Slowed Dividend Growth with Chubb – Invest Carefully

Chubb is a leading property and casualty insurance company in the world. It is the largest commercial insurer in the U.S. and one of the largest financial line writers globally. The company offers both traditional and specialty insurance products to diverse clients and companies. Its products include commercial and personal property and casualty insurance, personal accident and supplemental health insurance, reinsurance, and life insurance.

Chubb operates in 54 countries and territories through more than 625 global offices. Nearly 40% of the company’s business is international with a presence in Europe, Africa, Asia, Latin America, and Canada. Over the years, Chubb has built a solid reputation for financial strength and successful underwriting execution.

Chubb operates through six business segments: North America Commercial P&C Insurance (41% of 2019 consolidated NPE), North America Personal P&C Insurance (15%), North America Agricultural Insurance (6%), Overseas General Insurance (28%), Global Reinsurance (2%), and Life Insurance (8%). The company has a well-balanced mix of business, 66% commercial lines, 34% consumer lines, and has more than $181 billion in assets.

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Revenue Growth & Market Exposure

Chubb serves a diverse group of clients ranging from individuals and families to businesses of all sizes. The company has highly sticky customer relationships with an annual 90% client retention rate. Its Combined Insurance affiliate caters to middle-income households while its consumer business serves America’s most affluent individuals and families. The company has an extensive distribution channel comprising of over 50,000 brokers and independent agents, more than 85,000 life and health agents, and hundreds of direct-to-consumer partnerships connecting tens of millions of potential customers. Chubb is known for its insurance coverage and service and for paying its claims fairly and promptly.

As the fifth-largest insurer in the world (measured by market capitalization), Chubb has been growing at a fast pace in the international markets with balanced commercial and consumer portfolios. The company continues to expand its presence in China with an increased ownership stake in Huatai Insurance Group for future growth. It is also using enhanced digital technology to improve the overall customer experience.

Chubb’s net catastrophe losses amounted to $1,510 million after-tax, including COVID-19 catastrophe losses of $1,157 million. Its P&C combined ratio was 112.3% compared with 90.1% in the prior year. The pandemic had an adverse effect on the company’s business. Investors became anxious about the potential liabilities of the insurance industry.

Dividends

Chubb is a Dividend Aristocrat with a 25+ year track record of annual dividend increases. The company has been paying dividends each quarter since its IPO in 1993. The company has a target payout ratio of nearly 30%. It returned about $1.4 billion in dividends and over $1.5 billion in share repurchases to shareholders in the last year. The company last increased its dividend by 4.7% and has an attractive dividend yield of 2.56%. It has a payout ratio of 65% and has raised its dividends by 9.6% CAGR over the last decade.

Chubb has a strong balance sheet with quality credit ratings. It has a 97% premium retention record annually. Insurance products offer very little differentiation and hence pricing plays a major role when customers buy. Given its large scale and success in diversifying the risks, Chubb exercises significant pricing power. The company has a long history of managing risk associated wih writing premiums and paying the claims. Chubb has maintained a combined ratio of below 100% over the years, until the recent spike.

With decades of experience, the company has developed extensive product and service offerings, broad distribution capabilities, and exceptional financial strength to serve multinational corporations, mid-size and small businesses as well as high net worth individuals. Chubb is well-placed to address the growing financial needs of emerging nations as small and mid-sized businesses mushroom in these countries. It has the required extensive range of commercial insurance offerings and distribution channels to serve them.

Competition

Chubb competes on an international and regional basis with major U.S., Bermuda, European, and other international insurers and reinsurers. Additionally, it faces competition from stock companies, mutual companies, alternative risk-sharing groups, and other underwriting organizations. The company also has a strong local presence while serving the needs of multinationals and is known for its industry-leading claims and risk engineering services.

Bottom Line

Chubb’s strong fundamentals and an experienced management team should help it steer the difficult times. The company should gain from its large international presence, competitive global franchises, leading businesses, and world-class service quality reputation. It continues to grow its exposure and market share, taking advantage of commercial P&C underwriting conditions. Chubb is well-positioned to leverage its position and gain from the growing global P&C market.

Dividend Adjusted Charting by StockRover.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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