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Chubb Ltd
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Ladies and gentlemen, thank you for standing by. My name is Brent and I will be your conference operator today.
At this time, I would like to welcome everyone to the Chubb Limited second quarter 2023 earnings conference call.
All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you’d like to ask a question at that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press star, one. Thank you.
It’s now my pleasure to turn today’s call over to Ms. Karen Beyer, Senior Vice President and Director of Investor Relations. Please go ahead.
Thank you, and welcome to our June 30, 2023 second quarter earnings conference call. Our report today will contain forward-looking statements, including statements relating to company performance, pricing and business mix. Actual results may differ materially. Please see our recent SEC filings, earnings release and financial supplement, which are available on our website at investors.chubb.com for more information on factors that could affect these matters.
We will also refer today to non-GAAP financial measures, reconciliations of which to the most directly comparable GAAP measures and related details are provided in our earnings press release and financial supplement.
Now I’d like to introduce our speakers. First, we have Evan Greenberg, Chairman and Chief Executive Officer, followed by Peter Enns, our Chief Financial Officer, and then we’ll take your questions. Also with us to assist with your questions are several members of our management team.
Now it’s my pleasure to turn the call over to Evan.
Good morning. As I mentioned on our last call, I’m coming to you this quarter from Singapore, our regional headquarters for Asia Pacific. The outlook in Asia for growth across our businesses - commercial P&C, as well as consumer, non-life and life, both short and long term is significant. The region is simply energizing. We have a large organization of talented executives and a strong, diverse capability focused on the execution of a broad set of strategies throughout the region.
As you saw in our press release, we had a simply outstanding quarter; in fact, another record quarter performance with double-digit premium revenue and earnings growth as a result of world-class P&C underwriting results that produced an 85.4 combined ratio, record net investment income and a doubling of our life earnings. Our premium revenue growth was so well spread and broad-based, driven by outstanding double-digit growth in our commercial and consumer P&C businesses in both North America and internationally, and over 100% growth in our life business.
Our annualized core operating ROE was 13.8 with a return on tangible equity of 21%. Core operating income topped $2 billion, up 14% or 16.5% on a per-share basis. Both were record results. For the first six months, we produced operating earnings of $3.9 billion or $9.32 per share, up 13% and 15.8% respectively.
Our underwriting performance resulted from a combination of strong premium growth, excellent current accident year margins with a combined ratio of 83.3, and favorable prior period reserve development particularly in North America.
On the investment side, record adjusted net investment income of $1.2 billion was up $290 million or 31% over prior year. Our portfolio yield is now 4% versus 3.2% a year ago, with our reinvestment rate averaging 5.8%. Our investment income run rate will continue to grow as we reinvest cash flow at higher rates and compound income without changing our risk profile, and then life earnings doubled to $254 million, driven by our business in Asia, which is overwhelmingly supplemental A&H. Peter will have more to say about financial items, including cats, prior period development, investment income, book value and ROE.
Now turning to more color around growth, pricing and the rate environment, consolidated net written premiums for the company increased 16.1% in the quarter on a published basis, or 16.8% in constant dollars, made up of 10.5% growth in our P&C business globally and almost 130% in life premiums.
Global P&C premium growth in the quarter was very well balanced and broad-based; in fact, our strongest quarter for growth since the third quarter of ’21. North America, Asia-Pac and Europe all produced double-digit growth. It’s worth noting since 2019, we’ve grown our commercial P&C business by 50%.
In terms of the commercial P&C rate environment, rates and price increases in property and casualty lines were strong in the quarter in both North America and internationally, while financial lines globally continued to soften. We have been diligent about staying on top of loss costs and our positive prior year reserve development reflects a steady conservative approach to reserving.
Beginning with North America, commercial premiums excluding ag were up 10.5%. P&C growth was 14% excluding financial lines, while financial lines premiums decreased, reflecting the disciplined response to the underwriting environment. Total premium in our E&S business, the Westchester, grew 12%, while our major accounts division grew 14%, or 11% excluding loss portfolio transfers.
