Q3 2022 Chubb Ltd Earnings Call
Ladies and gentlemen, thank you for standing by.
My name is Brent and I will be your conference operator today.
At this time I would like to welcome everyone to the third quarter 2022 earnings conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question at that time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again press Star one. Thank you. It's now my pleasure to turn today's call over to MS. Karen Beyer Senior Vice President of Investor Relations. Please go ahead.
Thank you everyone and welcome to our September 32022 third quarter earnings Conference call. Our report today will contain forward looking statements, including statements relating to company performance pricing and business mix growth opportunities and economic and market conditions, which are subject to.
The risks and uncertainties and actual results may differ materially please.
Please see our recent SEC filings earnings release, and financial supplement which are available on our website at investors Dot <unk> 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 details are provided in our earnings press release and financial supplement.
Now I'd like to introduce our speakers. This morning first we have Evan Greenberg, Chairman and Chief Executive Officer, followed by Peter <unk>, Our Chief Financial Officer, and then we will take your questions also with us to assist with your questions. This morning are several members of our management team.
Now, it's my pleasure to turn the call over to Evan.
Good morning.
As you saw from the numbers, we had an excellent quarter despite of cat losses with terrific underwriting results, including outstanding combined ratios.
Record net investment income double digit constant dollar P&C premium growth well balanced between commercial and consumer and finally searching life Division revenue growth with the addition of Cigna's Asia business commercial.
Commercial P&C pricing was strong and exceeded loss costs in aggregate and in most individual lines of business.
Core operating income in the quarter was $1 $3 billion were $3 17 per share up 20% over prior.
In the quarter, we produced $710 million of underwriting income up 15% with a published combined ratio was 93.1 pre tax catastrophe losses were $1 2 billion of which $975 million was Ian.
For the year record underwriting income of $3 4 billion was up more than 40% or a $1 billion, leading to an 87% of half combined ratio and.
An improvement of nearly three points over prior year.
Underpinning the published combined ratio was the ex cat current accident year combined ratio, which was 84% for the quarter.
Adding to a record $83 seven for the year.
Simply stunning.
Hurricane and was a large event distinguished by its size wind speed and amount of water both surge in flood. The models, we use contemplate a cat three or greater revert striking Florida about every three years, we are fully prepared to take cat risk and the.
The associated volatility.
After all that's what we do for a living as long as we are adequately compensated and the concentration of exposure is with our balance sheet wherewithal in.
In my judgment current pricing for cat is inadequate and many portfolios and property pricing should continue to adjust to the realities of the Nat cat environment as well as the increased cost for reinsurance protection and potential lack of availability.
Returning to the quarter.
Investment income was a record $1 1 billion up over 12% from prior year topping $1 billion for the first time.
As I noted in our recent calls with rising interest rates and widening spreads investment income is and will continue to rise.
Our reinvestment rate is now averaging five 8% against the portfolio yield of three four.
During the quarter, we continued to accelerate the turnover of our portfolio in a targeted way so that we could put cash to work more quickly at higher yields.
Estimate income will make up a growing percentage of our company's earnings as we look forward.
Be asleep rising rates have produced a sizeable negative mark on our invested asset, but as a reminder, we we're a buy and hold fixed income investor and the Mark is transitory.
To put a point on that our portfolio credit quality is high and we expect about half of the Mark we will accrete back to book value over about a two year period.
As you saw the addition of Cygnus business in Asia, which we closed in the quarter is making an immediate contribution to revenue and earnings in line with what we expected. It is accretive to our consolidated results, including operating income at our ROE.
Peter will provide more information around the financial items.
Turning to growth and the rate environment totaled.
Total P&C net written premiums globally increased eight 5% in the quarter on a published basis or 11, two in constant dollar with commercial up 11, seven and consumer up over nine and a half consolidate.
Consolidated net net premiums for the company, which include our life insurance segment increased 17, 3% in constant dollars, reflecting the consolidation of the Cigna Asia business.
P&C premium growth in earnings in the quarter were again balanced and broad based with contributions from virtually all our commercial businesses globally.
Total North America premiums were up over 10, 5% with commercial up 11, four or eight one excluding agriculture, and our high net worth personal lines business up over 7% in the quarter.
Overseas General grew 11, seven in constant dollars, but only 2% after FX with commercial up 11, and consumer up 12 seven.
