Chubb (CB)

Global insurance provider Chubb Limited (NYSE:CB) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 7.5% year on year to $16.14 billion. Its non-GAAP profit of $7.49 per share was 21.8% above analysts’ consensus estimates.

Company Overview

Dating back to when a Civil War veteran created a frost-proof water meter, Chubb Limited (NYSE:CB) provides commercial and personal property and casualty insurance, reinsurance, and life insurance products to a diverse client base across 54 countries.

Multi-line insurance companies operate a diversified business model, offering a broad suite of products that span both Property & Casualty (P&C) and Life & Health (L&H) insurance. This diversification allows them to generate revenue from multiple, often uncorrelated, underwriting pools while also earning investment income on their combined float. Interest rates matter for the sector (and make it cyclical), with higher rates allowing insurers to reinvest their fixed-income portfolios at more attractive yields and vice versa. The market environment also matters for P&C operations specifically, with a 'hard market' characterized by pricing increases that outstrip claim costs, resulting in higher profits while a 'soft market' is the opposite. On the other hand, a key headwind is increasing volatility and severity of catastrophe losses, driven by climate change, which poses a significant threat to P&C underwriting results.

Chubb's major competitors include other global insurance giants such as AIG (NYSE:AIG), Travelers (NYSE:TRV), Allianz SE (OTC:ALIZY), and Zurich Insurance Group (OTC:ZURVY). In specialty lines and high-net-worth insurance, Chubb also competes with Berkshire Hathaway's (NYSE:BRK.A, NYSE:BRK.B) insurance operations.

Insurers earn revenue three ways. The core insurance business itself, often called underwriting and represented in the income statement as premiums earned, is one way. Investment income from investing the “float” (premiums collected upfront not yet paid out as claims) in assets such as fixed-income assets and equities is the second way. Fees from various sources such as policy administration, annuities, or other value-added services is the third. Luckily, Chubb’s revenue grew at an impressive 10.7% compounded annual growth rate over the last five years. Its growth beat the average insurance company and shows its offerings resonate with customers, a helpful starting point for our analysis.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Chubb’s annualized revenue growth of 9.3% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, Chubb reported year-on-year revenue growth of 7.5%, and its $16.14 billion of revenue exceeded Wall Street’s estimates by 2.3%.

Net premiums earned made up 89.7% of the company’s total revenue during the last five years, meaning Chubb barely relies on non-insurance activities to drive its overall growth.

Net premiums earned commands greater market attention due to its reliability and consistency, whereas investment and fee income are often seen as more volatile revenue streams that fluctuate with market conditions.

When insurers sell policies, they protect themselves from extremely large losses or an outsized accumulation of losses with reinsurance (insurance for insurance companies). Net premiums earned are therefore net of what’s ceded to reinsurers as a risk mitigation and transfer strategy.

Chubb’s net premiums earned has grown at a 9.6% annualized rate over the last five years, a step above the broader insurance industry but slower than its total revenue.

When analyzing Chubb’s net premiums earned over the last two years, we can paint a similar picture as it recorded an annual growth rate of 9.1%. This performance was similar to its total revenue.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For insurance companies, we look at the combined ratio rather than the operating expenses and margins that define sectors such as consumer, tech, and industrials.

The combined ratio is:

• The costs of underwriting (salaries, commissions, overhead) + what an insurer pays out in claims, all divided by net premiums earned

If a company boasts a combined ratio under 100%, it is underwriting profitably. If above 100%, it is losing money on its core operations of selling insurance policies.

Given the calculation, a lower expense ratio is better. Over the last five years, Chubb’s combined ratio has swelled by 8.3 percentage points, going from 91% to 89%. However, the company gave back some of its expense savings as its combined ratio worsened by 2.3 percentage points on a two-year basis.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Chubb’s EPS grew at an astounding 29.5% compounded annual growth rate over the last five years, higher than its 10.7% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its combined ratio didn’t improve.

We can take a deeper look into Chubb’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Chubb’s combined ratio improved by 8.3 percentage points over the last five years. On top of that, its share count shrank by 11.6%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Chubb, its two-year annual EPS growth of 12.8% was lower than its five-year trend. This wasn’t great, but at least the company was successful in other measures of financial health.

In Q3, Chubb reported adjusted EPS of $7.49, up from $5.72 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Chubb’s full-year EPS of $23.33 to grow 10.4%.

The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.

If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.

Chubb currently has $17.23 billion of debt and $71.86 billion of shareholder's equity on its balance sheet, and over the past four quarters, has averaged a debt-to-equity ratio of 0.3×. We think this is safe and raises no red flags. In general, we’re comfortable with any ratio below 1.0× for an insurance business. Anything below 0.5× is a bonus.

Return on equity (ROE) serves as a comprehensive measure of an insurer's performance, showing how efficiently it converts shareholder capital into profits. Strong ROE performance typically translates to better returns for investors through a combination of earnings retention, share repurchases, and dividend distributions.

Over the last five years, Chubb has averaged an ROE of 13.7%, respectable for a company operating in a sector where the average shakes out around 12.5% and those putting up 20%+ are greatly admired. This shows Chubb has a narrow competitive moat.

It was good to see Chubb beat analysts’ EPS expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. Zooming out, we think this was a good print with some key areas of upside. The stock remained flat at $313.42 immediately after reporting.

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Chubb.

There are a lot of things to like about Chubb. To kick things off, its revenue growth was impressive over the last five years. And while its projected EPS for the next year is lacking, its astounding EPS growth over the last five years shows its profits are trickling down to shareholders. On top of that, its improving combined ratio shows the business has become more productive.

Chubb’s P/B ratio based on the next 12 months is 1.6x. When scanning the insurance space, Chubb trades at a fair valuation. If you trust the business and its direction, this is an ideal time to buy.

Wall Street analysts have a consensus one-year price target of $311.09 on the company (compared to the current share price of $313.42).