financial lines premiums decreased, reflecting a disciplined response to the underwriting environment. Total premium in our E&S business, Westchester, grew 12%, while our major accounts division grew 14%, or 11%, excluding loss portfolio transfers. In our middle market division, premiums were up 5%, with P&C growth of 9%. Our middle market workers' comp book was flat, and financial lines premiums in middle market declined about 1.5%. Overall pricing for total North America Commercial lines increased 12.8%, including rate of 8.7% and exposure change of 3.8%.

[Evan Greenberg, Chairman and CEO at Chubb]

Pricing for commercial P&C, excluding Fin lines, was up 17.7%. We are trending loss costs in North America at 6.7%, and it varies by line. In general, we are trending loss costs in short-tail classes at 5.8%. In long-tail, excluding workers' comp, loss costs are trending at 7.3%, and our first dollar workers' comp book is trending at 4.7%. Let me provide a bit more color around rate and growth. Property pricing was up 31.5%, with rates up 22% and exposure change of 7.8%. Major accounts and E&S property together grew premiums over 40% in the quarter, while middle market property grew 11.4%. Casualty pricing in North America was up 11.3%, with rates up almost 9% and exposure up 2.2%.

[Evan Greenberg, Chairman and CEO at Chubb]

We grew casualty in the quarter, 8%. In workers' comp, which includes both primary comp and large account risk management, pricing was up just over 5%, with rates up 5% and exposure up 4%. Primary workers' comp premiums declined 2.9% in the quarter. For financial lines, the competitive environment remains aggressive, particularly in D&O, and rates have continued to decline. In the quarter, rates and pricing for North America Financial lines in aggregate were down about 4.5%. Our Fin lines book shrank 3.7%. Renewal retention for our retail commercial businesses was very strong at 98.5%. On the consumer side in North America, our high net worth personal lines business had another strong quarter, with premiums up almost 11%.

[Evan Greenberg, Chairman and CEO at Chubb]

Our growth was balanced across a broad range of geographies, our retention was very strong at 104% on a premium basis and over 90% on an account basis. In our homeowners business, we achieved pricing of 14.7%, while the homeowners' loss cost trend remains steady at 10.5%. There is a lot of attention placed on consumer auto experience, I thought I would comment briefly on it. For us, auto is a small part of our high net worth business, you may have noticed that we had a modest reserve release in our prior years' reserves for our North America personal line segment in the quarter. This release was primarily in auto, we are comfortable with our reserves and loss picks for auto. Turning to our international general insurance operations.

[Evan Greenberg, Chairman and CEO at Chubb]

Net premiums were up 11% in constant dollar, or 9.3% after FX. Our international commercial business grew 12%. Consumer was up 9.5%. Our international retail business grew over 10.5%, while our London wholesale business grew about 14%. In our international retail business, growth was led by Asia Pacific, with premiums up 17.5%, made up of commercial lines growth of over 12% and consumer P&C up more than 23%. Europe produced overall growth of 10.5%, with the continent up more than 12%. We continued to achieve improved rate to exposure across international commercial portfolios. Our retail business pricing was up 8.9%, with rates up 5% and exposure change of 3.7%. Loss costs across our international commercial portfolio are trending at 6.6%.

[Evan Greenberg, Chairman and CEO at Chubb]

Our international A&H division had another strong quarter, with premiums up over 16%. In Asia, our A&H business grew 31%, driven by our direct marketing and travel insurance business and the consolidation of Cigna Thailand. In the U.K. and Europe, A&H premiums were up 11.5%. In our international life business, which is almost entirely Asia, premiums tripled to over $1 billion. Since I'm here, I want to conclude with a bit more about operations in Asia, which have very strong growth and momentum across our businesses, both consumer non-life and life, and commercial P&C. We have significant opportunity for growth, both short and long term, in a broad variety of markets across a broad range of customers and distribution channels.

[Evan Greenberg, Chairman and CEO at Chubb]

Our total premium in the region is about $9 billion and well-balanced, with half non-life split 50/50, consumer and commercial, and the other half life. Our overall presence and capabilities in North, Southeast Asia, and Australia are spread across 11 markets, with distinct and significant areas of growth opportunity in each. Across the region, we have a broad range of product capabilities focused on different customer segments, with varied and meaningful distribution strength, including a diverse and growing list of partnerships with financial institutions and e-commerce leaders that give us access to hundreds of millions of consumers. We have strong digital capabilities and a fast-growing digital insurance business encompassing more of our products. We are the largest direct marketers of insurance, mostly A&H products, to consumers in Asia through both non-life and life companies that are unifying to offer more products to more customers.

