What happened
Shares of Chubb (CB 1.51%) rose 18.1% in October, according to data provided by S&P Global Market Intelligence.
The insurer announced earnings on Oct. 25 and beat estimates for revenue and earnings -- leading analysts to raise their price targets for the insurer.
NYSE: CB
Key Data Points
So what
Chubb reported solid growth in the third quarter, with revenue up 12% from the same quarter last year. The insurer saw its net premiums earned increase by 15% from last year -- seeing growth across its different policies. Premiums from its property and casualty lines of coverage were up 11% (in constant dollars). Premiums from life insurance grew 109% -- reflecting the closing of its acquisition of Cigna's business in Asia.
Chubb did see losses increase slightly in the quarter due to Hurricane Ian, which hit the west coast of Florida in September. In total, the hurricane caused $975 million in catastrophe losses. Despite this, the company maintained good profitability on the policies it wrote during the period.
Its combined ratio, or the ratio of expenses and losses to its premiums written, was a solid 93.1% -- down slightly from last year, when it was 93.4%. Insurers like to see this ratio stay below 100%; the lower the percentage, the better.
One other area where Chubb took a hit was in its investment portfolio. Insurance companies put their cash to work in investments to generate additional income. Insurers have seen their investment portfolios take a hit this year, as rising interest rates have caused a decrease in the value of their fixed-income investments -- resulting in bigger losses on their books. Chubb saw net losses of $502 million in the quarter after putting up $687 million in gains during the same quarter last year.
Despite this, analysts remained optimistic about the insurer. Raymond James Financial maintained a strong buy rating on the company, raising its price target from $260 to $270. Wells Fargo also maintained its overweight rating and raised its price target from $250 to $253.
Now what
During inflationary times, businesses and consumers cut costs where they can. However, insurance is one place where you can't skimp. That's because regulations often require both businesses and consumers to own policies to protect themselves and others. As a result, insurers can easily pass on increasing costs to consumers.
Insurance companies also benefit from rising interest rates in the long run. The past decade of ultra-low interest rates has made it difficult for insurers to generate good risk-adjusted returns on these investments. Even though higher interest rates have weighed on its portfolio this year, Chubb put cash to work in investments earning 5.8% on average -- above its portfolio yield of 3.4%.
Chubb has performed well this year because of its ability to adjust to inflationary pressures and buy assets with higher interest rates -- which should be a positive for the business moving forward.
