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Chubb (NYSE:CB)
Q2 2019 Earnings Call
Jul 24, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, and welcome to the Chubb Limited second-quarter 2019 earnings conference call. Today's call is being recorded. [Operator instructions] For opening remarks and introductions, I would like to turn the call over to Karen Beyer, senior vice president, Investor Relations. Please go ahead, ma'am.

Karen Beyer -- Senior Vice President, Investor Relations

Thank you, and good morning, everyone. Welcome to Chubb's June 30th, 2019, second-quarter earnings conference call. Our report today will contain forward-looking statements, including statements relating to company performance and growth opportunities, pricing and business mix and economic and market conditions, which are subject to risks and uncertainties, and actual results may differ materially. See our recent SEC filings, earnings release 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 it's my pleasure to introduce our speakers this morning. First, we have Evan Greenberg, chairman and chief executive officer; followed by Phil Bancroft, our chief financial officer. We'll then take your questions.

Also with us to assist with your questions are several members of our management team. And now, I'll turn the call over to Evan.

Evan Greenberg -- Chairman and Chief Executive Officer

Good morning. As you saw from the numbers, we had a very good second quarter, highlighted by excellent underwriting and strong premium revenue growth globally in constant dollars that is benefiting from favorable underwriting conditions and our various growth initiatives. In fact, the positive pricing and underwriting environment continued to improve through the quarter and spread to more classes and segments of business. Core operating income was 1.2 billion or 260 per share, down 3% due to modestly higher year-on-year cat losses.

Book and tangible book value per share were up 3.2 and 4.7%, respectively, in the quarter and are now up 7.7 and nearly 12% for the year, combination of income and the mark derived from falling interest rates. Our combined ratio of 90.1% included 3.8 points of cat losses and 2.6 points of favorable prior period reserve development, though on a current accident at year basis, excluding cat, the combined ratio was 88.9%. Phil will have more to say about investment income, book value, cat and prior period development. Turning to growth.

P&C premium revenue in the quarter in constant dollars was quite strong. Net premiums written grew 6% with foreign exchange having a negative impact of 1.8 percentage points. The pricing environment continued to firm through the quarter, and we took advantage of some of the best pricing we've seen in years. The rate of increase of prices accelerated, while at the same time it's spread to more classes of business and more classes of risk.

Rates continued to firm in the U.S. for major accounts and E&S specialty to the middle market. We continued to observe favorable conditions in London wholesale market and in Australia, with early signs firming conditions are spreading to the U.K. company market and to certain classes of risk on the continent of Europe and in Southeast Asia.

Overall, where rates are moving, they are firming broadly to varying degrees in most all short- and long-tail classes. Accompanying price increases, terms and conditions are tightening in certain classes. In my judgment, given some of the market dislocation we have observed, including a reset of risk appetite on the part of some, this firming trend is sustainable and will likely continue to accelerate and spread. It is income and loss reserve driven, not capital driven.

Overall prices increased in North America commercial on a written basis by about 7% in the quarter versus a loss cost trend in aggregate of just under 4.5%. Renewal price change includes both rate and exposure. Rate was up 6.3% and exposure a half point. Pricing improved throughout the quarter in many property and casualty-related areas, including general casualty, both primary and excess, D&O and professional lines.

As more business comes into our underwriting appetite and price range and other carriers take corrective actions, we are benefiting from a flight to quality. All things being equal, many buyers prefer Chubb. New business in our North America commercial lines was up over 11% in the quarter with major accounts in specialty up nearly 15%. Retention of our customers remained strong across all of our North America commercial and personal P&C businesses with renewal retention as measured by premium of 93.5%.

In major accounts and specialty commercial, excluding agriculture, premiums were up 7%, with major up 5 and a half and Westchester E&S up over 9%. Renewal price change for major accounts was 8 and a half percent with risk management pricing up 6.3, excess casualty up almost 10 and property up 18 and a half. Public D&O rates increased 11%. In our Westchester business, renewal pricing was up over 9 and a half percent.

Turning to our middle market and small commercial business. Premiums overall were up over 4 and a half percent. Renewal retention in our middle market business was 92%. Middle market pricing was up over 4 and a half.