[Evan Greenberg, Chairman and CEO at Chubb]

From a macro perspective, the region is so dynamic and vast, with a diversity of cultures and large economies, some with large, young populations, some with large, aging populations that have a different set of needs. Broadly speaking, in Asia, there is an innovation-oriented mindset, a strong work ethic, and a deep dynamism. Supply chains and capital flows are growing deeper across the region. There is growing infrastructure investment. As a result, regional commerce and trade is growing and becoming more connected between Southeast Asia, North Asia, India, and Australia. There is a lot to be optimistic about. In summary, we are having an outstanding year, with record quarterly and first half financial results. We are growing exposure in a thoughtful and balanced way, and underwriting conditions are favorable in a lot of areas of our business.

[Evan Greenberg, Chairman and CEO at Chubb]

We have a lot of momentum heading into the second half, and as I look ahead, we again are confident in our ability to continue this pattern of growth in revenue and earnings and in turn, drive double-digit EPS growth. I'm going to 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. As you've just heard, Chubb delivered another quarter of strong underwriting and investment performance, leading to record results, which generated $2.5 billion of operating cash flow this quarter and $4.8 billion through the first half of the year. We returned $1.1 billion of capital to shareholders this quarter, including $724 million in share repurchases at an average price of $197.04 per share, and $354 million in dividends. Book value and tangible book value per share, excluding AOCI, increased 2.2% and 3.1%, respectively, for the quarter, and 4.3% and 6.5%, respectively, through the first half of the year, reflecting record core operating income net of the capital return to shareholders noted earlier.

[Peter Enns, EVP and CFO at Chubb]

In addition to the quarterly ROEs Evan just gave you, our year-to-date core operating ROE and return on tangible equity of 3.2 and 20.2% respectively, exceed the target range Evan has laid out in the past. Adjusted Net investment income from the quarter was $1.24 billion, or $20 million above the top end of our guidance, primarily from higher private equity income. The increase over last year of 30% was driven by strong cash flow, our accelerated portfolio turnover, and higher reinvestment rates. In the Q3, we expect Adjusted Net investment income to rise from $1.24 billion this quarter to around $1.27 billion on a recurring basis, and to continue to grow from there. Relative to our invested assets, we continue to tactically execute our portfolio turnover strategy while maintaining a conservative credit posture.

[Peter Enns, EVP and CFO at Chubb]

During the quarter, we reclassified our $8 billion held-to-maturity portfolio to available for sale to have even more flexibility to put money to work at higher yields. These securities had $397 million after-tax of net unrealized losses that reduced book value at the time of the change. It's important to note that the transfer itself has no economic impact, as the underlying securities remained unchanged and are of a very high quality, with an average rating of double A. We will look to sell parts of this portfolio only where and when we think it makes economic sense, and not all of the unrealized loss will become realized. Turning to our underwriting business, the quarter included pre-tax catastrophe losses of $400 million, principally from weather-related events in the U.S.

[Peter Enns, EVP and CFO at Chubb]

Prior period development in the quarter in our active businesses was a favorable $260 million pre-tax, which was split about evenly between short-tail and long-tail lines and included $146 million for North America Commercial and $61 million for Overseas General.

[Evan Greenberg, Chairman and CEO at Chubb]

... Our corporate runoff lines had adverse development of $60 million, principally related to molestation claim development. As I noted, the PPD and Overseas General for the quarter was $61 million, versus $173 million last year. The larger favorable PPD in the quarter last year was concentrated in the 2020 accident year and included favorable development from COVID-related economic shutdowns. The year-to-date favorable PPD for Overseas General was $204 million, comparable to last year's $233 million, and $181 million in 2021, all in short-tail lines for these years. Our paid-to-incurred ratio for the quarter was 89%, or 83% after adjusting for CATs and PPD. Turning to our Life segment, year-over-year segment income growth came primarily from the acquisition of Cigna.

[Evan Greenberg, Chairman and CEO at Chubb]

Our core operating effective income tax rate was 19% for the quarter, which is at the top end of our guided range of 18 to 19%. We now expect our annual operating effective tax rate for 2023 to be in the range of 18.5 to 19%, excluding the impact of consolidating Huatai. On July 1st, we completed the acquisition of additional shares of Huatai Group, increasing our aggregate ownership to 69.6%. We expect the closing of additional shares this quarter, which will bring our ownership up to 83.2%. Beginning in Q3, we will consolidate Huatai's results within our financials.

