Q4 2020 Chubb Ltd Earnings Call
Good day and welcome to the Chubb Ltd fourth quarter year end 2020 earnings call. Today's conference is being recorded if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you were using a speaker phone. Please make sure your mute function the eastern Gulf to allow your signal to reach our equipment.
And now for opening remarks, and introductions I would like to turn the call over to MS. Karen Beyer Senior Vice President of Investor Relations. Please go ahead.
Thank you welcome everyone to our December 31st 2024th quarter and year end earnings Conference call.
Our reported today will contain forward looking statements, including statements relating to company performance pricing and business mix and economic market conditions, which are subject to risks and uncertainties and actual results may differ materially.
Please see our recent SEC filings earnings release, and financial supplement which are available on our website at investors Dot Chubb dot com for more information on factors that could affect these matters.
We will also refer today to non-GAAP financial measures reconciliations of which to the most direct comparable GAAP measures and related to tell.
In our earnings press release and financial supplement.
Now, it's my pleasure to introduce our speakers first we have Evan Greenberg, Chairman and Chief Executive Officer, followed by Phil Bancroft, Our Chief Financial Officer, and then we'll take your questions also with us to assist with your questions are several members of our management team and.
And now it's my pleasure to turn the call over to Evan.
Good morning.
As you saw from the numbers, we had a very strong finish to the year with excellent financial results headlined by rapid premium revenue growth in underwriting margin improvement across our commercial lines portfolio in both the U S and internationally.
The trend we are confident will continue we produced very good earnings and our balance sheet is in excellent shape.
Our fourth quarter results were in context of the historic and unprecedented time, we live in nationally and globally.
We continue to face the health economic political and social impact.
With 19 pandemic globally, which might now be more accurately viewed as an endemic and which despite the efficacy of vaccines and therapeutics will likely be with us for years to come.
Before I go further with the quarter I wanted to make a few comments about recent events in our country.
We all witnessed the shocking display of Demagoguery, and then selection by a group of our own citizens in our nations capital in early January.
We witnessed as seen in our capital building never before viewed in our countries 200 year history, including the totally unacceptable display of symbols of hate bigotry violence and anti-semitism in the halls of Congress.
Incident has left our country shaken and our international image tarnished.
Some members of Congress attempting to subvert the will of the people and standard in the way of what is largely a certain ceremonial affirmation of the electoral college boat was also unacceptable.
At the end of the day the facts are the facts all of the independent institutions, we charged with overseeing our election process.
<unk> the department of Justice, the new Federal Cyber watchdog agency state and federal courts and state election officials investigated opine I confirm there was no widespread election fraud Jos.
Just because you don't like the political outcome doesn't give you the right to make up your own facts or attempt to subvert our democracy and the rule of law.
This isn't going away and there's a wake up call to all of us per about because I love our country.
Now returning to our fourth quarter results, we recorded core operating income of $3 18 per share.
Up nearly 40% from prior year and net income was $2 4 billion or $5 34 per share up over 100%, which by the way was a record.
We produced strong premium revenue growth in the quarter with global P&C net premiums written which exclude agriculture up 6%.
Our P&C combined ratio of 87, six along with very good net earned premium growth produce P&C underwriting income of $969 million up 82%.
While our current accident year underwriting results, excluding cats were even better supported by continued underwriting margin improvement and excellent revenue growth and our.
Commercial P&C businesses globally, as we continued to capitalize on more favorable underwriting conditions.
The current accident year combined ratio, excluding cats was 86, four compared to 90% prior year.
The three six percentage points of improvement included two eight points of loss ratio related improvement, which was broad based.
Let me give you a better sense of this.
Agriculture improved 27 points.
And then excluding agriculture, the global P&C commercial lines loss ratio improved about one and a half percentage points.
Virtually all as a result of earned rate exceeding loss cost trend the loss ratio for global P&C consumer lives, which is global A&H and global personal lines <unk>.
Proved one two percentage points, the vast majority of which.
Was indirect COVID-19 benefit related.
Phil will discuss the expense ratio improvement in the quarter.