With the strongest U S. Dollar in 20 years, the negative impact of FX mask, the real strength of our business.
Agriculture premiums were up nearly 22% in the quarter driven overwhelmingly by crop insurance growth as.
As a result of commodity price increases and market share gains we produced near record underwriting income off the back of what we project to be a decent growing season.
In terms of the commercial P&C rate environment market conditions remain quite favorable for most lines of business.
Vast majority of our portfolio was achieving favorable risk adjusted returns.
So additional raiders required primarily to keep pace with loss costs, which as I have been saying are hardly benign in both long tail and short tail lines.
The market is reasonably disciplined.
But given the lowest cost inflation and what will be slowing growth in exposure in the future given economic conditions casualty rates in most classes will need to rise at an accelerated rate.
Or else the industry will fail to keep pace.
In North America growth this quarter in commercial lines was led by our major accounts and specialty Division, which grew nine 7% followed by our middle market and small commercial business, which grew five seven and our middle market Division P&C lines grew.
<unk> almost 9% while financial lines declined about five and a half primarily due to a lack of ipos M&A activity and new business renewal retention for our retail commercial business was virtually 100% on a premium basis.
Overall rates in North America commercial lines, excluding comp were up 5%, while total pricing, which includes rate and exposure increased eight and a half we.
We are staying on top of inflation in terms of pricing and reserving and.
In North America commercial lines, we assume loss cost trends of six 5% the same as the second quarter.
In major accounts, which serves the largest companies in America rates increased five 3% with pricing up eight six <unk>.
General casualty rates were up eight seven property rates were up nine seven and financial lines rates were up four three.
And our E&S wholesale business rates increased 9% with pricing up nearly 13%.
Property rates were up about 11, and a half casualty rates were up eight and a half and financial lines rates were up almost nine.
In our middle market business rates increased four two excluding comp with pricing up about six and a half rates.
The rates for property were up over six.
Pricing was up double digits casualty rates were up six and a half with pricing up over 8% and.
And comp rates were down three 8%, however comp pricing was up six and a half <unk>.
Financial lines rates were up just over 1% with pricing up about 2%.
Our North America high net worth personal lines business had a very good quarter with net premiums up over 7% driven by strong new business activity. Our true high net worth client segment grew 12, 5%, while overall retention was very strong.
Long at over 98.
In our homeowners business, we achieved pricing of about 11%, while the homeowners loss cost trend is running about 10 and a half.
Turning to our international General insurance operations in constant dollars. If you haven't noticed 2022 is the best organic growth we have experienced in nearly a decade.
In the quarter retail commercial P&C premiums grew 12, 3%.
London wholesale grew over 9% and a half.
Retail commercial growth was led by Latin America with premiums up 23, 5% followed by growth of nearly 15, and a half in Asia Pacific and over 10% and our U K and Europe Division.
Internationally like in the U S. We continued to achieve improved rate to exposure across our commercial portfolio.
Our international retail business rates increased in the quarter, 9%, while we estimate pricing was up about 12%.
It's varied by class and by region as well as country within the region.
Outside North America, we are currently trending loss cost at about six 5% again similar to the second quarter, though that varies by class of business in country.
Like in North America.
These trends factors are contemplated in both our reserving and in our lower accident year loss picks.
International consumer lines growth in the quarter picked up considerable momentum with premiums up over 13% <unk>.
So FX scrubber scrubbed about 11 five points off the growth.
Our international A&H Division had an exceptionally strong quarter premiums grew over 22, 5% in constant dollar with Asia Pac up over 34.
The U K up over 26% and Latin America up 17, our international personal lines business grew more modestly in the quarter with premiums up four 5% in constant dollar.
Premiums and Chubb life were up 17, and a half of 117% in constant dollars and impacted heavily by the Sigma acquisition.
Cigna's operation contributed about $740 million and net premiums written.
At $160 million and income to the life segment this quarter.
We have hit the ground running in terms of integration and execution of our growth strategies in Asia.
So to sum it all up all of our businesses our cost across the globe contributed contributed to growth in earnings in the quarter. We are firing on all cylinders. We are operating in a challenging economic environment given inflation, the specter of recession and five.
Actual market volatility as well as the geopolitical environment and the evolving risks from climate change.
