01—Abstract
Summary
Summary of the 10-K filed February 23, 2018. Cited figures are marked; the original filing is the authoritative source.
Chubb Limited (CB) closed 2017 with net income of $3.86 billiona ($8.19 diluted EPS), down from $4.14 billion in 2016, as a record run of catastrophe losses offset strong premium growth and a one-time U.S. tax benefit.
Pre-tax catastrophe losses were $2.75 billionb (10.2 points on the P&C combined ratio), driven by Hurricanes Harvey, Irma and Maria and the California wildfires. The P&C combined ratio deteriorated to 94.7% from 88.3%, while the current accident year combined ratio excluding catastrophes improved to 87.6% from 88.7%, showing underlying underwriting discipline. Net premiums written grew 3.9% to $29.2 billion, with P&C premiums up 4.2%, although growth was held back by merger-related portfolio exits and reinsurance purchases tied to the 2016 Chubb Corp acquisition.
The balance sheet remains strong: shareholders' equity rose to $51.2 billionc (book value per share $110.32, up 6.5%), total assets reached $167 billion, and financial debt to total capitalization was 19.6%. Management highlighted $875 million of annualized integration savings (ahead of schedule), a $1.0 billion repurchase authorization for 2018, and a dividend of $2.84 per share for the year. Management expects improving commercial pricing, growth in U.S. middle-market and digital distribution initiatives (including DBS and PICC partnerships), and a lower 21% U.S. tax rate in 2018.
Key risks include large catastrophe exposure, asbestos and environmental reserve development, Brexit-related regulatory changes, and the variable annuity guarantee reinsurance book. For investors, the central questions are whether 2017's catastrophe load was a one-off and whether the company can sustain premium growth while integration savings fade. The 2018 outlook points to a return to underlying margin expansion, but the reported combined ratio and reserve adequacy will be the key tests.
02—Key points
Key Highlights
- Net income fell 6.6% to $3.86 billion; diluted EPS was $8.19, versus $8.87 in 2016, reflecting $2.17 billion of after-tax catastrophe losses partly offset by a $450 million provisional U.S. tax benefit.
- P&C combined ratio rose to 94.7% from 88.3%, but the current accident year ex-catastrophe combined ratio improved to 87.6% from 88.7%, indicating stronger underlying underwriting.
- Net premiums written grew 3.9% to $29.2 billion; P&C net premiums written rose 4.2%, despite about $545 million of headwinds from merger-related reinsurance and underwriting exits.
- Net investment income rose 9.1% to $3.13 billion, with the fair value amortization from the Chubb Corp acquisition declining; the portfolio is primarily investment-grade fixed income with a 4.2-year duration.
- Book value per share increased 6.5% to $110.32 and shareholders' equity reached $51.2 billion, supported by strong capital and a financial debt-to-capitalization ratio of 19.6%.
- Integration progressed ahead of plan, with $875 million of annualized run-rate savings achieved by year-end 2017, and the Board authorized a new $1.0 billion share repurchase program for 2018.
- Favorable prior period development of $829 million was lower than 2016's $1.135 billion, and adverse development in asbestos, environmental and run-off liabilities of $239 million weighed on Corporate results.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 23, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $32.24B$31.47B | +2.5% |
| Interest Expense | $607.00M$605.00M | +0.3% |
| Net Income | $3.86B$4.13B | −6.6% |
| EPS (Basic) | $8.26$8.94 | −7.6% |
| EPS (Diluted) | $8.19$8.87 | −7.7% |
| Shares Outstanding (Basic) | 467.15M462.52M | +1.0% |
| Shares Outstanding (Diluted) | 471.20M465.95M | +1.1% |
05—Questions
Frequently Asked Questions
What drove the decline in Chubb's 2017 earnings?
Net income fell to $3.86 billion from $4.14 billion, mainly because of catastrophe losses of $2.75 billion pre-tax (about $2.17 billion after tax) from Hurricanes Harvey, Irma and Maria and the California wildfires. Those losses lifted the P&C combined ratio to 94.7%. A $450 million one-time tax benefit from the 2017 U.S. Tax Cuts and Jobs Act partly offset the impact.
Is Chubb's underlying underwriting performance improving?
Yes, on a current accident year basis. Excluding catastrophe losses and prior period development, the combined ratio was 87.6%, compared with 89.0% in 2016 on a comparable basis. Management attributed the improvement to integration-related claims and expense savings, partly offset by a mix shift toward casualty lines and higher large losses in some segments.
What are Chubb's main growth drivers for 2018?
Management expects commercial P&C growth from improving pricing, growth in U.S. middle-market and small commercial business, and expansion in global A&H and personal lines through digital initiatives. Strategic partnerships with DBS Bank in Southeast Asia and PICC Property & Casualty in China are also cited as growth opportunities. Merger-related underwriting actions are expected to be largely behind the company.
What are the principal risks highlighted in the filing?
Key risks include exposure to natural and man-made catastrophes, potential adverse reserve development (including roughly 3.5% of gross loss reserves in asbestos and environmental claims), counterparty risk from $15.2 billion of reinsurance recoverables, and the variable annuity guarantee reinsurance book. The filing also flags regulatory changes, Brexit's impact on EU passporting rights, U.S. tax reform effects, and Swiss tax and corporate law constraints.
06—Continue