Q3 2024 Chubb Ltd Earnings Call
Speaker Change: Thank you for standing by and welcome to the Chub Limited 3rd Quarter 2020 Ford earnings conference call.
Speaker Change: 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 would like to ask a question during this time, simply press star, followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again, press the star 1.
Speaker Change: Thank you. I'd now like to turn the call over to Karen Beyer, Senior Vice President Investor Relations. You may begin.
Karen Beyer: Thank you and welcome everyone to our September 23, 2024 third quarter earnings conference call.
Speaker Change: Our report today will contain forward-looking statements, including statements relating to company performance, pricing and business mix, growth opportunities, and economic market conditions, which are subject to risk and uncertainties and actual results may differ materialism.
Speaker Change: Please see our recent SEC filings, earnings release, and financial stick supplements, which are available on our website at investors.chub.com for more information on factors that could affect these matters.
Speaker Change: 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.
Speaker Change: Now I'd like to introduce our speakers. First we have Evan Greenberg, Chairman and Chief Executive Officer.
Speaker Change: followed by Peter Enns, our Chief Financial Officer, and then we'll take your questions.
Speaker Change: Also with us to assist with your questions today are several members of our management team.
Speaker Change: And now it's my pleasure to turn the call over to Evan.
Evan Greenberg: Good morning.
Evan Greenberg: As you've seen, we had another really great quarter.
Evan Greenberg: with strong double-digit growth in both PNC underwriting and investment income.
Evan Greenberg: leading to core operating EPS growth of
Evan Greenberg: Global PMC Premium Revenue
Evan Greenberg: which excludes agriculture.
Evan Greenberg: grew 7.6 or 8.5% in constant dollars.
Evan Greenberg: which is the clearer way to view intrinsic growth and once again reflected the broad and diversified nature of our company and the opportunities we're capitalizing on around the world.
Evan Greenberg: with strong contributions from our North America PNC, international PNC, and life insurance businesses.
Evan Greenberg: Core operating income for the quarter was $2.3 billion.
Evan Greenberg: Up 14.3%. Burdenes for the year are currently at record levels with net and operating income of 16.9 and 13.8% respectively.
Evan Greenberg: The Three Sources of Earnings Growth, PNC Underwriting.
Evan Greenberg: Specimen income and life income each delivered a strong result.
Evan Greenberg: Our published combined ratio for the quarter was 87.7, with PNC underwriting income of $1.5 billion, up over 11.5%, despite an active quarter for the industry globally in terms of natural catastrophes.
Evan Greenberg: hurricanes, floods, fires, tornadoes, and other severe convective storm activity.
Evan Greenberg: On an XCAT current accident year basis, a secondary measure of underwriting, we produced record underwriting income of two billion dollars, up eleven and a half percent.
Evan Greenberg: with a combined ratio of 83.4%. For the year, we have produced record underwriting income on both the published and current accident year basis.
Evan Greenberg: As a company in the business of risk, we pride ourselves on being world-class underwriters.
Evan Greenberg: It's who we are.
Evan Greenberg: We're also asset managers with an excellent long-term record of invested asset allocation and risk-adjusted returns.
Evan Greenberg: of insurance.
Evan Greenberg: For the quarter, Adjusted Net Investment Income topped $1.6 billion, up 15.9%.
Evan Greenberg: Our fixed income portfolio yield is 4.9 versus 4.7 a year ago and our current new money rate is averaging 5.5%.
Evan Greenberg: In our judgment, given the broad-based health of the U.S. economy,
Evan Greenberg: and the pattern of inflation when one reads past the headlines.
Evan Greenberg: The Fed will likely take a reasonably cautious approach to lowering rates.
Evan Greenberg: Given the size and continued growth of our federal deficit,
Evan Greenberg: which is simply unsustainable, we believe the yield curve will steepen and that too will support our future reinvestment rate.
Evan Greenberg: We remain confident in our ability to reinvest our cash flows at rates that will continue to accrete to the overall portfolio yield.
Evan Greenberg: Life insurance segment income of $284 million was a header plan.
Evan Greenberg: While you know it's our policy to generally refrain from guidance, we are well on pace to exceed our life division income target of a billion for the year.
Evan Greenberg: Our annualized core operating ROE for the quarter was 13.9 percent with a return on tangible equity of 21.7.
Evan Greenberg: Peter will have more to say about financial items.
Evan Greenberg: Turning to Growth, Pricing, and the Rate Environment.
Evan Greenberg: Global PNC net premiums, which excludes agriculture, increased 7.6 in the quarter, or again eight and a half in constant dollar, with commercial premiums up 8.1 and consumer up 9.4 percent.
Evan Greenberg: Again, growth was global and broad-based geographically.
Evan Greenberg: by product and customer segment, North America, Europe, Asia, and Latin America all contributed favorably.
Evan Greenberg: Life premiums grew 10.6% in constant dollar, with growth of 10% in international life and 15% in combined North America.
Evan Greenberg: in terms of the commercial PNC rate environment.
Evan Greenberg: market trends were consistent with those of the previous quarter.
