1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 29, 1994
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _________ TO __________
Commission File No. 1-8661
THE CHUBB CORPORATION
(Exact name of registrant as specified in its charter)
NEW JERSEY 13-2595722
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
15 MOUNTAIN VIEW ROAD, P.O. BOX 1615
WARREN, NEW JERSEY 07061-1615
(Address of principal executive offices) (Zip Code)
(908) 903-2000
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Common Stock, par value $1 per share New York Stock Exchange
Series A Participating Cumulative
Preferred Stock Purchase Rights New York Stock Exchange
(Title of each class) (Name of each exchange on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X. No. .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant was $6,520,075,104 as of March 7, 1994.
87,736,074
Number of shares of common stock outstanding as of March 7, 1994
DOCUMENTS INCORPORATED BY REFERENCE
Portions of The Chubb Corporation 1993 Annual Report to Shareholders are
incorporated by reference in Parts I, II and IV of this Form 10-K. Portions of
the definitive Proxy Statement for the Annual Meeting of Shareholders on April
26, 1994 are incorporated by reference in Part III herein.
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PART I.
ITEM 1. BUSINESS
GENERAL
The Chubb Corporation (the Corporation) was incorporated as a business
corporation under the laws of the State of New Jersey in June 1967. The
Corporation is a holding company and is principally engaged, through
subsidiaries, in three industries: property and casualty insurance, life and
health insurance and real estate development. The Corporation and its
subsidiaries employed approximately 10,500 persons on December 31, 1993.
Revenues, income from operations before income tax and identifiable assets for
each industry segment for the three years ended December 31, 1993 are included
in Note (16) of the notes to consolidated financial statements incorporated by
reference from the Corporation's 1993 Annual Report to Shareholders.
The property and casualty insurance subsidiaries provide insurance
coverages on a direct and assumed basis, principally in the United States,
Canada, Europe, Australia and the Far East. The life and health insurance and
real estate development subsidiaries have no international operations. Revenues,
income from operations before income tax and identifiable assets of the property
and casualty insurance subsidiaries by geographic area for the three years ended
December 31, 1993 are included in Note (17) of the notes to consolidated
financial statements incorporated by reference from the Corporation's 1993
Annual Report to Shareholders.
PROPERTY AND CASUALTY INSURANCE GROUP
The Property and Casualty Insurance Group (the Group) is composed of
Federal Insurance Company (Federal), Pacific Indemnity Company (Pacific
Indemnity), Vigilant Insurance Company (Vigilant), Great Northern Insurance
Company (Great Northern), Chubb Insurance Company of New Jersey (Chubb New
Jersey), Chubb Custom Insurance Company (Chubb Custom), Chubb National Insurance
Company (Chubb National), Texas Pacific Indemnity Company, Northwestern Pacific
Indemnity Company, Chubb Insurance Company of Canada, Chubb Insurance Company of
Europe, S.A., Chubb Insurance Company of Australia, Limited and Chubb Atlantic
Indemnity Ltd.
The Group presently underwrites most forms of property and casualty
insurance. All members of the Group write non-participating policies. Several
members of the Group also write participating policies, particularly in the
workers' compensation class of business, under which dividends are paid to the
policyholders.
Premiums Written
An analysis of the Group's premiums written during the past three years is
shown in the following table.
DIRECT REINSURANCE REINSURANCE NET
PREMIUMS PREMIUMS PREMIUMS PREMIUMS
YEAR WRITTEN ASSUMED(a) CEDED(a) WRITTEN
- ---- ---------- ------------ ---------- ---------
(IN THOUSANDS)
1991........................ $3,646,728 $488,666 $1,023,130 $3,112,264
1992........................ 3,983,239 376,776 1,117,509 3,242,506
1993........................ 4,268,104 565,140 1,186,949 3,646,295
- ---------------
(a) Intercompany items eliminated.
The net premiums written during the last five years for major insurance
classes of the Group are incorporated by reference from page 12 of the
Corporation's 1993 Annual Report to Shareholders.
One or more members of the Group are licensed and transact business in each
of the 50 states of the United States, the District of Columbia, Puerto Rico,
the Virgin Islands, Canada and parts of Europe, Australia and the Far East. In
1993, approximately 88% of the Group's direct business was produced in the
United States, where the Group's businesses enjoy broad geographic distribution
with a particularly strong market presence in the Northeast. The four states
accounting for the largest amounts of direct premiums written were New York with
15%, California with 14%, New Jersey with 6% and Pennsylvania with 5%. No other
state accounted for 5% or more of such premiums. Approximately 4% of the Group's
direct premiums written were produced in Canada.
2
3
Underwriting Results
A frequently used industry measurement of property and casualty insurance
underwriting results is the combined loss and expense ratio. This ratio is the
sum of the ratio of incurred losses and related loss adjustment expenses to
premiums earned (loss ratio) plus the ratio of underwriting expenses to premiums
written (expense ratio) after reducing both premium amounts by dividends to
policyholders. When the combined ratio is under 100%, underwriting results are
generally considered profitable; when the combined ratio is over 100%,
underwriting results are generally considered unprofitable. Investment income,
deferred policy acquisition costs, other non-underwriting income or expense and
income taxes are not reflected in the combined ratio. The profitability of
property and casualty insurance companies depends on income from both
underwriting operations and investments.
The net premiums and the loss, expense and combined ratios of the Group for
the last five years are shown in the following table.
NET PREMIUMS COMBINED
(IN THOUSANDS) LOSS AND
------------------------- LOSS EXPENSE EXPENSE
YEAR WRITTEN EARNED RATIOS RATIOS RATIOS
- ---- ------- ------ ------ ------- --------
1989......................... $ 2,734,918 $ 2,693,553 67.0% 34.5% 101.5%
1990......................... 2,919,663 2,836,135 65.2 34.5 99.7
1991......................... 3,112,264 3,037,168 64.4 35.1 99.5
1992......................... 3,242,506 3,163,288 66.7 34.4 101.1
1993......................... 3,646,295 3,504,838 82.5 32.3 114.8
----------- ----------- ---- ---- -----
Total for five years ended
December 31, 1993......... $15,655,646 $15,234,982 69.6% 34.1% 103.7%
=========== =========== ==== ==== =====
The 1993 ratios include the effects of a $675 million increase in unpaid
claims related to an agreement for the settlement of asbestos-related litigation
and a $125 million return premium to the Group related to the commutation of a
medical malpractice reinsurance agreement. Excluding the effects of these items,
the loss ratio, the expense ratio and the combined loss and expense ratio were
65.5%, 33.5% and 99.0%, respectively, for the year 1993 and 65.7%, 34.4% and
100.1%, respectively, for the five years ended December 31, 1993.
The combined loss and expense ratios during the last five years for major
classes of the Group's business are incorporated by reference from page 12 of
the Corporation's 1993 Annual Report to Shareholders.
Producing and Servicing of Business
In the United States and Canada, the Group is represented by approximately
3,000 independent agents and accepts business on a regular basis from an
estimated 500 insurance brokers. In most instances, these agents and brokers
also represent other companies which compete with the Group. The offices
maintained by the Group assist these agents and brokers in producing and
servicing the Group's business. In addition to the administrative offices of
Chubb & Son Inc. in Warren, New Jersey, the Group operates six zonal management
offices and 63 branch and service offices in the United States and Canada.
The Group's overseas business is developed by its foreign agents and
brokers through local branch offices of the Group and by its United States and
Canadian agents and brokers. Overseas business is also obtained from foreign
treaty reinsurance assumed principally, but not exclusively, from the Sun
Alliance Group plc (Sun Group). In conducting its overseas business, the Group
attempts to minimize the risks relating to currency fluctuations.
3
4
Business for the Group is also produced through participation in a number
of underwriting pools and syndicates including, among others, Associated
Aviation Underwriters, Industrial Risk Insurers, American Accident Reinsurance
Group, American Excess Insurance Association, Cargo Reinsurance Association and
American Cargo War Risk Reinsurance Exchange. Such pools and syndicates provide
underwriting capacity for risks which an individual insurer cannot prudently
underwrite because of the magnitude of the risk assumed or which can be more
effectively handled by one organization due to the need for specialized loss
control service.
Reinsurance
In accordance with the normal practice of the insurance industry, the Group
assumes and cedes reinsurance with other insurers or reinsurers. These
reinsurance arrangements provide greater diversification of business and
minimize the Group's maximum net loss arising from large risks or from hazards
of catastrophic potentialities.
A large portion of the Group's reinsurance is effected under contracts
known as treaties under which all risks meeting prescribed criteria are
automatically covered. A substantial portion of the Group's ceded reinsurance is
on a quota share basis with a subsidiary of the Sun Group. Most of the remaining
reinsurance arrangements consist of excess of loss and catastrophe contracts
with other insurers or reinsurers which protect against a specified part or all
of certain types of losses over stipulated amounts arising from any one
occurrence or event. In some instances, reinsurance is effected by negotiation
on individual risks. The amount of each risk retained by the Group is subject to
maximum limits which vary by line of business and type of coverage. Retention
limits are continually reviewed and are revised periodically as the Group's
capacity to underwrite risks changes. Reinsurance contracts do not relieve the
Group of its obligation to the policyholders.
The collectibility of reinsurance is subject to the solvency of the
reinsurers. The Group is selective in regard to its reinsurers, placing
reinsurance with only those reinsurers with strong balance sheets and superior
underwriting ability. The Group monitors the financial strength of its
reinsurers on an ongoing basis. As a result, uncollectible amounts have not been
significant.
The severity of recent catastrophes, particularly Hurricane Andrew in 1992,
has demonstrated to insurers, including the Group, that assumptions on the
damage potential of catastrophes have been too optimistic. The Group maintains
records showing concentrations of risks in catastrophe prone areas such as
California (earthquakes and brush fires) and the Southeast coast of the United
States (hurricanes). The Group continually assesses its concentration of
underwriting exposures in catastrophe prone areas. The Group is continuing to
develop strategies which will further limit the aggregation of exposure in any
one catastrophic event.
The catastrophe reinsurance market has suffered large losses in recent
years. As a result, the reinsurance market's capacity was substantially reduced
in 1993 and the cost of available coverages rose significantly. In response, the
Group has increased its retention levels for individual catastrophe losses. The
effect on the Group's exposure to future catastrophe losses will depend on the
severity of such losses.
Unpaid Claims and Claim Adjustment Expenses and Related Amounts Recoverable
from Reinsurers
Insurance companies are required to make provision in their accounts for
the ultimate costs (including claim adjustment expenses) of claims which have
been reported but not settled and of claims which have been incurred but not
reported as well as for the portion of such provision that will be recovered
from reinsurers.
4
5
The process of establishing the liability for unpaid claims and claim
adjustment expenses is an imprecise science subject to variables that are
influenced by both internal and external factors. This is true because claim
settlements to be made in the future will be impacted by changing rates of
inflation (particularly medical cost inflation) and other economic conditions,
changing legislative, judicial and social environments and changes in the
Group's claim handling procedures. In many liability cases, significant periods
of time, ranging up to several years or more, may elapse between the occurrence
of an insured loss, the reporting of the loss to the Group and the settlement of
the loss. Approximately 50% of the Group's unpaid claims and claim adjustment
expenses are provided for IBNR--claims which have not yet been reported to the
Group, some of which were not yet known to the insured, and future development
on reported claims. In spite of this imprecision, financial reporting
requirements dictate that insurance companies report a single amount as the
estimate of unpaid claims and claim adjustment expenses as of each evaluation
date. These estimates are continually reviewed and updated. Any resulting
adjustments are reflected in current operating results.
The Group's estimates of losses for reported claims are established
judgmentally on an individual case basis. Such estimates are based on the
Group's particular experience with the type of risk involved and its knowledge
of the circumstances surrounding each individual claim. These estimates are
reviewed on a regular basis or as additional facts become known. The reliability
of the estimating process is monitored through comparison with ultimate
settlements.
The Group's estimates of losses for unreported claims are principally
derived from analyses of historical patterns of the development of paid and
reported losses by accident year for each class of business. This process relies
on the basic assumption that past experience, adjusted for the effects of
current developments and likely trends, is an appropriate basis for predicting
future events. For certain classes of business where anticipated loss experience
is less predictable because of the small number of claims and/or erratic claim
severity patterns, the Group's estimates are based on both expected and actual
reported losses. Salvage and subrogation estimates are developed from patterns
of actual recoveries.
The Group's estimates of unpaid claim adjustment expenses are based on
analyses of the relationship of projected ultimate claim adjustment expenses to
projected ultimate losses for each class of business. Claims staff has
discretion to override these expense formulas either upward or downward where
judgment indicates such action is appropriate.
In 1993, the Corporation adopted Statement of Financial Accounting
Standards (SFAS) No. 113, Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts. SFAS No. 113 establishes the
conditions required for a contract with a reinsurer to be accounted for as
reinsurance and prescribes accounting and reporting standards for those
contracts. SFAS No. 113 requires that reinsurance recoverable on unpaid claims
be reported separately as an asset on the balance sheet rather than the previous
practice of reducing the liability for unpaid claims and claim adjustment
expenses by such amount.
The Group's estimates of reinsurance recoverable related to reported and
unreported claims and claim adjustment expenses, which represent the portion of
such liabilities that will be recovered from reinsurers, are determined in a
manner consistent with the liabilities associated with the reinsured policies.
The anticipated effect of inflation is implicitly considered when
estimating liabilities for unpaid claims and claim adjustment expenses.
Estimates of the ultimate value of all unpaid claims are based in part on paid
losses, which reflect actual inflation. Inflation is also reflected in estimates
established on reported open claims which, when combined with paid losses, form
another basis to derive estimates of reserves for all open claims. There is no
precise method for subsequently evaluating the adequacy of the consideration
given to inflation, since claim settlements are affected by many factors.
5
6
The following table provides a reconciliation of the beginning and ending
liability for unpaid claims and claim adjustment expenses, net of reinsurance
recoverable, and a reconciliation of the ending net liability to the
corresponding liability on a gross basis for the years ended December 31, 1993,
1992 and 1991.
YEARS ENDED DECEMBER 31
------------------------------
1993 1992 1991
-------- -------- --------
(IN MILLIONS)
Net liability, beginning of year........................ $5,267.6 $4,743.9 $4,301.1
-------- -------- --------
Net incurred claim and claim adjustment expenses
Provision for claims occurring in the current year.... 2,214.3 2,125.7 1,970.2
Increase in prior years' claims estimate relating to
an agreement for the settlement of asbestos-related
litigation......................................... 675.0 -- --
Decrease in estimates for other claims occurring in
prior years........................................ (10.2) (27.6) (28.8)
-------- -------- --------
2,879.1 2,098.1 1,941.4
-------- -------- --------
Net payments for claims occurring in
Current year.......................................... 656.8 643.2 579.5
Prior years........................................... 1,039.9 931.2 919.1
-------- -------- --------
1,696.7 1,574.4 1,498.6
-------- -------- --------
Net liability, end of year.............................. 6,450.0 5,267.6 4,743.9
Reinsurance recoverable, end of year.................... 1,785.4 1,953.3 1,847.4
-------- -------- --------
Gross liability, end of year............................ $8,235.4 $7,220.9 $6,591.3
======== ======== ========
In 1993, Pacific Indemnity entered into a global settlement agreement with
Continental Casualty Company (a subsidiary of CNA Financial Corporation),
Fibreboard Corporation, and attorneys representing claimants against Fibreboard
for all future asbestos-related bodily injury claims against Fibreboard. This
settlement relates to an insurance policy issued to Fibreboard by Pacific
Indemnity in 1956. Pacific Indemnity and Continental Casualty reached a separate
agreement for the handling of all pending asbestos-related bodily injury claims
against Fibreboard. Prior to the settlement, the Group had paid $40 million and
had existing loss reserves of $545 million to cover a portion of its obligation
under these agreements. This amount included $300 million of IBNR reserves which
were not previously classified as specific reserves for asbestos claims since it
was management's belief that doing so would increase the demands of plaintiffs'
attorneys. At the time the settlement was negotiated, the Group increased its
loss reserves by $675 million. The Fibreboard settlement is further discussed in
Item 7 of this report on pages 23 and 24.
