Premiums fall at Chubb in Q3 as CEO vows to “trade revenue for underwriting discipline”

Profits at Chubb soared in the third quarter of 2016 thanks to the impact of its merger with ACE at the start of 2016 but net premiums at the company fell as sharply thanks to it buying more reinsurance and maintaining underwriting discipline.

Chubb reported net income of $1.36 billion in the third quarter of 2016 compared with $528 million in the same quarter last year, boosted by a contribution from ACE. For the first nine months of the year, its net income was $2.5 billion compared with $2.1 billion in 2015.

Its combined ratio for the P&C business was 86 percent, a result that its chief executive described as “world class”.

The company’s net premiums written in the third quarter reached $7 billion, a 67 percent increase on the year before thanks to the merger with ACE. But on an ‘as if’ basis, which compares the figure with the legacy 2015 results of ACE and Chubb, its net premiums were down 4 percent overall and 6.7 percent for global P&C business.

The company said this was partly due to the purchase of additional merger-related reinsurance, which adversely impacted P&C net premiums written growth by $260 million, of which $200 million relates to personal lines and $60 million relates primarily to commercial P&C lines.

But Evan Greenberg, chairman and chief executive, also stressed that the lower figure was also because of underwriting discipline and the fact the company was finding it harder to find business that meets its standards.

This approach was especially apparent in its global reinsurance net premiums written, which decreased by 29.4 percent in the quarter, due to market conditions and an additional retrocession placed during the quarter, the company said. Excluding retrocession, net premiums written decreased 25 percent in constant dollars.

"Chubb had an excellent quarter with record operating earnings per share and exceptionally strong underwriting results,” Greenberg said. “Our after-tax operating income of $2.88 per share, up 5 percent over prior year, indicates the accretive nature of our merger, which is going well and is on track.

“The P&C combined ratio of 86 percent was simply world-class. For the quarter, our annualised operating ROE was 12 percent while book value and tangible book value per share grew 2.4 percent and 5.5 percent, respectively.

"Previously contemplated merger-related underwriting actions that we took on select portfolios of business, particularly a greater use of reinsurance, reduced P&C net premium growth in the quarter by about 4.5 points while improving our risk-reward profile.

“A competitive insurance market and relatively weak economic conditions globally impacted premium revenue in the quarter as new business meeting our standards was harder to come by.

“We will trade revenue for underwriting discipline all day long. We believe growth will improve as the impact from the underwriting actions dissipates and the power and capabilities of the new Chubb gain more steam. We are already seeing evidence of the effect our enhanced capabilities is having on revenue generation.

"We are in good shape with our integration-related efficiency efforts and we are now increasing the total annualised run-rate savings we will achieve by the end of 2018 to $800 million, up from $750 million."

The company also said that integration realised and annualised run-rate savings are ahead of schedule. It now expects to achieve annualised run-rate savings of $800 million by the end of 2018, up from prior estimate of $750 million. Integration and merger-related expenses remain on track.