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 June 30, 2001
-------------------------
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 July 31, 2001 was
171,692,582.
2
THE CHUBB CORPORATION
INDEX
Page Number
-----------
Part I. Financial Information:
Item 1 - Financial Statements:
Consolidated Balance Sheets as of
June 30, 2001 and December 31, 2000.......................... 1
Consolidated Statements of Income for the
Three Months and Six Months Ended
June 30, 2001 and 2000....................................... 2
Consolidated Statements of Comprehensive Income
for the Three Months and Six Months Ended
June 30, 2001 and 2000....................................... 3
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 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 6 - Exhibits and Reports on Form 8-K....................... 17
3
Page 1
THE CHUBB CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, Dec. 31,
2001 2000
-------- --------
(in millions)
Assets
Invested Assets
Short Term Investments............................... $ 727.1 $ 605.6
Fixed Maturities
Held-to-Maturity - Tax Exempt (market $1,463.8
and $1,564.7)..................................... 1,392.9 1,496.1
Available-for-Sale
Tax Exempt (cost $8,059.1 and $8,053.8)........... 8,418.8 8,380.5
Taxable (cost $5,846.6 and $5,666.6).............. 5,878.1 5,687.8
Equity Securities (cost $836.6 and $839.8)........... 804.4 830.6
--------- ---------
TOTAL INVESTED ASSETS......................... 17,221.3 17,000.6
Cash................................................... 27.9 22.4
Securities Lending Collateral.......................... 763.1 451.1
Accrued Investment Income.............................. 240.8 246.8
Premiums Receivable.................................... 1,528.9 1,409.8
Reinsurance Recoverable on Unpaid Claims
and Claim Expenses.................................... 1,764.9 1,853.3
Prepaid Reinsurance Premiums........................... 260.6 246.0
Deferred Policy Acquisition Costs...................... 871.9 842.0
Real Estate Assets..................................... 668.7 677.1
Deferred Income Tax.................................... 512.5 501.0
Goodwill............................................... 477.4 487.3
Other Assets........................................... 1,257.3 1,289.3
--------- ---------
TOTAL ASSETS.................................. $25,595.3 $25,026.7
========= =========
Liabilities
Unpaid Claims and Claim Expenses....................... $11,929.5 $11,904.6
Unearned Premiums...................................... 3,640.7 3,516.3
Securities Lending Payable............................. 763.1 451.1
Long Term Debt......................................... 752.4 753.8
Dividend Payable to Shareholders....................... 59.3 57.8
Accrued Expenses and Other Liabilities................. 1,425.1 1,361.4
--------- ---------
TOTAL LIABILITIES............................. 18,570.1 18,045.0
--------- ---------
Shareholders' Equity
Common Stock - $1 Par Value; 179,922,138 and
178,833,278 Shares.................................... 179.9 178.8
Paid-In Surplus........................................ 508.4 466.0
Retained Earnings...................................... 6,695.2 6,492.6
Accumulated Other Comprehensive Income
Unrealized Appreciation of Investments, Net of Tax.... 233.3 220.1
Foreign Currency Translation Losses, Net of Tax....... (81.4) (68.5)
Receivable from Employee Stock Ownership Plan.......... (55.9) (62.5)
Treasury Stock, at Cost - 6,682,869 and
3,914,105 Shares...................................... (454.3) (244.8)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY.................... 7,025.2 6,981.7
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.... $25,595.3 $25,026.7
========= =========
See Notes to Consolidated Financial Statements.
