Chubb’s reinsurance growth continues, but recoverables escalate in Q4

Global insurance and reinsurance giant Chubb reported one of the best year’s in its history in 2021, delivering record full-year net income and particularly strong premium growth in its reinsurance business.

The global reinsurance business was again one of the fastest growth areas for Chubb in the fourth-quarter of the year.

The reinsurance division, Chubb Tempest Re, saw its net premiums underwritten increasing by almost 37% during Q4, to $171 million for the period.

For the full-year 2021, Chubb’s reinsurance unit delivered almost 20% premium growth, reaching $873 million of net reinsurance premiums underwritten last year.

However, the reinsurance unit was also the segment of Chubb’s business that suffered the most from catastrophe losses, it seems, including in what was a relatively benign fourth-quarter for the rest of Chubb’s underwriting business units.

Chubb’s reinsurance unit fell to an underwriting loss for Q4, with a combined ratio of 126.2%, far worse than the prior year’s 99.6% despite the catastrophe loss burden having been a little lower.

The current accident year combined ratio excluding catastrophe losses was also slightly worse in reinsurance, at 81.6% compared with 81.3% prior year.

For full-year 2021, Chubb’s reinsurance unit also fell to a technical underwriting loss, with a combined ratio of 108.7%, which was worse than the prior year’s 92.5%. The accident year combined ratio excluding catastrophe losses was 81.2% for full-year 2021, compared with 80.1% for 2020.

Chubb’s reinsurance segment experience in Q4 and for the full-year reflects challenging sector conditions, due to catastrophe and other losses, but also could reflect some factors specific to the company, as it revealed a charge of $375 million related to the Boy Scouts of America settlement.

But, one-off factors that may have played a role aside, Chubb reported $91 million of catastrophe losses in its reinsurance segment for Q4 2021, just slightly lower than Q3’s $93 million, which of course included hurricane Ida.

The loss ratio for Chubb’s reinsurance business actually reached 97.6% for Q4, higher than the prior quarter 91.2%, showing that catastrophe effects in Q4 were more significant for this segment of its business, as a percentage of premium (the unit wrote more in Q3).

While the reinsurance business grew considerably, profitability was challenging through the second-half of 2021, which is likely to keep Chubb Tempest Re focused on achieving more rate at renewals.

Across Chubb’s diverse and global underwriting business, 2021 was a record year, with full-year net income and core operating income coming out at $8.54 billion and $5.57 billion, up an impressive 141.7% and 68.1% in each case.

Full-year P&C underwriting income was also at a record high of $3.70 billion, up by a significant 205.4% for the year, while P&C premiums grew by 13%, which Chubb said represents the strongest organic growth in over 15 years it has achieved.

One area of additional growth, which might not be quite so welcomed by Chubb’s reinsurance partners, although not surprising in the context of rapid growth in another year with relatively high catastrophe losses, the insurers reinsurance recoverable leaped higher again in Q4 2021.

The company added $722 million of gross reinsurance recoverables during the fourth-quarter of 2021, lower than the roughly $930 million added after Q3, but still a significant addition.

Over the course of 2021, Chubb’s reinsurance recoverables increased by more than $1.77 billion for the year, reflecting the impacts of catastrophes across the period, as well perhaps as one-offs such as the aforementioned Boy Scouts settlement.

Once again though, Chubb’s results have a positive read-across for profitability in the sector, growth opportunities, and also a continuing need for more rate, particularly in reinsurance.

They could also suggest a continuing need for more reinsurance for its own book, as it expands rapidly, as well perhaps as retrocession for the reinsurance business.

Finally, the results of the Chubb Tempest Re unit may also have a read-across to its third-party capitalised internal reinsurance vehicle ABR Re, which in the past has tended to follow more closely the results of Chubb’s reinsurance underwriting unit.

Evan G. Greenberg, Chairman and Chief Executive Officer of Chubb Limited, commented on the results, “With double-digit commercial premium growth and continued underwriting margin expansion, Chubb finished the year with record quarterly earnings and underwriting results, which contributed to one of the best years in our company’s history. Core operating income per share of $3.81 for the quarter was a record and up nearly 20%, with full-year net and core operating earnings of $8.54 billion and $5.57 billion, respectively, also records. Record underwriting results in the quarter included P&C underwriting income of $1.3 billion, up 31%, with a P&C combined ratio of 85.5%.

“P&C premiums in the quarter increased 9.6%, with commercial up 13% and consumer up over 2% as we continue to experience the impact of the pandemic. Commercial premiums increased 11% in North America and 15% in our international operations with strong contributions across our businesses. Commercial P&C rates increased 10.5% and 13%, respectively, in North America and Overseas General and we expect rates to continue to exceed loss costs for some time to come. In our international consumer lines, growth is slowly recovering and gaining momentum. For example, premiums in our international A&H division increased over 5.5% in constant dollars, the third consecutive quarter of growth and the best since the beginning of the pandemic.

“On the asset side of the balance sheet, adjusted net investment income topped $900 million for the quarter and contributed to a record $3.7 billion for the year. With the Fed finally accepting that inflation is a reality that is not going away, interest rates are rising and will continue to rise, and spreads should begin to widen, particularly if the Fed begins to shrink their balance sheet as they should. That will begin to benefit our fixed income investment portfolio, which has a four-year duration. Every 100 basis points of portfolio yield for us produces about $1.2 billion of additional investment income.

“As I look forward, beyond continued strong organic performance, we will benefit from greater revenue and earnings, in the short and long term, from the acquisition of Cigna’s Asia business and increased ownership of Huatai Group in China when approved by the regulator.

“In sum, we are in a period of strong wealth creation, and ’22 should be a good year in terms of growth and margin improvement.”