Chubb Limited

Good day, everyone, and welcome to the Chubb Limited Third Quarter 2019 Earnings Conference Call. Today's call is being recorded. Later, we will conduct a question and answer session. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. And now, for opening remarks and introductions, I would like to turn the call over to Karen Beyer, Senior Vice President, Investor Relations. Please go ahead, ma'am.

Thank you, and good morning, everyone. Welcome to CHUBB's September 30, 2019 Third Quarter Earnings Conference Call. Our report today will contain forward-looking statements, including statements relating to company performance and growth opportunities, pricing and business mix, and economic and market conditions, which are subject to risks and uncertainty, and actual results may differ materially. Please see our recent SEC filings, earnings release, and financial supplement, which are available on our website, at investors.chubb.com for more information on factors that could affect these matters. We will also refer today to non-GAAP financial measures, reconciliations of which to the most direct comparable GAAP measures and related details are provided in our earnings press release and financial supplement. Now it's my pleasure to introduce our speakers this morning. First, we have Evan Greenberg, Chairman and Chief Executive Officer, followed by Phil Bancroft, our Chief Financial Officer. We'll then take your questions. Also with us to assist you with your questions are several members of our management team. And now I'll turn the call over to Ed.

Good morning. We had a strong third quarter with core operating earnings up double digit and excellent premium revenue growth globally. Growth benefited from a continuously improving pricing and underwriting environment where insurance rates and terms continued to firm quarter over quarter in major areas of our business. Our growth is also benefiting from our many product, customer, and distribution-related growth initiatives around the globe, particularly in the U.S., Asia, and Latin America. Core operating income was $2.70 per share, up 12%. The balance of our earnings between underwriting and investment income was very good, with underwriting income of $754 million, up 12.5%, and adjusted net investment income of $9.10, up 3%. Global P&C underwriting income, which excludes agriculture, was up 27.7%. The combined ratio benefited from lower year-on-year ratio by higher crop losses, another cat-like On a current accident year basis, excluding CATS, the combined ratio was 89.5. And excluding AG, it was 88.3, up modestly like four years. Book and tangible book value per share were up 2% and 3.3% and are up 9.8% and 15.7% since December 31. driven by a combination of strong income and the mark from falling interest rates. While benefiting temporarily our company's book value growth, prolonged low interest rates, a result of over-reliance on monetary policy, have penalized savers and led to misallocation of capital and overvaluation of assets without substantially supporting business investment and economic growth. Annualized core operating return on equity for the quarter was 9.5%. So we'll have more to say about investment income, book value, CATs, and prior period development. Turning to growth and the rate environment, PNC premium revenue in the quarter in constant dollars was quite strong. Net premiums grew 7.2%, and then foreign exchange had a one-point negative impact. As I noted at the beginning, the pricing environment continued to improve quarter on quarter, with the rate of increase accelerating and spreading to more classes of business and risk type. For perspective, rate increases in both our North America commercial lines and on our London wholesale businesses this quarter were double those of the first quarter, 6.4% versus 3.2%, and 17% versus 8% respectively. In the U.S., rates continued to firm in major accounts, E&S wholesale specialty, and the middle market. In our international operations, we continued to observe firming conditions in the London wholesale market and in Australia, while rates began to increase in the U.K. retail market and parts of the continent, particularly for large risks. The market is responding to the fact that rates have not kept pace with lost costs over a number of years, which has put pressure on margins and ultimately on reserves. Rates have gone down while lost costs have risen. Pretty simple math. However, as we have been saying for some time, the frequency of severity in certain long-tail and short-tail classes has been worsening while at the same time in other classes, it has remained subdued or declined. For the sake of simplicity, let's divide long tail loss into three buckets. Bucket one, generally speaking in the attritional loss layers, severity has been increasing at a relatively modest pace and frequency has been steady, though there are exceptions. In the second bucket, in excess, claim settlements has been increasing and putting pressure on rate adequacy, a consequence of so-called social inflation, but also casualty attachment points not moving for years. A $1 million attachment point for casualty excess 10 years ago is worth a fraction of the amount today. And finally, the third bucket, there has been an increase in class actions, large to mega, everything from securities and antitrust related to science-based, for example, chemical, pharma, and physical trauma related. And there are casualty cat-type events, such as molestation-related reviver statute legislative actions. I have spoken about all of this for some time now. In my judgment, given the simple math, the risk environment, and a reset of risk appetite on the part of many, the current market conditions are sustainable. Returning to the quarter, overall prices increased in North America commercial on a written basis by 6.8% versus a lost cost trend of about 4.5%. Renewal price change of 0.4% and exposure change of 0.4%. As I noted last quarter, We are also benefiting from a flight to quality, particularly in large account and specialty, as more business meets our underwriting standards. Given the choice, many potential customers prefer Chubb. New business in North America commercial lines was up 18.5% in the quarter, with major accounts and specialty up over 23%, and middle market and small commercial up over 9.5%. Retention of our customers remained very commercial and personal PNC businesses, with renewal retention as measured by premium of 96.6%. In major accounts and specialty commercial, excluding agriculture, premiums were up 9.5%. With major accounts retail up about 5.5%, and East E&S wholesale up over 18%. Rates for major accounts were up over 8%, with risk management up 4.5%, excess casualty up 17.5%, and property up over 29%. Public D&O rates increased over 17.5%. In our E&S wholesale business, rates were up about 7.5%, with property up 17%, and financial lines up 8.5%. Turning to our middle market and small commercial business, premiums overall were up 5.6%, and renewal retention in our middle market business was 92%. Middle market pricing was up over 6%, and excluding workers' comp up about 6.5%. Pricing for primary casualty was already up 7.3. Excess umbrella up 7%. And public D&O rates up 32%. In our North America personal lines business, net premiums written in the quarter were up 2.7%. But adjusting for the expanded reinsurance, net premiums written were up almost four. Our best quarter of the year. Retention remained strong at 97% on a premium basis and steady at over 90% on a policy basis. Homeowners pricing was up 10.7% in the quarter. Turning to our international business, growth accelerated in our overseas general insurance operations with net premiums written up about 11% in constant dollar. And FX then had a negative impact of about three and a half percentage points. Net premiums for our London market wholesale business were up 29%, while our retail division was up over nine and a half, with growth broadly distributed across the globe. Growth in our international retail business was led by Latin America and Asia Pacific, up circa 10% and 9% respectively, with UK retail in the continent up over 8% and 6%, a very good result. Overall rates in our London wholesale business were up 17%. Our Asia-focused international life insurance business had a strong premiums up over 20% in constant dollar and a contribution to earnings of $40 million, up over 43% from prior year. John Keogh, John Lupica, and Paul Crump can provide further color on the quarter, including current market conditions and pricing trends. In closing, this was a very good quarter for CHOP. Premium revenue growth continued to accelerate as more business met our underwriting standards, and we continued to achieve greater price adequacy in an improving underwriting environment. At the same time, long-term growth initiatives around the globe. Our organization is firing on all cylinders. With that, I'll turn the call over to Phil, and then we'll come back to take your questions.