-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RSexR7O5dP8xxhFjfgJbpTpdFrwxgrHhrpMdWJZd1dTzlHYROp/8aI9bJnDLDcYX mXlHopbUhRXtAoQTtvzHzA== /in/edgar/work/20000811/0000950123-00-007472/0000950123-00-007472.txt : 20000921 0000950123-00-007472.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950123-00-007472 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHUBB CORP CENTRAL INDEX KEY: 0000020171 STANDARD INDUSTRIAL CLASSIFICATION: [6331 ] IRS NUMBER: 132595722 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08661 FILM NUMBER: 693639 BUSINESS ADDRESS: STREET 1: 15 MOUNTAIN VIEW RD P O BOX 1615 CITY: WARREN STATE: NJ ZIP: 07061 BUSINESS PHONE: 9089032000 10-Q 1 e10-q.txt THE CHUBB CORPORATION 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 June 30, 2000 ------------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - --- ACT OF 1934 For the transition period from to -------------- -------------- Commission file number 1-8661 ------------ 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 ---------------- ---------------- The number of shares of common stock outstanding as of July 31, 2000 was 174,752,165. 2 THE CHUBB CORPORATION INDEX Page Number ----------- Part I. Financial Information: Item 1 - Financial Statements: Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999.......................... 1 Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 2000 and 1999....................................... 2 Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended June 30, 2000 and 1999....................................... 3 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and 1999...................... 4 Notes to Consolidated Financial Statements.................... 5 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 8 Part II. Other Information: Item 6 - Exhibits and Reports on Form 8-K....................... 16 3 Page 1 THE CHUBB CORPORATION CONSOLIDATED BALANCE SHEETS
June 30, Dec. 31, 2000 1999 -------- -------- (in millions) Assets Invested Assets Short Term Investments............................... $ 531.3 $ 731.1 Fixed Maturities Held-to-Maturity - Tax Exempt (market $1,692.4 and $1,801.0)..................................... 1,637.9 1,741.9 Available-for-Sale Tax Exempt (cost $7,982.6 and $7,889.3)........... 8,043.8 7,867.5 Taxable (cost $5,311.8 and $5,054.7).............. 5,181.3 4,909.7 Equity Securities (cost $830.9 and $715.0)........... 863.0 769.2 --------- --------- TOTAL INVESTED ASSETS......................... 16,257.3 16,019.4 Cash................................................... 18.7 22.7 Securities Lending Collateral.......................... 678.8 469.5 Accrued Investment Income.............................. 242.2 242.9 Premiums Receivable.................................... 1,350.6 1,234.7 Reinsurance Recoverable on Unpaid Claims............... 1,732.0 1,685.9 Prepaid Reinsurance Premiums........................... 224.5 240.1 Deferred Policy Acquisition Costs...................... 811.8 779.7 Real Estate Assets..................................... 679.0 699.4 Deferred Income Tax.................................... 610.9 584.2 Goodwill............................................... 497.3 507.2 Other Assets........................................... 1,187.1 1,051.3 --------- --------- TOTAL ASSETS.................................. $24,290.2 $23,537.0 ========= ========= Liabilities Unpaid Claims.......................................... $11,687.4 $11,434.7 Unearned Premiums...................................... 3,415.6 3,323.1 Securities Lending Payable............................. 678.8 469.5 Long Term Debt......................................... 754.0 759.2 Dividend Payable to Shareholders....................... 57.6 56.2 Accrued Expenses and Other Liabilities................. 1,220.7 1,222.5 --------- --------- TOTAL LIABILITIES............................. 17,814.1 17,265.2 --------- --------- Shareholders' Equity Common Stock - $1 Par Value; 178,438,759 and 177,272,322 Shares.................................... 178.4 177.3 Paid-In Surplus........................................ 452.2 418.4 Retained Earnings...................................... 6,231.6 6,008.6 Accumulated Other Comprehensive Income Unrealized Depreciation of Investments................ (37.2) (112.6) Foreign Currency Translation Losses, Net of Tax....... (56.5) (44.8) Receivable from Employee Stock Ownership Plan.......... (68.8) (74.9) Treasury Stock, at Cost - 3,978,439 and 1,782,489 Shares...................................... (223.6) (100.2) --------- --------- TOTAL SHAREHOLDERS' EQUITY.................... 6,476.1 6,271.8 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.... $24,290.2 $23,537.0 ========= =========
See Notes to Consolidated Financial Statements. 4 Page 2 THE CHUBB CORPORATION CONSOLIDATED STATEMENTS OF INCOME PERIODS ENDED JUNE 30