[Evan Greenberg, Chairman and CEO at Chubb]

We currently estimate consolidation will result in a small amount of accretion to operating income and EPS, book value and ROE, and a modest amount of dilution to tangible book value, which we estimate will recover within the next few quarters. I would note we are still working through our purchase accounting analysis. I'll now turn the call back over to Karen.

[Karen Beyer, SVP and Director of Investor Relations at Chubb]

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

[Operator]

As a reminder, if you would like to ask a question, please press star followed by the number 1 on your telephone keypad. Your first question is from the line of Mike Zaremski with BMO. Your line is open.

[Mike Zaremski, Managing Director and Senior Equity Research Analyst at BMO Capital Markets]

Hey, great, good morning. Thanks for the commentary on loss trend on the commercial side. It sounded like it stayed flattish, and yet the rate environment accelerated sequentially. I'm just curious, you know, may any context on why the rate environment is accelerating if loss costs are kind of staying steady? I know that's just for you. Does your loss cost also pick include higher reinsurance costs if you're experiencing higher reinsurance costs? Thanks.

[Evan Greenberg, Chairman and CEO at Chubb]

Well, you know, the rate it's all baked into it, of course. The rate environment, you know, accelerated in property, and I think that speaks for itself, as you know, where it's about the loss environment, particularly around CAT and inflation costs and property generally. Reinsurance costs have moved up in property, and I think you know, in total, that's a very rational response. In casualty, loss cost trends have been moving higher, and I think it's reflective of the trend we've been observing over the l

[Evan Greenberg, Chairman and CEO at Chubb]

ast number of years. It's not a new story. It's a story we're aware of and on top of, but I think it's rational. You know, you see comp and professional lines I talked about going the other way.

[Evan Greenberg, Chairman and CEO at Chubb]

I think the market, frankly, and the re-acceleration is a, is a rational response to the external environment.

[Mike Zaremski, Managing Director and Senior Equity Research Analyst at BMO Capital Markets]

Okay. My one follow-up on, you touched on catastrophe losses. They actually looked a bit lighter than at least what the consensus models for a kind of a normal 2Q for Chubb. You know, whereas, I, you know, some other competitors, maybe more regional-based, have experienced much, much higher than kind of quote-unquote, "normal," catastrophe levels. Any commentary on your CAT load this quarter? Was it, you know, was it kind of in line with expectations?

[Evan Greenberg, Chairman and CEO at Chubb]

The, you know, CAT losses are never in line with particularly with expectations. It's a, they're either greater or less than you might imagine in any quarter on your, you know, the average annual loss pick you would choose for that. This was a very heavy CAT quarter for the industry, I think most companies had reported significantly higher CAT losses than average. I don't think there's, you know, any particular magic as to why Chubb's was lower. We underwrite well, we have a good spread of business, we select risk well, but you know, that doesn't mean we choose where it translates to we choose where a tornado is gonna land and come down.

[Evan Greenberg, Chairman and CEO at Chubb]

You know, if it had moved 10 miles to the east or west, we could have had greater losses. You know, it's a variation. It has a variability quarter-on-quarter. We had a very good experience this quarter. Thanks for the question.

[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 very much. Good morning, everybody. I guess my first question, just looking at North America Commercial's underlying loss ratio, the improvement there, is there a mixed component there? Is it mostly rate over trend? Can you maybe elaborate on that a bit?

[Evan Greenberg, Chairman and CEO at Chubb]

The, you know, look, the current accident year loss ratio, it reflects the totality of the commercial business, so it's a mix of all the lines, right? Property and casualty, rate and price exceed loss cost, and that's, that is potentially a positive to the ultimate loss ratio margin. In the case of comp and financial lines, rate and price lag the selected trends, and in that case, the ultimate margin is potentially shrinking or it's neutral. You know, our loss pick reflects all of that, and we're patient, and we lean towards conservatism in our loss picks.

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

Okay. And then my second question, just with regards to rate adequacy, particularly in financial lines and property, just kind of the very different directions we're seeing rates moving in those lines. Are the rates adequate in both of those today?

[Evan Greenberg, Chairman and CEO at Chubb]

I think for the business we've written, yes, the rates are adequate for our portfolio, and our loss picks reflect that. The kind of combined ratio we're putting up has a mix of all of that in there, and it speaks for itself.

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

Thanks so much, and good luck.

[Evan Greenberg, Chairman and CEO at Chubb]

Does that make sense to you?