Evan Greenberg: Overall conditions are favorable in both property
Evan Greenberg: which is incrementally more competitive in certain areas and casualty.
Evan Greenberg: which is incrementally firmer.
Evan Greenberg: Loss-cost inflation remains steady and within what we have contemplated in our pricing and reserving.
Evan Greenberg: Pricing for both remains ahead of loss costs.
Evan Greenberg: Property has become more competitive in the large account and ENS segments, while middle market property pricing was in fact up over prior quarter.
Evan Greenberg: We are large in all three segments of the market.
Evan Greenberg: Our property book is well-priced and terms and conditions remain steady.
Evan Greenberg: As with prior quarter, casualty is firming in the areas that need rape, and we see this trend in casualty enduring.
Evan Greenberg: Overall, our casualty rate and price were up over prior quarter.
Evan Greenberg: Let me give you a little more color by division.
Evan Greenberg: Beginning with North America, premiums percent and consisted of 10 percent growth in personal insurance.
Evan Greenberg: 7.2 in commercial.
Evan Greenberg: with PNC lines up nearly 10%.
Evan Greenberg: and financial lines down about five percent.
Evan Greenberg: We wrote more than 1.2 billion dollars of new business.
Evan Greenberg: up over 18 percent versus prior year and our renewal retention rate on a policy count basis.
Evan Greenberg: is 89.6%. Again, both speak to the reasonably disciplined tone of the market.
Evan Greenberg: the power of Chubb, and our excellent operating performance.
Evan Greenberg: premiums in our major accounts and specialty division increased 7.2
Evan Greenberg: with PNC up 9.5% and financial lines down over 6%.
Evan Greenberg: Within Major and Specialty, our E&S Business Group, 11%.
Evan Greenberg: with strong contributions for both property and casualty related lines.
Evan Greenberg: Premium in our middle market division
Evan Greenberg: with PNC up 10.7% and financial lines down 5.7%.
Evan Greenberg: Again, the underwriting environment in North America is generally favorable and rational, financial lines aside.
Evan Greenberg: Pricing for property and casualty excluding financial lines and workers' comp was up 9.9 percent.
Evan Greenberg: with rates up 8% and exposure change of 1.8, again, with both rates and pricing up from second quarter.
Evan Greenberg: Financial Lion's pricing was down 3.2% with rates down about 3.4%.
Evan Greenberg: In workers' comp, which includes both primary and large account risk management, pricing was up 4.2 percent.
Evan Greenberg: with rates up 1.4 and exposure up 2.8.
Evan Greenberg: Breaking down PNC pricing further, property pricing was up 6.7%.
Evan Greenberg: with rate of 3.7% and exposure change of 2.9.
Evan Greenberg: Casualty pricing in North America was
Evan Greenberg: Our loss cost in North America again remains stable, no change, and in line with what we contemplate in our loss effects.
Evan Greenberg: in Agriculture.
Evan Greenberg: where we are the market leader. We gained increased market share and wrote more policies, ensuring more farmers and fields, though premiums were down from prior year, primarily due to lower commodity prices than last year.
Evan Greenberg: Commodity prices are used to price the premiums we charge farmers.
Evan Greenberg: Far more importantly our crop underwriting results this quarter were excellent.
Evan Greenberg: And from everything we know now, 24 is shaping up to be a very good underwriting year.
Evan Greenberg: on the consumer side of North America.
Evan Greenberg: Our high net worth personal lines business had another outstanding quarter with premium growth of 10 percent.
Evan Greenberg: including new business growth exceeding 25 percent.
Evan Greenberg: Premium growth for our true high-net-worth segments, the group that seeks our brand for the differentiated coverage and service we're known for with 16.8%.
Evan Greenberg: Our homeowners pricing was up 13.7 in the quarter and ahead of loss cost trend, which remained steady.
Evan Greenberg: Turning to our international general insurance operations, it was a decent quarter. Net premiums were up 4.9, or seven and a half in constant dollars.
Evan Greenberg: Our international commercial business grew 6.7% while consumer was up 8.5%.
Evan Greenberg: Asia-Pacific led the way with premiums up 9.2%.
Evan Greenberg: Latin America grew over seven and a half, while Europe grew over seven percent.
Evan Greenberg: with the continent of Europe up 8.7%.
Evan Greenberg: Premiums in our international retail commercial PNC business, six and a half in constant dollar.
Evan Greenberg: PNC lines were up almost 11% and financial lines were down 10%.
Evan Greenberg: It is worth noting, adjusting for a one-time premium benefit
Evan Greenberg: We received in the third quarter of last year underlying growth was over 14% in PNC lines internationally with financial lines down 3.8
Evan Greenberg: We continue to achieve positive rate to exposure across our international retail commercial portfolio.
Evan Greenberg: with PNC Lines pricing up 6.3 and Financial Lines pricing down 3.5.
Evan Greenberg: Premiums in our international wholesale business grew about 8% a constant dollar.
Evan Greenberg: As is typical, the London wholesale market is growing more competitive.
Evan Greenberg: and frankly for me is exhibiting classic London underwriter and broker behavior.
