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 March 31, 2001
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ---
ACT OF 1934
For the transition period from to
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Commission file number 1-8661
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THE CHUBB CORPORATION
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(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
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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 April 30, 2001
was 175,242,218.
2
THE CHUBB CORPORATION
INDEX
Page Number
-----------
Part I. Financial Information:
Item 1 - Financial Statements:
Consolidated Balance Sheets as of
March 31, 2001 and December 31, 2000......................... 1
Consolidated Statements of Income for the
Three Months Ended March 31, 2001 and 2000................... 2
Consolidated Statements of Comprehensive Income
for the Three Months Ended March 31, 2001 and 2000........... 3
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2001 and 2000................... 4
Notes to Consolidated Financial Statements.................... 5
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations.............. 9
Part II. Other Information:
Item 4 - Submission of Matters to a Vote of
Security Holders...................................... 15
Item 6 - Exhibits and Reports on Form 8-K....................... 16
3
Page 1
THE CHUBB CORPORATION
CONSOLIDATED BALANCE SHEETS
Mar. 31, Dec. 31,
2001 2000
-------- --------
(in millions)
Assets
Invested Assets
Short Term Investments............................... $ 798.1 $ 605.6
Fixed Maturities
Held-to-Maturity - Tax Exempt (market $1,523.1
and $1,564.7)..................................... 1,446.4 1,496.1
Available-for-Sale
Tax Exempt (cost $8,032.1 and $8,053.8)........... 8,442.3 8,380.5
Taxable (cost $5,634.9 and $5,666.6).............. 5,728.3 5,687.8
Equity Securities (cost $854.8 and $839.8)........... 845.3 830.6
--------- ----------
TOTAL INVESTED ASSETS......................... 17,260.4 17,000.6
Cash................................................... 23.0 22.4
Securities Lending Collateral.......................... 815.4 451.1
Accrued Investment Income.............................. 235.9 246.8
Premiums Receivable.................................... 1,455.6 1,409.8
Reinsurance Recoverable on Unpaid Claims
and Claim Expenses.................................... 1,784.3 1,853.3
Prepaid Reinsurance Premiums........................... 279.7 246.0
Deferred Policy Acquisition Costs...................... 870.2 842.0
Real Estate Assets..................................... 675.9 677.1
Deferred Income Tax.................................... 445.7 501.0
Goodwill............................................... 482.3 487.3
Other Assets........................................... 1,333.5 1,289.3
--------- ----------
TOTAL ASSETS.................................. $25,661.9 $25,026.7
========= ==========
Liabilities
Unpaid Claims and Claim Expenses....................... $11,770.3 $11,904.6
Unearned Premiums...................................... 3,662.3 3,516.3
Securities Lending Payable............................. 815.4 451.1
Long Term Debt......................................... 753.1 753.8
Dividend Payable to Shareholders....................... 59.9 57.8
Accrued Expenses and Other Liabilities................. 1,366.5 1,361.4
--------- ----------
TOTAL LIABILITIES............................. 18,427.5 18,045.0
--------- ---------
Shareholders' Equity
Common Stock - $1 Par Value; 179,935,977 and
178,833,278 Shares.................................... 179.9 178.8
Paid-In Surplus........................................ 518.4 466.0
Retained Earnings...................................... 6,607.7 6,492.6
Accumulated Other Comprehensive Income
Unrealized Appreciation of Investments, Net of Tax.... 321.2 220.1
Foreign Currency Translation Losses, Net of Tax....... (78.8) (68.5)
Receivable from Employee Stock Ownership Plan.......... (62.5) (62.5)
Treasury Stock, at Cost - 3,984,435 and
3,914,105 Shares...................................... (251.5) (244.8)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY.................... 7,234.4 6,981.7
--------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.... $25,661.9 $25,026.7
========= ==========
See Notes to Consolidated Financial Statements.
