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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
THE CHUBB CORPORATION
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(Name of Registrant as Specified in Its Charter)
THE CHUBB CORPORATION
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(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:/1
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(4) Proposed maximum aggregate value of transaction:
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/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registrations statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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/1 Set forth the amount on which the filing fee is calculated and state how it
was determined.
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THE CHUBB CORPORATION
15 MOUNTAIN VIEW ROAD, P.O. BOX 1615, WARREN, NEW JERSEY 07061-1615
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of The Chubb Corporation will be held at
15 Mountain View Road, Warren, New Jersey on April 26, 1994 at 11:00 A.M., local
time, for the following purposes:
1. To elect fifteen Directors to serve until the next Annual Meeting
of Shareholders and until their respective successors are elected and shall
qualify.
2. To approve the selection of independent auditors for the year
1994.
3. To approve The Chubb Corporation Annual Incentive Compensation
Plan (1994), such Plan being set forth as Exhibit A to the accompanying
Proxy Statement.
4. To transact such other business as may properly be brought before
the meeting and any adjournment thereof.
Shareholders of record at the close of business on March 7, 1994 will be
entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof.
By order of the Board of Directors,
HENRY G. GULICK
Vice President and Secretary
Dated: March 15, 1994
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TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE FILL IN, SIGN, DATE
AND RETURN THE PROXY SUBMITTED HEREWITH, IN THE ENCLOSED ADDRESSED ENVELOPE. THE
GIVING OF SUCH PROXY WILL NOT AFFECT YOUR RIGHT TO REVOKE SUCH PROXY BY
APPROPRIATE WRITTEN NOTICE OR TO VOTE IN PERSON SHOULD YOU LATER DECIDE TO
ATTEND THE MEETING.
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THE CHUBB CORPORATION
15 MOUNTAIN VIEW ROAD, P.O. BOX 1615, WARREN, NEW JERSEY 07061-1615
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PROXY STATEMENT
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March 15, 1994
The Proxy accompanying this Proxy Statement is solicited by the Board of
Directors of The Chubb Corporation to be voted at the Annual Meeting of
Shareholders on April 26, 1994 and at any adjournment thereof. The Proxy may be
revoked by appropriate written notice at any time before it is exercised. See
"Voting, Solicitation of Proxies and Shareholder Proposals".
A copy of the Corporation's Annual Report to Shareholders for 1993 has been
previously mailed to all Shareholders. This Proxy Statement and Proxy are first
being mailed to Shareholders on March 15, 1994.
As of March 7, 1994, the record date for the determination of Shareholders
entitled to vote at the Annual Meeting, 87,736,074 shares of Common Stock of the
Corporation were issued and outstanding. Each share of Common Stock entitles the
holder to one vote on all matters brought before the Annual Meeting.
THE CORPORATION WILL FURNISH, WITHOUT CHARGE, TO ANY RECORD HOLDER OR
BENEFICIAL OWNER OF ITS COMMON STOCK ON SUCH RECORD DATE, UPON RECEIPT OF A
WRITTEN REQUEST, A COPY OF ITS ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K. WRITTEN REQUESTS SHOULD BE DIRECTED TO THE CHUBB
CORPORATION TO THE ATTENTION OF HENRY G. GULICK, VICE PRESIDENT AND SECRETARY,
15 MOUNTAIN VIEW ROAD, P.O. BOX 1615, WARREN, NEW JERSEY 07061-1615.
The Corporation is a holding company and is principally engaged, through
subsidiaries, in the businesses of property and casualty insurance, life and
health insurance and real estate development. Its principal subsidiaries are
Chubb & Son Inc., Federal Insurance Company ("Federal"), Pacific Indemnity
Company ("Pacific"), Vigilant Insurance Company ("Vigilant"), Great Northern
Insurance Company ("Great Northern"), Chubb Insurance Company of Canada ("Chubb
Canada"), Chubb Insurance Company of Australia, Limited, Chubb Insurance Company
of Europe, S.A., Chubb Life
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Insurance Company of America ("Chubb Life"), The Colonial Life Insurance Company
of America, Chubb Sovereign Life Insurance Company and Bellemead Development
Corporation ("Bellemead").
ELECTION OF DIRECTORS
The following persons have been nominated by the Board of Directors to
serve as Directors until the next Annual Meeting of Shareholders and until their
respective successors shall be elected and shall qualify. All of the nominees
were elected as members of the Board of Directors at the Annual Meeting in 1993.
Pursuant to the provisions of the By-Laws, the Board of Directors has fixed the
number of Directors to be elected at fifteen. In the event that any of the
nominees should be unable or unwilling to serve as a Director, it is intended
that the Proxy will be voted for such person, if any, as shall be designated by
the Board of Directors. However, the Board of Directors has no reason to believe
that any nominee will be unable or unwilling to serve as a Director.
NOMINEES FOR DIRECTOR
NAME AGE(1)
---- ------
John C. Beck 62
Managing Partner, Beck, Mack & Oliver, an investment counselling firm.
Mr. Beck has been associated with Beck, Mack & Oliver since 1958 and
first became a partner in 1962. He was a Director of Bellemead from 1984
to 1989. He first became a Director of the Corporation in 1988. Mr. Beck
is also a Director of Russell Reynolds Associates, Inc.
Percy Chubb, III 59
Vice Chairman of the Corporation since June 1986. Prior to his election
as Vice Chairman, Mr. Chubb had been an Executive Vice President since
1981. He is also Vice Chairman of Chubb & Son Inc., Bellemead and Chubb
Life, a Senior Vice President of Federal and Chairman of Chubb Canada.
Mr. Chubb has been associated with Chubb & Son Inc. since 1958. He first
became a Director of the Corporation in 1978.
Joel J. Cohen 56
Managing Director, Investment Banking Department, and Director, Mergers
and Acquisitions, Donaldson, Lufkin & Jenrette Securities Corporation
since October 1989. Mr. Cohen was a consultant from February 1988 until
October 1989. Mr. Cohen had been General Counsel: Presidential Task
Force on Market Mechanisms from November 1987 through January 1988 and a
Partner of Davis Polk & Wardwell, attorneys, until September 1987. He had
been associated with Davis Polk & Wardwell from 1963 until September 1987
and a Partner since 1969. He first became a Director of the Corporation
in 1984. Mr. Cohen is also a Director of GTECH Holdings Corporation,
Maersk, Inc., Maersk Line, Limited and Atlantic Pacific Marine
Corporation.
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NAME AGE(1)
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Henry U. Harder 69
Retired. Prior to June 1988, Mr. Harder had been Chairman and Chief
Executive Officer of the Corporation since 1981. Until June 1986, he had
in addition been President and Chief Executive Officer since 1980. Mr.
Harder had been associated with Chubb & Son Inc. since 1948. He first
became a Director of the Corporation in 1974.
Robert V. Lindsay 68
Former President and former Director of J. P. Morgan & Co. Incorporated
and its wholly-owned subsidiary, Morgan Guaranty Trust Company of New
York, and Chairman of the latter's International Council from 1987 to
1989. Mr. Lindsay had been associated with The Morgan Bank from 1949
until his retirement in 1986. He first became a Director of the
Corporation in 1977. Mr. Lindsay is also a Director of Fishkill National
Corp., The Fluor Corporation, Lomas Financial Corporation, J.P. Morgan
(Suisse) S.A., Russell Reynolds Associates, Inc. and United Meridian
Corporation and is Senior Advisor to Unibank Denmark A/S. Mr. Lindsay is
also Chairman of the John Simon Guggenheim Memorial Foundation.
Thomas C. MacAvoy 66
Professor of Business Administration, University of Virginia since 1988.
He is a former Vice Chairman and Director of Corning, Inc. Mr. MacAvoy
had been associated with Corning, Inc. from 1957 until his retirement in
1987. He first became a Director of the Corporation in 1981. Mr. MacAvoy
is also a Director of Lubrizol Corporation and Quaker Oats Company.
Gertrude G. Michelson 68
Senior Advisor, R.H. Macy & Co., Inc. ("Macy's") since September 1992.
Prior to September 1992, Mrs. Michelson had been Senior Vice President of
Macy's since 1981. Mrs. Michelson had been associated with Macy's since
1947. In January 1992, Macy's filed a voluntary petition under Chapter 11
of the U.S. Bankruptcy Code. Mrs. Michelson first became a Director of
the Corporation in 1974. Mrs. Michelson is also a Director of Macy's,
General Electric Company, The Goodyear Tire and Rubber Company, Quaker
Oats Company and The Stanley Works, Inc. Mrs. Michelson is a Governor of
the American Stock Exchange and is Chairman-Emeritus of the Board of
Trustees of Columbia University.
Dean R. O'Hare 51
Chairman and Chief Executive Officer of the Corporation since June 1988.
Prior to his election as Chairman, Mr. O'Hare had been President since
1986, an Executive Vice President since 1985 and a Senior Vice President
since 1979. He is Chairman and President of Federal, Vigilant and Great
Northern, and Chairman of Pacific, Chubb & Son Inc., Bellemead and Chubb
Life. Mr. O'Hare has been associated with Chubb & Son Inc. since 1963. He
first became a Director of the Corporation in 1984.
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NAME AGE(1)
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Ernesta G. Procope 65
President and Chief Executive Officer, E. G. Bowman Co., Inc., an
insurance brokerage firm. Mrs. Procope has been associated with E. G.
Bowman Co., Inc. since 1953. She first became a Director of the
Corporation in 1977. Mrs. Procope is also a Director of Avon Products,
Inc. and The Columbia Gas System, Inc. Mrs. Procope is a Trustee of
Adelphi University and Cornell University.
Warren B. Rudman 63
Partner, Paul, Weiss, Rifkind, Wharton & Garrison, attorneys, since
January 5, 1993. Prior to January 5, 1993, Senator Rudman had been a
United States Senator from New Hampshire since 1980. Senator Rudman first
became a Director of the Corporation in 1993. He is also a Director of
Dreyfus Corporation and Raytheon Company. Senator Rudman is also Vice
Chairman of the President's Foreign Intelligence Advisory Board and of
the Federal Reserve Bank of Boston, Co- Chairman of the Concord Coalition
and a Trustee of Boston College and serves on the Senior Advisory Board
of the Institute of Politics of the John F. Kennedy School of Government
at Harvard University.
Sir David G. Scholey, CBE 58
Chairman, S. G. Warburg Group plc, an investment banking firm, since
1985. He first became a Director of the Corporation in 1991. Sir David is
also a Director of S. G. Warburg Group plc, Bank of England, British
Telecommunications plc and the General Electric Company, plc. Sir David
is a Governor of the British Broadcasting Corporation, the National
Institute of Economic and Social Research and the London School of
Economics and Political Science, and a Trustee of the Glyndebourne Arts
Trust and The National Portrait Gallery.
Lawrence M. Small 52
President and Chief Operating Officer, Federal National Mortgage
Association ("Fannie Mae") since February 1992. Prior to September 1991,
when Mr. Small started with Fannie Mae, he had served as Vice Chairman
and Chairman of the Executive Committee, Citicorp and Citibank, N.A.
since January 1990. Prior to assuming that position, Mr. Small had been
Sector Executive since 1985, responsible for Citicorp's and Citibank's
Institutional Bank, which manages their global corporate banking
activities. He had been associated with Citibank since 1964. He first
became a Director of the Corporation in 1989. Mr. Small is a Director of
Fannie Mae and Paramount Communications, Inc. Mr. Small is also a Trustee
of Morehouse College and New York University Medical Center and
Trustee-Emeritus of Brown University.
