Helen Wilson - SVP, IR Evan Greenberg - Chairman & CEO Philip Bancroft - CFO & EVP

Kai Pan - Morgan Stanley Elyse Greenspan - Wells Fargo Securities Jay Cohen - Bank of America Merrill Lynch Brian Meredith - UBS Investment Bank Ian Gutterman - Balyasny Asset Management Meyer Shields - KBW Jay Gelb - Barclays PLC Joshua Shanker - Deutsche Bank AG

Good day, and welcome to the Chubb Limited Third Quarter 2017 Earnings Conference Call. Today's call is being recorded. [Operator Instructions]. For opening remarks and introductions, I would like to turn the call over to Helen Wilson, Investor Relations. Please go ahead.

Thank you, and welcome to our September 30, 2017, third quarter earnings conference call. Our report today will contain forward-looking statements, including statements relating to company performance, pricing and business mix, economic and market conditions and integration of our Chubb Corporation acquisition and potential synergies and expense savings. These are subject to risks and uncertainties and actual results may differ materially. See our most recent SEC filings and earnings press release and financial supplements, which are available on our website at investors.chubb.com for more information on factors that could affect these matters. We will also refer today to non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most direct comparable GAAP measures and related information are provided in our earnings press release and financial supplement, at investors.chubb.com. In particular, references to 2016 underwriting results will be on an as-if basis, which includes the Chubb Corporation's results for fiscal 2016 and excludes the impact of purchase accounting adjustments relating to the merger. Now I'd like to today's our speakers. First, we have Evan Greenberg, Chairman and Chief Executive Officer; followed by Phil Bancroft, our Chief Financial Officer. 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. It was a difficult quarter for the insurance industry and Chubb, a quarter dominated by catastrophe losses. But frankly, it's a part of the business we're in. The headlines were obviously the series of large natural cats, specifically Harvey, Irma and Maria, as well as the Mexican earthquakes while no one has certainty at the moment, the third quarter events will likely cost industry in the range of $80 billion to $100 billion-plus anyway. For Chubb, our after tax net cat losses estimated $1.5 billion cost us about 1 quarter of earnings or about 3.5% of our September 30 tangible capital. In the aggregate, this was within our risk tolerance, and the amount of loss we would expect from these types of events. We view the loss for these events as between a 1 in 5 and 1 in 10-year industry and Chubb event on a worldwide aggregate basis. This gives you sense of how we think about risks, including basis risks in the models and significant amount of non-modeled loss that is included primarily from Harvey and likely, Maria and Irma. By the way, '17 is on track to join '05 and '11 as the third $100 billion-plus year for insured cat losses in the last 12. The events of the third quarter for Chubb were first and foremost about service and responding to our customers in their time of need. Let's remember, that's what insurance is all about, and that's why we exist. Our claims organization is large, experienced and so capable, and with a mindset to serve. They've performed admirably and at times, heroically, often sacrificing their own personal well-being in the impacted areas of Texas, Florida, Puerto Rico and Mexico to come to the aid of our customers and distribution partners and solo employees. In a spate of about 6 weeks, they responded to nearly 17,000 claims in 5 different major events. Service levels remained consistently high with over 95% of the 52,000 customer calls in North America answered in less than 5 seconds, and by a human being from our company, not a machine or third-party. As of today, over 90% of Harvey and Irma claims have been physically inspected. I should add, our loss prevention and claims organization continue to perform at the highest levels, and distinguish our company as they respond to both our Personal Lines and commercial lines customers impacted by the California wildfires, which as you know, remain an active cat. On the prevention side, our special wildfire defense services teams have so far visited over 250 homeowners and taken active measures to protect more than half of them. By the way, when it comes to wildfire prevention services, the high net worth customers, there are a few pretenders doubting capability but with little exception. No one holds a candle to our vast network of capability. Looking beyond this quarter's catastrophe losses in the shadow it cast, it's an important story to tell about our company. Our underlying health is excellent. Excluding the cats, operating income was about $1.5 billion or $3.12 per share. Our published combined ratio was 111% because of the cats. Excluding them was 847. The current year accident basis excluding cats, the combined ratio was 88.5 compared to 88.9 last year, with the loss ratio of up over 1 point, and the expense ratio down 1.7%. Of the expense ratio last year included an adverse impact of about 0.5 percentage point from purchase accounting, the 1.25-point improvement illustrates our merger-related efficiency efforts. Net investment income for the quarter was a record $893 million, up nearly 8% over prior year and a very strong results, which included a one-time item Phil will speak more about. In the quarter, per-share book value grew 0.5% while per-share tangible is essentially flat. Book intangible are up nearly 7.5% -- 5% and 7.5%, respectively so far for the year. Phil will have more to say about investment income, book value, the cats and prior period development. Given the inadequacy of pricing and terms in our number of important classes around the globe and the consequent anemic industry results, along with the magnitude of year-to-date cat losses, we should be at the beginning of a firming market, and I believe we are. How extensive and broad the firming remains to be seen, and the timing will vary by geography and type of business, but pricing should and will move. While conditions vary depending on