Despite all of that looking forward, we are quite bullish on the future given our growth and exceptional underwriting margins in our commercial and consumer P&C businesses. The strong trajectory for investment income and the contributions from the Cigna acquisition to our growing Asia.
<unk> business, we expect EPS to continue to grow at a healthy rate into the future I will turn the call over to Peter and then we're going to come back and take your questions.
Thank you Evan good morning.
Our strong underlying business performance continued in the third quarter.
Producing operating cash flow of $3 4 billion and contributing to a record $8 6 billion through nine months.
We remain in a position of exceptional financial strength with over $63 billion in total capital and strong liquidity with cash and short term investments of $6 7 billion at quarter end and this is after paying $5 4 billion cash for the Sigma business on July one.
Among the capital related actions in the quarter, we returned 1 billion to shareholders, including $685 million in share repurchases at an average price of $186 22.
And $346 million in dividends.
Tangible book value per share decreased 15, 2% since June reflecting changes in OCI, which includes realized and unrealized losses of $3 6 billion after tax resulting from rising interest rates on our fixed income portfolio and foreign currency translation losses of $466 million.
Additionally, the increased goodwill and intangibles of $1 5 billion related to the Cigna acquisition represented 370 basis points of the decrease excluding OCI and Cigna, the tangible book value per share increased <unk>, 4% since last quarter.
We continue to expect to recover the signal dilution within six months as we said when we announced the acquisition.
Book value per share declined 7% for the quarter, reflecting those same Aoc I factors.
As you saw the addition of Cigna's Anh and life businesses in Asia are making an immediate contribution in line with what we expected.
For the quarter the acquisition contributed 7% accretion to operating EPS 50 basis points to our annualized core operating ROE of nine 4% and 110 basis points to our tangible ROE of 14, 4%.
Our integration efforts are progressing well and we are on track with expected expense synergies and net integration cost as we previously announced.
Almost all of the <unk> businesses are part of our life segment and going forward, we will not report on a standalone basis.
We remain consistent and conservative in our investment strategy with 82% of our fixed income portfolio rated investment grade and do not contemplate any major change to our current asset allocation.
The signet portfolio of approximately $4 3 billion is also high quality with an average credit rating of a plus and 96% of the fixed income portfolio rated investment grade.
As Evan noted as rates continue to rise our portfolios reinvestment rate has increased from two 3% in December to five 8% on September 30, while our current book yield is three 4% versus three 2% in the second quarter.
With market rates above our book yield we are tactically taken advantage of opportunities to increase the portfolio's yield we have been selectively utilizing gains from equity related investments and interest rate hedges to fund turning over parts of the fixed income portfolio in this higher rate environment.
This along with the normal turnover of our portfolio. The addition of signals investments as well as certain other items contributed to adjusted net investment income of $1 50 in the quarter.
Updating our quarterly guidance, we now expect adjusted net investment income to be in the range of $1 40 to $1 $60 million.
Relative to hurricane Ian approximately 77% of the pre tax catastrophe losses were incurred in the commercial lines, 23% and personal lives.
We had favorable prior period development in the quarter of 222 million pre tax or $162 million after tax.
This is net of 73 million pre tax adverse development from our legacy runoff exposures principally environmental related.
The remaining favorable development of $295 million split approximately 11% long tail lines, principally from accident years, 2018, and Pryor and 89% in short tail lines.
Our paid to incurred ratio for the quarter was 75% or 79% after adjusting for cats in PPD.
Our core operating effective tax rate for the quarter was 19, 3%, which is above the high end of our previously announced annual range of 16, 5% to $18. Five this is primarily due to the cigna acquisition and catastrophe losses, and lower tax paying jurisdictions in the quarter.
We expect our annual core operating effective tax rate for the full year 2022 to be in the range of 17, 5% to 18%.
Now I'll turn the call back over to Karen.
Thank you and at this point, we'll be happy to take your questions.
Yes.
At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad.
In the interest of time, we request that you limit yourself to one question and one follow up question. Your first question comes from the line of Michael Phillips with Morgan Stanley . Your line is open.
Thank you good morning, everyone. Good morning.
And then wanted to drill down on your comments on the on the loss trends in North America, six five youre pricing and reserving up above that.