So very briefly recap the year, though we had an entire quarter of earnings loss to our effort to reserve Covid to ultimate and a very active year for natural catastrophes, We produced 3.3 billion of core operating earnings.
The full year published P&C combined ratio was 96 one.
Paired to 96 and 19.
The full year P&C current accident year combined ratio, excluding cats was 86, seven compared to 89, two which speaks to our underlying health.
Our full year premium revenue growth was about five 5% in constant dollar with commercial lines growth of nine 3%.
I mentioned in the beginning of a strong balance sheet the strength of our loss reserves, which is the most important part of the balance sheet improve throughout the year.
Consistent with our practices, we continue to recognize bad news early and any potential good news late.
On the one hand, there had been no changes to our P&C COVID-19 incurred loss charge, which we consider adequate to absorb COVID-19 losses that may emerge.
Vast majority of the charge remains IV in order.
On the other hand, we have recognized only a modest degree the reduction in losses, mostly frequency due to the economic shutdowns.
Beyond Covid related we have also purposely strengthened reserves increasing the strength of our reserves is the prudent thing to do given the uncertainty in the environment.
Book and tangible book value per share were up seven 7% and 12, 2% respectively for the year.
Phil will have more to say about investment income book value cats and prior period development.
Turning to growth and the rate environment.
As I said global P&C premium revenue in the quarter, which excludes agriculture grew 6%.
Comprising 11, 3% growth in commercial P&C and three 9% decline in consumer lives.
Consumer lines result included negative growth in global A&H.
International personal lines and positive growth in North America personal lines.
In the quarter, we continued to experience a strong and continuously improving commercial P&C pricing environment globally.
In fact, the level of rate and rate of increase was the strongest since this part of the underwriting cycle began approximately three years ago.
I expect the favorable underwriting conditions to continue.
In North America commercial P&C net premiums grew 10%.
And that actually includes a reduction in growth of three points due to reduced exposures from the decline in economic activity.
New business was up nearly 12% and renewal retention remains strong at over 95% on a premium basis.
In our North America major accounts and specialty business.
Net premiums written grew over 11, 5%.
While our middle market and small commercial business grew nearly 8%.
Overall rates increased in North America commercial P&C by 16, and a half per set with a loss cost trend of approximately 5%, though it varies up or down depending upon line of business let.
Let me give you a better sense of the rate movement.
In major accounts risk management related primary casualty up 7%, while general casualty rates were up over 36% and varied by category of casualty.
Property rates were up over 30% and financial lines rates were up over 26%.
And our E&S wholesale business the Westchester per.
Pretty rates were up over 23 per cent.
Casualty rates were up nearly 29 and financial lines rates were up over 26%.
In our middle market business rates for property were up over 15% casualty rates were up nearly 12, excluding workers' comp with workers comp rates up about a half a percent.
Financial lines rates were up over 20%.
And our international General insurance operations commercial P&C net written premiums grew 14% in the quarter.
Our international retail commercial business grew 9%.
London wholesale business grew over 32%.
Retail commercial P&C growth varied by region with net written premiums up 17, and a half in the U K.
<unk> 16, and a half on the continent and over 16% in Asia Pacific, While Latin America shrank, 14% as a combination of insurance market and economic conditions weigh on Latin America.
Internationally like in the U S. In those markets, where we grew we continued to achieve improved rate to exposure across our commercial portfolio.
And overseas Gen rates were up 18, 5% overall with the loss cost trend of 3% rates were up 17% and international retail and 26% and London wholesale.
Consumer lines growth globally in the quarter continues to be impacted by the pandemics effects on consumer related activities.
Our international personal lines business, and our global A&H business together shrank, 8%.
We expect growth to return.
And to begin to return in these businesses as the year goes along.
Our North America high net worth personal lines business, what we call personal risk services. However remains an exception with net premiums up two and a half a percent in the quarter.
We continue to experience flight to safety and quality and our high net worth segment, new business was up six 5%.
Retention remains strong at about $92 three while we continued to achieve rate increases of four five per cent.
Our global re business grew its net premiums written about 14 and a half.
