Chubb Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 26, 2023

There are 13 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Chubb Limited First Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Thank you.

Operator

It is now my pleasure to turn today's call over to Ms. Karen Beyer, Director of Investor Relations. Please go ahead.

Speaker 1

Thank you, and welcome everyone to our March 31, 2023, Q1 earnings conference call. Our report today will contain forward looking statements, including statements relating to company performance, pricing and business mix, growth opportunities, in economic and market conditions, which are subject to risks and uncertainties and actual results may differ materially. To the operator. Please see our recent SEC filings, earnings release and financial supplement, which are available on our website at investors. Chubb.com for for more information on factors that could affect these matters.

Speaker 1

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 and our Chief Financial Officer, and then we'll take your questions. Also with us to assist with your questions today to several members of our management team. And now it's my pleasure to turn the call over to Evan.

Speaker 2

Good morning. We had an excellent start to the year, highlighted by double digit operating earnings growth that led to record results. We had double digit premium revenue growth that was global, broad based and driven by strong results in our commercial and consumer P and C businesses and our international life business. World class underwriting results with an 86.3 combined ratio, record net investment income and life income that more than doubled. North America P and C rate and price increases reaccelerated in the quarter.

Speaker 2

It was in a word a standout performance that I expect will continue. We grew operating income almost 12% to $1,800,000,000 and that drove a 15% increase to $4.41 per share, both records. In context of what was an active CAC quarter, our published combined ratio reflects to Simply Outstanding Underwriting Performance from our P and C businesses. The 83.4 ex cat to the current accident year combined ratio was a record. On the investment income side, Record adjusted net investment income of $1,200,000,000 was up over 30%.

Speaker 2

Our portfolio yield is now 3.8 versus 3% a year ago. With our reinvestment rate averaging 5.5%, Our investment income run rate will continue to grow as we reinvest cash flow at higher rates. Life insurance premium revenue more than doubled, while life earnings doubled to 244,000,000 driven by our business in Asia and predominantly the addition of the Cigna operations, which are mostly A and H and product makeup. In this time of economic and financial market volatility and uncertainty, Chubb is a safe haven. Our business model and the fundamentals of our business are very strong and broad based.

Speaker 2

Our earnings and revenue are growing. We have an exceptionally strong capital position and a conservative level of leverage and our operating cash flow of $11,000,000,000 and 20 to and over $2,250,000,000 this quarter speaks to our strong liquidity. Our unrealized loss as The percentage of tangible equity is 17% and will amortize back to par over a short period. Rising interest rates are our friend. And most important, as you know, you can't have a run on the bank in our business.

Speaker 2

So again, this speaks to an attractive profile that distinguishes Chubb. Peter is going to have more to say about financial items, including CAT's prior period development, investment income, book value and a rising ROE. Now turning to growth and the pricing and rate environment. Consolidated net written premiums for the company increased over 16.5% in the quarter on a published basis or over 18% in constant dollars, comprised of 11% growth in our P and C business globally and 129% growth in life premiums. P and C premium growth in the quarter was balanced and broad based.

Speaker 2

North America, Europe and Asia all produced double digit growth. Beginning with North America, commercial premiums We're up almost 12% or 6.2% excluding agriculture. Adjusted for the impact of 1 off loss portfolio transfers. In our major accounts division, year over year North America regular commercial flow Grew 7.6%, which is representative of the minimum rate growth we expect for the balance of the year. And by the way, the 7.6% is broken down as 10% growth in P and C and minus 2% growth in financial lines.

Speaker 2

Our major accounts and specialty division Grew 6.3 percent or 8.7 percent adjusted for the LPTs and that was 11.4% P and C and minus 7% Financial Lines. In our middle market and small commercial business, premiums were up 6.5% or 7% in P and C and up 2% in Financial Lines. Renewal retention for our retail commercial businesses with 97%. On the consumer side in North America, our high net worth personal lines business was up almost 10%, an exceptionally strong result and in fact the strongest organic growth in over 15 years. Turning to our international general insurance operations, net premiums were up 10% in constant dollars or 6% after FX impact, with commercial up 10.8% and consumer up over 8.5%.

