1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- - - ---
ACT OF 1934
For the quarterly period ended March 31, 1994
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - - ---
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-8661
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THE CHUBB CORPORATION
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(Exact name of registrant as specified in its charter)
NEW JERSEY 13-2595722
- - - -------------------------------- --------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
15 MOUNTAIN VIEW ROAD, WARREN, NEW JERSEY 07061-1615
- - - ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (908) 903-2000
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
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The number of shares of common stock outstanding as of April 29, 1994 was
87,743,636.
2
THE CHUBB CORPORATION
INDEX
Page Number
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Part I. Financial Information:
Item 1 - Financial Statements:
Consolidated Balance Sheets as of
March 31, 1994 and December 31, 1993......................... 1
Consolidated Statements of Income for the
Three Months Ended March 31, 1994 and 1993................... 2
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1994 and 1993................... 3
Notes to Consolidated Financial Statements.................... 4
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations.............. 6
Part II. Other Information:
Item 6 - Exhibits and Reports on Form 8-K....................... 12
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Page 1
THE CHUBB CORPORATION
CONSOLIDATED BALANCE SHEETS
Mar. 31, Dec. 31,
1994 1993
--------- ---------
(in millions)
Assets
Invested Assets
Short Term Investments............................... $ 798.5 $ 531.3
Fixed Maturities
Held-to-Maturity
Tax Exempt (market $3,398.4 and $6,048.4)......... 3,242.9 5,528.9
Taxable (market $686.2 and $2,726.0).............. 659.7 2,528.9
Available-for-Sale
Tax Exempt (1994 cost $2,285.5)................... 2,397.0 -
Taxable (1994 cost $3,730.5 and
1993 market $2,148.5)............................ 3,744.0 2,128.7
Equity Securities (cost $824.4 and $709.9)........... 960.7 930.0
Policy and Mortgage Loans............................ 193.9 194.3
--------- ---------
Total Invested Assets......................... 11,996.7 11,842.1
Cash................................................... 9.1 4.6
Accrued Investment Income.............................. 194.3 205.0
Premiums Receivable.................................... 713.2 720.1
Reinsurance Recoverable on Property and Casualty
Unpaid Claims......................................... 1,793.9 1,785.4
Prepaid Reinsurance Premiums........................... 414.0 427.3
Funds in Escrow - Asbestos-Related Settlement.......... 542.3 538.2
Deferred Policy Acquisiton Costs
Property and Casualty Insurance...................... 488.5 489.7
Life and Health Insurance............................ 512.6 522.6
Real Estate Assets..................................... 1,727.4 1,709.0
Deferred Income Tax.................................... 213.8 229.0
Other Assets........................................... 1,179.0 963.9
--------- ---------
Total Assets.................................. $19,784.8 $19,436.9
========= =========
Liabilities
Property and Casualty Unpaid Claims.................... $ 8,474.9 $ 8,235.4
Life and Health Policy Liabilities..................... 2,498.6 2,446.6
Unearned Premiums...................................... 2,170.3 2,180.0
Short Term Debt........................................ 138.2 94.9
Long Term Debt......................................... 1,258.6 1,273.8
Dividend Payable to Shareholders....................... 40.4 37.7
Accrued Expenses and Other Liabilities................. 968.0 972.4
--------- ---------
Total Liabilities............................. 15,549.0 15,240.8
--------- ---------
Shareholders' Equity
Common Stock - $1 Par Value; 87,738,024 and
87,709,465 Shares..................................... 87.7 87.7
Paid-In Surplus........................................ 784.2 782.2
Retained Earnings...................................... 3,345.9 3,313.1
Foreign Currency Translation Gains (Losses),
Net of Income Tax..................................... (6.5) 0.3
Unrealized Appreciation of Investments, Net............ 154.8 143.1
Receivable from Employee Stock Ownership Plan.......... (130.3) (130.3)
--------- ---------
Total Shareholders' Equity.................... 4,235.8 4,196.1
--------- ---------
Total Liabilities and Shareholders' Equity.... $19,784.8 $19,436.9
========= =========
See Notes to Consolidated Financial Statements.
