Chubb Limited

and welcome to the CHUBB Limited Third Quarter 2020 Earnings Conference Call. Today's conference is being recorded. We will conduct a question and answer session after the prepared remarks, and if you would like to ask a question, 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 September 30, 2020 Third Quarter Earnings Conference Call. Our report today will contain forward-looking statements, including statements relating to the company performance, pricing and business mix, and economic 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 I'd like to introduce our speakers. 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 today 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. The quarter was marked by continued insurance market hardening, an economy struggling to reopen globally, and a very active period for catastrophes, with current industry estimates ranging between 35 and 40 billion in insured natural and man-made cats globally. As an industry leader, we, of course, have our share of exposure and losses. We published a PMC combined ratio of 95 percent, which was impacted by 925 million of net cat losses, a good performance all considered supported by both significant underlying underwriting margin improvement and very strong commercial PNC revenue growth globally as we capitalize on favorable underwriting conditions. To begin, in terms of CATS, we tracked over 40 separate events globally in the quarter, a very high frequency. For the North Atlantic hurricane season, we're now into the Greek alphabet. Aside from hurricanes, we had the derecho in the Midwest, the wildfires along the West Coast, and a number of international weather events. The increasing trend of both frequency and severity of events from a variety of natural perils, wind, flood, and fire-related, informs our views of current and future expected cat loss levels, as well as our view of required rate to ensure the exposure in both commercial and consumer property-related lines. Where we can get paid adequately for the volatility and uncertainty, we will maintain and even grow our exposures. Where we cannot, we shrink. And in either case, shape our portfolio according to our risk appetite. California wildfire is a good example of both shrinking and shaping the portfolio. We shrunk our overall insured home count 16% over the past few years and improved the shape of the portfolio by reducing the home count 21% in fire-exposed areas. Overall, for CatRisk, there is more to come as we continue to improve the tools we use, both science and technology, to better assess the risk and concentration of exposure in the areas of flood, wildfire, and wind. Our global PNC, which excludes agriculture, ex-cat current accident year combined ratio was 85%, an improvement of 3.3 points over prior year, with underwriting income up 36% in constant dollars as a result of both margin improvement and earned premium growth of 10% in commercial lines. Over two points of the margin improvement were loss ratio related, and the balance was expense ratio related. Of the loss ratio component, about a point was margin improvement because earned rate exceeded loss cost trend. The balance was a modest recognition of the favorable impact from the health related shutdown and economic conditions principally a reduction in loss frequency in u.s and latin american automobile lines of the 1.2 points expense ratio improvement the acquisition related portion is due to mix of business i.e less consumer more commercial and of the operating portion one half is efficiency related and the balance is due to current operating conditions. As for crop insurance, much has been written about the impact of the derecho on crops. Despite the derecho, from all we can see, we are on track for an average crop insurance year. Finally, given the relatively improved visibility and stability in both the risk and business environment as compared to the first three quarters of the year, And given our very strong capital position, we are lifting the moratorium on our share repurchase activities. Phil will have more to say about investment income, book value, tax, and prior period development. Turning to growth and the rate environment, PNC premium revenue in the quarter grew about 6.5% globally in constant dollars, made up of 10.8% growth in commercial PNC, and 3.3% decline in consumer lines, which included negative growth in global A&H and international personal lines, and positive growth in North America personal lines. In the quarter, we continued to experience a strong and continuously improving commercial P&C pricing environment, particularly in North America, the UK, the continent of Europe, and certain locations in Asia Pacific. and it continues to spread further. In North America, commercial P&C net premiums grew over 11%, which is very strong, and by the way, includes a reduction in growth of five points due to reduced exposures from the decline in economic activity, including employment. New business was up 15%, and renewal retention remains strong at 93.6% on a premium basis. In our North America major accounts and specialty business, net premiums written grew over 12%, while our middle market and small commercial business grew about 5.5%. In our international general insurance operations, commercial PNC net premiums grew 13% in the quarter in constant dollars. Our international retail commercial grew 11%, and our London wholesale business grew nearly 22%. New business was up over 6.5% overall internationally. Retail commercial PNC growth by region with net premiums written up 26% in continental Europe, 11.5% in Asia Pacific, and about 9% in UK and Ireland. Globally, in those markets where we grew, we continued to achieve improved rate to exposure across our commercial portfolios. And I'll return to that. Overall rates increased in North America commercial P&C by over 15%. In major accounts, risk management casualty rates were up 6.5%. General casualty was up 31%. Property rates were up 22%. And financial lines rates were up 23%. In our ENS wholesale business, property rates were up 21%. Casualty was