Wildfires hit Chubb’s income
Chubb Limited marginally missed market expectations when it reported its fourth quarter earnings.
It suffered pre-tax catastrophe losses of $477 million from two of the largest wildfires in California’s history, although it did have a $30 million favourable adjustment from catastrophe losses in the third quarter.
In the final three months of 2017, Chubb achieved a net income of $1,533 million, or $3.27 per share, which included a provisional tax reform benefit of $450 million and a $50 million donation to the Chubb Charitable Foundation.
That is $77 million lower than the corresponding quarter in 2016, when the net income equalled $3.41 per share.
Excluding the tax benefit and charitable donation, Chubb’s adjusted core operating income per share was $2.28, just below analysts expectations of $2.29.
Net premiums for the property and casualty unit were $6.5 billion, compared to market expectations of $6.62 billion.
Evan Greenberg, chairman and chief executive officer of Chubb, noted that there were positive movements in the P&C rates, and this trend has continued into this month.
During the fourth quarter, Chubb’s core operating income was $1,489 million, or $3.17 per share, compared with $1,283 million, or $2.72 per share, for the same quarter last year. Book value per share increased 1.5 per cent from September 30, to stand at $110.32.
The 2017 Tax Reform increased book value by $450 million and decreased tangible book value by $293 million, primarily due to the impact of the reduced US corporate tax rate on deferred tax balances and excess foreign tax credits created by the deemed repatriation of foreign subsidiary earnings.
Foreign currency movement in the quarter unfavourably impacted book value by $390 million and tangible book value by $190 million.
Mr Greenberg said: “Our fourth quarter results were highlighted by core operating income per share, up 16.5 per cent, which was aided by a one-time benefit from tax reform, excellent ex-CAT underwriting performance from every division, a core operating return on equity of 12 per cent and improving commercial P&C pricing in a number of our businesses globally.
“On the other hand, the quarter was impacted by the two largest wildfires in California history. Net P&C premiums excluding merger-related actions were up 3.7 per cent for the quarter and contributed to growth of 6.3 per cent for the year.
“With merger-related underwriting actions and their impact on revenue growth largely behind us, a strong economy, both domestic and global, and positive momentum continuing to build for commercial P&C pricing in a number of classes, we are quite optimistic about our prospects for improved premium revenue growth in the year ahead.
Chubb’s full year core operating income was $3.8 billion, which Mr Greenberg said was 20 per cent lower than what would have been earned with a normalised level of annual catastrophe losses and without the benefit from tax reform.
He added: “In the quarter, the P&C combined ratio was 90.7 per cent, and for the year it was 94.7 per cent, which includes $2.7 billion in net catastrophe losses. Those combined ratios, given what was likely a record or near-record year for worldwide insured natural catastrophe losses, demonstrate the quality of our underwriting and our balanced book of business. On a current accident year basis excluding the CATs, the combined ratio for the year was 87.6 per cent, compared with 89 per cent in 2016.”
Commenting on the current rate environment, he said the company had achieved some of the best rate change in a number of years “and the positive trend has continued into January with momentum appearing to build in certain classes. Renewal retentions remained steady overall across the company and are quite good, but they varied by line of business during the quarter with some areas paying a price in terms of a modestly lower renewal retention level in order to maintain pricing discipline”.
Mr Greenberg said the same was true of new business with some areas of the company improving and others suffering.
“These conditions speak to an insurance market in transition, and rates should continue to firm as the year goes along, although not in all classes or all territories,” he said.
Regarding tax reform, he said it was good for the economy, and Chubb will benefit from both a lower corporate rate and additional insurance exposure growth as the economy continues to expand.
He added: “We are honoured to share a portion of the benefit from tax reform to make a difference in society with a contribution to the Chubb Charitable Foundation of $50 million.”
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