Chubb gets an earnings bump on Wall St. as Berkshire ups its position

Shares in Chubb Ltd. have reacted positively to a fourth-quarter earnings season, which was capped off by Berkshire Hathaway Inc. revealing that it had increased its stake in the insurer.

Investors had given Chubb a 9.7% boost since Jan. 21, the day before property and casualty insurers started reporting results, as of market close on Feb. 19. The insurer reported its results on Feb. 4, which included a 24.7% year-over-year rise in net income for the quarter to $3.21 billion.

Citizens JMP Securities analyst Matt Carletti said the vote of confidence from one of the world's largest investors came at the right moment.

"At a time when the insurance markets, more broadly, are just getting a little more competitive, that additional vote of confidence in Chubb, despite moving through a cycle, is a very, very positive sign," Carletti said in an interview.

Fellow P&C carriers, The Travelers Cos. Inc., up 10%, and The Allstate Corp., up 4.9%, have also risen in the market during the season. while the S&P 500 dipped 0.2% and the S&P 500 Insurance Index rose 1.6%.

Buffett's farewell gift

Berkshire Hathaway's additional investment in Chubb was revealed when the company released its Form 13-F on Feb. 18. Before stepping down as CEO at the end of last year, Warren Buffett purchased an additional 2,916,288 shares in Chubb in the fourth quarter, boosting Berkshire's total stake to 34,249,183 shares valued at $10.7 billion.

Berkshire's original investment in Chubb was a purchase of 8.1 million shares in the third quarter of 2023. Additional investments in the fourth quarter and the first quarter of 2024 boosted the company's stake to $6.72 billion at the end of the first quarter.

Buffett's final act added to the idea that both the short-term and long-term prospects are "really solid," said Keefe, Bruyette and Woods analyst Meyer Shields. He said that Chubb's book of business has lines that "do not follow the pricing cycle, whether we're talking about crop or accident and health."

"The takeaway for us is that the respect you get from a competitor clearly outlines that [Chubb] is a good company," Shields said.

Carletti said the attraction for Berkshire, and investors as a whole, comes down to earnings and continued growth.

"On one part, its [the] continued incredible strength of earnings and ... earnings quality, too," Carletti said. "It is across the board and ... showing just the strength of the franchise."

As far as the growth factor, the increased competition in some areas of the P&C sector is making growth a scarce commodity for investors, which leads them to a company like Chubb.

"I think that investors are maybe coming to appreciate a little more the kind of global franchise with the opportunities and the breadth of the lines of business that Chubb has," Carletti said. "That should provide it with more opportunities than most of their peers."

Q4 earnings insight

Shields characterized the earnings season as "decent," as insurers' bottom lines benefited from a lack of catastrophic events in the US, as well as continuing price increases.

"When we look at pricing ... getting a lot of people nervous, we're still talking about rate increases," Shields said. "I think there was a lot of pessimism baked into the P&C industry, and earnings were nowhere near as bad as valuations seem to suspect."

There are still some concerns over pricing pressure, but Shields said, "it's just the cycle playing out."

"When the industry is being led by good companies, then the cycles are less destructive than they've been in the past," Shields said. "I remind [investors] that, yes, no one likes to talk about things like price competition, but the base case is actually pretty good, so we're not starting from a bad spot."