1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 1996
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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, 1995
/ / 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. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant was $8,787,867,670 as of March 4, 1996.
87,311,778
Number of shares of common stock outstanding as of March 4, 1996
DOCUMENTS INCORPORATED BY REFERENCE
Portions of The Chubb Corporation 1995 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
23, 1996 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. The Corporation and its subsidiaries employed
approximately 10,900 persons on December 31, 1995. Revenues, income from
operations before income tax and identifiable assets for each industry segment
for the three years ended December 31, 1995 are included in Note (15) of the
notes to consolidated financial statements incorporated by reference from the
Corporation's 1995 Annual Report to Shareholders.
The property and casualty insurance subsidiaries provide insurance
coverages principally in the United States, Canada, Europe, Australia and the
Far East. The life and health insurance and real estate 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, 1995 are included in Note
(16) of the notes to consolidated financial statements incorporated by reference
from the Corporation's 1995 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 Custom Insurance Company (Chubb Custom), Chubb
National Insurance Company (Chubb National), Chubb Indemnity Insurance Company
(Chubb Indemnity), Chubb Insurance Company of New Jersey (Chubb New Jersey),
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)
1993........................ $4,268,104 $565,140 $1,186,949 $3,646,295
1994........................ 4,578,061 681,316 1,308,168 3,951,209
1995........................ 4,907,320 747,320 1,348,648 4,305,992
- ---------------
(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 16 of the
Corporation's 1995 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, Australia and parts of Europe and the Far East. In
1995, approximately 86% 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
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with 14%, California with 11%, 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 was produced in Canada.
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,
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 loss and expense 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
- ---- ------- ------ ------ ------- -------
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
1994......................... 3,951,209 3,776,283 67.0 32.5 99.5
1995......................... 4,305,992 4,147,162 64.7 32.1 96.8
----------- ----------- ---- ---- -----
Total for five years ended
December 31, 1995......... $18,258,266 $17,628,739 69.0% 33.2% 102.2%
=========== =========== ==== ==== =====
Results for 1993 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 65.6%, 33.4% and
99.0%, respectively, for the five years ended December 31, 1995.
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 16 of
the Corporation's 1995 Annual Report to Shareholders.
Another frequently used measurement in the property and casualty insurance
industry is the ratio of statutory net premiums written to policyholders'
surplus. At December 31, 1995 and 1994, such ratio for the Group was 1.89 and
2.11, respectively.
Producing and Servicing of Business
In the United States and Canada, the Group is represented by approximately
3,500 independent agents and accepts business on a regular basis from an
estimated 400 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 5 zone administrative
offices and 60 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 treaty
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reinsurance assumed principally, but not exclusively, from the Sun Alliance
Group plc (Sun Group). In conducting its overseas business, the Group reduces
the risks relating to currency fluctuations by maintaining investments in those
foreign currencies in which the Group transacts business, with characteristics
similar to the liabilities in those currencies. The net asset or liability
exposure to the various foreign currencies is regularly reviewed.
Business for the Group is also produced through participation in a number
of underwriting pools and syndicates including, among others, Associated
Aviation Underwriters, Cargo Reinsurance Association, American Cargo War Risk
Reinsurance Exchange and American Excess Insurance Association. 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 and other services.
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 potential catastrophic events.
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, which is rated A++ by
A.M. Best. Additional information related to the Group's ceded reinsurance with
the subsidiary of the Sun Group is included in Note (12) of the notes to
consolidated financial statements incorporated by reference from the
Corporation's 1995 Annual Report to Shareholders and in Item 7 of this report on
page 20. Most of the Group's remaining treaty 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 certain
circumstances, reinsurance is also 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 catastrophes in recent years has demonstrated to insurers,
including the Group, that most 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 and develops strategies to manage its
exposure to catastrophic events, subject to regulatory constraints.
The catastrophe reinsurance market suffered large losses in recent years,
particularly in 1992. As a result, the catastrophe reinsurance market's capacity
was reduced and the cost of available coverage increased. In response, the Group
increased its initial retention limit for each catastrophic event. The Group
also raised its reinsurance coverage limits for each event. The Group's current
principal catastrophe reinsurance program provides coverage for individual
catastrophic events of approximately 60% of losses between $85 million and $300
million.
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Unpaid Claims and Claim Adjustment Expenses and Related Amounts Recoverable
from Reinsurers
Insurance companies are required to establish a liability 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. Insurance companies are also required to report as assets the
portion of such liability that will be recovered from reinsurers.
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 at December 31, 1995 were for IBNR--claims which had 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 estimation 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 outcomes. 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. Claim staff has discretion
to override these expense formulas where judgment indicates such action is
appropriate.
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 the
development of paid losses, which reflect actual inflation. Inflation is also
reflected in the case estimates established on reported open claims which, when
combined with paid losses, form another basis to derive estimates of reserves
for all unpaid 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.
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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, 1995,
1994 and 1993.
YEARS ENDED DECEMBER 31
-----------------------------
1995 1994 1993
---- ---- ----
(IN MILLIONS)
Net liability, beginning of year....................... $6,932.9 $6,450.0 $5,267.6
-------- -------- --------
Net incurred claim and claim adjustment expenses
Provision for claims occurring in the current year... 2,705.8 2,549.1 2,214.3
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....................................... (35.8) (29.7) (10.2)
-------- -------- --------
2,670.0 2,519.4 2,879.1
-------- -------- --------
Net payments for claims occurring in
Current year......................................... 737.7 764.5 656.8
Prior years.......................................... 1,250.7 1,272.0 1,039.9
-------- -------- --------
1,988.4 2,036.5 1,696.7
-------- -------- --------
Net liability, end of year............................. 7,614.5 6,932.9 6,450.0
Reinsurance recoverable, end of year................... 1,973.7 1,980.3 1,785.4
-------- -------- --------
Gross liability, end of year........................... $9,588.2 $8,913.2 $8,235.4
======== ======== ========
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. 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 through 25.
As reestimated at December 31, 1995, the liability for unpaid claims and
claim adjustment expenses, net of reinsurance recoverable, as established at the
previous year-end was redundant by $35.8 million. This compares with favorable
development of $29.7 million during 1994 and unfavorable development of $664.8
million during 1993. Such redundancies and deficiency were reflected in the
Group's operating results in these respective years. Excluding the $675 million
increase in unpaid claims related to the Fibreboard settlement, the Group
experienced favorable development of $10.2 million in 1993. Each of the past
three years benefited from favorable claim severity trends for certain liability
classes; this was offset each year in varying degrees by increases in claims and
claim adjustment expenses relating to asbestos and toxic waste claims.
Unpaid claims and claim adjustment expenses, net of reinsurance
recoverable, increased 10% in 1995, after increases of 7% and 22% in 1994 and
1993, respectively. The significant increase in 1993 was primarily due to the
$675 million increase related to the Fibreboard settlement. Excluding this $675
million, unpaid claims and claim adjustment expenses increased by 10% in 1993.
Substantial reserve growth has occurred each year in those liability coverages,
primarily excess liability and executive protection, that are characterized by
delayed loss reporting and extended periods of settlement. These coverages
represent a significant portion of the Group's business. 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 1995 was approximately 11% higher than the number at year-end
1994, which was in turn 9% higher than that at year-end 1993. Such increases
were due in part to a shift for certain classes toward a book of business with
more frequent claims.
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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 26.
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, 1995, 1994 and 1993. Reinsurance recoveries related to such claims
are not significant.
YEARS ENDED DECEMBER 31
----------------------------------------------------------------------------------------
1995 1994 1993
-------------------------- -------------------------- --------------------------
FIBREBOARD ALL FIBREBOARD ALL FIBREBOARD ALL
RELATED OTHER TOTAL RELATED OTHER TOTAL RELATED OTHER TOTAL
---------- ----- ----- ---------- ----- ----- ---------- ----- -----
(IN MILLIONS)
Net liability, beginning of year.... $1,049.4 $240.9 $1,290.3 $1,218.5 $214.4 $1,432.9 $ 220.5 $214.9 $ 435.4
Net incurred claim and claim
adjustment expenses............... 10.0 171.8 181.8 35.1 80.1 115.2 1,008.0(a) 67.7 1,075.7
Net payments for claims............. 60.2 68.9 129.1 204.2 53.6 257.8 10.0 68.2 78.2
---------- ------ -------- --------- ------ -------- -------- ------ --------
Net liability, end of year.......... $ 999.2 $343.8 $1,343.0 $1,049.4 $240.9 $1,290.3 $1,218.5 $214.4 $1,432.9
========== ====== ======== ======== ====== ======== ========= ====== ========
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(a) Includes an increase in reserves of $675 million related to the Fibreboard
settlement and a reclassification of $300 million of IBNR reserves 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. The $300 million of IBNR reserves had been provided as follows:
$40 million in 1992, $160 million in 1991, $50 million in 1990, $25 million
in 1989 and $25 million in 1988.
There were approximately 4,700 asbestos claims outstanding at December 31,
1995 compared with 3,400 asbestos claims outstanding at December 31, 1994 and
1993. In 1995, approximately 2,600 claims were opened and 1,300 claims were
closed. In 1994, approximately 1,800 claims were opened and the same number were
closed. In 1993, approximately 1,000 claims were opened and the same number were
closed. Generally, an asbestos claim is established for each lawsuit against an
insured where potential liability has been determined to exist under a policy
issued by a member of the Group. However, when multiple insurers respond to one
or more lawsuits involving an insured and a member of the Group is not the
principal insurer in directing the litigation, generally, all asbestos
litigation involving that insured is counted as one claim. Therefore, a counted
claim can have from one to thousands of claimants. As a result, management does
not believe the above claim count data is meaningful for analysis purposes.
Indemnity payments per claim have varied over time due primarily to wide
variations in insureds, policy terms and types of claims. Management cannot
predict whether indemnity payments per claim will increase, decrease or remain
the same.
There were approximately 700 toxic waste claims outstanding at December 31,
1995 compared with 600 toxic waste claims outstanding at December 31, 1994 and
1993. Approximately 300 claims were opened in each of 1995, 1994 and 1993. There
were approximately 200 claims closed in 1995 and 300 claims closed in each of
1994 and 1993. Generally, a toxic waste claim is established for each lawsuit,
or alleged equivalent, against an insured where potential liability has been
determined to exist under a policy issued by a member of the Group. Because
indemnity payments to date for toxic waste claims have not been significant in
the aggregate and have varied from claim to claim, management cannot determine
whether past claims experience will prove to be representative of future claims
experience.
