Thursday, July 23, 2009

Chubb's Second Quarter Earnings Rise, Raises Guidance

Chubb has announced its 2Q '09 EPS as $1.54, an increase of 21.3% from 2Q '08's $1.27. According to the Bloomberg write-up, Chubb managed to avoid subprime-related losses by conservatively investing in mutual bonds, Treasuries and safer mortgage bonds. Chubb is also raising its guidance for this year.

The company is a Dividend Aristocrat: it has raised its dividend annually for at least twenty-five years. Even in the weak first quarter of '09, its free cash flow was more than four times its dividend requirement. Since its capital expenditures are modest in comparison to operations cash flow, it has a lot of room to pay down debt or to meet an extraordinaty spurt of claims if need be. As of that same quarter, its debt-equity ratio is only 0.288. Its total liabilities, on the other hand, are 2.52 times shareholders' equity: most of these liabilities are for insurance claims. In the most recent quarter, its debt-equity ratio shrunk to 0.274.

Chubb's potential trouble spot, Professional Liability Insurance, did see an increase in net unpaid losses. The combined ratio for this segment did increase to 90.6% from 2Q '08's 83.8%. Almost all of that increase came from the Loss (expense ratio) part of the combined ratio. On the other hand, its overall combined ratio dropped to 85.9% as compared with 2Q '08's 88.5%. The drop in the latter ratio explains why net income went up. [Data from the reports linked to from this SEC webpage.]

The stock was up 2.58% in the regular trading day, and rose a further 4.44% in after-hours trading. The increase in earnings, and the increased guidance, point to Chubb remaining a Dividend Aristocrat this year.

H/T: Chubb was recommended by Dividends Value, before today's earnings release.

[Disclosure: Chubb is one of the 20 stocks in my actively-managed Marketocracy mock fund.]

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