Chubb : 2023 Chubb Annual Report

Chubb Limited Annual Report 2023

A Record-Breaking Year

Contents

Financial Summary

Chairman and CEO Letter to Shareholders

Review of Operations Sustainability at Chubb

Chubb Group Corporate Officers and Other Executives

1 2 22 43 44

Chubb Limited Board of Directors 46

Shareholder Information Non-GAAP Financial Measures Form 10-K

47 48

Swiss Statutory Financial Statements Swiss Statutory Compensation Report

Core Operating EPS $22.54 A record and up 48.5%

$22.54

Core Operating Income $9.34B A record and up 45.2%

$9.34B

Consolidated Net Premiums Writte 13.5% Increase

Consolidated Net Premiums Written

P&C Combined Ratio 86.5% A record

Adjusted Net Investment Income $5.34B A record and up 32.8%

$5.34B

All metrics are for the year 2023

As Adjusted
In millions of U.S. dollars	Year Ended	Year Ended	Percentage	Percentage
except per share data and ratios	Dec. 31, 2023	Dec. 31, 2022	Change	Change
Constant
Dollars
Gross premiums written	$57,526	$51,978	10.7%	10.7%
Net premiums written	47,361	41,720	13.5%	13.5%
Net premiums earned	45,712	40,360	13.3%	13.1%
P&C combined ratio	86.5%	87.6%	NM
P&C current accident year combined ratio
excluding catastrophe losses	83.9%	84.2%	NM
Chubb net income	9,028	5,246	72.1%
Core operating income	9,337	6,429	45.2%
Diluted earnings per share - Chubb net income	21.80	12.39	75.9%
Diluted earnings per share - core operating income	22.54	15.18	48.5%
Total investments	136,735	113,551	20.4%
Total assets	230,682	199,017	15.9%
Chubb shareholders' equity	59,507	50,519	17.8%
Book value per share	146.83	121.85	20.5%
Book value per share excluding AOCI	163.64	146.42	11.8%
Tangible book value per share	87.98	72.51	21.3%
Tangible book value per share excluding tangible AOCI	102.78	94.90	8.3%
Return on equity	16.4%	9.6%	NM
Core operating return on tangible equity	24.2%	17.0%	NM
Core operating return on equity	15.4%	11.1%	NM
This document contains non-GAAP financial measures. Refer to
pages 48-51 for reconciliations to the most directly comparable
GAAP measures.
NM-not meaningful
1

Evan G. Greenberg

Chairman and Chief Executive Officer

Chubb Group

To My Fellow Shareholders

Chubb produced another year of record financial results in 2023. All divisions of the company contributed to our growth in operating income, which topped $9.3 billion, up 45%, with operating income per share up 49%. Operating income was double the amount from pre-COVID 2019. Three sources contributed to this growth - property and casualty (P&C) underwriting income, investment income and life insurance income - and each delivered new highs in operating performance.

We benefited one time from Bermuda's new income tax law, which added about 12% to earnings. Without this, core operating income was $8.2 billion, up 28%, and again a record.

We had another year of double-digit consolidated premium revenue growth, which reached $57.5 billion, up nearly 40% from three years ago. We continued to capitalize on favorable commercial P&C underwriting conditions around the world while growth accelerated in our global consumer businesses, supported by global non-life accident and health (A&H) insurance, North America high-net-worth personal lines, and our Asia life insurance business, which is also mostly supplemental A&H and risk products.

At our core, we are an underwriting company, dedicated to the art and science of taking risk. We have outperformed the industry in the craft of risk-taking for 20 years, and last year was no exception. We once again achieved industry-leading underwriting profitability with $5.5 billion in underwriting income and a record combined ratio of 86.5%, which is a real trick given our size and global breadth and speaks to our management, culture, and underwriting governance processes.

On the invested asset side, we are predominantly fixed-income investors, and we capitalized on our strong liquidity, higher rates and widening spreads while maintaining an average "A" rating. Adjusted net investment income grew 33% to $5.3 billion.

We advanced a number of our longer-term strategies that position us for future revenue and earnings growth, including attaining after 20 years of effort a significant majority stake in Huatai Group in China, a holding company with life, non-life and asset management subsidiaries. Over the longer term, Huatai should contribute meaningfully to revenue and earnings growth in both our life and non-life operations.