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THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31
1994 1993
---- ----
(in millions)
Revenues
Premiums Earned and Policy Charges................. $1,133.7 $ 976.7
Investment Income.................................. 203.2 193.1
Real Estate........................................ 43.8 35.8
Realized Investment Gains.......................... 15.3 31.9
-------- --------
Total Revenues.............................. 1,396.0 1,237.5
-------- --------
Benefits, Claims and Expenses
Insurance Claims and Policyholders' Benefits....... 893.4 668.7
Amortization of Deferred Policy Acquisition Costs.. 271.4 249.6
Other Insurance Operating Costs and Expenses....... 103.2 92.6
Real Estate Cost of Sales and Expenses............. 44.4 35.3
Investment Expenses................................ 4.5 3.2
Corporate Expenses................................. 9.4 8.2
-------- --------
Total Benefits, Claims and Expenses......... 1,326.3 1,057.6
-------- --------
Income Before Federal and Foreign Income Tax........ 69.7 179.9
Federal and Foreign Income Tax (Credit)............. (3.5) 34.1
-------- --------
Income Before Cumulative Effect of Changes
in Accounting Principles........................... 73.2 145.8
Cumulative Effect of Changes in Accounting
Principles, Net of Tax............................. - (20.0)
-------- --------
Net Income.......................................... $ 73.2 $ 125.8
======== ========
Average Common and Common Equivalent Shares
Outstanding (In Thousands)......................... 90,627 90,464
PER SHARE DATA
- - - --------------
Income Before Cumulative Effect of Changes
in Accounting Principles........................... $ .83 $ 1.64
Cumulative Effect of Changes in Accounting
Principles......................................... - (.22)
-------- --------
Net Income.......................................... $ .83 $ (1.42)
======== ========
Dividends Declared.................................. $ .46 $ .43
See Notes to Consolidated Financial Statements.
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THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31
1994 1993
---- ----
(in millions)
Cash Flows from Operating Activities
Net Income............................................. $ 73.2 $ 125.8
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Increase in Property and Casualty Unpaid Claims, Net. 231.0 152.6
Deferred Income Tax (Credit)......................... 9.8 (11.6)
Realized Investment Gains............................ (15.3) (31.9)
Cumulative Effect of Changes in Accounting Principles - 20.0
Other, Net........................................... (0.6) (47.3)
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Net Cash Provided by Operating Activities.............. 298.1 207.6
------- -------
Cash Flows from Investing Activities
Proceeds from Sales of Fixed Maturities................ 920.4 622.8
Proceeds from Maturities of Fixed Maturities........... 182.3 157.7
Proceeds from Sales of Equity Securities............... 63.6 113.2
Purchases of Fixed Maturities.......................... (845.6) (872.0)
Purchases of Equity Securities......................... (154.8) (59.0)
Increase in Short Term Investments, Net................ (267.2) (92.2)
Increase in Net Receivable from Security
Transactions Not Settled.............................. (194.1) (36.6)
Additions to Real Estate Properties, Net............... (12.2) (13.5)
Other, Net............................................. (24.8) (3.8)
------- -------
Net Cash Used in Investing Activities.................. (332.4) (183.4)
------- -------
Cash Flows from Financing Activities
Deposits Credited to Policyholder Funds................ 78.1 60.3
Withdrawals from Policyholder Funds.................... (30.0) (26.2)
Proceeds from Issuance of Long Term Debt............... - 248.6
Repayment of Long Term Debt............................ (15.2) (53.6)
Increase (Decrease) in Short Term Debt, Net............ 43.3 (224.5)
Dividends Paid to Shareholders......................... (37.7) (35.0)
Other, Net............................................. 0.3 1.5
------- -------
Net Cash Provided by (Used in) Financing Activities.... 38.8 (28.9)
------- -------
Net Increase (Decrease) in Cash.......................... 4.5 (4.7)
Cash at Beginning of Year................................ 4.6 6.7
------- -------
Cash at End of Period.................................. $ 9.1 $ 2.0
======= =======
See Notes to Consolidated Financial Statements.
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THE CHUBB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) General
The amounts included in this report are unaudited but include those
adjustments, consisting of normal recurring items, which management
considers necessary for a fair presentation. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes in the 1993 Annual Report to Shareholders.
2) Changes in Accounting Principles
Effective January 1, 1994, the Corporation adopted Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Similar to the Corporation's
previous accounting policy for investments in fixed maturities and equity
securities, SFAS No. 115 provides that the accounting for such securities
depends on their classification as either held-to-maturity (previously
referred to as held for investment), available-for-sale or trading.