4
Page 2
THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
PERIODS ENDED JUNE 30
Second Quarter Six Months
-------------- --------------
2001 2000 2001 2000
---- ---- ---- ----
(in millions)
Revenues
Premiums Earned....................... $1,640.5 $1,519.9 $3,261.1 $3,011.8
Investment Income..................... 248.4 233.9 493.1 471.5
Real Estate and Other Revenues........ 18.8 14.1 41.5 45.8
Realized Investment Gains............. 6.8 6.1 10.3 11.9
-------- -------- -------- --------
Total Revenues................. 1,914.5 1,774.0 3,806.0 3,541.0
-------- -------- -------- --------
Claims and Expenses
Insurance Claims and Claim Expenses... 1,143.1 996.8 2,224.1 2,024.2
Amortization of Deferred Policy
Acquisition Costs.................... 444.0 406.7 883.2 809.2
Other Insurance Operating Costs
and Expenses......................... 115.2 108.6 233.6 213.2
Real Estate and Other Expenses........ 21.4 14.9 39.9 47.5
Investment Expenses................... 2.8 3.3 8.2 8.5
Corporate Expenses.................... 21.8 19.5 41.4 40.1
-------- -------- -------- --------
Total Claims and Expenses...... 1,748.3 1,549.8 3,430.4 3,142.7
-------- -------- -------- --------
Income Before Federal and Foreign
Income Tax............................. 166.2 224.2 375.6 398.3
Federal and Foreign Income Tax.......... 19.4 39.6 53.8 60.0
-------- -------- -------- --------
Net Income.............................. $ 146.8 $ 184.6 $ 321.8 $ 338.3
======== ======== ======== ========
Average Common Shares Outstanding....... 174.3 175.1 174.6 174.9
Average Common and Potentially Dilutive
Shares Outstanding..................... 178.2 180.2 178.6 178.3
Net Income Per Share
Basic.................................. $ .84 $1.05 $1.84 $1.93
Diluted................................ .83 1.02 1.80 1.89
Dividends Declared Per Share............ .34 .33 .68 .66
See Notes to Consolidated Financial Statements.
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Page 3
THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
PERIODS ENDED JUNE 30
Second Quarter Six Months
-------------- --------------
2001 2000 2001 2000
---- ---- ---- ----
(in millions)
Net Income................................ $146.8 $184.6 $321.8 $338.3
------ ------ ------ ------
Other Comprehensive Income (Loss)
Change in Unrealized Appreciation or
Depreciation of Investments,
Net of Tax............................. (87.9) (2.6) 13.2 75.4
Foreign Currency Translation Losses,
Net of Tax............................. (2.6) (6.7) (12.9) (11.7)
------ ------ ------ ------
(90.5) (9.3) .3 63.7
------ ------ ------ ------
Comprehensive Income...................... $ 56.3 $175.3 $322.1 $402.0
====== ====== ====== ======
See Notes to Consolidated Financial Statements.
6
Page 4
THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30
2001 2000
---- ----
(in millions)
Cash Flows from Operating Activities
Net Income............................................ $ 321.8 $ 338.3
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Increase in Unpaid Claims and Claim Expenses, Net.. 113.3 206.6
Increase in Unearned Premiums, Net................. 109.8 108.1
Increase in Premiums Receivable.................... (119.1) (115.9)
Increase in Deferred Policy Acquisition Costs...... (29.9) (32.1)
Change in Deferred Federal Income Tax.............. (12.2) (21.1)
Depreciation....................................... 45.8 39.9
Realized Investment Gains.......................... (10.3) (11.9)
Other, Net......................................... 55.8 (77.2)
--------- ---------
Net Cash Provided by Operating Activities............. 475.0 434.7
--------- ---------
Cash Flows from Investing Activities
Proceeds from Sales of Fixed Maturities............... 1,837.1 1,217.6
Proceeds from Maturities of Fixed Maturities.......... 595.1 364.6
Proceeds from Sales of Equity Securities.............. 156.9 166.3
Purchases of Fixed Maturities......................... (2,511.6) (1,848.5)
Purchases of Equity Securities........................ (152.2) (260.9)
Decrease (Increase) in Short Term Investments, Net.... (121.5) 199.8
Increase in Net Payable from Security
Transactions Not Settled............................. 85.1 11.7
Purchases of Fixed Assets, Net........................ (77.5) (61.3)
Other, Net............................................ (10.1) (25.1)
--------- ---------
Net Cash Used in Investing Activities................. (198.7) (235.8)
--------- ---------
Cash Flows from Financing Activities
Repayment of Long Term Debt........................... (1.4) (5.2)
Proceeds from Issuance of Common Stock Under
Incentive and Purchase Plans......................... 106.7 39.7
Repurchase of Shares.................................. (280.6) (132.1)
Dividends Paid to Shareholders........................ (117.7) (113.9)
Other, Net............................................ 22.2 8.6
--------- ---------
Net Cash Used in Financing Activities................. (270.8) (202.9)
--------- ---------
Net Increase (Decrease) in Cash......................... 5.5 (4.0)
Cash at Beginning of Year............................... 22.4 22.7
--------- ---------
Cash at End of Period................................. $ 27.9 $ 18.7
========= =========
See Notes to Consolidated Financial Statements.