As a result of the $675 million increase, in 1993, the estimated liability
for unpaid claims and claim adjustment expenses, net of reinsurance recoverable,
as established at the previous year-end was deficient by $664.8 million. This
compares with favorable development of $27.6 million and $28.8 million during
1992 and 1991, respectively. Such deficiency and redundancies were reflected in
the Group's operating results in these respective years. Excluding the $675
million, the Group experienced favorable development of $10.2 million in 1993.
Each of the past three years benefited from favorable claim frequency and
severity trends for certain liability classes; this was offset each year in
varying degrees by increases in unpaid claims and claim adjustment expenses
relating to asbestos and toxic waste claims.
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7
Unpaid claims and claim adjustment expenses, net of reinsurance
recoverable, increased 22% in 1993, after increases of 11% and 10% in 1992 and
1991, respectively. The significant increase in 1993 was primarily due to the
$675 million increase related to the Fibreboard settlement. Excluding this $675
million, reserves increased by 10% in 1993. Substantial reserve growth has
occurred each year in those liability coverages, primarily excess liability and
executive protection, that have delayed loss reporting and extended periods of
settlement. These coverages have become a more significant portion of the
Group's business in recent years. The Group continues to emphasize early and
accurate reserving, inventory management of claims and suits, and control of the
dollar value of settlements. The number of outstanding claims at year-end 1993
was approximately 7% lower than the number at year-end 1992. This decrease was
due primarily to the settlement during 1993 of the large number of open claims
at December 31, 1992 relating to Hurricane Andrew and the December 1992 storm in
the Northeast.
The uncertainties relating to unpaid claims, particularly for asbestos and
toxic waste claims on insurance policies written many years ago, are discussed
in Item 7 of this report on pages 23 through 25.
There were approximately 4,000 asbestos and toxic waste claims outstanding
at December 31, 1993 and 1992 compared with approximately 5,000 claims
outstanding at December 31, 1991. The decrease in 1992 was primarily the result
of fewer asbestos-related new arisings as well as increases in bulk settlements
and closed claims relating to asbestos claims. The following table provides a
reconciliation of the beginning and ending liability for unpaid claims and claim
adjustment expenses, net of reinsurance recoverable, related to asbestos and
toxic waste claims for the years ended December 31, 1993, 1992 and 1991.
Reinsurance recoveries related to asbestos and toxic waste claims are not
significant.
YEARS ENDED DECEMBER 31
------------------------------
1993 1992 1991
-------- ------ ------
(IN MILLIONS)
Net liability, beginning of year..................... $ 435.4 $370.6 $334.6
Net incurred claim and claim adjustment
expenses
Increase in reserves related to the
Fibreboard settlement........................... 675.0 -- --
IBNR reserves reclassified as reserves specifically
related to the Fibreboard settlement............ 300.0 -- --
Other.............................................. 100.7 119.9 87.8
Net payments for claims.............................. 78.2 55.1 51.8
-------- ------ ------
Net liability, end of year........................... $1,432.9 $435.4 $370.6
======== ====== ======
During 1984, the Group discontinued writing medical malpractice business.
The Group entered into a stop loss reinsurance agreement, effective year-end
1985, which provides that the reinsurer will pay up to $285 million of losses
and allocated loss adjustment expenses for this discontinued class of business
in excess of the initial $225 million to be paid by the Group subsequent to
December 31, 1985. The agreement also provides that the Group may elect to
commute the remaining liability from the reinsurer as of December 31, 1995 and
receive payment, at that time, of an amount determined by the agreement. The
cost of this reinsurance was $173.5 million.
Since the effective date of this agreement, the Group has paid an aggregate
of $249.9 million of medical malpractice losses and loss adjustment expenses and
has recovered the amount in excess of $225 million from the reinsurer. The
amount of paid losses is approximately 55% of what was anticipated at the time
the business was reinsured eight years ago. As a result of the favorable loss
experience over this extended period, the Group reduced both its gross medical
malpractice liability for unpaid claims and claim adjustment expenses and the
related reinsurance recoverable by approximately $125 million in 1993. At that
time, the Group announced its intention to exercise the election to commute the
stop loss reinsurance agreement. The commutation will result in a return premium
to the Group of approximately $125 million, which was recognized in 1993.
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The table on page 9 presents the subsequent development of the estimated
year-end liability for unpaid claims and claim adjustment expenses, net of
reinsurance recoverable, for the ten years prior to 1993. The top line of the
table shows the estimated liability for unpaid claims and claim adjustment
expenses recorded at the balance sheet date for each of the indicated years.
This liability represents the estimated amount of losses and loss adjustment
expenses for claims arising in all prior years that are unpaid at the balance
sheet date, including losses that had been incurred but not yet reported to the
Group. The upper section of the table shows the reestimated amount of the
previously recorded liability based on experience as of the end of each
succeeding year. The estimate is increased or decreased as more information
becomes known about the frequency and severity of claims for each individual
year. The increase or decrease is reflected in the current year's operating
results.
The "cumulative deficiency" as shown in the table represents the aggregate
change in the reserve estimates from the original balance sheet dates through
December 31, 1993. The amounts noted are cumulative in nature; that is, an
increase in a loss estimate that related to a prior period occurrence generates
a deficiency in each intermediate year. For example, a deficiency recognized in
1993 relating to losses incurred prior to December 31, 1983, such as that
related to the Fibreboard settlement, would be included in the cumulative
deficiency amount for each year in the period 1983 through 1992. Yet, the
deficiency would be reflected in operating results only in 1993. The effect of
changes in estimates of the liabilities for claims occurring in prior years on
income before income taxes in each of the past three years is shown in the
reconciliation table on page 6.
A substantial portion of the cumulative deficiencies in liability estimates
from 1983 through 1992 relates to additional provisions for asbestos and toxic
waste claims, particularly the Fibreboard settlement. The cumulative
deficiencies in the 1983 through 1985 columns were also due to additional
provisions for medical malpractice claims as well as the substantially increased
severity and complexity of liability claims. The cumulative deficiencies
experienced relating to asbestos and toxic waste claims were, to varying
degrees, the result of: (1) an increase in the actual number of claims filed;
(2) an increase in the number of unasserted claims estimated; (3) an increase in
the severity of actual and unasserted claims; and (4) an increase in litigation
costs associated with such claims.
Conditions and trends that have affected development of the liability for
unpaid claims and claim adjustment expenses in the past will not necessarily
recur in the future. Accordingly, it is not appropriate to extrapolate future
redundancies or deficiencies based on the data in this table.
The lower section of the table on page 9 shows the cumulative amount paid
with respect to the reestimated liability as of the end of each succeeding year.
For example, in the 1983 column, as of December 31, 1993 the Group had paid
$1,707.6 million of the currently estimated $3,142.9 million of claims and claim
adjustment expenses that were unpaid at the end of 1983; thus, an estimated
$1,435.3 million of losses incurred through 1983 remain unpaid as of December
31, 1993, most of which relates to the Fibreboard settlement.
Members of the Group are required to file annual statements with state
insurance regulatory authorities prepared on an accounting basis prescribed or
permitted by such authorities (statutory basis). In 1993, the Group amended its
statutory basis of accounting to reflect salvage and subrogation recoveries on
an accrual basis as a reduction of the liability for unpaid claims and claim
adjustment
8
9
ANALYSIS OF CLAIM AND CLAIM ADJUSTMENT EXPENSE DEVELOPMENT
(NET OF REINSURANCE RECOVERABLE)
DECEMBER 31
-------------------------------------------------------------------------------------------------
YEAR ENDED 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(IN MILLIONS)
Net Liability for Unpaid Claims
and Claim Adjustment
Expenses...................... $1,112.8 $1,306.9 $1,602.2 $2,141.3 $2,818.6 $3,374.3 $3,880.1 $4,301.1 $4,743.9 $5,267.6 $6,450.0
Net Liability Reestimated as
of:
One year later............... 1,208.7 1,495.6 1,814.6 2,238.6 2,776.9 3,360.5 3,846.2 4,272.3 4,716.3 5,932.4
Two years later.............. 1,379.5 1,660.6 1,989.3 2,313.9 2,835.9 3,336.0 3,854.2 4,244.7 5,368.5
Three years later............ 1,486.5 1,817.6 2,108.5 2,433.2 2,831.0 3,359.8 3,839.8 4,933.0
Four years later............. 1,595.8 1,901.4 2,231.2 2,493.3 2,891.7 3,385.1 4,567.4
Five years later............. 1,651.8 2,005.6 2,353.4 2,585.8 2,961.0 4,203.9
Six years later.............. 1,738.2 2,093.6 2,433.5 2,687.2 3,897.2
Seven years later............ 1,816.1 2,176.6 2,569.0 3,745.2
Eight years later............ 1,891.5 2,322.5 3,673.4
Nine years later............. 2,040.9 3,441.6
Ten years later.............. 3,142.9
Cumulative Deficiency*......... 2,030.1 2,134.7 2,071.2 1,603.9 1,078.6 829.6 687.3 631.9 624.6 664.8**
Cumulative Amount of
Net Liability Paid as of:
One year later............... 465.9 585.7 658.4 651.3 694.7 761.6 880.4 919.1 931.2 1,039.9
Two years later.............. 765.7 941.1 1,058.1 1,061.6 1,108.3 1,226.3 1,383.9 1,407.2 1,479.9
Three years later............ 996.8 1,207.0 1,356.7 1,362.9 1,419.1 1,555.1 1,715.9 1,808.7
Four years later............. 1,168.5 1,397.3 1,568.5 1,595.7 1,651.6 1,778.8 1,958.6
Five years later............. 1,287.2 1,544.1 1,730.0 1,775.3 1,818.2 1,966.1
Six years later.............. 1,386.1 1,646.7 1,867.6 1,907.1 1,961.9
Seven years later............ 1,459.3 1,756.4 1,971.4 2,032.9
Eight years later............ 1,547.7 1,841.8 2,085.5
Nine years later............. 1,620.9 1,937.1
Ten years later.............. 1,707.6
- ---------------
* The cumulative deficiencies for the years 1983 through 1992 include the
effect of the increase in the liability for unpaid claims and claim
adjustment expenses related to the Fibreboard settlement.
** The medical malpractice gross liability for unpaid claims and claim
adjustment expenses and the related reinsurance recoverable were both reduced
by approximately $125 million in 1993. Excluding the effect of this item, the
deficiency resulting from the reestimation of the December 31, 1992 liability
for unpaid claims and claim adjustment expenses as of December 31, 1993 on a
gross basis was not significantly different from that on a net basis.
9
10
expenses. Prior to 1993, salvage and subrogation recoveries were recorded on a
cash basis in the statutory basis financial statements. The differences between
the liability for unpaid claims and claim adjustment expenses, net of
reinsurance recoverable, reported in the accompanying consolidated financial
statements in accordance with generally accepted accounting principles (GAAP)
and that reported in the annual statutory statements are as follows:
DECEMBER 31
---------------------
1993 1992
-------- --------
(IN MILLIONS)
Net liability reported on a statutory basis............ $6,435.8 $5,475.1
Additions (Reductions):
Medical malpractice stop loss reinsurance reserve.... (88.5) (216.3)
Salvage and subrogation recoveries recorded on a cash
basis for statutory and on an accrual basis for
GAAP in 1992...................................... -- (60.3)
Other reserve differences............................ 102.7 69.1
-------- --------
Net liability reported on a GAAP basis................. $6,450.0 $5,267.6
======== ========
Investments
For each member of the Group, current investment policy is implemented by
management which reports to its Board of Directors.
The main objective of the investment portfolio of the Group is to provide
maximum support to the insurance underwriting operations. To accomplish this,
the investment function must be highly integrated with the operating functions
and capable of responding to the changing conditions in the marketplace.
Investment strategies are developed based on a variety of factors including
underwriting results and the Group's resulting tax position, fluctuations in
interest rates and regulatory requirements.
The investment portfolio of the Group is primarily composed of high quality
bonds, principally tax-exempt, U.S. Treasury, government agency and corporate
issues. In addition, the portfolio includes common stocks held primarily with
the objective of capital appreciation.
In 1993 and 1992, the Group invested new cash primarily in tax-exempt
bonds. In each year the Group tried to achieve the appropriate mix in its
portfolio to balance both investment and tax strategies. In 1993, the Group
reduced its taxable bond portfolio by $225 million and increased its short term
investments so that funds are readily available to pay amounts related to the
Fibreboard settlement. At December 31, 1993, 75% of the Group's fixed maturity
portfolio was invested in tax-exempt bonds compared with 71% at the previous
year-end.
The investment results of the Group for each of the past three years are
shown in the following table.
CHANGE IN
AVERAGE PERCENT EARNED UNREALIZED
INVESTED INVESTMENT ----------------------- REALIZED APPRECIATION
YEAR ASSETS(a) INCOME(b) BEFORE TAX AFTER TAX GAINS(c) (c)(d)
- ---- ---------- ------------ ---------- --------- -------- ------------
(IN THOUSANDS)
1991................ $6,692,199 $466,081 7.0% 5.9% $ 50,656 $ 87,553
1992................ 7,427,017 490,183 6.6 5.7 96,704 (38,585)
1993................ 8,085,302 529,591 6.6 5.6 172,925 51,842
- ---------------
(a) Average of amounts at beginning and end of calendar year.
(b) Investment income after deduction of investment expenses, but before
applicable income tax, excluding income from rental of real estate and
fixed assets.
(c) Before applicable income tax.
(d) Relates to equity securities.
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11
CHUBB & SON INC.
Chubb & Son Inc., a wholly-owned subsidiary of the Corporation, was
incorporated in 1959 under the laws of New York as a successor to the
partnership of Chubb & Son which was organized in 1882 by Thomas Caldecot Chubb
to act as underwriter and manager of insurance companies. Chubb & Son Inc. is
the manager of Federal, Vigilant, Great Northern, Chubb New Jersey, Chubb Custom
and Chubb National. Chubb & Son Inc. also provides certain services to Pacific
Indemnity and other members of the Property and Casualty Insurance Group for
which it is reimbursed.
Acting subject to the supervision and control of the Boards of Directors of
the members of the Group, Chubb & Son Inc. provides day to day executive
management and operating personnel and makes available the economy and
flexibility inherent in the common operation of a group of insurance companies.
In addition, Chubb & Son Inc. arranges for the exchange of reinsurance between
members of the Group.
Chubb & Son Inc. is the United States manager for Samsung Fire & Marine
Insurance Company, Ltd. (formerly known as Ankuk Fire & Marine Insurance
Company, Ltd.). Through December 31, 1993, Chubb & Son Inc. managed the aviation
departments of certain other insurance companies. Effective January 1, 1994,
Associated Aviation Underwriters, Inc., a company 50% owned by Chubb and Son
Inc., assumed management of this aviation business.
LIFE AND HEALTH INSURANCE GROUP
The Life and Health Insurance Group (Life Group) includes Chubb Life
Insurance Company of America (Chubb Life) and its wholly-owned subsidiaries, The
Colonial Life Insurance Company of America (Colonial) and Chubb Sovereign Life
Insurance Company (Sovereign).
The Life Group, which markets a wide variety of insurance and investment
products, is principally engaged in the sale of personal and group life and
health insurance as well as annuity contracts. These products, some of which
combine life insurance and investment attributes, include traditional insurance
products such as term, whole life, and accident and health insurance, as well as
fixed premium interest-sensitive life, universal life and variable universal
life insurance and mutual funds. The target market of the Life Group is small-to
medium-sized business establishments and those people, often the proprietors of
such businesses, whose needs for financial planning are more complex and diverse
than average.
