Argus Expects Solid Returns From Insurer Chubb, But Says Shares Are Fairly Valued

Specialty insurer and reinsurer Chubb Ltd CB, formed from ACE Ltd.'s acquisition of Chubb Corp. in January 2016, is poised to generate solid returns over time, thanks to a "strong management team, healthy balance sheet and strong brand," according to Argus. 

The Analyst

Analyst John Staszak initiated coverage of Chubb with a Hold rating.

The Thesis

Notwithstanding rising costs, Chubb is likely to benefit in 2018 from a more favorable underwriting environment, improving economic conditions and a lower U.S. corporate tax rate, Staszak said in a Friday note.

Last year's high catastrophe losses are expected to normalize in the coming quarters, leading to a stronger combined ratio for Chubb, the analyst said. 

"Management noted that retention rates remain strong, and that premiums continue to rise modestly both in the U.S. and in international markets." 

Argus expects the combined entity to benefit from substantial cost and revenue synergies and strong international diversification.

The sell-side firm estimates earnings per share of $11 for 2018 and $11.70 for 2019.

"Our long-term earnings growth rate estimate is 8 percent," Staszak said.

Chubb shares are trading at 12.3 times the company's 2018 earnings per share estimate and are fairly valued, the analyst said. The shares trade at a discount to the average 13 times multiple seen over the past three years, the firm added.

The Price Action

Chubb shares are down over 1 percent over the past year.

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