1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the quarterly period ended March 31, 1997
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the transition period from to
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Commission file number 1-8661
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THE CHUBB CORPORATION
----------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 13-2595722
- ------------------------------- -------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
15 MOUNTAIN VIEW ROAD, WARREN, NEW JERSEY 07061-1615
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (908) 903-2000
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
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The number of shares of common stock outstanding as of April 30, 1997
was 170,488,714.
2
THE CHUBB CORPORATION
INDEX
Page Number
-----------
Part I. Financial Information:
Item 1 - Financial Statements:
Consolidated Balance Sheets as of
March 31, 1997 and December 31, 1996......................... 1
Consolidated Statements of Income for the
Three Months Ended March 31, 1997 and 1996................... 2
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996................... 3
Notes to Consolidated Financial Statements.................... 4
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations.............. 7
Part II. Other Information:
Item 6 - Exhibits and Reports on Form 8-K....................... 14
3
Page 1
THE CHUBB CORPORATION
CONSOLIDATED BALANCE SHEETS
Mar. 31, Dec. 31,
1997 1996
--------- ---------
(in millions)
Assets
Invested Assets
Short Term Investments ............................. $ 836.5 $ 275.9
Fixed Maturities
Held-to-Maturity - Tax Exempt (market $2,501.9
and $2,573.4) ................................... 2,398.1 2,443.6
Available-for-Sale
Tax Exempt (cost $4,681.2 and $4,415.1) ......... 4,826.4 4,622.6
Taxable (cost $3,643.8 and $4,038.7) ............ 3,667.3 4,092.7
Equity Securities (cost $570.2 and $540.5) ......... 662.2 646.3
--------- ---------
TOTAL INVESTED ASSETS ....................... 12,390.5 12,081.1
Cash ................................................. 8.3 4.7
Accrued Investment Income ............................ 176.5 195.3
Premiums Receivable .................................. 1,014.7 984.9
Reinsurance Recoverable on Unpaid Claims ............. 1,335.7 1,767.8
Prepaid Reinsurance Premiums ......................... 122.1 326.7
Funds Held for Asbestos-Related Settlement ........... 589.4 599.9
Deferred Policy Acquisiton Costs ..................... 633.2 601.2
Real Estate Assets ................................... 1,616.4 1,604.0
Deferred Income Tax .................................. 424.5 365.6
Other Assets ......................................... 570.6 564.3
Net Assets of Discontinued Operations ................ 841.4 843.4
--------- ---------
TOTAL ASSETS ................................ $19,723.3 $19,938.9
========= =========
Liabilities
Unpaid Claims ........................................ $ 9,528.3 $ 9,523.7
Unearned Premiums .................................... 2,513.7 2,617.5
Short Term Debt ...................................... 210.0 189.5
Long Term Debt ....................................... 1,046.4 1,070.5
Dividend Payable to Shareholders ..................... 49.4 47.2
Accrued Expenses and Other Liabilities ............... 1,146.8 1,027.6
--------- ---------
TOTAL LIABILITIES ........................... 14,494.6 14,476.0
--------- ---------
Shareholders' Equity
Common Stock - $1 Par Value; 176,079,424 and
176,084,173 Shares .................................. 176.1 176.1
Paid-In Surplus ...................................... 685.3 695.7
Retained Earnings .................................... 4,673.2 4,530.5
Foreign Currency Translation Losses, Net of Income Tax (13.0) (15.6)
Unrealized Appreciation of Investments, Net .......... 169.4 238.7
Receivable from Employee Stock Ownership Plan ........ (106.3) (106.3)
Treasury Stock, at Cost - 6,171,495 and
1,223,182 Shares .................................... (356.0) (56.2)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY .................. 5,228.7 5,462.9
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .. $19,723.3 $19,938.9
========= =========
See Notes to Consolidated Financial Statements.
