The Chubb (CB)

Q3 2011 Earnings Call

October 20, 2011 5:00 pm ET


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


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

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

Jay Gelb - Barclays Capital, Research Division

J. Paul Newsome - Sandler O'Neill + Partners, L.P., Research Division

Michael Grasher - Piper Jaffray Companies, Research Division

Jeffrey Cho

Mark A. Dwelle - RBC Capital Markets, LLC, Research Division

Joshua D. Shanker - Deutsche Bank AG, Research Division

Gregory Locraft - Morgan Stanley, Research Division

Ian Gutterman - Adage Capital

Brian Meredith - UBS Investment Bank, Research Division

Vinay Misquith - Evercore Partners Inc., Research Division

Michael Zaremski - Crédit Suisse AG, Research Division

Jay A. Cohen - BofA Merrill Lynch, Research Division



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

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 appear 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 third 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 third quarter 2011, which are available on the Investors section of Chubb's website at

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. Replay of this webcast will be available through November 18, 2011. Those listening after October 20, 2011 should please note that the information and forecast provided in this recording will not necessarily be updated and it is possible that information will no longer be current.

Now, I'll turn the conference over to Mr. Finnegan.

John D. Finnegan

Thanks for joining us. This afternoon we reported our results for the third quarter and for the first 9 months of the year, both periods of large catastrophe losses for Chubb and the property and casualty insurance industry. Notwithstanding these cat losses and other industry headwinds included in the sluggish economy, margin compression and lower reinvestment yields on fixed maturity investments, we reported operating income of $252 million for the third quarter and $1 billion dollars for the first 9 months.

Operating income per share for the third quarter was $0.88, reflecting a $0.95 impact of catastrophes. In last year's third quarter, operating income was $1.69 but the impact of cash was only $0.12. The third quarter combined ratio was 102.6% in 2011, compared to 86.2% in 2010. That x cat combined ratio for the third quarter was 88.2 in 2011, compared with 84.1 one last year. For the first 9 months, operating income per share was $3.50 and the combined ratio was 97.1. Including an 11.7 point impact of cats. The x cat combined ratio of 85.4 for the first 9 months of 2011 compares with 83 in the first 9 months of last year.

During the third quarter, our investment portfolio produced a net realized gain before tax of $71 million or $0.16 per share after tax, bringing our net income to $298 million or $1.04 per share. At September 30, our net unrealized appreciation before tax stood at $2.3 billion, which is an increase of about $200 million as of June 30. Reported book value per share at September 30, 2011, was $56.23, 7% higher than a year ago. Despite the significant cat losses that we incurred in the third quarter, we maintained the pace of our share repurchases and expect to complete our current program by the end of January 2012.

We're also pleased with the continued firming in the market. It's best evidenced by the 4% rate increase we achieved in the third quarter in our standard commercial business, while maintaining strong retention levels. In the second, Paul will talk more about the market environment in detail. As we announced in our press release today, we're reducing our 2011 calendar year operating income per share guidance to $5.10 to $5.20 from $5.55 to $5.85. This reduction is largely due to the far higher level of cats we experienced in the third quarter than we had assumed in our July guidance. Ricky will elaborate on our updated guidance in his remarks.

Let me now turn it over to Paul, who will talk about our commercial and specialty insurance results.

Paul J. Krump

Thanks, John. The Chubb Commercial Insurance net written premiums for the third quarter were up 9% to $1.2 billion. The combined ratio was 101.1 versus 89.1 in the third quarter of 2010. Excluding the 11.2 point impact of catastrophes, CCI's third quarter combined ratio was 89.9, compared to 87.1 in the third quarter of last year. We are encouraged that CCI's average renewal rates were up 4% in the United States, up from the 2% renewal increase we reported in the second quarter of this year. And even more encouraging sign is that month over month, average rate increases accelerated through July, August and September. Retention for the third quarter was 85% and our new-to-lost business ratio was 1:1, both are down moderately from the second quarter.

With respect to CCI's United States renewal rates, more good news is that we're seeing increases not only in property but across-the-board, including general liability, workers compensation, excess umbrella, package and commercial auto. Approximately 80% of the CCI business we renewed in the United States in the third quarter was flat or had positive rate increases. That compares to about 70% in the second quarter of this year and 60% in the first quarter.

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