We issued an updated research report on The Chubb CorporationCB on Aug 18, 2015.
Last month, the company reported second-quarter 2015 earnings that surpassed the Zacks Consensus Estimate by 11.2%. With this, the company has delivered positive earnings surprises in each of the last four quarters with an average beat of 7.62%.
Exiting second quarter, Chubb has agreed to be acquired by ACE Ltd. (ACE). The combination of the two companies, with complementary products and services, will position the new entity as the leader in the P&C space.
After sluggish top-line growth over the past several years, Chubb recently started witnessing improvement in the markets it operates. Its Commercial Insurance segment has been consistently reporting favorable earnings results. The segment has been witnessing an increase in average renewal rates over the past 16 quarters. Retention ratio is also stable. These trends bode well for near-term growth.
Chubb's Personal Insurance segment has also been seeing gradual market improvement on the back of strong premium increases from international business. We also favorably view Chubb's business expansion (homeowners and personal auto) to West and Southwest U.S. This will help Chubb by reducing its earlier concentration in the Northeast region, which is a catastrophe-prone area.
Although Chubb maintains a liquid and high-quality investment portfolio, investment performance deteriorated in the recent quarters due to lower yields.
Exposure to catastrophe losses has always induced volatility to the company's earnings. The company expects non-cat weather-related losses in 2015 to be higher than those in 2014.
Chubb's international operations (almost 24% of net premiums written outside U.S.) expose it to foreign exchange fluctuations. The current exchange rate is expected to have a negative impact on the third-quarter results before an improvement in the fourth quarter.
Chubb presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the property and casualty insurance space are Hallmark Financial Services Inc. HALL , Selective Insurance Group Inc. SIGI and First American Financial Corp. FAF . All three stocks sport a Zacks Rank #1 (Strong Buy).