Chubb Limited reported strong financial results for the fourth quarter of 2024, with core operating income reaching $2.5 billion, marking a 10.5% increase per share. The company noted record results across its property and casualty (P&C) underwriting, investment income, and life insurance sectors. Despite sustained inflationary pressures, Chubb remains optimistic about its growth prospects for 2025, supported by strategic expansions and innovations.
Key Takeaways
- Chubb's Q4 2024 core operating income rose to $2.5 billion, a 10.5% increase per share.
- Global P&C premium revenue grew by 6.7% in the quarter.
- The company anticipates continued double-digit growth in life insurance income for 2025.
- Chubb has reduced exposure in wildfire-prone areas in California by over 50%.
Company Performance
Chubb Limited demonstrated robust performance in Q4 2024, with a notable increase in core operating income. The company achieved record results in its P&C underwriting, investment income, and life insurance segments. Chubb's strategic focus on the middle market and small commercial segments, as well as its digital and Climate Plus businesses, contributed to its strong performance. The company also reported a significant reduction in its exposure to California's wildfire-prone areas, enhancing its risk management profile.
Financial Highlights
- Q4 2024 core operating income: $2.5 billion (up 9.4% pre-tax)
- Full year 2024 operating income: $9.1 billion (up 11.5% adjusted)
- Core operating return on equity: 14%
- Return on tangible equity: 21.6%
- Global P&C premium revenue: up 6.7% in Q4
- Life insurance premiums: up 8.5% in constant dollars
Outlook & Guidance
Looking ahead to 2025, Chubb projects continued top and bottom-line growth, with expectations of double-digit growth in life insurance income. The company has set a tax rate guidance of 19% to 19.5% for the year and anticipates quarterly adjusted net investment income to range between $1.670 billion and $1.750 billion. Chubb's strategic initiatives, including product innovations in Asia and digital business expansion, are expected to support its growth trajectory.
Executive Commentary
CEO Evan Greenberg highlighted the inflationary challenges facing the insurance industry, stating, "We're in a more inflationary period as the insurance industry than we have seen in a very long time." Greenberg also emphasized the company's strategic focus, saying, "We're not going to write insurance where we cannot achieve a reasonable risk-adjusted return for taking the risk."
Q&A
During the earnings call, analysts inquired about Chubb's $1.5 billion California wildfire loss estimate and the challenges within the state's insurance market. The company also addressed competition in the financial lines and casualty reinsurance sectors and elaborated on its investment portfolio strategy.
Risks and Challenges
- Inflationary pressures impacting the insurance industry
- Competitive landscape in large account, shared, and layered property
- Potential regulatory changes in key markets
- Exposure to natural disasters, particularly in high-risk areas
- Macroeconomic factors affecting global insurance demand
Chubb's strategic positioning and strong financial performance underscore its resilience in a challenging market environment. The company's focus on innovation and risk management continues to drive its growth and competitive advantage.
Full transcript - Chubb Corp (NYSE:CB) Q4 2024:
Conference Operator: Thank you for standing by, and welcome to the Chubb Limited 4th Quarter 20 24 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Thank you. I'd now like to turn the call over to Karen Beyer, Senior Vice President, Investor Relations. You may begin.
Karen Beyer, Senior Vice President, Investor Relations, Chubb Limited: Thank you, and welcome everyone to our December 31, 2024 Q4 and year end earnings conference call. Our report today will contain forward looking statements, including statements relating to company performance, pricing and business mix, growth opportunities and economic and market conditions, which are subject to risks 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. Chubb.com for more information on factors that could affect these matters. We will also refer today to non GAAP financial measures.
Reconciliations of which to the most direct comparable GAAP measures and related details are provided in our earnings press release and financial supplement. Now, I'd like to introduce our speakers. First, we have Evan Greenberg, Chairman and Chief Executive Officer followed by Peter Ents, our Chief Financial Officer. Then we'll take your questions. Also with us to speak with your questions this morning are several members of our management team.
It's my pleasure to turn the call over to Evan.
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: Good morning. Before I begin, I want to take a moment to speak about the terrible tragedy surrounding the California wildfires. The lives lost and tremendous loss of property. A major disaster still unfolding. Our job and the role we play in society is to support our policy.