Richard D. Smith 65
President of the Corporation. Prior to becoming President in June 1988,
Mr. Smith had been an Executive Vice President since 1986 and a Senior
Vice President since 1983. Mr. Smith had also served as President of
Chubb & Son Inc. from 1986 through 1993. He is also a Managing Director
of Chubb & Son Inc. and a Senior Vice President of Federal. Mr. Smith has
been associated with Chubb & Son Inc. since 1952. He first became a
Director of the Corporation in 1989.
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NAME AGE(1)
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Robert G. Stone, Jr. 71
Chairman, Kirby Corporation since 1983. He first became a Director of the
Corporation in 1972. Mr. Stone is a Director of Kirby Corporation, Core
Industries, Inc., Corning, Inc., First Boston Investment Funds, Inc., BHP
Company, The Japan Fund, Inc., NovaCare, The Pittston Company, Russell
Reynolds Associates, Inc., Scudder Gold Fund, Inc., Scudder International
Fund, Inc., Scudder New Asia Fund, Inc., Tandem Computers, Incorporated
and Tejas Gas Corporation. He is also a Fellow of Harvard College.
Richard D. Wood 67
Former Chairman of the Board, Eli Lilly and Company from 1973 until his
retirement in June 1993. Mr. Wood also served as President and Chief
Executive Officer until November 1991. Eli Lilly and Company is a
research-based corporation that develops, manufactures and markets
pharmaceuticals, medical instruments, diagnostic products and animal
health products. Mr. Wood had been associated with Eli Lilly and Company
since 1950. He first became a Director of the Corporation in 1990. Mr.
Wood is a Director of Eli Lilly and Company, Amoco Corporation, Chemical
Banking Corporation, Chemical Bank and Dow Jones & Company, Inc. He is
Vice Chairman of the Advisory Board of CID Equity Partners and is also a
Trustee of DePauw University, the Indianapolis Museum of Art and Chairman
of the Indiana State Symphony Society.
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(1) As of April 26, 1994.
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BENEFICIAL SHARE OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table lists beneficial ownership of the Corporation's Common
Stock by Directors, the Chief Executive Officer, the four most highly
compensated executive officers other than the Chief Executive Officer, and
Directors and executive officers as a group in accordance with the definitions
adopted by the Securities and Exchange Commission under Rule 13d-3 of the
Securities Exchange Act of 1934, as amended. No Director or officer beneficially
owns as much as one half of 1% of the outstanding Common Stock, except for Mr.
Chubb, whose beneficial ownership reflected in the table is 1.5%.
NUMBER OF
SHARES OF
COMMON STOCK
BENEFICIALLY
OWNED
MARCH 7,
NAME 1994(1)
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John C. Beck.......................................... 30,691(2)
Percy Chubb, III...................................... 1,381,390(3)(17)(18)
Joel J. Cohen......................................... 12,450(6)
Henry U. Harder....................................... 58,222(5)(8)
Robert V. Lindsay..................................... 13,350(7)
Thomas C. MacAvoy..................................... 10,450(5)
Gertrude G. Michelson ................................ 12,450(7)
Dean R. O'Hare........................................ 96,432(9)(17)(18)
Ernesta G. Procope.................................... 13,704(7)(11)
Warren B. Rudman...................................... 2,100(4)
Sir David G. Scholey, CBE............................. 4,150(12)
Lawrence M. Small .................................... 10,400(6)(13)
Richard D. Smith...................................... 51,543(14)(17)(18)
Robert G. Stone, Jr. ................................. 19,950(7)(15)
Richard D. Wood....................................... 6,500(5)
Michael O'Reilly...................................... 26,607(10)(18)
John F. Swope......................................... 63,433(16)(17)(18)
Directors and Executive Officers as a group .......... 2,035,533(19)
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(1) Each person has sole voting and investment power with respect to the
shares listed, unless otherwise indicated.
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(2) Includes 18,691 shares held in accounts managed by Beck, Mack & Oliver,
of which Mr. Beck disclaims beneficial ownership, and 10,000 shares that may be
purchased within 60 days pursuant to The Chubb Corporation Stock Option Plan for
Non-Employee Directors (1992).
(3) Includes 112,450 shares held by trusts for Mr. Chubb's benefit, 9,542
shares owned by a member of Mr. Chubb's family who lives in his home, 1,404
shares held in trusts of which a member of Mr. Chubb's family who lives in his
home is trustee, 1,107,151 shares owned by the Victoria Foundation Inc., of
which Mr. Chubb is President and one of thirteen trustees, 21,350 shares which
Mr. Chubb has the right to purchase within 60 days under the Stock Option Plan
(1984) and The Chubb Corporation Long-Term Stock Incentive Plan (1992) and 290
shares which Mr. Chubb has the right to purchase within 60 days under the Stock
Purchase Plan (1989). Mr. Chubb disclaims beneficial ownership of 1,118,097 of
such shares.
(4) Includes 2,000 shares that may be purchased within 60 days pursuant to
The Chubb Corporation Stock Option Plan for Non-Employee Directors (1992).
(5) Includes 6,000 shares that may be purchased within 60 days pursuant to
The Chubb Corporation Stock Option Plan for Non-Employee Directors (1992).
(6) Includes 8,000 shares that may be purchased within 60 days pursuant to
The Chubb Corporation Stock Option Plan for Non-Employee Directors (1992).
(7) Includes 12,000 shares that may be purchased within 60 days pursuant to
The Chubb Corporation Stock Option Plan for Non-Employee Directors (1992).
(8) Includes 4,000 shares held in a trust of which Mr. Harder is a trustee
and 3,602 shares owned by a member of Mr. Harder's family who lives in his home.
Mr. Harder disclaims beneficial ownership of all of such shares.
(9) Includes 480 shares held by Mr. O'Hare as custodian for his children
who live in his home, 38,942 shares which Mr. O'Hare has the right to purchase
within 60 days under the Stock Option Plan (1984) and The Chubb Corporation
Long-Term Stock Incentive Plan (1992) and 290 shares which Mr. O'Hare has the
right to purchase within 60 days under the Stock Purchase Plan (1989). Mr.
O'Hare disclaims beneficial ownership of 480 of such shares.
(10) Includes 19,400 shares which Mr. O'Reilly has the right to purchase
within 60 days under the Stock Option Plan (1984) and The Chubb Corporation
Long-Term Stock Incentive Plan (1992).
(11) Includes 314 shares held by Mrs. Procope under the Corporation's
Dividend Reinvestment Plan.
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(12) Includes 50 shares owned by a member of Sir David Scholey's family who
lives in his home, of which Sir David disclaims beneficial ownership, and 4,000
shares that may be purchased within 60 days pursuant to The Chubb Corporation
Stock Option Plan for Non-Employee Directors (1992).
(13) Includes 1,400 shares owned by a member of Mr. Small's family who
lives in his home. Mr. Small disclaims beneficial ownership of all of such
shares.
(14) Includes 11,500 shares which Mr. Smith has the right to purchase
within 60 days under the Stock Option Plan (1984) and The Chubb Corporation
Long-Term Stock Incentive Plan (1992).
(15) Includes 4,500 shares held in a trust of which Mr. Stone is a trustee
and a beneficiary and 3,000 shares owned by a member of Mr. Stone's family who
lives in his home. Mr. Stone disclaims beneficial ownership of 3,000 of such
shares.
(16) Includes 27,000 shares which Mr. Swope has the right to purchase
within 60 days under the Stock Option Plan (1984) and The Chubb Corporation
Long-Term Stock Incentive Plan (1992) and 290 shares which Mr. Swope has the
right to purchase within 60 days under the Stock Purchase Plan (1989).
(17) Includes 4,955, 8,029, 6,533 and 3,983 shares which Messrs. Chubb,
O'Hare, Smith and Swope, respectively, may acquire within 60 days by the
conversion of convertible debentures issued pursuant to The Chubb Corporation
Long-Term Stock Incentive Plan (1992).
(18) Includes 736, 736, 739, 736 and 615 shares which were allocated to
Messrs. Chubb, O'Hare, O'Reilly, Smith and Swope, respectively, pursuant to The
Chubb Corporation Employee Stock Ownership Plan (the "ESOP").
(19) Such shares include the shares reflected above as to which Messrs.
Beck, Chubb, Harder, O'Hare, Scholey, Small and Stone disclaim beneficial
ownership, 10,525 shares which executive officers other than those listed in the
table above disclaim beneficial ownership, 6,489 shares which were allocated to
executive officers other than those listed in the table above pursuant to the
ESOP, 103,948 shares which executive officers other than those listed in the
table above have the right to purchase within 60 days under the Stock Option
Plan (1984) and The Chubb Corporation Long-Term Stock Incentive Plan (1992),
1,920 shares which executive officers other than those listed in the table above
have the right to purchase within 60 days under the Stock Purchase Plan (1989),
4,269 shares which executive officers other than those listed in the table above
have the right to acquire within 60 days by conversion of convertible debentures
issued pursuant to The Chubb Corporation Long-Term Stock Incentive Plan (1992)
and 6,377 shares represented by 1,271 units in the Corporation Stock Fund of the
Capital Accumulation Plan which are beneficially owned by five executive
officers other than those listed in the table above, and shares owned by Messrs.
Emil Mosbacher, Jr. and Frederic L.
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Rockefeller, two Directors not standing for re-election having reached mandatory
retirement age. Mr. Mosbacher beneficially owned 20,500 shares of Common Stock
including 2,000 shares which he has the right to acquire within 60 days pursuant
to The Chubb Corporation Stock Option Plan for Non-Employee Directors (1992) and
4,000 shares held by the Emil Mosbacher, Jr. Foundation, of which Mr. Mosbacher
is an officer and trustee. Mr. Rockefeller beneficially owned 12,450 shares of
Common Stock including 12,000 shares which he has the right to acquire within 60
days pursuant to The Chubb Corporation Stock Option Plan for Non-Employee
Directors (1992). All Directors and Executive Officers as a group own 2.3% of
the outstanding Common Stock.
Messrs. Cohen, Scholey and Small and Mrs. Procope are each affiliated with
organizations that did business with the Corporation and its subsidiaries during
1993. See "Compensation Committee Interlocks and Insider Participation" and
"Transactions with Directors and Their Associates".
CERTAIN SHAREHOLDERS
As of March 7, 1994, Sun Alliance Group plc ("Sun Alliance") (at 1
Bartholomew Lane, London, EC2N 2AB, England) held 4,491,958 shares of Common
Stock of the Corporation (approximately 5.1% of the outstanding Common Stock at
March 7, 1994). Sun Alliance has reported that it holds such shares for the
purpose of investment.
The Board of Directors knows of no other beneficial owner of five percent
or more of the Corporation's Common Stock nor does it know of any arrangement
which may at a subsequent date result in a change in control of the Corporation.
See "Transactions with Certain Shareholders".
