Core operating earnings of $7.66 a share beat the FMP consensus by 89 cents even as catastrophe losses rose to $705 million. The property and casualty combined ratio rose to 84.1%, and favorable development of prior-year reserves played a large part.
Chubb absorbed more than twice the catastrophe losses of a year earlier and still produced record earnings per share. How it did so is the useful part of the quarter.
The insurer reported core operating income of $7.66 a share, up 0.8% and a record, against a $6.77 FMP consensus. Net income was $2.84 billion, up about 1.5%, or $7.30 a share, up 4.4%. Pre-tax catastrophe losses rose to $705 million from $285 million.
The shares closed Tuesday at $357.75, up 0.42%, and were little changed after hours. Management holds its call at 8:30 a.m. Eastern on Wednesday.
How the record was built
Three things carried the quarter. First, the underlying underwriting held steady. The property and casualty combined ratio, which measures claims and expenses against premiums, rose to 84.1% from 81.8% because of catastrophes, but the current accident year ratio excluding catastrophes was 82.6%, against 82.5% a year earlier.
Second, reserves helped. Favorable development on prior-year claims totaled $511 million before tax, up from $361 million a year earlier, worth roughly 4 points on the combined ratio by FinancialMarkets.com's estimate. That means claims from past years are costing less than Chubb had set aside.
Third, investments and capital returns did work. Net investment income rose 8.6% to $1.79 billion. Core operating income in dollars fell 2.2% to $2.98 billion, while core income per share rose 0.8%, a gap that reflects a lower share count.
Growth is slow
The top line is the softer part. Consolidated net premiums written rose 1.9% to $15.14 billion, or 1.8% in constant dollars. Property and casualty underwriting income was $2.06 billion. Annualized return on equity was 14.5%, and core operating return on equity 14.6%.
Market implications
One reading is that Chubb's franchise is strong enough to absorb a heavy catastrophe quarter without losing earnings power. Underlying margins were stable, investment income is rising and the beat was large.
A second reading is that the quality of the beat leans on reserves. Prior-year releases and buybacks lifted per-share results while dollar earnings fell and premium growth stayed below 2%, which leaves less room if pricing softens.
What to watch
Pricing commentary on Wednesday's call, especially in commercial property; the size of reserve releases in coming quarters; premium growth in the fourth quarter; Travelers' results from Oct. 16 and AIG's on Nov. 3 for comparison; and catastrophe activity into year-end. A pickup in premium growth would ease the concern that per-share records are coming from capital management rather than expansion.