Q4 2024 Chubb Ltd Earnings Call
The
Speaker Change: Thank you for standing by, and welcome to the Chubb Limited 4th Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.
Speaker Change: 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 December 31, 2024, fourth quarter and year-end earnings conference call.
Karen Beyer: 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.
Karen Beyer: which are subject to risk 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.Shub.com for more information on factors that could affect these matters.
Karen Beyer: 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, followed by Peter Enns, our Chief Financial Officer.
Then we'll take your questions.
Speaker Change: Also with us to assist with your questions this morning are several members of our management team.
Thank you. Bye.
Speaker Change: It is my pleasure to turn the call over to Evan.
Good morning.
Evan: Before I begin, I want to take a moment to speak about the terrible tragedies surrounding the California wildfires.
The lives lost and tremendous loss of property.
A major disaster.
still unfolding.
Evan: Our job and the role we play in society is to support our policy goals.
Evan: Our colleagues have been on the ground, supported by Chubb colleagues throughout the U.S.
Evan: endeavoring to assist those clients who have lost property, been displaced from their homes and businesses.
had their lives severely disrupted.
Evan: It doesn't erase the enormous difficulty they have and will continue to experience.
Evan: We're doing all we can, in small and big ways, to ease their burden.
Evan: Our thoughts are with those who have suffered, and our gratitude goes to those firefighters and emergency workers who served tirelessly.
From a financial perspective, our current estimate of the cost
Evan: of supporting our customers and helping them recover and rebuild from their catastrophe is one and a half billion net pre-tax and is a first quarter 2025 event.
Evan: Now, turning to our results for the fourth quarter, 24, which you have all seen.
We had a great quarter.
which contributed to an outstanding year.
In fact, the best in our company's history.
Evan: For the quarter, record PNC underwriting income with a world-class combined ratio of 85.7 together with another quarter of record investment income.
led to core operating income of $2.5 billion.
Operating earnings were up 9.4% on a pre-tax basis.
We're ten and a half percent per share
Evan: No after-tax, they were distorted by the one-time tax benefit we received last year.
Evan: Looking through that, operating income was up over 7.5% after tax.
Evan: Global PNC premium revenue, which excludes agriculture, grew 6.7% in the quarter.
with good contributions from our PNC businesses globally.
North America and Overseas General.
Evan: premiums in our life insurance division grew eight and a half percent constant dollar
Evan: For the year, we generated operating income of $9.1 billion, up 11.5%, adjusted for the one-time tax benefit.
and 13% on a per share basis.
Looking more broadly.
Evan: Over the past three years, core operating income has grown over 65%.
that has nearly doubled the amount from pre-COVID-19.
Evan: All three major sources of income for our company produced record results last year.
Evan: PNC underwriting income of $5.9 billion was up over 7%, with a published combined ratio of 86.6.
Adjusted net investment income grew 19.3% to $6.4 billion.
and life insurance income topped a billion dollars.
Evan: For the year, we grew global PNC premiums 9.9% and life premiums 18.5% in constant dollar.
Evan: Shareholder returns were strong. Our core operating ROE was about 14% and our return on tangible equity was 21.6.
Evan: Per share book and tangible book value group, 8.8 and 14.1 respectively.
Evan: Our results, top and bottom line, continue to demonstrate the broad and diversified nature of the company.
Evan: and the consistency of contributions from our businesses around the world. North America, Asia, Europe, Latin America, both commercial and consumer.
Evan: As we look forward to 2025, we have good momentum and are optimistic about the year ahead, both top and bottom line, hat losses and FX notwithstanding.
Evan: Returning to the quarter, our underwriting performance was outstanding, while absorbing a more normal level of at-losses.
Evan: PNC underwriting income was $1.6 billion and the current accident year combined ratio excluding CATS was 82.2 percent, more than two points better than prior year and also a record result.
Evan: and speaks to the strength of reserves, the conservative nature of our loss-reserving practices.
On the asset side, we're investment managers.
Evan: our other business, and we add another excellent quarter in terms of performance.
Evan: Our invested asset now stands at $151 billion, and it will continue to grow.
Evan: For the quarter, adjusted net investment income was a record $1.7 billion, up 13.7 percent.
Evan: Our fixed income portfolio yield is 5% versus 4.8 a year ago, and our current new money rate is averaging 5.6%.
