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.
Author: Ian Salisbury

The market has tasted the sweetness given by the Federal Reserve. Investors have responded by pushing up the prices of assets ranging from small-cap stocks to high yield bonds and gold. However, the U.S. economy has not yet completely emerged from danger, and investors should remain cautious towards the riskiest assets in the market.

On Wednesday, September 18, the Federal Reserve announced its first interest rate cut in over four years, with a 50 basis point reduction greater than the expectations of many investors.

The direct result of the rate cut was the return of the "everything rises" market. Both the S&P 500 index and the Dow Jones Industrial Average set new closing highs on Thursday, with over 350 component stocks of the S&P 500 index rising, including Nvidia (NVDA) up by 3.97% and Apple (AAPL) up by 3.71%.

Small-cap stocks were also big winners, with the E-mini Russell 2000 index up by 2.1%. Gold, oil, and high yield bonds all saw increases.

Wall Street is betting that the Federal Reserve's significant interest rate cut will increase the probability of a "soft landing" for the U.S. economy, that is, reducing inflation without causing a recession. However, investors should still exercise caution because the Federal Reserve's task remains very challenging.

Pimco economist Tiffany Wilding commented, 'The inflation risk has subsided, while the labor market has recently lost momentum and there is a risk of excessive downside.'

Recent trends in the stock market indicate that economic uncertainties often put Wall Street traders on edge - they are willing to boost stock prices, but as soon as they see even a hint of bad news, they quickly retreat, especially when it comes to small-cap stocks and high-yield bonds (referring to high-risk assets related to many companies that make up small-cap stock benchmarks).

The Russell 2000 index surged by over 11% in July, but within the first few trading days of August, it gave up all gains as weaker-than-expected employment data prompted investors to change their minds. Since then, the small-cap stocks' ROI has been fluctuating, Fed rate cuts will not fundamentally alter this dynamic, only stronger economic data can achieve that.

Bank of America wrote in a report on Thursday: 'Small-cap stocks are very sensitive to interest rates and refinancing risks, larger rate cuts help alleviate investors' concerns about their growth prospects, so more rate cuts in the future will benefit small-cap stocks in an incremental manner.' However, Bank of America also pointed out, 'Soft macroeconomic data raises questions about whether corporate profits can recover as investors have expected this year.'

Editor/rice