Second Quarter Six Months -------------- -------------- 2000 1999 2000 1999 ---- ---- ---- ---- (in millions) Revenues Premiums Earned....................... $1,519.9 $1,377.5 $3,011.8 $2,757.3 Investment Income..................... 233.9 215.9 471.5 424.8 Real Estate........................... 14.1 47.3 45.8 56.7 Realized Investment Gains............. 6.1 45.9 11.9 77.4 -------- -------- -------- -------- Total Revenues................. 1,774.0 1,686.6 3,541.0 3,316.2 -------- -------- -------- -------- Claims and Expenses Insurance Claims...................... 996.8 924.3 2,024.2 1,832.3 Amortization of Deferred Policy Acquisition Costs.................... 406.7 373.7 809.2 747.4 Other Insurance Operating Costs and Expenses......................... 108.6 90.1 213.2 182.3 Real Estate Cost of Sales and Expenses 14.9 48.1 47.5 58.4 Investment Expenses................... 3.3 3.0 8.5 8.2 Corporate Expenses.................... 19.5 11.5 40.1 25.1 -------- -------- -------- -------- Total Claims and Expenses...... 1,549.8 1,450.7 3,142.7 2,853.7 -------- -------- -------- -------- Income Before Federal and Foreign Income Tax............................. 224.2 235.9 398.3 462.5 Federal and Foreign Income Tax.......... 39.6 42.6 60.0 82.3 -------- -------- -------- -------- Net Income.............................. $ 184.6 $ 193.3 $ 338.3 $ 380.2 ======== ======== ======== ======== Average Common Shares Outstanding....... 175.1 161.3 174.9 161.4 Average Common and Potentially Dilutive Shares Outstanding..................... 180.2 163.9 178.3 163.6 Net Income Per Share Basic.................................. $1.05 $1.19 $1.93 $2.35 Diluted................................ 1.02 1.18 1.89 2.32 Dividends Declared Per Share............ .33 .32 .66 .64
See Notes to Consolidated Financial Statements. 5 Page 3 THE CHUBB CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME PERIODS ENDED JUNE 30
Second Quarter Six Months -------------- --------------- 2000 1999 2000 1999 ---- ---- ---- ---- (in millions) Net Income................................ $ 184.6 $ 193.3 $ 338.3 $ 380.2 ------- ------- ------- ------- Other Comprehensive Income (Loss) Change in Unrealized Appreciation or Depreciation of Investments, Net of Tax............................. (2.6) (206.1) 75.4 (286.6) Foreign Currency Translation Losses, Net of Tax............................. (6.7) (13.3) (11.7) (8.4) ------- ------- ------- ------- (9.3) (219.4) 63.7 (295.0) ------- ------- ------- ------- Comprehensive Income (Loss)............... $ 175.3 $(26.1) $ 402.0 $ 85.2 ======= ====== ======= =======
See Notes to Consolidated Financial Statements. 6 Page 4 THE CHUBB CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30
2000 1999 ---- ---- (in millions) Cash Flows from Operating Activities Net Income............................................ $ 338.3 $ 380.2 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities Increase in Unpaid Claims, Net..................... 206.6 295.6 Increase in Unearned Premiums, Net................. 108.1 82.4 Increase in Premiums Receivable.................... (115.9) (54.3) Increase in Deferred Policy Acquisition Cost....... (32.1) (17.6) Change in Deferred Federal Income Tax.............. (21.1) .9 Depreciation....................................... 39.9 31.2 Realized Investment Gains.......................... (11.9) (77.4) Other, Net......................................... (77.2) 26.8 --------- --------- Net Cash Provided by Operating Activities............. 434.7 667.8 --------- --------- Cash Flows from Investing Activities Proceeds from Sales of Fixed Maturities............... 1,217.6 828.9 Proceeds from Maturities of Fixed Maturities.......... 364.6 354.2 Proceeds from Sales of Equity Securities.............. 166.3 740.8 Purchases of Fixed Maturities......................... (1,848.5) (1,673.9) Purchases of Equity Securities........................ (260.9) (311.5) Purchase of Interest in Hiscox plc.................... - (145.3) Decrease (Increase) in Short Term Investments, Net.... 199.8 (241.9) Purchases of Fixed Assets, Net........................ (61.3) (42.5) Other, Net............................................ (13.4) .3 --------- --------- Net Cash Used in Investing Activities................. (235.8) (490.9) --------- --------- Cash Flows from Financing Activities Repayment of Long Term Debt........................... (5.2) (5.5) Dividends Paid to Shareholders........................ (113.9) (102.4) Repurchase of Shares.................................. (132.1) (75.2) Other, Net............................................ 48.3 23.3 --------- --------- Net Cash Used in Financing Activities................. (202.9) (159.8) --------- --------- Net Increase (Decrease) in Cash......................... (4.0) 17.1 Cash at Beginning of Year............................... 22.7 8.3 --------- --------- Cash at End of Period................................. $ 18.7 $ 25.4 ========= =========