Peter will have more to say about financial items.
Evan: Turning to growth, pricing, and the rate environment, again, global PNC premiums increased 6.7 in the quarter.
Evan: With commercial up 6.4% and consumer up 7.5%, all regions of the world contributed favorably.
Life premiums grew 8.5%.
Evan: In terms of the commercial PNC rate environment, market trends or themes were consistent with those of the previous quarter.
Evan: Property has grown more competitive, in large accounts, shared and layered, and ENS, while pricing is favorable.
Casualty is stable or firming depending on the class.
and overall pricing is ahead of lost cost trend.
Evan: And financial lines, particularly DNO and employment practices liability, is where more competition is reaching for market share at the expense of current accident year underwriting margins.
Overall, market conditions are favorable.
Evan: and we see good growth opportunity for over 80% of our global PNC business.
commercial and consumer, as well as for our life business.
Evan: North American Overseas Generals, Asia, Europe, and Latin America, each with many areas of favorable growth opportunity.
Evan: our middle market and small commercial businesses globally, our U.S.C.N.S. business.
Our US High Net Worth business.
Global A&H and Life, International Personal Lines, our digital business.
and Specialty Business.
such as our growing Climate Plus business.
Evan: Now, turning to the quarter, let me give you some more color by division.
Beginning with North America, premiums excluding agriculture.
Evan: were up 6.3% and consisted of 10% growth in personal insurance and 5.1% growth in commercial.
with PNC lines up 7.2% and financial lines down 2.9%.
We had another strong quarter for new business.
Evan: up over 22% versus prior year, and our renewal retention on a policy count basis was 90.4%. These again speak to the reasonably disciplined tone of the market and our excellent operating performance.
Premiums in our Major Accountancy Specialty Division increased 4.6%.
with PNC up 5.8 and financial lines down 1.7.
Evan: Within major and specialty, our West Chester ENS business grew 8%.
Evan: Premiums in our middle market division increased 6.2% with P&C up 10% and financial lines down 5.
Pricing for Property and Casualty
Evan: excluding financial lines and comp was up 9.9% with rates up 8.2% and exposure change of 1.6%.
Financial lines pricing was down 3.3 with rates down 3.6.
Evan: and Workers' Comp, which includes both Primary Comp and Large Account Risk Management.
Evan: Pricing was up 4.7%, with rates up 2.5% and exposure up 2.1%.
Evan: Breaking down PFC pricing further, property pricing was up 6.9%, with rates up 3.5% and exposure change of 3.3%.
Casualty pricing in North America was up 12.7 percent.
with rates up 11.8% and exposure up 0.8%.
Evan: Loss costs in North America remain stable, no change, and in line with what we contemplate in our loss specs.
our North America Commercial Lines business.
Evan: ran an amazing 83.9% published combined ratio for the year. Again, an amazing result.
and Agriculture, where we are the market leader.
Evan: Our crop underwriting results this quarter were excellent, and we finished the year with $354 million in underwriting profit.
Evan: Premiums were down from prior year due to lower commodity prices.
and the formulas for risk sharing with the government.
on the consumer side of North America.
Evan: Our high net worth personal lines business at another outstanding quarter.
with premium growth of 10%.
including new business growth of 34 percent.
Evan: Premiums in our true high net worth segments, the group that seeks our brand for the differentiated coverage and service we are known for, grew 17.6%.
Evan: The National Security Service is now in the middle of the day.
Evan: Our homeowner's pricing was up over 12% in the quarter and ahead of loss cost trend, which remains steady. For the year, we ran an outstanding 83.6% combined ratio in our high net worth personal lines business.
Turning to our International General Insurance Operations.
Evan: Premiums in the quarter for our retail business were up 7.7%, with commercial lines up 10.3% and consumer up 4.7%.
Evan: From a region-of-the-world perspective, AsiaPAC led the way with premiums up 12.2. Europe grew 8.2, including growth of 12% on the continent.
Latin America grew just two and a half percent.
and was impacted by foreign exchange.
Evan: If you adjust for that, Latin America was up 11.5% in constant dollar.
Evan: In our international retail commercial business, PNC pricing was up 3.7 and financial lines pricing was down more than 6.