Our colleagues have been on the ground supported by Chubb colleagues throughout the U. S. Endeavoring to assist those clients who have lost property, been displaced from their homes and businesses, had their lives severely disrupted. While it doesn't erase the enormous difficulty they have and will continue to experience, we're doing all we can in small and big ways to ease their burden. Our thoughts are with those who have suffered and our gratitude goes to those firefighters and emergency workers served tirelessly.
From a financial perspective, our current estimate of the cost of supporting our customers and helping them recover and rebuild from their catastrophe is $1,500,000,000 net pre tax and is a Q1 2025 event. Now turning to our results for the Q4, 2024 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. For the quarter, record P and C 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 $2,500,000,000 Operating earnings were up 9.4% on a pre tax basis or 10.5% per share.
Though after tax, they were distorted by the one time tax benefit we received last year. Looking through that, operating income was up over 7.5% after tax. Global P&C Premium revenue, which excludes agriculture grew 6.7% in the quarter with good contributions from our P and C businesses globally of North America and Overseas General. Premiums in our life insurance division grew 8.5% constant dollar. For the year, we generated operating income of $9,100,000,000 up 11.5 percent adjusted for the one time tax benefit and 13% on a per share basis.
Looking more broadly, over the past 3 years, core operating income has grown over 65% and is nearly double the amount from pre COVID 2019. All three major sources of income for our company produced record results last year. P and C underwriting income of $5,900,000,000 was up over 7% with a published combined ratio of 86.6. Adjusted net investment income grew 19.3 percent to $6,400,000,000 and life insurance income topped $1,000,000,000 For the year, we grew global P and C premiums 9.9 percent and Life premiums 18.5% in constant dollar. Shareholder returns were strong.
Our core operating ROE was about 14% and our return on tangible equity was 21.6%. Per share book and tangible book value grew 8.8 and 14.1 respectively. Our results top and bottom line continue to demonstrate the broad and diversified nature of the company and the consistency of contributions from our businesses around the world. North America, Asia, Europe, Latin America, both commercial and consumer. As we look forward to 2025, we have good momentum and are optimistic about the year ahead, both top and bottom line, cat losses and FX notwithstanding.
Returning to the quarter, our underwriting performance was outstanding, while absorbing a more normal level of cat losses. P and C underwriting income was $1,600,000,000 and the current accident year combined ratio excluding cats was 82.2%, more than 2 points better than prior year and also a record result. Our prior year's reserve development in the quarter and for the year was $213,000,000 $856,000,000 respectively and speaks to the strength of reserves, the conservative nature of our loss reserving practices. On the asset side, we're investment managers, our other business and we had another excellent quarter in terms of performance. Our invested asset now stands at $151,000,000,000 and it will continue to grow.
For the quarter, adjusted net investment income was a record $1,700,000,000 up 13.7%. 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. Turning to growth, pricing and the rate environment. Again, global D and C premiums increased 6.7% in the quarter, with commercial up 6.4% and consumer up 7.5%.
All regions of the world contributed favorably. Life premiums grew 8.5%. In terms of the commercial P and C rate environment, market trends or themes were consistent with those of the previous quarter. Property has grown more competitive in large account shared and layered at E and S, while pricing is favorable. Casualty is stable or firming depending on the class and overall pricing is ahead of loss cost trend.
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 margin. Overall market conditions are favorable and we see good growth opportunity for over 80% of our global P and C business, Commercial and Consumer as well as for our Life Business, North American Overseas General, Asia, Europe and Latin America, each with many areas of favorable growth opportunity. Our middle market and small commercial businesses globally, our U. S. ENS business, our U.
S. High net worth business, Global A and H and Life, International Personal Lines, our digital business and Specialty Businesses such as our growing Climate Plus Business. Now turning to the quarter, let me give you some more color by division. Beginning with North America, premiums excluding agriculture were up 6.3% and consisted of 10% growth in personal insurance and 5.1% growth in commercial with P and C lines up 7.2% and financial lines down 2.9%. We had another strong quarter for new business, 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 account specialty division increased 4.6% with P and C up 5.8% and financial lines down 1.7%. Within Major and Specialty, our Westchester E and S business grew 8%. Premiums in our middle market division increased 6.2% with P and C up 10% and financial lines down 5%. Pricing for property and casualty, 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. In workers' comp, which includes both primary comp and large account risk management, pricing was up 4.7% with rates up 2.5 and exposure up 2.1. Breaking down P and C 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% with rates up 11.8% and exposure up 0.8%. Loss costs in North America remain stable, no change and in line with what we contemplate in our loss picks.
