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Chubb Limited’s net income for 2016 Q2 down 22.8% from 2015 Q2


July 28, 2016   by Canadian Underwriter


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Higher natural catastrophe losses globally were among the factors contributing to Chubb Limited reporting US$726 million in net income for the three months ended June 30, 2016 compared to US$942 million for the prior-year quarter.

Chubb’s net income was also down when comparing the first half of 2016 to the first half of 2015, with the company reporting earlier this week that it was US$1,165 million this year, down 28.2% from US$1,623 million last year.

Things were more encouraging with operating income, net of tax. For the second quarter of 2016, Chubb reported operating income of US$1,058 million, up 34.3% from the US$788 million in the second quarter of 2015, the interim results show.

Comparing the periods in 2016 and 2015, the statement notes operating income excluding catastrophe losses was US$1,369 million, up from $894 million.

“Chubb produced very good operating results in the quarter despite a greater level of industry natural catastrophe losses globally than has occurred in recent years, though industry insured losses appear in line with longer-term historical averages,” says Chubb chairman and CEO Evan G. Greenberg.

“For illustrative purposes, excluding the catastrophe losses, operating EPS (earnings per share) for the quarter was up 7% from prior-year, and up 11% for six months, demonstrating the underlying health and earnings power of the new Chubb and depicting the accretive nature of our merger.”

In January, ACE Limited announced that it had completed its acquisition of Chubb for about US$29.5 billion in the aggregate in cash and stock.

Overall, net premiums written (NPW) amounted to US$7,639 million in the second quarter of 2016 compared to US$4,784 million in the same quarter of 2015, an increase of 59.7%.

Looking specifically at Property & Casualty, NPW amounted to US$7,112 million in the quarter ending June 30, 2016 compared to US$4,284 million in the second quarter of 2015, an increase of 66.0%.

That contributed to higher underwriting income for the quarter ended June 30, 2016, amounting to US$609 million, which was up 27.5% from the US$478 million in the prior-year quarter.

Catastrophe losses again had an effect, with Chubb reporting current accident year underwriting income, excluding Cat losses, was US$698 million in the second quarter of 2016 compared to US$449 million in the same quarter of 2015.

The company’s results for the first half of the year, however, was down. Overall, NPW amounted to US$7,639 million for the first six months of the 2016, down 5.8% from US$8,108 million in the first half of 2015.

Related: Nat cats in Q2 2016 cost Chubb an estimated US$390 million

“Total pre-tax and after-tax catastrophe losses were US$390 million (5.7 percentage points of the combined ratio) and US$311 million, respectively, compared with US$124 million (3.2 percentage points of the combined ratio) and US$106 million, respectively, last year,” note the interim results.

“On an ‘as if’ basis, total pre-tax and after-tax catastrophe losses for the second quarter of 2015 were US$274 million (3.9 percentage points of the combined ratio) and US$203 million, respectively,” the interim results add.

With regard to P&C, NPW for 2016 H1 was US$7,112 million compared to US$7,584 million, a decrease of 6.2%; underwriting income was US$675 million compared to US$898 million (down 25.0%); and current accident year underwriting income, excluding Cat losses, was US$764 million compared to US$836 million (down 8.7%).

For Global P&C (excluding Agriculture), the story was similar for 2016 Q2 and H1 results. NPW for 2016 Q2 was US$6,737 million, up 72.5% from US$3,905 in 2015 Q2; underwriting income was US$595 million, up 30.3% from US$457 million; and current accident year underwriting income, excluding Cat losses, was US$670 million, up 59.7% from US$421 million.

For the first half of 2016, however, NPW was US$6,737 million, down 6.5% from US$7,205 million in 2015 H1; underwriting income was US$661 million, down 28.8% from US$877 million; and current accident year underwriting income, excluding Cat losses, was US$736 million, down 8.9% from US$808 million.

Looking at North America results specifically, NPW for North America Commercial P&C Insurance was US$3,245 million in the second quarter of 2016 compared to US$1,428 million (a 127.4% increase) while NPW for North America Personal P&C Insurance was US$1,231 million compared to US$547 million (a 125.1% increase).

For 2016 and 2015 HI, NPW for Commercial P&C was US$3,245 million compared to US$3,253 (a 0.2% decrease) while NPW for Personal P&C was US$1,231 million compared to US$1,550 million (a 20.6% decrease).

“Our earnings were driven, in particular, by strong underwriting margins as reflected in the published P&C combined ratio of 91.2%, or 90.2% excluding purchase accounting and other temporary merger-related items,” Greenberg reports in the company statement.

“Premium revenue in the quarter was impacted by foreign exchange, more competitive market conditions and underwriting actions that we took on select portfolios of business,” he says of the three months ending June 30. “These underwriting actions, including greater use of reinsurance, impacted net premium growth in the quarter by about 1.5 points while improving our risk-reward profile.”

Related: Chubb Limited’s net income down 35.6% to US$439 million in 2016 Q1 compared to US$681 million in prior-year quarter

Other results include the following:

  • consolidated net premiums earned (NPE) increased 69.8%, or 73.0% in constant dollars;
  • P&C NPE increased 81.1% in constant dollars;
  • operating cash flow was US$1.1 billion; and
  • book value per share increased 2.7% to US$101.56 from US$98.85 at Mar. 31, 2016, and increased 13.1% from US$89.77 at Dec. 31, 2015.