7
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.
Effective April 1, 2001, the Corporation adopted the Emerging
Issues Task Force (EITF) consensus on Issue No. 99-20, Recognition of
Interest Income and Impairment on Purchased and Retained Beneficial
Interests in Securitized Financial Assets. EITF Issue No. 99-20 requires
that investors in certain asset-backed securities recognize changes in a
security's estimated yield prospectively. EITF Issue No. 99-20 also
requires that if the carrying value of any such asset-backed security
exceeds its current fair value, investors determine whether the excess
represents an other than temporary decline in value and recognize any
such decline as a loss in the income statement. The adoption of EITF
Issue No. 99-20 did not have a significant effect on the Corporation's
financial position or results of operations.
3) Accounting Pronouncements Not Yet Adopted
In June 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill
and Other Intangible Assets. SFAS No. 141 requires all business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method.
Under SFAS No. 142, goodwill will no longer be amortized but
rather will be tested at least annually for impairment. The provisions of
SFAS No. 142 shall be effective for the Corporation for the year
beginning January 1, 2002. The Statement shall be applied to all goodwill
recognized in the Corporation's financial statements at that date. SFAS
No. 142 may not be applied retroactively to financial statements of prior
periods. The effect of the adoption of SFAS No. 142 on the Corporation's
financial position or results of operations has not yet been determined.
8
Page 6
4) 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 June 30
------------------------------------
Second Quarter Six Months
-------------- ---------------
2001 2000 2001 2000
---- ---- ---- ----
(in millions)
Change in unrealized appreciation or
depreciation of equity securities... $ (22.7) $(26.1) $(23.0) $(22.1)
Change in unrealized appreciation or
depreciation of fixed maturities.... (112.4) 23.5 43.3 97.5
------- ------ ------ ------
(135.1) (2.6) 20.3 75.4
Deferred income tax (credit)......... (47.2) (.9) 7.1 26.4
Increase (decrease) in valuation
allowance........................... - .9 - (26.4)
------- ------ ------ ------
Change in unrealized appreciation or
depreciation of investments, net.... $ (87.9) $ (2.6) $ 13.2 $75.4
======= ====== ====== =====
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Page 7
5) Earnings Per Share
The following table sets forth the computation of basic and
diluted earnings per share:
Periods Ended June 30
-----------------------------------
Second Quarter Six Months
-------------- ---------------
2001 2000 2001 2000
---- ---- ---- ----
(in millions,
except per share amounts)
Basic earnings per share:
Net income............................... $146.8 $184.6 $321.8 $338.3
====== ====== ====== ======
Weighted average number of common
shares outstanding...................... 174.3 175.1 174.6 174.9
====== ====== ====== ======
Basic earnings per share................. $ .84 $ 1.05 $ 1.84 $ 1.93
====== ====== ====== ======
Diluted earnings per share:
Net income............................... $146.8 $184.6 $321.8 $338.3
====== ====== ====== ======
Weighted average number of common
shares outstanding...................... 174.3 175.1 174.6 174.9
Additional shares from assumed exercise
of stock-based compensation awards...... 3.9 5.1 4.0 3.4
------ ------ ------ ------
Weighted average number of common shares
and potential common shares assumed
outstanding for computing diluted
earnings per share...................... 178.2 180.2 178.6 178.3
====== ====== ====== ======
Diluted earnings per share............... $ .83 $ 1.02 $ 1.80 $ 1.89
====== ====== ====== ======
6) 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.