Our North America Commercial Lines business ran an amazing 83.9 percent published combined ratio for the year, again an amazing result. In agriculture, where we are the market leader, our crop underwriting result this quarter were excellent and we finished the year with $354,000,000 in underwriting profit. 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, our high net worth Personal Lines business had another outstanding quarter with premium growth of 10%, including new business growth of 34%. 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%.
Our homeowners 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. Premiums in the quarter for our retail business were up 7.7% with commercial lines up 10.3% and consumer up 4.7%. Percent.
From a region of the world perspective, Asia Pac led the way with premiums up 12.2%. Europe grew 8.2% including growth of 12% on the continent. Latin America grew just 2.5% and was impacted by foreign exchange. If you adjust for that, Latin America was up 11.5% in constant dollar. In our international retail commercial business, P and C 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 with prices down 4% as the London market continued to grow more competitive. For the year, our overseas general business ran an excellent 86.4 combined ratio. Our Global Reinsurance business had a strong quarter with premium growth of about 20% and finished the year with premiums up 32% and a combined ratio of 85.9%, reflecting a more disciplined reinsurance market, both property and pockets of casualty. In our International Life business, 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%. Our Life division finished the year with pre tax income of $1,100,000,000 which was ahead of what we originally projected for the year. We have good momentum in our Life business, which continues to build. 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, we're confident in our ability to continue growing operating earnings and EPS at a double digit rate, tax and FX notwithstanding. Our earnings growth will come from 3 sources, P and C Underwriting, Investment Income and Life Income. Now I'll turn the call back over to Peter.
Peter Ents, Chief Financial Officer, Chubb Limited: 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 3 primary sources of earnings. Our balance sheet finished the year in an exceptionally strong position, the book value of $64,000,000,000 and total invested assets of $151,000,000,000 The quarter and full year produced adjusted operating cash flow of $4,200,000,000 and a record $15,900,000,000 respectively. It's also worth noting that during the quarter, A. M.
Best affirmed our company's rating and stable outlook and in January S and P affirmed our rating and stable outlook. During the quarter, we returned $1,100,000,000 of capital to shareholders, including $725,000,000 in share repurchases and $367,000,000 in dividends. We returned $3,500,000,000 in total for the year, including $2,000,000,000 in share repurchases and $1,500,000,000 in dividends, which represented approximately 38% of our full year core operating earnings. The average share price on our repurchases for the year was $269.23 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, which we expect to amortize back to par over time, as well as foreign exchange losses. 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.
Our core operating return on tangible equity for the quarter year was 22% and 21.6%, respectively, while our core operating ROE for the quarter year was 14.3% 13.9%. Turning to investments. Our A rated portfolio, which now has an average book yield of 5% produced adjusted net investment income of $1,690,000,000 which included approximately 25,000,000 of higher than normal income from private equity. We expect our quarterly adjusted net investment income to have a run rate between $1,670,000,000 $1,750,000,000 over the next 6 months. Regarding underwriting results, the quarter included pretax catastrophe losses of $607,000,000 of which $309,000,000 was from Hurricane Milton and $140,000,000 from Hurricane Helene.
The remaining balance was principally from weather related events split 31% in the U. S. And 69% international. Prior
Conference Operator: period development
Peter Ents, Chief Financial Officer, Chubb Limited: in the quarter in our active companies was a favorable $352,000,000 pretax with favorable developments with 17% in long tail lines, primarily from general casualty and 83% in short tail lines, primarily from property and agriculture. Our corporate runoff portfolio had adverse development of $139,000,000 primarily asbestos related. Our paid to incurred ratio for the year was 83%. Our core effective tax rate was 18.2 percent for the quarter 17.5% for the year, which are below our previously guided range due to shifts in mix of income. 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, Senior Vice President, Investor Relations, Chubb Limited: Thank you. And at this point, we'll be happy to take your questions.
Conference Operator: Thank you. We will now begin the question and answer session. Your first question comes from the line of Brian Meredith (NYSE:MDP) from UBS. Your line is open.
