1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
-----------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from to
-------------- --------------
Commission file number 1-8661
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THE CHUBB CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 13-2595722
- ------------------------------- --------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
15 MOUNTAIN VIEW ROAD, WARREN, NEW JERSEY 07061-1615
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (908) 903-2000
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
---------------- ----------------
The number of shares of common stock outstanding as of October 31, 2000
was 174,815,072.
2
THE CHUBB CORPORATION
INDEX
Page Number
-----------
Part I. Financial Information:
Item 1 - Financial Statements:
Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999..................... 1
Consolidated Statements of Income for the
Three Months and Nine Months Ended
September 30, 2000 and 1999.................................. 2
Consolidated Statements of Comprehensive Income
for the Three Months and Nine Months Ended
September 30, 2000 and 1999.................................. 3
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999................ 4
Notes to Consolidated Financial Statements.................... 5
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations.............. 8
Part II. Other Information:
Item 1 - Legal Proceedings...................................... 17
Item 6 - Exhibits and Reports on Form 8-K....................... 17
3
Page 1
THE CHUBB CORPORATION
CONSOLIDATED BALANCE SHEETS
Sept. 30, Dec. 31,
2000 1999
--------- --------
(in millions)
Assets
Invested Assets
Short Term Investments............................... $ 633.3 $ 731.1
Fixed Maturities
Held-to-Maturity - Tax Exempt (market $1,598.7
and $1,801.0)..................................... 1,540.5 1,741.9
Available-for-Sale
Tax Exempt (cost $7,991.4 and $7,889.3)........... 8,122.4 7,867.5
Taxable (cost $5,574.4 and $5,054.7).............. 5,506.8 4,909.7
Equity Securities (cost $832.6 and $715.0)........... 864.6 769.2
--------- ---------
TOTAL INVESTED ASSETS......................... 16,667.6 16,019.4
Cash................................................... 26.2 22.7
Securities Lending Collateral.......................... 728.7 469.5
Accrued Investment Income.............................. 238.9 242.9
Premiums Receivable.................................... 1,352.0 1,234.7
Reinsurance Recoverable on Unpaid Claims............... 1,782.2 1,685.9
Prepaid Reinsurance Premiums........................... 241.8 240.1
Deferred Policy Acquisition Costs...................... 826.2 779.7
Real Estate Assets..................................... 693.2 699.4
Deferred Income Tax.................................... 578.8 584.2
Goodwill............................................... 492.3 507.2
Other Assets........................................... 1,231.9 1,051.3
--------- ---------
TOTAL ASSETS.................................. $24,859.8 $23,537.0
========= =========
Liabilities
Unpaid Claims.......................................... $11,759.0 $11,434.7
Unearned Premiums...................................... 3,490.6 3,323.1
Securities Lending Payable............................. 728.7 469.5
Long Term Debt......................................... 753.9 759.2
Dividend Payable to Shareholders....................... 57.5 56.2
Accrued Expenses and Other Liabilities................. 1,364.9 1,222.5
--------- ---------
TOTAL LIABILITIES............................. 18,154.6 17,265.2
--------- ---------
Shareholders' Equity
Common Stock - $1 Par Value; 178,825,772 and
177,272,322 Shares.................................... 178.8 177.3
Paid-In Surplus........................................ 472.1 418.4
Retained Earnings...................................... 6,382.0 6,008.6
Accumulated Other Comprehensive Income
Unrealized Appreciation (Depreciation) of
Investments, Net of Tax............................. 62.0 (112.6)
Foreign Currency Translation Losses, Net of Tax...... (71.8) (44.8)
Receivable from Employee Stock Ownership Plan.......... (68.8) (74.9)
Treasury Stock, at Cost - 4,181,190 and
1,782,489 Shares...................................... (249.1) (100.2)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY.................... 6,705.2 6,271.8
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.... $24,859.8 $23,537.0
========= =========
See Notes to Consolidated Financial Statements.
