Some insurers may be facing sizable risks stemming from the latest round of California wildfires now raging, but Chubb Chairman and CEO Evan Greenberg insists his company isn’t one of them.

“We do have a quota share [reinsurance] agreement we did not have before. That would be the one major difference over the last year in particular, ” Greenberg told investors during the company’s 2019 third-quarter earnings call on Oct. 30.

Greenberg said that Chubb has worked hard in recent months to reshape its risk portfolio in the region to avoid large-scale wildfire exposures in the future.

“Though it began two years ago, really it’s been the last year we’ve been reshaping the portfolio, given the underwriting environment and level of rate we can charge,” Greenberg said. “We have aggressively pursued more rate increases, and that earns into the portfolio and has a benefit.”

Greenberg added that Chubb has focused its attention on reshaping its California portfolio “around the margins, particularly in extreme wildfire zones.”

Greenberg declined to comment on California’s multiple ongoing wildfires, noting that only the Tick wildfire has been put out so far. With that in mind, he would not say much about loss expectations for Chubb, other than downplaying them.

“It is just very early days, and I’d rather not predict, and I don’t know what the outcome will be at this point,” Greenberg said.

Still, he added: “Our losses are very minor.”

Low Interest Rates, Social Inflation and More

Greenberg sounded off on a number of other issues during the conference call.

They include:

• Prolonged low interest rates. Greenberg noted that the trend temporarily benefited Chubb’s book value growth. But he said the practice, which initially began after the 2008 economic crash, amounts to an “overreliance on monetary policy” that has “penalized savers and led to a misallocation of capital and overvaluation of assets without substantially supporting business investment and economic growth.”

• Rates. Greenberg reflected that the frequency of severity in some long-tail and short-tail classes has been worsening but remains subdued or is declining in others.

He said that factors affecting this can be divided into three buckets, with the first covering “attritional loss layers” where “severity has been increasing at a relatively modest pace.”

The second bucket, involving excess layers, reflects increased frequency of large claims settlement with pressure being put on rate adequacy, something Greenberg said was only partially connected to social inflation. Greenberg also blamed “casualty attachment points not moving for years,” noting “a $1 million attachment point for casualty excess 10 years ago is worth a fraction of the amount today.”

Greenberg placed large or “mega” class actions in the third bucket. This includes securities and antitrust class actions, or science-based lawsuits covering chemical, pharmaceutical or physical trauma.

Greenberg said these “bucket” trends and the market resetting with higher rates reflect a “risk environment” that is sustainable.

• M&A. Greenberg, asked if the current market presented fewer acquisition targets, pointed out the company’s quiet around that topic in recent months should speak for itself.

“You’ve seen us quiet,” he said, “and you’ve observed prices for assets yourselves,” which Greenberg noted earlier in his remarks are overinflated.

“We purchase insurance companies. We look at those assets, [and] I find the market now to be tremendously overvalued,” Greenberg said. “When I look at prices paid and so much private equity in high-tech and IT-related and tech-related [startups], the asset values are tremendously inflated.”

Greenberg said this reality reflects the trend that investors “are chasing absolute yield” and not risk adjusted yield, a practice Chubb pursues with its own investment portfolio.