The Group discontinued writing medical malpractice business in 1984 and
entered into a stop loss reinsurance agreement effective year-end 1985 relating
to such discontinued class of business. In 1993, as a result of favorable loss
experience, the medical malpractice gross liability for unpaid claims and claim
adjustment expenses and the related reinsurance recoverable under this agreement
were each reduced by approximately $125 million. The reinsurance agreement
included a commutation provision under which the Group had an option to reassume
the remaining liability of the reinsurer as of December 31, 1995 and receive
payment of an amount determined by a formula based on experience under the
agreement. The Group exercised this option, which resulted in an amount due from
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the reinsurer of $191.2 million and a reduction in reinsurance recoverable from
the reinsurer of $66.2 million. The difference of $125 million represents a
return premium to the Group, which was recognized in 1993 at the time the
Corporation announced the Group's intention to exercise the commutation option.
The amount due from the reinsurer was received in January 1996.
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 1995. 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 net 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 (redundancy)" as shown in the table
represents the aggregate change in the reserve estimates from the original
balance sheet dates through December 31, 1995. 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, 1985, such as that related to the Fibreboard settlement, would be included
in the cumulative deficiency amount for each year in the period 1985 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.
The cumulative deficiencies in liability estimates from 1985 through 1992
relate primarily to additional provisions for asbestos and toxic waste claims,
particularly the Fibreboard settlement. The cumulative deficiency in the 1985
column was 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 middle 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 1985 column, as of December 31, 1995 the Group had paid
$2,456.9 million of the currently estimated $4,036.0 million of claims and claim
adjustment expenses that were unpaid at the end of 1985; thus, an estimated
$1,579.1 million of losses incurred through 1985 remain unpaid as of December
31, 1995, more than half of which relates to the Fibreboard settlement.
The lower section of the table shows the gross liability, reinsurance
recoverable and net liability recorded at each year-end beginning with 1992 and
the reestimation of these amounts as of December 31, 1995. Amounts for years
prior to the implementation of Statement of Financial Accounting Standards No.
113, Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts, have not been presented.
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ANALYSIS OF CLAIM AND CLAIM ADJUSTMENT EXPENSE DEVELOPMENT
DECEMBER 31
----------------------------------------------------------------------------------------------
YEAR ENDED 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(IN MILLIONS)
Net Liability for Unpaid Claims
and Claim Adjustment
Expenses...................... $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 $6,932.9 $7,614.5
Net Liability Reestimated as
of:
One year later............... 1,814.6 2,238.6 2,776.9 3,360.5 3,846.2 4,272.3 4,716.3 5,932.4 6,420.3 6,897.1
Two years later.............. 1,989.3 2,313.9 2,835.9 3,336.0 3,854.2 4,244.7 5,368.5 5,904.1 6,363.1
Three years later............ 2,108.5 2,433.2 2,831.0 3,359.8 3,839.8 4,933.0 5,336.5 5,843.5
Four years later............. 2,231.2 2,493.3 2,891.7 3,385.1 4,567.4 4,941.7 5,302.6
Five years later............. 2,353.4 2,585.8 2,961.0 4,203.9 4,602.5 4,969.5
Six years later.............. 2,433.5 2,687.2 3,897.2 4,265.2 4,686.3
Seven years later............ 2,569.0 3,745.2 3,993.7 4,387.6
Eight years later............ 3,673.4 3,865.7 4,157.1
Nine years later............. 3,797.5 4,067.8
Ten years later.............. 4,036.0
Cumulative Net Deficiency
(Redundancy).................. 2,433.8 1,926.5 1,338.5 1,013.3 806.2 668.4 558.7 575.9 (86.9) (35.8)
Cumulative Net Deficiency
Related to Asbestos and Toxic
Waste Claims................. 1,939.8 1,911.4 1,845.4 1,754.4 1,625.4 1,480.4 1,232.6 1,072.7 297.0 181.8
Cumulative Amount of
Net Liability Paid as of:
One year later............... 658.4 651.3 694.7 761.6 880.4 919.1 931.2 1,039.9 1,272.0 1,250.7
Two years later.............. 1,058.1 1,061.6 1,108.3 1,226.3 1,383.9 1,407.2 1,479.9 1,858.5 1,985.7
Three years later............ 1,356.7 1,362.9 1,419.1 1,555.1 1,715.9 1,808.7 2,083.0 2,332.3
Four years later............. 1,568.5 1,595.7 1,651.6 1,778.8 1,958.6 2,292.0 2,386.9
Five years later............. 1,730.0 1,775.3 1,818.2 1,966.1 2,346.9 2,490.2
Six years later.............. 1,867.6 1,907.1 1,961.9 2,307.9 2,500.9
Seven years later............ 1,971.4 2,032.9 2,281.0 2,422.7
Eight years later............ 2,085.5 2,333.6 2,370.5
Nine years later............. 2,378.5 2,412.6
Ten years later.............. 2,456.9
Gross Liability, End of Year... $7,220.9 $8,235.4 $8,913.2 $9,588.2
Reinsurance Recoverable, End of
Year......................... 1,953.3 1,785.4 1,980.3 1,973.7
------- ------- ------- -------
Net Liability, End of Year..... $5,267.6 $6,450.0 $6,932.9 $7,614.5
======== ======== ======== ========
Reestimated Gross Liability.... $7,785.9 $8,279.3 $8,971.7
Reestimated Reinsurance
Recoverable.................. 1,942.4 1,916.2 2,074.6
------- ------- -------
Reestimated Net Liability...... $5,843.5 $6,363.1 $6,897.1
======= ======= =======
Cumulative Gross Deficiency.... $ 565.0 $ 43.9 $ 58.5
======= ======= =======
- ---------------
The cumulative deficiencies for the years 1985 through 1992 include the effect
of the $675 million increase in claims and claim adjustment expenses related to
the Fibreboard settlement.
9
10
Members of the Group are required to file annual statements with insurance
regulatory authorities prepared on an accounting basis prescribed or permitted
by such authorities (statutory basis). 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 of the U.S. subsidiaries are as follows:
DECEMBER 31
--------------------
1995 1994
---- ----
(IN MILLIONS)
Net liability reported on a statutory basis -- U.S.
subsidiaries................................................. $7,235.9 $6,661.0
Additions (reductions):
Unpaid claims and claim adjustment expenses of foreign
subsidiaries.............................................. 433.0 375.8
Medical malpractice stop loss reinsurance and other reserve
differences............................................... (54.4) (103.9)
--------- ---------
Net liability reported on a GAAP basis......................... $7,614.5 $6,932.9
========= =========
Investments
For each member of the Group, current investment policy is implemented by
management which reports to its Board of Directors.
The main objectives of the investment portfolio of the Group are to
maximize after-tax investment income and total investment returns while
minimizing credit risks as well as 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 many 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 comprised 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 1995, the Group invested new cash primarily in tax-exempt bonds. In
1994, the Group invested new cash primarily in taxable bonds and, to a lesser
extent, tax-exempt bonds while reducing its equity security portfolio. At
December 31, 1995, 73% 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.
AVERAGE PERCENT EARNED
INVESTED INVESTMENT -----------------------
YEAR ASSETS(a) INCOME(b) BEFORE TAX AFTER TAX
---- ---------- ---------- ---------- ---------
(IN THOUSANDS)
1993............................ $8,085,302 $529,591 6.6% 5.6%
1994............................ 8,715,877 560,481 6.4 5.4
1995............................ 9,342,295 602,987 6.5 5.4
- ---------------
(a) Average of amounts at beginning and end of year with fixed maturity
securities at amortized cost and equity securities at market value.
(b) Investment income after deduction of investment expenses, but before
applicable income tax, excluding income from rental of real estate and
fixed assets.
10
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 Custom, Chubb National,
Chubb Indemnity and Chubb New Jersey. 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.
Chubb & Son Inc. also acts as the manager for the United States branch of
an unaffiliated South Korean insurance company, Samsung Fire & Marine Insurance
Company, Ltd.
LIFE AND HEALTH INSURANCE GROUP
The Life and Health Insurance Group (Life Group) includes Chubb Life
Insurance Company of America (Chubb Life), its wholly-owned subsidiaries, The
Colonial Life Insurance Company of America (Colonial) and Chubb Sovereign Life
Insurance Company (Sovereign), and ChubbHealth, Inc. (ChubbHealth), a joint
venture with Healthsource, Inc. Effective March 1, 1996, Colonial changed its
name to Chubb Colonial Life Insurance Company.
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 life, 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. Managed care services are provided
through ChubbHealth, a health maintenance organization (HMO) operating in New
York and New Jersey. The target market of the Life Group is small- to
medium-sized business establishments and those individuals, often the
proprietors of such businesses, interested in estate planning and wealth
creation.
One or more of the companies in the Life Group are licensed and transact
business in each of the 50 states of the United States, the District of
Columbia, Puerto Rico, Guam and the Virgin Islands. Personal life and health
insurance is produced primarily through approximately 1,600 personal producing
general agents. Group life and traditional health insurance is produced through
approximately 4,500 brokers. Managed care products are produced primarily
through approximately 1,500 brokers.
The executive, accounting, actuarial and administrative activities of the
Life Group are located at the Chubb Life headquarters in Concord, New Hampshire.
The personal insurance operations are in Concord and Chattanooga, Tennessee. The
group insurance operations are mainly located in Parsippany, New Jersey.
ChubbHealth's network management and medical review activities are located in
New York, New York.
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The following tables present highlights of the Life Group.
LIFE INSURANCE IN-FORCE*
PERSONAL
--------------------------------------
NON-PARTICIPATING PARTICIPATING GROUP TOTAL
------------------- ---------------- ----------------- ------------------
YEAR AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
- ---- ------ ------- ------ ------- ------ ------- ------ -------
(IN THOUSANDS)
1993........ $47,740,633 88.0% $81,278 .1% $6,460,954 11.9% $54,282,865 100%
1994........ 55,933,398 90.7 77,990 .1 5,688,639 9.2 61,700,027 100
1995........ 63,646,653 95.5 72,155 .1 2,942,956 4.4 66,661,764 100
- ---------------
* Before deduction for reinsurance ceded.