Evan Greenberg: Generally speaking, underwriting prosperity likely won't endure over time and London will underperform in due course.
Evan Greenberg: except for those few real underwriters who know how to manage what is simply a trade. I have seen this movie many times.
Speaker Change: Our International Personal Alliance business had an excellent quarter.
Speaker Change: with growth of 12.7 percent led by Asia Pacific and Latin America.
Speaker Change: And our global reinsurance business had a strong quarter. Premiums were up about 35%. We had a combined ratio of 94-4, which included a more active cap loss quarter.
Speaker Change: Again, in our international life insurance business.
Speaker Change: which is fundamentally Asia. Premiums and deposits were up about 21% in constant dollar. International life earnings grew over 9% in the quarter in constant dollar.
Speaker Change: So that's a lot of news. And in summary, we had another excellent quarter and having a record earnings year.
Speaker Change: While we're in the risk business and volatility is a natural feature, we are very confident in our ability to continue growing our operating earnings and EPS at a superior rate.
Speaker Change: PNC Revenue Growth and Underwriting Margins, Investment Income, and Life Income.
Speaker Change: I'm going to turn the call over to Peter and then we're going to come back and take your question.
Peter Enns: Good morning. As you have just heard from Evan, despite an elevated level of industry-wide CAHPS, we had another strong quarter that generated adjusted operating cash flow for the quarter and through nine months of $4.6 billion and a record $11.7 billion respectively.
Peter Enns: Our results further strengthened our overall financial position, ending the quarter with all-time highs in book value of nearly $66 billion and invested assets of $151 billion.
Peter Enns: On July 31st, we issued $700 million of five-year debt and $600 million of ten-year debt at an attractive weighted average cost of under 5%.
Peter Enns: The proceeds will be used for general corporate purposes, including repayment of 700 million of Euro-denominated debt due in December.
Peter Enns: We returned $782 million of capital to shareholders this quarter, including $413 million in share repurchases and $369 million in dividends, and $2.4 billion in total through nine months.
Peter Enns: book and tangible book value per share excluding AOCI increased 2.7 percent and 4.3 percent respectively for the quarter and 7.7 percent and 10.6 percent respectively year-to-date benefiting from core operating income partially offset by the capital returned to shareholders
Peter Enns: Core operating ROE and return on tangible equity with 13.6 and a record 21.5 percent respectively year-to-date.
Peter Enns: Turning to investments, our A-rated portfolio produced adjusted net investment income of $1.64 billion, which included approximately $40 million of higher-than-normal income from private equity.
Peter Enns: Regarding underwriting results, the quarter included pre-tax catastrophe losses of $765 million, of which $250 million was related to Hurricane Helene, and the balance principally from weather-related events split 70% in the U.S. and 30% internationally.
Peter Enns: Prior period development in the quarter in our active companies was a favorable $299 million pre-tax.
Peter Enns: with favorable development of $358 million in short-tail lines, primarily from property, and $59 million of unfavorable development in long-tail lines, which was primarily from general casualty.
Peter Enns: Our corporate runoff portfolio had adverse development of $55 million, primarily environmental liability related.
Peter Enns: Our pay-to-incurred ratio for the quarter and the year was 77%.
Peter Enns: Our core effective tax rate was 17.7% for the quarter, which is below our previously guided range, due to shifts in the mix of income, as well as certain discrete tax benefits recorded in the quarter.
Peter Enns: We expect our fourth quarter core effective tax rate to now be between 19 and 19 and a quarter percent with the full year between 18 and 18 and a quarter percent.
Peter Enns: We expect to provide guidance on the 2025 tax rate as part of our fourth quarter earnings at the end of January.
Speaker Change: I'll now turn the call back over to Karen.
Karen Beyer: Thank you and at this point we're happy to take your questions.
Speaker Change: Thank you. We'll now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. Your first question comes from the line of Bob Wang from Morgan Stanley. Your line is open.
Bob Wang: Good morning. So, first question is on the North America commercial. I think if we, like you said before, right, pricing, ex-financial alliance, ex-workers comp, continue to be very strong over the last few quarters. And you had really incredible margins in this business.
Bob Wang: Just given the pricing and the growth, should we expect growth to accelerate from here or how should we think about growth in this business, ex-Financial Alliance, ex-Workers' Comp going forward?
Speaker Change: Yeah, um...
Speaker Change: First of all,
Speaker Change: I don't we don't give forward guidance as you know so
Speaker Change: I'm not going to
Speaker Change: answer that in a specific way.
Speaker Change: You see the amount of new business we run.
Speaker Change: You see our retention rate.
Speaker Change: You see we're in a healthy market.
Speaker Change: and we're in an underwriters market. Risk selection...
Speaker Change: Structure of risk, how you structure it, and pricing matter. All underwriters aren't created equal, so we compete.
Speaker Change: to business.
Speaker Change: and some areas of business have become more competitive, naturally.
Speaker Change: speaking to property.
Speaker Change: I'm confident when I look forward at Chubb's ability to continue to grow
Speaker Change: above trend when I look at longer-term trend and as I look forward over a period of time.
