The
Chubb
Corporation
Supplementary
Investor
Information
December 31, 2003
| This report is for informational purposes only. It should be read in conjunction with documents filed by The Chubb Corporation with the Securities and Exchange Commission, including the most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. |  |
THE CHUBB CORPORATION
SUPPLEMENTARY INVESTOR INFORMATION
TABLE OF CONTENTS
DECEMBER 31, 2003
| Page | |||
The Chubb Corporation: | |||
Sources of Consolidated Net Income | 1 | ||
Share Data | 2 | ||
Consolidated Balance Sheet Highlights | 3 | ||
Summary of Invested Assets: | |||
Corporate | 4 | ||
Property and Casualty | 4 | ||
Property and Casualty Insurance Group: | |||
Investment Income After Taxes | 5 | ||
Statutory Policyholders’ Surplus | 5 | ||
Combined Loss and Expense Ratios | 6 | ||
Claims and Claim Expense Components | 6 | ||
Change in Net Unpaid Claims | 7 | ||
Underwriting Results — Year-to-Date | 8-11 | ||
Underwriting Results — Quarterly | 12-15 | ||
Definitions of Key Terms | 16 | ||
THE CHUBB CORPORATION
SOURCES OF CONSOLIDATED NET INCOME
| PERIODS ENDED DECEMBER 31 | |||||||||||||||||
| FOURTH QUARTER | TWELVE MONTHS | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
| (in millions) | |||||||||||||||||
| Property and Casualty | |||||||||||||||||
| Underwriting Income (Loss)(a) | (137.5 | ) | (61.1 | ) | 104.5 | (625.9 | ) | ||||||||||
| Investment Income, Net of Expenses | 281.7 | 238.1 | 1,058.4 | 929.4 | |||||||||||||
| Other Charges | (6.9 | ) | (8.5 | ) | (29.5 | ) | (25.3 | ) | |||||||||
Property and Casualty Income | 137.3 | 168.5 | 1,133.4 | 278.2 | |||||||||||||
| Chubb Financial Solutions Non-Insurance Business | (96.3 | ) | (13.9 | ) | (126.9 | ) | (69.8 | ) | |||||||||
| Corporate and Other | (54.9 | ) | (18.5 | ) | (157.3 | ) | (73.9 | ) | |||||||||
| Consolidated Operating Income (Loss) Before Income Tax | (13.9 | ) | 136.1 | 849.2 | 134.5 | ||||||||||||
| Federal and Foreign Income Tax (Credit)(b) | (87.0 | ) | 52.4 | 95.3 | (66.4 | ) | |||||||||||
CONSOLIDATED OPERATING INCOME | 73.1 | 83.7 | 753.9 | 200.9 | |||||||||||||
| Realized Investment Gains (Losses) After Income Tax | (.8 | ) | (27.1 | ) | 54.9 | 22.0 | |||||||||||
CONSOLIDATED NET INCOME | $ | 72.3 | $ | 56.6 | $ | 808.8 | $ | 222.9 | |||||||||
Effective January 1, 2003, the Corporation adopted the fair value method of accounting for stock-based employee compensation plans using the modified prospective method of transition. The change in accounting resulted in a decrease in operating income before income tax of $15.1 million ($10.3 million after-tax) for the fourth quarter of 2003 and $66.2 million ($46.0 million after-tax) for the twelve months ended December 31, 2003.
| (a) | Underwriting income (loss) in the fourth quarter and twelve months ended December 31, 2003 includes net losses of $250.0 million ($162.5 million after-tax) related to asbestos claims. Underwriting loss in the fourth quarter and twelve months ended December 31, 2002 includes net losses of $75.0 million ($48.7 million after-tax) and $741.1 million ($481.1 million after-tax), respectively, related to asbestos and toxic waste claims. |
| (b) | The federal income tax provision in the fourth quarter of 2002 and twelve months ended December 31, 2002 includes a $40.0 million tax valuation allowance from not being able to recognize, for accounting purposes, certain U.S. tax benefits related to European losses. The federal income tax provision in the fourth quarter of 2003 and twelve months ended December 31, 2003 includes a $40.0 million credit for the reversal of the tax valuation allowance established in 2002. |
Page 1 of 16
THE CHUBB CORPORATION
SHARE DATA
| PERIODS ENDED DECEMBER 31 | |||||||||||||||||||
| FOURTH QUARTER | TWELVE MONTHS | ||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||||
Diluted Earnings Per Share Data | |||||||||||||||||||
| Operating Income | $ | .38 | $ | .48 | $ | 4.16 | $ | 1.16 | |||||||||||
| Realized Investment Gains (Losses) | — | (.15 | ) | .30 | .13 | ||||||||||||||
| Net Income | $ | .38 | $ | .33 | $ | 4.46 | $ | 1.29 | |||||||||||
| Effect of Catastrophe Losses | $ | (.11 | ) | $ | (.09 | ) | $ | (1.05 | ) | $ | (.37 | ) | |||||||
| Effect of Asbestos and Toxic Waste Losses | $ | (.86 | ) | $ | (.29 | ) | $ | (.90 | ) | $ | (2.79 | ) | |||||||
| Effect of Chubb Financial Solutions | |||||||||||||||||||
| Non-Insurance Business | $ | (.33 | ) | $ | (.05 | ) | $ | (.45 | ) | $ | (.26 | ) | |||||||
| Effect of Tax Valuation Allowance | $ | .21 | $ | (.23 | ) | $ | .22 | $ | (.23 | ) | |||||||||
| Effect of Expensing Stock Options | $ | (.05 | ) | $ | — | $ | (.25 | ) | $ | — | |||||||||
Average Common and Potentially | |||||||||||||||||||
Dilutive Shares Outstanding(in millions) | 190.0 | 171.7 | 181.3 | 172.9 | |||||||||||||||
SHARE REPURCHASE ACTIVITY
| PERIODS ENDED DECEMBER 31 | ||||||||||||
| FROM | ||||||||||||
| FOURTH | TWELVE | FEBRUARY 1994 | ||||||||||
| QUARTER | MONTHS | TO | ||||||||||
| 2003 | 2003 | DECEMBER 31, 2003 | ||||||||||
| (dollars in millions, except per share amounts) | ||||||||||||
| Cost of Shares Repurchased | — | — | $ | 2,633.4 | ||||||||
| Average Cost Per Share | — | — | $ | 64.71 | ||||||||
| Shares Repurchased | — | — | 40,698,200 | |||||||||
In February 1994, the Board of Directors authorized the repurchase of up to 10,000,000 shares of common stock. Through March 1997, 6,851,600 shares were repurchased under the 1994 share repurchase authorization. In March 1997, the Board of Directors replaced the 1994 authorization with a new authorization to repurchase up to 17,500,000 shares of common stock. In July 1998, the Board of Directors authorized the repurchase of up to an additional 12,500,000 shares. In June 2001, the Board of Directors authorized the repurchase of up to an additional 16,000,000 shares; the 2001 authorization expired on June 30, 2003. As of December 31, 2003, 3,287,100 shares remained under the 1998 share repurchase authorization.