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Page 2
THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
PERIODS ENDED SEPTEMBER 30
Third Quarter Nine Months
---------------- ----------------
2000 1999 2000 1999
---- ---- ---- ----
(in millions)
Revenues
Premiums Earned....................... $1,550.1 $1,452.1 $4,561.9 $4,209.4
Investment Income..................... 240.8 230.0 712.3 654.8
Real Estate and Other Revenues........ 31.8 21.8 77.6 78.5
Realized Investment Gains............. 35.8 5.4 47.7 82.8
-------- -------- -------- --------
Total Revenues................. 1,858.5 1,709.3 5,399.5 5,025.5
-------- -------- -------- --------
Claims and Expenses
Insurance Claims...................... 1,032.6 1,125.2 3,056.8 2,957.5
Amortization of Deferred Policy
Acquisition Costs.................... 410.7 388.7 1,219.9 1,136.1
Other Insurance Operating Costs
and Expenses......................... 116.6 98.9 329.8 281.2
Real Estate and Other Expenses........ 19.4 22.7 66.9 81.1
Investment Expenses................... 3.0 3.0 11.5 11.2
Corporate Expenses.................... 19.1 14.8 59.2 39.9
-------- -------- -------- --------
Total Claims and Expenses...... 1,601.4 1,653.3 4,744.1 4,507.0
-------- -------- -------- --------
Income Before Federal and Foreign
Income Tax............................. 257.1 56.0 655.4 518.5
Federal and Foreign Income Tax (Credit). 49.2 (21.3) 109.2 61.0
-------- -------- -------- --------
Net Income.............................. $ 207.9 $ 77.3 $ 546.2 $ 457.5
======== ======== ======== ========
Average Common Shares Outstanding....... 173.6 172.9 174.5 165.2
Average Common and Potentially Dilutive
Shares Outstanding..................... 177.9 175.1 178.1 167.4
Net Income Per Share
Basic.................................. $1.20 $ .45 $3.13 $2.77
Diluted................................ 1.17 .44 3.06 2.73
Dividends Declared Per Share............ .33 .32 .99 .96
See Notes to Consolidated Financial Statements.
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Page 3
THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PERIODS ENDED SEPTEMBER 30
Third Quarter Nine Months
------------- -----------
2000 1999 2000 1999
---- ---- ---- ----
(in millions)
Net Income................................ $ 207.9 $ 77.3 $ 546.2 $ 457.5
------- ------- ------- -------
Other Comprehensive Income (Loss)
Change in Unrealized Appreciation or
Depreciation of Investments,
Net of Tax............................. 99.2 (113.7) 174.6 (400.3)
Foreign Currency Translation Losses,
Net of Tax............................. (15.3) (1.0) (27.0) (9.4)
------- ------- ------- -------
83.9 (114.7) 147.6 (409.7)
------- ------- ------- -------
Comprehensive Income (Loss)............... $ 291.8 $(37.4) $ 693.8 $ 47.8
======= ====== ======= =======
See Notes to Consolidated Financial Statements.
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Page 4
THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30
2000 1999
---- ----
(in millions)
Cash Flows from Operating Activities
Net Income............................................ $ 546.2 $ 457.5
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Increase in Unpaid Claims, Net..................... 228.0 578.5
Increase in Unearned Premiums, Net................. 165.8 90.0
Decrease (Increase) in Premiums Receivable......... (117.3) 4.4
Increase in Deferred Policy Acquisition Costs...... (46.5) (14.2)
Change in Deferred Federal Income Tax.............. (15.9) (17.1)
Depreciation....................................... 60.1 48.1
Realized Investment Gains.......................... (47.7) (82.8)
Other, Net......................................... (8.4) 42.5
--------- ---------
Net Cash Provided by Operating Activities............. 764.3 1,106.9
--------- ---------
Cash Flows from Investing Activities
Proceeds from Sales of Fixed Maturities............... 1,475.2 1,127.4
Proceeds from Maturities of Fixed Maturities.......... 645.0 647.2
Proceeds from Sales of Equity Securities.............. 291.9 912.0
Proceeds from Sale of Interest in Associated
Aviation Underwriters, Inc........................... 55.0 -
Purchases of Fixed Maturities......................... (2,564.8) (2,561.9)
Purchases of Equity Securities........................ (396.2) (420.1)
Purchase of Interest in Hiscox plc.................... - (145.3)
Decrease (Increase) in Short Term Investments, Net.... 97.8 (417.6)
Purchases of Fixed Assets, Net........................ (95.9) (66.0)
Other, Net............................................ 20.3 63.2
--------- ---------
Net Cash Used in Investing Activities................. (471.7) (861.1)
--------- ---------
Cash Flows from Financing Activities
Repayment of Long Term Debt........................... (5.3) (14.9)
Dividends Paid to Shareholders........................ (171.5) (154.2)
Repurchase of Shares.................................. (189.7) (94.1)
Other, Net............................................ 77.4 28.6
--------- ---------
Net Cash Used in Financing Activities................. (289.1) (234.6)
--------- ---------
Net Increase in Cash.................................... 3.5 11.2
Cash at Beginning of Year............................... 22.7 8.3
--------- ---------
Cash at End of Period................................. $ 26.2 $ 19.5
========= =========
See Notes to Consolidated Financial Statements.