And if you exclude workers comp, it was up nearly 5. Again, this is the best we've seen in a number of years. Middle market pricing for primary casualty was up 4 and a half, property 6 and a half, excess umbrella up over 6 and public D&O rates were up 18%. In our North America personal lines business, net premiums in the quarter were down 2%.

But adjusting for the expanded reinsurance that we have discussed in the past and an accounting change that impacted growth prior year, net premiums written were up about 2 and a half. Retention remained strong at 96%. And for homeowners, pricing was up nearly 10% in the quarter. Turning to our international business, growth accelerated in our overseas general insurance operation with net written premiums in constant dollars up 9%.

FX then had a negative impact of almost 6 points. Net premiums for our London market wholesale business were up over 24%, while our retail division was up 7 and a half, with growth led by Latin America, up almost 11; and Asia, up about 9%. In our London wholesale business, we continued to see a reduction in capacity and rates firming across multiple lines of business. We are also seeing a significant increase in submissions to Chubb as brokers worry about the continuity of markets and as they look to us as a preferred carrier of choice.

Overall rates in our London open market business were up over 9%, property was up 23 and a half, marine cargo almost 7 and a half, aviation was up 12, and onshore energy was up 15%. D&O rates in the London wholesale market were up 20%. Our life insurance business had a strong quarter and half year with contribution to earnings of 76 million year to date. John Keogh, John Lupica, Paul Krump and Juan Andrade can provide further color on the quarter, including current market conditions and pricing trends.

In closing, this was a good quarter for Chubb. We had momentum from a firming market, flight to quality and our various global growth initiatives. We're achieving rate, which is supporting margins and helping ameliorate exposures we observe on the loss side. In some, we have some wind in our sails, and we're taking advantage of it.

Our organization is focused, energized and hungry. With that, I'll turn the call over to Phil.

Phil Bancroft -- Chief Financial Officer

Thank you, Evan. Our balance sheet and overall financial position remained quite strong. We have 107 billion portfolio of cash and high-quality investments that is well rated and liquid, and we are generating substantial capital and significant positive cash flow. Cash flow in the quarter was 1.4 billion.

Among the capital-related actions in the quarter, we returned 720 million to shareholders, including 344 million in dividends and 376 million in share repurchases. Year to date, through yesterday, we have repurchased over 800 million in shares at an average price of $140 per share. In June, we paid off 500 million of debt that matured and issued 1.3 billion of eight- and twelve-year debt in the European market. The net proceeds will be used to repay our 1.3 billion senior debt at maturity in November 2020.

The debt was issued at an average rate of 1.14%. We grew tangible book value per share by 4.7% in the quarter and 11.9% year to date. Since the close of the Chubb acquisition in 2016, tangible book value per share has fully recovered from the initial 29% dilution, even excluding the favorable impact of unrealized gains.Our annualized core operating ROE in the quarter was 9.3% and our annualized core operating return on tangible equity was 15.2%. As a reminder, Chubb records a change in the fair value mark on its private equity funds as realized gains.

So therefore, it is not included in core operating income. Other companies record the impact of the mark as part of their investment income. This quarter, we had after-tax realized gains up 237 million, which would increase our core operating EPS by $0.51 and our annualized core operating ROE to 11.1%. Adjusted net investment income for the quarter was 902 million pre-tax, which was higher than our estimated range and benefited from a one-off accrual adjustment of 9 million and increased corporate bond for all activities.

During the quarter, interest rates continued to decline as financial markets anticipated a shift in Fed policy toward monetary easing. This favorably impacted our portfolio of mark-to-market, resulting in an after-tax unrealized gain of 1 billion. Although market yields have declined significantly in recent months, we will remain conservative in our investment strategy and do not contemplate any significant shift in asset allocation. Our investment income going forward will continue to benefit from growth in our invested assets and will be impacted by the level of market interest rates.

Despite the negative impact of lower rates, we expect net investment income to grow moderately due to our growth in invested assets and strong cash flow. We now expect our quarterly adjusted net investment income run rate to be in the range of 890 to 900 million going forward. Adjusted interest expense was 145 million pre-tax in the quarter. Factoring in the debt that matured and the new Euro debt issued in June, we expect our quarterly adjusted interest expense to remain the same for the balance of the year.