You talked about in the second quarter that what Youre actually seeing in the market is somewhat below that I still but I assume that's still the case, but I wonder if that's narrowed a bit this quarter.
It's similar.
Okay great.
And then industry level kind of question I was just curious your thoughts here with all that's going on.
The property cat reinsurance market.
Does that extend to other areas does that extend to primary casualty and will that help kind of Linkedin.
Hardy market.
Help out of primary markets there.
No I don't I don't see it that way.
Tom.
It's not a.
Capital question.
The reinsurance industry, it's a risk.
Question.
And.
And do you want to deploy your capital against it in.
In casualty for the reinsurance industry.
It's a different question.
And that is.
They to their ability to recognize that on the casualty.
Side of the business.
Loss cost trends are hardly benign.
For all the reasons that we know.
And that is pricing.
On rate needs to keep pace with that so.
Industry stays on top of it.
Reinsurers lag in their recognition.
Of loss cost exposure.
Nuts at their own peril, because theyre not careful.
So they need to they need to recognize the environment.
And I believe we are beginning to do that.
In terms of the terms and conditions they provide insurers.
And that's more the response.
From.
The reinsurance.
Industries.
The reinsurance industry in terms of casualty.
Versus property, they both have their own dynamics.
Yeah, Okay, great. Thank you Evan for Treehouse.
Welcome.
Your next question is from the line of David Mott Maiden with Evercore ISI. Your line is open.
David It's nice to hear from you.
I've heard a lot of pronunciation over the years never never never ceases to Amaze me.
I get that.
Once in a while too by the way.
Range pronunciations.
Those tough ones.
Was hoping just to get an update on the growth prospects for Chubb and the property market. You mentioned you have the capacity to grow here.
As long as you are compensated.
But you know some some pricing still needs to accelerate from here I guess, how should we think about the runway you have to capitalize on this.
But I think.
I think it's around 16% of your of your book right now if I look across the P&C business.
If I just thought about property as a percentage of total is there a.
Is there a ceiling that you think about in terms of introducing too much Nat cat risk into the earnings or.
Yes, I guess, just wondering how youre thinking about.
How much how.
How big you want that to get.
David.
The the 16% is a global <unk>.
Number.
<unk>.
And I think that first of all though.
The right way to think about it we're a global company.
So when we think about property and growing property into global opportunity to us.
So in that in that respect.
Salute Lee.
And it remains in as a growth area for us.
Then balance it against US we have a finite balance sheet. So we can only take so much concentration in any one geographic area.
When you imagine that the P&L or the loss that that concentration will produce over certain return periods.
Against your capital and then it's simply the question are we paid adequately for the risk and the volatility we take and then the last item is reinsurance.
Not just the cost of it but availability because that's renting additional capital and our ability to do that so and that is what impacts certain territories and that's not new.
That's standard.
And how you shape your portfolio and think about concentration of exposure, but we are playing a global opportunity here.
Got it that's that's helpful and.
And then maybe if I could just follow up on.
On the casualty rates.
You mentioned that you think that rates need to.
Increase at an accelerated pace or else the industry.
We'll be able to keep pace with trend I guess.
Could you just talk about what youre seeing across the various lines. It looks like been pro or professional lines financial financial lines might be taking a step down. It looks like you guys are remaining disciplined just based on your premiums growth in financial lines.
But maybe just talk a little bit about that and how you think the market's placed.
And competitiveness in that line.
Yes.
So I gave you kind of a breakdown in.
The long tail lines and.
I won't give a further breakdown that way.
But.
Two or three points one when it comes to fin lines.
Our experience has been quite good.
Overall.
When I look at our pricing.
Sure.
It produces favorable risk adjusted returns.
Market competitiveness has been in response to the absolute pricing levels.
And to experience, but theres plenty of risk out there.
And while it's become.
Competitive and is reasonably rational.
It can't continue this way into the future.
Or else frankly, it becomes irrational.
And would be naive we have remained disciplined and we are disciplined there are certain pockets, where we deem pricing.
And it's on the margin to be irrational and therefore, we walk away on.
On the other hand, which is impacting growth.
And our reiterated remember youre coming off of a very hot market last year interest rates were low equity markets, where we're.
Were elevated there was so much money around there was a ton of M&A and IPO.
And that produced more exposure.
We're in a different world today.
So that exposure has shrunk and that does impact growth as well.
