California is a tough market for insurers — and growing more so, according to Chubb CEO Evan Greenberg.
The executive has long proclaimed that Chubb won’t write insurance where it can’t get a reasonable return for taking on risk. And it’s that approach that helped it report strong 2024 results.
“We had a great quarter, which contributed to an outstanding year. In fact, the best in our company’s history,” Greenberg told analysts on the company’s fourth-quarter earnings call.
Chubb shares are trading 3% higher on Wednesday. The stock has risen 13% over the past year, but has been under pressure this month as the Los Angeles area battled costly wildfires. Chubb, along with Allstate and Travelers, are among the publicly traded insurers expected to have some of the greatest exposure.
Greenberg kicked off the company’s earnings call immediately addressing its exposure to the disaster. Right now, it expects to see $1.5 billion in net pretax costs in the first quarter.
Chubb had reduced its exposure by 50% in the areas where wildfires occurred, he said.
The state, as well as consumer advocacy groups, are preventing insurers from charging premiums that truly reflect the risks in the area, he said, explaining that the artificially suppressed prices are only encouraging people and companies to opt for riskier places to live and work.
“Frankly, it’s an unsustainable model, and one way or the other, the citizens of the state paid for the price for coverage,” he said. “California is not alone in this regard, but it certainly stands out.”
Best. Year. Ever.
Greenberg expressed confidence in Chubb’s ability to manage the risks the industry faces.
“While we’re in the risk business and there’s plenty of uncertainty in the world, we’re confident in our ability to continue growing operating earnings and EPS at a double-digit rate, tax and [foreign exchange] notwithstanding. Our earnings growth will come from three sources: [property and casualty] underwriting, investment income and life income.”
He said he expects the industry is in a period of sustained inflation – and so rates are rising just to stay steady, which may not affect margin improvement.
Why size matters
Greenberg said Chubb is positioned competitively to grow its commercial middle market lines, which serve companies smaller than $1 billion, because there’s a lot of change in climate and catastrophe events and growth in litigation. Regional and mutual insurers “have a harder time” in this area, he said.
“They’re not equipped with the data, with the balance sheet, with depth of business in reinsurance relationships to be able to … compete the same way,” he said.
On multiple metrics, the company is seeing bragworthy growth.
P&C underwriting income rose 7% in 2024 from the prior year, with a combined ratio of 86.6%. Global P&C premiums written grew almost 10% during the same period, with life premiums jumping 18.5% in constant dollars.
During the lastest quarter, Chubb reported net income of $2.58 billion, or $6.33 per share. Excluding items, it earned $6.02 per share. Net investment income rose 13.7% to $1.69 billion on an adjusted basis.
Chubb has been making its mark by insuring more affluent customers, and that contributed to its fourth-quarter strength. Premium growth in this segment rose 10%, including a 34% bump in new business, the company said.
“Premiums in our true high net worth segments, the group that seeks our brand for the differentiated coverage and service we are known for, grew 17.6%,” it added.
Homeowners pricing rose more than 12% for the quarter and ahead of loss costs.
Chubb, the market leader in crop insurance, said agriculture premiums fell a bit because of lower commodity prices and a change in the risk formula with the U.S. government.