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Page 8
Revenues and income before income tax of the operating segments
were as follows:
Periods Ended June 30
---------------------------------------
Second Quarter Six Months
------------------ -------------------
2001 2000 2001 2000
-------- -------- -------- --------
(in millions)
Revenues
Property and casualty insurance
Premiums earned
Personal insurance............... $ 453.6 $ 396.4 $ 891.1 $ 784.7
Commercial insurance............. 590.7 579.1 1,179.8 1,184.6
Specialty insurance.............. 596.2 544.4 1,190.2 1,042.5
-------- -------- -------- --------
1,640.5 1,519.9 3,261.1 3,011.8
Investment income.................. 229.3 218.7 454.7 439.0
-------- -------- -------- --------
Total property and casualty
insurance....................... 1,869.8 1,738.6 3,715.8 3,450.8
Corporate and other.................. 37.9 29.3 79.9 78.3
Realized investment gains............ 6.8 6.1 10.3 11.9
-------- -------- -------- --------
Total revenues................... $1,914.5 $1,774.0 $3,806.0 $3,541.0
======== ======== ======== ========
Income (loss) before income tax
Property and casualty insurance
Underwriting
Personal insurance............... $ (39.1) $ 3.9 $ (39.8) $ 17.5
Commercial insurance............. (57.8) (33.9) (122.9) (151.5)
Specialty insurance.............. 41.2 48.1 71.2 91.9
-------- -------- -------- --------
(55.7) 18.1 (91.5) (42.1)
Increase in deferred policy
acquisition costs............... 1.7 3.1 29.9 32.1
-------- -------- -------- --------
Underwriting income (loss)....... (54.0) 21.2 (61.6) (10.0)
Investment income.................. 226.8 216.1 447.6 432.1
Amortization of goodwill and
other charges..................... (7.8) (13.4) (18.2) (24.8)
-------- -------- -------- --------
Total property and casualty
insurance....................... 165.0 223.9 367.8 397.3
Corporate and other loss............. (5.6) (5.8) (2.5) (10.9)
Realized investment gains............ 6.8 6.1 10.3 11.9
-------- -------- -------- --------
Total income before income tax... $ 166.2 $ 224.2 $ 375.6 $ 398.3
======== ======== ======== ========
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Page 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
AND FOR THE QUARTERS ENDED JUNE 30, 2001 AND 2000
SUMMARY OF FINANCIAL RESULTS
The following is a summary of the Corporation's operating results for the
second quarter and six months ended June 30, 2001 and 2000:
Periods Ended June 30
---------------------------------------
Second Quarter Six Months
---------------- ----------------
2001 2000 2001 2000
---- ---- ---- ----
(in millions)
PROPERTY AND CASUALTY INSURANCE
Underwriting
Net Premiums Written........... $1,638.0 $1,530.6 $3,370.9 $3,119.9
Decrease (Increase) in
Unearned Premiums............. 2.5 (10.7) (109.8) (108.1)
-------- -------- -------- --------
Premiums Earned............. 1,640.5 1,519.9 3,261.1 3,011.8
-------- -------- -------- --------
Claims and Claim Expenses...... 1,143.1 996.8 2,224.1 2,024.2
Operating Costs and Expenses... 545.9 498.4 1,114.3 1,016.4
Increase in Deferred Policy
Acquisition Costs............. (1.7) (3.1) (29.9) (32.1)
Dividends to Policyholders..... 7.2 6.6 14.2 13.3
-------- -------- -------- --------
Underwriting Income (Loss)..... (54.0) 21.2 (61.6) (10.0)
-------- -------- -------- --------
Investments
Investment Income Before
Expenses...................... 229.3 218.7 454.7 439.0
Investment Expenses............ 2.5 2.6 7.1 6.9
-------- -------- -------- --------
Investment Income.............. 226.8 216.1 447.6 432.1
-------- -------- -------- ---------
Amortization of Goodwill and
Other Charges.................. (7.8) (13.4) (18.2) (24.8)
-------- -------- -------- --------
Property and Casualty Income.... 165.0 223.9 367.8 397.3
CORPORATE AND OTHER.............. (5.6) (5.8) (2.5) (10.9)
-------- -------- -------- --------
CONSOLIDATED OPERATING INCOME
BEFORE INCOME TAX............... 159.4 218.1 365.3 386.4
Federal and Foreign Income Tax... 17.0 37.4 50.2 55.8
-------- -------- -------- --------
CONSOLIDATED OPERATING INCOME.... 142.4 180.7 315.1 330.6
REALIZED INVESTMENT GAINS
AFTER INCOME TAX................ 4.4 3.9 6.7 7.7
-------- -------- -------- --------
CONSOLIDATED NET INCOME.......... $ 146.8 $ 184.6 $ 321.8 $ 338.3
======== ======== ======== ========
PROPERTY AND CASUALTY INVESTMENT
INCOME AFTER INCOME TAX......... $ 188.0 $ 180.8 $ 372.6 $ 362.1
======== ======== ======== ========
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Page 10
PROPERTY AND CASUALTY INSURANCE
Earnings from our property and casualty business were lower in the first
six months and second quarter of 2001 compared with the same periods of 2000.