Got it that makes sense. Thank you.
Youre welcome.
Your next question is from the line of Iran. Cynara with Jefferies. Your line is open.
Thank you good morning, everybody, maybe following up on a couple of the previous questions.
The reinsurance market hardening is what is the opportunity set that you see.
For Chubb as a result of this hardening and where you're going to lean further into the reinsurance or are you going to take more.
Net.
On the primary side, how are you thinking about the dynamics there.
Well.
Hardly going to.
Good a read my playbook to you.
Broadcast it out there.
In that regard just stay tuned, but but beyond that.
Property Cat is not a growth area for Chubb property Cat re is not a growth area.
Not of any significance.
Okay.
And maybe changing direction a little bit here.
Was curious as to your.
Thoughts on China, and the opportunity set there, especially with <unk>.
We tie in the face of the political and economic changes there.
Yeah.
First of all.
We expect to announce.
The.
What Ty approval from.
The China regulator of the <unk>.
Transaction.
Imminently.
So.
That will be shortly.
Secondly.
Look I see China.
As a.
Long term.
Medium and long term opportunity for Chubb.
And you got to be patient.
Of course, and I'll say it right upfront.
Trajectory.
Of China.
From a geopolitical perspective.
Leninist authoritarian.
Political system.
The United States.
Sure.
Europe , so the western World.
<unk>.
Individual rights oriented.
And the geopolitical aspirations of China.
And versus the balances versus the U S.
If we don't find a way to coexist.
We're on a path towards conflict that risk is out there.
And you know that.
The.
The party.
And with now the <unk>.
Full consolidation of power under sheet.
That's not a surprise.
It's just the.
The curtain was pulled back on it.
And it was crisply.
Displayed over the last week, and a half, but thats not a surprise.
Sure.
The consolidation.
Party control over the economy.
And.
Industrial policy.
And the fact and the notion of ideology.
And security over economic growth as a priority.
In my judgment.
We'll ultimately.
B against China's own interest.
She has an ambitious agenda.
And to fulfill that and address financial market and economic weakness you've got to have economic growth the pie.
Hi has to grow.
My own view.
As over a reasonable period of time I don't know is it one year three years they will.
They will be forced to moderate.
Their approach to economic policy.
<unk>.
But there were approached economic policy.
Practically in their own interest because they need economic growth.
And.
And so when it comes to what Ty.
In the short term, we face those economic headwinds there.
Without a doubt.
We had a sense of that.
But in time and over the medium and longer term, if we don't get in a shooting war.
<unk>.
We're optimistic.
And about the long term bet, we're making it is the second largest economy in the world.
The need for insurance, we will continue to grow.
That we control we are the first foreign or to control of financial services Holdco in China.
I think as a long term asset for the company and we're stewards of long term capability for this organization and so on balancing the risk and the reward.
In the short term I don't expect it to be a major contributor to chubb's growth and earnings but in the longer term I do and finally on a micro level I'd say this our ability to operate in China, Chubb as a foreign or we have a good reputation.
And I see that we won't face any more regulatory.
Issues or discrimination.
From all I can see then the Chinese companies themselves, we will face and <unk>.
In that regard I see us on a level playing field.
Thanks for that comprehensive answer and looking for things to come.
Youre welcome.
Your next question is from the line of Elyse Greenspan with Wells Fargo. Your line is open.
Hi, Thanks, Good morning, My first question.
In your prepared remarks, you pointed to casualty rates needing to go up.
Because you said that there could be slowing exposure.
So and you also seem positive on pricing following the hurricane. So I know you gave us a lot of color on North America commercial pricing. So as it is the overall view that that 5% rate, which I now excludes exposure that's going to start to trend up in the fourth quarter.
Okay.
Youre to pin to quarter to order one month data point.
Looking overall I'm, giving.
I picked my head up and tried to get.
And overall landscape longer term view without.
Without pending to this period or is that period precisely.
I think it misses the point.
That's the best I can give you.
The fact is inflation and loss cost trend is there.
The fact is.
I don't know what quarter, but by exposure growth the industry lags exposure growth.
Is likely to come down because economic growth is shrinking.
And that's just getting equal exposure growth strengthening so if you look out in the future.
Necessarily the fourth quarter, I'm, not prognosticating quarter to quarter.
Bob.