Premiums in our London wholesale business were essentially flat.
They were up 1.1
Evan: with prices down 4% as the London market continued to grow more competitive.
Evan: For the year, our Overseas General Business ran an excellent 86.4 combined ratio.
Our global reinsurance business had a strong quarter.
Evan: and a combined ratio of 85.9, reflecting a more disciplined reinsurance market, both property and pockets of casualties.
and our international life business.
Evan: which is fundamentally Asia, premiums and deposits were up over 26% in constant dollar and combined insurance company, our U.S. worksite business grew 17.8%.
Evan: Our Life Division finished the year with pre-tax income of $1.1 billion.
Evan: which was ahead of what we originally projected for the year. We have good momentum in our life business.
which continues to build.
Evan: In summary, we had a great quarter and a great year while we're in the risk business and there's plenty of uncertainty in the world.
Evan: We're confident in our ability to continue growing operating earnings and EPS at a double-digit rate, CATS and FX notwithstanding.
Our earnings growth will come from three sources.
PNC Underwriting, Investment Income, and Life Income.
Now I'll turn the call back over to Peter.
Peter: Thank you, Evan, and good morning. As you just heard, we concluded the year with another strong quarter, contributing to record full-year results across our three primary sources of earnings.
Peter: Our balance sheet finished the year in an exceptionally strong position. The book value is $64 billion and total invested assets of $151 billion.
Peter: The quarter and full year produced adjusted operating cash flow of $4.2 billion and a record $15.9 billion respectively.
Peter: It's also worth noting that during the quarter AMBEST affirmed our company's rating and stable outlook and in January S&P affirmed our rating and stable outlook.
Peter: During the quarter, we returned $1.1 billion of capital to shareholders, including $725 million in share repurchases and $367 million in dividends.
Peter: We returned $3.5 billion in total for the year, including $2 billion in share of purchases and $1.5 billion in dividends, which represented approximately 38% of our full-year core operating earnings.
Peter: The average share price on our purchases for the year was $269.23.
Peter: Book value for the quarter and the year was adversely impacted by unrealized mark-to-market losses on our high-quality fixed income portfolio due to interest rate changes.
Peter: which we expect to amortize back to par over time, as well as foreign exchange losses.
Peter: Book and tangible book value per share excluding AOCI grew 2.9% and 4.3% respectively for the quarter and 10.8 and 15.4% respectively for the year.
Peter: Our core operating return on tangible equity for the quarter and year was 22% and 21.6% respectively, while our core operating ROE for the quarter and year was 14.3% and 13.9%.
Turning to investments, our A-rated portfolio.
Peter: which now has an average book yield of 5%, produced adjusted net investment income of $1.69 billion, which included approximately $25 million of higher-than-normal income from private equity.
Peter: We expect our quarterly adjusted net investment income to have a run rate between 1.67 and 1.75 billion over the next six months.
Peter: Regarding underwriting results, the quarter included pre-tax catastrophe losses of $607 million, of which $309 million was from Hurricane Milton and $140 million from Hurricane Helene.
Peter: The remaining balance was principally from weather-related events split 31% in the U.S. and 69% internationally.
Peter: Prior period development in the quarter in our active companies was a favorable $352 million pre-tax.
Peter: with favorable development split 17% in long tail lines, primarily from general casualty.
and 83% from short-tail lines, primarily from property and agriculture.
Peter: Our corporate runoff portfolio had adverse development of $139 million, primarily asbestos-related.
Our pay-to-incurred ratio for the year was 83%.
Peter: Our core effective tax rate was 18.2% for the quarter and 17.5% for the year, which are below our previously guided range due to shifts in mix of income.
Peter: We expect our annual core operating effective tax rate for 2025 to be in the range of 19% to 19.5%, including the transition cash tax benefit provided on the adoption of the new Bermuda income tax.
I'll now turn the call back over to Karen.
Karen Beyer: Thank you, and at this point we'll be happy to take your questions.
Karen Beyer: Thank you. We will 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 Brian Meredith from UBS. Your line is open.
Brian Meredith: Yeah, thank you. A couple questions here for Evan. I'm wondering if you could dig into a little bit the Cal Fire loss estimate that you've given out there. You know, does it include assessment, subrogation, kind of ground out, maybe give us a little context on kind of how we should be thinking about the $1.5 billion number.