One or more of the companies in the Life Group are licensed and transact
business in each of the 50 states, the District of Columbia, Puerto Rico, Guam
and the Virgin Islands. Personal life and health insurance is marketed primarily
through approximately 1,400 personal producing general agents and 20,600
brokers. Group life and health insurance is marketed through approximately 9,100
brokers.
The executive, accounting, actuarial and administrative activities of the
Life Group other than Sovereign are located at the Chubb Life headquarters in
Concord, New Hampshire. Sovereign's activities are administered both in Concord
and Santa Barbara, California. The group insurance operations are mainly located
in Parsippany, New Jersey. Personal insurance operations are in Concord, Santa
Barbara and Chattanooga, Tennessee.
The following tables present highlights of the Life Group.
LIFE INSURANCE IN-FORCE*
PERSONAL
----------------------------------------
PARTICIPATING NON-PARTICIPATING GROUP TOTAL
----------------- -------------------- ------------------- --------------------
YEAR AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
- ---- ------- ------- ----------- ------- ---------- ------- ----------- -------
(IN THOUSANDS)
1991...... $95,079 .2% $34,565,026 83.3% $6,842,363 16.5% $41,502,468 100%
1992...... 88,001 .2 39,950,972 86.0 6,415,545 13.8 46,454,518 100
1993...... 81,278 .1 47,740,633 88.0 6,460,954 11.9 54,282,865 100
- ---------------
* Before deduction for reinsurance ceded.
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PREMIUM AND POLICY CHARGE REVENUES BY CLASS
PERSONAL GROUP
------------------------------------------------------- -------------------------------------
ACCIDENT AND ACCIDENT AND
ORDINARY LIFE HEALTH ANNUITIES LIFE HEALTH
------------------ ---------------- --------------- ---------------- ------------------
YEAR AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
- ---- ------- ------- ------ ------- ------ ------- ------ ------- ------ -------
(IN THOUSANDS)
1991...... $171,903 27.1% $17,449 2.7% $2,378 .4% $44,852 7.1% $397,434 62.7%
1992...... 192,202 27.9 18,558 2.7 2,938 .4 44,389 6.4 431,086 62.6
1993...... 216,591 27.0 19,121 2.4 4,294 .5 47,041 5.9 514,189 64.2
REVENUES, ASSETS AND CAPITAL AND SURPLUS
TOTAL
PREMIUMS GROSS CAPITAL
AND POLICY INVESTMENT AND
YEAR CHARGES INCOME ASSETS SURPLUS
- ---- ---------- ---------- --------- --------
(IN THOUSANDS)
1991................................. $634,016 $177,654 $2,951,704 $673,981
1992................................. 689,173 192,748 3,150,630 736,801
1993................................. 801,236 205,891 3,529,802 758,419
The main objective of the investment portfolio of the Life Group is to earn
a rate of return in excess of that required to satisfy the obligations to
policyholders and to cover expenses. The portfolio of the Life Group is
comprised primarily of mortgage-backed securities and corporate bonds. The Life
Group invests predominantly in investment grade, current coupon fixed-income
securities with stable cash flow characteristics and maturities which are
consistent with life insurance reserve requirements. The investment strategy
emphasizes maintaining portfolio quality while achieving competitive investment
yields. The investment results of the Life Group for each of the past three
years are shown in the following table.
CHANGE IN
AVERAGE UNREALIZED
INVESTED INVESTMENT PERCENT REALIZED APPRECIATION
YEAR ASSETS(a) INCOME(b) EARNED GAINS(c) (c)(d)
- ---- --------- ---------- ------ -------- ---------------
(IN THOUSANDS)
1991........................ $1,996,103 $174,870 8.8% $ 4,629 $7,023
1992........................ 2,136,161 189,500 8.9 13,288 2,783
1993........................ 2,341,028 202,771 8.7 22,056 4,720
- ---------------
(a) Average of amounts at beginning and end of calendar year.
(b) Investment income after deduction of investment expenses, but before
applicable income tax, excluding income from real estate.
(c) Before applicable income tax.
(d) Relates to equity securities.
Reinsurance
The companies in the Life Group, in accordance with common industry
practice, reinsure portions of the life insurance risks they underwrite with
other companies. At the present time, the maximum amount of life insurance
retained on any one life by the Life Group is $1,250,000, excluding accidental
death benefits. Including accidental death benefits, the Life Group accepts a
maximum net retention of $1,400,000.
Policy Liabilities
Premium receipts from universal life and other interest-sensitive contracts
are established as policyholder account balances. Charges for the cost of
insurance and policy administration are assessed against the policyholder
account balance. The amount remaining after such charges represents the policy
liability before applicable surrender charges. Benefit reserves on individual
life insurance contracts with fixed and guaranteed premiums and benefits are
computed so that amounts, with additions from actuarial net premiums to be
received and with interest on such reserves compounded annually at certain
assumed rates, will be sufficient to meet expected policy obligations.
12
13
In accordance with generally accepted accounting principles, certain additional
factors are considered in the reserve computation as more fully set forth in
Note (1)(e) of the notes to consolidated financial statements incorporated by
reference from the Corporation's 1993 Annual Report to Shareholders.
Group life reserves represent the unearned premium. Group medical reserves
are computed utilizing "lag and adjusted lag" methods. These methods take into
account historical claim experience and adjust for current medical inflation and
changes in claim backlog.
REAL ESTATE DEVELOPMENT GROUP
The Real Estate Development Group (Real Estate Group) is composed of
Bellemead Development Corporation and its subsidiaries. The Real Estate Group is
involved with commercial and residential real estate development.
The Real Estate Group develops real estate properties itself rather than
through third party developers. It is distinguished from most other real estate
developers in that it coordinates all phases of the development process from
concept to completion. The services offered to its customers include land
acquisition, site planning, architecture, engineering, construction, financing,
marketing and property management. Upon completion of development, the
properties may be either owned and operated for the Real Estate Group's own
account or sold to third parties. The Real Estate Group directly manages
virtually all of the properties which it either owns or has sold and retained
interests in through secured loans. The Real Estate Group's continuing
investment interests in joint ventures generally consist of the ownership and
lease of the underlying land and the management and operation of the buildings.
The Real Estate Group's commercial development activities center around
acquiring suburban, multi-site land parcels in locations considered prime for
office development, and then developing the land in progressive stages. The Real
Estate Group's activities include a few metropolitan office building projects.
Commercial development activities are primarily in northern and central New
Jersey with additional operations in Connecticut, Florida, Illinois, Maryland,
Michigan, Pennsylvania and Texas.
The Real Estate Group owns 4,455,000 square feet of office and industrial
space, of which 87% is leased. The Real Estate Group has varying interests in an
additional 6,080,000 square feet of office and industrial space which is 92%
leased.
Residential development activities of the Real Estate Group are primarily
in central Florida.
The Real Estate Group currently has undeveloped land holdings of
approximately 4,600 acres, with primary holdings in New Jersey and Florida and
lesser holdings in six additional states.
REGULATION, PREMIUM RATES AND COMPETITION
The Corporation is a holding company primarily engaged in the insurance
business and is therefore subject to regulation by certain states as an
insurance holding company. California, Indiana, Minnesota, New Hampshire, New
Jersey, New York and all other states have enacted legislation which regulates
insurance holding company systems such as the Corporation and its subsidiaries.
This legislation generally provides that each insurance company in the system is
required to register with the department of insurance of its state of domicile
and furnish information concerning the operations of companies within the
holding company system which may materially affect the operations, management or
financial condition of the insurers within the system. All transactions within a
holding company system affecting insurers must be fair and equitable. Notice to
the insurance commissioners is required prior to the consummation of
transactions affecting the ownership or control of an insurer and of certain
material transactions between an insurer and any person in its holding company
system and, in addition, certain of such transactions cannot be consummated
without the commissioners' prior approval.
13
14
Property and Casualty Insurance
The Property and Casualty Insurance Group is subject to regulation and
supervision in the states in which it does business. In general, such regulation
is for the protection of policyholders rather than shareholders. The extent of
such regulation varies but generally has its source in statutes which delegate
regulatory, supervisory and administrative powers to a department of insurance.
The regulation, supervision and administration relate to, among other things,
the standards of solvency which must be met and maintained; the licensing of
insurers and their agents; restrictions on insurance policy terminations; unfair
trade practices; the nature of and limitations on investments; premium rates;
restrictions on the size of risks which may be insured under a single policy;
deposits of securities for the benefit of policyholders; approval of policy
forms; periodic examinations of the affairs of insurance companies; annual and
other reports required to be filed on the financial condition of companies or
for other purposes; limitations on dividends to policyholders and shareholders;
and the adequacy of provisions for unearned premiums, unpaid claims and claim
adjustment expenses, both reported and unreported, and other liabilities.
In December 1993, the National Association of Insurance Commissioners
adopted a risk-based capital formula for property and casualty insurance
companies. This formula will be used by state regulatory authorities to identify
insurance companies which may be undercapitalized and which merit further
regulatory attention. The formula prescribes a series of risk measurements to
determine a minimum capital amount for an insurance company, based on the
profile of the individual company. The ratio of a company's actual
policyholders' surplus to its minimum capital requirement will determine whether
any state regulatory action is required. The risk-based capital requirement will
be applicable to property and casualty insurance companies for the first time as
of year-end 1994. Based on preliminary calculations using 1993 data, each member
of the Group has more than sufficient capital to meet the risk-based capital
requirement.
Regulatory requirements applying to premium rates vary from state to state,
but generally provide that rates not be "excessive, inadequate or unfairly
discriminatory." Rates for many lines of business, including automobile and
homeowners insurance, are subject to prior regulatory approval in many states.
However, in certain states, prior regulatory approval of rates is not required
for most lines of insurance which the Group underwrites. Ocean marine insurance
rates are exempt from regulation.
Subject to regulatory requirements, the Group's management determines the
prices charged for its policies based on a variety of factors including claim
and claim adjustment expense experience, inflation, tax law and rate changes,
and anticipated changes in the legal environment, both judicial and legislative.
Methods for arriving at rates vary by type of business, exposure assumed and
size of risk. Underwriting profitability is affected by the accuracy of these
assumptions, by the willingness of insurance regulators to grant increases in
those rates which they control and by such other matters as underwriting
selectivity and expense control.
In all states, insurers authorized to transact certain classes of property
and casualty insurance are required to become members of an insolvency fund. In
the event of the insolvency of an insurer writing a class of insurance covered
by the fund in the state, all members are assessed to pay certain claims against
the insolvent insurer. Fund assessments are proportionately based on the
members' written premiums for the classes of insurance written by the insolvent
insurer. A portion of these assessments is recovered in certain states through
premium tax offsets and policyholder surcharges. In 1993, such assessments to
the members of the Group amounted to approximately $8 million. The amount of
future assessments cannot be reasonably estimated.
State insurance regulation requires insurers to participate in assigned
risk plans, reinsurance facilities and joint underwriting associations, which
are mechanisms to provide risks with various basic insurance coverages when they
are not available in voluntary markets. Such mechanisms are most prevalent for
automobile and workers' compensation insurance, but a majority of states also
mandate participation in Fair Plans or Windstorm Plans, which provide basic
property coverages. Some states also require insurers to participate in
facilities that provide homeowners, crime and medical malpractice insurance.
Participation is based upon the amount of a company's voluntary written premiums
in a particular state for the classes of insurance involved. These involuntary
market plans generally are underpriced and produce unprofitable underwriting
results.
14
15
In several states, insurers, including members of the Group, participate in
market assistance plans. Typically, a market assistance plan is voluntary, of
limited duration and operates under the supervision of the insurance
commissioner to provide assistance to applicants unable to obtain commercial and
personal liability and property insurance. The assistance may range from
identifying sources where coverage may be obtained to pooling of risks among the
participating insurers.
The extent of insurance regulation on business outside the United States
varies significantly among the countries in which the Group operates. Some
countries have minimal regulatory requirements, while others regulate insurers
extensively. Foreign insurers in many countries are faced with greater
restrictions than domestic competitors. Such restrictions include the need to
secure new licenses and compulsory cessions of reinsurance. In certain countries
the Group has incorporated insurance subsidiaries locally to improve its
position.
The property and casualty insurance industry is highly competitive both as
to price and service. Members of the Group compete not only with other stock
companies but also with mutual companies, other underwriting organizations and
alternative risk sharing mechanisms. Some competitors obtain their business at a
lower cost through the use of salaried personnel rather than independent agents
and brokers. Rates are not uniform for all insurers and vary according to the
types of insurers and methods of operation. The Group competes for business not
only on the basis of price, but also on the basis of availability of coverage
desired by customers and quality of service, including claim adjustment service.
The Group's products and services are generally designed to serve specific
customer groups or needs and to offer a degree of customization that is of value
to the insured.
There are approximately 3,900 property and casualty insurance companies in
the United States operating independently or in groups and no single company or
group is dominant. According to A.M. Best, the Group is the 14th largest United
States property and casualty insurance group based on 1992 net premiums written.
The relatively large size and underwriting capacity of the Group make available
opportunities not available to smaller companies.
The property and casualty insurance industry has a history of cyclical
performance with successive periods of deterioration and improvement over time.
The industry and the Group experienced substantial underwriting losses from 1980
through 1984. Beginning in 1984, the industry and the Group were able to
increase prices and tighten underwriting terms. Substantial price increases were
achieved in most commercial lines from 1984 through 1986. Price competition
increased in the property and casualty marketplace during 1987 and has continued
through 1993, particularly in the commercial classes. In 1993, property related
business experienced some rate firming in the wake of the unprecedented
catastrophes of 1992; however, price increases in casualty lines continued to be
difficult to achieve. The Group continues to be selective in the writing of new
business and to reinforce the sound relationships with its customers who
appreciate the stability, expertise and added value the Group provides. In the
personal lines, the regulatory climate for obtaining rate increases continues to
be difficult, particularly in the automobile class.
Life and Health Insurance
The members of the Life Group are subject to regulation and supervision in
each state in which they do business. Such regulation and supervision is
generally of the character indicated in the first two paragraphs under the
preceding caption, "Property and Casualty Insurance." The risk-based capital
formula for life and health insurers was first effective as of year-end 1993.
Each member of the Life Group had more than sufficient capital at December 31,
1993 to meet the risk-based capital requirement.
The Life Group operates in a highly competitive industry in which it does
not hold a significant market share. The Life Group competes in the personal
insurance market not only with other life insurance companies but also with
other financial institutions. By offering a full line of products, including
interest-sensitive and variable products, both with and without life
contingencies, the Life Group meets this competition for its selected customer
group. The Life Group also competes in the small group health insurance market
by offering competitively priced indemnity products with comprehensive benefits,
and a full line of ancillary products including group dental, life and long term
disability. In 1993, the Life Group accelerated its involvement in managed care
through the
15
16
development of ChubbHealth Inc., a health maintenance organization that will
serve the New York City metropolitan area. ChubbHealth is a joint venture with
Healthsource, Inc. ChubbHealth is in the final stages of licensing and will be
operational during the first half of 1994.
Members of the Life Group also participate in insolvency funds. In 1993,
insolvency fund assessments to the members of the Life Group amounted to
approximately $2 million.
There are approximately 2,000 legal reserve life insurance companies in the
United States. According to the National Underwriter, a trade publication, as of
January 1, 1993, Chubb Life, Colonial and Sovereign ranked 71st, 151st and
167th, respectively, among such companies based on total insurance in-force.
Legislative and Judicial Developments
Although the federal government and its regulatory agencies generally do
not directly regulate the business of insurance, federal initiatives often have
an impact on the business in a variety of ways. Current and proposed federal
measures which may significantly affect the insurance business include health
care reform initiatives, containment of medical care costs, limitations on
health insurance premiums, toxic waste removal and liability measures, financial
services deregulation, solvency regulation, employee benefits regulation,
automobile safety regulation, the taxation of insurance companies, the tax
treatment of insurance products and modification of the limited exemption for
the business of insurance from the federal antitrust laws.