up almost 32, and financial lines up about 25.5. And in our middle market U.S. business, rates for property were up 16. Casualty rates were up over 11, excluding comp, which was down 1.2. And financial lines rates were up over 17%. And in international general insurance operations, rates were up 15% in international retail, and 32 in London wholesale. Consumer lines growth globally in the quarter remains heavily impacted by the pandemic's effects on consumer-related activities. In our international personal lines business, which is predominantly auto, home, and cell phone, premiums shrank 1.7%, while our global A&H premiums, that's U.S. and international together, were down about 12.5%. We expect both to return to growth sometime during 21. Our North America personal lines business grew about 3% as we continue to experience flight to safety and quality in our high net worth segment. New business in that line was up over 11%, and retention remained very strong at 95%. Our global re-business grew premiums 27% in constant dollar, The underwriting environment is improving in reinsurance, and global REI has become more of a growth area. Lastly, our Asia-focused international life business had a decent quarter, with net premiums written up about 9.5% in constant dollars. In sum, we are in a hard market or firming market for commercial PNC. Depending on where you are in the world or cohort of business, and it is spreading. Where we are growing, we are achieving rates that exceed loss cost, and therefore we are achieving margin improvement. More lines of business on a policy year basis are coming closer to achieving combined ratio levels that will produce adequate risk-adjusted returns. However, in most areas, rates need to continue moving higher. I believe they will, based on everything we see. given the risk environment, interest rate levels, and for how long business was inadequately priced by many companies. The current market is a reasonable response, and the trend, in my judgment, is enduring. John Keogh, John Lupica, and Juan Luis Ortega can provide further color on the quarter, including current market conditions and pricing trends. Closing, our company is in excellent shape. We have the people, the capabilities, the culture, and the command and control structure to execute and continue capitalizing on this improved underwriting environment. Our fundamentals and balance sheet are strong, and we know our minds. Again, where we can get paid adequately to assume the risk and volatility, we're leaning into it and growing exposure and rates. As we look forward, we expect to grow our EPS through both revenue growth and improved margins. With that, I'll turn the call over to Phil, and then we'll come back and we'll take your questions. Thank you, Evan. Our financial position remains exceptionally strong. Total capital grew to $73 billion, and our AA-rated portfolio of cash and invested assets grew over $5 billion this quarter to $118 billion. Our strong underwriting results and investment performance produced a $3.5 billion of positive cash flow in the quarter. Among the capital-related actions, we returned $353 million to shareholders in dividends, and in September, we issued $1 billion of 10-year debt and an interest rate of 1.38%. The proceeds will be used to pre-fund $1 billion of debt due in November 22 with an interest rate of 2.78%. Adjusted net investment income from the quarter of $900 million pre-tax was higher than our estimated range and benefited from increased corporate bond call activities. In addition, there was a $32 million of investment income previously included in other income from our private equity partnership funds where we owned greater than 3%, that we are now classifying as adjusted net investment income. We believe reclassifying this income as investment income is more appropriate. We adjusted the prior period results to align with this new presentation in the financial supplement. While there are a number of factors that impact the variability in investment income, we now expect our quarterly run rate to be in the range of $890 to $900 million. This considers the reclassification of private equity income described above. In light of the reclassification, we now estimate other income and expense to range between zero and a $5 million expense going forward. we continue to record the change in the fair value mark on our private equity funds outside of core operating income as realized gains and losses instead of as investment income, as other companies do. In this quarter, the mark-to-market gain related to private equities was $428 million after tax. Book intangible book value per share were up 3% and 4.7% respectively in the quarter, favorably impacted by net realized and unrealized gains of $1.1 billion after tax, principally in our fixed income investment portfolio for lower interest rates, and mark-to-market gains on private equities. At September 30th, our investment portfolio was in a net unrealized gain position of $4 billion after tax. Our net catastrophe losses for the quarter were $925 million pre-tax or $797 million after tax, primarily attributable to severe weather-related events globally and wildfires. There were no changes to the previously reported aggregate COVID-19 loss estimate from June 30th. Additional information on catastrophe losses is detailed in our financial supplement. Our net loss reserves increased $1.5 billion in constant dollars in the quarter, and our paid to incurred ratio was 73%. We had favorable prior period development in the quarter of $146 million pre-tax or $126 million after-tax. This included 35 million pre-tax adverse development related to legacy environmental exposures. The remaining favorable development of 181 million comprises 312 million of favorable development from long-tail lines, principally from accident years 2016 and prior, and adverse development of 131 million in short-tail lines. Our core operating effective tax rate for the quarter was 16%. We continue to expect our annual core operating tax rate to be in the range of 15% to 17%. I'll turn the call back to Karen.