Management at global insurer and reinsurer Chubb have highlighted an adverse large loss trend in homeowners business, and the firm is taking underwriting actions and rate increases to offset the impacts.
Chubb recently announced its financial results for the third-quarter of 2018, which revealed catastrophe losses of $450 million and a core operating profit of $1.1 billion.
Speaking during the firm’s third-quarter 2018 earnings call, Philip Bancroft, Executive Vice President (EVP) and Chief Financial Officer (CFO) of Chubb, explained that the company had positive prior-period development in Q3 of $243 million, pre-tax, which includes $65 million of net adverse development related to homeowners’ lines, where losses trended higher than expected.
Paul Krump, EVP, Chubb Group President, North America Commercial and Personal Insurance, explained during the earnings call that Chubb’s current accident year ex-cat loss ratio for personal risk services (PRS) is up by 5.7 points in Q3 when compared with Q3 2017. And, the deterioration is driven more by larger water and non-cat weather and fire losses in the homeowners’ line.
“We’ve experienced an increased frequency and severity throughout the year, which, frankly, has been seeping in for the last two years. We don’t think we’re alone in the industry here, in experiencing this elevated loss activity, and we’re not dismissing it as simple, normal volatility.
“We recognise we have a portfolio of homeowners and the amount of rate needed to achieve adequacy varies by region and cohort, from no rate increases required to something more substantial. We’re already surgically addressing this issue by zip code, age of home, construction, size of property, supporting ancillary lines of business and the type of dwelling our insured owns,” said Krump.
He continued to note that alongside already taking more rate where needed, Chubb is addressing this issue with underwriting actions, including both predicting and preventing losses.
“We don’t believe simply passing on rate increases will win the day,” said Krump.
For Chubb, explained Krump, the issue is a homeowners one, and while homeowners business makes up half of the firm’s PRS book of business, it is not the entire portfolio and the other lines are performing well.
The firm’s Chairman and Chief Executive Officer (CEO), Evan Greenberg, noted during the earnings call that pricing was up by 2.7% in the quarter, which is the strongest rate increase quarter for homeowners for a number of years.
“We are taking and will continue to take underwriting and pricing actions, which, over a reasonable period of time, will bring our loss ratios back in line,” said Greenberg.
Analysts at Goldman Sachs have commented on this trend, noting that comments from Chubb suggest that homeowners’ underlying loss ratios deteriorated, year-on-year, about 10% in the third-quarter, and by about 5% year-to-date.