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Page 2
THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31
2001 2000
---- ----
(in millions)
Revenues
Premiums Earned..................................... $1,620.6 $1,491.9
Investment Income................................... 244.7 237.6
Real Estate and Other Revenues...................... 22.7 31.7
Realized Investment Gains........................... 3.5 5.8
-------- --------
Total Revenues............................... 1,891.5 1,767.0
-------- --------
Claims and Expenses
Insurance Claims and Claim Expenses................. 1,081.0 1,027.4
Amortization of Deferred Policy Acquisition Costs... 439.2 402.5
Other Insurance Operating Costs and Expenses........ 118.4 104.6
Real Estate and Other Expenses...................... 18.5 32.6
Investment Expenses................................. 5.4 5.2
Corporate Expenses.................................. 19.6 20.6
-------- --------
Total Claims and Expenses.................... 1,682.1 1,592.9
-------- --------
Income Before Federal and Foreign Income Tax.......... 209.4 174.1
Federal and Foreign Income Tax........................ 34.4 20.4
-------- --------
Net Income............................................ $ 175.0 $ 153.7
======== ========
Average Common Shares Outstanding..................... 174.8 174.7
Average Common and Potentially Dilutive
Shares Outstanding................................... 179.0 176.3
Net Income Per Share
Basic................................................ $1.00 $.88
Diluted.............................................. .97 .87
Dividends Declared Per Share.......................... .34 .33
See Notes to Consolidated Financial Statements.
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Page 3
THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31
2001 2000
---- ----
(in millions)
Net Income............................................ $175.0 $153.7
------ ------
Other Comprehensive Income
Change in Unrealized Appreciation or Depreciation
of Investments, Net of Tax......................... 101.1 78.0
Foreign Currency Translation Losses, Net of Tax..... (10.3) (5.0)
------ ------
90.8 73.0
------ ------
Comprehensive Income.................................. $265.8 $226.7
====== ======
See Notes to Consolidated Financial Statements.
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Page 4
THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31
2001 2000
---- ----
(in millions)
Cash Flows from Operating Activities
Net Income.............................................. $ 175.0 $ 153.7
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Increase (Decrease) in Unpaid Claims
and Claim Expenses, Net............................. (65.3) 135.0
Increase in Unearned Premiums, Net................... 112.3 97.4
Increase in Premiums Receivable...................... (45.8) (107.3)
Increase in Deferred Policy Acquisition Costs........ (28.2) (29.0)
Depreciation......................................... 23.9 21.3
Realized Investment Gains............................ (3.5) (5.8)
Other, Net........................................... (4.2) (107.9)
--------- -------
Net Cash Provided by Operating Activities............... 164.2 157.4
--------- -------
Cash Flows from Investing Activities
Proceeds from Sales of Fixed Maturities................. 904.6 563.2
Proceeds from Maturities of Fixed Maturities............ 290.5 189.6
Proceeds from Sales of Equity Securities................ 51.4 63.4
Purchases of Fixed Maturities........................... (1,079.1) (959.8)
Purchases of Equity Securities.......................... (79.3) (119.9)
Decrease (Increase) in Short Term Investments, Net...... (192.5) 269.7
Purchases of Fixed Assets, Net.......................... (39.1) (33.6)
Other, Net.............................................. (.4) (18.0)
--------- -------
Net Cash Used in Investing Activities................... (143.9) (45.4)
--------- -------
Cash Flows from Financing Activities
Repayment of Long Term Debt............................. (.7) (5.1)
Proceeds from Issuance of Common Stock Under
Incentive and Purchase Plans........................... 76.5 9.6
Repurchase of Shares.................................... (37.7) (66.1)
Dividends Paid to Shareholders.......................... (57.8) (56.2)
--------- -------
Net Cash Used in Financing Activities................... (19.7) (117.8)
---------- -------
Net Increase (Decrease) in Cash........................... .6 (5.8)
Cash at Beginning of Year................................. 22.4 22.7
--------- -------
Cash at End of Period................................... $ 23.0 $ 16.9
========= =======
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 2000
Annual Report to Shareholders.
