Chubb Ltd Q4 FY2021 Earnings Call

Good day, and welcome to the Chubb Limited Fourth Quarter Year-end 2021 Earnings Conference Call. Today's call is being recorded. Operator provided instructions to participants. For opening remarks and introductions, I would like to turn the call over to Karen Beyer, Senior Vice President, Investor Relations. Please go ahead.

Thank you, and welcome to our December 31, 2021, fourth quarter and year-end earnings conference call. Our report today will contain forward-looking statements, including statements relating to company performance, pricing and business mix, growth opportunities and economic and market conditions, which are subject to risks and uncertainties, and actual results may differ materially. Please see our recent SEC filings, earnings release and financial supplement, which are available on our website at investors.chubb.com for more information on factors that can affect these matters. We will also refer today to non-GAAP financial measures, reconciliations of which to the most direct comparable GAAP measures and related details are provided in our earnings press release and financial supplement. And now, I'd like to introduce our speakers. First, we have Evan Greenberg, Chairman and Chief Executive Officer; followed by Peter Enns, our Chief Financial Officer. And then we'll take your questions. Also with us to assist with your questions are several members of our management team. And now it's my pleasure to turn the call over to Evan.

Good morning. As you saw from the numbers, we had an excellent finish to the year, with record operating earnings and underwriting results, double-digit commercial premium growth globally, strong levels of rate increase and slow but improving growth in our consumer business globally. This performance led to one of the best years in our company's history, with the best organic growth in P&C premiums in over 15 years and record financial results spanning both net and core operating income, calendar and current accident year underwriting income and investment income. Simply stunning results across the board and a testament to the organization and so many of my colleagues last year. Core operating income in the quarter was $1.65 billion or $3.81 per share, up nearly 20% over prior year. For the year, we produced net and core operating income of $8.5 billion and $5.6 billion, respectively. Again, both record results. In the quarter, $1.27 billion of underwriting income was a 31% increase over prior year, with a combined ratio of 85.5%. Allow me to digress for just a second. In my judgment, the calendar year or published combined ratio is the primary measure of underwriting performance that investors and management should focus on, because natural catastrophes are a regular and expected occurrence and the volatility cannot be dismissed away. Our P&C current accident year combined ratio, excluding catastrophes, was 83.9%, a 2.5 point improvement over prior year. This is an important, but secondary measure that provides useful insight into the current underlying strength of our businesses. Full year P&C underwriting income was a record $3.7 billion, up over 200% and that's with $2.4 billion of catastrophe losses in the second costliest year for the industry in terms of cats. On the investment side, adjusted net investment income topped $900 million for the quarter and was a record $3.7 billion for the year. With the Fed finally accepting that inflation is a reality that is not going away anytime soon, interest rates are rising and will continue to rise. Quantitative easing is coming to a rapid end and spreads should begin to widen, particularly if the Fed begins to shrink their balance sheet, as they should. As a reminder, every 100 basis points of interest rate increase provides about $1.2 billion of additional investment income, and we run about a four-year portfolio duration. As I remarked over a year ago, we're in a period of very strong wealth creation, which is reflected vividly by our quarterly and full year results. And I expect this trend will continue, driven by further growth and margin expansion. Peter will have more to say about cats, prior period development, investment income, book value and other financial items. Before I get to our discussion of growth in rate, as you saw in the press release, we have entered into agreements with several shareholders to purchase additional ownership interest in Huatai Group in China. Upon regulatory approval, which we expect sometime during 2022, our total aggregate ownership will be north of 80%. Separately, integration planning for the Cigna transaction, which we announced in the fourth quarter and I covered on our last call, is progressing well. We expect to close in the first half of the year. Now turning to growth and the rate environment. P&C premiums in the quarter increased 9.6%, with commercial up 13% and consumer up 2.2. This strong performance capped a year where we grew our premium revenue 13%, the strongest organic growth since 2003, with commercial up 17.7% and consumer up 2.3%. Growth in the quarter was broad-based, with contributions from virtually all commercial businesses globally, from large corporate to middle market to small, from traditional to specialty to agriculture, including most regions of the world. Commercial premiums for North America were up over 11%, while in Overseas General, they grew 15%. For the year, we have grown our commercial business almost 18%. And for perspective, since 2019, it has grown by nearly one-third or over $5 billion of net premium, and that's the size of or bigger than most insurers. In terms of rate, the level of rate increases remains robust and is naturally slowing as portfolios achieve or approach rate adequacy. At the same time, whether short or long-tail exposure, the loss environment is anything but benign. The level of rate increases remains well in excess of loss costs and I expect this trend to