Pretax catastrophe losses for the quarter were 275 million, principally from U.S. weather-related events. We had favorable prior period development in the quarter of 188 million pre-tax or 152 million after-tax. This included 48 million of pre-tax adverse development on prior-year catastrophe losses, principally brought for Hurricane Irma and Typhoon Jebi, primarily in our assumed reinsurance operation, and 25 million pre-tax adverse development related to our runoff, non-A&E casualty exposures.

The remaining favorable development of 261 million is split approximately 90% from long-tail lines, principally from accident years 2015 and prior, and 10% from short-tail lines. Foreign currency movement adversely impacted core operating income by 23 million in the quarter. On a constant dollar basis, net loss reserves increased 831 million, reflecting catastrophe losses in the quarter and the seasonal increase in our crop reserve, offset by favorable prior period development. The paid-to-incurred ratio was 87%.Our core operating effective tax rate for the quarter was 15.3%, which is in line with our annual expected range of 14 to 16%.

Through six months, our core operating effective tax rate was 15%. I'll turn the call back to Karen.

Karen Beyer -- Senior Vice President, Investor Relations

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

Questions & Answers:


Operator

[Operator instructions] And we'll take our first question from Mike Phillips with Morgan Stanley. Please go ahead.

Mike Phillips -- Morgan Stanley -- Analyst

Thank you. Good morning everybody. First question on -- that I have on your comments of what's driving the rate activity and, I believe, you said something like it's income and reserve driven, not capital driven. So I guess, I wonder if you can expand upon -- that kind of implies there's going to be some timing of reserve issues and maybe what you've seen and why you mentioned reserve driven.

Evan Greenberg -- Chairman and Chief Executive Officer

Well, just simply, the rate has not kept pace with loss cost trend and that puts pressure on income and it puts pressure, ultimately, on reserves. You are either -- I think that it just imply, it says what it implies. The balance sheets over time have less redundancy in them and for some are adequate, for others -- and become negative for others. And you have a loss cost environment that in many ways in the headlines is stable, but you have areas of casualty and catastrophes and other areas within the business where there is volatility and there is trend pressure.

And so my comments meant to imply all of that. What I was saying to you is income and balance sheet not capital driven, that there is a dearth of capital. There is plenty of capital around and -- but it is more disciplined at this moment and it comes to -- it's deployed when the rate and terms are more adequate.

Mike Phillips -- Morgan Stanley -- Analyst

OK. That's helpful. I guess, if I could turn specifically to North America commercial lines, where, I guess, depending on what you use for 2Q '18 with your comments from last year, the structure settlements had some impact there. The core loss ratio deteriorated either by 70 bps or 170 bps depending on how you adjust for that.

Is that looks like kind of one of the highest core loss ratios for that segment in a while. We heard Trevor just talking about non-cat weather. I'm not sure if any of that came into play here for that segment for you or what else drove the uptick? And maybe has your view of loss trends in that segment changed since last quarter?

Evan Greenberg -- Chairman and Chief Executive Officer

Yes. Let's look at North America commercial P&C, let's look at on a current accident year ex cat. Last year ran an 87.4% combined ratio. This year ran an 87.9% combined ratio.

I mean, simply outstanding, world-class and in the 80s. So let's have that perspective. We wrote the same volume of LPTs this year that we did last year, and so no impact from that. It was simply rate and trend naturally, not non-cat weather or any of that, just simply rate and trend, something I've been saying for many quarters.

Mike Phillips -- Morgan Stanley -- Analyst

Thanks for the question.

Evan Greenberg -- Chairman and Chief Executive Officer

Thank you.

Operator

We'll take our next question from Elyse Greenspan with Wells Fargo. Please go ahead.

Elyse Greenspan -- Wells Fargo Securities -- Analyst

Hi. Good morning. My first question, Evan, is also -- just going back, I guess, to some of your comments to the previous question on just what you're seeing with loss trend. Are you guys seeing any changes in the environment? And I know there's a lot of different classes that blends together, but that 4.5% of trend that you said in the book for North America commercial, can you give us some perspective on how that would compare? And maybe it's not number.

Is this more qualitatively to what you've seen in some recent quarters?

Evan Greenberg -- Chairman and Chief Executive Officer

Sure. Elyse, in the aggregate, in the round, the loss cost trend is stable. We haven't seen a change in it. As you rightfully note though within that, it varies by class of business and area of business.