The lower earnings in 2001 were due to a deterioration in underwriting results
caused in large part by substantially higher catastrophe losses. Investment
income increased modestly in the first six months of 2001 compared with 2000.
Property and casualty income before taxes amounted to $367.8 million in the
first six months of 2001 and $165.0 million in the second quarter compared with
$397.3 million and $223.9 million, respectively, in 2000.
Net premiums written were $3.4 billion in the first six months of 2001,
an increase of 8.0% compared with the same period in 2000. Net premiums written
were $1.6 billion in the second quarter of 2001, an increase of 7.0% over the
comparable period of 2000. U.S. premiums grew 8.2% in the first six months of
2001 and 6.1% in the second quarter. Substantial premium growth was achieved
outside the United States in 2001. Non-U.S. premiums grew about 16% in local
currencies in both the first six months and second quarter. However, due to the
strength of the U.S. dollar, reported non-U.S. premium growth was 7.1% in the
first six months of 2001 and 11.5% in the second quarter.
Premium growth in personal lines remained strong. Competition in the
worldwide marketplace has made profitable premium growth difficult in the
commercial classes, which include multiple peril, casualty, workers'
compensation and property and marine. However, our strategy to increase the
pricing in these classes continued to show success, resulting in premium growth
of 6.4% for these classes in the second quarter of 2001 compared with flat
premiums in the first quarter. Premium growth in the specialty lines was
restricted in 2001, particularly in the second quarter, primarily due to the
lack of growth in our executive protection business caused by our writing fewer
multi-year policies as well as our pricing and pruning initiative.
Underwriting results were unprofitable in the first six months and second
quarter of 2001 compared with near breakeven results in the first six months of
2000 and profitable results in the second quarter of 2000. Our combined loss and
expense ratio was 101.7% in the first six months of 2001 and 103.5% in the
second quarter compared with 100.2% and 98.6%, respectively, in 2000.
The loss ratio was 68.5% for the first six months of 2001 and 70.0% for
the second quarter compared with 67.5% and 65.9%, respectively, in the prior
year. The loss ratios in both years, but more so in 2001, were adversely
affected by catastrophe losses. Catastrophe losses during the first six months
of 2001 amounted to $91.8 million which represented 2.8 percentage points of the
loss ratio compared with $54.6 million or 1.8 percentage points in 2000.
Catastrophe losses for the second quarter of 2001 amounted to $80.3 million or
4.9 percentage points of the loss ratio compared with $24.3 million or 1.6
percentage points in 2000. The catastrophe losses in both years resulted
primarily from storms in the United States, particularly tropical storm Allison
in the second quarter of 2001.
Our expense ratio was 33.2% for the first six months of 2001 and 33.5%
for the second quarter compared with 32.7% for both periods in the prior year.
The increase in the expense ratio in 2001 was due to overhead expenses growing
at a higher rate than written premiums as well as slightly higher commission
expenses.
