Chubb “firing on all cylinders”, as reinsurance growth accelerates

It’s always interesting to hear what Chubb’s CEO Evan Greenberg is saying about the state of the market and after the second-quarter he is particularly bullish, describing his company as “firing on all cylinders” while saying he expects rate firming in commercial P&C lines to continue.

Interestingly, one of the strongest sources of premium growth during the last quarter for Chubb was in its reinsurance division, Chubb Tempest Re, where premiums written increased by 32.4% to $274 million in Q2 2021.

On a gross bases, premiums in global reinsurance rose even faster for Chubb, by 46% during the quarter, suggesting the company ceded a greater proportion of its reinsurance premiums in Q2 2021, than a year earlier.

This was Chubb’s biggest quarter of reinsurance growth in well over a year and the company also reported its highest reinsurance income, at $106 million for the quarter, in more than a year.

After a number of years of shrinking its reinsurance underwriting book, the CEO of global re/insurer Chubb said his firm was ready to expand its activities in the reinsurance space, as pricing was deemed adequate, back at the mid-point of 2020.

The reinsurance growth has continued, as Chubb looks to take advantage of profitable growth opportunities.

But, it’s worth noting that growth in reinsurance often comes with more attrition and this may have been the case for Chubb, as its combined ratio for the reinsurance book was 86.6% in Q2 2021, compared with 76.6% in the prior year.

The current accident year reinsurance combined ratio excluding catastrophe losses was 81.2%, again up from 78.2% in the prior year.

During Q2, property and casualty (P&C) net premiums written were up 15.5% globally for the quarter and 12.6% for the first six months.

Chubb’s commercial lines business drove this growth and as a result this quarter saw the best organic P&C growth since 2004, the company said.

In total, Chubb saw growth of 20.7% in commercial lines excluding Agriculture, 11% in Agriculture and 5.6% in P&C consumer lines.

Property and short tail commercial P&C lines grew by almost 30% in the quarter, while homeowners risks written were up another 4.5%. In addition, commercial multi-peril business grew by 18%, all of which suggests more catastrophe and attritional exposure for Chubb’s book.

It’s interesting, as it seems growth in Chubb’s global reinsurance book actually outpaced all lines of the commercial P&C business, despite the compounding rate increases that market has seen.

Which perhaps means compounding rate increases in reinsurance were deemed just as attractive to Chubb.

Or this could be more a case of Chubb filling back up its Chubb Tempest Re portfolio after a number of years where it had been relatively static, or downsized, in these more attractive market conditions.

Commenting on the quarterly results, Chubb’s CEO Evan Greenberg was particularly bullish this time around.

“Chubb had simply an outstanding quarter, highlighted by record core operating earnings and underwriting results. We produced the best P&C premium revenue growth globally in over 15 years, powered by our commercial P&C businesses and supported by continued robust commercial P&C pricing. Operating earnings in the quarter were $1.62 billion or $3.62 per share,” Greenberg explained.

Continuing, “Our published and current accident year combined ratios of 85.5% and 85.4%, respectively, reflect 200 basis points of underwriting margin improvement, almost entirely loss ratio-related. Current accident year underwriting income of $1.2 billion was up 27%, while on the other side of the balance sheet adjusted net investment income in the quarter of $945 million was also a record and up nearly 9.5% from prior year.

“P&C net premiums written were up 15.5% globally, with commercial premiums excluding agriculture up nearly 21%. For perspective, we have averaged double-digit commercial P&C growth over the past 10 quarters, and both second quarter and year-to-date growth were the strongest since 2004. In North America, we grew our commercial P&C premiums over 16%, while in our international operations premiums grew 33% on a published basis, or 24% in constant dollars. Growth in the quarter was broad based. Net premiums written in our consumer lines remain impacted by the pandemic’s effects on travel and other business and consumer-related activity but are beginning to improve and, in fact, increased 5.6% in the quarter.

“We are capitalizing on a strong commercial P&C pricing environment in most all important regions of the world. Overall rates increased in our North America and international commercial P&C businesses by 13.5% and 16%, respectively, and were well in excess of loss costs. From everything we see today, I am confident these market conditions will continue.

“Our company is firing on all cylinders – we are growing our business while we continue to expand underwriting margins. We will continue to outperform and deliver strong, sustainable shareholder value.”

There are positive signs here for other underwriters of commercial risks, both in the primary and reinsurance world, as well as for the insurance-linked securities (ILS) market.

Chubb expects market conditions will continue to be positive, with rates continuing to run ahead of loss costs.

The reinsurance market growth is also particularly positive, given a decent proportion of that is likely catastrophe exposed, reflecting firmer conditions there as well.

This could also drive Chubb to utilise more reinsurance and retrocessional capital in time as well, as it looks to manage its expanding book.

It’s been a while since we’ve seen Chubb in the catastrophe bond market (last in 2015 to be precise).

But given its expansive growth, in reinsurance and property lines particularly, plus the attractive market conditions to cede risk to cat bond investors, we wouldn’t rule that out of Chubb’s plans quite yet, as we could even see the company returning to greater use of ILS as a hedging, risk and capital management tool.