Speaker Change: and I'll leave it at that.
Speaker Change: Great, thank you. Second question is on the international business. Apology in advance if I misinterpreted your commentary.
Speaker Change: But it sounded like what you're saying is that in London, there could be more competition. Does that imply that a lot of the international growth going forward will be driven by Asia and elsewhere? If that is the case, does the upcoming election potentially have an impact on the growth in that area?
Speaker Change: First of all, our London wholesale business is
Speaker Change: proportionately.
Speaker Change: is
Speaker Change: not the overwhelming part of our international business. It's about 10%.
Speaker Change: and so put that in perspective. 90% is our global retail.
Speaker Change: International, Europe grew 8.5, Latin America grew 7.5, Asia grew in the 9s.
Speaker Change: So it's that vast territory, and then the UK itself grows well, which is UK retail, which is a big business.
Speaker Change: and then you have the London Wholesale Market.
Speaker Change: where business comes to London to get placed.
Speaker Change: And that's what my comment was referring to, the classic London market competition that I just thought I would call out because you start to see the behavior that is classic of London.
Speaker Change: The elections, I'm not sure.
Speaker Change: I'm not sure how you linked it to the election and the election outcome.
Speaker Change: You'd have to enlighten me.
Speaker Change: But does that help you? No, I think it does. Really appreciate the UK comments there. Thank you. You got it. I feel good about our international growth capabilities.
Speaker Change: Your next question comes from a line of Brian Meredith from UBS Financial. Your line is open.
Brian Meredith: Yes, thank you. Evan, I'm just curious, given the hurricane activity we've seen in the elevated, call it cat losses, what are you seeing in the property lines, you know, right now and what's your expectations if we go into 1-1 renewals, you know, both on the primary and re-insured side?
Evan Greenberg: Yeah, on the primary side...
Evan Greenberg: In the middle market small commercial, which is
Evan Greenberg: I believe the vast majority of business in insurance in North America, overall when you look at the industry.
Evan Greenberg: Pricing is
Evan Greenberg: is, remains firm on prices.
Evan Greenberg: continue to go up.
Evan Greenberg: And it's both hurricane and, you know, active SCS activity, you know, modeled, non-modeled loss.
Evan Greenberg: The market needs the price, and it continues to move in that direction.
Speaker Change: Would you get to Shared and Layered particularly?
Speaker Change: whether it's large account or it's E&S related, that's where there is more, the business is well-priced, but there is rate pressure. Rates are coming down, though they remain at good levels.
Speaker Change: and because there's more capital that's entered the market, more competition, and again in particular I call out London behavior that is almost avarite relative to everybody else.
Speaker Change: but it remains a robust market.
Speaker Change: Great, thank you. And my second question.
Speaker Change: Peter, you mentioned there was $59 million of, call it, general casualty adverse development in North America. What accident years was that coming from? And maybe break it down a little more. Was it GL, commercial auto? What's driving some of that development?
Peter Enns: Yeah, it was 19 to 22 years.
Speaker Change: and it was in the general casualty areas. The negative and you know look we we do a lot of studies in the third quarter of casualty.
Speaker Change: It was
Speaker Change: There were there were puts and calls so that you really have a
Speaker Change: There were a number of long-tail classes in the quarter that had positive results.
Speaker Change: and then there was in particular excess casualty that produced a negative result. So it's a it's a kind of a mixed bag it's not all in one direction.
Speaker Change: and that is what...
Speaker Change: all added up to the North America.
Speaker Change: casualty reserve charge, which was... Thanks Evan, I appreciate it.
Speaker Change: Your next question comes from a line of David Momadry from Evercore ISI. Your line is open.
David Momadry: Thanks, good morning. Evan, I think...
David Momadry: You know, over the last several quarters, you guys had called out
David Momadry: some troubled classes in North America commercial that you guys were reworking. I think it was a $50 million drag.
David Momadry: last quarter. I know there was also some of that in 4Q23.
David Momadry: Is that largely behind you at this point, aside from just sort of the normal course managing the book where we should see, you know, continued acceleration and some of those commercial casualty lines?
David Momadry: We.
Speaker Change: Please see the complete disclaimer at https://sites.google.com
Speaker Change: I have another quarter.
Speaker Change: or two to go before we finish. We began fourth quarter last year in most of it. We have a part of it that we began really in first quarter. So we have, we had about another 50.
Speaker Change: or so million this quarter, and it'll continue into fourth.
Speaker Change: a little bit into first but you know in the grand scheme of the total premiums we write
Speaker Change: It's just not that.
Speaker Change: Significant.
Speaker Change: And remember, it's not, it's...
Speaker Change: It's a combination.
Speaker Change: of, you know, whether some business moves to others who...
Speaker Change: just don't get it.
Speaker Change: but a lot of it is due to how we change terms.
Speaker Change: and attachment points and we eliminate dollar swapping. This is a large account related comments.
Speaker Change: And then, of course, the excess areas are getting a lot of rate that help to ameliorate.
Speaker Change: So maybe that helps you with it.
Speaker Change: Yeah, no, thanks. That's helpful. When you look at the broad nature of our business, I mean, let's just keep a perspective.