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Page 11
Underwriting results during 2001 and 2000 by class of business were as
follows:
Six Months Ended June 30
---------------------------------------
Net Premiums Combined Loss and
Written Expense Ratios
--------------- ------------------
2001 2000 2001 2000
---- ---- ---- ----
(in millions)
Personal Insurance
Automobile........................ $ 231.7 $ 192.0 97.5% 94.9%
Homeowners........................ 507.1 443.3 115.6 106.2
Other............................. 217.8 196.4 75.0 72.5
-------- -------- ----- -----
Total Personal................ 956.6 831.7 102.1 95.8
-------- -------- ----- -----
Commercial Insurance
Multiple Peril.................... 373.4 358.1 105.1 111.4
Casualty.......................... 381.4 393.9 110.9 116.5
Workers' Compensation............. 180.2 165.7 94.2 104.4
Property and Marine............... 272.5 254.2 123.8 116.0
-------- -------- ----- -----
Total Commercial.............. 1,207.5 1,171.9 109.6 113.2
-------- -------- ----- -----
Specialty Insurance
Executive Protection.............. 648.6 626.7 92.2 83.7
Financial Institutions............ 292.9 256.5 93.3 87.9
Other............................. 265.3 233.1 97.5 105.5
-------- -------- ----- -----
Total Specialty............... 1,206.8 1,116.3 93.6 89.1
-------- -------- ----- -----
Total......................... $3,370.9 $3,119.9 101.7% 100.2%
======== ======== ===== =====
Quarter Ended June 30
---------------------------------------
Net Premiums Combined Loss and
Written Expense Ratios
--------------- ------------------
2001 2000 2001 2000
---- ---- ---- ----
(in millions)
Personal Insurance
Automobile........................ $ 125.1 $ 103.3 98.3% 92.7%
Homeowners........................ 283.6 245.8 117.0 102.7
Other............................. 119.3 106.1 76.4 75.3
-------- -------- ----- -----
Total Personal................ 528.0 455.2 103.4 94.1
-------- -------- ----- -----
Commercial Insurance
Multiple Peril.................... 168.9 165.8 105.9 111.4
Casualty.......................... 175.9 171.5 111.8 112.5
Workers' Compensation............. 72.0 64.7 95.4 101.0
Property and Marine............... 127.5 109.5 134.8 110.8
-------- -------- ----- -----
Total Commercial.............. 544.3 511.5 112.8 110.4
-------- -------- ----- -----
Specialty Insurance
Executive Protection.............. 318.8 321.4 93.9 83.6
Financial Institutions............ 132.8 121.1 85.3 83.6
Other............................. 114.1 121.4 107.1 113.3
-------- -------- ----- -----
Total Specialty............... 565.7 563.9 94.7 90.1
-------- -------- ----- -----
Total......................... $1,638.0 $1,530.6 103.5% 98.6%
======== ======== ===== =====
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Page 12
PERSONAL INSURANCE
Premiums from personal insurance coverages, which represent 28% of the
premiums written by our property and casualty subsidiaries, increased by 15.0%
in the first six months of 2001 and 16.0% in the second quarter compared with
the similar periods in 2000. Our in-force policy count for automobile,
homeowners and other personal coverages continued to grow significantly.
Our personal insurance business produced modestly unprofitable
underwriting results in 2001 compared with profitable results in 2000. The
combined loss and expense ratios were 102.1% for the first six months of 2001
and 103.4% for the second quarter compared with 95.8% and 94.1%, respectively,
in 2000.
Homeowners results were unprofitable in both years, but more so in 2001.
The deterioration in 2001 was due to a higher frequency of non-catastrophe
losses, particularly large losses, as well as rate deficiencies in a number of
states. Catastrophe losses represented 7.0 percentage points of the loss ratio
for this class in the first six months of 2001 and 11.2 percentage points in the
second quarter compared with 11.7 percentage points and 10.4 percentage points,
respectively, in 2000. Homeowners results outside the United States improved in
2001 but remained unprofitable as we are still building the critical mass
necessary to absorb the costs of operating the franchise.