We are continuing to invest in our competitive profile to ensure future value creation. As I look forward,

I am confident in our ability to continue growing operating earnings and earnings per share at a superior rate through the combination of P&C revenue and underwriting income, investment income and life income.

An organization built for purpose and value creation

Let me begin as usual by giving you, our owners, a view

of who and what the company you are invested in is all

about. The characteristics and features come together

to create what I believe is a company synonymous with

quality, an ambitious and enduring organization built for

purpose and value creation.

Chubb is one of the largest insurers in the world as

measured by our market capitalization of more than

$100 billion as of this writing. Since 2013, we have tripled our market cap, reflecting our scale and income-

generating power. When I became CEO, our market cap

was about $12 billion. We have grown market cap since

by more than 11% per year. We achieved this not simply

by getting larger, but, more importantly, by delivering

value to shareholders. Our total return to shareholders

over the same period, measured on a per-share basis and

including dividends, grew similarly at 11.4% per year,

outpacing the S&P 500 at 9.9% and the S&P 500 P&C

Index at 10.2%.

We are global and well diversified with a deep local presence in 54 countries and territories, a true insurance multinational - one of only a few in the world - and we see a lot of room to grow over time. We are well integrated with a thoughtfully constructed portfolio of top-performing, multibillion-dollar businesses with substantial scale and potential for growth. Many are clear market leaders. While we are the largest commercial P&C insurer in America, 60% of our total company premium revenue originates outside our North America commercial division. About 30% of our global commercial P&C business and almost 50% of our global consumer P&C business is outside the U.S., and both have been growing quickly.

We have a well-balanced mix of business by customer and product. About 62% of our revenue and earnings globally comes from insuring businesses, where we serve the smallest to the largest companies with more than 200 different property and casualty-related products, and 38% comes from insuring individuals. We insure people's lives and their health as well as the things they own - everything from autos to homes and their contents to the gadgets they own. Our business insuring high-net-worth individuals in the U.S. is core to our brand recognition for quality.

By design, we market through an extensive range of distribution channels to reach the target buyer most effectively. In addition to being a vital partner of the largest global brokers, our distribution network spans 50,000 brokers and independent agents, hundreds of thousands of exclusive life and health agents, and hundreds of direct-to-consumer partnerships that give us access to hundreds of millions of existing and potential customers through digital, phone and face-to-face sales. We are, in fact, the largest direct marketer of insurance in Asia, and one of the largest in the world, through both digital and telemarketing channels.

Culturally, we are builders with a clear vision. Over the past 20 years, we have grown organically first and then added complementary acquisitions that advanced our strategy further. Few companies in any industry have our record of successfully acquiring and integrating businesses while at the same time building organically. We are hungry, results-focused and maniacally execution-oriented, with a relatively flat management structure that enables rapid decision-making and oversight, combined with a rigorous governance process to ensure discipline and consistency. We have consistently focused on talent management, patiently grooming over many years a deep, multi-generational leadership bench that is of our culture and brings decades of experience to bear, ensuring continuity of standards and knowledge for a long time to come.

The result is an enviable long-term track record of financial outperformance, including growth in earnings, tangible book value and book value, underpinned by distinguished underwriting and investment results.

Another year of underwriting outperformance

Last year was another above-average year in the U.S. and around the globe in terms of natural catastrophes (CATs) and one of the costliest on record for the insurance industry. Global insured losses from CATs exceeded $100 billion for the fourth consecutive year, above the 10-year average. The absence of a single, major insured CAT event globally was striking. A frequency of severe convective storms, e.g., tornadoes and thunderstorms, accounted for $60 billion of industry losses - an all-time high.

Exacerbated by climate change and urbanization, the industry and society face a growing frequency of costly CATs from a variety of perils. For Chubb, our total pre-tax CAT losses in 2023 were $1.8 billion, which, ironically,

I am confident in our ability to continue growing operating earnings and earnings per share at a superior rate through the combination of P&C revenue and underwriting income, investment income and life income."

was below our expected losses - a mathematically derived number that by definition is always wrong and simply represents an expected average over time. In truth, it was the other side of volatility, and we were simply lucky.

