Chubb Chugs Ahead of Estimates - Analyst Blog

The Chubb Corp.'s (CB) fourth quarter operating earnings of $1.69 per share were fairly ahead of the Zacks Consensus Estimate of $1.57 led by higher premiums earned. Results also compare favorably with $1.66 earned in the prior-year quarter.

For the full year, operating income per share was $5.90, which was above the Zacks Consensus Estimate of $5.79.

Quarter in Detail

Net premiums written rose 3% year over year to $2.9 billion, driven largely by higher exposures resulting from perked up economic activity over last year's depressed levels.

Property and casualty investment income after tax was up 1% year over year at $320 million as a decline in yields was offset by an increase in average invested assets and dividend income.

Consolidated combined ratio deteriorated 230 basis points year over year to 87.0% primarily due the impact of catastrophe losses, compared to no catastrophe activity last year. Excluding these losses combined ratio deteriorated 110 basis points to 85.6%.

Favorable underwriting and investment results led to an increase in year-end 2010 GAAP book value per share to $52.24, up 11% over the year. Adjusted book value per share was $49.05 compared to $44.37 at 2009 year end, also up 11%.

Segments Results

Net premium at Chubb Personal Insurance increased 6.0% year over year to $963.0 million on rises of 10.0%, 3% and 12% in Automobile premium, Homeowner's insurance and Other Personal lines, respectively. Overall, the segment's premium growth reflect both a healthier economy and multi-pronged initiative to retain and expand business. The combined ratio deteriorated to 83.7% versus 80.7% in the prior-year period, primarily due to higher catastrophe losses.

Chubb Commercial Insurance witnessed an increase of 4% in net premium written to $1.1 billion. Last quarter it had reported flat premium, after declining since the first quarter 2008. Combined ratio deteriorated 360 basis points year over year to 93.5%, excluding the effect of catastrophe losses the ratio deteriorated by a modest 20 points.

Chubb Specialty Insurance net written premiums dropped 3% year over year to $746 million. Combined ratio improved 170 basis points year over year to 82.4%.

Share Repurchase Update

During the quarter, 8.1 million shares were repurchased at an aggregate cost of $473 million. For the full year, 2010 37.7 million shares were repurchased at an aggregate cost of $2 billion and the average cost per share was $53.31. During 2010, management completed the 25 million share repurchase program announced in December 2009 and the additional 14 million share repurchase program announced in June 2010.

2010 Outlook

On the assumption that the insurance market will show positive growth in 2011 led by an improving economy, management has guided operating income per share in the range of $5.35 to $5.75.

The earnings per share guidance includes a 0–2% improvement in insurance rates, a combined ratio in the range of 91% and 93%, a catastrophe loss of 3.5%, property investment income after tax down 2% to 4% and repurchase of about 291 million shares.

Chubb surprised by 8% in the quarter. It has been putting together decent streak of earnings surprises including the last 4 quarters by an average of 13.5%.

Chubb the property and casualty insurer competes with W.R. Berkley Corp. (WRB), The Travelers Companies, Inc. (TRV) and The Allstate Corp. (ALL).

Chubb carries a Zacks #2 Rank, which translates into a Buy recommendation over the near term. On a long-term basis (6+ months), we carry a Neutral recommendation for the stock.

 
ALLSTATE CORP (ALL): Free Stock Analysis Report
 
CHUBB CORP (CB): Free Stock Analysis Report
 
TRAVELERS COS (TRV): Free Stock Analysis Report
 
BERKLEY (WR) CP (WRB): Free Stock Analysis Report
 
Zacks Investment Research