2) Adoption of New Accounting Pronouncements
Effective January 1, 2001, the Corporation adopted Statement
of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, and SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging
Activities. SFAS No. 133 establishes accounting and reporting standards
for derivative instruments and hedging activities, and SFAS No. 138
provides additional guidance related to accounting and reporting for
certain derivative instruments and hedging activities. SFAS No. 133
requires that all derivatives be recognized in the balance sheet as
assets or liabilities and be measured at fair value. The Statements may
not be applied retroactively to financial statements of prior periods.
Currently, the Corporation's use of derivatives is not significant.
Thus, the adoption of SFAS No. 133 and SFAS No. 138 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:
Three Months Ended
March 31
------------------
2001 2000
---- ----
(in millions)
Change in unrealized appreciation or
depreciation of equity securities.............. $ (.3) $ 4.0
Change in unrealized appreciation or
depreciation of fixed maturities............... 155.7 74.0
------ ------
155.4 78.0
Deferred income tax.............................. 54.3 27.3
Decrease in valuation allowance.................. - (27.3)
------ ------
Change in unrealized appreciation or
depreciation of investments, net............... $101.1 $ 78.0
====== ======
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Page 6
4) Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Ended
March 31
---------------------
2001 2000
------ -----
(in millions, except per share amounts)
Basic earnings per share:
Net income..................................... $175.0 $153.7
====== ======
Weighted average number of common
shares outstanding............................ 174.8 174.7
====== ======
Basic earnings per share....................... $ 1.00 $ .88
====== ======
Diluted earnings per share:
Net income..................................... $175.0 $153.7
====== ======
Weighted average number of common
shares outstanding............................ 174.8 174.7
Additional shares from assumed exercise
of stock-based compensation awards............ 4.2 1.6
------ ------
Weighted average number of common shares
and potential common shares assumed
outstanding for computing diluted
earnings per share............................ 179.0 176.3
====== ======
Diluted earnings per share..................... $ .97 $ .87
====== ======
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Page 7
5) Segments Information
The property and casualty operations include three reportable
underwriting segments and the investment function. The underwriting
segments are personal insurance, commercial insurance and specialty
insurance. The personal segment targets the personal insurance market.
The personal classes include automobile, homeowners and other personal
coverages. The commercial segment includes those classes of business
that are generally available in broad markets and are of a more
commodity nature. Commercial classes include multiple peril, casualty,
workers' compensation and property and marine. The specialty segment
includes those classes of business that are available in more limited
markets since they require specialized underwriting and claim
settlement. Specialty classes include executive protection, financial
institutions and other specialty coverages.
The property and casualty underwriting segments reflect
certain reclassifications to present results in a manner more
consistent with the way the business is now managed. Prior period
amounts have been restated to conform to the new presentation.