Speaker 2

Growth was led by our Asia Pacific region with premiums up over 18.5%, with commercial lines up about 15% and consumer lines up over 22%. And Europe produced overall growth of over 10%. In terms of the commercial P and C rate environment, rate to the Q1 of 2019. Pricing for total North America Commercial P and C, which includes rate of 6.4 and exposure change of 4.5 increased 11.2% against a loss cost trend of 6.7%. Pricing for commercial property and casualty, excluding financial lines and workers' comp was up 16.9%.

Speaker 2

Property pricing was up 27% with rates up 16.4 to an exposure change of 9.1. Casualty pricing was up 9.9%, which includes 7.4 percent of rate and 2.3 percent of exposure. As I said last quarter, for professional lines and workers' comp, which includes risk management, the competitive environment is aggressive and rates who have continued to decline in recognition of favorable experience. In the quarter, rates and pricing for North America Financial lines in aggregate were down about 2% and in workers' comp, which includes both primary comp In risk management, pricing was up 6.4%, with rates down 0.5% and exposure up about 6.8%. Internationally, we continued to achieve improved rate to exposure across our commercial portfolio.

Speaker 2

In our international retail business. Pricing was up about 8% with rates up 4.8 to an exposure change of about 2.9%, while loss costs across our international commercial portfolio to our trending at 6.5%. Turning to our consumer businesses. In North America, to high net worth personal lines business. Again, net written premiums were up almost 10%, with our true high net worth client segment up over 15%.

Speaker 2

Retentions were 104% on a premium basis at about 91 or on an account basis. We continue to benefit from a flight to quality and capacity. In our homeowners business, we achieved pricing of about 13%, while the homeowners loss cost trend is running about 10.5%. International consumer lines premiums again grew over 8.5% in the quarter in constant dollars. Our international A and H division had another strong quarter with premiums up about 20%.

Speaker 2

Asia Pacific was up 34.5%, while the UK was up over 12%. Premiums in our international personal lines business were down 1.5 and it was impacted by our business in Europe. In our International Life Insurance business, again, premiums and income overall more than doubled. Our business in Korea and the majority of Asia is off to a good start to the year. I was just in Korea 2 weeks ago.

Speaker 2

Our leadership, the franchise, the strategy, The execution and the growth are all in really good shape and this is a very large business for Jubb. In summary, we had an excellent quarter and have had a strong start to the year with a lot of momentum heading into the Q2. Looking forward, we are confident in our ability to continue growing revenue and operating earnings, which in turn drive EPS through the 3 engines of P and C Underwriting Income, Investment Income and Life Income. Add to that our business model, financial strength, stability and liquidity, and I believe you have in Chubb, both the reassurance of safety and the attractive prospects of a long term growth company. I'll turn the call over to Peter and then we're going to come back and take your questions.

Speaker 3

Thank you, Evan, and good morning. Before we begin, I want to note that previously reported numbers in the financial supplement we just filed were adjusted to reflect the impact from the adoption of LDTI accounting, which primarily relates to our life insurance business. The cumulative impact of LDTI on our book value and overall results is immaterial. Please refer to Page 31 of the financial supplement for detailed information. Turning to our Q1 results.

Speaker 3

As you've just heard, we are starting out the year in exceptionally strong financial position. Our P and C divisions, expanding life business and strong investment performance produced operating cash flow of $2,300,000,000 We grew our assets to over $200,000,000,000 and this includes invested assets of about $116,000,000,000 that continue to benefit from the current rate environment and generated our 4th consecutive quarter of record net investment income. I would note S and P and Fitch both reaffirmed our AA ratings and stable outlook, reflecting our strong financial position. Relative to capital related actions in the quarter, we returned $772,000,000 to shareholders, including $428,000,000 in share repurchases at an average price of $212.81 per share $344,000,000 in dividends. Book value and tangible book value per share increased 5% and 8.7% respectively from last quarter.

Speaker 3

The increase reflects our record core operating income and net realized and unrealized gains of $1,700,000,000 in the investment portfolio, partially offset by the capital return to shareholders I already mentioned. Our core operating ROE for the quarter was 12.6% and our core operating return on tangible equity was 19.4%. A year ago, Evan stated our target for 2023 core operating ROE excluding excess capital or on a deployed capital basis to be 13% and core operating return on tangible equity to be 20%. In this Q1 of 2023, we estimate these deployed capital ROE results to be in the range of 13.5% to 14% and 23% to 23.5%, respectively. Adjusted net investment income for the quarter was $1,200,000,000 and topped last year's record quarter last quarter's record by over 7%, reflecting higher reinvestment rates that impact recurring income as well as certain items totaling approximately $35,000,000 including higher than expected private equity distributions that vary from quarter to quarter.