Our automobile business produced somewhat less profitable results in 2001
compared with 2000 due in part to higher catastrophe losses in the second
quarter.
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.
COMMERCIAL INSURANCE
Premiums from commercial insurance, which represent 36% of our total
writings, increased by 3.0% in the first six months of 2001 and 6.4% in the
second quarter compared with the similar periods in 2000. In late 1998, we put
in place a strategy to renew good business at adequate prices and not renew
underperforming accounts where we could not attain price adequacy. The increase
in premiums in the second quarter of 2001 was due to the near completion of the
pruning process. Retention levels in the first six months of 2001 improved
modestly from year ago levels but remained below historical levels. On the
business that was renewed, rate increases remained firm but the level of rate
increases flattened in the second quarter. Renewal rates in the U.S. were up
approximately 15% in the quarter, the same increase as in the first quarter.
Our commercial insurance underwriting results remained unprofitable in
the first six months of 2001 but showed significant improvement compared with
2000, despite substantially higher catastrophe losses. The combined loss and
expense ratio was 109.6% for the first six months of 2001 and 112.8% for the
second quarter compared with 113.2% and 110.4%, respectively, in 2000. Results
improved in all segments of this business other than property and marine. Such
improvement was due in large part to the cumulative effect of the pricing
increases and more stringent risk selection in recent years.
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Multiple peril results remained unprofitable in 2001. However, results
improved considerably compared with the results in 2000, primarily in the
liability component of this business. Results in the property component were
similar in the first six months of both years as a reduction in non-catastrophe
losses in 2001 was substantially offset by an increase in catastrophe losses.
Catastrophe losses represented 6.3 percentage points of the loss ratio for this
class in the first six months of 2001 and 11.7 points in the second quarter.
There were virtually no catastrophe losses for this class in the same periods of
2000.
Results for our casualty business also improved considerably in the first
six months of 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. Results in the primary liability component
also improved. The excess liability component produced unprofitable results in
2001 compared with near breakeven results in 2000. Casualty results were
adversely affected in both years, but more so in 2001, by incurred losses
related to asbestos and toxic waste claims.
Workers' compensation results were profitable in 2001 compared with
modestly unprofitable results in 2000. The substantial improvement in 2001 was
due to a lower frequency of losses.
Property and marine results were highly unprofitable in both years, but
more so in 2001. Results in the first six months of both years were adversely
affected by large losses, both in the United States and overseas. The
deterioration in 2001 was due to substantially higher catastrophe losses and a
number of large losses in the second quarter. Results in the second quarter of
2001 included five losses that represented approximately 24 percentage points of
the loss ratio for this class for the quarter. Catastrophe losses represented
9.4 percentage points of the loss ratio for this class in the first six months
of 2001 and 17.7 percentage points in the second quarter compared with 1.9
percentage points and 2.1 percentage points, respectively, in 2000.
SPECIALTY INSURANCE
Premiums from specialty commercial insurance, which represent 36% of our
total writings, increased by 8.1% in the first six months of 2001 and 0.3% in
the second quarter compared with the same periods in 2000. Our strategy of
working closely with our customers and our ability to differentiate our products
continue to enable us to renew a considerable percentage of our executive
protection and financial institutions business. Financial institutions had solid
premium growth of 14.2% in the first six months of 2001 and 9.7% in the second
quarter. Executive protection, however, had premium growth of only 3.5% in the
first six months of 2001 with no growth in the second quarter due to our writing
fewer multi-year policies and a slowdown in new business opportunities. In
addition, recent trends in claim severity indicated a need for higher rates and
improved policy terms. As a result, we have implemented a program to increase
the pricing on this business and to not renew accounts where we cannot attain
price adequacy. Executive protection earned premiums increased by 12.8% in the
first six months of 2001 and 11.2% in the second quarter, reflecting higher
rates on business renewed.
Growth in our other specialty insurance business is significantly
affected by Chubb Re, our reinsurance business that began operations in 1999. In
the first quarter of 2001, premiums written through Chubb Re increased 87%
whereas in the second quarter such premiums were at about the same level as the
comparable period in 2000.