[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]

I think it might be close to, what, 8:30 P.M. your time, Evan, so I'm going to say good evening to you and your management team.

[Evan Greenberg, Chairman and CEO at Chubb]

Thank you very much. It is.

[Greg Peters, Managing Director at Raymond James]

It's-

[Evan Greenberg, Chairman and CEO at Chubb]

It's about 8:30 A.M.

[Greg Peters, Managing Director at Raymond James]

It's almost bedtime, right? I guess.

[Evan Greenberg, Chairman and CEO at Chubb]

I ask for my bedtime.

[Greg Peters, Managing Director at Raymond James]

for the first question, in your prepared comments, you spoke about innovation a lot, and specifically in Asia. There's been a lot of rhetoric in the marketplace, you know, it's been ongoing, but it seems to have accelerated this year around artificial intelligence, large language models, generative AI. You know, we obviously closely monitor your expense ratio. Maybe you could spend a minute and talk about your perspectives on these very important technology developments and how you think about it for your company, not only in North America, but on a global basis.

[Evan Greenberg, Chairman and CEO at Chubb]

Thanks for that question. We've been employing AI for quite a number of years now, 5 or 6 years anyway. Particularly, you know, it's algorithmic AI, not generalized or large language models. It's employed in the operations side of the business to a degree in the underwriting and claim side, in the marketing side, chatbots, et cetera. There have been a lot of experiments and use cases that prove themselves out, and we're now in a stage where we're scaling, and will over the next 2 or 3 years, to receive what we think are significant benefits out of that. Insightfulness and abilities in underwriting and in claims in discrete areas. In the service side of our business, where we see cost and lower level work that can come out or improve in its accuracy.

[Evan Greenberg, Chairman and CEO at Chubb]

All of that is things we know, and we're scaling the tools. At the same time, as you can imagine, we are on to large language models and the potential benefit that will ultimately bring beyond algorithmic, particularly in underwriting and claims, and the ability to work either replace work that is done or make it more accurate, or work alongside underwriters. It's not a silver bullet. We're doing this on a global basis. Some regions, more in marketing, some more focused on portfolio underwriting. Whatever anyone's doing spreads to the other, and it's just where we start on one and end with another. The generalized and large language is going to be iterative. It'll be over time.

[Evan Greenberg, Chairman and CEO at Chubb]

You think about insurance and the parameterization risk, or factor around what we do, how many lines of business, the exposures, the geographies you cross. By its nature, it's going to be iterative and take longer than some of the breathless rhetoric that I hear. We're focused on that. It's part of what a modern insurance company's gonna look like and is looking like.

[Greg Peters, Managing Director at Raymond James]

I feel like we could probably have a long conversation on that topic. Appreciate the comments. I need to pivot, as my follow-up question to the reinsurance business. You know.

[Evan Greenberg, Chairman and CEO at Chubb]

Come and see me sometime. We'll talk about it.

[Greg Peters, Managing Director at Raymond James]

Okay. Let me know when you're available.

[Evan Greenberg, Chairman and CEO at Chubb]

Tomorrow for breakfast. Show up.

[Greg Peters, Managing Director at Raymond James]

Go ahead. Go ahead. I don't know if I can make it there tomorrow, but reinsurance, you know, you look at what's going on in the market, and I know you're very close to it seems like, especially in property cat, seems like, you know, these conditions, some of the hardest market conditions we've experienced in 20-plus years. Yet, if I look at your global reinsurance business and look at the growth, you know, it seems like you're not really growing your exposures, you're just growing your rate. Maybe you could provide some perspective on how you're looking at the reinsurance business in the context... Maybe your perspective is the rates are still inadequate, but give your perspectives on the reinsurance market would be helpful.

[Evan Greenberg, Chairman and CEO at Chubb]

Yeah. Look, I don't disagree with anything you said. But you'll notice, at the same time, our property insurance business is growing, like, 40% right now, and that's a combination of rate and exposure, and some of that exposure is not premium, by the way. It's structural changes. Add this unit count, it's a lot of exposure growing. In property cat, that's growing more exposure as we grow that, and it's growing it in the tail. When we look at the risk-reward... By the way, the property insurance, as we grow it across geographies, is also growing exposure in the tail. We prefer to put our emphasis on the property insurance business and the spread of risk we're getting.

[Evan Greenberg, Chairman and CEO at Chubb]

We've never seen better pricing and better risk-adjusted returns that we see right now in large account, E&S, middle market, in a variety of geographies across the globe. We're putting more emphasis on that than we are on property cat. We don't think the risk-adjusted returns are as favorable. It's plain and simple.