In our middle market division, premiums were up 5% with P&C growth of 9%. Our middle market workers comp book was flat and financial lines premiums in middle market declined about 1.5%.
Overall pricing for total North America commercial lines increased 12.8%, including rate of 8.7% and exposure change of 3.8%. Pricing for commercial property and casualty excluding financial lines was up 17.7%.
We are trending loss cost in North America at 6.7 and it varies by line. In general, we are trending loss cost in short tail classes at 5.8. In long tail, excluding comp loss costs are trending at 7.3 and our first dollar workers comp book is trending at 4.7.
Let me provide a bit more color around rate and growth. Property pricing was up 31.5% with rates up 22% and exposure change of 7.8%. Major accounts and E&S property together grew premiums over 40% in the quarter, while middle market property grew 11.4%. Casualty pricing in North America was up 11.3% with rates up almost 9% and exposure up 2.2%. We grew casualty in the quarter 8%. In workers comp, which includes both primary comp and large account risk management, pricing was up just over 5% with rates up 5% and exposure up 4%. Primary workers comp premiums declined 2.9% in the quarter.
For financial lines, the competitive environment remains aggressive, particularly in D&O, and rates have continued to decline. In the quarter, rates and pricing for North American financial lines in aggregate were down about 4.5%. Our fin lines book shrank 3.7%. Renewal retention for our retail commercial businesses was very strong at 98.5%.
On the consumer side in North America, our high net worth personal lines business had another strong quarter with premiums up almost 11%. Our growth was balanced across a broad range of geographies and our retention was very strong at 104% on a premium basis and over 90% on an account basis.
In our homeowners business, we achieved pricing of 14.7% while the homeowners loss cost trend remains steady at 10.5%. There is a lot of attention placed on consumer auto experience, so I thought I would comment briefly on it.
For us, auto is a small part of our high net worth business, and you may have noticed that we had a modest reserve release in our prior year’s reserves for our North America personal lines segment in the quarter. This release was primarily in auto, and we are comfortable with our reserves and loss PICs for auto.
Turning to our international general insurance operations, net premiums were up 11% in constant dollars, or 9.3% after FX. Our international commercial business grew 12%. Consumer was up 9.5%. Our international retail business grew over 10.5% while our London wholesale business grew about 14%.
In our international retail business, growth was led by Asia Pacific with premiums up 17.5%, made up of commercial lines growth of over 12% and consumer P&C up more than 23%. Europe produced overall growth of 10.5% with the continent up more than 12%. We continue to achieve improved rate to exposure across international commercial portfolios. Our retail business pricing was up 8.9% with rates up 5% and exposure change of 3.7%, while loss costs across our international commercial portfolio are trending at 6.6%.
Our international A&H division had another strong quarter with premiums up over 16%. In Asia, our A&H business grew 31% driven by our direct marketing and travel insurance business and the consolidation of Cigna Thailand. In the U.K. and Europe, A&H premiums were up 11.5%. In our international life business, which is almost entirely Asia, premiums tripled to over a billion dollars.
Since I’m here, I want to conclude with a bit more about operations in Asia, which have very strong growth and momentum across our businesses, both consumer non-life and life, and commercial P&C. We have significant opportunity for growth, both short and long term, in a broad variety of markets across a broad range of customers and distribution channels. Our total premium in the region is about $9 billion and well balanced with half non-life split 50/50 consumer and commercial, and the other half life.
Our overall presence and capabilities in north, Southeast Asia and Australia are spread across 11 markets with distinct and significant areas of growth opportunity in each. Across the region, we have a broad range of product capabilities focused on different customer segments with varied and meaningful distribution strength, including the diverse and growing list of partnerships with financial institutions and e-commerce leaders that give us access to hundreds of millions of consumers.
We have strong digital capabilities and a fast-growing digital insurance business encompassing more of our products. We are the largest direct marketers of insurance, mostly A&H products to consumers in Asia through both non-life and life companies that are unifying to offer more products to more customers.