Chubb's underwriting performance last year was exceptional. As you can see from the nearby chart, our underwriting margin surpassed the average of our peers by almost 10 percentage points; over the past 10 and 20 years, the outperformance has been about eight and seven points, respectively. As a secondary measure of underlying health, our current accident year combined ratio excluding catastrophe losses, which strips out the volatility of CATs and claim reserve movement, was 83.9% - a record low. As we and other insurers become more CAT-levered by writing more property insurance business, of course, this ratio drops. You well know my view: The best measure for investors is the published calendar year combined ratio, which includes CATs and reserve movement. Volatility of margin and income is a feature of a company in the risk business.

The most important part of our balance sheet is our loss reserves, which back our liabilities and stand at $80 billion. We have always managed our reserves conservatively. In terms of loss development, we recognize bad news early and are slow to recognize favorable development. As I have said for years in this letter, insuring casualty is not for optimists. Our current reserve adequacy is as strong as I can remember.

Favorable conditions for both commercial and consumer lines, but beware of risk

For the year, commercial P&C underwriting conditions were broadly favorable around the globe and prices, in aggregate, increased at a faster pace than loss costs. My colleagues who lead our $39.7 billion global commercialP&C business - of which, again, two-thirds originates in the U.S. and one-third is international - did a great job capitalizing on these favorable conditions and produced net premium growth of 8.6%. Since 2019, we've grown our commercial P&C insurance business by about 50%.

Loss-cost inflation is a reality, both property-related and especially liability-related, and remains elevated, particularly in the U.S., due to a combination of societal attitudes toward business and a money-making litigation industry that is becoming more global. Lawyers seeking plaintiffs under the guise of Robin Hood righting a wrong have increased their advertising on billboards and the airwaves: About 800,000 television ads for litigation ran last year. The frequency of severity of liability losses, i.e., large liability awards, continues to increase, especially around anything with wheels. Think commercial fleets, transportation and logistics. Casualty loss-cost inflation also comes from other powerful sources that create new exposures, such as advancements in technology and science or new laws. Lately, we have forever chemicals, responsibility for climate change and climate disclosures, and cyber-related privacy exposures, to name a few.

Of course, there is plenty of appropriate litigation brought to truly address a wrong, but then there is excessive litigation, which is a tax on the economy, business and innovation. In total, litigation costs are estimated at about 2.1% of GDP - a major tax on society and innovation. Ultimately, the business community needs to band together, pool resources and take the lead in driving reforms if we are to bring costs down. The insurance industry is hardly the right constituent to lead the change: As an industry, we don't garner much

At times, shedding revenue when we can't make a profit is a strength and, in fact, leads to improved profit margins and income growth for Chubb. In this business, choosing to shrink at the right moments is a strength."

sympathy. However, we are actively seeking out and supporting efforts to address reforms at a state and local level, advocating for changes such as those around joint and several liability laws or mandatory disclosure of who is funding a lawsuit so juries and judges can see the true motivations for many suits and requests for award.

In the meantime, we will underwrite casualty with the legal environment as we know it. That means at times shedding revenue when we can't make a profit, which is a strength and, in fact, leads to improved profit margins and income growth for Chubb - the opposite of how some uninformed sell-side analysts at times simplistically perceive our business. In this business, choosing to shrink at the right moments is a strength.

Growth in our $19.4 billion global consumer lines operations accelerated in 2023, with strong results in both our consumer P&C and life insurance businesses. In the U.S., the results were driven primarily by our high-net-worth personal lines business, which experienced the best growth in recent memory, and in Asia from growth in our A&H division. Total company consumer premiums increased 24%.

Record financial performance in '23

Again, our financial results were simply outstanding with numerous records achieved:

• • Core operating income was $22.54 per share, up 49% compared with 2022 - and without the one-time tax benefit I mentioned earlier, it was $19.80 per share, up 30%. Either way, our operating earnings and per share were a record result. As you know, our preferred means of growing earnings per share is by investing in and growing the company and not shrinking our way to greatness through excessive capital management.

• • Total consolidated net premiums written, which are the premiums we retain on our balance sheet, were $47.4 billion, up 13.5%. P&C net premiums grew 9.9% to $41.9 billion, while Life Insurance premiums and deposits grew more than 30% to $7.1 billion.

• • P&C underwriting income of $5.5 billion was up 20%, driven by growth in revenue and margin.