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)
1993.... $216,591 27.0% $19,121 2.4% $4,294 .5% $47,041 5.9% $514,189 64.2%
1994.... 248,850 29.8 19,426 2.3 3,670 .4 44,301 5.3 520,046 62.2
1995.... 285,323 45.8 20,207 3.2 5,745 .9 22,925 3.7 288,737 46.4
REVENUES, ASSETS AND CAPITAL AND SURPLUS
TOTAL
PREMIUMS GROSS CAPITAL
AND POLICY INVESTMENT AND
YEAR CHARGES INCOME ASSETS SURPLUS
- ---- ---------- ---------- ------ --------
(IN THOUSANDS)
1993..................................... $801,236 $205,891 $3,529,802 $758,419
1994..................................... 836,293 208,745 3,760,079 731,810
1995..................................... 622,937 232,950 4,275,365 844,645
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
primarily comprised of mortgage-backed securities and corporate bonds. The Life
Group invests predominantly in investment grade fixed-income securities with
cash flows and maturities which are consistent with life insurance liability
characteristics. 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.
AVERAGE
INVESTED INVESTMENT PERCENT
YEAR ASSETS(a) INCOME(b) EARNED
---- --------- ---------- ------
(IN THOUSANDS)
1993................................ $2,341,028 $202,771 8.7%
1994................................ 2,544,945 205,451 8.1
1995................................ 2,740,921 229,181 8.4
- ---------------
(a) Average of amounts at beginning and end of year with fixed maturity
securities at amortized cost and equity securities at market value.
(b) Investment income after deduction of investment expenses, but before
applicable income tax, excluding income from real estate.
Reinsurance
The Life Group, in accordance with common industry practice, reinsures with
other companies portions of the life insurance risks it underwrites. At the
present time, the maximum amount of life insurance retained on any one life by
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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. 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 1995 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 anticipated medical inflation
and changes in claim backlog.
REAL ESTATE GROUP
The 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
commercial 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 commercial 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 traditionally
centered around acquiring suburban, multi-site land parcels in locations
considered prime for office development and then developing the land in
progressive stages. In the late 1980s, the Real Estate Group expanded its
activities to 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, Kansas, Maryland,
Michigan, Pennsylvania, Texas and the District of Columbia.
The Real Estate Group owns 4,436,000 square feet of office and industrial
space, of which 92% is leased. The Real Estate Group has varying interests in an
additional 6,014,000 square feet of office and industrial space which is 96%
leased.
Residential development activities of the Real Estate Group consist of the
development and sale of condominiums and townhomes in central Florida and
northern New Jersey.
The Real Estate Group currently has undeveloped land holdings of
approximately 4,250 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, through
subsidiaries, in the insurance business and is therefore subject to regulation
by certain states as an insurance holding company. All states have enacted
legislation which regulates insurance holding company systems such as the
13
14
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.
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.
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. In certain countries, the Group has
incorporated insurance subsidiaries locally to improve its position.
In December 1993, the National Association of Insurance Commissioners
adopted a risk-based capital formula for property and casualty insurance
companies which was applied for the first time as of year-end 1994. This formula
is 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. At
December 31, 1995, each member of the Group had 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 approve changes in
those rates which they control and by such other matters as underwriting
selectivity and expense control.
14
15
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 12th largest United
States property and casualty insurance group based on 1994 net premiums written.
The relatively large size and underwriting capacity of the Group provide
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 1995, particularly in the commercial classes. In 1993, property related
business experienced some rate firming in the wake of the unprecedented
catastrophes of 1992; such prices remained stable in 1994 and 1995 despite the
significant catastrophe losses experienced by the industry. Price increases in
casualty classes continue to be difficult to achieve. The Group continues to be
selective in the writing of new business and to reinforce the sound
relationships with 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.
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 a licensed 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 1995, such assessments to
the members of the Group amounted to approximately $1 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 that generally 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.
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.
15
16
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 paragraph 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, 1995 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 continues to operate in the small group health insurance
market, principally in New York and New Jersey, by offering managed care
services through ChubbHealth as well as traditional indemnity products. In 1993,
New York and New Jersey adopted legislation which significantly affected the
manner in which the Life Group and other small group health indemnity insurers
conduct business. In general, the laws eliminated health insurance underwriting,
created community based rating and limited pre-existing condition exclusions for
insured groups with fewer than 50 covered lives. Because of the continuing
adverse effects of the legislative changes and other health industry factors on
the Life Group's group health results, management is evaluating the Life Group's
future role in the traditional indemnity and managed care markets.
Members of the Life Group also participate in insolvency funds. In 1995,
insolvency fund assessments to the members of the Life Group amounted to
approximately $2 million.
There are approximately 1,800 legal reserve life insurance companies in the
United States. According to the National Underwriter, a trade publication, as of
January 1, 1995, Chubb Life, Sovereign and Colonial ranked 60th, 155th and
190th, 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
securities litigation reform, tort reform, toxic waste removal and liability
measures, health care reform initiatives, containment of medical care costs,
limitations on health insurance premiums, employee benefits regulation,
automobile safety regulation, financial services deregulation including the
removal of barriers preventing banks from engaging in the insurance business,
the taxation of insurance companies and the tax treatment of insurance products.
Enacted and contemplated health care reform on both a national and state
level are reshaping the health insurance industry. Although federal legislation
on health insurance did not pass Congress in 1995, the Clinton Administration
and certain members of Congress may pursue some form of health care reform.
Significant changes, if they occur, 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.
16
17
Legislative and judicial developments pertaining to asbestos and toxic
waste exposures are discussed in Item 7 of this report on pages 23 through 26.
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 and
Chattanooga, Tennessee. The Real Estate Group's corporate headquarters is
located in Roseland, New Jersey. The insurance subsidiaries maintain zone
administrative 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, the Far East and Latin America. Office facilities are
leased with the exception of buildings in Branchburg, New Jersey and
Chattanooga, 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 1995 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 through 25.
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, 1995.
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EXECUTIVE OFFICERS OF THE REGISTRANT
YEAR OF
AGE(a) ELECTION(b)
------ ----------
Dean R. O'Hare, Chairman and President of the Corporation................... 53 1972
Douglas A. Batting, Executive Vice President of Chubb & Son Inc. ........... 53 1996
John P. Cavoores, Executive Vice President of Chubb & Son Inc............... 38 1996
Percy Chubb, III, Vice Chairman of the Corporation.......................... 61 1971
Randell G. Craig, Executive Vice President of Chubb Life.................... 50 1994
Robert P. Crawford, Jr., Executive Vice President of the Corporation........ 54 1994
John J. Degnan, Senior Vice President of the Corporation.................... 51 1994
Gail E. Devlin, Senior Vice President of the Corporation.................... 57 1981
Edward Dunlop, Senior Vice President of the Corporation..................... 55 1995
David S. Fowler, Senior Vice President of the Corporation................... 50 1989
Henry G. Gulick, Vice President and Secretary of the Corporation............ 52 1975
Charles M. Luchs, Executive Vice President of Chubb & Son Inc. ............. 56 1996
Brian W. Nocco, Senior Vice President of the Corporation.................... 44 1994
Donn H. Norton, Executive Vice President of the Corporation................. 54 1985
Michael O'Reilly, Senior Vice President of the Corporation.................. 52 1976
Robert Rusis, Senior Vice President and General Counsel of the Corporation.. 62 1990
Henry B. Schram, Senior Vice President of the Corporation................... 49 1985
Theresa M. Stone, Executive Vice President of the Corporation............... 51 1990
- ---------------
(a) Ages listed above are as of April 23, 1996.
(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 Brian W. Nocco. Mr. Nocco, who joined the Corporation in 1994, was
previously Treasurer of Continental Bank Corp.
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19
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
Incorporated by reference from the Corporation's 1995 Annual Report to
Shareholders, page 69.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the five years ended December 31, 1995 are
incorporated by reference from the Corporation's 1995 Annual Report to
Shareholders, pages 42 and 43.
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 1995 Annual Report to Shareholders, pages
15, 16 and 44 through 66.
Net income amounted to $697 million in 1995 compared with $528 million in
1994 and $324 million in 1993. Net income in 1993 reflected a net charge of $357
million after taxes related to an agreement for the settlement of
asbestos-related litigation as well as the Corporation's decision to exercise
its option to commute an unrelated medical malpractice reinsurance agreement.
Net income in 1993 also reflected 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 $85 million,
$41 million and $152 million in 1995, 1994 and 1993, 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 higher in 1995 than in 1994;
such 1994 income was significantly higher than that in 1993. Results in 1993
were adversely affected by 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. The $675
million charge was partially offset by a $125 million return premium to our
property and casualty insurance subsidiaries related to the Corporation's
decision to exercise its option to commute a medical malpractice reinsurance
agreement (the "$125 million return premium").
Property and casualty income after taxes was $563 million in 1995 compared
with $467 million in 1994 and $118 million in 1993. 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. Earnings in 1995 benefited from
highly profitable underwriting results and an increase in investment income
compared with 1994. Earnings in 1994 were adversely affected by higher
catastrophe losses, resulting from the earthquake in California and the winter
storms in the eastern and midwestern parts of the United States in the first
quarter. Investment income increased modestly in 1994 compared with the prior
year.
Catastrophe losses were $64 million in 1995 compared with $169 million in
1994 and $89 million in 1993. Our initial retention level for each catastrophic
event is approximately $85 million. We did not have any recoveries from our
catastrophe reinsurance coverage during the past three years since there were no
individual catastrophes for which our losses exceeded the initial retention.
Net premiums written amounted to $4.3 billion in 1995, an increase of 9%
compared with 1994. Net premiums written in 1994 increased 12% compared with
1993, after excluding the $125 million return premium from the 1993 amount.
Personal coverages accounted for $852 million or 20% of 1995 premiums written,
standard commercial coverages for $1,456 million or 34%, specialty commercial
coverages for $1,627 million or 38% and reinsurance assumed for $371 million or
8%. The marketplace continued to be competitive, particularly in the commercial
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classes. Price increases in the casualty classes have been difficult to achieve
for several years. Prices for property classes have remained stable in the past
two years, despite the significant catastrophe losses experienced by the
industry. Premium growth in 1995 and 1994 was due primarily to the selective
writing of new business and exposure growth on existing business. A significant
portion of premium growth in both years was achieved outside the United States,
from our expanding international branch network and our participation in the
business of the Sun Alliance Group plc.
Underwriting results were highly profitable in 1995 compared with near
breakeven results in 1994. Underwriting results were extremely unprofitable in
1993 due to the adverse effect of the $675 million charge. The combined loss and
expense ratio, the common measure of underwriting profitability, was 96.8% in
1995 compared with 99.5% in 1994 and 114.8% in 1993. 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 64.7% in 1995 compared with 67.0% in 1994 and 82.5% in
1993. Excluding the effects of the $675 million charge and the $125 million
return premium, the loss ratio was 65.5% in 1993. The loss ratios continue to
reflect the favorable experience resulting from the consistent application of
our disciplined underwriting standards. Losses from catastrophes represented
1.5, 4.5 and 2.5 percentage points of the loss ratio in 1995, 1994 and 1993,
respectively.
