Chubb Limited

Good day and welcome to the Chubb Limited Second Quarter 2020 Earnings Conference Call. Today's call is being recorded, and if you would like to ask a question after the presentation, please press star 1. For opening remarks and introductions, I would like to turn the call over to Karen Beyer, Senior Vice President, Investor Relations. Please go ahead.

Thank you, and welcome to our June 30, 2020 Second Quarter Earnings Conference Call. Our report today will contain forward-looking statements including statements relating to company performance and the impact of the COVID-19 pandemic and economic and other effects, pricing and business mix, and economic market conditions, which are subject to risk 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.shub.com, for more information on factors that can affect this matter. 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 I'd like to introduce our speakers today. First, we have Evan Greenberg, Chairman and Chief Executive Officer, followed by Phil Bancroft, our Chief Financial Officer. Then we'll take your questions. Also with us to assist with your questions are several members of our management team. And now it's my pleasure to turn the call over to Evan.

Good morning. COVID-19 is an event of historic proportions, impacting societies and economies globally. This hit businesses and individuals hard, and the impact will be with us for some time. Chubb has and is performing well, while naturally shouldering our burden of responsibility, supporting our insureds, our businesses and consumers. COVID-19 is a slow-rolling global catastrophe, impacting virtually all countries. Unlike other natural catastrophes, it has no geographic or time limits, and the event continues as we speak. Together, the health and consequent economic crisis will likely produce the largest loss in insurance history, particularly considering its worldwide scope and how both sides of the balance sheet are ultimately impacted. We preannounced a few weeks ago an after-tax COVID-related loss estimate of $1.2 billion, which essentially cost us a quarter of earnings. This loss is an estimate of our ultimate loss from the pandemic, an economic crisis based on everything we know and can project. The estimate does not include, for the most part, a credit for potentially lower current accident year losses from a decrease in exposures, except for a very modest amount. Looking beyond this quarter's catastrophe losses, and the shadow at Cass is an important story to tell about our company. Our underlying health and vitality are excellent, and we are capitalizing on current industry commercial PNC conditions. Our published PNC combined ratio was 112.3, with a total after-tax cap charge of $1.5 billion. including $353 million of natural catastrophe and civil unrest related losses. Separately, we took an after-tax charge of $205 million in unfavorable prior period development for child molestation related claims emerging predominantly from reviver statutes that came into effect last year. If anybody's moving papers, stop it. On a current accident year basis, excluding cats, the combined ratio was 87.4, a point and a half improvement over prior year, with current accident year underwriting income up over 18% in constant dollars. The loss ratio was essentially flat with prior, while the expense ratio was down one and a half points, We benefited from expense saves due to the shutdown, as well as our ongoing efficiency efforts, while we continued to invest in important areas to improve our competitive profile. In the quarter, book value benefited from actions taken by the Fed to support the economy during this exigent time, which positively impacted asset values but will pressure future investment income. Per share book value grew about 5%, while tangible was up over 7%. Both are now essentially flat for the year. Bill will have more to say about investment income, book value, tax, and prior period development. Broadly speaking, two themes impacted growth in the quarter. On the one hand, shrinking exposures from the decline in economic activity weighed negatively on growth. And on the other hand, favorable commercial PNC underwriting conditions contributed to growth. In the quarter, PNC net premiums grew 1.4% in constant dollars. Growth was impacted due to a one-time charge we took to estimate the ultimate impact on premiums that we will incur from exposure adjustments on enforced policies due to a reduction in economic activity. Excluding the charge, which is a better way of viewing our underlying quarterly growth, we grew 3.9%. This is made up of 9.1% positive growth globally in commercial PNC and 6.3% negative growth in consumer lines, which includes A&H, travel, and personal lines. In the quarter, we continued to experience favorable underwriting conditions in commercial P&C, which varied by geography and product line. The commercial P&C pricing environment is particularly strong. North America, the UK, the continent of Europe, and certain locations in Asia Pacific. And it continues to spread further. In North America, which includes the U.S., Canada, and Bermuda, commercial P&C net premiums grew 10%, adjusting for the one-time premium charge I just mentioned. And on the back of strong new business growth and premium retention, with our major accounts and specialty business growing over 12%, and our middle market and small commercial