First of all, it's a ground-up number.
It's our own losses.
We don't go off of what we imagine as true.
Brian Meredith: That's a total industry wildfire loss in a market share area. This is our number.
and that are adjusters on the ground.
have been able to estimate property by profit.
Brian Meredith: It does include an assessment for our rejection of an assessment from the FAIR plan and we don't take credit in ours for suffocation.
Great, that's helpful. Thank you.
Speaker Change: And then my second question, Evan, I'm just curious, looking at 2025, I mean, it's still getting some solid growth in commercial lines, call it mid to high single-digit organic growth here in premium. But if you think of 2025, is that kind of a good number to target organically? And then is this kind of the period that we're looking at that maybe you should start looking a little bit more at inorganic growth opportunities?
Ha, ha, ha, ha, ha.
I love you, Brian.
Speaker Change: Yeah, you know, I don't give, we don't give guidance on forward-looking, but your first statement, you know, your logic sounds pretty decent to me.
Thank you for joining us. We appreciate it.
As for inorganic growth...
Speaker Change: You know, money is not burning a hole in our pocket, and as you know, it's opportunistic and it's in support of our organic strategies, and it's got to be the right thing at the right price.
So, you know...
We're always looking.
Great, appreciate it.
You're welcome.
Speaker Change: Your next question comes from the line of David Motamadam from Evercore ISI. Your line is open.
Thank you.
17% of the 350 or so on the active companies.
Speaker Change: what you guys have experienced over the last several quarters. So I'm wondering if you could elaborate on the favorable development that you're seeing there, because that's quite different than what you and others have been reporting.
Speaker Change: and any clarity on what sort of accident yours is coming from too would be helpful.
Speaker Change: Well, I'm going to correct your mental model to begin with.
Our casualty
We study different portfolios of casualty.
each quarter.
Go to Beadaholique.com for all of your beading supply needs!
some casualty portfolios.
We have taken
Reserved.
Strengthening.
Some portfolios we've taken no action.
Some portfolios, we've had reserve releases.
And there has not been a consistency per quarter, except
The consistency is the portfolios we study each for.
and Sho.
Cohort casualty we studied this quarter.
had favorable development given the reserve strength in that portfolio.
Got it. Helpful. Thank you for that.
and then maybe
Speaker Change: You know obviously strong results in North America commercial, that included a little bit of a headwind from the structured transactions too. Could you
Speaker Change: Of that 40 basis point headwind, could you just help me think about the impact that had on the loss ratio and, you know, how we should think about the durability of that loss ratio going forward?
Speaker Change: You're saying on structured transaction? What's its impact in the quarter on loss ratio?
Yeah.
Structured transactions typically run on...
Speaker Change: Now, we don't break down the pieces and going to give you each, you know, the component of that exactly. But they, what you should know is they run a higher loss ratio than the average portfolio does.
Got it. Okay. Thank you.
Bye.
David, does that help you?
David Motamadam: Yeah, yeah that does help. I mean I guess you guys had given the 40 basis points just on the total combined ratio. I guess I can just use that sort of as like a placeholder for what sort of impact that may have had on the
Speaker Change: Maybe a little bit bigger on the loss ratio, maybe a little bit smaller on the loss ratio.
but it's probably, you know, it's in the range, okay?
Speaker Change: Got it. Understood. That's helpful. Thank you. You're talking basis points, so it's easy for me to tell you you're in the rage. I mean, it could be ten basis points up or down.
Bye.
Thanks.
You're welcome.
Speaker Change: Your next question comes from the line of Gregory Peters from Raymond James. Your line is open.
Gregory Peters: Good morning everyone and Evan in response to Brian's question you said you love him. I don't recall you ever saying you love a sell-side analyst so the New Year's definitely starting off good for us.
Gregory Peters: Don't mess it up, Greg. All right, so I'm sure I can.
Gregory Peters: and your press release you say you're you're you're you know growing operating
Gregory Peters: Earnings and EPS at a double-digit rate. You talked about the three buckets, PC, investment income, and life insurance.
Speaker Change: Maybe you can, from a big-picture perspective, unpack life insurance and talk about where you see the growth coming next year or this year, I should say, 2025, and how it might compare with how the growth
came out for 24.