[Greg Peters, Managing Director at Raymond James]

Yep. Thanks for the answers.

[Evan Greenberg, Chairman and CEO at Chubb]

You got it.

[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]

Morning, David.

[David Motemaden, Managing Director and Senior Equity Research Analyst at Evercore ISI]

Good morning, Evan, or good evening for you, Evan. Just wanted to ask, I guess sort of related to the last question, just about premium growth in North America Commercial and the difference between the 14% growth, excluding financial lines, and I think you said it was about 18% increase in price, excluding...

[Evan Greenberg, Chairman and CEO at Chubb]

Mm-hmm

[David Motemaden, Managing Director and Senior Equity Research Analyst at Evercore ISI]

... financial lines. Maybe you could just talk about the drivers of that disconnect.

[Evan Greenberg, Chairman and CEO at Chubb]

Yeah, you know, there's been a lot of chatter I've noticed about that in the last number of months, and it's actually pretty straightforward. The majority of the difference between the two numbers is a result of structural changes. It's included in our price, is the impact of things like deductible changes and attachment points, where we can put a value on it, and so it acts like rate or it acts like exposure. It doesn't add to premium, necessarily, that portion of it, but it adds to potential margin, or another way of saying it supports loss cost. The point of talking about rate and exposure that way, rather than, by the way, putting exposure over into loss ratio and saying, "Here's the loss ratio trend," which is different than loss cost trend, is to give a sense about that....

[Evan Greenberg, Chairman and CEO at Chubb]

Here is the price we get, the rate plus the trend, and yet a portion of the rate, depends on the line of business or of the exposure, is actually not premium. As I said, it acts like premium, but it's not premium. That's the difference between the two. Did I say that clearly for you?

[David Motemaden, Managing Director and Senior Equity Research Analyst at Evercore ISI]

Yeah, yeah, that makes sense. I guess just maybe just a quick follow-up on that, any way to size, I guess, terms and condition changes versus, I guess, the premium increase change, or if I were to look at the rate increase?

[Evan Greenberg, Chairman and CEO at Chubb]

It's in rate or it's in exposure. We look at it, but we don't go that far and start disclosing that.

[David Motemaden, Managing Director and Senior Equity Research Analyst at Evercore ISI]

Yep.

[Evan Greenberg, Chairman and CEO at Chubb]

What you got to know is look at our overall premium growth, our retention rates that we give you. It's very healthy. Then what you can see is, wow, this is the amount of rate and price that goes against loss cost, so you can get a transparency around that. You don't add the 2, you know, together. They're not comparable that way. They're answering 2 different questions.

[David Motemaden, Managing Director and Senior Equity Research Analyst at Evercore ISI]

Got it. Okay. Yeah, that makes sense. I appreciate that. That's helpful.

[Evan Greenberg, Chairman and CEO at Chubb]

You're welcome.

[David Motemaden, Managing Director and Senior Equity Research Analyst at Evercore ISI]

I guess just maybe on the North America Commercial, current accident year loss ratio ex CAT. I know the Q2 tends to be an LPT, you know, heavy LPT quarter. Was there any of that or anything else like non-CAT property losses either way within the 70 basis points year-over-year improvement?

[Evan Greenberg, Chairman and CEO at Chubb]

No. It's interesting, we're kind of looking at each other like we haven't noticed that the Q2, in particular, is a heavy LPT quarter. They kind of come lumpy through the year.

[David Motemaden, Managing Director and Senior Equity Research Analyst at Evercore ISI]

Great. Thank you.

[Evan Greenberg, Chairman and CEO at Chubb]

You're welcome.

[Operator]

Your next question comes 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 evening, Evan. My first question, you know, last quarter, you know, sticking with North America Commercial, you had pointed to, you know, premium growth for the balance of the year, you know, kind of being above, you know, kind of 7.6%. You, you know, you guys exceeded that margin by a good amount this quarter. you know, as you said, like, good property, growth, seems like that was a good driver there. Can you just give us a sense of, you know, how you think premium growth can transpire over the balance of the year, you know, relative to your expectations last quarter?

[Evan Greenberg, Chairman and CEO at Chubb]

Elyse, I'm feeling pretty good. I'm feeling good.

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

I had to try. My second question, you know, we saw.

[Evan Greenberg, Chairman and CEO at Chubb]

Translate that to a point estimate, but, you know, it. You know, we're feeling good. You saw what I said, you know, in the commentary and what I said in the press release that, you know, we're going to continue to in this sort of pattern. I'm not putting a number.

