Source: Barron's Chinese Author: Nicholas Jaskinski Evan Greenberg, CEO of Chubb Ltd, has a highly influential fan - Warren Buffet, CEO of Berkshire Hathaway. Berkshire Hathaway disclosed last month that it held 6% of the shares in Chubb, one of the world's largest insurance companies, by the end of 2023. Berkshire itself is a major participant in the insurance industry, but it is not the only buyer. In the past year, Chubb's stock return, including dividends, was about 40%, surpassing the S&P 500 index's total return of 25%, and making the company's market capitalization reach $110 billion. This increase in market capitalization reflects Chubb's outstanding performance, which is attributed to its prudent underwriting practices and conservative management of its investment portfolio of about $140 billion. The company's earnings per share increased by 48% in 2023 and its book value per share increased by 21%. Greenberg is the son of Maurice "Hank" Greenberg, the former CEO of American International Group (AIG). Greenberg worked at AIG for 25 years, rising through the ranks. He left the insurance company in 2000 and took over Ace Limited in 2004. The company merged with Chubb in 2016, the largest M&A in the property and casualty insurance industry at the time. Today, Chubb is the largest commercial insurance provider in the United States, and the company is also known for its high-end homeowner insurance for the wealthy. However, about half of the company's premiums last year came from outside the United States. Asia has always been a growth area where the company is bullish: Although Asia accounts for 40% of global GDP, the insurance industry accounts for only 26% of the global insurance market share. This gap is expected to narrow over time. Greenberg sits on the board of several nonprofits that focus on international and Asian affairs. Barron's recently interviewed Greenberg about his underwriting philosophy, the challenges of dealing with increasingly frequent climate disasters, and US-China relations. Following are the edited excerpts of the conversation.

Moody's has stated that the US banking industry may still face further problems due to commercial real estate loan issues, but the Fed's rate cuts and increased demand for loans outside the banking sector may provide a boost to the US banking industry.

Since the sudden collapse of Silicon Valley Bank over a year ago exposed the weakness of the US banking industry, regional banks and commercial real estate loans have been the focus of attention.

According to Moody's data, the Fed's significant interest rate hikes since 2022 have been the main catalyst for the performance weakness of interest-sensitive industries in the US economy, including about $4.7 trillion in outstanding commercial real estate loans, 38% of which come from the US banking industry.

Moody's data shows that the largest national, regional, and community banks in the US each hold about 10% to 13% of commercial real estate loans, but the largest banks' risk exposure accounts for only 4.3% of their total assets.

"This is a financing issue," said Stephen Lynch, senior credit officer at Moody's Ratings, in a phone call with reporters on Wednesday, prior to the Fed's publication of the annual bank stress test results.

The lending managers of major US banks told the Fed in May that they had implemented stricter standards for all types of commercial real estate loans in the first quarter.

However, Kevin Fagen, CRE economic director of Moody's Analytics, said that insurance companies, private capital, and Wall Street banks that pool real estate loans into bond deals have been increasing their lending to the real estate industry.

"We've clearly reached a turning point," Fagen said on Wednesday.

Another positive factor for the US banking industry is that while the delinquency rate for commercial real estate loans has been rising, it remains under control, with the delinquency rate for real estate loans of the largest US banks at about 3%.

Fagen said that the default rate for real estate loans did not peak until one to two years after the global financial crisis of 2007-08.

Although the Fed's policy rate has been at its highest level in 20 years since last summer, the US economy has so far avoided a recession, which has helped many tenants to bear their property rental and leasing obligations.

"This is actually an interest rate issue," said Lynch of Moody's Ratings.

According to FactSet data, while the Dow Jones Industrial Average reached a new historical high in recent weeks, the SPDR S&P Bank ETF (KBE) fell 2.7% in the year to Wednesday, while the SPDR S&P Regional Bank ETF (KRE) fell 10.1%.

Editor/Lambor