Chubb Limited

Good morning. My name is Rob, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Chubb fourth quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. Karen Byers, Senior Vice President of Investor Relations. You may begin your conference.

Thank you, and welcome everyone to our December 31, 2022, 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, growth opportunities, and economic and 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 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 Peter Enns, 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. We had a strong finish, which contributed to another record year. Our quarterly underwriting results were excellent, with an 88% combined ratio despite a true-up to the projected 22 crop insurance full-year result. We had good growth in net investment income that led to a record result in double-digit premium growth with strong contributions from our commercial and consumer PNC lines globally and our international life business. More important, The quarterly results led to what was the best full-year financial performance in our company's history, including record operating income on both a per share and dollar basis, from record P&C underwriting and investment income, and another year of double-digit premium revenue growth, including the best organic growth in our international P&C business in a decade. All areas of the company contributed to the outstanding results last year, and I want to congratulate and thank so many of my colleagues around the globe. Core operating income in the quarter was $1.7 billion, or $4.05 per share. Crop results reduced our expected agriculture earnings by 39 cents per share. For the year, we produced core operating income of $6.5 billion, or $15.24 per share, up 21%, and again, a record. Quarterly P&C underwriting income of $1.1 billion was impacted, as I said, by an underwriting loss from crop, as we trued up our projection for the 22 crop year. This change of view for the full year result was due to the late season emergence of losses from drought conditions in certain Corn Belt states, which overshadowed average to excellent growing conditions in many other areas, leading to what we now know is a below average year overall for that business. Agriculture is a weather exposed business with not cat-like characteristics. It's about growing conditions and commodity prices, and each year you start over. For the year, we performed well, all considered. We published a 94-2 combined ratio and produced $165 million in agriculture underwriting income. Back on the quarter, excluding agriculture, the combined ratio was 85-9 and speaks to the strong, broad-based underlying performance of our business. which produced an amazing 82.9% ex-cat current accident year combined ratio. Full year PNC underwriting income was a record $4.6 billion, up 23%, with a published combined ratio of 87.6, and that's with $2.2 billion of catastrophe losses in what was one of the costliest years yet for the industry in terms of cats. On the investment side, adjusted net investment income topped $1.1 billion for the quarter, up about $215 million from prior year, and $4 billion for the year, both records. Our reinvestment rate is now averaging 5.6% against a portfolio yield of 3.6%, and that's translating into annualized run rate growth. simply going into the first quarter of 13%, which will continue to grow as we reinvest cash flow at higher rates. Our operating cash flow for the quarter and year was 2.7 billion and 11.2, respectively. For perspective, I want to touch on capital management. As you know, our policy is to maintain is to manage for capital flexibility. After all, we are a balance sheet business in the risk business, and we are a growth company. We maintain flexibility for risk and opportunity and return the balance to shareholders. Simple and consistent policy. The last two years are instructive. We have organically grown our PNC premiums 21.5%, and that requires capital. We have deployed $5.4 billion for the Cigna acquisition and invested a further $1.4 billion in increasing our Wattai ownership, together key strategic acquisitions with an emphasis on Asia. And at the same time, we have returned over $10.5 billion of total capital to shareholders through buybacks. over 9% of outstanding shares and dividends, all the while maintaining capital adequacy for risk and future opportunity. And we have capital flexibility given our strong earnings generation power. Peter will have more to say about financial items including CATs, prior period development, investment income, book value, and ROE. Now, turning to growth in the rate environment, consolidated net written premiums for the company increased nearly 12% in the quarter on a published basis, or 16% in constant dollars to $10.2 billion. This includes growth of 9.8% in our P&C business and over 100% of growth in life premiums, reflecting the addition of the Cigna Asia business. P&C premium growth and earnings in the quarter were balanced and broad-based, with contributions from virtually all commercial and most consumer businesses globally. Agriculture aside, North America commercial premiums were up almost 9%, while our high net worth personal lines business was up 6%, a very strong result. Overseas general grew 9.7 in constant dollars, but declined 1.3 after FX, with commercial up 9.4 and consumer up 10.3. We're a major multinational company and are impacted by currency movements. After reaching a 20-year high in September, the dollar has been