Chubb Limited

I'd like to welcome everyone to the Chubb Limited fourth quarter 2023 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, press star one again. Thank you. I would now like to turn the call over to Karen Beyer, Senior Vice President, Investor Relations. Please go ahead.

Thank you. And welcome, everyone, to our December 31, 2023 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 released, 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 Peter Enns, 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. We had an outstanding quarter and finished to the year. In fact, a record year. Our quarter's results included double-digit premium growth, record P&C underwriting and investment income, and strong life operating income, all leading to exceptional operating earnings on both the per share and dollar basis. Our results, both earnings and book value related, were also positively impacted in a significant way by a one-time deferred tax benefit related to Bermuda's new income tax law. While the quarter's results are impressive and important, it's the full year result that really matters most. All things being equal, one quarter hardly tells a story. Our full year results were simply stunning. Core operating income top $9.3 billion, up 45%, or $8.2 billion, excluding the tax benefit, up 28%. P&C underwriting income was a record $5.5 billion, with a combined ratio of 86.5%. And investment income was up 33%, and topped $5.3 billion. As you can see, the balance between underwriting income and investment income was about 50-50, a very healthy balance. Life income was over $1 billion, while consolidated premium revenue growth was 13.5% for the year. For the year, our core operating ROE was 15.4%, and our return on tangible was 24.2%. Tax benefit contributed. So excluding that, our core operating ROE was 13.6%, and our tangible ROE 21.6%. Excellent numbers. Finally, for the year, per share of book intangible book value, each group by over 20%. All divisions of the company and major geographies contributed to these outstanding results last year. And I want to congratulate and thank my colleagues around the globe. Our results speak to the global nature of this organization. is one of the things that distinguishes CHO. Our fundamentals are very strong, and the quarter itself was simply a continuation of the year. For the quarter, core operating income was $2.3 billion, excluding the tax benefit, or $5.54 per share, up 36% and 39% respectively. The one-time tax benefit then added $1.1 billion. $2.76 a share. Our underwriting performance in the quarter was a result of stronger and premium growth, excellent underwriting margins with a published combined ratio of 85.5, and a current accident year of 84.3. We had strong prior period reserve development in both North America and overseas general, and relatively light cut losses PNC underwriting income for the quarter was $1.5 billion. Our prior year reserve development in the quarter and for the year was $177 and $773 million, respectively, which speaks to the consistent strength of our loss reserves. At year end, our loss reserves were in an exceptionally strong position, as strong as they have ever been. On the invested asset side, record adjusted net investment income of $1.5 billion was up $369 million, or 33% over prior year. Our portfolio yield at the end of the year was 4.3% versus 3.6 a year ago, and our reinvestment rate is currently averaging 5.3%. We have very strong liquidity. and our investment income run rate continues to grow as we reinvest our cash flow at higher rates. Peter will have more to say about financial items. Now turning to growth, pricing, and the rate environment. Consolidated net written premiums for the company increased over 13% in the quarter, with PNC up 12.5% and LIFE up 20%. Of the PNC 12.5%, Consumer lines were up 20%, and commercial P&C was up 10%, which is in fact stronger than the full year average of 8.6%. Our premium revenue growth in the quarter was well spread globally. And from a broader perspective, for the full year, growth was 13.5%, with P&C up 10% and life up 52%. Again, Chubb is a globally diversified company, and our growth last year demonstrates the broad-based nature of our operations. North America Commercial P&C, a very large and important business, representing 40% of the company, grew 7.5%. The balance of the company, the other 60%, grew 18%. U.S. high net worth personal lines grew 11%. International consumer PNC grew 18. International commercial PNC grew over 11, and life grew 52%. In terms of the commercial PNC rate environment, the pattern was the same as we have experienced all year. Price increases in the quarter in property and casualty lines exceeded loss costs in both North America and our international divisions. While globally, rates and prices continued to decrease in financial lines led by DNO. Getting to the detail for the quarter and beginning with North America, premiums were up 9.4%, or 6.2% excluding agriculture. It consisted of growth of 12.1% in personal insurance and 4.4% in commercial insurance. Within the 4.4, PNC lines were up 6.3, and financial lines were down 2.1%. Unpacking the 4.4, which was obviously slower than previous quarters, first, our middle market division had another strong quarter, with PNC premiums up 9.8%, while financial lines were essentially flat. Our ENS does not. had a strong quarter with growth of 16% in our wholesale brokerage lines. On the other hand, our divisions, which serves large corporates, major accounts, grew only 1.4%. Growth in major was adversely impacted by about 7.5 points or $125 million of premium from underwriting actions we planned for and took in a segment of our primary and excess casualty business. One half of the reduction in premium was the result of increased client retentions, with the balance due to lost business. For clarity, these actions, in fact, contribute to future growth in underwriting income. Regarding future North America commercial growth, as we said in the press release, Given current market conditions and our capabilities across all segments of commercial PNC, including large account, ENS, and middle market, we fully expect to return to more robust growth beginning with the first quarter. Overall pricing for total North America commercial increased 7.3%, including rate of 5.1%, an exposure change that acts like rate of 2.1. Let me provide a bit more color around rates and pricing. Pricing for commercial property and casualty was strong, up 12.4%. Property pricing was up 17.3, with rates up 12.9 and exposure change of 3.9. Casualty pricing in North America was up 12.4%. with rates up 10.8 and exposure up 1.4. In workers' comp, which includes both primary and large account risk management, pricing was up 4.6%, with rates up 1.1 and exposure up 3.5%. We are trending loss costs in North America at 6.6%, with short-tail classes at 5.5% and long tail excluding comp at 7.3. We are trending our first dollar workers' comp book at 4.6%. For financial lines, the underwriting environment remains aggressive, particularly in DNO, and