Speaker 3

We now expect our adjusted net investment income on a recurring basis to rise from this quarter's 1.165 to 1.2 to 1.22 next quarter. And we expect it to continue to rise from there for the remainder of the year given our positive cash flows, portfolio turnover and the current reinvestment rate environment. Let me make a few more comments on investments given recent economic and market events. We continue to maintain our consistent conservative approach to our investment to process and our portfolio remains high quality with an average rate A rating. Our overall exposure to banks to 8% of invested assets with 2 thirds of that in GCEFIs.

Speaker 3

We have no exposure to Silicon Valley, Signature or First Republic Banks. We have no exposure to Credit Suisse contingent capital securities and do not invest in Tier 1 Bank Cocos as an investment policy. Our exposure to regional banks is less than 1% of our portfolio and is in high quality names. Our total direct exposure to commercial real estate to 4% of invested assets and 87% of that total is an investment grade securities with an average rating of AA. This portfolio is skewed to multifamily and industrial sectors with under 20% related to the commercial office segment.

Speaker 3

High yield credit is currently 14% of our portfolio and is targeted to the upper tier of the high yield market, rated BBB, to the current average rating of B plus broadly diversified with over 900 issuers and mandated to outperform in down markets. Back to our underwriting business. The quarter included pretax catastrophe losses of $458,000,000 to split 76% in the U. S. And 24% internationally.

Speaker 3

In the U. S, the loss activity consisted of winter related storms and other severe weather events. Internationally, results were primarily impacted by storms in New Zealand and Australia. Prior period development in the quarter was a favorable $196,000,000 Included in that total is adverse development of 6,000,000 related to the 2022 accident year cat losses comprised of $119,000,000 adverse development from Winter Storm Elliot and $113,000,000 favorable from Hurricane Ian. Excluding cat related development, we had favorable development of $202,000,000 across all lines, commercial and consumer with $228,000,000 favorable related to short tail lines and adverse development of to $26,000,000 in long tail lines, dollars 10,000,000 of which was from corporate runoff lines.

Speaker 3

Our paid to incurred ratio for the quarter was 92% or 82% after adjusting for cats, prior peer development and a large payment related to the Boy Scouts of America settlement. Our core operating effective tax rate was 18.1% for the quarter at the low end of our expected annual range. I would highlight the Q1 often has a lower tax rate than the full year and we continue to expect our annual core operating effective tax rate for this year to be in the range of 18% to 19%. Lastly, relative to Watai, we closed on some of our outstanding shares during the quarter, with broader ownership interest to 64%. We continue to apply equity accounting for the Q1 and we'll consolidate Watai once we go over 2 thirds ownership, which we think will likely occur in the Q2 when we anticipate exceeding 80%.

Speaker 3

I'll now turn the call back over to Karen.

Speaker 1

Thank you. At this point, we're happy to take your questions.

Operator

In order to ask a question, please. Your first question comes from the line of David Motemaden with Evercore ISI. Your line is open.

Speaker 4

Good morning, David. Good morning. Good morning. Good morning, Evan. So really encouraging to see the reacceleration in North America commercial pricing.

Speaker 4

It sounds like most of that was rate versus exposure. I guess I also heard that you said you expect a 7 point percent sort of minimum growth in North America commercial throughout the course of the year. So wondering if you could just unpack how you see that progressing between both rate on existing policies as well as just growth in terms of adding new incremental units of exposure.

Speaker 2

Yes. No. David, As you know, we don't give forward guidance really. And I gave you a little flash, but I'm not going to go further than that. I and I was pretty clear, I expect to the trend you see in pricing and I expect the trend you see in sort of pattern in growth to continue.

Speaker 2

And you got a sense of P and C lines growing and you got a sense of professional or financial lines. And beyond that, it's not simply about North America and look at the company globally and frankly, look at the international P and C and I expect the pattern to continue. To look at consumer lines and I expect the pattern to continue look at life and I expect the pattern to continue to investment income and I expect the pattern to continue.