However, SFAS No. 115 establishes more stringent criteria for classifying
fixed maturities as held-to-maturity. Therefore, the adoption of SFAS
No. 115 resulted in an increase in the portion of the Corporation's fixed
maturities classified as available-for-sale and a similar decrease in
those classified as held-to-maturity. SFAS No. 115 also requires that
fixed maturities classified as available-for-sale be carried at market
value, with unrealized appreciation or depreciation excluded from income
and credited or charged directly to a separate component of shareholders'
equity. Previously, such fixed maturities were carried at the lower of
the aggregate amortized cost or market value. In conjunction with the
Corporation's adoption of SFAS No. 115, deferred policy acquisition costs
related to interest-sensitive life insurance contracts were adjusted to
reflect the effects that would have been recognized had the unrealized
gains relating to investments classified as available-for-sale actually
been realized, with a corresponding charge directly to the separate
component of shareholders' equity. SFAS No. 115 may not be retroactively
applied to prior years' financial statements. The cumulative effect, as
of January 1, 1994, of the change in accounting principle was an increase
in shareholders' equity of $220.5 million, net of the related adjustment
to deferred policy acquisition costs of $60.7 million and deferred income
taxes of $118.8 million. Adoption of the Statement did not have an impact
on net income in the first quarter of 1994 nor will it in future periods.
In the first quarter of 1993, the Corporation adopted SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions, and
SFAS No. 109, Accounting for Income Taxes. SFAS No. 106 requires the
Corporation to accrue the expected cost of providing postretirement
benefits, principally health care and life insurance, to employees and
their beneficiaries and covered dependents during the years that the
employees render the necessary service. The transition obligation of
$89.4 million, which represents the unfunded and unrecognized accumulated
postretirement benefit obligation as of January 1, 1993, was recognized in
the first quarter of 1993 as the cumulative effect of a change in
accounting principle. The cumulative effect, net of related income tax
benefits of $30.4 million, was a decrease in net income of $59.0 million
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or $.65 per share. SFAS No. 109 prescribes an asset and liability method
of accounting for income taxes, the objective of which is to recognize an
asset or liability for the expected future tax effects attributable to
temporary differences between the financial reporting and tax bases of
assets and liabilities, based on the enacted tax rates and other
provisions of tax law. SFAS No. 109 was implemented by including the
cumulative effect of the change in accounting principle in net income in
the first quarter of 1993. Such cumulative effect was an increase in net
income of $39.0 million or $.43 per share. Excluding the cumulative
effect adjustments, the adoption of the two Statements did not have a
significant impact on net income in the first quarter of 1994 or 1993.
3) Investments
Short term investments, which have an original maturity of one year
or less, are carried at amortized cost which approximates market value.
Fixed maturities considered held-to-maturity are carried at amortized
cost. Fixed maturities considered available-for-sale are carried at
market value as of the balance sheet date. Prior to 1994, fixed
maturities considered available-for-sale were carried at the lower of the
aggregate amortized cost or market value as of the balance sheet date.
Equity securities are carried at market value as of the balance sheet
date.
The net change in unrealized appreciation of investments carried at
market value was as follows:
Three Months Ended
March 31
------------------
1994 1993
---- ----
(in millions)
Change in unrealized appreciation of equity
securities.......................................... $ (83.8) $7.6
Change in unrealized appreciation of fixed
maturities.......................................... (275.0) -
Change in deferred policy acquisition cost
adjustment.......................................... 37.6 -
Deferred income tax (credit)......................... (112.4) 2.6
------- ----
(208.8) 5.0
Cumulative effect, as of January 1, 1994,
of change in accounting principle, net.............. 220.5 -
------- ----
Change in unrealized appreciation of investments, net $ 11.7 $5.0
======= ====
4) Per Share Data
Earnings per share amounts are based on the weighted average number
of common and common equivalent shares outstanding. The 6% guaranteed
exchangeable subordinated notes are considered to be common equivalent
shares. The computation assumes the addition to income of the after-tax
interest expense applicable to such notes.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE QUARTERS ENDED MARCH 31, 1994 AND 1993
PROPERTY AND CASUALTY INSURANCE
Earnings from our property and casualty business were substantially lower
in the first quarter of 1994 compared with the same period of 1993. The
decrease was due to a significant decline in underwriting results in 1994
caused by substantial catastrophe losses. Investment income increased modestly
in the first quarter of 1994 compared with 1993. Property and casualty income
after taxes amounted to $55.4 million in the first quarter of 1994 compared
with $109.2 million in 1993.
