6 May 2016 Insurance

Underwriting profits climb at Chubb post ACE deal

Chubb, the company that now includes the combined operations of ACE and Chubb following their January merger, reported a 35.6 percent fall in its net income for the first quarter of the year, compared to the prior-year quarter, mainly thanks to integration costs relating to the deal, which was technically a takeover by ACE.

The firm reported a profit of $439 million in the first quarter of 2016, compared with $681 million for the first quarter of 2015. Chubb said that the fall in profit was affected by integration costs and related expenses of its takeover by ACE, which amounted to $148 million.

But its underwriting income, comparing periods as if the two companies were one a year ago, was up by 23 percent to reach $720 million.
Driven by the merger of the two companies, the firm increased its gross written premiums (GWP) in the quarter – up to $7.4 billion, compared with $5.3 billion in the first quarter of 2015.

Evan Greenberg, chairman and chief executive officer of Chubb, said: "We're off to a good start as the new Chubb with strong earnings for the first quarter, driven by excellent operating and underwriting results exclusive of the impact of one-time acquisition-related costs.

“Comparing our results in 2016 to 2015 as if we were one company in both periods, our earnings per share (EPS) in 2016 were $2.29 and our underwriting income of $720 million was up 23 percent over prior year with an excellent combined ratio of 88.9 percent. Book value per share was up over 10 percent, or 2.3 percent when excluding the merger impact, while our annualised operating ROE for the quarter was over 10 percent.

He added: "Total premium revenue in the quarter was impacted by market conditions as we maintained underwriting discipline, as well as continued foreign exchange headwinds and integration-related activities.

“Our client renewal retention rates were very strong in the quarter, so the impact to growth came predominantly from new business, where greater momentum has begun to build. The impact of merger-related focus is diminishing and foreign exchange should have a reduced effect in the second quarter. In fact, we are already beginning to see evidence of both.”

Greenberg also said that Chubb now predicts it we will surpass its original run-rate target for integration-related expense savings and, separately, it expects to increase its investment income run rate from what it would otherwise earn as a result of investment portfolio management improvements.

“In sum, the value creation that will come from the new Chubb is exceeding our initial expectations,” he added.

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