Page 2 of 16
THE CHUBB CORPORATION
CONSOLIDATED BALANCE SHEET HIGHLIGHTS
AS OF DECEMBER 31
| 2003 | 2002 | |||||||||
| (in millions) | ||||||||||
Invested Assets(at carrying value) | ||||||||||
| Short Term Investments | $ | 2,695.9 | $ | 1,756.7 | ||||||
| Fixed Maturities | ||||||||||
| Tax Exempt | 11,621.0 | 9,877.8 | ||||||||
| Taxable | 10,790.7 | 8,385.7 | ||||||||
| Equity Securities | 1,514.4 | 992.2 | ||||||||
Total Invested Assets | $ | 26,622.0 | $ | 21,012.4 | ||||||
| Unrealized Appreciation of Fixed Maturities Carried at Amortized Cost | $ | 35.2 | $ | 55.8 | ||||||
Capitalization | ||||||||||
| Long Term Debt | $ | 2,813.9 | $ | 1,959.1 | ||||||
| Shareholders’ Equity | 8,522.0 | 6,825.7 | (a) | |||||||
Total Capitalization | $ | 11,335.9 | $ | 8,784.8 | ||||||
DEBT AS A PERCENTAGE OF TOTAL CAPITALIZATION | 24.8 | % | 22.3 | % | ||||||
Actual Common Shares Outstanding | 188.0 | 171.2 | ||||||||
Book Value Per Common Share | $ | 45.33 | $ | 39.87 | (a) | |||||
Book Value Per Common Share,with Available-for-Sale Fixed Maturities at Amortized Cost | $ | 42.21 | $ | 36.42 | (a) | |||||
| (a) | Shareholders’ equity and book value per common share at December 31, 2002 have been restated to reflect the accounting changes prescribed by Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51. The effect of the restatement on previously reported December 31, 2002 shareholders’ equity was a decrease of $33.5 million. The effect on net income for 2002, as previously reported, and on net income for 2003 was immaterial. |
Page 3 of 16
THE CHUBB CORPORATION
SUMMARY OF INVESTED ASSETS
AS OF DECEMBER 31
CORPORATE
| Cost or | Market | Carrying | |||||||||||||||||||||||
| Amortized Cost | Value | Value | |||||||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||
| Short Term Investments | $ | 714.3 | $ | 106.4 | $ | 714.3 | $ | 106.4 | $ | 714.3 | $ | 106.4 | |||||||||||||
| Taxable Fixed Maturities | 433.1 | 144.7 | 436.4 | 150.3 | 436.4 | 150.3 | |||||||||||||||||||
| Equity Securities | 8.4 | 71.0 | 9.5 | 71.3 | 9.5 | 71.3 | |||||||||||||||||||
| TOTAL | $ | 1,155.8 | $ | 322.1 | $ | 1,160.2 | $ | 328.0 | $ | 1,160.2 | $ | 328.0 | |||||||||||||
PROPERTY AND CASUALTY
| Cost or | Market | Carrying | ||||||||||||||||||||||||
| Amortized Cost | Value | Value | ||||||||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | |||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
| Short Term Investments | $ | 1,981.6 | $ | 1,650.3 | $ | 1,981.6 | $ | 1,650.3 | $ | 1,981.6 | $ | 1,650.3 | ||||||||||||||
| Fixed Maturities | ||||||||||||||||||||||||||
| Tax Exempt | 10,976.7 | 9,244.1 | 11,656.2 | 9,933.6 | 11,621.0 | 9,877.8 | ||||||||||||||||||||
| Taxable | 10,098.7 | 7,967.8 | 10,354.3 | 8,235.4 | 10,354.3 | 8,235.4 | ||||||||||||||||||||
| Common Stocks | 1,333.3 | 886.0 | 1,458.2 | 874.7 | 1,458.2 | 874.7 | ||||||||||||||||||||
| Preferred Stocks | 39.7 | 41.3 | 46.7 | 46.2 | 46.7 | 46.2 | ||||||||||||||||||||
| TOTAL | $ | 24,430.0 | $ | 19,789.5 | $ | 25,497.0 | $ | 20,740.2 | $ | 25,461.8 | $ | 20,684.4 | ||||||||||||||
Page 4 of 16
THE CHUBB CORPORATION
PROPERTY AND CASUALTY
INVESTMENT INCOME AFTER TAXES
| PERIODS ENDED DECEMBER 31 | |||||||||||||||||
| FOURTH QUARTER | TWELVE MONTHS | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
| (in millions) | |||||||||||||||||
Investment Income | |||||||||||||||||
| Dividends | $ | 10.2 | $ | 2.4 | $ | 30.1 | $ | 9.9 | |||||||||
| Taxable Interest | 91.7 | 76.7 | 344.8 | 297.5 | |||||||||||||
| Tax Exempt Interest | 126.7 | 118.2 | 484.1 | 468.0 | |||||||||||||
| Investment Expenses | (4.6 | ) | (3.2 | ) | (15.9 | ) | (14.8 | ) | |||||||||
| TOTAL | $ | 224.0 | $ | 194.1 | $ | 843.1 | $ | 760.6 | |||||||||
| Amounts are shown net of applicable income taxes | |||||||||||||||||
Effective Tax Rate | 20.5 | % | 18.5 | % | 20.3 | % | 18.2 | % | |||||||||
After Tax Annualized Yield | 3.73 | % | 4.09 | % | 3.80 | % | 4.31 | % | |||||||||
After tax annualized yield is based on the average invested assets for the periods presented with fixed maturities at amortized cost and equity securities at market value.
