Chubb Ltd. - Bigger And Better In A Soft Market
Stephen Simpson, CFA
Stephen Simpson, CFA
Chubb: Detailed Analysis Of A High Quality Insurer
Zero Gravitas • 97 Comments
Zero Gravitas • 97 Comments
Yesterday, 10:23 AM
- An improved outlook for interest rates (higher) and the hope for an easing of the DOL's new fiduciary rule in a Trump administration mean it's time to shift money into the life insurance sector, says RBC's Mark Dwelle.
- P&C insurers face weak pricing expectations, so the focus will be on accident-year margin pressure and the implications for reserves.
- Alongside an earlier-reported downgrade of Aflac (NYSE:AFL) to Underperform (stock is now down 2.3%), he cuts RLI Corp. (RLI -5.2%) to Underperform as well.
- Downgraded to Sector Perform are Unum (UNM -1.6%) and Selective Insurance (SIGI -4.6%).
- Favored pick in P&C is Chubb (CB -0.2%) as it's a "top underwriter" regardless of pricing, and has a clean balance sheet and attractive valuation.
- Upgraded to Outperform are Hartford (HIG +0.5%) and Lincoln National (LNC -0.1%), with LNC a Top Pick thanks to its leverage to higher rates and eased DOL rule.
- Top value ideas are AIG (AIG -0.1%) and Voya Financial (VOYA +0.5%). Top growth ideas: Arch (ACGL +0.6%), Principal Financial (PFG -1.1%). Top small-cap picks: American Equity (AEL +3.9%), Kinsale Capital (KNSL +1.1%). Top turnaround/self-help picks: MetLife (MET -0.6%), XL Group (XL -0.1%). Top defensive play: Marsh & McLennan (MMC).
- Source: Bloomberg
Thu, Dec. 1, 8:43 AM
- Analyst James Naklocki expects Travelers (NYSE:TRV) to "drag its feet" on factoring in lower tax rates into pricing, thus allowing margins/returns to stay high vs. peers.
- Commercial line insurance brokers like TRV and Chubb (NYSE:CB) would seem to benefit most from a big infrastructure bill promised by the incoming president.
- He upgrades to Buy from Neutral with a Street-high $130 price target (about 15% upside).
- Alongside, he downgrades Arthur J. Gallagher (NYSE:AJG) to Neutral from Buy, saying mid-sized brokers could have a tough time growing organically if U.S. commercial pricing falls. For AJG in particular, its tax credit producing clean coal business is likely to suffer under the next administration.
- Source: Bloomberg
Thu, Nov. 17, 4:24 PM
Tue, Nov. 15, 7:53 AM
- Downgraded to Neutral from Buy is Chubb (NYSE:CB), with analyst Michael Nannizzi saying the company has been a beneficiary of low interest rates, but with the shares having recently outperformed and rates on the rise, it's a good time to rotate towards other names. The price target is cut to $133 from $140 (last night's close was $126.90).
- Cut to Sell from Neutral is AXIS Capital (NYSE:AXS), with Nannizzi saying higher inflation could be an outsized negative for the company and pressure margins. The stock's premium valuation, he says, is unsustainable.
- Upgraded to Buy from Neutral is Willis Towers Watson (NASDAQ:WLTW) as Nannizzi views the recent pullback since Q3 earnings as a buying opportunity. The newly combined company is hard at work at improving margins, he says. The price target is hiked to $131 from $126, suggesting 7.4% upside.
- Also catching an upgrade is Everest Re (NYSE:RE).
Tue, Oct. 25, 4:26 PM
Mon, Oct. 24, 5:35 PM
- AAPL, ABAX, AIZ, AKAM, AKR, AMP, BCR, BLDP, BXMT, BXP, CB, CEB, CHRW, CINF, CLI, CMG, CNI, COF, CSL, CSV, CVA, DFS, DGI, EQR, ESRX, ETH, EW, FSP, FUEL, HIW, HT, HTA, IRBT, JNPR, LOGI, MDR, MRCY, NBR, NCR, NUVA, OI, P, PNRA, PSB, QTS, RMD, RNG, ROIC, RRC, RSYS, SKT, TMK, TRMK, TSS, UDR, UIS, UMBF, USNA, VRTX, WFT, WRB, WSBC, ZIXI
Thu, Oct. 20, 11:32 AM
- Reinsurers sell coverage to other insurance companies for natural disasters and such. While they wait for loss-triggering events to happen, the reinsurers collect premiums which they can then invest. Warren Buffett (BRK.A, BRK.B) credits this "float" as a big factor behind his great fortune.
- But business isn't what it used to be, write Sonali Basak and Noah Buhayar in Bloomberg, and Buffett sold stakes in Swiss Re and Munich Re last year, saying prospects over the next decade don't look great. He also put new leadership in charge of Berkshire's General Re to try and reverse more than a decade of shrinking float.
- Among the issues are what's turned into years of barely visible interest rates. “It is no fun,” says The Oracle, to “find out that a great many of the things that you were buying a few years ago now have negative yields.” It's also become a more crowded field with the entrants first of David Einhorn (NASDAQ:GLRE) and more recently Dan Loeb (NYSE:TPRE) helping to create a price war, with premiums down 40% over the past decade.
- Insurers can also now turn to investment banks to lay off risk by issuing catastrophe bonds - a market that's grown from $9.2B to $25B over the last ten years.
- A shakeout is already underway as there have been a number of sector mergers. What might further shake things up would be a catastrophe big enough to cause significant industry losses.