Yeah, you know, there was some...
A lot of consolidation impact on the life income.
in the 23 year
Speaker Change: So, you know, to look through the underlying growth rate of that, it produced a really solid double-digit growth rate and income.
Speaker Change: When I looked through it, it was in that 12 to 14 percent range.
Um
Speaker Change: We have good momentum in it. It's obviously Asia, and it's both North Asia and it's Southeast Asia.
our business in Korea, while the revenue growth
is
not overly exciting.
Speaker Change: the margin of that business continues to expand and our overall income is growing. It's a ballast of the business. It's supported by then faster countries that are growing much more quickly. Hong Kong.
Speaker Change: Taiwan, China right now growing more quickly for us, and each of those producing improved margin and therefore faster income growth.
Speaker Change: Southeast Asia, with Vietnam and Thailand, they had slower growth this past year, and they're accelerating as we go forward.
Speaker Change: And finally, we have two other businesses in Indonesia and in New Zealand that are...
Speaker Change: that are good businesses picking up momentum. It's in direct response marketing. It's in agency.
Speaker Change: And over 60% of the business, about 70% of it, is really accident and health and risk-based type products. And the rest is very conservatively structured, savings-related products.
People in Asia
Speaker Change: You have two themes. You have an aging population in the north.
that requires a certain kind of savings and health-related product.
Speaker Change: And then you have people in Southeast Asia, which is a younger population, family-oriented, there are no social safety nets, and so they rely on these kinds of products much more than they do in other parts of the world. And I'll remind you.
Speaker Change: Unlike many regions of the world, these parts of Asia are growing.
Speaker Change: particularly Southeast Asia. The economic growth is multiples of what we're seeing in the West and that just means a rising middle class.
Speaker Change: Thanks for the perspective and detail. I guess pivoting to the other bucket which is PC...
Speaker Change: It seems like the broader market is producing some pretty good results relative to longer-term averages, and we're hearing about increased competition across a broader set of lines of business. Even you, in your comments, talked about financial lines.
Speaker Change: So maybe you could spend some a minute and give us some perspective on how you think where we are in the cycle and And how chubs can be positioned to come out of it
Speaker Change: Yeah, you know, it goes to my comment about 80% of the business growth.
I'm aware
You therefore see the pockets of competition.
Speaker Change: You know, as a backdrop, and in the way you think about cycles...
Thank you very much.
A more inflationary period is the insurance industry.
and it's a prologue.
than we have seen in a very long time.
We went through decades.
of really relatively low inflation.
Speaker Change: On the short tail class side, virtually, you know, pretty flat. And on the long tail side, there's always been pockets.
Speaker Change: but it was running at a lower level. We're in a period of sustained inflation.
So to just stay in place.
Rates have to move. It doesn't mean margins.
Speaker Change: If they just keep pace with cost, so a certain amount of industry growth is just to reflect inflation.
The competition, it's increasing in shared and large account business.
Speaker Change: So first, large account will grow more slowly because you have a couple of lines of business where competition increases.
property, shared and layered property, but it's well-placed.
and it doesn't mean that there's a decrease in margin.
It means that to retain
Speaker Change: business, you become a bit more competitive, it's harder to grow more, want that business. So you're not going to see growth, but you're going to see, you see good results from all we're imagining as we go forward. ENS property.
Speaker Change: Same thing. Financial lines, in large account, same thing. And then, primary casualty.
Speaker Change: is not a real growth business but it's a ballast that supports growth of many other lines for large account. So large account, not so much. In middle market and small commercial, growth opportunity.
and it's a growth opportunity across many segments.
Speaker Change: And, by the way, there's certain secular change taking place in that business. And, by the way, it's not simply in the United States, it's global.
and then the consumer lines business from high net worth.
Speaker Change: the light side and the non-light side. When I add it all up, anyway, does that give you a sense?
Speaker Change: Yeah, it does. What do you mean by the secular change comment?
Boom!
When you...
Speaker Change: particularly in middle market in the United States. I'll take that as an example.
All right.
with all of the change in climate and CAD activity.
and with the change in the legal environment.
around the trial bar.
and Social Inflation.
regional
and Mutuals.
Abbey
Ardor Time
They're not equipped.
