01—Abstract
Summary
Summary of the 10-K filed February 24, 2023. Cited figures are marked; the original filing is the authoritative source.
Chubb Limited (NYSE: CB) closed 2022 with total assets of $199.1 billiona and shareholders' equity of $50.5 billion, down from $59.7 billion a year earlier.
Net income fell 38% to $5.3 billionb from $8.5 billion, driven mainly by $11.7 billion of pre-tax unrealized investment losses after rising interest rates (captured in OCI rather than net income) and $965 million of net realized losses, including $1.35 billion of realized losses on investments. Underlying operating performance was strong: net premiums written rose 10.3% to $41.8 billion (13% in constant dollars), the P&C combined ratio improved to 87.6% from 89.1%, catastrophe losses were $2.2 billion, and net investment income reached a record $3.7 billion. Segment income was $8.2 billion before corporate items.
Growth was aided by the July 1, 2022 acquisition of Cigna's Asian accident and health and life business for about $5.4 billionc, which added $1.4 billion of premiums written in 2022 and expanded the Life Insurance segment. Chubb also raised its stake in Huatai Group to 64.2% in January 2023, with a pending further increase to roughly 86%, which would move Huatai into consolidation.
Capital returns were heavy, with $4.4 billiond returned to shareholders in 2022 (including $3.0 billion of buybacks) and $1.27 billion of buyback authorization remaining as of February 23, 2023. Investors should weigh the strong underwriting and investment income against balance sheet pressure from rate-driven unrealized losses, the $916 million deferred tax asset valuation allowance, ongoing reserve risk in long-tail casualty and legacy asbestos, environmental and molestation exposures (molestation adverse development was $155 million in 2022), and the upcoming adoption of LDTI accounting on January 1, 2023, which will change reserving and earnings volatility.
02—Key points
Key Highlights
- Net income fell 37.8% to $5.3 billion (from $8.5 billion), reflecting $791 million of after-tax equity mark-to-market losses and $965 million of pre-tax net realized losses.
- Net premiums written rose 10.3% to $41.8 billion (13.0% in constant dollars), led by strong retention, rate and exposure increases, and the Cigna Asia acquisition, which contributed $1.4 billion.
- P&C combined ratio improved to 87.6% from 89.1%, with current accident year ex-catastrophe ratio at 84.2%; catastrophe losses were $2.2 billion (Hurricane Ian $975 million) and favorable prior-period development was $876 million.
- Record net investment income of $3.7 billion, up 8.3%, as higher reinvestment rates on fixed maturities lifted the market yield on fixed maturities to 5.6% from 2.3%.
- Shareholders' equity declined $9.2 billion to $50.5 billion, mainly from $9.5 billion of after-tax unrealized investment losses and $927 million of FX translation losses, partly offset by net income.
- Acquired Cigna's Asia A&H and life business on July 1, 2022 for about $5.4 billion, adding $3.5 billion of VOBA and $1.25 billion of goodwill; the deal expanded the Life Insurance segment's presence across Asia.
- Returned $4.4 billion to shareholders in 2022, including $3.0 billion of share repurchases and $1.4 billion of dividends; operating cash flow was a record $11.2 billion.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 24, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $43.10B$40.87B | +5.5% |
| Interest Expense | $570.00M$492.00M | +15.9% |
| Net Income | $5.25B$8.53B | −38.5% |
| EPS (Basic) | $12.50$19.38 | −35.5% |
| EPS (Diluted) | $12.39$19.24 | −35.6% |
| Shares Outstanding (Basic) | 419.78M439.97M | −4.6% |
| Shares Outstanding (Diluted) | 423.53M443.20M | −4.4% |
05—Questions
Frequently Asked Questions
Why did Chubb's net income fall so sharply in 2022 if the underlying business performed well?
Net income fell to $5.3 billion from $8.5 billion mainly because of investment-related losses rather than underwriting. Rising interest rates produced $10.6 billion of pre-tax unrealized losses on fixed maturities, though those flow through other comprehensive income and shareholders' equity rather than net income. The income statement hit came from $965 million of net realized losses, including $791 million of after-tax equity mark-to-market losses, compared with a $1.15 billion gain in 2021, which had included large private equity gains. Core underwriting and investment income both improved.
What drove growth in 2022 and how much came from the Cigna acquisition?
Net premiums written grew 10.3% to $41.8 billion, or 13.0% in constant dollars. Organic growth came from rate increases, higher exposures, and strong renewal retention across most commercial and consumer lines, with agriculture (crop insurance) up 21.7%. The Cigna Asia acquisition added about 3.8 percentage points, or $1.4 billion of premiums written, and contributed to the 47% growth in Life Insurance premiums written.
How strong is Chubb's underwriting profitability and what are the main risks to reserves?
The P&C combined ratio of 87.6% indicates an underwriting profit, with the current accident year ex-catastrophe ratio at 84.2%. Catastrophe losses of $2.2 billion were manageable within reinsurance and pricing, and reserve releases of $876 million supported results. Key risks are the $59.2 billion of net unpaid losses, roughly 78% of which are casualty-related long-tail lines, plus A&E reserves (about 2% of gross reserves) and molestation claims stemming from reviver statutes. Management says reserves are adequate, but adverse development in these lines could materially affect results.
What changes in accounting and capital management should investors watch in 2023?
Chubb adopts the long-duration targeted improvements standard (LDTI) on January 1, 2023, which requires quarterly remeasurement of future policy benefit reserves through OCI, fair value accounting for market risk benefits on variable annuity guarantees, and straight-line amortization of deferred acquisition costs and VOBA. Management estimated a roughly $1.8 billion after-tax reduction to January 1, 2021 equity, with an immaterial effect on year-end 2022 equity. Share repurchase capacity remained at $1.27 billion through June 30, 2023, and the Huatai Group stake increase toward about 86% will change consolidation and capital deployment.
What is the balance sheet exposure to interest rates and foreign currency?
The fixed income portfolio is $98.6 billion at fair value, with an average duration of 4.5 years; a 100 basis point rate increase would reduce its value by about $4.4 billion. Approximately 17% of the fixed income portfolio sits in below-investment-grade securities, and 33.3% of unhedged net assets are denominated in foreign currencies, mainly the Korean won, Chinese yuan and Canadian dollar. Debt of $14.9 billion (long-term plus short-term) keeps the financial debt-to-capitalization ratio at 22.6%, up from 21.2%, partly because of the equity decline.
06—Continue