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

Okay, that's helpful. My second question, you know, we saw, you know, share purchase improve, you know, go up this quarter. You know, I think, you know, you guys obviously had a new authorization and are sitting at a good amount of excess capital. Anything to, you know, read into the number, and just, you know, how we think about, you know, level of anything new in terms of thinking about the level of capital return from here?

[Evan Greenberg, Chairman and CEO at Chubb]

No, we thought we were undervalued. We think we're undervalued. We're buyers.

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

Okay, got it. Thanks, Evan.

[Operator]

Your next question is from the line of Ryan Tunis with Autonomous Research. Your line is open.

[Ryan Tunis, Senior Equity Research Analyst at Autonomous Research]

Hey, good evening, Evan. First question I just had on cyber. First of all, like, where exactly does that live in the disclosures? Is that in financial lines as well? Just curious if you could give us an update on the size of that book and how you're feeling about that business from a rate adequacy standpoint.

[Evan Greenberg, Chairman and CEO at Chubb]

As you know, statutorily have seen, we write a sizable book, I don't know that we've disclosed the total global premium, but what I would tell you is, we're one of the top. You know, I don't have the updated numbers, so I want to be careful, but we're in the top three of cyber writers, maybe the top two of cyber writers globally. The business is growing in certain segments for us, but the overall business is growing. The rate environment has leveled off. Terms and conditions on what we underwrite, our form, we were first to really leaders to roll out a form that addresses systemic risk to a greater degree and addresses the severity in ransomware and other one-off. The underwriting, we're vigilant about it. The growth, we're growing it.

[Evan Greenberg, Chairman and CEO at Chubb]

The pricing is pretty good in most segments. There's some segments that need rate, and in those areas, we're leaning back a little bit. That's what I'd tell you about cyber.

[Ryan Tunis, Senior Equity Research Analyst at Autonomous Research]

Got it. Appreciating the commentary, like the line-by-line commentary on loss then. If I heard you correctly, I think you said workers' comp are trending at around 4%, about 4.

[Evan Greenberg, Chairman and CEO at Chubb]

I think I said about 47 from memory.

[Ryan Tunis, Senior Equity Research Analyst at Autonomous Research]

Okay. Well, that's, I guess, a little bit higher than I would have thought that line was running at. Are you seeing any type of pickup in inflation there, or are you trending it differently than you have in recent quarters, or is it just?

[Evan Greenberg, Chairman and CEO at Chubb]

We've increased it in the last earlier in the year. You know, there's two things: 1, mindful of medical inflation, and number 2, payroll increases. You know, on one hand, that benefits exposure change, as we just talked about, rate and price, and on the other hand, you know, wages go up, and that translates to severity on the indemnity side. Those two things together, rationally, are going to push up your pick on loss cost and comp.

[Ryan Tunis, Senior Equity Research Analyst at Autonomous Research]

Thank you.

[Evan Greenberg, Chairman and CEO at Chubb]

You're welcome.

[Operator]

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

[Tracy Benguigui, Director and Senior Equity Research Analyst at Barclays]

Thank you.

[Evan Greenberg, Chairman and CEO at Chubb]

Tracy, I know, I know your last name. Go ahead.

[Tracy Benguigui, Director and Senior Equity Research Analyst at Barclays]

Thanks, Evan. As you sit right now in Singapore, you look at your opportunity set, how would you rank in terms of capital deployment priorities, underwriting capacity, giving your views of achieving rate adequacy versus acquisitions in emerging markets, could even be JVs?

[Evan Greenberg, Chairman and CEO at Chubb]

Yes. I'm not. First of all, we have plenty of capital flexibility. That is not a question. We are not constraining organic growth whatsoever, and I can tell you, I would make two comments to you. We are not on the acquisition hunt. We are focused on there is so much opportunity around what we've got, and strategy around organic growth. In Asia, we are just full up. It's fabulous. In North America and other parts of the world, we've got plenty of growth opportunity, and that's what we're getting after. We've got a great rate environment to take on more exposure in areas like property, and we are taking. It's not a question of capital, it's a question of, are you willing to take on the volatility that goes along with it?

[Evan Greenberg, Chairman and CEO at Chubb]

We are, because we think we're getting paid well for that, and it's a good thing to invest in with shareholder capital. That's our priority. That's what we're focused on. Then you use the word JV. I read the same article. You know what? Don't believe what you read.