See Notes to Consolidated Financial Statements. 7 Page 5 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 1999 Annual Report to Shareholders. 2) Adoption of New Accounting Pronouncement Effective January 1, 2000, the Corporation adopted Statement of Position (SOP) 98-7, Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk, which was issued by the American Institute of Certified Public Accountants. This SOP provides guidance on how to account for insurance and reinsurance contracts that do not transfer insurance risk. The adoption of SOP 98-7 did not have a significant effect on the Corporation's financial position or results of operations. 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 or depreciation of investments carried at market value was as follows:
Periods Ended June 30 ------------------------------------ Second Quarter Six Months ---------------- ----------------- 2000 1999 2000 1999 ---- ---- ---- ---- (in millions) Change in unrealized appreciation of equity securities................... $ (26.1) $ (15.1) $ (22.1) $ (69.8) Change in unrealized appreciation or depreciation of fixed maturities.... 23.5 (301.9) 97.5 (371.1) ------- ------- ------- -------- (2.6) (317.0) 75.4 (440.9) Deferred income tax (credit)......... (.9) (110.9) 26.4 (154.3) Increase (decrease) in valuation allowance........................... .9 - (26.4) - ------- ------- ------- -------- Change in unrealized appreciation or depreciation of investments, net.... $ (2.6) $(206.1) $ 75.4 $ (286.6) ======= ======= ======= ========
8 Page 6 4) Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share:
Periods Ended June 30 ----------------------------------- Second Quarter Six Months -------------- --------------- 2000 1999 2000 1999 ---- ---- ---- ---- (in millions, except per share amounts) Basic earnings per share: Net income............................... $184.6 $193.3 $338.3 $380.2 ====== ====== ====== ====== Weighted average number of common shares outstanding...................... 175.1 161.3 174.9 161.4 ====== ====== ====== ====== Basic earnings per share................. $ 1.05 $ 1.19 $ 1.93 $ 2.35 ====== ====== ====== ====== Diluted earnings per share: Net income............................... $184.6 $193.3 $338.3 $380.2 ====== ====== ====== ====== Weighted average number of common shares outstanding...................... 175.1 161.3 174.9 161.4 Additional shares from assumed exercise of stock-based compensation awards...... 5.1 2.6 3.4 2.2 ------ ------ ------ ------ Weighted average number of common shares and potential common shares assumed outstanding for computing diluted earnings per share...................... 180.2 163.9 178.3 163.6 ======= ====== ====== ====== Diluted earnings per share............... $ 1.02 $ 1.18 $ 1.89 $ 2.32 ====== ====== ====== ======
5) Segments Information The property and casualty operations include three reportable underwriting segments and the investment function. The underwriting segments are personal, standard commercial and specialty commercial. The personal and commercial segments are managed separately because they target different customers. The commercial business is further distinguished by those classes of business that are generally available in broad markets and are of a more commodity nature (standard) and those classes available in more limited markets that require specialized underwriting and claim settlement (specialty). Standard commercial classes include multiple peril, casualty and workers' compensation. Specialty commercial classes include property and marine, executive protection, financial institutions and other commercial classes. 9 Page 7 Revenues and income before income tax of the operating segments were as follows:
Periods Ended June 30 --------------------------------------- Second Quarter Six Months ------------------ ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- (in millions) Revenues Property and casualty insurance Premiums earned Personal......................... $ 396.4 $ 355.3 $ 784.7 $ 700.4 Standard commercial.............. 447.6 492.9 916.6 993.3 Specialty commercial............. 675.9 529.3 1,310.5 1,063.6 -------- -------- -------- -------- 1,519.9 1,377.5 3,011.8 2,757.3 Investment income.................. 218.7 199.4 439.0 395.3 -------- -------- -------- -------- Total property and casualty insurance....................... 1,738.6 1,576.9 3,450.8 3,152.6 Corporate and other.................. 29.3 63.8 78.3 86.2 Realized investment gains............ 6.1 45.9 11.9 77.4 -------- -------- -------- -------- Total revenues................... $1,774.0 $1,686.6 $3,541.0 $3,316.2 ======== ======== ======== ======== Income (loss) before income tax Property and casualty insurance Underwriting Personal......................... $ 3.9 $ 38.7 $ 17.5 $ 80.5 Standard commercial.............. (24.3) (87.6) (105.5) (175.4) Specialty commercial............. 38.5 26.1 45.9 74.9 -------- -------- -------- -------- 18.1 (22.8) (42.1) (20.0) Increase in deferred policy acquisition costs............... 3.1 12.5 32.1 17.6 -------- -------- -------- -------- Underwriting income (loss)....... 21.2 (10.3) (10.0) (2.4) Investment income.................. 216.1 196.7 432.1 388.4 Amortization of goodwill and other charges..................... (13.4) (.3) (24.8) (2.3) -------- -------- -------- -------- Total property and casualty insurance....................... 223.9 186.1 397.3 383.7 Corporate and other.................. (5.8) 3.9 (10.9) 1.4 Realized investment gains............ 6.1 45.9 11.9 77.4 -------- -------- -------- -------- Total income before income tax... $ 224.2 $ 235.9 $ 398.3 $ 462.5 ======== ======== ======== ========