From a macro perspective, the region is so dynamic and vast with a diversity of cultures and large economies, some with large young populations, some with large aging populations that have a different set of needs. Broadly speaking in Asia, there is an innovation-oriented mindset, a strong work ethic and a deep dynamism. Supply chains and capital flows are growing deeper across the region. There is growing infrastructure investment. As a result, regional commerce and trade is growing and becoming more connected between Southeast Asia, North Asia, India and Australia. There is a lot to be optimistic about.
Summary - we are having an outstanding year with record quarterly and first half financial results. We are growing exposure in a thoughtful and balanced way and underwriting conditions are favorable in a lot of areas of our business. We have a lot of momentum heading into the second half, and as I look ahead, we again are confident in our ability to continue this pattern of growth in revenue and earnings and in turn drive double-digit EPS growth.
I’m going to turn the call over to Peter and then we’re going to come back and take your questions.
Thank you Evan, and good morning. As you’ve just heard, Chubb delivered another quarter of strong underwriting and investment performance, leading to record results which generated $2.5 billion of operating cash flow this quarter and $4.8 billion through the first half of the year.
We returned $1.1 billion of capital to shareholders this quarter, including $724 million in share repurchases at an average price of $197.04 per share, and $354 million in dividends. Book value and tangible book value per share excluding AOCI increased 2.2% and 3.1% respectively for the quarter and 4.3% and 6.5% respectively through the first half of the year, reflecting record core operating income net of the capital returned to shareholders noted earlier. In addition to the quarterly ROEs Evan just gave you, our year-to-date core operating ROE and return on tangible equity of 3.2% and 20.2% respectively exceed the target range Evan has laid out in the past.
Adjusted net investment income from the quarter was $1.24 billion or $20 million above the top end of our guidance, primarily from higher private equity income. The increase over last year of 30% was driven by strong cash flow, our accelerated portfolio turnover, and higher reinvestment rates. In the third quarter, we expect adjusted net investment income to rise from $1.24 billion this quarter to around $1.27 billion on a recurring basis, and to continue to grow from there.
Relative to our invested assets, we continue to tactically execute our portfolio turnover strategy while maintaining a conservative credit posture. During the quarter, we reclassified our $8 billion held-to-maturity portfolio to available for sale, to have even more flexibility to put money to work at higher yields. These securities had $397 million after tax of net unrealized losses that reduced book value at the time of the change. It’s important to note that the transfer itself has no economic impact as the underlying securities remained unchanged and are of a very high quality, with an average rating of AA. We will look to sell parts of this portfolio only where and when we think it makes economic sense, and not all of the unrealized loss will become realized.
Turning to our underwriting business, the quarter included pre-tax catastrophe losses of $400 million principally from weather-related events in the U.S. Prior period development in the quarter in our active businesses was a favorable $260 million pre-tax, which was split about evenly between short tail and long tail lines and included $146 million for North American commercial and $61 million for overseas general. Our corporate runoff lines had adverse development of $60 million principally related to molestation claim development.
As I noted, the PPD and overseas general for the quarter was $61 million versus $173 million last year. The larger favorable PPD in the quarter last year was concentrated in the 2020 accident year and included favorable development from COVID-related economic shutdowns. The year-to-date favorable PPD for overseas general was $204 million, comparable to last year’s $233 million and $181 million in 2021, all in short tail lines for these years. Our paid to incurred ratio for the quarter was 89% or 83% after adjusting for cats and PPD.
Turning to our life segment, year-over-year segment income growth came primarily from the acquisition of Cigna.
Our core operating effective income tax rate was 19% for the quarter, which is at the top end of our guided range of 18% to 19%. We now expect our annual operating effective tax rate for 2023 to be in the range of 18.5% to 19%, excluding the impact of consolidating Huatai. On July 1, we completed the acquisition of additional shares of Huatai Group, increasing our aggregate ownership to 69.6%. We expect the closing of additional shares this quarter, which will bring our ownership up to 83.2%.