Our expense ratio was 32.1% in 1995 compared with 32.5% in 1994 and 32.3%
in 1993. Excluding the effect of the $125 million return premium, the expense
ratio was 33.5% in 1993. The expense ratio in 1995 and 1994 benefited from
growth in written premiums at a greater rate than the increase in overhead
expenses. Expenses were reduced by contingent profit sharing accruals of $11
million in 1994 and $9 million in 1993 relating to the medical malpractice
reinsurance agreement.
After a review of the cost of our casualty excess of loss reinsurance, we
modified the program, principally for excess liability and executive protection
coverages, effective January 1, 1996. The changes include an increase in the
initial retention for each loss from $5 million to $10 million and an increase
in the initial aggregate amount of losses that we will retain for each year
before reinsurance becomes available. These changes in our casualty reinsurance
program are expected to increase net premiums written in 1996 by approximately
$100 million.
For many years, a portion of the U.S. insurance business written by the
Corporation's property and casualty subsidiaries has been reinsured on a quota
share basis with a subsidiary of Sun Alliance. Similarly, a subsidiary of the
Corporation has assumed a portion of Sun Alliance's property and casualty
business on a quota share basis, such participation having increased in recent
years. Effective January 1, 1996, the agreements pertaining to the exchange of
reinsurance were amended to reduce the portion of each company's business that
is reinsured with the other. As a result, our property and casualty subsidiaries
will retain a greater portion of the business they write directly and will
reduce the amount of reinsurance they assume from Sun Alliance. As a result of
the changes to the agreements with Sun Alliance, our net premiums written are
expected to increase by approximately $100 million in 1996. The terms of the
reinsurance agreements with Sun Alliance will be reviewed annually, at which
time further reductions in the portion of each company's business that is
reinsured with the other may occur.
The impact on underwriting results in 1996 of the changes to our casualty
reinsurance program and to the agreements with Sun Alliance is not expected to
be significant.
PERSONAL INSURANCE
Premiums from personal insurance increased 5% in 1995 compared with 1994;
such premiums in 1994 were virtually unchanged from 1993. Our disciplined
approach to pricing and risk selection, together with our efforts to control
exposure in catastrophe prone areas, made it difficult to increase homeowners
and other non-automobile business. However, gradual progress was made in 1995 to
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increase premiums written in non-catastrophe prone areas. Personal automobile
premiums increased modestly in 1995 as the result of our marketing efforts to
provide coverage for high value automobiles.
Our personal insurance business produced a substantial underwriting profit
in 1995 compared with breakeven results in 1994 and an underwriting profit in
1993. The combined loss and expense ratio was 87.5% in 1995 compared with 100.3%
in 1994 and 95.8% in 1993. Results in each of our personal classes of business
improved significantly in 1995.
Homeowners results were profitable in 1995, benefiting from lower
catastrophe losses, fewer large losses and a reduction in non-catastrophe loss
frequency. Results were adversely affected by significant catastrophe losses in
each of the past three years, but particularly in 1994 due to the winter storms
and, to a lesser extent, the California earthquake. Catastrophe losses
represented 10.4 percentage points of the loss ratio for this class in 1995
compared with 19.6 percentage points in 1994 and 13.4 percentage points in 1993.
Other personal coverages, which include insurance for personal valuables and
excess liability, were increasingly profitable in 1994 and 1995. Personal excess
liability results improved in both years due to favorable loss experience. Our
automobile business produced profitable results in each of the last three years.
Results in 1995 were particularly strong due to lower loss frequency and
severity. Automobile results were adversely affected each year by losses from
the mandated business that we are required by law to accept for those
individuals who cannot obtain coverage in the voluntary market.
STANDARD COMMERCIAL INSURANCE
Premiums from standard commercial insurance, which include coverages for
multiple peril, casualty and workers' compensation, increased 9% in 1995
compared with 1994. Premiums in 1994 were 11% higher than in 1993, after
excluding the $125 million return premium discussed below from the 1993 premium
amounts. Market competition has continued to place significant pressure on
prices. Premium growth in both years was due primarily to the selective writing
of new accounts and exposure growth on existing business. Premium growth in 1994
and 1995 for multiple peril was particularly strong outside the United States.
Medical malpractice business, which we stopped writing in 1984, was
reinsured effective year-end 1985. The reinsurance agreement included a
commutation provision under which our property and casualty subsidiaries had an
option to reassume the remaining liability of the reinsurer as of December 31,
1995 and receive payment of an amount determined by a formula based on
experience under the agreement. The property and casualty subsidiaries exercised
this option, which resulted in an amount due from the reinsurer of $191 million
and a reduction in reinsurance recoverable from the reinsurer of $66 million.
The difference of $125 million represents a return premium to our property and
casualty subsidiaries, which was recognized in 1993 at the time the Corporation
announced its intention to exercise the commutation option. The amount due from
the reinsurer was received in January 1996.
Our standard commercial results were unprofitable in each of the past three
years. The combined loss and expense ratio was 108.8% in 1995 compared with
107.6% in 1994 and 149.7% in 1993. Results were extremely unprofitable in 1993
due to the adverse effect of the $675 million charge. Excluding the effects of
that charge and the $125 million return premium, the combined loss and expense
ratio was 107.6% in 1993.
Casualty results in 1993 included the effects of the $675 million charge
and the $125 million return premium. Excluding the effects of these items,
casualty results deteriorated in 1994. Casualty results deteriorated further in
1995. In each of the past three years, casualty results have been adversely
affected in varying degrees by increases in loss reserves for asbestos-related
and toxic waste claims. The substantial deterioration in 1995 was due to a
larger increase in such reserves compared with the prior year. The excess
liability component of our casualty coverages has remained profitable due to
favorable loss experience in this class. Results in the automobile component
were also profitable in each of the last three years.
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Multiple peril results improved in 1995 but remained unprofitable. Results
in the property component of this business improved in 1995 due to an absence of
catastrophe losses. Results in 1994 were adversely affected by significant
catastrophe losses, primarily from the earthquake in California. Catastrophe
losses for this class represented 0.9 of a percentage point of the loss ratio
for 1995 compared with 8.4 percentage points in 1994 and 3.6 percentage points
in 1993. The liability component of this business was particularly unprofitable
in 1993 due to an increased frequency and severity of losses.
Workers' compensation results improved substantially in 1994 and 1995.
Results were profitable in 1995 compared with unprofitable results in the prior
two years. Results in our voluntary business have benefited from rate increases,
reform of the benefit provisions of workers' compensation laws in many states,
and the impact of medical cost containment and disability management activities.
Results from our share of the involuntary pools and mandatory business in which
we must participate by law also benefited from these positive factors.
SPECIALTY COMMERCIAL INSURANCE
Premiums from specialty commercial business increased by 10% in 1995
compared with 16% in 1994. Premium increases for our executive protection and
financial fidelity coverages were due primarily to new business opportunities.
Our strategy of working closely with our customers and our ability to
differentiate our products have enabled us to renew a large percentage of this
business. Growth in several of our specialty classes was particularly strong
outside the United States in both years.
Our specialty commercial business produced substantial underwriting profits
in each of the past three years with combined loss and expense ratios of 90.4%
in 1995, 91.7% in 1994 and 91.0% in 1993. Our executive protection and financial
fidelity results were highly profitable in each year due to favorable loss
experience. Results in the non-fidelity portion of our financial institutions
business improved in 1995; results for these coverages had deteriorated in 1994
due in part to several large losses. Surety results were unprofitable in 1995
due to several large losses compared with profitable results in 1994 and 1993.
Marine results were profitable in 1995 compared with unprofitable results
in 1994 and profitable results in 1993. Results in 1994 were adversely affected
by significant catastrophe losses, resulting primarily from the earthquake in
California. Results in our smaller specialty classes were near breakeven in 1995
and 1994. These classes were unprofitable in 1993 due primarily to an increased
frequency of large losses.
REINSURANCE ASSUMED
Premiums from reinsurance assumed, which is primarily treaty reinsurance
assumed from Sun Alliance, increased 15% in 1995 compared with 37% in 1994. The
growth in both years was primarily due to an increase in our participation in
the business of Sun Alliance. Premium growth in 1994 also benefited from a
firming of rates, primarily in the United Kingdom.
Underwriting results for this segment were near breakeven in 1995 and 1994
compared with unprofitable results in 1993. The combined loss and expense ratio
was 99.1% in 1995 compared with 100.2% in 1994 and 111.8% in 1993. Results in
1995 and 1994 benefited from rating measures taken by Sun Alliance as well as
favorable weather conditions in the United Kingdom.
REGULATORY INITIATIVES
In 1988, voters in California approved Ballot Proposition 103, an insurance
reform initiative affecting most property and casualty insurers writing business
in the state. Provisions of Proposition 103 would have required insurers to roll
back property and casualty rates for certain lines of business to 20 percent
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below November 1987 levels and would have required an additional 20 percent
reduction in automobile rates by November 1989.
In May 1995, our property and casualty subsidiaries reached an agreement
with the California Insurance Department to refund premiums, with interest,
totaling $6.7 million related to business written during the rollback period.
The agreement settles all rollback refund obligations of the property and
casualty subsidiaries related to Proposition 103. A consumer group challenged
the rollback settlement. In December 1995, an administrative law judge affirmed
the rollback settlement. The California Insurance Commissioner has adopted the
judge's decision and the period during which the Commissioner's action could be
appealed has expired.
LOSS RESERVES
Loss reserves are our property and casualty subsidiaries' largest
liability. At the end of 1995, gross loss reserves totaled $9.6 billion compared
with $8.9 billion and $8.2 billion at year-end 1994 and 1993, respectively.
Reinsurance recoverable on such loss reserves was $2.0 billion at year-end 1995
and 1994 compared with $1.8 billion at the end of 1993. Loss reserves, net of
reinsurance recoverable, increased 10% in 1995 compared with 7% in 1994. Loss
reserves included $1.0 billion, $1.05 billion and $1.2 billion at year-end 1995,
1994 and 1993, respectively, related to the settlement of asbestos-related
claims against Fibreboard Corporation, which is discussed below. Excluding such
reserves, loss reserves, net of reinsurance recoverable, increased 12% in both
1995 and 1994. Substantial reserve growth has occurred each year in those
liability coverages, primarily excess liability and executive protection, that
are characterized by delayed loss reporting and extended periods of settlement.
