We are reiterating our Neutral recommendation on
) prior to its second-quarter results, scheduled for release after
the market closes on July 26 The Zacks Consensus Estimate for
second quarter earnings is currently pegged at $1.42 per share,
reflecting year-over-year growth of 12%. The company performed
favorably during the first quarter of 2012.
Our recommendation reflects the gradually improving property and
casualty pricing cycle, which will directly benefit Chubb's
Personal and Commercial lines of businesses. A continued global
weakness and a low interest rate environment are also some of the
macroeconomic headwinds, which force us to maintain a cautious
outlook on the company.
Chubb is witnessing rate improvements in both the Commercial as
well as Personal lines of businesses. Its Commercial segment has
stabilized after declining continuously since the fourth quarter of
2008. The segment has been witnessing low single-digit
increase in average renewal rates since the second quarter of 2011.
Retention ratio is stable as well. An increasing portion of the
segment's U.S. business is witnessing a flat-to-positive rate
increase. The segment's international business is also experiencing
rate hikes as a result of the recent catastrophes, which have
increased the demand for insurance. Along with the rate
increases and a stable retention level, additional premium received
via mid-term endorsement activity and from premium audits also
indicate an improving market environment.
Chubb's Personal Insurance segment is also witnessing a gradual
market improvement. In the first quarter, the segment recorded a 5%
increase in net premium written. This represented the tenth
consecutive quarter of growth, primarily led by strong premium
increases from its international business.
Chubb has significant international operations as approximately
27% of 2011 revenues were generated from operations outside the
U.S. The company also stands to gain from its international
business, which benefits from better pricing conditions than its
domestic operations. We believe Chubb's strategy to expand
internationally will position it well for long-term growth.
Combined ratio, an important measure of Chubb's profitability
has also shown favorable trends over the past five years. The
average remained 88.4% from 2007-2011, reflecting strong
underwriting results, which further point toward the company's
disciplined business practice.
Chubb pursues active share repurchase activity, which has been a
boon to bottom-line earnings. In the absence of organic growth, the
company has tried to maintain its bottom-line earnings by
aggressively repurchasing shares over the past four years. The
company also scores strongly with rating agencies.
However, the company's profitability is offset by headwinds such
as a low interest rate environment, declining reserve position and
a weak Specialty line of business.
Chubb currently retains a Zacks # 3 Rank, which translates into
a short-term 'Hold' rating. Its competitors
W.R. Berkley Corp.
The Travelers Companies Inc.
), all carry a Zacks # 3 Rank and a long-term Neutral rating.
ASSURANT INC (AIZ): 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
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