10 Page 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 AND FOR THE QUARTERS ENDED JUNE 30, 2000 AND 1999 SUMMARY OF FINANCIAL RESULTS The following is a summary of the Corporation's operating results for the second quarter and six months ended June 30, 2000 and 1999:
Periods Ended June 30 --------------------------------------- Second Quarter Six Months ---------------- ---------------- 2000 1999 2000 1999 ---- ---- ---- ---- (in millions) PROPERTY AND CASUALTY INSURANCE Underwriting Net Premiums Written........... $1,530.6 $1,433.8 $3,119.9 $2,839.7 Increase in Unearned Premiums.. (10.7) (56.3) (108.1) (82.4) -------- -------- -------- -------- Premiums Earned............. 1,519.9 1,377.5 3,011.8 2,757.3 -------- -------- -------- -------- Claims and Claim Expenses...... 996.8 924.3 2,024.2 1,832.3 Operating Costs and Expenses... 498.4 465.7 1,016.4 924.4 Increase in Deferred Policy Acquisition Costs............. (3.1) (12.5) (32.1) (17.6) Dividends to Policyholders..... 6.6 10.3 13.3 20.6 -------- -------- -------- -------- Underwriting Income (Loss)..... 21.2 (10.3) (10.0) (2.4) -------- -------- -------- -------- Investments Investment Income Before Expenses...................... 218.7 199.4 439.0 395.3 Investment Expenses............ 2.6 2.7 6.9 6.9 -------- -------- -------- -------- Investment Income.............. 216.1 196.7 432.1 388.4 -------- -------- -------- --------- Amortization of Goodwill and Other Charges.................. (13.4) (.3) (24.8) (2.3) -------- -------- -------- -------- Property and Casualty Income.... 223.9 186.1 397.3 383.7 CORPORATE AND OTHER.............. (5.8) 3.9 (10.9) 1.4 -------- -------- -------- -------- CONSOLIDATED OPERATING INCOME BEFORE INCOME TAX............... 218.1 190.0 386.4 385.1 Federal and Foreign Income Tax... 37.4 26.5 55.8 55.2 -------- -------- -------- -------- CONSOLIDATED OPERATING INCOME.... 180.7 163.5 330.6 329.9 REALIZED INVESTMENT GAINS AFTER INCOME TAX................ 3.9 29.8 7.7 50.3 -------- -------- -------- -------- CONSOLIDATED NET INCOME.......... $ 184.6 $ 193.3 $ 338.3 $ 380.2 ======== ======== ======== ======== PROPERTY AND CASUALTY INVESTMENT INCOME AFTER INCOME TAX......... $ 180.8 $ 166.4 $ 362.1 $ 329.4 ======== ======== ======== ========
11 Page 9 In July 1999, the Corporation completed its acquisition of Executive Risk Inc. Executive Risk is a specialty insurance company offering directors and officers, errors and omissions and professional liability coverages. The acquisition has been accounted for using the purchase method of accounting. Therefore, the results of operations of Executive Risk are included in the Corporation's consolidated results of operations from the date of acquisition. PROPERTY AND CASUALTY INSURANCE Earnings from our property and casualty business were modestly higher in the first six months of 2000 compared with the same period of 1999 due to an increase in investment income. Earnings in the second quarter of 2000 were significantly higher than in the comparable period in 1999 due to improved underwriting results, caused in part by lower catastrophe losses, as well as an increase in investment income. Property and casualty income before taxes amounted to $397.3 million in the first six months of 2000 and $223.9 million in the second quarter compared with $383.7 million and $186.1 million, respectively, in 1999. Net premiums written were $3.1 billion in the first six months of 2000, an increase of 9.9% compared with the same period in 1999. Net premiums written were $1.5 billion in the second quarter of 2000, an increase of 6.8% over the comparable period of 1999. Premium growth in the first six months and second quarter of 2000 was affected by (1) the inclusion of Executive Risk premiums written in the 2000 results and (2) the change in the reporting of the results of our European operations, which is discussed below. In the first quarter of 2000, we eliminated the one-quarter lag in reporting the results of our European operations. As a result of this change, our reported first and second quarter premiums included the first and second quarter 2000 premiums, respectively, of our European operations whereas our reported first and second quarter 1999 premiums included Europe's fourth quarter 1998 and first quarter 1999 premiums, respectively. This change inflated our premium