STATUTORY POLICYHOLDERS’ SURPLUS
| Dec. 31 | Dec. 31 | |||||||
| 2003 | 2002 | |||||||
| (in millions) | ||||||||
| Estimated Statutory Policyholders’ Surplus | $ | 6,300 | $ | 4,512 | ||||
| Rolling Year Statutory Net Premiums Written | 11,071 | 9,034 | ||||||
| Ratio of Statutory Net Premiums Written to Estimated Policyholders’ Surplus | 1.75:1 | 2.00:1 | ||||||
Statutory Policyholders’ Surplus and Net Premiums Written include all domestic and foreign property and casualty subsidiaries.
Page 5 of 16
THE CHUBB CORPORATION
PROPERTY AND CASUALTY
UNDERWRITING RATIOS
| PERIODS ENDED DECEMBER 31 | ||||||||||||||||
| FOURTH QUARTER | TWELVE MONTHS | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
| Loss Ratio | 74.4 | % | 70.3 | % | 67.6 | % | 75.4 | % | ||||||||
| Expense Ratio | 29.6 | 30.9 | 30.4 | 31.3 | ||||||||||||
| Combined Ratio | 104.0 | % | 101.2 | % | 98.0 | % | 106.7 | % | ||||||||
| Effect of Catastrophe Losses on Combined Ratio | 1.2 | % | 1.1 | % | 2.9 | % | 1.2 | % | ||||||||
The underwriting ratios for the fourth quarter of 2003 and 2002 include the effect of net losses of $250.0 million and $75.0 million, respectively, related to asbestos claims. Excluding the effect of such losses, the losses to premiums earned ratio was 65.2% and 66.9% and the combined loss and expense ratio was 94.8% and 97.8% in the fourth quarter of 2003 and 2002, respectively.
The underwriting ratios for the twelve months ended December 31, 2003 include the effect of net losses of $250.0 million related to asbestos claims. The underwriting ratios for the twelve months ended December 31, 2002 include the effect of net losses of $741.1 million related to asbestos and toxic waste claims. Excluding the effect of such losses, the losses to premiums earned ratio was 65.1% and 66.2% and the combined loss and expense ratio was 95.5% and 97.5% in 2003 and 2002, respectively.
CLAIMS AND CLAIM EXPENSE COMPONENTS
| PERIODS ENDED DECEMBER 31 | ||||||||||||||||
| FOURTH QUARTER | TWELVE MONTHS | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
| (in millions) | ||||||||||||||||
| Paid Claims and Claim Expenses | $ | 1,278.7 | $ | 1,153.8 | $ | 4,987.6 | $ | 4,432.7 | ||||||||
| Increase in Unpaid Claims and Claim Expenses | 738.5 | 397.8 | 1,879.6 | 1,631.9 | ||||||||||||
| Total Claims and Claim Expenses | $ | 2,017.2 | $ | 1,551.6 | $ | 6,867.2 | $ | 6,064.6 | ||||||||
The increase in unpaid claims and claim expenses for the fourth quarter of 2003 and 2002 includes $205.8 million and $53.8 million, respectively, related to asbestos and toxic waste claims. The increase in unpaid claims and claim expenses for the twelve months ended December 31, 2003 and 2002 includes $154.4 million and $671.3 million, respectively, related to asbestos and toxic waste claims.
Page 6 of 16
THE CHUBB CORPORATION
PROPERTY AND CASUALTY
CHANGE IN NET UNPAID CLAIMS
TWELVE MONTHS ENDED DECEMBER 31, 2003
| Net Unpaid Claims | ||||||||||||||||||||||
| IBNR | All Other Unpaid Claims Increase | |||||||||||||||||||||
| 12/31/03 | 12/31/02 | Increase | Increase | (Decrease) | ||||||||||||||||||
| (in millions) | ||||||||||||||||||||||
PERSONAL INSURANCE | ||||||||||||||||||||||
| Automobile | $ | 342.6 | $ | 306.7 | $ | 35.9 | $ | 12.2 | $ | 23.7 | ||||||||||||
| Homeowners | 564.2 | 488.3 | 75.9 | 47.2 | 28.7 | |||||||||||||||||
| Other | 312.0 | 271.3 | 40.7 | 4.4 | 36.3 | |||||||||||||||||
Total Personal | 1,218.8 | 1,066.3 | 152.5 | 63.8 | 88.7 | |||||||||||||||||
COMMERCIAL INSURANCE | ||||||||||||||||||||||
| Multiple Peril | 1,248.2 | 1,224.4 | 23.8 | 49.6 | (25.8 | ) | ||||||||||||||||
| Casualty | 3,922.6 | 3,526.0 | 396.6 | 237.4 | 159.2 | |||||||||||||||||
| Workers’ Compensation | 890.9 | 746.6 | 144.3 | 70.7 | 73.6 | |||||||||||||||||
| Property and Marine | 483.1 | 371.2 | 111.9 | 80.8 | 31.1 | |||||||||||||||||
Total Commercial | 6,544.8 | 5,868.2 | 676.6 | 438.5 | 238.1 | |||||||||||||||||
SPECIALTY INSURANCE | ||||||||||||||||||||||
| Executive Protection | 3,995.0 | 3,335.3 | 659.7 | 294.9 | 364.8 | |||||||||||||||||
| Financial Institutions | 1,720.4 | 1,580.5 | 139.9 | 300.8 | (160.9 | ) | ||||||||||||||||
| Other | 1,042.2 | 791.3 | 250.9 | 300.6 | (49.7 | ) | ||||||||||||||||
Total Specialty | 6,757.6 | 5,707.1 | 1,050.5 | 896.3 | 154.2 | |||||||||||||||||
TOTAL | $ | 14,521.2 | $ | 12,641.6 | $ | 1,879.6 | $ | 1,398.6 | $ | 481.0 | ||||||||||||
Page 7 of 16
THE CHUBB CORPORATION — WORLDWIDE
PROPERTY AND CASUALTY UNDERWRITING RESULTS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2003 AND 2002