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Page 2
THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31
1997 1996
----------- -----------
(in millions)
Revenues
Premiums Earned ................................... $ 1,321.0 $ 1,121.5
Investment Income ................................. 186.8 174.6
Real Estate ....................................... 44.3 166.4
Realized Investment Gains ......................... 24.8 19.1
----------- -----------
Total Revenues ............................. 1,576.9 1,481.6
----------- -----------
Claims and Expenses
Insurance Claims .................................. 839.9 767.9
Amortization of Deferred Policy Acquisition Costs . 361.7 304.9
Other Insurance Operating Costs and Expenses ...... 78.5 66.6
Real Estate Cost of Sales and Expenses ............ 42.3 159.9
Investment Expenses ............................... 3.3 4.6
Corporate Expenses ................................ 5.7 7.3
----------- -----------
Total Claims and Expenses .................. 1,331.4 1,311.2
----------- -----------
Income from Continuing Operations Before Federal and
Foreign Income Tax ................................. 245.5 170.4
Federal and Foreign Income Tax ...................... 53.4 30.0
----------- -----------
Income from Continuing Operations ................... 192.1 140.4
Income from Discontinued Operations, Net of Tax ..... - 11.0
----------- -----------
Net Income .......................................... $ 192.1 $ 151.4
=========== ===========
Average Common and Common Equivalent Shares
Outstanding (In Thousands) ......................... 178,822 180,456
PER SHARE DATA
- --------------
Income from Continuing Operations ................... $ 1.09 $ .79
Income from Discontinued Operations ................. - .06
----------- -----------
Net Income .......................................... $ 1.09 $ .85
=========== ===========
Dividends Declared .................................. $ .29 $ .27
See Notes to Consolidated Financial Statements.
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Page 3
THE CHUBB CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31
1997 1996
-------- --------
(in millions)
Cash Flows from Operating Activities
Net Income ....................................... $ 192.1 $ 151.4
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Increase in Unpaid Claims, Net ................. 436.7 204.6
Increase in Unearned Premiums, Net ............. 100.8 6.3
Decrease in Medical Malpractice Reinsurance
Related Receivable ............................ - 191.2
Increase in Deferred Policy Acquisition Costs .. (32.0) (2.0)
Depreciation ................................... 16.8 14.2
Realized Investment Gains ...................... (24.8) (19.1)
Other, Net ..................................... (3.4) 3.6
Discontinued Operations, Net ................... - (18.5)
-------- --------
Net Cash Provided by Operating Activities ........ 686.2 531.7
-------- --------
Cash Flows from Investing Activities
Proceeds from Sales of Fixed Maturities .......... 1,455.5 1,612.6
Proceeds from Maturities of Fixed Maturities ..... 236.7 224.4
Proceeds from Sales of Equity Securities ......... 122.3 75.1
Purchases of Fixed Maturities .................... (1,514.3) (2,133.0)
Purchases of Equity Securities ................... (132.6) (50.9)
Increase in Short Term Investments, Net .......... (560.6) (194.1)
Increase in Net Payable from Security Transactions
Not Settled ..................................... 103.5 12.1
Other, Net ....................................... (31.6) (21.7)
Discontinued Operations, Net ..................... 2.0 (48.1)
-------- --------
Net Cash Used in Investing Activities ............ (319.1) (523.6)
-------- --------
Cash Flows from Financing Activities
Repayment of Long Term Debt ...................... (10.0) (76.5)
Increase in Short Term Debt, Net ................. 20.5 56.0
Dividends Paid to Shareholders ................... (47.2) (42.7)
Repurchase of Shares ............................. (340.7) (9.9)
Other, Net ....................................... 13.9 6.6
Discontinued Operations, Net ..................... - 56.6
-------- --------
Net Cash Used in Financing Activities ............ (363.5) (9.9)
-------- --------
Net Increase (Decrease) in Cash .................... 3.6 (1.8)
Cash at Beginning of Year .......................... 4.7 11.9
-------- --------
Cash at End of Period ............................ $ 8.3 $ 10.1
======== ========
See Notes to Consolidated Financial Statements.
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Page 4
THE CHUBB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) General
The amounts included in this report are unaudited but include
those adjustments, consisting of normal recurring items, which
management considers necessary for a fair presentation. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes in the 1996 Annual
Report to Shareholders.
2) Discontinued Operations
The Corporation entered into a definitive agreement, dated
February 23, 1997, to sell Chubb Life Insurance Company of America and
its subsidiaries to Jefferson-Pilot Corporation for $875 million in
cash. Accordingly, the life and health insurance subsidiaries have been
classified as discontinued operations. The sale was completed on May 13,
1997.