AUDIT, ORGANIZATION & COMPENSATION AND NOMINATING COMMITTEES
The Board of Directors has an Audit Committee, an Organization &
Compensation Committee and a Nominating Committee.
The Audit Committee is composed of Messrs. Small (Chairman), Mosbacher (a
Director not standing for re-election), Scholey and Wood and Mmes. Michelson and
Procope. No officer of the Corporation or of any of its subsidiaries may serve
on the Audit Committee. In 1993, the Committee met four times. The functions of
the Audit Committee include reviewing the accounting principles and practices
employed by the Corporation and, to the extent the Committee deems appropriate,
of the Corporation's subsidiaries; meeting with the Corporation's independent
auditors to review their reports on their audits of the Corporation's accounts,
their comments on the internal accounting controls and internal audit procedures
of the Corporation and the action taken by management with regard to such
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comments; and recommending annually to the Board of Directors the appointment of
the Corporation's independent auditors. The Committee has the power at its
discretion to order interim and surprise audits and to perform such other duties
as may be assigned to it from time to time by the Board of Directors.
The Organization & Compensation Committee is composed of Messrs. Lindsay
(Chairman), Cohen, Small and Wood and Mrs. Michelson. No officer of the
Corporation or any of its subsidiaries may serve on the Organization &
Compensation Committee. In 1993, the Committee met five times. The Committee
monitors the performance and oversees the promotion of the senior executive
officers of the Corporation and its principal operating subsidiaries and
periodically consults with the Chief Executive Officer and other members of
senior management regarding the development of qualified replacements to succeed
key executives and other aspects of succession planning. The Committee
determines overall compensation policy for senior management of the Corporation,
recommending to the Board of Directors new compensation programs or changes in
existing programs which the Committee finds appropriate. Any action to be taken
with regard to the salary of any employee of the Corporation or any of its
subsidiaries, which is in excess of certain amounts, is subject to ratification
by the Committee. In addition, the Committee performs functions pursuant to The
Chubb Corporation Director's Charitable Award Program, The Chubb Corporation
Long-Term Stock Incentive Plan (1992) (the "Long-Term Stock Incentive Plan"),
the Annual Incentive Compensation Plan (1984), The Chubb Corporation Investment
Department/Chubb Asset Managers, Inc. Incentive Compensation Plan, the Stock
Purchase Plan (1989) and the Stock Option Plan (1984) and ratifies certain
awards made pursuant to incentive or bonus plans of subsidiaries of the
Corporation.
The Nominating Committee is composed of Mrs. Michelson (Chairperson) and
Messrs. Cohen and Lindsay. The Committee seeks out, evaluates and recommends
qualified nominees for election as Directors and makes recommendations
concerning the size and composition of the Board. In 1993, the Committee met
once. The Committee will consider Shareholder recommendations for Director upon
receipt of appropriate biographical information and confirmation of the proposed
nominee's bona fide intent to serve on the Board of Directors if nominated and
elected. For additional information on this process, Shareholders should write
to Henry G. Gulick, Vice President and Secretary, The Chubb Corporation, 15
Mountain View Road, P.O. Box 1615, Warren, New Jersey 07061-1615.
DIRECTORS' ATTENDANCE
In fiscal year 1993, there were five meetings of the Board of Directors of
the Corporation. All of the incumbent Directors attended 75% or more of the
aggregate of their respective Board and Committee meetings, except for Senator
Rudman and Sir David Scholey, whose attendance was 63% and 44%, respectively.
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DIRECTORS' COMPENSATION
All Directors of the Corporation are also directors of three of the
Corporation's subsidiaries: Federal, Vigilant and Chubb Life. Certain of the
Corporation's Directors are also directors of other subsidiaries of the
Corporation. It is the practice of the Corporation's Board of Directors to hold
concurrent meetings with the Boards of Directors of Federal, Vigilant and Chubb
Life.
Each Director receives an annual stipend in the amount of $25,000, all of
which is paid by the Corporation. In addition, a meeting fee of $1,000 is paid
to Directors for each meeting of the Board of Directors attended, of which the
Corporation, Federal, Vigilant and Chubb Life each pay $250. Directors receive a
fee of $1,000 for each Committee meeting attended. In those instances where
Committees of the Corporation, Federal, Vigilant and Chubb Life meet
concurrently, each shares proportionately in the payment of the fee. In
addition, members of the Finance Committee, the Executive Committee, the
Organization & Compensation Committee, the Audit Committee and the Pension and
Profit Sharing Committee receive an annual stipend from the Corporation of
$5,000. The Chairmen of the Audit Committee and of the Organization &
Compensation Committee receive annual stipends from the Corporation of $10,000
for service on those committees in lieu of the foregoing committee stipends.
Members of the Life Advisory Committee of Chubb Life receive an annual stipend
of $5,000 in addition to a fee of $1,000 for each Committee meeting attended,
both of which are paid by Chubb Life. Directors who are officers of the
Corporation receive meeting fees for attendance at Directors' meetings only and
do not receive stipends or fees for Committee meetings.
For the year 1993, Messrs. Chubb, Harder and O'Hare also received
directors' fees from certain subsidiaries of the Corporation totalling $2,000,
$4,500 and $2,000, respectively.
Pursuant to the Deferred Compensation Plan for Non-Employee Directors
adopted by the Corporation in 1987, Directors may elect to defer, until a date
specified, receipt of all or a portion of their compensation. This plan provides
that, in addition to a Cash Account upon which amounts deferred earn interest
compounded quarterly, at the prime rate of Citibank, N.A. in effect on certain
specified dates, amounts deferred may also be allocated to a Market Value
Account, the value of which is based upon the market value of the Corporation's
Common Stock from time to time, a Shareholder's Equity Account, the value of
which is based upon the book value of the Corporation's Common Stock established
on an annual basis, or a combination of such accounts. At March 7, 1994,
deferred compensation accounts were maintained for seven Directors, six of whom
are currently deferring compensation pursuant to this plan. For 1993, Directors
deferred receipt of $315,000 of compensation from the Corporation and its
subsidiaries. At December 31, 1993, the aggregate account values reflecting
11
14
Directors' deferrals and earnings on such deferrals were as follows: $1,857,876
for the Market Value Account, $481,022 for the Shareholder's Equity Account and
$16,361 for the Cash Account.
DIRECTOR'S CHARITABLE AWARD PROGRAM
Effective January 1, 1992, the Corporation established the Director's
Charitable Award Program. Under the Program, which is administered by the
Organization & Compensation Committee, each non-employee Director following his
or her first election to the Board of Directors by Shareholders may recommend
that the Corporation direct one or more charitable contributions totalling
$500,000 to eligible tax exempt organizations. Generally, eligible Directors are
paired, and contributions are made to the organizations selected by a Director
upon the death of the second paired Director. At March 7, 1994, all eligible
Directors were participating in the Program. The Program may be funded by the
Corporation through, among other vehicles, the purchase of life insurance
policies on the lives of the Directors. Individual Directors derive no financial
benefit from this Program since all charitable deductions accrue solely to the
Corporation. The Program may be terminated at any time by the Organization &
Compensation Committee.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The Chubb Corporation Stock Option Plan for Non-Employee Directors (1988)
was adopted by the Board of Directors and approved by Shareholders in 1988 and
was amended, extended and renamed The Chubb Corporation Stock Option Plan for
Non-Employee Directors (1992) (the "1992 Non-Employee Directors Plan") by the
Board of Directors and approved by Shareholders in 1992. The 1992 Non-Employee
Directors Plan provides that an aggregate of 300,000 shares of Common Stock of
the Corporation are available for issuance upon exercise of options granted
thereunder. The 1992 Non-Employee Directors Plan shall terminate on the day
following the 1996 Annual Meeting of Shareholders.
The 1992 Non-Employee Directors Plan is administered by the Board of
Directors. Only Eligible Directors, as defined, are eligible for grant of
options under the 1992 Non-Employee Directors Plan. There are currently fourteen
Eligible Directors. As of the date of each Annual Meeting that occurs while the
1992 Non-Employee Directors Plan is in effect, each individual who is then an
Eligible Director will be granted an option to purchase 2,000 shares of Common
Stock of the Corporation. The purchase price per share of the Common Stock
deliverable upon exercise of the option shall be 100% of the fair market value
per share of Common Stock on the day the option is granted.
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15
Options granted under the 1992 Non-Employee Directors Plan are nonstatutory
options. The options shall be exercisable in whole or in part at all times after
the date of grant. All outstanding options held by an optionee shall be
automatically cancelled upon termination of the optionee's service as an
Eligible Director, except for terminations due to retirement and under certain
other specified circumstances.
In the case of certain mergers, consolidations or combinations of the
Corporation with or into other corporations, or in the event of a Change of
Control of the Corporation, as defined, the holder of each option then
outstanding shall (unless the Board of Directors determines otherwise) have the
right to receive on the date or effective date of such event a cash payment in
an amount calculated as set forth in the 1992 Non-Employee Directors Plan.
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EXECUTIVE COMPENSATION AND CERTAIN TRANSACTIONS
I. SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
---------------------
AWARDS
----------
SECURITIES PAYOUTS ALL
ANNUAL COMPENSATION UNDERLYING -------- OTHER
-------------------------- OPTIONS/ LTIP COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) SARS(3) PAYOUTS(4) SATION(5)
- --------------------------------------- ----- -------- -------- ---------- -------- --------
Dean R. O'Hare......................... 1993 $735,270 $661,275 12,000 $250,113 $121,958
Chairman and Chief 1992 733,423 644,572 12,000 478,400 139,158
Executive Officer 1991 657,924 831,054 11,000 537,178 121,748
Richard D. Smith....................... 1993 477,308 499,277 8,200 175,079 80,873
President 1992 466,039 459,646 8,000 363,584 88,887
1991 422,270 591,205 7,500 358,140 79,163
Percy Chubb, III....................... 1993 326,001 269,285 4,500 100,045 48,897
Vice Chairman 1992 327,193 259,734 4,500 200,928 54,839
1991 302,155 369,429 4,500 227,890 52,873
John F. Swope.......................... 1993 244,231 241,526 4,000 84,450 38,094
Executive Vice President 1992 244,039 215,849 4,000 191,360 38,584
1991 223,462 254,898 3,800 211,649 19,780
Michael O'Reilly....................... 1993 253,178 144,432 4,500 60,000 44,425
Senior Vice President 1992 247,893 130,000 4,300 41,333 41,013
1991 220,678 128,323 4,200 11,666 32,725
- ---------------
(1) Includes directors fees for 1993, 1992 and 1991 of $7,000, $6,500 and $6,000
for Mr. O'Hare, $5,000, $4,500 and $4,000 for Mr. Smith and $7,000, $7,000
and $6,000 for Mr. Chubb.
