Chubb Profit Surges, Beating Estimates, as Margins Gain

Chubb Corp., the insurer of corporate boards and high-end homes, said profit surged as margins improved a year after Superstorm Sandy.

Fourth-quarter net income rose to $569 million, or $2.24 a share, from $102 million, or 38 cents, a year earlier, the Warren, New Jersey-based company said today in a statement. Operating profit, which excludes some investment results, was $2.07 a share, beating the $2.04 average estimate of 20 analysts in a Bloomberg survey.

Chief Executive Officer John Finnegan has been increasing rates for commercial clients to cushion higher expenses from catastrophes including Sandy, which cost the company $882 million before tax in the fourth quarter of 2012. Property-casualty insurers increased year-over-year commercial rates by 3 percent in December, compared with about 4 percent in each of the prior two months and 5 percent in September, according to U.S. MarketScout data compiled by Bloomberg.

“It’s a little less friendly of an environment, but Chubb is a company that’s proven it can handle that,” Meyer Shields, an analyst at Keefe Bruyette & Woods Inc., said in a telephone interview before the earnings report. “Rates industrywide are still rising, but they’re rising by a little less.”

Chubb said that 2014 operating profit will probably be in the range of $7.10 to $7.40 a share, compared with the average estimate of $7.55 in a Bloomberg survey of 21 analysts. The forecast includes losses related to freezing weather from U.S. storms Jan. 3 through Jan. 8.

Frozen Pipes

The insurer forecast a cost from the events of $150 million to $200 million before tax, or 39 cents to 52 cents per share after tax. Many of the claims were tied to frozen pipes that burst, Dino Robusto, executive vice president, said on a conference call today.

Full-year profit for 2013 jumped 52 percent to $2.35 billion from $1.55 billion in 2012. Book value, a measure of assets minus liabilities, rose to $64.83 a share from $62.04 at the end of September.

Chubb has advanced 7.8 percent in the past year to $86.76 at 4:01 p.m. in New York, compared with the 33 percent gain in the 24-company KBW Insurance Index. Results were released after the close of regular trading.

Chubb also announced a plan to buy back as much as $1.5 billion worth of stock. The insurer repurchased $1.3 billion of shares in 2013.

Fourth-quarter premium revenue gained 3.9 percent to $3.04 billion. The company projected policy sales will increase 2 percent to 4 percent in 2014.

Combined Ratio

Chubb spend 85.5 cents on claims and expenses for every dollar in premiums for the quarter, compared with a cost of $1.11 in the fourth quarter of 2012 when Sandy struck the U.S. East Coast.

Travelers Cos., the property-casualty insurer in the Dow Jones Industrial Average, said Jan. 21 that fourth-quarter profit more than tripled as claims costs from natural disasters fell. The stock posted the second-biggest decline in the Dow that day after saying the pace of rate increases was slowing.

Finnegan’s term was extended in October until the end of 2016 after the board waived its policy on retirement age citing its “high level of satisfaction with the CEO.” Finnegan, who led the company since 2002, turns 65 tomorrow.

Chubb’s fourth-quarter investment income fell to $349 million from $365 million a year earlier.

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