![](http://investorshub.advfn.com/images/default_ih_profile2_4848.jpg?cb=0)
Sunday, August 04, 2024 7:28:20 PM
by Courtney Carlsen
Motley Fool
Aug 3, 2024
https://finance.yahoo.com/news/berkshire-hathaway-added-26-million-222400906.html
Since becoming CEO at Berkshire Hathaway in 1965, Warren Buffett has delivered 19.8% compound annual returns to investors, or enough to turn a $100 investment into $4.4 million today. Buffett's extended track record of success is one reason investors eagerly await the release of Berkshire's quarterly report showing the stocks the conglomerate bought and sold during the quarter.
Over the past three quarters, Berkshire Hathaway has bought shares of Chubb stock hand over fist and kept its buying confidential for two quarters. Berkshire owns 26 million shares of the insurer as of March 31, worth roughly $7.2 billion today. Here's why Chubb is a smart buy for investors today.
Why Buffett is drawn to insurance investments
Buffett loves the insurance industry, going back to his days as a student at Columbia Business School. At the time, Buffett learned under Benjamin Graham, who invested in GEICO in 1948. It was one of the best-performing assets during Graham's career.
When Buffett acquired Berkshire Hathaway in 1965, it was a failing textile company that was barely staying afloat. In 1967, Berkshire acquired the insurer National Indemnity, which Buffett credits as a turning point in Berkshire Hathaway's history.
Insurance companies' cash flows make them appealing investments, which is why Buffett continues to invest heavily in them. A few years ago, Berkshire Hathaway acquired Alleghany for $11.6 billion, adding to its list of insurance companies owned by Berkshire Hathaway, including GEICO, National Indemnity, Berkshire Hathaway Primary Group, and Berkshire Hathaway Reinsurance Group.
Chubb is one of the largest and best at managing risk
Chubb is one of the world's largest property and casualty insurance companies and underwrites various policies, including personal automotive, homeowners, accident and health, agriculture, and reinsurance.
The company has an excellent risk management history, which you can observe by its combined ratio. This essential insurance metric is the sum of claims costs (how much an insurance company pays out on a policy) and expenses (like employee compensation or fixed overhead) divided by the premiums the company collects.
Over the past two decades, Chubb's average combined ratio was 90.8%, well below the industry average of 100%. This matters because it translates into free cash flow, which the company uses to pay dividends, buy back shares, or invest in things like bonds and stocks. Chubb's solid growth is why it has raised its dividend payout for 31 consecutive years.
Another benefit of investing in insurance is the timing of cash flows. Insurers collect premiums upfront and pay out claims down the road. In the time between, the company can invest this money, known as "float," usually in short-term Treasury bills. As policies expire, companies keep their profits and can build an extensive investment portfolio over time.
Chubb has a $113 billion investment portfolio primarily invested in fixed-income securities. Last year, it earned $4.9 billion in investment income, up 32% year over year, and its yield on average invested assets improved from 3.4% to 4.2% as it benefited from rising interest rates. Through the first six months of 2024, Chubb's net investment income has increased another 27% from last year.
Chubb is well positioned
The Federal Reserve is projected to cut interest rates sometime this year and into next, which could negatively impact Chubb's investment portfolio in the short term. However, some longtime market participants think interest rates could stay elevated.
For example, Howard Marks of Oaktree Capital Management has described a "sea change," saying, "For various reasons, the Fed is not going to go back to the ultra-low interest rates over the last 13 years" in a 2023 interview on the Motley Fool Money podcast. If that's the case, insurers like Chubb will benefit by earning more interest income than was possible in the decade and a half prior.
JPMorgan Chase CEO Jamie Dimon also cautioned that "there are still multiple inflationary forces in front of us" due to fiscal deficits, rising interest rates, and stubbornly high inflation. Chubb is already a solid company to own, and if inflationary pressures persist, it has the pricing power to adapt to rising costs, giving it stellar potential for the next decade and beyond.