• • We have been slowly building our Life Insurance business for more than 15 years, and life income for the first time exceeded $1 billion, up 59%.

• • We invested a record amount of cash and even accelerated portfolio turnover to raise more money to take advantage of higher interest rates and widening spreads, and we began to extend duration. Investment income increased to a record $5.3 billion, up 33% over prior year, and will continue to grow without a change to our portfolio risk profile.

Insurance is a balance sheet business, so we measure wealth creation by growth in tangible book value and book value. I firmly believe long-term tangible book value growth is the best measure of economic value creation for a few reasons. Tangible equity is our most constraining factor when it comes to growth, and we cannot pay claims out of goodwill. For the year, book and tangible book value per share increased 20.5% and 21.3%, respectively.

Our core operating return on equity (ROE) and core operating return on tangible equity (ROTE) last year were 15.4% and 24.2%, respectively. Without the one-time tax benefit, our core operating ROE and core operating ROTE were 13.6% and 21.6%, respectively. All of these are well in excess of our cost of equity capital, which is around 8.5%, so we are creating a lot of value for shareholders.

P&C Combined Ratio Versus Peers

The company's underwriting results have outperformed the average of its peers over the last 20 years.

1 Includes AIG, ALL, CNA, HIG, TRV. Source: SNL and company disclosures

Averages:	1 year	3 year	5 year	10 year	15 year	20 year
Peers1	96.1%	96.1%	96.3%	97.5%	98.2%	97.5%
Chubb	86.5%	87.7%	90.0%	89.9%	90.3%	90.8%

105% 100%

95% 90% 85%

2023 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004

For an ambitious and acquisitive company such as Chubb, ROE and ROTE are distorted by purchase accounting requirements, which employ accounting theory that, frankly, distorts the true economic returns derived from an acquisition. In Chubb's case, these distortions scrub about 50 basis points on average from our ROE and about 75 basis points from our ROTE. Let me provide a simple, common-sense example of what I mean by distortion, which arises from the treatment of intangible assets - including what's called VOBA, which stands for value of business acquired - when one buys a life business.

Typically, an in-force insurance portfolio that we are acquiring produces substantial future earnings, a key rationale for the transaction. Purchase accounting requires the acquirer to record the entire present value of those earnings as an asset and amortize it over time.

A profitable book of business like our recent Cigna acquisition leads to a higher asset value and, ironically, results in a higher amortization charge, making the acquired business look less profitable than it was when owned by those we bought it from. Those intangibles depress our ROE.

Another example: We are forced when we purchase a commercial P&C company to ascribe a portion of the purchase price to the brokerage relationships that were the source of the business and amortize that over a defined period as if it's an asset with a diminishing value.

Pure theoretical nonsense. A better measure of ROE and ROTE recognizes and transparently adjusts for these distortions.

We expect to continue generating an ROE in the range of 13%+ and a tangible ROE of 20%+ on a published basis, and then add 50 and 75 basis points to whatever we publish for a better economic view.

Why our excess capital deserves to be valued at a premium to book value

We have told you for many years that our policy is to hold excess capital for both risk and opportunity, and that has served you well. That excess capital has created, on average, a drag on ROE of 1-2 percentage points depending on the period and how much we are holding. We would rather have some modest dilution to our ROE from holding excess capital and improve our accretion when used for an acquisition. We are constantly evaluating opportunities to deploy this cash, but we are patient and disciplined. An acquisition must meet our standard of return and must advance the strategy we are already pursuing organically. We have spent $47 billion on M&A over the past 15 years. The internal rate of return (IRR) on our cash from M&A has been 16% - almost double our cost of capital. Therefore, it stands to reason that if you think we are good stewards of capital, then our excess capital should be valued at a premium to book value.

In our company, independent of annual budgets, we prepare a rolling five-year plan. I introduced the process almost 20 years ago. Looking back, it's stunning how close our actual results have been over the years relative to what we imagined in the five-year plans - some up, some down, but over time pretty close. I must admit, though, that the path to how we got there was sometimes wildly different than what we had imagined. This leads me to the simple notion of intrinsic value of the company. We have a pretty good sense of ours. Our intrinsic value is substantially higher than our current share price, and the beauty: That's intrinsic value at a moment in time. If we are doing our job, it is continuing to increase over time. Chubb remains a bargain hiding in plain sight.