The assets and liabilities of the discontinued operations were as
follows:
Mar. 31, Dec. 31,
1997 1996
-------- --------
(in millions)
Assets
Invested assets
Short term investments ................ $ 30.0 $ 48.3
Fixed maturities
Held-to-maturity .................... 375.4 381.2
Available-for-sale .................. 2,517.2 2,498.3
Equity securities ..................... 24.7 30.7
Policy and mortgage loans ............. 229.8 226.8
-------- --------
3,177.1 3,185.3
Accrued investment income ............... 51.2 52.5
Deferred policy acquisition costs ....... 714.1 679.1
Other assets ............................ 825.0 814.9
-------- --------
Total assets ........................ 4,767.4 4,731.8
-------- --------
Liabilities
Life and health policy liabilities ...... 3,278.1 3,230.7
Short term debt ......................... 50.5 50.5
Deferred income tax ..................... 35.2 44.1
Accrued expenses and other liabilities .. 562.2 563.1
-------- --------
Total liabilities ................... 3,926.0 3,888.4
-------- --------
Net assets of discontinued operations $ 841.4 $ 843.4
======== ========
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3) Investments
Short term investments, which have an original maturity of one
year or less, are carried at amortized cost which approximates market
value. Fixed maturities classified as held-to-maturity are carried at
amortized cost. Fixed maturities classified as available-for-sale and
equity securities are carried at market value as of the balance sheet
date.
The net change in unrealized appreciation of investments carried
at market value was as follows:
Three Months Ended
March 31
------------------
1997 1996
------ ------
(in millions)
Continuing Operations
Change in unrealized appreciation of
equity securities .................... $(13.8) $ 2.8
Change in unrealized appreciation of
fixed maturities ..................... (92.8) (173.2)
------ ------
(106.6) (170.4)
Deferred income tax credit ............ (37.3) (59.7)
------ ------
Change in unrealized appreciation ..... (69.3) (110.7)
Discontinued operations, net ............ - (20.4)
------ ------
Change in unrealized appreciation of
investments, net ....................... $(69.3) $(131.1)
====== ======
4) Real Estate
A prospective purchaser is continuing to perform due diligence in
anticipation of executing a contract for the sale of substantially all
of the Corporation's commercial real estate properties. In addition,
the Corporation is continuing to explore the sale of its residential
and retail properties.
5) Reinsurance
Effective January 1, 1997, the agreements pertaining to the
exchange of reinsurance on a quota share basis with Royal & Sun Alliance
Insurance Group plc were terminated. As a result, there were portfolio
transfers of unpaid claims, unearned premiums, reinsurance recoverable
on unpaid claims and prepaid reinsurance premiums. The effect of the
portfolio transfers was to decrease unpaid claims and unearned premiums
by $183.8 million and $93.6 million, respectively, and reinsurance
recoverable on unpaid claims and prepaid reinsurance premiums by $470.0
million and $174.6 million, respectively.
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6) Exchangeable Subordinated Notes
On April 14, 1997, Chubb Capital Corporation called for
redemption on May 14, 1997 the remaining outstanding 6% Exchangeable
Subordinated Notes due May 15, 1998. The redemption price is 101.7% of
the principal amount plus accrued interest to the redemption date.
Holders of the notes have the option to exchange each $1,000 of
principal amount into 23.256 shares of common stock of The Chubb
Corporation at any time prior to the redemption date. At March 31, 1997,
Chubb Capital had outstanding $215,270,000 of the notes.
7) Per Share Data
Earnings per share amounts are based on the weighted average
number of common and common equivalent shares outstanding. The 6%
guaranteed exchangeable subordinated notes are considered to be common
equivalent shares during the period they are outstanding. The
computation assumes the addition to income of the after-tax interest
expense applicable to such notes.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per
Share, which establishes new standards for computing and presenting
earnings per share. SFAS No. 128 requires presentation of basic and
diluted earnings per share on the face of the statements of income. SFAS
No. 128 is effective for financial statements issued for periods ending
after December 15, 1997 and requires restatement of all prior periods
presented. Earlier adoption is not permitted. The adoption of SFAS No.
128 is not expected to have a significant effect on the Corporation's
earnings per share.
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Page 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE QUARTERS ENDED MARCH 31, 1997 AND 1996
PROPERTY AND CASUALTY INSURANCE
Earnings from our property and casualty business were substantially
higher in the first quarter of 1997 compared with the same period of 1996. The
increase was due primarily to a significant improvement in underwriting results
compared with the first quarter of 1996, which was adversely affected by
substantially higher catastrophe losses. Investment income increased 8.1% in the
first quarter of 1997 compared with 1996. Property and casualty income after
taxes amounted to $169.9 million in the first quarter of 1997 compared with
$120.3 million in 1996.