continue for some time. In the quarter, in North America, total premiums grew 8.7%, with commercial up over 11%, driven by growth in our major accounts and specialty business of 12% and our middle market and small commercial business of 9.7%. Total exposure change is actually down 0.6% in the quarter. And it's a combination of an increase in economic exposure of 3.4% due to higher payrolls, sales and other economically sensitive activity; and on the other hand, a decline in exposure due to underwriting changes, such as increased attachment points and higher deductibles, a good thing, though it negatively impacted growth. Our retail businesses achieved a 100% retention this quarter on a premium basis and 89% on an account basis, both very strong. Overall rates increased in North America commercial lines 10.5%. Loss costs are trending about 5.5% and vary by line. In general, loss costs for short-tail classes are running about 4%, though again, we anticipate these to rise and have reacted accordingly. In long tail, excluding workers' comp, we are trending at a 6% rate, and our first dollar workers' comp book is trending between 4% and 4.5%. Let me give you a better sense of the rate increase movement in North America. In major accounts, which serves the largest companies in America, rates increased in the quarter by 10.5%. Risk management-related primary casualty rates were up over 4%. General casualty rates were up over 16% and varied by class of casualty, and property rates were up 9.7%, while financial lines rates were up over 17%. In our E&S wholesale business, rates increased by 14.5% in the quarter. Property rates were up 12.5%, casualty was up almost 17%, while financial lines rates were up 18.5%. In our middle market business, rates increased in the quarter about 9%. Rates for property were up 9%; casualty, excluding comp, were up nearly 9% and comp rates were down 1.5%; while comp pricing on the other hand, which is rate plus exposure, was up about 3%; and finally, financial lines rates were up about 19%. Turning to our International General Insurance operations. Commercial P&C premiums grew 15% on a published basis. International Retail Commercial grew over 13%, while our London wholesale business grew 28%. Retail commercial growth varied by region, with premiums up 19% in our U.K. and Europe division. Asia Pacific was up about 12.5%, while our Latin America commercial business grew over 9%. Internationally, like in the U.S., we continued to achieve improved rate to exposure across our commercial portfolio. In our international retail business, rates increased in the quarter 13% with property up 8%, financial lines up 30% and primary and excess casualty up 7% and 11%, respectively. By the way, these rate increases were nearly identical to those from the prior quarter. In our London wholesale business in the quarter, property rates were up 8%, financial lines rates were up 24% and marine up 5%. Outside North America, loss costs are currently trending about 3%, though that varies by class of business and country. While international consumer lines growth in the quarter continued to be heavily impacted by the pandemic's ongoing effects on consumer-related activities, growth continued to slowly recover and was 3.5% on a published and constant dollar basis. A clear example of that is our international A&H division, which grew for the third consecutive quarter. And on a currency adjusted basis, Q4 was our best quarter since the beginning of the pandemic, with growth of 5.5%. Across Asia and Latin America in our direct marketed business through banks, retailers and digital platforms, we are seeing activity pick up for consumer lending, credit card growth and branch openings. In fact, our direct marketing business grew double digits in Latin America, and we had our best growth quarter in the year in Asia Pac. All-in-all, I expect growth in our consumer lines to continue to improve as the year goes along. The underlying health of the business is excellent. Net premiums in our North America high net worth personal lines business were up 3.3%. Our true high net worth client segment, the heart of our business, grew 13% in the quarter. Overall retention was very strong this quarter at nearly 98%, and we achieved pricing, which includes rate and exposure of 13%—13.5% in our homeowners portfolio. Claims severity in our U.S. personal lines business is running just under 9%, with homeowners cost to repair and rebuild increasing 11%. In our Asia-focused international life insurance business, net premiums plus deposits were up about 25% in the quarter. Profitability was impacted this quarter from a true-up of our COVID reserve charges, which overall for the company were net positive, but negatively impacted life. Lastly, net premiums in our Global Re business were up 37%. And while conditions have improved in reinsurance, we remain cautious in most lines. Rates and terms in most classes are still not adequate to earn what we believe is needed to justify the volatility and earn an appropriate risk adjusted return. We had an outstanding year, and looking ahead, we're off to a very good start in the first quarter overall. Market conditions remain consistent with what we experienced in the fourth quarter. 2022 should be a good year in terms of continued growth and margin improvement as we capitalize on favorable underwriting conditions for our commercial P&C businesses globally. I expect rates to continue to exceed loss costs. Consumer lines growth should return as the pandemic eases, though, as you know, there is no certainty. In the future, as interest rates rise and spreads potentially widen, our investment income will rise, and our strategic investments such as Cigna and Huatai will provide us with greater revenue, earnings and growth opportunity. All of this gives me great confidence in the future. I'll now turn the call over to Peter, and then we're going to come back and take your questions.