(MILLIONS OF DOLLARS)
| Personal | Other | Total | ||||||||||||||||||||||||||||||
| Automobile | Homeowners | Personal | Personal | |||||||||||||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | |||||||||||||||||||||||||
Net Premiums Written | $ | 590.0 | $ | 536.1 | $ | 1,485.4 | $ | 1,299.0 | $ | 514.9 | $ | 478.6 | $ | 2,590.3 | $ | 2,313.7 | ||||||||||||||||
Increase (Decrease) in Unearned Premiums | 30.3 | 27.5 | 98.6 | 129.9 | 22.0 | 26.1 | 150.9 | 183.5 | ||||||||||||||||||||||||
Net Premiums Earned | 559.7 | 508.6 | 1,386.8 | 1,169.1 | 492.9 | 452.5 | 2,439.4 | 2,130.2 | ||||||||||||||||||||||||
Net Losses Paid | 354.2 | 308.9 | 892.4 | 705.8 | 193.7 | 184.2 | 1,440.3 | 1,198.9 | ||||||||||||||||||||||||
Increase (Decrease) in Outstanding Losses | 35.9 | 37.4 | 75.9 | 97.8 | 40.7 | 18.7 | 152.5 | 153.9 | ||||||||||||||||||||||||
Net Losses Incurred | 390.1 | 346.3 | 968.3 | 803.6 | 234.4 | 202.9 | 1,592.8 | 1,352.8 | ||||||||||||||||||||||||
Expenses Incurred | 172.2 | 157.5 | 513.6 | 464.2 | 166.0 | 157.6 | 851.8 | 779.3 | ||||||||||||||||||||||||
Dividends Incurred | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||||||||||||||
Statutory Underwriting Income (Loss) | $ | (2.6 | ) | $ | 4.8 | $ | (95.1 | ) | $ | (98.7 | ) | $ | 92.5 | $ | 92.0 | $ | (5.2 | ) | $ | (1.9 | ) | |||||||||||
Ratios After Dividends to Policyholders: | ||||||||||||||||||||||||||||||||
Loss | 69.7 | % | 68.1 | % | 69.8 | % | 68.8 | % | 47.6 | % | 44.9 | % | 65.3 | % | 63.5 | % | ||||||||||||||||
Expense | 29.2 | 29.4 | 34.6 | 35.7 | 32.2 | 32.9 | 32.9 | 33.7 | ||||||||||||||||||||||||
Combined | 98.9 | % | 97.5 | % | 104.4 | % | 104.5 | % | 79.8 | % | 77.8 | % | 98.2 | % | 97.2 | % | ||||||||||||||||
Premiums Written as a % of Total | 5.3 | % | 5.9 | % | 13.4 | % | 14.4 | % | 4.7 | % | 5.3 | % | 23.4 | % | 25.6 | % | ||||||||||||||||
Page 8 of 16
THE CHUBB CORPORATION — WORLDWIDE
PROPERTY AND CASUALTY UNDERWRITING RESULTS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2003 AND 2002
(MILLIONS OF DOLLARS)
| Commercial | Commercial | Workers' | Property | Total | ||||||||||||||||||||||||||||||||||||
| Multiple Peril | Casualty | Compensation | and Marine | Commercial | ||||||||||||||||||||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | |||||||||||||||||||||||||||||||
Net Premiums Written | $ | 1,088.6 | $ | 930.1 | $ | 1,362.1 | $ | 1,119.0 | $ | 625.9 | $ | 458.2 | $ | 1,032.4 | $ | 897.4 | $ | 4,109.0 | $ | 3,404.7 | ||||||||||||||||||||
Increase (Decrease) in Unearned Premiums | 72.8 | 87.5 | 125.0 | 152.2 | 75.7 | 47.3 | 51.1 | 190.5 | 324.6 | 477.5 | ||||||||||||||||||||||||||||||
Net Premiums Earned | 1,015.8 | 842.6 | 1,237.1 | 966.8 | 550.2 | 410.9 | 981.3 | 706.9 | 3,784.4 | 2,927.2 | ||||||||||||||||||||||||||||||
Net Losses Paid | 516.8 | 567.9 | 583.0 | 669.4 | 234.9 | 204.8 | 415.9 | 350.9 | 1,750.6 | 1,793.0 | ||||||||||||||||||||||||||||||
Increase (Decrease) in Outstanding Losses | 23.8 | (51.6 | ) | 396.6 | 651.4 | 144.3 | 48.4 | 111.9 | 53.9 | 676.6 | 702.1 | |||||||||||||||||||||||||||||
Net Losses Incurred | 540.6 | 516.3 | 979.6 | 1,320.8 | 379.2 | 253.2 | 527.8 | 404.8 | 2,427.2 | 2,495.1 | ||||||||||||||||||||||||||||||
Expenses Incurred | 397.6 | 357.0 | 391.9 | 335.0 | 149.1 | 115.9 | 352.5 | 295.6 | 1,291.1 | 1,103.5 | ||||||||||||||||||||||||||||||
Dividends Incurred | 0.0 | 0.0 | 0.0 | 0.0 | 11.9 | 24.6 | 0.0 | 0.0 | 11.9 | 24.6 | ||||||||||||||||||||||||||||||
Statutory Underwriting Income (Loss) | $ | 77.6 | $ | (30.7 | ) | $ | (134.4 | ) | $ | (689.0 | ) | $ | 10.0 | $ | 17.2 | $ | 101.0 | $ | 6.5 | $ | 54.2 | $ | (696.0 | ) | ||||||||||||||||
Ratios After Dividends to Policyholders: | ||||||||||||||||||||||||||||||||||||||||
Loss | 53.2 | % | 61.3 | % | 79.2 | % | 136.6 | % | 70.4 | % | 65.7 | % | 53.8 | % | 57.3 | % | 64.4 | % | 86.0 | % | ||||||||||||||||||||
Expense | 36.5 | 38.4 | 28.8 | 30.0 | 24.3 | 26.6 | 34.1 | 32.9 | 31.5 | 32.6 | ||||||||||||||||||||||||||||||
Combined | 89.7 | % | 99.7 | % | 108.0 | % | 166.6 | % | 94.7 | % | 92.3 | % | 87.9 | % | 90.2 | % | 95.9 | % | 118.6 | % | ||||||||||||||||||||
Premiums Written as a % of Total | 9.8 | % | 10.3 | % | 12.3 | % | 12.4 | % | 5.7 | % | 5.1 | % | 9.3 | % | 9.9 | % | 37.1 | % | 37.7 | % | ||||||||||||||||||||
The Property and Casualty underwriting results for 2003 include the effect of net losses of $250.0 million related to asbestos claims. Excluding the effect of such losses, the combined loss and expense ratio was 87.8% for Casualty and 89.2% for Total Commercial.
