Is Chubb Stock A Buy?

Chubb Ltd (NYSE:CB) was founded in Bermuda in 1985 before relocating to Zurich, Switzerland. It’s a component of the S&P 500 and a major global insurance provider. It covers a broad range of property and casualty and manages over $175 billion in assets across 54 countries and territories.

You may buy its insurance, but do you buy shares – is Chubb stock a Buy?

The insurance giant is one of few insurers to recover its share price losses fully. In 2021, it made further waves by partnering with fintech company Revolut to provide purchase protection.

Not only is it the largest publicly traded property and casualty insurance company, but Chubb reported the highest customer satisfaction rating in 2020. It’s operating in a whole new world of cybercrime and losses, and it continues pivoting to remain relevant.

Can Chubb protect its investors’ long-term interests or if it’ll leave their portfolios at a loss?

 Chubb Is A Global Insurance Conglomerate

Chubb is a global insurance company that covers property and casualty, along with commercial lines insurance. It offers a broad range of policies for P&C, personal accident, agriculture, supplemental health insurance, reinsurance, and life insurance.

It grew through a series of acquisitions in the 2010s, including the namesake company. It was originally named ACE Insurance until it bought Chubb Corporation in 2015 for $28.3 billion in cash and stock.

This is the insurance company BP plc (NYSE:BP) used to settle claims regarding its Deepwater Horizon oil spill. It also paid out $3 billion in claims related to the 9/11 attacks.

Chubb is now the largest property and casualty company in most countries it services. That makes it the largest in the world too. Of course, it’s not without controversies – the company was investigated by then New York Attorney General Eliot Spitzer for its insurance practices.

To prevent further inquiry, the company paid an $80 million settlement. Since then, it had little resistance in its continuous climb to higher valuations. That was before the market crashed and CB share price rebounded.

Some bullish investors think now’s a good time to buy Chubb stock.

Is Chubb Stock A Buy?

Chubb Ltd has a fair market price per share of $160.32 according to a discounted cash flow analysis. Sentiment among analysts is split between neutral and upbeat. 8 of 13 analysts are on the fence with a Hold rating while the balance are on the Buy side.

Earnings per share dropped in the company’s third fiscal quarter of 2020. That was the COVID quarter and it reported -$0.56 earnings per share for that quarter. It rebounded back to $2.00 per share in the fourth quarter, but that fell far short of analyst expectations of $2.16.

CB stock pays an annual dividend of $3.12, which equates to a dividend yield of 2.0 percent. It paid a consistent dividend for decades with consistent annual raises. The pandemic didn’t halt this – it raised the dividend in May from $0.75 to $0.78 per share.

It raised net premiums written to $8.5 billion across all its business lines. It carried $118 billion worth of long-term debt into the pandemic, and that has the potential to swallow up potential profits from investors’ pockets.

In fact, investors should be aware of the inherent obstacles of investing in Chubb stock.

Chubb Share Price Tethered To Stimulus?

Because Chubb covers such a wide range of problems, it has a wide exposure to socioeconomic conditions. Government stimulus could be an important factor in buoying its business through 2020, and when it inevitably expires, people could let insurance lapse or file more claims.

For example, the company provides political risk insurance. This covers issues like import/export blockades from trade wars, inability to convert currency in the event of government collapse, and political violence.

Should political strife continue in the U.S. alone, Chubb could face slimmer operating margins. In fact, the company’s CEO Evan Greenberg noticed this in April and quickly hit mainstream media outlets to decry the unconstitutionality of forcing insurance companies to cover the pandemic.

That’s what insurance is designed for, and that response shows just how fragile the insurance industry is in the 2020s. Warren Buffett’s favorite money-making market could hit a crisis over the next five years.

And the challenges are fierce in the insurance business from competitors too.

Chubb Has A Target On Its Back

Chubb has a large field of competitors in its many insurance lines. This includes Travelers, Allstate, Liberty Mutual, Prudential Financial (PRU), and Zurich Insurance.

Each of these companies faced problems during the economic slowdown, and there’s a good chance we could see a shuffling of underwriters as businesses and individuals face obstacles getting claims paid.

And most of these companies have more aggressive consumer marketing. You can hum the jingles for State Farm and Farmers as I say the names, but have you ever heard of Chubb?

Newer companies like Lemonade (LMND) are also working to disrupt the industry, putting even more pressure on traditional insurers like Chubb. Add all this into a “new” economy, and it’s easy to see how the industry could find itself in need of its own bailout.

Nobody is around to insure Chubb against its own risks, and no amount of reinsurance can recycle the impending loss of money. At a certain point, it becomes paying off your credit cards with other credit cards to shift the balance.

Is Chubb Stock A Buy? The Bottom Line

Chubb is the largest P&C insurance company in the world, along with a prominent commercial lines underwriter. It offers a variety of insurance policies to cover a wide range of catastrophes, but the CEO doesn’t believe it should cover the pandemic.

This shines a light on the precarious position the entire industry is in. When a global disaster strikes, someone eventually ends up on the hook for the debt. This is a big risk that only the most steel-nerved investors should take on.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.