We are reiterating our Neutral recommendation on the shares of
), following its third-quarter earnings release. The quarter
benefited from strong underwriting results as well as unusually
low catastrophe losses, enabling the insurer to significantly
beat the Zacks Consensus estimate. Earnings also grew by a
whopping 90% year over year.
However, catastrophe loss form Hurricane Sandy, the ongoing
soft property and casualty market, along with the
competitive market pressures, keeps us on the sidelines.
Though Chubb faced sluggish top-line growth in the past
several years, it has recently witnessed a slowly improving
market. Its Commercial segment has been reporting a reversal of
trend or stabilization after declining continuously since the
fourth quarter of 2008. The segment has also been
witnessing low-single-digits increases in average renewal rates
since the second quarter of 2011.
Chubb's Personal Insurance segment is also enjoying a gradual
market improvement. In the third quarter, the segment recorded a
3% hike in net premium written. This represented the twelfth
consecutive quarter of growth, primarily led by strong premium
increases from the international business.
Chubb also has significant international operations.
Approximately 27% of its revenues in 2011 were generated from
operations outside the U.S. The company's international business
benefits from better pricing conditions compared to its domestic
operations. We believe that Chubb's strategy to expand
internationally will position it comfortably for long-term
However, Chubb's Specialty insurance business has been
suffering from rate reductions over the past several years. The
company's surety, professional liability and personal lines of
businesses are also expected to experience some pressure.
Chubb has been reporting favorable loss reserves since 2004,
which have formed a significant component of earnings. However
going forward, the pace of reserve release is expected to
decline, eroding the benefits it added to the earnings.
Nevertheless, Chubb remains well capitalized at the insurance
company level, in reference to the minimum risk-based capital
requirement. Its debt-to-total capitalization ratio also stands
low at 20.1%. Moreover, Chubb is known as a dividend aristocrat
due to its policy to continuously increase dividend payments.
Based in Warren, New Jersey, Chubb closely competes with
The Travelers Companies Inc.
W.R. Berkley Corp.
). The stock currently retains a Zacks #3 Rank, which translates
into a short-term Hold rating.
CHUBB CORP (CB): Free Stock Analysis Report
TRAVELERS COS (TRV): Free Stock Analysis
BERKLEY (WR) CP (WRB): Free Stock Analysis
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