Brian Meredith, Analyst, UBS: Yes, thank you. A couple of 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. Does it include assessment, subrogation, kind of ground up? Maybe give us a little context on kind of how we should be thinking about the $1,500,000,000 number?
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: Yes. First of all, it's a ground up number. It's our own losses. We don't go off of what we imagine as a total industry wildfire loss in a market share area. This is our industry wildfire loss in a market share area.
This is our number. And that our adjusters on the ground have been able to estimate property by property. It does include an assessment for our projection of an assessment from the fair plan and we don't take credit in ours for suffocation.
Brian Meredith, Analyst, UBS: Great. That's helpful. Thank you. 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 it's you should start looking a little bit more at inorganic growth opportunities?
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: I love you Brian. Yes, I don't give we don't give guidance on forward looking. But your first statement, your logic sounds pretty decent to me. I didn't say it, you said it. And as for inorganic growth, 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. And so we're always looking.
Brian Meredith, Analyst, UBS: Great. Appreciate it.
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: You're welcome.
Conference Operator: Your next question comes from the line of David Motomativ from Evercore ISI. Your line is open.
David Motomativ, Analyst, Evercore ISI: Hey, good morning. I had a question on the for Peter and Evan on the favorable long tail reserve development, 17% of the $350,000,000 or so on the active companies. Sounds like that was driven by general casualty. That's a bit of a change versus 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.
And any clarity on what sort of accident years is coming from too would be helpful.
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: Well, I'm going to correct your mental model to begin with. Our casualty, we study different portfolios of casualty each quarter. Some casualty portfolios we have taken reserve strengthening. Some portfolios we've taken no action. Some portfolios we've had reserve releases.
And there has not been a consistency for quarter except the consistency is the portfolios we study each quarter.
Analyst: And
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: so the cohort casualty we studied this quarter had favorable development given the reserve strength in that portfolio.
David Motomativ, Analyst, Evercore ISI: Got it. Helpful. Thank you for that. And then maybe, obviously, strong results in North America commercial that included a little bit of a headwind from the structured transactions too. Could you of that 40 basis point headwind, could you just help me think about the impact that had on the loss ratio?
And how we should think about the durability of that loss ratio going forward?
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: You're saying on structured transaction, what's its impact in the quarter on loss ratio? Yes. Structured transactions typically run Yeah. We're not we don't break down the pieces and going to give you each, you know, the the 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. Does that help? David, does that help you?
Yes, yes, that does help.
David Motomativ, Analyst, Evercore ISI: 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 maybe a little bit bigger on
Meyer Shields, Analyst, KBW: the loss ratio, maybe up
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: We don't have it in hand, but it's probably it's in the range. Okay. Got it. Understood. That's helpful.
Thank you. It's a bucket basis, Boyd. So it's easy for me to tell you you're in the range. I mean, it could be 10 basis points up or down. But we'll take it offline with you and help you.
Thanks. You're welcome.
Conference Operator: Your next question comes from the line of Gregory Peters from Raymond (NSE:RYMD) James. Your line is open.
Gregory Peters, Analyst, Raymond James: 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 the sell side analysts. So, the meter is definitely starting off good for us.
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: Don't mess it up, Greg. All right. So,
Gregory Peters, Analyst, Raymond James: I'm sure I can. That's anyway, in your press release you say you're growing operating earnings and EPS at a double digit rate. You talk about the 3 buckets PC, investment income and life insurance. So 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 2024?
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: Yes. There was a lot of consolidation impact on the life income in the 2023 year. A little bit of noise in 20 24. There was one time stuff in 2023. And so, you know, to look through the underlying growth rate of that, it produced us really solid double digit growth rate in income.
When I look through it, it was in that 12% to 14% range. When I look forward, I see that continuing and even strengthening of that. We have good momentum and 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, 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, Taiwan, China now growing more quickly for us. And each of those producing improved margin and therefore faster income growth. Southeast Asia with Vietnam and Thailand, they had slower growth this past year and they were accelerating as we go forward. And finally, we have 2 other businesses in Indonesia and in New Zealand that are good businesses picking up momentum.
It's in direct response marketing. It's in agency. 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, because people in Asia, you have two themes. You have an aging population in the north that requires a certain kind of savings and health related product.
And then you have people in Southeast Asia, which 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, unlike many regions of the world, these parts of Asia are growing, particularly Southeast Asia. The economic growth is multiples of what we're seeing in the West. And that just means a rising middle class.
