Chubb’s reinsurance recoverable leaps as Q3 catastrophes bite

Global insurance and reinsurance firm Chubb reported $925 million of pre-tax catastrophe losses for the third-quarter of 2020, which was net of reinsurance recoveries.

The catastrophe loss impacts dented Chubb’s core operating income, but at the same time the carrier expanded its book by more than 5% across all its core units.

Chubb broke the catastrophe losses down as $696 million from global severe weather-related events including hurricane activity and another $110 million from wildfires.

With a robust reinsurance program in place, it’s clear from the data Chubb reports that the carrier will cede some of the gross losses to a range of its reinsurance capital providers, possibly including its own ABR Re joint-venture and total-return vehicle.

Evidencing this, is the fact that Chubb’s net reinsurance recoverable on losses and loss expenses has risen by more than $400 million during the Q3 period.

Chubb ended Q3 with a net total reinsurance recoverable of $15.67 billion in its accounts, up from $15.2 billion at the end of the previous quarter.

This will partly be driven by these catastrophe losses, as well perhaps as IBNR set for the COVID-19 pandemic.

It is the biggest jump in net reinsurance recoverable that Chubb has reported since the impact of the fourth-quarter of 2018 wildfires in California.

Chubb CEO Evan Greenberg acknowledged the impacts of catastrophe events, saying, “In the third quarter, Chubb performed well despite a challenging environment that included the continued struggle by many nations to address the impact, both health and economic, of the COVID-19 pandemic, as well as a record number of natural catastrophes for the insurance industry globally. We experienced our share of the CATs with $925 million in net pre-tax losses. Yet, we still published a 95% combined ratio, supported by significant underlying underwriting margin improvement. The P&C current accident year combined ratio excluding catastrophes was 85.7% versus 89.5% prior year, with underwriting income up 44% in constant dollars. Of the 3.8 percentage points of increased margin, 2.7 points were from an improvement in the loss ratio.

“With strong and continuously improving underwriting conditions in most all regions of the world, we grew P&C net premiums written 6.5% in the quarter in constant dollars, comprised of 10.8% growth in our commercial P&C business and a 3.3% decline in consumer lines. Commercial P&C revenue grew 11% in North America and 12% in our international business. New business growth was up briskly, and we retained our renewal business at very high levels. The global pandemic continues to depress consumer activity and, as a result, premiums declined in our global A&H and international personal lines divisions. We expect both to begin to recover sometime in 2021. On the other hand, our North America high net worth personal lines business is benefiting from a flight to quality and grew about 3% in the quarter.

“The current commercial P&C market, as we have observed, is a natural response to prolonged industry underpricing of risk and the loss cost and interest rate environment. I believe the favorable trend will endure. Where we can get paid adequately to assume the risk and volatility, we are growing our exposures across the portfolio while achieving rates that exceed loss costs, and that means margin improvement. We have the people, the capabilities, the execution-oriented culture, and the command and control structure to continue capitalizing on this underwriting environment, and we expect to grow our EPS through both revenue growth and improved margins.”

Reinsurance capital and Chubb’s own managed reinsurance arrangements help the carrier through periods of high loss activity, as seen in Q3. Without its reinsurance, it’s entirely  possible Chubb may have been looking at more than a billion dollars of gross catastrophe losses for the quarter. Hence these arrangements and the capital providers behind them help it to deliver profits to shareholders even through challenging and volatile periods.