Revenues and income before income tax of the operating
segments were as follows:
Three Months Ended
March 31
-------------------------
2001 2000
-------- --------
(in millions)
Revenues
Property and casualty insurance
Premiums earned
Personal insurance....................... $ 437.5 $ 388.3
Commercial insurance..................... 589.1 605.5
Specialty insurance...................... 594.0 498.1
-------- --------
1,620.6 1,491.9
Investment income.......................... 225.4 220.3
-------- --------
Total property and casualty insurance.... 1,846.0 1,712.2
Corporate and other.......................... 42.0 49.0
Realized investment gains.................... 3.5 5.8
-------- --------
Total revenues........................... $1,891.5 $1,767.0
======== ========
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Page 8
Three Months Ended
March 31
-------------------------
2001 2000
-------- --------
(in millions)
Income (loss) before income tax
Property and casualty insurance
Underwriting
Personal insurance....................... $ (.7) $ 13.6
Commercial insurance..................... (65.1) (117.6)
Specialty insurance...................... 30.0 43.8
-------- --------
(35.8) (60.2)
Increase in deferred policy acquisition
costs................................... 28.2 29.0
-------- --------
Underwriting loss........................ (7.6) (31.2)
Investment income.......................... 220.8 216.0
Amortization of goodwill and
other charges............................. (10.4) (11.4)
-------- --------
Total property and casualty insurance.... 202.8 173.4
Corporate and other income (loss)............ 3.1 (5.1)
Realized investment gains.................... 3.5 5.8
-------- --------
Total income before income tax........... $ 209.4 $ 174.1
======== ========
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Page 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE QUARTERS ENDED MARCH 31, 2001 AND 2000
SUMMARY OF FINANCIAL RESULTS
The following is a summary of the Corporation's operating results for
the first quarter of 2001 and 2000:
Quarter Ended
March 31
-------------------
2001 2000
---- ----
(in millions)
PROPERTY AND CASUALTY INSURANCE
Underwriting
Net Premiums Written................................. $1,732.9 $1,589.3
Increase in Unearned Premiums........................ (112.3) (97.4)
-------- --------
Premiums Earned................................... 1,620.6 1,491.9
-------- --------
Claims and Claim Expenses............................ 1,081.0 1,027.4
Operating Costs and Expenses......................... 568.4 518.0
Increase in Deferred Policy Acquisition Costs........ (28.2) (29.0)
Dividends to Policyholders........................... 7.0 6.7
-------- --------
Underwriting Loss.................................... (7.6) (31.2)
-------- --------
Investments
Investment Income Before Expenses.................... 225.4 220.3
Investment Expenses.................................. 4.6 4.3
-------- --------
Investment Income.................................... 220.8 216.0
-------- --------
Amortization of Goodwill and Other Charges............ (10.4) (11.4)
-------- --------
Property and Casualty Income.......................... 202.8 173.4
CORPORATE AND OTHER.................................... 3.1 (5.1)
-------- --------
CONSOLIDATED OPERATING INCOME BEFORE INCOME TAX........ 205.9 168.3
Federal and Foreign Income Tax......................... 33.2 18.4
-------- --------
CONSOLIDATED OPERATING INCOME.......................... 172.7 149.9
REALIZED INVESTMENT GAINS AFTER INCOME TAX............. 2.3 3.8
-------- --------
CONSOLIDATED NET INCOME................................ $ 175.0 $ 153.7
======== ========
PROPERTY AND CASUALTY INVESTMENT INCOME
AFTER INCOME TAX...................................... $ 184.6 $ 181.3
======== ========
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Page 10
PROPERTY AND CASUALTY INSURANCE
Earnings from our property and casualty business were higher in the
first quarter of 2001 compared with the same period of 2000 due primarily to an
improvement in underwriting results. Investment income increased modestly in the
first quarter of 2001 compared with 2000. Property and casualty income before
taxes amounted to $202.8 million in the first quarter of 2001 compared with
$173.4 million in 2000.
The discussion of underwriting results reflects certain
reclassifications to present results in a manner more consistent with the way
the property and casualty business is now managed. Prior period amounts have
been restated to conform with the new presentation.
Net premiums written were $1.7 billion in the first quarter of 2001, an
increase of 9.0% compared with the first quarter of 2000. U.S. premiums grew
10.4%. Substantial premium growth was also achieved outside the United States in
the first quarter of 2001. Non-U.S. premiums grew 16% in local currencies.
However, due to the strength of the U.S. dollar, reported overseas premium
growth was 3.6%.
Premium growth in personal and specialty 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
commercial classes, which include multiple peril, casualty, workers'
compensation and property and marine, continued to show success in the first
quarter of 2001.
Underwriting results were breakeven in the first quarter of 2001
compared with unprofitable results in 2000. Our combined loss and expense ratio
was 99.9% in the first quarter of 2001 compared with 101.9% in 2000.
