Why Warren Buffett’s bet on Chubb could be his most underrated move in years

Warren Buffett’s latest Berkshire Hathaway portfolio update in May made headlines, but one of the most interesting developments has gone largely unnoticed: a sizeable and growing stake in Chubb (NYSE: CB). While investors typically focus on Buffett’s top holdings like Apple and Coca-Cola, this lesser-known insurer is an outlier among big-name companies.

Berkshire Hathaway has quietly built a position in Chubb worth over $6.7bn, as revealed in its latest 13F filing. That makes Chubb one of Berkshire’s largest publicly traded insurance holdings, alongside its wholly owned businesses like GEICO and Gen Re. The move is no coincidence — Buffett has long favoured insurance as a foundation for Berkshire’s business model, thanks to a unique financial advantage.

Float

Insurance companies collect premiums upfront and pay out claims later. This time gap allows insurers to invest the premiums, or ‘float’, and generate returns. Few understand how to manage this capital as well as Buffett. When deployed wisely, float can supercharge long-term gains.

Chubb stands out in this field. It’s one of the world’s largest publicly traded property and casualty insurers, with a reputation for underwriting discipline and risk management. Unlike some rivals, it has consistently delivered profitable growth, even in volatile markets. Its property/casualty (P&C) combined ratio — a key measure of profitability in insurance — remains below 90%, indicating strong operational efficiency.

The timing of Buffett’s investment is also notable. With interest rates at multi-decade highs, insurers with conservative balance sheets and large bond portfolios stand to benefit. As older, lower-yielding bonds mature, insurers can reinvest at higher rates, boosting income without taking on excessive risk. This is an environment tailor-made for old-school insurers with staying power, making Chubb a stock worth considering right now.

Dividends and buybacks

Chubb also has a surprisingly impressive dividend policy for a US company. It has increased its dividend for 31 consecutive years and regularly buys back shares, affirming its dedication to shareholders. While its yield is modest at just over 1.4%, its track record of total returns over the long term is far more compelling.

For Buffett-style investors, this strategy should be familiar: buying high-quality businesses at fair prices and holding them for decades. Unlike tech stocks, where sentiment can swing wildly, insurance offers stability, predictable cash flow and long-term compounding — core tenets of the Berkshire playbook.

Sector-specific risks

For UK income investors, this news warrants a closer examination of domestic insurers. Companies like Aviva and Legal & General offer higher yields and play similar roles in a portfolio focused on long-term cash generation. While not exact parallels, they operate in the same rate-sensitive sector and could benefit from the same macro tailwinds Buffett is eyeing.

However, investors should also be mindful of the risks. Like all insurers, Chubb is exposed to unpredictable claims events such as natural disasters or litigation surges, which can impact profits. And while its global footprint offers diversification, it’s also at risk from regulatory and geopolitical complexity, including foreign exchange fluctuations, rate changes, legal challenges and bond market volatility.

Ultimately, Chubb may not make headlines like Apple or Amazon, but its inclusion in Berkshire’s portfolio speaks volumes. In a world that chases growth at any price, Buffett’s quiet bet on an insurance stalwart is a reminder that quality, value and patience never go out of style.

The post Why Warren Buffett’s bet on Chubb could be his most underrated move in years appeared first on The Motley Fool UK.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Mark Hartley has positions in Aviva Plc and Legal & General Group Plc. The Motley Fool UK has recommended Amazon and Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.