territory, line of business and size of risk, pricing overall today is to cheap and we should strive for price adequacy. Chubb is a leader, and we recognize our responsibility to insist on receiving an adequate rates for the coverage we provide. This includes educating our customers and distribution partners about the reason and need to move pricing to adequacy where it is not, so that we earn a reasonable risk-adjusted return and avoid more volatile price moves in the future if prices continue to stagnate over the road. Following years of rate decreases, properties need rate to return to adequacy. Property rates have 2 components, the catastrophe and attritional loss elements. Property cat risks should be priced to model, and today it is priced at its substantial discount to model in many instances. The attritional loss component of property is also, in many cases, inadequately priced and should return to adequacy. And by the way, even though it is inadequately priced, property cat premiums have been used by many to subsidize inadequate pricing and other classes during the recent years of lighter cat losses, a pretty dumb strategy. As I have said in the past, many classes of D&O and employment practices liability are not adequately priced. Loss frequency and severity are increasing, combined ratios have reached a point in certain classes that are simply unacceptable. Many primary and excess casualty-related losses, including U.S. commercial auto need rate. Loss cost trend while more benign in recent years has nonetheless continued while rates have moved down. Chubb's risk appetite has not changed. We have an exceptionally strong balance sheet and we're willing to deploy it where we can achieve an adequate underwriting margin. Before the third quarter's cat events and during the third quarter, like the second, we were beginning to see signs of a bit more stable pricing environment through the business we wrote. Remember though, we pay a penalty in terms of new business to achieve this result. We began to achieve rate in a few areas while rates were essentially flat where the rate of decline slowed in others. For example, in U.S. publicly traded D&O, rates went flat in the second quarter, and we're in fact, up 2% in the third. Rate movements for the business we wrote in the quarter vary by territory and market segment. In our U.S. middle-market and U.S. major accounts and specialty businesses, renewal pricing in aggregate was up about 1.5%, with exposure change an additional positive 1%. By major class of business, pricing for our risk management business is up 1.5%. General and Specialty Casualty-related pricing was up about 4%. Financial Lines pricing was flat with management liability up 2% and property-related pricing was down about 2.5%. In our international retail commercial P&C business, pricing for general special -- general and specialty casualty, Financial Lines and property-related rates were all down 2%. For our London wholesale business, property rates were up 1%, and marine, down 2% and Financial Lines, flat. Now with that as context, let me give you some color on our revenue results for the quarter, which was a stronger on both a published basis and when adjusted for merger noise. Continuing the trend from prior quarter, this was our best quarter since the merger in terms of growth and reflects a careful balance between leveraging, the power, broad capabilities of the organization and underwriting discipline where we will trade market share for an underwriting profit. For the quarter, P&C net premiums written globally were up over 4.5% in constant dollars. Adjusted for merger-related underwriting actions, they were up 4%. As a reminder, the impact from these merger-related items will continue to ameliorate as we move forward. In our North America commercial P&C business, net premiums we're down about 0.5%. Normalizing for merger-related actions, they were up 1%. The renewal retention rate for our North America commercial P&C business was steady at 92%, with major account and specialty at 94% and middle market at 88%. Overall new business writings for North America commercial were up about 1.5% over third quarter '16, with new business growth coming from major accounts, middle market, small commercial and Bermuda wholesale. In our North America Personal Lines business, net premiums written were up 18%. Excluding the 13-point impact of a onetime on a premium transfer that reduced premiums written in the prior year, growth was about 5%. Rates were up about 2%, and exposure change added 3%. Retention remains very strong at 95%. Turning to Overseas General. Net premiums written for international retail P&C were up over 2% in the quarter in constant dollars, and nearly 4% excluding merger-related actions. Latin America led the way with growth of 12% while the U.K. and Ireland had a good quarter with growth of 4%. Our Asia-focused internationalize Life Insurance business had a very strong quarter with net premiums written and deposits up 28% for the near, year-to-date growth to 18%. John Keogh, John Lupica, Paul Krump and Juan Andrade can provide further color on the quarter, including current market conditions and pricing trends. We are in good shape but the remainder of our integration activities, operationally and financially, all areas of integration are on track or ahead of schedule. Lastly, we're continuing to plant seeds to capitalize on future growth opportunities around the globe. You saw, for example, our recent announcement of a 15-year exclusive distribution agreement with one of Asia's most respected banks, Singapore-based DBS. At the heart of our venture is our joint ability to market and service insurance digitally to DBS customers both consumer and business. In sum, the company is in great shape and we are optimistic about the future. While it was a tough quarter for cat, again, it's the business we are in. We should be at the beginning of a firming market, and we intend to help lead in that direction. Our company is in great shape from the perspectives of risk management, growth opportunity and financial efficiency. We are investing aggressively in our future Web delivering results to shareholders today. With that, I'll turn the call over to Phil, and then we'll come back and take your questions.