The loss ratio was 67.0% for the first quarter of 2001 compared with
69.2% in 2000. Catastrophe losses during the first quarter of 2001 amounted to
$11.5 million which represented 0.7 of a percentage point of the loss ratio
compared with $30.3 million or 2.0 percentage points in 2000. Catastrophe losses
in both years resulted primarily from winter storms in the United States.
Our expense ratio was 32.9% for the first quarter of 2001 compared with
32.7% in 2000.
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Page 11
Underwriting results during 2001 and 2000 by class of business were as
follows:
Quarter Ended March 31
---------------------------------------
Net Premiums Combined Loss and
Written Expense Ratios
--------------- ------------------
2001 2000 2001 2000
---- ---- ---- ----
(in millions)
Personal Insurance
Automobile........................ $ 106.6 $ 88.7 96.6% 97.1%
Homeowners........................ 223.5 197.5 114.3 109.7
Other............................. 98.5 90.3 73.9 69.5
-------- -------- ------ -----
Total Personal................ 428.6 376.5 100.8 97.5
-------- -------- ------ -----
Commercial Insurance
Multiple Peril.................... 204.5 192.3 104.6 111.5
Casualty.......................... 205.5 222.4 110.1 120.6
Workers' Compensation............. 108.2 101.0 94.1 109.1
Property and Marine............... 145.0 144.7 112.7 121.3
-------- ------ ----- ------
Total Commercial.............. 663.2 660.4 106.6 116.3
-------- ------ ----- -----
Specialty Insurance
Executive Protection.............. 329.8 305.3 90.4 83.8
Financial Institutions............ 160.1 135.4 101.5 92.2
Other............................. 151.2 111.7 88.8 94.5
-------- -------- ----- -----
Total Specialty............... 641.1 552.4 92.6 87.8
-------- -------- ----- ------
Total......................... $1,732.9 $1,589.3 99.9% 101.9%
======== ======== ===== =====
PERSONAL INSURANCE
Premiums from personal insurance coverages, which represent 25% of
total premiums written, increased by 13.8% in the first quarter of 2001 compared
with the same quarter in 2000. Our in-force policy count for automobile,
homeowners and other personal coverages continued to grow. Such growth was
achieved while maintaining our disciplined approach to pricing and risk
selection.
Our personal insurance business produced near breakeven underwriting
results in the first quarter of 2001 compared with profitable results in 2000.
The combined loss and expense ratio for our personal insurance business was
100.8% in the first quarter of 2001 compared with 97.5% in 2000.
Homeowners results were unprofitable in both 2001 and 2000, but more so
in 2001 as a reduction in catastrophe losses was more than offset by a higher
frequency of non-catastrophe losses, some of which were weather-related. Results
in both years were adversely affected by a high frequency of large losses.
Catastrophe losses represented 2.8 percentage points of the loss ratio for this
class in the first quarter of 2001 compared with 13.0 percentage points in 2000.
Homeowners results remained unprofitable outside the United States in 2001 as we
are still building the critical mass necessary to absorb the costs of operating
the franchise.
Our automobile business produced similarly profitable results in 2001
and 2000. Other personal coverages, which include insurance for personal
valuables and excess liability, produced highly profitable results in 2001 and
2000 due to continued favorable loss experience.
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COMMERCIAL INSURANCE
Premiums from commercial insurance, which represent 38% of our total
writings, increased by less than 1% in the first quarter of 2001 compared with
the same period a year ago. In late 1998, we put in place a strategy to renew
good business at adequate prices and not renew underperforming business where we
cannot attain price adequacy. The lack of premium growth in the first quarter of
2001 was the result of our continuing focus on risk selection and profitability
over growth. Retention levels in the first quarter of 2001 improved somewhat
from year ago levels but remained below historical levels. On the business that
was renewed, rate increases continued to accelerate in the first quarter of
2001. As we move toward the end of the year, we expect that the level of rate
increases will likely flatten.
