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Chubb (CB) Poised for Growth Despite Cat Loss Exposure


On Nov 23, 2016, we issued an updated research report on Chubb Limited CB.

Chubb’s third-quarter 2016 earnings outperformed the Zacks Consensus Estimate and also improved from the prior-year quarter. The upside was mainly driven by growth in net premiums written and improvement in net investment income.

The property and casualty (P&C) insurer has always considered acquisition as an effective strategy for inorganic growth and global expansion. Chubb has diversified its international and domestic footprint alongside developing a superior portfolio of products and services through prudent acquisitions.

In addition, the P&C insurer has invested in various strategic initiatives, which in turn, will pave the way for long-term growth. Thus, Chubb stands a good chance of gaining leadership in the P&C space on the back of complementary products and services.Also, the company remains focused on cyber insurance that currently has immense room for growth.

A strong capital position helps Chubb to engage in shareholder-friendly moves. On Nov 17, 2016, the board of directors approved a share buyback program, which authorizes the company to buy back shares worth $1 billion through Dec 31, 2017. Notably, Chubb has more than doubled its quarterly dividend since 2010. The company has a consistent record of paying regular quarterly dividends.

However, substantial exposure to catastrophe losses will continue to weigh on the company’s underwriting results. Chubb has projected cat losses of $200 million pre tax, associated with Hurricane Matthew, in the upcoming quarter.

Also, the company has been witnessing escalating expenses over the last few years. This is primarily owing to higher loss and loss expenses, policy acquisition costs, administrative expenses and policy benefits. Nonetheless, the company has raised its integration-related savings to $800 million from the previous guidance of $750 million.

Currently, Chubb carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks from the same space include Alleghany Corporation Y, NMI Holdings, Inc. NMIH and Arch Capital Group Ltd. ACGL. Each of these stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alleghany Corporation deals with Property & Casualty reinsurance and insurance businesses in the U.S. and internationally. The company delivered positive surprises in three of the last four quarters with an average beat of 20.52%.

NMI Holdings offers private mortgage guaranty insurance services in the U.S. The company delivered positive surprises in all of the last four quarters with an average beat of 62.80%.

Arch Capital offers property, casualty, and mortgage insurance and reinsurance products worldwide. It delivered positive surprises in all of the last four quarter with an average beat of 9.27%.

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