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Page 5
THE CHUBB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) General
The amounts included in this report are unaudited but include
those adjustments, consisting of normal recurring items, which management
considers necessary for a fair presentation. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes in the 1999 Annual Report to Shareholders.
2) Adoption of New Accounting Pronouncement
Effective January 1, 2000, the Corporation adopted Statement of
Position (SOP) 98-7, Deposit Accounting: Accounting for Insurance and
Reinsurance Contracts That Do Not Transfer Insurance Risk, which was
issued by the American Institute of Certified Public Accountants. This
SOP provides guidance on how to account for insurance and reinsurance
contracts that do not transfer insurance risk. The adoption of SOP 98-7
did not have a significant effect on the Corporation's financial position
or results of operations.
3) Investments
Short term investments, which have an original maturity of one
year or less, are carried at amortized cost which approximates market
value. Fixed maturities classified as held-to-maturity are carried at
amortized cost. Fixed maturities classified as available-for-sale and
equity securities are carried at market value as of the balance sheet
date.
The net change in unrealized appreciation or depreciation of
investments carried at market value was as follows:
Periods Ended September 30
------------------------------------------
Third Quarter Nine Months
---------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
(in millions)
Change in unrealized appreciation or
depreciation of equity securities... $ (.1) $ (29.4) $ (22.2) $ (99.2)
Change in unrealized appreciation or
depreciation of fixed maturities.... 132.7 (145.6) 230.2 (516.7)
------- ------- ------- --------
132.6 (175.0) 208.0 (615.9)
Deferred income tax (credit)......... 46.4 (61.3) 72.8 (215.6)
Decrease in valuation allowance...... (13.0) - (39.4) -
------- ------- ------- --------
Change in unrealized appreciation or
depreciation of investments, net.... $ 99.2 $(113.7) $ 174.6 $ (400.3)
======= ======= ======= ========
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Page 6
4) Earnings Per Share
The following table sets forth the computation of basic and
diluted earnings per share:
Periods Ended September 30
-----------------------------------
Third Quarter Nine Months
-------------- ---------------
2000 1999 2000 1999
---- ---- ---- ----
(in millions,
except per share amounts)
Basic earnings per share:
Net income............................... $207.9 $ 77.3 $546.2 $457.5
====== ====== ====== ======
Weighted average number of common
shares outstanding...................... 173.6 172.9 174.5 165.2
====== ====== ====== ======
Basic earnings per share................. $ 1.20 $ .45 $ 3.13 $ 2.77
====== ====== ====== ======
Diluted earnings per share:
Net income............................... $207.9 $ 77.3 $546.2 $457.5
====== ====== ====== ======
Weighted average number of common
shares outstanding...................... 173.6 172.9 174.5 165.2
Additional shares from assumed exercise
of stock-based compensation awards...... 4.3 2.2 3.6 2.2
------ ------ ------ ------
Weighted average number of common shares
and potential common shares assumed
outstanding for computing diluted
earnings per share...................... 177.9 175.1 178.1 167.4
====== ====== ====== ======
Diluted earnings per share............... $ 1.17 $ .44 $ 3.06 $ 2.73
====== ====== ====== ======
5) Segments Information
The property and casualty operations include three reportable
underwriting segments and the investment function. The underwriting
segments are personal, standard commercial and specialty commercial. The
personal and commercial segments are managed separately because they
target different customers. The commercial business is further
distinguished by those classes of business that are generally available
in broad markets and are of a more commodity nature (standard) and those
classes available in more limited markets that require specialized
underwriting and claim settlement (specialty). Standard commercial
classes include multiple peril, casualty and workers' compensation.
Specialty commercial classes include property and marine, executive
protection, financial institutions and other commercial classes.