Enacted and contemplated health care reform on both a national and state
level are reshaping the health insurance industry. Federal legislation on health
insurance is being considered which, if enacted, could create less favorable
conditions for the health insurance industry. Significant changes are not
expected to become operational for some time. It is currently not possible to
predict the long term impact of health care reforms on the Life Group's
business.
Insurance companies are also affected by a variety of state and federal
legislative and regulatory measures as well as by decisions of their courts that
define and extend the risks and benefits for which insurance is provided. These
include redefinitions of risk exposure in areas such as product liability and
commercial general liability as well as extension and protection of employee
benefits, including pension, workers' compensation and disability benefits.
Regulatory concerns with insurance risk classification have increased
significantly in recent years. There is continuous legislative, regulatory and
judicial activity regarding the use of gender in determining premium rates and
benefit payments. Also, some states have restricted the use of underwriting
criteria related to Human Immunodeficiency Virus related illnesses. The
Corporation's insurance subsidiaries have taken steps to limit their
underwriting exposures in those jurisdictions that severely restrict
underwriting freedom.
In July 1992, New York adopted legislation implementing changes in the
small employer group health insurance market. The major provisions became
effective April 1, 1993. New Jersey adopted similar legislation in November
1992, which generally became effective January 1, 1994. Both laws significantly
affect the manner in which the Life Group and other small group health indemnity
insurers conduct business. In general, the laws create community based rating,
mandate prior approval of rates by the insurance department, require open
enrollment periods, limit pre-existing condition exclusions and eliminate health
underwriting for insured groups with fewer than 50 covered lives. Several
lawsuits have been filed by a number of insurers, including a member of the Life
Group, to overturn the New York law and regulations. Certain provisions of the
law have been successfully challenged; however, the New York Superintendent of
Insurance has appealed such decisions. Approximately 80% of the Life Group's
group health insurance premiums are written in New York and New Jersey. The Life
Group has taken actions, including redesigning products and restructuring rates
and sales commissions, which will allow the Life Group to remain competitive
with other small employer group health indemnity insurers in New York and New
Jersey.
In 1988, voters in California approved Ballot Proposition 103, an insurance
reform initiative, which is discussed in Item 7 of this report on page 22.
16
17
In 1990, New Jersey adopted legislation imposing controls over automobile
insurance risk selection, pricing, coverage and termination. The New Jersey
statute also applied the state's antitrust laws to automobile insurers,
abolished the deficit-ridden Automobile Joint Underwriting Association (JUA),
established a Market Transition Facility (MTF) to issue automobile policies
until the implementation of an assigned risk mechanism on October 1, 1992 and
levied an assessment and surtax on certain insurance coverages to help defray
the estimated $3 billion obligation of the JUA. Under the law, insurers must
make special rate filings to recoup these added charges from their insurance
customers. The MTF has also generated a deficit during its two year existence.
Pursuant to statute, the deficit is required to be allocated to automobile
insurers, including members of the Group, based on market share. Regulations
permit insurers to apply for a surcharge to recover these allocations when paid.
In December 1993, the Group entered into an agreement with the Insurance
Commissioner to pay approximately $10 million as its share of the then projected
deficit of $900 million. The Group's share is subject to adjustment based on any
changes in the estimated deficit. The agreement also entitles the Group to a
refund or credit of any payments made in the event that litigation commenced by
representatives of the insurance industry challenging the Insurance
Commissioner's authority to allocate the deficit to insurers is successful. Such
litigation is currently pending. In March 1994, the acting Insurance
Commissioner announced that the deficit had been reestimated to be approximately
$1.3 billion. The Group's share of the reestimated deficit is approximately $15
million.
ITEM 2. PROPERTIES
The executive offices of the Corporation and the administrative offices of
the Property and Casualty Group are in Warren, New Jersey. The Life Group has
its administrative offices in Concord, New Hampshire; Parsippany, New Jersey;
Chattanooga, Tennessee and Santa Barbara, California. The Real Estate Group's
corporate headquarters is located in Roseland, New Jersey. The insurance
subsidiaries maintain zonal and branch offices in major cities throughout the
United States, and members of the Property and Casualty Insurance Group also
have offices in Canada, Europe, Australia and the Far East. Office facilities
are leased with the exception of buildings in Branchburg, New Jersey,
Chattanooga and Santa Barbara, and a portion of the Life Group's home office
complex in Concord. Management considers its office facilities suitable and
adequate for the current level of operations. See Note (11) of the notes to
consolidated financial statements incorporated by reference from the
Corporation's 1993 Annual Report to Shareholders.
ITEM 3. LEGAL PROCEEDINGS
The Corporation and its subsidiaries are defendants in various lawsuits
arising out of their businesses. It is the opinion of management that the final
outcome of these matters will not materially affect the consolidated financial
position of the registrant.
Information regarding certain litigation to which property and casualty
insurance subsidiaries of the Corporation are a party is included in Item 7 of
this report on pages 23 and 24.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the shareholders during the last
quarter of the year ended December 31, 1993.
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EXECUTIVE OFFICERS OF THE REGISTRANT
YEAR OF
AGE(a) ELECTION(b)
Dean R. O'Hare, Chairman of the Corporation.............................. 51 1972
Percy Chubb, III, Vice Chairman of the Corporation....................... 59 1971
Richard D. Smith, President of the Corporation........................... 65 1983
Randell G. Craig, Executive Vice President of Chubb Life................. 48 1994
Robert P. Crawford, Jr., Executive Vice President of the Corporation..... 52 1994
John J. Degnan, Vice Chairman and General Counsel of Chubb & Son Inc. ... 49 1994
Gail E. Devlin, Senior Vice President of the Corporation................. 55 1981
David S. Fowler, Senior Vice President of the Corporation................ 48 1989
Henry G. Gulick, Vice President and Secretary of the Corporation......... 50 1975
Donn H. Norton, Executive Vice President of the Corporation.............. 52 1985
Michael O'Reilly, Senior Vice President of the Corporation............... 50 1976
Robert Rusis, Senior Vice President and General Counsel of the
Corporation............................................................ 60 1990
Henry B. Schram, Senior Vice President of the Corporation................ 47 1985
Theresa M. Stone, Senior Vice President of the Corporation............... 49 1990
John F. Swope, Executive Vice President of the Corporation............... 55 1985
George T. Van Gilder, Executive Vice President of Chubb & Son Inc. ...... 50 1994
- ---------------
(a) Ages listed above are as of April 26, 1994.
(b) Date indicates year first elected or designated as an executive
officer.
All of the foregoing officers serve at the pleasure of the Board of
Directors of the Corporation or listed subsidiary and have been employees of the
Corporation or a subsidiary of the Corporation for more than five years except
for Randell G. Craig, John J. Degnan and Theresa M. Stone. Mr. Craig joined
Chubb Life in 1990 and was previously a vice president with Crown Life Insurance
Company. Prior to joining Chubb & Son Inc. in 1990, Mr. Degnan was a senior
partner in the New Jersey law firm of Shanley & Fisher. Ms. Stone, who joined
the Corporation in 1990, was previously a principal with Morgan Stanley & Co.
Incorporated.
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PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
Incorporated by reference from the Corporation's 1993 Annual Report to
Shareholders, page 67.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the five years ended December 31, 1993 are
incorporated by reference from the Corporation's 1993 Annual Report to
Shareholders, pages 38 and 39.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion presents our past results and our expectations for
the near term future. The supplementary financial information and consolidated
financial statements and related notes, all of which are integral parts of the
following analysis of our results and our financial position, are incorporated
by reference from the Corporation's 1993 Annual Report to Shareholders, pages
11, 12 and 40 through 61.
Net income amounted to $324 million in 1993 compared with $617 million in
1992 and $552 million in 1991. Net income in 1993 reflects a net charge of $357
million after taxes related to an agreement for the settlement of
asbestos-related litigation and the Corporation's intention to exercise its
option to commute an unrelated existing medical malpractice reinsurance
agreement. Net income in 1993 also reflects a one-time charge of $20 million for
the cumulative effect of adopting new accounting requirements for postretirement
benefits other than pensions and for income taxes.
Net income included realized investment gains after taxes of $152 million,
$124 million and $43 million in 1993, 1992 and 1991, respectively. Decisions to
sell securities are governed principally by considerations of investment
opportunities and tax consequences. Thus, realized investment gains and losses
may vary significantly from year to year. As a result, net income may not be
indicative of our operating performance for the period.
PROPERTY AND CASUALTY INSURANCE
Property and casualty income was significantly lower in 1993 compared with
1992 and 1991 due to a $675 million increase in loss reserves related to an
agreement for the settlement of asbestos-related litigation (the "$675 million
charge"), which is further described under Loss Reserves. This was partially
offset by a $125 million return premium to the property and casualty insurance
subsidiaries related to the Corporation's intention to exercise its option to
commute an existing medical malpractice reinsurance agreement (the "$125 million
return premium").
Property and casualty income after taxes was $118 million in 1993 compared
with $407 million in 1992 and $416 million in 1991. Excluding the effects of the
$675 million charge and the $125 million return premium, property and casualty
income after taxes was $475 million in 1993. Results for 1993 benefited from
lower catastrophe losses and an increase in investment income compared with the
prior year. The earnings decrease in 1992 was due to a decline in underwriting
results caused by substantial catastrophe losses, including those from Hurricane
Andrew, partially offset by an increase in investment income. Catastrophe losses
were $89 million in 1993 compared with $175 million in 1992 and $72 million in
1991.
Net premiums written, excluding the $125 million return premium, amounted
to $3.5 billion in 1993, an increase of 9% compared with 1992, which was in turn
4% higher than 1991. Personal coverages accounted for $814 million or 23% of
1993 premiums written, standard commercial coverages for $1,202 million or 34%,
specialty commercial coverages for $1,270 million or 36% and reinsurance assumed
for $235 million or 7%. The marketplace continued to be competitive,
particularly in the commercial classes. Property related business experienced
some rate firming in 1993 in the wake of the unprecedented catastrophes of 1992,
but price increases in casualty lines continued to be difficult to
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achieve. We have continued to be selective in the writing of new business and to
reinforce the sound relationships with our customers who appreciate the
stability, expertise and added value we provide.
Due to the adverse effect of the $675 million charge, underwriting results
were extremely unprofitable in 1993. The combined loss and expense ratio, the
common measure of underwriting profitability, was 114.8% in 1993 compared with
101.1% in 1992 and 99.5% in 1991. Excluding the effects of the $675 million
charge and the $125 million return premium, the combined loss and expense ratio
was 99.0% in 1993.
The loss ratio was 82.5% in 1993 compared with 66.7% in 1992 and 64.4% in
1991. Excluding the effects of the $675 million charge and the $125 million
return premium, the loss ratio was 65.5% in 1993, continuing to reflect the
favorable experience resulting from the consistent application of our
underwriting standards. Losses from catastrophes represented 2.5, 5.6 and 2.4
percentage points of the loss ratio in 1993, 1992 and 1991, respectively.
Our expense ratio was 32.3% in 1993 compared with 34.4% in 1992 and 35.1%
in 1991. Excluding the effect of the $125 million return premium, the expense
ratio was 33.5% in 1993. The improvement from the comparable 1992 ratio was due
to lower commissions and to growth in written premiums at a somewhat greater
rate than the increase in overhead expenses. The decrease in the expense ratio
in 1992 was due to lower commissions. Expenses were reduced by contingent profit
sharing accruals of $9 million in each of the three years relating to the
medical malpractice reinsurance agreement. We anticipate a similar accrual
during 1994. There will be no further profit sharing allowance under this
agreement after 1994.
The effect of Hurricane Andrew on our underwriting results in 1992 was
mitigated to a great extent by our catastrophe reinsurance program. The
catastrophe reinsurance market has suffered large losses in recent years. As a
result, the reinsurance market's capacity was substantially reduced in 1993 and
the cost of available coverages rose significantly. We responded by increasing
our retention levels for individual catastrophe losses. The effect of this
change on our 1993 underwriting results was not significant due to the absence
of severe catastrophe losses.
PERSONAL INSURANCE
Premiums from personal insurance increased 2% in 1993 compared with a 2%
decrease in 1992. It continues to be difficult to write new homeowners and other
non-automobile business due to our disciplined pricing as well as the weakness
in residential real estate markets. Personal automobile premiums have remained
level over the past three years as modest rate increases have offset a reduction
in the number of in force policies, which is consistent with our plan to control
our exposure in this class.
Our personal insurance business produced an underwriting profit in 1993
compared with underwriting losses in 1992 and 1991. All classes contributed to
the 1993 improvement. The combined loss and expense ratio was 95.8% in 1993
compared with 104.6% in 1992 and 103.1% in 1991. Underwriting results in each of
these years were adversely affected by significant catastrophe losses in the
homeowners class, particularly Hurricane Andrew in 1992.
Homeowners results, excluding the impact of catastrophes, benefited in 1992
and 1993 from disciplined pricing and stable loss frequency and severity.
Catastrophe losses for this class represented 13.4 percentage points of the loss
ratio for 1993 compared with 25.0 percentage points in 1992 and 13.1 percentage
points in 1991. Our automobile business was modestly profitable in 1993 compared
with breakeven results in 1992 and unprofitable results in 1991. The improvement
in 1993 was due to stable loss frequency and severity while in 1992 it was
primarily due to a reduced frequency of losses. Automobile results were
adversely affected each year by significant losses from the mandated business
which we are required by law to accept for those individuals who cannot obtain
coverage in the voluntary market. Other personal coverages, which include
insurance for personal valuables and excess liability, were increasingly
profitable in 1992 and 1993.
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STANDARD COMMERCIAL INSURANCE
Excluding the $125 million return premium discussed below, premiums from
standard commercial insurance, which include coverages for multiple peril,
casualty and workers' compensation, increased 6% in 1993 compared with 2% in
1992. The competitive market has continued to place significant pressure on
rates. Premium growth in 1993 was most significant in the multiple peril class;
such growth was due primarily to improved renewal retention as well as exposure
growth on such renewals.
Medical malpractice business, which we stopped writing in 1984, was
reinsured effective year-end 1985. Under the provisions of the reinsurance
agreement, we may elect to commute the remaining liability from the reinsurer as
of December 31, 1995 and receive payment, at that time, of an amount determined
by the agreement. In August 1993, the Corporation announced its intention to
exercise this election. As the result of the favorable loss payment pattern in
the eight years since this business was reinsured, the commutation will result
in a return premium to the property and casualty insurance subsidiaries of
approximately $125 million, which was recognized in the third quarter of 1993.
Our standard commercial underwriting results were unprofitable in each of
the past three years. Such results were extremely unprofitable in 1993 due to
the adverse effect of the $675 million charge. The combined loss and expense
ratio was 149.7% in 1993 compared with 105.7% in 1992 and 102.6% in 1991.
Excluding the effects of the $675 million charge and the $125 million return
premium, the combined loss and expense ratio was 107.6% in 1993.
Casualty results include the effects of the $675 million charge and the
$125 million return premium. Excluding the effects of these items, casualty
results were near breakeven in 1993 compared with profitable results in 1992 and
1991. The excess liability component deteriorated somewhat in 1993 but remained
profitable due to the relative price adequacy and favorable loss experience in
this class. These favorable results were offset in varying degrees in each of
the past three years by increases in loss reserves on general liability business
written in earlier years, particularly for asbestos-related and toxic waste
claims. Results in the automobile component were modestly profitable in each of
the last three years.
Multiple peril results were similarly unprofitable in each of the last
three years due to the less than adequate prices. Results in the property
component of this business improved in 1993 due to a reduction in the impact of
catastrophe losses. This was offset by a deterioration in the liability
component that was due to an increase in the frequency and severity of losses.
