Chubb Leveraging Hard Markets And Likely Ready For Another Deal

In the insurance industry, periods of strong pricing (“hardening” or “hard” markets) are often a mixed blessing. Pricing tends to be a lagging indicator for underwriting quality and reserve adequacy, so if prices are going up, somebody screwed up. If you own shares in an insurance company with healthy underwriting and reserves, though, it’s a good time and I believe that’s the case with Chubb (CB).

Chubb is a very well-respected insurance company, even the bears typically acknowledge the quality of management and the business. While Chubb has seen pressures from rising loss severity (“social inflation”) and has seen some erosion in reserve surplus, underwriting/reserves really aren’t a major issue, and Chubb can leverage this hard market to write good business.

I think the price today on Chubb shares is pretty fair. Buy today and I think you can reasonably expect a long-term total annualized return in the high single-digits that is basically on par with what the stock has generated over the long term.

 

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Chubb Leveraging Hard Markets And Likely Ready For Another Deal