[Tracy Benguigui, Director and Senior Equity Research Analyst at Barclays]

Okay, thanks. Yeah, I wasn't implying that you don't have strong capital. I've noticed that you reported $49 million of unfavorable reserve development from molestation claims. It's not a large number, but I'm curious what you're seeing right now on reviver statutes. Based on the work we've done, are those charges reflecting the 11 states where new statute of limitations reform laws went into effect, or does the reserves also reflect the 38 states introduced new reform bills this year?

[Evan Greenberg, Chairman and CEO at Chubb]

No. You know, Tracy, it's more case specific and, you know, the only thing the reviver statutes, as they open them up, does, it opens up the top of the funnel. So more potential losses from, you know, years past, legacies going way back, events, you know, flowing to the top of the funnel, and then eventually, some ripen up, some percentage of them ripen into claims and cases and ultimately, incurred, you know, when we see a liability, we're going to reflect it.

[Tracy Benguigui, Director and Senior Equity Research Analyst at Barclays]

Very basic question here: Does statute of limitations only apply to child abuse, or is it more broad-based?

[Evan Greenberg, Chairman and CEO at Chubb]

Well, it depends on the state. It varies. Some have opened it up more broadly. Some it's only about child abuse.

[Tracy Benguigui, Director and Senior Equity Research Analyst at Barclays]

Got it. Thank you.

[Evan Greenberg, Chairman and CEO at Chubb]

Wait a minute.

[Operator]

Your next-

[Evan Greenberg, Chairman and CEO at Chubb]

I think I have a colleague who may be correcting me about that. No? Okay. No. Answer was right.

[Operator]

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

[Brian Meredith, Managing Director, Financials Research Sector Head and Global Insurance Strategist at UBS]

Hey, good evening, Evan.

[Brian Meredith, Managing Director, Financials Research Sector Head and Global Insurance Strategist at UBS]

Evan, looking at, you know, with Huatai going to be consolidated here and ownership increasing, you know, life insurance is becoming a pretty meaningful component of your overall earnings mix. I think it gets north of 10%. I'm wondering if maybe you give us a quick snapshot of, you know, what the business mix looks like there. You know, how much is savings products versus indemnity products? You know, short tail, long tail, is much of it capital intensive? Just give us some perspective on what, how we should think about that life insurance business.

[Evan Greenberg, Chairman and CEO at Chubb]

You know, about 80%, 90% of the business is straight up accident and health business. The same kind of business we write on the non-life side. In the life side, you write a longer duration policy. They're all individual policies. If on the non-life side, I may direct market the same kind of products, and they're annually renewable, and they have a certain lapse rate to them. On the life side, I may sell them through agents and/or through direct marketing, and it's dread disease, and it's hospital cash, and it's cancer, and it's accident insurance. It'll be sold predominantly, most of the book we have are individual policies, and they are longer duration, which adds a great stability, a long-term asset.

[Evan Greenberg, Chairman and CEO at Chubb]

There is a percentage, but it's a minority percentage of the business, where it's tied to a savings and protection policy, but yet we load it up with accident and health riders. You're going to buy a large amount of protection, the stuff we love, alongside a very traditional, low, much lower risk savings product that's either on a par basis, where, okay, any interest rate risk is fundamentally to the customer, and we share the upside with them. It's got extremely low guarantees, like in the 1% range or 2% in a whole life policy. That's it.

[Brian Meredith, Managing Director, Financials Research Sector Head and Global Insurance Strategist at UBS]

Great. That's helpful. Thank you.

[Evan Greenberg, Chairman and CEO at Chubb]

Majority, the overwhelming majority of this business is risk-based accident and health business.

[Brian Meredith, Managing Director, Financials Research Sector Head and Global Insurance Strategist at UBS]

Great, that's really helpful. Then, this one more focused, I guess, on your personal lines business. I'm just curious, could you talk a little bit about what you're seeing happening in the regulatory environment, you know, given the level of rate we've seen going through and like personal auto, but homeowners, are you starting to see any pushback by regulators?

[Evan Greenberg, Chairman and CEO at Chubb]

Yes. It varies by state. I think it's pretty well known to you. It's not hidden. You know, we are employing where we want to grow exposure, and we need more flexibility of terms or of rates. We are using E&S to a greater extent as a tool to be able to take more exposure and do it in a thoughtful way and shape portfolios. We do that both in states where exposure is concentrated in CAT, and we're also doing it in states where the regulatory environment doesn't allow us greater flexibility to be able to actually serve the public's need.

[Brian Meredith, Managing Director, Financials Research Sector Head and Global Insurance Strategist at UBS]

Great. Thank you.

