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Insurers might not be the most exciting investments, but there’s a lot to like about
Chubb
,
the global leader in property and casualty insurance.
Chubb (ticker: CB) is best known for its high-end Masterpiece homeowners insurance, which covers more valuable U.S. residential properties than any other brand. It is known for going the extra mile, such as contracting with private firefighting services to protect West Coast homeowners from wildfires.
Service like that has made Chubb, with a $86 billion market capitalization, the industry’s biggest player. It has a history of superior underwriting results, and its nearly $100 billion bond portfolio is getting a big boost from higher interest rates. It has a formidable CEO in Evan Greenberg, who has emulated his famed father—former
American International Group
(AIG) CEO Maurice “Hank” Greenberg—with a push into Asian markets.
These positives aren’t reflected in Chubb shares, which now trade at around $208. The stock is valued at less than 12 times estimated 2023 earnings of $18.14 a share—a reasonable valuation for an industry leader. Chubb’s earnings are expected to rise 20% this year and another 10% in 2024. It has also bought back $7.9 billion of stock in the past two years. Add the Zurich-based insurer’s 30 straight years of dividend increases, and Chubb deserves more attention than it gets.
“Considering its quality and the operating environment, Chubb is very attractively valued,” says KBW analyst Meyer Shields, who has an Outperform rating and a price target of $266 on the shares. “There are opportunities for Chubb to grow organically and through acquisitions.”
Founded in 1882, Chubb operates in 54 countries and provides a range of coverage, including property, workers’ compensation, malpractice, crop protection, and homeowners. Chubb often bundles its Masterpiece insurance with coverage of valuable cars, jewelry, and art. Despite the destruction wreaked by hurricanes and wildfires, Chubb’s personal-lines business has been solidly profitable. Wealthy people tend to take good care of their possessions.
Yet Chubb stock has fallen 6% this year, behind the
S&P 500’s
5% rise. What’s holding it back? The chief reason is that P&C insurance price increases are slowing. KBW data show that North American commercial pricing was up 6.5% year over year in the fourth quarter, down from 14% a year earlier. Chubb’s claims costs are also rising at a 6.5% rate, reflecting higher labor and materials expenses. CEO Greenberg sought to play down the concerns on Chubb’s earnings call in early February, saying that “the vast majority of our portfolio is achieving favorable risk-adjusted returns.”
Greenberg, 68, has been Chubb CEO since he engineered a 2016 merger with insurer Ace, which he headed. “I have never been more optimistic about Chubb than I am today,” he told Barron’s. He rattled off attributes such as its earnings power, strategic position, balance sheet, management depth, and underwriting culture.
Greenberg is acquisitive. Chubb bought
Cigna
Group’s (CI) Asian consumer-oriented health and accident business in 2021 and is moving to boost its stake in a Chinese life insurer to more than 80%. It now gets 20% of its business from Asia. The push reminds Credit Suisse analyst Andrew Kligerman of AIG before it was laid low during the 2008-09 financial crisis.
AIG then was the top global insurer, and its crown jewel was a big Asian business. “Evan Greenberg reminds me of Hank Greenberg, and Chubb is looking a lot like the old AIG,” says Kligerman, who rates the stock Outperform with a $270 price target.
Greenberg is temperamentally similar to his intimidating father, who is 97 and still comes to work every day as CEO of Starr Insurance, a private insurer and investment firm. The younger Greenberg loves the job. “I’m as active, healthy, engaged, and energetic as I have ever been,” he says. “I have absolutely no plans to retire.”
That’s good news for investors. Greenberg has molded Chubb into the pre-eminent P&C insurer. The key to profitability for any insurer is underwriting, and few do it better. Chubb had a “combined ratio” of 87.6% in 2022—meaning expenses and claims were 87.6% of premium income—resulting in an underwriting profit of 12.4%. Over the past 10 years, its combined ratio has averaged 90.1%, seven percentage points better than peers.
| Insurer / Ticker | Recent Price | 52-Week Change | Market Value (bil) | 2023E EPS | 2023E P/E | Dividend Yield |
|---|---|---|---|---|---|---|
| Chubb / CB | $208.40 | 2.0% | $86.2 | $18.14 | 11.5 | 1.6% |
| American International Group / AIG | 60.03 | -1.7 | 44.3 | 6.17 | 9.7 | 2.1 |
| Hartford Financial Services Group / HIG | 77.35 | 11.8 | 24.2 | 8.47 | 9.1 | 2.2 |
| Travelers / TRV | 183.19 | 5.5 | 42.5 | 14.27 | 12.8 | 2.0 |
E=estimate
Source: Bloomberg
“Underwriting is the heart and soul of our ethos,” Greenberg says. “We will trade market share all day long to earn an underwriting profit.”
The company is also profiting from higher interest rates. Chubb holds nearly 90% of its investment portfolio in bonds, and less than 20% is junk-grade. New fixed-income investments are averaging a 5.6% yield against a portfolio average of 3.6%, helping boost investment income by 25%, to more than $1 billion, in the fourth quarter.
Chubb recently said that it plans to boost its quarterly payout by 3.6% to 86 cents, resulting in a yield of 1.6%. That’s below some peers, but the dividend is safe and the company wants to preserve capital for growth.
Greenberg wouldn’t have it any other way. Neither should investors.
Write to Andrew Bary at [email protected]
