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Chubb Fairly Valued, Pricing Power Seen

By    |   Tuesday, 01 May 2012 02:26 PM

Chubb (CB) is in a sector, insurance, in which many of the biggest names suffered major blows from recent global weather events and turmoil in the financial markets. Nevertheless, analysts believe Chubb is fairly valued and some predict that insurers will soon get pricing power.

Chubb is a holding company for a family companies that sells property and casualty insurance to businesses and individuals around the world. It is the 12th largest U.S. property and casualty insurance group based on 2010 net written premiums, according to A.M. Best.

Chubb reported total assets of $50.9 billion and shareholders’ equity of $15.6 billion at the end of 2011. The group is divided into three strategic business units. Chubb Personal Insurance offers coverage of homes, automobiles and other personal possessions, along with options for high limits of personal liability coverage. Chubb Personal also provides supplemental accident and health insurance in niche markets.

Chubb Commercial Insurance offers a full range of commercial insurance products, including coverage for multiple-peril, casualty, workers’ compensation and property and marine. Chubb Commercial Insurance also is known for writing niche business.

Finally, Chubb Specialty Insurance offers a wide variety of specialized professional liability products for privately and publicly owned companies, financial institutions, professional firms and healthcare organizations. Chubb Specialty Insurance also includes a surety business.

The group provides insurance coverages principally in the United States, Canada, Europe, Australia, and parts of Latin America and Asia.

Pricing power may be on Chubb’s side going forward. Chief financial officers, risk managers, and other commercial insurance decision makers face a tougher pricing environment in the coming months in the property and casualty insurance market, according to the latest Lockton Market Update.

"Although casualty insurance capacity is still strong, its impact on pricing continues to fade," Lockton casualty experts Jesse Olsen and Stacy Seaburg say. "Instead, carriers are focused on return on capital." Many insurance carriers are attempting to raise prices and stiffen underwriting guidelines to increase returns to stakeholders, meaning tougher renewal conversations for insurance buyers, Lockton reports.

Chubb has a market cap of $19.76 billion in a sector, insurance, where the average company size is $13.2 billion. Its trailing 12-month P/E ratio is 12.41 and its five-year projected price-to-earnings-growth (PEG) ratio is 1.40, compared to 7.15 for the sector.

Its projected earnings per share growth for the coming year is 1.01 percent, lower than the sector average at 13.81 percent.

Favorable results

Wall Street is bullish on Chubb, offering up multiple buy or outperform calls, including from Keefe, Bruyette & Woods, Raymond James, and Credit Suisse. William Blair & Co. rate the stock at underperform.

“Our hold recommendation reflects our view that the shares of this prudent underwriter are fairly valued at recent levels.We believe concerns over the adequacy of loss reserves in the professional liability unit may be eased by relatively favorable year-to-date underwriting results in that line,” Standard & Poor’s analysts wrote in recent report.

Chubb next reports on July 19.

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Tuesday, 01 May 2012 02:26 PM
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