Thank you, Evan, and good morning, everyone. Consistent with the record earnings that Evan highlighted, other key financial metrics were also excellent, including a strong return on equity and book and tangible book value per share that now stand at all-time highs. Our strong performance produced operating cash flow of $2.6 billion for the quarter and a record $11.1 billion for the year. We continue to build on our balance sheet strength with capital of $76 billion and cash and invested assets of $124 billion. Our investment portfolio of $122 billion, supported by our positive operating cash flow, continues to be of a very high quality, which we expect will continue to support growth in our investment income. At the end of the year, our investment portfolio remained in an unrealized gain position of $2.3 billion after tax. Among the capital-related actions in the quarter, we returned $1.2 billion to shareholders, including $905 million in share repurchases and $342 million in dividends. For the year, we returned over $6 billion to shareholders, equaling 112% of our core earnings. This included $4.9 billion in share repurchases or 6.5% of our outstanding shares and dividends of $1.4 billion. As of December 31, $2.6 billion of the share repurchase authorization remains. In November, we issued $600 million of 30-year debt and $1 billion of 40-year debt at a very attractive weighted average cost of under 3%. The proceeds will be used to fund up to $1.1 billion of the purchase price of Cigna's business in Asia Pacific. The remainder will be used for general corporate purposes, including the repayment of $475 million of debt due in March 2023. Book and tangible book value per share increased 1.7% and 2.7%, respectively, from last quarter and 6.1% and 7.6%, respectively, from last year and now stand at all-time highs of $139.99 and $94.38 per share, respectively. Our reported ROE for the quarter and the year was 14.4% and 14.3%, respectively. Our core operating return on tangible equity for the quarter and year was 17.7% and 15.3%, respectively. While our core operating ROE for the quarter and year was 11.6% and 9.9%. Adjusting for the mark-to-market gains on our private equity portfolio, our core operating ROE was 13.1% for the quarter and 13.6% for the year. As I have noted in the past, our investment income is based on many factors. We met our quarterly investment income target of $900 million this quarter after a few quarters of exceeding it, reflecting slightly lower distributions on our PE portfolio compared to recent quarters. We continue to expect our quarterly run rate to be approximately $900 million in 2022. Pre-tax catastrophe losses for the quarter were $275 million, primarily from weather-related events, with about $214 million in the U.S. and $61 million internationally. We had favorable prior period development of $145 million pre-tax, which included $364 million of favorable development for direct COVID-related liabilities from accident year 2020. We recognized a net charge of $375 million related to the $800 million pending settlement with the Boy Scouts of America that we previously announced. The net charge takes into account reinsurance and our previously carried reserve. We also recognized $53 million of adverse development related to asbestos as part of our annual reserve review. Excluding these items, the remaining development was essentially all favorable development in short tail lines principally in our property and A&H lines. Our reserve position remained strong, with net reserves increasing by $3.8 billion or 7.4% in constant dollars for the year. Our paid-to-incurred ratio for the quarter was 98%, primarily reflecting significant net catastrophe loss payments, the seasonality of our crop insurance business and favorable prior period development. Adjusting for these items, our paid-to-incurred ratio for the quarter was 78%. Our paid-to-incurred ratio for the year was 81%. Our core operating effective tax rate was 15.7% for the quarter and 15.4% for the year. For 2022, we expect our annual core operating effective tax rate will increase slightly to be in the range of 15.5% to 17.5%. I'll turn the call back over to Karen.