We've talked for a number of quarters for quite some time now about professional lines, D&O in particular and I won't repeat or go into what we've talked about, but -- simply about the increase in frequency, and in some areas, severity in that. You know in the reward environment, generally there has been less of an increase of frequency, but there have been headlines of increase in severity, jury awards, cases and you see it from commercial auto to product's liability that is chemical related. And then the trend from -- toward from #metoo and molestation and the specter in the future of the reviver statutes, which is unknowable at the time. So there is -- and then, the Australian market behaves a certain way and toward -- and the London market, the U.K.

where D&O had deteriorated. So you have -- it varies by area and by class of business. Comp on the other hand behave very well. General liability behaves in a steady way, reasonably steady.

So I hope that helps you.

Elyse Greenspan -- Wells Fargo Securities -- Analyst

Yes. That's helpful. And then on -- you said kind of talking through the core margin within North America commercial that the delta between this Q2 and last Q2 is really just due to rate versus trend. You seem, in your comments this quarter and also last quarter, pretty bullish on pricing and the fact that you would think it would continue.

So do you think we're reaching the point where -- obviously, it takes a while to earning the rate? But if you keep getting this rate and accelerates, do you think as we get into 2020, you can think about that being an environment where there will be some core margin improvement?

Evan Greenberg -- Chairman and Chief Executive Officer

We're in the risk business, so I can project the numerator reasonably well to you. I can't project and prognosticate the denominator -- the denominator I can project, I can't quite project the numerator the same way to you because we are in a risk business. And -- so -- look, rate exceeding trend is a simple statement. It's an ameliorating factor and that's a good thing.

We'll see what its impact is on margin in the future.

Elyse Greenspan -- Wells Fargo Securities -- Analyst

OK. And then one last quick numbers question. You guys mentioned you added a little bit to your Jebi loss in the quarter. What are you guys pegging that as for insured loss for the overall industry right now?

Evan Greenberg -- Chairman and Chief Executive Officer

I don't have a number in my head. My colleagues around the table don't, but we'll take it off-line with you and we'll give you a number.

Elyse Greenspan -- Wells Fargo Securities -- Analyst

OK. Thank you very much.

Evan Greenberg -- Chairman and Chief Executive Officer

You're welcome.

Operator

We'll take our next question from Yaron Kinar with Goldman Sachs. Please go ahead.

Yaron Kinar -- Goldman Sachs -- Analyst

Thank you. Good morning. Going back to North America commercial. So Evan, you're talking about world-class margins there and loss trends that are stable.

I guess, do you need more rate in that segment today? Or is this maybe an opportunity to try and take market share while others are still pushing for it?

Evan Greenberg -- Chairman and Chief Executive Officer

It varies by class of business. There is no general statement. Some classes are adequately priced, some classes need rate and terms and condition changes, and some classes need substantial rate. And so it varies.

It's -- there is not a simple box for that. But as I think you can see our new business is up, our renewal retention is high, we're in a more favorable underwriting environment and where it makes sense to us and we've got a lot of data and a lot of experience, we're leaning right into it.

Yaron Kinar -- Goldman Sachs -- Analyst

OK. And then, I guess, if I shift to the investment portfolio. So it sounds like -- apart from the comments that you're not really looking for any change in direction here even with the change in monetary policy, one thing I did notice was an increase in duration sequentially. Is that a strategic move? Or was that just kind of normal quarterly noise or movement?

Phil Bancroft -- Chief Financial Officer

It was simply technical. At the end of last year, we had decreased the duration because we weren't getting paid to take duration risk. And over the course of this year, it's drifted up slightly. But to the extent this would – half a point or half a year or four years, we don't think there's any material impact on our investment income.

Yaron Kinar -- Goldman Sachs -- Analyst

OK. So you're not necessarily looking to extend duration here?

Phil Bancroft -- Chief Financial Officer

We are not.

Yaron Kinar -- Goldman Sachs -- Analyst

OK. Thank you.

Operator

We will take our next question from Ryan Tunis with Autonomous.

Ryan Tunis -- Autonomous Research -- Analyst

Good morning. So clearly, terms and conditions rate have accelerated and improved throughout the year. Evan, would you say on the other side that that loss trend today is -- it's a more challenging environment than it was six months ago?