During 1995, we experienced overall favorable development of $36 million on
loss reserves established as of the previous year-end. This compares with
favorable development of $30 million in 1994 and unfavorable development of $665
million in 1993. Such redundancies and deficiency 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 in 1993. Each of the past three years
benefited from favorable claim 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.
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, 1995
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
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claimants against Fibreboard for all future asbestos-related bodily injury
claims against Fibreboard. This agreement is subject to final appellate 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, 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 final court approval of the global settlement
agreement.
Pacific Indemnity and Continental Casualty have reached a separate
agreement for the handling of all asbestos-related bodily injury claims pending
on August 26, 1993 against Fibreboard. In February 1995, the agreement was
amended to extend for several years the period over which Pacific Indemnity will
pay its remaining obligation, plus interest, under this agreement. Pacific
Indemnity's obligation under this agreement is not expected to exceed $635
million, of which approximately $450 million remained unpaid at December 31,
1995. 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 final appellate 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 by an appellate court. Pacific Indemnity's obligation
under the trilateral agreement is therefore similar to, and not duplicative of,
that under those agreements described above.
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.
In July 1995, the United States District Court of the Eastern District of
Texas approved the global settlement agreement and the trilateral agreement. The
judgments approving these agreements have been appealed to the United States
Court of Appeal for the Fifth Circuit. The appeals were argued in early March
1996. The period of ultimate judicial review continues to lengthen and may well
extend into 1997.
Management is optimistic that the approval of the settlement will be
upheld. However, if both the global settlement agreement and the trilateral
agreement are disapproved by an appellate court, there can then 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.
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 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. Loss and expense
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payments related to the settlement aggregated $60 million and $204 million in
1995 and 1994, respectively.
We have additional potential asbestos exposure on insureds for which we
wrote excess liability coverages. Such exposure has increased due to the erosion
of much of the underlying limits. The number of claims against such insureds and
the value of such claims have increased in recent years due in part to the
non-viability of other defendants.
Our other remaining asbestos exposures are mostly peripheral defendants,
including a mix of manufacturers and distributors of certain products that
contain asbestos as well as premises owners. Generally, these insureds are named
defendants on a regional rather than a nationwide basis. We continue to receive
notices of 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 courts have been engaged in developing guidelines regarding coverage
for asbestos claims and have begun to articulate more consistent standards
regarding the extent of the obligation of insurers to provide coverage and the
method of allocation of costs among insurers. However, we still do not know the
universe of potential claims. Therefore, uncertainty remains as to our ultimate
liability for asbestos-related claims.
Hazardous waste sites are another significant potential exposure. Under the
"Superfund" law and similar state statutes, when potentially responsible parties
(PRPs) fail to handle the clean-up, regulators 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.
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 more recent cases, however, policies specifically excluded such
exposures.
As the cost of environmental clean-up continues to grow, PRPs and others
have increasingly filed claims with their insurance carriers. 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
remediation costs among governmental authorities and the PRPs varies greatly.
Second, different 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, which has
generated far more litigation than it has brought about the cleanup of hazardous
waste sites. Superfund's taxing authority expired on December 31, 1995.
Notwithstanding continued pressure by the insurance industry and other
interested parties to achieve a legislative solution to rewrite this law, the
Superfund issue may not be addressed until after the 1996 elections. It is
currently not possible to predict the direction that any reforms may take, when
they may occur or the effect that any changes may have on the insurance
industry. In addition, the Superfund law does not address non-Superfund toxic
sites. For that reason, it does not cover all existing toxic waste exposures,
such as those involving sites that are subject to state law only. Such sites
could prove even more numerous and thus more costly than Superfund sites.
Litigation costs continue to escalate, particularly for toxic waste claims.
A substantial portion of the funds expended to date by us has been for legal
fees incurred in the prolonged litigation of coverage issues. Primary policies
provide a limit on indemnity payments but many do not on defense costs. This
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language in the policy sometimes leads to the payment of defense costs in
multiples of the policy limits.
Reserves for asbestos and toxic waste claims cannot be estimated with
traditional loss reserving techniques. We have established case reserves and
expense reserves for costs of related litigation 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. Loss reserve increases relating to asbestos and toxic waste claims were
$182 million in 1995, $115 million in 1994 and $1,076 million in 1993. Excluding
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. Further increases in
such reserves in 1996 and future years are possible as legal and factual issues
concerning these claims are clarified, although the amounts cannot be reasonably
estimated.
Management believes that the aggregate loss reserves of the property and
casualty subsidiaries at December 31, 1995 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 deemed acceptable
for measuring hazardous waste site clean-up, additional increases in loss
reserves may emerge which would adversely affect results in future periods. The
amount cannot reasonably be estimated at the present time.
INVESTMENTS AND LIQUIDITY
Investment income after taxes increased 7% in 1995 compared with 4% in
1994. Growth was primarily due to increases in invested assets, which reflected
strong cash flow from operations over the period. Growth was tempered in 1994 by
the $538 million paid in December 1993 into an escrow account related to the
Fibreboard settlement. Similarly, 1995 growth was tempered as a result of the
February 1995 amendment to the 1993 agreement between Pacific Indemnity and
Continental Casualty, whereby an additional $480 million of the Corporation's
assets were designated as funds held for asbestos-related settlement. These
assets accrue income for the benefit of participants in the class settlement of
asbestos-related bodily injury claims against Fibreboard.
The effective tax rate on our investment income was 15.9% in 1995 compared
with 15.3% in 1994 and 14.7% in 1993. The effective tax rate increased in 1995
and 1994 as the percentage of our investment income subject to tax has
increased.
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, cash receipts from operations, consisting
of insurance premiums and investment income, have provided more than sufficient
funds to pay losses, operating expenses and dividends to the Corporation.
The main objectives of the investment portfolio of the property and
casualty subsidiaries are to maximize after-tax investment income and total
investment returns while minimizing credit risks as well as 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.
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New cash available for investment was approximately $495 million in 1995
compared with $725 million in 1994 and $480 million in 1993. The lower amount in
1995 was due to the designation of $480 million of new cash as funds held for
asbestos-related settlement. The lower amount in 1993 was due to the $538
million paid in December into an escrow account. In 1995, we invested new cash
primarily in tax-exempt bonds. In 1994, we invested new cash in taxable bonds
and, to a lesser extent, tax-exempt bonds while reducing our equity security
portfolio. In each year we tried to achieve the appropriate mix in our portfolio
to balance both investment and tax strategies.
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
these 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. Taxable bonds have an average
maturity of 7 1/2 years while tax-exempt bonds mature on average in 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.
At December 31, 1995, the property and casualty subsidiaries held foreign
investments of $1.4 billion supporting their international operations. Such
foreign investments have quality and maturity characteristics similar to our
domestic portfolio. We reduce the risks relating to currency fluctuations by
maintaining investments in those foreign currencies in which we transact
business, with characteristics similar to the liabilities in those currencies.
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 1994, such investments were at a higher than normal level so
that funds would be readily available to pay amounts related to the Fibreboard
settlement. Short-term securities were reduced to a more normal level in 1995 as
the expected payout period for Fibreboard related amounts has been extended. 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 $28 million in 1995
compared with $14 million in 1994 and $62 million in 1993. Premiums and policy
charges were $623 million in 1995 compared with $836 million in 1994 and $801
million in 1993.
PERSONAL INSURANCE
Earnings from personal insurance were $37 million in 1995 compared with $33
million in 1994 and $37 million in 1993. Earnings in 1995 benefited from
favorable mortality. The earnings decrease in 1994 was primarily due to a
decrease in the spread between interest earned on our invested assets and
interest credited to policyholders on interest-sensitive products.
Premiums and policy charges amounted to $311 million in 1995 compared with
$272 million in 1994 and $240 million in 1993. New sales of personal insurance
as measured by annualized premiums were $112 million in 1995 compared with $97
million in 1994 and $88 million in 1993.
Our strategy is to focus on the affluent individual interested in estate
planning and wealth creation utilizing equity-linked products as well as on
financial planning for business owners. Our ability to increase revenues has
been enhanced through marketing initiatives conducted with our property and
casualty producers.
We have taken a number of steps to increase operating efficiencies in order
to improve the competitive position of our personal insurance business. We
reduced field office staffing levels 55% by consolidating the 40 offices as of
the beginning of 1993 into 14 as of year-end 1995 and also consolidated three
service centers into two. In addition, we streamlined our producer network and
raised their minimum production requirements.
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GROUP INSURANCE
Group insurance operations resulted in losses of $9 million in 1995 and $19
million in 1994 compared with earnings of $25 million in 1993. Group health
insurance results in 1995 and 1994 were adversely affected by a high level of
claims resulting from the increased cost of medical services and the increased
utilization of those services. Results in 1995 benefited from significant rate
increases; this was offset in part by the adverse effect of premium revenue
decreasing at a greater rate than the decrease in expenses.
Premiums were $312 million in 1995 compared with $564 million in 1994 and
$561 million in 1993. New group sales as measured by annualized premiums were
$21 million in 1995 compared with $52 million in 1994 and $323 million in 1993.
Our group health business is concentrated in the New York and New Jersey
markets. In 1993, both states adopted legislation which eliminated health
insurance underwriting, created community based rating and limited pre-existing
condition exclusions for insured groups with fewer than 50 covered lives. As a
result, several insurers reduced their market share in the small group health
segment in New York in 1993. We offered a competitive product and thus
substantially increased our sales in that market during 1993. The high level of
premium revenue in 1993 and the first six months of 1994 reflected the effect of
the significant increase in sales of new policies during 1993. Due to the
increased availability of alternative small group markets in 1994 as well as our
significant rate increases in 1994 and 1995, many of the new policies written in
1993, which became eligible for renewal in 1994, were not renewed. Due to this
increase in non-renewals, we expected the decline in premium revenue which
occurred in 1995. In response, we took a number of steps to reduce our costs
including the closing of field offices and regional claim offices, reducing
staffing levels by 65%.
Given the changes in our marketplace and the continuation of the shift away
from traditional indemnity products to managed care alternatives, we anticipate
that traditional indemnity premium revenue will continue to decline. In response
to this shift, we are offering managed care products through ChubbHealth, Inc.,
a health maintenance organization.
Because of the continuing adverse effects of the legislative changes and
other health industry factors on our group health results, we are evaluating our
future role in the traditional indemnity and managed care markets.
INVESTMENTS AND LIQUIDITY
Gross investment income increased 12% in 1995 compared with 1% in 1994.