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Page 7
Revenues and income before income tax of the operating segments
were as follows:
Periods Ended September 30
-----------------------------------------------
Third Quarter Nine Months
--------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
(in millions)
Revenues
Property and casualty insurance
Premiums earned
Personal......................... $ 414.0 $ 369.2 $1,198.7 $1,069.6
Standard commercial.............. 448.1 484.1 1,364.7 1,477.4
Specialty commercial............. 688.0 598.8 1,998.5 1,662.4
-------- -------- -------- --------
1,550.1 1,452.1 4,561.9 4,209.4
Investment income.................. 223.7 214.9 662.7 610.2
-------- -------- -------- --------
Total property and casualty
insurance....................... 1,773.8 1,667.0 5,224.6 4,819.6
Corporate and other.................. 48.9 36.9 127.2 123.1
Realized investment gains............ 35.8 5.4 47.7 82.8
-------- -------- -------- --------
Total revenues................... $1,858.5 $1,709.3 $5,399.5 $5,025.5
======== ======== ======== ========
Income (loss) before income tax
Property and casualty insurance
Underwriting
Personal......................... $ 31.4 $ (23.9) $ 48.9 $ 56.6
Standard commercial.............. (74.0) (127.9) (179.5) (303.3)
Specialty commercial............. 33.1 (.2) 79.0 74.7
-------- -------- -------- --------
(9.5) (152.0) (51.6) (172.0)
Increase (decrease) in deferred
policy acquisition costs........ 14.4 (3.4) 46.5 14.2
-------- -------- -------- --------
Underwriting income (loss)....... 4.9 (155.4) (5.1) (157.8)
Investment income.................. 220.8 212.2 652.9 600.6
Amortization of goodwill and
other charges..................... (14.7) (5.3) (39.5) (7.6)
-------- -------- -------- --------
Total property and casualty
insurance....................... 211.0 51.5 608.3 435.2
Corporate and other.................. 10.3 (.9) (.6) .5
Realized investment gains............ 35.8 5.4 47.7 82.8
-------- -------- -------- --------
Total income before income tax... $ 257.1 $ 56.0 $ 655.4 $ 518.5
======== ======== ======== ========
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Page 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
AND FOR THE QUARTERS ENDED SEPTEMBER 30, 2000 AND 1999
SUMMARY OF FINANCIAL RESULTS
The following is a summary of the Corporation's operating results for the
third quarter and nine months ended September 30, 2000 and 1999:
Periods Ended September 30
---------------------------------------
Third Quarter Nine Months
---------------- ----------------
2000 1999 2000 1999
---- ---- ---- ----
(in millions)
PROPERTY AND CASUALTY INSURANCE
Underwriting
Net Premiums Written........... $1,607.8 $1,459.7 $4,727.7 $4,299.4
Increase in Unearned Premiums.. (57.7) (7.6) (165.8) (90.0)
-------- -------- -------- --------
Premiums Earned............. 1,550.1 1,452.1 4,561.9 4,209.4
-------- -------- -------- --------
Claims and Claim Expenses...... 1,032.6 1,125.2 3,056.8 2,957.5
Operating Costs and Expenses... 520.4 467.6 1,536.8 1,392.0
Decrease (Increase) in Deferred
Policy Acquisition Costs...... (14.4) 3.4 (46.5) (14.2)
Dividends to Policyholders..... 6.6 11.3 19.9 31.9
-------- -------- -------- --------
Underwriting Income (Loss)..... 4.9 (155.4) (5.1) (157.8)
-------- -------- -------- --------
Investments
Investment Income Before
Expenses...................... 223.7 214.9 662.7 610.2
Investment Expenses............ 2.9 2.7 9.8 9.6
-------- -------- -------- ---------
Investment Income.............. 220.8 212.2 652.9 600.6
-------- -------- -------- ---------
Amortization of Goodwill and
Other Charges.................. (14.7) (5.3) (39.5) (7.6)
-------- -------- -------- --------
Property and Casualty Income.... 211.0 51.5 608.3 435.2
CORPORATE AND OTHER.............. 10.3 (.9) (.6) .5
-------- -------- -------- --------
CONSOLIDATED OPERATING INCOME
BEFORE INCOME TAX............... 221.3 50.6 607.7 435.7
Federal and Foreign Income Tax
(Credit)........................ 36.7 (24.2) 92.5 31.0
-------- -------- -------- --------
CONSOLIDATED OPERATING INCOME.... 184.6 74.8 515.2 404.7
REALIZED INVESTMENT GAINS
AFTER INCOME TAX................ 23.3 2.5 31.0 52.8
-------- -------- -------- --------
CONSOLIDATED NET INCOME.......... $ 207.9 $ 77.3 $ 546.2 $ 457.5
======== ======== ======== ========
PROPERTY AND CASUALTY INVESTMENT
INCOME AFTER INCOME TAX......... $ 184.7 $ 179.0 $ 546.8 $ 508.4
======== ======== ======== ========
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Page 9
In July 1999, the Corporation completed its acquisition of Executive Risk
Inc. Executive Risk is a specialty insurance company offering directors and
officers, errors and omissions and professional liability coverages. The
acquisition has been accounted for using the purchase method of accounting.
Therefore, the results of operations of Executive Risk are included in the
Corporation's consolidated results of operations from the date of acquisition.
PROPERTY AND CASUALTY INSURANCE
Earnings from our property and casualty business were substantially
higher in the first nine months and third quarter of 2000 compared with the same
periods of 1999. The higher earnings in 2000 were due primarily to an
improvement in underwriting results in the third quarter, caused in large part
by substantially lower catastrophe losses. Investment income increased in 2000
compared with the prior year. Property and casualty income before taxes amounted
to $608.3 million in the first nine months of 2000 and $211.0 million in the
third quarter compared with $435.2 million and $51.5 million, respectively, in
1999.
