Chubb Limited

Good day and welcome to the Chubb Limited fourth quarter year-end 2020 earnings call. Today's conference is being recorded. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. And now for opening remarks and introductions, I would like to turn the call over to Ms. Karen Beyer, Senior Vice President of Investor Relations. Please go ahead.

Thank you. Welcome, everyone, to our December 31st, 2020, fourth quarter and year-end earnings conference call. Our report today will contain forward-looking statements, including statements relating to company performance, pricing and business mix, and economic market conditions, which are subject to risks and uncertainties. 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 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 cited in our earnings press release and financial supplement. Now it's my pleasure to introduce our speakers. First, we have Evan Greenberg, Chairman and Chief Executive Officer, followed by Phil Bancroft, our Chief Financial Officer. And 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. As you saw from the numbers, we had a very strong finish to the year with excellent financial results headlined by rapid premium revenue growth and underwriting margin improvement across our commercial lines portfolio in both the U.S. and internationally. A trend we are confident will continue. We produced very good earnings, and our balance sheet is in excellent shape. Our fourth quarter results were in context of the historic and unprecedented time we live in nationally and globally. We continue to face the health, economic, political, and social impact of the COVID-19 pandemic globally, which might now be more accurately viewed as an endemic and which, despite the efficacy of vaccines and therapeutics, will likely be with us for years to come. Before I go further with the quarter, I want to make a few comments about recent events in our country. We all witnessed the shocking display of demagoguery and insurrection by a group of our own citizens in our nation's capital in early January. We witnessed a scene in our Capitol building never before viewed in our country's 200-year history, including a totally unacceptable display of symbols of hate, bigotry, violence, and anti-Semitism in the halls of Congress. The incident has left our country shaken and our international image tarnished. Some members of Congress attempting to subvert the will of the people and stand in the way of what is largely a ceremonial affirmation of the electoral college vote was also unacceptable. At the end of the day, the facts are the facts. All of the independent institutions we charge with overseeing our election process, including the Department of Justice, the new Federal Cyber Watchdog Agency, state and federal courts, and state election officials investigated, opined, and confirmed there was no widespread election fraud. Just because you don't like the political outcome doesn't give you the right to make up your own facts or attempt to subvert our democracy and the rule of law. This isn't going away, and it's a wake-up call to all of us who care about and love our country. Now, returning to our fourth quarter results, we recorded core operating income of $3.18 per share, up nearly 40% from prior year. and net income of $2.4 billion, or $5.34 per share, up over 100%, which, by the way, was a record. We produced strong premium revenue growth in the quarter, with global PNC net premiums written, which exclude agriculture, up 6%. Our PNC combined ratio of 87.6, along with very good net earned premium growth, produced P&C underwriting income of $969 million, up 82%. While our current accident year underwriting results, excluding cash, were even better, supported by continued underwriting margin improvement and excellent revenue growth in our commercial P&C businesses globally as we continue to capitalize on more favorable underwriting conditions. The current accident year combined ratio excluding cats was 86, four compared to 90% prior year. The 3.6 point percentage points of improvement included 2.8 points of loss ratio related improvement, which was broad based. And let me give you a better sense of this. Agriculture improved 27 points and then excluding agriculture, the global PNC commercial lines loss ratio improved about 1.5 percentage points, virtually all as a result of earned rate exceeding loss cost trend. The loss ratio for global PNC consumer lines, which is global ANH and global personal lines, improved 1.2 percentage points, the vast majority of which was indirect COVID benefit related. Phil will discuss the expense ratio improvement in the quarter. To very briefly recap the year, though we had an entire quarter of earnings lost to our effort to reserve COVID to ultimate and a very active year for natural catastrophes, we produced 3.3 billion of core operating earnings. The full-year published PNC combined ratio was 96.1 compared to 90.6 in 19. The full-year PNC current accident year combined ratio excluding cats was 86.7 compared to 89.2, which speaks to our underlying health. And our full-year premium revenue growth was about 5.5% in constant dollars. with commercial lines growth of 9.3%. I mentioned in the beginning a strong balance sheet. The strength of our loss reserves, which is the most important part of the balance sheet, improved throughout the year. Consistent with our practices, we continue to recognize bad news early and any potential good news late. On the one hand, there have been no changes to our PNC COVID-19 