[Evan Greenberg, Chairman and CEO at Chubb]

You're welcome.

[Operator]

Your next question is from the line of Meyer Shields

[Operator]

s with KBW. Your line is open.

[Meyer Shields, Managing Director at KBW]

Thanks. I want to follow up on Brian's question, if I can. Is there a specific opportunity for Chubb's growth in North America Personal because of regulatory friction that is leading a number of competitors to really pull back?

[Evan Greenberg, Chairman and CEO at Chubb]

I don't think it's yes, on the margin, there is that, but we have a really distinct,

[Evan Greenberg, Chairman and CEO at Chubb]

strong brand. Meyer, I think the recognition of our brand and service, all things being equal, more customers, and it's proven, in our cohort, want to buy Chubb. Then it's a question of, you know, price and terms, and there have been competitors who've been overly competitive in the area. I think of, you know, in the past, naively so or for other reasons, have underpriced risk. We're in a market now, I think, where there's greater discipline in the business, and that creates opportunity for us, in addition to the notion of others who may have gotten it wrong and they're pulling back.

[Evan Greenberg, Chairman and CEO at Chubb]

We don't have an endless appetite, and we will shape our portfolio, but we're using every tool we can to take more risk and more exposure in a balanced way. Not to become the CAT writer of high net worth, but the national writer of high net worth, balanced. To do that in a thoughtful and sound way that is enduring.

[Brian Meredith, Managing Director, Financials Research Sector Head and Global Insurance Strategist at UBS]

Okay, that's helpful. Just a brief question. I think I know the answer to this, but does the consolidation of Huatai impact the book value yield of the Chubb investment portfolio at all?

[Evan Greenberg, Chairman and CEO at Chubb]

to a very minor degree.

[Brian Meredith, Managing Director, Financials Research Sector Head and Global Insurance Strategist at UBS]

Okay, perfect. Thanks so much.

[Operator]

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

[Alex Scott, Analyst at Goldman Sachs]

Hi. First one I had is on casualty in North America. You know, you all have been fairly vocal about the need for accelerating rate there, and I just wanted to get your updated thoughts on, you know, is that occurring at the rate you think you need it to for the industry, you know, to have adequate pricing? You know, what kind of competitive environment are you seeing there on casualty lines in North America?

[Evan Greenberg, Chairman and CEO at Chubb]

Well, I can't speak for the industry, but I can speak for Chubb, and I like the level of rate we are securing and the terms and conditions against the various cohorts of casualty we write. I think I know we're staying on top of loss development and loss trends, and then we reflect it in the pricing and the terms. I had said in previous quarters that I thought these lines needed to move, and in fact, they are.

[Alex Scott, Analyst at Goldman Sachs]

Got it. The second question I had is around the casualty reserves. I'm sure you see there's a fair amount of chatter around, you know, the 2013 to 2019 accident years, and, you know, people looking at the loss cost trend on longer tail lines and sort of thinking through, you know, should we be confident in those reserves? You know, I appreciate this is probably a bit of an annoying question, but is there anything you would add to that discussion, you know, to help people think through your confidence in those reserves, you know, just in light of the environment?

[Evan Greenberg, Chairman and CEO at Chubb]

Well, pretty simply, I'd say this: look at our track record. We've been doing this for how long? How many decades? Through all kinds of cycles. Look at our reserve policy, and look at our reserving track record. By the way, Peter just made some expansive comments around prior period reserve development, which is simply a reflection of strength of reserve. We are quite confident and comfortable with the level of our reserves.

[Alex Scott, Analyst at Goldman Sachs]

Thanks.

[Evan Greenberg, Chairman and CEO at Chubb]

You're welcome.

[Operator]

At this time, I would like to turn today's call back over to Karen Beyer.

[Karen Beyer, SVP and Director 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. 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 and Director of Investor Relations
• Peter Enns, EVP and CFO

Analysts

• Alex Scott, Analyst at Goldman Sachs
• Brian Meredith, Managing Director, Financials Research Sector Head and Global Insurance Strategist at UBS
• David Motemaden, Managing Director and Senior Equity Research Analyst 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
• Mike Zaremski, Managing Director and Senior Equity Research Analyst at BMO Capital Markets
• Ryan Tunis, Senior Equity Research Analyst at Autonomous Research
• Tracy Benguigui, Director and Senior Equity Research Analyst at Barclays
• Yaron Kinar, Managing Director and Senior Equity Research Analyst at Jefferies