California’s Insurance Market: A Growing Concern
The Golden State is becoming increasingly challenging for insurers, and Chubb CEO Evan Greenberg is sounding the alarm. With a steadfast commitment to only writing insurance policies that yield a reasonable return on risk, Chubb has managed to report impressive 2024 results.
A Strong Quarter, A Strong Year
“We’ve had an outstanding year, the best in our company’s history,” Greenberg exclaimed during the company’s fourth-quarter earnings call. Chubb’s shares surged 3% on Wednesday, building on a 13% gain over the past year. Despite recent pressure from costly wildfires in the Los Angeles area, the insurer remains confident in its ability to navigate the risks.
Wildfires and Artificially Suppressed Prices
Greenberg addressed the elephant in the room, acknowledging that Chubb expects to incur $1.5 billion in net pretax costs in the first quarter due to the wildfires. However, he emphasized that the company had reduced its exposure by 50% in affected areas. The real issue, according to Greenberg, lies in the state’s and consumer advocacy groups’ efforts to suppress premiums, which only encourages people to take on more risk.
Managing Risks and Growing Earnings
Despite the challenges, Greenberg expressed confidence in Chubb’s ability to grow operating earnings and EPS at a double-digit rate. He attributed this growth to three key sources: property and casualty underwriting, investment income, and life income. With sustained inflation on the horizon, Greenberg believes rates will continue to rise, but Chubb is well-positioned to maintain its competitive edge.
Commercial Middle-Market Opportunities
Chubb is poised to capitalize on the growing demand for commercial middle-market lines, which cater to companies with less than $1 billion in revenue. As climate change and catastrophe events increase, regional and mutual insurers will struggle to keep up, Greenberg said. Chubb’s data, balance sheet, and reinsurance relationships give it a distinct advantage in this space.
Bragworthy Growth Metrics
Chubb’s performance is backed by impressive numbers. Property and casualty underwriting income rose 7% in 2024, with a combined ratio of 86.6%. Global P&C premiums written grew almost 10% during the same period, while life premiums jumped 18.5% in constant dollars. Net investment income rose 13.7% to $1.69 billion on an adjusted basis.
Insuring the Affluent
Chubb’s focus on insuring high net worth individuals contributed significantly to its fourth-quarter strength. Premium growth in this segment rose 10%, including a 34% bump in new business. Homeowners pricing also rose more than 12% for the quarter, ahead of loss costs.
Agriculture and Crop Insurance
As the market leader in crop insurance, Chubb reported a slight decline in agriculture premiums due to lower commodity prices and a change in the risk formula with the U.S. government. Despite this, the insurer remains committed to navigating the complexities of California’s insurance market.
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