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Our specialty commercial business produced less profitable underwriting
results in 2001 compared with the highly profitable results in 2000. The
combined loss and expense ratio was 93.6% for the first six months of 2001 and
94.7% for the second quarter compared with 89.1% and 90.1%, respectively, 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.
Employment practice liability results were unprofitable in both years. Executive
protection results in the second quarter of 2001 were also adversely affected by
several large fidelity losses.
Our financial institutions business also produced profitable results in
2001 and 2000, but more so in 2000. Both years benefited from favorable loss
experience in the fidelity component. Results in 2001 in the standard commercial
business written on financial institutions were adversely affected by one $10
million property loss, net of reinsurance, in the first quarter.
Results in our other specialty classes were profitable in the first six
months of 2001 compared with unprofitable results in 2000. Results improved in
both our surety and accident lines of business. Surety results in 2000 were
adversely affected by one large loss in the second quarter. Business written
through Chubb Re produced a modest underwriting loss in 2001 and 2000.
LOSS RESERVES
Gross loss reserves were $11,929.6 million and $11,904.6 million at June
30, 2001 and December 31, 2000, respectively. Reinsurance recoverables on such
loss reserves were $1,765.0 million and $1,853.3 million at June 30, 2001 and
December 31, 2000, respectively.
Loss reserves, net of reinsurance recoverable, increased by $113.3
million during the first six months of 2001. Loss reserves for personal
insurance and specialty insurance increased during the period while loss
reserves for commercial insurance decreased by $126.4 million. Such decrease
reflects the significant exposure reductions of the past three years and
improved accident year results.
Losses incurred related to asbestos and toxic waste claims were $30.3
million in the first six months of 2001 and $14.1 million for the same period in
2000.
INVESTMENTS
Investment income after taxes increased by 2.9% in the first six months
of 2001 and 4.0% in the second quarter compared with the same periods in 2000.
The growth in investment income in 2001 was due to an increase in invested
assets since the second quarter of 2000 offset in part by lower investment
yields. The effective tax rate on investment income increased to 16.8% in the
first six months of 2001 from 16.2% in the comparable period in 2000 due to
holding a somewhat larger proportion of our investment portfolio in taxable
fixed income securities.
During the first six months of 2001, new cash available for investment
was invested in taxable bonds.
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The property and casualty subsidiaries maintain sufficient investments in
highly liquid, short term securities at all times to provide for immediate cash
needs.
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
$2.5 million in the first six months of 2001 compared with a loss of $10.9
million in the first six months of 2000. The improvement was primarily due to
higher invest-ment income on corporate assets and earnings in the first quarter
from Chubb Financial Solutions, our financial services business that began
operations in 2000. Chubb Financial Solutions produced a modest loss in the
second 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 $10.3 million in the first six
months of 2001 compared with net gains of $11.9 million for the same period in
2000.
CAPITAL RESOURCES
In July 1998, the Board of Directors authorized the purchase of up to
12,500,000 shares of the Corporation's common stock. In June 2001, the Board of
Directors authorized the purchase of up to an additional 16,000,000 shares. The
1998 authorization has no expiration while the 2001 authorization will expire on
June 30, 2003. In the first six months of 2001, the Corporation purchased
3,889,800 shares in open-market transactions at a cost of $280.6 million. As of
June 30, 2001, 3,287,100 shares remained under the 1998 share purchase
authorization and 14,448,100 shares remained under the 2001 authorization.
The Corporation's $200 million short term revolving credit facility,
which was to have terminated on July 4, 2001, was extended to July 2, 2002.
There have been no borrowings under this agreement.
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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," 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 business retention or non-renewal
of underpriced insurance accounts, as well as with respect to its profitability
or growth estimates overall or by line of business or by region; 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, currency fluctuation, changes in competition and
pricing environments, regional or general changes in asset valuations, the
occurrence of significant weather-related or other natural disasters, 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 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 June 30, 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: August 13, 2001