Though Warren Buffett has been a very selective buyer for two years, there is one stock he's spent even more money purchasing over the last year than his favorite stock, Berkshire Hathaway. I'm talking about market-leading property & casualty insurer Chubb (NYSE: CB).
On rare occasion, Buffett will request confidential treatment for one or more securities, which keeps these securities from being listed in Berkshire Hathaway's quarterly 13Fs. Being granted confidential treatment by regulators allows Buffett and his top investment advisors to build sizable stakes in public companies at a lower cost basis. When investors find out which stock(s) Buffet and his team have been buying, it's not uncommon for them to pile in and drive up the share price.
Between July 1, 2023 and March 30, 2024, Berkshire Hathaway was granted confidential treatment for its position in Chubb. On May 15, Berkshire's 13F spilled the beans on this position, which stands at north of 27 million shares, as of June 30, and is currently worth about $7.8 billion.
Since Chubb's initial public offering (IPO) in 1984, shares of the company have skyrocketed by 33,000%, inclusive of dividends.
The lure of top-tier insurance stocks like Chubb is the predictability of their cash flow and their premium pricing power. Catastrophe losses and adverse events are inevitable, which affords insurers the ability to raise premiums after these events, as well as during periods of lower-than-expected claims.
To add to the above, some of Chubb's insurance products are geared toward high-earning clientele. For instance, its homeowner insurance solutions are prominently focused on high-value homes. The advantage of targeting high-income clientele is that their spending habits, including their ability to pay their bills, doesn't change much, if at all, during minor economic downturns.
Don't overlook the positive role that higher Treasury yields have played for Chubb, either. Insurance companies almost always invest their float, which is the portion of premium collected that isn't disbursed as a claim, in ultra-safe, short-term Treasury bills. Even with the Fed kicking off a rate-easing cycle, short-term T-bill yields are considerably higher than where they were three years ago. This means more interest income for Chubb.
Lastly, Warren Buffett is a huge fan of robust capital-return programs. In May, Chubb's board increased the company's base annual payout for a 31st consecutive year. Further, Chubb has been consistently buying back its common stock since the start of 2017, which has reduced its outstanding share count by 13.6%. Spending billions of dollars on buybacks is lifting Chubb's earnings per share (EPS) and incrementally increasing the ownership stakes of existing shareholders, like Berkshire Hathaway.
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