The Chubb Corporation: Quality Insurance Company at a Discount

Chubb (CB), like many of its Property and Casualty Insurance competitors, is trading at very low multiples - a P/E of 7.1 at today's price in the area of 47. While industry fundamentals are declining, I think much of the price reduction is part of the over-reaction to the credit crisis and a distaste for financials of any type. CB has increased their tangible book value per share at a rate of 10% a year for the past 10 years - a remarkable record of consistent results. With a secure dividend of 1.32, yielding 2.81% at today's price, and with the company buying back its shares at today's discounted prices, it makes good sense to accumulate a position and wait for price appreciation.

CB just reported 2Q 2008 earnings, a 27% decrease to 1,27, caused primarily by catastrophes which were well in excess of normal (see conference call transcript). Other industry participants have had similar catastrophe results: it's weather related. In addition, they had a large surety loss on a contractor that was unable to complete a job at the contract price. I reviewed the financials and listened to the conference call. Market reaction has been negative. CB operates in three segments- Personal Insurance, Commercial Insurance, and Specialty Insurance.