Evan Greenberg, President and Chief Executive Officer of Chubb Ltd., arrives for the morning session of the Allen & Co. Media & Technology Conference on Wednesday, July 10, 2019 in Sun Valley, Idaho, USA.
Patrick T. Fallon | Bloomberg | Getty Images
Chubbs The stock is trading lower on Wednesday despite strong earnings beats and a significant increase in the price target by Wall Street analysts.
Instead of focusing on these numbers, investors are spooked by signs of softening in the property and casualty insurance market, including increased competition and falling premium rates.
On Wednesday’s earnings call, CEO Evan Greenberg pointed to these pressures, calling it “ridiculous” for the industry to aggressively lower prices to win new business.
Chubb is intentionally cutting back on large accounts and excess/surplus line business where it feels the prices available are not adequate for the risks.
Piper Sandler analyst Paul Newsome said Chubb’s approach to softening prices is “deliberate.”
“I think the lesson of this quarter is that Chubb is focused on profitability over growth,” Newsom wrote.
While it may turn some investors off in the short term, it is “the right thing to do,” the analyst said.
Chubb, YTD
Most analysts were as positive as Newsom.
TD Securities analyst Andrew Kligerman credited Chubb’s “exceptional underwriting performance” for the outperformance. The company reported first-quarter EPS of $6.82, compared to consensus estimates of $6.60, according to Refinitiv.
Greenberg said he was confident in the company’s balance sheet, profitability and liquidity position, despite the risk of higher inflation from the Iran war.
“The effects of the war are putting some pressure on certain fiscal, financial, and economic strength stresses, including underlying inflation, budget deficits and sovereign debt, global supply chains, financial valuations, including equity and credit, and increasing energy shortages, to name a few,” Greenberg said.
He said he was concerned about his geopolitical outlook, but said the impact of war was “not an issue that I take seriously.”
Mr. Chubb was appointed administrator of the federal government’s marine reinsurance for ships attempting to transit the Persian Gulf and the Strait of Hormuz, but Mr. Greenberg said no ships have taken advantage of the insurance so far.
The threat of cyber warfare waged by Iran or its proxies is also drawing attention to insurance companies, potentially opening up new business opportunities.
Greenberg said midsize businesses are particularly vulnerable and are more likely to be targeted because they are better funded, less capable, and focused on strong digital defenses than smaller businesses.
Additionally, he says Anthropic’s Mythos has exposed new vulnerabilities that can be exploited by AI.
Regarding the counterattack, Greenberg said, “There’s an arms race starting.”
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