Thank you, Evan. Due to the unusually high level of catastrophe losses in the quarter, we sustained an operating loss of $60 million or a $0.13 per share. Catastrophe losses totaled over $1.5 billion after-tax or $3.27 per share net of reinsurance and reinstatement premiums. Our underlying results were strong with current accident year underwriting income, excluding catastrophes, a record $839 million, up over 5.5% from the prior year. Our balance sheet remains strong, and we maintain a necessary liquidity to support our business around the globe with total capital exceeding $63 billion. Among the capital-related actions in the quarter, we returned $563 million to shareholders, including $331 million in dividends and $232 million in shares repurchases. Year-to-date through September 30, our share repurchases have totaled $707 million and our program for the year remains open. Operating cash flow for the quarter was a record $1.8 billion. As Evan mentioned, book value and tangible book value per share were up 0.5% and down 0.3%, respectively. Our operating loss and capital-related actions in the quarter were offset by positive portfolio returns and favorable currency movements. Our invested assets grew by $2.2 billion or over 2% for the quarter, reflecting the favorable impact of foreign currency and positive cash flows. Investment income of $893 million was a record and higher than expected due to a $44 million distribution from a coinvestment by Chubb with one of the company's private equity fund partners. We now expect our quarterly run rate to be in the range of $845 million to $855 million. Net realized and unrealized gains for the quarter were $829 million pretax, and included a $680 million gain from FX and a $223 million gain from the investment portfolio, driven by a slight decline in yields and a positive return on our private equity portfolio. Our pretax catastrophe losses in the quarter, principally from Hurricanes Harvey, Irma and Maria were $3 billion gross and $1.9 billion net of reinsurance and reinstatement premiums bigger this compared to expected that catastrophe loss for the third quarter of $330 million pretax. Additional information on catastrophe losses as the deal in our financial supplement. Net loss reserves increased over $2.3 billion for the quarter. After adjusting for cat losses, our loss reserves increased $660 million. The paid-to-incurred ratio in the quarter was 69%. Adjusting for cat losses and prior period development, the ratio was 87%. We have positive prior period development in the quarter of $270 million pretax or $206 million after-tax. This included $77 million pretax of adverse development for our legacy environmental liability exposure versus $52 million in 2016. The remaining favorable development of $347 million was principally in long-tail lines related to accident years 2012 and prior. Overall, our favorable prior period development is down compared to last year by $79 million pretax. This is primarily due to the higher environmental charge in 2017, and the fact that 2016 included the release of an individual legacy liability case reserve of $25 million. In the fourth quarter, we expect our combined ratio to be favorable impacted by income level benefits from integration savings at a level similar to the third quarter. By year-end 2017, we will have achieved our full annualized run rate integration-related savings in accordance with the disclosed target of $875 million. As we move through 2018, the relative impact on our combined ratio will dissipate. Merger-related underwriting actions were $87 million in the quarter. We expect this to increase modestly in the fourth quarter because it includes the impact of the accounting policy alignment we discussed on this year's first quarter conference call. The merger-related impact on premiums will be pretty substantially beginning in the first quarter of 2018. The operating income tax rate for the quarter was impacted by the high level of catastrophe losses. Excluding catastrophe losses, in excess of our expectations, the effective tax rate in the quarter was 16.5%. We continue to expect our annual effective tax rate excluding the impact of the excess third quarter catastrophes to remain within the 16% to 18% range for the year. I'll turn it back to Helen.

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

[Operator Instructions]. We'll take our first question from Kai Pan with Morgan Stanley.

Evan, on the pricing outlook, some argued that the industries do have plenty of excess capital and that it is a very fragmented marketplace. So what gives you comfort that this is the beginning of a firming market and the potential price increase will be sustainable?