Net premiums written were $4.7 billion in the first nine months of 2000,
an increase of 10.0% compared with the same period in 1999. Net premiums written
were $1.6 billion in the third quarter of 2000, an increase of 10.1% over the
comparable period of 1999. Premium growth in the first nine months of 2000 was
affected by the inclusion of Executive Risk premiums written in 1999 results in
the third quarter only. Excluding the effect of the acquisition of Executive
Risk, premium growth was about 6.0% for the first nine months of 2000.
Premium growth in personal lines remained strong. In commercial lines,
competition in the worldwide marketplace has made profitable premium growth
difficult. However, our strategy to increase the pricing in the standard
commercial classes, which include multiple peril, casualty and workers'
compensation, has shown increasing success in the first nine months of 2000.
Further, many of our competitors have also insisted on higher prices since the
latter part of 1999. As a result, the pricing outlook in the standard commercial
classes continues to be favorable. We have begun a similar process to increase
the pricing in our specialty commercial classes.
Substantial premium growth in 2000 was achieved outside the United
States. However, due to the strength of the U.S. dollar, reported premiums
written outside the United States increased by only 4% in the first nine months
of 2000.
Underwriting results were near breakeven in the first nine months and
third quarter of 2000 compared with unprofitable results in the same periods in
1999. Our combined loss and expense ratio was 99.9% in the first nine months of
2000 and 99.4% in the third quarter compared with 103.4% and 110.4%,
respectively, in 1999.
The loss ratio was 67.3% for the first nine months of 2000 and 66.9% for
the third quarter compared with 70.8% and 78.1%, respectively, in the prior
year. The loss ratios in 1999 were adversely affected by significant catastrophe
losses, particularly those resulting from Hurricane Floyd in the third quarter.
Catastrophe losses during the first nine months of 2000 amounted to $62.6
million which represented 1.4 percentage points of the loss ratio compared with
$221.9 million or 5.3 percentage points in 1999. Catastrophe losses for the
third quarter of 2000 amounted to $8.0 million or 0.5 of a percentage point of
the loss ratio compared with $135.0 million or 9.4 percentage points in 1999.
The catastrophe losses in both years resulted primarily from storms in the
United States.
12
Page 10
Our expense ratio was 32.6% for the first nine months of 2000 and 32.5%
for the third quarter compared with 32.6% and 32.3%, respectively, in the prior
year.
Underwriting results during 2000 and 1999 by class of business were as
follows:
Nine Months Ended September 30
---------------------------------------
Net Premiums Combined Loss and
Written Expense Ratios
--------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
(in millions)
Personal Insurance
Automobile........................ $ 297.9 $ 257.5 94.8% 90.1%
Homeowners........................ 696.4 620.5 102.0 103.5
Other............................. 297.7 266.2 71.6 69.2
-------- -------- ----- -----
Total Personal................ 1,292.0 1,144.2 93.3 92.5
-------- -------- ----- -----
Standard Commercial Insurance
Multiple Peril.................... 502.9 537.3 115.2 134.3
Casualty.......................... 584.0 631.1 117.5 116.4
Workers' Compensation............. 239.4 221.4 103.6 112.7
-------- -------- ----- -----
Total Standard Commercial..... 1,326.3 1,389.8 114.3 122.9
-------- -------- ----- -----
Specialty Commercial Insurance
Property and Marine............... 375.6 389.5 110.3 111.8
Executive Protection.............. 987.3 792.6 86.5 84.3
Financial Institutions............ 385.2 298.4 90.4 95.2
Other............................. 361.3 284.9 103.3 90.6
-------- -------- ----- -----
Total Specialty Commercial.... 2,109.4 1,765.4 94.3 93.5
-------- -------- ----- -----
Total Commercial.............. 3,435.7 3,155.2 102.3 107.2
-------- -------- ----- -----
Total......................... $4,727.7 $4,299.4 99.9% 103.4%
======== ======== ===== =====
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Page 11
Quarter Ended September 30
---------------------------------------
Net Premiums Combined Loss and
Written Expense Ratios
--------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
(in millions)
Personal Insurance
Automobile........................ $ 105.9 $ 91.0 94.7% 97.8%
Homeowners........................ 253.1 223.8 93.8 120.5
Other............................. 101.3 89.0 70.1 69.1
-------- -------- ----- -----
Total Personal................ 460.3 403.8 88.6 103.4
-------- -------- ----- -----
Standard Commercial Insurance
Multiple Peril.................... 167.5 171.3 122.9 149.7
Casualty.......................... 190.1 199.4 119.5 119.3
Workers' Compensation............. 73.7 64.6 101.7 111.6
-------- -------- ----- -----
Total Standard Commercial..... 431.3 435.3 118.0 130.4
