Equities

Buffett's Berkshire Buys $6.7B Chubb Stake, Stock Surges 9%

Buffett's Berkshire invests $6.7 billion in Chubb, marking it as a strategic fit and boosting confidence in the insurance sector.

By Bill Bullington

5/16, 09:39 EDT
Apple Inc.
Chubb Limited
article-main-img

Key Takeaway

  • Berkshire Hathaway invests $6.7 billion in Chubb Ltd., making it the ninth largest holding, aligning with Buffett's investment strategy.
  • Chubb's stock jumps nearly 9% after-hours, reflecting market confidence in Berkshire's choice and boosting insurance sector optimism.
  • Despite portfolio adjustments, including a reduced stake in Apple, Berkshire signals strong interest and confidence in the insurance industry.

Berkshire's Strategic Investment

Warren Buffett's Berkshire Hathaway has disclosed a significant investment in Chubb Ltd., revealing a $6.7 billion stake in the insurer. This move aligns with Buffett's investment strategy, focusing on companies with strong returns on equity, a robust economic moat, and a proven track record of compounding returns. Chubb's stock saw a nearly 8% increase in premarket trading following the announcement, highlighting the market's positive reaction. Deutsche Bank analyst Cave Montazeri noted that Chubb is an ideal fit for Buffett’s investment philosophy, emphasizing the insurer's disciplined approach to underwriting and capital allocation. This investment made Chubb Berkshire’s ninth biggest holding as of the end of March.

Portfolio Adjustments and Market Response

In addition to the Chubb investment, Berkshire Hathaway has made several adjustments to its portfolio, including reducing its stake in Apple Inc. Despite these changes, Buffett remains supportive of Apple, suggesting it will continue to be Berkshire's largest investment. The disclosure of Berkshire's stake in Chubb led to a notable increase in the insurer's stock price, with shares jumping nearly 9% in after-hours trading. This response underscores the market's confidence in Berkshire's investment choices and Buffett's reputation for identifying value within the insurance industry. Chubb's performance and strategic market positioning, combined with Berkshire's backing, have contributed to its shares gaining approximately 12% year to date.

Industry Confidence and Future Prospects

The investment in Chubb has been interpreted as a boost of confidence for the insurance industry, given Buffett's extensive knowledge and experience in the sector. Analysts from Evercore ISI and Deutsche Bank have commented on the positive signal this investment sends, especially considering Berkshire Hathaway's significant footprint in the insurance industry. The acquisition of Chubb shares, which became Berkshire's ninth largest holding, has sparked speculation about future moves, including the possibility of an outright acquisition, though this remains speculative. Berkshire's strategic investment decisions, including the recent acquisition of insurance company Alleghany Corp. for $11.6 billion in 2022, demonstrate its ongoing interest and confidence in the insurance sector.

Street Views

  • Cave Montazeri, Deutsche Bank (Bullish on Chubb):

    "We believe that Chubb is an ideal fit for Warren Buffett’s investment philosophy, characterized by high-quality business with strong [returns on equity], a robust economic moat, a proven track record of compounding returns, and a distinguished management team... Chubb has been one of the best-performing insurance stocks in the U.S. over the past 20 years, thanks to its long-term track record of creating value for shareholders, growing book value per share plus dividends at 10% per annum."

  • Evercore ISI (Bullish on the insurance industry due to Buffett's purchase):

    "We think it is a slight positive signal that Berkshire is making such a large investment at this point in the cycle, especially given its unique knowledge of [property and casualty] industry dynamics as it is one of the largest commercial P&C insurers."