Well, Kai, it's one thing for there to be plenty of capital, but I agree that theres. It's another thing to receive a reasonable return on the capital. And when I -- when you look at industry results, in aggregate, many the industry are not in achieving cost of capital, let alone, a reasonable risk-adjusted return. Combined ratios are under pressure. You take out cat premiums that's subsidized, that mask the underlying health, you get rate going in one direction, the trend going in the other. And so in my judgment, it has reached a point where the industry -- there is enough pressure that I think, all the responsible companies, there is a recognition of that need. And you'd like the market to be -- to behave though markets the markets and hardly, they behave always rationally. But if we were to suppose a rational and responsible industry, you'd like to not have volatility in terms of pricing and terms to customers. You'd like it to behave in a more orderly way. And I believe all that bodes towards that direction. The other thing I'd tell you is losses were concentrated. These events weren't just evenly spread. They were concentrated in a number of important places. And those are the market -- the plumbing, the financial plumbing for insurance is global and it is connected. And I think have the loss disproportionately hit some of those centers, London as an example, drives a behavior that has an impact on many other markets at the same time. So while there's no guarantees, that's my point of view.

Okay, that's great. And my second question, on your revenue growth. The underlying premium growth you said is past -- since merger. And could you quantify -- so how much about is attributable to the revenue opportunities you discussed in the merger? And would a hardly market accelerate the realization of the revenue opportunities?

Well, look, I can put a dollar or a coin estimate on that. The fact is, when you look at the parts and pieces of this organization combined and the complementarity nature of the strengths of what we now have, that is 1 organization, so I'm hardly going to talk about it 2 years on -- in some artificial way of 2 organizations, it's all one. And the complementarity strands and capabilities are simply compelling from a market point of view for customers, whether it is from small commercial to middle-market to large commercial, and whether it is in the United States or it is overseas, or it is for a global customer, no one has the total capability that this organization has in terms of product and service and reputation for delivering. And we are capitalizing on that. And the fact is, where underwriters and we disciplined in underwriting and we will trade growth for underwriting discipline. And then the more the market rationalizes to a reasonable risk-adjusted price for the risk they take, the more opportunity that will create for Chubb. Thank you for the question.

And we'll go next to Elyse Greenspan with Wells Fargo.

Just following up a little bit, on the market outlook as well. You have insinuated there being about $100 billion of losses this quarter. Now when we look at the disclosures that we'd see to date, where obviously there's a decent size of delta between the losses that are out there and that $100 billion figure. Do we need to see $100 billion, meaning as the losses come in, both the potential and the start of what you said is a firming market -- not be there, I mean how do you view the need to see about $100 billion of losses?

Look, I think I'm not speaking a little too simplistic way. You're just putting a point estimate. So if it's 99, Elyse, what do you think? $101 billion, what do you think? -- excuse me, we're talking circa -- in the range of. And what you always see large cats, if you look back through experience, and let's say, let's take Katrina as an example. What was the initial reported loss by insurers, and what did Katrina ultimately develop to? I recall somewhere in the $30 billion range that ultimately became $42 billion to $45 billion. I think that's what you're seeing here, and I think you're going to continue to see it creep. And it happens over a period of time.

Okay, that's great. And I imagine because there's estimates out there now that you can ballpark at to -- maybe $50 billion. I wasn't talking about $1 billion but in terms of pricing just when you think. . .

Well, you pick a number, I'll pick mine.

And then what you're talking about pricing in this firmer market, how are you thinking about price specific to really property and certain pricing levels that you think are needed for Chubb to get a lot more aggressive? I mean, how has the dialogue been with been with your clients following on these events in and around the potential to push for more price?

Elyse, in the very early days when you think about the business of housings move and how the business actually works. So in October, you're really quoting late November and December business. In September, your business for October was already done. So there is a lag and it takes time, and that is just building now. The rate increase, I was very clear in my commentary, it varies by customer in the way Chubb will approach this. It doesn't -- it's not some blunt instrument -- here is how much it needs to move. Some customers to make needs to be flat. Some customers need to quote 30% because what's the adequacy? Where are you priced the model on cat, and where are you priced for attritional loss? And that both need to be adequate. And overall for the industry, if you're large account shared and layered, you're talking double digit and it has to be. If you're talking middle-market commercial, well, the pricing is going to vary depending on the class and where you are located in the United States, or where you're located overseas. We're underwriters, and so we price to the exposure.

Okay, that's helpful. And then one last for Phil on the tax side. You said 16% to 18%. That's a Q4 and a full year figure?