Lastly, in our Asia focused international life insurance business net written premiums were up 25% in the quarter.
In sum.
We are in a continuing hard or firming market for commercial P&C in most all parts of the world.
The rate environment in my judgment is a rational and.
Necessary response to years of underpricing of risk and a more uncertain risk environment today.
Given our years of data and analytics capabilities and underwriting Knowhow, we know what rate we need in order to achieve an adequate risk adjusted rate of return from underwriting and that is the objective.
Some lines are there while others have a way to go virtually all of our commercial P&C lines of business throughout the year have been achieving rates that exceed loss cost and so margins continued to improve.
Looking forward, we are off to a very good start to the year in the first quarter, both growth and the level of rate increase we are achieving look a lot like the fourth quarter.
Based on everything we see the current commercial market condition has legs life.
Colleagues and I are confident in our ability to grow our business and continue to expand margins.
As I said I expect as the year progresses, our sizable consumer business will return to growth.
By almost any measure our company performed admirably.
Distinguished itself during the past year, and I applaud and I'm, so grateful to our more than 31000, Chubb plywood colleagues around the globe, whose resilience determination and dedication have produce distinguishing results for our clients and shareholders interest.
Spite of work from home conditions.
I also want to recognize our global management team, who lead to reinforce our culture and discipline.
Oh, well ahead of our performance every single day.
In closing our company finished the year with a strong performance and momentum that continues we are leaning into the current favorable underwriting conditions and capitalizing wherever we can get paid adequately to assume risk and volatility we are in fact growing exposure.
Our people are energized and we have all of the capabilities in place to grow our company profitably and increase shareholder value.
With that I'll turn the call over to Phil and then we're going to come back and take your questions.
Thank you Evan.
We completed an eventful year with solid financial results and continued to build on our balance sheet strength, including substantial capital of almost 75 billion.
Supported by extraordinary fed actions are double AA rated portfolio of cash and invested assets grew almost $10 billion per year and now exceeds 120 billion.
Excellent underlying underwriting and investment performance produced very strong operating cash flow of $2 5 billion for the quarter and a record $9 8 billion for the year.
Among the capital related actions in the quarter, we returned $542 million to shareholders, including $352 million in dividends and $190 million in share repurchases for the year, We returned $1 9 billion to shareholders or 58% of earnings.
Including $1 4 billion in dividends and $516 million in share repurchases.
Adjusted pre tax net investment income for the quarter was $924 million.
And $3 6 billion for the year.
Investment income in the quarter was higher than our estimated range and benefited from increased corporate bond call activities and greater private equity distributions.
Well there were a number of factors that impact the variability in investment income we now expect.
Run rate to be in the range of $890 million to $900 million.
Separately.
Policy has always been to record the change in the fair value Mark on our private equity funds outside of core operating income.
Realized gains and losses in <unk>.
Set of net investment income as other companies do.
The gain from the fair value Mark is included in investment income would have increased adjusted net investment income by $485 million for the quarter and $714 million for the year.
Our annualized core operating ROE in core operating return on tangible equity.
10, 7% and 17, 1% respectively for the quarter.
If we had included the fair value Mark on our private equity portfolio and our core operating income core operating ROE would have been higher by three five percentage points for the quarter.
During the past few quarters since S&P global ratings published their ratings update on Chubb management has had discussions with S&P regarding jobs track record of strong and diverse underwriting results and operating performance.
This has resulted in the company updating your capital management policy to calibrate its estimate of capital adequacy from S&P AAA level.
S&P's double the level. We believe this is sufficient to maintain our double a rating.
Our capital management policy remains consistent.
We hold surplus capital for both risk and opportunity.
Our unemployed capital.
On a run rate basis dilutes, our core operating for or we buy around 200 basis points.
Yeah.
We are also announcing today that our board has increased the authorization to repurchase shares by 1 billion.
Our total repurchase program now allows for up to $2 5 billion between January one and December 31 of 2021.
Both the intangible book value increased five four and 8% respectively for the quarter and $7 four an 11, 9% respectively for the year.