weakening, and that will benefit our growth in the future. In North America, growth this quarter in commercial lines was led by our major accounts and specialty division, which grew 9.1%, followed by our middle market and small commercial business, which grew 8.7%, and renewal retention for our retail commercial businesses was over 96%. In our international general insurance operations, retail commercial PNC grew 9% in constant dollar, while our London wholesale business grew about 7.5%. Retail commercial growth was led by Latin America, with premiums up nearly 13%, followed by growth of 8.5% in Asia-Pac and 6.5% in our UK-Ireland division. In terms of the commercial P&C rate environment, pricing conditions remain favorable for most lines of business. The vast majority of our portfolio is achieving favorable risk-adjusted returns So like I said last quarter, in most lines, additional rate is required primarily to keep pace with loss costs, which again are hardly benign in both long-tail and short-tail lines. To illustrate, in the quarter, pricing for total North America commercial PNC, which includes both rate and the portion of exposure that supports rate, increased 6.5%. with loss costs up 6.5 as well. Now, that's the headline. And let's drill down further, because I think it's more insightful. Pricing for commercial P&C, excluding financial lines and workers' comp, was up 10%, with loss costs trending 6.9. Breaking P&C down a step further, property pricing is firming in response to catastrophe exposures, Inflation, reinsurance pricing, and availability. Short tail pricing was up 14.7%, while loss costs were up 6.8%. Property insurance is an opportunity for us. For the majority of casualty lines, pricing is adequate. In the quarter, pricing for North America casualty was up 7.5%, while loss cost trends were 6.9%. Now, given casualty loss cost trends, rates in most classes need to rise at an accelerated pace. There is little to no room for forgiveness. And here a special mention to excess casualty and auto-related liability is warranted. For Chubb, our minds are clear and our playbook is consistent. In some lines, like professional liability and workers' comp, which includes risk management. The competitive environment is quite aggressive, and rates have been falling for a number of quarters now in recognition of favorable pricing and favorable experience. However, if not careful, the market is in danger of overshooting the mark. In the quarter, rates and pricing for North America financial lines in aggregate were essentially flat. They were up 0.2%, while loss cost trends were up 5%. And in workers' comp, which includes both primary comp and risk management, pricing was up 2.3% against the lost cost trend of 5.5%. Internationally, we continue to achieve improved rate to exposure across our commercial portfolio. In our international retail business, pricing was up about 9.5%. Rates varied by class and by region. as well as country within region. And loss costs are trending 6.2. Turning to our consumer businesses. In our North America high net worth personal lines business, again, net written premiums were up about 6%. Our true high net worth client segment, however, grew 12.5. There is a flight to quality and capacity. In our homeowners business, We achieved pricing of about 12.5%, while the homeowner's loss cost trend is running about 10.5%. International consumer lines, premiums grew over 10% in the quarter, again, in constant dollar. Our international A&H division had another strong quarter, with premiums up about 21%. Asia-Pac was up nearly 40%, with half of the growth coming from the Cigna acquisition, while Latin America and the U.K. each were up about 13.5%. Premiums in our international personal lines business were up less than 1% in constant dollar. In our international life insurance business, premiums doubled in constant dollar, while life income overall was also up over 100%. both positively impacted by the addition of the Cigna Asia business, which is on track. As we enter 23, while early days, growth in our Asia consumer business, including non-life, life, and A&H, is widespread and strong. A combination of a strong external environment and our capabilities in presence, consumer lending, Increasing foot traffic across retail and banking operations and the resurgence of leisure and business travel are all contributing to strong growth. Leisure travel alone was up nearly 400% over prior year. And as China reopens from its strict pandemic controls, it will further stimulate growth in the region. Think trade, which benefits commercial lines and business travel. and think tourist travel as the Chinese begin to travel again on holiday. As regards China, as you know, last quarter we received regulatory approval to increase our ownership in Huatai Insurance Group to 83.2%. Since then, the transfer of shares from a number of separate shareholders has taken place, and we've increased our ownership to 64%. The remaining 19% is expected to close in the next weeks or months. In summary, we had an outstanding year, and looking ahead, we are starting off on a strong foot in the first quarter overall. Conditions remain favorable in terms of continued growth for our businesses globally, and then add the strong trajectory of growth from investment income. Despite the challenging macro environment, I am quite optimistic about our future and confident in our ability to outperform. I'll now turn the call over to Peter, and then we're going to come back and we're going to take your questions.