-------- -------- ----- -----
Specialty Commercial Insurance
Property and Marine............... 121.4 128.0 98.8 130.2
Executive Protection.............. 337.9 301.8 89.8 84.9
Financial Institutions............ 128.7 85.6 95.3 107.1
Other............................. 128.2 105.2 99.3 88.6
-------- -------- ----- -----
Total Specialty Commercial.... 716.2 620.6 93.9 98.9
-------- -------- ----- -----
Total Commercial.............. 1,147.5 1,055.9 103.3 112.8
-------- -------- ----- -----
Total......................... $1,607.8 $1,459.7 99.4% 110.4%
======== ======== ===== =====
PERSONAL INSURANCE
Premiums from personal insurance coverages, which represent 27% of the
premiums written by our property and casualty subsidiaries, increased by 12.9%
in the first nine months of 2000 and 14.0% in the third quarter compared with
the similar periods in 1999. We continued to grow our personal lines business
with the in-force policy count for automobile, homeowners and other personal
coverages increasing by about 10% on an annualized basis. Such growth was
achieved while maintaining our disciplined approach to pricing and risk
selection. Premiums outside the United States grew significantly in the first
nine months of 2000, although from a small base.
Our personal insurance business produced highly profitable underwriting
results in the first nine months of 2000 and 1999. Results were also highly
profitable in the third quarter of 2000. Results were unprofitable in the third
quarter of 1999, however, due to significant catastrophe losses in the
homeowners class. The combined loss and expense ratios were 93.3% for the first
nine months of 2000 and 88.6% for the third quarter compared with 92.5% and
103.4%, respectively, in 1999.
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Page 12
Homeowners results were modestly unprofitable in the first nine months of
2000 and 1999 as a decrease in catastrophe losses in 2000 was substantially
offset by an increase in non-catastrophe losses. Homeowners results were
profitable in the third quarter of 2000. Results were highly unprofitable in the
third quarter of 1999 due to substantial catastrophe losses. Catastrophe losses
represented 8.6 percentage points of the loss ratio for this class in the first
nine months of 2000 and 2.9 percentage points in the third quarter compared with
16.3 percentage points and 31.0 percentage points, respectively, in 1999.
Homeowners results were unprofitable outside the United States in 2000 and 1999
as we are still building the critical mass necessary to absorb the costs of
operating the franchise.
Our automobile business produced less profitable results in the first
nine months of 2000 compared with 1999. The decline in 2000 was due to an
increase in the frequency of losses in the liability component of this business.
Other personal coverages, which include insurance for personal valuables
and excess liability, produced highly profitable results in both years due to
continued favorable loss experience.
STANDARD COMMERCIAL INSURANCE
Premiums from standard commercial insurance, which represent 28% of our
total writings, decreased by 4.6% in the first nine months of 2000 and 0.9% in
the third quarter compared with the similar periods in 1999. The decreases were
the result of the strategy we put in place in late 1998 to renew good business
at adequate prices and not renew underperforming accounts where we cannot attain
price adequacy. As a result, during 1999 and into the first nine months of 2000,
retention levels have declined. On the business that was renewed, rates have
increased steadily and such increases accelerated in the first nine months of
2000.
Our standard commercial insurance business produced substantial
underwriting losses in both 2000 and 1999, but less so in 2000. The improvement
in 2000 was due primarily to fewer large losses and, to a lesser extent, the
progress in our initiative to increase rates. The combined loss and expense
ratio was 114.3% for the first nine months of 2000 and 118.0% for the third
quarter compared with 122.9% and 130.4%, respectively, in 1999.
Multiple peril results remained unprofitable in 2000 but improved
considerably compared with the highly unprofitable results in 1999. The
improvement in 2000 occurred in both the property and liability components of
this business due to a lower frequency of large losses both in the United States
and overseas. Results in the property component also benefited in 2000 from an
absence of catastrophe losses. There were virtually no catastrophe losses for
this class in the first nine months of 2000. Catastrophe losses represented 12.2
percentage points of the loss ratio for this class in the first nine months of
1999 and 25.1 percentage points in the third quarter.
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Results for our casualty business were similarly unprofitable in 2000 and
1999. Casualty results were adversely affected in both years, but more so in
1999, by incurred losses relating to asbestos-related and toxic waste claims.
