Chubb Beats Estimates and Prior Year Results

Feb. 1.10 | About: The Chubb (CB)

Chubb Corporation’s (NYSE:CB) fourth quarter net income of $1.66 per share was ahead of the Zacks Consensus Estimate of $1.46. Results also compared favorably with the prior-year earnings of $1.58 per share. Results benefited from investment gains compared to investment losses last year.

Operating income was $569 million, the same as in the fourth quarter of 2008. Net premiums written decreased 4.0% year-over-year to $2.8 billion. Premium growth was adversely impacted by currency fluctuation on business written outside the United States due to the strength of the U.S. dollar. Management continues to emphasize on underwriting discipline in a market environment that remains competitive.

At $317 million, property and casualty investment income after tax remained essentially flat when compared to the prior-year period.

Combined ratio remained almost unchanged at 84.7% compared to the relevant period of 2008, due to the absence of catastrophe losses in both the periods. Since the company has a substantial exposure to catastrophe losses and the continued emergence of asbestos and environmental claims, we believe that the combined and expense ratios will continue to fluctuate, going forward.

Book value per share increased 4% to $47.09 at December 31, 2009, from $45.43 at the end of the third quarter.

For the full year, earnings per share were $6.14 compared to $5.58 in the prior-year quarter. Operating income of $2.2 billion was up from $2.0 billion last year. Segmental results are given below:

Chubb Personal Insurance - Net written premiums declined 3.0% year-over-year to $907 million due to a highly competitive U.S. marketplace as well as the impact of currency fluctuation on business written outside the United States. The combined ratio was 80.7% versus 80.9% in the prior-year period.

Chubb Commercial Insurance - Net written premiums declined 6.0% year-over-year to $1.1 billion. The decrease in premiums was primarily attributable to the economic downturn, and − to a much lesser extent − the impact of currency fluctuation. The combined ratio was 89.9% versus 88.8% in the prior-year period.

Chubb Specialty Insurance - Net written premiums declined 4.0% year-over-year to $771.0 million. The decrease in net premiums written was due to the impact of currency fluctuation on business written outside the U.S., lower retention levels, reduced purchases of certain coverage and reduced new business volume in the U.S. compared to the corresponding period in 2008. The combined ratio was 84.1% versus 83.8% in the prior-year period.

For 2010, management expects earnings in the range of $5.15–5.55 per share, lower than that achieved in 2009. This narrowed outlook reflects a soft pricing environment and an increasing competition. Chubb’s commercial and specialty insurance business has been suffering rate reductions over the past several years.

The company’s surety, professional liability and personal lines of business are also expected to remain under some pressure as new business pricing remains negative or at low single digits. Combined with the continued discipline in underwriting, these challenges will continue to put pressure on premiums in the near term.