growth in the first quarter of 2000 and deflated such growth in the second quarter because the first quarter has historically been by far the highest in premium volume for our European operations. On a year-to-date basis as of June 30, 2000, the effect of the change on premium growth was minimal. The change in reporting the results of our European operations had virtually no impact on consolidated operating income or net income in the first six months of 2000. Excluding premiums written by Executive Risk and the effect of the change in reporting our European results, premium growth was about 4.5% for the first six months of 2000 and 6% for the second quarter. Premium growth in personal lines remained strong. In commercial lines, competition in the worldwide marketplace has made profitable premium growth difficult. However, our strategy to increase the pricing in the standard commercial classes, which include multiple peril, casualty and workers' compensation, has shown increasing success in the first six months of 2000. Further, many of our competitors have also insisted on higher prices since the latter part of 1999. As a result, the pricing outlook in the standard commercial classes continues to improve. Substantial premium growth in the first six months of 2000 was achieved outside the United States. 12 Page 10 Underwriting results were near breakeven in the first six months of both 2000 and 1999. Underwriting results were profitable in the second quarter of 2000 compared with near breakeven results in the same period in 1999. Our combined loss and expense ratio was 100.2% in the first six months of 2000 and 98.6% in the second quarter compared with 99.7% and 100.3%, respectively, in 1999. The loss ratio was 67.5% for the first six months of 2000 and 65.9% for the second quarter compared with 66.9% and 67.6%, respectively, in the prior year. The loss ratios in both years, but more so in 1999, were adversely affected by catastrophe losses. Catastrophe losses during the first six months of 2000 amounted to $54.6 million which represented 1.8 percentage points of the loss ratio compared with $86.9 million or 3.2 percentage points in 1999. Catastrophe losses for the second quarter of 2000 amounted to $24.3 million or 1.6 percentage points of the loss ratio compared with $46.8 million or 3.4 percentage points in 1999. The catastrophe losses in both years resulted primarily from storms in the United States. Our expense ratio was 32.7% for both the first six months and second quarter of 2000 compared with 32.8% and 32.7%, respectively, in the prior year. Underwriting results during 2000 and 1999 by class of business were as follows:
Six Months Ended June 30 --------------------------------------- Net Premiums Combined Loss and Written Expense Ratios --------------- ------------------ 2000 1999 2000 1999 ---- ---- ---- ---- (in millions) Personal Insurance Automobile........................ $ 192.0 $ 166.5 94.9% 85.9% Homeowners........................ 443.3 396.7 106.2 94.6 Other............................. 196.4 177.2 72.5 69.2 -------- -------- ----- ----- Total Personal................ 831.7 740.4 95.8 86.7 -------- -------- ----- ----- Standard Commercial Insurance Multiple Peril.................... 335.4 366.0 111.3 126.7 Casualty.......................... 393.9 431.7 116.5 114.9 Workers' Compensation............. 165.7 156.8 104.4 113.4 -------- -------- ----- ----- Total Standard Commercial..... 895.0 954.5 112.4 119.3 -------- -------- ----- ----- Specialty Commercial Insurance Property and Marine............... 254.2 261.5 116.0 102.6 Executive Protection.............. 649.4 490.8 84.7 83.9 Financial Institutions............ 256.5 212.8 87.9 89.2 Other............................. 233.1 179.7 105.5 91.8 -------- -------- ----- ----- Total Specialty Commercial.... 1,393.2 1,144.8 94.5 90.5 -------- -------- ----- ----- Total Commercial.............. 2,288.2 2,099.3 101.8 104.2 -------- -------- ----- ----- Total......................... $3,119.9 $2,839.7 100.2% 99.7% ======== ======== ===== =====
13 Page 11
Quarter Ended June 30 --------------------------------------- Net Premiums Combined Loss and Written Expense Ratios --------------- ------------------ 2000 1999 2000 1999 ---- ---- ---- ---- (in millions) Personal Insurance Automobile........................ $ 103.3 $ 89.3 92.7% 88.6% Homeowners........................ 245.8 218.8 102.7 88.4 Other............................. 106.1 97.6 75.3 72.1 -------- -------- ----- ----- Total Personal................ 455.2 405.7 94.1 84.7 -------- -------- ----- ----- Standard Commercial Insurance Multiple Peril.................... 154.0 176.9 111.6 133.2 Casualty.......................... 171.5 217.7 112.5 113.0 Workers' Compensation............. 64.7 60.8 101.0 111.7 -------- -------- ----- ----- Total Standard Commercial..... 390.2 455.4 110.2 120.8 -------- -------- ----- ----- Specialty Commercial Insurance Property and Marine............... 109.5 133.8 110.8 106.9 Executive Protection.............. 333.2 247.4 84.6 85.9 Financial Institutions............ 121.1 103.5 83.6 95.1 Other............................. 121.4 88.0 113.3 85.4 -------- -------- ----- ----- Total Specialty Commercial.... 685.2 572.7 93.9 92.4 -------- -------- ----- ----- Total Commercial.............. 1,075.4 1,028.1 100.1 105.9 -------- -------- ----- ----- Total......................... $1,530.6 $1,433.8 98.6% 100.3% ======== ======== ===== =====