Speaker Change: Are we right?
Speaker Change: 20-some-odd billion of net premiums in North America.
Speaker Change: Personal Lines is about seven of that. So all the rest is commercial. Massive.
Speaker Change: number two middle market player, a large ENS player.
Speaker Change: major agricultural writers.
Speaker Change: a large major account writer.
Speaker Change: And so when you start hearing numbers like, you know, that we're talking about this area in large account casualty,
Speaker Change: Well, it's not unimportant relative to the business. Keep perspective, it's small.
Speaker Change: Right, no, that's fair, and I see the rate is also accelerating there in casualties, so that's good to see as well.
Speaker Change: You know, the, you know, the catastrophe losses over the last several years.
Speaker Change: you know, and in the third quarter, this third quarter, we're definitely, you know, surprisingly low just given, you know, just given the mixed shift to property that you guys have had over the last several years.
Speaker Change: you know, is this third quarter sort of in line with sort of a normal third quarter that you would expect and you know, I guess as you think about the mix of property and casualty business
Speaker Change: Is this sort of, you know, are you still comfortable shifting more to property or is that something where, you know, just given the market dynamics it should stabilize at this point?
Speaker Change: Yeah,
Speaker Change: The cat glosses.
Speaker Change: were
Speaker Change: A bit lower in the quarter than we would have modeled.
Speaker Change: than our modeling that we contemplated pricing.
Speaker Change: would have produced.
Speaker Change: So, in our hand, you will expect it.
Speaker Change: But that to me is just lost volatility. We're in a business that...
Speaker Change: Very sorry.
Speaker Change: A favorable side and an unfavorable side because your average expected loss that you divide into four quarters is just an average, it's just that. And it contemplates all return periods.
Speaker Change: in the loss and in the pricing. So, you know, that makes...
Speaker Change: sense to me that I'd see ballot you're not gonna hit the number you're either up or down from us.
Speaker Change: number one. Number two, we have
Speaker Change: We have a lot of capital flexibility.
Speaker Change: I think we're good underwriters of the business.
Speaker Change: So our risk selection and portfolio construction
Speaker Change: and ensuring we have good pricing.
Speaker Change: I think contributes to Chubb's overall results in a major way.
Speaker Change: versus the industry.
Speaker Change: And we're going to right the business, whether it is property or casualty.
Speaker Change: We have an appetite for the volatility. We are going to right the business.
Speaker Change: Wherever it is, if we understand it, we can price it, structure it, and assume it.
Speaker Change: and so we're continuing to lean into property, we're continuing to lean into cash.
Speaker Change: and Personal Alliance and all other areas where we see there is growth potential.
Speaker Change: And, frankly, the most frustrating thing inside our own organization, we can't get after opportunity fast enough and execute efficiently enough for our own appetite and expectations.
Speaker Change: Thank you.
Speaker Change: Thank you very much.
Speaker Change: Our next question comes from the line of Yaron Kinnar from Jeffries. Your line is open.
Yaron Kinnar: Thank you. Good morning. And maybe just continuing on the previous questions. So, when we look at North America casualty, it is where you're getting the most rate, I think, based on the data I quickly tried to jot down. And definitely exceeding loss trend, but that's also where the exposure growth has been less pronounced.
Speaker Change: I'm guessing that's because of the work you're doing on fixing the troubled classes that you referenced. So, without asking for guidance here, but just based on the data, is it fair to think of a growing appetite for casualty coming through in results as the troubled lines are fixed?
Speaker Change: I don't know where you're getting that picture, but I can tell you that our casualty lines are actually growing quickly, and I'm not going to give you a breakdown.
Speaker Change: But our casualty lines are actually growing quickly.
Speaker Change: and in North America in the areas where we see decent pricing and I don't see much of an overhang of
Speaker Change: $50 billion, sparkly, much of an overhang. So I...
Speaker Change: I can't agree with you, your line of logic and
Speaker Change: are
Speaker Change: I have to leave you to think your own thoughts.
Speaker Change: Good afternoon.
Speaker Change: Okay, I have a store. My store sold more goods.
Speaker Change: this year than last year.
Speaker Change: It sold 1% more in goods. My theater sold 1% more tickets than last year. That's exposure growth, and we rate off of that. That's how you get to price.
Speaker Change: You're confusing price and rate with growth and premium. Two different things. My unit growth of number of customers, I wrote, is totally different.
Speaker Change: Yaron, you got to go just to learn those basics.
Speaker Change: Thank you.
Speaker Change: All right, and then in the London behavior that you have referenced, is that the competitive nature true in both casualty and property?
Speaker Change: Yeah, across the board.
Speaker Change: Okay, thank you.
Speaker Change: Welcome.
Speaker Change: Your next question comes from a line of Gregory Peters from Raymond James. Your line is open.
Gregory Peters: Good morning, everyone.
Gregory Peters: Evan, for my first question I want to go back to your comments around the life insurance business. As you pointed out, you rarely give forward guidance so this is somewhat of a departure.