Net premiums written were $1,421.8 million in the first quarter of 1997,
an increase of 26.1% compared with the first quarter of 1996. A portion of the
increase in premiums written in the first quarter of both 1996 and 1997 was due
to changes to the agreements pertaining to the exchange of reinsurance on a
quota share basis with the Sun Alliance Group plc. Effective January 1, 1996,
these agreements were amended to reduce the portion of each company's business
reinsured with the other. As a result of the 1996 merger of Sun Alliance with
Royal Insurance Holdings plc, these agreements were terminated effective January
1, 1997. The Corporation's property and casualty subsidiaries now retain a
greater portion of the business they write directly and no longer assume any
reinsurance from Sun Alliance.
Excluding the effects of the 1996 changes to the reinsurance agreements
with Sun Alliance and the 1997 termination of such agreements, net premiums
written increased by approximately 12% in the first quarter of 1997 compared
with the same quarter in 1996. The marketplace continued to be competitive,
particularly in the commercial classes. Competitors continued to place
significant pressure on pricing as they attempted to maintain or increase market
share. As a result, price increases continued to be difficult to achieve.
Underwriting results were profitable in the first quarter of 1997
compared with modestly unprofitable results for the same quarter of 1996. Our
combined loss and expense ratio was 96.3% in the first quarter of 1997 compared
with 101.3% in 1996.
The loss ratio improved to 63.9% in the first quarter of 1997 from 68.8%
in 1996. The loss ratio in the first quarter of 1996 was adversely affected by
catastrophe losses resulting primarily from the winter storms in the eastern
part of United States. Catastrophe losses during the first quarter of 1997 were
only 0.8 of a percentage point of the loss ratio compared with 6.5 percentage
points in 1996.
Our expense ratio was 32.4% in the first quarter of 1997 compared with
32.5% in 1996.
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Page 8
Underwriting results during 1997 and 1996 by class of business were as
follows:
Quarter Ended March 31
-------------------------------------------------
Net Premiums Combined Loss and
Written Expense Ratios
---------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
(in millions)
Personal Insurance
Automobile ................. $ 78.3 $ 59.6 88.4% 89.4%
Homeowners ................. 174.2 130.1 92.7 127.4
Other ...................... 85.0 64.9 65.2 65.4
-------- -------- -------- --------
Total Personal ......... 337.5 254.6 85.0 103.4
-------- -------- -------- --------
Commercial Insurance
Multiple Peril ............. 219.5 158.5 108.8 119.1
Casualty ................... 241.3 208.7 114.7 113.6
Workers' Compensation ...... 92.0 72.9 102.3 96.3
Property and Marine ........ 148.3 111.4 105.7 98.4
Executive Protection ....... 212.6 181.0 73.6 80.5
Other ...................... 174.4 139.0 83.8 86.5
-------- -------- -------- --------
Total Commercial ....... 1,088.1 871.5 98.1 100.0
-------- -------- -------- --------
Total Before Reinsurance
Assumed ............... 1,425.6 1,126.1 95.0 100.8
Reinsurance Assumed .......... (3.8) 1.7 N/M N/M
-------- -------- -------- --------
Total .................. $1,421.8 $1,127.8 96.3% 101.3%
======== ======== ======== ========
PERSONAL INSURANCE
Premiums from personal insurance coverages, which represent
approximately 24% of the premiums written by our property and casualty
subsidiaries, increased by $82.9 million or 32.5% in the first quarter of 1997
compared with the same quarter in 1996. Of this increase, $30.7 million was due
to the increase in our retention percentage for these classes resulting from the
termination of the reinsurance agreement with Sun Alliance. In addition, net
premiums written for the personal classes included $65.8 million and $30.6
million in the first quarter of 1997 and 1996, respectively, due to the effect
of the portfolio transfer of unearned premiums as of January 1 of each year
resulting from the termination of the reinsurance agreement.
Excluding the effects of the termination of the reinsurance agreement
with Sun Alliance, premium growth for the personal classes was 7.5% in the first
quarter of 1997. We continued to grow our homeowners and other non-automobile
business in non-catastrophe prone areas. Personal automobile premiums increased
as a result of an increase in the number of in-force policies for high value
automobiles.