Growth in 1995 was primarily due to an increase in invested assets. Premium
receipts in excess of payments for benefits and expenses, together with
investment income, continue to provide new cash for investment. New cash
amounted to $225 million in 1995 compared with $140 million in 1994 and $225
million in 1993. The increase in new cash in 1995 was primarily due to increases
in deposits credited to policyholder funds. The decrease in new cash in 1994 was
due to the reduced cash flow from group insurance operations.
In 1995, new cash was invested in mortgage-backed securities and, to a
lesser extent, corporate bonds and U.S. Treasury securities. In 1994, new cash
was invested primarily in mortgage-backed securities. We invest predominantly in
fixed-income securities with cash flows and maturities which are consistent with
life insurance liability characteristics. Approximately 95% are investment grade
and more than half are rated AAA. We maintain sufficient funds in short-term
securities to meet unusual needs for cash.
The life and health subsidiaries held fixed maturity securities with a
carrying value of $2.7 billion and $2.2 billion at December 31, 1995 and 1994,
respectively. Corporate bonds comprised 39% and 47% of the portfolio at year-end
1995 and 1994, respectively, and mortgage-backed securities comprised 47% of the
portfolio at both year-ends. More than 90% of our mortgage-backed securities
holdings at December 31, 1995 and 1994 related to residential mortgages
consisting of government agency pass-through securities, government agency
collateralized mortgage obligations (CMOs) and AAA rated
28
29
by government agency collateral or single family home mortgages. The majority
of the CMOs are actively traded in liquid markets and market value information
is readily available from broker/dealers. The notion of impairment associated
with default in paying principal is less applicable to residential CMOs. Other
risks, most notably prepayment and extension risks, are monitored regularly.
Changes in prepayment patterns can either lengthen or shorten the expected
timing of the principal repayments and thus the average life and the effective
yield of the security. We invest primarily in those classes of residential CMO
instruments that are subject to less prepayment and extension risk and are
therefore less volatile than other CMO instruments.
REAL ESTATE
Real estate earnings after taxes were $6 million in 1995 compared with a
loss of $2 million in both 1994 and 1993. Results continue to be adversely
affected by progressively higher portions of interest cost being charged
directly to expense rather than being capitalized and by provisions for possible
uncollectible receivables related to mortgages. Results for 1995 benefited from
an increase in earnings from rental operations, residential sales and a land
sale as well as from a decrease in the provision for uncollectible receivables.
The provision for uncollectible receivables was lower in 1995 than in the prior
year despite an increase of $10 million to the allowance for uncollectible
receivables resulting from the initial application of Statement of Financial
Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a
Loan, which established new criteria for measuring impairment of a loan.
Revenues were $288 million in 1995 compared with $205 million in 1994 and
$161 million in 1993. Revenues in 1995 and 1994 included higher levels of rental
revenues on owned properties. Revenues in 1995 also included increased revenues
from residential development and the land sale.
Our commercial real estate activities traditionally centered around
acquiring suburban, multi-site land parcels in locations considered prime for
office development and then developing the land in progressive stages. In the
late 1980s, 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 joint venture 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 commercial real estate industry continues to suffer from a reduced
demand for real estate investment. For the past several years, the supply of
available office space has exceeded the demand. Corporate restructurings and
downsizings have 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 low rental rates will continue to cause pressure on the
earnings of the real estate development industry.
In consideration of the difficult environment in most real estate markets,
we have curtailed our construction of new office buildings in recent years. We
have focused instead on leasing newly constructed facilities and maintaining
established properties at high occupancy levels. Current development activities
consist almost exclusively of preconstruction type efforts such as site
planning, zoning and similar activities. As a consequence, we expect revenues
from our commercial real estate activities for the next several years to come
from ongoing income from owned properties and from management and financing
29
30
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 1995, a total of 2,320,000 square feet was leased compared with 2,420,000
square feet in 1994 and 1,710,000 square feet in 1993. At December 31, 1995, we
owned or had interests in 10,450,000 square feet of office and industrial space.
Our vacancy rate was 6% at year-end 1995 compared with 7% at year-end 1994 and
10% at year-end 1993. The lower vacancy rates in 1995 and 1994 were due to our
ability to market space as it became available despite the difficult leasing
market.
In certain markets, renewing leases in established buildings has been
difficult as newly constructed space is available nearby at competitive rates.
While we have experienced significant leasing activity in recent years, we have
had to enter into multiple year leases at low 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.
Ultimate realizable value for real estate properties is determined based on
our ability to fully recover costs through a future revenue stream. 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.
We analyze both individual buildings and development sites on a continuing
basis. Estimates are made of both additional costs to be incurred to complete
development where necessary and the 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 Corporation will adopt SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, in the first
quarter of 1996. SFAS No. 121 establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets. The adoption of SFAS No. 121 is not expected to have a
significant impact on net income in 1996. This pronouncement is discussed
further in Note (1) (p) of the Notes to Consolidated Financial Statements on
page 51.
Loans receivable, which were issued in connection with our joint venture
activities and other property sales, are primarily purchase money mortgages.
Such loans, which represent only 2% of consolidated assets, are generally
collateralized by buildings and land. We continuously evaluate the ultimate
collectibility of such loans, of which no significant amounts are due in the
near term, and establish appropriate reserves. Our agreements to manage all
aspects of the joint venture properties have played a significant role in
enabling us to control potential collectibility issues related to these
receivables. The reserve for possible uncollectible receivables was increased by
charges against income of $18 million in 1995, $29 million in 1994 and $22
million in 1993, principally related to loans on selected properties with
operating income at levels which may not fully meet debt service requirements.
The 1995 charge includes the $10 million from the initial application of SFAS
No. 114. During 1995 and 1994, such reserve was reduced by writedowns
aggregating $4 million and $10 million, respectively, related to specific loans
that are uncollectible. Management believes the reserve of $88 million at
30
31
December 31, 1995 adequately reflects the current condition of the portfolio.
If conditions in the real estate market do not improve, however, additional
reserves may be required.
The fair value of these loans receivable is estimated through the use of
valuation techniques which consider current yield factors applied to the lesser
of the value of the discounted future cash flows of the loan or the discounted
future net cash flows from the properties serving as the underlying collateral
for the loan. 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. At December 31, 1995, the aggregate fair value of the loans was $405
million and the carrying value was $410 million.
Our Florida residential development activities continued during 1995.
Construction of a 171 unit oceanfront high-rise condominium project, commenced
during 1994, is expected to be completed in 1996. At year-end 1995, 156 units
were under contract. During 1995, construction of a 214 unit mid-rise
condominium project was completed. At year-end, 123 units were sold and 22 units
were under contract.
During 1994, we began development of residential projects in northern New
Jersey. Our first project is a 178 unit townhome project which we expect to
complete in 1996. At year-end 1995, 131 units were sold and 19 units were under
contract. During 1995, we entered into a joint venture for the construction of
84 townhomes.
Real estate activities are funded with short-term credit instruments,
primarily commercial paper, and debt issued by Chubb Capital Corporation as well
as term loans and mortgages. The weighted average interest cost on short-term
credit instruments approximated 6% in 1995 compared with 4 1/2% in 1994 and
3 1/4% in 1993. In 1995, the range of interest rates for term loans was 6% to
9 1/2% and for mortgages the range was 5% to 12%.
We expect to refinance, under similar terms, most of the term loans and
mortgages which become due in 1996. Cash from operations combined with the
ability to utilize the Corporation's borrowing facilities will provide
sufficient funds for 1996.
CORPORATE
The Corporation filed a shelf registration statement which the Securities
and Exchange Commission declared effective in June 1995, under which up to $400
million of various types of securities may be issued by the Corporation or Chubb
Capital. No securities have been issued under this registration.
In February 1994, the Board of Directors authorized the repurchase of up to
5,000,000 shares of common stock. During 1994, the Corporation repurchased
approximately 1,000,000 shares in open-market transactions at a cost of $72
million.
The Corporation has outstanding $120 million of unsecured 8 3/4% notes due
in 1999. In each of the years 1996 through 1998, the Corporation will pay as a
mandatory sinking fund an amount sufficient to redeem $30 million of principal.
Chubb Capital has outstanding 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. The proceeds have been used to support our
real estate operations.
Chubb Capital has outstanding $150 million of 6% notes due in 1998 and $100
million of 6 7/8% notes due in 2003. The notes are unsecured and are guaranteed
by the Corporation. A substantial portion of the proceeds has been used to
support our real estate operations.
The Corporation has a revolving credit agreement with a group of banks that
provides for unsecured borrowings of up to $300 million. The agreement
terminates on July 15, 1997 at which time any loans then outstanding become
payable. There have been no borrowings under this agreement. The Corporation had
additional unused lines of credit of approximately $178 million at December 31,
1995.
31
32
Investment income earned on corporate invested assets and interest and
other expenses not allocable to the operating subsidiaries are reflected in the
corporate segment. Corporate income after taxes was $15 million in 1995, $8
million in 1994 and $14 million in 1993.
INVESTMENT GAINS AND LOSSES
Net investment gains were realized by the Corporation and its insurance
subsidiaries in 1995, 1994 and 1993. Such gains before taxes consisted of the
following:
1995 1994 1993
---- ---- ----
(IN MILLIONS)
Equity securities............................... $100 $125 $ 60
Fixed maturities................................ 31 (62) 173
---- ---- ----
$131 $ 63 $233
==== ==== ====
In 1995 and 1994, a redistribution of invested assets from equity
securities to fixed maturities resulted in significant realized investment
gains. A restructuring of the equity security portfolio begun in 1992 resulted
in significant realized investment gains in 1993.
A primary reason for the sale of fixed maturities in each of the last three
years has been to improve our after-tax portfolio return without sacrificing
quality, where market opportunities have existed to do so. The substantial gains
realized 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 in statutory surplus
of our property and casualty subsidiaries resulting from the decrease in income
related to the Fibreboard settlement.
Fixed maturities which the Corporation and its insurance subsidiaries have
the ability and intent to hold to maturity are classified as held-to-maturity.
The remaining fixed maturities, 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 classified as
available-for-sale.
Effective January 1, 1994, the Corporation adopted SFAS No. 115, Accounting
for Certain Investments in Debt and Equity Securities. SFAS No. 115 established
more stringent criteria for classifying fixed maturity securities as
held-to-maturity. Thus, upon adopting SFAS No. 115, the Corporation reclassified
$4.2 billion of fixed maturities as available-for-sale which were previously
classified as held-to-maturity. At December 31, 1995, 27% of our fixed maturity
portfolio was classified as held-to-maturity compared with 35% at December 31,
1994 and 79% at December 31, 1993.