The Property and Casualty underwriting results for 2002 include the effect of net losses of $741.1 million related to asbestos and toxic waste claims. Excluding the effect of such losses, the combined loss and expense ratio was 89.9% for Casualty and 93.1% for Total Commercial.
Page 9 of 16
THE CHUBB CORPORATION — WORLDWIDE
PROPERTY AND CASUALTY UNDERWRITING RESULTS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2003 AND 2002
(MILLIONS OF DOLLARS)
| Executive | Financial | Other | Total | Worldwide | ||||||||||||||||||||||||||||||||||||
| Protection | Institutions | Specialty | Specialty | Total | ||||||||||||||||||||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | |||||||||||||||||||||||||||||||
Net Premiums Written | $ | 2,113.6 | $ | 1,702.4 | $ | 830.0 | $ | 680.3 | $ | 1,425.0 | $ | 946.2 | $ | 4,368.6 | $ | 3,328.9 | $ | 11,067.9 | $ | 9,047.3 | ||||||||||||||||||||
Increase (Decrease) in Unearned Premiums | 162.8 | 125.6 | 44.3 | 34.2 | 202.8 | 141.2 | 409.9 | 301.0 | 885.4 | 962.0 | ||||||||||||||||||||||||||||||
Net Premiums Earned | 1,950.8 | 1,576.8 | 785.7 | 646.1 | 1,222.2 | 805.0 | 3,958.7 | 3,027.9 | 10,182.5 | 8,085.3 | ||||||||||||||||||||||||||||||
Net Losses Paid | 899.6 | 854.1 | 515.3 | 302.5 | 381.8 | 284.2 | 1,796.7 | 1,440.8 | 4,987.6 | 4,432.7 | ||||||||||||||||||||||||||||||
Increase (Decrease) in Outstanding Losses | 659.7 | 468.3 | 139.9 | 229.9 | 250.9 | 77.7 | 1,050.5 | 775.9 | 1,879.6 | 1,631.9 | ||||||||||||||||||||||||||||||
Net Losses Incurred | 1,559.3 | 1,322.4 | 655.2 | 532.4 | 632.7 | 361.9 | 2,847.2 | 2,216.7 | 6,867.2 | 6,064.6 | ||||||||||||||||||||||||||||||
Expenses Incurred | 506.0 | 449.7 | 220.9 | 181.4 | 486.5 | 308.7 | 1,213.4 | 939.8 | 3,356.3 | 2,822.6 | ||||||||||||||||||||||||||||||
Dividends Incurred | 0.0 | 0.0 | 7.1 | 9.5 | 3.8 | 2.4 | 10.9 | 11.9 | 22.8 | 36.5 | ||||||||||||||||||||||||||||||
Statutory Underwriting Income (Loss) | $ | (114.5 | ) | $ | (195.3 | ) | $ | (97.5 | ) | $ | (77.2 | ) | $ | 99.2 | $ | 132.0 | $ | (112.8 | ) | $ | (140.5 | ) | (63.8 | ) | (838.4 | ) | ||||||||||||||
Increase in Deferred Policy Acquisition Costs | 168.3 | 212.5 | ||||||||||||||||||||||||||||||||||||||
Underwriting Income (Loss) | $ | 104.5 | $ | (625.9 | ) | |||||||||||||||||||||||||||||||||||
Ratios After Dividends to Policyholders: | ||||||||||||||||||||||||||||||||||||||||
Loss | 79.9 | % | 83.9 | % | 84.2 | % | 83.6 | % | 52.0 | % | 45.1 | % | 72.1 | % | 73.5 | % | 67.6 | % | 75.4 | % | ||||||||||||||||||||
Expense | 24.0 | 26.4 | 26.8 | 27.1 | 34.2 | 32.7 | 27.9 | 28.3 | 30.4 | 31.3 | ||||||||||||||||||||||||||||||
Combined | 103.9 | % | 110.3 | % | 111.0 | % | 110.7 | % | 86.2 | % | 77.8 | % | 100.0 | % | 101.8 | % | 98.0 | % | 106.7 | % | ||||||||||||||||||||
Premiums Written as a % of Total | 19.1 | % | 18.8 | % | 7.5 | % | 7.5 | % | 12.9 | % | 10.4 | % | 39.5 | % | 36.7 | % | 100.0 | % | 100.0 | % | ||||||||||||||||||||
The Property and Casualty underwriting results for 2003 include the effect of net losses of $250.0 million related to asbestos claims. Excluding the effect of such losses, the combined loss and expense ratio was 95.5% for Worldwide Total.
The Property and Casualty underwriting results for 2002 include the effect of net losses of $741.1 million related to asbestos and toxic waste claims. Excluding the effect of such losses, the combined loss and expense ratio was 97.5% for Worldwide Total.