business growing 6.5%. In our international general insurance operations, commercial PNC net premiums grew over 5.5% in the quarter in constant dollars. Chubb Global Markets, our London wholesale business, grew over 20%. while our commercial PNC business in continental Europe grew nearly 16%. In those markets where we grew, we continued to achieve improved rate to exposure across most all commercial product lines. Overall rates increased in North America commercial PNC by 14%. In major accounts and specialty, rates for property were up 21%. Casualty rates were up over 25.5%. And financial lines rates were up over 18.5%. In our middle market business, rates for property were up 18%. Casualty rates were up over 12%, excluding workers' comp. And comp rates were down 1%. And financial lines rates were up 14.5% in the middle market. In our international general insurance operations, rates were up 16% in our international retail business and 20% in our London wholesale. Consumer lines growth globally in the quarter was severely impacted given the pandemic's effects on consumer related activities. Our North America personal lines business was an exception as we experienced flight to safety and quality in our high net worth segment. At premiums written in the quarter, we're up 2% on an adjusted basis, and retentions remain very strong at almost 97%. In our international personal lines business, predominantly auto, home, and cell phone, premiums shrank 12.5%. while our global A&H premiums, U.S. and international, together were down 13.5%. Our Asia-focused international life insurance business, however, had a good quarter, with net written premiums up 30% in constant dollar. In sum, to provide you a bitter perspective, though we typically provide limited guidance, we expect Chubb will have on a published basis positive premium revenue growth for the full year. John Keogh, John Lupica, Paul Crump, and Juan Luis Ortega can provide further color on the quarter, including current market conditions and pricing trends. As a company, we continue to operate around the globe as a normal company during extremely abnormal times. Depending on where you are in the world, with exceptions, a substantial portion of our international staff is back in the office on any given day. This includes most of Asia Pacific, where about 50% are back in the office. And in some countries, 100%. Europe, where with the exception of Spain and Italy, 25% are back. And while the UK remained closed, we expect about 20% to 25% to return in August. We have been ready to begin our return to office in the US, but took a pause given the increase in infection rates in many parts of the country. Among developed countries in the world, the US stands out in its inability to manage the health crisis on a national basis. And this is damaging our economic recovery and our and our image globally. Where conditions have stabilized in the US, like the Northeast, we've begun to bring employees back to the office for meetings, to collaborate, learn, and plan. We are ready to return on a broader basis when conditions warrant. The health and well-being of our staff is of paramount concern. Insurance is an essential service. We never stopped or even paused in providing coverage paying claims for providing risk engineering and other services to our customers and clients. We are very active on a daily basis with our clients and distribution partners globally, and we have done so with service levels that are virtually the same as we provide normally. I'm going to say a few words about the business interruption issue that I know is on the minds of many. As you know, the insurance industry is under attack by the trial bar over business interruption claims. They represent many businesses which purchase VI coverage that does not provide cover for pandemic. And these customers are understandably disappointed and upset. Plaintiffs' attorneys are attempting to torture or reverse engineer insurance contract language to conjure up business interruption coverage that for the most part simply doesn't exist. Coverage for a pandemic was never contemplated in standard business interruption policies. And therefore, no premiums were ever charged for that risk. In fact, state insurance regulators who approved the policies have been clear that this risk is not covered. that the industry could not cover the massive open-ended tail risk of a global pandemic because it threatens the industry's solvency. Without the federal government playing a major role to cover the tail risk, pandemics are simply uninsurable on a broad basis. Standard BI policies, which are an addendum to a fire policy, require direct physical loss or damage to the property. For example, a fire or flood damages the property and prevents the business from operating while repairs are being made. COVID-19 does not cause physical loss or damage to a property, despite the trial bar's efforts. to influence some government officials in the wording of their civil public shutdown orders. Though it doesn't cover pandemic, standard DI coverage provides good value for the money. We estimate the industry pays out about 70 cents in insurance claims for every business interruption production dollar collected, with most of the remaining amount paid in commissions premium taxes, and other expenses. For Chubb, in addition to our normal losses this year, we will pay VI claims for policies that