Gregory Peters: deposit assets. Just curious why we're not seeing that translate to more income growth. Is there something going on inside there other than currency or just some clarification on that would be helpful.
Peter Enns: It's Peter, Greg. The top-line growth on total life and on international, as you know, and it was said, was around 10 percent.
Speaker Change: The income growth in international was just over 9% so pretty much tracking
Speaker Change: The combined insurance business in the last half of last year I called out in the fourth quarterly earnings call had a bit of a non-recurring or oversized item. So if you back that out the growth rate would be relatively consistent for all of life with international.
Speaker Change: Thank you.
Speaker Change: Great. Thanks for the reminder on that. Appreciate that. The second question I had was on capital. Noted your comments around dividends and share repurchase in the third quarter. The results of your company are outstanding. The free cash flow is really strong.
Speaker Change: Curious if you have any changed view on share repurchase versus shared special dividends as the stock price appreciates, or given the results, if there's any change on your views on capital management.
Speaker Change: No, it's steady as she does.
Speaker Change: We're returning a healthy amount of capital to shareholders.
Speaker Change: we can put to work
Speaker Change: at good risk-adjusted returns that well exceed our cost of capital.
Speaker Change: condom and were
Speaker Change: That's the balance.
Speaker Change: Fair enough. Thanks for your time.
Speaker Change: You're welcome
Speaker Change: Your next question comes from the line of Brian Tunis from Autonomous Research. Your line is open.
Brian Tunis: Hey thanks, good morning. Evan, I get some of your comments about competition in London wholesale. Typical behavior there.
Brian Tunis: I guess my concern, maybe you can talk me off the ledge on this a bit, but to me that market is, you know, London wholesale is pretty intertwined. When I hear commentary like that
Brian Tunis: I start wondering a little bit about like
Brian Tunis: what might be coming next. I mean is that a fair concern or you know when you say that are you really just honing in on just strictly London?
Speaker Change: No, I think it's um, I'm saying it particularly about London and look the business in London overall The market is profitable
Speaker Change: But my real point was the kind of behavior I'm seeing them exhibit.
Speaker Change: the way they're trying to attract more capital to a finite amount of business.
Speaker Change: The behavior of the Capitol, as I look at it and the guises that it's in, it just sets the table for the same movie I've watched that will occur over a number of years, many times.
Speaker Change: and they just can't ultimately stand prosperity.
Speaker Change: and so I'm just calling it out because I'm seeing it or I'm seeing it begin and it is peculiar
Speaker Change: in particular to the London.
Speaker Change: Got it. And then I guess just for follow-up.
Speaker Change: Thinking about internationalized, so it took more than a decade to get to a billion dollars of premium.
Speaker Change: Any suggestion you want to give us on how long it's going to take to get the next billion of operating earnings there?
Speaker Change: In life, internationally.
Peter Enns: Peter Enns,
Peter Enns: I think it's life. Did you say international like Ryan?
Peter Enns: I did, yes.
Peter Enns: Yeah, stay tuned buddy, it ain't gonna take a decade.
Peter Enns: Thanks.
Peter Enns: Thank you for tuning in. Have a great day.
Speaker Change: Our next question comes from the line of Alex Scott from Barclays. Your line is open.
Speaker Change: You know on one hand we're seeing some unfavorable here there and some of these
Alex Scott: and many of these businesses. And I just wanted to get your thoughts on price adequacy in general across some of those casualty lines and how much need is there for the industry in your view to keep pushing?
Alex Scott: pricing casualty.
Speaker Change: Yeah, there is no general statement.
Speaker Change: It varies by area of casualty, by customer cohort, by geography. There is no simple and that's why it's always an underwriter's mark.
Speaker Change: I come.
Speaker Change: and you've got to have the data, you've got to have the experience.
Speaker Change: Yum
Speaker Change: And you've got to have the analytics and actuarial to back it up.
Speaker Change: So there is no general statement that could put casualty, which is a massive class of insurance.
Speaker Change: in a neat box and on a bumper sticker.
Speaker Change: Understood. Sorry for the more broad-based question. It's just something I grapple with, you know, looking at the specific products versus like the overall profitability of companies. I honestly, I'd help you out and give it to you.
Speaker Change: Understood. Next one I have for you is just on the asset base. I guess is we're seeing
Speaker Change: You know I guess
Speaker Change: lower paid claims relative to incurred sort of an elongation of the claim cycle and casualty we're seeing asset bases kind of grow more than they otherwise would which you know that
Speaker Change: The good part about that is you get more net investment income potentially. I mean, how should we think about the growth in the asset base?
Speaker Change: I think you just said something.
Speaker Change: All right.
Speaker Change: You're going to have to think about how you connected those dots.
Speaker Change: You just said elongated payout, Cotter.
Speaker Change: and I don't relate to an elongated payoff pattern.
Speaker Change: I do relate to strength of reserves.
Speaker Change: that all things being equal, paid to incur, can point to.
Speaker Change: And I do understand growth in business and in longer tail areas and mix in that regard.
Speaker Change: but I don't relate to a notion of elongated payout pattern.
Speaker Change: Generally speaking,
Speaker Change: And I don't know, I got the data.