Book and tangible book value were favorably impacted by after tax net realized and unrealized gains of $2 billion for the quarter and $2 5 billion for the year.
Gains were principally in our investment portfolio, primarily from the narrowing of credit spreads in our corporate bond portfolio a.
The decline in interest rates and the fair value Mark on private equities.
At December 31, our investment portfolio was in an unrealized gain position of $4 7 billion after tax.
Our net catastrophe losses for the quarter were $314 million pre tax or $271 million after tax the P&C catastrophe losses of $296 million were primarily from a series of severe weather related events globally.
There were no changes to the previously reported estimates of our P&C COVID-19 incurred loss charge from June 30.
We had favorable prior period development in the quarter up 206 million pre tax or $189 million. After tax. This included $94 million pretax adverse development from our legacy runoff exposures principally related to asbestos.
The remaining favorable development of $300 million is split 70% from long tail lines, principally from accident years 2015 and prior.
And 30% from short tail lines.
For the year, our net loss reserves increased $4 3 billion in constant dollars and are paid to incurred ratio was 80%.
The P&C expense ratio was 28% in the quarter with a 70 basis point improvement over the prior year about half of the improvement is from the health related shutdown and the balances principally from operating efficiencies.
Our core operating effective tax rate was 15, 2% for the quarter and 15, 8% for the year.
For 2021, we expect our annual core operating effective tax rate to be in the range of 15% to 17%.
I'll turn the call back to Karen.
Thank you at this point, we're happy to take your questions.
Okay.
Once again, if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you were using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment and we will take our first question from Michael Phillips with Morgan Stanley. Please go ahead.
Thank you and good morning, Evan Thanks for everything.
Can you talk about your ability in times like this with rates so much higher than non mall strength durability.
Programs you have in place I guess to keep your business sticky and your attention today.
I'm, having a very hard time hearing you can you get closer to your microphone or something.
I'm sorry is this better Evan.
Yes, that's better please go ahead.
It sounds like this with rates so much higher than last I think is able to get can you just talk about programs. We have in place to keep your business sticky and keeping attention Todd.
Keeping retentions high.
Under the program.
I'm sorry are you, saying the programs we have in place to keep on pensions.
That's correct keep keep your business sticky or not moving elsewhere.
Yeah.
Yeah.
We.
It's very basic blocking and tackling every single day. This is a customer and client focused company.
And frankly, our communication begins early and its continuous with all of our clients and customers.
We endeavor not to surprise, we explained very clearly to our customers and clients. The reason for need for rate increase how we're running today that kind of transparency will give you we give them a lot of transparency.
Around the loss cost environment around our return hurdles around our rapid tight for risk that.
Consistency if the company has.
By itself.
Distinguished itself, and and and we've stood out in and given and therefore garnered a lot more credibility and confidence from our clients Chubb has been consistent in its approach about underwriting and its need for rate throughout the years, particularly.
When we were shrinking and no when we couldnt achieve what we required to earn an adequate return and at the same time, given the rate environment changing our appetite consistent we continue to promote.
And on the same basis, our appetite for the amount of risk we will take the classes of business that we will serve where we will serve them all of that is a well understood story about us and finally, what I'd say is we don't serve them in one line of business or two lines of business.
We serve for them broadly across virtually all of their needs and the secret we do it on a local basis. It isn't simply that we operate from two or three hubs, where they do business and where they need to work with us and see US every single day.
There is no.
Magic sauce about this.
It's a day to day year in and year out effort of our consistent approach to how we do business and right now it serves us quite well.
Thanks, Evan I guess on the Covid losses, almost a year out now.
The early stages, one and then there are a number that says it's going to be the worst event ever.
Some are still saying that but there is many that have put the industry losses.
Lower than what you initially had said.
I guess, where do you stand on that and do you think there is any upside to bring in your current numbers that you put up last year down there.
Assets.
Right, where you left me standing.
I think the loss to the industry.
You know, we had pegged that loss somewhere in the underwriting loss somewhere in that $70 billion $80 billion range and I think its ultimately going to play out there right now it's at around $35 billion to $40 billion.