Results in 1992 were adversely affected by higher catastrophe losses, primarily
from Hurricane Andrew and the civil disorder in Los Angeles. Catastrophe losses
for this class represented 3.6 percentage points of the loss ratio for 1993
compared with 10.1 percentage points in 1992 and 1.3 percentage points in 1991.
Workers' compensation results were extremely unprofitable in each of the
past three years. Results in our voluntary business have benefited somewhat from
rate increases and a reduced frequency of losses. Results in this class have
been aggravated each year, but particularly in 1991, by our share of the
significant losses incurred by the involuntary pools and mandatory business in
which we must participate by law.
SPECIALTY COMMERCIAL INSURANCE
Premiums from specialty commercial insurance increased 10% in 1993 compared
with 11% in 1992. The growth was due primarily to rate and exposure increases in
several of our smaller specialty classes. Price increases for most of our
executive protection and financial fidelity coverages were difficult to achieve.
Our strategy of working closely with our customers and our ability to
differentiate our products has enabled us to retain a large percentage of our
business.
The specialty commercial business produced substantial underwriting profits
in each of the past three years with combined loss and expense ratios of 91.0%
in 1993, 90.5% in 1992 and 90.3% in 1991. Our executive protection, financial
fidelity and surety results were highly profitable in each year due to favorable
loss experience.
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Marine results were profitable in 1993 and 1992 compared with near
breakeven results in 1991. Results in several of our smaller specialty classes
deteriorated in 1993 compared with the prior two years, due primarily to an
increased frequency of large losses.
REINSURANCE ASSUMED
Premiums from reinsurance assumed, which is primarily treaty reinsurance
assumed from the Sun Alliance Group plc, increased 46% in 1993 compared with 9%
in 1992. The growth in 1993 was due to an increase in our participation in the
business of Sun Alliance and a firming of rates in Sun Alliance's markets,
primarily in the United Kingdom.
Underwriting results for this segment, while substantially improved in 1993
due to the firming of rates, have been unprofitable in each of the last three
years. The combined loss and expense ratio was 111.8% in 1993 compared with
126.9% in 1992 and 119.3% in 1991. Results in 1992 were adversely affected by
our share of the substantial mortgage indemnity insurance losses experienced by
Sun Alliance in the United Kingdom. Results in 1991 reflect the adverse effect
on Sun Alliance of excessive price competition and a damaging recession in the
United Kingdom.
REGULATORY INITIATIVES
In 1988, voters in California approved Ballot Proposition 103, an insurance
reform initiative which affects most property and casualty insurers writing
business in the state. Approximately 14% of the direct business of the
Corporation's property and casualty subsidiaries is written in California.
Provisions of Proposition 103 would have required insurers to roll back property
and casualty insurance rates for certain lines of business to 20 percent below
November 1987 levels and would have required an additional 20 percent reduction
in automobile rates by November 1989. In 1989, the California Supreme Court,
ruling on the constitutional challenge to Proposition 103, ruled that an insurer
is entitled to a fair rate of return.
The regulations implementing the rate determination and premium rollback
provisions of Proposition 103 continue to evolve. A California Superior Court
decision declared invalid and void the rollback and rate review regulations
proposed by the elected Insurance Commissioner. The Court decision prohibits the
Commissioner from enforcing the regulations as well. The Commissioner has
appealed the Superior Court decision to the California Supreme Court and the
outcome of that appeal is uncertain. In a separate action, a California Court of
Appeal has ruled that Proposition 103 regulations need not be submitted for
approval to the California Office of Administrative Law. A petition for review
has been filed with the California Supreme Court. There are at present no
regulations in force or proposed which establish a final rollback formula.
None of our property and casualty subsidiaries have been among the
companies thus far ordered to refund premiums for the rollback period. Based on
our analysis of the operating results of our property and casualty subsidiaries
in the State of California during the rollback period, it is management's belief
that it is probable that any final court decision will not result in premium
refunds of a material amount by the Corporation's property and casualty
subsidiaries.
LOSS RESERVES
Loss reserves are our property and casualty subsidiaries' largest
liability. At the end of 1993, gross loss reserves totaled $8.2 billion compared
with $7.2 billion and $6.6 billion at year-end 1992 and 1991, respectively.
Reinsurance recoverable on such loss reserves was $1.8 billion at the end of
1993 compared with $2.0 billion and $1.8 billion at year-end 1992 and 1991,
respectively. Loss reserves, net of reinsurance recoverable, increased 22% in
1993, after increases of 11% and 10% in 1992 and 1991, respectively. The
significant increase in 1993 was primarily due to the $675 million increase
related to the settlement of asbestos-related litigation. Excluding this $675
million, loss reserves increased by 10% in 1993. Substantial reserve growth has
occurred each year in those liability coverages, primarily excess
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liability and executive protection, that have delayed loss reporting and
extended periods of settlement. These coverages have become a more significant
portion of our business in recent years.
The process of establishing loss reserves is an imprecise science and
reflects significant judgmental factors. In many liability cases, significant
periods of time, ranging up to several years or more, may elapse between the
occurrence of an insured loss, the reporting of the loss and the settlement of
the loss. In fact, approximately 50% of our loss reserves at December 31, 1993
were for claims that had not yet been reported to us, some of which were not yet
known to the insured, and for future development on reported claims.
Judicial decisions and legislative actions continue to broaden liability
and policy definitions and to increase the severity of claim payments. As a
result of this and other societal and economic developments, the uncertainties
inherent in estimating ultimate claim costs on the basis of past experience have
increased significantly, further complicating the already difficult loss
reserving process.
The uncertainties relating to asbestos and toxic waste claims on insurance
policies written many years ago are exacerbated by judicial and legislative
interpretations of coverage that in some cases have tended to erode the clear
and express intent of such policies and in others have expanded theories of
liability. The industry is engaged in extensive litigation over these coverage
and liability issues and is thus confronted with a continuing uncertainty in its
effort to quantify these exposures.
Our most costly asbestos exposure relates to an insurance policy issued to
Fibreboard Corporation by Pacific Indemnity Company in 1956. In 1993, Pacific
Indemnity Company, a subsidiary of the Corporation, entered into a global
settlement agreement with Continental Casualty Company (a subsidiary of CNA
Financial Corporation), Fibreboard Corporation, and attorneys representing
claimants against Fibreboard for all future asbestos-related bodily injury
claims against Fibreboard. This agreement is subject to court approval. Pursuant
to the global settlement agreement, a $1.525 billion trust fund will be
established to pay future claims, which are claims that were not filed in court
before August 27, 1993. Pacific Indemnity will contribute approximately $538
million to the trust fund and Continental Casualty will contribute the remaining
amount. In December 1993, upon execution of the global settlement agreement,
Pacific Indemnity and Continental Casualty paid their respective shares into an
escrow account. Upon final court approval of the settlement, which could take up
to two years or more, the amount in the escrow account, including interest
earned thereon, will be transferred to the trust fund.
All of the parties have agreed to use their best efforts to seek court
approval of the global settlement agreement. Although it is likely that this
agreement will be challenged, management is optimistic that the courts will
approve the settlement.
Pacific Indemnity and Continental Casualty have reached a separate
agreement for the handling of all pending asbestos-related bodily injury claims
against Fibreboard. Pacific Indemnity's obligation under this agreement is not
expected to exceed $635 million, most of which is expected to be paid over the
next two years. The agreement further provides that the total responsibility of
both insurers with respect to pending and future asbestos-related bodily injury
claims against Fibreboard will be shared between Pacific Indemnity and
Continental Casualty on an approximate 35% and 65% basis, respectively.
Pacific Indemnity, Continental Casualty and Fibreboard have entered into a
trilateral agreement, subject to court approval, to settle all present and
future asbestos-related bodily injury claims resulting from insurance policies
that were, or may have been, issued to Fibreboard by the two insurers. The
trilateral agreement will be triggered if the global settlement agreement is
disapproved. Pacific Indemnity's obligation under the trilateral agreement is
therefore similar to, and not duplicative of, that under those agreements
described above.
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The trilateral agreement reaffirms portions of an agreement reached in
March 1992 between Pacific Indemnity and Fibreboard. Among other matters, that
1992 agreement eliminates any Pacific Indemnity liability to Fibreboard for
asbestos-related property damage claims.
Pacific Indemnity, Continental Casualty and Fibreboard have requested a
California Court of Appeal to delay its decisions regarding asbestos-related
insurance coverage issues, which are currently before it and involve the three
parties exclusively, while the approval of the global settlement is pending in
court. Continental Casualty and Pacific Indemnity have dismissed disputes
against each other which involved Fibreboard and were in litigation.
Prior to the settlement, the Corporation's property and casualty
subsidiaries had paid $40 million and had existing loss reserves of $545 million
to cover a portion of their obligation under these agreements. This amount
included $300 million of general liability incurred but not reported (IBNR)
reserves which were not previously classified as specific reserves for asbestos
claims since it was management's belief that doing so would increase the demands
of plaintiffs' attorneys. Additional loss reserves of $675 million were provided
in the third quarter of 1993 at the time the settlement was negotiated.
Management believes that, as a result of the global settlement agreement
and the trilateral agreement, the uncertainty of our exposure with respect to
asbestos-related bodily injury claims against Fibreboard has been greatly
reduced. However, if both the global settlement agreement and the trilateral
agreement are disapproved, there can be no assurance that the loss reserves
established for future claims would be sufficient to pay all amounts which
ultimately could become payable in respect of future asbestos-related bodily
injury claims against Fibreboard.
Other than Fibreboard, our remaining asbestos exposures are mostly limited
to peripheral regional defendants, principally distributors. We continue to
receive new asbestos claims and new exposures on existing claims as more
peripheral parties are drawn into litigation to replace the now defunct mines
and bankrupt manufacturers. The recent claims are complex in that they include
significant and yet unresolved liability issues. Further, we still do not know
the universe of potential claims.
Hazardous waste sites are another significant potential exposure. Under the
existing "Superfund" law and similar state statutes, when potentially
responsible parties (PRPs) fail to handle the clean-up, regulators will have the
work done and then attempt to establish legal liability against the PRPs. The
PRPs, with proper government authorization in many instances, disposed of toxic
materials at a waste dump site or transported the materials to the site. Most
sites have multiple PRPs. As the cost of environmental clean-up continues to
grow, PRPs and others continue to file claims with their insurance carriers.
Insurance policies issued to PRPs were not intended to cover the clean-up costs
of pollution and, in many cases, did not intend to cover the pollution itself.
Pollution was not a recognized hazard at the time many of these policies were
written. In some cases, however, more recent policies specifically excluded such
exposures. Ensuing litigation extends to issues of liability, coverage and other
policy provisions.
There is great uncertainty involved in estimating our liabilities related
to these claims. First, the underlying liabilities of the claimants are
extremely difficult to estimate. At any given clean-up site, the allocation of
financial responsibility among the governmental authorities and PRPs varies
greatly. Second, various courts have addressed liability and coverage issues
regarding pollution claims and have reached inconsistent conclusions in their
interpretation of several issues. These significant uncertainties are not likely
to be resolved in the near future.
Uncertainties also remain as to the Superfund law itself. The law, which is
subject to reauthorization in 1994, has generated far more litigation than it
has provided clean up. The Clinton Administration has recently unveiled its plan
for rewriting the Superfund law. The proposal creates a new Superfund insurance
trust and includes a new non-judicial arbitration process aimed at removing
Superfund disputes from the courts. It also creates a new tax on commercial
insurance companies to be used to fund the trust and to settle Superfund related
lawsuits between PRPs and their insurers. It also
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provides for some relaxation of clean-up standards under certain conditions. We
view this proposal as a positive first step. However, it does not yet come close
to achieving its essential objectives -- resolving 90% of Superfund claims in
litigation at a cost which is fair and affordable to the insurance industry. It
is important to note that the proposal does not address non-Superfund site
cases. For that reason, it does not cover all existing toxic waste litigation,
for example, sites that are subject to state law only.
Litigation costs continue to escalate, particularly for toxic waste claims.
A substantial portion of the funds expended to date has been for legal fees
incurred in the prolonged litigation of coverage issues. Many policies provide
an indemnity policy limit but an unlimited contract for defense costs. This
language in the policy sometimes leads to the payment of defense costs in
sizable multiples of the policy limits.
Reserves for asbestos and toxic waste claims cannot be estimated with
traditional loss reserving techniques. Case reserves and costs of related
litigation have been established where sufficient information has been developed
to indicate the involvement of a specific insurance policy. In addition, IBNR
reserves have been established to cover additional exposures on both known and
unasserted claims. These reserves are continually reviewed and updated. Other
than the $675 million increase in loss reserves related to the Fibreboard
settlement and the reclassification of $300 million of general liability IBNR
reserves as specific reserves for this settlement, the increase in loss reserves
relating to asbestos and toxic waste claims was $101 million in 1993 compared
with $120 million in 1992 and $88 million in 1991. Further increases in such
reserves in 1994 and future years are possible as legal and factual issues
concerning these claims are clarified, although the amounts cannot be reasonably
estimated.
During 1993, due to the $675 million increase in loss reserves related to
the Fibreboard settlement, we experienced overall unfavorable development of
$665 million on loss reserves established as of the previous year-end. This
compares with favorable development of $28 million and $29 million in 1992 and
1991, respectively. Such deficiency and redundancies were reflected in operating
results in these respective years. Excluding the effect of the $675 million
increase in loss reserves related to the Fibreboard settlement, we experienced
favorable development of $10 million during 1993. Each of the past three years
benefited from favorable claim frequency and severity trends for certain
liability classes; this was offset each year in varying degrees by increases in
loss reserves relating to asbestos and toxic waste claims.
Management believes that the aggregate loss reserves of the property and
casualty subsidiaries at December 31, 1993 were adequate to cover claims for
losses which had occurred, including both those known to us and those yet to be
reported. In establishing such reserves, management considers facts currently
known and the present state of the law and coverage litigation. However, given
the expansion of coverage and liability by the courts and the legislatures in
the past and the possibilities of similar interpretations in the future,
particularly as they relate to asbestos and toxic waste claims, as well as the
uncertainty in determining what scientific standards will be acceptable for
measuring hazardous waste site clean-up, additional increases in loss reserves
may emerge which may adversely affect results in future periods. This emergence
cannot reasonably be estimated.
INVESTMENTS AND LIQUIDITY
Investment income after taxes increased 8% in 1993 compared with 6% in
1992. Growth was primarily due to significant increases in invested assets,
which reflected strong cash flow from operations over the period, offset in part
by lower yields on new investments. The effective tax rate on our investment
income was 14.7% in 1993 compared with 14.3% in 1992 and 15.3% in 1991. The
increase in the effective tax rate in 1993 was due to the increase in the
federal corporate tax rate from 34% to 35%, offset in part by holding a larger
proportion of tax-exempt securities in our investment portfolio. In 1992, the
effective tax rate decreased due to our holding a larger proportion of
tax-exempt securities in our investment portfolio.
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Generally, premiums are received by our property and casualty subsidiaries
months or even years before we pay the losses under the policies purchased by
such premiums. These funds are used first to make current claim and expense
payments. The balance is invested to augment the investment income generated by
the existing portfolio. Historically, more than sufficient funds have been
provided from insurance revenues to pay losses, operating expenses and dividends
to the Corporation.
Cash available for investment was approximately $480 million in 1993
compared with $655 million in 1992 and $730 million in 1991. The decrease in
1993 was due to the $538 million paid in December into an escrow account related
to the Fibreboard settlement.
The main objective of the investment portfolio of the property and casualty
companies is to provide maximum support to the insurance underwriting
operations. Investment strategies are developed based on many factors including
underwriting results and our resulting tax position, fluctuations in interest
rates and regulatory requirements.