Evan Greenberg -- Chairman and Chief Executive Officer

No. I'd say it's -- if I compare six months ago to today, it's stable.

Ryan Tunis -- Autonomous Research -- Analyst

Fair enough. And then, I guess, I'll be the annoying one to ask about the crop, but just curious what the thought process was? And how you're thinking about the planting season? It didn't look like you put up a loss fig in agriculture. I'm not sure if you did, but just interested in your thoughts there.

Evan Greenberg -- Chairman and Chief Executive Officer

Sure. Let me make just a couple of comments about that and It's not annoying. I would be surprised if one of you didn't ask about. First of all, we did put up the loss ratio about two and a half points this quarter.

So -- but what you have to recognize, it's on a low earned premium base at this time of year. And it is not signaling at this point what you should imagine for third quarter or for fourth quarter at all. Given the wet weather conditions this spring and the potential impact on prevented planting or delayed planting along with the volatility in commodity prices, impact by trade and other factors, it's natural. The questions are raised about what kind of year we're anticipating for crop? So in a word, it's unknowable.

Our models under various scenarios point to a roughly average year. However, the actual tally of prevented planting claims, the summer growing season conditions and -- therefore, the result and quality of the crop, commodity prices and then the fall harvest weather conditions are all to play out. All of that's in front of us. So we simply raised our loss ratio modestly in the second quarter as a naturally conservative action with very little bit that we could say.

But it's unknown. If you know, then I'll tell you what, common over here, we're going to make a lot of money in hedging in commodities.

Operator

[Operator instructions] We'll take our next question from Paul Newsome with Sandler O'Neill. Please go ahead.

Paul Newsome -- Sandler O'Neill + Partners, L.P. -- Analyst

Good morning. Congrats on the quarter. I wanted to ask if I make my own assumption about where we are from a pricing versus loss cost spread, is there anything in either the North America commercial or the overseas business mix and business exchange that would affect that sort of easy -- that simple calculation for me?

Evan Greenberg -- Chairman and Chief Executive Officer

I'm -- you have to explain. I'm not really sure what you're asking me, Paul?

Paul Newsome -- Sandler O'Neill + Partners, L.P. -- Analyst

So what I'm asking is the natural business mix, all things being equal, going to be for a business that has lower or higher combined ratios because I think we're all making an assumption of whether or not Chubb hit a point where the earnings or the price increases are above claim cost inflation that gives us an estimate of when we think we're going to see an inflection in margins. But that calculation assumes basically that the business mix is the same in the various segments.

Evan Greenberg -- Chairman and Chief Executive Officer

The business mix within the segments is reasonably steady. There's not -- this is a big book of business. So there is not big shifts taking place. There's always -- every quarter it changes.

It's jittery. But in the round, the mix is quite steady.

Paul Newsome -- Sandler O'Neill + Partners, L.P. -- Analyst

OK. That's great. And then -- I'm sorry, I'm going to beat on crop a little bit. But is there a chance that given the delay in the -- potential delay in the harvest, we can see a change in the premium recognition from mainly in third to more in the fourth?

Evan Greenberg -- Chairman and Chief Executive Officer

No. It's formulaic, so no.

Operator

We'll take our next question from Brian Meredith with UBS. Please go ahead.

Brian Meredith -- UBS -- Analyst

Yes, thanks. A couple here for you. First, I'm just curious, in the overseas area, Evan, reserve release is going to really slow on a year-over-year basis. Were there any kind of one-timers there that was going on?

Evan Greenberg -- Chairman and Chief Executive Officer

No, there was not. No one-timers.

Brian Meredith -- UBS -- Analyst

OK. And then the growth you're seeing -- no one-timers. Got you. And the growth you're seeing in overseas, where is it coming from? Is that some of the distribution relationships you have, other things going on?

Juan Andrade -- Executive Vice President

Brian, this is Juan Andrade. The growth is actually pretty broad-based. As Evan said in his opening remarks, we certainly are seeing pretty good growth coming out of our London wholesale market operation as we see the market continuing to firm and we see contraction in capacity there. But underlying all of that and particularly for our retail businesses is really our strategies continuing to gain traction, and I'm talking about our strategies in the small commercial, the middle market, accident and health, personal lines on a global basis.

