Filed Under:Markets, E&S/Specialty

Chubb Raises Full-Year Forecast as Insurance Rates Go Up

Property and casualty insurer Chubb Corp. raised its full-year forecast after reporting a stronger-than-expected 43 percent rise in second-quarter profit as it benefited from rising insurance rates and lower losses.

The company, whose shares were up 2 percent in after-hours trading, said it expects operating earnings of $7.30 to 7.50 per share for the full year, up from $6.40 to $6.80 per share. Analysts on average expect earnings of $6.80 per share.

Rising insurance rates continue to benefit property and casualty insurers after almost half a decade of soft pricing.

Rates have risen by an average 5 percent in the last four months, according to a report by brokerage Sandler O'Neill.

"Earnings in the quarter benefited from a positive effect on earned premiums of rate increases in recent periods and a continued low level of (non-catastrophic) loss activity," Chief Executive John Finnegan said on conference call with analysts.

Chubb said net earned premiums slightly rose to $3.00 billion for the second quarter from $2.98 billion a year earlier.

Underwriting income doubled to $317 million.

Net profit rose to $579 million, or $2.21 per share, from $404 million, or $1.48 per share.

"Today's results are a reflection of price increase in the past year and a half," Sandler O'Neill analyst Paul Newsomesaid.

Average U.S. renewal rates on commercial lines insurance rose 8 percent in the second quarter, the ninth consecutive quarterly increase.

Commercial insurance contributed about 43 percent of the total net written premiums in the quarter, almost at the year-earlier period level.

The combined loss and expense ratio improved to 88.8 percent from 93.8 percent a year earlier due to lower claims.

The combined ratio is an indicator of the total claims and expenses incurred over net earned premiums. A ratio over 100 percent shows that the company has an underwriting loss.

"Our combined ratio excluding catastrophes was an outstanding 80.9 percent, once again reflecting the impact of higher rates and strong underlying underwriting performance," Finnegan said in a statement.

On an operating basis, the insurer earned $1.77 per share, well above the average analyst estimate of $1.39 per share, according to Thomson Reuters I/B/E/S.

Total losses and loss expenses fell 9 percent to $1.69 billion.

However, low interest rates continued to chip away at the company's net investment income, which fell more than 6 percent to $349 million.

Chubb has not posted an operating loss on a per-share basis since the third quarter of 2002, according to Thomson Reuters data.

The insurer recorded catastrophe losses of $237 million before tax for the second quarter, slightly below its estimate of $240 million. However, this was still above the total catastrophe loss of $223 million a year earlier.

Chubb's shares closed at $86.42 on the New York Stock Exchange on Thursday.

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