- Interested parties: CB, RNR, AHL, ENH, AXS, ACGL, RGA, UNM
Thu, Oct. 6, 11:23 AM
- The National Hurricane Centers says Hurricane Matthew has already strengthened to a category 4 storm, with some additional strengthening possible as it approaches Florida.
- Universal Insurance (UVE -10.1%), United Insurance (UIHC -7%), Federated National (FNHC -8.2%), HCI Group (HCI -11.8%), Heritage (HRTG -13.1%).
- The team at CreditSights notes Progressive (PGR -1.3%), Allstate (ALL -0.7%), AIG (AIG -0.4%), and Chubb (CB -1%) as all names with top-20 market shares in the hurricane-loss prone lines of business, and are in the top-20 writers of homeowner's insurance in Florida.
- These shops are large and diverse though. While losses could create a hit to earnings, they're unlikely to damage credit in any large way.
Thu, Oct. 6, 3:16 AM
- Millions of Americans are heading for higher ground as Hurricane Matthew barrels toward the Florida and South Carolina coasts and the death toll from the monster storm climbed to at least 26.
- Florida Gov. Rick Scott said 1,500 National Guard members had been activated and he asked President Obama to declare a federal emergency in 26 counties.
- Related stocks: CB, ALL, PGR, TRV, GNRC, NEE, CCL, RCL, DIS, SEAS
Tue, Oct. 4, 3:44 PM
- "We would wait to buy the P&C (re)insurance stocks until after Matthew passes and note the stocks tend to rebound post landfall when damages are not as bad as feared,” says the team at JPMorgan.
- Expected to hit Florida late Thursday, Matthew could dump as much as 10 inches of rain over parts of the state.
- Chubb (CB -0.8%), Allstate (ALL -0.8%), Progressive (PGR -0.6%), Travelers (TRV -0.4%), Universal (UVE -4.5%), HCI Group (HCI -2.6%), United Insurance (UIHC -1.9%), Cincinnati Financial (CINF -0.8%).
Fri, Sep. 23, 8:12 AM
- Global catastrophe reinsurance prices fell again this year, and they're now below levels last seen in 2001 before the 9/11 attacks, according to research firm Guy Carpenter.
- Source: WSJ's Paul Davies
- At issue are barely visible interest rates which have led to a wider range of investors looking to earn some sort of return by underwriting reinsurance risks. There's also been a lack of costly disasters in recent years, leading to a buildup of capital in search of work. Even as some insist reinsurance prices may soon find a floor, there's another issue - ordinary property insurance is suffering low demand, meaning demand from ordinary insurers for reinsurance is slowing.
- Options to improve returns, then, are narrowed to taking on more insurance risk or boosting balance sheet leverage, and there are signs the industry is doing both. Moody's notes reinsurers writing policies with higher probable maximum losses, especially those linked to U.S. hurricanes.
- There's also worry insurers will put less money aside today to cover futures claims as a way to boost underwriting profits.
- Finally, reinsurers looking for new business are attempting to move more structured policies.
- Interested parties: Chubb (NYSE:CB), PartnerRe (NYSE:PRE), Everest Re (NYSE:RE), RenaissanceRe (NYSE:RNR), Aspen (NYSE:AHL), Endurance Specialty (NYSE:ENH), Axis (NYSE:AXS), Arch Capital (NASDAQ:ACGL), Reinsurance Group of America (NYSE:RGA), Unum Group (NYSE:UNM).
Thu, Aug. 11, 9:34 AM
Tue, Jul. 26, 4:35 PM
Mon, Jul. 25, 5:35 PM
- AAPL, AIZ, AKAM, AKR, ALDR, AMP, APC, ARI, ASH, AXS, BCR, BJRI, BLDP, BVN, BWLD, BXMT, BXP, CAVM, CB, CEB, CHRW, CINF, CNO, CSV, CTXS, CUZ, CVA, DDR, DMRC, DOX, EQR, ETH, EW, FSP, FTK, GHL, GLF, GMED, HUBG, HURN, ILMN, IRBT, JBT, JNPR, KN, LLTC, LNDC, MDR, MTCH, MTSI, NANO, NCR, NUVA, OIS, PEI, PNRA, PSB, QTS, RGC, RHI, RNR, RRC, RSYS, SGEN, SKT, TGB, TRMK, TRU, TSS, TWTR, UDR, UHS, UIS, ULTI, UMBF, USNA, VR, WES, WGP, WNC, X, ZION, ZIXI
Tue, Jul. 12, 4:35 PM
- In light of the elevated number of natural catastrophes in Q2, Chubb (NYSE:CB) provides an estimate for what it suffered - $390M, or $315M after-tax. This stands against the company's internal projection for $280M pretax.
- "The company expects this special disclosure will further investors' understanding of the new Chubb and contribute to the accuracy of the investment community's financial models," says CFO Philip Bancroft.
Mon, Jul. 11, 3:55 PM
- With the stock price above $130, it's a "good time for investors to take their foot off the gas a little," says Charles Sebaski, downgrading Chubb (CB -0.2%) to Market Perform from Outperform. He remains bullish on the long-term prospects, but after a 25% Y/Y run higher, it's time to "wait for a better entry point."
- Checking the rest of BMO's property & casualty coverage, Outperform-rated names are James River Group (JRVR +0.4%), Hanover Insurance (THG +0.5%), Arthur J. Gallagher (AJG +0.6%). Market Perform: AIG (AIG +0.6%), Travelers (TRV +0.1%), Aon (AON +0.6%), Brown & Brown (BRO -0.7%), Marsh & McLennan (MMC).