PERSONAL INSURANCE Premiums from personal insurance coverages, which represent 27% of the premiums written by our property and casualty subsidiaries, increased by 12.3% in the first six months of 2000 and 12.2% in the second quarter compared with the similar periods in 1999. Our in-force policy count for automobile, homeowners and other personal coverages continued to grow. Such growth was achieved while maintaining our disciplined approach to pricing and risk selection. Premiums outside the United States grew significantly in the first six months of 2000, although from a small base. Our personal insurance business produced less profitable underwriting results in 2000 compared with the highly profitable results in 1999. The combined loss and expense ratios were 95.8% for the first six months of 2000 and 94.1% for the second quarter compared with 86.7% and 84.7%, respectively, in 1999. Homeowners results were unprofitable in 2000 compared with profitable results in 1999. The deterioration in 2000 was due primarily to a higher frequency of large non-catastrophe losses and, to a lesser extent, an increase in catastrophe losses. Homeowners results were unprofitable outside the United States in 2000 and 1999 as we are still building the critical mass necessary to absorb the costs of operating the franchise. Catastrophe losses represented 11.7 percentage points of the loss ratio for this class in the first six months of 2000 and 10.4 percentage points in the second quarter compared with 8.6 percentage points and 5.8 percentage points, respectively, in 1999. 14 Page 12 Our automobile business produced less profitable results in 2000 compared with 1999. The deterioration in 2000 was due to an increase in the frequency and severity of losses in the liability component of this business. Other personal coverages, which include insurance for personal valuables and excess liability, produced highly profitable results in both years due to continued favorable loss experience. STANDARD COMMERCIAL INSURANCE Premiums from standard commercial insurance, which represent 29% of our total writings, decreased by 6.2% in the first six months of 2000 and 14.3% in the second quarter compared with the similar periods in 1999. Excluding the effect of the change in reporting our European results, premiums decreased by about 6% and 9% in the first six months and second quarter, respectively. The decreases were the result of the strategy we put in place in late 1998 to renew good business at adequate prices and not renew underperforming accounts where we cannot attain price adequacy. As a result, during 1999 and into the first six months of 2000, retention levels have declined. On the business that was renewed, rates have increased steadily and such increases accelerated in the first six months of 2000. Our standard commercial insurance business produced substantial underwriting losses in both 2000 and 1999, but more so in 1999. The combined loss and expense ratio was 112.4% for the first six months of 2000 and 110.2% for the second quarter compared with 119.3% and 120.8%, respectively, in 1999. The improvement in the second quarter of 2000 was due primarily to fewer large losses and, to a lesser extent, the progress in our initiative to increase rates. Multiple peril results remained unprofitable in 2000 but improved considerably compared with the highly unprofitable results in 1999. The improvement in 2000 occurred in both the property and liability components of this business due to a lower frequency of large losses. Results in the property component also benefited in 2000 from an absence of catastrophe losses. There were virtually no catastrophe losses for this class in the first six months and second quarter of 2000. Catastrophe losses represented 5.8 percentage points and 4.9 percentage points, respectively, of the loss ratio for this class in the same periods of 1999. Results for our casualty business were similarly unprofitable in 2000 and 1999. Casualty results were adversely affected in both years, but more so in 1999, by incurred losses relating to asbestos-related and toxic waste claims. The excess liability component of our casualty coverages produced near breakeven underwriting results in 2000 compared with modestly unprofitable results in 1999. Results in the primary liability component improved in the first six months of 2000 due to fewer large losses, but remained unprofitable. Results in the automobile component were highly unprofitable in both years due in large part to inadequate prices, a consequence of the prolonged soft market. Workers' compensation results improved significantly in 2000, but remained unprofitable. The improvement in 2000 was due to a lower frequency of losses. Results continued to reflect the cumulative effect of price reductions over the past several years. 