Canadian Underwriter

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

May 6, 2016   by Canadian Underwriter

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Operating and underwriting results for the first quarter of 2016 were strong, but Chubb Limited still saw reported net income decrease to US$439 million in the first quarter of 2016 compared to US$681 million in the same period of 2015.

“Net income was adversely impacted by US$0.43 per share comprising Chubb integration and related expenses, the amortization of fair value adjustments and purchase accounting adjustments on operating income of US$0.06 per share,” explains a statement earlier this week from Chubb Limited, the world’s largest publicly traded property and casualty insurance company, with operations in 54 countries.

Related: ACE completes Chubb acquisition; adopts Chubb name and launches new Chubb brand

In mid-January, ACE Limited announced it had completed its acquisition of Chubb. ACE paid about US$29.5 billion in the aggregate in cash and stock, based on the most recent closing price of ACE Limited shares and the number of outstanding shares of The Chubb Corporation common stock at closing.

With regard to Chubb’s operating income, net of tax, in 2016 Q1, it was adversely impacted by purchase accounting adjustments of US$0.06 per share. Still, the amount increased to about US$1.0 billion in the first quarter of 2016 compared to US$745 million in 2015 Q1, an increase of 36.8%.

“We’re off to a good start as the new Chubb, with strong earnings for the first quarter, driven by excellent operating and underwriting results exclusive of the impact of one-time acquisition-related costs,” says Evan Greenberg, Chubb’s Limited’s chairman and CEO.

“Comparing our results in 2016 to 2015 as if we were one company in both periods, our EPS (earnings per share) in ’16 was US$2.29 and our underwriting income of US$720 million was up 23% over prior year with an excellent combined ratio of 88.9%,” Greenberg explains in the company statement.

On the premium front, Global P&C net premiums written (NPW) was about US$5.5 billion in the quarter ending Mar. 31, 2016, up 52.8% from about US$3.6 billion in the first quarter of 2015. The reported P&C underwriting income was also up 52.3%, to US$612 million, compared to US$402 million.

The current accident year underwriting income, excluding catastrophe losses, was US$623 million in the first quarter of 2016 compared to US$370 million in the prior-year quarter, representing a 68.3% increase.

“On an as-reported basis, total pre-tax and after-tax catastrophe losses, including reinstatement premiums, were US$258 million (4.3 percentage points of the combined ratio) and US$204 million, respectively, compared with US$51 million (1.5 percentage points of the combined ratio) and US$40 million, respectively, last year,” the company reports.

The NPW for Global P&C (excluding Agriculture) climbed 54.9% to about US$5.4 billion in the first quarter of 2016 compared to about US$3.5 billion in the same quarter of 2015. In terms of related underwriting income, that amounted to US$559 million in 2016 Q1 compared to US$355 million in 2015 Q1.

Looking at North America specifically, the NPW for North America Commercial P&C Insurance was US$2.3 billion in 2016 Q1 compared to US$1.3 billion in 2015 Q1, company figures show. For North America Personal P&C Insurance, NPW was US$871 million compared to US$133 million.

Effective the first quarter of 2016, the business segments and key segment items for the quarter ended Mar. 31, 2016 are as below. [Click on image below to enlarge]

Chubb Limited's key segment items for 2016 Q1

With regard to gross premiums written (GPW), North America Commercial P&C Insurance amounted to US$3.0 billion in the first quarter of 2016 compared to almost US$2.0 billion in the same quarter of 2015; North America Personal P&C Insurance was US$974 million compared to US$146 million; North America Agriculture Insurance was US$136 million compared to US$128 million; Overseas General Insurance was US$2.5 billion compared to US$2.3 billion; Global Reinsurance was US$213 million compared to US$292 million and Life Insurance was US546 million compared to US$522 million.

In addition, overall, net premiums earned (NPE) increased to US$6.6 billion in the first quarter of 2016 compared US$3.9 billion in the prior-year quarter.

Evan Greenberg

Evan Greenberg, Chairman and CEO of Chubb Limited.

“Total premium revenue in the quarter was impacted by market conditions as we maintained underwriting discipline, as well as continued foreign exchange headwinds and integration-related activities,” Greenberg (pictured right) reports in the statement.

The P&C combined ratio rose to 90.0% in 2016 Q1 from 88.4% in 2015 Q1, the loss and loss expense ratio increased to 57.3% from 57.1% and the administrative expense ratio was 11.5% compared to 13.9%.

Other company results include the following:

  • adjusted net investment income in 2016 Q1 was US$767 million, or US$812 million on a 2016 pro forma basis (2016 pro forma results include the combined company’s results for the first 14 days of January);
  • operating cash flow was US$1.0 billion;
  • reported unfavourable foreign currency movement negatively impacted consolidated operating income by US$21 million; and
  • quarterly investment income is expected to be in the range of $820 million to $840 million for the balance of the year.

Looking ahead, “the impact of merger-related focus is diminishing and foreign exchange should have a reduced effect in the second quarter. In fact, we are already beginning to see evidence of both,” Greenberg points out.

“We also now project that we will surpass our original run-rate target for integration-related expense savings and, separately, we expect to increase our investment income run rate from what we would otherwise earn as a result of investment portfolio management improvements,” he adds.