The excess liability component of our casualty coverages produced similarly
unprofitable underwriting results in 2000 and 1999. Results in the primary
liability component improved in 2000 due to fewer large losses, but remained
unprofitable. Results in the automobile component were highly unprofitable in
both years due in large part to inadequate prices, a consequence of the
prolonged soft market. Casualty results outside the United States deteriorated
in 2000.
Workers' compensation results improved significantly in 2000, but
remained unprofitable. The improvement in 2000 was due to higher rates as well
as a lower frequency of losses, resulting in part from our disciplined risk
selection during the past two years.
SPECIALTY COMMERCIAL INSURANCE
Premiums from specialty commercial insurance, which represent 45% of our
total writings, increased by 19.5% in the first nine months of 2000 and 15.4% in
the third quarter compared with the same periods in 1999. Excluding the effect
of the acquisition of Executive Risk, premium growth was about 10% in the first
nine months of 2000. Our strategy of working closely with our customers, and our
ability to bring new products to market and differentiate such products continue
to enable us to renew a large percentage of our executive protection and
financial institutions business. However, a competitive market continues to put
prices under pressure, particularly for our executive protection business.
Growth in our financial institutions business was strong in 2000, particularly
in the third quarter, due to new business as well as rate increases on the
standard commercial component of this business. Property and marine premium
growth in 2000 was restricted by the effect on retention levels of pricing
initiatives and non-renewing certain unprofitable accounts. Growth in our other
specialty commercial business was primarily from Chubb Re, our reinsurance
business that began operations in 1999.
Our specialty commercial business produced highly profitable underwriting
results in both 2000 and 1999. The combined loss and expense ratio was 94.3% for
the first nine months of 2000 and 93.9% for the third quarter compared with
93.5% and 98.9%, respectively, in 1999.
Property and marine results were similarly unprofitable in the first nine
months of 2000 and 1999 as a decrease in catastrophe losses in 2000 was offset
by a higher frequency of large losses, both in the United States and overseas.
Results in the third quarter of 2000 were near breakeven compared with the
highly unprofitable results in 1999. Results in the third quarter of 1999 were
adversely affected by catastrophe losses as well as three large non-catastrophe
losses that aggregated $19 million. Catastrophe losses represented 1.5
percentage points of the loss ratio for this class in the first nine months of
2000 and 0.7 of a percentage point in the third quarter compared with 12.9
percentage points and 15.8 percentage points, respectively, in 1999.
Executive protection results were highly profitable in 2000 and 1999 due
to favorable loss experience on business worldwide, particularly in the
directors and officers liability and fiduciary liability components. Employment
practices liability results, however, were unprofitable in both years. Executive
protection results were less profitable in the third quarter of 2000 due
primarily to the less adequate prices in recent years.
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Our financial institutions business produced more profitable results in
the first nine months of 2000 compared with the similar period in 1999 due to
favorable loss experience in the fidelity component. Results in our financial
institutions business were unprofitable in the third quarter of 1999 due
primarily to several large fidelity losses as well as catastrophe losses.
Results in our other commercial classes were modestly unprofitable in the
first nine months of 2000 compared with profitable results in 1999. Results
deteriorated in 2000 due primarily to one $14 million surety loss as well as an
increase in losses in our accident business.
LOSS RESERVES
Gross loss reserves were $11,759.0 million and $11,434.7 million at
September 30, 2000 and December 31, 1999, respectively. Reinsurance recoverables
on such loss reserves were $1,782.2 million and $1,685.9 million at September
30, 2000 and December 31, 1999, respectively.
Loss reserves, net of reinsurance recoverable, increased by $228.0
million during the first nine months of 2000. Reserve growth occurred primarily
in those liability classes that are characterized by delayed loss reporting and
extended periods of settlement. Loss reserves increased by only $21.4 million in
the third quarter of 2000. At the same time, paid losses increased by 20% in the
third quarter compared with the same period in 1999. There were several large
claim payments in the third quarter in the excess liability and executive
protection classes of business. In addition, due to the strength of the U.S.
dollar, loss reserves decreased by approximately $35 million in the third
quarter of 2000 offset by a corresponding increase in paid losses.
Losses incurred related to asbestos and toxic waste claims were $22.6
million in the first nine months of 2000 and $35.5 million for the same period
in 1999.
INVESTMENTS
Investment income after taxes increased by 7.6% in the first nine months
of 2000 compared with the same period in 1999. The growth was due in part to an
increase in invested assets since the third quarter of 1999 and in part to the
inclusion of Executive Risk investment income in 1999 results only in the third
quarter. Investment income after taxes increased by 3.2% in the third quarter of
2000 compared with the same period in 1999. The effective tax rate on investment
income increased to 16.2% in the first nine months of 2000 from 15.4% in the
comparable period in 1999 due to holding a somewhat larger proportion of our
investment portfolio in taxable fixed income securities.