Beginning in Q3, we will consolidate Huatai’s results within our financials. We currently estimate consolidation will result in a small amount of accretion to operating income and EPS, book value and ROE, and a modest amount of dilution to tangible book value which we estimate will recover within the next few quarters. However, I would note we are still working through our purchase accounting analysis.
I’ll now turn the call back over to Karen.
Thank you. At this point, we’ll be happy to take your questions.
[Operator instructions]
Your first question is from the line of Mike Zaremski with BMO. Your line is open.
Hey, great. Good morning.
I guess first question would be on the--thanks for the commentary on loss trend in the commercial side. It sounded like it stayed flattish and yet the rate environment accelerated sequentially. I’m just curious, any context on why the rate environment is accelerating if loss costs are kind of staying steady - I know that’s just for you, and does your loss cost, also PIC include higher reinsurance costs, if you’re experiencing higher reinsurance costs? Thanks.
Well you know, the rate, it’s all baked into it, of course; but the rate environment accelerated in property, and I think that speaks for itself, as you know, where it’s about the loss environment particularly around cat and inflation costs and property generally, and reinsurance costs have moved up in property, and I think that’s a--you know, in total that’s a very rational response. In casualty, loss cost trends have been moving higher and I think it’s reflective of the trend we’ve been observing over the last number of years. It’s not a new story, it’s a story we’re aware of and on top of, but I think it’s rational.
You know, you see comp and professional lines, I talked about going the other way, so I think the market frankly and the reacceleration is a rational response to the external environment.
Okay. My one follow-up is on--you touched on catastrophe losses. They actually looked a bit lighter than at least what the consensus models for kind of a normal 2Q for Chubb, whereas some other competitors, maybe more regional based, have experienced much, much higher than, quote-unquote, normal catastrophe levels. Any commentary on your cat load this quarter, was it just--was it kind of in line with expectations?
You know, cat losses are never in line with--particularly with expectations. They’re either greater or less than you might imagine in any quarter on the average annual loss PIC you would choose for that. This was a very heavy cat quarter for the industry, and I think most companies have reported significantly higher cat losses than average. I don’t think there’s any particular magic as to why Chubb’s was lower. We underwrite well, we have a good spread of business, we select risk well; but that doesn’t mean we choose where a--it translates to we choose where a tornado is going to land and come down. If it had moved 10 miles to the east or west, we could have had greater losses.
It’s a variation. It has variability quarter on quarter, and we had a very good experience this quarter. Thanks for the question.
Your next question is from the line of Yaron Kinar with Jefferies. Your line is open.
Thank you very much. Good morning everybody.
I guess my first question, just looking at North America, commercial’s underlying loss ratio, the improvement there, is there a mix component there? Is it mostly rate over trend? Could you maybe elaborate on that a bit?
The current accident year loss ratio, it reflects the totality of the commercial business, so it’s a mix of all the lines, right? Property and casualty rate and price exceed loss cost, and that is potentially a positive to the ultimate loss ratio margin. In the case of comp and financial lines, rate and price lag the selected trends, and in that case the ultimate margin is potentially shrinking or it’s neutral. Our loss PIC reflects all of that, and we’re patient and we lean towards conservatism in our loss PICs.
Okay. Then my second question, just with regards to rate adequacy particularly in financial lines and property, just because of the very different directions we’re seeing rates moving in those lines, are the rates adequate in both of those today?
I think for the business we’ve written, yes, the rates are adequate for our portfolio, and our loss PICs reflect that. The kind of combined ratio we’re putting up has a mix of all of that in there and it speaks for itself.
Thanks so much, and good luck.
Does that make sense to you?
Your next question is from the line of Greg Peters with Raymond James. Your line is open.
Well, I think it might be close to, what, 8:30 pm your time, Evan, so I’m going to say good evening to you and your management team.
Thank you very much. It is - it’s about 8:30.
It’s almost bedtime, right?