Gregory Peters, Analyst, Raymond James: Thanks for the perspective and detail. I guess pivoting to the other bucket, which is PC. 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. So maybe you could spend some a minute and give us some perspective on how you think where we are in the cycle and how Chubb's going to be positioned to come out of it?
Meyer Shields, Analyst, KBW: Yes.
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: It goes to my comment about 80% of the business growth. And where you therefore see the pockets of competition. As a backdrop and in the way you think about cycles, and I've been thinking about this for a while, We're in a more inflationary period as the insurance industry and it's a prolonged one than we have seen in a very long time. We went through decades of really relatively low inflation on the short tail class side, virtually pretty flat. And on the long tail side, there's always been pockets, 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 improved if they just keep pace with loss cost. So a certain amount of industry growth is just to reflect inflation. The competition, it's increasing in shared and large account business.
So first, large account will grow more slowly because you have you have a couple of lines of business where competition increases. Property, shared and layered property. But it's well priced. And it doesn't mean that there's a decrease in margin. It means that to retain 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. E and S Property, same thing. Financial lines in large account, same thing.
And then primary casualty 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. 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 to personal lines outside the United States, to our accident and health businesses, particularly with middle class in Asia and in Latin America on both the life side and the non life side. When I add it all up that anyway, does that give you a sense?
Gregory Peters, Analyst, Raymond James: Yes, it does. What do you mean by the secular change comment?
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: When you particularly in middle market in the United States, I'll take that as an example. With all of the change in climate and cat activity and with the change in the legal environment around the trial bar and social inflation. Regional and Mutuals have a harder time. They're not equipped 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. And that over time is shifting market share and it's shifting and it advantages a few larger players.
Gregory Peters, Analyst, Raymond James: That makes sense. Thanks. Thanks for the answers.
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: You're welcome.
Conference Operator: Your next question comes from the line of Meyer Shields from KBW. Your line is open.
Meyer Shields, Analyst, KBW: Great. Thanks and good morning. First, I was hoping you could walk us through any changes to your reinsurance purchasing at January 1?
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: None.
Meyer Shields, Analyst, KBW: Okay. That's pretty easy. The second, I don't know if this is significant, but there's
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: no expectation. There's nothing to embellish the loss.
Meyer Shields, Analyst, KBW: That's fine. It's writing the note easier. There's a little bit of an uptick in administrative expenses in North America Commercial and I was hoping you could walk us through that. I don't know if it's incentive compensation or something else?
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: A little uptick in what in North America?
Meyer Shields, Analyst, KBW: The admin expenses.
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: No, it's just, oh my God, it's 0.1%. It's just noise.
Meyer Shields, Analyst, KBW: Okay.
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: I'm sorry, go ahead.
Meyer Shields, Analyst, KBW: No, I was looking at the dollars, not the percentage.
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: No, it's just no, nothing. It's just variability in the quarter.
Meyer Shields, Analyst, KBW: Okay, perfect. Thank you so much.
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: There's not a trend in that.
Conference Operator: Your next question comes from the line of Mike Zaremski from BMO. Your line is open.
Mike Zaremski, Analyst, BMO: Hey, good morning. First is a follow-up to your insights about the secular change in the U. S. Middle market space. So if I think through your comments in the past, Evan, 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 Chubb's competitive advantages are growing versus some of its peers that, 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?
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: Our focus is on organic SME, small and middle market. 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. It's opportunistic.
Mike Zaremski, Analyst, BMO: Okay. And lastly, switching gears on the investment portfolio, there's been a bit of an increase in equities over the last couple of quarters who are up to about $9,000,000,000 I don't just anything changing there in terms of kind of over the next year you expect to see different mix shift in the investment portfolio? Thanks.
Peter Ents, Chief Financial Officer, Chubb Limited: Mike, it's Peter. First off, that specific $5,000,000,000 shift relates to us actually moving about $5,000,000 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. In terms of the going forward, we've spoken about our strategy.
You'll see at the investor presentation, there'll be a change in investment allocation, slight change, which we put out there in that investor deck.
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: Thank you, Peter.
Conference Operator: Your next question comes from the line of Andrew Kligerman from TD Cowen. Your line is open.