Net premiums written were $913.0 million in the first quarter of 1994, an
increase of 11.7% compared with the first quarter of 1993. The marketplace
continued to be competitive, particularly in the commercial classes. Property
related business has experienced some rate firming but price increases in
casualty lines continued to be difficult to achieve. Premium growth was due
primarily to the selective writing of new business, improved renewal retention
of customers who appreciate the stability, expertise and added value we
provide, and exposure growth on existing business.
Underwriting results were unprofitable in the first quarter of 1994
compared with breakeven results in the same quarter of 1993. Our combined loss
and expense ratio was 109.9% in the first quarter of 1994 compared with 99.8%
in 1993.
The loss ratio deteriorated to 76.6% in the first quarter of 1994 from
65.1% in the first quarter of 1993 due to higher catastrophe losses in 1994,
resulting primarily from the earthquake in California and the winter storms in
the eastern and midwestern parts of the United States. Catastrophe losses
during the first quarter of 1994 were 16.3 percentage points of the loss ratio
compared with 3.6 percentage points in 1993.
Our expense ratio was 33.3% for the first quarter of 1994 compared with
34.7% for the first quarter of 1993. The decrease in 1994 was due primarily to
growth in written premiums at a greater rate than the increase in overhead
expenses. Expenses were reduced in the first quarter of both 1994 and 1993 by
contingent profit sharing accruals of $2 million relating to a medical
malpractice stop loss reinsurance agreement. Quarterly accruals similar to the
first quarter amount are anticipated throughout 1994.
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Underwriting results during 1994 and 1993 by class of business were as
follows:
Quarter Ended March 31
--------------------------------------
Net Premiums Combined Loss and
Written Expense Ratios
--------------- -----------------
1994 1993 1994 1993
---- ---- ---- ----
(in millions)
Personal Insurance
Automobile............................ $ 44.9 $ 46.2 95.2% 100.2%
Homeowners............................ 95.2 90.9 154.3 115.5
Other................................. 44.4 43.9 97.4 89.2
------ ------ ----- -----
184.5 181.0 126.9 105.4
------ ------ ----- -----
Standard Commercial Insurance
Multiple Peril........................ 136.4 121.1 127.7 101.2
Casualty.............................. 136.1 121.4 103.6 95.6
Workers' Compensation................. 49.3 46.0 111.8 117.4
------ ------ ----- -----
321.8 288.5 115.1 100.9
------ ------ ----- -----
Specialty Commercial Insurance
Fidelity and Surety................... 153.8 135.2 83.4 84.2
Other................................. 189.1 156.5 106.9 103.3
------ ------ ----- -----
342.9 291.7 95.7 93.7
------ ------ ----- -----
Reinsurance Assumed.................... 63.8 56.2 105.4 109.9
------ ------ ----- -----
Total $913.0 $817.4 109.9% 99.8%
====== ====== ===== =====
PERSONAL INSURANCE
Premiums from personal insurance coverages, which represent approximately
20% of the premiums written by our property and casualty insurance subsidiaries,
increased 1.9% in the first quarter of 1994 compared with the same quarter in
1993. It continues to be difficult to write new homeowners and other
non-automobile business due to our disciplined pricing. Rates for these
coverages have not increased during the past year. Personal automobile premiums
were similar in both years, which is consistent with our plan to control our
exposure in this class.
Our personal insurance business produced extremely unprofitable
underwriting results in the first quarter of 1994 due to the adverse effect of
significant catastrophe losses. Underwriting results were modestly unprofitable
in the first quarter of 1993. The combined loss and expense ratio was 126.9% in
the first quarter of 1994 compared with 105.4% in 1993. Homeowners results were
adversely affected by significant weather-related catastrophe losses in the
first quarter of 1994 and, to a lesser extent, in 1993. Catastrophe losses for
this class represented 52.4 percentage points of the loss ratio in the first
quarter of 1994 compared with 24.0 percentage points in 1993. Other personal
coverages, which include insurance for personal valuables and excess liability,
produced profitable results in 1994 and 1993. However, results in 1994
deteriorated somewhat from the prior year due to losses of personal valuables
resulting from the earthquake in California, which more than offset an
improvement in personal excess liability results that was due to favorable loss
experience. Catastrophe losses represented 20.3 percentage points of the loss
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ratio for other personal coverages in the first quarter of 1994 compared with
only 1.3 percentage points in 1993. Our automobile business produced
profitable results in 1994 compared with breakeven results in 1993.