Speaker Change: with the data, with the balance sheet, with the depth of business and reinsurance relationships.
to be able to and with the technology
to be able to compete the same way.
Speaker Change: and that over time is shifting market share and it's shifting and it advantages a few larger players.
That makes sense. Thanks. Thanks for the answers.
You're welcome.
Speaker Change: Your next question comes from the line of Mayor Shields from KBW. Your line is open.
Mayor Shields: Great. Thank you. Good morning. First, I was hoping you could walk us through any changes to your reinsurance purchasing at January 1.
None.
Mayor Shields: Okay, that's pretty easy. Um, just a second, I don't know if this is significant, but there's nothing to embellish the blog.
That's fine. It makes writing the note easier.
Speaker Change: There was a little bit of an uptick in administrative expenses in North American commercials, and I was hoping you could walk us through that. I don't know if it's incentive compensation or something else?
The End of the World
A little uptick in what in North America?
the admin expenses.
No, it's just, oh my God, it's 0.1%.
It's just noise.
Okay.
Beyer is in disbursement.
I'm sorry, guys.
Hi.
Yeah, we're looking at the dollars, not the percentage.
No, it's just, it's just a...
No, nothing. It's just variability in a quarter.
Okay, perfect. Thank you so much.
Speaker Change: Your next question comes from a line of Mike Zaremsky from BMO. Your line is open.
Hey, morning, Tom.
First it's a follow-up to your
Speaker Change: your insights about the secular change in the U.S. middle market space. So, you know, if I think through your comments in the past, Evan, you've
Speaker Change: You've said that Chubb has aspirations to move more down market, and your definition of mid-market or small market might be also different than some of the peers, but just curious if you're painting a picture that
You know
Speaker Change: Trump's competitive advantages are growing versus some of its peers. Would you still have aspirations to kind of do inorganic things in the small mid-market space in the U.S. or less so as time goes on?
Our focus is on
and Sean.
Organic
Um
That's going to be small.
and Little Market.
Speaker Change: and it's organic and that is our focus and has been our focus.
Anything that's inorganic is simply opportunistic.
And that's not our focus.
Talk to you next week.
Okay. And lastly, switching gears.
Speaker Change: on the investment portfolio. There's been, you know, a bit of a
Speaker Change: of a increase in equities over the last couple quarters were up to about $9 billion.
anything
Speaker Change: relates to us actually moving about 5 million of investment grade corporates into a fund for call it investment efficiency purposes between different entities. The underlying is still investment grade fixed income but because of GAAP we have to show it as equity.
So it's no underlying change in that.
Speaker Change: In terms of the going forward, we've spoken about our strategy. You'll see it in the investor presentation. There'll be a change in investment allocation, slight change, which we can put out of there, that investor deck.
Thank you, Peter.
Speaker Change: Your next question comes from a line of Andrew Klagerman from TD Cowen. Your line is open.
Andrew Klagerman: Thank you. Good morning. So, Evan, in casualty lines you mentioned the 12% rate increases in North America. That sounds really solid.
Andrew Klagerman: But in reinsurance you said there were pockets of strength, and I'm hearing overall in reinsurance casualty There's there's a lot of softness going on so one why the disconnect and two What are those pockets of weakness in casualty reinsurance?
And now I said there's
Pockets of Opportunity
and Peter Enns. Thank you.
Speaker Change: in reinsurance casualty. You have to be very, you have to be very selective.
Andrew Klagerman: and you know I'm not going to go into more detail than that but
Let's be clear, we have not been.
Andrew Klagerman: significant, by any means, reinsurance casualty writers, and in fact we shrank and shrank and shrank.
over quite a number of years.
because we didn't see the market producing an underwriting profit.
Andrew Klagerman: and we see select, you know, the market is stressed in reinsurance casualty.
Andrew Klagerman: and we see, you know, we see selective pockets. I'm not going to overstate it.
Thank you very much.
Andrew Klagerman: Gaudet, Gaudet, and then, with regard to the Fanchial Law, we think it's a lot of opportunities like trades, by the way.
Andrew Klagerman: Got it. And then with regard to financial lines, it looks like that's that's the area where you're seeing premiums decline across the board.
Speaker Change: You know, it's been about three years now of continuous decline, particularly in public, you know. What is it that players like about it that they continue to go after it and you just don't think it's good business at this point?