Thank you. At this point, we're happy to take your questions.

Operator provided instructions to participants. And we'll go ahead and take our first question from Yaron Kinar from Jefferies. Please go ahead.

Hey, good morning everybody. I guess my first question goes back to Evan's comments on tightening terms and conditions in commercial lines and how it's impacted, I guess, a higher quality, but at the same time some premium pressure. Can you maybe talk about — is this a step up in tightening of terms and conditions that you had this quarter, or were some of the offsets you had in prior quarters have those diminished to some extent? Maybe we can better understand what drove you to call this out this quarter?

No. I just gave you — it's actually something that happens every quarter and has been happening every quarter. Terms and conditions, along with pricing, have been a reality for the last couple of years. The only thing I did was refine the explanation to give a better sense when I listen to discussions about exposure, there are two kinds of exposure changes that take place. So I thought it might be helpful to sensitize you investors better to the fact that there are economic exposure changes and underwriting-related exposure changes. I was just doing that not because there was anything particular this quarter, but to help with your understanding. That's it. And it's not something I intend to always do. I haven't done it really in the past and I was a bit more ambitious this time.

Got it. And trying to tie it back to the premium growth numbers then, why would commercial lines premiums slow down sequentially then?

Well, why would it slow down sequentially? It was a great growth quarter. It was a double-digit quarter in commercial lines growth. That's eight out of nine quarters. And by the way, the fourth quarter was one of the strongest quarters we've had for growth. There's a certain seasonality that occurs in commercial lines. Overall, I think it was an outstanding growth quarter. The market is in an acute phase of a hard market and then you go into different phases of the hard market where it begins to heal, others start writing business and there you go, but it was an outstanding growth quarter for us.

Right. No, I'm not challenging that. I certainly didn't want to belittle the growth that you guys achieved. My second question: many insurers are building some extra conservatism into loss trends. I think some management teams have started to quantify that recently. Can you maybe talk about your approach to loss trend and whether you're building an extra cushion? Can you quantify that?

I'm not going to quantify any of that. A couple of points: number one, we have always managed our reserves prudently and conservatively. We recognize bad news early and are slow to recognize good news, understanding the development patterns that occur and are not 100% predictable with precision in our business. Secondly, COVID impacted the reporting and the incurred pattern of claims: courts shut down, businesses shut down, etc. To accurately project that is very difficult. Since the beginning of COVID, we have taken the approach that the ultimate trend pattern doesn't change, but the reporting pattern may change. Naturally, as we look at prior year reserve developments as well as our current year selections, we are impacted by that. I hope that helps answer your question.

Thank you. Thanks for the color.

You're welcome.

And we'll move on to our next question from Mike Zaremski from Wolfe Research. Please go ahead. Mike, you may be on mute.

Let's move along.

Is it working now?

Yes, it's moving. It's working.

Sorry about that. So a question on loss cost. Thank you for the color about loss cost. It sounds like it didn't change much sequentially. Curious if there are any major loss cost level distinctions between very old vintages, which seems to be popping up in the news about material losses coming from business written well over a decade ago, versus the more recent five, six, seven-year vintages? I'm wondering if there's any distinction there we should be thinking about?

No, not that I — no.

Okay.

In a simple word: no.

Okay, great. My follow-up question is on capital. Maybe post the Cigna deal and the announced Huatai increased stake, if you can update us on the excess capital position and whether the buyback expectation is going to continue in terms of the expectation for the repurchase authorization to be utilized?

I'll let Peter answer that.