incurred loss charge, which we consider adequate to absorb COVID losses that may emerge. The vast majority of the charge remains IB&R. On the other hand, we have recognized to only a modest degree the reduction in losses, mostly frequency, due to the economic shutdowns. Beyond COVID-related, we have also purposely strengthened reserves. Increasing the strength of our reserves is the prudent thing to do, given the uncertainty in the environment. Book and tangible book value per share were up 7.7% and 12.2% respectively for the year. Phil will have more to say about investment income, book value, CATs, and prior period developments. Turning to growth and the rate environment. As I said, global PNC premium revenue in the quarter, which excludes agriculture, grew 6%, comprising 11.3% growth in commercial PNC and 3.9% decline in consumer lines. The consumer lines result included negative growth in global ANH and international personal lines. and positive growth in North America personal lines. In the quarter, we continue to experience a strong and continuously improving commercial PNC pricing environment globally. In fact, the level of rate and rate of increase was the strongest since this part of the underwriting cycle began approximately three years ago. I expect the favorable underwriting conditions to continue. In North America commercial PNC, net premiums grew 10%, and that actually includes a reduction in growth of three points due to reduced exposures from the decline in economic activity. New business was up nearly 12%. and renewal retention remained strong at over 95% on a premium basis. In our North America major accounts and specialty business, net premiums written grew over 11.5%, while our middle market and small commercial business grew nearly 8%. Overall rates increased in North America commercial PNC by 16.5%, with a loss cost trend of approximately 5%, though it varies up or down depending upon line of business. Let me give you a better sense of the rate movement. In major accounts, risk management-related primary casualty, up 7%, while general casualty rates were up over 36%, and varied by category of casualty. Property rates were up over 30%, and financial lines rates were up over 26%. In our ENS wholesale business, the Westchester, property rates were up over 23%. Casualty rates were up nearly 29%, and financial lines rates were up over 26%. In our middle market business, rates for property were up over 15%. Casualty rates were up nearly 12, excluding workers' comp, with workers' comp rates up about a half a percent, and financial lines rates were up over 20%. In our international general insurance operations, commercial PNC net written premiums grew 14% in the quarter. Our international retail commercial business grew 9%. and our London wholesale business grew over 32%. Retail commercial PNC growth varied by region, with net written premiums up 17.5% in the UK, about 16.5% in the continent, and over 16% in Asia Pacific, while Latin America shrank 14% as a combination of insurance market and economic conditions weigh on Latin America. Internationally, like in the U.S., in those markets where we grew, we continued to achieve improved rate to exposure across our commercial portfolio. In overseas gen, rates were up 18.5% overall, with a loss cost trend of 3%. Rates were up 17% in international retail and 26% in London wholesale. Consumer lines growth globally in the quarter continues to be impacted by the pandemic's effects on consumer-related activities. Our international personal lines business and our global A&H business together shrank 8%. We expect growth to return and to begin to return in these businesses as the year goes along. Our North America high net worth personal lines business What we call personal risk services, however, remains an exception, with net premiums up 2.5% in the quarter. We continue to experience flight to safety and quality in our high net worth segment. New business was up 6.5%, and retention remained strong at about 92.3%, while we continue to achieve rate increases of 4.5%. Our global re-business grew its net premiums written about 14.5%. And lastly, in our Asia-focused international life insurance business, net written premiums were up 25% in the quarter. In sum, we are in a continuing hard or firming market for commercial PNC in most all parts of the world. The rate environment, in my judgment, is a rational and necessary response to years of underpricing of risk and a more uncertain risk environment today. Given our years of data and analytics capabilities and underwriting know-how, we know what rate we need in order to achieve an adequate risk adjusted rate of return from underwriting. And that is the objective. Some lines are there, while others have a way to go. Virtually all of our commercial PNC lines of business throughout the year have been achieving rates that exceed loss cost, and so margins continue to improve. Looking forward, we are off to a very good start to the year in the first quarter. Both growth and the level of rate increase we are achieving look a lot like the fourth quarter. Based on everything we see, the current commercial market condition has legs. My colleagues and I are confident in our ability to grow our business and continue to expand margins. And as I said, I expect as the year progresses, our sizable consumer business will return to growth. By almost any measure, our company performed admirably and distinguished itself during the past year. And I applaud and am so grateful to our more than 31,000 Chubb