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Chubb's Q3 Earnings Drop by 48% Due to Cat Losses, Pricing Signs Improve

Source: Dow Jones

Posted on 21 Oct 2011

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Chubb Corp.'s (CB) third-quarter earnings dropped by 48% as the property-and-casualty insurer joined the ranks of companies reporting significant catastrophe losses, but pricing signs continued to improve.

Because of the disaster costs, Chubb lowered its full-year outlook for operating income to $5.10 to $5.20 a share from its previously raised July forecast for $5.55 to $5.85 a share.

The latest period included $420 million in catastrophe losses before taxes, largely from Hurricane Irene. Last month, Chubb estimated that pretax catastrophe losses would range between $400 million and $475 million.

The catastrophe losses translated to a 95-cent detriment to earnings per share in the latest period, compared with only 12 cents a year earlier.

Property insurers have been dealing with exceptionally high catastrophe losses lately, most recently from Irene damage in the Caribbean and a dramatic swath of the U.S. East Coast. Chubb is no exception. Wednesday, Travelers Cos. (TRV)--one of the largest P&C insurers in the country--the severe weather dragged down profit 67%. However, Travelers's positive comments about pricing encouraged investors.

Thursday, Chubb Chairman and Chief Executive John D. Finnegan said the company was pleased it also saw continued incremental rate improvement in the insurance market, particularly in its U.S. standard commercial book with 4% higher average renewal rates on the year. The company had noted signs of pricing improvement in standard commercial lines in the U.S. and in the more-catastrophe-exposed areas of the world in the second quarter.

"However, rates will need to continue to increase to offset the negative impact on industry earnings attributable to the prolonged soft market, record level of catastrophe losses and significantly lower yields currently available on investments," he said Thursday.

For Chubb, recent quarterly results have exceeded expectations. During the financial crisis, the company's conservative approach to underwriting and investing insulated it from much of the buffeting of the markets.

Chubb posted a profit of $298 million, or $1.04 a share, from $572 million, or $1.80 a share, a year earlier. Operating income, which excludes realized investment gains and losses, fell to 88 cents from $1.69.

Net written premiums increased 5.3% to $2.88 billion. Analysts surveyed by Thomson Reuters expected 78 cents a share in operating income on $2.83 billion in net written premiums.

The combined loss-and-expense ratio, or portion of premium dollars spent on claims and expenses, deteriorated to 102.6% from 86.2%, with catastropes contributing 14 percentage points in the latest period versus just 2.1 points a year earlier.