15 Page 13 SPECIALTY COMMERCIAL INSURANCE Premiums from specialty commercial insurance, which represent 44% of our total writings, increased by 21.7% in the first six months of 2000 and 19.6% in the second quarter compared with the same periods in 1999. Excluding premiums written by Executive Risk and the effect of the change in reporting our European results, premium growth was about 8.5% and 14% in the first six months and second quarter, respectively. Our strategy of working closely with our customers and our ability to differentiate our products continue to enable us to renew a large percentage of our executive protection and financial institutions business. However, a competitive market continues to put prices under pressure for this business. Property and marine premium growth in 2000 was restricted by the effect on retention levels of pricing initiatives and non-renewing certain unprofitable accounts. Growth in our other specialty commercial business was primarily from Chubb Re, our reinsurance business that began operations in 1999. Our specialty commercial business produced highly profitable underwriting results in both 2000 and 1999. The combined loss and expense ratio was 94.5% for the first six months of 2000 and 93.9% for the second quarter compared with 90.5% and 92.4%, respectively, in 1999. Property and marine results were highly unprofitable in 2000 compared with the modestly unprofitable results in the prior year. The deterioration in 2000 was due to an increase in the frequency of large losses, both in the United States and overseas, offset in part by lower catastrophe losses. Results in the second quarter of 1999 were adversely affected by substantially higher catastrophe losses. Catastrophe losses represented 1.9 percentage points of the loss ratio for this class in the first six months of 2000 and 2.1 percentage points in the second quarter compared with 11.6 percentage points and 20.1 percentage points, respectively, in 1999. Executive protection results were highly profitable in 2000 and 1999 due to favorable loss experience on business worldwide, particularly in the directors and officers liability and fiduciary liability components. Employment practices liability results, however, were unprofitable in both years. Our financial institutions business also produced highly profitable results in the first six months of 2000 and 1999 due to the favorable loss experience in the fidelity component. Results in our other commercial classes were unprofitable in 2000 compared with profitable results in 1999. Results deteriorated in the second quarter of 2000 due primarily to one $8 million surety loss as well as an increase in losses in our accident business. LOSS RESERVES Gross loss reserves were $11,687.4 million and $11,434.7 million at June 30, 2000 and December 31, 1999, respectively. Reinsurance recoverables on such loss reserves were $1,732.0 million and $1,685.9 million at June 30, 2000 and December 31, 1999, respectively. Loss reserves, net of reinsurance recoverable, increased by $206.6 million during the first six months of 2000. Substantial reserve growth continued to occur in those liability classes, primarily executive protection and excess liability, that are characterized by delayed loss reporting and extended periods of settlement. 16 Page 14 Losses incurred related to asbestos and toxic waste claims were $14.1 million in the first six months of 2000 and $24.3 million for the same period in 1999. INVESTMENTS Investment income after taxes increased by 9.9% in the first six months of 2000 and 8.7% in the second quarter compared with the same periods in 1999. The growth was due in part to an increase in invested assets since the second quarter of 1999 and in part to the inclusion of Executive Risk investment income in the 2000 results. The effective tax rate on investment income increased to 16.2% in the first six months of 2000 from 15.2% in the comparable period in 1999 due to holding a somewhat larger proportion of our investment portfolio in taxable fixed income securities. Cash available for investment in the first six months of 2000 was invested in taxable bonds. New cash available for investment was lower in the first six months of 2000 than in the comparable period in 1999 due primarily to higher claim payments. The property and casualty subsidiaries maintain sufficient investments in highly liquid, short term securities to provide for immediate cash needs. CORPORATE AND OTHER Corporate and other includes investment income earned on corporate invested assets, interest expense and other expenses not allocable to the operating subsidiaries, and the results of our real estate subsidiary. Corporate and other produced a loss before taxes of $10.9 million in the first six months of 2000 compared with income before taxes of $1.4 million in the first six months of 1999 due primarily to higher interest expense resulting from the inclusion of interest expense on Executive Risk debt in the 2000 results. 