I was saying general on a quarterly basis, yes. We would expect to run 16% to 18%. Now if you're talking about this year, as I said, that's 16% to 18% excludes the impact of the excess cats in this quarter. So on a normal year, I would say 16% to 18%.

We will take our next question from Jay Gelb from Barclays.

Given the expectations for primary commercial insurance rates, it would seem that reinsurance rates could go up more. Could you talk about how much of its reinsurance protection Chubb already has placed for 2018? Or how much it might purchase next year relative to this year, please?

Our purchase appetite is pretty steady, Jay, and that isn't something that changes in any dramatic way. Our notion of risk and how we see risk has not changed. These cats didn't show us something else about risks that we didn't already know, and that's what I tried to speak to in the beginning, and I think that speaks with -- remember something about reinsurance. If primary gets rate, the reinsurer automatically got rate because excess pricing, when you think about cat protection, is a derivative of the premium that is collected, and that premium is a proxy for the underlying rate and exposure. And so they automatically get rate. Now you're talking about rate on rate, and how much that will be. And I can't speak to that at this moment in time, it will be pure speculation. Our treaties com up through the year and we already have -- so depending on as they come up through the year, we have treaties that will run for 6 months into '18, 3 months into '18, and 9 months into '18. It all varies. We don't have it all piled into one day.

That's what I figured. My next question is on the California wildfires. Can you discuss what you think the industry total insured loss might be and then cats exposure given its market presence in high-net worth homeowners as well is the winery industry?

Sure. Look, I can't speak to the industry loss right now. My own gut feel for it is the numbers that are out there that -- have a reach around them and where -- sorts of coalescences around that $5 billion, it doesn't feel off to me. But I don't know with any certainty. And for Chubb, I'm not going to give you a number because it's too early. It's too early to estimate our lawsuit position but from all we know at the moment, the net loss appears to be in the range of our cat load for the fourth quarter. But again, it's early days. When I say what's the cat load for the fourth quarter, and I'm not going to disclose our cat load for the fourth quarter. We don't do that. But I think you have a way of doing researching into the past.

Will the fourth quarter typically be less in the third quarter?

Third quarter right? It's less.

And we'll take our next question from Brian Meredith with UBS.

A quick question just on the pricing one here. So history, I think, has found, particularly, in the Casualty Line and even in the Property Lines, that firming markets typically follow an increase in the kind of perception of risk in those lines of business or higher loss trends -- something is happening. Do we really have that this time around?

I think we do among a lot of prayers players, I do. Remember you had a lot of nonmodeled risk here, let's take Harvey as an example. Harvey was a rain event. It wasn't a wind event. It was a flood event. And models hardly imagine that. I think when the dust all settles and you look at Maria, the devastation in Puerto Rico, I mean it was -- it was pummeled back to the Stone Age. And the kind of business interruption exposures that can emerge from that, I think, stand up and give people to take attention. When you Irma approaching -- if Irma moves 70 miles east, you were looking at $150 billion. I think people stood up to take attention to that. The number of territories that were, in essence, correlated in single event, in single events, and then in aggregate in the events. While people understood it theoretically possible, it's another thing when it actually occurs. And it's something about human nature, that when you're taking a bet and you don't lose the bet over years, your perception of risk just has a way of moderating. Humans start to feel almost omnipotent that way. And then, as soon as it hits, isn't it amazing how people feel ? It's not just in catastrophes. It's in any kind of risk-taking. It's just the human condition. And that's what you've got going on. And that's why I started out by saying, it's not my company. And cat losses will stop you crying. This is the business we're in, this is what we do for a living.

Got you. And then what do you think about the reaction of the alternative markets or capital markets? And did they put a lid on them -- any type of property pricing, pricing property, cats, those types of things?

Well, we'll see. Look, the retro market was hit very, very hard and both with impaired capital and capital that is tied up because of the big question mark of whether it's impaired or not in the ultimate loss, to Elyse's question, what we've seen reported -- but there will be a big delta between what's been reported. And when you look back a year or 2 years well with the ultimate loss is. And that capital -- a lot of capital was tied up. And how much capital comes back in and based on what kind of return will be expected, which I can guarantee, has a lot higher than to get a return, a lot higher than the rates they took in the past. Well, that's in front of us and it's a short window, because here comes January 1, and reinsurers have to make their plans about how much capacity to commit.

And we'll take our next question from Ian Gutterman with Balyasny.