colleagues around the globe whose resilience, determination, and dedication have produced distinguishing results for our clients and shareholders in spite of work-from-home conditions. I also want to recognize our global management team. who lead and reinforce our culture and discipline, a wellhead of our performance every single day. In closing, our company finished the year with a strong performance and momentum that continues. We are leaning into the current favorable underwriting conditions and capitalizing wherever we can get paid adequately to assume risk and volatility. We are, in fact, growing exposure. Our people are energized, and we have all of the capabilities in place to grow our company profitably and increase shareholder value. With that, I'll turn the call over to Phil, and then we're going to come back and take your questions. Thank you, Evan. We completed an eventful year with solid financial results and continued to build on our balance sheet strength, including substantial capital of almost $75 billion. Supported by extraordinary Fed actions, our double rated portfolio of cash and invested assets grew almost $10 billion for the year and now exceeds $120 billion. Our excellent underlying underwriting and investment performance produced very strong operating cash flow of $2.5 billion for the quarter and a record $9.8 billion for the year. Among the capital-related actions in the quarter, we returned $542 million to shareholders, including $352 million in dividends and $190 million in share repurchases. For the year, we returned $1.9 billion to shareholders for 58% of earnings including 1.4 billion in dividends and 516 million in share repurchases. Adjusted pre-tax net investment income for the quarter was 924 million and 3.6 billion for the year. Investment income in the quarter was higher than our estimated range and benefited from increased corporate bond call activities and greater private equity distributions. While there were a number of factors that impact the variability in investment income, we now expect to be in the range of 890 to 900 million. Separately, our policy has always been to record the change in the fair value mark on our private equity funds outside of poor operating income as realized gains and losses instead of net investment income as other companies do. The gain from the fair value mark, if included in investment income, would have increased adjusted net investment income by $485 million for the quarter and $714 million for the year. Our annualized core operating ROE and core operating return on tangible equity were 10.7% and 17.1%, respectively, for the quarter. If we had included the fair value mark on our private equity portfolio in our core operating income, core operating ROE would have been higher by 3.5 percentage points for the quarter. During the past few quarters, since S&P Global Ratings published a ratings update on Chubb, management has had discussions with S&P regarding Chubb's track record of strong and diverse underwriting results and operating performance. This has resulted in the company updating its capital management policy to calibrate its estimate of capital adequacy from S&P's AAA level to S&P's AA level. We believe this is sufficient to maintain our AA rating. Our capital management policy remains consistent. We hold surplus capital for both risk and opportunity. Our undeployed capital on a run rate basis dilutes our core operating ROE by around 200 basis points. We are also announcing today that our board has increased the authorization to repurchase shares by 1 billion. Our total repurchase program now allows for up to 2.5 billion between January 1st and December 31st of 2021. Book intangible book value increased 5.4 and 8% respectively for the quarter and 7.4 and 11.9% respectively for the year. Book intangible book value were favorably impacted by after-tax net realized and unrealized gains of $2 billion for the quarter and $2.5 billion for the year. The gains were principally in our investment portfolio. primarily from a narrowing of credit spreads in our corporate bond portfolio, a decline in interest rates, and the fair value mark on private equities. At December 31st, our investment portfolio was in an unrealized gain position of $4.7 billion after tax. Our net catastrophe losses for the quarter were $314 million pre-tax or $271 million after tax. The PNC catastrophe losses of 296 million were primarily from a series of severe weather related events globally. There were no changes to the previously reported estimate of our PNC COVID incurred loss charge from June 30th. We had favorable prior period development in the quarter of 206 million pre-tax or 189 million after tax. This included 94 million pre-tax adverse development from our legacy runoff exposures, principally related to asbestos. The remaining favorable development of 300 million is split 70% from long-tail lines, principally from accident years 2015 and prior, and 30% from short-tail lines. For the year, our net loss reserves increased 4.3 billion in constant dollars and our pay to incurred ratio was 80%. The P&C expense ratio was 28% in the quarter with a 70 basis point improvement over the prior year. About half of the improvement is from the health related shutdown and the balance is principally from operating efficiencies. Our core operating effective tax rate was 15.2% for the quarter and 15.8% for the year. For 2021, we expect our annual core operating effective tax rate to be in the range of 15% to 17%. I'll turn the call back to Karen.