For my first question, in your prepared comments, you spoke about innovation and specifically in Asia, and there’s been a lot of rhetoric in the marketplace--you know, it’s been ongoing, but it seems to have accelerated this year around artificial intelligence, large language models, generative AI, and we obviously closely monitor your expense ratio, so maybe you could spend a minute and talk about your perspectives on these very important technology developments and how you think about it for your company, not only in North America but on a global basis.
Yes, and thanks for that question. We’ve been employing AI for quite a number of years now - five or six years, anyway, and particularly it’s algorithmic AI, not generalized or large language models. It’s employed in the operations side of the business, to a degree in the underwriting and claims side and the marketing side, chatbots, etc. There have been a lot of experiments and use cases that prove themselves out, and we’re now in a stage where we’re scaling and will over the next two or three years to receive what we think are significant benefits out of that, insightfulness and abilities in underwriting and in claims in discrete areas in the service side of our business where we see cost and lower level work that can come out or improve in its accuracy. All of that is things we know and we’re scaling the tools.
At the same time, as you can imagine, we are on the large language models and the potential benefit that that will ultimately bring beyond algorithmic, particularly in underwriting and claims and the ability to work--either replace work that is done or make it more accurate, or work alongside underwriters. It’s not a silver bullet, and we’re doing this on a global basis, some regions more in marketing, some more focused on portfolio underwriting. But yet, whatever anyone is doing spreads to the other, and it’s just where we start on one and end with another.
The generalized and large language is going to be iterative, it will be over time. If you think about insurance and the parameterization risk or factor around what we do, how many lines of business, the exposures, the geographies you cross, and so by its nature it’s going to be iterative and take longer than some of the breathless rhetoric that I hear, but we’re focused on that as part of what a modern insurance company is going to look like and is looking like.
I feel like we could probably have a long conversation on that topic. Appreciate the comments.
I need to pivot as my follow-up question to the reinsurance business--
Come and see me sometime, we’ll talk about it.
Okay, let me know when you’re available.
Tomorrow for breakfast, if you want to show up! Go ahead.
I don’t know if I can make it there tomorrow.
Reinsurance - you know, you look at what’s going on in the market, and I know you’re very close to it, it seems like especially in property cat, it seems like these conditions, some of the hardest market conditions we’ve experienced in 20-plus years, and yet if I look at your global reinsurance business and look at the growth, it seems like you’re not really growing your exposures, you’re just growing your rate. Maybe you could provide some perspective on how you’re looking at the reinsurance business in the context--and maybe your perspective is the rate’s still inadequate, but give your perspectives on the reinsurance market. That’d be helpful.
Yes, look - I don’t disagree with anything you said, but you’ll notice at the same time, our property insurance business is growing, like, 40% right now, and that’s a combination of rate and exposure, and some of that exposure is not premium, by the way, it’s structural changes and it’s unit count. It’s a lot of exposure growing.
In property cat, that’s growing more exposure as we grow that, and it’s growing it in the tail. When we look at the risk-reward--and by the way, the property insurance as we grow it across geographies is also growing exposure in the tail. We prefer to put our emphasis on the property insurance business, and the spread of risk we’re getting, we’ve never seen better pricing and better risk-adjusted returns than we see right now in large account, E&S, middle market, in a variety of geographies across the globe. We’re putting more emphasis on that than we are on property cat. We don’t think the risk-adjusted returns are as favorable - plain and simple.
Thanks for the answers.
You got it.
Your next question is from the line of David Motemaden with Evercore ISI. Your line is open.
Morning David.
Hey, good morning Evan, or good evening for you, Evan. Just wanted to ask, I guess sort of related to the last question, just about premium growth in North America commercial and the difference between the 14% growth excluding financial lines, and I think you said it was about 18% increase in price excluding financial lines. Maybe you could just talk about the drivers of that disconnect.
Yes. You know, there has been a lot of chatter I’ve noticed about that in the last number of months. It’s actually pretty straightforward - the majority of the difference between the two numbers is a result of structural changes. Included in our price is the impact of things like deductible changes and attachment points, where we can put a value on it, and so it acts like rate or it acts like exposure. It doesn’t add to premium necessarily, that portion of it, but it adds to potential margin, or another way of saying it, it supports loss cost.
