Chubb Limited (CB): Underwriting Excellence and Strategic Growth Fuel a Strong Buy

Chubb Limited (CB) stands out in the property and casualty (P&C) insurance sector as a paragon of underwriting discipline and strategic foresight. Despite its premium valuation, the insurer's industry-leading margins, robust capital allocation, and accelerating growth in high-potential markets justify a Strong Buy rating. Let's dissect why Chubb is positioned to capitalize on secular trends while mitigating risks through its diversified playbook.

The Power of Underwriting Excellence

Chubb's property and casualty combined ratio of 86.6% in 2024—8-9 percentage points below peers—is a testament to its superior risk management and pricing power. This metric, which measures underwriting profitability (below 100% means profit), reflects Chubb's focus on risk selection, operational efficiency, and expense control (26.2% expense ratio).

Even excluding catastrophe (CAT) losses, Chubb's accident-year combined ratio was 83.1%, proving its resilience to volatile tail risks. This consistency allows Chubb to thrive in an industry where competitors often struggle with CAT volatility.

Growth Engine: Asia and Strategic Acquisitions

Chubb's Asia expansion is a key growth lever. The region contributes 20% of total premiums, with accident and health (A&H), life, and personal lines accounting for 75% of its Asian business. Recent moves, such as acquiring Liberty Mutual's insurance operations in Thailand ($150M net premiums) and Vietnam ($125M), underscore its inorganic growth strategy. These deals, pending regulatory approval, will expand Chubb's distribution network to 56 branches, 2,600 brokers, and 26 finance partners in Southeast Asia.

The acquisitions complement Chubb's existing 800 offices across 15 Asian markets, including its majority stake in Huatai Group (China's first foreign-owned financial holding company). This geographic diversification reduces reliance on any single region while tapping into Asia's $3 trillion+ P&C market, growing at ~6% annually.

Industry Tailwinds: Pricing Power and Investment Yields

The P&C sector is in a golden cycle: rate hikes (+6-8% in hard markets) and improving loss ratios are boosting profitability. Chubb's disciplined underwriting ensures it captures these rate increases without compromising quality. Meanwhile, its $15.9B operating cash flow and $84B in reserves provide ample capital to fund growth.

On the investment side, Chubb benefits from higher interest rates, driving its net investment income to $6.4B in 2024 (+19%). With $76B allocated to fixed income and $15B to alternatives, Chubb's portfolio is structured to outperform in a rising-rate environment.

Capital Allocation: ROE Leadership and Shareholder Returns

Chubb's return on equity (ROE) of 13.7% in 2024 outpaces the industry average of ~9%, reflecting efficient capital use. Its 31-year streak of dividend increases (most recent: 5.8% to $3.64 annualized) and $2B+ share repurchases in 2024 highlight its shareholder-friendly stance. With a low payout ratio of 14.5%, Chubb retains ample flexibility to reinvest or return capital.

Risks and Why They're Manageable

Critics may cite Chubb's premium valuation (P/B of 2.2 vs. industry 1.5) and $53B debt. However, its strong liquidity ($24B cash equivalents) and AA+ credit ratings mitigate leverage risks. The valuation, while rich, is justified by its 12.8% annual tangible book value growth and sustainable underwriting margins.

Investment Thesis: A Strong Buy at $392

Chubb's $392 price target (20% upside from current levels) reflects its earnings trajectory and catalysts:
1. Asia growth: Acquisitions in Thailand/Vietnam and organic expansion in A&H/life insurance.
2. Rate hikes: Continued pricing power in hardening P&C markets.
3. Investment tailwinds: Rising yields and disciplined portfolio management.

While valuation is a near-term concern, Chubb's long-term structural advantages—underwriting excellence, geographic diversification, and capital strength—position it to outperform.

Final Call: Strong Buy with a hold for 3+ years horizon. Monitor CAT exposures and geopolitical risks, but trust Chubb's execution in this high-conviction sector.

Data as of June 2025. Past performance does not guarantee future results.