And that number is going to continue decline in so far you've really focused on D. I that you've seen in D. I I don't think has run its course, but beyond that there are a lot more casualty to come.
DNO to employment practices liability et cetera, and credit related and then the other side of the balance sheet as well over time. So far we have had a a a a recession that has been relatively credit loss proof brought to you by.
By central banks around the world and government policies that stuck in a last forever and there is.
They're just look at how the banks have handled reserves.
There is more to come.
Okay, great. Thanks, Evan.
You got it.
If you find your question has been answered you may remove yourself from the queue by pressing star too. We will now take our next question from David <unk> with Evercore ISI. Please go ahead.
Hey, good morning.
I had a question just on the international consumer lines.
And I guess, you know pretty encouraging commentary that you expect that to come back as the year progresses Evan.
I guess, one thing that I'm, realizing as it feels like the mix shift away from those consumer lines has had so there's been somewhat of a headwind to.
The loss ratios into margins overall.
Over the course of 2020, so I guess I'm just wondering maybe if you could size that and then help us think about the positive margin benefit that may have as the mix shifts moves you a little bit back towards that.
As we get through the course of 2021.
Yeah I.
I'm not sure you're thinking about that completely right.
Consumer lines.
Depends on line of business within consumer.
We saw net accident health are we talking about.
Automobile.
But in.
In general runs a lower loss ratio, but it runs at a higher expense ratio.
We're producing the current accident year in the eighties.
And the consumer lines of business.
Yeah I agree.
That kind of range.
So it's a shift in loss ratio expense ratio predominantly now that varies which I'm not going to get into with you and then your <unk>.
Going down the rabbit hole it varies by region of the World and international versus domestic that you really spoke about the.
International in that regard so you know look.
Look it as it comes back it lives growth and it lists earnings.
And it's less of a margin story.
Yeah.
Got it that's helpful.
It helps.
Thanks for clarifying that pairing that Jack I'm, comparing that to current accident year ex cat.
Right on a public life.
So it's been a publicly it's not that different it should be.
On a published basis.
It will have.
Some benefit.
I'm not prepared to go into the detail of that.
Okay.
Okay, that's fair.
And then I guess just a question on on North America commercial so we're obviously seeing.
Continued positive rate trend, there 16, and a half points in the fourth quarter.
I guess my question is.
If I look at the current accident year loss ratio ex cat.
About 120 basis points improvement year over year.
That.
Paris, two and average rate I think that you guys have said over the last five quarters, it's been well above 10% I think closer to 13%. So it sounds like it's you know I.
I would say maybe eight points above trend roughly I.
I I guess I'm wondering what are the moving pieces here I'm thinking maybe mix shifts.
That would explain why we're not seeing.
More more of the of the rate above trend come through in the loss ratio.
If you look.
Listened to me in the commentary.
I spoke about.
Reserves.
I also wrote down.
This quarters.
Loss ratio margin improvement.
And.
As you heard there was a greater percentage of improvement for commercial P&C.
Then there was for consumer lives within global P&C.
And so.
You are seeing margin improvement.
On the other hand.
We are.
Striving and will achieve an adequate risk adjusted return.
Which says that were pegging ourselves.
To achieve.
But achieve a result like that raise the bar.
And.
In a market like this where we're growing exposure.
And there is more loss cost and certainty as we looked forward COVID-19 and non COVID-19 related.
We are properly building reserve margin earned at the same time through growth and margin improvement.
Not a small amount and a current accident year combined ratio that is world class, we are delivering tremendous earnings.
At the same time, we're building balance sheet strength.
Absolutely the right thing to do.
And I hope that answers your question and finally don't be overly simplistic about it and you Warren.
You got an average loss cost trend.
Varies by category of business and line of business.
And we are also growing and in areas that is to some degree changing our mix right now.
Something else.
It's proprietary I'm not going to go into so that does have.
And impact as well to some degree.
Got it okay, great. That's helpful. Thanks for the color there.
Youre welcome.
We will take our next question from Elyse Greenspan with Wells Fargo. Please go ahead.
Good morning.
Thanks, Evan good morning.
