Chubb (CB) Likely To Incur $315M Q2 Catastrophe Loss

Chubb Limited (NYSE:CB) projects catastrophe loss of $315 million ($390 million pre-tax) net of reinsurance and including reinstatement premiums in the second quarter. In fact, the loss estimate is more than $280 million, pretax, earlier expected.

The loss stemmed from various events including U.S. weather events, the Japanese and Ecuadorian earthquakes, the Fort McMurray wildfires and the European floods. The loss comprised $320 million attributable to natural catastrophes in North America and $70 million to events outside North America.

Being a property and casualty insurer, Chubb is exposed to losses from natural disasters. This in turn affects its underwriting results. The cat loss incurred will weigh on underwriting profitability and combined ratio in the second quarter. In the last quarter too, combined ratio deteriorated 160 basis points over the prior-year quarter, though underwriting profit increased 52% year over year.

The industry will have to incur an expected loss between $15 billion to over $20 billion due to 25 weather events that occurred in the second quarter.

The Zacks Consensus Estimate for the second quarter is currently pegged at $2.46, translating into a year-over-year increase of 2.3%. We expect the estimate to move down as analysts incorporate the impact of catastrophe loss in their estimates.

Chubb is scheduled to announce its second-quarter results on Jul 26. Our proven model does not conclusively show that the company will beat on earnings. Though Chubb has a favorable Zacks Rank #3 (Hold), its Earnings ESP of -2.03% makes prediction difficult.

Recently, Validus Holdings, Ltd. (NYSE:VR) estimated catastrophe loss of $60 million for the second quarter stemming from multiple events like earthquake, wildfires and hail storms and Jubilee Oil. Yet another insurer Kemper Corporation (NYSE:KMPR) estimates loss of about $52 million primarily from Texas hailstorms.

Stock to Consider

A better-ranked property and casualty insurer is Third Point Reinsurance Ltd (NYSE:TPRE) carrying a Zacks Rank #2 (Buy).