Sure. For both Cigna and Huatai, in terms of how we're going to finance them, we expect to finance them using existing cash resources and cash flow. We do not expect to issue any additional debt nor issue any equity. And we don't expect either to have any impact on our dividend nor our buybacks.

And so no — is there still an excess capital drag post that or is most excess capital being utilized? Thanks.

We don't call it a drag. We maintain our capital position. Our philosophy doesn't change. We maintain surplus capital for good things. We're in the risk business, so we maintain it for opportunity, and we maintain surplus capital for risk.

And we'll go ahead and move on to our next question from Elyse Greenspan with Wells Fargo. Please go ahead.

Hi, thanks. Good morning. My first question: you guys have shown some good level of expense ratio improvement, about two points over the past two years. Is there room for further improvement there, especially on the G&A side as you guys have earned premium leverage? And can you just give us a sense of where perhaps the expense ratio could go over the longer term?

I'm not going to give you forward guidance, Elyse, but I'll give you a couple of thoughts. On one hand, the acquisition ratio has improved because consumer lines have become a smaller percentage of the total business as commercial lines has grown and consumer lines initially shrank and then has been recovering slowly. So you'll naturally see a change that way and the acquisition ratio over time as consumer lines grows more quickly. On the other hand, on the G&A side, we already run among the lowest in the industry. Two things are occurring: one, we are investing for the future and we are hardly slowing down in the digitization of the company and the transformation of how we do business. We will continue to invest, and that pays dividends. On the other hand, we continue to achieve efficiencies as a result of things like straight-through processing and robotics and other activities. So I feel pretty good about where we are in G&A, but I'm not going to forecast for the future.

Okay. Thank you. And then my second question: S&P is in the process of rolling out changes to their capital charges. I was hoping you could just give us some thoughts as we're in the review process with companies now. I think a big component of what they're looking to do relates to changes around diversification. And I would think a company like you guys and especially with the upcoming Cigna deal could screen well from a diversification and capital perspective. If you can just provide some color there? Thank you.

I appreciate your thought, but you don't do the model. Peter?

They asked for comment mid-March and then will publish their model after review. We need to let them finish getting input and doing their work. Based on what we know now, we don't expect any change in consequence to our capital position.

Okay. Thanks for the color.

And we'll move on to our next question from Michael Phillips with Morgan Stanley. Please go ahead.

Thanks. Good morning. Evan, back to your earlier comments where you refined the exposure comments and you broke it down between economic and underwriting. How do you think those two pieces play out for this coming year?

I don't know. I'm not going to forecast. I can't help you with forecasting economic exposure change — ask the Fed. Nor on the underwriting side will I forecast precisely, though I do anticipate that the underwriting side is probably getting closer to a steady state.

Okay, that makes sense. My second question: on your release on the COVID-related reserve movements, can you give us some characteristics as to what's behind that? Was that more North America release exposures there that you released reserves for or was it outside North America? And what's left — I think my math says you had about $1 billion left. Is that all still in reserves, or what's the characteristics of what remains for your COVID reserves?

We'll give you a little color and I'll ask Paul O'Connell, our Chief Actuary, to comment.

Sure. As we stated in the commentary, we recognized favorable prior period development of $364 million on our 2020 accident year reserves for direct COVID. It was split between North America commercial and Overseas General. We had some minor true-ups in product lines like A&H and property, but the bulk of it was financial lines that drove the prior period development. At the outset of the pandemic, we modeled losses to these product lines and our projections didn't fully anticipate the unprecedented levels of economic stimulus that occurred globally in 2020 and continued into 2021. We've been observing favorable reported loss activity that’s been lower than expected, but we've been delaying fully reacting to those trends out of caution given delays in the claims process and the impact that has on reporting patterns for claims. So we feel comfortable at this point in time and took action in the quarter. We continue to maintain what we think is a sufficient provision for COVID in the aggregate and for the product lines and there’s a substantial amount of IBNR included in that carried provision.

And is the remaining piece split by geography, North America versus outside?

No, we're not going to split it that way. The substantial outstanding amount is in reserves, both case and IBNR.

Okay, thank you for the comments.

