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Chubb Corp. (NYSE:CB) reported its first-quarter 2010 results on April 22nd after the close of the market. Operating earnings for the reported quarter were substantially ahead the Zacks Consensus Estimate, benefiting from higher underwriting income, partially offset by high catastrophe loss.

Investors were clearly encouraged by the results, sending shares up 2.8% a day after the earnings release.

Below we will cover the recent earnings announcement, subsequent analyst estimate revisions and the Zacks Ratings for both the short term and the long term outlook for the stock.

Earnings Report Review

Beating the estimates considerably is a definite positive for Chubb’s stock price, and this inspires optimism for the future.

A quick glance at the top line reveals that net premiums written increased 1% year over year to $2.8 billion. Excluding the effect of currency fluctuation, premiums were down 3%. Premium growth was adversely impacted by currency fluctuation on business written outside the United States due to the strength of the U.S. dollar. Investment income increased 2% year over year to $313 million.

The combined ratio deteriorated to 93.6% in the quarter from 88.1% in the prior-year quarter. The increase was primarily attributable to catastrophe losses, which caused a 123 basis-point increase in the ratio. A favorable development of $220 million was recorded during the quarter.

Earnings Estimate Revisions – Overview

Chubb has experienced upward estimate revisions on the back of a favorable earnings release. This signifies favorable bottom-line results going forward, given management’s disciplined approach towards underwriting, though the top-line growth will remain restricted due to soft property and casualty markets. The earnings estimates are discussed in details below.

Agreement of Analysts

Given Chubb’s unique positioning in the property and casualty market place, and its solid balance sheet with excess deployable capital that can be used to tap attractive investment opportunities, the analyst community by and large holds a positive outlook on the company.

As a result, we see below that 18 analysts have increased their estimates for 2010, while only 2 have lowered their estimates. However, 8 analysts have upwardly revised for 2011, while 4 analysts have downwardly revised. The higher number of upward revisions for FY2010 and FY2011 indicate a likelihood of upward pressure on the performance of the stock in the near term.

Magnitude of Estimate Revisions

Estimates for FY2010 improved significantly from the operating earnings of $4.99 per share to $5.23 since the earnings announcement. However, estimates moved marginally downwards for FY2011 from earnings of $5.56 per share to $5.54.

Earnings Surprise

The following table shows that the stock has been quite steady over the last four quarters with respect to earnings surprises. The average during this period is positive 17.2%.

Our Take

We believe that 2010 will continue to be a bit challenging for Chubb due to the lingering effects of the recession, continuing soft property and casualty marketplace, higher level of catastrophe activity compared with the historical levels, and the strengthening of the U.S. dollar against the euro and the British pound will exert downward pressure on top-line (premium growth) results.

However, with an excess of capital, Chubb is favorably placed to pursue any attractive investment opportunity. But with the backdrop of current market conditions, the company is considering share repurchases which would support bottom-line results.

Chubb is currently holding a Zacks #3 Rank, which means a short-term Hold recommendation.

However, given the continued soft insurance market place and increasing competition we maintain a long-term Underperform recommendation on the shares.

Source: Earnings Scorecard: Chubb Corp.