Speaker 4

Okay, great. I appreciate that. And then as my follow-up, Evan, in your letter, you spoke about how Chubb enhanced its ability to collect and assess loss to add more quickly and accurately, and then that helps you be more insightful in pricing and reserving. I was wondering if you could just elaborate on how you enhance visibility and if that played in. I heard you may have ticked up to loss trend a little bit in North America commercial.

Speaker 4

Wondering what insight gave you to do or this enhanced ability to view loss Trend Data, how that played into potentially changing how you're viewing trend going forward?

Speaker 2

Yes. And I talked about this, you're right in the letter and on previous calls and that is like so many businesses, If you take a bigger picture view of it, insurance and among other financial companies to non financial. We're coming out of a and have come out of a period of very low inflation, 0 cost of money fundamentally or overwhelmed by liquidity. And in the low inflation environment, you don't have to be necessarily as insightful on loss cost at any at a particular moment in time, Lag has less of an impact on you. You have to watch it very carefully and we always but the time element of data when you get it.

Speaker 2

You could be a little more relaxed. It's a quarter old, 2 quarters old, less important. In an inflationary environment, which we experienced and began while ago, that's a killer. And for those of us who've experienced inflation, that time value is can mean everything, in accuracy. And that's where we really immediately when we saw it jumped on it and measured that time lag and in data, which you have to get to the source of input when you're looking at inflation, whether it's on the physical side of when a repair is actually occurring to an automobile for a home or it's on the liability side very quickly in the development of that.

Speaker 2

You have to be on top of the trend and you really have to unpack severity from frequency and then you had the impact of COVID on frequency. So and then you add to that the tools we have available in terms of external data and the use of it. And our ability to manipulate and use data internal and external more insightfully and more quickly. You add the capabilities and analytics of this organization with claims and actuarial and underwriting together. And I think it's a competitive weapon and advantage, particularly the speed at which we can react.

Speaker 2

And I think any modern financial organization that distinguishes itself, that's part of the action.

Speaker 4

Great. Thank you.

Speaker 2

You're welcome.

Operator

Your next question is from the line of Mike Zaremski with BMO. Your line is open.

Speaker 5

Hey, good morning. First question on reinsurance costs. Any given industries experiencing higher reinsurance costs, both on property on the casualty side and maybe that's not the case for Chubb. Feel free to correct me. Any is Chubb contemplating any changes in its strategy, maybe pretensions or is this still TBD as things progress?

Speaker 2

No, no material change. And we obviously aren't going As you can appreciate, I'm not going to discuss our own reinsurance programs. That's for our own protections that's proprietary, but our retentions Have not changed in any material way. And we've got a big balance sheet. We take a lot of risk Nat.

Speaker 2

And we really don't buy reinsurance for earnings protection so much. We buy it for more for balance sheet protection And depending on the line of business, volatility and That's been a steady policy of ours and we maintain it regardless of cycle.

Speaker 5

Got it. Look, a follow-up on market conditions. I know you gave us a lot of good color. If we the acceleration in pure rates accelerated a lot more than I think there might have been a We had a bit of a loss cost pickup just on the North America commercial side, but maybe you can kind of lend some more color on, do you feel the market's being more rational in terms of kind of adjusting to loss cost trends and also higher reinsurance pricing. And it sounded like You are optimistic that things have competitive conditions have gotten a little bit better quarter over quarter.

Speaker 5

Thanks.

Speaker 2

Yes. I think it's a little bit of a mixed bag. Property certainly and Short Tail certainly responding. I think in larger account business responding a little better than in middle market, though middle market has a stability to it. It's more in P and C lines.

Speaker 2

I think that financial lines, certain areas of financial lines, And so in those areas, I generally like the tone. We're seeing excess casualty, particularly in larger comp business respond. I'm imagining, in time middle market will need to and will. So rate is pretty good. Our rates are increasing there.

Speaker 2

When I look at professional lines, and you have to unpack it between financial lines between professional liability and there are all kinds of classes in D and O, both private and public D and O. I think public D and O market is there were a lot of players with no data and no experience and they're receiving many of them capacity by those who don't seem to have their eye on the ball. And there's an area where I think the market to some is overshooting the mark. And of course, we'll always trade In that case, volume for, and under the right underwriting. And it's not an area that I think is devoid of risk, to you as you look forward everything from recession and volatility in financial markets to climate change and claims of greenwashing and all of that.