At December 31, 1995 and 1994, in accordance with the requirements of SFAS
No. 115, fixed maturities classified as held-to-maturity were carried at
amortized cost while fixed maturities classified as available-for-sale were
carried at market value. At December 31, 1993, all fixed maturities were carried
at amortized cost.
The unrealized appreciation or depreciation of investments carried at
market value, which includes equity securities and fixed maturities classified
as available-for-sale, is reflected in a separate component of shareholders'
equity, net of applicable deferred income tax.
The unrealized market appreciation before tax of those fixed maturities
carried at amortized cost was $209 million, $13 million and $736 million at
December 31, 1995, 1994 and 1993, respectively. Such unrealized appreciation was
not reflected in the consolidated financial statements. The changes in
unrealized market appreciation of fixed maturities were due to fluctuations in
interest rates.
FEDERAL INCOME TAXES
The Omnibus Budget Reconciliation Act of 1993, enacted in August 1993,
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,
32
33
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 1993, life and health insurance income after taxes included a benefit of
$5 million resulting from a reversal of income tax reserves based on a
settlement of prior years' taxes.
CHANGES IN ACCOUNTING PRINCIPLES
In 1995, the Corporation adopted SFAS No. 114, Accounting by Creditors for
Impairment of a Loan. In 1994, the Corporation adopted SFAS No. 115, Accounting
for Certain Investments in Debt and Equity Securities. In 1993, the Corporation
adopted SFAS No. 106, Employers' Accounting for Postretirement Benefits Other
Than Pensions, and SFAS No. 109, Accounting for Income Taxes. These
pronouncements and their effect on the consolidated financial statements are
discussed in Note (2) of the Notes to Consolidated Financial Statements on page
51.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements of the Corporation at December 31, 1995
and 1994 and for each of the three years in the period ended December 31, 1995
and the Report of Independent Auditors thereon and the Corporation's unaudited
quarterly financial data for the two-year period ended December 31, 1995 are
incorporated by reference from the Corporation's 1995 Annual Report to
Shareholders, pages 44 through 68.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
33
34
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 23, 1996, pages 2, 3 and 6. 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 23, 1996, pages 8 through 20
other than the Performance Graph and the Organization and Compensation Committee
Report appearing on pages 13 through 18.
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 23, 1996, pages 4 through 7.
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 23, 1996, pages 20 and 21.
34
35
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), 33-30020
(filed July 18, 1989), 33-49230 (filed July 2, 1992) and 33-49232 (filed July 2,
1992):
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.
35
36
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
THE CHUBB CORPORATION
(REGISTRANT)
March 1, 1996
By /s/ DEAN R. O'HARE
---------------------------
(DEAN R. O'HARE, CHAIRMAN,
PRESIDENT AND
CHIEF EXECUTIVE OFFICER)
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, President, Chief March 1, 1996
---------------------------- Executive Officer and
(DEAN R. O'HARE) Director
/s/ JOHN C. BECK Director March 1, 1996
----------------------------
(JOHN C. BECK)
/s/ PERCY CHUBB, III Vice Chairman, Chief Financial March 1, 1996
---------------------------- Officer and Director
(PERCY CHUBB, III)
/s/ JOEL J. COHEN Director March 1, 1996
----------------------------
(JOEL J. COHEN)
/s/ HENRY U. HARDER Director March 1, 1996
----------------------------
(HENRY U. HARDER)
/s/ DAVID H. HOAG Director March 1, 1996
----------------------------
(DAVID H. HOAG)
/s/ ROBERT V. LINDSAY Director March 1, 1996
----------------------------
(ROBERT V. LINDSAY)
/s/ THOMAS C. MACAVOY Director March 1, 1996
----------------------------
(THOMAS C. MACAVOY)
36
37
SIGNATURE TITLE DATE
--------- ----- ----
/s/ GERTRUDE G. MICHELSON Director March 1, 1996
- --------------------------------------
(GERTRUDE G. MICHELSON)
Director March 1, 1996
- --------------------------------------
(WARREN B. RUDMAN)
/s/ DAVID G. SCHOLEY Director March 1, 1996
- --------------------------------------
(DAVID G. SCHOLEY)
/s/ RAYMOND G.H. SEITZ Director March 1, 1996
- --------------------------------------
(RAYMOND G.H. SEITZ)
/s/ LAWRENCE M. SMALL Director March 1, 1996
- --------------------------------------
(LAWRENCE M. SMALL)
/s/ RICHARD D. WOOD Director March 1, 1996
- --------------------------------------
(RICHARD D. WOOD)
/s/ HENRY B. SCHRAM Senior Vice President March 1, 1996
- -------------------------------------- and Chief Accounting
(HENRY B. SCHRAM) Officer
37
38
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 67 --
Consolidated Balance Sheets at December 31, 1995 and 1994 45 --
Consolidated Statements of Income for the Years Ended Decem-
ber 31, 1995, 1994 and 1993 44 --
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1995, 1994 and 1993 46 --
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 47 --
Notes to Consolidated Financial Statements 48 --
Supplementary Information (unaudited)
Quarterly Financial Data 68 --
Schedules:
I -- Consolidated Summary of Investments -- Other
than Investments in Related Parties at
December 31, 1995 -- 40
II -- Condensed Financial Information of Registrant at
December 31, 1995 and 1994 and for the Years
Ended December 31, 1995, 1994 and 1993 -- 41
III -- Consolidated Supplementary Insurance Information
at and for the Years Ended December 31, 1995,
1994 and 1993 -- 44
IV -- Consolidated Reinsurance at and for the Years
Ended December 31, 1995, 1994 and 1993 -- 45
VI -- Consolidated Supplementary Property and Casualty
Insurance Information for the Years Ended
December 31, 1995, 1994 and 1993 -- 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, 1995, are hereby
incorporated by reference.
38
39
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 23, 1996 (except for
Note 18, as to which the date is March 1, 1996), included in the 1995 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-3: No. 33-5911 and Form S-8: No. 33-12208, No. 33-29185, No.
33-30020, No. 33-49230 and No. 33-49232) of our report dated February 23, 1996
(except for Note 18, as to which the date is March 1, 1996), 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 LLP
New York, New York
March 26, 1996
39
40
THE CHUBB CORPORATION
SCHEDULE I
CONSOLIDATED SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES
(IN THOUSANDS)
DECEMBER 31, 1995
AMOUNT
AT WHICH
COST OR SHOWN IN
AMORTIZED MARKET THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
------------------ --------- ------- -------------
Short term investments......................... $ 484,439 $ 484,439 $ 484,439
----------- ----------- -----------
Fixed maturities
Bonds
United States Government and government
agencies and authorities................ 2,460,192 2,555,083 2,545,627
States, municipalities and political
subdivisions............................ 6,385,830 6,815,369 6,639,808
Foreign................................... 1,466,281 1,526,787 1,524,528
Public utilities.......................... 111,576 116,447 115,527
All other corporate bonds................. 1,668,242 1,770,847 1,749,610
----------- ----------- -----------
Total bonds..................... 12,092,121 12,784,533 12,575,100
Redeemable preferred stocks.................. 27,704 27,710 27,710
----------- ----------- -----------
Total fixed maturities.......... 12,119,825 12,812,243 12,602,810
----------- ----------- -----------
Equity securities
Common stocks
Public utilities.......................... 11,222 11,994 11,994
Banks, trusts and insurance companies..... 13,985 23,885 23,885
Industrial, miscellaneous and other....... 467,178 550,942 550,942
----------- ----------- -----------
Total common stocks............. 492,385 586,821 586,821
Non-redeemable preferred stocks.............. 1,031 1,004 1,004
----------- ----------- -----------
Total equity securities......... 493,416 587,825 587,825
----------- ----------- -----------
Policy and mortgage loans...................... 212,339 212,339 212,339
----------- ----------- -----------
Total invested assets........... $13,310,019 $14,096,846 $13,887,413
=========== =========== ===========
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41
THE CHUBB CORPORATION
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS -- PARENT COMPANY ONLY
(IN THOUSANDS)
DECEMBER 31, 1995 AND 1994
1995 1994
---- ----
Assets
Invested Assets
Short Term Investments..................................... $ 62,727 $ 61,430
Taxable Fixed Maturities -- Available-for-Sale
(cost $207,053 and $289,319)............................. 216,048 275,373
Equity Securities (cost $48,640 and $42,817)............... 75,837 52,731
---------- ----------
TOTAL INVESTED ASSETS................................. 354,612 389,534
Cash.......................................................... 59 132
Investment in Consolidated Subsidiaries....................... 4,969,988 4,041,551
Other Assets.................................................. 145,264 149,900
---------- ----------
TOTAL ASSETS.......................................... $5,469,923 $4,581,117
========== ==========
Liabilities
Dividend Payable to Shareholders.............................. $ 42,741 $ 40,035
Payable to Chubb Capital Corporation.......................... -- 74,340
Long Term Debt................................................ 120,000 150,000
Accrued Expenses and Other Liabilities........................ 44,453 69,713
---------- ----------
TOTAL LIABILITIES..................................... 207,194 334,088
---------- ----------
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 87,819,355 and 87,798,286 Shares...... 87,819 87,798
Paid-In Surplus............................................... 778,239 786,596
Retained Earnings............................................. 4,206,517 3,680,554
Foreign Currency Translation Gains (Losses), Net of Income
Tax........................................................ (3,433) 9,766
Unrealized Appreciation (Depreciation) of Investments, Net.... 345,894 (124,339)
Receivable from Employee Stock Ownership Plan................. (114,998) (122,999)
Treasury Stock, at Cost -- 518,468 and 977,580 Shares......... (37,309) (70,347)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY............................ 5,262,729 4,247,029
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............ $5,469,923 $4,581,117
========== ==========
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto in the Corporation's 1995
Annual Report to Shareholders.
41
42
THE CHUBB CORPORATION
SCHEDULE II
(CONTINUED)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME -- PARENT COMPANY ONLY
(IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
---- ---- ----
Investment Income...................................... $ 19,982 $ 25,031 $ 28,015
Realized Investment Gains (Losses)..................... (505) (13,145) 21,076
Investment Expenses.................................... (1,132) (1,307) (917)
Corporate Expenses..................................... (33,355) (34,850) (24,220)
-------- -------- --------
(15,010) (24,271) 23,954
Federal and Foreign Income Tax (Credit)................ 2,639 (4,578) (9,050)
-------- -------- --------
(17,649) (19,693) 33,004
Equity in Income Before Cumulative Effect of Changes in
Accounting Principles of Consolidated Subsidiaries... 714,277 548,162 311,213
-------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLES........................... 696,628 528,469 344,217
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........................................ $696,628 $528,469 $324,217
======== ======== ========
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 1995
Annual Report to Shareholders.