You're welcome.

We'll move on to our next question from Greg Peters with Raymond James. Please go ahead.

Good morning. Elyse is a tough competitor, Evan, so I support your proposal to move over to S&P. So I want to pivot back to the top line number, 13% for the year. We'd like to put that into our models for eternity, but that doesn't seem realistic. There's two pieces I'd like color on. First, the component of the growth that you think is due just to the reopening of the economies worldwide in 2021 versus 2020? Second, it seems like consumer has an opportunity to grow in 2022 versus 2021. Can you comment on that as well?

I can't give you a precise split. The vast majority of our growth was market share and rate, and that's all there is to it. Chubb is firing on all cylinders and is a dominant competitor across geographies and portfolio segments. On consumer, I expect consumer lines to continue to improve as the year goes along. We see travel picking up in many regions, consumer spending and financing activities returning, and partnerships that open growth opportunities. But I can't predict the exact quarter-by-quarter movement with precision.

Got it. Second question on inflation. It seems to be consuming a lot of attention, especially in personal auto and homeowners. When you think about this in 2022 and 2023, can you give additional color on your interpretation of what you're seeing in the marketplace and its impact on Chubb?

When I look at inflation, think about short tail and long tail. The loss environment is hardly benign. You have general inflation, social inflation or casualty-related trends, natural catastrophe-driven loss inflation, and cyber exposure growth. At Chubb, we're managing and vigilant, and our management converts vigilance into action. Short tail inflation shows up in homeowners; it's not showing up to the same degree in aggregate in commercial property, although we see inflation in severity of loss. We've seen frequency benefits ex-cat partly due to COVID in 2021. I provided observable loss cost numbers earlier, but we anticipate that general inflation will find its way more into commercial property and we have considered that in reserving claims. On the casualty side, severity in a number of classes continues to increase while frequency reductions from COVID may revert to mean over time. Regarding compensation and wage inflation, we are competing for talent globally. Compensation is one driver, but culture and opportunity also matter. In aggregate, I see wage inflation in the roughly 3.5% to 4% range.

Thank you.

And we'll move on to our next question from David Motemaden with Evercore ISI. Please go ahead.

Thanks. Just a question on the Huatai. Good to see you guys taking your ownership stake or put an agreement in place to take your stake up to 86%. How should we think about the capital that will be deployed in that if it does get approved in 2022?

First, we have agreements in place, and regulatory approval is required in China, which is not a quick process and has sensitivities. I feel good about receiving approvals but can't predict timing. Regarding capital, are you asking how much we've spent to purchase Huatai or about future capital deployment?

Is the price based on the initial deal that you guys struck in 2019 and we can use that as a guideline or is it something different than that?

Each tranche is different. I had to negotiate each shareholder differently.

Got it. I guess that's TBD and depends on each tranche. We'll wait and see there.

It does. We'll update you more later in the year as we get closer to approvals and can provide more information.

Okay, great. And then, maybe there's been a lot of talk on inflation in this call. I just wanted to ask a question on the North America personal lines where the current accident year loss ratio had the second straight quarter where it was under 51%. Was there anything one-off in those results, like light non-cat weather, or is that representative of a sustainable level as a result of some of the actions you've taken over the past year or so?

Look, you've focused on current accident year ex-cat. We've taken much rate and portfolio underwriting action over the past few years, including more sophisticated pricing capability. 2021 as a year was an excellent result. We expect a combination of continued benefit from our actions but coupled with some reversion to the mean given likely beneficial impacts from frequency due to COVID in 2021. That explains the strong results but we won't provide forward guidance.

Yes, it did. Thank you.

You're welcome.

We'll move on to our next question from Paul Newsome with Piper Sandler. Please go ahead.

Good morning. Congrats on the quarter. I was hoping to ask a big picture question. Retentions by virtually every company I cover are still at incredible highs, which is unusual for the hard market. But Chubb has taken share. Where do you think, broadly speaking, the kinds of companies that Chubb is taking share from? Maybe focus on North America. Where are you having the most effectiveness from a competitive perspective?