specifically covered certain pandemic-related shutdowns, such as those for the entertainment industry. We care deeply about properly supporting and servicing all of our policyholders, and I have particular sympathy for the millions of businesses that have suffered terribly during the pandemic-forced economic shutdowns. But it would be wrong, in fact, catastrophic and irresponsible, to pay the claims of those who didn't have coverage and, in fact, didn't pay premiums for the coverage by using funds that have been properly reserved for the legitimate claims of the vast majority of our PNC policyholders who number over a hundred million globally. To provide some context, in 2019, Chubb paid $24 billion on approximately four million property and casualty claims. Again, to pay billions of dollars in uncovered claims by raiding the reserves or capital needed to pay claims on other kinds of policies such as auto and home, commercial insurance exposures, respond to natural catastrophes such as hurricanes and wildfires would be irresponsible to the vast majority of our policyholders and to our shareholders. Beyond the business interruption challenges of the current COVID-19 crisis, the insurance industry has an important role to play in society and in the economy. And that includes fully participating in the development of a prospective future pandemic business interruption solution should crises arise. Earlier this month, CHUB released its pandemic business interruption program designed to mitigate the economic disruption and losses in the event of a future pandemic. Our framework is not the first plan to be introduced. But the public-private partnership framework we developed has important differences from the other leading proposals. By sharing our ideas and approach, we hope to spark and influence a productive debate on a solution that will work for businesses of all sizes, taxpayers, our industry, and the economy more broadly. First and foremost, I believe the industry can and should take pandemic risk along with the government. This is a peril that can be covered to a greater degree than we do today as long as the tail exposure is covered by the government. It is our job to figure out how to do that. We can do more than simply play an administrative role or we belittle ourselves and we're less relevant than we can or should be. The framework we announced has attributes that we believe will make for a successful program. It accounts for the different needs of small, medium, and to a modest degree, large businesses. Premium for small business will be affordable, and they will be paid quickly. Large companies would pay a fair and risk-adjusted price to both the government insurers for pandemic cover and a program built on free market principles. The government gets paid for the use of its balance sheet, not a handout to larger companies. Our framework has incentives for broad participation by the industry, and by committing insurance industry capital and providing opportunity for increased risk sharing over time as direct and secondary markets develop, the pandemic burden shouldered by the government will ultimately be lessened to a degree. This is an important issue for our nation. We look forward to contributing to the dialogue as policymakers work to refine the most effective solution. Before I turn things over to Phil, I want to say a few words about an issue that concerns all of us, and that's the persistent challenges arising from bigotry, racism, and racial injustice in society, particularly for black people. The events that unfolded across our nation these past few months has focused our attention on what we should do as citizens and as a company. We characterize Chubb's culture as an inclusive meritocracy. We earnestly strive to achieve an environment where all colleagues feel comfortable to perform to their full potential and are recognized for their contributions. It's a never-ending work in progress, and we can do more. We developed and recently shared with our employees an action plan to which we will hold ourselves accountable. The plan has a few simple objectives. We want to enhance our individual and collective understanding of racism in society and strive within CHUBB to be anti-racist in our behavior as individuals and as an organization. We want to actively support each other. It starts with more frank dialogue between our employees of color, particularly black colleagues and our white colleagues, to create better understanding and awareness about the realities of racism. We'll hold leaders more accountable for curating and leading an environment of inclusion, and we'll eliminate policies and practices that potentially create bias and inhibit our ability to create greater racial mix of our workforce at all levels of the company. This is an enduring process, not a momentary event in time. We believe we have a responsibility to do our part with candor, open minds, and a commitment to change. In closing, our company is very strong. Our balance sheet is in excellent shape, in fact, outstanding shape. and we are operating well around the globe during very difficult times. Our underlying strengths are enduring, and we are capitalizing on favorable market conditions as we simultaneously navigate the extreme headwinds and uncertainty created by COVID-19. With that, I'll turn the call over to Phil, and then I'm going to come back and take your questions.