With reported earnings per share of $1.80 for the third quarter 2010, The Chubb Corporation (CB) is way ahead of the Zacks Consensus estimates of $1.40 per share. Not only did Chubb beat the estimates but also reported a strong quarter with 27.7% sequential and 6.5% year-over-year EPS increase.
In face of the challenging economic conditions Chubb has pulled off a strong profitability and book value growth. For the strong quarter, management cites its focus on bottom line and adherence to disciplined risk selection and pricing as the primary drivers.
Quarter in Detail
Net written premiums increased 1% compared on year-over-year basis to $2.7 billion. Foreign currency translations were flat in US and up 6% outside US, making negligible effect on premiums. Zacks Consensus sales estimate was $3.2 billion for the quarter.
Operating income (net income excluding after-tax realized investment gains and losses) decreased 2.7% year-over-year to $537 million, but the operating per share increased 8.3% to $1.69.
Impact of catastrophes had an increase of 163.6% year-over-year to $58 million pre-tax. Impact of catastrophes on net income and operating income per share rose 200% to 12 cents compared to same quarter last year.
Analysts had earlier expected an increased catastrophe activity which would have increased the combined ratio and shrinking underwriting income.
Combined loss and expense ratio increased .8 percentage points to 86.2% from prior year quarter and was primarily due to the 2.1 percentage points impact of catastrophes in the reported quarter.
Chubb repurchased 10.2 million shares of its common stock worth $555 million, at an average of $54.63 per share, in the reported quarter. As on September 30, 2010 Chubb had 6.6 million shares of common stock remaining under the current repurchase authorization.
Chubb Personal Insurance net written premiums increased 4% year-over-year to $980 million, while it remained flat for Chubb Commercial Insurance and Chubb Specialty Insurance.
Management increased the full year 2010 guidance of operating income per share to $5.75 to $5.85 from the previous guidance of $5.15 to $5.55. Management forecasts a operating income per share for the following quarter to be in range of $1.53 to $1.63. Guidance also assumes 322 million average diluted shares outstanding for the year.
Estimates for the quarter had been rising in the run-up to the earnings release, with 11 analysts raising estimates in the last 30 days and none declining estimates. The full-year estimate for next year has been stable in recent days, though 2 analysts gave positive revisions in the last thirty days. The current Zacks Consensus Estimate for 2011 is $5.66. The full-year Zacks Consensus Estimate for 2010 increased to $5.45 from $5.33 thirty days ago.
We think the company is poised to benefit modestly from the stable rate environment at CPI and slow declines in renewals at CCI. The bottomline EPS is also poised to benefit from the aggressive share repurchase that remains a priority for management. We thus currently have a Zacks #2 rank which translates into a Buy rating on short term basis.