(2) Includes for Messrs. O'Hare, Smith and Chubb amounts paid for such years
under the Annual Incentive Compensation Plan (1984) and for 1991 under the
Profit Sharing Plan of The Chubb Corporation, Chubb & Son Inc. and
Participating Affiliates (1987) (the "Profit Sharing Plan (1987)"), and for
1993 the special 1% payment detailed on page 23 and for Mr. Swope amounts
paid for such years under the Chubb LifeAmerica Incentive Compensation Plan
and The Profit Sharing Plan of Chubb America Service Corporation and
Participating Affiliates and for Mr. O'Reilly amounts paid for such years
under the annual segment of The Chubb Corporation Investment
Department/Chubb Asset Managers, Inc. Incentive Compensation Plan (the
"Investment Department Incentive Plan") and for 1991 under the Profit
Sharing Plan (1987) and for 1993
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the special 1% payment detailed on page 23 and also includes for Messrs.
O'Hare, Smith, Chubb and Swope amounts paid for such years in settlement of
equity share awards under the Long-Term Stock Incentive Plan. Payments in
settlement of equity share awards were made partly in cash and partly in
convertible debentures. The convertible debentures are subordinated to the
Corporation's other indebtedness, and are convertible into shares of the
Corporation's Common Stock at a conversion price which is equal to the fair
market value of such stock on the date of issuance of the convertible
debenture. The debentures have a ten year term and bear a market rate of
interest fixed on the date of issuance. If the executive terminates
employment prior to five years after the issuance of a debenture, the
debenture, or the shares if conversion has occurred, are forfeited except
for certain specified terminations. The debentures are nontransferable
except in the event of death. Shares received upon conversion are also
nontransferable (except in the case of death) for a period of five years
after the date of conversion. Amounts reported for 1991 and 1992 have been
restated to reflect equity share award amounts previously reported under the
"LTIP Payouts" column.
(3) Includes options granted in such years under the Long-Term Stock Incentive
Plan.
(4) Includes for Messrs. O'Hare, Smith, Chubb and Swope payments made in
settlement of performance share awards for the three year periods ended
December 31, 1991, 1992 and 1993 under the Long-Term Stock Incentive Plan.
Payments for 1993 reflect an adjustment for the 1993 third quarter charge
described on page 21. The amounts reported for 1991 and 1992 have been
restated to reflect the deletion of the equity share award amounts
previously reported under the "LTIP Payouts" column and now included in the
"Bonus" column. For Mr. O'Reilly, includes deferred payments under the
long-term segment of the Investment Department Incentive Plan paid in 1991,
1992 and 1993 for performance periods ended December 31, 1987, 1988 and
1989, respectively.
(5) Includes allocations of $48,691, $52,147 and $46,987 for 1993, 1992 and 1991
under the qualified Capital Accumulation Plan and the Capital Accumulation
Plan benefit equalization plan for Mr. O'Hare, $32,053, $33,699 and $30,718
for Mr. Smith, $19,121, $21,193 and $20,633 for Mr. Chubb, $14,530 in 1993
and $14,761 in 1992 for Mr. Swope and $17,288, $16,143 and $12,880 for Mr.
O'Reilly and allocations of $73,267, $87,011 and $74,761 for 1993, 1992 and
1991 under the ESOP qualified plan and the ESOP excess plan for Mr. O'Hare,
$48,820, $55,188 and $48,445 for Mr. Smith, $29,776, $33,646 and $32,240 for
Mr. Chubb, $23,564, $23,823 and $19,780 for Mr. Swope, and $27,137, $24,870
and $19,845 for Mr. O'Reilly.
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II. OPTIONS/SAR GRANTS TABLE
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZED
--------------------------------------------------- VALUE
% OF AT ASSUMED ANNUAL
TOTAL RATES
NUMBER OF OPTIONS/ OF STOCK PRICE
SECURITIES SARS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(3)
OPTIONS/ EMPLOYEES OR BASE ---------------------
SARS IN FISCAL PRICE EXPIRATION
NAME GRANTED(1) YEAR(2) PER SHARE DATE 5% 10%
- ---------------------------- ----------- ----------- --------- -------------- -------- ----------
Dean R. O'Hare.............. 12,000 1.77% $ 83.5625 June 9, 2003 $630,624 $1,598,125
Richard D. Smith............ 8,200 1.21 $ 83.5625 June 9, 2003 430,926 1,092,052
Percy Chubb, III............ 4,500 .66 $ 83.5625 June 9, 2003 236,484 599,297
John F. Swope............... 4,000 .59 $ 83.5625 June 9, 2003 210,208 532,708
Michael O'Reilly............ 4,500 .66 $ 83.5625 June 9, 2003 236,484 599,297
- ---------------
(1) The number of shares for each person represents a stock option granted under
the Long-Term Stock Incentive Plan without a related stock appreciation
right. These options are exercisable for 50% of the number of shares shown
on June 11, 1994 and 50% on June 11, 1995. The exercise price for each stock
option is the fair market value of the Corporation's Common Stock on the
date of grant.
(2) Based on total grants during the year of 678,461 shares.
(3) The assumed 5% and 10% annual rates of stock price appreciation used in the
table are prescribed by the proxy rules and are not intended to forecast
possible future appreciation in the price of the Corporation's Common Stock.
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III. AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END
OPTION/SAR VALUE TABLE
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY-END AT FY-END(1)
------------- --------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- --------------------------- --------------- -------- ------------- --------------------
Dean R. O'Hare............. 0 0 38,942/18,000 $ 964,675/$68,625
Richard D. Smith........... 0 0 11,500/12,200 91,688/ 45,750
Percy Chubb, III........... 4,000 $170,405 21,350/ 6,750 661,031/ 25,734
John F. Swope.............. 4,500 316,406 27,000/ 6,000 959,831/ 22,875
Michael O'Reilly........... 1,400 78,050 19,400/ 6,650 592,317/ 24,591
- ---------------
(1) Based on a value per share at December 31, 1993 of $78.1875.
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IV. LONG-TERM INCENTIVE PLAN AWARDS TABLE
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
PERFORMANCE OR ESTIMATED FUTURE PAYOUTS
NUMBER OF OTHER PERIOD UNDER NON-STOCK PRICE-BASED
SHARES, UNITS UNTIL PLANS (UNITS OR $)
OR OTHER MATURATION OR -----------------------------
NAME RIGHTS(1) PAYOUT THRESHOLD TARGET MAXIMUM
- ------------------------------------ ------------- -------------- --------- ------- -------
Dean R. O'Hare...................... 4,000 1993-95 2,000 4,000 6,000
Richard D. Smith.................... 2,700 1993-95 1,350 2,700 4,050
Percy Chubb, III.................... 1,350 1993-95 675 1,350 2,025
John F. Swope....................... 1,400 1993-95 700 1,400 2,100
Michael O'Reilly.................... 1,200 1993-95 600 1,200 1,800
$80,000(2) 1993-96 -- $80,000 --
- ---------------
(1) Includes performance share awards granted under the Corporation's Long-Term
Stock Incentive Plan in 1993 with respect to the three year performance
cycle ending December 31, 1995. The number of shares earned is dependent on
the achievement of a specified earnings per share target established by the
Organization & Compensation Committee for the three year period. Settlement
of the awards may be in shares or cash or a combination of both in the
discretion of the Organization & Compensation Committee. Pursuant to
recently proposed regulations under Section 162(m) of the Internal Revenue
Code (the "Code"), since these awards were granted after February 17, 1993,
under agreements that do not satisfy all of the requirements of these
regulations, payments of these awards to "covered employees" earning in
excess of $1 million would not qualify for tax deductibility. Accordingly,
these awards were cancelled and replaced on March 3, 1994 with revised
performance share awards having a two year cycle ending December 31, 1995
which are intended to qualify for deductibility under Section 162(m) of the
Code.
(2) Includes for Mr. O'Reilly a deferred award granted in 1993 under the
Long-Term Segment of the Investment Department Incentive Plan. This award is
based on investment results for the five year period ended December 31, 1992
and is scheduled to be paid in 1996.
Notwithstanding anything to the contrary set forth in any of the
Corporation's previous filings under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, the following
Performance Graph and the Organization & Compensation Committee Report on pages
20 through 26 shall not be incorporated by reference into any such filings.
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21
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG THE CORPORATION'S COMMON STOCK,
THE STANDARD & POOR'S 500 STOCK INDEX AND THE STANDARD & POOR'S
PROPERTY AND CASUALTY INDEX
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) CHUBB S&P 500* S&P P&C*
--------------------- ----- -------- --------
1988 100 100 100
1989 169 132 146
1990 198 128 143
1991 288 166 179
1992 339 179 209
1993 303 197 206
- ---------------
* Assumes that the investment in the Corporation's Common Stock and each index
was $100 on December 31, 1988 and that all dividends were reinvested.
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ORGANIZATION & COMPENSATION COMMITTEE REPORT
EXECUTIVE OFFICER COMPENSATION POLICIES
The Corporation's executive compensation program is designed to align
Shareholder interests with business strategy, company values and management
initiatives. It is based on the following four principles: (i) to link the
interests of management with those of Shareholders by making a substantial
portion of executive compensation depend upon the Corporation's financial
performance and by encouraging stock ownership in the Corporation, (ii) to
attract and retain superior executives by providing them with the opportunity to
earn total compensation packages that are among the most competitive in the
industry, (iii) to reward individual results by recognizing performance through
salary, annual cash incentive and long-term incentives, and (iv) to manage
compensation based on the level of skill, knowledge, effort and responsibility
needed to perform the job successfully.
The keystone of the Corporation's compensation program is to pay for
performance. Other than base salary, all major elements of the Corporation's
executive compensation program vary directly with both corporate and individual
performance. A position evaluation program establishes grade levels among all
positions reflecting the importance and value of each position to the
Corporation. A position's grade level determines a range of values within which
the executive's compensation is administered.
Executive officers' compensation includes: annual cash compensation
(consisting of base salary and annual incentive awards paid in cash) and
long-term incentive awards, as well as additional features which are available
to most other employees of the Corporation and its subsidiaries including profit
sharing plans, pension plans, a stock purchase plan and an employee stock
ownership plan, all of which allocate payments generally based on an
individual's level of annual cash compensation.
In 1993, the Organization & Compensation Committee of the Board of
Directors (the "Committee") engaged an independent compensation consulting firm
for an assessment of the appropriateness and effectiveness of the Corporation's
executive compensation program. The consultant concluded that the program is
effective in linking executives' and Shareholders' interests and that the
overall compensation program is competitive and supports the Corporation's
compensation strategy.
It is the general policy of the Corporation that executive officer
compensation qualify for tax deductibility under the recently proposed
regulations under Section 162(m) of the Internal Revenue Code, which was added
by the 1993 Omnibus Budget Reconciliation Act ("OBRA"). Under Section 162(m),
which became effective January 1, 1994, in order to qualify for tax
deductibility, payment of compensation in excess of $1 million to the chief
executive officer and the four other highest paid executive officers must be
made in accordance with performance criteria disclosed to and approved by
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23
Shareholders and pursuant to pre-established arrangements which, among other
things, limit the exercise of discretion to increase the awards beyond the
limits initially set. The Committee believes that mathematical formulas cannot
always anticipate and fairly address every situation which may arise. For this
reason, the Committee has historically retained the authority to adjust
compensation awarded in light of extraordinary, unusual or non-recurring events.
The Committee continues to believe that this reservation of authority, and its
exercise under appropriate circumstances, operates in the best interests of the
Corporation and its Shareholders even though in exercising such authority,
compensation might not be deductible.