And I have a couple of questions last couple yes. So I guess, Maria -- can you talk about more -- I think the price, that's been everyone's lowest number. I know there's a lot of different range on the industry events but nothing -- it sees for a lot of people, it's half of less of the others. And I would have thought, for a company like yours, frankly, it would've been higher just given your national account exposure. There is almost as many Home Depot's and/or Walmarts, et cetera, on Puerto Rico as New Orleans, so I guess I'm surprised we're not seeing more national account type losses I would say, if you can't open the doors.

I don't mind telling you that Chubb, fundamentally, overall our company, in the last 2 years, 3 years, we cut our exposure in the Caribbean and Puerto Rico in half or more. We didn't like pricing, we didn't like aggregations and we didn't like terms, period. Number 2, you're referring to big real estate schedules when you're using proxy of the kinds of accounts you named. And by the way, the most underpriced business is big, with the greatest basis risk and exposure is real estate schedules. And any underwriter worth half their salt understand that. So that's how I commented on based on Chubb. I can't comment that, I can't comment for you based on others. And on one hand, I scratch my head a little bit but on the other hand, what they do know is, many simply don't have good data yet. They don't know. And unlike us, they're not on the ground with people actually examining the exposure with -- through the eyes of experienced adjusters and with that kind of command and control around it. And I think there will be a surprise. I think business interruption when -- time will tell, and I could be wrong, but I think business interruption is going to be uglier at Maria than you imagined, through the obvious reasons -- electricity, ports and transportation, ability to operate.

Exactly, that's why I'm worried about. I'm glad you're not on it but I'm worried that others are. On your cat look, I'm doing some very back of the envelop math, which is maybe a little bit unfair. But I think I'm wondering, so said -- I guess I'm wondering do these events make you rethink your annual cat load just -- you said this is a 1-in-5 to 1 in 10, and it also, I think [indiscernible] 330s and normal Q3, so over 10 years, that would be $3.3 billion, you had a $1.9 billion every 7 years, that's about $2.9 billion with nothing in the other years. So again, that's a little bit changes using in Q3, but do these sort of return periods make you rethink what your normal cat load should be?

No. It was actually -- and it depends -- look, are you talking AALs, or are you talking expected that in a normal year? And so there's different basis for thinking about it, number 1. And number 2, as I said, a 1 and 5 to a 1 in 10, and it fits within our expectation as we model the aggregations and what our appetite would be at various return periods based upon our losses as percentage of capital, as a percentage of earnings and as a percentage of industry as we imagine industry. These losses don't throw us. I know what you want me to square for you on this call, and I'm not falling into a math with you. I'll rapidfire back-and-forth math.

I can move on. So to build up on Brian's point about sort of a -- what -- the magnitude we might be seeing here, I guess to me, the question is 2005 versus 2011, right, and you could argue 2011, we haven't seen many quakes in a year? And some of those quakes were in places where the quakes were in the quakes maps, right? I mean those were significant surprises. And you had a tight flood, maybe that's like the wildfires being the final gut punch. And yet, all you really got was localized pricing. And I guess I'm just sort of going through sort of supply-demand and listen to all the calls so far. The companies had much bigger losses than you, none of them are as saying they're retreating. They're all saying that they are looking to maintain their net and grow their gross. So no one's pulling out. The alternative guys certainly are looking to reload. And as the models aren't changing and the rating agencies aren't changing, it doesn't necessarily seem there's more demand. So if the demand is the same, the capacity at least the same, if not more, I just struggle with outside of obviously where there's been losses, why this is in 2011 like where it makes sense should be pricing, but at the end of the day, there's just too many people who want to grow and none of the people are go and paying.

Ian, there's your thesis. I don't agree with you, and I gave you my thesis.

Nothing else you want to add to that?

I'm not going to -- I don't think I'm going to repeat myself. I'm comfortable where I am. And by the way, I'm looking at property prices already moving. I have and you can't. Now time will tell. Time will tell. I think the industry's reserve position is tighter than it was back in '11. I think the published results x cat are under a lot more pressure than they were, and I've given you all my rationale.

Well, it makes sense. We'll have to see how it plays out.

No. We don't need to debate it. We just need to get on. Hey, Ian, I'm not going to give me an answer. I can only be wrong. I told you what I imagined, I told you what -- if we can have anything to do with crafting the reality, the reality we're going to craft.

And then we'll go next to Meyer Shields with KBW.

A couple of small ball questions, if I can. One, let me start with Phil. So the guidance that you gave for investment fee income, we've seen it straight kind of sneak up in the past couple of months. Does that anticipate a continuation of that trend, or is this based on current levels?

Well, it's a current view of our short-term rate. We update the run rate periodically, and we think that it's a -- based on the cash flow that we expect, and we do an analysis to estimate what we think our -- what we estimate as our investment income for the upcoming quarters.