The rate is going itself is going to have to rise if the industry is going to stay on top of loss cost.
And I guarantee you one thing Chuck is going to stay on top of loss cost.
That's helpful.
Then my second question you guys completed the Sigma deal even it sounds like you're close to announcing the approval for the <unk>.
The increase in stake in <unk>.
Can you just give us an update on the M&A pipeline.
And how that's kind of I guess changed over the past year.
The leases you.
As you know I don't them.
I don't talk about what we're looking at or not looking at it.
<unk>.
What I can tell you is right now to Chubb is at rest.
And.
And.
And M&A is not something that's on my immediate radar.
Building, our balance sheet, having flexibility of capital.
It is on my radar.
<unk>.
And I believe we're in a period where.
And this will show over time in the future.
Given economic and financial market.
And conditions and as I look out into the future.
We are quite patient people.
Thanks, Kevin.
Sure.
Your next question is from the line of Greg Peters with Raymond James Your line is open.
Good morning, Evan and Peter and several members of the management team.
Yes.
Evan in your previous answer on China.
Maybe you can pivot.
Two other areas of the globe Europe , and other areas and I guess, what I'm trying to think about or understand how youre thinking about.
Growth, especially when there is things.
Emerging energy availability crisis supply chain issues food security.
And you've posted some substantial growth numbers. This year, just trying to think about.
How to frame it for next year.
With all these headwinds.
Yes.
It's not a clear picture in every area of the world is behaving differently.
You see the idiosyncratic nature of.
The U S economy relative to other places Scott a lot of resilience to it.
Employment continues to grow.
The economy is intrinsically strong on a broad base basis.
And consumers.
Thank the U S government.
Have a lot of money in their pocket.
Part will be transient.
And with the Feds.
Actions, which I think are the right actions.
And I believe the fed is going to be patient.
And stay high for longer I think they know the lessons there.
Going to if they're going to make sure inflation has wrung out of this.
The U S economy will slow down.
No doubt and whether our newer Dcs and whether we go into recession or not.
Is a question Mark in my own belief is if we do it will be relatively mild.
You go to Europe , and Europe is a different picture.
They were not they were not.
Experiencing strong economic growth prior to Ukraine.
The war in Ukraine.
Energy availability.
And what that is doing as they start to ration energy.
What it's doing to industry and to growth.
But at the same time for the insurance industry in certain areas the risk environment has changed.
That benefits <unk>.
Pricing and rate environment.
And I think it benefits opportunity for us even in the face of all of that.
I turned to the Lloyd's market that is so heavily.
Reinsurance levered and and with reinsurance market contraction in our balance sheet capability and it's another window to look on the world.
And so I see opportunities as we go forward.
Move to Asia, where recession has not bitten in most of Asia.
See that you see inflation picking up.
What the future looks like really varies by country.
Overall Asia growth is pretty good and what I see for our business.
A lot of opportunity to continue to grow its very balanced business chubb's business in Asia between consumer and commercial between accident and health, whether it's in life for non life.
And our consumer businesses, there versus P&C in middle market versus large commercial it's actually our most balanced business and chubb around the world.
And the opportunities there.
<unk>.
And whether there's a short term impact here or there based on economic activity I can't see that yet, but whether there is or not is is transient to me and I see through that I see a lot of growth opportunity.
So when I add it all up on balance and given the broad nature of our business I'm pretty bullish on growth as we go forward, though of course, some cautious as I'm aware about the external environment and the recessionary conditions in inflation, which no one.
Has a perfect handle on.
Yes that makes sense. Thanks, I guess, a pivot and you've got a number that's your job not might not job I got that.
Yeah.
Well I mean.
I feel really I feel really optimistic about the company.
When you when Youre growing your gross premium written at 11 plus percent.
That's that's not a bad.
Not a bad stat to throw out there.
At least for this year so far.
I'd like to as Ive asked in previous calls.
The expense ratio improvement and if I just look at the year to date not the quarter number but the year to date number I assume some of that's a reflection of the growth and the leverage you have off the top line that you're generating.
Can you give us a sense of whats transient and relates to growth and then whats actually permanent in terms of.
True improvements in efficiencies and maybe you could give us some color on what's actually driving that improvement.
Yeah.
I am not going to answer it that way for you.
But I'm going to try to give you a little more color around it.