My third question now is higher.
Bob mentioned.
That's what we can see reinsurance rate increase.
On.
January one we heard about a bit in Apple has LTE reinsurance rate increases though.
You see that.
That's helpful.
The pricing momentum that we've been talking about Wow for commercial lines.
No not not really at least the reinsurance market in January was.
Was firmed.
To a lesser degree than we anticipated.
And there was a bit surprising to us both in cash.
Casualty and short tail lines.
Less of an impact.
Would you expect on how we think about more retention.
That's moved by a lot of different reinsurance program, but maybe just thinking about North America commercial or would you expect any significant change in your gross to net retentions in 2021.
No not not significant change targeted in specific areas we.
We already have changed our retentions.
But it is it is it is on the margin we're quite consistent.
Remember, we buy reinsurance.
Both for.
Capacity purposes, where the amount of exposure, we take us beyond.
What we want to retain on the balance sheet and we buy a certain amount for volatility protection.
And you know that that's pretty steady and how we manage with there are targeted areas.
Again, something I won't go into in any detail.
Okay, and then one last for me I'm backing on you made a lot of.
Price increases implemented worldwide volume.
Across many lines.
Hum.
Some lines that have a weighted that way.
Hum, which blinds and I'm, assuming that's online player.
Perhaps you know all about that 5% aggregate, but when you think about the commercial book on what line.
Same time.
Is that about the rate increase.
Right and remember it's too.
We translate combined ratio hurdles.
From what we considered to be.
An appropriate risk adjusted rate of return, we should be earning in any line of business.
And there are lines of business around the world.
I'd have a ways to go.
And achieving that and there are lines that are approaching it or or half.
Or are there so it varies.
I'm not going to go into what's what that's that as you can imagine is clearly proprietary I'm not going to give a roadmap to the market.
Yeah.
Okay. Thanks, Evan authority along strike.
Thank you.
Youre welcome.
We will take our next question from Brian Meredith with UBS. Please go ahead.
Yeah. Thanks before I ask my question just I know, we got you for another quarter, Phil but I just want to congratulate you on your retirement I should surprise you having to actually let you go.
But.
Here's my here's my questions there.
First one Evan could you talk a little bit about the A&H business right now and we don't want to understand is how coincident growth net business with economic growth and perhaps maybe you can kind of outline for us where is the growth more important globally to start seeing that.
Growth come back in that line of business.
Yeah, you know I mean.
To give a T N two.
Barry the simplest ways.
It's more complicated than this but but I think we will.
We'll hope you conceptualize it credit and travel.
Okay.
But it's not so it's not simply economic it's okay. It's the it's it's it's the shutdown and travel.
Jim.
Well, let's take it for a couple of lands you would think of travel is simply okay retail travel insurance that you sell through through travel agents et cetera or airlines.
A small part of it employ yours.
And employer purchased insurance, where it's really it's purchased not for employees in the office, it's purchase because they are employees traveling all the time travel accident insurance.
As an example.
With travel down and then on top of it economic.
The economic headwinds.
That impacts overall A&H.
A major part of Anh around the globe, whether it's in the United States, Europe Asia or Latin America.
Credit related we have a huge direct marketing book of business and it is principally Asia, and Latin America, and with people taking less credit.
On one hand, and secondly, not just tied to credit book marketing to their customer bases.
Middle income customer for four.
Supplemental insurances A&H.
Just homeowners and householders related.
Think on the credit side, as well mortgages with economic activity down that business.
Slows down substantially.
We are seeing signs of it and it is beginning to pick back up but it has a ways to go in Asia in particular and believe it or not I didnt parts of Latin America.
Chile and to some degree and a place in places like Brazil. So.
This does start to and we're seeing it in the first quarter.
A bit.
In different areas to pick up and then of course as you go further.
Into the year, beginning with the second quarter, you start getting a year on year comparison.
Great. Thank you that's really helpful and then.
As the visit is by the way the overall health of the business very strong and this is not like Oh lost forever thing.
The clients remain in place the distribution not only remains in place, but our people have spent a lot of time, putting a lot of new distribution.