Karen Beyer, Senior Vice President, Investor Relations, Chubb Limited0: Thank you. Good morning. So, Evan, in casualty lines, you mentioned the 12% rate increases in North America. That sounds really solid. But in reinsurance, you said there were pockets of strength.
And I'm hearing overall in reinsurance casualty there's a lot of softness going on. So one, why the disconnect? And 2, what are those pockets of weakness in casualty reinsurance?
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: No. I said there's pockets of opportunity
Meyer Shields, Analyst, KBW: in
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: reinsurance casualty. You have to be very you have to be very select. And I I you know, I'm not going to go into more detail than that. But, let's be clear, we have not been 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.
And we see select you know, the market is stressed in reinsurance casualty. And we see, we see selective pockets, I'm not going to overstate it. Got it. Relative to travel, it's not big money.
Karen Beyer, Senior Vice President, Investor Relations, Chubb Limited0: Got it. Got it. And then with regard to the financial lines And
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: we've seen opportunists like trades by like.
Karen Beyer, Senior Vice President, Investor Relations, Chubb Limited0: Got it. And then with regard to financial lines, it looks like that's the area where you're seeing premiums decline across the board. It's been about 3 years now of continuous decline, particularly in public. 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 in this at this point?
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: Well, we love the business. It's the pricing. And you know, look, during the pandemic, there was a significant drop off in securities class actions. And in other forms of loss. So let's call it employment practices liability during the financial crisis.
And so those years are producing favorable results. And the head fake around it, which is why I use the words current accident year is in terms of loss. The number of securities class actions, the frequency of loss is reverting back to the mean. And in some areas like employment practices, in fact, frequency of loss is increasing pretty quickly. Severity of loss continues to trend.
And so I think what they don't see or they ignore is what's coming about current accident year margins and pressure. We know this. We have a big book of this business. And, and Chubb is is a leader in this business across classes. And so we we're patient.
And we know how to up and flow in it, period. So it's not something you like looking at, but on the other hand, we have plenty of other tables to play.
Karen Beyer, Senior Vice President, Investor Relations, Chubb Limited0: Makes a lot of sense. Thanks.
Conference Operator: Your next question comes from the line of Alex Scott from Barclays (LON:BARC). Your line is open.
Karen Beyer, Senior Vice President, Investor Relations, Chubb Limited1: Hey, good morning. First one I have for you all is sort of the fallout from what we're going to see in California from the wildfires. And I guess specifically, what will your approach be to the market going forward? Will you have to make any changes in the way you approach that market? And just interested in any thoughts you have on what needs to be done to make to sort of stabilize the insurance market there?
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: Yes. Thank you for that question. Look, California is a difficult market for insurance companies and it has only become more difficult over time. The state along with the pressure it receives from consumer advocacy advocacy groups suppresses the ability to charge a fair price for the risk and tailor coverages to improve availability and affordability of insurance for the citizens of the state. Insurers are unable to generate a reasonable risk adjusted return commensurate with the risk of ensuring natural perils such as wildfire 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 deliver work. And it encourages less risk management or loss mitigation activity. And their part as well by federal, state and local governments.
Karen Beyer, Senior Vice President, Investor Relations, Chubb Limited2: We all
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: have a hand in loss mitigation activity that actually is occurring or not occurring. In a word, economics incent behaviors and California is impacting those economic signals. As insurers have reduced their exposures in the state, the state is offered more underpriced coverage through its own insurer of last resort. Frankly, it's an unsustainable model. And one way or the other, the citizens of the state pay the price for coverage.
California is not alone in this regard, but it certainly stands out. We've been shrinking our exposure in California for some time. For example, in the area where the wildfires occurred, our exposure has been reduced by over 50%. We're not going to write insurance where we cannot achieve a reasonable risk adjusted return for taking the risk.
Karen Beyer, Senior Vice President, Investor Relations, Chubb Limited1: That's really helpful. Then maybe just a follow on question to that. Would you expect what's going on in California and sort of the fallout from that to affect property pricing more broadly? I mean, it seems like the world's becoming a riskier place and certainly price adequacy seem pretty good in property and other areas. But will this be enough to change thinking whether it's a primary or reinsurance level in your view?