See if I can.
Frameless, though for you, which is what you really need to them.
Our framing of how we think about it.
Aside from the business mix.
And seasonality, which impacts the ratio a little bit quarter to quarter.
The company.
And Opex portion in particular.
Is going to continue to improve over time.
And I think about that is over a longer period of time, we already run.
The world class ratio of efficiency, so, let's just start with that.
And.
It's like interest rates dropping.
Percentages.
Turn out to be smaller and smaller basis points.
Over time, but.
So success can be here.
Your enemy a little bit.
But it's in our culture and operating guidelines that we and this has always been true we grow revenue faster than expense.
Now I balance that go on the other side.
That.
It's balanced against adding investments.
In our business to constantly improve our capabilities and efficiencies for future periods.
So on one hand, the discipline as we grow expense, we start out growing expense.
Lower.
I'm not going to give.
I'm not going to disclose insight.
Baseball, but we actually have.
Iron clad.
Iron clad reasonably unclad parameters around that.
How much we'll grow expense relative to revenue.
But then we balance that against investments, we also make to improve efficiencies for the future for future periods.
So it's it's the point that while it's efficient.
It will continue to improve and by the way, particularly in our <unk> operation.
That's where I think there is real room for that.
And.
And I'm looking at right at one Luis who.
Seals the heat.
Yeah.
And there you go.
I can use some of that so thank you.
Okay.
Which part can you use.
Okay.
For one the lease.
Yeah.
Luis you want to add.
Yeah.
Thanks.
Your next question comes from the line of Tracy Ben Gigi with Barclays. Your line is open.
Hi trace.
Hey.
Turning to investment it looks like you've been slightly extending the duration of your assets in the last few quarters now at four or five years I think historically encroaching acquired I'm wondering if you're still at or below the duration of your liability or should we expect further expansion of the asset duration from here given the stick.
A quick question I guess I'm, just trying to get a sense of where you're seeing investment opportunities given the shape of the yield curve, let's say less kind at the longer end.
<unk>.
Tracy our assets or liabilities.
Are the duration of our liabilities is greater than our asset duration right now our invested asset duration by actually a comfortable spread.
No we don't expect.
At this moment, we don't see extending duration.
And we're not paid to extend duration and we're not we're not doing that.
But mix of business.
<unk> has impacted it too.
And Peter did you want to add yes, Tracy the vast majority of the change you saw relates to two things one is the cigna assets coming on which had a slightly longer duration, which reflects their underlying business and.
And secondly, mortgage backed securities extending out just with the higher rate environment. So there's nothing that we've done proactively are decisively to affect that ratio.
Okay. Thank you for confirming that.
And the Cigna, earning contribution of $160 million at tracking ahead of your $450 million annual run rate. So it's $450 million still the right run rate or are you more constructive on Macquarie.
So what I said was we're consolidates and consolidating this into our life segment going forward. We've provided guidance on the initial announcement and then we gave an update around the earnings accretion. So we don't want to provide ongoing guidance around what that income is going to look like we just wanted to give you comfort that we were hitting our number.
<unk>.
Okay.
Got it thank you.
Okay.
Yes.
Your next question is from the line of Meyer Shields with <unk>. Your line is open.
Great. Thanks, two hopefully quick questions first in the life insurance segment is there anything unusual in cigna's results from seasonality or any other that shouldn't recur or is this like a reasonable depiction of the earnings.
Hello.
There was nothing unusual in their earnings there was a slight increase on a relative basis for some COVID-19 charges in the prior year and the other international businesses not Cigna. So the current is.
Is what it is.
Okay perfect Thanks and.
And then Evan.
I think this is a big picture question, you've talked about casualty rates needing to pick up some steam.
<unk> does the industry face sort of.
Irresistible momentum that will make that difficult or impossible or am I.
Pessimistic on its agility as an industry.
Can you say that again.
Yes, I'm wondering right. So right now we're seeing some signs of competition emerging in some commercial and some casualty line.
And historically, obviously that the industry has been tremendously cyclical which means things get a little worse than then they get a little worse from that and I'm wondering whether your perception of the industry I'm not worried about Chubb is your perception of the industry that is has the agility to resist that momentum this time around.
Okay.
Look.
I can't.
<unk> vacate the future.
I think rationally.
Major players.