Our personal insurance business produced highly profitable underwriting
results in the first quarter of 1997 compared with unprofitable results in the
same period of 1996. Underwriting results in the first quarter of 1996 were
adversely affected by significant catastrophe losses. The combined loss and
expense ratio was 85.0% in the first quarter of 1997 compared with 103.4% in
1996.
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Homeowners results were profitable in 1997, benefiting from stable loss
activity and negligible catastrophe losses. In the first quarter of 1996,
results for this class were adversely affected by significant weather-related
catastrophe losses. Catastrophe losses represented only 0.9 of a percentage
point of the loss ratio for this class in the first quarter of 1997 compared
with 42.7 percentage points in 1996. Other personal coverages, which include
insurance for personal valuables and excess liability, produced highly
profitable results in 1997 and 1996 due to continued favorable loss experience.
Our automobile business produced profitable results in 1997 and 1996 due
primarily to stable loss frequency and severity.
COMMERCIAL INSURANCE
Premiums from commercial insurance, which represent approximately 76% of
our total writings, increased by $216.6 million or 24.9% in the first quarter of
1997 compared with the same period a year ago. Of this increase, $62.4 million
was due to the increase in our retention percentage for these classes resulting
from the termination of the reinsurance agreement with Sun Alliance. In
addition, net premiums written for the commercial classes included $108.8
million and $61.0 million in the first quarter of 1997 and 1996, respectively,
due to the effect of the portfolio transfer of unearned premiums as of January 1
of each year resulting from the termination of the reinsurance agreement.
Excluding the effects of the termination of the reinsurance agreement
with Sun Alliance, premium growth for the commercial classes was 13.1% in the
first quarter of 1997. Such premium growth was due primarily to the selective
writing of new accounts, exposure growth on existing business and the purchase
of additional coverages by current customers. The competitive market has
continued to place significant pressure on prices and has made price increases
difficult to achieve for most coverages.
Our commercial insurance business produced profitable underwriting
results in the first quarter of 1997 compared with breakeven results for the
same period a year ago. The combined loss and expense ratio was 98.1% in the
first quarter of 1997 compared with 100.0% in 1996.
Multiple peril results improved significantly in 1997 compared with 1996
due to an absence of catastrophe losses in the property component of this
business and a decrease in the frequency of large losses in the liability
component. Catastrophe losses in the first quarter of 1997 represented only 1.2
percentage points of the loss ratio for this class compared with 9.1 percentage
points in 1996.
Results for our casualty business were unprofitable by a similar margin
in 1997 and 1996. Casualty results were adversely affected in both years by
increases in loss reserves for asbestos-related and toxic waste claims. 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 unprofitable in 1997 compared with profitable results in 1996 due to an
increase in the frequency of losses for this class.
Workers' compensation results were modestly unprofitable in 1997
compared with profitable results in 1996. Results in our voluntary business
deteriorated somewhat due primarily to the impact of price reductions. Results
from our share of the involuntary pools and mandatory business in which we must
participate by law also deteriorated in 1997.
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Property and marine results were unprofitable in 1997 compared with
profitable results in 1996. Results in 1997 were adversely affected by several
large overseas losses. Catastrophe losses represented 5.2 percentage points of
the loss ratio for this class in the first quarter of 1997 compared with 5.9
percentage points in 1996.
Executive protection results were highly profitable in 1997 and 1996 due
to favorable loss experience. Our financial institutions business also produced
highly profitable results in 1997 and 1996. Lower profits in the non-fidelity
portion of this business in 1997 were substantially offset by improvement in the
financial fidelity results. Results in our other commercial classes were
profitable in 1997 compared with modestly unprofitable results in 1996.
REINSURANCE ASSUMED
Reinsurance assumed is treaty reinsurance that was assumed from Sun
Alliance. The reinsurance agreement with Sun Alliance was terminated effective
January 1, 1997. However, due to the lag in our reporting of such business, net
premiums written in the first quarter of 1997 included $89.8 million related to
business we assumed from Sun Alliance for the second half of 1996. Net premiums
written for this segment were reduced by $93.6 million and $65.2 million in the
first quarter of 1997 and 1996, respectively, due to the effect of the portfolio
transfer of unearned premiums back to Sun Alliance as of January 1 of each year.