<<<
---
Recent BRK.B News
- Berkshire Reduces Stake in BofA, Hawaiian Airlines Soars 10%, Paramount Receives $4.3B Offer, and More • IH Market News • 08/20/2024 09:56:02 AM
- Deutsche Bank Faces Shareholder Backlash, Bank of America Sponsors 2026 World Cup, Quanterix CEO Buys More Shares • IH Market News • 08/16/2024 10:03:21 AM
- Google Forced to Modify Play Store, Apple Innovates, Victoria’s Secret Hires CEO, Mars Buys Kellanova • IH Market News • 08/15/2024 10:05:46 AM
- Google Mandated to Modify Play Store, Apple Innovates, Victoria’s Secret Hires CEO, Mars Buys Kellanova • IH Market News • 08/15/2024 10:05:46 AM
- Form 13F-HR - Quarterly report filed by institutional managers, Holdings • Edgar (US Regulatory) • 08/14/2024 08:05:02 PM
- UBS Beats Earnings Forecasts, Intel Divests Arm Holdings, Flutter Surges 9% in Premarket Trading, and More • IH Market News • 08/14/2024 09:56:35 AM
- Dell Stock Slide Offers Opportunities; Trump and Musk hold talks on X; GM Restructures China Operations, and More • IH Market News • 08/13/2024 09:43:49 AM
- Intel Sued by Shareholders; JPMorgan Raises Chance of Recession; Roblox Blocked in Turkey; Micron Resumes Share Buyback • IH Market News • 08/08/2024 09:48:43 AM
- Form 8-K - Current report • Edgar (US Regulatory) • 08/05/2024 06:44:32 PM
- Form 10-Q - Quarterly report [Sections 13 or 15(d)] • Edgar (US Regulatory) • 08/05/2024 10:05:01 AM
- Nvidia AI Chip Delays, Mars Eyes Kellanova Acquisition, Berkshire Hathaway’s Cash Surge to $277 Billion • IH Market News • 08/05/2024 09:43:55 AM
- AMD Shares Surge 9% on Earnings Beat; Match Group Rises 10%, Pinterest & Lemonade Drop 13%, and More Earnings Updates • IH Market News • 07/31/2024 09:59:10 AM
- Johnson Controls Division Sold for $8 Billion; Alphabet’s Offer Rejected by Wiz; AMD President Announces Retirement • IH Market News • 07/23/2024 10:00:52 AM
- Microsoft and Apple Exit OpenAI Board, TSMC Exceeds Forecasts with Record Revenue, and Other Key Updates • IH Market News • 07/10/2024 10:42:17 AM
- Intel Loses Pentagon Funding, Shell Plans 20% Business Team Reduction, and Latest News • IH Market News • 03/13/2024 11:02:03 AM
- Expedia Announces 1,500 Job Cuts; Hims & Hers Surges 19.8% Post Financial Results, and More News • IH Market News • 02/27/2024 11:15:07 AM
- Form 8-K - Current report • Edgar (US Regulatory) • 02/26/2024 06:53:12 PM
- Form 10-K - Annual report [Section 13 and 15(d), not S-K Item 405] • Edgar (US Regulatory) • 02/26/2024 11:08:31 AM
- Broadcom in Talks to Sell Computing Unit, Alcoa Acquires Alumina for $2.2 Billion, and Latest News • IH Market News • 02/26/2024 10:55:58 AM
- Uniswap Skyrockets 55% with Incentive Proposal, Avalanche Confronts 4-Hour Shutdown, and More • IH Market News • 02/23/2024 06:26:18 PM
- Nvidia’s Earnings Skyrocket by 769%, BuzzFeed’s Pre-Market Shares Surge by 85%, and Other Highlights • IH Market News • 02/22/2024 11:08:52 AM
- Form SC 13G/A - Statement of acquisition of beneficial ownership by individuals: [Amend] • Edgar (US Regulatory) • 02/14/2024 09:46:01 PM
- Form SC 13G/A - Statement of acquisition of beneficial ownership by individuals: [Amend] • Edgar (US Regulatory) • 02/14/2024 09:40:04 PM
- Form SC 13G/A - Statement of acquisition of beneficial ownership by individuals: [Amend] • Edgar (US Regulatory) • 02/14/2024 09:39:50 PM
FEATURED ELEMENT79 ANNOUNCES UPLISTING TO OTCQB VENTURE MARKET • Aug 26, 2024 10:03 AM
North Bay Resources Announces Gold Assays up to 2.2 Ounces per Ton, Fran Gold Project, British Columbia • NBRI • Aug 26, 2024 10:00 AM
PickleJar Unveils Latest Venue Managed Services Innovations in Upcoming Webinar • PKLE • Aug 23, 2024 1:11 PM
Element79 Gold Corp Provides Update on Nevada Portfolio • ELMGF • Aug 23, 2024 8:00 AM
Maybacks Adds Award Winning Show to Its Lineup Discusses Maybacks Opportunity • AHRO • Aug 22, 2024 11:30 AM
North Bay Resources Announces First Gold Concentrate at Mt. Vernon Gold Mine, Assays 12 oz/ton Gold, 17.5 oz/ton Platinum, and 8 oz./ton Silver, Sierra County, California • NBRI • Aug 22, 2024 10:28 AM