Have the same kind of data that we do.
And.
And they have experience.
And they see the same trends on the casualty side.
And I am not ringing an alarm bell.
So that we keep perspective here.
Pricing is staying ahead.
I'm looking.
Longer into the future and anticipating.
What we're seeing at the moment.
And that it doesn't take a genius to imagine that exposure growth will not continue to benefit that.
So the industry will have to get more rate.
And we're in a loss cost environment.
Inflation, it's an inflationary environment inflation is running higher than it has in the past so it will get away from the industry.
At a much more rapid pace at their peril.
If they don't.
Yet this anticipated and operationalize it in a reasonable period of time, so that rate response.
At the moment.
I'm.
I just play by the facts and I am dead neutral about it.
But I think most.
Look I look where chubb's combined ratios are and then I look where others are.
And there is not a lot of room for forgiveness and most companies combined ratios. So I have to believe they will be rational.
Okay. That's very helpful. Thank you.
Okay.
Your next question is from the line of Brian Meredith with UBS. Your line is open.
Hey, Thanks, Good morning, Kevin.
Couple of quick for you first one.
Bind U S. It's been kind of trending downwards here all year I know, you've got a recession coming up which probably is tough from a growth perspective, but what's going on there and there is any kind of fixes going on.
Yes.
And it's a great question and I'm glad you actually asked that question combined U S is actually.
I am quite optimistic about it.
Here's a deal Covid really really impacted it because of two things.
Individual it's individual agency sales business going.
Small business by small business or individual by individual and they pay your monthly premiums.
Agency sales during Covid, just dried up and then its worksite sales.
Worksite benefits voluntary benefits to small and medium sized businesses in particular and during COVID-19 dramatically hit and again, that's monthly pay business.
We're actually investing in them.
And I'm actually investing money and combined retooling, both agency and work site, which we've done.
Sorry, dramatic way and we're seeing the improvement begin to show to us in new business sales now frankly, it's going to take through 'twenty three before it really shows where before new business.
The monthly volume of that and how it turns into renewal business to really show against the total base that has a natural lapse rate in it.
And I see combined as a growth business and for myself on where it will really show to you is 24 onwards.
Great that's helpful.
And then second question Kevin.
That's the boiler room facts around it got.
That makes sense.
Second question.
And then can you remind us how much of your commercial business is call it E&S or non admitted and do you ascribe to the theory that the E&S markets not admitted markets will continue to grow at a faster rate than the admitted markets here just given the complexity of risks.
Well, it's going to vary by line of business, if youre going to get it property cat exposed yes.
Though I think the E&S market is going to have pressure.
Because of reinsurance availability and capital that uses <unk> to front for it I think thats going to I think that problem is in front of the E&S market overall, but rate while that may impact. Its overall exposure growth I think rate is going to overwhelm it.
<unk>.
On the other side of the coin.
Think on the casualty side.
<unk> admitted market is.
Which gave up a lot of volume to the to the E&S side of the house.
I see that actually <unk>.
Probably growing faster on the admitted side.
Then the E&S side as we go forward.
Interesting. Thank you.
I can only be wrong.
Yes.
But Andrew.
From my point of view on plan both tables aggressively.
Where I see opportunity and rationally, so whoever wins the race wins the race.
Your final question comes from the line of Alex Scott with Goldman Sachs. Your line is open.
Hi, good morning.
A follow up on the reinsurance cost potentially.
Going up and you talked a lot about the opportunities I just thought I'd ask about chubb as a buyer of reinsurance could you provide any information on.
The cost of your current catastrophe reinsurance programs and anything you might add to help us think about how.
Those prices May go up at the end of the year.
No.
<unk>.
No I'm on answering that question. The only thing on the answer is we're not a January one we don't renew our catastrophe reinsurance January one.
Thank you very much.
Okay.
And maybe just one quick one on the life insurance business.
Do you anticipate any kind of change to the run rate of earnings from the accounting changes that are going into effect at the end of the year.
Nothing we can disclose at this time.
Okay alright, thank you.
Okay.
I would now like to turn today's call back over to MS. Karen buyer.
Thank you everyone for joining us today, and if you have any follow up questions, we'll be around to take your calls.
And today thank you.
Ladies and gentlemen, thank you for participating. This concludes today's conference call you may now disconnect.
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