Berkshire Hathaway recently disclosed its largest publicly traded stock purchase since 2023, revealing a $6.7 billion position in Chubb Ltd. While it cannot be definitively confirmed that Warren Buffett was behind the purchase, given the size, it is highly likely he was involved. Todd Combs, one of Buffett’s investment lieutenants, has a history with Chubb, further pointing to Buffett’s involvement in the acquisition.
Chubb is the world’s largest publicly traded property and casualty company with a strong focus on commercial lines. Under current management, the company has consistently produced underwriting profits and has a disciplined approach to insurance underwriting. Chubb’s long-term historical combined ratio has been better and less volatile than its peers, demonstrating its strong underwriting performance.
Warren Buffett’s evaluation framework for Berkshire Hathaway revolves around increasing operating earnings, decreasing shares outstanding, and seeking occasional big investment opportunities. Applying this framework to Chubb, the company has seen growth in operating income, a decrease in shares outstanding through share repurchases, and has returned capital to shareholders via dividends. Chubb has taken advantage of opportunities such as the purchase of Cigna’s Asia business to drive future growth.
Chubb’s valuation is currently lower than its median since 2016, selling at 10.8 times trailing 12-month earnings. However, there are potential insurance pricing headwinds on the horizon that could impact the company’s valuation. Chubb has a strong domestic franchise catering to high net-worth families and is rated highly by credit rating agencies. Buffett may find Chubb’s lower exposure to publicly traded stocks and focus on bonds appealing in the current market environment.
Since Berkshire Hathaway began acquiring shares in the third quarter of 2023, Chubb’s stock has risen over 39%, outperforming the S&P 500. The company’s strong underwriting performance, growth in earnings, and capital return to shareholders make it an attractive investment opportunity. However, the insurance environment is expected to become more challenging in the future, which could impact Chubb’s valuation moving forward.
In conclusion, Berkshire Hathaway’s significant investment in Chubb highlights the company’s strong fundamentals and growth potential. While Buffett has not directly commented on the purchase, Chubb’s track record of underwriting profit, strong management, and international growth opportunities make it a compelling investment option. The company’s focus on bonds and strong balance sheet may also appeal to Buffett amid current market conditions.