In 1993 and 1992, we invested new cash primarily in tax-exempt bonds. In
each year we tried to achieve the appropriate mix in our portfolio to balance
both investment and tax strategies. In 1993, we reduced our taxable bond
portfolio by approximately $225 million and increased our short-term
investments.
The property and casualty subsidiaries have consistently invested in high
quality marketable securities. Taxable bonds in our domestic portfolio comprise
U.S. Treasury, government agency and corporate issues. Approximately 90% of our
taxable bonds are either backed by the U.S. government or rated AA or better by
Moody's or Standard & Poor's. Of the tax-exempt bonds, practically all are rated
A or better, with approximately half rated AAA. Both taxable and tax-exempt
bonds have an average maturity of 9 years. Actual maturities could differ from
contractual maturities because borrowers may have the right to call or prepay
obligations. Common stocks are high quality and readily marketable. Foreign
investments are managed to provide liquidity to support insurance operations
outside of the United States, while minimizing our exposure to currency
fluctuations.
The property and casualty subsidiaries maintain sufficient investments in
highly liquid, short-term securities at all times to provide for immediate cash
needs. At year-end 1993, such investments were at a higher than normal level so
that funds are readily available to pay amounts related to the Fibreboard
settlement. The Corporation maintains bank credit facilities that are available
to respond to unexpected cash demands.
LIFE AND HEALTH INSURANCE
Life and health insurance earnings after taxes were $63 million in 1993
compared with $56 million in 1992 and $51 million in 1991. Premiums and policy
charges were $801 million in 1993 compared with $689 million in 1992 and $634
million in 1991.
PERSONAL INSURANCE
Earnings from personal insurance were $37 million in 1993 compared with $34
million in 1992 and $33 million in 1991. Earnings increased in 1993 primarily
due to an increase in the spread between interest earned on our invested assets
and interest credited to policyholders on interest-sensitive products. Earnings
in 1992 were adversely affected by higher mortality experience, primarily in our
universal life and term life products. As the result of various adjustments, the
tax rate on personal insurance earnings was 26%, 18% and 28% in 1993, 1992 and
1991, respectively.
Premiums and policy charges amounted to $240 million in 1993 compared with
$214 million in 1992 and $192 million in 1991. New sales of personal insurance
as measured by annualized premiums were $88 million in 1993 compared with $71
million in 1992 and $54 million in 1991. Marketing initiatives conducted with
our property and casualty insurance distribution system together with the
increasing popularity of variable universal life products have contributed to
our growth.
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GROUP INSURANCE
Earnings from group insurance were $26 million in 1993 compared with $22
million in 1992 and $18 million in 1991. Group health rate levels have kept pace
with medical costs over this three year period. Group life insurance, which is
primarily marketed as an ancillary product to group health insurance,
contributed modestly to earnings in each of the last three years.
Premiums were $561 million in 1993 compared with $475 million in 1992 and
$442 million in 1991. New group sales as measured by annualized premiums were
$323 million in 1993 compared with $118 million in 1992 and $161 million in
1991.
Approximately 80% of our group health premiums are written in New York and
New Jersey. Both states have adopted legislation which eliminates health
insurance underwriting, creates community based rating and limits pre-existing
condition exclusions for insured groups with fewer than 50 covered lives. As the
result of this legislation, we had anticipated a reduction in premium and sales
levels in 1993. However, we were able to offer a competitive product in New
York, which is our major market, at a time when several insurers reduced their
market share, resulting in substantial increases in premiums and sales. Sales
decreased in 1992 due to our adherence to disciplined pricing as well as state
legislative actions which disrupted our markets in several jurisdictions.
We expect higher levels of competition in the small group market in 1994
and, as a result, anticipate that we will experience a reduction in premium and
sales levels.
Enacted and contemplated health care reform on both a national and state
level are reshaping the health insurance industry. Federal legislation on health
insurance is being considered which, if enacted, could create less favorable
conditions for the health insurance industry. Significant changes are not
expected to become operational for some time. It is currently not possible to
predict the long term impact of health care reforms on our business.
We believe that traditional indemnity plans will be a less viable product
option in the long term for both the consumer and the companies selling such
plans. Recognizing this, we have accelerated our involvement in managed care and
also worked to lessen our dependence on medical premium. The most visible action
we have taken in 1993 is the development of ChubbHealth Inc., a health
maintenance organization that will serve the New York City metropolitan area.
ChubbHealth is in the final stages of licensing and will be operational during
the first half of 1994.
We have also increased our emphasis on managed care outside New York by
offering preferred provider organizations, which are networks of hospitals,
clinics and doctors that offer cost savings compared with traditional indemnity
plans. Ancillary coverages, like dental, long-term disability and group life,
complete the product offering to this market segment.
INVESTMENTS AND LIQUIDITY
Gross investment income increased 7% in 1993 compared with 8% in 1992.
Premium receipts in excess of payments for benefits and expenses, together with
investment income, continue to provide cash for new investments. New cash
available amounted to $225 million in 1993 compared with $120 million in 1992
and $115 million in 1991. The increase in new cash in 1993 was due to the
significant increase in group health premiums and to new single premium sales.
In 1993 and 1992, new cash was invested primarily in mortgage-backed
securities and corporate bonds. We invest predominantly in investment grade
current coupon fixed-income securities with stable cash flow characteristics and
maturities which are consistent with life insurance reserve requirements.
Approximately 95% are investment grade and nearly half are rated AAA. We
maintain sufficient funds in short-term securities to meet unusual needs for
cash.
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REAL ESTATE DEVELOPMENT
Real estate operations resulted in a loss after taxes of $2 million in 1993
compared with income of $10 million in 1992 and $25 million in 1991. Earnings
were adversely affected by progressively higher portions of interest costs being
charged directly to expense rather than being capitalized and by provisions each
year for possible uncollectible receivables related to mortgages. Results were
also adversely affected in 1993 by a $3 million tax charge related to the
federal corporate tax rate increase. Revenues were $161 million in 1993 compared
with $150 million in 1992 and $141 million in 1991.
Our commercial real estate activities centered around acquiring suburban,
multi-site land parcels in locations considered prime for office development,
and then developing the land in progressive stages. We expanded our activities
to include a few metropolitan office building projects. We develop real estate
properties ourselves rather than through third party developers. We are
distinguished from most other real estate developers in that we coordinate all
phases of the development process from concept to completion. Upon completion of
development, the properties may be either owned and operated for our own account
or sold to third parties. We directly manage virtually all of the properties
which we either own or have sold and retained interests in through secured
loans.
Our continuing investment interests in joint ventures generally consist of
the ownership and lease of the underlying land and the management and operation
of the buildings. Our agreements with joint ventures to manage all aspects of
the ventured properties, including debt structures, tenant leasing, and building
improvements and maintenance, have put us in a strong position to protect our
ongoing financial interests in the current difficult real estate environment.
The real estate industry continues to suffer from a significantly reduced
demand for real estate investment. For the past several years, the supply of
available office space has exceeded the demand. The slowdown in the economy
exacerbated the problem as businesses consolidated their facilities, increasing
the supply of available space. While selected real estate markets have
experienced increases in leasing activity and some stability in rental rates,
the oversupply of available office space for lease in most markets and the
resultant depressed rental rates will continue to cause downward pressure on the
earnings of the real estate industry.
In light of the current real estate market conditions, we have curtailed
our construction of new office buildings in recent years. In 1991 and 1992, we
completed high-rise office buildings in Washington, D.C. and New Jersey, which
are currently approximately 95% leased. Also, in 1991, we acquired a 1.2 million
square foot office building, which is 87% leased, and adjacent land in Dallas
for approximately $200 million, which includes a $114 million assumed mortgage.
In 1993, we focused on completing and leasing newly-constructed facilities
and maintaining established properties at high occupancy levels. We also
commenced construction on three new suburban office buildings in locations where
there are indications of tenant interest. Other than this new construction,
development activities consist almost exclusively of preconstruction type
efforts such as site planning, zoning and similar activities. As a consequence,
we expect revenues for the next several years to come from ongoing income from
owned properties and from management and financing activities related to
previously sold properties or properties held in joint ventures. This does not
preclude us from entertaining proposals to purchase our properties when such
offers provide a reasonable return.
Our vacancy rates are better than the average in substantially all markets
in which we operate. We have been successful in both retaining existing tenants
and securing new ones and have not had significant credit problems with tenants.
During 1993, a total of 1,710,000 square feet was leased compared with 1,790,000
square feet in 1992 and 1,402,000 square feet in 1991. At December 31, 1993, we
owned or had interests in 10,915,000 square feet of office and industrial space.
Our vacancy rate was 10% at year-end 1993 compared with 14% at year-end 1992 and
17% at year-end 1991. The high vacancy rate in 1991 was the result of several
multi-year projects being completed in a difficult leasing market.
28
29
The decreases in the vacancy rate in 1992 and 1993 were due to our ability to
market a significant amount of the new space which became available in 1991.
In certain markets, renewing leases in established buildings has been
difficult as newly-constructed space is available nearby at similar rates. While
we have experienced significant leasing activity over the past two years, we
have had to enter into multiple year leases at depressed market rental rates.
This, together with the lack of construction and transaction based activity,
will place continued pressure on our real estate earnings for the next several
years. We expect that in 1994 a larger portion of interest costs will be charged
directly to expense as a result of several recently completed projects becoming
fully operational during 1993 and development activities being curtailed at some
of our office parks.
Ultimate net realizable value for real estate assets is determined based on
our ability to fully recover costs through a future revenue stream supported
principally by rental revenues. In many instances, there currently is not an
active market for commercial real estate. Therefore, the prices which might be
realized if we were forced to liquidate such properties on an immediate sale
basis would probably be less than the carrying values. In light of current
market conditions and our intent and ability to hold properties for the long
term, our primary focus is to ensure that we can recover our costs through
ownership and operation rather than sale.
Individual buildings and development sites are analyzed on a continuing
basis with estimates made of both additional costs to be incurred to complete
development where necessary and the estimated revenues and operating costs of
the property in the future. The time value of money is not considered in
assessing revenues versus costs. Revenue assumptions take into account local
market conditions with respect to the lease-up periods, occupancy rates, and
current and future construction activity. There are uncertainties as to the
actual realization of the assumptions relative to future revenues and future
costs. However, management does not believe there is any permanent impairment in
real estate carrying values.
The loans receivable issued in connection with our joint venture activities
include primarily purchase money mortgages. Such loans, which represent only 2%
of consolidated assets, are generally collateralized by buildings and land. The
ultimate collectibility of such loans, of which no significant amounts are due
in the near term, is evaluated continuously and appropriate reserves
established. Our agreements to manage all aspects of the ventured properties
have played a significant role in enabling us to control potential
collectibility issues related to these receivables. We have had no significant
foreclosures or in-substance foreclosures. The reserve for potential
uncollectible amounts was increased by $22 million in both 1993 and 1992 and $9
million in 1991, principally related to loans on selected properties currently
experiencing high vacancy rates. Management believes the reserve at December 31,
1993 adequately reflects the current condition of the portfolio; however, if
conditions in the real estate market do not improve, additional reserves may be
required.
The fair value of these loans receivable is estimated through the use of
valuation techniques which consider the net cash flows of the properties serving
as the underlying collateral for the loans. The fair value of the loans
represents a point-in-time estimate that is not relevant in predicting future
earnings or cash flows related to such loans. The difference between the
aggregate fair value of $394 million and the carrying value of $425 million at
December 31, 1993 is not expected to be realized as we intend to hold the loan
portfolio to maturity.
Our Florida residential development activities continued during 1993. All
but nine units at a 181 unit mid-rise condominium project completed in 1991 have
been sold. We completed construction of a 120 unit oceanfront high-rise
condominium during 1992. At year-end 1993, 103 units were sold. Construction of
a 104 unit mid-rise condominium project commenced in 1993 with 41 units already
under contract.
Real estate activities are funded with short-term credit instruments,
primarily commercial paper, as well as term loans and debt issued by the
Corporation and Chubb Capital Corporation, a subsidiary
29
30
of the Corporation. The weighted average interest cost on short-term credit
instruments approximated 3.3% in 1993 compared with 4.6% in 1992 and 7.2% in
1991. The interest rates on term loans ranged from 4.3% to 9.9% in 1993.
Cash from operations combined with the ability to utilize the Corporation's
commercial paper facility will provide sufficient funds for 1994. Term loans and
mortgages which become due in 1994 are expected in most cases to be refinanced
under similar terms.
CORPORATE
The Corporation called for redemption on April 15, 1991 the $200 million of
5 1/2% convertible notes that were due in 1993. Prior to the redemption date,
all but $85,000 of the notes were converted, resulting in the issuance of
4,687,123 shares of the Corporation's common stock.
The Corporation has outstanding $150 million of unsecured 8 3/4% notes due
in 1999. In each of the years 1995 through 1998, the Corporation will pay as a
mandatory sinking fund an amount sufficient to redeem $30 million of principal.
Chubb Capital has outstanding $100 million of unsecured 8 5/8% notes due in
1995, which are guaranteed by the Corporation. The proceeds have been used to
support our real estate operations.
In May 1991, Chubb Capital sold in the Eurodollar market $250 million of 6%
subordinated notes due in 1998. The notes are guaranteed by the Corporation and
exchangeable into its common stock. Of the proceeds, $150 million has been used
to support our real estate operations.
In February 1993, Chubb Capital sold $150 million of 6% notes due in 1998
and $100 million of 6 7/8% notes due in 2003. The notes are guaranteed by the
Corporation. A substantial portion of the proceeds has been used to repay
certain short-term debt and term loans incurred to support the real estate
operations.
In November 1991, the Corporation entered into a revolving credit agreement
with a group of banks that provides for unsecured borrowings of up to $300
million. There have been no borrowings under this agreement. The agreement
terminates on November 30, 1994 at which time any loans then outstanding become
payable. Management anticipates that a similar credit agreement will replace
this agreement.
In November 1992, the Corporation and Sun Alliance partially reduced their
investment in the shares of each other. The proceeds from our sale of Sun
Alliance shares were approximately $230 million. The sales have not affected the
ongoing business relationship between the Corporation's property and casualty
subsidiaries and Sun Alliance.
Investment income earned on corporate invested assets and interest expense
not allocable to the operating subsidiaries are reflected in the corporate
segment. Corporate income after taxes was $14 million in 1993 compared with $20
million in 1992 and $16 million in 1991.
INVESTMENT GAINS AND LOSSES
Investment gains were realized by the Corporation and its insurance
subsidiaries in 1993, 1992 and 1991. Such gains before taxes consisted of the
following:
1993 1992 1991
---- ---- ---
(in millions)
Equity securities......................................... $ 60 $133 $ 3
Fixed maturities.......................................... 173 54 63
---- ---- ---
$233 $187 $66
==== ==== ===
30
31
A restructuring of the equity security portfolio begun in 1992 resulted in
significant realized investment gains in 1992 and 1993. In addition,
approximately $75 million of investment gains were realized in 1992 from the
Corporation's partial sale of its investment in Sun Alliance.
Equity securities are reported in our financial statements at market value.
The unrealized appreciation on such securities is reflected as a separate
component of shareholders' equity, net of applicable deferred income tax.
The Corporation and its insurance subsidiaries purchase long-term fixed
maturity securities which have income, duration and credit quality
characteristics which fit the long-range strategic plans of our businesses. We
monitor the mix of taxable and tax-exempt fixed maturity securities in order to
maximize after-tax returns.
Those fixed maturity investments which may be sold prior to maturity to
support our investment strategies, such as in response to changes in interest
rates and the yield curve or to maximize after-tax returns, are considered
available for sale and carried at the lower of the aggregate amortized cost or
market value. At each of the last three year-ends, the aggregate market value of
these securities has exceeded their amortized cost. Those fixed maturities which
the Corporation and its insurance subsidiaries have the ability and intent to
hold to maturity are considered held for investment and carried at amortized
cost.
