Why Chubb caught Warren Buffett's eye
Chubb joins other Buffett holdings like Apple, American Express and Coca-Cola
Chubb CEO Evan Greenberg discusses the impact of climate change on insurance prices on 'The Claman Countdown.'
When investors got wind of the news that Warren Buffett’s Berkshire Hathaway added Chubb to its portfolio in May, the insurer became a new celebrity stock.
The $6.72 billion stake of 25.9 million shares sent shares to an all-time high, and it's currently trading just below that level. Buffett, known for buying companies for the long haul, puts Chubb in the ninth-largest position among his other marquee holdings, which include Coca-Cola, Apple and American Express.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| CB | CHUBB LTD. | 288.00 | +1.07 | +0.37% |
| KO | THE COCA-COLA CO. | 61.74 | -0.81 | -1.29% |
| AAPL | APPLE INC. | 225.00 | -3.22 | -1.41% |
| AXP | AMERICAN EXPRESS CO. | 286.87 | -1.43 | -0.50% |
While Buffett doesn’t explain why he buys or sells a particular stock when it's disclosed, his past remarks give a sense of what he looks for, including companies considered "moats" unable to be matched or accessed by competitors.
WARREN BUFFETT LIKES "MOATS" AND ELEPHANT-SIZED ACQUISITIONS
"In business, I look for economic castles protected by unbreachable 'moats,'" Buffett said in a 1995 letter to shareholders. At the time, he gave a shoutout to his insurance company Geico for holding that title.
His love for the insurance business isn’t new. He owns Geico, repped by the likable green reptile and General Re. So, what does the Oracle of Omaha see in Chubb?
The Geico logo is displayed on a smartphone. (Rafael Henrique/SOPA Images/LightRocket via Getty Images / Getty Images)
Is it the company’s 1.4% annual dividend? Nope, according to CEO Evan Greenberg, son of legendary 99-year-old former AIG CEO and insurance industry pioneer Hank Greenberg.
"We are actually a low yielding stock. You don’t buy us for dividends. It's about 1.4%, He’s not buying it for the dividend," Greenberg explained last month during an interview on "The Claman Countdown."
What Buffett likely sees, Greenberg suggests, is years ahead of steady upside for the insurer.
Double-digit earnings growth
"We’re actually a growth company. Our earnings have been growing in double-digits for the last few years, and, as we look forward, we’ll continue robust earnings growth," said Greenberg, who also touted the multiple streams of income the insurer is fielding in the U.S. and abroad.
Warren Buffett is joined onstage by 24 other philanthropists and influential business people featured on the Forbes list of 100 Greatest Business Minds during the Forbes Media Centennial Celebration at Pier 60 in New York City on Sept. 19, 2017. (Daniel Zuchnik/WireImage / Getty Images)
Multiple streams of revenue growth, invested assets
"We’re well diversified — property, casualty and underwriting [is] one source of income. Our invested asset, as interest rates have risen and are at a higher rate than we’ve seen in a couple of decades — that’s another source of income," he said.
During the company’s first quarter, its pre-tax investment income rose over 25% to $1.39 billion, while adjusted net investment income jumped 23% to $1.48 billion.
Life insurance business in U.S., Asia
And then there’s Chubb’s bread and butter.
"We have a growing life insurance business in Asia. We are a global company, over 40% of our business is outside the United States. We're the largest commercial insurer in the U.S., and 20% of our business is in Asia," he said.
Chubb shares have gained over 13% this year, slightly trailing the S&P 500's 15%-plus rise. Berkshire Hathaway is Chubb's largest single shareholder, and Greenberg is the second, according to ThomsonOne.
The insurer is scheduled to report quarterly earnings on July 24.