The point of talking about rate and exposure that way, rather than by the way putting exposure over into loss ratio and saying, here’s the loss ratio trend, which is different than loss cost trend, is to give a sense about that, and so here is the price we get, rate plus the trend, and yet a portion of the rate, depends on line of business, or of the exposure is actually not premium. As I said, it acts like premium but it’s not premium. That’s the difference between the two.
Did I say that clearly for you?
Yes, yes. That makes sense. I guess maybe just a quick follow-up on that, any way to size terms and condition changes versus, I guess, the premium increase change, or if I were to look at the rate increase?
It’s in rate or it’s in exposure. We look at it, but we don’t go that far and start disclosing that. What you’ve got to know is look at our overall premium growth, our retention rates that we give you - it’s very healthy, and then what you can see is, wow, this is the amount of rate and price that goes against loss cost, so you can get a transparency around that. You don’t add the two together, they’re not comparable that way. They’re answering two different questions.
Got it, okay. Yes, that makes sense. I appreciate that. That’s helpful.
You’re welcome.
Then I guess just maybe on the North America commercial current accident year loss ratio ex-cat, was there--I know the second quarter tends to be an LPT--you know, heavy LPT quarter. Was there any of that or anything else, like non-cat property losses either way within the 70 basis points year-over-year improvement?
No, and it’s interesting - we’re kind of looking at each other like, we haven’t noticed that the second quarter in particular is a heavy LPT quarter. They kind of come lumpy through the year.
Great, thank you.
You’re welcome.
Your next question comes from the line of Elyse Greenspan with Wells Fargo. Your line is open.
Hi, thanks. Good evening Evan. My first question - you know, last quarter, sticking with North America commercial, you had pointed to premium growth for the balance of the year kind of being above 7.6%, and you guys exceeded that margin by a good amount this quarter - as you said, good property growth. It seems like that was a good driver there. Can you just give us a sense of how you think premium growth can transpire over the balance of the year relative to your expectations last quarter?
Elyse, I’m feeling pretty good. I’m feeling good.
Okay, I had to try.
My second question - you know, we saw--
[Indiscernible] but you know, we’re feeling good. You saw what I said in the commentary and what I said in the press release, that we’re going to continue in this sort of pattern. I’m not putting a number on it.
Okay, that’s helpful. My second question - you know, we saw share repurchase improve, go up this quarter. I think you guys obviously had a new authorization and are sitting on a good amount of excess capital. Anything to read into the number and just how we think about level of--anything new in terms of thinking about the level of capital return from here?
No. We thought we were undervalued. We think we’re undervalued. We’re buyers.
Okay, got it. Thanks Evan.
Your next question is from the line of Ryan Tunis with Autonomous Research. Your line is open.
Hey, good evening Evan. First question I just had on cyber. First of all, where exactly does that live in the disclosures - is that in financial lines as well, and curious if you could give an update on the size of that book and how you’re feeling about that business from a rate adequacy standpoint.
Yes, as you statutorily have seen, we write a sizeable book, and I don’t know that we’ve disclosed the total global premium but what I would tell you is, is we’re one of the top--you know, I don’t have the updated numbers, so I want to be careful, but we’re in the top 3 of cyber writers, maybe the top 2 of cyber writers globally. The business is growing in certain segments for us, but the overall business is growing and the rate environment has leveled off. Terms and conditions on what we underwrite are form. We were first to--really leaders to roll out a form that addresses systemic risk to a greater degree and addresses the severity in ransomware and other one-offs. The underwriting, we’re vigilant about it. The growth, we’re growing it. The pricing, it’s pretty good in most segments. There’s some segments that need rate, and in those areas we’re leaning back a little bit. That’s what I’d tell you about cyber.
Got it. Appreciated the commentary, the line-by-line commentary on loss trend, but if I heard you correctly, I think you said workers comp, you’re trending at around 4%--
I think I said about 4.7%, from memory.