We're an equal opportunity competitor. We're taking share and increasing writings across most product lines, customer segments, and geographies, both North America and internationally. When you look at high retention rates on a premium basis, that partly reflects the high level of rate increases. Unit retention is also very high. We came into this market with a clear view of risk appetite and pricing requirements and have executed relentlessly when conditions were favorable to our view of risk-adjusted return.

Second question: M&A thoughts on the current environment, with commercial insurance margins improving for most insurers, do you think there's any change in what you think sellers will be willing to sell or the environment from a pipeline perspective?

I don't notice a lot of activity at the moment. This is a great time to grow organically. We've made a couple of moves that I'm focused on. Stay tuned.

Absolute. Thank you.

We'll take our next question from Tracy Benguigui from Barclays. Please go ahead.

Thank you. Also another question on Huatai. Congrats on your progress so far. I'm wondering if you could share early thoughts on what you could do as a majority owner in terms of having an immediate impact and what your vision is over the long term?

I don't see it as an immediate impact play. This is a rare asset for a foreigner to purchase and it has a lot of potential across non-life, life, asset management, mutual funds, and retail and institutional businesses. It has licenses to manage pension assets and insurance companies' assets, and a large national distribution footprint. It's reasonably small today — roughly $1.25 billion to $1.5 billion of P&C premium and about $1 billion of life premium with 35,000 to 40,000 agents. The growth potential is huge if you believe China will continue to grow — which I do — though the path won't be straight. Over time, as the private sector's role grows, the insurance and financial services industry must expand. Huatai's potential in any of its businesses is large but it takes time to effect strategy, train people and implement changes. I view this as a five- to seven-year horizon. It's one of the next great peaks for Chubb to climb.

That was great color. I realize you've been asked a number of questions on excess capital. Maybe an easier question: looking at the fourth quarter ROE, could you remind us this quarter how many points you would attribute to excess capital? I think last quarter you said 1.5 points.

It's about a point and a half.

And we'll go ahead and take our next question from Alex Scott with Goldman Sachs. Please go ahead.

Hi. Good morning. First, on paid claims: I heard the paid-to-incurred ratio you referenced. Can you frame for us how much, if at all, paid claims are still coming in below where they would normally be in a non-pandemic environment? And over what time period do you expect that to normalize?

No, we're not going into that level of detail.

Got it. And a different question on the Cigna business: can you give an update on timing to close? I know you mentioned first half. There are a series of country approvals. Any update to your thinking on earnings contribution and any lingering COVID impacts to think about as that comes online?

Timing is in the first half of the year, and that's as far as we'll pin it for now. We'll update you more when we close with an updated view of what we might expect. There will be one close rather than a rolling close.

Got it, thank you.

You're welcome.

And we'll go ahead and take our last question from Ryan Tunis from Autonomous Research. Please go ahead.

Hey, thanks. One more follow-up on Huatai. In the countries you're in, you really understand the tort environment, underwriting environment, legal environment and risks. How do you feel about insurance contracts and tort law in China relative to other places you're operating? And is the non-life focus mostly property at this juncture or is it casualty too?

Every country fits into a spectrum regarding rule of law and contract interpretation, including the United States. China fits into that global spectrum. We've been doing business there for many years, and we understand the environment. Casualty-related coverage is influenced by the courts and the evolution of commercial law and individual responsibility, which is changing and growing. We underwrite understanding that risk environment. For example, underwriting D&O in the United States benefits from strong accounting disclosure; in China, accounting disclosure may not have the same level or veracity in many instances, and we account for such differences in our underwriting. That doesn't make it binary; we understand and underwrite accordingly.

Appreciate it. One more: oftentimes you don't discuss reinsurance strategy in detail, but as you approach the 1/1 renewals, is there potential that next year you might retain a little bit more and that could be an additional net premium growth tailwind?

Yes, things are pretty steady.

Thank you.

That concludes our question-and-answer session. I would now like to turn the call back over to Karen for any closing remarks.

Thanks, everyone, for your time and attention this morning. We look forward to speaking with you again next quarter. Have a great day.

And with that, this concludes today's call. Thank you for your participation. You may now disconnect.