Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / Why Berkshire Built a Chubb Position
Transcript
- Lucas: So the big 13-F filing earlier this month from Berkshire Hathaway — everyone dug through it looking for the new buys, and the one that jumped out was Chubb. Luna: Chubb, the property and casualty insurer. That one surprised a lot of people, didn't it? Lucas: It did. Berkshire bought roughly nine-point-six million shares, worth about two-point-three billion dollars at the end of March. That made Chubb one of the fifteen largest equity holdings in the portfolio. Luna: And this is a company that Warren Buffett has known for decades. But he's never owned it before — not in a big way, anyway. Lucas: Right. And that's what makes it interesting. Berkshire already owns GEICO outright, they've got General Re, they've got the whole Berkshire Hathaway Specialty Insurance operation. So adding a pure-play P&C carrier like Chubb — it's a bet on the insurance cycle, not just a single company. Luna: Let's talk about the cycle. Commercial insurance pricing has been firming for a few years now. When did that start? Lucas: The hard market really kicked in around 2020. After years of soft pricing, carriers started raising rates significantly — especially in property, cyber, and liability lines. Chubb, as the largest publicly traded P&C insurer in the world, has been a direct beneficiary. Lucas: Their combined ratio last year was around eighty-six point five. That's outstanding. For context, anything under 100 means they're underwriting profitably. Chubb has been way below that. Luna: So the underwriting discipline is real. But Berkshire also loves float — the premiums collected before claims are paid. Chubb has about one hundred fifty billion dollars in float. Lucas: Exactly. And that float, when invested in bonds and equities at higher rates, generates significant investment income. Chubb's net investment income last year was over four billion dollars. So you've got both sides of the engine working. Luna: The stock is up about twelve percent year to date. But it's still trading at around eleven times forward earnings. That's not expensive for a company with that kind of returns on equity. Lucas: No, it's not. And that's the classic Buffett play — buying a high-quality business at a reasonable price. The question is whether the hard market has peaked. Some analysts think pricing is starting to moderate in certain lines. Luna: Right, because if we enter a soft market, premiums compress and combined ratios rise. But Chubb has a very strong franchise in high-net-worth personal lines and specialty commercial. They're not just riding a cyclical wave. Lucas: That's the bull case. They've built a moat in affluent clientele — think insuring art, yachts, large homes. Those are sticky relationships, and the loss ratios there tend to be better. Lucas: Plus, the investment portfolio is largely in high-grade bonds, so with rates still elevated relative to the last decade, the yield is a nice tailwind. Luna: But there's always the catastrophe risk. Hurricanes, wildfires — those can hit the bottom line hard. Chubb had a rough 2022 from Ian, but they've managed it well since. Lucas: They've also been buying back shares aggressively. They repurchased about two billion in stock last year. That combined with the dividend gives a nice total return profile. Luna: So when you look at the Berkshire portfolio, Chubb slots in alongside other financials like Bank of America and American Express. It's another capital-light, float-rich business. Lucas: Exactly. And I think it also shows that Buffett and Todd Combs — who likely led this trade — still see value in the insurance space despite the competition from insurtech and alternatives. Luna: The insurtech wave has been a bit of a dud for underwriting, but it has pushed distribution online. Chubb has invested in digital tools, so they're adapting. Lucas: Right. So the thesis seems to be: buy a best-in-class underwriter at a reasonable multiple, benefit from the hard market, hold the float, and let compounding do its thing. Luna: It's not a flashy trade. But Berkshire's best moves rarely are. The question for us as stock pickers is whether we can find similar opportunities in the insurance space. Lucas: Well, let's look at some peers. Travelers, ticker T-R-V, trades at about twelve times earnings. They've had a slightly higher combined ratio recently, around ninety-one. Still profitable, but less efficient than Chubb. Lucas: Then there's Progressive, p g r, which is more auto-focused. They've been a compounding machine with a combined ratio often below 90. But they trade at about sixteen times earnings, so you pay up for that growth. Luna: And Berkshire's own GEICO is private, so we don't get the same granularity. But Chubb gives them exposure to commercial lines, which GEICO doesn't really do. Lucas: Right. So it's a diversification within insurance. And remember, Chubb also has a big international business — they operate in over fifty countries. That gives geographic diversification. Luna: So the move makes sense on multiple levels. I'm curious about the timing — why now, after all these years? Lucas: Could be that the price got attractive. The stock pulled back in late 2025 and early 2026, and then the 13-F shows they bought in Q1. Classic buy the dip behavior. Lucas: Also, the macro environment — rates staying higher for longer — benefits insurers with big bond portfolios. And if the economy softens, insurance is relatively defensive. Luna: Defensive, with a tailwind from pricing. That's a nice combination. So for individual investors, how should they think about owning Chubb? Lucas: I'd say it's a solid core holding for a concentrated portfolio if you want insurance exposure. The dividend yield is about one point four percent, but the total return comes from earnings growth and buybacks. Lucas: Management is disciplined. The CEO, Evan Greenberg, has been there since 2004 and has a strong track record. And you've got Berkshire as a significant holder now, which adds a layer of governance oversight. Luna: Speaking of governance, there's also the Buffett seal of approval. When Berkshire buys a stock, it's a signal to the market that the business has durable competitive advantages. Lucas: For sure. But we should also note that Berkshire's 13-F is backward-looking. They may have added more since March, or they may have trimmed. We'll find out in August. Luna: True. But for our purposes, the thesis stands. Chubb is a high-quality insurer trading at a reasonable price in a firming market, with a shareholder-friendly management. Lucas: And the key takeaway for stock pickers: look for businesses with float, underwriting discipline, and pricing power. Those characteristics often lead to compounding over long periods. Luna: Alright, I'm going to add Chubb to my watchlist. Maybe not a full position yet, but definitely worth tracking. Lucas: Good move. And with the broader market looking a bit shaky — the S&P 500 down about one percent over the last five days — having a defensive name like Chubb might not be a bad idea. Luna: Especially with the Fed minutes from last week signaling a possible rate hike if inflation stays elevated. That would hit growth stocks, but insurers could benefit. Lucas: Yeah, higher rates mean higher investment income for Chubb. So in a rising rate environment, they actually do better. It's a nice hedge. Luna: Alright, I think we've dug deep enough. Next time, maybe we look at another 13-F gem. Lucas: I like it. For now, that's our take on Chubb — a classic Buffett play in the insurance space.