Speaker 2

So it doesn't that and that's just a line on the margin. So it's a mixed bag. Comp is Overall experience is good, exposure is growing. And on the other hand, You got to be careful on exposure because wages are rising, that means indemnity severity The market could shoot the market in the box, so you got to be a little cautious. But overall in direction, you see the direction in P and C lines and I think that direction is a tone that will continue and a pattern that I expect will continue.

Speaker 6

Thank you.

Operator

Your next Question is from the line of Yaron Kinar with Jefferies. Your line is open.

Speaker 7

Thank you. Good morning. My first question, I guess more specifically to North America Commercial, do you see the overall book?

Speaker 2

To the company. But anyway, go ahead.

Speaker 7

Well, I could do that, but I'm not sure we have enough time. With North America Commercial, do you see the book overall as rate adequate today?

Speaker 8

Yes.

Speaker 7

You too. So with that in mind, I guess, why would we not see more acceleration of premiums given that rates Hard to quit and picking up, why wouldn't you lean into that a little more with greater exposure?

Speaker 2

Well, you said overall. And so that's overall. And then and so I'm happy to answer overall. And by the way, I said to you 10% growth in P and C lines. And I said financial lines, professional lines, financial lines, in aggregate down.

Speaker 2

So I think in areas where we like the pricing, you're seeing the business grow. And I'll leave it at that. I'm not going to to go deeper than that. I think I gave I just gave what investors need to know.

Speaker 7

Okay. And then my other question was on the G and A expense side, Seem to be a modest pickup in North America, both personal and commercial. Are there any specific platform investments you can call out or is it just wage inflation hiring?

Speaker 2

No, the expense ratio, you'll note, was up because pension to the company's pension expenses, with the rise in interest rates that picked up. And that's just that's something that you can't control really. As in just an it's an accounting adjustment for future pension costs on. We have to a defined benefit pension plan that's closed for many years. It was legacy Chubb that Had that.

Speaker 2

And so that's the impact. That's all.

Speaker 7

Got it. So is that a reasonable run rate to think of for the rest of the year?

Speaker 2

Yes, reasonable. You'll note the pattern of expense ratio. It's usually a a little higher this quarter than in future quarters when I look at

Speaker 3

it. Thanks. The pension will be consistent each quarter and then there's other stuff around that. For

Speaker 2

this year. Got it. Thanks so much. You're welcome.

Operator

Your next question is from the line of Greg Peters with Raymond James. Your line is open.

Speaker 9

Excellent. Good morning, everyone. Evan, in your prepared comments. I think you mentioned a recent trip to Korea. You talked about the life results.

Speaker 9

Maybe you can give us an update on the Cigna acquisition, how the integration is proceeding and if there's any to date on sort of ROE targets related to Cigna now that it's in the Chubb family.

Speaker 2

Yes. I'll just take the last part first. As you know, the egg is scrambled now and so we don't really to spike that part out. But look, I'm energized by what I to see in Asia and what we have bubbling. And by the way, I'm going to do 3rd quarter earnings from Asia.

Speaker 2

I'm going to do it from Singapore, because I'm going to spend 6 or 7 weeks out there. The integration is going so well and we're so energized by what we see in the power of the organization with the 2 parts pulled together. The integration has gone extremely well. And of course, all the efficiencies, that's the easy part in a sense that's all right on target, but it's the growth and to the breadth of capability. Our direct marketing business is we're the largest direct marketers of insurance In Asia, there's not a doubt to me, both through telemarketing, through digital, life and non life, on the variety, the breadth of product there.

Speaker 2

The number of partnerships that we have between the organizations and the compelling offering given the breadth of and the ability of our life and non life together to work together like one organization. No one else really has that. The customer database we have between the companies that that numbers in the millions of customers to cross market and cross sell to that we're just actively doing through telemarketing and digital. The growth of our agency organization, whether it's in Korea through independent life agency distribution or in places like Thailand and Vietnam with to tens of thousands of agents that are growing. When I look across Korea, Thailand, Indonesia, Taiwan, even Hong Kong that's small, but the combination of the 2 and growth is accelerating in these The number of partnerships that we have.