Channels in place a new partnerships across the board and we are very optimistic.
But as time goes on and I just can't fix the time.
No you're trying to pick.
The timing of the health crisis, right now and.
When does it when are we able to around the world resume travel economies open up people leave their homes and get back to work.
Good luck.
Predicting that you can't but what we know is it will over time heal itself and as it does a very vital part of our franchise.
He is an excellent franchise in place and we'll get a lot more joy for the effort we got good day.
Great. Thanks.
Second question I'm, just curious Joe mentioned, the 200 basis points of drag from your excess capital position right. Now I'm. Just curious do you think you'll be able to use that excess capital organically over the next couple of years or do you think you'll need to do some inorganic stuff in order to.
Utilize that excess capital or would you anticipate utilizing it.
I anticipate over the next number of years next few years, you know I'm, a pretty patient guy.
And I expect over the next.
Medium term to put that capital to work either organically or inorganically.
Got it is the market condition.
Okay.
Chubb remains a growth company.
And.
And that's how we see ourselves and it is predominantly to begin with the most fundamental shareholder wealth creation.
Indicators tangible book value.
By tangible book and book over any medium term period of time, we will continue to grow this company.
And our share of the global insurance market, we view it globally.
Is is almost a rounding error.
So there is a lot of scope to grow for this company and it is both organic and inorganic in the inorganic things, we will do or things that will complement what we're already doing organically.
We will produce what we think are superior are very favorable return to shareholders. So we will use the capital wisely.
To do the breed, we build surplus capital in.
In excess of what we require we will return that to shareholders.
Great. Thank you you notice you notice we're returning another 1 billion.
It sounds like.
We just got announced right going from 1 billion and a half to Q&A.
I know, we live in the worlds of trillions, but I got to say.
That's not in the mouth.
Right.
[laughter].
Okay.
We will take our next question from Tracy been Logway with Barclays. Please go ahead.
Good morning, maybe just piggybacking off the organic growth discussion can you comment at Chubb had exercised its option to purchase an additional $7 one per se stake in what's high which would make <unk> a majority owner.
In certain conditions had it be not but the intent previously expressed.
To do so by year end 2021.
So how well retain majority ownership mouth can change our strategic priorities in China and APAC more broadly.
Could you repeat the what.
What is the essence of your question.
On the in organic growth yeah on the topic of inorganic growth.
Hi.
Yes.
<unk> insurance.
Right.
How do you exercise that 71% op so weird.
Is that no we have not.
Exercise the seven one when we do when it occurs we will.
Bounce it to the market of course, we will.
And you will know I'm wondering if we achieve the.
The majority control, which we anticipate we expect to do.
Okay.
Alright, so I'll just move on from there.
Maybe you could just cyber congrats to my cut behind his new cyber leadership all of them what they need.
Kind of eye at Chubb refreshing it.
Cyber range, whereas there are secular trends like 'twenty 'twenty ransomware, that's prompting you to revisit when net.
And then post self insured retention and if you wanted to just add anything more broadly I turned it in condition.
Yeah, Mike.
He was.
And outstanding Executive and has been with US a long time.
He wasn't appointed based on market conditions.
Sure.
What we see as the general underwriting environment.
Mike was appointed because he is a great executive it's a.
It's an important line of business to us.
It has it's complex, it's a very complex life business.
And Mike brings the skills and.
The capabilities too.
Manage on a global basis.
A business like that great opportunity for him.
And.
A great opportunity for Chubb.
Beyond that.
Cyber itself.
Yes.
It was in a state of change and the product is evolving and will evolve.
So a lot beyond pricing per.
Pricing is the easy part of it.
It's that the loss environment, which I've been speaking about for numerous quarters consistently.
Is changing.
And so I'll, just remind everyone frequency of loss has been increasing.
As the World has digitized and we gave the day huge job.
During COVID-19.
Work remotely conditions.
The world is more cyber and digitally integrated.
That raises both exposure in terms of frequency of loss.
But it also raises and continues to raise the.
No.
The catastrophe nature of the product because of the interconnectedness of for free.