Okay, well that’s, I guess, a little bit higher than I would have thought that line was running at. Are you seeing any type of pick-up in inflation there? Are you trending it differently than you have in recent quarters, or--?
We’ve increased it in the last--earlier in the year. You know, there’s two things: one, mindful of medical inflation, and number two, payroll increases. On one hand, that benefits exposure change, as we just talked about rate and price, and on the other hand, wages go up and that translates to severity on the indemnity side. Those two things together rationally are going to push up your PIC on loss cost and comp.
Thank you.
You’re welcome.
Your next question comes from the line of Tracy Benguigui with Barclays. Your line is open.
Thank you.
Tracy - I know your last name. Go ahead.
Thanks Evan. As you sit right now in Singapore and you look at your opportunity set, how would you rank concerns of capital deployment priorities, underwriting capacity given your views of achieving rate adequacy versus acquisitions in emerging markets, could even be JVs?
Yes, I’m not--first of all, we have plenty of capital flexibility. That is not a question. We are not constraining organic growth whatsoever, and I can tell you--I would make two comments to you. We are not on the acquisition hunt. We are focused on what we--there is so much opportunity around what we’ve got and strategy around organic growth. In Asia, we are just full up, it’s fabulous. In North America and other parts of the world, we’ve got plenty of growth opportunity and that’s what we’re getting after. We’ve got a great rate environment to take on more exposure in areas like property, and we are taking--it’s not a question of capital, it’s a question of are you willing to take on the volatility that goes along with it, and we are because we think we’re getting paid well for that. It’s a good thing to invest in with shareholder capital, and that’s our priority. That’s what we’re focused on.
Then, you used the word JV. I read the same article, and you know what? Don’t believe what you read.
Okay, thanks. Yes, I wasn’t implying that you don’t have strong capital.
I’ve noticed that you reported $49 million of unfavorable reserve development for molestation claims - it’s not a large number, but I’m curious what you’re seeing right now on reviver statutes. Based on the work we’ve done, are those charges reflecting the 11 states where new statute of limitation reform laws went into effect, or do the reserves also reflect the 38 states introduced new reform bills this year?
No. You know, Tracy, it’s more case specific. The only thing the reviver statutes as they open up them does, it opens up the top of the funnel, so more potential losses from years past, legacies going way back, events flowing to the top of the funnel, and then eventually some ripen, some percentage of them ripen into claims and cases, and ultimately in incurred. When we see a liability, we’re going to reflect it.
Very basic question here - does statute of limitations only apply to child abuse, or is it more broad-based?
Well, it depends on the state. It varies. Some have opened it up more broadly and some, it’s only about--most, it’s only about child abuse.
Got it, thank you.
Wait a minute - I think I have a colleague who may be correcting me about that. No? Okay. No. The answer was right.
Your next question is from the line of Brian Meredith with UBS. Your line is open.
Hey, good evening Evan. Evan, looking at--you know, with Huatai going to be consolidated here and ownership increasing, life insurance is becoming a pretty meaningful component of your overall earnings mix - I think you’ve got north of 10%. I’m wondering if maybe you could give us a quick snapshot of what the business mix looks like there, how much is savings products versus indemnity products, short tail, long tail, is much of it capital intensive? Just give us some perspective on how we should think about that life insurance business.
You know, about 80%, 90% of the business is straight up accident and health business, the same kind of business we write on the non-life side. In the life side, you write a longer duration policy, and they’re all individual policies, so on the non-life side I may direct market the same kind of products and they’re annually renewable and they have a certain lapse rate to them, and on the life side I may sell through them agents and/or through direct marketing, and it’s dread disease and it’s hospital cash and it’s cancer and it’s accident insurance, and it will be sold predominantly--most of the book we have are individual policies and they are longer duration, which adds great stability, a long term asset. Then there is a percentage, but it’s a minority percentage of the business where it’s tied to a savings and protection policy, but yet we load it up with accident and health riders, so you’re going to buy a large amount of protection, the stuff we love, alongside a very traditional, much lower risk savings product that’s either on a par basis, where okay, any interest rate risk is fundamentally to the customer and we share the upside with them, or it’s got extremely low guarantees, like in the 1% range or 2% in a whole life policy, that’s it.