Yes. Let me just add. That's this just for the fourth quarter. So for that, for higher rates to pike, it's going to take a while. So as we look forward, yes, we would anticipate some increase in rates and that will affect income as we go forward the next few quarters.

Okay, that's helpful. And can you talk to the adverse development in North America personal?

Yes, [indiscernible] going well, for sure. As we had adverse PPD of $32 million, PRS in Q3, that was a -- some unfavorable loss development in homeowners, a little bit of an offset to that from the umbrella. That compares to $30 million in the third quarter of 2016. Recall here, Meyer, that we're harmonizing the 3 books of business and this is a huge portfolio. It's in the homeowners line. It's short-tail, very short-tail, and you just a little bit of movement on some of these losses. So nothing what I would [indiscernible] noise.

That's all in the prior prayer but I'm going to help you, Meyer. Okay, we saw the loss ratio in the current accident year also continue to go up in personal. So, why? I'm being your lawyer, Meyer.

That's a great question, Evan, and I don't consider that a small mall. I consider that a big bowl. The Personal Lines current accident year loss ratio excluding cats is $51.9 billion in Q3. While at 51.9, Evan, I think, you and I would agree, that's still a good number, it is 2.6 Meyer than Q3 2016 comp, which was a at 49.3, and that is [indiscernible] higher than where we target the business to run.

The causes of that elevated loss ratio were more large random fires than expected as well as an increase in water damage claims specifically versus fire.thicken given the high severity of low frequency nature of large fire losses, we anticipate random differences in the quarter-to-quarter impact. As you often say, it is our business. As I have mentioned in the past, we have been experiencing an elevated level of losses reversed pipes. We believe these water losses are on industry issue and are not isolated to us. We'll burst pipe losses typically cause us less than home fires, they're incredibly inconvenient for the homeowner and oftentimes, require them to be out of their homes for a period of time. Fortunately, no other carrier has more high-net worth home beta than us, and we have a proactive program to directly reach homeowners we've identified and more likely to have a water loss. We arm our customers with facts, and we give them practical advice in how to mitigate their chances of loss. We provide them with list of qualified professionals who can install devices such as sensors, water softeners and especially automatic shutoff valves. And of course, once these devices are installed, we provide them with the premium credits because of their improve price. So it's still early days for this proactive program. Our ages and brokers are excited about it and readily embracing it. In fact, they like being advocates for tangible tools to reduce risks and rates. This is part of the Chubb high net worth advantage that so different sheets us in the market.

And final question with a little bit of dead horse-beating. But Evan, you talked about mechanic of the leadership position that you have that have been take in terms of driving equipment.

Yes. It's in some ways, a continuation of our playbook, we just can't give up. And it's how you -- it's how -- it's the command-and-control effect of underwriting management. So on one hand, it's how you -- its materials used to educate customers of why you need rate increases and riders, mathematically, the logic behind your statements and your actions. And that is to educate both the customer and your distribution partners and prepare the environment. At the same time then, it's how you train and arm your underwriters, many of whom have never been in an environment where they asked for a rate increase. They will be provided rate decreases and they're the ones on the front end. For those of you who are not in the business, and you're not, you just observe the business, this is one of the reasons why it takes time for markets to move because the way from the head to tail, to those actually have to administer it on a daily transaction-by-transaction basis, the command-and-control to get them to move takes -- can take time. We understand that and we're usually quicker. And it's getting our underwriters, therefore, and training them and helping them work alongside others who've done it before and being able to actually experience getting a rate increase and that you can do it and you can ask for it. Sounds simple? Not as simple as you might imagine. And then to reinforce that, what you do is you start changing underwriting authorities and you say I'm only giving you of no authority to quote less than x. Any if you're going to quote less the x as an increase, it has to -- it needs approval. It has to go up to manager. And you limit the number of managers who have that authority to move off of your stated instructions. And that has a way of putting discipline within an organization. So that's just an example to, the kinds of tools and how you do it and you get out there in a very granular way to drive execution of something like this. We've done it before and we know how to do that.

And we'll go next to Jay Cohen of Bank of America Merrill Lynch.

I was wondering if you could talk about the tax proposals that are floating around Washington. We don't have a lot of specifics yet but you probably have some view -- and also help that could affect Chubb given the complex Chubb's tax arrangements.

