It was a wild week for the market. Between Wednesday and Thursday, the Dow fell over 1300 points. It was a steep decline, but also an opportunity to buy additional shares. In this case I added a new stock to my portfolio; Chubb Limited (CB). The company was on my radar for a while because of their global presence, diversified product lines, and status as a dividend champion. However, the company continuously traded at a hefty premium. At one point this year, the company traded at $155. With this latest decline I was able to scoop up $2,000 worth at only $126/share. Natural disasters and the latest “correction” each contributed to the nearly 30-point decline.
Chubb Limited, the parent company of Chubb, is an international insurance provider headquartered in Zurich, Switzerland. Insurance products include property and casualty, life, accident and health, and reinsurance. Chubb has over 20,000 employees and does business is 54+ countries. Chubb Limited, as we know it today, was formed when Ace Limited acquired Chubb in 2016. Ace then adopted the Chubb name. Roughly 63% of the company’s revenue comes from North America, further indicating a strong international presence. Chubb is a financially strong company, but earnings sometimes fluctuate based on catastrophic global events.
Regarding financial performance, the company’s earnings have been trending up over the long term. However, earnings can be affected by claims from natural disasters. For example, earnings actually increased during the recession. In contrast, Chubb’s earnings fell slightly in 2011, 2015, and 2017. In October of this year Chubb reported a preliminary loss of $372 million related to Hurricane Florence, California wildfires, a Colorado hailstorm, and typhoons in Asia. The main takeaway here is acts of God can detract from earnings growth. The question is, how does the company respond? The answer is by expanding the risk pool and adding more customers! Chubb is moving in the right direction as premiums collected have spiked from $39.57 in 2008 to approximately $70 in fiscal 2019.
The company has about $14.5 billion in debt and a debt-to equity ratio of 0.24. This low ratio is probably why Value Line gives the company an A+ for financial strength and a “1” for safety. Premium payments have increased handily over the years and the P/E remains a modest 12.4. Even better, the payout ratio is only 27% as of fiscal 2018. Clients have been bearing recent rate hikes quite well and policy retention levels have climbed. And while acts of God can impact earnings, the company has done a good job at managing risk and growing their customer base. In my case, Chubb adds more diversification towards the financial sector. Depending on how this recent correction unfolds I’ll likely continue to average into this position in the near future.
DISCLAIMER: I am long on Chubb Limited (CB). I am not a licensed investment adviser or tax professional. I am not liable for any losses incurred by any parties. This blog should be viewed for entertainment and/or educational purposes only. Any transactions published are not recommendations to buy or sell any securities. Please consult with an investment professional before making investment decisions.