Catastrophes drive lower Q1 income for Chubb

by Artemis on April 25, 2018

Re/insurance firm Chubb has reported a drop in income for the first-quarter, after higher than expected catastrophe losses negatively affected the re/insurers earnings, with northeast U.S. winter storms and the California mudslides the major driver of losses in the period.

Chubb’s experience in the first-quarter of 2018 is aligned with that of fellow insurer Travelers, which reported “unusually high” catastrophe losses in Q1, but unlike Allstate which recently estimated that its first-quarter catastrophe losses would be much lower than the prior year period.

So first-quarter performance appears dependent on regional exposures to a degree, with winter storm Riley and the Montecito, California mudslides looking like the main driver of losses at insurers and likely therefore reading across to some catastrophe reinsurance providers as well.

Evan Greenberg, Chubb’s Chairman and Chief Executive Officer, commented on the quarterly results, “We had a very good quarter though it was impacted by a higher level of catastrophe losses. We produced world-class ex-CAT underwriting results, strong net investment income and good premium revenue growth while achieving better commercial P&C pricing in many of our businesses globally, which improved as the quarter went along, particularly in the U.S. Core operating income per share excluding CATs was up over 5%.

“Concentrated in two areas where we have meaningful presence – Montecito, California with the mudslides and the Northeast U.S. – the catastrophe losses this quarter were up $175 million pre-tax over prior year and contributed 5.8 points to our published P&C combined ratio of 90.1%. The current accident year combined ratio excluding CATs was 87.6% compared to 88.0% prior year.”

Chubb reported underwriting income of $642 million for the quarter, down 18.1% from the prior years $783 million.

During Q1 2018 Chubb experienced total catastrophe losses of $380 million, adding 5.8% to its combined ratio.

This tally breaks down as $195 million from the impacts of northeast winter storms, $125 million for the California mudslides and $60 million other catastrophe losses around the globe, all before tax and net of reinsurance.

With Chubb suffering an above expectation level of catastrophe losses, it increases the chances that reinsurance investors may take a share, through the companies own ABR Reinsurance vehicle, or perhaps through any collateralized contracts that may be exposed.

Any ILS market share of Chubb’s losses would be expected to be minimal at this stage of the year, given the firms high retention levels, but the ABR Re total-return reinsurer has a quota share with the company which could see a share in the losses flowing to its investors.

The losses experienced by major players Chubb and Travelers may read-across to other primary players and also some reinsurers, as the impacts of the winter storm activity and mudslides are absorbed by the market.

But more positively for the market, Chubb has also experienced increasing rates in its commercial underwriting business, as well as growth elsewhere, which may suggest the firm will increase its reinsurance cessions over time.

Greenberg explained, “”P&C net premium growth for the company was 5.8%. P&C premiums were up over 5% in our North America insurance business while internationally premium revenue was up 8.5% and benefited from a weaker dollar. I expect our growth to accelerate as the year goes along, particularly outside the U.S.

“Commercial P&C pricing for the business we wrote in the quarter continued to improve in the U.S. and a number of territories outside the U.S. We achieved some of the best pricing in quite some time, and it improved as we moved through the quarter. In some classes, customer segments and territories we are observing a clear direction in price firming; in others it’s more chaotic.”

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