A primary reason for the sale of fixed maturities in each of the last three
years has been to improve our after-tax portfolio yield without sacrificing
quality, where market opportunities have existed to do so. Declining interest
rates and the resulting appreciation of our fixed maturity securities made it
difficult to adjust our portfolio during those years without realizing
significant investment gains. The significantly higher gains in 1993 were due to
the sale of fixed maturities in the first half of the year as part of the
realignment of our portfolio and in the latter part of the year to realize gains
to partially offset the reduction of statutory surplus of the property and
casualty subsidiaries resulting from the decrease in earnings related to the
Fibreboard settlement.
At December 31, 1993, 1992 and 1991, the unrealized market appreciation of
our fixed maturity portfolio was $736 million, $523 million and $490 million,
respectively. Such unrealized appreciation was not reflected in the consolidated
financial statements. The 1993 amount comprises fixed maturities with gross
unrealized appreciation aggregating $771 million and those with gross unrealized
depreciation aggregating $35 million.
FEDERAL INCOME TAXES
The Omnibus Budget Reconciliation Act of 1993 was enacted in August 1993.
One provision of the Act increased the federal corporate tax rate from 34% to
35%, retroactive to January 1, 1993. In addition to applying the higher tax rate
to pre-tax income for 1993, the federal income tax provision for 1993 reflects
the effect of the rate increase on deferred income tax assets and liabilities.
This effect was a tax benefit of approximately $5 million. The effect on the
various business segments was as follows:
Tax
Provision
(Benefit)
-------------
(in millions)
Property and casualty insurance
Underwriting.................................................. $(11)
Investment income............................................. 2
Life and health insurance....................................... 1
Real estate..................................................... 3
In 1992, property and casualty underwriting income after taxes included a
benefit of $12 million resulting from a reversal of income tax reserves based on
a settlement of prior years' taxes. Life and
31
32
health insurance income after taxes included similar benefits of $5 million and
$3 million in 1993 and 1992, respectively.
The Tax Reform Act of 1986 requires the property and casualty subsidiaries
to discount loss reserves for tax purposes as of January 1, 1987 and provides
that the initial discount on such loss reserves be excluded from taxable income.
The benefit of this exclusion amounted to $7 million in 1991 and $6 million in
1992. There was no similar benefit in 1993 since, for accounting purposes, the
remaining "fresh start" benefit was recognized effective January 1, 1993 as part
of the cumulative effect of the change in accounting principle upon the
Corporation's adoption of the new accounting requirements for income taxes.
The Corporation's federal income tax payments for 1991 and 1992 were $160
million and $175 million, respectively. Tax payments for 1993 are expected to
approximate only $80 million due to the substantial underwriting loss resulting
from the increase in loss reserves related to the settlement of asbestos-related
litigation.
NEW ACCOUNTING PRONOUNCEMENTS
In 1993, the Corporation adopted Statement of Financial Accounting
Standards (SFAS) No. 106, Employers' Accounting for Postretirement Benefits
Other Than Pensions, SFAS No. 109, Accounting for Income Taxes, and SFAS No.
113, Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts. These pronouncements and their effect on the
consolidated financial statements are discussed in Note (2) of the Notes to
Consolidated Financial Statements incorporated by reference from the
Corporation's 1993 Annual Report to Shareholders.
The Financial Accounting Standards Board has also issued SFAS No. 114,
Accounting by Creditors for Impairment of a Loan, which is effective in 1995,
and SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities, which is effective in 1994. These pronouncements, which will affect
the Corporation's consolidated financial statements when adopted, are discussed
in Note (1)(o) of the Notes to Consolidated Financial Statements incorporated by
reference from the Corporation's 1993 Annual Report to Shareholders.
SUBSEQUENT EVENTS
In January 1994, the Los Angeles area experienced a major earthquake. Also,
in January 1994, the Eastern and Midwestern parts of the United States
experienced severe winter storms. Losses from these catastrophes are estimated
to amount to $125 million net of reinsurance, including $90 million from the
earthquake and $35 million from the storm activity. The effect of these
catastrophe losses on after-tax earnings is expected to approximate $81 million,
which will be reflected in the first quarter of 1994. Additional claims may be
reported which could increase the estimate.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements of the Corporation at December 31, 1993
and 1992 and for each of the three years in the period ended December 31, 1993
and the Report of Independent Auditors thereon and the Corporation's unaudited
quarterly financial data for the two-year period ended December 31, 1993 are
incorporated by reference from the Corporation's 1993 Annual Report to
Shareholders, pages 40 through 63.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
32
33
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Corporation's Directors is incorporated by
reference from the Corporation's definitive Proxy Statement for the Annual
Meeting of Shareholders on April 26, 1994, pages 2 through 5. Information
regarding the executive officers is included in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Corporation's definitive Proxy Statement
for the Annual Meeting of Shareholders on April 26, 1994, pages 14 through 30
other than the Performance Graph and the Organization and Compensation Committee
Report appearing on pages 19 through 26.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Corporation's definitive Proxy Statement
for the Annual Meeting of Shareholders on April 26, 1994, pages 6 through 9.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Corporation's definitive Proxy Statement
for the Annual Meeting of Shareholders on April 26, 1994, pages 30 through 32.
33
34
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS AND 2. SCHEDULES
The financial statements and schedules listed in the accompanying
index to financial statements and financial statement schedules are filed
as part of this report.
3. EXHIBITS
The exhibits listed in the accompanying index to exhibits are filed as
part of this report.
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the last quarter of the
period covered by this report.
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into registrant's Registration Statements on Form S-8
Nos. 33-12208 (filed June 12, 1987), 33-29185 (filed June 7, 1989), and 33-30020
(filed July 18, 1989):
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
34
35
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS ANNUAL REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
THE CHUBB CORPORATION
(REGISTRANT)
March 4, 1994
By /s/ DEAN R. O'HARE
----------------------------
(DEAN R. O'HARE, CHAIRMAN)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DEAN R. O'HARE Chairman, Chief Executive March 4, 1994
---------------------------- Officer and Director
(DEAN R. O'HARE)
/s/ JOHN C. BECK Director March 4, 1994
----------------------------
(JOHN C. BECK)
/s/ PERCY CHUBB, III Vice Chairman, Chief Financial March 4, 1994
---------------------------- Officer and Director
(PERCY CHUBB, III)
/s/ JOEL J. COHEN Director March 4, 1994
----------------------------
(JOEL J. COHEN)
/s/ HENRY U. HARDER Director March 4, 1994
----------------------------
(HENRY U. HARDER)
/s/ ROBERT V. LINDSAY Director March 4, 1994
----------------------------
(ROBERT V. LINDSAY)
Director March , 1994
-----------------------------
(THOMAS C. MACAVOY)
35
36
SIGNATURE TITLE DATE
--------- ----- ----
/s/ GERTRUDE G. MICHELSON Director March 4, 1994
----------------------------
(GERTRUDE G. MICHELSON)
/s/ EMIL MOSBACHER, JR. Director March 4, 1994
----------------------------
(EMIL MOSBACHER, JR.)
/s/ ERNESTA G. PROCOPE Director March 4, 1994
----------------------------
(ERNESTA G. PROCOPE)
/s/ FREDERIC L. ROCKEFELLER Director March 4, 1994
----------------------------
(FREDERIC L. ROCKEFELLER)
/s/ WARREN B. RUDMAN Director March 4, 1994
----------------------------
(WARREN B. RUDMAN)
/s/ DAVID G. SCHOLEY Director March 4, 1994
----------------------------
(DAVID G. SCHOLEY)
/s/ LAWRENCE M. SMALL Director March 4, 1994
----------------------------
(LAWRENCE M. SMALL)
/s/ RICHARD D. SMITH President and Director March 4, 1994
----------------------------
(RICHARD D. SMITH)
/s/ ROBERT G. STONE, JR. Director March 4, 1994
----------------------------
(ROBERT G. STONE, JR.)
/s/ RICHARD D. WOOD Director March 4, 1994
----------------------------
(RICHARD D. WOOD)
/s/ HENRY B. SCHRAM Senior Vice President and March 4, 1994
---------------------------- Chief Accounting Officer
(HENRY B. SCHRAM)
36
37
THE CHUBB CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
COVERED BY REPORT OF INDEPENDENT AUDITORS
(ITEM 14(A))
ANNUAL REPORT TO
SHAREHOLDERS FORM 10-K
PAGE PAGE
---------------- ------------
Report of Independent Auditors 62 --
Consolidated Balance Sheets at December 31, 1993 and 1992 41 --
Consolidated Statements of Income for the Years Ended Decem-
ber 31, 1993, 1992 and 1991 40 --
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1993, 1992 and 1991 42 --
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1992 and 1991 43 --
Notes to Consolidated Financial Statements 44 --
Supplementary Information (unaudited)
Quarterly Financial Data 63 --
Schedules:
I -- Consolidated Summary of Investments -- Other
than Investments in Related Parties at
December 31, 1993 -- 39
III -- Condensed Financial Information of Registrant at
December 31, 1993 and 1992 and for the Years
Ended December 31, 1993, 1992 and 1991 -- 40
V -- Consolidated Supplementary Insurance Information
at and for the Years Ended December 31, 1993,
1992 and 1991 -- 43
VI -- Consolidated Reinsurance at and for the Years
Ended December 31, 1993, 1992 and 1991 -- 44
IX -- Consolidated Short Term Borrowings at and for
the Years Ended December 31, 1993, 1992 and
1991 -- 45
X -- Consolidated Supplementary Property and Casualty
Insurance Information for the Years Ended
December 31, 1993, 1992 and 1991 -- 46
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.
The consolidated financial statements and supplementary information listed
in the above index, which are included in the Annual Report to Shareholders of
The Chubb Corporation for the year ended December 31, 1993, are hereby
incorporated by reference.
37
38
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of The Chubb Corporation of our report dated February 25, 1994, included
in the 1993 Annual Report to Shareholders of The Chubb Corporation.
Our audits also included the financial statement schedules of The Chubb
Corporation listed in Item 14(a). These schedules are the responsibility of the
Corporation's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8: No. 33-12208, No. 33-29185, No. 33-30020, No. 33-49230 and
No. 33-49232) of our report dated February 25, 1994, with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedules included in this Annual Report (Form 10-K) of The Chubb
Corporation.
/s/ ERNST & YOUNG
New York, New York
March 28, 1994
38
39
THE CHUBB CORPORATION
SCHEDULE I
CONSOLIDATED SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES
(IN THOUSANDS)
DECEMBER 31, 1993
AMOUNT
AT WHICH
COST OR SHOWN IN
AMORTIZED MARKET THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
------------------ ---------- --------- -------------
Short term investments......................... $ 531,282 $ 531,282 $ 531,282
----------- ----------- -----------
Fixed maturities
Bonds
United States Government and government
agencies and authorities................ 2,363,772 2,397,981 2,363,772
States, municipalities and political
subdivisions............................ 5,469,480 5,986,244 5,469,480
Foreign................................... 776,923 832,174 776,923
Public utilities.......................... 117,646 128,763 117,646
All other corporate bonds................. 1,455,284 1,573,625 1,455,284
----------- ----------- -----------
Total bonds..................... 10,183,105 10,918,787 10,183,105
Redeemable preferred stocks.................. 3,359 4,166 3,359
----------- ----------- -----------
Total fixed maturities.......... 10,186,464 10,922,953 10,186,464
----------- ----------- -----------
Equity securities
Common stocks
Public utilities.......................... 19,798 25,393 25,393
Banks, trusts and insurance companies..... 97,931 166,230 166,230
Industrial, miscellaneous and other....... 544,989 688,703 688,703
----------- ----------- -----------
Total common stocks............. 662,718 880,326 880,326
Non-redeemable preferred stocks.............. 47,187 49,721 49,721
----------- ----------- -----------
Total equity securities......... 709,905 930,047 930,047
----------- ----------- -----------
Mortgage loans................................. 15,121 15,121 15,121
Policy loans................................... 179,195 179,195 179,195
----------- ----------- -----------
Total invested assets........... $11,621,967 $12,578,598 $11,842,109
=========== =========== ===========
39
40
THE CHUBB CORPORATION
SCHEDULE III
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS -- PARENT COMPANY ONLY
(IN THOUSANDS)
DECEMBER 31, 1993 AND 1992
1993 1992
--------- ---------
Assets
Invested Assets
Short Term Investments..................................... $ 62,805 $ 40,547
Taxable Fixed Maturities -- Available-for-Sale
(market $340,131 and $386,123)........................... 342,534 373,842
Equity Securities (cost $19,682 and $17,335)............... 34,987 24,785
---------- ----------
TOTAL INVESTED ASSETS................................. 440,326 439,174
Cash.......................................................... 180 364
Investment in Consolidated Subsidiaries....................... 3,941,408 3,809,542
Other Assets.................................................. 117,563 49,505
---------- ----------
TOTAL ASSETS.......................................... $4,499,477 $4,298,585
========== ==========
Liabilities
Dividend Payable to Shareholders.............................. $ 37,715 $ 35,001
Payable to Chubb Capital Corporation.......................... 77,290 55,000
Long Term Debt................................................ 150,000 150,000
Accrued Expenses and Other Liabilities........................ 38,343 104,182
---------- ----------
TOTAL LIABILITIES..................................... 303,348 344,183
---------- ----------
Shareholders' Equity
Preferred Stock -- Authorized 4,000,000 Shares;
$1 Par Value; Issued -- None............................... -- --
Common Stock -- Authorized 300,000,000 Shares;
$1 Par Value; Issued 87,709,465 and 87,519,560 Shares...... 87,709 87,520
Paid-In Surplus............................................... 782,186 772,815
Retained Earnings............................................. 3,313,140 3,139,707
Foreign Currency Translation Gains (Losses), Net of Income Tax 327 (5,164)
Unrealized Appreciation of Equity Securities,
Net of Deferred Income Tax................................. 143,093 96,559
Receivable from Employee Stock Ownership Plan................. (130,326) (137,035)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY............................ 4,196,129 3,954,402
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............ $4,499,477 $4,298,585
========== ==========
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto in the Corporation's 1993
Annual Report to Shareholders.
40
41
THE CHUBB CORPORATION
SCHEDULE III
(CONTINUED)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME -- PARENT COMPANY ONLY
(IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
-------- -------- --------
Investment Income...................................... $ 28,015 $ 49,550 $ 47,081
Realized Investment Gains.............................. 21,076 10,926 10,433
Investment Expenses.................................... (917) (689) (780)
Corporate Expenses..................................... (24,220) (23,150) (13,900)
-------- -------- --------
23,954 36,637 42,834
Federal and Foreign Income Tax (Credit)................ (9,050) 16,753 12,349
-------- -------- --------
33,004 19,884 30,485
Equity in Income Before Cumulative Effect of Changes in
Accounting Principles of Consolidated Subsidiaries... 311,213 597,215 521,499
-------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES........................... 344,217 617,099 551,984
Cumulative Effect of Changes in Accounting
Principles, Net of Tax............................... 68,600 -- --
Equity in Cumulative Effect of Changes in
Accounting Principles of Consolidated Subsidiaries... (88,600) -- --
-------- -------- --------
NET INCOME........................................ $324,217 $617,099 $551,984
======== ======== ========
The Corporation and its domestic subsidiaries file a consolidated federal
income tax return. The Corporation's federal income tax represents its share of
the consolidated federal income tax under the Corporation's tax allocation
agreements with its subsidiaries.
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto in the Corporation's 1993
Annual Report to Shareholders.
