01—Abstract
Summary
Summary of the 10-K filed February 28, 2019. Cited figures are marked; the original filing is the authoritative source.
Chubb Limited (NYSE: CB) closed 2018 with net income of $3.96 billiona, up 2.6% from $3.86 billion in 2017, and diluted EPS of $8.49 (up 3.7%).
The result was achieved despite a heavy catastrophe year, with pre-tax cat losses of $1.63 billionb (5.9 points of the P&C combined ratio) versus $2.75 billion in 2017. The P&C combined ratio improved sharply to 90.6% from 94.7%, helped by lower cat losses and $896 million of favorable prior period development, though the current accident year ex-cat combined ratio edged up to 88.0% from 87.6%, driven by North America homeowners losses. Net premiums written grew 4.6% to $30.6 billion, with growth across most segments and the largest contributions from Overseas General Insurance and North America Commercial.
Book value per share declined to $109.56c from $110.32, and shareholders' equity fell to $50.3 billion, reflecting $2.7 billion of after-tax comprehensive losses driven mainly by rising interest rates and foreign currency movements. Management returned substantial capital, with $1.02 billion of share repurchases in 2018, $1.34 billion of dividends, and a new $1.5 billion repurchase authorization for 2019 (of which $1.30 billion remained at February 27, 2019). Operating cash flow strengthened to $5.48 billion from $4.50 billion.
Key risks flagged in the filing include exposure to natural and man-made catastrophes (with climate change noted as a growing factor), $16.2 billiond of reinsurance recoverables, legacy asbestos and environmental (A&E) liabilities tied to the Brandywine run-off operation, variable annuity guarantee reinsurance (GLB) that produced a $248 million realized loss in 2018, and Brexit-related structural changes, including the redomiciling of European headquarters to France effective January 1, 2019. Investors should also note the 2019 outlook for quarterly net investment income of $825–835 million and the reduction in purchased intangibles amortization expected in future years.
02—Key points
Key Highlights
- Net income rose 2.6% to $3.96 billion and diluted EPS rose 3.7% to $8.49, despite $1.63 billion of pre-tax catastrophe losses (versus $2.75 billion in 2017).
- P&C combined ratio improved to 90.6% from 94.7%, while the current accident year ex-cat combined ratio rose modestly to 88.0% from 87.6%, reflecting North America homeowners severity.
- Net premiums written grew 4.6% to $30.6 billion, led by Overseas General Insurance (+6.6% reported, +5.3% constant-dollar) and North America Commercial P&C (+3.9%).
- Favorable prior period development of $896 million (3.3 points of the combined ratio) partly offset adverse legacy A&E and Corporate run-off items.
- Book value per share fell to $109.56 from $110.32, as after-tax unrealized investment losses of roughly $2.0 billion (mainly rising rates) and FX translation losses outweighed earnings.
- Returned capital through $1.02 billion of buybacks and $1.34 billion of dividends in 2018; $1.30 billion of buyback authorization remained as of February 27, 2019.
- Operating cash flow increased to $5.48 billion from $4.50 billion, and the company guided to 2019 quarterly net investment income of $825–835 million ($880–890 million excluding fair value amortization).
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 28, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $32.72B$32.24B | +1.5% |
| Interest Expense | $641.00M$607.00M | +5.6% |
| Net Income | $3.96B$3.86B | +2.6% |
| EPS (Basic) | $8.55$8.26 | +3.5% |
| EPS (Diluted) | $8.49$8.19 | +3.7% |
| Shares Outstanding (Basic) | 463.63M467.15M | −0.8% |
| Shares Outstanding (Diluted) | 466.80M471.20M | −0.9% |
05—Questions
Frequently Asked Questions
How did Chubb perform in 2018 relative to 2017, and what drove the change?
Net income increased 2.6% to $3.96 billion, but the drivers were mixed. Catastrophe losses fell sharply from $2.75 billion to $1.63 billion, and the 2017 results had included a $450 million Tax Act benefit that was smaller in 2018 (a $25 million adjustment). Realized investment losses of $652 million in 2018 (versus gains of $84 million in 2017) partially offset underwriting improvement. The P&C combined ratio improved 4.1 points to 90.6%.
Why did book value per share decline even though the company was profitable?
Shareholders' equity fell to $50.3 billion from $51.2 billion because other comprehensive loss of $2.7 billion (mainly unrealized losses on fixed income securities as interest rates rose, and foreign currency translation losses) more than offset net income. Share repurchases of $1.02 billion and dividends of $1.34 billion also reduced equity, which is why book value per share fell to $109.56.
What are the main risks investors should monitor?
The filing highlights catastrophe exposure (including climate change and cyber events), reserve adequacy, particularly long-tail casualty and asbestos and environmental claims (A&E gross liabilities about 3.4% of loss reserves), $16.2 billion of reinsurance recoverables, and variable annuity guarantee reinsurance whose fair value is sensitive to equity markets and interest rates. Regulatory and Brexit-related risks, including the loss of EU passporting rights in a no-deal scenario, are also flagged.
How is capital being deployed and what is the 2019 buyback capacity?
In 2018 Chubb repurchased 7.7 million shares for $1.02 billion and paid $2.90 per share in dividends. The Board authorized a $1.5 billion repurchase program running December 1, 2018 through December 31, 2019. From January 1 through February 27, 2019, the company repurchased 1.33 million shares for $174 million, leaving $1.30 billion of authorization available.
What does the filing say about Chubb's outlook and Brexit exposure?
Management said it was optimistic about 2019, citing improving pricing and underwriting conditions, and guided to quarterly net investment income of $825–835 million. Effective January 1, 2019, the European headquarters were redomiciled to Paris to preserve EU market access. Management estimated Brexit-related costs of $11 million in 2018 and expects 2019 costs to be immaterial, while the company will keep a substantial London presence.
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