Our commercial insurance underwriting results showed substantial
improvement in the first quarter of 2001 compared with 2000 but remained
unprofitable. Results improved in all segments of this business due to the
cumulative effect of the pricing increases and more stringent risk selection in
recent years. The combined loss and expense ratio was 106.6% for the first
quarter of 2001 compared with 116.3% in 2000.
Multiple peril results remained unprofitable in 2001. However, such
results improved considerably compared with the results in 2000 in both the
property and liability components of this business. The property component
benefited from relatively few large losses during the quarter. Catastrophe
losses were not significant for this class in the first quarter of 2001 or 2000.
Results for our casualty business also improved considerably in 2001
compared with the prior year but remained unprofitable. The improvement was
primarily in the automobile component of the casualty coverages due to a lower
frequency of losses and fewer large losses. Results in the primary liability
component also improved. The excess liability component produced modestly
unprofitable results in 2001 compared with breakeven results in 2000. Casualty
results were adversely affected in both years, but more so in 2001, by incurred
losses relating to asbestos-related and toxic waste claims.
Workers' compensation results were profitable in 2001 compared with
unprofitable results in 2000. The substantial improvement in 2001 was due to a
lower frequency of losses.
Property and marine results improved in 2001, but remained
unprofitable. Results in 2000 were adversely affected by several severe losses,
both in the United States and overseas. Catastrophe losses for this class were
not significant in either year.
SPECIALTY INSURANCE
Premiums from specialty insurance, which represent 37% of our total
writings, increased by 16.1% in the first quarter of 2001 compared with the same
period a year ago. Our strategy of working closely with our customers and our
ability to differentiate our 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 other
specialty business was primarily from Chubb Re, our reinsurance business that
began operations in 1999.
15
Page 13
Our specialty business produced less profitable underwriting results in
the first quarter of 2001 compared with the highly profitable results in 2000.
The combined loss and expense ratio was 92.6% for the first quarter of 2001
compared with 87.8% in 2000.
Executive protection results were profitable in 2001 and 2000 on
business worldwide due to favorable development of prior year loss reserves,
particularly in the directors and officers liability and fiduciary liability
components. However, profit margins have narrowed in the most recent accident
years. Recent trends in claim severity indicate a need for higher rates. As a
result, we are implementing a program to increase the pricing on this business
and to not renew accounts where we cannot attain price adequacy. We are focusing
in particular on our employment practices liability business, which has been
unprofitable.
Our financial institutions business produced near breakeven results in
2001 compared with profitable results in 2000. The fidelity and professional
liability component of this business was profitable in both years due to
favorable loss experience. The standard commercial business written on financial
institutions was unprofitable in 2001 due primarily to one $10 million property
loss.
Our other specialty results were profitable in 2001 and 2000. Our
surety business in particular produced highly profitable results in both years.
LOSS RESERVES
Gross loss reserves were $11,770.3 million and $11,904.6 million at
March 31, 2001 and December 31, 2000, respectively. Reinsurance recoverables on
such loss reserves were $1,784.3 million and $1,853.3 million at March 31, 2001
and December 31, 2000, respectively.
Loss reserves, net of reinsurance recoverable, decreased by $65.3
million during the first quarter of 2001. Loss reserves for personal insurance
and specialty insurance increased during the quarter while loss reserves for
commercial insurance decreased by $152.1 million. Such decrease reflects the
significant exposure reductions of the past three years, the improved accident
year results and the payment of a number of large claims totaling about $100
million.
Losses incurred related to asbestos and toxic waste claims were $14.8
million in the first quarter of 2001 and $7.1 million for the same period in
2000.
INVESTMENTS
Investment income after taxes increased by 1.8% in the first quarter of
2001 compared with the same period in 2000. The growth in investment income in
2001 was due to an increase in invested assets since the first quarter of 2000
offset in part by lower investment yields. The effective tax rate on investment
income increased to 16.4% in the first quarter of 2001 from 16.1% in the
comparable period in 2000 due to holding a larger proportion of our investment
portfolio in taxable fixed income securities.
