Chubb’s earnings blew past the Street. Here’s why the stock is falling

Chubb’s stock is falling on Wednesday despite a big earnings beat and a slew of price target increases by Wall Street analysts.

Instead of focusing on those numbers, investors are spooked by signs of a softening property insurance market, with competition increasing and rates declining.

On Wednesday’s earnings call, CEO Evan Greenberg noted those pressures by calling the aggressive lowering of prices in the industry to win new business “dumb.”

Chubb is intentionally shrinking its business in large accounts and excess and surplus lines, where it feels the price it’s getting isn’t adequate for the risk.

Piper Sandler analyst Paul Newsome called Chubb’s approach to softening prices “deliberate.”

“We think the takeaway from the quarter was that Chubb is more focused on profitability than growth,” Newsome wrote.

While that may be turning off some investors in the near term, it is “the right thing to do,” said the analyst.

Most analysts were positive like Newsome.

TD Securities analyst Andrew Kligerman credited Chubb’s “exceptional underwriting” for its earnings beat. The company reported first quarter EPS of $6.82, against consensus expectations of $6.60 according to Refinitiv.

Greenberg said he feels confident in the company’s balance sheet, earnings power and liquidity position, despite the risk of rising inflation from the Iran war.

“The impact of the war adds a degree of pressure to certain financial, fiscal, and economic strengths stresses, such as underlying inflation, fiscal deficits and sovereign debt, global supply chains, and financial valuations, including equity and credit, and a growing energy shortage, to name a few,” Greenberg said.

He described his geopolitical outlook as concerned, but said the impact of the war is “not something that I’m really wringing my hands about.”

Chubb has been named the administrator of the federal government’s marine reinsurance for ships trying to transit the Persian Gulf and the Strait of Hormuz, but Greenberg says so far no ships have taken advantage of it.

The threat of cyber warfare conducted by Iran or its proxies have also put insurers on notice – and potentially opened new business opportunities.

Greenberg says medium-sized companies are especially vulnerable – more targeted than small business because they have more money, and less capable and focused on a strong digital defense.

Plus, he says Anththropic’s Mythos exposed new vulnerabilities that can be exploited by AI.

When it comes to fighting back, Greenberg said “The arms race is on.” 

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