Speaker 2

So when I entered all together, I feel really good about what we have as franchise and capability on the potential of it over time. And by the way, a lot of the same features I see in Latin America, to a much smaller region, just the geography and the size of economies. But Wow, it's excellent. And then by the way, I'm sure you noticed that in the quarter, Europe grew 10%. At 40% of their business renews in the year and they do in the year and they grew at 10%.

Speaker 2

So it's really broad based and I like what I see.

Speaker 9

Yes, the Europe numbers are kind of surprising against the backdrop of the macro news that we read about here and there. You'd spent sometime during the discussion talking about all the data resources, the analytics you have. And one of the topics that's become more popular and more recent is this chat GPT. So maybe you can segue and talk about how you're deploying AI across your organization and the opportunity you have to to drive further efficiencies as you utilize these types of tools.

Speaker 2

Yes. I'll touch on it a little bit. ChatGBT is generalized AI, which is text based, analytics and deep thinking. We use other kinds of AI, deep learning and others beyond that are numbers based, math based as well. We've been experimenting in the use of various forms of AI against different to areas of our business, depending on the kind of to opportunity or problem or enhancement of power that who we're trying to address from underwriting and insight and risk cohorts to claims, to cut to marketing and analytics or customer interface in customer service or telemarketing, and we've been doing this for the last 5 years.

Speaker 2

We have a variety of use cases that have proven themselves out and we continue to iterate with it. We have a lot of data and we have an ability to enhance that data with external data. It's not simply about AI tools. It's about data and your ability with that. So therefore, you keep pulling a spring and your data infrastructure becomes so important And data engineering becomes so important because it's a fuel that AI needs to feed on In most cases, it's not going to replace our highest skilled knowledge workers.

Speaker 2

We won't do that for quite a while, but it certainly enhances the abilities and the capability. I'm not worried about my job. It certainly enhances their capabilities. And Now, we're in the dawn of the period where we use these tools at scale. And the things that we have built and experimented with, the momentum builds and they start rolling out at scale.

Speaker 2

And that means insight, that means speed, that means accuracy, That means cost, that means momentum. And think of that in terms of a number of years,

Speaker 9

Great. Thank you for the answers.

Speaker 2

You're welcome.

Operator

Your next question is from the line of Elyse Greenspan with Wells Fargo. Your line is open.

Speaker 10

Hi, thanks. Good morning, Evan. My first question is on the reinsurance market. You guys saw some growth in your Reinsurance segment, but it sounds like from your commentary, you're seeing to better opportunities, it sounds like on the primary property side and perhaps to write more property reinsurance business. But I I was hoping you could just expand on that comment and correct me if I'm wrong.

Speaker 2

Yes. No, You're correct. We're we got a finite balance sheet. We can't take infinite amount of risk. And we like the risk reward and the total opportunity.

Speaker 2

On the primary side, we're much more biased on the primary side than we are on the CAT Re side. And so that is correct. To our cat re and property excess and property quota share business, so not just straight CAT Re. Those are areas where we're taking more exposure. But You're right.

Speaker 2

Overwhelmingly, when we look at the market and the risk reward, we're more primary oriented.

Speaker 10

Thanks. And then my second question, Peter, I know you said that you guys will consolidate the YTIE ownership, when it goes above 80%. I'm not sure if Chubb does Like the earnings from YTai historically or can you just give us a sense of the expected contribution once that is consolidated or any help you can provide there.

Speaker 3

Yes, we typically don't we have not disclosed Huatai's earnings specifically, we'll have more comments after it closes and we consolidate. And what I've said historically is it won't have a material impact on a net basis to us In terms of earnings.

Speaker 2

Okay. What we've said is it will be pretty neutral initially.

Speaker 10

Okay. Thank you.

Operator

Your next question is from the line of Tracy Banjji with Barclays. Your line is open.

Speaker 5

To Mike.

Speaker 6

Thank you. Good morning. Hey. A quick question. Do you manage your business more on net growth than Growth or is that vice versa?

Speaker 6

I'm just thinking about capital consumption. If you're retaining more, could that dampen how much you want to grow Growth premium.

Speaker 2

No, you frankly, we disclose our net to gross and you see that's pretty steady. And We manage we measure both and we use both gross and net for different reasons, different purposes. When I'm going to manage the balance sheet, it's net. When I'm going to look at marketing and swinging a stick on our capacity, etcetera. It's gross.

