Last evening, Berkshire amended its prior 13F filings to disclose its stake in Chubb. The disclosed shares of 26 million equated to a holding worth $6.7bn.
Since both institutional and retail investors track Berkshire’s investments and even try to mirror them, Chubb’s stock price moved up +7% after hours and was up +4% at the time of writing.
Notwithstanding the excitement surrounding the prior confidential treatment of this stake, and what it means for Berkshire and Chubb, we decided to look at what other insurance sector stocks Berkshire has owned over the last 16 years. We also evaluated Chubb’s stock multiple vs its peers and what this move signals regarding the direction of the broader investment climate, as well as the P&C insurance space.
The table below shows Berkshire’s P&C investments, including those of brokers and global reinsurers. Clearly, Chubb’s stake is one of the biggest, but it is small compared to its overall stock investments or invested assets.
We would highlight the previously exited Markel and Marsh stakes aside from the new stake in Chubb. Additionally, Berkshire still owns a piece of Aon.
As seen above, the market value of Berkshire’s Chubb holding is far greater than that of any other stake it has held in a P&C company in the past. In fact, this investment will be the eighth largest holding of the Berkshire portfolio overall, though it is dwarfed by the company’s stakes in companies like Apple and Bank of America.
What is also notable is that Buffett tends to hold on to these investments for a few years. It remains to be seen if this purchase will have a similar lifespan, or if Buffett has bigger plans for Chubb.
Apart from investing via stock purchases, Buffett is known for friendly acquisitions but is a tough negotiator on value paid. Recently, Berkshire acquired Alleghany in March 2022 for $11.6bn, or 1.26x book value. Beyond Alleghany, some transformative acquisitions in the company’s history included Geico, National Indemnity, General Re and Medical Protective, to name a few.
Since value is the primary driver of Berkshire’s investment philosophy, the chart below looks at Chubb’s value creation against its price to tangible book value, compared to similar companies. The chart uses a nine-year timeframe, due to Ace’s acquisition of Chubb in 2015.
As shown above, Chubb has had stronger value creation than most of its competitors over the last decade. Alongside a reasonable price to book compared to the rest of the cohort, Chubb has been one of the stronger P&C performers in recent years. Chubb currently trades at 3.01x TBV, while the competitors have an average of 2.0x.
Beyond Chubb and its peer multiples, does yesterday's move from the sage or oracle of Omaha give us some new takeaways regarding the direction of the stock market as well as the P&C insurance space?
The S&P 500 recently breached the 5000 mark and is at an all-time high, leading to increasing nervousness amongst value investors. This move may signal that insurers could end up being considered a safe haven.
Separately, Chubb’s go forward earnings estimates have been range bound in the $23ish mark, and perhaps this move also signals that Buffett is more bullish on the earnings power of Chubb over the next few years vs Wall Street’s expectations.
In summary, the Chubb investment is Berkshire’s largest move in the space, and it will be interesting to see how it plays out over time.