Great, that’s helpful. Thank you.
The overwhelming majority of this business is risk-based accident and health business.
Great, that’s really helpful. Then this one is more focused, I guess, on your personal lines business. I’m just curious, could you talk a little bit about what you’re seeing happening in the regulatory environment, given the level of rate we’ve seen going through in, like, personal auto and homeowners? Are you starting to see any pushback by regulators?
Yes. It varies by state. I think it’s pretty well known to you, it’s not hidden. We are employing where we want to grow exposure and we need more flexibility of terms or of rates. We are using E&S to a greater extent as a tool to be able to take more exposure and do it in a thoughtful way and shape portfolios, and we do that both in states where exposure is concentrated in cat, and we’re also doing it in states where the regulatory environment doesn’t allow us greater flexibility to be able to actually serve the public’s need.
Great, thank you.
You’re welcome.
Your next question is from the line of Meyer Shields with KBW. Your line is open.
Thanks. I want to follow up on Brian’s question, if I can. Is there a specific opportunity for Chubb’s growth in North America personal because of regulatory friction that is leading a number of competitors to really pull back?
Well, I don’t think it’s--yes, on the margin, there is that. But we have a really distinct, strong brand, and Meyer, I think the recognition of our brand and service, all things being equal, more customers, it’s proven, in our cohort want to buy Chubb, and then it’s a question of price and terms. There have been competitors who have been overly competitive in the area, and I think of--you know, in the past, naively so or for other reasons, have underpriced risk. We’re in a market know, I think, where there’s greater discipline in the business, and that creates opportunity for us, in addition to the notion of others who may have gotten it wrong and they’re pulling back.
Now, we don’t have an endless appetite, and we will shape our portfolio; but we’re using every tool we can to take more risk and more exposure in a balanced way, not to become the cat writer of high net worth but the national writer of high net worth, balanced, and to do that in a thoughtful and sound way that is enduring.
Okay, that’s helpful. Then just a brief question, I think I know the answer to this, but does the consolidation of Huatai impact the book value yield of the Chubb investment portfolio at all?
To a very minor degree.
Okay, perfect. Thanks so much.
Your next question is from the line of Alex Scott with Goldman Sachs. Your line is open.
Hey. First one I had is on casualty in North America - you know, you all have been fairly vocal about the need for accelerating rate there. I just wanted to get your updated thoughts on is that occurring at the rate you think you need it to for the industry to have adequate pricing, and what kind of competitive environment are you seeing there on casualty lines in North America?
Well, I can’t speak for the industry, but I can speak for Chubb. I like the level of rate we are securing and the terms and conditions against the various cohorts of casualty we write, and I think we’re--I know we’re staying on top of loss development and loss trends, and then we reflect it in the pricing and the terms. I have said in previous quarters that I thought these lines needed to move, and in fact they are.
Got it. The second question I had is around the casualty reserves - I’m sure you’ve seen there’s a fair amount of chatter around the 2013 to 2019 accident years and people looking at the loss cost trend on longer tail lines and thinking through, you know, should we be confident in those reserves. I appreciate this is probably a bit of an annoying question, but is there anything you would add to that discussion to help people think through your confidence in those reserves, just in light of the environment?
Well, pretty simply I’d say this - look at our track record. We’ve been doing this for how long, how many decades, through all kinds of cycles, and look at our reserve policy and look at our reserving track record. And by the way, Peter just made some expansive comments around prior period reserve development, which is simply a reflection of strength of reserve. We are quite confident and comfortable with the level of our reserves.
Thanks.
You’re welcome.
At this time, I would like to turn today’s call back over to Karen Beyer.
Thank you everyone for joining us today. If you have any follow-up questions, we’ll be around to take your call. Thank you.
Ladies and gentlemen, thank you for participating. This concludes today’s conference call. You may now disconnect.