Speaker 2

It's a much more complicated answer question, but it's when you get to operating, but it's both.

Speaker 6

Okay. So I just wanted to make sure that I understood prior comments correctly. So the 4% growth in gross premium written we saw North America commercial lines, which was lower than we've seen in prior quarters that had to do more with Business side It

Speaker 2

has more volatility to it because of risk management business and certain kinds of businesses that have a gross component to it. But in that case, I'm driven an ROI and all our discussion when we look at stick to the bones is on the net basis.

Speaker 6

Got it. I'm also curious to

Speaker 2

He's talking that not to gross, but both are important to us as operators for different reasons.

Speaker 6

Got it. I'm also curious, did you increase your loss picks from banking D and O claims activity this quarter? I noticed that your North America commercial line underlying loss ratio improved both sequentially year over year. So I'm wondering if that improvement would be in spite

Operator

Your next question is from the line of Alex Scott with Goldman Sachs. Your line is open.

Speaker 11

Hi, good morning. First one I had was just to see if you could give us some context for where court reopening is at and just sort of The timing of how the backlog is progressing and maybe even how that's informing some of the analytics and things you're doing around

Speaker 2

Look, frequency of loss in casualty is just has been on a march where it's rising and reverting to the mean of pre COVID. It varies by line of business and some lines of business, the frequency of loss is still below pre COVID and some others it has reverted to pre COVID trend. So it varies and but overall frequency has been increasing and that's proxy that and that's been going for a while. So that's a little bit of yesterday's news that the courts, they've been reopened over a year or so. There you go.

Speaker 2

And the lawyers are all active.

Speaker 11

Got it. And then maybe a little bit more of a housekeeping question for you. But on the Life Insurance segment, I mean, should we think about LDTI moving the run rate up or down. At the margin, just a little difficult to tell from the outside because we only have a couple quarters of Cigna and so not too long of a track record to look at under the recasted financials.

Speaker 3

Alex, the way I would think about it is and you pointed out between Cigna coming online purchase gap and LDTI, There's been movement in the numbers. The Q1 of this year, things are settling and we think are representative of a run rate going forward.

Speaker 11

Got it. Thank you.

Speaker 2

You're welcome.

Operator

Your next question is from the line of Brian Meredith with UBS. Your line is open.

Speaker 8

Yes, thanks. Evan, can I just quickly clarify something and get a bunch of questions on it? The 7.6% growth rate that you mentioned, that premium growth for the remainder of the year, minimum premium growth you expect for the remainder of the year, is that correct, North America commercial?

Speaker 2

I gave you a feeling of a forward view that I would expect it to be no less to that. And then I gave you a breakdown of the 7.6 that was 11 in P and C lines and was negative in financial lines.

Speaker 8

Yes, makes sense. So it's premium growth, great.

Speaker 2

That was not rate or trend or anything, that was premium.

Speaker 8

That's what I thought. That's what I thought. I just wanted to clarify. Sorry, I was getting a bunch of questions. The second question, I'm just curious, I'm trying to kind of do some mental math here on this and that can be dangerous.

Speaker 8

But Looking at your 11 and change pricing in North America commercial versus the 7.6 premium growth, Was there something going on with mix or something would cause the pricing to be greater than the premium growth?

Speaker 2

There's always something going on with mix.

Speaker 8

So is it a mix issue or something going on?

Speaker 2

And remember, I gave you P and C growth versus financial lines growth. And I didn't give you any more than that. I'm not going to go deeper than that. And then I gave you rate and trend and you have renewal retention rate, I gave you that, new business varied by area. So is there anything more to it really?

Speaker 2

Not really. Now in property, and I should say this to you. As you ask it in property where you see the rate, rate includes because we can measure it so accurately. The change in terms and conditions, so if deductible changes, that's worth rate. And so you could exceed this exposure actually go down there, if you're following me.

Speaker 2

And so That also when you want to roll around math in your brain that may help you a little bit.

Speaker 8

That's really, really helpful. And then can I just one follow-up? Cyber market, can you just tell us kind of what your thoughts are there now in the cyber market? Is that an attractive market at this point from a pricing and what's happened with term condition in the last couple of years?