Speaker Change: at least when it comes to jobs.
Speaker Change: Can I, I mean the invested asset base growing at a pretty strong clip, I mean what's the underlying drive now? Our business has been growing and our margins have been good.
Speaker Change: And so our invested asset base, yes, continues to grow and our capital has been growing.
Speaker Change: and Superior Returns.
Speaker Change: on a risk-adjusted, well in excess of cost of capital. So that is a source of strength for the company.
Speaker Change: and we will continue to grow the invested asset on purpose.
Speaker Change: and we will continue to focus on returns within that portfolio as a good asset allocator of wood.
Speaker Change: which is my earlier comments about us as an asset manager.
Speaker Change: a manager of capital
Speaker Change: claim reserves
Speaker Change: and that will continue to grow.
Speaker Change: Thanks very much
Speaker Change: You're welcome.
Speaker Change: Our next question comes from the line of Andrew Kligerman from TD Cowen. Your line is open.
Andrew Kligerman: Hey, good morning. I'm thinking about the financial lines where premium was down 6.2% and I think you highlighted rate off, low single digit, but you still generated about a billion and a quarter of premium. So I'm wondering how much of that was D&O? Can you still make money in D&O?
Andrew Kligerman: Just how are you thinking about the outlook there?
Andrew Kligerman: and we have a very large installed customer base.
Speaker Change: We have a long-storied reputation in GNO and financial lines. We're a major brand in it.
Speaker Change: and when they're looking for someone to write their primary that is manage their risk.
Speaker Change: More often than not, they want chub on them.
Speaker Change: And the competition then is more in the excess layers.
Speaker Change: And yes, we're writing D&O because where we are, we're making it.
Speaker Change: That makes a lot of sense. And then just maybe to...
Speaker Change: kind of follow on that London movie commentary that you gave.
Speaker Change: You know, you're doing such exceptional underlying combines, 80.8 in North America, 84.8 in overseas.
Speaker Change: Thank you. Bye.
Speaker Change: maybe erode a little bit.
Speaker Change: you still do great, but.
Speaker Change: It's five years into the hard market already.
Speaker Change: Here's what you're missing. You're looking at it on an ex-cat basis when everyone is cat-lovered. Look at published combined ratios.
Speaker Change: That's what tells you, you can't chuck out the losses and leave the premium in the denominator. I reject that discussion.
Speaker Change: because that's just not, that's just not understanding risk.
Speaker Change: And so, and that's what those ex-cat look like. And then ask yourself, and you have to do the work, but when you look at various companies, you look at various markets.
Speaker Change: You've got to understand, how much is Cat Leopard, how much is not Cat Leopard.
Speaker Change: to get a real sense of the health. And then that's why I continue to say published combined ratio is your most important indicator.
Speaker Change: And then after that, a secondary indicator, all things being equal, is Xcat. It tells you some things, but don't over-read it.
Speaker Change: So what I'm reading, right, so what I should just simply read in is that the combines on an absolute basis are still very high for the industry and the outlook is good for Chubb.
Speaker Change: They're good. They're delivering good returns for the industry overall.
Speaker Change: and it varies by company. Some companies it's delivering good returns, some it's not.
Speaker Change: They're decent. There's not a lot of room to move.
Speaker Change: If you're thinking about pricing adequacy, it's not like industry ROEs are off the charts.
Speaker Change: They're decent, they're good on a risk-adjusted basis. And then loss trend is relentless. Every year you have a loss trend, so you can't just stand still.
Speaker Change: Just to stay where you are, you've got to get rate or price.
Speaker Change: Makes a lot of sense.
Speaker Change #100: You got it, bud.
Speaker Change #101: Your next question comes from the line of Elyse Greenspan from Wells Fargo. Your line is open.
Elyse Greenspan: Hi, thanks. Good morning. My first question, you know, you guys said, right, there was $59 million of, I guess, strengthening on long-tail reserves. I know in response to an earlier question there were some pushes and pulls. Can you guys give us a sense of, you know, what was released in workers' comp versus what was added to excess casualty in the quarter?
Elyse Greenspan: You know, we've given, I gave as much color around that there was in long tail
Speaker Change #103: There was both positive and negative, and negative was more excess related and beyond that we're not giving detail.
Speaker Change #104: Okay, thanks. And then, you know, you guys typically provide an investment income guide. I don't think that was given this quarter. Any color you can provide there, just relative to, you know, fourth quarter and forward.
Speaker Change #105: At least, and last quarter I gave last six months guidance, so what I would say for the fourth quarter is we will be at the high end of that guidance for the fourth quarter on a recurring basis.
Speaker Change #105: obviously there's things that are harder to predict like I spiked out the 40 million in the third quarter that was higher than normal on PE but I'd say the high end of the guidance rate level on a recurring basis for the fourth quarter.
Speaker Change #106: And then on tax, you said you would give us right next year with Q4, but given, you know, just Bermuda tax changes going into effect, just directionally, would that imply you guys would think the tax rate would be higher next year relative to this year's guide?
