The Chubb's CEO Discusses Q1 2012 Results - Earnings Call Transcript

The Chubb (CB)

Q1 2012 Earnings Call

April 19, 2012 5:00 pm ET

Executives

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 & Specialty Lines

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

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

Analysts

Michael Zaremski - Crédit Suisse AG, Research Division

Keith F. Walsh - Citigroup Inc, Research Division

Amit Kumar - Macquarie Research

Gregory Locraft - Morgan Stanley, Research Division

Jay Gelb - Barclays Capital, Research Division

Vinay Misquith - Evercore Partners Inc., Research Division

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

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

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

Meyer Shields - Stifel, Nicolaus & Co., Inc., Research Division

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

Jay A. Cohen - BofA Merrill Lynch, Research Division

Ian Gutterman - Adage Capital Management, L.P.

Joshua D. Shanker - Deutsche Bank AG, Research Division

Presentation

Operator

Good day, everyone, and welcome to the Chubb Corporation's First Quarter 2012 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 can 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 first quarter 2012 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 first quarter 2012, 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 May 18, 2012. Those listening after April 19, 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 had a very good first quarter, highlighted by a strong underlying performance and relatively benign catastrophe losses. We're also very pleased that the positive rate momentum we have seen in recent quarters has continued.

Operating income per share was $1.70 compared to $1.35 in last year's first quarter. This resulted in an annualized operating ROE of 13.8% for the first quarter this year. The combined ratio for the quarter was 90.2 compared to 93.7 last year. Excluding cash, the combined ratio for the first quarter was 89.4 in 2012 and 84.2 last year, with the difference almost entirely attributable to lower favorable development this quarter.

During the first quarter, we had net realized investment gains of $56 million before tax or $0.13 per share after tax. This brought our first quarter net income per share to $1.83, resulting in an annualized ROE of 13.1%. Chubb's book value per share at March 31, 2012 was $57.37. As the 2% increase share in 2011 and a 10% increase this March 31, a year ago. Our capital position is excellent.

During the first quarter, we increased our common stock dividend for the 30th consecutive year, and we also continued our share repurchase program as Ricky will discuss later. Net written premiums were up 3% driven by Chubb Commercial and Chubb Personal Insurance. Excluding the impact of currency translation, net written premiums were up 4%.

In terms of the market environment, average renewal rates increased in our U.S. standard commercial lines by high single digits, and our specialty book by mid-single digits. A continuation of this rate environment should bode well for our future profitability. Paul and Dino will talk more about rates and reviews of their segments.

And now we'll start with Paul, who will discuss the performance of Chubb's Commercial and Specialty Insurance operations.

Paul J. Krump

Thanks, John. The Chubb Commercial Insurance, net written premiums for the first quarter were up 6% to $1.4 billion. The combined ratio was 93.3 versus 100.7 in the first quarter of 2011. Excluding the impact of catastrophes, CCI's first quarter combined ratio was 92.4% compared to 84.5% in the first quarter of 2011. This increase is favorable reserve development in the first quarter of this year. We are pleased with CCI's average U.S. renewal rate increase in the first quarter of 8%, continuing the rate momentum that we have been discussing on our recent earnings calls. This 8% compares with the 6% we obtained in the fourth quarter last year and 0 in the first quarter of 2011.

As with the case in the fourth quarter of last year, CCI secured U.S. renewal rate increases in each line of business in the first quarter of 2012. Monoline property rates increased the most, climbing by double digits, followed by workers' compensation, general liability, package, excess umbrella, automobile, boiler and Marine. Further evidence of continued positive rate momentum can be found in the growing proportion of our accounts that are renewing with rate increases. In the first quarter, about 80% of our U.S. accounts that renewed received a rate increase, compared to 70% in the fourth quarter of last year.

Turning now to markets outside of the United States, we are especially encouraged that CCI's renewal rates were up in the low single digits in Europe. Although modest, these were the best rate increases we've had in Europe since 2004. In addition, CCI continued to obtain rate increases in Canada and Australia, along with some of our smaller markets in Asia. With respect to CCI's exposure change metrics during the first quarter, we experienced healthy midterm endorsement activity, as well as strong workers' compensation premium audits. In fact, audit and endorsement premium accounted for more than 1/4 of our workers' compensation lines, robust growth in the quarter. The remainder was attributable to strong renewal rate and exposure increases, with only a minor decline in retention. New business volume for workers' comp also exceeded lost business but was slightly lower compared to new business in the year-ago first quarter.

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