Yes. I won't comment directly because -- on the proposals right now, because this is -- you've got house constructing their views of tax and details in proposals, and they look at paying for us et cetera and then Senate doing the same. But let me -- but thank you for the question. I want to make a few other comments and observations none of this that I think important at this moment. And there's been a lot of noise recently from protectionists U.S. insurers. We are seeking the upset to global insurance markets that is working well for U.S. consumers. They want to stop competition from foreign insurers who help keep rates down and they were providing the majority of the cash that is sprinklings from let's take the recent hurricanes. U.S. insurers claim they are suffering compared to foreign insurers because of tax laws. Well this is fundamentally untrue. If you look at their stock prices over the last decade, shareholders of U.S. insurers, including Berkeley and Travelers have been richly rewarded over the last decade. Just compare a cohort of U.S. insurers and foreign insurers, and you'll see dramatic difference in how much more the U.S. insurers have improved their stock prices. And when they're not running the Congress, to limit foreign competition, they are telling shareholders in the public just how well they are doing, just read their annual reports and listen to their analyst calls, it's a litany of market successes and bright futures. They also make false claims about insurance jobs moving overseas and decreasing tax revenues. In fact, look at what Chubb has done. It is invested for growth in the U.S. As return signal from a money loser into a profitable taxpaying company, securing the jobs of thousands of employees -- and we used our capital to combine Ace and Chubb, we created a powerful competitor, offering U.S. customers and their array of new products and efficiencies while rewarding shareholders of the same time. And increasing revenue and payrolls means an expanded U.S. tax base, bringing in more personal and corporate tax at all levels of government. While Chubb was investing in the U.S., what were U.S. companies, like Berkeley and Travelers' doing, complaining about decreasing market share while using their capital to buy back stock, maybe boosting their share prices as a result, but failing to make the investments that are essential for long-term growth and creating more jobs. They know that the strategy doesn't work against companies like Chubb, which are investing in innovation and growth. So they want to slow us down by changing the tax rules and protect their market share at the customers' expense. The current tax system, including the rules about affiliate REIT makes sense because it's -- recognizes the tax should be applied where the risk reside and that system has encourage global distribution of risks, which maximizes the efficient use of capital, resulting in more competition and lower premiums. But you don't have to take my word that this system works to benefit customers and not as the tax avoidance scheme, the U.S. insurers have fantasized. The OECD looked at the tax avoidance question and they would be sceptical of any industry claims. And they concluded that affiliate reinsurance has a legitimate business purpose. And the U.S. Treasury Department also concluded that affiliate REIT is an important tool, allowing insurers to lower overall costs by pulling capital. So don't be fooled by claims of the U.S. insurers were trying to hide behind the falls patriotism and trade themselves in the flag. They are not interested in lowering costs for U.S. customers. They want to blow up the system that has worked so well to keep prices competitive in the United States. Thank you, Jay for that question.

And we'll take our last question from Josh Shanker with Deutsche Bank.

I wanted to dovetail a little with the Meyer asked about jumpering leadership. You guys have done a phenomenal job here, broking even in $100 billion loss last quarter. You were -- combined ratios, underlying basis are about 100 basis points better than they were three years ago. Interest rates were higher for pricing. It looks like another situation maybe for you, and maybe not the industry. Why is Chubb invested in this secret rate? Why don't let others make mistakes and allow you to capitalize on their mistakes as they come to you? Does Chubb need to be the one to demonstrate the leadership on the rates pricing?

Well, yes. I think Chubb and I think others will do as they think is in the interest of their own company. I know we'll do what's in the interest of our company. Josh, there are many -- you're looking at the broken egg in it and it's a global book you're looking at. You don't see the underlying parts and pieces as I do. And I know in the large commercial business, and I know in pockets of all of our commercial business, the different classes and the different customer segments and where we are running a combined ratio that is adequate to earn a decent risk-adjusted return and where it is not. And we have many classes that other under pressure. They may earn an underwriting profit but their combined ratios are too high. It is inadequate to earn a reasonable risk-adjusted return. And by the way, as I always say, we pay a penalty in terms of growth by maintaining underwriting discipline, particularly in those classes, in any class as it approaches inadequacy. And then what you know is, trend continues, it just marches on minute by minute, day by day. And you need, if you want, you want to get out of that. You want to stay ahead of the. And what you don't want to do, and I don't want to see happen -- I care about our industry because I care about our industry's reputation and what customers don't want ultimately it's volatility in pricing. They want more predictability. And so all of that success to me, when you add it all together between opportunity, between the in between responsible behavior in an industry that is importance to the plumbing of our economy, that we behave in a responsible rational way, so prices should I need to.

Thank you, everyone for your time and attention this morning. We look forward to speaking with you again at the end of next quarter. Thank you, and good day.

This does conclude today's conference. We thank you for your participation. You may now disconnect.