42
43
THE CHUBB CORPORATION
SCHEDULE II
(CONTINUED)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS -- PARENT COMPANY ONLY
(IN THOUSANDS)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
---- ---- ----
Cash Flows from Operating Activities
Net Income........................................... $ 696,628 $ 528,469 $ 324,217
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)..................................... (714,277) (548,162) (222,613)
Realized Investment (Gains) Losses................ 505 13,145 (21,076)
Cumulative Effect of Changes in Accounting
Principles...................................... -- -- (68,600)
Other, Net........................................ 5,024 16,886 30,305
--------- --------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES......................... (12,120) 10,338 42,233
--------- --------- ---------
Cash Flows from Investing Activities
Proceeds from Sales of Fixed Maturities.............. 110,234 234,132 463,625
Proceeds from Maturities of Fixed Maturities......... 13,369 21,632 6,760
Proceeds from Sales of Equity Securities............. 2,479 5,333 4,957
Purchases of Fixed Maturities........................ (39,585) (218,380) (421,876)
Purchases of Equity Securities....................... (8,683) (26,004) (6,191)
Decrease (Increase) in Short Term Investments, Net... (1,297) 1,375 (22,258)
Dividends Received from Consolidated Subsidiaries.... 244,008 244,008 148,008
Capital Contributions to Consolidated Subsidiaries... (24,000) (40,000) (10,280)
Other, Net........................................... (40,123) (9,353) (91,175)
--------- --------- ---------
NET CASH PROVIDED BY
INVESTING ACTIVITIES......................... 256,402 212,743 71,570
--------- --------- ---------
Cash Flows from Financing Activities
Increase (Decrease) in Payable to Chubb
Capital Corporation............................... (74,340) (2,950) 22,290
Repayment of Long Term Debt.......................... (30,000) -- --
Dividends Paid to Shareholders....................... (167,959) (158,735) (148,070)
Repurchase of Shares................................. -- (72,052) --
Other, Net........................................... 27,944 10,608 11,793
--------- --------- ---------
NET CASH USED IN
FINANCING ACTIVITIES......................... (244,355) (223,129) (113,987)
--------- --------- ---------
Net Decrease in Cash................................... (73) (48) (184)
Cash at Beginning of Year.............................. 132 180 364
--------- --------- ---------
CASH AT END OF YEAR............................. $ 59 $ 132 $ 180
========= ========= =========
The condensed financial statements should be read in conjunction with the
consolidated financial statements and notes thereto in the Corporation's 1995
Annual Report to Shareholders.
43
44
THE CHUBB CORPORATION
SCHEDULE III
CONSOLIDATED SUPPLEMENTARY INSURANCE INFORMATION
(IN THOUSANDS)
DECEMBER 31
-----------------------------------------------
OTHER
POLICY
DEFERRED UNPAID CLAIMS
POLICY CLAIMS AND
ACQUISITION AND POLICY UNEARNED BENEFITS
SEGMENT COSTS LIABILITIES PREMIUMS PAYABLE
------- ----------- ----------- -------- --------
1995
Property and Casualty Insurance
Personal................................. $ 129,789 $ 659,138 $ 539,454
Standard Commercial...................... 177,842 4,701,321 854,374
Specialty Commercial..................... 191,351 3,806,386 996,473
Reinsurance Assumed...................... 59,694 421,296 180,381
Investments..............................
---------- ----------- ----------
558,676 9,588,141 2,570,682
Life and Health Insurance.................. 612,709 2,844,415 $ 98,723
---------- ----------- ---------- --------
$1,171,385 $12,432,556 $2,570,682 $ 98,723
========== =========== ========== ========
1994
Property and Casualty Insurance
Personal................................. $ 131,306 $ 675,520 $ 510,869
Standard Commercial...................... 168,962 4,330,870 788,771
Specialty Commercial..................... 179,310 3,521,176 923,969
Reinsurance Assumed...................... 49,875 385,654 158,936
Investments..............................
---------- ----------- ----------
529,453 8,913,220 2,382,545
Life and Health Insurance.................. 606,493 2,594,995 $ 64,588
---------- ----------- ---------- --------
$1,135,946 $11,508,215 $2,382,545 $ 64,588
========== =========== ========== ========
1993
Property and Casualty Insurance
Personal................................. $ 133,565 $ 654,617 $ 503,350
Standard Commercial...................... 157,347 4,182,997 720,487
Specialty Commercial..................... 162,461 3,086,515 839,835
Reinsurance Assumed...................... 36,329 311,313 116,191
Investments..............................
---------- ----------- ----------
489,702 8,235,442 2,179,863
Life and Health Insurance.................. 522,544 2,384,936 $ 61,684
---------- ----------- ---------- --------
$1,012,246 $10,620,378 $2,179,863 $ 61,684
========== =========== ========== ========
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------
PREMIUMS INSURANCE AMORTIZATION OTHER
EARNED CLAIMS OF DEFERRED INSURANCE
AND NET AND POLICY OPERATING
POLICY INVESTMENT POLICYHOLDERS' ACQUISITION COSTS AND PREMIUMS
SEGMENT CHARGES INCOME BENEFITS COSTS EXPENSES WRITTEN
------- -------- ---------- -------------- ------------ --------- --------
1995
Property and Casualty Insurance
Personal................................. $ 832,423 $ 436,562 $ 250,174 $ 53,001 $ 851,582
Standard Commercial...................... 1,408,811 1,083,851 363,304 96,751 1,456,466
Specialty Commercial..................... 1,556,473 920,521 391,433 112,332 1,627,032
Reinsurance Assumed...................... 349,455 229,047 116,032 370,912
Investments.............................. $602,987*
---------- -------- ---------- ---------- -------- ----------
4,147,162 602,987 2,669,981 1,120,943 262,084 $4,305,992
==========
Life and Health Insurance.................. 622,937 230,090 549,219 77,457 185,086
---------- -------- ---------- ---------- --------
$4,770,099 $833,077 $3,219,200 $1,198,400 $447,170
========== ======== ========== ========== ========
1994
Property and Casualty Insurance
Personal................................. $ 812,033 $ 522,158 $ 253,203 $ 44,147 $ 813,736
Standard Commercial...................... 1,279,069 970,764 336,877 77,554 1,338,554
Specialty Commercial..................... 1,404,793 834,926 361,021 102,289 1,475,761
Reinsurance Assumed...................... 280,388 191,511 90,144 323,158
Investments.............................. $560,481*
---------- -------- ---------- ---------- -------- ----------
3,776,283 560,481 2,519,359 1,041,245 223,990 $3,951,209
==========
Life and Health Insurance.................. 836,293 206,315 752,205 72,250 199,399
---------- -------- ---------- ---------- --------
$4,612,576 $766,796 $3,271,564 $1,113,495 $423,389
========== ======== ========== ========== ========
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
========== ======== ========== ========== ========
<FN>
- ---------------
* 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.
44
45
THE CHUBB CORPORATION
SCHEDULE IV
CONSOLIDATED REINSURANCE
(IN THOUSANDS)
PERCENTAGE OF
CEDED ASSUMED AMOUNT
DIRECT TO OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
------ --------- ---------- ------ -------------
1995
Life Insurance In Force at
Year-End....................... $66,612,412 $12,533,816 $ 49,352 $54,127,948 .1%
=========== =========== ======== ===========
Premiums Earned and Policy
Charges for the Year:
Life Insurance.................. $ 332,967 $ 20,740 $ 1,766 $ 313,993 .6
Accident and Health Insurance... 319,068 10,124 -- 308,944 --
Property and Casualty
Insurance..................... 4,754,423 1,319,341 712,080 4,147,162 17.2
----------- ----------- -------- -----------
Total Premiums and Policy
Charges.................... $ 5,406,458 $ 1,350,205 $713,846 $ 4,770,099
=========== =========== ======== ===========
1994
Life Insurance In Force at
Year-End........................ $61,618,417 $12,169,589 $ 81,610 $49,530,438 .2
=========== =========== ======== ===========
Premiums Earned and Policy
Charges for the Year:
Life Insurance.................. $ 313,913 $ 19,068 $ 1,976 $ 296,821 .7
Accident and Health Insurance... 548,172 8,780 80 539,472 --
Property and Casualty
Insurance..................... 4,415,080 1,280,412 641,615 3,776,283 17.0
---------- ----------- -------- -----------
Total Premiums and Policy
Charges.................... $ 5,277,165 $ 1,308,260 $643,671 $ 4,612,576
=========== =========== ======== ===========
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
========== =========== ======== ===========
45
46
THE CHUBB CORPORATION
SCHEDULE VI
CONSOLIDATED SUPPLEMENTARY PROPERTY AND CASUALTY INSURANCE INFORMATION
(in thousands)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
CLAIMS AND CLAIM
ADJUSTMENT PAID
EXPENSES INCURRED CLAIMS
RELATED TO AND
------------------------ CLAIM
CURRENT PRIOR ADJUSTMENT
YEAR YEARS EXPENSES
---------- -------- ----------
1995............................................. $2,705,800 $(35,819) $1,988,386
========== ======== ==========
1994............................................. $2,549,100 $(29,741) $2,036,525
========== ======== ==========
1993............................................. $2,214,300 $664,798 $1,696,666
========== ======== ==========
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, 1994.
(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 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, 1993.
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.
Amendment to the Continental-Pacific Agreement with Continental Casualty
Company 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, 1994.
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 (1994) incor-
porated by reference to Exhibit A of the registrant's definitive
proxy statement for the Annual Meeting of Shareholders held on
April 26, 1994.
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, 1994.
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.
The Chubb Corporation Deferred Compensation Plan for Directors 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, 1994.
Executive Severance Agreements filed herewith.
Aggregate Excess of Loss Reinsurance Agreement with Phoenix Assurance
Public Limited Company of London, incorporated by reference to Ex-
hibit (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 15, 16, and 42 through 69 of the 1995 Annual Report to
Shareholders.
(21) -- Subsidiaries of the registrant filed herewith.
(23) -- Consent of Independent Auditors (see page 39 of this report).
(27) -- Financial Data Schedule
(28) -- Information from reports furnished to state insurance regulatory
authorities. Filed concurrently herewith under cover of Form SE.
48