Speaker Change #107: So Lisa, we typically give the full year guidance in the fourth quarter. That's as far as we go. There is uncertainty, so we're not giving anything more specific right now.
Speaker Change #108: Okay, thank you.
Speaker Change #109: Your next question comes from a line of Mayor Shields from KBW. Your line is open.
Mayor Shields: Great, thanks. If I can go back to the Division of Pricing to Rate and Exposure Unit.
Mayor Shields: to the extent that more of pricing is coming from rates rather than exposed units, does that have implications for loss ratio progress?
Speaker Change #111: Does it work?
Speaker Change #111: If more of pricing comes from rates than exposure units, does that imply a difference in terms of how, when these premiums are earned, the loss ratio will move?
Speaker Change #112: No, no, not at all.
Speaker Change #113: Look, be careful. I didn't say exposure. Maybe we're using different terms.
Speaker Change #113: An exposure unit to me would be that I wrote more policies.
Speaker Change #113: I took more insurance. That doesn't go into price.
Speaker Change #113: We're only talking rate and price.
Speaker Change #114: times exposure.
Speaker Change #114: and so we have rate and then we have
Speaker Change #114: A certain kind of exposure, that equals price, and you apply it against units of exposure, which is insured.
Speaker Change #114: and so the exposure part of price
Speaker Change #114: is just like rape. It acts like rape, the portion of it that we count.
Speaker Change #114: and that has nothing to do with it all earns exactly the same way.
Speaker Change #114: https://www.kenhub.com
Speaker Change #115: Okay, perfect, that's helpful.
Speaker Change #115: And if it's an annual policy, it's earned one-twelfth a month.
Speaker Change #116: Okay, no, I think I understand that.
Speaker Change #117: Yeah, I apologize for the terminology issue. Second question though, to the extent that that component of pricing is slowing down, to the extent that that reflects maybe slowing economic growth, does that itself have implications for underwriting profitability?
Speaker Change #118: Not that we know.
Speaker Change #119: Not all things meet. And that's a whole different theoretical discussion that depends on the line of business and what we're talking about. So, oh my God, no. If you wanna sit in.
Speaker Change #119: and have a gestalt discussion about that sometime, Meyer, I'll do a bit.
Speaker Change #120: All right, I'll bring the hearing.
Speaker Change #120: No, no, only in sour cream sauce.
Speaker Change #121: Thank you very much. You're welcome. Thank you. We'll see you next time.
Speaker Change #122: Your next question comes from a line of Mike Zaremsky from BMO. Your line is open.
Mike Zaremsky: Hey, good morning. So, just kind of back to the casualty.
Mike Zaremsky: I guess I'm just trying to understand, like, why pricing would be accelerating all the way up to 12, especially in today's higher interest rate environment, which is good for long tail lines if loss costs are indeed, you know, well below that number.
Speaker Change #124: Yeah, so, yeah, so, um, what
Speaker Change #124: I've been clear about
Speaker Change #125: that you're trying to beat.
Speaker Change #125: Too simplistic.
Speaker Change #125: door
Speaker Change #125: many cohorts of casualty.
Speaker Change #125: The Majority You
Speaker Change #125: significant, the vast majority of our portfolio.
Speaker Change #125: is adequately priced.
Speaker Change #125: There are areas where price has had to accelerate.
Speaker Change #125: to achieve an adequate risk-adjusted return.
Speaker Change #125: It's those, everyone's book of casualty is different.
Speaker Change #125: and our portfolio of casualty has produced these kinds of rate increases.
Speaker Change #125: which were made up of rate increases to keep pace.
Speaker Change #125: with lost costs where we're adequately priced.
Speaker Change #125: greater levels of rate increase.
Speaker Change #125: where we're pushing to achieve price adequacy.
Speaker Change #125: and it all mixes together.
Speaker Change #125: and, by the way, what's producing outstanding combined ratios.
Speaker Change #125: That's as far as I can take you.
Speaker Change #126: Okay, okay. That's understood. Maybe just switching gears lastly, since you were willing to offer some.
Speaker Change #127: guidance on life insurance. So if the target this year was
Speaker Change #127: It's the first year and I was just doing it for all of you because this was our first year where
Speaker Change #127: You didn't have noise of acquisitions in that, and you're trying to get it.
Speaker Change #128: Where are we relative to where we think we should be? That was why I gave a comment about the 24 full year.
Speaker Change #128: where our own target was, I just said, in excess of a billion dollars.
Speaker Change #128: for operating income and that we are well on track to achieve that or exceed that.
Speaker Change #128: sort of a, you know, a landing place. And then from there, we don't give forward time.
Speaker Change #129: Okay, got it, because last year was over a billion, but yeah, there was definitely some noise and obviously earnings there have been great. So, okay, thank you for taking my questions.
Speaker Change #130: You're welcome.
Speaker Change #131: But by the way, it's a growth area.
Speaker Change #131: Thanks.
Speaker Change #132: Thank you everyone for joining us today. If you have any follow-up questions, we'll be around to take your call. Enjoy the day. Thanks.
Speaker Change #133: This concludes today's conference call. Thank you for your participation. You may now disconnect.
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