Speaker Change: Well, we love the business. It's the pricing of the business. You know, look, during the pandemic, there was a significant drop-off.
and Securities Klossocki.
and in other forms of
Speaker Change: of Law, so let's call it Employment Practices Liability during that.
and Jonathan Belcher.
And so those years...
are producing favorable results.
why I use the words current accident year
is in terms of loss.
the number of securities class actions, the frequency of laws.
is reverting back to the mean.
The End
Speaker Change: And in some areas, like employment practices, in fact, frequency of loss is increasing.
pretty quickly.
and so
I think what they don't see.
Speaker Change: or they ignore is what's common about current accident year margins and pressure.
Speaker Change: We know this. We have a big book of this business.
and Chubb is a leader in this business.
across classes.
And so
We, we're patient.
Speaker Change: and you know we know how to help and flow in it, period.
Speaker Change: So it's you know, it's not something you like looking at but on the other hand we got plenty of other tables to play
It makes a lot of sense. Thanks.
Speaker Change: Your next question comes from the line of Alex Scott from Barclays. Your line is open.
The End
Alex Scott: Hey, good morning. First one I have for you all is on sort of the fallout from what we're going to see in California from the wildfires. And I guess specifically, you know, what will your approach be to
Evan Beyer, Evan Greenberg, Peter Enns
Thank you.
Yeah, thank you for that question.
I'm
Speaker Change: Look, California is a difficult market for insurance companies and it has only become more difficult over time.
Speaker Change: The state, along with the pressure it receives from consumer advocacy groups
Thank you.
Speaker Change: suppresses the ability to charge a fair price for the risk.
Speaker Change: and tailor coverages to improve availability and affordability of insurance for the citizens of the state.
Speaker Change: Insurers are unable to generate a reasonable risk-adjusted return commensurate with the risk of ensuring natural perils such as wildfire.
Speaker Change: and the cost in California associated with reconstruction following a disaster.
This suppression of pricing signals, which are rising,
encourages more risk-taking by individuals and businesses.
as to where they choose to live or work.
and it encourages less risk management.
or loss mitigation activity.
and their part as well.
by federal, state, and local governments.
We're all of a hand in loss mitigation activity.
It actually is occurring or not occurring.
In a word, economics incent behaviors.
and California is impacting those economic signals.
Speaker Change: As insurers have reduced their exposures in the state, the state has offered more underpriced coverage through its own insurer of last resort.
Frankly, it's an unsustainable model.
Speaker Change: And one way or the other, the citizens of the state pay the price for coverage.
Speaker Change: California is not alone in this regard, but it certainly stands out.
I'm
We've been shrinking our exposure in California for some time.
For example,
Speaker Change: In the area where the wildfires occurred, our exposure has been reduced by over 50%.
um
We're not going to write.
Speaker Change: insurance where we cannot achieve a reasonable risk-adjusted return for taking the risk.
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That's really helpful. Maybe just a follow-on question to that.
Speaker Change: Would you expect, you know, what's going on in California and sort of the fallout from that to...
Evan Beyer, Evan Greenberg, Peter Enns
Speaker Change: You know, it's too early to tell. I don't know yet.
bye
as the lost
The magnitude of this loss
emerges and grows.
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more of it.
Speaker Change: begins to find its way to reinsurance balance sheets and to other balance sheets.
Speaker Change: And that's going to be the question, is what is the ultimate size of the loss and where does it end up?
Speaker Change: and that will give us, that that will determine whether it has...
a broader impact.
I don't...
on overall property pricing.
Speaker Change: which in my judgment overall is adequate and this is a reminder of why the industry needs to maintain.
Pricing adequacy.
Thanks.
Speaker Change: And I'm still here, so I'm going to go back and give this guy a break. And I'll be back soon for a new episode. I hope you enjoyed that. I'll see you next time. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye.
Speaker Change: 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, can you guys provide, I guess, what the current, you know, excess capital drag on your ROE is?
I'm sorry.
David Kernack says capital ROE drank.
Speaker Change: Yeah, we haven't disclosed that in a while at least, and again how we're thinking about things consistent with what we talked about in our investor presentation is looking at our capital as also a source of investment as we gradually and incrementally increase our asset allocation towards all alts.