Page 10 of 16
THE CHUBB CORPORATION — WORLDWIDE
PROPERTY AND CASUALTY UNDERWRITING RESULTS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2003 AND 2002
(MILLIONS OF DOLLARS)
| Worldwide | ||||||||||||||||||||||||
| United States | Foreign | Total | ||||||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | |||||||||||||||||||
Net Premiums Written | $ | 9,134.4 | $ | 7,502.6 | $ | 1,933.5 | $ | 1,544.7 | $ | 11,067.9 | $ | 9,047.3 | ||||||||||||
Increase (Decrease) in Unearned Premiums | 780.1 | 838.1 | 105.3 | 123.9 | 885.4 | 962.0 | ||||||||||||||||||
Net Premiums Earned | 8,354.3 | 6,664.5 | 1,828.2 | 1,420.8 | 10,182.5 | 8,085.3 | ||||||||||||||||||
Net Losses Paid | 4,580.4 | 3,912.1 | 407.2 | 520.6 | 4,987.6 | 4,432.7 | ||||||||||||||||||
Increase (Decrease) in Outstanding Losses | 1,236.0 | 1,137.8 | 643.6 | 494.1 | 1,879.6 | 1,631.9 | ||||||||||||||||||
Net Losses Incurred | 5,816.4 | 5,049.9 | 1,050.8 | 1,014.7 | 6,867.2 | 6,064.6 | ||||||||||||||||||
Expenses Incurred | 2,685.8 | 2,240.1 | 670.5 | 582.5 | 3,356.3 | 2,822.6 | ||||||||||||||||||
Dividends Incurred | 22.8 | 36.5 | 0.0 | 0.0 | 22.8 | 36.5 | ||||||||||||||||||
Statutory Underwriting Income (Loss) | $ | (170.7 | ) | $ | (662.0 | ) | $ | 106.9 | $ | (176.4 | ) | (63.8 | ) | (838.4 | ) | |||||||||
Increase in Deferred Policy Acquisition Costs | 168.3 | 212.5 | ||||||||||||||||||||||
Underwriting Income (Loss) | $ | 104.5 | $ | (625.9 | ) | |||||||||||||||||||
Ratios After Dividends to Policyholders: | ||||||||||||||||||||||||
Loss | 69.8 | % | 76.2 | % | 57.5 | % | 71.4 | % | 67.6 | % | 75.4 | % | ||||||||||||
Expense | 29.5 | 30.0 | 34.7 | 37.7 | 30.4 | 31.3 | ||||||||||||||||||
Combined | 99.3 | % | 106.2 | % | 92.2 | % | 109.1 | % | 98.0 | % | 106.7 | % | ||||||||||||
Premiums Written as a % of Total | 82.5 | % | 82.9 | % | 17.5 | % | 17.1 | % | 100.0 | % | 100.0 | % | ||||||||||||
Page 11 of 16
THE CHUBB CORPORATION — WORLDWIDE
PROPERTY AND CASUALTY UNDERWRITING RESULTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002
(MILLIONS OF DOLLARS)
| Personal | Other | Total | ||||||||||||||||||||||||||||||
| Automobile | Homeowners | Personal | Personal | |||||||||||||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | |||||||||||||||||||||||||
Net Premiums Written | $ | 146.4 | $ | 134.0 | $ | 371.2 | $ | 327.9 | $ | 123.5 | $ | 114.5 | $ | 641.1 | $ | 576.4 | ||||||||||||||||
Increase (Decrease) in Unearned Premiums | 1.9 | 1.5 | 5.0 | 14.0 | (1.2 | ) | (2.4 | ) | 5.7 | 13.1 | ||||||||||||||||||||||
Net Premiums Earned | 144.5 | 132.5 | 366.2 | 313.9 | 124.7 | 116.9 | 635.4 | 563.3 | ||||||||||||||||||||||||
Net Losses Paid | 92.5 | 79.1 | 238.9 | 180.0 | 48.2 | 44.4 | 379.6 | 303.5 | ||||||||||||||||||||||||
Increase (Decrease) in Outstanding Losses | 9.3 | 10.1 | (5.5 | ) | 25.8 | 17.5 | 8.5 | 21.3 | 44.4 | |||||||||||||||||||||||
Net Losses Incurred | 101.8 | 89.2 | 233.4 | 205.8 | 65.7 | 52.9 | 400.9 | 347.9 | ||||||||||||||||||||||||
Expenses Incurred | 41.7 | 36.5 | 128.4 | 117.0 | 41.0 | 38.2 | 211.1 | 191.7 | ||||||||||||||||||||||||
Dividends Incurred | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | ||||||||||||||||||||||||
Statutory Underwriting Income (Loss) | $ | 1.0 | $ | 6.8 | $ | 4.4 | $ | (8.9 | ) | $ | 18.0 | $ | 25.8 | $ | 23.4 | $ | 23.7 | |||||||||||||||
Ratios After Dividends to Policyholders: | ||||||||||||||||||||||||||||||||
Loss | 70.4 | % | 67.3 | % | 63.7 | % | 65.5 | % | 52.7 | % | 45.2 | % | 63.1 | % | 61.8 | % | ||||||||||||||||
Expense | 28.5 | 27.3 | 34.6 | 35.7 | 33.2 | 33.4 | 32.9 | 33.2 | ||||||||||||||||||||||||
Combined | 98.9 | % | 94.6 | % | 98.3 | % | 101.2 | % | 85.9 | % | 78.6 | % | 96.0 | % | 95.0 | % | ||||||||||||||||
Premiums Written as a % of Total | 5.0 | % | 5.6 | % | 12.7 | % | 13.5 | % | 4.2 | % | 4.7 | % | 21.9 | % | 23.8 | % | ||||||||||||||||
Page 12 of 16
THE CHUBB CORPORATION — WORLDWIDE
PROPERTY AND CASUALTY UNDERWRITING RESULTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002
(MILLIONS OF DOLLARS)
| Commercial | Commercial | Workers' | Property | Total | ||||||||||||||||||||||||||||||||||||
| Multiple Peril | Casualty | Compensation | and Marine | Commercial | ||||||||||||||||||||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | |||||||||||||||||||||||||||||||
Net Premiums Written | $ | 279.2 | $ | 242.6 | $ | 352.1 | $ | 284.3 | $ | 150.0 | $ | 107.9 | $ | 266.3 | $ | 244.7 | $ | 1,047.6 | $ | 879.5 | ||||||||||||||||||||
Increase (Decrease) in Unearned Premiums | 19.5 | 17.9 | 15.9 | 17.4 | 1.6 | (1.2 | ) | 12.4 | 34.8 | 49.4 | 68.9 | |||||||||||||||||||||||||||||
Net Premiums Earned | 259.7 | 224.7 | 336.2 | 266.9 | 148.4 | 109.1 | 253.9 | 209.9 | 998.2 | 810.6 | ||||||||||||||||||||||||||||||
Net Losses Paid | 115.2 | 141.9 | 168.2 | 181.1 | 56.8 | 54.3 | 84.3 | 85.6 | 424.5 | 462.9 | ||||||||||||||||||||||||||||||