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: It's too early to tell. I don't know yet. As the loss, the magnitude of this loss emerges and grows, more of it begins to find its way to reinsurance balance sheets and to other balance sheets. And that's going to be the question is, what is the ultimate size of loss and where does it end up? And that will give us that will determine whether it has a broader impact on overall property pricing, which in my judgment overall is adequate.
And this is a reminder of why the industry needs to maintain pricing adequacy. Thanks.
Conference Operator: Your next question comes from the line of Elyse Greenspan from Wells Fargo (NYSE:WFC). Your line is open.
Karen Beyer, Senior Vice President, Investor Relations, Chubb Limited2: Hi, thanks. Good morning. My first question, can you guys provide, I guess, what the current excess capital drag on your ROE is?
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: I'm
Peter Ents, Chief Financial Officer, Chubb Limited: sorry. The current excess capital ROE drag?
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: Yes. We haven't disclosed that in
Peter Ents, Chief Financial Officer, Chubb Limited: a while, Elyse. 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 off baltz. 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
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: a year ago that we discussed and people backward compute. So it was in
Peter Ents, Chief Financial Officer, Chubb Limited: the range of ROE looking backwards of around 2% on ROE and 6% on ROCE.
Karen Beyer, Senior Vice President, Investor Relations, Chubb Limited2: That's helpful. And then, my second question, you provided, tax guidance. And I think, you had said, right, that it considers some transition cash tax benefit from Bermuda. I had also thought that there was some the potential right for some reversals of the DTAs that were set up. So I'm assuming I think that might not take place this year, but 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?
Peter Ents, Chief Financial Officer, Chubb Limited: So yes, Elyse, from an accounting perspective, it's based on Bermuda law. 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 a couple of weeks ago that has to be reviewed and see how it applies. As you may have seen, the new administration has come through with saying they're not going to participate in the global minimum tax of OECD and are advocating on that basis.
So we have a sense of where 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 China, India and some other very large countries not being involved at all as well.
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: No, no, no, no, no, no, no, no, no. And Swiss law. Yes, it's messy.
Karen Beyer, Senior Vice President, Investor Relations, Chubb Limited2: And then, I'll throw one in, for Evan, right? You guys have been talking about competition in financial lines, right, for some time and obviously pulled back there. Do you what do you think it takes, I guess, for 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?
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: I think as losses emerge and it renormalizes, that will be an ameliorating effect.
Karen Beyer, Senior Vice President, Investor Relations, Chubb Limited: Okay. Thank you.
Conference Operator: Your next question comes from the line of Yaron Kinar from Jefferies. Your line is open.
Analyst: Thank you. Good morning. Evan, at the risk of maybe changing your sentiment around the sell side analysts here so quickly, 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. And I'm just trying to reconcile that with the pricing environment, which is seems to be ahead of that. And the opportunity set that you're seeing and kind of the appetite that you have, maybe you can walk us through the puts and takes there.
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: I'm not sure what you're can you be more clear?
Analyst: Sure. So your premium growth, gross premium growth was 2%. I think the pricing environment in North America P and C, if we take the bits and pieces of pricing that you offered is north of that.
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: I think you have to start with net premium growth, not gross premium growth. Why would that be? Well, because net purchase premium growth has too many distortions of transactions that we do 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 puts in 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 large account and then you have gross line even in the E and S business, with client that makes that's what makes a lot of noise and a lot of difference. You're never going to get there. You have to start at net premiums. Now, I can just tell you that, and I'm giving you that as an explanation, not as it because there's nothing to debate in that.
Analyst: Fair enough. And if we take the net premiums growth, which was 5% versus roughly 7% pricing?
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: Well, it's a mix of business. There is a retention. It doesn't translate directly. It never does. 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. 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, If you want offline, we will give you a simple math lesson of that and take you through it.
Analyst: Great. I'm always
Evan Greenberg, Chairman and Chief Executive Officer, Chubb Limited: I don't need a lesson in a bad way. I mean, we'll take you through and give you some maybe another way to help you think about it.
Analyst: Great. Always eager to learn. Thank you.
Meyer Shields, Analyst, KBW: You got it.
Conference Operator: And that concludes our question and answer session. I will now turn the call back over to Karen Beyer for closing remarks.
Karen Beyer, Senior Vice President, Investor Relations, Chubb Limited: Thank you everyone for joining us today. And if you have any follow-up questions, Bill, we'll be around to take your call. Enjoy the day. Thank you.
Conference Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
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