The distribution agreements are certainly doing well. We're getting good traction on all of that. So I would say it's really a combination of our organic strategies in addition to the rate that we're continuing to see now.

Brian Meredith -- UBS -- Analyst

Great. Thank you.

Operator

We'll take our next question from Jay Gelb with Barclays.

Jay Gelb -- Barclays -- Analyst

Thank you and good morning. Given the ongoing shifts we're seeing and tightening in the commercial property, casualty and insurance market, Evan, I'm wondering if in this environment, it might shift your thinking on mergers and acquisitions at all?

Evan Greenberg -- Chairman and Chief Executive Officer

No. Steady. And it doesn't shift with the times that way. So we know -- I have been very consistent in -- when asked this for many years now.

We are builders, and we're a company of builders. And we have a strategy to grow our company organically. Acquisitions complement that strategy. They help to advance it or improve upon it in any -- and the strategy is product, segment of customer, distribution and territory oriented.

And when we identify the right target or partner and financials and we judge it to advance our strategy in a positive way and will be accretive to our shareholders, their capital, then we are -- we know our minds, and we will pull that trigger.

Jay Gelb -- Barclays -- Analyst

That's helpful. Just to follow-up on that. With the potential for acquisitions to complement organic growth, does that imply you're more focused on bolt-on acquisitions as opposed to something larger or transformational?

Evan Greenberg -- Chairman and Chief Executive Officer

We're agnostic. I know you want me to say more, but I'm sorry. There's not really more to say there.

Operator

And we will take our final question from Meyer Shields with KBW.

Meyer Shields -- Keefe, Bruyette & Woods Inc. -- Analyst

Thanks. Good morning. And I was hoping you could talk about what you're seeing in reinsurance. We're hearing a lot of commentary that's very positive, especially on the catastrophe side, didn't see tremendous amount of growth in global reinsurance this quarter.

Evan Greenberg -- Chairman and Chief Executive Officer

Yes. The reinsurance market is, I think, modestly tightening. I think, for the most part, reinsurers are riding on the backs of primary writers. And if they feel pressure in their own income or balance sheet statements, then they are more taking action by the seasons they select and they are banking on Edens to get better rates and terms that ultimately will feed into their results.

It's more unusual than we've seen in the past. Typically, we would have seen a change in market pricing cycles, more reinsurance led. That hadn't happened. And I think in many cases, reinsurers are -- their results are inferior to that of insurers results.

And other than Chubb, I'm surprised they don't take more action in their underwriting positions on reinsurance and that they don't drive higher pricing, better terms for themselves. We'll, I can't prognosticate the future, but so far I see it's relatively modest, the changes in terms and conditions and pricing in the reinsurance market.

Meyer Shields -- Keefe, Bruyette & Woods Inc. -- Analyst

OK. That's very helpful. And second, Chubb came out with a fairly strong statement on climate change in the context of which entities you're willing to underwrite? Has that changed the, I guess, loss trend assumptions for property risk?

Evan Greenberg -- Chairman and Chief Executive Officer

No. You're referring to the position we took on coal and --

Meyer Shields -- Keefe, Bruyette & Woods Inc. -- Analyst

Yes.

Evan Greenberg -- Chairman and Chief Executive Officer

And it's a de minimis portion of our ratings.

Meyer Shields -- Keefe, Bruyette & Woods Inc. -- Analyst

OK, perfect. Thanks so much.

Operator

And ladies and gentlemen, we will take our next question from Greg peters with Raymond James.

Greg Peters -- Raymond James -- Analyst

Good morning. Thanks for squeezing my question. Evan, in the past you've commented on the impact of the tariffs and trade wars that seem to be evolving from quarter to quarter. And I wanted to give you an opportunity to give us an update on how you think the current environment has affected your business? And what we should be thinking about in our calculus about the results going forward?

Evan Greenberg -- Chairman and Chief Executive Officer

Yes. I don't -- we grew our overseas business by 9% in the quarter, and you see it's broad-based. So I don't see a linkage between tariffs and the health of Chubb's business. And our business is more idiosyncratic.

We are active in local markets around the world where you're impacted by their local economic plus their trade and their trade-related economic expansion. So yes, both. Look, when it comes to -- I'm not in favor of tariffs as a strategy. And I'm not in favor of putting the walls up and bringing your supply chains home.