Increase (Decrease) in Outstanding Losses | 18.4 | (15.2 | ) | 273.2 | 49.5 | 55.5 | 11.0 | 43.0 | 55.6 | 390.1 | 100.9 | |||||||||||||||||||||||||||||
Net Losses Incurred | 133.6 | 126.7 | 441.4 | 230.6 | 112.3 | 65.3 | 127.3 | 141.2 | 814.6 | 563.8 | ||||||||||||||||||||||||||||||
Expenses Incurred | 102.1 | 92.8 | 99.6 | 84.0 | 36.7 | 27.5 | 90.3 | 78.9 | 328.7 | 283.2 | ||||||||||||||||||||||||||||||
Dividends Incurred | 0.0 | 0.0 | 0.0 | 0.0 | 2.2 | 7.3 | 0.0 | 0.0 | 2.2 | 7.3 | ||||||||||||||||||||||||||||||
Statutory Underwriting Income (Loss) | $ | 24.0 | $ | 5.2 | $ | (204.8 | ) | $ | (47.7 | ) | $ | (2.8 | ) | $ | 9.0 | $ | 36.3 | $ | (10.2 | ) | $ | (147.3 | ) | $ | (43.7 | ) | ||||||||||||||
Ratios After Dividends to Policyholders: | ||||||||||||||||||||||||||||||||||||||||
Loss | 51.4 | % | 56.4 | % | 131.3 | % | 86.4 | % | 76.8 | % | 64.2 | % | 50.2 | % | 67.3 | % | 81.8 | % | 70.2 | % | ||||||||||||||||||||
Expense | 36.6 | 38.2 | 28.3 | 29.6 | 24.8 | 27.3 | 33.9 | 32.2 | 31.4 | 32.5 | ||||||||||||||||||||||||||||||
Combined | 88.0 | % | 94.6 | % | 159.6 | % | 116.0 | % | 101.6 | % | 91.5 | % | 84.1 | % | 99.5 | % | 113.2 | % | 102.7 | % | ||||||||||||||||||||
Premiums Written as a % of Total | 9.5 | % | 10.0 | % | 12.0 | % | 11.7 | % | 5.1 | % | 4.4 | % | 9.1 | % | 10.1 | % | 35.7 | % | 36.2 | % | ||||||||||||||||||||
The Property and Casualty underwriting results for the fourth quarter of 2003 include the effect of net losses of $250.0 million related to asbestos claims. Excluding the effect of such losses, the combined loss and expense ratio was 85.2% for Casualty and 88.1% for Total Commercial.
The Property and Casualty underwriting results for the fourth quarter of 2002 include the effect of net losses of $75.0 million related to asbestos claims. Excluding the effect of such losses, the combined loss and expense ratio was 87.9% for Casualty and 93.3% for Total Commercial.
Page 13 of 16
THE CHUBB CORPORATION — WORLDWIDE
PROPERTY AND CASUALTY UNDERWRITING RESULTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002
(MILLIONS OF DOLLARS)
| Executive | Financial | Other | Total | Worldwide | ||||||||||||||||||||||||||||||||||||
| Protection | Institutions | Specialty | Specialty | Total | ||||||||||||||||||||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | |||||||||||||||||||||||||||||||
Net Premiums Written | $ | 587.6 | $ | 488.1 | $ | 226.6 | $ | 172.0 | $ | 427.5 | $ | 311.1 | $ | 1,241.7 | $ | 971.2 | $ | 2,930.4 | $ | 2,427.1 | ||||||||||||||||||||
Increase (Decrease) in Unearned Premiums | 73.4 | 73.4 | 18.8 | (4.1 | ) | 67.2 | 59.3 | 159.4 | 128.6 | 214.5 | 210.6 | |||||||||||||||||||||||||||||
Net Premiums Earned | 514.2 | 414.7 | 207.8 | 176.1 | 360.3 | 251.8 | 1,082.3 | 842.6 | 2,715.9 | 2,216.5 | ||||||||||||||||||||||||||||||
Net Losses Paid | 240.8 | 228.4 | 117.7 | 74.2 | 116.1 | 84.8 | 474.6 | 387.4 | 1,278.7 | 1,153.8 | ||||||||||||||||||||||||||||||
Increase (Decrease) in Outstanding Losses | 184.0 | 177.3 | 56.1 | 109.6 | 87.0 | (34.4 | ) | 327.1 | 252.5 | 738.5 | 397.8 | |||||||||||||||||||||||||||||
Net Losses Incurred | 424.8 | 405.7 | 173.8 | 183.8 | 203.1 | 50.4 | 801.7 | 639.9 | 2,017.2 | 1,551.6 | ||||||||||||||||||||||||||||||
Expenses Incurred | 124.7 | 123.2 | 57.2 | 41.9 | 144.3 | 107.3 | 326.2 | 272.4 | 866.0 | 747.3 | ||||||||||||||||||||||||||||||
Dividends Incurred | 0.0 | 0.0 | 1.5 | 1.5 | 1.1 | 1.1 | 2.6 | 2.6 | 4.8 | 9.9 | ||||||||||||||||||||||||||||||
Statutory Underwriting Income (Loss) | $ | (35.3 | ) | $ | (114.2 | ) | $ | (24.7 | ) | $ | (51.1 | ) | $ | 11.8 | $ | 93.0 | $ | (48.2 | ) | $ | (72.3 | ) | (172.1 | ) | (92.3 | ) | ||||||||||||||
Increase in Deferred Policy Acquisition Costs | 34.6 | 31.2 | ||||||||||||||||||||||||||||||||||||||
Underwriting Income (Loss) | $ | (137.5 | ) | $ | (61.1 | ) | ||||||||||||||||||||||||||||||||||
Ratios After Dividends to Policyholders: | ||||||||||||||||||||||||||||||||||||||||
Loss | 82.6 | % | 97.8 | % | 84.3 | % | 105.3 | % | 56.6 | % | 20.1 | % | 74.3 | % | 76.2 | % | 74.4 | % | 70.3 | % | ||||||||||||||||||||
Expense | 21.2 | 25.3 | 25.4 | 24.5 | 33.8 | 34.6 | 26.3 | 28.1 | 29.6 | 30.9 | ||||||||||||||||||||||||||||||
Combined | 103.8 | % | 123.1 | % | 109.7 | % | 129.8 | % | 90.4 | % | 54.7 | % | 100.6 | % | 104.3 | % | 104.0 | % | 101.2 | % | ||||||||||||||||||||
Premiums Written as a % of Total | 20.1 | % | 20.1 | % | 7.7 | % | 7.1 | % | 14.6 | % | 12.8 | % | 42.4 | % | 40.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||||||
The Property and Casualty underwriting results for the fourth quarter of 2003 include the effect of net losses of $250.0 million related to asbestos claims. Excluding the effect of such losses, the combined loss and expense ratio was 94.8% for Worldwide Total.