Underwriting results for this segment in the first quarter of 1997,
which represent our share of the Sun Alliance business for the last six months
of 1996, were near breakeven. Results for this segment were also near breakeven
in the first quarter of 1996. The combined loss and expense ratio for this
business was not meaningful for the first quarter of both years due to the
effect on the expense ratio of the portfolio transfer of unearned premiums as of
January 1 of each year.
LOSS RESERVES
Gross loss reserves were $9,528.3 million and $9,523.7 million at March
31, 1997 and December 31, 1996, respectively. Reinsurance recoverables on such
loss reserves were $1,335.7 million and $1,767.8 million at March 31, 1997 and
December 31, 1996, respectively. As a result of the termination of the
reinsurance agreements with Sun Alliance, there were portfolio transfers of
gross loss reserves and reinsurance recoverables as of January 1, 1997. The
effect of these portfolio transfers was a decrease in gross loss reserves of
$183.8 million and a decrease in reinsurance recoverables of $470.0 million.
Excluding the effects of the portfolio transfers, loss reserves, net of
reinsurance recoverable, increased by $150 million during the first quarter of
1997. Substantial reserve growth continued to occur in those liability
coverages, primarily excess liability and executive protection, that are
characterized by delayed loss reporting and extended periods of settlement.
Losses incurred related to asbestos and toxic waste claims were $32.5
million in the first quarter of 1997 and $38.6 million in 1996.
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INVESTMENTS
Investment income after deducting expenses and taxes increased by 8.1%
in the first quarter of 1997 compared with the same period in 1996. The growth
was due to an increase in invested assets since the first quarter of 1996,
reflecting strong cash flow from operations, which was partially offset by lower
yields on new investments. The effective tax rate on investment income increased
to 16.4% in the first quarter of 1997 from 15.7% in the first quarter of 1996
due to holding a larger proportion of our investment portfolio in taxable
securities.
In late March 1997, the property and casualty subsidiaries received
approximately $330 million as the net result of the portfolio transfers of
unearned premiums and loss reserves as of January 1, 1997 related to the
termination of the reinsurance agreements with Sun Alliance. As a result, at
March 31, 1997, short term securities were at a higher than normal level. Other
new cash available for investment in the first quarter of 1997, together with
the proceeds from the sale of approximately $250 million of foreign bonds, was
invested in tax-exempt bonds and mortgage-backed securities. The foreign bonds
were sold due to the reduction in foreign liabilities resulting from the
termination of the reinsurance agreements with Sun Alliance.
REAL ESTATE
Real estate earnings after taxes amounted to $1.2 million in the first
quarter of 1997 compared with $4.0 million in 1996. Earnings in 1996 benefited
from the sale of several properties. Revenues were $44.3 million in the first
quarter of 1997 compared with $166.4 million in 1996, which included the
revenues from the sale of the properties.
A prospective purchaser is continuing to perform due diligence in
anticipation of executing a contract for the sale of substantially all of our
commercial properties. In addition, we are continuing to explore the sale of our
residential and retail properties.
CORPORATE
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 $4.8 million in the first
quarter of 1997 compared with $3.7 million in the first quarter of 1996.
INVESTMENT GAINS AND LOSSES
Decisions to sell securities are governed principally by considerations
of investment opportunities and tax consequences. As a result, realized
investment gains and losses may vary significantly from period to period. Net
investment gains before taxes of $24.8 million were realized in the first
quarter of 1997 compared with net gains of $19.1 million for the same period in
1996.
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DISCONTINUED OPERATIONS - LIFE AND HEALTH INSURANCE
The Corporation entered into a definitive agreement, dated February 23,
1997, to sell Chubb Life Insurance Company of America to Jefferson-Pilot
Corporation for $875 million in cash. Accordingly, the life and health insurance
subsidiaries have been classified as discontinued operations. The sale was
completed on May 13, 1997.
The discontinued life and health insurance operations did not affect the
Corporation's net income in the first quarter of 1997 and will not affect net
income in future periods. Earnings from the discontinued life and health
insurance operations were $11.0 million in the first quarter of 1996, including
realized investment gains of $1.9 million.
