The Chubb (CB)

Q4 2011 Earnings Call

January 26, 2012 5:00 pm ET

Executives

Richard G. Spiro - Chief Financial Officer and Executive Vice President

Dino E. Robusto - Executive Vice President and President of Personal Lines & Claims

John D. Finnegan - Chairman, Chief Executive Officer, President, Chairman of Executive Committee and Chairman of Finance Committee

Paul J. Krump - Executive Vice President and President of Commercial and Specialty Lines

Analysts

Matthew G. Heimermann - JP Morgan Chase & Co, Research Division

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

Jay Gelb - Barclays Capital, Research Division

Ian Gutterman

Adam Klauber - William Blair & Company L.L.C., Research Division

Unknown Analyst

Joshua D. Shanker - Deutsche Bank AG, Research Division

Gregory Locraft - Morgan Stanley, Research Division

Vinay Misquith - Evercore Partners Inc., Research Division

Michael Zaremski - Crédit Suisse AG, Research Division

Steve R. Labbe - Janney Montgomery Scott LLC, Research Division

Amit Kumar - Macquarie Research

Josh Stirling - Sanford C. Bernstein & Co., LLC., Research Division

Jay A. Cohen - BofA Merrill Lynch, Research Division

Keith F. Walsh - Citigroup Inc, Research Division

Presentation

Operator

Good day, everyone and welcome to The Chubb Corporation's Fourth Quarter 2011 Earnings Conference Call. Today's call is being recorded.

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Before we begin, Chubb has asked me to make the following statements. In order to help you understand Chubb, its industry and its results, members of Chubb's management team will include in today's presentation, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

It is possible that actual results might differ from estimates and forecasts that Chubb's management team might make today. Additional information regarding factors that could cause such differences appears in Chubb's filings with the Securities and Exchange Commission.

In the prepared remarks and responses to questions during today's presentation of Chubb's fourth quarter 2011 financial results, Chubb's management may refer to financial measures that are not derived from generally accepted accounting principles or GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP and related information is provided in the press release and the financial supplement for the fourth quarter 2011, which are available on the Investors section of Chubb's website at www.chubb.com.

Please also note that no portion of this conference call may be reproduced or rebroadcast in any form without the prior written consent of Chubb. Replays of this webcast will be available through February 24, 2012. Those listening after January 26, 2012 should please note that the information and forecast provided in this recording will not necessarily be updated and it is possible that the information will no longer be current.

Now, I will turn the call over to Mr. Finnegan.

John D. Finnegan

Thank you for joining us. We have strong results in the fourth quarter and after experiencing record catastrophe losses in the first 9 months, I'm happy to say that we had a much lower level of cats this quarter. Given the continued weakness in the global economy and low-interest rates, we're especially pleased that we produced $452 million of net income for the quarter. Operating income per share was $1.63 and annualized operating ROE was 13.1% for the quarter. Net income per share was $1.60 and annualized ROE was 11%. Net written premiums for the fourth quarter were up 4%, reflecting rate improvements in all 3 of our business units. We continue to see sustained momentum in the standard commercial rate increases that we've been discussing for the last few quarters. At the professional liability, we secured rate increases for the first time in 2 years. We also obtained rate increases in Personal lines. Nevertheless, our marketplace is still very competitive and we remain steadfastly focused on writing profitable business.

GAAP book value per share at 2011 year end was $57.15, up 2% compared to the end of the third quarter, and up 9% compared to year end 2010. Our capital position is strong and Ricky will talk about capital management including the new share repurchase program we announced today. As you saw in our press release, we provided operating income per share guidance for 2012 of $5.30 to $5.70. We'll have more to say later on guidance as well as our full-year results.

And now, Paul will discuss the performance of Chubb's commercial and specialty insurance operations and provide some market color.

Paul J. Krump

Thanks, John. At Chubb Commercial Insurance, net written premiums for the fourth quarter were up 8% to $1.2 billion. The combined ratio was 93.2 versus 93.5 in the fourth quarter of 2010. Excluding the impact of catastrophes, CCI's fourth quarter combined ratio was 93.6 compared to 91 in the fourth quarter of 2010, driven largely by higher losses in property. For the full year, the impact of catastrophes accounted for 10.5 percentage points of CCI's combined ratio in 2011, compared to 5.4 points in 2010.

We are pleased that CCI's average United States renewal rates were up 6% in the fourth quarter. Great momentum continue to build as evidenced by the fact that the fourth quarter's 6% compares to the 4% we reported in the third quarter, 2% in the second quarter and flat in the first quarter. Retention for the fourth quarter was 85%, the same as in the third quarter. The new to lost business ratio was 1.1:1, slightly higher than the third quarter and a little lower than the average for the year. Even more encouraging is the fact that CCI's secured United States renewal rate increases in each line of business in the fourth quarter. Monoline property rates increased the most, reaching the double-digit mark, followed in order by general liability, worker's compensation, excess umbrella, package, commercial automobile, boiler and marine. Also indicative of the improving pricing environment is that only about 10% of the CCI business we renewed in the fourth quarter received a rate decrease, compared to about 50% in the fourth quarter of 2010.

On the flip side, in the fourth quarter of 2011, we secured rate increases on 70% of the renewed business, compared to 30% in the fourth quarter of 2010. In markets outside of the United States, CCI obtained renewal rate increases in Canada as well as continued increases in countries that experienced recent catastrophes such as Japan, New Zealand and Australia. Rates in Europe continued to be flat.

Turning to CSI, net written premiums for professional liability were down 2% in the fourth quarter of 2011 to $648 million, and the combined ratio was 96.1 compared to 88.7 in the fourth quarter of 2010. Based on our year-end analysis, we raised our estimate for the professional liability combined ratio in accident year 2011. The increase was primarily in the crime and employment practices liability classes, which have been adversely affected by the economic downturn. As you know, the crime class is inherently lumpy and in the fourth quarter, we experienced some heavy, large loss activity in accident year 2011. We also made modest increases to our accident year 2011 estimates in public D&O. Reflecting the rising cost of merger and acquisition objection claims.

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