CONSIDERATIONS UNIQUE TO 1993
In 1993, the Corporation reported in the third quarter a net charge to
income of $357.5 million after taxes (the "third quarter charge") relating to
two unrelated events. First, the Corporation's subsidiary, Pacific Indemnity
Company, entered into agreements with Fibreboard Corporation, Continental
Casualty Corporation and attorneys representing claimants against Fibreboard to
settle asbestos-related litigation (the "Fibreboard settlement"). The Fibreboard
settlement relates to an insurance policy issued to Fibreboard Corporation by
Pacific Indemnity Company in 1956, more than ten years prior to the
Corporation's acquisition of Pacific Indemnity. Second, property and casualty
insurance subsidiaries of the Corporation intend to exercise their option to
commute a medical malpractice reinsurance agreement as of December 31, 1995
which will result in a return premium to these subsidiaries. Such return premium
was recognized in 1993. Because of the third quarter charge, the application of
formulas previously established under a number of the Corporation's incentive
compensation plans, specifically the Profit Sharing Plan (1987), the Annual
Incentive Compensation Plan (1984) and the performance share and equity
share/convertible debenture features of the Long-Term Stock Incentive Plan would
not have provided for any payments being made to most executive officers and
other employees of the Corporation and its subsidiaries in 1993. The Committee
believes that such a result is not appropriate in light of the outstanding
results achieved by the Corporation in 1993 excluding the third quarter charge.
Consequently, the Committee availed itself of the provisions of the plans
permitting the Committee to adjust plan formulas in recognition of unusual
events affecting the Corporation and in so doing reduced or eliminated the
effects of the third quarter charge. This reduction or elimination is detailed
below.
ANNUAL CASH COMPENSATION
Amounts paid as base salary, including merit salary increases, are
determined by the executive's performance, placement in the salary range
established for the executive's position and the salaries offered in the
industry for comparable positions. Outside independent consultants are
periodically used
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24
to gather and analyze industry comparisons of salary data to insure that the
salary ranges used in the compensation program are competitive for comparable
positions. The Committee monitors and approves changes in base salary for senior
executive officers (including the executive officers named in the Summary
Compensation Table). Promotional salary increases reflect the executive's
movement from one grade level to another and are granted when earned.
The Committee sets and approves the formulas which establish the amounts
available for annual incentive awards. In 1993, incentive awards paid to most
executive officers were determined under the Annual Incentive Compensation Plan
(1984). This formula measures the Corporation's performance, including combined
loss and expense ratio ("combined ratio"), net income and return on equity
against the results of an industry comparison group. Net income under this
formula is the Corporation's investment income arising from the property and
casualty insurance business and underwriting profit or loss from that business.
Each year the Committee approves goals for the combined ratio and net income
based on the outlook for business conditions that year. After the close of
business each year, the formula takes into account how well the Corporation
performed against its own goals and how well it performed against an industry
comparison group's average combined ratio and return on equity. Included in this
industry comparison group are those companies which comprise the Standard &
Poor's Property and Casualty Index used in the Performance Graph on page 19
(except for a reinsurance company included in this index) as well as seven other
insurance companies against which the Corporation has over time compared itself.
The annual incentive pool actually paid is determined by weighing the
combined ratio result as well as the net income and return on equity results to
generate a total award pool under the Plan. A percent is applied to the target
dollar award pool for each job grade to develop a final cash award pool. The
pool can range from 0% to 150% of the target dollar award for all participants
covered by the Plan.
Amounts actually paid for annual incentive awards to executives are based
on the executive's individual performance and salary grade midpoint. Where
applicable, individual performance is judged on the following considerations:
profit, growth, expense control, productivity, leadership, staff development,
diversity management, performance/compensation management, innovation,
collaboration and internal/external customer service. Awards are approved by the
Committee based upon recommendations by management after year end. Over the past
few years, annual cash compensation has been administered to slow the growth in
base salaries and place a greater proportion of the executive's annual cash
compensation at risk through the variable amounts available for an annual
incentive award.
As noted above, for 1993, the Committee, in accordance with the terms of
the Plan, modified the annual incentive award formula by eliminating the effect
of the third quarter charge from the formula.
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25
Awards payable to executive officers and other senior officers under this
modified formula were then reduced by amounts ranging from 10% to 30%, with the
most senior executives receiving the largest reductions.
The terms of the Profit Sharing Plan (1987) precluded a payment under the
plan for 1993. For the reasons set forth above and because the plan covers most
employees, the Committee determined that it was appropriate to provide all
eligible employees (including executive officers) with a one time payment equal
to an amount which would have been paid under the Profit Sharing Plan (1987) if
the third quarter charge was excluded from the plan's payment formula. The
amount of this bonus paid to employees was one percent (1%) of eligible employee
compensation.
Other annual cash incentive plans in which certain executive officers
participate include the Bellemead Development Corporation Incentive Compensation
Plan (the "Bellemead Incentive Plan"), the Chubb LifeAmerica Incentive
Compensation Plan (the "Chubb Life Incentive Plan"), and The Chubb Corporation
Investment Department/Chubb Asset Managers, Inc. Incentive Compensation Plan
(the "Investment Department Incentive Plan"). The Bellemead Incentive Plan and
the Chubb Life Incentive Plan are each based on a formula which measures the
achievement of actual net income against planned net income. The Investment
Department Incentive Plan provides both annual and long-term cash awards which
are competitive with those provided by similar financial institutions, including
property and casualty insurance companies and banks. Such awards are granted to
the Corporation's investment professionals and are based on results measured
against market indices which represent standards of investment performance
regularly used by investment analysts to compare and analyze the performance of
investment professionals responsible for managing a particular asset class. None
of these plans' formulas were adjusted because of the third quarter charge.
LONG-TERM INCENTIVE AWARDS
Long-term incentive awards are made under the Long-Term Stock Incentive
Plan. The Long-Term Stock Incentive Plan, which is administered by the
Committee, is an omnibus plan and provides stock based awards to eligible
employees which include most levels of management as well as the Corporation's
executive officers. The Plan was designed in consultation with a
nationally-recognized executive compensation consulting firm which periodically
provides advice with regard to the ongoing administration of the Plan. Awards
granted to executive officers include stock options, performance share awards,
restricted stock awards and equity share/convertible debenture awards.
Stock option awards are based on guidelines that provide for larger awards
commensurate with position level and that reflect competitive grant practices
within the insurance and financial services
23
26
industry. Included in this group are two of the six companies which comprise the
Standard & Poor's Property and Casualty Index, four additional insurance
companies against which the Corporation has over time compared itself, as well
as five banking institutions reflecting the fact that the Corporation, while
principally engaged in the business of insurance, also operates generally within
the financial services industry. The number of option shares granted to an
executive in any year may vary based upon the most recent assessment of the
executive's performance.
Performance share awards are generally granted annually and are earned
based on earnings per share targets or other selected corporate financial goals
for three year performance periods. As with options, the number of performance
shares granted is based on position level and the executive's most recent level
of performance. Payment values are dependent on the Corporation's stock price at
the end of the performance period, thus linking executives' interests directly
with Shareholders, as well as the achievement of selected corporate financial
goals. In 1993, a performance goal was established for the three year
performance period ending in 1995 reflecting a cumulative operating earnings per
share target for such period.
Restricted stock awards are generally granted as an alternative to
performance shares to a limited number of executive officers in positions
requiring specialized skills and knowledge that do not entail the broad
management responsibilities most appropriately tied to performance share grants.
With respect to equity share/convertible debenture awards, the Committee
approves a profit participation pool which historically has been less than
one-half of one percent of the Corporation's operating income above a ten
percent return on beginning equity. Certain percentage amounts of the pool are
allocated to selected senior corporate executives based on their potential
performance and long range contribution to the Corporation. As a consequence of
their participation in this program, these executives are subsequently granted
approximately 20% fewer stock options and performance share grants than they
otherwise would have received pursuant to established guidelines. Awards earned
are paid in the form of subordinated convertible debentures which are fully
forfeitable upon termination of employment within five years of issue for any
reason except death, disability or retirement.
For the reasons set forth above and because these awards are intended to
measure long-term performance, performance share and equity share awards earned
for periods ended December 31, 1993 were calculated by eliminating the effect of
the third quarter charge in determining operating income.
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27
CEO COMPENSATION
Mr. O'Hare is a participant in all of the aforementioned components of the
compensation program except restricted stock awards. The value of his
compensation from each component of the program is a direct reflection of both
his individual performance and the Corporation's performance as described below.
As was the case with all other employees, Mr. O'Hare's 1993 incentive
compensation was determined by reducing or eliminating the effects of the third
quarter charge.
Mr. O'Hare's salary was reviewed in March 1993 under the Corporation's
normal merit guidelines. Based upon the Committee's judgment that his
performance was excellent during the 15 month review period, Mr. O'Hare received
an increase of 5%. The principal performance criteria considered by the
Committee were the Corporation's key financial measures such as growth in
earnings per share, net income, operating income, return on equity and revenue
against established targets. Additional criteria considered were global
expansion, industry leadership, corporate citizenship and succession planning.
Mr. O'Hare's annual cash incentive award for 1993 was $475,000 which
represents a decrease of 5% from the incentive award paid for 1992 and is also
approximately 30% less than the amount initially considered for Mr. O'Hare after
eliminating the effects of the third quarter charge. This decrease is due
entirely to the Committee's judgment that reduced award amounts should be paid
to executive officers for 1993 reflecting a deterioration in underwriting
results during 1993 caused by the third quarter charge. Excluding the third
quarter charge, the Corporation achieved a combined loss and expense ratio of
99.0%, which outperformed the combined ratio average of 112.5% for the industry
comparison group referred to above under the discussion concerning Annual Cash
Compensation. In addition, excluding the third quarter charge, the Corporation
slightly exceeded its net income (as defined) goal and also achieved an
operating earnings return on equity of 12.9% which surpassed the industry
comparison group's average of 5.4%. The Committee determined that Mr. O'Hare's
leadership skills and financial management talent contributed substantially to
these results and reflected this in the incentive award paid to him.
In June 1993, Mr. O'Hare was granted 4,000 performance shares for the three
year performance period ending December 1995 as well as stock options for 12,000
shares. The Committee recognized that the Corporation experienced superior
financial performance in 1992 as measured by, among other things, the principal
performance criteria described above. The Committee decided to award grants that
were highly competitive within the insurance and financial services industry
described above under the general discussion concerning Long-Term Incentive
Awards. Each of the grants is near the top of the grant guideline range which
the Committee has established for Mr. O'Hare's position (after taking into
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28
account the approximately 20% reduction due to Mr. O'Hare's participation in the
equity share/convertible debenture award).
With respect to performance shares granted in June 1991 for the three year
performance period which ended December 1993, excluding the third quarter
charge, the cumulative earnings per share during this performance period was
slightly below the target established by the Committee in 1991. On this basis,
Mr. O'Hare earned performance shares having a value of $250,113 compared with
the performance share award payment made last year of $478,400.
Based on the Corporation's operating income (excluding the effect of the
third quarter charge), Mr. O'Hare was paid a gross equity share award of
$173,992 for 1993 results. This compares with his gross 1992 equity share award
of $144,572. After applying appropriate tax withholding, the net amount of the
award was reflected in the issuance to Mr. O'Hare of a ten year subordinated
convertible debenture in the amount of $90,476 bearing annual interest of 5.87%.