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 realized investment gains before taxes were $11.9 million in the first six months of 2000 compared with net gains of $77.4 million for the same period in 1999. CAPITAL RESOURCES In March 1997, the Board of Directors authorized the repurchase of up to 17,500,000 shares of common stock. In July 1998, the Board of Directors authorized the repurchase of up to an additional 12,500,000 shares. Through June 30, 2000, the Corporation repurchased 22,944,100 shares under the 1997 and 1998 authorizations, including 2,352,500 shares repurchased in open-market transactions in the first six months of 2000 at a cost of $132.1 million. As of June 30, 2000, 7,055,900 shares remained under the current share repurchase authorizations. 17 Page 15 The long-term debt obligations of Executive Risk remained in place subsequent to the acquisition. Chubb Executive Risk Inc., a wholly-owned subsidiary of the Corporation, has outstanding $75 million of unsecured 7 1/8% notes due in 2007. Executive Risk Capital Trust, wholly-owned by Chubb Executive Risk, has outstanding $125 million of 8.675% capital securities due in 2027. In April 2000, the Corporation announced its unconditional guarantee of the unsecured notes and an unconditional, subordinated guarantee of the capital securities. The Corporation's $200 million short term revolving credit facility, which was to have terminated on July 5, 2000, was extended to July 4, 2001. There have been no borrowings under this agreement. SUBSEQUENT EVENT In July, the Corporation announced that it reached a definitive agreement to sell its ownership interest in Associated Aviation Underwriters Inc. to British Aviation Insurance Group (BAIG). Subject to regulatory approval, the transaction is expected to close in September or October. The Corporation expects to recognize a gain on the sale. The Corporation also agreed that its property and casualty insurance subsidiaries would participate in an aviation insurance pool managed by BAIG. 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 words or phrases "will result", "is expected to", "will continue", or similar expressions. 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 expectations with respect to business retention estimates or anticipated transaction closing dates; 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. 18 Page 16 PART II. OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K A. Exhibit 10 - Material Contracts - The Chubb Corporation Long-Term Stock Incentive Plan (2000) incorporated by reference to Exhibit A of the Registrant's definitive proxy statement for the Annual Meeting of Shareholders held on April 25, 2000. B. Reports on Form 8-K - There were no reports on Form 8-K filed for the three months ended June 30, 2000. 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: August 11, 2000 EX-27 2 ex27.txt FINANCIAL DATA SCHEDULE
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERNCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 13,225 1,638 1,692 863 0 0 16,257 19 89 812 24,290 11,687 3,416 0 0 754 0 0 178 6,298 24,290 3,012 472 12 46 2,024 809 213 398 60 338 0 0 0 338 1.93 1.89 0 0 0 0 0 0 0 DEBT-HELD-FOR-SALE REPRESENTS FIXED MATURITY INVESTMENTS CLASSIFIED AS AVAILABLE-FOR-SALE AND CARRIED AT MARKET VALUE AS PRESCRIBED BY SFAS NO. 115. DEBT-CARRYING-VALUE REPRESENTS FIXED MATURITY INVESTMENTS CLASSIFIED AS HELD-TO-MATURITY AND CARRIED AT AMORTIZED COST AS PRESCRIBED BY SFAS NO. 115. DEBT-MARKET-VALUE REPRESENTS THE RELATED MARKET VALUE OF FIXED MATURITIES CLASSIFIED AS HELD-TO-MATURITY. RECOVER-REINSURE REPRESENTS REINSURANCE RECOVERABLE ON PAID CLAIMS. POLICY-LOSSES EXCLUDE THE REDUCTIONS FOR REINSURANCE RECOVERABLES ON UNPAID CLAIMS ($1,732). AS PRESCRIBED BY SFAS NO 113. SUCH AMOUNTS ARE INCLUDED IN TOTAL ASSETS. UNEARNED-PREMIUMS EXCLUDE THE REDUCTION FOR PREPAID REINSURANCE PREMIUMS ($225) AS PRESCRIBED BY SFAS NO. 113. THIS PREPAID AMOUNT IS INCLUDED IN TOTAL ASSETS. NOTES-PAYABLE INCLUDES LONG-TERM DEBT OF $754. OTHER-SE INCLUDES PAID IN SURPLUS; RETAINED EARNINGS. FOREIGN CURRENCY TRANSLATION LOSSES. NET OF INCOME TAX; UNREALIZED DEPRECIATION OF INVESTMENTS. NET RECEIVABLE FROM ESOP AND TREASURY STOCK. OTHER-INCOME REPRESENTS REVENUES FROM REAL ESTATE OPERATIONS. AMOUNTS FOR SECURITIES ACT INDUSTRY GUIDE 6 AND EXCHANGE ACT INDUSTRY GUIDE 4 DISCLOSURES ARE REQUIRED FOR ANNUAL FILINGS ONLY. ACCORDINGLY, NO AMOUNTS WILL BE REPORTED FOR INTERIM FILINGS.
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