Company Reports

In 2016, ACE acquired Chubb in a deal valued at about $28 billion and assumed its name. From a long-term perspective, we were most enthusiastic about the fact that the combination created a moaty international insurer with exposure across most insurance lines for the first time, marking Chubb as potentially the most attractive long-term core holding in the space from a fundamental point of view.

Like its peers, Chubb has been generating strong returns recently thanks to industry tailwinds on both the underwriting and investment sides. That remained the case in the second quarter, but lower growth suggests tailwinds could be starting to ebb.

Chubb continued to generate strong returns in the first quarter, with underwriting margins holding steady and investment income continuing to rise.

In 2016, ACE acquired Chubb in a deal valued at about $28 billion and assumed its name. From a long-term perspective, we were most enthusiastic about the fact that the combination created a moaty international insurer with exposure across most insurance lines for the first time, marking Chubb as potentially the most attractive long-term core holding in the space from a fundamental point of view.

Like its peers, Chubb has been enjoying tailwinds on both the underwriting and investment sides of the business. Those favorable trends remained in place in the fourth quarter, with the company posting particularly strong underwriting results.

In January 2016, ACE acquired Chubb in a deal valued at about $28 billion and assumed its name. From a long-term perspective, we were most enthusiastic about the fact that the combination created a moaty international insurer with exposure across most insurance lines for the first time, marking Chubb as potentially the most attractive long-term core holding in the space from a fundamental point of view.

Chubb continued to benefit from tailwinds in the third quarter. Strong industry conditions, in combination with relatively low catastrophe losses, led to a particularly strong quarter.

In January 2016, ACE acquired Chubb in a deal valued at about $28 billion and assumed its name. From a long-term perspective, we were most enthusiastic about the fact that the combination created a moaty international insurer with exposure across most insurance lines for the first time, marking Chubb as potentially the most attractive long-term core holding in the space from a fundamental point of view.

Due to industry tailwinds, Chubb bounced back to strong results in the second quarter as it moved past the California wildfires earlier this year.

Chubb saw $1.5 billion in losses from the California wildfires, which offset otherwise strong industry conditions during the first quarter.

In January 2016, ACE acquired Chubb in a deal valued at about $28 billion and assumed its name. From a long-term perspective, we were most enthusiastic about the fact that the combination created a moaty international insurer with exposure across most insurance lines for the first time, marking Chubb as potentially the most attractive long-term core holding in the space from a fundamental point of view.

Chubb produced another strong quarter to finish off the year. Like its peers, narrow-moat Chubb is benefiting from relatively strong underwriting conditions and higher interest rates. This led to a 22% annualized adjusted tangible return on equity in the quarter, in line with the previous quarter and the full-year result. We believe conditions will remain favorable in the near term, but we would caution that the insurance industry is highly competitive and inherently mean-reverting over the long run. We will maintain our $245 fair value estimate and see shares as modestly overvalued, as we believe the market is overly focused on the near-term picture.

Loss estimates from the fires in the Los Angeles area appear to be increasing. Morningstar DBRS previously estimated over $8 billion in insured losses, but we have seen larger estimates rolling in as the fires have remained largely uncontained. Early loss estimates from natural disasters are often imprecise, but it seems clear that this will be a meaningful loss event for the industry. Still, it appears losses will be manageable and will fall short of the losses the industry sees from large hurricanes. For context, Hurricane Katrina led to about $100 billion in insured losses in today’s dollars, according to Aon.

Like its peers, Chubb is benefiting from tailwinds on both sides of the business, as favorable underwriting conditions and higher interest rates are buoying profitability across the P&C insurance space. We are pleased to see that the narrow-moat company is fully exploiting this situation, with an adjusted annualized tangible return on equity of 22% in the quarter. We will maintain our $245 fair value estimate and see shares as modestly overvalued. While we appreciate the strength of the near-term outlook, we view insurance as an inherently mean-reverting industry and think the current market valuation implies that favorable market conditions will persist for a longer period than we think is likely.

In January 2016, ACE acquired Chubb in a deal valued at about $28 billion and assumed its name. From a long-term perspective, we were most enthusiastic about the fact that the combination created a moaty international insurer with exposure across most insurance lines for the first time, marking Chubb as potentially the most attractive long-term core holding in the space from a fundamental point of view.

Chubb produced another strong quarter, as the company is seeing tailwinds on both sides of the business. Attractive underwriting margins and higher investment income are combining to produce very attractive returns, with the annualized adjusted tangible ROE in the quarter coming in at 21%, basically in line with the previous quarter. We will maintain our $236 fair value estimate for the narrow-moat company and see shares as modestly overvalued. While we appreciate the favorable outlook, we see insurance as an inherently mean-reverting industry and think the market is overly focused on near-term positives.

Higher interest rates have boosted investment income and have had a material positive impact on overall returns for our domestic property-casualty insurance coverage. While insurers with low fixed-income duration have seen the largest impact, the effect has flowed through our coverage. Interest rates and investment income are only part of the story for insurers, but the outlook for underwriting is strong as well, in our view. Following a few years of solid price increases, commercial insurers have seen underwriting margins stabilize at an attractive level. Personal auto insurers have endured some difficulties recently, but strong pricing increases have improved combined ratios. With both sides of the profit picture already strong or improving, we expect our P&C insurers to generate unusually attractive results in the near term. However, we believe the market has overreacted to these tailwinds, and we see our coverage as generally overvalued. Investigating historical underwriting results for a P&C insurance peer group strongly suggests that underwriting results adjust over time to changes in interest rates, and underwriting margins have improved over the past few decades as interest rates fell. If interest rates stay high, we expect underwriting margins will compress, and returns will normalize. Our fair value estimates hinge on the idea that returns for our coverage will ultimately return to a level roughly in line with historical averages. If the industry does mean-revert over the next few years, investors will pay an overly rich price today for most of our coverage.

Like its peers, Chubb is posting strong results at the moment amid a hard pricing environment and higher interest rates. Annualized core tangible return on equity was impressive at 22%, but not out of line with what we've seen from peers. We think the near-term outlook is bright for Chubb and see the narrow-moat company as one of the strongest names in the space. We will maintain our $236 fair value estimate and see shares as about fairly valued.

In January 2016, ACE acquired Chubb in a deal valued at about $28 billion and assumed its name. From a long-term perspective, we were most enthusiastic about the fact that the combination created a moaty international insurer with exposure across most insurance lines for the first time, marking Chubb as potentially the most attractive long-term core holding in the space from a fundamental point of view.

Narrow-moat Chubb's reported fourth-quarter earnings were aided by a $1.1 billion one-time tax benefit related to a new income tax law in Bermuda. However, even excluding this impact, results largely held strong, with annualized return on equity coming in at 16%, or 24% on a core tangible basis. For the full year, ROE was 22% on a core tangible basis, excluding the tax impact. Like its peers, Chubb has been benefiting from a hard pricing environment, but we also think that relatively disciplined insurers like Chubb have more leverage to this type of market condition. We will maintain our $226 fair value estimate and see the shares as roughly fairly valued at the moment.