The Committee believes that the percentage of the profit participation pool
granted to Mr. O'Hare reflects his contribution to the Corporation's results and
directly relates to the financial interests of Shareholders, management and
employees.
Total compensation reported for Mr. O'Hare for 1993, including payment of
performance shares for the three year cycle ended December 31, 1993, was
$1,768,616 which is 11% less than his corresponding 1992 total compensation of
$1,995,553.
The foregoing report has been furnished by the following members of the
Board of Directors of the Corporation who constitute the Organization &
Compensation Committee:
Robert V. Lindsay (Chairman) Joel J. Cohen
G. G. Michelson Lawrence M. Small
Richard D. Wood
PENSION PROGRAM
Eligible employees of the Corporation and certain of its subsidiaries
participate in The Pension Plan of The Chubb Corporation, Chubb & Son Inc. and
Participating Affiliates (the "Pension Plan"). As in effect during 1993, the
Pension Plan provides to each such employee annual retirement income beginning
at age 65 equal to the product of (x) the total number of years of participation
in the Pension
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Plan (but not more than 35 years) and (y) the difference between (i) 1 3/4% of
average compensation for the five years in the last ten years of participation
prior to retirement during which the employee was most highly paid ("final
average earnings") and (ii) an amount related to the employee's primary Social
Security benefit.
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Internal Revenue Code of 1986, as amended (the "Code"), impose maximum
limitations on the annual amount of a pension which may be paid under a funded
defined benefit plan such as the Pension Plan. The Pension Plan complies with
these limitations. The Board of Directors adopted, effective as of January 1,
1976, an unfunded benefit equalization plan of the type permitted by ERISA which
will provide annual payments to persons who are participants under the Pension
Plan and their beneficiaries. Such payments will be equal to the difference
between (a) the benefits which would be payable to such persons under the
Pension Plan, without taking into consideration the limitations imposed by ERISA
and the Code, and (b) the maximum annual benefits to which such persons are
entitled under the Pension Plan by reason of such limitations.
The table which follows shows the estimated annual benefits payable upon
retirement to persons in specified remuneration and years-of-service
classifications under the Pension Plan and the unfunded benefit equalization
plan (referred to collectively as the "Pension Program"). The retirement
benefits shown are based upon retirement at the age of 65 and computed on the
basis of straight life annuity benefits. Such benefits, as shown in the
following table, are subject to an offset of an amount related to the primary
Social Security benefits in an amount approved by the Internal Revenue Service
in effect at the time of retirement.
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ESTIMATED ANNUAL RETIREMENT BENEFITS PAYABLE AT AGE 65
STRAIGHT LIFE ANNUITY BASIS
TO AN EMPLOYEE RETIRING IN 1994
YEARS OF CREDITED SERVICE
FINAL -------------------------------------------------------------------
AVERAGE 35 OR
EARNINGS 15 20 25 30 MORE
- ----------- -------- -------- -------- -------- ---------
$ 100,000 ............... $ 26,250 $ 35,000 $ 43,750 $ 52,500 $ 61,250
200,000 ............... 52,500 70,000 87,500 105,000 122,500
300,000 ............... 78,750 105,000 131,250 157,500 183,750
400,000 ............... 105,000 140,000 175,000 210,000 245,000
500,000 ............... 131,250 175,000 218,750 262,500 306,250
600,000 ............... 157,500 210,000 262,500 315,000 367,500
700,000 ............... 183,750 245,000 306,250 367,500 428,750
800,000 ............... 210,000 280,000 350,000 420,000 490,000
900,000 ............... 236,250 315,000 393,750 472,500 551,250
1,000,000 ............... 262,500 350,000 437,500 525,000 612,500
1,100,000 ............... 288,750 385,000 481,250 577,500 673,750
1,300,000 ............... 341,250 455,000 568,750 682,500 796,250
1,500,000 ............... 393,750 525,000 656,250 787,500 918,750
1,600,000 ............... 420,000 560,000 700,000 840,000 980,000
1,700,000 ............... 446,250 595,000 743,750 892,500 1,041,250
Remuneration covered by the Pension Program includes salary (including
salary contributed to the Capital Accumulation Plan of The Chubb Corporation,
Chubb & Son Inc. and Participating Affiliates), overtime and awards under the
Annual Incentive Plan (1984), the Bellemead Incentive Plan, the Chubb Life
Incentive Plan, the Investment Department Incentive Plan and the Profit Sharing
Plan (1987) in the year paid rather than the year earned and, effective January
1, 1992, includes awards under the Bellemead Profit Sharing Plan and the Chubb
Life Profit Sharing Plan.
With respect to the individuals named in the Summary Compensation Table on
page 14, Messrs. Chubb, O'Hare, O'Reilly, Smith and Swope have 34, 26 1/2, 23,
35 and 29 years of credited service, respectively, and their 1993 remuneration
for purposes of the Pension Program was $489,001, $1,228,270, $443,178, $812,308
and $385,302, respectively. Upon reaching age 65, pursuant to the terms
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of the plan, Mr. Smith received a lump sum payment of his accrued benefit under
the benefit equalization plan on December 1, 1993.
EXECUTIVE SEVERANCE AGREEMENTS
Pursuant to a recommendation by the Organization & Compensation Committee
and authorization by the Board of Directors, the Corporation has in force
severance agreements with five executive officers of the Corporation. Each
agreement becomes operative only upon a "Change in Control" that occurs when the
officer is in the employ of the Corporation. Under the agreements, a "Change in
Control" occurs if (a) following a tender or exchange offer for voting
securities of the Corporation, a proxy contest for election of the directors, or
a merger or consolidation or sale of all or substantially all of its business or
assets, its directors immediately prior to such event cease to constitute a
majority of the Board of Directors when such event occurs or within one year
thereafter or (b) any person or group acquires 25% or more of the outstanding
voting securities of the Corporation without prior approval by a majority of the
directors then in office. Such agreements have an initial term of two years and
are automatically extended for successive two-year periods unless the
Corporation gives one year's prior notice that it is terminating an agreement at
the end of the then current two-year period.
If a change in control occurs and the officer's employment with the
Corporation terminates within two years thereafter (other than by reason of
death, disability, retirement at normal retirement age, discharge for cause, or
voluntary termination by the officer except for Good Reason), the officer
becomes entitled to the severance benefits described below. Termination for
"Good Reason" means termination because of, among other things, the involuntary
assignment of such officer to duties inconsistent with his position prior to
such change in control; reduction of the officer's base salary or bonus; the
Corporation acting with adverse effect upon the officer's benefits under any
benefit plans in which he is participating at the time of such change in
control; or a determination made by the officer in good faith that as a result
of such change in control the officer cannot discharge his duties effectively.
Upon such termination, the officer's severance benefits shall equal a
multiple of the sum of (i) one year's salary at the annual rate in effect at the
time of the change in control and (ii) the average of the officer's annual
awards under the Corporation's, Bellemead's and Chubb Life's incentive
compensation plans for the three years preceding such change in control. The
multiple is four in the case of Mr. O'Hare and two in the case of the other
officers. Also, the Corporation must maintain in force the insurance and
disability benefits available to the officer immediately prior to the change in
control, or their equivalents, for two years after such termination or until the
earlier commencement of new, full-time employment by the officer. The officer is
not required to mitigate the amount of any payments by
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seeking other employment. The Corporation must pay all legal fees and expenses
incurred by the officer as a result of such termination, including any incurred
in seeking to enforce the severance agreement.
As of March 7, 1994, payments to the officers with whom the Corporation has
severance agreements would have been as follows: Mr. Percy Chubb, III,
$1,022,867; Mr. Donn H. Norton, $756,667; Mr. Dean R. O'Hare, $5,023,200; Mr.
Richard D. Smith, $1,704,400; and Mr. John F. Swope, $764,000. The Corporation
does not believe that payment of these amounts would have a material adverse
effect on the financial or operating condition of the Corporation. The Stock
Option Plan (1984) and the Long-Term Stock Incentive Plan both contain
provisions triggered by a Change in Control of the Corporation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Organization & Compensation Committee is composed of Messrs. Lindsay
(Chairman), Cohen, Small and Wood and Mrs. Michelson. No current or former
officers or employees of the Corporation or any of its subsidiaries served on
the Organization & Compensation Committee and no executive officer of the
Corporation has served on the compensation committee of another corporation.
Mr. Joel J. Cohen is a Managing Director of Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), which firm provides securities brokerage
services to the Corporation and its subsidiaries. During 1993, the Corporation
and its subsidiaries paid commissions to DLJ in the amount of $305,000 in
connection with securities transactions. In addition, certain subsidiaries of
the Corporation participate as limited partners in an investment partnership
(the "Partnership") of which DLJ Merchant Banking Inc. is the managing general
partner. At December 31, 1993, subsidiaries of the Corporation had invested
approximately $10,089,000 in the Partnership. Regular operating expenses of the
Partnership allocated to the Corporation's subsidiaries in 1993 were
approximately $127,000.
Mr. Lawrence M. Small is President and Chief Operating Officer of Fannie
Mae. The Corporation and its subsidiaries purchase, in the ordinary course of
business, debt securities guaranteed by Fannie Mae. The largest amount of these
investments held by the Corporation and its subsidiaries at any time during 1993
was $665,173,000 and the income earned by the Corporation and its subsidiaries
on such investments during 1993 was $46,678,000.
The Corporation believes that the above transactions were effected on terms
as favorable to the Corporation and its subsidiaries as could have been obtained
from other sources in view of the nature of the services rendered.
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33
TRANSACTIONS WITH DIRECTORS AND THEIR ASSOCIATES
Messrs. Cohen and Small, members of the Corporation's Organization &
Compensation Committee, are affiliated with organizations that did business with
the Corporation and its subsidiaries during 1993. See "Compensation Committee
Interlocks and Insider Participation."
Mrs. Ernesta G. Procope is President of E. G. Bowman Co., Inc., an
insurance brokerage firm licensed in the State of New York, which firm maintains
brokerage accounts with Chubb & Son Inc., the manager of the Corporation's
property and casualty insurance subsidiaries, and in connection therewith
received from Chubb & Son Inc. in 1993 an aggregate of $326,000 in commissions
on insurance premiums of $2,069,000 written by such subsidiaries.
Sir David G. Scholey is Chairman of S. G. Warburg Group plc, an investment
banking firm, which through its affiliate companies during 1993 provided certain
securities transaction services and currency exchange services to the
Corporation. During 1993, the Corporation and its subsidiaries paid commissions
and fees to affiliate companies of the S. G. Warburg Group plc in the amount of
$84,000 in connection with such securities and currency exchange transactions.
The Corporation believes that the above transactions were effected on terms
as favorable to the Corporation and its subsidiaries as could have been obtained
from other sources in view of the nature of the services rendered.
In 1993, various subsidiaries of the Corporation had transactions in the
ordinary course of their business with certain Directors and officers of the
Corporation and their associates in connection with policies of insurance issued
to them by such subsidiaries. All employees of the Corporation and certain of
its subsidiaries are offered the opportunity to obtain property and casualty
personal insurance from various subsidiaries of the Corporation at a price
representing a maximum discount of 10% from the normal price.