Speaker Change: That's just starting, so I'll say right now, looking at the year behind us, it would be in a range similar to, call it a year ago, that we discussed and people backward computed. So it was in the range of an ROE looking backwards of around 2% on ROE and 6% on ROTI.
Speaker Change: That's helpful. And then my second question, you provided tax guidance, and I think you had said, right, that it, you know, considers some transition cash tax benefit from Bermuda. I had also thought that there was some, the potential, right, for some reversals of the DTA.
Speaker Change: I think that might not take place this year, but it might be a couple of years out. Are you guys just assuming there's no change in the DTA structure of what was set up a year ago?
Speaker Change: From an accounting perspective, it's based on Bermuda Law and Bermuda Law isn't expected to change. I mean, if it changes, we'd have to look at it. OECD came out with some administrative guidance.
Speaker Change: A couple of weeks ago that has to be reviewed and see how it applies, as you may have seen, the new administration has...
Speaker Change: Come through with saying they're not going to participate in the global minimum tax OECD
Speaker Change: and are advocating on that basis. So, we have a very clear sense of where we are for 2025 and 2026, and one thing we know is longer term it's very uncertain, particularly with the new administration, along with...
Speaker Change: China, India, and some other very large countries not being involved at all as well.
Speaker Change: And then it involves Swiss law, and Swiss law can't look good.
Yeah, it's messy
Speaker Change: And then, you know, I'll throw one in for Evan, right. You guys have, you know, been talking about, you know, competition and financial lines, right, for some time and, you know, obviously, you know, pulled back there. You know, do you...
Speaker Change: What do you think it takes, I guess, for, you know, things to get better there? Is there something, are you not expecting conditions, I guess, to change at any point kind of in the near term?
Speaker Change: I think as losses emerge and it renormalizes, that will be an ameliorating effect.
Okay, thank you.
Speaker Change: Your next question comes from a line of Yankunar from Jeffreys. Your line is open.
Speaker Change: Thank you, good morning. Evan, at the risk of maybe changing your sentiment around the Southside analysts here so quickly,
Speaker Change: I do want to go back to something I asked last quarter with regards to North America commercial.
premium growth, which was 2% on a gross premium basis.
Speaker Change: reconcile that with the pricing environment, which seems to be ahead of that, and the opportunities that you're seeing and the appetite that you have. Maybe you can walk us through the puts and takes there.
Thank you.
Speaker Change: I'm not sure what you're, um, can you be more clear?
Speaker Change: Sure. So your premium growth, gross premium growth, was 2%. I think the pricing environment in North America, P&C, if we take the bits and pieces of that.
Speaker Change: I think you have to start with net premium credit, not gross premium credit.
Why would that be?
Speaker Change: Well, because net worthless premium growth has too many distortions of transactions.
that we do.
Good.
Speaker Change: that frankly distort that number, large transactions, where it may be a self-insured program or it's a structured program. And so Gross has...
Speaker Change: put some calls based on the premium flows with our clients. If you get to a middle market business, it's more steady. But when you have a large account, and then you have gross line, even in the E&S business,
Speaker Change: That's what makes a lot of noise and a lot of difference. You're never going to get there.
You have to start it now.
Now!
Speaker Change: I can just tell you that, you know, and I'm giving you that as an explanation, not as a... because there's nothing to debate in that.
Fair enough.
Speaker Change: And if we take the net premiums growth, which was 5% versus roughly 7% pricing?
Speaker Change: Well, it's a mix of business. There's a mix of business. There's a retention. It doesn't translate directly.
It never does.
Speaker Change: I mean, you start with a retention rate, you then have to add new business, you have to do it line by line, and the mix of it.
Speaker Change: and so you'll hear overall pricing, but now take overall pricing and you have to adjust for the mix of business. When you're trying to translate to revenue.
Speaker Change: I don't need a lesson in a bad way, I mean we'll take you through and give you some, you know, maybe another way to help you think about it.
Great. Always eager to learn. Thank you.
Speaker Change: And that concludes our question and answer session. I will now turn the call back over to Karen Beyer for closing remarks.
Speaker Change: Thank you everyone for joining us today and if you have any follow-up questions we'll be around to take your call. Enjoy the day. Thank you.
Speaker Change: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Please wait, the conference will begin shortly.