41
42
THE CHUBB CORPORATION
SCHEDULE III
(CONTINUED)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS -- PARENT COMPANY ONLY
(IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
--------- --------- ---------
Cash Flows from Operating Activities
Net Income........................................... $ 324,217 $ 617,099 $ 551,984
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Equity in Net Income of Consolidated Subsidiaries
(after reduction of $88,600 in 1993 due to
cumulative effect of changes in accounting
principles)..................................... (222,613) (597,215) (521,499)
Realized Investment Gains......................... (21,076) (10,926) (10,433)
Cumulative Effect of Changes in Accounting
Principles...................................... (68,600) -- --
Other, Net........................................ 30,305 (1,335) 28,818
--------- --------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES......................... 42,233 7,623 48,870
--------- --------- ---------
Cash Flows from Investing Activities
Proceeds from Sales of Fixed Maturities.............. 463,625 228,855 181,256
Proceeds from Maturities of Fixed Maturities......... 6,760 2,490 18,945
Proceeds from Sales of Equity Securities............. 4,957 15,875 13,485
Purchases of Fixed Maturities........................ (421,876) (367,824) (491,894)
Purchases of Equity Securities....................... (6,191) (7,923) (16,062)
Decrease (Increase) in Short Term Investments, Net... (22,258) 15,188 76,969
Dividends Received from Consolidated Subsidiaries.... 148,008 224,008 204,005
Capital Contributions to Consolidated Subsidiaries... (10,280) -- (25,600)
Other, Net........................................... (91,175) 952 1,304
--------- --------- ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES......................... 71,570 111,621 (37,592)
--------- --------- ---------
Cash Flows from Financing Activities
Increase (Decrease) in Payable to Chubb
Capital Corporation............................... 22,290 (7,800) 62,800
Dividends Paid to Shareholders....................... (148,070) (136,772) (122,625)
Other, Net........................................... 11,793 25,664 48,556
--------- --------- ---------
NET CASH USED IN
FINANCING ACTIVITIES......................... (113,987) (118,908) (11,269)
--------- --------- ---------
Net Increase (Decrease) in Cash........................ (184) 336 9
Cash at Beginning of Year.............................. 364 28 19
--------- --------- ---------
CASH AT END OF YEAR............................. $ 180 $ 364 $ 28
--------- --------- ---------
--------- --------- ---------
In 1992, $401,634,000 of fixed maturities and equity securities was
contributed at cost to a consolidated investment company subsidiary of the
Corporation. In 1991, $199,915,000 of long term debt was converted into
4,687,123 shares of common stock of the Corporation. These noncash transactions
have been excluded from the statements of cash flows.
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto in the Corporation's 1993
Annual Report to Shareholders.
42
43
THE CHUBB CORPORATION
SCHEDULE V
CONSOLIDATED SUPPLEMENTARY INSURANCE INFORMATION
(IN THOUSANDS)
DECEMBER 31
------------------------------------------------
FUTURE OTHER
POLICY POLICY
DEFERRED BENEFITS, CLAIMS
POLICY CLAIMS AND AND
ACQUISITION CLAIM UNEARNED BENEFITS
SEGMENT COSTS EXPENSES PREMIUMS PAYABLE
------- ----------- ---------- --------- ---------
1993
Property and Casualty Insurance
Personal................................. $ 133,565 $ 527,316 $ 423,575
Standard Commercial...................... 157,347 3,464,535 588,697
Specialty Commercial..................... 162,461 2,158,605 624,166
Reinsurance Assumed...................... 36,329 299,590 116,130
Investments..............................
---------- ---------- ----------
489,702 6,450,046 1,752,568
Life and Health Insurance.................. 522,544 2,185,759 $79,260
---------- ---------- ---------- -------
$1,012,246 $8,635,805 $1,752,568 $79,260
========== ========== ========== =======
1992
Property and Casualty Insurance
Personal................................. $ 133,300 $ 521,429 $ 416,639
Standard Commercial...................... 149,515 2,581,948 556,068
Specialty Commercial..................... 147,608 1,946,307 563,346
Reinsurance Assumed...................... 24,553 217,930 75,058
Investments..............................
---------- ---------- ----------
454,976 5,267,614 1,611,111
Life and Health Insurance.................. 474,293 1,950,397 $71,708
---------- ---------- ---------- -------
$ 929,269 $7,218,011 $1,611,111 $71,708
========== ========== ========== =======
1991
Property and Casualty Insurance
Personal................................. $ 129,638 $ 518,045 $ 410,204
Standard Commercial...................... 149,360 2,361,657 536,248
Specialty Commercial..................... 140,072 1,677,240 520,551
Reinsurance Assumed...................... 20,955 186,922 64,890
Investments..............................
---------- ---------- ----------
440,025 4,743,864 1,531,893
Life and Health Insurance.................. 445,505 1,845,655 $65,382
---------- ---------- ---------- -------
$ 885,530 $6,589,519 $1,531,893 $65,382
========== ========== ========== =======
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------------
PREMIUMS BENEFITS, AMORTIZATION
EARNED CLAIMS, OF DEFERRED
AND NET LOSSES AND POLICY OTHER
POLICY INVESTMENT SETTLEMENT ACQUISITION OPERATING PREMIUMS
SEGMENT CHARGES INCOME EXPENSES COSTS EXPENSES WRITTEN
------- ---------- ---------- ---------- ------------ --------- ----------
1993
Property and Casualty Insurance
Personal................................. $ 807,550 $ 474,786 $ 256,968 $ 45,260 $ 814,486
Standard Commercial...................... 1,294,182 1,547,400 313,892 75,637 1,326,811
Specialty Commercial..................... 1,208,672 700,868 315,252 90,968 1,269,492
Reinsurance Assumed...................... 194,434 156,044 62,855 235,506
Investments.............................. $533,709*
---------- -------- ---------- ---------- -------- ----------
3,504,838 533,709 2,879,098 948,967 211,865 $3,646,295
==========
Life and Health Insurance.................. 801,236 203,793 669,422 63,138 183,740
---------- -------- ---------- ---------- --------
$4,306,074 $737,502 $3,548,520 $1,012,105 $395,605
========== ======== ========== ========== ========
1992
Property and Casualty Insurance
Personal................................. $ 789,923 $ 526,809 $ 254,693 $ 44,579 $ 796,358
Standard Commercial...................... 1,113,654 800,067 308,880 75,583 1,133,474
Specialty Commercial..................... 1,108,913 629,443 298,754 83,822 1,151,708
Reinsurance Assumed...................... 150,798 141,810 49,500 160,966
Investments.............................. $493,455*
---------- -------- ---------- ---------- -------- ----------
3,163,288 493,455 2,098,129 911,827 203,984 $3,242,506
==========
Life and Health Insurance.................. 689,173 190,449 591,009 56,784 157,328
---------- -------- ---------- ---------- --------
$3,852,461 $683,904 $2,689,138 $ 968,611 $361,312
========== ======== ========== ========== ========
1991
Property and Casualty Insurance
Personal................................. $ 804,410 $ 527,670 $ 258,799 $ 45,332 $ 814,690
Standard Commercial...................... 1,088,635 734,891 305,698 77,644 1,115,751
Specialty Commercial..................... 1,000,078 554,048 266,385 80,280 1,034,749
Reinsurance Assumed...................... 144,045 124,744 45,783 147,074
Investments.............................. $469,495* 266,385 80,280 1,034,74
---------- -------- ---------- ---------- -------- ----------
3,037,168 469,495 1,941,353 876,665 203,256 $3,112,264
==========
Life and Health Insurance.................. 634,016 175,512 527,551 59,525 149,196
---------- -------- ---------- ---------- --------
$3,671,184 $645,007 $2,468,904 $ 936,190 $352,452
========== ======== ========== ========== ========
* Property and casualty assets are available for payment of claims and
expenses for all classes of business; therefore, such assets and the related
investment income have not been identified with specific groupings of classes of
business.
Information as of December 31, 1993, 1992 and 1991 and for the years then
ended is presented net of related reinsurance amounts.
43
44
THE CHUBB CORPORATION
SCHEDULE VI
CONSOLIDATED REINSURANCE
(IN THOUSANDS)
PERCENTAGE OF
CEDED ASSUMED AMOUNT
DIRECT TO OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
------ --------- ---------- ------ -------------
1993
Life Insurance In Force at Year-End. $54,219,990 $8,584,856 $ 62,875 $45,698,009 .1%
=========== ========== ========= ===========
Premiums Earned and Policy
Charges for the Year:
Life Insurance................... $ 289,391 $ 23,759 $ 2,294 $ 267,926 .9
Accident and Health Insurance.... 542,458 9,638 490 533,310 .1
Property and Casualty Insurance.. 4,155,356 1,128,982 478,464 3,504,838 13.7
----------- ---------- --------- -----------
Total Premiums and Policy
Charges..................... $ 4,987,205 $1,162,379 $ 481,248 $ 4,306,074
=========== ========== ========= ===========
1992
Life Insurance In Force at Year-End. $46,363,886 $7,555,070 $ 90,632 $38,899,448 .2
=========== ========== ========= ===========
Premiums Earned and Policy
Charges for the Year:
Life Insurance................... $ 261,334 $ 23,901 $ 2,096 $ 239,529 .9
Accident and Health Insurance.... 460,451 11,462 655 449,644 .1
Property and Casualty Insurance.. 3,824,520 1,090,379 429,147 3,163,288 13.6
----------- ---------- --------- -----------
Total Premiums and Policy
Charges..................... $ 4,546,305 $1,125,742 $ 431,898 $ 3,852,461
=========== ========== ========= ===========
1991
Life Insurance In Force at Year-End. $41,386,464 $7,123,174 $ 116,004 $34,379,294 .3
=========== ========== ========= ===========
Premiums Earned and Policy
Charges for the Year:
Life Insurance................... $ 238,307 $ 21,171 $ 1,997 $ 219,133 .9
Accident and Health Insurance.... 425,503 11,717 1,097 414,883 .3
Property and Casualty Insurance.. 3,579,774 1,019,458 476,852 3,037,168 15.7
----------- ---------- --------- -----------
Total Premiums and Policy
Charges..................... $ 4,243,584 $1,052,346 $ 479,946 $ 3,671,184
=========== ========== ========= ===========
44
45
THE CHUBB CORPORATION
SCHEDULE IX
CONSOLIDATED SHORT TERM BORROWINGS
(IN THOUSANDS)
DECEMBER 31 YEAR ENDED DECEMBER 31
--------------------- --------------------------------------------------------
WEIGHTED MAXIMUM AVERAGE AMOUNT WEIGHTED
BALANCE AVERAGE AMOUNT OUTSTANDING AVERAGE
CATEGORY OF AGGREGATE AT END INTEREST OUTSTANDING DURING INTEREST RATE
SHORT TERM BORROWINGS OF PERIOD RATE DURING PERIOD(a) PERIOD(a) DURING PERIOD(b)
- --------------------------- --------- -------- ---------------- ---------------- ----------------
1993
Commercial Paper......... $ 89,540 3.4% $207,333 $ 98,243 3.2%
Notes Payable to Banks... 5,300 4.0 39,400 12,231 5.1
1992
Commercial Paper......... 223,108 3.7 252,200 193,224 3.9
Notes Payable to Banks... 65,400 6.0 95,000 78,546 6.4
1991
Commercial Paper......... 121,700 5.0 171,509 137,751 6.0
Notes Payable to Banks... 105,000 7.3 105,000 95,346 8.6
- ------------------
(a) The maximum and average amounts outstanding during the period were based on
month end balances.
(b) The weighted average interest rate during the period was computed by
dividing the actual interest cost by the average amount outstanding during
the period.
Notes payable to banks are obligations under revolving credit arrangements.
Commercial paper and notes payable generally have terms ranging from thirty days
to one year and are at interest rates generally extended to prime borrowers.
45
46
THE CHUBB CORPORATION
SCHEDULE X
CONSOLIDATED SUPPLEMENTARY PROPERTY AND CASUALTY INSURANCE INFORMATION
(IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
CLAIMS AND CLAIM ADJUSTMENT
EXPENSES INCURRED
RELATED TO
--------------------------- PAID CLAIMS
AND CLAIM
CURRENT PRIOR ADJUSTMENT
YEAR YEARS EXPENSES
---------- --------- -----------
1993........................................... $2,214,300 $664,798 $1,696,666
========== ======== ==========
1992........................................... $2,125,700 $(27,571) $1,574,379
========== ======== ==========
1991........................................... $1,970,200 $(28,847) $1,498,626
========== ======== ==========
Information for the years ended December 31, 1993, 1992 and 1991 is
presented net of related reinsurance amounts.
46
47
THE CHUBB CORPORATION
EXHIBITS
(ITEM 14(A))
DESCRIPTION
-----------
(3) -- Articles of Incorporation and By-Laws
Restated Certificate of Incorporation. Incorporated by reference to
Exhibit (3) of the registrant's Report to the Securities and Exchange
Commission on Form 10-K for the year ended December 31, 1990.
By-Laws. Incorporated by reference to Exhibit (3) of the registrant's
Report to the Securities and Exchange Commission on Form 10-K for the
year ended December 31, 1989.
(4) -- The registrant is not filing any instruments evidencing any indebtedness
since the total amount of securities authorized under any single
instrument does not exceed 10% of the total assets of the registrant
and its subsidiaries on a consolidated basis. Copies of such
instruments will be furnished to the Securities and Exchange
Commission upon request.
(10) -- Material contracts
Global Settlement Agreement among Fibreboard Corporation, Continental
Casualty Company, CNA Casualty Company of California, Columbia
Casualty Company, Pacific Indemnity Company, and the Settlement Class
and together with Exhibits A through D filed herewith.
Settlement Agreement with Fibreboard Corporation, Continental Casualty
Company, CNA Casualty Company of California and Columbia Casualty
Company incorporated by reference to Exhibit (10) of the registrant's
Report to the Securities and Exchange Commission on Form 10-Q for the
nine months ended September 30, 1993.
Continental-Pacific Agreement with Continental Casualty Company incorpo-
rated by reference to Exhibit (10) of the registrant's Report to the
Securities and Exchange Commission on Form 10-Q for the nine months
ended September 30, 1993.
Executive Compensation Plans and Arrangements.
The Chubb Corporation Long-Term Stock Incentive Plan (1992)
incorporated by reference to Exhibit (10) of the registrant's
Report to the Securities and Exchange Commission on Form 10-K for
the year ended December 31, 1992.
The Chubb Corporation Annual Incentive Compensation Plan (1984) incor-
porated by reference to Exhibit (10) of the registrant's Report to
the Securities and Exchange Commission on Form 10-K for the year
ended December 31, 1989.
The Chubb Corporation Stock Option Plan (1984) incorporated by
reference to Exhibit (10) of the registrant's Report to the
Securities and Exchange Commission on Form 10-K for the year ended
December 31, 1989.
The Chubb Corporation Stock Option Plan for Non-Employee Directors
(1992) incorporated by reference to Exhibit (10) of the
registrant's Report to the Securities and Exchange Commission on
Form 10-K for the year ended December 31, 1992.
Description of the Chubb LifeAmerica Incentive Compensation Plan
incorporated by reference to Exhibit (10) of the registrant's
Report to the Securities and Exchange Commission on Form 10-K for
the year ended December 31, 1992.
The Chubb Corporation Investment Department/Chubb Asset Managers, Inc.
Incentive Compensation Plan filed herewith.
47
48
DESCRIPTION
Executive Severance Agreements and their amendments incorporated by
reference to Exhibit (10) of the registrant's Report to the
Securities and Exchange Commission on Form 10-K for the year ended
December 31, 1989.
Aggregate Excess of Loss Reinsurance Agreement with Phoenix Assurance
Public Limited Company of London, incorporated by reference to Exhibit
(10) of the registrant's Report to the Securities and Exchange
Commission on Form 10-K for the year ended December 31, 1990.
(11) -- Computation of earnings per share filed herewith.
(13) -- Pages 11, 12, 38 through 63 and 67 of the 1993 Annual Report to
Shareholders.
(21) -- Subsidiaries of the registrant filed herewith.
(23) -- Consent of Independent Auditors (see page 38 of this report).
(28) -- Information from reports furnished to state insurance regulatory
authorities.
48