TRANSACTIONS WITH CERTAIN SHAREHOLDERS
The Corporation has relationships with insurance companies which are
subsidiaries of Sun Alliance Group plc, an insurance holding company organized
under the laws of England (collectively, the "Sun Group"). As reported, the Sun
Group as of March 7, 1994 was the beneficial owner of approximately 5.1% of the
Corporation's Common Stock, acquired solely for the purpose of investment.
The Corporation's property and casualty insurance subsidiaries reinsure
approximately 14% of their United States insurance business on a quota share
basis with one of the Sun Group companies. In 1993, this Sun Group company's
premiums earned arising from such reinsurance were $457,321,000. Pursuant
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34
to the contract which governs the relationship, this Sun Group company pays to
the Corporation's property and casualty insurance subsidiaries an override
commission and a profit commission, the latter determined by the prior year's
results of that business. Such payments were $7,882,000 and $2,453,000,
respectively, in 1993. Pursuant to an agreement effective January 1, 1992, Chubb
& Son Inc. provides staff for several of the Sun Group companies on a cost
reimbursement basis. The amount of the cost reimbursement for 1993 under this
agreement was approximately $434,000.
A wholly-owned subsidiary of the Corporation assumes reinsurance from
members of the Sun Group with respect to certain of the Sun Group's property and
casualty insurance business. Assumed reinsurance premiums earned from this
business amounted to $170,131,000 for the year 1993. Members of the Sun Group
receive profit commissions which are determined by the results of that business.
In 1993, no profit commission payments were made.
The Corporation's property and casualty insurance subsidiaries entered into
a stop loss reinsurance agreement with a subsidiary of the Sun Group, effective
year end 1985, relating to medical malpractice loss reserves. The agreement
provides that the Sun Group will pay up to $285,000,000 of losses and loss
adjustment expenses for this discontinued class of business in excess of the
initial $225,000,000 to be paid by the property and casualty insurance
subsidiaries subsequent to December 31, 1985. In 1993, the property and casualty
subsidiaries recovered $9,667,000 of loss and loss adjustment expenses from the
Sun Group under this agreement. The agreement provides for contingent profit
sharing payments to the property and casualty insurance subsidiaries computed as
of December 31, 1990, December 31, 1992 and December 31, 1994. Based on the
profit sharing computation as of December 31, 1992, the property and casualty
insurance subsidiaries received $18,479,000 in January 1993. The agreement also
provides that the property and casualty insurance subsidiaries may elect to
commute the remaining liability as of December 31, 1995. In August 1993, the
Corporation announced the intention of the property and casualty subsidiaries to
exercise this election. The commutation will result in a return premium of
approximately $125,000,000, which was recognized in 1993.
A wholly-owned subsidiary of the Corporation has entered into a joint
venture with one of the Sun Group companies to market homeowners insurance to
customers in the United Kingdom. Each of the subsidiary's and Sun Group
company's premiums earned from this joint venture were approximately $750,000 in
1993. Additionally, in the regular course of their international business, the
Corporation's property and casualty insurance subsidiaries may and do assume and
cede reinsurance to and from members of the Sun Group, as they do with other
insurers on similar terms and conditions.
The Corporation believes that such transactions are all on terms as
favorable to the Corporation as those available from unrelated third parties.
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PROPOSAL TO APPROVE THE CHUBB CORPORATION
ANNUAL INCENTIVE COMPENSATION PLAN (1994)
INTRODUCTION
Pursuant to the Corporation's Annual Incentive Compensation Plan (1984)
(the "1984 Cash Incentive Plan"), which was adopted by the Board of Directors in
March 1984, key employees of the Corporation and its subsidiaries are eligible
to receive annual cash bonuses based on achievement by the Corporation of target
financial goals and management's assessment of each participant's individual
performance during that year. The 1984 Cash Incentive Plan has enabled the
Corporation to attract, reward and retain employees whose efforts are largely
responsible for the Corporation's overall success. In order to respond to market
conditions and to qualify annual cash bonus payments to certain executive
officers for favorable tax treatment under newly proposed tax regulations, the
Organization & Compensation Committee of the Board of Directors (the
"Committee") recommended, and in March 1994 the Board of Directors adopted,
subject to Shareholder approval, the amendment and restatement of the 1984 Cash
Incentive Plan as the Annual Incentive Compensation Plan (1994) (the "1994 Cash
Incentive Plan").
The principal changes from the 1984 Cash Incentive Plan are as follows. The
maximum annual award payable to any participant was increased from 100% of
salary to 150% of salary grade midpoint and the maximum award pool available for
all participants was increased from 150% to 200% of the target award pool
established for the year. These changes were recommended by an independent
compensation consulting firm and were based on a comparison of the plan's
features with those of similar annual incentive plans within the financial
services industry and are designed to enhance the opportunity for rewarding
truly superior performance. Also, with respect to the newly proposed regulations
under Section 162(m) of the Internal Revenue Code, in addition to establishing a
maximum award of $1,500,000 for "covered employees", the 1994 Cash Incentive
Plan also limits awards to "covered employees" to amounts payable based on
objective criteria established at the outset of the year for which the award is
made.
SUMMARY OF THE 1994 CASH INCENTIVE PLAN
The following summary of the 1994 Cash Incentive Plan is qualified in its
entirety by reference to the complete text of the 1994 Cash Incentive Plan,
which is attached to this Proxy Statement as Exhibit A.
The Committee is authorized to administer the 1994 Cash Incentive Plan in
accordance with its terms. Each year, the Committee selects participants from
the officers and key employees of the
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Corporation and its subsidiaries. The Committee establishes target awards for
the year by salary grade or other standards and establishes a target award pool
which is the sum of the target awards for such year for all participants. The
Committee also establishes target financial goals for such year under which from
25% to 200% of the target award pool can become available for payment.
Target awards are based on the Corporation's combined loss and expense
ratio ("combined ratio") and net income, which is investment income arising from
the property and casualty insurance business and underwriting profit or loss
from that business, and a comparison of the combined ratio and return on equity
with those of key competitors.
After the close of the fiscal year, the Committee determines what part of
the target award pool is available for payment based on the achievement of the
target financial goals. The Committee then, based on these results and upon
management's assessments of each participant's individual performance during the
year, determines what part, if any, of the participant's target award shall be
paid. The Committee is under no obligation to pay all of the available target
award pool for a year and in no event can the total amount paid under the 1994
Cash Incentive Plan for a year exceed 200% of the target award pool for such
year. In addition, no participant may receive, pursuant to the 1994 Cash
Incentive Plan, an amount equal to more that 150% of the participant's salary
grade midpoint for the year, nor can any participant who is a "covered employee"
under Section 162(m) of the Internal Revenue Code receive an award under this
Plan greater than $1,500,000.
All payments under the 1994 Cash Incentive Plan are made in cash as soon as
practicable after the close of a fiscal year, except that under uniform rules
established by the Committee, participants may be given the opportunity to defer
such payments.
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37
While the benefits to be paid for 1994 and future years have not yet been
determined by the Committee, the following table shows the amounts paid for 1993
under the existing 1984 Cash Incentive Plan:
NAME AND PRINCIPAL POSITION AMOUNT PAID
- ----------------------------------------------------------------------- ------------
Dean R. O'Hare......................................................... $ 475,000
Chairman and Chief Executive Officer
Richard D. Smith....................................................... 325,000
President
Percy Chubb, III....................................................... 160,000
Vice Chairman
John F. Swope (1)...................................................... 0
Executive Vice President
Michael O'Reilly (1)................................................... 0
Senior Vice President
All current executive officers as a group.............................. 1,828,600
(16 persons including those named above)
All employees as a group............................................... 13,280,350
- ------------
(1) Messrs. Swope and O'Reilly are not participants in the 1984 Cash Incentive
Plan.
------------------------
The affirmative vote of a majority of the shares of Common Stock of the
Corporation represented and voting at the Annual Meeting is required for
approval of the proposal to adopt the 1994 Cash Incentive Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE 1994
CASH INCENTIVE PLAN.
APPROVAL OF SELECTION OF
INDEPENDENT AUDITORS
The Board of Directors, acting upon the recommendation of the Audit
Committee, recommends for approval by the Shareholders the selection of Ernst &
Young as the independent auditors of the Corporation for the year 1994. Ernst &
Young has acted as such auditors for the Corporation for many years.
In addition to its principal service of auditing the financial statements
of the Corporation and its subsidiaries, Ernst & Young provided certain
non-audit services for the Corporation and its subsidiaries during 1993, and
such services were approved by the Audit Committee. In approving such services,
the
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Audit Committee determined that the nature of the services and the estimated
fees to be charged would have no adverse effect on the independence of the
auditors.
Representatives of Ernst & Young are expected to be present at the Annual
Meeting and to have the opportunity to make a statement should they desire to do
so and to be available to respond to appropriate questions.
VOTING, SOLICITATION OF PROXIES AND SHAREHOLDER PROPOSALS
The Proxy, if returned properly executed and not subsequently revoked by
written notice delivered to the Secretary of the Corporation, will be voted in
accordance with the choice made by the Shareholder with respect to the proposals
listed thereon. If a choice is not made with respect to such proposals and
authority to vote for Directors is not withheld, the Proxy will be voted in
favor of such proposals and will be voted for the election of Directors as
described under "Election of Directors" above.
Under New Jersey law and the Corporation's By-Laws, each share of Common
Stock outstanding on the record date is entitled to one vote at the Annual
Meeting of Shareholders, and the presence in person or by proxy of the holders
of shares entitled to cast a majority of the votes constitutes a quorum. Votes
are tabulated by the Corporation's transfer agent using the transfer agent's
automated system. Under New Jersey law, Directors are elected by a plurality of
the votes cast at the meeting. The approval of the other proposals at the
meeting requires the affirmative vote of a majority of the votes cast by
Shareholders entitled to vote at the meeting. Proxies submitted with abstentions
and broker non-votes are included in determining whether or not a quorum is
present. Votes withheld for the election of Directors have no impact on the
election of Directors, except that votes withheld may result in another
individual receiving a higher number of votes. Abstentions and broker non-votes
are not counted in tabulating the number of votes cast on other proposals
presented to Shareholders.
The Board of Directors is aware of no matters other than those specifically
stated in the Notice of Annual Meeting which are to be presented for action at
the meeting. However, should any further matter requiring a vote of the
Shareholders arise, it is the intention of the persons named in the Proxy to
vote the Proxy in accordance with their judgment.
The cost of this solicitation of proxies is being borne by the Corporation.
In addition to the solicitation of proxies by use of the mails, the Corporation
may use the services of one or more Directors, officers or other regular
employees of the Corporation (who will receive no additional compensation for
their services in such solicitation) to solicit proxies personally and by
telephone. Arrangements will be made with brokerage firms and other custodians,
nominees and fiduciaries to forward solicitation
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material to the beneficial owners of the shares held of record by such persons
and the Corporation will reimburse them for reasonable expenses actually
incurred by them in so doing. In addition, the Corporation has retained
Georgeson & Company Inc., New York, New York, to aid in the solicitation of
proxies by mail, in person and by telephone for a fee which is estimated not to
exceed $11,000 plus out-of-pocket expenses.
