Expansion Into Climate+ Business Will Fuel Future Opportunities

Key Takeaways

• Strong underwriting performance and global expansion opportunities suggest potential for increased revenue and net margins.
  
• Robust investment income growth and shareholder returns indicate potential for future earnings and EPS growth.
  
• Multiple risk exposures, including catastrophe risks, competitive pressures, FX volatility, and interest rate changes, threaten Chubb's profit margins and financial stability.

Catalysts

Provides insurance and reinsurance products worldwide.

• Strong growth in Global P&C and Life premiums, with P&C growing 6.7% and Life 8.5% in the fourth quarter, indicating potential for future revenue increases.
  
• Expansion opportunities in various regions and sectors, such as North America, Asia, Europe, Latin America, and the growing Climate+ business, which could drive further revenue growth.
  
• Strong investment income growth, with a 19.3% increase to $6.4 billion, and a current new money rate averaging 5.6%, indicating potential for future earnings growth.
  
• Maintained strong underwriting performance with a combined ratio of 85.7%, and a 2-point improvement in the current accident year combined ratio excluding CATs, suggesting potential for increased net margins.
  
• Share repurchases and dividends returned $3.5 billion to shareholders, potentially driving EPS growth with an average share repurchase price of $269.23.

Chubb Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Chubb's revenue will decrease by -2.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 18.3% today to 21.1% in 3 years time.
• Analysts expect earnings to reach $10.6 billion (and earnings per share of $27.69) by about January 2028, up from $10.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $12.3 billion in earnings, and the most bearish expecting $9.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.9x on those 2028 earnings, up from 11.0x today. This future PE is greater than the current PE for the US Insurance industry at 12.8x.
• Analysts expect the number of shares outstanding to decline by 1.76% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.24%, as per the Simply Wall St company report.

Chubb Future Earnings Per Share Growth

Risks

• The California wildfires represent a significant catastrophe exposure, with Chubb estimating more than $1.5 billion in net pretax losses for the first quarter of 2025, potentially impacting future earnings and profit margins.
  
• The competitive pressures in the financial lines and certain property lines, where market players are aggressively pursuing market share at the expense of current accident year underwriting margins, may affect Chubb's ability to maintain or grow profit margins in these segments.
  
• Foreign exchange (FX) losses adversely impacted book value growth this quarter, and continued FX volatility could undermine overall financial stability and book value appreciation.
  
• Unrealized mark-to-market losses on Chubb's fixed income portfolio, affected by interest rate changes, led to an adverse impact on book value, introducing risks of further reductions if interest rates continue to rise.
  
• There is evidence of a competitive market environment in large accounts and shared and layered property sectors, which may constrain premium growth and affect revenue growth as competitors drive pricing.

Valuation

• The analysts have a consensus price target of $297.77 for Chubb based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $330.0, and the most bearish reporting a price target of just $245.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $50.1 billion, earnings will come to $10.6 billion, and it would be trading on a PE ratio of 12.9x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $272.27, the analyst's price target of $297.77 is 8.6% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.