CAPITAL RESOURCES
In February 1994, the Board of Directors authorized the repurchase of up
to 10,000,000 shares of common stock. Through March 6, 1997, the Corporation
repurchased 6,851,600 shares under the 1994 share repurchase program, including
3,148,600 shares repurchased in the first quarter of 1997. On March 7, 1997, the
Board of Directors replaced the 1994 program with a new share repurchase
program, which authorized the repurchase of up to 17,500,000 shares of common
stock. During the first quarter of 1997, the Corporation repurchased 2,595,200
shares under the new repurchase program. In the aggregate, the Corporation
repurchased 5,743,800 shares in open-market transactions in the first quarter of
1997 at a cost of $340.7 million. At March 31, 1997, an additional 14,904,800
shares may be repurchased under the 1997 share repurchase program. The
Corporation intends to use a substantial portion of the proceeds from the sale
of Chubb Life Insurance Company of America to repurchase shares of common stock.
Chubb Capital Corporation has outstanding 6% exchangeable subordinated
notes due May 15, 1998. The notes are guaranteed by the Corporation and
exchangeable into its common stock. In the first quarter of 1997, the holders of
$14 million of the notes elected the available option to exchange such notes
into shares of common stock of the Corporation, resulting in the issuance of
327,207 shares of common stock. Chubb Capital called for redemption on May 14,
1997 the remaining $215 million of outstanding notes. If the holders of those
notes exchange them into shares of the Corporation's common stock prior to the
redemption date, it would result in the issuance of approximately 5,007,000
shares.
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FORWARD LOOKING INFORMATION
Certain statements in this document may be considered to be "forward
looking statements" as that term is defined in the Private Securities Litigation
Reform Act of 1995, such as statements that include the words or phrases "will
likely result", "is expected to", "will continue", "is anticipated", "estimate",
"project", "intends to" or similar expressions. In particular, this document
includes forward looking statements relating, but not limited to, the
Corporation's recent sale activities and debt redemptions or conversions. Such
statements are subject to certain risks and uncertainties. The factors which
could cause actual results to differ materially from those suggested by any such
statements include, but are not limited to, those discussed or identified from
time to time in the Corporation's public filings with the Securities and
Exchange Commission and specifically to: risks or uncertainties associated with
the Corporation's announced sale activities relating to portions of its
non-property and casualty businesses, or associated with its expectations of
proceeds deployment and, more generally, to: general economic conditions
including changes in interest rates and the performance of the financial
markets, changes in domestic and foreign laws, regulations and taxes, changes in
competition and pricing environments, regional or general changes in asset
valuations, the occurrence of significant natural disasters, the inability to
reinsure certain risks economically, the adequacy of loss reserves, as well as
general market conditions, competition, pricing and restructurings.
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PART II. OTHER INFORMATION
--------------------------
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
A. Exhibit 2.1 - Stock Purchase Agreement dated as of February 23, 1997 between
Jefferson-Pilot Corporation and the registrant, filed herewith.
(Confidential treatment requested with respect to certain portions thereof.
Exhibits and schedules included in the Stock Purchase Agreement have been
omitted and will be provided to the Securities and Exchange Commission
upon request.)
B. Exhibit 11.1 - Computation of earnings per share.
C. Exhibit 27.1 - Financial Data Schedule
D. Reports on Form 8-K
The Registrant filed a current report on Form 8-K dated February 6, 1997
with respect to the announcement on February 6, 1997 of its preliminary
financial results for the quarter and year ended December 31, 1996.
The Registrant filed a current report on Form 8-K dated February 24, 1997
with respect to the announcement on February 24, 1997 that the Registrant
signed a definitive purchase agreement under which the Registrant will sell
Chubb Life Insurance Company of America to Jefferson-Pilot Corporation for
$875 million in cash.
The Registrant filed a current report on Form 8-K dated March 7, 1997 with
respect to the announcement on March 7, 1997 that (1) the Board of Directors
of the Registrant declared a regular quarterly dividend in the amount of
$.29 per share, (2) the Board of Directors of the Registrant approved a new
share repurchase program and (3) the Registrant was restating its
preliminary 1996 financial results to reflect the classification of its life
insurance business as a discontinued operation and to recognize a charge
related to the write-down of certain real estate assets.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, The
Chubb Corporation has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE CHUBB CORPORATION
(Registrant)
By: /s/ Henry B. Schram
-------------------------
Henry B. Schram
Senior Vice-President and
Chief Accounting Officer
Date: May 15, 1997