This is a globalized world in terms of trade and world led by a vision -- America's vision of global trade. I continue to stand behind that, and I think that's the best path to peace and prosperity for the citizens of our nation. And so I hope that we will engage more in reaching conclusions to trade agreements than imposing further tariffs. Obviously, to the degree that tariffs and other actions, other protectionist actions taken slow down economic growth around the world, this country is not immune and the insurance industry is not immune because we grow -- we're exposure driven, not about premium.

Premium is a proxy for exposure, and we grow based on growth of exposure globally when economic activity grows or contracts exposure.

Greg Peters -- Raymond James -- Analyst

OK. Speaking about industries, one of the themes that has emerged for, I guess, a couple of years now is pricing -- price increases in commercial auto. And I'm trying to reconcile the desire by the insurance market to raise prices on the trucking industry. With the news, it seems like every other week we're hearing about troubles in the trucking industry, whether it's LME or Timmerman Starlite.

And so I'm curious what your perspective is on the balance between rate and fiscal survival of an industry?

Evan Greenberg -- Chairman and Chief Executive Officer

Well, we're not responsible for the fiscal survivor of any industry except our own. And I know from my perspective, I'm a fiduciary of shareholder capital that expects a reasonable return if we deploy that capital toward the trucking industry to take insurance risk. I can tell you that Chubb writes a fair amount of trucking-related long, medium and short-haul exposure. We work with clients who do -- who are embracing modern technology and -- that exists today and they've got strong balance sheets to lower their loss costs, to reduce their exposures, to police driver behavior.

And that results in amelioration of loss cost rises and therefore, the premiums we charge. It's a pretty rational circle of life there. And for those who simply operate in a less professional manner and can't police their loss cost will be -- to buy insurance is going to -- the price is going to be reflected. That's it.

Greg Peters -- Raymond James -- Analyst

Right. I'm not trying to suggest that you have financial responsibility for the trucking industry. I just realized that everyone wants to raise prices on long-haul trucking, etc. And yet, it seems like a lot of the long-haul truckers are having a lot of headwinds and their survival is in question.

So there is a balance to be had I suppose between charging higher prices and actually not being able to have a customer insured at all.

Evan Greenberg -- Chairman and Chief Executive Officer

Yes. But if it was -- and I understand what you're saying. If it was to raise prices to earn unreasonable margins or to earn any margin -- I mean, right now, the trucking business is not -- that's never been an easy business and to make any money in trucking. So is it better if you can't make any money to just say then I won't insure it at all.

They are uninsurable, they can't buy insurance. Now you go out of business instantly versus you're going to work with those who can work with themselves and help to reduce loss costs and ameliorate price. And so I tell you there is not a one size fits all in trucking. There are those who are quite professional and we work with them, and they have far more modest price increases than, say, those who don't have the wherewithal or capability or desire to embrace technologies that will help to ameliorate that rise in their loss cost.

It's the best I can do for you.

Greg Peters -- Raymond James -- Analyst

OK, great. Thanks for the answers.

Operator

And this does conclude today's question-and-answer session. I'd like to turn the call back over to Karen Beyer for additional or closing remarks.

Karen Beyer -- Senior Vice President, Investor Relations

Thank you all for your time and attention this morning. We look forward to seeing you again next quarter. Thanks, and have a great day.

Operator

[Operator signoff]

Duration: 47 minutes

Call participants:

Karen Beyer -- Senior Vice President, Investor Relations

Evan Greenberg -- Chairman and Chief Executive Officer

Phil Bancroft -- Chief Financial Officer

Mike Phillips -- Morgan Stanley -- Analyst

Elyse Greenspan -- Wells Fargo Securities -- Analyst

Yaron Kinar -- Goldman Sachs -- Analyst

Ryan Tunis -- Autonomous Research -- Analyst

Paul Newsome -- Sandler O'Neill + Partners, L.P. -- Analyst

Brian Meredith -- UBS -- Analyst

Juan Andrade -- Executive Vice President

Jay Gelb -- Barclays -- Analyst

Meyer Shields -- Keefe, Bruyette & Woods Inc. -- Analyst

Greg Peters -- Raymond James -- Analyst

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