STANDARD COMMERCIAL INSURANCE
Premiums from standard commercial insurance, which include multiple peril,
casualty and workers' compensation and which represent approximately 35% of our
total writings, increased by 11.5% in the first quarter of 1994 compared with
the same period a year ago. The competitive market has continued to place
significant pressure on rates. Premium growth was due primarily to a
combination of the disciplined writing of new accounts, improved renewal
retention and exposure growth on existing business.
Our standard commercial underwriting business produced unprofitable
results in the first quarter of 1994 compared with near breakeven results in
1993. The combined loss and expense ratio was 115.1% for the first quarter of
1994 compared with 100.9% in 1993. The deterioration in 1994 was due primarily
to the adverse effect of significant catastrophe losses in the multiple peril
class. Catastrophe losses for the multiple peril class in the first quarter of
1994, resulting primarily from the earthquake in California, represented 43.3
percentage points of the loss ratio compared with only 0.2 of a percentage
point in 1993. Multiple peril results, excluding the impact of catastrophes,
improved in 1994. The excess liability component of our casualty coverages
deteriorated somewhat in 1994 due to several large losses but remained
profitable. These favorable results were offset in varying degrees in 1994 and
1993 by the need to increase reserves for asbestos-related and toxic waste
claims. Results in the automobile component were profitable in 1994 and 1993.
Workers' compensation results improved in 1994 but remained unprofitable.
Results in this class were aggravated in both years 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 business, which represent approximately
38% of our total writings, increased by 17.6% in the first quarter of 1994
compared with the same period a year ago. The increase was due to new business
opportunities and rate and exposure increases, particularly in our executive
protection coverages and several of our smaller specialty classes. 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.
Our specialty commercial business produced substantial underwriting
profits in the first quarter of 1994 and 1993 with combined loss and expense
ratios of 95.7% and 93.7%, respectively. Our executive protection and
financial fidelity results were highly profitable in both periods due to
favorable loss experience. Surety results were near breakeven in 1994 compared
with profitable results in 1993. Marine results were unprofitable in 1994
compared with profitable results in 1993. The deterioration was due to
significant catastrophe losses, resulting primarily from the earthquake in
California. Results in several of our smaller specialty classes improved in
1994.
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REINSURANCE ASSUMED
Premiums from reinsurance assumed, which is primarily treaty reinsurance
from the Sun Alliance Group plc, represent approximately 7% of our total
premium writings. Premiums increased 13.5% in the first quarter of 1994
compared with the same period in 1993 due primarily to an increase in our
participation in the business of Sun Alliance, offset in part by the
strengthening of the U.S. dollar. Underwriting results for this segment
improved in the first quarter of 1994 compared with the same period in 1993 but
remained unprofitable.
LOSS RESERVES
Loss reserves, net of reinsurance recoverable, increased by $231.0 million
during the first quarter of 1994. Unpaid claims related to the catastrophes in
the first quarter of 1994 contributed a significant portion of the increase.
Loss reserves were reduced during the first quarter of 1994 by a $53 million
payment related to pending asbestos-related bodily injury claims against
Fibreboard Corporation. A discussion of the Fibreboard settlement is
incorporated by reference from Item 7 of the Registrant's Form 10-K for the
year ended December 31, 1993.
INVESTMENTS
Investment income after deducting expenses and taxes increased by 5.0% in
the first quarter of 1994 over the comparable period in 1993. The growth was
due primarily to an increase in invested assets since the first quarter of
1993, reflecting the strong cash flow from operations. The effective tax rate
on investment income increased to 14.7% in the first quarter of 1994 from 13.7%
in 1993 due to the increase in the federal corporate tax rate from 34% to 35%.
In the first quarter of 1994, we reduced our taxable bond portfolio by
approximately $150 million and increased our short term investments and, to a
lesser extent, equity securities. We maintain investments in highly liquid
short term securities at all times to provide for immediate cash needs. At
March 31, 1994, such investments were at a higher than normal level so that
funds are readily available to pay amounts related to the Fibreboard
settlement.