One globally I have said for a number of quarters that the next pandemic the exposure that looks like a virus is cyber related because it has no geographic or time bound to do it.
We've seen a number of events over the recent years.
Give a glimmer of that.
So it is complicated and the product has to evolve to recognize that kind of exposure both on the frequency side and the severity side.
And we have a fabulous team of cyber experts who've been doing this for quite a while.
You have got at the same time be humble and no.
What you don't know.
And not overrun imagine there's a lot of basis risk in it even the cyber all the cyber experts are constantly surprised with new day is zero events and techniques that emerge.
So I can on that wrap it up by saying I can think of no one better to help lead along with our cyber experts then Mike Castle.
Thank you for the question Tracy.
Okay.
We will take our next question from Meyer Shields with K B W. Please go ahead.
Great. Thanks, Good morning, Evan.
I'm going to assume that the question that if the industry was putting up underwriting results like Chubb.
Could be.
Variance in great increases to the degree that we are so hoping you could talk a little bit about.
Maybe on the technology side.
<unk> proprietary differences that.
Low underperforming I'm, sorry, underwriting outperformance relative to peers and ambitions maybe over the next couple of years its been bad.
Yeah.
You know.
Okay.
Be careful with one thing where everybody has a different mix of business a different book of business Chubb.
We have a balance between.
Middle market.
It was small in the United States and around the globe and large accounts and specialty risk E&S, where very large E&S flare or very large maybe the glue.
Global leader in major account business.
And then were you know a top tier middle market company all of that goes in and I was pretty clear that the level of rate increase we're getting varies by the market area and then you know beyond that it varies by product area and I gave you some sense of.
Of that.
We have years and years of data.
And.
It's not just data it's been turned into information and it has taken us a long time to do that and to do it properly and so the management information flow here is so well connected between.
The reserving process and the rate making process.
Granular real time way and updated based on loss and loss cost trends and actual in virtually real time without a lot of lag.
And it is something that all of us at all levels have great.
Transparency and availability to access and that links back with them, how we look at what business or quoting.
What business are we binding and at what terms and conditions it doesn't mean.
It's all perfected and we don't make mistakes.
And given loss cost.
And real world about the loss environment that we don't get surprised on the margin because things change swiftly here or there.
Of course, but we react quickly and finally, what I'd say to you is.
It's no different than this conversation that goes on about well how come you haven't produced more margin.
Reducing outstanding margin and margin improvement is the look at our reserving policy.
It's that we recognize.
Bad news almost immediately.
We recognize good news over time, the commercial P&C business, particularly the casualty areas are not for Optimists and I've said this many times.
By the way the notion of prior period reserve development, well, that's our strength.
And that's part of being prudent and recognizing slowly when you're conservative and cautious about our loss cost environment.
So it's the data that's the technology.
The knowledge of the people and it's the management policies and practices consistently.
Make the difference.
Okay. That's very helpful. Thank you.
We're not trying to make some short term.
So killing in our business and that's not what it's about and by the way we run the company first for our customers.
We run it to deliver them a product at the right price not take advantage of them in any way.
No that's clear thank you.
Second question I'm looking back after 911, I guess the industry.
Basically reassert its expectation of terrorists are domestically.
I wonder, whether it's thinking differently about political risk in the United States is that a real.
Real world issue from a.
Alright at that point.
Well you know there isn't really a political risk insurance market in the United States.
The United States given rule of law.
And.
And given credit ratings.
There has not been true political risk losses in the United States.
And true political risk exposure from what we classically deliver as a product outside the United States and political risk.
And God help us I don't expect that to to change.
Now you know you get asked the question on the investment side of the portfolio.
Do we see political risk I think we see more credit related risk.
Then we do at this time political risk.
Okay understood. Thank you very much.
Yes.
That concludes today's question and answer session misfire at this time I will turn the conference back to you for any additional or closing remarks.
Thanks, everyone for dialing in this morning, and look forward to speaking to you.
No next quarter, Thanks, and have a good day.
Yeah.
This concludes today's call. Thank you for your participation you may now disconnect.
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