Proposals by Shareholders intended to be presented at the 1995 Annual
Meeting must be received by the Corporation no later than November 15, 1994 in
order to be qualified for inclusion in the Corporation's Proxy Statement and
form of proxy for such meeting.
By order of the Board of Directors,
HENRY G. GULICK
Vice President and Secretary
March 15, 1994
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EXHIBIT A
THE CHUBB CORPORATION
ANNUAL INCENTIVE COMPENSATION PLAN (1994)
1. PURPOSE. The purpose of The Chubb Corporation Annual Incentive
Compensation Plan (1994) (the "Plan") is to provide The Chubb Corporation (the
"Company") and its subsidiaries with an effective means of attracting, retaining
and motivating officers and other key employees and to provide them with
incentives to enhance the growth and profitability of the Company.
2. EFFECTIVE DATE OF THE PLAN. Subject to the approval of the Shareholders
of the Corporation, the Plan shall become effective as of January 1, 1994.
3. ADMINISTRATION. The Plan shall be administered by the Organization &
Compensation Committee (the "Committee") of the Board of Directors of the
Company. Subject to the provisions of the Plan, the Committee shall be
authorized to interpret the Plan, to establish, amend and rescind any rules and
regulations relating to the Plan and to make all other determinations necessary
or advisable for the administration of the Plan. The determinations of the
Committee in the administration of the Plan, as described herein, shall be final
and conclusive.
4. ELIGIBILITY. Incentive Compensation awards under the Plan for any
fiscal year of the Company ("Fiscal Year") may be granted to those employees and
officers (including officers who are directors) of the Company and its
subsidiaries ("Participants"), who shall be selected by the Committee after
consideration of management's recommendations. Subsidiaries shall mean any
business entity in which the Company owns, directly or indirectly, 50% or more
of the total combined voting power of all classes of stock.
5. ANNUAL INCENTIVE POOL DETERMINATION. As soon as practicable either
before or after the beginning of each Fiscal Year, the Committee shall designate
a list of Participants for such Fiscal Year, designate target awards by salary
grade or such other standard determined by the Committee and establish a target
award pool, which shall be the sum of target awards for all Participants. The
Committee shall also determine target financial goals for the year, which shall
be based on the Company's combined loss and expense ratio ("combined ratio") and
net income and a comparison of the combined ratio and return on equity with
those of key competitors, and construct a schedule around such goals that would
result in the earning of from 25% to 200% of the target award
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41
pool depending upon what percentage or percentages of the financial goals were
achieved. As soon as practicable after the end of the Fiscal Year, the Committee
shall determine the percentage of the target award pool available for payment
based upon such schedule and after considering management's recommendations, if
any, that the effect of unusual items on the financial results for such Fiscal
Year be excluded from the calculations, provided, however, that no such
adjustment in the calculations shall be applied to any participant determined by
the Committee (i) to be a covered employee as defined in Section 162(m) of the
Internal Revenue Code for the preceding Fiscal Year or (ii) likely to be such a
covered employee for the current Fiscal Year (hereafter both referred to as a
"Covered Employee").
6. AWARD DETERMINATION. As soon as practicable after the end of the Fiscal
Year, the Committee shall approve incentive award payments to Participants which
are based both on the size of the target award pool available and upon
management's assessment of the Participant's individual performance during the
Fiscal Year, but in no event may a Participant's approved award payment exceed
150% of the Participant's salary grade midpoint for the Fiscal Year and in no
event may the Committee increase an award to a participant deemed to be a
"Covered Employee" over such amounts payable based on the objective criteria
established at the outset of the Fiscal Year for which the award is made, nor
shall the maximum award payable to any such "Covered Employee" exceed
$1,500,000. The Committee shall have no obligation to pay out all of the award
pool for a Fiscal Year, but in no event can the total amount paid exceed 200% of
the target award pool for such Fiscal Year. Except as provided in Section 8 with
respect to deferred awards, Participants must be employed by the Company or one
of its subsidiaries as of the payment date under Section 7 to be eligible for
award payments, provided, that if the Participant's employment is terminated
prior to the payment date by reason of death, retirement on or after the
Participant's Normal Retirement Date under the Company's Pension Plan,
disability (as defined in such Pension Plan), or any other reason with the
consent of the Committee, the Committee, in its sole discretion, may provide for
an award payment to that Participant or the Participant's Designated
Beneficiary, if applicable.
7. FORM OF PAYMENT. All awards approved by the Committee for payment,
unless deferred under Section 8, shall be paid in cash as soon as practicable
after the end of the Fiscal Year.
8. DEFERRALS. (a) From time to time, Participants may be offered the
opportunity to defer receipt of all or a portion of their award, if any. Whether
a deferral opportunity shall be offered for awards granted hereunder for a
Fiscal Year shall be determined by the Committee in its sole discretion provided
that any such opportunity, if made available with respect to awards for a Fiscal
Year, shall be offered under uniform rules applicable to all Participants. Any
election to defer shall be made prior to
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the beginning of the award year except for the first year the Plan is in effect.
Deferrals must be for increments of 10% of the potential award which may be
granted to a Participant.
(b) Deferred awards are not forfeitable and will be paid after termination
of employment. Deferred awards payable under this Plan shall not be funded but
will constitute the general obligations of the Company.
(c) At the same time the Participant elects to defer all or a portion of an
award, the Participant shall also elect whether the deferred funds shall be
credited with an interest equivalent amount or shall be allocated to an insured
income benefit program. Deferred awards not allocated to an insured income
benefit program shall receive a quarterly interest equivalent up to the time of
final payment at a rate set from time to time by the Committee. The sum of the
award plus all interest equivalents shall be paid out in a lump sum or in up to
fifteen installments as specified by the Participant at the same time the
deferral election was filed.
(d) The Committee may approve for early payment all or a portion of a
Participant's deferred awards in case of financial hardship, as determined by
the Committee.
(e) If a Participant's employment is terminated by reason of death,
retirement on or after the Participant's Normal Retirement Date under the
Company's Pension Plan, disability (as defined in such Pension Plan), or any
other reason with the consent of the Committee, deferred awards will be paid out
in a lump sum or in installments as designated by the Participant on the
deferral election form, provided, however, the Committee shall have the ability
to accelerate installments in the event of disability and provided further, that
in the event of the Participant's death, the Designated Beneficiary may request
that the Committee approve that payments due hereunder with respect to such
Participant shall be made under a method different than the method designated by
the Participant. If employment is terminated for any other reason, the
Participant shall receive a lump sum distribution of such Participant's deferred
awards.
(f) The Committee shall have the right to terminate or limit the right of
Participants to continue the previously elected deferral of an award for any
Fiscal Year if the Committee in its sole discretion shall determine at any time
that such continued deferral has become inadvisable because of changes in the
Federal tax laws or any other circumstances which, in the judgment of the
Committee, jeopardize the ability of the Company to appropriately finance the
deferral of such award. In such event, all affected amounts, including such
amounts previously credited as interest equivalents (or, if such affected amount
had previously been deferred and allocated to an insured income benefit program,
the amount deferred plus the interest equivalent amount that would have been
credited on such deferred amount had it not
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43
been allocated to an insured income benefit program) shall be paid to the
Participant as soon as practicable after the Committee's determination.
9. MISCELLANEOUS. The following miscellaneous provisions are applicable to
this plan:
(a) Except in the event of the death of a Participant, the rights and
interests of a Participant under the Plan may not be assigned, encumbered or
transferred.
(b) No employee or other person shall have any claim or right to be granted
an award under the Plan. Neither the Plan nor any action taken thereunder shall
be construed as giving any employee or other person any right to be retained in
the employ of the Company.
(c) The Company shall have the right to deduct from all payments made under
the Plan any taxes required by law to be withheld with respect to such payments.
(d) The Plan shall be construed in accordance with and governed by the laws
of the State of New York.
(e) Each Participant shall designate in a manner determined by the
Committee a beneficiary (the "Designated Beneficiary") to receive payments due
hereunder in the event of such Participant's death. If no Designated Beneficiary
survives the Participant, it shall be the surviving spouse of the Participant
or, if there is no surviving spouse, it shall be the estate of the Participant.
10. TERMINATION. The Board of Directors of the Company may amend, suspend,
or terminate any or all provisions of the Plan at any time, provided that no
such amendment, suspension or termination shall adversely affect, without the
Participants' consent, any awards previously granted to them.
11. OTHER PLANS OR PAYMENTS. Nothing in this Plan shall be construed as
limiting the authority of the Committee, the Board of Directors, the Company or
any subsidiary, to establish any other deferred compensation plan or as in any
way limiting their authority to pay bonuses or other supplemental compensation
to any persons employed by the Company or a subsidiary, whether or not such
person is a Participant in this Plan and regardless of how the amount of such
compensation or bonus is determined.
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44
NOTICE OF
ANNUAL MEETING
AND
PROXY STATEMENT
Annual Meeting of
Shareholders
April 26, 1994
[LOGO]
THE CHUBB CORPORATION
45
PROXY
THE CHUBB CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE CORPORATION FOR ANNUAL MEETING APRIL 26, 1994
The undersigned shareholder of THE CHUBB CORPORATION (the "Corporation")
acknowledges receipt of the Notice of the Annual Meeting of Shareholders and
Proxy Statement each dated March 15, 1994 and the undersigned revokes all prior
proxies and appoints DEAN R. O'HARE, HENRY G. GULICK AND PHILIP J. SEMPIER, and
each of them, proxies for the undersigned to vote all shares of Common Stock of
the Corporation which the undersigned would be entitled to vote at the Annual
Meeting of Shareholders to be held at 15 Mountain View Road, Warren, New Jersey
at 11:00 a.m. on April 26, 1994 and any adjournment or postponement thereof, on
all matters coming properly before said meeting.
Election of Directors, Nominees:
John C. Beck, Percy Chubb, III, Joel J. Cohen, Henry U. Harder,
Robert V. Lindsay, Thomas C. MacAvoy, Gertrude G. Michelson,
Dean R. O'Hare, Ernesta G. Procope, Warren B. Rudman,
Sir David G. Scholey, CBE, Lawrence M. Small, Richard D. Smith,
Robert G. Stone, Jr. and Richard D. Wood.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
SEE REVERSE
SIDE
/X/ PLEASE MARK YOUR
VOTES AS IN THIS 1816
EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1, 2 AND 3.
THE BOARD OF DIRECTORS OF THE CHUBB CORPORATION RECOMMENDS A VOTE FOR:
1. Elections of Directors (see reverse)
FOR WITHHELD
/ / / /
For except vote withheld from the following nominee(s)
2. Approval of Ernst & Young as the independent auditors of the Corporation
FOR AGAINST ABSTAIN
/ / / / / /
3. Approval of The Chubb Corporation Annual Incentive Compensation Plan (1994)
FOR AGAINST ABSTAIN
/ / / / / /
SIGNATURE(S)__________________________________ DATE__________________
NOTE: Please sign name as printed hereon. Joint owners should each sign. When
signing as attorney, administrator, executor, guardian or trustee, please
give title as such.