Speaker 10

Yes.

Speaker 2

The terms and conditions, there's a lot of noise in Particularly it's around CAD exposure and war and definitions of war or I think war is a misnomer. It's hostile actions by nation states. And That would be more the term and conditions of what's going on. But beyond that, The cyber loss environment is not benign. Ransomware frequency of loss And severity is picking up.

Speaker 2

It was temporarily down. Cyber Pricing and underwriting has responded to the external environment, I think reasonably well. And if it maintains discipline, then I'm not concerned. But I would assume that all cyber underwriters to see what we see in terms of the loss environment, and you got to be aware of it. But other than that, it's I think reasonably disciplined underwriting and pricing.

Speaker 2

Perfect. Thank you. You're welcome.

Operator

Your next question is from the line of Ryan Tunis with Autonomous Research. Your line is open.

Speaker 12

Hey, thanks. Good morning. Yes, Evan, I guess just taking a step back, It's a life related question. I'm just curious, like over the past, call it, 5 years or so, if you could just kind of walk us through how your thought process has evolved to appreciate that business a little bit more. And I guess it comes from a place where the Cigna deal, It felt like a nice little financial acquisition, but I didn't think it was going to put you in Singapore for 7 weeks.

Speaker 12

So you're clearly more enthusiastic about this business. So Yes. How has your thinking evolved to really think that's a growth hedge of Per Chubb?

Speaker 2

Yes. First, I want to take a step back on that and say Asia is on my mind. It's not simply the life business. Half the business is P and C and that is robust. Asia itself is, don't hold me to the number I have it in my head, but it's roughly a $10,000,000,000 region for us.

Speaker 2

Important, it's massive region and scale. It's the greatest It has the greatest growth potential economically. I think of any region in the world over the next decade, 2 decades, so it has a volatility to it, naturally. To India, China, Southeast Asia, the dynamism of developed Asia, to Korea, Japan, it's just it's massive. Australia is part of Asia to

Speaker 3

us and to the Australians.

Speaker 2

And it's non life in life. And I look at it as one organization, it's CHOP. The way they work together is awesome. We began our life business about a decade, more than I began it over a decade ago. I mean, heck, I was pounding on the door of Vietnam to get one of the few life licenses they gave out In 2000 and 2, 2003, I was banging on that door.

Speaker 2

And we've been at it since growing organically and then through acquisition and the Cigna just turbocharged it at the same time in our non life business. We are growing from DUS and A and H business that could have been incubated in a life company or a to Life Company. Cigna is to a large degree A and H business. Our Life business to the combination of agency distribution and direct marketing. And the direct marketing is non life and life.

Speaker 2

And the life products themselves are much more back to the future. Because Asia is different. And their traditional life products that have to much better ROE characteristics to them. They have very low guarantees. They have traditional savings.

Speaker 2

They have a lot of risk element to them that we like, A and H in particular, whether it's dread disease or hospital cash, very limited basic medical that the customer buys along with savings. And savings rates are high in Asia. You have a very young population, the youngest in the world, and a growing labor force. And it's combined with a very family oriented culture and ethic And that drives long term savings and you have low social safety nets. And so private insurance means more.

Speaker 2

That all plays to life and to non life. And frankly operating my office from there in and I'm going to be out of both Hong Kong and Singapore is simply There is such opportunity and I travel back and forth have for decades, a few times a year, but this is just to be more insightful and deeper about it in terms of strategy as we go forward. And my colleagues, many of them will do the same. Thank you. We're a global company.

Speaker 12

And just quickly, I guess, this is more nuance might be for Peter. But you mentioned some LPT activity in North America Commercial. Just curious if that had any impact on the loss ratio year over year?

Speaker 2

Very it was minor in terms of its impact that the loss ratio down, expense ratio up. That's what happens with it, but very, very minor. You can measure it in a 10th percent.

Speaker 7

Thank you.

Speaker 2

Because we did.

Operator

At this time, I would like to turn the call back over to Ms. Karen Beyer.

Speaker 1

Thank you, everyone, for joining us today. And if you have any follow-up questions, you will be around to take your call. Enjoy the day. Thanks.

Operator

Ladies and gentlemen, thank you for participating. This concludes today's conference call. You may now disconnect.

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Earnings Conference Call
Chubb Q1 2023
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