During the first quarter of 2001, new cash available for investment was
held in short term investments.
The property and casualty subsidiaries maintain sufficient investments
in highly liquid, short term securities at all times to provide for immediate
cash needs.
16
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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 income before taxes of
$3.1 million in the first quarter of 2001 compared with a loss of $5.1 million
in the first quarter of 2000. The improvement was primarily due to earnings from
Chubb Financial Solutions, our financial services business that began operations
in 2000, and higher investment income on corporate assets.
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 $3.5 million in the first quarter of
2001 compared with net gains of $5.8 million for the same period in 2000.
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
March 31, 2001, the Corporation repurchased 24,940,000 shares under the 1997 and
1998 authorizations, including 565,000 shares repurchased in open-market
transactions in the first quarter of 2001 at a cost of $37.7 million. As of
March 31, 2001, 5,060,000 shares remained under the current share repurchase
authorizations.
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
premium price increases and 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; 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. Any forward-looking
statements set forth in this document speak only as of the initial Securities
and Exchange Commission filing date hereof.
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PART II. OTHER INFORMATION
--------------------------
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The Annual Meeting of Shareholders of The Chubb Corporation was held on
April 24, 2001. Matters submitted to Shareholders at the meeting were as
follows:
Votes were cast in the following manner in connection with the election
of each Director to serve until the next Annual Meeting of Shareholders.
Votes Against
Director Votes For or Withheld
-------- --------- -------------
Zoe Baird 137,282,823 1,663,944
John C. Beck 137,454,278 1,492,489
Sheila P. Burke 137,453,086 1,493,681
James I. Cash, Jr. 137,453,400 1,493,367
Percy Chubb, III 137,412,204 1,534,563
Joel J. Cohen 132,937,874 6,008,893
James M. Cornelius 137,469,227 1,477,540
David H. Hoag 137,437,597 1,509,170
Dean R. O'Hare 137,323,212 1,623,555
Warren B. Rudman 137,424,565 1,522,202
David G. Scholey 136,984,544 1,962,223
Raymond G. H. Seitz 132,784,656 6,162,111
Lawrence M. Small 137,470,794 1,475,973
Karen Hastie Williams 137,432,662 1,514,105
James M. Zimmerman 137,458,246 1,488,521
Alfred W. Zollar 137,448,571 1,498,196
There were no broker non-votes cast.
Votes were cast in the following manner in connection with the proposal
to approve the selection of Ernst & Young LLP as the independent auditors of the
Registrant for the year 2001.
Votes For Votes Against
--------- -------------
137,587,297 800,404
There were 559,066 abstaining votes and no broker non-votes cast.
Votes were cast in the following manner in connection with the proposal
to approve The Chubb Corporation Global Employee Stock Purchase Plan (2001).
Votes For Votes Against
--------- -------------
129,486,019 8,832,800
There were 627,948 abstaining votes and no broker non-votes cast.
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Votes were cast in the following manner in connection with the proposal
to approve The Chubb Corporation Annual Incentive Compensation Plan (2001).
Votes For Votes Against
--------- -------------
133,379,101 4,794,480
There were 773,186 abstaining votes and no broker non-votes cast.
Votes were cast in the following manner in connection with the proposal
to approve The Chubb Corporation Stock Option Plan for Non-Employee Directors
(2001).
Votes For Votes Against
--------- -------------
99,194,058 38,796,593
There were 956,116 abstaining votes and no broker non-votes cast.
Item 6 - Exhibits and Reports on Form 8-K
Reports on Form 8-K - There were no reports on Form 8-K filed for the
three months ended March 31, 2001.
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: Henry B. Schram
________________________________
Henry B. Schram
Senior Vice-President and
Chief Accounting Officer
Date: May 14, 2001