rates continue to decline. We know this business extremely well and are trading growth for underwriting margin at income where we need to. In the quarter, Rates and pricing from North America financial lines in aggregate were down 6.1 and 5.5 respectively. We are trending financial lines loss costs at 5.1%. For our agriculture business, late season drought-related developments in crop insurance resulted in an elevated combined ratio for the quarter and the year. For context, We published a 95.4 combined ratio for the year and earned an underwriting profit of $146 million, similar to the previous year's result. Crop insurance is a cat-like business. By its nature, vulnerable to weather volatility, but with very good risk-reward dynamics if managed well. Crop insurance has been a great business for Chubb. Rain and Hail is an amazing company, and since acquiring them in 2010 for about $1.1 billion, we've earned almost $2 billion in operating profit with an IRR of 26%. On the consumer side of North America, our high network personal lines business had a simply outstanding quarter and year. In the quarter, premiums were up over 12%, and new business growth was up 34%. There was a continued flight to our product, service, and capability. We're the gold standard, period. Again, for the year, the business grew almost 11% and published a combined ratio of 89.7, or 80.1% on a current accident year XCAT basis. In our homeowner's business, we achieved pricing of 17% in the quarter, while our selected loss cost trend remained steady, 10.5%. Turning to our international general insurance operations, which had an outstanding quarter, net premiums were up 19.3%, and the combined ratio was 85.9%. Our international commercial business grew 13.2%. while consumer was up 29.5%. For the year, overseas general grew 14%. And our international business growth this quarter was broad-based, with all major regions producing double-digit growth, again, illustrating the global nature of the company. Asia led the way, with premiums up 37%, made up of commercial lines growth of 21%, and consumer up 56%. Europe and Latin America had very strong quarters as well, with growth of 15.5% for both. We continued to achieve improved rate to exposure across our international commercial portfolio, with pricing in our retail business up over 7%. Property and casualty line pricing was up over 10%, while financial lines pricing was down about 2%. Lost cost inflation across our international retail commercial portfolio is trending at 5.8. PNC lines trending 6 and financial lines trending 4.9%. Within our international consumer PNC business, our ANH and personal lines divisions both had strong quarters. And for the year, their growth was 14.4%. and 21.4% respectively. Growth again was led by Asia. In our international life insurance business, which is basically Asia, premiums were up 26%. In the year we reported life income of just over $1 billion, or about $950 million, adjusting for some non-recurring items. So in summary, we had a simply outstanding quarter contributing to another record-setting year, and we are well-positioned to continue producing outstanding results going forward. Underwriting conditions overall are favorable, though they vary by business and geography. It's an underwriter's market, and that's what we are. We have hit the ground running in 24, and while we are in the risk business, and volatility is a feature of that, We are confident in our ability to continue growing operating earnings at a double-digit pace through PNC revenue growth and underwriting margins, investment income, and life income. Now turning the call over to Peter, and then we're going to come back and take your questions. Good morning. As you've just heard from Evan, our strong performance continues into the fourth quarter. and the end of the year with record results in all three sources of earnings. D&C underwriting income, investment income, and life income. Additionally, our book value of nearly $60 billion and book value per share of $146.83 were both all-time highs. Before I go into further detail on our results, I want to touch on the $1.14 billion one-time deferred tax benefit recognized in the requires a one-time step up of the tax basis for assets in bermuda to fair value this one-time benefit represents a permanent increase to book value and tangible book value and will be realized over a 10-year period starting in 2025. please refer to page 1b in the financial supplement for the impact of this benefit on our key metrics during the quarter per share book excluding the tax benefit. This increase reflects strong operating results and net realized and unrealized gains of $4.9 billion in our investment portfolio due to declining interest rates, partially offset by $1.1 billion of dividends and share repurchases. For the full year, book and tangible book value per share increased 18.2% and 17.5% excluding the tax benefit. The increase also included the diluted impact on the tangible equity related to Watai consolidation on July 1st, which has since been fully recovered. Turning to investments, our portfolio grew over 20% since last year, reaching $137 billion at year-end and benefiting from record full-year adjusted operating cash flows of $12.2 billion and the addition of the Watai portfolio of approximately $7 billion net to Chubb. In addition, we experienced unrealized gains on our portfolio during the year of $3.1 billion, which again highlights the transient nature of these mark-to-market movements for a high-quality fixed-income portfolio. This year, we continue to take advantage of an attractive interest rate environment, raising our portfolio yield to 4.3%, our highest since the third quarter of 2011. Our adjusted net investment income of $1.49 billion in the quarter included approximately $55 million of higher than normal dividend income and private equity distributions. Looking ahead, we expect our quarterly adjusted net investment income to have a run rate of approximately $1.45 billion and to go up from there. Turning to our underwriting business. For the quarter, we had pre-tax catastrophe losses of $300 million. principally from weather-related events, split 54% in the U.S. and 46% internationally. Prior period development in the quarter in our active businesses was a favorable 323 million pre-tax, with 81% in short-tail lines, predominantly from property, and 19% in long-tail lines. Our corporate runoff lines had adverse development of 146 million pre-tax, including 99 million asbestos-related. Our pay to incur ratio for the year was 87%. Our reported effective tax rate was favorably impacted by the purview of deferred tax benefit mentioned earlier. Excluding the tax benefit, our core operating effective tax rate would have been 17% for the quarter and 18.2% for the year, slightly below our guided range, reflecting higher income in some low-tax jurisdictions as well due to rising equity markets. We expect our annual core operating effective tax rate for calendar 2024 to be in the range of 18.75 to 19.25%. I'll now turn the call back over to Karen.