New cash available for investment in the first nine months of 2000 was
invested in taxable bonds. New cash available for investment was lower in the
first nine months of 2000 than in the comparable period in 1999 due primarily to
higher claim payments.
The property and casualty subsidiaries maintain sufficient investments in
highly liquid, short term securities to provide for immediate cash needs.
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CORPORATE AND OTHER
Corporate and other includes investment income earned on corporate
invested assets, interest expense and other expenses not allocable to the
operating subsidiaries and the results of our real estate and other
non-insurance subsidiaries. Corporate and other produced a loss before taxes of
$.6 million in the first nine months of 2000 compared with income before taxes
of $.5 million in the first nine months of 1999. In the third quarter of 2000,
corporate and other included income of $9.9 million before taxes from a
noncompete payment related to the sale of the Corporation's 50% interest in
Associated Aviation Underwriters, Inc. (AAU). Interest expense was higher in the
first nine months of 2000 compared with the similar period in 1999 due to the
inclusion of interest expense on the Executive Risk debt in 1999 results only in
the third quarter.
INVESTMENT GAINS AND LOSSES
Decisions to sell securities are governed principally by considerations
of investment opportunities and tax consequences. As a result, realized
investment gains and losses may vary significantly from period to period. Net
realized investment gains before taxes were $47.7 million in the first nine
months of 2000 compared with net gains of $82.8 million for the same period in
1999. Net realized investment gains in the third quarter of 2000 included a gain
of $44.9 million before taxes related to the sale of AAU.
CAPITAL RESOURCES
In March 1997, the Board of Directors authorized the repurchase of 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. Through
September 30, 2000, the Corporation repurchased 23,706,500 shares under the 1997
and 1998 authorizations, including 3,114,900 shares repurchased in open-market
transactions in the first nine months of 2000 at a cost of $189.7 million. As of
September 30, 2000, 6,293,500 shares remained under the current share repurchase
authorizations.
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FORWARD LOOKING INFORMATION
Certain statements in this document may be considered to be "forward
looking statements" as that term is defined in the Private Securities Litigation
Reform Act of 1995, such as statements that include words or phrases "will
result", "is expected to", "will continue", "is anticipated", or similar
expressions. Such statements are subject to certain risks and uncertainties. The
factors which could cause actual results to differ materially from those
suggested by any such statements include, but are not limited to, those
discussed or identified from time to time in the Corporation's public filings
with the Securities and Exchange Commission and specifically to: risks or
uncertainties associated with the Corporation's expectations with respect to new
product development or to premium price increases and profitability or growth or
business retention estimates overall and by region or by line of business as
well as its expectations with respect to the non-renewal of underpriced
insurance accounts, increases in primary insurance rates as a result of
anticipated increases in reinsurance rates; and, more generally, to: general
economic conditions including changes in interest rates and the performance of
the financial markets, changes in domestic and foreign laws, regulations and
taxes, changes in competition and pricing environments, regional or general
changes in asset valuations, the occurrence of significant natural disasters or
other weather-related events, the inability to reinsure certain risks
economically, the adequacy of loss reserves, as well as general market
conditions, competition, pricing and restructurings.
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PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
A purported class action complaint was filed in the United States
District Court for the District of New Jersey on August 31, 2000 by the
California Public Employees' Retirement System. The complaint alleges that the
Corporation and three of its current officers, Dean R. O'Hare, David B. Kelso
and Henry B. Schram, and Executive Risk Inc. and three of its former officers,
Stephen J. Sills, Robert H. Kullas and Robert V. Deutsch, are liable for certain
misrepresentations and omissions regarding, among other matters, disclosures
made between April 27, 1999 and October 15, 1999 relating to the improved
pricing in the Corporation's standard commercial insurance business and relating
to the offer of the Corporation's securities to, and solicitation of votes from,
the former shareholders of Executive Risk Inc. in connection with the
Corporation's acquisition of Executive Risk Inc. The Corporation is defending
the action vigorously.
Item 6 - Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 27 - Financial Data Schedule
- Financial Data Schedule filed herewith.
B. Reports on Form 8-K - There were no reports on Form 8-K filed for the three
months ended September 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, The
Chubb Corporation has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE CHUBB CORPORATION
(Registrant)
By: /s/ Henry B. Schram
-------------------------------
Henry B. Schram
Senior Vice-President and
Chief Accounting Officer
Date: November 13, 2000