Chubb's Safe Harbor

By Gene G. Marcial

Low P-E, High Potential
The hurricane season is here, signaling dire prospects of big damage claims against property and casualty insurers. And with Hurricane Frances threatening Florida, insurance stocks are being battered. But to Robert Stovall, managing director at Wood Asset Management, now is the time to buy shares of Chubb (CB ): It's a "top-quality major insurer that is well equipped in claim reserves and resources to weather the storm," says Stovall. The stock, down to 67.34 from 74 in March, is undervalued, he says. It was featured in this column on Jan. 16, 2003, when it was at 56. Stovall notes that Chubb is now trading at an historically low price-earnings ratio of 9.7, based on analysts' 2004 consensus estimate of $6.96 a share, vs. 2003's $4.46. Their 2005 forecast is $7.62. Hurricane Charley, which hit Florida in August, cost insurers about $7.4 billion, according to industry estimates. Of that, Chubb, which mostly insures upscale homes, estimates it probably will shoulder some $40 million -- well below analysts' forecasts. Gary Wood, CEO of Wood Asset, which owns shares, says Chubb is his top choice in the group for its growth prospects and conservative management. He expects it will raise its premiums again. Alain Karaoglan of Deutsche Bank Securities (DB ), which owns shares and did banking for Chubb, says the stock is cheap: Now trading at 1.7 times its estimated 2005 book value of $51.23, it should jump to 85 in a year, he says.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

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