LIFE AND HEALTH INSURANCE
The life and health insurance subsidiaries had earnings after taxes of
$8.1 million for the first quarter of 1994 compared with $12.4 million in 1993.
Total life and health insurance premiums and policy charges amounted to $224.3
million in the first quarter of 1994 compared with $164.3 million in 1993.
Premiums and policy charges for personal insurance amounted to $62.2
million in the first quarter of 1994, an increase of 9.1% from the same period
in 1993. Earnings in personal lines were $7.5 million in the first quarter of
1994 compared with $6.9 million in 1993. The increase in earnings was
primarily due to an increase in the spread between interest earned on our
invested assets and interest credited to policyholders on interest-sensitive
products and improved mortality experience on certain term life products.
Premium revenue for group insurance was $162.1 million in the first
quarter of 1994, a 51.1% increase compared with the same period in 1993. Due
to legislation which became effective in April 1993 in New York, which is our
major market, several insurers reduced their market share in the small group
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health segment. We were able to offer a competitive product and thus
substantially increased our sales in that market. The growth in premium
revenue during the last three quarters of 1993 and the first quarter of 1994
reflects the effect of the significant increase in new policies, many of which
are eligible for renewal in April 1994. 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 during the remainder of
1994. Earnings in group lines were $0.6 million for the first quarter of 1994
compared with $5.5 million for the same period in 1993. The decrease in
earnings was due to greater than anticipated claim activity related to group
health policies.
Gross investment income increased by 7.1% in the first quarter of 1994
compared with the same quarter of 1993. New cash was invested in mortgage-
backed and corporate securities. To provide for liquidity, funds believed to
be sufficient to meet any unusual needs for cash have been maintained in short
term securities.
REAL ESTATE
Real estate operations resulted in a loss after taxes of $0.5 million for
the first quarter of 1994 compared with income of $0.3 million in 1993. Earnings
were adversely affected in both periods, but somewhat more so in 1994, by
increased portions of interest costs being charged directly to expense rather
than being capitalized as well as increases in the provision for possible
uncollectible receivables related to mortgages. Revenues were $43.8 million in
the first quarter of 1994 compared with $35.8 million in 1993.
INVESTMENT GAINS AND LOSSES
Decisions to sell securities are governed principally by considerations of
investment opportunities and tax consequences. As a result, realized investment
gains and losses may vary significantly from period to period. Investment gains
before taxes of $15.3 million were realized in the first quarter of 1994
compared with gains of $31.9 million for the same period in 1993.
CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt
and Equity Securities. As a result, a substantial portion of our fixed maturity
portfolio is now carried at market value, with unrealized appreciation or
depreciation excluded from income and credited or charged directly to a separate
component of shareholders' equity. The cumulative effect of this change in
accounting principle was an increase in shareholders' equity of $220.5 million
as of January 1, 1994. However, due to rising interest rates in the first
quarter of 1994 and the resulting decrease in market value of fixed maturities,
the effect of this change in accounting principle on shareholders' equity at
March 31, 1994 was an increase of only $66.2 million. The adoption of SFAS No.
115 did not have an impact on net income in the first quarter of 1994. At March
31, 1994, the unrealized appreciation of that portion of our fixed maturity
portfolio still carried at amortized cost was $182 million. Such unrealized
appreciation was not reflected in the consolidated financial statements.
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In the first quarter of 1993, the Corporation adopted SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions, and SFAS
No. 109, Accounting for Income Taxes. Net income in the first quarter of 1993
reflected a one-time charge of $20.0 million for the cumulative effect of these
changes in accounting principles.
These changes in accounting principles are discussed further in Note 2 of
the Notes to Consolidated Financial Statements.
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PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
A. Exhibit 11.1 - Computation of earnings per share.
B. Reports on Form 8-K - The Registrant filed a current report on Form 8-K
dated March 4, 1994 with respect to the announcement on March 4, 1994 that
it has authorization to repurchase up to 5,000,000 shares of its common
stock.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, The
Chubb Corporation has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE CHUBB CORPORATION
(Registrant)
By: /s/ Henry B. Schram
------------------------------
Henry B. Schram
Senior Vice-President and
Chief Accounting Officer
Date: May 12, 1994
15
INDEX TO EXHIBIT
----------------
Exhibit
No. Description
- - - -------- ----------------------------------
11.1 Computation of earnings per share.