Chubb Well Poised On Strategic Initiatives Despite Cat Loss

On Aug 12, 2016, we issued an updated research report on Chubb Limited (NYSE:CB) .

In the second quarter of 2016, Chubb’s operating earnings missed the Zacks Consensus Estimate on catastrophe loss. Nonetheless, the property and casualty insurer delivered positive surprises in two of the last four quarters, with an average beat of 1.79%.

Given the underperformance, the Zacks Consensus Estimate moved down 1.7% to $9.68 for 2016 and 0.7% to $10.24 for 2017 as most of the estimates moved south in the last 30 days.

Chubb has always considered acquisition as an effective strategy for inorganic growth and global expansion. The combination of ACE Limited and Chubb Corp’s growth and earnings power will be more than the sum of individual strengths.

Prudent acquisitions have improved premium writings. However, the company is scaling down its guidance for net premiums written in a few portfolios for 2016 and 2017 as it does not expect to generate enough underwriting returns and may have to lower its catastrophe-related exposure.

Chubb also makes investments in various strategic initiatives that paved the way for long-term growth. Effective Jul 1, 2016, Chubb purchased additional re-insurance protection for North America personal lines business. This transaction will have an annualized impact on net written premium of about $250 million apart from offering a compelling net retained risk/reward profile. The company stays focused on reviewing underwriting actions in portfolios that do not meet its risk appetite and lower net premium. Subsequently, the company intends to either terminate or re-insure that business to improve the risk/reward profile.

Chubb boasts a strong capital position enabling it to engage in shareholder-friendly moves.

However, exposure to catastrophes has always been a concern as the same has been weighing on underwriting results. The still low interest rate environment also keeps us cautious about investment results.

Also, expenses have been escalating. The company now estimates integration costs of $525 million owing to the merger as well as branding-related expenditure of $286 million. Nonetheless, integration expense savings are expected to be $750 million by 2018.

Some other notable property and casualty insurers are Argo Group International Holdings, Ltd. (NASDAQ:AGII) , MS&AD Insurance Group Holdings, Inc. (OTC:MSADY) and Allied World Assurance Company Holdings, AG (NYSE:AWH) .

CHUBB LTD (CB): Free Stock Analysis Report

ARGO GROUP INTL (AGII): Free Stock Analysis Report

ALLIED WORLD AS (AWH): Free Stock Analysis Report

MS&AD INSURANCE (MSADY): Free Stock Analysis Report

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