The Property and Casualty underwriting results for the fourth quarter of 2002 include the effect of net losses of $75.0 million related to asbestos claims. Excluding the effect of such losses, the combined loss and expense ratio was 97.8% for Worldwide Total.
Page 14 of 16
THE CHUBB CORPORATION — WORLDWIDE
PROPERTY AND CASUALTY UNDERWRITING RESULTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002
(MILLIONS OF DOLLARS)
| Worldwide | ||||||||||||||||||||||||
| United States | Foreign | Total | ||||||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | 2003 | 2002 | |||||||||||||||||||
Net Premiums Written | $ | 2,399.2 | $ | 1,997.9 | $ | 531.2 | $ | 429.2 | $ | 2,930.4 | $ | 2,427.1 | ||||||||||||
Increase (Decrease) in Unearned Premiums | 176.5 | 162.4 | 38.0 | 48.2 | 214.5 | 210.6 | ||||||||||||||||||
Net Premiums Earned | 2,222.7 | 1,835.5 | 493.2 | 381.0 | 2,715.9 | 2,216.5 | ||||||||||||||||||
Net Losses Paid | 1,230.3 | 1,036.5 | 48.4 | 117.3 | 1,278.7 | 1,153.8 | ||||||||||||||||||
Increase (Decrease) in Outstanding Losses | 487.4 | 182.1 | 251.1 | 215.7 | 738.5 | 397.8 | ||||||||||||||||||
Net Losses Incurred | 1,717.7 | 1,218.6 | 299.5 | 333.0 | 2,017.2 | 1,551.6 | ||||||||||||||||||
Expenses Incurred | 690.8 | 591.1 | 175.2 | 156.2 | 866.0 | 747.3 | ||||||||||||||||||
Dividends Incurred | 4.8 | 9.9 | 0.0 | 0.0 | 4.8 | 9.9 | ||||||||||||||||||
Statutory Underwriting Income (Loss) | $ | (190.6 | ) | $ | 15.9 | $ | 18.5 | $ | (108.2 | ) | (172.1 | ) | (92.3 | ) | ||||||||||
Increase in Deferred Policy Acquisition Costs | 34.6 | 31.2 | ||||||||||||||||||||||
Underwriting Income (Loss) | $ | (137.5 | ) | $ | (61.1 | ) | ||||||||||||||||||
Ratios After Dividends to Policyholders: | ||||||||||||||||||||||||
Loss | 77.4 | % | 66.8 | % | 60.7 | % | 87.4 | % | 74.4 | % | 70.3 | % | ||||||||||||
Expense | 28.9 | 29.7 | 33.0 | 36.4 | 29.6 | 30.9 | ||||||||||||||||||
Combined | 106.3 | % | 96.5 | % | 93.7 | % | 123.8 | % | 104.0 | % | 101.2 | % | ||||||||||||
Premiums Written as a % of Total | 81.9 | % | 82.3 | % | 18.1 | % | 17.7 | % | 100.0 | % | 100.0 | % | ||||||||||||
Page 15 of 16
THE CHUBB CORPORATION
Definitions of Key Terms
Operating Income
Operating income, a non-GAAP financial measure, is net income excluding after-tax realized investment gains and losses. Management uses operating income, among other measures, to evaluate its performance because the realization of investment gains and losses in any given period is largely discretionary as to timing and can fluctuate significantly, which could distort the analysis of trends.
Underwriting Income (Loss)
Management evaluates underwriting results separately from investment results. The underwriting operations consist of three separate business units: personal insurance, commercial insurance and specialty insurance. Performance of the business units is based on statutory underwriting results. Statutory accounting principles differ in certain respects from generally accepted accounting principles (GAAP). Under statutory accounting principles, policy acquisition and other underwriting expenses are recognized immediately, not at the time premiums are earned. Statutory underwriting income (loss) is arrived at by reducing premiums earned by losses incurred and statutory underwriting expenses incurred.
Management uses underwriting results determined in accordance with GAAP, among other measures, to assess the overall performance of the underwriting operations. To convert statutory underwriting results to a GAAP basis, policy acquisition expenses are deferred and amortized over the period in which the related premiums are earned. Underwriting income (loss) determined in accordance with GAAP is defined as premiums earned less losses incurred and GAAP underwriting expenses incurred.
Property and Casualty Investment Income After Income Tax
Management uses property and casualty investment income after income tax, a non-GAAP financial measure, to evaluate its investment performance because it reflects the impact of any change in the proportion of the investment portfolio invested in tax-exempt securities and is therefore more meaningful for analysis purposes than investment income before income taxes.
Book Value per Common Share with Available-for-Sale Fixed Maturities at Amortized Cost
Book value per share represents the portion of consolidated shareholders’ equity attributable to one share of common stock outstanding as of the balance sheet date. Consolidated shareholders’ equity includes, as part of accumulated other comprehensive income, the after-tax appreciation or depreciation on the Corporation’s available-for-sale fixed maturities carried at market value. The appreciation or depreciation on available-for-sale fixed maturities is subject to fluctuation due to changes in interest rates and therefore could distort the analysis of trends. Management believes that book value per common share with available-for-sale fixed maturities at amortized cost, a non-GAAP financial measure, is an important measure of the underlying equity attributable to one share of common stock.
Combined Ratio or Combined Loss and Expense Ratio
The combined loss and expense ratio, expressed as a percentage, is the key measure of underwriting profitability. Management uses the combined loss and expense ratio calculated in accordance with statutory accounting principles applicable to property and casualty insurance companies to evaluate the performance of the underwriting operations. It is the sum of the ratio of losses to premiums earned (loss ratio) plus the ratio of statutory underwriting expenses to premiums written (expense ratio) after reducing both premium amounts by dividends to policyholders.
Page 16 of 16